January 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected January 2010 rulings of the Supreme Court of the Philippines on civil law and related laws:

Civil Code

Agency; principle of undisclosed principal. It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to the principal. Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sherrif vs. Sps. Ernesto and Leonor C. Cayetano, G.R. No. 179909, January 25, 2010.

Contract; element of consent; causal fraud. In order that fraud may vitiate consent to a contract, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. Additionally, the fraud must be serious. In this case, causal fraud necessary to justify the annulment of the contract of sale between the parties was absent. It is clear from the records that petitioners agreed to sell their property to the buyers. The petitioners’ belief that the fraud employed by the buyers was “already operational at the time of the perfection of the contract of sale” is incorrect. The Buyers’ misrepresentation — that the postdated check (covering the purchase price for the property) would not bounce on its maturity — hardly equates to dolo causante. The buyers’ assurance that the check issued was fully funded was not the principal inducement for the petitioners to sign the Deed of Absolute Sale. Even before the buyers issued the check, the parties had already consented and agreed to the sale transaction. The petitioners were never tricked into selling their property to the buyer. On the contrary, they willingly accepted his offer to purchase the property at P3,000,000. In short, there was a meeting of the minds as to the object of the sale as well as the consideration therefor. Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al., G.R. No. 167874, January 15, 2010.

Contract; interpretation. There is nothing in the subject Extrajudicial Settlement to indicate any express stipulation for petitioner and respondents to continue with their supposed co-ownership of the contested lot. On the contrary, a plain reading of the provisions of the Extrajudicial Settlement would not, in any way, support petitioner’s contention that it was his and his sibling’s intention to buy the subject property from the Bank and continue what they believed to be co-ownership thereof. It is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial consideration. It is the duty of the courts to place a practical and realistic construction upon it, giving due consideration to the context in which it is negotiated and the purpose which it is intended to serve. Such intention is determined from the express terms of their agreement, as well as their contemporaneous and subsequent acts. Absurd and illogical interpretations should also be avoided. Petitioner’s contention that he and his siblings intended to continue their supposed co-ownership of the subject property contradicts the provisions of the subject Extrajudicial Settlement where they clearly manifested their intention of having the subject property divided or partitioned by assigning to each of the petitioner and respondents a specific 1/3 portion of the same. Partition calls for the segregation and conveyance of a determinate portion of the property owned in common. It seeks a severance of the individual interests of each co-owner, vesting in each of them a sole estate in a specific property and giving each one a right to enjoy his estate without supervision or interference from the other. In other words, the purpose of partition is to put an end to co-ownership, an objective which negates petitioner’s claims in the present case. Celestino Balus vs. Saturnino Balus and Leonarda Balus vda. De Calunod, G.R. No. 168970, January 15, 2010.

Contract; reciprocal obligations; remedy of rescission. While no causal fraud attended the execution of the sales contract, the fraud existed in the consummation stage of the sale when the parties were in the process of performing their respective obligations under the perfected contract of sale. Indisputably, the sellers had already performed their obligation of executing the Deed of Sale, which led to the cancellation of their title in favor of the buyer. Respondent buyers, on the other hand, failed to perform their correlative obligation of paying the full amount of the contract price. Clearly, respondents committed a substantial breach of their reciprocal obligation, entitling the petitioners to the rescission of the sales contract. Under the Civil Code, an injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either case.  He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. Respondent’s claims that rescission is not proper and that he should be given more time to pay for the unpaid remaining balance of the purchase price cannot be countenanced. Having acted fraudulently in performing his obligation, the respondent is not entitled to more time to pay the remaining balance, and thereby erase the default or breach that he had deliberately incurred. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by the buyers, an attitude repugnant to the stability and obligatory force of contracts. Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al., G.R. No. 167874, January 15, 2010.

Contract; sale; nullity because of forgery. In order that the holder of a certificate for value issued by virtue of the registration of a voluntary instrument may be considered a holder in good faith and for value, the instrument registered should not be forged. Indubitably, therefore, the questioned Deed of Absolute Sale did not convey any title to herein petitioners. Thus, we hold that with the presentation of the forged deed, even if accompanied by the owner’s duplicate certificate of title, the registered owner did not thereby lose his title, and neither does the assignee in the forged deed acquire any right or title to the said property. Spouses Patricio and Myrna Bernales vs. Heirs of Julian Sambaan, et al., G.R. No. 163271, January 15, 2010.

Damages; attorney’s fee; reduction. The relation to a foreclosure of a mortgage by a bank, the Court ruled that the award of attorney’s fee, it being part of a party’s liquidated damages, likewise could be equitably reduced. The Court affirmed the lower court’s ruling reducing the attorney’s fee from 10% to 1% based on the following reasons: (1) attorney’s fee is not essential to the cost of borrowing, but a mere incident of collection; (2) 1% is just and adequate because the bank had already charged foreclosure expenses; (3) attorney’s fee of 10% of the total amount due is onerous considering the rote effort that goes into extrajudicial foreclosures. Bank of the Philippines Islands, Inc. vs. Spouses Norman and Angelina Yu, et al., G.R. No. 184122, January 20, 2010.

Damages; moral and exemplary; fraud in contract. The buyer defrauded the petitioners in his acts of issuing a worthless check and representing to them that the check was funded, committing in the process a substantial breach of his obligation as a buyer. For such fraudulent acts, the buyer is liable for moral damages and exemplary damages under Article 2220, and 2232 and 2234of the Civil Code, respectively. Spouses Carmen Tongson and Jose Tongson vs. Emergency Pawnshop Bula, Inc. et al., G.R. No. 167874, January 15, 2010.

Damages; moral and exemplary; reduction. Moral damages were correctly awarded to the respondent. Such damages may be awarded when the defendant’s transgression is the immediate cause of the plaintiff’s anguish in the cases specified in Article 2219 of the Civil Code. Here, respondent’s colleagues and friends testified that she suffered severe anxiety on account of the speculation over her employment status. She had to endure being referred to as a “squatter” in her workplace. She had to face inquiries from family and friends about her exclusion from the Bureau’s centennial anniversary memorabilia. She did not have to endure all these affronts and the angst and depression they produced had petitioner abided in good faith by the court’s order in her favor. Clearly, she is entitled to moral damages. The Court, however, finds the award excessive. Moral damages are not a bonanza. They are given to ease the defendant’s grief and suffering. Moral damages should reasonably approximate the extent of hurt caused and the gravity of the wrong done. The Court affirms the grant of exemplary damages by way of example or correction for the public good but, in line with the same reasoning, reduces it. Titus B. Villanueva vs. Emma M. Rosqueta, G.R. No. 180764, January 19, 2010.

Human relations; abuse of right. Under the abuse of right principle found in Article 19 of the Civil Code, a person must, in the exercise of his legal right or duty, act in good faith. He would be liable if he instead acts in bad faith, with intent to prejudice another. Complementing this principle are Articles 20 and 21 of the Civil Code, which grant the latter indemnity for the injury he suffers because of such abuse of right or duty. The Court found that the petitioner had acted in bad faith and with intent to spite the respondent, when the petitioner, notwithstanding a preliminary injunction order preventing him from doing so, allowed another party to assume the office as Deputy Commissioner in place of the respondent. Petitioner’s exclusion of the respondent from the centennial anniversary memorabilia was not an honest mistake by any reckoning. Indeed, he withheld her salary and prevented her from assuming the duties of the position. A party’s refusal to abide by a court order enjoining him from doing an act, otherwise lawful, constitutes an abuse and an unlawful exercise of right. That respondent was later appointed Deputy Commissioner for another division of the Bureau is immaterial. While such appointment, when accepted, rendered the quo warranto case moot and academic, it did not have the effect of wiping out the injuries she suffered on account of Petitioner treatment of her. The damage suit is an independent action. Titus B. Villanueva vs. Emma M. Rosqueta, G.R. No. 180764, January 19, 2010.

Laches; elements. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; (2) delay in asserting complainant’s right after he had knowledge of the defendant’s conduct and after he has an opportunity to sue; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant. In the present case, records clearly show that respondents could have filed an action to annul the mortgage on their properties, but for unexplained reasons, they failed to do so. They only questioned the loan and mortgage transactions after the lapse of more than five years from the date of the foreclosure sale. It bears noting that the real estate mortgage was registered and annotated on the titles of respondents, and the latter were even informed of the extrajudicial foreclosure and the scheduled auction. Instead of impugning the real estate mortgage and opposing the scheduled public auction, respondents’ lawyer wrote a letter to petitioner and merely asked that the scheduled auction be postponed to a later date. Even after five years, respondents still failed to oppose the foreclosure and the subsequent transfer of titles to petitioner when their agent, acting in behalf of the principal, sent a letter proposing to buy back the properties. It was only when the negotiations failed that respondents filed the instant case. Clearly, respondents slept on their rights. Far East Bank and Trust Company (Now Bank of the Philippine Islands) and Rolando Borja, Deputy Sherrif vs. Sps. Ernesto and Leonor C. Cayetano, G.R. No. 179909, January 25, 2010.

Lease; assignment; requirement for lessor’s consent. PNOC’s buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO Eastern’s lease over the Property, which lease contract provided that the contract could not be assigned by ESSO Eastern without the consent of the lessor. As the lessor has given no prior consent to the transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contract’s assignment veto clause. Romeo D. Mariano vs. Petron Corporation, G.R. No. 169438, January 21, 2010.

Lease; waiver of right to eject lessee. The continued receipt of lease payments by the lessor despite the contractual breach amounted to a waiver of their option to eject the lessee. Romeo D. Mariano vs. Petron Corporation, G.R. No. 169438, January 21, 2010.

Prescription; period for suits based on written contract. Petitioner filed his complaint regarding the lessee’s breach of the lease contract’s assignment veto clause, nearly 22 years after the assignment of leasehold rights and almost six years after petitioner bought the property from the lessor. The lapse of more than two decades lputs this case well within the territory of the 10-year prescriptive bar to suits based upon a written contract under Article 1144 (1) of the Civil Code. Romeo D. Mariano vs. Petron Corporation, G.R. No. 169438, January 21, 2010.

Prescription; action to void forged contract does not prescribe. The supposed vendor’s signature having been proved to be a forgery, the instrument is totally void or inexistent as “absolutely simulated or fictitious” under Article 1409 of the Civil Code. According to Article 1410, “the action or defense for the declaration of the inexistence of a contract does not prescribe”. The inexistence of a contract is permanent and incurable which cannot be cured either by ratification or by prescription. Spouses Patricio and Myrna Bernales vs. Heirs of Julian Sambaan, et al., G.R. No. 163271, January 15, 2010.

Succession. The rights to a person’s succession are transmitted from the moment of his death. In addition, the inheritance of a person consists of the property and transmissible rights and obligations existing at the time of his death, as well as those which have accrued thereto since the opening of the succession. In the present case, since the father of the parties to the case lost ownership of the subject property during his lifetime, it only follows that at the time of his death, the disputed parcel of land no longer formed part of his estate to which his heirs may lay claim. Stated differently, petitioner and respondents never inherited the subject lot from their father. Petitioner and respondents, therefore, were wrong in assuming that they became co-owners of the subject lot. Thus, any issue arising from the supposed right of petitioner as co-owner of the contested parcel of land is negated by the fact that, in the eyes of the law, the disputed lot did not pass into the hands of petitioner and respondents as compulsory heirs at any given point in time. Celestino Balus vs. Saturnino Balus and Leonarda Balus vda. De Calunod, G.R. No. 168970, January 15, 2010.

Special Laws

Contracts; interpretation; agricultural lease. There is no dispute that the parties executed an agreement, denominated as “KASUNDUAN NG PAGHAHATI NG LUPA AT PAGTATALAGA NG DAAN UKOL SA MAGKABILANG PANIG.” Therein, it was admitted that the petitioner was the tiller of the land. This Kasunduan was subsequently followed by another agreement, “KASUNDUAN SA HATIAN SA LUPA,” whereby a certain area was given to petitioners. The portion of the land where petitioners’ house is erected is the subject of the instant case for unlawful detainer. Respondent argues that this portion is not included in the deed of partition, while petitioners insist that it is. The issue before the Court (which court has jurisdiction over the dispute – the regular courts or the Department of Agrarian Reform Adjudication Board) hinges on the correct interpretation of the contracts executed by the parties. The controversy involves an agricultural land, which petitioners have continuously and personally cultivated since the 1960s. In the Kasunduan, it was admitted that the petitioner was the tiller of the land. Being agricultural lessees, petitioners have a right to a home lot and a right to exclusive possession thereof by virtue of Section 24, R.A. No. 3844 of the Agricultural Land Reform Code. Logically, therefore, the case involves an agrarian dispute, which falls within the contemplation of R.A. No. 6657, or the Comprehensive Agrarian Reform Law. The contention that the Kasunduans, which allegedly terminated the tenancy relationship between the parties and, therefore, removed the case from the ambit of R.A. No. 6657, is untenable. There still exists an agrarian dispute because the controversy involves the home lot of petitioners, an incident arising from the landlord-tenant relationship. Spouses Jesus Fajardo and Emer Fajardo vs. Anita R. Flores, assisted by her husband, Bienvenido Flores, G.R. No. 167891, January 15, 2010.

Mortgages; redemption; bond requirement under Act. No. 3135; writ of possession. The mortgagor or his successor-in-interest must redeem the foreclosed property within one year from the registration of the sale with the Register of Deeds in order to avoid the title from consolidating in the purchaser. By failing to redeem thus wise, the mortgagor loses all interest over the foreclosed property. The purchaser, who has a right to possession that extends beyond the expiration of the redemption period, becomes the absolute owner of the property when no redemption is made, that it is no longer necessary for the purchaser to file the bond required under Section 7 of Act No. 3135, as amended, considering that the possession of the land becomes his absolute right as the land’s confirmed owner. The consolidation of ownership in the purchaser’s name and the issuance to him of a new TCT then entitles him to demand possession of the property at any time, and the issuance of a writ of possession to him becomes a matter of right upon the consolidation of title in his name. Eligio P. Mallari vs. Government Service Insurance System and the Provincial Sheriff of Pampanga, G.R. No. 157659, January 25, 2010.