August 2013 Philippine Supreme Court Decisions on Commercial Law

Here are select August 2103 rulings of the Supreme Court of the Philippines on commercial law:

Insurance; prohibition against removal of property. Here, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place required the consent of Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter from any liability.

Insurance; rescission. Considering that the original policy was renewed on an “as is basis,” it follows that the renewal policy carried with it the same stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated the fire incident at the Pace Factory, which opined that “[g]iven that the location of risk covered under the policy is not the location affected, the policy will, therefore, not respond to this loss/claim.” It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:

July 2012 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Contracts; reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. For one party to demand the performance of the obligation of the other party, the former must also perform its own obligation. Accordingly, petitioner, not having provided the services that would require the payment of service fees as stipulated in the Lease Development Agreement, is not entitled to collect the same. Subic Bay Metropolitan Authority vs. Honorable Court of Appeals and Subic International Hotel Corporation; G.R. No. 192885, July 4, 2012.

Contracts; contract of sale vs. contract to sell. The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent.  It is the absence of the first element which distinguishes a contract of sale from that of a contract to sell.

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, such as, in most cases, the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and, thus, ownership is retained by the prospective seller without further remedies by the prospective buyer.

March 2012 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Contracts; bad faith, fraud. Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of fraud. Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not otherwise have been given. These are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. In this case, the evidence presented is insufficient to prove that respondent acted in bad faith or fraudulently in dealing with petitioner. R.S. Tomas, Inc. v. Rizal Cement Company, Inc.; G.R. No. 173155. March 21, 2012

Contracts; rescission of contract. The rescission referred to in Article 1191 of the Civil Code, more appropriately referred to as resolution, is on the breach of faith by the defendant, which is violative of the reciprocity between the parties. The right to rescind, however, may be waived, expressly or impliedly. While the right to rescind reciprocal obligations is implied, that is, that such right need not be expressly provided in the contract, nevertheless the contracting parties may waive the same.

Hence, in spite of the existence of dispute or controversy between the parties during the course of the Subcontract Agreement, HRCC had agreed to continue the performance of its obligations pursuant to the Subcontract Agreement. In view of the provision of the Subcontract Agreement, HRCC is deemed to have effectively waived its right to effect extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in the guise of rescinding the Subcontract Agreement, was not justified in implementing a work stoppage. F.F. Cruz & Co., Inc. vs. HR Construction Corp.; G.R. No. 187521. March 14, 2012

January 2012 Philippine Supreme Court Decisions on Civil Law

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

CIVIL CODE

Agency; principal-agent relationship.  The relationship of agency is one where one party called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. He who acts through another acts himself.

As provided under Article 1869 of the Civil Code, agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

The guidelines that would aid in differentiating sale and an agency has been formulated by the Court since 1970. The primordial differentiating consideration between the two (2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may do with the property as he pleases. Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288. January 16, 2012.

August 2011 Philippine Supreme Court Decisions on Civil Law

Here are select August 2011 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contracts; rescission; accion pauliana. Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile.

It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC’s transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury. This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC. Metropolitan Bank and Trust Company, substituted by Meridian Corporation vs. International Exchange Bank/Chuayuco Steel Manufacturing vs. International Exchange Bank; G.R. No. 176008/G.R. No. 176131, August 10, 2011.

Co-ownership. Article 484 of the Civil Code which defines co-ownership, states:

Art. 484. There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. . .

In the present case, petitioners insist that their predecessor-in-interest Lun co-owned the Gubat and Barcelona properties with his brother Fieng. To prove co-ownership over the Gubat property, petitioners presented: (1) tax declarations from 1929 to 1983 under the name of Fieng but paid by Lun; (2) the renewal certificate from Malayan Insurance Company Inc.; (3) the insurance contract; and (4) the statements of account from Supreme Insurance Underwriters which named Lun as administrator of the property. Likewise, to prove their right over the Barcelona property as legal heirs under intestate succession, petitioners presented a Deed of Sale dated 24 August 1923 between Chaco, as buyer, and Gabriel Gredona and Engracia Legata, as sellers, involving a price consideration of P1,200.

Updated BSP Rules Implementing the Truth in Lending Act

The Monetary Board issued Circular No. 730, Series of 2011 on July 20, 2011 entitled “Updated Rules Implementing the Truth in Lending Act to Enhance Loan Transaction Transparency.” These Updated Rules shall take effect on July 1, 2012.

The Truth in Lending Act was a law passed in 1963 to promote awareness by the public of the true cost of credit.  It requires a creditor to furnish the debtor prior to the consummation of the transaction a clear statement showing, among others, the total amount to be financed, the finance charges, and the percentage that the finance charges bear to the total amount to be financed expressed as a simple annual rate.  A person who willfully violates the provisions of the Act may be fined or imprisoned, or both.  Violation of the Act, however, will not affect the validity of the credit transaction.

The Act gave the Monetary Board the power to promulgate rules and regulations to carry out its provisions.  Pursuant to that rulemaking power, the Monetary Board mandated under the Updated Rules that banks may only charge interest based on the outstanding balance of a loan at the beginning of an interest period. For a loan where the principal is payable in installments, interest per installment period shall be calculated based on the outstanding balance of the loan at the beginning of each installment period. All loan-related documents and marketing materials shall show repayment schedules in a manner consistent with these guidelines.

The Updated Rules also clarified the definition of finance charge as including interest, fees, service charges, discounts and such other charges incident to the extension of credit. On the other hand, simple annual rate has been defined as the uniform percentage which represents the ratio between the finance charge and the amount to be financed under the assumption that the loan is payable in one year with single payment upon maturity and there are no upfront deductions to principal. If the loan has terms different from these assumptions, the effective annual interest shall be calculated and disclosed to the borrower as the true cost of the loan. The total amount to be financed, the finance charges, expressed in terms of pesos and centavos, the net proceeds of the loan, and the percentage that the finance charge bears to the total amount to be financed expressed as a simple annual rate or an effective annual interest rate shall be disclosed to the borrower in a disclosure statement prior to the consummation of the transaction.

Banks are required to post in conspicuous places in their premises the information as contained in the revised format of disclosure statement and the posters shall include an explicit notice that the disclosure statement is a required attachment to the loan contract and that the customer has a right to demand a copy of such disclosure.

The revised format of disclosure statement is specifically targeted towards small business, retail and consumer loans, the borrowers of which, historically, are almost always the victims of lack of information or misinformation regarding the true cost of credit.