January 2011 Philippine Supreme Court Decisions on Civil Law

Here are selected January 2011 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Common carriers; standard of diligence. Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. A common carrier is distinguished from a private carrier wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.  The distinction is significant in the sense that the rights and obligations of the parties to a contract of private carriage are governed principally by their stipulations, not by the law on common carriers.

Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them according to all the circumstances of such case, as required by Article 1733 of the Civil Code.  When the Court speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual prudence and circumspection observe for securing and preserving their own property or rights.  This exacting standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. Thus, in case of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently. This presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed extraordinary diligence over the goods.

With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and received by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011.

Consignation. There must be full compliance with the requisites of consignation for consignation to be valid. Substantial compliance is not enough. In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc., the Court enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made.

The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void. Soledad Dalton vs. FGR Fealty and Development Corporation, et al.; G.R. No. 172577, January 19, 2011.

Contracts; quantum meruit. Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the expense of the contractor.  Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation; G.R. No. 177685, January 26, 2011.

Contracts; stages.  Every contract has the elements of (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. A contract is perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation.  Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties.  The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract.  The last stage is the consummation of the contract where the parties fulfill or perform the terms they agreed on, culminating in its extinguishment. International Freeport Traders, Inc. vs. Danzas Intercontinental, Inc.; G.R. No. 181833, January 26, 2011.

Contracts; rescission. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.  Respondent The Plaza predicated its action on Article 1191 of the Civil Code, which provides for the remedy of “rescission” or more properly resolution, a principal action based on breach of faith by the other party who violates the reciprocity between them.  The breach contemplated in the provision is the obligor’s failure to comply with an existing obligation.  Thus, the power to rescind is given only to the injured party.  The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation.

Petitioners may not justify Rhogen’s termination of the contract upon grounds of non-payment of progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order.  Having breached the contractual obligation it had expressly assumed, i.e., to comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault.   Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogen’s first progress billing, on account of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation; G.R. No. 177685, January 26, 2011.

Dacion en pago. A dacion en pago is governed by the law of sales.  Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.; G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011.

Damages; attorney’s fees. While it is a sound policy not to set a premium on the right to litigate, we find that respondent is entitled to reasonable attorney’s fees. Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect its interest, or when the court deems it just and equitable. In this case, petitioner refused to answer for the loss of See’s vehicle, which was deposited with it for safekeeping. This refusal constrained respondent, the insurer of See, and subrogated to the latter’s right, to litigate and incur expenses.  Durban Apartments Corp., etc. vs. Pioneer Insurance and Surety Corp.; G.R. No. 179419. January 12, 2011.

Damages; exemplary. Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. Celedonio Tan’s death and the destruction of the petitioners’ home and tailoring shop were unquestionably caused by the respondents’ gross negligence. The law allows the grant of exemplary damages in cases such as this to serve as a warning to the public and as a deterrent against the repetition of this kind of deleterious actions. The grant, however, should be tempered, as it is not intended to enrich one party or to impoverish another. Leticia Tan, et al. vs. OMC Carriers, Inc. and Bonifacio Arambala;G.R. No. 190521, January 12, 2011.

Damages; negligence. Negligence is defined as “the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent man and reasonable man could not do.” As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of the Civil Code which states “whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done.” Indisputably, had the insurance premium been paid, through the automatic debit arrangement with FEBTC, Maxilite’s fire loss claim would have been approved. Hence, Maxilite suffered damage to the extent of the face value of the insurance policy or the sum of P2.1 million. Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419, January 10, 2011.

Damages; solidary liability.  The Supreme Court found that Aquinas School was not solidarily liable for actions of person (Yamyamin) who was not its employee.  The Court has consistently applied the “four-fold test” to determine the existence of an employer-employee relationship: the employer (a) selects and engages the employee; (b) pays his wages; (c) has power to dismiss him; and (d) has control over his work.  Of these, the most crucial is the element of control.  Control refers to the right of the employer, whether actually exercised or reserved, to control the work of the employee as well as the means and methods by which he accomplishes the same.

In this case, the school directress testified that Aquinas had an agreement with a congregation of sisters under which, in order to fulfill its ministry, the congregation would send religion teachers to Aquinas to provide catechesis to its students.  Aquinas insists that it was not the school but Yamyamin’s religious congregation that chose her for the task of catechizing the school’s grade three students, much like the way bishops designate the catechists who would teach religion in public schools.  Under the circumstances, it was quite evident that Aquinas did not have control over Yamyamin’s teaching methods.

Of course, Aquinas still had the responsibility of taking steps to ensure that only qualified outside catechists are allowed to teach its young students.  In this regard, it cannot be said that Aquinas took no steps to avoid the occurrence of improper conduct towards the students by their religion teacher.  It had reviewed the qualifications of Yamyamin, determined that the congregation that recommended her was legitimate and in order, provided her with teacher orientation and a Faculty Manual, and reviewed the course outline of the subjects that the teacher would be handling. Aquinas School vs. Sps. Jose Inton and Ma. Victoria S. Inton, etc., et al.; G.R. No. 184202, January 26, 2011.

Damages; recovery of temperate damages allowed where there is no competent proof of actual damages or loss of earning capacity. Absent competent proof on the actual damages suffered, a party still has the option of claiming temperate damages, which may be allowed in cases where, from the nature of the case, definite proof of pecuniary loss cannot be adduced although the court is convinced that the aggrieved party suffered some pecuniary loss.

As a rule, documentary evidence should be presented to substantiate the claim for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when: (1) the deceased is self-employed and earning less than the minimum wage under current labor laws, in which case, judicial notice may be taken of the fact that in the deceased’s line of work, no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws. Leticia Tan, et al. vs. OMC Carriers, Inc. and Bonifacio Arambala; G.R. No. 190521, January 12, 2011.

Deposit. Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.

Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latter’s employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from See’s delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of See’s vehicle. Durban Apartments Corp., etc. vs. Pioneer Insurance and Surety Corp.; G.R. No. 179419. January 12, 2011.

Donation.  It is immediately apparent that Rodrigo passed naked title to Rodriguez under a perfected donation inter vivos. First. Rodrigo stipulated that “if the herein Donee predeceases me, the [Property] will not be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez,” signaling the irrevocability of the passage of title to Rodriguez’s estate, waiving Rodrigo’s right to reclaim title. This transfer of title was perfected the moment Rodrigo learned of Rodriguez’s acceptance of the disposition which, being reflected in the Deed, took place on the day of its execution on 3 May 1965. Rodrigo’s acceptance of the transfer underscores its essence as a gift in presenti, not in futuro, as only donations inter vivos need acceptance by the recipient. Indeed, had Rodrigo wished to retain full title over the Property, she could have easily stipulated, as the testator did in another case, that “the donor, may transfer, sell, or encumber to any person or entity the properties here donated x x x” or used words to that effect. Instead, Rodrigo expressly waived title over the Property in case Rodriguez predeceases her. Gonzalo Villanueva, represented by his heirs vs. Spouses Froilan and Leonila Branoco; G.R. No. 172804, January 24, 2011.

Estoppel; by silence.  In estoppel, a party creating an appearance of fact, which is false, is bound by that appearance as against another person who acted in good faith on it. Estoppel is based on public policy, fair dealing, good faith and justice. Its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one who reasonably relied thereon. It springs from equity, and is designed to aid the law in the administration of justice where without its aid injustice might result.

‘Estoppel by silence’ arises where a person, who by force of circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to believe in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is intentional or negligent.

Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance premium has been unpaid. That FEBTC induced Maxilite and Marques to believe that the insurance premium has in fact been debited from Maxilite’s account is grounded on the the following facts: (1) FEBTC represented and committed to handle Maxilite’s financing and capital requirements, including the related transactions such as the insurance of the trust receipted merchandise; (2) prior to the subject Insurance Policy No. 1024439, the premiums for the three separate fire insurance policies had been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not Maxilite nor Marques, written reminders dated 19 October 1994, 24 January 1995, and 6 March 1995 to debit Maxilite’s account, establishing FEBTC’s obligation to automatically debit Maxilite’s account for the premium amount; (4) there was no written demand from FEBTC or Makati Insurance Company for Maxilite or Marques to pay the insurance premium; (5) the subject insurance policy was released to Maxilite on 19 August 1994; and (6) the subject insurance policy remained uncancelled despite the alleged non-payment of the premium, making it appear that the insurance policy remained in force and binding. Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419, January 10, 2011.

Government contracts; obligation to pay supplier or contractor even under an illegal contract on basis of quantum meruit.  In ordering the payment of the obligation due respondent on a quantum meruit basis, the Court of Appeals correctly relied on Royal Trust Corporation v. COA, Eslao v. COA, Melchor v. COA, EPG Construction Company v. Vigilar, and Department of Health v. C.V. Canchela & Associates, Architects. All these cases involved government projects undertaken in violation of the relevant laws, rules and regulations covering public bidding, budget appropriations, and release of funds for the projects. Consistently in these cases, this Court has held that the contracts were void for failing to meet the requirements mandated by law; public interest and equity, however, dictate that the contractor should be compensated for services rendered and work done. Specifically, C.V. Canchela & Associates is similar to the case at bar, in that the contracts involved in both cases failed to comply with the relevant provisions of Presidential Decree No. 1445 and the Revised Administrative Code of 1987. Nevertheless, the illegality of the subject Agreements proceeds, it bears emphasis, from an express declaration or prohibition by law, not from any intrinsic illegality.  As such, the Agreements are not illegal per se, and the party claiming thereunder may recover what had been paid or delivered.

Neither can petitioners escape the obligation to compensate respondent for services rendered and work done by invoking the state’s immunity from suit.  This Court has long established that the doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice to a citizen. Gregorio R. Vigilar, et al. vs. Arnulfo D. Aquino; G.R. No. 180388, January 18, 2011.

Interest; legal interest. The Court reiterated the guidelines on the rate of legal interest as laid out in Eastern Shipping Lines, Inc. v. Court of Appeals:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be . . . the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to forbearance of credit.(Emphasis supplied)

Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.; G.R. No. 171379/G.R. No. 171419, January 10, 2011.

Marriage; annulment; psychological incapacity. Quarrels, financial difficulties, womanizing of petitioner – sorry, no psychological incapacity. The Supreme Court found the testimony of the psychiatrist to be general, not in-depth, does not establish link between actions of party and his supposed psychological incapacity. No matter that the OSG did not present its own expert; it does not have the burden of proof in an annulment case. Rosalino L. Marable vs. Myrna F. Marable; G.R. No. 178741, January 17, 2011.

Marriage; annulment; psychological incapacity. The Supreme Court reiterates its Santos and Molina rulings, backtracks on the Te case, and finds that persistent sexual infidelity (the wife cuckolds a military officer) and abandonment are not badges of psychological incapacity particularly in absence of proof that these can be traced to roots prior to the marriage. Read it for the treatment of the key cases of Santos, Molina and Te, and to see how another psychiatrist’s testimony bites the dust. Jose Reynaldo B. Ochosa vs. Bona J. Alano and Republic of the Philippines; G.R. No. 167459, January 26, 2011.

Marriage; annulment; psychological incapacity. For psychological incapacity of a spouse to serve as ground for annulling a marriage, the incapacity must consist of the following: (a) a true inability to commit oneself to the essentials of marriage; (b) this inability to commit oneself must refer to the essential obligations of marriage: the conjugal act, the community of life and love, the rendering of mutual help, the procreation and education of offspring; and (c) the inability must be tantamount to a psychological abnormality. It is not enough to prove that a spouse failed to meet his responsibility and duty as a married person; it is essential that he must be shown to be incapable of doing so due to some psychological illness.

That respondent, according to petitioner, “lack[ed] effective sense of rational judgment and responsibility” does not mean he is incapable to meet his marital obligations. His refusal to help care for the children, his neglect for his business ventures, and his alleged unbearable jealousy may indicate some emotional turmoil or mental difficulty, but none have been shown to amount to a psychological abnormality. Moreover, even assuming that respondent’s faults amount to psychological incapacity, it has not been established that the same existed at the time of the celebration of the marriage.

In his psychological report, the psychologist merely said, “[b]ecause one’s personality or character is formed early in life, it has a clear ANTECEDENT and it has an enduring pattern of inner experience that deviates from the expectations of the individual’s culture,” without explaining this antecedent. Even petitioner, in her allegations, never explained how the alleged psychological incapacity manifested itself prior to or at the time of the celebration of their marriage.

Likewise militating against petitioner’s cause is the finding of the trial court, and the same was affirmed by the CA, that respondent never committed infidelity or physically abused petitioner or their children. In fact, considering that the children lived with both parents, it is safe to assume that both made an impact in the children’s upbringing. And still, as found by the RTC and the CA, the parties were able to raise three children into adulthood “without any major parenting problems.” Such fact could hardly support a proposition that the parties’ marriage is a nullity.  Cynthia E. Yambao vs. Republic of the Philippines and Patricio E. Yambao; G.R. No. 184063, January 24, 2011.

Marriage; liquidation of property not necessary before declaration of nullity. For Article 147 of the Family Code to apply, the following elements must be present:

  1. The man and the woman must be capacitated to marry each other;
  2. They live exclusively with each other as husband and wife; and
  3. Their union is without the benefit of marriage, or their marriage is void.

All these elements are present in this case and there is no question that Article 147 of the Family Code applies to the property relations between petitioner and respondent.  We agree with petitioner that the trial court erred in ordering that a decree of absolute nullity of marriage shall be issued only after liquidation, partition and distribution of the parties’ properties under Article 147 of the Family Code. The ruling has no basis because Section 19(1) of the Rule does not apply to cases governed under Articles 147 and 148 of the Family Code. It is clear from Article 50 of the Family Code that Section 19(1) of the Rule applies only to marriages which are declared void ab initio or annulled by final judgment under Articles 40 and 45 of the Family Code. In short, Article 50 of the Family Code does not apply to marriages which are declared void ab initio under Article 36 of the Family Code, which should be declared void without waiting for the liquidation of the properties of the parties. Alain M. Diño vs. Ma. Caridad L. Diño; G.R. No. 178044, January 19, 2011.

Mortgage; HLURB.  As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. This violation of Section 18 renders the mortgage executed by DELTA void. Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.; G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011.

Possession in good faith.  The ten year ordinary prescriptive period to acquire title through possession of real property in the concept of an owner requires uninterrupted possession coupled with just title and good faith. There is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. Good faith, on the other hand, consists in the reasonable belief that the person from whom the possessor received the thing was the owner thereof, and could transmit his ownership.  Gonzalo Villanueva, represented by his heirs vs. Spouses Froilan and Leonila Branoco; G.R. No. 172804, January 24, 2011.

Quasi-delict; solidary liability. Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a valid defense.  It may not have a direct contractual relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts. Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc. where this Court held that a tort may arise despite the absence of a contractual relationship.

In connection therewith, Article 2180 provides:

ART. 2180.  The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for whom one is responsible.

x x x x

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or robbery of the shipment.  As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse.

Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption juris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its employees.  To avoid liability for a quasi-delict committed by its employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee.  In this regard, Loadmasters failed. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011.

Sale; contract to sell does not transfer ownership; rights under contract to sell.  A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price.  What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him.  In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.  It does not, by itself, transfer ownership to the buyer.

Nevertheless, rights given under a Contract to Sell must still be respected. A Contract to Sell, involving a subdivision lot, is covered and protected by PD 957.  One of the protections afforded by PD 957 to buyers is the right to have his contract to sell registered with the Register of Deeds in order to make it binding on third parties.

The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not.  Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right.

While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquez’s Contract to Sell.  Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of  Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTA’s obligation.  The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957.  It knew that the loaned amounts were to be used for the development of DELTA’s subdivision project, for this was indicated in the corresponding promissory notes.  The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development.  Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.; G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011.

Subrogation. Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:

ART. 2207.  If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract.  If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort. Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation; G.R. No. 179446, January 10, 2011.