case digests in civil law review 2.docx

#12 Personally Digested by:
Domingo, Roxanne G.
Civil Law Review 2, SSC-R Law

Benjamin E. Ravago, Petitioner, vs. Metropolitan Bank & Trust Company, substituted by Bright Ventures Realty, Inc., Respondents. (Gr. No. 188739, August 5, 2015)
PERALTA, J.:
Facts:
Sometime in October and December 1997, petitioner and his wife obtained loan from respondent bank the total of which amounted to P25,000,000,000.00. The loans were secured by a real estate mortgage over a 1,506 square meter lot with improvements owned by petitioner and which is located in San Juan, Metro Manila. Subsequently, petitioner and his wife failed to pay their loan obligation thereby prompting respondent to institute an extrajudicial foreclosure proceeding over the mortgaged property through a notary public. After a successful conduct of the foreclosure sale, respondent emerged as the highest bidder and title was subsequently transferred to it. A Complaint for Annulment of Notarial Foreclosure Proceedings Including Auction Sale, Certificate of Sale and Consolidated Title with Damages and Injunction was filed by petitioner before the RTC arguing among others that the extrajudicial foreclosure by means of notary public did not comply with the procedure provided for under the provisions of Administrative Order No. 3 issued by the Supreme Court in October 1984, in relation to extrajudicial foreclosure proceedings under Act No. 3135. The RTC as well as the CA ruled against the complaint.
Issue: Whether the extrajudicial foreclosure of the subject lot conducted by the notary public is null and void on the ground that respondent did not pay the docket fee.
Ruling: The extrajudicial foreclosure proceeding is valid.
It can be gleamed from the amendatory provisions of A.M. No. 99-10-05-0 that, upon the effectivity of the said amendments on January 15, 2000, applications for extrajudicial foreclosures under the direction of a notary public are already among those which are required to be filed with the Executive Judge.
Hence, it is clear that prior to the effectivity of A.M. No. 99-10-05-0, applications for notarial foreclosure which are conducted by a notary public were not required to be filed with the court. This is precisely the reason why the Court in the China Banking case held that extrajudicial foreclosures conducted by a notary public do not come within the coverage of the provisions of Administrative Order No. 3, which, among others, require the sheriff to receive and docket the application for extrajudicial foreclosure and collect the prescribed filing fees.
In the present case, respondent filed its Petition For Extrajudicial Foreclosure of Real Estate Mortgage in February 1999 while the foreclosure sale was conducted on June 3, 1999, both of which happened before the effectivity of A.M. No. 99-10-05-0.
In connection with the foregoing discussions, this Court, in the case of RPRP Ventures Management & Development Corporation v. Judge Guadiz, Jr., et. al., had the occasion to rule that the legal fees prescribed under the then existing Section 7(c), Rule 141 of the Rules of Court, with respect to requests for extrajudicial foreclosure of real estate or chattel mortgages, do not apply to applications for extrajudicial foreclosure of real estate mortgages filed with a notary public. xxx
AQA Global Construction, Inc., Petitioner, vs. Planters Development Bank, Respondent. (Gr. No. 211649, August 12, 2015)
Je-An Supreme Builders and Sales Corporation, Petitioner, vs. Planters Development Bank, Respondent. (Gr. No. 211742, August 12, 2015)
PERLAS-BERNABE, J.:
Facts:
Kwong-on Trading Corporation (KTC) obtained a loan from Plantersbank in the amount of P14,000,000.00 secured by a mortgage over nineteen parcels of land situated in San Juan, Metro Manila on February 28, 2003. KTC failed to pay the loan thereby prompting Plantersbank to extrajudicially foreclose the mortgaged properties in which it emerged as the highest bidder in the public auction sale held on May 5, 2010. KTC likewise failed to redeem the properties resulting to the cancellation of the Transfer Certificate of Titles in its name and issuance of another in the name of Plantersbank. Plantersbank applied for a writ of possession which was eventually granted by the RTC in a decision dated January 6, 2012. The writ was issued on February 2, 2012 and served, together with the Notice to Vacate to petitioner AQA Global Construction Inc. (AQA), which occupied the subject properties at the time.
AQA filed a manifestation and motion to intervene averring that its possession of the subject properties is adverse to that of KTC and that, it stemmed from a ten year contract of lease with petitioner Je-An Supreme Builders and Sales Corporation (Je-An) which on the other hand bought the property from Little Giant Realty Corporation (Little Giant), the registered owner of the properties. Je-An on its part filed a Third Party Claim to stay implementation of the writ on the ground that its right to possess the properties was derived from a Contract to Sell dated January 15, 2003 executed by Little Giant. Plantersbank, in the main, argued that the lease between Je-An and AQA cannot bind it since the same was not registered and annotated on the titles over the subject properties.
Issue: 1. Whether the possession of AQA, being the lessee of Je-An in an unregistered contract of lease, of the subject properties is adverse to that of KTC entitling the former to stay the implementation of the writ.
2. Whether AQA's claim that its status as tenant renders its possession adverse to that of Plantersbank.
3. Whether the unregistered lease between AQA and Je-An is binding with Plantersbank.
Ruling:
1. The possession of AQA of the subject properties is not adverse to that of KTC.
The general rule is that, after the lapse of the redemption period, the purchaser in a foreclosure sale becomes the absolute owner of the property purchased who is entitled to the possession of the said property. Upon ex parte petition, it is ministerial upon the trial court to issue the writ of possession in his favor. The exception, however, is provided under Section 33, Rule 39 of the Rules, which applies suppletorily to extrajudicial foreclosure of real estate mortgages. Under the said provision of law, the possession of the mortgaged property may be awarded to a purchaser in the extrajudicial forclosure unless a third party is actually holding the property adversely to the judgment debtor.
xxx
xxx For the exception to apply, however, the property need not only be possessed by a third party, but also held by him adversely to the judgment obligor—such as that of a co-owner, agricultural tenant or usufructuary, who possess the property in their own right and not merely the successor or transferee of the right of possession of, or priviy to, the judgment obligor.
In this case, petitioners' claim of right of possession over the subject properties is not analogous to any of the foregoing as to render such possession adverse to the judgment obligor, KTC, under legal contemplation.
2. Negative.
The Court simply cannot subscribe to AQA's claim that its status as tenant renders its possession adverse to that of Plantersbank xxx. xxx the tenant contemplated clearly refers to an "agricultural tenant" who; (a) possesses the property in his own right; and (b) is protected by Presidential Decree (PD) No. 1038 wherein a tenant-tiller of private agricultural lands devoted to crops other that rice and/or corn shall not be removed, ejected, ousted or excluded from his farmholding unless directed a final decision decision or order of the court for causes provided by law, which does not include sale of the land—and not to a "civil law tenant".
3. The unregistered contract of lease between AQA and Je-An is not binding with Planterbank.
It bears to emphasize that a civil law lease is a mere personal right. It partakes of the nature of a real right when it is recorded on the title of the lessor only in the sense that it is binding even as against third persons without actual notice of the transaction. Under Section 51 of PD no. 1529, otherwise known as the Land Registration Decree, "no deed, mortgage, lease or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land" until its registration. In the present case, AQA's unregistered lease with Je-An is, thus, not binding on Plantersbank.

Maybank Philippines, Inc. (Formerly PNB-Republic Bank), Petitioner vs. Spouses Oscar and Nenita Tarrosa, Respondents. (Gr. No. 213014, October 14, 2015)
PERLAS-BERNABE, J.:
Facts:
On December 15, 1980, respondent Spouses Tarrosa obtained a loan from PNB-Republic Bank, now Maybank Philippines, in the amount of P91,000.00 secured by a real estate mortgage over a 500-square meter parcel of land situated in San Carlos, Negros Occidental. After payment of said loan, the respondents again obtained another loan from Maybank in the amount of P60,000.00 payable on March 11, 1984. Respondents failed to pay upon maturity. Sometime in April 1998, a Final Demand Letter was sent by petitioner bank to respondents requiring the latter to settle their loan obligation which already amounted to P564,679.91 inclusive of principal, interest, and penalty charges. The spouses offered to settle it in a lesser amount to which the bank refused. On June 25, 1998, Maybank instituted an extrajudicial foreclosure proceeding and the subject property was eventually sold in a public auction to Philmay Property Inc. (PPI). The spouses then filed a complaint for declaration of nullity and invalidity of the foreclosure sale averring among others that the second loan is an unsecured loan and that, Maybank's right to foreclose had already prescribed.
Issue:
When are the respondent spouses considered in default under the law?
Ruling:
In order that the debtor may be in default, it is necessary that: (a) the obligation be demandable and already liquidated; (b) the debtor delays performance; and (c) the creditor requires the performance judicially or extrajudicially, unless demand is not necessary. – i.e., when there is an express stipulation to that effect; where the law so provides; when the period is the controlling motive or the principal inducement for the creation of the obligation; and where demand would be useless. Moreover, it is not sufficient that the law or obligation fixes a date for performance; it must further state expressly that after the period lapses, default will commence. Thus, it is only when demand to pay is unnecessary in case of the aforementioned circumstances, or when required, such demand is made and subsequently refused that the mortgagor can be considered in default and the mortgagee obtains the right to file an action to collect the debt or foreclose the mortgage.

Maybank Philippines, Inc. (Formerly PNB-Republic Bank), Petitioner vs. Spouses Oscar and Nenita Tarrosa, Respondents. (Gr. No. 213014, October 14, 2015)
PERLAS-BERNABE, J.:
Facts:
On December 15, 1980, respondent Spouses Tarrosa obtained a loan from PNB-Republic Bank, now Maybank Philippines, in the amount of P91,000.00 secured by a real estate mortgage over a 500-square meter parcel of land situated in San Carlos, Negros Occidental. After payment of said loan, the respondents again obtained another loan from Maybank in the amount of P60,000.00 payable on March 11, 1984. Respondents failed to pay upon maturity. Sometime in April 1998, a Final Demand Letter was sent by petitioner bank to respondents requiring the latter to settle their loan obligation which already amounted to P564,679.91 inclusive of principal, interest, and penalty charges. The spouses offered to settle it in a lesser amount to which the bank refused. On June 25, 1998, Maybank instituted an extrajudicial foreclosure proceeding and the subject property was eventually sold in a public auction to Philmay Property Inc. (PPI). The spouses then filed a complaint for declaration of nullity and invalidity of the foreclosure sale averring among others that the second loan is an unsecured loan and that, Maybank's right to foreclose had already prescribed. The RTC as well as the CA ruled that the prescriptive period should be reckoned from March 11, 1984 when the second loan became due since the demand was not a condition precedent for the accrual of the bank's right to foreclose under the mortgage agreement.
Issue:
Whether petitioner bank's right to foreclose is already barred by laches thereby rendering the foreclosure sale invalid.
When should the right to foreclose by the petitioner bank be reckoned?
Ruling:
In the present case, both the CA and the RTC reckoned the accrual of Maybank's cause of action to foreclose the real estate mortgage over the subject property from the maturity of the second loan on May 11, 1984. The CA further held that demand was unnecessary for the accrual of the cause of action in light of paragraph 5 of the real estate mortgage, which pertinently provides:
5. In the event that the Mortgagor herein should fail or refuse to pay any of the sums of money secured by this mortgage, or any part thereof, in accordance with the terms and conditions stipulated herein, then and in any such case, the Mortgagee shall have the right, at its election to foreclose this mortgage. [xxx].
However, this provision merely articulated Maybank's right to elect foreclosure upon Sps. Tarrosa's failure or refusal to comply with the obligation secured, which is one of the rights duly accorded to mortgagees in a similar situation. In no way it affect the general parameters of default, particularly the need of prior demand under Article 1169 of the Civil Code, considering that it did not expressly declare: (a) that demand shall not be necessary in order that the mortgagor may be in default; or (b) that default shall commence upon mere failure to pay on maturity date of the loan. Hence, the CA erred in construing the above provision as one through which the parties had dispensed with demand as a condition sine qua non for the accrual of Maybank's right to foreclose the real estate mortgage over the subject property, and thereby, mistakenly reckoned such right from the maturity date of the loan on March 11, 1984. In the absence of showing that demand is unnecessary for the loan obligation to become due and demandable, Maybank's right to foreclose the real estate mortgage accrued only after the lapse of the period indicated in its final demand letter for Sps. Tarrosa to pay, i.e., after the lapse of five (5) days from receipt of the final demand letter dated March 4, 1998,

Philippine National Bank, Petitioner, vs. Spouses Hippocrates and Melanie Pimentel, Respondents. (Gr. No. 187882, August 24, 2015)
PERALTA, J,:
Facts:
Respondent Spouses obtained a loan from Petitioner bank in the amount of P7,440,000.00 secured by a real estate mortgage over their property. Respondents defaulted thus the institution of the extrajudicial foreclosure proceedings wherein petitioner PNB was the highest bidder. The one year redemption period expired on November 5, 1998 thus consolidating title in the name of PNB. Respondent spouses refused to vacate the property prompting PNB to file an ex-parte Petition for the Issuance of Writ of Possession in November 2001. Meanwhile, on March 9, 2001, respondents also filed a complaint for the Annulment of Foreclosure of Mortgage with the RTC. The parties however amicably settled the case and entered into a Compromise Agreement dated October 10, 2002 wherein it was agreed that respondents are withdrawing their case against PNB and the parties executed a Deed of Conditional Sale whereby the spouses repurchased the subject property for the consideration of P7,500,000.00. After failure of the spouses to pay the amortizations stipulated in the agreement, PNB cancelled the Deed of Conditional sale and subsequently applied for a writ of possession with the RTC. Both RTC and CA denied the issuance of the writ.
Issue:
Whether the execution of the Deed of Conditional Sale after the Foreclosure Sale has been consummated amounts to novation.
Ruling:
xxx it must be pointed out that this case does not involve the concept of novation, which presupposes that the original contract is still valid and subsisting when another contract supplanted the previous one. That is not the situation in this case. Once the mortgaged property was sold at public auction and title to the property has passed and had been consolidated in the name of the winning bidder, the duties and obligations of the parties under the loan and mortgage contract had been fulfilled and the contact is extinguished. The original loan and mortgage contract had been extinguished through payment or performance.
xxx the mortgagor-mortgagee regime, or the first contract, was extinguished and terminated once the winning bidder at the public auction became the absolute owner of the subject property. Thus, by the time PNB and respondents entered into the subsequent contract of conditional sale, the mortgage contract was no longer existing.
xxx
Thus, at this point, where PNB is already the absolute owner of subject property and entitled to its possession, it had all the right to dispose of subject property by entering into a NEW contact of sale. This new contract is now an entirely distinct and separate one, considering that, as discussed above, the mortgagor-mortgagee relationship between herein parties had already been terminated and extinguished by the fulfillment of all the duties and obligations of the parties under said mortgage contract. In fact, as such absolute owner, PNB could have rightfully transacted the contract of sale with any party other than herein respondents.

Philippine National Bank, Petitioner, vs. Spouses Hippocrates and Melanie Pimentel, Respondents. (Gr. No. 187882, August 24, 2015)
PERALTA, J,:
Facts:
Respondent Spouses obtained a loan from Petitioner bank in the amount of P7,440,000.00 secured by a real estate mortgage over their property. Respondents defaulted thus the institution of the extrajudicial foreclosure proceedings wherein petitioner PNB was the highest bidder. The one year redemption period expired on November 5, 1998 thus consolidating title in the name of PNB. Respondent spouses refused to vacate the property prompting PNB to file an ex-parte Petition for the Issuance of Writ of Possession in November 2001. Meanwhile, on March 9, 2001, respondents also filed a complaint for the Annulment of Foreclosure of Mortgage with the RTC. The parties however amicably settled the case and entered into a Compromise Agreement dated October 10, 2002 wherein it was agreed that respondents are withdrawing their case against PNB and the parties executed a Deed of Conditional Sale whereby the spouses repurchased the subject property for the consideration of P7,500,000.00. After failure of the spouses to pay the amortizations stipulated in the agreement, PNB cancelled the Deed of Conditional sale and subsequently applied for a writ of possession with the RTC. Both RTC and CA denied the issuance of the writ.
Issue:
May PNB still regain possession of the subject property by applying for a writ of possession under Act no. 3135?
Ruling:
The Court answers in the negative.
Section 7 of Act No. 3135 only provides for the procedure by which possession may be expeditiously turned over to the new owner, that is, the winning bidder at the public auction. It distinctly states that said rule of procedure for the issuance of a writ of possession applies only to "any sale made under the provisions of this Act xxx." The rule is meant to benefit only the winning bidder at the public auction conducted in accordance with the provisions of Act No. 3135.
Plainly, when PNB executed the deed of conditional sale in favor of herein respondents, the transaction is no longer a sale under the provisions of Act No. 3135. On this ground alone, it is evident that PNB could no longer obtain a writ of possession under the provisions of Act No. 3135.

Metro Manila Transit Corporation, Petitioner, vs. Reynaldo Cuevas and Junnel Cuevas, represented by Reynaldo Cuevas, Respondents. (Gr. No. 167797, June 15, 2015)
BERSAMIN, J.:
Facts:
In 1990, Metro Manila Transit Corporation (MMTC) and Mina's Transit Corporation (Mina's Transit) entered into an agreement to sell whereby the latter bought several bus units from the former at a stipulated price. They agreed that MMTC would retain the ownership of the buses until certain conditions were met, but in the meantime, Mina's Tansit could operate the buses within Metro Manila. In 1994, one of the buses subject of the agreement to sell hit and damaged a motorcycle owned by Reynaldo and driven by Junnel. Respondents herein sued MMTC and Mina's Transit for damages in the RTC of Cavite. RTC as well as the CA on appeal ruled in favor of respondents holding MMTC and Mina's Transit solidarily liable to the former.
Issue: Whether MMTC is liable for the injuries sustained by the respondents despite the provision in the agreement to sell that shielded it from liability.
Ruling:
The Court has reiterated the registered-owner rule in other rulings, like in Filcar Transport Services v. Espinas, to wit:
x x x It is well settled that in case of motor vehicle mishaps, the registered owner of the motor vehicle is considered as the employer of the tortfeasor-driver, and is made primarily liable for the tort committed by the latter under Article 2176, in relation with Article 2180, of the Civil Code.

In Equitable Leasing Corporation v. Suyom, we ruled that in so far as third persons are concerned, the registered owner of the motor vehicle is the employer of the negligent driver, and the actual employer is considered merely as an agent of such owner.

xxx

In upholding the liability of Equitable, as registered owner of the tractor, this Court said that "regardless of sales made of a motor vehicle, the registered owner is the lawful operator insofar as the public and third persons are concerned; consequently, it is directly and primarily responsible for the consequences of its operation." The Court further stated that "[i]n contemplation of law, the owner/operator of record is the employer of the driver, the actual operator and employer being considered as merely its agent." Thus, Equitable, as the registered owner of the tractor, was considered under the law on quasi delict to be the employer of the driver, Raul Tutor; Ecatine, Tutor's actual employer, was deemed merely as an agent of Equitable.

Thus, it is clear that for the purpose of holding the registered owner of the motor vehicle primarily and directly liable for damages under Article 2176, in relation with Article 2180, of the Civil Code, the existence of an employer-employee relationship, as it is understood in labor relations law, is not required. It is sufficient to establish that Filcar is the registered owner of the motor vehicle causing damage in order that it may be held vicariously liable under Article 2180 of the Civil Code. (Citations Omitted)
Indeed, MMTC could not evade liability by passing the buck to Mina's Transit. The stipulation in the agreement to sell did not bind third parties like the Cuevases, who were expected to simply rely on the data contained in the registration certificate of the erring bus.

Metro Manila Transit Corporation, Petitioner, vs. Reynaldo Cuevas and Junnel Cuevas, represented by Reynaldo Cuevas, Respondents. (Gr. No. 167797, June 15, 2015)
BERSAMIN, J.:
Facts:
In 1990, Metro Manila Transit Corporation (MMTC) and Mina's Transit Corporation (Mina's Transit) entered into an agreement to sell whereby the latter bought several bus units from the former at a stipulated price. They agreed that MMTC would retain the ownership of the buses until certain conditions were met, but in the meantime, Mina's Tansit could operate the buses within Metro Manila. In 1994, one of the buses subject of the agreement to sell hit and damaged a motorcycle owned by Reynaldo and driven by Junnel. Respondents herein sued MMTC and Mina's Transit for damages in the RTC of Cavite. RTC as well as the CA on appeal ruled in favor of respondents holding MMTC and Mina's Transit solidarily liable to the former. The RTC and the CA did not however rule on the crossclaim filed by MMTC against its co-defendant Mina's Transit.
Issue: Whether the MMTC is entitled to its crossclaim against Mina's Transit despite the fact that the RTC and CA did not act on the same.
Ruling: Yes, MMTC's crossclaim should be granted.
According to Filcar Transport Services v. Espinas, MMTC could recover from Mina's Transit, the actual employer of the negligent driver, under the principle of unjust enrichment, by means of a cross-claim seeking reimbursement of all the amounts that it could be required to pay as damages arising from the driver's negligence. A cross-claim is a claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein, and may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

Anastacio Tingalan, substituted by his heirs, namely: Romeo L. Tingalan, Elpedio L. Tingalan, Johnny L. Tingalan and Laureta T. Dela Cerna, Petitioners, vs. Spouses Ronaldo and Winona Melliza, Respondents. (Gr. No. 195247, June 29, 2015)
VILLARAMA, JR., J.:
Facts:
A free patent was issued under the name of petitioner Anastacio on October 4, 1976. On March 28, 1977, by virtue of a Deed of Absolute Sale, Anastacio sold the land to respondent spouses Melliza in violation of the prohibition in Section 118 of the Public Land Act. Thereafter, the spouses exercised acts of ownership towards the land. It was only 23 years later when one Elena Tunanan filed an adverse claim over the subject property. Petitioner Anastacio countered and demanded that respondent-spouses vacate the property but the latter refused. In 2001, Anastacio filed an Action to Quiet Title and Recovery of Possession against Spouses Melliza and Tunanan. The trial court as well as the Court of Appeals dismissed the case holding that it was barred by laches due to the 24 year delay of petitioner Anastacio in filing the petition.
Issue:
Whether the Deed of Sale executed between petitioner Anastacio and respondent spouses Melliza is valid.
Whether the institution of the action to annul the Deed of Sale has already been barred by laches.
Ruling:
The contract of sale entered into between petitioner Anastacio and respondent-spouses on March 28, 1977 is null and void from inception for being contrary to law and public policy. As a void contract – it is imprescriptible and not susceptible of ratification.
The law is clear under Section 118 of the Public Land Act, as amended, that unless made in favor of the government or any of its branches, units or institutions, lands acquired under free patent or homestead provisions shall not be subject to any form of encumbrance for a term of five years from and after the date of issuance of the patent or grant xxx
xxx
The foregoing provision of law unambiguously classifies the subject contract of sale executed on March 28, 1977 as unlawful and null and void ab initio for being in violation of Section 118, i.e., entered into within the five-year prohibitory period. This provision of law is clear and explicit and a contract which purports to alienate, transfer, convey or encumber any homestead within the prohibitory period is void from its execution. The Court has held in a number of cases that such provision of law is mandatory with the purpose of promoting a specific public policy to preserve and keep in the family of the patentee that portion of the public land which the State has gratuitously given to them.
xxx
A void contract produces no legal effect whatsoever in accordance with the principle "quod nullum est nullum producit effectum." It could not transfer title to the subject property and there could be no basis for the issuance of a title from petitioner Anastacio's name to the names of respondent-spouses. It is not susceptible of ratification and the action for the declaration of its absolute nullity is imprescriptible. It was therefore error for both courts a quo to rule that "[p]etitioner's failure to act on such considerable time has already barred him by estoppel and laches."

Allied Banking Corporation, Petitioner, vs. Jesus S. Yujuico (Deceased), represented by Brendon V. Yujuico, Respondent. (Gr. No. 163116, June 29, 2015)
BERSAMIN, J.:
Facts:
In 1966, the board of directors of General Bank and Trust Company (Genbank) approved a resolution granting Yujuico Logging & Trading Corporation (YLTC) an Omnibus Credit Line in the amount of P800,000.00 to be made available by overdrafts, loans, and advances upon condition that the principals of YLTC would personally bind themselves in a Continuing Guarantee to secure payment of obligations drawn on said credit. In 1968, to secure punctual payment at maturity of YLTC's obligations, Gregoria Paredes, Clarencio S. Yujuico, and herein respondent Jesus S. Yujuico, principal stockholders of YLTC as sureties, executed a Continuing Guarantee for the amount of P800,000.00 binding themselves in their personal capacities as required by GenBank. Following the expiration of the said credit line, Genbank again passed a board resolution granting YLTC a credit line of P1.5M which included the preceding P800,000.00 and again, said principals executed a Continuing Guarantee. YLTC's credit line was renewed successively for the following years. It was only in 1974 when Clarence S. Yujuico bound himself to be the lone surety of the Continuing Guarantee to secure payment of another credit line in the amount of P5M or up to statutory limits allowed by law, whichever is higher. As successor-in-interst of Genbank, Allied Banking Corporation sought to collect the amount covered by the promissory notes. YLTC failed to pay thus a collection suit was filed in court. The trial court as well as the CA dismissed the complaint against Jesus on the ground that a revocation letter purportedly made and authorized to be written under instruction of Jesus had released him from his obligation as surety.
Issue:
What is the undertaking taken by Jesus as principal stockholder of YLTC to cover the credit lines granted by Genbank?
In reference to the first question, what then would be the liability of Jesus to Genbak?
Ruling:
The undertaking of Jesus was that of a surety, not a guarantor
Although the first part of the continuing guaranties showed that Jesus as the signatory had agreed to be bound "either as guarantor or otherwise," the usage of term guaranty or guarantee in the caption of the documents, or of the word guarantor in the contents of the documents did not conclusively characterize the nature of the obligations assumed therein. What properly characterized and defined the undertakings were the contents of the documents and the intention of the parties. In holding that the continuing guaranty executed in E. Zobel, Inc. v. Court of Appeals was a surety instead of a guaranty, the Court accented the distinctions between them, viz.:
A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt.

Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal.
Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.
With the stipulations in the continuing guaranties indicating that he was the surety of the credit line extended to YLTC, Jesus was solidarity liable to Genbank for the indebtedness of YLTC. In other words, he thereby rendered himself "directly and primarily responsible" with YLTC, "without reference to the solvency of the principal."
Jesus was no longer liable as a surety due to the non-renewal of the continuing guaranties
Be that as it may, the continuing guaranties could not answer for the promissory notes amounting to P6,020,184.90 that the petitioner sought to judicially recover from Jesus as surety.

The courts below found and declared that the continuing guaranties of February 8, 1966 and February 22, 1967 were not renewed after the expiration of the credit line. The petitioner did not establish that another suretyship by Jesus ensured the payment of the credit line issued on April 4, 1968 upon the expiration of the credit line for 1967. What was shown instead is that on February 6, 1974, or about seven years after the expiration of the continuing guaranty of February 22, 1967, it was Clarencio who executed a continuing guaranty for P5,000,000.00. Since Genbank accepted the promissory note of P5,200,000.00 on April 30, 1975,26 the continuing guaranty that Clarencio executed about two months earlier covered that amount.

Swire Realty Development Corporation, Petitioner, vs. Jayne Yu, Respondent. (Gr. No. 207133, March 9, 2015)
PERALTA, J,:
Facts:
A contract to sell covering one residential condominium unit of the Palace of Makati, was entered into by petitioner and respondent on July 25, 1995 for a contact price of P7,519,371.80 which has been fully paid by the latter on September 24, 1997. Notwithstanding full payment of the contract price, petitioner failed to complete and deliver the subject unit on time thereby prompting respondent to file a Complaint for Rescission of Contract with Damages before the HLURB Expanded National Capital Region Field Office (ENCRFO) which dismissed the complaint. Upon elevation, the HLURB Board of Commissioners reversed and set aside the HLURB ENCRFO decision and ordered the rescission of the Contract to Sell. Aggrieved, the case was elevated to the Office of the President until it reached the CA and SC.
Issue: Whether the rescission of the Contract to Sell is proper.
Ruling: Yes, the rescission is proper.
Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligor's failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.
In the instant case, the CA aptly found that the completion date of the condominium unit was November 1998 pursuant to License No. 97-12-3202 dated November 2, 1997 but was extended to December 1999 as per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the time of the ocular inspection conducted by the HLURB ENCRFO, the unit was not yet completely finished as the kitchen cabinets and fixtures were not yet installed and the agreed amenities were not yet available.
xxx
From the foregoing, it is evident that the report on the ocular inspection conducted on the subject condominium project and subject unit shows that the amenities under the approved plan have not yet been provided as of May 3, 2002, and that the subject unit has not been delivered to respondent as of August 28, 2002, which is beyond the period of development of December 1999 under the license to sell. Incontrovertibly, petitioner had incurred delay in the performance of its obligation amounting to breach of contract as it failed to finish and deliver the unit to respondent within the stipulated period. The delay in the completion of the project as well as of the delay in the delivery of the unit are breaches of statutory and contractual obligations which entitle respondent to rescind the contract, demand a refund and payment of damages.

Spouses Chin Kong Wong Choi and Ana O. Chua, Petitioners, vs. United Coconut Planters Bank, Respondents. (Gr. No. 207747, March 11, 2015)
CARPIO, J.:
Facts:
A Contract to Sell involving a condominium unit in Kiener Hills Cebu and in the amount of P1,151,718.75, was entered into by petitioner spouses and Primetown Property Group, Inc. (Primetown). A down payment of P100,000.00 was given by petitioners while the remaining balance became payable in 40 equal monthly installments of P26,292.97 from January 16, 1997 to April 16, 2000. In the meantime, on April 23, 1998, a Memorandum of Agreement and Sale of Receivables and Assignment of Rights and Interests were executed by and between respondent UCPB and Primetown. The agreement, among others, stipulate that in consideration of P748,000,000.00, Primetown assigns, transfers, conveys, and sets over unto UCPB all accounts Receivables accruing from Primetown's Kiener together with the assignment of all its rights, titles, interests and participation over the units covered by or arising from the Contracts to Sell from which the receivables have arisen. In 2006, a complaint for refund with interest and damages against Primetown and UCPB was instituted by petitioners for failure of Primetown to finish the construction and to deliver the subject condominium unit despite full payment of contract price.
Issue: Whether, under the Memorandum of Agreement between Primetown and UCPB, UCPB assumed the liabilities and obligations of Primetown under its contract to sell with Spouses Choi.
Ruling: The Court held in the negative.
The Agreement conveys the straightforward intention of Primetown to "sell, assign, transfer, convey and set over" to UCPB the receivables, rights, titles, interests and participation over the units covered by the contracts to sell. It explicitly excluded any and all liabilities and obligations, which Primetown assumed under the contracts to sell. The intention to exclude Primetown's liabilities and obligations is further shown by Primetown's subsequent letters to the buyers, which stated that "this payment arrangement shall in no way cause any amendment of the other terms and conditions, nor the cancellation of the Contract to Sell you have executed with [Primetown]." It is a basic rule that if the terms of a contract are clear and leave no doubt upon the intention of the parties, the literal meaning shall control. The words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. Furthermore, in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered.
The intention to merely assign the receivables and rights of Primetown to UCPB is even bolstered by the CA decisions in the cases of UCPB v. O'Halloran and UCPB v. Ho.
xxx
Considering that UCPB is a mere assignee of the rights and receivables under the Agreement, UCPB did not assume the obligations and liabilities of Primetown under its contract to sell with Spouses Choi.
Spouses Chin Kong Wong Choi and Ana O. Chua, Petitioners, vs. United Coconut Planters Bank, Respondents. (Gr. No. 207747, March 11, 2015)
CARPIO, J.:
Facts:
A Contract to Sell involving a condominium unit in Kiener Hills Cebu and in the amount of P1,151,718.75, was entered into by petitioner spouses and Primetown Property Group, Inc. (Primetown). A down payment of P100,000.00 was given by petitioners while the remaining balance became payable in 40 equal monthly instalments of P26,292.97 from January 16, 1997 to April 16, 2000. In the meantime, on April 23, 1998, a Memorandum of Agreement and Sale of Receivables and Assignment of Rights and Interests were executed by and between respondent UCPB and Primetown. The agreement, among others, stipulate that in consideration of P748,000,000.00, Primetown assigns, transfers, conveys, and sets over unto UCPB all Accounts Receivables accruing from Primetown's Kiener together with the assignment of all its rights, titles, interests and participation over the units covered by or arising from the Contracts to Sell from which the receivables have arisen. In 2006, a complaint for refund with interest and damages against Primetown and UCPB was instituted by petitioners for failure of Primetown to finish the construction and to deliver the subject condominium unit despite full payment of contract price. The HLURB RFO VI held that both UCPB and Primetown were liable to Spouses Choi. Upon appeal to the HLURB Board of Commissioners, the same held that UCPB was the legal successor-in-interest of Primetown against whom the Spouses' action for refund could be enforced. The Office of the President likewise ruled that UCPB was jointly and severally liable with Primetown. The CA reversed the OP's decision and reinstated HLURB RFO reinstated in another aspect.
Issue: Whether respondent UCPB is solidarily liable with Primetown.
Ruling: The Court held in the negative.
As for UCPB's alleged solidary liability, we do not find any merit in the claim of Spouses Choi that Luzon Development Bank v. Enriquez and Philippine Bank of Communications v. Pridisons Realty Corporation apply to the present case. Both cases involved the failure to comply with Sections 17, 18 and 25 of Presidential Decree No. 957, which made the banks in those cases solidarily liable. A solidary obligation cannot be inferred lightly, but exists only when expressly stated, or the law or nature of the obligation requires it.
Since there is no other ground to hold UCPB solidarily liable with Primetown and there is no reason to depart from the ratio decidendi in UCPB v. Ho, UCPB is only liable to refund Spouses Choi the amount it indisputably received, which is P26,292.97 based on the evidence presented by Spouses Choi.

Comglasco Corporation/Aguila Glass, Petitioner, vs. Santos Car Check Center Corporation, Respondents. (Gr. No. 202989, March 25, 2015)
REYES, J.:
Facts:
A Contract of Lease was entered into by petitioner Comglasco (lessee) and respondent Santos Car Check Center (lessor) on August 16, 2000. It was stipulated on the contract that for a period of five years, petitioner will be occupying a showroom owned by respondent located at 75 Delgado Street, Iloilo City. However, the following year, petitioner pre-terminated the contract on the basis of the 1997 Asian financial crisis. Santos refused to accede to such pre-termination and sent several demand letters which Comglasco ignored. This prompted respondent to file a suit for breach of contract. The RTC decided in favour of Santos which the CA affirmed on appeal.
Issue: Whether petitioner Comglasco is justified in pre-terminating the lease contract on the basis of the cause cited in his pleadings.
Ruling: No, petitioner is not justified in pre-terminating the lease contract.
Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate its lease with Santos, Comglasco invokes the 1997 Asian currency crisis as causing it much difficulty in meeting its obligations. But in PNCC, the Court held that the payment of lease rentals does not involve a prestation "to do" envisaged in Articles 1266 and 1267 which has been rendered legally or physically impossible without the fault of the obligor-lessor. Article 1267 speaks of a prestation involving service which has been rendered so difficult by unforeseen subsequent events as to be manifestly beyond the contemplation of the parties. To be sure, the Asian currency crisis befell the region from July 1997 and for sometime thereafter, but Comglasco cannot be permitted to blame its difficulties on the said regional economic phenomenon because it entered into the subject lease only on August 16, 2000, more than three years after it began, and by then Comglasco had known what business risks it assumed when it opened a new shop in Iloilo City.

Comglasco Corporation/Aguila Glass, Petitioner, vs. Santos Car Check Center Corporation, Respondents. (Gr. No. 202989, March 25, 2015)
REYES, J.:
Facts:
A Contract of Lease was entered into by petitioner Comglasco (lessee) and respondent Santos Car Check Center (lessor) on August 16, 2000. It was stipulated on the contract that for a period of five years, petitioner will be occupying a showroom owned by respondent located at 75 Delgado Street, Iloilo City. However, the following year, petitioner pre-terminated the contract on the basis of the 1997 Asian financial crisis. Santos refused to accede to such pre-termination and sent several demand letters which Comglasco ignored. This prompted respondent to file a suit for breach of contract. The RTC decided in favour of Santos in which one of the damages awarded is attorney's fees in the amount of P200,000.00. On appeal, the CA affirmed the trial court's ruling but reduced the award of attorney's fees to P100,000.00.
Issue: Whether the award of attorney's fee may be granted.
Ruling: Yes, the award of attorney's fee may be granted.
Finally, as to whether attorney's fees may be recovered by Santos, Article 2208(2) of the Civil Code justifies the award thereof, in the absence of stipulation, where the defendant's act or omission has compelled the plaintiff to incur expenses to protect his interest. The pre-termination of the lease by Comglasco was not due to any fault of Santos, and Comglasco completely ignored all four demands of Santos to pay the rentals due from January 16, 2002 to August 15, 2003, thereby compelling Santos to sue to obtain relief. It is true that the policy of the Court is that no premium should be placed on the right to litigate, but it is also true that attorney's fees are in the nature of actual damages, the reason being that litigation costs money. But the Court agrees with the CA that the lesser amount of P100,000.00 it awarded to Santos instead of P200,000.00 adjudged by the RTC, is more reasonable.

New World Developers and Management, Inc. Petitioner, vs. Ama Computer Learning Center, Inc., Respondent. (Gr. Nos. 187930/188250, February 23, 2015)
SERENO, J.:
Facts:
Petitioner New World (lessor) and respondent AMA (lessee) entered into a Contract of Lease in 1998 for a period of eight years. It was stipulated that AMA may pre-terminate the contract by sending notice in writing to New World at least six months before the intended date. In such case, AMA shall be liable for liquidated damages in an amount equivalent to six months of the prevailing rent. AMA paid New World the amount of P450,000.00 as advance rental and another P450,000.00 as security deposit. On three separate occasions starting 2002, AMA had requested for the deferment and adjustment of the annual increase in the monthly rent on the ground of financial constraints due to decrease of enrolment to which, New World acceded. However, on the evening of July 6, 2004, AMA removed all its office equipment and furniture from the leased premises. On the following day, New World received a letter from AMA informing the former that the latter is pre-terminating the lease effective immediately. New World replied with a letter to which a Statement of Account was attached. Despite the meetings conducted, the parties failed to arrive at a settlement thus prompting New World to file a suit for a sum of money and damages against AMA.
Issue: Whether the stipulation on the Contract of Lease stating that "in case of pre-termination, AMA shall notify New World in writing at least six months before the intended date," makes AMA liable for liquidated damages and if so, what is the basis thereof?
Ruling: AMA is liable for six months' worth of rent as liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at least six (6) months before the intended date of pretermination, provided, however, that in such case, [AMA] shall be liable to [New World] for an amount equivalent to six (6) months current rental as liquidated damages;
Quite notable is the fact that AMA never denied its liability for the payment of liquidated damages in view of its pretermination of the lease contract with New World. What it claims, however, is that it is entitled to the reduction of the amount due to the serious business losses it suffered as a result of a drastic decrease in its enrollment.
This Court is, first and foremost, one of law. While we are also a court of equity, we do not employ equitable principles when well-established doctrines and positive provisions of the law clearly apply.
The law does not relieve a party from the consequences of a contract it entered into with all the required formalities. Courts have no power to ease the burden of obligations voluntarily assumed by parties, just because things did not turn out as expected at the inception of the contract. It must also be emphasized that AMA is an entity that has had significant business experience, and is not a mere babe in the woods.
Articles 1159 and 1306 of the Civil Code state:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.
x x x x
Art. 1306. The contracting parties may 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.
The fundamental rule is that a contract is the law between the parties. Unless it has been shown that its provisions are wholly or in part contrary to law, morals, good customs, public order, or public policy, the contract will be strictly enforced by the courts.

SERENO, J.:
Facts:
Issue:
Whether AMA may invoke the provisions of Article 2227 of the Civil Code in view of the fact that it had pre-terminated the contract due to serious business losses and the Court should take this fact in consideration in deciding the case.
Whether the award of exemplary damages is warranted.
Ruling: The Court is not persuaded.
1. In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable, or iniquitous or unconscionable would depend on factors including but not limited to the type, extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its consequences; the supervening realities; and the standing and relationship of the parties. The appreciation of these factors is essentially addressed to the sound discretion of the court.
It is quite easy to understand the reason why a lessor would impose liquidated damages in the event of the pretermination of a lease contract. Pretermination is effectively the breach of a contract, that was originally intended to cover an agreed upon period of time. A definite period assures the lessor a steady income for the duration. A pretermination would suddenly cut short what would otherwise have been a longer profitable relationship. Along the way, the lessor is bound to incur losses until it is able to find a new lessee, and it is this loss of income that is sought to be compensated by the payment of liquidated damages.
xxx
We cannot understand the inability of AMA to be forthright with New World, considering that the former had been transparent about its business losses in its previous requests for the reduction of the monthly rental. The drastic decrease in AMA's enrollment had been unfolding since 2002. Thus, it cannot be said that the business losses had taken it by surprise. It is also highly unlikely that the decision to preterminate the lease contract was made at the last minute. The cancellation of classes, the transfer of students, and administrative preparations for the closure of the computer learning center and the removal of office equipment therefrom should take at least weeks, if not months, of logistic planning. Had AMA come clean about the impending pretermination, measures beneficial to both parties could have been arrived at, and the instant cases would not have reached this Court. Instead, AMA forced New World to share in the former's losses, causing the latter to scramble for new lessees while the premises remained untenanted and unproductive.
We cannot abide by the prayer for the further reduction of the liquidated damages. We find that, in view of the surrounding circumstances, the CA even erred in reducing the liquidated damages to four month's worth of rent. Under the terms of the contract, and in light of the failure of AMA to show that it is deserving of this Court's indulgence, the payment of liquidated damages in an amount equivalent to six months' rent is proper.
2. In this case, it is quite clear that New World sustained losses as a result of the unwarranted acts of AMA. Further, were it not for the stipulation in the contract regarding the payment of liquidated damages, we would be awarding compensatory damages to New World.
"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in its consequence by creating negative incentives or deterrents against such behaviour." As such, they may be awarded even when not pleaded or prayed for. In order to prevent the commission of a similar act in the future, AMA shall pay New World exemplary damages in the amount of P100,000.

SERENO, J.:
Facts:
When the case reached the CA, AMA assailed its decision on the imposition of legal interest on the rent in arrears. AMA argues that the advance rental has extinguished its obligation as to the arrears. Thus, there is no more basis for the imposition of interest at the rate of 6% per annum from the date of extrajudicial demand on July 12, 2004 until finality of the decision, plus interest at the rate of 12% per annum from finality until full payment.
Issue: Whether AMA remained liable for the rental arrears.
Ruling: AMA's liability for rental arrears has already been extinguished.
At this juncture, it is necessary to look into the contract to determine the purpose of the advance rental and security deposit.
xxx
Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that may be incurred by AMA while the contract was in force. The security deposit was held in trust by New World, and whatever may have been left of it after the termination of the lease shall be refunded to AMA.
Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental of P450,000 by 12 months. They came up with P37,500, which they intended to deduct from the monthly rental to be paid by AMA for the last year of the lease term. Thus, unlike the security deposit, no part of the advance rental was ever meant to be refunded to AMA. Instead, the parties intended to apply the advance rental, on a staggered basis, to a portion of the monthly rental in the last year of the lease term.
Considering the pretermination of the lease contract in the present case, this intent of the parties as regards the advance rental failed to take effect. The advance rental, however, retains its purpose of answering for the outstanding amounts that AMA may owe New World.
At the time of the pretermination of the contract of lease, the monthly rent stood at P233,310, inclusive of taxes; hence, the two-month rental arrears in the amount of P466,620.
Applying the security deposit of P450,000 to the arrears will leave a balance of P16,620 in New World's favor.1âwphi1Given that we have found AMA liable for liquidated damages equivalent to six months' rent in the amount ofP1,399,860 (monthly rent of P233,310 multiplied by 6 months), its total liability to New World is P1,416,480.
We then apply the advance rental of P450,000 to this amount to arrive at a total extinguishment of the liability for the unpaid rentals and a partial extinguishment of the liability for liquidated damages. This shall leave AMA still liable to New World in the amount of P966,480 (P1,416,480 total liability less P450,000 advance rental).
Not constituting a forbearance of money, this amount shall earn interest pursuant to Item II(2) of our pronouncement in Eastern Shipping Lines v. CA. This item remained unchanged by the modification made in Nacar v. Gallery Frames. Interest at the rate of 6% per annum is hereby imposed on the amount of 966,480 from the time of extrajudicial demand on 12 July 2004 until the finality of this Decision.
Thereafter – this time pursuant to the modification in Nacar– the amount due shall earn interest at the rate of 6% per annum until satisfaction, this interim period being deemed to be by then equivalent to a forbearance of credit.
Considering the foregoing, there was no occasion for the unpaid two months' rental to earn interest. Besides, we cannot sanction the imposition of 3% monthly penalty interest thereon. xxx

Bliss Development Corp./Home Guaranty Corporation, Petitioner, vs. Montano Diaz, Domingo Tapay, and Edgar H. Arreza, Respondents. (Gr. No. 213233, August 5, 2015)
VELASCO, JR., J.:
Facts:
Petitioner Bliss Development Corp. (later reorganized as Home Guaranty Corporation) is the registered owner of a lot in Bgy. Matandang Balara, Diliman, Quezon City. On October 19, 1984, it entered into and executed a Deed of Sale over said property in favour of Spouses Melgazo. On May 1991, a certain Rodolfo Nacua sent a letter to BDC informing the latter that Spouses Melgazo transferred to him the rights over the property and that he is willing to pay the outstanding obligations of the spouses to BDC. Before having fully paid however, Nacua sold his rights to Olivia Garcia. Garcia then transferred her rights to Elizabeth Reyes. Reyes transferred her rights to Domingo Tapay, who then later sold his rights to respondent Montano Diaz. Diaz paid BDC the amortization and the latter issued a permit for him to occupy the property. In 1992, BDC executed a Contract to Sell in favour of Diaz. In 1994 however, BDC informed Diaz that respondent Edgar Arreza was claiming that the heirs of spouses Melgazo sold to him the rights over the property.
BDC filed before the RTC a complaint for interpleader in which it was ruled that Arreza has a better right over the property because the signatures of spouses Melgazo transferring rights to Diaz had been forged. The decision became final and executory. In 1996, Diaz filed a complaint for sum of money against BDC which was later amended to include Arreza and Tapay as defendants. The complaint was dismissed on the ground that Diaz failed to prove that he is an assignee in good faith. On appeal, the CA reversed the trial court and ruled that Diaz is a buyer and builder in good faith thus entitled to reimbursement and damages.
Issue: Whether respondent Diaz is a purchaser for value and in good faith.
Ruling: Respondent Diaz is not a purchaser for value and in good faith.
In a long line of cases, this Court had ruled that a purchaser in good faith and for value is one who buys property of another without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same at the time of such purchase or before he or she has notice of the claim or interest of some other person in the property. For one to be considered a purchaser in good faith, the following requisites must concur: (1) that the purchaser buys the property of another without notice that some other person has a right to or interest in such property; and (2) that the purchaser pays a full and fair price for the property at the time of such purchase or before he or she has notice of the claim of another. We find that in the case at bar, the first element is lacking.
The CA, in disposing the issue of Diaz's good faith, merely said that "considering that the property involved is registered land, Diaz need not go beyond the title to be considered a buyer in good faith." We find this to be a serious and reversible error on the part of the CA. In the first place, while it is true that the subject lot is registered lot, the doctrine of not going beyond the face of the title does not apply in the case here, because what was subjected to a series of sales was not the lot itself but the right to purchase the lot from BDC. The CA itself observed: "while [BDC] executed a Deed of Sale with Mortgage in favor of the spouses Emiliano and Leonila Melgazo, title over the property was in [BDC's] name. The title remained in [BDC's] name when Tapay offered to transfer his rights over the property to Diaz." Notably, the several transfers themselves did not purport to be Deeds of Absolute Sale, but merely deeds of assignment of rights. The subject of those deeds of assignment was never the real right over the subject property, but merely the personal right to purchase it. Therefore, the mirror doctrine finds no application in the case at bar.
A careful review of the records of this case reveals that Diaz, in fact, failed to diligently inquire into the title of his predecessor before entering into the contract of sale. As such, he cannot be considered a buyer in good faith. xxx

Bliss Development Corp./Home Guaranty Corporation, Petitioner, vs. Montano Diaz, Domingo Tapay, and Edgar H. Arreza, Respondents. (Gr. No. 213233, August 5, 2015)
VELASCO, JR., J.:
Facts:
Petitioner Bliss Development Corp. (later reorganized as Home Guaranty Corporation) is the registered owner of a lot in Bgy. Matandang Balata, Diliman, Quezon City. On October 19, 1984, it entered into and executed a Deed of Sale over said property in favour of Spouses Melgazo. On May 1991, a certain Rodolfo Nacua sent a letter to BDC informing the latter that Spouses Melgazo transferred to him the rights over the property and that he is willing to pay the outstanding obligations of the spouses to BDC. Before having fully paid however, Nacua sold his rights to Olivia Garcia. Garcia then transferred her rights to Elizabeth Reyes. Reyes transferred her rights to Domingo Tapay, who then later sold his rights to respondent Montano Diaz. Diaz paid BDC the amortization and the latter issued a permit for him to occupy the property. In 1992, DBC executed a Contract to Sell in favour of Diaz. In 1994 however, BDC informed Diaz that respondent Edgar Arreza was claiming that the heirs of spouses Melgazo sold to him the rights over the property.
BDC filed before the RTC a complaint for interpleader in which it was ruled that Arreza has a better right over the property because the signatures of spouses Melgazo transferring rights to Diaz had been forged. The decision became final and executory. In 1996, Diaz filed a complaint for sum of money against BDC which was later amended to include Arreza and Tapay as defendants. The complaint was dismissed on the ground that Diaz failed to prove that he is an assignee in good faith. On appeal, the CA reversed the trial court and ruled that Diaz is a buyer and builder in good faith thus entitled to reimbursement and damages. The CA also awarded moral damages, exemplary damages, and attorney's fees to Diaz.
Upon elevation of the case to the Supreme Court, it was found out that both BDC and Diaz acted in bad faith in entering the Contract to Sell.
Issue: Whether the award of moral damages, exemplary damages, and attorney's fees are justified.
Ruling:
Nevertheless, because the law treats both parties as if they acted in good faith, the CA committed reversible error in awarding moral and exemplary damages, there being no basis therefor. We find it proper to delete the award of P100,000.00 as moral damages, P50,000.00 as exemplary damages, and P25,000.00 as attorney's fees.
In sum, the CA correctly reversed the ruling of the RTC, and ordered BDC to pay Diaz the amount he paid as amortizations, as well as the value of the improvements that he introduced on the subject property. However, because both parties acted in bad faith, there is no basis for the award of moral and exemplary damages, as well as attorney's fees.

Cebu State College of Science and Technology (CSCST), represented by its incumbent President, Petitioner, vs. Luis S. Misterio, Gabriel S. Misterio, Francis S. Misterio, Thelma S. Misterio, and Estela S. Misterio-Tagimacruz, Respondents. (Gr. No. 179025, June 17, 2015)
PERALTA, J.:
Facts:
In 1956, the late Asuncion Sadaya, mother of herein respondents, executed a Deed of Sale covering a parcel of land denominated as Lot 1064 located at Lahug, Cebu City, in favour of Sudlon Agricultural High School (SAHS). The sale was subject to the right of the vendor to repurchase the property after SAHS shall have ceased to exist, or shall have transferred its school site elsewhere. In 1957, a new transfer certificate of title was issued in the name of SAHS. In 1983, Batas Pambansa Blg. 412 took effect which basically incorporates and consolidates several schools in the Province of Cebu including that of SAHS. Before such, a donation of parcels of land was made by the Province of Cebu in favour of SAHS but which was later on revoked after the passage of said law since it was found out that SAHS has no more personality to accept the donation rendering it void. In 1990, respondents herein informed petitioner of their intention to repurchase the property on the ground that SAHS had ceased to exist which was rebutted by petitioner. In 1993, respondents filed a complaint for Nullity of Sale and/or Redemption against CSCST before the RTC which the latter granted. Petitioner appealed but during the pendency thereof, respondents filed a Manifestation and Motion for Injunction amending their complaint and cause of action to include petitioner's intent to abandon the subject property. In 1997, petitioner ceded the subject property to the Province of Cebu. In 2000, the CA reversed the decision of the RTC holding that while it agrees with the trial court that SAHS ceased to exist when BP 412 took effect, respondents are nevertheless barred by prescription from exercising their right to repurchase.
Issue: Whether respondent heirs' right to repurchase as vendors a retro can still be exercised.
Ruling: No, the respondent can no longer repurchase the subject property as they are now barred by prescription.
xxx Article 1606 expressly provides that in the absence of an agreement as to the period within which the vendor a retro may exercise his right to repurchase, the same must be done within four (4) years from the execution of the contract. In the event the contract specifies a period, the same cannot exceed ten (10) years. Thus, whether it be for a period of four (4) or ten (10) years, this Court consistently implements the law and limits the period within which the right to repurchase may be exercised, adamantly striking down as illicit stipulations providing for an unlimited right to repurchase. Indubitably, it would be rather absurd to permit respondents to repurchase the subject property upon the occurrence of the second suspensive condition, particularly, the relocation of SAHS on October 3, 1997, the time when petitioner ceded the property to the Province of Cebu, which is nearly forty-one (41) years after the execution of the Deed of Sale on December 31, 1956. This Court must, therefore, place it upon itself to suppress these kinds of attempts in keeping with the fundamentally accepted principles of law.

George C. Fong, Petitioner, vs. Jose V. Duenas, Respondent. (Gr. No. 185592, June 15, 2015)
BRION, J.:
Facts:
Sometime in November 1996, petitioner and respondent entered into a verbal joint venture agreement where they agreed to engage in food business and to incorporate a holding company under the name Alliance Holding, Inc. Its capitalization would be P65 Million to which they would contribute in equal parts. The parties agreed that Fong would contribute P32.5 Million in cash while Duenas would contribute all his share in Danton and Bakcom (his food manufacturing and retailing company) which he valued at P32.5 Million. Fong required Duenas to submit the financial documents supporting the valuation of these shares. In 1997, Fong sent Duenas a letter informing him that he is limiting his total contribution to P5 Million because of certain personal factors. After sometime, Duenas still failed to show the financial documents on the valuation of Danton and Bakcom. He also failed to incorporate and register Alliance with the SEC thus prompting Fong to cancel the joint venture and to request for the refund of the P5 Million. Demands to have the P5 Million refunded proved futile which led to the institution of complaint for collection of sum of money by Fong. The RTC decided in favour of Fong which was reversed on appeal by the CA because according to the latter, the 1997 letter of Fong evidenced his intention to convert his cash contributions from advances to mere investments. It is therefore, according to the CA, right for Duenas to apply the P5 Million on Bakcom and Danton which would eventually form part of the Alliance.
Issue:
Whether the case is an action for rescission or a collection for sum of money.
Whether rescission under Article 1191 is applicable in the present case.
Ruling:
The case is an action for rescission.
An examination of Fong's complaint shows that although it was labeled as an action for a sum of money and damages, it was actually a complaint for rescission. The following allegations in the complaint support this finding:
9. Notwithstanding the aforesaid remittances, defendant failed for an unreasonable length of time to submit a valuation of the equipment of D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from plaintiff, defendant failed to accomplish the organization and incorporation of the proposed holding company, contrary to his representation to promptly do so.
x x x x
17. Considering that the incorporation of the proposed holding company failed to materialize, despite the lapse of one year and four months from the time of subscription, plaintiff has the right to revoke his pre-incorporation subscription. Such revocation entitles plaintiff to a refund of the amount of P5,000,000.00 he remitted to defendant, representing advances made in favor of defendant to be considered as payment on plaintiff's subscription to the proposed holding company upon its incorporation, plus interest from receipt by defendant of said amount until fully paid. [Emphasis supplied.]
Fong's allegations primarily pertained to his cancellation of their verbal agreement because Dueñas failed to perform his obligations to provide verifiable documents on the valuation of the Danton's and Bakcom's shares, and to incorporate the proposed corporation. These allegations clearly show that what Fong sought was the joint venture agreement's rescission.
As a contractual remedy, rescission is available when one of the parties substantially fails to do what he has obligated himself to perform. It aims to address the breach of faith and the violation of reciprocity between two parties in a contract. Under Article 1191 of the Civil Code, the right of rescission is inherent in reciprocal obligations, viz:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. [Emphasis supplied.]
xxx Dueñas failed to appreciate that the ultimate effect of rescission is to restore the parties to their original status before they entered in a contract. As the Court ruled in Unlad Resources v. Dragon:
Rescission has the effect of "unmaking a contract, or its undoing from the beginning, and not merely its termination." Hence, rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made.
Rescission under Article 1191 is applicable in the present case.
Reciprocal obligations are those which arise from the same cause, in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent on the obligation of the other.
Fong and Dueñas' execution of a joint venture agreement created between them reciprocal obligations that must be performed in order to fully consummate the contract and achieve the purpose for which it was entered into.
xxx Aside from unilaterally applying Fong's contributions to his two companies, Dueñas also failed to deliver the valuation documents of the Danton and Bakcom shares to prove that the combined values of their capital contributions actually amounted to P32.5 Million.
xxx
However, the Court notes that Fong also breached his obligation in the joint venture agreement.
Fong's diminution of his capital share to P5 Million also amounted to a substantial breach of the joint venture agreement, which breach occurred before Fong decided to rescind his agreement with Dueñas. Thus, Fong also contributed to the non-incorporation of Alliance that needed P65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the substantial reduction of his capital contribution also greatly impeded the implementation of their agreement to engage in the food business and to incorporate a holding company for it.
As both parties failed to comply with their respective reciprocal obligations, we apply Article 1192 of the Civil Code, which provides:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. [Emphasis supplied.]
xxx
As the Court cannot precisely determine who between the parties first violated the agreement, we apply the second part of Article 1192 which states: "if it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages."
In these lights, the Court holds that the joint venture agreement between Fong and Dueñas is deemed extinguished through rescission under Article 1192 in relation with Article 1191 of the Civil Code. Dueñas must therefore return the P5 Million that Fong initially contributed since rescission requires mutual restitution. After rescission, the parties must go back to their original status before they entered into the agreement. Dueñas cannot keep Fong's contribution as this would constitute unjust enrichment.

Spouses Crispin Aquino and Teresa V.Aquino, herein represented by their Attorney-in-Fact, Amador D. Ledesma, Petitioners, vs. Spouses Eusebio Aguilar and Josefina V. Aguilar, Respondents. (gr. No. 182754, June 29, 2015)
SERENO, CJ:
Facts: By mere tolerance of petitioner spouses Aquino, respondent spouses Aguilar were able to occupy a property in Rosal Street, Guadalupe since 1981. However, despite a clear mandate in a 1983 letter that respondents are prohibited from introducing improvements on the property because it was meant to be sold, respondents still went on their way of improving it. By the time that petitioners asked respondents to vacate the premises, the latter refused to do so. A complaint was then filed by the petitioners before the MeTC to order respondents to vacate the portion of the building they were occupying and to pay petitioner a reasonable amount for the use and enjoyment of the premises from the time the formal demand to vacate was made. The respondents made a counterclaim claiming that they had contributed to the improvement of the property. The MeTC ruled in favour of petitioners finding respondents as builders in bad faith, which was affirmed by the RTC and CA. However, the CA held that pursuant to the ruling in Calubayan which would equate respondents' situation analogous to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance of the owner, the case was remanded to the court of origin in order to determine the facts essential to the application of Articles 1678 and 546.
Issue: Whether the Court of Appeals is correct in remanding the case to the court of origin for the determination of the necessary and useful expenses incurred by respondent spouses on the basis of Articles 1678 and 548 of the Civil Code and citing the ruling enunciated in Calubayan vs. Pascual.
Ruling: Article 1678 is not applicable to this case.
xxx By its express provision, Article 1678 of the Civil Code applies only to lessees who build useful improvements on the leased property. It does not apply to those who possess property by mere tolerance of the owners, without a contractual right.
A careful reading of the statement made by this Court in Calubayan would show that it did not, as it could not, modify the express provision in Article 1678, but only noted an "analogous" situation. According to the Court, the analogy between a tenant whose term of lease has expired and a person who occupies the land of another at the latter's tolerance lies in their implied obligation to vacate the premises upon demand of the owner. xxx
xxx
xxx clear xxx that Calubayan is not sufficient basis to confer the status and rights of a lessee on those who occupy property by mere tolerance of the owner.
In this case, there is absolutely no evidence of any lease contract between the parties. In fact, respondents themselves never alleged that they were lessees of the lot or the building in question. Quite the opposite, they insisted that they were co-owners of the building and builders in good faith under Article 448 of the Civil Code. For that reason, respondents argue that it was erroneous for the CA to consider them as lessees and to determine their rights in accordance with Article 1678.

Spouses Crispin Aquino and Teresa V.Aquino, herein represented by their Attorney-in-Fact, Amador D. Ledesma, Petitioners, vs. Spouses Eusebio Aguilar and Josefina V. Aguilar, Respondents. (gr. No. 182754, June 29, 2015)
SERENO, CJ:
Facts: By mere tolerance of petitioner spouses Aquino, respondent spouses Aguilar were able to occupy a property in Rosal Street, Guadalupe since 1981. However, despite a clear mandate in a 1983 letter that respondents are prohibited from introducing improvements on the property because it was meant to be sold, respondents still went on their way of improving it. By the time that petitioners asked respondents to vacate the premises, the latter refused to do so. A complaint was then filed by the petitioners before the MeTC to order respondents to vacate the portion of the building they were occupying and to pay petitioner a reasonable amount for the use and enjoyment of the premises from the time the formal demand to vacate was made. The respondents made a counterclaim claiming that they had contributed to the improvement of the property. The MeTC ruled in favour of petitioners finding respondents as builders in bad faith, which was affirmed by the RTC and CA. The CA awarded actual damages to petitioners and ordered respondents to pay the former the amount of P7,000.00 as monthly rental commencing from October 23, 2003 until such time that petitioners finally vacate the premises.
Issue: Whether the award of actual damages is proper.
Ruling: Yes, the award of actual damages is proper.
With respect to the award of actual damages to petitioners, we find no reason to reverse or modify the ruling of the CA. This Court has consistently held that those who occupy the land of another at the latter's tolerance or permission, even without any contract between them, are necessarily bound by an implied promise that the occupants would vacate the property upon demand. Failure to comply with this demand renders the possession unlawful and actual damages may be awarded to the owner from the date of the demand to vacate71 until the actual surrender of the property.
Accordingly, we affirm the CA's award of actual damages to petitioners in the amount of P7,000 per month from the date of demand (22 October 2003) until the subject properties are vacated. This amount represents a reasonable compensation for the use and occupation of respondents' property as determined by the RTC and the MeTC.

MAMERTA LOPEZ CLAUDIO, EDUARDO L. CLAUDIO, ASUNCION CLAUDIO-CONTEGINO, ANA CLAUDIO-ISULAT, DOLORES CLAUDIO-MABINI, AND FERMIN L. CLAUDIO, Petitioners, v. SPOUSES FEDERICO AND NORMA SARAZA, Respondent. (Gr. No. 213286, August 15, 2015)
MENDOZA, J.:
Facts:
Porfirio Claudio and his wife, Mamerta, are owners of ten parcels of land in Pasay City including the property subject of the present case. On June 18, 2004, Florentino, son of said spouses, made it appear that the latter sold to him the subject property for P500,000.00 thru a deed of absolute sale sometime in October 2003. Florentino then sought registration of the said property in his name. On June 22, 2004, Florentino executed a deed of real estate mortgage over the subject lot with special power to sell the mortgaged property without judicial proceedings, in favour of Spouses Saraza to secure payment of a loan in the amount of P1 Million. This is notwithstanding the fact that first, a new transfer certificate of title was only issued in the name of Florentino days after the execution of the real estate mortgage and second, that the signatures of the spouses on the deed of sale in favour of Florentino were forged since it was impossible to attach said signatures because the husband is already dead at the time while the wife is residing in the US.
Issue: Whether respondent spouses Saraza are mortgagees in good faith based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond the face of the title.
Ruling: The Court ruled that the above-mentioned doctrine is inapplicable in the present case because of the circumstances that transpired before, during, and after the execution of the deed of real estate mortgage.
Verily, a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor and, in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Accordingly, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is entitled to protection. This doctrine presupposes, however, that the mortgagor, who is not the rightful owner of the property, has already succeeded in obtaining a Torrens title over the property in his name and that, after obtaining the said title, he succeeds in mortgaging the property to another who relies on what appears on the said title.
xxx
Evidence shows that the real estate mortgage, constituted on the subject property, was executed on June 22, 2004, while TCT No. 145979, in the name of Florentino, was issued by the Register of Deeds only six (6) days later or on June 28, 2004. Evidently, the property, offered as collateral to the loan of P1 Million, was not in Florentino's name yet when he entered into a mortgage agreement with Spouses Saraza.
xxx
The doctrine of mortgagee in good faith only applies when the mortgagor has already obtained a certificate of title in his or her name at the time of the mortgage. Accordingly, an innocent mortgagee for value is one who entered into a mortgage contract with a mortgagor bearing a certificate of title in his name over the mortgaged property. Such was not the situation of Spouses Saraza. They cannot claim the protection accorded by law to innocent mortgagees for value considering that there was no certificate of title yet in the name of Florentino to rely on when the mortgaged contract was executed.
Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Spouses Saraza could not be deemed to have acted in good faith because they knew that they were not dealing with the registered owner of the property when it was mortgaged and that the subject land had yet to be titled in the name of mortgagor Florentino. To repeat, the protection accorded to a mortgagee in good faith cannot be extended to a mortgagee who knowingly entered into a mortgage agreement wherein the title to the mortgaged property presented was still in the name of the rightful owner and the mortgagor has no legal authority yet to mortgage the same.

Honorlita Ascano-Cupino and Flaviana Ascano-Colocado, Petitioners, vs. Pacific Rehouse Corporation, Respondent. (Gr. No. 205113, August 26, 2015)
CARPIO, J.:
Facts:
On October 1, 1994 the respondent Ascanos (sisters) entered into a Deed of Conditional Sale with Pacific Rehouse Corporation wherein the latter obliged itself to purchase from the former a parcel of land located in General Trias, Cavite for P5,975,300.00. As stipulated on the deed, Pacific paid a down payment of P1,792,590 to Ascanos leaving a balance of P4,182,710.00, to be paid upon fulfilment of certain conditions, to wit: 1) the completion of all documents necessary for the transfer of the certificate of title of the land; 2) the vendors (Ascano) shall guarantee removal of the tenants, squatters and other occupants on the land, with the disturbance compensation to said tenants to be paid by vendors; and 3) submission by vendors to Pacific of the Affidavit of Non-Tenancy and the land operation transfer documents. In certain different occasions, the Ascanos asked for additional sum to be deducted from the purchase price in order to fulfil some obligations which were acceded to by Pacific. However, despite several demands from Pacific for the Ascanos to submit the necessary documents, the latter failed to do so. The Ascanos also informed Pacific that they wanted to rescind the contract and even refused to accept Pacific's tender of additional payments. Thereafter, Pacific learned that the Ascanos were negotiating the sale of the subject property with other buyers which prompted them to file a Complaint for Cancellation of Contract, Sum of Money and Damages before the RTC. However, before pre-trial, Pacific learned that the Ascanos already withdrew the money which was earlier refused by them when Pacific tendered payment. Pacific amended its complaint from Cancellation of Contract to Specific Performance.
Issue: Whether Pacific is entitled to ask for Specific Performance.
Ruling: Yes, Pacific is entitled to ask for Specific Performance.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

As previously discussed, the Deed of Conditional Sale clearly spells out the obligations of each party. Based on the allegations of the parties and the findings of the lower courts, Pacific has already partially fulfilled its obligation while petitioners have not.
The obligation of petitioners under the Deed of Conditional Sale is to "guarantee removal of tenants" and not merely to pay disturbance compensation. It is an undertaking specifically given to petitioners under the Deed of Conditional Sale, considering that Pacific is not yet the owner of the property and will have no personality to evict the property's present occupants. Petitioners failed to fulfill this obligation, as well as the obligation to deliver the necessary documents to complete the sale.
As previously held by the Court, "the injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation." From the foregoing, it is clear that Pacific is the injured party, entitled to elect between rescinding of the contract and exacting fulfillment of the obligation. It has opted for the remedy of specific performance, as embodied in its Amended Complaint.
Moreover, rescission must not be allowed in favor of petitioners, since they themselves failed to perform their obligations under the Deed of Conditional Sale.
As to the purchase price, both the RTC and the CA held that, given no other evidence to conclude otherwise, the true purchase price agreed upon by the parties is P5,975,300, the amount stipulated in the Deed of Conditional Sale.

Aniceto Uy, Petitioner, vs. Court of Appeals, Mindanao Station, Cagayan de Oro city, Carmencita Naval-Sai, Rep. by her Attorney-in-Fact Rodolfo Florentino, Respondents. (Gr. No. 173186, September 16, 2015)
JARDELEZA, J.:
Facts:
Private respondent Carmencita Naval-Sai is the owner of a parcel of land in North Cotabato which was later on subdivided and registered with the Register of Deeds. Naval-Sai sold one lot to a certain Bobby Adil on instalment on the condition that the absolute deed of sale will be executed upon full payment. However, Adil failed to pay the amortization forcing him to sell his unfinished building to spouses Francisco and Louella Omandac. Meanwhile, Naval-Sai borrowed money from a certain Grace Ng which was secured by two lots (Lot No. 54-B-8 and Lot No. 54-B-9). Ng on the other hand borrowed money from petitioner Aniceto Uy and delivered to the latter the two titles to guarantee payment of the loan. After sometime, Naval-Sai learned that Uy filed an action for recovery of possession against Omandac which was ruled on favourably by the trial court. Naval-Sai filed a Motion for New Trial contending that her signature on a purported deed of sale was forged. The decision however became final and executory. In 1999, Naval-Sai filed a complaint for Annulment of Deed with Damages on the ground earlier cited. The complaint was later on amended since the TCTs of the subject lots had already been replaced and issued in the name of Uy. It further prayed that the newly issued TCTs in the name of Uy be cancelled. The RTC dismissed the complaint in which one of the grounds is prescription. The CA reversed the trial court and held that the action is in reality one for reconveyance therefore imprescriptible.
Issue: Whether the nature of Naval-Sai's action is an action for reconveyance based on a void contract which is imprescriptible or based on fraud which prescribes in ten years in accordance to Article 1144 of the Civil Code.
Ruling: The Court was precluded in determining the nature of the action because it both the RTC and CA failed to make a thorough discussion on the issue of forgery in the deed of sale purportedly executed by and between Uy and Naval-Sai.
Resolution of the issue of prescription hinges on whether the deed of sale was indeed forged and, thus, void. Unfortunately, both the RTC and the Court of Appeals did not make actual findings on the alleged forgery. No full-blown trial occurred in the RTC to prove that the deed of sale was indeed simulated and that the signatures were forgeries. The case was dismissed based on the pleadings of the parties. The Court of Appeals also resolved to decide the case on available records and pleadings, in order to avoid further delay, due to several resettings and motions for postponement filed by the parties one after another. The lack of factual findings on the alleged forgery from the lower courts prevents us from ruling on the issue of prescription.
xxx
In order to arrive at a conclusion on whether the action has prescribed, we have to determine the nature of the action.
xxx
An action for reconveyance is based on Section 53, paragraph 3 of Presidential Decree (PD) No. 1529, which provides:
In all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the rights of any innocent holder for value of a certificate of title. x x x
In Caro v. Court of Appeals, we said that this provision should be read in conjunction with Article 1456 of the Civil Code, which provides:
Article 1456. If 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.
The law creates the obligation of the trustee to reconvey the property and its title in favor of the true owner. Correlating Section 53, paragraph 3 of PD No. 1529 and Article 1456 of the Civil Code with Article 1144 (2) of the Civil Code, the prescriptive period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title. This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land. An exception to this rule is when the party seeking reconveyance based on implied or constructive trust is in actual, continuous and peaceful possession of the property involved. Prescription does not commence to run against him because the action would be in the nature of a suit for quieting of title, an action that is imprescriptible.
The foregoing cases on the prescriptibility of actions for reconveyance apply when the action is based on fraud, or when the contract used as basis for the action is voidable. Under Article 1390 of the Civil Code, a contract is voidable when the consent of one of the contracting parties is vitiated by mistake, violence, intimidation, undue influence or fraud. When the consent is totally absent and not merely vitiated, the contract is void. An action for reconveyance may also be based on a void contract. When the action for reconveyance is based on a void contract, as when there was no consent on the part of the alleged vendor, the action is imprescriptible. The property may be reconveyed to the true owner, notwithstanding the TCTs already issued in another's name. The issuance of a certificate of title in the latter's favor could not vest upon him or her ownership of the property; neither could it validate the purchase thereof which is null and void. Registration does not vest title; it is merely the evidence of such title. Our land registration laws do not give the holder any better title than what he actually has. Being null and void, the sale produces no legal effects whatsoever.

Spouses Rolando and Herminia Salvador, Petitioners, vs. Spouses Rogelio and Elizabeth Rabaja and Rosario Gonzalez, Respondents. (Gr. No. 199990, February 4, 2015)
MENDOZA, J.:
Facts:
Petitioner Spouses Salvador, through their agent respondent Gonzales, executed a Contract to Sell a parcel of land in Mandaluyong City in favour of respondent Spouses Rabaja, who were already lessees of said property from 1994 to 2002. It was even petitioner wife who personally introduced Gonzales to Spouses Rabaja as their administrator and a Special Power of Attorney was presented to this effect. Initial payment was made before the actual execution of the deed in the amount of P48,000.00. Later on, it was stipulated that for a consideration of P5 Million, Spouses Salvador sold, transferred and conveyed in favour of Spouses Rabaja the subject property. Spouses Rabaja made several payments totalling P950,000 which were received by Gonzales. It was later on found out that Spouses Salvador hasn't been receiving said payments which prompted Spouses Rabaja to stop further payment. As a result, they were requested to vacate the property due to non-payment of rentals. An action for ejectment was filed by Spouses Salvador against Spouses Rabaja while the latter filed an action for rescission of contract. Both the trial court and the CA found that indeed, the contract is actually a contract of sale and that Spouses Salvador cannot now interpose the defense that Gonzales is not their agent.
Issue: Whether Spouses Salvador is bound by the acts of Gonzales, who was consistently held by the trial court and CA to be the agent of the former.
Ruling: Yes, Spouses Salvador is bound by Gonzales's acts as their agent.
The Court agrees with the courts below in finding that the contract entered into by the parties was essentially a contract of sale which could be validly rescinded. Spouses Salvador insist that they did not receive the payments made by Spouses Rabaja from Gonzales which totalled P950,000.00 and that Gonzales was not their duly authorized agent. These contentions, however, must fail in light of the applicable provisions of the New Civil Code which state:
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent.
x x x x
Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown them.
x x x x
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.cralawred
xxx
According to Article 1990 of the New Civil Code, insofar as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written. In this case, Spouses Rabaja did not recklessly enter into a contract to sell with Gonzales. They required her presentation of the power of attorney before they transacted with her principal. And when Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not to rely on it.
The law mandates an agent to act within the scope of his authority which what appears in the written terms of the power of attorney granted upon him. The Court holds that, indeed, Gonzales acted within the scope of her authority. The SPA precisely stated that she could administer the property, negotiate the sale and collect any document and all payments related to the subject property. As the agent acted within the scope of his authority, the principal must comply with all the obligations. As correctly held by the CA, considering that it was not shown that Gonzales exceeded her authority or that she expressly bound herself to be liable, then she could not be considered personally and solidarily liable with the principal, Spouses Salvador.
Perhaps the most significant point which defeats the petition would be the fact that it was Herminia herself who personally introduced Gonzalez to Spouses Rabaja as the administrator of the subject property. By their own ostensible acts, Spouses Salvador made third persons believe that Gonzales was duly authorized to administer, negotiate and sell the subject property. This fact was even affirmed by Spouses Salvador themselves in their petition where they stated that they had authorized Gonzales to look for a buyer of their property. It is already too late in the day for Spouses Salvador to retract the representation to unjustifiably escape their principal obligation.

Spouses Rolando and Herminia Salvador, Petitioners, vs. Spouses Rogelio and Elizabeth Rabaja and Rosario Gonzalez, Respondents. (Gr. No. 199990, February 4, 2015)
MENDOZA, J.:
Facts:
Petitioner Spouses Salvador, through their agent respondent Gonzales, executed a Contract to Sell a parcel of land in Mandaluyong City in favour of respondent Spouses Rabaja, who were already lessees of said property from 1994 to 2002. It was even petitioner wife who personally introduced Gonzales to Spouses Rabaja as their administrator and a Special Power of Attorney was presented to this effect. Initial payment was made before the actual execution of the deed in the amount of P48,000.00. Later on, it was stipulated that for a consideration of P5 Million, Spouses Salvador sold, transferred and conveyed in favour of Spouses Rabaja the subject property. Spouses Rabaja made several payments totalling P950,000 which were received by Gonzales. It was later on found out that Spouses Salvador hasn't been receiving said payments which prompted Spouses Rabaja to stop further payment. As a result, they were requested to vacate the property due to non-payment of rentals. An action for ejectment was filed by Spouses Salvador against Spouses Rabaja while the latter filed an action for rescission of contract. The trial court ordered petitioner Spouses Salvador and respondent Gonzales to pay Spouses Rabaja P20,000.00 as moral damages, P20,000.00 as exemplary damages, and P100,000.00 attorney's fees to herein respondents
Issue: Whether the award of moral damages, exemplary damages, and attorney's fees is proper in the present case.
Ruling: No, the awards are not proper.
The award of damages to Spouses Rabaja cannot be sustained by this Court. The filing alone of a civil action should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral damages. Article 2220 of the New Civil Code provides that to award moral damages in a breach of contract, the defendant must act fraudulently or in bad faith. In this case, Spouses Rabaja failed to sufficiently show that Spouses Salvador acted in a fraudulent manner or with bad faith when it breached the contract of sale. Thus, the award of moral damages cannot be warranted.

As to the award of exemplary damages, Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. The claimant must first establish his right to moral, temperate, liquidated or compensatory damages. In this case, considering that Spouses Rabaja failed to prove moral or compensatory damages, then there could be no award of exemplary damages.
With regard to attorney's fees, neither Spouses Rabaja nor Gonzales is entitled to the award. The settled rule is that no premium should be placed on the right to litigate and that not every winning party is entitled to an automatic grant of attorney's fees. The RTC reasoned that Gonzales was forced to litigate due to the acts of Spouses Salvador. The Court does not agree. Gonzales, as agent of Spouses Salvador, should have expected that she would be called to litigation in connection with her fiduciary duties to the principal.

Luis Uy, substituted by Lydia Uy Velasquez and Shirley Uy Macaraig, Petitioners, vs. Spouses Jose Lacsamana and Rosaura Mendoza, substituted by Corazon Buena, Respondents. (Gr. No. 206220, August 19, 2015)
CARPIO, J.:
Facts:
Luis Uy and Petra Rosca had lived together as husband and wife for 29 years with no benefit of marriage. During their cohabitation in 1969, they acquired a 484 square meter residential land for a consideration of P1,936 evidenced by a Deed of Sale from Spouses Manuel. The title of Spouses Manuel was cancelled and a new title was issued in the name of "Petra Rosca, married to Luis G. Uy." Another acquisition of residential land was made adjacent to the previous one this time from Spouses Contreras. Thereafter, a split level house with a floor area of 208.50 square meters was constructed on the 484 square meter land. In April 18, 1979, Rosca executed an allegedly simulated and fictitious Deed of Sale in favour of Spouses Lacsamana for a consideration of P80,000.00. Uy questioned the registrability of the Deed before the Register of Deeds of Batangas City who elevated the matter, on consulta, with the Land Registration Commission. The LRC decided in favour of the registration. This inquiry coincided with the filing of a complaint for Declaration of Nullity of the Deed of Sale by Uy with the RTC. In 1982, Spouses Lacsamana sold the subject property to Corazon Buena. All original parties had been represented by herein substitutes because the former are now all dead.
Issue: Whether the Deed of Sale dated April 18, 1979, executed by Rosca alone, without Uy's consent, in favour of Spouses Lacsamana, is valid.
Ruling: The Deed of Sale, executed by Rosca on her paraphernal property in favour of Spouses Lacsamana, is valid.
Here, the main issue in determining the validity of the sale of the property by Rosca alone is anchored on whether Uy and Rosca had a valid marriage. There is a presumption established in our Rules "that a man and woman deporting themselves as husband and wife have entered into a lawful contract of marriage. "Semper praesumitur pro matrimonio — Always presume marriage. However, this presumption may be contradicted by a party and overcome by other evidence.
xxx
Here, Uy was not able to present any copy of the marriage certificate which he could have sourced from his own personal records, the solemnizing officer, or the municipal office where the marriage allegedly took place. Even the findings of the RTC revealed that Uy did not show a single relevant evidence that he was actually married to Rosca. On the contrary, the documents Uy submitted showed that he and Rosca were not legally married to each other. xxx
xxx
Since Uy failed to discharge the burden that he was legally married to Rosca, their property relations would be governed by Article 147 of the Family Code which applies when a couple living together were not incapacitated from getting married.xxx
The provision states that properties acquired during cohabitation are presumed co-owned unless there is proof to the contrary. We agree with both the trial and appellate courts that Rosca was able to prove that the subject property is not co-owned but is paraphernal. xxx
xxx
Based on the evidence she presented, Rosca was able to sufficiently overcome the presumption that any property acquired while living together shall be owned by the couple in equal shares. The house and lot were clearly Rosca's paraphernal properties and she had every right to sell the same even without Uy's consent.

First Optima Realty Corporation, Petitioner, vs. Securitron Security Services, Inc., Respondent. (Gr. No. 199648, January 28, 2015)
DEL CASTILLO, J.:
Facts:
Petitioner First Optima Realty Corporation is engaged in the real estate business and a registered owner of a 256 square meter parcel of land with improvements located in Pasay City. Respondent Securitron Security Services on the other hand, is a domestic corporation with offices located beside the cited property of petitioner. Since respondent is looking to expand its business, it offered to purchase the subject property through a letter addressed to petitioner's Executive Vice-President Carolina Young. A series of phone calls ensued but only between the General Manager of respondent (Antonio Eleazar) and the secretary of Young. When Eleazar personally met Young, the latter declined the offer to purchase the subject property and likewise informed Eleazar that prior approval of petitioner's Board of Directors was required for the transaction. However, a letter dated February 4, 2005 to which a P100,000.00 check was attached, was sent by respondent to petitioner purporting to be earnest money for the contract of sale. It is only after a year when petitioner offered to return the money. Respondent filed a complaint for Specific Performance before the RTC which was thereby granted by the same, holding that a perfected contract of sale had taken place. The decision was affirmed by the CA on appeal.
Issue: Whether the earnest money of P100,000.00 is enough to perfect a sale between petitioner and respondent.
Ruling: There is no perfected contract of sale and the purported earnest money is not the earnest money contemplated under the law.
xxx To borrow a pronouncement in a previously decided case,
The stages of a contract of sale are: (1) negotiation, starting from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale; and (3) consummation, which commences when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment of the contract.
In the present case, the parties never got past the negotiation stage. Nothing shows that the parties had agreed on any final arrangement containing the essential elements of a contract of sale, namely, (1) consent or the meeting of the minds of the parties; (2) object or subject matter of the contract; and (3) price or consideration of the sale.
Respondent's subsequent sending of the February 4, 2005 letter and check to petitioner – without awaiting the approval of petitioner's board of directors and Young's decision, or without making a new offer – constitutes a mere reiteration of its original offer which was already rejected previously; thus, petitioner was under no obligation to reply to the February 4, 2005 letter. It would be absurd to require a party to reject the very same offer each and every time it is made; otherwise, a perfected contract of sale could simply arise from the failure to reject the same offer made for the hundredth time. Thus, said letter cannot be considered as evidence of a perfected sale, which does not exist in the first place; no binding obligation on the part of the petitioner to sell its property arose as a consequence. The letter made no new offer replacing the first which was rejected.
Since there is no perfected sale between the parties, respondent had no obligation to make payment through the check; nor did it possess the right to deliver earnest money to petitioner in order to bind the latter to a sale. As contemplated under Art. 1482 of the Civil Code, "there must first be a perfected contract of sale before we can speak of earnest money." "Where the parties merely exchanged offers and counter-offers, no contract is perfected since they did not yet give their consent to such offers. Earnest money applies to a perfected sale."

Nunelon R. Marquez, Petitioner, vs. Elisan Credit Corporation, Respondents. (Gr. No. 194642. April 16, 2015)
BRION, J.:
Facts:
In 1991, Petitioner Nunelon Marquez obtained a loan from respondent Elisan Credit Corporation for P53,000.00 payable in 180 days. A promissory note was signed by petitioner which provided that the loan is payable in weekly instalments and subject to 26% annual interest. In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on the total amount unpaid and another 25% of such amount for attorney's fees exclusive of costs, and judicial and extrajudicial expenses. This particular loan was secured by a chattel mortgage over a motor vehicle in which it was stipulated that the motor vehicle shall stand as security for the first loan and "all other obligations of every kind already incurred or which may hereafter be incurred." After complete payment of said loan, petitioner again borrowed money from respondent in the amount of P55,000.00 evidenced by a promissory note and cash voucher. The terms of this promissory note contain the exact same terms and conditions as the first promissory note. When the second loan matured, petitioner had a remaining unpaid balance of P25,040.00. Due to liquidity problems, petitioner asked respondent if he could make daily payments until the second loan is paid to which request the latter acceded. Twenty one months after the second loan's maturity, petitioner already paid P56,440.00 which amount is greater than the principal. Despite such payment, respondent still filed a judicial foreclosure of the chattel mortgage. Respondent further alleged that since petitioner defaulted in payment, the necessary penalty interest and attorney's fees stipulated in the promissory note had accrued. It was alleged during trial that respondent applied the daily payments made by petitioner against the interest.
Issue: Whether the respondent acted lawfully when it credited the daily payments against the interest instead of the principal.
Ruling: The respondent acted pursuant to law and jurisprudence when it credited the daily payments against the interest instead of the principal.
The presumption under Article 1176 does not resolve the question of whether the amount received by the creditor is a payment for the principal or interest. Under this article the amount received by the creditor is the payment for the principal, but a doubt arises on whether or not the interest is waived because the creditor accepts the payment for the principal without reservation with respect to the interest. Article 1176 resolves this doubt by presuming that the creditor waives the payment of interest because he accepts payment for the principal without any reservation.
On the other hand, the presumption under Article 1253 resolves doubts involving payment of interest-bearing debts. It is a given under this Article that the debt produces interest. The doubt pertains to the application of payment; the uncertainty is on whether the amount received by the creditor is payment for the principal or the interest. Article 1253 resolves this doubt by providing a hierarchy: payments shall first be applied to the interest; payment shall then be applied to the principal only after the interest has been fully-paid.
Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to the interest and not to the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the payment of interest is expressly stipulated) and (2) the principal remains unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment of the interest despite the presence of (1) and (2) above. In such case, the payments shall obviously be credited to the principal.
Since the doubt in the present case pertains to the application of the daily payments, Article 1253 shall apply. Only when there is a waiver of interest shall Article 1176 become relevant.

Under this analysis, we rule that the respondent properly credited the daily payments to the interest and not to the principal because: (1) the debt produces interest, i.e., the promissory note securing the second loan provided for payment of interest; (2) a portion of the second loan remained unpaid upon maturity; and (3) the respondent did not waive the payment of interest.

BRION, J.:
Facts:
In 1991, Petitioner Nunelon Marquez obtained a loan from respondent Elisan Credit Corporation for P53,000.00 payable in 180 days. A promissory note was signed by petitioner which provided that the loan is payable in weekly instalments and subject to 26% annual interest. In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on the total amount unpaid and another 25% of such amount for attorney's fees exclusive of costs, and judicial and extrajudicial expenses. This particular loan was secured by a chattel mortgage over a motor vehicle in which it was stipulated that the motor vehicle shall stand as security for the first loan and "all other obligations of every kind already incurred or which may hereafter be incurred." After complete payment of said loan, petitioner again borrowed money from respondent in the amount of P55,000.00 evidenced by a promissory note and cash voucher. The terms of this promissory note contain the exact same terms and conditions as the first promissory note. When the second loan matured, petitioner had a remaining unpaid balance of P25,040.00. Due to liquidity problems, petitioner asked respondent if he could make daily payments until the second loan is paid to which request the latter acceded. Twenty one months after the second loan's maturity, petitioner already paid P56,440.00 which amount is greater than the principal. Despite such payment, respondent still filed a judicial foreclosure of the chattel mortgage. Respondent further alleged that since petitioner defaulted in payment, the necessary penalty interest and attorney's fees stipulated in the promissory note had accrued. Based on the stipulated interest, penalty interest, and attorney's fees on the promissory note, the MTC, RTC, and CA decided the total amount due to respondents.
Issue: Whether the stipulated interest, penalty interest, and attorney's fees stipulated on the promissory note are reasonable.
Ruling: The interest, penalty interest, and attorney's fees are unconscionable.
xxx we find the stipulated rates of interest, penalty and attorney's fees to be exorbitant, iniquitous, unconscionable and excessive. The courts can and should reduce such astronomical rates as reason and equity demand.
Article 1229 of the Civil Code provides:
"The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable."
Article 2227 of the Civil Code ordains:
"Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.
More importantly, Article 1306 of the Civil Code is emphatic:
"The contracting parties may 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."
Thus, stipulations imposing excessive rates of interest and penalty are void for being contrary to morals, if not against the law.
Further, we have repeatedly held that while Central Bank Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels that would be unduly burdensome, to the point of oppression on their borrowers.
In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.
xxx
Applying the foregoing principles, we hereby reduce the stipulated rates as follows: the interest of twenty-six percent (26%) per annum is reduced to two percent (2%) per annum; the penalty charge of ten percent (10%) per month, or one-hundred twenty percent (120%) per annum is reduced to two percent (2%) per annum; and the amount of attorney's fees from twenty-five percent (25%) of the total amount due to two percent (2%) of the total amount due.

BRION, J.:
Facts:
In 1991, Petitioner Nunelon Marquez obtained a loan from respondent Elisan Credit Corporation for P53,000.00 payable in 180 days. A promissory note was signed by petitioner which provided that the loan is payable in weekly instalments and subject to 26% annual interest. In case of non-payment, the petitioner agreed to pay 10% monthly penalty based on the total amount unpaid and another 25% of such amount for attorney's fees exclusive of costs, and judicial and extrajudicial expenses. This particular loan was secured by a chattel mortgage over a motor vehicle in which it was stipulated that the motor vehicle shall stand as security for the first loan and "all other obligations of every kind already incurred or which may hereafter be incurred." After complete payment of said loan, petitioner again borrowed money from respondent in the amount of P55,000.00 evidenced by a promissory note and cash voucher. The terms of this promissory note contain the exact same terms and conditions as the first promissory note. The second loan was also secured by the motor vehicle due to the provision enunciated on the previous chattel mortgage. When the second loan matured, petitioner had a remaining unpaid balance of P25,040.00. Due to liquidity problems, petitioner asked respondent if he could make daily payments until the second loan is paid to which request the latter acceded. Twenty one months after the second loan's maturity, petitioner already paid P56,440.00 which amount is greater than the principal. Despite such payment, respondent still filed a judicial foreclosure of the chattel mortgage. A writ of replevin was applied by respondents in order to obtain possession of the motor vehicle subject of the chattel mortgage which was granted by the MTC.
Issue: Whether the Chattel Mortgage could cover the second loan.
Ruling: The chattel mortgage could not cover the second loan. The order of foreclosure has no legal and factual basis.
The only obligation specified in the chattel mortgage contract was the first loan which the petitioner later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation automatically rendered the chattel mortgage terminated; the chattel mortgage had ceased to exist upon full payment of the first loan. Being merely an accessory in nature, it cannot exist independently of the principal obligation.
The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage to comply with the Chattel Mortgage Law which requires that the obligation must be specified in the affidavit of good faith. Simply put, there no longer was any chattel mortgage that could cover the second loan upon full payment of the first loan. The order to foreclose the motor vehicle therefore had no legal basis.

Tagaytay Realty Co., Inc., Petitioner, vs. Arturo G. Gacutan, Respondent. (Gr. No. 160033, July 1, 2015)
BERSAMIN, J.:
Facts:
In 1976, respondent Gacutan entered into a Contract to Sell with petitioner Tagaytay Realty Co., Inc., for the purchase on instalment of a residential lot with an area of 308 square meters situated in the Foggy Heights Subdivision then being developed by the latter. In said contract, petitioner undertook to complete the development of the roads, curbs, gutters, etc., as well as amenities within a period of two years from July 15, 1976 on the understanding that failure on their part to do so within the stipulated period shall give respondent (or vendee) the option to suspend payment of the monthly amortization until completion without incurring penalty interest. The exception to such stipulation is whenever an act of God or force majeure occurs. In 1979, respondent notified petitioner that he is suspending payment of the monthly amortization because the amenities had not been constructed in accordance with the undertaking. Despite several communications to inquire about the status of the undertaking, petitioner failed to response and instead sent the respondent a statement of account demanding the balance of the price, plus penalty and interest. Later, a complaint for Specific Performance with prayer to order petitioner to accept payment of the balance of the contract without interest and penalty was filed by respondent. Petitioner contends that it is already released from its obligation to construct amenities due to the fact of unstable economy during the time of development. The HLURB, HLURB Commissioner, the Office of the President, and the CA all ruled in favour of respondent.
Issue: Whether petitioner is released from its obligation to construct the amenities in the Foggy Heights Subdivision.
Ruling: Petitioner was not relieved from its statutory and contractual obligations to complete the amenities.
There is no question that the petitioner did not comply with its legal obligation to complete the construction of the subdivision project, including the amenities, within one year from the issuance of the license. Instead, it unilaterally opted to suspend the construction of the amenities to avoid incurring maintenance expenses. In so opting, it was not driven by any extremely difficult situation that would place it at any disadvantage, but by its desire to benefit from cost savings. Such cost-saving strategy dissuaded the lot buyers from constructing their houses in the subdivision, and from residing therein.
Considering that the petitioner's unilateral suspension of the construction of the amenities was intended to save itself from costs, its plea for relief from its contractual obligations was properly rejected because it would thereby gain a position of advantage at the expense of the lot owners like the respondent. Its invocation of Article 1267 of the Civil Code, which provides that "(w)hen the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom in whole or in part," was factually unfounded. For Article 1267 to apply, the following conditions should concur, namely: (a) the event or change in circumstances could not have been foreseen at the time of the execution of the contract; (b) it makes the performance of the contract extremely difficult but not impossible; (c) it must not be due to the act of any of the parties; and (d) the contract is for a future prestation. The requisites did not concur herein because the difficulty of performance under Article 1267 of the Civil Code should be such that one party would be placed at a disadvantage by the unforeseen event. Mere inconvenience, or unexepected impediments, or increased expenses did not suffice to relieve the debtor from a bad bargain.
And, secondly, the unilateral suspension of the construction had preceded the worsening of economic conditions in 1983; hence, the latter could not reasonably justify the petitioner's plea for release from its statutory and contractual obligations to its lot buyers, particularly the respondent. Besides, the petitioner had the legal obligation to complete the amenities within one year from the issuance of the license (under Section 20 of Presidential Decree No. 957), or within two years from July 15, 1976 (under the express undertaking of the petitioner). Hence, it should have complied with its obligation by July 15, 1978 at the latest, long before the worsening of the economy in 1983.

Angel V. Talampas, Jr., Petitioner, vs. Moldex Realty, Inc., Respondent. (Gr. No. 170134, June 17, 2015)
BRION, J.:
Facts:
Petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction (AVTJ Construction), a business engaged in general engineering and building. On December 16, 1992, the petitioner entered into a contract with the respondent to develop a residential subdivision on a land owned by the latter to be known as the Metrogate Silang Estates. The contract price for the project is P10,500,000.00 to be paid by respondent through progress billings. On May 14, 1993, Metrogate's Project Manager Engr. Honorio Almedia asked the petitioner to suspend construction work on the site for one week due to a change in the project subdivision plan. However, instead of the one week request, the suspension lasted for almost three weeks prompting petitioner to write a letter inquiring about the project's status since the latter's equipment and construction materials remained idle at the site. In an antedated letter signed by respondent's Vice President, Engr. Jose Po, petitioners were informed that the former are deciding to terminate the parties' contract. In a letter, petitioner demanded payment of equipment rentals and cost of opportunity lost which was refused by the respondent. Thereafter, petitioner filed a complaint for breach of contract and damages against respondents.
Issue: Whether respondent is liable for breach of contract for unilaterally terminating the Metrogate Silang Estates project with petitioner.
Ruling: Yes, respondent is liable for breach of contract.
Contracts have the force of law between the parties and must be complied with in good faith. A contracting party's failure, without legal reason, to comply with contract stipulations breaches their contract and can be the basis for the award of damages to the other contracting party.

In the present case, we find that the respondent failed to comply with its contractual stipulations on the unilateral termination when it terminated their contract due to the redesign of the Metrogate Silang Estates' subdivision plan.
Paragraph 8 of the parties' contract limits the instances when the respondent (referred to as owner in the contract) or the petitioner (referred to as contractor in the contract) may unilaterally terminate their agreement. On the part of the owner, paragraph 8.1 of the contract specifically provides:
8.1.
The OWNER may terminate this CONTRACT upon ten (10) days written notice to the CONTRACTOR in the event of any default by the CONTRACTOR. It shall be considered a default by the CONTRACTOR whenever he shall:

a)
declare bankruptcy, become insolvent, dissolve the corporation, or assign its assets for the benefit of his creditors;

b)
disregard, violate or not comply with important provisions of the Plans and Specifications or the OWNER's instructions, or incur a delay of more than fifteen percent (15%) in the prosecution of the work as evaluated against the work schedule to be submitted by the CONTRACTOR; or

c)
fail to provide a qualified superintendent, competent workmen, or materials or equipment meeting the requirements of the Plans and Specifications.

x x x x
The respondent could not have validly and unilaterally terminated its contract with the petitioner, as the latter has not committed any of the stipulated acts of default. In fact, the petitioner at that time was willing and able to perform his obligations under their contract; xxx

BRION, J.:
Facts:
Petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction (AVTJ Construction), a business engaged in general engineering and building. On December 16, 1992, the petitioner entered into a contract with the respondent to develop a residential subdivision on a land owned by the latter to be known as the Metrogate Silang Estates. The contract price for the project is P10,500,000.00 to be paid by respondent through progress billings. On May 14, 1993, Metrogate's Project Manager Engr. Honorio Almedia asked the petitioner to suspend construction work on the site for one week due to a change in the project subdivision plan. However, instead of the one week request, the suspension lasted for almost three weeks prompting petitioner to write a letter inquiring about the project's status since the latter's equipment and construction materials remained idle at the site. In an antedated letter signed by respondent's Vice President, Engr. Jose Po, petitioners were informed that the former are deciding to terminate the parties' contract. In a letter, petitioner demanded payment of equipment rentals and cost of opportunity lost which was refused by the respondent. Thereafter, petitioner filed a complaint for breach of contract and damages against respondents. Respondent contends that there had been mutual termination of the parties' contract during a meeting held between Engr. Po of Moldex Reality and Engr. Talampas of AVTJ Construction on May 21, 1993.
Issue: Whether respondent successfully proved petitioner's consent, express or implied, to the termination of the subject contract.
Ruling: No, respondent failed to prove petitioner's consent, express or implied to the termination of the contract.
xxx respondent failed to fully establish that a meeting took place as alleged. Except for the self-serving testimony of Engr. Po that the May 21, 1993 meeting took place, the respondent presented no other evidence to prove that Engr. Po and Engr. Talampas met on that date to discuss the fate of their contract. No document or record the minutes of their May 21, 1993 meeting appeared to have been made despite the importance of their alleged discussion. The questions that this evidentiary gap raised cannot but be resolved against the respondent.
Even assuming that the May 21, 1993 meeting between Engr. Po and Engr. Talampas did indeed take place, we cannot discern from the developments the petitioner's claimed agreement or consent to the termination of the construction contract.
xxx The request for an official letter of termination does not necessarily mean consent to the termination; xxx does not really signify an agreement; it was nothing more than a request for a final decision from the respondent.
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain, and the acceptance, whether express or implied, must be absolute. An acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds.
We find no such meeting of the minds between the parties on the matter of termination because the petitioner's acceptance of the respondent's offer to terminate was not absolute.

BRION, J.:
Facts:
Petitioner is the owner and general manager of Angel V. Talampas, Jr. Construction (AVTJ Construction), a business engaged in general engineering and building. On December 16, 1992, the petitioner entered into a contract with the respondent to develop a residential subdivision on a land owned by the latter to be known as the Metrogate Silang Estates. The contract price for the project is P10,500,000.00 to be paid by respondent through progress billings. On May 14, 1993, Metrogate's Project Manager Engr. Honorio Almedia asked the petitioner to suspend construction work on the site for one week due to a change in the project subdivision plan. However, instead of the one week request, the suspension lasted for almost three weeks prompting petitioner to write a letter inquiring about the project's status since the latter's equipment and construction materials remained idle at the site. In an antedated letter signed by respondent's Vice President, Engr. Jose Po, petitioners were informed that the former are deciding to terminate the parties' contract. In a letter, petitioner demanded payment of equipment rentals and cost of opportunity lost which was refused by the respondent. Thereafter, petitioner filed a complaint for breach of contract and damages against respondents. The RTC held in favour of petitioner and ordered respondent to pay among others, unrealized profits, moral damages, exemplary damages, and attorney's fees which was however reversed and set aside by the CA.
Issue: Whether the payment of opportunity costs, moral damages, exemplary damages, and attorney's fees are proper under the circumstances.
Ruling:
Article 2200 of the Civil Code provides that indemnification for damages shall include, not only the value of the loss suffered, but also the profits that the obligee failed to obtain. On this basis, we find the petitioner entitled to the payment for the opportunity lost because of the respondent's unilateral termination of the parties' contract.
Significantly, the respondent itself impliedly accepted this legal consequence by contending that the cost of opportunity lost should not be based on the total contract price of P10,500,000.00 as the petitioner had already been compensated for a part of the construction work done.
We find merit in the respondent's contention that the basis of the cost of opportunity lost should not be the total contract price, as the 'cost of opportunity lost' must represent only the profits that the petitioner failed to obtain due to the contract's early termination. Thus, from the total contract price, the amounts paid to the petitioner for work accomplished must be subtracted, including the P500,000.00 down payment that the respondent gave at the start of the contract; the difference would be the basis for determining the cost of opportunity lost.
xxx
However, nothing in the evidence showed that the respondent was under any legal or contractual obligation to disclose the project's conversion clearance status to the petitioner, or that the presence of a conversion clearance was a consideration for the petitioner's entry into the contract with the respondent.
Article 1339 of the Civil Code provides that "failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitutes fraud." Otherwise stated, the innocent non-disclosure of facts, when no duty to reveal them exists, does not amount to fraud.
We cannot award moral and exemplary damages to the petitioner in the absence of fraud on the respondent's part. To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless, malicious, in bad faith, oppressive or abusive. In the same manner, to warrant the award of exemplary damages, the wrongful act must be accompanied by bad faith, such as when the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.
We cannot also award attorney's fees to the petitioner. Attorney's fees are not awarded every time a party wins a suit. Attorney's fees cannot be awarded even if a claimant is compelled to litigate or to incur expenses to protect his rights due to the defendant's act or omission, where no sufficient showing of bad faith exists; a party's persistence based solely on its erroneous conviction of the righteousness of his cause, does not necessarily amount to bad faith. In the present case, the respondent was not shown to have acted in bad faith in appealing and zealously pursuing its case. Under the circumstances, it was merely protecting its interests.

Florentina Bautista-Spille represented by her Attorney-in-Fact, Manuel B. Flores, Jr., Petitioner, vs. NICORP Management and Development Corporation, Benjamin G. Bautista, and International Exchange Bank, Respondents. (Gr. No. 214057, October 19, 2015.
MENDOZA, J,:
Facts:
Petitioner Florentina Bautista-Spille is the owner of a registered parcel of land in Imus City, Cavite covered by TCT No.T-197. On June 2, 1996, petitioner and her spouse executed a document denominated as General Power of Attorney in favour of her brother, respondent Benjamin Bautista, authorizing the latter to administer all her business and properties in the Philippines which document was notarized before the Consulate General of the Philippines, New York, USA. On August 13, 2004, Benjamin and NICORP entered into a Contract to Sell pertaining to TCT No.T-197. Pursuant to said contract, an Escrow Agreement was executed designating IE Bank as the Escrow Agent, obliging the latter to hold and take custody of TCT No. T-197, and to release said title to NICORP upon full payment of the subject property. However, when petitioner found out about the sale, she opposed and contended that Benjamin was not clothe with authority to enter into a contract to sell and thereafter demanded the return of the subject title. A complaint was filed by petitioner against Banjamin, NICORP, and IE Bank for declaration of nullity of the contract to sell, injunction, recovery of possession and damages with prayer for issuance of TRO and/or preliminary injunction because NICORP has already started development of the property. The RTC ruled in favour of petitioner which was reversed by the CA on appeal.
Issue: Whether Benjamin is authorized to sell the subject property of petitioner by virtue of the General Power of Attorney.
Ruling: No, Benjamin is not authorized to sell the subject property.
The well-established rule is when a sale of a parcel of land or any interest therein is through an agent, the authority of the latter shall be in writing, otherwise the sale shall be void. Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) x xx
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;
x x x . [Emphasis Supplied]
From the foregoing, it is clear that an SPA in the conveyance of real rights over immovable property is necessary. xxx
xxx such authority must be conferred in writing and must express the powers of the agent in clear and unmistakable language in order for the principal to confer the right upon an agent to sell the real property.
It is a general rule that a power of attorney must be strictly construed, and courts will not infer or presume broad powers from deeds which do not sufficiently include property or subject under which the agent is to deal. Thus, when the authority is couched in general terms, without mentioning any specific power to sell or mortgage or to do other specific acts of strict dominion, then only acts of administration are deemed conferred.
Doubtless, there was no perfected contract to sell between petitioner and NICORP. Nowhere in the General Power of Attorney was Benjamin granted, expressly or impliedly, any power to sell the subject property or a portion thereof. The authority expressed in the General Power of Attorney was couched in very broad terms covering petitioner's businesses and properties. Time and again, this Court has stressed that the power of administration does not include acts of disposition, which are acts of strict ownership. As such, an authority to dispose cannot proceed from an authority to administer, and vice versa, for the two powers may only be exercised by an agent by following the provisions on agency of the Civil Code.

Valentina S. Clemente, Petitioner, vs. The Court of Appeals, Annie Shotwell Jalandoon, et.al., Respondents. (Gr. No. 175483, October 14, 2015)
JARDELEZA, J.:
Facts:
Adela owned 3 adjoining parcels of lands in Scout Ojeda St., Diliman Quezon City, subdivided as Lots 32, 34, and 35-B. During her lifetime, Adela allowed her children, namely, Annie Shotwell Jalandoon, Carlos G. Shotwell Sr., Anselmo G. Shotwell, and Corazon S. Basset, and grandchildren the use and possession of the properties. Among her grandchildren is Petitioner Valentina Clemente. Sometime in 1985 and 1987, she simulated the transfer of Lots 32 and 34 to her 2 grandsons. In 1989, prior to her and petitioner's departure for the US, she requested her grandsons to execute a deed of reconveyance over subject lots which was executed and registered with the Registry of Deeds on the same day. On the same year, she again executed a deed of absolute sale over the same lots in favour of petitioner bearing on its face the price of P250,000.00. Along with such deed is an SPA which vests petitioner the power to administer the property and other real and personal property as well of Adela in the Philippines.
When Adela and petitioner returned to the Philippines, petitioner registered the sale over lots 32 and 34 with the Registry of Deeds. Later on, it was found out that even Lot 35 was sold by the same. Soon thereafter, petitioner sought to eject Annie and Carlos Sr., who were staying on the properties. With this particular adverse action, Annie and Carlos Sr. filed a complaint for reconveyance of property against petitioner. It was contended that the execution of the deed in favour of petitioner by Adela was only a means to accommodate the former's application and entry to the US. The deeds therefore are only simulated and fictitious.
Issue: Whether the Deeds of Absolute Sale between petitioner and her late grandmother Adela over the subject properties are simulated and without consideration, and hence, void and inexistent.
Ruling: The Deeds of Absolute Sale between petitioner and the late Adela Shotwell are null and void for lack of consent and consideration.
While the Deeds of Absolute Sale appear to be valid on their face, the courts are not completely precluded to consider evidence aliunde in determining the real intent of the parties. This is especially true when the validity of the contracts was put in issue by one of the parties in his pleadings. Here, private respondents assail the validity of the Deeds of Absolute Sale by alleging that they were simulated and lacked consideration. The Civil Code defines a contract as a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Article 1318 provides that there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract; and
(3) Cause of the obligation which is established.

All these elements must be present to constitute a valid contract; the absence of one renders the contract void. As one of the essential elements, consent when wanting makes the contract non-existent. Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the contract. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing that is the object of the contract, and upon the price.

Here, there was no valid contract of sale between petitioner and Adela because their consent was absent. The contract of sale was a mere simulation. Simulation takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its wordings. Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. xxx

In determining the true nature of a contract, the primary test is the intention of the parties. If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties. This is especially true in a claim of absolute simulation where a colorable contract is executed.

In ruling that the Deeds of Absolute Sale were absolutely simulated, the lower courts considered the totality of the prior, contemporaneous and subsequent acts of the parties. The following circumstances led the RTC and the CA to conclude that the Deeds of Absolute Sale are simulated, and that the transfers were never intended to affect the juridical relation of the parties xxx

xxx

We also find no compelling reason to depart from the court a quo's finding that Adela never received the consideration stipulated in the simulated Deeds of Absolute Sale. Although on their face, the Deeds of Absolute Sale appear to be supported by valuable consideration, the RTC and the CA found that there
was no money involved in the sale. The consideration in the Deeds of Absolute Sale was superimposed on the spaces therein, bearing a font type different from that used in the rest of the document. The lower courts also found that the duplicate originals of the Deeds of Absolute Sale bear a different entry with regard to the price.

Article 1471 of the Civil Code provides that "if the price is simulated, the sale is void." Where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration. Thus, although the contracts state that the purchase price of P250,000.00 and P60,000.00 were paid by petitioner to Adela for the Properties, the evidence shows that the contrary is true, because no money changed hands. Apart from her testimony, petitioner did not present proof that she paid for the Properties.

Marina Port Services, Inc., Petitioner, vs. American Home Assurance Corporation, Respondent. (Gr. No. 201822, August 12, 2015)

DEL CASTILLO, J.:

Facts:
Countercorp Trading PTE., Ltd. Shipped from Singapore to the Philippines 10 container vans of soft wheat flour with seals intact on board the vessel M/V Uni Fortune. The shipment was insured against all risks by AHAC and consigned to MSC Distributor. Upon arrival at the Manila South Harbor, the shipment was discharged in good and complete order condition and with safety seals to the custody of the arrastre operator, MPSI. After unloading but prior to hauling, agents of the Bureau of Customs officially broke the seals, opened the container vans, and examined the shipment for tax evaluation in the presence of MSC's broker and checker. Thereafter, the container vans were closed and refastened with wire seals and padlocked. Days after, MSC's representative, AD's Customs Services (ACS), took out 5 container vans for delivery to MSC whereby at the compound's exit, MPSI issued to ACS the corresponding gate passes for the vans indicating its turn-over of the subject shipment to MSC. However, upon receipt at its warehouse, MSC discovered substantial shortages in the number of bags of flour delivered. This particular incident happened again when the remaining 5 container vans were turned-over to MSC. In both instances, MSC filed a claim with MPSI wherein the latter refused adherence. As a result, MSC sought insurance indemnity for the lost cargoes from AHAC which the latter paid. AHAC therefore became subrogee of MSC's rights. A complaint was filed by AHAC against MPSI which was denied by the trial court. On appeal, the CA reversed the trial court's ruling and held among others that a presumption of fault or negligence for the loss of the goods arises against the arrastre operator pursuant to Articles 1265 and 1981 of the Civil Code.

Issue: Whether MPSI may be held liable for the loss of the bags of flour pursuant to Article 1981 of the Civil Code.

Ruling: Even in the light of Article 1981, no presumption of fault on the part of MPSI arises since it was not sufficiently shown that the container vans were re-opened or that their locks and seals were broken for the second time.

Indeed, Article 1981 of the Civil Code also mandates a presumption of fault on the part of the arrastre operator as follows:

Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.

As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit.

However, no such presumption arises in this case considering that it was not sufficiently shown that the container vans were re-opened or that their locks and seals were broken for the second time. As may be recalled, the container vans were opened by a customs official for examination of the subject shipment and were thereafter resealed with safety wires. While this fact is not disputed by both parties, AHAC alleges that the container vans were re-opened and this gave way to the alleged pilferage. The Court notes, however, that AHAC based such allegation solely on the survey report of the Manila Adjuster & Surveyors Company (MASCO). xxxthe person who prepared the said report was not presented in court to testify on the same. Thus, the said survey report has no probative value for being hearsay. "It is a basic rule that evidence, whether oral or documentary, is hearsay, if its probative value is not based on the personal knowledge of the witness but on the knowledge of another person who is not on the witness stand."xxx

There being no other competent evidence that the container vans were reopened or that their locks and seals were broken for the second time, MPSI cannot be held liable for damages due to the alleged loss of the bags of flour pursuant to Article 1981 of the Civil Code.

JOSE V. TOLEDO, GLENN PADIERNOS AND DANILO PADIERNOS, Petitioner, v. COURT OF APPEALS, LOURDES RAMOS, ENRIQUE RAMOS, ANTONIO RAMOS, MILAGROS RAMOS AND ANGELITA RAMOS AS HEIRS OF SOCORRO RAMOS, GUILLERMO PABLO, PRIMITIVA CRUZ AND A.R.C. MARKETING CORPORATION, REPRESENTED BY ITS PRESIDENT, ALBERTO C. DY, Respondents. (Gr. No. 167838, August 5, 2015)
JARDELEZA, J.:
Facts:
Del Rosario Realty, represented by Pedro Del Rosario, is the owner of a lot in Sunrise Hills Subdivision, Quezon City. In 1958, said Realty entered into a Contract to Sell with Spouses Faustino. Later on, Spouses Faustino sold their rights to Spouses Vicente Padiernos and Concordia Garcia. In 1962, Vicente Padiernos sold one half of the property to Spouses Toledo and in 1967, the remaining half was sold to Spouses Virgilio and Leticia Padiernos. Later on, Spouses Virgilio and Leticia Padiernos assigned their rights over the acquired property to their children, Glenn and Danilo Padiernos. On the other hand, Pedro Del Rosario executed a Deed of Assignment and Interest in the Contract to Sell with Socorro Ramos. It then appears that execution proceedings were taken against the estate of Socorro Ramos. As a consequence, 18 parcels of land belonging to the estate, including those already being occupied by Spouses Toledo, Glenn Padiernos, and Danilo Padiernos, were sold in auction to Guillermo N. Pablo and Primitiva Cruz, who thereafter sold the same to ARC Marketing. The heirs of Socorro Ramos filed a Complaint for Nullity of Execution Sale (Civil Case No. Q-22850) against the auction sale winners and their transferee, ARC Marketing. In 1993, CC No. Q-22850 was settled and the parties entered into a Final Compromise Agreement which was approved by the trial court. Affected thereby, petitioners herein filed a complaint for reconveyance and damages.
Issue: Whether the approved compromise agreement entered into by and between the successor-in-interest of Socorro Ramos and ARC Marketing in CC No. Q-22850 which favoured the latter in acquiring 18 parcels of land including those of the petitioners can validly bind said petitioners and therefore prevent them from availing the remedy of reconveyance.
Ruling: No, the compromise agreement cannot bind petitioners so as to prevent them from availing the remedy of reconveyance.
While a judicially-approved compromise agreement indeed has the effect and authority of res judicata, the same is conclusive and binding only upon the parties and those who are their successors-in-interest by title after the commencement of the action in court:
It is basic in law that a compromise agreement, as a contract, is binding only upon the parties to the compromise, and not upon non-parties. This is the doctrine of relativity of contracts. Consistent with this principle, a judgment based entirely on a compromise agreement is binding only on the parties to the compromise the court approved, and not upon the parties who did not take part in the compromise agreement and in the proceedings leading to its submission and approval by the court. Otherwise stated, a court judgment made solely on the basis of a compromise agreement binds only the parties to the compromise, and cannot bind a party litigant who did not take part in the compromise agreement.
Petitioners were never parties to Civil Case No. Q-22850. Petitioners also acquired their title over the property prior to the institution of said case involving respondents. Thus, petitioners cannot be prejudiced by the compromise judgment in said case.

Nemencio C. Pulumbarit, Sr., Petitioner, vs. The Court of Appeals (17th Division composed of Justice Bienvenido L. Reyes, Ponente; Justice Roberto A. Barrios, Chairman; and Justice Edgardo F. Sundiam, Acting Third Member), Lourdes S. Pascual, Leonila F. Acasio, and San Juan Macias Memorial Park, Inc., Respondents. (Gr. Nos. 153745-46, October 14, 2015)
JARDELEZA, J.:
Facts:
Sometime in 1982, San Juan Macias Memorial Park, Inc. (SJMMPI), through its President Lourdes Pascual, authorized Atty. Soledad de Jesus to look for a buyer for the San Juan Memorial Park for P1.5 Million. Thereafter, Pascual, Leonila Acasio, and the other officers of SJMMPI were introduced to Nemencio Pulumbarit. The parties eventually came to an agreement, with Pulumbarit issuing 18 checks in the name of SJMMPI's Secretary-Treasurer Acasio. Pulumbarit and/or his lawyer took charge of reducing the agreement into writing and securing the signatures of all concerned parties. On June 13, 1983, Pascual et. al sent a letter to Palumbarit requesting for a copy of their written agreement and to reissue new checks to replace the ones he previously issued due to termination of Acasio's services with SJMMPI. Failing to get a favourable response, Pascual et. al filed a Complaint for Rescission of Contract, Damages, and Accounting with Prayer for Preliminary Injunction or Receivership against Pulumbarit. Trial ensued and procedural matters were discussed leading to the consolidation of two cases because when a decision was rendered by the trial court favouring Pascual et. al, the latter moved for discretionary execution pending appeal of Pulumbarit. There is however one issue that is controlling in this case in order to resolve who between Pascual et. al and Pulumbarit should prevail. It was the contention of Pascual et. al that the agreement they entered into with Pulumbarit is only a Management Contract with Option to Buy. Pascual et. al even presented an expert witness from the NBI in order to testify that the purported Memorandum of Agreement containing a stipulation supposedly showing the intention of the parties to sell the memorial park does not actually reflect the terms and conditions actually agreed upon by the parties.
Issue: Whether the agreement between the parties was a contract to sell the shares of SJMMPI or a contract of sale or a management contract with option to buy.
Ruling: Agreement between the parties was a contract to sell the shares of SJMMPI and not a contract of sale or a management contract with option to buy.
xxx
We affirm the findings of the CA insofar as it ruled that the parties did not contemplate a management contract with option to buy. We nevertheless rule that the agreement entered into by the parties was not a contract of sale, but rather, a contract to sell the shares of SJMMPI.
The text of the MOA between the parties shows that their agreement was a contract to sell SJMMPI shares. The pertinent portion of page three of the MOA reads:
xxx
4.The shares of stocks stated above and subject matter of this Agreement will only be transferred in the name of the PARTY OF THE SECOND PART, its heirs, successors and assigns upon full payment and/or full satisfaction thereon of the consideration of this agreement.
While Pascual et. al are technically correct in arguing that they did not enter into a contract of sale with Pulumbarit, they cannot deny the existence of the stipulation in page three of the MOA evidencing a contract to sell and negating their claim of a management contract with option to buy. Notably, page three bears the signatures of Pulumbarit, Pascual, and the other SJMMPI stockholders. We further note that Pascual did not dispute the authenticity of her signature appearing on page there of the MOA. Neither did she allege during the course of the proceedings that she signed another document or entered into another written transaction with Pulumbarit aside from the MOA.
Even though the NBI Questioned Document Report No. 102-384 (Report) stated that page two of the document was typed from a typewriter different from that used in typing pages one, three, and four, the same report was inconclusive as to the possibility of falsification. The Report does not contain any categorical statement from the NBI Examiner that the pages were substituted or that the MOA was spurious or falsified.

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