September 2010 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Assignment of credits. Was Reyes’ sale of the property to the Vegas binding on PDC (one of Reyes’ creditors) which tried to enforce the judgment credit against Reyes in its favor on the property? The CA ruled that Reyes’ assignment of the property to the Vegas did not bind PDC, which had a judgment credit against Reyes, since such assignment neither appeared in a public document nor was registered with the register of deeds as Article 1625 of the Civil Code required. Article 1625 reads:

Art. 1625. An assignment of a credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real property. (1526)

But Article 1625 referred to assignment of credits and other incorporeal rights. Reyes did not assign any credit or incorporeal right to the Vegas. She sold the Vegas her house and lot. They became owner of the property from the time she executed the deed of assignment covering the same in their favor. PDC had a judgment for money against Reyes only. A court’s power to enforce its judgment applies only to the properties that are indisputably owned by the judgment obligor. Here, the property had long ceased to belong to Reyes when she sold it to the Vegas in 1981. Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672, September 20, 2010

Attorney’s fees. Article 2208(2) of the Civil Code allows the award of attorney’s fees in cases where the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Attorney’s fees may be awarded by a court to one who was compelled to litigate with third persons or to incur expenses to protect his or her interest by reason of an unjustified act or omission of the party from whom it is sought. Metropolitan Bank & trust Company, Inc. vs. The Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, et al., G.R. No. 176959, September 8, 2010

Conjugal property and sale thereof; various rules. (1) What law applies to a sale or purported sale of a conjugal property entered into after the Family Code’s effectivity? The Family Code, even if the couple owning the conjugal property were married before the Family Code took effect. (2) Under the Family Code, conjugal property can only be sold with the consent of both spouses. (3) For a buyer of conjugal property to be considered a purchaser in good faith, he must observe two kinds of requisite diligence, namely: (a) the diligence in verifying the validity of the title covering the property; and (b) the diligence in inquiring into the authority of the transacting spouse to sell conjugal property in behalf of the other spouse. Sps. Rex and Concepcion Aggabao vs. Dionisio Z. Parulan, Jr. and Ma. Elena Parulan, G.R. No. 165803, September 1, 2010.

Contract; void contract; consequences. It is settled that a void contract is equivalent to nothing; it produces no civil effect. It does not create, modify, or extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or in equal fault. This rule, however, is not absolute. Article 1412 of the Civil Code provides an exception, and permits the return of that which may have been given under a void contract. Thus:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

The evidence on record established that petitioners indeed permitted an unlicensed trader and salesman, like Mendoza, to handle respondent’s account. On the other hand, the record is bereft of proof that respondent had knowledge that the person handling his account was not a licensed trader. Respondent can, therefore, recover the amount he had given under the contract. The SEC Hearing Officer and the CA, therefore, committed no reversible error in holding that respondent is entitled to a full recovery of his investments. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727, September 8, 2010

Damages; moral; exemplary. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injuries unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant.

As for exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by way of example or correction for the public good. While exemplary damages cannot be recovered as a matter of right, they need not be proved, although plaintiff must show that he is entitled to moral, temperate, or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. Exemplary damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.

However, the same statutory and jurisprudential standards dictate reduction of the amounts of moral and exemplary damages fixed by the SEC. Certainly, there is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral and exemplary damages, since each case must be governed by its own peculiar facts. Courts are given discretion in determining the amount, with the limitation that it should not be palpably and scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727, September 8, 2010

Donation mortis causa vs. donation inter vivos. That a document is captioned “Donation Mortis Causa” is not controlling. If a donation by its terms is inter vivos, this character is not altered by the fact that the donor styles it mortis causa.

“Irrevocability” is a quality absolutely incompatible with the idea of conveyances mortis causa, where “revocability” is precisely the essence of the act. A donation mortis causa has the following characteristics:

1. It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive;

2. That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; and

3. That the transfer should be void if the transferor should survive the transferee.

In this case, the donors plainly said that it is “our will that this Donation Mortis Causa shall be irrevocable and shall be respected by the surviving spouse.” The intent to make the donation irrevocable becomes even clearer by the proviso that a surviving donor shall respect the irrevocability of the donation. Consequently, the donation was in reality a donation inter vivos.

The donors in this case of course reserved the “right, ownership, possession, and administration of the property” and made the donation operative upon their death. But this Court has consistently held that such reservation (reddendum) in the context of an irrevocable donation simply means that the donors parted with their naked title, maintaining only beneficial ownership of the donated property while they lived.

Notably, the three donees signed their acceptance of the donation, which acceptance the deed required. This Court has held that an acceptance clause indicates that the donation is inter vivos, since acceptance is a requirement only for such kind of donations. Donations mortis causa, being in the form of a will, need not be accepted by the donee during the donor’s lifetime.

Finally, as Justice J. B. L. Reyes said in Puig v. Peñaflorida, in case of doubt, the conveyance should be deemed a donation inter vivos rather than mortis causa, in order to avoid uncertainty as to the ownership of the property subject of the deed.

Since the donation in this case was one made inter vivos, it was immediately operative and final. The reason is that such kind of donation is deemed perfected from the moment the donor learned of the donee’s acceptance of the donation. The acceptance makes the donee the absolute owner of the property donated. Jarabini G. Del Rosario vs. Asuncion F. Ferrer, et al., G.R. No. 187056, September 20, 2010.

Lease; return of leased property in the leased premises. Here is the first paragraph of this case, with Digester’s responses in capitals: “What happens when personal properties inside leased premises are stipulated as included in the contract of lease?” THE PARTIES CAN DO THIS UNDER FREEDOM TO CONTRACT. “Does a judgment on a suit for unlawful detainer ejecting the lessees from the subject property carry with it the return of these personal properties as well?” YES, BECAUSE UPON THE ISSUANCE OF THE EJECTMENT ORDER, THE LEASE TERMINATES AND CLAUSE REQURING RETURN OR REPLACEMENT OF CERTAIN PERSONAL PROPERTIES FOUND IN THE LEASED PREMISES, IS TRIGGERED. “Finally, the trickier part which is the crux of this petition: what if some of these personal properties are lost, destroyed or sold by the lessor? May the ejected lessees still be ordered to pay for their value?” YES. University Physicians Services, Inc. vs. Marian Clinics, Inc. and Dr. Lourdes Mabanta, G.R. No. 152303, September 1, 2010.

Mortgaged property; what happens when mortgagor sells property without mortgagee’s consent. The question is: was Reyes’ disposal of the property in favor of the Vegas valid given a provision in the mortgage agreement (between Reyes and SSS) that she could not do so without the written consent of the SSS? The CA ruled that, under Article 1237 of the Civil Code, the Vegas who paid amortizations to the SSS except the last on behalf of Reyes, without the latter’s knowledge or against her consent, cannot compel the SSS to subrogate them in her rights arising from the mortgage. Further, said the CA, the Vegas’ claim of subrogation was invalid because it was done without the knowledge and consent of the SSS as required under the mortgage agreement. But Article 1237 cannot apply in this case since Reyes consented to the transfer of ownership of the mortgaged property to the Vegas. Reyes also agreed for the Vegas to assume the mortgage and pay the balance of her obligation to SSS.

Of course, paragraph 4 of the mortgage contract covering the property required Reyes to secure SSS’ consent before selling the property. But, although such a stipulation is valid and binding, in the sense that the SSS cannot be compelled while the loan was unpaid to recognize the sale, it cannot be interpreted as absolutely forbidding her, as owner of the mortgaged property, from selling the same while her loan remained unpaid. Such stipulation contravenes public policy, being an undue impediment or interference on the transmission of property.

Besides, when a mortgagor sells the mortgaged property to a third person, the creditor may demand from such third person the payment of the principal obligation. The reason for this is that the mortgage credit is a real right, which follows the property wherever it goes, even if its ownership changes. Article 2129 of the Civil Code gives the mortgagee, here the SSS, the option of collecting from the third person in possession of the mortgaged property in the concept of owner. More, the mortgagor-owner’s sale of the property does not affect the right of the registered mortgagee to foreclose on the same even if its ownership had been transferred to another person. The latter is bound by the registered mortgage on the title he acquired.

After the mortgage debt to SSS had been paid, however, the latter had no further justification for withholding the release of the collateral and the registered title to the party to whom Reyes had transferred her right as owner. Under the circumstance, the Vegas had the right to sue for the conveyance to them of that title, having been validly subrogated to Reyes’ rights. Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672, September 20, 2010.

Mortgaged Property; what happens when a person sells property, and then borrows, and lender seeks to recover on loan by attaching the property that had been sold. A party with a judgment for money can only go against properties that undisputably belong to the borrower. If prior to the judgment, the borrower had sold the property, a creditor can no longer go after that property. Sps. Antonio and Leticia Vega vs. Social Security System, et al., G.R. No. 181672, September 20, 2010

Obligations; solidary liability with a corporation. Doctrine dictates that a corporation is invested by law with a personality separate and distinct from those of the persons composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate director, trustee, or officer, along (although not necessarily) with the corporation, may validly attach, as a rule, only when – (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders, or other persons; (2) he consents to the issuance of watered down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific provision of law personally answerable for his corporate action. Queensland-Tokyo Commodities, Inc., et al. vs. Thomas George, G.R. No. 172727. September 8, 2010

Prescription. Petitioners argue that the CA erroneously treated the action they filed at the trial court as one (1) for annulment of the extrajudicial settlement and applied the four (4)-year prescriptive period in dismissing the same. They contend that the action they filed was one (1) for Declaration of Nullity of Documents and Titles, Recovery of Real Property and Damages, and as such, their action was imprescriptible pursuant to Article 1410 of the Civil Code.

Respondents, for their part, maintain that the CA did not err in holding that the deed of extrajudicial partition executed without including some of the heirs, who had no knowledge of the partition and did not consent thereto, is merely fraudulent and not void. They stress that the action to rescind the partition based on fraud prescribes in four (4) years counted from the date of registration, which is constructive notice to the whole world.

We affirm the ruling of the CA. As the records show, the heirs of Doroteo and Esteban did not participate in the extrajudicial partition executed by Salina with the other compulsory heirs, Leona, Maria and Pedro. Undeniably, the said deed was fraudulently obtained as it deprived the known heirs of Doroteo and Esteban of their shares in the estate. A deed of extrajudicial partition executed without including some of the heirs, who had no knowledge of and consent to the same, is fraudulent and vicious. Hence, an action to set it aside on the ground of fraud could be instituted. Such action for the annulment of the said partition, however, must be brought within four (4) years from the discovery of the fraud. Eugenio Feliciano, et al. vs. Pedro Canoza, et al., G.R. No. 161746, September 1, 2010.

Property; co-ownership; prescription. Co-heirs or co-owners cannot acquire by acquisitive prescription the share of the other co-heirs or co-owners absent a clear repudiation of the co-ownership, as expressed in Article 494 of the Civil Code which states:

Art. 494. x x x No prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs as long as he expressly or impliedly recognizes the co-ownership.

Since possession of co-owners is like that of a trustee, in order that a co-owner’s possession may be deemed adverse to the cestui que trust or other co-owners, the following requisites must concur: (1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or other co-owners, (2) that such positive acts of repudiation have been made known to the cestui que trust or other co-owners, and (3) that the evidence thereon must be clear and convincing. Heirs of Juanita Padilla, represented by Claudio Padilla vs. Dominador Magdua, G.R. No. 176858, September 15, 2010

Retirement funds; trust. RMC was a company that set up a fund for its employees called RMCPRF. Petitioner contends that RMC’s closure in 1984 rendered the RMCPRF Board of Trustees functus officio and devoid of authority to act on behalf of RMCPRF. It thus belittles the RMCPRF Board Resolution dated June 2, 1998, authorizing the release of the Fund to several of its supposed beneficiaries. Without known claimants of the fund for 11 years since RMC closed shop, it claims that fund had “technically reverted” to, and formed part of RMC’s assets. Hence, it could be applied to satisfy RMC’s debts to Philbank. The court disagreed with the petitioner in this case.

A trust is a “fiduciary relationship with respect to property which involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another.” A trust is either express or implied. Express trusts are those which the direct and positive acts of the parties create, by some writing or deed, or will, or by words evincing an intention to create a trust.

Here, an express trust was created to provide retirement benefits to the regular employees of RMC. RMC retained legal title to the Fund but held the same in trust for the employees-beneficiaries. Employees’ trusts or benefit plans are intended to provide economic assistance to employees upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. They give security against certain hazards to which members of the Plan may be exposed. They are independent and additional sources of protection for the working group and established for their exclusive benefit and for no other purpose. Here, while the plan provides for a reversion of the fund to RMC, this cannot be done until all the liabilities of the plan have been paid. And when RMC ceased operations in 1984, the fund became liable for the payment not only of the benefits of qualified retirees at the time of RMC’s closure but also of those who were separated from work as a consequence of the closure. Metropolitan Bank & trust Company, Inc. vs. The Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, et al., G.R. No. 176959, September 8, 2010.

(Note:  This post will be updated after the other September 2010 cases become available.)

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