SAMPLE PROBLEM

PROBLEM.“On August 30, 1976, an action for collection of a sum of money was filed by the Philippine National Bank (PNB, for brevity) against Fil-Eastern Wood Industries, Inc. (Fil-Eastern, for short) in its capacity as principal debtor and against Cayetano Ferreria, Pedro Atienza, Vicente O. Novales, Antonio R. Agra, and Napoleon M. Gamo in their capacity as sureties.

“In its complaint, plaintiff PNB alleged that on July 17, 1967 Fil-Eastern was granted a loan in the amount of [t]wo [m]illion [f]ive [h]undred [t]housand [p]esos (P2,500,000.00) with interest at twelve percent (12%) per annum.  Drawings from said demand loan were made on different dates as evidenced by several promissory notes and were credited to the account of Fil-Eastern.  To secure the payment of the said loan Fil-Eastern as principal and sureties Ferreria, Atienza, Novales, Agra, and Gamo executed a Surety Agreement whereby the sureties, jointly and severally with the principal, guaranteed and warranted to PNB, its successors or assigns, prompt payment of subject obligation including notes, drafts, bills of exchange, overdrafts and other obligations of every kind, on which Fil-Eastern was indebted or may thereafter become indebted to PNB.  It was further alleged that as of May 31, 1976 the total indebtedness of Fil-Eastern and its sureties on subject loan amounted to [f]ive [m]illion [t]wo [h]undred [n]inety-[s]even [t]housand, [n]ine [h]undred [s]eventy-[s]ix [p]esos and [s]eventeen [c]entavos (P5,297,976.17), excluding attorney’s fees.  Notwithstanding repeated demands, the defendants refused and failed to pay their loans.

“The defendants (herein sureties) filed separate answers (pp. 49, 68, 205, 208 and 231).  Collating these, We drew the following: All of them claimed that they only signed the Surety Agreement with the understanding that the same was a mere formality required of the officers of the corporation.  They did not in any way or manner receive a single cent from the proceeds of said loan and/or derive any profit therefrom.  Neither did they receive any consideration valuable or otherwise, from defendant Fil-Eastern.  They further claim that the loan in question was negotiated and approved under highly irregular, anomalous and suspicious circumstances to the point that the Surety Agreement executed thereafter is invalid, null and void and without force and effect.  The extension of time of payment of the loan in question released and discharged the answering defendants from any liability under the Surety Agreement.  The Surety Agreement is null and void from the beginning due to a defect in the consent of the defendants and that their liabilities under the Surety Agreement, if any, has been extinguished by novation.  The cause of action of the complainant is barred by laches and estoppel in that the plaintiff with full knowledge of the deteriorating financial condition of Fil-Eastern did not take steps to collect from said defendant corporation while still solvent.  They also maintained that if anyone is liable for the payment of said loan, it is Felipe Ysmael, Jr. and not them or it is only Fil-Eastern and the controlling officers who profited and made use of the proceeds of the loan.  Defendant Agra likewise said that he was made to sign the Surety Agreement and he did it because of the moral influence and pressure exerted upon him by Felipe Ysmael, Jr. (their employer at the time of signing), thereby arousing strong fears of losing a much needed employment to support his family should he refuse to sign as Surety.

Rule on the allegations of the parties. (1) Has the collection suit prescribed? (2) Is the principle of laches applicable in the case at bar?

ANSWER: ANTONIO R. AGRA, CAYETANO FERRERIA, NAPOLEON M. GAMO and VICENTE O. NOVALES, petitioners, vs. PHILIPPINE NATIONAL BANK, respondent. THIRD DIVISION [G.R. No. 133317.  June 29, 1999] There are no absolute rules in the application of equity, and each case must be examined in the light of its peculiar facts.  In PNB v. CA, there was a mistake, an inexcusable one, on the part of petitioner bank in making an overpayment and repeating the same error fourteen days later.  If the bank could not immediately discover the mistake despite all its agents and employees, the beneficiary of the amount could not be expected to do so.  It is, thus, inequitable to allow PNB to collect the amount, after such a long delay, from the beneficiary who had assumed, after all those years, that the amount really belonged to it.

In the present case, there is no showing of any mistake or any inequity.  The fact alone that seven years had lapsed before PNB filed the collection suit does not mean that it discovered the obligation of the sureties only then.  There was a Surety Arrangement, and the law says that the said contract can be enforced by action within ten years.  The bank and the sureties all knew that the action to enforce the contract did not have to be filed immediately.  In other words, the bank committed no mistake or inequitable conduct that needed correction, and the sureties had no misconception about their liabilities under the contract.

Clearly, petitioners have no recourse in equity, because they failed to show any inequity on the part of PNB.

As pointed out by the Court of Appeals, petitioners failed to challenge their consent to the Agreement within the prescriptive period.  Article 1391 of the Civil Code provides that the action to annul a contract vitiated by intimidation, violence or undue influence shall be filed within four years from the cessation of such defects.  In this case, Petitioners Agra, Gamo and Novales resigned from Fil-Eastern in 1967, 1968 and 1969, respectively.  It was only in 1976, when PNB sought to enforce the contract, that they alleged a defect in their consent.  By their inaction, their alleged cause of action based on vitiated consent had precribed.  There was no question that petitioners, in their capacity as sureties, were answerable for the obligations of Fil-Eastern to PNB.

PROBLEM: The instant controversy revolves around a parcel of land located at Tuburan Sur, Danao City, originally owned by Hilarion Derecho.  When Hilarion died long before World War II, his eight children -- Leonardo, Apolinar, Andres, Honorata, Dolores, Gerardo, Agaton, and Oliva -- became pro indiviso co-owners of the subject property by intestate succession.  Subsequently, Tax Declaration No. 00267[5] was issued under the name “Heirs of Hilarion.”

On July 16, 1921, five of the co-owners -- Leonardo, Apolinar, Andres, Honorata, and Dolores -- sold the inherited property to Francisco Lacambra, subject to a five-year redemption clause.[6] Notably, the three other Derecho heirs -- Gerardo, Agaton, and Oliva --  were not parties to the pacto de retro sale.

Sometime in 1928, two years after the period for redemption expired, Dolores -- together with her husband, Leandro Rigonan -- purchased[7] the land from Lacambra and immediately occupied it.[8]

More than five decades passed without any controversy. On April 24, 1980, Leandro Rigonan executed the assailed Affidavit of Adjudication in favor of his son, Teodoro Rigonan (the deceased husband of Petitioner Delfina vda. de Rigonan).[9] Under this instrument, Leandro declared himself to be the sole heir of Hilarion,[10] while Teodoro obtained the cancellation of Tax Declaration No. 00267,[11] and acquired Tax Declaration No. 00667 in his own name.[12]

During the same year, Teodoro mortgaged the subject property  to the Rural Bank of Compostela of Cebu.  Dreading foreclosure, he settled his obligations with the bank[13] by securing the aid of Spouses Valerio and Visminda Laude.  On April 5, 1984, Teodoro executed the assailed Deed of Absolute Sale of Unregistered Land in favor of Valerio Laude,[14] who then obtained Tax Declaration No. 00726 under the latter’s name on May 10, 1984.[15]

On November 10, 1993, respondents -- as the alleged heirs of Hilarion and pro indiviso owners of the subject realty -- brought an action before the Regional Trial Court (RTC) of Danao City (Branch 25), first, to recover the property; and, second, to annul the Deed of Sale in favor of Laude[16] and the Affidavit of Adjudication, whose validity and authenticity they assailed on the ground of fraud.  They likewise maintained that the subject property had not been partitioned among the heirs; thus, it was still co-owned at the time it was conveyed to Petitioner Laude.[17]

Petitioners did not deny the imputed fraud in the execution of the Affidavit of Adjudication.  They, however, averred that the  document had no bearing on their claim of ownership, which had long pertained to the Rigonan spouses following the 1928 conveyance from the absolute owner, Lacambra.[18] They theorized that the co-ownership over the property ended when the period for redemption lapsed without any action on the part of the co-owners.[19] Therefore, the Rigonan spouses bought the property as legitimate vendees for value and in good faith, not in the capacity of redeeming co-owners.[20]

Petitioners likewise argued that they and their predecessors-in-interest had continuously owned and possessed the subject property for 72 years.  Accordingly, acquisitive prescription had allegedly set in, in their favor,  when the case was filed in 1993.[21]

Lastly, petitioners maintained that they were entitled to the equitable defense of laches.  Respondents and their forebears were rebuked for not asserting their rights over the property for the past 72 years.  They supposedly did so only after finding that the land had been developed, and that it had appreciated in value.[22]

Questions: (1) Who is the rightful owner of the property, the petitioners or respondents? (2)  Whether at the time of the purchase in 1928, co-ownership still subsisted among the heirs of Hilarion Derecho

(3)  Whether an implied trust was created

(4).  Whether the action in the RTC was barred by prescription and laches

Answer: Owners who, for a long period of time, fail to assert their rights to unregistered real property may be deprived of it through prescription.  Although the present respondents initially owned part of the subject property by virtue of succession, their inaction for several decades bars them from recovering it from petitioners who have possessed it as owners since 1928.  The purpose of prescription is to protect the diligent and vigilant, not those who sleep on their rights.DELFINA Vda. de RIGONAN , vs. ZOROASTER DERECHO R [G.R. No. 159571.  July 15, 2005]

 What are the four elements to be shown in order to use laches as a defense?

 It was held in Go Chi Gun v. Co Cho[75] that four elements had to be shown in order to use laches as a defense: 

(1)  conduct on the part of the defendant, or of one under whom a claim is made, giving rise to a situation for which a complaint is filed and a remedy sought; 

(2) delay in asserting the rights of the complainant, who has knowledge or notice of the defendant’s conduct and has been afforded an opportunity to institute a suit; 

(3)  lack of knowledge or notice on the part of the defendant that the complainant will assert the right on which the latter has based the suit; and

 (4) injury or prejudice to the defendant in the event that the complainant is granted a relief or the suit is not deemed barred.

PROBLEM: The original owner of the property in dispute, Faustino Maningo, is the son-in-law of the original defendant, Jose Deguilmo.  The former is married to Quirina Deguilmo, daughter of said defendant.

On September 21, 1948, Faustino Maningo sold by pacto de retro the subject property to spouses Pedro and Teresa Villamor (Exhibit 1).

After the sale, Faustino and Quirina Maningo left for Mindanao.  Sometime in January, 1950, Faustino returned to Cebu because the Villamor spouses needed money.  However, since Faustino had no money, he requested his father-in-law, Jose Deguilmo, to buy the land from the Villamors.  On January 10, 1950, the Villamor spouses allegedly sold the land in dispute to defendant Jose Deguilmo in a private document of sale (Exhibit 2).  Immediately thereafter, Jose Deguilmo took possession of the property, introduced improvements and paid taxes thereon.

Meantime, in 1953, Faustino Maningo abandoned his wife and lived with a concubine.  His wife and their children had to return to Cebu where they lived and were supported by Jose Deguilmo.  Faustino did not return to Cebu for more than twenty (20) years.  A case for concubinage was filed against him but it was somehow dismissed.

In 1973, Faustino Maningo returned to Cebu and allegedly tried to forcibly take possession of the property from his father-in-law although he did not succeed.  Nevertheless, Faustino proceeded to execute a deed of sale in favor of plaintiff (now petitioner) Marcelino Kiamco.  The latter, a resident of Carmen, Cebu, allegedly knew, at the time of the sale, that defendant, Jose Deguilmo, had already been in possession of the disputed property for more than twenty (20) years.  After the said sale, Marcelino Kiamco attempted to take possession of the property but was not successful because of defendant's refusal to give up the land.  He, however, did not file yet any action for ejectment or unlawful detainer against the defendant.  Seven (7) months after the execution of the alleged sale, Marcelino Kiamco filed a complaint for quieting of title and recovery of possession with damages against Jose Deguilmo before the Regional Trial Court of Cebu.

The trial court ruled, among other things, that Faustino Maningo was still the owner of the subject property on October 2, 1973, when he executed the deed of sale in favor of Marcelino Kiamco; that the deed of sale executed by the Villamor spouses in favor of Jose Deguilmo is null and void; and that Jose Deguilmo had not acquired the subject property by acquisitive prescription.

Question: (1)Is the trial court correct?

(2) When did the New Civil Code take effect?

(3) Under the old code, what is the period of acquisitive prescription?

It is undisputed that after the Deed of Sale (Exh. 2) was executed on January 10, 1950, Jose Deguilmo immediately took possession of the property in dispute in the concept of an owner, exercised acts of dominion and introduced improvements thereon, and enjoyed the fruits thereof, continuously, peacefully, and adversely for more than twenty years.  It is therefore, clear, that such adverse possession started on January 10, 1950, which is before the effectivity of the New Civil Code (August 30, 1950).  Pursuant to Art. 1116 of the New Civil Code, which provides for transitional rules on prescription, and which reads:  "Prescription already running before the effectivity of this Code shall be governed by laws previously in force; but if since the time this Code took effect the entire period herein required for prescription should lapse, the present Code shall be applicable, even though by the former laws a longer period might be required," the law to be applied is the Code of Civil Procedure (Act 190).  Inasmuch as here the prescription was already running before August 30, 1950, it follows that only ten (10) years would be required, because under the Code of Civil Procedure, regardless of good faith or bad faith, the period for acquiring land by prescription was only ten (10) years (Sec. 41, Act 190, Code of Civil Procedure; Osorio vs. Tan Jongko, 51 O.G. 6221).  It therefore follows necessarily that in 1960, Jose Deguilmo had already acquired the subject property by acquisitive prescription.  Thus, Marcelino Kiamco should have lost the case, unless of course, the land was covered by a Torrens Certificate of Title.  As found by the respondent Court, the evidence shows that the land is not a titled property.

The period of ten (10) years must necessarily start from January, 1950, and not from August 1950, since here, the prescriptive period under the old law was shorter.  Had the period under the old law been longer, it is the shorter period under the New Civil Code that should apply, but this time, the period should commence from the date of effectivity of the New Civil Code – August 30, 1950 – in view of the clause "but if since the time this Code took effect ..."

With the facts obtaining in the present case, it is immaterial whether the property in dispute was possessed by Jose Deguilmo in good or bad faith.  His adverse possession for more than twenty years is more than sufficient for purposes of acquisitive prescription under the Code of Civil Procedure.  Thus, even if the alleged Deed of Sale executed on January 10, 1950 (Exh. 2) was void ab initio, as claimed by petitioner (because Faustino Maningo could still repurchase the property until 1951, thus the Villamor spouses were not yet the owners thereof), what is important is that Jose Deguilmo immediately took possession of the property and continuously and adversely possessed and enjoyed it for more than twenty years.  Besides, as correctly found by the respondent court, if Faustino claims that the Deed of Sale of January 10, 1950 was not authentic and valid, why did he not disturb Jose Deguilmo from 1950 until 1973; “it is hardly the actuation of an owner for Faustino Maningo to do what he did for the last 24 years, if as the Villamor spouses said Faustino Maningo had already repurchased the property in 1949."

Jose Deguilmo (and now his heirs, the private respondents), no doubt, had already acquired ownership of the subject property on the basis of acquisitive prescription. MARCELINO KIAMCO, petitioner-movant, vs. THE HONORABLE COURT OF APPEALS, JUANA DEGUILMO­-GRAPE, QUIRINA DEGUILMO­-MANINGO, ANTONIA DEGUILMO, and JUAN DEGUILMO, respondents. SECOND DIVISION [G.R. No. 96865.  July 3, 1992]

PROBLEM: On March 14, 1939, Pedro Tolentino, claiming absolute ownership over Lot Nos. 572 and 579 of the Gattaran cadastre in Lapogan, Gattaran, Cagayan, separately sold said lots to petitioners, the spouses Bernardino Ramos and Rosalia Oli, in consideration of the amount of eighty pesos (P80.00) for each sale.  The aforesaid conveyances were allegedly evidenced by two documents both entitled “Escritura de Compra Venta” and acknowledged before a notary public.

Subsequently, however, petitioners instituted on January 8, 1976 an action for reconveyance with damages alleging that while they were ‘in open, public, adverse, peaceful and continuous possession” of the subject lots “in good faith and with just title, for not less than fifty (50) years, personally and through their predecessors-in-interest,” they were surprised to discover in November 1975, that decrees of registration covering Lot Nos. 572 and 579 were already issued on January 7, 1940.  They complained further the subsequent issuance by the Register of Deeds of Cagayan on March 11, 1941, Original Certificates of Title Nos. 17811 and 17812 covering Lot Nos. 572 and 579, respectively, in favor of Lucia Bautista since the latter allegedly neither laid claim of ownership nor took possession of them, either personally or through another.  Petitioners claimed instead that they were the ones who acquired prior ownership and possession over the lots to the exclusion of the whole world.  Thus, they concluded that the original certificates of title as well as Transfer Certificates of Title Nos. T-31698 and T-31699 obtained by private respondent Rodolfo Bautista  who adjudicated unto himself said lots on September 20, 1975, as sole heir of Lucia Bautista were null and void.  On the theory that they already acquired the subject lots by acquisitive prescription, petitioners demanded their return but private respondents refused to do so, hence, compelling them to file a complaint for reconveyance with damages.

On the other hand, herein private respondents, the spouses Rodolfo Bautista and Felisa Lopez, likewise claimed absolute ownership of the lots covered by TCT Nos. T-31698 and T-31699.  They alleged that while the records of the Bureau of Lands showed that during the cadastral survey in Gattaran in 1932, Pedro Tolentino was a claimant over lands in the cadastre, the same was only with respect to Lot No. 1399 which was eventually titled under his name as OCT No. 16110.  It just happened that Lot No. 1399 was adjacent to Lot No. 572, a portion of which was occupied by petitioners upon the tolerance of the original registrant Lucia Bautista.

By way of affirmative defense, private respondents maintained that the action for reconveyance filed by petitioners was tantamount to a reopening of the cadastral proceedings or a collateral attack on the decrees of registration which cannot be done without violating the rule on conclusiveness of the decree of registration.  Moreover, they argued that since the lots were already under the operation of the Torrens System, acquisitive prescription would no longer be possible.

QUESTION: Who should be the rightful owner of the property?

Section 38 of the Land Registration Act provides that a decree of registration duly issued is subject “to the right of any person deprived of land or of any estate or interest therein by decree of registration obtained by fraud to file in the competent Court of First Instance (now the Regional Trial Court) a petition for review within one year after entry of the decree, provided no innocent purchaser for value has acquired an interest.”  The same law provides that upon the expiration of the term of one year, “every decree or certificate of title x x x shall be imprescriptible.”

Under the law, an action for reconveyance of real property resulting from fraud prescribes in four (4) years from the discovery of the fraud. Discovery of the fraud must be deemed to have taken place when Lucia Bautista was issued OCT Nos. 178111 and 17812 because registration of real property is considered a “constructive notice to all persons” and it shall be counted “from the time of such registering, filing or entering.” An action based on implied or constructive trust prescribes in ten (10) years.  This means that petitioners should have enforced the trust within ten (10) years from the time of its creation or upon the alleged fraudulent registration of the property.  But as it is, petitioners failed to avail of any of the aforementioned remedies within the prescribed periods.  With no remedy in view, their claims should forever be foreclosed.

The Court, however, subscribes to petitioners’ argument that the courts a quo incorrectly held that private respondents are third persons to whom ownership of the properties had been transmitted.  But this error alone may not save the day for petitioners.  They have, in a sense, slept on whatever rights they claimed to have over the properties and by the time they were roused, the law had stepped in to bar their claims.  On the other hand, private respondents’ inattention to the property from the time of Lucia Bautista’s death until private respondent Rodolfo Bautista’s retirement from the military should not be construed as an abandonment thereof.  Private respondents have in their favor the law that protects holders of title under the Torrens System of land registration.  As this Court so eloquently pronounced in 1915:

“Once a title is registered, the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting in the `mirador de su casa,’ to avoid the possibility of losing his land.” BERNARDINO RAMOS and ROSALIA OLI, petitioners, vs. COURT OF APPEALS, RODOLFO BAUTISTA and FELISA LOPEZ, respondents. THIRD DIVISION [G.R. No. 111027.  February 3, 1999]