The assumption of risk doctrine holds plaintiff knew of a dangerous condition and voluntarily exposed himself or herself to it.

In personal injury cases, it’s essential to prove defendant owed a duty to plaintiff, that duty was breached and the breach caused the injury.
What many plaintiffs don’t realize is that they too owe a duty of care – to themselves. They have to take reasonable measures to protect themselves from known or knowable hazards, or else risk forfeiting the right to recover damages for it.
Thus, a key defense in these cases is the “assumption of risk.” The assumption of risk doctrine holds plaintiff knew of a dangerous condition and voluntarily exposed himself or herself to it.

This was the defense used in Griffin v. Haunted Hotel, Inc., before the California Court of Appeal, Fourth Appellate District, Division One.
According to court records, plaintiff purchased a ticket to experience an outdoor haunted house, which involved actors popping out of dark spaces, just inches from patrons. Actors wield knives, chainsaws, axes and severed body parts. There were also strobe lights, eerie music and actors who frequently chase patrons who run away. An audio tape played to patrons before the attraction warned of this possibility, and stated the biggest cause of minor injuries was running away. Patrons were warned not to run, and to take note of uneven ground with tree roots, rocks, etc.
Plaintiff, who was with friends, passed what he thought was the exit and was distracted with laughter among friends when the group was unexpectedly confronted with a final scare. An actor was holding a gas-powered chainsaw (however, the chain had been removed), and revved it as he approached the group.
The actor started to chase the plaintiff, who ran in fear. As he was fleeing, plaintiff fell and was injured as a result.
He later filed a personal injury lawsuit against the company that operates the haunted house, alleging assault and negligence. In his lawsuit, he took note of the fact that 15 people who had fallen as they ran from the chainsaw-wielding actor near the exit. Three other falls occurred the same night as plaintiff’s. However, none were injured.
Defendant countered the lawsuit with a motion for summary judgment, citing the assumption of risk doctrine. In California, the assumption of risk doctrine holds there isn’t a duty to eliminate risks or protect plaintiff from danger that is inherent to a certain sport or activity. Plaintiff assumes that risk while engaging in the activity.
In Florida, assumption of risk is often considered in conjunction with comparative fault. That is, jurors consider it as part of the level of fault a plaintiff assumes for his or her own injuries. It can be used in lawsuits pertaining to hazardous occupation injuries, per F.S. 769.04.
In Griffin, trial court granted defendant’s motion for summary judgment, finding there was no breach of any duty to plaintiff. A key point of contention was whether the incident occurred inside the attraction. The court ruled the incident did occur inside the event, and plaintiff had assumed the risk of extreme fear when he entered.
The appeals court affirmed, noting that a patron of a haunted house can expect to be frightened, run and even fall and that such is the fundamental nature of a haunted house or haunted attraction. Further, the court noted, there was no indication defendant increased the injury risk beyond what was inherent by acting recklessly. – Injury Lawyer Florida

The doctrine of assumption of risk is also known as volenti non fit injuria.

Assumption of Risk

A defense, facts offered by a party against whom proceedings have been instituted to diminish a plaintiff's Cause of Action or defeat recovery to an action in Negligence, which entails proving that the plaintiff knew of a dangerous condition and voluntarily exposed himself or herself to it.

Under the federal rules of Civil Procedure, assumption of the risk is an Affirmative Defense that the defendant in a negligence action must plead and prove. The doctrine of assumption of risk is also known as volenti non fit injuria.

Situations that encompass assumption of the risk have been classified in three broad categories. In its principal sense, assumption of the risk signifies that the plaintiff, in advance, has consented to relieve the defendant of an obligation of conduct toward him or her and to take a chance of injury from a known risk ensuing from what the defendant is to do or leave undone. The consequence is that the defendant is unburdened of all legal duty to the plaintiff and, therefore, cannot be held liable in negligence.

A second situation occurs when the plaintiff voluntarily enters into some relation with the defendant, knowing that the defendant will not safeguard the plaintiff against the risk. The plaintiff can then be viewed as tacitly or implicitly consenting to the negligence, as in the case of riding in a car with knowledge that the steering apparatus is defective, which relieves the defendant of the duty that would ordinarily exist.

In the third type of situation, the plaintiff, cognizant of a risk previously created by the negligence of the defendant, proceeds voluntarily to confront it, as when he or she has been provided with an article that the plaintiff knows to be hazardous and continues to use after the danger has been detected. If this is a voluntary choice, the plaintiff is deemed to have accepted the situation and assented to free the defendant of all obligations.

In all three situations, the plaintiff might be acting in a reasonable manner and not be negligent in the venture, because the advantages of his or her conduct outweigh the peril. The plaintiff's decision might be correct, and he or she might even act with unusual circumspection because he or she is cognizant of the danger that will be encountered. If that is the case, the defense operates to refute the defendant's negligence by denying the duty of care that would invoke this liability, and the plaintiff does not recover because the defendant's conduct was not wrongful toward the plaintiff.

With respect to the second and third situations, however, the plaintiff's conduct in confronting a known risk might be in itself unreasonable, because the danger is disproportionate to the advantage the plaintiff is pursuing, as when, with other transportation available, the individual chooses to ride with an intoxicated driver. If this occurs, the plaintiff's conduct is a type of contributory negligence, an act or omission by the plaintiff that constitutes a deficiency in ordinary care, which concurs with the defendant's negligence to comprise the direct or proximate cause of injury. In such cases, the defenses of assumption of risk and contributory negligence overlap.

In this area of intersection, the courts have held that the defendant can employ either defense or both. Since ordinarily either is sufficient to bar the action, the defenses have been distinguished on the theory that assumption of risk consists of awareness of the peril and intelligent submission to it, while contributory negligence entails some deviation from the standard of conduct of a reasonable person, irrespective of any remonstration or unawareness displayed by the plaintiff. The two concepts can coexist when the plaintiff unreasonably decides to incur the risk or can exist independently of each other. The distinction, when one exists, is likely to be one between risks that were in fact known to the plaintiff and risks that the individual merely might have discovered by the exercise of ordinary care.

Express Agreement

The parties can enter into a written agreement absolving the defendant from any obligation of care for the benefit of the plaintiff and liability for the consequence of conduct that would otherwise constitute negligence. In the ordinary case, public policy does not prevent the parties from contracting in regard to whether the plaintiff will be responsible for the maintenance of personal safety. A person who enters into a lease or rents an animal, or enters into a variety of similar relations entailing free and open bargaining between the parties, can assent to relieving the defendant of the obligation to take precautions and thereby render the defendant free from liability for negligence.The courts have refused to uphold such agreements, however, if one party possesses a patent disadvantage in bargaining power. For example, a contract exempting an employer from all liability for negligence toward employees is void as against public policy. A carrier transporting cargo or passengers for hire cannot evade its public responsibility in this manner, even though the agreement limits recovery to an amount less than the probable damages. The contract has been upheld, however, when it represents a realistic attempt to assess a value as liquidated or ascertained damages in advance, and the carrier graduates its rates in accordance with such value, so that complete protection would be available to the plaintiff upon paying a higher rate. The same principles apply to innkeepers, public warehousemen, and other professional bailees—such as garage, parking lot, and check-room attendants—on the basis that the indispensable necessity for their services deprives the customer of all meaningful equal bargaining power.

An express agreement can relieve the defendant from liability for negligence only if the plaintiff comprehends its terms. If the plaintiff is not cognizant of the provision in his or her contract, and a reasonable person in the same position would not have known of it, it is not binding upon the individual, and the agreement fails for lack of mutual assent. The expressed terms of the agreement must apply to the particular misconduct of the defendant. Such contracts generally do not encompass gross, willful, wanton, or reckless negligence or any conduct that constitutes an intentional tort.

Implied Acceptance of Risk

In a majority of cases, the consent to assume the risk is implied from the conduct of the plaintiff under the circumstances. The basis of the defense is not contract, but consent, and it is available in many cases in which no express agreement exists.

By entering voluntarily into any relationship or transaction in which the negligence of the defendant is evident, the plaintiff is deemed to accept and consent to it, to assume responsibility for personal safety, and to unburden the defendant of the obligation. Spectators at certain sports events assume all the known risks of injury from flying objects. Plaintiffs who enter business premises as invitees and detect dangerous conditions can be deemed to assume the risks when they continue voluntarily to encounter them.

Knowledge of Risk

The plaintiff will not normally be regarded as assuming any risk of either conditions or activities of which he or she has no knowledge. The plaintiff must not merely create the danger but must comprehend and appreciate the danger itself.

The applicable standard is basically subjective in nature, tailored to the particular plaintiff and his or her situation, as opposed to the objective standard of the reasonable person of ordinary prudence, which is employed in contributory negligence. If because of age, lack of information, or experience, the plaintiff does not comprehend the risk entailed in a known situation, the individual will not be regarded as consenting to assume it. Failure to exercise ordinary care to discover the danger is not encompassed within assumption of risk, but in the defense of contributory negligence.

An entirely subjective standard, however, allows the plaintiff considerable latitude in testifying that he or she did not know or comprehend the risk. To counteract the adverse effects of the application of this liberal standard, courts have interjected an objective element by holding that a plaintiff cannot evade responsibility by alleging that he or she did not comprehend a risk that must have been obvious.

A denial of cognizance of certain matters that are common knowledge in the community is not credible, unless a satisfactory explanation exists. As in the case of negligence itself, there are particular risks that any adult must appreciate, such as falling on ice, lifting heavy objects, and driving a defective vehicle. In addition, a plaintiff situated for a considerable length of time in the immediate vicinity of a hazardous condition is deemed to have detected and to comprehend the ordinary risks entailed in that situation. If the person completely understands the risk, the fact that he or she has temporarily forgotten it does not provide protection.

Even when there is knowledge and appreciation of a risk, the plaintiff might not be prohibited from recovery when the circumstances introduce a new factor. The fact that the plaintiff is totally cognizant of one risk, such as the speed of a vehicle, does not signify that he or she assumes another of which he or she is unaware, such as the intoxication of the driver. Although knowledge and understanding of the risk incurred are encompassed within the concept of assumption of the risk, it is possible for the plaintiff to assume risks of whose specific existence he or she is unaware—to consent to venture into unknown conditions. In a majority of instances, the undertaking is express, although it can arise by implication in a few cases. A guest who accepts a gratuitous ride in an automobile has been regarded as assuming the risk of defects in the vehicle, unknown to the driver.

Voluntary Assumption

The doctrine of assumption of risk does not bar the plaintiff from recovery unless the individual's decision is free and voluntary. There must be some manifestation of consent to relieve the defendant of the obligation of reasonable conduct. A risk is not viewed as assumed if it appears from the plaintiff's words or from the circumstances, that he or she does not actually consent. If the plaintiff relinquishes his or her better judgment upon assurances that the situation is safe or that it will be remedied or upon a promise of protection, the plaintiff does not assume the risk, unless the danger is so patent and so extreme that there can be no reasonable reliance upon the assurance.

Even when the plaintiff does not protest, the risk is not assumed when the conduct of the defendant has provided the individual with no reasonable alternative, causing him or her to act under duress. When the defendant creates a peril, such as a burning building, those who dash into it to save their own property or the lives or property of others do not assume the risk when the alternative is to permit the threatened injury to occur. If, however, the danger is disproportionate to the value of the interest to be protected, the plaintiff might be charged with contributory negligence in regard to his or her own unreasonable conduct. When a reasonably safe alternative exists, the plaintiff's selection of the hazardous route is free and can constitute both contributory negligence and assumption of risk.

The defendant has a legal duty, which he or she is not at liberty to refuse to perform, to exercise reasonable care for the plaintiff's safety, so that the plaintiff has a parallel legal right to demand that care. The plaintiff does not assume the risk while using the defendant's services or facilities, notwithstanding knowledge of the peril, when he or she acts reasonably, and the defendant has provided no reasonable alternative other than to refrain completely from exercising the right. A common carrier or other public utility which has negligently furnished a dangerously defective set of steps cannot assert assumption of risk against a patron who uses the steps as the sole convenient means of access to the company's premises. The same principle applies to a city maintaining a public roadway or sidewalk or other public area that the plaintiff has a right to use and premises onto which the plaintiff has a contractual right to enter. When a reasonable alternative is available, the plaintiff's recalcitrance in unreasonably encountering danger constitutes contributory negligence, as well as assumption of risk.

Violation of Statute

The plaintiff still assumes the risk where the defendant's negligence consists of the violation of a statute. A guest who accepts a nighttime ride in a vehicle with inoperative lights has been regarded as consenting to relieve the defendant of the duty of complying with the standard established by the statute for protection and cannot recover for injuries. Particular statutes, however, such as child labor acts and safety statutes for the benefit of employees, safeguard the plaintiff against personal inability to protect himself or herself due to improvident judgment or incapability to resist certain pressures. Since the basic objective of such statutes would be frustrated if the plaintiff were allowed to assume the risk, it is generally held that the plaintiff cannot do so, either expressly or impliedly.

Abolition of the Defense

Numerous states have abrogated the defense of assumption of risk in automobile cases through the enactment of no-fault insurance legislation or comparative negligence acts. The theories underlying its Abolition are that it serves no purpose that is not completely disposed of by the other doctrines, it increases the likelihood of confusion, and it bars recovery in meritorious cases.

Assumption of risk is not a defense under state Workers' Compensation laws or in federal employer's liability act actions. The workers' compensation laws abolished the defense in recognition of the severe economic pressure a threatened loss of employment exerted upon workers. A worker was deemed to have assumed the risk even when acting under a direct order that conveyed an explicit or implicit threat of discharge for insubordination.

The federal Employers' Liability Act (45 U.S.C.A. § 51 et seq. [1908]) was intended to furnish an equitable method of compensation for railroad workers injured within the scope of their employment. The act provides that an employee is not deemed to have assumed the risks of employment when injury or death ensued totally or partially from the negligence of the carrier's officers, agents, or employees, or from the carrier's violation of any statute enacted for the safety of employees, where the infraction contributed to the employee's injury or death. This doctrine was abolished because of the extreme hardship it imposed on workers in this dangerous line of employment.

assumption of risk doctrine

Assumption of risk is a defense in the law of torts, which bars or reduces a plaintiff's right to recovery against a negligent tortfeasor if the defendant can demonstrate that the plaintiff voluntarily and knowingly assumed the risks at issue inherent to the dangerous activity in which he was participating at the time of his or her injury.

What is usually meant by assumption of risk is more precisely termed primary or "express" assumption of risk. It occurs when the plaintiff has either expressly or implicitly relieved the defendant of the duty to mitigate or relieve the risk causing the injury from which the cause of action arises. It operates as a complete bar to liability on the theory that upon assumption of the risk, there is no longer a duty of care running from the defendant to the plaintiff; without a duty owed by the defendant, there can be no negligence on his part.^[1] However, primary assumption of risk is not a blanket exemption from liability for the operators of a dangerous activity. The specific risk causing the injury must have been known to, and appreciated by, the plaintiff in order for primary assumption of risk to apply. Also, assumption of risk does not absolve a defendant of liability for reckless conduct.^[2]

This defense is commonly asserted in cases of injuries occurring during risky recreational activities, such as skiing, paragliding, and scuba diving, but actually extends to all dangerous activities. Thus, for example, it was held that a visitor to the Burning Man festival assumed the risk of getting burned.^[3]

Secondary assumption of risk is a rather different doctrine akin in some respects to comparative negligence. The difference was explained by the Supreme Court of California as follows:

“

In cases involving ‘primary assumption of risk’—where, by virtue of the nature of the activity and the parties' relationship to the activity, the defendant owes no legal duty to protect the plaintiff from the particular risk of harm that caused the injury—the doctrine continues to operate as a complete bar to the plaintiff's recovery. In cases involving ‘secondary assumption of risk’—where the defendant does owe a duty of care to the plaintiff, but the plaintiff proceeds to encounter a known risk imposed by the defendant's breach of duty—the doctrine is merged into the comparative fault scheme, and the trier of fact, in apportioning the loss resulting from the injury, may consider the relative responsibility of the parties.[4]

”

ANSWERS TO MOCK BAR IN CIVIL LAW 2016

I

PROBLEM NO. 1.Tuatis bought a 300 square meter land from Tuatis for P10,000 on installment basis. She paid only P4,000. The condition of the sale is that she will pay a down payment of P3,000 and the balance shall be paid on monthly installment until the whole consideration is paid.

Meanwhile, Tuatis built a P500,000 worth of house on said strip.

As Tuatis did not pay the whole amount, Visminda the owner of the lot, demanded that Tuatis should vacate the land, and remove her concrete house thereon.

Tuatis on the other hand, demanded that she will pay the balance price of P6,000 but Visminda refused to receive the amount, as another buyer is willing to buy the land at P300,000.

QUESTION:Accordingly, Vizminda has two options. What are these two options under the law? Discuss each option.

ANSWER:

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options:

Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided in Article 546 of the Civil Code.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment , shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis’ obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.

Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

II

PROBLEM NO.2 On November 27, 1997, petitioner purchased from respondent a brand new white Toyota Hi-Lux 2.4 SS double cab motor vehicle, 1996 model, in the amount of P508,000. Petitioner made a down payment of P152,400, leaving a balance of P355,600 which was payable in 36 months with 54% interest. The vehicle was delivered to petitioner two days later. On October 18, 1998, petitioner demanded the replacement of the engine of the vehicle because it developed a crack after traversing Marcos Highway during a heavy rain. Petitioner asserted that respondent should replace the engine with a new one based on an implied warranty. Respondent countered that the alleged damage on the engine was not covered by a warranty.

On April 20, 1999, petitioner filed a complaint for damages ² against respondent with the RTC. Respondent moved to dismiss the case on the ground that under Article 1571 of the Civil Code, the petitioner’s cause of action had prescribed as the case was filed more than six months from the date the vehicle was sold and/or delivered.

QUESTIONS: (1) Is contention of respondent that the action has already prescribed correct?

(2) What is the prescriptive period for (a) an implied warranty (b) for an express warranty?

(3) Distinguish an express warrant from an implied warranty.

(4) Is there an express warranty in the above-stated facts? Explain your answer.

G.R. No. 141480 November 29, 2006CARLOS B. DE GUZMAN, Petitioner,vs. TOYOTA CUBAO, INC., Respondent.

Petitioner’s argument is erroneous. Article 1495 of the Civil Code states that in a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing that is the object of sale. Corollarily, the pertinent provisions of the Code set forth the available remedies of a buyer against the seller on the basis of a warranty against hidden defects: 

Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of this trade or profession, should have known them. (Emphasis supplied)

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated and the vendor was not aware of the hidden faults or defects in the thing sold. 

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months from the delivery of the thing sold. 

(Emphasis supplied)

Under Article 1599 of the Civil Code, once an express warranty is breached, the buyer can accept or keep the goods and maintain an action against the seller for damages. In the absence of an existing express warranty on the part of the respondent, as in this case, the allegations in petitioner’s complaint for damages were clearly anchored on the enforcement of an implied warranty against hidden defects, i.e., that the engine of the vehicle which respondent had sold to him was not defective. By filing this case, petitioner wants to hold respondent responsible for breach of implied warranty for having sold a vehicle with defective engine. Such being the case, petitioner should have exercised this right within six months from the delivery of the thing sold. ⁷ Since petitioner filed the complaint on April 20, 1999, or more than nineteen months counted from November 29, 1997 (the date of the delivery of the motor vehicle), his cause of action had become time-barred.

Petitioner contends that the subject motor vehicle comes within the context of Republic Act No. 7394. Thus, petitioner relies on Article 68 (f) (2) in relation to Article 169 of Republic Act No. 7394. Article 4 (q) of the said law defines "consumer products and services" as goods, services and credits, debts or obligations which are primarily for personal, family, household or agricultural purposes, which shall include, but not limited to, food, drugs, cosmetics, and devices. The following provisions of Republic Act No. 7394 state:

Art. 67. Applicable Law on Warranties. — The provisions of the Civil Code on conditions and warranties shall govern all contracts of sale with conditions and warranties.

Art. 68. Additional Provisions on Warranties. — In addition to the Civil Code provisions on sale with warranties, the following provisions shall govern the sale of consumer products with warranty:

e) Duration of warranty. The seller and the consumer may stipulate the period within which the express warranty shall be enforceable. If the implied warranty on merchantability accompanies an express warranty, both will be of equal duration.

Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year following the sale of new consumer products.

f) Breach of warranties — xxx

x x x

2) In case of breach of implied warranty, the consumer may retain in the goods and recover damages, or reject the goods, cancel the contract and recover from the seller so much of the purchase price as has been paid, including damages. (Emphasis supplied.)

Consequently, even if the complaint is made to fall under the Republic Act No. 7394, the same should still be dismissed since the prescriptive period for implied warranty thereunder, which is one year, had likewise lapsed.

WHEREFORE, the petition is DENIED for being in violation of the hierarchy of courts, and in any event, for lack of merit.
xxxx

Warranties by the seller may be express or implied. Art. 1546 of the Civil Code defines express warranty as follows:

"Art. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller’s opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer."(Emphasis and underscoring supplied)

On the other hand, an implied warranty is that which the law derives by application or inference from the nature of the transaction or the relative situation or circumstances of the parties, irrespective of any intention of the seller to create it.²³ Among the implied warranty provisions of the Civil Code are: as to the seller’s title (Art. 1548), against hidden defects and encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and against eviction (Art. 1548).

The earlier cited ruling in Engineering & Machinery Corp. states that "the prescriptive period for instituting actions based on a breach of express warranty is that specified in the contract, and in the absence of such period, the general rule on rescission of contract, which is four years (Article 1389, Civil Code)."

As for actions based on breach of implied warranty, the prescriptive period is, under Art. 1571 (warranty against hidden defects of or encumbrances upon the thing sold) and Art. 1548 (warranty against eviction), six months from the date of delivery of the thing sold.

The following provision of the Deed of Absolute Sale reflecting the kind of warranty made by Soledad reads:

x x x x

I hereby covenant my absolute ownership to (sic) the above-described property and the same is free from all liens and encumbrances and I will defend the same from all claims or any claim whatsoever; will save the vendee from any suit by the government of the Republic of the Philippines.

x x x x (Emphasis supplied)

In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged, Soledad gave an implied warranty of title. In pledging that he "will defend the same from all claims or any claim whatsoever [and] will save the vendee from any suit by the government of the Republic of the Philippines," Soledad gave a warranty against eviction.

Given Ang’s business of buying and selling used vehicles, he could not have merely relied on Soledad’s affirmation that the car was free from liens and encumbrances. He was expected to have thoroughly verified the car’s registration and related documents.

Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is six months after the delivery of the vehicle, following Art. 1571. But even if the date of filing of the action is reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle.

On the merits of his complaint for damages, even if Ang invokes breach of warranty against eviction as inferred from the second part of the earlier-quoted provision of the Deed of Absolute Sale, the following essential requisites for such breach, vìz:

"A breach of this warranty requires the concurrence of the following circumstances:

(1) The purchaser has been deprived of the whole or part of the thing sold;

(2) This eviction is by a final judgment;

(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and

(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the vendee.

In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be declared." ²⁴ (Emphasis supplied),

have not been met. For one, there is no judgment which deprived Ang of the vehicle. For another, there was no suit for eviction in which Soledad as seller was impleaded as co-defendant at the instance of the vendee.

Finally, even under the principle of solutio indebiti which the RTC applied, Ang cannot recover from Soledad the amount he paid BA Finance. For, as the appellate court observed, Ang settled the mortgage debt on his own volition under the supposition that he would resell the car. It turned out that he did pay BA Finance in order to avoid returning the payment made by the ultimate buyer Bugash. It need not be stressed that Soledad did not benefit from Ang’s paying BA Finance, he not being the one who mortgaged the vehicle, hence, did not benefit from the proceeds thereof.

 

JAIME D. ANG, Petitioner, - versus - COURT OF APPEALS AND BRUNO SOLEDAD, Respondents.SECOND DIVISION

G.R. No. 177874

III

PROBLEM NO. 3 On 17 December 1971, respondents, the Spouses Leon Silim and Ildefonsa Mangubat, donated a 5,600 square meter parcel of land in favor of the Bureau of Public Schools, Municipality of Malangas, Zamboanga del Sur (BPS). In the Deed of Donation, respondents imposed the condition that the said property should "be used exclusively and forever for school purposes only.This donation was accepted by Gregorio Buendia, the District Supervisor of BPS, through an Affidavit of Acceptance and/or Confirmation of Donation.

Through a fund raising campaign spearheaded by the Parent-Teachers Association of Barangay Kauswagan, a school building was constructed on the donated land. However, the Bagong Lipunan school building that was supposed to be allocated for the donated parcel of land in Barangay Kauswagan could not be released since the government required that it be built upon a one (1) hectare parcel of land. To remedy this predicament, Assistant School Division Superintendent of the Province of Zamboanga del Sur, Sabdani Hadjirol, authorized District Supervisor Buendia to officially transact for the exchange of the one-half (1/2) hectare old school site of Kauswagan Elementary School to a new and suitable location which would fit the specifications of the government. Pursuant to this, District Supervisor Buendia and Teresita Palma entered into a Deed of Exchange whereby the donated lot was exchanged with the bigger lot owned by the latter. Consequently, the Bagong Lipunan school buildings were constructed on the new school site and the school building previously erected on the donated lot was dismantled and transferred to the new location.

When respondent Leon Silim saw, to his surprise, that Vice-Mayor Wilfredo Palma was constructing a house on the donated land, he asked the latter why he was building a house on the property he donated to BPS. Vice Mayor Wilfredo Palma replied that he is already the owner of the said property. Respondent Leon Silim endeavored to stop the construction of the house on the donated property but Vice-Mayor Wilfredo Palma advised him to just file a case in court. On February 10, 1982, respondents filed a Complaint for Revocation and Cancellation of Conditional Donation, Annulment of Deed of Exchange and Recovery of Possession and Ownership of Real Property with damages against Vice Mayor Wilfredo Palma, Teresita Palma, District Supervisor Buendia and the BPS before the Regional Trial Court of Pagadian City, Branch 21. In its Decision dated 20 August 1993, the trial court dismissed the complaint for lack of merit

QUESTION: Is the decision of the RTC correct? Explain.

Answer:RTC IS CORRECT.Without the slightest doubt, the condition for the donation was not in any way violated when the lot donated was exchanged with another one. The purpose for the donation remains the same, which is for the establishment of a school. The exclusivity of the purpose was not altered or affected. In fact, the exchange of the lot for a much bigger one was in furtherance and enhancement of the purpose of the donation. The acquisition of the bigger lot paved the way for the release of funds for the construction of Bagong Lipunan school building which could not be accommodated by the limited area of the donated lot.

(REPUBLIC OF THE PHILIPPINES, petitioner, vs.LEON SILIM and ILDEFONSA MANGUBAT, respondents. G.R. No. 140487 ,April 2, 2001)

IV

 PROBLEM NO. 4.On July 18, 1990, petitioner entrusted for repair his Nissan pick-up car 1988 model to private respondent - which is engaged in the sale, distribution and repair of motor vehicles. Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the job contract. After petitioner paid in full the repair bill in the amount of P1,397.00, private respondent issued to him a gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not use the vehicle as its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to private respondent for installation on the same day. However, the battery was not installed and the delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by private respondent’s employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident was reported to the police. Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against private respondent anchoring his claim on the latter’s alleged negligence. For its part, private respondent contended that it has no liability because the car was lost as a result of a fortuitous event - the carnapping.

Questions:

 (a) Is carnapping a fortuitous event?

 (b) Can the repair shop be made liable for the value of the car and pay damages?

 (c) What do you understand by “the assumption of risk”?

(d) Is this principle applicable in the case at bar? 

Answer: It is a not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another’s rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another’s property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation.^[9] In accordance with the Rules of evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it^[10]- which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to established the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties’ agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.

Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot escape liability. Article 1165^[11] of the New Civil Code makes an obligor who is guilty of delay responsible even for a fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was supposed to deliver petitioner’s car three (3) days before it was lost. Petitioner’s agreement to the rescheduled delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession cannot be construed as waiver of petitioner’s right to hold private respondent liable because the car was unusable and thus, petitioner had no option but to leave it.

Assuming further that there was no delay, still working against private respondent is the legal presumption under Article 1265 that its possession of the thing at the time it was lost was due to its fault. This presumption is reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private respondent’s possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting circumstances - earthquake, flood, storm or other natural calamity - when the presumption of fault is not applicable^[13] do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does not fall under the exceptions, private respondent is answerable for the loss.

It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if the loss was due to a fortuitous event if “the nature of the obligation requires the assumption of risk”.^[14] Carnapping is a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the Department of Trade and Industry (DTI)^[15] and to secure an insurance policy for the “shop covering the property entrusted by its customer for repair, service or maintenance” as a pre-requisite for such registration/accreditation.^[16] Violation of this statutory duty constitutes negligence per se.^[17] Having taken custody of the vehicle, private respondent is obliged not only to repair the vehicle but must also provide the customer with some form of security for his property over which he loses immediate control. An owner who cannot exercise the seven (7) juses or attributes of ownership – the right to possess, to use and enjoy, to abuse or consume, to accessories, to dispose or alienate, to recover or vindicate and to the fruits - is a crippled owner. Failure of the repair shop to provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the assumption that private respondent’s repair business is duly registered, it presupposes that its shop is covered by insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not registered, then the presumption of negligence applies.

V

PROBLEM NO. 5.Sometime in 1956, Francisca Cardente, for and on behalf of her grandson, petitioner Ignacio Cardente, who was then a minor, and now married to his co-petitioner, purchased from Isidro Palanay one hectare of land. The property purchased is a part of a 9.2656-hectare parcel of land covered by Original Certificate of Title (O.C.T., for short) No. P-1380 in Palanay's name. Immediately after the purchase, the Cardentes took possession of the land and planted various crops and trees thereon. They have been in continuous possession ever since, adverse to the whole world. Unfortunately, however, the private document evidencing the sale of the one-hectare lot to petitioner Ignacio Cardente was lost and never found despite diligent efforts exerted to locate the same.

Some four years later, on August 18, 1960, Isidro Palanay sold the entire property covered by O.C.T. No. P-1380, including the one-hectare portion already sold to Cardente, this time to the private respondents, Ruperto Rubin and his wife. The deed of sale was registered and a new title, Transfer Certificate of Title (T.C.T., for short) No. 1173, was issued in favor of the Rubin spouses. Notwithstanding the second sale, or because of it, Isidro Palanay, with the written conforme of his wife, Josepha de Palanay, on December 9, 1972, executed a public document in favor of petitioner Ignacio Cardente confirming the sale to him (Cardente) in 1956 of the one hectare portion. The deed of confirmation likewise states that the subsequent vendee, respondent Ruperto Rubin, was informed by Palanay of the first sale of the one-hectare portion to Cardente.

By virtue of having the property titled in the name of Ruperto Rubin, he now claims that he is the owner of the whole property in question. Question: (a) Is the claim of Rubin correct? (b) Is this a case of double sale? (c) In case it is, what principle of law will you apply regarding double sale? Explain.

Answer: Admittedly, this case involves a double sale. While the private respondents allegedly bought from Isidro Palanay on August 18, 1960 the entire property comprising 9.2656 hectares and covered by O.C.T. No. P-1380, the petitioners, on the other hand, lay claim to one hectare thereof which they undeniably purchased from the same vendor earlier, in 1956. The conflict, therefore, falls under, and can be resolved by, Article 1544 of the Civil Code which sets the rules on double sales.

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.

It is undisputed that the private respondents, the second vendees, registered the sale in their favor whereas the petitioners, the first buyers, did not. But mere registration of the sale is not enough. Good faith must concur with the registration. Bad faith renders the registration nothing but an exercise in futility. The law and jurisprudence are very clear on this score.

The heart of the problem is whether or not the private respondents acted in good faith when they registered the deed of sale dated August 18, 1960 more than six months later, on March 7, 1961. Inextricably, the inquiry must be directed on the knowledge, or lack of it, of the previous sale of the one-hectare portion on the part of the second buyers at the time of registration. The trial court found that the second vendees had such knowledge.

It is true that good faith is always presumed while bad faith must be proven by the party alleging it. In this case, however, viewed in the light of the circumstances obtaining, we have no doubt that the private respondents' presumed good faith has been sufficiently overcome and their bad faith amply established.

The "Confirmation Of A Deed Of Absolute Sale Of A Portion Of A Registered Agricultural Land" executed by the late Ignacio Palanay on December 9, 1972 and which was exhibited in the trial court below, admitted the sale of the one hectare portion to the petitioners sometime in 1956. The same deed likewise explicitly stated that the "fact of the previous sale, was well known and acknowledged by Mr. Ruperto Rubin (the private respondent)." These recitals were further buttressed by Concepcion Salubo, a daughter of Isidro Palanay, who testified that she knew of the previous sale of the one-hectare portion to petitioner Ignacio Cardente and that private respondent Ruperto Rubin was properly informed of the said sale. On this regard, no ill-motive had been attributed to the vendor Isidro Palanay and to his daughter Concepcion Salubo for testifying the way they did -- against the private respondents. They were disinterested persons who stood to gain nothing except, perhaps, the satisfaction of setting the record straight, or, in the words of the seller, "for the purpose of giving efficacy to the Deed of Sale I made to Ignacio Cardente which was made in a private document x x x."

Further, the notorious and continuous possession and full enjoyment by petitioners of the disputed one-hectare property long (four years) before the private respondents purchased the same from Palanay bolsters the petitioners' position. That possession would have been enough to arouse the suspicion of the private respondents as to the ownership of the entire area which they were about to purchase. Their failure to inquire and to investigate the basis of the petitioners' actual occupation of the land forming a substantial part of what they were buying militates against their posited lack of knowledge of the first sale. "A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor." We have warned time and again that a buyer of real property which is in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a buyer in good faith.

The private respondents' avowals that they had never known of the prior sale until the issues were joined at the trial court, for, before that, they merely tolerated the continued presence of the original occupants, Francisca and Eugenia Cardente, and Ignacio, in the premises, out of simple pity for the two old women, is too pat to be believed. For if these were so, the reason why the private respondents' continued to tolerate the occupation by the petitioners of the contested property even after the demise of the two old women escapes us. Rubin's allegation that this was because they were still in good terms with the petitioners is too lame an excuse to deserve even a scant consideration. The private respondents' total lack of action against the actual occupants of a good portion of the land described in their torrens title can only be construed as acceptance on their part of the existence of the prior sale and their resignation to the fact that they did not own the one-hectare portion occupied by the petitioners. Present these facts, the foisted ignorance of the respondents as to the first sale is an empty pretense. Their seventeen years of inaction and silence eloquently depict a realization of lack of right.

VI

PROBLEM NO. 6. X died in 1955 with a will. In her will, she devised one-half of a big parcel of land to her brothers, Y and Z. and the other half to the grandniece, A, subject to the condition that upon A’s death, whether before or after that of the testatrix, said one-half of the property devised to her shall be delivered to Y and Z, or their heirs should anyone of them die before X. After the will was admitted to probate, A demanded for the partition of the property. Y and Z, however, contended that since she is only a fiduciary heir or a usufructuary she cannot demand for the partition of the property. Is this contention tenable?

Answer: This contention is untenable. Art. 865 of the civil code provides that a fidiecomissary substitution shall have no effect unless it is made expressly either by giving it such a name or by imposing upon the first heir the absolute obligation to deliver the inheritance to the second heir. The testamentary clause under consideration does not cal the institution a fidiecomissary heir nor does it contain a clear statement that A enjoys only usufructuary right, the naked ownership being vested in the brothers of the testatrix. The will, therefore, establishes only a simple or common substitution (substitution vulgar), the necessary result of which is that A upon the death of the testatrix, became the owner of an undivided half of the property. Being a co-owner, she can therefore demand for a partition of the property (Crisologo v. Singson, 4 Scra 491).

VII

PROBLEM NO. 7. In June 1979, petitioner Colito T. Pajuyo (“Pajuyo”) paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (“Guevarra”) executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyo’s demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 (“MTC”).

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.

QUESTIONS:

 (1) In your judgment, who has the better right of possession to the land in question?

(2) In essence what kind of civil law contract was entered between the parties?

 (3) One of the defenses made by Guevarra is pari delicto, what is pari delicto?

 (4) Is pari delicto applicable in ejectment cases?

 (5) What is a precarium? 

ANSWER: (1) Pajuyo has the better right to possession by virtue of the agreement. (2) It is not a commodatom, it is more of a landlord-tenancy relationship (3) Pari Delicto is not applicable in ejectment cases (5) Precarium is a tolerated use of a property. COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, respondents. FIRST DIVISION [G.R. No. 146364. June 3, 2004], the SC decided as follows:”We do not subscribe to the Court of Appeals’ theory that the Kasunduan is one of commodatum.

In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum.

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also different from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant relationship where the withdrawal of permission would result in the termination of the lease. The tenant’s withholding of the property would then be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts of commission, administration and commodatum. These contracts certainly involve the obligation to deliver or return the thing received. X x x The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.

Articles 1411 and 1412 of the Civil Code embody the principle of pari delicto. We explained the principle of pari delicto in these words:

The rule of pari delicto is expressed in the maxims ‘ex dolo malo non eritur actio’ and ‘in pari delicto potior est conditio defedentis.’ The law will not aid either party to an illegal agreement. It leaves the parties where it finds them.

The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is where the application of the pari delicto rule would violate well-established public policy.

In Drilon v. Gaurana, we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We held that:

It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In affording this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which would ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to some appropriate action in the courts to assert their claims. This is the philosophy at the foundation of all these actions of forcible entry and detainer which are designed to compel the party out of possession to respect and resort to the law alone to obtain what he claims is his.

Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To shut out relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust another squatter from possession of the lot that the latter had illegally occupied, emboldened by the knowledge that the courts would leave them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to prevent. Even the owner who has title over the disputed property cannot take the law into his own hands to regain possession of his property. The owner must go to court.

VIII

PROBLEM NO. 8.Francisco is a 76 year old man, single and lives in his house with Cirila, who took care of him until he died at the age of 90. Evidence showed that Cirila is not only a household help, but also “sleeps” with Francisco, though they never had a child of their own. On January 24, 1991, a few months before his death, Francisco executed an instrument denominated “Deed of Donation Inter Vivos,” in which he ceded a portion of Lot 437-A, consisting of 150 square meters, together with his house, to Cirila, who accepted the donation in the same instrument. Francisco left the larger portion of 268 square meters in his name. The deed stated that the donation was being made in consideration of “the faithful services that Cirila had rendered over the past ten (10) years.” The deed was notarized by Atty. Juan Luna and later registered by Cirila as its absolute owner.

Questions:

 (1) Is the “donation inter vivos” valid?

(2) If in case it is valid, how shall said property be distributed? Explain.

ANSWER: “Respondents having proven by a preponderance of evidence that Cirila and Francisco lived together as husband and wife without a valid marriage, the inescapable conclusion is that the donation made by Francisco in favor of Cirila is void under Art. 87 of the Family Code”. The property therefore must be distributed pursuant to law in favor of Francisco’s heirs, his sister and his niece. (CIRILA ARCABA, petitioner, vs. ERLINDA TABANCURA VDA. DE BATOCAEL, SEIGFREDO C. TABANCURA, DORIS C. TABANCURA, LUZELLI C. TABANCURA, BELEN C. TABANCURA, RAUL A. COMILLE, BERNADETTE A. COMILLE, and ABNER A. COMILLE, respondents. SECOND DIVISION [G.R. No. 146683. November 22, 2001])

IX

PROBLEM NO. 9. 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]

X

PROBLEM NO. 10. Miss Y worked in the U.S. for 20 years. She is very generous to her relatives in Davao City. She bought a city property worth 5 million with an area of 6,000 sq. m., and accommodated her cousin Mr. X to build his house thereon.

Mr. X built a house worth 300t. Before the house was built, Miss Y, had them agree in writing that any relative can use the land for free, build whatever structure they can afford and that they must maintain a good relationship, otherwise, they shall all be evicted from the land.

When Miss Y retired, she returned to the Philippines and lived in the house of Mr. X. Soon, disagreements arose, to an extent that their relationship turned sour and irreconciliable.

Miss Y then demanded that Mr. X vacate her land. Mr. X refused and will vacate only if he is reimbursed the present market value of his house which had already been assessed at 500t.

Questions: (1) In essence, what law governs their relationship? (2) Will you consider Mr. X as a builder in good faith? (3) Is Miss Y correct in evicting Mr. X from her land? (4) Is Mr. X correct in demanding that he will not vacate unless he is reimbursed the value of his house? Explain.

ANSWERS:

1. The Law on Usufruct particularly Article 579 of the NCC shall govern the relationship Miss Y and Mr. X.

“ Art. 579. The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere pleasure as he may deem proper, provided he does not alter its form or substance; but he shall have no right to be indemnified therefor. He may, however, remove such improvements, should it be possible to do so without damage to the property. (487) “

2. Mr. X cannot be considered a builder in good faith because he knew that has no title of ownership over the land where he built the house.

3. Yes, Miss Y is correct in evicting Mr. X because he violated the conditions of the usufruct.

4. No, Mr. X cannot demand for reimbursement of the value of the house because he is not a builder in good faith. Pursuant to Article 579 of the New Civil Code. The usufructuary shall have no right to be indemnified on the improvements on the property held in usufruct. He may however remove such improvements, should it be possible to do so without damage to the property.

XI

PROBLEM NO. 11. “The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located at the Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.

During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank’s premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff’s claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant bank.

The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the ‘Rules and Regulations Governing the Lease of Safe Deposit Boxes’ ( particularly paragraphs 9 and 13, which read:

‘9. The liability of the Bank, by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any person other than the Renter, his authorized agent or legal representative;

x x x

13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith.’

The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not of deposit and, therefore, governed by the lease agreement  which should be the applicable law; that the destruction of the plaintiff’s stamps collection was due to a calamity beyond its control; and that there was no obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.

The bank contends further that it is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith, “are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp collection; said floods were fortuitous events which SBTC should not be held liable for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must then bear the loss under the principle of “res perit domino.”

Questions:

 (1) Is the bank liable to plaintiff for damages?

 (2) What kind of contract is the “rental of a safety deposit box”?  (3) what do you understand by res perit domino?

(4) Is the argument of the bank that it cannot be held liable since the flood somehow is a fortuitous event, valid? Explain.

Answer: LUZAN SIA, petitioner, vs. COURT OF APPEALS and SECURITY BANK AND TRUST COMPANY, respondents. THIRD DIVISION[G.R. No. 102970. May 13, 1993]

In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, ¹³ this Court explicitly rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit; ¹⁴ it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence — that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit ¹⁵ — has been adopted in this jurisdiction, thus:

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides:

"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services:

(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safequarding of such effects.

xxx xxx xxx

The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . ."(emphasis supplied)

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the safety deposit box, which read:

"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same.

"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely no liability in connection therewith."

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the General Banking Act. Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise reasonable diligence only with respect to who shall be admitted to any rented safe, to wit:

"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Bank will not be responsible for the contents of any safe rented from it."

Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation ."[10 AM JUR 2d., 466]. (citations omitted) 16

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.

Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection because the flooding was a fortuitous event and there was no showing of SBTC's participation in the aggravation of the loss or injury. It states:

Article 1174 of the Civil Code provides:

"Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.'

In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Española ¹⁷ says: "In a legal sense and, consequently, also in relation to contracts, a "caso fortuito" prevents (sic) ¹⁸ the following essential characteristics: (1) the cause of the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2) it must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to avoid; (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor." (cited in Servando vs. Phil., Steam Navigation Co., supra). ¹⁹

Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter was not shown to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the appellant bank offered its services to secure the assistance of an expert to save most of the then good stamps but the appelle refused and let (sic) these recoverable stamps inside the safety deposit box until they were ruined. ²⁰

Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public respondent failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition and have been summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil Code, which reads:

Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages,

thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of the trial court, the "product of 27 years of patience and diligence" ²¹ caused the petitioner pecuniary loss; hence, he must be compensated therefor.

We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between the petitioner and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof only if said party had acted fraudulently or in bad faith. ²² There is here no proof of fraud or bad faith on the part of SBTC.

XII

PROBLEM NO. 12. Amos G. Bellis, born in Texas, was "a citizen of the State of Texas and of the United States." By his first wife, Mary E. Mallen, whom he divorced, he had five legitimate children; by his second wife, Violet Kennedy, who survived him, he had three legitimate children and finally, he had three illegitimate children.

On August 5, 1952, Amos G. Bellis executed a will in the Philippines, in which he directed that after all taxes, obligations, and expenses of administration are paid for, his distributable estate should be divided, in trust, in the following order and manner: (a) $240,000.00 to his first wife, Mary E. Mallen; (b) P120,000.00 to his three illegitimate children, Amos Bellis, Jr., Maria Cristina Bellis, Miriam Palma Bellis, or P40,000.00 each and (c) after the foregoing two items have been satisfied, the remainder shall go to his seven surviving children by his first and second wives, namely: Edward A. Bellis, Henry A. Bellis, Alexander Bellis and Anna Bellis Allsman, Edwin G. Bellis, Walter S. Bellis, and Dorothy E. Bellis, in equal shares.

Subsequently, or on July 8, 1958, Amos G. Bellis died a resident of San Antonio, Texas, U.S.A. His will was admitted to probate in the Court of First Instance of Manila on September 15, 1958. The law of Texas did not provide for legitimes for illegitimate children.

On January 17, 1964, Maria Cristina Bellis and Miriam Palma Bellis filed their respective oppositions to the project of partition on the ground that they were deprived of their legitimes as illegitimate children and, therefore, compulsory heirs of the deceased.

Question: What law is applicable on the matter? Will you grant the shares for the illegitimate children?

ANSWER: It is basic that successional rights, amount of succession and intrinsic validity of the will shall be governed by the national law of the decedent, hence Texas law shall govern. There being no legitimes under Texas law, then the shares of the illegitimate children cannot be granted.

XIII

PROBLEM NO. 13. Petitioner and respondent met in August 1989 when petitioner was 26 years old and respondent was 36 years of age. Barely a year after their first meeting, they got married before a minister of the Gospel at the Manila City Hall, and through a subsequent church wedding at the Sta. Rosa de Lima Parish, Bagong Ilog, Pasig, Metro Manila on 6 December 1990. Out of their union, a child was born on 19 April 1991, who sadly died five (5) months later.

On 8 March 1993, petitioner filed a petition to have his marriage to respondent declared null and void. He anchored his petition for nullity on Article 36 of the Family Code alleging that respondent was psychologically incapacitated to comply with the essential obligations of marriage. He asserted that respondent's incapacity existed at the time their marriage was celebrated and still subsists up to the present.

As manifestations of respondent's alleged psychological incapacity, petitioner claimed that respondent persistently lied about herself, the people around her, her occupation, income, educational attainment and other events or things.

QUESTIONS:

(a) Define psychological incapacity as contemplated in Art. 36

(b) What are the so called “Molina guidelines”?

(c) given the above premises, will you declare the marriage as null and void? Explain.

Psychological incapacity, which a ground for annulment of marriage (which is different from divorce), contemplates downright incapacity or inability to take cognizance of and to assume the basic marital obligations; not a mere refusal, neglect or difficulty, much less, ill will, on the part of the errant spouse. Irreconcilable differences, conflicting personalities, emotional immaturity and irresponsibility, physical abuse, habitual alcoholism, sexual infidelity or perversion, and abandonment, by themselves, also do not warrant a finding of psychological incapacity.

Among the grounds for annulment of marriage, psychological incapacity is the more (if not the most) commonly used. It is also one of the more controversial provisions of the Family Code (Article 36). The guidelines (shortened here) in the interpretation and application of Article 36 were handed down by the Supreme Court in Molina:

1. The plaintiff (the spouse who filed the petition in court) has burden of showing the nullity of the marriage. Our laws cherish the validity of marriage and unity of the family, so any doubt is resolved in favor of the existence/continuation of the marriage.

2. The root cause of the psychological incapacity must be (a) medically or clinically identified, (b) alleged in the complaint, (c) sufficiently proven by experts and (d) clearly explained in the decision. Article 36 of the Family Code requires that the incapacity must be psychological – not physical, although its manifestations and/or symptoms may be physical. Expert evidence may be given by qualified psychiatrists and clinical psychologists.

3. The incapacity must be proven to be existing at “the time of the celebration” of the marriage. The evidence must show that the illness was existing when the parties exchanged their “I do’s.” The manifestation of the illness need not be perceivable at such time, but the illness itself must have attached at such moment, or prior thereto.

4. Such incapacity must also be shown to be medically or clinically permanent or incurable. Such incurability may be absolute or even relative only in regard to the other spouse, not necessarily absolutely against everyone of the same sex. Furthermore, such incapacity must be relevant to the assumption of marriage obligations, not necessarily to those not related to marriage, like the exercise of a profession or employment in a job.

5. Such illness must be grave enough to bring about the disability of the party to assume the essential obligations of marriage. Thus, “mild characteriological peculiarities, mood changes, occasional emotional outbursts” cannot be accepted as root causes.

6. The essential marital obligations must be those embraced by Articles 68 up to 71 of the Family Code as regards the husband and wife as well as Articles 220, 221 and 225 of the same Code in regard to parents and their children. Such non-complied marital obligation(s) must also be stated in the petition, proven by evidence and included in the text of the decision.

7. Interpretations given by the National Appellate Matrimonial Tribunal of the Catholic Church in the Philippines, while not controlling or decisive, should be given great respect by our courts.

8. The trial court must order the prosecuting attorney or fiscal and the Solicitor General to appear as counsel for the state. No decision shall be handed down unless the Solicitor General issues a certification, which will be quoted in the decision, briefly stating therein his reasons for his agreement or opposition, as the case may be, to the petition.

In Antonio vs. Reyes (G.R. No. 155800, 10 March 2006), the Supreme Court sustained the nullity of the marriage based on the psychological incapacity of the wife (respondent). As concluded by the psychiatrist, the wife’s repeated lying is abnormal and pathological, and amounts to psychological incapacity

XIV

PROBLEM NO. 14. Petitioner is an optometrist by profession. On 23 June 1974, she married Primo Lim (Lim). They were childless. Minor children, whose parents were unknown, were entrusted to them by a certain Lucia Ayuban (Ayuban). Being so eager to have a child of their own, petitioner and Lim registered the children to make it appear that they were the children's parents. The children were named Michelle P. Lim (Michelle) and Michael Jude P. Lim (Michael). Michelle was barely eleven days old when brought to the clinic of petitioner. His date of birth is 1 August 1983.The spouses reared and cared for the children as if they were their own. They sent the children to exclusive schools. They used the surname "Lim" in all their school records and documents. Unfortunately, on 28 November 1998, Lim died. On 27 December 2000, petitioner married Angel Olario (Olario), an American citizen.

Thereafter, petitioner decided to adopt the children by availing of the amnesty given under  RA 8552 to those individuals who simulated the birth of a child. Thus, on 24 April 2002, petitioner filed separate petitions for the adoption of Michelle and Michael before the trial court docketed as SPL PROC. Case Nos. 1258 and 1259, respectively. At the time of the filing of the petitions for adoption, Michelle was 25 years old and already married, while Michael was 18 years and seven months old.

Michelle and her husband gave their consent to the adoption as evidenced by their Affidavits of Consent. Michael also gave his consent to his adoption as shown in his Affidavit of Consent. Petitioner's husband Olario likewise executed an Affidavit of Consent[9] for the adoption of Michelle and Michael.

Given the above facts, as judge will you grant the adoption? Explain.

ANSWER: The adoption shall not be granted. Under the law, adoption should be made JOINTLY by the husband and wife. IN this case, the husband only executed the affidavit of consent, which is not the JOINT ADOPTION contemplated by law.

XV

PROBLEM NO. 15. Compute the loss of earning capacity, if the victim is 41 years old, having a gross annual income of P74,940.

Loss of earning capacity is computed as follows:

Net Earning
Capacity = Life expectancy x Gross Annual Income – Living Expenses

= [2/3 (80 – age at death)] x GAI – [50% of GAI]

= [2/3 (80 – 41)] x P74,940¹⁷ – P37,470

= [2/3 (39)] x P37,470

= 26 x P37,470

Net Earning
Capacity = P974,220

XVI

PROBLEM NO. 16. Respondent Braulio Katipunan Jr. is the registered owner of a lot and a five-door apartment constructed thereon, which were occupied by lessees. Respondent assisted by his brother petitioner Miguel entered into a Deed of Absolute Sale with brothers Edardo Balguma and Leopoldo Balguma, Jr. ( co-petitioners), represented by their lawyer-father involving the subject property for a consideration of P187,000.00. So, the title was registered in the names of the Balguma brothers and they started collecting rentals thereon.
Later, Braulio filed a complaint for annulment of the Deed of Absolute Sale, contending that his brother Miguel, Atty. Balguma and Inocencio Valdez ( one of the petitioners) convinced him to work abroad. Through insidious words and machinations, they made him sign a document purportedly a contract of employment, which document turned out to be a Deed of Absolute Sale. He further alleged that he did not receive the consideration stated in the contract. He claimed that there was evident bad faith and conspiracy in taking advantage of his ignorance, he being only a third grader.The RTC dismissed the complaint because Braulio failed to prove his cause of action since he admitted that he obtained loans from the Balgumas, he signed the Deed of Absolute Sale, and he acknowledged selling the property and stopped collecting the rentals. But when the case was elevated, the decision of RTC was reversed and it was held that Braulio was incompetent, has very low I.Q., illiterate and has a slow comprehension. The CA based its decision on Arts.1332 and 1390 of NCC and Sec. 2, Rule 92 of the Rules of Court, concerning the incompetence of a party in contract.

QUESTION:  Was there a valid contract of sale between the parties?Explain.

Answer: There was no valid contract.

A     contract of sale is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.¹⁴This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof.¹⁵Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent.¹⁶Under Article 1330 of the Civil Code, consent may be vitiated by any of the following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5) fraud.¹⁷ The presence of any of these vices renders the contract voidable.

A  contract where one of the parties is incapable of giving consent or where consent is vitiated by mistake, fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties unless annulled by proper Court action. The effect of annulment is to restore the parties to the status quo ante insofar as legally and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As an exception however to the principle of mutual restitution, Article 1399 provides that when the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when he has been benefited by the things or price received by him. Thus, since the Deed of Absolute Sale between respondent and the Balguma brothers is voidable and hereby annulled, then the restitution of the property and its fruits to respondent is just and proper. Petitioners should turn over to respondent all the amounts they received starting January, 1986 up to the time the property shall have been returned to the latter.

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA, JR., petitioners, vs.BRAULIO KATIPUNAN, JR., respondent. G.R. No. 132415 , January 30, 2002

XVII

PROBLEM NO. 17. On June 15, 1967, the Court of First Instance of Gumaca, Quezon promulgated a decision confirming petitioner’s title to properties located in San Narciso, Quezon. Almost eighteen (18) years later, the Republic of the Philippines filed with the Intermediate Appellate Court an action to declare the proceedings in the LRC case null and void and to cancel the original certificate of title and to confirm the subject land as part of the public domain. The Republic claimed that the subject land was classified as timberland; hence, inalienable and not subject to registration. On the other hand, petitioners raised the special defense of indefeasibility of title and res judicata.

QUESTIONS:

 1) Are the two defenses of petitioners valid? Explain.

2) Is their occupation of the property ripened into ownership? Explain.

ANSWER: 1.Invalid

2.Their occupation of a land of public domain cannot ripen into ownership.

Unless public land is shown to have been reclassified or alienated to a private person by the State, it remains part of the inalienable public domain. Occupation thereof in the concept of owner, no matter how long, cannot ripen into ownership and be registered as a title.²

Under the Regalian doctrine, all lands of the public domain belong to the State, and the State is the source of any asserted right to ownership in land and charged with the conservation of such patrimony. This same doctrine also states that all lands not otherwise appearing to be clearly within private ownership are presumed to belong to the State.²⁵ To overcome such presumption, incontrovertible evidence must be shown by the applicant that the land subject of the application is alienable or disposable.²⁶

In the case at bar, there was no evidence showing that the land has been reclassified as disposable or alienable. Before any land may be declassified from the forest group and converted into alienable or disposable land for agricultural or other purposes, there must be a positive act from the government. Even rules on the confirmation of imperfect titles do not apply unless and until the land classified as forest land is released in an official proclamation to that effect so that it may form part of the disposable agricultural lands of the public domain.²⁷ Declassification of forest land is an express and positive act of Government.²⁸ It cannot be presumed. Neither should it be ignored nor deemed waived.²⁹ It calls for proof.³⁰

Petitioners’ contention that the Republic is now barred from questioning the validity of the certificate of title issued to them considering that it took the government almost eighteen (18) years to assail the same is erroneous. It is a basic precept that prescription does not run against the State.³⁶ The lengthy occupation of the disputed land by petitioners cannot be counted in their favor, as it remained part of the patrimonial property of the State, which property, as stated earlier, is inalienable and indisposable.³⁷

In light of the foregoing, the Court of Appeals did not err when it set aside the June 15, 1967 decision of the court a quo and ordered that the subject lot be reverted back to the public domain. Since the land in question is unregistrable, the land registration court did not acquire jurisdiction over the same. Any proceedings had or judgment rendered therein is void and is not entitled to the respect accorded to a valid judgment.

(NESTOR PAGKATIPUNAN and ROSALINA MAÑAGAS-PAGKATIPUNAN, petitioners,vs.THE COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents FIRST DIVISION G.R. No. 129682      March 21, 2002)

XVIII

PROBLEM NO. 18.Robeto Reyes known as “Amay Bisaya” saw in a hotel lobby his friend Dr. Violeta Filart who he said to have invite him the party of the hotel’s outgoing manager. So Reyes carried the fruit basket of Filart to the penthouse where the party is. However, Ruby Lim, the coordinator of the party asked him to leave since it is an exclusive party and he is not one of those invited. Reyes did not leave the party as was instructed but created a scene, thereby he was escorted out. He sued the hotel and Ruby Lim for damages.
QUESTIONS:

(1) What principle in civil law is applicable under the circumstances?

 (2) Will you make Ruby Lim and the hotel liable for damages?

Ms. Lim, not having abused her right to ask Mr. Reyes to leave the party to which he was not invited, cannot be made liable to pay for damages under Articles 19 and 21 of the Civil Code. Necessarily, neither can her employer, Hotel Nikko, be held liable as its liability springs from that of its employee.⁵⁸

Article 19, known to contain what is commonly referred to as the principle of abuse of rights,⁵⁹ is not a panacea for all human hurts and social grievances. Article 19 states:

Art. 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.1awphi1.nét

Elsewhere, we explained that when "a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be responsible."⁶⁰ The object of this article, therefore, is to set certain standards which must be observed not only in the exercise of one’s rights but also in the performance of one’s duties.⁶¹ These standards are the following: act with justice, give everyone his due and observe honesty and good faith.⁶² Its antithesis, necessarily, is any act evincing bad faith or intent to injure. Its elements are the following: (1) There is a legal right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring another.⁶³ When Article 19 is violated, an action for damages is proper under Articles 20 or 21 of the Civil Code. Article 20 pertains to damages arising from a violation of law⁶⁴ which does not obtain herein as Ms. Lim was perfectly within her right to ask Mr. Reyes to leave. Article 21, on the other hand, states:

Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

Article 21⁶⁵ refers to acts contra bonus mores and has the following elements: (1) There is an act which is legal; (2) but which is contrary to morals, good custom, public order, or public policy; and (3) it is done with intent to injure.⁶⁶

A common theme runs through Articles 19 and 21,⁶⁷ and that is, the act complained of must be intentional.⁶⁸

As applied to herein case and as earlier discussed, Mr. Reyes has not shown that Ms. Lim was driven by animosity against him. These two people did not know each other personally before the evening of 13 October 1994, thus, Mr. Reyes had nothing to offer for an explanation for Ms. Lim’s alleged abusive conduct except the statement that Ms. Lim, being "single at 44 years old," had a "very strong bias and prejudice against (Mr. Reyes) possibly influenced by her associates in her work at the hotel with foreign businessmen."⁶⁹ The lameness of this argument need not be belabored. Suffice it to say that a complaint based on Articles 19 and 21 of the Civil Code must necessarily fail if it has nothing to recommend it but innuendos and conjectures.

Parenthetically, the manner by which Ms. Lim asked Mr. Reyes to leave was likewise acceptable and humane under the circumstances. In this regard, we cannot put our imprimatur on the appellate court’s declaration that Ms. Lim’s act of personally approaching Mr. Reyes (without first verifying from Mrs. Filart if indeed she invited Mr. Reyes) gave rise to a cause of action "predicated upon mere rudeness or lack of consideration of one person, which calls not only protection of human dignity but respect of such dignity."⁷⁰ Without proof of any ill-motive on her part, Ms. Lim’s act of by-passing Mrs. Filart cannot amount to abusive conduct especially because she did inquire from Mrs. Filart’s companion who told her that Mrs. Filart did not invite Mr. Reyes.⁷¹ If at all, Ms. Lim is guilty only of bad judgment which, if done with good intentions, cannot amount to bad faith.

NIKKO HOTEL MANILA GARDEN and RUBY LIM, petitioners, vs.ROBERTO REYES, a.k.a. "AMAY BISAYA," respondent SECOND DIVISION G.R. No. 154259             February 28, 2005

.

XIX

PROBLEM NO. 19. Petitioner Sison and respondent Eugenio-Gino are the niece and granddaughter , respectively of the late Canuto Sison. Canuto and 11 other individuals including his sister Catalina and his brother Victoriano were co-owners of a property known as Lot 2 covered by an original certificate of title.On September 26, 1956, Canuto and Consolacion executed a Kasulatan ng Bilihang Tuluyan under which, Canuto sold his share in Lot 2 in favor of Consolacion.
On October 23, 1968, the surviving children of Canuto, namely Felicidad and Beatriz, executed a joint affidavit affirming the Kasulatan in favor of Consolacion, which the latter registered with the Office of the Register of Deeds.On February 4, 1988, Remedios filed a complaint against Consolacion and her spouse, Ricardo Pascual for annulment of transfer of certificate of title because the former claimed that she is the owner of the lots since Catalina devised the land to her in Catalina’s last will. Remedies also added that the lots were obtained through fraudulent means since the area covered by the TCT is twice the size of Canuto. Petitioner sought to dismiss the complaint on the ground of prescription. Petitioners claim that the basis of the action is fraud and the action should have been filed within four years from the registration of Consolacion’s title on October 28, 1968 and not some 19 years later on February 4, 1988.The trial court denied petitioner’s motion to dismiss holding that the reckoning of the prescriptive period for filing complaint is evidentiary in nature and must await the presentation of the parties’ evidence during the trial.

QUESTION: Has the action for annulment or cancellation of transfer of certificate of title by Remedios prescribed? Explain.

The Action is Barred by Prescription

The trial court held that the action filed by REMEDIOS is one based on fraud. REMEDIOS’ action seeks to recover real property that petitioners allegedly acquired through fraud. Consequently, the trial court held that the action prescribes in four years counted from REMEDIOS’ actual discovery of petitioners’ adverse title. The trial court concluded that REMEDIOS belatedly filed her suit on 4 February 1988 because she actually knew of petitioners’ adverse title since 19 November 1982.

On the other hand, the Court of Appeals held that what REMEDIOS filed was a suit to enforce an implied trust. REMEDIOS had ten years counted from actual notice of the breach of trust, that is, the assertion of adverse title, within which to bring her action. The appellate court held that REMEDIOS seasonably filed her complaint on 4 February 1988 because she allegedly discovered petitioners’ adverse title only on 19 November 1982.

What REMEDIOS filed was an action to enforce an implied trust but the same is already barred by prescription.

Prescriptive Period is 10 Years Counted

From Registration of Adverse Title

The four-year prescriptive period relied upon by the trial court applies only if the fraud does not give rise to an implied trust, and the action is to annul a voidable contract under Article 1390¹² of the Civil Code. In such a case, the four-year prescriptive period under Article 1391¹³ begins to run from the time of discovery of the mistake, violence, intimidation, undue influence or fraud.

In the present case, REMEDIOS does not seek to annul the KASULATAN. REMEDIOS does not assail the KASULATAN as a voidable contract. In fact, REMEDIOS admits the validity of the sale of 1,335 square meters of land under the KASULATAN. However, REMEDIOS alleges that the excess area of 1,335 meters is not part of the sale under the KASULATAN. REMEDIOS seeks the removal of this excess area from TCT No. (232252) 1321 that was issued to CONSOLACION. Consequently, REMEDIOS’ action is for "Annulment or Cancellation of Transfer Certificate [of Title] and Damages."¹⁴

REMEDIOS’ action is based on an implied trust under Article 1456 since she claims that the inclusion of the additional 1,335 square meters in TCT No. (232252) 1321 was without basis. In effect, REMEDIOS asserts that CONSOLACION acquired the additional 1,335 square meters through mistake or fraud and thus CONSOLACION should be considered a trustee of an implied trust for the benefit of the rightful owner of the property. Clearly, the applicable prescriptive period is ten years under Article 1144 and not four years under Articles 1389 and 1391.

It is now well-settled that the prescriptive period to recover property obtained by fraud or mistake, giving rise to an implied trust under Article 1456¹⁵ of the Civil Code, is ten years pursuant to Article 1144.¹⁶ This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.¹⁷

REMEDIOS filed her complaint on 4 February 1988 or more than 19 years after CONSOLACION registered her title over Lot Nos. 2-A and 2-E on 28 October 1968. Unquestionably, REMEDIOS filed the complaint late thus warranting its dismissal. As the Court recently declared in Spouses Alfredo v. Spouses Borras,¹⁸ —

Following Caro,¹⁹ we have consistently held that an action for reconveyance based on an implied trust prescribes in ten years. We went further by specifying the reference point of the ten-year prescriptive period as the date of the registration of the deed or the issuance of the title.

The Court of Appeals’ Reckoning of

Prescriptive Period from Actual Notice

of Adverse Title Not Justified

In holding that the action filed by REMEDIOS has not prescribed, the Court of Appeals invoked this Court’s ruling in Adille v. Court of Appeals.²⁰ In Adille, the Court reckoned the ten-year prescriptive period for enforcing implied trusts not from registration of the adverse title but from actual notice of the adverse title by the cestui que trust. However, the Court, in justifying its deviation from the general rule, explained:

[W]hile actions to enforce a constructive trust prescribes (sic) in ten years, reckoned from the date of the registration of the property, we x x x are not prepared to count the period from such date in this case. We note the petitioner’s sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza["] with the consequence that he was able to secure title in his name also. (Emphasis supplied)

Such commission of specific fraudulent conduct is absent in the present case. Other than asserting that petitioners are guilty of fraud because they secured title to Lot Nos. 2-A and 2-E with an area twice bigger than what CANUTO allegedly sold to CONSOLACION, REMEDIOS did not present any other proof of petitioners’ fraudulent conduct akin to Adille.

CONSOLACION obtained title to Lot Nos. 2-A and 2-E through the KASULATAN executed by CANUTO and the JOINT AFFIDAVIT executed by his surviving children, one of whom, Felicidad, is the mother of REMEDIOS. The KASULATAN referred to the sale of CANUTO’s 10/70 share in Lot 2 without specifying the area of the lot sold. The JOINT AFFIDAVIT referred to the "Plano de Subdivision Psd-34713" without also specifying the area of the lot sold. However, Subdivision Plan Psd 34713, as certified by the Assistant Director of Lands on 30 May 1952, showed an area of 2,670 square meters in the name of CANUTO. Based on these documents, the Register of Deeds issued TCT No. (232252) 1321 to CONSOLACION covering an area of 2,670 square meters.

REMEDIOS does not assail the KASULATAN or the JOINT AFFIDAVIT as fictitious or forged. REMEDIOS even admits the authenticity of Subdivision Plan Psd 34713 as certified by the Assistant Director of Lands.²¹ Moreover, REMEDIOS has not contested petitioners’ claim that CANUTO doubled his share in Lot 2 by acquiring VICTORIANO’s share.²²

Plainly, the increase in the area sold from 1,335 square meters to 2,670 square meters is a glaring mistake. There is, however, no proof whatsoever that this increase in area was the result of fraud. Allegations of fraud in actions to enforce implied trusts must be proved by clear and convincing evidence.²³ Adille, which is anchored on fraud,²⁴ cannot apply to the present case.

At any rate, even if we apply Adille to this case, prescription still bars REMEDIOS’ complaint. As executrix of CATALINA’s LAST WILL, REMEDIOS submitted to the then Court of First Instance of Caloocan in Special Proceedings Case No. C-208 the inventory of all the property comprising CATALINA’s estate, which included Lot Nos. 2-A and 2-E. In a motion dated 7 November 1977, CONSOLACION sought the exclusion of these lots from the inventory, invoking her title over them. REMEDIOS was served a copy of the motion on 8 November 1977 against which she filed an opposition. Nevertheless, the trial court overruled REMEDIOS’ objection. In its order of 3 January 1978, the trial court granted CONSOLACION’s motion and ordered the exclusion of Lot Nos. 2-A and 2-E from the estate of CATALINA. REMEDIOS did not appeal from this ruling.

REMEDIOS thus had actual notice of petitioners’ adverse title on 8 November 1977. Even if, for the sake of argument, the ten-year prescriptive period begins to run upon actual notice of the adverse title, still REMEDIOS’ right to file this suit has prescribed. REMEDIOS had until 11 November 1987 within which to file her complaint. When she did so on 4 February 1988, the prescriptive period had already lapsed.

Respondent is Not a Real Party-in-Interest

Not only does prescription bar REMEDIOS’ complaint. REMEDIOS is also not a real party-in-interest who can file the complaint, as the trial court correctly ruled.

The 1997 Rules of Civil Procedure require that every action must be prosecuted or defended in the name of the real party-in-interest who is the party who stands to benefit or suffer from the judgment in the suit.²⁵ If one who is not a real party-in-interest brings the action, the suit is dismissible for lack of cause of action.²⁶

REMEDIOS anchored her claim over Lot Nos. 2-A and 2-E (or over its one-half portion) on the devise of these lots to her under CATALINA’s LAST WILL. However, the trial court found that the probate court did not issue any order admitting the LAST WILL to probate. REMEDIOS does not contest this finding. Indeed, during the trial, REMEDIOS admitted that Special Proceedings Case No. C-208 is still pending.²⁷

Article 838 of the Civil Code states that "[N]o will shall pass either real or personal property unless it is proved and allowed in accordance with the Rules of Court." This Court has interpreted this provision to mean, "until admitted to probate, [a will] has no effect whatever and no right can be claimed thereunder."²⁸ REMEDIOS anchors her right in filing this suit on her being a devisee of CATALINA’s LAST WILL. However, since the probate court has not admitted CATALINA’s LAST WILL, REMEDIOS has not acquired any right under the LAST WILL. REMEDIOS is thus without any cause of action either to seek reconveyance of Lot Nos. 2-A and 2-E or to enforce an implied trust over these lots.

The appellate court tried to go around this deficiency by ordering the reconveyance of Lot Nos. 2-A and 2-E to REMEDIOS in her capacity as executrix of CATALINA’s LAST WILL. This is inappropriate because REMEDIOS sued petitioners not in such capacity but as the alleged owner of the disputed lots. Thus, REMEDIOS alleged in her complaint:

3. The plaintiff is a niece and compulsory heir of the late CATALINA SIOSON who died single and without any child of her own and who, during her lifetime, was the owner of those two (2) parcels of land located at Tanza, Navotas, Rizal (now Metro Manila), formerly covered by Original Certificate of Title No. 4207 of the Registry of Deeds for the Province of Rizal, x x x.

4. The plaintiff, aside from being the compulsory heir of the deceased CATALINA SIOSON, has sole and exclusive claim of ownership over the above-mentioned two (2) parcels of land by virtue of a will or "Huling Habilin at Pagpapasiya" executed by Catalina Sioson on May 19, 1964 before Notary Public Efren Y. Angeles at Navotas, Rizal, in which document the deceased Catalina Sioson specifically and exclusively bequeathed to the plaintiff the above-mentioned Lots 2-A and 2-E of Psd-34713 approved by the Bureau of Lands on May 30, 1952. Copy of the "Huling Habilin at Pagpapasiya" consisting of four (4) pages is hereto attached and forms an integral part hereof as Annex "A;"

5. Sometime on or about February, 1987, plaintiff discovered that the above-mentioned Lots 2-A and 2-E of subdivision plan Psd-34713 are now registered or titled in the name of the defendants under Transfer Certificate of Title No. (232252) 1321 of the Registry of Deeds of Rizal, now Metro-Manila District III. Copy of the title is hereto attached and forms an integral part hereof as Annex "B;"

6. Upon further inquiry and investigation, plaintiff discovered that the defendants were able to obtain title in their name of the said parcels of land by virtue of a "Kasulatan ng Bilihang Tuluyan" allegedly executed by Canuto Sioson on September 26, 1956 before Notary Public Jose [T.] de los Santos of Navotas, Metro-Manila. Copy of the said document is hereto attached and forms an integral part hereof as Annex "C;"

7. The plaintiff also discovered that although x x x the original sale did not specify the parcels of land sold by Canuto Sioson, the defendants submitted an alleged Affidavit executed by Felicidad Sioson and Beatriz Sioson identifying the lots sold by Canuto Sioson to the defendants as Lots 2-A and 2-E of subdivision plan Psd-34713. Copy of the Affidavit dated October 3, 1968 on the basis of which the present Transfer Certificate of Title No. (232252) 1321 was issued to the defendants is hereto attached and forms an integral part hereof as Annex "D;"

8. The defendants are clearly guilty of fraud in presenting the aforementioned Affidavit (Annex "D") to the Register of Deeds as the basis of their claim to Lots 2-A and 2-E in view of the fact that the parcels sold to them by Canuto Sioson, assuming there was such a sale, were different parcels of land, Lots 2-A and 2-E being the properties of the late Catalina Sioson who bequeathed the same to the plaintiff.

x x x x

12. Because of the defendants’ fraudulent actuations on this matter, plaintiff suffered and continious [sic] to suffer moral damages arising from anxiety, shock and wounded feelings. Defendants should also be assessed exemplary damages by way of a lesson to deter them from again committing the fraudulent acts, or acts of similar nature, by virtue of which they were able to obtain title to the parcels of land involved in this case x x x.²⁹ (Emphasis supplied)

Indeed, all throughout the proceedings below and even in her Comment to this petition, REMEDIOS continued to pursue her claim as the alleged owner of one-half of the disputed lots.

Other Matters Raised in the Petition

The Court deems it unnecessary to pass upon the other errors petitioners assigned concerning the award of damages and attorneys fees to REMEDIOS. Such award assumes that REMEDIOS is a real party-in-interest and that she timely filed her complaint. As earlier shown, this is not the case.

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals dated 31 January 1994 and its Resolution dated 15 June 1994 are SET ASIDE. The complaint filed by respondent Remedios Eugenio-Gino, dated 2 February 1988 is DISMISSED.

SPOUSES RICARDO PASCUAL and CONSOLACION SIOSON, petitioners, vs.COURT OF APPEALS and REMEDIOS S. EUGENIO-GINO, respondents. FIRST DIVISION G.R. No. 115925  , August 15, 2003

XX

PROBLEM NO. 20. Respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp. and subsequently obtained another P500,000.00 loan from the same. In both instances, respondent executed a promissory note and disclosure statement. For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she settled the P500,000.00 outstanding principal obligation. As regards the second loan, respondent made 11 monthly interest payments of P25,000.00 each before paying the principal loan of P500,000.00. In sum, respondent paid a total of P792,500.00 for the first loan and P775,000.00 for the second loan. Thereafter, respondent filed an action for sum of money against petitioner alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month. The trial court dismissed respondent’s complaint. On appeal, the appellate court ruled that, based on the disclosure statements executed by respondent, the interest rates should be imposed on a monthly basis but only for the 3-month term of the loan. Thereafter, the legal interest rate will apply. The court also found the penalty charges pegged at 1% per day of delay highly unconscionable as it would translate to 365% per annum. Thus, it was reduced to 1% per month or 12% per annum. Petitioner maintains that the interest rates are to be imposed on a monthly and not on a per annum basis. However, it insists that the 4.5% and 5% monthly interest shall be imposed until the outstanding obligations have been fully paid.As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by the Court of Appeals in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate terms and conditions as they may deem proper. Respondent avers that the interest on the loans is per annum as expressly stated in the promissory notes and disclosure statements. The provision as to annual interest rate is clear and requires no room for interpretation. Respondent asserts that any ambiguity in the promissory notes and disclosure statements should not favor petitioner since the loan documents were prepared by the latter.

QUESTION:

(1)What should be the legal rate of interest of the contract of loan?

(2)Will you apply the legal rate despite the fact that the parties agreed on an applicable rate of interest in writing?

Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997 and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis.

Thus, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.⁸ It is only in instances when the language of a contract is ambiguous or obscure that courts ought to apply certain established rules of construction in order to ascertain the supposed intent of the parties.l^vvphi1.net However, these rules will not be used to make a new contract for the parties or to rewrite the old one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve doubts and ambiguities within the framework of the agreement.⁹

The lower court and the CA mistook the Loan Transactions Summary for the Disclosure Statement. The former was prepared exclusively by petitioner and merely summarizes the payments made by respondent and the income earned by petitioner. There was no mention of any interest rates and having been prepared exclusively by petitioner, the same is self serving. On the contrary, the Disclosure Statements were signed by both parties and categorically stated that interest rates were to be imposed annually, not monthly.

As such, since the terms and conditions contained in the promissory notes and disclosure statements are clear and unambiguous, the same must be given full force and effect. The expressed intention of the parties as laid down on the loan documents controls.

Also, reformation cannot be resorted to as the documents have not been assailed on the ground of mutual mistake. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own notions of justice or equity may dictate.¹⁰

Notably, petitioner even admitted that it was solely responsible for the preparation of the loan documents, and that it failed to correct the pro forma note "p.a." to "per month".¹¹ Since the mistake is exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro forma loan agreements. As between two parties to a written agreement, the party who gave rise to the mistake or error in the provisions of the same is estopped from asserting a contrary intention to that contained therein. The checks issued by respondent do not clearly and convincingly prove that the real intent of the parties is to apply the interest rates on a monthly basis. Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best evidence to ascertain the real intent of the parties.

The same promissory note provides that "x x x any and all remaining amount due on the principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid." The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured until the same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of Appeals,¹² "in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default."

As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of delay is highly unconscionable. Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable.