February 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected February 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Agency; principle of apparent authority; agency relationship between hospital and doctors who practice in its premises. This Court holds that PSI (the owner of the hospital) is liable to the Aganas, not under the principle of respondeat superior for lack of evidence of an employment relationship with a Dr. Ampil (who had left two pieces of gauze in the body of a patient he had operated on) but under the principle of ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its failure to perform its duties as a hospital.

While in theory a hospital as a juridical entity cannot practice medicine, in reality it utilizes doctors, surgeons and medical practitioners in the conduct of its business of facilitating medical and surgical treatment. Within that reality, three legal relationships crisscross: (1) between the hospital and the doctor practicing within its premises; (2) between the hospital and the patient being treated or examined within its premises and (3) between the patient and the doctor. The exact nature of each relationship determines the basis and extent of the liability of the hospital for the negligence of the doctor.

Where an employment relationship exists, the hospital may be held vicariously liable under Article 2176 in relation to Article 2180 of the Civil Code or the principle of respondeat superior. Even when no employment relationship exists but it is shown that the hospital holds out to the patient that the doctor is its agent, the hospital may still be vicariously liable under Article 2176 in relation to Article 1431 and Article 1869 of the Civil Code or the principle of apparent authority. Moreover, regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for its own negligence or failure to follow established standard of conduct to which it should conform as a corporation.

The concurrent finding of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Consequently, PSI cannot be held vicariously liable for the negligence of Dr. Ampil under the principle of respondeat superior. There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad) that the doctor (Dr. Ampil) was its agent. Present are the two factors that determine apparent authority: first, the hospital’s implied manifestation to the patient which led the latter to conclude that the doctor was the hospital’s agent; and second, the patient’s reliance upon the conduct of the hospital and the doctor, consistent with ordinary care and prudence. [Digester’s Note: Here, the Supreme Court sets out what it believes are the indications of agency. We have numbered the premises.] (1) Enrique, the husband of the patient, testified that he consulted Dr. Ampil regarding the condition of his wife; that after the meeting and as advised by Dr. Ampil, he “asked [his] wife to go to Medical City to be examined by [Dr. Ampil]”; and that the next day, he told his daughter to take her mother to Dr. Ampil. This timeline indicates that it was Enrique who actually made the decision on whom Natividad should consult and where, and that the latter merely acceded to it. It explains the testimony of Natividad that she consulted Dr. Ampil at the instigation of her daughter. (2) Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified that he had known Ampil to be a specialist on that part of the body as a surgeon, and he had known “him to be a staff member of the Medical City which is a prominent and known hospital.” Ampil was also a neighbor so Enrique had expected “more than the usual medical service to be given to us, than his ordinary patients.” Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the impression that Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital was well known and prominent. Enrique looked upon Dr. Ampil not as independent of but as integrally related to Medical City. (3) PSI’s acts tended to confirm and reinforce, rather than negate, Enrique’s view. It is of record that PSI required a “consent for hospital care” to be signed preparatory to the surgery of Natividad. The form reads: “Permission is hereby given to the medical, nursing and laboratory staff of the Medical City General Hospital to perform such diagnostic procedures and to administer such medications and treatments as may be deemed necessary or advisable by the physicians of this hospital for and during the confinement of xxx. (emphasis supplied).” By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital, rather than one independently practicing in it; that the medications and treatments he prescribed were necessary and desirable; and that the hospital staff was prepared to carry them out. (4) PSI pointed out in its memorandum that Dr. Ampil’s hospital affiliation was not the exclusive basis of the Aganas’ decision to have Natividad treated in Medical City General Hospital, meaning that, had Dr. Ampil been affiliated with another hospital, he would still have been chosen by the Aganas as Natividad’s surgeon. The Court cannot speculate on what could have been behind the Aganas’ decision but would rather adhere strictly to the fact that, under the circumstances at that time, Enrique decided to consult Dr. Ampil for he believed him to be a staff member of a prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go to the Medical City General Hospital to be examined by said doctor, and the hospital acted in a way that fortified Enrique’s belief. The court must therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr. Ampil as its ostensible agent. Professional Services, Inc. vs. The Court of Appeals, et al./Natividad (substituted by her children Marcelino Agana III, Enrique Agana, Jr. Emma Agana-Andaya, Jesus Agana and Raymund Agana and Errique Agana) vs. The Court of Appeals and Juan Fuentes Miguel Ampil vs. Natividad and Enrique Agana, G.R. Nos. 126297/G.R. No. 126467/G.R. No. 127590, February 2, 2010.

[Digester’s Note: The court’s explanation of its agency ruling is set out above almost verbatim. It is not clear, at least not to this writer, how the court arrived at the conclusion that Enrique was actually choosing and relying on Medical City rather than Ampil when based on Enrique’s testimony it appears to be the other way around. In any case, this ruling has a significant impact on hospitals despite the qualifications made by the court (see rest of digest of this case under “Corporate responsibility”). While it appears to work to require much closer monitoring of patients and doctors, the ruling may also allow the possibility of abuse. Hospitals cannot, and do not practice medicine, and should not be seen as somehow practicing medicine indirectly through credentialed doctors (who somehow then become agents). Most physicians that practice in hospital premises are independent contractors over whom hospitals have very little control, and indeed, no possibility of control when they practice medicine. They would have some control in approving or accepting or maintaining affiliation, and managing the systems supporting the care and treatment of patients. In this sense, PSI may have been, and based on the case narration, was liable but it is not clear to me that it should be under an agency concept. See rest of digest of this case under “Corporate responsibility” heading; below. Reading the case, I am of the impression that the court saw that equities were clearly on the side of the Aganas and applied such legal concepts as would ensure that the Aganas would be able to recover significant damages, if not from Ampil, then from PSI.]

Arrastre operator; liability. The relationship between the consignee and the arrastre operator is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman. In the performance of its obligations, an arrastre operator should observe the same degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their possession. The loss of 14 out of 26 boxes of printed aluminum sheets is undisputed. Records show that the subject shipment was discharged from the vessel and placed under the custody of petitioner for a period of seven days. Thereafter, the same was withdrawn from the container yard by the customs broker, then delivered to the consignee. It was after such delivery that the loss of 14 boxes was discovered. Hence, the complaint against both the arrastre operator and the customs broker. In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the losses were not due to its negligence or to that of its employees. To prove the exercise of diligence in handling the subject cargoes, petitioner must do more than merely show the possibility that some other party could be responsible for the loss or the damage. It must prove that it exercised due care in the handling thereof. Petitioner failed to do this. Instead, it insists that it be exonerated from liability, because the customs broker’s representative received the subject shipment in good order and condition without exception. The appellate court’s conclusion on this matter is instructive. The signature of the person/broker representative merely signifies that said person thereby frees the ATI from any liability for loss or damage to the cargo so withdrawn while the same was in the custody of such representative to whom the cargo was released. It does not foreclose any remedy or right of the consignee to prove that any loss or damage to the subject shipment occurred while the same was under the custody, control and possession of the arrastre operator. Considering that both petitioner and V. Reyes Lazo were negligent in the performance of their duties in the handling, storage and delivery of the subject shipment to the consignee, resulting in the loss of 14 boxes of printed aluminum sheets, both shall be solidarily liable for such loss. Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No. 171194, February 4, 2010.

Arrastre operator; liability; extent of liability. The contract with the arrastre operator provided for a limitation on recovery for damages. But such limitation does not apply if the value of the cargo shipment is communicated to the arrastre operator before the discharge of the cargoes. It is undisputed that Access International, upon arrival of the shipment, declared the same for taxation purposes, as well as for the assessment of arrastre charges and other fees. For the purpose, the invoice, packing list and other shipping documents were presented to the Bureau of Customs as well as to petitioner for the proper assessment of the arrastre charges and other fees. Such manifestation satisfies the condition of declaration of the actual invoices of the value of the goods before their arrival, to overcome the limitation on the liability of the arrastre operator. Then, the arrastre operator, by reason of the payment to it of a commensurate charge based on the higher declared value of the merchandise, could and should take extraordinary care of the special or valuable cargo. What would, indeed, be unfair and arbitrary is to hold the arrastre operator liable for the full value of the merchandise after the consignee has paid the arrastre charges only on a basis much lower than the true value of the goods. What is essential is knowledge beforehand of the extent of the risk to be undertaken by the arrastre operator, as determined by the value of the property committed to its care. This defines its responsibility for loss of or damage to such cargo and ascertains the compensation commensurate to such risk assumed. Having been duly informed of the actual invoice value of the merchandise under its custody and having received payment of arrastre charges based thereon, petitioner cannot therefore insist on a limitation of its liability under the contract to less than the value of each lost cargo. The stipulation requiring the consignee to inform the arrastre operator and to give advance notice of the actual invoice value of the goods to be put in its custody is adopted for the purpose of determining its liability, that it may obtain compensation commensurate to the risk it assumes, not for the purpose of determining the degree of care or diligence it must exercise as a depositary or warehouseman. Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd., G.R. No. 171194, February 4, 2010.

Common carrier. See heading “Arrastre Operator” and the case of Asian Terminals, Inc. vs. Daehan Fire and Marine Insurance Co., Ltd. where it was observed that the relationship between the consignee and the arrastre operator is akin to that existing between the consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a warehouseman.

Contract of carriage; damages. An examination of the evidence presented by petitioner shows that it consisted only of depositions of its witnesses. It had in its possession and disposition pertinent documents such as the flight manifest and the plane’s actual seating capacity and layout which could have clearly refuted respondents’ claims that there were not enough passenger seats available for them. It inexplicably failed to offer even a single piece of documentary evidence. The Court thus believes that if at least the cited documentary evidence had been produced, it would have been adverse to petitioner’s case. Moreover, petitioner failed to satisfactorily explain why it did not issue boarding passes to respondents who were confirmed passengers, even after they had checked-in their luggage three hours earlier. That respondents did not reserve seats prior to checking-in did not excuse the non-issuance of boarding passes. From Carns’ following testimony, it is gathered that respondents were made to wait for last-minute cancellations before they were accommodated onto the plane. This, coupled with petitioner’s failure to issue respondents their boarding passes and the eleventh-hour directive for them to embark, reinforces the impression that the flight was overbooked. Petitioner’s assertion that respondents disembarked from the plane when their request to be seated together was ignored does not impress. The fact that the respondents still boarded the plane ten minutes prior to the departure time, despite knowing that they would be seated apart, shows they were willing to abandon their request to be seated together. But as it turns out, there were not enough seats for the three of them. Respondents are correct that petitioner was guilty of breach of contract. They cite Singapore Airlines v. Fernandez, which ruled that when an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger then has every right to expect that he be transported on that flight and on that date. If he does not, then the carrier opens itself to a suit for a breach of contract of carriage. Northwest Airlines, Inc. vs. Spouses Edward J. Heshan and Neilia L. Heshan, et al., G.R. No. 179117, February 3, 2010.

Contracts; fulfillment of condition. Even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides: “Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.” Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010

Contracts; interpretation; two contracts on same matter considered a single agreement. Parties had executed two contracts (a kasunduan, and a kasunduan sa bilihan ng lupa) the import of which the lower courts had read in differing ways, depending on which document the court thought had been executed first. The Supreme Court opined that the issue of which of the two contracts was first executed by the parties is immaterial to the resolution of this case. In the first place, both contracts were executed and notarized on the same day, December 6, 1993. More importantly, both contracts, even independent of the time of their execution but, taken together, clearly spell out in full the respective rights and obligations of the parties. A reading of the kasunduan sa bilihan ng lupa and the kasunduan would readily reveal that payment of the purchase price does not depend on the survey of the property. In other words, the purchase price should be paid whether or not the property is surveyed. The survey of the property is important only insofar as the right of respondent to the reduction of the purchase price is concerned. On the other hand, the survey of the property to determine the metes and bounds of the 1,731 sq. m. portion that is excluded from the contract as well as the portions covered by the kasunduan which will be subject to reduction of the purchase price, is also not conditioned on the payment of any installment. Petitioner simply has to do it. In fact, under the kasunduan sa bilihan ng lupa, the survey should be done before the date of the last installment. Hence, the survey could have been done anytime after the execution of the agreement. The kasunduan sa bilihan ng lupa and the kasunduan should both be given effect rather than be declared conflicting, if there is a way of reconciling them. Petitioner and respondent would not have entered into either of the agreements if they did not intend to be bound or governed by them. Indeed, taken together, the two agreements actually constitute a single contract pertaining to the sale of a land to respondent by petitioner. Their stipulations must therefore be interpreted together, attributing to the doubtful ones that sense that may result from all of them taken jointly. Their proper construction must be one that gives effect to all. Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No. 172279, February 11, 2010

Contracts; interpretation; general versus specific terms. In this connection, the kasunduan sa bilihan ng lupa contains the general terms and conditions of the agreement of the parties. On the other hand, the kasunduan refers to a particular or specific matter, i.e., that portion of the land that is traversed by a Napocor power line. As the kasunduan pertains to a special area of the agreement, it constitutes an exception to the general provisions of the kasunduan sa bilihan ng lupa, particularly on the purchase price for that portion. Specialibus derogat generalibus  Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No. 172279, February 11, 2010.

Contracts; rescission. Rescission is only allowed when the breach is so substantial and fundamental as to defeat the object of the parties in entering into the contract. The court found no such substantial or material breach. It is true that respondent failed to pay the 7th and 8th installments of the purchase price. However, considering the circumstances of the instant case, particularly the provisions of the kasunduan, respondent cannot be deemed to have committed a serious breach. In the first place, respondent was not in default as petitioner never made a demand for payment. Also, under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner undertook to cause the survey of the property in order to determine the portion excluded from the sale, as well as the portion traversed by the Napocor power line. Despite repeated demands by respondent, however, petitioner failed to perform his obligation. Thus, considering that there was a breach on the part of petitioner (and no material breach on the part of respondent), he cannot properly invoke his right to rescind the contract. Valentin Movido substituted by Marginito Movido vs. Luisa Reyes Pastor, G.R. No. 172279, February 11, 2010.

Corporate responsibility; liability; negligence; damages. The Court notes that PSI made the following admission in its Motion for Reconsideration “PSI is not liable for Dr. Ampil’s acts during the operation. Considering further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent upon Dr. Ampil, as “Captain of the Ship”, and as the Agana’s doctor to advise her on what to do with her situation vis-a-vis the two missing gauzes. In addition to noting the missing gauzes, regular check-ups were made and no signs of complications were exhibited during her stay at the hospital, which could have alerted petitioner PSI’s hospital to render and provide post-operation services to and tread on Dr. Ampil’s role as the doctor of Mrs. Agana. The absence of negligence of PSI from the patient’s admission up to her discharge is borne by the finding of facts in this case. Likewise evident therefrom is the absence of any complaint from Mrs. Agana after her discharge from the hospital which had she brought to the hospital’s attention, could have alerted petitioner PSI to act accordingly and bring the matter to Dr. Ampil’s attention. But this was not the case. Ms. Agana complained ONLY to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly do something to fix the negligence committed by Dr. Ampil when it was not informed about it at all.” PSI reiterated its admission when it stated that had Natividad Agana “informed the hospital of her discomfort and pain, the hospital would have been obliged to act on it.” This is a judicial admission by PSI that while it had no power to control the means or method by which Dr. Ampil conducted the surgery on Natividad Agana, it had the power to review or cause the review of what may have irregularly transpired within its walls strictly for the purpose of determining whether some form of negligence may have attended any procedure done inside its premises, with the ultimate end of protecting its patients. Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence in the hospital industry, it assumed a duty to “tread on” the “captain of the ship” role of any doctor rendering services within its premises for the purpose of ensuring the safety of the patients availing themselves of its services and facilities. Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of this case, specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a patient; (b) that its corporate duty was not limited to having its nursing staff note or record the two missing gauzes and (c) that its corporate duty extended to determining Dr. Ampil’s role in it, bringing the matter to his attention, and correcting his negligence. And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that the concept of corporate responsibility was not yet in existence at the time Natividad underwent treatment; and that if it had any corporate responsibility, the same was limited to reporting the missing gauzes and did not include “taking an active step in fixing the negligence committed.” Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital measured up to it. PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal responsibility of informing Natividad about the two missing gauzes. Dr. Ricardo Jocson, who was part of the group of doctors that attended to Natividad, testified that toward the end of the surgery, their group talked about the missing gauzes but Dr. Ampil assured them that he would personally notify the patient about it. Furthermore, PSI claimed that there was no reason for it to act on the report on the two missing gauzes because Natividad Agana showed no signs of complications. She did not even inform the hospital about her discomfort. The excuses proffered by PSI are totally unacceptable. To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty to review what transpired during the operation. The purpose of such review would have been to pinpoint when, how and by whom two surgical gauzes were mislaid so that necessary remedial measures could be taken to avert any jeopardy to Natividad’s recovery. Certainly, PSI could not have expected that purpose to be achieved by merely hoping that the person likely to have mislaid the gauzes might be able to retrace his own steps. By its own standard of corporate conduct, PSI’s duty to initiate the review was non-delegable. While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI imposed upon itself the separate and independent responsibility of initiating the inquiry into the missing gauzes. The purpose of the first would have been to apprise Natividad of what transpired during her surgery, while the purpose of the second would have been to pinpoint any lapse in procedure that led to the gauze count discrepancy, so as to prevent a recurrence thereof and to determine corrective measures that would ensure the safety of Natividad. That Dr. Ampil negligently failed to notify Natividad did not release PSI from its self-imposed separate responsibility. Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its premises, PSI had the duty to take notice of medical records prepared by its own staff and submitted to its custody, especially when these bear earmarks of a surgery gone awry. Thus, the record taken during the operation of Natividad which reported a gauze count discrepancy should have given PSI sufficient reason to initiate a review. It should not have waited for Natividad to complain. As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what transpired during Natividad’s operation. Rather, it shirked its responsibility and passed it on to others – to Dr. Ampil whom it expected to inform Natividad, and to Natividad herself to complain before it took any meaningful step. By its inaction, therefore, PSI failed its own standard of hospital care. It committed corporate negligence. It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical negligence attributed to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant practicing within its premises in relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave rise to a direct liability to the Aganas distinct from that of Dr. Ampil. All this notwithstanding, we make it clear that PSI’s hospital liability based on ostensible agency and corporate negligence applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve as a basis to hold hospitals liable for every form of negligence of their doctors-consultants under any and all circumstances. The ruling is unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil and an admitted corporate duty to Natividad. Other circumstances peculiar to this case warrant this ruling, not the least of which being that the agony wrought upon the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked in pain and agony. Such wretchedness could have been avoided had PSI simply done what was logical: heed the report of a guaze count discrepancy, initiate a review of what went wrong and take corrective measures to ensure the safety of Nativad. Rather, for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient. Meanwhile, the options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no longer be ascertained. Therefore, taking all the equities of this case into consideration, this Court believes P15 million would be a fair and reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction. Professional Services, Inc. vs. The Court of Appeals, et al./Natividad (substituted by her children Marcelino Agana III, Enrique Agana, Jr. Emma Agana-Andaya, Jesus Agana and Raymund Agana and Errique Agana) vs. The Court of Appeals and Juan Fuentes Miguel Ampil vs. Natividad and Enrique Agana, G.R. Nos. 126297/G.R. No. 126467/G.R. No. 127590, February 2, 2010.

Damages; actual damages due to loss of income. The lease contract clearly provides that petitioner leased to respondent the ground floor of her residential house for a term of one year commencing from 7 July 1995. Thus, the lease contract would expire only on 7 July 1996. However, petitioner started ejecting respondent’s lodgers in March 1996 by informing them that the lease contract was only until 15 April 1996. Clearly, petitioner’s act of ejecting respondent’s lodgers resulted in respondent losing income from her lodgers. Hence, it was proper for the trial court and the appellate court to order petitioner to pay respondent actual damages in the amount of P45,000. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010

Damages; actual damages; loss of earning capacity. The indemnity for loss of earning capacity of the deceased is provided for by Article 2206 of the Civil Code. Compensation of this nature is awarded not for loss of earnings, but for loss of capacity to earn money. As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased’s line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws. In this case, the records show that respondent’s husband was leasing and operating a gasoline station and earned an annual income of one million pesos. Respondent presented in evidence a Certificate of Creditable Income Tax Withheld at Source. It is reasonable to use the Certificate and respondent’s testimony as bases for fixing the gross annual income of the deceased at one million pesos before respondent’s husband died. However, no documentary evidence was presented regarding the income derived from their copra business; hence, the testimony of respondent as regards such income cannot be considered. In the computation of loss of earning capacity, only net earnings, not gross earnings, are to be considered; that is, the total of the earnings less expenses necessary for the creation of such earnings or income, less living and other incidental expenses. In the absence of documentary evidence, it is reasonable to peg necessary expenses for the lease and operation of the gasoline station at 80 percent of the gross income, and peg living expenses at 50 percent of the net income (gross income less necessary expenses). Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010.

Damages; exemplary damages; attorney’s fees. Exemplary damages may be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner which would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the award of exemplary damages is proper in this case, attorney’s fees and cost of the suit may also be recovered as provided under Article 2208 of the Civil Code. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010.

Damages; moral damages. Moral damges are not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the plaintiff to obtain means, diversions or amusements that will serve to alleviate the moral suffering he/she has undergone due to the defendant’s culpable action and must, perforce, be proportional to the suffering inflicted. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010.

Damages; moral damages. In this case, moral damages may be recovered under Article 2219 and Article 2220 of the Civil Code in relation to Article 21. The petitioner’s act of ejecting respondent’s lodgers three months before the lease contract expired without valid reason constitutes bad faith. What aggravates the situation was that petitioner did not inform respondent, who was then working in Hong Kong, about petitioner’s plan to pre-terminate the lease contract and evict respondent’s lodgers. Moral damages may be awarded when the breach of contract was attended with bad faith. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010

Damages; moral damages. Nonetheless, the petition is in part meritorious. There is a need to substantially reduce the moral damages awarded by the appellate court. While courts are given discretion to determine the amount of damages to be awarded, it is limited by the principle that the amount awarded should not be palpably and scandalously excessive. Moral damages are neither intended to impose a penalty to the wrongdoer, nor to enrich the claimant. Taking into consideration the facts and circumstances attendant to the case, an award to respondents of P500,000, instead of P2,000,000, as moral damages is to the Court reasonable. Northwest Airlines, Inc. vs. Spouses Edward J. Heshan and Neilia L. Heshan, et al., G.R. No. 179117, February 3, 2010.

Damages; moral; exemplary; attorney’s fees. Since an award of moral damages is predicated on a categorical showing from the claimant that emotional and mental sufferings were actually experienced, absent any evidence thereon in the present case, the award must be disallowed. And so too must the award of attorney’s fees, absent an indication in the trial court’s decision of the factual basis thereof, the award having been merely stated in the dispositive portion. Parenthetically, while respondent prayed in her complaint for the award of attorney’s fees there is no showing that she submitted any documentary evidence in support thereof. Metropolitan Bank and Trust Co. and Solidbank Corporation vs. Bernardita H. Perez, represented by her Attorney in fact Patria H. Perez, G.R. No. 181842, February 5, 2010.

Damages; negligence. Nevertheless, this fact does not affect the finding of the trial court that petitioner’s bus driver, Margarito Avila, was guilty of simple negligence as affirmed by the appellate court. Foreseeability is the fundamental test of negligence. To be negligent, a defendant must have acted or failed to act in such a way that an ordinary reasonable man would have realized that certain interests of certain persons were unreasonably subjected to a general but definite class of risks. In this case, the bus driver, who was driving on the right side of the road, already saw the motorcycle on the left side of the road before the collision. However, he did not take the necessary precaution to slow down, but drove on and bumped the motorcycle, and also the passenger jeep parked on the left side of the road, showing that the bus was negligent in veering to the left lane, causing it to hit the motorcycle and the passenger jeep. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010.

Damages; negligence. See “Corporate responsibility” heading.

Damages; quasi-delict. Unlike the subsidiary liability of the employer under Article 103 of the Revised Penal Code, the liability of the employer, or any person for that matter, under Article 2176 of the Civil Code is primary and direct, based on a person’s own negligence. This case involves the accidental discharge of a firearm inside a gun store. A higher degree of care is required of someone who has in his possession or under his control an instrumentality extremely dangerous in character, such as dangerous weapons or substances. Such person in possession or control of dangerous instrumentalities has the duty to take exceptional precautions to prevent any injury being done thereby. Unlike the ordinary affairs of life or business which involve little or no risk, a business dealing with dangerous weapons requires the exercise of a higher degree of care. As a gun store owner, respondent is presumed to be knowledgeable about firearms safety and should have known never to keep a loaded weapon in his store to avoid unreasonable risk of harm or injury to others.  Respondent has the duty to ensure that all the guns in his store are not loaded. Firearms should be stored unloaded and separate from ammunition when the firearms are not needed for ready-access defensive use.   With more  reason, guns accepted by the store for repair should not be loaded precisely because they are defective and may cause an accidental discharge such as what happened in this case. Respondent was clearly negligent when he accepted the gun for repair and placed it inside the drawer without ensuring first that it was not loaded. In the first place, the defective gun should have been stored in a vault. Before accepting the defective gun for repair, respondent should have made sure that it was not loaded to prevent any untoward accident. Indeed, respondent should never accept a firearm from another person, until the cylinder or action is open and he has personally checked that the weapon is completely unloaded. For failing to ensure that the gun was not loaded, respondent himself was negligent. Furthermore, it was not shown in this case whether respondent had a License to Repair, which authorizes him to repair defective firearms to restore its original composition or enhance or upgrade firearms. Clearly, respondent did not exercise the degree of care and diligence required of a good father of a family, much less the degree of care required of someone dealing with dangerous weapons, as would exempt him from liability in this case. Alfredo P. Pacis and Cleopatra D. Pacis vs. Jerome Jovanne MoralesG.R. No. 169467, February 25, 2010.

Damages; quasi-delict. Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption that the employer failed to exercise the due diligence of a good father of the family in the selection or supervision of its employees. To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee. The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable to respondent, since it failed to exercise the diligence of a good father of the family in the selection and supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate in him discipline and correct behavior on the road. Indeed, petitioner’s tests were concentrated on the ability to drive and physical fitness to do so. It also did not know that Avila had been previously involved in sideswiping incidents. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010.

Damages; temperate damages. Under Art. 2224 of the Civil Code, temperate damages “may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty.” The cost of the repair of the motorcycle was prayed for by respondent in her Complaint. However, the evidence presented was merely a job estimate of the cost of the motorcycle’s repair amounting to P17, 829.00. The Court of Appeals aptly held that there was no doubt that the damage caused on the motorcycle was due to the negligence of petitioner’s driver. In the absence of competent proof of the actual damage caused on the motorcycle or the actual cost of its repair, the award of temperate damages by the appellate court in the amount of P10,000.00 was reasonable under the circumstances. Philippine Hawk Corporation vs. Vivian Tan Lee, G.R. No. 166869, February 16, 2010.

Family relations; annulment of marriage; psychological incapacity. In Santos v. Court of Appeals, the court first declared that psychological incapacity must be characterized by (a) gravity, (b) judicial antecedence, and (c) incurability. It must be confined “to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage.” In Dimayuga-Laurena v. Court of Appeals, the court explained these elements: (a) gravity – it must be grave and serious such that the party would be incapable of carrying out the ordinary duties required in a marriage; (b) judicial antecedence – it must be rooted in the history of the party antedating the marriage, although the overt manifestations may emerge only after the marriage; and (c) incurability – It must be incurable, or even if it were otherwise, the cure would be beyond the means of the party involved. The testimony of the psychologist that one of the parties was suffering from “borderline personality disorder” as manifested by his being a “Mama’s Boy” did not constitute sufficient evidence of that party’s condition. The diagnosis was only based on the interviews with the petitioning spouse and the transcript of that spouse’s testimony in court. The psychologist did not actually hear, see and evaluate the respondent. Her testimony constituted hearsay. The presentation of expert proof presupposes a thorough and in-dept assessment of the parties by the psychologist or expert, for a conclusive diagnosis of a grave, severe and incurable presence of psychological incapacity. Furthermore, the psychologist did not particularly describe the “pattern of behavior” which showed that Jordan indeed suffers from Borderline Personality Disorder. Gates also failed to explain how such a personality disorder made Jordan psychologically incapacitated to perform his obligations as a husband. In any case, the alleged psychological capacity of the respondent was not shown to be so grave and so permanent as to deprive him of the awareness of the duties and responsibilities of the matrimonial bond. At worst [Digester’s Note: The decision as set out in the link says, “at best”, but that’s obviously a mistake], the allegations show the respondent to be irresponsible, insensitive or emotionally immature. What the law requires is downright incapacity, not refusal or neglect or difficulty, much less ill will. The mere showing of “irreconcilable differences” and “conflicting personalities” does not constitute psychological incapacity. Nor was there any evidence that any condition was incurable. Jordan Chan Paz vs. Jeanice Pavon-Paz, G.R. No. 166579, February 18, 2010.

Family relations; annulment of marriage; psychological incapacity. In this case, the court disregarded the testimony of a psychologist on both parties’ personality disorders (given to support the claim of psychological incapacity as ground for annulment of marriage), observing that the witness’ “global conclusion” was not supported by psychological tests properly administered by clinical psychologists specifically trained in the tests’ use and interpretation. The supposed personality disorders of the parties, considering that such diagnoses were made, could have been fully established by psychometric and neurological tests which are designed to measure specific aspects of people’s intelligence, thinking, or personality. [Digester’s Note: The Supreme Court saw fit to cite material on psychological testing to show that parties had not provided adequate basis for the claim of psychological incapacity and then goes on to say…] Concededly, a copy of DSM IV, or any of the psychology textbooks, does not transform a lawyer or a judge into a professional psychologist. A judge should not substitute his own psychological assessment of the parties for that of the psychologist or the psychiatrist. However, a judge has the bounden duty to rule on what the law is, as applied to a certain set of facts. Certainly, as in all other litigations involving technical or special knowledge, a judge must first and foremost resolve the legal question based on law and jurisprudence. The expert opinion of a psychiatrist arrived at after a maximum of seven hours of interview, and unsupported by separate psychological tests, cannot tie the hands of the trial court and prevent it from making its own factual finding on what happened in this case. The probative force of the testimony of an expert does not lie in a mere statement of his theory or opinion, but rather in the assistance that he can render to the courts in showing the facts that serve as a basis for his criterion and the reasons upon which the logic of his conclusion is founded. Edward N. Lim vs. Ma. Cheryl Sta. Cruz-Lim, G.R. No. 176464, February 4, 2010.

Family relations; child custody; agreements between separated parents. At the time the parties executed the Agreement on 28 January 2002, two facts are undisputed: (1) Stephanie was under seven years old; and (2) petitioner and respondent were no longer married under the laws of the United States because of the divorce decree. The relevant Philippine law on child custody for spouses separated in fact or in law (under the second paragraph of Article 213 of the Family Code) is also undisputed: “no child under seven years of age shall be separated from the mother x x x.” (This statutory awarding of sole parental custody to the mother is mandatory, grounded on sound policy consideration, subject only to a narrow exception not alleged to obtain here.) Clearly then, the Agreement’s object to establish a post-divorce joint custody regime between respondent and petitioner over their child under seven years old contravenes Philippine law. Thus the joint custody agreement between the parents is void ab initio for being contrary to law. Also, it has also been repudiated by the mother when she refused to allow joint custody by the father. The agreement would be valid if the spouses have not divorced or separated because the law provides for joint parental authority when spouses live together. However, upon separation of the spouses, the mother takes sole custody under the law if the child is below seven years old and any agreement to the contrary is void. The separated parents cannot contract away the provision in the Family Code on the maternal custody of children below seven years. Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5, 2010

Family Code; child custody; application of Article 213 on all custody agreements. It will not do to argue that the second paragraph of Article 213 of the Family Code applies only to judicial custodial agreements based on its text that “No child under seven years of age shall be separated from the mother, unless the court finds compelling reasons to order otherwise.” To limit this provision’s enforceability to court sanctioned agreements while placing private agreements beyond its reach is to sanction a double standard in custody regulation of children under seven years old of separated parents. This effectively empowers separated parents, by the simple expedient of avoiding the courts, to subvert a legislative policy vesting to the separated mother sole custody of her children under seven years of age “to avoid a tragedy where a mother has seen her baby torn away from her.” This ignores the legislative basis that “[n]o man can sound the deep sorrows of a mother who is deprived of her child of tender age.” Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5, 2010.

Family relations; impact of foreign divorce. In seeking the enforceability of a joint custody agreement, the petitioner cannot prevent the application of Article 213 of the Family Code (to the matter of custody of a child of separated parents) by relying on the alleged invalidity of the divorce that the parents had obtained. The argument that foreigners in this jurisdiction are not bound by foreign divorce decrees is hardly novel. Van Dorn v. Romillo settled the matter by holding that an alien spouse of a Filipino is bound by a divorce decree obtained abroad. There, we dismissed the alien divorcee’s Philippine suit for accounting of alleged post-divorce conjugal property and rejected his submission that the foreign divorce (obtained by the Filipino spouse) is not valid in this jurisdiction. In that case the court ruled that there can be no question as to the validity of that Nevada divorce in any of the States of the United States. The decree is binding on private respondent as an American citizen. It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, only Philippine nationals are covered by the policy against absolute divorces the same being considered contrary to our concept of public policy and morality. However, aliens may obtain divorces abroad, which may be recognized in the Philippines, provided they are valid according to their national law. In this case, the divorce in Nevada released private respondent from the marriage from the standards of American law, under which divorce dissolves the marriage. Thus, pursuant to his national law, private respondent is no longer the husband of petitioner. He would have no standing to sue in the case below as petitioner’s husband entitled to exercise control over conjugal assets. As he is bound by the Decision of his own country’s Court, which validly exercised jurisdiction over him, and whose decision he does not repudiate, he is estopped by his own representation before said Court from asserting his right over the alleged conjugal property. We reiterated Van Dorn in Pilapil v. Ibay-Somera to dismiss criminal complaints for adultery filed by the alien divorcee (who obtained the foreign divorce decree) against his former Filipino spouse because he no longer qualified as “offended spouse” entitled to file the complaints under Philippine procedural rules. Thus, it should be clear by now that a foreign divorce decree carries as much validity against the alien divorcee in this jurisdiction as it does in the jurisdiction of the alien’s nationality, irrespective of who obtained the divorce. Herald Black Dacasin vs. Sharon Del Mundo Dacasin, G.R. No. 168785, February 5, 2010.

Lease; right to sublease. It is undisputed that petitioner had ejected respondent’s lodgers three months before the expiration of the lease contract on 7 July 1996. Petitioner maintains that she had the right to terminate the contract prior to its expiration because respondent allegedly violated the terms of the lease contract by subleasing the rented premises. However, petitioner’s assertion is belied by the provision in the lease contract that states that the lessee can “use the premises as a dwelling or as lodging house.” Thus, the lessee had the right to sublease the premises. Doris U. Sunbanun vs. Aurora B. Go, G.R. No. 163280, February 2, 2010.

Mortgage; mortgagee in good faith; standard for banks. Petitioner PNB points out that, since it did a credit investigation, inspected the property, and verified the clean status of the title before giving out the loan to the Songcuans, it should be regarded as a mortgagee in good faith. PNB claims that the precautions it took constitute sufficient compliance with the due diligence required of banks when dealing with registered lands. As a rule, the Court would not expect a mortgagee to conduct an exhaustive investigation of the history of the mortgagor’s title before he extends a loan. But petitioner PNB is not an ordinary mortgagee; it is a bank. Banks are expected to be more cautious than ordinary individuals in dealing with lands, even registered ones, since the business of banks is imbued with public interest. It is of judicial notice that the standard practice for banks before approving a loan is to send a staff to the property offered as collateral and verify the genuineness of the title to determine the real owner or owners. One of the CA’s findings in this case is that in the course of its verification, petitioner PNB was informed of the previous TCTs covering the subject property. And the PNB has not categorically contested this finding. It is evident from the faces of those titles that the ownership of the land changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from the Palaganases to the Songcuans in less than three months and mortgaged to PNB within four months of the last transfer. The above information in turn should have driven the PNB to look at the deeds of sale involved. It would have then discovered that the property was sold for ridiculously low prices: Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to the Palaganases for just P15,000.00; and the Palaganases to the Songcuans also for just P50,000.00. Yet the PNB gave the property an appraised value of P781,760.00. Anyone who deliberately ignores a significant fact that would create suspicion in an otherwise reasonable person cannot be considered as an innocent mortgagee for value. PNB vs. Corpuz. Philippine National Bank, as the Attorney-in-fact of Opal Portfolio Investments (SPV-AMC), Inc. vs. Mercedes Corpuz, represented by her Attorney-in-fact Valentina Corpuz, G.R. No. 180945, February 12, 2010.

Prescription; laches. According to them, since the OCT from which ALI derived its title is void for want of a duly approved survey plan, their cause of action did not prescribe. However, as discussed above, the conclusion of the trial court that OCT No. 242 is void was not sufficiently borne out by the evidence on record. Verily, the premise upon which petitioners build their theory of imprescriptibility of their action did not exist. As previously emphasized, OCT No. 242 of ALI’s predecessor-in-interest was issued on May 7, 1950, or 45 years before plaintiffs-appellees filed their complaint on March 10, 1995. As such, it is the Court’s firmly held view that plaintiffs-appellees’ claim is barred not only by prescription, but also by laches. Aside from the fact that OCT No. 242 had become incontrovertible after the lapse of one year from the time a decree of registration was issued, any action for reconveyance that plaintiffs-appellees could have availed of is also barred. Although plaintiffs-appellees’ complaint was for quieting of title, it is in essence an action for reconveyance based on an implied or constructive trust, considering that plaintiffs-appellees were alleging in said complaint that there was a serious mistake, if not fraud, in the issuance of OCT No. 242 in favor of ALI’s predecessor-in-interest. It is now well-settled that an action for reconveyance, which is a legal remedy granted to a landowner whose property has been wrongfully or erroneously registered in another’s name, must be filed within ten years from the issuance of the title, since such issuance operates as a constructive notice. Since ALI’s title is traced to an OCT issued in 1950, the ten-year prescriptive period expired in 1960. As for laches, the term means the 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. It does not involve mere lapse or passage of time, but is principally an impediment to the assertion or enforcement of a right, which has become under the circumstances inequitable or unfair to permit. In the instant case, plaintiffs-appellees, as well as their predecessor-in-interest, have not shown that they have taken judicial steps to nullify OCT No. 242, from which ALI’s title was derived, for 45 years. To allow them to do so now, and if successful, would be clearly unjust and inequitable to those who relied on the validity of said OCT, the innocent purchasers for value, who are protected by the precise provisions of P.D. 1529. Spouses Morris Carpo and Socorro Carpo vs. Ayala Land, Incorporated, G.R. No. 166577, February 3, 2010.

Property; ownership of land. We hold that as between the petitioner and the respondent, it is the petitioner who has the better claim or title to the subject property. While the respondent merely relied on her tax declaration, petitioner was able to prove actual possession of the subject property coupled with his tax declaration. We have ruled in several cases that possession, when coupled with a tax declaration, is a weighty evidence of ownership. It certainly is more weighty and preponderant than a tax declaration alone. The preponderance of evidence is therefore clearly in favor of petitioner, particularly considering that, as the actual possessor under claim of ownership, he enjoys the presumption of ownership. Moreover, settled is the principle that a party seeking to recover real property must rely on the strength of her case rather than on the weakness of the defense. The burden of proof rests on the party who asserts the affirmative of an issue. For he who relies upon the existence of a fact should be called upon to prove that fact. Having failed to discharge her burden to prove her affirmative allegations, we find that the trial court rightfully dismissed respondent’s complaint. Modesto Palali vs. Juliet Awisan, represented by her Attorney-in-fact Gregorio Awisan, G.R. No. 158385, February 12, 2010

Sale; difference between contract of sale and contract to sell. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition. On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages. The deed executed by the parties stated that petitioner sold the properties to respondent “in a manner absolute and irrevocable” for a sum of P1.1 million. With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance payable directly to RSLAI (on behalf of petitioner) within a reasonable time. Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price. On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer. In this regard, Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioner’s acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into. Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010

Sale; double sale; Article 1544; prior possession. Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof. In this instance, petitioner delivered the properties to respondent when he executed the notarized deed and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties. Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010

Sale; double sale; purchaser in good faith. This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith. Article 1544 of the Civil Code sets down the rules on double or multiple sales. This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith. A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other person’s claim or interest in the property. The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the seller’s title. Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioner’s outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioner’s obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondent’s obligation to assume petitioner’s indebtedness to RSLAI impossible to perform. Since respondent’s obligation to assume petitioner’s outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis-à-vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price. Raymundo S. De Leon vs. Benita T. Ong, G.R. No. 170405, February 2, 2010.

Trust; constructive trust.  In this case, the respondents’ property was expropriated upon petition of the Mactan-Cebu International Airport Authority for the expansion of the Lahug airport. However, that project was shelved. The respondents sought to repurchase the property on the ground that the public purpose for which the expropriation was made did not took place and government had agreed that they would have a right to buy back the property in such a case. The Supreme Court sustained the respondents observing, among others that the right of respondents to repurchase the property may be enforced based on a constructive trust constituted on the property held by the government in favor of the former.  It noted that Mactan-Cebu International Airport Authority is correct in stating that one would not find an express statement in the case on the expropriation proceedings to the effect that “the [condemned] lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport.”

This omission notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the cause of petitioners herein.  No doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the manifest legal effect or consequence of the trial court’s underlying presumption that “Lahug Airport will continue to be in operation” when it granted the complaint for eminent domain and the airport discontinued its activities. The predicament of petitioners involves a constructive trust, one that is akin to the implied trust referred to in Art. 1454 of the Civil Code, “If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established.  If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.” In the case at bar, petitioners conveyed Lots No. 916 and 920 to the government with the latter obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a state of affairs that was not conceived nor contemplated when the expropriation was authorized. Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect, the provision is undoubtedly applicable.  For, as explained by an expert on the law of trusts: “The only problem of great importance in the field of constructive trust is to decide whether in the numerous and varying fact situations presented to the courts there is a wrongful holding of property and hence a threatened unjust enrichment of the defendant.” Constructive trusts are fictions of equity which are bound by no unyielding formula when they are used by courts as devices to remedy any situation in which the holder of legal title may not in good conscience retain the beneficial interest.

In constructive trusts, the arrangement is temporary and passive in which the trustee’s sole duty is to transfer the title and possession over the property to the plaintiff-beneficiary.  Of course, the “wronged party seeking the aid of a court of equity in establishing a constructive trust must himself do equity.” Accordingly, the court will exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the obligation to reimburse the trustee the consideration received from the latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission.  In the good judgment of the court, the trustee may also be paid the necessary expenses he may have incurred in sustaining the property, his fixed costs for improvements thereon, and the monetary value of his services in managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts. The rights and obligations between the constructive trustee and the beneficiary, in this case, Government and the property owners over the lands, are echoed in Art. 1190 of the Civil Code, “When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received x x x In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return x x x.” Mactan-Cebu International Airport Authority (MCIAA) and Air Transportation Office (ATO) vs. Bernardo Lozada, et al., G.R. No. 176625, February 25, 2010.

Special Laws

Public Land Act; forest land. Forest lands are not registrable under CA 141. [E]ven more important, Section 48[b] of CA No. 141, as amended, applies exclusively to public agricultural land. Forest lands or area covered with forest are excluded. It is well-settled that forest land is incapable of registration; and its inclusion in a title, whether such title be one issued using the Spanish sovereignty or under the present Torrens system of registration, nullifies the title. However, it is true that forest lands may be registered when they have been reclassified as alienable by the President in a clear and categorical manner (upon the recommendation of the proper department head who has the authority to classify the lands of the public domain into alienable or disposable, timber and mineral lands) coupled with possession by the claimant as well as that of her predecessors-in-interest. Unfortunately for petitioner, she was not able to produce such evidence. Accordingly, her occupation thereof, and that of her predecessors-in-interest, could not have ripened into ownership of the subject land. This is because prior to the conversion of forest land as alienable land, any occupation or possession thereof cannot be counted in reckoning compliance with the thirty-year possession requirement under Commonwealth Act 141 (CA 141) or the Public Land Act. This was our ruling in Almeda v. CA. The rules on the confirmation of imperfect titles do not apply unless and until the land classified as forest land is released through an official proclamation to that effect. Then and only then will it form part of the disposable agricultural lands of the public domain. Florencia G. Diaz vs. Republic of the Philippines, G.R. No. 181502, February 2, 2010.

Public Land Act; sale during five-year prohibition period.  Section 118 of CA 141 clearly provides that lands which have been acquired under free patent or homestead shall not be encumbered or alienated within five years from the date of issuance of the patent or be liable for the satisfaction of any debt contracted prior to the expiration of the period.  In the present case, the three loans were obtained on separate dates –  7 July 1979, 5 June 1981 and 3 September 1981, or several years before the free patents on the lots were issued by the government to respondent on 29 December 1982.  The RTC of Manila, in a Decision dated 28 April 1983, ruled in favor of petitioner ordering the debtors, including respondent, to pay jointly and severally certain amounts of money.  The public auction conducted by the sheriff on the lots owned by respondent occurred on 12 October 1984.  For a period of five years or from 29 December 1982 up to 28 December 1987, Section 118 of CA 141 provides that the lots comprising the free patents shall not be made liable for the payment of any debt until the period of five years expires.  In this case, the execution sale of the lots occurred less than two years after the date of the issuance of the patents.  This clearly falls within the five-year prohibition period provided in the law, regardless of the dates when the loans were incurred. Metropolitan Bank and Trust Company vs. Edgardo D. VirayG.R. No. 162218, February 25, 2010.

Property registration; earliest title prevails. Indubitably, in view of the CA’s Decision in CA-G.R. SP No. 44243, this controversy has been reduced to the sole substantive issue of which between the two titles, purporting to cover the same property, deserves priority. This is hardly a novel issue. As petitioners themselves are aware, in this jurisdiction, it is settled that the general rule is that in the case of two certificates of title, purporting to include the same land, the earlier in date prevails. In successive registrations, where more than one certificate is issued in respect of a particular estate or interest in land, the person claiming under the prior certificate is entitled to the estate or interest; and that person is deemed to hold under the prior certificate who is the holder of, or whose claim is derived directly or indirectly from the person who was the holder of the earliest certificate issued in respect thereof. In Degollacion v. Register of Deeds of Cavite, we held that “[w]here two certificates of title purport to include the same land, whether wholly or partly, the better approach is to trace the original certificates from which the certificates of title were derived.”  In all, we find that the CA committed no reversible error when it applied the principle “Primus Tempore, Portior Jure” (First in Time, Stronger in Right) in this case and found that ALI’s title was the valid title having been derived from the earlier OCT. Spouses Morris Carpo and Socorro Carpo vs. Ayala Land, Incorporated, G.R. No. 166577, February 3, 2010.

Property registration; proof of ownership; value of tax declaration. Parenthetically, the Catarrojas did not present any tax declaration covering such vast piece of property. Although a tax declaration is not a proof of ownership, payment of realty tax is an exercise of ownership over the property and is the payer’s unbroken chain of claim of ownership over it. Republic of the Philippines vs. Apolinario Catarroja, et al., G.R. No. 171774, February 12, 2010.

Republic Act No. 26; reconstitution of title; evidence to be presented – The Supreme Court opined that the respondents had not presented ample evidence to support their petition for reconstitution of title. Section 2 of R.A. No. 26 which governs the reconstitution of lost or destroyed Torrens certificates of title, enumerates specific sources for the reconstitution of such titles. The enumeration includes in its paragraph (f) “any other document which, in the judgment of the court, is sufficient and proper basis for reconstituting the lost or destroyed certificate of title.” However, the respondents were only able to present documents that are not specified in the statute, arguing that such documents are covered by Section 2(f). The court has applied the principle of ejusdem generis in interpreting Section 2(f) of R.A. 26. “Any other document” refers to reliable documents of the kind described in the preceding enumerations. The documents submitted by the Catarrojas do not fall in the same class as those specifically enumerated in Section 2. None of them proves that a certificate of title had in fact been issued in the name of their parents. In Republic v. Tuastumban, the court ruled that the documents must come from official sources which recognize the ownership of the owner and his predecessors-in-interest. None of the documents presented in this case fit such description. Furthermore, the Catarrojas failed to show that they exerted efforts to look for and avail of the specific sources enumerated in Section 2 before availing themselves of the sources in Section 2 (f). The court said in Republic v. Holazo that the documents referred to in Sec. 2(f) may be resorted to only in the absence of the preceding documents in the list. Only if the petitioner for reconstitution fails to show that he had, in fact, sought to secure such documents and failed to find them, can the presentation of the “other document” as evidence in substitution be allowed. Further, the following needs to be shown before the issuance of an order for reconstitution: (a) that the certificate of title had been lost or destroyed; (b) that the documents presented by petitioner are sufficient and proper to warrant reconstitution of the lost or destroyed certificate of title; (c) that the petitioner is the registered owner of the property or had an interest therein; (d) that the certificate of title was in force at the time it was lost or destroyed; and (e) that the description, area and boundaries of the property are substantially the same as those contained in the lost or destroyed certificate of title. None of the documents presented showed these preconditions. Republic of the Philippines vs. Apolinario Catarroja, et al., G.R. No. 171774, February 12, 2010.

Property Registration Decree; registration of title; proof that land is alienable and disposable. While Cayetano failed to submit any certification which would formally attest to the alienable and disposable character of the land applied for, the Certification by DENR Regional Technical Director Celso V. Loriega, Jr., as annotated on the subdivision plan submitted in evidence by Paulita, constitutes substantial compliance with the legal requirement. It clearly indicates that Lot 249 had been verified as belonging to the alienable and disposable area as early as July 18, 1925.

The DENR certification enjoys the presumption of regularity absent any evidence to the contrary. It bears noting that no opposition was filed or registered by the Land Registration Authority or the DENR to contest respondents’ applications on the ground that their respective shares of the lot are inalienable. There being no substantive rights which stand to be prejudiced, the benefit of the Certification may thus be equitably extended in favor of respondents. Republic of the Philippines vs. Cayetano L. Serrano, and Heirs of Catalino M. Alaan, represented by Paulita P. Allaan, G.R. No. 183063, February 24, 2010.

Property Registration Decree; registration of title; requisites. The requisites for the filing of an application for registration of title under Section 14(1) of the Property Registration Decree are: that the property is alienable and disposable land of the public domain; that the applicants by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation thereof; and that such possession is under a bona fide claim of ownership since June 12, 1945 or earlier. : Republic of the Philippines vs. Cayetano L. Serrano, and Heirs of Catalino M. Alaan, represented by Paulita P. Allaan, G.R. No. 183063, February 24, 2010.

Property Registration Decree; registration of title; whether in continuous possession. As to whether respondents had open, continuous, exclusive and notorious possession and occupation, the Court has previously opined that: “the law speaks of possession and occupation… Taken together with the words open, continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not be a mere fiction. Actual possession of a land consists in the manifestation of acts of dominion over it of such a nature as a party would naturally exercise over his own property. Leonardo clearly established the character of the possession of Cayetano and his predecessors-in-interest over the lot. Thus he declared that the lot was first owned by Lazaro Rañada who sold the same to Julian Ydulzura in 1917 who in turn sold it to his and Cayetano’s father Simeon in 1923; that Simeon built a house thereon after its acquisition, which fact is buttressed by entries in Tax Declaration No. 18,587 in the name of Simeon for the year 1924 indicating the existence of a 40-sq. meter residential structure made of nipa and mixed materials, and of coconut trees planted thereon; and that after Simeon’s demise in 1931, Cayetano built his own house beside the old nipa house before the war, and a bodega after the war, which claims find support in Tax Declarations made in 1948-1958. When pressed during the request for written interrogatories if Leonardo had any other pre-war tax declarations aside from Tax Declaration No. 18,587, he explained that all available records may have been destroyed or lost during the last war but that after the war, the lot was reassessed in his father’s name. The Court finds Leonardo’s explanation plausible and there is nothing in the records that detracts from its probative value. Finally, the official receipts of realty tax payments religiously made by Cayetano from 1948 to 1997 further serve as credible indicia that Cayetano, after his father’s death in 1931, continued to exercise acts of dominion over the lot. The totality of the evidence thus points to the unbroken chain of acts exercised by Cayetano to demonstrate his occupation and possession of the land in the concept of owner, to the exclusion of all others. Republic of the Philippines vs. Cayetano L. Serrano, and Heirs of Catalino M. Alaan, represented by Paulita P. Allaan, G.R. No. 183063, February 24, 2010.

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