June 2012 Philippine Supreme Court Decisions on Civil Law

Here are select June 2012 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Agency; ratification. The complaint was anchored on the supposed failure of FEBTC to duly investigate the authority of Antonio in contracting the “exceptionally and relatively immense” loans amounting to P5,000,000.00. Marcos alleged therein that his property had thereby become “unlawfully burdened by unauthorized real estate mortgage contracts,” because the loans and the mortgage contracts had been incurred by Antonio and his wife only for themselves, to the exclusion of petitioner. Yet, Marcos could not deny that under the express terms of the SPA, he had precisely granted to Antonio as his agent the authority to borrow money, and to transfer and convey the property by way of mortgage to FEBTC; to sign, execute and deliver promissory notes; and to receive the proceeds of the loans on the former’s behalf. In other words, the mortgage contracts were valid and enforceable against petitioner, who was consequently fully bound by their terms.

Moreover, even if it was assumed that Antonio’s obtaining the loans in his own name, and executing the mortgage contracts also in his own name had exceeded his express authority under the SPA, Marcos was still liable to FEBTC by virtue of his express ratification of Antonio’s act. Under Article 1898 of the Civil Code, the acts of an agent done beyond the scope of his authority do not bind the principal unless the latter expressly or impliedly ratifies the same.

In agency, ratification is the adoption or confirmation by one person of an act performed on his behalf by another without authority. The substance of ratification is the confirmation after the act, amounting to a substitute for a prior authority. Here, there was such a ratification by Marcos, as borne out by his execution of the letter of acknowledgement on September 12, 1996.

But Marcos insists that the letter of acknowledgment was only a mere “letter (written) on a mimeographic paper … a mere scrap of paper, a document by adhesion. The Court is confounded by Marcos’ dismissal of his own express written ratification of Antonio’s act. Being himself a lawyer, Marcos was aware of the import and consequences of the letter of acknowledgment. The Court cannot agree with his insistence that the letter was worthless due to its being a contract of adhesion. The letter was not a contract, to begin with, because it was only a unilateral act of his. Secondly, his insistence was fallacious and insincere because he knew as a lawyer that even assuming that the letter could be treated as a contract of adhesion it was nonetheless effective and binding like any other contract. The Court has consistently held that a contract of adhesion was not prohibited for that reason. In Pilipino Telephone Corporation v. Tecson,for instance, the Court said that contracts of adhesion were valid but might be occasionally struck down only if there was a showing that the dominant bargaining party left the weaker party without any choice as to be “completely deprived of an opportunity to bargain effectively.” That exception did not apply here, for, verily, Marcos, being a lawyer, could not have been the weaker party. As the tenor of the of acknowledgment indicated, he was fully aware of the meaning and sense of every written word or phrase, as well as of the legal effect of his confirmation thereby of his agent’s act. It is axiomatic that a man’s act, conduct and declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume that they correspond with the truth, and it is his fault if they do not. Marcos V. Prieto vs. Court of Appeals, et al.; G.R. No. 158597, June 18, 2012.

Agency; ratification; agency by estoppel. Under Articles 1898 and 1910, an agent’s act, even if done beyond the scope of his authority, may bind the principal if he ratifies them, whether expressly or tacitly. It must be stressed though that only the principal, and not the agent, can ratify the unauthorized acts, which the principal must have knowledge of.

Neither Unimarine nor Cebu Shipyard was able to repudiate CBIC’s testimony that it was unaware of the existence of Surety Bond No. G (16) 29419 and Endorsement No. 33152. There were no allegations either that CBIC should have been put on alert with regard to Quinain’s business transactions done on its behalf. It is clear, and undisputed therefore, that there can be no ratification in this case, whether express or implied.

Article 1911, on the other hand, is based on the principle of estoppel, which is necessary for the protection of third persons. It states that the principal is solidarily liable with the agent even when the latter has exceeded his authority, if the principal allowed him to act as though he had full powers. However, for an agency by estoppel to exist, the following must be established:

  1. The principal manifested a representation of the agent’s authority or knowingly allowed the agent to assume such authority;
  2. The third person, in good faith, relied upon such representation; and
  3. Relying upon such representation, such third person has changed his position to his detriment.

In Litonjua, Jr. v. Eternit Corp.,  this Court said that “[a]n agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.”

This Court cannot agree with the Court of Appeals’ pronouncement of negligence on CBIC’s part. CBIC not only clearly stated the limits of its agents’ powers in their contracts, it even stamped its surety bonds with the restrictions, in order to alert the concerned parties. Moreover, its company procedures, such as reporting requirements, show that it has designed a system to monitor the insurance contracts issued by its agents. CBIC cannot be faulted for Quinain’s deliberate failure to notify it of his transactions with Unimarine. In fact, CBIC did not even receive the premiums paid by Unimarine to Quinain.

Furthermore, nowhere in the decisions of the lower courts was it stated that CBIC let the public, or specifically Unimarine, believe that Quinain had the authority to issue a surety bond in favor of companies other than the Department of Public Works and Highways, the National Power Corporation, and other government agencies. Neither was it shown that CBIC knew of the existence of the surety bond before the endorsement extending the life of the bond, was issued to Unimarine. For one to successfully claim the benefit of estoppel on the ground that he has been misled by the representations of another, he must show that he was not misled through his own want of reasonable care and circumspection. Country Bankers Insurance Corporation vs. Keppel Cebu Shipyard, Inc., et al.; G.R. No. 166044, June 18, 2012.

Antichresis. For the contract of antichresis to be valid, Article 2134 of the Civil Code requires that “the amount of the principal and of the interest shall be specified in writing; otherwise the contract of antichresis shall be void.” In this case, the Heirs of Adolfo were indisputably unable to produce any document in support of their claim that the contract between Adolfo and Bangis was an antichresis, hence, the CA properly held that no such relationship existed between the parties. Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.;  G.R. No. 190875, June 13, 2012.

Contract of Adhesion. See entry under Agency; ratification (case of Prieto v. Court of Appeals).

Contracts; novation. A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing the object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract. In short, the new obligation extinguishes the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are incompatible on every point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of these two conditions.

To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract in favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every point. There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two obligations cannot stand together, the latter obligation novates the first. Changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation.

The receipt dated February 5, 1992 was only the proof of Servando’s payment of his obligation as confirmed by the decision of the RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has ruled that an obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, or changes only the terms of payment, or adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one. A new contract that is a mere reiteration, acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or object or principal conditions can stand together with the former one, and there can be no incompatibility between them. Moreover, a creditor’s acceptance of payment after demand does not operate as a modification of the original contract.

Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an extension of the term or period of the maturity date does not result in novation. Heirs of Servando Franco vs. Sps. Veronica & Danilo Gonzales;  G.R. No. 159709, June 27, 2012.

Damages; actual damages and moral damages. For its role in the conversion of the checks, which deprived SSPI of the use thereof, Equitable is solidarily liable with Uy to compensate SSPI for the damages it suffered.

Among the compensable damages are actual damages, which encompass the value of the loss sustained by the plaintiff, and the profits that the plaintiff failed to obtain. Interest payments, which SSPI claims, fall under the second category of actual damages.

SSPI computed its claim for interest payments based on the interest rate stipulated in its contract with Interco. It explained that the stipulated interest rate is the actual interest income it had failed to obtain from Interco due to the defendants’ tortious conduct.

The Court finds the application of the stipulated interest rate erroneous. SSPI did not recover interest payments at the stipulated rate from Interco because it agreed that the delay was not Interco’s fault, but that of the defendants’. If that is the case, then Interco is not in delay (at least not after issuance of the checks) and the stipulated interest payments in their contract did not become operational. If Interco is not liable to pay for the 36% per annum interest rate, then SSPI did not lose that income. SSPI cannot lose something that it was not entitled to in the first place. Thus, SSPI’s claim that it was entitled to interest income at the rate stipulated in its contract with Interco, as a measure of its actual damage, is fallacious.

More importantly, the provisions of a contract generally take effect only among the parties, their assigns and heirs.  SSPI cannot invoke the contractual stipulation on interest payments against Equitable because it is neither a party to the contract, nor an assignee or an heir to the contracting parties.

Nevertheless, it is clear that defendants’ actions deprived SSPI of the present use of its money for a period of two years. SSPI is therefore entitled to obtain from the tortfeasors the profits that it failed to obtain from July 1991 to June 1993. SSPI should recover interest at the legal rate of 6% per annum, this being an award for damages based on quasi-delict and not for a loan or forbearance of money.

Both the trial and appellate courts awarded Pardo P3 million in moral damages. Pardo claimed that he was frightened, anguished, and seriously anxious that the government would prosecute him for money laundering and tax evasion because of defendants’ actions.  In other words, he was worried about the repercussions that defendants’ actions would have on him.

Equitable argues that Pardo’s fears are all imagined and should not be compensated. The bank points out that none of Pardo’s fears panned out.

Moral damages are recoverable only when they are the proximate result of the defendant’s wrongful act or omission. Both the trial and appellate courts found that Pardo indeed suffered as a result of the diversion of the three checks. It does not matter that the things he was worried and anxious about did not eventually materialize. It is rare for a person, who is beset with mounting problems, to sift through his emotions and distinguish which fears or anxieties he should or should not bother with. So long as the injured party’s moral sufferings are the result of the defendants’ actions, he may recover moral damages.

The Court, however, finds the award of P3 million excessive. Moral damages are given not to punish the defendant but only to give the plaintiff the means to assuage his sufferings with diversions and recreation. We find that the award of P50,000.00 as moral damages is reasonable under the circumstances.  Equitable Banking Corporation vs. Special Steel Products, Inc. and Augusto L. Pardo; G.R. No. 175350, June 13, 2012.

Damages; moral damages. The Court increased the award of damages to ₱500,000 as moral damages and ₱100,000 as exemplary damages in connection with a finding that the crime of Trafficking in Persons as a Prostitute was committed. It quoted a previous ruling, People v. Lalli, where the Court stated that: “the award finds basis in Article 2219 of the Civil Code, which states:

Art. 2219.  Moral damages may be recovered in the following and analogous cases: x x x

(3)     Seduction, abduction, rape, or other lascivious acts;

“The criminal case of Trafficking in Persons as a Prostitute is an analogous case to the crimes of seduction, abduction, rape, or other lascivious acts. In fact, it is worse. To be trafficked as a prostitute without one’s consent and to be sexually violated four to five times a day by different strangers is horrendous and atrocious. There is no doubt that Lolita experienced physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, and social humiliation when she was trafficked as a prostitute in Malaysia. Since the crime of Trafficking in Persons was aggravated, being committed by a syndicate, the award of exemplary damages is likewise justified.”

The Court went to say that: “[w]e find no legal impediment to increasing the award of moral and exemplary damages in the case at bar. Neither is there any logical reason why we should differentiate between the victims herein and those in that case, when the circumstances are frighteningly similar. To do so would be to say that we discriminate one from the other, when all of these women have been the victims of unscrupulous people who capitalized on the poverty of others. While it is true that accused-appellant was not tried and convicted of the crime of trafficking in persons, this Court based its award of damages on the Civil Code, and not on the Anti-Trafficking in Persons Act, as clearly explained in Lalli.” The People of the Philippines vs. Nurfrashir Hashim y Saraban, et al. Bernadette Panscala, etc.;G.R. No. 194255, June 13, 2012.

Damages; quasi-delict; vicarious liability. As a general rule, one is only responsible for his own act or omission. Thus, a person will generally be held liable only for the torts committed by himself and not by another. This general rule is laid down in Article 2176 of the Civil Code.

Based on the above-cited article, the obligation to indemnify another for damage caused by one’s act or omission is imposed upon the tortfeasor himself, i.e., the person who committed the negligent act or omission. The law, however, provides for exceptions when it makes certain persons liable for the act or omission of another.

One exception is an employer who is made vicariously liable for the tort committed by his employee. Article 2180 of the Civil Code states:

Article 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.

x x x x

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

Under Article 2176, in relation with Article 2180, of the Civil Code, an action predicated on an employee’s act or omission may be instituted against the employer who is held liable for the negligent act or omission committed by his employee.

Although the employer is not the actual tortfeasor, the law makes him vicariously liable on the basis of the civil law principle of pater familias for failure to exercise due care and vigilance over the acts of one’s subordinates to prevent damage to another. In the last paragraph of Article 2180 of the Civil Code, the employer may invoke the defense that he observed all the diligence of a good father of a family to prevent damage.

As its core defense, Filcar contends that Article 2176, in relation with Article 2180, of the Civil Code is inapplicable because it presupposes the existence of an employer-employee relationship. According to Filcar, it cannot be held liable under the subject provisions because the driver of its vehicle at the time of the accident, Floresca, is not its employee but that of its Corporate Secretary, Atty. Flor.

We cannot agree. It is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in relation with Article 2180, of the Civil Code. The rationale for the rule that a registered owner is vicariously liable for damages caused by the operation of his motor vehicle is explained by the principle behind motor vehicle registration, which has been discussed by this Court in Erezo, and cited by the CA in its decision:

The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways. [emphasis ours]

Thus, whether there is an employer-employee relationship between the registered owner and the driver is irrelevant in determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways. Filcar Transport Services vs. Jose A. Espinas; G.R. No. 171456, June 20, 2012.

Damages; unjust enrichment.  There is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another.  In the instant case, the fraudulent scheme concocted by Uy allowed him to improperly receive the proceeds of the three crossed checks and enjoy the profits from these proceeds during the entire time that it was withheld from SSPI. Equitable, through its gross negligence and mislaid trust on Uy, became an unwitting instrument in Uy’s scheme. Equitable’s fault renders it solidarily liable with Uy, insofar as respondents are concerned. Nevertheless, as between Equitable and Uy, Equitable should be allowed to recover from Uy whatever amounts Equitable may be made to pay under the judgment. It is clear that Equitable did not profit in Uy’s scheme. Disallowing Equitable’s cross-claim against Uy is tantamount to allowing Uy to unjustly enrich himself at the expense of Equitable. For this reason, the Court allows Equitable’s cross-claim against Uy. Equitable Banking Corporation vs. Special Steel Products, Inc. and Augusto L. Pardo; G.R. No. 175350, June 13, 2012.

Equitable mortgage. Lomises questions the nature of the agreement between him and Johnny, insisting that it was a contract of loan, not an assignment of leasehold rights and sale of improvements. In other words, what existed was an equitable mortgage, as contemplated in Article 1602, in relation with Article 1604, of the Civil Code. “An equitable mortgage has been defined ‘as one which although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, there being no impossibility nor anything contrary to law in this intent.’” Article 1602 of the Civil Code lists down the circumstances that may indicate that a contract is an equitable mortgage:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;

(2) When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;

(5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. [Emphasis ours.]

Based on Lomises’ allegations in his pleadings, we consider three circumstances to determine whether his claim is well-supported. First, Johnny was a mere college student dependent on his parents for support when the agreement was executed, and it was Johnny’s mother, Domes, who was the party actually interested in acquiring the market stalls. Second, Lomises received only P48,000.00 of the P68,000.00 that Johnny claimed he gave as down payment; Lomises said that the P20,000.00 represented interests on the loan. Third, Lomises retained possession of the market stalls even after the execution of the agreement.

Whether separately or taken together, these circumstances do not support a conclusion that the parties only intended to enter into a contract of loan.

That Johnny was a mere student when the agreement was executed does not indicate that he had no financial capacity to pay the purchase price of P260,000.00.

As to the second point, Lomises contends that of the P68,000.00 given by Johnny, he only received P48,000.00, with the remaining P20,000.00 retained by Johnny as interest on the loan. However, the testimonies of the witnesses presented during trial, including Lomises himself, negate this claim. On the third point, that Lomises retained possession of the market stalls even after the execution of his agreement with Johnny is also not an indication that the true transaction between them was one of loan. Johnny had yet to complete his payment and, until Lomises decided to forego with their agreement, had four more months to pay; until then, Lomises retained ownership and possession of the market stalls.

Hence, the CA was correct in characterizing the agreement between Johnny and Lomises as a sale of improvements and assignment of leasehold rights. Lomises Aludos, deceased, substituted by Flora Aludos vs. Johnny M. Suerte; G.R. No. 165285, June 18, 2012.

Guarantee. By its tenor, Grey’s undertaking was a guarantee. It says, “payment unconditionally guaranteed within sixty (60) days from Planters Products, Inc. Invoice date up to Pesos: Two Hundred Thousand (P200,000.00) only.” As it happens, bank guarantees are highly regulated transactions under the law. They are undertakings that are not so casually issued by banks or by their branch managers at the dorsal side of a client’s promissory note as if an afterthought. A bank guarantee is a contract that binds the bank and so may be entered into only under authority granted by its board of directors. Such authority does not appear on any document. Indeed, PPI had no right to expect branch manager Grey to issue one without such authorization. United Coconut Planters Bank vs. Planters Products, Inc., Janet Layson and Gregory Grey; G.R. No. 179015, June 13, 2012.

Interest rate. We affirm the interest rate decreed by the CA. Stipulated interest rates are illegal if they are unconscionable and courts are allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another.

We cannot uphold the petitioner’s invocation of our ruling in DBP v. Court of Appeals wherein the interest rate imposed was reduced to 10% per annum. The overriding circumstance prompting such pronouncement was the regular payments made by the borrower. Evidently, such fact is wanting in the case at bar, hence, the petitioner cannot demand for a similar interest rate.

The circumstances attendant herein are similar to those in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation wherein we levied the legal interest rate of 12% per annum.

However, pursuant to Bank of the Philippine Islands, Inc. v. Yu, we deem it proper to further reduce the penalty charge decreed by the CA from 2% per month to 1% per month or 12% per annum in view of the following factors: (1) respondent has already received P7,504,522.27 in penalty charges, and (2) the loan extended to respondent was a short-term credit facility. RGM Industries, Inc. vs. United Pacific Capital Corporation; G.R. No. 194781, June 27, 2012.

Lease; implied lease. It bears emphasis that the respondent did not give the petitioner a notice to vacate upon the expiration of the lease contract in December 1997 (the notice to vacate was sent only on August 5, 1998), and the latter continued enjoying the subject premises for more than 15 days, without objection from the respondent. By the inaction of the respondent as lessor, there can be no inference that it intended to discontinue the lease contract. An implied new lease was therefore created pursuant to Article 1670 of the Civil Code.

An implied new lease or tacita reconduccion will set in when the following requisites are found to exist: a) the term of the original contract of lease has expired; b) the lessor has not given the lessee a notice to vacate; and c) the lessee continued enjoying the thing leased for fifteen days with the acquiescence of the lessor.”

Since the rent was paid on a monthly basis, the period of lease is considered to be from month to month, in accordance with Article 1687 of the Civil Code. “[A] lease from month to month is considered to be one with a definite period which expires at the end of each month upon a demand to vacate by the lessor.” When the respondent sent a notice to vacate to the petitioner on August 5, 1998, the tacita reconduccion was aborted, and the contract is deemed to have expired at the end of that month. “[A] notice to vacate constitutes an express act on the part of the lessor that it no longer consents to the continued occupation by the lessee of its property.” After such notice, the lessee’s right to continue in possession ceases and her possession becomes one of detainer. Viegely Samelo, represented by Attorney-in-Fact Cristina Samelo vs. Manotok Services, Inc., etc.;  G.R. No. 170509, June 27, 2012.

Lease; interest on unpaid rentals. The petitioner is liable to pay interest by way of damages for her failure to pay the rentals due for the use of the subject premises. We reiterate that the respondent’s extrajudicial demand on the petitioner was made on August 5, 1998. Thus, from this date, the rentals due from the petitioner shall earn interest at 6% per annum, until the judgment in this case becomes final and executory. After the finality of judgment, and until full payment of the rentals and interests due, the legal rate of interest to be imposed shall be 12%. Viegely Samelo, represented by Attorney-in-Fact Cristina Samelo vs. Manotok Services, Inc., etc.; G.R. No. 170509, June 27, 2012.

Mortgage; deficiency claim; allowable after extrajudicial foreclosure of mortgage. We rule that PNB had the legal right to recover the deficiency amount. In Philippine National Bank v. Court of Appeals, we held that: “it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages of a thing sold on installment basis [Civil Code, Art. 1484(3)]. Act No. 3135, which governs the extrajudicial foreclosure of mortgages, while silent as to the mortgagee’s right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed.”

Indeed, as we indicated in Prudential Bank v. Martinez, the fact that the mortgaged property was sold at an amount less than its actual market value should not militate against the right to such recovery. Francisco Rabat, et al. vs. Philippine National Bank;  G.R. No. 158755, June 18, 2012.

Mortgage; pactum commissorium. The following are the elements of pactum commissorium:

(1) There should be a property mortgaged by way of security for the payment of the principal obligation; and

(2) There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within the stipulated period.

Villar’s purchase of the subject property did not violate the prohibition on pactum commissorium. The power of attorney provision above did not provide that the ownership over the subject property would automatically pass to Villar upon Galas’s failure to pay the loan on time. What it granted was the mere appointment of Villar as attorney-in-fact, with authority to sell or otherwise dispose of the subject property, and to apply the proceeds to the payment of the loan. This provision is customary in mortgage contracts, and is in conformity with Article 2087 of the Civil Code.

Galas’s decision to eventually sell the subject property to Villar for an additional P1,500,000.00 was well within the scope of her rights as the owner of the subject property. The subject property was transferred to Villar by virtue of another and separate contract, which is the Deed of Sale. Garcia never alleged that the transfer of the subject property to Villar was automatic upon Galas’s failure to discharge her debt, or that the sale was simulated to cover up such automatic transfer. Pablo P. Garcia vs. Yolanda Valdez Villar; G.R. No. 158891, June 27, 2012.

Ownership; acquisitive prescription.   The claim of the Heirs of Bangis that since they have been in possession of the subject land since 1972 or for 28 years reckoned from the filing of the complaint in 2000 then, the present action has prescribed is untenable. It bears to note that while Bangis indeed took possession of the land upon its alleged mortgage, the certificate of title (TCT No. 6313) remained with Adolfo and upon his demise, transferred to his heirs, thereby negating any contemplated transfer of ownership. Settled is the rule that no title in derogation of that of the registered owner can be acquired by prescription or adverse possession. Moreover, even if acquisitive prescription can be appreciated in this case, the Heirs of Bangis’ possession being in bad faith is two years shy of the requisite 30-year uninterrupted adverse possession required under Article 1137 of the Civil Code.

Consequently, the Heirs of Bangis cannot validly claim the rights of a builder in good faith as provided for under Article 449 in relation to Article 448 of the Civil Code. Thus, the order for them to surrender the possession of the disputed land together with all its improvements was properly made. Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June 13, 2012.

Property; builder in bad faith. See entry under ownership; acquisitive prescription (case of Bangis v. Heirs of Adolfo).

Sale at public auction; inadequacy of bid price. We have consistently held that the inadequacy of the bid price at a forced sale, unlike that in an ordinary sale, is immaterial and does not nullify the sale; in fact, in a forced sale, a low price is considered more beneficial to the mortgage debtor because it makes redemption of the property easier. Francisco Rabat, et al. vs. Philippine National Bank;  G.R. No. 158755, June 18, 2012.

Special Laws

Family Code; presumption of death; summary judicial proceedings under the Family Code. Under Article 41 of the Family Code, the losing party in a summary proceeding for the declaration of presumptive death may file a petition for certiorari with the CA on the ground that, in rendering judgment thereon, the trial court committed grave abuse of discretion amounting to lack of jurisdiction. From the decision of the CA, the aggrieved party may elevate the matter to this Court via a petition for review on certiorari under Rule 45 of the Rules of Court.  (Digester’s Note: This case also summarizes a number of cases on proof for existence of a “well-founded belief” that the absent spouse is already dead, but there is no ruling on this point and the comment by the Court that the Republic’s arguments are “well-taken”, is obiter.) Republic of the Philippines vs. Yolanda Cadacio Granada; G.R. No. 187512, June 13, 2012.

Land titles; conflicting titles. As held in the case of Top Management Programs Corporation v. Luis Fajardo and the Register of Deeds of Las Piñas City: “if two certificates of title purport to include the same land, whether wholly or partly, the better approach is to trace the original certificates from which the certificates of titles were derived.”

Having, thus, traced the roots of the parties’ respective titles supported by the records of the Register of Deeds of Malaybalay City, the courts a quo were correct in upholding the title of the Heirs of Adolfo as against TCT No. T-10567 of Bangis, notwithstanding its earlier issuance on August 18, 1976 or long before the Heirs of Adolfo secured their own titles on May 26, 1998. To paraphrase the Court’s ruling in Mathay v. Court of Appeals: where two (2) transfer certificates of title have been issued on different dates, the one who holds the earlier title may prevail only in the absence of any anomaly or irregularity in the process of its registration, which circumstance does not obtain in this case. Aniceto Bangis, substituted by his heirs, namely Rodolfo B. Bangis, et al. vs. Heirs of Serafin and Salud Adolfo, namely: Luz A. Banniester, et al.; G.R. No. 190875, June 13, 2012.

P.D. No. 1529; Torrens title; collateral attack. As for the spouses Decaleng’s contention that Certificate of Title No. 1 does not exist, the Court fully agrees with the Court of Appeals that the same constitutes a collateral attack of Certificate of Title No. 1. It is a hornbook principle that “a certificate of title serves as evidence of an indefeasible title to the property in favor of the person whose name appears therein.” In order to establish a system of registration by which recorded title becomes absolute, indefeasible, and imprescriptible, the legislature passed Act No. 496, which took effect onFebruary 1, 1903. Act No. 496 placed all registered lands in the Philippines under the Torrens system. The Torrens system requires the government to issue a certificate of title stating that the person named in the title is the owner of the property described therein, subject to liens and encumbrances annotated on the title or reserved by law. The certificate of title is indefeasible and imprescriptible and all claims to the parcel of land are quieted upon issuance of the certificate. Presidential Decree No. 1529, known as the Property Registration Decree, enacted on June 11, 1978, amended and updated Act No. 496.

Section 48 of Presidential Decree No. 1529 provides:

Section 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

A Torrens title cannot be attacked collaterally, and the issue on its validity can be raised only in an action expressly instituted for that purpose. A collateral attack is made when, in another action to obtain a different relief, the certificate of title is assailed as an incident in said action. Sps. Ambrosio Decaleng [as substituted by his heirs] and Julia “Wanay” Decaleng vs. Bishop of the Missionary District of Protestant Episcopal Church in the United States of America, et al.; G.R. No. 171209 & UDK-13672. June 27, 2012

P.D. No. 1529; Torrens title; collateral attack; indefeasibility of title vs. possession. In Soriente v. Estate of the Late Arsenio E. Concepcion, a similar allegation – possession of the property in dispute since time immemorial – was met with rebuke as such possession, for whatever length of time, cannot prevail over a Torrens title, the validity of which is presumed and immune to any collateral attack.

“The validity of respondent’s certificate of title cannot be attacked by petitioner in this case for ejectment. Under Section 48 of Presidential Decree No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled, except in a direct proceeding for that purpose in accordance with law. The issue of the validity of the title of the respondents can only be assailed in an action expressly instituted for that purpose. Whether or not petitioner has the right to claim ownership over the property is beyond the power of the trial court to determine in an action for unlawful detainer.”

Given the foregoing, the petitioners’ attempt to remain in possession by casting a cloud on the respondents’ title cannot prosper.

Neither will the sheer lapse of time legitimize the petitioners’ refusal to vacate the subject area or bar the respondents from gaining possession thereof. As ruled in Spouses Ragudo v. Fabella Estate Tenants Association, Inc., laches does not operate to deprive the registered owner of a parcel of land of his right to recover possession thereof. Heirs of Jose Maligaso, Sr., etc. vs. Sps. Simon D. Encinas and Esperanza E. Encinas; G.R. No. 182716, June 20, 2012.

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