1. MARLENE DAUDEN-HERNAEZ, petitioner, vs. HON.

WALFRIDO DELOS
ANGELES, Judge of the Court of First Instance of Quezon City, HOLLYWOOD FAR
EAST PRODUCTIONS, INC., AND RAMON VALENZUELA, respondents.

-CIVIL LAW; OBLIGATIONS AND CONTRACTS; CIVIL CODE'S CONTRACTUAL

SYSTEM FOLLOWS THAT OF THE SPANISH CIVIL CODE OF 1889 AND OF THE
"ORDENAMIENTO DE ALCALA." In the matter of formalities, the contractual system of
the Civil Code still follows that of the Spanish Civil Code of 1889 and of the
"Ordenamiento de Alcala" of upholding the spirit and intent of the parties over
formalities: hence, in general, contracts are valid and binding from their perfection
regardless of form, whether they be oral or written. This is plain from Articles 1315 and
1356 of the present Civil Code.

GENERAL RULE AS REGARDS FORM IN CONTRACT; EXCEPTION. The general rule

that the form (oral and written) is irrelevant to the binding effect inter partes of a contract
that possesses the three validating elements of consent, subject matter and causa,
Article 1356 of the Civil Code establishes only two exceptions, to wit: (a) Contracts or
which the law itself requires that they be in some particular form (writing) in order to
make them valid and enforceable (the so-called solemn contracts). Of these the typical
example are the donation of immovable property (Article 749) and donation of movables
worth more than P5,000.00 (Article 743); contracts to pay interest on loans (mutuum)
(Article 1956); and the agreements contemplated by Articles 1744, 1773, 1874 and
2134 of the present Civil Code. (b) Contracts that the law requires to be proved by some
writing (memorandum) of its terms, as in those covered by the old Statute of Frauds,
now Article 1403(2) of the Civil Code. Their existence not being provable by mere oral
testimony (unless whooly or partly executed), these contracts are exceptional in
requiring a writing embodying the terms thereof for their enforceability by action in court.

CONTRACT FOR SERVICE; WRITTEN FORM THEREOF IS NOT NECESSARY FOR

ENFORCEMENT. The contract sued upon by petitioner (compensation for services)
need not be in written form. It is true that it appears included in Article 1358, last clause,
providing that "all other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one." But Article 1358 nowhere provides
that the absence of written form in this case will make the agreement invalid or
unenforceable. On the contrary, Article 1357 clearly indicates that contracts covered by
Article 1358 are binding and enforceable by action or suit despite the absence of
writing.

Facts: Marlene Dauden Hernaez, a motion picture actress, filed a complaint against
Hollywood Far East Productions, Inc., and its President and General Manager, Ramon
Valenzuela, seeking to recover P14,700.00 for her services as a leading actress in two
motion pictures and damages. The Court of First Instance of Quezon City (Branch IV)
dismissed the complaint, stating that it lacked written evidence as required by Articles
1356 and 1358 of the Civil Code of the Philippines and contained defective allegations.
The court denied reconsideration and the admission of an amended complaint, leading
to a second motion for reconsideration, which was also denied. The court declared the
dismissal final and unappealable. Marlene Dauden Hernaez then filed a petition for a
writ of certiorari with the higher court, arguing that the lower court erred in its dismissal.
The defendants argued that the proposed amended complaint did not materially differ
from the original complaint and still lacked the required written evidence. They also
argued that the second motion for reconsideration did not interrupt the period for
appeal.

Issue: The main issue was whether a contract for personal services involving more than
P500.00 was invalid or unenforceable under Article 1358 of the Civil Code of the
Philippines.
Ruling: The court held that there was abuse of discretion in ruling that the contract
needed to be in writing to be valid or enforceable. The court explained that while Article
1358 requires certain contracts to be in writing, it does not make them invalid or
unenforceable if they are not in writing. Contracts without a written form can still be
binding and enforceable. The case was remanded to the trial court for further
proceedings.

2. PNB v. IAC

CIVIL LAW; CONTRACTS; REQUISITES OF A VALID ESCALATION CLAUSE IN LOAN

AGREEMENTS. In Insular Bank of Asia and America v. Spouses Salazar, (159 SCRA
133 1988), the Court ruled that the Escalation Clause is a valid provision in the loan
agreement provided that (1) the increased rate imposed or charged does not exceed
the ceiling fixed by law or the Monetary Board; (2) the increase is made effective not
earlier than the effectivity of the law or regulation authorizing such an increase; and (3)
the remaining maturities of the loans are more than 730 days as of the effectivity of the
law or regulation authorizing such an increase. Likewise in Banco Filipino Savings and
Mortgage Bank v. Navarro, (152 SCRA 346 1987), the Court said that for an Escalation
Clause to be valid, it must include a de-escalation clause. There can be an increase in
interest if increased by law or by the Monetary Board; and in order for such stipulation to
be valid, it must include a provision for reduction of the stipulated interest "in the event
that the applicable maximum rate of interest is reduced by law or by the Monetary
Board," as provided for in P.D. No. 1684, promulgated on March 17, 1980.

Facts: This is a case involving a petition to review on certiorari the decision of the
Intermediate Appellate Court, now known as the Court of Appeals, which modified the
decision of the Regional Trial Court of Ormoc City. The petitioner, a government banking
institution, provided financial assistance to the private respondents in the form of loans
totaling P82,682.39. The loans were secured by real estate properties mortgaged by the
private respondents. However, due to a decline in sugar prices, the private respondents
encountered difficulties in repaying their loans. In 1979, the Central Bank issued a
circular increasing the ceiling on the rate of interest on loans to no more than 21% per
annum. Subsequently, the petitioner revised its lending interest rates, and when the
private respondents defaulted on their loans, the petitioner demanded payment at the
new interest rate. As the private respondents failed to settle their obligation, the
petitioner foreclosed the mortgage and filed an action for deficiency judgment against
them. The trial court ruled in favor of the petitioner, ordering the private respondents to
pay the outstanding amount, interest, penalty charges, attorney's fees, and litigation
expenses.
The private respondents appealed to the Intermediate Appellate Court, which affirmed
the trial court's decision but modified the amount to be paid and the interest rate. The
appellate court ordered the private respondents to pay a reduced amount at a lower
interest rate. The petitioner then filed a petition for review on certiorari with the Supreme
Court, challenging the appellate court's decision.

Issues: The main issue in this case is the legality of the revised interest rate imposed on
the loans of the private respondents. The petitioner argues that the private respondents
agreed to an upward revision of interest rates on their accounts, as stipulated in the
promissory notes and mortgage contracts, and that this revision was in accordance with
Presidential Decree No. 116 and Central Bank Circular No. 705. Presidential Decree
No. 116, issued on January 29, 1973, and Central Bank Circular No. 705, issued on
December 1, 1979, prescribed a maximum interest rate of 21% per annum on loan
transactions. The petitioner contends that the imposition of a 21% interest rate on the
private respondents' loans is within the limits prescribed by law. On the other hand, the
private respondents argue that the collection of service charges and liquidated damages
in excess of the originally agreed 12% interest is illegal and void. They also claim that
the Court of Appeals made a mathematical error in computing the 12% interest due on
their deficiencies, and that there is still a residue from the proceeds of the sale of their
mortgaged properties that is recoverable by them.

Ruling: The petition is denied for lack of merit. The court cited previous cases to
establish the validity of an escalation clause in a loan agreement, provided certain
conditions are met. These conditions include that the increased rate does not exceed
the legal ceiling, the increase is effective not earlier than the law's effectivity, and the
remaining maturities of the loans are more than 730 days at the time of the increase.
The court found that in this case, the increased rate imposed on the loans of the private
respondents was not valid because, as of the effective date of the increase, the
remaining maturity days of the loans were less than 730 days. Regarding the private
respondents' claim of mathematical error in the computation of interest, the court stated
that this is a factual issue, and absent recognized exceptions, the findings of fact of the
Court of Appeals are conclusive. Therefore, the court affirmed the decision of the Court
of Appeals.

3. Manotok Realty v. CA

The petitioner in this case seeks to overturn the Court of Appeals' decision, which
upheld the dismissal of their complaint for reinvidicatory action with damages against
the private respondent. The dispute revolves around a parcel of land in the Clara de
Tambunting de Legarda Subdivision. The private respondent claims to have occupied
this land since 1949 with permission from an overseer of the subdivision, with the
intention to eventually buy it. After the death of the land's owner, Clara Tambunting, in
1950, the private respondent made a deposit for the lot but did not pay the remaining
balance due to disagreements among the heirs of Clara Tambunting. The petitioner later
acquired the subdivision, including the disputed lot, through a deed of sale executed in
its favor by the Philippine Trust Company. The petitioner attempted to eject squatters
from the subdivision, including the private respondent, who refused to vacate. The
petitioner then filed an action to recover the lot. The trial court dismissed the action,
finding that the identity of the lot was not sufficiently established. The Court of Appeals,
however, ruled that the lot sought to be recovered was the same as the one in the
private respondent's possession, and ordered the petitioner to accept the remaining
balance from the private respondent.

Issues: The petitioner argues that the sale by Vicente Legarda (husband of Clara
Tambunting) to the private respondent is invalid because Vicente Legarda had no
authority to sell the property when he did. The petitioner contends that Vicente Legarda
could not have sold the property before being appointed as Clara Tambunting's estate
administrator. On the other hand, the private respondent argues that the deed of sale
between the petitioner and the Philippine Trust Company ratified and approved Vicente
Legarda's actions and that the petitioner is estopped from questioning his authority. In
summary, the petitioner seeks to set aside the decision of the Court of Appeals, claiming
that the sale of the property to the private respondent was invalid due to lack of
authority. The private respondent argues that the petitioner's actions and the deed of
sale ratified Vicente Legarda's actions, making the sale valid and enforceable.
Ruling: This case revolves around the ownership and sale of a parcel of land belonging
to Clara Tambunting, who died before the sale in question took place. The husband of
the deceased, Vicente Legarda, sold the land to the private respondent. However, at the
time of the sale, Vicente Legarda was not the administrator of Clara Tambunting's
estate, nor did he have the authority to sell her paraphernal property. The court
concluded that the sale between Vicente Legarda and the private respondent is void ab
initio (invalid from the beginning), as Legarda was neither the owner nor the
administrator of the property. The sale could not be ratified by the Philippine Trust
Company or the probate court. The court also noted that after Legarda was appointed
as the estate's administrator, he should have applied for authority to sell the property to
the private respondent. Since he did not do so, the sale was not valid. The court
ordered the private respondent to surrender the land to the petitioner and to pay rentals
from May 1950 until the land is surrendered. The petitioner was also ordered to
reimburse the private respondent the amount of P1,500.00 with legal interest from May
1950 or offset that amount from the rentals due.

4. Sarming v. Dy

CIVIL LAW; CONTRACTS; REFORMATION OF INSTRUMENTS; CONSTRUED.

Reformation is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties. As provided in
Article 1359 of the Civil Code: Art. 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is not expressed in the instrument
purporting to embody the agreement by reason of mistake, fraud, inequitable conduct or
accident, one of the parties may ask for the reformation of the instrument to the end that
such true intention may be expressed. If mistake, fraud, inequitable conduct, or accident
has prevented a meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.

Facts: This case involves a dispute over the sale of a parcel of land in Dumaguete City,
Philippines. The petitioners are successors-in-interest of Silveria Flores, the original
defendant, while the respondents are successors-in-interest of Alejandra Delfino, the
original plaintiff. The dispute centers on Lot 4163, which was mistakenly referred to as
Lot 5734 in the deed of sale between Delfino and Flores. The plaintiffs, heirs of
Valentina Unto Flores, claimed that they owned Lot 5734 and entered into a contract to
sell half of Lot 4163 to Delfino. However, the deed mistakenly referred to Lot 5734.
Despite this, both parties understood the actual property being sold. Delfino took
possession of the land and made improvements. Later, Delfino discovered the mistake
and attempted to correct it, but Flores did not cooperate. The trial court ruled in favor of
Delfino's heirs, ordering the reformation of the contract and the return of the correct
portion of the land to Delfino's heirs. The court also awarded damages and attorney's
fees. The Court of Appeals affirmed the trial court's decision, agreeing that the mistake
in the deed did not affect the validity of the contract, as both parties understood the
actual property being sold.

Issues: We find the following relevant issues for our resolution: (1) whether or not there
is a cause of action for reformation of instrument against Silveria Flores, and
consequently the petitioners; (2) whether or not reformation of the subject deed is
proper by reason of mistake in designating the correct lot number; and (3) whether or
not the heirs of Alejandra Delfino are entitled to actual and moral damages including
attorney's fees.

Ruling: The case involves a dispute over the sale of a parcel of land in Dumaguete City,
Philippines. The petitioners, successors-in-interest of Silveria Flores, contested a
decision that affirmed the reformation of a deed of sale between Flores and Alejandra
Delfino. The key issues raised by the petitioners were the lack of cause of action
against Flores, the probative value of evidence presented, and Flores' sole ownership of
the land.
The court found that Flores was indeed a party to the contract despite not being listed
as a seller, as she was a co-owner and delivered the land to Delfino. The court also
determined that there was sufficient evidence to support the reformation of the deed, as
the true intention of the parties was to sell Lot 4163, not Lot 5734 as mistakenly stated
in the deed. The court upheld the lower courts' decisions but modified the damages
awarded, removing the awards for actual and moral damages but affirming the
attorney's fees.
5. Bentir v. Leanda
CIVIL LAW; OBLIGATIONS AND CONTRACTS; IMPLIED NEW LEASE; NOT
APPLICABLE IN CASE AT BAR. First, if, according to respondent corporation, there
was an agreement between the parties to extend the lease contract for four (4) years
after the original contract expired in 1988, then Art. 1670 would not apply as this
provision speaks of an implied new lease (tacita reconduccion) where at the end of the
contract, the lessee continues to enjoy the thing leased "with the acquiescence of the
lessor," so that the duration of the lease is "not for the period of the original contract, but
for the time established in Articles 1682 and 1687." In other words, if the extended
period of lease was expressly agreed upon by the parties, then the term should be
exactly what the parties stipulated, not more, not less. Second, even if the supposed 4-
year extended lease be considered as an implied new lease under Art. 1670, "the other
terms of the original contract" contemplated in said provision are only those terms which
are germane to the lessee's right of continued enjoyment of the property leased. The
prescriptive period of ten (10) years provided for in Art. 1144 applies by operation of law,
not by the will of the parties. Therefore, the right of action for reformation accrued from
the date of execution of the contract of lease in 1968.

Facts: Reformation of an instrument is a legal remedy used to correct errors or

mistakes in a written document to reflect the true intention of the parties involved. It is
based on the principle that equity treats as done that which ought to be done. The
purpose of reformation is to prevent the enforcement of a written instrument that does
not accurately represent the agreement between the parties. However, an action for
reformation must be filed within the time limit prescribed by law to avoid being barred by
the lapse of time.
In this case, Leyte Gulf Traders, Inc. filed a complaint for reformation of an expired
contract of lease, alleging that its lawyer inadvertently omitted a verbal agreement in the
lease contract. The agreement stipulated that Leyte Gulf Traders, Inc. had the right of
first refusal if the lessor decided to lease or sell the property after the expiration of the
lease. The defendants argued that the complaint should be dismissed due to
prescription, as the action for reformation should have been filed within ten years from
the execution of the lease contract. The trial court initially dismissed the complaint
based on prescription, but this decision was later reversed on appeal, with the appellate
court finding that the action for reformation had not yet prescribed. The appellate court
emphasized that the dismissal was premature and denied Leyte Gulf Traders, Inc. its
right to procedural due process.

Issue: The core issue that merits our consideration is whether the complaint for
reformation of instrument has prescribed.

Ruling: The case involves a complaint for reformation of an instrument, specifically a

lease contract, filed by Leyte Gulf Traders, Inc. The main issue is whether the complaint
has prescribed, meaning whether it was filed within the time limit allowed by law.
Reformation of an instrument is a remedy in equity that allows a written document to be
corrected to express the true intention of the parties. The court must exercise this power
sparingly and with great caution. The law provides a ten-year prescriptive period for
actions based on a written contract, including reformation of an instrument. In this case,
the lease contract was executed in 1968, so Leyte Gulf Traders, Inc. had until 1978 to
file its action for reformation. However, it only filed the complaint in 1992, which is 24
years after the contract was executed, making its cause of action stale and time-barred.
The Court of Appeals ruled that the prescriptive period should be reckoned from the
date of an alleged 4-year extension of the lease contract after it expired in 1988. This
would mean that the action filed in 1992 was within the ten-year period. However, the
Supreme Court disagreed, stating that the extended period of lease, if agreed upon by
the parties, should be exactly what was stipulated, and that the prescriptive period of
ten years applies by operation of law, not by the will of the parties. Therefore, the right
of action for reformation accrued from the date of execution of the contract in 1968.
Even if the action was not time-barred, it would still not prosper because an action for
reformation is a special civil action for declaratory relief, which should be entertained
before the breach or violation of the contract. Since Leyte Gulf Traders, Inc. filed the
action after the alleged breach, the remedy of reformation no longer applies. Therefore,
the Supreme Court granted the petition, reversed the decision of the Court of Appeals,
and reinstated the order of the Regional Trial Court dismissing the action for
reformation.
6. Sy v. CA

CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; NOT PRESENT IN

CASE AT BAR. Article 1767 of the Civil Code states that in a contract of partnership two
or more persons bind themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among themselves. Not one of
these circumstances is present in this case. No written agreement exists to prove the
partnership between the parties. Private respondent did not contribute money, property
or industry for the purpose of engaging in the supposed business. There is no proof that
he was receiving a share in the profits as a matter of course, during the period when the
trucking business was under operation. Neither is there any proof that he had actively
participated in the management, administration and adoption of policies of the business.

Facts: The case involves a petition for review seeking to reverse the decision of the
Court of Appeals, which affirmed with modification the decision of the National Labor
Relations Commission (NLRC). The case revolves around Jaime Sahot, who had
worked for petitioners' trucking business for 36 years. Sahot, suffering from various
ailments, inquired about his SSS benefits in 1994 but discovered his premiums were not
remitted. When he applied for leave extension due to health issues, petitioners allegedly
threatened to terminate him. Unable to work due to his condition, Sahot was dismissed
in June 1994.
Sahot filed a complaint for illegal dismissal, but petitioners claimed he was an industrial
partner and later an employee starting in 1994, justifying his termination. The Labor
Arbiter ruled there was no illegal dismissal, citing Sahot's failure to report to work. The
NLRC, however, found Sahot to be an employee since the beginning, terminated due to
illness, and ordered separation pay. The Court of Appeals affirmed this, increasing the
separation pay awarded. The Court of Appeals affirmed the NLRC's decision, declaring
Sahot an employee since 1958 and increasing his separation pay to P74,880, computed
based on his 36 years of service.

Issues: Three issues are to be resolved: (1) Whether or not an employer-employee

relationship existed between petitioners and respondent Sahot; (2) Whether or not there
was valid dismissal; and (3) Whether or not respondent Sahot is entitled to separation
pay.

Ruling: The case revolves around the determination of an employer-employee

relationship and the validity of the dismissal of Jaime Sahot from his employment with
the petitioners, who owned a trucking business. Petitioners claimed Sahot was their
industrial partner, not an employee, but this was disputed by Sahot. The Court affirmed
the findings of the Court of Appeals and the NLRC, which concluded that Sahot was an
employee, not a partner, based on substantial evidence. Regarding Sahot's dismissal,
the Court found that petitioners failed to comply with the requirements for a valid
dismissal due to illness. They did not obtain a medical certificate from a competent
public health authority, as required by law. Moreover, they did not follow procedural due
process by providing Sahot with the necessary notices before dismissal. As a result, the
Court affirmed the decision to award Sahot separation pay based on his 36 years of
service, computed at one-half month salary for every year of service, amounting to
P74,880.00. The decision is immediately executory, and if not paid promptly, six percent
(6%) interest per annum will be charged.
7. Century Properties, Inc. V. Babiano, et al
Facts: Babiano and Concepcion were employees of CPI, with Babiano serving as Vice
President for Sales and Concepcion as Project Director. Babiano's contract included a
"Confidentiality of Documents and Non-Compete Clause," barring him from disclosing
confidential information and working for a competitor while employed and for a year
after resignation or termination. CPI alleged Babiano breached this clause by providing
a competitor with CPI's information. After receiving a Notice to Explain, Babiano
resigned and joined a competitor. Concepcion also resigned. Both filed a complaint for
non-payment of commissions and damages against CPI. The Labor Arbiter ruled in
CPI's favor, but the NLRC reversed, ordering CPI to pay Babiano and Concepcion their
commissions. The NLRC found CPI's forfeiture of Babiano's commissions under the
clause unreasonable. It also ruled Concepcion was an employee based on CPI's control
over her duties and payment of salary. The CA affirmed, increasing the unpaid
commissions awarded to Babiano and Concepcion. The CA held that Babiano's alleged
breach of the non-compete clause should be resolved in civil courts, not labor tribunals.
It also affirmed Concepcion's employee status despite the "Contract of Agency for
Project Director" designation. The CA modified the NLRC's ruling to include all
commissions earned by Babiano and Concepcion from August 9, 2008 to August 8,
2011. CPI's motion for reconsideration was denied, leading to the petition.

Issue: The core issue for the Court's resolution is whether or not the CA erred in
denying CPI's petition for certiorari,thereby holding it liable for the unpaid commissions
of respondents.

Ruling: The court ruled that Babiano breached the "Confidentiality of Documents and
Non-Compete Clause" in his employment contract with CPI by seeking and accepting
employment with a competitor while still employed by CPI, justifying the forfeiture of his
unpaid commissions. The court also found that Concepcion was an employee of CPI
based on the control test, among other factors, despite her contract being labeled as a
"Contract of Agency for Project Director." As such, CPI was ordered to pay Concepcion
her unpaid commissions. The court also addressed the issue of jurisdiction over
Concepcion's money claims, stating that the labor tribunals correctly assumed
jurisdiction. Additionally, the court clarified that Concepcion's failure to appeal did not
prevent the CA from increasing her monetary award to ensure she received her full
entitlement. Therefore, the court partly granted the petition, affirming the forfeiture of
Babiano's commissions and upholding CPI's liability to pay Concepcion's unpaid
commissions.
8. Were International Corporation v. Highlands Prime

Facts: Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) entered
into a contract for the construction of a residential project. The project faced delays and
issues, leading to its termination. Werr sought payment for the balance of the contract
price, while HPI argued that it did not owe Werr because the balance of the retention
money had been used to pay suppliers and cover additional costs and expenses. The
Construction Industry Arbitration Commission (CIAC) ruled in favor of Werr's claim for
the balance of the retention money but also granted HPI's claim for liquidated damages.
However, the CIAC's decision on the amount of liquidated damages was modified by the
Court of Appeals (CA). The CA computed the delay from a different date, resulting in a
different amount for liquidated damages. Werr disagreed with the CA's modification,
arguing that the industry practice and the CIAC's expertise should prevail. HPI, on the
other hand, argued that it should be allowed to recover the amounts it paid to suppliers
from the retention money. The case also involved disputes over arbitration costs, actual
damages, and attorney's fees.

Issues:
I. Whether the payments made to suppliers and contractors after the termination of the
contract are chargeable against the retention money.
II. Whether the industry practice of computing liquidated damages only up to substantial
completion of the project applies in the computation of liquidated damages.
Consequently, whether delay should be computed until termination of the contract or
until substantial completion of the project.
III. Whether the cost of arbitration should be shouldered by both parties.
IV. Whether HPI is entitled to attorney's fees and litigation expenses.
Ruling: The court denied the consolidated petitions.
I. Charges against the Retention Money: The court emphasized that only questions of
law can be raised in a petition for review under Rule 45. Factual issues, unless falling
under recognized exceptions, cannot be raised. The court upheld the findings of the
CIAC and CA regarding charges against the retention money, stating that factual
findings by a quasi-judicial body are final if supported by substantial evidence. The court
affirmed the balance of the retention money as P10,955,899.79.
II. Delay in computing Liquidated Damages: The court addressed the computation of
liquidated damages, noting that the agreement did not specify the period for which
liquidated damages should run. It considered the industry practice, stating that while it
may supplement the agreement, the contractor must prove actual substantial
completion to benefit from it. As Werr failed to prove 95% completion rate, the effects of
substantial completion did not apply, and HPI did not suffer actual damages.
III. Arbitration Costs, Attorney's Fees, and Litigation Costs: The court upheld the division
of arbitration costs between the parties, finding no error in the CA's decision. It also
affirmed the denial of attorney's fees and litigation expenses.
The court concluded by denying the petitions and affirming the CA's decision, with the
net award in favor of Werr Corporation International earning interest at 6% per annum
from the date of demand until finality of the decision, and thereafter until fully paid.

9. Rosencor DevelopmentCorporation v. Inquing, et al

This is a case involving a petition for review on certiorari under Rule 45 of the Rules of
Court. The petition seeks to reverse the Decision of the Court of Appeals dated June 25,
1999, in CA-G.R. CV No. 53963, which reversed and set aside the Decision dated May
13, 1996, of Branch 217 of the Regional Trial Court of Quezon City in Civil Case No. Q-
93-18582. The case was originally filed on December 10, 1993, by Paterno Inquing,
Irene Guillermo, and Federico Bantugan against Rosencor Development Corporation,
Rene Joaquin, and Eufrocina de Leon. The original complaint was for annulment of an
absolute deed of sale but was later amended to one for rescission of the deed. The
plaintiffs and plaintiffs-intervenors alleged that they were lessees since 1971 of a
property in Quezon City. They claimed they had a pre-emptive right to purchase the
property if the lessors decided to sell it. Upon the death of the lessors, management of
the property was adjudicated to their heirs, represented by Eufrocina de Leon. The
lessees alleged that they were promised the same pre-emptive right by the heirs.
However, in 1990, they received a letter demanding that they vacate the premises for
demolition. Later, they were informed that the property had been sold to Rosencor. The
lessees offered to buy the property but were refused. They then filed the present action
for rescission of the sale. The Regional Trial Court dismissed the complaint, ruling that
the right of redemption was merely oral and unenforceable. However, the Court of
Appeals reversed this decision, ordering the rescission of the deed of sale, the
reconveyance of the property to de Leon, and allowing the lessees to exercise their right
of first refusal by paying one million pesos for the property. The Court of Appeals also
ordered the lessees to pay back rentals.
Petitioners filed a Motion for Reconsideration, which was denied.
Issues: This is a petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise several assignments of errors
regarding the decision of the Court of Appeals. They argue that the Court of Appeals
gravely erred in ordering the rescission of the absolute deed of sale between Eufrocina
de Leon and Rosencor, mandating that De Leon afford respondents the opportunity to
exercise their right of first refusal, and concluding that respondents have established
their right of first refusal despite petitioners' reliance on their defense based on the
statute of frauds.

Ruling: This case involves a petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise several assignments of errors
regarding the decision of the Court of Appeals. The Court of Appeals ordered the
rescission of the absolute deed of sale between Eufrocina de Leon and Rosencor,
mandated that De Leon afford respondents the opportunity to exercise their right of first
refusal, and concluded that respondents have established their right of first refusal
despite petitioners' reliance on their defense based on the statute of frauds. The Court
noted that both the Court of Appeals and the Regional Trial Court relied on Article 1403
of the New Civil Code, specifically the provisions on the statute of frauds, in their
decisions. The trial court denied the petition for reconveyance, holding that the right of
first refusal relied upon by petitioners was not reduced to writing and therefore
unenforceable. The Court of Appeals, however, ruled that respondents had proven the
right of first refusal by petitioners' waiver of the protection of the statute due to their
failure to object to the presentation of oral evidence of the said right. The Court then
discussed the applicability of the statute of frauds, which requires certain contracts to be
in writing. It noted that not all agreements affecting land need to be in writing to be
enforceable. A right of first refusal, like the one in this case, is not a perfected contract of
sale but a contractual grant over the property. Therefore, it need not be in writing to be
enforceable and may be proven by oral evidence. The Court found that respondents
had adequately proven the existence of their right of first refusal over the property, as
promised by the spouses Tiangco and later recognized by their heirs. The Court also
noted that petitioners did not present evidence contradicting the existence of the right of
first refusal. However, the Court held that there was no clear and convincing evidence
that petitioners acted in bad faith in entering into the deed of sale with the heirs of the
spouses Tiangco. Bad faith on the part of Eufrocina de Leon did not imply bad faith on
the part of Rosencor. Therefore, the Court reversed the decision of the Court of Appeals
and reinstated the decision of the Regional Trial Court, dismissing the action for
rescission of the deed of absolute sale. The Court also ordered the payment of monthly
rentals to respondents.
10. Keh Hong Cheng v. CA

Facts: This case involves a Petition for Review on Certiorari under Rule 45, seeking to
overturn the decision of the Court of Appeals (CA) dated April 10, 2000, and its
resolution dated July 11, 2000, which denied the motion for reconsideration of the said
decision. The original complaint in this case is an accion pauliana, an action filed by
Philam Insurance Company, Inc. (Philam), to rescind or annul donations made by
petitioner Khe Hong Cheng allegedly in fraud of creditors. The main issue is whether the
action to rescind the donations has already prescribed. The prescriptive period for such
actions, as per Article 1389 of the Civil Code, is four years, but the question is from
which point or event this period begins to run. The facts are as follows: Petitioner Khe
Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. On or about
October 4, 1985, a shipment of copra owned by the Philippine Agricultural Trading
Corporation and shipped on board the vessel M/V PRINCE ERIC, owned by Khe Hong
Cheng, sank, resulting in a total loss. The insurer, American Home Insurance Company,
paid P354,000.00 to the consignee, and as a result, it was subrogated into the rights of
the consignee. In December 1989, Khe Hong Cheng executed deeds of donation of
parcels of land in favor of his children, Sandra Joy and Ray Steven. These donations
were made four years before the judgment was rendered against Khe Hong Cheng in
Civil Case No. 13357, which was based on a breach of contract of carriage. The
judgment ordered Khe Hong Cheng to pay the amount paid by American Home, plus
interest and attorney's fees. Despite the judgment, American Home was unable to
execute the writ of execution as Khe Hong Cheng no longer had any property in his
name. In 1997, American Home filed a complaint to rescind the deeds of donation,
alleging that they were made in fraud of creditors. The trial court denied the motion to
dismiss, ruling that the action had not yet prescribed. The Court of Appeals affirmed this
decision, holding that the prescriptive period began to run only in January 1997 when
American Home first learned that the judgment could not be satisfied. The CA held that
prior to this, American Home had not yet exhausted all legal means for satisfaction of
the decision in its favor. The petition for certiorari before the CA was denied, as was the
motion for reconsideration.

Issues: Essentially, the issue for resolution posed by petitioners is this: When did the
four (4) year prescriptive period as provided for in Article 1389 of the Civil Code for
respondent Philam to file its action for rescission of the subject deeds of donation
commence to run?

Ruling: The petition, seeking to overturn the decision of the Court of Appeals, is deemed
without merit. Article 1389 of the Civil Code requires that the action to claim rescission
must be commenced within four years, but it does not specify when this period begins.
The general rule, based on Article 1150 of the Civil Code, is that the prescriptive period
starts from the moment the cause of action accrues. An action for rescission or accion
pauliana must be a last resort, pursued only after all other legal remedies have been
exhausted and proven futile. For an accion pauliana to be valid, certain requisites must
be met, including that the creditor has no other legal remedy to satisfy the claim. The
action accrues only when the creditor discovers that no other legal remedy is available.
The date of the trial court's decision against the debtor is immaterial; what matters is
that the creditor's claim predates the fraudulent alienation by the debtor. In this case, the
Court rejected the argument that the cause of action accrued when the deeds of
donation were registered, as this would run counter to the Civil Code and settled
jurisprudence. The Court emphasized that the creditor must have exhausted all legal
means to satisfy the claim before an accion pauliana can be filed. The complaint was
timely filed in February 1997, when the creditor learned that the debtor had no other
property to satisfy the judgment. The defense of improper venue was also rejected as it
was not raised in a timely manner. Therefore, the petition was denied for lack of merit.