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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October 2010 Philippine Supreme Court Decisions on Civil Law

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

Agency. The sale of the DMCI shares made by EIB is null and void for lack of authority to do so, for petitioners never gave their consent or permission to the sale. Moreover, Article 1881 of the Civil Code provides that “the agent must act within the scope of his authority.” Pursuant to the authority given by the principal, the agent is granted the right “to affect the legal relations of his principal by the performance of acts effectuated in accordance with the principal’s manifestation of consent.”  In the case at bar, the scope of authority of EIB as agent of petitioners is “to retain, apply, sell or dispose of all or any of the client’s [petitioners’] property,” if all or any indebtedness or other obligations of petitioners to EIB are not discharged in full by petitioners “when due or on demand in or towards the payment and discharge of such obligation or liability.” The right to sell or dispose of the properties of petitioners by EIB is unequivocally confined to payment of the obligations and liabilities of petitioners to EIB and none other. Thus, when EIB sold the DMCI shares to buy back the KKP shares, it paid the proceeds to the vendees of said shares, the act of which is clearly an obligation to a third party and, hence, is beyond the ambit of its authority as agent. Such act is surely illegal and does not bind petitioners as principals of EIB. Pacific Rehouse Corporation, et al. vs. EIB Securities, Inc.;G.R. No. 184036, October 13, 2010.

Attorney’s fees. It is settled that the award of attorney’s fees is the exception rather than the general rule; counsel’s fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney’s fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney’s fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney’s fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code. As such, it is necessary for the court to make findings of fact and law that would bring the case within the ambit of these enumerated instances to justify the grant of such award, and in all cases it must be reasonable. Filomena R. Benedicto vs. Antonio Villaflores; G.R. No. 185020. October 6, 2010.

Attorney’s fees. We have stressed that the award of attorney’s fees is the exception rather than the rule, as they are not always awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.  Attorney’s fees as part of damages is awarded only in the instances specified in Article 2208 of the Civil Code. Financial Building Corporation vs. Rudlin International Corporation, et al./Rudlin International Corporation, et al.  vs. Financial Building Corporation; G.R. No. 164186/G.R. No. 164347. October 4, 2010.

Attorney’s fees. An award of attorney’s fees is the exception rather than the rule.  The right to litigate is so precious that a penalty should not be charged on those who may exercise it erroneously.  It is not given merely because the defendant prevails and the action is later declared to be unfounded unless there was a deliberate intent to cause prejudice to the other party. Spouses Ramy and Zenaida Pudadera vs. Ireneo Magallanes and the late Daisy Teresa cortel Magallanes, substituted by her children, Nelly M. Marquez, et al.;G.R. No. 170073, October 18, 2010.

Compensation; partial set-off. Under the circumstances, fairness and reason dictate that we simply order the set-off of the petitioners’ contractual liabilities totaling P575,922.13 against the repair cost for the defective gutter, pegged at P717,524.00, leaving the amount of P141,601.87 still due from the respondent. Support in law for this ruling for partial legal compensation proceeds from Articles 1278, 1279, 1281, and 1283 of the Civil Code. In short, both parties are creditors and debtors of each other, although in different amounts that are already due and demandable. Spouses Victoriano chung and Debbie Chung vs. Ulanday Construction, Inc.;G.R. No. 156038, October 11, 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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Prescriptive Period for Annulment of Contract (Part 2)

Under Article 1391 of the Civil Code, an action for annulment of a contract must be brought within 4 years.

In Associated Bank vs. Spouses Justiniano S. Montano, Sr. and Ligaya Montano, et al, G.R. No. 166383, October 16, 2009, the Supreme Court ruled that under the circumstances of that case, an action for the annulment of a sale contract based on threat and intimidation allegedly committed by cronies of then President Marcos may be brought within 4 years from February 21, 1986, when President Marcos was ousted from power (see posting of November 22, 2009).  In Associated Bank, the respondents claimed that Tres Cruces Agro-Industrial Corporation was only forced to sell the properties to ICCI because of threats and intimidation allegedly employed by Marcos’ cronies upon the relatives of the Montanos while the latter were on self-exile outside the country.   The Montanos filed their complaint on September 15, 1989.

In First Philippine Holdings Corporation vs. Trans Middle East (Phils.) Equities Inc., G.R. No. 179505. December 4, 2009, First Philippine Holdings Corporation (FPHC) argued that the prescriptive period for the annulment of the sale of its PCI Bank shares to Trans Middle East (Phils.) Equities Inc. (TMEE) should be reckoned from February 24, 1986, the date when President Marcos left the country.   Here, FPHC sold its PCI Bank shares to TMEE on May 24, 1984.   FPHC filed its complaint to annul the sale on December 28, 1988 (which is more than 4 years after the date of the sale but within 4 years from the date President Marcos left the country).

The Supreme Court ruled that FPHC’s complaint was filed beyond the 4-year prescriptive period provided in Article 1391 of the Civil Code. Why is the result different from Associated Bank?

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December 2009 Philippine Supreme Court Decisions on Civil Law

Here are selected December 2009 rulings of the Supreme Court of the Philippines on civil law and related laws:

Agency; agency by estoppel. An agency by estoppel, which is similar to the doctrine of apparent authority requires proof of reliance upon the representations, and that, in turn, needs proof that the representations predated the action taken in reliance.

There can be no apparent authority of an agent without acts or conduct on the part of the principal and such acts or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of reasonable prudence by a third person as claimant, and such must have produced a change of position to its detriment. Such proof is lacking in this case.  Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009.

Agency; implied agency. Article 1869 of the Civil Code states that implied agency is derived 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. Implied agency, being an actual agency, is a fact to be proved by deductions or inferences from other facts.

On the other hand, apparent authority is based on estoppel and can arise from two instances. First, the principal may knowingly permit the agent to hold himself out as having such authority, and the principal becomes estopped to claim that the agent does not have such authority. Second, the principal may clothe the agent with the indicia of authority as to lead a reasonably prudent person to believe that the agent actually has such authority. In an agency by estoppel, there is no agency at all, but the one assuming to act as agent has apparent or ostensible, although not real, authority to represent another.

The law makes no presumption of agency and proving its existence, nature and extent is incumbent upon the person alleging it. Whether or not an agency has been created is a question to be determined by the fact that one represents and is acting for another. Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009.

Agency;  implied agency. The basis for agency is representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority and said acts have the same legal effect as if they were personally executed by the principal. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions, while on the part of the agent, there must be an intention to accept the appointment and act on it. Absent such mutual intent, there is generally no agency.

There is no implied agency in this case because PAGCOR did not hold out to the public as the principal of ABS Corporation. PAGCOR’s actions did not mislead the public into believing that an agency can be implied from the arrangement with the junket operators, nor did it hold out ABS Corporation with any apparent authority to represent it in any capacity. The Junket Agreement was merely a contract of lease of facilities and services.  Yun Kwan Byung vs. Philippine Amusement Gaming Corporation, G.R. No. 163553, December 11, 2009.

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November 2009 Philippine Supreme Court Decisions on Civil Law

Here are selected November 2009 Philippine Supreme Court decisions on civil law and related laws:

Civil Code

Contract;  contract of adhesion.     A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Contracts of adhesion are not invalid per se.  Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent.  Norton Resources and Development Corporation vs. All Asia Bank Corporation, G.R. No. 162523. November 25, 2009

Contract;  freedom of contract. Petitioners allege that the Kasulatan was entered into by the parties freely and voluntarily. They maintain that there was already a meeting of the minds between the parties as regards the principal amount of the loan, the interest thereon and the property given as security for the payment of the loan, which must be complied with in good faith. Hence, they assert that the Court of Appeals should have given due respect to the provisions of the Kasulatan. They also stress that it is a settled principle that the law will not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing.

Petitioners’ contentions deserve scant consideration. In Abe v. Foster Wheeler Corporation, we held that the freedom of contract is not absolute. The same is understood to be subject to reasonable legislative regulation aimed at the promotion of public health, morals, safety and welfare. One such legislative regulation is found in Article 1306 of the Civil Code which allows the contracting parties to “establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.”

To reiterate, we fully agree with the Court of Appeals in holding that the compounded interest rate of 5% per month, is iniquitous and unconscionable. Being a void stipulation, it is deemed inexistent from the beginning. The debt is to be considered without the stipulation of the iniquitous and unconscionable interest rate. Accordingly, the legal interest of 12% per annum must be imposed in lieu of the excessive interest stipulated in the agreement, in line with our ruling in Ruiz v. Court of Appeals.  Sps. Isagani & Diosdada Castro vs. Angelina de Leon Tan, G.R. No. 168940, November 24, 2009.

Contract; laches. The essence of laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, through due diligence, could have been done earlier, thus giving rise to a presumption that the party entitled to assert it had either abandoned or declined to assert it.

Respondent discovered in 1991 that a new owner’s copy of OCT No. 535 was issued to the Eniceo heirs. Respondent filed a criminal case against the Eniceo heirs for false testimony. When respondent learned that the Eniceo heirs were planning to sell the Antipolo property, respondent caused the annotation of an adverse claim. On 16 January 1996, when respondent learned that OCT No. 535 was cancelled and new TCTs were issued, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner. Respondent’s actions negate petitioner’s argument that respondent is guilty of laches.  Kings Properties Corporation, Inc. vs. Canuto A. Galido, G.R. No. 170023. November 27, 2009

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Prescriptive period for annulment of contract

How is the prescriptive period computed for the annulment of a contract entered into because of alleged threats and intimidation committed by cronies of then President Marcos?

Under the Civil Code, the action must be brought within four years from the “time the defect of the consent ceases.”  It provides:

Art. 1391. An action for annulment shall be brought within four years.

This period shall begin: In case of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases.

In Associated Bank vs. Spouses Justiniano S. Montano, Sr. and Ligaya Montano, et al, G.R. No. 166383, October 16, 2009, the previous owners of the property claimed that the sale of property was made after their relatives were intimidated and threatened by Marcos cronies. The sale was done in 1976 and an action for reconveyance was filed in 1989.

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