MJ1. Land Bank of the Philippines vs. Oñate, G.R. No. 192371, 713 SCRA 678, January 15, 2014Case Title : LAND BANK OF THE PHILIPPINES, petitioner, vs. EMMANUEL OÑATE, respondent. Case Nature : PETITION for review on certiorari of the decision of the Court of Appeals. Syllabi Class :Civil Law|Credit Transactions|Interest Rates

Land Bank of the Philippines vs. OñateG.R. No. 192371, 713 SCRA 678, January 15, 2014

DEL CASTILLO, J.:

FACTS: Respondent Emmanuel C. Oñate maintained seven trust accounts with petitioner Land Bank of the Philippines and each trust account was covered by an Investment Management Account which authorized Land Bank to invest and reinvest his funds and which obliged Land Bank to keep an accurate records of all investments, receipts, disbursements and other transactions of the accounts.

Land Bank however miscredited an amount of P4,000,000.00 to one of the trust account of Oñate and Land Bank demanded the return of said amount but Oñate refused. Thereby, Land Bank applied the outstanding balances of the trust accounts against the indebtedness - the miscredited amount – of Oñate. Since the amount of the outstanding balances did not suffice, Land Bank filed a complaint for sum of money against Oñate.

Oñate countered that his trust account reached a balance of P229,222,160.25 and $3,472,683.94 and even applying the miscredited amount with interest, still the bank owes him P220,999,472.36 on top of his dollar deposits amounting to $3,472,683.94. The RTC created a board of commissioners for the purpose of examining the trust accounts of Oñate. The Board found that there were withdrawals without withdrawal slips. The trial court dismissed the complaint and ordered Land Bank to return the amount it applied for the miscredited amount for it failed to established that the miscredited amount came from the investments of Philippine Virginia Tobacco Administration and Philippine Virginia Tobacco Board.

Both parties appealed. The Court of Appeals dismissed the appeal of Land Bank concerning the miscredited amount while it gave due course to Oñate’s claim for undocumented withdrawals made by Land Bank against his trust accounts and ordered Land Bank to pay the same with 12% interest. The Court of Appeals anchored its decision on the Land Bank’s failure to observe provisions of Bangko Sentral ng Pilipinas Manual of Regulation for Banks (MORB) requiring bank to give full disclosure of the services it offered and conduct its dealings with transparency, as well as to render reports that would sufficiently apprise its clients of the significant developments in the administration of their accounts.

Land Bank filed a petition for review on certiorari contending that the trust accounts are in the nature of express trust and not in the nature of regular deposit accounts where 12% is applicable.

ISSUE: Whether or not Land Bank was duty-bound to keep an accurate record and regularly apprise their clients of the status of their accounts considering that the MORB which was not yet in existence at the time of the transactions.

Whether or not the applicable interest rate concerning the return of undocumented withdrawals is 6% since the trust accounts is in the form of express trust and not that of the regular deposit accounts.

HELD: On the first issue, yes; Land Bank is duty-bound since even without the MORB, because the IMAs, the contract between Land Bank and Oñate required Land Bank to do so. ON the second issue, no; the applicable interest rate is 12% since the unilateral offsetting of funds without legal justification and the undocumented withdrawals are tantamount to forbearance of money; but such 12% annual interest shall apply only up to June 30, 2013 based on Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013.

Anent Land Bank’s contention that the determination of whether the CA erred in retroactively applying the 2008 MORB poses a legal question, the same deserves scant consideration. True, the CA included in its ratio decidendi a discussion on the 2008 MORB to give emphasis to the duties of banks to keep an accurate record and regularly apprise their clients of the status of their accounts. But the issue of whether Land Bank failed to comply with those duties can be resolved even without the MORB as the same duties are also imposed on Land Bank by the IMAs, the contract that primarily governs the parties in this case. “As a general rule, a contract is the law between the parties. Thus, ‘from the moment the contract is perfected, the parties are bound not only to the fulfilment of what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage and law.’ Also, ‘the stipulations of the contract being the law between the parties, courts have no alternative but to enforce them as they were agreed [upon] and written’ x x x.”

Based on the factual milieu of this case even without touching on the MORB, we found that Land Bank still failed to perform its bounden duties to keep accurate records and render regular accounting. We also found no cogent reason to disturb the other factual findings of the CA.

Land Bank’s argument that the lower courts erred in imposing 12% per annum rate of interest is likewise devoid of merit. The unilateral offsetting of funds without legal justification and the undocumented withdrawals are tantamount to forbearance of money. In the analogous case of Estores v. Supangan, we held that “[the] unwarranted withholding of the money which rightfully pertains to [another] amounts to forbearance of money which can be considered as an involuntary loan.” Following Eastern Shipping Lines, Inc. v. Court of Appeals,98therefore, the applicable rate of interest in this case is 12% per annum. Besides, Land Bank is estopped from assailing the award of 12% per annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89 as the outstanding indebtedness of

Oñate by using the same 12% per annum rate of interest. It was only after the lower courts rendered unfavorable decisions that Land Bank started to insist that the applicable rate of interest is 6% per annum.Of equal importance is the determination of when the said 12% per annum rate of interest should commence.1âwphi1Recall that both the RTC and the CA reckoned the running of the 12% per annum rate of interest from June 21, 1991, or the day Land Bank unilaterally applied the outstanding balance in all of Oñate’s trust accounts, until fully paid. The compounding of interest, on the other hand, was based on the provision of the IMAs granting Land Bank “to hold, invest and reinvest the Fund and keep the same invested, in your sole discretion, without distinction between principal and income.”While we find sufficient basis for the compounding of interest, we find it necessary however to modify the commencement date. In Eastern Shipping, it was observed that the commencement of when the legal interest should start to run varies depending on the factual circumstances obtaining in each case. As a rule of thumb, it was suggested that “where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained).”

In the case at bench, while Oñate protested the setting off, no proof was presented that he formally demanded for the return of the amount so debited prior to the filing of the Complaint. Quite understandably so because at that time he could not determine with some degree of certainty the outstanding balances of his accounts as Land Bank neglected on its duty to keep him updated on the status of his accounts. Land Bank even undertook to furnish him with “the exact computation”103 of what remains in his accounts after the set off. But this never happened until Land Bank initiated the Complaint on September 7, 1992. Oñate, on the other hand, filed his Answer (With Compulsory Counterclaim) on May 26, 1993. In other words, we cannot reckon the running of the interest prior to the filing of the Complaint or Oñate’s Counterclaim as no demand prior thereto was made. Neither could the interest commence to run at the time of filing of any of aforesaid pleadings (as to constitute judicial demand) since the undocumented withdrawals in the sums of P60,663,488.11 and US$3,210,222.85, as well as the amount actually debited from all of Oñate’s accounts, were determined only after the Board submitted its consolidated report on August 16, 2004 or more than 10 years after Land Bank and Oñate filed their Complaint and Answer, respectively. Note too that while Oñate sought to recover the amount of undocumented withdrawals before the RTC, the same was denied in the latter’s May 31, 2006 Decision. The RTC granted Oñate only the total amount of funds debited from his trust accounts. It was only when the CA rendered its December 18, 2009 Decision that Oñate was awarded the undocumented withdrawals. Hence, we find it just and proper to reckon the running of the interest of 12% per annum, compounded yearly, for the debited amount and undocumented withdrawals on different dates. The debited amount of P1,471,416.52, shall earn interest beginning May 31, 2006 or the day the RTC rendered its Decision granting said amount to Oñate. As to the undocumented withdrawals ofP60,663,488.11 and US 3,210,222.85, the legal rate of interest should start to run the day the CA promulgated its Decision on December 18, 2009.

During the pendency of this case, however, the Monetary Board issued Resolution No. 796 dated May 16, 2013, stating that in the absence of express stipulation between the parties, the rate of interest in loan or forbearance of any money, goods or credits and the rate allowed in judgments shall be 6% per annum. Said Resolution is embodied in Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013, which took effect on July 1, 2013. Hence, the 12% annual interest mentioned above shall apply only up to June 30, 2013. Thereafter, or starting July 1, 2013, the applicable rate of interest for both the debited amount and undocumented withdrawals shall be 6% per annum compounded annually, until fully paid. MJ 2. Saberon vs. Ventanilla, Jr., G.R. No. 192669, 722 SCRA 287, April 21, 2014Case Title : RAUL SABERON, JOAN F. SABERON and JACQUELINE SABERON, petitioners, vs. OSCAR VENTANILLA, JR., and CARMEN GLORIA D. VENTANILLA, respondents. Case Nature : MOTION FOR RECONSIDERATION of a resolution of the Supreme Court. Syllabi Class :Civil Law|Land Registration|Sales

Saberon vs. Ventanilla, Jr.G.R. No. 192669, 722 SCRA 287, April 21, 2014

MENDOZA, J.:

FACTS: Petitioner Manila Remnant Co., Inc. (MRCI) entered into a contract with A.U. Valencia & Co. Inc. (AUVC) wherein the AUVC will develop the subdivision owned by MRCI with authority to manage the sales of lots thereof, to execute contract to sell, and to issue official receipts.

MRCI and AUVC executed two contracts to sell covering two lots in favor of Oscar C. Ventanilla, Jr. and Carmen Gloria D. Ventanilla payable for 10 years. Artemio U. Valencia, the then president of AUVC sold the said lots, holding out himself as president of MRCI, resold the said lots without consideration to Carlos Crisostomo without the knowledge of the Ventanillas. Valencia transmitted to MRCI the contract with Crisostomo while keeping the contact with the Ventanillas. Valencia made it appear that the payment made by the Ventanillas were that of Crisostomo.

MRCI then terminated its business relationship with AUVC on account of irregularities discovered in its collection and remittances. AUVC sued MRCI to impugn the abrogation of their agency agreement before the court of first instance. The court then ordered all lot buyers to deposit their monthly amortizations with the court. AUVC informed the Ventanillas that it was still authorized by the trial court to accept payment and it assured Ventanillas that that said payments would be deposited later in court. For AUVC’s failure to forward its collections to the trial court as ordered, MRCI caused the publication of a notice cancelling the contracts to sell of some lot buyers including those of Crisostomo in whose name the payments of the Ventanillas had been credited.

Believing that they already paid P73,122.35 for the two lots, the Ventanillas offered to pay the balance to MRCI. It was this time that the Ventanillas discovered Valencia’s deception, who at that time of discovery was already been removed as president of AUVC. MRCI refused Ventanillas’ offer to pay the remainder of the contract price.

The Ventanillas commenced an action for specific performance, annulment of deeds and damages against MRCI, AUVC, and Crisostomo before the court of first instance. The court declared that the contract to sell with Ventanillas was valid and subsisting while it annulled the contract to sell with Crisostomo. The court ordered that the MRCI to execute an absolute deed of sale in favor of the Ventanillas, free from all liens and encumbrances. The Court of Appeals affirmed. MRCI then filed before the Supreme Court a petition for certiorari questioning its solidary liability with AUVC and Crisostomo but not that of the order of issuance of the absolute deed of sale; thus, the order concerning the issuance of deed of absolute sale was deemed final and executory.

The Ventanillas moved for the issuance of a writ of execution which the court of first instance granted and served upon the MRCI. A notice of levy was annotated in the titles of MRCI. MRCI made a manifestation that it cannot deliver the properties to the Ventanillas since the properties were already sold to Samuel Marquez thus it offered the Ventanillas reimbursement of the amount paid by the Ventanillas. The court ordered that the garnishment be made upon the bank account of MRCI. MRCI appealed the decision of the court with the Court of Appeals contending that it can still sell the property since the case was still pending in the court. The Court of Appeals however ruled that the contract to sell entered into by MRCI and Marquez was not an impediment for the issuance of the garnishment. When the case reached the Supreme Court, it ruled that the validity of sale to Ventanillas was already final and executory considering that MRCI only appealed the ruling holding it solidarily liable with the AUVC and Crisostomo; hence, the portion of the decision ordering MRCI to execute an absolute deed of sale in their favor had already become final and executory.

However, the execution of the judgment in favor of the Ventanillas was yet far from fruition as Samuel Cleofe, Register of Deeds for Quezon City revealed to them that MRCI registered a deed of absolute sale to Marquez who eventually sold the same property to the Saberons, which conveyance was registered. ROD Cleofe opined that a judicial order for the cancellation of the titles in the name of the Saberons was essential before he complied with the writ of execution. Apparently, the notice of levy, through inadvertence, was not carried over to the title issued to Marquez, the same being a junior encumbrance which was entered after the contract to sell to Marquez had already been annotated.

So the Ventanillas were constrained to go to court to seek the annulment of the deed of sale executed between MRCI and Marquez as well as the deed of sale between Marquez and the Saberons, as the fruits of void conveyances. The trial court ruled in favor of the Ventanillas. The Court of Appeals likewise affirmed the decision of the trial court ratiocinating that with respect to involuntary liens, an entry of a notice of levy and attachment in the primary entry or day book of the

Registry of Deeds was considered as sufficient notice to all persons that the land was already subject to attachment.

ISSUE: Whether or not the registration of the absolute contract of sale will prevail over an earlier notice of levy though the latter was registered only in the day book of the registry of deeds.

Whether or not the registration of the notice of levy had produced constructive notice that would bind third persons despite the failure of the ROD-QC to annotate the same in the certificates of title.

HELD: On the first issue, no; a levy of a judgment debtor creates a lien, which nothing can subsequently destroy except the very dissolution of the attachment of the levy itself, Under no law, not even P.D. No. 1529, is it stated that an attachment shall be discharged upon sale of the property other than under execution. On the second issue, yes; superiority and preference in rights were given to the registration of the levy on attachment; although the notice of attachment had not been noted on the certificate of title, its notation in the book of entry of the Register of Deeds produced all the effects which the law gave to its registration or inscription.

It has already been established in the two previous cases decided by the Court that the contracts to sell executed in favor of the Ventanillas are valid and subsisting. Clearly, it has been acknowledged, even by MRCI, as can be seen in the latter’s own choice to only question their solidary liability in the 1990 case and its failure to assign the same as an error in the 1994 case. In the same vein, the issue on Marquez’s title had already been passed upon and settled in the 1994 case. That he purchased the lots prior to the annotation of the notice of levy in MRCI’s title was of no moment. In fact, the Court explicitly declared that MRCI’s transaction with Marquez “cannot prevail over the final and executory judgment ordering MRCI to execute an absolute deed of sale in favor of the Ventanillas.”

These favorable findings prompted the Ventanillas to register the notice of levy on the properties. The records show that on the strength of a final and executory decision by the Court, they successfully obtained a writ of execution from the RTC and a notice of levy was then entered, albeit on the primary entry book only. The contract to sell to Marquez was registered on May 21, 1991, while the notice of levy was issued ten (10) days later, or on May 31, 1991. In February 1992, MRCI executed the Deed of Sale with Marquez, under whose name the clean titles, sans the notice of levy, were issued. A year later, or on March 11, 1992, MRCI registered the deed of sale to Marquez who later sold the same property to the Saberons.

This complex situation could have been avoided if it were not for the failure of ROD Cleofe to carry over the notice of levy to Marquez’s title, serving as a senior encumbrance that might have dissuaded the Saberons from purchasing the properties.

The Court agrees with the position of the RTC in rejecting ROD Cleofe’s theory.

Distinctions between a contract to sell and a contract of sale are well-established in jurisprudence. In a contract of sale, the title to the property passes to the vendee

upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.

It is undeniable, therefore, that no title was transferred to Marquez upon the annotation of the contract to sell on MRCI’s title. As correctly found by the trial court, the contract to sell cannot be substituted by the Deed of Absolute Sale as a “mere conclusion” of the previous contract since the owners of the properties under the two instruments are different.

Considering that the deed of sale in favor of Marquez was of later registration, the notice of levy should have been carried over to the title as a senior encumbrance.

Corollary to this is the rule that a levy of a judgment debtor creates a lien, which nothing can subsequently destroy except the very dissolution of the attachment of the levy itself. Prior registration of the lien creates a preference, since the act of registration is the operative act to convey and affect the land. Jurisprudence dictates that the said lien continues until the debt is paid, or the sale is had under an execution issued on the judgment or until the judgment is satisfied, or the attachment is discharged or vacated in the same manner provided by law. Under no law, not even P.D. No. 1529, is it stated that an attachment shall be discharged upon sale of the property other than under execution.

Additionally, Section 59 of P.D. No. 1529 provides that, “[i]f, at the time of the transfer, subsisting encumbrances or annotations appear in the registration book, they shall be carried over and stated in the new certificate or certificates, except so far as they may be simultaneously released or discharged.” This provision undoubtedly speaks of the ministerial duty on the part of the Register of Deeds to carry over existing encumbrances to the certificates of title.

From the foregoing, ROD Cleofe’s theory that a deed of sale, as a mere conclusion of a contract to sell, turns into a senior encumbrance which may surpass a notice of levy, has no leg to stand on. It was, in fact, properly rejected by the courts a quo. Verily, the controversy at hand arose not from the Ventanillas’ fault, but from ROD Cleofe’s misplaced understanding of his duty under the law.

Surely, the Ventanillas had every right to presume that the Register of Deeds would carry over the notice of levy to subsequent titles covering the subject properties. The notice was registered precisely to bind the properties and to serve as caution to third persons who might potentially deal with the property under the custody of the law. In DBP v. Acting Register of Deeds of Nueva Ecija,16 the Court ruled that entry alone produced the effect of registration, whether the transaction entered was a voluntary or involuntary one, so long as the registrant had complied with all that was required of him for purposes of entry and annotation, and nothing more remained to be done but a duty incumbent solely on the Register of Deeds.

While the Court is not unmindful that a buyer is charged with notice only of such burdens and claims as are annotated on the title, the RTC and the CA are both correct in applying the rule as to the effects of involuntary registration. In cases of voluntary registration of documents, an innocent purchaser for value of registered land becomes the registered owner, and, in contemplation of law the holder of a certificate of title, the moment he presents and files a duly notarized and valid deed of sale and the same is entered in the day book and at the same time he surrenders or presents the owner's duplicate certificate of title covering the land sold and pays the registration fees, because what remains to be done lies not within his power to perform. The Register of Deeds is duty bound to perform it. In cases of involuntary registration, an entry thereof in the day book is a sufficient notice to all persons even if the owner's duplicate certificate of title is not presented to the register of deeds. Therefore, in the registration of an attachment, levy upon execution, notice of lis pendens, and the like, the entry thereof in the day book is a sufficient notice to all persons of such adverse claim. MJ 3. Francisco vs. Rojas, G.R. No. 167120, 723 SCRA 423, April 23, 2014Case Title : RODOLFO V. FRANCISCO, petitioner, vs. EMILIANA M. ROJAS, and the legitimate heirs of JOSE A. ROJAS, namely: JOSE FERDINAND M. ROJAS II, ROLANDO M. ROJAS, JOSE M. ROJAS, JR., CARMELITA ROJAS-JOSE, VICTOR M. ROJAS, and LOURDES M. ROJAS, all represented by JOSE FERDINAND M. ROJAS II, respondents. Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals. Syllabi Class :Civil Law|Reconveyance

Francisco vs. RojasG.R. No. 167120, 723 SCRA 423, April 23, 2014

PERALTA, J.:

FACTS: Don Buenaventura Guido owned a 3,181.74-hectare track of land which was left to his sons Francisco Guido and Hermogenes Guido upon his death. In 1911, a decreto was issued in the names of the brothers covering the same track of land. On the basis of that decreto, an original certificate of title was issued in the name of the brothers. In 1933, said original certificate of title was cancelled and a transfer certificate of title was issued. In 1942, Francisco and Hermogenes adjudicated among themselves the same track of land and transferred ½ portion of it to Jose A. Rojas. But the adjudication was formalized by the heirs of Francisco and Hermogenes only in 1973 when the heirs purportedly executed an extra-judicial settlement of estate with quitclaims.

Alfredo Guido, Sr., representing the heirs of the brother Francisco and Hermogenes, filed a petition for reconstitution of the transfer certificate of title issued in 1933 and the same was reconstituted. After the reconstitution, the heirs presented before the registry the extra-judicial settlement of estate with quitclaims executed in 1973. The entire lot was subdivided into 21 portions and each was issued a transfer of certificate of titles. Thereafter, 14 portions were exchanged by the heirs for shares

of stock of Interport Resources Corporation and the heirs thereafter ceded the remaining portions to Alfredo Guido, Sr. in exchange of monetary consideration.

It appeared that around five months after the reconstitution of the transfer certificate issued in 1933, an application for registration of title over four parcels of land was filed with the regional trial court by Rosalina, Rodolfo, Carmela and Carmen, all surnamed Francisco. Said parcels of land were allegedly overlapped with those tracks of covered by the reconstituted transfer certificate of title. The court then declared the Franciscos as the absolute owners of said parcels of land and a decree of registration was ordered by the court to be issued by the Commissioner of Land Registration.

To complicate matters, the Republic of the Philippines, represented by the Solicitor General, filed a complaint for declaration of nullity of the decreto and of the transfer certificate of title derived therefrom. The court dismissed the complaint of the Republic.

Thereafter a supplemental report was submitted to LRC by Land Registration Authority recommending the application of the Franciscos. The regional trial court then directed the Registry of Deeds to issue certificates of title to the Franciscos but no certificates were issued. The Rojases learned of the LRC case and filed a petition for certiorari and prohibition. The Rojases claimed superior rights over the track of land. However, while the petition was pending, the certificates were subsequently issued in favor of the Franciscos. The Court of Appeals then declared the order recognizing the Franciscos as absolute owners void since there had been existing titles when the Franciscos applied for the registration of said track of land. Thus this petition with the Supreme Court.

ISSUE: Whether or not the Franciscos availed of the proper remedy of land registration proceeding considering that the subject land was already titled and covered by the Torrens system.

HELD: No, the Franciscos should have availed of the remedy of reconveyance.

The Franciscos have based their claim to ownership of the subject lots on the alleged fact of open, continuous, exclusive, and notorious possession and occupation of alienable and disposable lands of the public domain. Their application represented to the land registration court that the parcels of land subjects of the case were unregistered and not yet brought within the coverage of the Torrens system of registration. These are obvious as they filed an application pursuant to Chapter III (I) of Presidential Decree No. (PD) 1529 (Property Registration Decree) by following the ordinary registration proceedings for the confirmation of their title. Specifically, under Section 14 (1) of PD 1529, three requisites must be satisfied: (1) open, continuous, exclusive, and notorious possession and occupation of the land since June 12, 1945 or earlier; (2) pertains to alienable and disposable land of the public domain, and (3) under a bona fide claim of ownership.

As the very nature of the action limits the subject matter to alienable and disposable lands of the public domain, an ordinary registration proceeding cannot be availed of by the Franciscos in order to establish claims over lands which had

already been brought within the coverage of the Torrens system. Chapter III (I) of PD 1529 does not provide that original registration proceedings can be automatically and unilaterally converted into a proceeding for the issuance of new TCT involving parcels of land already registered under the Torrens system. Certainly, it is improper to make a legal short-cut by implementing the judgment of the land registration court against the parcels of land in the names of the Rojases and Guidos under the guise that it is contemplated in Guido.

A land registration court has no jurisdiction to order the registration of land already decreed in the name of another in an earlier land registration case. Issuance of another decree covering the same land is, therefore, null and void.

Truly, one of the appropriate legal remedies that should have been availed of by the Franciscos is an action for reconveyance. Contrary to petitioner’s declaration, proof of actual fraud is not required as it may be filed even when no fraud intervened such as when there is mistake in including the land for registration. In the action for reconveyance, the decree of registration is highly respected as incontrovertible; what is sought instead is the transfer of the property wrongfully or erroneously registered in another’s name to its rightful owner or to the one with a better right.

An action for reconveyance resulting from fraud prescribes four years from the discovery of the fraud and if it is based on an implied or a constructive trust it prescribes ten (10) years from the alleged fraudulent registration or date of issuance of the certificate of title over the property.

However, an action for reconveyance based on implied or constructive trust is imprescriptible if the plaintiff or the person enforcing the trust is in possession of the property. In effect, the action for reconveyance is an action to quiet the property title, which does not prescribe. This Court held in Yared v. Tiongco:

The Court agrees with the CA’s disquisition that an action for reconveyance can indeed be barred by prescription. In a long line of cases decided by this Court, we ruled that an action for reconveyance based on implied or constructive trust must perforce prescribe in ten (10) years from the issuance of the Torrens title over the property.

However, there is an exception to this rule. In the case of Heirs of Pomposa Saludares v. Court of Appeals, the Court reiterating the ruling in Millena v. Court of Appeals, held that there is but one instance when prescription cannot be invoked in an action for reconveyance, that is, when the plaintiff is in possession of the land to be reconveyed. In Heirs of Pomposa Saludares, this Court explained that the Court in a series of cases, has permitted the filing of an action for reconveyance despite the lapse of more than ten (10) years from the issuance of title to the land and declared that said action, when based on fraud, is imprescriptible as long as the land has not passed to an innocent buyer for value. But in all those cases, the common factual backdrop was that the registered owners were never in possession of the disputed property. The exception was based on the theory that registration proceedings could not be used as a shield for fraud or for enriching a person at the expense of another.

In Alfredo v. Borras, the Court ruled that prescription does not run against the plaintiff in actual possession of the disputed land because such plaintiff has a right to wait until his possession is disturbed or his title is questioned before initiating an action to vindicate his right. His undisturbed possession gives him the continuing right to seek the aid of a court of equity to determine the nature of the adverse claim of a third party and its effect on his title. The Court held that where the plaintiff in an action for reconveyance remains in possession of the subject land, the action for reconveyance becomes in effect an action to quiet title to property, which is not subject to prescription.

MJ4.Metropolitan Fabrics, Inc. vs. Prosperity Credit Resources, Inc., G.R. No. 154390, 719 SCRA 260, March 17, 2014Case Title : METROPOLITAN FABRICS, INC. and ENRIQUE ANG, petitioners, vs. PROSPERITY CREDIT RESOURCES, INC., DOMINGO ANG and CALEB ANG, respondents. Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals. Syllabi Class :Civil Law|Contracts|Voidable Contracts|Fraud

Metropolitan Fabrics, Inc. vs. Prosperity Credit Resources, Inc.G.R. No. 154390, 719 SCRA 260, March 17, 2014

BERSAMIN, J.:

FACTS: Metropolitan Fabrics, Incorporated (MFI), a family corporation and represented by Enrique Ang, owned a lot which was subdivided into 11 portions pursuant with a loan agreement with Manphil Investment Corporation whereby the latter will retain 4 portions as mortgage security.

MFI also sought from Prosper Credit Resource Inc. (PCRI), a family-owned corporation engaged in money lending and represented by its President Domingo Ang (no blood relation with Enrique Ang), a loan for the payment of the balance of the cost of its boiler machine.

It appeared as claimed by Vicky, daughter of Enrique, that PCRI issued the loan even prior to the signing of the promissory notes and mortgage contracts considering that the families of Enrique and Domingo belonged to the same family association, the Lioc Kui Tong Fraternity. To return the trust of Domingo for issuing the loan early, Enrique signed the blank promissory note and mortgage contract forms. Also, Enrique and his daughter Vicky then entrusted to Domingo and his son Caleb the seven titles of the remaining portions of the lot mentioned earlier. It will appear that Enrique were given the choice to decide which of the titles will cover the mortgage to secure the amount of loan and that PRCI will return the remaining titles. It appeared that three lots were more than sufficient to secure the loan. MFI then issued 24 checks bearing no dates and amounts and signed by Enrique and his wife Natividad Africa. MFI also secured additional loan for the payment of real estate tax.

The first check bounced due to insufficient fund. MFI then learned that PCRI filled up the checks reflecting 35% interest instead of the agreed 24% and the 10-year repayment period was changed to 2-year period. Due to Vicky’s protest, PRCI furnished MFI with its copy of the promissory note and the disclosure statement. Here, MFI learned of the

Vicky claimed that thereafter, parties had various meeting to settle the loan. MFI offered offsetting the loan by ceding some of their properties or by entitling PCRI to collect rentals from MFI’s tenant Bethlehem Knitting Company.

It will appear later that all seven titles were placed as collateral for their loan. Enrique then received notice of sheriff’s sale auctioning the seven parcels of land. This information brought Enrique to break down emotionally and physically and be confined for 6 days.

MFI protested the auction sale resulting to the parties to agree that upon full payment of Winston Wang of the amount for the sale of the three parcels of land PCRI will release the mortgage. Wang made a down payment which MFI gave PCRI. Wang confronted Vicky regarding the sale and regarding PCRI’s refusal to accept the balance, PCRI contending that the three parcels of land were already foreclosed with PCRI as the sole bidder.

Later, due to the threat of Atty. Ismael Andres, counsel of Wang, that they will sue PCRI if they will not accept the balance, PCRI agreed to accept the payment on the conditions given. Wang paid the balance and which satisfied the principal amount of loan while MFI paid the expenses incurred by PCRI for foreclosure of the three lots as one of the condition given by PCRI. PRCI also agreed that the interests on the principal loan will be payable in a year.

MFI was able to raise money but not enough. After agreeing for extension subject to 18% interest, MFI was again able to raise the amount including the 18% interest but PCRI, represented by Caleb, refused to accept the amount contending that the agreed interest was 35%. MFI then received demand for them to vacate. This caused again Enrique’s health to deteriorate and Enrique was hospitalized.

Vicky filed a complaint for annulment of title and reconveyance with a prayer for moral damages in the amount of one million for the humiliation they suffered before the Chinese community considering that Enrique was then the president of the Lioc Kui Tong Fraternity while Domingo and Caleb were members thereof. Vicky claimed that the 35% interest imposed by PCRI was exorbitant considering that Manphil only charged 14% and provided 10-year repayment period with 2-year grace period.

The regional trial court ruled in favor of petitioners. But on appeal, the Court of Appeals ruled that action for annulment of title and reconveyance based on fraud had already prescribed or that estoppel had already set in; thus it reversed the decision of the trial court. The appellate court also considered that it was only Vicky who testified for the plaintiff.

ISSUE: Whether or not the mortgage contract is void and therefore action to assail such contract is imprescriptible.

HELD: No, the mortgage contract, granting that there was fraud, was only voidable and being as such, the action prescribes in four years from the discovery of fraud which is reckoned from the time the document was registered in the Register of Deeds in view of the rule that registration was notice to the whole world.

As the records show, petitioners really agreed to mortgage their properties as security for their loan, and signed the deed of mortgage for the purpose. Thereafter, they delivered the TCTs of the properties subject of the mortgage to respondents.

Consequently, petitioners’ contention of absence of consent had no firm moorings. It remained unproved. To begin with, they neither alleged nor established that they had been forced or coerced to enter into the mortgage. Also, they had freely and voluntarily applied for the loan, executed the mortgage contract and turned over the TCTs of their properties. And, lastly, contrary to their modified defense of absence of consent, Vicky Ang’s testimony tended at best to prove the vitiation of their consent through insidious words, machinations or misrepresentations amounting to fraud, which showed that the contract was voidable. Where the consent was given through fraud, the contract was voidable, not void ab initio. This is because a voidable or annullable contract is existent, valid and binding, although it can be annulled due to want of capacity or because of the vitiated consent of one of the parties.

With the contract being voidable, petitioners’ action to annul the real estate mortgage already prescribed. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four years from the time of the discovery of the fraud. The discovery of fraud is reckoned from the time the document was registered in the Register of Deeds in view of the rule that registration was notice to the whole world. Thus, because the mortgage involving the seven lots was registered on September 5, 1984, they had until September 5, 1988 within which to assail the validity of the mortgage. But their complaint was instituted in the RTC only on October 10, 1991. Hence, the action, being by then already prescribed, should be dismissed.

MJ5.Arco Pulp and Paper Co., Inc. vs. Lim, G.R. No. 206806, 727 SCRA 275, June 25, 2014Case Title : ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, petitioners, vs. DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES, respondent. Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals. Syllabi Class :Civil Law|Obligations|Rates of Interest

Arco Pulp and Paper Co., Inc. vs. LimG.R. No. 206806, 727 SCRA 275, June 25, 2014

LEONEN, J.: FACTS: Dan T. Lim, doing business under the name of Quality Paper and Plastic Products, Enterprises, supplied scrap papers, cartons, and other raw materials to Arco Pulp and Paper Company, Inc. through its Chief Executive Officer and President, Candida A. Santos. The parties allegedly agreed that Arco would either pay Lim the value of the raw materials or deliver to him their finished products of equivalent value. Upon delivery of the raw materials, Arco issued postdated checks which were, on the same day, presented and dishonored, due to account being closed. On that same day, Arco and Eric Sy entered into a memorandum of agreement whereby Arco and Sy agreed that the former Arco will deliver finished products to the latter. The raw materials were to be supplied by the Lim.

Dan Lim demanded payment from Arco but since no payment was made, Lim filed a complaint for collection of sum of money with prayer for attachment with the regional trial court. The court dismissed the case holding that there was novation when Arco and Sy entered into agreement. On appeal, the Court of Appeals reversed the decision of the trial court finding that there was no novation (no ratiocination was made by the Court and whether it adopted the contention of Lim) and that there exist an alternative obligation. The court ordered Arco and Santos to pay the amount due with interest and it also awarded moral damages, exemplary damages, and attorney’s fees. The court justified the award of damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking.

Arco and Santos filed a petition for review on certiorari contending that the obligation was novated when Sy became the new debtor to Lim because Lim agreed that the finished products were to be delivered to Sy (it will appear that instead of Arco paying Lim with the finished product, Arco is claiming that Lim agreed that supposed payment will delivered to Sy making Sy liable to Lim for the price of the finished product). They further contended that there was novation since there was no alternative obligation. On the other hand, Lim asserted that there was no novation.

ISSUE: Whether or not the agreement of Arco and Lim whereby Arco will pay Lim the value of the raw materials or will deliver to him finished products of the same value.

Whether or not the obligation between the parties was extinguished by novation when the Arco and Eric Sy entered into an agreement where Dan Lim will deliver raw materials to Arco which will use said raw materials to manufacture papers to be delivered to Eric Sy.

Whether or not the award of moral damages, exemplary damages, and attorney’s fees is proper.

Whether or not Candida A. Santos, being its Chief Executive Officer and President, is solidarily liable with Arco Pulp and Paper Co., Inc.

Whether or not the 12% interest imposed should be proper.

HELD: On the first issue, the obligation is in the alternative. On the second issue, the memorandum of agreement did not constitute a novation of the original contract since novation requires that it be clear and unequivocal, it is never presumed; and considering also that for novation to be valid, the consent of the creditor must also be secured. On the third issue, moral damages may be awarded because the breach of contract of Arco was in bad faith when it issued checks being drawn on closed accounts and when it attempted to pass its obligation to third person without the consent of Lim. Also exemplary damages may be awarded to serve as 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. On the fourth issue, Santos is solidarily liable with the corporation applying the doctrine of piercing the corporate veil. On the fifth issue, the interest must be reduced to 6% following the doctrine laid down in Nacar v. Gallery Frames case.

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.

“In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined by the choice of the debtor who generally has the right of election.” The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice known.

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 of the trial court and the appellate court, the original contract between the parties was for respondent to deliver scrap papers worth P7,220,968.31 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.

The appellate court, therefore, correctly identified the obligation between the parties as an alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw materials from respondent, would either pay him the price of the raw materials or, in the alternative, deliver to him the finished products of equivalent value.

When petitioner Arco Pulp and Paper 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.

This choice was also shown by the terms of the memorandum of agreement, which was executed on the same day. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person, thereby extinguishing the option to deliver the finished products of equivalent value to respondent.

Because novation requires that it be clear and unequivocal, it is never presumed, thus:

In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law jurisprudence, the principle — novatio non praesumitur —that novation is never presumed. At bottom, for novation tobe a jural reality, its animus must be ever present, debitum pro debito — basically extinguishing the old obligation for the new one.

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:Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement.

In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract need not be secured. This is clear from the first line of the memorandum, which states:

Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .

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.

Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their obligation to Eric Sy. When respondent sent his letter of demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that the former neither acknowledged nor consented to the latter as his new debtor. These acts, when taken together, clearly show that novation did not take place. Since there was no novation, petitioner Arco Pulp and Paper’s

obligation to respondent remains valid and existing. Petitioner Arco Pulp and Paper, therefore, must still pay respondent the full amount of P7,220,968.31.

Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the breach is due to fraud or bad faith:

Art. 2220. Willfull 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.

Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad faith. As this court stated:Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive.

Further, the following requisites must be proven for the recovery of moral damages:An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be culpable act or omission factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code.

Here, the injury suffered by respondent is the loss of P7,220,968.31 from his business. This has remained unpaid since 2007. 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. This proves the third requirement.

As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances:

Article 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;(2) Quasi-delicts causing physical injuries;(3) Seduction, abduction, rape, or other lascivious acts;(4) Adultery or concubinage;(5) Illegal or arbitrary detention or arrest;(6) Illegal search;(7) Libel, slander or any other form of defamation;(8) Malicious prosecution;(9) Acts mentioned in Article 309;(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party breaches a contract, he or she goes against Article 19 of the Civil Code, which states:

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

Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. Failure to do so results in an abuse of that right, which may become the basis of an action for damages. Article 19, however, cannot be its sole basis:

Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an actionable tort. Article 19 describes the degree of care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21.

Article 20 and 21 of the Civil Code are as follows:Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

Article 21.Any person who wilfully 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.

To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that are contrary to morals, good customs, and public policy:

Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have been willful or negligent. Willful may refer to the intention to do the act and the desire to achieve the outcome which is considered by the plaintiff in tort action as injurious. Negligence may refer to a situation where the act was consciously done but without intending the result which the plaintiff considers as injurious.

Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily proscribed by law. This article requires that the act be willful, that is, that there was an intention to do the act and a desire to achieve the outcome. In cases under Article 21, the legal issues revolve around whether such outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care required in Article 19.

When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the risk of violating Article 1159 of the Civil Code:

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since it only specifies, among others, Article 21. When

a party reneges on his or her obligations arising from contracts in bad faith, the act is not only contrary to morals, good customs, and public policy; it is also a violation of Article 1159. Breaches of contract become the basis of moral damages, not only under Article 2220, but also under Articles 19 and 20 in relation to Article 1159.

Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that the breach be done fraudulently or in bad faith. In Adriano v. Lasala:

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.

Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the circumstances in each case.

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. Under the Civil Code, exemplary damages are due in the following circumstances:

Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be adjudicated.

Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded.

In Tankeh v. Development Bank of the Philippines, we stated that:The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense.

The case of People v. Ranteciting People v. Dalisay held that:Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. These terms are generally, but not always, used interchangeably. In common law, there is preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted, the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud—that intensifies the injury. The terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous conduct. In either case, these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future.

The requisites for the award of exemplary damages are as follows:(1) they may be imposed by way of example in addition to compensatory damages, and only after the claimant's right to them has been established;(2) that they cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant; and(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent manner.

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.

As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. However, this veil of corporate fiction may be pierced if complainant is able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith, and (2) such negligence or bad faith was clearly and convincingly proven.

Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the account name, “Arco Pulp & Paper, Co., Inc.” Any obligation arising from these acts would not, ordinarily, be petitioner Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper.

We find, however, that the corporate veil must be pierced.

According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper, stating that:

In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent]. After the check in the amount of 1,487,766.68 issued by petitioner Santos was dishonored for being drawn against a closed account, [petitioner] corporation denied any privity with [respondent]. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights.

We agree with the Court of Appeals. Petitioner 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.

In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar v. Gallery Frames, the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand.

Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, and we have laid down the following guidelines with regard to the rate of legal interest:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare accordingly modified to embody BSP-MB Circular No. 799, as follows:

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

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

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

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

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.

According to these guidelines, the interest due on the obligation of P7,220,968.31 should now be at 6% per annum, computed from May 5, 2007, when respondent sent his letter of demand to petitioners. This interest shall continue to be due from the finality of this decision until its full satisfaction.

MJ6.Mendoza vs. Gomez, G.R. No. 160110, 726 SCRA 505, June 18, 2014Case Title : MARIANO C. MENDOZA and ELVIRA LIM, petitioners, vs. SPOUSES LEONORA J. GOMEZ and GABRIEL V. GOMEZ, respondents. Case Nature : PETITION for review on certiorari of a decision of the Court of Appeals, Special Fourth Division. Syllabi Class :Civil Law|Quasi-Delicts|Damages|Interest Rates|Moratory Interests

Mendoza vs. GomezG.R. No. 160110, 726 SCRA 505, June 18, 2014

PEREZ, J.:

FACTS: An Isuzu Elf truck owned by respondent Leonora J. Gomez and driven by Antenojenes Perez, was hit by a Mayamy Transportation bus registered under the name of petitioner Elvira Lim and driven by petitioner Mariano C. Mendoza. As a

result of the incident, respondent Perez including Melchor V. Anla, Romeo J. Banca, and Jimmy Repisada, who were aboard the bus, sustained injuries. An information for reckless imprudence resulting in damage to property and multiple physical injuries was filed against Mendoza. Respondents filed a separate complaint 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 PO1 Melchor F. Rosales, investigating officer of the case, investigating officer of the case, the Mayamy bus, while traversing the opposite lane, intruded on the lane occupied by the Isuzu truck. He also reported that Mendoza tried to escape by speeding away.

Lim on the other hand claimed that though the bus was registered under her name, it was actually owned by SPO1 Cirilo Enriquez and was attached with Mayamy Transportation Company under the “kabit system.”

The trial court disposed the case ordering Mendoza and Lim to pay for the repair of damaged Isuzu truck, for the unrealized income of the respondents, and for the award of moral damages and exemplary damages. On appeal, the Court of Appeals deleted payment for the unrealized income of the respondents.

ISSUE: Whether or not the real owner of the vehicle, Enriquez, is liable for the negligent act of the driver considering that the registered owner is Lim.

Whether or not there is basis for the award of lost income.

Whether or not there is basis for the grant of moral damages where the respondents did not suffer physical injuries and the award of exemplary damages when there is no showing that the act of driver is characterized by gross negligence nor the act of the driver to escape constitute gross negligence.

Whether or not the award of attorney’s fee, cost of litigation, and interest are proper.

HELD: On the first issue, as to third person, Lim is to be held liable being the registered owner of the vehicle since of one the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident. As to the second issue, for failure of the injured person to substantiate their claim for lost income, the same cannot be awarded. As to the third issue, for failure of the parties to allege nor offer any evidence of besmirched reputation or physical, mental or psychological suffering incurred by them; moral damages cannot be awarded. However, since it was shown that the driver of Mayamy bus violated a traffic law which caused the accident and being grossly negligent, the award of exemplary damage is in order. As to the last issue, the trial court failed to state the reason for the award of attorney’s fee, it should be allowed; as to cost of litigation, as a general rule, should be awarded to the prevailing party as a matter of right; as to the interest, Generally, interest is allowed as a matter of right for failure to pay liquidated claims when due; for unliquidated claims, however, interest cannot be

recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.

The first question to address, then, is whether or not Mendoza’s negligence was duly proven. 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 Mayamy bus, as demonstrated by the fact that, at the time of the collision, the bus intruded on the lane intended for the Isuzu 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.

The evidence on record shows that before the collision, the Isuzu truck was in its rightful lane, and was even at a stop, having been flagged down by a security guard of St. Ignatius Village. The mishap occurred when the Mayamy bus, travelling at a fast speed as shown by the impact of the collision, and going in the opposite direction as that of the Isuzu truck, encroached on the lane rightfully occupied by said Isuzu truck, and caused the latter to spin, injuring Perez, Anla, Banca, and Repisada, and considerably damaging the Isuzu truck.

Having settled the fact of Mendoza’s negligence, then, the next question that confronts us is who may beheld liable. 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.

In the case at bar, who is deemed as Mendoza’s employer? Is it Enriquez, the actual owner of the bus or Lim, the registered owner of the bus?

In Filcar Transport Services v. Espinas, we held that the registered owner is deemed the employer of the negligent driver, and is thus vicariously liable under Article 2176, in relation to Article 2180, of the Civil Code. Citing Equitable Leasing Corporation v. Suyom, 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.

As early as Erezo v. Jepte, the Court, speaking through Justice Alejo Labrador summarized the justification for holding the registered owner directly liable, to wit:

x x x 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 vehicles on the public highways, responsibility therefore can be fixed on a definite individual, the registered owner. Instances are numerous where vehicle running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily ordained, in the interest of the determination of persons responsible for damages or injuries caused on public highways.

“‘One of the principal purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available may act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him.” The purpose of the statute is thwarted, and the displayed number becomes a “snare and delusion,” if courts will entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to place a “middleman” between them and the public, and escape liability by the manner in which they recompense their servants.

Generally, when an injury is caused by the negligence of a servant or 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 (culpa in eligiendo) or in the supervision over him after the selection (culpa vigilando), or both. The presumption is juris tantum and not juris et de jure; consequently, it may be rebutted. Accordingly, the general rule is that if the employer shows to the satisfaction of the court that in the selection and supervision of his employee he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved of liability.

However, with the enactment of the motor vehicle registration law, the defenses available under Article 2180 of the Civil Code - that the employee acts beyond the

scope of his assigned task or that it exercised the due diligence of a good father of a family to prevent damage – are no longer available to the registered owner of the motor vehicle, because the motor vehicle registration law, to a certain extent, modified Article 2180.

As such, there can be no other conclusion but to hold Lim vicariously liable with Mendoza.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.

In the case at bar, the RTC, basing on the receipts submitted by respondents and which receipts petitioners had the opportunity to examine, found that the total repairs on the Isuzu truck amounted to P142,757.40, and that the full hospitalization and medical expenses of Perez, Anla, Banca, and Repisada amounted to P11,267.35. As such, these are the amounts that respondents are entitled to as actual and compensatory damages.

Although respondents alleged in their complaint that the damage to their Isuzu truck caused them the loss of a daily income of P1,000.00, such claim was not duly substantiated by any evidence on record, and thus cannot be awarded in their favor.

In prayers for moral damages, however, 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.

A review of the complaint and the transcript of stenographic notes yields the pronouncement that respondents neither alleged nor offered any evidence of besmirched reputation or physical, mental or psychological suffering incurred by them.

In Kierulf v. CA, we observed that this Court cannot remind the bench and the bar often enough that in order that moral damages may be awarded, there must be pleading and proof of moral suffering, mental anguish, fright and the like. Citing Francisco v. GSIS, the Court held that there must be clear testimony on the anguish and other forms of mental suffering. Thus, if the plaintiff fails to take the witness stand and testify as to his social humiliation, wounded feelings and anxiety, moral damages cannot be awarded.

Moreover, respondents were not able to show that their claim properly falls under Articles 2219 and 2220 of the Civil Code. Respondents cannot rely on Article 2219 (2) of the Civil Code which allows moral damages in quasi-delicts causing physical injuries because in physical injuries, moral damages are recoverable only by the injured party, and in the case at bar, herein respondents were not the ones who were actually injured.In B.F. Metal (Corp.) v. Sps. Lomotan, et al., the Court, in a claim for damages based on quasi-delict causing physical injuries, similarly disallowed an award of moral damages to the owners of the damaged vehicle, when neither of them figured in the accident and sustained injuries.

Our jurisprudence sets certain conditions when exemplary damages may be awarded: First, they may be imposed by way of example or correction only in addition, among others, to compensatory damages, and cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant. Second, the claimant must first establish his right to moral, temperate, liquidated or compensatory damages. Third, the wrongful act must be accompanied by bad faith, and the award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

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.

Our jurisprudence sets certain conditions when exemplary damages may be awarded: First, they may be imposed by way of example or correction only in addition, among others, to compensatory damages, and cannot be recovered as a matter of right, their determination depending upon the amount of compensatory damages that may be awarded to the claimant. Second, the claimant must first establish his right to moral, temperate, liquidated or compensatory damages. Third, the wrongful act must be accompanied by bad faith, and the award would be allowed only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.

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 Baño v. Bachelor Express, Inc., et al., where an erring bus, in the process of overtaking a jeepney, also encroached on the opposite lane, and consequently collided with a dump truck, the Court held the driver of the bus grossly negligent and affirmed the award of exemplary damages.

From the very opening sentence of Article 2208 of the Civil Code, it is clearly intended to retain the award of attorney’s fees as the exception in our law, as the general rule remains that attorney’s fees are not recoverable in the absence of a stipulation thereto, the reason being that it is not sound policy to set a premium on the right to litigate.

As such, in Spouses Agustin v. CA, we held that, the award of attorney’s fees being an exception rather than the general rule, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. Thus, the reason for the award of attorney’s fees must be stated in the text of the court’s decision; otherwise, if it is stated only in the dispositive portion of the decision, the same must be disallowed on appeal.

In the case at bar, the RTC Decision had nil discussion on the propriety of attorney’s fees, and it merely awarded such in the dispositive. The CA Decision, on the other hand, merely stated that the award of attorney’s fees is merited as such is allowed when exemplary damages are awarded.50 Following established jurisprudence, however, the CA should have disallowed on appeal said award of attorney’s fees as the RTC failed to substantiate said award.

Costs of suit. The Rules of Court provide that, generally, costs shall be allowed to the prevailing party as a matter of course, thus:

Section 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines, unless otherwise provided by law.

In the present case, the award of costs of suit to respondents, as the prevailing party, is in order.

Interests. 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.

The legal provision on interests in quasi-delicts is Article 2211 of the Civil Code which provides that in crimes and quasi-delicts, interest as part of the damage, may, in a proper case, be adjudicated in the discretion of the court.

Generally, interest is allowed as a matter of right for failure to pay liquidated claims when due. For unliquidated claims, however, Article 2213 of the Civil Code provides that interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty.

In the case at bar, although the award of exemplary damages is unliquidated in the sense that petitioners cannot know for sure, before judgment, the exact amount that they are required to pay to respondents, the award of actual or compensatory damages, however, such as the truck repairs and medical expenses, is arguably liquidated in that they can be measured against a reasonably certain standard. Moreover, justice would seem to require that the delay in paying for past losses which can be made reasonably certain should be compensated through an award of interest.

MJ 7. Sps. Peralta vs. Heirs of Bernardina Abalon, G.R. No. 183448, 727 SCRA 477, June 30, 2014Case Title : HEIRS OF BERNARDINA ABALON, represented by MANSUETO ABALON, petitioners, vs. MARISSA ANDAL, LEONIL ANDAL, ARNEL ANDAL, SPOUSES DOMINADOR and OFELIA PERALTA, and HEIRS of RESTITUTO RELLAMA, represented by his children ALEX, IMMANUEL, JULIUS and SYLVIA, all surnamed RELLAMA, respondents. Case Nature : PETITIONS for review on certiorari of a decision of the Court of Appeals Seventeenth Division. Syllabi Class :Civil Law|Donations|Donations Mortis Causa

Sps. Peralta vs. Heirs of Bernardina AbalonG.R. No. 183448, 727 SCRA 477, June 30, 2014

SERENO, CJ: FACTS: Bernardina Abalon owned a piece of land which was fraudulently transferred to Restituto Rellama thru a deed of absolute sale. Restituto then subdivided the subject property into three and sold them separately to the first to spouses Dominador and Ofelia Peralta, the second to Eduardo Lotivio who eventually transferred to Marissa Andal, Arnel Andal, and Leonil Andal; the third portion was likewise sold to Marissa, Leonil and Arnel Andal. Certificates of title were issued concerning these three portions of the lot.

Petitioners Mansueta Abalon and Amelia Abalon, nephew and niece of Bernardina Abalon, filed an action against Rellama, Spouses Peralta, and the Andals, alleging that they were heirs of Bernadina and that the deed of sale was a forgery. They further alleged that Bernardina even leased the property to Godofredo Bellen. They alleged that Rellama only presented photocopy of the deed of sale and that the issuance of the second duplicate owner’s copy was fabricated since the first was not lost but in the hands of Bernardina which was passed to the petitioners upon her death.

The trial court ruled in favor of the petitioners. Spouses Peralta and the Andals appealed the decision. The Court of Appeals found that spouses Peralta was in bad faith when they bought the property and relying merely on photocopy of the title but found the Andals as buyers in good faith. Thus separate petitions for review on certiorari were filed by the petitioners and spouses Peralta.

ISSUE: Whether or not a forged instrument may become the root of a valid title in the hands of an innocent purchaser for value, even if the true owner thereof has been in possession of the genuine title, which is valid and has not been cancelled.

HELD: Yes, though the established rule is that a forged deed is generally null and cannot convey title; the exception thereto, pursuant to Section 55 of the Land Registration Act, denotes the registration of titles from the forger to the innocent purchaser for value.

It is well-established in our laws and jurisprudence that a person who is dealing with a registered parcel of land need not go beyond the face of the title. A person is only charged with notice of the burdens and claims that are annotated on the title. This rule, however, admits of exceptions, which we explained in Clemente v. Razo:

Any buyer or mortgagee of realty covered by a Torrens certificate of title, in the absence of any suspicion, is not obligated to look beyond the certificate to investigate the titles of the seller appearing on the face of the certificate. And, he is charged with notice only of such burdens and claims as are annotated on the title.

We do acknowledge that the rule thus enunciated is not cast in stone. For, indeed, there are exceptions thereto. Thus, in Sandoval vs. CA, we made clear the following:

The aforesaid principle admits of an unchallenged exception: that a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense with the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate. One who falls within the exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith; and hence does not merit the protection of the law.

Thus, the determination whether one is a buyer in good faith or can be considered an innocent purchaser for value becomes imperative. Section 55 of the Land Registration Act provides protection to an innocent purchaser for value by allowing him to retain the parcel of land bought and his title is considered valid. Otherwise, the title would be cancelled and the original owner of the parcel of land is allowed to repossess it.

Jurisprudence has defined an innocent purchaser for value as one who buys the property of another without notice that some other person has a right to or interest therein and who then pays a full and fair price for it at the time of the purchase or before receiving a notice of the claim or interest of some other persons in the property. Buyers in good faith buy a property with the belief that the person from whom they receive the thing is the owner who can convey title to the property. Such buyers do not close their eyes to facts that should put a reasonable person on guard and still claim that they are acting in good faith.

After executing the Deed of Sale with Bernardina Abalon under fraudulent circumstances, Rellama succeeded in obtaining a title in his name and selling a portion of the property to the Andals, who had no knowledge of the fraudulent circumstances involving the transfer from Abalon to Rellama. In fact, the Decisions of the RTC and the CA show no factual findings or proof that would rebut the presumption in favor of the Andals as buyers in good faith. Thus, the CA correctly considered them as buyers in good faith and upheld their title.

The records of the RTC and the CA have a finding that when Rellama sold the properties to the Andals, it was still in his name; and there was no annotation that would blight his clean title. To the Andals, there was no doubt that Rellama was the owner of the property being sold to them, and that he had transmissible rights of ownership over the said property. Thus, they had every right to rely on the face of his title alone.

The established rule is that a forged deed is generally null and cannot convey title, the exception thereto, pursuant to Section 55 of the Land Registration Act, denotes the registration of titles from the forger to the innocent purchaser for value. Thus, the qualifying point here is that there must be a complete chain of registered titles. This means that all the transfers starting from the original rightful owner to the innocent holder for value – and that includes the transfer to the forger – must be duly registered, and the title must be properly issued to the transferee. Contrary to what the Abalons would like to impress on us, Fule and Torres do not present clashing views. In Fule, the original owner relinquished physical possession of her title and thus enabled the perpetrator to commit the fraud, which resulted in the cancellation of her title and the issuance of a new one. The forged instrument eventually became the root of a valid title in the hands of an innocent purchaser for value. The new title under the name of the forger was registered and relied upon by the innocent purchaser for value. Hence, it was clear that there was a complete chain of registered titles.On the other hand in Torres, the original owner retained possession of the title, but through fraud, his brother-in-law secured a court order for the issuance of a copy thereof. While the title was in the name of the forger, the original owner annotated the adverse claim on the forged instrument. Thus, before the new title in the name of the forger could be transferred to a third person, a lien had already been annotated on its back. The chain of registered titles was broken and sullied by the original owner’s annotation of the adverse claim. By this act, the mortgagee was shown to be in bad faith.

In the instant case, there is no evidence that the chain of registered titles was broken in the case of the Andals. Neither were they proven to have knowledge of

anything that would make them suspicious of the nature of Rellama’s ownership over the subject parcel of land. Hence, we sustain the CA’s ruling that the Andals were buyers in good faith. Consequently, the validity of their title to the parcel of the land bought from Rellama must be upheld.

As for Spouses Peralta, we sustain the ruling of the CA that they are indeed buyers in bad faith. The appellate court made a factual finding that in purchasing the subject property, they merely relied on the photocopy of the title provided by Rellama. The CA concluded that a mere photocopy of the title should have made Spouses Peralta suspicious that there was some flaw in the title of Rellama, because he was not in possession of the original copy. This factual finding was supported by evidence.

MJ 8.Quintos vs. Nicolas, G.R. No. 210252, 726 SCRA 482, June 16, 2014Case Title : VILMA QUINTOS, represented by her Attorney-in-Fact FIDEL I. QUINTOS, JR.; FLORENCIA I. DANCEL, represented by her Attorney-in-Fact FLOVY I. DANCEL; and CATALINO L. IBARRA, petitioners, vs. PELAGIA I. NICOLAS, NOLI L. IBARRA, SANTIAGO L. IBARRA, PEDRO L. IBARRA, DAVID L. IBARRA, GILBERTO L. IBARRA, HEIRS OF AUGUSTO L. IBARRA, namely: CONCHITA R., IBARRA, APOLONIO IBARRA, and NARCISO IBARRA, and the spouses RECTO CANDELARIO and ROSEMARIE CANDELARIO, respondents. Case Nature : PETITION for review on certiorari of the decision and resolution of the Court of Appeals. Syllabi Class :Civil Law|Laches|Words and Phrases

Quintos vs. NicolasG.R. No. 210252, 726 SCRA 482, June 16, 2014

VELASCO, JR., J.:

FACTS: Spouses Bienvenido and Escolastica Ibarra were the owners of a 281 sqm. parcel of land. When the spouses died, the land were later on owned by their ten children, petitioners Vilma Quintos, Florencia Dancel, and Catalino Ibarra, and respondents Pelagia Nicolas, Noli Ibarra, Santiago Ibarra, Pedro Ibarra, David Ibarra, Gilberto Ibarra, and Augusto Ibarra.

Respondent siblings filed a partition against the petitioners but were dismissed for the parties’ failure to appear. For failure to secure a favorable result in the partition case, respondent siblings executed a deed of adjudication which resulted to the cancellation of the transfer certificate of title in the name of the deceased spouses and the issuance of a transfer certificate of title in the name of the ten siblings. The respondents then sold their undivided 7/10 share to spouses Recto and Rosemarie Candelario. It also appeared that prior to the sale of property, the respondent leased the subject property to Avico Lending Investor Co.

Petitioners then filed a complaint for quieting of title averring that the subject lot was bequeathed to them by their parents. Despite admission by the respondents

that petitioners did not participate in the execution of the deed of adjudication and the agreement of subdivision was falsified, the trial court dismissed the complaint for quieting of title and declared that the spouses Candelario were the owner of the 7/10 portions. The court also ordered the partitioning of the lot among the petitioners and the spouses Candelario. On appeal, the Court of Appeals denied the appeal. Thus this petition.

ISSUE: Whether or not the respondents’ counterclaim for partition is already barred by laches or res judicata considering that an earlier partition was dismissed due to fault of the respondents. Laches does not set in since the respondents continued to exercise right of ownership when they leased said property.

HELD: No, the law does not favor co-ownership; thus res judicata does not apply to partition although there can still be res judicata in partition cases concerning the same parties and the same subject matter once the respective shares of the co-owners have been determined with finality by a competent court with jurisdiction or if the court determines that partition is improper for co-ownership does not or no longer exists.

In the case at bar, respondent siblings admit that they filed an action for partition docketed as Civil Case No. 02-52, which the RTC dismissed through an Order dated March 22, 2004 for the failure of the parties to attend the scheduled hearings. Respondents likewise admitted that since they no longer appealed the dismissal, the ruling attained finality. Moreover, it cannot be disputed that the subject property in Civil Case No. 02-52 and in the present controversy are one and the same, and that in both cases, respondents raise the same action for partition. And lastly, although respondent spouses Candelario were not party-litigants in the earlier case for partition, there is identity of parties not only when the parties in the case are the same, but also between those in privity with them, such as between their successors-in-interest.

In advancing their claim, petitioners cite Rule 17, Sec. 3 of the Rules of Court, to wit:Section 3. Dismissal due to fault of plaintiff. — If, for no justifiable cause, the plaintiff fails to appear on the date of the presentation of his evidence in chief on the complaint, or to prosecute his action for an unreasonable length of time, or to comply with these Rules or any order of the court, the complaint may be dismissed upon motion of the defendant or upon the court’s own motion, without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate action. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise declared by the court.

The afore-quoted provision enumerates the instances when a complaint may be dismissed due to the plaintiff's fault: (1) if he fails to appear on the date for the presentation of his evidence in chief on the complaint; (2) if he fails to prosecute his action for an unreasonable length of time; or (3) if he fails to comply with the Rules or any order of the court. The dismissal of a case for failure to prosecute has the effect of adjudication on the merits, and is necessarily understood to be with prejudice to the filing of another action, unless otherwise provided in the order of dismissal. Stated differently, the general rule is that dismissal of a case for failure to

prosecute is to be regarded as an adjudication on the merits and with prejudice to the filing of another action, and the only exception is when the order of dismissal expressly contains a qualification that the dismissal is without prejudice. In the case at bar, petitioners claim that the Order does not in any language say that the dismissal is without prejudice and, thus, the requirement that the dismissal be on the merits is present.Truly, We have had the occasion to rule that dismissal with prejudice under the above-cited rule amply satisfies one of the elements of res judicata. It is, thus, understandable why petitioners would allege res judicata to bolster their claim. However, dismissal with prejudice under Rule 17, Sec. 3 of the Rules of Court cannot defeat the right of a co-owner to ask for partition at any time, provided that there is no actual adjudication of ownership of shares yet. Pertinent hereto is Article 494 of the Civil Code, which reads:

Article 494. No co-owner shall be obliged to remain in the co-ownership. Each co-owner may demand at any time the partition of the thing owned in common, insofar as his share is concerned.

Nevertheless, an agreement to keep the thing undivided for a certain period of time, not exceeding ten years, shall be valid. This term may be extended by a new agreement.

A donor or testator may prohibit partition for a period which shall not exceed twenty years. Neither shall there be any partition when it is prohibited by law. No prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs so long as he expressly or impliedly recognizes the co-ownership.

From the above-quoted provision, it can be gleaned that the law generally does not favor the retention of co-ownership as a property relation, and is interested instead in ascertaining the co-owners’ specific shares so as to prevent the allocation of portions to remain perpetually in limbo. Thus, the law provides that each co-owner may demand at any time the partition of the thing owned in common.

Between dismissal with prejudice under Rule 17, Sec. 3 and the right granted to co-owners under Art. 494 of the Civil Code, the latter must prevail. To construe otherwise would diminish the substantive right of a co-owner through the promulgation of procedural rules. Such a construction is not sanctioned by the principle, which is too well settled to require citation, that a substantive law cannot be amended by a procedural rule. This further finds support in Art. 496 of the New Civil Code, viz:

Article 496.Partition may be made by agreement between the parties or by judicial proceedings. Partition shall be governed by the Rules of Court insofar as they are consistent with this Code.

This is not to say, however, that the action for partition will never be barred by res judicata. There can still be res judicata in partition cases concerning the same parties and the same subject matter once the respective shares of the co-owners have been determined with finality by a competent court with jurisdiction or if the court determines that partition is improper for co-ownership does not or no longer exists.

As correctly appreciated by the lower courts, respondents cannot be said to have neglected to assert their right over the subject property. They cannot be considered to have abandoned their right given that they filed an action for partition sometime in 2002, even though it was later dismissed. Furthermore, the fact that respondent siblings entered into a Contract of Lease with Avico Lending Investor Co. over the subject property is evidence that they are exercising rights of ownership over the same.