CENTRAL PHILIPPINE UNIVERSITY vs.

COURT OF APPEALS, REMEDIOS FRANCO,

FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ.
G.R. No. 112127

July 17, 1995

PONENTE: BELLOSILLO, J.:

FACTS: The late Don Ramon Lopez Sr., sometime in 1939 a deed of donation in favor of the
Central Philippine College (now Central Philippine University [CPU]) of a parcel of land with the
following annotations copied from the deed of donation: (1) The land described shall be utilized
by the CPU exclusively for the establishment and use of a medical college with all its buildings as
part of the curriculum; (2) The said college shall not sell, transfer or convey to any third party nor
in any way encumber said land; (3) The said land shall be called "RAMON LOPEZ CAMPUS",
and the said college shall be under obligation to erect a cornerstone bearing that name. Any net
income from the land or any of its parks shall be put in a fund to be known as the "RAMON
LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a
building thereon.
The heirs of Don Ramon, herein private respondents, on 31 May 1989, filed an action for
annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to
the time the action was filed the latter had not complied with the conditions of the donation.
Private respondents also argued that petitioner had in fact negotiated with the National Housing
Authority (NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had
prescribed; that it did not violate any of the conditions in the deed of donation because it never
used the donated property for any other purpose than that for which it was intended; and, that it
did not sell, transfer or convey it to any third party.
The trial court held that petitioner failed to comply with the conditions of the donation
and declared it null and void. Petitioner was directed to execute a deed of the reconveyance of the
property in favor of the heirs of the donor, namely, private respondents herein.
Upon appeal, the court ruled that the annotations at the back of petitioner's certificate of
title were resolutory conditions breach of which should terminate the rights of the donee thus
making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize
the donated property for the establishment of a medical school, the donor did not fix a period
within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of
the condition, petitioner could not be considered as having failed to comply with its part of the
bargain. Thus, the appellate court rendered its decision reversing the appealed decision and
remanding the case to the court of origin for the determination of the time within which petitioner
should comply with the first condition annotated in the certificate of title.

ISSUE: Whether or not the quoted annotations in the certificate of title of petitioner are onerous
obligations and resolutory conditions of the donation which must be fulfilled, non-compliance of
which would render the donation revocable.
HELD: Yes. Petition denied.
RATIO DECIDENDI: The Supreme Court held that not the quoted annotations in the certificate
of title of petitioner are onerous obligations and resolutory conditions of the donation which must
be fulfilled, non-compliance of which would render the donation revocable. Under Art. 1181 of
the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event which constitutes
the condition. Thus, when a person donates land to another on the condition that the latter would
build upon the land a school, the condition imposed was not a condition precedent or a suspensive
condition but a resolutory one. It is not correct to say that the schoolhouse had to be constructed
before the donation became effective, that is, before the donee could become the owner of the
land, otherwise, it would be invading the property rights of the donor. The donation had to be
valid before the fulfillment of the condition. If there was no fulfillment or compliance with the
condition, such as what obtains in the instant case, the donation may now be revoked and all
rights which the donee may have acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is
of no merit.
The condition imposed by the donor, i.e., the building of a medical school upon the land
donated, depended upon the exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the
statute of limitations from barring the action of private respondents upon the original contract
which was the deed of donation.
Moreover, the time from which the cause of action accrued for the revocation of the
donation and recovery of the property donated cannot be specifically determined in the instant
case. A cause of action arises when that which should have been done is not done, or that which
should not have been done is done.

MAKATI DEVELOPMENT CORP. VS. EMPIRE INSURANCE CO.

G. R. NO. 21780

JUNE 30, 1967

PONENTE: Castro, J.
FACTS: Herein petitioner, Makati Development Corporation on March 31, 1959 sold a lot to
Rodolfo P. Andal, in Urdaneta Village, Makati, Rizal, for P55,615. A so-called "special condition"
contained in the deed of sale provides that the vendee shall construct and complete at least 50%
of its residence on the property within two (2) years from March 31, 1959 to the satisfaction of
the vendor and, in the event of its failure to do so, the bond which the vendee has delivered to the
vendor in the sum of P11,123.00 to insure faithful compliance with the above special condition
will be forfeited. Andal gave a surety bond on April 10, 1959 wherein he, as principal, and the
Empire Insurance Company, as surety, jointly and severally, undertook to pay the Makati
Development Corporation the sum of P12,000 in case Andal failed to comply with his obligation
under the deed of sale.
Andal sold the lot to Juan Carlos on January 18, 1960. As neither Andal nor Juan Carlos
built a house on the lot within the stipulated period, the Makati Development Corporation, on
April 3, 1961, after the lapse of the two-year period, sent a notice of claim to the Empire
Insurance Co. advising it of Andal's failure to comply with his undertaking. Demand for the
payment of P12,000 was refused, whereupon the Makati Development Corporation filed a
complaint in the Court of First Instance against the Empire Insurance Co. to recover on the bond
in the full amount, plus attorney's fees. In due time, the Empire Insurance Co. filed its answer
with a third-party complaint against Andal. It asked that the complaint be dismissed or, in the
event of a judgment in favor of the Makati Development Corporation, that judgment be rendered
ordering Andal to pay the Empire Insurance Co. whatever amount it maybe ordered to pay the
Makati Development Corporation, plus interest at 12%, from the date of the filing of the
complaint until said amount was fully reimbursed, and attorney's fees.
In his answer, Andal admitted the execution of the bond but alleged that the "special
condition" in the deed of sale was contrary to law, morals and public policy. He averred that, at
any rate, Juan Carlos had started construction of a house on the lot. The lower court rendered
judgment, sentencing the Empire Insurance Co. to pay the Makati Development Corporation the
amount of P1,500, with interest at the rate of 12% from the time of the filing of the complaint
until the amount was fully paid, and to pay attorney's fees in the amount of P500, and the
proportionate part of the costs. The court directed that in case the amount of the judgment was
paid by the Empire Insurance Co., Andal should in turn pay the former the sum of P1,500 with
interest at 12% from the time of the filing of the complaint to the time of payment and to pay
attorney's fees in the sum of P500 and proportionate part of the costs. The Makati Development
Corporation appealed directly to this Court.
The appellant argues that Andal became liable for the full amount of his bond upon his
failure to build a house within the two-year period which expired on March 31, 1961 and that the
trial court was without authority to reduce Andal's liability on the basis of Carlos' construction of
a house a month after the stipulated period because there was no privity of contract between
Carlos and the Makati Development Corporation.

ISSUE: Whether or not Andal is liable for the full amount of his bond upon his failure to comply
with the special condition stipulated
HELD: No. Petition denied.
RATIO DECIDENDI: No. While it is true that in obligations with a penal sanction the penalty
takes the place of damages and the payment of interest in case of non-compliance and that the
obligee is entitled to recover upon the breach of the obligation without the need of proving
damages,it is nonetheless true that in certain instances a mitigation of the obligor's liability is
allowed. Thus article 1229 of the Civil Code states:
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
Trial court found that Juan Carlos had finished more than 50 per cent of his house by
April, 1961, or barely a month after the expiration on March 31, 1961 of the stipulated period.
There was therefore a partial performance of the obligation within the meaning and intendment of
article 1229. The penal clause in this case was inserted not to indemnify the Makati Development
Corporation for any damage it might suffer as a result of a breach of the contract but rather to
compel performance of the so-called "special condition" and thus encourage home building
among lot owners in the Urdaneta Village. Considering that a house had been built shortly after
the period stipulated, the substantial, if tardy, performance of the obligation, having in view the
purpose of the penal clause, fully justified the trial court in reducing the penalty. Still it is insisted
that Carlos' construction of a house on the lot sold cannot be considered a partial performance of
Andal's obligation because Carlos bears no contractual relation to the Makati Development
Corporation. Indeed the stipulation in this case to commence the construction and complete at
least 50 per cent of the vendee's house within two years cannot be construed as imposing a strictly
personal obligation on Andal. To adopt such a construction would be to limit Andal's right to
dispose of the lot. There is nothing in the deed of sale restricting Andal's right to sell the lot at
least within the two-year period and we think it plain that a reading of such a limitation on one of
the rights of ownership must rest on more explicit language in the contract.

PAZ P. ARRIETA and VITALIADO ARRIETA, vs.NATIONAL RICE AND CORN

CORPORATION and MANILA UNDERWRITERS INSURANCE CO., INC
G.R. No. L-15645

January 31, 1964

PONENTE: REGALA, J.:

FACTS:
Herein petitioner, Paz Arrieta was awarded by National Rice and Corn Corporation
(NARIC) the contract of delivery of 20,000 metric tons of Burmese rice at $203 per metric ton.
On the other hand, the corporation committed itself to pay for the imported rice by means of an
irrevocable, confimed, and assignable letter of credit in US currency in favor of Arrieta or
supplier in Burma immediately. However, the corporation took the first step to open a letter of
credit a full month from the execution of the contract only July 30, 1952. On the same day,
Arrieta advised the corporation of the extreme necessity for the immediate opening of the letter of
credit since she had by then made a tender to her supplier in Ragoon Burma. Consequently, the
credit instrument applied for was opened only on September 8, 1952, since the corporation was
not in financial capacity to pay the 50% marginal cash deposit when the credit instrument was
approved on August 4, 1952.
As a result of the delay, the allocation of Arrieta was cancelled and the 5% deposit,
approximately Php 200,000, was forfeited. Arrieta tried to restore the cancelled Burmese rice
allocation, but failed. Arrieta then instead offered to substitute Thailand rice to NARIC,
communicating that such was a solution which should be beneficial for both parties. However, the
corporation rejected the substitution. Hence, Arrieta sent a letter to the corporation, demanding
for the compensation for the damages caused her.
ISSUES: 1. Whether or not the failure to open immediately the letter of credit in dispute
amounted to a breach of the contract for which the corporation should be held liable?
2. Whether or not there was any waiver on the part of Arrieta?
HELD: Petiton denied.
RATIO DECIDENDI:
1. Yes. It was clear from the records that the sole and principal reason for the cancellation of the
allocation contracted by Arrieta in Ragoon, Burma was the failure of the letter of credit to be
opened. The failure, therefore, was the immediate cause for the consequent damage which
resulted. It was clear from the records that the delay in the opening of the letter of credit was due
to the inability of the corporation to meet the condition imposed by the bank for the granting the
same.
Furthermore, the liability of the corporation stemmed not alone from failure or inability to
satisfy the requirements of the bank, but its culpability arose from is willful and deliberate
assumption of contractual obligations even as it was well aware of its financial incapacity to
undertake the prestation. Under Article 1170, 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 in damages. The terms in any manner contravene the tenor thereof includes
any illicit act which impairs the strict and faithful fulfillment of the obligation, or every kind or
defective performance. In general also, every debtor who fails in the performance of his
obligation is bound to indemnify for the losses and damages caused thereby.

The payment for damages or the award to be given should be converted into the
Philippine peso at the rate of exchange prevailing at the time the obligation was incurred pursuant
to RA 527.
2. No. The subsequent offer to substitute the Thailand rice for the originally contracted Burmese
did not constitute a waiver. Waivers are not presumed. It must be clearly and convincingly shown
either by express stipulations or acts admitting no other reasonable explanation. In this case, no
such intent to waive had been established.

FILINVEST CREDIT vs. PHILIPPINE ACETYLENE

G.R. No. L-50449

January 30, 1982

PONENTE: De Castro, J.
FACTS: Herein defendant, Philippine Acetylene Co. purchased from Alexander Lim a motor
vehicle described as Chevorlet 1969 model for P55K to be paid in installments. As security for
the payment of said promissory note, the appellant executed a chattel mortgage over the same
motor vehicle in favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his rights,
title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment.
Phil Acetylene defaulted in the payment of nine successive installments. Filinvest sent a
demand letter. Replying thereto, Phil Acetylene wrote back of its desire to return the mortgaged
property, which return shall be in full satisfaction of its indebtedness. So the vehicle was returned
to the Filinvest together with the document Voluntary Surrender with Special Power of Attorney
To Sell. Filinvest failed to sell the motor vehicle as there were unpaid taxes on the said vehicle.
Filinvest requested the appellant to update its account by paying the installments in arrears and
accruing interest. Filinvest offered to deliver back the motor vehicle to the appellant but the latter
refused to accept it, so appellee instituted an action for collection of a sum of money with
damages.
In their defense Phil. Acetylene provides that the delivery of the motor vehicle to
Filinvest extinguished its money obligation as it amounted to a dation in payment. Assuming
arguendo that the return did not extinguish, it was justified in refusing payment since the appellee
is not entitled to recover the same due to the breach of warranty committed by the original
vendor-assignor Alexander Lim.
ISSUE: Whether or not there was a dation in in payment that extinguished Phil Acetylenes
obligation.
HELD: No. Petition denied.
RATIO DECIDENDI: The mere return of the mortgaged motor vehicle by the mortgagor does not
constitute dation in payment in the absence, express or implied of the true intention of the parties.
Dacion en pago is the transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. In dacion, the debtor offers another thing to
the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtors debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in dacion en pago
is an objective novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale, while the debt is
considered as the purchase price. In any case, common consent is an essential prerequisite, be it
sale or innovation to have the effect of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the Filinvest consented, or at least intended,
that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as
actual payment, more specifically dation in payment or dacion en pago. The fact that the

mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof,
as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the
absence of clear consent of appellee to the proferred special mode of payment, there can be no
transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that
appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction,
fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the
hands of the appellant.
As to the strength of the Voluntary Surrender with Special Power of Attorney To Sell, it
only authorized Filinvest to look for a buyer and sell the vehicle in behalf of the appellant who
retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness,
with the undertaking of the appellant to pay the difference, if any, between the selling price and
the mortgage obligation. Filinvest in essence was constituted as a mere agent to sell the motor
vehicle which was delivered not as its property. If it were, he would have full power of
disposition of the property, not only to sell it.

PEDRO J. VELASCO vs. MANILA ELECTRIC CO., WILLIAM SNYDER,; JOHN COTTON
and HERMENEGILDO B. REYES,; and ANASTACIO A. AGAN
G.R. No. L-18390

August 6, 1971

PONENTE: REYES, J.B.L., J.:

FACTS: In 1948, appellant Velasco bought from the People's Homesite and Housing Corporation
three (3) adjoining lots situated at the corner of South D and South 6 Streets, Diliman, Quezon
City. These lots are within an area zoned out as a "first residence" district by the City Council of
Quezon City. Subsequently, the appellant sold two (2) lots to the Meralco, but retained the third
lot, which was farthest from the street-corner, whereon he built his house.
In September, 1953, the appellee company started the construction of the sub-station in
question and finished it the following November, without prior building permit or authority from
the Public Service Commission. The facility reduces high voltage electricity to a current suitable
for distribution to the company's consumers. It was constructed at a distance of 10 to 20 meters
from the appellant's house. The company built a stone and cement wall at the sides along the
streets but along the side adjoining the appellant's property it put up a sawale wall but later
changed it to an interlink wire fence. It is undisputed that a sound unceasingly emanates from the
substation.
Plaintiff-appellant Velasco contends that the sound constitutes an actionable nuisance
under Article 694 of the Civil Code of the Philippines, provides that a nuisance is any act,
omission, establishment, business condition of property or anything else which:
(1) Injuries or endangers the health or safety of others; (2) Annoys or offends the senses. In
addition, plaintiff asserts that the sound had disturbed his concentration and sleep, and impaired
his health and lowered the value of his property. Wherefore, he sought a judicial decree for the
abatement of the nuisance and asked that he be declared entitled to recover compensatory, moral
and other damages under Article 2202 of the Civil Code which provides that in crimes and quasidelicts, the defendant shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of. It is not necessary that such damages have
been foreseen or could have reasonably been foreseen by the defendant.
In addition, the City Engineer of Quezon City Anastacio A. Agan was included as a party
defendant because he allegedly (1) did not require the Meralco to secure a building permit for the
construction of the substation; (2) even defended its construction by not insisting on such
building permit; and (3) did not initiate its removal or demolition and the criminal prosecution of
the officials of the Meralco.
ISSUES:
nuisance

1. Whether or not the sound produced from the substation constitutes an actionable
2. Whether or not MERALCO is liable for damages.

3. Whether or not City Engineer of Quezon City, Anastacio A. Agan, a co-defendant,

may be held solidarily liable with Meralco.

HELD: Petition granted.

RATIO DECIDENDI:
1. Yes. Several American decisions are cited showing that noise is an actionable
nuisance. In fact, Kentucky v. Anderson dealt with noise emanating from electrical machinery and
appliances. The determining factor , however , is not just intensity or volume. It must be of such
character as to produce actual physical discomfort and annoyance to a person of ordinary
sensibilities. However, appellants testimony is too plainly biased. Nor are the witnesses
testimonies revealing on account of different perceptions. Consequently, sound level meters were
used. As stated above, the sound exceeds average residential decibels. Also, the testimonies of
appellants physicians (which were more reliable since they actually treated him, unlike the
appellees) point to the noise as having caused appellant loss of sleep, irritation and tension
weakening his constitution. Notable lastly is the fact that in the Kentucky case, where the
nuisance was ordered abated, the average reading was 44 decibels while in the instant, the
readings include 52, 54, and 55. The decision goes on to discuss the proper award of damages.
But Meralco was ordered either to transfer the facilities or reduce the produced sound to around

2. No. As to the demand for exemplary or punitive damages, there appears no adequate
basis for their award. While the appellee Manila Electric Company was convicted for erecting the
substation in question without permit from the Public Service Commission it was deemed that
such permit was not required as the installation was authorized by the terms of its franchise
requiring it to spend within 5 years not less than forty million pesos for maintenance and
additions to its electric system, including needed power plants and substations. Neither the
absence of such permit from the Public Service Commission nor the lack of permit from the
Quezon City authorities (a permit that was subsequently granted) is incompatible with the
Company's good faith, until the courts finally ruled that its interpretation of the franchise was
incorrect.
Moreover, several factors that mitigate defendant's liability in damages. The first is that
the noise from the substation is not an exclusive causative factor of plaintiffs illness. This is
proved by the circumstance that no other person in Velasco's own household nor in his immediate
neighborhood was shown to have become sick despite the noise complained of. The other factor
militating against full recovery by the petitioner Velasco in his passivity in the face of the damage
caused to him by the noise of the substation. Realizing as a physician that the latter was
disturbing or depriving him of sleep and affecting both his physical and mental well being, he did
not take any steps to bring action to abate the nuisance or remove himself from the affected area
as soon as the deleterious effects became noticeable.
The law in this jurisdiction is clear. Article 2203 prescribes that "The party suffering loss
or injury must exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission in question". This codal rule, which embodies the previous
jurisprudence on the point, clearly obligates the injured party to undertake measures that will
alleviate and not aggravate his condition after the infliction of the injury, and places upon him the
burden of explaining why he could not do so. This was not done.
3. No. It was not Agan's duty to require the Meralco to secure a permit before the
construction but for Meralco to apply for it, as per Section 1. Ordinance No. 1530, of Quezon
City. The second allegation is not true, because Agan wrote the Meralco requiring it to submit the

plan and to pay permit fees. On the third allegation, no law or ordinance has been cited specifying
that it is the city engineer's duty to initiate the removal or demolition of, or for the criminal
prosecution of, those persons who are responsible for the nuisance. Republic Act 537, Section 24
(d), relied upon by the plaintiff, requires an order by, or previous approval of, the mayor for the
city engineer to cause or order the removal of buildings or structures in violation of law or
ordinances, but the mayor could not be expected to take action because he was of the belief, as he
testified, that the sound "did not have any effect on his body.