Vous êtes sur la page 1sur 79

Ang Yu vs Court of Appeals G.R. No.

109125 December 2, 1994

Herein plaintiff-petitioners (the buyers) are tenants or lessees of the residential and commercial properties
owned by respondents Co Unjieng (vendors). On several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the
same. Respondents offered to sell the property for P6M, and plaintiffs counter-offered to buy for P5M.
Plaintiffs asked the respondents to put the offer in writing, in which the respondents acceded (to express
approval or give consent : give in to a request or demand). Upon receipt of the offer, plaintiffs asked the
respondents specify the terms and conditions of the offer to sell. Since no response was made by the
respondents, plaintiffs were compelled to file the complaint against respondents compelling them to sell
the property.
The lower court decided in favor or the respondents reasoning that since parties did not agree upon the
terms and conditions of the proposed sale, hence there was not contract of sale at all. Further, it ruled
that if the respondents decide to sell the proper for P11M or lower, then plaintiffs have the right of first
refusal. Aggrieved by the decision, plaintiffs appealed to CA.
The Court of Appeals affirmed the decision of the lower court with modification: In resume, there was no
meeting of the minds between the parties concerning the sale of the property. Absent such requirement,
the claim for specific performance will not lie. Appellants’ demand for actual, moral and exemplary
damages will likewise fail as there exists no justifiable ground for its award.” CA however granted the
plaintiffs the right of first refusal regardless if the offer price exceeds P11M.
Plaintiffs appealed with the Supreme court but was denied for insufficiency in form and substance.
While plaintiff asked the SC for reconsideration, respondents transferred the properties in question to
respondent Buen Realty and Development Corporation in consideration of P15M.
Buen Realty after the properties came into its possession after the titles had been issued under its name,
plaintiffs were asked to vacate the premises. Plaintiffs brought the matter to the trial court to enforce the
decision rendered by the CA that plaintiffs has the right of first refusal. The lower court ordered
respondents to sell the property to plaintiffs for P15M. Respondents appealed to CA.
The CA reversed the judgment of the lower court declaring that it has no force and effect.
Hence this appeal for certiorari.

May a buyer (in this case Buen Realty) be bound by the writ of execution by virtue of the notice of lis
pendens (while pending lawsuit), carried over on TCT No. 195816 issued in the name of Buen Realty, at
the time of the latter’s purchase of the property on 15 November 1991 (time when the decision of CA was
still pending execution) from the Cu Unjiengs, given that Buen realty is not a party to the suit when the
decision was rendered?

No. What the petitioners have been granted of in the first place is just a mere ‘right of first refusal’. In the
law on sales, the so-called “right of first refusal” is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right
of first refusal, understood in its normal concept, per se be brought within the purview of an option under
the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same
Code. An option or an offer would require, among other things, 10 a clear certainty on both the object and
the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be
made determinate, the exercise of the right, however, would be dependent not only on the grantor’s
eventual intention to enter into a binding juridical relation with another but also on terms, including the
price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other
laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that
the right of first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can
warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a “right of first
refusal” in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser
of the property, has acted in good faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters
that must be independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property, without first being
duly afforded its day in court.
Sagrado Orden v. Nacoco 91 Phil 503


On Jan 4, 1942, during the Japanese occupation, Taiwan Tekkosho (Japanese corporation) acquired
the plaintiff’s property (land with warehouse in Pandacan, Manila) for Php140K

• On April 4, 1946, after the liberation, the US took control and custody of the aforementioned enemy’s
land under Sect 12 of the Trading with the Enemy Act

• In the same year, the Copra Export Management Company occupied the property under
custodianship agreement with the United States Alien Property Custodian

• In August 1946, when the Copra Export Management Co. vacated the property, the National Coconut
Corporation (NACOCO), the defendant, occupied it next

• Sagrada Orden (plaintiff) files claims on the property with the Court of First Instance of Manila and
against the Philippine Alien Property Administrator

• Plaintiff petitions that the sale of the property to Taiwan Tekkosho should be declared null and void as
it was executed under duress, that the interest of the Alien Property Custodian be cancelled, and that
NACOCO be given until February 28, 1949 to recover its equipment form the property and vacate the

• The Republic of the Philippines is allowed to intervene

• CFI: the defendant (Philippine Alien Property Administrator) and the intervenor (RP) are released
from any liability but the plaintiff may reserve the right to recover from NACOCO reasonable rentals
for the use and occupation of the premises

• The sale of the property to the Taiwan Takkesho was declared void and the plaintiff was given the
right to recover Php3,000/month as reasonable rental from August 1946 (date when NACOCO
occupied property) to the date NACOCO vacates the premises

• The judgment is appealed to the SC

1. Whether or not the defendant is liable to pay rent for occupying the property in question

1. The CFI’s decision that the defendant should pay rent from August 1946 to February 28, 1949 was
reversed, costs against the plaintiff.

Obligations can only arise from four sources: law, contracts or quasi-contracts, crime, or negligence (Art
1089, Spanish Civil Code).
There were no laws or an express agreement between the defendant or the Alien Property Custodian with
the plaintiff regarding payment of rent. The property was acquired by the Alien Property Administrator
through law (Trading with the Enemy Act) on the seizure of alien property and not as a successor to the
interests of the latter. There was no contract of rental b/w them and Taiwan Takkesho. NACOCO entered
possession of the property from the Alien Property Custodian without any expectation of liability for its
use. NACOCO did not commit any negligence or offense, and there was no contract, implied or
otherwise, entered into, that can be used as basis for claiming rent on the property before the plaintiff
obtained the judgment annulling the sale to Taiwan Takkesho. The plaintiff has no right to claim rent from
Important Notes
Article 1157 of the New Civil Code states that there are 5 sources of obligations: laws, contracts, quasi-
contracts, felonies (acts or omissions punished by law), and quasi-delicts..

PEOPLE’S CAR INC., vs Commando Security L-36840 May 22, 1973


Plaintiff, a car dealer, entered into a contract with defendant, a security agency, its duty is to guard the
former’s premises from theft, robbery, vandalism and other unlawful acts. On a certain night, the
security guard deployed by the defendant, without authority neither from the plaintiff nor from
defendant, drove a car, which was entrusted to the plaintiff by a customer for service and
maintenance, outside of the plaintiff’s compound and around the city which after the security guard
lost control of, fell into a ditch, causing it severe damage. Plaintiff complained against the security
guard for qualified theft. While the car is undergoing repair, plaintiff rented a car for its customer for
47 days until the car is fixed, and took pain to repair the damaged car.
Then plaintiff instituted a claim against the defendant for recovery of the actual damages it incurred due
to the unlawful act of the latter’s personnel, citing inter alia the Par. 5 of the contract that defendant
accepts “sole responsibility for the acts done during their watch hours”. Defendant on the other hand,
interposed, that it may be liable but its liability is limited under Par. 4 of said contract providing: “that its
liability “shall not exceed one thousand (P1,000.00) pesos per guard post”. To quote the contract:
‘Par. 4. — Party of the Second Part (defendant) through the negligence of its guards, after an
investigation has been conducted by the Party of the First Part (plaintiff) wherein the Party of the Second
Part has been duly represented shall assume full responsibilities for any loss or damages that may occur
to any property of the Party of the First Part for which it is accountable, during the watch hours of the
Party of the Second Part, provided the same is reported to the Party of the Second Part within twenty-four
(24) hours of the occurrence, except where such loss or damage is due to force majeure, provided
however that after the proper investigation to be made thereof that the guard on post is found negligent
and that the amount of the loss shall not exceed ONE THOUSAND (P1,000.00) PESOS per guard post.’
‘Par. 5 — The party of the Second Part assumes the responsibility for the proper performance by the
guards employed, of their duties and (shall) be solely responsible for the acts done during their watch
hours, the Party of the First Part being specifically released from any and all liabilities to the former’s
employee or to the third parties arising from the acts or omissions done by the guard during their tour of
duty.’ ... 8
The trial court rendered judgment in favor of the defendant limiting its liability to P1,000.00 under par. 4
and said that under paragraph 5, it is the customer who should bring the suit before the court.

Whether or not the plaintiff is entitled to recover its expenses from the defendant on account of the latter’s
employee’s unlawful act, despite the provision under paragraph 5 it is the 3rd party who should institute
the claim which held the plaintiff harmless from any and all liabilities of the defendant’s employees?


Yes. 3rd parties, the customer in the case at bar, are not bound by the contract between the defendant
and plaintiff. But the plaintiff is in law liable for the damages caused the customer’s car, which had been
entrusted into its custody. Plaintiff therefore was in law justified in making good such damages and relying
in turn on defendant to honor its contract and indemnify it for such undisputed damages, which had been
caused directly by the unlawful and wrongful acts of defendant’s security guard in breach of their contract.
As ordained in Article 1159, Civil Code, “obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.”
Plaintiff in law could not tell its customer, as per the trial court’s view, that “under the Guard Service
Contract it was not liable for the damage but the defendant” — since the customer could not hold
defendant to account for the damages as he had no privity of contract with defendant. Such an approach
of telling the adverse party to go to court, notwithstanding his plainly valid claim, aside from its ethical
deficiency among others, could hardly create any goodwill for plaintiff’s business, in the same way that
defendant’s baseless attempt to evade fully discharging its contractual liability to plaintiff cannot be
expected to have brought it more business.

Cangco vs. Manila Railroad (GR 12191, 14 October 1918)


Petitioner Cangco is employed by defendant Manila Railroad Co. in Manila, and by virtue of his
employment, he is entitled free ride from his house in San Mateo to Manila and vice-versa. On a fateful
night around 8:00 PM at the station of San Mateo where it was dimly lighted , petitioner while alighting the
train (though it was still moving very slowly to the point of stop), not knowing that there are sacks of melon
piled at the edge of the platform stepped on the objects, causing him to slip off balance. Plaintiff was
drawn under the car in an unconscious condition and as a result seriously injured him. His arm was
amputated and he was prevented from working. He spent approx P800 pesos for his medical expenses.
Thereupon, he sued Manila Railroad to recover damages on the ground of negligence of the servants
and employees of the defendant. The CFI ruled that although there is an apparent negligence on the part
of the defendant through its employees but nevertheless, the plaintiff cannot recover because he had
failed to use due caution in alighting from the coach. Hence this appeal.


Whether or not Manila Railroad Company is liable to the plaintiff for the negligent acts of its employees,
notwithstanding that plaintiff was also negligent?

Yes! While the plaintiff may have been negligent, the defendant is also negligent. The case falls under the
category that of (1) culpa contractual, that is, contract of carriage by providing the passengers safe travel
beginning from the time he
It is important to note that the foundation of the legal liability of the defendant is the contract of carriage,
and that the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the
breach of that contract by reason of the failure of defendant to exercise due care in its performance. That
is to say, its liability is direct and immediate, differing essentially, in legal viewpoint from that presumptive
responsibility for the negligence of its servants, imposed by article 1903 of the Civil Code, which can be
rebutted by proof of the exercise of due care in their selection and supervision. Article 1903 of the Civil
Code is not applicable to obligations arising ex contractu, but only to extra-contractual obligations — or to
use the technical form of expression, that article relates only to culpa aquiliana and not to culpa
respondeat superior - One who places a powerful automobile in the hands of a servant whom he knows to
be ignorant of the method of managing such a vehicle, is himself guilty of an act of negligence which
makes him liable for all the consequences of his imprudence.

Culpa Aquiliana or extra-contractual culpa

The liability arising from extra-contractual culpa is always based upon a voluntary act or omission which,
without willful intent, but by mere negligence or inattention, has caused damage to another. From this
article two things are apparent: (1) That when an injury is caused by the negligence of a servant or
employee there instantly arises a presumption of law that there was negligence on the part of the master
or employer either in selection of the servant or employee, or in supervision over him after the selection,
or both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the presumption is
overcome and he is relieved from liability.
Distinction between non-contractual and contractual Obligation
The fundamental distinction between obligations of this character and those which arise from contract,
rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or
omission itself which creates the vinculum juris, whereas in contractual relations the vinculum juris exists
independently of the breach of the voluntary duty assumed by the parties when entering into the
contractual relation.
The mere fact that a person is bound to another by contract does not relieve him from extra-contractual
liability to such person.
Comparative negligence - if the accident was caused by plaintiff’s own negligence, no liability is imposed
upon defendant’s negligence and plaintiff’s negligence merely contributed to his injury, the damages
should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.

Test on Contributory negligence.

Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train
which would have admonished a person of average prudence that to get off the train under the conditions
then existing was dangerous?

Gutierrez vs Gutierrez (1931)


On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting
to pass each other on the Talon bridge on the Manila South Road in the municipality of Las Piñas. The
diver of the car is an 18 y/o boy, son of the car’s owners. It was found by the trial court that both the boy
and the driver of the autobus were negligent by which neither of them were willing to slow up and give the
right of way to the other. Plaintiff is the passenger of the bus who as a result of the incident fractured his
right leg to his damage and prejudice. Thus, plaintiff sued the boy, his parents as owners of the car, the
bus driver and its owner for damages. The trial court ruled in favor of plaintiff.
Hence, this appeal.

How should civil liability be imposed upon parties in the case at bar?

The case is dealing with the civil liability of parties for obligations which arise from fault or negligence.
For the boy, it is his father who is liable (based on culpa aquiliana) to the plaintiff because of the following
conditions; first, the car was of general use of the family, second, the boy was authorized or designated
by his father to run the car, third, at the time of the collision the car is used for the purpose not of the
child’s pleasure but that of the other members of the car owner’s family members. The theory of the law is
that the running of the machine by a child to carry other members of the family is within the scope of the
owner’s business, so that he is liable for the negligence of the child because of the relationship of master
and servant.
For the chauffer and the bus owner (based on culpa contractual), their liability rests upon the contract (the
safety that is assured by the operator upon the passenger) whereas that degree of care expected from
the chauffer is lacking.

Araneta v. De Joya

Respondent De Joya, general manager, proposed to the board of Ace Advsertising Corp., to send
Ricardo Taylor to the US to take up special studies in television. The Board did not act upon the proposal.
Nevertheless, sent Taylor to the US. Respondent assured Antonio Araneta, a compny director, that
expenses will be handled by other parties which later was confirmed through a memorandum.
While abroad, Taylor continued to receive his salaries. The items corresponding to his salaries appeared
in vouchers prepared upon orders of, and approved by, the respondent. Petitioner Luis Araneta, signed
three of the vouchers, others signed by either respondent or Vicente Araneta, the company treasurer. All
told, Ace Advertising disbursed P5,043.20 on account of Taylor’s travel and studies.
Then a year after, Ace Advertising filed a complaint before the CFI against respondent for the recovery of
the total sum disbursed to Taylor alleging that the trip was made without its knowledge, authority or
The respondent in his answer denied the charge and claimed that the trip was nonetheless ratified by the
company’s board and at any event he had the discretion as general manager to authorize the trip which
was for the company’s benefit.
A third party complaint was file by respondent against, Vicente and Luis and Taylor. Respondent proved
that some of the checks to cover the expenses of Taylor were signed by Vicente and Luis.
In their defense, Luis and Vicente claimed that they signed the checks in good faith as they were
approved by respondent.
The CFI rendered judgement ordering the respondent to pay Ace for the amount disbursed with interest at
a legal rate until full payment and dismissed the third party complaint.
Respondent appealed to CA. CA affirmed the decision of trial court with regard to its decision in favor of
Ace but reversed the dismissal of the 3rd party complaint. CA found as a factthat Taylor’s trip had neither
been authorized nor ratified by Ace. It held that Luis and Vicente were also privy to the authorized
disbursement of corporate monies with the respondent. That when they approved signed the checks, they
have given their stamp of approval. As it is established that corporate funds were disbursed unauthorized,
the case is of a simple quasi-delict committed by them against the corporation.
Hence, this appeal.

Whether or not petitioner is guilty of quasi-delict, notwithstanding that he was occupying a contractual
position at Ace? Otherwise stated, whether or not quasi-delict (tort) may be committed a party in a

Yes. The existence of a contract between the parties constitutes no bar to the commission of a tort by one
against the other and the consequent recovery of damages. His guilt is manifest on account of, in spite of
his being a vice-president and director of Ace, petitioner remained passive, through out the period of
Taylor’s trip and to the payment of the latter’s salary. As such he neglected to perform his duties properly
to the damage of the firm of which he was an officer.

Barredo vs. Garcia and Almario 1942


A head-on collision between a taxicab owned by Barredo and a carretela occurred. The carretela was
overturned and one of its passengers, a 16-year old boy, the son of Garcia and Almario, died as a result
of the injuries which he received. The driver of the taxicab, a employee of Barredo, was prosecuted for
the crime and was convicted. When the criminal case was instituted, Garcia and Almario reserved their
right to institute a separate civil action for damages. Subsequently, Garcia and Almario instituted a civil
action for damages against Barredo, the employer of the taxicab driver.
It was found that Fontanilla has been found to have been previously violating traffic rules.
Barredo set up his defense claiming that being only subsidiarily liable under the RPC and the accused not
being imputed nor adjudged to pay damages in a civil action, then it is a bar for an action against him.
The CFI ruled in favor of the plaintiff awarding them P2,000.00 against the Barredo.


Whether or not an employer (Barredo) should be held principally and directly liable for the negligent act of
his employee (or for the criminal act or omission of the employee)?
Apropos the employee is acquitted in the criminal case and the employer is exonerated as subsidiary
liable, will it bar the civil action based on quasi-delict a.k.a culpa extra-contractual or culpa aquiliana?
Whether or not the law is restrictive on the liability of the employer as subsidiary to that of the accused
(confining itself within the provision of the penal code)?

(1)Yes. An employer (Barredo) is principally liable for the negligent acts (or even criminal acts) of his
employee in the performance of his duties) because it is presumed by law that the employer (as
well as the father, guardian , etc.) committed an act of negligence in not preventing or avoiding
the damage. It is this fault that is condemned by law.
(2) No. The reason for this is that the civil liability of the employer (in the criminal case) is grounded
upon the crime committed by its employee, while the liability of the employer (in quasi-delict) is
completely attributable to itself independent of the criminal act of the employee that is by not
carefully selecting and supervising its employees. Thus:
Cuasi-delitos, include all acts in which “any king of fault or negligence intervenes” which means even if
such act or omission has nothing to do with the actual resulting damage, like, for example, then the owner
of a taxi company hires a driver who is known to him (or should have been known to him) that the latter is
guilty of violating traffic rules. In case the driver causes damage as a result of his performance as a driver,
then the owner is liable for the damage, not for the act of omission of the driver (because it is covered by
the penal code which makes the criminal or felon primarily liable for his injury cause) but for its negligence
in employing the driver.
(3)Articles 20 and 21 of the Penal Code, after distributing in their own way the civil responsibilities
among those who, for different reasons, are guilty of felony or misdemeanor, make such civil
responsibilities applicable to enterprises and establishments for which the guilty parties render
service, but with subsidiary character, that is to say, according to the wording of the Penal Code,
in default of those who are criminally responsible. In this regard, the Civil Code does not coincide
because article 1903 says: “The obligation imposed by the next preceding article is demandable,
not only for personal acts and omissions, but also for those of persons for whom another is
responsible.” (N.B. cause of liability is the bond or tie between the one who caused the injury and
his employer, father, guardian, etc.) Among the persons enumerated are the subordinates and
employees of establishments or enterprises, either for acts during their service or on the occasion
of their functions. It is for this reason that it happens, and it is so observed in judicial decisions,
that the companies or enterprises, after taking part in the criminal cases because of their
subsidiary civil responsibility by reason of the crime, are sued and sentenced directly and
separately with regard to the obligation, before the civil courts.
Workmen and employees should be carefully chosen and supervised in order to avoid injury to the public.
It is the masters or employers who principally reap the profits resulting from the services of these servants
and employees. It is but right that they should guarantee the latter’s careful conduct for the personnel and
patrimonial safety of others.
We will not use the literal meaning of the law to smother and render almost lifeless a principle of such
ancient origin and such full-grown development as culpa aquiliana or cuasi-delito, which is conserved and
made enduring in articles 1902 to 1910 of the Spanish Civil Code.
N.B. It is that Bond ( in the performance of the subordinate of the act) which will determine whether or not
the superior (employer, parents may be held liable.
El Cano vs Hill


Defendant Reginald Hill, a minor, married at the time of the occurrence, killed Agapito. He was
apprehended and charged appropriately before CFI. He acquitted on the ground that his act was not
criminal, because of “lack of intent to kill, coupled with mistake.”
Thereupon, the parents of Agapito, filed a complaint for recovery of damages against the defendant and
his father, the defendant Marvin Hill, with whom he was living and getting subsistence, for the killing by
Reginald of the son of the plaintiffs.
Defendants filed a motion to dismiss on the grounds that: first, the civil action is barred by the acquittal of
Reginald, and; second, the father cannot be held liable for the act of his son because the latter is already
married at the time of the commission, thus, is already emancipated.


Whether or not quasi-delict is restricted to negligence and cannot apply to voluntary acts or omissions
producing injury ( or felony)?
Whether or not a father may be held liable for the act of his emancipated child constituting quasi-delict?


No. To repeat the Barredo case, under Article 2177, acquittal from an accusation of criminal negligence,
whether on reasonable doubt or not, shall not be a bar to a subsequent civil action, not for civil liability
arising from criminal negligence, but for damages due to a quasi-delict or ‘culpa aquiliana’ although it
mentions the word “negligence” but according to Justice Bocobo it must be construed according to “the
spirit that giveth lift- rather than that which is literal that killeth the intent of the lawmaker should be
observed in applying the same.” Criminal prosecution and civil action are two different things.
On the second issue (obsolete), Yes, the father may be held liable. While it is true that marriage of a child
emancipates him from the parental authority of his parents, what matters really is whether or not such
minor is completely emancipated as defined by law. In the case at bar, his emancipation is only partial for
as provided by law he can sue and be sued in court with the assistance of his parents, he cannot manage
his own properties without the approval of his parents, and third as in the facts, he relies for subsistence
from his parents.
Occena vs Icamina 1990 (Antique)


On May 31, 1979, herein petitioner Eulogio Occena instituted before the Second Municipal Circuit Trial
Court of Sibalom Antique, Criminal Case No. 1717, a criminal complaint for Grave Oral Defamation
against herein private respondent Cristina Vegafria for allegedly openly, publicly and maliciously uttering
the following insulting words and statements: “Gago ikaw nga Barangay Captain, montisco, traidor,
malugus, Hudas,” which, freely translated, mean: “You are a foolish Barangay Captain, ignoramus, traitor,
tyrant, Judas” and other words and statements of similar import which caused great and irreparable
damage and injury to his person and honor.
Accused pleaded not guilty. Trial ensued and judgment was rendered finding the accused guilty beyond
reasonable doubt for slight oral deflation sentencing her to pay a fine of P50.00 and subsidiary in case of
insolvency but no damages were awarded to petitioner as held by the trial court.
Disagreeing, petitioner sought relief with the RTC which affirmed the decision of the MTC.
Hence, this appeal.


Whether or not the instant appeal should be dismissed on the ground that the decision rendered by the
RTC has become final?
Whether or not damages are warranted to petitioner?
No. While the criminal aspect of the case has become final, the civil aspect did not due to the timely
appeal filed by petitioner with regard to the civil aspect of the case (Peeple vs Coloma).
Yes. Every person criminally liable for a felony is also civilly liable (Art. 100, RPC). Likewise, article 2219
of the New Civil Code provides that moral damages may be recovered in libel, slander or any other form
of defamation.
In the ultimate analysis, what gives rise to the civil liability is really the obligation of everyone to repair or
to make whole the damage caused to another by reason of his act or omission, whether done intentional
or negligently and whether or not punishable by law.
Banal vs Tadeo 1987


Petitioner herein is one of the complainants in the criminal cases filed against Rosario Claudio. Claudio is
charged with 15 separate information for violation of BP 22. Claudio pleaded not guilty, thus trial ensued.
Petitioner moved to intervene through private prosecutor but it was rejected by respondent judge on the
ground that the charge is for the violation of Batas Pambansa Blg. 22 which does not provide for any civil
liability or indemnity and hence, “it is not a crime against property but public order.” Petitioner filed a
motion for reconsideration but was denied by the respondent judge. Hence this appeal.


Whether or not a private prosecutor may intervene in the prosecution for violation of BP 22 (a special
penal law) which does not provide for civil liability?
Intervention of a private prosecutor is for the purpose of protecting the private interest of the complainant
to recover damages.


Yes! Under Art. 100 of the RPC, ‘every person criminally liable for a felony is also civilly liable.’ Thus a
person committing a felony offends namely (1) the society in which he lives in or the political entity called
the State whose law he had violated; and (2) the individual member of that society whose person, right,
honor, chastity or property was actually or directly injured or damaged by the same punishable act or
While an act or omission is felonious because it is punishable by law, it gives rise to civil liability not so
much because it is a crime but because it caused damage to another. Viewing things pragmatically, we
can readily see that what gives rise to the civil liability is really the obligation and the moral duty of
everyone to repair or make whole the damage caused to another by reason of his own act or omission,
done intentionally or negligently, whether or not the same be punishable by law. In other words, criminal
liability will give rise to civil liability only if the same felonious act or omission results in damage or injury to
another and is the direct and proximate cause thereof. Damage or injury to another is evidently the
foundation of the civil action. Such is not the case in criminal actions for, to be criminally liable, it is
enough that the act or omission complained of is punishable, regardless of whether or not it also causes
material damage to another. (Sangco, Philippine Law on Torts and Damages, 1978, Revised Edition, pp.
Article 20 of the New Civil Code provides:
“Every person who, contrary to law, wilfully or negligently causes damage to another,
shall indemnify the latter for the same.”
Regardless, therefore, of whether or not a special law so provides, indemnification of the offended party
may be had on account of the damage, loss or injury directly suffered as a consequence of the wrongful
act of another.
Bricktown vs Amor Tierra Devt. 1994

A contract, once perfected, has the force of law between the parties with which they are bound to comply
in good faith and from which neither one may renege without the consent of the other. The autonomy of
contracts allows the parties to establish such stipulations, clauses, terms and conditions as they may
deem appropriate provided only that they are not contrary to law, morals, good customs, public order or
public policy. The standard norm in the performance of their respective covenants in the contract, as well
as in the exercise of their rights thereunder, is expressed in the cardinal principle that the parties in that
juridical relation must act with justice, honesty and good faith.
Southeastern College vs CA 1998 (Quantum of proof; Fortuitous Event)


Private respondents are owners of a house at 326 College Road, Pasay while petitioner owns a four-
storey school building along the same College Road. That on October 11, 1989, a powerful typhoon hit
Metro Manila. Buffeted by very strong winds, the roof of the petitioner’s building was partly ripped off and
blown away, landing on and destroying portions of the roofing of private respondents’ house. When the
typhoon had passed, an ocular inspection of the destroyed building was conducted by a team of
engineers headed by the city building official.
In their report, they imputed negligence to the petitioner for the structural defect of the building and
improper anchorage of trusses to the roof beams to cause for the roof be ripped off the building, thereby
causing damage to the property of respondent.
Respondents filed an action before the RTC for recovery of damages based on culpa aquiliana. Petitioner
interposed denial of negligence and claimed that the typhoon as an Act of God is the sole cause of the
damage. RTC ruled in their favor relying on the testimony of the City Engineer and the report made after
the ocular inspection. Petitioners appeal before the CA which affirmed the decision of the RTC.
Hence this present appeal.


(1) Whether the damage on the roof of the building of private respondents resulting from the impact
of the falling portions of the school building’s roof ripped off by the strong winds of typhoon
“Saling”, was, within legal contemplation, due to fortuitous event?
(2) Whether or not an ocular inspection is sufficient evidence to prove negligence?


On the first issue, Yes, petitioner should be exonerated from liability arising from the damage caused by
the typhoon. Under Article 1174 of the Civil Code, Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen, or which, though
foreseen, were inevitable.
In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from any
previous negligence or misconduct by reason of which the loss may have been occasioned. 12 An act of
God cannot be invoked for the protection of a person who has been guilty of gross negligence in not
trying to forestall its possible adverse consequences. When a person’s negligence concurs with an act of
God in producing damage or injury to another, such person is not exempt from liability by showing that the
immediate or proximate cause of the damages or injury was a fortuitous event. When the effect is found
to be partly the result of the participation of man — whether it be from active intervention, or neglect, or
failure to act — the whole occurrence is hereby humanized, and removed from the rules applicable to acts
of God.
In the case under consideration, the lower court accorded full credence to the finding of the investigating
team that subject school building’s roofing had “no sufficient anchorage to hold it in position especially
when battered by strong winds.” Based on such finding, the trial court imputed negligence to petitioner
and adjudged it liable for damages to private respondents.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be
foreseen but is unavoidable despite any amount of foresight, diligence or care. In order to be exempt from
liability arising from any adverse consequence engendered thereby, there should have been no human
participation amounting to a negligent act. In other words; the person seeking exoneration from liability
must not be guilty of negligence. Negligence, as commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may be the failure to observe that degree of care,
precaution, and vigilance which the circumstances justify demand, or the omission to do something which
a prudent and reasonable man, guided by considerations which ordinarily regulate the conduct of human
affairs, would do.
On the second issue, it bears emphasizing that a person claiming damages for the negligence of another
has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts
constitutive of negligence must be affirmatively established by competent evidence, 19 not merely by
presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of
petitioner, merely relied on the aforementioned report submitted by a team which made an ocular
inspection of petitioner’s school building after the typhoon. As the term imparts, an ocular inspection is
one by means of actual sight or viewing. What is visual to the eye through, is not always reflective of the
real cause behind.
In the present case, other than the said ocular inspection, no investigation was conducted to determine
the real cause of the partial unroofing of petitioner’s school building.
Barzaga vs CA 1998 (DELAY)


Petitioner’s wife died and her wish is to be buried before Christmas.

After her death on Dec 21, 1990, in fulfillment of her wishes, petitioner went to respondent’s store to
inquire the availability of materials to be used in building his wife’s niche. Respondent’s employee
advised petitioner that to come back the following morning. That following morning, petitioner made a
payment of P2,100 to secure the delivery of the materials. However, the materials were not delivered on
time. Several times petitioner went to respondent’s store to ask for the delivery. Later that day, the
petitioner was forced to dismiss his laborer since there is nothing to work with for the materials did not
Petitioner however purchased the materials from other stores.
After his wife was buried, he sued respondent for damages because of delay
For his part, respondent offered a lame excuse of fortuitous event that the reason for delay is because the
trucks tires were flat.


Whether or not respondent is guilty of delay that will entitle petitioner for damages, although it was not
specified in the invoice the exact time of delivery?


Yes! The law expressly provides that those who in the performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages.
(Art 1170 of the Civil Code).
The appellate court appears to have belittled petitioner’s submission that under the prevailing
circumstances time was of the essence in the delivery of the materials to the grave site. However, we find
petitioner’s assertion to be anchored on solid ground. The niche had to be constructed at the very least on
the twenty-second of December considering that it would take about two (2) days to finish the job if the
interment was to take place on the twenty-fourth of the month. Respondent’s delay in the delivery of the
construction materials wasted so much time that construction of the tomb could start only on the twenty-
third. It could not be ready for the scheduled burial of petitioner’s wife. This undoubtedly prolonged the
wake, in addition to the fact that work at the cemetery had to be put off on Christmas day.
This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract of purchase and
sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment
of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation
to deliver the goods otherwise delay would attach.
NPC vs CA, ECI 1986 (Quasi-Delict; Fortuitous Event)


ECI entered into a contract with NAWASA to undertake a construction of a tunnel from Ipo Dam to Bicti
including all materials, equipment and labor for the said construction for 800 days. The project involved 2
phases. The first involves tunnel works and the second consists of outworks at both ends of the tunnel.
As soon as ECI finished the tunnel works in Bicti, it transferred all its equipments to Ipo Dam to finish the
second phase of the project.
The record shows that on November 4,1967, typhoon ‘Welming’ hit Central Luzon, passing through
defendant’s (NPC) Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds
struck the project area, and heavy rains intermittently fell. Due to the heavy downpour, the water in the
reservoir of the Angat Dam was rising perilously at the rate of sixty (60) centimeters per hour. To prevent
an overflow of water from the dam, since the water level had reached the danger height of 212 meters
above sea level, the defendant corporation caused the opening of the spillway gates.”
ECI sued NPC for damages. The trial court and the court of appeals found that defendant NPC was
negligent when opened the gates only at the height of the typhoon holding that it could have opened the
spill gates gradually and should have done so before the ‘typhoon’ came. Thus both courts awarded ECI
for damages.
NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained
by ECI was due to force majeure. It argued that the rapid rise of water level in the reservoir due to heavy
rains brought about by the typhoon is an extraordinary occurrence that could not have been foreseen.
On the other hand, ECI assails the decision of the court of appeals modifying the decision of the trial court
eliminating the awarding of exemplary damages.
Hence this present appeal.

1. Whether or not NPC is liable for damages even though the cause of the damage is due to a force
majeure? Otherwise stated, whether or not the damage sustained by ECI could be attributed to
NPC notwithstanding the occurrence of a force majeure?
2. Whether or not ECI is entitled to exemplary damages?


Yes. NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the
height of typhoon “Welming” when it knew very well that it was safer to have opened the same gradually
and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it
actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC
cannot escape liability because its negligence was the proximate cause of the loss and damage. As we
have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding
fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot
escape liability.
The principle embodied in the act of God doctrine strictly requires that the act must be one
occasioned exclusively by the violence of nature and human agencies are to be excluded from
creating or entering into the cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and
removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs with an act of God in producing
a loss, such person is not exempt from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which the loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Substantial evidence is defined as such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion (Philippine Metal Products, Inc. v. Court of Industrial Relations, 90
SCRA 135 [1979]; Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302
Exemplary Damages

No. As to the question of exemplary damages, we sustain the appellate court in eliminating the same
since it found that there was no bad faith on the part of NPC and that neither can the latter’s negligence
be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we
Neither may private respondent recover exemplary damages since he is not entitled to moral or
compensatory damages, and again because the petitioner is not shown to have acted in a
wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v. Manila Electric
Co., 2 SCRA 377; Francisco v. Government Service Insurance System, 7 SCRA 577; Gutierrez v.
Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA 888).

Under Art. 1170 of the Civil Code, “When those who in the performance of their obligations are guilty of
fraud, delay, or negligence, or in any manner contravene in the tenor of the obligation, are liable for
damages.” What the provision contemplates is that there is an express obligation between the obligor and
the obligee arising from a contractual obligation that must be complied with in good faith. And what the
aforestated provision liable for damages is that breach either because of fraud, delay, or negligence, or
contravention to the tenor of obligation. Hence it should not be applied generally in all cases, especially in
quasi-delict which is treated specifically by law. In the case at bar, ECI and NPC has no pre-existing
obligation arising from a contract. Although negligence is indubitably present in the case, there cannot be
located from the facts that there is a prior obligation arising form NPC and ECI. But instead the applicable
law in the case at bar is Art. 2176 which provides, “Whoever by act or omission causes damage to
another, there being fraud or negligence, is obliged to pay for the damage done. Such fault of negligence,
if there is no pre-existing contractual relation between the parties, is called quasi-delict and is governed
by the provisions of this chapter.” I should rather say that the Honorable Supreme Court misplaced the
application of the law.
I should further say that the Act of God Doctrine should be applied inversely to that

Rural Bank of Sta Maria Pangasinan vs CA Gr no. 110672 1999


A Deed of Absolute Sale with Assumption of Mortgage was executed between Manuel Behis as
vendor/assignor and Rayandayan and Arceño as vendees/assignees for the sum of P250,000.00. On the
same day, Rayandayan and Arceño together with Manuel Behis executed another Agreement embodying
the real consideration of the sale of the land in the sum of P2,400,000.00. Thereafter, Rayandayan and
Arceño negotiated with the principal stockholder of the bank, Engr. Edilberto Natividad in Manila, for the
assumption of the indebtedness of Manuel Behis and the subsequent release of the mortgage on the
property by the bank.
Rayandayan and Arceño did not show to the bank the Agreement with Manuel Behis providing for the real
consideration of P2,400,000.00 for the sale of the property to the former. Subsequently, the bank
consented to the substitution of plaintiffs as mortgage debtors in place of Manuel Behis in a Memorandum
of Agreement between private respondents and the bank with restructured and liberalized terms for the
payment of the mortgage debt.
Instead of the bank foreclosing immediately for non-payment of the delinquent account, petitioner bank
agreed to receive only a partial payment of P143,000.00 by installment on specified dates. After payment
thereof, the bank agreed to release the mortgage of Manuel Behis; to give its consent to the transfer of
title to the private respondents; and to the payment of the balance of P200,000.00 under new terms with a
new mortgage to be executed by the private respondents over the same land.
However, petitioner bank did not comply with the MOA with respondents because of a supervening event
namely the protest made by Cristina Behis, wife of Manual Behis, alleging that she did not consent to the
negotiation made as regards the Deed of absolute sale with Assumption of Mortgage by her husband with
the respondents and that her signature was forged by respondents. The petitioner bank then told
respondents to settle the matter with Mrs. Behis.
At that point, petitioner bank cancelled its MOA with respondents because: first, the latter failed to settle
the protest of Mrs. Behis; and, secondly, the terms of the Memorandum of Agreement have not been fully
complied with as the payments were not made on time on the dates fixed therein; and third, their consent
to the Memorandum of Agreement was secured by the plaintiffs thru fraud as the Bank was not shown the
Agreement containing the real consideration of P2,400.000.00 of the sale of the land of Manuel Behis to
Thereafter, the petitioner bank returned the initial payment of P143,000.00 to respondents.
In the mean time, petitioner entered into an agreement with Halsema Bank that the latter would assume
the mortgage of Manuel Behis in consideration of P521,765.45.
Thereafter, respondents brought the matter before the RTC which ruled that the MOA is valid.
The case was elevated to the CA on certiorari. The respondent Court affirmed the validity of the MOA
dismissing the claim of the respondent that their consent to the agreement made with respondents to
assume the mortgage of Manuel Behis, and awarding the respondents for damages.
Hence this present appeal.


Whether or not respondents are guilty of fraud (which would make the contract between respondents and
petitioner viod) when it did not show or it concealed from the petitioner the Agreement (between
respondents and Manuel Behis) the consideration of P2.4, and rather what was only shown was the first
agreement with regard to the Deed of Sale with Assumption of Mortgage?


No. This brings us to the first issue raised by petitioner bank that the Memorandum of Agreement is
voidable on the ground that its consent to enter said agreement was vitiated by fraud because private
respondents withheld from petitioner bank the material information that the real consideration for the sale
with assumption of mortgage of the property by Manuel Behis to Rayandayan and Arceño is
P2,400,000.00, and not P250,000.00 as represented to petitioner bank. According to petitioner bank, had
it known of the real consideration for the sale, i.e. P2.4 million, it would not have consented into entering
the Memorandum of Agreement with Rayandayan and Arceño as it was put in the dark as to the real
capacity and financial standing of private respondents to assume the mortgage from Manuel Behis.
Petitioner bank pointed out that it would not have assented to the agreement, as it could not expect the
private respondents to pay the bank the approximately P343,000.00 mortgage debt when private
respondents have to pay at the same time P2,400,000.00 to Manuel Behis on the sale of the land.
The kind of fraud that will vitiate a contract refers to those insidious words or machinations resorted to by
one of the contracting parties to induce the other to enter into a contract which without them he would not
have agreed to. 13 Simply stated, the fraud must be the determining cause of the contract, or must have
caused the consent to be given. It is believed that the non-disclosure to the bank of the purchase price of
the sale of the land between private respondents and Manuel Behis cannot be the “fraud” contemplated
by Article 1338 of the Civil Code. 14 From the sole reason submitted by the petitioner bank that it was kept
in the dark as to the financial capacity of private respondents, we cannot see how the omission or
concealment of the real purchase price could have induced the bank into giving its consent to the
agreement; or that the bank would not have otherwise given its consent had it known of the real purchase
The deceit which voids the contract exists where the party who obtains the consent does so by
means of concealing or omitting to state material facts, with intent to deceive, by reason of which
omission or concealment the other party was induced to give a consent which he would not otherwise
have given (Tolentino, Commentaries and Jurisprudence on the Civil Code, Vol. IV, p. 480). In this
case, the consideration for the sale with assumption of mortgage was not the inducement to
defendant bank to give a consent which it would not otherwise have given.
Consequently, not all the elements of fraud vitiating consent for purposes of annulling a contract concur,
to wit: (a) It was employed by a contracting party upon the other; (b) It induced the other party to enter
into the contract; (c) It was serious; and; (d) It resulted in damages and injury to the party seeking
annulment. 18 Petitioner bank has not sufficiently shown that it was induced to enter into the agreement by
the non-disclosure of the purchase price, and that the same resulted in damages to the bank. Indeed, the
general rule is that whosoever alleges fraud or mistake in any transaction must substantiate his
allegation, since it is presumed that a person takes ordinary care for his concerns and that private
transactions have been fair and regular. Petitioner bank’s allegation of fraud and deceit have not been
established sufficiently and competently to rebut the presumption of regularity and due execution of the

Telefast vs Castro (1988)


In 1956, Sofia Castro-Crouch (plaintiff-respondent) was vacationing in Pangasinan in her parent’s house.
That same year in November, her mother, Consolacion died. On the day of her mother’s death she
addressed a telegram to her father Ignacio who was then in the US announcing Consolacion’s death. The
telegram was accepted by Telefast (defendant-petitioner) in its Dagupan office after payment of required
fees or charges.
The telegram never reached the addressee. Consolacion was interred without her husband and children
besides Sofia.
Sofia went back to the US and learned that the telegram never reached her father. Thus, she and her
siblings and their father sued Telefast for damages arising from the breach of contract by the defendant.
Petitioner-defendant Telefast interposed that the reason why the telegram never reached the addressee
is because of “technical and atmospheric factors beyond its control.” It appears though that no attempt
made by defendant to inform Sofia for that matter or any reason at all that explains why the telegram
reached the addressee.
The CFI ruled in favor of Sofia and her co-plaintiffs awarding her damages she prayed for. Telefast
appealed before the IAC which affirmed the decision of the CFI.
Hence this appeal.


Whether or not petitioner is liable for damages arising from the breach of contract even though that there
was a technical and atmospheric factors that lead to its failure to comply with terms of the contract?


Yes. Art. 1170 of the Civil Code provides, “Those who in the performance of their obligation are guilty of
fraud, delay, negligence, and those who in any manner contravene the tenor thereof, are liable for
damages. Art. 2176 also provides that “whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done.
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for
a fee, petitioner undertook to send said private respondent’s message overseas by telegram. This,
petitioner did not do, despite performance by said private respondent of her obligation by paying the
required charges. Petitioner was therefore guilty of contravening its obligation to said private respondent
and is thus liable for damages.
Also, it is evident that petitioner did not do anything to advise the plaintiff of the circumstances which lead
to its failure to comply with its obligation. It is apparent that such tantamount to gross negligence. Hence
bad faith.

Agcaoili vs GSIS 1988 (Art 1169; Compensatio Morae; pg 109)

In 1964, plaintiff Agcaoili applied with the defendant GSIS to purchase a house and lot in Marikina. In the
following year in a letter, respondent approved petitioner’s application with the advise ‘to occupy the said
house immediately’ and ‘failure to occupy the same from the receipt of the notice, plaintiff’s application
shall be considered disapproved and will be awarded to another applicant.’
Plaintif lost no time in occupying the house. However, he could not stay in it and had to leave the
following day because the house was nothing more than a shell, in such a state of incompleteness that
civilized occupation was not possible. Agcaoili did however ask a homeless friend, a certain Villanueva, to
stay in the premises as some sort of watchman, pending completion of the construction of the house.
Agcaoili thereafter complained to the GSIS, to no avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly
installment and the incidental fees, 3 but refused to make further payments until and unless the GSIS
completed the housing unit. What the GSIS did was to cancel the award and require Agcaoili to vacate
the premises. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific
performance and damages.
The CFI ruled in favor of Agcaoili declaring the cancellation of the award illegal and viod and ordering
GSIS to respect and enforce the aforesaid award, and to complete the house in question to make the
same habitable and authorizing GSIS to collect the monthly amortization only after said house shall have
been completed.
Hence this present appeal.
GSIS argued the following:
1. Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of
his housing unit, since said unit had been sold “in the condition and state of completion then
existing ... (and) he is deemed to have accepted the same in the condition he found it when he
accepted the award.
2. Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter’s
immediate occupancy of the house subject thereof, and the latter having failed to comply with the
condition, no contract ever came into existence between them.


1. Whether or not Agcaoli may suspend payment of amortization on account of the incompleteness of his
housing unit, since said unit had been sold “in the condition and state of completion then existing ... (and)
he is deemed to have accepted the same in the condition he found it when he accepted the award?
Whether or not there was a valid contract of sale between Agcaoili and GSIS?

2. Whether or not Agcaolili repudiated his contract with GSIS?


On the first issue, Yes, because Art. 1169 of the Civil Code provides that “in reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is
incumbent upon him.” Certainly, the prestation of the contract which was ratified upon approval of GSIS
(presupposing the meeting of the minds of GSIS and Agcaoli) is the house and lot, on the condition that
the house should be habitable. Thus: “There was then a perfected contract of sale between the parties;
there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in
the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at P31.56
per month, and from that moment the parties acquired the right to reciprocally demand performance.”
There would be no sense to require the awardee to immediately occupy and live in a shell of a house, a
structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that
this was what was intended by the parties, since the contract did not clearly impose upon it the obligation
to deliver a habitable house, is to advocate an absurdity, the creation of an unfair situation. By any
objective interpretation of its terms, the contract can only be understood as imposing on the GSIS an
obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the
stipulated price. Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable
state, it cannot invoke Agcaoili’s suspension of payment of amortizations as cause to cancel the contract
between them. It is axiomatic that “(i)n reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is incumbent upon him.” 15
Nakpil and Sons Vs Court of appeals 1986

Philippine Bar Association, an NGO, entered into a contract with UCCI on administration basis and Nakpil
& Sons to construct a building; the latter will provide the design and specifications of the said building.
Two years after the building is constructed and is being leased by PBA, an earthquake, unusually strong
hit Metro Manila. As a result, the building is severely damaged (partially collapsed) which compelled the
tenants to vacate the premises. PBA, sued UCCI and Nakpil. Since the case involves a high degree of
technicality to ascertain the cause of action, the trial court appointed a Commissioner to report to him his
According to the Commissioner the damage is caused by:
1. Earthquake
2. defects in the plans and specifications prepared by the third-party defendants’ architects.
3. deviations from said plans and specifications by the defendant contractors
4. failure of the latter to observe the requisite workmanship in the construction of the building and of
the contractors, architects
5. failure of the owners to exercise the requisite degree of supervision in the construction of subject
The trial court agreed with the findings of the Commissioner except as to the holding that the owner is
charged with full nine supervision of the construction. The Court sees no legal or contractual basis for
such conclusion. Defendants appealed the decision of the trial court to CA.
CA’s decision is to affirm the lower courts decision with the additional P200K damages.


The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which
caused the failure of the building, exempts from liability, parties who are otherwise liable because of their


No. ART 1723 NCC

Liability of the engineer or architect is if the building should collapse within 15 years because of a defect
in the plans and specification OR due to the defects in the ground.
The liability of the contractor lies if the building should collapse w/in 15 years because of (1) defects in the
CONSTRUCTION (2) USE of materials of INFERIOR QUALITY furnished by contractor or (3)
VIOLATION of the terms of the contract.
If the construction was supervised by the engineer or architect, he shall be solidarily liable with the
If the owner of the building accepts the building after it is constructed does not mean a WAIVER of any
cause of action by reason of defects. The action should be brought within 10 years.

Upon the other hand, 1174 of NCC:

Except in cases expressly specified by law, or otherwise when it is declared in stipulation or when from
the nature of the obligation requires the assumption of risk, no person shall be liable for those events
which could not be foreseen, or which, though foreseen, were ineveitable.

Elements of 1174, fortuitous event

(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner; and
(d) the debtor must be free from any participation in, or aggravation of the injury to the creditor.
In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals
that “while it is not possible to state with certainty that the building would not have collapsed were those
defects not present, the fact remains that several buildings in the same area withstood the earthquake to
which the building of the plaintiff was similarly subjected,” cannot be ignored.
One who negligently creates a dangerous condition cannot escape liability for the natural and probable
consequences thereof, although the act of a third person, or an act of God for which he is not responsible,
intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of
ancient buildings in the vicinity were hardly affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the damage would not have occurred.

UP v. Delos Angeles


UP petitioner entered into a contract with ALUMCO respondent, a logging company, where the latter is
granted a right to cut,collect and remove timber from the land grant in return for a consideration of money.
But respondent incurred unpaid account amounting to P220K and despite repeated demands, it still failed
to settle its dues. UP sent a notice to rescind the contract, and respondent executed an instrument,
entitled “Acknowledgment of Debt and Proposed Manner of Payments” wherein it undertook to settle the
balance on or before June 1965 and in case of non-fulfillment, UP is entitled to rescind the contract and
respondent will pay P50K as liquidated damages without the necessity of judicial suit. UP President
approved the instrument.
Respondent constinued its logging operations but again failled to settle its account in addition to the
indebtedness it had previously acknowledged.
That o July 1965, UP informed ALUMCO that it had, as of that date, considered as rescinded and of no
further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP
filed a complaint against ALUMCOfor the collection or payment of the herein before stated sums of
money and alleging the facts hereinbefore specified, together with other allegations; it prayed for and
obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction
restraining ALUMCO from continuing its logging operations in the Land Grant.
Before the issuance of the preliminary injuction UP had taken steps to have another concessionaire take
over the logging operation; after it advertised its invitation to bid, the concession was awarded to Sta.
Clara Lmber signed in Feb. 1966. In the mean time, ALUMCO filed a petition to enjoin UP form the
conducting the bidding, the CFI ejoined UP from awarding the logging rights. However, the order was
received only after it had concluded the its contract with Sta. Clara.
And upon motion of ALUMCO, UP was declared in contempt and directed Sta. Clara from exercising
logging rights or conducting logging operations in the concession.
UP moved to reconsider the order but it was denied.
Hence this present appeal.


Whether or not by virtue of the instrument respondent executed, petitioner can rescind the contract upon
default of respondent without judicial pronouncement?


Yes. UP and ALUMCO had expressly stipulated in the “Acknowledgment of Debt and Proposed Manner
of Payments” that, upon default by the debtor ALUMCO, the creditor (UP) has “the right and the power to
consider, the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any
judicial suit.” As to such special stipulation, and in connection with Article 1191 of the Civil Code, this
Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
“there is nothing in the law that prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court intervention. In other words, it
is not always necessary for the injured party to resort to court for rescission of the contract.”
“Article 1191. 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.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law. (1124)”
Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and
the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle whether the action taken was or was not
correct in law. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other’s breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article

Central Bank vs CA and Tolentino 1985


On April 1965, Island Savings Bank approved the loan of Sulpicio Tolentino for P80K payable in 3 years
with 12% interest per annum, in consideration of his 100-hectare land.
On May 1965, only a mere P17K of the P80K was released by the bank and Sulipicio and his wife signed
a promissory note for the same consideration. The bank promised repeatedly the release of P63K.
On August 1965, the Monetary Board of the Central Bank, after finding Island Savings was suffering
liquidity problems, issued a resolution prhibiting it from making new loans and investments (except
investment in government securities) excluding granting extensions and renewals of already approved
loans subject to review by the Superintendent of Banks.
On June 1968, after finding that Island savings failed to put up the required capital to restore its solvency
prohibited it from doing diong business and instructed the Acting Superintendent of Banks to take charge
of the Bank’s assets.
On August 1968, Island savings filed an application for the extra-judicial foreclosure of the real estate
mortgage covering the 100-hectare land of Sulpicio.
On January 1979, Sulpicio filed a petition with the CFI for injuction, specific performance or rescission
with damages with preliminary injuction alleging that Island Savings failed to deliver the P63K balance of
the P80K loan. He prayed the delivery of P63K plus 12% legal interest and if the same is not fulfilled, then
the real estate mortgage should be rescinded.
Upon filing of a P5K bond, the CFI issued a TRO enjoining Island Savings from continuing with
foreclosure of the mortgage.
After the trial, the CFI dismissed the petition of Sulpicio ordered him to pay the P17K loan plus 12% legal
interest and if he failed to pay the same the TRO be lifted and the foreclosure may proceed.
Sulpicio appealed the decision to the CA which in turn affirmed the dismissal of his petition but ruled that
Island Savings can neither foreclose the mortgage nor collect the P17K loan.
Hence this appeal.


(1) Whether or not Sulpicio entitled to the relief of specific performance?

(2) Whether or not Sulpicio is liable to pay the P17K debt covered by the promissory note?
(3) If Sulpicio’s liability to pay the P17K subsists, can his real estate mortgage be foreclosed to satisfy the
said amount?


When Island Savings and Sulpicio entered into an P80K loan agreement in 1965, they undertook
reciprocal obligations. In reciprocal oblications, neither party incurs in delay when the other does not
comply or is not ready to comply in a proper manner with what is incumbent upon him. So when Sulpicio
furnished his land on April 1965 in consideration of P80K and when Island Savings failed to comply the
fulfillment of the P80K, the latter incurred in delay. Neither is it a valid defense when the monetary board
prohibited it from extending new loans because it did not prevent it from releasing the balance of a loan
agreement previously contracted. Sulpicio then has the right to demand specific performance but in view
of the consideration that the monetary board prohibited it from doing any business, specific performance
can no longer be granted. In the same line, the only remedy left is rescission of the contract but it can only
apply to the balance of P63K because the bank is in default only insofar as such amount is concerned, as
there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00,
which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed
to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave
rise to Sulpicio M. Tolentino’s reciprocal obligation to pay the P17,000.00 loan when it falls due. His
failure to pay the overdue amortizations under the promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it
shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory
note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission
of the entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay. Thus there is still the obligation of Sulpicio to pay Island Savings the P17k he
However, Sulpicio’s land may not be foreclosed in whole because the 100-hectare land was in
consideration of P80K. Since only P17K was given or constituting only 21.25 percent, the land that may
only be foreclosed should correspond to the amount given. Thus his real estate covering 78.75 hectares
was declared unenforceable.
Zulueta v. Mariano GR 29360 (1982)


Zulueta and Avellana (a movie director) entered into a Contract to Sell a residential house and lot for
P75k payable in 20 years, with Avellana assuming to pay P5k of down payment and monthly installment
payable in advance before 5th of each month, starting Dec. 1964.
It was also stipulate that upon failure of the BUYER (Avellana) to fulfill any of the conditions, it will
authorize the owner to(1) recover physical possession of the land, and (2) rescind the contract, and by
such (3) all payments made by the BUYER to OWNER shall be deemed as rental payments.
Avellana failed to make payment despite several demands. Thus compelled Zulueta to sue Avellana for
ejectment before the Municipal Court.
Avellana contended that that the Municipal Court had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the contract; that prior to the execution of the contract to
sell, petitioner was already indebted to him in the sum of P31,269.00 representing the cost of two movies
respondent made for petitioner and used by the latter in his political campaign in 1964 when petitioner ran
for Congressman, as well as the cost of one 16 millimeter projector petitioner borrowed from respondent
and which had never been returned
The Municipal Court found that respondent Avellana had failed to comply with his financial obligations
under the contract and ordered him to vacate the premises and deliver possession thereof to petitioner.
Respondent Avellana appealed to the CFI which granted his contention that the Municipal Court had no
jurisdiction to try the case, thus dismissed it.
Hence this appeal.


Was the action before the Municipal Court of Pasig essentially for detainer and, therefore, within its
exclusive original jurisdiction, or one for rescission or annulment of a contract, which should be litigated
before a Court of First Instance?


The case is essentially one for rescission of the contract.

Under those circumstances, proof of violation is a condition precedent to resolution or rescission. It is
only when the violation has been established that the contract can be declared resolved or rescinded.
Upon such rescission, in turn, hinges a pronouncement that possession of the realty has become
unlawful. Thus, the basic issue is not possession but one of rescission or annulment of a contract, which
is beyond the jurisdiction of the Municipal Court to hear and determine.
True, the contract between the parties provided for extrajudicial rescission. This has legal effect, however,
where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is
still necessary.
A stipulation entitling one party to take possession of the land and building if the other party violates the
contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected
to without judicial intervention and’ determination. The writ of mandamus was denied.

Palay Inc. vs Clave 56076 1983


In 1965, Petitioner and private respondent entered into a Contract to Sell a parcel of land. In the said
contract, it provided the petitioner for automatic extrajudicial rescission upon default in payment of any
monthly installment after the lapse of 90 days from the expiration of the grace period of one month,
without need of notice and with forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments. The last payment was made on
Dec. 1967.
On 1973, private respondent wrote petitioner offering to update all his overdue accounts with interest,
and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. Replying
petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph
6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the
(NHA) for reconveyance with an alternative prayer for refund. In a Resolution, dated July 10, 1979, the
NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc.
and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund
immediately to private respondent with 12% interest from the filing of the complaint. Petitioners’ Motion for
Reconsideration of said Resolution was denied by the NHA in its Order dated October 23, 1979.
The case was appealed to the Office of the President which affirmed the resolution of the NHA.
Hence this present appeal.

1. Whether notice or demand is not mandatory under the circumstances and, therefore, may be
dispensed with by stipulation in a contract to sell?
2. Whether petitioners may be held liable for the refund of the installment payments made by
respondent Nazario M. Dumpit?
3. Whether or not petitioner Onstott the President of petitioner corporation may be held personally


1.We hold that resolution by petitioners of the contract was ineffective and inoperative against private
respondent for lack of notice of resolution.
Well settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked and cancelled for violation of
any of its terms and conditions. However, even in the cited cases, there was at least a written notice sent
to the defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de
los Angeles the act of a party in treating a contract as cancelled should be made known to the other. We
quote the pertinent excerpt:
It must be understood that the act of a party in treating a contract as cancelled or resolved in account of
infractions by the other contracting party must be made known to the other and is always provisional
being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is
justified it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle whether the action taken was or was not
correct in law. But the law definitely does not require that the contracting party who believes itself injured
must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other’s breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article
in every case where the extrajudicial resolution is contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was proper or not.
in case of abuse or error by the rescinder the other party is not barred from questioning in court such
abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative
of instituting suit, instead of the rescinder.
This was reiterated in Zulueta vs. Mariano where we held that extrajudicial rescission has legal effect
where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is
still necessary.
The contention that private respondent had waived his right to be notified under paragraph 6 of the
contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner
corporation, and private respondent had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully
accorded. Moreover, it is a matter of public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments
2. Yes. The payments must be returned.
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to restore.
Neither sham rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
3. We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who
was made jointly and severally liable with petitioner corporation for refund to private respondent of the
total amount the latter had paid to petitioner company. It is basic that a corporation is invested by law
with a personality separate and distinct from those of the persons composing it as wen as from that of
any other legal entity to which it may be related. 11 As a general rule, a corporation may not be made to
answer for acts or liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction may be pierced when it is used as a
shield to further an end subversive of justice 12 ; or for purposes that could not have been intended by
the law that created it 13 ; or to defeat public convenience, justify wrong, protect fraud, or defend crime.
; or to perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the law or perpetuate
deception 16 ; or as an alter ego, adjunct or business conduit for the sole benefit of the stockholders.
We find no badges of fraud on petitioners’ part. They had literally relied, albeit mistakenly, on paragraph
6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and
had sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the President of the corporation
and he a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used
the corporation to defraud private respondent. He cannot, therefore, be made personally liable just
because he “appears to be the controlling stockholder”. Mere ownership by a single stockholder or by
another corporation is not of itself sufficient ground for disregarding the separate corporate personality.
In this respect then, a modification of the Resolution under review is called for.

Angeles v. Calasanz G.R. No. L-42283 March 18, 1985


Herein plaintiffs-appellees entered into a contract to sell with defendants-appellants for the former’s
purchase of a parcel of land located in Cainta, Rizal. The agreed amount is P3,920.00 plus 7% interest
per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract
and promised to pay the balance in monthly installments of P41.20 until fully paid. The plaintiffs-
appellees paid the monthly instalments until July 1966 and their aggregate payment already reached
P4,533.38. After several months, due to plaintiffs-appellees failure to pay the monthly installments
despite defendants-appellants demands, the latter cancelled the contract to sell pursuant to a provision in
the contract which states that the seller (defendants-appellants) has the “right to declare the contract
cancelled and of no effect” as a consequence of failure to pay the agreed amount plus interests. Thus,
the plaintiffs-appellees filed a civil action in court to compel defendants-appellants to execute in their
favour a final deed of sale citing their aggregate payment of P4,533.38 which includes payment of
interests, taxes and incidental expenses. The lower court rendered judgement in favour of the plaintiffs-
appellees and a motion for reconsideration filed by the defendants-appellants were denied. The Court of
Appeals then brought the matter to the Supreme Court as it involves pure questions of law.


Whether or not the contract has been automatically and validly cancelled by the defendant-appellants
(Ursula Torres Calasanz and Tomas Calasanz)


Herein plaintiffs-appellees entered into a contract to sell with defendants-appellants for the former’s
purchase of a parcel of land located in Cainta, Rizal. The agreed amount is P3,920.00 plus 7% interest
per annum. The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract
and promised to pay the balance in monthly installments of P41.20 until fully paid. The plaintiffs-
appellees paid the monthly instalments until July 1966 and their aggregate payment already reached
P4,533.38. After several months, due to plaintiffs-appellees failure to pay the monthly installments
despite defendants-appellants demands, the latter cancelled the contract to sell pursuant to a provision in
the contract which states that the seller (defendants-appellants) has the “right to declare the contract
cancelled and of no effect” as a consequence of failure to pay the agreed amount plus interests. Thus,
the plaintiffs-appellees filed a civil action in court to compel defendants-appellants to execute in their
favour a final deed of sale citing their aggregate payment of P4,533.38 which includes payment of
interests, taxes and incidental expenses. The lower court rendered judgement in favour of the plaintiffs-
appellees and a motion for reconsideration filed by the defendants-appellants were denied. The Court of
Appeals then brought the matter to the Supreme Court as it involves pure questions of law.

Citing the case of University of the Philippines v. De los Angeles (35 SCRA 102) where it is stated that “if
the other party denies that rescission (of a contract) is justified, it is free to resort to judicial action in its
own behalf and bring the matter to court” and that “for it is only the final judgement of the Court that will
conclusively and finally settle the action taken whether the action taken was or was not correct in law”, the
Supreme Court that the right to rescind the contract for non performance of one of its stipulations is not
absolute. Furthermore, citing Song Fo & Co. v. Hawaiian-Philippine Co., (47 Phil. 821, 827) which states
that “The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in making
the agreement, the Court held that the breach of the contract is so slight and casual when the initial
downpayment plus the aggregates amount is considered.

The Court also cited Article 1234 of the Civil Code which states that: “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” as a provision which militates against the
unilateral act of the defendants-appellants in cancelling the contract.
The Court also held that the contract to sell, being essentially a contract of adhesion, must be construed
against the party causing it.
Therefore, the Court ruled in favour of the plaintiffs-appellees and did not uphold the cancellation of the
contract. The petition of the defendants-appellants was denied and the plaintiffs-appellees were ordered
to pay the remaining balance and after which the defendants-appellants were ordered to execute a final
deed of sale in favour of the plaintiffs-appellee.


On April 15, 1977, Western Minolco Corporation (WMC) secured from the Philippine Investments
Systems Organization (PISO) two loans amounting to P2,500,000 and P1,000,000 to be paid on May 30,
1977. On the same date, Antonio Garcia,jr. and Ernest Kahn executed a surety agreement binding
themselves jointly and severally for the payment of the P2,500,000 loan on due date. After repeated
demands wherein WMC still did not pay the loans, Garcia was sued by Lasal Development Corporation
which the credit was assigned to by PISO, for not paying the loan as part of the surety agreement. On
May 1983, Garcia moved that the complaint be dismissed on the ground that the principal obligation has
been novated. He claimed that there was novation due to the fact that there was re-structuring of the
payment scheme and thus, the existing contract has been novated. The trial court granted the petition of
Garcia but it was later reversed by the Court of Appeals.


Whether or not there was indeed novation of the old contract or obligation.


The Supreme Court held that Novation of contract cannot be presumed. In order that an obligation may
be extinguished by another which substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every point compatible with each other.
In every novation, there are four essential requisites: 1) a previous valid obligation; 2) the agreement of
the parties to a new contract; 3) the extinguishment of the old contract; and 4) the validity of the new one.
Novation requires the creation of new contractual relations as well as extinguishment of the old. There
must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and
the creation of a new valid one. The legal doctrine is that an obligation to pay a sum of money is not
novated in a new instrument by changing the term of payment and adding other obligations not
incompatible with the old one. It is not proper to consider an obligation novated as in the case at bar by
the mere granting of extension of payment which did not even alter its essence. The Supreme Court
denied the petition of Garcia and affirmed the decision of the Court of Appeals.

Asia Production Co. Inc. v. Pano G.R. No. L-51058 January 27, 1992


Sometime in March 1976, private respondents, who claimed to be the owners of a building constructed on
a lot leased from Lucio San Andres and located in Valenzuela, Bulacan, offered to sell the building to the
petitioners for P170,000.00. Petitioners agreed because of private respondents' assurance that they will
also assign to the petitioners the contract of lease over the land. The above agreement and promise were
not reduced to writing. Private respondents undertook to deliver to the petitioners the deed of conveyance
over the building and the deed of assignment of the contract of lease within sixty (60) days from the date
of payment of the downpayment of P20,000.00. The balance was to be paid in monthly installments. On
20 March 1976, petitioners paid the downpayment and issued eight (8) postdated checks drawn against
the Equitable Banking Corporation for the payment of the eight (8) monthly instalments.

Relying on the good faith of private respondents, petitioners constructed in May 1976 a weaving factory
on the leased lot. Unfortunately, private respondents, despite extensions granted, failed to comply with
their undertaking to execute the deed to sale and to assign the contract despite the fact that they were
able to encash the checks dated 30 June and 30 July 1976 in the total amount of P30,000.00. Worse, the
lot owner made it plain to petitioners that he was unwilling to give consent to the assignment of the lease
unless petitioners agreed to certain onerous terms, such as an increase in rental, or the purchase of the
land at a very unconscionable price. Petitioners thereafter removed their effects from the disputed land
and therefore filed a case for the collection of the paid instalments which the lower court dismissed
because it falls within the purview of the requirements as set forth in the Statute of Frauds. Hence, this


Whether or not an action for the refund of partial payments of the purchase price of a building covered by
an oral agreement to sell it with an oral promise to assign the contract of lease on the lot where the
building is constructed is barred by the Statute of Frauds?


No. The statute of frauds is not applicable because there is partial performance in the aforementioned
contract which is the payment of consideration in lieu of the promise of the defendants. It goes without
saying then, as held in the early case of Almirol, et al. vs. Monserrat, 17 that the statute will apply only to
executory rather than executed contracts. Partial execution is even enough to bar the application of the

WHEREFORE, the petition is hereby GRANTED. The challenged Orders of 18 April 1979 and 21 June
1979 in Civil Case No. Q-23593 of the court below are hereby ANNULLED and SET ASIDE, and the
complaint in said case is hereby ordered REINSTATED. The default order against private respondent
Lolita Lee Le Hua shall stand and private respondent Alberto Dy is ordered to file his Answer to the
complaint with the court below within ten (10) days from receipt of this decision. This decision shall be
immediately executory.

Boysaw v Interphil Promotions 148 SCRA 635

The case is an appeal by Solomon Boysaw and Alfred Yulo Jr. from CFI ordering them to pay Manuel
Nieto Jr. P20k-moral damages, P5k-atty’s fees,; and to Interphil Promotions, Inc. and Lope Sarreal Sr.
(additional P20k for moral damages), P250k-unrealized profits, P33,369.72-actual damages, P5k-atty’s
fees. And costs. Facts
- May 1, 1961, Solomon Boysaw is a boxer handled by Willie Ketchum(w/ partner Ruskay). They
signed a contract with Interphil (represented by Sarreal) for a match with Gabriel “Flash” Elorde
for the world junior lightweight championship.
- The stipulations of the contract were the venue in the Rizal Memorial stadium on Sept. 30-61. In
case of mutually-agreed postponement, it would be no more than 30 days later. And that Boysaw
would not prior to the match, engage in any other such contest without the written consent of
Interphil. Days later, Elorde signed a similar agreement with Interphil. A supplemental agreement
b/w Ketchum & Sarreal took place.
- Boysaw on June 9-61 fought Louis Avila in a ten-round non-title bout held in Las Vegas. On July
2-61, he changed his manager to J. Amado Araneta. On July 31-61, Boysaw arrived in the
Philippines to get ready. On Sept. 1-61, Araneta assigned his managerial rights to Yulo. On Sept
2-61, Boysaw finally informed Sarreal of his presence in the country.
- Sept. 5-61 Yulo informed Sarreal of the managerial changes and readiness to comply with the
- On the same day, Sarreal wrote to the Games and Amusement Board(GAB) of the lack of formal
notification of the managerial rights switching and that Boysaw be called for clarification.
- GAB did act upon it by calling for conferences, and decided to schedule the match for Nov.4-61.
The USA Nat’l Boxing Assoc. supervising all world-title fights approved the date.
- Yulo disagreed, and Sarreal offered to change to Oct. 28, w/in the 30-day pd.
- Early Oct. Yulo contacted Mamerto Besa for promotion of the match. Oct.6-31 in one of Yulo’s
communication to Besa, he said that he was willing to allow the Nov.4 fight, if Besa promotes it.
- The Boysaw-Elorde fight did push through but it wasn’t the contemplated fight in the contract.
- Boysaw and Yulo petitioned CFI Rizal against Sarreal, Interphil and Manuel Nieto Jr. (GAB
chairman, resps claim to have acted arbitrarily) damages for non-fulfillment of contract
- Trial dragged for 3 yrs because of appellants, until Boysaw could no longer return (taken as
leaving w/out notice to court and counsel), CFI decided for the respondents and denied a
postponement & motion for new trial.
1) Whether or not there was a violation of the contract stipulations, and who was liable? ;
2) Whether or not there was a legal ground for postponement/was Nieto/GAB reasonable?
1st Issue:
Yes, Yulo admitted the fact of Boysaw and Avila’s fight in Las Vegas and the assignment of the
managerial rights over Boysaw to different people (novation) without PRIOR approval of Interphil. Even if
Yulo sent a letter, there is no showing that Interphil acceded to the substitution judging from the complaint
in GAB. Our law recognizes actionable in every contract breach.
Art.1170”those who in the performance of their obligations are guilty of fraud, negligence or delay, and
those who in any manner contravene the terms thereof, are liable for damages.”
Art1191”the power to rescind obligation is implied, in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.”
Novation which consists in substituting a new debtor in the place of the original one may be made even
without the knowledge or against the will of the latter, BUT NOT WITHOUT THE CONSENT OF THE
CREDITOR.”Substitution needs the consent of the creditor because the new debtor may cause delay or
prevent the fulfillment of the obligation due to insolvency or inability. Since the creditor is at risk, then his
consent must first be secured to be binding.
2nd Issue:
Yes, when the contract was unlawfully novated, the aggrieved creditor is not bound to deal with the
substitute. He has a right to demand rescission or refusal to recognize the substitute. In this case they
chose to renegotiate the date. The GAB (not Nieto himself) did not act arbitrarily when it set it to Nov. 4
because indeed there is a novated contract (from evidence). Anyways, Interphil was willing to set it to Oct.
28 to be w/in the 30 day period.

Lydia L. Geraldez v. Court of Appeals and Kenstar Travel Corporation

G.R. No. 108253, February 23 (1994)

With reference to Civil Case No. Q-90-4649 of the RTC of Quezon City, Petitioner Geraldez filed an
action for damages against Respondent Kenstar Travel Corporation for breach of contract with
antecedent facts as follows:

Petitioner opt a 22-day Europe tour travel package offered by Respondent Corporation paying 2,990
dollars as consideration. The tour did not end up as expected by herein petitioner, it did not as
represented in the brochure: no European tour manager, hotels were not 1st class and the Filipino tour
guide who is supposed to accompany them is a 1st timer. Petitioner then filed a breach of contract against
Respondent Corporation for committing acts of representations constituting fraud in contracting the

RTC rendered judgment ordering Respondent Corporation to pay petitioner 500,000 as moral damages,
200,000 as nominal damages, 300,000 as exemplary damages and 50,000 as litigation and attorney’s
fees (all in pesos). On appeal, award for moral and exemplary damages were deleted and a reduction of
nominal damages to 40,000 pesos, this on account that the Respondent has substantially complied with
the prestation and no malice or bad faith is imputable as a consequence . Hence, the petition.


Whether or not private respondent acted in bad faith or with gross negligence in discharging it’s obligation
under contract.


On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary
damages which may be awarded in breaches of contract where fraud is evident. Private respondent
faulted with fraud in the inducement, which is employed by a party to a contract in securing the consent of
the other.

In the case at bar, the Private respondent has committed either dolo causante or dolo incidente by
making false misrepresentation. Either which oblige a person to indemnify damages.

Wherefore, premises considered, the decision of Respondent Court of Appeals is hereby set aside, and
another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia
Geraldez the sums of P 100,000 by way of moral damages, P 50,000 as exemplary damages, and
P 20,000 as attorney’s fees with litigation cost against private respondent. The nominal award of
damages is hereby deleted.


G.R. NO. 118585, SEPTEMBER 14, 1995

Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriquez and Antonio Tan,
obtained a loan of P250,000.00 from Metropolitan Bank and Trust Company, and to secure payment of
the same, spouses Marcial See and Lilian Tan constituted a real estate mortgage in favor of the said bank
over the property in the District of Paco, Manila. The partnership had changed its name to Ajax Marketing
Company without changing its composition and it obtained a loan of P150,000.00 from the same bank
and executed a second real estate mortgage over the same property. As the partnership converted into a
corporation and changed its name into Ajax Marketing and Development Corporation with the original
partners and additional incorporators, another loan was obtained from the same mortgagee of
P600,000.00. In December 1980, the three loans were re-structured into one loan and Ajax Marketing
represented by Antonio Tan and Elisa Tan in their capacity as solidary co-obligor executed a Promissory
Note. The petitioner argue that a novation occurs when their three loans which are all secured by the
same real estate property were consolidated, thereby extinguishing their monetary obligations and
releasing the mortgaged property from liability.


Whether or not there is a novation occurred when the three loans which are all secured by the same real
estate property were consolidated into one single loan under a Promissory Note?


Novation is the extinguishment of an obligation by the substitution or change of the obligation by a

subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the creditor. It is never presumed and will not be allowed
unless it is clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective
novation it is imperative that the new obligation expressly declare that the old obligation is thereby
extinguished, or that the new obligation be on every point incompatible with the new one. There is nothing
in the records to show the unequivocal intent of the parties to novate the three loan agreements, no
indication of the extinguishment of, or an incompatibility with. In addition, the consolidation of the three
loans did not release the mortgaged real estate property from liability because the mortgage annotations,
all remained uncancelled, indicating the subsistence of the real estate mortgage. Neither can it be validly
contended that there was a change or substitution in the persons of either the creditor or the debtor. The
conversation from a partnership to a corporation , without sufficient evidence that they were expressly
released from their obligations, with new corporate personality, a third person or new debtor within the
context of subjective novation. Novation purported change in the third person must be clear and express.
Clearly then, neither objective nor subjective novation occurred.

Limketkai Sons Milling v. CA [G.R. No. 118509. December 1, 1995.]

Philippine Remnants Co., Inc. constituted the Bank of the Philippine Islands (BPI) as its trustee to
manage, administer, and sell its real estate property. Pedro Revilla, Jr., a licensed real estate broker was
given formal authority by BPI to sell the lot for P1,000.00 per sq.m. This arrangement was concurred in by
the owners of the Philippine Remnants. Broker Revilla contacted Alfonso Lim of Limketkai Sons Milling
(LSM) who agreed to buy the land. LSM’s officials and Revilla were given permission to enter and view
the property they were buying (by Rolando V. Aromin, BPI Assistant Vice-President). Revilla formally
informed BPI that he had procured a buyer, LSM. LSM’s officials, Alfonso Lim and Albino Limketkai, went
to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-
President Aromin. LSM asked that the price of P1,000.00 per sq.m. be reduced to P900.00 while Albano
stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per
sq.m. to be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive
basis, it may be mentioned at this juncture that there is no dispute over LSM’s being the first comer and
the buyer to be first served. Notwithstanding the final agreement to pay P1,000.00 per sq.m. on a cash
basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no
harm in trying to ask for payment on terms because in previous transactions, the same had been allowed.
It was the understanding, however, that should the term payment be disapproved, then the price shall be
paid in cash. It was Albano who dictated the terms under which the installment payment may be
approved, and acting thereon, Alfonso Lim, on the same date, 11 July 1988, wrote BPI through Merlin
Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days. 2 or 3
days later, LSM learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on 18 July
1988 and tendered the full payment to Albano. The payment was refused because Albano stated that the
authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same
check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment.

An action for specific performance with damages was thereupon filed on 25 August 1988 by LSM against
BPI with the RTC Pasig (Branch 151). In the course of the trial, BPI informed the trial court that it had sold
the property under litigation to National Book Store (NBS) on 14 July 1989. The complaint was thus
amended to include NBS. On 10 June 1991, the trial court rendered judgment in favor of LSM; holding
that there was a perfected contract between LSM and BPI, and thus declared the Deed of Sale involving
the lot in Pasig in the name of BPI and in favor of NBS as null and void; ordered the Register of Deeds of
the Province of Rizal to cancel the TCT which may have been issued in favor of NBS by virtue of the said
deed; ordered BPI upon receipt by it from LSM the full payment to execute a Deed of Sale in favor of the
latter of the said property at the price of P1,000.00 per sq.m. and in default thereof, the Clerk of Court is
directed to execute the deed dated 14 July 1989; ordered the Register of Deeds of Pasig, upon
registration of the said deed, whether executed by BPI or the Clerk of Court and payment of the
corresponding fees and charges, to cancel said TCT 493122 and to issue, in lieu thereof, another transfer
certificate of title in the name of LSM; ordered BPI and NBS to pay in solidum to LSM the sums of
P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney’s fees and litigation
expenses, both with interest at 12% per annum from date of judgment; on the cross-claim by the bank
against NBS, ordered NBS to indemnify the bank of whatever BPI shall have paid to LSM; dismissed the
counterclaim of both BPI and NBS against LSM and the cross-claim of NBS against BPI; with costs
against BPI and NBS.

Upon elevation of the case to the Court of Appeals, the decision of the trial court was reversed and the
complaint dismissed on 12 August 1994. It was held that no contract of sale was perfected because there
was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. Hence, the

The Supreme Court reversed and set aside the questioned judgment of the Court of Appeals, and
reinstated the 10 June 1991 judgment of Branch 151 of the RTC of The National Capital Judicial Region
stationed in Pasig, Metro Manila except for the award of P10,000,000.00 damages, which was deleted.


1.) Was there a perfected contract

2.) Does BPI officials have full authority to bind the bank
3.) Are evidence supporting the sale competent and admissible

4.) Does the sale of the lot to National Book Store characterized by bad faith.


The supremene court reversed and set aside the judgment of court of appeals and the judgment of
branch 151 of the regional trial court of the national capital judicial region is reinstated except for the
award of P10,000,000 damages with is hereby deleted.

1.) Yes. The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to
sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the
disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement
between petitioner and the authorized broker. There was a concurrence of offer and acceptance,
on the object, and on the cause thereof.
The fact that the deed of sale still had to be signed and notarized does not mean that no contract
had already been perfected. A sale of land is valid regardless of the form it may have been
entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under
Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to
comply therewith does not affect the validity and binding effect of the act between the parties
(Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552).
2.) The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the
record. If BPI could give the authority to sell to a licensed broker, there is no reason to doubt the
authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and
administer real estate property.
3.) Yes. Counsel for respondents cross-examined petitioner's witnesses at length on the contract
itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and
other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases,
among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence
was initially inadmissible, the same became competent and admissible because of the cross-
examination, which elicited evidence proving the evidence of a perfected contract. The cross-
examination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug,
Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).
4.) On the fourth question of whether or not NBS is an innocent purchaser for value, the record
shows that it is not. It acted in bad faith.
Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It
was the willingness and design of NBS to buy property already sold to another party which led
BPI to dishonor the contract with Limketkai.

Victorino Hernandez v. CA and substituted heirs of Rev. Fr. Lucio Garcia (Deceased)

G.R. no. L-41132, April 27, 1988

Three parcels of land were owned by Fr. Garcia in Paranaque adjoining the lands owned by petitioner. In
1956 Hernandez and Garcia had an agreement orally to set the boundaries of their lands. The bureau of
lands put up monuments to mark the boundaries as agreed by the petitioner and respondent on the same
year. Then after on 1959 Fr. Garcia filed for an application for registration of the three parcels of land
under his name. The court granted respondent’s application, with this petitioner discovered that the 220
square meters of land included in the application was part of his property. Petitioner filed for a review of
the decree of registration and was denied by the CFI. Hence, an appeal was made to the CA who
affirmed the decision of the CFI declaring Fr. Garcia the absolute owner of said lands by acquisitive
prescription, stating that petitioner had made no objection to the application and that the agreement was
unenforceable since does not comply with the Statute of Frauds because it is not on writing and that only
516 square meters of land was on the deed of sale upon buying the said land by the petitioner’s parents


1. Whether or not there was fraud on the application for registration of said lands by respondent?
2. Whether or not the agreement is valid not being in writing?
3. Whether or not the petitioner’s right to file for a review has prescribed by his inaction?


The SC upon looking of the facts on record found out that the CA overlooked on its factual conclusion and
failed to consider the same that is essential to the issue. On the first issue, the government through the
bureau of land monuments put up marks to separate both their estates according to their agreement,
which has been altered by the application, modifying the marks of separation, clearly herein petitioner is a
victim of fraud, cheated to vindicate his claim to the land. On the second, according to article 1403 of the
civil code, formality to be in writing is only required on leases more than 1 year or sale of property or an
interest, respondents reliance on the statute of Frauds is misplaced, further petitioner’s tenants are living
for a long time on the disputed lands. Therefore the agreement was valid. For the third, the remedy must
be given to the petitioner being a victim of fraud; therefore he is entitled to the relief sought. Lastly the
information on the deed of sale cannot be taken into consideration on this case because it was not
accurate as to the actual measure of the estate upon purchase. Wherefore the SC reversed and set aside
the decision of the CA and declared the 220 square meters of land in the Original Certificate of Title of
respondent was null and void granting the said land to petitioner and re-issuing a new OCT to the
respondent excluding the 220 square meter land.


Petitioner House International Building Tenants Association, Inc. (ASSOCIATION, for short) is a domestic
non-stock, non-profit civic corporation, whose incorporators, directors and members constitute the great
majority of more than a hundred heads of families who are tenants of long and good standing of the 14-
storey House International Building. The land and the improvements thereon was foreclosed by GSIS,
which subsequently sold it to Centertown Marketing Corporation (CENTERTOWN, for short) in a deed of
conditional sale, without notice to the tenants of the building and without securing the prior clearance of
the then Ministry of Human Settlements.

CENTERTOWN was not authorized by its Articles of Incorporation to engage in the real estate business
so it assigned to its sister corporation TOWERS, with almost the same incorporators and stockholders, all
its rights and obligations under the Deed of Conditional Sale, with the consent and approval of the GSIS.
Thereafter, herein petitioner filed a complaint with the Regional Trial Court of Manila against
CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale and the subsequent
assignment thereof by CENTERTOWN to TOWERS. The complaint alleged in part that the Deed of
Conditional Sale is null and void ab initio for being ultra vires, since defendant CENTERTOWN is not
qualified to acquire real estate property or to engage in real estate transactions.

The court a quo and Court of Appeals dismissed the complaint. Hence, this petition for review on

(1) Whether petitioner has the personality to sue, on its own, as a corporation representing its members
who are tenants of the House International Building, and

(2) Whether petitioner has a cause of action against respondents GSIS, CENTERTOWN and TOWERS.


1. None. In the present case, the real parties in interest are the tenants of the House International
Building and not the petitioner ASSOCIATION, which has a personality separate and distinct from
that of its members.
Section 2, Rule 3 of the Rules of Court provides:
Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of
the real party in interest. All persons having an interest in the subject of the action and in
obtaining the relief amended shall be joined as plaintiffs.
Such rights of the tenants are personal and individual rights which can only be claimed by the
tenants who must necessarily be the indispensable and real parties in interest and certainly not
the plaintiff-appellant organization.

2. Appellant is not privy to either the deed of conditional sale or the assignment.
Art. 1397 of the Civil Code provides:
Art. 1397. The action for the annulment of contracts may be instituted by all who are
thereby obliged principally or subsidiarily.
He who has no right in a contract is not entitled to prosecute an action for nullity, for, according to
the precedents established by the courts, the person who is not a party to a contract, nor has any
cause of action or representation from those who intervened therein, is manifestly without right of
action and personality such as to enable him to assail the validity of the contract.


G.R. No. L-10605, June 30, 1958

In the morning of January 28, 1964, Severina Garces and her one-year old son, Precillano Necesito,
carrying vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus Lines at
Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell, then proceeded on its regular
run from Agno to Manila. After passing Mangatarem, Pangasinan truck No. 199 entered a wooden bridge,
but the front wheels swerved to the right; the driver lost control, and after wrecking the bridge's wooden
rails, the truck fell on its right side into a creek where water was breast deep. The mother, Severina
Garces, was drowned; the son, Precillano Necesito, was injured, suffering abrasions and fracture of the
left femur. Subsequently, actions for damages were brought directly against the operator of the bus. The
latter pleaded that the accident was due to "engine or mechanical trouble" independent or beyond the
control of the defendants or of the driver Bandonell.

After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the bad
condition of the road; that the accident was caused by the fracture of the right steering knuckle, which
was defective in that its center or core was not compact but "bubbled and cellulous", a condition that
could not be known or ascertained by the carrier despite the fact that regular thirty-day inspections were
made of the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of an
inch all around; that the knuckles are designed and manufactured for heavy duty and may last up to ten
years; that the knuckle of bus No. 199 that broke on January 28, 1954, was last inspected on January 5,
1954, and was due to be inspected again on February 5th. Hence, the trial court, holding that the accident
was exclusively due to fortuitous event, dismissed both actions. Hence this appeal.


1. Whether or not the carrier is liable for the injuries and damages sustained by the passengers.

2. Whether or not the cause of the accident is that of fortuitous event.


1. Yes. The Supreme Court held that the preponderance of authority is in favor of the doctrine that a
passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an
appliance purchased from a manufacturer, whenever it appears that the defect would have been
discovered by the carrier if it had exercised the degree of care which under the circumstances
was incumbent upon it, with regard to inspection and application of the necessary tests. For the
purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of
the carrier, as far as regards the work of constructing the appliance. According to this theory, the
good repute of the manufacturer will not relieve the carrier from liability" (10 Am. Jur. 205, s,
1324; and cases cited therein). The rationale of the carrier's liability is the fact that the passenger
has neither choice nor control over the carrier in the selection and use of the equipment and
appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of
the defective equipment, the passenger has no remedy against him, while the carrier usually has.
It is but logical, therefore, that the carrier, while not in insurer of the safety of his passengers,
should nevertheless be held to answer for the flaws of his equipment if such flaws were at all

2. As to the second issue, the record is to the effect that the only test applied to the steering knuckle
in question was a purely visual inspection every thirty days, to see if any cracks developed. It
nowhere appears that either the manufacturer or the carrier at any time tested the steering
knuckle to ascertain whether its strength was up to standard, or that it had no hidden flaws would
impair that strength. This periodical visual inspection of the steering knuckle as practiced by the
carrier's agents did not measure up to the required legal standard of "utmost diligence of very
cautious persons" - "as far as human care and foresight can provide", and therefore that the
knuckle's failure can not be considered a fortuitous event that exempts the carrier from
responsibility (Lasam vs. Smith, 45 Phil. 657; Son vs. Cebu Autobus Co., 94 Phil., 892.).
TOLOMEO LIGUTAN VS. COURT OF APPEALS G.R. No. 138677. February 12, 2002

Petitioners Ligutan and dela Llana obtained a loan in the amount of P120, 000.00 from respondent
Security Bank and Trust Company. As a result, petitioners executed a promissory note binding them,
jointly and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and
to pay a penalty of 5% every month on the outstanding principal and interest in case of default. Moreover,
they agreed to pay 10% of the total amount due by way of attorney’s fees if the matter were indorsed to a
lawyer for collection or if a suit were instituted to enforce payment. The obligation matured and the bank
granted an extension to pay.

Despite several demands, petitioners failed to settle their debt in the amount of to P114,
416.10. Consequently, the bank filed a complaint for recovery of the amount due with the Regional Trial
Court (RTC).

Due to petitioners’ absence on a certain hearing, the court considered the case submitted for decision.
Thereafter, petitioners filed a motion for reconsideration; however, the trial court denied the same and
rendered a decision in favor of respondent.

On appeal, petitioners assailed the imposition of the 2% service charge, the 5% per month penalty charge
and 10% attorney's fees. The Court of Appeals (CA) affirmed the decision of the trial court, except on the
imposition of the 2% service charge which was deleted pursuant to Central Bank Circular No.
783. Unsatisfied, both filed their respective motion for reconsideration. The CA found merit on
respondent’s contention that Default generally begins from the moment the creditor demands the
performance of the obligation. However, demand is not necessary to render the obligor in default when
the obligation or the law so provides and consequently, rendered a decision in favor of respondent.
Hence, petitioners’ filed a petition for review with the Supreme Court.


1. Whether or not the court is correct in holding the borrowers liable for the penalty charge.

2. Whether or not the subsequent execution of the real estate mortgage as security for the existing
loan would have resulted in the extinguishment of the original contract because of novation.


1. A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater liability
on the part of an obligor in case of breach of an obligation. It functions to strengthen the coercive force of
the obligation and to provide, in effect, for what could be the liquidated damages resulting from such a
breach. The obligor would then be bound to pay the stipulated indemnity without the necessity of proof
on the existence and on the measure of damages caused by the breach. Although a court may not at
liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the principal
obligation has been partly or irregularly complied with.

2. The subsequent execution of the real estate mortgage as security for the existing loan would not have
resulted in the extinguishment of the original contract of loan because of novation. Petitioners
acknowledge that the real estate mortgage contract does not contain any express stipulation by the
parties intending it to supersede the existing loan agreement between the petitioners and the bank.
Respondent bank has correctly postulated that the mortgage is but an accessory contract to secure the
loan in the promissory note.

An obligation to pay a sum of money is not extinctively novated by a new instrument which merely changes
the terms of payment or adding compatible covenants or where the old contract is merely supplemented
by the new one. When not expressed, incompatibility is required so as to ensure that the parties have
indeed intended such novation despite their failure to express it in categorical terms. The incompatibility,
to be sure, should take place in any of the essential elements of the obligation, i.e., (1) the juridical
relation or tie, such as from a mere commodatum to lease of things, or from negotiorum gestio to agency,
or from a mortgage to antichresis, or from a sale to one of loan; (2) the object or principal conditions, such
as a change of the nature of the prestation; or (3) the subjects, such as the substitution of a debtor or the
subrogation of the creditor. Extinctive novation does not necessarily imply that the new agreement should
be complete by itself; certain terms and conditions may be carried, expressly or by implication, over to the
new obligation.

Petition denied.


COMMISSION. G.R. No. 85647 April 22, 1991
On 6 February 1964, the Philippine Government represented by the Repacom in Japan and Jose Lopez
entered into a Procurement Contract with Japanese suppliers for the acquisition of a fishing vessel, later
named M/V "Jolo Lema," priced at US$174,900.00. On 28 August 1964, pursuant to the Protocol of
Delivery signed in Japan, the "Jolo Lema" was delivered to Jose Lopez.
On 24 September 1964, Jose Lopez posted a bond guaranteed by petitioner Mercantile in favor of
Repacom. In that bond, Lopez undertook to pay Repacom the amount of P68,385.90 in the event of his
failure to comply with any of his obligations under the Contract of Conditional Purchase and Sale.
On 2 March 1965, Repacom and Lopez entered into a Conditional Contract of Purchase and Sale
covering the vessel "Jolo Lema" for US$179,000.00 or its peso equivalent at the "preferred" rate of
exchange, without prejudice to re-adjustment should the Supreme Court confirm that the imposition of the
free market rate of exchange was proper or valid. The "Terms and Conditions" of the Contract, inter alia,
provided that:
. . . should the Conditional Vendee fail to pay any of the yearly installments when due, or
utilize the goods for any illegal purpose or purposes other than that for which the goods
have been produced, or otherwise fail to comply with any of the terms and conditions of
this contract or with any of the applicable provisions of the Reparations law and/or of the
Rules and Regulations promulgated pursuant thereto, then the Conditional Vendor is
hereby given the option to either rescind the contract upon notice to the Conditional
Vendee in which case all sums already paid by the Conditional Vendee shall be forfeited
as rentals in favor of the Conditional Vendor, and also that the Conditional Vendee shall
deliver peacefully to the Conditional Vendor the property, subject of this contract or sue
for specific performance in which case the whole amount remaining unpaid in this
contract shall immediately become due and payable.
Among the other obligations undertaken by Lopez under the Contract was the posting of a performance
bond in favor of Repacom to secure Lopez' compliance with his obligations.
Lopez failed to pay the first installment without interest on its due date despite repeated demands made
on him. Repacom then demanded payment from Mercantile but the latter also refused to pay. Thereupon,
on 28 August 1965, Repacom confiscated the Mercantile bond and demanded payment of the amount of
P68,386.90 covered by the bond.
Subsequently, Lopez posted EGCI Bond No. 65-1103 dated 20 November 1965 in the amount of
P36,906.51, issued by Eagle Guaranty Co., Inc. ("Eagle") in favor of Repacom to secure compliance by
Lopez of his obligations under the Contract of Conditional Purchase and Sale .
The first installment with interest in the amount of P36,906.51 under the Schedule of Payments fell due on
28 August 1966. Despite repeated demands made by Repacom, Lopez refused to pay that installment.
Notice was sent to Eagle who likewise refused to pay. Thereupon, Repacom confiscated EGCI Bond No.
On 14 February 1967, Repacom instituted an action in the then Court of First Instance of Manila against
Mercantile, Eagle and Jose Lopez for the collection of the unpaid purchase price of the fishing vessel M/V
"Jolo Lema" as well as for interest, liquidated damages, attorney's fees and costs. This case was,
however, dismissed upon motion of Repacom.
Petitioner makes an issue of the fact that the price of the vessel was reduced as a result of the issuance
of the writ. Petitioner calls attention to the posting of the Eagle bond subsequent to the issuance of the
writ and concludes that it was to guarantee payment of the ten percent (10%) of the reduced price of the
vessel that the Eagle bond was posted, and that the Mercantile bond was accordingly released. It is
further contended that petitioner's bond could not have secured Lopez' obligation under the Contract of
Conditional Purchase and Sale since the latter was concluded after petitioner's bond had been issued.
Petitioner argues that the Mercantile bond guaranteed only the procurement contract entered into prior to
the issuance of the writ of preliminary injunction, and that the writ of preliminary injunction in effect had
made the Mercantile bond unenforceable.

1.) Does posting of another bond by Lopez constitute novation through substitution of the debtor?
2.) Does reduction of price of the vessel released the mercantile bond?
1.) The fact that subsequent to the execution of the Contract of Conditional Purchase and Sale, Lopez
posted another bond, the Eagle bond, does not by itself suggest that there was a novation of Mercantile's
obligation through a substitution of the debtor. The general rule is that novation in never presumed; it
must always be clearly and unequivocally shown. Thus, "the mere fact that the creditor receives a
guaranty or accepts payments from a third person who has agreed to assume the obligation, when there
is no agreement that the first debtor shall be released from responsibility, does not constitute novation,
and the creditor can still enforce the obligation against the original debtor." In the case at bar, the records
do not at all show any express intention of the parties to extinguish the Mercantile bond. The original
relationship between Jose Lopez, Mercantile and Repacom remained unchanged despite the posting of
the Eagle bond, there having been no agreement between Repacom, Jose Lopez and Eagle to release
Mercantile from the latter's obligation under its bond. The rule is that "in a case of subjective novation
through a change in the person of debtor, it is not enough that the juridical relation between the original
parties is extended to include a third person, as this constitutes only an increase in the number of persons
liable to the obligee. It is essential that the old debtor be released from the obligation and the third person
take his place in the relation. If the older debtor is not released, there is no novation; the third person
becomes merely a co-debtor, surety or co-surety.
2.)The Supreme court held that It is of no moment that the purchase price of the vessel was reduced. The
said reduction was merely a result of the conversion of the price of the vessel "Jolo Lema" in U.S. Dollars
to Philippine Pesos using the preferred rate of exchange instead of the free market rate of exchange
which was originally intended by the parties. Such was merely an adjustment of the peso value of the
vessel; the dollar value thereof remained at US$174,900.00 and the required amount of the performance
bond was still ten percent (10%) of US$174,900.00.
The reduction of the peso purchase price did not extinguish Mercantile's commitments under the bond. It
must be recalled that under its bond Mercantile undertook to secure ten percent (10%) of the purchase
price of the vessel which at that time was pegged at P683,859.00 after converting the dollar price into the
corresponding peso price using the free market rate of exchange. With the adjustment of the vessel's
peso price mandated by the writ of preliminary injunction, Mercantile's undertaking to pay a certain
number of pesos under certain conditions was adjusted downward but not extinguished.

Silahis Mktg. v. IAC G. R. No. L-74027 December 7, 1989

De Leon sold and delivered to Petitioner Silahis Mktg. various items of merchandise for the total amount
of P22,213.75 payable within 30 days. Upon maturity, Silahis failed to pay its account; after repeated
demands which after all were futile, De Leon filed a complaint for collection before the CFI.

Silahis admitted the allegations of its indebtedness to De Leon but presented as affirmative defenses:

1. [a debit memo] for P22,000.00 as unrealized profit of Silahis, had De Leon not sold to Dole Philippines
Directly its merchandise; and

2. return of a defective merchandise which Silahis sold to its client.

The CFI confirmed Silahis' liability to De Leon but ordered to PARTIALLY OFFSET by Silahis
counterclaim as contained in the debit memo. As a result of the offset, De Leon is entitled for P13.75 to

De Leon appealed to IAC which reversed the decision of the CFI. It held that De Leon is not under the
obligation NOT to sell directly to Dole Phi.; thus the counterclaim of Silahis was dismissed.

Hence this present petition for review on certiorari.


Whether or Not De Leon is liable to pay Silahis for the commission or margin for the direct sale made by
the former directly to Dole?

Corollarily, Whether or not Silahis is entitled to compensation or partial set off of its debt?


No. This is ncessarily so because there is no evidence on record from which it can be inferred that there
was any agreement between the petitioner and private respondent prohibiting the latter from selling
directly to Dole Philippines. Since there is no obligation existing between De Leon and Silahis with regard
to selling directly to Dole, the latter has no right to claim agains the former.

Absent of that obligation will not give rise to set off or compensation because under the law
"compensation takes place when two persons, in their own right, are creditors and debtors to each other.
Article 1279 of the Civil Code provides that: "In order that compensation may be proper, it is necessary:
[1] that each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other; [2] that both debts consist in a sum of money, or if the things due are consumable, they be of
the same kind, and also of the same quality if the latter has been stated; [3] that the two debts be due; [4]
that they be liquidated and demandable; [5] that over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor.

When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect
by operation of law, even without the consent or knowledge of the creditors and debtors. 5 Article 1279
requires, among others, that in order that legal compensation shall take place, "the two debts be due" and
"they be liquidated and demandable." Compensation is not proper where the claim of the person
asserting the set-off against the other is not clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of contract."

Wherefore, Silahis is bound to pay De Leon for its debt.

G.R. No. 120554, September 21, 1999
Tek Hua Enterprises Corp. (Tek Hua), engaged in textile business, entered into four (4) lease agreements
with lessor Dee C. Chuan & Sons Inc. (DCCSI) for one-year term. They provided that should the lessee
continue to occupy the premises after the term, the lease shall be on a month-to-month basis. When the
contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises.
Upon the death of Tek Hua’s managing partner, So Pek Giok, his grandson, So Ping Bung, and herein
petitioner, occupied the warehouse for his own textile business, Trendsetter Marketing. Years thereafter,
private respondent Manuel C. Tiong sent a letter to herein petitioner demanding to the vacate the
premises after temporarily allowing the use of the premises due to the close business relationship with
petitioner’s late grandfather. Petitioner refused to vacate and thereafter requested formal contracts of
lease with DCCSI in favour of Trendsetter Marketing. Petitioner claimed that after the death of his
grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously
paid rent. DCCSI acceded to petitioner's request and the lease contracts in favor of Trendsetter were thus
In the suit for injunction, private respondents pressed for the nullification of the lease contracts between
DCCSI and petitioner and also claimed damages. The trial court ruled in favour of respondents, annulling
the four Contracts of Lease between defendants So Ping Bun, doing business under the name and style
of "Trendsetter Marketing", and DCCSI and ordering defendant So Ping Bun the payment of attorney’s
fees among others. On appeal by So Ping Bun, the Court of Appeals upheld the trial court, but modified
the decision by reducing the award of attorney's fees.
1.) Whether or not the appellate court erred in affirming the trial court’s decision finding So Ping
Bun guilty of tortuous interference of contract.
2.) Whether or not the appellate court erred in awarding attorney’s fees in favour of private
No. A duty which the law of torts is concerned with is respect for the property of others, and a cause of
action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the
other of his private property. This may pertain to a situation where a third person induces a party to
renege on or violate his undertaking under a contract. In the case at bar, petitioner's Trendsetter
Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived
respondent corporation of the latter's property right. Clearly, and as correctly viewed by the appellate
court, the three elements of tort interference, to wit: (1) existence of a valid contract; (2) knowledge on the
part of the third person of the existence of contract; and (3) interference of the third person is without legal
justification or excuse, are present in the instant case.
No. The recovery of attorney's fees in the concept of actual or compensatory damages, is allowed
under the circumstances provided for in Article 2208 of the Civil Code. One such occasion is when the
defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest. But it was consistently held that the award of considerable damages should have
clear factual and legal bases. In connection with attorney's fees, the award should be commensurate to
the benefits that would have been derived from a favorable judgment. In a long line of cases it was said,
"It is not sound policy to place in penalty on the right to litigate. To compel the defeated party to pay the
fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing
party and his counsel to swell the fees to undue proportions."

EDGARDO E. MENDOZA vs. HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of
First Instance of Manila, FELINO TIMBOL, and RODOLFO SALAZAR
G.R. No. L-32599 June 29, 1979

Petitioner, Edgardo Mendoza, seeks a review on certiorari of the Orders of respondent Judge in Civil
Case No. 80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino
Timbol and Rodolfo Salazar.
On October 22 a three- way vehicular accident occurred along Mac-Arthur Highway, Marilao, Bulacan,
involving a Mercedes Benz owned and driven by petitioner; a private jeep owned and driven by
respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent Felipino Timbol and
driven by Freddie Montoya. Two separate Information for Reckless Imprudence Causing Damage to
Property were filed against Rodolfo Salazar and Freddie Montoya. The cause of action was due to how
truck-driver Montoya was for causing damage to the jeep owned by Salazar, by hitting it at the right rear
portion thereby causing said jeep to hit and bump an oncoming car, which happened to be petitioner's
Mercedes Benz. The case against jeep-owner-driver Salazar, was for causing damage to the Mercedes
The Court of First Instance rendered judgment finding the accused Freddie Montoya guilty beyond
reasonable doubt of the crime of damage to property thru reckless imprudence. The trial Court absolved
jeep-owner-driver Salazar of any liabilityin view of its findings that the collision between Salazar's jeep
and petitioner's car was the result of the former having been bumped from behind by the truck driven by
Montoya. Neither was petitioner awarded damages as he was not a complainant against truck-driver
Montoya but only against jeep-owner. After the termination of the criminal cases, petitioner filed a civil
case against respondents jeep-owner-driver Salazar and Felino Timbol, the latter being the owner of the
gravel and sand truck driven by Montoya, for identification for the damages sustained by his car as a
result of the collision. Jeep-owner-driver Salazar and truck-owner Timbol were joined as defendants,
either in the alternative or in solidum. Truck-owner Timbol filed a Motion to Dismiss on the grounds that
the Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of
action. An Opposition thereto was filed by petitioner.
In an order respondent Judge dismissed the Complaint against truck-owner Timbol for reasons stated in
the afore- mentioned Motion to Dismiss, petitioner sought before this Court the review of that dismissal, to
which petition we gave due course.Upon motion of jeep-owner-driver Salazar, respondent Judge also
dismissed the case as against the former. Respondent Judge reasoned out that "while it is true that an
independent civil action for liability under Article 2177 of the Civil Code could be prosecuted
independently of the criminal action for the offense from which it arose, the New Rules of Court, which
took effect on January 1, 1964, requires an express reservation of the civil action to be made in the
criminal action; otherwise, the same would be barred pursuant to Section 2, Rule 111. Petitioner's Motion
for Reconsideration thereof was denied in the order dated with respondent Judge suggesting that the
issue be raised to a higher Court "for a more decisive interpretation of the rule.
Petitioner then filed a Supplemental Petition to review the last two mentioned Orders, that required jeep-
owner-driver Salazar to file an Answer.
Is the action against respondents barred because of a prior judgment?
Petitioner's cause of action being based on quasi-delict, respondent Judge committed reversible error
when he dismissed the civil suit against the truck-owner, as said case may proceed independently of the
criminal proceedings and regardless of the result of the latter.
The court held- it is a well-settled rule that for a prior judgment to constitute a bar to a subsequent case,
the following requisites must concur: (1) it must be a final judgment; (2) it must have been rendered by a
Court having jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the
merits; and (4) there must be, between the first and second actions, Identity of parties, Identity of subject
matter and Identity of cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner
that there is no Identity of cause of action between the criminal case and the civil case. Obvious is the fact
that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioner's car but for
damage to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put
it "the owner of the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he
(Mendoza) being a complainant only against Rodolfo Salazar in the criminal case. And more importantly,
in the criminal cases, the cause of action was the enforcement of the civil liability arising from criminal
negligence under Article l of the Revised Penal Code, whereas the civil case is based on quasi-delict
under Article 2180, in relation to Article 2176 of the Civil Code
Petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident from the
recitals in the complaint . The court declare, therefore, that in so far as truck-owner Timbol is concerned,
the civil case is not barred by the fact that petitioner failed to reserve, in the criminal action, his right to file
an independent civil action based on quasi-delict.

respondents.[G.R. No. 134685, November 19, 1999]

On 25 and 26 August 1990, respondent LIM issued two Metrobank checks in favor of petitioner SIGUAN.
Upon presentment by petitioner with the drawee bank, the checks were dishonored for the reason
“account closed.” Demands to make good the checks proved futile. As a consequence, a criminal case
for violation of Batas Pambansa Blg. 22 was filed by petitioner against LIM.

Meanwhile, on 2 July 1991, a Deed of Donation conveying the parcels of land and purportedly executed
by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the Office of
the Register of Deeds of Cebu City. New transfer certificates of title were thereafter issued in the names
of the donees.

On 23 June 1993, petitioner filed an accion pauliana against LIM and her children to rescind the
questioned Deed of Donation and to declare as null and void the new transfer certificates of title issued
for the lots covered by the questioned Deed, as the same was allegedly made in bad faith and fraud of
creditors. In its decision of 31 December 1994, the trial court ordered the rescission of the Deed and
declared null and void the transfer certificates but on appeal, Court of Appeals reversed said decision and
dismissed petitioner’s accion pauliana. Hence, this petition for review on certiorari.


Whether or not the Deed of Donation executed by respondent Lim be rescinded for being in fraud of her
alleged creditor, petitioner Siguan.


The Supreme Court resolved the issue in the negative. Under Article 1381 of the Civil Code, contracts
entered into in fraud of creditors may be rescinded only when the creditors cannot in any manner collect
the claims due them. Also, Article 1383 of the same Code provides that the action for rescission is but a
subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal
means to obtain reparation for the same. The term “subsidiary remedy” has been defined as “the
exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is
resorted to.” It is, therefore, essential that the party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim. Petitioner neither alleged nor proved that she did so.
On this score, her action for the rescission of the questioned deed is not maintainable even if the fraud
charged actually did exist.”

Moreover, the Article 1387, first paragraph, of the Civil Code provides: “All contracts by virtue of which
the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of
creditors when the donor did not reserve sufficient property to pay all debts contracted before the
donation. Likewise, Article 759 of the same Code, second paragraph, states that the donation is always
presumed to be in fraud of creditors when at the time thereof the donor did not reserve sufficient property
to pay his debts prior to the donation. For this presumption of fraud to apply, it must be established that
the donor did not leave adequate properties which creditors might have recourse for the collection of their
credits existing before the execution of the donation.

Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387
of the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any
other manner recognized by the law of evidence. Thus in the consideration of whether certain transfers
are fraudulent, the Court has laid down specific rules by which the character of the transaction may be
determined. The following have been denominated by the Court as badges of fraud:

(1) The fact that the consideration of the conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent
or greatly embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are present other
of the above circumstances; and
(7) The failure of the vendee to take exclusive possession of all the property.

Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or
any other circumstance from which fraud can be inferred. Accordingly, since the requirements for the
rescission of a gratuitous contract are not present in this case, petitioner’s action must fail.


MATEO M. LEANDA, and LEYTE GULF TRADERS, INC., . G.R. No. 128991 April 12, 2000
Herein respondent entered into a contract of lease of a parcel of land with petitioner Bentir for a period of
twenty (20) years starting May 5, 1968. Respondent alleged that the lease extended for another four (4)
years. On May 5, 1989, herein petitioner Bentir sold the leased property to petitioner spouses Pormada.
Respondent then questioned the sale claiming its right of first refusal and filed a case before the court
seeking for the reformation of the expired contract of lease on the ground that its lawyer accidentally
failed to incorporate in the contract of lease the verbal agreement between the parties that in case
petitioner Bentir leases or sells the lot after the expiration of the lease, respondent corporation has the
right to equal the highest offer.


Whether the complaint for reformation of instrument has prescribed or not.


Reformation of an instrument is that remedy in equity by means of which a written instrument is made or
construed so as to express or conform to the real intention of the parties when some error or mistake has
been committed. An action for reformation must be brought within the period prescribed by law,
otherwise, it will be barred by the mere lapse of time. The prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten (10) years. Prescription is intended to suppress
stale and fraudulent claims arising from transactions like the one at bar which facts had become so
obscure from the lapse of time or defective memory. In the case at bar, respondent had ten (10) years
from 1968, the time when the contract of lease was executed, to file an action for reformation. Sadly, it did
so only on May 15, 1992 or twenty-four (24) years after the cause of action accrued, hence, its cause of
action has become stale, hence, time-barred.


After the death of Valentina Unto Flores, her three children, Jose, Venancio, and Silveria took possession
of Lot 5734 with each occupying a one-third portion. Upon their death, their children and grandchildren
took possession of their respective shares. The other parcel, Lot 4163 which is solely registered under the
name of Silveria, was sub-divided between Silveria and Jose.
The grandchildren of Jose and now owners of one-half of Lot 4163, sold their half to the plaintiff Alejandra
Delfino. Silveria did not object to the sale.
When Atty. Deogracias Pinili, Alejandra's lawyer, to prepare the instruments and deeds, asked for the title
of the land, Silveria Flores delivered Original Certificate of Title No. 4918-A, covering Lot No. 5734, and
not the correct title covering Lot 4163. At that time, the parties knew the location of Lot 4163 but not its
OCT Number, so it was pure mistake on part of Silveria Flores.
Believing in the error, Pinili prepared a notarized Settlement of Estate and Sale that was signed by the
parties. As a result, OCT No. 4918-A was cancelled and in lieu thereof, TCT No. 5078 was issued in the
names of Silveria Flores and Alejandra Delfino, with one-half share each. Silveria Flores was present in
all of these. Alejandra Delfino immediately took possession and introduced improvements on the
purchased lot.
Two years later, Alejandra Delfino discovered that what was designated in the deed, Lot 5734, was the
wrong lot. She sought the assistance of Pinili who approached Silveria and together they inquired from
the Registry of Deeds about the status of Lot 4163. They found out that OCT No. 3129-A covering Lot
4163 was still on file. Alejandra Delfino paid the necessary fees so that the title to Lot 4163 could be
released to Silveria Flores, who promised to turn it over to Pinili for the reformation of the deed of sale.
However, despite repeated demands, Silveria did not do so, prompting Alejandra to file a complaint for
reformation of the deed of sale with damages.
Silveria Flores claimed that she was the sole owner of Lot 4163 as shown by OCT No. 3129-A so
respondents had no right to the lot. The contract of sale clearly stated that the property being sold was Lot
5734, not Lot 4163. The case lasted several years, and their heirs became the parties in the case. The
trial court ruled in favor of the respondents and ordered the reformation of the contract. Petitioners
appealed the decision to the CA, which affirmed the ruling of the trial court. Hence their present petition
for review
Is the reformation of the deed is proper by reason of mistake?
Reformation is that remedy in equity by means of which a written instrument is made or construed so as
to express or conform to the real intention of the parties. An action for reformation of instrument under this
provision of law may prosper only upon the concurrence of the following requisites:
(1) there must have been a meeting of the minds of the parties to the contact;
(2) the instrument does not express the true intention of the parties; and
(3) the failure of the instrument to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.
All of these requisites are present in this case. There is no dispute as to the intention of the parties to sell
the land to Alejandra Delfino but there was a mistake as to the designation of the lot intended to be sold
as stated in the Settlement of Estate and Sale.
Subsequent and contemporaneous acts of the parties as well as the evidentiary facts as proved and
admitted can be reflective intention. The totality of the evidence clearly indicates that what was intended
to be sold to Alejandra Delfino was Lot 4163 and not Lot 5734. Why would Alejandra occupy and possess
one-half of said lot if it was not the parcel of land which was the object of the sale to her? If it were true
that Silveria Flores was the sole owner, she should have objected when Alejandra Delfino took
possession of one-half thereof immediately after the sale. The other half belongs to her brother Jose,
represented now by his grandchildren successors-in-interest. As such, the latter could rightfully sell the
land to Alejandra Delfino.
Reformation of the instrument is proper, and the decisions of the trial court and the CA is sustained.
G.R. No. L-69560 June 30, 1988

In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the then
Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of
P50,000,000.00. To secure this loan, private respondent mortgaged her real properties in Quiapo, Manila
and in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this
loan, only the amount of P20,000,000.00 was approved for release. The same amount was applied to pay
her other obligations to petitioner, bank charges and fees. Thus, private respondent's claim that she did
not receive anything from the approved loan. On September 11, 1980, private respondent made a money
market placement with ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a period of
32 days or until October 13, 1980, its maturity date. Meanwhile, private respondent allegedly failed to pay
her mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the money
market placement on maturity but applied the amount instead to the deficiency in the proceeds of the
auction sale of the mortgaged properties. With Atrium being the only bidder, said properties were sold in
its favor for only P20,000,000.00. Petitioner claims that after deducting this amount, private respondent is
still indebted in the amount of P6.81 million.On November 17, 1982, private respondent filed a complaint
with the trial court against petitioner for annulment of the sheriff's sale of the mortgaged properties, for the
release to her of the balance of her loan from petitioner in the amount of P30,000,000,00, and for
recovery of P1,062,063.83 representing the proceeds of her money market investment and for damages.
She alleges in her complaint, which was subsequently amended, that the mortgage is not yet due and
demandable and accordingly the foreclosure was illegal; that per her loan agreement with petitioner she is
entitled to the release to her of the balance of the loan in the amount of P30,000,000.00; that petitioner
refused to pay her the proceeds of her money market placement notwithstanding the fact that it has long
become due and payable; and that she suffered damages as a consequence of petitioner's illegal acts. In
its answer, petitioner denies private respondent's allegations and asserts among others, that it has the
right to apply or set off private respondent's money market claim of P1,062,063.83. Petitioner thus
interposes counterclaims for the recovery of P5,763,741.23, representing the balance of its deficiency
claim after deducting the proceeds of the money market placement, and for damages. The trial court
subsequently dismissed private respondent's cause of action concerning the annulment of the foreclosure
sale, for lack of jurisdiction, but left the other causes of action to be resolved after trial. On December 15,
1983, private respondent filed a motion to order petitioner to release in her favor the sum of
P1,062,063.83, representing the proceeds of the money market placement, at the time when she had
already given her direct testimony on the merits of the case and was being cross-examined by counsel.
On February 13, 1984, respondent judge issued an order granting the motion. Petitioner filed a motion for
reconsideration to the aforesaid order, asserting among other things that said motion is not verified, and
therefore a mere scrap of paper. On March 13, 1984, petitioner filed a special civil action for certiorari and
prohibition with preliminary injunction with the Court of Appeals. In a decision rendered on October 31,
1984, the Court of Appeals dismissed said petition.

Whether or not there can be legal compensation in the case at bar.

The argument is without merit. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other. "When all the requisites mentioned in Art. 1279 of the Civil Code are
present, compensation takes effect by operation of law, even without the consent or knowledge of the
debtors." Article 1279 of the Civil Code requires among others, that in order that legal compensation shall
take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper
where the claim of the person asserting the set-off against the other is not clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim arising from breach of contract. There can be
no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83 representing the
proceeds of her money market investment. This is admitted. But whether private respondent is indebted
to petitioner in the amount of P6.81 million representing the deficiency balance after the foreclosure of the
mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance
prevents legal compensation from taking place.

PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to, The MANUFACTURERS BANK AND TRUST COMPANY,
INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division), and JOSE W. DIOKNO and CARMEN I. DIOKNO, respondents-
The petioner-appellant bank and private respondent-appellees Diokno’s entered into a contract over a
parcel of land described in Contract to Sell No. VV-18-(a) in Victoria Valley Subdivision in Antipolo, Rizal.

This is an appeal by certiorari from the decision2 of the respondent court entitled "Jose W. Diokno and
Carmen I. Diokno, plaintiffs-appellees, vs. The Manufacturers Bank and Trust Company, which affirmed
the decision3 of the Court of First Instance wherefore the judgment is rendered in favor of the plaintiffs
and against the defendant, ordering the defendant to deliver to the plaintiffs the parcel of land described
in Contract to Sell No. VV-18-(a) in the total area of 5,936 square meters and to execute in their favor the
necessary deed of absolute sale therefor then pay for actual damages.

After trial, the lower court rendered a decision in private respondents' favor, holding that petitioner could
not rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by
accepting payment on September 1967, and by sending letters advising private respondents of the
balances due, thus, looking forward to receiving payments thereon; (b) in any event, until May 18, 1977
(when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could
not have delivered the entire area contracted for, so, neither could private respondents be liable in
default, citing Art. 1189 of the New Civil Code.

Said Decision was affirmed on appeal.


Whether the Petition For Review on Certiorari, raising the main issue of whether or not the Contract to
Sell No. VV-18(a) was rescinded or cancelled, under the automatic rescission clause contained therein is


It was found that the petition is meritless because there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the many extensions granted private respondents by the
petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic
rescission." 4

WHEREFORE the assailed decision is hereby AFFIRMED but the actual damages are hereby reduced
minus whatever private respondents still owe the petitioner as a result of the contract.


May 31, 1984 in CA-G.R. CV No. 67205 entitled "Jose W. Diokno and Carmen I. Diokno, plaintiffs-appellees, vs. The Manufacturers
Bank and Trust Company, defendant-appellant.(Penned by Justice Porfirio V. Sison concurred in by Justices Abdulwahid A. Bidin,
Marcelino R. Veloso, and Desiderio P. Jurado.)
Civil Case No. 19660 (penned by Judge Gregorio G. Pineda.)
Paragraph (e) of Contract to Sell No. VV-18 (a): The contract shall be considered automatically rescinded and cancelled and of no
further force and effect upon failure of the vendee to pay when due, three or more consecutive installments as stipulated therein or
to comply with any of the terms and conditions thereof, in which case the vendor shall have right to resell the said parcel of land to
any person interested, forfeiting payments made by the vendee as liquidated damages.
Petitioner Irene Dino is the registered owner of a parcel of land, of which private respondent, Francisco L.
Ong is the adverse claimant.
Private respondent issued an affidavit and memorandum of quitclaim wherein he waived and renounced
all his claims, rights and credits over and against the aforesaid parcel of land upon payment by petitioner
of P90,000.00 in the following manner.
(a) Downpayment of FORTY THOUSAND PESOS (P40,000.00) on or before February
15, 1974, receipt of which (sic) hereby acknowledged; and the future sums covered by
postdated checks in denominations of:
(b) TEN THOUSAND PESOS(Pl0,000.00)payable or redeemable on or before April 15,
1974; and,
(c) EIGHT THOUSAND PESOS (Pl0,000.00) (sic) EACH payable or redeemable on or
before the 15th of June, August, October, December of 1974 and February of 1975,
respectively, and for a total of FORTY THOUSAND PESOS (P40,000.00),
The petitioner was able to pay P50,000.00 in cash, but issued 5 post-dated checks for the remaining
P40,000.00 . However, 4 of the checks were dishonored by the bank due to insufficient funds and the
account of petitioner being closed. Respondent filed for the enforcement of the obligation plus damages
to which petitioner alleged that the original agreement of the parties as to the payment had already been
novated and disregarded by the parties after the issuance of the said checks.
Whether or not the contract was novated by a change in mode of payment?
The petitioner's contention is untenable. Her defense that the original agreement of the parties had
already been novated and disregarded after the issuance of the checks mentioned in private respondent's
complaint and after the private respondent had executed and signed the Affidavit and Memorandum of
Quitclaim, 13 is a sham and false defense and did not tender an issue that would require a hearing for the
reception of evidence. It is a mere device or scheme to avoid or delay the immediate payment of
petitioner's obligation to the private respondent under the Affidavit and Memorandum of Quitclaim. Thus,
as aptly observed by the court a quo-
A novation under the rules of civil law, where the term has been introduced into the modern
nomenclature of our common law jurisprudence, was a mode of extinguishing one obligation by
another; the substitution, not of a new paper or rate but of a new obligation in lieu of an old one,
the effect of which was to pay, dissolve or otherwise discharge it (ibid).
It will be noted that the original contract was not actually altered or changed. The defendant, as a
matter of fact, and for all intents and purposes, had issued checks in payment of her obligation as
prestated by the contract but asserts that the same were issued only to guarantee but not as a
payment in itself, but it is not denying the fact that one of the five checks were cashed, thus
making the balance of only P32,000.00, that is without mention the liquidated damage of
P20,000.00. The ambivalent attitude of the defendant could only mean or should be construed as
a mere pretense to avoid an immediate demand for the payment of her obligation.
In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or that the old and new obligation be on
every point incompatible with each other (Art. 1292-New Civil Code.)
In the present case the contract referred to did not expressly extinguish the obligation existing in
said affidavit and memorandum of quitclaim. On the contrary, it expressly recognized the
obligation between the parties and expressly provided a method by which the same shall be
extinguished, which method was expressly provided in the aforementioned contract, by means of
periodical payments.
For all the foregoing considerations, the court believes, and so holds, that the aforementioned
contract has never been altered, changed or novated. For what the herein defendant actually did
is not absolutely incompatible with the prestation of the existing contract but rather she expressly
ratified such obligation through the issuance of postdated checks, some of which were cashed
and others not for reason of insufficiency of funds or 'account closed.
WHEREFORE, the petition is this case is DISMISSED with costs against petitioner.chanrobles virtual law


PHILIPPINES, INC. and CITIBANK, N.A., G.R. No. 121413 January 29, 2001

These consolidated petitions involve several fraudulently negotiated checks.
Ford Philippines drew and issued Citibank checks in favor of the Commissioner of Internal Revenue as
payments of its taxes. The said check was deposited to PCIB and was subsequently cleared at Central
Bank. Proceeds of the checks were never received by the Commissioner, but were encashed and
diverted to the accounts of members of a syndicate. The acting Commissioner of Internal Revenue
officially informed Ford that its check in the amount of P4,746,114.41 was not paid to the government or
its authorized agent, hence, Ford has to pay the said amount within 15 days from receipt of the letter,
Ford was forced to make second payment of its taxes. Thus, an action to recover the amounts from the
collecting and drawee banks was filed.
Whether or not Ford has the right to recover from the collecting bank (PCIBank) and the drawee bank
(Citibank) the value of the checks intended as payment to the Commissioner of Internal Revenue.
Whethet or not Ford's cause of action already prescribed.
PCIB failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of PCIB employees
to verify whether his letter requesting for the replacement of the Citibank Check No. SN-04867 was duly
authorized, showed lack of care and prudence required in the circumstances.
The mere fact that forgery was committed by a drawer-payor’s confidential employee or agent, who by
virtue of his position had unusual facilities to perpetrate the fraud and imposing the forged paper upon the
bank, does not entitle the bank to shift the loss to the drawer-payor, in the absence of some circumstance
raising estoppel against the drawer. The rule applies to checks fraudulently negotiated or diverted by the
confidential employees who hold them in their possession.
It also shows that Citibank as drawee bank was likewise negligent in the performance of its duties.
Citibank failed to establish that its payment of Ford’s checks was made in due course and legally in order.

Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIB and Citibank
failed in their respective obligations and both were negligent in the selection and supervision of their
employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are
constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor
of the CIR.
On the issue of prescription, PCIB claims that the action of Ford had prescribed because of its inability to
seek judicial relief seasonably, considering that the alleged negligent act took place prior to December 19,
1977 but the relief was sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is
ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his account,
and an action upon a check is ordinarily governed by the statutory period applicable to instruments in
Our laws on the matter provide that the action upon a written contract must be brought within ten year
from the time the right of action accrues; hence, the reckoning time for the prescriptive period begins
when the instrument was issued and the corresponding check was returned by the bank to its depositor.

MARIO S. ESPINA v. THE COURT OF APPEALS and RENE G. DIAZ G.R. No. 116805 June 22, 2000

Mario S. Espina is the registered owner of a Condominium Unit No. 403, Victoria Valley Condominium,
Valley Golf Subdivision, Antipolo, Rizal. Such ownership is evidenced by Condominium Certificate of Title
No. N-10.

On November 29, 1991, Mario S. Espina and Rene G. Diaz executed a Provisional Deed of Sale,
whereby the former sold to the latter the aforesaid condominium unit for the amount of P100,000.00 to be
paid upon the execution of the contract and the balance of P1,400,000.00 to be paid through six (6) PCI
Bank postdated checks.

Subsequently, in a letter dated January 22, 1992, Diaz informed Espina that his checking account with
PCI Bank has been closed and a new checking account with the same bank is opened and that the
postdated checks issued will be replaced with new ones in the same bank.

On January 25, 1992, Diaz through his wife Ms. Socorro Diaz paid Mario Espina P200,000.00,
acknowledged by him as partial payment for the condominium unit subject of this controversy.

On July 26, 1992, Espina sent Diaz a "Notice of Cancellation" of the Provisional Deed of Sale. However,
despite this notice, Espina still accepted payment from Diaz per Metrobank Check No. 395694 dated and
encashed on October 28, 1992 in the amount of P100,000.00.

On February 24, 1993, Espina filed a complaint for Unlawful Detainer against Diaz before the Municipal
Trial Court of Antipolo. The trial court rendered its decision, ordering Diaz and all persons claiming rights
under him to vacate the condominium unit; to pay the total arrears covering the period July 1991 up to the
filing complaint, and to pay P7,000.00 every month thereafter as rentals unit he vacates the premises;
and to pay the attorney's fees and costs of suit. Espina may refund to Diaz the balance from P400,000.00
after deducting all of Diaz’ total obligations as specified in the decision from receipt of said decision.

Diaz appealed to the Regional Trial Court and the said appellate court affirmed in all respects the decision
of the trial court. Diaz filed with the Court of Appeals a petition for review, and the Court of Appeals
reversed the appealed decision and dismissed the complaint for Unlawful Detainer with costs against
Espina. Espina filed a motion for reconsideration of the decision of the Court of Appeals, and this was
denied. Hence, this appeal via petition for review on certiorari.


Whether or not the Court of Appeals erred in ruling that the provisional deed of sale novated the existing
contract of lease and that petitioner had no cause of action for ejectment against respondent Diaz.


The Supreme Court’s answer is no. The novation must be clearly proved since its existence is not
presumed. "In this light, novation is never presumed; it must be proven as a fact either by express
stipulation of the parties or by implication derived from an irreconcilable incompatibility between old and
new obligations or contracts." Novation takes place only if the parties expressly so provide, otherwise,
the original contract remains in force. In other words, the parties to a contract must expressly agree that
they are abrogating their old contract in favor of a new one. Where there is no clear agreement to create
a new contract in place of the existing one, novation cannot be presumed to take place, unless the terms
of the new contract are fully incompatible with the former agreement on every point. Thus, a deed of
cession of the right to repurchase a piece of land does not supersede a contract of lease over the same

In the provisional deed of sale in this case, after the initial down payment, respondent's checks in
payment of six installments all bounced and were dishonored upon presentment for the reason that the
bank account was closed. Consequently, on July 26, 1992, petitioner terminated the provisional deed of
sale by a notarial notice of cancellation. Nonetheless, respondent Diaz continued to occupy the
premises, as lessee, but failed to pay the rentals due. On October 28, 1992, respondent made a payment
of P100,000.00 that may be applied either to the back rentals or for the purchase of the condominium
unit. On February 13, 1993, petitioner gave respondent a notice to vacate the premises and to pay his
back rentals. Failing to do so, respondent's possession became unlawful and his eviction was proper.
Hence, on February 24, 1993, petitioner filed with the Municipal Trial Court, Antipolo, Rizal an action for
Unlawful Detainer against respondent Diaz.
The respondent contends that the petitioner's subsequent acceptance of such payment effectively
withdrew the cancellation of the provisional sale. The Supreme Court did not agree. Unless the
application of payment is expressly indicated, the payment shall be applied to the obligation most onerous
to the debtor. In this case, the unpaid rentals constituted the more onerous obligation of the respondent
to petitioner. As the payment did not fully settle the unpaid rentals, petitioner's cause of action for
ejectment survives.

Thus, the Court of Appeals erred in ruling that the payment was "additional payment" for the purchase of
the property.

The Court grants the petition for review on certiorari, and reversed the decision of the Court of Appeals.


INTERNATIONAL SURETY CO. G.R. No. L-24856 November 14, 1986
On March 23, 1956, the National Power Corporation (or NPC), after public bidding, awarded to the EIN
Chemical Corporation (or (EIN), the contract formalized on April 19, 1956, to supply and deliver 3,691
long tons of crude sulfur in one shipment to the Maria Cristina Fertilizer Plant in Iligan City on or before
May 10, 1956, for the price of P374,374.91 to be paid by NPC. To guarantee its obligation, EIN posted a
bond from the Philippine International Surety Co. in the amount of P74,874.98.
EIN obtained from the NPC a letter of credit with Philippine National Bank (PNB), New York on May 8,
1956 amounting to US$185,794.00 with an expiry date originally set for May 30, 1956 but reset by NPC
upon the request of EIN to June 30, 1956. Anticipating failure to deliver on the contract date, EIN
requested and was granted by NPC a further extension of the expiry date of the letter of credit to
September 30, 1956. On August 19, 1956, EIN delivered only 1,000 long tons of crude sulfur ostensibly
due to lack of bottoms; but was paid therefor by NPC the amount of P101,764.05. Even though it failed to
deliver as per contract, EIN requested to be allowed to participate in another bidding to be conducted by
NPC but the latter disqualified EIN from participating in the said bidding. The NPC instead sued EIN for
damages for breach of contract on December 17, 1956 before the then Court of First Instance of Manila,
Branch XVI. The lower court dismissed the case declaring that EIN was not in bad faith; that, the
extension of the expiry date of the letter of credit carried with it the extension of the delivery time.
The NPC appealed the trial court's decision questioning all the foregoing points. On the other hand, EIN
alleged that NPC failed to inform it that it would take 45 days to ship from the U.S. Atlantic ports to the
Philippines; that NPC incurred delay in opening the letter of credit; that, the purpose of extending the
expiry date of the letter of credit was to extend the delivery time and this became manifest with the partial
delivery of 1,000 long tons of crude sulfur; that, it was the intention of the parties for the seller to ship the
crude sulfur as soon as it received notice of the opening of the letter of credit; that it should have been
allowed to participate in the second bidding; and, that the scarcity of bottoms could have been avoided
had NPC opened the letter of credit within a reasonable time.
The sole question for Our resolution is whether or not EIN committed a breach of contract which would
entitle NPC to damages.
A review of the records shows that the contract was freely entered into by both parties in good faith. The
provisions of the contract, however, indicate that there is no relationship between the delivery date and
the opening of the letter of credit which was anyway opened within a reasonable time after the signing of
the contract. The extensions of the expiry dates of the letter of credit cannot, by any means, be
interpreted as extensions of the delivery date. As the terms show, no other delivery date can even be
inferred. The problem of bottoms is one that is well-known and anticipated by suppliers and shippers, and
NPC cannot be faulted for such problem since it opened the letter of credit within a reasonable time after
the signing of the contract. The NPC, in fact, had no duty to inform EIN of -the shipping time between the
US Atlantic ports and the Philippines since all shippers and suppliers are presumed to know this as part of
their business.
Evidently, the EIN clearly committed a breach of contract by failing to completely deliver on its contract
inspite of the leniency of the NPC in enforcing its rights. Laxity of a contracting party in the enforcement of
its rights under the contract does not in any manner diminish its rights thereunder.
Considering the foregoing, the Court resolved to SET ASIDE the appealed decision, and to render a new
one directing the appellees to pay appellant, jointly and severally, the amount of the performance bond,
the liquidated damages from August 19, 1956 up to January 20, 1958 when the appellant purchased
crude sulfur from other sources, and the costs.

ABS CBN v. CA GR-128690 (1999)

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby the latter gave the former
an exclusive right to exhibit 24 VIVA Films for TV telecast. Later, VIVA, through respondent Vincent del
Rosario, offered ABS-CBN a list of 3 film packages (36 titles) from which the latter may exercise its right
of first refusal under their agreement. ABS-CBN ticked off 10 titles therefrom. Thereafter, in February
1992, Del Rosario offered ABS-CBN airing rights over a package of 104 movies for P60 million. In April,
1992, Del Rosario, and Eugenio Lopez of ABS-CBN, met at a restaurant to discuss the package
proposal. According to Lopez, however, what they agreed upon was ABS-CBN’s exclusive film rights to
14 films for P36 million. Del Rosario denied the same. He insisted that the discussion was on VIVA’s
offer of 104 films for P60 million, to which ABSCBN later made a counterproposal but rejected by VIVA’s
Board of Directors. Hence, VIVA later granted RBS the exclusive right to air the 104 VIVA films, including
the 14 films supposedly granted to ABS-CBN. ABS-CBN then filed a complaint for specific performance
with prayer for injunction. The RTC granted the prayer and required ABS-CBN post a P35 million bond.
But while ABS-CBN was moving for reduction of the bond, RBS offered to put up a counterbond and was
allowed to post P30 million. Later, the RTC rendered a decision in favor of RBS and VIVA, ordering ABS-
CBN to pay RBS the amount it paid for the print advertisement and premium on the counterbond, moral
damages, exemplary damages and attorney’s fee. ABS-CBN appealed to the Court of Appeals. Viva and
Del Rosario also appealed seeking moral and exemplary damages and additional attorney’s fees. The
Court of Appeals affirmed the RTC decision and sustained the monetary awards, VIVA’s and Del
Rosario’s appeals were denied.
1. Whether there was a perfected contract between VIVA and ABS-CBN; and
2. Whether RBS is entitled to damages and attorney’s fees.
The first issue is resolved against ABS-CBN, in the absence of the requisites to make a valid contract.
The alleged agreement on the 14 films, if there is one, is not binding to VIVA as it is not manifested that
Del Rosario has an authority to bind VIVA. Thus, when ABS-CBN made a counter-proposal to VIVA, the
same was submitted to its Board of Directors, who rejected the same. Further, the Court agreed that the
alleged agreement is not a continuation of the 1990 Contract as the right of first refusal under the said
contract had already been exercised by ABS-CBN. However, on the issue of damages, the Court found
ABS-CBN. RBS is not entitled to actual damages as the claim thereof did not arise from that which allows
the same to be recovered. Neither is RBS entitled to attorney’s fees as there is no showing of bad faith in
the other party’s persistence in his case. Also, being a corporation, RBS is not entitled to moral damages
as the same is awarded to compensate actual injuries suffered. Lastly, exemplary damages cannot be
awarded in the absence of proof that ABS-CBN was inspired by malice or bad faith.

Babasa Spouses v. CA

Spouses Babasa as vendors and Tabangao Realty as vendee executed a contract of “Conditional Sale of
Registered Lands” over three parcels of land. The certificates of title over the lots were in the name of
third persons who had already executed deeds of reconveyance and disclaimer in favor of the Babasa
spouses. The parties agreed that the total purchase price is P2.1M of which P300K will be paid upon
signing of the contract and P1.8M will be paid upon the delivery of clean titles of the lots within 20 months.
During the period of 20 months while the Babasas are to deliver clean titles, it was agreed that Tabangao
will pay 17% of P1.8M as interest per annum or P20K per month as rental.

A month after the signing of the contract, Tabangao leased the lots to Shell which immediately started the
construction of a Liquefied Petroleum Gas Terminal Project, an approved zone export enterprise of the

However, 2 days prior to the expiration of the 20-month period, the Babasa spouses asked for an
indefinite extension within which to deliver clean titles over the lots. And they asked Tabango to continue
paying the monthly interest of P20k on the ground that the civil cases they filed for the transfer of titles of
the lots in their name. Tabangao refused. In retaliation the Babasa spouses executed a notarized
unilateral rescission and demanded that Shell shall vacate the lots.

Tabango instituted an action for specific performance and damages to compel the spouses to comply with
their obligation to deliver clean titles over the properties on the ground that they already obtained a
favorable judgment ordering the reconstitution of the original copies of the land title.

On the merits, Tabango obtained a favorable judgment from the trial court. According to it, the 20-month
period stipulated in the contract was never meant to be its term such that upon its expiration the
respective obligations of the parties would be extinguished. On the contrary, the expiration thereof merely
gave rise to the right of TABANGAO to either rescind the contract or to demand that the BABASAS
comply with their contractual obligation to deliver to it clean titles and registerable documents of sale.
Hence, the unilateral rescission was void and of no legal effect.

Aggrieved, Babasa spouses appealed to the CA contending that the Contract of Conditional Sale was one
of lease, not of sale. But they were unable to convince the CA which dismissed their appeal.

Undaunted, hence this present petition.

The spouses aver that the contract of 11 April 1981 was in reality a contract of lease, not of sale; but even
assuming that it was indeed a sale, its nature was conditional only, the efficacy of which was extinguished
upon the non-happening of the condition, i.e., non-delivery of clean certificates of title and registerable
documents of sale in favor of TABANGAO within twenty (20) months from the signing of the contract.

They also argued that they never intended to sell their ancestral lots but were merely forced to do so
when TABANGAO dangled the threat of expropriation by the government (through the Export Processing
Zone Authority) in the event voluntary negotiations failed.

Petitioners contend that ownership over the three (3) lots was never transferred to TABANGAO and that
the contract of 11 April 1981 was rendered lifeless when the 20-month period stipulated therein expired
without them being able to deliver clean certificates of title to TABANGAO through no fault of their own.
Consequently, their unilateral rescission dated 28 February 1983 should have been upheld as valid.

Whether or not the spouses can unilaterally rescind the contract, on account of first, their non-fulfillment of
their obligation to deliver the clean titles, second, that they were merely forced to agree because of
impending threat that their lots will be expropriated via EPEZA, and third, the lapse of the period (20
months) and the non-delivery of the clean titles the contract was rendered lifeless?

No. The Unilateral rescission was unwarranted. First, the condition in the contract is in favor of Tabangao;
that is upon the delivery of clean titles, Tabangao will pay P1.8M.



Here in petitioner was the president and general manager of Philtectic Corp., a subsidiary of respondent
SEADC. Being an officer, he was issued a car and membership in the Architectural Center.

One day he intimidated with the vice-chairman of the BoD of respondent his desire to retire and he
requested that his incentive compensation be paid to him as president ofPhiltectic. He then tendered his
resignation to said VP. One of the officer met with petitioner and informed him that he will get roughly
around P395k.

Following his resignation, the VP sent a letter-offer to petitioner stating therein acceptance of petitioner’s
resignation and advised him that he is entitled to P251k as his incentive compensation. In the same letter,
the VP proposed the satisfaction of his incentive by giving him the car the company issued and the
membership in the Architectural Center will be transferred to him, instead of cash. Petitioner was
required by respondent through the VP to affix his signature in the letter if he was agreeable to the

The letter was given to the petitioner by the officer who told him that he was supposed to get P395k.
Petitioner was dismayed when he received the letter-offer and refused to sign it as required by
respondent if he was agreeable to it.

Two weeks later, respondent company demanded the return the car and turn over the membership in the
Architectural Center.

Petitioner wrote the counsel of respondent telling him that he cannot comply with the demand since he
already accepted the offer fourteen (14) days after it was made. In his letter, he enclosed a Xerox of the
original with his affixed signature as required.

With his refusal, respondent instituted an action for recovery with replevin.

In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already agreed
on March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had
notified the said plaintiff of his acceptance; hence, he had the right to the possession of the car.

After the trial, judgment was rendered against petitioner. The trial court opined that there existed no
perfected contract between the petitioner and the respondent on the latter’s March 14, 1990 Letter-offer
for failure of the petitioner to effectively notify the respondent of his acceptance of said letter-offer before
the respondent withdrew the same.

He appealed to the CA which affirmed the decision of the trial court.

Hence, this present appeal.


1. Whether or not there was a valid acceptance on his part of the March 14, 1990 Letter-offer of
the respondent?
2. Whether or not there was an effective withdrawal by the respondent of said letter-offer?

1. No. Under Article 1319 of the New Civil Code, the consent by a party is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. An offer may be reached at any time until it is accepted. An offer that is not accepted does not
give rise to a consent. To produce a contract, there must be acceptance of the offer which may be
express or implied but must not qualify the terms of the offer. The acceptance must be absolute,
unconditional and without variance of any sort from the offer.
The acceptance of an offer must be made known to the offeror. 5[27] Unless the offeror knows of the
acceptance, there is no meeting of the minds of the parties, no real concurrence of offer and
acceptance.6[28] The offeror may withdraw its offer and revoke the same before acceptance thereof by
the offeree. The contract is perfected only from the time an acceptance of an offer is made known to the
offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be indicated
by the offeree, an acceptance of the offer in the manner prescribed will bind the offeror. On the other
hand, an attempt on the part of the offeree to accept the offer in a different manner does not bind the
offeror as the absence of the meeting of the minds on the altered type of acceptance. 7[29] An offer made
inter praesentes must be accepted immediately. If the parties intended that there should be an express
acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance
by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is
not effective but constitutes a counter-offer which the offeror may accept or reject. 8[30] The contract is not
perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of the offeror is the
first to reach the offeree.

In the case at bar, the respondent made its offer through its VP. On March 16, the officer handed over
the original letter-offer to petitioner. The respondent required the petitioner to accept by affixing his
signature and the date in the letter offer, thus foreclosing an implied acceptance or any other mode of
acceptance. And it is for a fact that the petitioner did not accept of reject the offer for he needed time to
decide whether to accept or reject. Although the petitioner claims that he had affixed his conformity to
the letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It
was only on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said
March 14, 1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance to
said offer. But then, the respondent, through Philtectic Corporation, had already withdrawn its offer and
had already notified the petitioner of said withdrawal via respondent’s letter dated April 4, 1990 which
was delivered to the petitioner on the same day. Indubitably, there was no contract perfected by the
parties on the March 14, 1990 Letter-offer of the respondent.

2. Yes. It is necessarily so because there was no need for the respondent to withdraw its offer
because the petitioner had already rejected the respondent’s offer on March 16, 1990 when the
petitioner received the original of the March 14, 1990 Letter-offer of the respondent without the petitioner
affixing his signature on the space therefor.

Jardine Davies, Inc. v. Court of Appeals, et al., 333 SCRA 689 (2000).
Enriquez v. Sun Life Assurance, 41 Phil. 269.
Allied Steel & Conveyor’s, Inc.. v. Ford Motor Company, 277 FEDERAL REPORTERS 2nd, 907 (1960).
pp. 462-463.
Palomar v. CFI, Phil Refining. 29881, Aug. 31, 1988


Respondent started as sales promotion scheme named “Grand Slam” wherein any person who submits to
it matching left and right halves of pictures of any article wins that article as his prize. Half-pictures were
found in the labels of the products promoted. In the advertisements for said scheme which were published
in newspapers, it was also announced that free half-photos of prizes might also be obtained by writing to
its address.

Petitioner Postmaster General issued “Fraud Order No. 2” against respondent on the ground that the
promotion is a lottery within the purview of the Postal Law and directed all its employees to return to
sender any mail matter addressed to respondent.

Offended by said order, respondent filed a complaint for mandatory injunction with preliminary injunction
against petitioner before the CFI. Its ground is that the promotional scheme is not a lottery because there
was no consideration involved.

Preliminary injunction was ordered against petitioner. After due hearing, the trial court held that the
scheme was not a lottery absent of the element of consideration.

Hence, this present appeal.


The only issue presented in this case is whether or not the element of consideration is present in the
Grand Slam promotion of the respondent company, which, together with the elements of prize and
chance, constitute the "lottery" prohibited by the Postal Law.
Petitioner argues that there is consideration because one has to buy respondent company’s products to
enable them to participate in the scheme.
On the other hand, private respondent countered that with or without its Grand Slam promotion, the
products subject of the said sales drive are bought at the same usual price; with or without the promotion,
no person is required to pay more than the current cost of the said products.

It appears that the Philippine Refining Company, herein appellee, resorted to two schemes to promote the
sale of its products: Breeze Easy Money and CAMIA Lucky-Key Hunt; both of which envisioned the giving
away for free of certain prizes (without additional consideration) for the purchase of Breeze soap and
CAMIA cooking oil. In other words, the participants would get the exact value of the prize for the goods
plus the chance of winning in the scheme. No one would be required to pay more than the usual price of
the products.
This Court has consistently ruled that a plan whereby prizes can be obtained without any additional
consideration (when a product is purchased) is not a lottery (Uy v. Palomar, L-23248, Febuary 28, 1969;
U.S. v. Baguio, 39 Phil. 862; Caltex (Phil.) Inc. v. Postmaster-General, 18 SCRA 247). It is thus clear that
the schemes in the case at bar are not lotteries.


A contract of lease, Exhibit "G", entered into by and between the defendant and plaintiff's
predecessors-in-interest, has been terminated by its express provision appearing in paragraph 1,
which states that the lease shall be for a period of nine (9) years commencing on January 1, 1970
and ending on January 31, 1979.August 9, 1976, the Litton co-ownership was dissolved by
partition (Exh. "E") and the ownership of the Dutch Inn Building and the lots on which it is built
was adjudicated to herein private respondent Edward Litton. However, the latter gave notice in
writing (Exh. "F") that as the new owner of said properties, rentals of the same should be remitted
to him starting January, 1977. Petitioner signified his conformity (Exh. " F-1 ") to this notice and
accordingly paid his rentals directly private respondent. Then petitioner wrote to respondent
manifesting his willingness to renew the contract of lease upon its expiration on January 31, 1979
under such terms as may be agreeable to both of them.

private respondent, thru counsel, asked petitioner in writing to vacate the premises on or
before the expiration of the lease contract on January 31, 1979, and upon his failure to vacate the
premises after the expiry date of the lease contract, he should pay the amount of P58,685.00 per
month as compensation for the use and occupation of the premises

Petitioner objected to the amount as not being fair and reasonable rental, petitioner
invoking the huge investment he has put in the Dutch Inn Building from 1970 to 1979 and also the
alleged verbal assurance by plaintiff-apellee's predecessor-in-interest of petitioner's priority to
renew the lease of the premises in question. Petitioner's refusal to vacate the premises upon
written demand made by private respondent on February 1, 1979, private respondent filed the
case for ejectment based on the expiration of the Contract of Lease
SYQUIA claims that this case was filed prematurely considering that he is entitled to a
renewal of the contract, that one of the inducements which made him enter into a lease
agreement with plaintiff's predecessor-in-interest was the oral assurance of said plaintiff's
predecessor-in-interest that the defendant is entitled to a renewal or a priority to lease the
premises upon the expiration of the contract of lease
the plaintiff is now duty-bound to respect the verbal assurance given by the plaintiff's
predecessor to give him a renewal or priority to a new lease over the property and that defendant
should now be made to exercise his option to renew the lease. In other words, plaintiff should be
compelled to abide by the commitment made by his predecessor-in-interest

Whether or not the defendant is entitled to a renewal of the contract of lease, Exhibit "G ", which on its
face, expired on January 31, 1979. In other words, can the alleged verbal assurances of George Litton Sr.
and Gloria Litton del Rio be sufficient basis to vary the written contract and allow the defendant an
extension of the lease contract, which, on its surface, already expired on January 31, 1979?


However, under 2(e) of Article 1403 of the Civil Code as quoted above, the alleged oral
assurance or promise of the representatives of the Litton Finance & Investment Corp, that
defendant should be given priority or a renewal of Exhibit "G" cannot be enforceable against
there is absolutely no room to readinto Exhibit "G" the alleged extension or renewal or
assurance or priority to lease after the contract shall have expired, because the document is in
itself, complete, and no ambiquities can be ascribed to its terms and neither is there any mistake
or imperfection or failure to express the true intent and agreement of the parties therein, simply
because the provisions for extension or renewal are not found in or capable of being inferred from
The testimony of the defendant that there was an oral understanding between him and
the representatives of Litton Finance & Investment Corp. to be allowed to extend or renew or be
given priority to lease the property at the expiration of the contract of lease on January 31, 1979
is belied by his letter to plaintiff dated December 1, 1978, which is inconsistent to what all along
said defendant had professed
It is significant from this portion of the letter that the defendant never mentioned his
option or priority to lease the property. It is the observation of the court that the alleged verbal
assurance of George Litton Sr. and Gloria Litton del Rio is only an afterthought of the defendant.
It is merely an eleventh hour defense of the defendant when the plaintiff refused to renew the

It is noted that petitioner is among other things a successfull and experienced

businessman. Considering his huge investment made on the building, he should have taken
steps to protect his investment within the protective mantle of the law by insisting that the alleged
verbal assurance be reduced into writing. His failure to do so has considerably weakened his
Proof of the alleged verbal assurance of a lease renewal cannot be allowed both under
the Parol Evidence Rule and the Statute of Frauds for failure to put in writing said alleged
stipulation. Upon the other hand We are inclined to consider Syquia as having constructed in
good faith the improvements he introduced in the Dutch Inn Building. His rights to said
improvements are governed by Art. 1678 of the Civil Code, which provides:
Petitioner admits the fact of ownership of the private respondent over the building in
question. As the owner, it is only logical that he should have the freedom to choose the tenant of
the premises under such terms and conditions as may enable him to realize reasonable and fair
returns therefrom. Since petitioner stubbornly refused to vacate-ate the premises despite
repeated demands of respondent, he should be obliged to compensate the latter such amount as
may be deemed fair and reasonable under the circumstances.


Petitioner owns a building which was leased to private respondent. The contract of lease was for a period
of five years with express provisos against any extension or renewal by implication of the lease and for
the review of the rental rate at the end of the second year of the lease and every two years thereafter. It
provides that parties may negotiate on or before 90 days prior to the expiration of the contract. The
original stipulated rental for P14 per square meter per month included all costs in the maintenance of the
building like electricity, water, etc.

Before the end of the fourth year of the lease, petitioner notified respondent that in accordance with their
contract, it would increase the rental at P16 per sq. m. per month. Meanwhile, the parties negotiated for
the renewal of the contract of lease. Petitioner gave respondent the draft of the new contract providing a
rental rate of P17. Both parties agreed substantially with the whole contract except on account of arrears
which respondent should only be bound to pay P14 instead of P16 for three months.

The second contract was consummated and agreed upon by parties. There were disagreements between
parties as to the apparent increase in the expenses of the building and the demand by petitioner of the
arrearages it claimed to be entitled into.

Before the expiration of the renewed contract of lease which is for a period of two years, petitioner offered
that if respondent is willing to pay its arrearages and the increased rate, it would agree to renew the
contract of lease. But the respondent unwilling to accede to pay the arrearages holding its position not to
pay the same, petitioner notified the respondent to vacate the premises.

Petitioner then instituted an action for ejectment before the City Court. On appeal by petitioner, the CFI
affirmed but modified the lower court’s decision. On appeal, the CA affirmed the decision of the CFI as
regards a renewed contract but dismissed petitioner’s claim as to payment of reasonable compensation.
Hence, this present appeal.

Respondent contends, as adopted by all lower courts, that after the expiration of the renewed contract of
lease, there was an implied new lease pursuant to Art. 1687 of the Civil Code, which thus empowers the
court to fix a longer period of lease on the ground that the lessee (respondent herein) having occupied the
premises for over one year.

Petitioner also claimed that there was no meeting of the minds as regards the renewed contract of lease.


1. Whether or not there was a meeting of the mind while apparently it appears that parties while
negotiating were not agreeable to the arrearages but at the same time the parties signed the

2. Whether or not there was an implied new lease pursuant to Art. 1687 of the Civil Code,
notwithstanding the express provisos against extension or renewal by implication?


Yes. "During the negotiations, although petitioner adverted to the arrearages in rental still due from the
private respondent, it appears that said claim (as regards arrearages the parties disagree about) had
been treated as a distinct or separate matter such that its resolution was not considered a condition
precedent to the renewal under negotiation." In other words, since the arrearages did not pertain to the
substance of the contract, it, not a principal condition thereof, cannot nullify a contract.

No. The contract expressly provided against renewal by implication. Under Art. 1687 “If the period for the
lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from
month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is
to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set,
the courts may fix a longer term for the lease after the lessee has occupied the premises for over one
year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in
possession for over six months. In case of daily rent, the courts may also fix a longer period after the
lessee has stayed in the place for over one month.” And it must be noted that under the renewed contract
of lease, the period was fixed to two years.

But the appellate court erred in upholding the trial court's judgment that after the expiration of the two-
year period of the renewed lease on March 10, 1975, there was an implied new lease under the
provisions of Art. 1670 of the Civil Code at the same no longer adequate rental rate of P17.00 per square
(CASURECO II), G.R. No. 107112 February 24, 1994


Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation
established for the purpose of operating an electric power service in the same city.

On November 1, 1977, the parties entered into a contract for the use by petitioners in the operation of its
telephone service the electric light posts of private respondent in Naga City. In consideration therefor,
petitioners agreed to install, free of charge, ten (10) telephone connections for the use by private

After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989
with the Regional Trial Court of Naga City against petitioners for reformation of the contract with
damages, on the ground that it is too one-sided in favor of petitioners; that it is not in conformity with the
guidelines of the National Electrification Administration (NEA) which direct that the reasonable
compensation for the use of the posts is P10.00 per post, per month; that after eleven (11) years of
petitioners' use of the posts, the telephone cables strung by them thereon have become much heavier
with the increase in the volume of their subscribers, worsened by the fact that their linemen bore holes
through the posts at which points those posts were broken during typhoons; that a post now costs as
much as P2,630.00; so that justice and equity demand that the contract be reformed to abolish the
inequities thereon.

Add to this the destruction of some of plaintiff's poles during typhoons like the strong typhoon Sisang in
1987 because of the heavy telephone cables attached thereto, and the escalation of the costs of electric
poles from 1977 to 1989, and the conclusion is indeed ineluctable that the agreement has already
become too one-sided in favor of appellant to the great disadvantage of plaintiff, in short, the continued
enforcement of said contract has manifestly gone far beyond the contemplation of plaintiff, so much so
that it should now be released therefrom under Art. 1267 of the New Civil Code to avoid appellant's unjust
enrichment at its (plaintiff's) expense.

As second cause of action, private respondent alleged that starting with the year 1981, petitioners have
used 319 posts in the towns outside Naga City, without any contract with it; that at the rate of P10.00 per
post, petitioners should pay private respondent for the use thereof from 1981 up to the filing of its
complaint; and that petitioners had refused to pay private respondent said amount despite demands.

And as third cause of action, private respondent complained about the poor servicing by petitioners of the
ten (10) telephone units which had caused it great inconvenience.


1. Whether or not the continued enforcement of the contract between the NAGA TELEPHONE
II), inequitous or disadvantageous to the latter (CASURECO plaintiff) and too one-sided in favor
of former ( NATELCO defendant-appellant).
2. Whether or not the CASURECO’s action for reformation of contract cannot be an element in
the determination of the period for prescription of the action to reform.
3. Whether or not there is potestative about the prestations i.e., dependent purely on the will of
either party.


While the contract appeared to be fair to both parties when it was entered into by them, it had become
disadvantageous and unfair to CASURECO because of subsequent events and conditions, particularly
the increase in the volume of the subscribers of NATELCO for more than ten (10) years without the
corresponding increase in the number of telephone connections provided to CASURECO.The continued
enforcement of the contract between the parties has, through the years (since 1977), become too
inequitous or disadvantageous to the CASURECO and too one-sided in favor of defendant-appellant
(NATELCO), so that a solution must be found to relieve plaintiff from the continued operation of said
agreement and to prevent defendant-appellant from further unjustly enriching itself at plaintiff's expense.

Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale
behind this provision, the term "service" should be understood as referring to the "performance" of the
obligation. In the present case, the obligation of CASURECO consists in allowing NATELCO to use its
posts in Naga City, which is the service contemplated in said article. Furthermore, a bare reading of this
article reveals that it is not a requirement thereunder that the contract be for future service with future
unusual change. According to Senator Arturo M. Tolentino, Article 1267 states in our law the doctrine of
unforseen events. This is said to be based on the discredited theory of rebus sic stantibus in public
international law; 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. Considering practical needs and
the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to
relief in favor of the party prejudiced.

On the issue of prescription of CASURECO’s action for reformation of contract, NATELCO alleged that
CA's ruling that the right of action "arose only after said contract had already become disadvantageous
and unfair to it due to subsequent events and conditions, which must be sometime during the latter part of
1982 or in 1983 is erroneous. In reformation of contracts, what is reformed is not the contract itself, but
the instrument embodying the contract. It follows that whether the contract is disadvantageous or not is
irrelevant to reformation and therefore, cannot be an element in the determination of the period for
prescription of the action to reform.

Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be
brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year period is
to be reckoned from the time the right of action accrues which is not necessarily the date of execution of
the contract. Private respondent's right of action arose "sometime during the latter part of 1982 or in 1983
when according to Atty. Luis General, Jr. he was asked by (private respondent's) Board of Directors to
study said contract as it already appeared disadvantageous to (private respondent).

Private respondent's cause of action to ask for reformation of said contract should thus be considered to
have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was
filed, ten (10) years had not yet elapsed.

Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of
either party because petitioner's permission for free use of telephones is not made to depend purely on
their will, neither is private respondent's permission for free use of its posts dependent purely on its will.

Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment
of which depends upon the sole will of the debtor, in which case, the conditional obligation is void. Based
on this definition, CA’s finding that the provision in the contract, to wit:

(a) That the term or period of this contract shall be as long as the party of the first
part (NATELCO) has need for the electric light posts of the party of the second part
(CASURECO) . . ..

is a potestative condition, is correct. However, it must have overlooked the other conditions in the same
provision, to wit:
. . . it being understood that this contract shall terminate when for any reason whatsoever,
the party of the second part (private respondent) is forced to stop, abandoned (sic) its
operation as a public service and it becomes necessary to remove the electric light post

which are casual conditions since they depend on chance, hazard, or the will of a third person. In sum,
the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor and partly
on chance, hazard or the will of a third person, which do not invalidate the aforementioned provision.
Nevertheless, in view of our discussions under the first and second issues raised by petitioners, there is
no reason to set aside the questioned decision and resolution of respondent court.
LOGARTA, G.R. No. 121506 October 30, 1996
Officers of the National Airport Corporation (NAC) informed the owners of the various lots surrounding the
Lahug Airport that the government will purchase their lands for the expansion of the airport. The
landowners were assured that their properties will be turned to them when these are no longer being used
by the airport.
Inez Ouano, though skeptic at first, agreed to sell since the government was going to expropriate the land
anyway. She was also reassured by the promise that the land will be returned to her when it is no longer
in use. The sale of Inez' properly was covered by a Deed of Sale signed by her and Mariano Reyes
representing the NAC. The deed, however, does not contain any provision regarding Inez' right to
repurchase the properties. Nonetheless, during her lifetime, Inez used to remind her granddaughter
Melba Limbaco about the assurance by the NAC officials that the properties will be returned. Inez also
made Melba understand that the latter can recover the land herself should Inez die before the proper time
Upon learning that other landowners were able to recover their properties and that the then Pres. Aquino
had ordered that the airport be transferred to Mactan, the appellees tried to repurchase the properties
originally owned by their grandmother. However, the manager of the NAC, denied their request because
the deed of sale covering the properties does not contain any condition relating to the right to repurchase.
Private respondents thereafter filed a case for reconveyance with the Regional Trial Court (RTC) which
ruled in their favor. On appeal to the CA, the same was affirmed in toto.
Whether or not the Statute of Frauds apply in the case at bar
NO. Under Art. 1403 of the Civil Code, a contract for the sale of real property shall be unenforceable
unless the same or some note or memorandum thereof be in writing and subscribed by the party charged
or his agent. Evidence of the agreement cannot be received without the writing, or a secondary evidence
of its contents. In the case at bench, the deed of sale and the verbal agreement allowing the right of
repurchase should be considered as an integral whole. The deed of sale relied upon by petitioner is in
itself the note or memorandum evidencing the contract. Thus, the requirement of the Statute of Frauds
has been sufficiently complied with. Moreover, the principle of the Statute of Frauds only applies to
executory contracts and not to contracts either partially or totally performed, as in this case, where the
sale has been consummated; hence, the same is taken out of the scope of the Statute of Frauds. As the
deed of sale has been consummated, by virtue of which, petitioner accepted some benefits thereunder, it
cannot now deny the existence of the agreement. The Statute of Frauds was enacted for the purpose of
preventing fraud. It should not be made the instrument to further them.
Heirs of Escanlar Vs Court of Appeals [G.R. No. 119777. October 23, 1997]


The rights, interests and participation of 2 parcels of land, denominated as Lot 1616 and 1617 of the
Kabankalan Cadastre, was executed through a deed in favor of Pedro Escanlar and Francisco Holgado.
However, on November 3, 1982 the heirs instituted a case for cancellation of sale against Escanlar and
Holgado because of the latter’s failure to pay the balance of the purchase price by 31 May 1979, which
was the date stated in the Deed of Agreement as the final date that the balance of the purchase price
shall be paid. On September 10, 1981, Escanlar and Holgado moved to intervene in the probate
proceedings that is being held to give Nombre and Cari-an the rights over the Cari-ans’ share in Lots
1616 and 1617. But the probate court ruled in favor of the Cari-ans to sell their respective shares in the
estate. The case was brought to the Court of Appeals and the Supreme Court.


Do Escanlar and Hodalgo still have rights on half of the property in question even after the failure to pay
the amount due on time?


The Supreme Court ruled in favor of Escanlar and Hodalgo and remanded the case to the RTC Negros
Occidental so that it may be determined, at the option of Escanlar and Hodalgo, which half of the property
in question would be theirs and which half would be the Cari-ans’.

Among others, one of the reasons for such decision is the provision in the New Civil Code, Article 1592,
which provides that “in the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act. After the demand, the court
may not grant him a new term.” In this case, the sellers gave a specific due date but did not make any
judicial demand after Escanlar and Hodalgo failed to pay the due amount on time. They also did not
execute a demand through a notarial act. Thus, the right to ½ of the property remains with Escanlar and