Alexander A. Sevilla

Obligations and Contracts Supreme Court Decisions for 2011

JanuaryConsignation.There must be full compliance with the requisites of consignation for consignation to be valid. Substantial compliance is not enough. InInsular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc., the Court enumerated the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the performance of the obligation was given notice after the consignation was made.The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons interested in the performance of the obligation will render the consignation void.Soledad Dalton vs. FGR Fealty and Development Corporation, et al.;G.R. No. 172577, January 19, 2011.

Contracts; quantum meruit.Under the principle ofquantum meruit,a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack of a written contract, in order to avoid unjust enrichment.Quantum meruitmeans that in an action for work and labor, payment shall be made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to permit unjust enrichment at the expense of the contractor.Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation;G.R. No. 177685, January 26, 2011.

Contracts; stages.Every contract has the elements of (1) consent of the contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established. A contract is perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract where the parties fulfill or perform the terms they agreed on, culminating in its extinguishment.International Freeport Traders, Inc. vs. Danzas Intercontinental, Inc.;G.R. No. 181833, January 26, 2011.

Contracts; rescission.Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191 of theCivil Code, which provides for the remedy of rescission or more properlyresolution,a principal action based on breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the provision is the obligors failure to comply with an existing obligation. Thus, the power to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation.Petitioners may not justify Rhogens termination of the contract upon grounds of non-payment of progress billing and uncooperative attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order. Having breached the contractual obligation it had expressly assumed,i.e.,to comply with all laws, rules and regulations of the local authorities, Rhogen was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogens first progress billing, on account of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite.Heirs of Ramon C. Gaite, et al. vs. The Plaza, Inc. and FGU Insurance Corporation;G.R. No. 177685, January 26, 2011.Dacion en pago. Adacion en pagois governed by the law of sales. Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547et seq. of the Civil Code).Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.;G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011.

Damages; negligenceNegligence is defined as the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something which a prudent man and reasonable man could not do. As a consequence of its negligence, FEBTC must be held liable for damages pursuant to Article 2176 of the Civil Code which states whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Indisputably, had the insurance premium been paid, through the automatic debit arrangement with FEBTC, Maxilites fire loss claim would have been approved. Hence, Maxilite suffered damage to the extent of the face value of the insurance policy or the sum ofP2.1 million.Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.;G.R. No. 171379/G.R. No. 171419, January 10, 2011.

Damages; solidary liability.The Supreme Court found that Aquinas School was not solidarily liable for actions of person (Yamyamin) who was not its employee. The Court has consistently applied the four-fold test to determine the existence of an employer-employee relationship: the employer (a) selects and engages the employee; (b) pays his wages; (c) has power to dismiss him; and (d) has control over his work. Of these, the most crucial is the element of control. Control refers to the right of the employer, whether actually exercised or reserved, to control the work of the employee as well as the means and methods by which he accomplishes the same.In this case, the school directress testified that Aquinas had an agreement with a congregation of sisters under which, in order to fulfill its ministry, the congregation would send religion teachers to Aquinas to provide catechesis to its students. Aquinas insists that it was not the school but Yamyamins religious congregation that chose her for the task of catechizing the schools grade three students, much like the way bishops designate the catechists who would teach religion in public schools. Under the circumstances, it was quite evident that Aquinas did not have control over Yamyamins teaching methods.Of course, Aquinas still had the responsibility of taking steps to ensure that only qualified outside catechists are allowed to teach its young students. In this regard, it cannot be said that Aquinas took no steps to avoid the occurrence of improper conduct towards the students by their religion teacher. It had reviewed the qualifications of Yamyamin, determined that the congregation that recommended her was legitimate and in order, provided her with teacher orientation and a Faculty Manual, and reviewed the course outline of the subjects that the teacher would be handling.Aquinas School vs. Sps. Jose Inton and Ma. Victoria S. Inton, etc., et al.;G.R. No. 184202, January 26, 2011.

Donation.It is immediately apparent that Rodrigo passed naked title to Rodriguez under a perfected donationinter vivos. First.Rodrigo stipulated that if the herein Donee predeceases me, the [Property] will not be reverted to the Donor, but will be inherited by the heirs of x x x Rodriguez, signaling the irrevocability of the passage of title to Rodriguezs estate, waiving Rodrigos right to reclaim title. This transfer of title was perfected the moment Rodrigo learned of Rodriguezs acceptance of the disposition which, being reflected in the Deed, took place on the day of its execution on 3 May 1965. Rodrigos acceptance of the transfer underscores its essence as a giftin presenti, notin futuro, as only donationsinter vivosneed acceptance by the recipient. Indeed, had Rodrigo wished to retain full title over the Property, she could have easily stipulated, as the testator did in another case, that the donor, may transfer, sell, or encumber to any person or entity the properties here donated x x x or used words to that effect. Instead, Rodrigo expressly waived title over the Property in case Rodriguez predeceases her.Gonzalo Villanueva, represented by his heirs vs. Spouses Froilan and Leonila Branoco;G.R. No. 172804, January 24, 2011.

Estoppel; by silence.In estoppel, a party creating an appearance of fact, which is false, is bound by that appearance as against another person who acted in good faith on it. Estoppel is based on public policy, fair dealing, good faith and justice. Its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one who reasonably relied thereon. It springs from equity, and is designed to aid the law in the administration of justice where without its aid injustice might result.Estoppel by silence arises where a person, who by force of circumstances is obliged to another to speak, refrains from doing so and thereby induces the other to believe in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is intentional or negligent.Both trial and appellate courts basically agree that FEBTC is estopped from claiming that the insurance premium has been unpaid. That FEBTC induced Maxilite and Marques to believe that the insurance premium has in fact been debited from Maxilites account is grounded on the the following facts: (1) FEBTC represented and committed to handle Maxilites financing and capital requirements, including the related transactions such as the insurance of the trust receipted merchandise; (2) prior to the subject Insurance Policy No. 1024439, the premiums for the three separate fire insurance policies had been paid through automatic debit arrangement; (3) FEBIBI sent FEBTC, not Maxilite nor Marques, written reminders dated 19 October 1994, 24 January 1995, and 6 March 1995 to debit Maxilites account, establishing FEBTCs obligation to automatically debit Maxilites account for the premium amount; (4) there was no written demand from FEBTC or Makati Insurance Company for Maxilite or Marques to pay the insurance premium; (5) the subject insurance policy was released to Maxilite on 19 August 1994; and (6) the subject insurance policy remained uncancelled despite the alleged non-payment of the premium, making it appear that the insurance policy remained in force and binding.Jose Marques, et al. vs. Far East Bank and Trust Company, et al. / Far East Ban and Trust Company, et al. vs. Jose Marques, et al.;G.R. No. 171379/G.R. No. 171419, January 10, 2011.

Government contracts; obligation to pay supplier or contractor even under an illegal contract on basis of quantum meruit. In ordering the payment of the obligation due respondent on aquantum meruitbasis,the Court of Appeals correctly relied onRoyal Trust Corporation v. COA, Eslao v. COA, Melchor v. COA,EPG Construction Company v. Vigilar,andDepartment of Health v. C.V. Canchela & Associates, Architects. All these cases involved government projects undertaken in violation of the relevant laws, rules and regulations covering public bidding, budget appropriations, and release of funds for the projects. Consistently in these cases, this Court has held that the contracts were void for failing to meet the requirements mandated by law; public interest and equity, however, dictate that the contractor should be compensated for services rendered and work done. Specifically,C.V. Canchela & Associatesis similar to the case at bar, in that the contracts involved in both cases failed to comply with the relevant provisions of Presidential Decree No. 1445 and the Revised Administrative Code of 1987. Nevertheless, the illegality of the subject Agreements proceeds, it bears emphasis, from an express declaration or prohibition by law, not from any intrinsic illegality. As such, the Agreements are not illegalper se, and the party claiming thereunder may recover what had been paid or delivered.Neither can petitioners escape the obligation to compensate respondent for services rendered and work done by invoking the states immunity from suit. This Court has long established thatthe doctrine of governmental immunity from suit cannot serve as an instrument for perpetrating an injustice to a citizen.Gregorio R. Vigilar, et al. vs. Arnulfo D. Aquino;G.R. No. 180388, January 18, 2011.

Quasi-delict; solidary liability.Loadmasters claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual relation with Columbia, but it is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts. Pertinent is the ruling enunciated in the case ofMindanao Terminal and Brokerage Service, Inc. v. Phoenix Assurance Company of New York,/McGee & Co., Inc.where this Court held that a tort may arise despite the absence of a contractual relationship.In connection therewith, Article 2180 provides:ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible.x x x xEmployers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be made answerable for the damages caused by its employees who acted within the scope of their assigned task of delivering the goods safely to the warehouse.Whenever an employees negligence causes damage or injury to another, there instantly arises a presumptionjuris tantumthat the employer failed to exercisediligentissimi patris familiesin the selection(culpa in eligiendo)or supervision(culpa in vigilando)of its employees. To avoid liability for a quasi-delict committed by its employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his employee. In this regard, Loadmasters failed.Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation;G.R. No. 179446, January 10, 2011.

Sale; contract to sell does not transfer ownership; rights under contract to sell.A contract to sell is one where the prospective sellerreservesthe transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. It does not, by itself, transfer ownership to the buyer.Nevertheless, rights given under a Contract to Sell must still be respected. A Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers is the right to have his contract to sell registered with the Register of Deeds in order to make it binding on third parties.The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right.While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquezs Contract to Sell. Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTAs obligation. The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the development of DELTAs subdivision project, for this was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers.Luzon Development Bank vs. Angeles Catherine Enriquez / Delta Development and Management Services, Inc. vs. Angeles Catherine Enriquez, et al.;G.R. Nos. 168646 & G.R. No. 168666. January 12, 2011.

Subrogation.Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid the consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation and R & B Insurance Corporation;G.R. No. 179446, January 10, 2011.

FebruaryContract; damages arising from breach of contractThe Court finds that since petitioners complaint arose from a contract, the doctrine of proximate cause, which is relevant only in actions for quasi-delicts, finds no application to it. What applies in the present case is Article 1170 of the Civil Code which reads: [T]hose who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages. Breach of contract is defined as the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract. As for petitioners claim that respondent departed from itsverbalagreement with petitioners, the same fails, given that the written contract which the parties entered into the day before the event, being the law between them.Spouses Luigi Guanio and Anna Guanio v. Makati Shangri-la Hotel and Resort, Inc.;G.R. No. 190601.February 7, 2011.

Contract; novation There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.Carolina Hernandez-Nievera, et al. v. Wilfredo Hernandez, et al.;G.R. No. 171165.February 14, 2011.

Contracts; rescissible; presumption of fraud in sale by debtor; application to mortgage of property. The presumption of fraud established under Art. 1387 does not apply to registered lands IF the judgment or attachmentmade is not also registered. In this case, prior to the annotation of the REM on February 23, 1998, SBC was able to successfully acquire a writ of preliminary attachment in its favor against the spouses Lee on January 30, 1998 in a case for a sum of money for nonpayment of its obligation. Bangkok Bank alleges that because of this, the presumption of fraud under Art. 1387 of the Civil Code applies. But while a judgment was made against the spouses Lee in favor of SBC on January 30, 1998, this, however, was not annotated on the titles of the subject properties. In fact, there is no showing that the judgment has ever been annotated on the titles of the subject properties. Considering that the earlier SBC judgment or attachment was not, and in fact never was, annotated on the titles of the subject Antipolo properties, prior to the execution of the REM, the presumption of fraud under Art. 1387 of the Code clearly cannot apply.Also, even assuming Article 1387 of the Civil Code applies, fraud is presumed only in alienationsby onerous title of a person against whom a judgment or attachment has been issued. The term, alienation, connotes the transfer of the property and possession of lands, tenements, or other things, from one person to another. This term is particularly applied to absolute conveyancesof real property and must involve a complete transfer from one person to another. A mortgage does not contemplate a transfer or an absolute conveyance of a real property. It is an interest in land created by a written instrument providing security for the performance of a duty or the payment of a debt. When a debtor mortgages his property, he merely subjects it to a lienbut ownership thereof is not parted with. It is merely a lien that neither creates a title nor an estate. It is, therefore, certainly not the alienation by onerous title that is contemplated in Art. 1387 where fraud is to be presumed.Finally, a careful reading of Art. 1387 of the Code vis--vis its Art. 1385 would plainly show that the presumption of fraud in case of alienations by onerous title only applies to the person who made such alienation, and against whom some judgment has been rendered in any instance or some writ of attachment has been issued. A third person is not and should not be automatically presumed to be in fraud or in collusion with the judgment debtor. In allowing rescission in case of an alienation by onerous title, the third person who received the property conveyed should likewise be a party to the fraud. As clarified by Art. 1385(2) of the Code, so long as the person who is in legal possession of the property did not act in bad faith, rescission cannot take place. Thus, in all instances, as to the third person in legal possession of the questioned property, good faith is presumed. Accordingly, it is upon the person who alleges bad faith or fraud that rests the burden of proof. Asiatrust, being a third person in good faith, should not be automatically presumed to have acted fraudulently by the mere execution of the REM over the subject Antipolo properties, there being no evidence of fraud or bad faith.Samuel U. Lee, et al. v. Bangkok Bank Public Company, Limited;G.R. No. 173349.February 9, 2011.

Contract; validity of bidding rules.In joining the bid for sugar importation, the sugar corporations are deemed to have assented to the Bidding Rules, including the forfeiture provision under paragraph G.1. The Bidding Rules bind the sugar corporations. The latter cannot rely on the lame excuse that they are not aware of the forfeiture provision. At the trial, Teresita Tan testified that the Bidding Rules were duly published in a newspaper of general circulation. Vicente Cenzon, a sugar importer who participated in the bidding for the 3rdtranche, testified that he attended the pre-bid conference where the Bidding Rules were discussed and copies of the same were distributed to all the bidders.The Bidding Rules passed through a consultative process actively participated by various government agencies and their counterpart in the private sector: the Department of Agriculture, the National Economic Development Authority, the Department of Trade and Industry, the Department of Finance, the Sugar Regulatory Administration, and a representative each from the sugar planters group and the sugar millers group.We find nothing in the forfeiture provision of the Bidding Rules that is contrary to law, morals, good customs, public order, or public policy. On the contrary, the forfeiture provision fully supports government efforts to aid the countrys ailing sugar industry. Conversion fees, including those that are forfeited under paragraph G.1 of the Bidding Rules, are automatically remitted to the Bureau of Treasury and go directly to the Agricultural Competitiveness Enhancement Fund.South Pacific Sugar Corporation, et al. v. Court of Appeals and Sugar Regulatory AdministrationG.R. No. 180462.February 9, 2011.EstoppelEstoppel, an equitable principle rooted in natural justice, prevents persons from going back on their own acts and representations, to the prejudice of others who have relied on them. The principle is codified in Article 1431 of the Civil Code. Estoppel can also be found in Rule 131, Section 2 (a) of the Rules of Court. The elements of estoppel are:first, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence;second, the other in fact relies, and relies reasonably or justifiably, upon that communication;third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; andfourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actors position would expect or foresee such action.F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc.;G.R. No. 171238.February 2, 2011.

EstoppelThe inequity resulting from the abrogation of the whole proceedings at the late stage when the decision subsequently rendered was adverse to the persons raising the issue of inadequacy of docket fee payment is the evil being avoided by the equitable principle of estoppel.David Lu v. Paterno Lu Ym, Sr., et al./Paterno Lu Ym, Sr., et al. v. David Lu/John Lu Ym, et al. v. The Hon. Court of Appeals of Ceby City, et al.;G.R. No. 153690/G.R. No. 157381/G.R. No. 170889.February 15, 2011.

LachesThe essence of laches or stale demands is the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier, thus, giving rise to a presumption that the party entitled to assert it either has abandoned or declined to assert it. It is not concerned with mere lapse of time; the fact of delay, standing alone, being insufficient to constitute laches.In addition, it is a rule of equity and applied not to penalize neglect or sleeping on ones rights, but rather to avoid recognizing a right when to do so would result in a clearly unfair situation. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. Ultimately, the question of laches is addressed to the sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable considerations. It cannot be used to defeat justice or perpetrate fraud andinjustice.Itis the better rule that courts, under the principle of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to be so, a manifest wrong or injustice would result.It is significant to point out at this juncture that the overriding consideration in the instant case is that petitioner was deprived of the subject properties which it should have rightly owned were it not for the fraud committed by respondents. Hence, it would be the height of injustice if respondents would be allowed to go scot-free simply because petitioner relied in good faith on the formers false representations. Besides, as earlier discussed, even in the exercise of due diligence, petitioner could not have been expected to immediately discover respondents fraudulent scheme.Insurance of the Philippine Islands Corporation v. Spouses Vidal S. Gregorio and Julita Gregorio;G.R. No. 174104.February 14, 2011.

Statute of FraudsUnder the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a contract for the sale or acquisition of real property shall be unenforceable unless the same or some note of the contract be in writing and subscribed by the party charged. Subject to defined exceptions, evidence of the agreement cannot be received without the writing, or secondary evidence of its contents.MCIAAs invocation of the Statute of Frauds is misplaced primarily because the statute applies only to executory and not to completed, executed, or partially consummated contracts.Analyzing the situation of the cases at bar, there can be no serious objection to the proposition that the agreement package between the government and the private lot owners was already partially performed by the government through the acquisition of the lots for the expansion of the Lahug airport. The parties, however, failed to accomplish the more important condition in the CFI decision decreeing the expropriation of the lots litigated upon: the expansion of the Lahug Airport. The projectthe public purpose behind the forced property takingwas, in fact, never pursued and, as a consequence, the lots expropriated were abandoned. Be that as it may, the two groups of landowners can, in an action to compel MCIAA to make good its oral undertaking to allow repurchase, adduce parol evidence to prove the transaction.At any rate, the objection on the admissibility of evidence on the basis of the Statute of Frauds may be waived if not timely raised. Records tend to support the conclusion that MCIAA did not, as the Ouanos and the Inocians posit, object to the introduction of parol evidence to prove its commitment to allow the former landowners to repurchase their respective properties upon the occurrence of certain events.Anunciacion Vda. De Ouano, et al. v. Republic of the Philippines, et al./Mactan-Cebu International Airport [MCIAA] v. Ricardo L. Inocian, in his personal capacity and as Attorney-in-Fact of Olympia E. Esteves, et al. and Aletha Suico Magat in her personal capacity and as Attorney-in-Fact of Philip M. Suico, et al.;G.R. Nos. 168770 & 168812.February 9, 2011.

MarchCommon carrier; breach of contract of carriage.There existed a contract of carriage between G & S, as the owner and operator of the Avis taxicab, and Jose Marcial, as the passenger of said vehicle. As a common carrier, G & S is bound to carry [Jose Marcial] safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. However, Jose Marcial was not able to reach his destination safely as he died during the course of the travel. In a contract of carriage, it is presumed that the common carrier is at fault or is negligent when a passenger dies or is injured. In fact, there is even no need for the court to make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence. Unfortunately, G & S miserably failed to overcome this presumption. Both the trial court and the CA found that the accident which led to Jose Marcials death was due to the reckless driving and gross negligence of G & S driver, Padilla, thereby holding G & S liable to the heirs of Jose Marcial for breach of contract of carriage.That the driver was acquitted in the criminal case for reckless imprudence is immaterial. Article 31 of the Civil Code provides,viz:When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter.In this case, the action filed by the heirs is primarily for the recovery of damages arising from breach of contract of carriage allegedly committed by G & S. Clearly, it is an independent civil action arising from contract which is separate and distinct from the criminal action for reckless imprudence resulting in homicide filed by the heirs against Padilla by reason of the same incident. Hence, regardless of Padillas acquittal or conviction in said criminal case, same has no bearing in the resolution of the present case.Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al.,G.R. No. 170071 & G.R. No. 170125,March 9, 2011.

Contract; voidableA contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. In determining whether consent is vitiated by any of the circumstances mentioned, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in their favor what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship, and the conduct of the parties at the time of the making of the contract and subsequent thereto, irrespective of whether the contract is in public or private writing. And, in order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or those conditions which have principally moved one or both parties to enter the contract. Cornelia M. Hernandez, substituted by Lourdes H. Castillo v. Cecilio F. Hernandez,G.R. No. 158576,March 9, 2011.

Damages; moral.While we deemed it proper to modify the amount of moral damages awarded by the trial court as discussed below, we nevertheless agree with the heirs that the CA should not have pegged said award in proportion to the award of exemplary damages. Moral and exemplary damages are based on different jural foundations. They are different in nature and require separate determination. The amount of one cannot be made to depend on the other. InVictory Liner Inc. v. Gammadwe awardedP100,000.00 by way of moral damages to the husband and three children of the deceased, a 39-year old Section Chief of the Bureau of Internal Revenue, to compensate said heirs for the grief caused by her death. This is pursuant to the provisions of Articles 1764 and 2206(3) which provide:Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Articles 2206 shall also apply to the death of a passenger caused by the breach of contract by a common carrier.Art. 2206. x x x(3) The spouse, legitimate and illegitimate descendants and the ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased.Here, there is no question that the heirs are likewise entitled to moral damages pursuant to the above provisions, considering the mental anguish suffered by them by reason of Jose Marcials untimely death.Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al. v. G & S Transport Corporation/G & S Transport Corporation v. Heirs of Jose Marcial K. Ochoa, namely: Ruby B. Ochoa, et al.,G.R. No. 170071 & G.R. No. 170125,March 9, 2011

Damages; vicarious liability.Under Article 2180 of the New Civil Code, when an injury is caused by the negligence of the employee, there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of the servant or employee, or in supervision over him after selection or both. The liability of the employer under Article 2180 is direct and immediate; it is not conditioned upon prior recourse against the negligent employee and a prior showing of the insolvency of such employee. Therefore, it is incumbent upon the private respondents (in this case, the petitioner) to prove that they exercised the diligence of a good father of a family in the selection and supervision of their employee.Filipinas Synthetic Fiber Corporation v. Wilfredo De Los Santos, et al.,G.R. No. 152033.March 16, 2011

AprilConjugal partnership property; mortgage; consent of spouse.The husband cannot alienate or encumber any conjugal real property without the consent, express or implied, of the wife. Should the husband do so, then the contract is voidable. Article 173 of the Civil Code allows Aguete to question Ros encumbrance of the subject property. However, the same article does not guarantee that the courts will declare the annulment of the contract. Annulment will be declared only upon a finding that the wife did not give her consent. In the present case, we follow the conclusion of the appellate court and rule that Aguete gave her consent to Ros encumbrance of the subject property.The application for loan shows that the loan would be used exclusively for additional working [capital] of buy & sell of garlic & virginia tobacco. In her testimony, Aguete confirmed that Ros engaged in such business, but claimed to be unaware whether it prospered. Aguete was also aware of loans contracted by Ros, but did not know where he wasted the money. Debts contracted by the husband for and in the exercise of the industry or profession by which he contributes to the support of the family cannot be deemed to be his exclusive and private debts.Joe A. Ros and Estrella Aguetev. Philippine National Bank, Laoag Branch,G.R. No. 170166.April 6, 2011.

Contract; determinacy of object.That thekasunduandid not specify the technical boundaries of the property did not render the sale a nullity. The requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. As portion of thekasunduanshows, there is no doubt that the object of the sale is determinate.Domingo Carabeo v.Spouses Dingco,G.R. No. 190823,April 4, 2011.Loan; remedies of mortgage-creditor; unjust enrichment defeats rule prohibiting multiplicity of suits. InChieng v. Santos, this Court ruled that a mortgage-creditor may institute against the mortgage-debtor either a personal action for debt or a real action to foreclose the mortgage. The Court ruled that the remedies are alternative and not cumulative and held that the filing of a criminal action for violation ofBatas Pambansa Blg.22 was in effect a collection suit or a suit for the recovery of the mortgage-debt. In that case, however, this Courtpro hac vice, ruled that respondents could still be held liable for the balance of the loan, applying the principle that no person may unjustly enrich himself at the expense of another.The principle of unjust enrichment is provided under Article 22 of the Civil Code which provides:Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of another.The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of another without just cause or consideration. The principle is applicable in this case considering that Edna admitted obtaining a loan from petitioners, and the same has not been fully paid without just cause. The Deed was declared void erroneously at the instance of Edna, first when she raised it as a defense before the RTC, Branch 33 and second, when she filed an action for declaratory relief before the RTC, Branch 93. Petitioner could not be expected to ask the RTC, Branch 33 for an alternative remedy, as what the Court of Appeals ruled that he should have done, because the RTC, Branch 33 already stated that it had no jurisdiction over any personal action that petitioner might have against Edna.Considering the circumstances of this case, the principle against unjust enrichment, being a substantive law, should prevail over the procedural rule on multiplicity of suits. The Court of Appeals, in the assailed decision, found that Edna admitted the loan, except that she claimed it only amounted toP340,000. Edna should not be allowed to unjustly enrich herself because of the erroneous decisions of the two trial courts when she questioned the validity of the Deed. Moreover, Edna still has an opportunity to submit her defenses before the RTC, Branch 42 on her claim as to the amount of her indebtedness.Arturo Sarte Floresv. Spouses Enrico L. Lindo, Jr. and Edna C. Lindo,G.R. No. 183984.April 13, 2011

Moral damages; pre-requisites for an award.In prayers for moral damages, recovery is more an exception rather than the rule. Moral damages are not meant to be punitive but are designed to compensate and alleviate the physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar harm unjustly caused to a person. To be entitled to such an award, the claimant must satisfactorily prove that he has suffered damages and that the injury causing it has sprung from any of the cases listed in Articles 2219 and 2220 of the Civil Code. Moreover,the damages must be shown to be the proximate result of a wrongful act or omission. The claimant must thus establish the factual basis of the damages and its causal tie with the acts of the defendant.In fine, an award of moral damages calls for the presentation of 1) evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; 2) a culpable act or omission factually established; 3) proof that the wrongful act or omission of the defendant is the proximate cause of the damages sustained by the claimant; and 4) the proof that the act is predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code.In the present case, respondent failed to establish by clear and convincing evidence that the injuries he sustained were the proximate effect of petitioners act or omission. It thus becomes necessary to instead look into the manner by which petitioner carried out his renovations to determine whether this was directly responsible for any distress respondent may have suffered since the law requires that awrongful or illegal actor omission must have preceded the damages sustained by the claimant.It bears noting that petitioner was engaged in the lawful exercise of his property rights to introduce renovations to his abode. While he initially did not have a building permit and may have misrepresented his real intent when he initially sought respondents consent, the lack of the permit was inconsequential since it only rendered petitioner liable to administrative sanctions or penalties.The testimony of petitioner and his witnesses, specifically Architect Punzalan, demonstrates that they had actually taken measures to prevent, or at the very least, minimize the damage to respondents property occasioned by the construction work. Architect Punzalan details how upon reaching an agreement with petitioner for the construction of the second floor, he (Punzalan) surveyed petitioners property based on the Transfer Certificate of Title (TCT) and Tax Declarations and found that the perimeter wall was within the confines of petitioners property; that he, together with petitioner, secured the consent of the neighbors (including respondent) prior to the start of the renovation as reflected in a Neighbors Consent dated June 12, 1998; before the construction began, he undertook measures to prevent debris from falling into respondents property such as the installation of GI sheet strainers, the construction of scaffoldings on respondents property, the instructions to his workers to clean the area before leaving at 5:00 p.m; and that the workers conducted daily clean-up of respondents property with his consent, until animosity developed between the parties.Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will. While the Court harbors no doubt that the incidents which gave rise to this dispute have brought anxiety and anguish to respondent, it is unconvinced that the damage inflicted upon respondents property was malicious or willful, an element crucial to merit an award ofmoraldamages under Article 2220 of the Civil Code.Rodolfo N. Regalav. Federico P. Carin,G.R. No. 188715,April 6, 2011.

JuneDamagesRespondents are not entitled to moral damages because contracts are not referred to in Article 2219 of the Civil Code, which enumerates the cases when moral damages may be recovered. Article 2220 of the Civil Code allows the recovery of moral damages in breaches of contract where the defendant acted fraudulently or in bad faith. However, this case involves a contract to sell, wherein full payment of the purchase price is a positive suspensive condition, the non-fulfillment of which is not a breach of contract, but merely an event that prevents the seller from conveying title to the purchaser. Since there is no breach of contract in this case, respondents are not entitled to moral damages.In the absence of moral, temperate, liquidated or compensatory damages, exemplary damages cannot be granted for they are allowed only in addition to any of the four kinds of damages mentioned.Mila A. Reyes v. Victoria T. Tuparan,G.R. No. 188064. June 1, 2011

Force MajeureArticle 1174 of the Civil Code provides: Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable. A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases offorce majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible.Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an act of God orforce majeure, the following must concur:(a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.The shortage in supplies and cement may be characterized asforce majeure. In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall underforce majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned.Philippine Realty and Holding Corp. vs. Ley Const. and Dev. Corp./Ley Cons. and Dev. Corp. vs. Philippine Realty and Holding Corp.,G.R. No. 165548/G.R. No. 167879. June 13, 2011

LachesLaches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances, with the question of laches addressed to the sound discretion of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and should not be used to defeat justice or to perpetuate fraud or injustice.From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study and determine both the legal and practical implications of entertaining Goodyear as a client. After review, Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that it did not foresee at the inception of the lease. It thereafter communicated its non-conformity to the assignment. To the mind of the Court, there was never a delay.Simedarby Pilipinas, Inc. vs. Goodyear Philippines, Inc., et al./Goodyear Philippines, Inc. vs. Sime Darby Pilipinas, Inc. et al.;G.R. No. 182148/G.R. No. 183210. June 8, 2011.

RescissionGranting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances.Mila A. Reyes v. Victoria T. Tuparan,G.R. No. 188064. June 1, 2011

Sale; contract of sale vs. contract to sell; no rescission in contract to sellThe subject Deed of Conditional Sale with Assumption of Mortgage entered into by and among the two parties and FSL Bank onNovember 26, 1990 is a contract to sell and not a contract of sale. The subject contract was correctly classified as a contract to sell based on the following pertinent stipulations:8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment of the Second Party of the balance of the purchase price and liquidation of the mortgage obligation of 2,000,000.00. Pending payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the written consent of the First and Third Party.9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party shall execute the corresponding Deed of Absolute Sale in favor of the Second Party.Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to the respondent.Mila A. Reyes v. Victoria T. Tuparan,G.R. No. 188064. June 1, 2011

JulyCompensationFor legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code, quoted below, must be present.ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.ARTICLE 1279. In order that compensation may be proper, it is necessary:(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;(3) That the two debts be due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor.A debt is liquidated when its existence and amount are determined. It is not necessary that it be admitted by the debtor. Nor is it necessary that the credit appear in a final judgment in order that it can be considered as liquidated; it is enough that its exact amount is known. And a debt is considered liquidated, not only when it is expressed already in definite figures which do not require verification, but also when the determination of the exact amount depends only on a simple arithmetical operation.In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesus in the amount ofP300,000.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August 17, 1993 until fully paid. Jesus, on the other hand, has the obligation to pay attorneys fees which the RTC had already determined to be equivalent to whatever amount recoverable from Vicente. The said attorneys fees were awarded by the RTC on the counterclaim of Vicente on the basis of quantum meruit for the legal services he previously rendered to Jesus.Jesus M. Montemayor vs. Vicente D. Millora;G.R. No. 168251. July 27, 2011.

Contracts; novationNovation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. For novation to take place, the following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree to a new contract; 3) The old contract must be extinguished; and 4) There must be a valid new contract.In this case, only the first element of novation exists. Indeed, there is a previous valid obligation,i.e., the 1989 Bonds. There is however neither a valid new contract nor a clear agreement between the parties to a new contract since the very existence of the 1990 Bond has been rendered dubious. Without the new contract, the old contract is not extinguished.Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old obligation is completely superseded by the new one. Quite obviously, neither can there be implied novation. In this case, there is no new obligation.Country Bankers Insurance Corporation v. Antonio Lagman;G.R. No. 165487. July 13, 2011.

Contracts; rescission under Article 1191 or Article 1389The Lalicons claim that under Article 1389 of the Civil Code the action to claim rescission must be commenced within four years from the time of the commission of the cause for it.But an action for rescission can proceed from either Article 1191 or Article 1381. It has been held that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the Old Civil Code which uses the term resolution. Resolution applies only to reciprocal obligation ssuch that a breach on the part of one party constitutes an implied resolutory condition which entitles the other party to rescission. Resolution grants the injured party the option to pursue, as principal actions, either a rescission or specific performance of the obligation, with payment of damages in either case.Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil Code, which is a subsidiary action, not based on a partys breach of obligation. The four-year prescriptive period provided in Article 1389 applies to rescissions under Article 1381.Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled that such violation comes under Article 1191 where the applicable prescriptive period is that provided in Article 1144 which is 10 years from the time the right of action accrues. The NHAs right of action accrued on February 18, 1992 when it learned of the Alfaros forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale on April 10, 1998, it did so well within the 10-year prescriptive period.Vicelet Lelicon and Vicelen Lalicon v. National Housing Authority;G.R. No. 185440. July 13, 2011.

Damages; moral, exemplary and attorneys feesParagraph 10, Article 2219 of the Civil Code provides that moral damages may be recovered in case of acts and actions referred to in Article 21 of the same Code. Article 21 reads:ART. 21 Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.As previously discussed, DRBIs act of maliciously including two additional properties in the Sheriffs Certificate of Sale even if they were not included in the foreclosed properties caused the Dys and Maxinos pecuniary loss. Hence, DRBI is liable to pay moral damages.The award of exemplary damages is similarly proper. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages. We cannot agree more with the following ratio of the appellate court in granting the same:Additionally, what is alarming to the sensibilities of the Court is the deception employed by the bank in adding other properties in the certificate of sale under public auction without them being included in the public auction conducted. It cannot be overemphasized that being a lending institution, prudence dictates that it should employ good faith and due diligence with the properties entrusted to it. It was the bank which submitted the properties ought to be foreclosed to the sheriff. It only submitted five properties for foreclosure. Yet, it caused the registration of the Certificate of Sale under public auction which listed more properties than what was foreclosed. On this aspect, exemplary damages in the amount ofP200,000.00 are in order.There being an award of exemplary damages, the award of attorneys fees is likewise proper as provided in paragraph 1, Article 2208 of the Civil Code.Spouses Francisco D. Yap and whelma Yap vs. Spouses Zosimo Dy, Sr. and Natividad Chiu Dy, et al./Dumaguete Rural Bank Inc. (DRBI) herein represented by Mr. William D.S. Dichoso vs.. Spouses Zosimo Dy, Sr. and Natividad Chiu Dy, et al.;G.R. Nos. 171868 & 171991. July 27, 2011.

Damages; negligence; contributory negligence; higher diligence standard for banksWe find no reversible error in the findings of the appellate court that PNB was negligent in the handling of FFCCIs combo account, specifically, with respect to PNBs failure to detect the forgeries in the subject applications for managers check which could have prevented the loss. As we have often ruled, the banking business is impressed with public trust. A higher degree of diligence is imposed on banks relative to the handling of their affairs than that of an ordinary business enterprise. Thus, the degree of responsibility, care and trustworthiness expected of their officials and employees is far greater than those of ordinary officers and employees in other enterprises. In the case at bar, PNB failed to meet the high standard of diligence required by the circumstances to prevent the fraud. InPhilippine Bank of Commerce v. Court of AppealsandThe Consolidated Bank & Trust Corporation v. Court of Appeals,where the banks negligence is the proximate cause of the loss and the depositor is guilty of contributory negligence, we allocated the damages between the bank and the depositor on a 60-40 ratio. We apply the same ruling in this case considering that, as shown above, PNBs negligence is the proximate cause of the loss while the issue as to FFCCIs contributory negligence has been settled with finality in G.R. No. 173278. Thus, the appellate court properly adjudged PNB to bear the greater part of the loss consistent with these rulings.Philippine National Bank vs. F.F. Cruz and Co., Inc.;G.R. No. 173259. July 25, 2011.

Damages; quasi-delict; employer liabilityWhenever an employees negligence causes damage or injury to another, there instantly arises a presumptionjuris tantumthat the employer failed to exercisediligentissimi patris familiesin the selection or supervision of his employee. Thus, in the selection of prospective employees, employers are required to examine them as to their qualification, experience and service record. With respect to the supervision of employees, employers must formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches thereof. These facts must be shown by concrete proof, including documentary evidence. Thus, the RTC committed no error in finding that the evidence presented by respondent Guballa was wanting. It ruled:x x x. As expected, defendant Jose Guballa, attempted to overthrow this presumption of negligence by showing that he had exercised the due diligence required of him by seeing to it that the driver must check the vital parts of the vehicle he is assigned to before he leaves the compound like the oil, water, brakes, gasoline, horn (9 tsn, July 17, 1986); and that Geronimo had been driving for him sometime in 1976 until the collision in litigation came about (5-6 tsn, ibid); that whenever his trucks gets out of the compound to make deliveries, it is always accompanied with two (2) helpers (16-17 tsn, ibid). This was all which he considered as selection and supervision in compliance with the law to free himself from any responsibility. This Court then cannot consider the foregoing as equivalent to an exercise of all the care of a good father of a family in the selection and supervision of his driver Mariano Geronimo.The Heirs of the late Ruben Reinoso, Sr., et al. vs. Court of Appeals, et al.;G.R. No. 116121. July 18, 2011.

Obligations; delayThere are three requisites necessary for a finding of default.First, the obligation is demandable and liquidated;second, the debtor delays performance; andthird, the creditor judicially or extrajudicially requires the debtors performance.According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs office to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without need of demand.Indeed, Article 1169 of the Civil Code on delay requires the following:Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfilment of their obligation.However, the demand by the creditor shall not be necessary in order that delay may exist:(1) When the obligation or the law expressly so declares; x x xAs the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real estate mortgage.General Milling Corporation vs. Sps. Librado Ramos and Remedios Ramos;G.R. No. 193723. July 20, 2011.

AugustContracts; rescission;accion paulianaUnder Article 1381 of the Civil Code, anaccion paulianais an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). It is thus apparent that an action to rescind, or anaccion pauliana,must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile.It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSCs transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury. This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC.Metropolitan Bank and Trust Company, substituted by Meridian Corporation vs. International Exchange Bank/Chuayuco Steel Manufacturing vs. International Exchange Bank;G.R. No. 176008/G.R. No. 176131, August 10, 2011.

Interest; usury lawPetitioners contend that the interest rate of 24%per annumstipulated in the mortgage contract, which they executed in favor of respondent Bank, is usurious. This Court has consistently held that for some time now, usury has been legally non-existent and that interest can now be charged as lender and borrower may agree upon. In fact, Section 1 of Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983, expressly provides that [t]he rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.Nonetheless, this Court has also held in a number of cases, that nothing in the circular grants lenderscarte blancheauthority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Thus, the stipulated interest rates are illegal if they are unconscionable.The question now is whether the 24%per annuminterest rate is unreasonable under the circumstances obtaining in the present case. The Court rules in the negative.InSpouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch,this Court held that the interest rate of 24%per annumon a loan ofP244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations.Also, inGarcia v. Court of Appeals, this Court sustained the agreement of the parties to a 24%per annuminterest on anP8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.Based on the above jurisprudence, the Court finds that the 24%per annuminterest rate, provided for in the subject mortgage contracts for a loan ofP225,000.00, may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to comply with the provisions contained therein.Spouses Nelson and Myra Villanuevavs.Courtof Appeals, et al.;G.R. No. 163433. August 22, 2011.

Laches; as between relativesLaches, being rooted in equity, is not always to be applied strictly in a way that would obliterate an otherwise valid claim especially between blood relatives. The existence of a confidential relationship based upon consanguinity is an important circumstance for consideration; hence, the doctrine is not to be applied mechanically as between near relatives.Adaza v. Court of Appealsheld that the relationship between the parties therein, who were siblings, was sufficient to explain and excuse what would otherwise have been a long delay in enforcing the claim and the delay in such situation should not be as strictly construed as where the parties are complete strangersvis-a-viseach other; thus, reliance by one party upon his blood relationship with the other and the trust and confidence normally connoted in our culture by that relationship should not be taken against him. Too,Sotto v. Tevesruled that the doctrine of laches is not strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay.Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo, et al. ;G.R. No. 175073. August 15, 2011.

Quasi-delict; elementsAccording to Article 2176 of the Civil Code, whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. To sustain a claim based onquasi-delict, the following requisites must concur: (a) damage suffered by the plaintiff; (b) fault or negligence of defendant; and (c) connection of cause and effect between the fault or negligence of defendant and the damage incurred by the plaintiff. These requisites must be proved by a preponderance of evidence. The claimants, respondents in this case, must, therefore, establish their claim or cause of action by preponderance of evidence, evidence which is of greater weight, or more convincing than that which is offered in opposition to it.Albert Tison and Claudio L. Jabonvs.Sps. Gregorio Pomasin and Consorcia Ponce Pomasin, et al.;G.R. No. 173180. August 24, 2011.Quasi-delict; liability of employer for negligence of employee; bases. Standard may hold RCJ liable for two reasons, both of which rely upon facts uncontroverted by RCJ. One, RCJ is the registered owner of the bus driven by Mangoba. Two, RCJ is Mangobas employer.Standards allegation in its amended complaint that RCJ is the registered owner of the passenger bus with plate number NYG 363 was sufficient to state a cause of action against RCJ. The registered owner of a vehicle should be primarily responsible to the public for injuries caused while the vehicle is in use. The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner.Moreover, when the employee causes damage due to his own negligence while performing his own duties, there arises thejuris tantumpresumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the liability being the relationship ofpater familiasor on the employers own negligence.RCJ Bus Lines, Inc. vs. Standard Insurance Company Incorporated;G.R. No. 193629, August 17, 2011.

Quasi-delict; negligence; violation of law is negligence; causal connectionDriving without a proper license is a violation of traffic regulation. Under Article 2185 of the Civil Code, the legal presumption of negligence arises if at the time of the mishap, a person was violating any traffic regulation. However, inSanitary Steam Laundry, Inc. v. Court of Appeals,we held that a causal connection must exist between the injury received and the violation of the traffic regulation. It must be proven that the violation of the traffic regulation was the proximate or legal cause of the injury or that it substantially contributed thereto. Negligence, consisting in whole or in part, of violation of law, like any other negligence, is without legal consequence unless it is a contributing cause of the injury. Likewise controlling is our ruling inAonuevo v. Court of Appealswhere we reiterated that negligenceper se, arising from the mere violation of a traffic statute, need not be sufficient in itself in establishing liability for damages. In said case,Aonuevo, who was driving a car, did not attempt to establish a causal connection between the safety violations imputed to the injured cyclist, and the accident itself. Instead, he relied on a putative presumption that these violations in themselves sufficiently established negligence appreciable against the cyclist. Since the onus onAonuevois to conclusively prove the link between the violations and the accident, we can deem him as having failed to discharge his necessary burden of proving the cyclists own liability. We took the occasion to state that:The rule on negligenceper semust admit qualifications that may arise from the logical consequences of the facts leading to the mishap. The doctrine (and Article 2185, for that matter) is undeniably useful as a judicial guide in adjudging liability, for it seeks to impute culpability arising from the failure of the actor to perform up to a standard established by a legal fiat. But the doctrine should not be rendered inflexible so as to deny relief when in fact there is no causal relation between the statutory violation and the injury sustained. Presumptions in law, while convenient, are not intractable so as to forbid rebuttal rooted in fact. After all, tort law is remunerative in spirit, aiming to provide compensation for the harm suffered by those whose interests have been invaded owing to the conduct of other.In the instant case, no causal connection was established between the tractor-trailer drivers restrictions on his license to the vehicular collision. Furthermore, Jabon was able to sufficiently explain that the Land Transportation Office merely erred in not including restriction code 8 in his license.Albert Tison and Claudio L. Jabonvs.Sps. Gregorio Pomasin and Consorcia Ponce Pomasin, et al.;G.R. No. 173180. August 24, 2011.

SubrogationSubrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who substitutes another succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer who has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.RCJ Bus Lines, Inc. vs. Standard Insurance Company Incorporated;G.R. No. 193629, August 17, 2011.

SeptemberContracts; both parties at fault; rule not applicable to simulated contractThe Heirs of Policronio contended that even assuming that the contract was simulated, the Heirs of Alfonso would still be barred from recovering the properties by reason of Article 1412 of the Civil Code, which provides that if the act in which the unlawful or forbidden cause does not constitute a criminal offense, and the fault is both on the contracting parties, neither may recover what he has given by virtue of the contract or demand the performance of the others undertaking. As the Heirs of Alfonso alleged that the purpose of the sale was to avoid the payment of inheritance taxes, they cannot take from the Heirs of Policronio what had been given to their father.On this point, the Court again disagrees. Article 1412 of the Civil Code is as follows:Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the contract, or demand the performance of the others undertaking;(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply with his promise.Article 1412 is not applicable to fictitious or simulated contracts, because they refer to contracts with an illegal cause or subject-matter. This article presupposes the existence of a cause, it cannot refer to fictitious or simulated contracts which are in reality non-existent. As it has been determined that the Deed of Sale is a simulated contract, the provision cannot apply to it.Granting that the Deed of Sale was not simulated, the provision would still not apply. Since the subject properties were included as properties of Alfonso in the Deed of Extra-Judicial Partition, they are covered by corresponding inheritance and estate taxes. Therefore, tax evasion, if at all present, would not arise, and Article 1412 would again be inapplicable.Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al.;G.R. No. 165748/G.R. No. 165930, September 14, 2011.

Contracts; denominated in foreign currencySuch stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard, Article 1249 of the Civil Code provides:Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.Although the Civil Code took effect onAugust 30, 1950, jurisprudence had upheld the continued effectivity of Republic Act No. 529, which took effect earlier onJune 16, 1950. Pursuant to Section 1 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. OnJune 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by providing for several exceptions to the nullity of agreements to pay in foreign currency.OnApril 13, 1993, Central Bank Circular No. 1389 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. In cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required. OnJuly 5, 1996, Republic Act No. 8183 took effect, expressly repealing Republic Act No. 529 in Section 2 thereof. The same statute also explicitly provided that parties may agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment.Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into onNovember 21, 1995, when the agreement to pay in foreign currency was still considered void under Republic Act No. 529, the actual loans, as shown in the promissory notes, were taken out fromSeptember 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. InUnited Coconut Planters Bank v. Beluso, we held that:[O]pening a credit line does not create a credit transaction of loan ormutuum, since the former is merely a preparatory contract to the contract of loan ormutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. x x x.Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no dollar loans to novate into peso loans must necessarily fail.Union Bank of the Philippines vs. Spouses Rodolfo T. Tiu and Victoria N. Tiu;G.R. Nos. 173090-91. September 7, 2011.

Contracts; issue is lack of consideration and gross inadequacy is not relevantIt is well-settled in a long line of cases that where a deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void for lack of consideration. Thus, although the contract states that the purchase price of 2,000.00 was paid by Policronio to Alfonso for the subject properties, it has been proven that such was never in fact paid as there was no money involved. It must, therefore, follow that the Deed of Sale is void for lack of consideration. Given that the Deed of Sale is void, it is unnecessary to discuss the issue on the inadequacy of consideration.Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al.;G.R. No. 165748/G.R. No. 165930, September 14, 2011.

Contracts; partition not a conveyance of real property; no need for special power of attorney. This Court finds that Article 1878 (5) and (15) is inapplicable to the case at bench. It has been held in several cases that partition among heirs is not legally deemed a conveyance of real property resulting in change of ownership. It is not a transfer of property from one to the other, but rather, it is a confirmation or ratification of title or right of property that an heir is renouncing in favor of another heir who accepts and receives the inheritance. It is merely a designation and segregation of that part which belongs to each heir. The Deed of Extra-Judicial Partition cannot, therefore, be considered as an act of strict dominion. Hence, a special power of attorney is not necessary.In fact, as between the parties, even an oral partition by the heirs is valid if no creditors are affected. The requirement of a written memorandum under the statute of frauds does not apply to partitions effected by the heirs where no creditors are involved considering that such transaction is not a conveyance of property resulting in change of ownership but merely a designation and segregation of that part which belongs to each heir.Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al.;G.R. No. 165748/G.R. No. 165930, September 14, 2011.

Contracts; simulation; lack of consent because of a lack of intention to be bound; contract is therefore void. Where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham. Similarly, in this case, Alfonso simulated a transfer to Policronio purely for taxation purposes, without intending to transfer ownership over the subject lands.The most protuberant index of simulation of contract is the complete absence of an attempt in any manner on the part of the ostensible buyer to assert rights of ownership over the subject properties. Policronios failure to take exclusive possession of the subject properties or, in the alternative, to collect rentals, is contrary to the principle of ownership. Such failure is a clear badge of simulation that renders the whole transaction void.Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al. vs. Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al./Heirs of Liberato M. Ureta, namely: Teresa F. Ureta, et al. vs. Heirs of Policronio M. Ureta, Sr., namely: Conrado B. Ureta, et al.;G.R. No. 165748/G.R. No. 165930, September 14, 2011.

Damages; moral and exemplaryAlthough PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable for moral and exemplary damages. Since a contractual relationship existed between Ramos and PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends on the applicability of Article 2220 of the Civil Code, which provides:Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due.The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis ours]Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious commission of a wrong; it partakes of the nature of fraud.As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos bank account and subsequently debited the amount ofP251,910.96 therefrom. While PCIB may have acted hastily and without regard to its primary duty to treat the accounts of its depositors with meticulous care and utmost fidelity, we find that its actions were propelled more by the need to protect itself, and not out of malevolence or ill will. One may err, but error alone is not a ground for granting moral damages.We also disallow the award of exemplary damages. A