Civ Rev 2 Digests

2019
SUPREME COURT
DECISIONS
CIVIL LAW REVIEW II
Prepared by:
Anne Lizeth R. Vallarit
Submitted to:
Atty. Crisostomo A. Uribe
[2019 SUPREME COURT DECISIONS] CIVIL LAW REVIEW II
TABLE OF CONTENTS
OBLIGATIONS AND CONTRACTS

SOURCES OF CIVIL OBLIGATIONS (SOLUTIO INDEBITI)
1. DPRC v. MIAA 3
REMEDIES FOR BREACH OF OBLIGATIONS (DATION IN PAGO)
2. KAREN NUÑEZ* VITO, v. NORMA MOISES-PALMA 5
RESCISSION
3. CHJDC v. CHARTER CHEMICAL AND COATING CORPORATION 7
4. MUNICIPALITY OF DASMARINAS v. DR. PAULO C. CAMPOS
MODES OF EXTINGUISHMENT OF OBLIGATIONS (NOVATION)
5. FOOD FEST LAND, INC. v. ROMUALDO C. SIAPNO 11
6. BDO UNIBANK, INC. v. FRANCISCO PUA 13
7. RCBC v. PLAST-PRINT* INDUSTRIES INC. 14
VALIDITY OF CONTRACTS
8. SAN MIGUEL FOODS, INC. v. ERNESTO RAOUL V. MAGTUTO 16
INTERPRETATION OF CONTRACTS
9. MAKATI WATER, INC. v. AGUA VIDA SYSTEMS, INC. 18
SALES AND LEASE

SALE AS DISTINGUISHED FROM CONTRACT TO SELL
10. VIVE EAGLE LAND, INC. v. NATIONAL HOME MORTGAGE FINANCE
CORPORATION 20
11. HIPOLITO AGUSTIN AND IMELDA AGUSTIN v. ROMANA DE VERA 22
SALE AS DISTINGUISHED FROM EQUITABLE MORTGAGE

12. MAXIMA P. SACLOLO v. ROMEO MARQUITO ET. AL.. 24
13. SPOUSES SY v. MA. LOURDES DE VERA-NAVARRO 25
ELEMENTS OF A CONTRACT OF SALE

14. HEIRS OF SOLEDAD ALIDO v. FLORA CAMPANO 27
15. GENEROSO SEPE vs. HEIRS OF ANASTACIA* KILANG 29
16. MELINDA M. MALABANAN v. FRANCISCO MALABANAN JR. 31
RIGHTS AND OBLIGATIONS OF VENDOR

WARRANTY AGAINST HIDDEN DEFECTS
17. SPOUSES BATALLA v. PRUDENTIAL BANK 32
EXTINGUISHMENT OF SALE
LEGAL REDEMPTION
18. GUINO ESCABARTE ET AL v. HEIRS OF BENIGNO ISAW 34
19. ANGELINA A. BAYAN v. CELIA A. BAYAN 36
RIGHTS AND OBLIGATIONS OF LESSOR & LESSEE

IMPROVEMENTS
20. JOCELYN MODOMO v. SPOUSES MOISES P. LAYUG 37
TERMINATION OF LEASE
21. BOOKLIGHT, INC. v. RUDY O. TIU. 39
IMPLIED NEW LEASE
22. HEIRS OF PABLITO ARELLANO v. MARIA TOLENTINO. 40
CREDIT TRANSACTIONS
LOANS
23. DR. RICO VARGAS v. JOSE F. ACSAYAN, JR. 42
KINDS OF INTEREST
24. HUN HYUNG PARK v. EUNG WON* CHOI 44
1
RATE OF INTEREST
25. PCIB (NOW BANCO DE ORO UNIBANK, INC.) v. WILLIAM GOLANGCO
CONSTRUCTION CORPORATION 46
26. ENGR. RICARDO O. VASQUEZ, PETITIONER, v. PHILIPPINE NATIONAL BANK
48
DISTINCTION OF GUARANTY AND SURETY

27. THE MERCANTILE INSURANCE CO., INC v. DMCI-LAING CONSTRUCTION, INC.
50
CONTINUING GUARANTY
28. MARIO C. TAN AND ERLINDA S. TAN v. UNITED COCONUT PLANTERS BANK
52
SURETYSHIP
29. FIRST LEPANTO-TAISHO INSURANCE CORPORATVS. CHEVRON PHILIPPINES
54
REAL ESTATE MORTGAGE

30. PHILIPPINE NATIONAL BANK v. FELINA GIRON-ROQUE 56
31. SHEMBERG CORPORATION MARKETING v. CITIBANK, N.A. 57
32. PHILIPPINE NATIONAL BANK v. ELENITA V. ABELLO. 58
33. ROMA FE C. VILLALON v. RURAL BANK OF AGOO, INC.. 59
TORT AND DAMAGES

QUASI-DELICT
34. VICENTE G. HENSON, JR. v. UCPB GENERAL INSURANCE CO. INC. 61
RES IPSA LOQUITUR
35. INTERPHIL LABORATORIES, INC. v. OEP PHILIPPINES, INC. 64
PERSONS LIABLE (VICARIOUS LIABILITY)

36. CICL XXX v. PEOPLE OF THE PHILIPPINES AND GLENN REDOQUERIO 66
DEFENSES
QUANTUM MERUIT
37. TERESITA S. LAZARO vs. COMMISSION ON AUDIT 67
ABSENCE OF AN ELEMENT
38. VDM TRADING, INC. v. LEONITA CARUNGCONG. 68
39. DR. CONSOLACION S. CALLANG v. COMMISSION ON AUDIT. 70
LACK OF JURISDICTION
40. SPOUSES DALEN ET AL vs. MITSUI O.S.K. LINES DIAMOND CAMELLA, S.A.
71
EXTINGUISHMENT OF LIABILITY
41. PEOPLE OF THE PHILIPPINES v. SUSAN SAYO 73
DAMAGES
KINDS
42. JEBSEN MARITIME INC. v. TIMOTEO GAVINA. 74
43. PEOPLE OF THE PHILIPPINES v. JOJO BACYAAN 75
LAND, TITLES AND DEEDS

44. THE LOCAL GOVERNMENT OF STA. CRUZ, DAVAO DEL SUR
v. PROVINCIAL OFFICE OF THE. DEPARTMENT OF AGRARIAN REFORM. 76
45. REPUBLIC OF THE PHILIPPINES v. NATIONAL COMMISSION ON INDIGENOUS
PEOPLE. 78
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46. REPUBLIC OF THE PHILIPPINES v. SPOUSES GUILLERMO ALONSO 80

47. MILA B. RECAMARA v. REPUBLIC OF THE PHILIPPINES. 81
48. GOVERNMENT SERVICE INSURANCE SYSTEM v. ROMERICO DATOY 82
49. SPOUSES ISIDRO R. SALITICO v. HEIRS OF RESURRECCION. 84
50. HEIRS OF LEONARDA NADELA TOMAKIN v. HEIRS OF CELESTINO NAVARES
86
OBLIGATIONS AND CONTRACTS
1. DOMESTIC PETROLEUM RETAILER CORPORATION

v. MANILA INTERNATIONAL AIRPORT AUTHORITY
G.R. No. 210641, March 27, 2019, SECOND DIVISION, Caguioa, J.
NATURE OF ACTION: Action for collection of sum of money
FACTS: On June 4, 1998, Petitioner DPRC and Respondent MIAA entered into a Contract of
Lease whereby the former leased a parcel of land and building both located at Domestic Road,
Pasay City. Petitioner was obliged to pay monthly rentals of P75,357.74 for the land and
P33,310.46 for the building, to which the Petitioner faithfully complied with since the start of the
lease contract.
On April 2, 1998, Respondent passed Resolution No. 98-30 increasing the rentals paid by its
concessionaires and lessees.. Subsequently, a resolution reflecting the new schedule of fees,
charges, and rates. Petitioner DPRC initially refused to pay the increased rentals which was
decreed without prior notice and hearing.
Petitioner DPRC protested in writing to with regards to the increased rentals and the
computation. However, it also signified its intention to comply in good faith with the terms and
conditions of the lease contract by paying the amount charged. On December 11, 1998,
petitioner DPRC paid respondent MIAA P628,895.43 which was based on the new rates.
On December 21, 2005, Petitioner advised Respondent of its intention to stop paying the
increased rental rate, and ceased on paying the same starting January 1, 2006. However, it
continued paying the original rental rate prescribed in the lease contract. Petitioner’s decision to
stop paying the increased rental rate was based on the Court's Decision dated
December 1, 2004 in the case of Manila International Airport Authority vs. Air span Corporation,
et al.
On June 22, 2006, Respondent required the payment of P645,216.21 allegedly representing the
balance of the rentals from January up to June 2006. Petitioner sent its reply denying the unpaid
obligation, reiterating that the rental could no longer be computed based on the nullified
Resolution No. 98-30, and demanding for the refund of its overpayment in the amount of
P9,593,179.87. Respondent MIAA ignored its demand, prompting Petitioner to send a final
written demand dated November 5, 2008. The latter was constrained to file [the Complaint for
Collection of Sums of Money.
The RTC ruled in favor of Petitioner DPRC. The CA affirmed the RTC's Decision holding
respondent MIAA liable to petitioner DPRC, but with a modification as to the amount.
In the assailed Decision, the CA found that the liability of respondent MIAA to petitioner DPRC
for overpaid monthly rentals was in the nature of a quasi-contract of solutio indebiti. And
because petitioner DPRC's claim against respondent MIAA is purportedly in the nature of solutio
indebiti, the CA held that "the claim of refund must be commenced within six (6) years from date
of payment pursuant to Article 1145(2) of the Civil Code."
ISSUE: Whether or not the application of the six-year prescriptive period governing the quasi-
contract of solutio indebiti is apt in this case
RULING: NO. In the instant case, the two essential requisites of solutio indebiti are not present.
For the concept of solutio indebiti to apply, the undue payment must have been made by reason
of either an essential mistake of fact or a mistake in the construction or application of a doubtful
or difficult question of law. Mistake entails an error, misconception, or misunderstanding.
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The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich
himself unjustly at the expense of another.
In order to establish the application of solutio indebiti in a given situation, two conditions must
concur: (1) a payment is made when there exists no binding relation between the payor who has
no duty to pay, and the person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause.18 In the instant case, the Court finds
that the essential requisites of solutio indebiti are not present.
First and foremost, it is undisputed by all parties that respondent MIAA and petitioner DPRC are
mutually bound to each other under a Contract of Lease, which both parties entered on June 4,
1998, covering the 1,631.12-square-meter parcel of land and a 630.88-square-meter building
both located at Domestic Road, Pasay City. Hence, with respondent MIAA and petitioner DPRC
having the juridical relationship of a lessor-lessee, it cannot be said that in the instant case, the
overpayment of monthly rentals was made when there existed no binding juridical tie or relation
between the pay.
The Court finds that the cause of action of petitioner DPRC is based on the violation of a
contractual stipulation in the parties' Contract of Lease, and not due to the existence of a quasi-
contract.
Hence, by filing its Complaint, petitioner DPRC invoked the Contract of Lease and alleged that
respondent MIAA violated the aforementioned contractual stipulation, considering that the latter
imposed a price escalation of monthly rentals despite reneging on its contractual obligation to
first issue a valid Administrative Order and give petitioner DPRC prior notice.
By still imposing a price escalation despite the non-observance of both requirements, both the
RTC and CA found that respondent MIAA violated the Contract of Lease.
Furthermore, it cannot be said that petitioner DPRC's payments in monthly rentals from
December 11, 1998 up to December 5, 2005 in observance with the subsequently nullified
Resolution No. 98-30 were made due to mistake on the part of petitioner DPRC.
In the instant case, petitioner DPRC made the overpayments in monthly rentals from December
11, 1998 to December 5, 2005 not due to any mistake, error, or omission as to any factual
matter surrounding the payment of rentals. Nor did petitioner DPRC make the overpayments
due to any mistaken construction or application of a doubtful question of law.
Instead, petitioner DPRC deliberately made the payments in accordance with respondent
MIAA's Resolution No. 98-30, albeit under protest. It must be recalled that after the issuance of
Resolution No. 98-30, on December 8, 1998, petitioner DPRC protested in writing to respondent
MIAA, alleging that Resolution No. 98-30 was invalidly issued. However, petitioner DPRC also
signified its intention to comply in good faith with the terms and conditions of the lease contract
by paying the amount charged in accordance with Resolution No. 98-30 despite registering its
objection to its validity.
However, petitioner DPRC still made payment despite its objection, not due to any mistaken
belief, but for the sole reason that prior to the Court's Decision in Manila International Airport
Authority v. Airspan Corporation, et al., Resolution No. 98-30 was still presumed to be legal,
having the force of law in the absence of any judicial declaration to the contrary. Hence, without
any judicial declaration on the nullity of Resolution No. 98-30 at that time, petitioner DPRC had
no alternative but to make the subject payments, though under protest. Therefore, it is not
correct to say that the subject payments made by petitioner DPRC were made by mistake or
inadvertence.
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2. KAREN NUÑEZ* VITO, LYNETTE** NUÑEZ MASINDA, WARREN NUÑEZ, AND

ALDEN*** NUÑEZ v. NORMA MOISES-PALMA
G.R. No. 224466, March 27, 2019, Second Division, Caguioa J.
NATURE OF ACTION: Declaration of Nullity of Deed of Adjudication and Sale, Cancellation of

Transfer Certificate of Title and Damages
FACTS: Petitioners' father, Vicentico Nuñez (Vicentico), was the original owner of a lot located
in Mambusao, Capiz (subject lot). Sometime in May 1992, Vicentico, borrowed P30,000.00 from
Rosita Moises (Rosita) and as security, executed a real estate mortgage over the subject
property. Since Rosita had no money, the funds came from Norma Moises-Palma (Norma),
Rosita's daughter. Upon Vicentico's death on September 27, 1994, the subject lot was
transmitted to his heirs, including Placida Hisole Nuñez (Placida), Vicentico's surviving spouse.
Each heir inherited accordingly. Placida later on died on August 1, 1997 and her 1/5 share was
inherited equally by her heirs. Thus, petitioners each had a pro indiviso 1/4 share in the subject
lot equivalent to 107.25 square meters. On June 28, 1995, Norma was able to have all
petitioners, except Alden, sign a Deed of Adjudication and Sale (DAS) wherein petitioners
purportedly sold to Norma their respective pro indiviso shares in the subject lot for P50,000.00,
but the DAS reflected P30,000.00 as the consideration in order to reduce the amount to be paid
for capital gains tax and documentary stamp tax. After the execution of the DAS, Norma
immediately took possession of the subject lot.
Instead of paying cash, Norma executed a Promissory Note (PN) in favor of petitioners whereby
she obligated herself to pay P50,000.00 without interest. Despite non-payment of the purchase
price and the absence of Alden's signature on the DAS, Norma was able to cause the
registration of the document with the Register of Deeds of Capiz, and a new title was issued to
her.
On July 10, 2006, Alden instituted a case against respondent for Annulment of Transfer
Certificate of Title before the MTC. MTC decided in favor of petitioners, declaring the Deed of
Adjudication and Sale dated June 28, 1995 null and void and ordering the cancellation of the
title issued to Norma.
However, the RTC granted respondent's appeal declaring the Deed of Adjudication and Sale,
dated June 28, 1995 valid. The CA affirmed the RTC Decision with modification deleting
consideration for sale and damages
.ISSUE: Whether or not the transaction between petitioners and Norma is dacion en pago,
under Article 1245 of the Civil Code.
RULING: NO. The transaction between the parties is a contract of sale.
There is preponderant evidence that supports the finding that the DAS was not intended by the
parties to be a dation in payment. And, even assuming that the DAS was a dation in payment,
the documents that were subsequently executed had the effect of novating the same.
It can be gathered from the last paragraph of the DAS wherein the Real Estate Mortgage (REM)
which Vicentico executed was "cancell[ed] and considered null and void and no effect" that a
dation in payment might have been intended by the parties therein. Under Article 1245 of the
Civil Code, there is dation in payment when property is alienated to the creditor in satisfaction of
a debt in money and is governed by the law of sales.
While the DAS seems to suggest a dation in payment, the subsequent actuations of the parties,
especially Norma, negate the same or the contemplated offset. If the DAS was intended to be a
dation in payment, the execution of the PN and AOD by Norma as well as the Compromise
Agreement by Alden and Norma on September 7, 2006, whereby Alden agreed, for an agreed
consideration, to respect Norma's ownership and possession of 85.8 square meters of the
subject lot, the share being claimed by him, shows an opposite declaration, i.e., there was no
dation in payment or offset.
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Under Article 1291 of the Civil Code, obligations may be modified by: (1) changing their object
or principal conditions; (2) substituting the person of the debtor; and (3) subrogating a third
person in the rights of the creditor.
When Norma executed the PN, AOD and Compromise Agreement, she was acknowledging that
the principal condition or stipulation on the payment of the purchase price in the DAS had been
modified from the offset or cancellation of Vicentico's indebtedness secured by the REM,
without which would have amounted to a dation in payment, to a loan payable within a certain
period, which converted the transaction to a sale on credit.
Given the foregoing, the CA erred in its finding that the transaction between the parties is a
dation in payment or dacion en pago. The MTC and RTC were, therefore, correct in considering
the transaction as a contract of sale.
Pursuant to Article 1458 of the Civil Code, a contract of sale is a reciprocal obligation to give;
and the prestation or obligation of the seller or vendor is "to transfer the ownership of and to
deliver a determinate thing" while the prestation or obligation of the buyer or vendee is "to pay
therefor ea price certain in money or its equivalent." The full payment of the purchase price is
the buyer's prestation.
The remedies of the unpaid seller, after ownership of the real property not covered by Republic
Act No. 655286 or the Maceda Law, has been vested to the buyer, are:
1. To compel specific performance by filing an action against the buyer for the agreed purchase
price; or
2. To rescind or resolve the contract of sale either judicially or t|y a notarial act; and
3. In either (1) or (2), to recover damages for the breach of the contract.
Based on the amended complaint, petitioners seek to declare the DAS null and void ab initio
and non-existent since Norma, the vendee, did not pay the purchase price to them pursuant to
the doctrine that where the price which appears in the contract of sale to have been paid but
has in fact not or never been paid, the contract is void; and the absence of Alden's signature in
the DAS showed that he did not sign the same and it lacked his consent.87 The DAS being null
and void, TCT T-35460 that was issued in the name of Norma should be cancelled; the
ownership of the subject lot should be reconveyed to the heirs of Vicentico; and possession
thereof should be delivered to them.
What is clear from the amended complaint is that the remedy of specific performance was not
availed of by petitioners. They do not seek to collect from Norma the purchase price of
P50,000.00. While they have not expressly sought the resolution of the DAS on account of
Norma's nonpayment of the purchase price, such remedy could be implied when they sought
the nullification of Norma's TCT, the reconveyance to them of the subject lot and the return of
the possession to them. When the remedy of resolution of reciprocal obligations, as in
rescission, is sought, "the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interests" is created pursuant to Article 1385 of
the Civil Code.
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3. CAMP JOHN HAY DEVELOPMENT CORPORATION

v. CHARTER CHEMICAL AND COATING CORPORATION
G.R. No. 198849, August 07, 2019, THIRD DIVISION, Leonen, J.
NATURE OF ACTION: Action for rescission
FACTS: In January 2001, Petitioner Camp John Hay Development Corporation (Camp John
Hay Development) entered into a Contractor's Agreement with Respondent Charter Chemical to
complete the interior and exterior painting works of unit 2E of the Camp John Hay Manor for the
contract price of P15,500,000.00. This was inclusive of the price of two (2)-studio type units at
Camp John Hay Suites, the total amount of which would be based on the units chosen by
Charter Chemical. Later on, the contract price was reduced to P13,239,734.16, for which Camp
John Hay Development paid P7,339,734.16. The balance of P5,900,000.00 was ought to be
settled by offsetting the price of the two (2) studio units.
The Contractor's Agreement contained no date of the units' turnover, but allowed Charter
Chemical to choose the units for offsetting under an offsetting scheme. Likewise, Charter
Chemical chose Units 102 and 104 studio type in the second phase of Camp John Hay Suites.
In 2003, Charter Chemical completed the painting works, after which Camp John Hay
Development issued a Final Inspection and Acceptance Certificate belatedly on May 30, 2005.
Charter Chemical demanded the execution of the deed of sale and delivery of the titles of the
two (2) units in September 2004, with a follow-up in April 2005. In June 2005, Camp John Hay
Development and Charter Chemical executed contracts to sell.
In August 2005, Camp John Hay Development issued certifications to Charter Chemical that the
two (2) units were fully paid under their offsetting scheme. However, the units were not
delivered because the construction of Camp John Hay Suites was not yet complete.
Camp John Hay Development had initially estimated that the construction would be completed
by 2006. However, due to alleged mutual delays and force majeure, Camp John Hay
Development and Bases Conversion and Development Authority entered into at least four (4)
more amendments to the Lease Agreement previously entered into by the two.
The year 2006 came and Camp John Hay Development again failed to complete its
construction. Under the July 1, 2008 revision, the Camp John Hay Suites was estimated to be
completed by 2012. Due to the subsisting construction delay, Charter Chemical, through
counsel, wrote Camp John Hay Development, demanding that it transfer the units or pay the
value of these units in the sum of P6,996,517.48.
When it felt that further demands would be futile, Charter Chemical, on June 12, 2008, filed
before the Construction Industry Arbitration Commission a Request for Arbitration under the
arbitration clause in the Contractor's Agreement. The arbitral tribunal ruled that Charter
Chemical was entitled to its claim for the value of the two (2) units because Camp John Hay
Development failed to deliver the units within the targeted completion date.
Camp John Hay Development filed before the Court of Appeals a Petition for Review under
Rule 43 of the Rules of Court. The Court of Appeals affirmed the arbitral tribunal's award,
rescinding the obligation under Article 1191 of the Civil Code. Petitioner’s Motion for
Reconsideration was likewise denied by the same court.
ISSUE: A. Whether or not Court of Appeals correctly rescinded the obligation under Article
1191
of the Civil Code; and
B. Whether or not a period should be fixed under Article 1197 of the Civil Code.
RULING:
A. YES. Rescission on account of breach of reciprocal obligations is provided under Article

1191 of the Civil Code. This provision refers to rescission applicable to reciprocal obligations. It
7
is invoked when there is noncompliance by one (1) of the contracting parties in case of
reciprocal obligations. "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 fulfilment of the other."
Rescission under Article 1191 will be ordered when a party to a contract fails to comply with his
or her obligation. Rescission "is a principal action that is immediately available to the party at the
time that the reciprocal [obligation] was breached."
Rescission of the contract is sanctioned here. Under the contract, petitioner and respondent
have reciprocal obligations. Respondent, for its part, was bound to render painting services for
petitioner's property. This was completed by respondent in 2003, after which it was belatedly
issued a clearance in 2005. Meanwhile, in accordance with the Contractor's Agreement,
petitioner paid part of the contract price with the remaining balance to be paid through offsetting
of two (2) Camp John Hay Suites units. However, despite incessant demands from respondent,
petitioner failed to deliver these units because their construction had yet to be completed. The
law, then, gives respondent the right to seek rescission because petitioner could not comply
with what is incumbent upon it.
Mutual restitution is required in cases involving rescission under Article 1191. Although
rescission repeals the contract from its inception, it does not disregard all the consequences
that the contract has created. What mutual rescission entails is "the return of the benefits that
each party may have received as a result of the contract."
Here, it is clear that only petitioner benefited from the contract. Respondent has already
performed the painting works in 2003, and it was accepted by petitioner as satisfactory. Since
this service cannot be undone and petitioner has already enjoyed the value of the painting
services over the years, respondent is entitled to the payment of the painting services with
interest in accordance with Articles 1191 and 2210 of the Civil Code.
B. NO. Petitioner claims that the fixing of the period under Article 1197 is the proper remedy, not
rescission under Article 1191.
This Court disagrees. We cannot cure the deficiency here by fixing the period of the obligation.
There is no just cause for this Court to fix the period for the benefit of petitioner.
The power of this Court to fix a period is discretionary. The surrounding facts of each case must
be taken into consideration in deciding whether the fixing of a period is sanctioned. The
discretion to fix an obligation's period is addressed to this Court's judgment and is tempered by
equitable considerations.
There is no just cause for this Court to determine the period of compliance. As can be gleaned
from the records of this case, the obligation of petitioner to build the Camp John Hay Suites had
been dragging for years even before it entered into the Contractor's Agreement with
respondent.
The law and jurisprudence are clear. When the obligor cannot comply with its obligation, the
obligee may exercise its right to rescind the obligation, and this Court will order the rescission in
the absence of any just cause to fix the period. Here, lacking any reasonable explanation and
just cause for the fixing of the period for petitioner's noncompliance, the rescission of the
obligation is justified.
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4. MUNICIPALITY OF DASMARINAS v DR. PAULO C. CAMPOS, substituted by his children

JOSE PAULO CAMPOS, PAULO CAMPOS, JR., and ENRIQUE CAMPOS
G.R. No. 232675, September 4, 2019. THIRD DIVISION, Reyes, A., JR., J.
NATIONAL HOUSING AUTHORITY v. DR. PAULO C. CAMPOS, substituted by his children

JOSE PAULO CAMPOS, PAULO CAMPOS, JR., and ENRIQUE CAMPOS
G.R. No. 233078, September 4, 2019, THIRD DIVISION Reyes, A., JR., J.
NATURE OF PETITION: Action for revocation of donation
FACTS: These are two separate Petitions for Review on Certiorari under Rule 45 of the Rules
of Court, which were ordered consolidated in a Resolution dated September 20, 2017.
Dr. Campos was the absolute owner of four parcels of land situated in Dasmariñas, Cavite,
covered by four (4) different Transfer Certificates of Title (TCT). On July 28, 1976, Dr. Campos
executed a Deed of Donation (First Deed of Donation) in favor of the National Housing Authority
(NHA), involving a parcel of land with an area of 12,798 square meters. Under the Deed of
Donation, the donee NHA was to construct a 36-meter-wide access road from Highway 17 to
the Dasmariñas Resettlement Project.
The NHA instead constructed a 20-m-wide access road, in lieu of the stipulated 36-m-wide
access road. The NHA reasoned that the volume of the traffic at that time did not justify the
outright construction of the 36-m-wide access road, and that it had reserved the remaining 16 m
for road widening purposes, and promised that the property had not been diverted or used for
any other purpose. However, on June 13, 1993, without any notice to Dr. Campos, the NHA
donated the subject property to the Municipality of Dasmariñas. This was done allegedly
pursuant to Section 31 of P.O. No. 957.
Due to the failure of the NHA to fully comply with the provisions in the Deed of Donation despite
the long lapse of time, and due to the foregoing transaction between the petitioners, on
November 13, 2001, Dr. Campos filed an action for Revocation of Donation against the NHA
with the RTC of Dasmariñas, Branch 90. The RTC handed its Decision, partially granting the
action for Revocation of Donation against the petitioners. Consequently, the CA rendered its
Decision, denying the petitioners' Appeal and affirming the RTC Decision. In affirming the
decision of the RTC, the CA agreed with the lower court that the donation is one that is onerous
in nature, as it contained a condition imposed upon the NHA. Since the donation was onerous,
any action for the revocation of the same should be brought within 10 years from accrual of the
right of action.
In the interim, the Municipality of Dasmariñas commenced construction and road widening
works along Governor Mangubat Avenue, in the vicinity of the portion adjudged for
reconveyance to the respondents-heirs.
ISSUE: A. whether or not the action to revoke the Deed of Donation has prescribed and/or is
barred by laches; and
B. Whether or not the CA gravely erred when it affirmed the decision of the RTC that the NHA
violated the terms of the Deed of Donation, said violations authorizing the partial revocation of
the property donated, specifically the unused 16 m, and whether or not petitioners have
proffered any valid justification to show any infirmity in the decision.
RULING: A. NO. There is no question that Dr. Campos properly filed the action for Revocation
of Donation within the allowable time under the law. The first donation between Dr. Campos and
the NHA was a donation of an onerous nature, as it contained the stipulation to build the 36-m-
wide access road. Being as such, under Article 1144 of the New Civil Code, all actions upon a
written contract shall be brought within 10 years from accrual of the right of action, and herein,
the respondents-heirs' right of action only accrued when the NHA donated the subject property
to the Municipality of Dasmariñas, as this transfer effectively removed not only NHA's ability to
complete the access road based on the stipulation, but also precluded any move on the part of
the NHA to compel the transferee to finish the same.
9
In addition, the fact that the case was filed within the prescriptive period of 10 years aptly
removes the case from the clutches of possible laches.
B. NO. Even notwithstanding the procedural aspects of the case, on the substantial merits on
whether or not the NHA committed a substantial breach that would justify the partial revocation
of the Deed of Donation, as well as the facts of the case, the petitioners' arguments fall flat.
The general rule is that rescission will not be permitted for a slight or casual breach of the
contract, but only for such breaches as are so substantial and fundamental as to defeat the
object of the parties in making the agreement. Substantial breaches, unlike slight or casual
breaches of contract, are fundamental breaches that defeat the object of the parties in entering
into an agreement, and the question of whether the breach is slight or substantial is largely
determined by the attendant circumstances.
Based on the foregoing, and for a myriad of reasons, a substantial breach of contract was
committed by the NHA when it only built a 20-m-wide access road, and not a mere casual
breach which the petitioners allege would render nugatory the revocation of the donation.
As gleaned from the provisions, the object of the agreement is clearly the construction of a 36-
m-wide access road from Highway 17 to the Dasmariñas Resettlement Project, which was
reiterated no less than three times in the Deed of Donation. There was no allowance for any
deviation from that number, as stipulated or in the nature of the undertaking. The failure to
construct the access road with the expressly mentioned specifications is unmistakably a breach
of the same.
Substantial, unlike slight or casual breaches of contract are fundamental breaches that defeat
the object of the parties in entering into an agreement. Thus, the object of the parties is a vital
indicator in determining whether the breach is substantial, or merely casual and minor.
Clearly, bad faith is attendant on the part of both the petitioners. The NHA showed bad faith by
donating the property without substantially complying with the condition that was the purpose for
the donation in the first place, as well as failing to reproduce the condition in the second
donation contract. The Municipality of Dasmariñas showed bad faith in the acquisition and its
overall conduct in this case, by introducing structures and developing the land even with the
knowledge that there was not only a pending appeal, but with the understanding that both the
RTC and the CA ruled in favor of revoking the donation. If this Court were to reward the
Municipality of Dasmariñas with the granting of its petition solely because existing structures
would be affected, then it would encourage entities to build in bad faith hoping that the
impracticality would sway the Court towards ruling in favor of keeping the status quo. Suffice it
to say, that sort of precedent cannot and will never be set by this Court in the interest of justice,
law, and fair play.
There is, however, an equitable recourse, which the petitioners themselves recognize. To save
the developments already made, the petitioners may choose to exercise the powers of eminent
domain to keep the subject property and continue their infrastructure-based improvements. But
the Court, in the interest of justice, will not grant the petitioners an easy way out of the hole they
are in, when it was they who opened it in the first place.
10
5. FOOD FEST LAND, INC. AND JOYFOODS CORPORATION v. ROMUALDO C. SIAPNO,

TEODORO C. SIAPNO, JR. AND FELIPE C. SIAPNO
G.R. No. 226088, February 27, 2019, THIRD DIVISION, Peralta, J.
NATURE OF ACTION: Complaint for a sum of money
FACTS: Respondents Romualdo C. Siapno, Teodoro C. Siapno and Felipe C. Siapno are the
registered owners of the subject land in Dagupan City.On April 14, 1997, Respondents entered
into a Contract of Lease with petitioner Food Fest Land, Inc. (Food Fest). According to the
agreement, the term of the lease shall be fifteen (15) years, with the right to pre-termination
given to Food Fest upon reaching of the third (3rd) year of the lease.
The rate of rent is set at P43,901.00 per month for the first year, and the rate of monthly rent
shall escalate by 10% annually for the succeeding years, payable within the first 10 days of the
month. In addition, the Contract of Lease also featured a non- waiver clause, reiterating that no
waiver by the parties of any of their rights under this Contract of Lease shall be deemed to have
been made unless expressed in writing and signed by the party concerned.
Pursuant to the Contract of Lease, Food Fest proceeded to build and operate its restaurant
within the subject land. In October 1998, Food Fest assigned all its rights and obligations under
the Contract of Lease unto one Tucky Foods, Inc. (Tucky Foods). In September 2001, Tucky
Foods assigned all the said rights and obligations under such contract to petitioner Joyfoods
Corporation (Joyfoods).
From the first up to the fifth year of the lease, Food Fest and its assignees paid rent at the
monthly rate prescribed for under the Contract of Lease, as well as the rental escalation clause.
However the rental escalation clause was not observed during the sixth up to the tenth year of
the lease but Respondents nonetheless accepted payments of Joyfoods. On the eleventh year
of the lease, however, respondents called the attention of Food Fest and Joyfoods regarding its
intent to enforce the rental escalation clause of the Contract of Lease for the said year.
Joyfoods tried to haggle the amount of rent but rejected by the respondents. On the lease's
twelfth year, Joyfoods sent to respondents a letter conveying its intent to pre-terminate the
lease. This prompted respondents to file before the RTC of Dagupan City a Complaint for sum
of money against Food Fest and Joyfoods. The RTC ruled in favor of respondents, ordering
Food Fest and Joyfoods to, among others, pay respondents the unpaid balance in the amount
of P988,907.74. The CA affirming the decision of the lower court.
ISSUE: Whether novation present in the case.
RULING: NO. We find that the established facts do not permit the conclusion that novation had
taken place.
Novation is the extinguishment of an obligation by its modification and replacement by a

subsequent one. It takes place when an obligation is modified in any of the following ways: (a)
by changing its object or principal conditions, (b) by substituting the person of the debtor, or (c)
by subrogating a third person in the rights of the creditor. In such instances, the obligation
ceases to exist as a new one — bearing the modifications agreed upon — takes its place.
Novation is, thus, a juridical act of dual function— for as it extinguishes an obligation, it also
creates a new one in lieu of the old.
Novation of an obligation by substituting the person of the debtor, as the term suggests, entails
the replacement of the debtor by a third person. When validly made, it releases the debtor from
the obligation which is then assumed by the third person as the new debtor. To validly effect
such kind of novation, however, it is not enough for the debtor to merely assign his debt to a
third person, or for the latter to assume the debt of the former; the consent of the creditor to the
substitution of the debtor is essential and must be had.
The consent of the creditor to the substitution of a debtor, as a rule, may be given expressly or
impliedly. As can be observed, the law does not require that the creditor's consent to the
substitution to come at a particular time or in a particular form. What it only demands is that the
11
consent of the creditor be given one way or another. This notwithstanding, there is also nothing
that precludes the parties in an obligation, pursuant to their freedom to contract, to agree to a
specific form by which the creditor's consent to any potential novation should be expressed.
The settled facts do not show that respondents had expressly consented in writing to the
substitution of Food Fest by Joyfoods. The consent of respondents to such substitution has to
be in writing, in light of the non-waiver clause of the Contract of Lease. As can be recalled, the
nonwaiver clause of the Contract of Lease required the parties thereto to express any waiver of
their rights under said contract in writing lest their waiver be considered null. Respondents'
consent to the substitution of Food Fest falls within the ambit of the foregoing clause, because a
novation by the substitution of the person of the debtor implies a waiver on the part of the
creditor of his right to enforce the obligation as against the original debtor.
Yet, even if we are to set aside the non-waiver clause of the Contract of Lease, Food Fest and
Joyfoods' claim of novation is still doomed to fail. This is so because the consent of respondents
to the substitution of Food Fest, just the same, cannot be deduced or implied from any of the
established acts of the former. Indeed, under the settled facts, the respondents did nothing in
the way of releasing Food Fest from its obligations other than, perhaps, its acceptance of rental
payments from Joyfoods.
The well-settled rule is that novation is never presumed. Novation will not be allowed unless it is
clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective
novation, it is imperative that the new obligation expressly declare that the old obligation is
thereby extinguished, or that the new obligation be on every point incompatible with the new
one. In the same vein, to effect a subjective novation by a change in the person of the debtor it
is necessary that the old debtor be released expressly from the obligation, and the third person
or new debtor assumes his place in the relation. There is no novation without such release as
the third person who has assumed the debtor's obligation becomes merely a co-debtor or
surety.
12
6. BDO UNIBANK, INC. v. FRANCISCO PUA

G.R. No. 230923, July 08, 2019, SECOND DIVISION, Carpio J.
NATURE OF ACTION: Criminal action of Estafa by means of deceit
FACTS: Petitioner is a domestic expanded commercial bank duly organized and authorized to
perform trust or agency functions and services as an investment manager through its Trust
Department. On the other hand, Francisco Pua (Respondent) is a client of petitioner and is
engaged in business under the trade name and style of "Trends & Innovation Marketing.”
On 20 January 1993, Petitioner entered into an Investment Management Agreement (IMA) with
Ernesto Ang (Ernesto). In the IMA, Petitioner is tasked to act as the agent and investment
manager for the money of Ernesto. Petitioner likewise executed an IMA with Edgard Ang
(Edgard) on, Trilogy Properties Corporation (TPC) on, and Lucia and/or Sharlene Po (Lucia and
Sharlene, respectively) on for the same purpose.
Thereafter, Respondent, through Petitioner, borrowed the sum of P41,500,000.00 from the
funds invested by Ernesto, Edgard, TPC, Lucia, and Sharlene (collectively, Original Funders).
Pursuant to the specific directive and authority to lend and invest signed by the Original Funders
authorizing the release of the loan in favor of respondent, petitioner released the amount of
P41,500,000.00 to respondent.
On 7 May 1997, Respondent informed Petitioner of his intention to change the Original Funders
of the loan. Two days thereafter, on 9 May 1997, respondent delivered two checks in the
aggregate sum of P41,500,000.00. The aforesaid checks were drawn against the account name
7-21450065-1, Metrobank General Santos-Santiago Blvd. Branch and payable to the order of
petitioner. On the same date, respondent informed Petitioner that Efrain de Mayo was the new
funder under the account name for IMA placement. Thereafter, respondent renamed Efrain de
Mayo to R. Makmur as the new funder.
Unfortunately, the checks given by respondent to petitioner were dishonored when they were
presented for payment, on account of the fact that they were drawn against a closed account.
Hence, petitioner demanded payment from respondent. However, despite repeated demands,
no payment was made by respondent.
Accordingly, an Information for estafa by means of deceit dated 31 July 2013 was filed against
respondent before the RTC Branch 30, Manila, RTC consequently dismissed the case. The
Court of Appeals dismissed the appeal and affirmed the Order of the RTC.
ISSUE: Whether or not Petitioner has the rights of reimbursement and subrogation.
RULING: YES. It bears stressing and it is not disputed that, in the present case, the Original
Funders are the creditors and respondent is the debtor. The Original Funders were paid by
petitioner which advanced the payment to the Original Funders of their investments, prior to the
clearing of the new funder's checks. This is a case of payment by a third party, petitioner, to the
creditor, Original Funders, for the benefit of respondent, who is the debtor. Hence, the Original
Funders assigned their credit to petitioner, when the latter paid the former.
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.
In the instant case, petitioner paid the Original Funders for the benefit of respondent, with the
knowledge of the latter. Accordingly, petitioner under the law possesses the rights of
reimbursement and subrogation, i.e., to recover what it has paid and to acquire all the rights of
the Original Funders. Article 1303 of the Civil Code particularly provides that the effect of legal
subrogation is to transfer to the new creditor the credit and all the rights and actions that could
have been exercised by the former creditor either against the debtor or against third persons.
Thus, petitioner has every right to proceed civilly against respondent.
13
7. RIZAL COMMERCIAL BANKING CORPORATION v. PLAST-PRINT* INDUSTRIES INC. AND

REYNALDO** C. DEQUITO
G.R. No. 199308, June 19, 2019, SECOND DIVISION, Caguioa J.
NATURE OF ACTION: Petition for extra-judicial foreclosure of properties; Complaint for

accounting, cancellation of bid price and sheriffs Certificate of Sale, injunction and damages
FACTS: Respondent Plast-Print applied for credit facilities with RCBC in order to have a bigger
working capital and for expansion. The subject credit facilities were secured by, among others, a
real estate mortgage over seven properties covered by seven TCTs, availed by way of
promissory notes. Plast-Print had a total principal loan obligation in the amount of
P 12,980,000.00.
Plast-Print failed to pay its past due obligations and interest, prompting RCBC to send a letter
dated July 31,1997 to Plast-Print, demanding that the latter settle its account. Statements of
account were sent to Plast-Print, reflecting the outstanding obligations it had.
Plast-Print and RCBC met on October 9, 1997 to reconcile all of the former's payments and they
confirmed that all statements sent to Plast-Print were correct, except for three applications of
payments. Plast-Print, however, still failed to settle its obligations and offered to restructure its
obligations and RCBC agreed on the condition that the former immediately pay P4,000,000.00.
Two post-dated checks for P2,000,000.00 each was issued by Plast-Print, of which one was
dishonored. A written demand was made to Plast-Print for the payment of its obligations which
amounted to P 13,452,372.85 as of October 10, 1997 but no payment was made.
On May 4, 1998, RCBC filed with the RTC separate petitions for extra-judicial foreclosure of
properties mortgaged in its favor. On November 12, 1998, some properties covered by Plast-
Print's real estate mortgage (REM) were sold in a public auction, where RCBC emerged as
highest bidder. It appears that a second public auction for the remaining properties covered by
said REM10 was subsequently scheduled on November 30, 1998.
Unknown to RCBC, Plast-Print had filed before the Securities and Exchange Commission (SEC)
a petition for suspension of payments (SEC Petition) on October 5, 1998.
Following the filing of the SEC Petition, negotiations between and among Plast-Print and its
creditors ensued. These negotiations led to the execution of a Restructuring Agreement dated
June 25, 1999, which was subsequently approved by the SEC in its Order dated July 22, 1999
(SEC Order).
Under the Restructuring Agreement, Plast-Print acknowledged its indebtedness to RCBC in the
amount of P11,216,178.22 as of December 31, 1998. However, Plast-Print still failed to settle its
obligations with RCBC as agreed. Thus, on August 21, 2000, Plast-Print negotiated for yet
another moratorium on its overdue payments, but RCBC no longer acceded.
A day after RCBC denied its plea for another moratorium, Plast-Print and Dequito filed before
the RTC a Complaint for accounting, cancellation of bid price and sheriffs Certificate of Sale,
injunction and damages (RTC Complaint) against RCBC.
The RTC denied said motion. RCBC's subsequent motion for reconsideration was also denied.
Aggrieved, RCBC filed a petition for certiorari (RCBC's petition for certiorari) before the CA
praying for the annulment of the RTC Order. This petition, however, was dismissed for lack of
merit. RCBC no longer sought reconsideration, rendering the dismissal final.
ISSUE: Whether or not the Restructuring Agreement extinguished the real estate mortgage
constituted in RCBC’s favour through extinctive novation.
RULING: NO.
Articles 1291 and 1292 of the Civil Code govern novation. These provisions state:
14
ART. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
ART. 1292. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
Novation may be total or extinctive, when there is an absolute extinguishment of the old
obligation, or partial, when there is merely a modification of the old obligation.
While the provisions of the Restructuring Agreement had the effect of "superseding" the
"existing agreements" as to Plast-Print's outstanding loans, the changes contemplated in said
agreement merely modified certain terms relating to these loans, particularly, those pertaining to
the waiver of penalties, reduction of interest rates, renewal of payment periods, and fixing of
principal amounts payable as of the date of the execution of the Restructuring Agreement.
These modifications, while significant, do not amount to a total novation of Plast-Print's
outstanding loans so as to extinguish the REM constituted to secure such loans, or nullify the
foreclosure of properties conducted before these modifications had taken effect.
In fact, by the very terms of the Restructuring Agreement, Plast-Print and its creditors agreed to
(i) maintain the status quo vis-a-vis the subsisting "mortgages constituted in favor of its
creditors, including RCBC; and (ii) proceed to foreclosure and/or the consolidation of title in
case of default.70 Reference to Sections 2, 15 and 20 of the Restructuring Agreement is
accordingly proper.
Absent a total or extinctive novation, the effects of the foreclosure conducted prior to the
execution of the Restructuring Agreement must be respected. Hence, the reinstatement of the
annotation of the Certificate of Sale on Plast-Print's TCTs of the foreclosed properties is proper.
15
8. SAN MIGUEL FOODS, INC. AND JAMES A. VINOYA v.

ERNESTO RAOUL V. MAGTUTO
G.R. No. 225007, July 24, 2019, SECOND DIVISION, Carpio, J.
NATURE OF ACTION: Action for damages
FACTS: On September 2002, Respondent Ernesto Raoul V. Magtuto (Magtuto) and

representative of San Miguel Foods, Inc. Dr. James A. Vinoya (Vinoya) came to an agreement,
with SMFI accommodating the former as a broiler chick grower of SMFI only if excess chicks
would be available from the SMFI hatchery located in Laguna. No written contract was
executed. Likewise, it has been agreed that Magtuto will be bound by the same terms and
conditions of SMFI's standard Broiler Chicken Contract Growing Agreement, likened as one of
their regular contract growers.
The agreement involved the delivery of 36,000 day-old chicks by SMFI to Magtuto, and shall be
grown by him for 30-35 days. To guarantee the faithful performance by Magtuto, he gave SMFI
the amount of P72,000, as cash bond, which would be deducted from his account.
The parties did not stipulate nor agree upon the length of the contract. Then sometime in June
2003, on the fifth delivery, the broiler chicks delivered by SMFI was only 32,000 chicks instead
of 36,000 broiler chicks. Magtuto reported this to Vinoya. It was relayed by Vinoya that there
were no more excess chicks to give due to the low supply from the hatchery. Magtuto
demanded that Vinoya deliver more chicks in order to make use of his facility to the maximum
capacity but Vinoya said that he was only being accommodated and their priority would be the
official contract growers of SMFI.
Magtuto sent a letter-complaint to SMFI dated 12 June 2003. Vinoya informed Magtuto that their
arrangement was terminated due to "poor working relationship." Magtuto then sent a letter to
Benjamin Hilario, SMFI's Assistant Vice President and Luzon Processing Manager, narrating his
experience with Vinoya and Ogilvie's inaction. Magtuto mentioned that the timing of the notice of
termination delayed his July chick-in by three weeks and that he incurred considerable
expenses in preparing his grow-out facility and was deprived of income for the month of July. In
the same letter, Magtuto stated that he was withdrawing the P72,000 cash bond that he posted
which should be deducted from his account with SMFI.
Magtuto filed a complaint for damages against SMFI, Vinoya, and Ogilvie before the Regional
Trial Court (RTC) of Naga City. The RTC resolved the case in favor of Magtuto. The RTC stated
that Magtuto was a contract grower of SMFI even in the absence of a written broiler chicken
contract growing agreement. The RTC explained that the verbal agreement of Magtuto and
Vinoya created respective obligations between them. Petitioners filed an appeal with the CA.
The CA affirmed with modification the decision of the RTC.
ISSUE: Whether or not there exists a valid contract in the present case.
RULING: YES. Accordingly, for a contract to be valid, it must have the following essential
elements: (1) consent of the contracting parties; (2) object certain, which is the subject matter of
the contract; and (3) cause of the obligation which is established. Consent is manifested by the
meeting of the offer and the acceptance of the thing and the cause, which are to constitute the
contract. The contract is perfected at the moment there is a meeting of the minds upon the thing
that is the object of the contract and the price.
In the present case, all the essential elements - consent, object and cause - are present.
Magtuto entered into an agreement with Vinoya for the growing of broiler chicks. They agreed
that SMFI would provide the day-old chicks, fedds, medicines, materials and technical support,
while Magtuto would be given a certain period to grow the chicks and keep them healthy.
Afterwards, SMFI would harvest the chicks and Magtuto would be paid a grower's fee
depending on the number of chicks harvested. The chicks delivered by SMFI and grown by
Magtuto constitutes the object or subject matter of the contract and the grower's fee is the
consideration.
16
Now that there exists a valid contract between Magtuto and SMFI, the court dwelled upon the
merit of Magtuto's claim on actual or compensatory damages due. The court ruled that the
answer is affirmative only on the delivery shortage of 4,000 broiler chicks and not Magtuto's
expenses incurred during the 15-day rest period and loss on Magtuto's possible income for the
succeeding month.
In the present case, Vinoya and Magtuto arrived at an agreement that SMFI would supply day-
old chicks which Magtuto would grow for a certain period. Afterwards, SMFI would harvest the
grown chickens and Magtuto would be paid a grower's fee. Both fulfilled their obligations on four
occasions in a span of less than a year. However, on the fifth delivery, SMFI failed to complete
the 36,000 heads and was only able to deliver 32,000. Given that the parties did not execute
any written contract and their verbal agreement involved growing chicks which starts from
delivery of the day-old chicks until the grown chickens are harvested, then it is clearly
understood that the contract entered into by Vinoya and Magtuto was on a "per grow basis," the
duration of which is for one growing season.
This case is akin to a lease without a written contract where the basis of the lease is on a month
to month basis. This is called a lease with a definite period which is provided for in Article 1687
of the Civil Code. However, given that the renewal of the broiler chick growing contract occurs
from one growing season to another, then Magtuto is not entitled to (1) the expenses that he
incurred during the 15-day rest period after the fifth delivery, and (2) his loss on possible income
for the succeeding month.
17
9. MAKATI WATER, INC. v. AGUA VIDA SYSTEMS, INC.

G.R. No. 205604, June 26, 2019, SECOND DIVISION, Caguioa, J.
NATURE OF ACTION: Action for specific performance and Damages
FACTS: On November 11, 1996 and December 23, 1996, Respondent AVSI and Petitioner
MWI entered into two (2) separate Franchise Agreements. The Franchise Agreements had an
initial term of five (5) years from the dates of their execution. Under these agreements,
Petitioner MWI shall operate two (2) Agua Vida (AV) water refilling stations Las Piñas City,
Metro Manila (AV-Pilar) and Pasay Road Extension, Makati City (AV-Arnaiz), respectively.
In compliance with the terms and conditions of the said Franchise Agreements, Petitioner
operated water refilling stations and remitted all payments due to Respondent.
Ms. Ruby Estaniel, President of Petitioner wrote to respondent AVSI requesting that the terms
and conditions of the Franchise Agreements over AV-Pilar and AV-Arnaiz be extended until
December 31, 2001 wiith the Franchise Agreement for AV-Pilar expiring on November 11, 2001
and that of AV-Arnaiz on December 23, 2001.
On December 3, 2001, Respondent expressed that they were amenable to the extension of the
Franchise Agreements with a reminder that in the event Petitioner failed to renew the same,
they would enforce Section IV-4 and IV-5 of both Franchise Agreements, stating that:
IV.4. In case of Termination for any reason, AGUA VIDA shall have the right
to repurchase all the equipment previously supplied by AGUA VIDA to
FRANCHISEE and still serviceable at the time of termination. Should AGUA
VIDA repurchase within the first year of the FRANCHISEE, the price will be
70% of the original net selling price to the FRANCHISEE; within the first 2
years - 50%; within 3 years -30%; within 4 years - 10%;
IV.5. In the event of Termination, the FRANCHISEE agrees that he shall not
in any way operate a water vending business within 2kms. of the terminated
site for a period of two (2) years from termination.
However, the Franchise Agreements were no longer renewed by the parties. Peitioner ceased
to operate both water refilling stations under the name of Respondent AVSI and instead
operated said water refilling stations under its own name. On January 23, 2002 and June 11,
2002, Respondent wrote to Petitioner reminding the latter of the termination of the Franchise
Agreements and demanded that it be allowed to repurchase the equipment and for it to cease
and desist from operating the water refilling stations, but Petitioner MWI failed to heed the
demand.
On November 5, 2002, Respondent filed two (2) separate complaints for Specific Performance
and Damages with Prayer for Writ of Preliminary Attachment against Petitioner. The RTC ruled
against the respondent, on the basis of prescription of action of the right to repurchase. The CA
affirmed the RTC, reducing the amount of attorney's fees to ten percent (10%) of the total
amount due.
ISSUE: Whether or not the term termination under Section IV-5 of the Franchise Agreements
include the expiration of the Franchise Agreements.
RULING: NO. It is not disputed that the Franchise Agreements were not cancelled by the
parties; they merely lapsed and expired based on the period agreed upon by the parties, i.e.,
five years from the execution of the Franchise Agreements. The Franchise Agreements
covering the AV-Pilar and AV-Arnaiz lapsed into non-effectivity on November 11, 2001 and
December 23, 2001, respectively.
Upon close reading of the Franchise Agreements as a whole, the Court finds petitioner MWI's
interpretation of the term termination without merit; Termination under Section IV-5 of the
Franchise Agreements includes the expiration of the said agreements.
18
According to Article 1370 of the Civil Code, if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control.
The literal, express, and plain meaning of the word termination is end of existence or
conclusion. The expiration of an agreement leads to the end of its existence and effectivity; an
agreement has reached its conclusion upon expiration. Upon close reading of the Franchise
Agreements, there is no provision therein which expressly limits, restricts, or confines the term
termination to the cancellation of the agreements by the acts of the parties prior to their expiry
date. There is no provision in the Franchise Agreements which shows the parties' alleged intent
to exclude the expiration of the agreements from the coverage of the word termination.
Under Article 1374 of the Civil Code, the various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which may result from all of them taken
jointly.
Applying the foregoing in the instant case, it is the position of petitioner MWI that the term
termination should be interpreted as excluding expiration if the other provisions of the Franchise
Agreements are considered. There is no provision under the Franchise Agreements which
expressly limits, restricts, or confines the grounds of termination to the three abovementioned
grounds. Section IV of the Franchise Agreements does not state that these three grounds are
the only grounds for termination, to the exclusion of expiration.
In fact, upon a close reading of Section I of the Franchise Agreements, it would reveal that
these three grounds enumerated under Section IV-1, IV-2, and IV-3 of the Franchise
Agreements refer, not to termination per se, but to early termination.
the RTC, Branch 67 was in error when it ordered the indefinite and unqualified closure of the
water refilling stations of petitioner MWI, considering that the two-year prohibitive period under
Section IV-5 of the Franchise Agreements being invoked by respondent AVSI had already
lapsed in 2003.
19
SALE AND LEASE
10. VIVE EAGLE LAND, INC. v. NATIONAL HOME MORTGAGE FINANCE CORPORATION,
JOSEPH PETER S. SISON, AND CAVACON CORPORATION
G.R. No. 230817, September 04, 2019, THIRD DIVISION, Peralta J..
NATURE OF ACTION: Action for declaration of nullity of rescission, declaration of suspension

of payment of purchase price and interest
FACTS: On November 17, 1999, Petitioner Vive Eagle Land Inc. entered into a Deed of Sale of
Rights, Interests, and Participation Over Foreclosed Assets with Respondent National Home
Mortgage Finance Corporation (NHMFC), agreeing to purchase NHMFC's rights, interests, and
participation in the foreclosed property of Alyansa ng mga Maka-Maralitang Asosasyon at
Kapatirang Organisasyon, Inc. located at Catalina, Angeles City, for a total purchase price of
P40,000,000.00.The purchase price is divided into two – downpayment and the remaining
balance. The latter is payable in two equal installments, and shall be paid in 10 equal
installments plus 14% interest per annum.
Pursuant to the Deed of Sale, Vive paid the first installment of the downpayment in the amount
of P4,000,000.00. However Petitioner did not pay the subsequent instalments for it was
prevented from exercising its right to avail of a developmental loan under Section 8 of the Deed
of Sale due to issues on the subject property. Vive also requested NHMFC for a moratorium or
suspension of the period of payment, the corresponding waiver of interest, and a 10% reduction
of the purchase price for litigation costs it incurred.
Consequently, NHMFC, through its President Sison, notified Vive through a letter dated
February 10, 2006 of the rescission/cancellation and/or revocation of the Deed of Sale due to
the alleged non-payment of the balance of the purchase price. According to NHMFC, Vive was
well aware of the condition of the property prior to its purchase, it was not justified in suspending
its payment of the purchase price.
This prompted Petitioner to file an action for declaration of nullity of rescission, declaration of
suspension of payment of purchase price and interest before the RTC. NHMFC countered that
by virtue of Section 5 of the Deed of Sale, it had the right to rescind the Deed of Sale due to
Vive's continuous failure to pay the purchase price and to thereafter freely dispose of the
subject property as if the Deed of Sale has never been made.
The RTC of Makati City, Branch 138, dismissed Vive's complaint, finding NHMFC's rescission of
the Deed of Sale to be valid. Acting on Vive's motion for reconsideration, RTC of Makati Branch
139 declared NHMFC's rescission of the Deed of Sale null and void, declaring Vive as the
owner of the property.
Pursuant to the court's Order, Vive tendered the second installment of the downpayment in the
amount of P4,000,000.00 to NHMFC which refused to accept. Not accepting its defeat, NHMFC
filed for a motion for reconsideration and reinstated the Decision of RTC Branch 138 finding
NHMFC's rescission valid. The CA affirmed the Decision of the RTC Branch 139.
ISSUE: Whether or not the subject contract is a contract to sell.
RULING: YES.
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the latter upon his
fulfilment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell. A contract to sell is akin to a
conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is
subordinated to the happening of a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if the conditional obligation had never
existed. In a contract to sell, the fulfillment of the suspensive condition will not automatically
transfer ownership to the buyer although the property may have been previously delivered to
20
him. The prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale.
A plain and simple reading of the contract executed by the parties readily reveals that the same
is a contract to sell and not a contract of sale. It is only upon Vive's full payment of the purchase
price shall NHMFC be obligated to deliver the title to the property. Otherwise put, by virtue of the
aforequoted provision, NHMFC expressly reserved title and ownership of the subject property in
its name pending Vive's payment of the full amount even though possession thereof was
already granted in favor of Vive. It is, therefore, clear that the parties intended their agreement
to be merely a contract to sell, conditioned upon the full payment of the purchase price.
It is of no moment that what Section 7 requires from NHMFC is the execution of a "Certificate of
Full Payment" and not a "Deed of Absolute Sale." The mere fact that it expressly states that
NHMFC shall deliver the titles to the property upon full payment of the purchase price suffices to
evince the intent of NHMFC to reserve ownership in its name. As pointed out by the CA, this
intention was sufficiently established by, and may reasonably inferred from, the fact that title to
the subject property was not immediately transferred, through a formal deed of conveyance, in
the name of Vive prior to or at the time of Vive's first payment of P4,000,000.00.
We concur with the appellate court in finding that it is immaterial that the parties described the
cancellation of the agreement as one of rescission, which is not available in contracts to sell.
21
11. HIPOLITO AGUSTIN AND IMELDA AGUSTIN v. ROMANA DE VERA

G.R. No. 233455, April 03, 2019, SECOND DIVISION, Caguioa J.
NATURE OF ACTION: Action for Declaration of Nullity of Deed of Absolute Sale, Cancellation
of Transfer Certificate of Titles, Recovery of Ownership, and Damages
FACTS: The subject property was owned by Gregorio B. De Vera (Gregorio) located at Bonuan
Gueset, Dagupan City. On January 6, 1986, Gregorio and spouses Hipolito and Lolita Agustin
executed a document entitled "Contract to Purchase and Sale" whereby the former agreed to
sell to the latter the property.
As agreed, the Agustin spouses paid the partial payment of P15,000.00 and immediately took
possession of the land. They had since constructed thereon their residential house and paid the
real estate taxes. On May 17, 2001, Hipolito Agustin sold one-half portion of the land to his
sister, Imelda Agustin, who also introduced improvements on the property.
Considering that Gregorio had not yet delivered the title, Hipolito and Imelda caused the
annotation of an adverse claim on TCT on August 22, 2007.
However, under a Deed of Absolute Sale dated September 3, 2007, Gregorio sold the subject
property to Romana M. de Vera for the price of Php500,000.00. Said document was registered
on September 6, 2010.
Gregorio consequently died on September 17, 2007. On November 15, 2007, Hipolito filed Civil
Case for Specific Performance, Acknowledgement of the Contract of Purchase and Sale and
Judicial Declaration of Ownership" before the RTC of Dagupan City. The said case was
dismissed without prejudice.
On September 28, 2010, Petitioners filed the present case before the RTC. The RTC annulled
the Deed of Absolute Sale dated September 3, 2007 purportedly executed by the late Gregorio
de Vera in favor of Romana de Vera. The CA granted Romana's appeal and reversed the RTC's
Decision.
ISSUE: Whether the Contract to Purchase and Sale entered into by Hipolito and Gregorio is a
to contract to sell.
RULING: NO. The subject contract is a contract of sale.
According to Article 1458 of the Civil Code, by a contract of sale, one of the contracting parties
obligates himself to transfer the ownership and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
In the instant case, the Court finds that all the aforesaid elements are present in the instant
case. By entering into the agreement entitled "Contract to Purchase and Sale," both parties had
arrived at a meeting of the minds that the seller, i.e., Gregorio, transferred the ownership and
possession of the subject property to the buyer, i.e., Hipolito, with the latter obliged to pay a
price certain in money, i.e., P30,000.00.
It must be stressed that upon the execution of the Contract to Purchase and Sale, Gregorio
ceded the possession of the subject property to petitioner Hipolito. It is not disputed that
petitioner Hipolito immediately took possession of the subject property, had constructed thereon
their residential house, and paid the real estate taxes upon the subject property.
In connection with the fact that Hipolito gained possession over the subject property upon the
execution of the Contract to Purchase and Sale, Article 1477 of the Civil Code states that the
ownership of the thing sold shall be transferred to the vendee upon the actual or constructive
delivery thereof. Further, under Article 1478, the parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has fully paid the price.
In accordance with Articles 1477 and 1478 of the Civil Code, the general rule states that
ownership of property passes on to the buyer ipso jure when its possession is transferred in the
22
latter's favor if no reservation to the contrary has been made.In the absence of stipulation to the
contrary, the ownership of the thing sold passes to the vendee upon actual or constructive
delivery thereof.
Applying the foregoing to the instant case, striking is the fact that actual and physical delivery of
the subject property was made to Hipolito immediately upon the execution of the Contract to
Purchase and Sale without any express or implied stipulation by Gregorio reserving ownership
of the subject property.
Despite the foregoing, the CA maintained its position that the Contract to Purchase and Sale is
a contract to sell and not a contract of sale. To reiterate, in the instant case, it is not disputed
that there is absolutely no stipulation in the Contract to Purchase and Sale to the effect that
ownership over the subject property is reserved in favor of Gregorio pending the complete
payment of the purchase price by Hipolito. Neither is there a provision granting Gregorio the
unilateral right to rescind the Contract to Purchase and Sale in case of non-payment. Therefore,
bearing in mind the foregoing, the Contract to Purchase and Sale is a contract of sale, and not a
contract to sell.
Even if the rule on double sales is applied to the instant case, the result remains the same.
Hipolito and Imelda would still have a better right of ownership over the subject property.
According to Article 1544 of the Civil Code, if the same thing should have been sold to different
vendees, in the case of immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of 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.42
Applying the foregoing in the instant case, it is indisputable that Romana was a buyer in bad
faith. Hence, Hipolito and Imelda have the better right of ownership over the subject property.
23
12. MAXIMA P. SACLOLO AND TERESITA P. OGATIA v. ROMEO MARQUITO, MONICO

MARQUITO, CLEMENTE MARQUITO, ESTER M. LOYOLA, MARINA M. PRINCILLO, LOURDES
MARQUITO AND LORNA MARQUITO
G.R. No. 229243, June 26, 2019, SECOND DIVISION, Caguioa J.
NATURE OF ACTION: Action for redemption of mortgaged properties, specific performance

with damages
FACTS: The dispute involved a co-owned parcel of coconut land, Petitioners inherited from their
father. Petitioners allege that Petitioner Ogatia obtained a total loan of P9,500.00 from the
Respondents, while Petitioner obtained a loan with the total sum of 13,500.00 from the same.
Petitioners used their land as collateral for the loan obligation. Respondents' father
consequently began occupying the land
Sometime in October 2004, petitioners verbally informed respondents of their intention to

"redeem" the property, followed by a written offer to redeem the property November 18, 2004.
Respondents refused. Thus, petitioners were constrained to file a Complaint for redemption of
mortgaged properties, specific performance with damages before the RTC. During the
proceedings, they manifested their willingness to deposit the amounts due on their loan
obligation for the purpose of redemption.
Respondents, on the other hand, alleged that in 1984, petitioners sold the subject property for
P1,000.00 under a Memorandum of Deed of Sale with Right of Repurchase. Since then, they
have been in actual possession of the property in the concept of owner and even introduced
improvements thereon worth P120,000.00.
After trial, the RTC found that the true transaction between the parties was one of equitable
mortgage. However, it held that the period for the redemption of the property had lapsed as it
was filed beyond the four-year period under Article 1606 of the Civil Code. Thus, it dismissed
the complaint. The CA denied the appeal and affirmed the Decision of the RTC.
ISSUE: Whether or not the action has prescribed.
RULING: NO. Article 1606 of the Civil Code shall apply to a contract purporting to be an
absolute sale. In case of doubt, a contract purporting to be a sale with right to repurchase shall
be considered as an equitable mortgage. In a contract of mortgage, the mortgagor merely
subjects the property to a lien, but the ownership and possession thereof are retained by him.
For the presumption in Article 1602 of the New Civil Code to arise, two requirements must
concur: (a) that the parties entered into a contract denominated as a contract of sale; and (b)
that their intention was to secure an existing debt by way of a mortgage.
The nomenclature given by the parties to the contract is not conclusive of the nature and legal
effects thereof. Even if a document appears on its face to be a sale, the owner of the property
may prove that the contract is really a loan with mortgage, and that the document does not
express the true intent of the parties.
An equitable mortgage, like any other mortgage, is a mere accessory contract "constituted to
secure the fulfillment of a principal obligation, i.e., the full payment of the loan. Since the true
transaction between the parties was an equitable mortgage and not a sale with right of
repurchase, there is no "redemption" or "repurchase" to speak of and the periods provided
under Article 1606 do not apply. Instead, the prescriptive period under Article 1144 of the Civil
Code is applicable. In other words, the parties had 10 years from the time the cause of action
accrued to file the appropriate action.
Thus, petitioners' cause of action to recover the subject property can be said to have accrued
only in 2004, that is, when respondents rejected petitioners' offers to pay and extinguish the
loan and to recover the mortgaged property as it was only at this time that respondents
manifested their intention not to comply with the true agreement of the parties. Undoubtedly, the
filing of the complaint in 2005 was made well-within the 10-year prescriptive period.
24
13. SPOUSES JOHN T. SY AND LENY N. SY, AND VALENTINO T. SY v.

MA. LOURDES DE VERA-NAVARRO AND BENJAEMY HO TAN LANDHOLDINGS, INC., HEREIN
REPRESENTED BY GRACE T. MOLINA, IN HER CAPACITY AS
CORPORATE SECRETARY,
G.R. No. 239088, April 03, 2019, SECOND DIVISION, Caguioa, J..
NATURE OF ACTION: Action for Declaration of Nullity of Deed of Absolute Sale, Cancellation
of Transfer Certificate of Titles, Recovery of Ownership, and Damages
FACTS: It is alleged in the complaint that Petitioner John was one of the coowners of the
subject property situated at Barangay Zone IV, Zamboanga City. Petitioners Sps. Sy alleged
that the subject property has a market value of more than P40,000,000.00.
On May 31, 2006, petitioner John, for himself and in representation of his co-owners, borrowed
P3,720,000.00 from respondent De Vera-Navarro, secured by a Real Estate Mortgage Contract
(Mortgage Contract) over the subject property. Petitioners Sps. Sy then alleged that immediately
after the execution of the Mortgage Contract, as per usual practice, respondent De Vera-
Navarro asked petitioner John to execute an undated Deed of Absolute Sale with a stated
consideration in the amount of P5,000,000.00, supposedly for the purpose of providing
additional security for the loan. Petitioners Sps. Sy also claimed that petitioner John and
respondent De Vera-Navarro verbally agreed that the mode of payment for the said loan would
be respondent De Vera-Navarro's collection of rental payments from the tenants of the subject
property in the total amount of P70,000.00 per month for five years.
On March 22, 2011, to the surprise of petitioner John, he was informed by respondent BHTLI
through a letter from its representative that the ownership of the subject property had been
transferred to respondent De Vera-Navarro by the issuance of a new TCT in favor of respondent
De Vera-Navarro and that respondent BHTLI was demanding that the petitioners Sps. Sy
vacate the subject property.
On March 24, 2011, one of the co-owners, petitioner Valentino, caused the annotation of an
adverse claim on the TCT. Thereafter, a Deed of Absolute Sale was executed by respondent De
Vera-Navarro in favor of respondent BHTLI. The records reveal that on July 21, 2011, a new
title was issued in favor of respondent BHTLI.
On October 8, 2014, the RTC issued a Decision declaring the purported Deed of Absolute Sale
between petitioner John and respondent De Vera-Navarro an equitable mortgage and thus null
and void. The CA reversed the rulings of the RTC and denied the appeal of petitioners Sps. Sy,
while granting the appeal of respondent BHTLI.
ISSUE: Whether or not the transaction between petitioner John and respondent De Vera-
Navarro was a valid contract of sale and not an equitable mortgage, and that respondent BHTLI
was a buyer in good faith.
RULING: NO. The purported contract of sale between petitioner John and respondent De Vera-
Navarro is an equitable mortgage and not a legitimate contract of sale.
An equitable mortgage is 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, and contains nothing impossible or
contrary to law. Its essential requisites are: (1) that the parties entered into a contract
denominated as a contract of sale; and (2) that their intention was to secure an existing debt by
way of a mortgage.
Article 1604 of the Civil Code, in turn, provides that the abovementioned badges of an equitable
mortgage apply to a contract purporting to be an absolute sale, such as in the instant case.
At this juncture, it must be stressed that the RTC, after an exhaustive trial and appreciation of
the evidence presented by the parties, concluded that the supposed contract of sale entered
between petitioner John and respondent De Vera-Navarro is in fact an equitable mortgage.
25
The factual findings of the trial court are given high respect, if not conclusive effect, unless the
trial court ignored, misconstrued, misunderstood or misinterpreted cogent facts and
circumstances of substance.
Jurisprudence consistently shows that the presence of even one of the circumstances
enumerated in Article 1602 suffices to convert a purported contract of sale into an equitable
mortgage. In fact, the Court has previously ruled that when in doubt, courts are generally
inclined to construe a transaction purporting to be a sale as an equitable mortgage, which
involves a lesser transmission of rights and interests over the property in controversy.
Applying the foregoing to the instant case, the Court finds that the presence of at least four
badges of an equitable mortgage creates a very strong presumption that the purported contract
of sale entered between petitioner John and respondent De Vera-Navarro is an equitable
mortgage.
First, it is not disputed by any party that the supposed vendor of the subject property, petitioner
John, remains to be in possession of the subject property despite purportedly selling the latter to
respondent De Vera-Navarro.
Second, the purchase price of the purported sale indicated in the undated Deed of Absolute
Sale is inadequate.
Third, the evidence on record shows that respondent De Vera-Navarro retained for herself the
supposed purchase price
Fourth, from the evidence presented by petitioners Sps. Sy, it is established that the real
intention of the parties is for the purported contract of sale to merely secure the payment of their
debt owing to respondent De Vera Navarro.
Consequently, since the purported contract of sale between petitioner John and respondent De
Vera-Navarro was in fact an equitable mortgage, the sale of the subject property to respondent
BHTLI by respondent De Vera Navarro was correctly adjudged by the RTC to be null and void,
considering that the latter had absolutely no right and capacity to sell the subject property.
The Court has held that actual lack of knowledge of the flaw in title by one's transferor is not
enough to constitute a buyer in good faith where there are circumstances that should put a party
on guard, such as the presence of occupants in the subject property. Again, it is not disputed
that petitioners Sps. Sy have been in continuing possession of the subject property. Yet, this
fact did not prompt respondent BHTLI to investigate further as to the contract of sale it entered
with respondent De Vera-Navarro.
26
14. HEIRS OF SOLEDAD ALIDO v. FLORA CAMPANO, OR HER REPRESENTATIVES AND THE
REGISTER OF DEEDS, PROVINCE OF ILOILO
G.R. No. 226065, July 29, 2019, SECOND DIVISION, Reyes, J. JR., J.
NATURE OF ACTION: Action for Ejectment
FACTS: On March 17, 1975, Soledad Alido was able to register the subject property under her
name. In 1978, Flora Campano (respondent) was able to take possession of the land and the
owner's duplicate of OCT No. F-16558, and paid its realty taxes. Allegedly, Alido had sold the
property to her albeit orally. On September 18, 1996, Alido died leaving behind her children,
namely Reynaldo Almendral, Maggie Almendral-Sencil and Rodrigo Almendral. On September
8, 2009, the heirs of Alido (petitioners) executed a Deed of Adjudication of the above-mentioned
property and sought to register the property in their names. As such, they needed to retrieve
OCT No. F-16558, but respondent refused to do so. Thus, they were constrained to file a
verified petition before the RTC for respondent to surrender the owner's duplicate of the title.
The RTC granted petitioners' petition and ordered respondent to surrender the owner's
duplicate of OCT No. F-16558. The CA granted respondent's appeal and dismissed the verified
petition of petitioners. The appellate court explained that an oral sale of real property is not void,
but only unenforceable under the Statute of Frauds.
ISSUE: A. Whether there was a valid sale of real property between Alido and Respondent; and
A. Whether petitioners' action had been barred by laches.
RULING: A. YES. It is erroneous to conclude that contracts of sale of real property without its
term being reduced in writing are void or invalid.
Contracts which have all essential requisites for their validity are obligatory regardless of the
form they are entered into, except when the law requires that a contract be in some form to be
valid or enforceable. Article 1403(2) of the Civil Code, or otherwise known as the Statute of
Frauds, requires that covered transactions must be reduced in writing, otherwise the same
would be unenforceable by action. In other words, sale of real property must be evidenced by a
written document as an oral sale of immovable property is unenforceable.
An oral sale of real property is not void and even enforceable and binding between the parties if
it had been totally or partially executed.
The Court agrees with the observations of the CA that the Statute of Frauds is inapplicable in
the present case as the verbal sale between respondent and Alido had been executed. From
the time of the purported sale in 1978, respondent peacefully possessed the property and had in
her custody OCT No. F-16558. Further, she had been the one paying the real property taxes
and not Alido. Possession of the property, making improvements therein and paying its real
property taxes may serve as indicators that an oral sale of a piece of land had been performed
or executed.
In addition, while tax declarations are not conclusive proof of ownership, they may serve as
indicia that the person paying the realty taxes possesses the property in concept of an owner.
B. YES. By virtue of a free patent application, Alido secured OCT No. F-16558 on March 17,
1975. Thereafter, she sold the property covered by OCT No. F-16558 to respondent in 1978. It
is settled that lands acquired through free patent cannot be alienated or encumbered within five
years from the date of issuance of the patent. This is so considering that the grant of free
patent is done out of the benevolence of the State to provide lots for land-destitute citizens for
their home and cultivation. As such, any sale in violation of the five-year prohibition on
alienation is void and produces no effect whatsoever. As a result, the law still regards the
original owner as the rightful owner subject to escheat proceedings by the State.
In the present case, Alido had already sold the property to respondent within three years from
the time she had acquired title thereto pursuant to her free patent application. Clearly, the said
transaction is void because it transgresses the five-year prohibition on alienation of lands
acquired through free patent.
27
Under Article 1412(1) of the Civil Code, parties in a void contract who are of equal fault cannot
demand recovery, enforcement or performance from the other. The said provision embodies the
doctrine of in pari delicto which "is a universal doctrine that holds that no action arises, in equity
or at law, from an illegal contract; no suit can be maintained for its specific performance, or to
recover the property agreed to be sold or delivered, or the money agreed to be paid, or
damages for its violation; and where the parties are in pari delicto, no affirmative relief of any
kind will be given to one against the other."
Nevertheless, Article 1416 of the Civil Code provides that when the agreement is not illegal per
se, but is merely prohibited, and the prohibition by the law is designed for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered. In
other words, the doctrine of in pari delicto cannot apply when it contravenes well-established
public policy as whenever public policy is advanced by either party, they may be allowed to sue
for relief against the transaction.
28
15. GENEROSO SEPE vs. HEIRS OF ANASTACIA* KILANG, rep. by her children MARIA,
DONATA, FELICIANA, DOMINGA and SEVERO all surnamed SOLIJON
G.R. No. 199766, April 10, 2019, SECOND DIVISION, Caguioa, J.
NATURE OF ACTION: Action for nullification of sale and issuance of TCT with damages
FACTS: On November 18, 1992, the late Anastacia, with her husband's consent, purportedly
sold her paraphernal property — a lot located at Barrio Gaboc, Tagbilaran City (subject lot)— to
spouses Sepe for ₱15,000.00. A Deed of Sale reflecting the same was executed between the
parties and notarized accordingly.
Respondents allege that the late Anastacia, who was then an 84-year old, illiterate, and
bedridden mother, agreed to the offer of petitioner to undertake the subdivision of her land in in
consideration for one lot in the subdivision and a first preference to buy any portion that might
be for sale. However, taking advantage of the ignorance of respondents' family, petitioner
managed to have the DOS executed and misled Feliciana and Donata into believing that the
document was the instrument of subdivision.
On December 14, 1992, Anastacia executed a notarized Notice of Adverse Claim, wherein she
claimed that the second duplicate copy of the title of the subject lot was lost sometime on the
first week of December 1992, and was found in the possession of one Generoso Sepe without
her knowledge and consent.
On December 17, 1992, respondents, save Dominga, executed the Confirmation of Sale for a
consideration of P40,000.00, wherein they confirmed absolutely and irrevocably the sale of the
subject lot situated at Barrio Gaboc (now Cabawan District) made and executed by their parents
in favor of spouses Sepe, and warranted to defend their rights and peaceful possession of the
subject lot.
On January 14, 1993, Anastacia executed a notarized Notice of Withdrawal of Adverse Claim,
wherein she alleged that she was made to sign an Adverse Claim by Dominga and Donata; she
did not understand its contents; and she remembered that she had "already sold the same land
to spouses Sepe on November 18, 1992 before Atty. Gaspar S. Rulona. On the same day, the
TCT in the name of Anastacia was cancelled and a new title was issued in the names of
spouses Sepe. Few months after, Anastacia died.
In a complaint instituted on May 16, 2002, Respondent Heirs of Anastacia Kilang sought the
nullification of the Deed of Sale between Anastacia Kilang (Anastacia) with marital consent of
Fabian Solijon (Fabian) and spouses Generoso Sepe (Generoso or petitioner) and Gaudencia
D. Sepe (spouses Sepe); the Confirmation of Sale executed by respondents, except Dominga;
and Transfer Certificate of Title No. (TCT) T-3536710 registered in the names of spouses Sepe;
and for recovery of title, possession with damages. Respondents failed to prosecute the case
for some time resulting in its dismissal without prejudice on February 26, 2002.
On May 16, 2002, respondents refiled the case by filing the Complaint dated March 25, 2002.
On August 7, 2006, the RTC issued an Order granting the demurrer to evidence and dismissing
the case. On appeal, the CA ruled in favor of the respondents.
ISSUE: Whether or not the CA erred in its ruling that there was no consideration for the sale.
RULING: YES. Petitioner's reliance on the DOS as proof that the sale contemplated therein was
supported by sufficient consideration is not without legal basis. The disputable presumption of
existence and legality of the cause or consideration inherent in every contract supports his
stance.
Article 1354 of the Civil Code provides: "Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the contrary." Otherwise stated,
the law presumes that even if the contract does not state a cause, one exists and is lawful; and
it is incumbent on the party impugning the contract to prove the contrary. If the cause is stated
in the contract and it is shown to be false, then it is incumbent upon the party enforcing the
contract to prove the legality of the cause.
29
Aside from the presumption of sufficient consideration working in favor of petitioner, the
acknowledgment of the DOS before a notary public makes it a public document. As a general
rule, the due execution and authenticity of a document must be reasonably established before it
may be admitted in evidence. Notarial documents, however, may be presented in evidence
without further proof of their authenticity, since the certificate of acknowledgment is prima facie
evidence of the execution of the instrument or document involved. To contradict facts in a
notarial document and the presumption of regularity in its favor, the evidence must be clear,
convincing and more than merely preponderant.
Given the foregoing, the Court is not persuaded by the CA's postulation that the oral refutation
by respondents Feliciana and Maria of the consideration stated in the DOS has reached the
threshold of the required quantum of proof of clear and convincing evidence. Their mere oral
declaration that no consideration was paid to their mother Anastacia is simply not enough given
the presence of the following notarized and public documents in petitioner's favor.
The Court moreover agrees with the RTC's observation that respondents should have
questioned the DOS during the lifetime of their mother Anastacia given that she was the only
person who could confirm or refute its genuineness and contents. It must be recalled that
Anastacia died on October 20, 1993, about nine months after she executed the Notice of
Withdrawal of Adverse Claim and the issuance of TCT T-35367 in the names of spouses Sepe.
Indeed, the most credible person who could attest that no consideration was paid by spouses
Sepe in connection with the DOS was Anastacia.
Where a document, like a deed of sale, duly acknowledged before a notary public is disputed,
the parties thereto are in the best position to refute its execution and contents. Their testimonies
are crucial in order to establish the required proof of clear and convincing evidence to overcome
the presumptions in favor of public documents. Oral declarations by non-parties which
contradict the contents of notarial documents should be evaluated and admitted with extreme
caution in order not to erode their status and significance as public documents.
Furthermore, the COS executed by 4 of the 5 children of Anastacia, which is supported by a

valuable consideration, bolsters petitioner's cause. It is noted that Dominga, who is not a
signatory to the COS, did not testify for respondents. Indeed, respondents have ratified and
confirmed the sale of the subject lot by their parents to spouses Sepe. Again, their claim that the
amount they received from spouses Sepe was a Christmas gift to them, aside from being
incredible as held by the RTC, is not clear and convincing evidence to overcome the facts
stated in the COS.
Given the failure of respondents to adduce clear and convincing evidence to support their cause
and overcome the presumptions granted by law in favor of the public documents above-
enumerated, the RTC did not err in granting petitioner's demurrer to evidence.
30
16. MELINDA M. MALABANAN v. FRANCISCO MALABANAN JR., SPOUSES RAMON AND

PRESCILA MALABANAN, AND SPOUSES DOMINADOR III AND GUIA MONTANO
G. R. No. 187225, March 06, 2019, THIRD DIVISION, Leonen, J.
NATURE OF ACTION: Action for Annulment of Title with Damages
FACTS: Petitoner Melinda Malabanan (Melinda), together with her now deceased husband
Jose Malabanan they acquired a 310-square meter lot, a portion of a 2,000-square meter land
registered under Maria Cristina Rodriguez (Rodriguez) by virtue of a Deed of Absolute Sale.
Subsequently, Transfer Certificate of Title No. T-188590 was issued to "Jose, married to
Melinda.” The spouses built a house on the lot which the family had possessed since 1984.
Melinda left the Philippines for Libya. Jose later on died and the former only came home on
November 8, 1990. Later on, Melinda discovered that the TCT under their name had long been
cancelled through a string of transactions, and that the property was registered under the name
of Spouses Dominador III and Guia Montano (the Montano Spouses). When Melinda's mother-
in-law, Adelfina Mendoza (Adelfina) died, her family executed an Extrajudicial Settlement of her
estate. The property, then covered by Transfer Certificate of Title No. T-198039, was
adjudicated to Ramon Malabanan (Ramon), who was Jose's brother.
On June 1, 1994, Melinda filed before the Regional Trial Court a Complaint for Annulment of
Title with Damages against Spouses Ramon and Prescila Malabanan (the Malabanan Spouses)
and Francisco Malabanan (Francisco). On June 17, 1994, Ramon sold the property to the
Montano Spouses, with whom Transfer Certificate of Title No. T-467540 was issued.
The Regional Trial Court ruled in favor of Melinda. On appeal, the Court of Appeals set aside
the trial court's ruling and ordered the Complaint's dismissal. It gave weight to Francisco's claim
that the property was an advance on Jose's legitime.
ISSUE: Whether or not the sale of a conjugal property without the wife's consent is void.
RULING: YES. Under the Civil Code, property acquired during marriage is presumed to be
conjugal. Here, the pieces of evidence presented by respondents, who had the burden of
proving that the property was not conjugal, were insufficient to overturn this presumption.
This Court, ruled in a number of cases that the sale of conjugal property by a spouse without the
other's consent is void. All subsequent transferees of the conjugal property acquire no rights
whatsoever from the conjugal property's unauthorized sale. Here, Jose had no right to either
unilaterally dispose the conjugal property or grant respondent Francisco this authority through
the supposed Special Power of Attorney.
Also, we agree with the trial court's finding that the Montano Spouses were not buyers in good
faith.
A person is a buyer in good faith or an "innocent purchaser for value" when he or she purchases
and pays the fair price for a property, absent any notice that another has a right over it. If the
property is covered by a certificate of title, the buyer may rely on it and is not obliged to go
beyond its four (4) corners.
To justify good faith in merely relying on the certificate of title, the following must be present:
First, the seller is the registered owner of the land; second, the latter is in possession thereof;
and third, at the time of the sale, the buyer was not aware of any claim or interest of some other
person in the property, or of any defect or restriction in the title of the seller or in his capacity to
convey title to the property.
Here, the land has always been possessed by petitioner, and not respondent Ramon
Malabanan who sold it. Respondent Dominador should have inquired about this before he
purchased the property. Verifying the status of the property would not have been difficult for a
seasoned businessman like him, who incidentally lives in the same neighborhood where the
property is located.
31
17. SPOUSES LUIS G. BATALLA AND SALVACION BATALLA, v. PRUDENTIAL BANK,

NAGATOME AUTO PARTS, ALICIA RANTAEL, AND HONDA CARS SAN PABLO, INC.
G.R. No. 200676, March 25, 2019,SECOND DIVISION, J. Reyes, JR. J.
NATURE OF ACTION: Action for for Rescission of Contracts and Damages
FACTS: In March 1998, Petitioner Spouses Luis G. Batalla and Salvacion Batalla purchased a
brand new Honda Civic from respondent Honda Cars San Pablo, Inc. (Honda). Respondent
Alicia Rantael (Rantael), then acting manager of Pilipinas Bank, brokered the deal.
To finance the purchase of the said motor vehicle, Spouses Batalla applied for a car loan with
Prudential, executing a promissory note for the sum of P292,200.00 payable within 36 months
and subsequently approved. As such, Prudential issued a Manager's Check in the said amount
payable to Honda.
Spouses Batalla paid P214,000.00 corresponding to the remaining portion of the purchase price
for the Honda Civic. In addition, they also paid P11,000.000.00 for delivery cost and the
installation of a remote control door mechanism, and P28,333.56 for insurance.
Three days after receiving the car, the rear right door of the car broke down. The Spouses
Batalla consulted a certain Jojo Sanchez (Sanchez), who claimed that the power lock of the rear
right door was defective and that the car was no longer brand new because the paint of the roof
was merely retouched.
On May 3, 1998, Spouses Batalla sent a letter to the manager of Prudential notifying it of the
said defects and demanding the immediate replacement of the motor vehicle. Then, they took
the car to the Auto Body Shop for a thorough evaluation of the status of the vehicle. According
to Arturo Villanueva (Villanueva), the vehicle was no longer brand new because the rooftop was
no longer shiny in appearance. Thereafter, the manager of Prudential, together with two
individuals from Honda, offered to repair the vehicle. Spouses Batalla rejected it because they
wanted the car to be replaced with a brand new one without hidden defects.
Unable to secure a brand new car in replacement of the alleged defective vehicle, Spouses
Batalla filed a Complaint for Rescission of Contracts and Damages against Prudential and
Honda.
The RTC dismissed the Spouses Batalla's complaint. The CA affirmed with modification the
RTC decision. The appellate court ruled that Spouses Batalla cannot rescind the promissory
note and car loan agreement on account of the car's alleged defects because they are distinct
from the contract of sale entered into with Honda.
ISSUE: A. Whether the motor vehicle delivered by Honda had hidden defects; and
B. Whether Spouses Batalla may rescind the contract of sale, car loan agreement and
promissory note due to the defects of the motor vehicle sold.
RULING: A. NO. It cannot be ascertained whether the defects existed at the time of the sale.
Article 1561 of the Civil Code provides for an implied warranty against hidden defects in that the
vendor shall be responsible for any hidden defects which render the thing sold unfit for the use
for which it is intended, or should they diminish its fitness for such use to such an extent that,
had the vendee been aware thereof, he would not have acquired it or would have given a lower
price. In an implied warranty against hidden defects, vendors cannot raise the defense of
ignorance as they are responsible to the vendee for any hidden defects even if they were not
aware of its existence.
In order for the implied warranty against hidden defects to be applicable, the following
conditions must be met: a) Defect is Important or Serious; b) The thing sold is unfit for the use
which it is intended; c) Diminishes its fitness for such use or to such an extent that the buyer
would not have acquired it had he been aware thereof; d) Defect is Hidden; e) Defect Exists at
the time of the sale; and f) Buyer gives Notice of the defect to the seller within reasonable time.
32
In case of a breach of an implied warranty against hidden defects, the buyer may either elect
between withdrawing from the contract and demanding a proportionate reduction of the price,
with damages in either case. Here, Spouses Batalla opted to withdraw from the contract of sale
after their demand for a replacement car was not granted.
As can be seen, the redhibitory action pursued by Spouses Batalla was without basis. For one,
it was not sufficiently proven that the defects of the car door were important or serious. The
hidden defect contemplated under Article 1561 of the Civil Code is an imperfection or defect of
such nature as to engender a certain degree of importance and not merely one of little
consequence. Spouses Batalla failed to prove that such defect had severely diminished the
roadworthiness of the motor vehicle. In fact, they admitted that they had no problem as to the
road worthiness of the car.
B. NO. Loan agreement independent of the contract of sale.
Other than rescission of the contract of sale, Spouses Batalla also sought for the rescission of
the car loan agreement and promissory note with Prudential. They believed that they had
ground to rescind the car loan agreement and promissory note they executed with Prudential.
Spouses Batalla surmised that the object of these documents was the delivery of a brand new
car without hidden defects, and because of the alleged defects of the vehicle, there was no valid
object for the contract.
A contract of loan is one where one of the parties delivers money or other consumable thing
upon the condition that the same amount of the same kind and quality shall be paid. It is
perfected upon delivery of the object of the contract. On the other hand, a contract of sale is a
special contract whereby the seller obligates himself to deliver a determinate thing and to
transfer its ownership to the buyer. The same is perfected by mere consent of the parties.
Thus, it is readily apparent that a contract of loan is distinct and separate from a contract of
sale. In a loan, the object certain is the money or consumable thing borrowed by the obligor,
while in a sale the object is a determinate thing to be sold to the vendee for a consideration. In
addition, a loan agreement is perfected only upon the delivery of the object i.e., money or
another consumable thing, while a contract of sale is perfected by mere consent of the parties.
Under this premise, it is not hard to see the absurdity in the position of Spouses Batalla that
they could rescind the car loan agreement and promissory note with Prudential on the ground of
alleged defects of the car delivered to them by Honda. The transactions of Spouses Batalla with
Prudential and Honda are distinct and separate from each other. From the time Spouses Batalla
accepted the loan proceeds from Prudential, the loan agreement had been perfected. As such,
they were bound to comply with their obligations under the loan agreement regardless of the
outcome of the contract of sale with Honda. Even assuming that the car that Spouses Batalla
received was not brand new or had hidden defects, they could not renege on their obligation of
paying Prudential the loan amount.
33
18. GUINO ESCABARTE ET AL, v. HEIRS OF BENIGNO ISAW

G.R. No. 208595, August 28, 2019, SECOND DIVISION, Reyes J. JR., J.
NATURE OF ACTION: Action for declaration of nullity of rescission, declaration of suspension

of payment of purchase price and interest
FACTS: Spouses Ipo Bawing and Tanod Subano (spouses Bawing) died intestate in February
1943 and in January 1948, respectively. Thus, the subject parcel of land located in Sindangan,
Zamboanga del Norte, passed on to their children, namely, Onday, Igbay, Garay, Anong, Octoc,
Martina, Leoncio and Pedro.
On September 5, 1960, Pelagia Isig, the declared sole legitimate heir of Octoc as well as Igbay
sold their respective aliquot shares in the property to spouses David Barrios and Luz Barrios
(spouses Barrios). On April 16, 1962, Martina also sold her aliquot share over the said property
to spouses Barrios. The deeds of sale were approved by Guadalupe C. Adaza, then Provincial
Governor of Zamboanga del Norte.
In September 1976, spouses Barrios reconveyed the shares sold to them as evidenced by a
Deed of Resale under the sons of Garay and was duly annotated on the title. Fausto
consequently executed a Deed of Absolute Sale conveying all rights, interest and participation
over the properties in favor of his brother Benigno.
In 1980, the subdivision of the property into five (5) lots was duly approved. On the basis of the
subdivision plan, Transfer Certificates of Title (TCT) were issued in the name of Benigno Isaw
for Lots 1 and 3, respectively. On the same date, TCTs were issued in the name of Ipo Bawing,
were issued for Lots 2, 4 and 5.
Twenty-three years later, petitioners were seeking the annulment of TCT under the name of
Benigno and the judicial partition of the 16.2962-hectare property of spouses Bawing. They
alleged that the heirs of spouses Bawing agreed that the document of conveyance should be in
the name of Fausto and Benigno considering that they provided the amount needed for the
redemption of the shares sold to spouses Barrios. The agreement was subject to the condition
that after Benigno and Fausto were reimbursed, the property should be partitioned among the
heirs. However, without the benefit of any extrajudicial settlement of the estate of spouses
Bawing, Benigno fraudulently sought the titling of Lots 1 and 3 in his name.
Respondent heirs of Benigno counter that there was already an oral partition of the property
when Pelagia, Martina and Igbay sold their respective undivided interests to spouses Barrios.
Further, they asserted that while generally an action for partition does not prescribe as among
co-heirs, the exception is when a co-owner had properly repudiated the co-ownership by
registering in his name some of the shares of the estate which Benigno did when he registered
Lots 1 and 3 in his name.
The trial court declared that no oral partition was agreed upon by the heirs of spouses Bawing
as evidenced by the lack of titles issued in the name of the other heirs. However, the CA
reversed and set aside the RTC ruling. It noted that the petitioners have not denied that Benigno
and Fausto held the redeemed shares of Martina, Igbay and Pelagia in trust until they be
reimbursed of the expenses they incurred in the redemption.
ISSUE: Whether or not legal redemption is applicable in this case.
RULING: NO. One of the requisites is lacking in the present case.
The Deed of Resale executed in favor of Fausto and Benigno which also covers the aliquot
shares of Octoc, Igbay and Martina in the Zamboanga del Norte lot refers to an ordinary sale
and not a redemption done for the benefit of the heirs of spouses Bawing. Through this sale,
Fausto and Benigno acquired three-eighths of the Zamboanga del Norte lot to the exclusion of
the other heirs of spouses Bawing.
For resolution of the present case, a reference to Article 1088 of the Civil Code is proper. The
said provision states, "Should any of the heirs sell his hereditary rights to a stranger before the
partition, any or all of the coheirs may be subrogated to the rights of the purchaser by
34
reimbursing him for the price of the sale, provided they do so within the period of one month
from the time they were notified in writing of the sale by the vendor."
For a transaction to be considered one of legal redemption inuring to the benefit of the co-heirs,
the following requisites must concur: 1) there should be several heirs or partitioners to the
common thing; 2) one of them sells his hereditary right; 3) the sale should be made to a
stranger to the inheritance and before the partition is made; 4) one or more of the co-heirs
exercise this right within the period of one month counted from the time they are notified in
writing of the sale by the vendor; and 5) the buyer is reimbursed for the price of the same.
In this case, the fourth requisite is lacking. As a general rule, the 30-day redemption period
given to the remaining co-heirs under Article 1088 runs from written notice of the sale by the
vendor.
The portions subject of the Deed of Resale were sold to spouses Barrios in 1960 for Octoc and
Igbay's shares) and 1962 (for Martina's share). Petitioners themselves admit that Fausto and
Benigno contested the validity of the 1960 and 1962 sales for being violative of the
Administrative Code of Mindanao and Sulu. Thus, the co-heirs could not feign ignorance of the
1960 and 1962 sales, and that their 30-day period to redeem the same under Article 1088 had
lapsed prior to the sale in favor of Fausto and Benigno more than a decade after, or in 1976.
The co-heirs were undeniably informed of the sales although no notice in writing was given
them and there is no doubt either that the 30-day period began and ended during the 14 years
between the sale of Octoc, Igbay and Martina's shares to spouses Barrios and the subsequent
resale of the shares to Benigno and Fausto.
Consequently, the transaction covered by the Deed of Resale cannot be deemed to be one of
redemption which inures to the benefit of all the heirs of spouses Bawing. Rather, it was an
ordinary sale which Fausto and Benigno entered into solely for their own account. In so
purchasing the previously sold aliquot shares, Fausto and Benigno acquired three-eighths of the
Zamboanga del Norte lot to the exclusion of the other heirs of spouses Bawing. In fine, when
Fausto sold his share to Benigno, the latter became the sole owner of the portions
corresponding to Octoc, Igbay and Martina's shares and he may rightfully register the lots in his
name under the Torrens system.
35
19. ANGELINA A. BAYAN* AND JAIME A. BAYAN, v. CELIA A. BAYAN (DECEASED), EDWARD
DY, MA. LUISA B. TANGHAL, AND THE REGISTER OF DEEDS OF QUEZON CITY
G.R. No. 220741, August 14, 2019, SECOND DIVISION, Reyes, J. JR., J.
NATURE OF ACTION: Action for Annulment of Mortgage with Damages
FACTS: Petitioners, together with respondent Celia, are the registered co-owners of three
parcels of residential and commercial land located in Cubao, Quezon City.
In 2005, Celia, acting for herself and as alleged Attorney-in-Fact of Angelina and Jaime,
obtained loans on three different occasions from her co-respondents Tanghal and Dy in the total
amount of P4,500,000.00 plus interest and penalties in the event of default or delay in payment.
To secure the payment of her loans, Celia executed a fraudulent Special Powers of Attorney
(SPAs) which supposedly embodied her authority to act on behalf of her frail mother Angelina
and her brother, Jaime, who was permanently living in the United States. With such spurious
authority, Celia executed in favor of Dy and Tanghal three Deeds of Real Estate Mortgage
covering the three parcels of land which she co-owned with Angelina and Jaime.
Angelina and Jaime insisted that all the transactions made by Celia were without their
knowledge and consent and their signatures embodied in the SPA were forged. This prompted
them to file the instant action. However, during the pendency of the case, Dy and Tanghal
proceeded to foreclose the mortgage.
The RTC ruled in favor of the petitioners declaring as null and void deeds of real estate
mortgage, and declaring as inefficacious and of no legal force and effect the extra-judicial
foreclosure proceeding, the public auction sale, and the Sheriff's Sale. Respondents filed an
appeal with the CA. Meanwhile, Celia died. Petitioners prayed that the CA partially reconsider
its Decision by granting their right of legal redemption over the one-third (1/3) share of Celia
through the payment of one-third of the mortgage debt, without interest, to be exercised within a
reasonable period to be set by the trial court.
The CA issued a Resolution denying all the parties' Motions for Partial Reconsideration for lack
of merit.
ISSUE: Whether or not the the petitioners can raise their right of legal redemption for the first
time on appeal.
RULING: NO.
Petitioners' right of redemption accrued the moment they have written notice of the foreclosure
sale. In legal pre-emption or redemption under the Civil Code of the Philippines, written notice of
the sale to all possible redemptioners is indispensable.12 Article 1623 of the Civil Code.
In the instant case, the fact that petitioners alleged in their complaint about the foreclosure sale
of the mortgage, the Sheriffs Certificate of Sale and their annotation/inscription on TCT. Nos. N-
140606, N-140607 and N-140608 conclusively shows that petitioners were notified of the sale
and were furnished said documents, and is tantamount to an actual knowledge of such fact of
sale. No other notice is needed because the Sheriffs Certificate of Sale itself confirms the fact of
sale, its perfection and its due execution.
The bottomline is that petitioners need not wait for the Court to make a definitive ruling on the
validity or invalidity of the mortgage made by their co-owner. They should have known that any
co-owner can mortgage their undivided share in the co-owned property in accordance with
Article 49320 of the Civil Code. Upon notice of the foreclosure sale or receipt of any written
notice of the fact of sale, petitioners' right of legal redemption had already accrued such that
they should have included said issue at the very onset in their complaint. Not having raised the
same with the lower court, it cannot be entertained for the first time in the Motion for
Reconsideration with the appellate court.
36
20. JOCELYN MODOMO AND DR. ROMY MODOMO v. SPOUSES MOISES P. LAYUG, JR. AND
FELISARIN* E. LAYUG; MOISES P. LAYUG, JR., SUBSTITUTED BY HIS HEIRS, NAMELY: HIS
WIFE, FELISARIN E. LAYUG, AND CHILDREN, MA. CELESTE LAYUG CO, EUGENE ESPINOSA
LAYUG, FRANCIS ESPINOSA LAYUG AND SHERYL ESPINOSA LAYUG
G.R. No. 197722, August 14, 2019, Second Division, Caguioa J.
NATURE OF ACTION: Action for Ejectment
FACTS: Respondent Spouses Layug are the registered owners and legal possessors of a
parcel of land located in Barangay Tejeros, Makati City. Aforesaid subject property was leased
to Petitioner Spouses Modomo for a period of seven (7) years. Pursuant to the Contract of
Lease dated February 11, 2005, Spouses Modomo agreed to pay the amount of Php170,000.00
as monthly rentals subject to an escalation of 10% for the second and third year, 15% on the
fourth and fifth year and 20% on the sixth and seventh year. It was also agreed by the parties
that real estate taxes on the property shall be paid by the Petitioners.
Subsequently, Petitioners defaulted in the payment of the escalation of rental fees commencing
from the year 2006 up to the filing of the complaint for ejectment on Jury 23, 2008. Spouses
Modomo also failed to pay their rentals for the year 2008 which would have been paid in
advance. Spouses Layug also alleged, that Spouses Modomo failed to pay the real estate taxes
due. This prompted Spouses Layug to send a letter Spouses Modomo demanding that they
settle their unpaid monthly rentals but to no avail.
Ultimately, Spouses Layug terminated the Contract of Lease through a letter dated
March 24, 2008 and demand for Spouses Modomo to vacate the premises. Spouses Layug
instituted the present suit.
Therefore, Spouses Modomo argued that the initial Contract of Lease had been amended by
the subsequent oral agreements between the parties and that the same has been novated in
view of the subsequent oral agreements of the parties.
The MeTC ruled in favor of Spouses Layug. On appeal, the RTC affirmed the findings of the
MeTC in toto. Aggrieved, Spouses Modomo filed a petition for review before the CA, to which
the CA denied said petition.
ISSUE: A. Whether the provisions of the Contract of Lease governing rental fees, escalation
and real estate tax payment have been partially novated by the parties' alleged subsequent
verbal agreement;
B. Whether Spouses Modomo are entitled to reimbursement for useful improvements made
upon the leased property.
RULING:
B. YES. the Court finds that while there has been a modificatory novation of the Contract of
Lease through the parties' subsequent verbal agreement.
Spouses Modomo adamantly insist that the terms of the Contract of Lease governing rental
fees, escalation and real estate tax payments have been modified through a subsequent verbal
agreement.
Spouses Modomo alludes to the existence of a partial novation, governed by Article 1291 of the
Civil Code which states:
ART. 1291. Obligations may be modified by: (1) Changing their object or principal conditions;
(2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the
creditor.
While the Civil Code permits the subsequent modification of existing obligations, these
obligations cannot be deemed modified in the absence of clear evidence to this effect. Novation
37
is never presumed, and the animus novandi, whether total or partial, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
Applying the foregoing principles, the Court finds that while there has been a modificatory
novation of the Contract of Lease through the parties' subsequent verbal agreement, such
novation relates solely to the lowering of the monthly rental fee from Php170,000.00 to
Php150,000.00.
C. NO. Spouses Modomo are not entitled to reimbursement for the cost of improvements made
on the leased property.
Under Article 1678 of the Civil Code, if the lessee makes, in good faith, useful improvements
which are suitable to the use for which the lease is intended, without altering the form or
substance of the property leased, the lessor upon the termination of the lease shall pay the
lessee one-half of the value of the improvements at that time. Should the lessor refuse to
reimburse said amount, the lessee may remove the improvements, even though the principal
thing may suffer damage thereby. He shall not, however, cause any more impairment upon the
property leased than is necessary.
Suffice it to state that Spouses Modomo have, by their own acts, deprived the Spouses Layug of
the option to appropriate the improvements made upon the leased premises by causing their
demolition. Notably, Spouses Modomo did not dispute that they had "vacated the leased
premises and left no single piece of wood or materials on the premises [and] demolished
everything." Hence, they are precluded from seeking reimbursement for improvements that are
now inexistent.
As well, the Court finds that the additional award for monthly payment for reasonable use and
occupation of the leased premises should start to run not from the filing of the complaint for
ejectment on July 23, 2008, but rather in January 2009, considering that the award for rental
arrearages already includes unpaid rental fees for the entire year of 2008, that is, until
December 2008.
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21. BOOKLIGHT, INC. v. RUDY O. TIU

G.R. No. 213650, June 17, 2019, SECOND DIVISION, REYES, J. JR., J.
NATURE OF ACTION: Collection of Sum of Money, Damages
FACTS: Petitioner entered into a contract of lease with respondent for a space in respondent's
building to be used for petitioner's bookstore business. The lease was for five years, which
expired on September 1, 2001. It was never renewed upon expiration although petitioner
continued to occupy the premises until its business operations ceased on February 28, 2003.
Alleging unpaid rentals from December 2001, respondent filed the said complaint.
Respondent's application for the issuance of a writ of attachment was granted by the RTC.
Thus, petitioner's personal properties in the bookstore were attached and its funds in Rizal
Commercial Banking Corporation were garnished. Petitioner alleged that there was no prior
demand made by respondent and that it fully paid its rentals up to July 2002, among others.
The RTC declared petitioner non-suited for its failure to file a pre-trial brief and for its failure to
appear during the scheduled pre-trial. Petitioner filed a motion to lift order of non-suit, which was
denied by the RTC. Petitioner's motion for reconsideration was likewise denied by the RTC.
Hence, the RTC set the hearing for the ex parte presentation of respondent's evidence and
presented his evidence ex parte.
The RTC ruled in favor of respondent. The CA affirmed the RTC's Decision with modification,
deleting the award of legal interest on the amount of unpaid rentals, the expenses incurred for
security services rendered by Visa Security Services, the litigation expense as well as attorney's
fees.
ISSUE: Whether the claim for refund of the advance rental and deposit shall be granted.
RULING: NO. For lack of basis, this Court finds no cogent reason to deviate from the findings of
the RTC, as affirmed by the CA, on the matters of rentals and electric bills.
With regard to the alleged proceeds of the auction sale of the attached properties, we find that
the same is not the proper subject of this review. For one, matters with regard to the fact of the
sale of the attached properties and the amount of its proceeds are likewise factual in nature,
which this Court cannot judiciously determine for lack of evidence. Notably, petitioner without
support alleges P3,375,161.12 as the value of said proceeds, while respondent alleges, also,
without support except an allegation that it is on record, that the sheriff turned over to the RTC
Clerk of Court the proceeds of such sale amounting only to Three Hundred Fifty Two Thousand
Twenty Eight Pesos and Five Centavos (P352,028.05). Clearly, these are matters which should
be presented before, and determined by the trial court in the execution of the final judgment.
That being said, while the proceeds of the sale of the attached properties may indeed be
considered by the sheriff in the satisfaction of judgment pursuant to Section 15, Rule 57 of the
Rules of Court, it is unwarrantedly premature for this Court to rule on the matter when no writ of
execution had been issued and referred to the sheriff yet. There is no breach of the procedure in
the execution which this Court may evaluate at this point. The court's intervention may, if at all,
eventuate only if the sheriff should refuse to follow the outlined procedure in the execution of
judgment under the Rules.
39
22. HEIRS OF PABLITO ARELLANO, NAMELY, ELENA ARELLANO, REYNANTE ARELLANO,

AND RUBY ARELLANO v. MARIA TOLENTINO
G.R. No. 207152, July 15, 2019, SECOND DIVISION, Reyes, J. JR., J.
NATURE OF ACTION: Action for for Recovery of Possession
FACTS: Subject of this case is a 2.5-hectare parcel of agricultural land situated in Hermosa,
Bataan, owned by Bartolome Songco (Bartolome), who was later on succeeded by his son
Enrique Songco (Enrique).
Timoteo Tolentino (Timoteo), deceased husband of Maria Tolentino (respondent), executed a

leasehold agreements with Bartolome and Enrique entitled Kasunduan Buwisan sa Sakahan. In
the said contracts, Timoteo undertook to cultivate palay during the rainy season and to make
annual rental payments in the amount of 21 cavans of palay (1973 leasehold contract) and 22
cavans of palay (1985 contract).
Upon Timoteo's death in 2004, a conflict arose between family members as to who was the
lawful successor to Timoteo's tenancy in the subject land. On one hand, respondent claims that
she and her children as heirs of Timoteo, to be the successor of Timoteo's tenancy rights. On
the other, Pablito claims that he is the rightful tenant as his continuous cultivation of the subject
land, known to the Songcos, was tantamount to his stepfather's abandonment of his tenancy
rights and relinquishment thereof to him.
The controversy was then brought to the Provincial Agrarian Reform Adjudicator (PARAD)
through a Complaint for Recovery of Possession filed by respondent. The PARAD ruled in favor
of the respondents, upholding that in case of death or permanent incapacity of the agricultural
lessor, the leasehold shall bind his legal heirs.
On appeal to the Department of Agrarian Reform Adjudication Board (DARAB), the DARAB,
reversed and set aside the PARAD's Decision. On appeal, CA reverted to the PARAD's ruling,
upholding Timoteo's tenancy rights and rejecting petitioners' contention as to Timoteo's alleged
failure to personally cultivate the subject land.
ISSUE: Whether or not there was an implied tenancy in the present case.
RULING: NO. The Court ruled that cultivation of an agricultural land will not ipso facto make one
a de jure tenant. Independent and concrete evidence is necessary to prove personal cultivation,
sharing of harvest, and consent of the landowner. Also, while implied tenancy is recognized in
this jurisdiction, for it to arise, it is also necessary that all the essential requisites of tenancy
must be proven to be present, to wit:
(1) The parties are the landowner and the tenant;
(2) The subject matter is agricultural land;
(3) There is consent between the parties to the relationship;
(4) The purpose the relationship is to bring about agricultural production;
(5) There is personal cultivation on the part of the tenant or agricultural lessee; and
(6) The harvest is shared between landowner and tenant or agricultural lessee.
In this case, Pablito failed to prove that he has successfully replaced Timoteo in the latter's
tenancy rights over the subject land.
First, there is no proof that Pablito "personally cultivates" the subject land.
As correctly held by the CA, the mere fact that Pablito is the one who "physically" cultivates the
subject land does not, by itself, make him the lawful tenant thereof.
Second, there was no proof of a harvest sharing relationship between Pablito and the Songcos.
40
It should be emphasized that harvest sharing is a vital element of every tenancy. In this case,
Pablito presented receipts to prove his claimed harvest sharing relationship with the Songcos.
Unfortunately, said receipts are not sufficient to serve such purpose.
Notably, the number of shares delivered to the Songcos stated in the receipts is consistent with
the terms under the leasehold agreement between Timoteo and the Songcos. Thus, not only
are the receipts insufficient to prove a harvest sharing agreement between Pablito and the
Songcos, the fact that the receipts were consistent with the terms of Timoteo's leasehold
agreement with the Songcos made it worse for petitioners' case. Such fact only bolsters the
conclusion that Pablito was only acting on behalf of Timoteo.
Being the lawful agricultural lessee or tenant, therefore, Timoteo is entitled to security of tenure.
In fact, not even death can extinguish his agricultural leasehold relation with the Songcos.26 He
may only be dispossessed of the landholding on the grounds provided by law, i.e., Section 3627
of R.A. No. 3844. It bears stressing that physical cultivation of the land per se would not warrant
the lawful tenant to automatically be dispossessed of the tenanted land. The dispossession
should be court-authorized after due determination of the existence of any of the grounds under
R.A. No. 3844.28 While there may be implied tenancy, there can be no implied dispossession of
a landholding, nor can there be an implied rescission of an agricultural leasehold agreement.
This Court is, thus, one with the CA in ruling that Timoteo cannot be considered to have failed to
perform his duties as agricultural lessee or tenant, nor could he be considered to have
abandoned his tenancy rights, to result to the extinguishment of the leasehold relation.
The continuance of Timoteo's tenancy rights over the subject land being established, the CA
correctly concluded that there can be no implied tenancy when there is another express tenancy
on the same landholding.
Upon Timoteo's death, therefore, the leasehold shall continue between the Songcos and the
respondent, Timoteo's surviving spouse, in accordance with Section 9 of R.A. No. 3844.
41
CREDIT TRANSACTION
23. DR. RICO VARGAS SUBSTITUTED BY HIS WIFE, CECILIA VARGAS AND CHILDREN,
NAMELY: RICHELLE JOSIE JUDY VARGAS-CASTRO, ARVEE T. VARGAS AND CECILIA
VARGAS,* v. JOSE F. ACSAYAN, JR.
G.R. No. 206780, March 20, 2019, SECOND DIVISION, J. REYES, JR., J.
STARDIAMOND INTERNATIONAL TRADING, INC., BENJAMIN N. LIBARNES AND ERNESTO V.

PARANIS, v. JOSE F. ACSAYAN, JR.
G.R. No. 206843, March 20, 2019, SECOND DIVISION, J. REYES, JR., J.
NATURE OF ACTION: Action for annulment of sale
FACTS: October 1997, the spouses Tabangcora offered to sell to respondent a parcel of land
(subject property) in Sariaya, Quezon for a purchase price of Five Million Nine Hundred Fifty
Thousand Pesos (P5,950,000.00). The downpayment shall be paid to Land Bank of the
Philippines (LBP) for the payment of indebtedness incurred by the spouses Tabangcora which
was covered by a mortgage over the subject property, and the balance shall be paid upon
execution of a Deed of Absolute Sale in favor of respondent.
Upon demand, the spouses Tabangcora delivered to respondent a photocopy of the TCT of the
subject property, registered under the names of spouses Vargas, the brother-in-law and sister,
respectively, of Maximino Tabangcora. Annotated in the said title are two entries - Entries Nos.
603729 and 659404 - evidencing the mortgage with LBP and the amendment thereto.
Respondent was also given a duplicate original copy of the Deed of Assignment executed by
spouses Vargas which purportedly ceded the subject property making the spouses Tabangcora
the owners of the subject property.
Thus, on November 24, 1997, respondent issued a check in the amount of P4,617,293.88 in
favor of LBP. Afterwards, the spouses Tabangcora asked respondent for another One Hundred
Thousand Pesos (P100,000.00) allegedly as payment for processing fees for the transfer of the
subject property in the former's name, which the latter acceded.
After respondent's additional payment of P100,000.00, he insisted on the execution of the Deed
of Absolute Sale but the spouses Tabangcora advised him that the same will be executed in
due time. Sometime in April 2000, the spouses Tabangcora, again, attempted to secure another
P100,000.00 from herein respondent which the latter promptly refused. Thus, respondent
decided to investigate the status of the subject property and found that a real estate mortgage
over the subject property had been executed by the spouses Tabangcora and spouses Vargas
in favor of herein petitioner Stardiamond, a corporation incorporated by petitioners Libarnes,
Paranis, Maximino, Tabangcora and certain individuals.
Apparently, petitioner spouses Vargas designated the spouses Tabangcora as their attorneys-
in-fact for the purpose of entering into an Agreement and a Real Estate Mortgage with petitioner
Stardiamond. Respondent also discovered that at the time the spouses Tabangcora were
negotiating the alleged sale to him, the subject land and the improvement thereon were already
foreclosed by LBP and a certificate of sale had already been issued in favor of LBP. Thus, he
realized that the down payment he paid was actually used by the spouses Tabangcora not for
the payment of the loan, but to redeem the subject property that was previously foreclosed by
LBP.
This prompted respondent to file a Complaint with Prayer for Preliminary Attachment before the
RTC. The Court ruled in favor of the respondent and declared the verbal agreement to sell
between the spouses Tabangcora and respondent valid. The CA reversed the dispositions
made by the RTC
ISSUE: Whether the transaction is one of sale
RULING: NO. As to the nature of the transaction between the spouses Tabangcora and
respondent, we agree with the CA that the same was not one of sale. From the start of their
transaction, respondent knew that the initial money (he called the downpayment) which he will
42
give to spouses Tabangcora was intended to pay the loan of the spouses Tabangcora with LBP.
As a matter of fact, he even issued a check with LBP as the payee. If from the very start, the
parties intended to enter into a contract of sale, respondent should have required the execution
of a written instrument evidencing their transaction. Respondent should have acted with that
measure of precaution which may reasonably be required of a prudent man in a like situation.
Another instance that negates a sale transaction between the spouses Tabangcora and
respondent was their verbal agreement to impose a 2% interest on the money given to the
spouses Tabangcora. As observed by the CA, as to why respondent readily loaned a big
amount without collateral was because respondent was enticed by the 2% monthly interest.
At any rate, in the event of doubt as to the nature and conditions of a contract that cannot be
decided by the language of an agreement, in justice, it must be presumed that the debtor
assumed the lesser obligation and that the liability contracted is that which permits the greatest
reciprocity of interest and rights. Since there was doubt as to whether the agreement between
the parties was a loan or a sale, it is more sound that the agreement in question be considered
as a loan contract — with the spouses Tabangcora not surrendering all the rights to the property
but simply conferring upon respondent merely to collect from the spouses Tabangcora what is
owing to him (with interest for the use of his money) thereby promoting a greater reciprocity of
rights and obligations between them.
Having ruled that the transaction between the spouses Tabangcora is one of loan and not of
sale (or a mortgage) of the subject property, then respondent has neither a vested right over the
said property or a right superior to that of petitioners Stardiamond, Libarnes and Paranis.
Hence, we need not delve on the issue of whether petitioners Stardiamond, Libarnes, Paranis
and spouses Tabangcora conspired and connived with one another in fraudulently depriving
respondent of his right over the subject property when they executed the Agreement and the
Real Estate Mortgage both dated March 1, 1998.
43
24. HUN HYUNG PARK v. EUNG WON* CHOI

G.R. No. 220826, March 27, 2019, SECOND DIVISION, Caguioa, J.
NATURE OF ACTION: Criminal action for Estafa and violation of Batas Pambansa Blg. 22
FACTS: On June 28, 1999, Park extended a loan to Choi in the amount of P1,875,000.00. As
payment for the loan, Choi issued PNB Check No. 007713310 in favor of Park.
Said check was dishonored for having been drawn against a closed account prompting Park to
send a letter to Choi informing the latter of the dishonored check. Based on the registry return
receipt attached to Park's Complaint-Affidavit, Choi received the demand letter on May 19, 2000
through a certain Ina Soliven. Nevertheless, Choi failed to resolve the dishonored check.
With the loan remaining unpaid, Park instituted a complaint against Choi for estafa and violation
of B.P. 22 which was subsequently elevated to the MeTC. During tral, the MeTC granted Choi's
Demurrer and dismissed the criminal complaint. The RTC - Branch 60 granted Park's appeal.
holding that while the evidence presented was insufficient to prove Choi's criminal liability for
B.P. 22, it did not altogether extinguish his civil liability. The case was then remanded back to
MeTC Branch 65.
in the course of the proceedings before MeTC, Choi repeatedly moved for several
postponements, which led the MeTC to hold that Choi had waived his right to present evidence.
The RTC - Branch 142 affirmed the MeTC Decision and denied Choi's appeal. The CA,
however, reversed the RTC -Branch 142 Decision.
ISSUE: Whether the payment of damages and interest were correctly determined by the court.
RULING: YES. In resolving the issues raised in the present petition, the Court emphasizes at
the outset that the dispute between the parties arose in 2000.
In this regard, the Court finds that Choi is liable to pay Park the face value of the check in the
amount of P1,875,000.00 as principal. Choi's bare allegations on the terms of the loan fail to
persuade. This is so because in accordance with Article 1956 of the Civil Code, no interest shall
be due unless it has been expressly stipulated in writing. Here, without further proof of any
express agreement that P375,000.00 of the P1,875,000.00 pertains to interest, the Court is
predisposed, based on the facts of the case, to rule that the entire principal amount owed by
Choi to Park is the face value of the check, or P1,875,000.00.
Given the foregoing, the Court therefore finds as correctly observed by the MeTC and
subsequently affirmed by the RTC - Branch 142, Choi is liable to pay Park the amount
P1,875,000.00 along with its corresponding legal interest.
There are two types of interest - monetary interest and compensatory interest. Interest as a
compensation fixed by the parties for the use or forbearance of money is referred to as
monetary interest, while interest that may be imposed by law or by courts as penalty for
damages is referred to as compensatory interest. Right to interest therefore arises only by virtue
of a contract or by virtue of damages for delay or failure to pay the principal loan on which
interest is demanded.
Inasmuch as the parties did not execute a written loan agreement, and consequently, did not
stipulate on the imposition of interest, Article 1956 of the Civil Code precludes the imposition
and running of monetary interest on the principal. In other words, no monetary interest having
been agreed upon between the parties, none accrues in favor of Park.
Nevertheless, the moment a debtor incurs in delay in the payment of a sum of money, the
creditor is entitled to the payment of interest as indemnity for damages arising out of that delay.
Article 2209 of the Civil Code provides that “if the obligation consists in the payment of 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 percent (6%) per annum."
Consequently, by operation of Article 2209 of the Civil Code, Choi becomes liable to pay Park
compensatory interest to indemnify Park for the damages the latter suffered as a result of Choi's
44
delay in the payment of the loan. Delay in this case, pursuant to Article 1169 of the Civil Code,
begins to run from the time Park extrajudicially demanded from Choi the fulfillment of his loan
obligation that is, on May 19, 2000. There being no stipulation as to the rate of compensatory
interest, the rate is six percent (6%) per annum pursuant to Article 2209 of the Civil Code.
To be clear, however, Article 2212 of the Civil Code, which provides that "interest due shall earn
legal interest from the time it is judicially demanded, although the obligation may be silent upon
this point," does not apply because "interest due" in Article 2212 refers only to accrued interest.
In interpreting the above provision of the old Civil Code, the Court in Zobel v. City of Manila,
ruled that Article 1109 applies only to conventional obligations containing a stipulation on
interest. Similarly, Article 2212 of the new Civil Code contemplates, and therefore applies, only
when there exists stipulated or conventional interest.
Finally in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the
rate allowed in judgments is twelve percent (12%) per annum computed from default (i.e., the
date of judicial or extrajudicial demand). With the issuance of Bangko Sentral ng Pilipinas (BSP-
MB) Circular No. 799 (s. 2013), said rate of 12% per annum applies until June 30, 2013, and,
from July 1, 2013, the new rate of six percent (6%) per annum applies. Finally, when the
judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest shall be 6% per annum from such finality until its satisfaction, the interim period being
deemed to be by then an equivalent to a forbearance of credit.
45
25. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK (NOW BANCO DE ORO

UNIBANK, INC.) v. WILLIAM GOLANGCO CONSTRUCTION CORPORATION
G.R. No. 195372, April 10, 2019, SECOND DIVISION Caguioa, J.
WILLIAM GOLANGCO CONSTRUCTION CORPORATION v. PHILIPPINE COMMERCIAL AND

INTERNATIONAL BANK (NOW BANCO DE ORO UNIBANK, INC.)
G.R. No. 195375, April 10, 2019, SECOND DIVISION Caguioa, J.
NATURE OF ACTION: Request for arbitration; for reimbursement
FACTS: William Golangco Construction Corporation (WGCC) and Philippine Commercial

International Bank (PCIB) entered into a contract for the construction of the extension of PCIB
Tower II on October 20, 1989. The project included the application of a granite wash-out finish
on the exterior walls of the building. PCIB accepted the turnover of the completed work by
WGCC on June 1, 1992. To answer for any defect arising within a period of one year, WGC
submitted a guarantee bond issued by Malayan Insurance Company, Inc. in compliance with the
construction contract.
In 1993, portions of the granite wash-out finish of the exterior walls of the building began peeling
off and falling from the walls. In 1994, PCIB entered into another contract with Brains and Brawn
Construction and Development Corporation to fix the walls. PCIB incurred expenses amounting
to 11,665,000.00 for the repair work.
PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC)
for the reimbursement of its expenses for the repairs made by another contractor. On June 21,
1996, the CIAC found that PCIB was entitled to recover from WGCC the sum of P9,741,829.00
representing cost of repairs done by another contractor on the project.
WGCC assailed the CIAC Decision and went up to the Supreme Court (in G.R. No. 1428306)
which held that it was not liable for the amount claimed by PCIB. Said decision became final on
April 27, 2006.
In pursuant to the foregoing, the CIAC granted WGCCJ's motion to amend the writ of execution
- The inclusion of legal interest of x x x 6% on the principal award awarded to PCIB computed
from June 21, 1996 and until such time as the same had been fully paid, as part of the amount
to be executed in the instant case.
PCIB moved for reconsideration, arguing that its liability for interest on the principal award
should commence only on April 27, 2006, the date on which the Supreme Court's Decision that
granted WGCC's appeal became final, and not on June 21, 1996, when the CIAC Decision was
issued.
CIAC sustained its earlier ruling that the computation of the interest should be reckoned from
the time the decision of the Supreme Court in G.R. No. 142830 became final. It, however,
reduced the interest rate from 12% to 6% per annum.
Subsequently, WGCC filed a Manifestation before the CA stating that on March 10, 2009,
Banco De Oro Unibank, Inc. (BDO), as successor of PCIB, issued two (2) checks in its favor in
for the full and final satisfaction of the principal award and legal interest due thereon, in
accordance with the February 2009 CIAC Writ.
Thereafter, the CA held that the writ of execution shall include legal interest of 6% shall be
computed from June 21, 1996 until it is fully paid as so provided in the very same final and
executory judgment.
ISSUE: Whether PCIB to pay interest on the principal award at the rate of 6% per annum,
reckoned from June 21,1996.
RULING: The crux of the controversy hinges on two different concepts of interest — monetary
and compensatory.
46
Monetary interest under Article 1956 serves as compensation fixed by the parties for the use or
forbearance of money. As can be gleaned from the provision, payment of monetary interest is
allowed only if: (i) there was an express stipulation for the payment of interest; and (ii) the
agreement for the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of monetary interest.
On the other hand, compensatory interest (i.e., interest awarded as damages under Articles
2209 to 2213 of the Civil Code) is that which is "allowed in actions for breach of contract or tort
for the unlawful detention of money already due." As the governing provisions indicate,
compensatory interest may be imposed by law or by the courts as penalty or indemnity for
damages.
Subsequently, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) issued Circular No.
799, series of 2013 reducing the rate of interest applicable on loan or forbearance of money
from 12% to 6% per annum. The reduced rate became effective on July 1, 2013. In Nacar v.
Gallery Frames, the Court clarified that the reduced interest rate of 6% per annum can only be
applied prospectively. Thus, the rate of 12% per annum shall be made to apply until June 30,
2013.
To recall, compensatory interest shall begin to run either: from the date of judicial or extrajudicial
demand (where the claim is liquidated or can otherwise be established with reasonable
certainty); or from "the date the judgment of the court [or quasi-judicial body] is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained)."
The reckoning point for compensatory interest, when imposed on unliquidated claims, is set on
the date of the judgment of the court or quasi-judicial body granting the award since it is only at
such time when the amount claimed becomes "liquidated," that is, determined with reasonable
certainty.
In this case, WGCC's claim became "liquidated" on June 21, 1996, the day the CIAC Decision
awarding its counterclaim amounting to P5,777,157.84 was issued. Hence, WGCC is entitled to
compensatory interest at the rate of 12% from June 21, 1996 to June 30, 2013, and 6% interest
from July 1, 2013 until finality of this Decision.
47
26. ENGR. RICARDO O. VASQUEZ v. PHILIPPINE NATIONAL BANK AND NOTARY PUBLIC
JUDE* JOSE F. LATORRE, JR., PUBLIC AUCTION OFFICER
G.R. No. 228355, August 28, 2019, SECOND DIVISION, Caguioa, J.
PHILIPPINE NATIONAL BANK v. ENGR. RICARDO O. VASQUEZ

G.R. No. 228397, August 28, 2019, SECOND DIVISION, Caguioa, J.
NATURE OF ACTION: Action for specific performance, annulment of foreclosure proceedings

and damages
FACTS: Engineer Ricardo Vasquez was granted a loan by the Philippine National Bank under
the latter's Pangkabuhayan ng Bayan Program, in the total amount of P1,400,000.00. The first
loan was for the amount of P600,000.00 and the second for P800,000.00 under the Revolving
Credit Line (RCL). The said loans were secured by four (4) parcels of land (subject properties)
located in Trece Martirez, Province of Cavite owned and registered under the name of Vasquez
by way of Real Estate Mortgage Agreement.
On June 21, 1999, however, Vasquez filed a Complaint against PNB and the notary public who
was assigned by PNB as the public auction sale officer, before the Regional Trial Court of Imus,
Cavite, for specific performance, annulment of foreclosure proceedings and damages with
prayer for the issuance of a preliminary injunction. The RTC dismissed the complaint of
Vasquez. On appeal, the CA modified the RTC's Decision. The CA held that the RTC was
correct in holding that Vasquez failed to discharge the burden of showing that the obligation has
already been discharged.
ISSUE: Whether PNB may unilaterally determine interest rates
RULING: NO. PNB's unilateral determination of interest rates in the instant case follows a long
line of judicial precedent.
At this juncture, the Court clarifies that there may be instances wherein an interest rate scheme
which does not specifically indicate a particular interest rate may be validly imposed. Such
interest rate scheme refers to what is typically called a floating interest rate system.
In Security Bank Corp. v. Spouses Mercado, the Court explained that floating rates of interest
refer to the variable interest rates stated on a market-based reference rate agreed upon by the
parties. Stipulations on floating rate of interest differ from escalation clauses. Escalation clauses
are stipulations which allow for the increase of the original fixed interest rate. In contrast, a
floating rate of interest pertains to the interest rate itself that is not fixed as it is dependent on a
market-based reference that was agreed upon by the parties.
In the aforesaid case, citing the Manual of Regulations of Banks (MORB) of the Bangko Sentral
ng Pilipinas (BSP), the Court explained that the BSP allows banks and borrowers to agree on a
floating rate of interest provided that it must be based on market-based reference rates:
Applying the foregoing in the instant case, a perusal of the loan documents reveals that PNB did
not envision a rate scheme wherein a non fixed interest rate is made dependent on a market-
based reference rate. There is absolutely no market-based reference rate indicated in the loan
documents. On the contrary, PNB admits that under the Credit Agreement, the interest rates are
made dependent on "whatever policy it may adopt in the future," and not on MRRs, T-Bill Rates
or other similar market-based reference rates as required by the BSP. The fact alone that there
is no market-based reference rate stipulated in writing negates any idea that a floating rate of
interest system is applicable in the instant case.
But, as already extensively explained, the specific and fixed interest rates supposedly imposed
by PNB, aside from not having any clear support on the face of the loan documents submitted
into evidence, are not, in reality, fixed because the rates are subject to modification based on
the unilateral determination of PNB.
The Court also clarifies that not all escalation clauses are invalid. As explained in Sps. Almeda
v. CA, "escalation clauses are not basically wrong or legally objectionable so long as they are
not solely potestative but based on reasonable and valid grounds. Here, as clearly
demonstrated above, not only the increases of the interest rates on the basis of the escalation
48
clause patently unreasonable and unconscionable, but also there are no valid and reasonable
standards upon which the increases are anchored."
Applying the foregoing in the instant case, to reiterate once more, PNB itself readily admits in its
Petition that the modification of the applicable interest rates under the Credit Agreement is
made dependent "on the future policy adopted by PNB." It has been indubitably established that
the escalation of interest rates in the instant case is solely potestative on the part of the creditor
and not anchored on valid and reasonable standards.
Considering the foregoing, without a doubt, the interest rate scheme imposed upon Vasquez
under the loan agreement is clearly one-sided, unilateral, and violative of one of the
fundamental characteristics of contracts - which is the essential equality of the contracting
parties, oftentimes called the principle of mutuality of contracts. Therefore, the interest rate
scheme provided under the Credit Agreement and the promissory notes is null and void.
The principle of mutuality of contracts is pronounced in Article 1308 of the Civil Code, which
states that a contract "must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them." The principle of mutuality of contracts dictates that a contract
must be rendered void when the execution of its terms is skewed in favor of one party.
As applied to the imposition of monetary interest, the Court has held that "there is no mutuality
of contracts when the determination or imposition of interest rates is at the sole discretion of a
party to the contract. Further, escalation clauses in contracts are void when they allow the
creditor to unilaterally adjust the interest rates without the consent of the debtor." Jurisprudence
holds that provisions in a loan agreement that grant lenders unrestrained power to increase
interest rates, penalties and other charges at the latter's sole discretion and without giving prior
notice to and securing the consent of the borrowers reek of unilateral authority that is anathema
to the mutuality of contracts and enable lenders to take undue advantage of borrowers. The rate
of interest is a principal condition, if not the most important component, of a loan agreement.
Thus, "any modification thereof must be mutually agreed upon; otherwise, it has no binding
effect."
49
27. THE MERCANTILE INSURANCE CO., INC v. DMCI-LAING CONSTRUCTION, INC.

G.R. No. 205007, September 16, 2019, SECOND DIVISION, Caguioa, J.
NATURE OF ACTION: Action for collection of sum of money
FACTS: On March 17, 1997, Rockwell Land Corporation ("Rockwell") entered into an
agreement with DLCI, as the General Contractor for the construction of The Condominium
Towers and associated external landscaping works of Hidalgo Place, Rizal Tower, Luna
Garden, and Amorsolo Square (the "Project") at the Rockwell Center, Makati City. Part of
DLCI's scope of work in the Project was the supply and installation of glazed aluminium and
curtain walling. Part of the terms and conditions of the main contract was the appointment of
Altech as Rockwell's nominated sub-contractor to DLCI for the supply and installation of glazed
aluminum and curtain walling.
On July 30, 1997, in compliance with the agreement between Rockwell and DLCI, Rockwell
sent a Notice of Award to Proceed (NTP) to Altech. Pursuant to the NTP and the Sub-Contract
Agreement between DLCI and Altech, Altech secured a Performance Bond from Mercantile for
its scope of work in the Project. Mercantile, as surety, with Altech, as principal, issued
Performance Bond in favor of DLCI, as obligee, for the amount of PhP90,448,941.60.
Subsequently, on August 26, 1999, Mercantile issued a bond endorsement extending the
effectivity of the Performance Bond for another six (6) months from September 5, 1999 to March
5, 2000.5
On November 9, 1998, DLCI called Altech's attention to the poor progress of the works subject.
DLCI was constrained, in several instances, to undertake the completion and rectification of
unfinished and sub-par works to avert further delay. DLCI apprised Altech of these instances, as
well as its intention to charge the corresponding costs against Altech's account.
DLCI sent numerous letters to Mercantile, demanding liquidation of the Performance Bond with
interest at the stipulated rate of 2o/o per month but did not indicate the exact amount claimed.
On January 20, 2000, Altech advised DLCI that it had relinquished its major assets to its bank:
due to financial difficulties but assured the latter of its support in terms of the logistical needs of
the project.
On February 21, 2000, DLCI terminated its Sub-Contract with Altech effective immediately.
Subsequently, Mercantile advised DLCI that it had referred its demand to Altech for appropriate
action. On March 28, 2000, Mercantile advised DLCI that since Altech had informed them that
negotiations were underway for an amicable settlement, they would hold further evaluation of
DLCI's claim in abeyance.
After negotiations between DLCI and Altech fell through, DLCI reiterated its demand for
liquidation on November 28, 2000. Mercantile denied DLCI's claim on February 26, 2001 on the
ground that the Performance Bond expired on March 5, 2000.
Aggrieved, DLCI filed a complaint against Altech and Mercantile before the CIAC (CIAC
Complaint) seeking to collect the sum of Php31,618,494.81 representing the costs it allegedly
incurred to complete the sub-contracted works, with interest and costs of litigation.
CIAC Tribunal dismissed DLCI's Complaint. The CA granted DLCI's petition for review.
ISSUE: Whether or not Article 2080 applies in the present case.
RULING: NO. Mercantile maintains that it should be deemed released from its obligations under
the Performance Bond as it had been deprived of the opportunity to exercise its right of
subrogation against Altech due to DLCI's "inexcusable delay" in filing the CIAC Complaint.
Mercantile bases this assertion on Article 2080 of the Civil Code.
It has already been settled that no delay may be attributed to DLCI with respect to the filing of
the CIAC Complaint. Nevertheless, even if it is assumed, for the sake of argument, that DLCI
was in fact guilty of inexcusable delay, Mercantile's argument still fails.
50
A plain reading of Article 2080 indicates that the article applies to guarantors. Mercantile's
position that the provision applies with equal force to sureties fails to appreciate the fundamental
distinctions between the respective liabilities of a guarantor and a surety.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the
debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking
that the debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the
principal will not pay, while a guarantor agrees that the creditor, after proceeding against the
principal, may proceed against the guarantor if the principal is unable to pay. A surety binds
himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on
the other hand, does not contract that the principal will pay, but simply that he is able to do so.
In other words, a surety undertakes directly for the payment and is so responsible at once if the
principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence,
the debt cannot be made out of the principal debtor.
Verily, a surety's liability stands without regard to the debtor's ability to perform his obligations
under the contract subject of the suretyship. Mercantile's reliance on Article 2080 is thus
misplaced.
51
28. MARIO C. TAN AND ERLINDA S. TAN v. UNITED COCONUT PLANTERS BANK
G.R. No. 213156, July 29, 2019, SECOND DIVISION, REYES, J. JR., J.
NATURE OF ACTION: Action for for specific performance and damages
FACTS: Petitioners spouses Mario C. Tan (Mario) and Erlinda S. Tan (spouses Tan) were
granted by UCPB an omnibus credit line in an amount not exceeding P300 Million. This P300
Million credit line was also made available as an accommodation to several other parties
including Beatriz Siok Ping Tang. To secure the P300 Million credit line, collaterals were agreed
upon.
Accordingly, spouses Tan executed a Surety Agreement to secure the credit availments of the
accommodated parties. When the P300 Million credit line expired in July 2002, UCPB granted
spouses Tan another omnibus credit line on August 1, 2002, in an amount not exceeding P500
Million and which shall expire on July 31, 2003. The P500 Million credit line was similarly made
available to the parties previously accommodated. However, a credit facility in the form of a
credit certification line up to the sub-limit amount of P300 Million was also made available to
Beatriz, proprietress of Ready Traders and Able Transport Service. Spouses Tan also executed
a Surety Agreement to secure any credit availments obtained by the accommodated parties
including that of Beatriz's.
On September 5, 2002, Mario again sent a letter to UCPB, similarly instructing the latter that a
written consent from either himself, Lory or Evelyn must first be obtained by Beatriz before she
is allowed to avail of the credit line. This letter was prompted by the fact that the P500 Million
credit line was made available to Beatriz as proprietress of Ready Traders and Able Transport
Service (unlike the P300 Million credit line which was made available to Beatriz as proprietress
of Ready Traders only). The letter was further necessitated by the fact that spouses Tan had
been receiving reports that UCPB has been extending credit facilities in favor of Subic Bay
Distribution, Inc., (SBDI) for Beatriz drawn from spouses Tan's credit line without the required
written authority.
Meanwhile, when the P500 Million credit line expired in July 2003, spouses Tan sought to renew
the same but they were informed that UCPB could only grant a credit line in an amount not
exceeding P250,000,000.00. Finding this unacceptable, Mario sent a letter to UCPB requesting
for the immediate release of the REMs and the return of the certificates of title considering that
the credit line expired on July 31, 2003, without being renewed and that spouses Tan had no
outstanding liabilities.
Finally, on March 23, 2004, UCPB replied, denying the request for the release of the REMs.
UCPB reminded Mario that the REM dated August 29, 1991 secured the payment of all loans,
overdrafts, credit lines and other credit facilities or accommodations obtained by Mario, Lory,
Evelyn and Beatriz, proprietress of Ready Traders and Able Transport Service; and that the
Surety Agreement dated August 1, 2002, guaranteed full payment of all sums payable by
Beatriz. Since there were outstanding credit accommodations to Beatriz/Able Transport Service
secured by the REMs and the Surety Agreement, UCPB declined Mario's request.
Mario then received a letter dated May 12, 2004 from UCPB demanding the payment of
P20,642,951.48 as surety for the unpaid obligations of Beatriz. Spouses Tan denied having
knowledge of any outstanding obligation of Beatriz with UCPB. No reply thereto was given by
UCPB.
This lead Spouses Tan to file a for specific performance and damages wherein they prayed for
the release of the REMs over the Caloocan and Parañaque properties and for UCPB to return
the corresponding certificates of title.
The RTC rendered its decision dismissing spouses Tan's complaint for specific performance.
The RTC ruled that since spouses Tan allowed a third party, i.e., Beatriz, to avail of the credit
line, the latter's drawings were likewise secured by the REMs. The CA agreed with the RTC's
ruling that the release of the collaterals was still premature. It observed that the REM dated
August 1, 2002, over the Parañaque properties secured the payment of all loans obtained by
Beatriz as proprietress of Ready Traders and Able Transport Service.
52
ISSUE: Whether the cancellation of the REMs and the release of the collaterals used to secure
the credit lines granted to spouses Tan is proper.
RULING: NO.The security provided by the REMs are continuing in nature.
It is spouses Tan's position that the REMs should be released as there are no outstanding
availments from the credit lines secured by said mortgages. The terms of the REMs, however,
negate the contention that the security provided by the mortgages is confined only to the P300
Million and P500 Million credit line agreements.
The REMs dated August 29, 1991 and August 1, 2002, uniformly and clearly provide that the
mortgages secure the payment of "all loans, overdrafts, credit lines and other credit facilities or
accommodation, obtained or hereinafter obtained" by spouses Tan.
In Bank of Commerce v. Spouses Flores, the Court explains the import of such phraseology as
evidencing a continuing guaranty, thus:
A continuing guaranty is a recognized exception to the rule that an action to foreclose a

mortgage must be limited to the amount mentioned in the mortgage contract. Under Article 2053
of the Civil Code, a guaranty may be given to secure even future debts, the amount of which
may not be known at the time the guaranty is executed. This is the basis for contracts
denominated as a continuing guaranty or suretyship. A continuing guaranty is not limited to a
single transaction, but contemplates a future course of dealing, covering a series of
transactions, generally for an indefinite time or until revoked. It is prospective in its operation
and is generally intended to provide security with respect to future transactions within certain
limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. In other words, a continuing guaranty is one that covers all transactions,
including those arising in the future, which are within the description or contemplation of the
contract of guaranty, until the expiration or termination thereof.
A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the
object is to give a standing credit to the principal debtor to be used from time to time either
indefinitely or until a certain period, especially if the right to recall the guaranty is expressly
reserved. In other jurisdictions, it has been held that the use of particular words and
expressions, such as payment of "any debt," "any indebtedness," "any deficiency," or "any
sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any
time" or "on such time" that the principal debtor may require, has been construed to indicate a
continuing guaranty. (Citations omitted)
Accordingly, the Court held in Bank of Commerce that the payment of the amounts stated in the
mortgage shall not discharge the mortgage until full payment of all debts obtained and unpaid.
Here, the terms of the REMs, coupled with the fact that the REM dated August 29, 1991, was
carried over to secure the latter credit lines, show that the mortgages are intended as security
for the payment not only of the availments from the P300 Million and P500 Million credit lines,
but as security for all amounts that spouses Tan may owe UCPB, including accommodations
which spouses Tan voluntarily extended to other parties. Thus, in the absence of proof that
these obligations had been extinguished, UCPB cannot, as yet, be compelled to release the
REMs.
Independently of the obligations of Beatriz, it has been established in the proceedings below
that spouses Tan, in fact, had obligations which remained unpaid. Spouses Tan attempt to
explain in the present petition that while there are several availments, no drawdowns were
made against the credit line. However, the Court, not being a trier of facts, is unable to
determine the veracity of this factual allegation.
53
29. FIRST LEPANTO-TAISHO INSURANCE CORPORATION (NOW KNOWN AS FLT PRIME

INSURANCE CORPORATION) VS. CHEVRON PHILIPPINES, INC. (FORMERLY KNOWN AS
CALTEX PHILIPPINES, INC.)
G.R. No. 177839, January 18, 2012, FIRST DIVISION, Villarama, Jr. J.
NATURE OF ACTION: Action for sum of money and damages
FACTS: Fumitechniks was issued Surety Bond FLTICG (16) No. 01012 by petitioner for the
amount of P15,700,000.00. The bond was in compliance with the requirement for the grant of a
credit line with the respondent "to guarantee payment/remittance of the cost of fuel products
withdrawn within the stipulated time in accordance with the terms and conditions of the
agreement." The surety bond was executed on October 15, 2001 and will expire on October 15,
2002.
Fumitechniks defaulted on its obligation. The check it issued to respondent was dishonored for
reason of "Account Closed." In a letter dated February 6, 2002, respondent notified petitioner of
Fumitechniks' unpaid purchases in the total amount of P15,084,030.30. Petitioner was furnished
copies of invoices showing deliveries of fuel and petroleum products between November 11,
2001 and December 1, 2001 as requested by them.
It was found that no principal agreement was executed between Fumitechniks and respondent
which was purportedly secured by the Bond. Petitioner explained that being an accessory
contract, the bond cannot exist without a principal agreement as it is essential that the copy of
the basic contract be submitted to the proposed surety for the appreciation of the extent of the
obligation to be covered by the bond applied for.
On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under
the surety bond. However, petitioner reiterated its position that without the basic contract subject
of the bond, it cannot act on respondent's claim; petitioner also contested the amount of
Fumitechniks' supposed obligation.
The RTC rendered judgment dismissing the complaint as well as petitioner's counterclaim. The
CA ruled in favor of respondent, ruling that petitioner cannot insist on the submission of a written
agreement to be attached to the surety bond considering that respondent was not aware of such
requirement and unwritten company policy.
ISSUE: Whether a surety is liable to the creditor in the absence of a written contract with the
principal.
RULING: NO. The absence of a written contract with the principal does not impact the validity or
legality of the surety contract but on the creditor's right to demand performance.
Section 175 of the Insurance Code defines a suretyship as a contract or 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 a third party, called the obligee. It includes
official recognizances, stipulations, bonds or undertakings issued under Act 536, as
amended. Suretyship arises upon the solidary binding of a person - deemed the surety - with
the principal debtor, for the purpose of fulfilling an obligation. Such 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. And notwithstanding the
fact that the surety contract is secondary to the principal obligation, the surety assumes liability
as a regular party to the undertaking.
The extent of a surety's liability is determined by the language of the suretyship contract or bond
itself. It cannot be extended by implication, beyond the terms of the contract. Thus, to determine
whether petitioner is liable to respondent under the surety bond, it becomes necessary to
examine the terms of the contract itself.
The law is clear that a surety contract should be read and interpreted together with the contract
entered into between the creditor and the principal.
54
A surety contract is merely a collateral one, its basis is the principal contract or undertaking
which it secures. Necessarily, the stipulations in such principal agreement must at least be
communicated or made known to the surety particularly in this case where the bond expressly
guarantees the payment of respondent's fuel products withdrawn by Fumitechniks in
accordance with the terms and conditions of their agreement. The bond specifically makes
reference to a written agreement. It is basic that if the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control. Moreover, being an onerous undertaking, a surety agreement is strictly construed
against the creditor, and every doubt is resolved in favor of the solidary debtor. Having accepted
the bond, respondent as creditor must be held bound by the recital in the surety bond that the
terms and conditions of its distributorship contract be reduced in writing or at the very least
communicated in writing to the surety.
55
30. PHILIPPINE NATIONAL BANK v. FELINA GIRON-ROQUE, DR. GLORIA M. APOSTOL AND
HUSBAND, DR. EDWARD APOSTOL
G.R. No. 240311, September 18, 2019, FIRST DIVISION, Perlas-Bernabe J.
NATURE OF ACTION: Action for annulment of foreclosure sale and reinstatement of unused
credit accommodation with damages
FACTS: On April 7, 1995, Felina, a Filipino resident of the United States of America (USA),
obtained two credit lines from PNB in the amount of P230,000.00, which was secured by a real
estate mortgage of a real property. The first loan of P50,000.00 was obtained on February 10,
1997, while on August 9, 1997 she purportedly filed, through Gloria, a stand-by application for
the second loan with the amount of P120,000.00, for Felina was in the USA sometime between
April to August 1997.
Subsequently, she discovered that Gloria withdrew from her account with PNB a check (subject
check) for the second loan in the amount of P119,820.00. PNB demanded payment of both
loans but instead of paying, Felina requested for an in-depth investigation of the second loan.
On December 10, 1998, Felina sent a letter to PNB and included a cashier's check for the full
payment of the first loan, which the latter received. In response, PNB wrote Felina a letter dated
December 22, 1998, returning the aforesaid cashier's check as the same was insufficient to
cover for the amount, interests, and penalties of both loans. Thereafter, PNB proceeded with the
extrajudicial foreclosure of Felina's real property.
Claiming that her signature in the subject check was forged and that Gloria was not authorized
to withdraw from her PNB account, Felina filed a complaint for annulment of foreclosure sale
and reinstatement of unused credit accommodation with damages before the RTC against both
PNB and Spouses Apostol.
The RTC ruled in Felina's favor. On appeal, the CA affirmed the RTC ruling with modification,
further ordering Spouses Apostol to pay PNB the amount of P119,820.00, and deleting the
award of attorney's fees in favor of Felina.
ISSUE: Whether or not the CA correctly affirmed the nullification of the extrajudicial foreclosure
proceedings covering Felina's real property subject of the real estate mortgage
RULING: YES. At the outset, it must be pointed out that PNB commenced extrajudicial
foreclosure proceedings on Felina's real property on the ground of the latter's non-payment of
the first and second loans inclusive of interests and penalties. However, and as unanimously
found by the courts a quo: (a) Felina did not avail of the second loan, as her signature in the
subject check was forged; (b) Gloria was not duly authorized to obtain the second loan from
PNB; and (c) PNB was remiss of the diligence required of a banking institution in allowing the
withdrawal and encashment of the subject check representing the second loan.
Verily, the remaining balance of the first loan remains outstanding, due, and demandable, albeit
without fault of Felina as she already tendered the aforementioned cashier's check through her
letter dated December 10, 1998 which PNB received on December 21, 1998. In this light, and in
the interest of substantial justice, the Court deems it prudent to give Felina a reasonable
opportunity to fully settle her remaining obligation to PNB, in the amount of P14,565.58, plus
interests and penalties from the date of the Statement of Account on September 15, 1998 until
the date of PNB's receipt of the cashier's check on December 21, 1998.
56
31. SHEMBERG CORPORATION MARKETING v. CITIBANK, N.A., NEMESIO SOLOMON,

EX-OFFICIO SHERIFF AND SHERIFF-IN-CHARGE
G.R. No. 216029, September 04, 2019, THIRD DIVISION, Inting, J.
NATURE OF ACTION: Action for rescission or declaration of nullity of the contract of real estate
mortgage
FACTS: On December 10, 1996, petitioner Shemberg Corporation Marketing and respondent
Citibank N.A. executed a real estate mortgage over a parcel of land located in Mandaue City
including all improvements, machineries, and equipment found thereon to secure loan
accommodations of the former amounting to P28,242,000.00.
On February 13, 1998, Citibank sent a demand letter to Shemberg wherein it required the latter
to pay its outstanding balance in the amount of US$390,000.00 otherwise, it would be forced to
initiate foreclosure proceedings on the mortgaged properties. Unfortunately, Shemberg
defaulted in the payment .Consequently, Citibank commenced the extra-judicial foreclosure of
the mortgaged properties on May 10, 1999. A Notice of Extra-Judicial Sale of was thereafter
issued with the foreclosure sale scheduled on June 16, 1999.
Upon learning of the foreclosure sale, Shemberg filed a Complaint for rescission or declaration
of nullity of the contract of real estate mortgage against Citibank before the Regional Trial Court.
Shemberg asserted that the real estate mortgage was void for lack of consideration, given
Citibank's failure to comply with its commitment to renew and increase its credit line with the
bank.
For its part, Citibank countered that it required the execution of the real estate mortgage in order
to provide additional security/collateral to augment Shemberg's subsisting chattel mortgage due
to the latter's dire financial condition at the time.
The RTC declared the real estate mortgage void for lack of consideration. The CA reversed and
set aside the RTC Decision.
ISSUE: Whether the real estate mortgage is indeed valid and binding between the parties.
RULING: NO. A careful perusal of the First Party Real Estate Mortgage shows that the subject
real estate mortgage was executed to secure loan accommodations, as well as all past, present,
and future obligations, of Shemberg to Citibank to the extent of P28,242,000.00
Shemberg itself admitted that when the real estate mortgage was executed on December 10,
1996, it had an outstanding obligation totaling P58,238,200.00 with Citibank.35 The fact that
Shemberg's outstanding obligation is significantly higher than the amount of secured obligations
does not invalidate the real estate mortgage. It only means that in case of default, Citibank can
enforce the mortgage to the maximum amount of P28,242,000.00, which, notably, is simply the
total liquidation value of the mortgaged properties.
There is thus no question that the subject real estate mortgage covered the US$500,000.00
loan obtained by Shemberg from Citibank on September 13, 1996. Considering Shemberg's
failure to pay the balance of US$390,000.00, or its peso-equivalent of P19,006,197.00, under
this promissory note, Citibank was well within its rights under the real estate mortgage to initiate
the foreclosure proceedings on the mortgaged properties.
57
32. PHILIPPINE NATIONAL BANK v. ELENITA V. ABELLO, MA. ELENA ELIZABETH A. FIDER,
JONATHANvvV. ABELLO, MANUEL V. ABELLO, JR. AND VINCENT EDWARD V. ABELLO
G.R. No. 242570, September 18, 2019, SECOND DIVISION, REYES, J. JR., J.
NATURE OF ACTION: Action for Cancellation/Discharge of Mortgage
FACTS: Respondent Spouses Abello are the registered owners of the subject property lands all
located at Bacolod City. Inscribed on the TCTs were various encumbrances. Over the two other
lots covered, inscribed were the real estate mortgage (REM) obtained by the Spouses Abello
from the petitioner on October 30, 1975 for the amount of P227,000.00, under made on
November 4, 1975.
Manuel died on October 14, 1998, consequently, his heirs, herein respondents, executed a
Declaration of Heirship on June 5, 2003 authorizing Elenita to act as administrator of the estate.
Respondents sought for the cancellation of the inscriptions claiming that since the petitioner
made no action against them since 1975, the action has already prescribed. Accordingly, the
respondents argued that they should be discharged as a matter of right and the encumbrances
cancelled.
The RTC ruled in the favor of the respondents finding merit in the respondents' complaint on the
basis of prescription. The CA, on appeal, affirmed the decision of the RTC.
ISSUE: Whether or not the cancellation of the annotated encumbrances is with merit.
RULING: NO. A REM is an accessory contract constituted to protect the creditor's interest to
ensure the fulfillment of the principal contract of loan. By its nature, therefore, the enforcement
of a mortgage contract is dependent on whether or not there has been a violation of the
principal obligation. Simply, it is the debtor's failure to pay that sets the mortgage contract into
operation. Prior to that, the creditor-mortgagee has no right to speak of under the REM as it
remains contingent upon the debtor's failure to pay his or her loan obligation.
In this controversy, the respondents pray for the cancellation of the encumbrances on the TCTs
which refer to the REMs constituted on the property. Consequently, the cancellation of these
annotations is dependent on whether the action for REM has already prescribed. Therefore, an
allegation of the date of maturity of the loan is also vital in this case as it signifies the
commencement of the running of the period of prescription for an action for foreclosure REM.
It is evident from a cursory reading of the foregoing allegations that the respondents made no
mention of the particulars of the mortgage. With this, the complaint could have been dismissed
by the court a quo on the ground of the complaint's failure to state cause of action. However, the
parties proceeded to trial, which, therefore, means that the period within which the dismissal for
failure to state a cause of action would have already lapsed.
During trial, the respondents failed to adduce evidence to establish when the loan became due,
and consequently, when the right to foreclose the mortgage accrued. Indubitably, the
presentation of the contracts evidencing the loan and the mortgage is necessary as the
respondents' cause of action is anchored on these documents. As the respondents failed to
allege more so, adduce sufficient evidence to establish that prescription has set in, it is clear
that the action must be denied and the complaint dismissed for want of cause of action.
58
33. ROMA FE C. VILLALON v. RURAL BANK OF AGOO, INC.

G.R. No. 239986, July 08, 2019, THIRD DIVISION, PERALTA, J.
NATURE OF ACTION: Action for recovery of sum of money and damages
FACTS: On May 18, 1998, the spouses George and Zenaida Alviar (Spouses Alviar) obtained a
loan from respondent Rural Bank of Agoo, Inc. (RBAI) in the amount of P145,000.00, secured
by a real estate mortgage over a residential lot and house of the spouses located at San
Fernando, La Union. On the same date, the mortgage was registered with the Register of
Deeds of La Union.
The loan became due and payable on February 10, 1999, and was renewed for four (4) times.
On July 30, 2000, the Spouses Alviar borrowed P400,000.00 from petitioner Roma Fe C.
Villalon (Villalon) which was secured by a Real Estate Mortgage executed on July 30, 2000 over
the same residential lot and house which the spouses used as collateral with RBAI. The real
estate mortgage was registered with the Register of Deeds on July 6, 2001.
On several dates, the Spouses Alviar obtained additional loan from RBAI both secured by a real
estate mortgage over the same residential lot and house. For their failure to pay their loan, an
extrajudicial foreclosure was resorted to by RBAI, which was continually reset and never
materialized.
The Spouses Alviar, likewise, failed to pay their loan to Villalon prompting her to apply for the
extrajudicial foreclosure of the mortgaged realties. Villalon was declared as the highest bidder,
where a Certificate of Sale of Real Property was and the registered with the Register of Deeds
on July 5, 2002.
On June 16, 2004, the foreclosure sale initiated by RBAI finally pushed through. RBAI was the
highest bidder and the corresponding Certificate of Sale was issued to it. On October 14, 2005,
RBAI paid the requisite fees, but despite its request, the Certificate of Absolute Deed of Sale
was not issued to it.
On the other hand, a Certificate of Absolute Definitive Sale was issued on August 6, 2007 to
Villalon, who had been in physical possession of the property since its foreclosure in 2002.
Villalon had it declared for taxation purposes in her business name "Villalon Lending Investor,"
and had paid realty taxes for the same.
Upon discovering this, RBAI filed a Complaint for recovery of sum of money and damages
before the Regional Trial Court (RTC) of Agoo, La Union against Villalon and the Spouses
Alviar. The RTC ordered the Spouses Alviar to pay RBAI the sum of P750,818.34, plus interest
of 12% per annum and attorney's fees in the amount of P50,000.00. The CA granted RBAI's
appeal and set aside the decision of the RTC. It held that the RTC erred in dismissing the
complaint against Villalon.
ISSUE: Whether the first mortgage with respondent RBAI prevails over the mortgage to the
petitioner
RULING: YES. The court ruled that a mortgage created much ahead in point of time, but
registered later than a levy of execution similarly registered, is preferred over the said levy.
In the case at bar, it is clear that RBAI's mortgage was first constituted over the unregistered
real properties of the Spouses Alviar on May 18, 1998 and was, likewise, registered with the RD
on the same day. On the other hand, Villalon's mortgage over the said properties was executed
on July 30, 2000 and registered with the RD on July 6, 2001. Considering that RBAI's mortgage
was created and registered much ahead of time than that of Villalon, RBAI's mortgage should
be preferred. Thus, as correctly pointed out by the CA, the proper foreclosure of the first
mortgage by RBAI gave, not only the first mortgagee, but also subsequent lienholders like
Villalon, the right to redeem the property within the statutory period.
Further, Villalon cannot be deemed to be a third party with a better right, as provided for in Act
No. 3344, as amended by Section 113 of Presidential Decree No. 1529, simply because she is
59
a second mortgagee whose rights are strictly subordinate to the superior lien of the first
mortgagee, RBAI. A second mortgagee of an unregistered land has to wait until after the
debtor's obligation to the first mortgagee has been fully satisfied. Hence, notwithstanding that
Villalon was first to foreclose; to have been issued a Certificate of Absolute Definitive Sale of
Real Property; and is now in possession of the property as even the tax declaration is already in
her name - these circumstances will not defeat the rights of RBAI whose mortgage was created
and registered much ahead than that of Villalon. At most, Villalon, being a second
mortgagee/junior encumbrancer, has only the right to redeem the property from RBAI, the first
mortgagee.
The extrajudicial foreclosure of real estate mortgage, as in this case, is governed by Act No.
3135, as amended by Act No. 4118. Section 6 Thus, in order for Villalon to acquire full rights
over the properties subject of the mortgage, she must first redeem them by paying off: (1) the
bid price of RBAI in the auction sale, which is P341,830.94; (2) the interest on the bid price,
computed at one percent (1%) per month; and (3) the assessments or taxes, if any, paid by the
purchaser, with the same interest rate.
60
TORTS AND DAMAGES
34. VICENTE G. HENSON, JR. v. UCPB GENERAL INSURANCE CO. INC.

G.R. No. 223134, August 14, 2019, EN BANC, Perlas-Bernabe, J.
NATURE OF ACTION: Action for damages; petition for review on certiorari
FACTS: Petitioner Vicente Henson then owned a two (2)-storey building located in Angeles
City, Pampanga, where the front portion of the ground floor was leased by National Arts Studio
and Color Lab (NASCL) from 1989 to 1999. NASCL gave up its initial lease and instead, leased
the right front portion of the ground floor and the entire second floor of the said building, and
made renovations with the building's piping assembly. Meanwhile, Copylandia Office Systems
Corp. (Copylandia) moved in to the ground floor.
On May 9, 2006, a water leak occurred in the building and damaged Copylandia's various
equipment, causing injury to it in the amount of P2,062,640.00. As the said equipment were
insured with respondent, Copylandia filed a claim with the former. Eventually, the two parties
settled on November 2, 2006 for the amount of P1,326,342.76.12 This resulted in respondent's
subrogation to the rights of Copylandia over all claims and demands arising from the said
incident. On May 20, 2010, respondent, as subrogee to Copylandia's rights, demanded from
NASCL for the payment of the aforesaid claim, but to no avail. Thus, it filed a complaint for
damages against NASCL, among others, before the RTC.
Meanwhile, sometime in 2010, Petitioner transferred the ownership of the building to Citrinne
Holdings, Inc. (CHI), where he is a stockholder and the President. On October 6, 2011,
respondent filed an Amended Complaint (Second Amendment), impleading CHI as a party-
defendant to the case, as the new owner of the building. However, on April 21, 2014,
respondent filed a Motion to Admit Attached Amended Complaint and Pre-Trial Brief, praying
that petitioner, instead of CHI, be impleaded as a party-defendant to the case, considering that
petitioner was then the owner of the building when the water leak damage incident happened.
Respondent faults: (a) NASCL for its negligence in not properly maintaining in good order the
comfort room facilities where the renovated building's piping assembly was utilized; and (b)
CHI/petitioner, as the owner of the building, for neglecting to maintain the building's drainage
system in good order and in tenantable condition.
CHI opposed the motion principally on the ground of prescription, arguing that since
respondent's cause of action is based on quasi-delict, it must be brought within four (4) years
from its accrual on May 9, 2006.
In an Order dated June 10, 2014, the RTC ruled in respondent's favor and accordingly, ordered
the: (a) dropping of CHI as party-defendant; and (b) joining of petitioner as one of the party-
defendants in the case. The CA likewise affirmed the RTC ruling.
ISSUE: Whether or not respondent's claim has yet to prescribe.
RULING: YES. The court applied the doctrine laid out in the case of Vector Shipping
Corporation v. American Home Assurance Company (Vector) which states that an insurer may
file an action against the tortfeasor within ten (10) years from the time the insurer indemnifies
the insured. HOWEVER, the court likewise ABANDONS the aforesaid doctrine, reiterating
that following the principles of subrogation, the insurer only steps into the shoes of the insured
and therefore, for purposes of prescription, inherits only the remaining period within which
the insured may file an action against the wrongdoer. To be sure, the prescriptive period of
the action that the insured may file against the wrongdoer begins at the time that the tort was
committed and the loss/injury occurred against the insured. The indemnification of the insured
by the insurer only allows it to be subrogated to the former's rights, and does not create a new
reckoning point for the cause of action that the insured originally has against the wrongdoer.
Subrogation's legal effects under Article 2207 of the Civil Code are primarily between the
subrogee-insurer and the subrogor-insured: by virtue of the former's payment of indemnity to
61
the latter, it is able to acquire, by operation of law, all rights of the subrogor-insured against the
debtor. The debtor is a stranger to this juridical tie because it only remains bound by its original
obligation to its creditor whose rights, however, have already been assumed by the subrogee.
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 x
x x.
In Vector, the Court held that the insured's (i.e., American Home's) claim against the debtor (i.e.,
Vector) was premised on the right of subrogation pursuant to Article 2207 of the Civil Code and
hence, an obligation created by law. While indeed American Home was entitled to claim against
Vector by virtue of its subrogation to the rights of the insured (i.e., Caltex), the Court failed to
discern that no new obligation was created between American Home and Vector for the reason
that a subrogee only steps into the shoes of the subrogor; hence, the subrogee-insurer only
assumes the rights of the subrogor-insured based on the latter's original obligation with the
debtor.
Be that as it may, it should, however, be clarified that this Court's abandonment of the Vector
doctrine should be prospective in application for the reason that judicial decisions applying or
interpreting the laws or the Constitution, until reversed, shall form part of the legal system of the
Philippines.
With these in mind, the Court therefore sets the following guidelines relative to the application of
Vector and this Decision vis-a-vis the prescriptive period in cases where the insurer is
subrogated to the rights of the insured against the wrongdoer based on a quasi-delict:
1. For actions of such nature that have already been filed and are currently pending before the
courts at the time of the finality of this Decision, the rules on prescription prevailing at the time
the action is filed would apply. Particularly:
(a) For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling
(i.e., from Vector's finality on August 15, 201360 up until the finality of this Decision), the
prescriptive period is ten (10) years from the time of payment by the insurer to the insured,
which gave rise to an obligation created by law.
Rationale: Since the Vector doctrine was the prevailing rule at this time, issues of prescription
must be resolved under Vector's parameters.
(b) For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling
(i.e., before August 15, 2013), the prescriptive period is four (4) years from the time the tort is
committed against the insured by the wrongdoer.
Rationale: The Vector doctrine, which espoused unique rules on legal subrogation and
prescription as aforedescribed, was not yet a binding precedent at this time; hence, issues of
prescription must be resolved under the rules prevailing before Vector, which, incidentally, are
the basic principles of legal subrogation vis-a-vis prescription of actions based on quasi-delicts.
2. For actions of such nature that have not yet been filed at the time of the finality of this
Decision:
(a) For cases where the tort was committed and the consequent loss/injury against the insured
occurred prior to the finality of this Decision, the subrogee-insurer is given a period not
exceeding four (4) years from the time of the finality of this Decision to file the action against the
wrongdoer; provided, that in all instances, the total period to file such case shall not exceed ten
(10) years from the time the insurer is subrogated to the rights of the insured.
Rationale: The erroneous reckoning and running of the period of prescription pursuant to the
Vector doctrine should not be taken against any and all persons relying thereon because the
same were based on the then-prevailing interpretation and construction of the Court. Hence,
subrogees-insurers, who are, effectively, only now notified of the abandonment of Vector, must
be given the benefit of the present doctrine on subrogation as ruled in this Decision.
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However, the benefit of the additional period (i.e., not exceeding four [4] years) under this
Decision must not result in the insured being given a total of more than ten (10) years from the
time the insurer is subrogated to the rights of the insured (i.e., the old prescriptive period in
Vector); otherwise, the insurer would be able to unduly propagate its right to file the case
beyond the ten (10)-year period accorded by Vector to the prejudice of the wrongdoer.
(b) For cases where the tort was committed and the consequent loss/injury against the insured
occurred only upon or after the finality of this Decision, the Vector doctrine would hold no
application. The prescriptive period is four (4) years from the time the tort is committed against
the insured by the wrongdoer.
Rationale: Since the cause of action for quasi-delict and the consequent subrogation of the
insurer would arise after due notice of Vector's abandonment, all persons would now be bound
by the present doctrine on subrogation as ruled in this Decision.
Application to the Case at Bar
In this case, it is undisputed that the water leak damage incident happened on May 9, 2006. As
this incident gave rise to an obligation classified as a quasi-delict, Copylandia would have only
had four (4) years, or until May 9, 2010, within which to file a suit to recover damages. When
Copylandia's rights were transferred to respondent by virtue of the latter's payment of the
former's insurance claim on November 2, 2006, respondent was likewise bound by the same
prescriptive period. Since it was only on: (a) May 20, 2010 when respondent made an
extrajudicial demand to NASCL, and thereafter, filed its complaint; (b) October 6, 2011 when
respondent amended its complaint to implead CHI as party-defendant; and (c) April 21, 2014
when respondent moved to further amend the complaint in order to implead petitioner as party-
defendant in lieu of CHI, prescription - if adjudged under the present parameters of legal
subrogation under this Decision - should have already set in.
However, it must be recognized that the prevailing rule applicable to the pertinent events of this
case is Vector. Pursuant to the guidelines stated above, specifically under guideline 1 (a), the
Vector doctrine - which was even relied upon by the courts a quo - would then apply. Hence, as
the amended complaint impleading petitioner was filed on April 21, 2014, which is within ten
(10) years from the time respondent indemnified Copylandia for its injury/loss, the case cannot
be said to have prescribed under Vector. As such, the Court is constrained to deny the instant
petition.
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35. INTERPHIL LABORATORIES, INC. v. OEP PHILIPPINES, INC.

G.R. No. 203697, March 20, 2019, THIRD DIVISION, REYES, A., JR., J.
NATURE OF ACTION: Action for Damages
FACTS: Petitioner Interphil Laboratories, Inc. (Interphil) entered into a Manufacturing

Agreement (Agreement) with Respondent OEP Philippines, Inc. (OEP) whereby Interphil
undertook to process and package 90- and 120-mg Diltelan capsules for OEP. Likewise, in
order to comply with Section 2.2.2.1 of the Department of Health's (DOH) Administrative Order
(A.O.) No. 56, Series of 1989,10 the parties issued a letter to the Bureau of Food and Drugs
(BFD), stating that if the cause of the defect be the manufacturing process or packaging,
INTERPHIL should assume the liability and if the cause be the formulae, process, methods,
instructions or raw materials provided by OEP, then the latter shall be liable for the same.
From January 1999 to May 2000, Interphil accepted the delivery of several 90- and 120-mg
Diltelan capsules, as well as printed foils and boxes for these capsules, for purposes of
processing and packaging pursuant to the Agreement. Thereafter, Interphil sorted, wrapped and
boxed the capsules, and subsequently delivered the same to OEP. OEP, subsequently,
delivered the capsules to its client, Orient Eropharma Co., Ltd./Elan Pharma Ltd. of Taiwan
(Elan Taiwan).
On August 8, 2000, when OEP received a facsimile from Elan Taiwan that they had received
several urgent phone calls from certain hospitals in Taiwan regarding a defect in the packaging
of several 90-mg Diltelan capsules. OEP immediately informed Interphil of the packaging defect.
Investigations conducted by both OEP and Interphil revealed that the defectively packaged
capsules belonged to a single batch, Lot No. 001369, which Interphil processed and packaged
in April 2000.
As a result of the defectively packaged capsules OEP recalled and destroyed all subject
capsules resulting in the incurring of numerous costs and expenses on the part of OEP. This
prompted OEP to file a case for damages before the RTC. The trial court ruled in favor of OEP,
finding that on the basis of the doctrine of res ipsa loquitor. On appeal to the CA, it was held that
since Interphil failed to detect or rectify the erroneous packaging despite multiple opportunities
to do so, it was unnecessary to delve into Interphil's allegation as to OEP's faults, since the
former failed to overcome its negligence as the immediate and proximate cause of the damage
ISSUE: Whether res ipsa loquitor is established in this case
RULING: YES. The elements of res ipsa loquitur are: (1) the accident is of such character as to
warrant an inference that it would not have happened except for the defendant's negligence; (2)
the accident must have been caused by an agency or instrumentality within the exclusive
management or control of the person charged with the negligence complained of; and (3) the
accident must not have been due to any voluntary action or contribution on the part of the
person injured.
In this case, as argued by OEP and as found valid by both the RTC and the CA, the elements of
res ipsa loquitor have been clearly established by the facts on record.
First, it is uncontroverted that Interphil had exclusive control in the packaging of the materials,
before the company delivered the same to OEP, sealed and warranted to be ready for delivery
to the latter's client, Elan Taiwan. As the records of the case show, it was Interphil's negligence
that directly and proximately contributed to the incident.
Second, Interphil had exclusive management and control at the time of the packaging, and as to
all the processes appurtenant to the same. As already mentioned, it was admitted by Interphil
that its personnel inspected the packages upon delivery, in line with its standard operating
procedure which enjoins its personnel to note or report any defect found in the course of
inspection.
Third, there is no contributory fault on the part of OEP. While Interphil alleges that OEP was at
fault for supplying and delivering the reel/s of foils which are similar in appearance and which
were not distinctly labeled with colored tape, the Court agrees with the CA that any fault there is
64
not. the proximate and immediate cause of the damage, as it was clearly the erroneous
packaging that caused OEP to recall arid destroy the products, causing much expense.
No bad faith or contributory fault can be attributed to OEP due to its unilateral destruction of the
products.
Notwithstanding its own negligence, Interphil accuses OEP for unilaterally destroying the
products without informing Interphil nor giving a chance to the latter to rectify the same, in
contravention of the Agreement. In effect, Interphil pins liability on OEP on the basis of culpa
contractual, or a breach of contract, particularly Section VI of the Agreement.
On culpa contractual, Article 1170 of the Civil Code states that those 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.
The Court finds that Interphil is liable for actual damages to OEP, the latter pleading in its
complaint and able to substantiate the amounts owed to them as a result of the costs and
expenses it incurred in the amount of P5,183,525.05 and the profits it failed to realize due to the
gross negligence of Interphil in the amount of P306,648.81 as compensatory damages.
Under Articles 2199 and 2200 of the Civil Code, actual or compensatory damages are those
awarded in satisfaction of or in recompense for loss or injury sustained. They proceed from a
sense of natural justice and are designed to repair the wrong that has been done. Interphil is
also liable for exemplary damages. Under Article 2232 of the Civil Code, the court may award
exemplary damages if the defendant in a contract or a quasi-contract acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
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36. CICL XXX v. PEOPLE OF THE PHILIPPINES AND GLENN REDOQUERIO

G.R. No. 237334, August 14, 2019, SECOND DIVISION, Caguioa J.
NATURE OF ACTION: Criminal action for frustrated homicide
FACTS: At around 12:30 in the morning on January 1, 2010, private complainant Glenn
Redoquerio (Redoquerio) was attacked by CICL XXX, Christopher Puyo (Puyo) and Jayjay
Narag (Narag). CICL XXX poked a gun at the face of Redoquerio and tried to shoot him but the
gun did not go off. CICL XXX then hit him at the left temple and top of the head with the gun.
Puyo and Narag held the arms of Redoquerio while CICL XXX punched him several times. Puyo
then hit the head of Redoquerio with a stone causing the latter to loss (sic) consciousness.
Redoquerio was in coma for 7 days while he was confined at the East Avenue Medical Center.
Redoquerio incurred expenses for the treatment of his injuries as shown by various receipts.
After trial on the merits, the RTC convicted CICL XXX of the crime of Frustrated Murder,
ordering him to pay private complainant Glenn Redoquerio actual damages in the total amount
of P18,922.90, P30,000.00 as civil indemnity and P30,000.00 as moral damages. The CA
affirmed the RTC's conviction of CICL XXX.
ISSUE: Whether petitioner may be held liable for damages despite not being criminally liable
RULING: YES. While CICL XXX is not criminally liable for his acts because the presumption
that he acted without discernment was not overcome, he is still civilly liable for the injuries
sustained by Redoquerio. It is well-settled that every person criminally liable is also civilly liable.
However, it does not follow that a person who is not criminally liable is also free from civil
liability. Exemption from criminal liability does not always include exemption from civil liability.
The foregoing liability is imposed upon CICL XXX's parents because Article 101 of the Revised
Penal Code provides that:
ARTICLE 101. Rules Regarding Civil Liability in Certain Cases. The exemption from criminal
liability established in subdivisions 1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of article 11
of this Code does not include exemption from civil liability, which shall be enforced subject to the
following rules:
First. In cases of subdivisions 1, 2, and 3 of article 12, the civil liability for acts committed by an
imbecile or insane person, and by a person under nine years of age, or by one over nine but
under fifteen years of age, who has acted without discernment, shall devolve upon those having
such person under their legal authority or control, unless it appears that there was no fault or
negligence on their part.
In Libi v. Intermediate Appellate Court, the Court en banc said that, “Accordingly, just like the
rule in Article 2180 of the Civil Code, under the foregoing provision the civil liability of the
parents for crimes committed by their minor children is likewise direct and primary, and also
subject to the defense of lack of fault or negligence on their part, that is, the exercise of the
diligence of a good father of a family.”
Article 101 of the RPC, however, provides that the foregoing liability of CICL XXX's parents is
subject to the defense that they acted without fault or negligence. Thus, the civil aspect of this
case is remanded to the trial court, and it is ordered to implead CICL XXX's parents for
reception of evidence on their fault or negligence.
The civil aspect of this case was remanded to the trial court for reception of evidence on the
issue of fault or negligence on the part of CICL XXX's parents.
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37. TERESITA S. LAZARO, DENNIS S. LAZARO, MARIETA V. JARA, ANTONIO P. RELOVA,

GILBERTO R. MONDEZ, PABLO V. DEL MUNDO, JR., AND ALSANEO F. LAGOS v.
COMMISSION ON AUDIT, REGIONAL DIRECTOR OF COA REGIONAL OFFICE NO. IV-A, AND
COA AUDIT TEAM LEADER, PROVINCE OF LAGUNA
G.R. No. 213323, January 22, 2019, EN BANC, Leonen J.
EVELYN T. VILLANUEVA v. COMMISSION ON AUDIT

G.R. No. 213324, January 22, 2019, EN BANC, Leonen J.
NATURE OF ACTION: Motion for Reconsideration of the Notice of Disallowance
FACTS: The Regional Director of Commission of Audit created an audit team to conduct a
preliminary fact-finding audit and investigation of irregularities in the purchase of medical items.
Following the investigation of the audit team, a Notice of Disallowance was issued regarding
procurement of medical items worth ₱118,039,493.46 on 2004 and 2005 and held several
individuals liable including Petitioner Governor Teresita Lazaro.
The Notice of Disallowance indicated that: (1) the medical items were purchased without public
bidding; and (2) reference to brand names were made in the procurement documents to justify
the resort to exclusive distributorship, contrary to Section 18 of Republic Act No. 9184.
On April 30, 2007, Governor Lazaro and the rest of the persons held liable filed an Appeal
Memorandum to the Notice of Disallowance which was granted by the Regional Office. The
Commission on Audit, upon automatic review, disapproved the Regional Office decision. On
July 28, 2014, petitioners Governor Lazaro, Dennis Lazaro, Jara, Relova, Mondez, Del Mundo,
and Lagos (petitioners Governor Lazaro, et al.) filed a Petition for Certiorari before the Supreme
Court, docketed as G.R. No. 213323. Petitioner Villanueva filed another Petition for Certiorari,
which was docketed as G.R. No. 213324.17 which was subsequently consolidated.
ISSUE: Whether or not the principle of quantum meruit applies here
RULING: NO. When asserting their limited or absence of liability based on the principles of
quantum meruit and good faith, petitioners, in good diligence, must clearly allege and support
the factual basis for their claims. It is not this Court's burden to construe petitioners' incomplete
submissions and vague narrations to determine if their assertions have merit.
Indeed, the principle of quantum meruit—that a party is allowed to recover as much as he or

she reasonably deserves—is usually invoked with regard to paying a contractor for works
rendered. Here, however, the contractors have already been paid, and the question to be
resolved is whether the public officers responsible for the irregularity must reimburse the
government for it.
Here, no part of the disallowed transaction could be deemed valid. Petitioners plainly violated
the law requiring procurement to undergo competitive bidding. In doing so, they also violated the
law prohibiting reference to brand names.
Moreover, even if the principle of quantum meruit could be applied here, petitioners fail to
establish the factual basis for its application. Here, petitioners were held liable for the disallowed
purchase of medical items amounting to ₱118,039,493.46. They do not, however, provide any
basis to determine what were purchased. Thus, there is no basis to determine the reasonable
value for the items purchased.
This Court cannot accept the position that the entire ₱118,039,493.46 was the reasonable value
for the items purchased. Petitioners enumerated neither the items purchased without public
bidding nor the suppliers for these items. Just to form an idea of what were purchased and their
values, this Court had to rely on the available documents submitted. The relationship between
the attached Purchase Requests and the disallowances is unclear. The sum of total estimated
costs in the attached Purchase Requests is about ₱4,388,041.00, which constitutes only a small
fraction of the total disallowed transactions, ₱118,039,493.46. The Purchase Requests also
refer to generic items such as basic trash bags. It would appear that even the trash bags may
have been purchased without public bidding.
67
38. VDM TRADING, INC. AND SPOUSES LUIS AND NENA DOMINGO, REPRESENTED BY
THEIR ATTORNEY-IN-FACT, ATTY. F. WILLIAM L. VILLAREAL v. LEONITA CARUNGCONG
AND WACK WACK TWIN TOWERS CONDOMINIUM ASSOCIATION, INC.
G.R. No. 206709, February 06, 2019, SECOND DIVISION, CAGUIOA, J.
NATURE OF ACTION: Complaint for damages
FACTS: Petitioner VDM is the owner of the subject condominium unit, while Petitioner Spouses
Domingo are the actual occupants of the same, located at Wack Wack Twin Towers
Condominium (the Condominium) in Mandaluyong City. Sometime in December 1998, while
the petitioners Sps. Domingo were in the United States, petitioner Nena's sister, Nancy
Lagman-Castillo (Lagman-Castillo), discovered that soapy water was heavily penetrating
through the ceiling of the Unit and reported the matter with the petitioners Sps. Domingo's
counsel Atty. William Villareal (Atty. Villareal), and respondent Wack Wack's building
administrator.
On December 10, 1998, Atty. Villareal allegedly met with respondent Wack Wack's Acting
Property Manager, Arlene Cruz (Cruz), who revealed that upon previous inspection, it was
found that the strong leak apparently came from Unit 2308B-1 which is located directly above
the subject Unit. Unit 2308B-1 is owned by respondent Carungcong, but was being leased by
Tan at that time. Cruz allegedly explained that Unit 2308B-1's balcony had unauthorized piping
and plumbing works installed therein, which were in violation of respondent Wack Wack's rules
and regulations, as well as the building's original plans.
For this reason, on behalf of the petitioners Sps. Domingo, Atty. Villareal demanded that
respondents Wack Wack and Carungcong make restoration works and/or pay for the damages
caused upon the Unit. No action was taken, prompting Atty. Villareal to send a to respondents
Wack Wack, Carungcong, and Tan, as well as Golden Dragon Real Estate Corporation (Golden
Dragon), the developer of the Condominium, demanding that repairs be made on the Unit.
Subsequently, repair works on the Unit were referred to M. Laher Construction (M. Laher) for a
quotation. The estimated cost amounted to P490,635.00. Afterwards, several demand letters
were sent by the counsel of the petitioners Sps. Domingo to respondents Wack Wack,
Carungcong, Tan, and Golden Dragon for the payment of the amount quoted by M. Laher, but
to no avail.
Petitioner Sps. Domingo filed an action for damages before the RTC. On December 19, 2006,
the RTC ruled in favor of the petitioners. However, the CA granted the appeal of respondents
Carungcong and Wack Wack, reversing the RTC's Decision.
ISSUE: Whether Wack wack is liable for damages.
RULING: NO. The full extent of the damage caused to the petitioners' Unit was not sufficiently
proven. By alleging that damage was caused to their property by virtue of the respondents'
individual and collective fault and/or negligence, the petitioners' cause of action is anchored on
quasi-delict.
According to Article 2176 of the Civil Code, whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-
delict. A quasi-delict has the following elements: a) the damage suffered by the plaintiff; b) the
act or omission of the defendant supposedly constituting fault or negligence; and c) the causal
connection between the act and the damage sustained by the plaintiff, or proximate cause.
A perusal of the evidence on record shows that the foregoing elements of a quasi-delict are
absent insofar as respondents Carungcong and Wack Wack are concerned. Aside from the
purely self-serving testimony of Atty. Villareal, the sole witness of the petitioners who is also the
petitioners' counsel, there was no sufficient evidence presented to show the extent of the
damage caused to the Unit. As correctly found by the CA, the photographs offered into evidence
by the petitioners merely depict a wet bed, wet floor, and wet cabinet apparently taken from one
room only, i.e., the master bedroom.
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39. DR. CONSOLACION S. CALLANG, v. COMMISSION ON AUDIT

G.R. No. 210683, January 08, 2019, EN BANC, REYES, J. JR., J.
NATURE OF ACTION: Request for relief from money accountability
FACTS: On November 17, 2005, petitioner DepEd District Supervisor Dr. Consolacion S.
Callang (Callang) encashed various checks in the total amount of P987,027.50 for the payment
of the 2005 Year-End Bonus and Cash Gift of the teaching and non-teaching personnel of
Bambang District I, Bayombong, Nueva Vizcaya. After lunch, Callang returned to her office to
personally distribute the bonuses to the concerned personnel - only P449,573.00 of the total
amount was handed out because not all personnel were present. This prompted her to bring the
money home instead.
The following day, while onboard a jeepney to Saint Mary's University to bring snacks to her
granddaughter before heading for her office, Callang was robbed. One of her co-passengers
declared a robbery while the vehicle was traversing the National Highway in Macate, Bambang,
Nueva Vizcaya, taking her bag of money as well as her personal belongings. The incident was
immediately reported the incident to the authorities and the Schools Division Superintendent
(SDS) was notified by Callang as well, volunteering to be submitted for inquiry.
The SDS reported the robbery to the Audit Team Leader (ATL), Bambang District I, DepEd,
Nueva Vizcaya. Callang likewise informed the ATL regarding the robbery and asked for
assistance to support her request for relief from money accountability.
The ATL opined that Callang was not negligent in the loss of funds and her request for Relief of
Cash Accountability should be granted. It explained that Callang had no other choice but to
bring home the money she had encashed. The ATL noted that there had been at least four
previous burglary incidents in her office and that there was no safety vault in her office but only
a wooden cabinet and a steel cabinet. It posited that the loss of money was beyond her control
and had exercised sufficient diligence in safeguarding the funds. Meanwhile the COA
Adjudication and Settlement Board (COA-ASB) agreed with the ATL's findings that there was no
negligence on the part of Callang for the loss of money as it was caused by the robbery
incident.
However, the Officer-in-Charge-Regional Director (OIC-RD) of COA Regional Office No. 2,

Tuguegarao City opined that Callang was negligent in handling the funds as an accountable
officer. The same was affirmed by the COA-ASB further holding that her request for relief was
filed beyond the reglementary period of 30 days reckoned from the occurrence of the loss.
Aggrieved, Callang filed a petition for review before the COA.
The COA affirmed the COA-ASB Decision. Although it found that Callang's request for relief was
timely filed, it agreed that her request should be denied on account of her negligence.
ISSUE: Whether Callang is negligent
RULING: NO. Negligence depends on the factual circumstances of the case.
Section 105 of Presidential Decree (P.D.) No. 1445 provides that officers accountable for
government property or funds shall be liable in case of its loss, damage or deterioration
occasioned by negligence in the keeping or use thereof. Absent any showing that the
accountable officer acted negligently in the handling of government funds, he or she is not liable
for its value and should be relieved from any accountability. Stated otherwise, accountable
officers are still liable for the funds under their custody even if the loss was caused by force
majeure should their own negligence contribute to it.
Callang was not negligent when she passed by her granddaughter's school to bring her snacks
to her. Her house and her granddaughter's school were in the same neighborhood and were
close to each other. Meanwhile, the robbery incident occurred while Callang was commuting
from her granddaughter's school to her office. Considering the proximity of the school and her
house, her route could not have been materially different had she decided to go straight to her
office. Thus, Callang would have taken the same jeepney trip even if she did not pass by her
granddaughter's school.
69
It readily becomes apparent that the root of the controversy is Callang's decision to bring home
the money instead of leaving it in her office. It started the chain of event which eventually led to
the point where she was robbed while on her way to work.
The COA finds Callang's choice to bring home the money to be negligent falling below the
standard of diligence to be observed on such occasion. Its conclusion that Callang was
negligent is primarily due to the fact that she was aware of the presence of a safety deposit box
inside the office and still decided to bring the money home.
Based on the circumstances, Callang cannot be faulted when she believed that it was safer to
bring the money home where she could always keep a vigilant eye in safekeeping. It can be
reasonably seen that she was dissuaded to leave the money in the office because of the past
break-ins and the apprehension of his colleague to place a substantial amount of money in the
safety cabinet.
To emphasize, Callang's choice of bringing the money home was not fraught with negligence. In
fact, it is not hard to fathom that a reasonable and diligent person would have acted the same
way as Callang did under the present circumstances. Her office had been subjected to
numerous burglaries in the past and it was not equipped with an adequate compartment where
the money can be safely stored until the following day.
70
40. SPOUSES HIPOLITO DALEN, SR. AND FE G. DALEN, EVERLISTA LARIBA AND THE
MINOR BEVERLY T. LARIBA, MAGDALENA F. MARPAGA AND THE MINORS MIKE ANTHONY
AND THOMIE MAE, BOTH SURNAMED MARPAGA, AGNES C. MOLINA AND THE MINORS
SHEILA, SIMOUN, STEPHEN JOHN AND SHARON ANN, ALL SURNAMED MOLINA, EMMA C.
NAVARRO AND THE MINORS RAYMOND, MARAH, AND RYAN ALL SURNAMED NAVARRO,
RUTH T. SULAM AND THE MINOR JEINAR REECE T. SULAM, v.
MITSUI O.S.K. LINES DIAMOND CAMELLA, S.A.
G.R. No. 194403, July 24, 2019, FIRST DIVISION, CARANDANG, J.
NATURE OF ACTION: Complaint for damages
FACTS: Mitsui O.S.K. Lines, a non-resident corporation, not doing business in the Philippines,
was the charterer of MV Sea Prospect while Diamond Camellia, S.A., another non-resident
corporation, not doing business in the Philippines, and of Panamian registry is the registered
owner of the said vessel.
On or about August 22, 1998, MV Sea Prospect headed to Japan with inclement weather. While
nearing the Island of Okinawa, MV Sea Prospect sunk, drowning 10 crew members.
Respondents alleged that petitioners who are heirs and beneficiaries of the missing seafarers
received full payment of death benefits based on the employment contract as well as the
International Transport Workers' Federation-Japan Seaman Union Associated Marine Officers
and Seafarers Union of the Philippines Collective Bargaining Agreement (CBA) governing the
employment of the seafarers. Petitioners were accompanied by their counsel, Atty. Emmanuel
Partido in signing the settlement agreements, affidavits of heirship and receipts of payment
before the Overseas Workers Welfare Administration (OWWA). According to respondents, the
contents of said documents were explained to petitioners.
Petitioners allegedly demanded in writing further compensation in connection with the sinking of
the vessel and threatened that an action arising from tort would be commenced in Panama
should their demand be unheeded. Hence, respondents filed before the Regional Trial Court
(RTC) of Manila, a Petition for Declaratory Relief and Approval of the Compromise/Settlement
Agreement against petitioners, and a complaint for damages against respondents before the
Admiralty Court of Panama. On September 28, 2000, respondent converted the petition for
declaratory relief into an ordinary civil action for breach of contract and damages and prayed for
the approval of the settlement agreement.
The trial court upheld the validity of the settlement agreement, declaring that the petitioners
breached the material provisions of the settlement agreement, and approved such settlement
agreement. The Supreme Court of Panama, meanwhile, dismissed petitioners' case for lack of
jurisdiction based on forum non conveniens.
On July 18, 2002, the Labor Arbiter (LA) dismissed the complaint on the grounds of lack of
jurisdiction over the persons of the respondents and prescription of action. Moreover, the LA
found that the action filed by petitioners has already prescribed. The Labor Code provides that
all money claims arising from employer employee relationship accruing during the effectivity of
this Code shall be filed within three years from the time the cause of action accrued. They filed
their complaint on April 17, 2002 or more than three years therefrom.
The petitioners appealed to the National Labor Relations Commission (NLRC) but it was
dismissed saying that the claim, even if based on tort was already included in the quitclaims
executed in favor of the respondents. It also held that prescription has already set in.
The CA dismissed the appeal, reiterating the ruling of the LA and NLRC that the complaint for
damages was filed out of time and that the claim filed with the Admiralty Court of Panama did
not toll the prescriptive period for filing a claim here in the Philippines.
ISSUE: Whether the Labor Arbiter has no jurisdiction over tort cases
RULING: NO. The Labor Code provides that claims for actual, moral, exemplary and other
forms of damages arising from the employer-employee relations are within the jurisdiction of the
Labor Arbiter.
71
In deciding whether a case arises out of employer-employee relations, the Court formulated the
"reasonable causal connection rule", wherein if there is a reasonable connection between the
claim asserted and the employer-employee relations, then the case is within the jurisdiction of
the labor courts.
In this case, petitioners' claim for damages is grounded on respondents' gross negligence which
caused the sinking of the vessel and the untimely demise of their loved ones. Based on this, the
subject matter of the complaint is one of claim for damages arising from quasi-delict, which is
within the ambit of the regular court's jurisdiction.
According to Article 2176 of the New Civil Code, "Whoever by act or omission causes damage
to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the parties, is called quasi-
delict."
Thus, to sustain a claim liability under quasi-delict, the following requisites must concur: (a)
damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person
for whose acts he must respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damages incurred by the plaintiff.
Here, petitioners argue that respondents are duty bound to exercise due diligence required by
law in order to ensure the safety of the crew and all the passengers therein. It was further
averred that the negligence on the part of the respondents is quite apparent when they allowed
the vessel to load and transport wet cargo. For failure therefore to exercise extra ordinary
diligence required of them, the respondents must be held liable for damages to the surviving
heirs of the deceased crew members. Notwithstanding the contractual relation between the
parties, the act of respondents is a quasi-delict and not a mere breach of contract.
Where the resolution of the dispute requires expertise, not in labor management relations nor in
wage structures and other terms and conditions of employment, but rather in the application of
the general civil law, such claim falls outside the area of competence or expertise ordinarily
ascribed to the LA and the NLRC.
Therefore, the LA has no jurisdiction over the case in the first place; it should have been filed to
the proper trial court.
72
41. PEOPLE OF THE PHILIPPINES v. SUSAN SAYO Y REYES AND ALFREDO ROXAS Y
SAGON
NATURE OF ACTION: Criminal case for violation of Republic Act No. (RA) 9208 or the Anti-
Trafficking in Persons Act of 2003.
FACTS: Witnesses and private complainants AAA, BBB, and CCC known as the "plaza girls"
disclosed that they have been under the control and supervision of SAYO as commercial sex
workers. AAA and BBB testified in open court that they were only fifteen (15) years old at the
time they began working for SAYO in December 2004.
Upon the "plaza girls" introduction to SAYO, the latter then started to act as a pimp providing
them with male customers for a certain percentage. SAYO would regularly furnish AAA, BBB
and CCC with male customers on the average five (5) customers per week. Whenever they
have customers, SAYO would bring them either to a motel or to Alfredo Roxas's house.
On November 15, 2005, AAA, BBB and CCC were rescued by Criminal Investigation and
Detection Group-Women and Children Complaint Division (CIDG-WCCD) through “Oplan Sagip
Angel.”
The RTC held that the prosecution was able to prove the guilt of accused-appellants beyond
reasonable doubt. While the appeal is pending before the Court of Appeals, SAYO died. The CA
affirmed the RTC Decision with modification, by adding an award of moral and exemplary
damages, but only to AAA and BBB. There was no discussion on the omission of CCC in the
award of damages.
ISSUE: Whether Sayo's death extinguished her criminal and civil liability
RULING: YES. The death of Sayo extinguished her criminal liability under Article 89, paragraph
1 of the Revised Penal Code and similarly, her civil liability.
The rules on the effect of the death of the accused on civil liability pending appeal are
summarized in People v. Bayotas:
1. Death of the accused pending appeal of his conviction extinguishes his criminal liability as
well as the civil liability based solely thereon. As opined by Justice Regalado, in this regard, "the
death of the accused prior to final judgment terminates his criminal liability and only the civil
liability directly arising from and based solely on the offense committed, i.e., civil liability ex
delicto in senso strictiore."
2. Corollarily, the claim for civil liability survives notwithstanding the death of accused, if the
same may also be predicated on a source of obligation other than delict Article 1157 of the Civil
Code enumerates these other sources of obligation from which the civil liability may arise as a
result of the same act or omission: a) Law; b) Contracts; c) Quasi-contracts d) Delicts; and
e) Quasi-delicts.
3. Where the civil liability survives, as explained in Number 2 above, an action for recovery
therefor may be pursued but only by way of filing a separate civil action and subject to Section I,
Rule 111 of the 1985 Rules on Criminal Procedure as amended. This separate civil action may
be enforced either against the executor/administrator or the estate of the accused, depending
on the source of obligation upon which the same is based as explained above.
Applying these established rules in the instant case, the death of Sayo extinguished her criminal
and civil liability inasmuch as she is no longer a defendant to stand as the accused; the civil
action is also extinguished, as it is grounded on the criminal action.
73
42. JEBSEN MARITIME INC., VAN OORD SHIPMANAGEMENT B.V. AND/OR ESTANISLAO
SANTIAGO v. TIMOTEO GAVINA, SUBSTITUTED BY HIS HEIRS, REPRESENTED BY
SURVIVING SPOUSE NORA J. GAVINA
G.R. No. 199052, June 26, 2019, FIRST DIVISION, Carandang J.
NATURE OF ACTION: Action for damages
FACTS: On May 5, 2007, Timoteo embarked on vessel M/V Volvos Terranova as a fitter for a
four-month employment contract. On July 11, 2007, his employment contract was cut short as
he was repatriated due to persistent cough and difficulty in breathing. He arrived in Manila on
July 12, 2007 and proceeded to the PHILAMCARE Health Systems, Inc. for a check up on July
14, 2007. The initial results of the check-up showed him having pneumonia and bronchiectasis.
On September 27, 2007, Dr. Dennis C. Teo (Dr. Teo), Timoteo's attending physician, issued a
certification Timoteo is unfit for sea service with disability grade I. Timoteo hence filed the
instant complaint to the Labor Arbiter (LA). After a series of further tests, he was diagnosed of
having lung cancer, and died during the pendency of the case.
The LA dismissed the complaint. The LA held that Timoteo was not able to establish the
essential link between lung cancer and his employment as a fitter. Respondent filed an appeal
to the National Labor Relations Commission (NLRC) which overturned the LA Decision on
October 22, 2009 and held petitioners liable to pay respondent US$50,000.00 as death benefits,
US$2,526.00 as sickness allowance, reimbursement of hospital expenses and ten percent
(10%) of the judgment award as attorney's fees. The CA affirmed the Decision and Resolution
of the NLRC except that Estanislao Santiago, Jebsen's former Assistant Vice President cannot
be held personally liable because his employer's obligations and responsibilities are separate
and distinct from the people compromising it.16
ISSUE: Whether the award of moral damages, exemplary damages and attorney's fees are
proper
RULING: YES. As stated by the NLRC in its Decision, "After the check-up, disability benefits
(sic) was not extended to the deceased seaman. This to us (sic) evinced is bad faith on the part
of the respondent."
Bad faith is not simply bad judgment or negligence. "It imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It means a breach of a known duty through some
motive or interest or ill will that partakes of the nature of fraud."
Verily, since petitioners are in bad faith, the award of moral damages amounting to fifty
thousand pesos (P50,000.00) is proper.
As to the award of exemplary damages, the New Civil Code provides that, "exemplary or
corrective damages are imposed, by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory damages."
To discourage other employers who may be emboldened to follow the example of petitioners in
trying to evade liability, the award of exemplary damages amounting to fifty thousand pesos
(P50,000.00) is proper.
Lastly, as to the attorney's fees, the Supreme Court provides that, "The Court also holds that
[respondent] is entitled to attorney's fees in the concept of damages and expenses of litigation.
Attorney's fees are recoverable when the defendant's act or omission has compelled the plaintiff
to incur expenses to protect his interest."
Moreover, under Article 2208 of the New Civil Code, attorney's fees may be recovered in
actions for indemnity under workmen's compensation and employer's liability laws.
Hence, the award of attorney's fees ten percent (10%) of the aggregate monetary awards is
warranted.
74
43. PEOPLE OF THE PHILIPPINES v. JOJO BACYAAN Y SABANIYA, RONNIE FERNANDEZ Y

GONZALES, AND RYAN GUEVARRA Y SIPRIA
G.R. No. 238457, September 18, 2019, THIRD DIVISION, Inting J.
NATURE OF ACTION: Criminal case of special complex crime of robbery with homicide
FACTS: On May 31, 2017, Giovanni Cuadro boarded the JMK bus along Ayala Avenue, Makati
City. When the bus reached the EDSA-Ayala Flyover, six men, armed with guns and a grenade,
declared a hold-up. He identified appellant Bacyaan as the one who announced the hold-up,
while appellants Guevarra and Fernandez were the ones who divested himself and the other
passengers of their personal belongings including money. Meanwhile, policemen started
pursuing the bus. When the bus reached the Muñoz Market in Caloocan City, the policemen
flagged it down. As the passengers tried to escape by jumping off the bus, Bacyaan shot
passenger Renato James Veloso in the back which resulted in his death. Bacyaan also shot
Lauro Santos, the bus driver, in the head, causing his immediate death.
Thereafter, appellants grabbed a passenger to be used as a shield. They also grabbed Cuadro
and two female passengers outside the bus as they looked for a vehicle to commandeer. They
saw a [Mitsubishi] Adventure van with the driver inside, boarded it, pointed a gun at the driver,
and ordered him to take the vehicle to the North Luzon Expressway and look for an exit route.
Appellants continued to exchange gunshots with the pursuing policemen until the vehicle finally
ditched into a gutter and became immobile because of blown tires, just inside the Lawang Bato
exit. According to Cuadro, he escaped through a broken windshield and saw appellants
commandeering a dump truck to escape.
The trial court rendered a verdict of conviction, and ordered all the accused to pay the heirs of
Lauro Santos and Renato James Veloso the amount of P75,000.00 as civil indemnity,
P50,836.00 as actual damages supported with credible receipts, P50,000.00 as moral
damages, and P30,000 as exemplary damages, respectively. On appeal, the CA affirmed
appellants' conviction for the crime of robbery with homicide.
ISSUE: Whether or not the amount awarded as damages is proper.
RULING: NO. After due consideration, the Court affirms appellants' conviction for robbery with
homicide but modifies the award of damages.
The special complex crime of robbery with homicide under Article 294, paragraph 1 of the RPC
is penalized with reclusion perpetua to death. Under the circumstances, the element of band,
appreciated as a generic aggravating circumstance, would have merited the imposition of the
death penalty. In view of RA 9346, however, "the imposition of the penalty of death has been
prohibited and in lieu thereof, the penalty of reclusion perpetua is to be imposed."
The Court resolves, at this point, to modify the damages awarded by the CA. "In robbery with
homicide, civil indemnity and moral damages are awarded automatically without need of
allegation and evidence other than the death of the victim owing to the crime." Both the RTC
and the CA were correct in granting these awards, except that the award should be
P100,000.00 each. Recent jurisprudence provides that when the penalty to be imposed is
death, civil indemnity and moral damages shall be awarded at P100,000.00 each.
Apart from civil indemnity and moral damages, the lower courts likewise properly awarded
exemplary damages under Article 2230 of the Civil Code because of the presence of an
aggravating circumstance and to serve as a deterrent to others similarly inclined. The Court,
however, increases the awarded amount from P30,000.00 to P100,000.00 to conform to
prevailing jurisprudence. The Court likewise increases the amount of temperate damages
awarded to the heirs of Renato James Veloso from P25,000.00 to P50,000.00 in accordance
with People v. Jugueta.
In addition, interest at the rate of 6% per annum shall be imposed on all monetary awards from
the date of finality of this Decision until fully paid.
75
LAND TITLES AND DEED
44. THE LOCAL GOVERNMENT OF STA. CRUZ, DAVAO DEL SUR, AS REPRESENTED BY ITS
MUNICIPAL MAYOR, ATTY. JOEL RAY L. LOPEZ, v. PROVINCIAL OFFICE OF THE.
DEPARTMENT OF AGRARIAN REFORM, DIGOS CITY, DAVAO DEL SUR
G.R. No. 204232, October 16, 2019, SECOND DIVISION, REYES, J. JR., J.
NATURE OF ACTION: Application for the exclusion from the coverage of CARP
FACTS: The Tan Kim Kee Estate, comprising more or less 220 hectares, was designated as an
industrial zone by virtue of the Municipal Comprehensive Development Plan/Land Use Plan and
Zoning Ordinances (MCDP/LUP and ZOs) CY 1991-2000 and adopted up until CY 2000-2012.
In classifying the Tan Kim Kee Estate as an industrial zone, LGU-Sta. Cruz envisioned it to
support its agro-industrial program, making said area as an export processing zone. However, it
appears that in 1994, Braulo Lim, et al., landowners of the Tan Kim Kee Estate, filed an
application for conversion of the Estate into commercial/industrial uses. The application was
granted with the condition that the Estate be developed within the period of five years. The
period was later on extended upon application of Braulo Lim, et al.
Before the lapse of the prescribed period, Braulo Lim, et al. filed an application for the exclusion
of the Estate from the coverage of CARP on the ground that the land was actually, exclusively,
and directly used for cattle raising.
In 2012, however, the Department of Agrarian Reform (DAR) subjected the Tan Kim Kee Estate
under the coverage of the CARP. On January 3, 2013, the DAR denied the application for
exclusion.
The respondent maintained that the Tan Kim Kee Estate was validly put under the CARP
coverage for the landowners' failure to comply with the conversion plan under DAR guidelines.
The DAR averred that the Tan Kim Kee landowners initially filed their application for conversion
from agricultural land to industrial use. However, for a period of five years, they failed to
implement the conversion plan. An extension of time within which to comply with the plan was
granted by the DAR; despite so, the landowners still failed to comply therewith. Petitioner insists
that its act of reclassifying the Tan Kim Kee Estate as an industrial zone is well within the
autonomy provided by the Local Government Code and the Constitution.
ISSUE: Whether or not the denial of the application for exclusion is proper.
RULING: YES. Initially, it must be highlighted that the Notices of Coverage issued by the DAR
basically placed the Tan Kim Kee Estate under the coverage of the CARP. Said notices notify
the landowners that their respective properties shall be placed under the CARP; that they are
entitled to exercise their retention right; and that a public hearing shall be conducted where they
and the representatives of the concerned sectors of society may attend to discuss the results of
the field investigation, the land valuation and other pertinent matters. Thus, at this point, no
acquisition was yet implemented.
With the exclusion of the lower courts, this Court and the CA has concurrent jurisdiction to issue
an injunctive writ as against the Department of Agriculture in the implementation of the CARL.
However, such concurrence does not give the petitioner unrestricted freedom of choice of court
forum consistent with the principle of hierarchy of courts.
In the case of Gios-Samar, Inc. v. Department of Transportation and Communications, the Court
reminded that said doctrine is not a mere policy, but a constitutional filtering mechanism
designed to enable the Court to focus on more fundamental and essential tasks assigned to it
by the Constitution.
Said principle, however, is subject to exceptionsHowever, as clarified in the Gios-Samar case,

the determinative factor in allowing the application of one of the aforementioned exceptions is
the nature of the question raised by the parties in those "exceptions" that enabled the Court to
allow such direct resort.
76
In this case, petitioner merely speculates in its Petition that the benefits of classifying the Tan
Kim Kee Estate as an industrial zone far outweighs the benefits of the implementation of the
CARL because in previous experiences, the CARP beneficiaries were not able to develop the
agricultural lands awarded to them. However, such conjecture does not constitute any of the
aforementioned exceptions to the general rule. Thus, the supremacy of the doctrine of hierarchy
of courts prevails.
Note too that the Petition failed to state a cause of action considering the insufficiency of the
allegations in the pleading. It must be highlighted that petitioner is not the registered owner of
the Tan Kim Kee Estate.
Petitioner's perceived and anticipated benefit from the development of the Tan Kim Kee Estate
constitutes a mere expectancy. As aforementioned, the same does not suffice to consider it as a
real party-in-interest.
The Court stresses that procedural rules are not to be belittled or dismissed simply because
their non-observance may have resulted in prejudice to a party's substantive rights. Like all
rules, they are required to be followed except only for the most persuasive of reasons.
Considering the procedural infirmities plaguing the instant Petition, the Court has no choice but
to deny the same in the absence of any manifestation that the ends of substantive justice would
be subserved thereby.
77
45. REPUBLIC OF THE PHILIPPINES v. NATIONAL COMMISSION ON INDIGENOUS PEOPLES,

REGISTER OF DEEDS OF BAGUIO CITY, LAND REGISTRATION AUTHORITY, HEIRS OF
COSEN PIRASO, REPRESENTED BY RICHARD A. ACOP, HEIRS OF JOSEPHINE MOLINTAS
ABANAG, REPRESENTED BY ISAIAS M. ABANAG, MARION T. POOL, JOAN L. GORIO, AND
VIRGINIA C. GAO-AN
G.R. No. 208480, September 25, 2019, SECOND DIVISION, CARPIO, ACTING C.J.
NATURE OF ACTION: Action to annul, reverse and set aside the assailed Resolutions of the
NCIP
FACTS: The present case seeks to annul two Resolutions issued by NCIP in favor of private
respondents, both dated 10 November 2010. For the first resolution, Petitioners are the heirs of
Cosen "Sarah" Piraso, the daughter of Piraso Kapitan Piraso, who occupied an ancestral land
located at what is known as Session Road, Baguio City. The family have been planting and
harvesting vegetables and fruit-bearing trees on several portions of the ancestral land.
Thereafter, the petitioners filed an application for the identification, delineation and recognition
of the ancestral land initially before Baguio NCIP City Office pursuant to the provisions of R.A.
8371, otherwise known as the Indigenous Peoples' Rights Act of 1997 (IPRA). The petitioners
alleged that the subject ancestral land has been occupied, possessed, and utilized by them and
their predecessors-in-interest for so many years. Subsequently, the NCIP recognized the
petitioners' rights over the subject parcels of ancestral land after finding that the genealogy of
the petitioners shows an unbroken line of generations starting from Piraso who have never left
the subject ancestral land for the last 120 years and ordered issuance of eight (8) Certificates of
Ancestral Land Titles (CALTs) under the petitioners' names.
For the second resolution, the petitioners are the heirs of Josephine Molintas Abanag, who in
turn was a descendant of an Ibaloi native named Menchi who owned several parcels of
ancestral land located in various parts of what is now known as Baguio City and these parcels
were subsequently inherited by his descendants.
Consequently, the petitioners filed a petition for the identification, delineation and recognition of
their ancestral lands in Baguio City pursuant to R.A. 8371. The petitioners therein also
submitted numerous pieces of documentary evidence such as the narrative of customs and
traditions of the Ibaloi community in Baguio City, Assessment of Real Property, Tax receipts,
photographs of improvements, rituals, and members of the Molintas family led by Josephine
Molintas Abanag. In the end, the NCIP granted the petition and ordered the issuance of twenty-
eight (28) CALTs covering the same number of parcels of ancestral land in the name of the
petitioners and Joan L. Gorio, a transferee often (10) parcels of land from the heirs of Josephine
Molintas Abanag.
Almost two (2) years after, the Republic of the Philippines as represented by the Office of the
Solicitor General (OSG) filed a petition to annul, reverse and set aside the assailed Resolutions
of the NCIP through this instant petition.
The NCIP held that private respondents Pirasos and Abanags have vested rights over their
ancestral lands on the basis of a native title and as mandated by Article XII, Section 5 of the
1987 Constitution and Republic Act No. 8371 (RA 8371), otherwise known as "The Indigenous
Peoples' Rights Act of 1997." The Court of Appeals affirmed the ruling of the NCIP.
ISSUE: Whether Baguio Townsite reservation, with the exception of existing property rights
recognized or vested before the effectivity of the IPRA, is exempt from the coverage of said law
as provided in section 78 thereof.
RULING: YES. Republic Act No. 8371 (RA 8371) or the "Indigenous Peoples' Rights Act of
1997" (IPRA) expressly excludes the City of Baguio from the application of the general
provisions of the IPRA. Section 78 of RA 8371 provides that "the City of Baguio shall remain to
be governed by its Charter and all lands proclaimed as part of its townsite reservation shall
remain as such until otherwise reclassified by appropriate legislation." Section 78 of RA 8371
states:
78
SECTION 78. Special Provision. — The City of Baguio shall remain to be governed by its
Charter and all lands proclaimed as part of its townsite reservation shall remain as such until
otherwise reclassified by appropriate legislation: Provided, That prior land rights and titles
recognized and/or acquired through any judicial, administrative or other processes before the
effectivity of this Act shall remain valid: Provided, further, That this provision shall not apply to
any territory which becomes part of the City of Baguio after the effectivity of this Act. (Emphasis
supplied)
These subject lands comprise of historical heritage and belong9 to the State. Article 420 of the
Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some
public service or for the development of the national wealth.
While the IPRA does not generally authorize the NCIP to issue ancestral land titles within
Baguio City, there are also recognized exceptions under Section 78. These refer to (1) prior
land rights and titles recognized and acquired through any judicial, administrative or other
process before the effectivity of the IPRA; and (2) territories which became part of Baguio after
the effectivity of the IPRA. For prior land rights, the remedy afforded to indigenous cultural
communities is Act No. 926.22 Section 32 of Act No. 926.
79
46. REPUBLIC OF THE PHILIPPINES v. SPOUSES GUILLERMO ALONSO * AND

INOCENCIA BRITANICO-ALONSO
G.R. No. 210738, August 14, 2019, THIRD DIVISION, REYES, J. JR., J.
NATURE OF ACTION: Petition for registration
FACTS: A petition for registration of Lot 2209 (subject land), situated in Poblacion, Oton, Iloilo,
was filed by spouses Guillermo Alonso and Inocencia Britanico-Alonso (spouses Alonso). In
their petition, spouses Alonso claimed that the subject land being an alienable and disposable
land of public domain, was previously owned and possessed by spouses Rafael C. Montalvo
and Manuel a Garnica (spouses Montalvo) way back in 1945. After the latter's death, their heirs
executed an Extrajudicial Settlement among Heirs with Waiver of Hereditary Shares and sold
the subject land in their favor evidenced by a Deed of Sale dated January 27, 1998. As such,
spouses Alonso asserted that tacking their possession with that of their predecessors-in-
interest, they have been in open, continuous, exclusive, and notorious possession of the subject
land under a bona fide claim of ownership since time immemorial, thereby warranting the
registration of the property in their names.
The Regional Trial Court of Iloilo City, Branch 22 (RTC), dismissed the petition. The RTC ruled
that spouses Alonso failed to prove that their and their predecessors-in-interest's possession
has been open, continuous, exclusive, and notorious since time immemorial or earlier than
1945. Aggrieved, spouses Alonso filed a Motion for Reconsideration, which was denied. The CA
granted the appeal and approved the registration of the subject land. The CA found that the
open, continuous, exclusive, and notorious possession requirement was met for the registration
of the subject land.
ISSUE: Whether or not the registration of the subject land is proper.
RULING: NO. Presidential Decree No. 152915 explicitly provides for the requirements in an
application for registration of land. Under Section 14 (1), it is necessary that: (a) the land or
property forms part of the alienable and disposable lands of the public domain; (b) the applicant
and his predecessors-in-interest have been in open, continuous, exclusive, and notorious
possession and occupation of the same; and (c) it is under a bona fide claim of ownership since
June 12, 1945, or earlier.
On this note, this Court accentuates that in an application for registration, the foremost
consideration is the nature and classification of the land in question. This is based on the
presumption that all lands of the public domain belong to the State or the Regalian doctrine.
Thus, without the determination of which, all other requirements necessary for registration are
purposeless and futile.
Thus, in a land registration proceeding, the applicant bears the burden of overcoming the
presumption of State ownership.
The records of the case reveal that the only basis for the RTC in considering the subject lot as
alienable and disposable is the testimony of Henry Belmones as the Chief of Land Evaluation
Party of the DENR, who merely relied on Control Map No. 18, which was not offered and
presented in evidence and a survey plan. Notably, the pieces of evidence are deficient to prove
the nature of the property as alienable and disposable. Spouses Alonso failed to submit a
CENRO or PENRO certification and an issuance by the DENR Secretary signifying his approval
for the release of the subject land of the public domain as alienable and disposable. Ergo,
spouses Alonso fail to discharge the burden of proof.
As the first element is clearly lacking, the occupation and possession of the subject land by
spouses Alonso, no matter how long, cannot ripen into ownership. Consequently, a title cannot
be issued in their favor.
80
47. MILA B. RECAMARA v. REPUBLIC OF THE PHILIPPINES

G.R. No. 211810, August 28, 2019, THIRD DIVISION, REYES, A. JR., J.
NATURE OF ACTION: Petition for judicial reconstitution of title
FACTS: On July 5, 2011, Mila B. Recamara (Mila) filed a petition for the judicial reconstitution of
OCT No. O-10245 before the Dipolog City RTC. She alleged that her grandparents, were the
owners in fee simple of a 486-square meter parcel of land known as Lot No. 551 of the Dapitan
Cadastre. In support of her petition, Mila presented a certified true copy of Decree No. 299019,
issued by the Court of First Instance (CFI) of the Province of Zamboanga on October 25, 1929.
On the second page of the decree is an annotation, written in Spanish.
Finding the petition sufficient in form and substance, the Dipolog RTC issued a notice, requiring
the actual possessors of Lot No. 551, adjacent property owners, and all persons with an interest
in the lot to appear and show cause as to why the petition should not be granted. The Office of
the Solicitor General (OSG) and the Land Registration Authority (LRA) were furnished with
copies of the petition and of the aforementioned notice. On January 17, 2012, when the case
was called, nobody appeared to oppose the petition.
The Dipolog RTC granted the petition. Relying on the report of the LRA, the trial court
concluded that Lot No. 551 was, in fact, adjudicated to Macario pursuant to a decision rendered
by the CFI in Cadastral Case No. 1, G.L.R.O. Cadastral Record No. 76. On October 9, 2013,
the CA promulgated the herein assailed decision, reversing the RTC's ruling effectively denying
Mila's petition for lack of merit. The appellate court held that Mila failed to present any of the
documents enumerated in Section 3 of Republic Act (RA) No. 26, which governs proceedings
for the judicial reconstitution of transfer certificates of title.
ISSUE: A) Whether or not the CA erred when it applied Section 3 of R.A. No. 26 in deciding the
Republic's appeal; and
B) Whether or not the CA erred when it failed to appreciate Decree No. 299019 as sufficient
basis for the reconstitution of OCT No. O-1024523.
RULING: While the first issue must be decided in Mila's favor, the second cannot. Thus, her
petition for the judicial reconstitution of OCT No. O-10245 has to be dismissed.
A proceeding for judicial reconstitution under RA No. 26 has for its object the restoration of a
lost or destroyed Torrens certificate to its original form and condition. The purpose of the
proceeding is to reproduce, after observing the procedures laid down by law, the subject
certificate of title in the form it was prior to its loss or destruction. Such proceedings presuppose
the prior existence of the certificate, seeking its reissuance.
Sections 2 and 3 of RA No. 26 enumerate the source documents upon which judicial
reconstitution may issue. The first provision applies to reconstitution of original certificates of
title, while the second applies to reconstitution of transfer certificates of title,
In this case, the CA held that Mila was not able to present any of the documents mentioned in
paragraphs (a) to (e) of the above-shown Section 3.28. Mila's petition for reconstitution is
anchored mainly on Decree No. 299019. Verily, such is not among the classes of documents
contemplated by Section 3. However, this should not have had any bearing on the CA's
decision, as said provision applies to proceedings for the reconstitution of transfer certificates of
title. Mila's petition was one for the reconstitution of an original certificate of title, which is
governed by Section 2.
On its face, Mila's argument seems to be meritorious. Indeed, Decree No. 299019 states that
Lot No. 551 was adjudicated to Macario by the CFI of Zamboanga and that OCT No. O-10245
was consequentially issued. However, both the CA and the RTC failed to assess the intrinsic
authenticity of the subject decree. With this omission, the Court, before making any conclusive
ruling on the instant petition, must carefully scrutinize the same, thus ensuring that
reconstitution will only be granted if it can be determined with utmost certainty that a certificate
of title was, in fact, issued pursuant thereto. Reconstitution cannot be had.
81
48. GOVERNMENT SERVICE INSURANCE SYSTEM v. MUNICIPAL AGRARIAN REFORM

OFFICER ROMERICO DATOY
G.R. No. 232863, July 24, 2019, THIRD DIVISION, Leonen J.
NATURE OF ACTION: Petition for exclusion from compulsory agrarian reform coverage
FACTS: In February 1996, the Metro Davao Agri-Hotel Corporation obtained a P20 million
commercial loan from the Government Service Insurance System secured by a mortgage over
two (2) parcels of land one of which is an agricultural land.
As the Metro Davao Agri-Hotel Corporation was unable to pay its loan obligations, the
Government Service Insurance System foreclosed both properties. After the lapse of the
redemption period, ownership of the two (2) properties was consolidated in the Government
Service Insurance System.
On August 10, 2004, Municipal Agrarian Reform Officer Romerico Datoy issued a Notice of
Coverage concerning the agricultural. Subsequently, the Department of Agrarian Reform offered
to pay the Government Service Insurance System P2,343,370.24 for the property. The
Government Service Insurance System filed before the Department of Agrarian Reform
Regional Director a Petition asking that the property be excluded from compulsory agrarian
reform coverage.
The Regional Director Inson denied the Government Service Insurance System's Petition. He
further denied its Motion for Reconsideration. The Government Service Insurance System
appealed the Order, but its appeal was denied by Agrarian Reform Secretary Pangandaman in
Its Motion for Reconsideration was similarly denied. The Government Service Insurance System
elevated the case to the Office of the President, but its appeal was denied as well as its
subsequent Motion for Reconsideration.
The Government Service Insurance System then filed before the Court of Appeals a Petition for
Review. However, the Court of Appeals sustained the rulings of the Office of the President, the
Agrarian Reform Secretary, and Regional Director Inson.
ISSUE: Whether or not the subject property may be excluded from compulsory agrarian reform
coverage.
RULING: NO. Roman Catholic Archbishop of Caceres v. Secretary of Agrarian Reform has
settled that the exemptions from agrarian reform coverage are contained in "an exclusive list"
which are enumerated under Section 10 of Republic Act No. 6657, otherwise known as the
Comprehensive Agrarian Reform Law.
Section 4 of RA 6657 states, "The Comprehensive Agrarian Reform Law of 1988 shall cover,
regardless of tenurial arrangement and commodity produced, all public and private agricultural
lands as provided in Proclamation No. 131 and Executive Order No. 229, including other lands
of the public domain suitable for agriculture," The lands in Archbishop's name are agricultural
lands that fall within the scope of the law, and do not fall under the exemptions.
The exemptions under RA 6657 form an exclusive list, as follows:
SEC. 10. Exemptions and Exclusions. — (a) Lands actually, directly and exclusively used for
parks, wildlife, forest reserves, reforestation, fish sanctuaries and breeding grounds, watersheds
and mangroves shall be exempt from the coverage of this Act; (b) Private lands actually, directly
and exclusively used for prawn farms and fishponds shall be exempt from the coverage of this
Act: Provided, That said prawn farms and fishponds have not been distributed and Certificate of
Land Ownership Award (CLOA) issued under the Agrarian Reform Program. In cases where
the fishponds or prawn farms have been subjected to the Comprehensive Agrarian Reform Law,
by voluntary offer to sell, or commercial farms deferment or notices of compulsory acquisition, a
simple and absolute majority of the actual regular workers or tenants must consent to the
exemption within one (1) year from the effectivity of this Act. When the workers or tenants do
not agree to this exemption, the fishponds or prawn farms shall be distributed collectively to the
worker-beneficiaries or tenants who shall form cooperative or association to manage the same.
82
In cases where the fishponds or prawn farms have not been subjected to the Comprehensive
Agrarian Reform Law, the consent of the farmworkers shall no longer be necessary; however,
the provision of Section 32-A hereof on incentives shall apply; (c) Lands actually, directly and
exclusively used and found to be necessary for national defense, school sites and campuses,
including experimental farm stations operated by public or private schools for educational
purposes, seeds and seedlings research and pilot production center, church sites and convents
appurtenant thereto, mosque sites and Islamic centers appurtenant thereto, communal burial
grounds and cemeteries, penal colonies and penal farms actually worked by the inmates,
government and private research and quarantine centers and all lands with eighteen percent
(18%) slope and over, except those already developed, shall be exempt from the coverage of
this Act. (As amended by R.A. 7881)
Section 7 of the Comprehensive Agrarian Reform Law is even more specific. It explicitly states
that "lands foreclosed by government financial institutions" are subject to agrarian reform.
Petitioner does not only meet Section 3(m)'s definition; it is even cited as the exemplar of a
government financial institution. This, vis-à-vis Section 7 of the Comprehensive Agrarian Reform
Law, negates any doubt on its being covered by the Comprehensive Agrarian Reform Law.
83
49. SPOUSES ISIDRO R. SALITICO AND CONRADA C. SALITICO PETITIONERS, v. HEIRS OF

RESURRECCION• MARTINEZ FELIX, NAMELY: LUCIANO, CORAZON AND CONCEPCION, ALL
SURNAMED FELIX, RECAREDO P. HERNANDEZ, IN HIS CAPACITY AS ADMINISTRATOR OF
THE ESTATE OF AMANDA H. BURGOS, AND THE REGISTER OF DEEDS, RESPONDENTS.
NATURE OF ACTION: Action for Specific Performance with Damages
FACTS: Amanda is the registered owner the subject property located in Bambang, Bulacan. By
virtue of a document entitled Huling Habilin ni Amanda H. Burgos dated May 7, 1986 (Huling
Habilin), the subject property was inherited by the niece of Amanda, Resurreccion, as a
devisee. Thereafter, Resurreccion executed a document entitled Bilihang Tuluyan ng Lupa
dated November 10, 1998, which transferred ownership over the parcel of land in favor of the
petitioners Sps. Salitico. The latter then took physical possession of the subject property.
Subsequently, a proceeding for the probate of the Huling Habilin was undertaken before the
Probate Court where the Respondent Recaredo was appointed as the executor. The Huling
Habilin was approved by the Probate Court.
On March 9, 2010, the petitioners Sps. Salitico received a demand letter requiring them to
vacate the subject property and surrender possession over it to the respondents heirs. To
protect their interest over the subject property, the petitioners Sps. Salitico executed an Affidavit
of Adverse Claim dated March 17, 2009, which was however denied registration by the
respondent RD.
In their Complaint before the RTC, the petitioners Sps. Salitico sought the delivery and return in
their favor of the owner's duplicate copy of OCT P-1908 and the execution of the corresponding
Deed of Absolute Sale by way of confirming the Bilihang Tuluyan ng Lupa. The RTC issued a
partial summary judgment in favor of the petitioners Sps. Salitico, ordering the respondent RD to
register the petitioners' Affidavit of Adverse Claim dated March 17, 2009. The dismissed the
Complaint for lack of cause of action. The CA likewise dismissed the appeal due to the
pendency of the probate proceedings before the Probate Court, citing Rule 75, Section 1 of the
Rules of Court, which states that no will shall pass either real or personal estate unless it is
proved and allowed in the proper court.
ISSUE: Whether or not a new title shall be issued.
RULING: NO. It is only upon the issuance by the testate or intestate court of the final order of
distribution of the estate or the order in anticipation of the final distribution that the certificate of
title covering the subject property may be issued in the name of the distributes.
It is not disputed that by virtue of the decedent Amanda's will, Resurreccion inherited the
subject property as the designated devisee. It is likewise not disputed that Resurreccion sold
her interest over the subject property by executing a document entitled Bilihang Tuluyan ng
Lupa in favor of the petitioners Sps. Salitico who then proceeded to take physical possession of
the subject property.
Article 777 of the Civil Code, which is substantive law, states that the rights of the inheritance
are transmitted from the moment of the death of the decedent. Article 777 operates at the very
moment of the decedent's death meaning that the transmission by succession occurs at the
precise moment of death and, therefore, at that precise time, the heir is already legally deemed
to have acquired ownership of his/her share in the inheritance, "and not at the time of
declaration of heirs, or partition, or distribution." Thus, there is no legal bar to an heir disposing
of his/her hereditary share immediately after such death.
As applied to the instant case, upon the death of Amanda, Resurreccion became the absolute
owner of the devised subject property, subject to a resolutory condition that upon settlement of
Amanda's Estate, the devise is not declared inofficious or excessive. Hence, there was no legal
bar preventing Resurreccion from entering into a contract of sale with the petitioners Sps.
Salitico with respect to the former's share or interest over the subject property.
84
In a contract of sale, the parties' obligations are plain and simple. The law obliges the vendor to
transfer the ownership of and to deliver the thing that is the object of sale to the vendee.
Therefore, as a consequence of the valid contract of sale entered into by the parties,
Resurreccion had the obligation to deliver the subject property to the petitioners Sps. Salitico. In
fact, it is not disputed that the physical delivery of the subject property to the petitioners Sps.
Salitico had been done, with the latter immediately entering into possession of the subject
property after the execution of the Bilihang Tuluyan ng Lupa. Therefore, considering that a valid
sale has been entered into in the instant case, there is no reason for the respondents heirs to
withhold from the petitioners Sps. Salitico the owner's duplicate copy of OCT P-1908.
Nevertheless, the existence of a valid sale in the instant case does not necessarily mean that
the RD may already be compelled to cancel OCT P-1908 and issue a new title in the name of
the petitioners Sps. Salitico.
According to Section 92 of Presidential Decree No. (PD) 1529, otherwise known as the Property
Registration Decree, with respect to the transfer of properties subject of testate or intestate
proceedings, a new certificate of title in the name of the transferee shall be issued by the
Register of Deeds only upon the submission of a certified copy of the partition and distribution,
together with the final judgment or order of the court approving the same or otherwise making
final distribution, supported by evidence of payment of estate tax or exemption therefrom, as the
case may be.
Further, under Section 91 of PD 1529, even without an order of final distribution from the
testate/intestate court and in anticipation of a final distribution of a portion or the whole of the
property, the Register of Deeds may be compelled to issue the corresponding certificate of title
to the transferee only when the executor/administrator of the estate submits a certified copy of
an order from the court having jurisdiction of the testate or intestate proceedings directing the
executor/administrator to transfer the property to the transferees.
The aforementioned sections of PD 1529 are in perfect conjunction with Rule 90, Section 123 of
the Rules of Court, which states that the actual distribution of property subject to testate or
intestate proceedings, i.e., the issuance of a new title in the name of the distributee, shall occur
only when the debts, funeral charges, and expenses of administration, the allowance to the
widow, and inheritance tax, if any, chargeable to the estate, have been paid. Only then can the
testate or intestate court assign the residue of the estate to the persons entitled to the same.
Under Rule 90, Section 1, the testate or intestate court may also order the distribution of the
property pending the final order of distribution if the distributees give a bond in a sum fixed by
the court conditioned upon the payment of the aforesaid said obligations within such time as the
court directs, or when provision is made to meet those obligations.
In the instant case, there is no showing that, in the pendency of the settlement of the Estate of
Amanda, the Probate Court had issued an order of final distribution or an order in anticipation of
a final distribution, both of which the law deems as requirements before the RD can issue a new
certificate of title in the name of the petitioners Sps. Salitico.
85
50. HEIRS OF LEONARDA NADELA TOMAKIN, NAMELY: LUCAS NADELA, OCTAVIO N.

TOMAKIN, ROMEO N. TOMAKIN, MA. CRISTETA* T. PANOPIO, AND CRESCENCIO**
TOMAKIN, JR. (DECEASED), REPRESENTED BY HIS HEIRS, BARBARA JEAN R. TOMAKIN
RAFOLS*** AND CRISTINA JEAN R. TOMAKIN v. HEIRS OF CELESTINO NAVARES, NAMELY:
ERMINA N. JACA, NORMITA NAVARES, FELINDA N. BALLENA, RHODORA N. SINGSON,
CRISTINA N. CAL ORTIZ, ROCELYN N. SENCIO, JAIME B. NAVARES, CONCHITA N. BAYOT,
PROCULO NAVARES, LIDUVINA N. VALLE, MA. DIVINA N. ABIS,
VENUSTO B. NAVARES AND RACHELA N. TAHIR
G.R. No. 223624, July 17, 2019, SECOND DIVISION, CAGUIOA, J.:
NATURE OF ACTION: Action for Reconveyance and Damages
FACTS: The property in dispute (Lot No. 8467) is originally owned by the late Jose Badana who
died without issue. He was survived by his two sisters Quirina Badana and Severina Badana.
The property was then covered by a title in the name of Jose Badana. On 18 May 2004,
Rrespondents Navares filed a Complaint for Reconveyance and Damages against Petitioners
Tomakin before the RTC.
In their complaint, Respondents Navares alleged that on 23 February 1955, Quirina Badana, as
heir of her brother Jose Badana, sold one-half (½) of the subject property to the late spouses
Remigio Navares and Cesaria Gaviola, which portion, as claimed, is known as Lot No. 8467-B
as evidenced by Sale with Condition. And as successors-in-interest of the late spouses,
Respondents Navares inherited the said lot. Respondents also allege that they and their
predecessors had been religiously paying realty taxes and that most of them had been
occupying and residing on the property adversely and openly in the concept of an owner.
Respondents also allege that on 6 December 1957, Severina Badana sold the other half of the
subject property to spouses Aaron Nadela and Felipa Jaca, the predecessors-in-interest of
Petitioners Tomakin.
On 30 October 1991, Petitioners sold a portion of Lot No. 8467 to Spouses Alfredo Dacua, Jr.
and Clarita Bacalso. Respondents Navares alleged that on 10 January 1994, Petitioners
Tomakin made it appear that one Mauricia Bacus (a complete stranger to the property)
executed a document denominated as Extra Judicial Settlement of the Estate of Jose Badana
with Confirmation of Sale; and that on the basis of this document, Alfredo Dacua, Jr. maliciously
caused Lot No. 8467-B to be titled in the name of Leonarda Nadela Tomakin and Lucas J.
Nadela under Transfer Certificate of Title No. 131499.13 Oral demands were made by
respondents Navares upon petitioners Tomakin to reconvey the title of Lot No. 8467-B which
remained unheeded.
The RTC ruled in favor of Petitioners Tomakin. The CA granted the appeal of Respondent
Navavres.
ISSUE: Whether an action for reconveyance is the proper remedy in the present case
RULING: YES. Respondents Navares availed themselves of the correct remedy of

reconveyance. The Court in The Director of Lands v. The Register of Deeds for the Province of
Rizal stated that: "the sole remedy of the land owner whose property has been wrongfully or
erroneously registered in another's name is, after one year from the date of the decree, not to
set aside the decree x x x, but, respecting the decree as incontrovertible and no longer open to
review, to bring an ordinary action in the ordinary court of justice for reconveyance or, if the
property has passed into the hands of an innocent purchaser for value, for damages."
Respondent Navares, having been in possession of and exercising acts of dominion over the
subject property as found by the CA, cannot be deemed to be guilty of laches because they
cannot be said to have omitted or neglected to assert and exercise their rights as owner thereof.
Pursuant to Sps. Alfredo v. Sps. Borras cited by the CA in its Resolution dated March 23, 2016,
the undisturbed possession of respondents Navares give them the continuing right to seek the
aid of a court of equity to determine the nature of the adverse claim of petitioners Tomakin and
its effect on their ownership of Lot No. 8467-B.
86

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2019

OBLIGATIONS AND CONTRACTS

SALES AND LEASE

SALE AS DISTINGUISHED FROM EQUITABLE MORTGAGE

ELEMENTS OF A CONTRACT OF SALE

RIGHTS AND OBLIGATIONS OF VENDOR

RIGHTS AND OBLIGATIONS OF LESSOR & LESSEE

DISTINCTION OF GUARANTY AND SURETY

REAL ESTATE MORTGAGE

TORT AND DAMAGES

PERSONS LIABLE (VICARIOUS LIABILITY)

LAND, TITLES AND DEEDS

46. REPUBLIC OF THE PHILIPPINES v. SPOUSES GUILLERMO ALONSO 80

1. DOMESTIC PETROLEUM RETAILER CORPORATION

NATURE OF ACTION: Action for collection of sum of money

2. KAREN NUÑEZ* VITO, LYNETTE** NUÑEZ MASINDA, WARREN NUÑEZ, AND

NATURE OF ACTION: Declaration of Nullity of Deed of Adjudication and Sale, Cancellation of

RULING: NO. The transaction between the parties is a contract of sale.

3. CAMP JOHN HAY DEVELOPMENT CORPORATION

NATURE OF ACTION: Action for rescission

A. YES. Rescission on account of breach of reciprocal obligations is provided under Article

4. MUNICIPALITY OF DASMARINAS v DR. PAULO C. CAMPOS, substituted by his children

NATIONAL HOUSING AUTHORITY v. DR. PAULO C. CAMPOS, substituted by his children

NATURE OF PETITION: Action for revocation of donation

5. FOOD FEST LAND, INC. AND JOYFOODS CORPORATION v. ROMUALDO C. SIAPNO,

NATURE OF ACTION: Complaint for a sum of money

ISSUE: Whether novation present in the case.

Novation is the extinguishment of an obligation by its modification and replacement by a

6. BDO UNIBANK, INC. v. FRANCISCO PUA

NATURE OF ACTION: Criminal action of Estafa by means of deceit

7. RIZAL COMMERCIAL BANKING CORPORATION v. PLAST-PRINT* INDUSTRIES INC. AND

NATURE OF ACTION: Petition for extra-judicial foreclosure of properties; Complaint for

ART. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor.

8. SAN MIGUEL FOODS, INC. AND JAMES A. VINOYA v.

NATURE OF ACTION: Action for damages

FACTS: On September 2002, Respondent Ernesto Raoul V. Magtuto (Magtuto) and

9. MAKATI WATER, INC. v. AGUA VIDA SYSTEMS, INC.

NATURE OF ACTION: Action for specific performance and Damages

SALE AND LEASE

NATURE OF ACTION: Action for declaration of nullity of rescission, declaration of suspension

ISSUE: Whether or not the subject contract is a contract to sell.

11. HIPOLITO AGUSTIN AND IMELDA AGUSTIN v. ROMANA DE VERA

RULING: NO. The subject contract is a contract of sale.

12. MAXIMA P. SACLOLO AND TERESITA P. OGATIA v. ROMEO MARQUITO, MONICO

NATURE OF ACTION: Action for redemption of mortgaged properties, specific performance

Sometime in October 2004, petitioners verbally informed respondents of their intention to

ISSUE: Whether or not the action has prescribed.

13. SPOUSES JOHN T. SY AND LENY N. SY, AND VALENTINO T. SY v.

NATURE OF ACTION: Action for Ejectment

A. Whether petitioners' action had been barred by laches.

Furthermore, the COS executed by 4 of the 5 children of Anastacia, which is supported by a

16. MELINDA M. MALABANAN v. FRANCISCO MALABANAN JR., SPOUSES RAMON AND