ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT, ET AL. G.R. No.

L-67649, June 28, 1988

Facts: On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Issue: May compensation take place? Ruling: There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Government and taxpayer are not mutually creditors and debtors of each other under Article 1278 of the Civil Code and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Francia v. IAC
FACTS: Francia is the owner of the subj. property and a 2 storey house built on it. It was then expropriated for the sum of P4116.00. Since 1963 until 1977 inclusive, Francia failed to pay his real estate taxes. Thus his property was sold at a public auction in order to satisfy the tax delinquency of P2400.00 Ho Fernandez was the highest bidder for the prop. Francia was not present during the auction sale and discovered that a final bill of sale had been issued in favor of Ho on Dec. 11, 1978. Francia filed a complaint to annul the auction sale. ISSUE: WON, there can be a set-off of amounts between the tax delinquency and the amount due Francia due the expropriation. RULING: NO. Taxes cannot be the subject of compensation. They are not creditors and debtors of each other with respect to the amount due from each side. The tax is a legal obligation of every citizen that it cant be made to wait to be paid. LEGAL COMPENSATION has no place in this situation. It has not been present because the requisites are lacking in the case at hand. Also the taxes are not in the nature of contracts but rather they are a duty imposed on every citizen to pay on time.

Citibank v. Sabeniano
FACTS: Sabeniano claimed to have substantial deposits and money market placements with the bank Citibank and FNCB, as well as money market placements with the Ayala Investment and Development Corporation (AIDC), the proceeds of which were supposedly deposited automatically and directly to respondents accounts with petitioner Citibank. Sabeniano alleged that the banksrefused to

return her deposits and the proceeds of her money market placements despite her repeated demands, thus, compelling respondent to file Civil Case. In their joint Answer and Answer to Amended Complaint, filed on 12 September 1985 and 6 November 1985, respectively, petitioners admitted that respondent had deposits and money market placements with them, including dollar accounts in the Citibank branch in Geneva, Switzerland (Citibank-Geneva). Banks further alleged that the respondent later obtained several loans from petitioner Citibank, for which she executed Promissory Notes (PNs), and secured by (a) a Declaration of Pledge of her dollar accounts in Citibank-Geneva, and (b) Deeds of Assignment of her money market placements with petitioner FNCB Finance. When respondent failed to pay her loans despite repeated demands by petitioner Citibank, the latter exercised its right to off-set or compensate respondents outstanding loans with her deposits and money market placements, pursuant to the Declaration of Pledge and the Deeds of Assignment executed by respondent in its favor. Petitioner Citibank supposedly informed respondent Sabeniano of the foregoing compensation through letters, dated 28 September 1979 and 31 October 1979. Petitioners were therefore surprised when six years later, in 1985, respondent and her counsel made repeated requests for the withdrawal of respondents deposits and money market placements with petitioner Citibank, including her dollar accounts with Citibank-Geneva and her money market placements with petitioner FNCB Finance. ISSUE: Whether or not compensation was proper? RULING: Compensation proper only on the savings account with the bank and her money market placements with petitioner FNCB Finance; but illegal and void in so far as petitioner Citibank used respondents dollar accounts with Citibank-Geneva. There is little controversy when it comes to the right of petitioner Citibank to compensate respondents outstanding loans with her deposit account. As already found by this Court, petitioner Citibank was the creditor of respondent for her outstanding loans. At the same time, respondent was the creditor of petitioner Citibank, as far as her deposit account was concerned, since bank deposits, whether fixed, savings, or current, should be considered as simple loan or mutuum by the depositor to the banking institution. Both debts consist in sums of money. By June 1979, all of respondents PNs in the second set had matured and became demandable, while respondents savings account was demandable anyt ime. Neither was there any retention or controversy over the PNs and the deposit account commenced by a third person and communicated in due time to the debtor concerned. Compensation takes place by operation of law, therefore, even in the absence of an expressed authority from respondent, petitioner Citibank had the right to effect, on 25 June 1979, the partial compensation or off-set of respondents outstanding loans with her deposit account, amounting to P31,079.14. Things though are not as simple and as straightforward as regards to the money market placements and bank account used by petitioner Citibank to complete the compensation or off-set of respondents outstanding loans, which came from persons other than petitioner

Citibank. Respondents money market placements were with petitioner FNCB Finance, and after several roll-overs, they were ultimately covered by PNs No. 20138 and 20139, which, by 3 September 1979, the date the check for the proceeds of the said PNs were issued, amounted to P1,022,916.66, inclusive of the principal amounts and interests. As to these money market placements, respondent was the creditor and petitioner FNCB Finance the debtor; while, as to the outstanding loans, petitioner Citibank was the creditor and respondent the debtor. Consequently, legal compensation, under Article 1278 of the Civil Code, would not apply since the first requirement for a valid compensation, that each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other, was not met.

SPOUSES GEORGE TIU V. C.A. & JUAN GO

G.R. No. 107481 November 18, 1993 FACTS : George Tiu is the registered owner of 2 condominium units. He and Rosalina Tiu (his mother), negotiated a loan of P300k with Juan Go who then asked for a mortgage of the aforesaid Condo Units as security for the payment therefor and additional thereto, a pledge of jewelries and checks from Rosalina. Go then prepared a document denominated as "Deed of Sale of a Condomimium with Right to Repurchase " and another as "Contract of Lease," the former was prepared in favor of Juanito Lim and Lim Lee Show Fong, while the latter was prepared in favor of George Tiu. Later, George Tiu sought reformation of the contract, alleging that he merely agreed to mortgage the properties, in signing the Deed of Sale of a Condominium Unit with Right to Repurchase. He also alleged that the Deed, in law, was an equitable mortgage at the same time. ISSUE : WON GEORGE & ROSLINDA TIU ARE SOLIDARILY LIABLE? HELD : NO. We shall also not disturb the ruling of the Court of Appeals that George and Joaquin Tiu are not solidary liable with Rosalina Tiu on the amount of P1,060,000.00 , for apt and correct are the findings of the appellate court on this point: The various receipts clearly show that the appellant George Tiu never signed the receipts nor received any money from appellant Go while appellant Joaquin Tiu signed and received the money for an in behalf of Rosalina . Consequently, they are not liable solidarily for the said amounts even if the money were used for tobacco business. And even if they admitted that they received the money, both are not liable in solidum because there was no express provision in said

receipts that appellants George and Joaquin Tiu should be liable in solidum. There is solidary obligation only when the obligation expressly so states or when the law or nature of the obligation requires solidarity (Article 1207, NCC). And there is no truth to the allegation that appellants George and Joaquin Tiu admitted that they are jointly and solidarily liable for said amount. What they admitted was that they received said money . Be it noted that appellants Tiu, in their reply and answer to the counterclaim of appellant Go, admitted that only appellant Rosalina Tiu received the monies . Assuming arguendo that they admitted their solidary liability, still they are not liable. As aptly held by the lower court: At any rate, the doctrine laid down on the case of Un Fak Leang vs. Nigurra falls squarely on the point wherein the Supreme Court ruled that an admission of two debtors in their brief that their liability in the contract is a solidary one does not convert the joint character of their obligation as appearing in their contract, for what determines the nature of the obligation is the tenor of their contract itself, not the admission of the parties.

AGUSTINA LIQUETTE TAN V. C.A. & SPS. SINGSON

G.R. No. 80479 July 28, 1989 FACTS : Private respondents Singsons are the owners of a house and lot which were then for sale. Petitioner Tan together with her agent went to see said spouses at their residence regarding the property. After Singsons had shown Tan around the house and had conversation about the encumbrances and/or liens on the property, the parties finally agreed on the price of Pl.8M, with Tan to advance earnest money of P200k to enable Singsons to secure the cancellation of the mortgage and lien annotated on the title of the property and the balance of the price to be paid by Tan on June 21, 1984. Forthwith, Tan handed to Singsons a check for P200k. In turn, appellants handed to appellee a xerox copy of the title and other papers pertaining to the property as well as an inventory of the furnishings of the house that are included in the sale. 3 days thereafter, Tan returned to Singsons' house together with her daughter Corazon and one Ines, to ask for a reduction of the price to Pl.75M and Singson spouses agreed, and so another receipt entitled "Agreement" was signed by the parties. The very same day that Singsons received the earnest money of P 200k, they started paying their mortgage loan with the DBP to clear up the title of the subject property. DBP then executed a cancellation of mortgage, which was registered with the Registry of Property. Spouses also paid all the taxes due and in arrears on the property. Appellee accompanied by her daughter Corazon and her

lawyer, Atty. Vicente Quitoriano, went to Baguio City to inquire about the status of the property and Singsons told her that the DBP was taking some time processing their payments and preparing the deed of cancellation of the mortgage. On that occasion, the parties agreed on an extension of 2 weeks for the execution of the deed of sale. Here, the parties' respective versions on the matter parted ways. According to appellants, it was appellee who asked for the extension because she was not yet ready to pay the balance of P l.55M. On the other hand, appellee said that it was appellants who asked for it because the title of the property was not yet cleared. The court below believed appellee because on said date the DBP had not yet executed the deed of cancellation of mortgage, and no title has yet been issued for the driveway although already fully paid for. Immediately, upon execution by the DBP of the deed of cancellation of mortgage, Singsons tried to contact Tan and/or her daughter Corazon to come to Baguio City for the formal execution of the deed of sale, but to no avail. Instead, appellants received a telegram from Atty. Quitoriano cancelling the sale and demanding the return of the P200k earnest money. Appellants countered with a letter of their lawyer, Atty. Tiofisto Rodes, calling on appellee to perform her part of the contract because "the title to the house and lot right now suffers no imperfection or doubt. Tan then filed a case for recovery of sum of money with damages, ISSUE : WON THERE WAS SUBSTANTIAL BREACH BY THE SPOUSES, MERITING RESCISSION OF THE CONTRACT? HELD : NO. That the power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what is incumbent upon him is clear from a reading of the Civil Code provisions. However, it is equally settled that, in the absence of a stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a party's own judgment that the other has committed a breach of the obligation. Where there is nothing in the contract empowering the petitioner to rescind it without resort to the courts, the petitioner's action in unilaterally terminating the contract in this case is unjustified. Petitioner, in rescinding the sale, claims that a substantial breach of the obligation has been committed by the private respondents. Nevertheless, the alleged breach of the obligation by the private respondents, which consists in a mere delay for a few days in clearing the title to the property, cannot be considered substantial enough to warrant rescission of the contract. A thorough review of the records clearly indicates that private respondents had substantially complied with their undertaking of clearing the title to the property. It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the contract but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A court, in determining whether rescission is warranted, must exercise its discretion judiciously considering that the question

of whether a breach of a contract is substantial depends upon the attendant circumstances. In this case, it is true that as of the date set for the execution of the final deed of sale, the mortgage lien in favor of DBP annotated in the title has not yet been cancelled as it took DBP some time in processing the papers relative thereto. However, just a few days after, the cancellation of the DBP mortgage was entered by the Register of Deeds and duly noted on the title. Time not being of the essence in the agreement, a slight delay on the part of the private respondents in the performance of their obligation, is not sufficient ground for the resolution of the agreement, more so when the delay was not totally attributable to them. Inasmuch as the private respondents are ready, willing and able to comply with their obligation to deliver title to the property subject of the sale and had already demanded that petitioner pay the full amount of the purchase price, the petitioner must be considered as having incurred in delay. This conclusion is warranted by the clear provision of Article 1169 of the Civil Code. 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. From the moment one of the parties fulfills his obligation, delay by the other begins. It is basic that the breach of a contract gives the aggrieved party under the law and even under general principles of fairness, the right to rescind the contract or to ask for specific performance. Petitioner having failed to comply with her obligation of paying the balance of the purchase price despite demands by private respondents, private respondents were clearly entitled to their counterclaim for specific performance, as correctly adjudged by the respondent court. One final point, the decision of the respondent Court of Appeals ordered execution by private respondents of the absolute deed of sale conveying the subject property to petitioner and payment by petitioner of the balance of the purchase price immediately upon finality of such judgment. However, under the third paragraph of Article 1191 of the Civil Code, the Court is given a discretionary power to allow a period within which a person in default may be permitted to perform his obligation. Considering the huge amount of money involved in this sale, the Court, in the exercise of its sound discretion, hereby fixes a period of 90 days within which petitioner shall pay the balance of the purchase price amounting to Pl.55M plus interest thereon at the legal rate from finality of this judgment until fully paid. After such payment has been made, the private respondents are ordered to sign and execute the necessary absolute deed of sale in favor of petitioner.

PACIFICA MILLARE V. HON. HAROLD M. HERNANDO

G.R. No. L-55480 June 30, 1987 FACTS : A five-year Contract of Lease was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written agreement, lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350 the "People's Restaurant." Paragraph 13 of the Contract of Lease reads as follows: 13. This contract of lease

is subject to the laws and regulations ofthe goverrunent; and that this contract of lease may be renewed after a period of 5 years under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal. According to the Co spouses, sometime during the last week of May 1980, the lessor informed them that they could continue leasing the People's Restaurant so long as they were amenable to paying increased rentals of P1,200 a month. In response, a counteroffer of P700 a month was made by the Co spouses. At this point, the lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us", which alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to continue occupying the subject premises and to forego their search for a substitute place to rent. In contrast, the lessor flatly denied ever having considered, much less offered, a renewal of the Contract of Lease. Mrs. Millare then requested the Co spouses to vacate the leased premises as she had no intention of renewing the Contract of Lease which had, in the meantime, already expirecl. In reply, the Co spouses reiterated their unwillingness to pay the Pl,200 monthly rentals supposedly sought bv Mrs. Millare which they considered "highly excessive, oppressive and contrary to existing laws". They also signified their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to accept their counter-offer. CO spouses then filed a complaint seeking renewal of the Contract of Lease at a rental rate of P700/month and for a period of 10 years, and damages. ISSUE : WON THE CO SPOUSES MAY CLAIM RENEWAL OF THE CONTRACT HELD : NO. The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of five years, which had expired. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the period of the renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal period was not left to the wiu of the lessee alone, but rather to the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of which could have been fixed. Article 1670 of the Civil Code reads thus: If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of the lessor and unless a notice to the contrary by either party has previously been given. It is understood that there is an implied new lease, not for the period of the original contract but for the time established in Articles 1682 and 1687. The ther terms of the original contract shall be revived. The respondents themselves, public and private, do not pretend that

the continued occupancy of the leased premises after the date of expiration of the contract, was with the acquiescence of the lessor. Even if it be assumed that tacite reconduccion had occurred, the implied new lease could not possibly have a period of 5 years, but rather would have been a month-to-month lease since the rentals (under the original contract) were payable on a monthly basis. At the latest, an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands served by the petitioner upon the private respondents to vacate the previously leased premises. It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in fact. Save in the limited and exceptional situations envisaged in Articles ll97 and 1670 of the Civil Code, which do not obtain here, courts have no authority to prescribe the terms and conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. PLDT: [P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation or undue influence. Contractual terms and conditions created by a court for two parties are a contradiction in terms. If they are imposed by a judge who draws upon his own private notions of what morals, good customs, justice, equity and public policy" demand, the resulting "agreement" cannot, by definition, be consensual or contractual in nature. It would also follow that such coerced terms and conditions cannot be the law as between the parties themselves. Contracts spring from the volition of the parties. That volition cannot be supplied by a judge and a judge who pretends to do so, acts tyrannically, arbitrarily and in excess of his jurisdiction. 19