October 2010 Philippine Supreme Court Decisions on Civil Law

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

Agency. The sale of the DMCI shares made by EIB is null and void for lack of authority to do so, for petitioners never gave their consent or permission to the sale. Moreover, Article 1881 of the Civil Code provides that “the agent must act within the scope of his authority.” Pursuant to the authority given by the principal, the agent is granted the right “to affect the legal relations of his principal by the performance of acts effectuated in accordance with the principal’s manifestation of consent.”  In the case at bar, the scope of authority of EIB as agent of petitioners is “to retain, apply, sell or dispose of all or any of the client’s [petitioners’] property,” if all or any indebtedness or other obligations of petitioners to EIB are not discharged in full by petitioners “when due or on demand in or towards the payment and discharge of such obligation or liability.” The right to sell or dispose of the properties of petitioners by EIB is unequivocally confined to payment of the obligations and liabilities of petitioners to EIB and none other. Thus, when EIB sold the DMCI shares to buy back the KKP shares, it paid the proceeds to the vendees of said shares, the act of which is clearly an obligation to a third party and, hence, is beyond the ambit of its authority as agent. Such act is surely illegal and does not bind petitioners as principals of EIB. Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October 13, 2010.

Attorney’s fees. It is settled that the award of attorney’s fees is the exception rather than the general rule; counsel’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney’s fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney’s fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney’s fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code. As such, it is necessary for the court to make findings of fact and law that would bring the case within the ambit of these enumerated instances to justify the grant of such award, and in all cases it must be reasonable. Filomena R. Benedicto vs. Antonio Villaflores; G.R. No. 185020. October 6, 2010.

Attorney’s fees. We have stressed that the award of attorney’s fees is the exception rather than the rule, as they are not always awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.  Attorney’s fees as part of damages is awarded only in the instances specified in Article 2208 of the Civil Code. Financial Building Corporation vs. Rudlin International Corporation, et al./Rudlin International Corporation, et al.  vs. Financial Building Corporation; G.R. No. 164186/G.R. No. 164347. October 4, 2010.

Attorney’s fees. An award of attorney’s fees is the exception rather than the rule.  The right to litigate is so precious that a penalty should not be charged on those who may exercise it erroneously.  It is not given merely because the defendant prevails and the action is later declared to be unfounded unless there was a deliberate intent to cause prejudice to the other party. Spouses Ramy and Zenaida Pudadera vs. Ireneo Magallanes and the late Daisy Teresa cortel Magallanes, substituted by her children, Nelly M. Marquez, et al.;G.R. No. 170073, October 18, 2010.

Compensation; partial set-off. Under the circumstances, fairness and reason dictate that we simply order the set-off of the petitioners’ contractual liabilities totaling P575,922.13 against the repair cost for the defective gutter, pegged at P717,524.00, leaving the amount of P141,601.87 still due from the respondent. Support in law for this ruling for partial legal compensation proceeds from Articles 1278, 1279, 1281, and 1283 of the Civil Code. In short, both parties are creditors and debtors of each other, although in different amounts that are already due and demandable. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.;G.R. No. 156038, October 11, 2010.

Compromise agreement. Under the Civil Code of the Philippines, contracting parties may establish such stipulations, clauses, terms, and conditions, as they deem convenient, so long as they are not contrary to law, morals, good customs, public order, or public policy.  A compromise agreement is a contract whereby the parties undertake reciprocal obligations to resolve their differences in order to avoid litigation or put an end to one already instituted.  It is a judicial covenant having the force and effect of a judgment, subject to execution in accordance with the Rules of Court, and having the effect and authority of res judicata upon its approval by the court where the litigation is pending. Coca-Cola Bottlers Philippines, Inc. vs. Rodrigo Mercado, et al.; G.R. No. 190381. October 6, 2010

Contract of adhesion. A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify.  One party prepares the stipulation in the contract, while the other party merely affixes his signature or his ‘adhesion’ thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. A contract of adhesion presupposes that the party adhering to the contract is a weaker party.  That cannot be said of petitioner.  He is a lawyer. He is deemed knowledgeable of the legal implications of the contract that he is signing.

It must be borne in mind, however, that contracts of adhesion are not invalid per se.  Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited.  The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent. Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13, 2010.

Contracts; estoppel in pais. The petitioners’ payment of Change Order Nos. 1, 16, and 17 and their non-objection to the other change orders effected by the respondent cannot give rise to estoppel in pais that would render the petitioners liable for the payment of all change orders. Estoppel in pais, or equitable estoppel, arises when one, by his acts, representations or admissions or by his silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and the other rightfully relies and acts on such beliefs so that he will be prejudiced if the former is permitted to deny the existence of such facts. The real office of the equitable norm of estoppel is limited to supplying deficiency in the law, but it should not supplant positive law.

In this case, the requirement for the petitioners’ written consent to any change or alteration in the specifications, plans, and works is explicit in Article 1724 of the Civil Code and is deemed written in the contract between the parties. The contract also expressly provides that a mere act of tolerance does not constitute approval. Thus, the petitioners did not, by accepting and paying for Change Order Nos. 1, 16, and 17, do away with the contractual term on change orders, nor with the application of Article 1724. The payments for Change Order Nos. 1, 16, and 17 are, at best, acts of tolerance on the petitioners’ part that could not modify the contract. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010.

Contracts; lack of adequate consideration. A contract is presumed to be supported by cause or consideration. The presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has none. To overcome the presumption, the alleged lack of consideration must be shown by preponderance of evidence. The burden to prove lack of consideration rests upon whoever alleges it, which, in the present case, is respondent and respondent failed to do so. From her testimony and her assertions in the pleadings, it is clear that the promissory note was issued for a cause or consideration, which, at the very least, was petitioner’s signature on the document.

It may very well be argued that if such was the consideration, it was inadequate. Nonetheless, even if the consideration is inadequate, the contract would not be invalidated, unless there has been fraud, mistake, or undue influence. None of these grounds had been proven present in this case. Carmela Brobio Mangahas vs. Eufrocina A. Brobio; G.R. No. 183852, October 20, 2010.

Contracts; law between the parties.   In contractual relations, the law allows the parties leeway and considers their agreement as the law between them. Contract stipulations that are not contrary to law, morals, good customs, public order or public policy shall be binding and should be complied with in good faith. No party is permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party. Spouses Victoriano Chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010.

Contracts; lump-sum contracts. Article 1724 of the Civil Code governs the recovery of additional costs in contracts for a stipulated price (such as fixed lump-sum contracts), and the increase in price for additional work due to change in plans and specifications. Such added cost can only be allowed upon the: (a) written authority from the developer or project owner ordering or allowing the written changes in work, and (b) written agreement of parties with regard to the increase in price or cost due to the change in work or design modification. Compliance with these two requisites is a condition precedent for the recovery. The absence of one or the other condition bars the recovery of additional costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any other evidence. Spouses Victoriano Chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010.

Contracts; voidable. Contracts are voidable where consent thereto is given through mistake, violence, intimidation, undue influence, or fraud. In determining whether consent is vitiated by any of these circumstances, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe actually occurred, considering the age, physical infirmity, intelligence, relationship, and conduct of the parties at the time of the execution of the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing.

Nowhere is it alleged that mistake, violence, fraud, or intimidation attended the execution of the promissory note.  Still, respondent insists that she was “forced” into signing the promissory note because petitioner would not sign the document required by the BIR.  In one case, the Court – in characterizing a similar argument by respondents therein – held that such allegation is tantamount to saying that the other party exerted undue influence upon them.  However, the Court said that the fact that respondents were “forced” to sign the documents does not amount to vitiated consent.

There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.

Respondent may have desperately needed petitioner’s signature on the Deed, but there is no showing that she was deprived of free agency when she signed the promissory note. Being forced into a situation does not amount to vitiated consent where it is not shown that the party is deprived of free will and choice. Respondent still had a choice: she could have refused to execute the promissory note and resorted to judicial means to obtain petitioner’s signature.  Instead, respondent chose to execute the promissory note to obtain petitioner’s signature, thereby agreeing to pay the amount demanded by petitioner.

The fact that respondent may have felt compelled, under the circumstances, to execute the promissory note will not negate the voluntariness of the act. As rightly observed by the trial court, the execution of the promissory note in the amount of P600,000.00 was, in fact, the product of a negotiation between the parties.

Contrary to the CA’s findings, the situation did not amount to intimidation that vitiated consent. There is intimidation when one of the contracting parties is compelled to give his consent by a reasonable and well-grounded fear of an imminent and grave evil upon his person or property, or upon the person or property of his spouse, descendants, or ascendants. Certainly, the payment of penalties for delayed payment of taxes would not qualify as a “reasonable and well-grounded fear of an imminent and grave evil.”

We join the RTC in holding that courts will not set aside contracts merely because solicitation, importunity, argument, persuasion, or appeal to affection was used to obtain the consent of the other party. Influence obtained by persuasion or argument or by appeal to affection is not prohibited either in law or morals and is not obnoxious even in courts of equity. Carmela Brobio Mangahas vs. Eufrocina A. Brobio; G.R. No. 183852, October 20, 2010.

Damages. The party from whom damages was sought to be recovered (the petitioner), distributed copies of the decision of the lower court on an unlawful detainer case, to the neighbors of the losing party (the respondent). The latter filed a complaint against the respondent for, among others, moral damages against the petitioner for the embarrassment and humiliation he suffered by reason of petitioner’s actions. The complaint was dismissed by the lower court. The Court of Appeals reversed the dismissal and went on to find the petitioner liable for damages. The Supreme Court agreed with the CA that the complaint should not have been dismissed but disagreed with the CA’s already finding liability as no evidence, at that point, had been adduced yet.

The following is the Supreme Court’s discussion on the cause of action for damages: A cause of action (for damages) exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages. The court found that all these elements were present.

First, respondent filed the complaint to protect his good character, name, and reputation.  Every man has a right to build, keep, and be favored with a good name.  This right is protected by law with the recognition of slander and libel as actionable wrongs, whether as criminal offenses or tortuous conduct.

Second, petitioners are obliged to respect respondent’s good name even though they are opposing parties in the unlawful detainer case.  As Article 19 of the Civil Code requires, “[e]very person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.”  A violation of such principle constitutes an abuse of rights, a tortuous conduct.

Petitioner is also expected to respect respondent’s “dignity, personality, privacy and peace of mind” under Article 26 of the Civil Code. Thus, Article 2219(10) of the Civil Code allows the recovery of moral damages for acts and actions referred to in Article 26, among other provisions, of the Civil Code.

And third, respondent alleged that the distribution by petitioners to Horseshoe Village homeowners of copies of the MeTC decision in the unlawful detainer case, which was adverse to respondent and still on appeal before the RTC-Branch 88, had no apparent lawful or just purpose except to humiliate respondent or assault his character.  As a result, respondent suffered damages – becoming the talk of the town and being deprived of his political career.

Petitioners reason that respondent has no cause of action against them since the MeTC decision in the unlawful detainer case was part of public records.  It is already settled that the public has a right to see and copy judicial records and documents.  However, this is not a case of the public seeking and being denied access to judicial records and documents.  The controversy is rooted in the dissemination by petitioners of the MeTC judgment against respondent to Horseshoe Village homeowners, who were not involved at all in the unlawful detainer case, thus, purportedly affecting negatively respondent’s good name and reputation among said homeowners.  The unlawful detainer case was a private dispute between petitioners and respondent, and the MeTC decision against respondent was then still pending appeal before the RTC-Branch 88, rendering suspect petitioners’ intentions for distributing copies of said MeTC decision to non-parties in the case.  While petitioners were free to copy and distribute such copies of the MeTC judgment to the public, the question is whether they did so with the intent of humiliating respondent and destroying the latter’s good name and reputation in the community.    Ermelinda Manaloto, et al. vs. Ismael Veloso III, G.R. No. 171365, October 6, 2010.

Damages; actual damages. Actual or compensatory damages, indemnification comprises not only the value of the loss suffered, but likewise the profits the obligee failed to obtain. But in this case, he court did not find any evidence supporting the claim for damages, which must be proved. Calibre Traders Inc., Mario Sison Sebastian and Minda Blanco Sebastian vs. Bayer Philippines, Inc.; G.R. No. 161431, October 13, 2010.

Damages; exemplary damages; attorney’s fees. It is a requisite in the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in a wanton, fraudulent, or malevolent manner. On the other hand, attorney’s fees may be awarded only when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party, as when the defendant acted in gross and evident bad faith in refusing the plaintiff’s plainly valid, just and demandable claim. We do not see the presence of these circumstances in the present case. As previously discussed, the petitioners’ refusal to pay the change orders was based on a valid ground – lack of their prior written approval. There, too, is the matter of defective construction discussed below. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.; G.R. No. 156038, October 11, 2010.

Donation mortis causa. A donation mortis causa must comply with the formalities prescribed by law for the validity of wills,  otherwise, the donation is void and would produce no effect.  Articles 805 and 806 of the Civil Code should be applied. In this case, the purported attestation clause embodied in the Acknowledgment portion did not contain the number of pages on which the deed was written.  The exception to this rule in Singson v. Florentino and Taboada v. Hon. Rosal cannot be applied to the present case, as the facts of this case are not similar with those of Singson and Taboada.   In those cases, the Court found that although the attestation clause failed to state the number of pages upon which the will was written, the number of pages was stated in one portion of the will.  This is not the factual situation in the present case.

Even granting that the Acknowledgment embodies what the attestation clause requires, an attestation clause and an acknowledgment may not be merged in one statement. That the requirements of attestation and acknowledgment are embodied in two separate provisions of the Civil Code (Articles 805 and 806, respectively) indicates that the law contemplates two distinct acts that serve different purposes.  An acknowledgment is made by one executing a deed, declaring before a competent officer or court that the deed or act is his own.  On the other hand, the attestation of a will refers to the act of the instrumental witnesses themselves who certify to the execution of the instrument before them and to the manner of its execution.

Although the witnesses in the present case acknowledged the execution of the Deed of Donation Mortis Causa before the notary public, this is not the avowal the law requires from the instrumental witnesses to the execution of a decedent’s will.  An attestation must state all the details the third paragraph of Article 805 requires.  In the absence of the required avowal by the witnesses themselves, no attestation clause can be deemed embodied in the Acknowledgement of the Deed of Donation Mortis CausaManuel A. Echavez vs. Dozen Construction and Development Corp. and The Register of Deeds, Cebu City; G.R. No. 192916. October 11, 2010.

Estoppel. The principle of estoppel rests on the rule that where a party, by his or her deed or conduct, has induced another to act in particular manner, estoppel effectively bars the former from adopting an inconsistent position, attitude or course of conduct that causes loss or injury to the latter. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one whom they were directed and who reasonably relied thereon. The essential elements of estoppel as related to the party estopped are: (1) conduct which amounts to a false representation or concealment of material facts, or, at least, which calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (3) knowledge, actual or constructive, of the actual facts. Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.; G.R. No. 184036, October 13, 2010.

Interest. The Supreme Court upheld the imposition of 20.189% interest rate and rejected its characterization as unconscionable.  It cited Development Bank of the Philippines v. Family Foods Manufacturing Co. Ltd., where the Court upheld the validity of the imposition of 18% and 22% stipulated rates of interest in the two promissory notes.  Likewise in Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank, the 24% interest rate agreed upon by parties was held as not violative of the Usury Law, as amended by Presidential Decree No. 116. Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13, 2010.

Laches. Laches is defined as the failure to assert a right for an unreasonable and unexplained length of time, warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it.  In the case at bar, plaintiffs, assuming that they or their predecessors-in-interest had rights over the land in question, obviously neglected to exercise these rights by failing to assert any adverse claim over the property or demand any share of its fruits for many years.  Not unlike their predecessors, petitioners never interposed any challenge to Valencia’s continued possession under title of ownership over Lot No. 382 ever since the entire property was sold to her in 1947 which led to the issuance of TCT No. 148 in her name.  Likewise, petitioners and their predecessors-in-interest did not mount any opposition to the sale of Lot No. 382 by Valencia to respondent Abella in 1961 which prompted the issuance of TCT No. 110.  It was not only until 1981, or 34 years from Valencia’s acquisition of the entire lot and 20 years from the transfer of ownership over the same to respondent Abella, that petitioners decided to assert their alleged rights over the property in a proper action in court.

Petitioners contend that the delay is attributable to the surreptitious manner by which Valencia acquired Lot No. 382 from their predecessors-in-interest but, on this point, petitioner’s evidence gravely lacks credibility and weight as shown by the records.  Instead, the evidence thus presented by both parties, as found by the Court of Appeals, would lean towards the conclusion that petitioners’ inaction for the past so many years belies any present conviction on their part that they have any existing interest over the property at all.  Thus, even if we grant that petitioners are co-owners of the property at issue, it is only fair and reasonable for this Court to apply the equitable principle of estoppel by laches against them in order to avoid an injustice to respondent Abella who is the innocent purchaser for value in this case.  The Heirs of Romana Saves, namely: Fidela Alamaida, et al. vs. The Heirs of Escolastico Saves, namely: Enriqueta chavez-Abella, et al.; G.R. No. 152866, October 6, 2010.

Mortgage; extrajudicial foreclosure; notice requirement. Respondents did not present any evidence at all to establish that the notices of sale were not posted as required under Section 3 of Act No. 3135, as amended.  Instead, respondents merely focused on how Notary Public Magpantay’s Certificate of Posting was worded, and emphasized on technicalities and semantics.  Respondents insist that the phrase “on the 15th day of November 1999, I have caused the posting of three (3) copies of Notice of Sale” in the Certificate of Posting meant that Notary Public Magpantay posted the notices for only one day, i.e., on November 15, 1999.  This is a rather specious interpretation of the aforequoted phrase.  It is more logical and reasonable to understand the same phrase as to mean that the notices were posted beginning November 15, 1999 until the issuance of the certificate on December 9, 1999.  There is also no basis to require the notary public’s certificate to exactly state that the notices of sale were posted at “public places.”  Notary Public Magpantay’s use of the words “conspicuous places” in his certificate already satisfactorily complies with the legal requirement for posting.  The adjective “public” may refer to that which is “exposed to general view,” and “conspicuous” is a synonym thereof.

Moreover, it bears to stress that the Certificate of Posting is actually evidence presented by the petitioner to establish that copies of the Notice of Sale were indeed posted as required by Act No. 3135, as amended.

In addition, despite any defect in the posting of the Notice of Sale, the Court reiterates its ruling in previous jurisprudence that the publication of the same notice in a newspaper of general circulation is already sufficient compliance with the requirement of the law. Century Savings Bank vs. Spouses Danilo T. Samonte and Rosalinda M. Samonte; G.R. No. 176212, October 20, 2010.

Mortgage; foreclosure; default is pre-requisite. Foreclosure is valid only when the debtor is in default in the payment of his obligation. It is a necessary consequence of non-payment of mortgage indebtedness. As a rule, the mortgage can be foreclosed only when the debt remains unpaid at the time it is due. Rizal Commercial Banking Corporation vs. Pedro P. Buenaventura; G.R. No. 176479. October 6, 2010.

Mortgage; redemption price if lender is DBP. Section 16 of Executive Order (EO) No. 81 states that the redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan.  Section 16 states that, “Any mortgagor of the Bank whose property has been extrajudicially sold at public auction shall x x x have the right to redeem the real property by paying to the Bank all of the latter’s claims against him, as determined by the Bank.” The lower courts ruled that the redemption price for the property is equivalent only to what DBP paid during the public auction because DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure.  The Supreme Court disagreed with this saying that  Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for extrajudicial foreclosure of real estate mortgage.  When DBP stated in its letter to the ex-officio sheriff that the property be sold “at public auction in accordance with the provisions of Act 3135,” it did so merely to find a proceeding for the sale. Also, EO No. 81, being a special and subsequent law, amended Act No. 3135 insofar as the as redemption price is concerned. Development Bank of the Philippines vs. Environmental Aquatics, Inc., et al.;G.R. No. 174329, October 20, 2010.

Novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor.

It is a rule that novation by substitution of debtor must always be made with the consent of the creditor. The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s consent in conventional subrogation in order that a novation shall legally take place. Since novation implies a waiver of the right which the creditor had before the novation, such waiver must be express. Mindanao Savings and Loan Association, Inc., etc. vs. Edward Willkom, et al.; G.R. No. 178618, October 20, 2010.

Novation. In this case, respondent’s acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the  300 bags of rice. As we said, novation is never presumed, there must be an express intention to novate.  In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioner’s recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check.

Moreover, respondent’s acceptance of the Solid Bank check did not result to any incompatibility, since the two checks − Prudential and Solid Bank checks − were precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags of rice from respondent.  Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00.  It would appear that respondent accepted the Solid Bank check to give petitioner the chance to pay her obligation. Anamer Salazar vs. J.Y. Brothers Marketing Corporation; G.R. No. 171998, October 20, 2010.

Ownership; by acquisitive prescription. Assuming that the subject land may be acquired by prescription, we cannot accept petitioners’ claim of acquisition by prescription.  Petitioners admitted that they had occupied the property by tolerance of the owner thereof.  Having made this admission, they cannot claim that they have acquired the property by prescription unless they can prove acts of repudiation.  It is settled that possession, in order to ripen into ownership, must be in the concept of an owner, public, peaceful and uninterrupted.  Possession not in the concept of owner, such as the one claimed by petitioners, cannot ripen into ownership by acquisitive prescription, unless the juridical relation is first expressly repudiated and such repudiation has been communicated to the other party. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription.  Possession by tolerance is not adverse and such possessory acts, no matter how long performed, do not start the running of the period of prescription.

In the instant case, petitioners made no effort to allege much less prove any act of repudiation sufficient for the reckoning of the acquisitive prescription.  At most, we can find on record the sale by petitioners Delfin and Agustin of parts of the property to petitioners Maynard and Jose; but the same was done only in 1998, shortly before respondent filed a case against them.  Hence, the 30-year period necessary for the operation of acquisitve prescription had yet to be attained.  Delfin Lamsis, et al. vs. Margarita Semon Dong-e; G.R. No. 173021, October 20, 2010.

Ownership; by acquisitive prescription. The settled doctrine in property law is that no title to register land in derogation of that of the registered owner shall be acquired by prescription or adverse possession.  Even if the possession is coupled with payment of realty taxes, we cannot apply the rule that these acts combined constitute proof of the possessor’s claim of title. Despite Matias’ claim of possession since 1954, Matias began paying realty taxes on the subject property only in 1974 – when B. E. San Diego filed an ejectment case against her husband/predecessor, Pedro Matias.  Considering these circumstances, we find Matias’ payment of realty taxes suspect.  B.E. San Diego, Inc. vs. Court of Appeals and Jovita Matias; G.R. No. 159230, October 18, 2010.

Pledge. The query is whether or not the pledge on “KKP Shares/Property” is valid.  The answer is no. It is indispensable that the pledgor is the absolute owner of the thing pledged (second element). In the case at bar, the KKP shares were sold to third parties by EIB at PhP 0.14 and, as a result, petitioners lost their right of ownership over the KKP shares. Hence, from the time of the sale, petitioners were no longer the absolute owners of said shares, making the pledge constituted over said KKP shares null and void.

Also, it is necessary under Art. 2085 that the person constituting the pledge has the free disposal of his or her property, and in the absence of that free disposal, that he or she be legally authorized for the purpose (third element). This element is absent in the case at bar. Petitioners no longer have the free disposal of the KKP shares when EIB sold said shares at the stock exchange as they are no longer the owners of the shares. Thus, there was no valid pledge constituted on the KKP shares.

The notice of sale, assuming it incorporates the accessory contract of pledge, merely stated “Property” as collateral in addition to KKP shares. This is a blatant violation of Art. 2096, which provides that “a pledge shall not take effect against third persons if description of the thing pledged and the date of the pledge do not appear in a public instrument.” The thing pledged must be amply and clearly described and specifically identified. Evidently, the word “Property” is vague, broad, and confusing as to the ownership. Hence, it does not satisfy the prescription under Art. 2096 of the Code. Worse, the notice of sale is not in a public instrument as required by said legal provision; therefore, the pledge on “property” is void and without legal effect.

Moreover, the notices of sale must be construed against EIB. Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it.

The DMCI shares which EIB construed to be included within the ambit of the word “property” cannot be considered the thing pledged to secure the buy back of the KKP shares in view of the vagueness of the word “Property” and the non-applicability of the SDAA to the sale of the KKP shares.  Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October 13, 2010.

Property; builder in good faith. It is not disputed that the construction of Antonio’s house was undertaken long before the sale in favor of Filomena; that when Filomena bought the property from Maria, Antonio’s house which he used as residence had already been erected on the property.  As explained by the CA: “[Antonio] claims not being aware of any flaw in his title.  He believed being the owner of the subject premises on account of the Deed of Sale thereof in his favor despite his inability to register the same.  The improvement was, in fact, introduced by Antonio prior to Filomena’s purchase of the land. x x x.” Thus, Antonio is a builder in good faith.   Under Article 448, a landowner is given the option to either  appropriate the improvement as his own upon payment of the proper amount of indemnity, or sell the land to the possessor in good faith.  Relatedly, Article 546 provides that a builder in good faith is entitled to full reimbursement for all the necessary and useful expenses incurred; it also gives him right of retention until full reimbursement is made. Filomena R. Benedicto vs. Antonio Villaflores; G.R. No. 185020. October 6, 2010.

Property; purchaser in good faith. It is a well-settled doctrine that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the certificates of title.  He is charged with notice only of such burdens and claims as are annotated on the certificates.

In the case at bar, TCT No. 110, which represented proof of respondent Abella’s ownership of Lot No. 382, did not contain any encumbrance or annotation that was transferred from its title of origin – TCT No. 148.  It must be recalled that the plaintiffs called Abella as one of their witnesses during the trial of this case.  It is Abella’s unrebutted testimony, elicited as a hostile witness for the plaintiffs, that her predecessor-in-interest’s (Valencia’s) title was clean when she (Abella) purchased the property.  To be sure, the burden to prove that Abella had notice of any defect in the title of her predecessor lies with the plaintiffs.  Plaintiffs failed to substantiate their contention.  On the contrary, their own evidence tended to prove that Abella was a purchaser in good faith of the property.

Likewise, there is no cogent reason or legal compulsion for respondent Abella to inquire beyond Valencia’s title over the property at issue since the latter had been in possession of Lot No. 382 prior to the sale. Settled is the rule that a buyer of real property in possession of persons other than the seller must be wary and should investigate the rights of those in possession, for without such inquiry the buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property.  As pointed out by the assailed Court of Appeals’ Decision, Valencia had been occupying the property prior to its sale to respondent Abella.  Herein petitioners were never in possession of the property from the very start, nor did they have any idea that they were entitled to the fruits of the property not until co-petitioner Meleriana Saves wrote her relatives, co-petitioners in this case, about the possibility of having a claim to the property.

Neither does the plaintiffs’ insistence that Exhibits “G” and “H” (the deeds of sale executed in favor of Valencia) were void support their theory that Abella is a purchaser in bad faith.  To begin with, we agree with the Court of Appeals’ ruling that the purported irregularities in Exhibits “G” and “H” relied upon by the trial court hardly suffice to deem the said contracts as null and void.  There is no need to repeat the Court of Appeals’ comprehensive and apt discussions on this point here.  What must be highlighted, however, is the fact that Abella had no participation in the execution of Exhibits “G” and “H” which were signed by the parties thereto when she was very young.  Like any stranger to the said transactions, it was reasonable for Abella to assume that these public documents were what they purport to be on their face in the absence of any circumstance to lead her to believe otherwise.

A purchaser in good faith is one who buys property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property.  Clearly, the factual circumstances surrounding respondent Abella’s acquisition of Lot No. 382 makes her an innocent purchaser for value or a purchaser in good faith.

Finally, on the issue of whether or not petitioners, in the remote possibility that they are co-owners of Lot No. 382, are barred from asserting their claims over the same because of estoppel by laches, petitioners argue that they are not guilty of unreasonable and unexplained delay in asserting their rights, considering that they filed the action within a reasonable time after their discovery of the allegedly fictitious deeds of sale, which evinced Lot No. 382’s transfer of ownership to Valencia, in 1980.  They maintain that the delay in the discovery of the simulated and fictitious deeds was due to the fact that Escolastico Saves with spouse Valencia committed the acts surreptitiously by taking advantage of the lack of education of plaintiffs’ ascendants. The Heirs of Romana Saves, namely: Fidela Alamaida, et al. vs. The Heirs of Escolastico Saves, namely: Enriqueta chavez-Abella, et al.; G.R. No. 152866, October 6, 2010.

Property; purchaser in good faith. A person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or status of the title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith; and hence does not merit the protection of the law. A forged deed can legally be the root of a valid title when an innocent purchaser for value intervenes.  For a prospective buyer of a property registered under the Torrens system need not go beyond the title, especially when he has no notice of any badge of fraud or defect that would place him on guard.  His rights are thus entitled to full protection, for the law considers him an innocent purchaser. Camper Realty Corp. vs. Maria Nena Pajo-Reyes, represented by her Attorney-in-fact Eliseo B. Ballao, et al.; G.R. No. 179543. October 6, 2010.

Property; registration; ancestral lands. The application for issuance of a Certificate of Ancestral Land Title pending before the NCIP is akin to a registration proceeding.  It also seeks an official recognition of one’s claim to a particular land and is also in rem.  The titling of ancestral lands is for the purpose of “officially establishing” one’s land as an ancestral land.  Just like a registration proceeding, the titling of ancestral lands does not vest ownership upon the applicant but only recognizes ownership that has already vested in the applicant by virtue of his and his predecessor-in-interest’s possession of the property since time immemorial.

A registration proceeding is not a conclusive adjudication of ownership.  In fact, if it is later on found in another case (where the issue of ownership is squarely adjudicated) that the registrant is not the owner of the property, the real owner can file a reconveyance case and have the title transferred to his name.  Delfin Lamsis, et al. vs. Margarita Semon Dong-e;G.R. No. 173021, October 20, 2010.

Property; registration requirements. Based on these legal parameters, applicants for registration of title under Section 14(1) must sufficiently establish: (1) that the subject land forms part of the disposable and alienable lands of the public domain; (2) that the applicant and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the same; and (3) that it is under a bona fide claim of ownership since June 12, 1945, or earlier.

Thus, before an applicant can adduce evidence of open, continuous, exclusive and notorious possession and occupation of the property in question, he must first prove that the land belongs to the alienable and disposable lands of the public domain.  It is doctrinal that, under the Regalian doctrine, all lands of the public domain pertain to the State and the latter is the foundation of any asserted right to ownership in land.  Accordingly, the State presumably owns all lands not otherwise appearing to be clearly within private ownership.  To overcome such presumption, irrefutable evidence must be shown by the applicant that the land subject of registration has been declassified and now belongs to the alienable and disposable portion of the public domain. Republic of the Philippines vs. Jose T. Ching represented by his Attorney-in-fact, Antonio V. Ching; G.R. No. 186166, October 20, 2010.

Property; right of possession. The only issue in an ejectment case is the physical possession of real property ‒ possession de facto and not possession de jure.    We rule upon the issue of ownership only to determine who between the parties has the better right of possession.  As the law now stands, in an ejectment suit, the question of ownership may be provisionally ruled upon for the sole purpose of determining who is entitled to possession de facto.

A person who occupies the land of another at the latter’s tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy against them. Whatever right of possession that the spouses Beltran may have over the subject property cannot prevail over that of Nieves for the simple reason that Nieves is the registered owner of the subject property and the alleged deed of sale, which Nieves disputes, remains unregistered.  Although it is true that the spouses Beltran, and not Nieves, were in prior physical possession of the subject property, this argument cannot hold water as prior physical possession is material only in forcible entry cases.

Any question regarding the validity of Nieves’ title can only be assailed in an action expressly instituted for that purpose.  A certificate of title shall not be subject to collateral attack. Our ruling in the present case shall not bar an action between the same parties for the determination of ownership of the subject property. Spouses Ida Nieves Beltran and Jose Beltran vs. Ms. Anita R. Nieves, etc.; G.R. No. 175561, October 20, 2010.

Sale; double sale; buyer in good faith. The question before us, then, is who between petitioners and respondents have a better right over Lot 11-E-8-A? In case of a double sale of immovables, ownership shall belong to (1) the first registrant in good faith; (2) then, the first possessor in good faith; and (3) finally, the buyer who in good faith presents the oldest title.  However, mere registration is not enough to confer ownership.  The law requires that the second buyer must have acquired and registered the immovable property in good faith. In order for the second buyer to displace the first buyer, the following must be shown: (1) the second buyer must show that he acted in good faith (i.e., in ignorance of the first sale and of the first buyer’s rights) from the time of acquisition until title is transferred to him by registration or failing registration, by delivery of possession; and (2) the second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law.

One is considered a purchaser in good faith if he buys the property without notice that some other person has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in the same property.  Well-settled is the rule that every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of the property.  However, this rule shall not apply when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack 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 in litigation.  His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in his vendor’s title will not make him an innocent purchaser for value if it later develops that the title was in fact defective, and it appears that he had such notice of the defect had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation.

In the case at bar, both the trial court and CA found that petitioners were not buyers and registrants in good faith owing to the fact that Magallanes constructed a fence and small hut on the subject lot and has been in actual physical possession since 1979.  Hence, petitioners were aware or should have been aware of Magallanes’ prior physical possession and claim of ownership over the subject lot when they visited the lot on several occasions prior to the sale thereof. Spouses Ramy and Zenaida Pudadera vs. Ireneo Magallanes and the late Daisy Teresa cortel Magallanes, substituted by her children, Nelly M. Marquez, et al.; G.R. No. 170073, October 18, 2010.

Surety. As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor.  That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract.  Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.  Let it be stressed that notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.

Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the surety’s solidary undertaking to pay if the obligor does not pay.  Such acceptance, however, does not change in any material way the obligee’s relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship.  Thus, the acceptance does not give the surety the right to intervene in the principal contract.  The surety’s role arises only upon the obligor’s default, at which time, it can be directly held liable by the obligee for payment as a solidary obligor.

In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame despite petitioner’s demand for completion, it was already in delay.  Due to this default, Lucky Star’s liability attached and, as a necessary consequence, respondent’s liability under the surety agreement arose.

Accordingly, after liability has attached to the principal, the obligee or, in this case, the petitioner, can exercise the right to proceed against Lucky Star or respondent or both.  Contrary to the trial court’s ruling, respondent insurance company was not automatically released from any liability when petitioner resorted to the rescission of the principal contract for failure of the other party to perform its undertaking.  Precisely, the liability of the surety arising from the surety contracts comes to life upon the solidary obligor’s default.  It should be emphasized that petitioner had to choose rescission in order to prevent further loss that may arise from the delay of the progress of the project.  Without a doubt, Lucky Star’s unsatisfactory progress in the drilling work and its failure to complete it in due time amount to non-performance of its obligation.

Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus, respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay petitioner arising from its bonds. Asset Builders Corporation vs. Stronghold Insurance Co., Inc.; G.R. No. 187116. October 18, 2010.

Surety. Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. A continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are within the description or contemplation of the contract of guaranty.

Petitioner argues that the approval of the second credit facility necessitates his consent considering the onerous and solidary liability of a surety.  This is contrary to the express waiver of his consent to such renewal. Aniceto G. Saludo, Jr. vs. Security Bank Corporation; G.R. No. 184041, October 13, 2010.

Unjust enrichment. Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of others, but instead it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that another party knowingly received something of value to which he was not entitled and that the state of affairs are such that it would be unjust for the person to keep the benefit.  Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.  Unjust enrichment is not itself a theory of recovery.  Rather, it is a prerequisite for the enforcement of the doctrine of restitution.

Article 22 of the New Civil Code provides that every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the defendant is without just or legal ground, and (4) that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict.

An accion in rem verso is considered merely an auxiliary action, available only when there is no other remedy on contract, quasi-contract, crime, and quasi-delict.  If there is an obtainable action under any other institution of positive law, that action must be resorted to, and the principle of accion in rem verso will not lie.

As found by both the CIAC and affirmed by the CA, petitioner failed to prove that respondent’s free use of the manlift was without legal ground based on the provisions of their contract.  Thus, the third requisite, i.e., that the enrichment of respondent is without just or legal ground, is missing.  In addition, petitioner’s claim is based on contract, hence, the fourth requisite − that the plaintiff has no other action based on contract, quasi-contract, crime or quasi-delict − is also absent.  Clearly, the principle of unjust enrichment is not applicable in this case.  Shinryo (Philippines) Company, Inc. vs. RRN Incorporated; G.R. No. 172525, October 20, 2010.

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