BJDC CONSTRUCTION V. LANUZO

FACTS:

                This case involves a claim for damages arising from the death of a motorcycle rider in a nighttime accident due to the supposed negligence of a construction companythen undertaking re–blocking work on a national highway. The plaintiffs insisted that the accident happened because the construction company did not provide adequate lighting on the site, but the latter countered that the fatal accident was caused by the negligence of the motorcycle rider himself.

                Nena alleged that she was the surviving spouse of the late Balbino who figured in the accident that transpired at the site of the re–blocking work at about 6:30 p.m. on October 30, 1997; that Balbino’s Honda motorcycle sideswiped the road barricadeplaced by the company in the right lane portion of the road, causing him to lose control of his motorcycle and to crash on the newly cemented road, resulting in his instant death; and that the company’s failure to place illuminated warning signs on the site of the project, especially during night time, was the proximate cause of the death of Balbino.

                In its answer, BJDC denied Nena’s allegations of negligence, insisting that it had installed warning signs and lights along the highway and on the barricades of the project; that at the time of the incident, the lights were working and switched on; that its project was duly inspected by the Department of Public Works and Highways (DPWH), the Office of the Mayor of Pili, and the Pili Municipal Police Station; and that it was found to have satisfactorily taken measures to ensure the safety of motorists.

ISSUE:

                Whether or not heirs of Balbino were able to establish by preponderance of evidence the negligence of BJDC.

HELD:

                NO. The party alleging the negligence of the other as the cause of injury has the burden to establish the allegation with competent evidence. If the action based on negligence is civil in nature, the proof required is preponderance of evidence.

                In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on either side. The burden of proof is on the plaintiff if the defendantdenies the factual allegations of the complaint in the manner required by the Rules of Court, but it may rest on the defendant if he admits expressly or impliedly the essential allegations but raises affirmative defense or defenses, which if proved, will exculpate him from liability.

                The Court affirmed the findings of the RTC, and rules that the Lanuzo heirs, the parties carrying the burden of proof, did not establish by preponderance of evidence that the negligence on the part of the company was the proximate cause of the fatal accident of Balbino.

                During the trial, the Lanuzo heirs attempted to prove inadequacy of illumination instead of the total omission of illumination. In contrast, the company credibly refuted the allegation of inadequate illumination. The Court observes, too, that SPO1 Corporal, a veteran police officer detailed for more than 17 years at the Pili Police Station, enjoyed the presumption of regularity in the performance of his official duties. In his report, it was mentioned that “upon arrival at the scene of the incident it was noted that road sign/barricade installed on the road has a light.”

PHILIPPINE NATIONAL BANK V. DEE

FACTS:

                Some time in July 1994, respondent Dee Dee bought from respondent Prime East Properties Inc.5 (PEPI) on an installment basis a residential lot located in Binangonan, Rizal, with an area of 204 square meters and covered by TCT No. 619608. Subsequently, PEPI assigned its rights over a 213,093–sq m property on August 1996 to respondent Armed Forces of the Philippines–Retirement and Separation Benefits System, Inc. (AFP–RSBS), which included the property purchased by Dee.

                Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank, secured by a mortgage over several properties, including Dee’s property. The mortgage was cleared by the Housing and Land UseRegulatory Board (HLURB) on September 18, 1996.

                After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP–RSBS on July 1998 in Dee’s favor. Consequently, Dee sought from the petitioner the delivery of the owner’s duplicate title over the property, to no avail. Thus, she filed with the HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI and AFP–RSBS, among others.

ISSUE:

                Whether or not PNB, as mortgagee, was bound by the contract to sell previously executed over the subdivision lot mortgaged.

HELD:

                YES. In this case, there are two phases involved in the transactions between respondents PEPI and Dee – the first phase is the contract to sell, which eventually became the second phase, the absolute sale, after Dee’s full payment of the purchase price. In a contract of sale, the parties’ obligations are plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that is the object of sale. On the other hand, the principal obligation of a vendee is to pay the full purchase price at the agreed time. Based on the final contract of sale between them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21–A, Village East Executive Homes, is to transfer the ownership of and to deliver Lot 12, Block 21–A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price of the property.

                It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the principal three–year loan takeout from the petitioner by PEPI for its expansion project. It need not be belabored that “a mortgage is an accessory undertaking to secure the fulfillment of a principal obligation,” and it does not affect the ownership of the property as it is nothing more than a lien thereon serving as security for a debt.

Owner or developer of subdivision lot or condominium unit may mortgage the same despite contract to sell

                Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of the property.

                 Thus, in China Banking Corporation v. Spouses Lozada, the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: “P.D. No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of the purchase price by the installment buyer.” Moreover, the mortgage bore the clearance of the HLURB, in compliance with Section 18 of P.D. No. 957, which provides that “no mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the HLURB.”

Bank-mortgagee bound by the contract to sell over the property mortgaged

                Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound to respect the transactions between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI were also the subject of existing contracts to sell with other buyers. While it may be that the petitioner is protected by Act No. 3135, as amended, it cannot claim any superior right as against the installment buyers. This is because the contract between the respondents is protected by P.D. No. 957, a social justice measure enacted primarily to protect innocent lot buyers. Thus, in Luzon Development Bank v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell.

                The transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. x x x More so in this case where the contract to sell has already ripened into a contract of absolute sale.

                The Court affirmed HLURB’s orders:

• Deed of sale
 
• Clearances
 
• Amendments
 
• Bank National

1. PNB to cancel the mortgage and surrender/release the title to Dee.
2. PEPI and AFP-RSBS to pay PNB the redemption value of the subject property as agreed upon by them in the REM within 6 months from the time the owner’s duplicate of TCT is actually surrendered and released by PNB to Dee.
3. In the alternative, in case of legal and physical impossibility on the part of PEPI, AFP–RSBS, and PNB to comply and perform their respective obligation/s, as above–mentioned, respondents PEPI and AFP–RSBS are hereby ordered to jointlyand severally pay to Dee the amount of P520,000.00) plus interest to be computed from the filing of complaint on April 24, 2002 until fully paid.
4. PEPI, AFP-RSBS and PNB to pay solidarily Dee attorney’s fees, cost of litigation, and administrative fine.

BIGNAY EX-IM PHILIPPINES V. UNION BANK

FACTS:

                In 1988, Rosario filed against Alfonso and Union Bank, Civil Case No. Q-52702 for annulment of the 1984 mortgage, claiming that Alfonso mortgaged the property without her consent, and for reconveyance.

                In a September 6, 1989 Letter-Proposal, Bignay Ex-Im Philippines, Inc. (Bignay), through its President, Milagros Ong Siy (Siy), offered to purchase the property.

                On December 20, 1989, a Deed of Absolute Sale6 was executed by and between Union Bank and Bignay whereby the property was conveyed to Bignay for P4 million. The deed of sale was executed by the parties through Bignay’s Siy and Union Bank’s Senior Vice President Anthony Robles (Robles). One of the terms of the deed of sale is quoted below:

                Section 1. The VENDEE hereby recognizes that the Parcel/s of Land with improvements thereon is acquired through foreclosure proceedings and agrees to buy the Parcel/s of Land with improvements thereon in its present state and condition. The VENDOR therefore does not make any x x x representations or warranty with respect to the Parcel/s of Land but that it will defend its title to the Parcel/s of Land with improvements thereon against the claims of any person whomsoever.

                On December 12, 1991, a Decision8was rendered in Civil Case No. Q-52702 in favor of Alfonso. Union Bank appealed the above Decision with the CA. It likewisesought a new trial of the case, which the trial court denied. The CA appeal was dismissed for failure to file appellant’s brief; the ensuing Petition for Review with this Court was similarly denied for late filing and payment of legal fees.

                Union Bank next filed with the CA an action to annul the trial court’s December 12, 1991 judgment. In a September 9, 1993 Resolution, however, the CA again dismissed the Petition for failure to comply with Supreme Court Circular No. 28-91. The bank’s Motion for Reconsideration was once more denied.

                This time, Bignay filed a Petition for annulment of the December 12, 1991 Decision, docketed as CA-G.R. SP No. 33901. In a July 15, 1994 Decision, the CA dismissed the Petition. Bignay’s resultant Petition for Certiorari with this Court suffered the same fate.

                Meanwhile, as a result of the December 12, 1991 Decision in Civil Case No. Q-52702, Bignay was evicted from the property; by then, it had demolished the existing structure on the lot and begun construction of a new building.

ISSUE:

                Whether or not Union Bank was grossly negligent in this case.

HELD:

                YES. The Court held that the gross negligence of the seller in defending its title to the property subject matter of the sale – thereby contravening the express undertaking under the deed of sale to protect its title against the claims of third persons resulting in the buyer’s eviction from the property, amounts to bad faith, and the buyer is entitled to the remedies afforded under Article 1555 of the Civil Code.

                The record reveals that Union Bank was grossly negligent in the handling and prosecution of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case was dismissed by the CA for failure to file the required appellant’s brief. Next, the ensuing Petition for Review on Certiorari filed with this Court was likewise denied due to late filing and payment of legal fees. Finally, the bank sought the annulment of the December 12, 1991 judgment, yet again, the CA dismissed the petition for its failureto comply with Supreme Court Circular No. 28-91. As a result, the December 12, 1991 Decision became final and executory, and Bignay was evicted from the property. Such negligence in the handling of the case is far from coincidental; it is decidedly glaring, and amounts to bad faith. “Negligence may be occasionally so gross as to amount to malice [or bad faith].” Indeed, in culpa contractual or breach of contract, gross negligence of a party amounting to bad faith is a ground for the recovery of damages by the injured party.

FIRST UNITED CONSTRUCTORS CORPORATION V. BAYANIHAN

FACTS:

                Petitioner FUCC and petitioner Blue Star were associate construction firms sharing financial resources, equipment and technical personnel on a case-to-case basis. From May 27, 1992 to July 8, 1992, they ordered six units of dump trucks from respondent Bayanihan.

                On September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime Mover that the respondent delivered on the same date. On September 29, 1992, FUCC again ordered from the respondent one unit of Isuzu Transit Mixer that was also delivered to the petitioners. For the two purchases, FUCC partially paid in cash, and the balance through post-dated checks.

                Upon presentment of the checks for payment, the respondent learned that FUCC had ordered the payment stopped. The respondent immediately demanded the full settlement of their obligation from the petitioners, but to no avail. Instead, the petitioners informed the respondent that they were withholding payment of the checks due to the breakdown of one of the dump trucks they had earlier purchased from respondent, specifically the second dump truck delivered on May 27, 1992.

                Due to the refusal to pay, the respondent commenced this action for collection on April 29, 1993, seeking payment of the unpaid balance in the amount of P735,000.00 represented by the two checks.

                Petitioners averred that they had stopped the payment on the two checks worth P735,000.00 because of the respondent’s refusal to repair the second dump truck; and that they had informed the respondent of the defects in that unit but the respondent had refused to comply with its warranty, compelling them to incur expenses for the repair and spare parts. They prayed that the respondent return the price of the defective dump truck worth P830,000.00 minus the amounts of their two checks worth P735,000.00, with 12% per annum interest on the difference of P90,000.00 from May 1993 until the same is fully paid; that the respondent should also reimburse them the sum of P247,950.00 as their expenses for the repair of the dump truck, with 12% per annum interest from December 16, 1992, the date of demand, until fully paid

ISSUE:

                Whether or not petitioners could avail themselves of legal compensation.

HELD:

          NO. The Court held that petitioners could not avail of legal compensation because the claims of petitioners against respondent were not liquidated and demandable.

         A debt is liquidated when its existence and amount are determined. Accordingly, an unliquidated claim set up as a counterclaim by a defendant can be set off against the plaintiff’s claim from the moment it is liquidated by judgment. Article 1290 of the Civil Code provides that when all the requisites mentioned in Article 1279 of the Civil Code are present, compensation takes effect by operation of law, and extinguishes both debtsto the concurrent amount. With petitioners’ expenses for the repair of the dump truckbeing already established and determined with certainty by the lower courts, it follows that legal compensation could take place because all the requirements were present. Hence, the amount of P71,350.00 should be set off against petitioners’ unpaid obligation of P735,000.00, leaving a balance of P663,650.00, the amount petitioners still owed to respondent.

EASTERN SHIPPING LINES V. BPI/MS INSURANCE

FACTS:

                Sumitomo Corporation shipped through vessels of Eastern Shipping Lines various steel sheets in coil in favor of the consignee Calamba Steel. In each of the three shipments, several coils were observed to be in bad condition as evidenced by the Turn Over Survey of Bad Order Cargo.  The cargoes were then turned over to Asian Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba Steel’s withdrawal of the goods. When ATI delivered the cargo to Calamba Steel, the latter rejected its damaged portion for being unfit for its intended purpose.

                Calamba Steel filed an insurance claim with Mitsui through the latter’s settling agent, respondent BPI/MS Insurance Corporation (BPI/MS), and the former was paid the sums of US$7,677.12, US$14,782.05 and US$7,751.15 for the damage suffered by all three shipments. Correlatively, on August 31, 2004, as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages against petitioner and ATI.

ISSUE:

                Whether or not Eastern Shipping was solidarily liable with ATI on account of the damage incurred by the goods.

HELD:

                YES. The Court held that both Eastern Shipping  and ATI were negligent in handling and transporting the goods.

                Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier. As hereinbefore found by the RTC and affirmed by the CA based on the evidence presented, the goods were damaged even before they were turned over to ATI. Such damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the goods during the discharging operations. Thus, it bears stressing unto petitioner that common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods transported by them.

                Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them.

                Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such high level of diligence. In this case, petitioner failed to hurdle such burden.

GONZALO V. TARNATE JR

FACTS:

                After the DPWH had awarded on July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to his company, Gonzalo Construction, petitioner Gonzalo subcontracted to respondent Tarnate on October 15, 1997, the supply of materials and labor for the project under the latter’s business known as JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight percent and four percent of the contract price, respectively, upon Tarnate’s first and second billing in the project.

                In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total collection from the DPWH for the project. This 10% retention fee  was the rent for Tarnate’s equipment that had been utilized in the project. In the deed of assignment, Gonzalo further authorized Tarnate to use the official receipt of Gonzalo Construction in the processing of the documents relative to the collection of the 10% retention fee and in encashing the check to be issued by the DPWH for that purpose. The deed of assignment was submitted to the DPWH on April 15, 1999. During the processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement voucher for the 10% retention fee had then been issuedin the name of Gonzalo, and the retention fee released to him.

                Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail.

ISSUE:

                Whether or not the subcontract and deed of assignment are void contracts.

HELD:

                YES. The Court held that the subcontract agreement and deed of assignment between Gonzalo and Tarnate are void for being contrary to law. However, even though both parties are in pare delicto the Court allowed Tarnate to recover his retention fee, as an exception, due to unjust enrichment.

Contract is void

                Every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with the DPWH unless the DPWH Secretary has approved the subcontracting or assignment. Gonzalo, who was the sole contractor of the project in question, subcontracted the implementation of the project to Tarnate in violation of the statutory prohibition. Their subcontract was illegal, therefore, because it did not bear the approval of the DPWH Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from the subcontract.

                Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment because the rule is that an illegal agreement cannot give birth to a valid contract. To rule otherwise is to sanction the act of entering into transaction the object of which is expressly prohibited by law and thereafter execute an apparently valid contract to subterfuge the illegality. The legal proscription in such an instance will be easily rendered nugatory and meaningless to the prejudice of the general public.

                Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To the same effect is Article 1422 of the Civil Code, which declares that “a contract, which is the direct result of a previous illegal contract, is also void and inexistent.”

Rigid application of in pare delicto in void contracts; exception

                According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot recover from one another and are not entitled to an affirmative relief because they are in pari delicto or in equal fault. The doctrine of in pari delicto is a universal doctrine that holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.

                Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted exception arises when its application contravenes well-established public policy.

                There is no question that Tarnate provided the equipment, labor and materials for the project in compliance with his obligations under the subcontract and the deed of assignment; and that it was Gonzalo as the contractor who received the payment for his contract with the DPWH as well as the 10% retention fee that should have been paid to Tarnate pursuant to the deed of assignment. Considering that Gonzalo refused despite demands to deliver to Tarnate the stipulated 10% retention fee that would have compensated the latter for the use of his equipment in the project, Gonzalo would be unjustly enriched at the expense of Tarnate if the latter was to be barred from recovering because of the rigid application of the doctrine of in pari delicto. The prevention of unjust enrichment called for the exception to apply in Tarnate’s favor.

DEVELOPMENT BANK V. GUARINA

FACTS:

                In July 1976, Guariña Corporation applied for a loan from DBP to finance the development of its resort complex. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976. Guariña Corporation executed a promissory note that would be due on November 3, 1988. On October 5, 1976, Guariña Corporation executed a real estate mortgage over several real properties in favor of DBP as security for the repayment of the loan. On May 17, 1977, Guariña Corporation executed a chattelmortgage over the personal properties existing at the resort complex and those yet to be acquired out of the proceeds of the loan, also to secure the performance of the obligation. Prior to the release of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex.

                The loan was released in several installments, and Guariña Corporation used the proceeds to defray the cost of additional improvements in the resort complex. In all, the amount released totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.

                Guariña Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the latter’s objection. DBP found upon inspection of the resort project, its developments and improvements that Guariña Corporation had not completed the construction works. In a letter dated February 27, 1978, and a telegram dated June 9, 1978, DBP thus demanded that Guariña Corporation expedite the completion of the project, and warned that it would initiate foreclosure proceedings should Guariña Corporation not do so.10

                Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated extrajudicial foreclosure proceedings

ISSUE:

                Whether or not Guarina was in delay in performing its obligation making DBP’s action to foreclose the mortgage proper.

HELD:

                NO. The Court held that the foreclosure of a mortgage prior to the mortgagor’s default on the principal obligation is premature, and should be undone for being void and ineffectual. The mortgagee who has been meanwhile given possession of the mortgaged property by virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may be required to restore the possession of the property to the mortgagor and to pay reasonable rent for the use of the property during the intervening period.

                The agreement between DBP and Guariña Corporation was a loan. Under the law, a loan requires the delivery of money or any other consumable object by one party to another who acquires ownership thereof, on the condition that the same amount or quality shall be paid. Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.

                The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellee’s payment of the amount when it falls due. The appellant did not release the total amount of the approved loan. Appellant therefore could not have made a demand for payment of the loan since it had yet to fulfil its own obligation. Moreover, the fact that appellee was not yet in default rendered the foreclosure proceedings premature and improper.

                By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be obliged to perform what is expected of it while the other’s obligation remains unfulfilled. In other words, the latter party does not incur delay.