CIVIL LAW REVIEW CASES

1. PHILIPPINE TRUST COMPANY vs. FLORO ROXAS AND EUFEMIA ROXAS

G.R. No. 171897

PRINCIPLE: LEGAL COMPENSATION, ARTICLE 1279 NCC

FACTS

The Spouses Roxas procured loans from Philippine Trust Company (PTC) to finance their
real estate business, which were secured by real estate mortgages on the Spouses Roxas' real
properties. Subsequently, the Spouses Roxas, PTC, and Roben Construction entered into "a
contract of building construction," under which PTC granted an additional loan to the Spouses
Roxas. Such contract was superseded by a new "contract of building construction" wherein
Rosendo P. Dominguez, Jr. (Dominguez) substituted Roben Construction as the contractor under
the same terms and conditions of the previous contract. Spouses Roxas did not finish the housing
project due to financial difficulties resulting in non-payment of the loans.

As a result, Dominguez sued PTC and Spouses Roxas for breach of contract. On the other
hand, Spouses Roxas in turn filed a complaint against Dominguez and the insurance company.

In the first case, Spouses Roxas filed an answer with a cross claim against PTC. PTC also
filed an answer with a counter claim against Spouses Roxas for unpaid loan obligation and, in
default of such payments, the foreclosure of the real estate mortgages. The RTC ruled in favor of
Dominguez and denied PTC’s counterclaim for insufficiency of evidence without prejudice to the
filing of a complaint against Spouses Roxas. Both PTC and Spouses Roxas appealed to the CA
but the same is still pending (CA G.R. CV No. 30340).

PTC in the meantime filed a petition for extrajudicial foreclosure against Spouses Roxas in
Bataan RTC. The latter in turn filed an opposition and a complaint for damages with Preliminary
Injunction which was granted by the court. The CA affirmed the RTC’s decision. The decision
became final and executory, prompting the Spouses Roxas to file a motion for execution to
enforce the judgment against PTC. PTC filed an opposition where it raised for the first time the
defense of legal compensation to offset the judgment debt due to the Spouses Roxas. The same
was denied by the RTC. PTC filed two motions for reconsideration but both were denied again.
PTC filed a Petition for Certiorari with the CA which was dismissed. Hence,this Petition for Review
on Certiorari.

ISSUE:
Whether or not the defense of legal compensation can be raised for the first after the decision
became final and executory.

RULING:

The Bataan RTC and the Court of Appeals also correctly ruled that PTC should have raised
the argument on legal compensation at the trial stage. The 1964 Rules of Court, which was then in
effect at the time the Main Case was filed by the Spouses Roxas in 1980, provides that:

RULE 9. Effect of Pleadings

Sec. 2. Defenses and objections not pleaded deemed waived.— Defenses and

objections not pleaded either in a motion to dismiss or in the answer are deemed
waived;  except the failure to state a cause of action which may be alleged in a later
pleading, if one is permitted, or by motion for judgment on the pleadings, or at the trial on
the merits; but in the last instance, the motion shall be disposed of as provided in section 5
 of Rule 10 in the light of any evidence which may have been received. Whenever it appears
that the court has no jurisdiction over the subject-matter, it shall dismiss the action.

Although legal compensation takes place by operation of law, it must be alleged and proved
as a defense by the debtor who claims its benefits. Only after it is proved will its effects retroact to
the moment when all the requisites under Article 1279 of the Civil Code have concurred. 32

PTC's contention that it could not have raised legal compensation as a defense because it
was not yet a debtor of the Spouses Roxas when it filed its answer is unconvincing. Under Rule 8,
Section 2 of the 1964 Rules of Court, "[a] party may set forth two or more statements of a claim or
defense alternatively or hypothetically, either in one cause of action or defense or in separate
causes of action or defenses.” Thus, the defense of compensation would have been proper and
allowed under the rules even if PTC disclaimed any liability at the time it filed its answer.
In Marquez v. Valencia, we held that when a defendant failed to set up such alternative defenses
and chosen or elected to rely on one only, the overruling thereof was a complete determination of
the controversy between the parties, which bars a subsequent action based upon an unpleaded
defense. Unmistakably, the rationale behind this is the proscription against the splitting of causes
of action.

In any case, even if PTC were excused from pleading compensation as a defense in its answer,
we note that PTC still failed to raise this defense in its motion for reconsideration of the Bataan
RTC decision and in its subsequent appeal. Hence, there can be no other conclusion than that
PTC is already estopped from raising the issue of legal compensation.

It is fairly clear to us that the reason why PTC did not raise legal compensation as a defense in the
Main Case is because it was banking on a favorable ruling on its counterclaim in the other case,
Civil Case No. 130873. It was presumably an informed choice arrived at by PTC and its counsel,
with full knowledge of the consequences of its failure to plead this specific claim/defense in the
Main Case. Unfortunately for PTC, its counterclaim in the other case was disallowed. Having
adopted the wrong legal strategy, PTC cannot now expediently change its theory of the case or its
defense at the execution stage of the Main Case. Following the doctrine of election of
remedies, PTC's choice of setting up the Spouses Roxas' unpaid loan obligation as a counterclaim
in Civil Case No. 130873, which has gone to judgment on the merits but is pending appeal,
precludes it from raising compensation of the same loan obligation for the purpose of opposing the
writ of execution in the Main Case. Equitable in nature, the doctrine of election of remedies is
designed to mitigate possible unfairness to both parties. It rests on the moral premise that it is fair
to hold people responsible for their choices. The purpose of the doctrine is not to prevent any
recourse to any remedy, but to prevent a double redress for a single wrong.

Even if we assume that legal compensation was not waived and was otherwise timely
raised, we find that not all requisites of legal compensation are present in this case. Under Article
1279, in order for legal compensation to take place, the following requisites must concur:

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

Here, the fourth requisite is absent. A debt is liquidated when its existence and amount are
determined. Compensation can only take place between certain and liquidated debts; it cannot
extend to unliquidated, disputed claims. Since the loan obligation, including its amount and
demandability, is still being disputed in CA-G.R. CV No. 30340, PTC's credit cannot be considered
liquidated as of yet. Consequently, no legal compensation could have taken place between PTC's
loan credit and the Spouses Roxas' judgment credit.

2. GLORIA S. DY v. PEOPLE OF THE PHILIPPINES, MANDY COMMODITIES CO., INC.,

REPRESENTED BY ITS PRESIDENT, WILLIAM MANDY.
G.R. No. 189081
August 10, 2016
PRINCIPLE: Our law states that every person criminally liable for a felony is also civilly liable. This
civil liability ex delicto may be recovered through a civil action which, under our Rules of Court, is
deemed instituted with the criminal action. While they are actions mandatorily fused, [1] they are, in
truth, separate actions whose existences are not dependent on each other. Thus, civil liability ex
delicto survives an acquittal in a criminal case for failure to prove guilt beyond reasonable doubt.
However, the Rules of Court limits this mandatory fusion to a civil action for the recovery of civil
liability ex delicto. It, by no means, includes a civil liability arising from a different source of
obligation, as in the case of a contract. Where the civil liability is ex contractu, the court hearing
the criminal case has no authority to award damages.
FACTS:
Petitioner was the former General Manager of MCCL. In the course of her employment,
petitioner assisted MCCI in its business involving several properties. One such business pertained
to the construction of warehouses over a property (Numancia Property) that MCCI leased from the
Philippine National Bank (PNB). Sometime in May 1996, in pursuit of MCCI's business, petitioner
proposed to William Mandy (Mandy), President of MCCI, the purchase of a property owned by
Pantranco. As the transaction involved a large amount of money, Mandy agreed to obtain a loan
from the International China Bank of Commerce (ICBC). Petitioner represented that she could
facilitate the approval of the loan. True enough, ICBC granted a loan to MCCI in the amount of
P20,000,000.00, evidenced by a promissory note. As security, MCCI also executed a chattel
mortgage over the warehouses in the Numancia Property. Mandy entrusted petitioner with the
obligation to manage the payment of the loan.
ISSUE:
The central issue is the propriety of making a finding of civil liability in a criminal case
for estafa when the accused is acquitted for failure of the prosecution to prove all the elements of
the crime charged.

HELD:
The Civil Code states that when an accused in a criminal prosecution is acquitted on the
ground that his guilt has not been proven beyond reasonable doubt, a civil action for damages for
the same act or omission may be filed. In the latter case, only preponderance of evidence is
required.  This is supported by the Rules of Court which provides that the extinction of the criminal
action does not result in the extinction of the corresponding civil action.  The latter may only be
extinguished when there is a "finding in a final judgment in the criminal action that the act or
omission from which the civil liability may arise did not exist."  Consistent with this, the Rules of
Court requires that in judgments of acquittal the court must state whether "the evidence of the
prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his guilt
beyond reasonable doubt. In either case, the judgment shall determine if the act or omission from
which the civil liability might arise did not exist.
3. UNION BANK OF PHILIPPINES v. DEVELOPMENT BANK OF PHILIPPINES
GR No. 191555
January 20, 2014

PRINCIPLE: LEGAL COMPENSATION, ARTICLE 1279, NCC

FACTS:

Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank's predecessor-
in-interest, Bancom Development Corporation (Bancom), and to DBP.

On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of Property
In Payment of Debt (dacion en pago) whereby the former ceded in favor of the latter certain
properties (including a processing plant in Marilao, Bulacan [processing plant]) in consideration of
the following: (a) the full and complete satisfaction of FI's loan obligations to DBP; and (b) the
direct assumption by DBP of FI's obligations to Bancom in the amount of P17,000,000.00.

DBP also entered into a separate agreement with Bancom (Assumption Agreement)
whereby the former: (a) confirmed its assumption of FI's obligations to Bancom; and (b) undertook
to remit up to 30% of any and all rentals, due from FI to Bancom which would serve as payment
of the assumed obligations, to be paid in monthly installments.

Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement
to Foodmasters Worldwide, Inc. (FW); while on May 9, 1984, Bancom conveyed all its receivables,
including, among others, DBP's assumed obligations, to Union Bank. Claiming that the subject
rentals have not been duly remitted despite its repeated demands, Union Bank filed, on June 20,
1984, a collection case against DBP before the RTC, docketed as Civil Case No. 7648. In
opposition, DBP countered, among others, that the obligations it assumed were payable only out
of the rental payments made by FI. Thus, since FI had yet to pay the same, DBP's obligation to
Union Bank had not arisen. In addition, DBP sought to implead FW as third party-defendant in its...
capacity as FI's assignee and, thus, should be held liable to Union Bank.

In a Consolidated Order dated October 15, 2001 (Order of Execution), the RTC granted
both motions for execution. Anent Union Bank's motion, the RTC opined that the CA's ruling that
DBP's payment to Union Bank shall be demandable only upon payment of FW... must be viewed
in light of the date when the same was rendered. It noted that the CA decision was promulgated
only on May 27, 1994, which was before the December 29, 1998 due date within which DBP had
to fully pay its obligation to Union Bank under the Assumption Agreement. Since the latter period
had already lapsed, "[i]t would, thus, be too strained to argue that payment by DBP of its assumed
obligation[s] shall be dependent on [FW's] ability, if not availability, to pay." In similar regard, the
RTC granted DBP's motion... for execution against FW since its liability to Union Bank and DBP
remained undisputed.

As a result, a writ of execution dated October 15, 2001 (October 15, 2001 Writ of
Execution) and, thereafter, a notice of garnishment against DBP were issued. Records, however,
do not show that the same writ was implemented against FW. The Court: (a) nullified the October
15, 2001 Writ of Execution and all related issuances thereto; and (b) ordered Union Bank to return
to DBP the amounts it received pursuant to the said writ.

On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal
Compensation, praying that the RTC apply legal compensation between itself and DBP in order to
offset the return of the funds it previously received from DBP. Union Bank, anchored its motion on
two grounds which were allegedly not in existence prior to or during trial, namely: (a) on December
29, 1998, DBP's assumed obligations became due and demandable; and (b) considering that FWI
became non-operational and non-existent, DBP became primarily liable to the balance of its
assumed obligation, which as of Union Bank's computation after its claimed set-off, amounted to
P1,849,391.87.

ISSUE:

The sole issue for the Court's resolution is whether or not the CA correctly upheld the denial of
Union Bank's motion to affirm legal compensation.

RULING:

The petition is bereft of merit.

Compensation is defined as a mode of extinguishing obligations whereby two persons in

their capacity as principals are mutual debtors and creditors of each other with respect to equally
liquidated and demandable obligations to which no retention or controversy has been timely
commenced and communicated by third parties. The requisites therefor are provided under Article
1279 of the Civil Code which reads as follows:

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.

The rule on legal compensation is stated in Article 1290 of the Civil Code which provides that
"[w]hen 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."

In this case, Union Bank filed a motion to seek affirmation that legal compensation had
taken place in order to effectively offset (a) its own obligation to return the funds it previously
received from DBP as directed under the September 6, 2005 Writ of Execution; (b) DBP's
assumed obligations under the Assumption Agreement. However, legal compensation could not
have taken place between these debts for the apparent reason that requisites 3 and 4 under
Article 1279 of the Civil Code are not present.

Since DBP's assumed obligations to Union Bank for remittance of the lease payments are
in the Court's words in its Decision dated January 13, 2004 in G.R. No. 155838 "contingent on the
prior payment thereof by [FW] to DBP," it cannot be said that both debts are due (requisite 3 of
Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any deficiency
that DBP had to make up (by December 29, 1998 as per the Assumption Agreement) for the full
satisfaction of the assumed obligations "cannot be determined until... after the satisfaction of
Foodmasters' obligation to DBP." In this regard, it cannot be concluded that the same debt had
already been liquidated, and thereby became demandable (requisite 4 of Article 1279 of the Civil
Code).

Since, as already stated, the monthly installments for the payment of the P17 million debt
are to be funded from the lease rentals, it follows that if the lease rentals are not paid, there is
nothing for DBP to remit to [Union Bank], and thus [DBP] should not be considered... in default.
 A careful reading of the decision shows that the Court of Appeals, which was affirmed by
the Supreme Court, found that only the balance or the deficiency of the P17 million principal
obligation, if any, would be due and demandable as of December 29, 1998. Naturally, this
deficiency cannot be determined until after the satisfaction of Foodmasters' obligation to DBP, for
remittance to Union Bank in the proportion set out in the 1994 Decision.

In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this
case, no legal compensation could have taken place between the above-stated debts pursuant to
Article 1290 of the Civil Code. Perforce, the petition must be denied, and the denial of

Union Bank's motion to affirm legal compensation sustained.

4.GOLDEN VALLEY EXPLORATION, INC. vs.

PINKIAN MINING COMPANY and COPPER
VALLEY, INC.
G.R. No. 190080, June 11, 2014

Facts: Pikian Mining Company (PMI) is the owner of 81 mining, 15 of which are covered by
Mining Lease Contracts, the remaining 66 had pending applicationsfor lease. It entered into an
Operating Agreement (OA) with Golden Valley Exploration, Inc. (GVEI), granting the latter "full,
exclusive and irrevocable possession, use, occupancy, and control over the [mining claims], and
every matter pertaining to the examination, exploration, development and mining of the [mining
claims] and the processing and marketing of the products for a period of 25 years. Later, PMC
extra-judicially rescinded the OA upon GVEI’s violation of Section 5.01, Article V thereof. GVEI
contested PMC’s extra-judicial rescission of the OA averring therein that its obligation to pay
royalties to PMC arises only when the mining claims are placed in commercial production which
condition has not yet taken place. PMC no longer responded to GVEI’s letter. It also reminded
PMC of its prior payment of the amount of P185,000.00 as future royalties in exchange for
PMC’s express waiver of any breach or default on the part of GVEI. Instead, it entered into a
Memorandum of Agreement with Copper Valley Inc., (CVI), whereby the latter was granted the
right to "enter, possess, occupy and control the mining claims" and "to explore and develop the
mining claims, mine or extract the ores, mill, process and beneficiate and/or dispose the mineral
products in any method or process," among others, for a period of 25 years.

Issue: Whether or not there was a valid rescission of the Operating Agreement.

Held: The rescission is valid. As a general rule, the power to rescind an obligation must be
invoked judicially and cannot be exercised solely on a party’s own judgment that the other has
committed a breach of the obligation. This is so because 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. As a well-established
exception, however, an injured party need not resort to court action in order to rescind a contract
when the contract itself provides that it may be revoked or cancelled upon violations of its terms
and conditions. With that in mind, the Court held that PMC’s unilateral recission of the OA due to
GVEI’s non-payment of royalties considering the parties’ express stipulations in the OA that said
agreement may be cancelles on such ground.
 5.GRAND ASIAN SHIPPING LINES, INC., EDUARDO P. FRANCISCO and
WILLIAM HOW, vs WILFREDO GALVEZ et al.
G.R. No. 178184, January 29, 2014

Facts: Petitioner Grand Asian Shipping Lines, Inc (GASLI) is a domestic corporation engaged in
transporting liquified petroleum gas (LPG) from Petron’s refinery in Bataan to Pasig and Cavite.
Respondents are crew members of one of GASLI’s vessels, M/T Dorothy Uno. On January
2000, Richard Abis (vessel’s oiler) reported to GASLI an alleged illegal activity being committed
by respondents who would misdeclare the consumed fuel in the Engineer’s Voyage Reports and
the saved fuel oil were sold to other vessel out at sea (at nighttime) and that the proceeds from
the pilferage would be divided amongst themselves. After investigation, it was found out that the
fuel consumption was over rate by 6,954.3 liters amounting to 74,737.86. Acting upon the
alleged pilferage, GASLI placed respondents under preventive suspension and after conducting
administrative hearings decided to terminate them for breach of trust.
Consequently, a formal complaint for qualified theft was filed against them. Respondents filed
with the NLRC separate complaint for illegal suspension and dismissal,
underpayment/nonpayment of salaries/wages, overtime pay, premiumpay for holiday and rest
day, service incentive pay, tax refunds and indemnities for damages and attorney’s fees against
petitioner. On August 30, 2001, the Labor Arbiter rendered decision finding the dismissal of 21
complainants to be illegal.

Issue: Whether or not the Labor Arbiter erred in directing Eduardo P. Franscisco and William
How to pay, jointly and severally with GASLI the money claims of the dismissed employees.

Held: Yes. The Court exculpates petitioners Eduardo Francisco and William How from being
jointly and severally liable with GASLI for the illegal dismissal and payment of money claims of
herein respondents. In order to hold them liable, it must first be shown by competent proof that
they have acted with malice and bad faith in directing the corporate affairs. For want of such
proof, Francisco and How should not be held liable for the corporate obligations of GASLI.

6.EUSEBIO GONZALES vs. PHILIPPINE COMMERCIAL AND INTERNATIONAL BANK,

EDNA OCAMPO, and ROBERTO NOCEDA
G.R. No. 180257, February 23, 2011

Facts: Gonzales was a client of PCIB. He was granted a credit line by the bank through a Credit-
On-Hand- Loan Agreement (COHLA). He drew from the credit line through a check and said
credit line was secured by a collateral in the form of his accounts with PCIB which was a foreign
currency deposit worth USD 8000.

He obtained together with his wife P500K and another P1M and P300K with spouses Panlilio.
The loans amounting to 1.8M were covered by 3 promissory notes and were secured by a real
estage mortgage on a land co-owned by Gonzales and spouses Panlilio. The promissory notes
states the solidary liability of Gonzales and spouses Panlilio. However, it was the spouses
Panlilio who received the proceeds of 1.8M. The monthly interest dues were paid by the
spouses Panlilio through auto debit from their PCIB account. However, they defaulted in the
payment because their PCIB account had insufficient deposits.

Gonzales issued a check to Rene Unson worth 250K drawn against his credit line but said check
was subsequently dishonored due to termination of Gonzales’ credit line because of the unpaid
period interest dues from the loans. PCIB also froze the foreign currency deposit account of
Gonzales.

Issue: Whether or not Gonzales is liable for the three promissory notes covering PHP1.8M loan
he made with spouses Panlilio?

Held: Yes. Gonzales was an accommodation party of the loan. An accommodation party is one
who meets all the three requisites according to Sec 29 of NIL to wit:

1.he must be a party to the instrument, signing as a maker, drawer, acceptor, or indorser

2.he must not receive value therefor

3.he must sign for the purpose of lending his name or credit to some other person.
An accommodation party lends his name to enable the accommodated party to obtain credit or
raise money. He receives no part but assumed liability. The relation between an accommodation
party is one of principal and surety, the AP being the surety. As such, he is deemed an original
promisor and debtor from the beginning. He is considered in law as the same party as the debtor
in relation to whatever is adjudged to as the obligation of the latter since their liabilities are
interwoven.

Lastly, the solidary nature of the loan was expressly stated in the promissory notes
which state: “…the undersigned JOINTLY AND SEVERALLY promise to pay xx”.

7. ENRIQUE SAGUN VS ANZ GLOBAL SERVICES AND OPERATIONS (MANILA), INC.,

GAY CRUZADA AND PAULA ALCARAZ
GR. NO. 22039, AUGUST 22, 2016

Facts: Petitioner was employed at Hongkong and Shanghai Banking Corporation Electronic
Data Processing (Philippines), Inc. (HSBC-EDPI) when he applied online for the position of
Payments and Cash Processing Lead at respondent ANZ Global Services and Operations
(Manila), Inc. (ANZ), After passing the interview and online examination, ANZ, offered petitioner
the position of Customer Service Officer, Payments and Cash Resolution, which the latter
accepted. In the letter of confirmation of the offer which constituted petitioner's employment
agreement with ANZ, the terms and conditions of his employment required, among others a
satisfactory result of his pre-employment screening. The pertinent portions of which read as xxx
initial and ongoing employment is conditional on ANZ being satisfied that the results of: xxx
other required background or other checks are to the satisfaction of ANZ. xxx If, in the opinion of
ANZ, any of your background checks, reference checks, or visas are not satisfactory, ANZ may
choose not to commence your employment, or to end immediately with no liability to pay
compensation.

Accordingly, petitioner tendered his resignation at HSBC-EDPI and the acknowledge copy
thereof was transmitted to ANZ together with his other pre-employment documentary
requirements. Later on, petitioner was instructed to report to ANZ and was handed a letter of
retraction signed by ANZ's Human Resources Business Partner, Paula Alcaraz (Alcaraz),
informing him that the job offer had been withdrawn on the ground that the company found
material inconsistencies in his declared information and documents provided after conducting a
background check with his previous employer, particularly at Siemens.

Asserting that his employment contract had already been perfected upon his acceptance of the
offer and as such, was already deemed an employee of ANZ who can only be dismissed for
cause, petitioner filed a complaint for illegal dismissal with money claims against ANZ, Cruzada,
and Alcaraz (respondents) before the NLRC. Respondents contended that their offer was
conditional and the effectivity of petitioner's employment contract was subject to a term or
period. They claimed that petitioner made material misrepresentations in his job application and
interview that prompted them to withdraw the offer.

Issue: Whether or not there was a perfected contract of employment.

Held: Yes. An employment contract, like any other contract, is perfected at the moment the
parties come to agree upon its terms and conditions and thereafter concur in the essential
elements to wit: a) consent of the contracting parties, b) object certain which is the subject
matter of the contract and c) cause of the obligation which is established. In this relation, 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. In this case, the Court agrees with the
finding of the CA that there was already a perfected contract of employment when petitioner
signed ANZ's employment offer and agreed to the terms and conditions that were embodied
therein.

However, the offer of employment extended to petitioner contained several conditions before he
may be deemed an employee of ANZ. Among those conditions for employment was the
satisfactory completion of any checks xxx Accordingly, petitioner's employment with ANZ
depended on the outcome of his background check, which partakes of the nature of a
suspensive condition, and hence, renders the obligation of the would-be employer- ANZ in this
case, conditional. Article 1181 of the Civil Code provides:

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening ofthe event which constitutes
the condition.

In the realm of civil law, a condition is defined as "every future and uncertain event upon which
an obligation or provision is made to depend. It is a future and uncertain event upon which the
acquisition or resolution of rights is made to depend by those who execute the juridical act."

Jurisprudence states that when a contract is subject to a suspensive condition, its effectivity
shall take place only if and when the event which constitutes the condition happens or is fulfilled.
A contract is one of the Five (5) sources of obligations as stated in the Civil Code. An obligation
is defined as the juridical necessity to give, to do or not to do. While a contract may be perfected
in the manner of operation described above, the efficacy of the obligations created thereby may
be held in suspense pending the fulfillment of particular conditions agreed upon. In other words,
a perfected contract may exist, although the obligations arising therefrom - if premised upon a
suspensive condition - would yet to be put into effect.

Here, the subject employment contract required a satisfactory completion of petitioner's

background check before he may be deemed an employee of ANZ. Considering, however, that
petitioner failed to explain the discrepancies in his declared information and documents
rendered his background check unsatisfactory.

To reiterate, in a contract with a suspensive condition, if the condition does not happen, the
obligation does not come into effect.

8.
G.R. No. 190755               November 24, 2010
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
ALFREDO ONG, Respondent.
Facts:
Spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the
amount of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks,
and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-term and
would mature on February 28, 1997, while the balance of PhP 10 million would be payable in
seven (7) years. Unable to pay the rest of the installment, they sold three (3) of their mortgaged
parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed of
Sale with Assumption of Mortgage.
Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the
sale and assumption of mortgage. They informed him that he should pay part of the principal
which was computed at PhP 750,000 and to update due or accrued interests on the promissory
notes so that Atty. Hingco could easily approve the assumption of mortgage. Alfredo paid the said
amount, Alfredo later found out that his application for assumption of mortgage was not approved
by Land Bank. The property was later on foreclosed. Alfredo initiated an action for recovery of
sum of money with damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment
was not returned by Land Bank. Alfredo maintained that Land Bank’s foreclosure without informing
him of the denial of his assumption of the mortgage was done in bad faith.

Issue:
Whether or not petitioners are entitled for the return of the P750,000.00 from Landbank.

Ruling:

Yes.
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should
have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
The court agreed with Land Bank on this point as to the first part of paragraph 1 of Art.
1236. Land Bank was not bound to accept Alfredo’s payment, since as far as the former was
concerned, he did not have an interest in the payment of the loan of the Spouses Sy. However, in
the context of the second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of
the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the
records that Land Bank required Alfredo to make payment before his assumption of mortgage
would be approved. He was informed that the certificate of title would be transferred accordingly.
He, thus, made payment not as a debtor but as a prospective mortgagor. The circumstances of
the instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the
payment for his own interest and not on behalf of the Spouses Sy, recourse is not against the
latter. Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust
enrichment. while Land Bank is not bound to accept the substitution of debtors in the subject real
estate mortgage, it is estopped by its action of accepting Alfredo’s payment from arguing that it
does not have to recognize Alfredo as the new debtor.

9.
G.R. No. 182894               April 22, 2014
FE FLORO VALINO, Petitioner,
vs.
ROSARIO D. ADRIANO, FLORANTE D. ADRIANO, RUBEN D. ADRIANO, MARIA TERESA
ADRIANO ONGOCO, VICTORIA ADRIANO BAYONA, and LEAH ANTONETTE D.
ADRIANO, Respondents.

Facts:
Atty. Adriano was married respondent Rosario Adriano (Rosario) on November 15, 1955.
The couple had 6 children. Their marriage turned sour and they were eventually separated in fact.
Atty. Adriano courted Valino until they decided to live together as husband and wife. Despite such
arrangement, he continued to provide financial support to Rosario and their children
(respondents). Atty. Adriano died of acute emphysema. At that time, Rosario was in the United
States spending Christmas with her children. Valino took it upon herself to shoulder the funeral
and burial expenses for Atty. Adriano. When Rosario learned about the death of her husband, she
immediately called Valino and requested that she delay the interment for a few days but her
request was not heeded. The remains of Atty. Adriano were then interred at the mausoleum of the
family of Valino at the Manila Memorial Park. Respondents were not able to attend the interment.
Claiming that they were deprived of the chance to view the remains of Atty. Adriano before
he was buried and that his burial at the Manila Memorial Park was contrary to his wishes,
respondents commenced suit against Valino praying that they be indemnified for actual, moral and
exemplary damages and attorney’s fees and that the remains of Atty. Adriano be exhumed and
transferred to the family plot at the Holy Cross Memorial Cemetery in Novaliches, Quezon City.

Issue:
Who is entitled to the remains of Atty. Adriano?
Ruling:

Rosario is entitled.
Article 305 of the Civil Code, in relation to what is now Article 199 of the Family Code,
specifies the persons who have the right and duty to make funeral arrangements for the deceased.
Thus:
Art. 305. The duty and the right to make arrangements for the funeral of a relative shall be in
accordance with the order established for support, under Article 294. In case of descendants of
the same degree, or of brothers and sisters, the oldest shall be preferred. In case of ascendants,
the paternal shall have a better right. [Emphases supplied]
Art. 199. Whenever two or more persons are obliged to give support, the liability shall
devolve upon the following persons in the order herein provided:
(1) The spouse;
(2) The descendants in the nearest degree;
(3) The ascendants in the nearest degree; and
(4) The brothers and sisters. (294a)
Further, Article 308 of the Civil Code provides:
Art. 308. No human remains shall be retained, interred, disposed of or exhumed without the
consent of the persons mentioned in Articles 294 and 305. 
From the aforecited provisions, it is undeniable that the law simply confines the right and duty
to make funeral arrangements to the members of the family to the exclusion of one’s common law
partner. As applied to this case, it is clear that the law gives the right and duty to make funeral
arrangements to Rosario, she being the surviving legal wife of Atty. Adriano. The fact that she was
living separately from her husband and was in the United States when he died has no controlling
significance.

10.
G.R. No. 169144               January 26, 2011
IN RE: IN THE MATTER OF THE PETITION TO APPROVE THE WILL OF RUPERTA
PALAGANAS WITH PRAYER FOR THE APPOINTMENT OF SPECIAL ADMINISTRATOR,
MANUEL MIGUEL PALAGANAS and BENJAMIN GREGORIO PALAGANAS, Petitioners,
vs.
ERNESTO PALAGANAS, Respondent.

Facts:

Ruperta C. Palaganas (Ruperta), a Filipino who became a naturalized United States (U.S.)
citizen, died single and childless. In the last will and testament she executed in California, she
designated her brother, Sergio C. Palaganas (Sergio), as the executor of her will for she had left
properties in the Philippines and in the U.S. Ernesto C. Palaganas (Ernesto), another brother of
Ruperta, filed with the Regional Trial Court (RTC) of Malolos, Bulacan, a petition for the probate of
Ruperta’s will and for his appointment as special administrator of her estate. petitioners Manuel
Miguel Palaganas (Manuel) and Benjamin Gregorio Palaganas (Benjamin), nephews of Ruperta,
opposed the petition on the ground that Ruperta’s will should not be probated in the Philippines
but in the U.S. where she executed it.

Issue:
Whether or not the last will and testament executed abroad by a naturalized US citizen be
admitted for probate in the Philippines.

Ruling:
Our laws do not prohibit the probate of wills executed by foreigners abroad although the
same have not as yet been probated and allowed in the countries of their execution. A foreign will
can be given legal effects in our jurisdiction. Article 816 of the Civil Code states that the will of an
alien who is abroad produces effect in the Philippines if made in accordance with the formalities
prescribed by the law of the place where he resides, or according to the formalities observed in his
country.
In this connection, Section 1, Rule 73 of the 1997 Rules of Civil Procedure provides that if the
decedent is an inhabitant of a foreign country, the RTC of the province where he has an estate
may take cognizance of the settlement of such estate. Sections 1 and 2 of Rule 76 further state
that the executor, devisee, or legatee named in the will, or any other person interested in the
estate, may, at any time after the death of the testator, petition the court having jurisdiction to have
the will allowed, whether the same be in his possession or not, or is lost or destroyed.

11. G.R. No. 171897

PHILIPPINE TRUST COMPANY V. FLORO ROXAS and EUFEMIA ROXAS

FACTS:
The Spouses Roxas procured loans from PTC in the amount of Php 2,523,200 to finance
their real estate business. These loans were secured by real estate mortgages on the Spouses
Roxas' real properties. On April 10, 1979, the Spouses Roxas, PTC, and Roben Construction and
Furnishing Group, Inc. entered into "a contract of building construction," under which PTC granted
an additional loan of Php 900,000 to the Spouses Roxas to enable them to finish their ongoing
housing projects located at Cabcaben, Mariveles, Bataan. This was superseded by a new contract
where Rosendo P. Dominguez, Jr. Dominguez was substituted by Rohen Construction as the
contractor under the same terms and conditions of the previous contract. Due to financial
difficulties, however, the Spouses Roxas did not finish the housing project. As a result, they did not
receive monthly rentals from prospective lessees of the houses, which led to missed amortization
payments in their loans from PTC. On March 28, 1980, Dominguez filed a complaint against PTC
and the Spouses Roxas with the RTC of Manila Branch XL for breach of the contract of building
construction. The Spouses Roxas in tum filed a case against Dominguez and the insurance
company that issued his performance bond; both cases were consolidated. When the Spouses
Roxas filed their answer, they included a cross-claim against PTC. In response, PTC filed a
counterclaim against the Spouses Roxas on their unpaid loan obligation amounting to Php
3,053,738.50 plus interest and the amount of Php 245,720 as attorney's fees; and, in default of
such payments, the foreclosure of the real estate mortgages executed by the Spouses Roxas in
favor of PTC. After trial on the merits, the trial court rendered a decision in favor of Dominguez. It
denied PTC's counterclaim for lack of sufficient proof, without prejudice to the filing of a collection
suit against the Spouses Roxas. Both PTC and the Spouses Roxas appealed to the Court of
Appeals. In a parallel development, while the other civil case was still pending in the trial court,
PTC, on August 31, 1981, filed with the provincial sheriff of Bataan a petition for extra judicial
foreclosure of the same real estate mortgages. The Spouses Roxas opposed the petition and filed
a verified complaint against PTC for damages with preliminary injunction in the Regional Trial
Court of Bataan. The RTC rendered a decision in favor of the spouses. The Court of Appeals
affirmed the decision of the Bataan RTC. The decision became final and executory, prompting the
Spouses Roxas to file a Motion for Execution. PTC responded by filing an Opposition to the
Motion for Execution, where it raised for the first time legal compensation to offset the judgment
debt due to the Spouses Roxas. The trial court denied PTC's Opposition and issued a writ of
execution, holding that PTC is deemed to have waived legal compensation as a defense because
it failed to invoke the same as an affirmative defense in its answer. PTC filed a motion for
reconsideration of the order, which was denied; PTC then filed another motion for reconsideration,
which was again denied by the trial court. PTC filed a Petition for Certiorari under Rule 65 with the
Court of Appeals seeking the annulment of the trial court's order issuing the writ of execution and
its subsequent orders denying PTC's motions for reconsideration. The CA dismissed the petition
for lack of merit. It found that not all requisites of legal compensation under Article 1279 of the Civil
Code were present and that the defense of legal compensation was belatedly raised by PTC,
considering that it was raised for the first time at the execution stage. The CA likewise denied
PTC's motion for reconsideration. PTC then filed this Petition for Review on Certiorari under Rule
45, arguing that the Court of Appeals erred in not finding that all the requisites of legal
compensation were present and in ruling that the defense of compensation was belatedly raised.
PTC claims it did not raise legal compensation as a defense before the Bataan RTC because the
judgment debt was not yet due at the time it filed its answer. Furthermore, it had already set up as
a compulsory counterclaim the loan obligation of the Spouses Roxas in Civil Case No. 130783,
which was pending with the former CFI of Manila. But because the Manila court denied PTC's
counterclaims, PTC argues there is a change in the situation of the parties that makes execution
inequitable. In response, the Spouses Roxas assert that the execution of the Bataan RTC decision
is proper because the prevailing party is entitled to a writ of execution as a matter of right once a
judgment becomes final. Moreover, the decision in Civil Case No. 130873 is not a supervening
event that warrants the stay of execution. The Spouses Roxas also dispute the applicability of
legal compensation because both the demandability of the loan as well as the exact amount due
had been put in issue in Civil Case No. 130873, which is now pending appeal with the CA.  The
Spouses Roxas maintain that PTC is deemed to have waived compensation as a defense
because it did not raise compensation either in a motion to dismiss or as an affirmative defense in
its answer to the Main Case.
ISSUE:
Whether or not it was too late for PTC to set up legal compensation as a defense.

HELD:
YES. The Bataan RTC and the Court of Appeals correctly ruled that PTC should have
raised the argument on legal compensation at the trial stage. The rule is that once a decision
becomes final and executory, execution shall issue as a matter of right, and the issuance of a writ
of execution is the court's ministerial duty, compellable by mandamus. This is in accordance with
the doctrine of immutability of final judgments, which states that a judgment that has become final
and executory is immutable and unalterable, and may no longer be modified in any respect, even
if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or
law, and regardless of whether the modification is attempted to be made by the court rendering it
or by the highest Court of the land. Although there are recognized exceptions to this doctrine, one
of which is where there is a supervening event that renders execution inequitable or unjust,  none
obtains in this case.The Spouses Roxas' unpaid loan obligation to PTC is the subject of a
separate case now pending before the Court of Appeals, thus, there exists a proper forum where
PTC may be allowed to recover whatever is due from the Spouses Roxas. What is inequitable is to
allow PTC to recover its credit in full in the pending case while concurrently being allowed to offset
its judgment debt in this case. In such instance, there would effectively be double recovery on the
part of PTC-which we cannot sanction because of the fundamental proscription against unjust
enrichment. Furthermore, it would be more unjust to stay the execution of a decision that had
become final and executory 23 years ago. There should be an end to litigation, for public policy
dictates that once a judgment becomes final, executory, and unappealable, the prevailing party
should not be denied the fruits of his victory by some subterfuge devised by the losing
party. Unjustified delay in the enforcement of a judgment sets at naught the role and purpose of
the courts to resolve justiciable controversies with finality. In any case, even if PTC were excused
from pleading compensation as a defense in its answer, we note that PTC still failed to raise this
defense in its motion for reconsideration of the Bataan RTC decision and in its subsequent appeal.
Hence, there can be no other conclusion than that PTC is already estopped from raising the issue
of legal compensation. Even if we assume that legal compensation was not waived and was
otherwise timely raised, not all requisites of legal compensation are present in this case. Under
Article 1279, in order for legal compensation to take place, the following requisites must concur:
(a) that each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other; (b) 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;
(c) that the two debts be due; (d) that they be liquidated and demandable; and (e) that over neither
of them there be any retention or controversy, commenced by third persons and communicated in
due time to the debtor. Here, the fourth requisite is absent. A debt is liquidated when its existence
and amount are determined. Compensation can only take place between certain and liquidated
debts; it cannot extend to unliquidated, disputed claims. Since the loan obligation, including its
amount and demandability, is still being disputed in CA-G.R. CV No. 30340, PTC's credit cannot
be considered liquidated as of yet. Consequently, no legal compensation could have taken place
between PTC's loan credit and the Spouses Roxas' judgment credit. Finally, PTC appears to have
willfully engaged in forum shopping. Forum shopping is committed by a party who, having received
an adverse judgment in one forum, seeks another opinion in another court, other than by appeal or
the special civil action of certiorari. More accurately, forum shopping is the institution of two or
more suits in different courts, either simultaneously or successively, in order to ask the courts to
rule on the same or related causes and/or to grant the same or substantially the same reliefs. In
other words, PTC had squarely put in issue the matter of the Spouses Roxas' indebtedness arising
from the loans the latter obtained from PTC. It is immaterial that PTC's cause of action in the other
case was set forth by way of a counterclaim, since the latter partakes of the nature of a complaint
by the defendant against the plaintiff. Consequently, once a final decision in CA-G.R. CV No.
30340 is rendered, it will constitute res judicata and bar further litigation on the same loan
obligation, including any dispute on the applicability or non-applicability of legal compensation.
Forum shopping is an act of malpractice that is prohibited and condemned because it trifles with
the courts and abuses their processes, and degrades the administration of justice and adds to the
already congested court dockets. Hence PTC’s petition was denied.

12. G.R. No. 187769               June 4, 2014

ALVIN PATRIMONIO V. NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III

FACTS:
The petitioner and the respondent Napoleon Gutierrez entered into a business venture
under the name of Slam Dunk Corporation, a production outfit that produced mini-concerts and
shows related to basketball. Petitioner was already then, a decorated professional basketball
player while Gutierrez was a well-known sports columnist. In the course of their business, the
petitioner pre-signed several checks to answer for the expenses of Slam Dunk. Although signed,
these checks had no payee’s name, date or amount. The blank checks were entrusted to
Gutierrez with the specific instruction not to fill them out without previous notification to and
approval by the petitioner. According to petitioner, the arrangement was made so that he could
verify the validity of the payment and make the proper arrangements to fund the account.
In the middle of 1993, without the petitioner’s knowledge and consent, Gutierrez went to
Marasigan, to secure a loan in the amount of ₱200,000.00 on the excuse that the petitioner
needed the money for the construction of his house. In addition to the payment of the principal,
Gutierrez assured Marasigan that he would be paid an interest of 5% per month from March to
May 1994. After much contemplation and taking into account his relationship with the petitioner
and Gutierrez, Marasigan acceded to Gutierrez’ request and gave him ₱200,000.00 sometime in
February 1994. Gutierrez simultaneously delivered to Marasigan one of the blank checks the
petitioner pre-signed with Pilipinas Bank, Greenhills Branch, with the blank portions filled out with
the words "Cash" "Two Hundred Thousand Pesos Only", and the amount of "₱200,000.00". The
upper right portion of the check corresponding to the date was also filled out with the words "May
23, 1994" but the petitioner contended that the same was not written by Gutierrez.
On May 24, 1994, Marasigan deposited the check but it was dishonored for the reason
"ACCOUNT CLOSED." It was later revealed that petitioner’s account with the bank had been
closed since May 28, 1993. Marasigan sought recovery from Gutierrez, to no avail. He thereafter
sent several demand letters to the petitioner asking for the payment of ₱200,000.00, but his
demands likewise went unheeded. Consequently, he filed a criminal case for violation of B.P. 22
against the petitioner. On September 10, 1997, the petitioner filed before the RTC a Complaint for
Declaration of Nullity of Loan and Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the check’s negotiation, and asserted
that he was not privy to the parties’ loan agreement. Only Marasigan filed his answer to the
complaint; Gutierrez was declared in default. The RTC ruled on February 3,2003 in favor of
Marasigan. It found that the petitioner, in issuing the pre-signed blank checks, had the intention of
issuing a negotiable instrument, albeit with specific instructions to Gutierrez not to negotiate or
issue the check without his approval. While under Section 14 of the Negotiable Instruments Law
Gutierrez had the prima facie authority to complete the checks by filling up the blanks therein, the
RTC ruled that he deliberately violated petitioner’s specific instructions and took advantage of the
trust reposed in him by the latter. Nonetheless, the RTC declared Marasigan as a holder in due
course and accordingly dismissed the petitioner’s complaint for declaration of nullity of the loan. It
ordered the petitioner to pay Marasigan the face value of the check with a right to claim
reimbursement from Gutierrez. The petitioner elevated the case to the CA insisting that Marasigan
is not a holder in due course. He contended that when Marasigan received the check, he knew
that the same was without a date, and hence, incomplete. He also alleged that the loan was
actually between Marasigan and Gutierrez with his check being used only as a security. The CA,
however, affirmed the RTC ruling.

ISSUES:
1. Whether or not the contract of loan in the amount of ₱200,000.00 granted by respondent
Marasigan to petitioner, through respondent Gutierrez, may be nullified for being void;
2. Whether or not Marasigan is a holder in due course.

HELD:
Whether the petitioner authorized the borrowing; whether Gutierrez completely filled out the
subject check strictly under the petitioner’s authority; and whether Marasigan is a holder in due
course are also questions of fact, that, as a general rule, are beyond the scope of a Rule 45
petition.
The rule that questions of fact are not the proper subject of an appeal by certiorari, as a petition for
review under Rule 45 is limited only to questions of law, is not an absolute rule that admits of no
exceptions. One notable exception is when the findings of fact of both the trial court and the CA
are conflicting, making their review necessary. In the present case, the tribunals below arrived at
two conflicting factual findings, albeit with the same conclusion, which is the dismissal of the
complaint for nullity of the loan. Accordingly, we will examine the parties’ evidence presented.
1. YES. The petitioner contends that absent such authority in writing, he should not be held
liable for the face value of the check because he was not a party or privy to the agreement. Article
1878 does not state that the authority be in writing. As long as the mandate is express, such
authority may be either oral or written. Be that as it may, the authority must be duly established by
competent and convincing evidence other than the self-serving assertion of the party claiming that
such authority was verbally given. The Contract of Loan Entered into by Gutierrez in Behalf of the
Petitioner Should be Nullified for Being Void; Petitioner is Not Bound by the Contract of Loan. A
review of the records reveals that Gutierrez did not have any authority to borrow money in behalf
of the petitioner. Records do not show that the petitioner executed any SPA in favor of Gutierrez.
In fact, the petitioner’s testimony confirmed that he never authorized Gutierrez, whether verbally or
in writing, to borrow money in his behalf, nor was he aware of any such transaction. In the
absence of any authorization, Gutierrez could not enter into a contract of loan in behalf of the
petitioner. Thus, the petitioner is not bound by the parties’ loan agreement. Furthermore, that the
petitioner entrusted the blank pre-signed checks to Gutierrez is not legally sufficient because the
authority to enter into a loan can never be presumed. The contract of agency and the special
fiduciary relationship inherent in this contract must exist as a matter of fact. The person alleging it
has the burden of proof to show, not only the fact of agency, but also its nature and extent. The
records show that Marasigan merely relied on the words of Gutierrez without securing a copy of
the SPA in favor of the latter and without verifying from the petitioner whether he had authorized
the borrowing of money or release of the check. He was thus bound by the risk accompanying his
trust on the mere assurances of Gutierrez.
2. NO. Under the NIL, if the maker or drawer delivers a pre-signed blank paper to another
person for the purpose of converting it into a negotiable instrument, that person is deemed to have
prima facie authority to fill it up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession, together with the fact that the
instrument is wanting in a material particular, the law presumes agency to fill up the blanks. In
order however that one who is not a holder in due course can enforce the instrument against a
party prior to the instrument’s completion, two requisites must exist: (1) that the blank must be
filled strictly in accordance with the authority given; and (2) it must be filled up within a reasonable
time. If it was proven that the instrument had not been filled up strictly in accordance with the
authority given and within a reasonable time, the maker can set this up as a personal defense and
avoid liability. However, if the holder is a holder in due course, there is a conclusive presumption
that authority to fill it up had been given and that the same was not in excess of authority. In the
present case, the petitioner contends that there is no legal basis to hold him liable both under the
contract and loan and under the check because: first, the subject check was not completely filled
out strictly under the authority he has given and second, Marasigan was not a holder in due
course. Section 52(c) of the NIL states that a holder in due course is one who takes the instrument
"in good faith and for value." It also provides in Section 52(d) that in order that one may be a
holder in due course, it is necessary that at the time it was negotiated to him he had no notice of
any infirmity in the instrument or defect in the title of the person negotiating it. Acquisition in good
faith means taking without knowledge or notice of equities of any sort which could beset up
against a prior holder of the instrument. It means that he does not have any knowledge of fact
which would render it dishonest for him to take a negotiable paper. The absence of the defense,
when the instrument was taken, is the essential element of good faith. The term ‘bad faith’ does
not necessarily involve furtive motives, but means bad faith in a commercial sense. Although gross
negligence does not of itself constitute bad faith, it is evidence from which bad faith may be
inferred. The circumstances thrust the duty upon the defendants to make further inquiries and they
had no right to shut their eyes deliberately to obvious facts. In the present case, Marasigan’s
knowledge that the petitioner is not a party or a privy to the contract of loan, and correspondingly
had no obligation or liability to him, renders him dishonest, hence, in bad faith. Since he knew that
the underlying obligation was not actually for the petitioner, the rule that a possessor of the
instrument is prima facie a holder in due course is inapplicable. As correctly noted by the CA, his
inaction and failure to verify, despite knowledge of that the petitioner was not a party to the loan,
may be construed as gross negligence amounting to bad faith.

13. G.R. No. 174433               February 24, 2014

PHILIPPINE NATIONAL BANK V. SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO,
ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA J. MANALO

FACTS:
Respondent Spouses Enrique Manalo and Rosalinda Jacinto applied for an All-Purpose
Credit Facility in the amount of ₱1,000,000.00 with Philippine National Bank to finance the
construction of their house. After PNB granted their application, they executed a Real Estate
Mortgage on November 3, 1993 in favor of PNB over their property as security for the loan. The
credit facility was renewed and increased several times over the years. On September 20, 1996,
the credit facility was again renewed for ₱7,000,000.00. As a consequence, the parties executed a
Supplement to, and Amendment of Existing Real Estate Mortgage whereby another property was
added as security for the loan. The additional security was registered in the names of respondents
Arnold, Arnel, Anthony, and Arma, all surnamed Manalo, who were their children.
It was agreed upon that the Spouses Manalo would make monthly payments on the interest.
However, PNB claimed that their last recorded payment was made on December, 1997. Thus,
PNB sent a demand letter to them on their overdue account and required them to settle the
account. PNB sent another demand letter because they failed to heed the first demand. After the
Spouses Manalo still failed to settle their unpaid account despite the two demand letters, PNB
foreclose the mortgage. During the foreclosure sale, PNB was the highest bidder for
₱15,127,000.00 of the mortgaged properties of the Spouses Manalo. The sheriff issued to PNB
the Certificate of Sale. After more than a year after the Certificate of Sale had been issued to PNB,
the Spouses Manalo instituted this action for the nullification of the foreclosure proceedings and
damages. They alleged that they had obtained a loan for ₱1,000,000.00 from a certain Benito Tan
upon arrangements made by Antoninus Yuvienco, then the General Manager of PNB’s Bangkal
Branch where they had transacted; that they had been made to understand and had been assured
that the ₱1,000,000.00 would be used to update their account, and that their loan would be
restructured and converted into a long-term loan; that they had been surprised to learn, therefore,
that had been declared in default of their obligations, and that the mortgage on their property had
been foreclosed and their property had been sold; and that PNB did not comply with Section 3 of
Act No. 3135, as amended. PNB and Antoninus Yuvienco countered that the ₱1,000,000.00 loan
obtained by the Spouses Manalo from Benito Tan had been credited to their account; that they did
not make any assurances on the restructuring and conversion of the Spouses Manalo’s loan into a
long-term one; that PNB’s right to foreclose the mortgage had been clear especially because the
Spouses Manalo had not assailed the validity of the loans and of the mortgage; and that the
Spouses Manalo did not allege having fully paid their indebtedness. The RTC rendered a decision
in favor of PNB.
The RTC held, however, that the Spouses Manalo’s "contract of adhesion" argument was
unfounded because they had still accepted the terms and conditions of their credit agreement with
PNB and had exerted efforts to pay their obligation; that the Spouses Manalo were now estopped
from questioning the interest rates unilaterally imposed by PNB because they had paid at those
rates for three years without protest; and that their allegation about PNB violating the notice and
publication requirements during the foreclosure proceedings was untenable because personal
notice to the mortgagee was not required under Act No. 3135.
The Spouses Manalo appealed to the CA, however, the CA affirmed the decision of the RTC
insofar as it upheld the validity of the foreclosure proceedings initiated by PNB, but modified the
Spouses Manalo’s liability for interest. It directed the RTC to see to the recomputation of their
indebtedness, and ordered that should the recomputed amount be less than the winning bid in the
foreclosure sale, the difference should be immediately returned to the Spouses Manalo.
The CA found it necessary to pass upon the issues of PNB’s failure to specify the applicable
interest and the lack of mutuality in the execution of the credit agreements considering the earlier
cited observation made by the trial court in its decision. The CA further held that PNB could not
unilaterally increase the rate of interest considering that the credit agreements specifically
provided that prior notice was required before an increase in interest rate could be effected. It
found that PNB did not adduce proof showing that the Spouses Manalo had been notified before
the increased interest rates were imposed; and that PNB’s unilateral imposition of the increased
interest rate was null and void for being violative of the principle of mutuality of contracts enshrined
in Article 1308 of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added that the
Spouses Manalo’s being in dire need of money rendered them to be not on an equal footing with
PNB. Consequently, the CA fixed the interest rate to be paid by the Spouses Manalo at 12% per
annum, computed from their default.

ISSUES:
1. Whether or not the CA was correct in nullifying the interest rates imposed on respondent
spouses’ loan and in fixing the same at 12% from default, despite the fact that the same
was raised by the respondent spouses for the first time on appeal
2. Whether or not the CA correctly ruled that there was no mutuality of consent in the
imposition of interest rates on the respondent spouses’ loan despite the existence of
 facts and circumstances clearly showing respondents’ assent to the rates of interest so
imposed by PNB on the loan

HELD:
1. YES. Contrary to PNB’s argument, the validity of the interest rates and of the increases,
and on the lack of mutuality between the parties were not raised by the Spouses Manalo’s for the
first time on appeal. Rather, the issues were impliedly raised during the trial itself, and PNB’s lack
of vigilance in voicing out a timely objection made that possible.Likewise, when issues not raised
by the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings.Clearly, a court may rule and render judgment
on the basis of the evidence before it even though the relevant pleading had not been previously
amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put a little
differently, so long as the basic requirements of fair play had been met, as where litigants were
given full opportunity to support their respective contentions and to object to or refute each other's
evidence, the court may validly treat the pleadings as if they had been amended to conform to the
evidence and proceed to adjudicate on the basis of all the evidence before it. Based on the
foregoing, the validity of the interest rates and their increases, and the lack of mutuality between
the parties were issues validly raised in the RTC, giving the Spouses Manalo every right to raise
them in their appeal to the CA. PNB’s contention was based on its wrong appreciation of what
transpired during the trial. It is also interesting to note that PNB did not itself assail the RTC’s
ruling on the issues obviously because the RTC had decided in its favor. In fact, PNB did not even
submit its appellee’s brief despite notice from the CA.
2. YES. The credit agreement executed succinctly stipulated that the loan would be subjected
to interest at a rate "determined by the Bank to be its prime rate plus applicable spread, prevailing
at the current month." This stipulation was carried over to or adopted by the subsequent renewals
of the credit agreement. PNB thereby arrogated unto itself the sole prerogative to determine and
increase the interest rates imposed on the Spouses Manalo. Such a unilateral determination of the
interest rates contravened the principle of mutuality of contracts embodied in Article 1308 of the
Civil Code. The Court has declared that a contract where there is no mutuality between the parties
partakes of the nature of a contract of adhesion, and any obscurity will be construed against the
party who prepared the contract, the latter being presumed the stronger party to the agreement,
and who caused the obscurity. PNB should then suffer the consequences of its failure to
specifically indicate the rates of interest in the credit agreement. PNB could not also justify the
increases it had effected on the interest rates by citing the fact that the Spouses Manalo had paid
the interests without protest, and had renewed the loan several times. The CA’s directive to PNB
(a) to recompute the Spouses Manalo’s indebtedness under the oversight of the RTC; and (b) to
refund to them any excess of the winning bid submitted during the foreclosure sale over their
recomputed indebtedness was warranted and equitable. The SC affirmed the decision
promulgated by the CA, subject to the modification that any amount to be refunded to the
respondents shall bear interest of 12% per annum computed from March 28, 2006 until June 30,
2013, and 6% per annum computed from July 1, 2013 until finality hereof; that the amount to be
refunded and its accrued interest shall earn interest at 6% per annum until full refund.

14. PHILIPPINE NATIONAL BANK, Petitioner,

vs.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (NOW PRIME EAST PROPERTIES,
INC.) AND AFP–RSBS, INC., Respondents.
G.R. No. 182128              February 19, 2014
 
PONENTE: Reyes, J.
TOPIC: PD 957, Mortgage over subdivision land or condominium lot subject to contract to sell
FACTS:
                Some time in July 1994, respondent Dee Dee bought from respondent Prime East
Properties Inc.5 (PEPI) on an installment basis a residential lot located in Binangonan, Rizal, with
an area of 204 square meters and covered by TCT No. 619608. Subsequently, PEPI assigned its
rights over a 213,093–sq m property on August 1996 to respondent Armed Forces of the
Philippines–Retirement and Separation Benefits System, Inc. (AFP–RSBS), which included the
property purchased by Dee.
                Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from
petitioner Philippine National Bank, secured by a mortgage over several properties, including
Dee’s property. The mortgage was cleared by the Housing and Land Use Regulatory Board
(HLURB) on September 18, 1996.
                After Dee’s full payment of the purchase price, a deed of sale was executed by
respondents PEPI and AFP–RSBS on July 1998 in Dee’s favor. Consequently, Dee sought from
the petitioner the delivery of the owner’s duplicate title over the property, to no avail. Thus, she
filed with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608
by the petitioner, PEPI and AFP–RSBS, among others.
ISSUE:
                Whether or not PNB, as mortgagee, was bound by the contract to sell previously
executed over the subdivision lot mortgaged.
 
HELD:
                YES. In this case, there are two phases involved in the transactions between
respondents PEPI and Dee – the first phase is the contract to sell, which eventually became the
second phase, the absolute sale, after Dee’s full payment of the purchase price. In a contract of
sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the
ownership of and to deliver the thing that is the object of sale. On the other hand, the principal
obligation of a vendee is to pay the full purchase price at the agreed time. Based on the final
contract of sale between them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21–
A, Village East Executive Homes, is to transfer the ownership of and to deliver Lot 12, Block 21–A
to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price of the property.
                It must be stressed that the mortgage contract between PEPI and the petitioner is
merely an accessory contract to the principal three–year loan takeout from the petitioner by PEPI
for its expansion project. It need not be belabored that “a mortgage is an accessory undertaking to
secure the fulfillment of a principal obligation,” and it does not affect the ownership of the property
as it is nothing more than a lien thereon serving as security for a debt.
Owner or developer of subdivision lot or condominium unit may mortgage the same
despite contract to sell
                Note that at the time PEPI mortgaged the property to the petitioner, the prevailing
contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully
pay the purchase price of the property. On this point, PEPI was acting fully well within its right
when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by
the seller and is not to pass until full payment of the purchase price. In other words, at the time of
the mortgage, PEPI was still the owner of the property.
                 Thus, in China Banking Corporation v. Spouses Lozada, the Court affirmed the right
of the owner/developer to mortgage the property subject of development, to wit: “P.D. No.
957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or
condominium unit when the title thereto still resides in the owner or developer awaiting the
full payment of the purchase price by the installment buyer.” Moreover, the mortgage bore
the clearance of the HLURB, in compliance with Section 18 of P.D. No. 957, which provides that
“no mortgage on any unit or lot shall be made by the owner or developer without prior written
approval of the HLURB.”
Bank-mortgagee bound by the contract to sell over the property mortgaged
                Nevertheless, despite the apparent validity of the mortgage between the petitioner and
PEPI, the former is still bound to respect the transactions between respondents PEPI and Dee.
The petitioner was well aware that the properties mortgaged by PEPI were also the subject of
existing contracts to sell with other buyers. While it may be that the petitioner is protected by Act
No. 3135, as amended, it cannot claim any superior right as against the installment buyers. This is
because the contract between the respondents is protected by P.D. No. 957, a social justice
measure enacted primarily to protect innocent lot buyers. Thus, in Luzon Development Bank
 v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is already
subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by
the contract to sell.
                The transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s
rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and
protected by PD 957. x x x More so in this case where the contract to sell has already ripened into
a contract of absolute sale.
                The Court affirmed HLURB’s orders:

1. PNB to cancel the mortgage and surrender/release the title to Dee.

2. PEPI and AFP-RSBS to pay PNB the redemption value of the subject property as agreed
upon by them in the REM within 6 months from the time the owner’s duplicate of TCT is actually
surrendered and released by PNB to Dee.
3. In the alternative, in case of legal and physical impossibility on the part of PEPI, AFP–
RSBS, and PNB to comply and perform their respective obligation/s, as above–mentioned,
respondents PEPI and AFP–RSBS are hereby ordered to jointly and severally pay to Dee the
amount of P520,000.00) plus interest to be computed from the filing of complaint on April 24, 2002
until fully paid.
4. PEPI, AFP-RSBS and PNB to pay solidarily Dee attorney’s fees, cost of litigation, and
administrative fine.

15. BIGNAY EX-IM PHILIPPINES, INC., Petitioner,

vs.
UNION BANK OF THE PHILIPPINES, Respondent.
G.R. No. 171590               February 12, 2014
 
PONENTE: Del Castillo, J.
TOPIC: Negligence
FACTS:
                In 1988, Rosario filed against Alfonso and Union Bank, Civil Case No. Q-52702
for annulment of the 1984 mortgage, claiming that Alfonso mortgaged the property without her
consent, and for reconveyance.
                In a September 6, 1989 Letter-Proposal, Bignay Ex-Im Philippines, Inc. (Bignay),
through its President, Milagros Ong Siy (Siy), offered to purchase the property.
                On December 20, 1989, a Deed of Absolute Sale6 was executed by and between Union
Bank and Bignay whereby the property was conveyed to Bignay for P4 million. The deed of sale
was executed by the parties through Bignay’s Siy and Union Bank’s Senior Vice President
Anthony Robles (Robles). One of the terms of the deed of sale is quoted below:
                Section 1. The VENDEE hereby recognizes that the Parcel/s of Land with improvements
thereon is acquired through foreclosure proceedings and agrees to buy the Parcel/s of Land with
improvements thereon in its present state and condition. The VENDOR therefore does not make
any x x x representations or warranty with respect to the Parcel/s of Land but that it will defend its
title to the Parcel/s of Land with improvements thereon against the claims of any person
whomsoever.
                On December 12, 1991, a Decision8was rendered in Civil Case No. Q-52702 in favor of
Alfonso. Union Bank appealed the above Decision with the CA. It likewise sought a new trial of the
case, which the trial court denied. The CA appeal was dismissed for failure to file appellant’s brief;
the ensuing Petition for Review with this Court was similarly denied for late filing and payment of
legal fees.
                Union Bank next filed with the CA an action to annul the trial court’s December 12, 1991
judgment. In a September 9, 1993 Resolution, however, the CA again dismissed the Petition for
failure to comply with Supreme Court Circular No. 28-91. The bank’s Motion for Reconsideration
was once more denied.
                This time, Bignay filed a Petition for annulment of the December 12, 1991 Decision,
docketed as CA-G.R. SP No. 33901. In a July 15, 1994 Decision, the CA dismissed the Petition.
Bignay’s resultant Petition for Certiorari with this Court suffered the same fate.
                Meanwhile, as a result of the December 12, 1991 Decision in Civil Case No. Q-52702,
Bignay was evicted from the property; by then, it had demolished the existing structure on
the lot and begun construction of a new building.
ISSUE:
                Whether or not Union Bank was grossly negligent in this case.
HELD:
                YES. The Court held that the gross negligence of the seller in defending its title to the
property subject matter of the sale – thereby contravening the express undertaking under the deed
of sale to protect its title against the claims of third persons resulting in the buyer’s eviction from
the property, amounts to bad faith, and the buyer is entitled to the remedies afforded under Article
1555 of the Civil Code.
                The record reveals that Union Bank was grossly negligent in the handling and
prosecution of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case
was dismissed by the CA for failure to file the required appellant’s brief. Next, the ensuing Petition
for Review on Certiorari filed with this Court was likewise denied due to late filing and payment of
legal fees. Finally, the bank sought the annulment of the December 12, 1991 judgment, yet again,
the CA dismissed the petition for its failure to comply with Supreme Court  Circular No. 28-91. As a
result, the December 12, 1991 Decision became final and executory, and Bignay was evicted from
the property. Such negligence in the handling of the case is far from coincidental; it is decidedly
glaring, and amounts to bad faith. “Negligence may be occasionally so gross as to amount
to malice [or bad faith].” Indeed, in culpa contractual or breach of contract, gross negligence of a
party amounting to bad faith is a ground for the recovery of damages by the injured party.
16. Sps binua vs. Ong
Spouses Victor and Euna Binua, Petitioners, vs. Lucia P. Ong, Respondent.
G.R. No. 207176, FIRST DIVIDON, June 18, 2014
FACTS:
PETITIONER EUNA WAS FOUND GUILTY OF ESTAFA. SHE SOUGHT TO AVOID
CRIMINAL LIABILITY BY SELLING HER INDEBTEDNESS THROUGH THE EXECUTION OF
SEPARATE REAL ESTATE MORTGAGES OVER PETITIONER VICTOR’S PROPERTIES.
THEREAFTER, EDNA FILED A MOTION FOR NEW TRIAL, WHICH WAS GRANTED BY THE
RTC. CONSEQUENTLY, RTC-BRNACH 2 RENDERED DECISION, ORDERING PETITIONER
TO PAY THE RESPONDENT THE AMOUNT OF P2.285.000.00 AS ACTUAL DAMAGES , WITH
10% INTEREST, AND OTHER DAMAGES. RTC-BRANCH 2 RULED THAT THE
PRESENTATION OF A PROMISORY NOTE DATED MARCH 4, 1997 NOVATED THE ORIGINAL
AGREEMENT BETWEEN THEM INTO A CIVIL OBLIGATION.
PETITIONER EUNA, HOWEVER FAILED TO SETTLE HER OBLIGATION, FORCING THE
RESPONDENT TO FORCLOSE THE MORTGAGEON THE PROPERTIES, WITH THE LATTER
AS THE HIGHEST BIDDER DURING THE PUBLIC SALE.THE PETITIONER THEN FILED THE
CASE FOR DECLARATION OF NULLITY OF MORTGAGE CONTRACT, ALLEGING THAT THE
MORTGAGE DOCUMENTS WERE STILL EXECUTED UNDER DURESS, AS THE
PETITIONERS AT THE TIME OF THE EXECUTION OF SAID DEEDS WERE STILL SUFFERING
FROM THE EFFECT OF THE CONVICTION OF EUNA, AND COULD NOT HAVE FREELY
ENTERED INTO SAID CONTRACTS.

ISSUE:
WHETHER OR NOT CONSENT WAS VITIATED

HELD:
NO.
ARTICLE 1390 (2) OF NCC PROVIDES THAT CONTRACTS WHERE THE CONSENT IS
VITIATED BY MISTAKE, VIOLENCE, INTIMIDATION AND UNDUE INFLUENCE OR FRAUD
ARE VIODABLE OR ANULLABLE. ARTICLE 1335 OF THE NCC, MEANWHILE STATES THAT
“THERE IS INTIMIDATION WHEN ONE OF THE CONTRACTING PARTIES IS COMPELLED BY
REASONABLE AND WELL-GROUNDED FEAR OF AN IMMINENT AND GRAVE EVIL UPON HIS
PERSON OR PROPERTY, OR UPON THE PERSON OR PREOPERTY OF HIS SPUSE,
DESCENDANTS OR ASCENDANTS TO GIS HIS CONSENT”.THE SAME ARTICLE , HOWEVER
FURTHER STATES THAT “ A THREAT TO ENFORCE ONE’S CLAIM THROUGH COMPETENT
AUTHORITY, IF THE CLAIM IS JUST OR LEGAL, DOESN NOT VITIATE CONSENT.

17. FIL-ESTATE PROPERTIES, INC. VS SPS. RONQUILLO

G.R. No. 185798, January 13, 2014

Facts:
Spouses Ronquillo purchased a condominium unit at Central Park Place Tower, owned and
developed by Fil-Estate Properties, Inc. with a pre-selling contract price. Spouses Ronquillo later
executed and signed a Reservation Application Agreement wherein they deposited a reservation
fee. As agreed upon, respondents paid the full downpayment and had been paying monthly
amortizations.
Upon learning that construction works had stopped, respondents stopped paying their
monthly amortization and demanded a full refund of their payment with interest. When their
demands went unheeded, respondents were constrained to file a Complaint for Refund and
Damages before the Housing and Land Use Regulatory Board (HLURB) praying for
reimbursement/refund of their total amortization payments and for moral damages, attorney’s fees
and other litigation expenses. HLURB Arbiter ruled in favor of the spouses where he considered
Fil-Estate’s failure to develop the condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment of damages. The Arbiter also
stated that mere economic hardship is not an excuse for contractual and legal delay. Board of
Commissioners of the HLURB affirmed the decision and reiterated that the depreciation of the
peso as a result of the Asian financial crisis is not a fortuitous event which will exempt petitioners
from the performance of their contractual obligation.
Petitioners insist that the complaint states no cause of action because they allegedly have
not committed any act of misrepresentation amounting to bad faith which could entitle respondents
to a refund. Petitioners claim that there was a mere delay in the completion of the project and that
they only resorted to "suspension and reformatting as a testament to their commitment to their
buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate
industry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held
liable for a fortuitous event.

Issue:
1. Whether or not the Asian financial crisis constitute a fortuitous event which would justify
delay by petitioners in the performance of their contractual obligation;
2. Assuming that petitioners are liable, whether or not 12% interest was correctly imposed on
the judgment award,
3. Whether the award of moral damages, attorney’s fees and administrative fine was proper.

Held:
1. The Asian financial crisis is not a fortuitous event that would excuse petitioners from
performing their contractual obligation. A real estate enterprise engaged in the pre-selling of
 condominium units is concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, and fluctuations in currency exchange
rates happen everyday, thus, not an instance of caso fortuito.
2. No. The Court held that 6% is the proper legal interest rate. As a result of the breach
committed by petitioners, respondents are entitled to rescind the contract and to be
refunded the amount of amortizations paid including interest and damages. However, with
respect to the legal interest rate, there is a resulting modification of the award of legal
interest which is in line with the recent ruling in Nacar v. Gallery Frames, embodying the
amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB
Circular No. 799 which pegged the interest rate at 6% regardless of the source of
obligation.
3. Yes, petitioners are likewise obligated to pay attorney’s fees and the administrative fine.
The court affirm the award of attorney’s fees because respondents were forced to litigate
for 14 years and incur expenses to protect their rights and interest by reason of the
unjustified act on the part of petitioners. The court also sustain the award of moral
damages. In order that moral damages may be awarded in breach of contract cases, the
defendant must have acted in bad faith, must be found guilty of gross negligence
amounting to bad faith, or must have acted in wanton disregard of contractual obligations.
The Arbiter found petitioners to have acted in bad faith when they breached their contract,
when they failed to address respondents’ grievances and when they adamantly refused to
refund respondents' payment.

18. MENDOZA VS. SPS. GOMEZ

G.R. No. 160110, June 18, 2014

Facts:
An Isuzu truck owned by Gomez and driven by Perez, was hit by a Transportation bus
registered under the name of Lim and driven by Mendoza. Gomez filed a separate complaint for
damages against Mendoza and Lim seeking actual damages, compensation for lost income, moral
damages, exemplary damages, attorney’s fees and costs of the suit. According to the investigating
officer, the Isuzu truck was travelling along a downward portion of an avenue when, upon reaching
the corner, its left front portion was hit by the bus, which is traversing the opposite lane and
intruded on the lane occupied by the truck. Mendoza tried to escape by speeding away, but he
was apprehended thereafter. As a result of the incident, Perez, as well as the helpers on board the
truck sustained injuries necessitating medical treatment, which was shouldered by respondents
and the truck susteained extensive damages. Mendoza capitalized on the issue of ownership of
the bus in question arguing that although the registered owner was Lim, the actual owner of the
bus was SPO1 Enriquez, who had the bus attached with Mayamy Transportation Company under
the so-called "kabit system."
RTC found Mendoza liable for direct personal negligence under Article 2176 of the Civil
Code, and it also found Lim vicariously liable under Article 2180 of the same Code.
As regards Lim, the RTC relied on the Certificate of Registration issued by the Land
Transportation Office in concluding that she is the registered owner of the bus in question.
Although actually owned by Enriquez, following the established principle in transportation law, Lim,
as the registered owner, is the one who can be held liable. The decision was affirmed by the Court
of Appeals.

Issues:
1. Whether or not Mendoza’s negligence rendering him liable was duly proven.
2. Who is to be made liable for Mendoza’s negligence.
3. Who is the employer of Mendoza, Enriquez, the actual owner of the bus or Lim, the
registered owner of the bus.
4. What damages are to be awarded?
Held:
1. Yes. 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. As found by the RTC, and
affirmed by the CA, Mendoza was negligent in driving the subject bus, as demonstrated by
the fact that, at the time of the collision, the bus intruded on the lane intended for the truck.
Having encroached on the opposite lane, Mendoza was clearly in violation of traffic laws.
Article 2185 of the Civil Code provides that unless there is proof to the contrary, it is
presumed that a person driving a motor vehicle has been negligent if at the time of the
mishap, he was violating any traffic regulation. In the case at bar, Mendoza’s violation of
traffic laws was the proximate cause of the harm. Proximate cause is defined as that cause,
which, in natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred. The evidence on
record shows that before the collision, the Isuzu truck was in its rightful lane, and was even
at a stop. The mishap occurred when the bus, travelling at a fast speed as shown by the
impact of the collision, and going in the opposite direction as that of the truck, encroached
on the lane rightfully occupied by said truck, and caused the latter to spin, injuring the driver
and helpers on board, and considerably damaging the Isuzu truck.
2. According to Manresa, liability for personal acts and omissions is founded on that
indisputable principle of justice recognized by all legislations that when a person by his act
or omission causes damage or prejudice to another, a juridical relation is created by virtue
of which the injured person acquires a right to be indemnified and the person causing the
damage is charged with the corresponding duty of repairing the damage. The reason for
this is found in the obvious truth that man should subordinate his acts to the precepts of
prudence and if he fails to observe them and causes damage to another, he must repair the
damage. His negligence having caused the damage, Mendoza is certainly liable to repair
said damage. Additionally, Mendoza’s employer may also be held liable under the doctrine
of vicarious liability or imputed negligence. Under such doctrine, a person who has not
committed the act or omission which caused damage or injury to another may nevertheless
be held civilly liable to the latter either directly or subsidiarily under certain
circumstances. In our jurisdiction, vicarious liability or imputed negligence is embodied in
Article 2180 of the Civil Code and the basis for damages in the action under said article is
the direct and primary negligence of the employer in the selection or supervision, or both, of
his employee.
3. Lim, the registered owner of the bus is Mendoza’s employer. The Court ruled that in so far
as third persons are concerned, the registered owner of the motor vehicle is the employer
of the negligent driver, and the actual employer is considered merely as an agent of such
owner. Thus, whether there is an employer-employee relationship between the registered
owner and the driver is irrelevant in determining the liability of the registered owner who the
law holds primarily and directly responsible for any accident, injury or death caused by the
operation of the vehicle in the streets and highways. This does not mean, however, that Lim
is left without any recourse against Enriquez and Mendoza. Under the civil law principle of
unjust enrichment, the registered owner of the motor vehicle has a right to be indemnified
by the actual employer of the driver; and under Article 2181 of the Civil Code, whoever pays
for the damage caused by his dependents or employees may recover from the latter what
he has paid or delivered in satisfaction of the claim.
4. Article 2202 of the Civil Code provides that in crimes and quasi delicts, the defendant shall
be liable for all damages which are the natural and probable consequences of the act or
omission complained of. To warrant an award of actual or compensatory damages, the
claimant must prove that the damage sustained is the natural and probable consequences
of the negligent act and, moreover, the claimant must adequately prove the amount of such
damage. In the case at bar, the RTC, basing on the receipts submitted by respondents and
which receipts petitioners had the opportunity to examine are substantiated. However, with
respect to damages based on the loss of daily income since the truck is an essential part of
 their business, such claim was not duly substantiated by any evidence on record, and thus
cannot be awarded in their favor.
The respondents neither alleged nor offered any evidence of besmirched reputation or
physical, mental or psychological suffering incurred by them, hence, moral damages cannot be
awarded.
In motor vehicle accident cases, exemplary damages may be awarded where the
defendant’s misconduct is so flagrant as to transcend simple negligence and be tantamount to
positive or affirmative misconduct rather than passive or negative misconduct. In characterizing
the requisite positive misconduct which will support a claim for punitive damages, the courts have
used such descriptive terms as willful, wanton, grossly negligent, reckless, or malicious, either
alone or in combination. In the case at bar, having established respondents’ right to compensatory
damages, exemplary damages are also in order, given the fact that Mendoza was grossly
negligent in driving the Mayamy bus. His act of intruding or encroaching on the lane rightfully
occupied by the Isuzu truck shows his reckless disregard for safety.
In the present case, the award of costs of suit to respondents, as the prevailing party, is in
order. Interest by way of damages has been defined as interest allowed in actions for breach of
contractor tort for the unlawful detention of money already due. This type of interest is frequently
called "moratory interest." Interest as a part of damage, is allowed, not by application of arbitrary
rules, but as a result of the justice of the individual case and as compensation to the injured party.

19. ARCO PULP AND PAPER CO., INC. VS LIM

G.R. No. 206806, June 25, 2014

Facts:
Lim works in the business of supplying scrap papers, cartons, and other raw materials to
factories engaged in the paper mill business. He delivered scrap papers to Arco Pulp and Paper
Company, Inc. through its Chief Executive Officer and President, Santos where they agreed that
the latter would either pay Lim the value of the raw materials or deliver to him their finished
products of equivalent value. Lim alleged that when he delivered the raw materials, Arco Pulp
issued a post-dated check as partial payment, with the assurance that the check would not
bounce. When he deposited the check, it was dishonored for being drawn against a closed
account. On the same day, Arco Pulp and Sy executed a memorandum of agreement where the
former shall deliver their finished products to Megapack Container Corporation, owned by Sy, for
his account. According to the memorandum, the raw materials would be supplied by Lim, through
his company, Quality Paper and Plastic Products. The trial court rendered a judgment in favor of
Arco Pulp and dismissed the complaint, holding that when Arco Pulp and Sy entered into the
memorandum of agreement, novation took place, which extinguished Arco Pulp and Paper’s
obligation to Dan T. Lim. However, the Court of Appeals reversed the RTC’s decision and ruled
that the facts and circumstances in this case clearly showed the existence of an alternative
obligation. It also ruled that Dan T. Lim was entitled to moral and exemplary damages and
attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its
undertaking.

Issues:
1. Whether or not the obligation between the parties was an alternative obligation.
2. Whether the obligation between the parties was extinguished by novation.
3. Whether Santos was solidarily liable with Arco Pulp and Paper Co., Inc.
4. Whether moral damages, exemplary damages, and attorney’s fees can be awarded.

Held:
1. The obligation between the parties was an alternative obligation. The rule on alternative
obligations is governed by Article 1199 of the Civil Code, which states: Article 1199. A
person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
The choice of the debtor must also be communicated to the creditor who must receive
 notice of it since the object of this notice is to give the creditor opportunity to express his
consent, or to impugn the election made by the debtor, and only after said notice shall the
election take legal effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court. According to the factual findings, the original
contract between the parties was for respondent to deliver scrap papers to petitioner Arco
Pulp and Paper. The payment for this delivery became petitioner Arco Pulp and Paper’s
obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to
either (1) pay the price or (2) deliver the finished products of equivalent value to
respondent. When petitioner Arco Pulp tendered a check to respondent in partial payment
for the scrap papers, they exercised their option to pay the price. Respondent’s receipt of
the check and his subsequent act of depositing it constituted his notice of petitioner Arco
Pulp and Paper’s option to pay.
2. No. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a
third person, it did not novate the original obligation between the parties. Novation
extinguishes an obligation between two parties when there is a substitution of objects or
debtors or when there is subrogation of the creditor. It occurs only when the new contract
declares so "in unequivocal terms" or that "the old and the new obligations be on every
point incompatible with each other." Because novation requires that it be clear and
unequivocal, it is never presumed. There is nothing in the memorandum of agreement that
states that with its execution, the obligation of petitioner Arco Pulp and Paper to respondent
would be extinguished. It also does not state that Eric Sy somehow substituted petitioner
Arco Pulp and Paper as respondent’s debtor. It merely shows that petitioner Arco Pulp and
Paper opted to deliver the finished products to a third person instead. The consent of the
creditor must also be secured for the novation to be valid. In this case, respondent was not
privy to the memorandum of agreement, thus, his conformity to the contract need not be
secured. If the memorandum of agreement was intended to novate the original agreement
between the parties, respondent must have first agreed to the substitution of Eric Sy as his
new debtor. The memorandum of agreement must also state in clear and unequivocal
terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to
respondent. Neither of these circumstances is present in this case.
3. Petitioner Santos is solidarily liable with petitioner corporation. Basic is the rule in
corporation law that a corporation is a juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it. Following this principle, obligations incurred by the corporation, acting
through its directors, officers and employees, are its sole liabilities. A director, officer or
employee of a corporation is generally not held personally liable for obligations incurred by
the corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means
to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing obligation,
the circumvention of statutes, or to confuse legitimate issues. Santos cannot be allowed to
hide behind the corporate veil. When petitioner Arco Pulp and Paper’s obligation to
respondent became due and demandable, she not only issued an unfunded check but also
contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability.
She unjustifiably refused to honor petitioner corporation’s obligations to respondent. These
acts clearly amount to bad faith. In this instance, the corporate veil may be pierced, and
petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.
4. Petitioners are liable for damages. In the case at bar, the injury suffered by respondent is a
loss from his business. This injury undoubtedly was caused by petitioner Arco Pulp and
Paper’s act of refusing to pay its obligations. When the obligation became due and
demandable, petitioner Arco Pulp and Paper not only issued an unfunded check but also
entered into a contract with a third person in an effort to evade its liability. To recover moral
damages in an action for breach of contract, the breach must be palpably wanton, reckless
and malicious, in bad faith, oppressive, or abusive. Hence, the person claiming bad faith
must prove its existence by clear and convincing evidence for the law always presumes
good faith. 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
known duty through some motive or interest or ill will that partakes of the nature of fraud. It
is, therefore, a question of intention, which can be inferred from one’s conduct and/or
contemporaneous statements. When petitioner Arco Pulp and Paper issued a check in
partial payment of its obligation to respondent, it was presumably with the knowledge that it
was being drawn against a closed account. Worse, it attempted to shift their obligations to a
third person without the consent of respondent. Petitioner Arco Pulp and Paper’s actions
clearly show "a dishonest purpose or some moral obliquity and conscious doing of a wrong,
a breach of known duty through some motive or interest or ill will that partakes of the nature
of fraud." Moral damages may, therefore, be awarded.
Exemplary damages may also be awarded. The purpose of exemplary damages is to
serve as a deterrent to future and subsequent parties from the commission of a similar
offense. Business owners must always be forthright in their dealings. They cannot be
allowed to renege on their obligations, considering that these obligations were freely
entered into by them. Exemplary damages may also be awarded in this case to serve as a
deterrent to those who use fraudulent means to evade their liabilities. Since the award of
exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered.