April 2011 Philippine Supreme Court Decisions on Civil LawPosted on May 17, 2011 by Rose Marie M. King-Dominguez

Here are selected April 2011 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Conjugal partnership property; mortgage; consent of spouse. The husband cannot alienate or encumber any conjugal real property without the consent, express or implied, of the wife. Should the husband do so, then the contract is voidable. Article 173 of the Civil Code allows Aguete to question Ros’ encumbrance of the subject property. However, the same article does not guarantee that the courts will declare the annulment of the contract. Annulment will be declared only upon a finding that the wife did not give her consent. In the present case, we follow the conclusion of the appellate court and rule that Aguete gave her consent to Ros’ encumbrance of the subject property.

The application for loan shows that the loan would be used exclusively “for additional working [capital] of buy & sell of garlic & virginia tobacco.” In her testimony, Aguete confirmed that Ros engaged in such business, but claimed to be unaware whether it prospered. Aguete was also aware of loans contracted by Ros, but did not know where he “wasted the money.” Debts contracted by the husband for and in the exercise of the industry or profession by which he contributes to the support of the family cannot be deemed to be his exclusive and private debts. Joe A. Ros and Estrella Aguete v. Philippine National Bank, Laoag Branch, G.R. No. 170166.   April 6, 2011 .

Contract; determinacy of object. That the kasunduan did not specify the technical boundaries of the property did not render the sale a nullity. The requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties.  As portion of the kasunduan shows, there is no doubt that the object of the sale is determinate. Domingo Carabeo v. Spouses Dingco, G.R. No. 190823,   April 4, 2011 .

Loan; remedies of mortgage-creditor; unjust enrichment defeats rule prohibiting multiplicity of suits. In Chieng v. Santos, this Court ruled that a mortgage-creditor may institute against the mortgage-debtor either a personal action for debt or a real action to foreclose the mortgage. The Court ruled that the remedies are alternative and not cumulative and held that the filing of a criminal action for violation of Batas Pambansa Blg. 22 was in effect a collection suit or a suit for the recovery of the mortgage-debt. In that case, however, this Court pro hac vice, ruled that respondents could still be held liable for the balance of the loan, applying the principle that no person may unjustly enrich himself at the expense of another.

The principle of unjust enrichment is provided under Article 22 of the Civil Code which provides:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

There is unjust enrichment “when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.” The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another.

The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration. The principle is applicable in this case considering that Edna admitted obtaining a loan from petitioners, and the same has not been fully paid without just cause. The Deed was declared void erroneously at the instance of Edna, first when she raised it as a defense before the RTC, Branch 33 and second, when she filed an action for declaratory relief before the RTC, Branch 93. Petitioner could not be expected to ask the RTC, Branch 33 for an alternative remedy, as what the Court of Appeals ruled that he should have done, because the RTC, Branch 33 already stated that it had no jurisdiction over any personal action that petitioner might have against Edna.

Considering the circumstances of this case, the principle against unjust enrichment, being a substantive law, should prevail over the procedural rule on multiplicity of suits. The Court of Appeals, in the assailed decision, found that Edna admitted the loan, except that she claimed it only amounted to P340,000. Edna should not be allowed to unjustly enrich herself because of the erroneous decisions of the two trial courts when she questioned the validity of the Deed. Moreover, Edna still has an opportunity to submit her defenses before the RTC, Branch 42 on her claim as to the amount of her indebtedness. Arturo Sarte Flores v. Spouses Enrico L. Lindo, Jr. and Edna C. Lindo, G.R. No. 183984.   April 13, 2011

Moral damages; pre-requisites for an award. In prayers for moral damages, recovery is more an exception rather than the rule.  Moral damages are not meant to be punitive but are designed to compensate and alleviate the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar harm unjustly caused to a person.  To be entitled to such an award, the claimant must satisfactorily prove that he has suffered damages and that the injury causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the Civil Code. Moreover, the damages must be shown to be the proximate result of a wrongful act or omission.  The claimant must thus establish the factual basis of the damages and its causal tie with the acts of the defendant.

In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; 2) a culpable act or omission factually established; 3) proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and 4) the proof that the act is

predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code.

In the present case, respondent failed to establish by clear and convincing evidence that the injuries he sustained were the proximate effect of petitioner’s act or omission. It thus becomes necessary to instead look into the manner by which petitioner carried out his renovations to determine whether this was directly responsible for any distress respondent may have suffered since the law requires that a wrongful or illegal act or omission must have preceded the damages sustained by the claimant.

It bears noting that petitioner was engaged in the lawful exercise of his property rights to introduce renovations to his abode.  While he initially did not have a building permit and may have misrepresented his real intent when he initially sought respondent’s consent, the lack of the permit was inconsequential since it only rendered petitioner liable to administrative sanctions or penalties.

The testimony of petitioner and his witnesses, specifically Architect Punzalan, demonstrates that they had actually taken measures to prevent, or at the very least, minimize the damage to respondent’s property occasioned by the construction work. Architect Punzalan details how upon reaching an agreement with petitioner for the construction of the second floor, he (Punzalan) surveyed petitioner’s property based on the Transfer Certificate of Title (TCT) and Tax Declarations and found that the perimeter wall was within the confines of petitioner’s property; that he, together with petitioner, secured the consent of the neighbors (including respondent) prior to the start of the renovation as reflected in a Neighbor’s Consent dated June 12, 1998; before the construction began, he undertook measures to prevent debris from falling into respondent’s property such as the installation of GI sheet strainers, the construction of scaffoldings on respondent’s property, the instructions to his workers to clean the area before leaving at 5:00 p.m;  and that the workers conducted daily clean-up of respondent’s property with his consent, until animosity developed between the parties.

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. While the Court harbors no doubt that the incidents which gave rise to this dispute have brought anxiety and anguish to respondent, it is unconvinced that the damage inflicted upon respondent’s property was malicious or willful, an element crucial to merit an award of moral damages under Article 2220 of the Civil Code. Rodolfo N. Regala v. Federico P. Carin, G.R. No. 188715,   April 6, 2011 .

Sale; purchaser in good faith.   A purchaser in good faith is one who buys the property of another, without notice that some other person has a right to, or interest in, such property, and pays the full and fair price for it at the time of such purchase or before he has notice of the claim or interest of some other persons in the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. He cannot close his eyes to facts that should put a reasonable man on his guard and still claim he acted in good faith. It is undisputed that respondents were neighbors of petitioners and even co-

owners of land under TCT No. 8582. Respondents have also dealt with the Tamanis in the past, having mortgaged their property together when respondents availed of a loan from the Government Service Insurance System.  Thus, it is inconceivable for respondents not to know that petitioners had been exercising open, continuous and notorious possession over the property. Like Cruz, respondents should have ascertained the land’s identity and character given that houses were standing on the land in dispute and petitioners had been leasing the same to tenants.  Maria Lourdes Tamani, et al. v. Ramon Salvador, et al., G.R. No. 171497.   April 4, 2011

Trust; fiduciary obligation. In seeking to establish a fiduciary obliation on the part of Cojuangco, the Republic invokes the following provisions of the Civil Code:

Article 1455.  When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong.

Article 1456.  If property is acquired through mistake or fraud, the person obtaining its by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

and the Corporation Code, as follows:

Section 31. Liability of directors, trustees or officers.—Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors, or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.

Did Cojuangco breach his “fiduciary duties” as an officer and member of the Board of Directors of the UCPB? Did his acquisition and holding of the contested SMC shares come under a constructive trust in favor of the Republic?   The answers to these queries are in the negative.

The conditions for the application of Articles 1455 and 1456 of the Civil Code (like the trustee using trust funds to purchase, or a person acquiring property through mistake or fraud), and Section 31 of the Corporation Code (like a director or trustee willfully and knowingly voting for or assenting to patently unlawful acts of the corporation, among others) require factual foundations to be first laid out in appropriate judicial proceedings. Concluding that Cojuangco breached fiduciary duties as an officer and member of the Board of Directors of the UCPB without competent evidence thereon would be unwarranted and unreasonable.

For one, the Amended Complaint contained no clear factual allegation on which to predicate the application of Articles 1455 and 1456 of the Civil Code, and Section 31 of the Corporation Code. Although the trust relationship supposedly arose from Cojuangco’s being an officer and member of the Board of Directors of the UCPB, the link between this alleged fact and the borrowings or advances was not established.  Nor was there evidence on the loans or borrowings, their amounts, the approving authority, etc.

The thrust of the Republic that the funds were borrowed or lent might even preclude any consequent trust implication. In a contract of loan, one of the parties (creditor) delivers money or other consumable thing to another (debtor) on the condition that the same amount of the same kind and quality shall be paid. Owing to the consumable nature of the thing loaned, the resulting duty of the borrower in a contract of loan is to pay, not to return, to the creditor or lender the very thing loaned. This explains why the ownership of the thing loaned is transferred to the debtor upon perfection of the contract. Ownership of the thing loaned having transferred, the debtor enjoys all the rights conferred to an owner of property, including the right to use and enjoy (jus utendi), to consume the thing by its use (jus abutendi), and to dispose (jus disponendi), subject to such limitations as may be provided by law.  Evidently, the resulting relationship between a creditor and debtor in a contract of loan cannot be characterized as fiduciary.

To say that a relationship is fiduciary when existing laws do not provide for such requires evidence that confidence is reposed by one party in another who exercises dominion and influence. Absent any special facts and circumstances proving a higher degree of responsibility, any dealings between a lender and borrower are not fiduciary in nature. This explains why, for example, a trust receipt transaction is not classified as a simple loan and is characterized as fiduciary, because the Trust Receipts Law (P.D. No. 115) punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner.

Based on the foregoing, a debtor can appropriate the thing loaned without any responsibility or duty to his creditor to return the very thing that was loaned or to report how the proceeds were used. Nor can he be compelled to return the proceeds and fruits of the loan, for there is nothing under our laws that compel a debtor in a contract of loan to do so. As owner, the debtor can dispose of the thing borrowed and his act will not be considered misappropriation of the thing. The only liability on his part is to pay the loan together with the interest that is either stipulated or provided under existing laws. Republic of the Philippines v. Sandiganbayan, Eduardo M. Cojuangco, et al., G.R. No. 166859, G.R. No. 169203, G.R. No. 180702.   April 12, 2011

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

Civil Code

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

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

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

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

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

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

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

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

Contracts; double sales; possession; actual and physical delivery. A double sale calls for the application of the rules in Article 1544 of the Civil Code, to wit:

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.

Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and constructive delivery. Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee. Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that: When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012.

Contracts; mistake; voidable contract. For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur:

1.       the mistake must be either with regard to the identity or with regard to the qualification of one of the contracting parties; and

2.       the identity or qualification must have been the principal consideration for the celebration of the contract.

The Roman Catholic Church vs. Pante; G.R. No. 174118, April 11, 2012.

Damages; interest in case of breach of contract; interest rate. Interest may be imposed even in the absence of stipulation in the contract because Article 2210 of the Civil Code expressly provides that “[i]nterest may, in the discretion of the court, be allowed upon damages awarded for breach of contract.”

Anent the interest rate, the general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.” Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).” In this case, the parties did not stipulate as to the applicable rate of interest.

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract provides that the seller must return the payment made by the buyer if the conditions are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller has admitted this. Notwithstanding demand by the buyer, the seller has failed to return the money and should be considered in default from the time that demand was made.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be considered as a forbearance of money which required payment of interest at the rate of 12%. Forbearance is a contractual obligation of lender or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. ‘Forbearance of money, goods or credits’  refers to arrangements other than loan agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events or fulfillment of certain conditions. Hermojina Estores vs. Spouses Arturo and Laura Supangan: G.R. No. 175139,   April 18, 2012 .

Damages; liquidated damages. Article 2226 of the Civil Code allows the parties to a contract to stipulate on liquidated damages to be paid in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. As a general rule, contracts constitute the law between the parties, and they are bound by its stipulations. For as long as they are not contrary to law, morals, good customs, public order, or public policy, the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient. Philippine Charter Insurance Corporation vs. Petroleum Distributors & Service Corporation; G.R. No. 180898. April 18, 2012.

Damages; negligence; proximate cause. PNB’s act of releasing the proceeds of the check prior to the lapse of the 15-day clearing period was the proximate cause of the loss. Here, while PNB highlights Ofelia’s fault in accommodating a stranger’s check and depositing it to the bank, it remains mum in its release of the proceeds thereof without exhausting the 15-day clearing period, an act which contravened established banking rules and practice. It is worthy of notice that the 15-day clearing period alluded to is construed as 15 banking days. It bears stressing that “the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected.” PNB miserably failed to do its duty of exercising extraordinary diligence and reasonable business prudence. The disregard of its own banking policy amounts to gross negligence, which the law defines as “negligence characterized by the want of even slight care, acting or omitting to act in a situation where there is duty to act, not inadvertently but wilfully and intentionally with a conscious indifference to consequences in so far as other persons may be affected.” With regard to collection or encashment of checks, suffice it to say that the law imposes on the collecting bank the duty to scrutinize diligently the checks deposited with it for the purpose of determining their genuineness and regularity. “The collecting bank, being primarily engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of conduct.” A bank is expected to be an expert in banking procedures and it has the necessary means to ascertain whether a check, local or foreign, is sufficiently funded. Philippine National Bank vs. Spouses Cheah Chee Chong and Ofelia Camacho Cheah/Spouses Cheah Chee Chong and Ofelia Camacho Chea vs. Philippine National Bank; G.R. Nos. 170865/G.R. No. 170892, April 25, 2012.

Damages; requisites. License to operate a cockpit is a mere privilege, and even if he was able to get a business permit from the mayor, this did not give him a license to operate a cockpit. Without any legal right to operate a cockpit in the municipality, petitioner is not entitled to damages. Injury alone does not give petitioner the right to recover damages; he must also have a right of action for the legal wrong inflicted by the respondents. We need not belabor that “in order that the law will give redress for an act causing damage, there must be damnum et injuria – that act must be not only hurtful, but wrongful.” Danilo A. Du vs. Venancio R. Jayoma, et al.; G.R. No. 175042, April 23, 2012.

Damages; res ipsa loquitur ; elements; liability of employer . Under the doctrine of res ipsa loquitur, “[w]here the thing that caused the injury complained of is shown to be under the management of the defendant or his servants; and the accident, in the ordinary course of things, would not happen if those who had management or control used proper care, it affords reasonable evidence – in the absence of a sufficient, reasonable and logical explanation by defendant – that the accident arose from or was caused by the defendant’s want of care.” Res ipsa loquitur is “merely evidentiary, a mode of proof, or a mere procedural convenience, since it furnishes a substitute for, and relieves a plaintiff of, the burden of producing a specific proof of negligence.” It “recognizes that parties may establish prima facie negligence without direct proof, thus, it allows the principle to substitute for specific proof of negligence. It permits the plaintiff to present along with proof of the accident, enough of the attending circumstances to invoke the doctrine, create an inference or presumption of negligence and thereby place on the defendant the burden of proving that there was no negligence on his part.” The doctrine is based partly on “the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it while the

plaintiff has no such knowledge, and is therefore compelled to allege negligence in general terms.”

The requisites of the doctrine of res ipsa loquitur as established by jurisprudence are as follows:

1) the accident is of a kind which does not ordinarily occur unless someone is negligent;

2) the cause of the injury was under the exclusive control of the person in charge and

3) the injury suffered must not have been due to any voluntary action or contribution on the part of the person injured.

The aforementioned requisites having been met, there now arises a presumption of negligence which he could have overcome by evidence that he exercised due care and diligence in preventing strangers from using his jeep. Unfortunately, he failed to do so.

The operator on record of a vehicle is primarily responsible to third persons for the deaths or injuries consequent to its operation, regardless of whether the employee drove the registered owner’s vehicle in connection with his employment. Absent the circumstance of unauthorized use48 or that the subject vehicle was stolen which are valid defenses available to a registered owner, he cannot escape liability for quasi-delict resulting from his jeep’s use. Oscar Del Carmen, Jr. vs. Geronimo Bacoy, guradian and representing the children, namely, Mary Marjorie B. Monsalud, et al.; G.R. No. 173870, April 25, 2012.

Property; acquisition by prescription; confirmation of incomplete or imperfect titles; requirements. There must be an express declaration by the State that the public dominion property is no longer intended for public service or the development of the national wealth or that the property has been converted into patrimonial. Without such express declaration, the property, even if classified as alienable or disposable, remains property of the public dominion, pursuant to Article 420(2), and thus incapable of acquisition by prescription. It is only when such alienable and disposable lands are expressly declared by the State to be no longer intended for public service or for the development of the national wealth that the period of acquisitive prescription can begin to run. Such declaration shall be in the form of a law duly enacted by Congress or a Presidential Proclamation in cases where the President is duly authorized by law.

For one to invoke the provisions of Section 14(2) and set up acquisitive prescription against the State, it is primordial that the status of the property as patrimonial be first established. Furthermore, the period of possession preceding the classification of the property as patrimonial cannot be considered in determining the completion of the prescriptive period.

Adverse, continuous, open, public possession in the concept of an owner is a conclusion of law and the burden to prove it by clear, positive and convincing evidence is on the applicant. A claim of ownership will not proper on the basis of tax declarations if unaccompanied by proof of actual possession.

The counting of the thirty (30)-year prescriptive period for purposes of acquiring ownership of a public land under Section 14(2) can only start from the issuance of DARCO Conversion Order. Before the property was declared patrimonial by virtue of such conversion order, it cannot be acquired by prescription. Jean Tan, et al. vs. Republic of the Philippines; G.R. No. 193443, April 16, 2012.

Sale; rescission for breach of obligation to deliver; constructive delivery, execution of public instrument. A party is entitled to demand for the rescission of their contract for the failure to deliver the physical possession of the subject property and the certificate of title covering the same notwithstanding the absence of stipulations in the agreement expressly indicating the consequences of such omission, pursuant to Article 1191 of the NCC, which states that “the power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.”

Article 1498 of the NCC generally considers the execution of a public instrument as constructive delivery by the seller to the buyer of the property subject of a contract of sale. The case at bar, however, falls among the exceptions to the foregoing rule since a mere presumptive and not conclusive delivery is created as the respondent failed to take material possession of the subject property.

There is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Such would be the case, for instance, where the vendor has no control over the thing sold at the moment of the sale, and, therefore, its material delivery could not have been made.

As a general rule, the execution of a public instrument amounts to a constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among which is when mere presumptive and not conclusive delivery is created in cases where the buyer fails to take material possession of the subject of sale. A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. Villamar vs. Mangaoil; G.R. No. 188661, April 11, 2012.

Surety; novation. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal.

A surety is released from its obligation when there is a material alteration of the principal contract in connection with which the bond is given, such as a change which imposes a new

obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. In this case, however, no new contract was concluded and perfected as only the revision of the work schedule originally agreed upon was the subject thereof. There was no new contract/agreement which could be considered to have substituted the Building Contract. Philippine Charter Insurance Corporation vs. Petroleum Distributors & Service Corporation; G.R. No. 180898. April 18, 2012.

Will, extrinsic validity. The state of being forgetful does not necessarily make a person mentally unsound so as to render him unfit to execute a Will. Forgetfulness is not equivalent to being of unsound mind. Besides, Article 799 of the New Civil Code states: “To be of sound mind, it is not necessary that the testator be in full possession of all his reasoning faculties, or that his mind be wholly unbroken, unimpaired, or unshattered by disease, injury or other cause”. It shall be sufficient if the testator was able at the time of making the will to know the nature of the estate to be disposed of, the proper objects of his bounty, and the character of the testamentary act. Bare allegations of duress or influence of fear or threats, undue and improper influence and pressure, fraud and trickery cannot be used as basis to deny the probate of a will. Baltazar, et. al. vs. Laxa; G.R. No. 174489, April 11, 2012.

Special Laws

Torrens System; registration; action for reconveyance; acquisitive prescription. Registration of a piece of land under the Torrens System does not create or vest title, because it is not a mode of acquiring ownership. A certificate of title is merely an evidence of ownership or title over the particular property described therein. Thus, notwithstanding the indefeasibility of the Torrens title, the registered owner may still be compelled to reconvey the registered property to its true owners.

In an action for reconveyance, the decree of registration is respected as incontrovertible. What is sought instead is the transfer of the property or its title which has been wrongfully or erroneously registered in another person’s name, to its rightful or legal owner, or to the one with a better right. An action for annulment of title or reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts.

Acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. In order to ripen into ownership, possession must be in the concept of an owner, public, peaceful and uninterrupted. Possession is open when it is patent, visible, apparent, notorious and not clandestine. It is continuous when uninterrupted, unbroken and not intermittent or occasional; exclusive when the adverse possessor can show exclusive dominion over the land and an appropriation of it to his own use and benefit; and notorious when it is so conspicuous that it is generally known and talked of by the public or the people in the neighborhood. The party who asserts ownership by adverse possession must prove the presence of the essential elements of acquisitive prescription.

For civil interruption to take place, the possessor must have received judicial summons. Heirs of Tanyag vs. Gabriel, et. al.; G.R. No. 175763, April 11, 2012.

Free patent; prohibition against alienation. Section 118 of CA 141 requires that before the five year prohibition applies, there should be an alienation or encumbrance of the land acquired under free patent or homestead.

In real property law, alienation is defined as the transfer of the property and possession of lands, tenements, or other things from one person to another. It is the “act by which the title to real estate is voluntarily resigned by one person to another and accepted by the latter, in the forms prescribed by law.” In this case, Comia did not transfer, convey or cede the property; but rather, he relinquished, renounced and “quitclaimed” the property considering that the property already belonged to the spouses. The voluntary renunciation by Comia of that portion was not an act of alienation, but an act of correcting the inclusion of the property in his free patent.

In support of the fact that the alienation transpired prior to the grant of a free patent, it is remarkable that Comia never contested that the spouses had been in actual possession of the subject portion even before his patent application. The private ownership of land – as when there is a prima facie proof of ownership like a duly registered possessory information or a clear showing of open, continuous, exclusive, and notorious possession – is not affected by the issuance of a free patent over the same land. Jose Abelgas, Jr., et al. vs. Servilliano Comia, et al.; G.R. No. 163125,   April 18, 2012 .

Emancipation patents; cancellation; land titles; tax declarations; mere tax declarations not conclusive evidence of ownership or possession. Under DAR Administrative Order No. 02, Series of 1994, emancipation patents may be cancelled by the PARAD or the DARAB for violations of agrarian laws, rules and regulations. The same administrative order further states that “administrative corrections may include non-identification of spouse, correction of civil status, corrections of technical descriptions and other matters related to agrarian reform;” and that the DARAB’s decision “may include cancellation of registered EP/CLOA, reimbursement of lease rental as amortization to ARBs, reallocation of the land to qualified beneficiary, perpetual disqualification to become an ARB, and other ancillary matters related to the cancellation of the EP or CLOA.” However, the DAR’s issuance of an Emancipation Patent and the corresponding OCT covering the contested lot carries with it a presumption of regularity. The Petition to correct/cancel Pablo’s Emancipation Patent can prosper only if petitioners are able to present substantial evidence that a portion of their lot was erroneously covered by the patent. Substantial evidence refers to such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.

Well settled is the rule that tax declarations and receipts are not conclusive evidence of ownership or of the right to possess land when not supported by any other evidence. The fact that the disputed property may have been declared for taxation purposes in the names of the applicants for registration or of their predecessors-in-interest does not necessarily prove ownership. They are merely indicia of a claim of ownership. Sps. Magno v. Heirs of Parulan; G.R. No. 183916, April 25, 2012.

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

Civil Code

Contracts; bad faith, fraud. 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 some motive or interest or ill will that partakes of the nature of fraud. Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not otherwise have been given. These are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so conveniently and casually invoked, and that is why they are never presumed. In this case, the evidence presented is insufficient to prove that respondent acted in bad faith or fraudulently in dealing with petitioner. R.S. Tomas, Inc. v. Rizal Cement Company, Inc.; G.R. No. 173155. March 21, 2012

Contracts; rescission of contract. The rescission referred to in Article 1191 of the Civil Code, more appropriately referred to as resolution, is on the breach of faith by the defendant, which is violative of the reciprocity between the parties. The right to rescind, however, may be waived, expressly or impliedly. While the right to rescind reciprocal obligations is implied, that is, that such right need not be expressly provided in the contract, nevertheless the contracting parties may waive the same.

Hence, in spite of the existence of dispute or controversy between the parties during the course of the Subcontract Agreement, HRCC had agreed to continue the performance of its obligations pursuant to the Subcontract Agreement. In view of the provision of the Subcontract Agreement, HRCC is deemed to have effectively waived its right to effect extrajudicial rescission of its contract with FFCCI. Accordingly, HRCC, in the guise of rescinding the Subcontract Agreement, was not justified in implementing a work stoppage. F.F. Cruz & Co., Inc. vs. HR Construction Corp.; G.R. No. 187521. March 14, 2012

Contracts; void and inexistent sale not subject to ratification. As to the applicability of Article 1317 of the Civil Code, contracts of sale lacking the approval of the Secretary of the Interior/Agriculture and Natural Resources fall under the class of void and inexistent contracts enumerated in Article 1409, which cannot be ratified.  Section 18 of Act No. 1120 mandates the approval by the Secretary for a sale of friar land to be valid.

The official document denominated as “Sale Certificate” clearly required both the signatures of the Director of Lands who issued such sale certificate to an applicant settler/occupant and the Secretary of the Interior/Agriculture and Natural Resources indicating his approval of the sale. These forms had been prepared and issued by the Chief of the Bureau of Public Lands under the supervision of the Secretary of the Interior, consistent with Act No. 1120 “as may be necessary x x x to carry into effect all the provisions [thereof] that are to be administered by or under [his] direction, and for the conduct of all proceedings arising under such provisions.” Serverino M. Manotok IV, et al. vs. Heirs of Homer L. Barque, represented by Teresita Barque Hernandez; G.R. Nos. 162335 & 162605. March 6, 2012

Contracts; waiver of rights under contract. Waiver is defined as “a voluntary and intentional relinquishment or abandonment of a known existing legal right, advantage, benefit, claim or

privilege, which except for such waiver the party would have enjoyed; the voluntary abandonment or surrender, by a capable person, of a right known by him to exist, with the intent that such right shall be surrendered and such person forever deprived of its benefit; or such conduct as warrants an inference of the relinquishment of such right; or the intentional doing of an act inconsistent with claiming it.”

FFCCI’s voluntary payment in favor of HRCC, albeit in amounts substantially different from those claimed by the latter, is a glaring indication that it had effectively waived its right to demand for the joint measurement of the completed works. FFCCI’s failure to demand a joint measurement of HRCC’s completed works reasonably justified the inference that it had already relinquished its right to do so. F.F. Cruz & Co., Inc. vs. HR Construction Corp.; G.R. No. 187521. March 14, 2012

Damages; loss of earning capacity. Damages for loss of earning capacity is in the nature of actual damages, which as a rule must be duly proven by documentary evidence, not merely by the self-serving testimony of the widow. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when (1) the deceased is self-employed earning less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the deceased’s line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws.

It was error for the Court of Appeals to have awarded damages for loss of earning capacity based on Nelfa’s testimony alone. First, while it is conceded that the deceased was self-employed, the Court cannot accept that in his line of work there was no documentary proof available to prove his income from such occupation. There would have been receipts, job orders, or some form of written contract or agreement between the deceased and his clients when he is contracted for a job. Second, and more importantly, decedent was not earning “less than the minimum wage” at the time of his death. Paulita “Edith” Serra vs. Nelfa T. Mumar; G.R. No. 193861. March 14, 2012

Employer; liability for damages. Under Article 2180 of the Civil Code, employers are liable for the damages caused by their employees acting within the scope of their assigned tasks. Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption that the employer failed to exercise the due diligence of a good father of the family in the selection or supervision of its employees. The liability of the employer is direct or immediate. It is not conditioned upon prior recourse against the negligent employee and a prior showing of insolvency of such employee. Moreover, under Article 2184 of the Civil Code, if the causative factor was the driver’s negligence, the owner of the vehicle who was present is likewise held liable if he could have prevented the mishap by the exercise of due diligence.

Petitioner failed to show that she exercised the level of diligence required in supervising her driver in order to prevent the accident. She admitted that de Castro had only been her driver for one year and she had no knowledge of his driving experience or record of previous accidents. She also admitted that it was de Castro who maintained the vehicle and would even remind her “to pay the installment of the car.” Petitioner also admitted that, at the time of the accident, she

did not know what was happening and only knew they bumped into another vehicle when the driver shouted. She then closed her eyes and a moment later felt something heavy fall on the roof of the car. When the vehicle stopped, petitioner left the scene purportedly to ask help from her brother, leaving the other passengers to come to the aid of her injured driver. Paulita “Edith” Serra vs. Nelfa T. Mumar; G.R. No. 193861. March 14, 2012

Interest on the judgment; 12% per annum to be computed from default, which is from judicial or extrajudicial demand. Applying Lunaria v. People, the Court of Appeals modified the appealed judgment holding petitioner liable for the amount of the dishonored check, with 12% interest per annum from the date of judicial demand until the finality of this Decision. We find the need to modify the ruling of the CA with regard to the imposition of interest on the judgment. It has been established that in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, that is, from judicial or extrajudicial demand under and subject to the provisions of Article 1169of the Civil Code. In Ongson v. People, we held that interest began to run from the time of the extrajudicial demand, as duly proved by the creditor. Thus, petitioner should also be held liable for the amount of the dishonored check, which is ₱1,500,000, plus 12% legal interest covering the period from the date of the receipt of the demand letter on 14 May 1999 to the finality of this Decision. The total amount due in the dispositive portion of the CA’s Decision, inclusive of interest, shall further earn 12% interest per annum from the finality of this Decision until fully paid. Eleanor De Leon Llenado vs. People of the Philippines and Editha Villaflores. G.R. No. 193279. March 14, 2012

Nuisance per se vs. nuisance per accidens; only nuisance per se may be summarily abated without judicial intervention. If petitioner indeed found respondents’ fence to have encroached on the sidewalk, his remedy is not to demolish the same summarily after respondents failed to heed his request to remove it.  Instead, he should go to court and prove respondents’ supposed violations in the construction of the concrete fence.  Indeed, unless a thing is a nuisance per se, it may not be abated summarily without judicial intervention.

Respondents’ fence is not a nuisance per se.  By its nature, it is not injurious to the health or comfort of the community.  It was built primarily to secure the property of respondents and prevent intruders from entering it. And as correctly pointed out by respondents, the sidewalk still exists.  If petitioner believes that respondents’ fence indeed encroaches on the sidewalk, it may be so proven in a hearing conducted for that purpose.  Not being a nuisance per se, but at most a nuisance per accidens, its summary abatement without judicial intervention is unwarranted. Jaime S. Perez, both in his personal and official capacity as Chief, Marikina Demolition Office vs. Spouses Fortunito L. Madrona and Yolanda B. Pante; G.R. No. 184478. March 21, 2012

Special Laws

Act No. 1120 See digest of Serverino M. Manotok IV, et al. vs. Heirs of Homer L. Barque, represented by Teresita Barque Hernandez; G.R. Nos. 162335 & 162605. March 6, 2012, under heading of Contracts.

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

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

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

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

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

Civil Code; Moral damages; Exemplary damages; Attorney’s fees.  Article 2219 of the Civil Code of the Philippines provides for recovery of moral damages in certain cases:

Art. 2219. Moral damages may be recovered in the following and analogous 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.

Article 2229 of the Civil Code, on the other hand, provides for recovery of exemplary damages:

 Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

In this case, we agree with the CA in not awarding moral and exemplary damages for lack of factual basis.

Lastly, Article 2208 of the Civil Code provides for recovery of attorney’s fees and expenses of litigation:

Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

Article 111 of the Labor Code provides for a maximum award of attorney’s fees in cases of recovery of wages:

Art. 111. Attorney’s fees.

a.       In cases of unlawful withholding of wages, the culpable party may be assessed attorney’s fees equivalent to ten percent of the amount of wages recovered.

b.      It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery of wages, attorney’s fees which exceed ten percent of the amount of wages recovered.

Since De Gracia, et al. had to secure the services of the lawyer to recover their unpaid salaries and protect their interest, we agree with the CA’s imposition of attorney’s fees in the amount of ten percent (10%) of the total claims. Skippers United Pacific, Inc. and Skippers Maritime Services, Inc. Ltd. vs Nathaniel Doza, et al., G.R. No. 175558. February 8, 2012.

Contract; Simulation. Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative.  In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it.  The main characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious contract is void, and the parties may recover from each other what they may have given under the contract.  However, if the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement.  Hence, where the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding and enforceable between the parties and their successors in interest. The primary consideration in determining the true nature of a contract is the intention of the parties.  If the words of a contract appear to contravene the evident intention of the parties, the latter shall prevail.  Such intention is determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent acts of the parties. Spouses Jose and Milagros Villaceran vs. Josephine De Guzman, G.R. No. 169055. February 22, 2012.  

Contract; Subrogation. Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means that the creditor could employ to enforce payment. Malayan Insurance Co., Inc. vs. Rodelio Alberto and Enrico Alberto  Reyes, G.R. No. 194320. February 1, 2012.

Damages; Torrens system; Laches and prescription. Article 434 of the Civil Code provides that “[i]n an action to recover, the property must be identified, and the plaintiff must rely on the

strength of his title and not on the weakness of the defendant’s claim.”  In other words, in order to recover possession, a person must prove (1) the identity of the land claimed, and (2) his title.

Jurisprudence consistently holds that “prescription and laches can not apply to registered land covered by the Torrens system” because “under the Property Registration Decree, no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession.” Rogelio J. Jakolsalem, et al. vs. Roberto S. Barangan, G.R. No. 175025. February 15, 2012.

Free patent; Fradulently secured. A Free Patent may be issued where the applicant is a natural-born citizen of the Philippines; is not the owner of more than twelve (12) hectares of land; has continuously occupied and cultivated, either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public land subject to disposition, for at least 30 years prior to the effectivity of Republic Act No. 6940; and has paid the real taxes thereon while the same has not been occupied by any person. Once a patent is registered and the corresponding certificate of title is issued, the land covered thereby ceases to be part of public domain and becomes private property, and the Torrens Title issued pursuant to the patent becomes indefeasible upon the expiration of one year from the date of such issuance.

However, a title emanating from a free patent which was secured through fraud does not become indefeasible, precisely because the patent from whence the title sprung is itself void and of no effect whatsoever. Well-settled is the doctrine that the registration of a patent under the Torrens System does not by itself vest title; it merely confirms the registrant’s already existing one. Verily, registration under the Torrens System is not a mode of acquiring ownership.

Nonetheless, a free patent that was fraudulently acquired, and the certificate of title issued pursuant to the same, may only be assailed by the government in an action for reversion pursuant to Section 101 of the Public Land Act. Since it was the Director of Lands who processed and approved the applications of the appellants and who ordered the issuance of the corresponding free patents in their favor in his capacity as administrator of the disposable lands of the public domain, the action for annulment should have been initiated by him, or at least with his prior authority and consent. Nancy T. Lorzano vs. Juan Tabayag, Jr., G.R. No. 189647.   February 6, 2012.

Lease; Failure to maintain lessee in peaceful possession. It is clear that petitioner failed to maintain respondent in the peaceful and adequate enjoyment of the leased premises by unjustifiably preventing the latter access thereto. Consequently, in accordance with Article 1658 of the Civil Code, respondent had no duty to make rent payments. Manila International Airport vs. Avia Filipinas International, Inc., G.R. No. 180168.   February 27, 2012 .

Lease; Increase in rental. Article 1374 of the Civil Code clearly provides that “[t]he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. It is true that Article II, Paragraph 2.04 of the Contract of Lease states that “[a]ny subsequent amendment to Administrative Order No. 4, Series of 1982, which will effect a decrease or escalation of the monthly rental or impose new and additional fees and charges, including but not limited to government/MIAA circulars, rules

and regulation to this effect, shall be deemed incorporated herein and shall automatically amend this Contract insofar as the monthly rental is concerned.” However, the above quoted provision of the lease contract should not be read in isolation. Rather, it should be read together with the provisions of Article VIII, Paragraph 8.13, which provide that “[a]ny amendment, alteration or modification of th[e] Contract shall not be valid and binding, unless and until made in writing and signed by the parties thereto.” It is clear from the foregoing that the intention of the parties is to subject such amendment to the conformity of both petitioner and respondent. Manila International Airport vs. Avia Filipinas International, Inc., G.R. No. 180168.   February 27, 2012

Legal pre-emption; Notice requirement. Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The written notice of sale is mandatory. This Court has long established the rule that notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. Sps. Roman Pascual and Mercedita R. Pascual,et al. vs. Sps. Antonio  Ballesteros and Lorenza Melchor-Balles,   G.R. No. 186269. February 15, 2012.

Marriage; Divorce not allowed in the Philippines; Exception based on   principles of comity; Divorce must be proven as a fact.  The Supreme Court had already ruled that under the principles of comity, our jurisdiction recognizes a valid divorce obtained by a spouse of foreign nationality. This doctrine was established as early as 1985 in Van Dorn v. Romillo, Jr. wherein the SC said: “It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, only Philippine nationals are covered by the policy against absolute divorces, the same being considered contrary to our concept of public policy and morality. However, aliens may obtain divorces abroad, which may be recognized in the Philippines, provided they are valid according to their national law. In this case, the divorce in Nevada released private respondent from the marriage from the standards of American law, under which divorce dissolves the marriage.”

Nonetheless, the fact of divorce must still first be proven as the Supreme Court has enunciated in Garcia v. Recio, to wit: “Before a foreign judgment is given presumptive evidentiary value, the document must first be presented and admitted in evidence. A divorce obtained abroad is proven by the divorce decree itself. Indeed the best evidence of a judgment is the judgment itself. The decree purports to be a written act or record of an act of an official body or tribunal of a foreign country.” Merope Enriquez Vda De Catalan vs Louella A. Catalan-Lee, G.R. No. 183622. February 8, 2012.

Marriage; Presumption of conjugality of property; “Married to” is merely   descriptive of the status of the owner. Pursuant to Article 160 of the Civil Code of the Philippines, all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.  Although it is not necessary to prove that the property was acquired with funds of the partnership, proof of acquisition during the marriage is an essential condition for the operation of the presumption in favor of the conjugal partnership. Not having established the time of acquisition of the property, the Dela Peñas insist that the registration thereof in the name of “Antonia R. Dela Peña, of legal age, Filipino, married to Antegono A. Dela Peña” should have already sufficiently established its conjugal nature. 

Confronted with the same issue in the case Ruiz vs. Court of Appeals, the Supreme Court ruled, however, that the phrase “married to” is merely descriptive of the civil status of the wife and cannot be interpreted to mean that the husband is also a registered owner.  Because it is likewise possible that the property was acquired by the wife while she was still single and registered only after her marriage, neither would registration thereof in said manner constitute proof that the same was acquired during the marriage and, for said reason, to be presumed conjugal in nature.  “Since there is no showing as to when the property in question was acquired, the fact that the title is in the name of the wife alone is determinative of its nature as paraphernal, i.e., belonging exclusively to said spouse.” Antonia R. Dela Peña, et al. vs Gemma Remilyn C. Avila and Far East Bank & Trust Co., G.R. No. 187490., February 8, 2012.

Mortgage; Foreclosure of Mortgage; Necessary consequence of non-payment. Since foreclosure of the mortgage is but the necessary consequence of non-payment of the mortgage debt, FEBTC-BPI was, likewise, acting well within its rights as mortgagee when it foreclosed the real estate mortgage on the property upon Gemma’s failure to pay the loans secured thereby.  Executed on 26 November 1997, the mortgage predated Antonia’s filing of an Affidavit of Adverse Claim with the Register of Deeds of Marikina on 3 March 1998 and the annotation of a Notice of Lis Pendens on TCT No. 337834 on 10 December 1999.  “The mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfilment of the obligation for whose security it was constituted.”  When the principal obligation is not paid when due, the mortgagee consequently has the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to the satisfaction of the unpaid loan. Antonia R. Dela Peña, et al. vs Gemma Remilyn C. Avila and Far East Bank & Trust Co., G.R. No. 187490., February 8, 2012.

Mortgage; Third party mortgagor. Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. The fact that the loans were solely for the benefit of TFRC would not invalidate the mortgage with respect to respondent’s property as long as valid consent was given.  Thus, when respondent executed the real estate mortgage over its properties, such properties thereby secured the performance of the principal obligation notwithstanding the fact that respondent itself had not assumed any liability for the debt of TFRC. China Banking Corporation vs. QBRO Fishing Enterprises, Inc., G.R. No. 184556, February 22, 2012.

Negligence; Contributory negligence. Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard which he is required to conform for his own protection. It is an act or omission amounting to want of ordinary care on the part of the person injured which, concurring with the defendant’s negligence, is the proximate cause of the injury.

Here, we cannot see how the respondents could have contributed to their injury when they were not even aware of the forthcoming danger. It was established during the trial that the jeepney carrying the respondents was following a ten-wheeler truck which was only about three to five meters ahead. When the truck proceeded to traverse the railroad track, Reynaldo, the driver of the jeepney, simply followed through. He did so under the impression that it was safe to proceed. It bears noting that the prevailing circumstances immediately before the collision did not

manifest even the slightest indication of an imminent harm. To begin with, the truck they were trailing was able to safely cross the track. Likewise, there was no crossing bar to prevent them from proceeding or, at least, a stoplight or signage to forewarn them of the approaching peril. Thus, relying on his faculties of sight and hearing, Reynaldo had no reason to anticipate the impending danger. He proceeded to cross the track and, all of a sudden, his jeepney was rammed by the train being operated by the petitioners. Even then, the circumstances before the collision negate the imputation of contributory negligence on the part of the respondents. What clearly appears is that the accident would not have happened had the petitioners installed reliable and adequate safety devices along the crossing to ensure the safety of all those who may utilize the same. Philippine National Railways Corporation, et al. vs. Purificacion Vizcara, et al., G.R. No. 190022.   February 15, 2012

Negligence; Proximate cause. The petitioners’ negligence in maintaining adequate and necessary public safety devices in the area of the accident was the proximate cause of the mishap. Thus, there is no other party to blame but the petitioners for their failure to ensure that adequate warning devices are installed along the railroad crossing. Philippine National Railways Corporation, et al. vs. Purificacion Vizcara, et al., G.R. No. 190022.   February 15, 2012

Obligations; Delay. The civil law concept of delay or default commences from the time the obligor demands, judicially or extrajudicially, the fulfillment of the obligation from the obligee.   In legal parlance, demand is the assertion of a legal or procedural right. Philippine Charter Insurance Corporation vs. Central Colleges of the Philippines and Dynamic Planners and Construction Corporation, G.R. No. 180631-33.   February 22, 2012 .

Obligation, Extinguishment thereof; Dation in payment.  Indeed, pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or performance. There is payment when there is delivery of money or performance of an obligation. Article 1245 of the Civil Code provides for a special mode of payment called dation in payment (dación en pago). There is dation in payment when property is alienated to the creditor in satisfaction of a debt in money. Here, the debtor delivers and transmits to the creditor the former’s ownership over a thing as an accepted equivalent of the payment or performance of an outstanding debt. In such cases, Article 1245 provides that the law on sales shall apply, since the undertaking really partakes – in one sense – of the nature of sale; that is, the creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the debtor’s obligation. Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. Tan Shuy vs Spouses Guillermo Maulawin, et al., G.R. No. 190375. February 8, 2012.

Obligations; Surety. A surety under Article 2047 of the New Civil Code solidarily binds itself with the principal debtor to assure the fulfillment of the obligation. As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor.  That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract.  Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no

direct or personal interest over the obligations nor does it receive any benefit therefrom. The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal.  Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is  directly and equally bound with the principal.

Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee and the obligor, and the accessory surety relationship between the principal and the surety.  In this arrangement, the obligee accepts the surety’s solidary undertaking to pay if the obligor does not pay.  Such acceptance, however, does not change in any material way the obligee’s relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship.  Thus, the acceptance does not give the surety the right to intervene in the principal contract.  The surety’s role arises only upon the obligor’s default, at which time, it can be directly held liable by the obligee for payment as a solidary obligor. Philippine Charter Insurance Corporation vs. Central Colleges of the Philippines and Dynamic Planners and Construction Corporation, G.R. No. 180631-33.   February 22, 2012 .

Possession; Recovery of possession; Implied vs. constructive trust;   Prescription; Acquisitive vs. extinctive prescription; Ordinary vs. extraordinary prescription. In a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.  The relation of trustee and cestui que trust does not in fact exist, and the holding of a constructive trust is for the trustee himself, and therefore, at all times adverse. Prescription may supervene even if the trustee does not repudiate the relationship.

Prescription, as a mode of acquiring ownership and other real rights over immovable property, is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted, and adverse.  Acquisitive prescription of real rights may be ordinary or extraordinary.

The CA correctly dismissed petitioner’s complaint as an action for reconveyance based on an implied or constructive trust prescribes in 10 years from the time the right of action accrues. This is the other kind of prescription under the Civil Code, called extinctive prescription, where rights and actions are lost by the lapse of time.  Petitioner’s action for recovery of possession having been filed 55 years after Macario occupied Dionisia’s share, it is also barred by extinctive prescription.

Ordinary acquisitive prescription requires possession in good faith and with just title for 10 years.  In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for 30 years without need of title or of good faith. Celerino E. Mercado vs Belen Espinocilla and Ferdinand Espinocilla., G.R. No. 184109, February 1, 2012.

Public Document; Effect of notarization; Presumption of regularity. With the material contradictions in the Dela Peña’s evidence, the CA cannot be faulted for upholding the validity

of the impugned 4 November 1997 Deed of Absolute Sale. Having been duly notarized, said deed is a public document which carries the evidentiary weight conferred upon it with respect to its due execution. Regarded as evidence of the facts therein expressed in a clear, unequivocal manner, public documents enjoy a presumption of regularity which may only be rebutted by evidence so clear, strong and convincing as to exclude all controversy as to falsity. The burden of proof to overcome said presumptions lies with the party contesting the notarial document like the Dela Peñas who, unfortunately, failed to discharge said onus.  Absent clear and convincing evidence to contradict the same, we find that the CA correctly pronounced the Deed of Absolute Sale was valid and binding between Antonia and Gemma. Antonia R. Dela Peña, et al. vs Gemma Remilyn C. Avila and Far East Bank & Trust Co., G.R. No. 187490.   February 8, 2012 .

Quasi delict; Negligence. Negligence is the want of care required by the circumstances. It is a conduct that involves an unreasonably great risk of causing damage; or, more fully, a conduct that falls below the standard established by law for the protection of others against unreasonably great risk of harm. Not all omissions can be considered as negligent.

The test of negligence is as follows – Could a prudent man, in the case under consideration, foresee harm as a result of the course actually pursued? If so, it was the duty of the actor to take precautions to guard against that harm. Reasonable foresight of harm, followed by ignoring of the suggestion born of this prevision, is always necessary before negligence can be held to exist. Philam Insurance Company, Inc., et al. vs. Court of Appeals and D.M.  Consunji, Inc., G.R. No. 165413.   February 22, 2012 .

Real Estate Mortgage; Extrajudicial foreclosure sale; Recovery of unpaid   balance or deficiency; Inadequacy of sale price.  Citing BPI Family Savings Bank, Inc. v. Avenido, the Supreme Court reiterated the well-entrenched rule that a creditor is not precluded from recovering any unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property subject of the real estate mortgage results in a deficiency, to wit: “It is settled that if “the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is entitled to claim the deficiency from the debtor. While Act No. 3135, as amended, does not discuss the mortgagee’s right to recover the deficiency, neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would expressly so provide. Absent such a provision in Act No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose the real estate mortgage.”

The Supreme Court ruled in Suico Rattan & Buri Interiors, Inc. v. Court of Appeals that, in deference to the rule that a mortgage is simply a security and cannot be considered payment of an outstanding obligation, the creditor is not barred from recovering the deficiency even if it bought the mortgaged property at the extrajudicial foreclosure sale at a lower price than its market value notwithstanding the fact that said value is more than or equal to the total amount of the debtor’s obligation. Thus, “it is wrong for petitioners to conclude that when respondent bank supposedly bought the foreclosed properties at a very low price, the latter effectively prevented the former from satisfying their whole obligation.  Petitioners still had the option of either

redeeming the properties and, thereafter, selling the same for a price which corresponds to what they claim as the properties’ actual market value or by simply selling their right to redeem for a price which is equivalent to the difference between the supposed market value of the said properties and the price obtained during the foreclosure sale. In either case, petitioners will be able to recoup the loss they claim to have suffered by reason of the inadequate price obtained at the auction sale and, thus, enable them to settle their obligation with respondent bank. Moreover, petitioners are not justified in concluding that they should be considered as having paid their obligations in full since respondent bank was the one who acquired the mortgaged properties and that the price it paid was very inadequate. The fact that it is respondent bank, as the mortgagee, which eventually acquired the mortgaged properties and that the bid price was low is not a valid reason for petitioners to refuse to pay the remaining balance of their obligation. Settled is the rule that a mortgage is simply a security and not a satisfaction of indebtedness.” Bank of the Philippine Islands, as successor-in-Interest of Far Far East Bank & Trust Company vs  Cythia L. Reyes, G.R. No. 182769. February 1, 2012.

Res ipsa loquitur; Simple negligence; Elements of negligence; Damages. The doctrine of res ipsa loquitur as a rule of evidence is unusual to the law of negligence which recognizes that prima facie negligence may be established without direct proof and furnishes a substitute for specific proof of negligence.  The doctrine, however, is not a rule of substantive law, but merely a mode of proof or a mere procedural convenience.  The rule, when applicable to the facts and circumstances of a given case, is not meant to and does not dispense with the requirement of proof of culpable negligence on the party charged.  It merely determines and regulates what shall be prima facie evidence thereof and helps the plaintiff in proving a breach of the duty.   The doctrine can be invoked when and only when, under the circumstances involved, direct evidence is absent and not readily available. The requisites for the application of the doctrine of res ipsa loquitur are: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency which caused the injury was under the exclusive control of the person in charge; and (3) the injury suffered must not have been due to any voluntary action or contribution of the person injured.

Negligence is defined as the failure to observe for the protection of the interests of another person that degree of care, precaution, and vigilance, which the circumstances justly demand, whereby such other person suffers injury. The elements of simple negligence are: (1) that there is lack of precaution on the part of the offender, and (2) that the damage impending to be caused is not immediate or the danger is not clearly manifest

Moral damages are not punitive in nature, but are designed to compensate and alleviate in some way the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury unjustly inflicted on a person. Intended for the restoration of the psychological or emotional status quo ante, the award of moral damages is designed to compensate emotional injury suffered, not to impose a penalty on the wrongdoer. Dr. Emmanuel Jarcia, Jr. and Dr. Marilou Bastan vs. People of the Philippines, G.R. No. 187926. February 15, 2012.

Succession; Hereditary estate transmitted to heirs immediately after   death of decedent. Under the rules of succession, the heirs instantaneously became co-owners of the Marcos properties upon

the death of the President. The property rights and obligations to the extent of the value of the inheritance of a person are transmitted to another through the decedent’s death. In this concept, nothing prevents the heirs from exercising their right to transfer or dispose of the properties that constitute their legitimes, even absent their declaration or absent the partition or the distribution of the estate. In Jakosalem v. Rafols, the Supreme Court said: “Article 440 of the Civil Code provides that “the possession of hereditary property is deemed to be transmitted to the heir without interruption from the instant of the death of the decedent, in case the inheritance be accepted.” And Manresa with reason states that upon the death of a person, each of his heirs “becomes the undivided owner of the whole estate left with respect to the part or portion which might be adjudicated to him, a community of ownership being thus formed among the coowners of the estate while it remains undivided.” (3 Manresa, 357; Alcala vs. Alcala, 35 Phil. 679.) And according to article 399 of the Civil Code, every part owner may assign or mortgage his part in the common property, and the effect of such assignment or mortgage shall be limited to the portion which may be allotted him in the partition upon the dissolution of the community.” Republic of the Philippines vs Ma. Imelda “Imee” R. Marcos-Manotoc, et al., G.R. No. 171701. February 8, 2012.

Temperate damages.   Under Article 2224 of the Civil Code, temperate or moderate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered, but the amount cannot, from the nature of the case, be proved with certainty.  The CA found that respondent paid for the doctor’s professional fees and incurred other hospital expenses; however, the records failed to show that he presented proof of the actual amount of expenses therein, which served as the basis for the CA to award temperate damages in the amount of P100,000.00. Wuerth Philippines, Inc. vs. Rodante Ynson, G.R. No. 175932, February 15, 2012.

Torrens Title; Doctrine of indefeasibility; Conclusiveness of title;   Burden of proof; Direct attack vs. collateral attack. Prohibition against collateral attack does not apply to spurious or non-existent titles, since such titles do not enjoy indefeasibility.  “Well-settled is the rule that the indefeasibility of a title does not attach to titles secured by fraud and misrepresentation.  In view of these circumstances, it was as if no title was ever issued in this case to the petitioner and therefore this is hardly the occasion to talk of collateral attack against a title.”

“An action or proceeding is deemed an attack on a title when the object of the action is to nullify the title, and thus challenge the judgment pursuant to which the title was decreed.  The attack is direct when the object of the action is to annul or set aside such judgment, or to enjoin its enforcement.  On the other hand, it is indirect or collateral when, in an action or proceeding to obtain a different relief, an attack on the judgment is nevertheless made as an incident thereof.” Heirs of Leoncio C. Oliveros, represented by Aurora B. Oliveros, et al. vs San Miguel Corporation, et al.,  G.R. No. 173531. February 1, 2012.

Void government contract; Payment for services; Quantum meruit. It has been settled in several cases that payment for services done on account of the government, but based on a void contract, cannot be avoided. The government is unjustified in denying what it owes to contractors and in leaving them uncompensated after it has benefitted from the already completed work. Jurisprudence recognizes the principle of quantum meruit. Our courts are courts of both law and

equity. Given these, this Court will remain true to the rule of substantial justice and direct the payment of compensation to the contractors, who have completed their services for the government’s Mt. Pinatubo Rehabilitation Project. Otherwise, urgent actions for emergency work in the future would be discouraged. Department of Public Works and Highways vs. Ronaldo E. Quiwa, doing business under the name “R.E.Q. Construction”, et al., G.R. No. 183444. February 8, 2012.

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

CIVIL CODE

Agency; principal-agent relationship.  The relationship of agency is one where one party called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. He who acts through another acts himself.

As provided under Article 1869 of the Civil Code, agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority.

The guidelines that would aid in differentiating sale and an agency has been formulated by the Court since 1970. The primordial differentiating consideration between the two (2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principal’s behalf and under his instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may do with the property as he pleases. Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288. January 16, 2012.

Compromise agreement; contracts; novation.In order for novation to extinguish an obligation, it must be shown that there is incompatibility between the compromise agreement and the terms of the counter-bond, as required by Article 1292 of the Civil Code. Nothing in the compromise agreement indicates, or even hints at, releasing Acropolis from its obligation as a surety to pay United Pulp and Paper Co. Inc. after the latter has obtained a favorable judgment. Clearly, there is no incompatibility between the compromise agreement and the counter-bond. Neither can novation be presumed. Novation by presumption has never been favored. To be sustained, it need be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import. United Pulp

and Paper Co., Inc. vs. Acropolis Central Guaranty Corporation; G.R. No. 171750. January 25, 2012.

Compromise agreement; rescission. An amicable settlement reached at the barangay conciliation proceedings is binding between the contracting parties and, upon its perfection, is immediately executory insofar as it is not contrary to law, good morals, good customs, public order and public policy. Being a by-product of mutual concessions and good faith of the parties, an amicable settlement has the force and effect of res judicata even if not judicially approved. It is akin to a judgment subject to execution in accordance with the Rules. However, the enforcement by execution of the amicable settlement by the Barangay Lupon within six months from the date of settlement, or by filing an action to enforce such settlement in the appropriate city or municipal court, if beyond the six-month period, is only applicable if the contracting parties have not repudiated such settlement within ten days from the date thereof in accordance with Section 416 of the Local Government Code. If the amicable settlement is repudiated by one party, either expressly or impliedly, the other party has two options: (1) to enforce the compromise in accordance with the Local Government Code or Rules of Court as the case may be, or (2) to consider it rescinded and insist upon his original demand. This is in accord with Article 2041 of the Civil Code, which qualifies the broad application of Article 2037.

Article 2041 does not require an action for rescission, and the aggrieved party, by the breach of the compromise agreement, may just consider it already rescinded. A party’s noncompliance with the amicable settlement pave the way for the application of Article 2041 under which the other party may either enforce the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or consider it as rescinded and insist upon his original demand. The respondent’s non-compliance with the terms and conditions of the Kasunduang Pag-aayos, may be construed as repudiation because it denotes that the respondent did not intend to be bound by the terms thereof, thereby negating the very purpose for which it was executed. Thus, the petitioner has the option either to enforce the Kasunduang Pag-aayos, or to regard it as rescinded and insist upon his original demand, in accordance with Article 2041 of the Civil Code.  Having instituted an action for collection of sum of money, the petitioner obviously chose to rescind the Kasunduang Pag-aayos. It was error on the part of the Court of Appeals to rule that the enforcement by execution of said agreement is the appropriate remedy under the circumstances. Crisanta Alcaraz Miguel vs. Jerry D. Montanez, G.R. No. 191336. January 25, 2012.

Contracts; annulment. There is fraud when one party is induced by the other to enter into a contract, through and solely because of the latter’s insidious words or machinations. But not all forms of fraud can vitiate consent. Under Article 1330 of the Civil Code, this fraud refers to dolo causante or causal fraud, in which, prior to or simultaneous with the execution of a contract, one party secures the consent of the other by using deception, without which such consent would not have been given. The fraud must be the determining cause of the contract, or must have caused the consent to be given.

One who alleges fraud or mistake in a transaction must substantiate his allegation since the presumption is that a person takes ordinary care for his concerns and private dealings have been entered into fairly and regularly. Thus, one who alleges defect or lack of valid consent to a

contract by reason of fraud or undue influence must establish by full, clear and convincing evidence such specific acts that vitiated a party’s consent; otherwise the presumed consent to the contract prevails. In this case, the Tan spouses failed to prove how fraud was employed to induce them to buy the FRCCI shares. There was no showing that insidious words or machinations were used by the petitioners, without which, the spouses would not have bought the shares.

The right to rescind a contract arises once the other party defaults in the performance of his obligation. However, rescission will not be permitted for a slight or casual breach, but only for substantial and fundamental breach as would defeat the very object of the parties in making the agreement. Like fraud, the burden of establishing the default lies upon the party who alleges that default was committed. There was no evidence presented that petitioners defaulted on any of their obligations. Therefore, although the Complaint in this case sufficiently alleged a cause of action for the annulment or rescission of the contract of sale of FRCCI shares, however, there was failure on the part of the Tan spouses to establish by preponderance of evidence that they are entitled to the said annulment or rescission. Fontana Resort and Country Club, Inc. and RN Development Corporation vs. Spouses Roy S. Tan and Susan C. Tan; G.R. No. 154670. January 30, 2012.

Contracts; fraud.   Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the contract, including their fruits and interest.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. Causal fraud  has been defined as “a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other. Fraud must be serious and its existence must be established by clear and convincing evidence, mere preponderance of evidence is not adequate. Quoting Tolentino, the Court ruled that  the misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim. Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288. January 16, 2012.

Contracts; novation. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to take place, the concurrence of the following requisites is indispensable:

1. There must be a previous valid obligation,

2. There must be an agreement of the parties concerned to a new contract,

3. There must be the extinguishment of the old contract, and

4. There must be the validity of the new contract.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

Distinction must be made between the perfection of the employment contract and the commencement of the employer-employee relationship. The perfection of the contract, which in this case coincided with the date of execution thereof, occurred when petitioner and respondent agreed on the object and the cause, as well as the rest of the terms and conditions therein. The commencement of the employer-employee relationship, would have taken place had petitioner been actually deployed from the point of hire. Thus, even before the start of any employer-employee relationship, contemporaneous with the perfection of the employment contract was the birth of certain rights and obligations, the breach of which may give rise to a cause of action against the erring party. Thus, if the reverse had happened, that is the seafarer failed or refused to be deployed as agreed upon, he would be liable for damages. Stolt-Nielsen Transportation Group, Inc., et al. vs. Sulpecio ModequilloG.R. No. 177498. January 18, 2012.

Contracts; novation; extinguishment of criminal liability. The principle of novation cannot apply as to extinguish criminal liability in this case. The mere payment of an obligation before the institution of a criminal complaint does not, on its own, constitute novation that may prevent criminal liability. The Court citing the case of People v. Nery ruled that novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished and that the role of novation may only be either to prevent the rise of criminal liability or to cast doubt on the true nature of the original petition, whether or not it was such that its breach would not give rise to penal responsibility as when money loaned is made to appear as a deposit, or other similar disguise is resorted to. It further ratiocinated, citing the case of Quinto v. People, that the gravamen of the offense of estafa is the appropriation or conversion of money or property received to the prejudice of the owner and neither the theory of delay in the fulfilment of commission nor that of novation can avoid the incipient criminal liability. The criminal liability for estafa already committed is then not affected by the subsequent novation of contract, for it is a public offense which must be prosecuted and punished by the State in its own conation.

In this case, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have novated the original transaction, as the checks were only intended to secure the return of the P2 Million the former had already given to him these checks even bounced and were thus unable to satisfy his liability. The estafa involved here was not for simple misappropriation or conversion, but committed through Falsification of public documents, the liability for which

cannot be extinguished by mere novation. Cresencio C. Milla vs. People of the Philippines et al.; G.R. No. 188726. January 25, 2012.

Contracts; perfection For a contract to be perfected, three elements are needed to create a perfected contract: 1) the consent of the contracting parties; (2) an object certain which is the subject matter of the contract; and (3) the cause of the obligation which is established. Under the law on sales, a contract of sale is perfected when the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, over which the latter agrees.

From that moment, the parties may demand reciprocal performance. Starbright Sales Eterprises, Inc. vs. Philippine Realty Corporation, Msgr. Domingo A. Cirilos, et al., G.R. No. 177936. January 18, 2012.

Contracts; ratification. Article 1392 of the Civil Code states that ratification extinguishes the action to annul a voidable contract. Ratification of a voidable contract,  under Article 1393,  may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288. January 16, 2012.

Contracts; rescission. Annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, there was implied admission of the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.

The right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement. Whether a breach is substantial is largely determined by the attendant circumstances.

Under Article 1192, in case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall

bear his own damages.  Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288. January 16, 2012.

Dealership contract; liability. The petitioner as importer and the dealer executed an exclusive dealership agreement for mutual benefit and gain. On one hand, petitioner benefits from the sale of its products, as well as the advertisement it gains when it broadens its geographical coverage in contracting with independent dealers in different areas. The products sold and the services rendered by the dealer also contribute to its goodwill. Thus, despite the transfer of ownership upon the sale and delivery of its products, petitioner still imposes the obligation on the dealer to exclusively carry its products. The dealer, on the other hand, also benefits from the dealership agreement, not only from the resale of the products of petitioner, but also from the latter’s goodwill.

However, with the use of its trade name and trademark, petitioner and the dealer inform and guarantee to the public that the products and services are of a particular standard or quality. The public, which is not privy to the dealership contract, assumes that the gasoline station is owned or operated by petitioner. Thus, respondents, who suffered damages from the act or omission that occurred in the gasoline station and that caused the fire, may file an action against petitioner based on the representations it made to the public. As far as the public is concerned, it is enough that the establishment carries exclusively the name and products of petitioner to assume that the latter is liable for acts done within the premises.

The expiration or nonexistence of a dealership contract did not ipso facto transform the relationship of the dealer and petitioner into one of agency. As far as the parties to the dealership contract were concerned, the rights and obligations as to them still subsisted, since they continued to mutually benefit from the agreement. Thus, neither party can claim that it is no longer bound by the terms of the contract and the expiration thereof. Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al., G.R. No. 151038. January 18, 2012.

 Interest; judgments. The Eastern Shipping case provides that in the absence of a written stipulation, the applicable interest rate to be imposed in judgments involving a forbearance of credit shall be 12% per annum in accordance with Central Bank (CB) Circular No. 416. On the other hand, if the judgment refers to payment of indemnities in the concept of damages arising from a breach or a delay in the performance of obligations in general, the applicable interest rate shall be 6% per annum, in accordance with Article 2206 of the Civil Code. Both interest rates apply from the time of judicial or extrajudicial demand until the finality of the judgment. However, from the time the judgment of the court awarding a sum of money becomes final until it is satisfied, the award it granted shall be considered a forbearance of credit, whether or not the judgment award actually pertained to one. Accordingly, during this interim period, the interest rate of 12% per annum for forbearance of money shall apply.

An award of a sum of money shall be considered as a forbearance of credit once it becomes final, whether or not the award actually pertained to one. Hence, from its finality until its satisfaction, the judgment award of moral and exemplary damages, as well as attorney’s fees, shall be subject to the interest rate of 12% per annum. Bibiano Reynoso IV vs. Penta Capital Finance CorporationG.R. No. 162100 & G.R. No. 162395. January 18, 2012.

Interest; lawful interest. Citing Eastern Shipping Lines v. Court of Appeals, enunciated in PCI Leasing & Finance Inc. v. Trojan Metal Industries, Inc., the Court laid down the rules for the imposition of legal interest as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages.

II.      With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1.  When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2.  When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).  The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3.  When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al., G.R. No. 151038. January 18, 2012.

Obligations; Solidary obligation. According to Article 1217 of the Civil Code, payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. The debtor who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due however, no interest for the intervening period may be demanded.

Article 1208 provides for the share of solidary debtors which states thatif from the law, or the nature of the wording of the obligations to which the preceding article refers the contrary does not appear, the credit of debt shall be presumed to be divided into as many equal shares as there

are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. Petron Corporation vs. Sps. Cesar Jovero and Erma F. Cudilla, et al., G.R. No. 151038. January 18, 2012.

Quasi-Delict; Damages. With regard to actual damages, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. In addition, as indemnity for the death of the deceased as a result of a quasi-delict, actual damages shall likewise include the loss of the earning capacity of the deceased.

Moral damages, are not intended to enrich plaintiff at the expense of the defendant. They are awarded to enable the injured party to obtain means, diversions, or amusements that will serve to alleviate the moral suffering he/she had undergone due to the other party’s culpable action and must, perforce, be proportional to the suffering inflicted.

In quasi-delicts, exemplary damages may be granted if the defendant acted with gross negligence. It is given by way of example or correction for the public good.Before the court may consider such award, the plaintiff must show his entitlement first to moral, temperate, or compensatory damages, which the respondents have.

Because exemplary damages are awarded and the found it equitable that expenses of litigation should be recovered, attorney’s fees were also awarded by the Court.Crix Metro Leasing and Finance Corporation (Formerly Consolidated Orix Leasing and Finance) vs. Minors Dennis, Mylene, Melanie and Marikris,  Mangalinao y Dizon, et al..G.R. Nos. 174089. January 25, 2012.

Quasi-Delict; liability of principal for acts of agent. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agent’s employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them.

A prior determination of the nature of the passenger’s cause of action is necessary. If the passenger’s cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline company’s agent, there must be an independent showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline company’s agent has committed a tort is not sufficient to hold the airline company liable. There is no vinculum juris between the airline company and its agent’s employees and the contractual relationship between the airline company and its agent does not operate to create a juridical tie between the airline company and its agent’s employees.

Article 2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its agent’s employees and the principal-agency relationship per se does not make the principal a party to such tort; hence, the need to prove the principal’s own fault or negligence.

On the other hand, if the passenger’s cause of action for damages against the airline company is based on contractual breach or culpa contractual, it is not necessary that there be evidence of the

airline company’s fault or negligence. In an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the carrier.”

A person’s vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort.

The Court cited the case of Cangco v. Manila Railroad Co. stated that with respect to extra-contractual obligation arising from negligence, whether of act or omission the legislature has limited such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in one’s own acts, or in having failed to exercise due care in the selection and control of one’s agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct. Sps. Fernando and Lourdes Viloria vs. Continental Airlines, Inc.,G.R. No. 188288. January 16, 2012.

Quasi-Delict; Vicarious Liability. The registered owner cannot point fingers at the alleged real owner to exculpate itself from vicarious liability under Article 2180of the Civil Code. Regardless of whoever is claimed to be the actual owner of a vehicle by reason of a contract of sale, the registered owner is nevertheless primarily liable for the damages or injury the truck registered under it have caused. It has been explained that if a registered owner is allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or identify the person actually causing the injury or damage. He has no means other than by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership.

The registered owners, in turn, have a right to be indemnified by the real or actual owner of the amount that they may be required to pay as damage for the injury caused to the plaintiff. They can file a third-party complaint against the actual or real owner of the vehicle.  Crix Metro Leasing and Finance Corporation (Formerly Consolidated Orix Leasing and Finance) vs. Minors Dennis, Mylene, Melanie and Marikris,  Mangalinao y Dizon, et al..G.R. Nos. 174089. January 25, 2012.

Surety; Liability to Insurance Company. Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued under Act 536, as amended. Suretyship arises upon the solidary binding of a person (surety) with the principal debtor, for the purpose of fulfilling an obligation. Such undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract.  Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.  And notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.

The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself.  It cannot be extended by implication, beyond the terms of the contract. Thus, to determine whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine the terms of the contract itself.

A surety contract should be read and interpreted together with the contract entered into between the creditor and the principal.  Since a surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures.Necessarily, the stipulations in such principal agreement must at least be communicated or made known to the surety.

Moreover, being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. The contract of suretyship imports entire good faith and confidence between the parties in regard to the whole transaction, although it has been said that the creditor does not stand as a fiduciary in his relation to the surety. The creditor is generally held bound to a faithful observance of the rights of the surety and to the performance of every duty necessary for the protection of those rights. Moreover, obligations arising from contracts have the force of law between the parties and should be complied with in good faith. First Lepanto-Taisho Insurance Corporation (now known as FLT Prime Insurance Corporation) vs. Chevron Philippines, inc. (formerly known as Caltex Philippines, Inc.), G.R. No. 177839. January 18, 2012.

Special Laws

P.D. No. 1529; Registration; When entry is deemed registered. The entry of instruments in the Primary Entry Book is equivalent to registration despite the failure to annotate said instruments in the corresponding certificates of title. However, for the entry of instruments in the Primary Entry Book to be considered to be equivalent to registration and to have the effect of registration, certain requirements have to be met. There is still a need to comply with all that is required for entry and registration, including the payment of prescribed fees. In this case, since there was still no compliance of all that is required for purposes of entry and annotation of the Deed of Sale as of June 25, 2004, the registration of the Notice of Levy on Attachment on June 17, 2004 should take precedence over the former. Considering that the Notice of Levy of Attachment was deemed registered earlier than the Deed of Sale, the TCT issued pursuant to the latter should contain the

annotation of the Attachment.Durawood Construction and Lumber Supply, Inc. vs. Candice S. Bona.G.R. No. 179884. January 25, 2011