February 2014 Philippine Supreme Court Decisions on Civil Law

Here are select February 2014 rulings of the Supreme Court of the Philippines on civil law:

Contract law; principle of relativity. The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it, and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof “Where there is no privity of contract, there is likewise no obligation or liability to speak about.” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Contract of sale; obligations of the parties; there is nothing in the decision of the HLURB, as affirmed by the OP and the CA, which shows that the petitioner is being ordered to assume the obligation of any of the respondents.In a contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time. Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Contract to sell; ownership; right to mortgage the property by the owner. Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v. Spouses Lozada the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: “[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Dacion en pago; concept of.Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a mode of extinguishing an existing obligation and partakes the nature of sale as the creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the debtor’s debt. Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished.Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Co-ownership; when present.Art. 484. There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. Art. 1078. When there are two or more heirs, the whole estate of the decedent is, before its partition, owned in common by such heirs, subject to the payment of debts of the deceased. Teodoro S. Teodoro, et al. v. Danilo Espino, et al., G.R. No. 189248, February 5, 2014.

Co-ownership; right of possession.Certainly, and as found by the trial courts, the whole of Lot No. 2476 including the portion now litigated is, owing to the fact that it has remained registered in the name of Genaro who is the common ancestor of both parties herein, co-owned property. All, or both Teodoro Teodoro and respondents are entitled to exercise the right of possession as co-owners. Neither party can exclude the other from possession. Although the property remains unpartitioned, the respondents in fact possess specific areas. Teodoro Teodoro can likewise point to a specific area, which is that which was possessed by Petra. Teodoro Teodoro cannot be dispossessed of such area, not only by virtue of Petra’s bequeathal in his favor but also because of his own right of possession that comes from his co-ownership of the property. Teodoro S. Teodoro, et al. v. Danilo Espino, et al., G.R. No. 189248, February 5, 2014.

Alienable and disposable land; to prove that the land subject of an application for registration is alienable, an applicant must establish the existence of a positive act of the government; annotation in the survey plan is not sufficient. However, Cortez’ reliance on the foregoing annotation in the survey plan is amiss; it does not constitute incontrovertible evidence to overcome the presumption that the subject property remains part of the inalienable public domain. In Republic of the Philippines v. Tri-Plus Corporation, the Court clarified that, the applicant must at the very least submit a certification from the proper government agency stating that the parcel of land subject of the application for registration is indeed alienable and disposable, viz: It must be stressed that incontrovertible evidence must be presented to establish that the land subject of the application is alienable or disposable. In the present case, the only evidence to prove the character of the subject lands as required by law is the notation appearing in the Advance Plan stating in effect that the said properties are alienable and disposable. However, this is hardly the kind of proof required by law. To prove that the land subject of an application for registration is alienable, anapplicant must establish the existence of a positive act of the government such as a presidential proclamation or an executive order, an administrative action, investigation reports of Bureau of Lands investigators, and a legislative act or statute. The applicant may also secure a certification from the Government that the lands applied for are alienable and disposable. Republic of the Philippines v. Emmanuel C. Cortez, G.R. No. 186639. February 5, 2014.

Patrimonial property; susceptible to acquisitive prescription; start of the running of the prescriptive period.The Civil Code makes it clear that patrimonial property of the State may be acquired by private persons through prescription. This is brought about by Article 1113, which states that “[a]ll things which are within the commerce of man are susceptible to prescription,” and that [p]roperty of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription.”Nonetheless, Article 422 of the Civil Code states that “[p]roperty of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State.”  It is this provision that controls how public dominion property may be converted into patrimonial property susceptible to acquisition by prescription. After all, Article 420(2) makes clear that those property “which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth” are public dominion property. For as long as the property belongs to the State, although already classified as alienable or disposable, it remains property of the public dominion if when it is “intended for some public service or for the development of the national wealth.” Accordingly, there must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law. Republic of the Philippines v. Emmanuel C. Cortez,G.R. No. 186639. February 5, 2014.

Sale; warranties of sellers.Indeed, this Court is convinced – from an examination of the evidence and by the concurring opinions of the courts below – that Bignay purchased the property without knowledge of the pending Civil Case No. Q-52702.  Union Bank is therefore answerable for its express undertaking under the December 20, 1989 deed of sale to “defend its title to the Parcel/s of Land with improvement thereon against the claims of any person whatsoever.”  By this warranty, Union Bank represented to Bignay that it had title to the property, and by assuming the  obligation to defend such title, it promised to do so at least in good faith and with sufficient prudence, if not to the best of its abilities. Bignay EX-IM Philippines, Inc. v. Union Bank of the Philippines / Union Bank of the Philippines v. Bignay EX-IM Philippines, Inc., G.R. No. 171590 & G.R. No. 171598, February 12, 2014.

Breach of contract; gross negligence.The record reveals, however, that Union Bank was grossly negligent in the handling and prosecution of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case was dismissed by the CA for failure to file the required appellant’s brief.  Next, the ensuing Petition for Review on Certiorari filed with this Court was likewise denied due to late filing and payment of legal fees. Finally, the bank sought the annulment of the December 12, 1991 judgment, yet again, the CA dismissed the petition for its failure to comply with Supreme Court Circular No. 28-91. As a result, the December 12, 1991 Decision became final and executory, and Bignay was evicted from the property. Such negligence in the handling of the case is far from coincidental; it is decidedly glaring, and amounts to bad faith. “[N]egligence may be occasionally so gross as to amount tomalice [or bad faith].” Indeed, in culpa contractual or breach of contract, gross negligence of a party amounting to bad faith is a ground for the recovery of Damages by the injured party.Bignay EX-IM Philippines, Inc. v. Union Bank of the Philippines / Union Bank of the Philippines v. Bignay EX-IM Philippines, Inc., G.R. No. 171590 & G.R. No. 171598, February 12, 2014.

Unenforceable contract; entering into a contract without or beyond authority; sale of property despite objection of laymen’s committee.The Court finds it erroneous for the CA to ignore the fact that the laymen’s committee objected to the sale of the lot in question. The Canons require that ALL the church entities listed in Article IV (a) thereof should give its approval to the transaction. Thus, when the Supreme Bishop executed the contract of sale of petitioner’s lot despite the opposition made by the laymen’s committee, he acted beyond his powers. This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph (1) of the Civil Code, which provides, thus: Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers; In Mercado v. Allied Banking Corporation, the Court explained that: x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are ratified, because either they are entered into without or in excess of authority or they do not comply with the statute of frauds or both of the contracting parties do not possess the required legal capacity. x x x. Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Unenforceable contract; analogous cases. Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicial partition in behalf of co-heirs without the latter’s authority; where a mother as judicial guardian of her minor children, executes a deed of extrajudicial partition wherein she favors one child by giving him more than his share of the estate to the prejudice of her other children; and where a person, holding a special power of attorney, sells a property of his principal that is not included in said special power of attorney. Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Article 1456, Civil Code; implied trust; acquiring property through mistake. In the present case, however, respondents’ predecessor-in-interest, Bernardino Taeza, had already obtained a transfer certificate of title in his name over the property in question.  Since the person supposedly transferring ownership was not authorized to do so, the property had evidently been acquired by mistake.  In Vda. de Esconde v. Court ofAppeals, the Court affirmed the trial court’s ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code which states that “[i]f property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.” Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Constructive trust; concept of. A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary. Iglesia Felipina Independiente v. Heirs of Bernardino Taeza,G.R. No. 179597, February 3, 2014.

Constructive trust; prescriptive period.A constructive trust having been constituted by law between respondents as trustees and petitioner as beneficiary of the subject property, may respondents acquire ownership over the said property? The Court held in the same case of Aznar, that unlike in express trusts and resulting implied trusts where a trustee cannot acquire by prescription any property entrusted to him unless he repudiates the trust, in constructive implied trusts, the trustee may acquire the property through prescription even if he does not repudiate the relationship. It is then incumbent upon the beneficiary to bring an action for reconveyance before prescription bars the same.An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property. It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or the date of the issuance of the certificate of title over the property, Iglesia Felipina Independiente v. Heirs of Bernardino Taeza, G.R. No. 179597, February 3, 2014.

 Surety; concept of. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; solidary debtor. The fundamental reason therefor is that a contract of suretyship effectively binds the surety as a solidary debtor. This is provided under Article 2047 of the Civil Code which states: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before the surety could be made liable; it is enough that a demand for payment is made by the creditor for the surety’s liability to attach. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; distinguished from guarantor. Comparing a surety’s obligations with that of a guarantor, the Court, in the case of Palmares v. CA, illumined that a surety is responsible for the debt’s payment at once if the principal debtor makes default, whereas a guarantor pays only if the principal debtor is unable to pay, viz. : A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal’s debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; extension given to debtor without consent of guarantor; effect of. Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety & Insurance Co., Inc., and later in the case of Security Bank, held that Article 2079 of the Civil Code, which pertinently provides that “[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty,” equally applies to bothcontracts of guaranty and suretyship. The rationale therefor was explained by the Court as follows: The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Surety; extension given to debtor without consent of guarantor; the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding companies’ obligations to TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This is because Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods and amounts. No payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP under the Surety Bonds.

The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPAC’s loan agreements to the banks. Under this arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal debtor, and the banks as creditors. Trade and Investment Development Corporation of the Philippines (Formerly Philippine Export and Foreign Loan Guarantee Corporation) v. Asia Paces Corporation, et al., G.R. No. 187403. February 12, 2014.

Deed of mortgage; effect when the authorized agent failed to indicate in the mortgage that she was acting for and on behalf of her principal. Similarly, in this case, the authorized agent failed to indicate in the mortgage that she was acting for and on behalf of her principal. The Real Estate Mortgage, explicitly shows on its face, that it was signed by Concepcion in her own name and in her own personal capacity. In fact, there is nothing in the document to show that she was acting or signing as an agent of petitioner. Thus, consistent with the law on agency and established jurisprudence, petitioner cannot be bound by the acts of Concepcion. Nicanora G. v. Rural Bank of El Salvador, Inc. et al., G.R. No. 179625. February 24, 2014.

Bank; negligence of. At this point, we find it significant to mention that respondent bank has no one to blame but itself. Not only did it act with undue haste when it granted and released the loan in less than three days, it also acted negligently in preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of petitioner. We need not belabor that the words “as attorney-in-fact of,” “as agent of,” or “for and on behalf of,” are vital in order for the principal to be bound by the acts of his agent. Without these words, any mortgage, although signed by the agent, cannot bind the principal as it is considered to have been signed by the agent in his personal capacity. Nicanora G. v. Rural Bank of El Salvador, Inc. et al., G.R. No. 179625. February 24, 2014.

Agent; liability when deed of mortgage is signed in personal capacity. Concepcion, on the other hand, is liable to pay respondent bank her unpaid obligation under the Promissory Note dated June 11, 1982, with interest. As we have said, Concepcion signed the Promissory Note in her own personal capacity; thus, she cannot escape liability. She is also liable to reimburse respondent bank for all damages, attorneys’ fees, and costs the latter is adjudged to pay petitioner in this case. Nicanora G. v. Rural Bank of El Salvador, Inc. et al., G.R. No. 179625. February 24, 2014.

Article 1308 of the Civil Code; principle of mutuality of contracts. The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate “determined by the Bank to be its prime rate plus applicable spread, prevailing at the current month.” This stipulation was carried over to or adopted by the subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and increase the interest rates imposed on the Spouses Manalo. Such a unilateral determination of the interest rates contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil Code.Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Contracts; a contract where there is no mutuality between the parties partakes of the nature of a contract of adhesion. The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract of adhesion, and any obscurity will be construed against the party who prepared the contract, the latter being presumed the stronger party to the agreement, and who caused the obscurity. PNB should then suffer the consequences of its failure to specifically indicate the rates of interest in the credit agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo, to wit: The unilateral determination and imposition of the increased rates is violative of the principle of mutuality of contracts under Article 1308 of the Civil Code, which provides that ‘[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.’ A perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not require the conformity of the maker before a new interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of adhesion, is void. Any stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid. Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Interest; interest should be computed from the time of the judicial or extrajudicial demand; rule when there is no demand. Indeed, the Court said in Eastern Shipping Lines, Inc. v. Court of Appeals that interest should be computed from the time of the judicial or extrajudicial demand. However, this case presents a peculiar situation, the peculiarity being that the Spouses Manalo did not demand interest either judicially or extrajudicially. In the RTC, they specifically sought as the main reliefs the nullification of the foreclosure proceedings brought by PNB, accounting of the payments they had made to PNB, and the conversion of their loan into a long term one. In its judgment, the RTC even upheld the validity of the interest rates imposed by PNB. In their appellant’s brief, the Spouses Manalo again sought the nullification of the foreclosure proceedings as the main relief. It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial demand from which to reckon the interest on any amount to be refunded to them. Such demand could only be reckoned from the promulgation of the CA’s decision because it was there that the right to the refund was first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, the amount to be refunded and the interest thereon should earn interest to be computed from the finality of the judgment until the full refund has been made.Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Interest; Monetary Board Circular No. 799 reduced the interest rates from 12% per annum to 6% per annum. Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, already applied Monetary Board Circular No. 799 by reducing the interest rates allowed in judgments from 12% per annum to 6% per annum. Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Interest; prospective application of Monetary Board Circular No. 799. According to Nacar v. Gallery Frames, MB Circular No. 799 is applied prospectively, and judgments that became final and executory prior to its effectivity on July 1, 2013 are not to be disturbed but continue to be implemented applying the old legal rate of 12% per annum. Hence, the old legal rate of 12% per annum applied to judgments becoming final and executory prior to July 1, 2013, but the new rate of 6% per annum applies to judgments becoming final and executory after said date. Philippine National Bank v. Sps. Enrique Manalo & Rosalinda Jacinto, et al., G.R. No. 174433, February 24, 2014.

Mortgagee in good faith; doctrine of. In Bank of Commerce v. San Pablo, Jr., the doctrine of mortgagee in good faith was explained:There is, however, a situation where, despite the fact that the mortgagor is not the owner of the mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising there from are given effect by reason of public policy. This is the doctrine of “the mortgagee in good faith” based on the rule that all persons dealing with property covered by the Torrens Certificates of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public interest in upholding indefeasibility of a certificate of title, as evidence of lawful ownership of the land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon what appears on the face of the certificate of title. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Mortgagee in good faith; HSLB, as a mortgagee, had a right to rely in good faith on Delgado’s title, and in the absence of any sign that might arouse suspicion, HSLB had no obligation to undertake further investigation.When the property was mortgaged to HSLB, the registered owner of the subject property was Delgado who had in her name TCT No. 44848. Thus, HSLB cannot be faulted in relying on the face of Delgado’s title. The records indicate that Delgado was at the time of the mortgage in possession of the subject property and Delgado’s title did not contain any annotation that would arouse HSLB’s suspicion. HSLB, as a mortgagee, had a right to rely in good faith on Delgado’s title, and in the absence of any sign that might arouse suspicion, HSLB had no obligation to undertake further investigation. As held by this Court in Cebu International Finance Corp. v. CA: The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor of the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee or transferee in good faith is nonetheless entitled to protection. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Purchaser in good faith; doctrine of; duty of a prospective buyer. purchaser in good faith is defined as one who buys a property without notice that some other person has a right to, or interest in, the property and pays full and fair price at the time of purchase or before he has notice of the claim or interest of other persons in the property.When a prospective buyer is faced with facts and circumstances as to arouse his suspicion, he must take precautionary steps to qualify as a purchaser in good faith. In Spouses Mathay v. CA, we determined the duty of a prospective buyer: Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title, it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/tenants thereon, it is of course, expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants, i.e., whether or not the occupants possess the land en concepto de dueño, in the concept of the owner. As is the common practice in the real estate industry, an ocular inspection of the premises involved is a safeguard a cautious a nd prudent purchaser usually takes. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who, as in this case, is not in actual possession, it would then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a purchaser in good faith. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Notice of lis pendens; definition of; purpose of. Lis pendens is a Latin term which literally means, “a pending suit or a pending litigation” while a notice of lis pendens is an announcement to the whole world that a real property is in litigation, serving as a warning that anyone who acquires an interest over the property does so at his/her own risk, or that he/she gambles on the result of the litigation over the property. It is a warning to prospective buyers to take precautions and investigate the pending litigation.

The purpose of a notice of lis pendens is to protect the rights of the registrant while the case is pending resolution or decision. With the notice of lis pendens duly recorded and remaining uncancelled, the registrant could rest secure that he/she will not lose the property or any part thereof during litigation. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Notice of lis pendens; effect of actual knowledge of the annotated Notice of Lis Pendens. Indeed, at the time HSLB bought the subject property, HSLB had actual knowledge of the annotated Notice of Lis Pendens. Instead of heeding the same, HSLB continued with the purchase knowing the legal repercussions a notice of lis pendens entails. HSLB took upon itself the risk that the Notice of Lis Pendens leads to. As correctly found by the CA, “the notice of lis pendens was annotated on 14 September 1995, whereas the foreclosure sale, where the appellant was declared as the highest bidder, took place sometime in 1997. There is no doubt that at the time appellant purchased the subject property, it was aware of the pending litigation concerning the same property and thus, the title issued in its favor was subject to the outcome of said litigation.” Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

Mortgage; mortgagor must be absolute owner of the thing mortgaged. That the mortgagor be the absolute owner of the thing mortgaged is an essential requisite of a contract of mortgage. Article 2085 (2) of the Civil Code specifically says so: Art. 2085. The following requisites are essential to the contracts of pledge and mortgage: x x x x (2) That the pledgor or mortagagor be the absolute owner of the thing pledged or mortgaged. Succinctly, for a valid mortgage to exist, ownership of the property is an essential requisite. Reyes v. De Leon cited the case of Philippine National Bank v. Rocha where it was pronounced that “a mortgage of real property executed by one who is not an owner thereof at the time of the execution of the mortgage is without legal existence.” Such that, according to DBP v. Prudential Bank, there being no valid mortgage, there could also be no valid foreclosure or valid auction sale. Homeowners Savings and Loan Bank v. Asuncion P. Felonia and Lydia C. De Guzman, rep. by Maribel Frias, et al., G.R. No. 189477. February 26, 2014.

SPECIAL LAWS

 P.D. No. 957; subdivision lots; a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell.Thus, in Luzon Development Bank v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell. However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. x x x. x x x x x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party:“[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x” Philippine National Bank v. Teresita Tan Dee, et al., G.R. No. 182128, February 19, 2014.

Section 14 of P.D. No. 1529; original registration of title to land; who may apply. Applicants for original registration of title to land must establish compliance with the provisions of Section 14 of P.D. No. 1529, which pertinently provides that: Sec.14. Who may apply. The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives:(1) Those who by themselves or through their predecessors-in interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. (2) Those who have acquired ownership of private lands by prescription under the provision of existing laws.Republic of the Philippines v. Emmanuel C. Cortez, G.R. No. 186639. February 5, 2014.

Section 14 of P.D. No. 1529; original registration of title to land; requisites.Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or incomplete titles to public land acquired under Section 48(b)of C.A. No.141, as amended by P.D. No. 1073. “Under Section 14(1) [of P.D. No. 1529], applicants for registration of title must sufficiently establish first, that the subject land forms part of the disposable and alienable lands of the public domain; second, that the applicant and his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945, or earlier.” Republic of the Philippines v. Emmanuel C. Cortez, G.R. No. 186639. February 5, 2014.

Psychological incapacity; concept of; characterizations. “Psychological incapacity,” as a ground to nullify a marriage under Article 36 of the Family Code, should refer to no less than a mental – not merely physical – incapacity that causes a party to be truly incognitive of the basic marital covenants that concomitantly must be assumed and discharged by the parties to the marriage which, as so expressed in Article 68 of the Family Code, among others, include their mutual obligations to live together, observe love, respect and fidelity and render help and support.There is hardly any doubt that the intendment of the law has been to confine the meaning of “psychological incapacity” to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Psychological incapacity; emotional immaturity, irresponsibility, or even sexual promiscuity, cannot be equated with psychological incapacity.Keeping with these principles, the Court, in Dedel v. CA, held that therein respondent’s emotional immaturity and irresponsibility could not be equated with psychological incapacity as it was not shown that these acts are manifestations of a disordered personality which make her completely unable to discharge the essential marital obligations of the marital state, not merely due to her youth, immaturity or sexual promiscuity. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Psychological incapacity; although expert opinions furnished by psychologists regarding the psychological temperament of parties are usually given considerable weight by the courts, the existence of psychological incapacity must still be proven by independent evidence. Verily, although expert opinions furnished by psychologists regarding the psychological temperament of parties are usually given considerable weight by the courts, the existence of psychological incapacity must still be proven by independent evidence. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Psychological incapacity; refusal to live with Rodolfo and to assume her duties as wife and mother as well as her emotional immaturity, irresponsibility and infidelity do not rise to the level of psychological incapacity that would justify the nullification of the parties’ marriage. To the Court’s mind, Natividad’s refusal to live with Rodolfo and to assume her duties as wife and mother as well as her emotional immaturity, irresponsibility and infidelity do not rise to the level of psychological incapacity that would justify the nullification of the parties’ marriage. Indeed, to be declared clinically or medically incurable is one thing; to refuse or be reluctant to perform one’s duties is another. To hark back to what has been earlier discussed, psychological incapacity refers only to the most serious cases of personality disorders clearly demonstrative of an utter insensitivity or inability to give meaning and significance to the marriage. Republic of the Philippines v. Rodolfo O. De Gracia, G.R. No. 171557. February 12, 2014.

Section 14 (1), Presidential Decree No. 1529; judicial confirmation of imperfect or incomplete titles to public land; requisites. Section 14(1) of P.D. No. 1529 refers to the judicial confirmation of imperfect or incomplete titles to public land acquired under Section 48(b) of Commonwealth Act (C.A.) No. 141, or the Public Land Act, as amended by P.D. No. 1073. Under Section 14(1) of P.D. No. 1529, applicants for registration of title must sufficiently establish: first, that the subject land forms part of the disposable and alienable lands of the public domain; second, that the applicant and his predecessors-in-interest have been in open, continuous, exclusive, and notorious possession and occupation of the same; and third, that it is under a bona fide claim of ownership since June 12, 1945, or earlier. Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

Proof that land is alienable and disposable; certifications insufficient. However, the said certifications presented by the respondent are insufficient to prove that the subject properties are alienable and disposable. In Republic of the Philippines v. T.A.N. Properties, Inc., the Court clarified that, in addition to the certification issued by the proper government agency that a parcel of land is alienable and disposable, applicants for land registration must prove that the DENR Secretary had approved the land classification and released the land of public domain as alienable and disposable. They must present a copy of the original classification approved by the DENR Secretary and certified as true copy by the legal custodian of the records. Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

Possession and occupation; proof of specific acts of ownership must be presented to substantiate the claim of open, continuous, exclusive, and notorious possession and occupation of the land subject of the application. For purposes of land registration under Section 14(1) of P.D. No. 1529, proof of specific acts of ownership must be presented to substantiate the claim of open, continuous, exclusive, and notorious possession and occupation of the land subject of the application. Applicants for land registration cannot just offer general statements which are mere conclusions of law rather than factual evidence of possession. Actual possession consists in the manifestation of acts of dominion over it of such a nature as a party would actually exercise over his own property. Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

Possession and occupation; mere casual cultivation of portions of the land by the claimant does not constitute possession under claim of ownership. Although Cerquena testified that the respondent and its predecessors-in-interest cultivated the subject properties, by planting different crops thereon, his testimony is bereft of any specificity as to the nature of such cultivation as to warrant the conclusion that they have been indeed in possession and occupation of the subject properties in the manner required by law. There was no showing as to the number of crops that are planted in the subject properties or to the volume of the produce harvested from the crops supposedly planted thereon. Further, assuming ex gratia argumenti that the respondent and its predecessors-in-interest have indeed planted crops on the subject properties, it does not necessarily follow that the subject properties have been possessed and occupied by them in the manner contemplated by law. The supposed planting of crops in the subject properties may only have amounted to mere casual cultivation, which is not the possession and occupation required by law. “A mere casual cultivation of portions of the land by the claimant does not constitute possession under claim of ownership. For him, possession is not exclusive and notorious so as to give rise to a presumptive grant from the state. The possession of public land, however long the period thereof may have extended, never confers title thereto upon the possessor because the statute of limitations with regard to public land does not operate against the state, unless the occupant can prove possession and occupation of the same under claim of ownership for the required number of years.” Republic of the Philippines v. Remman Enterprises, Inc. represented by Ronnie P. Inocencio, G.R. No. 199310. February 19, 2014.

 (Rose thanks Ferdinand Richard Michael M. Manotoc for assisting in the preparation of this post.)

 

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