June 2009 Philippine Supreme Court Decisions on Civil Law

Here are selected June 2009 Philippine Supreme Court decisions on civil and related laws:

Contract; novation. Article 1292 of the Civil Code provides that “[i]n order that an obligation may be extinguished by another which substitutes 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 is never presumed. Parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one. In the absence of an express agreement, novation takes place only when the old and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first.

In the instant case, none of the requisites are present. There is only one existing and binding contract between the parties, because Kalayaan never agreed to the creation of a new contract between them or Juliet. True, petitioners may have offered that they be substituted by Juliet as the new debtor to pay for the remaining obligation. Nonetheless, Kalayaan did not acquiesce to the proposal.  Spouses Jose T. Valenzuela & Gloria Valenzuela vs. Kalayaan Development and Industrial Corporation, G.R. No. 163244,  June 22, 2009.

Contract; perfection. Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer and the acceptance upon the thing and the cause that constitute the contract. The law requires that the offer must be certain and the acceptance absolute and unqualified. An acceptance of an offer may be express and implied; a qualified offer constitutes a counter-offer. Case law holds that an offer, to be considered certain, must be definite, while an acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds. We have also previously held that the ascertainment of whether there is a meeting of minds on the offer and acceptance depends on the circumstances surrounding the case.  Traders Royal Bank vs. Cuison Lumber Co., Inc., Josefa Jerodias Vda. CuisonG.R. No. 174286, June 5, 2009.

Contract; simulated contracts. Given the factual antecedents of this case, it is obvious that the sugar crop loans were relatively simulated contracts and that both parties intended to be bound thereby. There are two juridical acts involved in relative simulation— the ostensible act and the hidden act. The ostensible act is the contract that the parties pretend to have executed while the hidden act is the true agreement between the parties. To determine the enforceability of the actual agreement between the parties, we must discern whether the concealed or hidden act is lawful and the essential requisites of a valid contract are present.

In this case, the juridical act which binds the parties are the loan and mortgage contracts, i.e., petitioners’ procurement of a loan from respondent. Although these loan and mortgage contracts were concealed and made to appear as sugar crop loans to make them fall within the purview of the Rural Banks Act, all the essential requisites of a contract were present. However, the purpose thereof is illicit, intended to circumvent the Rural Banks Act requirement in the procurement of loans. Consequently, while the parties intended to be bound thereby, the agreement is void and inexistent under Article 1409 of the Civil Code.

The parties, being in pari delicto, cannot recover what they each has given by virtue of the contract. Neither can the parties demand performance of the contract. No remedy or affirmative relief can be afforded the parties because of their presumptive knowledge that the transaction was tainted with illegality. The courts will not aid either party to an illegal agreement and will instead leave the parties where they find them.

Consequently, the parties having no cause of action against the other based on a void contract, and possession and ownership of the subject property being ultimately vested in respondent, the latter can enter into a separate and distinct contract for its alienation. Petitioners recognized respondent’s ownership of the subject property by entering into a Promise to Sell, which expressly designates respondent as the vendor and petitioners as the vendees. At this point, petitioners, originally co-owners and mortgagors of the subject property, unequivocally acquiesced to their new status as buyers thereof. In fact, the Promise to Sell makes no reference whatsoever to petitioners’ previous ownership of the subject property and to the void loan and mortgage contracts. On the whole, the Promise to Sell, an independent contract, did not purport to ratify the void loan and mortgage contracts.  Joaquin Villegas, et al. vs. Rural Bank of Tanay, Inc., G.R. No. 161407, June 5, 2009.

Damages; liquidated damages. The three percent (3%) penalty interest appearing in the contract is patently iniquitous and unconscionable. Article 2227 of the Civil Code provides that “[l]iquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.” A perusal of the Contract to Sell reveals that the three percent (3%) penalty interest on unpaid monthly installments (per condition No. 3) would translate to a yearly penalty interest of thirty-six percent (36%).

Although this Court on various occasions has eliminated altogether the three percent (3%) penalty interest for being unconscionable, We are not inclined to do the same in the present case. A reduction is more consistent with fairness and equity. We should not lose sight of the fact that Kalayaan remains an unpaid seller and that it has suffered, one way or another, from petitioners’ non-performance of its contractual obligations. In view of such glaring reality, We invoke the authority granted to us by Article 1229 of the Civil Code, and as equity dictates, the penalty interest is accordingly reimposed at a reduced rate of one percent (1%) interest per month, or twelve percent (12%) per annum, to be deducted from the partial payments made by the petitioners. Spouses Jose T. Valenzuela & Gloria Valenzuela vs. Kalayaan Development and Industrial Corporation, G.R. No. 163244, June 22, 2009.

Damages; moral. Moral damages are awarded if the following elements exist in the case: (1) an injury clearly sustained by the claimant; (2) a culpable act or omission factually established; (3) a wrongful act or omission by the defendant as the proximate cause of the injury sustained by the claimant; and (4) the award of damages predicated on any of the cases stated Article 2219 of the Civil Code. In addition, the person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, and serious anxiety as the result of the actuations of the other party. Invariably such action must be shown to have been willfully done in bad faith or with ill motive. Bad faith, under the law, does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud.

Petitioners enucleate that Mayor Perdices’ act of announcing during the flag ceremony at the City Hall on 2 July 2001 that he will not honor the mass appointments made by his predecessor, former Mayor Remollo, even before CSC-FO Director Abucejo invalidated and revoked petitioners’ appointments in a letter dated 1 August 2001, evidenced bad faith, especially since Mayor Perdices himself made 36 appointments at the end of his term in 1998. Mayor Perdices’ subsequent appointments to fill four of the contested positions sometime in 2001 to 2006 likewise amounted to bad faith. As a result of these acts, petitioners purportedly endured economic difficulties and humiliation among their peers. These arguments are untenable.

The announcement made by Mayor Perdices on 2 July 2001 cannot be deemed the proximate cause for petitioners’ financial and emotional suffering. The validity of petitioners’ appointments did not depend on Mayor Perdices honoring or rejecting said appointments but on the CSC approving or disapproving of the same. CSC-FO Director Abucejo did release a letter dated 1 August 2001 invalidating and revoking petitioners’ appointments on the ground that they were “mass appointments” in violation of CSC Resolution No. 010988 dated 4 June 2001. Said letter was subsequently affirmed by the CSC-RO and the CSC Proper. Therefore, the invalidation and revocation of petitioners’ appointments, as well as the non-payment of their salaries, salary adjustments, and emoluments, did not result from Mayor Perdices’ announcement, but from the official acts of the CSC on petitioners’ appointments. Leah M. Nazareno, et al. vs. City of Dumaguete, represented by City Mayor Agustin Percides, et al., G.R. No. 177795,  June 19, 2009.

Damages; moral. Petitioner is entitled to moral damages but not in the amount of P500,000 awarded by the RTC, which the Court finds to be excessive. While trial courts are given discretion to determine` the amount of moral damages, it “should not be palpably and scandalously excessive.” Moral damages are not meant to enrich a person at the expense of the other but are awarded only to allow the former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the other person’s culpable action. It must always reasonably approximate the extent of injury and be proportional to the wrong committed. The award of P100,000 as moral damages is sufficient and reasonable under the circumstances.

The award of P100,000 as exemplary damages is likewise excessive. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. We think P50,000 is reasonable in this case. Serafin Cheng Vs. Spouses Vittorio and Ma. Helen Donini, G.R. No. 167017, June 22, 2009.

Land registration;  free patent. As clearly provided by Sec. 44 of the Public Land Act, the requirements for the issuance of a free patent include, among others, that: (1) the applicant has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, the tract or tracts of agricultural public lands; (2) he shall have paid the real estate tax thereon; and (3) the land has not been occupied by any person.  Lynn Maagad and Director of Lands vs. Juanito MaagadG.R. No. 171762, June 5, 2009.

Land registration;  free patent. Petitioner Lynn Maagad committed fraud and gross misrepresentation in his free patent application. Actual or positive fraud proceeds from an intentional deception practiced by means of misrepresentation of material facts, which in this case was the conscious misrepresentation by petitioner that he was a fully qualified applicant possessing all the requirements provided by law. Moreover, failure and intentional omission of the petitioner-applicant to disclose the fact of actual physical possession by the respondent constitutes an allegation of actual fraud. It is likewise fraud to knowingly omit or conceal a fact, upon which benefit is obtained to the prejudice of a third person.  Lynn Maagad and Director of Lands vs. Juanito MaagadG.R. No. 171762, June 5, 2009.

Land registration;  registration of title. There are three requisites for the filing of an application for registration of title under Section 14(1) of PD 1529: (1) that the property in question is alienable and disposable land of the public domain; (2) that the applicant by himself or through his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation; and (3) that such possession is under a bona fide claim of ownership since 12 June 1945 or earlier. The right to file the application for registration derives from a bona fide claim of ownership going back to 12 June 1945 or earlier, by reason of the claimant’s open, continuous, exclusive and notorious possession of alienable and disposable land of the public domain.

In this case, respondent failed to comply with the period of possession and occupation of the subject property, as required by both PD 1529 and CA 141. We agree with the Republic that respondent’s evidence was not enough to prove that her possession of the subject property started since 12 June 1945 or earlier because respondent’s earliest evidence can be traced back to a tax declaration issued in the name of her predecessors-in-interest only in the year 1948. In view of the lack of sufficient showing that respondent and her predecessors-in-interest possessed the subject property under a bona fide claim of ownership since 12 June 1945 or earlier, respondent’s application for confirmation and registration of the subject property under PD 1529 and CA 141 should be denied. Republic of the Philippines Vs. Ruby Lee Tsai, G.R. No. 168184, June 22, 2009.

Land registration; registration of title. In the case at bar, the appellate court gave credence to the certified true copy of OCT No. 380 as proof of ownership of respondent’s predecessor.  Yet, it is readily apparent from a cursory reading of said copy that OCT No. 380 was supposedly signed, not by the Secretary of Agriculture and Natural Resources, as mandated by law, but by the Secretary of Agriculture and Commerce. Hence, it is plain to see that to give OCT No. 380 probative value in court would be to allow variance or an evasion or circumvention of the requirement laid down in Section 105 of Act No. 2874. We are thus warned that any title sourced from the flawed OCT No. 380 could be void. On this basis, we are justified to consider with great care any claims derived therefrom. Conrado O. Lasquite and Teodora I. Andrade vs. Victory Hills, Inc.,  G.R. No. 175375, June 23, 2009.

Land registration; Torrens system. Under the established principles of land registration, a person dealing with registered land may generally rely on the correctness of a certificate of title and the law will in no way oblige him to go beyond it to determine the legal status of the property, except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry. Applying this standard to the facts of this case, we rule that respondents exercised the required diligence in ascertaining the legal condition of the title to the subject property as to be considered innocent purchasers for value and in good faith.  Mactan-Cebu International Airport Authority vs. Sps. Edito and Merian Tirol and Sps. Alejandro and Mirando NgoG.R. No. 171535, June 5, 2009.

Land registration; Torrens system. Well-settled is the rule that registration of instruments must be done in the proper registry in order to effect and bind the land. Prior to the Property Registration Decree of 1978, Act No. 496 (or the Land Registration Act) governed the recording of transactions involving registered land, i.e., land with a Torrens title. On the other hand, Act No. 3344, as amended, provided for the system of recording of transactions over unregistered real estate without prejudice to a third party with a better right. Accordingly, if a parcel of land covered by a Torrens title is sold, but the sale is registered under Act No. 3344 and not under the Land Registration Act, the sale is not considered registered and the registration of the deed does not operate as constructive notice to the whole world.

Consequently, the fact that petitioner MCIAA was able to register its Deed of Absolute Sale under Act No. 3344 is of no moment, as the property subject of the sale is indisputably registered land. Section 50 of Act No. 496 in fact categorically states that it is the act of registration that shall operate to convey and affect the land; absent any such registration, the instrument executed by the parties remains only as a contract between them and as evidence of authority to the clerk or register of deeds to make registration.  Mactan-Cebu International Airport Authority vs. Sps. Edito and Merian Tirol and Sps. Alejandro and Mirando NgoG.R. No. 171535, June 5, 2009.

Lease; improvements. Under Article 1678 of the Civil Code, the lessor has the primary right (or the first move) to reimburse the lessee for 50% of the value of the improvements at the end of the lease. If the lessor refuses to make the reimbursement, the subsidiary right of the lessee to remove the improvements, even though the principal thing suffers damage, arises. Consequently, on petitioner rests the primary option to pay for one-half of the value of the useful improvements. It is only when petitioner as lessor refuses to make the reimbursement that respondents, as lessees, may remove the improvements. Should petitioner refuse to exercise the option of paying for one-half of the value of the improvements, he cannot be compelled to do so. It then lies on respondents to insist on their subsidiary right to remove the improvements even though the principal thing suffers damage but without causing any more impairment on the property leased than is necessary.

As regards the ornamental expenses, respondents are not entitled to reimbursement. Article 1678 gives respondents the right to remove the ornaments without damage to the principal thing. But if petitioner appropriates and retains said ornaments, he shall pay for their value upon the termination of the lease.  Serafin Cheng vs. Spouses Vittorio and Ma. Helen Donini, G.R. No. 167017, June 22, 2009.

Marriage; psychological incapacity. It has been sufficiently established that petitioner had a psychological condition that was grave and incurable and had a deeply rooted cause. This Court, in the same Te case, recognized that individuals with diagnosable personality disorders usually have long-term concerns, and thus therapy may be long-term.Particularly, personality disorders are “long-standing, inflexible ways of behaving that are not so much severe mental disorders as dysfunctional styles of living. These disorders affect all areas of functioning and, beginning in childhood or adolescence, create problems for those who display them and for others.”

From the foregoing, it has been shown that petitioner is indeed suffering from psychological incapacity that effectively renders him unable to perform the essential obligations of marriage. Accordingly, the marriage between petitioner and respondent is declared null and void. Lester Benjamin S. Halili Vs. Chona M. Santos-Halili and the Republic of the Philippines,  G.R. No. 165424, June 9, 2009.

Marriage; psychological incapacity. The psychologist’s testimony and conclusions leads us to conclude that they are not sufficiently in-depth and comprehensive to warrant the conclusion that a psychological incapacity existed that prevented the respondent from complying with the essential marital obligations of marriage. Renato Reyes So vs. Lorna ValeraG.R. No. 150677, June 5, 2009,

Mortgage; foreclosure. Personal notice to the mortgagor in extrajudicial foreclosure proceedings is not necessary, unless stipulated. Global Holiday Ownership Corporation vs. Metropolitan Bank & Trust Company, G.R. No. 184081, June 19, 2009.

Mortgage; redemption. From these premises, we ruled that “[P]etitioner-heirs have not lost their right to redeem, for in the absence of a written notification of the sale by the vendors, the 30-day period has not even begun to run.” These premises and conclusion leave no doubt about the thrust of Mariano: The right of the petitioner-heirs to exercise their right of legal redemption exists, and the running of the period for its exercise has not even been triggered because they have not been notified in writing of the fact of sale.

We hold that the computation of the 30-day period to exercise the legal right of redemption did not start to run from the finality of the Mariano Decision, and that the petitioner-heirs seasonably filed, via a writ of execution, their notice of redemption, although they applied for the issuance of the writ some eight (8) months after the finality of the Decision. In seeking the execution of a final and executory decision of this Court, what controls is Section 11, Rule 51, in relation to Section 2, Rule 56, of the Rules of Court. Before the trial court executing the decision, Section 6, Rule 39, on the question of timeliness of the execution, governs. Eight (8) months after the finality of the judgment to be executed is still a seasonable time for execution by motion pursuant to this provision. The writ, notice of redemption, and the tender of payment were all duly served, so that it was legally in order for the Sheriff to issue a Certificate of Redemption when the respondent-buyers failed to comply with the writ and to accept the notice and the tender of payment.  Grace Gosiengfiao Guillen, etc. Vs. The Court of Appeals, et al., G.R. No. 159755, June 18, 2009.

Sale; double sales. The requisites that must concur for Article 1544 to apply, viz.:

(a)      The two (or more) sales transactions must constitute valid sales;

(b)     The two (or more) sales transactions must pertain to exactly the same subject matter;

(c)     The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and

(d)    The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller.

Obviously, said provision has no application in cases where the sales involved were initiated not by just one vendor but by several successive vendors. In the instant case, respondents and petitioner had acquired the subject property from different transferors. Petitioner, through its predecessor-in-interest (CAA), acquired the entire Lot No. 4763 from its original owners, spouses Julian Cuison and Marcosa Cosef, on March 23, 1958. On the other hand, respondents acquired the subject parcel of land, a portion of Lot No. 4763, from Mrs. Elma Jenkins, another transferee, some thirty-five years later. The immediate transferors of Elma Jenkins were the spouses Moises Cuizon and Beatriz Patalinghug who, in turn, obtained the subject property from spouses Julian Cuison and Marcosa Cosef. Therefore, the instant controversy cannot be governed by Article 1544 since petitioner and respondents do not have the same immediate seller. Mactan-Cebu International Airport Authority vs. Sps. Edito and Merian Tirol and Sps. Alejandro and Mirando NgoG.R. No. 171535, June 5, 2009

Sale; legal redemption. Interpreting Article 1623, we have enumerated the requisites for the exercise of legal redemption, as follows: (1) there must be co-ownership; (2) one of the co-owners sold his right to a stranger; (3) the sale was made before the partition of the co-owned property; (4) the right of redemption must be exercised by one or more co-owners within a period of thirty days to be counted from the time he or they were notified in writing by the co-owner vendor; and (5) the vendee must be reimbursed the price of the sale. With respect to the written notice, the exception is when a co-owner has actual notice of the sale. Francisco G. Calma Vs. Arsenio Santos, et al.G.R. No. 161027,  June 22, 2009.

Sale; rescission. Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. Unlike a contract of sale, where the title to the property passes to the vendee upon the delivery of the thing sold, in a contract to sell, ownership is, by agreement, reserved to the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the purchase price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.

Since the obligation of respondent did not arise because of the failure of petitioners to fully pay the purchase price, Article 1191 of the Civil Code would have no application.  Spouses Jose T. Valenzuela & Gloria Valenzuela Vs. Kalayaan Development and Industrial Corporation, G.R. No. 163244, June 22, 2009.

Surety; change in principal contract. Indeed, a surety is released from its obligation when there is a material alteration of the principal contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. However, a surety is not released by a change in the contract, which does not have the effect of making its obligation more onerous.

In the instant case, the revision of the subcontract agreement did not in any way make the obligations of both the principal and the surety more onerous. To be sure, petitioner never assumed added obligations, nor were there any additional obligations imposed, due to the modification of the terms of the contract. Failure to receive any notice of such change did not, therefore, exonerate petitioner from its liabilities as surety. Stronghold Insurance, Company, Inc. Vs. Tokyu Construction Company, Ltd.,  G.R. No. 158820-21, June 5, 2009.

Trust. The trust created by the decedent in her will must be dissolved after 20 years. Hilarion, Jr. and Enrico Orendain, represented by Fe Orendain Vs. Trusteeship of the Estate of Doña Margarita Rodriquez, G.R. No. 168660, June 30, 2009.