June 2010 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Compensation. The Civil Code provides that compensation shall take place when two persons, in their own right, are creditors and debtors of each other. In order for compensation to be proper, it is necessary that: (i) each one of the obligors is bound principally and that he be at the same time a principal creditor of the other; (ii) both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (iii) the two debts are due: (iv) the debts are liquidated and demandable; and (v) over neither of them be any retention or controversy, commenced by third parties and communicated in due time to the debtor.

In this case, petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable. Consequently, legal compensation is inapplicable.

A claim is liquidated when the amount and time of payment is fixed. If acknowledged by the debtor, although not in writing, the claim must be treated as liquidated. When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment. Selwyn F. Lao, et al. vs. Special Plans, Inc., G.R. No. 164791, June 29, 2010 .

Contracts; Consideration; Adequacy of Price. Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its own words: “[petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.”

The trial court’s posture is patently flawed. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010.

Contracts; Autonomy of Parties. Unless the terms of a contract are against the law, morals, good customs, and public policy, such contract is law between the parties and its terms bind them. In Felsan Realty & Development Corporation v. Commonwealth of Australia, the Court regarded as valid and binding a provision in the lease contract that allowed the lessee to pre-terminate the same when fire damaged the leased building, rendering it uninhabitable or unsuitable for living. In this case, paragraph VIII of the lease contract between DBS and the Martins permitted rescission by either party should the leased property become untenantable because of natural causes. The Court similarly found the following provision enforeceable and binding: `In case of damage to the leased premises or any portion thereof by reason of fault or negligence attributable to the LESSEE, its agents, employees, customers, or guests, the LESSEE shall be responsible for undertaking such repair or reconstruction. In case of damage due to fire, earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence attributable to the LESSEE, its agents, employees, customers or guests, the LESSOR shall be responsible for undertaking such repair or reconstruction. In the latter case, if the leased premises become untenantable, either party may demand for the rescission of this contract and in such case, the deposit referred to in paragraph III shall be returned to the LESSEE immediately.’ Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al. G.R. No. 174632 & G.R. No. 174804, June 16, 2010.

Contracts; Autonomy of Parties; Contract of Adhesion. Article 1306 of the Civil Code provides that the “contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.” In the present case, the sales invoices expressly stipulated the payment of interest and attorney’s fees in case of overdue accounts and collection suits, to wit: “Interest at 24% per annum is to be charged to all accounts overdue plus 25% additional on unpaid invoice for attorney’s fees aside from court cost, the parties expressly submit themselves to the venue of the courts in Rizal, in case of legal proceeding.”

The sales invoices are in the nature of contracts of adhesion.  “The court has repeatedly held that contracts of adhesion are as binding as ordinary contracts.  Those who adhere to the contract are in reality free to reject it entirely and if they adhere, they give their consent.  It is true that in some occasions the Court struck down such contracts as void when the weaker party is imposed upon in dealing with the dominant party and is reduced to the alternative of accepting the contract or leaving it, completely deprived of the opportunity to bargain on equal footing.”

Considering that petitioner is not a small time construction company, having such construction projects as the MRT III and the Mauban Power Plant, “petitioner is presumed to have full knowledge and to have acted with due care or, at the very least, to have been aware of the terms and conditions of the contract.  Petitioner was free to contract the services of another supplier if respondent’s terms were not acceptable”. By contracting with respondent for the supply of the reinforcing steel bars and not interposing any objection to the stipulations in the sales invoice, petitioner did not only bind itself to pay the stated selling price, it also bound itself to pay (1) interest of 24% per annum on overdue accounts and (2) 25% of the unpaid invoice for attorney’s fees.  Thus, the lower courts did not err in using the invoices as basis for the award of interest. Asian Construction and Development Corporation vs. Cathay Pacific Steel Corporation, G.R. No. 167942, June 29, 2010.

Contracts; Immunity Agreement. See article of J. Hofilena also in Lexoterica, on the case of Jesus P. Disini vs. The Honorable Sandiganbayan, et al., G.R. No. 180564, June 22, 2010 .

Contracts; Offer and Acceptance. An offer is a unilateral proposition made by one party to another for the celebration of a contract.  For an offer to be certain, a contract must come into existence by the mere acceptance of the offeree without any further act on the offeror’s part.  The offer must be definite, complete and intentional.  In Spouses Paderes v. Court of Appeals, the Court held that, “There is an ‘offer’ in the context of Article 1319 only if the contract can come into existence by the mere acceptance of the offeree, without any further act on the part of the offeror.  Hence, the ‘offer’ must be definite, complete and intentional.”

In the present case, the offer is not certain: (i) the 21 August 2001 memorandum clearly states that, “MNLSM Management, on its discretion, is hereby offering the said early retirement program to its staff”; (ii) applications for the ERP were forwarded to the head office for approval, and further acts on the offeror’s part were necessary before the contract could come into existence; and (iii) the 21 August 2001 memorandum clearly states Korean Air’s intention, which was, “to prevent further losses.”  (Emphasis, the Court’s.) Korean Air could not have intended to ministerially approve all applications for the ERP. Korean Air Co., Ltd and Suk Kyoo Kim vs. Adelina A.S. Yuson, G.R. No. 170369, June 16, 2010

Contracts; Rescission. Under their lease agreement, the remedy of rescission would become unavailable to DBS only if the Martins, as lessors, made the required repair and reconstruction after the damages by natural cause occurred, which meant putting the premises after the floods in such condition as would enable DBS to resume its use of the same for the purposes contemplated in the agreement, namely, as office, warehouse, and parking space for DBS’ repossessed vehicles. Here, it is undisputed that the floods of May 25 and August 13, 1997 submerged the DBS offices and its 326 repossessed vehicles. The floods rendered the place unsuitable for its intended uses. And, while the Martins did some repairs, they did not restore the place to meet DBS’ needs. Thus DBS may seek to rescinding the lease. Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al. G.R. No. 174632 & G.R. No. 174804, June 16, 2010.

Damages; Attorney’s Fees.   The law allows a party to recover attorney’s fees under a written agreement. In Barons Marketing Corporation v. Court of Appeals, the Court ruled that: “[T]he attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorney’s fees so provided are awarded in favor of the litigant, not his counsel.

On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach.  A stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an obligation. The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages caused by the breach.

In the present case, the invoices stipulate for 25% of the overdue accounts as attorney’s fees.  The overdue account in this case amounts to P241,704.91, 25% of which is P60,426.23.  This amount is not excessive or unconscionable, hence, we sustain the amount of attorney’s fees as stipulated by the parties.Asian Construction and Development Corporation vs. Cathay Pacific Steel Corporation, G.R. No. 167942, June 29, 2010.

Damages; Attorney’s Fees. In this case, Marsman Drysdale’s supplication for the award of attorney’s fees in its favor must be denied because it could not claim that it was compelled to litigate or that the civil action or proceeding against it was clearly unfounded. The joint venture agreement between Marsman Drysdale and its co-party, Gotesco, provided that, in the event a party advances funds for the project, the joint venture shall repay the advancing party. Marsman Drysdale was thus not precluded from advancing funds to pay for PGI’s contracted services to abate any legal action against the joint venture itself.  It was in fact its hardline insistence on Gotesco having sole responsibility to pay for the obligation, despite the fact that PGI’s services redounded to the benefit of the joint venture, that spawned the legal action against it and Gotesco. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 .

Joint Venture; Application of Laws on Partnership; Sharing of Losses. A joint venture being a form of partnership, it is to be governed by the laws on partnership.

Article 1797 of the Civil Code provides that “[T]he losses and profits shall be distributed in conformity with the agreement.  If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.” (Emphasis, the Court’s.) In their joint venture agreement, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project. They did not provide for the splitting of losses, however.  Applying the above-quoted provision of Article 1797 then, the same ratio applies in splitting the P535,353.50 obligation-loss of the joint venture.

The appellate court’s decision must be modified, however.   Marsman Drysdale and Gotesco being jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for “50% of the aggregate sum due” to PGI. Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on partnership on division of losses but would partake of a clear case of unjust enrichment at Gotesco’s expense. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 .

Legal Interest. An interest of 12% per annum on the outstanding obligation must be imposed from the time of demand as the delay in payment makes the obligation one of forbearance of money, conformably with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 .

Mortgage; Blanket Mortgage Clause. A blanket mortgage clause, which makes available future loans without need of executing another set of security documents, has long been recognized in our jurisprudence. It is meant to save time, loan closing charges, additional legal services, recording fees, and other costs. A blanket mortgage clause is designed to lower the cost of loans to borrowers, at the same time making the business of lending more profitable to banks. Settled is the rule that mortgages securing future loans are valid and legal contracts. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.

Mortgage; Impact of Foreclosure; Extinction of Mortgage. After the foreclosure of the mortgaged property, the mortgage is extinguished and the purchaser at auction sale acquires the property free from such mortgage. Any deficiency amount after foreclosure cannot constitute a continuing lien on the foreclosed property, but must be collected by the mortgagee-creditor in an ordinary action for collection. In this case, the second loan from the same mortgage deed is in the nature of a deficiency amount after foreclosure. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.

Mortgage; Redemption; Process and Calculation of Redemption Price. In order to effect redemption, the judgment debtor or his successor -in-interest need only pay the purchaser at the public auction sale the redemption amount composed of (1) the price which the purchaser at the public auction sale paid for the property and (2) the amount of any assessment or taxes which the purchaser may have paid on the property after the purchase, plus the applicable interest. Respondent bank’s demand that the second loan be added to the actual amount paid for the property at the public auction sale finds no basis in law or jurisprudence. Regarding the computation of the redemption amount, Section 78 of Republic Act No. 337, otherwise known as the General Banking Act, governs in cases where the mortgagee is a bank. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010.

Mortgage; Registration. It is the act of registration which creates a constructive notice to the whole world and binds third persons. By definition, registration is the ministerial act by which a deed, contract, or instrument is inscribed in the records of the office of the Register of Deeds and annotated on the back of the TCT covering the land subject of the deed, contract, or instrument.     A person dealing with registered land is not required to go beyond the TCT to determine the liabilities attaching to the property. He is only charged with notice of such burdens on the property as are duly annotated on the TCT. To require him to do more is to defeat one of the primary objects of the Torrens system.

As to whether the second loan should have been annotated on the TCT of the mortgaged property in order to bind third parties, the case of Tad-Y v. Philippine National Bank is in point. The case involved a mortgage contract containing a provision that future loans would also be secured by the mortgage. This Court ruled that since the mortgage contract containing the blanket mortgage clause was already annotated on the TCT of the mortgaged property, subsequent loans need not be separately annotated on the said TCT in order to bind third parties.

Records of the present case show that the mortgage contract, containing the provision that future loans would also be secured by the mortgage, is duly annotated on the TCT of the mortgaged property. This constitutes sufficient notice to the world that the mortgage secures not only the first loan but also future loans the mortgagor may obtain from respondent bank. Applying the doctrine laid down in Tad-Y v. Philippine National Bank, the second loan need not be separately annotated on the said TCT in order to bind third parties such as petitioners. Sps. Benedict & Maricel Dy Tecklo vs. Rural Bank of Pamplona, Inc., represented by its President/Manager, Juan Las, G.R. No. 171201, June 18, 2010. See entry under Mortgage; Blanket Mortgage Clause. See also cases setting out exception to rule on reliance on title, under entries for Property; Buyer in Good Faith and Sale; Innocent Purchaser for Value.

Negligence; Proximate Cause. In this case, petitioners failed to show that the negligence of the student was the proximate cause of the latter’s injury. We find that the immediate cause of the accident was not the negligence of the student when he curiously looked into the test tube when the chemicals suddenly exploded which caused his injury, but the sudden and unexpected explosion of the chemicals independent of any intervening cause. Petitioners could have prevented the mishap if they exercised a higher degree of care, caution and foresight. The mishap that happened during the science experiment was foreseeable by the school, its officials and teachers. This neglect in preventing a foreseeable injury and damage equates to neglect in exercising the utmost degree of diligence required of schools, its administrators and teachers, and, ultimately, was the proximate cause of the damage and injury to the student. For a party to be liable, there must be a finding that the act or omission considered as negligent was the proximate cause of the injury caused because the negligence must have a causal connection to the accident. St. Joseph’s College, Sr., Josephini Ambatali, SFIC, and Rosalinda Tabugo vs. Jayson Miranda, represented by his father, Rodolfo S. Miranda, G.R. No. 182353, June 29, 2010 .

Negligence; Standard of Diligence for Schools; In Loco Parentis. The proximate cause of the student’s injury was the concurrent failure of petitioners to prevent the foreseeable mishap that occurred during the conduct of the science experiment. Petitioners were negligent by failing to exercise the higher degree of care, caution and foresight incumbent upon the school, its administrators and teachers.

Article 218 of the Family Code, in relation to Article 2180 of the Civil Code, bestows special parental authority on a school, its administrators and teachers, or the individual, entity or institution engaged in child care, and these persons have responsibility over the minor child while under their supervision, instruction or custody. Authority and responsibility shall apply to all authorized activities whether inside or outside the premises of the school, entity or institution. Teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they remain in their custody.

In this case, the petitioners’ negligence and failure to exercise the requisite degree of care and caution was demonstrated by the following: (i) petitioner school did not take affirmative steps to avert damage and injury to its students although it had full information on the nature of dangerous science experiments conducted by the students during class; (ii) petitioner school did not install safety measures to protect the students who conduct experiments in class; (iii) petitioner school did not provide protective gears and devices, specifically goggles, to shield students from expected risks and dangers; and (iv) petitioner Tabugo (the teacher) was not inside the classroom the whole time her class conducted the experiment, specifically, when the accident involving the student occurred. In any event, the size of the class—fifty (50) students— conducting the experiment is difficult to monitor.

Moreover, petitioners cannot simply deflect their negligence and liability by insisting that petitioner Tabugo gave specific instructions to her science class not to look directly into the heated compound. St. Joseph’s College, Sr., Josephini Ambatali, SFIC, and Rosalinda Tabugo vs. Jayson Miranda, represented by his father, Rodolfo S. Miranda, G.R. No. 182353, June 29, 2010 .

Obligations; Joint Obligation. The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco bears the liability to pay PGI its unpaid claims. To Marsman Drysdale, it is Gotesco since, under the joint venture agreement (JVA), construction funding for the project was to be obtained from Gotesco’s cash contribution, as its (Marsman Drysdale’s) participation in the venture was limited to the land. Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman Drysdale that PGI was unable to complete its undertaking.

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI. PGI executed a technical service contract with the joint venture but was never a party to the JVA.  While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners. The Court noted Articles 1207 and 1208 of the Civil Code, which respectively read:

Art. 1207.  The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestations.  There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity.

Art. 1208.  If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (Emphasis, the Court’s.)

It stated that it could be presumed that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.

The only time that the JVA may be made to apply in the present petitions is when the liability of the joint venturers to each other would set in.  Marsman Drysdale vs. Philippine Geoanalytics, et al. and Gotesco Properties vs. Marsman Drysdale Land, Inc., et al., G.R. No. 183374 & G.R. No. 183376, June 29, 2010 .

Possibly Unnecessary Use of a Latin Maxim (But At Least You Find Out What it Means). In the June 2010 case of Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411. June 23, 2010 , the Court noted that the State does not have any authority to convey a property through the issuance of a grant or a patent if the land is no longer a public land. It then stated: Nemo dat quod dat non habet. “No one can give what he does not have.”

Prescription. The basic complaint, as couched, ultimately seeks the reconveyance of a fraudulently registered piece of residential land.  Having possession of the subject lot, petitioners’ right to the reconveyance thereof, and the annulment of the covering title, has not prescribed or is not time-barred.  This is so for an action for annulment of title or reconveyance based on fraud is imprescriptible where the suitor is in possession of the property subject of the acts, the action partaking as it does of a suit for quieting of title which is imprescriptible. Such is the case in this instance. Petitioners have possession of subject lots as owners having purchased the same from Gabriel, Sr. subject only to the full payment of the agreed price.

The prescriptive period for the reconveyance of fraudulently registered real property is 10 years, reckoned from the date of the issuance of the certificate of title, if the plaintiff is not in possession, but imprescriptible if he is in possession of the property. Thus, one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right.As it is, petitioners’ action for reconveyance is imprescriptible. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010.

Property; Buyer in Good Faith; Possession. Petitioner cannot be considered a buyer in good faith, because respondent was already in possession of the subject property at the time Ma. Imelda Eloisa Galvan conveyed her rights over the property to petitioner. It is settled rule that a buyer of real property that is in the possession of a person other than the seller must be wary and should investigate the rights of the person in possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in good faith.

Since respondent was already in possession of the subject property at the time Ma. Imelda Eloisa Galvan transferred her rights over the property to petitioner, petitioner was obliged to investigate respondent’s rights over the property vis-à-vis that of the seller.  Petitioner cannot be considered a buyer in good faith for her failure to make such inquiry. Lirio A. Deanon, represented by Attorney-in-Fact, Jocelyn D. Asor vs. Marfelina C. Mag-abo, G.R. No. 179549, June 29, 2010 . See also entry under Sale; Innocent Purchaser for Value.

Property; Buyer in Good Faith; Standard of Good Faith. See entry under Sale; Innocent Purchaser for Value.

Property; Ownership; Alluvial Deposits. In case you ever wondered who owns land formed by alluvial deposits, wonder no more. The ownership of such land is governed by Article 84 of the Spanish Law of Waters of 1866, which remains in effect, in relation to Article 457 of the Civil Code. Article 84 of the Spanish Law of Waters of 1866 specifically covers ownership over alluvial deposits along the banks of a creek. According to this article, accretions deposited gradually upon lands contiguous to creeks, streams, rivers, and lakes, by accessions or sediments from the waters thereof, belong to the owners of such lands. In this regard, Article 457 of the Civil Code states that “[T] o the owners of lands adjoining the banks of rivers belong the accretion which they gradually receive from the effects of the current of the waters. It is therefore explicit from the foregoing provisions that alluvial deposits along the banks of a creek do not form part of the public domain as the alluvial property automatically belongs to the owner of the estate to which it may have been added. The only restriction provided for by law is that the owner of the adjoining property must register the same under the Torrens system; otherwise, the alluvial property may be subject to acquisition through prescription by third persons. Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411. June 23, 2010

Property; Ownership; Prescription. In the case at bar, respondents assert that their predecessor-in-interest, Pedro Vitalez, had occupied and possessed the subject lot as early as 1930. In 1964, respondent Mario Ebio secured a permit from the local government of Parañaque for the construction of their family dwelling on the said lot. In 1966, Pedro executed an affidavit of possession and occupancy allowing him to declare the property in his name for taxation purposes. Curiously, it was also in 1966 when Guaranteed Homes, Inc., the registered owner of Road Lot No. 8 (“RL 8”) which adjoins the land occupied by the respondents, donated RL 8 to the local government of Parañaque. From these findings of fact by both the trial court and the Court of Appeals, only one conclusion can be made: that for more than 30 years, neither Guaranteed Homes, Inc. nor the local government of Parañaque in its corporate or private capacity sought to register the accreted portion. Undoubtedly, respondents are deemed to have acquired ownership over the subject property through prescription. Respondents can assert such right despite the fact that they have yet to register their title over the said lot. It must be remembered that the purpose of land registration is not the acquisition of lands, but only the registration of title which the applicant already possessed over the land. Registration was never intended as a means of acquiring ownership. A decree of registration merely confirms, but does not confer, ownership. Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411. June 23, 2010.

Property; Ownership; Registration Does Not Confer Title. Undoubtedly, respondents are deemed to have acquired ownership over the subject property through prescription. Respondents can assert such right despite the fact that they have yet to register their title over the said lot. It must be remembered that the purpose of land registration is not the acquisition of lands, but only the registration of title which the applicant already possessed over the land. Registration was never intended as a means of acquiring ownership. A decree of registration merely confirms, but does not confer, ownership. Office of the City Mayor of Parañaque City, et al. vs. Mario D. Ebio and His Children/Heirs namely, Arturo V. Ebio, Eduardo, et al., G.R. No. 178411, June 23, 2010.

Sale; Double Sales; Need for Good Faith for Rules to Apply. See entry under Sale; Innocent Purchaser for Value.

Sale; Innocent Purchaser for Value. It is the common defense of the respondent-purchasers that they each checked the title of the subject lot when it was his turn to acquire the same and found it clean, meaning without annotation of any encumbrance or adverse third party interest. And it is upon this postulate that each claims to be an innocent purchaser for value, or one who buys the property of another without notice that some other person has a right to or interest in it, and who pays therefor a full and fair price at the time of the purchase or before receiving such notice.

The general rule is that one dealing with a parcel of land registered under the Torrens System may safely rely on the correctness of the certificate of title issued therefor and is not obliged to go beyond the certificate. Where, in other words, the certificate of title is in the name of the seller, the innocent purchaser for value has the right to rely on what appears on the certificate, as he is charged with notice only of burdens or claims on the res as noted in the certificate. Another formulation of the rule is that (a) in the absence of anything to arouse suspicion or (b) except where the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or (c) when the purchaser has knowledge of a defect of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property, said purchaser is without obligation to look beyond the certificate and investigate the title of the seller.

Eduardo and, for that matter, Bernard and Marcos and Benjamin, can hardly claim to be innocent purchasers for value or purchasers in good faith. For each knew or was at least expected to know that somebody else other than Gabriel, Jr. has a right or interest over the lot.  This is borne by the fact that the initial seller, Gabriel Jr., was not in possession of subject property. With respect to Marcos and Benjamin, they knew as buyers that Bernard, the seller, was not also in possession of the same property. The same goes with Eduardo, as buyer, with respect to Marcos and Benjamin.

Basic is the rule that a buyer of a piece of land which is in the actual possession of persons other than the seller must be wary and should investigate the rights of those in possession.  Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in good faith. When a man proposes to buy or deal with realty, his duty is to read the public manuscript, i.e., to look and see who is there upon it and what his rights are.  A want of caution and diligence which an honest man of ordinary prudence is accustomed to exercise in making purchases is, in contemplation of law, a want of good faith. The buyer who has failed to know or discover that the land sold to him is in adverse possession of another is a buyer in bad faith.

Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificates of title and make inquiries concerning the rights of the actual possessor.And where, as in the instant case, Gabriel Jr. and the subsequent vendors were not in possession of the property, the prospective vendees are obliged to investigate the rights of the one in possession.  Evidently, Bernard, Marcos and Benjamin, and Eduardo did not investigate the rights over the subject lot of the petitioners who, during the period material to this case, were in actual possession thereof.   Bernard, et al. are, thus, not purchasers in good faith and, as such, cannot be accorded the protection extended by the law to such purchasers.

Moreover, not being purchasers in good faith, their having registered the sale, will not, as against the petitioners, carry the day for any of them under Art. 1544 of the Civil Code prescribing rules on preference in case of double sales of immovable property. Occeña v. Esponilla laid down the following rules in the application of Art. 1544: (1) knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first register in good faith the second sale; and (2) knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad faith. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010.

Statute of Frauds. The Statute of Frauds expressed in Article 1403, par. (2), of the Civil Code, provides that a contract for the sale of real property or of an interest therein shall be unenforceable unless the sale or some note or memorandum thereof is in writing and subscribed by the party or his agent.  However, where the verbal contract of sale has been partially executed through the partial payments made by one party duly received by the vendor, as in the present case, the contract is taken out of the scope of the Statute.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The Statute requires certain contracts to be evidenced by some note or memorandum in order to be enforceable.  The term “Statute of Frauds” is descriptive of statutes that require certain classes of contracts to be in writing.  The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.

Since contracts are generally obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present, the Statute simply provides the method by which the contracts enumerated in Art. 1403 (2) may be proved but does not declare them invalid because they are not reduced to writing.  In fine, the form required under the Statute is for convenience or evidentiary purposes only.

There can be no serious argument about the partial execution of the sale in question.  The records show that petitioners had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial payments of the purchase price.

Lest it be overlooked, a contract that infringes the Statute of Frauds is ratified by the acceptance of benefits under the contract. Evidently, Gabriel, Jr., as his father earlier, had benefited from the partial payments made by the petitioners. Thus, neither Gabriel Jr. nor the other respondents—successive purchasers of subject lots—could plausibly set up the Statute of Frauds to thwart petitioners’ efforts towards establishing their lawful right over the subject lot and removing any cloud in their title.  As it were, petitioners need only to pay the outstanding balance of the purchase price and that would complete the execution of the oral sale. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010.

Special Laws

Family Code; Application of Family Code. In the Decision dated September 29, 2009, the Court affirmed petitioner’s conviction for bigamy.  Petitioner moved for reconsideration of the Decision, arguing that since petitioner’s marriages were entered into before the effectivity of the Family Code, then the applicable law is Section 29 of the Marriage Law (Act 3613), instead of Article 40 of the Family Code, which requires a final judgment declaring the previous marriage void before a person may contract a subsequent marriage. Petitioner’s argument lacks merit.  As far back as 1995, in Atienza v. Brillantes, Jr., the Court already made the declaration that Article 40, which is a rule of procedure, should be applied retroactively because Article 256 of the Family Code itself provides that said “Code shall have retroactive effect insofar as it does not prejudice or impair vested or acquired rights.”  The fact that procedural statutes may somehow affect the litigants’ rights may not preclude their retroactive application to pending actions.  The retroactive application of procedural laws is not violative of any right of a person who may feel that he is adversely affected.  The reason is that as a general rule, no vested right may attach to, nor arise from, procedural laws. Victoria S. Jarillo vs. People of the Philippines, G.R. No. 164435, June 29, 2010 .

Family Code; Standard of Diligence for Schools. See entry under Negligence.

Property Registration Decree. See entry under Mortgage; Registration.

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