July 2009 Philippine Supreme Court Decisions on Civil Law

Contracts; agency. It is true that a person dealing with an agent is not authorized, under any circumstances, to trust blindly the agent’s statements as to the extent of his powers. Such person must not act negligently but must use reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority. The settled rule is that persons dealing with an assumed agent are bound at their peril; and if they would hold the principal liable, they must ascertain not only the fact of agency, but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.  Soriamont Steamship Agencies, Inc., et al. vs. Sprint Transport Services, Inc. etc., G.R. No. 174610, July 14, 2009.

Contracts; compromise agreement. Compromise agreements are contracts, whereby the parties undertake reciprocal obligations to resolve their differences, thus, avoiding litigation, or put an end to one already commenced. As a contract, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties; the terms are to be understood literally, just as they appear on the face of the contract. Considering that Caruff never intended to transfer the subject property to PMO, burdened by the generating set and sump pumps, respondent should remove them from the subject property.  Privatization Management Office vs. Legaspi Towers 300, Inc., G.R. No. 147957, July 22, 2009.


Contracts; dacion en pagoDacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. Thus, it is a special mode of payment where the debtor offers another thing to the creditor, who accepts it as equivalent of payment of an outstanding debt, which undertaking, in one sense, amounts to a sale. As such, the essential elements are consent, object certain, and cause or consideration. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.  The requisite consent is not present in this case. Gloria Ocampo, et al. vs. Land Bank of the Philippines, et al., G.R. No. 164968, July 3, 2009.

Contracts; delay. Under the law on contracts, mora solvendi or debtor’s default is defined as a delay in the fulfillment of an obligation, by reason of a cause imputable to the debtor. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtor’s performance.

In the present petition, PSE insists that Finvest’s liability for fines, penalties and charges has been established, determined and substantiated, hence, liquidated. A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of relevant documents. Under the attendant circumstances, it cannot be said that Finvest’s debt is liquidated. At the time PSE left the negotiating table, the exact amount of Finvest’s fines, penalties and charges was still in dispute and as yet undetermined. Consequently, Finvest cannot be deemed to have incurred in delay in the payment of its obligations to PSE. It cannot be made to pay an obligation the amount of which was not fully explained to it. The public sale of the pledged seat would, thus, be premature.  Armand O. Raquel-Santos, et al. vs. Court of Appeals, et al./Philippine Stock Exchange, Inc. vs. Finvest Securities Co., Inc./Finvest Securities, Co., Inc. vs. Trans-Phil Marine Ent., Inc., et al., G.R. No. 174986/G.R. No. 175071/G.R. No. 181415, July 7, 2009.

Contracts; earnest money. Considering that there was no perfected contract of sale, the concept of earnest money is certainly not applicable to this case. Article 1482 of the Civil Code states that: “Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.” The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Hence, there must first be a perfected contract of sale before we can speak of earnest money.  As found by the trial court, the P15,500 paid by Lopez is merely a deposit for the exclusion of the subject property from the list of the properties to be auctioned off by GSIS.  Government Service Insurance System vs. Abraham Lopez, G.R. No. 165568, July 13, 2009.

Contracts; fraud. Fraud under Article 1338 of the Civil Code refers to all kinds of deception — whether through insidious machination, manipulation, concealment or misrepresentation — that would lead an ordinarily prudent person into error after taking the circumstances into account. The deceit employed must be serious. It must be sufficient to impress or lead an ordinarily prudent person into error, taking into account the circumstances of each case.  Gloria Ocampo, et al. vs. Land Bank of the Philippines, et al., G.R. No. 164968, July 3, 2009.

Contracts; perfection. The stages of a contract of sale are: (1) negotiation, starting from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale; and (3) consummation, which commences when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment of the contract.

In the present case, the parties never got past the negotiation stage. Nothing shows that the parties had agreed on any final arrangement containing the essential elements of a contract of sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter of the contract ; and (3) price or consideration of the sale.

The 2 August 1988 letter of the GSIS cannot be classified as a perfected contract of sale which binds the parties. The letter was in reply to Lopez’s offer to repurchase the property. Both the trial and appellate courts found that Lopez’s offer to repurchase the property was subject to the approval of the Board of Trustees of the GSIS, as explicitly stated in the 2 August 1988 GSIS’ letter. No such approval appears in the records. When there is merely an offer by one party without acceptance by the other, there is no contract of sale. Since there was no acceptance by GSIS, which can validly act only through its Board of Trustees, of Lopez’s offer to repurchase the property, there was no perfected contract of sale. Government Service Insurance System vs. Abraham Lopez, G.R. No. 165568, July 13, 2009.

Contracts;  prescription.  Cecilleville’s cause of action against the Acuña spouses is one created by law; hence, the action prescribes in ten years. Prescription accrues from the date of payment by Cecilleville to Prudential of the Acuña spouses’ debt on 5 April 1994. Cecilleville’s present complaint against the Acuña spouses was filed on 20 June 1996, which was almost two months from the extrajudicial demands to pay on 9 and 23 April 1996. Whether we use the date of payment, the date of the last written demand for payment, or the date of judicial demand, it is clear that Cecilleville’s cause of action has not yet prescribed.  Cecilleville Realty and Service Corporation vs. Spouses Tito Acuña, et al., G.R. No. 162074, July 13, 2009.

Contracts; rescission. The right of a party to rescission under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate thing, and the buyer to pay therefor a price certain in money or its equivalent. In some contracts of sale, such as the sale of real property, prior physical delivery of the thing sold or its representation is not legally required, as the execution of the Deed of Sale effectively transfers ownership of the property to the buyer through constructive delivery. Hence, delivery of the certificate of title covering the real property is not necessary to transfer ownership.  Armand O. Raquel-Santos, et al. vs. Court of Appeals, et al./Philippine Stock Exchange, Inc. vs. Finvest Securities Co., Inc./Finvest Securities, Co., Inc. vs. Trans-Phil Marine Ent., Inc., et al., G.R. No. 174986/G.R. No. 175071/G.R. No. 181415, July 7, 2009.

Contracts; subrogation. When an interested party pays the obligation, he is subrogated in the rights of the creditor. Because of its payment of the Acuña spouses’ loan, Cecilleville actually steps into the shoes of Prudential and becomes entitled, not only to recover what it has paid, but also to exercise all the rights which Prudential could have exercised. There is, in such cases, not a real extinguishment of the obligation, but a change in the active subject.  Cecilleville Realty and Service Corporation vs. Spouses Tito Acuña, et al., G.R. No. 162074, July 13, 2009.

Marriage; annulment. Psychological incapacity must be characterized by (1) gravity (2) juridical antecedence, and (3) incurability.  The foregoing guidelines do not require that a physician examine the person to be declared psychologically incapacitated. In fact, the root cause may be “medically or clinically identified.” What is important is the presence of evidence that can adequately establish the party’s psychological condition. For indeed, if the totality of evidence presented is enough to sustain a finding of psychological incapacity, then actual medical examination of the person concerned need not be resorted to.

In this case, the Supreme Court agreed with the Court of Appeals that the totality of the evidence submitted by petitioner failed to satisfactorily prove that respondent was psychologically incapacitated to comply with the essential obligations of marriage. The root cause of respondent’s alleged psychological incapacity was not sufficiently proven by experts or shown to be medically or clinically permanent or incurable.   Digna A. Najera vs. Eduardo J. Najera, G.R. No. 164817, July 3, 2009.

Marriage;  conjugal property.  Marital consent is required for the sale by a husband of property he purchased under a conditional contract to sell executed while he was still single but title of which was transferred when he was already married. Sps. Lita De Leon, et al. vs. Anita B. De Leon, et al., G.R. No. 185063, July 23, 2009.

Mortgage;  equity of redemption. The term equity of redemption has a settled meaning. It refers to the right of the mortgagor in case of judicial foreclosure to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the confirmation of the sale of the mortgaged property.

In the present case, the 1,650-square meter portion of the subject property was foreclosed extrajudicially through the Office of the Provincial Sheriff as reflected by the Certificate of Sale. In extrajudicial foreclosure, what is extant is the right of redemption, or the right of the mortgagor to redeem the property within one year from and after the date of sale. The remaining 5,625-square meter portion was sold to the bank through levy on execution. A similar right of redemption exists with respect to such purchase, pursuant to Rule 39, Section 30 of the then applicable Rules of Civil Procedure. There is no equity of redemption in either case because neither one of these acquisitions by the San Fernando Rural Bank was done through judicial foreclosure.

Thus, at the time the parties’ predecessors-in-interest died, the bank was already the absolute owner of the properties. There is no basis for the petitioners to claim a co-ownership between them and the respondents because no right as to the subject property could have been transmitted to them by the death of their predecessors-in-interest, the Spouses Ignacio Dela Peña and Engracia Rivera. Victoriano Dela Peña, et al. vs. Spouses Vicente Alonzo, et al., G.R. No. 172640, July 3, 2009.

Property’ cancellation of land patent. Abandonment or neglect, as a ground for the cancellation of an emancipation patent or certificate of land award, according to Castellano v. Spouses Francisco, requires a clear and absolute intention to renounce a right or a claim, or to abandon a right or property coupled with an external act by which that intention is expressed or carried into effect. Intention to abandon, as held in Corpuz v. Grospe, implies a departure, with the avowed intent of never returning, resuming or claiming the right and the interest that have been abandoned. It consists in any one of these conditions: (1) failure to cultivate the lot due to reasons other than the non-suitability of the land to agricultural purposes, for at least two (2) calendar years, and to pay the amortizations for the same period; (2) permanent transfer of residence by the beneficiary and his family, which has rendered him incapable of cultivating the lot; or (3) relinquishment of possession of the lot for at least two (2) calendar years and failure to pay the amortization for the same period. None of the instances cited above obtains in this case.  Petronila Maylem vs. Carmelita Ellano and Antonia Morciento, G.R. No. 162721, July 13, 2009.

Property; easement. An easement or servitude is “a real right constituted on another’s property, corporeal and immovable, by virtue of which the owner of the same has to abstain from doing or to allow somebody else to do something on his property for the benefit of another thing or person. There are two sources of easements: by law or by the will of the owners. In the present case, neither type of easement was constituted over the subject property.

In its allegations, respondent claims that Caruff constituted a voluntary easement when it constructed the generating set and sump pumps over the disputed portion of the subject property for its benefit. However, it should be noted that when the appurtenances were constructed on the subject property, the lands where the condominium was being erected and the subject property where the generating set and sump pumps were constructed belonged to Caruff. Therefore, Article 613 of the Civil Code does not apply, since no true easement was constituted or existed, because both properties were owned by Caruff.

Also, Article 624 of the Civil Code is controlling, as it contemplates a situation where there exists an apparent sign of easement between two estates established or maintained by the owner of both.  It can be inferred that when the owner of two properties alienates one of them and an apparent sign of easement exists between the two estates, entitlement to it continues, unless there is a contrary agreement, or the indication that the easement exists is removed before the execution of the deed. Privatization Management Office vs. Legaspi Towers 300, Inc., G.R. No. 147957, July 22, 2009.

Property; easement. An easement is a real right on another’s property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. Easements are established either by law or by the will of the owner. The former are called legal, and the latter, voluntary easements.

In this case, petitioner itself admitted that a voluntary easement of right of way exists in favor of respondents. Having made such an admission, petitioner cannot now claim that what exists is a legal easement and that the same should be cancelled since the dominant estate is not an enclosed estate as it has an adequate access to a public road which is Callejon Matienza Street. The opening of an adequate outlet to a highway can extinguish only legal or compulsory easements, not voluntary easements like in the case at bar. The fact that an easement by grant may have also qualified as an easement of necessity does not detract from its permanency as a property right, which survives the termination of the necessity. A voluntary easement of right of way, like any other contract, could be extinguished only by mutual agreement or by renunciation of the owner of the dominant estate.

Neither can petitioner claim that the easement is personal only to Hidalgo since the annotation merely mentioned Sandico and Hidalgo without equally binding their heirs or assigns. That the heirs or assigns of the parties were not mentioned in the annotation does not mean that it is not binding on them. Again, a voluntary easement of right of way is like any other contract. As such, it is generally effective between the parties, their heirs and assigns, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Petitioner cites City of Manila v. Entote in justifying that the easement should bind only the parties mentioned therein and exclude those not so mentioned. However, that case is inapplicable since the issue therein was whether the easement was intended not only for the benefit of the owners of the dominant estate but of the community and the public at large. In interpreting the easement, the Court ruled that the clause “any and all other persons whomsoever” in the easement embraces only “those who are privy to the owners of the dominant estate, Lots 1 and 2 Plan Pcs-2672” and excludes “the indiscriminate public from the enjoyment of the right-of-way easement.”

Although the easement does not appear in respondents’ title over the dominant estate, the same subsists. It is settled that the registration of the dominant estate under the Torrens system without the annotation of the voluntary easement in its favor does not extinguish the easement. On the contrary, it is the registration of the servient estate as free, that is, without the annotation of the voluntary easement, which extinguishes the easement.

Finally, the mere fact that respondents subdivided the property does not extinguish the easement. Article 618 of the Civil Code provides that if the dominant estate is divided between two or more persons, each of them may use the easement in its entirety, without changing the place of its use, or making it more burdensome in any other way. Unisource Commercial and Development Corporation vs. Joseph Chung, et al., G.R. No. 173252, July 17, 2009.

Property;  emancipation patent.   As holder of an emancipation patent, Abad is bound by the proscription against transfers of land awards to third persons, which is prohibited by law.

Hence, even if Abad for a consideration had waived his rights to the property when he surrendered possession thereof to petitioner, such waiver is nevertheless ineffective and void, because it amounts to a prohibited transfer of the land award. As the Court held in Lapanday Agricultural & Development Corp. v. Estita, the waiver of rights and interests over landholdings awarded by the government is invalid for being violative of agrarian reform laws. And in Torres v. Ventura, the Court declared that the object of agrarian reform is to vest in the farmer-beneficiary, to the exclusion of others, the rights to possess, cultivate and enjoy the landholding for himself; hence, to insure his continued possession and enjoyment thereof, he is prohibited by law to make any form of transfer except only to the government or by hereditary succession.  Petronila Maylem vs. Carmelita Ellano and Antonia Morciento, G.R. No. 162721, July 13, 2009.

Property;  Torrens sytem.  A Homestead Patent, once registered under the Land Registration Act, becomes as indefeasible as a Torrens Title.

The Torrens system is not a mode of acquiring titles to lands; it is merely a system of registration of titles to lands. However, justice and equity demand that the titleholder should not be made to bear the unfavorable effect of the mistake or negligence of the State’s agents, in the absence of proof of his complicity in a fraud or of manifest damage to third persons. The real purpose of the Torrens system is to quiet title to land and put a stop forever to any question as to the legality of the title, except claims that were noted in the certificate at the time of the registration or that may arise subsequent thereto. Otherwise, the integrity of the Torrens system shall forever be sullied by the ineptitude and inefficiency of land registration officials, who are ordinarily presumed to have regularly performed their duties.

The general rule that the direct result of a previous void contract cannot be valid will not apply in this case as it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, this Court cannot disregard such rights and order the cancellation of the certificate. The effect of such outright cancellation will be to impair public confidence in the certificate of title. The sanctity of the Torrens system must be preserved; otherwise, everyone dealing with the property registered under the system will have to inquire in every instance as to whether the title had been regularly or irregularly issued, contrary to the evident purpose of the law. Every person dealing with the registered land may safely rely on the correctness of the certificate of title issued therefor, and the law will, in no way, oblige him to go behind the certificate to determine the condition of the property.

Respondent’s transfer certificate of title, having been derived from the Homestead Patent which was registered under the Torrens system on May 27, 1966, was thus vested with the habiliments of indefeasibility.  Rabaja Ranch and Development Corporation vs. AFP Retirement and Separation Benefits System, G.R. No. 177181, July 7, 2009.

Unjust enrichment. There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” Article 22 of the Civil Code provides that “[e]very person who, through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter, without just or legal ground, shall return the same to him.” The principle of unjust enrichment under Article 22 of the Civil Code requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another’s expense or damage.  Privatization Management Office vs. Legaspi Towers 300, Inc., G.R. No. 147957, July 22, 2009.

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