September 2011 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Contracts; both parties at fault; rule not applicable to simulated contract.  The Heirs of Policronio contended that even assuming that the contract was simulated, the Heirs of Alfonso would still be barred from recovering the properties by reason of Article 1412 of the Civil Code, which provides that if the act in which the unlawful or forbidden cause does not constitute a criminal offense, and the fault is both on the contracting parties, neither may recover what he has given by virtue of the contract or demand the performance of the other’s undertaking. As the Heirs of Alfonso alleged that the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take from the Heirs of Policronio what had been given to their father.

On this point, the Court again disagrees. Article 1412 of the Civil Code is as follows:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

(1)     When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the other’s undertaking;

(2)     When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.

Article 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts with an illegal cause or subject-matter. This article presupposes the existence of a cause, it cannot refer to fictitious or simulated contracts which are in reality non-existent. As it has been determined that the Deed of Sale is a simulated contract, the provision cannot apply to it.

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August 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected August 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contract; novation; requirements; novation cannot be presumed.  As a civil law concept, novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation may be extinctive or modificatory.  It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is extinguished, or implied, when the new obligation is on every point incompatible with the old one.  The test of incompatibility lies on whether the two obligations can stand together, each one with its own independent existence.

For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must concur:

1)      There must be a previous valid obligation.

2)      The parties concerned must agree to a new contract.

3)      The old contract must be extinguished.

4)       There must be a valid new contract.

Novatio non praesumitur, or novation is never presumed, is a well-settled principle. Consequently, that which arises from a purported modification in the terms and conditions of the obligation must be clear and express. On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place.

It has often been said that the minds that agree to contract can agree to novate. And the agreement or consent to novate may well be inferred from the acts of a creditor, since volition may as well be expressed by deeds as by words. In the instant case, however, the acts of EPCIB before, simultaneously to, and after its acceptance of payments from petitioners argue against the idea of its having acceded or acquiesced to petitioners’ request for a change of the terms of payments of the secured loan. Far from it.  Thus, a novation through an alleged implied consent by EPCIB, as proffered and argued by petitioners, cannot be given imprimatur by the Court. St. James College of Parañaque; Jaime T. Torres, represented by his legal representative, James Kenley M. Torres; and Myrna M. Torres vs. Equitable PCI Bank, G.R. No. 179441, August 9, 2010.

Contracts; rescission. Under Article 1191 of the Civil Code, the aggrieved party has a choice between specific performance and rescission with damages in either case.  However, we have ruled that if specific performance becomes impractical or impossible, the court may order rescission with damages to the injured party.  After the lapse of more than 30 years, it is now impossible to implement the loan agreement as it was written, considering the absence of evidence as to the rising costs of construction, as well as the obvious changes in market conditions on the viability of the operations of the hotel.    We deem it equitable and practicable to rescind the obligation of DBP to deliver the balance of the loan proceeds to Maceda.  In exchange, we order DBP to pay Maceda the value of  Maceda’s cash equity of  P6,153,398.05 by way of actual damages, plus the applicable interest rate.  The present ruling comes within the purview of Maceda’s and DBP’s prayers for “other reliefs, just or equitable under the premises.” Bonifacio Sanz Maceda, Jr. vs. DBO / DBP Vs. Bonifacio Sanz Maceda, Jr., G.R. No. 174979 & G.R. No. 175010, August 11, 2010.

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July 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected July 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Agency; doctrine of apparent authority. The doctrine of apparent authority in respect of government contracts, has been restated to mean that the government is NOT bound by unauthorized acts of its agents, even though within the apparent scope of their authority. Under the law on agency, however, “apparent authority” is defined as the power to affect the legal relations of another person by transactions with third persons arising from the other’s manifestations to such third person such that the liability of the principal for the acts and contracts of his agent extends to those which are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred.

Apparent authority, or what is sometimes referred to as the “holding out” theory, or doctrine of ostensible agency, imposes liability, not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow misleading the public into believing that the relationship or the authority exists. The existence of apparent authority may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. It requires presentation of evidence of similar act(s) executed either in its favor or in favor of other parties.

Easily discernible from the foregoing is that apparent authority is determined only by the acts of the principal and not by the acts of the agent. The principal is, therefore, not responsible where the agent’s own conduct and statements have created the apparent authority.

In this case, not a single act of respondent, acting through its Board of Directors, was cited as having clothed its general manager with apparent authority to execute the contract with it. Sargasso Construction & Development Corporation / Pick & Shovel, Inc./Atlantic Erectors, Inc./ Joint Venture vs. Philippine Ports Authority, G.R. No. 170530, July 5, 2010.

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June 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected June 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Compensation. The Civil Code provides that compensation shall take place when two persons, in their own right, are creditors and debtors of each other. In order for compensation to be proper, it is necessary that: (i) each one of the obligors is bound principally and that he be at the same time a principal creditor of the other; (ii) both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (iii) the two debts are due: (iv) the debts are liquidated and demandable; and (v) over neither of them be any retention or controversy, commenced by third parties and communicated in due time to the debtor.

In this case, petitioners failed to properly discharge their burden to show that the debts are liquidated and demandable. Consequently, legal compensation is inapplicable.

A claim is liquidated when the amount and time of payment is fixed. If acknowledged by the debtor, although not in writing, the claim must be treated as liquidated. When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment is rendered liquidating such claim, it can be compensated against the plaintiff’s claim from the moment it is liquidated by judgment. Selwyn F. Lao, et al. vs. Special Plans, Inc., G.R. No. 164791, June 29, 2010 .

Contracts; Consideration; Adequacy of Price. Without directly saying so, the trial court held that the petitioners cannot sue upon the oral sale since in its own words: “[petitioners] have not paid in full Armando Gabriel, Sr. or his estate, so that the sale transaction between Armando Gabriel Sr. and [petitioners] [has] no adequate consideration.”

The trial court’s posture is patently flawed. For starters, they equated incomplete payment of the purchase price with inadequacy of price or what passes as lesion, when both are different civil law concepts with differing legal consequences, the first being a ground to rescind an otherwise valid and enforceable contract. Perceived inadequacy of price, on the other hand, is not a sufficient ground for setting aside a sale freely entered into, save perhaps when the inadequacy is shocking to the conscience. Anthony Orduña, et al. vs. Eduardo J. Fuentebella, et al., G.R. No. 176841, June 29, 2010.

Contracts; Autonomy of Parties. Unless the terms of a contract are against the law, morals, good customs, and public policy, such contract is law between the parties and its terms bind them. In Felsan Realty & Development Corporation v. Commonwealth of Australia, the Court regarded as valid and binding a provision in the lease contract that allowed the lessee to pre-terminate the same when fire damaged the leased building, rendering it uninhabitable or unsuitable for living. In this case, paragraph VIII of the lease contract between DBS and the Martins permitted rescission by either party should the leased property become untenantable because of natural causes. The Court similarly found the following provision enforeceable and binding: `In case of damage to the leased premises or any portion thereof by reason of fault or negligence attributable to the LESSEE, its agents, employees, customers, or guests, the LESSEE shall be responsible for undertaking such repair or reconstruction. In case of damage due to fire, earthquake, lightning, typhoon, flood, or other natural causes, without fault or negligence attributable to the LESSEE, its agents, employees, customers or guests, the LESSOR shall be responsible for undertaking such repair or reconstruction. In the latter case, if the leased premises become untenantable, either party may demand for the rescission of this contract and in such case, the deposit referred to in paragraph III shall be returned to the LESSEE immediately.’ Felicidad T. Martin, et al. vs. DBS Bank Philippines, Inc., et al. G.R. No. 174632 & G.R. No. 174804, June 16, 2010.

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April 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected April 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Agency; sale of land by an unauthorized agent. Respondent sold land owned by her daughter without any written authority. Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property. Based on a review of the records, there is absolutely no proof of respondent’s written authority to sell the lot to petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale of the lot, petitioners were of the belief that respondent was the owner of lot. Consequently, the sale of the lot by respondent who did not have a written authority from the real owner is void. A void contract produces no effect either against or in favor of anyone and cannot be ratified.  Sps. Joselina Alcantara and Antonio Alcantara, et al. vs. Brigida L. Nido, as attorney-in-fact of Revelen Srivastava, G.R. No. 165133, April 19, 2010.

Contracts; breach of; rebus sic stantibus. See Daniel T. So vs. Food Fest Land, Inc./Food Fest Land, Inc. vs. Daniel T. SoG.R. Nos. 183628 & 183670, April 7, 2010, below.

Contracts; void and voidable; prescription. See Manuel O. Fuentes, et al. vs. Conrado G. Roca, et al., G.R. No. 178902, April 21, 2010, below.

Damages; actual damages; unrealized profits. Food Fest leased property from So. Food Fest sought to pre-terminate the lease. So sued Food Fest for ejection, payment of arrears and damages. On the matter of damages, So claims that Food Fest did not exercise care in removing the installations and fixtures, thereby causing destruction to the premises to thus entitle him to damages, as well as to damages corresponding to unrealized profits (lucrum cessans) to answer for the period during which the unit was not rented out.

Unrealized profits fall under the category of actual or compensatory damages. If there exists a basis for a reasonable expectation that profits would have continued to be generated had there been no breach of contract, indemnification for damages based on such expected profits is proper.  This is, however, subject to the rule that a party is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Other than the photographs evincing damage to the premises, no evidence was proffered to show So’s entitlement to unrealized profits. That the leased unit was not subsequently leased is not solely attributable to Food Fest. As borne by the records, no renovation was undertaken by So for almost three years following Food Fest’s vacation of the premises in 2001. The quotations issued by construction companies for purposes of renovation were issued only in 2004. However, So may seek damages pursuant to the contract.

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March 2010 Philippine Supreme Court Decisions on Civil Law

Here are selected March 2010 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Conjugal partnership; effects of legal separation; forfeiture of share in profits. Among the effects of the decree of legal separation is that the conjugal partnership is dissolved and liquidated and the offending spouse would have no right to any share of the net profits earned by the conjugal partnership. Thus it is only the offending spouse’s share in the net profits, and not the share in the property, which is forfeited. Article 102(4) of the Family Code provides that “[f]or purposes of computing the net profits subject to forfeiture in accordance with Article 43, No. (2) and 63, No. (2), the said profits shall be the increase in value between the market value of the community property at the time of the celebration of the marriage and the market value at the time of its dissolution.” Mario Siochi vs. Alfredo Gozon, et al./Inter-Dimensional Realty, Inc. Vs. Mario Siochi, et al., G.R. No. 169900/G.R. No. 169977, March 18, 2010

Conjugal partnership; presumption of conjugal nature; need for marital consent. The Civil Code of the Philippines, the law in force at the time of the celebration of the marriage between Martha and Manuel in 1957, provides all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife. This includes property which is acquired by onerous title during the marriage at the expense of the common fund, whether the acquisition be for the partnership, or for only one of the spouses. The court is not persuaded by Titan’s arguments that the property was Martha’s exclusive property because Manuel failed to present before the RTC any proof of his income in 1970, hence he could not have had the financial capacity to contribute to the purchase of the property in 1970; and that Manuel admitted that it was Martha who concluded the original purchase of the property.  In consonance with its ruling in Spouses Castro v. Miat, Manuel was not required to prove that the property was acquired with funds of the partnership. Rather, the presumption applies even when the manner in which the property was acquired does not appear.  Here, we find that Titan failed to overturn the presumption that the property, purchased during the spouses’ marriage, was part of the conjugal partnership. Since the property was undoubtedly part of the conjugal partnership, the sale to Titan required the consent of both spouses.  Article 165 of the Civil Code expressly provides that “the husband is the administrator of the conjugal partnership”.  Likewise, Article 172 of the Civil Code ordains that “(t)he wife cannot bind the conjugal partnership without the husband’s consent, except in cases provided by law”. Titan Construction Corporation Vs. Manuel A. David, Sr. and Martha S. David, G.R. No. 169548, March 15, 2010.

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October 2009 Philippine Supreme Court Decisions on Tax Law

Here are selected October 2009 Philippine Supreme Court decisions on tax law:

Income tax; mortgage. Under Revenue Memorandum Circular 58-2008, if the property is an ordinary asset of the mortgagor, the creditable expanded withholding tax is due and must paid within ten (10) days following the end of the month in which the redemption period expires. The payment of the documentary stamp tax and the filing of the return thereof must be made within five (5) days from the end of the month when the redemption period expires.

Here, the executive judge approved the issuance of the certificate of sale to UCPB on March 1, 2002. Consequently, the three-month redemption period ended only on June 1, 2002. Only on this date then did the deadline for payment of creditable withholding tax and documentary stamp tax on the extrajudicial foreclosure sale become due. UCPB had, therefore, until July 10, 2002 to pay the creditable withholding tax and July 5, 2002 to pay the stamp tax. Since it paid both taxes on July 5, 2002, it is not liable for deficiencies.  Commissioner of Internal Revenue  vs. United Coconut Planters Bank, G.R. No. 179063, October 23, 2009.

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