G.R. No.

192108

November 21, 2012

SPOUSES
SOCRATES
SY
AND
vs.
ANDOK'S LITSON CORPORATION, Respondent.

CELY

SY, Petitioner,

Facts:
Petitioner Cely Sy (Sy) is the registered owner of a 316 square-meter lot
located at 1940 Felix Huertas Street, Sta. Cruz, Manila. Respondent Andoks Litson
Corporation (Andoks) is engaged in the business of selling grilled chicken and pork
with outlets all over the Philippines. On 5 July 2005, Sy and Andoks entered into a 5year lease contract covering the parcel of land owned by Sy. Monthly rental was fixed
at P60,000.00, exclusive of taxes, for the first 2 years and P66,000.00 for the third,
fourth and fifth year with 10% escalation every year beginning on the fourth year. 3
Per contract, the lessee shall, upon signing the contract, pay four (4) months
of advance deposit amounting to P240,000.00 and a security deposit equivalent to
four (4) months of rental in the amount of P240,000.00. Accordingly, Andoks issued
a check to Sy for P480,000.00.
Andoks alleged that while in the process of applying for electrical connection
on the improvements to be constructed on Sys land, it was discovered that Sy has
an unpaid Manila Electric Company (MERALCO) bill amounting to P400,000.00.
Andoks presented a system-generated statement from MERALCO. 4 Andoks further
complained that construction for the improvement it intended for the leased premises
could not proceed because another tenant, Mediapool, Inc. incurred delay in the
construction of a billboard structure also within the leased premises. In its letter dated
25 August 2005, Andoks first informed Sy about the delay in the construction of the
billboard structure on a portion of its leased property. Three more letters of the same
tenor were sent to Sy but the demands fell on deaf ears. Consequently, Andoks
suffered damages in the total amount of P627,000.00 which comprises the advance
rental and deposit, cost of money, mobilization cost for the construction of
improvement over leased premises, and unrealized income. The complaint for
rescission was filed on 13 February 2008, three years after continued inaction on the
request to have the billboard construction expedited.

Issue:
WHETHER OR NOT THE RESPONDENT ITSELF CONTRACTUALLY ASSUMED
THE RISK OF DELAY, AND THUS ANY DELAY COULD NOT BE A GROUND FOR
THE RESOLUTION OR ANNULMENT OF THE CONTRACT OF LEASE

Held:
Article 1191 of the Civil Code provides that the power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
A lease contract is a reciprocal contract. By signing the lease agreement, the
lessor grants possession over his/her property to the lessee for a period of time in
exchange for rental payment.
Indeed, rescission is statutorily recognized in a contract of lease. Article 1659
of the Civil Code provides:
Art. 1659. If the lessor or the lessee should not comply with the
obligations set forth in articles 1654 and 1657, the aggrieved party may ask for
the rescission of the contract and indemnification for damages, or only the
latter, allowing the contract to remain in force.
Article 1659 outlines the remedies for non-compliance with the reciprocal
obligations in a lease contract, which obligations are cited in Articles 1654 and 1657:
Article 1654. The lessor is obliged:
(1) To deliver the thing which is the object of the contract in such
a conditions 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.
Article 1657. The lessee is obliged:
(1) To pay the price of the lease according to the terms
stipulated;
(2) To use the thing leased as a diligent father of a family,
devoting it to the use stipulated; and in the absence of stipulation, to
that which may be inferred from the nature of the thing leased,
according to the custom of the place;
(3) To pay the expenses for the deed of lease. (Boldfacing
supplied).

The aggrieved party is given the option to the aggrieved party to ask for: (1)
the rescission of the contract; (2) rescission and indemnification for damages; or (3)
only indemnification for damages, allowing the contract to remain in force. 11
While Andoks had complied with all its obligations as a lessee, the lessor
failed to render the premises fit for the use intended and to maintain the lessee in the
peaceful and adequate enjoyment of the lease.
The attendant circumstances show substantial breach. The delay in the
construction prevented Andoks from using the leased premises for its business
outlet. On top of the failure of Sy to address the delay in the billboard construction,
she also failed to resolve or explain the unpaid electricity bills. Sy resorted to a
blanket denial without however producing any proof that the said bill had been
settled. These incidents refer to the fundamentals of the contract for the lease of Sys
premises. She failed to comply with the obligations that have arisen upon Andoks
payment of the amount equivalent to eight months of the monthly rentals.

G.R. No. 183774

November 14, 2012

PHILIPPINE
BANKING
vs.
ARTURO DY, BERNARDO DY,
DELGADO, Respondents.

CORPORATION, Petitioner,
JOSE

DELGADO

AND

CIPRIANA

Facts:
Cipriana was the registered owner of a 58,129-square meter (sq.m.) lot,
denominated as Lot No. 6966, situated in Barrio Tongkil, Minglanilla, Cebu, covered
by TCT No. 18568. She and her husband, respondent Jose Delgado (Jose), entered
into an agreement with a certain Cecilia Tan (buyer) for the sale of the said property
for a consideration of P10.00/sq.m. It was agreed that the buyer shall make partial
payments from time to time and pay the balance when Cipriana and Jose (Sps.
Delgado) are ready to execute the deed of sale and transfer the title to her.
At the time of sale, the buyer was already occupying a portion of the property
where she operates a noodle (bihon) factory while the rest was occupied by tenants
which Sps. Delgado undertook to clear prior to full payment. After paying the total
sum of P147,000.00 and being then ready to pay the balance, the buyer demanded
the execution of the deed, which was refused. Eventually, the buyer learned of the
sale of the property to the Dys and its subsequent mortgage to petitioner Philippine

Banking Corporation (Philbank), prompting the filing of the Complaint 5 for annulment
of certificate of title, specific performance and/or reconveyance with damages against
Sps. Delgado, the Dys and Philbank.
In their Answer, Sps. Delgado, while admitting receipt of the partial payments
made by the buyer, claimed that there was no perfected sale because the latter was
not willing to pay their asking price of P17.00/sq.m. They also interposed a crossclaim against the Dys averring that the deeds of absolute sale in their favor dated
June 28, 19826 and June 30, 19827 covering Lot No. 6966 and the adjoining Lot No.
4100-A (on which Sps. Delgado's house stands), were fictitious and merely intended
to enable them (the Dys) to use the said properties as collateral for their loan
application with Philbank and thereafter, pay the true consideration of P17.00/sq.m.
for Lot No. 6966. However, after receiving the loan proceeds, the Dys reneged on
their agreement, prompting Sps. Delgado to cause the annotation of an adverse
claim on the Dys' titles and to inform Philbank of the simulation of the sale. Sps.
Delgado, thus, prayed for the dismissal of the complaint, with a counterclaim for
damages and a cross-claim against the Dys for the payment of the balance of the
purchase price plus damages.

Issue:
Whether or not Philbank is a mortgagee in good faith which further contends
that Sps. Delgado are estopped from denying the validity of the mortgage constituted
over the two lots since they participated in inducing Philbank to grant a loan to the
Dys.

Held:
Philbank's mortgage rights over the subject properties shall be maintained.
While it is settled that a simulated deed of sale is null and void and therefore, does
not convey any right that could ripen into a valid title, 16it has been equally ruled that,
for reasons of public policy,17 the subsequent nullification of title to a property is not a
ground to annul the contractual right which may have been derived by a purchaser,
mortgagee or other transferee who acted in good faith. 18
The ascertainment of good faith or lack of it, and the determination of whether
due diligence and prudence were exercised or not, are questions of fact 19 which are
generally improper in a petition for review on certiorari under Rule 45 of the Rules of
Court (Rules) where only questions of law may be raised. A recognized exception to
the rule is when there are conflicting findings of fact by the CA and the RTC, 20 as in
this case.

Primarily, it bears noting that the doctrine of "mortgagee in good faith" is based
on the rule that all persons dealing with property covered by a Torrens Certificate of
Title are not required to go beyond what appears on the face of the title. This is in
deference to the public interest in upholding the indefeasibility of a certificate of title
as evidence of lawful ownership of the land or of any encumbrance thereon. 21 In the
case of banks and other financial institutions, however, greater care and due
diligence are required since they are imbued with public interest, failing which
renders the mortgagees in bad faith. Thus, before approving a loan application, it is a
standard operating practice for these institutions to conduct an ocular inspection of
the property offered for mortgage and to verify the genuineness of the title to
determine the real owner(s) thereof. 22 The apparent purpose of an ocular inspection
is to protect the "true owner" of the property as well as innocent third parties with a
right, interest or claim thereon from a usurper who may have acquired a fraudulent
certificate of title thereto.23
In this case, while Philbank failed to exercise greater care in conducting the
ocular inspection of the properties offered for mortgage, 24 its omission did not
prejudice any innocent third parties. In particular, the buyer did not pursue her cause
and abandoned her claim on the property. On the other hand, Sps. Delgado were
parties to the simulated sale in favor of the Dys which was intended to mislead
Philbank into granting the loan application. Thus, no amount of diligence in the
conduct of the ocular inspection could have led to the discovery of the complicity
between the ostensible mortgagors (the Dys) and the true owners (Sps.
Delgado).1wphi1 In fine, Philbank can hardly be deemed negligent under the
premises since the ultimate cause of the mortgagors' (the Dys') defective title was the
simulated sale to which Sps. Delgado were privies.
Indeed, a finding of negligence must always be contextualized in line with the
attendant circumstances of a particular case. As aptly held in Philippine National
Bank v. Heirs of Estanislao Militar, 25 "the diligence with which the law requires the
individual or a corporation at all times to govern a particular conduct varies with the
nature of the situation in which one is placed, and the importance of the act which is
to be performed."26 Thus, without diminishing the time-honored principle that nothing
short of extraordinary diligence is required of banks whose business is impressed
with public interest, Philbank's inconsequential oversight should not and cannot serve
as a bastion for fraud and deceit.

G.R. No. 168499

November 26, 2012

SPOUSES EROSTO SANTIAGO and NELSIE SANTIAGO, Petitioners,

vs.
MANCER VILLAMOR, CARLOS VILLAMOR, JOHN VILLAMOR and DOMINGO
VILLAMOR, JR., Respondents.

Facts:
In January 1982,5 the spouses Domingo Villamor, Sr. and Trinidad Gutierrez
Villamor (spouses Villamor, Sr.), the parents of Mancer Villamor, Carlos Villamor and
Domingo Villamor, Jr. (respondents) and the grandparents of respondent John
Villamor, mortgaged their 4.5-hectare coconut land in Sta. Rosa, San Jacinto,
Masbate, known as Lot No. 1814, to the Rural Bank of San Jacinto (Masbate), Inc.
(San Jacinto Bank) as security for a P10,000.00 loan.
For non-payment of the loan, the San Jacinto Bank extrajudicially foreclosed
the mortgage, and, as the highest bidder at the public auction, bought the land. When
the spouses Villamor, Sr. failed to redeem the property within the prescribed period,
the San Jacinto Bank obtained a final deed of sale in its favor sometime in 1991. The
San Jacinto Bank then offered the land for sale to any interested buyer. 6
a. The Specific Performance Case
Since the respondents had been in possession and cultivation of the land,
they decided, together with their sister Catalina Villamor Ranchez, to acquire the land
from the San Jacinto Bank. The San Jacinto Bank agreed with the respondents and
Catalina to a P65,000.00 sale, payable in installments. The respondents and Catalina
made four (4) installment payments of P28,000.00, P5,500.00, P7,000.00 and
P24,500.00 on November 4, 1991, November 23, 1992, April 26, 1993 and June 8,
1994, respectively.7
When the San Jacinto Bank refused to issue a deed of conveyance in their
favor despite full payment, the respondents and Catalina filed a complaint against the
San Jacinto Bank (docketed as Civil Case No. 200) with the RTC on October 11,
1994. The complaint was for specific performance with damages.
The San Jacinto Bank claimed that it already issued a deed of repurchase in
favor of the spouses Villamor, Sr.; the payments made by the respondents and
Catalina were credited to the account of Domingo, Sr. since the real buyers of the
land were the spouses Villamor, Sr.8

Issue:

Whether or not the petitioners are purchasers in good faith, anchored on claim
over the disputed land on the July 21, 1994 notarized deed of sale executed in their
favor by the spouses Villamor, Sr. who in turn obtained a July 19, 1994 notarized
deed of sale from the San Jacinto Bank.

Held:
The
petitioners
are
not
purchasers
good faith. The petitioners can hardly claim to be purchasers in good faith.

in

"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 has notice of the adverse claims and interest of another person in the same
property."26 However, where the land sold is in the possession of a person other than
the vendor, the purchaser must be wary and must investigate the rights of the actual
possessor; without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property. 27
In this case, the spouses Villamor, Sr. were not in possession of the
land.1wphi1 The petitioners, as prospective vendees, carried the burden of
investigating the rights of the respondents and respondent John who were then in
actual possession of the land. The petitioners cannot take refuge behind the
allegation that, by custom and tradition in San Jacinto, Masbate, the children use
their parents' property, since they offered no proof supporting their bare allegation.
The burden of proving the status of a purchaser in good faith lies upon the party
asserting that status and cannot be discharged by reliance on the legal presumption
of good faith.28 The petitioners failed to discharge this burden.
Article 1477 of the Civil Code recognizes that the "ownership of the thing sold
shall be transferred to the vendee upon the actual or constructive delivery thereof."
Related to this article is Article 1497 which provides that "the thing sold shall be
understood as delivered, when it is placed in the control and possession of the
vendee."
In this case, no constructive delivery of the land transpired upon the execution
of the deed of sale since it was not the spouses Villamor, Sr. but the respondents
who had actual possession of the land. The presumption of constructive delivery is
inapplicable and must yield to the reality that the petitioners were not placed in
possession and control of the land.
COMMUNITIES
vs.

CAGAYAN,

INC., Petitioner,

SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY

CLAIMING RIGHTS UNDER THEM,Respondents.

Facts:
Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered
into a Contract to Sell4 with petitioner Communities Cagayan, Inc., 5 whereby the latter
agreed to sell to respondent-spouses a house and Lots 17 and 19 6 located at Block
16, Camella Homes Subdivision, Cagayan de Oro City, 7 for the price of
P368,000.00.8 Respondent-spouses, however, did not avail of petitioners inhouse
financing due to its high interest rates. 9 Instead, they obtained a loan from Capitol
Development Bank, a sister company of petitioner, using the property as
collateral.10 To facilitate the loan, a simulated sale over the property was executed by
petitioner in favor of respondent-spouses. 11 Accordingly, titles were transferred in the
names of respondent-spouses under Transfer Certificates of Title (TCT) Nos. 105202
and 105203, and submitted to Capitol Development Bank for loan
processing.12 Unfortunately, the bank collapsed and closed before it could release the
loan.13
Thus, on November 30, 1997, respondent-spouses entered into another
Contract to Sell14 with petitioner over the same property for the same price of
P368,000.00.15 This time, respondent-spouses availed of petitioners in-house
financing16thus, undertaking to pay the loan over four years, from 1997 to 2001. 17
Sometime in 2000, respondent Arsenio demolished the original house and
constructed a three-story house allegedly valued at P3.5 million, more or less. 18
In July 2001, respondent Arsenio died, leaving his wife, herein respondent
Angeles, to pay for the monthly amortizations.19
On September 10, 2003, petitioner sent respondent-spouses a
notarizedNotice of Delinquency and Cancellation of Contract to Sell 20 due to the
latters failure to pay the monthly amortizations.
In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court
in Cities of Cagayan de Oro City, an action for unlawful detainer, docketed as C3Dec-2160, against respondent-spouses. 21 When the case was referred for mediation,
respondent Angeles offered to pay P220,000.00 to settle the case but petitioner
refused to accept the payment. 22 The case was later withdrawn and consequently
dismissed because the judge found out that the titles were already registered under
the names of respondent-spouses.23

Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed
before Branch 18 of the RTC, Cagayan de Oro City, a Complaint for Cancellation of
Title, Recovery of Possession, Reconveyance and Damages, 24 docketed as Civil
Case No. 2005-158, against respondent-spouses and all persons claiming rights
under them. Petitioner alleged that the transfer of the titles in the names of
respondent-spouses was made only in compliance with the requirements of Capitol
Development Bank and that respondent-spouses failed to pay their monthly
amortizations beginning January 2000.25 Thus, petitioner prayed that TCT Nos. T105202 and T-105203 be cancelled, and that respondent Angeles be ordered to
vacate the subject property and to pay petitioner reasonable monthly rentals from
January 2000 plus damages.26
Instead of appealing the Decision to the Court of Appeals (CA), petitioner
opted to file the instant petition directly with this Court on a pure question of law.

Issue:
Whether or not petitioner is obliged to refund to respondent-spouses all the
monthly installments paid; and whether or not petitioner is obliged to reimburse
respondent-spouses the value of the new house minus the cost of the original house.

Held:
Respondent-spouses
cash
surrender
on
the
property
total payments made.

are
value
equivalent

entitled
of
to

to
the
50%

the
payments
of
the

Considering that this case stemmed from a Contract to Sell executed by the
petitioner and the respondent-spouses, we agree with petitioner that the Maceda
Law, which governs sales of real estate on installment, should be applied.
Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting
buyer, to wit:
Section 3. In all transactions or contracts involving the sale or financing
of real estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is entitled to

the following rights in case he defaults in the payment of succeeding

installments:
(a) To pay, without additional interest, the unpaid installments
due within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its
extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer
the cash surrender value of the payments on the property equivalent to
fifty percent of the total payments made, and, after five years of
installments, an additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made. (Emphasis supplied.)
Section 4. In case where less than two years of installments were paid,
the seller shall give the buyer a grace period of not less than sixty days from
the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a notarial
act.
Section 5. Under Sections 3 and 4, the buyer shall have the right to sell
his rights or assign the same to another person or to reinstate the contract by
updating the account during the grace period and before actual cancellation of
the contract. The deed of sale or assignment shall be done by notarial act.
In this connection, we deem it necessary to point out that, under the Maceda
Law, the actual cancellation of a contract to sell takes place after 30 days from
receipt by the buyer of the notarized notice of cancellation, 50 and upon full payment of
the cash surrender value to the buyer. 51 In other words, before a contract to sell can
be validly and effectively cancelled, the seller has (1) to send a notarized notice of
cancellation to the buyer and (2) to refund the cash surrender value. 52 Until and
unless the seller complies with these twin mandatory requirements, the contract to
sell between the parties remains valid and subsisting. 53 Thus, the buyer has the right

to continue occupying the property subject of the contract to sell, 54 and may "still
reinstate the contract by updating the account during the grace period and before the
actual cancellation"55 of the contract.
In this case, petitioner complied only with the first condition by sending a
notarized notice of cancellation to the respondent-spouses. It failed, however, to
refund the cash surrender value to the respondent-spouses. Thus, the Contract to
Sell remains valid and subsisting and supposedly, respondent-spouses have the right
to continue occupying the subject property. Unfortunately, we cannot reverse the
Decision of the RTC directing respondent-spouses to vacate and turnover
possession of the subject property to petitioner because respondent-spouses never
appealed the order. The RTC Decision as to respondent-spouses is therefore
considered final.