Jurisprudence on Foreclosure Sale

Foreclosure Sale; Effect of failure to send personal notice to the mortgagor, Credit; Loan Interests, Penalty Rates

Carlos Lim, Consolacion Lim, Edmundo Lim, Carlito Lim, Shirley Leodadia Dizon, and Arleen Lim Fernandez, Petitioners, vs. Development Bank of the Philippines, Respondent

G.R. No. 177050; July 01, 2013

Facts:  The petitioners obtained two loans from DBP to finance a cattle-raising business and executed therein a promissory note undertaking to pay the annual amortizations. To secure the loans, the petitioners executed a mortgage in favour of DBP over real properties. However, due to conflict between the government troops and the Muslim rebels in Mindanao, they were forced to abandon their cattle ranch which led to collapse of the business and failure to pay amortizations. Such financial demise of the business led to foreclosure and eventual auction of a part the mortgaged properties. But such auction of properties did not prove sufficient to cover the entire amount loaned as well as the penalties and interests thereof. The bank offered restructuring schemes to the petitioners, which were later on, cancelled by the bank due to failure to comply on the part of the petitioners. Demand letters were sent by the bank, and still, no definite response from petitioners was received, until such time that the remaining properties were auctioned, with DBP also as the highest bidder.

Issue: 

1.   Whether the foreclosure sale made by DBP was valid.
2.  Whether the penalty rates imposed was valid.

Ruling:           

1

1.     The foreclosure sale was not valid due to the bank’s failure to send a notice of foreclosure to petitioners. Such failure of DBP to comply with their actual agreement with petitioner, such as to send a notice, is a breach sufficient to invalidate the foreclosure sale. In this case, the parties stipulated in their contract of mortgage that “all correspondence relative to the mortgage including demand letters, summons or subpoenas or notification of any extra-judicial action shall be sent to the mortgagor. “ it was said that a contract is the law between the parties, and failure to comply with it constitutes a breach.

1. 2      Article 1956 of the Civil code specifically states that “no interest shall be due unless it has been expressly stipulated in writing.” Thus, the payment of interest and penalties in loans is allowed only if the parties agreed to it and reduced their agreement in writing. In this case, the petitioners never agreed to pay additional interest and penalties, thus, penalty rates imposed by DBP are illegal, and thus, void.

Asian Terminals Inc vs PhilAm Insurance

Case on Letter of Credit

Asian Terminals, Inc., Petitioner, vs. Philam Insurance Co., Inc., (now Chartis Philippines Insurance, Inc.), Respondent

G.R. No. 181163, July 24, 2013

Philam Insurance Co., Inc., (now Chartis Philippines Insurance Inc.), Petitioner, vs. Westwind Shipping Corporation and Asian Terminals, Inc., Respondents

G.R. 181262

Westwind Shipping Corporation, Petitioner, vs. Philam Insurance Co., Inc. (now Chartis Philippines Insurance Inc.), Respondent

G.R. 181319

Facts:  The case is a consolidation of three petitions for certiorari assailing the Decision and Resolution of the Court of Appeals where Nichimen Corporation shipped to consignee Universal Motors Corporation packages of automobiles, where upon delivery, said goods were found to have sustained damages. However, being insured with Philam against all risks, said insurance agency compensated Universal Motors and a subrogation receipt was issued thereafter to the insurance company. Philam, now the subrogee of Universal Motors went after Westwind and Asian Terminal for reparation of compensated amount given to Universal Motors.

Issue: What document may be effective used to prove loss and/or damages on the part of the shipper or consignee?

Ruling:    A letter of credit may be used. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of his goods before paying. Letters of credit are employed by the parties desiring to enter into commercial transaction, mainly for the benefit of the parties to the original transaction. Accordingly, for purposes of reckoning when notice of loss or damage should be given to the carrier or its agent, the date of delivery to Universal Motors is controlling.

Recio vs. Aguedo, Altamarino

Agency: Apparent Authority of an Agent based on Estoppel

Reman Recio, Petitioner, vs.

Heirs and the Spouses Aguedo and Maria Altamirano, Respondents.

G.R. No. 182349; July 24, 2013

Facts:  Nena Recio, mother of Reman Recio leased from the Altamiranos a parcel of land with improvements. The Altamiranos inherited the subject land from their deceased parents, the spouses Aguedo Altamirano and Maria Vaduvia. The sale of the land to Nena Recio did not materialize. The Altamiranos consolidated the two parcels of land covered by the TCT and subdivided into 3 parcels of lands. Reman and his family remained in the peaceful possession of Lot 3. He renewed Nena’s option to buy the subject property. They conducted negotiations with Alejandro who introduced himself as representing the other heirs. After which, the Altamiranos through Alejandro entered into an oral contract of sale with the petitioner and made partial payments which Alejandro received.  Then, the petitioner offered to pay the remaining balance, but Alejandro kept on avoiding the petitioner. Recio filed a case and while its pending, it was discovered that the property was sold to respondents Spouses Lajarca.

The RTC ruled that the Absolute Sale between Altamiranos and the Lajarcas was Null and Void, but the Court of Appeals modified that the sale between Alejandro and Recio is valid only with respect to the aliquot share of Alejandro. CA held that Alejandro’s sale of Not. No. 3 did not bind his co-owners because a sale of real property by one purporting to be an agent of the owner without any written authority from the latter is null and void. An SPA from co-owners pursuant to Art 1878 of the NCC is necessary.

Issue: Can the contract of sale between Alejandro (representing the share of his co-owners) and Recio be held valid pursuant to Apparent Authority of an Agent based on Estoppel?

Ruling:  No. Woodchild Holdings, Inc. vs. Roxas Electric and Construction Company, Inc. stressed that apparent authority based on estoppel can rise from the principal who knowingly permit the agent with indicia of authority that would lead a reasonable prudent person to believe that he actually has such authority. Apparent authority of an agent arises only from acts or conducts on the part of the principal and such act or conduct of the principal must have been known and relied upon in good faith and as a result of the exercise of a reasonable prudence by a third person as claimant and such must have produced a change of position to its detriment. In this case, there was no evidence on record of specific acts which the Altamiranos made before the sale to the petitioner, indicating that they fully knew of the representation of Alejandro. All that the petitioner relied upon were acts that happened after the sale to him. Absent the consent of Alejandro’s co-owners, the Court held that the sale between the other Altamarinos and the petitioner was null and void.

Cases on: Agency, Easement, Public Domain

Civil Law: Contract of Agency, Contract to Sell Real Properties

Sally Yoshizaki, Petitioner, vs.  Joy Training Center of Aurora, Inc., Respondents

G.R. No. 174978; July 31, 2013

Facts:  Richard and Linda Johnson were members of Joy Training’s Board of Trustees who sold the real properties, a wrangler jeep, and other personal properties in favor of the spouses Sally and Yoshio Yoshizaki. Joy Training filed an action for cancellation of sales alleging that the spouses Johnson is without the requisite authority from the Board of Directors. The RTC ruled in favor of the spouses Yoshizaki. It found that Joy Training owned the real properties and it authorized he spouses Johnson to sell the real properties. It recognized that there were only five actual members of the board of trustees; consequently, a majority of the board of trustees validly authorized the sale. It also ruled that the sale of personal properties was valid because they were registered in the spouses Johnson’s name. The CA upheld the RTC’s jurisdiction over the case but reversed its ruling with respect to the sale of real properties. It also ruled that the resolution is void because it was not approved by a majority of the board of trustees.

Issue: Was there a contract of agency to sell the real properties between Joy Training and the spouses Johnson?

Ruling:  The SC ruled that there was no contract of agency between Joy Training and the spouses Johnson to sell the parcel of land with its improvements. Art. 1868 of the Civil Code defines a contract of agency as a contract whereby a person “binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.” It may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. In this case, the presented evidence did not convince the SC of the existence of the contract of agency to sell the real properties. The certification is a mere general power of attorney which comprises all of Joy training.  Art. 1877 of CC clearly states that an agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may authorize as general and unlimited management.

Civil Law: Eminent Domain, Easement, Right of Way

Spouses Jesus L. Cabahug and Coronacion M. Cabahug, Petitioners, vs.

National Power Corporation, Respondent

G.R. No. 186069; January 30, 2013

Facts:  Spouses Cabahug, being owners of two parcels of land which were subjected to expropriation proceedings by the National Power Corporation (NPC). NPC electrical cables would be installed in the portions of the province and would traverse the land owned by the petitioners.  Cabahug, in consideration of the easement fees, granted NPC a continuous easement right of way. Two years thereafter, Cabahug filed a complaint before RTC for payment of just compensation after having learned that the compensation given by NPC was very low compared to the appraisal made by the province of Leyte. RTC rendered decision in favor of Cabahug. However, at the Court of Appeals, it was ruled that vested right has already accrued in favour of NPC, and to allow spouses Cabahug to pursue the case would be a violation of the contract and an unjust enrichment in favour of Cabahug.

Issue:  Whether or not NPC may still be held liable to pay for the full market value of the affected property despite the fact transfer of title thereto was not required by the easement.

Ruling:              Yes. The power of Eminent Domain may be exercised although title is not transferred to the expropriator in easement of right of way. Just compensation which should be neither more nor less than the money equivalent of the property is, moreover, due where the nature and effect of the easement is to impose limitations against the use of the land for an indefinite period and deprive the landowner if ordinary use.

Civil Law: Property and Lease; Public Domain; Patrimonial Property

Dream Village Neighborhood Association Inc., Represented by its Incumbent President, Greg Seriego, Petitioner, vs. Bases Conversion Development Authority, Respondent

G.R. No. 192896, July 24, 2013

Facts:  Dream Village, composed of more than 2,000 families have been occupying the disputed lot continuously, exclusively and notoriously since the year 1985. Said lot used to be a part of the Hacienda de Maricaban, which was subsequently purchased by the government of the United States of America (USA) and was converted to Fort William McKinley. Later on, USA transferred 30 hectares of it to the Manila Railroad Company, while the rest were still in the name of US Government. Finally, on December of 1956, the US government ceded Fort William McKinley to the Republic of the Philippines (RP) and was renamed Fort Bonifacio, reserved for military purposes. On January 1986, President Marcos Issued Proclamation No. 2476 declaring certain portions of Fort Bonifacio alienable and disposable, thus allowing sale to the settlers of home lots in Upper Bicutan, Lower Bicutan, Signal Village, and Western Bicutan. President Corazon Aquino on the other hand amended the proclamation of Pres. Marcos and limited the lots which were open for disposition.  On March of 1992, the Bases conversion and Development Authority (BCDA) was created to oversee and accelerate the conversion of Clark and Military Reservations to productive civilian uses, which then authorized the President of the Philippines to sell the lands covered in whole or in part, specifically to raise capital for the BCDA. BCDA asserted its title to Dream Village owing to the fact that BCDA’s titles over Fort Bonifacio are valid and commercially valuable to the agency, however, due to the passage of time, was contended to have been abandoned to Dream Village, and that BCDA’s right over it has already prescribed.

Issue:  Whether the area occupied by Dream Village is susceptible of acquisition by prescription.

Ruling:  No. Property of the State or any of its subdivisions not patrimonial in character shall not be the object of prescription (Art.1113, NCC). Also, under Article 422 of the Civil Code, public domain lands become patrimonial property only if there is a declaration that these are alienable or disposable, together with an express government manifestation that the property is already patrimonial or no longer retained for public service or the development of national wealth. Only when the property has become patrimonial can the prescriptive period for the acquisition of property of the public dominion begin to run. It is also stipulated under PD 1529 that before the acquisitive prescription can commence, the property must expressly declared by the State that it is no longer intended for public service or the development of national wealth, and that absent such express declaration, the land remains to be property of public dominion. Subsequent proclamations over vast portions of Maricaban exempted the lot where Dream Village was situated from being open for disposition, thus Fort Bonifacio remains a property of public Dominion of the State because although declared alienable and disposable, it is reserved for some public service or development of national wealth, and thus, the acquisitive prescription asserted by Dream Village has not even begun to run. Thus, the area occupied by Dream Village is still not susceptible of acquisition by prescription.

Dela Cruz vs. Dela Cruz

[Civil Law: Property and Lease, Partition of an Immovable Property]

Isabelo C. Dela Cruz, Petitioner, vs. Lucilla C. Dela Cruz, Respondent

G.R NO. 192383; December 4, 2013

Facts:  Petitioner Isabelo Dela Cruz and his sisters/respondents Lucila and Cornelia were co-owners of a 240-square meter land in Las Pinas which they bought on installment from Gatchalian Realty, Inc.  Isabelo and Cornelia paid for the down payment and religiously paid for the monthly amortizations. 

Upon Lucia’s plea to help out a financially distressed cousin (Corazon), the siblings agreed to make use of the lot as collateral and security for a loan from the Philippine Veterans Bank.   In order to make this possible, Lucia paid the P8,000 outstanding balance to Gatchalian Realty and had the deed of title registered in her name.  The title was then mortgaged for Corazon’s benefit.  However, Corazon was not able to pay for the loan and the mortgaged lot was then foreclosed by the bank.  The foreclosed lot was however redeemed by Lucia.

In 2002, Lucila executed an affidavit of waiver relinquishing all her share, interest and participation to her brother Isabelo and her niece Emelinda.  Isabelo then filed an action for partition seeking the segregation of his portion of said lot and the corresponding title in his name. This action was, however, contested by Lucila claiming that the waiver she executed ceding ownership of her share to Isabelo was subject to a condition that their family problems would be resolved.  She claims that this condition did not happen and that she had every right to revoke the waiver.  This was made evident by the revocation she made through an affidavit dated September 24, 2004.    The RTC ruled in favor of Lucia and this was affirmed by the CA. 

Issue:  Whether or not the CA erred in ruling that Lucila’s cession of the property through waiver did not have the effect of making Isabelo part owner thereof. 

Ruling:   In deciding this case, the SC considered the wordings used by Lucila in her waiver.  The court noted that the phrase used “ To put everything in order, I hereby waive all my share, interest and participation…” means that the intention of Lucila was to waive her right to the property, irreversibly divesting herself of her existing right to it.    It disagreed with the lower court’s interpretation that such wordings intends a precondition of waiver for if such was the intent,  the phrase containing words such as “ subject to the condition that everything is put in order” would have been used.   Therefore, the SC ruled that the affidavit of waiver executed by Lucila makes Isabelo and Emelinda co-owners of the waived share of Lucila.  Isabelo then has the right to demand partition.

Ardiente vs. Javier, et al

[Civil Law: human relations; principle of abuse of rights; Article 19 of the Civil Code]

Every person must, in the exercise of his right, and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. (Art. 19. New Ciivil Code of the Philippines)

Joyce V. Ardiente, Petitioner, vs. Sps. Javier and Ma. Theresa Pastorfide, Cagayan de Oro Water District and Gaspar Gonzales, Jr., Respondents

G.R. No. 161921; July 17, 2013

Facts:  A petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision and Resolution of the Court of Appeals which affirmed the then decision of the RTC regarding its judgment sums of money for moral damages, exemplary damages and attorney’s fees. The decision being contested sprouted from the cutting off of water supply of Pastorfide by the Cagayan de Oro Water District as requested by Ardiente. In this case, Ardiente owned a piece of property, which was subsequently sold and conveyed to Pastorfide, however, the connection of water supply as well as other utilities remained in the name of Ardiente which  was never questioned, until such time that Pastorfide became delinquent in paying the water bill.

Issue: Whether or not it was proper for Ardiente together with Cagayan De Oro Water district to cut off the water supply of Pastorfide owing to the fact that Ardiente has already conveyed ownership of property to Pastorfide.

Ruling:               No, it was not proper. Petitioner's acts which violated the abovementioned provisions of law is her unjustifiable act of having the respondent spouses' water supply disconnected, coupled with her failure to warn or at least notify respondent spouses of such intention. The principle of abuse of Rights in the enshrined Article 19 of the civil Code provides that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. It recognizes a primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. 

Zuellig Freight vs. NLRC

[Civil Law: when are attorney’s fees recoverable]

                                            Zuellig Freight and Cargo Systems,  

                                                                         vs. 

                 National Labor Relations Commission and Ronaldo V. San Miguel

G.R. No. 157900;  July 22, 2013

Facts:   This is a petition appealing the decision of CA, whereby it dismissed its petition for certiorari and upheld the adverse decision of the NLRC finding San Miguel to have been illegally dismissed. San Miguel, employed as checker/custom representative, brought a complaint for unfair labor practice, illegal dismissal, non-payment of salaries and moral damages against petitioner, formerly known as Zeta Brokerage Corporation (Zeta). He contended that amendments of the articles of incorporation of Zeta were for the purpose of changing the corporate name, broadening the primary functions, and increasing the capital stock; and that such amendments could not mean that Zeta had been thereby dissolved. Petitioner countered that San Miguel’s termination from Zeta had been for a cause authorized by the Labor Code; that its non-acceptance of him had not been by any means irregular or discriminatory; that its predecessor-in-interest had complied with the requirements for termination due to the cessation of business operations and that it had no obligation to employ San Miguel in the exercise of its valid management prerogative.

NLRC and CA rendered its decision holding San Miguel to have been illegally dismissed ordering Zuellig to pay San Miguel his back wages and Attorney’s fees equivalent to ten percent (10%) of the total award.

Issue: Whether or not the awarding of attorney’s fees had basis in fact and in law.

Ruling:  Yes, the court upheld the CA, NLRC and Labor Arbiter unanimous decision, where the  amendments of the articles of incorporation of Zeta to change the corporate name to Zuellig Freight and Cargo Systems, Inc. did not produce the dissolution of the former as a corporation, therefore not giving them the license to terminate employees without just or authorized cause and considering that that San Miguel had been compelled to litigate and to incur expenses to protect his rights and interest entitles him to recover attorney’s fees.

In Producers Bank of the Philippines v. Court of Appeals, the Court ruled that attorney’s fees could be awarded to a party whom an unjustified act of the other party compelled to litigate or to incur expenses to protect his interest.

Dacudao vs. DOJ

[Civil Law: Effectivity of laws; general rule: no retroactive effect; exception: when law is procedural in nature]

Spouses Augusto G. Dacudao and Ofelia R. Dacudao, Petitioners, vs. Secretary of Justice Raul M. Gonzales of the Department of Justice, Respondent

G.R. No. 188056; January 8, 2013

Facts:  The petitioners filed a case of syndicated estafa against Celso Delos Angeles and his associates after the petitioners were defrauded in a business venture. Thereafter, the DOJ Secretary issued Department Order 182 which directs all prosecutors in the country to forward all cases already filed against Celso Delos Angeles, Jr. and his associates to the secretariat of DOJ in Manila for appropriate action. However, in a separate order which is Memorandum dated March 2009, it was said that cases already filed against Celso Delos Angeles et. al of the Legacy Group of Companies in Cagayan De Oro City need not be sent anymore to the Secretariat of DOJ in Manila. Because of such DOJ orders, the complaint of petitioners was forwarded to the secretariat of the Special Panel of the DOJ in Manila. Aggrieved, Spouses Dacudao filed this petition for certiorari, prohibition and mandamus assailing to the respondent Secretary of justice grave abuse of discretion in issuing the department Order and the Memorandum, which according to the violated their right to due process, right to equal protection of the law and right to speedy disposition of the cases. The petitioners opined that orders were unconstitutional or exempting from coverage cases already filed and pending at the Prosecutor’s Office of Cagayan De Oro City. They contended that the assailed issuances should cover only future cases against Delos Angeles, Jr., et al, not those already being investigated. They maintained that DO 182 was issued in violation of the prohibition against passing laws with retroactive effect.

Issue:     Whether or not the assailed issuances can be given retroactive effect.

Ruling:     Yes. As a general rule, laws shall have no retroactive effect. However, exceptions exist, and one such exception concerns a law that is procedural in nature. The reason is that a remedial statute or a statute relating to remedies or modes of procedure does not create new rights or take away vested rights but operates only in furtherance of the remedy or the confirmation already existing rights. The retroactive application is not violative of any right of a person who may feel adversely affected, for, no vested right generally attaches to or arises from procedural law.

Republic vs. Encelan

[Civil Law: marriage; psychological incapacity]

Republic of the Philippines, Petitioner vs. Cesar Encelan, Respondent

G.R. No. 170022; January 09, 2013

Facts:     Cesar Married Lolita, and they had two children. To support the family, Cesar went abroad and worked as an OFW in Saudi Arabia. After two years of working abroad, Cesar learned that Lolita is having an illicit affair with Alvin Perez, and thereafter, left the conjugal dwelling together with the two children. But even with such circumstances, Cesar never failed to send financial support for the family. On June 1995, Cesar filed a petition against Lolita for the declaration of the nullity of his marriage based on Lolita’s psychological incapacity. Cesar, during a hearing even presented a psychological evaluation report on Lolita with the finding that “Lolita was not suffering from any form of psychiatric illness, but had been unable to provide the expectations expected of her for a good and lasting marital relationship.... and her transferring from one job to another depicts some interpersonal problem with co-workers as well as her impatience in attaining her ambitions .... and her refusal to go with her husband abroad signifies her reluctance to work out a good marital and family relationship...”  Cesar found ally in RTC as it gave him a favourable decision which declared his marriage to Lolita null and void. The court of Appeals also affirmed the decision of RTC, and thereafter, the case was elevated to the Supreme Court, thus, this case.

Issue:      Whether or not psychological incapacity is indeed present in the person of Lolita as to nullify a valid marriage.

Ruling:    No. Marriage is an inviolable social institution protected by the State and any doubt should be resolved in favour of its existence and continuation against its dissolution and nullity. In this case, sexual infidelity and abandonment of the conjugal dwelling do not necessarily constitute psychological incapacity; these are simply grounds for legal separation. To constitute psychological incapacity, it must be shown that the unfaithfulness and abandonment are manifestations of a disordered personality that actually prevented the erring spouse from discharging the essential marital obligations, which the court found not present in the person of Lolita.

Cacayorin vs. AFPMBAI

[Civil Law: Obligations and Contracts; consignation; judicial in character]

Spouses Oscar and Thelma Cacayorin, Petitioners, vs.

Armed Forces and Police Mutual Benefit Association, Inc. (AFPMBAI), Respondent.

G.R. No. 171298; April 15, 2013

Facts:  Oscar Cacayorin  filed an application with AFPMBAI to purchase a property which the latter owned through a loan facility. Oscar and his wife, Thelma, and the Rural Bank of San Teodoro executed a Loan and Mortgage Agreement with the former as borrowers and the Rural Bank as lender, under the auspices of PAG-IBIG. On the basis of the Rural Bank's letter of guaranty, AFPMBAI executed in petitioners' favor a Deed of Absolute Sale, and a new title was issued in their name. Then, the PAG-IBIG loan facility did not push through and the Rural Bank closed. Meanwhile, AFPMBAI somehow was able to take possession of petitioners' loan documents and the TCT, while petitioners were unable to pay the loan for the property. AFPMBAI made written demands for petitioners to pay the loan for the property. Then, petitioners filed with the RTC a complaint for consignation of loan payment, recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. AFPMBAI filed a motion to dismiss claiming that petitioners' Complaint falls within the jurisdiction of the Housing and Land Use Regulatory Board (HLURB), as it was filed by petitioners in their capacity as buyers of a subdivision lot and it prays for specific performance of contractual and legal obligations decreed under Presidential Decree No. 957(PD 957). It added that since no prior valid tender of payment was made by petitioners, the consignation case was fatally defective and susceptible to dismissal.

Issue: Whether or not the case falls within the exclusive jurisdiction of the HLURB.

Ruling:  No. Unlike tender of payment which is extrajudicial, consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB. Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by the consignation of the thing or sum due, without need of prior tender of payment, when the creditor is absent or unknown, or when he is incapacitated to receive the payment at the time it is due, or when two or more persons claim the same right to collect, or when the title to the obligation has been lost. The said provision clearly precludes consignation in venues other than the courts.

Nameal, Bonrostro vs. Luna

[Civil Law: Obligation; consignation; judicial in character]

Spouses Nameal and Lourdes Bonrostro, Petitioners,   

vs.  

Spouses Juan and Constancia Luna, Respondents.

G.R. No. 172346, July 24, 2013

Facts:  Constancia Luna, as buyer, entered into a contract to sell with Bliss Development Corporation involving a house located in Quezon City. A year after, Luna sold it to Lourdes Bonrostro under the ff. terms:

The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the following manner:
(a)  P200,000.00 upon signing x x x [the] Contract To Sell,
(b)  P300,000.00 payable on or before April 30, 1993,
(c)  P330,000.00 payable on or before July 31, 1993,
(d)  P417,000.00 payable to the New Capitol Estate, for 15 years at [P6,867.12] a month,

x x x [I]n the event the VENDEE fails to pay the second installment on time, [t]he VENDEE will pay starting May 1, 1993 a 2% interest on the P300,000.00 monthly.  Likewise, in the event the VENDEE fails to pay the amount of P630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise be deemed cancelled and rescinded and x x x 5% of the total contract price [of] P1,250,000.00 shall be deemed forfeited in favor of the VENDOR.  Unpaid monthly amortization shall likewise be deducted from the initial down payment in favor of the VENDOR. After execution of the contract, Bonrostro took possession of the property. However, except for P200,000.00 downpayment, she failed to pay subsequent amortization. Luna then filed before the RTC a Complaint for Rescission of Contract and Damages. This is a petition for review on certiorari assailing the decision of CA affirming with modification the decision of RTC in favor herein respondents.

Issue:  Whether or not delay in the payment of installment is a substantial breach of obligation as to warrant its rescission.

Ruling:   No, in a contract to sell, payment of the price is a positive suspensive condition. Failure of which is not a breach of contract warranting rescission under Article 1191 of the Civil Code, but rather just an event that prevents the supposed seller from being bound to convey title to the supposed buyer. The contract to sell entered by the parties refers to real property on installment basis, in which Art. 1191 cannot apply since they are governed by the Maceda Law. However, there being no breach, Bonrostro is still not excused from being made liable for interest on the installments due from the date of default until fully paid. Tender of payment, a manifestation by the debtor of a desire to comply with or pay an obligation, asserted by Bonrostro for the accrual of interest to be suspended is not a valid defense because for a tender of payment to take effect it must be accompanied by the means of payment and debtor must take immediate step to make a consignation, the deposit of the proper amount with a judicial authority, then interest is suspended from the time of such tender.

Sandoval Shipyards vs. Philippine Merchant Marine Academy

[Civil Law: Obligations and Contract; Rescission]

Sandoval Shipyards, Inc., Petitioner, vs.

Philippine Merchant Marine Academy (PMMA), Respondent

GR No. 188633, April 10, 2013

Facts:  The PMMA entered into Ship Building Contract with Sandoval Shipyards, Inc. with the latter obliging itself to construct two units of lifeboats to be used by the students of PMMA for training.  The parties agreed on the specifications of the boats, the date of delivery and the amount of payment as stated in the contract.  However, upon inspection by the PMMA, it found that the construction being done by the petitioner was not in conformity with the approved plan.  Because of this, respondent’s dean submitted a report and recommendation for ratification of the contract to its President.  A meeting was held in order to settle the issue.  Sandoval asked for extension of the time of delivery of the lifeboats which was granted by PMMA.  However, Sandoval was not able to comply with the agreed specifications for the boats and the agreed time of delivery despite repeated demands from PMMA.  As a result, PMMA filed a Complaint for Rescission of Contract with damages against the petitioners.

The RTC held that although the caption for the complaint filed by PMMA was for Rescission for Contract, the allegations in the body were for breach of contract. Thus, the respondents were made jointly and severally liable for actual damages plus attorney’s fees plus cost of suits.  The petitioners appealed the case to the CA where it found that indeed the petitioners committed a clear substantial breach of contract which warranted its rescission.  However, since rescission requires mutual restoration of benefits received, the respondents cannot be compelled to return what it does not possess - the lifeboats which the petitioners failed to deliver.  A motion for reconsideration was filed by the petitioners but was denied by the CA hence the petition for certiorari filed under rule 45.

Issue:  Whether or not the case is for rescission and not for damages due to breach of contract.

Ruling: No, the case is for damages due to breach of contract.  It held that the RTC was correct in determining whether there was a breach of contract and if such breach would warrant rescission and or damages.  In this case, it found that the breach was found to be substantial and sufficient to warrant a rescission of the contract.  However, since rescission entails a mutual restitution of benefits received and the factual circumstances rendered this mutual restitution impossible, an injured party who has chosen rescission is also entitled to the payment of damages.