October 2012 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Assignment of credit; dation in payment. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person. As a dation in payment, the assignment of credit operates as a mode of extinguishing the obligation; the delivery and transmission of ownership of a thing (in this case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalent of the performance of the obligation.

The terms of the compromise judgment of the parties, however, did not convey an intent to equate the assignment of Magdalena’s retirement benefits as the equivalent of the payment of the debt due the spouses Serfino. There was actually no assignment of credit; if at all, the compromise judgment merely identified the fund from which payment for the judgment debt would be sourced. Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement benefits corresponding to the debt due would the debt be deemed paid. Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the retirement benefits that were deposited with FEBTC. Without ownership rights over the amount, they suffered no pecuniary loss that has to be compensated by actual damages. Sps. Godfrey and Gerardina Serfino vs. Far East Bank and Trust Company, Inc., now Bank of the Philippine Islands.G.R. No. 171845. October 10, 2012

Compromise agreement; relation to original agreement; interest. Petitioner argues that the compromise agreement created an obligation separate from the original loan, for which respondent is now liable. By stating that the compromise agreement and the original loan transaction are distinct, petitioner would now attempt to exact payment on both. This goes against the very purpose of the parties entering into a compromise agreement, which was to extinguish the obligation under the loan. Petitioner may not seek the enforcement of both the compromise agreement and payment of the loan, even in the event that the compromise agreement remains unfulfilled.

The Court had previously tagged a 5% monthly interest rate agreed upon as “excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law.” We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable, and exorbitant. Arthur F. Mechavez vs. Marlyn M, Bermudez G.R. No. 185368. October 11, 2012

Construction contract; progress billing; unjust enrichment. The owner’s approval of progress billing is merely provisional. Progress billings are but preliminary estimates of the value of the periodic accomplishments of the contractor.  It is the right of every owner to reevaluate or re-measure the work of its contractor during the progress of the work.

The rationale underlying the owner’s right to seek an evaluation of the contractor’s work is the right to pay only the true value of the work as may be reasonably determined under the circumstances. This is consistent with the law against unjust enrichment under Article 22 of the Civil Code which states 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. R.V. Santos Company, Inc. vs. Belle Corporation G.R. Nos. 159561-62. October 3, 2012.

Contracts; extension; performance security; public bidding. The extension of the option period means that the Comelec had more time to determine the propriety of exercising the option. With the extension, the Comelec could acquire the subject PCOS machines under the same terms and conditions as earlier agreed upon. The end result is that the Comelec acquired the subject PCOS machines with its meager budget and was able to utilize the rentals paid for the 2010 elections as part of the purchase price.

It must be pointed out that public biddings are held for the best protection of the public and to give the public the best possible advantages by means of open competition between the bidders. What are prohibited are modifications or amendments which give the winning bidder an edge or advantage over the other bidders who took part in the bidding, or which make the signed contract unfavorable to the government. In this case, the extension of the option period and the eventual purchase of the subject goods resulted in more benefits and advantages to the government and to the public in general. The “advantage to the government,” time and budget constraints, the application of the rules on valid amendment of government contracts, and the successful conduct of the May 2010 elections are among the factors looked into in arriving at the conclusion that the assailed Resolutions issued by the Comelec and the agreement and deed entered into between the Comelec and Smartmatic-TIM, are valid. Archbishop Fernando R. Capalla, et al. vs. The Hon. Commission on Elections/Solidarity for Sovereignty etc. G.R. No. 201112/G.R. No. 201121/G.R. No. 201127/G.R. No. 201413. October 23, 2012

Contracts; freedom to stipulate. Art. 1306 of the Civil Code guarantees the freedom of parties to stipulate the terms of their contract provided that they are not contrary to law, morals, good customs, public order, or public policy. Here, both parties knew for a fact that the property subject of their contract was occupied by informal settlers, whose eviction would entail court actions that in turn, would require some amount of time. They also knew that the length of time that would take to conclude such court actions was not within their power to determine. Despite such knowledge, both parties still agreed to the stipulation that the payment of the balance of the purchase price will be deferred until the informal settlers are ejected. Thus, PLU cannot be allowed to renege on its agreement. The parties intended the performance of the obligation until the squatters are duly evicted. P.L. Uy Realty Corporation vs. ALS Management and Development Corporation and Antonio K. Litonjua G.R. No. 166642. October 24, 2012

Contracts; simulation. In a contract of sale, its perfection is consummated at the moment there is a meeting of the minds upon the thing that is the object of the contract and upon the price. If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract.

In the case at bench, no valid sale of the subject property actually took place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was simply no consideration and no intent to sell it. Marietto, a witness to the execution of the absolute deed of sale, testified that Ireneo personally told him that he was going to execute a document of sale because Spouses Intac needed to borrow the title to the property and use it as collateral for their loan application. Aside from the plain denial, petitioners could not show any tangible evidence of any payment therefor. Their failure to prove their payment only strengthened Marietto’s story that there was no payment made because Ireneo had no intention to sell. Heirs of Dr. Mario S. Intac and Angelina Mendoza-Intac  vs. Court of Appeals and Spouses Marcelo Roy, Jr. and Josefina Mendoza-Roy, et al. G.R. No. 173211. October 11, 2012

Co-ownership; action for ejectment. Article 487 of the Civil Code provides that anyone of the co-owners may bring an action for ejectment without joining the others. The action is not limited to ejectment cases but includes all kinds of suits for recovery of possession because the suit is presumed to have been instituted for the benefit of all. A co-owner is not even a necessary party to an action for ejectment, for complete relief could be afforded even in his absence, Hence, Exequiel, a co-owner, may bring the action for unlawful detainer even without the special power of attorney of his coheirs. Heirs of Albina G. Ampil, namely Precious A. Zavalla, Eduardo Ampil, et al. vs. Teresa Manahan and Mario Manahan G.R. No. 175990. October 11, 2012

Damages; proof of pecuniary loss. The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a notice of adverse claim to the fund in a depositor’s account to freeze the account for a reasonable length of time, sufficient to allow the adverse claimant to institute legal proceedings to enforce his right to the fund. To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules governing pleading, practice and procedure in all courts. The rule reflects a matter of policy that is better addressed to the Bangko Sentral ng Pilipinas. Essentially, these statutes do not impose a duty on banks to freeze the deposit upon a mere notice of adverse claim; they first require either a court order or an indemnity bond. The bank’s contractual relations are with its depositor, not with the third party. In the absence of any positive duty of the bank to an adverse claimant, there could be no breach that entitles the latter to moral damages. Sps. Godfrey and Gerardina Serfino vs. Far East Bank and Trust Company, Inc., now Bank of the Philippine Islands. G.R. No. 171845. October 10, 2012

Damages; temperate, moderate, exemplary. Petitioner assails the award of P50,000 as moral damages granted to the heirs of Henry Go despite the fact that neither Henry Go nor any of his heirs testified on matters that could be the basis for such monetary award. Indeed, in this case, since respondent Henry Go was not able to testify, there is then no evidence on record to prove that he suffered mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury by reason of petitioner’s conduct.

However, there was no error committed by the lower courts with regard to the award of temperate or moderate damages of P100,000 to respondents Lao Lim and Go. The purpose for respondents’ trip to Hong Kong was to conduct business negotiations, but respondents were not able to meet their counterparts as they were not allowed to board the PR300 flight. Understandably, it is difficult, if not impossible, to adduce solid proof of the losses suffered by respondents due to their failure to make it to their business meetings. Thus, it is only just that respondents be awarded temperate or moderate damages. Since respondent is entitled to temperate damages, then the court may also award exemplary damages. Philippine Airlines, Inc. vs. Francisco Lao Lim, The Heirs of Henry Go, Manuel Limtiong and Rainbow Tours and Travel, Inc. G.R. No. 168987. October 17, 2012

Land ownership. The bare allegation of respondents that they had been in peaceful and continuous possession of the lot in question because their predecessor-in-interest had been in possession thereof in the concept of an owner from time immemorial, cannot prevail over the tax declarations and other documentary evidence presented by petitioners. In the absence of any supporting evidence, that of the petitioners deserves more probative value. A perusal of the records shows that respondents’ occupation of the lot in question was by mere tolerance. From the minutes of the meeting in the Barangay Lupon, Perfecto admitted that in Albina permitted them to use the lots on the condition that they would vacate the same should Albina need it.  Heirs of Albina G. Ampil, namely Precious A. Zavalla, Eduardo Ampil, et al. vs. Teresa Manahan and Mario Manahan G.R. No. 175990. October 11, 2012

Mortgage; escalation clause. We consider to be unsubstantiated the petitioners’ claim of their lack of consent to the escalation clauses. They did not adduce evidence to show that they did not assent to the increases in the interest rates. The records reveal instead that they requested only the reduction of the interest rate or the restructuring of their loans. Escalation clauses are valid and do not contravene public policy. These clauses are common in credit agreements as means of maintaining fiscal stability and retaining the value of money on long-term contracts. Any increase in the rate of interest made pursuant to an escalation clause must be the result of an agreement between the parties. Thus, any change must be mutually agreed upon, otherwise, the change carries no binding effect.  Spouses Humberto Delos Santos and Carmencita Delos Santos vs. Metropolitan Bank and Trust Company G.R. No. 153852. October 24, 2012

Novation; lease agreement; default. Article 1292 of the Civil Code provides that in novation, “it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.” In this case, the cause in a contract of lease is the enjoyment of the thing; in a contract of deposit, it is the safekeeping of the thing. They thus create essentially distinct obligations that would result in a novation only if the parties entered into one after the other concerning the same subject matter.

The turning point in this case is whether or not the parties subsequently entered into an agreement for the storage of the buses that superseded their prior lease agreement involving the same buses. RCJ failed to present any clear proof that it agreed with Master Tours to abandon the lease of the buses and in its place constitute RCJ as depositary of the same, providing storage service to Master Tours for a fee. The only evidence RCJ relied on is Master Tours’ letter in which it demanded the return of the four buses which were placed in RCJ’s garage for “safekeeping.” For one thing, the letter does not on its face constitute an agreement. It contains no contractual stipulations respecting some warehousing arrangement between the parties concerning the buses. The idea of RCJ safekeeping the buses for Master Tours is actually consistent with their lease agreement. In fact, the lessee of a movable property has an obligation to “return the thing leased, upon the termination of the lease, just as he received it.” Apart from delivering the buses to RCJ, the agreement did not require any further act from Master Tours as a condition to the exercise of its right to collect the lease fee. RCJ Bus Lines, Incorporated vs. Master Tours and Travel Corporation G.R. No. 177232. October 11, 2012

Novation; loan; restructuring. Article 1292 of the Civil Code contemplates two kinds of novation. Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unmistakable. The contracting parties must incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. Nonetheless, both kinds of novation must still be clearly proven.

Without a written contract stating in unequivocal terms that the parties were novating the original loan agreement, eliminating an express novation, the Court looks to whether there is an incompatibility between the Floor Stock Line secured by Trust receipts and the subsequent restructured Omnibus Line which was supposedly approved by PNB. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. The obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones, or the new contract merely supplements the old one. Besides, novation does not extinguish criminal liability. Philippine National Bank Vs. Lilian S. Soriano G.R. No. 164051, October 3, 2012.

Obligations; default in performance; liquidated damages. The parties to a contract are allowed to stipulate on liquidated damages to be paid in case of breach. A perusal of the significant provisions of the Construction Contract and the relevant construction documents would show that the rights to liquidated damages and to terminate the contract are distinct remedies that are available to respondent. As long as the contractor fails to finish the works within the period agreed upon by the parties without justifiable reason and after the owner makes a demand, then liability for damages as a consequence of such default arises.

With the modification of the contract period, petitioner was obliged to perform the works and deliver the units. Yet it still reneged on its obligation. Assuming that the reasons for valid extension indeed exist, still, petitioner should bear the consequences for the delay when petitioner failed to meet its new deadline. While the Court has reduced the amount of liquidated damages in some cases because of partial fulfillment of the contract and/or the amount is unconscionable, the Court does not find the same to be applicable in this case.  As of the last certified billing, petitioner’s percentage accomplishment was only 62.57%. Hence, the Court applied the general rule not to ignore the freedom of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Atlantic Erectors, Inc. vs. Court of Appeals and Herbal Cove Realty Corporation.  G.R. No. 170732. October 11, 2012

Obligations; delay; additional works and change order; principle of quantum meruit. Petitioner insists that respondent should pay the remaining balance on the contract price, that it was respondent’s additional works and change orders which caused the delay in the completion of the proposed project. Respondent anchors its non-payment of the remaining balance primarily on the defects and delays incurred by petitioner in the completion of the construction project.

Testimonial and documentary proof strongly show that the delay was caused by the additional works and change order works required by respondent which were not part of the original Agreement. Pursuant to the aforementioned contractual obligations, petitioner completed the construction of the four-storey commercial building and two-storey kitchen with dining hall. Thus, this Court finds no legal basis for respondent to not comply with its obligation to pay the balance of the contract price due the petitioner. Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or service rendered in order to avoid unjust enrichment. Robert Pascua, doing business under the name and style Tri-Web Construction vs. G & G Realty Corporation G.R. No. 196383. October 15, 2012

Obligations; payment; extinguishment of obligation. Respondent’s obligation consists of payment of a sum of money. In order to extinguish said obligation, payment should be made to the proper person as set forth in Article 1240 of the Civil Code. Admittedly, payment of the remaining balance of P200,000 was not made to the creditors themselves. Respondent claims that Losloso was the authorized agent of petitioners, but the latter dispute it. Losloso’s authority to receive payment was embodied in petitioners’ letter addressed to respondent where they informed respondent of the amounts they advanced for the payment of the 1997 real estate taxes. In said letter, petitioners reminded respondent of her remaining balance, together with the amount of taxes paid. Taking into consideration the busy schedule of respondent, petitioners advised the latter to leave the payment to a certain “Dori” who admittedly is Losloso, or to her trusted helper. This is an express authority given to Losloso to receive payment. Spouses Miniano B. Dela Cruz and Leta L. Dela Cruz vs. Ana Marie Concepcion G.R. No. 172825. October 11, 2012

Regalian doctrine; public land. Under the Regalian doctrine, land that has not been acquired from the government, either by purchase, grant, or any other mode recognized by law, belongs to the State as part of the public domain. Thus, it is indispensable for a person claiming title to a public land to show that his title was acquired through such means. To prove that the subject property is alienable and disposable land of the public domain, respondents presented the CENRO Certificate. However, a CENRO or PENRO Certification is not enough to certify that a land is alienable and disposable. The applicant for land registration must prove that the DENR Secretary had approved the land classification and released the land of the public domain as alienable and disposable, and that the land subject of the application for registration falls within the approved area per verification through survey by the PENRO or CENRO. In addition, the applicant for land registration must present a copy of the original classification approved by the DENR Secretary and certified as a true copy by the legal custodian of the official records.

Although the survey and certification were done declaring certain portions of the public domain situated in Cebu City as alienable and disposable, an actual copy of such classification, certified as true by the legal custodian of the official records, was not presented in evidence. Unfortunately, respondents were not able to discharge the burden of overcoming the presumption that the land they sought to be registered forms part of the public domain. Republic of the Philippines vs. Gloria Jaralve (deceased), substituted by Alan Jess Jaralve-Document, Jr., et al. G.R. No. 175177. October 24, 2012

Succession; extra-judicial settlement of estate; grounds for nullity. Upon the death of Anunciacion, her children and Enrique acquired their respective inheritances, entitling them to their pro indiviso shares in her whole estate. In the execution of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale in favor of spouses Uy, all the heirs of Anunciacion should have participated. Considering that Eutropia and Victoria were admittedly excluded and that then minors Rosa and Douglas were not properly represented therein, the settlement was not valid and binding upon them and consequently, a total nullity.

However, while the settlement of the estate is null and void, the subsequent sale of the subject properties made by Enrique and his children, Napoleon, Alicia and Visminda, in favor of the respondents is valid but only with respect to their proportionate shares. With respect to Rosa and Douglas who were minors at the time of the execution of the settlement and sale, their natural guardian and father, Enrique, represented them in the transaction. However, on the basis of the laws prevailing at that time, Enrique was merely clothed with powers of administration and bereft of any authority to dispose of their 2/16 shares in the estate of their mother, Anunciacion.

A father or mother, as the natural guardian of the minor under parental authority, does not have the power to dispose or encumber the property of the latter. Such power is granted by law only to a judicial guardian of the ward’s property and even then only with courts’ prior approval. Napoleon D. Neri, et al. vs  Heirs of Hadji Yusop Uy and Julpha Ibrahim Uy. G.R. No. 194366. October 10, 2012


BOT Law; water rights; appropriation. Foreign ownership of a hydropower facility is not prohibited under existing laws. The construction, rehabilitation and development of hydropower plants are among those infrastructure projects which even wholly-owned foreign corporations are allowed to undertake under the Amended Build-Operate-Transfer (Amended BOT) Law (R.A. No. 7718). Executive Order No. 215 allowed the entry of private sector – the Independent Power Producers (IPPs) –to participate in the power generation activities in the country.

Further, “water right” is defined in the Water Code as the privilege granted by the government to appropriate and use water. Under the Water Code concept of appropriation, a foreign company may not be said to be “appropriating” our natural resources if it utilizes the waters collected in the dam and converts the same into electricity through artificial devices. Since the National Power Corporation (NPC) remains in control of the operation of the dam by virtue of water rights granted to it, there is no legal impediment to foreign-owned companies undertaking the generation of electric power using waters already appropriated by NPC, the holder of water permit. Initiative For Dialoque and Emprovement Through Alternative Legal Services, Inc., Et Al. vs. Power Sector Assets and Liabilities Management Corpotation Etc., et aAl. G.R. No. 192088. October 9, 2012

Homestead patent; five-year prohibitory period; no distinction between consummated and executory sale; unjust enrichment. The five-year prohibitory period following the issuance of the homestead patent is provided under Section 118 of the Public Land Act. It bears stressing that the law was enacted to give the homesteader or patentee every chance to preserve for himself and his family the land that the State had gratuitously given to him as a reward for his labour in cleaning and cultivating it.

In the present case, the negotiations for the purchase of the properties covered by the patents issued in 1991 were made in 1995 and, eventually, an undated Deed of Conditional Sale was executed. Petitioner raises the issue whether by a deed of conditional sale there was “alienation or encumbrance” within the contemplation of the law. The prohibition does not distinguish between consummated and executory sale. The conditional sale entered into by the parties is still a conveyance of the homestead patent; that the formal deed of sale was executed after the expiration of the staid period did not and could not legalize a contract that was void from its inception. Nevertheless, petitioner does not err in seeking the return of the down payment as a consequence of the sale having been declared void. The rule is settled that the declaration of nullity of a contract which is void ab initio operates to restore things to the state and condition in which they were found before the execution thereof. Filinvest Land, Inc., Efren C. Gutierrer vs. Abdul Backy, Abehera, Baiya, Edris, et al. G.R. No. 174715. October 11, 2012

Republic Act (RA) No. 26; certificate of title; reconstitution; sources. The Office of the Solicitor General raised the issue that the Domingos did not comply with Sections 12 and 13 of RA No. 26 because they failed to notify the heirs of the Spouses Ramoso and a certain Senen Gabaldon of the reconstitution proceedings for an original certificate of title. Respondents argue that the names of the heirs of the Spouses Ramoso and Gabaldon do not appear in the owners’ duplicate, hence need not be notified.

RA No. 26 provides two procedures and sets of requirements in the reconstitution of lost or destroyed certificates of title depending on the source of the petition for reconstitution. Section 10 in relation to Section 9, and on the other, Sections 12 and 13. Section 10 of RA No. 26 applies if the source is the owner’s duplicate certificate, which shall “be published in the manner stated in section nine.” Section 9 of RA No. 26 states that the notice shall specify the number of the certificate of title, the name of the registered owner, the names of the interested parties appearing in the reconstituted certificate of title, the location of the property, and the date on which all persons having an interest in the property must appear and file such claim as they may have. The respondents complied with these requirements and thus the RTC validly acquired jurisdiction to hear and decide the petition for reconstitution. Republic of the Philippines vs. Angel T. Domingo and Benjamin T. Domingo. G.R. No. 197315. October 10, 2012

Realty Installment Buyer Protection Act; contract to sell.  A contract is what the law defines it to be, and not what it is called by the contracting parties. A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds itself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

The Shelter Contract Award granted to respondent expressly stipulates that “upon completion of payment of the amount representing the full value of the House and Lot subject of the Contract Award, the Union shall execute a Deed of Transfer and shall cause the issuance of the corresponding Transfer Certificate of Title in favor of and in the name of the Awardee.” It cannot be denied, therefore, that the parties entered into a contract to sell in the guise of a reimbursement scheme requiring respondent to make monthly reimbursement payments which are, in actuality, installment payments for the value of the subject house and lot.

While the Court agreed that the cancellation of a contract to sell may be done outside of court, however, the cancellation by the seller must be in accordance with Sec. 3(b) of R.A. No. 6552, which requires a notarial act of rescission and the refund to the buyer of the full payment of the cash surrender value of the payments on the property. In the present case, petitioner failed to prove that the Shelter Contract Award had been cancelled in accordance with R.A. No. 6552, which would have been the basis for the illegality of respondent’s continuous possession of the subject premises. Hence, the action for ejectment must fail. Associated Marine Office and Seamen’s Union Of The Philippines vs. Noriel Decena G.R. No. 178584. October 8, 2012.

(Rose thanks Nico Bernardo for assisting in the preparation of this post.)