Arra Realty Corporation v.

Guarantee Development Corp and Insurance Agency (GDCIA)

GR. No. 142310 , September 20, 2004

FACTS: Arra Realty Corporation (ARC) was the owner of a parcel of land, located in Alvarado
Street, Legaspi Village, Makati City, covered by Transfer Certificate of Title (TCT) No. 112269.
Through its president, Architect Carlos D. Arguelles, the ARC decided to construct a five-story
building on its property and engaged the services of Engineer Erlinda Peñaloza as project and
structural engineer. In the process, Peñaloza and the ARC, through Carlos Arguelles, agreed on
November 18, 1982 that Peñaloza would share the purchase price of one floor of the building,
consisting of 552 square meters for the price of ₱3,105,838: ₱901,738, payable within sixty (60)
days from November 20, 1982, and the balance payable in twenty (20) equal quarterly
installments of ₱110,205. Unknown to her, ARC had executed a real estate mortgage over the
lot and the entire building in favor of the China Banking Corporation as security for a loan on
May 12, 1983.

From February 23, 1983 to May 31, 1984, Peñaloza paid ₱1,175,124.59 for the portion of the
second floor of the building she had purchased from the ARC. She learned that the property
had been mortgaged to the China Banking Corporation. Thereafter, she stopped paying the
installments due on the purchase price of the property. When ARC failed to pay its loan to
China Banking Corporation, the subject property was foreclosed and sold in a public auction to
herein respondent GDCIA. ARC obliged to deliver the property to GDCIA upon full payment
without any occupants therein. Peñaloza filed a complaint against ARC, GDCIA, and Spouses
Arguelles, with the RTC of Makati for "specific performance or damages" with a prayer for a
writ of preliminary injunction. Trial court rendered a judgment in favor of Penaloza and GDCIA.

ISSUE: 1. WON there is a perfected contract of sale between Penaloza and ARC

2. WON GDCIA is a purchaser in bad faith and that automatic rescission is present.

HELD:

1. The parties had agreed on the three elements of subject matter, price, and terms of
payment. Hence, the contract of sale was perfected, it being consensual in nature, perfected by
mere consent, which, in turn, was manifested the moment there was a meeting of the minds as
to the offer and the acceptance thereof. The perfection of the sale is not negated by the fact
that the property subject of the sale was not yet in existence. This is so because the ownership
by the seller of the thing sold at the time of the perfection of the contract of sale is not an
element of its perfection. A perfected contract of sale cannot be challenged on the ground of
non-ownership on the part of the seller at the time of its perfection. What the law requires is
that the seller has the right to transfer ownership at the time the thing is delivered. In a
contract of sale, until and unless the contract is resolved or rescinded in accordance with law,
the vendor cannot recover the thing sold even if the vendee failed to pay in full the initial
payment for the property. The failure of the buyer to pay the purchase price within the
stipulated period does not by itself bar the transfer of ownership or possession of the property
sold, nor ipso facto rescinds the contract. Such failure will merely give the vendor the option to
rescind the contract of sale judicially or by notarial demand as provided for by Article 1592 of
the New Civil Code. Peñaloza failed to pay the downpayment on time. But then, the petitioner
ARC accepted, without any objections, the delayed payments of the respondent; hence, as
provided in Article 1235 of the New Civil Code, the obligation of the respondent is deemed
complied with.

2. The petitioners did not file a counterclaim against GDCIA for the rescission of the aforesaid
decision. Moreover, the petitioners did not adduce evidence to prove bad faith on the part of
the respondent GDCIA. Additionally, the petitioners warranted in the aforesaid deeds in favor
of the said respondent, that they will execute and deliver to GDCIA a definite or absolute Deed
of Sale upon the full payment by the latter of the unpaid balance of the purchase price
stipulated. The respondent GDCIA merely relied on the representations of the petitioners.
However, the respondent received claims for ownership of portions of the property from
tenants of the building, including respondent Peñaloza, which impelled it to retain ₱1,000,000
of the purchase price to answer for said claims.
Laforteza v. Machuca
G.R. No. 137552
June 16, 2000

FACTS:

On August 2, 1988, Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of

defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact
authorizing them jointly to sell the subject house and lot property and sign any document for the
settlement of the estate of the late Francisco Q. Laforteza. Likewise on the same day, Michael Z.
Laforteza executed a Special Power of Attorney in favor of Roberto and Gonzalo Jr., likewise, granting
the same authority. Both agency instruments contained a provision that in any document or paper to
exercise authority granted, the signature of both attorneys-in-fact must be affixed. Dennis Laforteza also
executed Special Power of Attorneys on different dates.

In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q.
Laforteza represented by Roberto and Gonzalo entered into a Memorandum of Agreement (Contract to
Sell) with Alonzo Machuca over the subject property for the sum of Six Hundred Thirty Thousand Only
(P630,000.00) to be payable as stipulated: P30,000 upon signing the agreement and the remaining
P600,000 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and
upon execution of an extra-judicial settlement of the decedent’s estate with sale in favor of the plaintiff.
On June 20, 1989, the defendant was able to pay P30,000 as stipulated in the agreement. On September
18, 1989, defendants sent letter informing the defendant his obligation to pay the remaining balance to be
due after thirty (30) days, and the reconstituted title, which the defendant received on the same date, of
which on October 18, 1983, asked for an extension until November 15, 1989. Roberto, assisted by a
lawyer, was the one who affirmed said request, but not Gonzalo.

On November 20, 1989, defendant informed the heirs that Roberto had the payment for the
balance, but said heirs refused to accept said payment. Roberto declared the property not for sale for
failure to comply with the contractual obligations, and the agreement rescinded by the plaintiff-heirs.
Defendant insisted tender of payment but when the defendants refused to accept such, an action for
specific performance was filed in court. The trial court ruled in favor of the defendant. When the
petitioner-heirs appealed this to the Court of Appeals, the decision was rendered against them. So, an
appeal to the Supreme Court was made.

ISSUE:

Whether or not the rescission of the agreement for failure by the private respondent to fulfill his
obligations was validly done.

HELD:

No. The rescission of the agreement was invalid.

 The issuance of the new certificate of title in the name of the late Francisco Laforteza and the
execution of an extrajudicial settlement of his estate was not a condition which determined the perfection
of the contract of sale. Petitioners’ contention that since the condition was not met, they no longer had an
obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to
distinguish between a condition imposed upon the perfection of the contract and a condition imposed on
the performance of an obligation. Failure to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition only gives the other party the option either
to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with the contract or he may waive performance of the
condition. If the other party has promised that the condition should happen or be performed, such first
mentioned party may also treat the non-performance of the condition as a breach of warranty. Where the
ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation
to deliver the same as described and as warranted expressly or by implication in the contract of sale as a
condition of the obligation of the buyer to perform his promise to accept and pay for the thing."

In the case at bar, there was already a perfected contract. The condition was imposed only on the
performance of the obligations contained therein. Considering however that the title was eventually
"reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their
father’s estate, the respondent had a right to demand fulfillment of the petitioners’ obligation to deliver
and transfer ownership of the house and lot.

The Supreme Court did not subscribe to the petitioners’ view that the Memorandum Agreement
was a contract to sell. There is nothing contained in the MOA from which it can reasonably be deduced
that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as
yet agree or consent to transfer ownership of the property subject of the contract to sell until the full
payment of the price, such payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring
any obligatory force.

There is clearly no express reservation of title made by the petitioners over the property, or any
provision which would impose non-payment of the price as a condition for the contract’s entering into
force. Although the memorandum agreement was also denominated as a "Contract to Sell", it held that
the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a
conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the
purchase price. In such cases, ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof. The mere fact that the obligation of the respondent to pay the balance of
the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title
of the house and lot does not make the contract a contract to sell for such condition is not inconsistent
with a contract of sale.

The property in dispute, being an immovable property, is governed by Article 1592 of the NCC,
which needs the judicial or notarial act for its rescission. It is not disputed that the petitioners did not
make a judicial or notarial demand for rescission. The November 20, 1989 letter of the petitioners
informing the respondent of the automatic rescission of the agreement did not amount to a demand for
rescission, as it was not notarized. It was also made five days after the respondent’s attempt to make the
payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat
the petitioners’ right under article 1592 of the Civil Code.

Besides, the Memorandum Agreement between the parties did not contain a clause expressly
authorizing the automatic cancellation of the contract without court intervention in the event that the
terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract of sale
where there is no express stipulation authorizing him to extrajudicially rescind. Neither was there a
judicial demand for the rescission thereof.

Thus, when the respondent filed his complaint for specific performance, the agreement was still
in force inasmuch as the contract was not yet rescinded.

At any rate, considering that the six-month period was merely an approximation of the time it
would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract
and considering further that the delay in payment was only thirty days which was caused by the
respondents justified but mistaken belief that an extension to pay was granted to him, the Court agreed
with the CA’s ruling that the delay of one month in payment was a mere casual breach that would not
entitle the respondents to rescind the contract. RESCISSION of a contract will not be permitted for a
slight or casual breach, but only such substantial and fundamental breach as would defeat the very object
of the parties in making the agreement.
Vda. DE MISTICA v. SPOUSES NAGUIAT TAN, ANM.
G.R. No. 137909 December 11, 2003
Panganiban, J.

DOCTRINE: In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission.
Rescission, however, is allowed only where the breach is substantial and fundamental to the fulfillment of the
obligation.

FACTS: Eulalio Mistica, predecessor-in-interest of petitioner, is the owner of a parcel of land located at Meycauayan,
Bulacan. A portion thereof was leased to respondent Naguiat sometime in 1970. On April 5, 1979, Mistica entered
into a contract to sell with Naguiat over a portion of the said lot containing an area of 200 square meters. This
agreement was reduced to writing in a document entitled “Kasulatan ng Pagbibilihan.”

Sometime in October 1986, Eulalio Mistica died. The petitioner filed a complaint for rescission for the failure and
refusal of the respondents to pay the balance of the purchase price. In their answer, the respondent contended that
the contract cannot be rescinded on the ground that it clearly stiplulates that in case of failure to pay the balance, a
yearly interest of 12% is to be paid. Respondents likewise alleged that during the wake of the late Mistica, he offered
to pay the remaining balance but the latter refused and hence, there is no breach or violation committed by them.
The court denied the motion to dismiss filed by the respondents. The CA held that respondents did not breach the
Contract of Sale. It explained that the conclusion of the ten-year period was not a resolutory term, because the
contract had stipulated that payment – with interest of 12 percent – could still be made if respondents failed to pay
within the period.

ISSUE: WON petitioner is entitled to rescind the contract.

HELD: NO. The transaction between Mistica and Naguiat, as evidenced by the Kasulatan, was clearly a Contract of
Sale. A deed of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the
property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

In a contract of sale, the remedy of an unpaid seller is either specific performance or rescission. Rescission, however,
is allowed only where the breach is substantial and fundamental to the fulfillment of the obligation. In the case at
bar, the failure of respondents to pay the balance of the purchase price within 10 years from the execution of the
Deed did not amount to a substantial breach. In the Kasulatan, it was stipulated that payment could be made even
after 10 years from the execution of the contract, provided the vendee paid 12% interest. The stipulations of the
contract constitute the law between the parties; thus, courts have no alternative but to enforce them as agreed
upon and written. Moreover, it is undisputed that during the 10-year period, petitioner and her deceased husband
never made any demand for the balance of the purchase price. Petitioner even refused the payment tendered by
respondents during her husband’s funeral, thus showing that she was not exactly blameless for the lapse of the 10-
year period.
MELINDA M. MALABANAN, PETITIONER, v. FRANCISCO MALABANAN, JR., SPOUSES RAMON
AND PRESCILA MALABANAN, AND SPOUSES DOMINADOR III AND GUIA MONTANO,
RESPONDENTS
Gr. No. 187225 March 06, 2019
Leonen, J.:

Doctrine:

ARTICLE 153. The following are conjugal partnership property:

(1) That which is acquired by onerous title during the marriage at the expense of the common fund,
whether the acquisition be for the partnership, or for only one of the spouses;

(2) That which is obtained by the industry, or work, or as salary of the spouses, or of either of them;

(3) The fruits, rents or interests received or due during the marriage, coming from the common property
or from the exclusive property of each spouse.

ARTICLE 148. The following shall be the exclusive property of each spouse:

(1) That which is brought to the marriage as his or her own;

(2) That which each acquires, during the marriage, by lucrative title;

(3) That which is acquired by right of redemption or by exchange with other property belonging to only
one of the spouses;

(4) That which is purchased with exclusive money of the wife or of the husband.

Facts:

Melinda Malabanan, the petitioner, is the widow of Jose. In December 18, 1984, through a Deed
of Absolute Sale they acquired a 310-square meter lot which is a portion of a 2,000-square meter land
registered under Maria Cristina Rodriguez (rodriguez). Subsequently, on February 21, 1985, TCT No.
T-188590 was issued to “Jose married to Melinda” covering the disputed property. The spouses built a
house on the lot which the family had possessed since 1984. On October 13, 1984, Melinda left the
Philippines to work in Libya. Unfortunately, Jose was murdered on June 12, 1985 prompting her to
return home on June 25, 1985. She then returned to Libya on August 19, 1985, and only came home
on November 8, 1990. Later on, Melinda discovered that TCT No. T-1885960 had long been canceled
through a string of transactions, and that the property was registered under the name of Spouses
Dominador III and Guia Montano (Montano spouses). When Melinda’s mother-in-law, Adelfina died, her
family executed an extrajudicial Settlement of her estate. The property, then covered by TCT No. T-
198039, was adjudicated to Ramon Malabanan, who was Jose’s brother.

Melinda filed before the RTC a complaint for Annulment of Title with Damages against Spouses
Ramon and Prescila Malabanan (Spouses Malabanan) and Francisco Malabanan (Francisco). Ramon
sold the property to the Montano Spouses, with whom TCT No. T-467540 was issued. Melinda later
filed an Amended Complaint to implead the Montano Spouses. She argued that the Special Power of
Attorney was void as her signature in it was forged and that she and Jose remained the real owner of
the property. Further, she averred that she spent her earnings as an overseas worker in Libya to
remodel the family home, all of which Francisco and Malabanan Spouses had fully known. She prayed
for nullification of the documents, which she claimed to have been illegally executed to dispossess her
of her property. Francisco and Malabanan Spouses, in their Amended Answer with Counterclaim,
countered that Francisco and Adelfina bought the property for their son, Jose, and Melinda as an
advance on Jose’s legitimate. Francisco, they added, paid for the construction of the house on the
property. They contended that Melinda consented when Francisco reacquired the property upon his
son’s death. He sold the property to his brother-in-law, Benjamin Lopez (Lopez), because she was short
in cash; he later bought it back with his had-earned money. Francisco and Malabanan spouses further
claimed that the extrajudicial Settlement of Adelfina’s estate was legally executed. RTC ruled in favor
of Melinda.

Issue:

1. Whether or not the Deed of Absolute Sale her husband Jose executed with Rodriguez, as well
as TCT No. T-188590 issued during their marriage.
2. Whether or not Montano Spouses were buyers in good faith.

Ruling:

1. A. YES. The circumstances here transpired prior to the effectivity of the Family Code on August
3, 1988. Thus, petitioner and Jose's marriage and property relations are governed by the Civil
Code. Under the Civil Code, property acquired during marriage is presumed to be conjugal.
There is no need to prove that the money used to purchase a property came from the conjugal
fund. What must be established is that the property was acquired during marriage. Only through
"clear, categorical, and convincing” proof to the contrary will it be considered the paraphernal
property of one (1) of the spouses.

Here, the pieces of evidence presented by respondents, who had the burden of proving that
the property was not conjugal, were insufficient to overturn this presumption. To recall, on
September 20, 1984, Jose executed a Deed of Conditional Sale with Rodriguez, where
respondent Francisco's down payment was allegedly reflected. The following month, on
October 13, 1984, Melinda left for Libya. On December 18, 1984, the Deed of Absolute Sale
between Jose and Rodriguez was executed. The house underwent construction while Melinda
was in Libya and before Jose's death on June 12, 1985.

These events refute Francisco's claim that petitioner and Jose had no means to
purchase the lot as they were jobless. Petitioner was then working in Libya, presumably earning
income when the Deed of Absolute Sale was executed and the house was constructed. These
circumstances—along with the execution of the Deed of Absolute Sale between Jose and
Rodriguez, and the title over the property being in Jose's name ("Jose, married to Melinda
Malabanan")—sufficiently show that the property was, indeed, conjugal.

A certificate of title is the best evidence of ownership of a property. Respondents neither

alleged fraud nor assailed the issuance of the title in Jose's favor. This certificate of title, when
taken with the Deed of Absolute Sale between Jose and Rodriguez, as well as the tax
declarations in petitioner's name, weigh more heavily than respondents' bare claims in
establishing petitioner and Jose's ownership of the property. Respondent Francisco, on the
contrary, failed to present any evidence to prove that he paid for the kind and the construction
of the house on the property. Moreover, the trial court was in a better position to evaluate the
evidence and assess the veracity of the parties' allegations, since it had observed the litigants'
demeanors when they took the stand. The totality of evidence adduced during trial leads this
Court to sustain the trial court's finding that the property was, indeed, conjugal.
 B. Since this case involves conjugal property, Articles 165 and 166 of the Civil Code
are relevant:

ARTICLE 165. The husband is the administrator of the conjugal partnership.

ARTICLE 166. Unless the wife has been declared a non compos mentis or a spendthrift,
or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate
or encumber any real property of the conjugal partnership without the wife's consent. If
she refuses unreasonably to give her consent, the court may compel her to grant the
same.

This article shall not apply to property acquired by the conjugal partnership before the
effective date of this Code.

Here, Jose had no right to either unilaterally dispose the conjugal property or grant
respondent Francisco this authority through the supposed Special Power of Attorney.

C. In invalidating the document, this Court ruled that all parties to the Special Power of Attorney
must personally appear before the notary public. Personal appearance guards against illegal
acts and ensures that the signature on the instrument is genuine. This Court further held that
"even without expert testimony, the questionable circumstances surrounding the execution of
the [Special Power of Attorney] already [cast] serious doubt on its genuineness." Here, an
expert witness from the National Bureau of Investigation testified during trial that petitioner's
signature in the Special Power of Attorney was forged. This was uncontroverted. Considering
that petitioner was in Libya when the Special Power of Attorney was executed, and that an
expert witness testified on the forgery of petitioner's signature, we rule that the Special Power
of Attorney is void.

Here, it was through the Special Power of Attorney, where petitioner's signature was
forged, that respondent Fernando was able to sell the property to his brother-in-law. A
presumption that he was the author of the falsification arose. Without contrary evidence, which
he did not even attempt to adduce, the presumption stands. This Court cannot allow respondent
Fernando, the presumed perpetrator of the forgery in the Special Power of Attorney, to benefit
from his nefarious acts.

2. NO. A person is a buyer in good faith or an "innocent purchaser for value” when he or she
purchases and pays the fair price for a property, absent any notice that another has a right over
it.93 If the property is covered by a certificate of title, the buyer may rely on it and is not obliged
to go beyond its four (4) corners.

To justify good faith in merely relying on the certificate of title, the following must be present:
First, the seller is the registered owner of the land; second, the latter is in possession thereof; and third,
at the time of the sale, the buyer was not aware of any claim or interest of some other person in the
property, or of any defect or restriction in the title of the seller or in his capacity to convey title to the
property.

Here, the land has always been possessed by petitioner, and not respondent Ramon
Malabanan who sold it. Respondent Dominador should have inquired about this before he purchased
the property. Verifying the status of the property would not have been difficult for a seasoned
businessman like him, who incidentally lives in the same neighborhood where the property is located.
PABLO UY v HEIRS OF JULITA UYRENALES

G.R. No.227460 | 05 December 2019 | Caguioa, J.

DOCTRINE:

• A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.
• Because a contract of sale is a consensual contract, no particular form is required for its validity. Thus, even if
there is a document that purports to be a contract of sale, if there is strong countervailing evidence
establishing the want of consent or meeting of the minds, there is no contract of sale.
• The existence of an alleged notarized deed of sale is not decisive as to the existence and validity of a contract
of sale.

FACTS:

The subject lot is registered in the name of petitioner Uy's mother, Eufronia Labnao (Labnao). The relationship of
the parties is as follows: Labnao had two children, i.e., petitioner Uy and Julita Uy-Renales (Julita). Julita produced three
children, i.e., the respondents Heirs of Julita. Hence, petitioner Uy is the uncle of the respondents Heirs of Julita. Julita
died intestate on May 9, 1976.

In his Complaint for Declaration of Nullity of Deed of Sale, Reconveyance and Damages, petitioner Uy maintains
that upon the death of Labnao in 1995, as the surviving offspring of Labnao, he became the owner of one-half share of
the subject lot and subject building owned by his deceased mother, with the other half pertaining to the respondents
Heirs of Julita as co-owners. On their part, the respondents Heirs of Julita assert in their Petition for Quieting of Title and
Ownership that they have acquired ownership over the subject lot when they purchased the same from their grandmother
Labnao on April 11, 1990, as evidenced by the Deed of Absolute Sale.

The RTC rendered a Decision favoring the respondents Heirs of Julita. The RTC stated that there was indeed a
contract of sale that was entered into between Labnao and the respondents Heirs of Julita. The CA affirmed the RTC's
Decision because the Deed of Absolute Sale dated April 11, 1990 which conveyed and transferred the ownership of the
subject land to the respondents Heirs of Julita, being duly acknowledged before a Notary Public, has in its favor the
presumption of regularity and is conclusive as to the truthfulness of its contents.

ISSUE:

Whether there was a contract of sale that was entered into between the parties' predecessor-in-interest, Labnao,
and the respondents Heirs of Julita, transferring ownership over the subject lot in the latter's favor.

HELD:

No. There was no valid contract of sale or even donation of immovable property transferring the subject lot from
Labnao to the respondents Heirs of Julita.

According to the Notarial law applicable during the time of notarization of the Deed of Absolute Sale, the
presentation of competent evidence of identity is required where a document is acknowledged before a notary public "to
ascertain the identity/identities of the person/s appearing before him and to avoid impostors." In the case, the notary
public admitted he did not ask from Labnao any competent evidence of her identity and merely asked if she was the one
who signed the document. Thus, the Deed of Absolute Sale was not properly notarized, and cannot, therefore, be
presumed to have been regularly executed.

The elements of a contract of sale are: (1) consent; (2) object; and (3) price in money or its equivalent. The absence
of any of these essential elements negates the existence of a perfected contract of sale. Also, a contract of sale, being a
consensual contract, requires no particular form for its validity. Thus, even if there is a document that purports to be a
contract of sale, if there is strong countervailing evidence establishing the want of consent or meeting of the minds, there
is no contract of sale. In Spouses Salonga v. Spouses Concepcion, it was held that the existence, veracity, and authenticity
of a notarized written deed of sale do not conclusively determine whether all the essential requisites of a contract are
present.

In the present case, the only other evidence presented to prove the existence of a contract of sale is the testimony
of respondent Jessica Rosero, one of the respondents. A careful review of the sworn testimony reveals that the
respondents Heirs of Julita never consented to enter into any contract of sale, establishing that there was, in fact, no
meeting of minds with respect to the alleged sale of the subject lot. In addition, the subject TCT was never transferred to
the names of the supposed buyers, remaining to be registered in the name of Labnao. If there was truly a legitimate and
genuine sale transaction that occurred, the supposed buyers, according to ordinary human experience, would have
endeavored to secure the registration of the Deed of Absolute Sale and facilitate the transfer of the subject TCT in their
name. Hence, the Court is convinced that there was no contract of sale.

The transfer of the subject lot to the respondents Heirs of Julita cannot also be considered as a valid donation
because the formalities of making and accepting a donation of an immovable property required under Article 749 of the
Civil Code were not observed.

PETITION GRANTED.
6. VILLAMIL V. SPOUSES ERGUIZA SANTOS, RCD.
G.R. No. L-195999 | 20 June 2018 | Martires, J.

DOCTRINE:
A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership
of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively
to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell.

A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer
title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed. In a contract to sell, the fulfillment of the
suspensive condition will not automatically transfer ownership to the buyer although the property may have been
previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition
renders the sale absolute and the previous delivery of the property has the effect of automatically transferring the seller’s
ownership or title to the property to the buyer.

FACTS:
• On February 6, 2003, petitioner Lily Villamil filed a Complaint for recovery of possession and damages against
respondent-spouses Juanito and Mila Erguiza before the MTCC of Dagupan City alleging that plaintiff is the
absolute and exclusive owner of a certain parcel of land located in Dagupan City.
• On September 20, 1972, plaintiff together with her deceased sister and deceased brother, entered into an
agreement with Juanito Erguiza for the purpose of selling the aforementioned property to the latter subject to
the condition that the plaintiff and her siblings would file a petition to secure authorization for minor children
from the proper courts. Likewise, that in case of failure of the plaintiff and her siblings to obtain said authority,
the partial payment made by the defendant Juanito Erguiza shall be applied as rent for twenty (20) years of the
premises.
• Sometime in 1992 or after the lapse of twenty (20) years and the expiration of the twenty (20) years lease, plaintiff
demanded from the defendants to return possession of the property but the latter failed and refused.
• MTCC’s Ruling – Dismissed the complaint of petitioner on the ground that the cause of action was one for the
interpretation of the agreement and the determination of the parties’ respective rights
• RTC’s Ruling – Reversed the MTCC’s decision. RTC said that the cause of action was one for recovery of possession
of real property and remanded the case back to the MTCC considering the value of the subject property is P2,990
• 2nd MTCC Ruling – Ruled in favor of petitioner. The MTCC gave credence to petitioner’s claim that she
communicated to respondent-spouses the fact of consolidation of ownership in her name.
• Aggrieved, respondent-spouses elevated an appeal to the RTC
• RTC’s Ruling – Affirmed the ruling of the MTCC. The RTC opined that the condition with respect to judicial approval
of the sale had become irrelevant when ownership over the subject property was consolidated in favor of
petitioner in 1973. Respondent-spouses moved for reconsideration but was subsequently denied the motion for
lack of notice of hearing
• CA’s Ruling – Reversed and set aside the decision of the RTC. The appellate court declared that the agreement
between the parties was a contract to sell involving the subject property because the vendors (Villamil) reserved
ownership and it was subject to a suspensive condition, i.e., submission of the sellers of lacking documents or
court approval of the sale of the shares of the minor owners.
• Petitioner moved for reconsideration but the CA denied the same. Hence, this petition.
ISSUE:
1. Whether or not the agreement entered into by Villamil and the Spouses Erguiza was a contract of sale. – NO.
2. Whether or not the Spouses Erguiza still had the right to possession of the parcel of land. – YES.

HELD:
1. NO. The agreement entered into by Villamil and the Spouses Erguiza was not a contract of sale.

A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the
purchase price and/or compliance with the other obligations stated in the contract to sell. Given its contingent
nature, the failure of the prospective seller to execute the corresponding deed of sale to effect the transfer of
ownership to the buyer from arising.

An examination of the agreement would reveal that the parties entered into a contract to sell the subject
property. First, petitioner and her siblings who were then co-owners merely promised to sell the subject property,
thus, signifying their intention to reserve ownership. Second, the execution of a deed of absolute sale was made
dependent upon the proper court’s approval of the sale of the minor owners. Third, the agreement between the
parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication
that the parties did not intend immediate transfer of ownership. Fourth, petitioner retained possession of the
certificate of title of the lot. This is an indication that the agreement did not transfer to private respondents, either
by actual or constructive delivery, ownership of the property. Finally, respondent Juanito admitted during trial
that they have not finalized the sale in 1972 because there were minor owners such that when they constructed
their house thereon, they sought the permission of petitioner.

2. YES. The Spouses Erguiza still had the right to possession of the parcel of land.

Inasmuch as petitioner has not yet complied with her obligation to execute a deed of sale after the condition has
been deemed fulfilled, respondent-spouses are still entitled to possess the subject property. Petitioner cannot
anchor her claim on the supposed conversion of their agreement from a contract to sell into a contract of lease
as provided in the third paragraph of the agreement which provides that should the court disapprove the sale of
the shares of the minor owners, the down payment would be treated as rentals for twenty (20) years. The
agreement, however, could not have been converted into a contract of lease for the simple reason that there
was no petition filed before any court seeking the approval of the sale as regards the share of the minor owners.
Hence, the court did not have any occasion to approve much less disapprove the sale of such shares. As a result,
there was no reason for the contract to sell to be converted into a contract of lease.

Respondent-spouses did not become lessees. They remained to be prospective buyers of the subject property
who, up to now, are awaiting fulfillment of the obligation of the prospective sellers to execute a deed of sale.
Hence, inasmuch as the sellers allowed them to have the subject property in their possession pending the
execution of a deed of sale, respondent-spouses are entitled to possession pending the outcome of the contract
to sell.

PETITION DENIED.
NOLASCO V. CUERPO Razon, AJB
G.R. No. 210215 | 9 December 2015 | Perlas-Bernabe, J.

FACTS:

On July 22, 2008, petitioners and respondents entered into a Contract to Sell subject contract) over a 165,775-
square meter parcel of land located in Barangay San Isidro, Rodriguez, Rizal

The subject contract provides, inter alia, that:

(a) the consideration for the sale is P33,155,000.00 payable as follows: down payment in the amount of
P11,604,250.00 inclusive of the amount of P2,000,000.00 previously paid by respondents as earnest
money/reservation fee, and the remaining balance of P21,550,750.00 payable in 36 monthly installments, each
in the amount of P598,632.00 through post-dated checks;

(b) in case any of the checks is dishonored, the amounts already paid shall be forfeited in petitioners' favor, and
the latter shall be entitled to cancel the subject contract without judicial recourse in addition to other
appropriate legal action;

(c) respondents are not entitled to possess the subject land until full payment of the purchase price;

(d) petitioners shall transfer the title over the subject land from a certain Edilberta N. Santos to petitioners'
names, and, should they fail to do so, respondents may cause the said transfer and charge the costs incurred
against the monthly amortizations ; and

(e) upon full payment of the purchase price, petitioners shall transfer title over the subject land to respondents.

However, respondents sent petitioners a letter dated November 7, 2008 seeking to rescind the subject contract
on the ground of 􏰀financial dif􏰀ficulties in complying with the same.

They also sought the return of the amount of P12,202,882.00 they had paid to petitioners.

As their letter went unheeded, respondents filed the instant complaint for rescission before the RTC.

In their defense, petitioners countered that respondents' act is a unilateral cancellation of the subject contract
as the former did not consent to it.

Moreover, the ground of 􏰀financial dif􏰀ficulties is not among the grounds provided by law to effect a valid
rescission.

RTC ruled in favor of respondents.

CA affirmed RTC Ruling.

ISSUES:

1. Whether or not the CA correctly af􏰀firmed the rescission of the subject contract - NO
2. Whether or not the CA correctly affirmed the return of the amounts already paid by respondents to petitioners, as
well as the remaining post-dated checks issued by respondent Celerino S. Cuerpo representing the remaining monthly
amortizations. - YES
RULING:

1. CA erred in affirming the rescission of subject contract.

In reciprocal obligations, either party may rescind — or more appropriately, resolve — the contract upon the
other party's substantial breach of the obligation/s he had assumed thereunder

More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a breach of
faith that violates the reciprocity between the parties to the contract.

This retaliatory remedy is given to the contracting party who suffers the injurious breach on the premise that it
is 'unjust that a party be held bound to ful􏰀ll his promises when the other violates his.'"

Note that the rescission (or resolution) of a contract will not be permitted for a slight or casual breach, but only
for such substantial and fundamental violations as would defeat the very object of the parties in making the
agreement. Ultimately, the question of whether a breach of contract is substantial depends upon the attending
circumstances.

A plain reading of paragraph 7 of the subject contract reveals that while the RTC and the CA were indeed correct
in 􏰀finding that petitioners failed to perform their obligation to effect the transfer of the title to the subject land
from one Edilberta N. Santos to their names within the prescribed period , said courts erred in concluding that
such failure constituted a substantial breach that would entitle respondents to rescind (or resolve) the subject
contract.

Here, it cannot be said that petitioners' failure to undertake their obligation under paragraph 7 defeats the object
of the parties in entering into the subject contract, considering that the same paragraph provides respondents
contractual recourse in the event of petitioners' non-performance of the aforesaid obligation, that is, to cause
such transfer themselves in behalf and at the expense of petitioners.

2. CA is correct in affirming the return of the amounts already paid for by the respondents including the post-dated
checks

• It cannot be granted because in their Answer with Compulsory Counterclaim and Motion for Summary
Judgment filed before the RTC, petitioners neither prayed for this speci􏰀fic relief nor argued that they were
entitled to the same. Worse, petitioners were declared "as in default" for failure to 􏰀file the required pre-trial
brief and, thus, failed to present any evidence in support of their defense.

• It is settled that "[w]hen a party deliberately adopts a certain theory and the case is decided upon that theory in
the court below, he will not be permitted to change the same on appeal, because to permit him to do so would
be unfair to the adverse party."

PETITION PARTIALLY GRANTED.

Heirs of Macalalad vs. Rural Bank of Pola, Inc MOLINO
G.R. No. 200899| June 20, 2018| Peralta, J.

DOCTRINE:
 A purchaser in good faith is one who buys property without notice that some other person has
a right to or interest in such property and pays its fair price before he or she has notice of the
adverse claims and interest of another person in the same property.

FACTS:
Herein petitioners' predecessor-in-interest, Paz Macalalad (Paz) filed, with the RTC of Calapan City,
a Complaint for "Declaration of Nullity" alleging that:
 she is the sole surviving legal heir of one Leopoldo Constantino, Jr. (Leopoldo) who died
intestate and w
 ithout any issue;
 during his lifetime, Leopoldo owned a parcel of land which is located at Pinagsabangan II,
Naujan, Oriental Mindoro and registered under TCT No. RT-124 (T-45233)
 after the death of Leopoldo, it was made to appear that the latter sold the subject lot to the
spouses Remigio and Josephine Pimentel (Spouses Pimentel) in whose names a new TCT
was issued;
 thereafter, the Spouses Pimentel obtained a loan from herein respondent Rural Bank of Pola,
Inc. (respondent bank) and gave the subject parcel of land as collateral for the said loan, as
evidenced by a contract of mortgage executed by the Spouses Pimentel in favor of respondent
bank;
 respondent bank, acting in bad faith, in utter disregard of its duty to investigate the validity of
the title of the Spouses Pimentel and without verifying the location of the lot, accepted the
same as collateral for the Spouses Pimentel's loan;
 subsequently, the Spouses Pimentel failed to pay their loan leading respondent bank to
foreclose the mortgage over the subject property where it (respondent bank) emerged as the
highest bidder; consequently, respondent bank obtained ownership of the disputed lot;
 and the TCT in the name of the Spouses Pimentel was cancelled and a new was issued in
respondent bank's name.

Paz contended that respondent bank be made to suffer the ill effects of its negligent acts by praying
that the TCT be cancelled and a new one be issued in the name of Leopoldo, the original owner.

In its Answer, respondent bank denied the material averments in Paz's complaint and claimed, in its
affirmative defense, that: it is a mortgagee and purchaser in good faith; and it gave full faith and credit
to the duly registered TCT given by the Spouses Pimentel as evidence of their ownership of the
mortgaged property. Respondent bank also argued that a title procured through fraud and
misrepresentation can still be the source of a completely valid and legal title if the same is in the hands
of an innocent purchaser for value.

RTC rendered its Decision dismissing petitioners' complaint for lack of merit. The RTC held that,
"[a]fter a careful study and evaluation of the evidence adduced by both plaintiff and the defendant
bank, it was clearly established that the latter had fully complied with the standard operating procedure
in verifying the ownership of the land in question" and that "[t]he defendant bank, as a mortgagee, has
a right to rely in good faith on the certificate of title of the mortgagor of the subject property given as
security for the loan being applied for by the registered owners, the Spouses Pimentel, hence, the
defendant bank is, therefore, considered a mortgagee in good faith."

CA affirmed the ruling of the RTC

ISSUE:
Whether or not the respondent bank was acted in bad faith and that the TCT should be cancelled.

HELD:
NO. Nemo dat quod non habet. No one can transfer a right to another greater than what he himself
has. Applying this principle to the instant case, granting that the deed of sale in favor of the Spouses
Pimentel was forged, then, as discussed above, they could not have acquired ownership as well as
legal title over the same. Hence, they cannot give the subject property as collateral in the mortgage
contract they entered into with respondent bank.

The settled rule is that the burden of proving the status of a purchaser in good faith lies upon one who
asserts that status, and this onus probandi cannot be discharged by mere invocation of the legal
presumption of good faith. A purchaser in good faith is one who buys property without notice that some
other person has a right to or interest in such property and pays its fair price before he or she has
notice of the adverse claims and interest of another person in the same property. The honesty of
intention which constitutes good faith implies a freedom from knowledge of circumstances which ought
to put a person on inquiry.

It is, likewise, settled that every person dealing with registered land may safely rely on the correctness
of the certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate
to determine the condition of the property. Where there is nothing in the certificate of title to indicate
any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not
required to explore further than what the Torrens Title upon its face indicates in quest for any hidden
defects or inchoate right that may subsequently defeat his right thereto.

However, this rule shall not apply when the party has actual knowledge of facts and circumstances
that would impel a reasonably cautious person to make such inquiry or when the purchaser has
knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably
prudent person to inquire into the status of the title of the property in litigation.

In the present case, respondent is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike
private individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its operations. Thus, the Court finds
no cogent reason to depart from the findings of both the RTC and the CA that respondent was able to
successfully discharge its burden of proving its status as a mortgagor and subsequent purchaser in
good faith and for value. The respondent bank is justified in believing that the title of the Spouses
Pimentel is neither invalid nor defective.

PETITION DENIED
LOLITA ESPIRITU SANTO MENDOZA AND SPS. ALEXANDER AND ELIZABETH GUTIERREZ, Petitioners, v. SPS. RAMON, SR.
AND NATIVIDAD PALUGOD, Respondents.
MIRANDA, P.
G.R. No.220517 | 20 JUNE 2018| CAGUIOA, J.


DOCTRINE:
The DAS (Deed of Absolute Sale) is itself the proof that the sale of the property is supported by sufficient consideration.
This is anchored on the disputable presumption of consideration inherent in every contract. Thus, Article 1354 of the Civil
Code provides: "Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary."

FACTS:
Petitioner Lolita Espiritu Santo Mendoza (Lolita, for brevity) and Jasminia Palugod (Jasminia, for brevity) were close friends.
Lolita was a businesswoman engaged in selling commodities and houses and lots, while Jasminia was then working as a
Supervisor in the Philippine Long Distance Telephone Company (PLDT). In 1991, Lolita and Jasminia bought the subject lot
[with an area of 120 sq. m.7] on installment for one (1) year until they decided to pay the balance in full. In 1995, Jasminia
became afflicted with breast cancer. Sometime in 1996, Lolita and Jasminia constructed a residential house on the subject
lot. Although Lolita has no receipts, she shared in the cost of the construction of the house from her income in the catering
business and selling of various products. On May 11, 2004, Jasminia executed a Deed of Absolute Sale in favor of Lolita,
who eventually mortgaged on November 19, 200413 the subject property to petitioner Elizabeth Gutierrez as a security
for a loan in the amount of Php800,000.00. Respondents, upon learning from the Office of the Registry of Deeds that
Jasminia's certificate of title has been cancelled, executed an Affidavit of Adverse Claim of their right and interest over the
property as the only compulsory and legitimate heirs of Jasminia. However, petitioner]Lolita, knowing fully well of the
impending suit, made it appear that she mortgaged the property to Spouses Gutierrez as a security for a loan amounting
to Php800,000.00.

Thus, respondents filed a complaint for Declaration of Nullity of the Deed of Absolute Sale and the Deed of Real Estate
Mortgage with the RTC of Bacoor[,] Cavite. On March 14, 2013, the RTC of Bacoor, Cavite, Branch 19, rendered the assailed
Decision in favor of [respondents]. The RTC declared that there can be no contract unless the following concur: (a) consent;
(2) object certain; and (3) cause of the obligation. Respondents were able to prove by preponderance of evidence that the
Deed of Sale involved no actual monetary consideration. Petitioner Lolita, in her testimony, admitted that the sale was
without monetary consideration. The RTC ruled that the Deed of Sale is void for being simulated, hence, the Deed of Real
Estate Mortgage executed therein by petitioner Lolita in favor of Spouses Gutierrez is likewise void, since, in a real estate
mortgage, it is essential that the mortgagor be the absolute owner of the property to be mortgaged. Aggrieved, petitioners
interposed an appeal before the CA. The CA denied petitioners' appeal for lack of merit. The CA found no cogent reason
to deviate from the finding of the RTC that the deed of sale is null and void for being absolutely simulated since it did not
involve any actual monetary consideration.

ISSUE: Whether or not a sale is void for being fictitious or simulated upon mere failure of showing receipts as proof of
monetary consideration

HELD: NO.

The Deed of Absolute Sale (DAS) is itself the proof that the sale of the property is supported by sufficient consideration.
This is anchored on the disputable presumption of consideration inherent in every contract. Thus, Article 1354 of the Civil
Code provides: "Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary."
Guided by the above provisions of the Civil Code and the Rules as well as jurisprudence, petitioners stand to benefit from
the disputable presumption of consideration with the presentation of the DAS. Indeed, they can rely on the DAS as proof
that it has consideration - "FOR AND IN CONSIDERATION of the sum of FOUR HUNDRED THOUSAND PESOS (P400,000.00)
Philippine Currency, receipt of which is hereby acknowledged and confessed."

With the presumption in favor of petitioner Lolita who is the vendee, it became incumbent upon respondents to present
preponderant evidence to prove lack of consideration. Respondents' mere assertion that the DAS has no consideration is
inadequate.

Petitioners' evidence has superior weight. While petitioner Lolita could not present receipts to show her payments to the
late Jasminia, her sworn testimony which in certain portions were corroborated by pertinent documents, remains more
credible than that of respondent Natividad. Indeed, the lack of receipts may be explained by the "close friendship"
between petitioner Lolita and Jasminia. The non-admission by petitioner Lolita of the "husband and wife" relationship that
she shared with Jasminia and her being a "lesbian or tomboy," as respondent Natividad claimed, is of no moment.
Whatever transpired between her and Jasminia is a private matter, which the Court would not even speculate on. As to
the gender identity and sexual preference of petitioner Lolita, that is likewise a private matter.

Consequently, the DAS executed by Jasminia in favor of petitioner Lolita over the subject property is valid, the presumption
that it has sufficient consideration not having been rebutted. The same holds true regarding the Real Estate Mortgage
between petitioner Lolita and petitioners spouses Alexander and Elizabeth Gutierrez.

Petition GRANTED.


 MISTERIO v. CEBU STATE COLLEGE OF SCIENCE AND of Cebu, including SAHS, and which became an extension of
TECHNOLOGY the Cebu State College of Science and Technology (CSCST).
June 23, 2005 |Calleja, Sr., J. | Pacto de Retro Sale  Cebu decided to recover the 41 lots it had earlier donated on
Digester: Angat, Christine Joy F. the ground that SAHS had no personality to accept the
donation. When the heirs of Asuncion Misterio, who had then
SUMMARY: Asuncion Sadaya-Misterio and Sudlon Agricultural died intestate, learned that the province of Cebu was trying to
High School entered into a Deed of Sale over a parcel of land. The recover its donated property, they informed the province on
sale was subject to Asuncion’s right to repurchase the property August 19, 1998 of their intention to exercise their right to
after the high school shall have ceased to exist, OR 2) shall have repurchase the property as stipulated in the Deed of Sale.
transferred its site elsewhere. In 1983, BP 412 was enacted, which o The province of Cebu and CSCST settled their issue over
consolidated vocational schools, including SAHS, and made them the lots by entering into a Memorandum of Agreement
an extension of CSCST. In 1998, the heirs of Asuncion wanted to where the lots were partitioned – 43 ha goes to the
exercise their right to redeem the property, on the ground that province while 51 ha goes to the SAHS (now part of the
SAHS has ceased to exist. The Court held that the action has CSCST).
prescribed, as when there is no period provided for the exercise of  March 19, 1990: The Misterio heirs then sent a letter to CSCST
such right, the right to redeem should be exercised within 4 years informing their intention to exercise the option to repurchase,
from the happening of the allocated condition. on the ground that SAHS had ceased to exist.
DOCTRINE: The essence of a pacto de retro sale is that title and o CSCST denied the claim, stating that SAHS still existed,
ownership of the property sold is immediately vested in the albeit it changed its name [to CSCST] and expanded its
vendee a retro, subject to the restrictive condition of repurchase offerings [which now included collegiate courses].
by the vendor a retro within the period provided in Article 1606 of  The Misterio heirs then filed a complaint before the RTC for
the New Civil Code. The failure of the vendor a retro to repurchase “Nullity of Sale and/or Redemption”, alleging:
the property vests upon the latter by operation of law the absolute o That SAHS had no juridical personality of its own at the
title and ownership over the property sold. time of the sale, therefore the sale was null and void
o And that assuming the sale was valid, the enactment of BP
FACTS: 412 abolished SAHS and converted it to become part of
 1952: The Provincial Board of Cebu granted to Sudlon CSCST, therefore rendering the operative condition
Agricultural High School (SAHS), the usufruct of 41 parcels of granting the vendor and her heirs the right to redeem
land covering 104.5441 ha of the Banilad Friar Lands Estate.  After the case’s preliminary conference, the trial court issued a
 December 31, 1956: Asuncion Sadaya-Misterio executed a pre-trial order defining the issues:
Deed of Sale over a parcel of land (which was also a part of the o Whether SAHS has still retained its personality as such
Banilad Friar Lands Estate) in favor of SAHS. The sale was school or it had ceased to exist
subject to the right of Misterio to repurchase the property 1) o Whether the Misterio heirs have the right to exercise the
after the high school shall have ceased to exist, OR 2) shall right of redemption over the property
have transferred its site elsewhere.  RTC – ruled in favor of the Misterio heirs
o The right of the vendor (Misterio) to repurchase the o The sale between Asuncion and SAHS is null and void for
property was annotated at the dorsal portion of the TCT. latter’s lack of juridical personality to acquire real
 The Provincial Board of Cebu, through a resolution, donated property
the aforementioned 41 lots to SAHS, subject to 2 conditions: o With the enactment of BP 412, SAHS ceased to exist and
(1) that if SAHS ceases to operate, the ownership of the lands to operate (under the Corporation Code, the constituent
would automatically revert to the province, and (2) that SAHS corporations SAHS and CSCST became one through
could not alienate, lease, or encumber the properties. merger or consolidation, with CSCST as the surviving
 June 10, 1983: B.P. 412 was enacted, which consolidated as entity), hence, the Misterio heirs can exercise their right
one school system certain vocational schools in the province to redeem
 The OSG, representing the CSCST, appealed. Pending the  IN THIS CASE: Asuncion (vendor a retro) and SAHS (vendee a
appeal, the CSCST, through a Deed for Reversion, deeded the retro) did not agree on any period for the exercise of the right
property to the province of Cebu. to repurchase the property. Following Article 1606 (1), the
 CA – reversed the RTC said right should be exercised within four years from the
o The RTC erred in not confining itself to the issues happening of the allocated condition contained in the deed:
defined by the parties during pre-trial (a) the cessation of the existence of the SAHS, or (b) the
o While SAHS had ceased to exist when BP 412 took effect, transfer of the school to other site.
the period for the petitioners to repurchase the property o In this case, SAHS ceased to exist in June 10, 1983, when
expired on June 1987, four years after the enactment of BP 412 took effect. The right of the Misterio heirs, as the
BP 412 successors-in-interest of Asuncion (vendor a retro), started
 Hence, the present petition by the Misterio heirs to run and lasted until June 10, 1987. However, the
Misterio heirs expressed their intention to redeem the
RULING: Petition denied. property only in 1998.
 Misterio heirs contend that the issue of whether SAHS is yet to
Whether the action to redeem the property has prescribed – be resolved by court, hence the applicable provision is Article
YES. 1606(3). The contention is misplaced as their right to
 The essence of a pacto de retro sale is that title and ownership repurchase the property was not dependent upon the prior
of the property sold is immediately vested in the vendee a final interpretation of the said phrase. There is no doubt that
retro, subject to the restrictive condition of repurchase by the the Deed of Sale actually includes a right to repurchase. The
vendor a retro within the period provided in Article 1606 of the four-year period for the petitioners to repurchase the
New Civil Code. The failure of the vendor a retro to repurchase property was not suspended merely and solely because
the property vests upon the latter by operation of law the there was a divergence as to the precise meaning of the
absolute title and ownership over the property sold. phrase “after the SAHS shall cease to exist.”
o Art. 1606. The right referred to in Article 1601, in the  Moreover, the fact that the right to repurchase the property is
absence of an express agreement, shall last four years from annotated in the dorsal side of the RTC does not mean the said
the date of the contract. right is imprescriptible. The annotation was only for the
Should there be an agreement, the period cannot exceed purpose of notifying third parties of the petitioner’s right to
ten years. repurchase the property under the terms of the deed of sale,
However, the vendor may still exercise the right to and the law.
repurchase within thirty days from the time final judgment
was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase
Catangcatang vs Legayada

Facts:
On May 19, 1952, respondent executed in favor of petitioner a deed of sale with
pacto de retro, with a five-year period of redemption, over a parcel of land
situated at Lambunao, Iloilo, with a stated area of 8.8272 hectares more or less,
for a specified consideration of P1,400.00. Of the total consideration, the amount of
P1,200.00 was paid upon the execution of the deed and the balance of P200.00, covered
by a promissory note, was agreed to be payable at a later
date. Petitioner found that the area of the land actually delivered to her was only 5.0779
hectares. She sought to recover the witheld area in a civil case. In his answer, respondent
filed a counterclaim for recission of the contract of sale with pacto de retro because of
plaintiff's failure to pay the 200 peso balance on due date. During the pendency of the
aforementioned case, respondent forcibly took back the possession of the land from
petitioner. On May 19, 1957, the period for the repurchase of the land expired, allegedly
without respondent having availed himself of his right to repurchase the same.

The Court of First Instance of Iloilo dismissed the complaint, having found that
the parcel of land subject matter of the deed of sale was described by metes and bounds,
has an actual area of 5.0779 hectares, notwithstanding that the stated area in the tax
declaration was 8.8272 hectares. In the same decision, the counterclaim of Paulino
Legayada was likewise dismissed. The decision of the Court of First Instance became
final, neither party having appealed therefrom. Petitioner instituted the present petition for
consolidation of title and restoration of possession. In his answer, Legayada admitted that
on May 19, 1952, he, as vendor, executed a Deed of Sale with Right of Repurchase in
favor of petitioner but denied that he failed to repurchase the property on or before May
19, 1957 because on May 10, 1957 he took possession of the property "because the
redemption amount is already deposited in the hands of
undersigned counsel to be paid" to petitioner Salvacion Catangcatang. RTC ruled for
petitioner (respondent was not able to effect the repurchase within
the period stipulated). The CA reversed (The failure to pay the full purchase price
suspends the running of the period of redemption. Contrary to the finding of the court a
quo. the stipulated five-year period of redemption did not expire since said period never
commenced to run. Further Petitioner as owner during the redemption period failed to pay
taxes on the land, which shall be deducted to the P1,200.00 price to be returned.)

ISSUE:

Whether or not the non-payment of the P200.00 suspended the running of the
period to repurchase.

Whether or not respondent was able to effect redemption of the property in

question within the period stipulated in the contract.

RULING:
We are unable to find any support for the holding of the Appellate Court that the failure to
pay the balance of the purchase price embodied in the agreement in the amount of
P200.00 resulted in the suspension of the running of the period for redemption. The sale
under consideration was perfected from the moment Legayada consented to sell the land
in question and Catangcatang agreed to purchase it for the sum of P1,400.00 and the
latter had partially complied with his obligation by paying the sum of P1,200.00 and the
former by delivering possession of the land to the vendee. There was nothing whatsoever
in the deed of sale to indicate that the agreement of the parties was to suspend the
running of the period of redemption until full payment of the purchase price. On the
contrary, said period was agreed to be five (5) years from the date of the execution of the
deed. The more basic issue is whether or not respondent was able to effect redemption
of the property in question within the period stipulated in the contract. Pursuant to Article
1616 of the Civil Code, "the vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition: (1) the expenses of the
contract, and any other legitimate payments made by reason of the
sale; (2) the necessary and useful expenses made on the thing sold."
The records reveal that on May 10, 1957, respondent, without the knowledge of
petitioner, took possession of the subject property. It is claimed that on the same
date, respondent's counsel wrote a letter to petitioner, informing her that the
redemption money was already in his (counsel's) possession This letter never
reached petitioner, and was allegedly returned to said counsel. The reason given by
respondent for the non-delivery of the letter is that petitioner could not be found. This was
found by the trial court to be unworthy of credence. Apart from this letter, no further effort
to effect redemption was made. Respondent could have deposited the amount for the
redemption with the court, but this he did not do. In the exercise of the right to repurchase,
it is not sufficient that the vendor a retro manifests his desire to repurchase. This
statement of intention must be accompanied with an actual and simultaneous tender of
payment which constitutes the legal exercise of the right to repurchase. While
consignation of the redemption price is not necessary in order to allow the
repurchase within the time provided by law or by contract, a mere tender being
enough, said tender does not relieve the vendor from the obligation of paying
the price. In case of absence of the vendee a retro, the right of redemption may still be
exercised, as a vendor who decides to redeem a property sold with pacto de
retro stands as the debtor and the vendee as the creditor of the purchase price.
The vendor could and should have exercised his right of redemption
against the vendee by filing a suit against him and making a
consignation with the court of the amount due for the redemption. The
period for redemption having lapsed without respondent having validly
effected redemption, petitioner is entitled to consolidation of
ownership over the property sold.
WHEREFORE, the decision appealed from is hereby REVERSED, and the decision
of the Court of First Instance of Iloilo is AFFIRMED, with costs against respondent.
3. Alonzo vs. IAC MACAPAGAL, KDN.
G.R. No. L-72873 | 28 May 1987 | Cruz, J.

DOCTRINE: Where co-heirs filed action for redemption of co-heir’s sold share only after thirteen years
had elapsed from the sale, they are deemed to have been actually informed thereof sometime during
those years although no written notice of sale was given to them.

FACTS:
Five brothers and sisters inherited in equal shares a parcel of land registered in the name of their
deceased parents.
On March 15, 1963, one of the heirs transferred his undivided share to the petitioners by way of
absolute sale. One year later, on April 22, 1964, another heir also sold her own share to the petitioners.
By virtue of said sales, the petitioners occupied two-fifths of the said lot. Petitioners subsequently
enclosed the same with a fence and built a semi-concrete house.
On February 25, 1976, one of the five co-heirs sought to redeem the area sold to the petitioners
but his complaint was dismissed when it appeared that he was an American citizen. On May 27, 1977,
however, another co-heir filed her own complaint invoking the same right of redemption claimed by her
brother.
The trial court also dismissed the complaint on the ground that the right had lapsed, not having
been exercised within 30 days from notice of the sales in 1963 and 1964. Although there was no written
notice, it was held that actual knowledge of the sales by the co-heirs satisfied the requirement of the law.
It is highly improbable that the other co-heirs were unaware of the sales since the other co-heirs
lived on the same lot and that the petitioners and co-heirs were close friends whose children went to
school together.
Respondents contend that there should be written notice and that actual notice would not suffice
as a substitute conformably to Article 1088 and Article 1623.

ISSUE:
1) Whether or not there was valid notice to the co-heirs in this case considering that there was no
written notice as required in Article 1623
2) Assuming there was a valid notice, whether or not the 30 day period for redemption had expired

HELD:
1) YES. It is cardinal rule that, in seeking the meaning of the law, the first concern of the judge should
be to discover in its provisions the intent of the lawmaker. By requiring written proof of such
notice, the court would be closing their eyes to the obvious truth in favor of respondents’ palpably
false claim of ignorance, thus exalting the letter of the law over its purpose. The purpose of the
law is clear enough: to make sure that the redemptioners are duly notified. The court is satisfied
that in this case the other brothers and sisters were actually informed, although not in writing, of
the sales made in 1963 and 1964, and that such notice was sufficient.
 2) YES. While the court do not here declare that the period started from the dates of such sales in
1963 and 1964, the court do say that sometime between those years and 1976, when the first
complaint for redemption was filed, the other co-heirs were actually informed of the sale and that
thereafter the 30-day period started running and ultimately expired. This could have happened
any time during the interval of 13 years, when none of the co-heirs made a move to redeem the
properties sold. By 1977, in other words, the right of redemption had already been extinguished
because the period of or its exercise had already expired.

NOTE: The Court’s deviation from the strict letters of Art. 1088 and Art. 1623 NCC on giving of written
notice to co-heirs of the sale of an heir’s share is not being abandoned. The ruling here should be deemed
an exception due to peculiar circumstances of this case.
4. LEE CHUY REALTY CORPORATION vs. COURT OF APPEALS LUYAO, CJL.
G.R. No. 104144| 4 December 1995 | Bellosillo, J.

DOCTRINE: The formal offer to redeem is not a distinct step or condition sine qua non to the filing of the action in Court
for the valid exercise of the right of legal redemption. What constitutes a condition precedent is either a formal offer to
redeem or the filing of an action in court together with the consignation of the redemption price within the
reglementary period.

FACTS:
A valuable piece of land in Meycauayan, Bulacan is disputed by petitioner Lee Chuy Realty and private respondent Marc
Realty. Originally the property was co-owned by Ruben Jacinto to the extent of one-sixth and Dominador, Arsenio,
Liwayway, all surnamed Bascara, and Ernesto Jacinto who collectively owned the remaining five-sixths. Ruben Jacinto sold
his one-sixth pro-indiviso share to Lee Chuy Realty(petitioner). Subsequently, Bascaras and Ernesto Jacinto also sold their
share to Marc Realty.

Lee Chuy realty claims that it was never informed of the existence of the sale between MARC REALTY on one hand and
the Bascaras and Jacinto on the other, and that on the contrary it was only upon inquiry from the Register of Deeds of
Bulacan that the sale was brought to its attention. MARC REALTY contends otherwise. It insists that LEE CHUY REALTY was
verbally notified of the sale and was in fact given a copy of the deed of sale.

Lee Chuy filed a complaint for legal redemption against MARC REALTY and consigned in court a manager’s check for
614,400. MARC Realty insisted that the complaint be dismissed for failure to state a cause of action there being no
allegation of prior valid tender of payment nor prior valid notice of consignation.

Trial Court ruled in favor of Lee Chuy, holding that there was a prior valid tender of payment and consignation. It further
decreed that “neither a separate offer to redeem nor a formal notice of consignation are necessary for the reason that
the Bling of the action itself, within the period of redemption, is equivalent to a formal offer to redeem." Court of Appeals
reversed and ruled that that "a prior tender or offer of redemption is a prerequisite or precondition to the Bling of an
action for legal redemption…because the policy of the law is not to leave the purchaser's title in uncertainty beyond the
established 30-day period."

ISSUE:

Whether or not prior tender of payment is condition precedent to the filing of an action in court in order to exercise the
right of legal redemption? - NO

HELD:
There is actually no prescribed form for an offer to redeem to be properly effected. Hence, it can either be through a
formal tender with consignation, or by filing a complaint in court coupled with consignation of the redemption price within
the prescribed period. What is condition precedent to a valid exercise of the right of legal redemption is either the formal
tender with consignation or the filing of a complaint in court. What is paramount is the availment of the fixed and definite
period within which to exercise the right of legal redemption.

In Hulganza v. Court of Appeals, the Court, citing previous decisions, declared that the formal offer to redeem,
accompanied by a bona fide tender of the redemption price, within the prescribed period is only essential to preserve the
right of redemption for future enforcement beyond such period of redemption and within the period prescribed for the
action by the statute of limitations. Where, as in the instant case, the right to redeem is exercised through judicial action
within the reglementary period the formal offer to redeem, accompanied by a bona fide tender of the redemption price,
while proper, may be unessential. The filing of the action itself is equivalent to a formal offer to redeem.

*Note: The cases cited by MARC REALTY were jettisoned (dropped) by the Court of Appeals on the ground that they do
not involve legal redemption by a co-owner but by a mortgagor. It concluded that the application of the rules on legal
redemption by a co-owner differs from the legal redemption by a mortgagor. But the law does notdistinguish; neither
should we. For sure, the principle in the aforecited cases is applicable regardless of whether the redemptioner is a co-
owner or a mortgagor. Public policy favors redemption regardless of whether the redemptioner is a co-owner or
mortgagor, although perhaps with unequal force and effect since each is given a fixed but different period. A co-owner
desirous of exercising his right of legal redemption is given a period of thirty (30) days from notice of the sale within which
to avail of the right to redeem. Under the free patent or homestead provisions of the Public Land Act a period of five (5)
years from the date of conveyance is provided, the five-year period to be reckoned from the date of the sale and not from
the date of registration in the Office of the Register of Deeds. The redemption of extrajudicially foreclosed properties, on
the other hand, is exercisable within one (1) year from the date of the auction sale as provided for in Act No. 3135.

PETITION GRANTED. Decision of CA that the filing of the action for legal redemption coupled with consignation of the
redemption price is equivalent to a formal offer to redeem as a condition precedent to the valid exercise of the right of
legal redemption is reinstated.
GREGORIO VS VDA. DE CULIG
GR 180559 | 20 JANUARY 2016

DOCTRINE: Consignation is not necessary in a sale with the right of repurchase because it involves
an exercise of a right or privilege rather than the discharge of an obligation. Hence, tender of
payment would be sufficient to preserve a right or a privilege. The filing of the action itself, within
the period of redemption is equivalent to a formal offer to redeem.

FACTS:
Respondent Vda de Culig is the widow of Alfredo Culig Sr. Alfredo was granted a
homestead patent under the Public Land Act over 54,730 square-meter parcel of land. Alfredo
died in 1971 and around 1974, his heirs, including the respondent executed an extrajudicial
settlement of estate with sale of the property in favor of spouses Andres Seguritan and Anecita
Gregorio (petitioner). The property was sold for P25,000.

Respondent filed a complaint demanding the repurchase of the property under the
provisions of the Public Land Act. She contended that she approached the spouses and offered
to pay back P25,000, the purchase price, but the latter refused. Then, respondent and her son
wrote letters reiterating their desire to repurchase but the spouses did not answer. Spouses
Seguritan countered that they had no right to repurchase since they only wanted to redeem the
property to sell it for a greater profit.

The RTC dismissed the complaint and ruled that formal offer alone or the filing of a case
alone within the prescribed period of 5 years is not sufficient to effect a valid offer to redeem. It
must either or should be coupled with consignation of the repurchase price if tender of payment
has been refused. Respondent then appealed to the Court of Appeals.

ISSUE:
Whether or not the respondent can validly exercise the right of redemption.

RULING:
YES, the respondent can validly exercise the right of redemption.

Consignation should not be considered a requisite element for the repurchase of

homestead or free patent lots. Consignation is not necessary in a sale with the right of repurchase
because it involves an exercise of a right or privilege rather than the discharge of an obligation.
Hence, tender of payment would be sufficient to preserve a right or a privilege.

In Hulganza v Court of Appeals, bona fide tender of redemption price or its equivalent is
sufficient and consignation of said price in court is not essential or necessary where the filing of
the action itself is equivalent to a formal offer to redeem. The right to redeem is exercised thru
the filing of judicial action within the period of redemption prescribed by law, the formal offer to
redeem, accompanied by a bona fide tender of the redemption price, might be proper, but it is
not essential. The filing of the action itself, within the period of redemption is equivalent to a
formal offer to redeem. The complaint for repurchase was filed within the reglementary period
of five years.

In Vda de Panaligan v CA, tender of payment of the repurchase price is not among the
requisites and this unnecessary for redemption under the Public Land Act.

Article 1616 do not apply in this case, the provision only speaks of the amount to be
tendered when exercising the right to repurchase, but it does not state the procedure to be
followed in exercising the right. In Peralta v Alipio, the court rejected the argument that the
provisions on conventional redemption apply as a supplementary law to the Public Land Act and
stated that:
The Public Land Law does not fix the form and manner in which reconveyance may be
enforced, nor prescribe the method and manner in which demand therefor should be made;
any act which should amount to a demand for reconveyance should, therefore, be sufficient.

Therefore, the filing of the action itself is the formal offer to redeem recognized by law.
Florita Liam vs. United Coconut Planters Bank
G.R. No. 194664 June 15, 2016
Reyes, J.

DOCTRINE: The crucial distinction between assignment and subrogation actually deals with the
necessity of the consent of the debtor in the original transaction. In an assignment of credit, the
consent of the debtor is not necessary in order that the assignment may fully produce legal
effects. What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him as the assignment takes effect only from the time he has knowledge
thereof. A creditor may, therefore, validly assign his credit and its accessories without the
debtor's consent.

Meanwhile, subrogation requires an agreement among the three parties concerned - the
original creditor, the debtor, and the new creditor. lt is a new contractual relation based on the
mutual agreement among all the necessary parties.

FACTS:

Liam entered into a contract to sell with developer Primetown Property Group, Inc. (PPGI) for
the purchase of Condominium Unit No. 603 of the latter's Makati Prime City (MPC)
condominium project. The parties also stipulated that the unit would be delivered not later
than 35 months from the start of actual construction.

To finance the construction o f the condominium project, PPGI obtained a loan from UCPB. PPGI
thereafter partially settled its loan by transferring to UCPB its right to collect all receivables
from condominium buyers, including Liam. PPGI notified Liam of the sale of its receivables to
UCPB. PPGI directed her to remit any remaining balance of the condominium unit's purchase
price to UCPB. Liam wrote UCPB asking for the deferment of her amortization payments until
such time that the unit is ready for delivery. Liam also complained about the delayed delivery of
the unit. Liam demanded for the refund of all the payments she made for PPGI's failure to
deliver the unit on the stipulated date. Liam filed a Complaint for specific performance before
the HLURB against PPGI and UCPB.

PPGI denied receiving any demand from Liam and averred that she is already estopped from
making any claims against PPGI because she agreed to the substitution of PPGI by UCPB. UCPB
maintained that it is merely a creditor of PPGI. UCPB explained that it only acquired PPGI's right
to collect its receivables from Liam and other condominium buyers. UCPB denied giving a
specific date for the completion of Liam's unit because such matter was beyond its control but
rather devolved upon PPGI as the developer.

HLURB Arbiter ruled in favor of Liam. HLURB Board of Commissioners affirmed the Arbiter’s
Decision. The appeal before the Office of the President was dismissed. However, the CA
reversed the decision and ruled in favor of UCPB.

ISSUE: Whether the transaction between UCPB and PPGI was an assignment of credit and not
subrogation.
RULING:

YES.

The terms of the MOA and Deed of Sale/Assignment between PPGI and UCPB unequivocally
show that the parties intended an assignment of PPGl's credit in favor of UCPB. Section 1 of the
MOA is explicit that as partial settlement of its loan, PPGI sold in favor of UCPB its unsold
condominium units in MPC as well as its outstanding receivables from the 539 units covered by
Contracts to Sell.

"The primary consideration in determining the true nature of a contract is the intention o f the
parties. If the words of a contract appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from the express terms of their
agreement, but also from the contemporaneous and subsequent acts of the parties." However,
if the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.

The provisions of the foregoing agreements between PPGI and UCPB are clear, explicit and
unambiguous as to leave no doubt about their objective of executing an assignment of credit
instead of subrogation. The MOA and the Deed of Sale/Assignment clearly state that UCPB
became an assignee of UCPB's outstanding receivables of its condominium buyers. The Court
perceives no proviso or any extraneous factor that incites a contrary interpretation. Even the
simultaneous and subsequent acts of the parties accentuate their intention to treat their
agreements as assignment of credit.

The absence of Liam's consent to the transactions between PPGI and UCPB affirms their nature
as assignment of credit. As already mentioned, the consent of the debtor is not essential in
assignment of credit. What the law requires is merely notice to him.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated September 24,
2010 of the Court of Appeals in CA-G.R. SP No. 112195 is hereby AFFIRMED.
LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC Jose, JM
G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale

of steel scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s
Enterprises, is a building contractor.

In February 1990, petitioner ordered scaffolding equipments from the respondent

amounting to P540, 425.80. He paid a down payment of P150,000 and the balance was
to be paid in 10 monthly installments However, Lo was only able to pay the first 2 monthly
installments due to financial difficulties despite demands from the respondent

In October 1990, petitioner and respondent executed a deed of assignment whereby

petitioner assigned to respondent his receivables of P335,462.14 from Jomero Realty
Corp. When respondent tried to collect the said credit from Jomero Realty Corp, the latter
refused to honor the deed of assignment because it claimed that the petitioner was also
indebted to it. As such, KJS sent Lo a demand letter but the latter refused to pay, claiming
that his obligation had been extinguished when they executed the deed of assignment.
Subsequently, respondent filed an action for recovery of sum of money against petitioner.

Petitioner argued that his obligation was extinguished with the execution of the deed of
assignment of credit. Respondent alleged that Jomero Realty Corp refused to honor the
deed of assignment because it claimed that the petitioner had outstanding indebtedness
to it

The trial court dismissed the complaint on the ground that the assignment of credit
extinguished the bligation

Upon appeal, CA reversed the trial court decision and held in favor of KJS. CA held that
a. Petitioner failed to comply with his warranty under the deed
b. The object of the deed did not exist at the time of the transaction, rendering it
void under Art 1409 NCC
c. Petitioner violated the terms of the deed of assignment when he failed to
execute and do all acts necessary to effectually enable the respondent to
recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation

HELD: No, the petitioner’s obligation was not extinguished with the execution of the deed
of assignment.

An assignment of credit is an agreement by virtue of which the owner of a credit, known

as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation,
and without the consent of the debtor, transfers his credit and accessory rights to another,
known as the assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.

Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. In order that there be a valid dation in payment, the following are the requisites: (1)
There must be the performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right or a credit against the
third person; (2) There must be some difference between the prestation due and that
which is given in substitution (aliud pro alio); (3) There must be an agreement between
the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due. The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying the thing or property
of the debtor, payment for which is to be charged against the debtor’s debt. As such, the
vendor in good faith shall be responsible, for the existence and legality of the credit at the
time of the sale but not for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property, produced the effects of a dation in payment which may extinguish the
obligation. However, as in any other contract of sale, the vendor or assignor is bound by
certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code
provides:

The vendor in good faith shall be responsible for the existence and legality of the credit
at the time of the sale, unless it should have been sold as doubtful; but not for the solvency
of the debtor, unless it has been so expressly stipulated or unless the insolvency was
prior to the sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner has been extinguished
by compensation. In other words, respondent alleged the non-existence of the credit and
asserted its claim to petitioner’s warranty under the assignment. Therefore, it necessary
for the petitioner to make good its warranty and pay the obligation.

Furthermore, the petitioner breached his obligation under the Deed of Assignment, to
execute and do all such further acts and deeds as shall be reasonably necessary to
effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has
in accordance with the true intent and meaning of these presents

Indeed, by warranting the existence of the credit, petitioner should be deemed to have
ensured the performance thereof in case the same is later found to be inexistent. He
should be held liable to pay to respondent the amount of his indebtedness.
CHUA TEE DEE vs. COURT OF APPEALS JAVIER, VJD.
G.R. No.135721 | 27 May 2004 | Callejo, Sr., J.

DOCTRINE: The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. It is
consensual, bilateral, onerous and commutative, the owner temporarily grants the use of his or her property
to another who undertakes to pay rent therefor.

Art. 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary
repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased.

FACTS:
J.C. Agricom Development Corporation, Inc. (Agricom), is the owner of a rubber plantation located at
Bayabas, Toril, Davao City, and it planned to lease the plantation. Chua Tee Dee, married to Amado Dee, is a
businesswoman doing business under the name and style of Pioneer Enterprises (Pioneer). Manuel G. Alba,
the president of Agricom, had a business meeting with Amado Dee where they discussed the possibility of
leasing the rubber plantation to Chua Tee Dee/Pioneer. Thereafter, a draft contract of lease was made and
delivered to Alba.

It was stated that Agricom and Dee entered into a 15-year lease contract over the rubber plantation
owned by the former. Among the stipulations in the contract was the payment of deposit in the amount of
P135,000.00 and payment of back rentals in case of non-payment of rentals for three months. The contract
also stipulated that Agricom had the duty to maintain Dee in the quiet, peaceful possession and enjoyment
of the leased premises. In 1985, Alba met with the employees of the rubber plantation and updated them on
the impending termination of their employment due to the company’s contract of lease with Chua Tee Dee.
The employees were told that they would be given separation pay. Amado Dee also delivered ₱270,000.00 to
the Spouses Manuel and Suzanne Alba in compliance with paragraph 5 of the lease contract. The
corresponding receipt was issued.

However, in 1986, a labor case for illegal dismissal and unfair labor practice was filed against
Agricom, Amado Dee and Pioneer. This case arose because some of the plantation laborers were dismissed
from work due to the contract of lease with Dee. The respondents were ordered to pay its employees’
separation pay and backwages, but the complaint for unfair labor practice was dismissed for lack of merit.
Dee also complained of being pestered by some individuals who claimed portions of the plantation as their
own property some even presented tax declarations to prove their claims. Pioneer claimed that the
foregoing circumstances prevented it from operating fully the agreed area stated in the lease contract.

Pioneer defaulted in its monthly payments, which caused stockholders of Agricom to send a
telegraphic note demanding payment. In its Answer, Dee asserted that Agricom committed breach of
contract for its failure to maintain her in peaceful possession and enjoyment of the leased premises. The
breach, in turn, entitled her to suspend payment of rentals. Defendant also claimed that she had paid
premiums for the appeal bond in the labor case, and that she deposited with the NLRC the total amount of
₱306,956.66 to avert execution pending appeal, which was supposed to be the sole responsibility of the
plaintiff. The defendant asserted that she was exposed to public contempt and ridicule which besmirched
her reputation; and that she suffered mental anguish and sleepless nights because of the violation of the
contract of lease. 

While the case was pending, Dee extended a personal loan of P30,000 to Lillian Carreido, one of
Agricom’s stockholders. When judgment was finally rendered, the complaint was dismissed and the lease
contract terminated, the court stating that it was Agricom’s duty as lessor to maintain the lessee in peaceful
possession and enjoyment of the leased premises. Upon motion for recommendation, the lower court
reversed its own ruling, ordering Dee to pay Agricom back rentals and rentals for the first three years of the
lease already paid for. The Court of Appeals affirmed the order. Hence this appeal.

ISSUE:
Whether or not the Court of Appeals committed grave abuse of discretion in upholding the validity of
the lease contract and holding Dee liable for back rentals, including rentals already paid for. — YES
HELD:
The petition is partly meritorious. The cause or essential purpose in a contract of lease is the use or
enjoyment of a thing. It is consensual, bilateral, onerous and commutative, the owner temporarily grants
the use of his or her property to another who undertakes to pay rent therefor. In the case at bar, petitioner
Chua Tee Dee is the lessee of the private respondent Agricom. As lessor, the Agricom had the duty to
maintain the petitioner in the peaceful and adequate enjoyment of the leased premises. Such duty was
made as part of the contract of lease entered into by the parties. Even if it had not been so, the lessor is
still duty-bound under Art. 1654 of the Civil Code, thus:

Art. 1654. The lessor is obliged:

(1) To deliver the thing which is the object of the contract in such a condition as to render it
fit for the use intended;
(2) To make on the same during the lease all the necessary repairs in order to keep it suitable
for the use to which it has been devoted, unless there is a stipulation to the contrary:
(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire
duration of the contract.

The duty “to maintain the lessee in the peaceful and adequate enjoyment of the lease for the
duration of the contract” mentioned in no. 3 of the article is merely a warranty that the lessee shall not be
disturbed in his legal, and not physical, possession. Nobody has in any manner disputed, objected to, or
placed any difficulties in the way of plaintiff's peaceful enjoyment, or his quiet and peaceable possession of
the floor he occupies. The lessors, therefore, have not failed to maintain him in the peaceful enjoyment of
the floor leased to him and he continues to enjoy this status without the slightest opposition on the part of
any one. That there was a disturbance of the peace or order in which he maintained his things in the leased
story does not mean he lost the peaceful enjoyment of the thing rented. Petitioner had not been disturbed
in her legal possession of the property.

Trial court and the Court of Appeals also agreed that the petitioner failed to prove that she suffered
any loss from the labor case that was filed against her enterprise and her husband. The trial court declared
that the petitioner “did not actually established the alleged losses especially in the labor case with the
NLRC where the complaints of the laborers appear to have been dismissed. . .” In sum, then, the petitioner
failed to prove that the private respondent breached any of the provisions of the contract of lease. Thus,
the petitioner had no valid reason to suspend the payment of rentals under Art. 1658. We agree with the
contention of the petitioner that her obligation to pay back rentals should cover only the period of July 1990
until the time that she vacated the leased premises. The Court of Appeals, thus, erred when it affirmed the
order of the trial court ordering the petitioner to pay back rentals, including the first three (3) years of the
lease, as that period had already been paid by the petitioner.

PETITION AFFIRMED WITH MODIFICATION. The petitioner is hereby ordered to pay to the private
respondent monthly rentals in the amount of ₱60,000 starting July 1990 up to June 30, 1991; and in the
amount of ₱75,000.00 per month from July 1991 until the petitioner actually left the leased premises. The
petitioner is also ordered to pay interest of two percent (2%) of the arrears, as penalty for the delay in the
payment of rentals.
 G.R. No. 178317, September 23, 2015

SPOUSES RICARDO AND ELENA C. GOLEZ, Petitioners, v. MELITON

NEMEÑO,1 Respondent

FACTS:

Spouses Golez entered into a contract of lease with respondent Meliton Nemeno who is
the owner of a portion of a Commercial lot on May 31, 1989. The property which was
located in Zamboanga Del Sur shall be occupied by the spouses golez and in lieu of the
payment of rent, the owner of the lot have to agreed to be paid by petitioner Spouses by
constructing a building on the said lot.

On May 23, 1992, the building subject of the lease contract was burned down.

Because of the destruction of the building, respondent, on May 29, 1992, sent a
letter7 to petitioners demanding the accumulated rentals for the leased property from
March 17, 1989 to June 17, 1992 totaling P78,000.00. As the demand was left
unheeded, respondent filed a complaint8 for collection of rentals plus damages before
the Molave RTC.

Respondent alleged that Ricardo is the proximate cause of the fire that razed the
building to the ground. He also claimed that without his knowledge, petitioners insured
the building with two insurance companies for face values of more than its cost.

Petitioners, for their part, admitted the execution of the contract of lease but dispute
their liability to pay respondent rentals. They contended that under the contract of lease,
the rental payment is amortized over the cost of the subject building, thus, respondent
had already become its co-owner who must suffer the loss of his property

ISSUE:

WHETHER PETITIONERS ARE LIABLE TO PAY FOR THE BACK RENTALS.

RULING:

YES. This Court finds no reason to depart from the ruling of the courts a quo that
petitioners should pay respondent for back rentals. There is no dispute that the contract
entered into by the parties is one of lease. True, it had some modifications such that
instead of paying the rent in the form of money, petitioners will withhold such payment
and will apply the accumulated rent to the cost of the building they built on the leased
property. Thereafter, at the end of the lease period or until such time the cost of the
building has been fully covered by the rent accumulated, petitioners, as lessees will
transfer the ownership of said building to respondent.

Unfortunately, the subject building was gutted down by fire. However, the destruction of
the building should not in any way be made a basis to exempt petitioners from paying
rent for the period they made use of the leased property. Otherwise, this will be a clear
case of unjust enrichment.

In the instant case, there is no dispute that petitioners used the property for several
years for their own benefit having operated a restaurant thereon. Therefore, it would be
the height of of injustice to deprive respondent of compensation due him on the use of
his property by petitioners. The fact that the parties agreed to a different mode of
payment - in this case, a building - does not in any way exempt petitioners from paying
compensation due to respondent for the use of the latter's property because the building
was destroyed.

While we sustain the award of back rentals in favor of respondent, we do not agree with
the amount imposed by the courts a quo. Petitioners should only be liable for rent during
the period within which they were in possession of the leased property, Respondent
himself testified that petitioner Ricardo stayed in the building on the leased premises
just before it was burned down.28 There was no evidence submitted to prove that
petitioners were in possession of the leased property after the fire. Therefore,
petitioners should be made to pay rent until that time only. To order petitioners to pay
for back rentals equivalent to the cost of the building is in the same way, unjust
enrichment this time on the part of respondent considering that the rent due for the
period petitioners occupied the leased premises is way below the cost of the building.
D.M. Ragasa Enterprises v. BDO GARCIA
G.R. No. 190512| 20 June, 2018 | Caguioa, J.

DOCTRINE:

Entitlement to rentals after the termination of the lease pursuant to an automatic rescission or termination clause is
possible in the case where the lessor invokes the clause and the lessee refuses to vacate the leased premises. The
lessee will be liable for damages equivalent to the rentals for the duration of its possession from the termination of
the lease until he vacates the premises. This was in effect the ruling of the Court in Manila Bay Club Corp.

That is, however, not the situation here. The bank did not continue to possess the Leased Premises after its automatic
termination, as it vacated the same on June 30, 2001.
FACTS:

Ragasa and then Equitable Banking Corporation (Equitable Bank) executed a Contract of Lease (Lease Contract),
as lessor and lessee, respectively, over the ground and second floors of a commercial building located at 175
Tomas Morato Avenue corner Scout Castor, Quezon City (subject premises), for a period of five years, commencing
on February 1, 1998 up to January 31, 2003, with a monthly rental of P122,607.00.

Pursuant to the Lease Contract, Equitable Bank paid the amounts of P367,821.00 representing three months advance
rentals, and P367,821.00 representing three months rentals as security deposit.
Meanwhile, Equitable Bank entered into a merger with Philippine Commercial International Bank (PCI Bank) thereby
forming Equitable PCI Bank, Inc. The latter would eventually, pending the present case, merge with Banco de Oro,
Inc. to form the respondent bank.
As a result of the merger, the bank closed and joined the branches of its constituent banks which were in close
proximity with each other as maintaining said branches would be impractical. One of the branches which had to be
closed is the branch located in the subject premises.
Thus, said bank sent a Notice of Pre Terminiation effective June 30, 2000. In response, Ragasa send a demand letter
for payment of the remaining monthly rentals for the term of the lease contract which is from July 1, 2001 to January
31, 2003 totaling 3,145,596.42. Note that there wasa no express provision in the lease contract allowing pre-
termination. The bank countered that its only liability for pre terminating the contract is the forfeiture of the security
deposit as per their Lease contract. On June 30, 2001, the bank vacated the premises without heeding Ragasas
demand payment. Ragasa sent two more demand letters but were both ignored.

Ragasa filed a complaint with the RTC for collection of sum of money amounting to 3,146,596,.42 for the period of
the lease contract and damages. Ragasa argued that under the Lease Contract, the forfeiture of the bank's security
deposit does not exempt it from payment of the rentals for the remaining term of the lease because the bank's act of
pre-terminating the contract was a major breach of its terms. Moreover, item 8(m) expressly provides that the
security deposit shall not be applied to the rentals.

the bank argued, in gist, that item 8(m) of the Lease Contract is actually a penalty clause which, in line with Article
1226 of the Civil Code, takes the place of damages and interests in case of breach. Hence, for breaching the Lease
Contract by pre-terminating the same, the bank is liable to forfeit its security deposit in favor of Ragasa but would
not be liable for rentals corresponding to the remaining life of the Contract. Moreover, the bank is not liable for the
penalty at the rate of 3% under item 8(n) of the Lease Contract because the bank paid the due rentals up to the time
it pre-terminated the same.

RTC ruled in favor of Ragasa saying that the bank may not pre-terminate the contract. CA reversed said ruling and
said that the bank's failure to continue the Lease Contract until its expiration constituted a breach of its provision. As
such, the Lease Contract was automatically terminated by virtue of item 8(p) thereof providing for its outright
termination in case of breach of any of its provisions. Hence, there is no legal basis to hold the bank liable for
payment of rentals for the unexpired period of the contract. However, the bank is liable to forfeit its security deposit
pursuant to the penalty clause under item 8(m) of the contract. The CA ruled that to allow Ragasa to collect the
value of the unexpired term of the lease plus penalty would constitute unjust enrichment.

ISSUE:

W/N Ragasa is entitled to the rental of the unexpired period of the Lease? - NO

HELD:

NO!

Entitlement to rentals after the termination of the lease pursuant to an automatic rescission or termination clause is
possible in the case where the lessor invokes the clause and the lessee refuses to vacate the leased premises. The
lessee will be liable for damages equivalent to the rentals for the duration of its possession from the termination of
the lease until he vacates the premises. This was in effect the ruling of the Court in Manila Bay Club Corp.

That is, however, not the situation here. The bank did not continue to possess the Leased Premises after its automatic
termination, as it vacated the same on June 30, 2001.
As explained above, the provision or clause that is applicable in case of non-compliance of the Term or period of the
Lease Contract is item 8(m) which mandates that the full deposit of P367,821.00 or the equivalent of three months
rentals shall be forfeited with the proviso that the deposit cannot be applied to rental. This proviso as to non-
application to rental of the deposit means that the forfeiture is without prejudice to the payment of any unpaid rental
at the time of the non-compliance or breach of the Term or period of the Lease Contract. Since the bank had no unpaid
rental as of June 30, 2001, the proviso finds no application in the present case.

Moreover the nature of item 8(m) of the Lease Contract: "The full deposit shall be forfeited in favor of the LESSOR
upon non-compliance of the Term of the Contract of Lease by the TENANT, and cannot be applied to Rental" is a
pentalty or penal clause

A penal clause is an accessory obligation which the parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the debtor a special prestation (generally consisting in the payment
of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled. Quite common in
lease contracts, this clause functions to strengthen the coercive force of the obligation and to provide, in effect, for
what would be the liquidated damages resulting from a breach.

A penal clause has a three-fold purpose: (1) a coercive purpose or one of guarantee — this is to urge the debtor to
the fulfillment of the main obligation under pain of paying the penalty; (2) to serve as liquidated damages — this is to
evaluate in advance the damages that may be occasioned by the non-compliance of the obligation; and (3) a strictly
penal purpose — this is to punish the debtor for non-fulfillment of the main obligation. While the first purpose is always
present, the second purpose is presumed and the third purpose must be expressly agreed upon.
Stated otherwise, the purposes of penalty or penal clause are: (1) funcion coercitiva o de guarantia or to insure the
performance of the obligation; (2) funcion liquidatoria or to liquidate the amount of damages to be awarded to the
injured party in case of breach of the principal obligation; and (3) funcion estrictamente penal or to punish the obligor
in case of breach of the principal obligation, in certain exceptional cases. The second is evidently compensatory and
the third is punitive in character, while the first is the general purpose regardless of whether the penalty is
compensatory or punitive.
Penal clause may be classified into: (1) according to source: (a) legal (when it is provided by law) and (b) conventional
(when it is provided for by stipulation of the parties); (2) according to demandability: (a) subsidiary (when only the
penalty may be enforced) and (b) complementary (when both the principal obligation and the penalty may be
enforced); and (3) according to purpose: (a) cumulative (when damages may be collected in addition to penalty) and
(b) reparatory (when the penalty substitutes indemnity for damages).
Item 8(m) of the Lease Contract is an accessory obligation or prestation to the principal obligation of lease. It specifies
the stipulated amount of liquidated damages — the full deposit — to be awarded to the injured party in case of breach
of the Term or period of the principal obligation. Hence, as to source, it is conventional.
As defined, liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach
thereof. The amount of the liquidated damages is purely contractual between the parties; and the courts will intervene
only to equitably reduce the liquidated damages, whether intended as an indemnity or a penalty, if they are iniquitous
or unconscionable, pursuant to Articles 2227 and 1229of the Civil Code.
Also, proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.
Item 8(m) seeks to insure or guarantee the completion of the lease period since its non-compliance shall be met with
a penalty.
It is also clear from paragraph 1 of Article 1226 that when an obligation or a contract contains a penal clause, the
penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance with or
breach of the principal obligation.

In conclusion, the Court rules that Ragasa is not entitled to the rental for the unexpired period of the Lease Contract,
and it is only entitled to the forfeiture of the full deposit pursuant to item 8(m) and P15,000.00 as attorney's fees
pursuant to item 10.
SPOUSES EUTIQUIANO CLUTARIO and ARACELI CLUTARIO, petitioners,
vs.
HON. COURT OF APPEALS, HON. GEORGE C. MACLI-ING, RTC Judge of Quezon City, Branch C (100), and
SPOUSES MELQUIADES GANDIA and MARIA V. GANDIA, respondents.

ROMERO, J.:

Private respondents, the Spouses Melquiades Gandia and Maria V. Gandia, are the owners of a two-
storey residential apartment located at No. 56 Liberty St., Murphy, Cubao, Quezon City. Since 1961,
while private respondents have been occupying the upper storey of the house, petitioners have been
staying on the ground floor by virtue of a verbal lease agreement for a monthly rental of P150.00.

On May 9, 1980, private respondents, through their counsel, wrote a letter to the petitioners giving
them ninety (90) days to vacate the premises. According to them, due to their advanced age and failing
health, they have decided to occupy the entire apartment, including the ground floor leased to
petitioners. Because petitioners did not heed the demand letter, private respondents brought the
matter to the Katarungan Pambarangay for settlement, but this did not meet with success. Another
demand letter was sent by private respondents to petitioners on January 20, 1981.

In the meantime, it appears that from August 1980, petitioners were in arrears in the payment of their
rentals. On March 4, 1981, private respondents filed a complaint for ejectment against petitioner Araceli
Clutario1 before the Metropolitan Trial Court (MTC) of Quezon City citing the following two grounds: (1)
their need for the premises; and (2) non-payment of rentals by petitioners from August 1980. Pending
the proceedings before the MTC, petitioners paid the back rentals from August 1980 until May 1981.

After trial, the MTC rendered judgment 2 on January 16, 1984 dismissing the complaint on the ground
that private respondents "failed to support their causes of action with substantial evidence."3

Private respondents then filed an appeal with the Regional Trial

Court (RTC) of Quezon City. On March 29, 1985, respondent Judge George C. Macli-ing rendered a well-
written decision reversing the MTC judgment. Respondent Judge ruled that petitioners' non-payment of
rentals for more than three months and private respondents' genuine need for the leased premises are
sufficient causes for petitioners' ejectment. The dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE,
and in lieu thereof, another one is rendered and entered in favor of the appellants and against the
appellees:

1. Ordering the defendants-appellees and all persons claiming rights under them to vacate the premises,
identified as the Ground Floor of No. 56 Liberty Avenue, Murphy, Cubao, Quezon City, and restore
possession thereof to plaintiffs-appellants.

2. Ordering defendants-appellees to pay rental arrearages from June, 1981, at the rate of P150.00 per
month, until such arrearages shall have been fully paid and the premises vacated and possession thereof
restored to plaintiffs-appellants.
3. Ordering defendants-appellees to pay P2,000.00 as and for attorney's fees; and to pay the costs.

SO ORDERED.4

It was then petitioners' turn to impugn this judgment by filing a petition for review before the Court of
Appeals. In a decision dated September 18, 1986,5 the respondent Court of Appeals affirmed the RTC
judgment but deleted the award of attorney's fees to private respondents. Petitioners elevated the case
before this Court, on a petition for review under Rule 45 of the Rules of Court, seeking the reversal of
the Court of Appeals' decision affirming the RTC ruling that they can be ejected by their lessors, the
private respondents.

The petition is without merit.

B.P. Blg. 25 (1979), which was the governing law at the time of the filing of the complaint and which the
parties had to rely on, provides, in section 5, six (6) grounds for ejectment.6 In seeking to oust
petitioners from the leased premises, private respondents invoke two of those six grounds, namely: (1)
arrears in payment of rent for three (3) months at any one time;7 and (2) need of the lessors to
repossess their property for their own use or for the use of any immediate member of their family as
residential unit. 8 Petitioners contend that private respondents cannot avail of either ground.

No longer disputed is the rule that non-payment of rentals is a sufficient ground for ejectment.9 Under
sec. 5 (b) of B.P. Blg. 25 (1979), the arrears in rent payment must be for at least three (3) months.
Petitioners started defaulting on their payments in August 1980. On May 15, 1981, they paid P1,500.00
for their rents for the period August 1980 to May 15 1981 at the rate of P150.00 per month. By then,
they had been in arrears for nine (9) months. However, petitioners contend that private respondents, by
accepting the payment of the back rentals, waived their non-payment of rentals for more than three (3)
months as a ground for ejectment.

The contention is without merit.

Case law is to the effect that the acceptance by the lessor of the payment by the lessee of the rentals in
arrears does not constitute a waiver of the default in the payment of rentals as a valid cause of action
for ejectment.10 The Court notes that when petitioners paid the back rentals on May 15, 1981, private
respondents had already filed the complaint for ejectment earlier, to be specific, on March 4, 1981. The
conduct of private respondents subsequent to their acceptance of the back rentals belies any intention
to waive their right to eject petitioners as a result of the latter's failure to pay the rent for more than
three (3) months. They did not enter into an amicable settlement with petitioners. Neither did they
notify the trial court of their intention to have the complaint dismissed. Instead, they participated
actively in the proceedings before the MTC during all the time that the case dragged on for almost three
years. 11 When the MTC decided adversely against them, private respondents appealed the judgment to
the RTC. Not only have they participated earnestly in all subsequent proceedings even after they
obtained favorable judgments from the RTC and the Court of Appeals, but they have likewise been
consistent in their position that petitioners should be ejected, not only because they need the leased
premises, but also because of petitioners' default in the payment of rentals for more than three (3)
months.
In light of the surrounding circumstances of the case, as well as the prevailing jurisprudence, the Court
rules that the acceptance by private respondents of the petitioners-lessees' back rentals did not
constitute a waiver or abandonment of their cause of action for ejectment against the latter.

Proof of any one of the factors enumerated in section 5 of B.P. Blg. 25 (1979) is sufficient cause for
judicial ejectment of a lessee. Having proved one of such grounds, i.e., arrears in payment of rent for
three (3) months at any one time, private respondents may legally eject petitioners without having to
prove the other grounds for ejectment. Nevertheless, to bolster their action for ejectment, private
respondents invoked in their complaint a second ground for ejectment, namely, their need for the
leased premises. 12

Petitioners are bound by the established jurisprudence that under B.P. Blg. 25 (1979), the need by the
lessor of the leased premises for his own use or that of his immediate family is a valid ground for
ejectment. 13 They, however, submit that this ground for ejectment is not available to private
respondents who own, apart from the disputed premises, three other apartment units located at Nos.
56-A, 56-B and 56-C Liberty St., Murphy, Cubao, Quezon City, at least one of which is allegedly available
for occupancy by private respondents.

Indeed, for the lessor to be able to validly eject the lessee on the ground of need for the leased
property, it must be shown that there is no other available residential unit to satisfy that need. 14 The
non-availability must exist at the time of the demand by the lessor on the lessee to vacate the property.
15 In the instant case, petitioners allege that the other apartment units of private respondents are
vacant and available to the latter for occupancy.16 Private respondents deny this allegation, claiming
that the other units were occupied when they gave notice to the petitioners to vacate the disputed
premises, and remain so occupied until now.17 None of the three courts which have already adjudicated
on the controversy gave credence to petitioners' allegation. The MTC which decided in petitioners' favor
did not make a finding that the other apartment units of private respondents were available for
occupancy by the latter. On the contrary, the respondent Court of Appeals ruled that "the other
apartments of private respondents were tenanted." 18 The Court finds no cogent reason to disturb this
finding.

The MTC, in deciding in favor of petitioners, ruled that private respondents did not need the disputed
premises which is the ground floor of the apartment unit leased to petitioners, because they were
already occupying the upper floor of the unit. The relevant portion of the MTC decision reads:

On this score, the evidence is clear that the plaintiffs, though owners of the residential house identified
as No. 56 Liberty Avenue, Murphy, Quezon City, occupying the upper floor thereof, are the only persons
living on this upper floor of the house. The only reason advanced by them for needing to repossess the
ground floor or lower part of the house occupied by the defendant, is because the plaintiffs are aging
and sickly, as according to the plaintiffs' letter (Exh. "B") to the defendant, plaintiffs "personally need
that lower portion of the house for personal use and occupancy since they are getting older and
aggravated by their poor health, they get easily tired in going up and downstairs." Obviously, plaintiffs'
need of the lower portion of the house is for convenience. It is the view of this Court that when the
framers of Batas Pambansa Blg. 25 included "need of the premises" as a ground for judicial eviction,
personal convenience is not intended, because the law states clearly that the repossession of the
property for the use of the owner/lessor (or immediate member) must concur with the other requisites,
one of which is that the owner / lessor does not own any other residential unit.
Plaintiffs' position therefore, on this ground, is not only weak but more so not in accord with the spirit,
intent and letter of Batas Pambansa Blg. 25. It may be true that plaintiffs are sickly and aging but their
physical condition is not a legal argument to effect eviction of the-defendant. 19

The need for the leased premises by the lessor as a valid ground for ejectment has already been given a
liberal interpretation in Caudal v. Court of Appeals, 20 where it was held that the conversion of the
leased property into a servants' quarters was a legitimate need within the purview of sec. 5 (c) of B.P.
Blg. 25 (1979). The Court, speaking through then Chief Justice Marcelo B. Fernan, made the following
statements:

Observe that the law does not strictly confine the meaning of the word "residence" mainly for
habitation purposes as restrictedly interpreted by petitioner. In a way, the definition admits a measure
of liberality, albeit limited, since a residence may also be the site of a home industry, or a retail store or
be used for business purposes so long as it is principally used for dwelling purposes. The law in giving
greater importance to the abode being used principally for dwelling purposes, has set the limitation on
the maximum amount of capitalization to P5,000.00, which is small by present standards.

Thus, if an abode can be used for limited business purposes, we see no reason why it cannot be used as
an abode for persons rendering services usually necessary or desirable for the maintenance and
enjoyment of a home and who personally minister to the personal comfort and convenience of the
members of the houses. 21

In the case at bar, it appears that the decision of private respondents to occupy both the lower and
upper portions of the property sprang not only from mere convenience, but from necessity as well, due
to their advanced age and the poor health of respondent Melquiades Gandia. While the upper portion
of the premises may have been sufficient to satisfy private respondents' residential needs in 1961 when
they leased the lower portion to petitioners, it no longer sufficed in 1980 or nineteen (19) years later,
when they served the notice to vacate, their personal circumstances having drastically changed.

WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED.
Yap vs. Cruz
G.R. No. 89307 May 8, 1992
MEDIALDEA, J.

Facts:
Dr. Vergel G. Cruz, private respondent was the bonafide tenant of Amado Q. Bugayon,
Jr. for almost five years, he religiously paid the monthly rentals of P1,400.00, introduced
several improvements and operated a veterinary clinic known as Malate Veterinary Clinic.
Sometime in July, 1985, he offered for sale the goodwill of the veterinary clinic and some
of its equipment to Dr. Wendelyn V. Yap, Evelia H. Badiagan, Teresita A. Baladad and
Florencia C. de Vera, the petitioners herein. During the period of negotiations, Cruz
introduced to the landlord Dr. Wendelyn V. Yap at the person interested in taking over the
clinic. However, the negotiations did not materialize because of the alleged increase in
the asking price for the goodwill from P12,000.00 to P15,000.00 and the alleged failure
of private respondent to secure the necessary permits and licenses from the government
authorities. The petitioners managed to enter into a contract of lease at a monthly rental
of P1,800.00 with the landlord. As a result, private respondent Cruz brought an action for
"Forcible Entry with Damages" against the petitioners and the landlord. The petitioner
contends that the lease between private respondent and the landlord was automatically
terminated because while the negotiations for the sale of the goodwill was still on-going,
the private respondent stopped paying the rentals for the leased premises which was
already on a month-to-month basis as the formal lease had long expired. They claim that
they were informed of the same and given the option by the landlord to either vacate the
premises or enter into a new lease agreement with him and to pay an increased rental of
P1,800.00 beginning the month of August, 1985. As such, their possession of the
premises has absolutely nothing to do with the proposed sale of the goodwill by private
respondent.

The MTC rendered its decision in favor of Cruz, the defendants are ordered to vacate the
premises in question and surrender peaceful possession of the premises to plaintiff. The
RTC of Manila, affirmed the decision of the MTC and the Court of Appeals affirmed the
decision of the RTC.

Issue:
Whether or not the petitioner Yap and landlord were clearly guilty of forcible entry in view
of the subsisting lease of private respondent.

Held:
Yes. The private respondent's action for forcible entry and damages recognizes such fact
because he predicates his cause of action on the deprivation of his possession by virtue
of the new lease contract executed by the petitioners with the landlord. When the
petitioners and the landlord executed a new contract of lease, the lease of private
respondent was still valid and subsisting. There is no question that private respondent
has not effectively relinquished his leasehold rights over the premises in question in view
of the failure of negotiations for the sale of the goodwill. Clearly, the transfer of the
leasehold rights is conditional in nature and has no force and effect if the condition is not
complied with.

True, the lease of private respondent is on a month-to-month basis and may be

terminated at the end of any month after proper notice or demand to vacate has been
given. In the case at bar, however, the lack of proper notice or demand to vacate upon
the private respondent is clearly evident. In the absence of such notice, the lease of
private respondent continues to be in force and cannot be deemed to have expired as of
the end of the month automatically. Neither can the non-payment of the rent for the month
of August, 1985 be a ground for termination of the lease without a demand to pay and to
vacate. The instant case can easily be differentiated from the case of Vda. de Kraut v.
Lontok, which was cited by petitioners in support of their contention that a lease on a
month-to-month basis may be terminated at the end of any month and shall be deemed
terminated upon the lessee's refusal to pay the increased rental because here there was
neither demand on the part of the landlord to pay the rental nor refusal on the part of the
private respondent to pay the same as in fact he made a tender of his rental payment in
the latter part of August, 1985. Thus, when the landlord and the petitioners entered into
a new contract of lease effectively depriving the private respondent of his lease, they were
clearly guilty of forcible entry in view of the subsisting lease of private respondent.

Decision of the Court of Appeals is AFFIRMED.

 Tagbilaran Integrated Sellers Association v. Court of Appeals
G.R. No. 148562, November 25, 2004, 444 SCRA 193

Doctrine: If at the end of the contract the lessee should continue enjoying the thing leased
for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary
by either party has previously been given, it is understood that there is an implied new
lease, not for the period of the original contract, but for the time established in Articles
1682 and 1687. A month-to-month lease under Article 1687 is a lease with a definite
period, hence, it is terminable at the end of each month upon demand to vacate by the
lessor.

FACTS:

Petitioner Tagbilaran Integrated Settlers Association (TISA), is an organization

founded in 1991 by individuals who have residential and business establishments in a
commercial lot located at Torralba and Parras Streets in Tagbilaran City. The lot, which
has an area of 2,726 square meters, is covered by TCT No. (142) 21047 in the name of
respondent Tagbilaran Women’s Club (TWC). The latter entered into separate written
lease contracts for a period of one year with individual petitioners herein, and the other
petitioners as sublessees of stalls in the lot.

In a letter to petitioners, TWC demanded that they vacate the rented premises on
the following grounds: expiration of lease contracts, non-payment of rentals, and
violations of the conditions of lease including noncompliance with sanitary and building
ordinances. Another letter of demand was sent to petitioners who refused to vacate the
premises, however. Later, TWC entered into a lease contract on the lot with one Lambert
Lim who at once paid a total of P240,000.00 representing payment of rentals for the first
twelve (12) months. Petitioners nevertheless refused to vacate the lot, they contending
that the contract of lease between TWC and Lambert Lim is null and void because TWC
impliedly extended to them new contracts of lease when it continued collecting monthly
rentals from them.

Petitioners soon filed on March 31, 1993 a petition against TWC and Lim for
prohibition, annulment of contract of lease, and damages with prayer for the issuance of
a writ of preliminary prohibitory injunction before the RTC of Tagbilaran City, Bohol. Trial
court dismissed petitioners' petition and they appealed before the Court of Appeals which,
by decision of February 28, 2001, affirmed that of the trial court. Petitioner's motion for
reconsideration of the appellate court's decision having been denied by Resolution of
June 11, 2001, they lodged the present petition which raises the same issues raised
before the trial court and the appellate court, to wit: (1) granting that the contracts of lease
between TWC and petitioners have expired, whether implied new lease contracts existed
which justify petitioners' continued occupation of the lot; (2) whether TWC violated its
obligation under Article 1654 (c) of the Civil Code when it entered into a lease contract
with Lim on February 25, 1993.

ISSUES:
1. Whether implied new lease contracts existed which justify petitioners’ continued
occupation of the lot; and
2. Whether TWC violated its obligation under Article 1654 (c) of the Civil Code when it
entered into a lease contract with Lim

RULING:

While no subsequent lease contracts extending the duration of the original lease
were forged, it appears that TWC allowed petitioners to continue occupying the lot as in
fact it continued to demand, collect and accept monthly rentals. An implied new lease
(tacita reconduccion) was thus created pursuant to Article 1670 of the New Civil Code
which provides:

If at the end of the contract the lessee should continue enjoying the thing leased
for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary
by either party has previously been given, it is understood that there is an implied new
lease, not for the period of the original contract, but for the time established in Articles
1682 and 1687. The other terms of the original contract shall be revived. Since the period
for the tacita reconduccion was not fixed and the rentals were paid on a monthly basis,
the contract was from month-to-month. A month-to-month lease under Article 1687 is a
lease with a definite period, hence, it is terminable at the end of each month upon demand
to vacate by the lessor.

When notice to vacate dated January 6, 1990 was sent by TWC to petitioners,
followed by another dated July 16, 1990, the tacita reconduccion was aborted. For a
notice to vacate constitutes an express act on the part of the lessor that it no longer
consents to the continued occupation by the lessees of its property. The notice required
[under Article 1670] is the one given after the expiration of the lease period for the purpose
of aborting an implied renewal of the lease.

As thus correctly found by the Court of Appeals: “[t]he implied lease of appellants
expired upon demand made by the appellee TWC on January 1990. From then on
appellee TWC had the right to terminate the lease at the end of the term of the impliedly
renewed contracts whose expiration dates w[ere] at the end of the month of January 1990.
Although appellants continued to pay rent[al]s after said date, it is clear that they no longer
have the right to continue in the possession of the subject lot because their continued
stay therein was without the consent of appellee TWC.”

As for petitioners’ contention that TWC violated Article 1654 (c) of the Civil Code
when it entered into a lease contract with Lim on February 25, 1993 without their previous
consent, the same does not lie. For after TWC notified petitioners, by letter of January 6,
1990, to vacate the occupied premises, the implied new lease had been aborted and they,
therefore, had no right to continue occupying the lot. Their continued occupation of the
premises had thus become unlawful. While TWC as a lessor is obliged to, under Article
1654 of the Civil Code, maintain the lessee in the peaceful and adequate enjoyment of
the lease, the obligation persist only for the duration of the contract.
SPS MODOMO VS SPS LAYUG
G.R. No.197722 | August 14, 2019 | CAGUIOA, J.

DOCTRINE: It is not in every case of novation that the old obligation is necessarily
extinguished. Our Civil Code now admits of the so-called imperfect or modificatory
novation where the original obligation is not extinguished but modified or changed
in some of the principal conditions of the obligation. Thus, article 1291 provides
that obligations may be modified

FACTS: Sps. Layug filed a complaint for ejectment before the MeTC Makati. They
alleged among others that they are the legal possessors of the land located at
Makati City. This property was leased to Sps. Modomo for a period of 7 years.
Pursuant to a Contract of Lease dated Feb. 11, 2005 they agreed to pay 170,000 as
monthly rentals subject to an escalation of 10% for the second and third year, 15%
on the fourth and fifth year, and 20% on the sixth and seventh year. It was also
agreed that the real estate taxes shall be paid by Sps. Modomo. Subsequently, Sps.
Modomo defaulted in the payment of the escalation of rental fees commencing
from 2006 up to the filing of the complaint for ejectment in 2008. Sps. Modomo
also failed to pay their rentals for 2008 and the real estate taxes. This prompted
Sps. Layug to institute the present suit claiming that Sps. Layug should vacate the
premises.

On the contrary, Sps Modomo argued that because Jocelyn Modomo had
introduced improvements to the property Sps. Layug agreed to reduce the monthly
rentals to 150,000 and the non-imposition of the escalation clause and the real
estate tax provision. Therefore, Sps. Modomo prayed that the case be dismissed
because the contract of lease had been amended by ORAL AGREEMENTS between
the parties. They also alleged that Sps. Layug are in estoppel in pais, due to their
unconditional acceptance of the reduced monthly rental.

The MeTC issued a decision in favor of Sps. Layug and this was affirmed by the RTC.
The RTC harped on the Parole Evidence Rule and held that if the intention of the
parties was to cancel the original contract of lease, they should have executed a
new contract. The CA held that Sps. Modomo failed to establish the concurrence of
the requisites necessary to extinguish or modify the contract of lease by way of
novation.

ISSUE:
1. Whether the provision of the Contract of Lease have been partially novated
by the parties’ alleged subsequent verbal agreement. – YES, with regard to
the lowering of rental fees
 2. Whether the principle of estoppel in pais applies so as to preclude Sps. Layug
from denying the partial novation of the Contract of Lease - NO

HELD:
1. While the Civil Code permits the subsequent modification of existing
obligations, these obligations cannot be deemed modified in the absence of
clear evidence to this effect. Novation is never presumed, and the animus
novandi, whether total or partial, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken.
The Court finds that the novation only applies to the lowering of the monthly
rental fee from 170,000 to 150,000. The records in the court shows that
there is sufficient evidence which shows the modification of monthly rental
through the verbal agreement of the parties. The Statement of Accounts
show that Sps. Layug computed the unpaid balance on the basis of the
lowered rental fee. In addition, Sps. Layug's Letter43 dated March 24, 2008
also reflects a computation of Sps. Modomo's unpaid balance on the basis of
the lowered monthly rental fee.

With regard to the escalation clause and the payment of real estate tax, the
record shows no sufficient evidence to warrant the non-imposition of the
said provision. The first Addendum which was executed to show the detailed
schedule of payment and the second addendum which reflects the
modifications in relation to taxes assessments reinforce the intention of the
parties to impose an annual escalation and the payment of real estate taxes.

2. Estoppel does not apply. Estoppel in pais arises when one, by his acts,
representations or admissions, or by his own silence when he ought to speak
out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief,
so that he will be prejudiced if the former is permitted to deny the existence
of such facts. For the principle of estoppel in pais to apply, there must be: (i)
conduct amounting to false representation or concealment of material facts
or at least calculated to convey the impression that the facts, are otherwise
than, and inconsistent with, those which the party subsequently attempts to
assert; (ii) intent, or at least expectation that this conduct shall be acted
upon, or at least influenced by the other party; and (iii) knowledge, actual or
constructive, of the actual facts. Based on the records, Spouses Layug served
upon Spouses Modomo several letters expressing their objection to the
latter's deficient payments.
Booklight Inc. v. Rudy O. Tiu CHAN, M

G.R. No. 213650, June 17, 2019

*WARNING: This is an advance decision (according to ESCRA). Ruling revolved

in the procedural issues. The Held section is based purely on my interpretation
on where our topic should be inserted. Read with caution or Read the short full-
text if you prefer.
https://www.chanrobles.com/cralaw/2019junedecisions.php?id=427

FACTS:

On February 13, 2003, respondent Tiu filed a case for Collection of Sum of Money,
Damages, Attorney's Fees, Litigation Expenses and Attachment against Booklight, Inc.
before the RTC of Butuan City alleging that petitioner entered into a 5-year contract of
lease with respondent for a space in respondent's building to be used for petitioner's
bookstore business.

The lease contract expired September 1, 2001 and was never renewed petitioner
Booklight however continued occupying the premises until its business operations
ceased on February 28, 2003.

Petitioners alleged that there was (1) no prior demand made by respondent, and (2) it
fully paid its rentals up to July 2002.

RTC ruled in favor of respondent. Ordered petitioner to pay PHP 465,587.50 as unpaid
rentals from August 2002 up to February 2003 with 6% legal interest. Plus attorneys
fees, litigation expenses, unpaid utilities expenses, and security services among others.

CA affirmed with modification. Deleted the legal interest, security service cost, the
attorney’s fees and litigation expenses.

Petitioner now argues its claim for refund of the advanced rental and deposit it allegedly
paid to respondent amounting to a total of One Hundred Nine Thousand Four Hundred
Forty Pesos (P109,440.00). Along with the deletion of its utility bills for the same reason
CA deleted of the unpaid security fees.

In summary, petitioner prays for the deduction of the advanced rental and deposit
amounting to P109,440.00 and the electric bills amounting to P18,712.98.

ISSUE: Whether the petitioner’s continued occupation beyond the expiration of the
contract of lease constitutes as extension.

HELD: The SC ruled that the records are bereft of any evidence to support petitioner's
claim that it paid advanced rental and deposit and that the same have not yet been
refunded or utilized. The same applies for the utility bill. But these are questions of fact
that should not be covered under Rule 45 of the RoC.

However assuming the said facts were presented in the RTC and the ruling is based on
the said contentions, we apply Art. 1669 and 1670 of the NCC:

Yes, the 5-year contract expired September 1, 2001 however the petitioners occupied
the building until February 28, 2003; there exists a definite period as to when the lease
terminates. Art. 1669 provides that it is no longer necessary to demand or send a notice
to vacate and return possession and the continuous occupation of the leased premises
constitutes as an implied renewal of the lease. The same way that a continued
possession of the lessee is evidence of his exercise of the option to extend the lease
and there is no necessity to notify the lessor of the extension in the absence of any
stipulation.

Art. 1670 then provides that an implied new lease arises if at the end of the contract, the
lessee should continue enjoying the thing leased for 15 DAYS with the acquiescence of
the lessor — unless of course a notice to the contrary had previously been given by
EITHER PARTY. The exception of the aforementioned provision is when (1) before or
after the expiration of the term, there is a notice to vacate given by either party, (2) there
is no definite period fixed in the original lease contract.

As an effect of the implied new lease in the length of stay, the lease shall not be based
on the original contract but may be interpreted as a month-to-month, or week-to-week
arrangement depending on the rent agreed upon. The court may fix a term for the lease
after the lessee has occupied the premises for over one year (Art. 1682).

Although the case did not answer the issue on whether there was an advanced rental
and payment (due to it being a question of fact) it may be inferred under 1669 and 1670
that there existed such. Human experience dictates then that upon an implied renewal
of lease, the lessee shall continually be liable for all the expenses incurred for the
duration of one’s stay in the property. It is noteworthy that only those germane to the
lessee’s right of continued enjoyment of the property leased (amount of rental, date
when it shall be paid, care of the property, and responsibility of repairs) are revived in
an implied renewal.
Muller vs PNB CANERO, JC
G.R. No. 215922 | 01 October 2018 | Del Castillo, J.

DOCTRINE:
Under Article 1670 of the Civil Code, "[i]f at the end of the contract the lessee should continue enjoying the thing
leased for Fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously
been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time
established in Articles 1682 and 1687. The other terms of the original contract shall be revived."

FACTS:
- SPS Muller are the occupants of two parcels of land with improvements at Iloilo City owned by PNB. On May
26, 1987, PNB informed the Mullers that their lease will expire on June 1, 1987; that they had rental arrears for
two and a half years amounting to P18,000.
- Seeking to renew the lease contract for another year, Muller wrote to PNB proposing to buy the subject
properties which was not given due course by the Head Office as well as the request for renewal of lease was
denied.
- On March 17, 1988, PNB demanded for the Mullers to vacate the subject properties within 15days from the
said date, in view of the expiration of the lease which said demand, however, fell on deaf ears. Due to continued
occupation of the Mullers, PNB sent its final demand letter dated June 17, 2006, demanding from them the
payment of rental arrears from June 1984 up to June 1, 2006. As the Mullers still failed to pay due attention to
the written demands, PNB instituted a Complaint for Ejectment.
- MTC: Rendered judgment in favor of PNB, ordering, among others, to pay the PNB (a) P18,000 as rent from
June 1984 to June 1987 (the back rentals); (b) P2,000/month from June 1, 1987 to June 1, 1997 (10 years from
the expiration of the lease); and (c) P2,500 a month from June 1, 1997 to August 1, 2007.
- RTC: Rendered in favor of Mullers. Did not sustain the P2,500 rental. Ruling that While PNB may be entitled to
a reasonable compensation from the period the Mullers have been in possession of the property prior to
receipt of the June 17, 2006 demand letter, the same cannot be awarded in an unlawful detainer suit. In
unlawful detainer actions, only rental reckoned from date of receipt of last demand may be awarded. That in
the award of rental prior to receipt of last demand letter in 2006, the x x x principles of prescription should
be considered. Notably, the possession from 1984 to 1987 was based on a written lease agreement. Being
an obligation based on a written contract, the action to pay rent prescribes in 10 years pursuant to Article
1144 of the Civil Code. For the possession from 1987 onwards, no rent can be awarded as this has also
prescribed pursuant to Article 1145, six years after every month of possession. The possession of [the
Mullers] after 1987 is based on an oral contract, hence, any action arising therefrom prescribes within six
years.
- CA: Reversed the RTC Ruling. Ruled that reasonable compensation for the use and occupancy of the subject
properties should be reckoned from receipt of initial demand and not receipt of last demand and prescription
does not apply.

ISSUE:

Whether respondent PNB is entitled to rentals in arrears prior to July 17, 2006 – YES
Whether its claims therefor have prescribed. – NO
HELD:
Under Article 1670 of the Civil Code, "[i]f at the end of the contract the lessee should continue enjoying the thing
leased for Fiffteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has
previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but
for the time established in Articles 1682 and 1687. The other terms of the original contract shall be revived." Thus, when
petitioners' written lease agreement with respondent expired on June 1, 1987 and they did not vacate the subject
properties, the terms of the written lease, other than that covering the period thereof, were revived. The lease thus
continued.

In this sense, the prescriptive periods cited by petitioners — as provided for in Articles 1144 and 1145 of the Civil
Code 24 — are inapplicable. As far as the parties are concerned, the lease between them subsisted and prescription did not
even begin to set in.

Even then, it can be said that so long as petitioners continued to occupy the subject properties — with or without
PNB's consent — there was a lease agreement between them. They cannot escape the payment of rent, by any manner
whatsoever. Petitioners cannot be allowed to enjoy PNB's properties without paying compensation therefor; this would be
contrary to fundamental rules of fair play, equity, and law.

Even when the parties' lease agreement ended and petitioners failed or refused to vacate the premises, it may be
said that a forced lease was thus created where petitioners were still obligated to pay rent to respondent as reasonable
compensation for the use and occupation of the subject properties. Indeed, even when there is no lease agreement
between the parties, or even when the parties — occupant and property owner — are strangers as against each other, still
the occupant is liable to pay rent to the property owner by virtue of the forced lease that is created by the former's use and
occupation of the latter's property.

The CA is thus correct in ruling that petitioners "should be made liable for damages in the form of rent or reasonable
compensation for the occupation of the properties not only from the time of the last demand but starting from the time
they have been occupying the subject properties without paying for its rent."

PETITION DENIED.
YEK SENG CO., Petitioners, v. CA, DEWEY and DAVID VELOSO YAP, Respondents. BALAURO, J.
G.R. No. 87415 | 23 JANUARY 1992| CRUZ, J.

DOCTRINE: In the case of Prieto v. Laperal, it was held that "an extension of the lease may be sought by the tenant
before, not after the termination of the lease.". In the case at bar, the rental was paid monthly and the term had not
been expressly agreed upon, the lease was understood under Article 1687 to be terminable from month to month. At
the time the petitioner was asked to vacate the leased premises, the lease contract had already expired and therefore,
could no longer be extended.

FACTS:

A verbal contract of lease was entered over a portion of a building belonging to private respondents Yap as lessor and
occupied by petitioner Yek Seng Co as lessee. The leased premises have been used by the petitioner for its general
merchandise business for more than twenty years. The agreed monthly rental was P3,000.00.

On December 12, 1985, the lessors notified the petitioner that they were terminating the lease as they intended to
renovate the building and thereafter use it themselves. The petitioner refused to vacate. The private respondents then
filed a complaint for ejectment against the petitioner in the MTC. For its part, the petitioner filed a petition for
consignation of the monthly rentals which it claimed had been refused by the lessors. The petition for consignation,
however, was hereby denied for lack of merit.

The decision was affirmed by the Regional Trial Court of Manila, which was in turn sustained by the Court of Appeals.
Hence, this petition. The petitioner contends that their extension of lease should have been granted in accordance with
Article 1687 of the Civil Code.

ISSUE: Whether petitioner is entitled to extension of lease under Article 1687 of the Civil Code.

HELD: NO.

Under Article 1687 of the Civil Code, If the period for the lease has not been fixed, it is understood to be from year to year,
if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly, and
from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease
has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over
six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over
one month.

In extending the lease contract it was considered important in the case of Divino v. Marcos that: 1) the plaintiff had been
occupying the leased premises for more than twenty years; 2) he was assured by the defendants that he could remain in
the house as long as he continued paying the rentals; and 3) he made improvements on the house costing P20,000.00
with the consent of the defendants.

The petitioner in the case at bar has not pointed to similar circumstances other than the claim that it has been occupying
the subject premises for more than twenty years. On this point, the RTC correctly held that on the second issue, the Court
noted that the parties did not submit any evidence on the basis of the stipulation of the facts earlier narrated. Thus, there
is nothing in the record which would show any fact or circumstance which justifies the extension of the lease. The mere
occupancy of the premises for a number of years, by itself is not sufficient. The circumstance that the petitioner has paid
its rentals religiously during the past twenty years is also not sufficient to justify the extension it demands. Neither are the
substantial improvements it allegedly made on the leased premises nor the difficulty of finding another place of business,
on which it has not submitted any evidence at all.
The court hold that as the rental in the case at bar was paid monthly and the term had not been expressly agreed upon,
the lease was understood under Article 1687 to be terminable from month to month. At the time the petitioner was asked
to vacate the leased premises, the lease contract had already expired and therefore, could no longer be extended.

If the contract of lease had not yet expired, its extension would still be subject to the sound discretion of the court and
was by no means obligatory upon it as a merely ministerial duty. To quote again from the decision of the RTC: As correctly
cited by the plaintiffs, "The power of the Courts to fix a longer term for lease is protestative or discretionary, 'may' is the
word — to be exercised or not in accordance with the particular circumstances of the case; a longer term to be granted
where equities come into play demanding extension, to be denied where none appears, always with due deference to the
parties freedom to contract." Moreover, the lease had already expired when the extension was sought. In the case of
Prieto v. Laperal, it was held that "an extension of the lease may be sought by the tenant before, not after the termination
of the lease." At any rate, whatever extension the defendant may be entitled to has already been dissipated by the length
of time — 2 years — that this case has been pending.

Petition DENIED.
UNITED REALTY CORPORATION vs. HON. COURT OF APPEALS and
REVEREND FATHER JOSE TORRALBA SY
G.R. No. L-62603 March 27, 1990
GANCAYCO, J.

Doctrine:
Since the lease agreement in question is for a definite period it follows that
petitioner has a right to judicially eject private respondent from the premises.

FACTS:
Presidential Decree No. 20 provides a protective mantle which covers only
dwelling units. Presidential Decree No. 20 dated October 12, 1972, freezes rates
of rentals of dwelling unit at their present levels when the same do not exceed
P300.00 per month.

Petitioner and private respondent Rev. Father Jose Torralba Sy, entered into
separate contracts of lease over two apartments located at 913-E and 193-F
Josefina Street, Sampaloc, Manila. with the common provision covering its
duration as follows:

To hold the same for one month from the (15th day of March, 1964
for Apt. No. 913-E and lst day of January, 1964 for Apt. No. 913- F)
and so on from month to month at a rent of TWO HUNDRED
PESOS (P200.00), Philippine Currency, per month, payable in
advance on the first TEN (10) days of each calendar month, until
the. 1 lease shall terminate, which termination shall be
determined by either party giving FIVE (5) days notice in
writing.

On 1975, petitioner sent a letter to private respondent that the new rental for the
two apartments will be P500.00 per door or P1,000.00 for the two doors. Private
respondent complained to the Department of Public Information arguing that the
increase is in violation of PD 20.

Petitioner filed a a complaint for unlawful detainer.

ISSUE:
WON petitioner has a right to judicially eject private respondent

RULING:
Yes, petitioner has a right to judicially eject the private respondent. A reading of
the two contracts of lease entered into between petitioner and private respondent
hereinabove reproduced show that its period is from month to month and that the
lease may be terminated when either party gives a 5 days notice in writing.

No doubt such a stipulation between the parties demonstrates that the

agreement of lease is for a definite period and not for an indefinite period as held
by the appellate court.

Since the lease agreement in question is for a definite period it follows that
petitioner has a right to judicially eject private respondent from the premises as
an exception to the general rule provided for in Section 4 of P.D. No. 20 which
provides as follows:

Except when the lease is for a definite period, the provisions of

paragraph (1) of Article 1673 of the Civil Code of the Philippines
insofar as they refer to dwelling unit or land on which another's
dwelling is located shall be suspended until otherwise
provided; but other provisions of the Civil Code and the Rules
of Court of the Philippines on lease contracts insofar as they
are not in conflict with the provisions of this Act, shall apply.

Moreover, under Section of 5(f) of B.P. Blg. 25 one of the grounds for ejectment
is the expiration of the period of a written lease contract. In this case, because of
the failure of the private respondent to pay the increased rental demanded by
petitioner, petitioner elected to terminate the contract and asked the private
respondent to vacate the premises. A lease contract may be terminated at the
end of any month, which shall be deemed terminated upon the refusal to pay the
increased monthly rental demanded by the petitioner, provided the same is not
exhorbitant.

Further, there is no question in this case that the two apartments subject of
litigation if not a greater portion thereof is not used by private respondent as his
residence but for a Buddhist Temple. Thus, it is with more reason that this
lease agreement does not fall within the protective mantle of the provision
of P.D. No. 20 and B.P. No. 25 which covers only dwelling units.

Lastly, considering that during the pendency of this appeal, the private
respondent died on August 23, 1987, thus the said lease agreements were
effectively terminated by the death of private respondent who is the lessee of the
premises in question.
 LEGAR MANAGEMENT & REALTY CORPORATION vs. COURT OF APPEALS
G.R. No. 117423. January 24, 1996
PUNO, J.:

DOCTRINE:
• Thus, we have held that lease agreements with no specified period, but in which rentals
are paid monthly, are considered to be on a month-to-month basis . They are for a definite
period and expire after the last day of any given thirtyday period, upon proper demand
and notice by the lessor to vacate.

FACTS: Spouses Augusto and Celia Legasto owned an apartment building located along E.
Rodriguez, Sr. Boulevard in Quezon City. They entered into a written contract of lease with no
definite period with private respondents Pascual and Ancheta, covering unit 318-T of the building.
Sometime in 1987, the Legasto spouses and their children organized petitioner Legar
Management & Realty Corporation, and transferred and assigned thereto all their rights, interests,
and privileges over certain properties, including the subject apartment building. Thereafter,
petitioner allowed private respondents to continue occupying their apartment unit by virtue of a
verbal contract of lease which was renewable on a month-tomonth basis. On April 21, 1992,
petitioner wrote private respondent Pascual a formal notice of termination, requesting him to
vacate unit 318-T by the end of May, 1992. A similar formal notice was sent to private respondent
Ancheta on June 4, 1992, demanding vacation of the same unit by the end of June, 1992. Both
refused to heed petitioner's demand and did not vacate the subject premises.

Petitioner instituted an ejectment case against private respondents with the Metropolitan Trial
Court of Quezon City. At the end of trial, the MTC found for petitioner and held that the verbal
lease contract between the parties, being on a month-to-month basis, is for a definite period, and
may be terminated at the end of any month. On appeal, the Regional Trial Court of Quezon City,
Branch 92, reversed the MTC Decision, holding that "the mere expiration of the month-to-month
lease period in accordance with Article 1687 of the New Civil Code does not automatically give
rise to an ejectment in cases governed by the Rent Control Law, in view of Section 6 of Batas
Pambansa Blg. 877, as amended. There is need for existence of other grounds enumerated under
Section 5 of B.P. Blg. 877, as amended, in order to eject a lessee." The RTC Decision was upheld
by the Court of Appeals. Petitioner now impugns the Decision of the Court of Appeals as against
existing law and jurisprudence.

ISSUE: Whether the lessee of a residential property covered by the Rent Control Law can be
ejected on the basis alone of the expiration of the verbal lease contract under which rentals are
paid monthly?

HELD: YES. Thus, we have held that lease agreements with no specified period, but in which
rentals are paid monthly, are considered to be on a month-to-month basis . They are for a definite
period and expire after the last day of any given thirtyday period, upon proper demand and notice
by the lessor to vacate. "In the case at bench, it was found by all three lower courts that the lease
over the subject property was on a month-to-month basis, and that there was proper notice of
non-renewal of contract and demand for vacation of premises made by petitioners on private
respondent. Unquestionably, therefore, the verbal lease agreement entered into by private
respondent and petitioners' father and predecessor-in-interest has been validly terminated, in
which case there is sufficient cause for ejectment under Section 5(f) of Batas Pambansa Blg. 877.
"In the case at bench, it was found by all three lower courts that the lease over the subject property
was on a month-to-month basis, and that there was proper notice of non-renewal of contract and
demand for vacation of premises made by petitioners on private respondent. Unquestionably,
therefore, the verbal lease agreement entered into by private respondent and petitioners' father
and predecessor-in-interest has been validly terminated, in which case there is sufficient cause
for ejectment under Section 5(f) of Batas Pambansa Blg. 877.

This is in line with Our holding in the case of Palanca v. Intermediate Appellate Court, 180 SCRA
119 (1989), that:
'In the recently decided case of Uy Hoo and Sons Realty Development Corporation v.
Court of Appeals and Thomas Kuan this Court ruled that a month-to-month lease under
Article 1687 is a lease with a definite period, the expiration of which upon previous demand
by the lessor to vacate, can justify ejectment.