February 2009 Decisions on Civil Law

Here are some decisions promulgated by the Supreme Court in February 2009 on civil law and related laws.

Civil Code

1.      Payment under a perfected contract of sale.     Miguel Tan, doing business under the name and style of Manila Mandarin Marketing, was engaged in the business of selling electrical materials. From August 19 to November 26, 1997, Manila Mining Corporation (MMC) ordered and received various electrical materials from Tan valued at P2,347,880. MMC agreed to pay the purchase price within 30 days from delivery, or be charged interest of 18% per annum, and in case of suit to collect the same, to pay attorney’s fees equal to 25% of the claim. MMC made partial payments in the amount of P464,636. Despite repeated demands, it failed to give the remaining balance of P1,883,244, which was covered by nine invoices. On September 3, 2001, Tan filed a collection suit against MMC at the Manila RTC.

MMC contends that Tan’s claim for payment was premature inasmuch as the original invoices and purchase orders were not sent to its accounting department. Consequently, Tan’s claims were not verified and processed. MMC believes that mere delivery of the goods did not automatically give rise to its obligation to pay. It relied on Article 1545 of the Civil Code to justify its refusal to pay:

“ART. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition.…”

The Supreme Court ruled that Article 1475 of the Civil Code provides the manner by which a contract of sale is perfected. The provision reads:

“ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” 

The Court held that the the purchase orders constituted accepted offers when Tan supplied the electrical materials to MMC. Hence, MMC cannot evade its obligation to pay by claiming lack of consent to the perfected contracts of sale. Manila Mining Corporation vs. Miguel Tan Doing Business Under the name and style of Manila Mandarin Marketing, G.R. No. 171702, February 12, 2009.

2.     Revocation of special power of attorney by partner. A partner can be held civilly liable to his partner for revoking, in bad faith, the Special Power of Attorney given to the latter and for abandoning the partnership. Zenaida G. Mendoza Vs. Engr. Eduardo Paule, et al./Manuel Dela Cruz Vs. Engr. Eduardo Paule, et al., G.R. No. 175885/G.R. No. 176271. February 13, 2009.

3.       Sale by non-owner; possession in good faith. The Supreme Court held that the deed of sale executed by Maxima in favor of petitioners was null and void, since Maxima was not the owner of the land she sold to petitioners, and the one-half northern portion of such land was owned by respondents. Being an absolute nullity, the deed is subject to attack anytime, in accordance with Article 1410 of the Civil Code that an action to declare the inexistence of a void contract does not prescribe. When there is a showing of such illegality, the property registered is deemed to be simply held in trust for the real owner by the person in whose name it is registered, and the former then has the right to sue for the reconveyance of the property. An action for reconveyance based on a void contract is imprescriptible. As long as the land wrongfully registered under the Torrens system is still in the name of the person who caused such registration, an action in personam will lie to compel him to reconvey the property to the real owner. In this case, title to the property is in the name of petitioner Rogelia; thus, the trial court correctly ordered the reconveyance of the subject land to respondents. 

Petitioners contend that they are possessors in good faith, thus, the award of damages should not have been imposed. They further contend that under Article 544, a possessor in good faith is entitled to the fruits received before the possession is legally interrupted; thus, if indeed petitioners are jointly and severally liable to respondents for the produce of the subject land, the liability should be reckoned only for 1991 and not 1984. The Supreme Court found partial merit in the argument. Article 528 of the Civil Code provides that possession acquired in good faith does not lose this character, except in a case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. Possession in good faith ceases from the moment defects in the title are made known to the possessors, by extraneous evidence or by suit for recovery of the property by the true owner. Whatever may be the cause or the fact from which it can be deduced that the possessor has knowledge of the defects of his title or mode of acquisition, it must be considered sufficient to show bad faith. Such interruption takes place upon service of summons.

Article 544 of the Civil Code provides that a possessor in good faith is entitled to the fruits only so long as his possession is not legally interrupted. Records show that petitioners received a summons together with respondents’ complaint on August 5, 1991; thus, petitioners’ good faith ceased on the day they received the summons. Consequently, petitioners should pay respondents 10 cavans of palay per annum beginning August 5, 1991 instead of 1984. Daclag vs. Macahilig, G.R. No. 159578, February 18, 2009.

4.      Contingent fee contracts. Contingent fee contracts are subject to the supervision and close scrutiny of the court in order that clients may be protected from unjust charges. The amount of contingent fees agreed upon by the parties is subject to the stipulation that counsel will be paid for his legal services only if the suit or litigation prospers. A much higher compensation is allowed as contingent fees because of the risk that the lawyer may get nothing if the suit fails. The Supreme Court found nothing illegal in the contingent fee contract between Atty. Go and Evangelina’s husband and held that the Court of Appeals committed no error of law when it awarded the attorney’s fees of Atty. Go and allowed him to receive an equivalent of 39% of the monetary award. Masmud vs. NLRC, G.R. No. 183385, February 13, 2009.

Code of Commerce

Deadline for claim.    San Miguel Corporation (SMC) purchased three (3) units of waste water treatment plant with accessories from a company in Taiwan. After its arrival at the port of Cebu and clearance from the Bureau of Customs, the goods were delivered to and received by SMC at its plant site on August 2, 1991. It was then discovered that one electrical motor of DBS Drive Unit Model DE-30-7 was damaged. Pursuant to an insurance agreement, UCPB paid SMC the amount of P1,703,381.40 representing the value of the damaged unit. In turn, SMC executed a Subrogation Form dated March 31, 1992 in favor of UCPB, which them filed an action against the respondents for the amount it paid to SMC. The trial court ruled in favor of UCPB but the Court of Appeals reversed. The Supreme Court affirmed the decision of the Court of Appeals and held that under Article 366 of the Code of Commerce, the claim for damage or average must be made within 24 hours from receipt of the merchandise if, as in this case, damage cannot be ascertained merely from the outside packaging of the cargo. The Supreme Court affirmed its earlier rulings that the 24-hour claim requirement is a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. Otherwise, no right of action against the carrier can accrue in favor of the former. In UCPB General Insurance Co. Inc. vs. Abotiiz Shipping Corporation, G.R. No. 168433, February 10, 2009.

Property Registration Decree

Overlapping property. The Supreme Court held that as an incident to its authority to settle all questions over the title of the subject property, the land registration court may resolve the underlying issue of whether the subject property overlaps the petitioner’s properties without necessarily having to declare the survey plan as void. The regional trial court need not wait for the decision of the DENR in the petition to cancel the survey plan in order to determine whether the subject property is already titled or forms part of already titled property. The court may now verify this allegation based on the respondent’s survey plan vis-à-vis the certificates of title of the petitioner and its predecessors-in-interest. After all, a survey plan precisely serves to establish the true identity of the land to ensure that it does not overlap a parcel of land or a portion thereof already covered by a previous land registration, and to forestall the possibility that it will be overlapped by a subsequent registration of any adjoining land. SM Prime Holdings, Inc. vs. Angela V. Madayag, G.R, No. 164687, February 12, 2009.

Special Purpose Vehicle Law

Sale Void due to Lack of Notice. An assignment made by the Bank of the Philippines Islands to Asset Pool A (SPV-SMC)(which is a special purpose vehicle created under Republic Act No. 9182 was ineffective because BPI failed to comply with the notice requirement under Section 12 of Article III of Republic Act No. 9182 (as amended by Republic Act No. 9143). (Asset Pool A (SPV-SMC) vs. Court of Appeals, G.R. No. 176669, February 4, 2009.)