Topic: Quasi-Contract: Solutio indebiti

TERESITA P. DE GUZMAN, in her capacity as former General Manager; GODIULA T.

GUINTO, in her capacity as former Internal Auditor; VIVECA V. VILLAFUERTE, in her
capacity as former Administrative Manager; WILHELMINA A. AQUINO, in her capacity as
Senior Accountant; RENATO S. RONDEZ, in his capacity as a member of the Baguio Water
District (BWD) Board of Directors (BOD); MOISES P. CATING, RAMSAY M. COLORADO,
GINA ROMILLO-CO, EMMANUEL M. MALICDEM and MARIA ROSARIO R. LOPEZ, in
their capacities as former members of the BWD BOD; and the EMPLOYEES of BWD, in their
capacities as payees, Petitioners,
v.
COMMISSION ON AUDIT, Respondent.

G.R. No. 245274, October 13, 2020

LAZARO-JAVIER, J.│ EN BANC

Nature of Action: Petition for Review on Certiorari under Rule 64

Facts:

Under Resolution (BR) No. 046-2009, employees of Baguio Water District (BWD) were granted a
bonus that was distributed to them on the occasion of the 100th anniversary of Baguio City. The bonus
was equivalent to 50% of the employee's salary. The Commission on Audit (COA) Audit Team issued
Notice of Disallowance on the granted bonus for being devoid of legal basis, stating an Administrative
Order suspending the grant of new or additional benefits to full-time officials and employees. With
this, recipients were directed to refund the bonus they received.

The Notice was appealed by the BWD officials and employees (petitioners) to the COA- Cordillera
Administrative Region (COA-CAR). The COA-CAR affirmed the decision of the Audit team. The
COA En Banc affirmed the previous decision with modifications and it denied the motion for
reconsideration filed before it. The petitioners in their petition seek affirmative relief from the
Supreme Court (SC). They argued that the absence of the supervising auditor's signature on the notice
of disallowance violated the COA Rules and Regulations on Settlement of Accounts (COA-RRSA).
They also contended that the bonus was granted based on the valid exercise of the BWD Board’s
power under the law and that it was issued in good faith, hence they should not be required to return
them.

Issue/s: Whether or not the petitioners are liable to refund the disallowed amount.
Rulings:
Yes, the petitioners are liable to refund the disallowed amount.
The SC stated Administrative Code provisions and the Madera, et. al. v. COA case to resolve
this issue.
The Administrative Code provisions identify the persons liable to return the disallowed
amounts
In the very recent case of Madera, et. al. v. COA, 19 the Court En Banc, discussed in detail the
respective liabilities of certifying and approving officers and the recipient employees in case of
expenditure disallowance.As clarified in Madera, the general rule is that recipient employees must be
held liable to return disallowed payments on ground of solutio indebiti or unjust enrichment as a result
of the mistake in payment. Under the principle of solutio indebiti, if something is received when there
is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.
None of the exceptions provided in Madera are present in this case. First, the centennial bonus
cannot be considered to have been given in consideration of services rendered or in the nature of
performance incentives, productivity pay, or merit increases. Second, a monetary grant that
contravenes the unambiguous letter of the law cannot be forgone on social justice considerations.
Liability arises and should be enforced when there is disregard for the basic principle of statutory
construction that when the law was clear, there should be no room for interpretation but only
application.
Verily, therefore, the employees must be held liable to return the amounts that they had
received. As earlier discussed, the approving officers of BWD, herein petitioners, are jointly and
severally liable for the disallowed amounts receive~ by the individual employees.
Topic: Quasi-Contract: Solutio indebiti

NINIA P. LUMAUAN, PETITIONER,

v.
COMMISSION ON AUDIT, RESPONDENT
G.R. No. 218304, December 9, 2020

HERNANDO, J.│ EN BANC

Nature of Action : Petition for Certiorari filed under Rule 64, in relation to Rule 65

Facts:
Ninia P. Lumauan (Lumauan) was the Acting General Manager of Metropolitan Tuguegarao Water
District (MTWD), a government-owned and controlled corporation (GOCC), received a COLA as
“payment of allowances and other benefits” with the Board of Directors of MTWD issued Board
Resolution approving the payment of the COLA for the calendar year 1992-1997 amounting to P 1.7M
to qualified employees of MTWD.
However, after the post-audit, the Supervising Auditor and the Audit Team Leader issued a notice of
disallowance, disallowing the payment of the accrued COLA for lack of legal basis since the COLA
was already deemed integrated into the basic salary of the employees in pursuant to the Compensation
and Classification Act of 1989 and the DBM Circular which held liable Lumauan and other employees
of MTWF as recipients.
Lumauan appealed the decision, but the Regional Director and COA-CP denied the appeal and ruled
that COLA received were prohibited because it already incorporated in the standardized salary rates of
government employees, that all employees of MTWD who received the disallowed COLA were
obliged to return the same.
Issue:
Whether Lumauan should be held personally liable for the disallowed benefit to the extent of the
amount she actually and individually received
Ruling
Yes, Lumauan should be held personally liable for the disallowed benefit to the extent of the amount
she actually and individually received.
It must be stressed at the outset that petitioner Lumauan, as Acting General Manager of MTWD, was
not the one who approved the grant of the accrued COLA or certified for its funding availability. It
was the Board of Directors of MTWD through Board Resolution Nos. 2009-005346 and 2009-012247
that approved the payment of the accrued COLA.
Petitioner is only a recipient or a passive payee of the allowance. She thus falls under category 2(c) of
the above-cited rules on return.
The Court explained the rationale for the rules on return as follows:
In the ultimate analysis, the Court, through these new precedents, has returned to the basic premise
that the responsibility to return is a civil obligation to which fundamental civil law principles, such as
unjust enrichment and solutio indebiti apply regardless of the good faith of passive recipients. This, as
well, is the foundation of the rules of return that the Court now promulgates.
Moreover, solutio indebiti is an equitable principle applicable to cases involving disallowed benefits
which prevents undue fiscal leakage that may take place if the government is unable to recover from
passive recipients amounts corresponding to a properly disallowed transaction.

Nevertheless, while the principle of solutio indebiti is henceforth to be consistently applied in

determining the liability of payees to return, the Court, as earlier intimated, is not foreclosing the
possibility of situations which may constitute bona fide exceptions to the application of solutio
indebiti. As Justice Bernabe proposes, and which the Court herein accepts, the jurisprudential standard
for the exception to apply is that the amounts received by the payees constitute disallowed benefits
that were genuinely given in consideration of services rendered (or to be rendered) negating the
application of unjust enrichment and the solutio indebiti principle. As examples, Justice Bernabe
explains that these disallowed benefits may be in the nature of performance incentives, productivity
pay, or merit increases that have not been authorized by the Department of Budget and Management
as an exception to the rule on standardized salaries. In addition to this proposed exception standard,
Justice Bernabe states that the Court may also determinie in the proper case bona fide exceptions,
depending on the purpose and nature of the amount disallowed. These proposals are well-taken.
Moreover, the Court may also determine in a proper case other circumstances that warrant excusing
the return despite the application of solutio indebiti, such as when undue prejudice will result from
requiring payees to return or where social justice or humanitarian considerations are attendant. x x x50
As stated, as an exception to this rule, a payee or recipient may be excused from returning the
disallowed amount when he/she has shown that he/she was "actually entitled to what he/[she]
received" or "when undue prejudice will result from requiring payees to return or where social justice
or humanitarian considerations are attendant.
Topic: Compliance with Obligation

TOCOMS PHILIPPINES, PETITIONER,

v.
PHILIPS ELECTRONICS AND LIGHTING, RESPONDENTS.

G.R. No. 214046, February 5,2020

REYES, A., JR., J.│ SECOND DIVISION

Nature of Action: Petition for Review on Certiorari

Facts: 

Tocoms filed a complaint against Philips Singapore, its former client, and PELI, its counterpart in the
Philippines. This was in cognizant to the alleged leakage of its distribution products to its competitor,
Fabriano. From 2001-2008, PELI and Philips Singapore appointed Tocoms as its Philippine distributor
with a renewed contract annually. By the last quarter of 2012, Tocoms already disclosed its strategic
plans to Philips in compliance to the renewal of contract for distributorship. However, Tocoms was
denied a Distributorship Agreement contract renewal last January 2, 2013 in a meeting arranged by
Oh, PELI’s General Manager through a letter signed by Thurer, PELI’s Vice President/ Manager Asia
Pacific. 

Tocoms found out that under the table talks between PELI and Fabriano, another distributor, happened
which led to the selling of products under the agreement on a lower price. Such instances resulted in
the return of distribution products from Western Marketing, one of its greatest clients, and other stores
which incurred approximate  losses amounting to Seven Million Pesos (P7,000,000.00). 

Tocoms filed for the issuance of temporary restraining order and injunction, collectively stopping
Philips Singapore, PELI and Fabriano from commencing a distributorship agreement and letting
Fabriano to take over in distributing Philips products to the market. It also claimed payment of total
damages and attorney fees. Tocoms also motioned Philips Singapore and PELI to issue the ICC
stickers, allowing them to sell the products to the market and its clients.

Issue: Whether damages may be awarded to Tocoms for PELI’s act of selling to Fabriano the products
subject of the Distribution Agreement

Ruling:

Yes, damages may be awarded to Tocoms for PELI’s act of selling to Fabriano the products subject of
the Distribution Agreement.

The claim for damages of the plaintiff is principally anchored on the Human Relations
Provisions of the Civil Code of the Philippines among others. Thus –

Art. 19. Every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Art. 21. Any person who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

The bad faith and malice on the part of the defendants were further shown when defendant
Fabriano S.P.A. Inc. prodded a client of the plaintiff, specifically Western Marketing, to just
return the Philips products to the plaintiff as it can sell the same products at a very much
lower price.

Clear, such act of bad faith and malice and in collusion with each other, defendants Philips
and Fabriano S.P.A. had besmirched the reputation and business standing of the plaintiff for
which the former should be held liable or exemplary damages to deter others from committing
the same act of bad faith and malice.

In determining the sufficiency of a cause of action, the test is, whether or not, admitting
hypothetically the truth of the allegations of fact made in the complaint, the court may validly
grant the relief prayed for in the complaint. If the foregoing allegations in Tocoms' complaint
are hypothetically admitted, these acts constitute bad faith on the part of respondent PELI in
the exercise of its rights under the Distributorship Agreement, in violation of Article 19, and
as punished by Article 21. Consequently, the court may validly award damages in favor of
Tocoms as prayed for in its Complaint. While all the foregoing acts committed by PELI are
indeed justifiable under the terms of the Distributorship Agreement, the question of whether
or not these acts were committed with malice or in bad faith - in light of the allegations in the
Complaint-still remains disputed
While it has submitted voluminous documents to show that its actions were justified by the
terms of the Distributorship Agreement, PELI has not had the opportunity to prove that the
foregoing acts mentioned in the Complaint were indeed made without malice and bad faith,
since it was not even able to file an answer to Tocoms' complaint. The legal concept of bad
faith denotes a dishonest purpose, moral deviation, and a conscious commission of a wrong. It
includes "a breach of known duty through some motive or interest or ill will that partakes of
the nature of fraud. It is, therefore, a question of intention, which can be inferred from one's
conduct and/or contemporaneous xxx statements". Bad faith under the law cannot be
presumed; it must be established by clear and convincing evidence. As such, the case must be
reinstated so that PELI may once and for all prove its bona fides in its dealings with Tocoms,
in connection with the expiration of their Distribution Agreement.
Topic: Breach of Obligation; Damages

TOTAL PETROLEUM PHILIPPINES CORPORATION, PETITIONER,

v.
EDGARDO LIM AND TYREPLUS INDUSTRIAL SALES, INC., RESPONDENTS.
G.R. No. 203566, June 23, 2020

LAZARO-JAVIER, J.│ FIRST DIVISION

Nature of Action: Petition for Review on Certiorari

Facts:
Tyreplus entered into a Commercial Distributorship Agreement with Total through its President
Edgardo Lim. Tyreplus was granted a "non-exclusive and non-transferable" license to distribute and
sell Total petroleum products under the terms of the Agreement. Lim discovered that when Tyreplus'
General Manager resigned, he used the company's name to pursue a personal interest. Tyreplus
allegedly renamed itself Superpro Industrial Sales Corporation. Lim appraised Total on several
occasions that Tyreplus had purportedly changed its name to Superpro and provided Total with a copy
of Superpro's Certificate of Incorporation. The Superpro Articles of Incorporation, on the other hand,
made no mention of Tyreplus being its predecessor.
Total and Superpro have signed a new Commercial Distributorship Agreement. Following the
execution of this new Agreement, Total products ostensibly intended for Tyreplus were stored in a
Superpro-owned warehouse. On February 11, 2000, PSBank sent Total a Letter of Undertaking
informing it that Lim had assigned a bank guaranty to Total "to answer for the obligations of Superpro
and its predecessor Tyreplus."
Alleging that Tyreplus violated the Distributorship Agreement by assigning its distributorship rights
and obligations to Superpro, a separate and distinct corporation, without Total's knowledge and
consent, Total served Tyreplus with a notice of pre-termination of the Distributorship Agreement and
demanded delivery. Total then served a similar notice of termination on Superpro.
Tyreplus allegedly suffered significant business losses as a result of Total's unexpected termination of
these Agreements. Lim filed a claim against Total for monetary damages and attorney's fees. Total
requested that Tyreplus and Lim be held jointly and severally liable for the following amounts: a)
P472,926.30 representing Tyreplus' unpaid obligation; b) liquidated damages equal to 20% of the
principal claim; c) actual damages of P300,000.00; d) exemplary damages of P50,000.00; and e)
attorney's fees.
The trial court ruled that Total had validly terminated its Distributorship Agreement with Tyreplus;
however, on appeal, the CA ruled that Total was estopped from terminating its Distributorship
Agreement with Tyreplus.
Issue: Whether Total is entitled to damages due to contractual breach
Ruling:
Yes, Total is entitled to damages due to contractual breach.
In Talampas, Jr. v. Moldex Realty, Inc., the Court held that a contracting party's failure, without valid
reason, to comply with contractual stipulations constitutes a breach of obligation for which it becomes
liable for damages. So must it be.
Article 2199 of the Civil Code provides that one is entitled to actual damages for such pecuniary loss
suffered as duly proved.
Here, Total was able to prove the advertising and promotional materials it delivered to Tyreplus in the
amount of P401,308.6480 as evidenced by the bill of lading from Solid Shipping Lines Corporation.
Hence, the award of actual damages in the amount of P401,308.64 is retained.
As for liquidated damages, Article 2226 of the Civil Code states "liquidated damages are those agreed
upon by the parties to a contract, to be paid in case of breach thereof." In this case, the Distributorship
Agreement between Tyreplus and Total shows no stipulation on liquidated damages to be paid in case
of breach thereof. In the absence of stipulation, the award of P25,000.00 as liquidated damages should
be deleted.
On exemplary damages, Article 222982 of the Civil Code provides that exemplary or corrective
damages may be imposed, by way of example or correction for the public good, in addition to either
moral, temperate, liquidated, or compensatory damages. Here, since Tyreplus failed to honor its
contract with Total, and considering further the award of actual or compensatory damages to Total, a
grant of exemplary damages in the amount of P50,000.00 is proper.
As for attorney's fees, suffice it to state that because Total was constrained to litigate to protect its
interests, the award of attorney's fees in the amount of P94,585.2685 is retained pursuant to Article
2208 of the Civil Code
Finally, records show that Tyreplus indeed failed to pay for the petroleum products it ordered and
received from Total.1âшphi1 The amount of P472,962.30 should therefore be paid to Total as actual
damages
Topic: Obligations: Breach of Obligation

LUFTHANSA TECHNIK PHILIPPINES, INC., ANTONIO LOQUELLANO AND ARTURO

BERNAL, PETITIONERS, V. ROBERTO CUIZON, RESPONDENT.

G.R. No. 184452, February 12, 2020

PONENTE: HERNANDO, J.│ SECOND DIVISION

Nature of Action: Petition for Certiorari under Rule 65

Facts:
Roberto Cuizon, employee of Lufthansa Tecknik was terminated on August 16, 2005 for loss of trust
and confidence in his ability to perform his duties as MA2 Duty Manager. The company claimed that
the loss of trust and confidence was brought about by Cuizon's violations and blatant disregard of the
company standards in the workplace. Two of these violations were committed in the course of two
separate incidents, specifically, the willful concealment of the accidental light up of PAL aircraft El
BZE and Cuizon failure to observe the safety guidelines and precautions with respect to aircraft
towing, which caused damaged to PAL.
In Cuizon’s defense, he asserted that the company illegally dismissed him arguing that he was being
singled-out due to events prior to the accidental light-up and towing incidents. He explained that prior
to the foregoing incidents, an anonymous letter was circulated, which was addressed to LTP's
President and CEO, Andreas Heimer, and to some of the LTP's officers. The letter was allegedly
criticizing Loquellano's handling of the company in Cebu and his other alleged culpabilities, which are
inimical to LTP's interest. In the same letter, Cuizon was being praised for his work ethic and named
as the better person to hold the position of MA-2 Manager than Loquellano. Loquellano suspected
Cuizon as the sender of the anonymous letter. As a result, Cuizon received a cold treatment from his
direct superior, Loquellano.
On November 7, 2005, Cuizon filed a complaint for illegal dismissal against the company. The
complaint was dismissed by the Labor Arbiter. On appeal, the National Labor Relations Commission
held that there was no illegal dismissal in respect to Cuizon. The Court of Appeals set aside the
decision of the NLRC and denied the Motion for Reconsideration by the company. Hence, the petition.
Issue: Whether Cuizon was validly terminated on the ground of gross negligence
Ruling:
No, Cuizon was not validly terminated on the ground of gross negligence.

"Neglect of duty, as a ground for dismissal, must be both gross and habitual."72 In Casco, We
pronounced that:

Gross negligence implies a want or absence of or a failure to exercise slight care or diligence, or the
entire absence of care. It evinces a thoughtless disregard of consequences without exerting any effort
to avoid them. Habitual neglect implies repeated failure to perform one's duties for a period of time,
depending upon the circumstances.

In termination cases, the employer bears the burden of proving that the employee's dismissal was for a
valid and authorized cause. Consequently, the failure of the employer to prove that the dismissal was
valid, would mean that the dismissal was unjustified, and thus illegal.
We find that petitioners failed to discharge the burden.

Firstly, petitioners miserably failed to show that Cuizon did not exercise even a slight care or diligence
which caused the grounding of and damage to the aircraft during the towing operation. Moreover,
petitioners failed to prove that it as Cuizon’s act that directly or solely caused the grounding of and
damage to the aircraft during the towing incident.

As We have pointed out, a towing operation is a shared responsibility. Thus, we note the involvement
and admissions of the other personnel who were part of the towing crew. For instance, radioman and
mechanic Abelar Pilaza had testified and admitted that through his own volition, he decided not to ask
clearance from the tower when the aircraft was being towed.78 Thus, Cuizon could not be faulted if
without his knowledge and authorization, members of the towing crew decided to deviate from the
standard operating procedure, including not leaving their designated posts.

Secondly, we find that petitioners failed to prove that Cuizon was negligent in his job when he
allegedly concealed the accidental light-up incident or allegedly provided false information thereon.
On the contrary, we find that he performed his task in accordance with the rules and procedures of
LTP. We note that Cuizon immediately informed his supervisor, Loquellano, through a phone call,
about his findings.79 In addition, we note the fact that Cuizon had indeed timely submitted/furnished a
copy of his incident report80 to Loquellano. Moreover, Cuizon did not rely on hearsay information on
what happened with the aircraft, but he acted based on his personal findings and appreciation of facts
of the accidental aircraft engine light-up incident.81

Considering Cuizon's untainted 32 years of service, this Court finds that it is incongruous for him to
deliberately act recklessly on his job, especially since his employer's line of business involves the lives
and safety of airline passengers.

Furthermore, the CA found, and this Court agrees, that reinstatement is no longer feasible, and thus
separation pay in lieu of reinstatement is in order. This Court is not unaware that under the law and
prevailing jurisprudence, an illegally dismissed employee is entitled to reinstatement as a matter of
right.82 However, if reinstatement would only aggravate the tension and strained relations between the
parties, or where the relationship between the employer and the employee has been unduly strained by
reason of their irreconcilable differences, it would be more prudent to order payment of separation pay
instead of reinstatement.83

In the present case, this Court holds that reinstatement is no longer feasible since the relationship
between petitioners and Cuizon, as employer and employee, respectively, has been indeed strained due
to the events that transpired and as a necessary consequence of the present judicial controversy. Thus,
if Cuizon is reinstated, an atmosphere of antipathy and antagonism may be generated as to adversely
affect his efficiency and productivity as an employee.84 Thus, in lieu of reinstatement, it is but proper
to award Cuizon his separation pay computed at one month salary for every year of service, a fraction
of at least six months considered as one whole year. In the computation of separation pay, the period
where backwages are awarded must be included.85

Finally, all monetary awards granted shall earn legal interest at the rate of six percent (6%)
per annum from date of finality of this Decision until full satisfaction.
Topic: Obligations: Special Forms of Payment: Legal Compensation
BANCO DE ORO UNIBANK, INC. (now BDO UNIBANK, INC.),
v.
EDGARDO C. YPIL, SR., CEBU SUREWAY TRADING CORPORATION, AND LEOPOLDO
KHO
GR. No. 212024, 12 October 2020,
HERNANDO, J. │SECOND DIVISION

Facts:
Edgardo C. Ypil, Sr. was offered by Cebu Sureway Trading Corporation, represented by Leopoldo
Kho, to invest in Prudentiallife Plan where the former agreed. Kho was able to solicit the total amount
of PHP 300,000.00 from Ypil but the latter asked for a refund this amount. Despite repeated demends,
neither Kho nor Cebu Sureway didn’t answer. Due to this, Ypil filed a complaint for Specific
Performance with attachment.
The Regional Trial Court (RTC) issued a Writ of Preliminary Attachment. A Notice of Garnishment
was issued by Sheriff Pascual Guaren to the accounts of Kho and/or Cebu Sureway addressed to the
Manager and/or Cashier of the BDO Unibank, Inc. North Mandaue Branch. BDO, through its Head,
Cyrus M. Polloso, sent a Reply to Guaren stating that neither of the parties’ accounts have no available
funds. It was discovered that BDO debited to Cebu Sureway’s accounts some of the amounts
offsetting the outstanding obligation under a loan obligation. BDO argued that legal compensation
took place since BDO and Cebu Sureway were creditors and debtors of each other. On the other hand,
Kho and Cebu Sureway contended that there is no legal compensation in their case since Cebu
Sureway’s loan is not yet due and demandable.
The RTC ordered BDO to make available the garnished amount. In its partial Motion for
Reconsideration, the RTC ruled that BDO, cannot unilaterally debit the Kho and Cebu Sureway’s
accounts which are already in custodia legis. The Court of Appeals dismissed the appeal of BDO
stating that not all the elements of legal compensation are present in the case. Hence, this instant case.
Issue: Whether the CA committed error in holding that the disputed deposit had been the subject of
legal compensation prior to the service of Notice of Garnishment to BDO
Ruling:
No, the CA did not commit error in holding that the disputed deposit had been the subject of legal
compensation prior to the service of Notice of Garnishment to BDO.
It is settled that "compensation is a mode of extinguishing to the concurrent amount the debts of
persons who in their own right are creditors and debtors of each other.66 The object of compensation
is the prevention of unnecessary suits and payments thru the mutual extinction by operation of law of
concurring debts."67 The said mode of payment is encapsulated in Article 1279 of the Civil Code,
viz.:
ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
In relation to this, Article 1290 of the Civil Code states that "when all the requisites mentioned in
Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and debtors are not aware of the compensation."
Relevantly, this is the Bank's main contention.
Thus, CSTC's indebtedness cannot be considered as due and liquidated. It should be emphasized that
"a claim is liquidated when the amount and time of payment is fixed. If acknowledged by the debtor,
although not in writing, the claim must be treated as liquidated."71 In this case, the time of default and
the amount due were not specific and particular. Without this information, a simple arithmetic
computation cannot possibly be done without risking errors especially with regard to the application of
interest and penalties. Similarly, despite CSTC's failure to contest the Bank's computation, its debt still
cannot be considered as liquidated. Further confirmation is necessary in order to treat CSTC's debt as
due, demandable and liquidated, which the Bank unfortunately did not bother to elaborate on.
As regards respondents' claim that there exists a controversy commenced by a third person thereby
negating legal compensation from taking place, the Bank insists that this did not bar the legal
compensation from taking place by operation of law since CSTC's default happened even before it was
served the Notice of Garnishment. Again, CSTC and Kho did not challenge this allegation.
Nonetheless, given our finding that CSTC's debt cannot be considered as due and liquidated, thereby
legal compensation did not take place by operation of law, it follows that the Notice of Garnishment
served as proof of an existing controversy commenced by a third person, particularly Ypil, which
likewise negated the application of legal compensation.
It is the Bank's position that "legal compensation operates even against the will of the interested
parties and even without the consent of them. Since this compensation takes place ipso jure, its effects
arise on the very day on which all its requisites concur. When used as a defense, it retroacts to the date
when its requisites are fulfilled." There is no debate about the effects of legal compensation when
applicable. However, as already discussed, the Court finds that CSTC's debt was not due and
liquidated properly, and that there is an existing controversy involving CSTC's funds with the Bank.
Stated differently, the subject of the Notice of Garnishment is likewise the object of the existing
controversy.
The Bank should take note that "garnishment has been defined as a specie of attachment for reaching
credits belonging to the judgment debtor and owing to him from a stranger to the litigation. A writ of
attachment is substantially a writ of execution except that it emanates at the beginning, instead of at
the termination, of a suit. It places the attached properties in custodia legis, obtaining pendente lite a
lien until the judgment of the proper tribunal on the plaintiff's claim is established, when the lien
becomes effective as of the date of the levy."
Hence, after service and receipt of the Notice of Garnishment, contrary to the Bank's view, the
deposits of CSTC were placed under custodia legis, under the sole control of the trial court and
remained subject to its orders "until such time that the garnishment is discharged, or the judgment in
favor of Ypil is satisfied or the credit or deposit is delivered to the proper officer of the court."74 In
the case at bench, the RTC already issued a Judgment Based on Compromise Agreement which
ordered the Bank to tender the garnished amount of P300,000.00 to Ypil, effectively discharging the
said amount from the effects of garnishment.

Topic: Obligations: Breach of Obligation

DIOSA ARRIVAS, Petitioner,

v.
MANUELA BACOTOC, Respondent.
G.R. No. 228704, December 2, 2020

PERALTA, C.J │ FIRST DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:

Diosa Arrivas and Manela Bacotoc are both are engaged in the business of buying and selling
of jewelries. Arrivas and Bacotoc had a transaction involving a male’s ring. Arrivas asked Bacotoc if
she could personally bring the ring to a client who was willing to pay a price ranging from PHP
50,000.00 to PHP 80,000.00, to which the latter agreed. Bacotoc promised to return the ring if the
client would not buy it or immediately deliver the payment if the buyer decides to purchase. They
agreed to execute a trust receipt which was personally signed by them.

Arrivas became unreachebale, it is only after two weeks that Bacotoc was able to meet with
Arrivas where the latter promised to pay the ring in thirty days. However, after the lapse of the period
Arrivas failed to deliver the payment. Arrivas pleaded for reconsideration promising to pay the price in
installments but to no payment was made. A demand letter was sent to Arrivas for the payment of the
PHP 75,000.00. Arrivas promised to pay, however, she again failed to comply.

On the version of Arrivas, she stated that she made a partial payment of PHP 20,000.00 from
her own pocket because the clients, Virgie Valencia and Letty Espinosa, did not appear after the lapse
of two days as agreed in the trust receipt.

Arrivas was charged with Estafa to which she pleaded not guilty. The Regional Trial Court (RTC)
decided against Arrivas. She appealed the decision to the Court of Appeals (CA) which it affirmed. A
motion for reconsideration was subsequently denied by the CA, hence this petition. In the petition,
Arrivas ontended that there was no demand made by Bacotoc prior to the partial payment of
P20,000.00. Thus, the trust relationship between them was novated, and it was converted into one
between a debtor and a creditor. Basing on this premise, Arrivas contends that Article 1292 of the
Civil Code should have been applied since a contract of sale novated the principal obligation of trust,
and this was before the consummation of the crime of Estafa.

Issue/s: Whether or not there was novation of the principal obligation of trust into a debtor-creditor.
Rulings:
No, there was novation of the principal obligation of trust into a debtor-creditor.
Novation will not apply even if the P20,000.00 was made before demand. Novation is defined
as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent
one which tenninates the first, either by changing the object or principal conditions, or by substituting
the person of the debtor, or subrogating a third person in the rights of the creditor.
Article 1292 of the Civil Code on novation further provides: Article 1292. In order that an obligation
may be extinguished by another which substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point incompatible with each
other. It is well settled that novation is never presumed - novatio non praesumitur. As the party
alleging novation, the onus of showing clearly and unequivocally that novation had indeed taken place
rests on the petitioner. This, however, she failed to do.
Topic: Obligations: Extinguishment of Obligation: Performance

HOME DEVELOPMENT MUTUAL FUND (HDMF),

v.
EULOGIA N. CATAQUIZ AND MANUEL P. CATAQUIZ
G.R. No. 210582, July 29, 2020

INTING, J.│ SECOND DIVISION

Nature: Petition for review on Certiorari

Facts:
Rudy N. Cataquiz (Rudy) entered into a sales agreement and a construction contract with Francisco M.
Soriano Co. Inc. (FMSCI) on January 19, 1998, for the purchase of a l00 square meter lot. Rudy
applied for a housing loan with HDMF and named FMSCI as the beneficiary of the loan proceeds to
finance the purchase of the lot and construction of the house. Rudy received a Pl80,000.00 Notice of
Approval/Letter of Guaranty from HDMF. In the name of Rudy, the mortgage was noted on Transfer
Certificate of Title (TCT) No. T-296838. Rudy died on April 19, 1998.
Respondents Eulogia N. Cataquiz and Manuel P. Cataquiz (Spouses Cataquiz) requested that the title
to the subject property be released in their favor as the only living heirs of Rudy, who are his parents.
HDMF, on the other hand, denied Rudy's failure to accept the loan during his lifetime.
Aggrieved, spouses Cataquiz filed a case for specific performance and damages, requesting that
HDMF and FMSCI transfer ownership and ownership of the subject property to them.
Because the loan was not covered by Mortgage Redemption Insurance (MRl), Spouses Cataquiz' claim
for insurance funds, including the member's death benefit, could not be completed, according to
HDMF. It also claimed that FMSCl retained ownership and possession of the relevant house and lot,
and that there was nothing for it to transfer over to couples Cataquiz.
FMSCI ratiocinated, on the other hand, that Rudy's Mortgage Redemption Insurance Settlement could
not be finalized because his housing loan was not included among those taken out on April 23, 1998
due to Rudy's death on April 19, 1998.
The RTC found that the legal issue that led to the lawsuit was solely due to HDMF's omission to put
Rudy's loan in the list of loans available for takeout on April 23, 1998, notwithstanding Rudy's prompt
submission of the required documentation. The RTC's conclusions were upheld by the CA.
Issue:
Whether the spouses Cataquiz is entitled to the insurance premiums to give effect to the Mortgage
Redemption Insurance

Ruling:
No, spouses Cataquiz is not entitled to the insurance premiums to give effect to the Mortgage
Redemption Insurance
The petition is without merit. The Court finds no reversible error on the part of the CA which would
merit the exercise of discretionary appellate jurisdiction.
It is worth noting that the execution of the Loan and Mortgage Agreement between Rudy and HDMF
was signed before Notary Public Francis Arnold de Vera on March 14, 1998 or more than a month
before Rudy's death. The Loan and Mortgage Agreement was even annotated on TCT No. T-296338
on March 17, 1998, or three days after the execution of the aforementioned Agreement. Paragraph 2 of
the Notice of Approval/Letter of Guaranty even required the submission of the Loan and Mortgage
Agreement duly stamped by the Register of Deeds, the TCT, and Tax Declaration registered in the
name of Rudy, among others, pursuant to the loan approval28 which Rudy complied with. The MRI,
being a compulsory part of the Loan and Mortgage Agreement, was in effect, already binding between
Rudy and HDMF. Initial premium payment /or MRI was even deducted beforehand in the
computation of the loan amount.29 Indeed, upon, issuance of a Notice of Approval/Letter of Guaranty,
the Loan and Mortgage Agreement between HDMF and the borrower takes effect, including its
provisions on MRI coverage.
As correctly found by the CA, the lapse or completion of the 15- day period allotted to HDMF is not a
requisite for the release of the loan proceeds.30 The release of the loan proceeds is a duty imposed
upon HDMF and not on the borrower, the performance of which is solely dependent on HDMF on
account of Rudy's faithful and timely submission of the required documents before his untimely
demise. Both the RTC and the CA similarly found HDFM and FMSCI negligent in the performance of
their duties under the agreement, a factual determination which is beyond the ambit of the Court.
Considering that a loan is a reciprocal obligation wherein the performance of the obligation of one
party is dependent upon the performance of the obligation of the other,31 the Court sees no reason to
depart from this principle, especially when a perfected consensual contract to grant the loan was
already executed, and the borrower had complied with his part of the obligation through the
submission of the necessary documents.
Incidentally, even HDMF Circular Nos. 247-09,32 312-12,33 379- 17,34 and Pag-IBIG Fund Circular
No. 40335 recognize that it is not the release of the loan proceeds which determines the effectivity of
MRI coverage as the issuances contain a common provision on MRI Interim Coverage which states
that there is MRI Interim Coverage which shall take effect on the date of the issuance of the Notice of
Approval/Letter of Guaranty by the PaG-IBIG Fund. The issuances are in line with the ruling of the
Court in Serrano wherein the Court held that the MRI device is not only for the protection of the
System (the SSS in that case), in the event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, since the proceeds from such insurance will be applied to the
payment of the mortgage debt, thereby insuring the payment, to itself of the loan with the insurance
proceeds'.36 It is also for the benefit of the mortgagor so that in the event of his death, the mortgage
obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.
Topic: Obligation: Extinguishment of Obligation: Subrogation

Filcon Ready Mixed, Inc. and Gilbert S. Vergara

v.
UCPB General Insurance Company, Inc.
G.R. No. 229877. July 15, 2020
LAZARO-JAVIER, J.│ FIRST DIVISION
Nature of Action: Petition for review on certiorari

Facts:
Marco P. Gutang has a Honda Civic on his registration. Respondent UCPB General Insurance
Company, Inc. insured the automobile (UCPB). The car was involved in a motor accident in Quezon
City on November 16, 2007, in which three (3) other vehicles were involved: a Toyota Revo, a
Mitsubishi Adventure, and a cement mixer owned by petitioner Filcon Ready Mixed Inc. and operated
by petitioner Gilbert S. Vergara. According to the findings of the Traffic Accident Investigation
Report, Vergara abandoned the cement mixer, complete with its motor. It retreated and collided with
the front end of the parked Mitsubishi Adventure. This car collided with the insured vehicle's front
end. As a result, the insured car sustained damage. Respondent paid the complete cost of repairs to
Honda in the amount of Pl95,409.50 as Gutang's insurer. Gutang then signed a document titled
"Release and Discharge" effectively assigning all of his claims against petitioners to the respondent.
Respondent sent petitioners a demand letter dated September 1, 2011 as a result of this legal
subrogation, but they just ignored it. As a result, the respondent was forced to file the present case
before the Metropolitan Trial Court (Me TC) - Branch 62, Makati City, for a sum of money.
Extinctive prescription, on the other hand, was introduced as an affirmative defense by petitioners.
They contended that actions based on quasi-delict must be filed within four (4) years under Article
1146 of the Civil Code.
The complaint was rejected on the grounds of prescription by the trial court in a decision dated August
16, 2013. The RTC upheld the decision on appeal. Respondent claimed in its appeal to the Court of
Appeals that the RTC ignored the fact that its subrogation to Gutang's rights was based on an express
provision of law found in Articles 2207 (2) and 1144 (2) of the Civil Code, which states that an
obligation created by law must be brought within ten (10) years of the date the cause of action
arose.The Court of Appeals reversed in a decision dated September 30, 2016. It was determined that
the respondent had successfully established that it was subrogated to the rights of its assured, Marco
Gutang. According to the evidence, Honda Cars Pasig performed the repairs on the insured vehicle in
accordance with respondent's Letters of Authority dated December 7, 2007 and January 8, 2008. The
payment made by the respondent to Gutang serves as an equitable assignment of all of the latter's
remedies against petitioners whose negligence caused the damage to the former's covered car.
In general, petitioners maintain that respondent's cause of action is founded on quasi-delict, because
the cause of action arose from Vergara's alleged gross carelessness, which resulted in the vehicle
accident on November 16, 2007. The rights to which the subrogee (respondent) succeeds in
subrogation are the same as, but not greater than, those of the person (Gutang) for whom he replaced.
In essence, because Gutang's cause of action is founded on quasi-delict, which has a four-year statute
of limitations, when respondent steps into Gutang's shoes, it can only bring a claim for money during
the same four-year period.

Issue: Whether UCPB 's action for money claims against petitioners barred by prescription?
Ruling:
No, UCPB 's action for money claims against petitioners barred by prescription.
At the outset, it is noted that in the recent case of Henson, Jr. v. UCPB General Insurance Co., Inc.23
the Court overturned Vector and held that subrogation under Article 2207 of the Civil Code only
allows the insurer, as the new creditor who assumes ipso jure the old creditor's rights without the need
of any contract, to go after the debtor. But this does not mean that a new obligation is created between
the debtor and the insurer. The insurer, as the new creditor, remains bound by the limitations of the old
creditor's claims against the debtor, which includes, among others, the aspect of prescription. Hence,
the debtor's right to invoke the defense of prescription cannot be circumvented by the mere expedient
of successive payments of certain insurers that purport to create new obligations when, in fact, what
remains subsisting is only the original obligation, viz.:
In Henson, the Court came up with guidelines relative to the application of Vector and its Decision
vis-a-vis the prescriptive period in cases where the insurer is subrogated to the rights of the insured
against the wrongdoer based on a quasi-delict, thus:
1. For actions of such nature that have already been filed and are currently pending before the courts at
the time of the finality of this Decision, the rules on prescription prevailing at the time the action is
filed would apply. Particularly:
(a) For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling (i.e.,
from Vector's, finality on August 15, 2013 up until the finality of this Decision), the prescriptive
period is ten (10) years from the time of payment by the insurer to the insured, which gave rise to an
obligation created by law.
Rationale: Since the Vector doctrine was the prevailing rule at this time, issues of prescription must be
resolved under Vector's, parameters.
(b) For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling
(i.e., before August 15, 2013), the prescriptive period is four (4) years from the time the tort is
committed
2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:
(a) For cases where the tort was committed and the consequent loss/injury against the insured occurred
prior to the finality of this Decision, the subrogee-insurer is given a period not exceeding four (4)
years from the time of the finality of this Decision to file the action against the wrongdoer: provided,
that in all instances, the total period to file such case shall not exceed ten (10) years from the time the
insurer is subrogated to the rights of the insured.
(b) For cases where the tort was committed and the consequent loss/injury against the insured occurred
only upon or after the finality of this Decision, the Vector doctrine would hold no application. The
prescriptive period is four (4) years from the time the tort is committed against the insured by the
wrongdoer.
We apply here paragraph 1(b). Since the action was filed on February 1, 2012, prior to Vector, the
applicable prescriptive period is four (4) years pursuant to Article 1146 of the Civil Code.24
Respondent, therefore, had four (4) years from November 16, 2007 when the vehicular mishap took
place or until November 16, 2011 within which to file its action for sum of money against Vergara and
his employer Filcon.

Topic: Contract: Form of Contracts

FIL-ESTATE PROPERTIES, INC., Petitioner

v.
HERMANA REALTY, INC., Respondent.
G.R. No. 231936 December 2, 2020

LAZARO-JAVIER, J.│ SECOND DIVISION

Nature of Action: Petition for Review

Facts:

Jose C. Alvarez, chairperson of respondent Hermana Realty, Inc. (HRI), placed an option to purchase
one condominium unit in Fil-Estate Properties, Inc. 's (FEPI) West Tower Condominium Corporation.
FEPI and HRI executed a contract to sell the unit for P20,998,400.00. After payment FEPI executed an
undated and unnotarized Deed of Absolute Sale in favor of HRI pending the payment of Documentary
Stamp Tax (DST) and other requirements. HRI demanded for the delivery upon payment of full price.
Due to FEPI’s refusal to perform its obligation caused Century Properties, Inc. (CPI) to withdraw its
offer.

HRI filed with the Housing and Land Use Regulatory Board Expanded National Capital Region Field
Office (HLURB-ENCRFO) a complaint against FEPI for specific performance with damages and
attorney's fees. HLURB-ENCRFO ruled in favor of HRI and it affirmed with modification its decision
on appeal. The Office of the President affirmed the HLURB-ENCRFO’s decision and it denied the
motion for reconsideration. The Court of Appeals (CA) ruled in favor of HRI and denied FEPI's
motion for reconsideration.

In its petition, FEPI seeks affirmative relief from the Supreme Court. It contended that HRI's payment
of DST and local transfer taxes is a condition sine qua non to the delivery of the owner's duplicate
copy of the CCT per the parties' contract to sell. Without such, HRI's right to demand the delivery of
the owner's duplicate copy of the CCT has not arisen.

Issue/s: Whether HRI became rightfully entitled to the execution of a Deed of Absolute Sale in its
favor upon payment of full price.
Rulings:
Yes, HRI became rightfully entitled to the execution of a Deed of Absolute Sale in its favor upon
payment of full price.
A contract to sell has been defined as "a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds itself to sell the property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price." In a contract to sell, "ownership is
retained by the seller and is not to pass until the full payment of the price." Consequently, once the
buyer has paid the purchase price in full, the contract to sell is converted to an absolute sale and the
buyer has the right to demand the execution of a Deed of Absolute Sale in its favor.
Here, there is no question that HRI has paid in full the contract price in the amount of
P20,998,400.00. There is no question either that by operation of law, HRI as the buyer has become
rightfully entitled to the execution of a Deed of Absolute Sale in its favor.

Topic: Contract: Autonomy of Contracts

FATHER SATURNINO URIOS UNIVERSITY (FSUU) INC., AND/OR REV. FR. JOHN
CHRISTIAN U. YOUNG - PRESIDENT, PETITIONERS,
v.
ATTY. RUBEN B. CURAZA, RESPONDENT. CATHOLIC EDUCATIONAL ASSOCIATION
OF THE PHILIPPINES, PETITIONER-IN-INTERVENTION.
G.R. No. 223621, June 10, 2020

LEONEN, J.│ THIRD DIVISION

Nature of Action: Petition for Review on Certiorari

Facts:

Atty. Curaza is a part-time employee of Father Saturnino Urios University who have been teaching to
the university for 11 years, since 1979 until 2009, with different loads and some breaks in between
semesters.

On November 21, 2008, Atty. Curaza wrote a letter to the university for an early retirement pursuant
to the University's Personnel Policy and Procedure and the Retirement Pay Law. His request was not
approved stating that the university is not granting retirement benefits to part-time teachers. He
reiterated his claim to the university but to no avail. He filed a complaint against the University, its
president and vice president for retirement benefits, damages, and attorney's fees before the National
Labor Relations Commission.

The University argued in its position paper that Atty. Curaza was only a part-time instructor, and not a
permanent employee. The Labor Arbirter ruled in favor of Atty. Curaza which was affirmed by the
NLRC and the Court of Appeals. When the case reached the Supreme Court, the Catholic Educational
Association of the Philippines filed a motion for leave to intervene. The organization stated that it has
667-member schools, with more than 35,000 personnel, that will be adversely affected by a precedent
declaring that part-time faculty are entitled to retirement benefits, which "would be the death knell to
most" of its member schools. Hence this petition.

Issue: Whether the provision in the CBA which excludes part-time faculty from the coverage of the
retirement plan is void for being contrary to law

Held: Yes, the provision in the CBA which excludes part-time faculty from the coverage of the
retirement plan is void for being contrary to law. Although parties to a Collective Bargaining
Agreement may establish such stipulations, clauses, terms, and conditions as they may deem
convenient, these must not be contrary to law. It held that the exclusion of part-time faculty from the
coverage of the Collective Bargaining Agreement is contrary to the provisions and intendment of
Republic Act No. 7641 and its Implementing Rules
Republic Act No. 7641 specifically states that "any employee may be retired upon reaching the
retirement age[,]" and that in case of retirement, in the absence of a retirement agreement, an
employee who reaches the retirement age "who has served at least five (5) years... may retire and shall
be entitled to retirement pay[.]" No exception is made for part-time employees.

Topic: Contract; Mutuality of Contracts

LUIS G. GEMUDIANO, JR., PETITIONER,

v.
NAESS SHIPPING PHILIPPINES, INC. AND/OR ROYAL DRAGON OCEAN TRANSPORT,
INC. AND/OR PEDRO MIGUEL F. OCA, RESPONDENTS
G.R. No. 223825, January 20, 2020

REYES, J. JR., J.│ FIRST DIVISION

Nature of Action: Petition for Review on Certiorari
Facts:
Petitioner signed an employment contract with Naess Shipping for Marine Crew on Board Domestic
Vessels M/V Meiling 11, an inter-island bulk and freight carrier, for a six-month period at a gross
wage of P30,000.00. It was agreed that the contract would begin on March 12, 2013. Following that,
the petitioner and respondents signed a "addendum to Contract of Working for Marine Crew Onboard
Domestic Vessels" (Addendum), which stated that their employment relationship would begin after
the Master of the Vessel issued a boarding confirmation to the petitioner.
Petitioner received a call from Fetero alerting him that Royal Dragon had cancelled his embarkation
due to petitioner's false assertion that he was fit to work despite his diabetes and asthma. As a result,
he filed a breach of contract lawsuit against respondents with the NLRC's Arbitration Branch.
The NLRC upheld a ruling by the Labor Arbiter holding Naess Shipping liable for breach of contract.
The CA overturned and vacated the NLRC's October 30, 2014 judgement and December 11, 2014
resolution on appeal. It was determined that the Labor Arbiter lacked jurisdiction over the petitioner's
complaint since the parties did not have an employer-employee relationship.
Issue: Whether there is a perfected contract of employment?
Ruling:
Yes, there is a perfected contract of employment.
In the instant case, there is no doubt that there was already a perfected contract of employment
between petitioner and respondents. The contract had passed the negotiation stage or "the time the
prospective contracting parties manifest their interest in the contract."11 It had reached the perfection
stage or the so-called " birth of the contract" as it was clearly shown that the essential elements of a
contract, i.e., consent, object, and cause, were all present at the time of its constitution. Petitioner and
Fetero, respondents' Crewing Manager, freely entered into the contract of employment, affixed their
signatures thereto and assented to the terms and conditions of the contract (consent), under which
petitioner binds himself to render service (object) to respondents on board the domestic vessel " M/V
Meiling 11" for the gross monthly salary of P30,000.00 (cause). An examination of the terms and
conditions agreed upon by the parties will show that their relationship as employer and employee is
encapsulated in the perfected contract of employment. Thus, by virtue of said contract, respondents
and petitioner as s u m ed obligations which pertain to those of an employer and an employee.
Under Section D of the Addendum, " the employment relationship between the Employer on one hand
and the Seaman on the other shall commence once the Master has issued boarding confirmation to the
seaman." Relying on this provision, the respondents insist that there is no employer employee
relationship between them and petitioner and that the labor arbiter had no jurisdiction over the
petitioner's complaint. True, the parties to a contract are free to adopt such stipulations, clauses, terms
and conditions as they may deem convenient provided such contractual stipulations should not be
contrary to law, morals, good customs, public order or public policy. But such is not the case here .
The stipulation contained in Section D of the Addendum is a condition which holds in suspense the
performance of the respective obligations of petitioner and respondents under the contract of
employment, or the onset of their employment relations. It is a condition solely dependent on the will
or whim of respondents since the commencement of the employment relations is at the discretion or
prerogative of the latter's master of the ship through the issuance of a boarding confirmation to the
petitioner. The Court in Naga Telephone Co., Inc. v. Court of Appeals referred to this kind of
condition as a "potestative condition," the fulfillment of which depends exclusively upon the will of
the debtor, in which case , the conditional obligation is void. Article 1182 of the Civil Code of the
Philippines reads:
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the
obligations hall take effect in conformity with the provisions of this Code.
In this regard, the Court stressed in Romero v. Court of Appeals:
We must hasten to add, however, that where the so-called " potestative condition " is imposed not on
the birth of the obligation but on its fulfillment, only the condition is avoided , leaving unaffected the
obligation itself. (Citation omitted)
Clearly , the condition set forth in the Addendum is one that is imposed not on the birth of the contract
of employment since the contract has already been perfected, but only on the fulfillment or
performance of their respective obligations, i.e., for petitioner to render services on board the ship and
for respondents to pay him the agreed compensation for such services. A purely potestative
imposition, such as the one in the Addendum, must be obliterated from the face of the contract without
affecting the rest of the stipulations considering that the condition relates to the fulfillment of an
already existing obligation and not to its inception.15 Moreover, the condition imposed for the
commencement of the employment relations offends the principle of mutuality of contracts ordained
in Article 1308 of the Civil Code which states that contracts must bind both contracting parties , and
its validity or compliance cannot be left to the will of one of them. The Court is thus constrained to
treat the condition as void and of no effect, and declare the respective obligations of the parties as
unconditional. Consequently , the employer-employee relationship between petitioner and respondents
should be deemed to have arisen as of the agreed effectivity date of the contract of employment, or on
March 12, 2013.
Topic: Contract: Obligatory Force of Contracts
BRYAN L. UYSIPUO, PETITIONER,
v.
RCBC BANKARD SERVICES CORPORATION, RESPONDENT.
G.R. No. 248898, September 7, 2020
PERLAS-BERNABE, J. │ SECOND DIVISION

Nature of the Action: Petition for Review on Certiorari

Facts:
Petitioner sought for and received a credit card from Bankard, Inc. (Bankard), a domestic banking firm
that extends credit, sometime in 2009, permitting the former to use the latter's credit services. The
cardholder was required to settle his account on or before the due date indicated in his statement of
account, subject to the payment of interest and late payment charges, respectively, at the monthly rates
of 3.5 percent and 7 percent, under the terms and conditions governing the issuance and use of the said
card, a copy of which was given to petitioner.Following that, petitioner began making purchases with
the credit card and, for a period of time, was paying his debts on time. He then fell behind on his
payments, and as of May 9, 2010, he owed Pl,757,024.53, including interest and late fees. A formal
letter of demand was later delivered to the petitioner, which he received on November 26, 2010, but
did not respond to. As a result, on December 15, 2010, Bankard filed a complaint with the RTC,
requesting payment of P1,757,024.53, plus interest and late payment charges, attorney's fees, and suit
costs. RCBC Bankard Services Corporation was later named in place of Bankard (RCBC). Petitioner,
for his part, claimed that his credit card purchases were just P300,000.00, but that due to the
imposition of illegal interests and surcharges, the total sum came to P1,757,024.53.
The RTC ruled in favor of RCBC. The CA upheld the RTC's decision with few modifications. The CA
determined that the prescribed amount of interest and late penalty charges, at monthly rates of 3.5
percent and 7%, were exorbitant and unconscionable, and so reduced them to the existing legal rates.
Concerning the principle obligation, the CA determined that it was in the amount of P787,500.00,
which was the remainder due in August 2009. As a result, the CA directed petitioner to pay RCBC: (a)
the principal obligation of P787,500.00; and (b) legal interest equal to six percent (6%) per year of the
principal obligation computed from the date of extra-judicial demand, i.e., November 26, 2010, until
final payment.
Issue:
Whether the CA erred in ordering the payment of interest and late payment interest thereon at the
prevailing legal rates.
Ruling:
Anent the proper amount of interest and late payment charges, the CA correctly found that the
monthly interest rate of 3.5% as well as the penalty charge for late payment of 7% was excessive,
iniquitous, unconscionable, and exorbitant, and hence, must be equitably tempered.25 Nonetheless, the
Court deems it appropriate to adjust the interest rates imposed by the CA in accordance with
prevailing jurisprudence.

Case law states that there are two (2) types of interest, namely, monetary interest and compensatory
interest. Monetary interest is the compensation fixed by the parties for the use or forbearance of
money. On the other hand, compensatory interest is that imposed by law or by the courts as penalty or
indemnity for damages. Accordingly, the right to recover interest arises only either by virtue of a
contract (monetary interest) or as damages for delay or failure to pay the principal loan on which the
interest is demanded (compensatory interest).
Anent monetary interest, the parties are free to stipulate their preferred rate. However, courts are
allowed to equitably temper interest rates that are found to be excessive, iniquitous, unconscionable,
and/or exorbitant, such as stipulated interest rates of three percent (3%) per month or higher. In such
instances, it is well to clarify that only the unconscionable interest rate is nullified and deemed not
written in the contract; whereas the parties' agreement on the payment of interest on the principal loan
obligation subsists. It is as if the parties failed to specify the interest rate to be imposed on the
principal amount, in which case the legal rate of interest prevailing at the time the agreement was
entered into would have to be applied by the Court. This is because, according to jurisprudence, the
legal rate of interest is the presumptive reasonable compensation for borrowed money. Such monetary
interest should be computed from default, i.e., from extrajudicial or judicial demand, until full
payment,
In addition, the aforesaid monetary interest shall itself earn compensatory interest at the prevailing
legal rates, pursuant to Article 2212 of the Civil Code, which states that '[i]nterest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent upon this point.'
To be sure, [the foregoing provision] contemplates the presence of stipulated or conventional interest,
i.e., monetary interest, which has accrued when demand was judicially made." In contrast, Article
2212 of the Civil Code finds no application if there was no stipulated/monetary interest agreed upon
by the parties which could further earn compensatory interest.
In this case, the courts a quo correctly found that petitioner voluntarily agreed to the payment of
interest and late payment charges as stipulated in the credit card terms and conditions.30 Notably, both
impositions partook the nature of monetary interest as it was intended as compensation for the use or
forbearance of money arising from petitioner's purchases on credit.31 Since the stipulated rates were
struck down for being unconscionable, the Court finds that a straight monetary interest at the
prevailing rate of twelve percent (12%) per annum32 should instead be imposed on the principal
obligation, reckoned from the date of default, i.e., from extrajudicial demand on November 26, 2010,
until full payment. Additionally, the accrued monetary interest itself shall earn compensatory interest
at the rate of twelve percent (12%) per annum from the date of judicial demand, i.e., the filing of the
complaint on December 15, 2010 until June 30, 2013, and thereafter, at the rate of six percent (6%) per
annum from July 1, 2013 until full payment. Finally, the award of attorney's fees in the amount of
P50,000.00 shall also earn legal interest at the rate of 6% per annum from the finality of this Decision
until full payment.
Topic: Relativity of Contracts
QUINTIN ARTACHO LLORENTE, PETITIONER,
v.
STAR CITY PTY LIMITED, REPRESENTED BY THE JIMENO AND COPE LAW OFFICES
AS ATTORNEY-IN-FACT, RESPONDENT
G.R. No. 212216, January 15, 2020
PONENTE: CAGUIOA, J│ FIRST DIVISION
Nature of the Action: Petition for Review on Certiorari
Facts:
The Star City Casino is operated by Star City Pty Limited (SPCL), an Australian company based in
Sydney, New South Wales, Australia. It lodges a money claim against Llorente and EPCIB for the
value of the drafts that Llorente negotiated but for which he filed a stop payment order while knowing
that these checks were to cover the services he had received.
According to SCPL, EPCIB is considered by law to be the drawer, and as such, it represented that on
due presentation, checks would be accepted or paid, or both, according to their tenor, and that if they
were dishonored, it would be the one who would pay under Section 61 of the Negotiable Instruments
Law.
SCPL and EPCIB, according to EPCIB, do not have privity of contract because they have never
transacted with each other. EPCIB claims that it would be exceedingly iniquitous if it was held liable
in any manner for the dispute between SCPL and Llorente, citing the relativity of contracts.
EPCIB was declared jointly responsible with Llorente by RTC. CA, on the other hand, was relieved of
any liability since it had already paid Llorente the face value of the subject drafts, which totaled US
$300,00[0].00, as demonstrated by the Quitclaim, Indemnity, and Confidentiality Agreement signed
on August 8, 2002.
Issue: Whether the execution of the Indemnity Agreement and Quit Claim relieves EPCIB from
liability as drawer of the drafts
Ruling:
No, the execution of the Indemnity Agreement and Quit Claim did not relieve EPCIB from liability as
drawer of the drafts.
A review of the records confirms SCPL's argument that the Indemnity Agreement cannot be
considered as evidence because it was not formally offered. In addition, even if it were given some
evidentiary weight, it will nevertheless not bind SCPL pursuant to the principle of relativity of
contracts under Article 1311 of the Civil Code, which provides that "[c]ontracts take effect only
between the parties, their assigns and heirs, except in case where the rights and obligations arising
from the contract are not transmissible by their nature, or by stipulation or by provision of law."
The liability of EPCIB as the drawer cannot be abrogated by virtue of the Indemnity Agreement
because it arises from the subject demand/bank drafts, which are negotiable instruments, that it issued.
Its secondary liability under Section 61 of the NIL became primary when the payment of the subject
demand/bank drafts had been stopped which had the same effect as if the instruments had been
dishonored and notice thereof was given to the drawer pursuant to Section 84 of the NIL. Given the
nature of the liability of the drawer of a negotiable instrument, EPCIB's argument that it is not liable to
SCPL because they have no privity of contract is utterly without merit.
While EPCIB is clearly liable as the drawer of the subject demand/bank drafts, there is no legal basis
to make it solidarily liable with Llorente.
According to Article 1207 of the Civil Code, there is solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation requires solidarity. In this case,
there is no contract or agreement wherein the solidary liability of EPCIB is expressly provided. Under
the NIL and the nature of the liability of the drawer, solidary obligation is also not provided Thus,
EPCIB's liability is not solidary but primary due to the SPO that Llorente issued against the subject
demand/bank drafts.
Consequently both Llorente and EPCIB are individually and primarily liable as endorser and drawer of
the subject demand/bank drafts, respectively. Given the nature of their liability, SCPL may proceed to
collect the damages hereinafter awarded simultaneously against both Llorente and EPCIB, or
alternatively against either Llorente or EPCIB, provided that in no event can SCPL recover from both
more than the damages awarded
Topic: Contract: Reformation of Contracts
ULYSSES RUDI V. BANICO, PETITIONER,
VS.
LYDIA BERNADETTE M. STAGER A.K.A BERNADETTE D. MIGUEL (SUBSTITUTED BY
HER COMPULSORY HEIRS, NAMELY: BOBBY UNILONGO I, PROSPERO UNILONGO I,
PROSPERO UNILONGO II, MARICON U. BAYOG, GLENN UNILONGO AND
LUZVIMINDA UNILONGO), RESPONDENTS.
G.R. No. 232825, September 16, 2020
LOPEZ, J.│ FIRST DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45
Facts:
Lydia Stager owns a real property situated in Barangay Manoc-Manoc, Boracay Island. The land
adjoins the sea on its eastern part and is generally flat at the center but has an elevated rocky northern
part. Ulysses Banico bought the area suitable for building a beach resort, it is 800 square meters of
Stager’s land for the consideration of PHP 350,000. Banico’s lawyer drafted a Deed of Absolute Sale
over the said land.
Banico later discovered that the land described in the deed was the elevated rocky part of Stager’s land
and not the flat area. Banico asked Stager to make the necessary amendment to the deed which the
latter agreed to do. Stager also convinced Banico to purchase an additional 400 square meters portion
which is adjacent to the previously purchased lot. The second lot was bought by Banico for PHP
160,000 on installment basis. Banico asked Stager to prepare the amended deed of sale, but she
refused because he still has an unpaid balance of P12,000.00. Yet, Banico maintained that he already
paid Lydia more than P160,000.00. The matter was brought by Banico to the barangay where Stager
honored her promise and executed a new deed of sale. However, Banico refused to sign the deed
because it failed to reflect the true consideration of the transaction.
An action for specific performance and damages was brought by Banico before the Regional Trial
Court (RTC). On the course of the proceeding Stager died and was substituted by her heirs. The RTC
ordered the heirs of Stager to amend/reform the deed and execute a Deed of Absolute Sale covering
the 400 square meter land or to include the 400 square meter land in the deed meant for the 800 square
meter land. On the other hand, Banico was ordered to pay the remaining balance for the second
purchase. Both parties elevated the case to the Court of Appeals where the court modified the decision
of the RTC, denying the reformation of the deed on the ground of prescription. The motion for
reconsideration filed by both parties were denied by the CA. The CA stated that Banico is the one to
blame for the issue because it was only after the consummation of the sale of the first lot that he
decided to visit the same and because it was his lawyer who drafted the deed. Banico filed this petition
claiming that the CA erred in ruling that the party who caused the ambiguity cannot ask to reform the
contract.
Issue/s:
1. Whether the CA erred in ruling that the party who caused the ambiguity cannot ask to reform
the contract.
2. Whether the period to file an action for reformation of instrument is interrupted.
Rulings:
1. Yes, the CA erred in ruling that the party who caused the ambiguity cannot ask to reform the
contract.
A contract is a meeting of the minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. If the contract is reduced into writing, it is
considered as containing all the terms agreed upon and is presumed to set out the true covenant of the
parties. However, equity orders the reformation of a written instrument when the real intention of the
contracting parties is not expressed by reason of mistake, fraud, inequitable conduct or accident.
The complaint and the prayer for reliefs show that this is clearly a case for reformation of instrument.
Ulysses alleged that the Deed of Absolute Sale dated February 8, 1992 does not express the correct
description of the lot he bought and asked Lydia to execute an amended deed of sale containing all the
stipulations of the parties. Specifically, an action for reformation of instrument may prosper only upon
the concurrence of the following requisites: (1) there must have been a meeting of the minds of the
parties to the contract; (2) the instrument does not express the true intention of the parties; and (3) the
failure of the instrument to express the true intention of the parties is due to mistake, fraud, inequitable
conduct or accident.26 The onus probandi is upon the party who insists that the contract should be
reformed.27 Here, all these requisites are present.
In Huibonhoa v. Court of Appeals, however, the oversight of a lawyer in drafting the instrument is not
a reason for reformation. In that case, the petitioner failed to prove what mistake allegedly suppressed
the real agreement of the parties and merely relied on the oversight of her counsel in preparing the
document. We ruled that the error may not be attributed to all the contracting parties and any obscurity
should be construed against the petitioner. The present case is starkly different. Unlike in Huibonhoa,
Ulysses was able to substantiate his stance that the Deed of Absolute Sale dated February 8, 1992, did
not express the true intention of the parties as to the description of the lot. There is preponderant
evidence that the real object of the contract refers to the flat terrain and not the elevated and rocky
northern part of Lot No. 199, as revealed in the proven and admitted facts as well as the
contemporaneous and subsequent acts of the parties. Corollarily, there is no reason to consider against
Ulysses the mistake of his counsel. As the RTC aptly observed, the parties are not experts in
comprehending technical description of the land. The fact that it was Ulysses' counsel who prepared
the deed of sale will not prevent the reformation of the instrument.
2. Yes, the period to file an action for reformation of instrument is interrupted because of written
acknowledgement of the obligation.
A suit for reformation of an instrument may be barred by lapse of time. The prescriptive period for
actions based upon a written contract and for reformation of an instrument is ten years.33 In holding
that Ulysses' cause of action is time-barred, the CA explained that the complaint was filed on July 9,
2002, or more than ten years from the execution of the deed on February 8, 1992, or beyond the
prescriptive period for bringing actions based upon a written contract. We do not agree.
The prescription of actions is interrupted when they are filed before the court, when there is a written
extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by
the debtor.34 The effect of interruption is to renew the obligation and to make the full period of
prescription run again. Whatever time of limitation might have already elapsed from the accrual of the
cause of action is negated and rendered inefficacious.35 Interruption should not be equated with
suspension where the past period is included in the computation being added to the period after
prescription is resumed.36
As discussed earlier, Ulysses brought the dispute before the barangay where Lydia honored the
transaction over the 800-square meter lot and presented a notarized Deed of Absolute Sale dated
December 6, 2001, containing the accurate description of the lot. This is tantamount to an explicit
acknowledgement of the obligation to execute an amended deed of sale. Applying the above precepts,
the ten-year prescriptive period commenced to run anew from December 6, 2001. Thus, the complaint
filed on July 9, 2002, is well within the prescriptive period.

Topic: Contract: Interpretation of Contracts

TERESITA E. PASCUAL, WIDOW OF THE LATE ROMULO PASCUAL, WHO WAS THE
HEIR OF THE LATE CATALINA DELA CRUZ AND ATTORNEY-IN-FACT OF HER
CHILDREN AND FOR HER OWN BEHALF, PETITIONER,

V.

ENCARNACION PANGYARIHAN-ANG, SPOUSES EMELITA ANG GAN AND VICENTE

GAN, SPOUSES NILDA ANG-ROMAN AND ROBERTO ROMAN, SPOUSES ROSITA ANG-
ESTRELLA AND LUNAVER ESTRELLA, ERNEST ANG, ANTONIO ANG, SPOUSES
RUBY ANG-TAN AND JULIO TAN, SPOUSES MA. VICTORIA ANG-SAN PEDRO AND
AMADO SAN PEDRO, AND DANILO ANG, RESPONDENTS..

G.R. No. 235711, March 11, 2020

PERALTA, C.J. │ FIRST DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:

Romulo Pascual (Respondent) entered into a sale transaction with Encarnacion P. Ang (Petitioner)
covering three parcels of land located in Navotas City. This was embodied in a document denominated
as "Pagpapatunay at Pananagutan". The contract stated that

The first lot was registered in respondents' names. The two remaining lots were left unpaid by the
respondents leading the petitioner to file a complaint for the rescission of the contract with claim for
damages. The respondent contended that their agreement would show that the title to the subject lots
should first be registered under their names, and not under the name of Romulo Pascual, before they
pay the balance of the purchase price. They also argued that it was petitioner who breached their
agreement as she intentionally refused to register the two lots under their names because she is asking
for a much higher price.

The Regional Trial Court (RTC) ruled in favor of the respondents. The Court of Appeals (CA) denied
petitioner's appeal and affirmed the ruling of the trial court. It also ruled that the petitioner is not
entitled to rescind the contract as she is not the injured party. A motion for reconsideration was filed
but was also denied by the court.

Issue: Whether the CA gravely erred when it failed to consider the real intention of the parties based
on their conduct, words, and deeds prior to, during, and immediately after executing the contract of
sale in order to arrive at its correct and just interpretation

Ruling:

No, the CA did not err when it failed to consider the real intention of the parties after executing the
contract of sale in order to arrive at its correct and just interpretation.

Article 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former.

Article 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered.

As aptly ruled by the RTC, while the provision in paragraph 5 of the "Pagpapatunay at Pananagutan"
is ambiguous, as it can be interpreted in two ways, that is, the titles mentioned in the said provision is
either in the name of Romulo Pascual and/or plaintiff, or in defendants' names, the evidence on records
would show that the intention of the parties in the said paragraph 5 is that petitioner should secure first
the titles of the subject properties in respondents' names before they pay the remaining balance of the
purchase price of the subject properties.

It should be recalled that petitioner testified that respondents paid P50,000.00 as downpayment for the
three lots, and respondents made several payments thereafter on installment basis. It was only after
petitioner secured the OCT of the subject first lot under respondents' name that respondents paid her
its full purchase price. Thus, it is clear that paragraph 5 of the "Pagpapatunay at Pananagutan" should
be interpreted according to what transpired on the payment and registration of the first lot.
Topic: Contract: Interpretation of Contracts
SPOUSES RENE LUIS GODINEZ AND SHEMAYNE GODINEZ, PETITIONERS,
V.
SPOUSES ANDREW T. NORMAN AND JANET A. NORMAN, RESPONDENTS.

G.R. No. 225449, February 26, 2020

LEONEN, J. │ THIRD DIVISION

Nature of Action: Petition for Certiorari2 under Rule 65

Facts:

Spouses Norman (Respondents) entered into a contract with Spouses Godinez (Petitioners) where the
latter agreed to sell the leasehold rights over a housing unit in Subic Bay Freeport Zone for USD
175,000.00. Norman Spouses paid USD 10,000.00 to the Godinez Spouses as partial payment and
agreed that the remaining balance be settled within 30 days from the initial payment. After payment of
this initial installment, the respondents moved their furniture and appliances into the houses, and
assigned a house helper to act as their caretaker. The respondents asked for an extension of the
payment of the full price and which was agreed on by the petitioners with the condition that they pay
USD 30,000.00.

Despite the extension, the respondents were still unable to pay the remaining balance. The respondents
removed their furniture and appliances, so that the petitioners could use the units again. After three
months and upon learning that the units were sold to another buyer, the respondents asked for the
return of their payments but to no avail.

The Regional Trial Court granted the respondents’ prayer for the return of the partial payments. The
Court of Appeals affirmed the decision of the RTC but stated that the contract was a contract to sell.
Thus, the nonfulfillment of the obligation to pay the full amount of the purchase price was not a
breach of contract but rather an unfulfilled suspensive condition, which prevented the seller from
conveying title to the buyer. T respondent’s failure to pay was not a breach that could result in their
partial payments being forfeited as compensatory damages. Instead, it rendered the contract to sell
"ineffective and without further force and effect." Furthermore, their partial payment could not be
retained as there was no stipulation to that effect between the parties.

Issue: Whether the respondents should pay rentals for their use of the units

Ruling:

Yes, the respondents should pay rentals for their use of the units.

The conversion of partial payments into rentals is also consistent with Article 1378 of the Civil Code,
which teaches that doubts in the interpretation of onerous contracts "should be settled in favor of the
greatest reciprocity of interests."65 We find it only proper that respondents reciprocate their use of the
premises with the payment of rentals while full payment on their contract to sell was still pending.
Olivarez also recognized that compensation for use of the property must be reasonable. In Olivarez,
this Court allowed the seller to retain the partial payments because the buyers possessed and used the
property without paying rentals. Likewise, Gomez considered the "benefits, financial or otherwise"66
enjoyed by the buyer in determining whether or not to retain partial payments as reasonable
compensation. In both cases, the sellers were unable to use their respective properties because the
buyers were in possession thereof.

While there is no definitive legal standard for computing reasonable rentals on residential properties,
this Court notes that US$40,000.00 amounts to 22.9%, or over a fifth, of the total purchase price of
petitioner's housing unit, which is not commensurate to the value respondents may have derived from
their four (4) month possession of the property. While respondents' possession prevented petitioners
from using the premises, even petitioners recognized that respondents did not actually occupy the
housing unit.67 There is also no evidence before this Court indicating the "benefits, financial or
otherwise,"68 that respondents may have derived from their possession. Thus, respondents' limited use
of the premises requires us to temper the amount of partial payments that petitioners may reasonably
retain.
Determining reasonable rentals would depend on the circumstances of the parties, the nature of the
property being rented, and the prevailing situation in the relevant market at the time of the transaction,
among others. Ordinarily, this would require reception of evidence, and thus, a remand of the case to
the lower courts. However, in order to speedily dispose of this case, and in view of the time already
spent litigating this issue, a recourse to the analogous case of Olivarez is proper.
In Olivarez, this Court effectively allowed the prospective seller to convert partial payments to rentals,
with such rentals amounting to 13.1% of the property's total purchase price. Having already
determined the applicability of the Olivarez ruling on the retention of partial payments, the
circumstances of this case would warrant the retention of a similar amount. Thus, rentals for the
housing unit may be set at 13.1% of the US$175,000.00 total purchase price, or US$22,925.00.
Petitioners may, therefore, retain US$22,925.00 of the US$40,000.00 partially paid by respondents,
but must return the remaining US$17,075.00 to respondents.
Topic: Contract: Rescission

TERESITA E. PASCUAL, WIDOW OF THE LATE ROMULO PASCUAL, WHO WAS THE
HEIR OF THE LATE CATALINA DELA CRUZ AND ATTORNEY-IN-FACT OF HER
CHILDREN AND FOR HER OWN BEHALF, PETITIONER,

V.

ENCARNACION PANGYARIHAN-ANG, SPOUSES EMELITA ANG GAN AND VICENTE

GAN, SPOUSES NILDA ANG-ROMAN AND ROBERTO ROMAN, SPOUSES ROSITA ANG-
ESTRELLA AND LUNAVER ESTRELLA, ERNEST ANG, ANTONIO ANG, SPOUSES
RUBY ANG-TAN AND JULIO TAN, SPOUSES MA. VICTORIA ANG-SAN PEDRO AND
AMADO SAN PEDRO, AND DANILO ANG, RESPONDENTS..

G.R. No. 235711, March 11, 2020

PERALTA, C.J. │ FIRST DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45

Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:
Romulo Pascual (Respondent) entered into a sale transaction with Encarnacion P. Ang (Petitioner)
covering three parcels of land located in Navotas City. This was embodied in a document denominated
as "Pagpapatunay at Pananagutan". The contract stated that

The first lot was registered in respondents' names. The two remaining lots were left unpaid by the
respondents leading the petitioner to file a complaint for the rescission of the contract with claim for
damages. The respondent contended that their agreement would show that the title to the subject lots
should first be registered under their names, and not under the name of Romulo Pascual, before they
pay the balance of the purchase price. They also argued that it was petitioner who breached their
agreement as she intentionally refused to register the two lots under their names because she is asking
for a much higher price.
The Regional Trial Court (RTC) ruled in favor of the respondents. The Court of Appeals (CA) denied
petitioner's appeal and affirmed the ruling of the trial court. It also ruled that the petitioner is not
entitled to rescind the contract as she is not the injured party. A motion for reconsideration was filed
but was also denied by the court.

Issue: Whether the petitioner can rescind the contract

Ruling: No, the petitioner cannot rescind the contract.

Respondents' non-payment of the balance of the purchase price is due to the failure of petitioner to
comply with their obligation in the contract. Thus, petitioner is not entitled to rescind the contract as
she is not the injured party.

Topic: Contract: Rescission

ALLAN MAÑAS, JOINED BY WIFE LENA ISABELLE Y. MAÑAS, PETITIONERS,

V.

ROSALINA ROCA NICOLASORA, JANET NICOLASORA SALVA, ANTHONY

NICOLASORA, AND MA. THERESE ROSELLE UY-CUA, RESPONDENTS.

G.R. No. 208845, February 03, 2020

LEONEN, J. │ THIRD DIVISION

Nature of Action: Petition for Review on Certiorari

Facts:

Mañas Spouses (spouses) entered into a Lease Contract with Rosalina Roca Nicolasora (Rosalina)
over a property in Tacloban City that was owned by Rosalina's husband, Chy Tong Sy Yu. Yu sold
several parcels of land including the one leased by the spouses to Ma. Therese Roselle Uy-Cua
(Roselle) and the title was subsequently transferred to the latter.

The spouses claimed that they were not informed of the sale by the recent owners, the only knew
about the purchase through a letter sent to them by the new owner. They were also not offered to buy
the property, alleging that the previous owners violated their right of first refusal stipulated in their
Lease Contract.

The spouses filed a complaint before the Regional Trial Court (RTC) praying the contract of sale be
rescinded, the title be cancelled, and the right of first refusal be enforced. The RTC dismissed the
complaint stating that the spouses never exercised the option to renew the lease contract after its
expiration, thus the condition thereof granting the latter the right of first refusal (Priority to Buy), was
never renewed. Although there was an implied renewal of the contract of lease in (sic) a month-to-
month basis, in accordance with Article 1670 of the New Civil Code, the plaintiffs' right of first
refusal was never renewed for the reason that the said condition is not germane to possession. The
Motion for reconsideration filed by the spouses was denied by the RTC. The Court of of Appeals (CA)
affirmed the decision of the RTC and it eventually denied the motion for reconsideration filed by the
spouses. Hence, this petition.

Issue: Whether the contracting party's incapacity is a ground for the rescission of the contract.

Ruling:

No, the contracting party's incapacity is not a ground for the rescission of the contract.

Even if they were, they still filed the wrong action. The contracting party's incapacity is a ground for
annulment of contract, not rescission. Article 1390 of the Civil Code states:

ARTICLE 1390. The following contracts are voidable or annullable, even though there may have been
no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible
of ratification.

Petitioners pray for the rescission of the contract, but the ground they raised is one for annulment of
contract. Article 1397 of the Civil Code specifies who may institute such action:

ARTICLE 1397. The action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of
those with whom they contracted; nor can those who exerted intimidation, violence, or undue
int1uence, or employed fraud, or caused mistake base their action upon these flaws of the contract.

Thus, even if this Court were to consider petitioners' action as one for annulment of contract, they are
still not the proper parties to file such action. They are not parties to the Deed of Absolute Sale, and
neither are they obliged principally or subsidiarity with regard to the Deed of Absolute Sale. Thus, the
trial court's dismissal of their Complaint would still be proper.
Topic: Contract: Rescission

SPOUSES RENE LUIS GODINEZ AND SHEMAYNE GODINEZ, PETITIONERS,

V.
SPOUSES ANDREW T. NORMAN AND JANET A. NORMAN, RESPONDENTS.

G.R. No. 225449, February 26, 2020

LEONEN, J. │ THIRD DIVISION

Nature of Action: Petition for Certiorari under Rule 65

Facts:

Spouses Norman (Respondents) entered into a contract with Spouses Godinez (Petitioners) where the
latter agreed to sell the leasehold rights over a housing unit in Subic Bay Freeport Zone for USD
175,000.00. Norman Spouses paid USD 10,000.00 to the Godinez Spouses as partial payment and
agreed that the remaining balance be settled within 30 days from the initial payment. After payment of
this initial installment, the respondents moved their furniture and appliances into the houses, and
assigned a house helper to act as their caretaker. The respondents asked for an extension of the
payment of the full price and which was agreed on by the petitioners with the condition that they pay
USD 30,000.00.

Despite the extension, the respondents were still unable to pay the remaining balance. The respondents
removed their furniture and appliances, so that the petitioners could use the units again. After three
months and upon learning that the units were sold to another buyer, the respondents asked for the
return of their payments but to no avail.

The Regional Trial Court granted the respondents’ prayer for the return of the partial payments. The
Court of Appeals affirmed the decision of the RTC but stated that the contract was a contract to sell.
Thus, the nonfulfillment of the obligation to pay the full amount of the purchase price was not a
breach of contract but rather an unfulfilled suspensive condition, which prevented the seller from
conveying title to the buyer. T respondent’s failure to pay was not a breach that could result in their
partial payments being forfeited as compensatory damages. Instead, it rendered the contract to sell
"ineffective and without further force and effect." Furthermore, their partial payment could not be
retained as there was no stipulation to that effect between the parties.

Issue: Whether the contract should be rescinded as provided under Article 1191 of the Civil Code

Ruling: No, the contract should not be rescinded as provided under Article 1191 of the Civil Code.

As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines does not
apply. The contract to sell is instead cancelled, and the parties shall stand as if the obligation to sell
never existed.
As for prospective sellers, this court generally orders the reimbursement of the installments paid for
the property when setting aside contracts to sell. This is true especially if the property's possession has
not been delivered to the prospective buyer prior to the transfer of title.

Here, petitioners turned over possession of the premises to respondents after the latter made partial
payments amounting to USD 10,000.00. Respondents then moved their furniture and groceries into
one of the housing unit's rooms and also hired a house helper to watch over the premises in the
interim. Respondents made subsequent payments, bringing its total to USD 40,000.00, but the contract
to sell still failed to take effect because of respondents' subsequent default in paying the balance.
During this five month period, petitioners were unable to enjoy their property despite retaining a key
to the premises. Thus, petitioners should have been compensated for respondents' use of the property.

The Court of Appeals' insistence that compensation is not warranted because respondents were unable
to fully occupy the property is unmeritorious. Full occupation of the premises is not required; neither
is this Court persuaded by respondents' argument that Olivarez does not apply because respondents did
not illegally withhold possession of the premises or of payment of the purchase price. The payment of
reasonable rentals is not meant to punish the illegality of respondents' actions, but to compensate
petitioners' inability to enjoy or use its own property.71 Here, the record shows that petitioners were
unable to use the property for the duration of their contract with respondents.72 Thus, this Court finds
that the partial payments made by respondents may be converted into rentals.
Topic: Contract: Rescission

ULYSSES RUDI V. BANICO, PETITIONER,

VS.
LYDIA BERNADETTE M. STAGER A.K.A BERNADETTE D. MIGUEL (SUBSTITUTED BY
HER COMPULSORY HEIRS, NAMELY: BOBBY UNILONGO I, PROSPERO UNILONGO I,
PROSPERO UNILONGO II, MARICON U. BAYOG, GLENN UNILONGO AND
LUZVIMINDA UNILONGO), RESPONDENTS.
G.R. No. 232825, September 16, 2020
LOPEZ, J.│ FIRST DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45
Facts:
Lydia Stager owns a real property situated in Barangay Manoc-Manoc, Boracay Island. The land
adjoins the sea on its eastern part and is generally flat at the center but has an elevated rocky northern
part. Ulysses Banico bought the area suitable for building a beach resort, it is 800 square meters of
Stager’s land for the consideration of PHP 350,000. Banico’s lawyer drafted a Deed of Absolute Sale
over the said land.
Banico later discovered that the land described in the deed was the elevated rocky part of Stager’s land
and not the flat area. Banico asked Stager to make the necessary amendment to the deed which the
latter agreed to do. Stager also convinced Banico to purchase an additional 400 square meters portion
which is adjacent to the previously purchased lot. The second lot was bought by Banico for PHP
160,000 on installment basis. Banico asked Stager to prepare the amended deed of sale, but she
refused because he still has an unpaid balance of P12,000.00. Yet, Banico maintained that he already
paid Lydia more than P160,000.00. The matter was brought by Banico to the barangay where Stager
honored her promise and executed a new deed of sale. However, Banico refused to sign the deed
because it failed to reflect the true consideration of the transaction.
An action for specific performance and damages was brought by Banico before the Regional Trial
Court (RTC). On the course of the proceeding Stager died and was substituted by her heirs. The RTC
ordered the heirs of Stager to amend/reform the deed and execute a Deed of Absolute Sale covering
the 400 square meter land or to include the 400 square meter land in the deed meant for the 800 square
meter land. On the other hand, Banico was ordered to pay the remaining balance for the second
purchase. Both parties elevated the case to the Court of Appeals where the court modified the decision
of the RTC, denying the reformation of the deed on the ground of prescription. The motion for
reconsideration filed by both parties were denied by the CA. The CA stated that Banico is the one to
blame for the issue because it was only after the consummation of the sale of the first lot that he
decided to visit the same and because it was his lawyer who drafted the deed. Banico filed this petition
claiming that the CA erred in ruling that the party who caused the ambiguity cannot ask to reform the
contract.
Issue: Whether or not the parties are entitled to damages
Ruling:
No, the parties are entitled to damages.
Both the CA and RTC properly denied the parties' claims for damages. To reiterate, the mistake in the
Deed of Absolute Sale dated February 8, 1992 involving the 800-sq m lot is not malicious and
deliberate. The parties are not even aware of the error until the land was surveyed. Likewise, there is
no substantial breach of the contract to sell over the 400-sq m lot that warrants the award of damages.
Topic: Contract: Damages

SPOUSES RENE LUIS GODINEZ AND SHEMAYNE GODINEZ, PETITIONERS,

V.
SPOUSES ANDREW T. NORMAN AND JANET A. NORMAN, RESPONDENTS.

G.R. No. 225449, February 26, 2020

LEONEN, J. │ THIRD DIVISION

Nature of Action: Petition for Certiorari under Rule 65

Facts:

Spouses Norman (Respondents) entered into a contract with Spouses Godinez (Petitioners) where the
latter agreed to sell the leasehold rights over a housing unit in Subic Bay Freeport Zone for USD
175,000.00. Norman Spouses paid USD 10,000.00 to the Godinez Spouses as partial payment and
agreed that the remaining balance be settled within 30 days from the initial payment. After payment of
this initial installment, the respondents moved their furniture and appliances into the houses, and
assigned a house helper to act as their caretaker. The respondents asked for an extension of the
payment of the full price and which was agreed on by the petitioners with the condition that they pay
USD 30,000.00.

Despite the extension, the respondents were still unable to pay the remaining balance. The respondents
removed their furniture and appliances, so that the petitioners could use the units again. After three
months and upon learning that the units were sold to another buyer, the respondents asked for the
return of their payments but to no avail.

The Regional Trial Court granted the respondents’ prayer for the return of the partial payments. The
Court of Appeals affirmed the decision of the RTC but stated that the contract was a contract to sell.
Thus, the nonfulfillment of the obligation to pay the full amount of the purchase price was not a
breach of contract but rather an unfulfilled suspensive condition, which prevented the seller from
conveying title to the buyer. The respondent’s failure to pay was not a breach that could result in their
partial payments being forfeited as compensatory damages. Instead, it rendered the contract to sell
"ineffective and without further force and effect." Furthermore, their partial payment could not be
retained as there was no stipulation to that effect between the parties.

Issue: Whether or not the damages should be paid to the petitioners

Ruling:

No, damages should not be paid to the petitioners

As to the parties' claims for damages, this Court reiterates that respondents' failure to fully pay the
purchase price effectively cancelled the contract to sell. As such, "the parties shall stand as if the
obligation to sell never existed."73 Since the contract to sell was effectively nonexistent, there was no
basis for the alleged violations that would have given rise to damages.

Topic: Void or inexistent contracts

REDENTOR CATAPANG and CASIANA CATAPANG GARBIN
v.
LIPA BANK
G.R. No. 240645, 27 January 2020
CAGUIOA, J. │ FIRST DIVISION
Nature of Action: Petition for Review on Certiorari filed under Rule 45
Facts:
Alejandro and Rosalinda Catapang (Sps. Catapang) got a loan from Lipa Bank that was secured by a
Deed of Real Estate Mortgage on their property in Rosario, Batangas. The mortgage was foreclosed
after the Sps. Catapang failed to satisfy their loan obligations.Lipa Bank was able to consolidate its
title to the property when the redemption period expired. As a result, the Sps. Catapang, who were
allowed to stay in the property by Lipa Bank, offered to repurchase it. Lipa Bank, on the other hand,
refused to negotiate with them. Lipa Bank, on the other hand, proposed to sell the property to Sps.
Catapang's son, Redentor, for P1,500,000.00.
Following that, Lipa Bank and Redentor signed a sales contract, with Redentor agreeing to pay a
downpayment of P400,000.00 when the deal was signed and completed. Redentor was only able to
pay P200,000.00, so he took out a P270,000.00 loan from Lipa Bank to cover the rest of the down
payment. To secure the loan, Redentor brought and submitted to Lipa Bank the owner's duplicate copy
of a TCT covering a parcel of land registered in the names of his aunts Gregoria and Casiana,
following the advise of Lipa Bank.
Casiana signed a promissory note for the P270,000.00 loan and a Deed of Real Estate Mortgage on the
subject property for P1,440,000.00 without Redentor's knowledge or approval. Redentor and Casiana
filed a complaint alleging that the execution of the aforementioned Promissory Note and Deed of Real
Estate Mortgage was tainted by fraud, undue influence, and trickery, and that the Promissory Note and
Deed of Real Estate Mortgage, as well as the Sales Contract, be declared null and void.
The trial court issued a ruling pronouncing (a) Redentor's Sales Contract with Lipa Bank to be legal
and effective, and (b) Casiana's Promissory Note and Real Estate Mortgage to be null and void.
The Court of Appeals (CA) overturned the trial court's decision and declared Casiana's Promissory
Note and Real Estate Mortgage legal and effective.
Issue: Whether the Promissory Note and Deed of Real Estate Mortgage entered into between Casiana
and Lipa Bank are valid and binding?
Ruling:
No, the Promissory Note and Deed of Real Estate Mortgage entered into between Casiana and Lipa
Bank are not valid and binding.
In fine, the Court finds that respondent Lipa Bank was not able to controvert the positive testimonies
of petitioners Redentor and Casiana's witnesses, which clearly substantiate the fact that petitioner
Casiana, being only a Grade 6 graduate, did not understand English and was unable to read and
comprehend the tenor of the Promissory Note and Deed of Real Estate Mortgage which she signed —
documents which were opposite to her understanding of why she lent to petitioner Redentor her
owner's duplicate copy of the subject property.

As important, the very fact that respondent Lipa Bank took the posture that the Promissory Note and
the Deed of Real Estate Mortgage were proof that it was petitioner Casiana herself who had borrowed
money for a business that did not exist tells the Court that it unduly took advantage of petitioner
Casiana's poor education.
This finding is not diminished whatsoever by the testimony of respondent Lipa Bank's Vice President
Melo, whose testimony never refuted the testimony of Alayon. Moreover, Melo's testimony was
purely hearsay.
In this regard, the Court finds it highly erroneous that the CA took cognizance of two documents
presented by Melo in his Judicial Affidavit, i.e., the Disbursement Voucher and Credit Ticket dated
June 30, 1999, in reaching the conclusion that petitioner Casiana received the proceeds of the loan. As
these were signed together with the Promissory Note and Deed of Real Estate Mortgage on June 30,
1999, then they were, as already explained, likewise signed by petitioner Casiana without any
understanding and comprehension of their tenor.
All in all, respondent Lipa Bank's assertion that the loan obligation entered into by petitioner Casiana
is above-board and that the latter received the proceeds of the loan has no basis in evidence.
Under Article 1332 of the Civil Code, respondent Lipa Bank has the burden of proving that the terms
of the loan documents were fully explained to petitioner Casiana.
Article 1332 of the Civil Code states that when a contract is in a language not understood by one of the
parties, and mistake or fraud is alleged, the person enforcing the contract has the burden of proving
that the terms of the contract were fully explained to the contracting party:
ART. 1332. When one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that
the terms thereof have been fully explained to the former.
Article 1332 was intended for the protection of a party to a contract who is at a disadvantage due to his
illiteracy, ignorance, mental weakness or other handicap. This article contemplates a situation wherein
a contract has been entered into, but the consent of one of the parties is vitiated by mistake or fraud
committed by the other contracting party.

Topic: Sale: Maceda Law

PRYCE PROPERTIES CORP. (NOW PRYCE CORPORATION), PETITIONER,
v.
NARCISO R. NOLASCO, JR. RESPONDENT.
GR No. 203990, August 24, 2020
HERNANDO, J.│ SECOND DIVISION
Nature of Action: Petition for Review on Certiorari filed under Rule 45
Facts:
Narciso R. Nolasco, Jr. (Nolasco) entered into a purchase agreement with Pryce Corporation over
three (3) lots located in Cagayan de Oro and deposited P 393 435.00 through check payments in favor
of the latter. Pryce failed to deliver the copies of the lot’s certificates of title and the actual sales
agreement. When Nolasco finally received the sales agreement demanded a refund as it contained
unacceptable condition. He had not yet signed the sales agreement. Thus, there was still no meeting of
the minds between him and Pryce.
Pryce assailed that there could not yet be issued certificates of the title because the contract is a
contract to sell, not a contract of sale. Pryce further argues that Nolasco, under Republic Act No. 6552,
was not entitled to a refund since he failed to complete the payments within the grace period provided
by Pryce, resulting in their forfeiture and the rescission of the contract to sell.
The Regional Trial Court (RTC) ruled that there had been a perfected contract of sale between
Nolasco and Pryce Corporation according to Article 1482 of the Civil Code. It also ruled that the
Republic Act No. 6552, Pryce can rescind the contract of sale with Nolasco due to failure to pay at
least two (2) years of installments to Pryce. However, Pryce failed to rescind the contract. Hence, the
RTC ordered to refund.
The Court of Appeals (CA) affirmed the Regional Trial Court (RTC) in part that the contract entered
into by Pryce and Nolasco was a Contract to sell. Nevertheless, the entitlement of Nolasco to refund
remains as Pryce did not exercise the remedy of cancellation under Republic Act 6552 and equity
considerations.
Issue:
Whether the contract to sell between Nolasco and Pryce rescinded in accordance with RA 6552
Ruling
No, the contract to sell between Nolasco and Pryce rescinded in accordance with RA 6552.
The Realty Installment Buyer Protection Act, otherwise known as RA 6552 or the Maceda Law,
protects "buyers of real estate on installment payments against onerous and oppressive conditions."
One of the legal features of RA 6552 is Section 4 thereof, which provides for the remedies of a
defaulting buyer that has paid less than two years of installment amortizations for a purchase of real
property:
Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
Section 4 of RA 6552 requires four (4) conditions before the seller may actually cancel the contract
thereunder: first, the defaulting buyer has paid less than two (2) years of installments; second, the
seller must give such defaulting buyer a sixty (60)-day grace period, reckoned from the date the
installment became due; third, if the buyer fails to pay the installments due at the expiration of the said
grace period, the seller must give the buyer a notice of cancellation and/or a demand for rescission by
notarial act; and fourth, the seller may actually cancel the contract only after the lapse of thirty (30)
days from the buyer's receipt of the said notice of cancellation and/or demand for rescission by notarial
act.
In claiming that it had validly rescinded its contract to sell with Nolasco, Pryce relies on two
documents: a written Contract to Sell, which sets out an automatic cancellation provision in case of
default and which Pryce alleges that Nolasco impliedly agreed to, and its denial of the refund as
asserted in its Answer with Counterclaims against Nolasco's Complaint before the RTC.
Both documents, however, fail Pryce.
Topic: Sale: Double Sale
NOEL M. ODRADA, PETITIONERS,
VS.
VIRGILIO LAZARO AND GEORGE ASENIERO RESPONDENT.
G.R. No. 205515, January 20, 2020
J. REYES, JR., J│ FIRST DIVISION
Nature of the Action: Petition for Review on Certiorari
Facts:
Roberto S. Basa (Basa) sold a black Range Rover to Noel M, Odrada (Odrada) for P1.2 million.
Under Certificate of Registration (CR) no. 1188065-4, the vehicle was registered in Basa’s name on
November 21,2003. A complaint was filed against Aseniero for causing damages to the Range Rover.
Aseniero asserts that he is the lawful owner of the Range Rover and reported that the said vehicle was
carnapped. He claims that the motor vehicle was unjustly deprived of his possession and on
November 05, 2003, Basa took possession under false pretense. Thus, eventually led to Obrada buying
the said vehicle from Basa.
The Regional Trial Court (RTC) ruled in respondents' favor. The trial court found that respondents
were able to prove that Aseniero bought the Range Rover from Transmix through Pueo. It highlighted
that Transmix executed a Deed of Confirmation of Sale acknowledging that it had sold the said motor
vehicle to Aseniero. The Court of Appeals affirmed the RTC decision but modified the amount of
moral and exemplary damages awarded. Hence, the petition.
Issue: Whether Odrada is the lawful owner of the black range rover in question

Ruling:
No, Odrada is the lawful owner of the black range rover in question.
The rule on double sale is provided in Article 1544 of the Civil Code. It reads:
ARTICLE 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith. (Emphasis and underscoring supplied)
It is readily apparent that the rules concerning double sale of movable properties differ from that of
immovable properties. In double sale of immovable sale, the law provides for a three-pronged
approach in determining ownership, to wit: (1) to the person acquiring it who in good faith first
recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first
in possession; and (3) in default thereof, to the person who presents the oldest title, provided there is
good faith.26 On the other hand, in case of double sale of a movable property, ownership is simply
transferred to the first who may have taken possession thereof in good faith. Since the present case
involves a sale of a motor vehicle, its ownership should then belong to the first possessor in good faith.
The Deed of Sale between Basa and Transmix was executed on September 4, 2003. On the other hand,
the Deed of Sale between Transmix and Aseniero was executed on November 5, 2003. While the Deed
of Sale between Basa and Transmix bore an earlier date, there is no evidence to sufficiently establish
when Basa had actually possessed the Range Rover. It must be remembered that Basa never appeared
in court to testify on the circumstances of the purchase of the motor vehicle and when he acquired
possession thereto. The execution of the deed of sale alone did not transfer the ownership of the motor
vehicle from Transmix to Basa because ownership over movable property is transferred by delivery
and not merely by contract.
In contrast, without any direct testimonial or documentary evidence to establish when Basa actually
acquired possession of the property, the closest piece of evidence which could somehow indicate that
Basa already possessed the motor vehicle would be the Deed of Sale between Basa and Odrada. Even
if it were to be presumed that Basa had possession of the Range Rover at the time it was sold to
Odrada, it would still be after Aseniero had actual possession of the Range Rover. Further, there is no
evidence to show that Aseniero was aware of the September 4, 2003 Deed of Sale between Basa and
Transmix. As such, it is clear that it was Aseniero who first possessed the Range Rover in good faith.
Consequently, ownership over the motor vehicle rightfully belongs to Aseniero as the first possessor
in good faith. Since Basa did not acquire ownership over the Range Rover, he did not transmit any
rights when he sold the same to Odrada. This is in keeping with the principle that one cannot give
what one does not have — nemo dat quod non habet.
As the lawful owner of the Range Rover, Aseniero cannot be faulted in reporting the said motor
vehicle as stolen after he was unjustly deprived of its possession. It is but a reaction from an owner
who has been divested of possession of his property. Aseniero acted well within his rights in initiating
the posting of a Flash Report with the PNP in order to recover the Range Rover taken from him.
Topic: Partnership
MERIAN B. SANTIAGO, PETITIONER,
v.
SPOUSES EDNA L. GARCIA AND BAYANI GARCIA, RESPONDENTS.

G.R. No. 228356, March 09, 2020

PONENTE: REYES, J. JR., J │ FIRST DIVISION

Nature of the Action: Petition for Review on Certiorari under Rule 45

Facts:
Edna Garcia asked Merian Santiago to invest to her lending business promising high return. Santiago
and Garcia agreed that the return will be in a paid through monthly remittance and the principal
investment should be returned upon demand.
Santiago started to invest from November 15, 2000 to June 30 2003, the amount totaled to PHP
1,569,000.00. Garcia remitted to Santiago the PHP 877,000.00 interest but on December 2003 the
former defaulted in remitting to the latter. Despite demands, Garcia still failed to remit the interest of
the investment to Santiago. Santiago sent a demand letter asking Garcia to return the principal
investment, the parties agreed that the latter be allowed to pay the principal investment when able.
After learning that Garcia did the same to other people, Santiago filed a complaint for collection of
sum of money against spouses Garcia. Nevertheless, spouses Garcia sought for the dismissal of the
complaint for lack of cause of action since the amounts given by Santiago were investments, not loans.
The Regional Trial Court (RTC) held that a partnership was formed between the parties, the former as
capitalist partner and the latter as industrial partner. It ruled that a person who invested in a business
which incurred losses cannot convert such investment into a loan. The RTC denied Santiago’s Motion
for Reconsideration. The Court of Appeals found that the money was given was an investment that
will earn interest in case of profit. Nevertheless, the CA agreed with the RTC that the complaint
lacked cause of action as Santiago was without legal right to recover her investment in case of losses,
as to what happened to Garci’s lending business, since an investment entails business risk.
Issue: Whether a partnership was formed between spouses Garcia and Santiago
Ruling:
No partnership was formed between spouses Garcia and Santiago.
A partnership, a simple contract of loan, and an investment contract carry peculiar definitions and are
governed by pertinent laws. The existence of a partnership, simple loan, or an investment contract
should not, therefore, be inferred lightly, especially where any of its requisite elements are lacking.
The Court cannot subscribe to the view that Merian and Edna formed a partnership. By the contract of
partnership two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.15 Partnership is
essentially a result of an agreement or a contract, either express or implied, oral or in writing, between
two or more persons. Here, there was neither allegation nor proof that Merian and Edna agreed to
enter into a partnership for purposes of carrying out the lending business.
There was likewise no agreement for the sharing of profits, only that Merian expects to receive
remittance of monthly interest from the amount she invested. At any rate, the receipt by a person of a
share of the profits, or of a payment of a contingent amount in case of profits earned, is not a
conclusive evidence of partnership. Article (Art.) 1769(3) of the Civil Code provides that "the sharing
of gross returns does not of itself establish a partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from which the returns are derived".16 There must
be an unmistakable intention to form a partnership which is lacking in this case.17 Most importantly,
the facts do not disclose that there is mutual agency between Merian and Edna, that is, neither party
alleged that she can bind by her acts the other, and can be bound by the acts of the other in the
ordinary course of business.
Topic: Credit Transaction: Contract of Loan
MERIAN B. SANTIAGO, PETITIONER,
v.
SPOUSES EDNA L. GARCIA AND BAYANI GARCIA, RESPONDENTS.

G.R. No. 228356, March 09, 2020

PONENTE: REYES, J. JR., J │ FIRST DIVISION

Nature of the Action: Petition for Review on Certiorari under Rule 45

Facts:
Edna Garcia asked Merian Santiago to invest to her lending business promising high return. Santiago
and Garcia agreed that the return will be in a paid through monthly remittance and the principal
investment should be returned upon demand.
Santiago started to invest from November 15, 2000 to June 30 2003, the amount totaled to PHP
1,569,000.00. Garcia remitted to Santiago the PHP 877,000.00 interest but on December 2003 the
former defaulted in remitting to the latter. Despite demands, Garcia still failed to remit the interest of
the investment to Santiago. Santiago sent a demand letter asking Garcia to return the principal
investment, the parties agreed that the latter be allowed to pay the principal investment when able.
After learning that Garcia did the same to other people, Santiago filed a complaint for collection of
sum of money against spouses Garcia. Nevertheless, spouses Garcia sought for the dismissal of the
complaint for lack of cause of action since the amounts given by Santiago were investments, not loans.
The Regional Trial Court (RTC) held that a partnership was formed between the parties, the former as
capitalist partner and the latter as industrial partner. It ruled that a person who invested in a business
which incurred losses cannot convert such investment into a loan. The RTC denied Santiago’s Motion
for Reconsideration. The Court of Appeals found that the money was given was an investment that
will earn interest in case of profit. Nevertheless, the CA agreed with the RTC that the complaint
lacked cause of action as Santiago was without legal right to recover her investment in case of losses,
as to what happened to Garci’s lending business, since an investment entails business risk.
Issue: Whether the agreement between the parties is a contract of loan
Ruling:
No, the agreement between the parties is a not a contract of loan.
The facts of the instant case do not support the conclusion that the parties entered into a contract of
loan either.1âшphi1 By a contract of simple loan, one of the parties delivers to another money upon
the condition that the same amount of the same kind and quality shall be paid.18 A person who
receives a loan of money acquires ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.19 Merian herself testified that Edna did not borrow money from
her and Merian consistently alleged that she invested money in Edna's lending business. This is
consistent with the fact that Merian gave to Edna money in various amounts and on various dates, in a
series of transactions beginning November 15, 2000 to June 30, 2003, for which she earned profits in
the form of interest payments.
The facts therefore demonstrate that Edna was engaged in the business of lending and that she
solicited funds from Merian which Edna then used to grant loans to other persons. The parties'
contemporaneous and subsequent acts reveal their intent to enter into an investment contract in a
lending business.20 Parenthetically, the lending activity conducted by Edna is what the law under
Republic Act (R.A.) No. 947421 or the Lending Company Act of 2007 presently seeks to regulate.
Under R.A. 9474, only corporations with a validly subsisting authority from the Securities and
Exchange Commission can engage in the business of granting loans sourced from its own capital
funds or from funds coming from not more than nineteen (19) persons. Nevertheless, since R.A. No.
9474 was passed into law only on May 22, 2007, the lending activities of Edna conducted from 2000
to 2003 cannot be considered unlawful.
Having established that the transaction between Merian and Edna is one of investment in a lending
business, the question to be addressed is whether Edna is contractually bound to return Merian's
capital. Investment is ordinarily defined as the placement of capital or lay out of money in a way
intended to secure income or profit from its employment. As in all contractual relations, an investment
contract is largely governed by the stipulations, clauses, terms, and conditions as the parties may deem
convenient, which shall be respected as long as it is not contrary to law, morals, good customs, public
order, or public policy.22 Thus, the parties are free to agree that the investment shall entail the sharing
of profits and losses, or otherwise.
In this case, Merian alleged that she and Edna agreed that Merian will be investing capital on the
lending business which shall earn a 5% monthly interest; that the capital will be revolving; and that the
capital shall be returned upon demand. That Edna agreed to return the principal amount to Merian is
further supported by the acknowledgment receipt which Edna herself had written. In said
acknowledgment receipt, Edna paid the amount of P20,000.00 as "partial payment from the principal"
– thus acknowledging her obligation to return the principal amount invested. Notably as well, Edna
failed to present countervailing evidence to demonstrate the real agreement between the parties as her
husband, who solely participated at the trial, merely denied knowledge of the agreement between
Merian and Edna.
Even assuming that the agreement between the parties was that Merian shall bear the risk of losing the
principal amount she invested, in case of business loss, there was no allegation nor proof presented
that, indeed, Edna's lending business suffered business loss. The ruling, therefore, that the principal
amount should no longer be returned because of Merian's assumption of risk lacks factual basis.
Topic: Lease: Right of First Refusal

ALLAN MAÑAS, JOINED BY WIFE LENA ISABELLE Y. MAÑAS, PETITIONERS,

V.

ROSALINA ROCA NICOLASORA, JANET NICOLASORA SALVA, ANTHONY

NICOLASORA, AND MA. THERESE ROSELLE UY-CUA, RESPONDENTS.

G.R. No. 208845, February 03, 2020

LEONEN, J │ THIRD DIVISION

Nature of Action: Petition for Review on Certiorari

Facts:

Mañas Spouses (spouses) entered into a Lease Contract with Rosalina Roca Nicolasora (Rosalina)
over a property in Tacloban City that was owned by Rosalina's husband, Chy Tong Sy Yu. Yu sold
several parcels of land including the one leased by the spouses to Ma. Therese Roselle Uy-Cua
(Roselle) and the title was subsequently transferred to the latter.

The spouses claimed that they were not informed of the sale by the recent owners, the only knew
about the purchase through a letter sent to them by the new owner. They were also not offered to buy
the property, alleging that the previous owners violated their right of first refusal stipulated in their
Lease Contract.

The spouses filed a complaint before the Regional Trial Court (RTC) praying the contract of sale be
rescinded, the title be cancelled, and the right of first refusal be enforced. The RTC dismissed the
complaint stating that the spouses never exercised the option to renew the lease contract after its
expiration, thus the condition thereof granting the latter the right of first refusal (Priority to Buy), was
never renewed. Although there was an implied renewal of the contract of lease in (sic) a month-to-
month basis, in accordance with Article 1670 of the New Civil Code, the plaintiffs' right of first
refusal was never renewed for the reason that the said condition is not germane to possession. The
Motion for reconsideration filed by the spouses was denied by the RTC. The Court of of Appeals (CA)
affirmed the decision of the RTC and it eventually denied the motion for reconsideration filed by the
spouses. Hence, this petition.

Issue/s:
1. Whether or not the contract of lease was impliedly renewed
2. Whether or not the renewal includes the right of first refusal
Rulings:
1. Yes, the contract of lease was impliedly renewed.

Based on the terms of the Lease Contract, renewal would be at the option of the lessee. However,
petitioners did not appear to have expressly informed the lessor of their intent to renew. Instead, after
the original Lease Contract had expired, they continued to pay rentals to the lessor.53 This constitutes
an implied lease contract renewal, as the trial court and the Court of Appeals correctly
found.54 Article 1670 of the Civil Code states:

ARTICLE 1670. If at the end of the contract the lessee should continue enjoying the thing leased for
fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has
previously been given, it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The other terms of the
original contract shall be revived.

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of
lease expired without the private respondent, as lessee, purchasing the property but remained in
possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis.

2. No, the renewal includes the right of first refusal

The other terms of the original contract of lease which are revived in the implied new lease under
Article 1670 of the New Civil Code are only those terms which are germane to the lessee's right of
continued enjoyment of the property leased. Therefore, an implied new lease does not ipso facto carry
with it any implied revival of private respondent's option to purchase (as lessee thereof) the leased
premises. The provision entitling the lessee the option to purchase the leased premises is not deemed
incorporated in the impliedly renewed contract because it is alien to the possession of the lessee.
Private respondent's right to exercise the option to purchase expired with the termination of the
original contract of lease for one year. The rationale of this Court is that:

Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption
covers the other terms of the contract related to such possession, such as the amount of rental, the date
when it must be paid, the care of the property, the responsibility for repairs, etc. But no such
presumption may be indulged in with respect to special agreements which by nature are foreign to the
right of occupancy or enjoyment inherent in a contract of lease.60 (Citations omitted)

Simply put, this Court ruled that implied renewals do not include the option to buy, as it is not
germane to the lessee's continued use of the property. Moreover, since Overland failed to avail of the
option to buy within the stipulated period, it no longer had any right to enforce this option after that
period had lapsed.
Topic: Lease: Termination of Lease
ANITA C. BUCE, PETITIONER,
v.
SPOUSES GEORGE GALEON AND ERLINDA TIONGCO GALEON, SPOUSES HONESTO
CABRERA, JR. AND GENEROSA TIONGCO CABRERA, SPOUSES LEO SANDS AND
MARIA TERESA TIONGCO SANDS, JOSE M. TIONGCO, AND MARIA CORAZON M.
TIONGCO, RESPONDENTS.
G.R. No. 222785, March 2, 2020
Ponente: REYES, J. JR., J.│ FIRST DIVISION
Nature of Action: Petition for Review on Certiorari

Facts:

Bernardo Tiongco (Bernardo) and Dionisio Tiongco (Dionisio) entered in to a lease contract with
Rogelio and Anita Buce (spouses Buce) over a parcel of land in Pandacan, Manila. Under the contract
the spouses agreed to pay a monthly rent of PHP 200.00. The agreement shall be effective for a period
of 15 years and subject to renewal for another 10 years under the same terms and conditions. Lessees
were also allowed to build improvements under the contract. As years passed, the monthly rent
increased and on 1991 the checks tendered by the spouses became insufficient to cover the rentals
resulting to Bernardo and Tiongco refusing to accept the checks.

Buce (petitioner) filed a complaint for specific performance with prayer for consignation against the
heirs of Bernardo and Tiongco (respondents). The trial court declared that the lease contract between
the petitioner and the respondents was automatically renewed for another 10 years. On appeal, the
Court of Appeals reversed the decision and ordered the petitioner to vacate the premises.

Issue/s: Whether there was an implied new lease contract between the petitioner and the respondents
Rulings:
Yes, there was an implied new lease contract between the petitioner and the respondents.
The provision on implied new lease or tacita reconduccion is found in Article 1670 of the Civil Code:

ART. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen
days with the acquiescence of the lessor, and unless a notice to the contrary by either party has
previously been given, it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The other terms of the
original contract shall be revived.
From the foregoing, it is clear that there is an implied renewal of the contract when the following
elements concur: (a) the term of the original contract of lease has expired; (b) the lessor has not given
the lessee a notice to vacate; and c) the lessee continued enjoying the thing leased for 15 days with the
acquiescence of the lessor.

Article 1687 of the same Code provides for the determination of the period for which such implied
lease is considered as valid, to wit:

ART. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if
the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid daily.
In other words, the terms of such contract depend on the period that the lessee made the rental
payments.

Reference to the records reveal that the aforementioned elements are not extant in this case. However,
respondents sent a notice to petitioner informing her of their intention not to renew the lease way back
in 1993 after the filing of the specific performance case by petitioner. At this point, such notice
constitutes a notice to vacate on the part of respondents as they were categorical in reminding
petitioner that the contract had indeed expired; and by sending the same, it is clear that respondents
intended to discontinue the juridical tie between them and petitioner as lessors and lessee. Such
intention is further manifested by the filing of the case for recovery of possession following the ruling
of this Court in G.R. No. 136913. 29 In obvious terms, respondents did not consent to petitioner's
continued stay in the premises of the subject property. Her occupation therefore is by mere tolerance;
deficient, however, of all the elements to constitute an implied new lease.

Moreover, the petitioner's contention that she failed to receive such notice was belied by the factual
findings of the RTC and the CA. Neither can respondents' act of accepting rental payments be
construed as their consent to the renewal of the lease. The simple reason is that the petitioner remained
in possession of the subject land and, regardless of the outcome of their case, had to pay rentals to
respondents for the use of the same. 30

As the petitioner continued to occupy and possess the subject property without a contract of lease, she
is liable to pay for the reasonable use and possession thereof. Both the RTC and the CA found that the
reasonable compensation for such use and occupation shall be pegged at P5,000.00 per month.
Topic: Agency
ROBERTO R. IGNACIO and TERESA R. IGNACIO doing business under the name and style
of TERESA R. IGNACIO ENTERPRISES
v.
MYRNA P. RAGASA and AZUCENA B. ROA
GR No. 227896, January 29, 2020
PERALTA, C.J │ FIRST DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:
Roberto Ignacio and Teresita Ignacio (the Ignacios) entered into an exclusive basis service of Myrna
Ragasa and Azucena Roa, a both licensed brokers. The service is a six-month authority to look for and
negotiate with a person or entity for a joint venture project involving the former’s undeveloped and
developed lands in various places.
Ragasa and Roa met with Woodridge Properties, Inc., then presented different projects available for
investment. Yusingbo, the General Manager of Woodridge, expressed an interest in acquiring and
developing the properties after the inspection with a formal proposal for a joint venture agreement sent
to Ragasa and Roa.
In a meeting, Ignacios, Ragasa, and Roa discussed the proposal sent by Woodridge with the interest of
entering into a joint venture agreement. Ignacio’s expressed that the offer was low. Still, Ragasa and
Roa reassured the Ignacios that they could negotiate for a better price. That was the last meeting of the
Ignacios to Ragasa and Roa as they stopped communicating. Sometime after that, Ragasa and Roa
learned that the Ignacios continued to negotiate with Woodridge, which led to the execution of two
joint venture agreements covering the Krause Park; four joint venture agreements covering the Teresa
Park.
Ragasa and Roa filed a complaint to recover a sum of money, damages, attorney’s fee, and litigation
expenses before the Regional Trial Court (RTC) against the Ignacios failed to pay their commissions
in the said projects. The Regional Trial Court ruled that Ragasa and Roa are entitled to broker’s fees
and damages because the sale was made possible because of their efforts as brokers.
The Court of Appeals (CA) affirmed in toto the RTC’s ruling. CA held that Ragasa and Roa were the
landing cause of the joint venture agreements and sales between the Ignacios and Woodridge. Hence,
the petition.
Issue: Whether Ragasa and Roa, as agents of Ignacio’s, entitled to brokers fees
Ruling:
Yes, the Ignacios, as agents, are entitled to brokers’ fees.
In the case of Medrano v Court of Appeals, the court held that when there is a close, proximate, and
causal connection between the brokers’ efforts and the principal’s sale of his property - or joint
venture agreement, in this case - the broker is entitled to commission.
Here, as aptly ruled by the CA, the proximity in time between the meetings held by the respondents
and Woodridge and the subsequent execution of the joint venture agreements leads to a logical
conclusion that it was the respondents who brokered it. Likewise, it is inconsequential that the
authority of the respondents as brokers had already expired when the joint venture agreements over the
subject properties were executed. The negotiation for these transactions began during the effectivity of
the authority of the respondents, and these were carried out through their efforts. Thus, the respondents
are entitled to a commission.
Topic: Torts and Damages: Kinds of Damages
THELMA B. SIAN REPRESENTED BY ROMUALDO A. SIAN, PETITIONER,
VS.
SPOUSES CAESAR A. SOMOSO AND ANITA B. SOMOSO, THE FORMER BEING
SUBSTITUTED BY HIS SURVIVING SON, ANTHONY VOLTAIRE B. SOMOSO,
MACARIO M. DE GUZMAN, JR., IN HIS CAPACITY AS SHERIFF III OF THE REGIONAL
COURT OF PANABO, DAVAO, BRANCH 4, RESPONDENTS.
G.R. No. 201812, January 22, 2020
CARANDANG, J.│ FIRST DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:

Caesar Somoso filed with the Regional Trial Court (RTC) of Davao a collection suit with prayer for
issuance of writ of preliminary attachment against Spouses Illuminada and Juanita Quiblatin. the RTC
granted the prayer and attached on the properties of the spouses including a parcel of land covered by
Transfer Certificate of Title (TCT) No. T-29793 issued in the name of Iluminada. The attachment was
annotated on July 14, 1981. The RTC also decided in favor of Somoso, orderin the spouses to pay him
the sum of PHP 154,000.00 with 12% interest per annum until fully paid, PHP 5,000.00 as expenses of
litigation, PHP 20,000.00 as attorney’s fees and costs of suit. The decision became final and executory
when the spouses failed to appeal the case.
A third-party claim was filed by Thelma Sian, represented by her husband Romualdo Sian, alleging
that the subject property was sold to her by Iluminada on July 26, 1980 and a deed of sale was
registered to the Register of Deeds of Davao on August 18, 1981 and TCT No. T-347055 was issued
on the same date. Sian prayed that the property not be subject of public auction and that it be
immediately released to her. The RTC dismissed this claim stating that the levy was annotated on the
property ahead of the registration of the deed of sale of Sian. Aggrevied, Sian filed for an action for
annulment of the writ of attachment and notice of levy, injunction, damages and attorney’s fees before
the RTC of Davao del Norte, alleging that she is the registered owner of the subject property and the
levy and attachment of the property has no legal basis.

The RTC dismissed Sian’s complaint for lack or insufficiency of evidence. It ruled that Sian’s rights is
subordinate to that of Somoso. The motion for reconsideration was partially granted by the RTC
declaring Sian as the legal owner of the property. On Sian’s appeal to the Court of Appeals (CA), it
ordered Sian to pay Somoso the amount of P50,000.00 as moral damages, P25,000.00 as exemplary
damages, and P30,000.00 as attorney's fees and litigation cost. The CA denied the reconsideration
filed by Sian, hence this petition.

Issue/s: Whether Sian is liable to pay Somoso moral damages, exemplary damages, and attorney’s
fees.
Rulings:
No, Sian is liable to pay Somoso moral damages, exemplary damages, and attorney’s fees.
The Court finds that the CA erred in awarding damages. Petitioner's complaint for annulment and
cancellation of writ of attachment and notice of levy is not frivolous, contrary to the CA's conclusion.
The CA explained that when petitioner registered the sale, she was aware of the levy on the subject
property, hence, she knew that her action to have the levy cancelled was frivolous.
When the third-party complaint was denied by the RTC, petitioner's remedy was to file an independent
reivindicatory action against the judgment creditor - herein respondents.21 In fact, this was the
directive of the RTC when it denied petitioner's third-party complaint. Hence, when petitioner filed the
complaint for annulment and cancellation of writ of attachment and notice of levy, injunction,
damages and attorney's fees, she did not act in bad faith nor was the complaint frivolous.
When the CA held that petitioner's complaint was frivolous, it was in effect granting the award of
moral damages on the basis of Article 2219(8) of the Civil Code on malicious prosecution.
Traditionally, the te1m malicious prosecution has been associated with unfounded criminal actions.
Jurisprudence has also recognized malicious prosecution to include baseless civil suits intended to vex
and humiliate the defendant despite the absence of a cause of action or probable cause.23 However, it
should be stressed that the filing of an unfounded suit is not a ground for the grant of moral damages.
Otherwise, moral damages must every time be awarded in favor of the prevailing defendant against an
unsuccessful plaintiff. The law never intended to impose a penalty on the right to litigate so that the
filing of an unfounded suit does not automatically entitle the defendant to moral damages.

Besides, as the Court explained above there was no showing that petitioner flied the case in bad faith
or that the action was vexatious and baseless. Accordingly, since respondents are not entitled to moral
damages, neither can they be awarded with exemplary damages, so with attorney's fees and the cost of
litigation.

The rule in our jurisdiction is that exemplary damages are awarded in addition to moral damages
The award of attorney's fees should be deleted as well. The general rule is that attorney's fees cannot
be recovered as part of damages because of the policy that no premium should be placed on the right
to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award
attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still
attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a
party's persistence in a case other than an erroneous conviction of the righteousness of his cause.

Topic: Torts and Damages: Kinds of Damages

PHILIPPINE-JAPAN ACTIVE CARBON CORPORATION, PETITIONER,

v.
HABIB BORGAILY, RESPONDENT.

G.R. No. 197022, January 15, 2020

CARANDANG, J.. │ THIRD DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 42

Facts:

Philippine-Japan Active Carbon Corporation (Petitioner) entered to a contract of lease with Habib
Borgaily (Respondent) for two apartment units amounting to PHP 15,000.00 monthly for each unit.
The lease was for the period of August 1, 2002 to August 1, 2003. Petitioner deposited PHP 90,000.00
as security for the two apartments which, according to the contract, is returnable only upon
termination of thereof.

The lease was not renewed but the Petitioner still occupied the premises until October 31, 2003. After
vacating the premises, the Petitioner asked for the return of the security deposit to which the
Respondent refused contending that the repairs to the units amounting to P79,534.00 should be offset
to the amount of the deposit.

The Municipal Trial Court Cities (MTCC) of Davao City ruled in favor of the return of the security
deposit. The Regional Trial Court reversed the decision and awarded nominal damages to the
respondent. The Petition for Review under Rule 42 filed by the respondent was denied by the Court of
Appeals.

Issue: Whether nominal damages should be awarded to the respondent

Ruling: No, nominal damages should not be awarded to the respondent.

The award of nominal damages has no basis. It has been settled that nominal damages cannot co-exist
with actual damages.31 Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him. Since respondent has already been
indemnified for the damages made on the leased premises, there is no more reason to further grant
nominal damages.

Topic: Torts and Damages: Kinds of Damages

DR. ENRIQUE T. ONA and DR. NORMA M. ONA
v.
NORTHSTAR INTERNATIONAL TRAVEL, INC.
GR No. 209581, January 15, 2020

CARANDANG, J.. │ THIRD DIVISION

Nature of Action: Petition for Review on Certiorari

Facts:
The Spouses Dr. Enrique and Dr. Norma Ona (Spouses Ona) filed a complaint about a breach of
contract and damages against Northstar International Travel, Inc. (Northstar).
The Spouses Ona contacted NorthStar to assist them in their travel preparations as they planned to go
on a Mediterranean cruise before going to Paris. On the flight date, Spouses Ona had a dilemma upon
checking in to their flight because of their Schengen Visas; then, they immediately contacted the
NorthStar, but the latter allegedly unable to assist them any further. That, the Spouses Ona alleged that
they could not enjoy their trip because of their dilemma. Eventually, they cut their vacation short.
They were constrained to unnecessary expenses like hotel, transportation, food, and lodging to extend
their visa.
NorthStar argued that Spouses Ona was at fault in their Schengen Visa application. The Spouses Ona
indicated 15 days for their duration of stay in Europe. Also, NorthStar insisted that they had no
obligation to issue them the Visa because their obligation was only to assist them in their application.
The Regional Trial Court ruled that NorthStar was negligent in not reviewing the visa application
forms. However, the Ona Spouses were partly to blame because they indicated “15 days” as their
duration of stay. The RTC awarded the Ona Spouses £290.00 and P25,000 as actual damages. It
denied their claim for moral damages and attorney’s fees since NorthStar was not in bad faith nor
grossly negligent. Upon appeal of the Ona Spouses, the Court of Appeals (CA) denied the same.
Hence, this appeal.

Issues: Whether the Spouses Ona entitled to moral damages

Ruling:
No, Spouses Ona are not entitled to moral damages.
Under Article 2220 of the Civil Code, moral damages may only be awarded when there is a breach of
contract, and the party acted fraudulently or in bad faith. The breach that warrants recovery of moral
damages must be “wanton, reckless, malicious, or in bad faith, and oppressive or abusive.”
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of a known duty through motive or interest
or ill will that partake of the nature of fraud. It is, therefore, a question of intention, which can be
inferred from one’s conduct and contemporaneous statements.
The Court was not sufficiently convinced that the NorthStar was in bad faith when it represented to
Spouses Ona that their documents were in order, despite the apparent error in the number of days of
stay that the Spouse Ona indicated in their visa application. This can be attendant negligence, but not
bad faith; Spouses Ona does not impute any ill motive on NorthStar’s end. Upon discovering the
problem, NorthStar immediately sought to rectify the situation through its officers.
Topic: Torts and Damages: Kinds of Damages

HEIRS OF CATALINA
v.
ES TRUCKING and FORWARDERS
GR No. 243237, February 17, 2020

CARANDANG, J.. │ THIRD DIVISION

Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:

The heirs of Catalina filed a complaint for damages against ES Trucking and Forwarders, an entity
engaged in Truck’s business for hire under the Common carriers. Clin Timtim is the driver hired by
the Prime mover truck that causes the death of Catalina.
The heirs of Catalina argued that ES Trucking did not exercise due diligence of a good father of a
family in the selection and supervision of its driver because they hired a driver who did not have the
necessary training for driving a trailer truck according to the DOTr Order No. 2011-25 to be qualified.
As an entity under the common carrier, the presumption of negligence may only be defeated in the
observance of the due diligence required by law. Thus, they claim to be entitled to damages.
On the other hand, ES Trucking argued that it could not be held vicariously liable for damages. There
is no sufficient evidence that Timtim was negligent in driving the vehicle. It had successfully proven
its diligence not only in the selection but also in the supervision of its driver.
The Regional Trial Court (RTC) dismissed the complaint. Likewise, the Court of Appeals (CA)
affirmed the ruling of the lower court. That, the heirs were improper in establishing the civil liability
of the ES Trucking that caused the death of Catalina.
Issues: Whether the heirs of Catalina are entitled to damages
Ruling:
Yes, the heirs of Catalina are entitled to damages.
Under the Civil Code, when an injury has been sustained, actual damages may be awarded under the
following condition:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to
as actual or compensatory damages. (Emphasis supplied.)
Thus, only the expenses proven by credible evidence may be awarded. In this case, the funeral and
burial expenses amounting to P362,565.60 were duly supported with official receipts when presented
in the RTC.
Civil or death indemnity is mandatory and granted to the heirs of the victim without need of proof
other than the commission of the crime. Initially fixed by the Civil Code at P3,000.00, the amount of
the indemnity is currently fixed at P50,000.00.62 Thus, ES Trucking is liable to pay the Heirs of
Catalina P50,000.00 for her death.

With regard to the award of moral damages, Article 2206 of the Civil Code expressly grants moral
damages in addition to the award of civil indemnity. We find an award of P100,000.00 as moral
damages sufficient to answer for the mental anguish suffered by the Heirs of Catalina because of her
death.
In addition, We award exemplary damages upon finding that ES Trucking acted with gross negligence
for failing to duly register the prime mover truck with the appropriate government agency, and for
failing to impose a stringent selection procedure in hiring and supervising Timtim. The award of
exemplary damages is justified further by ES Trucking's wanton disregard of the law and evident bad
faith through its highly reprehensible conduct of altering the body number of the prime mover truck to
avoid detection, in violation of its undertaking to preserve the original state of the vehicle while the
case is pending. To ensure that such behavior will not be repeated, ES Trucking is directed to pay
P50,000.00 as exemplary damage to the Heirs of Catalina.
With respect to the award of litigation expenses and attorney's fees, the Civil Code allows attorney's
fees to be awarded if, as in this case, exemplary damages are imposed. Considering the protracted
litigation of this dispute, an award of P50,000.00 as attorney fees is awarded to the Heirs of Catalina.
Topic: Torts and Damages: Kinds of Damages

PASTORA GANANCIAL, PETITIONER

v.
BETTY CABUGAO, RESPONDENT.
GR No. 203348, July 6, 2020
HERNANDO, J. │ SECOND DIVISION
Nature of Action: Petition for Review on Certiorari under Rule 45

Facts:
Pastora Ganancial owed a sum of money in the amount of P130, 000.00 payable in three years to Betty
Cabuago. To guarantee the owed money, Ganancial entrusted the Transfer Certificate of Title (TCT)
and Tax Declaration (TD), a property in Pangasinan under her name.
However, the transaction ended in a lawsuit. Cabugao filed a case for foreclosure of the real estate
mortgage, arguing that despite various demands and a lapse of 3 years from the date of the mortgage,
Ganancial failed to pay the owed money. In contrast, Ganancial filed a complaint for declaration of the
deed of mortgage as null and void. Ganancial assailed the authenticity of the Notarized Deed of
Mortgage upon learning of its existence for the first time during the confrontation in the barangay with
a threat to foreclose the property because of the unpaid debt.
The Regional Trial Court (RTC) ruled in favor of the Cabugaos validity of its Notarized Deed of
Mortgage. It denied Ganancial’s contention against its authenticity and awarded damages without
stating the basis thereof. The Court of Appeals (CA) ruled the same. Hence, the present petition.
Issue: Whether moral and exemplary damages, litigation expenses, and attorney’s fees should be
awarded in this case
Ruling:
No, moral and exemplary damages, litigation expenses, and attorney’s fees should not be awarded in
this case.
Article VIII, Section 14 of the Constitution, which provides that "no decision shall be rendered by any
court without expressing therein clearly and distinctly the facts and law on which it is based." and that
"no petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the basis therefor."
As regards the assessment of exemplary damages, Tankeh v. Development Bank of the Philippines
declared that the wrongful act must be accompanied by bad faith, and the award therefor would be
allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner. Also
known as "punitive," "vindictive," or "corrective" damages, exemplary damages serve as a deterrent to
serious wrongdoings, and as a vindication of undue sufferings and wanton invasion of the rights of an
injured or a punishment for those guilty of outrageous conduct.
Per Benedicto v. Villaflores, attorney's fees represent the reasonable compensation paid to a lawyer by
his/her client for the legal services he/she has rendered to the latter. They may be awarded by the court
as indemnity for damages to be paid by the losing party to the prevailing party in the instances
specified in Article 2208 of the Civil Code.

A robotic allegation that one "suffered anxiety and sleepless nights," or a seemingly haphazard
conversion of these disturbed feelings into some pecuniary equivalent, without more, will not
automatically entitle a party to moral damages. On the other hand, Ganancial's refusal to pay her
indebtedness was grounded on her firm belief that the subject Deed of Mortgage was fake. She was
unwavering in her claim that she had a sound cause against Cabugao, and the honesty in her legal
pursuit is reflected in the consistency of her allegations throughout the proceedings. To the Court,
Ganancial's actuations as testified to by Cabugao cannot be seen as being motivated by a corrupt
purpose, some moral obliquity and conscious doing of a wrong, or a breach of known duty through
some other motive or interest or ill will that partakes of the nature of fraud to merit an award of moral
damages.
As the evidence on record militates against Cabugao's claim for moral damages, a grant of exemplary
damages is necessarily uncalled for. Article 2234 of the Civil Code is already clear in requiring a prior
determination of entitlement to moral, temperate, or compensatory damages before the Court may
consider the question of whether or not exemplary damages should be awarded.
With respect to the RTC's initial award of attorney's fees and reimbursement of litigation costs, an
adverse decision does not ipso facto justify the award thereof to the winning party. "J" Marketing
Corporation v. Sia, Jr. has ruled that "no attorney's fees and litigation expenses can automatically be
recovered even [if a party wins], as it is not the fact of winning alone that entitles recovery of such
items, but rather the attendance of special circumstances — the enumerated exceptions in Article 2208
of the New Civil Code." Needless to state, Cabugao failed to demonstrate that her legal victory against
Ganancial qualified under any of the instances under Article 2208 of the Civil Code.
Substantial justice trumps over procedural rigidities. If a strict application of the rules of procedure
will frustrate rather than serve the broader interests of justice under the prevailing circumstances of the
case, such as where strong considerations of substantive justice are manifest in the petition, the Court
may relax the strict application of the rules of procedure in the exercise of its equity jurisdiction.41 As
declared in Alonso v. Villamor, "technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should
be no vested rights in technicalities." Litigants cannot relish in their legal winnings which they are
clearly undeserving of under the law by scoring undue advantage over the procedural mistakes of the
opponent.

Topic: Torts and Damages: Kinds of Damages

NOEL M. ODRADA, PETITIONERS,
VS.
VIRGILIO LAZARO AND GEORGE ASENIERO RESPONDENT.
G.R. No. 205515, January 20, 2020
J. REYES, JR., J│ FIRST DIVISION
Nature of the Action: Petition for Review on Certiorari
Facts:
Roberto S. Basa (Basa) sold a black Range Rover to Noel M, Odrada (Odrada) for P1.2 million.
Under Certificate of Registration (CR) no. 1188065-4, the vehicle was registered in Basa’s name on
November 21,2003. A complaint was filed against Aseniero for causing damages to the Range Rover.
Aseniero asserts that he is the lawful owner of the Range Rover and reported that the said vehicle was
carnapped. He claims that the motor vehicle was unjustly deprived of his possession and on
November 05, 2003, Basa took possession under false pretense. Thus, eventually led to Obrada buying
the said vehicle from Basa.
The Regional Trial Court (RTC) ruled in respondents' favor. The trial court found that respondents
were able to prove that Aseniero bought the Range Rover from Transmix through Pueo. It highlighted
that Transmix executed a Deed of Confirmation of Sale acknowledging that it had sold the said motor
vehicle to Aseniero. The Court of Appeals affirmed the RTC decision but modified the amount of
moral and exemplary damages awarded. Hence, the petition.
Issue: Whether respondents are entitled to moral and exemplary damages.
Ruling:
No, respondents are entitled to moral and exemplary damages.
The Court disagrees with the courts a quo in finding Odrada liable to pay moral and exemplary
damages.
In order for moral damages to be awarded, the following circumstances must concur: (1) there is an
injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) there is a
culpable act or omission factually established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award of damages is predicated on
any of the cases stated in Article 2219.29
Under Article 2219 of the Civil Code, Moral Damages may be recovered in the following cases:
-1 A criminal offense resulting in physical injuries;
-2 Quasi-delicts causing physical injuries;
-3 Seduction, abduction, rape, or other lascivious acts;
-4 Adultery or concubinage;
-5 Illegal or arbitrary detention or arrest;
-6 Illegal search;
-7 Libel, slander or any other form of defamation;
-8 Malicious prosecution;
-9 Acts mentioned in article 309;
-10 Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of this article, may
also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the action mentioned in No. 9
of this article, in the order named.
On the other hand, exemplary damages are imposed by way of example or correction for the public
good. It is awarded when the defendant has acted with gross negligence in quasi-delict cases, or when
the defendant in contracts or quasi-contracts cases has acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. In any case, the award of exemplary damages presupposes that the
plaintiff is entitled to moral, temperate or compensatory damages. Exemplary damages are to be given
only in addition to moral damages such that complainants must first establish a clear right to moral
damages before they are deemed entitled to exemplary damages.
The mere fact that the courts a quo ultimately dismissed Odrada's complaint and found Aseniero to be
the lawful owner of the Range Rover would not automatically entitle the latter to recover moral
damages from the former. The same would not necessarily amount to a malicious prosecution where
moral damages may be recovered.
In affirming the award of moral damages, the CA anchored its conclusion on the fact that Odrada did
not acquire the Range Rover from Basa in good faith. It explained that subsequent transfer of
ownership of the motor vehicle revolved around business colleagues who shared the same business
address. The CA thus opined that it was very unlikely that Odrada could not gather relevant
information as to the circumstances surrounding the purchase and sale of the vehicle. In addition, the
appellate court explained that the complaint for damages was merely filed with the goal of having
leverage vis-a-vis the criminal complaints Aseniero had filed against Odrada and his colleagues. It
surmised that the complaint was merely an afterthought intended to complicate matters and to harass
respondents.
Neither could Odrada be liable for moral damages on the ground of abuse of rights under Article 19 of
the Civil Code. For there to be abuse of rights, the following must concur: (1) there is a legal right or
duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another.39
In the present case, the requisites for abuse of rights are lacking. To reiterate, Odrada did not act in bad
faith when he filed the complaint for damages against respondents. He reasonably believed that he was
the rightful owner of the Range Rover considering that Basa was able to present a CR from the LTO
showing that he was the registered owner of the motor vehicle. In addition, Odrada was able to secure
a clearance from the PNP certifying that the car he was about to purchase from Basa was not stolen.
As such, he acted within reason when he filed the present complaint for damages thinking he was the
rightful owner of the Range Rover. In addition, there was no evidence to support that Odrada merely
filed the complaint against respondents to prejudice them.