Thursday, April 12, 2018


CIVIL LAW REVIEW I
Mid-Term Exam
17 February 2018

Law 4-A

By: Atty. Eduardo T. Reyes, III


I.                 Distinguish a right from an obligation. Discuss. (2%)


Answer:

In Makati Stock Exchange, Inc. et al. v. Miguel V. Campos, et al.[1]it was enunciated that “A right is a claim or title to an interest in anything whatsoever that is enforceable by law. An obligation is defined in the Civil Code as a juridical necessity to give, to do or not to do. For every right enjoyed by any person, there is a corresponding obligation on the part of another person to respect such right.”



1.1.            Distinguish an obligation to give from an obligation to do. (2%)
1.2.            What are the elements of an obligation ? (2%)

Requisites of an OBLIGATION. "An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz.: (a) The vinculum Juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct, required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects”.
Manuel C. Ubas, Sr. v. Wilson Chan, G.R. No. 215910, February 06, 2017.
1.3.           Distinguish a personal right from a real right. (2%)


A personal right is the power of one person to demand of another, as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do. On the other hand, a real right is the power belonging to a person over a specific thing, without a passive subject individually determined, against whom such right may be personally exercised.[5] In this case, while petitioners have an interest in securing payment of the loan they extended, their right to seek payment does not in any manner attach to a particular portion of the patrimony of their debtor, Francisco Bareng.”
-        Adorable v. Court of Appeals, G.R. No. 119466, November 25, 1999

1.4.           What are the elements of a fortuitous event. (2%)

To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. [23]



II.

2.1. Discuss the principle known as “rebus sic stantibus”. (5%)

2.2. 3D Glass, a single proprietorship engaged in the business of installing glass-made dividers  was the lessee of the ground floor of a building owned by YTOR. At the time when 3D Glass entered into the lease contract with YTOR, the price of glass world-wide was cheap such that 3D Glass could really maximize its profits. The recent economic forces globally had however changed dramatically such that the price of glass had dramatically spiked making it untenable for 3D Glass to continue its business as it was losing. Thus, 3D Glass decided that its business had to be folded or closed and it would not pay lease rentals to YTOR anymore. When YTOR demanded lease rentals, 3D Glass invoked the principle known as rebus sic stantibus.   Is 3D Glass correct. Discuss.  (5%)

ANSWER:

Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n)

Rebus sic stantibus principle; Article 1267, New Civil Code

To evade responsibility, Comglasco explained that by virtue of Article 1267, it was released from the lease contract. It cited the existing global and regional economic crisis for its inability to comply with its obligation.

Comglasco's position fails to impress because Article 1267 applies only to obligations to do and not to obligations to give. Thus, in Philippine National Construction Corporation v. Court of Appeals,[29] the Court expounded:

Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to obligations "to do," and not to obligations "to give." An obligation "to do" includes all kinds of work or service; while an obligation "to give" is a prestation which consists in the delivery of a movable or an immovable thing in order to create a real right, or for the use of the recipient, or for its simple possession, or in order to return it to its owner.
The obligation to pay rentals or deliver the thing in a contract of lease falls within the prestation "to give"; xxx
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, the contract also ceases to exist. xxx

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute application of the principle of rebus sic stantibus, which would endanger the security of contractual relations. The parties to the contract must be presumed to have assumed the risks of unfavorable developments. It is therefore only in absolutely exceptional changes of circumstances that equity demands assistance for the debtor.[30] [Emphases and Underscoring supplied]

Considering that Comglasco's obligation of paying rent is not an obligation to do, it could not rightfully invoke Article 1267 of the Civil Code. Even so, its position is still without merit as financial struggles due to an economic crisis is not enough reason for the courts to grant reprieve from contractual obligations.

In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center Corporation,[31] the Court ruled that the economic crisis which may have caused therein petitioner's financial problems is not an absolute exceptional change of circumstances that equity demands assistance for the debtor. It is noteworthy that Comglasco was also the petitioner in the above-mentioned case, where it also involved Article 1267 to pre-terminate the lease contract.

Thus, the RTC was correct in ordering Comglasco to pay the unpaid rentals because the affirmative defense raised by it was insufficient to free it from its obligations under the lease contract. In addition, Iloilo Jar is entitled to attorney's fees because it incurred expenses to protect its interest. X x x “

-       ILOILO JAR CORPORATION, PETITIONER, V. COMGLASCO CORPORATION/AGUILA GLASS, RESPONDENT, [ G.R. No. 219509, January 18, 2017


III.

3.1.Discuss fully what is accion subrogatoria. (2.5%)

3.2. Discuss fully what is accion pauliana. (2.5%).

3.3. Maria was indebted to Roger for P1,000,000.00 which was obtained last 28 January 2015 but was stipulated to be due and demandable on 29 December 2016. When the due date arrived and Maria was unable to pay her debt, Roger filed a case for Collection of a Sum of Money against her. Judgment was rendered finding Maria liable to pay Roger the sum of P1,000,000.00. The Judgment attained finality. However, when the sheriff personally tried to collect from Maria, it was confirmed that Maria had no personal or real properties nor any money kept in the bank. Discuss how the Sheriff can execute the Judgment under the different scenarios:

               3.3.1. It was found out that Martina owed Maria PhpP800,000.00? How should the Sheriff proceed against Martina? Discuss. (2.5%)

               3.3.2. Martina does not really owe Maria Php800,000.00; but instead, Maria sold to Rafael her house and lot worth Php1,500,000.00 last 14 February 2015. What must the Roger and the Sheriff establish in order to be able to run after Rafael? Discuss. (2.5%).

Answer:


Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111)
Comments:
1. Principal remedies: a. Specific performance (Arts. 1165 to 1167) b. Substitute Performance (Art. 1165) and c. Equivalent Performance (Arts. 1168 and 1170)
2. Subsidiary Remedies.
2.1. Subrogatory action or accion subrogatoria. (Art. 1177)The creditor will file a case in behalf of the debtor with respect to another obligation that is due to the debtor.
2.2. Rescissory action or accion pauliana. (Arts. 1177 & 1381 [3]). – the creditor will impugn the acts of the debtor that is in fraud of creditors.

3. DISTINGUISHED from SUBROGATION in Novation per Arts. 1291 (3) & 1300. In novation, the third person steps into the shoes of the creditor; In Art. 1177, creditor steps into the shoes of DEBTOR to sue a third person.
4. Requisites of SUBROGATORY ACTION.

            4.1. The creditor has a right of credit against the debtor
            4.2. The credit must be due and demandable
            4.3. There must be failure of the debtor to collect from third persons (debtor of the debtor), whether wilfully or through negligence
            4.4. The assets in the hands of the debtor are INSUFFICIENT – the creditor need not bring a separate action to show this exhaustion or insolvency of the debtor but he can prove the same in the very action to exercise the subrogatory action; and,
            4.5. The right and actions are not purely personal or inherent in the person of the debtor.

5. Requisites of RESCISSORY ACTION (Action Pauliana)

            5.1. That plaintiff asking for rescission, has a credit prior to the alienation, although demandable later. (Credit or transaction must PRECEDE the alienation).
            5.2. That debtor has made a subsequent contract conveying a patrimonial benefit to a third person
            5.3. That creditor has NOT OTHER LEGAL REMEDY (subsidiary remedy) to satisfy his claim, but would benefit by rescission of the conveyance to the third person
            5.4. That the act being impugned is FRAUDULENT
            5.5. That third person who received the property conveyed, if by onerous title, has been an accomplice in the fraud.

6. 3 kinds of RESCISSION under the Civil Code
            a. Accion Pauliana
            b. Article 1191 (Resolution)
            c. Arts. 1380 & 1381- which are based on prejudice or economic damage

7. “The accion pauliana is an action of LAST RESORT. For so long as the creditor still has a remedy at law for the enforcement of his claim against the debtor, the creditor will not have any cause of action against the debtor for rescission of the contracts entered into by and between the debtor and another person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the court[9]”.

Similarly, in  Adorable v. Court of Appeals, G.R. No. 119466, November 25, 1999, it was held that:

Nor can we sustain petitioners claim that the sale was made in fraud of creditors. Art. 1177 of the Civil Code provides:

The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the actions which the debtor may have done to defraud them. (Emphasis added)
Thus, the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). Without availing of the first and second remedies, i.e., exhausting the properties of the debtor or subrogating themselves in Francisco Barengs transmissible rights and actions, petitioners simply undertook the third measure and filed an action for annulment of the sale. This cannot be done.

Indeed, an action for rescission is a subsidiary remedy; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.[6] Thus, Art. 1380 of the Civil Code provides:
The following contracts are rescissible:
. . . .
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

Petitioners have not shown that they have no other means of enforcing their credit. As the Court of Appeals pointed out in its decision:

In this case, plaintiffs-appellants had not even commenced an action against defendants-appellees Bareng for the collection of the alleged indebtedness. Plaintiffs-appellants had not even tried to exhaust the property of defendants-appellees Bareng. Plaintiffs-appellants, in seeking for the rescission of the contracts of sale entered into between defendants-appellees, failed to show and prove that defendants-appellees Bareng had no other property, either at the time of the sale or at the time this action was filed, out of which they could have collected this (sic) debts.”
   


IV. Discuss the following:

               4.1. Pure obligation. (2%)
               4.2. Suspensive Condition (2%).
               4.3. Resolutory Condition (2%).
               4.4. Term or Period. (2%).
               4.5. Distinguish Facultative from Alternative Obligations. (2%).


V. The Spouses Lim entered into a contract with Julian, a contractor, for the construction of a gasoline-refilling station on the former’s land. The contract price was a “package-deal” of Php4,000,000.00 whereby Julian promised to deliver or turn-over to the Spouses Lim a “fully-operational” gasoline –refilling station on 03 July 2017. The Spouses Lim have already paid the full amount of Php4,000,000.00 to Julian. However, on due date, or on 03 July 2017, the gasoline-refilling station that was constructed was not fully finished because while the gasoline tanks and the canopy and pumping stations were installed, the building permit was not secured from the local government concerned.

5.1. If you were the lawyer for the Sps. Lim, how would you argue the legal points in favor of your clients by citing pertinent provisions of the law on Obligations and Contracts? (5%)

5.2. What about if Julian hires you as his lawyer, how would you argue his case by citing pertinent provisions of the law on Obligations and Contracts? (5%)

5.3. If you were the Judge, how would you rule on the diametrically opposed contentions of the parties? Decide. (10%).



ANSWER:


Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n)

Comment: Payment or performance consists of: Good faith, Integrity (How); Identity (What) and Totality (Indivisiblity).

Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. (1157)

Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n)

Comment:

Substantial compliance must be coupled with good faith.

What constitutes “substantial compliance”? Is there a jurisprudential benchmark which fixes a percentage of accomplished work?

A 2017 case law provides the answer, viz:

“Interpretation of Contracts

We reject this claim of Werr and find that while this industry practice may supplement the Agreement, Werr cannot benefit from it.

At the outset, we do not agree with the CA that industry practice be rejected because liquidated damages is provided in the Agreement, autonomy of contracts prevails, and industry practice is completely set aside. Contracting parties are free to stipulate as to the terms and conditions of the contract for as long as they are not contrary to law, morals, good customs, public order or public policy. 52 Corollary to this rule is that laws are deemed written m every contract.

Deemed incorporated into every contract are the general provisions on obligations and interpretation of contracts found in the Civil Code. The Civil Code provides:

Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee.

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of acontract, and shall fill the omission of stipulations which are ordinarily established.

In previous cases, we applied  these provisions in construction agreements to determine  whether the project owner is entitled to liquidated  damages. We held that substantial completion of the project equates to achievement of 95% project completion which excuses the contractor from the payment of liquidated damages.

In Diesel Construction Co., Inc. v. UPS! Property Holdings, Inc., 54 We applied Article 1234 of the Civil Code. In determining what is considered substantial compliance, we used the CIAP Document No. 102 as evidence of the construction industry practice that substantial compliance is equivalent to 95% accomplishment rate. In that case, the construction agreement requires the contractor "to pay the owner liquidated damages in the amount equivalent to one-fifth (1/5) of one (1) percent of the total Project cost for each calendar day of delay."55 We declared that the contractor cannot be liable for liquidated damages because it already accomplished 97 .56% of the project.56 We reiterated this in Transcept Construction and Management Professionals, Inc. v. Aguilar57 where we ruled that since the contractor 52 CIVIL CODE, Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. 53 See Philippine Economic Zone Authority v. Green Asia Construction & Development Corporation, accomplished 98.16% of the project~ the project owner is not entitled to the 10% liquidated damages.

Considering the foregoing, it: was error for the CA to immediately dismiss the application of industry practice on the sole ground that there is I an existing agreement as to liquidated damages. As expressly stated under Articles 1234 and 1376, and in jurisprudence, the construction industry's prevailing practice may supplement any ambiguities or omissions in the I stipulations of the contract.

Notably, CIAP Document N0. 102, by itself, was intended to have suppletory effect on private construction contracts. This is evident in CIAP Board Resolution No. 1-98,59 which states Sec. 9. Policy-Making BodY, - The [CIAP], through the CIAP Executive Office and its various Implementing Agencies, shall continuously monitor and study the operations of the construction industry, both domestic and overseas operations, to identify its needs, problems and opportunities, in order to provide for the pertinent policies and/or executive action ' and/or legislative agenda necessary to implement plans, programs and measures required to support the s«stainable development of the construction industry, such as but not limited to the following: 19.05 The promulgation! and adoption of Standard Conditions of Contract for the public construction and private construction i sector which shall have suppletory effect in cases where there is a conflict in the internal documents of a construction contract or in the absence of the general conditions of a construction agreement[.]

As the standard conditions for contract for private construction adopted and promulgated by the CIAP, CIAP Document No. 102 applies suppletorily to private construction contracts to remedy the conflict in the internal documents of, or to fill in the omissions in, the construction agreement.

-WERR CORPORATION INTERNATIONAL, - versus -HIGHLANDS PRIME, INC., G.R. No. 187543

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

HIGHLANDS PRIME, INC., Petitioner, - versus - WERR CORPORATION INTERNATIONAL, Respondent.
G.R. No. 187580, February 8, 2017


Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. (n)

Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a)

Comment:

1.      Read Manuel Go Cinco v. CA et al.[1], Article 19 must nonetheless be observed in refusing to accept payment from a debtor who endeavours to make payment and will suffer untold prejudice by such refusal.



VI.

6.1.  Gregorio, a simple-minded common folk, inherited a 500 square meter tract of land. He sold the lot to Jerome in 2003. In 2004, Jerome, in turn, sold it to Ana. In 2006, Gregorio sold the lot to Maria.  Maria was able to register the sale and obtain a title in her name a few months after the sale. Ana and Maria being at loggerheads, who between them is the rightful owner of the lot? Explain. (5%)

6.2. What if Ana knew about the negotiation for the sale in favor of Maria? How would that affect your answer in the previous question? Explain. (5%)

Answer:


I.Main Rule
Primus tempore, potior jure (First in time, priority in right).
Corollary to Legal truism that: “You cannot give what you do not have”.
II. Article 1544;
Rules only apply when the following requisites concur:

a)     The two (or more) sales transactions must constitute valid sales
b)    The two (or more) sales transactions must pertain to exactly the same subject matter
c)     The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and
d)    The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller[1]

Here, since the facts are clear that the buyers did not buy from one and the same seller, then par. (d) is lacking. Therefore, Article 1544 will not find application. Instead, the default principle “primus tempore potior jure” applies. Under the prevailing facts, and applying the principles of the law afore-stated, Ana is the rightful owner of the land. Maria’s registration in her name is of no consequence because registration is not a mode of acquiring ownership. At At the time when Maria purchased the property from Gregorio in 2006, the latter was no longer the owner. Hence, he could not have given what he did not have. (Note: the result would have been different had it been shown that the original owner- Gregorio-  had a torrens title in his name and Maria relied in good faith thereon. In this particular scenario, the Torrens system of registration will now intersperse with Art 1544 and since the Torrens law is a special law, it will prevail. Thus, it would be only when this special circumstance is extant that Maria may dislodge Ana. Or, had they purchased directly from the same seller.)



VII.

7.1. Distinguish the following: Contract of Sale, Conditional Sale and Contract to Sell. (5%)

7.2. Peter and Paul entered into a Contract to Sell whereby Peter, the lot owner, agreed to sell to Paul his lot on November 6, 2016 for the price of Pl ,000,000.00 to be paid at the residence of Peter in Makati City at 1 :00 p.m. If the full price is paid in cash at the specified time and place, then Peter will execute a Deed of Absolute Sale and deliver the title to Paul.
On November 6, 2016, Paul did not show up and was not heard of from that date on. In view of the nonperformance by Paul of his obligation, Peter sent a letter to Paul that he is expressly and extra-judicially declaring the Contract to Sell rescinded and of no legal and binding effect. Peter further stated that failure on the part of Paul to contest the rescission within thirty (30) days from receipt of said letter shall mean that the latter agreed to the rescission.
Paul did not reply to this letter for five (5) years. Thus, Peter decided to sell his lot to Henry in 2021. After hearing that Henry bought the lot, Paul now questions the sale of the lot to Henry and files a complaint for nullification of the sale.
[a] Is the exercise by Peter of his power to rescind extra-judicially the Contract to Sell the proper and legal way of rescinding said contract? Explain. (2.5%)
[b] In case Paul made a downpayment pursuant to a stipulation in the Contract to Sell, what is the legal remedy of Peter? (2.5%)

Basically, in Nool v. CA,[4] the doctrine was laid down that a right of repurchase must be part and parcel of a contract of sale and cannot be embodied in a separate contract.

1.5. Right of Redemption v. Option to Purchase (2nd Para. Art. 1479).

(Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.)


            a. Right of Redemption is not a separate contract
            b. In Right of Redemption, separate consideration is not required
            c. Art. 1606 limits the period of redemption to 4 or 10 years
            d. Right of redemption – tender of payment is required; Option to Purchase- Mere notice of exercise of option is enough


 If the litigation takes more than 10 years, would this not contravene the spirit of the law prohibiting a prolonged period of uncertainty of ownership as enunciated in the ruling in Cebu State College of Science and Technology (CSCST) etc. v Luis & Misterio, G.R. No. 179025, June 17, 2015?


Prof. Cesar Villanueva[7] opines NOT.

        “The rationale for the grant of the 30-day period of redemption under Article 1606 is quite clear: although a period of redemption is stated in the purported sale a retro, nevertheless, the purported seller has placed no importance thereto since he considers the transaction to be an equitable mortgage; being an equitable mortgage then, the purported seller has every right to extinguish the equitable mortgage by paying-up the loan at anytime before the purported buyer has foreclosed on the mortgage. Allowing the expiration of the stipulated redemption period is not negligence or fault on the part of the part of the purported seller, and is in fact consistent with his position that the sale is not one a retro but actually an equitable mortgage. Therefore, should a judgment be finally rendered upholding the transaction to be one of sale a retro, then it is but fair to grant to the seller a final 30-day period within which to redeem from the time he is bound by the judgment finding the contract to be one not of equitable mortgage.

        On the other hand, if the issue before the court is one whether the contract at issue was one of absolute sale or a sale a retro, a judgment finding the contract to be a sale a retro should not authorize the application of the 30-day redemption period under Article 1606 in favor of the seller who had previously allowed the period of redemption to expire. In such a case, the seller a retro was negligent or at fault for not having exercised his right to redeem during the redemption period, and should not be granted a new period.

-In Adorable v. Inacala[8], it was ruled that where the evidence established that there could be no honest doubt as to the parties’ intention that the transaction was clearly and definitely a sale with pacto de retro, the seller a retro would not be entitled to the benefit of Article 1606.


(2016 Bar Exam Question).

VIII.

8.1.  Roger, the seller, and Rafael, the buyer, entered into a Contract of Sale involving Lot 12345 which as its Certificate of Title declares, consists of Five Hundred (500) square meters. The Deed of Absolute Sale states that the purchase price is Five Million Pesos for the entire lot consisting of 500 square meters. If it turns out that upon relocation survey, Lot 12345 actually consists of Five Hundred Twenty-Six (526) Square Meters, can Roger retain the excess of 26 square meters? Explain. (2.5%)

               What if the excess is two hundred square meters? Would your answer in 8.1. still be the same? Explain. (2.5%).


Answer:

In an August 2016 case Anita U. Lorensana v. Rodolfo Lelina, G.R. No. 187850, August 17, 2016
 it was ruled that:

            “What defines land; Land sold in LUMP SUM

            At any rate, we have consistently held that what really defines a piece of land is not the area, calculated with more or less certainty , mentioned in   the description, but its boundaries laid down, as enclosing the land and indicating its limits. Where land is sold for a lump sum and not so much per unit or measure, number, the boundaries of the land stated in the contract determine the effects and scope of the sale, and not its area. This is consistent with Article 1542 of the Civil Code which provides:

X x x”[3].

However, in a subsequent case (DASMARINAS T. ARCAINA and MAGNANI T. BANTA, G.R. No. 196444 Petitioners, - versus – and NOEMI L. INGRAM, represented by MA. NENETTE L. ARCHINUE, Respondent. February 15, 2017, jurisprudence created a circumscription of the extent of the meaning of the words “more or less”, to mean “slight or inconsequential differences”, thus:
 Sale on Lump Sum


Judicial admissions made by the parties in the pleadings, or in the course of the trial or other proceedings in the same case, are conclusive and do not require further evidence to prove them. These admissions cannot be contradicted unless previously shown to have been made through palpable mistake or that no such admission was made.40 Petitioners do not deny their previous admission, much less allege that they had made a palpable mistake. Thus, they are bound by it. We now resolve the main issue in this case and hold that Lot No. 3230 was sold for a lump sum. In sales involving real estate, the parties may choose between two types of pricing agreement: a unit price contract wherein the purchase price is determined by way of reference to a stated rate per unit area (e.g, Pl,000.00 per sq. m.) or a lump sum contract which states a full purchase price for an immovable the area of which may be declared based on an estimate or where both the area and boundaries are stated (e.g., Pl million for 1,000 sq. m., etc.).41 Here, the Deed of Sale executed by Banta on March 21, 200542 and the Deed of Sale executed by Arcaina on April 13, 200543 both show that the property was conveyed to Ingram at the predetermined price of Pl,860,000.00. There was no indication that it was bought on a per-square-meter basis. Thus, Article 1542 of the Civil Code governs the sale, viz.: 37 Id. at 86. 38 Id at 70-71. 39 Id. at 14. 40 Philippine Long Distance Telephone Company (PLDT) v. Pingol, G.R. No. 182622, September 8, 2010, 630 SCRA 413, 421; citing Damasco v. National Labor Relations Commission, G.R. No. I 15755, December 4, 2000, 346 SCRA 714, 725, also citing Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., G.R. No. 87434, August 5, 1992, 212 SCRA 194, 204. 41 Esguerra v. Trinidad, G.R. No. 169890, March 12, 2007, 518 SCRA 186, 196-197. 42 Rollo, p. w 43 Id. at 68-z; Decision 8 G.R. No. 196444 Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in the contract. The same rule shall be applied when two or more immovables are sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. The provision teaches that where both the area and the boundaries of the immovable are declared in a sale of real estate for a lump sum, the area covered within the boundaries of the immovable prevails over the stated area. 44 The vendor is obliged to deliver all that is included within the boundaries regardless of whether the actual area is more than what was specified in the contract of sale; and he/she shall do ·so without a corresponding increase in the contract price. This is particularly true when the stated area is qualified to be approximate only, such as when the words "more or less" were used. 45 The deeds of sale in this case provide both the boundaries and the estimated area of the property. The land is bounded on the North East by Lot No. 3184, on the South East by seashore, on the South West by Lot No. 3914 and on the North West by a road. 46 It has an area of more or less 6,200 sq. m. The unifonn allegations of petitioners and Ingram, however, reveal that the actual area within the boundaries of the property amounts to more or less 12,000 sq. m., with a difference of 5,800 sq. m. from what was stated in the deeds of sale. With Article 1542 in mind, the RTC and the CA ordered petitioners to deliver the excess area to Ingram. They are mistaken. In Del Prado v. Spouses Caballero,47 we were confronted with facts analogous to the present petition. Pending the issuance of the Original Certificate of Title (OCT) in their name, Spouses Caballero sold a parcel of land to Del Prado. The contract of sale stated both the property's boundaries and estimated area of more or less 4,000 sq. m. Later, when the OCT was issued, the technical description of the property appeared to be 14,457 sq. 44 See Rudolf Lietz, Inc. v. Court of Appeals, supra note 26 at 459. 45 Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, Dfcem er 17, 1966, 18 SCRA 973, 979. 46 Rollo, pp. 67-68. 47 G.R. No. 148225, March 3, 2010, 614 SCRA 102. Decision 9 G.R. No. 196444 m., more or less. Del Prado alleged that Spouses Caballero were bound to deliver all that was included in the boundaries of the land since the sale was made for a lump sum. Although, we agreed with Del Prado that the sale partakes of the nature of a lump sum contract, we did not apply Article 1542. In holding that Del Prado is entitled only to the area stated in the contract of sale, we explained: The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast and admits of an exception. It held: "A caveat is in order, however. The use of "more or less" or similar words in designating quantity covers only a reasonable excess or deficiency. A vendee of land sold in gross or with the description "more or less" with reference to its area does not thereby ipso facto take all risk of quantity in the land. xxx In the instant case, the deed of sale is not one of a unit price contract. The parties agreed on the purchase price of P40,000.00 for a predetermined area of 4,000 sq m, more or less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of sale of land in a mass, the specific boundaries stated in the contract must control over any other statement, with respect to the area contained within its boundaries. Black's Law Dictionary defines the phrase "more or less" to mean: "About; substantially; or approximately; implying that both parties assume the risk of any ordinary discrepancy. The words are intended to cover slight or unimportant inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are ordinarily to be interpreted as taking care of unsubstantial differences or differences of small importance compared to the whole number of items transferred." Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in quantity. The difference in the area is obviously sizeable and too substantial to be overlooked. It is not a reasonable excess or deficiency that should be deemed included in the deed of sale.48 (Emphasis supplied; citations omitted.) In a lump sum contract, a vendor is generally obligated to deliver all the land covered within the boundaries, regardless of whether the real area '" Id atl!0-111, L Decision 10 G.R. No. 196444 should be greater or smaller than that recited in the deed. 49 However, in case there is conflict between the area actually covered by the boundaries and the estimated area stated in the contract of sale, he/she shall do so· only when the excess or deficiency between the fonner and the latter is reasonable. 50 Applying Del Prado to the case before us, we find that the difference of 5,800 sq. m. is too substantial to be considered reasonable. We note that only 6,200 sq. m. was agreed upon between petitioners and Ingram. Declaring Ingram as the owner of the whole 12,000 sq. m. on the premise that this is the actual area included in the boundaries would be ordering the delivery of almost twice the area stated in the deeds of sale. Surely, Article 1542 does not contemplate such an unfair situation to befall a vendor-that he/she would be compelled to deliver double the amount that he/she originally sold without a corresponding increase in price. In Asiain v. Jalandoni, 51 we explained that "[a] vendee of a land when it is sold in gross or with the description 'more or less' does not thereby ipso facto take all risk of quantity in the land. The use of 'more or less' or similar words in designating quantity covers only a reasonable excess or deficiency." 52 Therefore, we rule that Ingram is entitled only to 6,200 sq. m. of the property. An area of 5,800 sq. m. more than the area intended to be sold is not a reasonable excess that can be deemed included in the sale. 53 Further, at the time of the sale, Ingram and petitioners did not have knowledge of the actual area of the land within the boundaries of the property. It is undisputed that before the survey, the parties relied on the tax declaration covering the lot, which merely stated that it measures more or less 6,200 sq. m. Thus, when petitioners offered the property for sale and when Ingram accepted the offer, the object of their consent or meeting of the minds is only a 6,200 sq. m. property. The deeds of sale merely put into writing what was agreed upon by the parties. In this regard, we quote with approval the ruling of the MCTC: In this case, the Deed of Absolute Sale (Exhibit "M") dated April 13, 2005 is clear and unequivocal as to the area sold being up to only 6,200 square meters. The agreement of the parties were clear and unambiguous, hence, the inconsistent and impossible testimonies of N[ e ]nette [ Archinue] and the Spouses Ingram. No amount of extrinsic aids are required and no further extraneous sources are necessary in order to ascertain the parties' intent, determinable as it is, from the document itself. The court is thus convinced that the deed expresses truly the parties' intent as against the oral testimonies of Nenette, and the Spouses Ingram. 54 49 Balantakbo v. Court of Appeals, G.R. No. 108515, October 16, 1995, 249 SCRA 323, 327 citing Pacia v. Lagman, 63 Phil. 361 (1936). 50 Del Prado v. Spouses Caballero, supra note 47. 51 45 Phil. 296 (1923). 52 Id. at 309-31,. / 53 See Roble v. A b sa, G.R. No. 130707, July 31, 200 I, 362 SCRA 69, 81. 54 Rollo, p. 27. Decision 11 G.R. No. 196444 The contract of sale is the law between Ingram and petitioners; it must be complied with in good faith. Petitioners have already performed their obligation by delivering the 6,200 sq. m. property. Since Ingram has yet to fulfill her end of the bargain,55 she must pay petitioners the remaining balance of the contract price amounting to Pl45,000.00. WHEREFORE, premises considered, the petition is GRANTED. The October 26, 2010 Decision and March 1 7, 2011 Resolution of the Court of Appeals in CA-G.R. SP No. 107997 are hereby REVERSED and SET ASIDE. The July 31, 2008 Order of the 3rd Municipal Circuit Trial Court of Sto. Domingo-Manito, dismissing Civil Case No. S-241 for insufficiency of evidence, and ordering Ingram to pay Pl45,000.00 to petitioners, is hereby REINSTATED with MODIFICATION. Ingram is ordered to pay petitioners the amount of Pl45,000.00 to earn interest at the rate of six percent ( 6%) per annum from July 31, 200856 until the finality of this Decision.[1] X x x”.





IX. On March 13, 2008, Ariel entered into a Deed of Absolute Sale (DAS) with Noel where the former sold his titled lot in Quezon City with an area of three hundred (300) square meters to the latter for the price of P300,000.00. The prevailing market value of the lot was P3,000.00 per square meter. On March 20, 2008, they executed another "Agreement To Buy Back/Redeem Property" where Ariel was given an option to repurchase the property on or before March 20, 2010 for the same price. Ariel, however, remained in actual possession of the lot. Since Noel did not pay the taxes, Ariel paid the real property taxes to avoid a delinquency sale.
On March 21, 2010, Ariel sent a letter to Noel, attaching thereto a manager's check for P300,000.00 manifesting that he is redeeming the property. Noel rejected the redemption claiming that the DAS was a true and valid sale representing the true intent of the parties. Ariel filed a suit for the nullification of the DAS or the reformation of said agreement to that of a Loan with Real Estate Mortgage. He claims the DAS and the redemption agreement constitute an equitable mortgage. Noel however claims it is a valid sale with pacto de retro and Ariel clearly failed to redeem the property.
As the RTC judge, decide the case with reasons. (5%) 
(2016 BAR Examination Question in Civil Law)
X.

10.1. In a sale of personal property on installments, a promissory note was executed and secured by a chattel mortgage. When the note matured but remained unpaid, the creditor chose to collect on the note and prayed for a preliminary attachment. When judgment was rendered, the same became final and executory and levy on execution was made on the very property previously attached via preliminary attachment. It is also the very same property subject of chattel mortgage. If it turns out that the value of the property is insufficient to cover the entire “unpaid balance”, can the creditor recover the difference through a  “deficiency judgment? (2.5%).

10.2. In a sale of motor vehicle in installments where the unpaid balance is secured by a chattel mortgage over it, and upon foreclosure of the motor vehicle and there is a deficiency, can the seller collect “interest on the principal, attorney’s fees, expenses of collection and the costs”? Discuss (2.5%).

10.3. In a sale of motor vehicle in installments and the unpaid balance secured both by a chattel mortgage and a real estate mortgage over the buyer’s house and lot. In case of default and the seller of the motor vehicle avails of foreclosure of the chattel mortgage first but there is a deficiency, can he run after the real estate mortgage to satisfy the deficiency? (2.5%)

What if the seller decides to foreclose on the real estate mortgage first but there is a deficiency, can he still foreclose on the chattel mortgage? (2.5%).

Answer:

C.1.3. Foreclosure of mortgage. Unpaid Balance. “In this cae, he shall have no further action against the purchase to recover any unpaid balance of the price. Any agreement to the contrary shall be void”.

Hypotheticals:

a. In a sale of personal property on installments, a promissory note was executed and secured by a chattel mortgage. When the note matured but remained unpaid, the creditor chose to collect on the note and prayed for a preliminary attachment. When judgment was rendered, the same became final and executory and levy on execution was made on the very property previously attached via preliminary attachment. It is also the very same property subject of chattel mortgage. If it turns out that the value of the property is insufficient to cover the entire “unpaid balance”, can the creditor recover the difference through a  “deficiency judgment”?

a.1. If allowed, would this not allow indirectly the evil sought to be prevented by the Recto Law?

-Read Tajanlangit v. Southern Motors, Inc.[15]      and Southern Motors, Inc. v. Moscoso[16]

b. If seller avails of rescission, generally, “unpaid balance” is recoverable. Is there an exception? – Read Delta Motor Sales Corp., v. Niu Kim Duan[17] on effect of recovery of chattel as a result of mutual rescission.

-“Rescission” is deemed availed of when: possession of chattel is retaken, filing of judicial rescission, and mere sending of notice of rescission.

c. Scope of “Unpaid Balance” which cannot be recovered. – Macondray & Co., Inc. v. Eustaquio[18]- “deficiency judgment to which the mortgagee may be entitled is applicable in cases where, after the mortgaged chattel is sold at public auction, the proceeds obtained therefrom are insufficient to cover the full amount of the secured obligation which in the case at bar as shown by the note and by the mortgaged deed, include interest on the principal, attorney’s fees, expenses of collection, and the costs”.

-Exception. Read- Filipinas Investment & Finance Corp. v. Ridad[19], “Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure to pay two or more installments, or if he conceals the chattel to place it beyond the reach of the mortgagee, what then is the mortgagee expected to do? It is past of conventional wisdom and the rule of law that no man can take the law into his own hands; so it is not supposed that the Legislature intended that the mortgagee should wrest or seize the chattel forcibly from the control and possession of the mortgagor, even to the extent of using violence which is unwarranted in law. Since the mortgagee would enforce his rights through the means and within the limits delineated by law, the next step in such situations being the filing of an action for replevin to the end that he may recover immediate possession of the chattel and thereafter, enforce his rights in accordance with the contractual relationship between him and the mortgagor as embodied in their agreement, then it logically follows as a matter of common sense, that the necessary expenses incurred in the prosecution by the mortgagee of the action for replevin so that he can regain possession of the chattel, should be borne by the mortgagor. Recoverable expenses would, in our view, include expenses properly incurred in effecting seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin x x x”.

d. Other Securities apart from Chattel Mortgage

-        Chattel mortgage must be on the very thing subject of the sale on installments in order for Recto Law to apply
-        In Cruz v. Filipinas Investment & Finance Corp.[20]    , it was held that allowing the foreclosure on the real estate mortgage, after the chattel mortgage was foreclosed, in order to recover deficiency, is to “overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Article 2066, Civil Code); so that ultimately, it will be the buyer who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given to him. Thus, the protection given by Art. 1484 would be indirectly subverted, and public policy overturned”.

-        What if, the seller (creditor/ mortgagee) instead of running after the chattel mortgage, decides to foreclose on the real estate mortgage first and then when there is a deficiency, it is only then that he decides to foreclose the chattel mortgage?

Read Borbon II v. Servicewide Specialists, Inc.[21]- “in the event the seller-mortgagee first seeks the enforcement of the additional mortgages, guarantees or other security arrangement, he must then be held to have lost by waiver or non-choice his lien on the chattel mortgage of the personal property sold byt and mortgaged back to him, although, similar to an action for specific performance, he may still levy on it”. 















-End-




“Heroes are heroes because they are heroic in behaviour, not because they won or lost. X x x. Clearly, the epic poets understood invisible histories.”

- “Fooled by Randomness, by Nassim Nicolas Taleb”



[1] - DASMARINAS T. ARCAINA and MAGNANI T. BANTA, G.R. No. 196444 Petitioners, - versus –
and NOEMI L. INGRAM, represented by MA. NENETTE L. ARCHINUE, Respondent. February 15, 2017


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