March 2013 Philippine Supreme Court Decisions on Civil Law

Here are select March 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contracts; contract of sale; perfection; essential elements; stages. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. Thus, for a contract of sale to be valid, all of the following essential elements must concur: a) consent or meeting of the minds; b) determinate subject matter; and c) price certain in money or its equivalent.

As for the price, fixing it can never be left to the decision of only one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.

As regards consent, when there is merely an offer by one party without acceptance of the other, there is no contract. The decision to accept a bidder’s proposal must be communicated to the bidder. However, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document, as acceptance may be expressed or implied. It can be inferred from the contemporaneous and subsequent acts of the contracting parties. Thus, the Supreme Court has held:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.

Contracts undergo three stages: (a) negotiation that begins from the time the prospective contracting parties indicate interest in the contract and ends at the moment of their agreement; (b) perfection or birth that which takes place when the parties agree upon all the essential elements of the contract; and (c) consummation that occurs when the parties fulfill or perform the terms agreed upon, culminating in the extinguishment thereof. Robern Development Corporation, et al. vs. People’s Landless Association represented by Florida Ramos, et al.; G.R. No. 173622. March 11, 2013

Contracts; obligatory nature of contracts; interpretation; Joint Affidavit of Undertaking may be a contract in itself; due execution; default, elements; judicial demand; computation of interest. Contracts are obligatory no matter what their forms may be, whenever the essential requisites for their validity are present. In determining whether a document is an affidavit or a contract, the Court looks beyond the title of the document, since the denomination or title given by the parties in their document is not conclusive of the nature of its contents. In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued. If the terms of the document are clear and leave no doubt on the intention of the contracting parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the parties’ evident intention, the latter shall prevail over the former.

A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses that it contains stipulations characteristic of a contract. The Joint Affidavit of Undertaking contained a stipulation where Cruz and Leonardo promised to replace the damaged car of Gruspe, 20 days from October 25, 1999 or up to November 15, 1999, of the same model and of at least the same quality. In the event that they cannot replace the car within the same period, they would pay the cost of Gruspe’s car in the total amount of P350,000, with interest at 12% per month for any delayed payment after November 15, 1999, until fully paid.

An allegation of vitiated consent must be proven by preponderance of evidence. Although the undertaking in the affidavit appears to be onerous and lopsided, this does not necessarily prove the alleged vitiation of consent. They, in fact, admitted the genuineness and due execution of the Joint Affidavit and Undertaking when they said that they signed the same to secure possession of their vehicle.

In order that the debtor may be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially. Default generally begins from the moment the creditor demands the performance of the obligation. Rodolfo G. Cruz and Esperanza Ibias vs. Atty. Delfin Gruspe; G.R. No. 191431. March 13, 2013

Contracts; parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy; if the language used is clear, there is no need for construction; mortgage; court’s duty, merely to interpret the intent of the parties; even if not expressly so stated, the mortgage extends to the improvements; machineries and equipment are considered real properties. As held in Gateway Electronics Corp. v. Land Bank of the Philippines, the rule in this jurisdiction is that the contracting parties may establish any agreement, term, and condition they may deem advisable, provided they are not contrary to law, morals or public policy. The right to enter into lawful contracts constitutes one of the liberties guaranteed by the Constitution.

It has been explained by the Supreme Court in Norton Resources and Development Corporation v. All Asia Bank Corporation in reiteration of the ruling in Benguet Corporation v. Cabildo that:

A court’s purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law.

Then till now the pronouncement has been that if the language used is as clear as day and readily understandable by any ordinary reader, there is no need for construction.

Law and jurisprudence provide and guide that even if not expressly so stated, the mortgage extends to the improvements.

Article 2127 of the Civil Code provides:

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with the declarations, amplifications and limitations established by law, whether the estate remains in the possession of the mortgagor, or it passes into the hands of a third person.

In the early case of Bischoff v. Pomar and Cia. General de Tabacos, the Court ruled that even if the machinery in question was not included in the mortgage expressly, Article 111 of the [old] Mortgage Law provides that chattels permanently located in a building, either useful or ornamental, or for the service of some industry even though they were placed there after the creation of the mortgage shall be considered as mortgaged with the estate, provided they belong to the owner of said estate.

The real estate mortgage over the machineries and equipment is even in full accord with the classification of such properties by the Civil Code of the Philippines as immovable property. Thus:

Article 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all kinds adhered to the soil;

xxxx

(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works.

Star Two (SPV-AMC), Inc. vs. Paper City Corporation of the Philippines; G.R. No. 169211. March 6, 2013

Property; encroachment on property; builder in bad faith; options available to owner of the land; rules in the determining the reckoning period for valuing the property. Under Article 448 pertaining to encroachments in good faith, as well as Article 450 referring to encroachments in bad faith, the owner of the land encroached upon – petitioner herein – has the option to require respondent builder to pay the price of the land.

Although these provisions of the Civil Code do not explicitly state the reckoning period for valuing the property, Ballatan v. Court of Appeals already specifies that in the event that the seller elects to sell the lot, “the price must be fixed at the prevailing market value at the time of payment.”

More recently, Tuatis v. Spouses Escol illustrates that the present or current fair value of the land is to be reckoned at the time that the landowner elected the choice, and not at the time that the property was purchased. … In Sarmiento v. Agana, we reckoned the valuation of the property at the time that the real owner of the land asked the builder to vacate the property encroached upon. Moreover, the oft-cited case Depra v. Dumlao likewise ordered the courts of origin to compute the current fair price of the land in cases of encroachment on real properties. Vda. de Roxas v. Our Lady’s Foundation, Inc.; G.R. No. 182378. March 6, 2013

Special Laws

Agrarian Reform; land ownership; mere issuance of the Certificate of Land Transfer does not vest full ownership on the holder and does not automatically operate to divest the land owner of all of his rights over the landholding; requirements to effect a transfer of ownership; agricultural lands; any sale or disposition of agricultural lands made after the effectivity of R.A. No. 6657 which has been found contrary to its provisions shall be null and void; procedures for the reallocation of farmholdings covered by P.D. No. 27 by reason of abandonment or the refusal to become a beneficiary; requisites of abandonment. The mere issuance of the Certificate of Land Transfer (“CLT”) does not vest full ownership on the holder and does not automatically operate to divest the landowner of all of his rights over the landholding. The holder must first comply with certain mandatory requirements to effect a transfer of ownership. Under R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) in relation with P.D. No. 27 (Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to Them the Ownership of the Land they Till and Providing the Instruments and Mechanism Therefor) and E.O. No. 228 (Declaring Full Land Ownership to Qualified Farmer Beneficiaries Covered by P.D. No. 27: Determining the Value of Remaining Unvalued Rice and Corn Lands Subject to P.D. No. 27; and Providing for the Manner of Payment by the Farmer Beneficiary and Mode of Compensation to the Landowner), the title to the landholding shall be issued to the tenant-farmer only upon the satisfaction of the following requirements: (1) payment in full of the just compensation for the landholding, duly determined by final judgment of the proper court; (2) possession of the qualifications of a farmer-beneficiary under the law; (3) full-pledged membership of the farmer-beneficiary in a duly recognized farmers’ cooperative; and (4) actual cultivation of the landholding. We explained in several cases that while a tenant with a CLT is deemed the owner of a landholding, the CLT does not vest full ownership on him. The tenant-holder of a CLT merely possesses an inchoate right that is subject to compliance with certain legal preconditions for perfecting title and acquiring full ownership.

Pursuant to R.A. No. 6657 (Comprehensive Agrarian Reform Law of 1988) in relation with P.D. No. 27 (Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to Them the Ownership of the Land they Till and Providing the Instruments and Mechanism Therefor), any sale or disposition of agricultural lands made after the effectivity of R.A. No. 6657 which has been found contrary to its provisions shall be null and void. The proper procedure for the reallocation of the disputed lot must be followed to ensure that there indeed exist grounds for the cancellation of the CLT or for forfeiture of rights under it, and that the lot is subsequently awarded to a qualified farmer-tenant pursuant to the law.

Under Ministry Memorandum Circular No. 04-83 (Supplemental Guidelines to Govern Transfer Action of Areas Covered by P.D. 27 by Reason of Abandonment, Waiver of Rights and Illegal Transactions) in relation with Ministry Memorandum Circular No. 08-80 (Guidelines in the Disposition and Reallocation of Farmholdings of Tenant-Farmers who Refuses to Become Beneficiaries of P.D. No. 27) and Ministry Memorandum Circular No. 07-79 (Rules and Regulations Governing Transactions Involving Lands Covered by P.D. No. 27), the following procedures must be observed for the reallocation of farmholdings covered by P.D. No. 27 by reason of abandonment or the refusal to become a beneficiary, among others:

I.       Investigation Procedure

1. The conduct of verification by the concerned Agrarian Reform Team Leader (ARTL) to ascertain the reasons for the refusal. All efforts shall be exerted to convince the tenant-farmer to become a beneficiary and to comply with his obligations as such beneficiary.

2. If the tenant-farmer still refuses, the ARTL shall determine the substitute. The ARTL shall first consider the immediate member of the tenant-farmer’s family who assisted in the cultivation of the land, and who is willing to be substituted to all the rights and obligations of the tenant-farmer. In the absence or refusal of such member, the ARTL shall choose one from a list of at least three qualified tenants recommended by the President of the Samahang Nayon or, in default, any organized farmer association, subject to the award limits under P.D. No. 27.

3. Formal notice of the report shall be given to the concerned farmer-beneficiary together with all the pertinent documents and evidences.

4. The ARTL shall submit the records of the case with his report and recommendation to the District Officer within 5 days from the ARTL’s determination of the substitute. The District Officer shall likewise submit his report and recommendation to the Regional Director and the latter to the Bureau of Agrarian Legal Assistance, for review, evaluation, and preparation of the final draft decision for final approval.

5. The decision shall declare the cancellation of the CLT if issued.

In the event of the farmer-beneficiary’s death, the transfer or reallocation of his landholding to his heirs shall be governed by Ministry Memorandum Circular No. 19-78 (Rules and Regulations In Case of Death of a Tenant-Beneficiary).

For abandonment to exist, the following requisites must concur: (1) a clear intent to abandon; and (2) an external act showing such intent. The term is defined as the “willful failure of the ARB, together with his farm household, to cultivate, till, or develop his land to produce any crop, or to use the land for any specific economic purpose continuously for a period of two calendar years.” It entails, among others, the relinquishment of possession of the lot for at least two (2) calendar years and the failure to pay the amortization for the same period. What is critical in abandonment is intent which must be shown to be deliberate and clear. The intent must be established by the factual failure to work on the landholding absent any valid reason as well as a clear intent, which is shown as a separate element. Heirs of Lorenzo Buensuceso vs. Perez; G.R. No. 173926. March 6, 2013

General Banking Law and Act No. 3135; right of redemption; period; juridical entities; General Banking Law of 2000 merely modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135; right of redemption, being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit to make it effective. The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages), as amended by Act No. 4118 (An Act to Amend Act No. 3135). Section 6 thereof provides:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors-in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case, the parties provided in their real estate mortgage contract that upon petitioner’s default and the latter’s entire loan obligation becoming due, respondent may immediately foreclose the mortgage judicially in accordance with the Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages).

However, Section 47 of R.A. No. 8791 otherwise known as “The General Banking Law of 2000” which took effect on June 13, 2000, amended Act No. 3135. Said provision reads:

SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property immediately after the date of the confirmation of the auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied.)

Under the new law, an exception is thus made in the case of juridical persons which are allowed to exercise the right of redemption only “until, but not after, the registration of the certificate of foreclosure sale” and in no case more than three (3) months after foreclosure, whichever comes first.

Section 47 (of the General Banking Law of 2000) did not divest juridical persons of the right to redeem their foreclosed properties but only modified the time for the exercise of such right by reducing the one-year period originally provided in Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages). The new redemption period commences from the date of foreclosure sale, and expires upon registration of the certificate of sale or three months after foreclosure, whichever is earlier. There is likewise no retroactive application of the new redemption period because Section 47 (of the General Banking Law of 2000) exempts from its operation those properties foreclosed prior to its effectivity and whose owners shall retain their redemption rights under Act No. 3135 (An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate Mortgages).

The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, and within the prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it has to give way to police power exercised for public welfare. Goldenway Merchandising Corporation vs. Equitable PCI Bank; G.R. No. 195540. March 13, 2013

(Rose thanks Frances Domingo, Rory Lambino and Earla Lang for their assistance in the preparation of this post.) 

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