October 2012 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

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

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

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

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

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April 2012 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Compensation/set-off; requisites. The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of the Philippines:

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;

(2) That 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;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.

Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.

Based on the foregoing, in order for compensation to be valid, the five requisites mentioned in the above-quoted Article 1279 should be present, as in the case at bench. Insular Investment and Trust Corporation vs. Capital One Equities Corp. and Planters Development Bank; G.R. No. 183308, April 25, 2012

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February 2012 Philippine Supreme Court Decisions on Civil Law

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

Agency; Accounting. Article 1891 of the Civil Code contains a few of the obligations owed by an agent to his principal – Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal. Every stipulation exempting the agent from the obligation to render an account shall be void.

It is evident that the reason behind the failure of petitioner to render an accounting to respondent is immaterial. What is important is that the former fulfill her duty to render an account of the relevant transactions she entered into as respondent’s agent. Caridad Segarra Sazon vs. Letecia Vasquez-Menancio, G.R. No. 192085. February 22, 2012.

Agency; Fruits. Every agent is bound to deliver to the principal whatever the former may have received by virtue of the agency, even though that amount may not be owed to the principal. Caridad Segarra Sazon vs. Letecia Vasquez-Menancio, G.R. No. 192085. February 22, 2012.

Attorney’s fees; When payable. With respect to attorney’s fees, it is proper on the ground that petitioner’s act of denying respondent and its employees access to the leased premises has compelled respondent to litigate and incur expenses to protect its interest. Also, under the circumstances prevailing in the present case, attorney’s fees may be granted on grounds of justice and equity. Manila International Airport vs. Avia Filipinas International, Inc., G.R. No. 180168. February 27, 2012

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November 2011 Philippine Supreme Court Decisions on Civil Law

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

Civil Code

Contracts; interpretation. Article 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.

We cannot accede to the petitioner’s plea.   It is quite notable that the petitioner did not specify which of the stipulations of the deed of conditional sale she had difficulty or deficiency in understanding. Her generalized averment of having been misled should, therefore, be brushed aside as nothing but a last attempt to salvage a hopeless position. Our impression is that the stipulations of the deed of conditional sale were simply worded and plain enough for even one with a slight knowledge of English to easily understand.

The petitioner was not illiterate. She had appeared to the trial court to be educated, its cogent observation of her as “lettered” (supra, at p. 7 hereof) being based on how she had composed her correspondences to DBP. Her testimony also revealed that she had no difficulty understanding English.

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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.

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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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