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Obligations and Contracts A2010 page 1

Prof. Labitag
BARREDO V GARCIA e.g. contravention of ordinances, violation of game laws, infraction of rules of traffic
BOCOBO; July 8, 1942 when nobody is hurt
4) crime – guilt beyond reasonable doubt; civil – mere preponderance of evidence
NATURE - Presumptions:
Petition for review on certiorari 1) injury is caused by servant or employee, there instantly arises presumption of
negligence of master or employer in selection, in supervision or both
FACTS 2) presumption is juris tantum not juris et de jure TF may be rebutted by proving
- from CA, holding Fausto Barredo liable for damages for death pf Faustino Garcia exercise of diligence of a good father of the family
caused by negligence of Pedro Fontanilla, a taxi driver employed by Fausto Barredo - basis of civil law liability: not respondent superior bu the relationship of pater
- May 3, 1936 – in road between Malabon and Navotas, head-on collision between familias
taxi of Malate Taxicab and carretela guided by Pedro Dimapilis thereby causing - motor accidents – need of stressing and accentuating the responsibility of owners
overturning of the carretela and the eventual death of Garcia, 16-yo boy and one of of motor vehicles
the passengers MENDOZA V ARRIETA
- Fontanilla convicted in CFI and affirmed by CA and separate civil action is reserved MELENCIO-HERRERA; June 29, 1979
- Parents of Garcia filed action against Barredo as sole proprietor of Malate Taxicab
as employer of Fontanilla NATURE
- CFI and CA awarded damages bec Fontanilla’s negligence apparent as he was Petition for review on Certiorari of the Orders of CFI Manila dismissing petitioner’s
driving on the wrong side of the road and at a high speed Complaint for Damages based on quasi-delict
> no proof he exercised diligence of a good father of the family as Barredo is
careless in employing (selection and supervision) Fontanilla who had been caught FACTS
several times for violation of Automobile Law and speeding - Three-way vehicular accident occurred along Mac-Arthur Highway, Marilao,
> CA applied A1903CC that makes inapplicable civil liability arising from crime bec Bulacan involving (1) Mercedes Benz, owned and driven by petitioner MENDOZA; (2)
this is under obligations arising from wrongful act or negligent acts or omissions private jeep owned and driven by respondent SALAZAR; (3) gravel and sand truck
punishable by law owned by respondent TIBOL and driven by MONTOYA.
- Barredo’s defense is that his liability rests on RPC TF liability only subsidiary and - Mendoza’s and Montoya’s version: After jeep driver overtook the truck, it swerved
bec no civil action against Fontanilla TF he too cannot be held responsible to the left going towards Marilao, and hit car which was bound for Manila. Before
impact, Salazar jumped from the jeep, Mendoza unaware that jeep was bumped
ISSUE from behind by truck
WON parents of Garcia may bring separate civil action against Barredo making him - Salazar’s version: After overtaking truck, he flashed a signal indicating his
primarily liable and directly responsible under A1903CC as employer of Fontanilla intention to turn left towards Marilao but was stopped at intersection by a
policeman directing traffic. While at stop position, his jeep was bumped at rear by
HELD truck causing him to be thrown out of jeep. Jeep then swerved to left and hit the
Yes. There are two actions available for parents of Garcia. One is under the car.
A100RPC wherein the employer is only subsidiarily liable for the damages arising - Oct. 22, 1969. In CFI Bulacan, two separate informations for Reckless Imprudence
from the crime thereby first exhausting the properties of Fontanilla. The other Causing Damage to Proprety were filed against SALAZAR (damage to Mendoza) and
action is under A1903CC (quasi-delict or culpa aquiliana) wherein as the negligent MONTOYA (damage to Salazar)
employer of Fontanilla, Barredo is held primarily liable subject to proving that he - Salazar was acquitted; Motoya found guilty beyond reasonable doubt
exercising diligence of a good father of the family. The parents simply took the - Aug. 22, 1970. In CFI Manila, Mendoza filed a civil case against Salazar and Timbol
action under the Civil Code as it is more practical to get damages from the either in alternative or in solidum.
employer bec he has more money to give than Fontanilla who is yet to serve his - Timbol filed Motion to Dismiss on grounds that complaint is barred by prior
sentence. judgement; CFI Manila dismissed Complaint against Timbol
Obiter - Salazar filed Motion to Dismiss; CFI Mla also dismissed Complaint against him on
Difference bet Crime and Quasi-delict grounds that New Rules of Court rewuires an express reservation of civil action to
1) crimes – public interest; quasi-delict – only private interest be made in the criminal action
2) Penal code punishes or corrects criminal acts; Civil Code by means of
indemnification merely repairs the damage ISSUES
3) delicts are not as broad as quasi-delicts; crimes are only punished if there is a 1. WON Mendoza can file an independent civil case against Timbol
penal law; quasi-delicts include any kind of fault or negligence intervenes a) Is the civil suit barred by prior judgment in the criminal case?
NOTE: not all violations of penal law produce civil responsibility b) Is the civil suit barred by failure to make a reservation in the criminal action of
right to file an independent civil action (as required in Sec.2 of Rule 111)?
Obligations and Contracts A2010 page 2
Prof. Labitag
2. WON Mendoza can file an independent civil case against Salazar - Defendants (now petitioners) sought to have the suit dismissed alleging that since
they are presumably sued under Art. 2180 of the Civil Code, the complaint states no
HELD cause of action against them since academic institutions, like PSBA, are beyond the
1. Yes. ambit of that rule.
a) No, not all requisites of Res Judicata are present. - Respondent Trial court denied the motion to dismiss. And the MFR was similarly
Ratio There is no identity of cause of action between the dismissed criminal case dealt with. Petitioners the assailed the trial court’s dispositions before the
and the new civil case. respondent appellate court which affirmed the trial court’s ruling.
Reasoning In the criminal case, cause of action was enforcement of civil liability
arising from criminal negligence. In the civil case, it was quasi-delict. The two ISSUES
factors a cause of action must consist of are: (1) plaintiff’s primary right – Mendoza WON respondent court is correct in denying dismissal of the case.
as owner of the car; (2) defendant’s delict or wrongful act or omission which
violated the primary right – negligence or lack of skill, either of Salazar or of HELD
Montoya. Ratio Although a school may not be liable under Art. 2180 on quasi-delicts, it may
b) No, right to file an independent civil action need not be reserved. still be liable under the law on contracts.
Ratio Sec. 2 of Rule 111, Rules of Court is inoperative because it is an Reasoning The case should be tried on its merits. But respondent court’s premise
unauthorized amendment of substantive law, and it cannot stand because of its is incorrect. It is expressly mentioned in Art. 2180 that the liability arises from acts
inconsistency with Art.2177. done by pupils or students of the institution. In this sense, PSBA is not liable. But
Reasoning Art.2176 and 2177 of Civil Code create a civil liability distinct and when an academic institution accepts students for enrollment, the school makes
different from the civil action arising from the offense of negligence under the RPC. itself responsible in providing their students with an atmosphere that is conducive
2. No. for learning. Certainly, no student can absorb the intricacies of physics or explore
Ratio Civil action had extinguished because “the fact from which civil liability the realm of arts when bullets are flying or where there looms around the school
might arise did not exist.” (Sec 3c, Rule 111, Rules of Court) Under the facts of the premises a constant threat to life and limb.
case, Salazar cannot be held liable. Disposition WHEREFORE, the foregoing premises considered, the petition is
Reasoning The offended party has an option between action for enforcement of DENIED. The Court of origin is hereby ordered to continue proceedings consistent
civil liability based on culpa CRIMINAL (RPC, Art.100) or action for recovery of wit this ruling of the Court. Costs against the petitioners.
damages based on culpa AQUILIANA (CC, Art.2177). First option was deemed Voting Melencio-Herrera (Chairman), Paras, Regalado and Nocon, JJ., concur.
simultaneously instituted with the criminal action unless expressly waived or
reserved of separate application. It can be concluded that Mendoza opted to base
his cause of action on culpa criminal, as evidenced by his active participation in the
prosecution of criminal suit against Salazar. AMADORA V CA
Disposition CRUZ; April 15, 1988
Order dismissing Civil Case against Timbol is set aside and trial court to proceed
with hearing on merits; orders dismissing complaint in Civil Case against Salazar are NATURE
upheld. Petition for certiorari to review the decision of Court of Appeals.

PSBA V COURT OF APPEALS FACTS


PADILLA; February 4, 1992 - A few days before high school graduation, while in the auditorium of his school
(Colegio de San Jose-Recoletos), a classmate, Pablito Daffon, fired a gun that
NATURE mortally hit and killed Alfredo Amadora.
Petition to review the decision of Court of Appeals. - The victim’s parents filed a civil action for damages under Article 2180 of the Civil
Code against the Colegio de San Jose-Recoletos, its rector, the high school principal,
FACTS the dean of boys, and the physics teacher (the victim was in school to finish his
- A stabbing incident on August 30, 1985 which caused the death of Carlitos physics experiment –a prerequisite to graduation), together with Daffon and two
Bautista on the premises of the Philippine School of Business Administration (PSBA) other students, through their respective parents.
prompted the parents of the deceased to file suit in the Manila RTC. It was - The pertinent provision reads:
established that his assailants were not members of the school’s academic “Lastly, teachers or heads of establishments of arts and trades shall be liable
community but were outsiders. for damages caused by their pupils and students or apprentices so long as they
- The suit impleaded PSBA, its President, VP, Treasure, Chief of Security and remain in their custody.”
Assistant Chief of Security. It sought to adjudge them liable for the victim’s death
due to their alleged negligence, recklessness and lack of security precautions. ISSUE
Obligations and Contracts A2010 page 3
Prof. Labitag
WON respondents are liable under Art. 2180 language used in another exhibit with reference to the additional 100,000 gallons
was not a definite promise. Still less did it constitute an obligation.
HELD - The terms of contract fixed by the parties are controlling. The time of payment
Ratio Those liable under the related provision of Art. 2180 shall be taken to mean stipulated for in the contract should be treated as of the essence of the contract.
as teacher(s)-in-charge for academic institutions and heads for schools of arts and Hawaiian-Philippine Co. had no legal right to rescind the contract of sale because of
trades. the failure of Song Fo & Co. to pay for the molasses within the time agreed upon by
Reasoning The difference between academic and arts and trades institutions lie in the parties. The general rule is that the rescission will not be permitted for a slight
history. Back in the times of artisan guilds, heads of academic institutions were or casual breach of the contract, but only for such breaches are as so substantial
already focused on administrative work and it is only the teachers who interact and fundamental as to defeat the object of the parties in making the agreement. A
closely with students. Heads of schools of arts and trades, on the other hand, delay in payment for a small quantity of molasses for some 20 days is not such a
because of the technical nature of their craft, interact directly with the appentices. violation of an essential condition of the contracts as warrants rescission for
Although the same may not be said for schools of arts and trades at present, it is nonperformance.
what is written. And only a re-writing of the law can abolish the intended difference. - The measure of damages for breach of contract in this case is as follows: Song Fo
In the case at bar, none of the respondents were liable. The school is not liable & Co. is allowed P3,000 on account of the greater expense to which it was put in
under Art. 2180; the rector, the principal and the dean of boys only exercised being compelled to secure molasses in the open market. It is allowed nothing for
general authority; the mere fact that Amadora was in school to finish his physics lost profits on account of the breach of the contract, because of failure of proof.
experiment did not make the physics teacher in-charge; and even if he were in-
charge, there was no showing that it was his negligence in disciplining Daffon that VELARDE V COURT OF APPEALS
made Daffon shoot Amadora; and the other respondents didn’t have custody of the PANGANIBAN; July 11, 2001
offender.
Disposition WHEREFORE, the petition is DENIED, without any pronouncements as FACTS
to costs. - David Raymundo (private respondent) is the absolute and registered owner of a
Voting Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and parcel of land, together with the house and other improvements.
Grino-Aquino, JJ., concur. - Gorge Raymundo, David’s father, negotiated with Avelina and Mariano Velarde
Teehankee, C.J., did not participate in deliberations. (plaintiffs) for the sale of David’s property, which was under lease.
Fernan and Padilla, JJ., no part, formerly counsel for Colegio de San Jose-Recoletos. - Aug 8, 1986, a Deed of Sale with Assumption of Mortgage was executed by David
Gutierrez, Jr., J., concur but please see additional statement. Raymundo in favor of Avelina Velarde. It states that David Raymundo sells, cedes,
Herrera, J., with separate concurring and dissenting opinion. transfers conveys and delivers the property to Avelina Velarde for P800,000 and
that Avelina Velarde assumes to pay the mortgage obligations on the property in
SONG FO & CO. V HAWAIIAN- PHILIPPINE CO. the amount of P1,800,000 in favor of BPI.
MALCOLM; September 16, 1925 - On the same date, Avelina, with the consent of husband Mariano, executed an
Undertaking, parts of which as follows:
NATURE 1. that Avelina Velarde paid David Raymundo P800,000, and assumes the
Appeal from a judgment of the Court of First Instance of Iloilo mortgage obligations on the property with BPI in the amount of P1.8M.
2. while Avelina’s application for the assumption of the mortgage obligations on
FACTS the property is not yet approved by BPI, Avelina agreed to pay the mortgage
Plaintiff presented a complaint with two causes of action for breach of contract obligations on the property, including interest and charges for late payment.
against the defendant in which judgment was asked for P70,369.50, with legal 3. Avelina binds and obligates herself to strictly and faithfully comply with the ff
interest and cost. In an amended answer and cross-complaint, the defendant set up terms and conditions:
the special defense that since the plaintiff had defaulted in the payment for a. until such time that assumption of mortgage obligations on the property is
molasses delivered to it by the defendant under the contract between the parties, approved by BPI, Avelina shall continue to pay said loan in accordance with
the latter was compelled to cancel and rescind the contract. The case was its terms and conditions.
submitted for decision on a stipulation of facts and exhibits. The judgment of the b. In the event Avelina violates any of the terms and conditions, her
trial court condemned the defendant to pay to the plaintiff a total of P35,317.93 downpayment of P800,000 plus all payments made with BPI on the
with legal interest from the date of the presentation of the complaint, and with mortgage loan shall be forfeited in favor of David Raymundo, and that
costs. David shall resume total and complete possession and ownership of the
property, and the Deed of Sale with Assumption of Mortgage shall be
HELD deemed automatically cancelled.
- The written contract between the parties provided for the delivery by the
Hawaiian-Philippine Co. to Song Fo & Co. of 300,000 gallons of molasses. The
Obligations and Contracts A2010 page 4
Prof. Labitag
- As per agreement, the Velardes paid BPI the monthly interest on the loan for 3 rescission even after he has chosen fulfillment, of the latter should become
months, (Sept 19, 1986 at P27,225; Oct 20, 1986 at 23,000; Nov 19, 1986 at 23, impossible.”
925) - The right of rescission of a party to an obligation under Article 1191 of the Civil
- Dec. 15, 1986, plaintiffs were advised that their Application for Assumption of Code is predicated on a breach of faith by the other party who violates the
Mortgage with BPI was not approved. This prompted the Velardes not to make any reciprocity between them. The breach contemplated in said provision is the
further payment. obligor’s failure to comply with an existing obligation. When the obligor cannot
- Jan. 5, 1987, the Raymundos, thru counsel, wrote plaintiffs informing them that comply with what is incumbent upon it, the oblige may seek rescission and, in the
their nonpayment to BPI constituted nonperformance of their obligation. absence of any just cause for the court to determine the period of compliance, the
- On January 7, 1987, the Velardes responded thru counsel and advised that they court shall decree the rescission.
are willing to pay the balance in cash not later that Jan 21 1987 provided that: a) - Private respondents validly exercised their right to rescind the contract, because
respondents deliver actual possession of the property not later that Jan 15, 1987; b) of the failure of petitioners to comply with their obligation to pay the balance of the
respondents cause the release of title and mortgage from BPI and make the title purchase price. The Velardes violated the very essence of reciprocity in the contract
available and free from any liens and encumbrances; and c) respondents execute of sale, a violation that consequently gave rise to private respondents’ right to
an absolute deed of sale in favor of Avelina Velarde not later than Jan 21, 1987. rescind the same in accordance with law.
- Jan 8, 1987, defendants sent the Velardes a notarial notice of - Mutual restitution required in rescission.
cancellation/rescission of the intended sale of the property, allegedly due to the - the breach committed by petitioners was a nonperformance of a reciprocal
plaintiffs’ failure to comply with the terms and conditions of the Deed of Sale with obligation, not a violation of the terms and conditions of the mortgage contract.
Assumption of Mortgage and the Undertaking. Thus, the automatic rescission and forfeiture of payment clauses do not apply.
- Feb 9, 1987, the Velardes filed a complaint against respondents for specific Civil Code provisions shall govern.
performance, nullity of cancellation, writ of possession, and damages. - Since breach herein is under A1191, mutual restitution is required to bring back
- RTC instructed the parties to proceed with the sale, directing the Velardes to pay the parties their original situation prior to the inception of the contract.
the balance of P1.8M and ordered the Raymundos to execute a deed of absolute - Rescission creates an obligation to return the object of the contract. It can be
sale and to surrender possession of property to the Velardes. carried out only when the one who demands rescission can return whatever he
- CA reversed the ruling and dismissed the Velardes’ Complaint. may be obliged to restore.
- To rescind is t declare a contract void at its inception and to put an end to it as
ISSUES though it never was.
1. WON there is a breach of contract 3. SC did not find it necessary to discuss third issue but said that the three
2. WON the rescission by the Raymundos of the contract valid conditions were not part of the original contract, and that petitioners had no right
3. WON the finding of the CA that the Velardes’ Jan 7, 1987 letter gave three “new to demand preconditions to the fulfillment of their obligation, which had become
conditions” constituted an attempt to novate, thus necessitating a new agreement due.
between the parties Disposition CA decision affirmed with modification that private respondents are
ordered to return to petitioners P874,150 with legal interest.
HELD
1. Yes. In a contract of sale, the seller obligates itself to transfer the ownership of WOODHOUSE V HALILI
and deliver a determinate thing, and the buyer to pay therefore a price certain in LABRADOR; July 31, 1953
money or its equivalent.
- Private respondents already performed their obligation through the execution of FACTS
the Deed of Sale, which effectively transferred ownership of property to Velarde - November 29, 1947- plaintiff entered into a written agreement with defendant:
through consecutive delivery. Prior physical delivery or possession is not legally 1. that they shall organize a partnership for the bottling and distribution of Mission
required, and the execution of the Deed of Sale is deemed equivalent to delivery. soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a
- Petitioners did not perform their correlative obligation of paying the contract price capitalist, furnishing the capital necessary therefore
in the manner agreed upon. They wanted private respondents to perform 2. that the defendant was to decide matters of general policy regarding the
obligations beyond those stipulated in the contract before fulfilling their own business, while the plaintiff was to attend to the operation and development of the
obligation to pay the full purchase price. bottling plant
2. Yes. Private respondents’ right to rescind the contract finds basis in Article 1191 3. that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of
of the Civil Code, which provides: the proposed partnership
“Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case 4. that the plaintiff was to receive 30 per cent of the net profits of the business
one of the obligors should not comply with what is incumbent upon him. - Prior to entering into this agreement, plaintiff had informed the Mission Dry
The injured party may choose between fulfillment and the rescission of the Corporation of Los Angeles, California, U. S. A., manufacturers of the bases and
obligation, with the payment of damages in either case. He may also seek ingredients of the beverages bearing its name, that he had interested a prominent
Obligations and Contracts A2010 page 5
Prof. Labitag
financier (defendant herein) in the business, who was willing to invest half a million - Again, the immediate reaction of defendant, when in California he learned that
dollars in the bottling and distribution of the said beverages, and requested, in plaintiff did not have the exclusive franchise, was to reduce, as he himself testified,
order that he may close the deal with him, that the right to bottle and distribute be plaintiff's participation in the net profits to one half of that agreed upon. He could
granted him for a limited time under the condition that it will finally be transferred not have had such a feeling had not plaintiff actually made him believe that he
to the corporation (plaintiff) was the exclusive grantee of the franchise.
- Pursuant to this request, plaintiff was given "a thirty days' option on exclusive 2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two
bottling and distribution rights for the Philippines" kinds of (civil) fraud, the causal fraud, which may be ground for the annulment of a
- The contract was finally signed by plaintiff on December 3, 1947. contract, and the incidental deceit, which only renders the party who employs it
- When the bottling plant was already in operation, plaintiff demanded of defendant liable for damages. This Court has held that in order that fraud may vitiate consent,
that the partnership papers be executed. it must be the causal (dolo causante), not merely the incidental (dolo incidente)
- Defendant gave excuses and would not execute said agreement, thus the inducement to the making of the contract. The record abounds with circumstances
complaint by the plaintiff. indicative of the fact that the principal consideration, the main cause that induced
- Plaintiff: defendant to enter into the partnership agreement with plaintiff, was the ability of
1. execution of the contract of partnership plaintiff to get the exclusive franchise to bottle and distribute for the defendant or
2. and accounting of profits for the partnership. The original draft prepared by defendant's counsel was to the
3. share thereof of 30 per cent effect that plaintiff obligated himself to secure a franchise for the defendant.
4. damages in the amount of P200,000 - But if plaintiff was guilty of a false representation, this was not the causal
- Defendant: consideration, or the principal inducement, that led plaintiff to enter into the
1. the defendant’s consent to the agreement, was secured by the partnership agreement. On the other hand, this supposed ownership of an
representation of plaintiff that he was the owner, or was about to become exclusive franchise was actually the consideration or price plaintiff gave in
owner of an exclusive bottling franchise, which representation was false, and exchange for the share of 30 per cent granted him in the net profits of the
that plaintiff did not secure the franchise but was given to defendant himself partnership business. Defendant agreed to give plaintiff 30 per cent share in the net
2. that defendant did not fail to carry out his undertakings, but that it profits because he was transferring his exclusive franchise to the partnership.
was plaintiff who failed - May the agreement be carried out or executed? We find no merit in the claim of
3. that plaintiff agreed to contribute to the exclusive franchise to the plaintiff that the partnership was already a fait accompli from the time of the
partnership, but plaintiff failed to do so operation of the plant, as it is evident from the very language of the agreement that
4. counterclaim for P200,00 as damages the parties intended that the execution of the agreement to form a partnership was
- CFI ruling: to be carried out at a later date. , The defendant may not be compelled against his
1. accounting of profits and to pay plaintiff 15 % of the profits will to carry out the agreement nor execute the partnership papers. The law
2. execution of contract cannot be enforced upon parties recognizes the individual's freedom or liberty to do an act he has promised to do, or
3. fraud wasn’t proved not to do it, as he pleases.

ISSUES
1. WON plaintiff falsely represented that he had an exclusive franchise to bottle
Mission beverages
2. WON false representation, if it existed, annuls the agreement to form the
partnership

HELD GERALDEZ V CA
1. Yes. Plaintiff did make false representations and this can be seen through his REGALADO; February 23, 1994
letters to Mission Dry Corporation asking for the latter to grant him temporary
franchise so that he could settle the agreement with defendant. The trial court NATURE
reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the - Petition for review on Certiorari
agreement "to secure the Mission Dry franchise for and in behalf of the proposed - This is an action for damages by reason of contractual breach filed by Lydia
partnership." The existence of this provision in the final agreement does not militate Geraldez against Kenstar Travel Corporation.
against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. defendant FACTS
believed, or was made to believe, that plaintiff was the grantee of an exclusive - Lydia came to know about the respondent through advertisements about tours in
franchise. Thus it is that it was also agreed upon that the franchise was to be Europe and eventually availed of one of the packages they offered.
transferred to the name of the partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the plaintiff.
Obligations and Contracts A2010 page 6
Prof. Labitag
- The package was “VOLARE 3” which covered 22-day tour of Europe for 190,000 - Clearly, KTC’s choice of Zapanta as tour guide is a manifest disregard of its
Php which she paid for herself and her sister. specific assurances to the tour group, resulting in agitation and anxiety on their
- Her disappointments (because it was contrary to what was in the brochure) during part, and which is contrary to the elementary rules of good faith and fair play.
the trip were: - On the European Tour Manager
• There was no European tour manager for their group of KTC: the euro tour manager refers to an organization and not to an individual;
tourists Geraldez didn’t attend the pre-departure briefing, wherein we explained the
• The hotels which she and the group were billeted were not concept of the euro tour manager
first- class SC: the advertisement reveals that the contemplated tour manager contemplated is
• The UGC Leather Factory, which was a highlight of the tour, a natural person not a juridical one as KTC asserts. Furthermore, the obligation to
was not visited provide not only a European tour manager, but with local European tour guides
• The Filipino lady tour guide was performing said job for the were likewise never made available. Zapanta couldn’t even remember the name of
first time. the European guide with her supposedly.
- RTC: granted a writ of preliminary attachment against private respondent on the From the advertisement, it is beyond cavil that the import of the “he” is a natural
ground respondent committed fraud in contracting an obligation (as per and not a juridical person (in reference to the euro tour guide). There is no need for
petitioner’s motion) but said writ was also lifted upon filing a counterbond of Php further interpretation when the wordings are clear. The meaning that will
990k determine the legal effect of a contract is that which is arrived at by
- Lydia also filed other complaints at the Department of Tourism and the Securities objective standards; One is bound not by what he subjectively intends,
and Exchange Commission which fined the respondent Php 5k and Php 10k but by what he leads others reasonably to think he intends.
respectively. KTC relies in the delimitation of its responsibility printed on the face of its brochure.
- RTC awarded moral damages, nominal damages, exemplary damages, and for (see page 330)
attorney’s fees to Lydia Geraldez worth Php 500k, Php 200k, Php 300k and Php 50k SC:
respectively. Respondent also had to pay for the costs of the suit. * CONTRACT OF ADHESION: contracts drafted by only one party (i.e.
- CA modified the RTC’s decision since they found no malice could be imputed corporations); the only participation of the other party is the affixing of
against Kenstar Travel Corporation. his signature or his “adhesion” thereto. Such a contract must be strictly
construed against the one who drafted the same, especially where there
ISSUE are stipulations that are printed in fine letters and are hardly legible.
WON private respondent acted in bad faith or with gross negligence in discharging SC: Private respondents cannot rely on its defense of “substantial compliance” with
its obligations under the contract. the contract.

HELD
Yes, Kenstar Travel Corporation did commit fraudulent misrepresentations - On the First Class Hotels
amounting to bad faith to the prejudice of Lydia Geraldez and the members of the The respondents likewise committed a grave misrepresentation when it assured
tour group. in its Volare 3 tour package that the hotels it had chosen would provide the tourists
Reasoning complete amenities and were conveniently located along the way for the daily
- On respondent’s choice of tour guide itineraries. It turned out that some of the hotels were not sufficiently equipped with
By providing the Volare 3 tourist group with an inexperienced and a first even the basic facilities and were at a distance from the cities covered by the
timer tour escort, KTC manifested its indifference to the convenience, projected tour.
satisfaction and peace of mind of its clients during the trip. Respondent - Even assuming arguendo that there is indeed a difference in classifications , it
should have selected an experienced European tour guide, or it could have allowed cannot be denied that a first-class hotel could at the very least provide basic
Zapanta (the lady guide) to go as an understudy under the guidance, control, and necessities and sanitary accommodations.
supervision of an experienced and competent European or Filipino tour guide who - if it could not provide the tour participants with first-class lodgings on the basis of
could’ve given her training. the amount that they paid, it could and should have instead increased the price to
- The inability of the group to visit the leather factory is likewise reflective of the enable it to arrange for the promised first-class accommodations.
neglect and ineptness of Zapanta in attentively following the itinerary for the day. - Damages
This incompetence must necessarily be traced to the lack of due diligence Moral damages may be awarded in breaches of contract where the obligor acted
on the part of KTC in the selection of its employees. The UGC leather factory fraudulently or in bad faith.
was one of the highlights of the tour and it was incumbent upon the organizers of - The fraud or dolo which is present or employed at the time of birth or
the tour to take special efforts to ensure the same. perfection of a contract may either be dolo causante or dolo incidente.
- Dolo Causante – causal fraud , referred to in Art. 1338,
- are those deceptions or misrepresentations of a serious character employed by
one party
Obligations and Contracts A2010 page 7
Prof. Labitag
- without which the other party would NOT have entered into the contract ISSUE
- essential cause of the consent What are the liabilities of the owners and drivers of the vehicles involved in the
- effects: nullity of the contract and indemnification of damages collision
- Dolo Incidente – incidental fraud, referred to in Art. 1334,
- are those which are not serious in character HELD
-without which the other party would still have entered into the contract - BG was an incompetent chauffer as he was driving in an excessive speed. The
- some particular or accident of the obligation guarantee the father gave at the time the son was granted a license to operate
- effects: damages motor vehicles gave the father responsible for the acts of his son.
- SC: KTC is responsible for damages whether it has committed either dolo - SCor and AV’s liability is based on the contract. The position of the truck on the
causante or incidente. bridge and the speed in operating the machine and the lack of care employed
- Lydia joined the tour with the belief of a euro tour guide accompanying them; she reached such conclusion. The fact that 2 drivers were approaching a narrow bridge,
suffered serious anxiety and distress when the group was unable to visit the leather neither willing to slow up and give right of way inevitably resulted to the collision
factory and when she didn’t receive first-class accommodations in their lodgings. and the accident.
These entitle her to moral damages. - The contention that there was contributory negligence as the plaintiff kept his foot
- Exemplary damages are imposed by way of example or correction for the public outside the truck was not pleaded and was dismissed as speculative.
good, in addition to moral, temperate, liquidated or compensatory damages. Ratio
According to the Code Commission, exemplary damages are required by public In the US it is uniformly held that the head of the house, the owner of the vehicle,
policy, for wanton acts must be suppressed. who maintains it for the general use of his family is liable for its negligent operation
- Under the present state of law, extraordinary diligence is not required in travel or by one of his children, whom he designates or permits to run it, where the car is
tour contracts, such as that in the case at bar, the travel agency acting as tour occupied and being used for the pleasure of the other members of the family, other
operator must nevertheless be held to strict accounting for contracted services, than the child driving it.
considering the public interest in tourism, whether in the local or in the international
scene. VAZQUEZ V DE BORJA
Disposition MORAL DAMAGES –Php 100k, EXEMPLARY DAMAGES – Php 50k, OZAETA; February 23, 1944
ATTY’S FEES –Php 20k and costs against the respondent KTC. Award for nominal
damages is deleted. NATURE
Note Nominal damages are awarded when there the complainant suffered actual PETITION to review on certiorari a decision of te Court of Appeals
or substantial damage from the breach of contract.
FACTS
GUTERREZ V GUTIERREZ - de Borja entered into a contract with Natividad-Vazquez Sabani Development to
MALCOLM; September 23, 1931 purchased 4,000 sack of palay at P2.10 per sack for a total consideration of P 8,400
which was paid by de Borja. Vazquez and Busuego represented the Company in the
NATURE transaction as acting manager and treasurer, respectively. In addition, de Borja
Appeal from the judgment of the CFI of Manila delivered to the defendants a total of 4,000 empty sacks which presumealy were to
be used in the delivery of the palay.
FACTS - Defendants only deliverd to de Borja a total of 2,488 cavans of palay with a value
- On Feb 2, 1930, a passenger truck and a private automobile collided while of P5,224.80 and have since refused to deliver the balance.
attempting to pass each other on the Talon bridge on the Manila South Rd in Las - Action was commenced by Francisco de Borja in the Court of First Instance of
Pinas. The truck was driven by the chauffer Abelardo Velasco (AV) and was owned Manila against Antonio Vazquez and Fernando Busuego to recover from them jointly
by Saturnino Cortez (SCor). The auto was being operated by Bonifacio Gutierrez and severally the total amount of P4,702.70 arising out of the non delivery of 1,512
(BG), 18 y/o, and was owned by his parents Mr./Mrs. Manuel Gutierrez (MG). cavans of rice and 1,510 empty sacks.
- At the time of the collision, BG was with his mother and several other members of - Vazquez denied entering into the contract in his individual and personal capacity.
the family. MG was not in the car. The contract was between plaintiff and Natividad-Vazquez Sabani Development Co.,
- A passenger of the autobus, Narciso Gutierrez (NG) was en route from San Pablo Inc., a corporation which the defendant Vazquez represented as its acting manager.
to Manila. The collision resulted in NG suffering a fractured right leg requiring him Vazquez filed a counterclaim for P1,000 as damages.
medical assistance. - Trial court found in favor of the plaintiff and ordered Vazquez to pay the total sum
- The collision was caused by negligence. While the plaintiff blames both sets of of P3,552.70. It also absolved Busuego from the complaint.
defendants, the owner of the passenger truck blames the automobile and vice - Vazquez appealed to the CA and it modified the judgement by reducing the
versa. amount to P 3,314.78 plus interest and costs. On motion for reconsideration, the CA
Obligations and Contracts A2010 page 8
Prof. Labitag
set aside its judgment and ordered the case remanded to the court of origin for received the full payment. Hence the CFI and Ca are both correct in holding the
further proceedings. failure to deliver was the result of Vazquez’s fault or negligence.
- Hence the two petitions from both plaintiff and defendant to the Supreme court for - While it is true that the contract is between de Borja and the company, it was
certiorari. proven during the trial that it was Vazquez who prevented the performance of the
contract and also of negligence bordering on fraud which caused damage to de
ISSUES Borja. Hence the technicality of a procedural error should not be hindrance to the
1.WON de Borja entered into the contract with Vazquez in his personal capacity or rendition.
as manager of the Natividad-Vazquez Sabani Development - The suit be considered as based on fault and negligence of Vazquez and to
2. WON Vazquez is entitled to counter damages arising out of the erroneous suit sentence defendant accordingly.

HELD DE GUIA V MANILA ELECTRIC, RAILROAD & LIGHT CO


Ratio STREET; January 28, 1920
- The Action being on a contract, and it appearing from the preponderance of the
evidence that the party liable is Natividad-Vazquez, which is not a party to the suit, NATURE
the complaint should have been dismissed. APPEAL from a judgment of the Court of First Instance of Manila.
- No award is given to Vazquez as the SC believes that he was morally responsible
to the party with whom he contracted to see to it that the corporation represented FACTS
by him fulfilled the contract by delivering that palay it had sold particularly since -The plaintiff is a physician residing in Caloocan City.
the same had already been made. -Sept 4, 1915, at about 8pm, the defendant boarded a car at the end of the line with
Reasoning the intention of coming to Caloocan.
- Corporations are artificial beings invested by law with a personality of is own, -At about 30 meters from the starting point the car entered a switch, the plaintiff
separate and distinct from that of the shareholders and from that of its officers who remaining on the back platform holding the handle of the right-hand door. Upon
manage and run its affairs. The mere fact that its personality is owing to a legal coming out of the switch, the small wheels of the rear truck left the track ran for a
fiction and that it necessarily has to act thru its agents does not make such agents short distance and hit a concrete post.
personally liable on a contract duly entered into by them for and in behalf of said -the post was shattered: at the time the car struck against the concrete post, the
corporation. This legal fiction may however be disregarded only when an attempt is plaintiff was allegedly standing on the rear platform, grasping the handle of the
made to use its as a cloak to hide an unlawful or fraudulent purpose. As there right-hand door. The shock of the impact threw him forward, and the left part of his
seems to be no showing that Vazquez personally benefited from the transaction, he chest struck against the door causing him to fall. In the falling, the plaintiff alleged
is within his rights to invoke the legal fiction to avoid personal liability. that his head struck one of the seats and he became unconscious.
- The trial court in finding Vazquez guilty of negligence in the performance of the -the plaintiff was taken to his home which was a short distance away from the site
contract and in holding him personally liable manifestly failed to distinguish a of the incident. A physician of the defendant company visited the plaintiff and noted
contractual from an extra-contractual obligation, or an obligation arising from that the plaintiff was walking about and apparently suffering somewhat from
contract from an obligation arising from culpa aquiliana. In the contractual bruises on his chest. The plaintiff said nothing about his head being injured and
obligation, it is the obligor to fulfill said contract and not its agents. Hence, the refused to go to a hospital.
obligor is the party guilty of negligence in the fulfillment of said contract. On the -The plaintiff consulted other physicians about his condition, and all these
other hand, if independently from the contract, Vazquez by his fault or negligence physicians testified for the plaintiff in the trial court.
cased damage to the plaintiff, then he would be personally liable for such damage. -the plaintiff was awarded with P6,100, with interest and costs, as damages
But since the suit is based on the contract, then the court has no jurisdiction over incurred by him in consequence of physical injuries sustained. The plaintiff and the
the issue and could not adjudicate upon it. defendant company appealed.
Disposition The judgment of the CA is reversed and the complaint is dismissed,
without finding as to cost. ISSUES
1. WON the defendant has disproved the existence of negligence
2. What is the nature of the relation between the parties?
3. WON the defendant is liable for the damages
SEPARATE OPINION 4. If liable for damages, WON the defendant could avail of the last paragraph of Art
1903 on culpa aquiliana (Art 2180)
PARAS [ dissent] 5. What is the extent of the defendant’s liability?
-From the facts, it appears that Vasquez prior to entering into contract with de 5.1 Did the trial judge err in the awarding of the damages for loss of professional
Borja knew that his company was already insolvent. Knowing full well that the earnings (P900)?
contract could not be fulfilled, he nonetheless consummated the transaction and
Obligations and Contracts A2010 page 9
Prof. Labitag
5.2 Did the trial judge err in the awarding of the damages for inability to accept a 5. The defendant is liable for the damages ordinary recoverable for the
position as a district health officer? breach of contractual obligation, against a person who has acted in good
5.3 Did the trial judge err in not awarding damages for the plaintiff’s supposed faith, which could be reasonably foreseen at the time the obligation is
incapacitation for future professional practice (P30,000)? contracted.
5.4 Is the plaintiff reasonable in demanding P10,000 for the cost of medical Ratio The extent of the liability for the breach of a contract must be determined in
treatment and other expenses incident to his cure? the light of the situation in existence at the time the contract is made; and the
6. WON the trial judge erred in treating written statements of the physicians who damages ordinarily recoverable are in all events limited to such as might be
testified as primary evidence? reasonably foreseen in the light of the facts then known to the contracting parties.
Reasoning The court has the power to moderate liability according to the
HELD circumstances of the case, i.e. when the defendant must answer for the
1. NO, the existence of negligence in the operation of the car must be consequences of the negligence of its employees. Also, an employer who has
sustained, as not being clearly contrary to the evidence. displayed due diligence in choosing and instructing his servants is entitled to be
Ratio An experienced and attentive motorman should have discovered that considered a debtor in good faith (w/n meaning of article 1107, old CC)
something was wrong and would have stopped before he had driven the car over 5.1. NO, the trial judge was liberal enough to the plaintiff.
the entire distance from the point where the wheels left the track to the place Reasoning As a result of the incident, the plaintiff was unable to properly attend
where the post was struck. his professional labors for 3 months and suspend his practice for that period. By
Reasoning The motorman alleged that he reduced his speed to the point that the testimonial evidence, his customary income, as a physician, was about P300/month.
car barely entered the switch under its own momentum, and this operation was So the trial judge accordingly allowed P900 as damages for loss of earnings.
repeated as he passed out. Upon getting again on the straight track he put the 5.2 YES. The trial judge erred in awarding such damages.
control successively at points one, two, three and lastly at point four. At the Ratio Damage of this character could not, at the time of the accident, have been
moment when the control was placed at point four he perceived that the rear foreseen by the delinquent party as a probable consequence of the injury inflicted.
wheels were derailed and applied the brake; but at the same instant the car struck Reasoning The representative from Negros Occidental has supposedly asked Dr.
the post, some 40 meters distant from the exit of the switch. However, testimonial Montinola to nominate the plaintiff as district health officer of Negros Occidental for
evidence alleged that the rate of a car propelled by electricity with the control at two years, with a salary of P1,600 per annum and a possible outside practice worth
point "four" should be about five or 6 miles per hour (around 8 kph) and other of P350. However, even if true, the damages were too speculative to be the basis of
evidence showed that the car was behind schedule time and that it was being recovery in a civil action.
driven, after leaving the switch, at a higher rate than would ordinarily be indicated 5.3 NO. the trial court was fully justified in rejecting the exaggerated
by the control at point four. The car was practically empty (so it’s possible that it estimate of damages allegedly created.
could run faster???). The court granted that there is negligence as shown by the Ratio/ Reasoning The plaintiff alleged, even showing testimonial evidences from
distance which the car was allowed to run with the front wheels of the rear truck numerous medical experts, that he developed infarct of the liver and traumatic
derailed, aside from the fact that the car was running in an excessive speed. neurosis, accompanied by nervousness, vertigo, and other disturbing symptoms of
a serious and permanent character, and these manifestations of disorder rendered
him liable to a host of other dangerous diseases, and that restoration to health
2. The relation between the parties was of a contractual nature. could only be accomplished after long years of complete repose.
Ratio The company was bound to convey and deliver the plaintiff safely and -The medical experts introduced by the defendant testified however that the
securely with reference to the degree of care which, under the circumstances, is plaintiff’s injuries, considered in their physical effects, were trivial and that the
required by law and custom applicable to the case. attendant nervous derangement, with its complicated train of ailments, was merely
Reasoning The plaintiff had boarded the car as a passenger for the city of Manila simulated.
and the company undertook to convey him for hire. -According to the court, the evidence showed that immediately after the incident
3. YES, the defendant is liable for the damages the plaintiff, sensing in the situation a possibility of profit, devoted himself with
Ratio/ Reasoning Upon failure to comply with that obligation arising from the great assiduity to the promotion of this litigation; and with the aid of his own
contract, the company incurred the liability defined in articles 1103-1107 of the Civil professional knowledge, supplemented by suggestions obtained from his
Code. professional friends and associates, he enveloped himself more or less
4. No, the defendant could not avail of the last paragraph of Art 1903 unconsciously in an atmosphere of delusion which rendered him incapable of
Ratio/ Reasoning The last paragraph of article 1903 of the civil code refers to appreciating at their true value the symptoms of disorder which he developed.
liability incurred by negligence in the absence of contractual relation, that is, to the 5.4 No. He is only justified with P200, or the amount actually paid to Dr.
culpa aquiliana of the civil law and not to liability incurred by breach of contract; Montes (the doctor who treated the plaintiff) which is the obligation
therefore, it is irrelevant to prove that the defendant company had exercised due supposedly incurred with respect to treatment for said injuries.
care in the selection and instruction of the motorman who was in charge of its car Ratio In order to constitute a proper element of recovery in an action of this
and that he was in experienced and reliable servant. character, the medical service for which reimbursement is claimed should not only
Obligations and Contracts A2010 page 10
Prof. Labitag
be such as to have created a legal obligation upon the plaintiff but such as was reimbursement thinking she was the owner. Santos also recalled that Payag
reasonably necessary in view of his actual condition. requested him to dismount what appeared to him as sapphire and that the stone
Reasoning Dr. Montes, in his testimony, speaks in the most general terms with accidentally broke. He denied being an employee of the Jewelry shop. The MTCC of
respect to the times and extent of the services rendered; and it is not clear that Tagbilaran City rendered a decision in favor of the petitioner. On appeal,
those services which were rendered many months, or year, after the incident had in Respondents conceded to the existence of an agreement for crafting a pair of gold
fact any necessary or legitimate relation to the injuries received by the plaintiff. rings mounted with diamonds but denied they had obligation to dismount the
-On the obligation supposedly incurred by the plaintiff to three other physicians: (1) diamonds from the original setting. Petitioner claims that dismounting the diamonds
it does not appear that said physicians have in fact made charges for those services from the original setting was part of the obligation assumed by respondents under
with the intention of imposing obligations on the plaintiff to pay them; (2) in the contract of service. The RTC ruled in favor of the respondents. CA affirmed the
employing so many physicians the plaintiff must have had in view the successful judgment of the RTC.
promotion of the issue of this lawsuit rather than the bona fide purpose of effecting
the cure of his injuries. ISSUES
6. YES, certificates or the written statements of the physicians which were 1. WON dismounting of the diamond from its original setting was part of the
referred to in the trial cannot be admitted as primary evidence since it is obligation
fundamentally of a hearsay nature 2. WON respondents are liable for damages
Ratio The only legitimate use of certificates could be put, as evidence for plaintiff, 3. WON respondents are liable for moral damages
was to allow the physician who issued it to refer thereto, to refresh his memory
upon details which he might have forgotten HELD
Disposition Judgment from the trial court modified by reducing the amount of the 1. YES
recovery to P1,100, with legal interest from Nov. 8, 1916 (all judges – 6 (ponente Ratio The contemporaneous and subsequent acts of the parties reveal the scope
counted) – concurred) of obligation assumed by the jewelry shop to reset the pair of earrings.
Reasoning Marilou expressed no reservation regarding the dismounting of the
diamonds. She could have instructed Payag to have the diamonds dismounted first,
but instead, she readily accepted the job order and charged P400. After the new
settings were completed, she called petitioner to bring the diamond earrings to be
reset. She examined one of them and went on to dismount the diamond from the
original setting. After failing to do the same, she delegated it to the goldsmith.
SARMIENTO V SPS. CABRIDO Having acted the way she did, she cannot deny that the dismounting was part of
CORONA; April 9, 1003 the shop’s obligation to reset the pair of earrings.
2. YES
Ratio Those who, in the performance of their obligations are guilty of fraud,
NATURE
negligence or delay and those who in any manner contravene the tenor thereof, are
Petition for review on certiorari of a decision of the Court of Appeals
liable for damages. The fault or negligence of the obligor consists in the ‘omission of
that diligence which is required by the nature of the obligation and corresponds
FACTS
with the circumstances of the persons, of the time and of the place.’
Tomasa Sarmiento’s friend, Dra. Virginia Lao, requested her to find someone to
Reasoning Santos acted negligently in dismounting the diamond from its original
reset a pair of diamond earrings into two gold rings. Sarmiento sent Tita Payag with
setting. Instead of using a miniature wire, which is the practice of the trade, he used
the earrings to Dingding’s Jewelry Shop, owned and managed by spouses Luis and
a pair of pliers. Marilou examined the diamond before dismounting and found the
Rose Cabrido, which accepted the job order for P400. Petitioner provided 12 grams
same to be in order. The subsequent breakage could only have been caused by
of gold to be used in crafting the pair of ring settings. After 3 days, Payag delivered
Santos’ negligence in using the wrong equipment. Res ipsa loquitur. Facts show that
to the jewelry shop one of the diamond earrings which was earlier appraised as
Marilou, who has transacted with Payag on at least 10 occasions, and Santos, who
worth .33 carat and almost perfect in cut and clarity. Respondent Marilou Sun went
has been accepting job referrals through respondents for 6 mos. now, are employed
on to dismount the diamond from original settings. Unsuccessful, she asked their
at the jewelry shop. The jewelry shop failed to perform its obligation with the
goldsmith, Zenon Santos, to do it. He removed the diamond by twisting the setting
ordinary diligence required by the circumstances.
with a pair of pliers, breaking the gem in the process. Petitioner required the
3. YES
respondents to replace the diamond with the same size and quality. When they
Ratio Moral damages may be awarded in a breach of contract when there is proof
refused, the petitioner was forced to buy a replacement in the amount of P30,000.
that defendant acted in bad faith, or was guilty of gross negligence amounting to
Rose Cabrido, manager, denied having any transaction with Payag whom she met
bad faith, or in wanton disregard of his contractual obligation.
only after the latter came to seek compensation for the broken piece of jewelry.
Reasoning Santos was a goldsmith for more than 40 years. He should have known
Marilou, on the other hand, admitted knowing Payag to avail their services and
that using a pair of pliers would have entailed unnecessary risk of breakage. The
recalled that when Santos broke the jewelry, Payag turned to her for
Obligations and Contracts A2010 page 11
Prof. Labitag
gross negligence of their employee makes the respondents liable of moral travel agency include procuring tickets and facilitating travel permits or visas and
damages. booking customers for tours. It is thus not bound under the law to observe
Disposition Petition was granted and CA decision was reversed. Respondents were extraordinary diligence in the performance of its obligation
ordered to pay P30,000 as actual damages and P10,000 as moral damages.
CETUS DEVELOPMENT, INC. V CA
CRISOSTOMO V CA MEDIALDEA; August 7, 1989
YNARES-SANTIAGO; August 25, 2003
NATURE
NATURE Petition for review on certiorari of the decision of the CA
Petition for review on certiorari of a decision of the Court of Appeals
FACTS
FACTS - Respondents Ong, Teng, Liwanag, Canlas, Sudario, Nagbuya, were lessees of
- Atty. Crisostomo contracted the services of Caravan Travel and Tours Int’l to premises in Quiapo, Manila, originally owned by the Susana Realty. They were
arrange and facilitate her booking, ticketing, and accommodation in a tour dubbed individual, verbal leases, on a month-to-month basis. Rental payments were made
Jewels of Europe at a total cost of P74k; Crisostomo was given discount for her to a collector of the Susana Realty who went to the premises monthly.
niece, Menor was the company’s ticketing manager - Premises were sold to petitioner, Cetus Development, in 1984. The private
- Pursuant to the contract, Menor went to her aunt’s house on June 12, 1991 respondents continued to pay monthly rentals to a collector sent by the petitioner
(Wednesday) to deliver the travel documents and plane tickets. Crisostomo gave from April to June, 1984. In August and September, they failed to pay because no
Menor the full payment. Menor told her to be at the airport on Saturday two hours collector came.
before her flight - In October, petitioner sent letters demanding they vacate the premises and pay
- Without checking her travel documents, Crisostomo went to NAIA on Saturday. back rentals. Immediately upon receipt of the demand letters, private respondents
She discovered that the flight she was supposed to take had already departed the paid arrearages, which were accepted subject to the condition that the acceptance
previous day. was without prejudice to the filing of an ejectment suit. Subsequent monthly rental
- Crisostomo called up Menor to complain. Menor prevailed upon her aunt to take payments were accepted under the same condition.
another tour – the British Pageant. She was asked anew to pay P21k as partial - For failure of the private respondents to vacate the premises as demanded in the
payment and commenced the trip in July letter, petitioner filed with the Metropolitan Trial court complaints for ejectment.
- Upon Crisostomo’s return, she demanded the difference between the sum she - Trial court dismissed the case, and subsequently the Regional Trial Court did so, as
paid for Jewels of Europe and the amount she owed respondent for British Pageant did the CA.
- Caravan Travel refused to reimburse her saying it was non-refundable
- Trial Court held that the Caravan Travel was negligent in erroneously advising ISSUES
Crisostomo of her departure date through it employee, Menor who was not WON there exists a cause of action, when the complaints for unlawful detainer were
presented as a witness. However, Crisostomo was guilty of contributory negligence filed considering the fact that upon demand by petitioner for payment of back
for not verifying the exact date of her departure. Accordingly, 10% of the amount rentals, respondents immediately tendered payment, which was accepted.
was deducted from the amount being claimed as refund
- Court of Appeals also found both parties at fault but held that Crisostomo is more HELD
negligent because as a lawyer and a well-traveled person, she should have known -Section 2, RoC, "Landlord to proceed against tenant only after demand." states
better. She was ordered to pay the Caravan Travel the balance of British Pageant that the right to bring an action of ejectment or unlawful detainer must be counted
plus interest from the time the defendants failed to pay rent after the demand therefor. The
demand required partakes of an extrajudicial remedy that must be pursued before
ISSUE resorting to judicial action so much so that when there is full compliance with the
WON a travel agency is bound under the law to observe extraordinary diligence in demand, there is no need for court action.
the performance of its obligation -for purposes of bringing an ejectment suit, 2 requisites: 1) must be failure to pay
rent/comply with conditions of lease, and 2) must be DEMAND to both pay or to
HELD comply and vacate.
NO. For reasons of public policy, a common carrier in a contract of carriage is - in this case, no cause of action for ejectment has accrued. NO FAILURE YET on the
bound by law to carry passengers as far as human care and foresight can provide part of private respondents, because upon demand, they paid.
using the utmost diligence of a very cautious person and with due regard for all **exceptions where demand is not required: (a) when obligation or law so declares;
circumstances. (b) when from the nature and circumstances of obligation it can be inferred that
- However, a travel agency is not a carrier that it is not an entity engaged in the time is of the essence of the contract, (c) when demand would be useless.
business of transporting either passengers or goods. Respondent’s services as a -without such demand, effects of default do not arise.
Obligations and Contracts A2010 page 12
Prof. Labitag
- the petitioner's demand to vacate was PREMATURE, an exercise of a non-existing something incur in delay from the time the obligee judicially or extra-judicially
right to rescind. demands from them the fulfillment of their obligation.
-Petitioner claims that its failure to send a collector is not a valid defense because - In order for the debtor to be in default, it is necessary that the following requisites
sending a collector is not one of the obligations of the lessor under Article 1654: but be present: (1) that the obligation be demandable and already liquidated; (2) that
1) it was established that it was customary for private respondents to pay the the debtor delays performance; and (3) that the creditor requires the performance
rentals through a collector, and 2) Article 1257 provides that where no agreement judicially or extra-judicially.
has been designated for the payment of rentals, the place of payment is at the - The compromise agreement as a consensual contract became binding between
domicile of the defendants. the parties upon its execution and not upon its court approval. From the time a
Disposition petition for certiorari denied, CA decision affirmed. compromise is validly entered into, it becomes the source of the rights and
obligations of the parties thereto. The two-year period must be counted from
October 26, 1990 (date of execution of the compromise agreement, not on the
SANTOS VENTURA HOCORMA FDN V SANTOS judicial approval on September 30, 1991). When Santos wrote a demand letter on
QUISUMBING; November 4, 2004 October 28, 1992, the obligation was already due and demandable. Therefore 3
requisites present: 1) The obligation was already due and demandable after the
FACTS lapse of the two-year period from the execution of the contract. The obligation is
- Santos Ventura Hocorma Foundation Inc (SVHFI) and Ernesto Santos executed a liquidated because the debtor knows precisely how much he is to pay and when he
Compromise Agreement on October 26, 1990. The agreement was judicially is to pay it. 2) Petitioner delayed in the performance. It was able to fully settle its
approved on September 30, 1991. The agreement stipulated that 1) SVHFI shall outstanding balance only on February 8, 1995. 3) The demand letter sent to the
Santos P1.5 Million immediately upon the execution of the agreement, and the petitioner was in accordance with an extra-judicial demand contemplated by law.
balance of P13 Million shall be paid within a period of not more than two years from
the execution of the agreement; 2) Immediately upon the execution of the
agreement Santos shall cause the dismissal with prejudice of Civil Cases and for the
immediate lifting of the various notices of lis pendens on the real properties; VASQUEZ V AYALA CORPORATION
provided, however, that in the event that defendant Foundation shall sell or dispose TINGA; November 19, 2004
of any of the lands previously subject of lis pendens, the proceeds of any such sale
shall be partially devoted to the payment of the Foundation’s obligations. NATURE
- SVHFI sold two real properties, which were previously subjects of lis pendens. Petition for Review on Certiorari
Discovering the disposition made by the SVHFI, Santos sent a letter to the petitioner
demanding the payment of the remaining P13 million, which SVFHI ignored. Santos FACTS
applied with the RTC for the issuance of a writ of execution of its compromise -April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez entered into a
judgment. The RTC granted the writ. On November 22, 1994, petitioner’s real Memorandum of Agreement (MOA) with AYALA Corporation with Ayala buying from
properties located in Mabalacat, Pampanga were auctioned.Santos filed a Complaint the Vazquez spouses, all of the latter’s shares of stock in Conduit Development, Inc.
for Declaratory Relief and Damages alleging that there was delay on the part of - The main asset of Conduit was a 49.9 hectare property in Ayala Alabang,
petitioner in paying the balance of P13 million. TC dismissed petition. CA reversed Muntinlupa, which was then being developed by Conduit under a development plan
and ordered SVHFI to pay legal interest on the principal amount of P13 million at where the land was divided into Villages 1, 2 and 3 of the “Don Vicente Village.”
the rate of 12% per annum from the date of demand on October 28, 1992 up to the The development was then being undertaken for Conduit by G.P. Construction and
date of actual payment of the whole obligation. Development Corp.
-Under the MOA, Ayala was to develop the entire property, less what was defined as
ISSUE the “Retained Area” consisting of 18,736 square meters.
WON Santos is entitled to legal interest. Ayala agreed to offer 4 lots adjacent to the retained area for sale to the Vazquez
spouses at the prevailing price at the time of purchase. The relevant provisions of
HELD the MOA on this point are:
YES. “5.7. The BUYER hereby commits that it will develop the ‘Remaining
- When the petitioner failed to pay its due obligation after the demand was made, it Property’ into a first class residential subdivision of the same class as
incurred delay. Interest as damages is generally allowed as a matter of right. its New Alabang Subdivision, and that it intends to complete the first
Santos has been deprived of funds to which he is entitled by virtue of their phase under its amended development plan within three (3) years from
compromise agreement. The goal of compensation requires that the complainant be the date of this Agreement. x x x”
compensated for the loss of use of those funds. This compensation is in the form of 5.15. The BUYER agrees to give the SELLERS a first option to purchase
interest. four developed lots next to the “Retained Area” at the prevailing
- Article 1169 of the New Civil Code provides: Those obliged to deliver or to do market price at the time of the purchase.”
Obligations and Contracts A2010 page 13
Prof. Labitag
-The parties are agreed that the development plan referred to in -After the execution of the MOA, Ayala caused the suspension of work on Village 1
paragraph 5.7 is not Conduit’s development plan, but Ayala’s amended of the Don Vicente Project. Ayala then received a letter from one Maximo Del
development plan which was still to be formulated as of the time of the Rosario of Lancer General Builder Corporation informing Ayala that he was
MOA. While in the Conduit plan, the 4 lots to be offered for sale to the claiming the amount of P1,509,558.80 as the subcontractor of G.P. Construction.
Vasquez Spouses were in the first phase thereof or Village 1, in the - G.P. Construction was not able to reach an amicable settlement with Lancer so
Ayala plan which was formulated a year later, it was in the third phase, Lancer sued G.P. Construction, Conduit and Ayala
or Phase II-c. -G.P. Construction in turn filed a cross-claim against Ayala.
-Under the MOA, the Vasquez spouses made several express warranties, as -G.P. Construction and Lancer both tried to enjoin Ayala from undertaking the
follows: development of the property.
“3.1. The SELLERS shall deliver to the BUYER -The suit was terminated on February 19, 1987, when it was dismissed with
3.1.2. The true and complete list, certified by the Secretary and Treasurer of the prejudice after Ayala paid both Lancer and GP Construction the total of
Company showing: P4,686,113
A list of all persons and/or entities with whom the Company has pending .-Vasquez spouses sent several “reminder” letters of the approaching so-called
contracts, if any. deadline on Ayalas obligation to sell 4 lots to them.
3.1.5. Audited financial statements of the Company as at Closing date. -However, no demand after April 23, 1984, was ever made by the Vasquez spouses
6. Representation and Warranties by the SELLERs for Ayala to sell the 4 lots.
The SELLERS jointly and severally represent and warrant to the BUYER -One of the letters signed by their authorized agent, Engr. Eduardo Turla,
that at the time of the execution of this Agreement and at the Closing: categorically stated that they expected “development of Phase 1 to be completed
6.2.3. There are no actions, suits or proceedings pending, or to the by February 19, 1990, three years from the settlement of the legal problems with
knowledge of the SELLERS, threatened against or affecting the SELLERS the previous contractor.”
with respect to the Shares or the Property; and -By early 1990 Ayala finished the development of the vicinity of the 4 lots to be
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, offered for sale.
the Company shall own the “Remaining Property”, free from all liens and -The four lots were then offered to be sold to the Vasquez spouses at the prevailing
encumbrances and that the Company shall have no obligation to any party price in 1990.
except for billings payable to GP Construction & Development -This was rejected by the Vasquez spouses who wanted to pay at 1984 prices,
Corporation and advances made by Daniel Vazquez for which BUYER thereby leading to the suit below.
shall be responsible in accordance with Par. 2 of this Agreement. TC ruled in favor or petitioners
7.1.2 Except to the extent reflected or reserved in the Audited Financial CA ruled in favor of respondents
Statements of the Company as of Closing, and those disclosed to BUYER,
the Company as of the date thereof, has no liabilities of any nature ISSUES
whether accrued, absolute, contingent or otherwise, including, without Procedural
limitation, tax liabilities due or to become due and whether incurred in respect of WON the court should review the factual findings of the Court of Appeals as they
or measured in respect of the Company’s income prior to Closing or arising out of are in conflict with those of the trial court
transactions or state of facts existing prior thereto. Subsantive
7.2 SELLERS do not know or have no reasonable ground to know of any 1. WON AYALA Corporation is in default for failure to finish the development of the
basis for any assertion against the Company as at closing or any liability phase in question within 3 years
of any nature and in any amount not fully reflected or reserved against 2. WON the provisions of the MOA constitutes an option to buy for spouses Vasquez
such Audited Financial Statements referred to above, and those
disclosed to BUYER. HELD
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before Procedural
the Closing, the Company is not engaged in or a party to, or to the best YES. It is well-settled that the jurisdiction of this Court in cases brought to it from
of the knowledge of the SELLERS, threatened with, any legal action or the Court of Appeals by way of petition for review under Rule 45 is limited to
other proceedings before any court or administrative body, nor do the reviewing or revising errors of law imputed to it, its findings of fact being conclusive
SELLERS know or have reasonable grounds to know of any basis for any such on this Court as a matter of general principle. However, since in the instant case
action or proceeding or of any governmental investigation relative to the there is a conflict between the factual findings of the trial court and the appellate
Company. court, particularly as regards the issues of breach of warranty, obligation to develop
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the and incurrence of delay, we have to consider the evidence on record and resolve
due performance and observance by the Company of any term, covenant such factual issues as an exception to the general rule
or condition of any instrument or agreement to which the company is a
party or by which it is bound, and no condition exists which, with notice Substantive
or lapse of time or both, will constitute such default or breach.”
Obligations and Contracts A2010 page 14
Prof. Labitag
1. NO. In order that the debtor may be in default it is necessary that the following - On January 3, 1929, Mabanta notified the plaintiff that he had received the power
requisites be present: (1) that the obligation be demandable and already liquidated; of attorney to sign the deed of conveyance of the lots to him, and that he was
(2) that the debtor delays performance; and (3) that the creditor requires the willing to execute the deed of sale upon payment of the balance due
performance judicially or extrajudicially. - The plaintiff asked for a few days’ time, but Mabanta only gave him until January 5
- Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain - Plaintiff failed to pay the rest of the price on January 5, but attempted to do so on
has been fixed shall be demandable only when that day comes.There was no fixed January 9, but Mabanta refused to accept it and instead returned by check the sum
date in the MOA, and the “demand letters” which were mere reminders were sent of P915.31
even before three years could pass after the signing. Since the MOA does not - Plaintiff brought an action to compel the defendant to execute the deed of sale
specify a period for the development of the subject lots, petitioners should have upon receipt of the balance of the price, and asked that he be judicially declared
petitioned the court to fix the period in accordance with Article 1197 of the Civil the owner of said lots, and that the defendant be ordered to deliver it to him
Code. As no such action was filed by petitioners, their complaint for specific - The CFI absolved the defendant from the complaint, and the plaintiff appealed
performance was premature, the obligation not being demandable at that point.
Accordingly, AYALA Corporation cannot likewise be said to have delayed ISSUE
performance of the obligation. WON the time was an essential element in the contract, and therefore, the
- Moreover, a representative of the spouses even told AYALA that the date of defendant was entitled to rescind the contract for failure of plaintiff to pay the price
reckoning shall be from the date the case with lancer was finished. within the time specified
2. It is a mere right of first refusal and not an option contract. Although the
paragraph has a definite object, i.e., the sale of subject lots, the period within which HELD
they will be offered for sale to petitioners and, necessarily, the price for which the Yes. The defendant is entitled to resolve the contract for failure to pay the price
subject lots will be sold are not specified. The phrase “at the prevailing market within the time specified.
price at the time of the purchase” connotes that there is no definite period within Reasoning
which AYALA Corporation is bound to reserve the subject lots for petitioners to In holding that the time was an essential element in the contract, the CFI
exercise their privilege to purchase. Neither is there a fixed or determinable price at considered that the agreement in question was an option for the purchase of the
which the subject lots will be offered for sale. The price is considered certain if it lots. The SC, however, was divided on the question of whether the agreement was
may be determined with reference to another thing certain or if the determination an option or a sale. But the SC ruled that regardless of whether it was an option or a
thereof is left to the judgment of a specified person or persons. sale, having agreed that the selling price would be paid not later than December,
1928, and in view of the fact that the vendor executed the contract to pay off with
ABELLA V FRANCISCO the proceeds thereof certain obligations which fell due in the same month of
AVANCEÑA; December 20, 1930 December, the time fixed for the payment of the selling price was essential in the
transaction.
NATURE
Appeal from a judgment of the CFI of RIzal VDA. DE VILLARUEL V MANILA MOTOR CO. INC. AND
COLMENARES
FACTS REYES; December 13, 1958
- Guillermo Francisco (defendant) purchased from the Government on installments,
lots 937-945 of the Tala Estate in Novaliches, Caloocan, Rizal. NATURE
- He was behind in payment for these installments and on October 31, 1928, he Appeal from a judgment of the CFI of Negros Occidental
signed a document stating that he received P500 from Julio Abella (plaintiff) on
account of lots no. 937-945, containing an area of 221 hectares, at the rate of FACTS
100/hectare, the balance of which is due on or before December 15 of the same - This case is a petition of the judgment that ordered Manila Motor Co., Inc. to pay
year, extendible fifteen days thereafter Villaruel for the lease of their building from June 1, 1942 to March 29, 1945 as well
- On Novemer 13, 1928, Abella made another payment of P415.31, upon demand as for them to pay for the destruction of the property.
made by Francisco - Manila Motor Co., Inc. leased the building from Villaruel and entered a contract,
- On December 27,1928, Francisco, being in Cebu, wrote a letter to Roman the contract lasts for 5 years and that the amount of Php. 350 a month should be
Mabanta, attaching a power of attorney authorizing him to sign in behalf of the paid. It is to be placed on Manila Motor Co., Inc. possession on the 31 st day of
defendant all the documents required by the Bureau of Land for the transfer of lots October 1940. The leasing continued until the invasion in 1941. At this time no
to the plaintiff payment of rental was done during the said period. When the Americans liberated
- In the same letter, defendant instructed Mabanta to inform the plaintiff that the the country they took possession of the said property and paid for the same amount
option would be considered cancelled, and to return the amount of P915.31, in the to Villaruel. Manila Motor Co., Inc. wanted to resume the contract given that the
event that the plaintiff failed to pay the remainder of the selling price contract gives them the option to continue such lease. Villaruel however would want
Obligations and Contracts A2010 page 15
Prof. Labitag
the contract rescinded and for Manila Motor Co., Inc. to pay for the rentals during Emilia Tengco, from the said premises for her alleged failure to comply with the
from June 1, 1942 until March 29, 1945. While the trial was ongoing, the property terms and conditions of the lease contract by failing and refusing to pay the
got burned. Villaruel then sought for a supplemental complaint demanding stipulated rentals despite repeated demands. After trial, judgment was rendered
reimbursement. CFI granted the petition of Villaruel giving rise for this appeal. against Tengco and ordered the defendant and any and all persons claiming rights
under her to vacate the premises occupied by her and to surrender possession
ISSUE thereof to the plaintiff.
WON Manila Motor Co., Inc. is liable to pay for the rental fees at the time of the
Japanese Occupation and the destruction of property ISSUES
1. WON Benjamin Cifra, Jr. is the owner of the leased premises
HELD 2. WON the lessor was guilty of mora accipiendi
No. The occupation is a pertubacion de derecho (trespassing under color of title) 3. WON laches had deprived the lessor of the right to eject her considering that the
and not pertubacion de hecho (mere act of trespass). This is because the Japanese Complaint was filed only in September 1976 whereas his cause of action arose
Occupation was legitimate following both International and Domestic law recognize sometime in February, 1974 when she defaulted in the payment of rentals
the use of private properties at the time of war. Applying Art. 1560 the lessors are
liable for it and that such occurrence resulted to the deprivation of the lessee from
the peaceful use and enjoyment of the property leased. The obligation ceased HELD
during such deprivation. 1. YES. The question of whether or not private respondent is the owner of the
Also, mere disturbance entail that the lessee shall have a direct action against the leased premises is one of fact which is within the cognizance of the trial court
trespasser but the military occupation was not what the drafters had on mind for whose findings thereon will not be disturbed on appeal unless there is a showing
such occupation is not preventable. Further more, the fact that the military seizure that the trial court had overlooked, misunderstood, or misapplied some fact or
was considered a fortuitous event means that the failure of one party to fulfill its circumstance of weight and substance that would have affected the result of the
commitment entails that the other party is excused to do his correlative case.
performance since the causa of the lease must exist throughout the term of the 2. NO. Under the circumstances, the refusal to accept that proffered rentals is not
contract. without justification. The ownership of the property had been transferred by
- It is unwarranted by the Moratorium Order under EO No. 32. The refusal to accept Lutgarda Cifra, the original lessor, to Benjamin Cifra and the person to whom
placed the lessors in default to bear supervening risks of accidental injury or payment was offered had no authority to accept payment. It should be noted that
destruction. Failure to consign does not eradicate the default of the lessors nor the the contract of lease between the petitoner and Lutgarda Cifra, the former owner of
risk of loss that lay upon them. the land, was not in writing and, hence, unrecorded. The Court has held that a
Disposition Manila Motor Co., Inc. is asked to pay only Php. 1750 from July to contract of lease executed by the vendor, unless recorded, ceases to have effect
November 1946 and not for the petitioned amount. when the property is sold, in the absence of a contrary agreement.
3. NO. The tenant's mere failure to pay rent does not ipso facto make unlawful his
TENGCO V CA possession of the leased premises. It is failure to pay rents after a demand
PADILLA; October 19, 1989 therefore is made that entitles the lessor to bring an action of Unlawful Detainer,
Moreover, the lessor has the privilege to waive his right to bring an action against
NATURE his tenant and give the latter credit for the payment of the rents and allow him to
Review on certiorari of the decision of CA. continue indefinitely in the possession of the premises. During such period, the
tenant would not be in illegal possession of the premises and the landlord can not
FACTS maintain an action until after he has taken steps to convert the legal possession
- Lutgarda Cifra, the owner of the premises at No. 164 Int., Gov. Pascual St., into an illegal possession. Consequently, petitioner's non-payment of the rentals on
Navotas, Metro Manila leased the said property to Emilia Tengco. The contract was the premises, notwithstanding demand made by Cifra, and her failure to avail of the
not in writing, hence, not recorded. remedy provided for in Article 1256 of the Civil Code, entitles private respondent to
- While the contract of lease was still subsisting, Lutgarda Cifra transferred the eject her from the premises.
ownership of the property to Benjamin Cifra. Disposition: The petition is denied.
- Tengco, despite her knowledge of this transfer, attempted to pay her rentals to the
person whom she used to pay her dues. But that person refused to accept the CENTRAL BANK OF THE PHILIPPINES V COURT OF
payment as she is no longer had the authority to accept payments. Tengco, on the APPEALS
other hand, did not give the payment to Benjamin Cifra or consigned the amount to MAKASIAR; October 3, 1985
the court.
- The record of the case shows that on 16 September 1976, Benjamin Cifra, Jr. filed NATURE
an action for umlawful detainer with the MTC of Navotas to evict the peititioner, Petition for certiorari to review the decision of the Court of Appeals.
Obligations and Contracts A2010 page 16
Prof. Labitag
rescission w/ damages in either case. But considering that the bank is now
FACTS prohibited fr doing business, specific performance cannot be granted. Rescission is
- Island Savings Bank approved the loan application for P80K of Sulpicio Tolentino the only remedy left, but the rescission shld only be for the P63K balance.
who executed a real estate mortgage over his 100 hectare land. 2. YES
- The loan called for a lump sum of P80K, repayable in semi-annual installments for - The promissory note gave rise to this liability. His failure to pay made him party
3 yrs, w/ 12% annual interest. It was required that Tolentino shall use the loan in default, hence, not entitled to rescission. This time, it is the bank which has right
solely as additional capital to develop his other property into a subdivision. to rescind the promissory note.
- A mere P17K partial release of the loan was made by the bank and Tolentino and - Since both Tolentino and the bank are in default, both are liable for damages.
his wife signed a promissory note for the P17K at 12% annual interest payable w/in Liability may be offset.
3 yrs. An advance interest was deducted fr the partial release but this pre- 3. NO
deducted interest was refunded to Tolentino after being informed that there was no - Since the bank failed to furnish the balance, the real estate mortgage became
fund yet for the release of the P63K balance. The bank VP and Treasurer promised unenforceable to such extent.
release of the balance.
- Monetary Board of Central Bank, after finding that bank was suffering liquidity CHAVEZ V GONZALES
problems, prohibited the bank fr making new loans and investments. And after the REYES; April 30, 1970
bank failed to restore its solvency, the Central Bank prohibited Island Savings Bank
fr doing business in the Philippines. FACTS
- Island Savings Bank in view of the non-payment of the P17K filed an application - Chavez brought his typewriter on July of 1963 to Gonzales to have it fixed. There
for foreclosure of the real estate mortgage. was no agreement as to when the typewriter should be ready for return to Chavez.
- Tolentino filed petition for specific performance or rescission and damages w/ - Gonzales was not able to finish the work after a certain time despite repeated
preliminary injunction, alleging that since the bank failed to deliver P63K, he is reminders from Chavez.
entitled to specific performance and if not, to rescind the real estate mortgage. - Gonzales asked Chavez for P6.00 for the purchase of spare parts which Chavez
- Trial court found Tolentino’s petition unmeritorious. CA affirmed dismissal of gave.
Tolentino’s petition for specific performance, but it ruled that the bank can neither - In October 1963 Chavez went to Gonzales’ house and got the typewriter. It was
foreclose the real estate mortgage nor collect the P17K loan. returned to him with the cover and some essential parts missing.
- Chavez formally demanded that the missing parts be returned along with the
cover and the sum of P6.00 which Gonzales did.
ISSUES - August 1964 – the typewriter was fixed by another person which cost Chavez
1. WON Tolentino’s action for specific performance can prosper P89.95 for materials and labor.
2. WON Tolentino is liable to pay the P17K covered by the promissory note - The trial court awarded Chavez damages of only P31.10 out of his total claim of
3. If liable to pay P17K, WON Tolentino’s real estate mortgage can be foreclosed P690.00.

HELD ISSUE
1. NO WON Chavez should be entitled to greater damages than what was awarded to him
- The loan agreement implied reciprocal obligations. When one party is willing and in the trial court
ready to perform, the other party not ready nor willing incurs in delay. When
Tolentino executed real estate mortgage, he signified willingness to pay. That time, HELD
the bank’s obligation to furnish the P80K loan accrued. Now, the Central Bank YES
resolution made it impossible for the bank to furnish the P63K balance. - Art. 1197 cannot be raised as a defense.
- The prohibition on the bank to make new loans is irrelevant bec it did not prohibit a. Art. 1197 states that the petitioner should have first filed for a
the bank fr releasing the balance of loans previously contracted. petition from the Court, fixing the period.
- Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a b. This is not applicable because the time for compliance has
breach of contract. already expired, the defendant not having worked on the typewriter and
- The bank’s asking for advance interest for the loan is improper considering that returning it to the owner unrepaired.
the total loan hasn’t been released. A person can’t be charged interest for non- - Gonzales is liable under Art. 1165 because of his non-performance.
existing debt. c. He is liable for the cost of executing the obligation in the proper
- The alleged discovery by the bank of overvaluation of the loan collateral is not an manner.
issue. The bank officials should have been more responsible and the bank bears d. He is also liable for the missing parts.
risk in case the collateral turned out to be overvalued. Furthermore, this was not e. But the moral damages and attorney’s fees should not be
raised in the pleadings so this issue can’t be raised. awarded because they were not alleged in the complaint.
- The bank was in default and Tolentino may choose bet specific performance or
Obligations and Contracts A2010 page 17
Prof. Labitag
and the award of P1,000.00 to each of the private respondents as exemplary
damages. The award of P20,000.00 as moral damages to each - Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P10,000. 00 for
each.]
TELEFAST COMMUNICATIONS / PHILIPPINE WIRELESS, INC. - Petitioner appeals from the judgment of the appellate court contending that the
V CASTRO award of moral damages should be eliminated as defendant's negligent act was not
PADILLA; February 29, 1988 motivated by "fraud, malice or recklessness." Under its theory, it can only be held
liable for P 31.92, the fee or charges paid by Sofia C. Crouch for the telegram that
NATURE was never sent to the addressee thereof.
Petition for Review on Certiorari of the decision of the Intermediate Appellate Court
dated 11 February 1986, in “Castro, Sr. vs Telefast Communication/Philippine ISSUE
Wireless, Inc.” WON petitioner can be henld liable for moral damages.

FACTS
- On November 2, 1956, Consolacion Bravo-Castro, wife of plaintiff Ignacio Castro, HELD
Sr. and mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the Yes. Art. 1170 of the Civil Code provides that "those who in the performance of their
same day, her daughter Sofia Crouch, who was then in the Philippines, addressed a obligations are guilty of fraud, negligence or delay, and those who in any manner
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A., contravene the tenor thereof, are liable for damages." Art. 2176 also provides that
47170 announcing Consolacion's death. The telegram was accepted by the "whoever, by act or omission, causes damage to another, there being fault or
defendant in its Dagupan office, for transmission, after payment of the required negligence, is obliged to pay for the damage done."
fees or charges. However, the telegram never reached its addressee. Consolacion Petitioner and Sofia Crouch entered into a contract whereby, for a fee, petitioner
was interred with only her daughter Sofia in attendance. Neither the husband nor undertook to send said private respondent's message overseas by telegram. This,
any of the other children of the deceased, then all residing in the United States, petitioner did not do, despite performance by Crouch of her obligation by paying the
returned for the burial. required charges. Petitioner was, therefore, guilty of contravening its obligation to
- When Sofia returned to the United States, she discovered that the wire she had said private respondent and is thus liable for damages.
caused the defendant to send had not been received. She and the other plaintiffs - This liability is not limited to actual or quantified damages. To sustain petitioner's
thereupon brought action for damages arising from defendant's breach of contract. contrary position in this regard would result in an inequitous situation where
The only defense of the defendant was that it was unable to transmit the telegram petitioner will only be held liable for the actual cost of a telegram fixed thirty [30]
because of "technical and atmospheric factors beyond its control." No evidence years ago.
appears on record that defendant ever made any attempt to advise the plaintiff Art. 2217 of the Civil Code is applicable to this case. It states: "Moral damages
Sofia C. Crouch as to why it could not transmit the telegram. include physical suffering, mental anguish, fright, serious anxiety, besmirched
- The CFI of Pangasinan, after trial, ordered the defendant to pay the plaintiffs reputation, wounded feelings, moral shock, social humiliation and similar injury.
damages as follows, with interest at 6% per annum: Though incapable of pecuniary computation, moral damages may be recovered if
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and they are the proximate results of the defendant's wrongful act or omission."
P20,000.00, as moral damages. - Petitioner's act or omission which amounted to gross negligence, was precisely the
2. Ignacio Castro Sr., P20,000.00 as moral damages. cause of the suffering private respondents had to undergo.
3. Ignacio Castro Jr., P20,000.00 as moral damages. - As the appellate court properly observed:
4. Aurora Castro, P10,000.00 moral damages. Who can seriously dispute the shock, the mental anguish and the sorrow that the
5. Salvador Castro, P10,000.00 moral damages. overseas children must have suffered upon learning of the death of their mother
6. Mario Castro, P10,000.00 moral damages. after she had already been interred, without being given the opportunity to even
7. Conrado Castro, P10,000 moral damages. make a choice on whether they wanted to pay her their last respects? There is no
8. Esmeralda C. Floro, P20,000.00 moral damages. doubt that these emotional sufferings were proximately caused by appellant's
9. Agerico Castro, P10,000.00 moral damages. omission and substantive law provides for the justification for the award of moral
10. Rolando Castro, P10,000.00 moral damages. damages.
11. Virgilio Castro, P10,000.00 moral damages. - The trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch
12. Gloria Castro, P10,000.00 moral damages. representing the expenses she incurred when she came to the Philippines from the
- Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in United States to testify before the trial court is sustained. Had petitioner not been
the amount of P1,000.00 to each of the plaintiffs and costs. remiss in performing its obligation, there would have been no need for this suit or
- On appeal by petitioner, the Court of Appeals affirmed the trial court's decision but for Mrs. Crouch's testimony.
eliminated the award of P16,000.00 as compensatory damages to Sofia C. Crouch - The award of exemplary damages by the trial court is likewise justified and,
therefore, sustained in the amount of P1,000.00 for each of the private
Obligations and Contracts A2010 page 18
Prof. Labitag
respondents, as a warning to all telegram companies to observe due diligence in credit, the cancellation of the allocation and the confiscation of the 5% deposit were
transmitting the messages of their customers. not effected until August 20. 1952, or, a full half month after the expiration of the
Disposition Petition is DENIED. The Decision appealed from is modified so that deadline. And yet, even with that 15-day grace, appellant corporation was unable to
petitioner is held liable to private respondents in the following amounts: make good its commitment to open the disputed letter of credit.
[1] P10,000.00 as moral damages, to each of private respondents; - The appellee endeavored, but failed, to restore the cancelled Burmese rice
[2] P1,000.00 as exemplary damages, to each of private respondents; allocation. When the futility of reinstating the same became apparent, she offered
[3] P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch; to substitute Thailand rice instead to the defendant NARIC, communicating at the
[4] P5,000.00 as attorney's fees; and same time that the offer was "a solution which should be beneficial to the NARIC
[5] Costs of suit. and to us at the same time." This offer for substitution, however, was rejected by
the appellant in a resolution dated November 15, 1952. Appellee sent a letter to the
ARRIETA V NATIONAL RICE AND CORN CORP appellant, demanding compensation for the damages caused her in the sum of
REGALA; January 31, 1964 $286,000.00, U.S. currency, representing unrealized profit. The demand having
been rejected, she instituted this case now on appeal.
NATURE
Appeal of the defendant-appellant NARIC from the decision of the trial court dated ISSUE
February 20, 1958, awarding to the plaintiffs-appellees the amount of $286,000.00 WON the lower court erred in holding NARIC liable for damages for breach of
as damages for breach of contract and dismissing the counterclaim and third party contract
complaint of the defendant-appellant NARIC.
HELD
FACTS - YES. We do not think the appellant corporation can refute the fact that had it
- On May 19, 1952, plaintiff-appellee participated and won in the public bidding been able to put up the 50 c/o marginal cash deposit demanded by the bank, then
called by the NARIC for the supply of 20,000 metric tons of Burmese rice. the letter of credit would have been approved, opened and released as early as
Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant August 4, 1952. The letter of the Philippine National Bank to the NARIC was plain
corporation entered into a Contract of Sale of Rice, under the terms of which the and explicit that as of the said date, appellant's it "application for a letter of
former obligated herself to deliver to the latter 20,000 metric tons of Burmese Rice credit . . . has been approved by the Board of Directors with the condition that 50%
at $203.00 per metric ton, CIF Manila. In turn, the defendant Corporation committed marginal cash deposit be paid and that drafts are to be paid upon presentment."
itself to pay for the imported rice "by means of an irrevocable, confirmed and The liability of the appellant, however, stems not alone from this failure or inability
assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or to satisfy the requirements of the bank. Its culpability arises from its willful and
supplier in Burma, immediately." deliberate assumption of contractual obligations even as it was well aware of its
- Despite the commitment to pay immediately "by means of an irrevocable, financial incapacity to undertake the presentation.
confirmed and assignable Letter of Credit," however, it was only on July 30, 1952, or - A number of logical inferences may be drawn from NARIC’s admission. First, that
a full month from the execution of the contract, that the defendant corporation, thru the appellant knew the bank requirements for opening letters of credit; second, that
its general manager, took the first step to open a letter of credit by forwarding to appellant also knew it could not meet those requirements. When, therefore, despite
the Philippine National Bank its Application for Commercial Letter of Credit. On the this awareness that it was financially incompetent to open a letter of credit
same day, July 30, 1952, Mrs. Paz P. Arrieta, thru counsel, advised the appellant immediately, appellant agreed in paragraph 8 of the contract to pay immediately
corporation of the extreme necessity for the immediate opening of the letter of "by means of an irrevocable, confirmed and assignable letter of credit," it must be
credit since she had by then made a tender to her supplier in Rangoon, Burma similarly be held to have bound itself too answer for all and every consequences
"equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in compliance that would result from the representation.
with the regulations in Rangoon this 5% will be confiscated if the required letter of - In relation to the aforequoted observation of the trial court, We would like to make
credit is not received by them before August 4, 1952." reference also to Article 1170 of the Civil Code which provides:
- It turned out however, the appellant corporation was not in any financial position "Those who in the performance of their obligation are guilty of fraud,
to meet the condition, which it candidly admitted in a communication with PNB. negligence, or delay, and those who in any manner contravene the tenor
Consequently, the credit instrument applied for was opened only on September 8, thereof, are liable in damages.
1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," - Under this provision, not only debtors guilty of fraud, negligence or default in the
(which is more than two months from the execution of the contract) the party performance of obligations are decreed liable: in general, every debtor who fails in
named by the appellee as beneficiary of the letter of credit. As a result of the delay, the performance of his obligations is bound to indemnify for the losses and
the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit, damages caused thereby. The phrase "in any manner contravene the tenor" of the
amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this obligation includes any illicit act which impairs the strict and faithful fulfillment of
connection, it must be made of record that although the Burmese authorities had the obligation, or every kind of defective performance. (IV Tolentino, Civil Code of
set August 4, 1952 as the deadline for the remittance of the required letter of the Philippines, citing authorities, p. 103.)
Obligations and Contracts A2010 page 19
Prof. Labitag
- The NARIC would also have this Court hold that the subsequent offer to substitute the defendant to be delivered sixty to ninety days after receipt of advice from the
Thailand rice for the originally contracted Burmese rice amounted to a waiver by defendant of the radio frequency assigned to the defendant by the proper
the appellee of whatever rights she might have derived from the breach of the authorities
contract. We disagree. Waivers are not presumed, but must be clearly and - Plaintiff received notice of the fact that the defendant accepted plaintiff's offer to
convincingly shown, either by express stipulation or acts admitting no other sell to the defendant the items as well as the terms and conditions of said offer, as
reasonable explanation. (Ramirez vs. Court of Appeals, 98 Phil., 225; 52 Off. Gaz. shown by the signed conformity of the defendant which was duly delivered by the
779). In the case at bar, no such intent to waive has been established. defendant's agent to the plaintiff, whereupon all that the plaintiff had to do was to
- In the premises, however, a minor modification must be effected in the disposition await advice from the defendant as, to the radio frequency to be assigned by the
portion of the decision appealed from insofar as it expresses the amount of proper authorities to the defendant
damages in U.S. currency and not in Philippine Peso. Republic Act 529 specifically - In his letter dated October 6, 1972, the defendant advised his agent that the U.S.
requires the discharge of obligations only "in any coin or currency which at the time Navy provided him with the radio frequency of 34.2 MHZ [Megaherzt] and
of payment is legal tender for public and private debts." In view of that law, requested his said agent to proceed with his order placed with the plaintiff, which
therefore, the award should be converted into and expressed in Philippine Peso. fact was duly communicated to the plaintiff
Disposition UPON ALL THE FOREGOING, the decision appealed from is hereby - By his letter dated October 7, 1972 addressed to the plaintiff by the defendant's
affirmed, with the sole modification that the award should be converted into the agent, defendant's agent qualified defendant's instructions that plaintiff should
Philippine peso at the rate of exchange prevailing at the time the obligation was proceed to fulfill defendant's order only upon receipt by the plaintiff of the
incurred or on July 1, 1952 when the contract was executed. The appellee insurance defendant's letter of credit
company, in the light of this judgment, is relieved of any liability under this suit. - Plaintiff awaited the opening of such a letter of credit by the defendant
No pronouncement as to costs. - Defendant and his agent have repeatedly assured plaintiff of the defendant's
financial capabilities to pay for the goods and in fact he accomplished the necessary
MAGAT V MEDIALDEA application for a letter of credit with his banker, but he subsequently instructed his
ESCOLIN; April 20, 1983 banker not to give due course to his application for a letter of credit and that for
reasons only known to the defendant, he fails and refuses to open the necessary
NATURE letter of credit to cover payment of the goods
Petition for review on certiorari to determine the sufficiency of the averments - It came to the knowledge of the plaintiff that the defendant has been operating his
contained in the complaint for alleged breach of contract filed by petitioner taxicabs without the required radio transceivers and when the U.S. Navy Authorities
Victorino D. Magat against respondent Santiago A. Guerrero of the CFI of Rizal, of Subic Bay, Philippines, were pressing defendant for compliance with his
presided by respondent Judge Leo D. Medialdea, now Deputy Judicial Administrator, commitments with respect to the installations of radio transceivers on his taxicabs
which complaint was dismissed for failure to state a cause of action. he impliedly laid the blame for the delay upon the plaintiff thus destroying the
reputation of the plaintiff with the mid Naval Authorities with whom plaintiff
FACTS transacts business
- Defendant entered into a contract with the U.S. Navy Exchange, Subic Bay, - On March 27, 1973, plaintiff wrote a letter thru his counsel to ascertain from the
Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with defendant as to whether it is his intention to fulfill his pan of the agreement with the
the necessary taximeter and a radio transceiver for receiving and sending of plaintiff or whether he desired to have the contract between them definitely
massage from mobile taxicab to fixed base stations within the Naval Base cancelled, but defendant did not even have the courtesy to answer plaintiff's
- Because of the experience of the plaintiff in connection with his various contracts demand
with the U.S. Navy and his goodwill already established with the Naval personnel, Petitioner’s Claims The defendant entered into a contract with the plaintiff
Isidro Q. Aligada, acting as agent of the defendant approached the plaintiff and without the least intention of faithfully complying with his obligations, but he did so
proposed to import from Japan thru the plaintiff or thru plaintiff's Japanese business only in order to obtain the concession from the U.S. Navy Exchange. of operating a
associates, all taximeters and radio transceivers needed by the defendant fleet of taxicabs inside the U.S. Naval Base to his financial benefit and at the
- Defendant and his agent were able to import from Japan with the assistance of the expense and prejudice of third parties such as the plaintiff. That in view of the
plaintiff and his Japanese business associates the necessary taximeters for defendant's failure to fulfill his contractual obligations with the plaintiff, the plaintiff
defendant's taxicabs in partial fulfillment of defendant's commitments with the U.S. will suffer several damages
Navy Exchange, the plaintiff's assistance in this matter having been given to the Respondent’s Arguments Respondent Guerrero filed a motion to dismiss
defendant gratis et amore complaint for lack of cause of action. He alleged that plaintiff was merely
- Isidro Q. Aligada, acting as agent of the defendant, made representations with the anticipating his loss or damage, which might result from the alleged failure of
plaintiff that defendant desired to procure from Japan thru the plaintiff the needed defendant to comply with the terms of the alleged contract. Plaintiff's right of
radio transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing recovery under his cause of action is premised not on any loss or damage actually
dated September 25, 1972, wherein the plaintiff quoted in his offer a total price of suffered by him but on a non-existing loss or damage which he is expecting to incur
$77,620.59 FOB Yokohama, the goods or articles offered for sale by the plaintiff to in the near future. Plaintiff's right therefore under his cause of action is not yet fixed
or vested.
Obligations and Contracts A2010 page 20
Prof. Labitag
- The respondent judge, over petitioner's opposition, issued a minute order NATURE
dismissing the complaint Petition for review on certiorari of CA decision

ISSUE FACTS
WON there is sufficient cause of action -April 1987: petitioner Jacinto M. Tanguilig doing business under the name and style
J.M.T. Engineering and General Merchandising proposed to respondent Vicente
HELD Herce Jr. to construct a windmill system for him. After some negotiations they
YES. agreed on the construction of the windmill for a consideration of P60,000.00 with a
Ratio The essential elements of a cause of action are: [1] the existence of a legal one-year guaranty from the date of completion and acceptance by respondent
right of the plaintiff; [2] a correlative duty of the defendant and [3] an act or Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a
omission of the defendant in violation of the plaintiff's right, with consequent injury down payment of P30,000.00 and an installment payment of P15,000.00, leaving a
or damage to the latter for which he may maintain an action for recovery of balance of P15,000.00.
damages or other appropriate relief. -14 March 1988: due to the refusal and failure of respondent to pay the balance,
- Article 1170 Of the Civil Code provides: petitioner filed a complaint to collect the amount.
"Those who in the performance of their obligation are guilty of fraud. negligence, or Respondents' Comments
delay, and those who in any manner contravene the tenor thereof are liable for -Since the deep well formed part of the system, the P15,000 he tendered to San
damages." Pedro General Merchandising Inc. (SPGMI) should be credited to his account by
The phrase "in any manner contravene the tenor" of the obligation includes any petitioner.
illicit act or omission which impairs the strict and faithful fulfillment of the obligation -Assuming that he owed petitioner a balance of P15,000.00, this should be offset by
and every kind of defective performance. the defects in the windmill system which caused the structure to collapse after a
- The damages which the obligor is liable for includes not only the value of the loss strong wind hit their place.
suffered by the obligee [daño emergense] but also the profits which the latter failed Petitioners' Counterclaim
to obtain [lucro cesante]. If the obligor acted in good faith, he shall be liable for -The construction of a deep well was not included in the agreement to build the
those damages that are the natural and probable consequences of the breach of windmill system. The contract price of P60,000.00 was solely for the windmill
the obligation and which the parties have foreseen or could have reasonably assembly and its installation, exclusive of other incidental materials needed for the
foreseen at the time the obligation was constituted; and in case of fraud, bad faith, project.
malice or wanton attitude, he shall be liable for all damages which may be -He also disowned any obligation to repair or reconstruct the system and insisted
reasonably attributed to the nonperformance of the obligation. The same is true that he delivered it in good and working condition to respondent who accepted the
with respect to moral and exemplary damages. The applicable legal provisions on same without protest. He claims that the collapse was attributable to a typhoon, a
the matter, Articles 2220 and 2232 of the Civil Code, allow the award of such force majeure, which relieved him of any liability.
damages in breaches of contract where the defendant acted in bad faith. Lower Court’s Ruling
Reasoning The complaint recites the circumstances that led to the perfection of -RTC ruled in favor of plaintiff-petitioner: that the construction of the deep well was
the contract entered into by the parties. It further avers that while petitioner had not part of the windmill project & that there is no clear and convincing proof that
fulfilled his part of the bargain, private respondent failed to comply with his the windmill system fell down due to the defect of the construction.
correlative obligation by refusing to open a letter of credit to cover payment of the -CA reversed; it ruled that the construction of the deep well was included in the
goods ordered by him, and that consequently, petitioner suffered not only loss of agreement of the parties because the term "deep well" was mentioned in both
his expected profits, but moral and exemplary damages as well. From these proposals. But it rejected petitioner's claim of force majeure and ordered the latter
allegations, the essential elements of a cause of action are present. to reconstruct the windmill in accordance with the stipulated one-year guaranty.
- Indisputably, the parties, both businessmen, entered into the aforesaid contract MFR was also denied.
with the evident intention of deriving some profits therefrom. Upon breach of the
contract by either of them, the other would necessarily suffer loss of his expected ISSUES
profits. Since the loss comes into being at the very moment of breach, such loss is 1. WON the agreement to construct the windmill system included the installation of
real, "fixed and vested" and, therefore, recoverable under the law. The complaint a deep well.
sufficiently alleges bad faith on the part of the defendant. 2. WON respondent can claim that Pili of SPGMI accepted his payment on behalf of
Disposition The questioned order of dismissal was set aside and the case was petitioner.
ordered remanded to the court of origin for further proceedings. No costs. 3. WON petitioner is under obligation to reconstruct the windmill after it collapsed.
4. WON private respondent is already in default in the payment of his outstanding
TANGUILIG V COURT OF APPEALS balance.
BELLOSILLO; January 2, 1997 5. Who should bear the costs of the reconstruction?

HELD
Obligations and Contracts A2010 page 21
Prof. Labitag
1. Ratio NO. Where the terms of the instruments are clear and leave no doubt as to KHE HONG CHENG V COURT OF APPEAL
their meaning, they should not be disturbed. In interpreting contracts, the intention KAPUNAN; March 28, 2001
of the parties shall be accorded primordial consideration and, in case of doubt, their
contemporaneous & subsequent acts shall be principally considered. NATURE
Reasoning The words "deep well" preceded by the prepositions "for" and "suitable Petition for Review on Certiorari under Rule 45, seeking to set aside the decision of
for" were meant only to convey the idea that the proposed windmill would be the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000
appropriate for a deep well pump with a diameter of 2 to 3 inches. denying the motion for reconsideration of the aforesaid decision.
-The claim of Guillermo Pili of SPGMI that Herce Jr. wrote him a letter asking him to
build a deep well pump as part of the price/contract Herce had with Tanguilig is FACTS
unsubstantiated. The alleged letter was never presented in court. - Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines.
-If indeed the deep well were part of the windmill project, the contract for its - The Philippine Agricultural Trading Corporation shipped on board the vessel M/V
installation would have been strictly a matter between petitioner and Pili himself PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at
with the former assuming the obligation to pay the price. Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte.
-If the price of P60,000.00 included the deep well, the obligation of respondent was - The said shipment of copra was covered by a marine insurance policy issued by
to pay the entire amount to petitioner without prejudice to any action that American Home Insurance Company (respondent Philam's assured).
Guillermo Pili or SPGMI may take, if any, against the latter. - M/V PRINCE ERIC sank somewhere between Negros Island and Northeastern
2. Ratio NO. Civil Code provisions on "payments made by a third person” do not Mindanao, resulting in the total loss of the shipment. Because of the loss, the
apply in the instant case as no creditor-debtor relationship has been established insurer, American Home, paid the amount of P354,000.00 (the value of the copra)
between the parties. to the consignee.
Reasoning There was no contract between Pili and Tanguilig for the construction of - Having been subrogated into the rights of the consignee, American Home
Herce’s deep well. If SPGMI was really commissioned by petitioner to construct the instituted a civil case to recover the money paid to the consignee, based on breach
deep well, an agreement particularly to this effect should have been entered into. of contract of carriage.
3. Ratio YES. He can not claim exemption by reason of force majeure. In order for a - While the case was still pending, or on December 20, 1989, petitioner Khe Hong
party to claim exemption from liability by reason of fortuitous event under Art. 1174 Cheng executed deeds of donations of parcels of land in favor of his children, herein
of the Civil Code the event should be the sole and proximate cause of the loss or co-petitioners Sandra Joy and Ray Steven.
destruction of the object of the contract. Four requisites must concur: (a) the cause - The trial court rendered judgment against petitioner in the civil case on December
of the breach of the obligation must be independent of the will of the debtor; (b) the 29, 1993, four years after the donations were made and the TCTs were registered in
event must be either unforeseeable or unavoidable; (c) the event must be such as the donees’ names ordering him to pay herein respondents.
to render it impossible for the debtor to fulfill his obligation in a normal manner; - After the said decision became final and executory, a writ of execution was
and, (d) the debtor must be free from any participation in or aggravation of the forthwith. Said writ of execution, however, was not served. An alias writ of
injury to the creditor. (Nakpil v CA) execution was, thereafter, applied for and granted.
Reasoning Petitioner failed to show that the collapse of the windmill was due - Despite earnest efforts, the sheriff found no property under the name of Butuan
solely to a fortuitous event. A strong wind in this case cannot be fortuitous — Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish for the
unforeseeable nor unavoidable. On the contrary, a strong wind should be present in satisfaction of the trial court's decision. When the sheriff, accompanied by counsel
places where windmills are constructed, otherwise the windmills will not turn. of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias
-The presumption that "things have happened according to the ordinary course of writ of execution, they discovered that petitioner Khe Hong Cheng no longer had
nature and the ordinary habits of life" has not been rebutted by petitioner. any property and that he had conveyed the subject properties to his children.
4. Ratio NO. Art. 1169, CC: In reciprocal obligations, neither party incurs in delay if - Respondent Philam filed a complaint for the rescission of the deeds of donation
the other does not comply or is not ready to comply in a proper manner with what is executed by petitioner Khe Hong Cheng in favor of his children and for the
incumbent upon him. nullification of their titles. Respondent Philam alleged, that petitioner executed the
Reasoning Tanguilig has not complied with his obligation to repair the windmill aforesaid deeds in fraud of his creditors, including respondent Philam.
system. Petitioners’ Claim Petitioners moved for its dismissal on the ground that the
5. Ratio TANGUILIG. Art. 1167, CC: if a person obliged to do something fails to do it, action had already prescribed. They posited that the registration of the deeds of
the same shall be executed at his cost. donation on December 27, 1989 constituted constructive notice and since the
Reasoning When the windmill failed to function properly it became incumbent complaint a quo was filed only on February 25, 1997, or more than four (4) years
upon petitioner to institute the proper repairs in accordance with the guaranty after said registration, the action was already barred by prescription.
stated in the contract. - The trial court denied the motion to dismiss. It held that respondent Philam's
Disposition Judgment modified. Herce, Jr directed to pay balance of P15,000 with complaint had not yet prescribed. According to the trial court, the prescriptive
interest. Tanguilig ordered to reconstruct subject defective windmill system, in period began to run only from December 29, 1993, the date of the decision of the
accordance with the one-year guaranty, within 3mos. from the finality of decision. trial court in Civil Case No. 13357.
Obligations and Contracts A2010 page 22
Prof. Labitag
- On appeal by petitioners, the CA affirmed the trial court's decision in favor of antedates that of the fraudulent alienation by the debtor of his property. After all,
respondent Philam. The CA declared that the action to rescind the donations had the decision of the trial court against the debtor will retroact to the time when the
not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA ruled debtor became indebted to the creditor.
that the four year period to institute the action for rescission began to run only in Reasoning Petitioners argument that the Civil Code must yield to the Mortgage
January 1997, and not when the decision in the civil case became final and and Registration Laws is misplaced, for in no way does this imply that the specific
executory on December 29, 1993. The CA reckoned the accrual of respondent provisions of the former may be all together ignored. To count the four year
Philam's cause of action on January 1997, the time when it first learned that the prescriptive period to rescind an allegedly fraudulent contract from the date of
judgment award could not be satisfied because the judgment creditor, petitioner registration of the conveyance with the Register of Deeds, as alleged by the
Khe Hong Cheng, had no more properties in his name. Prior thereto, respondent petitioners, would run counter to Article 1383 of the Civil Code as well as settled
Philam had not yet exhausted all legal means for the satisfaction of the decision in jurisprudence. It would likewise violate the third requisite to file an action for
its favor, as prescribed under Article 1383 of the Civil Code. rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has
- Petitioners’ motion for reconsideration was likewise dismissed in the appellate no other legal remedy to satisfy his claim.
court's resolution dated July 11, 2000. - Even if respondent Philam was aware, as of December 27, 1989, that petitioner
Khe Hong Cheng had executed the deeds of donation in favor of his children, the
ISSUE complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was still
1. WON the action to rescind the donations has already prescribed. pending before the trial court. Respondent Philam had no inkling, at the time, that
2. When did the four (4) year prescriptive period as provided for in Article 1389 of the trial court's judgment would be in its favor and further, that such judgment
the Civil Code for respondent Philam to file its action for rescission of the subject would not be satisfied due to the deeds of donation executed by petitioner Khe
deeds of donation commence to run? Hong Cheng during the pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would have been dismissed for
HELD being premature. Not only were all other legal remedies for the enforcement of
1. NO. The action to rescind the donations has already prescribed. respondent Philam’s claims not yet exhausted at the time the deeds of donation
Ratio Article 1389 of the Civil Code simply provides that, “The action to claim were executed and registered. Respondent Philam would also not have been able to
rescission must be commenced within four years.” Since this provision of law is prove then that petitioner Khe Hong Chneg had no more property other than those
silent as to when the prescriptive period would commence, the general rule, i.e, covered by the subject deeds to satisfy a favorable judgment by the trial court.
from the moment the cause of action accrues, therefore, applies. It bears stressing that petitioner Khe Hong Cheng even expressly declared and
- Art. 1150. The time for prescription for all kinds of actions, when there is no represented that he had reserved to himself property sufficient to answer for his
special provision which ordains otherwise, shall be counted from the day they may debts.
be brought. - Respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the
2. The Court enunciated the principle that it is the legal possibility of bringing the sheriff to Butuan City to attach the properties of petitioner Khe Hong Cheng. There
action which determines the starting point for the computation of the prescriptive they found that he no longer had any properties in his name. It was only then that
period for the action. respondent Philam's action for rescission of the deeds of donation accrued because
- Art. 1383. An action for rescission is subsidiary; it cannot be instituted except then it could be said that respondent Philam had exhausted all legal means to
when the party suffering damage has no other legal means to obtain reparation for satisfy the trial court's judgment in its favor. Since respondent Philam filed its
the same. complaint for accion pauliana against petitioners on February 25, 1997, barely a
- An action to rescind or an accion pauliana must be of last resort, availed of only month from its discovery that petitioner Khe Hong Cheng had no other property to
after all other legal remedies have been exhausted and have been proven futile. For satisfy the judgment award against him, its action for rescission of the subject
an accion pauliana to accrue, the following requisites must concur: deeds clearly had not yet prescribed.
1) That the plaintiff asking for rescission has a credit prior to the alienation, Disposition The petition was DENIED for lack of merit.
although demandable later; 2) That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; 3) That the creditor has no other SIGUAN V LIM
legal remedy to satisfy his claim, but would benefit by rescission of the conveyance DAVIDE; November 19, 1999
to the third person; 4) That the act being impugned is fraudulent; 5) That the third
person who received the property conveyed, if by onerous title, has been an NATURE
accomplice in the fraud. This is a petition for review on certiorari of a decision of the Court of Appeals.
- An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance
by the trial court of a writ of execution for the satisfaction of the judgment, and 3) FACTS
the failure of the sheriff to enforce and satisfy the judgment of the court. It requires - On 25 and 26 August 1990 LIM issued two Metrobank checks in the sums of P300K
that the creditor has exhausted the property of the debtor. The date of the decision and P241,668, respectively, payable to “cash”. Upon presentment by petitioner with
of the trial court is immaterial. What is important is that the credit of the plaintiff
Obligations and Contracts A2010 page 23
Prof. Labitag
the drawee bank, the checks were dishonored for the reason that the account was
already “closed.” Demands to make good the checks proved futile.
• debtor has made a subsequent contract conveying a patrimonial benefit to
- A criminal case for violation of Batas Pambansa Blg. 22 was filed against LIM. On a 3rd party;
29 December 1992 the RTC of Cebu City a quo convicted LIM as charged. • creditor has no other legal remedy to satisfy his claim;
- LIM was also convicted of estafa by the RTC of Quezon City filed Victoria Suarez. • act impugned is fraudulent;
This was affirmed by CA. However the Supreme Court acquitted LIM but found her • the 3rd person who received the property conveyed (if by onerous title),
civilly liable in the amount of P169K. has been an accomplice in the fraud.
- On 2 July 1991 a Deed of Donation conveying parcels of land and purportedly GENERAL RULE: rescission requires existence of creditors at the time of the
executed by LIM on 10 August 1989 in favor of her children, was registered with the alleged fraud, and this must be proved as one of the bases of the judicial
Register of Deeds of Cebu. New transfer certificates of title were thereafter issued pronouncement setting aside the contract. W/O any prior existing debt, there can
in the names of the donees. neither be no injury nor fraud.
- On 31 December 1994, trial court ordered the rescission of the - The Deed of Donation executed is a public document, having been acknowledged
questioned deed of donation; 2) declared null and void the transfer certificates before a notary public. It is evidence of the fact which gave rise to its execution and
of title issued in the name of LIM’s children; 3) ordered Registered of Deeds of Cebu of its date (Sec. 23, Rule 132, Rules of Court) Court is not convinced that it was
to cancel said titles and to reinstate the previous titles in the name of LIM; 4) antedated.
directed the LIMs to pay the petitioner jointly and severally, the sum of P10K moral SEC. 23. Public documents as evidence. – xxx All other public documents are
damages, P10K attorney’s fees, P5K as expenses of litigation. evidence, even against a third person, of the fact which gave rise to their execution
- 20 February 1998 CA reversed RTC’s decision and dismissed petitioer’s accion and of the date of the latter. This includes “Documents acknowledged before a
pauliana, because two requisites for said action was absent: notary public except last wills and testaments…”
1. there must be a credit existing prior to the celebration of the contract; - Contracts entered in fraud may be rescinded only when the creditors
2. there must be a fraud, or the intent to commit the fraud. cannot in any manner collect the claims due them. Action for rescission is a
subsidiary remedy only. The petitioner was not able to prove that she had
Petitioner’s Claim exhausted other legal means to obtain reparation for the same.
- On 23 June 1993 petitioner filed an accion pauliana against LIM and her children. Subsidiary remedy – the exhaustion of all remedies by the prejudiced creditor to
Petitioner claimed therein that sometime in July 1991 LIM, through a Deed of collect claims due him before rescission is resorted to.
Donation, fraudulently transferred all her real property to her children in bad faith - Fourth requisite for accion pauliana not present either. Art. 759 of Civil Code
and in fraud of creditor, including her; that LIM conspired and confederated with her states that donation is always presumed to be in fraud of creditors when the donor
children in antedating the questioned Deed. did not reserve sufficient property to pay his debts prior to donation. Petitioner’s
accion pauliana – action to rescind contracts in fraud of creditors. alleged credit existed only a year after the deed of donation was executed. She
Respondents’ Comment cannot be said to have been prejudiced or defrauded by such alienation. In addition,
- LIM denied any liability to petitioner. She claimed that her convictions in criminal when the Deed was executed, LIM had properties such as farming lands, a house
cases 22127-28 were erroneous, which was the reason she appealed to the CA. and lot, residential lots which were sufficient to cover the debts.
- As regards the questioned Deed of Donation, she asserted that it was not - In an attempt to support the case for rescission, petitioner brought up the criminal
antedated but was made in good faith at a time when she had sufficient property. case involving Victoria Suarez. However, Suarez, albeit a creditor prior to the
The Deed was registered only 2 July 1991 because she was seriously ill. alienation, is not a party to the accion pauliana. Only the creditor who brought the
action for rescission can benefit from the rescission (Art. 1384, Civil Code). The
revocation is only to the extent of the plaintiff creditor’s unsatisfied credit; as to the
ISSUE excess, alienation is maintained.
WON the Deed of Donation executed by respondent Rosa LIM in favor of her - As for the awards of moral damages, etc., the trial court made these awards
children was made in fraud of Petitioner and, therefore, rescissible without stating any justification in their ratio decidendi.
HELD JUAN NAKPIL & SONS V COURT OF APPEALS
Ratio No, the Deed of Donation made by LIM in favor of her children was not PARAS; October 3, 1986
executed in fraud, and is therefore not rescissible.
Reasoning The facts of the RTC and the CA regarding the execution of the Deed
NATURE
are conflicting, therefore the Court has jurisdiction to review errors of fact of the
Petitions for certiorari to review the decision of the Court of Appeals
case.
- For accion pauliana to prosper, the following must be present:
FACTS
• plaintiff asking for rescission has a credit prior to the alienation; - Philippine Bar Association (PBA) decided to construct an office building on its 840
square meter lot located at the corner of Aduana and Arzobispo Streets, Intramuros,
Obligations and Contracts A2010 page 24
Prof. Labitag
Manila. The contractor was United Construction Inc. and the architect was Juan F. or care, reasonably to have been expected, could have been prevented. To exempt
Nakpil & Sons. The building was completed in June, 1966. In the early morning of the obligor from liability under art.1174 of the new Civil Code for a breach of
August 2, 1968 an unusually strong earthquake (7.3 magnitude) hit Manila and the obligation due to an act of God, the ff must concur: a) the cause of the breach of
building in question sustained major damage. The front columns of the building obligation must be independent of the will of the debtor; b) the event must be
buckled, causing the building to tilt forward dangerously. As a temporary remedial unforeseeable or unavoidable; c) the event must be such as to render it impossible
measure, the building was shored up by United Construction at the cost of P13, for the debtor to fulfill his obligation in a normal manner; and d) the debtor must be
661.28. free of any participation in, or aggravation of the injury to the creditor.
- November 29, 1968 PBA commenced action or the recovery of damages arising - Thus if upon the happening of a fortuitous event or an act of God, there concurs a
from the partial collapse of the building. PBA claims that the collapse was due to corresponding fraud, negligence, delay or violation or contravention in any manner
defects in the construction, the failure of contractors to follow plans and of the tenor of the obligation which results in loss or damage, the obligor cannot
specifications and violations by the defendants of the terms of the contract. On the escape liability. Thus it has been held that when the negligence of a person concurs
other hand, United Construction Inc. filed a third-party complaint against the with an act of God in producing a loss, such person is not exempt from liability by
architects Nakpil alleging that the collapse was due to the defects in the said plans showing that the immediate cause of the damage was the act of God. To be
and specifications. A pre-trial was conducted during which, among others, the exempt, he must be free from any previous negligence or misconduct.
parties agreed to refer the technical issues involved in the case to a Commissioner, - The negligence of the contractor and the architect was established beyond dispute
Mr. Andres Hizon. Technical issues involve question regarding the design and in both the trial court and the CA. UCCI was found to have made substantial
construction of the building. deviations from the plans and specifications, and to have failed to observe the
- during the pendency of the case, three more earthquakes occurred and with the requisite workmanship in the construction as well as to exercise the requisite
PBA’s request, the building was demolished at their expense. amount of supervision. Nakpil on the other hand were found to have defects in the
- The Commissioner submitted his report which stated that the damage sustained plans and specifications prepared by them. As correctly assessed by both courts,
by the PBA building was directly caused by the earthquake and was also caused by the defects in the construction and in the plans and specifications were the
the defects in the plans and specifications prepared by the architects, deviations proximate causes that rendered the PBA building unable to withstand the
from said plans and specifications by the contractor and failure of the contractor to earthquake.
observe the requisite workmanship in the construction of the building. The trial
court agreed with the findings of the Commissioner. All parties involved appealed REPUBLIC V LUZON STEVEDORING CORPORATION
and the CA affirmed the decision of the trial court but modified the decision by REYES; September 29, 1967
granting PBA an additional P200,000 to be paid by the contractor and architects
jointly. NATURE
- The parties appealed from the decision of the CA and thus this petition. The United APPEAL from a decision of the Court of First Instance of Manila.
Architects of the Philippines and The Philippine Institute of Architects intervened as
amicus curiae and submitted a position paper which said that the plans and FACTS
specifications of the Nakpils were not defective. When asked by the Court to - In the early afternoon of August 17, 1960, barge L-1892, owned by Luzon
comment, the Commissioner reiterated his findings and said that there were Stevedoring Corporation was being towed down the Pasig river by tugboats
deficiencies in the design of the architects which contributed to the collapse of the “Bangus” and “Barbero” also belonging to the same corporation, when the barge
building. rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing
Petitioners Nakpil and UCCI on the other hand claimed that it was an act of God that the posts and causing the bridge to list. The river, at that time, was swollen and the
caused the failure of the building which should exempt them from responsibility. current swift, on account of the heavy downpour of Manila and the surrounding
provinces on August 15 and 16, 1960.
ISSUE - Republic of the Philippines sued for actual and consequential damage caused by
WON an act of God- an unusually strong earthquake- which caused the failure of the the said company’s employees amounting to 200,000. Defendant company
building, exempts from liability, parties who are otherwise liable because of their disclaimed liability on the grounds that it was brought about by force majeure as
negligence they exercised due diligence in the selection and supervision of its employees and
that the Nagtahan Bailey Bridge is an obstruction to navigation. Defendant claims
HELD that got the strongest tugboats, and the more competent and experienced among
- No. applicable law is Art.1723 of the New Civil Code which holds the architects its patrons.
liable for damages on the building due to defects in the design, and contractors for - Trial court found said company liable. It filed before the Supreme Court.
damages due to defects in the construction. On the other hand, the general rule is
that no person shall be responsible for events which could not be foreseen or which ISSUES
though foreseen, were inevitable. 1. WON the collision of appellant’s barge with the supports or piers of the Nagtahan
- An act of God has been defined as an accident, due directly and exclusively to bridge was in law caused by fortuitous event or force majeure, and
natural causes without human intervention which by no amount of foresight, pains
Obligations and Contracts A2010 page 25
Prof. Labitag
2. WON it was error for the Court to have permitted the plaintiff-appellee to General Rule: No person shall be responsible for those events which could not be,
introduce additional evidence of damages after said party had rested its case. foreseen, or which, though foreseen were inevitable.
Obiter
HELD Exception: Except in cases expressly specified by the law, or when it is otherwise
1. No. For caso fortuito or force majeure (which in law are identical in so far as they declared by stipulation, or when the nature of the obligation requires the
exempt an obligor from liability) by definition, are extraordinary events not assumption of risk
foreseeable or avoidable, “events that could not be foreseen, or which, though - What is contemplated in the exception is resulting liability even if caused by a
foreseen, were inevitable” (Art. 1174,CC). It is not therefore enough that the event fortuitous event where the party charged may be considered as having assumed
should not have foreseen or anticipated as is commonly believed, but it must be the risk incident in the nature of the obligation to be performed.
one impossible to foresee or to avoid. The mere difficulty to foresee the happening - Force Majeure or Caso Fortuito are extraordinary events not foreseeable or
is not impossibility to foresee the same. The very measures adopted by said unavoidable (events that though foreseen, are inevitable)
company prove that the possibility of danger was not only foreseeable. But actually - Republic v. Luzon Stevedoring Corp – The mere difficulty to foresee the happening
foreseen, and was not caso foruito. is not impossibility to foresee the same. The very precautions adopted by appellant
- Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the prove that the possibility of danger was not only foreseeable, but actually foreseen,
swollen stream and its swift current, voluntarily entered into a situation involving and was not caso fortuito." In that case then, the risk was quite evident and the
obvious danger. The appellant company, whose barges and tugs travel up and down nature of the obligation such that a party could rightfully be deemed as having
the river everyday, could not safely ignore the danger posed by these allegedly assumed it
improper constructions that had been erected and, in place, for years. Disposition Wherefore the decision of the lower court assigning liability to
2. This is up to the sound discretion of the trial Judge. Defendant is Reversed; Affirmed insofar as it dismissed the case against the two
Disposition AFFIRMED. other defendants

DIOQUINO V LAUREANO AUSTRIA V COURT OF APPEALS


FERNANDO; May 28, 1970 REYES; June 10, 1971
NATURE NATURE
Appeal from a decision of the CFI Masbate. Guillermo Austria petitions for the review of the decision rendered by the Court of
Appeals, on the sole issue of whether in a contract of agency (consignment of goods
FACTS for sale) it is necessary that there be prior conviction for robbery before the loss of
NOTE: to separate facts, just put dash before each sentence, idea or paragraph the article shall exempt the consignee from liability for such loss.
- Plaintiff Atty. Pedro Dioquino is the owner of a car which defendant Federico
Laureano borrowed.
- Defendant was the sole passenger, aside from plaintiff’s driver, when the car was FACTS
stoned by some “mischievous boys,” as a result, breaking the windshield - On Jan. 1961, Maria G. Abad acknowledged having received from Guillermo Austria
- Dioquino sued Laureano; included in the suit are the latter’s wife and father. one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis
- Dioquino prevailed in the lower court but only against principal defendant or to be returned on demand.
Laureano; wife and father being absolved. - On Feb. 1961, however, while walking home Abad was said to have been accosted
- Nonetheless, the appeal hence is by all three defendants. by two men, who hit her and snatched her purse containing the pieces of jewelry
and cash. The incident became the subject of a criminal case against certain
ISSUE persons.
WON Laureano should be liable for damages thus sustained by Dioquino’s car - As Abad failed to return the jewelry or pay for its value notwithstanding demands,
Austria brought an action against her and her husband for recovery of the pendant
HELD or of its value, and damages. Answering the allegations of the complaint,
Ratio Laureano has no obligation to pay for the damages sustained due to throwing defendants spouses set up the defense that the alleged robbery had extinguished
of stones that broke the windshield. The extraordinary circumstance independent their obligation.
of his will as obligor exempts him of the same by reason of force majeure or caso - Trial court rendered judgment for the plaintiff. It was held that defendants failed to
fortuito; There is no requirement of diligence beyond what human care and prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad
foresight can provide. was guilty of negligence when she went home without any companion, although it
Reasoning was already getting dark and she was carrying a large amount of cash and
- Art. 1174 of the Civil Code provides: valuables on the day in question, and such negligence did not free her from liability
for damages for the loss of the jewelry.
Obligations and Contracts A2010 page 26
Prof. Labitag
- CA reversed the judgment on the basis of the lack of credibility of the two defense NATIONAL POWER CORPORATION V CA
witnesses who testified on the occurrence of the robbery, and holding that the facts GUTIERREZ; May 16, 1988
of robbery and defendant Maria Abad's possession of the pendant on that
unfortunate day have been duly established, declared respondents not responsible NATURE
for the loss of the jewelry on account of a fortuitous event. Plaintiff thereupon -consolidated petitions filed by NAPOCOR (NPC) and ECI seeking to set aside the
instituted the present proceeding. decision of Court of Appeals in holding NPC liable for damages against Engineering
Construction, Inc. (ECI) and for reducing the consequential damages, attorney’s fees
ISSUE and for eliminating exemplary damages awarded to ECI by the trial court.
1. WON Court of Appeals erred in finding that there was robbery in the case, thus
extinguishing Abad’s liability, although nobody has been found guilty of the FACTS
supposed crime. - ECI executed a contract with NAWASA on Aug. 4, 1964, to construct the 2nd Ipo-
2. WON Abad was guilty of negligence. Bicti Tunnel in Norzagaray, Bulacan, complete it within 800 calendar days from the
date the Contractor receives the formal notice to proceed and to furnish all tools,
HELD labor, equipment, and materials needed. The construction of the tunnel covered an
1. No. To constitute a caso fortuito that would exempt a person from responsibility, area that included the Ipo river where the Ipo Dam (Angat Hydro-electric Project
it is necessary that (1) the event must be independent of the human will (or rather, and Dam) of defendant NPC is located.
of the debtor's or obligor's); (2) the occurrence must render it impossible for the - On Nov. 4, 1967, typhoon “Welming” struck the project area and bringing with it
debtor to fulfill the obligation in a normal manner, and that (3) the obligor must be heavy rains and causing water in the reservoir of Angat Dam to rapidly rise,
free of participation in, or aggravation of, the injury to the creditor. reaching the danger level of 212 m above sea level. Thus to prevent overflow, NPC
- The point at issue in this proceeding is how the fact of robbery is to be established caused the opening of the spillway gates. The opening of the gates caused an
in order that a person may avail of the exempting provision of Article 1174 of the extraordinary large volume of water to rush out, hitting the installations and
new Civil Code, which reads as follows: construction works of ECI. Effectively washing away, damaging or destroying its
" ART. 1174. Except in cases expressly specified by law, or when it is otherwise stockpile of materials and supplies, camp facilities, permanent structures and
declared by stipulation, or when the nature of the obligation requires the accessories.
assumption of risk, no person shall be responsible for those events which could not - The Court of Appeals sustained the findings of the trial court that the maintainers
be foreseen, or which, though foreseen, were inevitable." of the dam opened the gates when the typhoon was already at its height, when
- The emphasis of the provision is on the events, not on the agents or factors they knew full well that it was far safer to open them gradually. The court also
responsible for them. To avail of the exemption granted in the law, it is not found that NPC had known of the coming of the typhoon 4 days prior to it actually
necessary that the persons responsible for the occurrence should be found or hitting the area. Thus, the trial court and the appellate court found NPC negligent
punished; it would only be sufficient to establish that the unforeseeable event, the and held liable for the damages. Petitioner NPC contends that this CA decision is
robbery in this case, did take place without any concurrent fault on the debtor's erroneous on the ground that the destruction and loss of ECI’s equipment and
part, and this can be done by preponderant evidence. facilities were due to force majeure, that the heavy rains brought about by the
2. No. It is undeniable that in order to completely exonerate the debtor for reason of typhoon was an extraordinary occurrence that they could not have foreseen.
a fortuitous event, such debtor must also be free of any concurrent or contributory - On the other hand, ECI assails the CA’s reduction of the consequential damages
fault or negligence. This is apparent from Article 1170 of the Civil Code of the awarded by the trial court from P 333,200 to P 19K on the grounds that the
Philippines, providing that: appellate court had no basis in concluding that ECI acquired a new Crawler-type
"ART. 1170. Those who in the performance of their obligations are guilty of fraud, crane and therefore, it only can claim rentals for the temporary use of the leased
negligence, or delay, and those who in any manner contravene the tenor thereof. crane for a period of one month; and that the award of P 4K a day or P 120K a
are liable for damages." month bonus is justified since the period limitation on ECI's contract with NAWASA
- It is clear that under the circumstances prevailing at present in the City of Manila had dual effects, i.e., bonus for earlier completion and liquidated damages for
and its suburbs, with their high incidence of crimes against persons and property, delayed performance; and in either case at the rate of P 4K daily. Thus, since NPC's
that renders travel after nightfall a matter to be sedulously avoided without suitable negligence compelled work stoppage for a period of one month, the said award of P
precaution and protection. The conduct of respondent Maria G. Abad, in returning 120K is justified.
alone to her house in the evening, carrying jewelry of considerable value, would be
negligent per se, and would not exempt her from responsibility in the case of a ISSUES
robbery. We are not persuaded, however, that the same rule should obtain ten 1. WON respondent CA erred in holding NPC liable for damages
years previously, in 1961, when the robbery in question did take place, for at that 2. WON CA erred in reducing the consequential damages from P 333,200 to P
time criminality had not by far reached the levels attained in the present day. 19,000
Disposition Petition in this case is hereby dismissed, with costs against the 3. WON CA erred in eliminating exemplary damages
petitioner. 4. WON CA erred in reducing attorney’s fees from P 50K to P 30K
Obligations and Contracts A2010 page 27
Prof. Labitag
HELD
1. No. Even though the typhoon was an act of God or force majeure, NPC cannot
escape liability because its negligence was the proximate cause of the loss and YOBIDO V COURT OF APPEALS
damage. ROMERO; October 17, 1997
Ratio As held in Juan Nakpil & Sons v. CA, the act of God doctrine requires that the
act must be occasioned exclusively by the violence of nature and human agencies FACTS
had no part therein. When the effect is found to be in part the result of the - Tito and Lenoy Tumboy, together with their minor children boarded a Yobido Liner
participation of man, whether it be active intervention, neglect or failure to act, the bus bound for Davao City from Surigao del Sur
whole occurrence is humanized and therefore removed from the rules applicable to - But while driving in Agusan del Sur, the left front tire of the bus exploded, in
the acts of God. which the bus fell into ravine
- Furthermore, this is question of fact which properly falls within the jurisdiction of - This caused the death of Tito TUmboy and physical injuries to other passengers
the CA and will not be disturbed by this Court unless it is clearly unfounded. - Complaint for breach of contract was filed by Leny against the owner of the bus,
Ratio Findings of fact of the CA are generally final and conclusive upon the SC. It is Alberta Yobido and its driver. The Yobidos used as a defense that the case was a
settled that the SC is not a trier of facts. It is not supposed to weigh evidence and caso fortuito. More so, a separate charge was filed against the Philippine Phoenix
will generally not disturb findings of fact when supported by substantial evidence. Surety and Insurance but was dismissed
2. No. From the findings of the appellate court, while there was no categorical - During the trip to Davao, Leny cautioned the driver that the bus was running fast
statement or admission on the part of ECI that it bought a new crane to replace the but he merely stared at her
damaged one, a sales contract was presented to the effect that the new crane - The tire that exploded, however was a new one installed only five days before the
would be delivered to it by Asian Enterprises within 60 days from the opening of the incident. Drivers on the other hand, underwent driving tests before they were
letter of credit at the cost of P 106,336.75. The offer was made by Asian Enterprises employed
a few days after the flood. Comparing the amount for a brand new crane and paying
the alleged amount of P 4K a day as rental for the use of a temporary crane, which ISSUE
use petitioner ECI alleged to have lasted for a period of one year, thus, totaling P WON the explosion of a newly installed tire of a passenger vehicle is a fortuitous
120K plus the fact that there was already a sales contract between it and Asian event that exempts the carrier from liability for the death of passenger
Enterprises, there is no reason why ECI should opt to rent a temporary crane for a
period of one year. The appellate court also found that the damaged crane was HELD
subsequently repaired and reactivated and the cost of repair was P 77K. Therefore, - When a passenger boards a common carrier, he takes the risks incidental to the
it included the said amount in the award of compensatory damages, but not the mode of travel he has taken as a carrier is not an insurer of the safety of its
value of the new crane. We do not find anything erroneous in the decision of the passengers and is not bound absolutely and at all events to carry them safely and
appellate court that the consequential damages should represent only the service without injury
of the temporary crane for one month. A contrary ruling would result in the unjust - However, when a passenger is injured or dies while traveling, the law presumes
enrichment of ECI. that the carrier is negligent based on CC Art. 1756; as this is the presumption in
- The P 120K bonus was also properly eliminated as the same was granted by the culpa contractual, unless the defendant proves that the case was caso fortuito. If
trial court on the premise that it represented ECI's lost opportunity "to earn the one carrier be unable to debunk this presumption, there even be no need to make an
month bonus from NAWASA." The loss or damage to ECI's equipment and facilities express finding of negligence or fault
occurred more than 3 years or 1,170 days after the execution of the contract, long - CC 1755 provides that passengers must be carried safely as far as human care
after the stipulated deadline (within 800 calendar days) to finish the construction. and foresight can provide, using utmost diligence of very cautious persons, with a
No bonus, therefore, could have been possibly earned by ECI at that point in time. due regard for all circumstances
The supposed liquidated damages for failure to finish the project within the - Liability for a tire blow-out is not a fortuitous event as the requisites for these are
stipulated period or the opposite of the claim for bonus is not clearly presented in o The Cause of the unforeseen and unexpected occurrence or the failure of the
the records of these petitions. It is not shown that NAWASA imposed them. debtor to comply with his obligations, must be independent of human will
3. No. The appellate court found that there was no bad faith on the part of NPC and o It must be impossible to foresee the event which constitutes the caso fortuito,
that neither can its negligence be considered gross.
or if it can be foreseen, it must be impossible to avoid
Ratio As was held in Dee Hua Liong Electrical Equipment Corp. v. Reyes,
o The occurrence must be such as to render impossible for the debtor to fulfill his
exemplary damages cannot be awarded to private respondent because petitioner is
obligation in a normal manner
not shown to have acted in a wanton, fraudulent, reckless or oppressive manner.
o The obligor must be free from any participation in the aggravation of the injury
4. No. There are no compelling reasons to set aside the appellate court’s finding
resulting to the creditor
that the latter amount suffices for the services rendered by ECI’s counsel.
Disposition Petitions are both dismissed for lack of merit
Obligations and Contracts A2010 page 28
Prof. Labitag
- The fact that a new tire was installed nor even the existence of force majeure does - The outcome of the case, however, was not favorable to BMMC. In the same case
not imply caso fortuito immediately as the carrier must still prove that it was not the landowners asked this Court to restrain the lower court from enforcing the writ
negligent in causing the death or injury resulting from the accident of preliminary injunction it issued, praying that after the hearing on the merits, the
- There were human factors involved in this case that showed negligence such as restraining order be made permanent and the orders complained of be annulled
the failure of the driver to slow down despite the caution by a passenger, with a and set aside. The Court gave due course to the landowner's petition and on August
speed a little less than the speed limit, on a road that was rough, winding and wet 10, 1967 issued the writ of preliminary injunction enjoining the lower court from
due to the rain enforcing the writ of preliminary injunction issued by the latter on October 4, 1965.
- Driver must have taken precautionary measures given the circumstances but the - Thus, the BMMC was unable to use its railroad facilities during the crop year 1968-
driver did not do anything to this effect 1969 due to the closure in 1968 of the portion of the railway traversing the
- For failing to overthrow the presumption of negligence with clear an convincing hacienda Helvetia. In the same case the Court ruled that the Central's conventional
evidence, the Yobidos are held liable for damages amounting to 50,000 pesos right of way over the hacienda Helvetia ceased with the expiration of its amended
- While moral damages are not recoverable in culpa contractual, damages may be milling contracts with the landowners of the hacienda at the end of the 1964-1965
recovered in breach of contract of carriage resulting in the death of a passenger, crop year and that in the absence of a renewal contract or the establishment of a
notwithstanding exemplary damages as the carrier through its driver acted compulsory servitude of right of way on the same spot and route which must be
recklessly predicated on the satisfaction of the preconditions required by law, there subsists
no right of way to be protected.
BACOLOD- MURCIA MILLING CO., INC. V CA - On October 30, 1968, Alonso Gatuslao, sued BMMC for breach of contract, for the
PARAS; February 7, 1990 issuance of a writ ordering defendant to immediately send transportation facilities
and haul the already cut sugarcane to the mill site and to declare the rescission of
NATURE the milling contract executed by plaintiffs and defendant in 1957 for seventeen (17)
Petition for review on certiorari of the decision of the CA promulgated on September years or up to crop year 1973-74, invoking as ground the alleged failure and/or
11, 1987 affirming in toto the decision of the CFI of Negros Occidental in two inability of defendant to comply with its specific obligation of providing the
consolidated civil cases. necessary transportation facilities to haul the sugarcane of Gatuslao from plaintiff's
plantation specifically for the crop year 1967-1968. Plaintiffs further prayed for the
FACTS recovery of actual and compensatory damages as well as moral and exemplary
- BMMC is the owner and operator of the sugar central in Bacolod City, Philippines. damages and attorney's fees.
ALONSO GATUSLAO is a registered planter of the Bacolod-Murcia Mill District, being - BMMC filed in the same court a civil case against Alonso Gatuslao, the Agro-
a registered owner of Lot Nos. 310, 140, 141 and 101-A of the Cadastral Survey of Industrial Development of Silay-Saravia (AIDSISA) and the BM-ACMA, seeking
Murcia, Negros Occidental, known as Hacienda San Roque. On May 24, 1957 BMMC specific performance under the milling contract executed on May 24, 1957 between
and Alonso Gatuslao executed an 'Extension and Modification of Milling Contract' so plaintiff and defendant Alonso Gatuslao praying for the issuance of writs of
that from the crop year 1957-1958 up to crop year 1973-1974, inclusive, Alonso preliminary mandatory injunction to stop the alleged violation of the contract by
Gatuslao will be milling all the sugarcane grown and produced on his plantation with Alonso Gatuslao in confederation with BM-ACMA, AIDSISA, and for the recovery of
the Mill of BMMC. BMMC had been hauling planter Gatuslao's sugar cane to its mill actual, moral and exemplary damages and attorney's fees.
or factory continuously until the crop year 1967-68. - The two cases were concolidated and the trial court ruled in favor of Alonso
- Since the crop year 1920-21 to crop year 1967-1963, inclusive, the canes of Gatuslao, et al. CA affirmed.
planters adhered to the mill of BMMC were transported from the plantation to the
mill by means of cane cars and through railway system operated by BMMC. BMMC ISSUES
constructed the railroad tracks in 1920 and the adherent planters granted the 1. WON the closure of BMMC’s railroad lines constitutes force majeure.
BMMC a right of way over their lands as provided for in the milling contracts. When 2. WON Gatuslao has the right to rescind the milling contract with BMMC.
their milling contracts with BMMC expired at the end of the 1964-1965 crop year, 3. WON Gatuslao was justified in violating his milling contract with BMMC.
the corresponding right of way of the owners of the hacienda Helvetia granted to 4. WON Gatuslao and BM-ACMA are guilty of bad faith in the exercise of their duties
the Central also expired. and are in estoppel to question the adequacy of the transportation facilities of
- BMMC filed a complaint for legal easement against the owners of the hacienda, BMMC and its capacity to mill and haul the canes of its adherent planters.
with the CFI of Negros Occidental which issued on October 4, 1965 an ex parte writ
of preliminary injunction restraining the landowners from destroying the railroad HELD
tracks in question and from impeding, obstructing or in any way preventing the 1. No.
passage and operation of plaintiff's locomotives and cane cars over defendants' Ratio An obligor is exempted from liability for a breach of an obligation due to an
property during the pendency of the litigation and maintained the same in its act of God, when the following elements concur: (a) the cause of the breach of the
subsequent orders of May 31, and November 26, 1966. 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; (b) the debtor
Obligations and Contracts A2010 page 29
Prof. Labitag
must be free from any participation in, or aggravation of the injury to the creditor. and Gatuslao is the injured party. He has the right to rescind the milling contract
Reasoning The terms of the milling contracts were clear and undoubtedly there and neither the court a quo erred in decreeing the rescission claimed nor the CA in
was no reason for BMMC to expect otherwise. The closure of any portion of the affirming the same. Conversely, BMMC cannot claim enforcement of the contract.
railroad track, not necessarily in the hacienda Helvetia but in any of the properties By virtue of the violations of the terms of the contract, the offending party has
whose owners decided not to renew their milling contracts with the Central upon forfeited any right to its enforcement. Likewise, the B-M ACMA cannot be faulted for
their expiration, was forseeable and inevitable. Despite its awareness that the organizing itself to take care of the needs of its members. It was organized at that
conventional contract of lease would expire in Crop Year 1964-1965 and that time when petitioner could not assure the planters that it could definitely haul and
refusal on the part of any one of the landowners to renew their milling contracts mill their canes. More importantly, J. Araneta, Pres. & GM of the BMMC itself
and the corresponding use of the right of way on their lands would render suggested that it explore solutions to the problem of hauling the canes to the
impossible compliance of its commitments, petitioner took a calculated risk that all milling station in the eventuality of a judicial order permanently closing the railroad
the landowners would renew their contracts. Unfortunately, the sugar plantation of lines so that the planters may be able to proceed with their planting with absolute
Angela Estate, Inc. which is located at the entrance of the mill, was the one which peace of mind that they will be properly milled and not left to rot in the fields. The
refused to renew its milling contract. As a result, the closure of the railway located signing of the milling contract between AIDSISA and B-M ACMA was a matter of self-
inside said plantation paralyzed the entire transportation system. Thus, the closure preservation inasmuch as the sugarcanes were already matured and the planters
of the railway lines was not an act of God nor does it constitute force majeure. It had crop loans to pay. Further delay would mean tremendous losses.
was due to the termination of the contractual relationships of the parties, for which Disposition Petition is DENIED for lack of merit and the decision of the CA is
petitioner is charged with knowledge. Angela Estate, Inc. notified BMMC as far back AFFIRMED in toto.
as August or September 1965 of its intention not to allow the passage of the railway
system thru its land after the aforesaid crop year. Adequate measures should have PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION
been adopted by BMMC to forestall such paralyzation but the records show none. V GLOBE TELECOM, INC
All its efforts were geared toward the outcome of the court litigation but provided TINGA; May 25, 2004
no solutions to the transport problem early enough in case of an adverse decision.
2., 3., & 4. Yes, Yes and No, respectively. [were treated as one] NATURE
Ratio The power to rescind obligations is implied in reciprocal ones in case one of Petition for review on certiorari of a decision of the Court of Appeals
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 FACTS
payment of damages in either case. He may also seek rescission even after he had -for several years before 1991, globe coordinated the provision of various
chosen fulfillment if the latter should become impossible. communication facilities for US military bases in Clark Air Base and Subic Naval
Reasoning The contract in question involves reciprocal obligations; as such party Base
is a debtor and creditor of the other, such that the obligation of one is dependent -the US Defense Communications Agency (USDCA) contracted with American
upon the obligation of the other. They are to be performed simultaneously so that companies to operate its communication facilities for its military bases. The
the performance of one is conditioned upon the simultaneous fulfillment of the American companies in turn contracted with Globe for the use of their
other. The party who deems the contract violated may consider it revoked or communication facilities. Globe in turn entered into an Agreement with the
rescinded pursuant to their agreement and act accordingly, even without previous Philippine Communications Satellite Corp. (Philcomsat) for a term of 5 years,
court action. It is the general rule, however, that rescission of a contract will not be whereby the latter would obligate itself to establish, operate and provide an IBS
permitted for a slight or casual breach, but only for such substantial and Standard B earth station for the use of USDCA.
fundamental breach as would defeat the very object of the parties in making the -at the time of the execution of the Agreement, both parties knew the RP-US
agreement. The question of whether a breach of a contract is substantial depends Military Bases Agreement, the basis for the occupancy of the Clark and Subic bases,
upon the attendant circumstances. Both parties are agreed that time is of the was to expire in 1991.
essence in the sugar industry; so that the sugarcanes have to be milled at the right -Art XVIII Sec 25 of the 1987 Constitution states that such foreign bases, its
time, not too early or too late, if the quantity and quality of the juice are to be facilities, troops personnel, shall not be allowed into the Philippines unless a new
assured. BMMC undertook expressly among its principal prestations not only to mill treaty is concurred in by the Senate and ratified by a majority vote of the people in
Gatuslao's canes but to haul them by railway to the mill. The mode of a national referendum.
transportation is a vital factor in the sugar industry; precisely for this reason the 9/16/91: the Senate passed Resolution No. 141, expressing its decision not to
mode of transportation or hauling the canes is embodied in the milling contract. But concur w/ the ratification of the Treaty of Friendship, Cooperation and Security w/c
BMMC is now unable to haul the canes by railways as stipulated because of the was extend the US’s term of use of Subic Naval Base, further seeking the
closure of the railway lines; so that resolution of this issue ultimately rests on withdrawal of all US military forces by 12/31/92
whether or not BMMC was able to provide adequate and efficient transportation 8/06/92: Globe notified Philcomsat of its intention to discontinue the use of the
facilities of the canes of Gatuslao and the other planters milling with BMMC during earth stations in view of the withdrawal of the US forces invoking Sec 8 of their
the crop year 1968-1969. As found by both the trial court and the CA, the answer is Agreement w/c states:
in the negative. BMMC is guilty of breach of the conditions of the milling contract
Obligations and Contracts A2010 page 30
Prof. Labitag
…”neither party will be held liable…for any failure to perform its obligation under (2) the occurrence must render it impossible for the debtor to fulfill his obligation in
this Agreement if such failure results directly or indirectly from force majeure… a normal manner (3) the obligor must be free of participation in, or aggravation of,
including any law, order, regulation, direction or request of the Government of the the injury to the creditor
Philippines…” -the SC agrees w/ CA and the TC that the said requisites are present in the present
-Philcomsat replied, citing Sec 7 on ‘Discontinuance of Service’ of the same case. Both parties had no control over the non-renewal of the RP-US Military Bases
Agreement: Agreement or the subsequent withdrawal of the US forces from Subic
“…Notwithstanding the non-use of the earth station, Globe shall continue to pay -Also, the Court found it unjust to require Globe to continue paying even though
Philcomsat for the rental of the actual number of T1 circuits in use…for the Philcomsat cannot be compelled to continue performing its obligation under the
remaining life of the Agreement…” Agreement
-after the US forces left, Philcomsat filed a complaint at the RTI of Makati 2. YES. Although Globe alleged that it terminated the Agreement w/ Philcomsat
demanding the payment of its outstanding obligations amounting to $4,910,136 effective 11/08/92, the US military forces and personnel completely withdrew only
plus interest and atty’s fees on 12/31/92
-Globe answered insisting that it was exempt from paying since the bases ceased 3. NO. Since both parties have legitimate claims against each other and no party
operations prevailed, an award of atty’s fees is unwarranted. Exemplary damages may be
1/05/99: the trial court rendered its decision, ordering Globe to pay Philcomsat awarded if the erring party acted in a wanton, fraudulent, reckless, oppressive or
$92,238 rental for the month of Dec. and P300,000 as atty’s fees, the dismissal of malevolent manner—however, Globe did not.
the counterclaim Disposition petitions are DENIED for lack of merit. The assailed decision of the CA
-both parties appealed to the CA. Philcomsat claimed that the RTC erred in is affirmed.
considering the non-ratification of the Treaty as force majeure, exempting Globe
from complying w/ its obligations under the Agreement and paying Philcomsat
exemplary damages. Globe contented that the RTC erred in holding it liable for the
Dec. rental fees
-both appeals were dismissed; both parties later filed their respective Petitions for
Review w/c gave rise to the ff issues w/c the court was tasked to resolve:
EASTERN SHIPPING LINES V CA
ISSUES VITUG; July 12, 1994
1. WON the termination of the RP-US Military Bases Agreement, the non-ratification
of the Treaty of Friendship, Cooperation and Security, and the withdrawal of the US FACTS
military forces constitute force majeure exempting Globe from payment - On Dec. 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan
2. WON Globe is liable to pay rental for the month of December, 1992 for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping
3. WON Philcomsat is entitled to atty’s fees and exemplary damages Lines under Bill of Lading No. YMA-8. The shipment was insured under plaintiff's
Marine Insurance Policy No. 81/01177 for P36,382,466.38. On Dec. 12, 1981, upon
HELD arrival of shipment, it was discharged unto the custody of defendant Metro Port
No reversible error was committed by the CA in issuing the assailed decision hence Service, Inc. (The latter excepted to one drum, said to be in bad order, which
petitions are denied damage was unknown to plaintiff.) On Jan 7, 1982 defendant Allied Brokerage
1. YES. Philcomsat contends that Sec 8 of the Agreement should be taken in line w/ Corporation received the shipment from defendant Metro Port Service, Inc., one
Art. 1174 of the Civil Code, and that the termination of the RP-US Military Bases drum opened and without seal. On Jan. 8 and 14, 1982 defendant Allied Brokerage
Agreement cannot be considered force majeure since the happening was Corporation made deliveries of the shipment to the consignee's warehouse. The
foreseeable. However, Art. 1174 also states that “…no person shall be responsible latter excepted to one drum which contained spillages, while the rest of the
for those events which…though foreseen were inevitable…” contents was adulterated/fake.
Art 1306 CC: parties may establish stipulations, terms and conditions so long as - Plaintiff argues: [a] due to the losses/damage sustained by said drum, the
these do not counter any law, morals, public policy, etc. consignee suffered losses totaling P19,032.95, due to the fault and negligence of
Art 1159 CC: obligations arising from contracts have the force of law between the defendants. (Claims were presented against defendants who failed and refused to
contracting parties and should be complied w/ in good faith pay the same) [b] As a consequence of the losses sustained, plaintiff was compelled
-the agreement as to what would constitute fortuitous events in Sec 8 does not run to pay the consignee P19,032.95 under the aforestated marine insurance policy, so
contrary to or expand the concept of fortuitous events under Art. 1174 that it became subrogated to all the rights of action of said consignee against
-Courts cannot stipulate/amend for the parties if the Agreement does not defendants
contravene law, morals, public policy and such; hence, Sec 8 has the force of law - Defendant/s argue/s: [a] As for defendant Eastern Shipping (carrier) it alleged that
between the parties the shipment was discharged in good order from the vessel unto the custody of
-for Globe to be exempt from non-compliance w/ its obligation to pay rental under Metro Port Service so that any damage/losses incurred after the shipment was
Sec 8, the ff must be established: (1) the event must be independent of human will
Obligations and Contracts A2010 page 31
Prof. Labitag
incurred after the shipment was turned over to the latter, is no longer its liability; therefore charged with the obligation to deliver the goods in good condition to the
[b] Metroport (arrastre operator) averred that although subject shipment was consignee.
discharged unto its custody, portion of the same was already in bad order; [c] Allied - We do not, of course, imply by the above pronouncement that the arrastre
Brokerage (broker)alleged that plaintiff has no cause of action against it, not having operator and the customs broker are themselves always and necessarily liable
negligent or at fault for the shipment was already in damage and bad order solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
condition when received by it, but nonetheless, it still exercised extra ordinary care may not vary the rule.
and diligence in the handling/delivery of the cargo to consignee in the same - The instant petition has been brought solely by Eastern Shipping Lines, which,
condition shipment was received by it. being the carrier and not having been able to rebut the presumption of fault, is, in
- Trial Court ruling: [a] Defendants to pay plaintiff, jointly and severally: 1) The any event, to be held liable in this particular case. A factual finding of both the court
amount of P19,032.95, with the present legal interest of 12% per annum from a quo and the appellate court, we take note, is that "there is sufficient evidence
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of that the shipment sustained damage while in the successive possession of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value appellants" (the herein petitioner among them).
of the loss, whichever is lesser, while the liability of defendant Metro Port Service, - Accordingly, the liability imposed on Eastern Shipping Lines, Inc., sole petitioner in
Inc. shall be to the extent of the actual invoice value of each package, crate box or this case, is inevitable regardless of whether there are others solidarily liable with it.
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the 2, The date of the decision of the court a quo. Notice the Disposition portion of this
Management Contract); 2) P3,000.00 as attorney's fees, and 3) Costs. [b] Dismissed case which says: “The legal interest to be paid is 6% on the amount due computed
the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage from the decision, dated 03 February 1988, of the court a quo. A 12% interest, in
Corporation. lieu of 6%, shall be imposed on such amount upon finality of this decision until the
- CA affirmed the decision of the Trial Court in toto. payment thereof.”
3. Art. 2209 CC: If the obligation consists in the payment of a sum of money, and
ISSUES the debtor incurs in delay, the indemnity for damages, there being no stipulation to
1. WON a claim for damage sustained on a shipment of goods can be a solidary, or the contrary, shall be the payment of interest agreed upon, and in the absence of
joint and several, liability of the common carrier, the arrastre operator and the stipulation, the legal interest which is six percent per annum. (This was upheld in a
customs broker number of cases. Kindly check original text)
2. WON payment of legal interest on an award for loss or damage is to be computed - The ostensible discord is not difficult to explain. The factual circumstances may
from the time the complaint is filed or from the date the decision appealed from is have called for different applications, guided by the rule that the courts are vested
rendered with discretion, depending on the equities of each case, on the award of interest.
3. WON the applicable rate of interest, referred to above, is 12% or 6% Nonetheless, it may not be unwise, by way of clarification and reconciliation, to
suggest the following rules of thumb for future guidance:
HELD A. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
1. The common carrier's duty to observe the requisite diligence in the shipment of delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
goods lasts from the time the articles are surrendered to or unconditionally placed The provisions under Title XVIII on "Damages" of the Civil Code govern in
in the possession of, and received by, the carrier for transportation until delivered determining the measure of recoverable damages
to, or until the lapse of a reasonable time for their acceptance by, the person B. With regard particularly to an award of interest in the concept of actual and
entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, compensatory damages, the rate of interest, as well as the accrual thereof, is
161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). imposed, as follows:
- When the goods shipped are either lost or arrive in damaged condition, a i. When the obligation is breached, and it consists in the payment of a sum of
presumption arises against the carrier of its failure to observe that diligence, and money, i.e., a loan or forbearance of money, the interest due should be that
there need not be an express finding of negligence to hold it liable (Art. 1735, Civil which may have been stipulated in writing. Furthermore, the interest due shall
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port itself earn legal interest from the time it is judicially demanded. In the absence
Service vs. Court of Appeals, 131 SCRA 365). of stipulation, the rate of interest shall be 12% per annum to be computed from
- There are, of course, exceptional cases when such presumption of fault is not default, i.e., from judicial or extrajudicial demand under and subject to the
observed but these cases, enumerated in Article 1734 of the Civil Code, are provisions of Article 1169 of the Civil Code.
exclusive, not one of which can be applied to this case. ii. When an obligation, not constituting a loan or forbearance of money, is
- The question of charging both the carrier and the arrastre operator with the breached, an interest on the amount of damages awarded may be imposed at
obligation of properly delivering the goods to the consignee has, too, been passed the discretion of the court at the rate of 6% per annum. No interest, however,
upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA shall be adjudged on unliquidated claims or damages except when or until the
455) demand can be established with reasonable certainty. Accordingly, where the
- Since it is the duty of the ARRASTRE to take good care of the goods that are in its demand is established with reasonable certainty, the interest shall begin to run
custody and to deliver them in good condition to the consignee, such responsibility from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are Code) but when such certainty cannot be so reasonably established at the time
Obligations and Contracts A2010 page 32
Prof. Labitag
the demand is made, the interest shall begin to run only from the date the considers interest a form of indemnity for the delay in the performance of an
judgment of the court is made (at which time the quantification of damages obligation.
may be deemed to have been reasonably ascertained). The actual base for the Because the amount due in this case arose from a contract for a piece of work, not
computation of legal interest shall, in any case, be on the amount finally from a loan or forbearance of money, the legal interest of six percent (6%) per
adjudged. annum should be applied. Furthermore, since the amount of the demand could be
iii. When the judgment of the court awarding a sum of money becomes final established with certainty when the Complaint was filed, the six percent (6%)
and executory, the rate of legal interest, whether the case falls under interest should be computed from the filing of the said Complaint. But after the
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality judgment becomes final and executory until the obligation is satisfied, the interest
until its satisfaction, this interim period being deemed to be by then an should be reckoned at twelve percent (%12) per year.
equivalent to a forbearance of credit. Private respondent maintains that the twelve percent (12%) interest should be
Disposition Petition is partly GRANTED. The appealed decision is AFFIRMED with imposed, because the obligation arose from a forbearance of money. This is
the MODIFICATION that the legal interest to be paid is 6% on the amount due erroneous. In Eastern Shipping , the Court observed that a "forbearance" in the
computed from the decision, dated 03 February 1988, of the court a quo. A 12% context of the usury law is a "contractual obligation of lender or creditor to refrain,
interest, in lieu of 6%, shall be imposed on such amount upon finality of this during a given period of time, from requiring the borrower or debtor to repay a loan
decision until the payment thereof. or debt then due and payable." Using this standard, the obligation in this case was
obviously not a forbearance of money, goods or credit.
CRISMINA GARMENTS V CA Disposition Decision modified.The rate of interest shall be six percent (6%) per
PANGANIBAN; March 9, 1999 annum, computed from the time of the filing of the Complaint in the trial court until
the finality of the judgment. If the adjudged principal and the interest (or any part
FACTS thereof) remain unpaid thereafter, the interest rate shall be twelve percent (12%)
-The petitioner, who was engaged in the export of girls' denim pants, contracted the per annum computed from the time the judgment becomes final and executory until
services of the respondent, the sole proprietress of the D'Wilmar Garments, for the it is fully satisfied. No pronouncement as to costs.
sewing of 20,762 pieces of assorted girls denims. The respondent sewed the
materials and delivered them to the petitioner. KENG HUA V CA
-Petitioner told the respondent that some were defective. The respondent offered to PANGANIBAN; February 12, 1998
take the defective goods back, but the petitioner’s representative already said they
were good. She was told just to return for her check of P76,410. NATURE
-The petitioner failed to pay. The respondent demanded payment. The petitioner’s Petition for review on certiorari of a decision of the Court of Appeals.
vice president comptroller wrote to the respondent saying that 6,164 pairs of jeans
were defective and as such, she was liable to the petitioner for P49,925.51. FACTS
- The respondent filed before the trial court for the collection of P76,410. The trial Respondent Sea-Land Service Inc., a shipping company, received at its Hong Kong
court ordered the petitioner to pay the said amount with interest thereon at 12% terminal a sealed container containing 76 bales of “unsorted waste paper” for
per annum. The CA affirmed. shipment to petitioner Keng Hua Paper Products, Co. in Manila. A bill of lading to
- petitioner submits that the interest rate should be six percent (6%), pursuant to cover the shipment was issued by the plaintiff. On July 9, 1982, the shipment was
Article 2209 of the Civil Code. On the other hand, private respondent maintains that discharged at the Manila International Container Port. Notices of arrival were
the interest rate should be twelve percent (12 %) per annum, in accordance with transmitted to the petitioner but the latter failed to discharge the shipment from the
Central Bank (CB) Circular No. 416. She argues that the circular applies, since "the container during the grace period. The said shipment remained inside the
money sought to be recovered by her is in the form of forbearance." respondent’s container from the moment the grace period expired until the time the
shipment was unloaded from the container on November 22, 1983 or a total of 481
ISSUE days. During this period, demurrage charges accrued. Letters demanding payment
WON it is proper to impose interest at the rate of twelve percent (12%) per annum were sent to the petitioner who refused to settle its obligation which eventually
for an obligation that does not involve a loan or forbearance of money in the amounted to P67,340.00. Petitioner alleges that it had purchased 50 tons of waste
absence of stipulation of the parties paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in the
Letter of Credit; that, under the letter of credit, the remaining balance of the
HELD shipment was only 10 metric tons; that the shipment respondent was asking
No. The proper interest rate should be 6% per annum. petitioner to accept was 20 metric tons; that if petitioner were to accept the
In Reformina v. Tomol Jr., this Court stressed that the interest rate under CB Circular shipment, it would be violating Central Bank rules and regulations and custom and
No. 416 applies to (1) loans; (2) forbearance of money, goods or credits; or (3) a tariff laws; that respondent had no cause of action against petitioner because the
judgment involving a loan or forbearance of money, goods or credits. Cases beyond latter did not hire the former to carry the merchandise. Petitioner contends that it
the scope of the said circular are governed by Article 2209 of the Civil Code, which should not be bound by the bill of lading because it never gave its consent thereto.
Obligations and Contracts A2010 page 33
Prof. Labitag
Although petitioner admits “physical acceptance” of the bill of lading, it argues that embodied in the bill of lading. Petitioner’s remedy in the case of overshipment lies
its subsequent actions belie the finding that it accepted the terms therein. against the seller/shipper, not against the carrier.
Petitioner cites as support the “Notice of Refused or On Hand Freight” it received on 4. No. The case involves an obligation not arising from a loan or forbearance of
November 2, 1982 from respondent, which acknowledged that petitioner declined money, thus pursuant to Art. 2209 of the Civil Code the applicable interest rate is
to accept the shipment. Petitioner points to its January 24, 1983 letter to 6% per annum to be computed from the date of the trial court’s decision. The rate
respondent stressing “that its acceptance of the bill of lading would be tantamount of 12% per annum shall be charged on the total then outstanding from the time the
to an act of smuggling as the amount it had imported was only for 10,000 judgment becomes final and executory until its satisfaction.
kilograms”. The discrepancy in the amount of waste paper it actually purchased vis- 5. No. The Court notes that the matter of attorney’s fees was taken up only in the
à-vis the excess amount in the bill of lading allegedly justified its refusal to accept Disposition portion of the trial court’s decision. The settled requirement is that the
the shipment. text of the decision should state the reason for the award of attorney’s fees.
Disposition Decision is AFFIRMED with the MODIFICATION that legal interest be
ISSUES computed at 6% per annum from September 28, 1990, then at 12% per annum
1. WON petitioner is bound by the bill of lading from finality of judgment until full satisfaction. The award of attorney’s fees is
2. WON the amount of demurrage charges is correct DELETED.
3. WON petitioner was correct in not accepting the overshipment
4. WON the award of interest is correct SECURITY BANK V RTC
5. WON the award of attorney’s fees is correct HERMOSISIMA; October 23, 1996
HELD
1. Yes. A bill of lading serves 2 functions. 1st, it is a receipt for the goods shipped. NATURE
2nd, it is a contract by which three parties, namely, the shipper, the carrier, and the Petition for review on certiorari of a decision of the RTC of Makati assailing the
consignee undertake specific responsibilities and assume stipulated obligations. The decision of Judge Fernando Gorospe, which found private respondent Eusebio liable
acceptance of a bill of lading by the shipper and the consignee, with full knowledge to petitioner for a sum of money.
of its contents, gives rise to the presumption that the same was a perfected and
binding contract. In the case at bar, both lower courts held that the bill of lading FACTS
was a valid and perfected contract between the shipper (Ho Kee), the consignee - April 27, 1983, private respondent Magtanggol Eusebio executed a promissory
(petitioner Keng Hua), and the carrier (respondent Sea-Land). Section 17 of the bill note in favor of petitioner Security Bank and Trust Co. (SBTC) in the total
of lading provided that the shipper and the consignee were liable for the payment amount of P100,000  payable in 6 monthly installments with 23% per annum
of demurrage charges for the failure to discharge the shipment beyond the grace interest up to the 5th installment
period allowed by tariff rules. Petitioner admits that its received the bill of lading - July 28, 198, Eusebio again executed another promissory note to SBTC. He bound
immediately after the arrival of the shipment on July 8, 1982. It was only 6 months himself to pay P100,000  again payable in 6 monthly installments with 23% per
later that petitioner sent a letter to respondent saying that it could not accept the annum interest
shipment. Petitioner’s inaction for such a long time conveys the clear inference that - Finally, another promissory note was executed in Aug. 31, 1983 in the amount of
it accepted the terms and conditions of the bill of lading. Mere apprehension of P65,000.
violating customs, tariff and central bank laws without a clear demonstration that - On all promissory notes, Leila Ventura signed as co-maker.
taking delivery of the shipment has become legally impossible cannot defeat the - Upon maturity, the principal balance remaining on the note stood as:
petitioner’s contractual obligation and liability under the bill of lading. In any event, PN1 – P16, 665 as of Sept. 1983
the issue of whether or not petitioner accepted the bill of lading was raised for the PN2 – P 83,333 as of Aug. 1983
first time on appeal to this Court and cannot be entertained. Questions not raised in PN3 – P65,000 as of Aug. 1983
the trial court cannot be raised for the first time on appeal. - SBTC filed a collection case upon Euseio’s refusal to pa the balance payable
2. Yes. Petitioner’s argument that it is not obligated to pay any demurrage charges - RTC ordered Eusebio to pay the balance w/ 12% interest
because respondent made no demand for the sum of P67,340 prior to the filing of - SBTC filed a motion for partial reconsideration contending that: (1) the interest
the complaint is puerile. The amount of demurrage charges is a factual conclusion rate agreed upon was 23% (2) the interests awarded should be compounded
of the trial court that was affirmed by the Court of Appeals and, thus, binding on quarterly from due date (3) Leila Ventura should likewise be held liable to pay the
this Court. balance since she has signed as co-maker
3. No. The contract of carriage, as stipulated in the bill of lading, must be treated - The court held Leila Ventura to be jointly and severally liable but denied the
independently of the contract of sale between the seller and the buyer, and the motion to grant the rates beyond 12%; hence this petition
contract for the issuance of a letter of credit between the buyer and the issuing
bank. Any discrepancy between the amount of the goods described in the ISSUE
commercial invoice in the contract of sale and the amount allowed in the letter of
credit will not affect the validity and enforceability of the contract of carriage as
Obligations and Contracts A2010 page 34
Prof. Labitag
WON the 23% rate of interest per annum agreed upon by petitioner bank and - March 31, 1984 the bank, over petitioners’ protests, raised the interest rate to
respondents is allowable and not against the Usury law. 28% pursuant to their credit agreement; interest rate increased to a high of 68%
between March 1984 to Sept 1986
HELD - before the loan was to mature in March 1988, the spouses filed a petition for
YES it is allowable declaratory relied with prayer for a writ of preliminary injunction and TRO—spouses
Ratio sought clarification as to WON the PNB could unilaterally raise interest rates on the
- the applicable provision of law is the Central Bank Circular No. 905 w/c took effect loan, pursuant to the credit agreement’s escalation clause
on Dec. 22, 1982, part. Sec. 1&2 - lower court issued TRO; by this time the spouses were already in default of their
- Central Bank Circular 905 was issued by Central Bank Monetary Board which loan obligations---> invoking the law on Mandatory Foreclosure (Act 3135 and PD
empowers them to prescribe the maximum rates of interest for loans and certain 385), PNB countered by ordering the extrajudicial foreclosure of petitioners’
forebearances mortgaged properties----> lower court, however, issued a supplemental writ of
- This circular did not repeal or in any way amend the Usury Law but simply preliminary injunction
suspended the latter’s effectivity; basic is the rule in statutory construction that - PNB posted a counterbond and the trial court dissolved the supplemental writ; PNB
when the law is clear and unambiguous, the court is left with not alternative but to once more set a new date for the foreclosure of Marvin Plaza
apply the same in its clear language -spouses tendered to PNB the amount of 40,142,518 pesos (interest calculated at
- The rate was agreed upon by the parties freely; respondent did not question that 21%); PNB refused to accept---> spouses formally consigned the amount with the
rate and it is not for the respondent court to change stipulation in the contract RTC which granted the writ of preliminary injunction enjoining the foreclosure of
where it is not illegal Marvin Plaza
- Furthermore, art. 1306 CC provides that contracting parties may establish such - Judge Capulong refused to lift WPI
stipulations, clauses, terms and conditions as they may deem convenient, provided - PNB filed petition for Certiorari, Prohibition and Mandamus with CA
they are not contrary to law, morals, good customs, public order or public policy - On August 1993 CA rendered its decision setting aside the assailed orders and
- In a loan or forbearance of money, the interest due should be that stipulated in upholding respondent’s right to foreclose the mortgaged property pursuant to Act
writing and in the absence thereof, the rate shall be 12% per annum; hence only in 3135 and PD 385
the absence of a stipulation can a court impose the 12% interest
ISSUES
ALMEDA V COURT OF APPEALS 1. WON PNB was authorized to raise its interest rates from 21% to as high as 68%
KAPUNAN; April 17, 1996 under the credit agreement
2. WON PNB is granted the authority to foreclose the Marvin Plaza under the
NATURE mandatory foreclosure provisions of PD385
Petition for review on certiorari a decision of the CA setting aside the TRO and
upholding respondent’s right to foreclose the mortgaged property HELD
Ratio 1. Any contract which appears to be heavily weighed in favor of one of the
FACTS parties so as to lead to an unconscionable result is void. Any stipulation regarding
- in 1981, Philippine National Bank granted to petitioners, spouses Ponciano Almeda the validity or compliance of the contract which is left solely to the will of one of the
and Eufemia Almeda, several loan/credit accommodations totaling P18 Million parties, is likewise, invalid.
payable in 6 years at an interest rate of 21% per annum 2. In facilitating collection of debts through the automatic foreclosure provisions of
- to secure the loan, spouses executed a Real Estate Mortgage Contract covering a PD 385, the government is, however, not exempted from observing basic principles
3.5 K sq.m. parcel of land and the building erected thereon (the Marvin Plaza) of law, and ordinary fairness and decency under the due process clause of the
located at Pasong Tamo, Makati Constitution.
- a credit agreement with the ff pertinent terms and conditions:
>interest of 21% per annum, payable semi-annually in arrears, the first interest Reasoning
payment to become due and payable 6 months from date of initial release of loan 1. – the binding effect of any agreement between parties to a contract is premised
>”the Bank reserves the right to increase the interest rate within the limits on two settled principles: that any obligation arising from contract has the force of
allowed by law at any time depending on whatever policy it may adopt in the law between the parties; and that there must be mutuality between the parties
future...the adjustment in the interest rate agreed upon shall take effect on the based on their essential equality
effectivity date of the increase/decrease of the maximum interest rate.” - PNB unilaterally altered the terms of its contract with petitioners by increasing
- between 1981 and 1984 petitioners made several partial payments on the loan the interest rates on the loan without prior assent of the latter
totaling 7,735,004.66, a substantial portion of which was applied to accrued interest - the manner of agreement is itself explicitly stipulated by the Civil Code in
Art.1956 “no interest shall be due unless it has been expressly stipulated in
writing”--- what has been stipulated in writing is that petitioners were bound
merely to pay 21% interest, subject to possible escalation or de-escalation
Obligations and Contracts A2010 page 35
Prof. Labitag
when the circumstances warrant it, it is within the limits allowed by law, and date of the first release in accordance with the Schedule of Amortization. Incase of
upon agreement default, an acceleration clause was provided and the amount due was 20% one-
- in PNB v. CA, PNB was disauthorized from unilaterally raising the interest rate time penalty on the amount due and such amount shall bear interest at the highest
partly because the increase violated the principle of mutuality of contracts rate permitted by law plus attorney’s fees equivalent to 25% of the sum sought to
expressed in Art.1308 of the CC “the contract must bind both contracting be recovered which in no case shall be less than 20,000. respondent Este Del Sol
parties; its validity or compliance cannot be left to the will of one of them” also executed as provided for in the Loan Agreement, an Underwriting Agreement
- increases were arbitrary on Jan 31, 1978 whereby FMIC shall get a one-time underwriting fee of P200,000 in
- escalation clauses in credit agreements are perfectly valid and do not the form of 120,000 shares of Este Del Sol’s capital stock. In addition to the
contravene public policy. However, they are still subject to laws and provisions underwriting fee, the underwriting agreement provided a supervision fee of 200,000
governing agreements between parties, which agreements implicitly per annum for a period of 4 consecutive years for the supervision of the public
incorporate provisions of existing law offering of the shares. The underwriting agreement also stipulated for the payment
- the credit agreement requires that the increase be within the limits allowed by respondent to FMIC a consultancy fee of P332, 500.00 per annum for a period of
by law—refers to legislative enactments not admin circulars (PNB relied on CB 4 years. On February 22, 1978, FMIC billed respondents P200,000 as underwriting
Circular No. 905) as shown in the credit agreement where there is a distinction fee, P1,330,000 as consultancy fee for 4 years, P200,000 as supervision fee. These
made between “law or the Monetary Board Circulars” amounts were deducted from the first release of the loan. Since respondent failed
-Banco Filipino Savings and Mortgage Bank v. Navarro: distinction between a to meet the schedule of re-payment in accordance with a revised Schedule of
law and an admin regulation is recognized in the Monetary Board guidelines; Amortization, it appeared to have incurred a total obligation of P12, 679, 630.98
guidelines thus presuppose that a Central Bank regulation is not within the (see p.106 for breakdown). This was unpaid and accordingly, FMIC caused the
term ‘any law’ extrajudicial foreclosure of the real estate mortgage. The property was auctioned
- petitioners never agreed in writing to pay the increased interest rates and FMIC with 9,000,000 was the highest bidder. After deducting further fees and
demanded by PNB charges, a balance of 6,863,297.73 was left. Failing to receive payment for the
2. – PD 385 was issued principally to guarantee that government financial balance, FMIC instituted an instant collection suit over the petitioners, which was
institutions would not be denied substantial cash inflows necessary to finance the approved by the trial court. However, on appeal, CA found and declared that the
government’s development projects by large borrowers who resort to litigation to fees provided for in the underwriting and consultancy agreements were mere
prevent or delay the government’s collection of their debts or loans subterfuges to camouflage the excessively usurious interest charged by FMIC. They
- the dispute regarding the interest rate increases was never settled so also declared that the one-time 20% penalty on the amount due and the 10%
the exact amount of petitioners’ obligations could not be determined attorney’s fees would be reasonable and suffice to compensate FMIC for those
- the foreclosure provisions could be validly invoked by PNB only after items. CA ordered FMIC to pay or reimburse Este Del Sol the amount of P971, 000
settlement of the question involving the interest rate on the loan, and only after representing the difference between what is due to the petitioner and what is due
the spouses refused to meet their obligations following such determination to Este (computation on p.109).
- PNB cannot claim that there was no honest-to-goodness attempt on the part of
the spouses to settle their obligations ISSUES
Disposition The unilateral and progressive increases imposed by PNB were null 1. WON Central Bank Circular No. 905 should be applied retroactively
and void. The decision and resolution of the CA is REVERSED AND SET ASIDE. The 2. WON the Loan Agreement was usurious
case is remanded to RTC for further proceedings. 3. WON the CA erred in awarding an amount not prayed for by the respondents

FIRST METRO INVESTMENT CORPORATION V ESTE DEL HELD


SOL MOUNTAIN RESERVE, INC. 1. No. Central Bank Circular No. 905 which removed the ceiling on interest rates for
DE LEON; November 15, 2001 secured and unsecured loans regardless of maturity, took effect on Jan 1, 1983. The
Loan Agreement in question was executed on Jan 31, 1978 when the law in effect
NATURE was the Usury Law. It is an elementary rule of contracts that the laws, in force at
Petition for review on certiorari of a decision of the Court of Appeals the time the contract was made and entered into, govern it. Moreover, the circular
did not repeal, but only suspended the effectivity of the Usury Law. Furthermore, a
FACTS Central Bank Circular cannot repeal a law. Thus, retroactive application of a Central
On January 31, 1978, petitioner FMIC granted respondent Este Del Sol a loan of P7, Bank Circular cannot and should not be presumed.
385, 500.00 to finance the construction and development of the Este Del Sol 2. Yes. An apparently lawful loan is usurious when it is intended that additional
Mountain Reserve, a sports/resort complex project located at Bario Puray, compensation for the loan be disguised by an ostensibly unrelated contract
Montalban, Rizal. Under the terms of the loan agreement, interest on the loan was providing for payment by the borrower for the lender’s services which are of little
16% per annum based on the diminishing balance. Loan was payable in 36 equal value or which are not in fact to be rendered. In the instant case, several facts and
and consecutive monthly amortizations to commence at the 13th month from the instances taken altogether show that the Underwriting and Consultancy
Agreements were simply cloaks or devices to cover an illegal scheme employed by
Obligations and Contracts A2010 page 36
Prof. Labitag
petitioner FMIC. These are: 1) the Underwriting and Consultancy Agreements are - on December 8, 1954, a document entitled "Revocation of Power of Attorney and
the same date of the Loan Agreement. This fact means that all the said agreements Contract" was executed wherein Gaite transferred to Fonacier, for the consideration
which were executed simultaneously were set to mature or shall remain effective of P20,000, plus 10% of the royalties that Fonacier would receive from the mining
during the same period of time. 2) As admitted by FMIC, the Underwriting claims
Agreement is “part and parcel of the Loan Agreement”. 3) It is from the first partial > all his rights and interests on all the roads, improvements, and facilities in or
release of the loan that the said corresponding bills for Underwriting, Supervision outside said claims
and Consultancy fees were deducted and apparently paid. 4) Regarding the > the right to use the business name "Larap Iron Mines" and its goodwill
underwriting Agreement involving 120,000 shares of respondent’s capital stock, > all the records and documents relative to the mines
there was really no need for an Underwriting Agreement since respondent had its - Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of
own marketing arm to sell its shares. 5) There was no need for a Consultancy iron ore, more or less" that had been already extracted from the mineral claims, in
Agreement since respondent appeared to be more competent to be consultants in consideration of the sum of P75,000, P10,000, of which was paid upon the signing
the development of the project. However, in usurious loans, the entire obligation of the agreement, and the balance of P65,000 will be paid from and out of the first
does not become void because of an agreement for usurious interest; the unpaid letter of credit covering the first shipment of iron ores and or the first amount
principal debt still stands and remains but the stipulation as to the usurious interest derived from the local sale of iron ore made by the Larap Mines & Smelting Co, Inc.,
is void. The nullity of the stipulation on the usurious interest does not affect the its assigns, administrators, or successors in interests.
lender’s right to receive back the principal amount of the loan. As to the debtor, the - To secure the payment of the balance of P65,000.00, Fonacier executed a surety
amount paid for the usurious interest is recoverable by him. bond in favor of Gaite dated December 8, 1954 with himself (Fonacier) as principal
3. No. Whether the exact amount of the relief was not expressly prayed for is of no and the Larap Mines and Smelting Co. and its stockholders George Krakower,
moment for the reason that that the relief was plainly warranted by the allegations Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties
of the respondents as well as by the facts as found by the appellate court. A party is - Gaite testified when this bond was presented to him by Fonacier together with the
entitled to as much relief as the facts may warrant. "Revocation of Power of Attorney and Contract", he refused to sign unless another
bond underwritten by a bonding company was put up by defendants to secure the
GAITE V FONACIER payment of the P65,000 balance of the price of the iron ore in the stockpiles in the
REYES; July 31, 1961 mining claims. Hence, a second bond, also dated December 8, 1954 was executed
by the same parties to the first bond with the Far Eastern Surety and Insurance Co.
NATURE as additional surety, but it provided that the liability of the surety company would
Appeal from CFI Manila attach only when there had been an actual sale of iron ore by the Larap Mines &
Smelting Co. for an amount of not less than P65,000, and that, furthermore, the
FACTS liability of said surety company would automatically expire on December 8, 1955.
- Isabelo Fonacier was the owner and/ or holder, either by himself or in a - upon signing, Fonacier entered into a "Contract of Mining Operation", ceding,
representative capacity, of 11 iron lode mineral claims, known as the Dawahan transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to
Group, situated in the municipality of Jose Panganiban, province of Camarines Norte develop, exploit, and explore the mining claims in question, together with the
- By a "Deed of Assignment" dated September 29, 1952, Fonacier constituted and improvements therein and the use of the name "Larap Iron Mines" and its goodwill,
appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a in consideration of certain royalties and transferred the complete title to the
contract with any individual or juridical person for the exploration and development approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap
of the mining claims on a royalty basis of not less than P0.50 per ton of ore that Mines & Smelting Co., in consideration for the signing by the company and its
might be extracted therefrom stockholders of the surety bonds delivered by Fonacier to Gaite
- On March 19, 1954, Gaite in turn executed a general assignment conveying the - Up to December 8, 1955, when the bond expired WRT the Far Eastern Surety and
development and exploitation of said mining claims unto the Larap Iron Mines, a Insurance Company, no sale of the approximately 24,000 tons of iron ore had been
single proprietorship owned solely by and belonging to him, on the same royalty made by the Larap Mines & Smelting Co., Inc., nor had the P65,000 balance of the
basis price of said ore been paid to Gaite by Fonacier and his sureties
- Gaite embarked upon the development and exploitation of the mining claims in - Gaite demanded from Fonacier and his sureties payment of said amount, on the
question, opening and paving roads within and outside their boundaries, making theory that they had lost every right to make use of the period given them when
other improvements and installing facilities therein for use in the development of their bond automatically expired and when Fonacier and his sureties failed to pay
the mines, and extracted what he claimed and estimated to be approximately as demanded by Gaite, the latter filed the present complaint against them in the
24,000 metric tons of iron ore. Court of First Instance of Manila for the payment of the P65,000 balance of the price
- For some reason or another, Isabelo Fonacier decided to revoke the authority of the ore, consequential damages, and attorney's fees.
granted by him to Gaite to exploit and develop the mining claims in question, and - All the defendants except Francisco Dante set up the uniform defense that the
Gaite assented subject to certain conditions obligation sued upon by Gaite was subject to a condition that the amount would be
payable out of the first letter of credit, covering the first shipment of iron ore and/or
the first amount derived from the local sale of the iron ore by the Larap Mines &
Obligations and Contracts A2010 page 37
Prof. Labitag
Smelting Co., Inc. and that up to the time of the filing of the complaint, no sale of 2) A contract of sale is normally commutative and onerous not only does each one
the iron ore had been made, hence the condition had not yet been fulfilled and that of the parties assume a correlative obligation (the seller to deliver and transfer
consequently, the obligation was not yet due and demandable. ownership of the thing sold and the buyer to pay the price), but each party
- Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron anticipates performance by the other from the very start. While in a sale the
ore sold to him by Gaite was actually delivered, and counterclaimed for more than obligation of one party can be lawfully subordinated to an uncertain event, so that
P200,000 damages. the other understands that he assumes the risk of receiving nothing for what he
- lower court held that the obligation of defendants to pay plaintiff the P65,000 gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the
balance of the price of the approximately 24,000 tons of iron ore was one with a usual course of business to do so; hence, the contingent character of the obligation
term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, must clearly appear. Nothing is found in the record to evidence that Gaite desired
such sale to be effected within one year or before December 8, 1955; that the or assumed to run the risk of losing his rights over the ore without getting paid for
giving of security was a condition precedent to Gaite's giving of credit to it, or that Fonacier understood that Gaite assumed any such risk. This is proved by
defendants; and that as the latter failed to put up a good and sufficient security in the fact that Gaite insisted on a bond to guarantee payment of the P65,000, and not
lieu of the Far Eastern Surety bond which expired on December 8, 1955, the only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's
obligation became due and demandable under Article 1198 of the New Civil Code stockholders, but also on one by a surety company; and the fact that appellants did
- lower court found that plaintiff Gaite did have approximately 24,000 tons of the put up such bonds indicates that they admitted the definite existence of their
iron ore at the mining claims in question at the time of the execution of the contract obligation to pay the balance of P65,000.
- Judgment of LC was rendered in favor of plaintiff Gaite ordering defendants to pay 3) To subordinate the obligation to pay the remaining P65,000 to the sale or
him, jointly and severally, P65,000 with interest at 6% per annum from December 9, shipment of the ore as a condition precedent, would be tantamount to leaving the
1955 until full payment, plus costs payment at the discretion of the debtor, for the sale or shipment could not be made
unless the appellants took steps to sell the ore. Appellants would thus be able to
ISSUES postpone payment indefinitely.
1. WON the obligation of Fonacier and his sureties to pay Gaite P65,000 is one with 4) Assuming that there could be doubt whether by the wording of the contract the
a period or term and not one with suspensive condition parties intended a suspensive condition or a suspensive period (dies ad quem) for
2. if it is an obligation with a term, WON defendants have a right to insist that Gaite the payment of the P65,000, the rules of interpretation would incline the scales in
should wait for the sale or shipment of the ore before receiving payment or WON favor of "the greatest reciprocity of interests", since sale is essentially onerous. The
they are entitled to take full advantage of the period granted them for making the Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides:
payment "if the contract is onerous, the doubt shall be settled in favor of the. greatest
3. WON the estimated 24,006 tons of iron ore sold by plaintiff Gaite to defendant reciprocity of interests.";
Fonacier were actually in existence in the mining claims when these parties and there can be no question that greater reciprocity obtains if the buyer's
executed the "Revocation of Power of Attorney and Contract" obligation is deemed to be actually existing, with only its maturity (due date)
postponed or deferred, than if such obligation were viewed as non-existent or not
HELD binding until the ore was sold.
1. YES. - The only rational view that can be taken is that the sale of the ore to Fonacier was
Ratio The shipment or local sale of the iron ore is not a condition precedent (or a sale on credit, and not an aleatory contract where the transferor, Gaite, would
suspensive) to the payment of the balance of P65,000, but was only a suspensive assume the risk of not being paid at all; and that the previous sale or shipment of
period or term. the ore was not a suspensive condition for the payment of the balance of the
Reasoning agreed price, but was intended merely to fix the future date of the payment.
- What characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is subordinated to the 2. NO.
happening of a future and uncertain event; so that if the suspensive condition does Ratio Appellants have forfeited the right to compel Gaite to wait for the sale of the
not take place, the parties would stand as if the conditional obligation had never ore before receiving payment of the balance of P65,000 because of their failure to
existed renew the bond of the Far Eastern Surety Company or else replace it with an
- That the parties to the contract did not intend any such state of things to prevail is equivalent guarantee.
supported by several circumstances: Reasoning
1) The words of the contract express no contingency in the buyer's obligation to - The expiration of the bonding company's undertaking on December 8, 1955
pay: "The balance of Sixty-Five Thousand Pesos (P65,000) will be paid out of the substantially reduced the security of the vendor's rights as creditor for the unpaid
first letter of credit covering the first shipment of iron ore . . ." etc. There is no P65,000, a security that Gaite considered essential and upon which he had insisted
uncertainty that the payment will have to be made sooner or later; what is when he executed the deed of sale of the ore to Fonacier.
undetermined is merely the exact date at which it will be made. By the very terms - The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil
of the contract, therefore, the existence of the obligation to pay is recognized; only Code of the Philippines:
its maturity or demandability is deferred. "ART. 1198. The debtor shall lose every right to make use of the period:
Obligations and Contracts A2010 page 38
Prof. Labitag
(1) * * * * * - on the average weight in tons per cubic meter, the parties are in disagreement,
(2) When he does not furnish to the creditor the guaranties or securities which he with Fonacier claiming the correct tonnage factor to be 2.18 tons to a cubic meter,
has promised. while Gaite claims that the correct tonnage factor is about 3.7.
(3) When by his own acts he has impaired said guaranties or securities after their - In the face of the conflict of evidence, we take as the most reliable estimate of the
establishment, and when through fortuitous event they disappear, unless he tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of
immediately gives new ones equally satisfactory." the Mines and Metallurgical Division of the Bureau of Mines, a government
- Appellants' failure to renew or extend the surety company's bond upon its pensionado to the States and a mining engineering graduate of the Universities of
expiration plainly impaired the securities given to the creditor (appellee Gaite), Nevada and California, with almost 22 years of experience in the Bureau of Mines,
unless immediately renewed or replaced. who placed the tonnage factor of every cubic meter of iron ore at between 3 metric
- no merit in appellants' argument that Gaite's acceptance of the surety company's tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely
bond with full knowledge that on its face it would automatically expire within one corresponds to the average tonnage factor of 3.3 adopted in his corrected report by
year was a waiver of its renewal after the expiration date engineer Nemesio Gamatero, of Bureau of Mines to the mining claim involved at the
- No such waiver could have been intended, for Gaite stood to lose and had nothing request of appellant Krakower, precisely to make an official estimate; of the amount
to gain thereby; and if there was any, it could be rationally explained only if the of iron ore in Gaite's stockpiles after the dispute arose.
appellants had agreed to sell the ore and pay Gaite before the surety company's - if we multiply it by the, average tonnage factor of 3.3 tons to a cubic meter, the
bond expired on December 8, 1955. But in the latter case the defendants- product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons
appellants' obligation to pay became absolute after one year from the transfer of made by Gaite, considering that actual weighing of each unit of the mass was
the ore to Fonacier by virtue of the deed practically impossible
- It must not be forgotten that the contract expressly stated the amount to be
3. YES 24,000 tons, more or less.
Ratio No short-delivery as would entitle Fonacier to the payment of damages, nor Disposition Judgment affirmed
could Gaite have been guilty of any fraud in making any misrepresentation as to the
total quantity of ore in the stockpiles of the mining claims in question since Gaite's GONZALES V HEIRS OF THOMAS AND PAULA CRUZ
estimate appears to be substantially correct. PANGANIBAN; September 16, 1999
Reasoning
Important things NATURE
1. that this is a case of a sale of a specific mass of fungible goods for a single price Petition for review on certiorari of a decision of the Court of Appeals reversing
or a lump sum, the quantity of "24,000 tons of iron ore, more or less", stated in the decision of trial court and ordering Gonzales to surrender possession of the
contract being a mere estimate by the parties of the total tonnage weight of the property. (RTC of San Mateo, Rizal dismissed case in favor of Gonzales)
mass
2. evidence shows that neither of the parties had actually measured or weighed the FACTS
mass, so that they both tried to arrive at the total quantity by making an estimate - Dec 1, 1983 – Paula Ano Cruz, together with heirs of Thomas and Paula Cruz
of the volume thereof in cubic meters and then multiplying it by the estimated (Lessors) entered into a CONTRACT OF LEASE/PURCHASE with Felix Gonzales (sole
weight per ton of each cubic meter. proprietor of Felgon Farms/Lessee) of a half-portion of a parcel of land situated in
- The sale between the parties is a sale of a specific mass of iron ore because no Rodriguez, Rizal, covered by Transfer Certificate of Title
provision was made in their contract for the measuring or weighing of the ore sold - Contract contains the following provisions:
in order to complete or perfect the sale, nor was the price of P75,000 agreed upon PAR.1. The terms of this contract is for a period of one year upon the signing
by the parties based upon any such measurement (see Art. 1480, second par., New thereof. After the period of this Contract, the LESSEE shall purchase the property on
Civil Code). The subject-matter of the sale is, therefore, a determinate object, the the agreeable price of 1M payable w/in 2 years period with an interest of 12% per
mass, and not the actual number of units or tons contained therein, so that all that annum...
was required of the seller Gaite was to deliver in good faith to his buyer all of the PAR.2. The LESSEE shall pay by way of annual rental an amount equivalent to
ore found in the mass, notwithstanding that the quantity delivered is less than the P2,500 per hectare, upon signing of contract on 12/01/83
amount estimated by them PAR.9. The LESSORS hereby commit themselves and shall undertake to obtain a
- no charge in this case that Gaite did not deliver to appellants all the ore found in separate and distinct T.C.T. over the herein leased portion to the LESSEE within a
the stockpiles in the mining claims in question TF Gaite complied with his promise reasonable period of time which shall not in any case exceed 4 years, after which a
to deliver, and appellants in turn are bound to pay the lump price new Contract shall be executed by the parties which shall be the same in all
- Gaite asserts there was a total of 7,375 cubic meters in the stockpiles of ore that respects with this Contract insofar as the terms and conditions are concerned.
he sold to Fonacier, while appellants contend that by actual measurement, their - Gonzales paid P2500 per hectare or P15T annual rental; he took possession of the
witness Cipriano Manlañgit found the total volume of ore in the stockpiles to be only property and installed Sambrano as his caretaker
6,609 cubic meters
Obligations and Contracts A2010 page 39
Prof. Labitag
- He did not exercise his option to purchase the property immediately after - Par.9 was intended to ensure that respondents would have a valid title over the
expiration of 1-yr lease. He remained in possession of the property without paying specific portion they were selling to the petitioner. At the time the contract was
the purchase price provided for in the Contract, and w/o paying any further rentals. executed, land was not registered in the names of lessors, and extra-judicial
- Cruz sent out a letter to Gonzales informing him of the lessors’ decision to rescind proceedings were still ongoing.
the Contract due to a breach committed by Gonzales; letter also served as a - In a contract of sale, title to the property passes to the vendee upon the delivery
demand for him to vacate the premises within 10 days from the receipt of the letter of the thing sold. (NEMO DAT QUOD NON HABET: no one can give what one does
- Gonzales refused to vacate the property. Issue was brought before Brgy. Captain not have)
of San Isidro. - In the Contract, respondents were given a maximum of 4 years to obtain a
- March 18, 1987 – Since Gonzales refused to appear before the Brgy. Capt, a separate TCT. Gonzales also advanced P50T to them expedite transfer of TCT to
certification allowing the case to be brought to Court was issued. their names.
- Aug 24, 1987 – Final demand letter to vacate premises was sent by remaining - CA interpretation ignores last part of par.9, stating that after a separate TCT had
lessors after the death of Paula Ano Cruz, which Gonzales received but did not heed been obtained, “a new contract shall be executed which shall be the same in all
- Said property is currently the subject of an extra-judicial partition. Title to property respects with this Contract...”
remains in the name of Cruz’s predecessors-in-interest, Bernardina Calixto and - Par.1 was effectively modified by par.9. Gonzales can only be compelled to
Severo Cruz perform his obligation under par1, after Cruz’s have complied with par9.
- Cruzs filed a complaint for recovery of the possession of the property alleging 2. Yes.
breach of par.9 and payment of only P50T of the P500T agreed down payment on Ratio In requiring the lessors to obtain first a separate and distinct TCT in their
the purchase price of P1M names, such undertaking is a condition precedent to the lessee’s obligation to
Ruling of RTC purchase and pay for the land.
- Par.9 is a condition and it clearly indicates that the Heirs of Cruz shall obtain a Reasoning Condition is defined as “every future and uncertain event upon which
Transfer Certificate of Title in the name of the lessee within 4 years before a new an obligation or provision is made to depend. It is a future and uncertain event upon
contract is to be entered into under the same terms and conditions as the original which the acquisition or resolution of rights is made to depend by those who
Contract of Lease/Purchase execute the juridical act.”
- Failure of Lessors to secure the TCT does not entitle them to rescind the contract. - Without the fulfillment of the condition, sale of the property under the Contract
The power to rescind is given to the injured party. cannot be perfected, and Gonzales cannot be obliged to purchase the property.
- Also, they cannot terminate the Contract of Lease due to their failure to notify the 3. No.
defendant in due time of such intention. Demand made will come under the implied Ratio There can be no rescission of an obligation as yet non-existent, because the
new lease of Art. 1682 and 1670. suspensive condition has not happened.
Ruling of CA Reasoning They have not caused the transfer of the TCT to their names which is a
- Transfer of title to the property in Gonzales’ name cannot be interpreted as a condition precedent to Gonzales’ obligation.
condition precedent to the payment of the agreed purchase price. Disposition
- Terms of contract require no interpretation; normal course of things in sale of real Petition granted. Decision of RTC is reinstated, but the award of moral damages and
properties dictate that there must first be payment of agreed purchase price before attorney’s fees is deleted for lack of basis.
transfer of title can be made.
CORONEL V CA
ISSUES MELO; October 7, 1996
1. WON CA erred in the interpretation of the “law between the parties”
2. WON par. 9 of the Contract of Lease/Purchase is a condition NATURE
3. WON respondents can rescind the contract Petition for review on certiorari of a decision of the Court of Appeals.

HELD FACTS
1. Yes. - On Jan. 19, 1985, the Coronels executed a document entitled “Receipt of Down
Ratio In the interpretation of contracts, if some stipulation should admit of several Payment” in favor of Ramona Patricia Alcaraz containing the following conditions
meanings, it shall be understood as bearing that import most adequate to render it appurtenant to the sale of their house and lot:
effectual. Considering the antecedents of the ownership of the disputed lot, 1. Ramona will make a down payment of P50,000 upon execution of the
Gonzales’ interpretation that par.9 is a condition precedent to the purchase of the document aforestated.
property renders it most effectual. 2. The Coronels will cause the transfer in their names of the title of their
Reasoning Both RTC and CA interpreted par.9 to mean that respondents obliged property registered in the name of their deceased father, Constancio P.
themselves to obtain a TCT in the name of petitioner. But petitioner maintains that Coronel, upon receipt of the P50,000 down payment.
respondents were obligated to obtain a TCT in their names.
Obligations and Contracts A2010 page 40
Prof. Labitag
3. Upon the transfer in their names of the subject property, the Coronels will Art. 1475. The contract of sale is perfected at the moment there is a
execute the deed of absolute sale in favor of Ramona and the latter will meeting of minds upon the thing which is the object of the contract and
pay the former the whole balance of P1,190,000. upon the price.
- On the same date, Concepcion Alcaraz, mother of Ramona, paid the down
payment of P50,000. On Feb. 6, 1985, the property originally registered in the name From that moment, the parties may reciprocally demand performance,
of the Coronels’ father was transferred in their names under TCT No. 327043. subject to the provisions of the law governing the form of contracts.
Subsequently, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Mabanag for P1,580,000 after the latter paid P300,000. For this Art. 1181. In conditional obligations, the acquisition of rights, as well as the
reason, the Coronels canceled and rescinded the contract with Ramona by extinguishment of loss of those already acquired, shall depend upon the
depositing the down payment paid by Concepcion in the bank in trust for Ramona happening of the event which constitutes the condition.
Patricia Alcaraz. A few days later, Concepcion, et al., filed a complaint for specific - Since the condition contemplated by the parties which is the issuance of a
performance against the Coronels and caused the annotation of a notice of lis certificate of title in petitioners’ names was fulfilled on Feb. 6, 1985, the respective
pendens at the back of TCT No. 327403. Mabanag then caused the annotation of a obligations of the parties under the contract of sale became mutually demandable,
notice of adverse claim covering the same property with the Registry of Deeds of that is, petitioners, as sellers, were obliged to present the transfer certificate of title
Quezon City. The Coronels executed a Deed of Absolute Sale over the subject already in their names to private respondent Ramona Alcaraz, the buyer, and to
property in favor of Mabanag. A new title on the subject property was issued in the immediately execute the said deed of absolute sale, while the buyer on her part,
name of Mabanag under TCT No. 351582. was obliged to forthwith pay the balance of the purchase price amounting to
- The lower court rendered judgment for specific performance ordering the Coronels P1,190,000.
to execute in favor of Concepcion, et al., a deed of absolute sale covering that - It is also significant to note that in the first paragraph in page 9 of their petition,
parcel of land embraced in and covered by TCT No. 327403 (now TCT No. 331582) petitioners conclusively admitted that:
of the Registry of Deeds for Quezon City, together with all the improvements
existing thereon free from all liens and encumbrances and once accomplished, to 3. The petitioners-sellers Coronel bound themselves “to effect the transfer
immediately deliver the said document of sale to Concepcion, et al. Upon receipt in our names from our deceased father Constancio P. Coronel, the transfer
thereof, Concepcion, et al., were ordered to pay the Coronels the whole balance of certificate of title immediately upon receipt of the downpayment above-
the purchase price amounting to P1,190,000 in cash. TCT No. 331582 in the name stated.” The sale was still subject to this suspensive condition.
of Mabanag was canceled and delivered to be without force and effect. Further, the - Petitioners themselves recognized that they entered into a contract of sale subject
Coronels, Mabanag, and all other persons claiming under them were ordered to to a suspensive condition. Only, they contend, continuing in the same paragraph,
vacate the subject property and deliver possession thereof to Concepcion, et al. The that:
claim for damages and attorney’s fees filed by Concepcion, et al., as well as the
counterclaims by the Coronels and intervenors were dismissed. On appeal, the … Had petitioners-sellers not complied with this condition of first
Court fully agreed to the decision of the trial court. transferring the title to the property under their names, there could be no
perfected contract of sale.
ISSUE not aware that they have set their own trap for themselves, for Art. 1186 of the Civil
WON petitioners and private respondents entered into a conditional contract of sale Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
HELD voluntarily prevents its fulfillment.
- Yes. What is clearly established by the plain language of the subject document is - Besides, it should be stressed and emphasized that what is more controlling than
that when the said “Receipt of Down Payment” was prepared and signed by the these mere hypothetical arguments is the fact that the condition herein referred to
Coronels, the parties had agreed to a conditional contract of sale, consummation of was actually and indisputably fulfilled on Feb. 6, 1985, when a new title was issued
which is subject only to the successful transfer of the certificate of title from the in the names of petitioners as evidenced by TCT No. 327403.
name of petitioners’ father, Constancio P. Coronel, to their names. The Court - The inevitable conclusion is that on Jan. 19, 1985, as evidenced by the document
significantly notes that this suspensive condition was, in fact, fulfilled on February 6, denominated as “Receipt of Down Payment”, the parties entered into a contract of
1985. Thus, on said date, the conditional contract of sale between petitioners and sale subject only to the suspensive condition that the sellers shall effect the
private respondent Ramona became obligatory, the only act required for the issuance of new certificate title from that of their father’s name to their names and
consummation thereof being the delivery of the property by means of the execution that, on Feb. 6, 1985, this condition was fulfilled.
of the deed of absolute sale in a public instrument, which petitioners unequivocally - We, therefore, hold that in accordance with Art. 1187 which pertinently provides —
committed themselves to do as evidenced by the “Receipt of Down Payment.” Art. 1187. The effects of conditional obligations to give, once the condition
- Art. 1475, in correlation with Art. 1181, both of the Civil Code, plainly applies to has been fulfilled, shall retroact to the day of the constitution of the
the case at bench. Thus: obligation…
Obligations and Contracts A2010 page 41
Prof. Labitag
In obligations to do or not to do, the courts shall determine, in each case, - The donation was accepted by Mr. Santiago de Jesus, as municipal president, in
the retroactive effect of the condition that has been complied with. the same document on behalf of the municipal council of Tarlac. The parcel thus
- the rights and obligations of the parties with respect to the perfected contract of donated was later registered in the name of the donee, the municipality of Tarlac.
sale became mutually due and demandable as of the time of fulfillment or - Jan 15, 1921, Concepcion Cirer and James Hill sold this parcel to plaintiff George L.
occurrence of the suspensive condition on Feb. 6, 1985. As of that point in time, Parks.
reciprocal obligations of both seller and buyer arose. - Aug 24, 1923, the municipality of Tarlac transferred the parcel to Province of
- When the sellers declared in the “Receipt of Down Payment” that they received an Tarlac. The Province of Tarlac, by reason of the transfer, applied for and obtained
amount as purchase price for their house and lot without any reservation of title the registration of the land in its name, the corresponding certificate of title having
until full payment of the entire purchase price, the natural and ordinary idea been issued to it.
conveyed is that they sold their property. When the “Receipt of Down Payment” is - Lower court dismissed the complaint.
considered in its entirety, it becomes more manifest that there was a clear intent on Petitioners' Claim
the part of petitioners to transfer title to the buyer, but since the transfer certificate - The plaintiff alleges that the conditions of the donation had not been complied
of title was still in the name of petitioners’ father, they could not fully effect such with, and invokes the sale of the parcel of land made by Concepcion Cirer and
transfer although the buyer was then willing and able to immediately pay the James Hill in his favor.
purchase price. a) Appellant contends that a condition precedent having been imposed in the
- The parties did not merely enter into a contract to sell where the sellers, after donation and the same not having been complied with, the donation never became
compliance by the buyer with certain terms and conditions, promised to sell the effective. This “condition precedent” according to appellant, refers to the condition
property to the latter. What may be perceived form the respective undertakings of imposed that one of the parcels donated was to be used absolutely and exclusively
the parties to the contract is that petitioners had already agreed to sell the house for the erection of a central school and the other for a public park, the work to
and lot they inherited from their father, completely willing to transfer full ownership commence in both cases within the period of six months from the date of the
of the subject house and lot to the buyer if the documents were then in order. It just ratification by the parties of the document evidencing the donation.
so happened, however, that the transfer certificate of title was then still in the name b) Appellant also contends that, in any event, the condition not having been
of their father. It was more expedient to first effect the change in the certificate of complied with, even supposing that it was not a condition precedent but
title so as to bear their names. That is why they undertook to cause the issuance of subsequent, the noncompliance thereof is sufficient cause for the revocation of the
a new transfer of the certificate of title in their names upon receipt of the down donation.
payment in the amount of P50,000. As soon as the new certificate of title is issued
in their names, petitioners were committed to immediately execute the deed of ISSUE
absolute sale. Only then will the obligation of the buyer to pay the remainder of the WON plaintiff has right of action
purchase price arise.
HELD
- The plaintiff has no right of action. The sale made by Cirer and Hill to Parks cannot
have any effect. The parcel having been donated by Cirer and Hill to the
municipality of Tarlac, which donation was accepted by the latter, the title to the
property was transferred to the municipality of Tarlac. The donation was not
PARKS V PROVINCE OF TARLAC revoked when Cirer and Hill made the sale to the plaintiff. In order to consider it
AVENCENA; July 13, 1926 revoked, it is necessary either: 1) that the revocation had been consented to by the
donee, the municipality of Tarlac, or 2) that it had been judicially decreed. None of
NATURE these circumstances existed when Cirer and Hill sold the parcel to the plaintiff.
APPEAL from a judgment of the Court of First Instance of Tarlac Consequently, when the sale was made, Cirer and Hill were no longer the owners of
this parcel and could not have sold it to the plaintiff, nor could Parks have acquired
FACTS it from them.
- Plaintiff-appelant brought this action against the Province of Tarlac, the a) with regard to the “condition precedent”, it is true that the condition has not
municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be been complied with. But the allegation that it is a condition precedent is erroneous.
declared the absolute owner entitled to the possession of the parcel of land, that The characteristic of a condition precedent is that the acquisition of the right is not
the transfer of the same by the municipality of Tarlac to the Province of Tarlac be effected while said condition is not complied with or is not deemed complied with.
annulled, and the transfer certificate issued to the Province of Tarlac cancelled. Meanwhile nothing is acquired and there is only an expectancy of right.
- Oct 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2, Consequently, when a condition is imposed, the compliance of which cannot be
donated it perpetually to the municipality of Tarlac, Province of Tarlac, under effected except when the right is deemed acquired, such condition cannot be a
certain conditions specified in the public document in which they made the condition precedent. In the present case the condition that a public school be
donation. erected and a public park made of the donated land could not be complied with
except after giving effect to the donation.
Obligations and Contracts A2010 page 42
Prof. Labitag
b) Although the appellant’s contention that noncompliance of the condition of the could not be considered as having failed to comply with its part of the bargain,
donation is sufficient ground for revocation, the period for bringing an action for the thus, it remanded the case to the court of origin for the determination of the time
revocation of the donation has prescribed. Under the laws in force (sec. 43, Code of within which the petitioner should comply with the first condition annotated in the
Civ. Proc.), the period of prescription of this class of action is ten years. The action certificate of title
for the revocation of the donation for this cause arose or April 19, 1911, that is, six
months after the ratification of the instrument of donation of October 18, 1910. The ISSUES
complaint in this action was presented July 5, 1924, more than ten years after this 1. WON the quoted annotations are onerous obligations and resolutory conditions
cause accrued. 2. WON the right of the respondents to initiate an action has already prescribed
Disposition The judgment appealed from is affirmed, with costs against the 3. WON the Court may fix a period within which petitioner would establish a medical
appellant. college

CENTRAL PHILIPPINE UNIVERSITY V COURT OF APPEALS HELD


BELLOSILLO; 1995 1. Yes. Don Ramon Lopez, Sr. executed for a valuable consideration which is
considered the equivalent of the donation itself. Under Art. 1181 of the Civil Code,
FACTS on conditional obligations, the acquisition of rights, as well as the extinguishment or
- in 1939, Don Ramon Lopez, Sr. who was a member of the Board of Trustees of the loss of those already acquired, shall depend upon the happening of the even which
Central Philippine College (now Central Philippine University) executed a deed of constitutes the condition.
donation in favor of the latter of a parcel of land with the following annotations: 2. No. The condition imposed by the donor depended upon the exclusive will of the
1. the land described shall be utilized by the CPU exclusively for the donee as to when this condition shall be fulfilled. Since the time within which the
establishment and use of a medical college with all its buildings as part of the condition should be fulfilled depended upon the exclusive will of the petitioner, it
curriculum has been held that its absolute acceptance and the acknowledgment of its
2. the said college shall not sell, transfer or convey to any third party nor obligation provided in the deed of donation were sufficient to prevent the statute of
in any way encumber said land limitations from barring the action of private respondents upon the original contract
3. the said land shall be called RAMON LOPEZ CAMPUS and the said which was the deed of donation. In this case, the starting point from which the
college shall be under obligation to erect a cornerstone bearing that name. obligation to comply must be counted from the expiration of a reasonable period
Any net income from the land or any of its parks shall be put in a fund to be and opportunity for petitioner to fulfill what has been charged upon it by the donor.
known as the RAMON LOPEZ CAMPUS FUND to be used for improvements of 3. No. Art. 1197, where the courts may fix the duration for fulfillment, cannot be
said campus and erection of a building thereon applied in this case. More than a reasonable period of 50 years has already been
- on May 31, 1989, the heirs of Don Ramon Lopez, Sr. filed an action for annulment allowed petitioner to avail of the opportunity to comply with the condition even if it
of donation, reconveyance and damages against CPU alleging that: be burdensome, to make the donation in its favor forever valid, hence, there is no
1. since 1939 up to the time the action was filed the latter had not more need to fix the duration of a term of the obligation when such procedure
complied with the conditions of the donation would be a mere technicality and formality and would serve no purpose than to
2. that CPU had in fact negotiated with the National Housing Authority to delay or lead to an unnecessary and expensive multiplication of suits.
exchange the donated property with another land owned by the latter
- CPU, in its answer alleged that: SEPARATE OPINION
1. the right of the private respondents to file the action had prescribed
2. that it did not violate any of the conditions in the deed of donation DAVIDE [ dissent]
because it never used the donated property for any other purpose than that - pointed out an inconsistency in the majority opinion’s description of the donation
for which it was intended in question. In one part, it says that the donation in question is onerous. Yet in the
3. that it did not sell, transfer, or convey it to any third party last paragraph it states that the donation is basically a gratuitous one.
- the TC held that petitioner failed to comply with the conditions of the donation and - the discussion on conditional obligations is unnecessary as there is no conditional
declared it null and void. It further directed the petitioner to execute a deed of obligation to speak of in this case. The conditions imposed by the donor determines
reconveyance of the property in favor of the heirs of the donor, namely, private neither the existence nor the extinguishment of the obligations of the donor and the
respondents herein- donee with respect to the donation. In fact, the conditions imposed are the very
- the CA ruled that the annotations at the back of petitioner’s certificate of title were obligations of the donation.
resolutory conditions breach of which should terminate the rights of the donee thus - the court should fix the duration for the performance of the conditions/obligations
making the donation revocable. It also found that while the first condition in the donation. The mere fact that there is no time fixed as to when the conditions
mandated petitioner to utilize the donated property for the establishment of a of the donation are to be fulfilled does not ipso facto mean that the statute of
medical school, the donor did not fix a period within which the condition must be limitations will not apply anymore and the action to revoke the donation becomes
fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner imprescriptible.
Obligations and Contracts A2010 page 43
Prof. Labitag
HELD
QUIJADA V CA The decision of the CA is upheld; sale is valid. No atty’s fees awarded; No moral
MARTINEZ; December 4, 1998 damages were likewise awarded.
Reasoning
NATURE On donation
Certiorari of CA’s decision - When the Municipality’s acceptance of the donation was made known to the
donor, the Municipality became the new owner of the donated property - donation
FACTS being a mode of acquiring and transmitting ownership- notwithstanding the
- April 5, 1956-Trinidad Quijada , together with her siblings, donated a two-hectare condition imposed by the donee.
land to the Municipality of Talacogon, Agusan del Sur with the condidtion that the - The condition was that if the school never materializes or that it is opened but
parcel of land shall be used SOLELY and EXCLUSIVELY as part of the campus of the discontinued or closed in the future, the property shall revert to the donor.
proposed provincial high school of the said municipality. - The donation is perfected once the acceptance by the donee is made known to the
- Trinidad remained in possession of the land despite the donation. donor.
- July 29, 1962- Trinidad sold one hectare of the said land to Regalado Mondejar - The resolutory condition is the construction of the school. It has been ruled that
(respondent) without the benefit of a deed of sale and evidenced only by receipts of when a person donates land to another on the condition that the latter would build
payment. upon the land a school, the condition imposed is not a condtion precedent or a
- 1980- the heirs of Trinidad (who at this time was dead already) instituted a suspensive condition but a resolutory one.
complaint which was dismissed for failure to prosecute. - At the time of the sales, Trinidad could not have sold the lots since the ownership
- 1987- the proposed provincial high school failed to materialize, the Sangguniang had been transferred by virtue of the deed of donation. So long as the resolutory
Bayan of the municipality enacted a resolution reverting the two-hectare land condtion subsists and capable of fulfillment, the donation remains effective and the
donated back to the donors. donee continues to be the owner subject only to the rights of the donor or his
- In the meantime, Mondejar sold portions of the land to respondents, Fernando successors-in-interest under the deed of donation.
Bautista, Rodolfo Goloran, Efren Guden, and Ernesto Goloran. - Since no period was imposed by the donor on when the must the donee must
- The heirs of Trinidad filed for this action (quieting of title, recovery of possession comply with the condition, the latter remains the owner so long as he has tried to
and ownership of parcels of land with claim for attorney’s fees and damages.) comply with the condition within a reasonable period. In this case, the Municipality
- According to the heirs, their mother Trinidad never sold, conveyed, transferred or manifested in a resolution that they cannot comply with the condition of building a
disposed of the property in question to any person or entity much less to Mondejar school and the same was made known to the donor. This was when the ownership
save the donation made to the Municipality of Talacogon. reverted back to Trinidad as provided in the reversion clause of the deed of
- Since the land still belonged to the municipality at the time of the alleged sale to donation.
Mondejar, the supposed sale is null and void. - The donor may have inchoate (meaning: imperfect) interest in the donated
- Mondejar claims that one hectare of the land was sold to him on July 29, 1962, and property during the time that ownership of the land has not reverted to her. Such
the remaining one-hectare on installment basis until fully paid. As a defense, he inchoate interest may be the subject of contracts including a contract of sale. Here
claims that the action is barred by LACHES or has prescribed. what the donor sold was the land itself which she no longer owned. It would have
- TC- Trinidad had no legal right to sell the land to Mondejar since the ownership been different if what she sold were her interests over the property under the deed
belongs to the municipality and the deed of sale executed by Trinidad to Mondejar of donation which is subject to the possibility of reversion of ownership arising from
did not carry with it the conformity and acquiescence of her children since she was the non-fulfillment of the resolutory condition.
a widow and 63 yrs old at that time. So the respondents were asked to vacate the
land and restore the possession to the heirs. On laches
- CA- reversed the decision of the TC; sale to Mondejar was valid as Trinidad - The petitioners’ action in NOT YET barred by laches. It cannot be said that the
retained an inchoate interest on the lots by virtue of the automatic reversion clause petitioners had slept on their rights for along time since they initiated the action a
in the deed of donation. year after upon knowledge of the reversion of the property to the donor.
- Laches presupposes failure or neglect for an unreasonable and unexplained length
ISSUE of time, to do that which, by exercising due diligence, could have or should have
WON the sale of the land to Mondejar was valid since the ownership of the said land been done earlier; it is negligence or omission to assert a right within a reasonable
belonged to the municipality at the time of the sale by virtue of the conditional time, thus, giving rise to a presumption that the party entitled to assert it either has
deed of donation executed by Trinidad and her siblings and WON the action is abandoned or declined to assert it.
barred by laches - Essential elements:
a. Conduct on the part of the defendant, or of one under whom he claims, giving
rise to the situation complained of;
b. delay in asserting complainant’s right after he had knowledge of the defendant’s
conduct and after he has an opportunity to sue;
Obligations and Contracts A2010 page 44
Prof. Labitag
c. Lack of knowledge or notice on the part of the defendant that the complainant HELD
would assert the right on which he bases his suit; 1. Ratio The lease contract cannot be made to depend solely on the free and
d. injury or prejudice to the defendant in the event relief is accorded to the uncontrolled choice of the lessee.
complaint. Reasoning
- these elements are not present in this case - The stipulation “for as long as the defendant needed the premises and can meet
and pay the said increases” is purely potestative. The continuance, effectivity and
On sale fulfillment of a contract of lease cannot be made to depend exclusively upon the
- Sale being a consensual contract is perfected by mere consent which is free and uncontrolled choice of the lessee between continuing payment of the
manifested the moment there is a meeting of the minds as to the offer and rentals or not, depriving the owner of any say in the matter.
acceptance thereof on 3 elements: subject matter, price and terms of payment of - Where the instrument is susceptible of two interpretations, the one which will
the price. make it valid and legal should be adopted.
- Ownership by the seller on the thing sold at the time of the perfection of the 2. Ratio The second action for ejectment does not constitute res judicata.
contract of sale is not an element for its perfection. Perfection per se does not Reasoning
transfer ownership which occurs upon the actual or constructive delivery of the - For a judgment be a bar to a subsequent case, it must be (1) a final judgment, (2)
thing sold. rendered by a court with jurisdiction over the subject matter of the parties, (3) it
- The consummation of the perfected contract is another matter. It occurs upon the must be judgment on the merits, and (4) there must be identity between the two
actual or constructive delivery of the subject matter to the buyer when the seller or cases as to parties, subject matter and cause of action.
her successors-in-interest subsequently acquires ownership thereof. - The fourth is lacking in the case at bar. There is no identity of subject matter and
cause of action.
LAO LIM V CA Disposition Wherefore, the decision of respondent Court of Appeals is reversed
REGALADO; October 31, 1990 and set aside. Private respondent is hereby ordered to immediately vacate and
return the possession of the leased premises subject of the present action to the
NATURE petitioner and to pay the monthly rentals due thereon in accordance with the
Petition to review the decision of the Court of Appeals compromise agreement until he has actually vacated the same.

FACTS NAGA TELEPHONE V COURT OF APPEALS


- Dy entered into a contract of lease with Lim foe a period of 3 years (1976-1979). NOCON; February 24, 1994
After the stipulated term expired, Dy refused to vacate the premises, hence Lim
filed for an ejectment suit against Dy. The case was terminated by a judicially NATURE
approved compromise agreement. PETITION for a review of the decision of the CA.
- The compromise agreement provides “that the term of lease shall be renewed
every three years retroacting from Oct 1979 – 1982; after which the rental shall be FACTS
raised automatically by 20% every three years for as long as the defendant (DY) - Petitioner, Naga Telephone Co., Inc. (NATELCO), is a telephone company rendering
needed the premises and can meet and pay the said increases, the defendant to local as well as long distance telephone service in Naga City. On November 1, 1977,
give notice of his intent to renew 60 days before the expiration of the term.” it entered into a contract with Camarines Sur II Electric Cooperative, Inc.
- April 17, 1985 – petitioner advised that he would no longer renew the contract (CASURECO II), a corporation established for the purpose of operating an electric
October 1985. On August 5, 1985, Dy informed the petitioner in writing of his power service in the same city, “for the use by the petitioner in the operation of its
intention to renew the contract of lease for another term. Lim advised that he did telephone service the electric light posts of the respondent”. In consideration of
not agree to a renewal. such use, NATELCO agreed to provide the respondent with free use of ten telephone
- January 15, 1986 – Lim filed another ejectment suit which was dismissed on the connections.
grounds that (1) the lease contract has not expired being a continuous one the - The contract between included, among others, a stipulation to the effect that the
period whereof depended on upon the lessee’s need for the premises and his ability contract shall “be as long as the party of the first part (NATELCO) has need for the
to pay rents and (2) the compromise agreement constitutes res judicata. electric post of the second part (CASURECO II) it being understood that this contract
- On appeal, the respondent court affirmed the lower court’s judgment in toto. shall terminate when for any reason whatsoever, the party of the second part is
forced to stop, abandoned its operation as a public service and it becomes
ISSUES necessary to remove the electric post”.
1. WON the lease contract only depends on the party’s need for the premises and - After over ten years, the respondent filed on January 2, 1989 with the RTC of Naga
his ability to pay the rents City action against the petitioner for reformation of the contract on the grounds that
2. WON the compromise agreement constitute res judicata it is too one sided in favor of the petitioner. The action also prayed that petitioner
be ordered to pay for the use of electric posts which are not covered by the
Obligations and Contracts A2010 page 45
Prof. Labitag
agreement. And finally, that CASURECO be indemnified no less than P100,000 property, and as a special security, she would give her house in Pagina. The
arising out of the poor servicing of the ten telephone units which had caused it contract was signed by 2 witnesses.
great inconvenience and damages. -27 Oct. 1891: Defendant asked a further loan from the Don of P70, P50 of which
- The trial court found in favor of the respondents and ordered the reformation of would be loaned to Don Peñares, and the P70 would be paid in sugar.
the contract in the interest of justice and equity. As part of the ruling, the court -Some time after the execution and delivery of the above contracts, Don Osmeña
ordered NATELCO to pay respondent a monthly rental of P10.00 per electric post died. In the settlement and division of the property of his estate the above contracts
being used from the time of the filing of the case. On the other and, CASURECO was became the property of one of his hieirs, Agustina Rafols. Later(no date given) the
ordered by the same trial court to pay NATELCO for the use and transfers of its said Agustina Rafols ceded to the present plaintiff all of her right and interest in said
telephone units at the same rate that the public are paying. contracts.
- Appeal to the CA was made and the CA affirmed the ruling of the trial court but -( my copy is missing some paragraphs, can’t find a copy in the internet so just look
this time not based on the reformation but rather on the operation of Article 1267 of at your copies for the periods between the death of Don Osmeña and March 15)
the Civil Code and on the potestative condition with rendered the condition void. -15 March 1902: Doña Rama recognized her obligations in the said contract with
- The CA held that as reformation only lie or may prosper when the contract failed Don Osmeña, stating in the contract she executed (EXHIBIT C) that if her house in
to express the true intentions of the parties due to error or mistake, accident , or Pagina would be sold she would use the money to pay for her debts.
fraud and there is no allegation to this effect, the proper basis is the -26 June 1906: Doña Tomasa did not pay the amount due so the plaintiff
aforementioned Article. commenced this action in CFI Cebu.
- The section on the continued use of the electric post for so long as these are CFI deci judgment in favor of the plaintiff and against the defendant for the sum of
needed by NATELCO was considered as being purely potestative on the part of the P200 with interest at the rate of 18 3/4 per cent per annum, from the 15th day of
petitioner as it leaves the continued effectivity of the contract to NATELCO’s sole November, 1890, and for the sum of P20, with interest at the rate of 181 per cent
and exclusive will. As held in previous jurisprudence, there must be mutuality and per annum, from the 27th day of October, 1891, until the said sums were paid.
equality in any contract. Plaintiff’s Claim the execution and delivery of the above contracts, the demand for
- Hence the appeal. payment, and the failure to pay on the part of the defendant, and the prayer for a
judgment for the amount due on the said contracts. (own testimony – I don’t know if
ISSUE Agustina is a guy – my copy said “the plaintiff himself”)
WON the ruling of the CA is valid Defendant’s defense general denial and setting up the special defense of
prescription. (no evidence presented)
HELD
Yes. The agreement between the parties has become too one sided in favor of the ISSUE
petitioner to the great disadvantage of the respondent. Continuing with the WON the proof presented during the trial in CFI is sufficient for the lower court to
agreement will result in the petitioner’s unjust enrichment at the expense of the recognize the debt of Doña Rama, provided that she imposed the condition that she
respondent. would pay her debts upon selling her house

OSMEÑA V RAMA HELD


JOHNSON; September 9, 1909 YES, the proof presented is sufficient.
Ratio A condition imposed upon a contract by the promisor, the performance of
NATURE which depends upon his exclusive will, is void, in accordance with the provisions of
APPEAL from a judgment of the Court of First Instance of Cebu. article 1115 of the Civil Code.
Reasoning It was suggested during the discussion of the case in this court that, in
FACTS the acknowledgment of the indebtedness made by the defendant, she imposed the
-15 Nov 1890: Doña Rama executed and delivered to Victoriano Osmeña a contract condition that she would pay the obligation if she sold her house. If that statement
(EXHIBIT A) which stated that she received P200 in cash from Don Osmeña which found in her acknowledgment of the indebtedness should be regarded as a
she would pay in sugar in January/February the next year at the price on the day of condition, it was a condition which depended upon her exclusive will, and is,
delivering the sugar into the Don’s warehouses + Interest w/ rate of half a cuartillo therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an
per month on each peso from Nov 15 to the day of the settlement; if ever the Doña absolute acknowledgment of the obligation and was sufficient to prevent the statute
could not pay in full, a balance shall be struck, showing the amount outstanding at of limitation from barring the action upon the original contract.
the end of each June, including interest, and outstanding balance of the respondent Disposition We are satisfied, from all of the evidence adduced during the trial, that
would be considered as capital which the respondent would pay in sugar. The the judgment of the lower court should be affirmed. So ordered.
respondent also promised that she would sell to Don Osmeña all her sugar that
would be harvested, and as security, she pledged all her present and future HERMOSA V LONGORA
LABRADOR; October 27, 1953
Obligations and Contracts A2010 page 46
Prof. Labitag
(2) upon the death of the intestate, his agent’s authority or authorization is deemed
NATURE terminated
Petition for review by certiorari of a decision of the Court of Appeals Disposition Judgment appealed from is hereby affirmed in so far as it approves the
first and second claims and reversed as to that of the third.
FACTS
Epifanio Longora had three claims against the intestate estate of Fernando SEPARATE OPINION
Hermosa, Sr. The first represented credit advances made to the intestate from 1932
to 1944, the second made to his son, and the third made to his grandson from 1945 PARAS [ concur]
to 1947 after the death of the intestate, which occurred in December 1944. The I concur insofar as it reverses the appealed judgment allowing the third claim but
claimant presented evidence that the intestate had asked for said credit advances dissent therefrom insofar as it affirms the appealed judgment approving other
for himself and the members of his family “on condition that their payment should claims. The matter of the sale of the house rested on the sole will of the debtor,
be made by Fernando Hermosa Sr. as soon as he receive funds derived from the unaffected by any outside consideration or influence. The terms are subject to the
sale of his property in Spain. CA held that the payment did not become due until the sole judgment—if not whims and caprice—of Fernando Hermosa, Sr. In fact no sale
administrstrix received the payment from the buyer of the property. Upon was effected during his lifetime. As the condition above is null and void, the debt
authorization of the probate court, the property was sold in November 1947. the resulting from the advances made to Fernando Hermosa, Sr. became either
claim was filed on Oct. 1948. immediately demandable or payable within a term fixed by the court. In both cases,
the action has prescribed after the lapse of ten years.
ISSUES
1. WON the claim was subject to a condition exclusively dependent upon the will of TAYLOR V UY TIENG PIAO AND TAN LIUAN
the debtor (condicion potestativa) and therefore null and void STREET; October 2, 1922
2. WON the action has already prescribed
3. WON claims furnished after the death of the intestate (third claim) should have
NATURE
been allowed
Appeal from a judgment of CFI of Manila
FACTS
HELD
- Taylor contracted his services to Tan Liuan & Co as superintendent of an oil
1. NO
factory which the latter contemplated establishing
Ratio The condition in question is not a condicion potestativa since it also depends
- The contract extended over 2 years and the salary was P600/month during the
upon other circumstances beyond the debtor’s control
first year and P700/month during the second with electric, light and water for
Reasoning The condition of the obligation was not purely a potestative one,
domestic consumption or in lieu thereof, P60/month
depending exclusively upon the will of the intestate, but a mixed one, depending
- At this time, the machinery for contemplated factory had not been acquired,
partly upon the will of the intestate and partly upon chance. The will to sell on the
though ten expellers had been ordered from the US
part of the intestate was present in fact, or presumed to legally exist, although the
- It was understood that should the machinery to be installed fail, for any reason, to
price and other conditions thereof were still within his discretion and final approval.
arrive in Manila within the period of 6 months, the contract may be cancelled by the
There were still other conditions that had to concur to effect the sale, mainly that a
party of the second part at its option, such cancellation not to occur before the
buyer, ready, able and willing to purchase the property under the conditions
expiration of such 6 months
demanded by the intestate.
- The machinery did not arrive in Manila within the 6 months; the reason does not
2. NO
appear, but a preponderance of evidence show that the defendants seeing that oil
Ratio As the obligation retroacts to the date of when the contract was entered into,
business no longer promised large returns, either cancelled the order for machinery
all amounts advanced from the time of the agreement became due, upon the
from choice or were unable to supply the capital necessary to finance the project.
happening of the suspensive condition.
- Defendants communicated to Taylor that they had decided to rescind the contract.
Reasoning As the obligation to pay became due and demandable only when the
- Taylor instituted this action to recover damages in the amount of P13k, covering
house was sold and the proceeds received in the islands, the action to recover the
salary and perks due and to become due
same only accrued, within the meaning of the statute of limitations, on the date the
money became available here, hence the action to recover the advances has not
ISSUE
yet prescribed
WON in a contract for the prestation of service, it is lawful for the parties to insert a
3. NO
provision giving the employer the power to cancel the contract in contingency
Ratio Even if authorization to furnish necessaries to his grandson may have been
which may be dominated by himself
given, this authorization could not be made to extend after intestate’s death
Reasoning The court gave two reasons: (1) the obligation to furnish support is
HELD
personal and is extinguished upon the death of the person obliged to give support;
YES.
Obligations and Contracts A2010 page 47
Prof. Labitag
- One of the consequences of the stipulation was that the employers were left in a - denied the notification and the refusal and the good conditions of the goods
position where they could dominate the contingency, and the result was about the - alleged as special defense: Sotelo made the contracts in question as manager of
same as if they had been given an unqualified option to dispense with the services the intervenor, the Manila Oil Refining and ByProducts Co.
of Taylor at the end of 6 months. But this circumstance does not make the - it was only in May, 1919, that it notified the intervenor that goods had arrived,
stipulation illegal. incomplete and long after the date stipulated
- A condition at once facultative and resolutory may be valid even though the - as a consequence of the delay, the intervenor suffered damages in the sum of
condition is made to depend upon the will of the obligor. P116,783.91 for the nondelivery fo the tanks, and P21,250 for the expellers and
- If it were apparent, or could be demonstrated that the defendants were under motors arriving late.
positive obligation to cause the machinery to arrive in Manila, they would of course
be liable, in the absence of affirmative proof showing that the non-arrival of the ISSUES
machinery was due to some cause not having its origin in their own act or will. 1. WON, under the contracts entered into and the circumstances established in the
- The contract, however, expresses no such positive obligation, and its existence record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in
cannot be implied in the face of the stipulation, defining the conditions under which question to Manila
the defendants can cancel the contract. 2. WON the intervenor has right of action
- CFI no error in rejecting Taylor’s claim in so far as damages are sought for the
period subsequent to the expiration of 6 months, but in assessing the damages due HELD
for the six-month period, the trial judge overlooked the item of P60 (commutation of 1. Yes. The plaintiff has not been guilty of any delay in the fulfillment of its
house rent) This amount Taylor is entitled to recover in addition to P300 awarded obligation, and it could not have incurred any of the liabilities mentioned by the
by CFI. intervenor in its counterclaim.
Ratio When no definite date has been fixed for the delivery of goods, the obligor
SMITH, BELL & CO. V SOTELO MATTI shall not be held guilty of delay in the fulfillment of its obligation if it delivers the
ROMUALDEZ; 1922 goods within a reasonable time.
Reasoning
NATURE - The obligation is regarded as conditional: the term which the parties attempted to
APPEAL from a judgement of the CFI of Manila fix is so uncertain that one cannot tell just whether those articles could be brought
to Manila or not. *They were executed at the time of the world war when there
FACTS existed rigid restrictions on the export from the US of articles like the machinery in
- August, 1918: Plaintiff Corporation Smith, Bell & Co., and defendant Sotelo question, and transportation was difficult.
entered into contract: - When the delivery is subject to the fulfillment of a condition dependent on the will
- Plaintiff obligated itself to sell (and the defendant to purchase) 1) 2 steel tanks, to of third persons who could in no way be compelled to fulfill the condition (like in this
be shipped from New York and delivered at Manila “within 3 or 4 months”; 2) 2 case), the obligor will be deemed to have sufficiently performed his part of the
expellers to be shipped from San Francisco in the month of September, 1918, or as obligation, if he has done all that was in his power, even if the condition has not
soon as possible; 3) 2 electric motors to be delivered “Approximate delivery within been fulfilled in reality- and he has the right to demand performance of the contract
ninety days. – This is not guaranteed.” by the other party.
- tanks arrived at Manila April 27, 1919 - In such cases, delivery must be made within reasonable time.
- expellers arrived October 26, 1918 - What is reasonable time? – to be determined by the circumstances attending the
- motors arrived Feb. 27, 1919. particular transaction, such as the character of the goods, the purpose for which
-The plaintiff corporation notified Sotelo of the arrival of these goods, but Sotelo they are intended, the ability of the seller to produce the goods if they are to be
refused to receive them and to pay the prices stipulated. manufactured, the facilities available for transportation, and the distance the goods
- The court below absolved the defendants from the complaint insofar as the tanks must be carried, and the usual course of business in the particular trade.
and electric motors were concerned, but rendered judgment against them for the 2. No.
expellers, ordering them to “receive the aforesaid expellers and pay the plaintiff the Ratio When an agent acts in his own name, the principal shall have no right of
price of the said goods” action against the persons with whom the agent has contracted.
- both parties appeal Reasoning When the agent transacts business in his own name, it shall not be
Petitioners' Claim necessary to state who is the principal and he shall be directly liable, as if the
- petitioner immediately notified the defendant of the arrival of the goods business were for his own account. (Code of Com., art 246)
- defendant refused to receive and pay the price Disposition the judgment appealed from is modified, and the defendant sentenced
- expellers and motors in good conditions to accept and receive from the plaintiff the tanks, expellers, motors, and to pay the
Respondents' Comments plaintiff the sum of P96,000, with legal interest, and the costs of both instances.
- denied the allegations as to the shipment and arrival of the goods
RUSTAN PULP AND PAPER MILLS V IAC
Obligations and Contracts A2010 page 48
Prof. Labitag
MELO; October 19, 1992 if supply at the plant is sufficient as ascertained by petitioners, subject to redelivery
when the need arises as determined likewise by petitioners. This is a potestative
NATURE imposition in the contract which must be obliterated for being invalid as it is purely
Petition for review of the decision of the then Intermediate Appellate Court. dependent upon the will of one party.
- Though it is a legal truism that a condition which is both potestative and resolutory
FACTS may be valid even though that saving clause is left entirely to the will of the obligor,
- Rustan established a pulp and paper mill in Lanao del Norte in 1966. the same cannot be said to apply in the present case.
- Lluch, a holder of a forest products license, wrote to Rustan and offered to supply - Petitioners contend that they are within the right stoppage guaranteed by par 7.
raw materials. In response, petitioner Rustan proposed, among other things, in a There is no doubt that the contract speaks loudly about petitioners' prerogative but
letter “That the contract to supply is not exclusive because Rustan shall have the what diminishes the legal efficacy of such right is the condition attached to it which
option to buy from other suppliers who are qualified and holder of appropriate is dependent exclusively on will of the petitioner… for which reason, the SC treated
government authority or license to sell and dispose pulp wood." the controversial stipulation as inoperative
- On April 1968, they executed a contract of sale whereby Lluch agreed to sell, and
Rustan Pulp and Paper Mill, Inc. to pay the price of P30.00 per cubic meter of pulp 2. NO.
wood raw materials to be delivered at the buyer's plant. - The President and Manager of a corporation who entered into and signed a
- In the bilateral undertaking, they stipulated the following: contract in his official capacity, cannot be made liable thereunder in his individual
"That BUYER shall have the option to buy from other SELLERS… that capacity in the absence of stipulation to that effect due to the personality of the
BUYER shall not buy from any other seller whose pulp woods being sold shall have corporation being separate and distinct from the persons composing it. And
been established to have emanated from the SELLER'S lumber and/or firewood because of this precept, Vergara's supposed non-participation in the contract of sale
concession. . . .And that SELLER has the priority to supply the pulp wood materials although he signed the letter dated Sept 30, 1968 is completely immaterial. The
requirement of the BUYER; two exceptions contemplated by Article 1897 of the New Civil Code where agents
“(Par 7) That the BUYER shall have the right to stop delivery of the said are directly responsible are absent and wanting.
raw materials by the seller covered by this contract when supply of the same shall Disposition The decision appealed from is MODIFIED in the sense that only
become sufficient until such time when need for said raw materials shall have petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and
become necessary provided, however, that the SELLER is given sufficient notice." attorney's fees as awarded by respondent Court.
- During the test run of the pulp mill, the machinery line had major defects while
deliveries of the raw materials piled up, which prompted the Japanese supplier of ROMERO V CA
the machinery to recommend the stoppage of the deliveries. VITUG; November 23, 1995
- The suppliers were informed to stop deliveries and Rustan sent a letter (dated
Sept 1968) to Lluch informing him that “the supply of raw materials to us has FACTS
become sufficient and we will not be needing further delivery from you. As per the -Petitioner Virgilio R. Romero, his foreign partners decided to put up a central
terms of our contract, please stop delivery 30 days from today.” It was signed by warehouse in Metro Manila on a land area of approximately 2,000 square meters.
Dr. Romeo Vergara, the resident manager. -The project was made known to several freelance real estate brokers.
- Lluch sought to clarify whether stoppage of delivery or termination of the contract -A day or so after the announcement, Alfonso Flores and his wife offered a parcel of
of sale was intended, but the query was not answered by petitioners. This alleged land measuring 1,952 square meters located in Barangay San Dionisio, Parañaque,
ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after Metro Manila, the lot was in the name of private respondent Enriqueta Chua vda. de
the series of talks between Vergara and Lluch. Ongsiong.
- On January 23, 1969, a complaint for contractual breach was filed. The trial court -Petitioner visited the property and, except for the presence of squatters in the
dismissed it. On appeal, the IAC modified the judgment by directing Rustan, area, he found the place suitable for a central warehouse.
Tantoco and Vergara to pay respondents, jointly and severally, the sum of -Flores spouses called on petitioner with a proposal that should he advance the
P30,000.00 as moral damages and P15,000.00 as attorney's fees amount of P50,000.00 which could be used in taking up an ejectment case against
the squatters, private respondent would agree to sell the property for only P800 00
ISSUES per square meter. –
1. WON the contractual provisions mentioned above as regards the stoppage of delivery when there is -Petitioner expressed his concurrence. On 09 June 1988, a contract denominated
sufficient supply of raw materials are valid "Deed of Conditional Sale," was executed between petitioner and private
2. WON Tantoco and Vergara should be personally liable respondent.with the following terms and conditions:
"1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency,
HELD is to be paid upon signing and execution of this instrument.
1. NO
- The SC’s simple understanding of the literal import of par 7 of the obligation in
question is that petitioners can stop delivery of pulp wood from private respondents
Obligations and Contracts A2010 page 49
Prof. Labitag
"2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED -The undertaking required of private respondent does not constitute a "potestative
ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 condition dependent solely on his will" that might, otherwise, be void in accordance
days after the removal of all squatters from the above described property. with Article 1182 of the Civil Codebut a "mixed" condition "dependent not on the
"3. Upon full payment of the overall purchase price as aforesaid, VENDOR without will of the vendor alone but also of third persons like the squatters and government
necessity of demand shall immediately sign, execute, acknowledged (sic) and agencies and personnel concerned.". Where the so-called "potestative condition" is
deliver the corresponding deed of absolute sale in favor of the VENDEE free from all imposed not on the birth of the obligation but on its fulfillment, only the condition is
liens and encumbrances and all Real Estate taxes are all paid and updated. avoided, leaving unaffected the obligation itself.
4.That if after 60 days from the date of the signing of this contract the VENDOR -In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned,
shall not be able to remove the squatters from the property being purchased, the allows the obligee to choose between proceeding with the agreement or waiving
downpayment made by the buyer shall be returned /reimbursed by the VENDOR to the performance of the condition. Petitioner has waived the performance of the
the VENDEE. condition imposed on private respondent to free the property from squatters.
5.That in the event that the VENDEE shall not be able to pay the VENDOR the -Private respondent's action for rescission is not warranted. She is not the injured
balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND party. The right of resolution of a party to an obligation under Article 1191 of the
SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification Civil Code is predicated on a breach of faith by the other party that violates the
to the VENDEE of the removal of the squatters from the property being purchased, reciprocity between them. It is private respondent who has failed in her obligation
the FIFTY THOUSAND PESOS (P50,000, 00) previously paid as downpayment shall be under the contract. Petitioner did not breach the agreement. He has agreed, in fact,
forfeited in favor of the VENDOR. to shoulder the expenses of the execution of the judgment in the ejectment case
6.Expenses for the registration such as registration fees, documentary stamp, and to make arrangements with the sheriff to effect such execution. In his letter of
transfer fee, assurances and such other fees and expenses as may be necessary to 23 June 1989, counsel for petitioner has tendered payment and demanded forthwith
transfer the title to the name of the VENDEE shall be for the account of the VENDEE the execution of the deed of absolute sale. Parenthetically, this offer to pay, having
while capital gains tax shall be paid by the VENDOR. been made prior to the demand for rescission, assuming for the sake of argument
- Alfonso Flores, in behalf of private respondent, forthwith received and that such a demand is proper under Article 159223 of the Civil Code, would likewise
acknowledged a check for P50,000 002 from petitioner. suffice to defeat private respondent's prerogative to rescind thereunder.
-Private respondent filed a complaint for ejectment (Civil Case No. 7579) against
Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of
Parañaque.
-A few months later, or on 21 February 1989, judgment was rendered ordering the
defendants to vacate the premises. The decision was handed down beyond the 60- ROMAN CATHOLIC ARCHBISHOP OF MANILA V. CA
day period (expiring 09 August 1988) stipulated in the contract. The writ of REGALADO; June 19, 1991
execution of the judgment was issued, still later, on 30 March 1989.
-In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00
NATURE
she received from petitioner since, she said, she could not "get rid of the squatters"
Petition for review on certiorari to overturn the decision of the Court of Appeals
on the lot. Atty. Sergio A. F. Apostol, counsel for petitioner, in his reply of 17 April
1989, refused the tender and stated:
FACTS
"Our client believes that with the exercise of reasonable diligence considering the
- On August 23, 1930, the spouses Eusebio de Castro and Martina Rieta, now both
favorable decision rendered by the Court and the writ of execution issued pursuant
deceased, executed a deed of donation in favor of therein defendant Roman
thereto, it is now possible to eject the squatters from the premises of the subject
Catholic Archbishop of Manila covering a parcel of land at Kawit, Cavite containing
property, for which reason, he proposes that he shall take it upon himself to eject
an area of 964 sq. meters
the squatters, provided, that expenses which shall be incurred by reason thereof
-The deed of donation provides that the donee shall not dispose or sell the property
shall be chargeable to the purchase price of the land.
within a period of one hundred (100) years from the execution of the deed of
donation, otherwise a violation of such condition would render ipso facto null and
ISSUE
void the deed of donation and the property would revert to the estate of the donors.
WON the vendor may demand the rescission of a contract for the sale of a parcel of
-On or about June 30, 1980, and while still within the prohibitive period to dispose of
land for a cause traceable to his own failure to have the squatters on the subject
the property, petitioner Roman Catholic Bishop of Imus, in whose administration all
property evicted within the contractually stipulated period
properties within the province of Cavite owned by the Archdiocese of Manila was
allegedly transferred on April 26, 1962, executed a deed of absolute sale of the
HELD
property subject of the donation in favor of petitioners Florencio and Soledad Ignao
NO. Private respondent's failure "to remove the squatters from the property" within
in consideration of the sum of P114,000.00.
the stipulated period gives petitioner the right to either refuse to proceed with the
-On November 29, 1984, private respondents as plaintiffs, filed a complaint for
agreement or waive that condition in consonance with Article 1545 of the Civil
nullification of deed of donation, rescission of contract and reconvoyance of real
Code." This option clearly belongs to petitioner and not to private respondent.
Obligations and Contracts A2010 page 50
Prof. Labitag
property with damages against petitioners Florencio and Soledad C. Ignao and the - When a deed of donation, as in this case, expressly provides for automatic
Roman Catholic Bishop of Imus, Cavite, together with the Roman Catholic revocation and reversion of the property donated, the rules on contract and the
Archbishop of Manila general rules on prescription should apply, and not Article 764 of the Civil Code.
-On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a -The cause of action of herein private respondents has not yet prescribed since an
motion to dismiss based on the grounds that (1) herein private respondents, as action to enforce a written contract prescribes in ten (10) years.
plaintiffs therein, have no legal capacity to sue; and (2) the complaint states no -Article 764 was intended to provide a judicial remedy in case of non-fulfillment or
cause of action. contravention of conditions specified in the deed of donation if and when the parties
-On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a have not agreed on the automatic revocation of such donation upon the occurrence
motion to dismiss on three (3) grounds, the first two (2) grounds of which were of the contingency contemplated therein. That is not the situation in the case at bar
identical to that of the motion to dismiss filed by the Ignao spouses, and the third -The action filed by private respondents may not be dismissed by reason of
ground being that the cause of action has prescribed. prescription
-On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a
motion to dismiss on the ground that he is not a real party in interest and, 2. No. The cause of action of private respondents is based on the alleged breach by
therefore, the complaint does not state a cause of action against him. petitioners of the resolutory condition in the deed of donation that the property
-Trial Court dismissed the case on the ground that the action has prescribed donated should not be sold within a period of one hundred (100) years from the
-CA reversed, and remanded the case; MFRs filed separately by the spouses Ignao date of execution of the deed of donation. Said condition, in our opinion, constitutes
and the RC Bishop of Imus were denied an undue restriction on the rights arising from ownership of petitioners and is,
therefore, contrary to public policy.
ISSUES -Donation, as a mode of acquiring ownership, results in an effective transfer of title
1. WON the action has already prescribed over the property from the donor to the donee. Once a donation is accepted, the
2. WON the private respondent has a cause of action against petitioners donee becomes the absolute owner of the property donated. Although the donor
may impose certain conditions in the deed of donation, the same must not be
HELD contrary to law, morals, good customs, public order and public policy. The condition
1. No. It is the contention of petitioners that the cause of action of herein private imposed in the deed of donation in the case before us constitutes a patently
respondents has already prescribed, invoking Article 764 of the Civil Code which unreasonable and undue restriction on the right of the donee to dispose of the
provides that "When donation shall be revoked at the instance of the donor, when property donated, which right is an indispensable attribute of ownership. Such a
the donee fails to comply with any of the conditions which the former imposed upon prohibition against alienation, in order to be valid, must not be perpetual or for an
the latter," and that "his action shall prescribe after four years from the non- unreasonable period of time
compliance with the condition, may be transmitted to the heirs of the donor, and -In the case at bar, we hold that the prohibition in the deed of donation against the
may be exercised against the donee's heirs." alienation of the property for an entire century, being an unreasonable
Reasoning emasculation and denial of an integral attribute of ownership, should be declared as
-Said provision does not apply in the case at bar. The deed of donation involved an illegal or impossible condition within the contemplation of Article 727 of the Civil
herein expressly provides for automatic reversion of the property donated in case of Code. Consequently, as specifically stated in said statutory provision, such condition
violation of the condition therein, hence a judicial declaration revoking the same is shall be considered as not imposed. No reliance may accordingly be placed on said
not necessary prohibitory paragraph in the deed of donation
- A judicial action for rescission of a contract is not necessary where the contract -The validity of such prohibitory provision in the deed of donation was not
provides that it may be revoked and cancelled for violation of any of its terms and specifically put in issue in the pleadings of the parties. That may be true, but such
conditions oversight or inaction does not prevent this Court from passing upon and resolving
-The aforesaid rule apply to contracts, but we see no reason why the same should the same
not be applied to the donation in the present case Disposition WHEREFORE, the judgment of respondent court is SET ASIDE and
-Article 732 of the Civil Code provides that donations inter vivos shall be governed another judgment is hereby rendered DISMISSING Civil Case No. 095-84 of the
by the general provisions on contracts and obligations in all that is not determined Regional Trial Court, Branch XX, Imus, Cavite
in Title III, Book III on donations.
-Now, said Title III does not have an explicit provision on the matter of a donation
with a resolutory condition and which is subject to an express provision that the
same shall be considered ipso facto revoked upon the breach of said resolutory
condition imposed in the deed therefor, as is the case of the deed presently in
question. The suppletory application of the foregoing doctrinal ruling to the present
controversy is consequently justified
Obligations and Contracts A2010 page 51
Prof. Labitag
HERRERA V L. P. LEVISTE & CO. INC.
MELENCIO-HERRERA; February 28, 1985

NATURE
Petition for certiorari
BOYSAW V INTERPHIL PROMOTIONS
FACTS FERNAN; March 20, 1987
- Leviste had obtained a loan from the GSIS. As security therefore, Leviste
mortgaged two (2) lots, one located at Paranaque and the other at Buendia with the NATURE
3-storey building thereon. Appeal from the decision of the court of first instance of Rizal, Br. V.
- Leviste sold to Petitoner Herrera the Buendia Property on the conditions that
petitioner would (1) pay Leviste; (2) assume Leviste’s indebtedness to the GSIS and
(3) substitute the Paranaque property with his own within a period of six months. It
was also stipulated in the Contract of Sell that “failure to comply with any of the FACTS
conditions contained therein, particularly the payment of the scheduled - On May 1, 1961, Boysaw and manager Ketchum signed with Interphil
amortizations on the dates herein specified shall render this contract automatically (represented by Sarreal) a contract to engage Flash Elorde in a boxing match at
cancelled and any and all payments made shall be forfeited in favor of the vendor Rizal Memorial Stadium on Sept 30, 1961 or not later than 30 days shld a
and deemed as rental and/or liquidated damages.” postponement be mutually agreed upon. Boysaw, accdg to contract, shld not
- Leviste then undertook to arrange for the conformity of the GSIS to petitioner’s engage in other bouts prior to the contest.
assumption of the obligation. - Interphil signed Elorde to a similar agreement.
- Herrera took possession of the Buendia property, earned from it, but failed to fully - Boysaw fought and defeated Louis Avila in Nevada.
settle its obligation in the GSIS. Due to Herrera’s default, his property was - Ketchum assigned to Amado Araneta his managerial rights, who later transferred
foreclosed and auctioned in favor of GSIS, the highest bidder. the rights to Alfredo Yulo.
- Leviste assigned its right to redeem both foreclosed properties to Marcelo. - Sarreal wrote to Games and Amusement Board (GAB) regarding this switch of
Marcelo redeemed the properties and later the properties were turned over by managers bec they weren’t notified.
Marcelo to Leviste upon payment of the latter. - GAB called for conferences and decided to schedule the Elorde-Boysaw bout on
- Herrera’s request to GSIS to allow him redeem his property in installments was Nov 4, 1961. USA National Boxing Assoc approved.
apparently disapproved, thus this petition. - Sarreal offered to move the fight to Oct 28 for it to be w/in the 30 day allowable
postponement in the contract. Yulo refused. He was willing to approve the fight on
ISSUE Nov 4 provided it will be promoted by a certain Mamerto Besa.
WON the assigning of Leviste of his right to redeem the foreclosed property to - The fight contemplated in the May 1 contract never materialized. Boysaw and
Marcelo result in unjust enrichment of Leviste and patent injustice on the part of Yulo sued Interphil, Sarreal and Nieto.
Herrera as he would not only forfeit the Buendia property to Marcelo but would also - Boysaw was abroad when he was scheduled to take the witness stand. Lower
lose the amount he paid to Leviste and the GSIS court reset the trial. Boysaw was still absent on the later date. Court reset. On the
third instance, a motion for postponement was denied.
HELD - Boysaw and Yulo moved for a new trial, but it was denied. Hence, this appeal.
NO.
Reasoning: ISSUES
1. Neither the GSIS, Marcelo nor Leviste benefited in any way at the expense of 1. WON there was a violation of the May 1 contract and if so, who was guilty
Herrera. They paid and received what is due them. 2. WON there was legal ground for postponement of the fight
2. Though Herrera actually suffered loss (amount he paid to Leviste, payment to 3. WON lower court erred in refusing postponement of the trial for 3rd time
GSIS less rentals received), but this loss are attributable to his fault in: (a) not being 4. WON lower court erred in denying new trial
able to submit collateral to GSIS in substitution of Paranaque property, (b) not 5. WON lower court erred in awarding appellees damages
paying off the mortgage debt, and (c)not making earnest effort to redeem the
property as possible redemptioner. HELD
Disposition DENIED 1. Boysaw violated the contract when he fought with Avila. Civil Code provides, the
power to rescind obligations is implied, in reciprocal ones, (as in this case) in case
one of the obligors shld not comply w/ what is incumbent upon him.
Another violation was made in the transfers of managerial rights. These were in
fact novations which, to be valid, must be consented to by Interphil. When a
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Prof. Labitag
contract is unlawfully novated, the aggrieved creditor may not deal with the - Before the preliminary injunction was granted, UP already conducted a bidding
substitute. and eventually awarded the concession to Sta. Clara Lumber. The contract with
2. The appellees could have opted to rescind or refuse to recognize the new Santa Clara was signed on Feb. 16, 1966.
manager, but all they wanted was to postpone the fight owing to an injury Elorde - Feb. 25, 1966 – ALUMCO obtained an order which enjoined UP from awarding
sustained. The desire to postpone the fight is lawful and reasonable. logging rights to a different concessionaire.
The GAB did not act arbitrarily in acceding to the request to reset the date of the - April 12, 1966 – UP declared in contempt of court and Sta. Clara was told to stop
fight and Yulo himself agreed to abide by the GAB ruling. the logging activities.
The appellees offered to move the fight w/in the 30 day period for postponement Respondents’ Comments:
but this was refused by the appellants, notwithstanding the fact that by virtue of - Respondents blame their former manager for their financial turmoil because he
the appellants’ violations, they have forfeited any right to the enforcement of the did not turn over the company to ALUMCO.
contract. - It was unable to comply with the manner of payments stated in the
3. The issue of denial of postponement of trial was raised in another petition for “Acknowledgement” because the logs they harvested were rotten.
certiorari and prohibition. It can’t be resurrected in this case. - It is only upon a judicial declaration that the contract can be considered rescinded.
4. The court was correct in denying new trial. The alleged newly discovered
evidence are merely clearances fr clerk of court, which can’t alter the result of the ISSUE
trial. WON UP can treat the contract with ALUMCO as rescinded without any judicial
5. Because the appellants willfully refused to participate in the final hearing and pronouncement
refused to present documentary evidence, they prevented themselves fr objecting
to or presenting proof contrary to those adduced by the appellees. HELD
Yes, UP can treat the contract with ALUMCO as rescinded without any judicial
UP V DE LOS ANGELES pronouncement.
REYES; September 29, 1970 Ratio 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
NATURE own risk. It is only the final judgment of the corresponding court that will and finally
Petition for certiorari and prohibition settle whether the action taken was or was not correct in law.
Reasoning
FACTS - The “Acknowledgement ” already indicated that should ALUMCO fail to pay its
- Nov. 2, 1960 – UP entered into a logging agreement with ALUMCO wherein dues on time, the contract would be rescinded.
ALUMCO was granted the exclusive authority to cut, collect and remove timber from - But since the decision finding UP in contempt is on appeal in the CA, the SC
the Land Grant. The said logging agreement began on the date of agreement to decided not to make any comment.
Dec. 31, 1965, extendible for a period of five years.
- Dec. 8, 1964 – ALUMCO accumulated unpaid dues of P219,362.94 which it failed to DE ERQUIAGA V CA
pay despite repeated demands. GRIÑO-AQUINO, September 27,1989
- UP sent a notice to ALUMCO, saying that the former would terminate/rescind the
contract. ALUMCO then drew up an “Acknowledgment of Debt and Proposed NATURE
Mariner of Payments” dated Dec. 9, 1964 and was approved by the UP president. PETITION to review the decision of the Court of Appeals.
- ALUMCO should pay its outstanding balance to UP on or before June 30,
1965 FACTS
- If ALUMCO fails to do that, UP will have the right to rescind the contract - This is a case that began in the CFI of Sorsogon in 1970. Although the decision
without the necessity of a judicial suit and UP shall have the right to dated September 30, 1972 of the trial court became final and executory because
P50,000 in damages. none of the parties appealed, its execution has taken all of the past seventeen (17)
- ALUMCO continued the logging concession but once more incurred an outstanding years with the end nowhere in sight. The delay in writing finis to this case is
balance of P61,133.74 from Dec. 9, 1964 to July 15, 1965 on top of its existing attributable to several factors, not the least of which is the intransigents of the
outstanding obligation. defeated party.
- July 19, 1965 – UP rescinded the contract and filed a civil suit against ALUMCO on - Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of
September 7 of the same year. the Erquiaga Development Corporation (EDC) which owns the Hacienda San Jose in
- Sept. 30, 1965 – UP obtained an order which prevented ALUMCO from continuing Irosin, Sorsogon.
its logging activities. - On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell
to the latter his 3,100 shares of EDC for P900,000 payable in installments on
definite dates fixed in the contract but not later than November 30, 1968. Because
Obligations and Contracts A2010 page 53
Prof. Labitag
Reynoso failed to pay the second and third installments on time, the total price of defendant Jose Reynoso are one and the same persons as far as the obligation to
the sale was later increased to P971,371.70 payable on or before December 17, account for the products of the hacienda is concerned,
1969. The difference of P71,371.70 represented brokers' commission and interest - In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a
- As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to bond in the amount of P100,000.00 because Erquiaga has shown sufficient and
Erquiaga who thereupon transferred all his shares (3,100 paid up shares) in EDC to justifiable ground for the appointment of a receiver' in order to preserve the
Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the Hacienda which has obviously been mismanaged by the defendant to a point where
corporation. However, as provided in paragraph 3, subparagraph (c) of the contract the amortization of the loan with the DBP has been neglected and the arrears in
to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the payments have risen to the amount of P503,510.70 as of October 19,1972, and
balance of his obligation. Reynoso failed to pay the balance of P561,321.70 on or there is danger that the DBP may institute foreclosure proceedings to the damage
before December 17, 1969, as provided in the promissory notes he delivered to and prejudice of the plaintiff.
Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed - On April 26, 1973, defendant Reynoso died and he was substituted by his
Reynoso that he was rescinding the sale of his shares in the Erquiaga. Development surviving spouse Valdez Vda. de Reynoso and children, who filed a petition for
Corporation. certiorari with a prayer for a writ of preliminary injunction seeking the annulment of
- On September 30 1972, upon the complaint filed by de Erquiaga, the CFI of the aforementioned.
Sorsogon, rendered judgment in favor of the de Erquiaga, rescinding the sale of - On February 12, 1975, upon motion of Erquiaga, the CFl of Sorsogon issued an
3,100 paid up shares of stock of the EDC to Reynoso, and ordering: order, dissolving the receivership and ordering the delivery of the possession of the
a) the defendant to return and reconvey to the plaintiff the 3,100 paid up Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of
shares of stock of the EDC which now stand in his name in the books of the P410,000.00 conditioned to the payment of whatever may be due to the substituted
corporation; heirs of deceased defendant Reynoso after the approval of the accounting report
b) the defendant to render a full accounting of the fruits he received by virtue submitted by Reynoso.
of said 3,100 paid up shares of stock of the EDC, as well as to return said fruits -On March 3, 1975, the CFI of Sorsogon approved the P410,000.00 bond submitted
received by him to plaintiff ; by Erquiaga and the possession, management and control of the hacienda were
c) the plaintiff to return to the defendant the amount of P100,000.00 plus legal turned over to Erquiaga. Reynosos filed their motion for reconsideration which the
interest from November 4,1968, and the amount of P310,000.00 plus legal CFI of Sorsogon but was denied
interest from December 17, 1968, until paid; - On October 9, 1975, the CFI of Sorsogon issued an order directing defendants to
d) the defendant to pay the plaintiff as actual damages the amount of deliver to the plaintiff or his counsel within five (5) days from receipt of this order
P12,000.00; P50,000.00 as attorney's fees; and to pay the costs of this suit and the 1,600 shares of stock of the EDC which are in their possession. Should the
expenses of litigation. defendants refuse or delay in delivering such shares of stock, as prayed for, the
- The parties did not appeal therefrom and it became final and executory. plaintiff is authorized:
- On March 21, 1973, the CFI of Sorsogon issued an Order, stating that, although the a) To call and hold a special meeting of the stockholders of the EDC to elect the
decision has become final and executory, the payment to the defendant of the total members of the Board of Directors;
sum ofP410,000.00 plus the interest, damages and attorney’s fees, should be held b) In the said meeting the plaintiff is authorized to vote not only the 1,500
in abeyance pending rendition of the accounting by the defendant of the fruits shares of stock in his name but also the 1,600 shares in the name and
received by him on account of the 3,100 shares of the capital stock of EDC. Indeed possession of the defendants;
it is reasonable to suppose that when such accounting is made (not only to the c) The question as to who shall be elected members of the Board of Directors
dividends due from the shares of stock but to the products of the hacienda which is and officers of the board is left to the discretion of the plaintiff;
the only asset of the EDC) certain sums may be found due to the plaintiff from the d) The members of the board and the officers who are elected are authorized to
defendant which may partially or entirely off set the amount adjudged against him execute any and a contracts or agreements under such conditions as may be
in the decision. required by the DBP for the purpose of restructuring the loan of the EDC with
- The court also held that the fruits referred to in the decision include not only the the said bank.
dividends received, if any, on the 3,100 shares of stocks but more particularly the - Hence, the present petition for certiorari, prohibition and mandamus with the CA
products received by the defendant from the hacienda. The hacienda and the instituted by the substitute defendants.
products thereon produced constitute the physical assets of the EDC represented - On May 31, 1976, with a view of putting an end to a much protracted litigation and
by the shares of stock and it would be absurd to suppose that any accounting could for the best interests of the parties, the CA issued a writ of mandamus,
be made by the defendant without necessarily taking into account the products commanding the respondent Judge to order (1) the Clerk of Court of the CFI of
received which could be the only basis for determining whether dividends are due Sorsogon to execute the necessary deed of conveyance to effect the transfer of
or not on account of the investment. The hacienda and its natural fruits as ownership of the entire 3,100 shares of stock of the EDC to Erquiaga in case of
represented by the shares of stock which the defendant received as manager and failure of petitioners to comply with the Order of October 9, 1975 insofar as the
controlling stockholder of the EDC can not be divorced from the certificates of stock delivery of the 1,600 shares of stock to private respondent is concerned, within five
in order to determine whether the defendant has correctly reported the income of (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by the
the corporation or concealed part of it for his personal advantage. The EDC and Clerk of Court of said shares of stock to private respondent, as the case may be, to
Obligations and Contracts A2010 page 54
Prof. Labitag
issue a writ of execution ordering private respondent to pay petitioners the amount - The Hacienda San Jose and 1,500 shares of stock have already been returned to
of P410,000.00 plus interests, setting-off therewith the amount of P62,000.00 Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares,
adjudged in favor of private respondent, and against petitioners' predecessor-in- Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the
interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. latter paid for those shares. Pursuant to the rescission decreed in the final
- As of the time the Court of Appeals rendered its decision on May 31, 1976,only the judgment, there should be simultaneous mutual restitution of the principal object of
following have been done by the parties in compliance with the final judgment in the contract to sell (3,100 shares) and of the consideration paid (P410,000). This
the main case: should not await the mutual restitution of the fruits, namely: the legal interest
1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon earned by Reynoso's P410,000 while in the possession of Erquiaga, and its
approval of Erquiaga's surety bond of P410,000 in favor of Reynoso; counterpart: the fruits of Hacienda San Jose which Reynoso received from the time
2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the hacienda was delivered to him on November 4, 1968 until it was placed under
the Erquiaga Development Corporation, instead of 3,100 shares, as ordered in receivership by the court on March 3, 1975.
paragraph (a) of the final judgment. - However, since Reynoso has not yet given an accounting of those fruits, it is only
- What the parties have not done yet are: fair that Erquiaga's obligation to deliver to Reynosa the legal interest earned by his
1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in money, should await the rendition and approval of his accounting. To this extent,
paragraph (a) of the decision; the decision of the Court of Appeals should be modified. For it would be inequitable
2. Reynoso has riot rendered a full accounting of the fruits he has received and oppressive to require Erquiaga to pay the legal interest earned by Reynosa's
from Hacienda San Jose by virtue of the 3,100 shares of stock of the Erquiaga P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this
Development Corporation delivered to him under the sale, as ordered in time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda
paragraph (b) of the decision; which he allegedly squandered while it was in his possession from November 1968
3. Erquiaga. has not returned the sum of P100,000 paid by Reynoso on the up to March 3,1975.
sale, with legal interest from November 4,1968 and P31 0,000 plus legal - The payment of legal interest by Erquiaga to Reynoso on the price of P410,000
interest from December 17,1968, until paid (total: P410,000) as ordered in paid by Reynoso for Erquiaga's 3,100 shares of stock of the EDC should be
paragraph (c) of the decision; computed up to September 30,1972, the date of said judgment. Since Reynoso's
4. Reynoso has not paid the judgment of P12,000 as actual damages in favor of judgment liability to Erquiaga for attorney's fees and damages in the total sum of
Erquiaga, under paragraph (d) of the judgment; P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to
5. Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga return to Reynoso, the balance of the judgment in favor of Reynoso would be only
under paragraph (e) of the judgment; and P348,000 which should earn legal rate of interest after September 30, 1972, the
6. Reynoso has not paid the costs of suit and expenses of litigation as ordered date of the judgment. However, the payment of said interest by Erquiaga should
in paragraph (f) of the final judgment. await Reynoso's accounting of the fruits received by him from the Hacienda San
Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000
ISSUE surety bond shall be deemed cancelled. In all other respects, the decision of the
WON the decision of the Court of Appeals requiring the petitioner to pay the private Court of Appeals in CA is affirmed.
respondents the sum of P410,000 plus interest, without first awaiting Reynoso's
accounting of the fruits of the Hacienda San Jose, violates Article 1385 of the Civil ANGELES V CALASANZ
Code GUTIERREZ; March 18, 1985
HELD
NO. The order of respondent Court directing Erquiaga to return the sum of P410,000 NATURE
(or net P348,000 after deducting P62,000 due from Reynoso under the decision) as Appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial
the price paid by Reynoso for the shares of stock, with legal rate of interest, and the District, Branch X, declaring the contract to sell as not having been validly cancelled
return by Reynoso of Erquiaga's 3,100 shares with the fruits (construed to mean not and ordering the defendants-appellants to execute a final deed of sale in favor of
only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord the plaintiffs-appellees, to pay P500.00 attorneys fees and costs.
with Art. 1385 of the Civil Code which provides:
"ART. 1385. Rescission creates the obligation to return the things which were the FACTS
object of the contract, together with their fruits, and the price with its interest; - On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas
consequently, it can be carried out only when he who demands rescission can Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered
return whatever he may be obliged to restore. into a contract to sell a piece of land located in Cainta, Rizal for the amount of
"Neither shall rescission take place when the things which are the object of the P3,920.00 plus 7% interest per annum. The plaintiffs-appellees made a
contract are legally in the possession of third persons who did not act in bad faith. downpayment of P392.00 upon the execution of the contract. They promised to pay
"In this case, indemnity for damages may be demanded from the person causing the balance in monthly installments of P41.20 until fully paid, the installments being
the loss."
Obligations and Contracts A2010 page 55
Prof. Labitag
due and payable on the 19th day of each month. The plaintiffs appellees paid the times as he wishes. The defendants-appellants' contention is without merit. We
monthly installments until July 1966, when their aggregate payment already agree with the plaintiffs-appellees that when the defendants-appellants, instead of
amounted to P4,533.38. On numerous occasions, the defendants-appellants availing of their alleged right to rescind, have accepted and received delayed
accepted and received delayed installment payments from the plaintiffs-appellees. payments of installments, though the plaintiffs-appellees have been in arrears
- On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a beyond the grace period mentioned in paragraph 6 of the contract, the defendants-
letter requesting the remittance of past due accounts. On January 28, 1967, the appellants have waived and are now estopped from exercising their alleged right of
defendants-appellants cancelled the said contract because the plaintiffs-appellees rescission.
failed to meet subsequent payments. The plaintiffs' letter with their plea for
reconsideration, of the said cancellation was denied by the defendants-appellants. 2. YES. We agree with the plaintiffs-appellees. The contract to sell entered into by
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of the parties has some characteristics of a contract of adhesion. The defendants-
Rizal, Seventh Judicial District Branch X to compel the defendants-appellants to appellants drafted and prepared the contract. The plaintiffs-appellees, eager to
execute in their favor the final deed of sale alleging inter alia that after computing acquire a lot upon which they could build a home, affixed their signatures and
all subsequent payments for the land in question, they found out that they have assented to the terms and conditions of the contract. They had no opportunity to
already paid the total amount of P4,533.38 including interests, realty taxes and question nor change any of the terms of the agreement. It was offered to them on a
incidental expenses for the registration and transfer of the land. CFI rendered a "take it or leave it" basis. "x x x (W)hile generally, stipulations in a contract come
ruling favor of the plaintiffs-appellees prompting Calasanz spouses to appeal. about after deliberate drafting by the parties thereto, . . . there are certain
contracts almost all the provisions of which have been drafted only by one party,
ISSUES usually a corporation. Such contracts are called contracts of adhesion, because the
1. WON the contract to sell has been automatically and validly cancelled by the only participation of the party is the signing of his signature or his 'adhesion'
defendants-appellants Calasanz spouses thereto. Insurance contracts, bills of lading, contracts of sale of lots on the
2. WON the contract partakes of a contract of adhesion and therefore must be installment plan fall into this category. '(Paras, Civil Code of the Philippines, Seventh
strictly construed against the one who drafted it (defendants-appellants) ed., Vol. 1, p. 80.)" (Italics supplied)
- While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees
HELD to pay the defendants-appellants the sum of P3,920.00 plus 7% interest per annum,
1. NO. "The general rule is that rescission of a contract will not be permitted for a it is likewise true that under paragraph 12 the seller is obligated to transfer the title
slight or casual breach, but only for such substantial and fundamental breach as to the buyer upon payment of the P3,920.00 price sale. The contract to sell, being a
would defeat the very object of the parties in making the agreement. (Song Fo & contract of adhesion, must be construed against the party causing it. We agree with
Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach the observation of the plaintiffs-appellees to the effect that "the terms of a contract
of a contract is substantial depends upon the attendant circumstances. must be interpreted against the party who drafted the same, especially where such
- The breach of the contract adverted to by the defendants-appellants is so slight interpretation will help effect justice to buyers who, after having invested a big
and casual when we consider that apart from the initial downpayment of P392.00 amount of money, are now sought to be deprived of the same thru the prayed
the plaintiffs-appellees had already paid the monthly installments for a period of application of a contract clever in its phraseology, condemnable in its lopsidedness
almost nine (9) years. In other words, in only a short time, the entire obligation and injurious in its effect which, in essence, and in its entirety is most unfair to the
would have been paid. Furthermore, although the principal obligation was only buyers."
P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already Disposition Thus, since the principal obligation under the contract is only
paid an aggregate amount of P4,533.38. To sanction the rescission made by the P3,920.00 and the plaintiffs-appellees have already paid an aggregate amount of
defendants-appellants will work injustice to the plaintiffs-appellees. (See J.M. Tuazon P4,533.38, the courts should only order the payment of the few remaining
and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the defendants- installments but not uphold the cancellation of the contract. Upon payment of the
appellants. balance of P671.67 without any interests thereon, the defendants-appellants must
- Article 1234 of the Civil Code which provides that: immediately execute the final deed of sale in favor of the plaintiffs-appellees and
“If the obligation has been substantially performed in good faith, the obligor may execute the necessary transfer documents as provided in paragraph 12 of the
recovers though there had been a strict and complete fulfillment, less damages contract. The attorney's fees are justified.
suffered by the obligee."
- Also militates against the unilateral act of the defendants-appellants in cancelling WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed
the contract. We agree with the observation of the lower court to the effect that: from is AFFIRMED with the modification that the plaintiffs-appellees should pay the
"Although the primary object of selling subdivided lots is business, yet, it cannot be balance of SIX HUNDRED SEVENTY-ONE PESOS AND SIXTY-SEVEN CENTAVOS
denied that this subdivision is likewise purposely done to afford those landless, low (P671.67) without any interests.
income group people of realizing their dream of a little parcel of land which they
can really call their own." ONG V COURT OF APPEALS
- The defendants-appellants argue that paragraph nine of the contract clearly allows YNARES-SANTIAGO; July 6, 1999
the seller to waive the observance of paragraph 6 not merely once, but for as many
Obligations and Contracts A2010 page 56
Prof. Labitag
NATURE
Petition for review on certiorari from the judgment rendered by the Court of Appeals ISSUES
which, except as to the award of exemplary damages, affirmed the decision of the 1. WON the contract entered into by the parties may be validly rescinded under
Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Article 1191 of the New Civil Code
Purchase and Sale" entered into by herein petitioner and private respondent 2. WON the parties had novated their original contract as to the time and manner of
spouses payment

FACTS
- Petitioner Jaime Ong and respondent spouses Miguel K. Robles and Alejandra HELD
Robles, executed an "Agreement of Purchase and Sale" respecting two parcels of 1. NO.
land situated at Barrio Puri, San Antonio, Quezon. - Article 1191 of the New Civil Code refers to rescission applicable to reciprocal
- Petitioner Ong took possession of the subject parcels of land together with the obligations. Rescission of reciprocal obligations under Article 1191 of the New Civil
piggery, building, ricemill, residential house and other improvements thereon. Code should be distinguished from rescission of contracts under Article 1383.
- Pursuant to the contract they executed, petitioner paid respondent spouses the - While Article 1191 uses the term “rescission,” the original term which was used in
sum of P103,499.91 by depositing it with the United Coconut Planters Bank. the old Civil Code, from which the article was based, was “resolution.” Resolution is
Subsequently, petitioner deposited sums of money with the Bank of Philippine a principal action which is based on breach of a party, while rescission under Article
Islands (BPI), in accordance with their stipulation that petitioner pay the loan of 1383 is a subsidiary action limited to cases of rescission for lesion under Article
respondents with BPI. 1381 of the New Civil Code, which expressly enumerates the rescissible contracts.
- To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated - The contract entered into by the parties in the case at bar does not fall under any
Metro Bank checks payable to respondent spouses. When presented for payment, of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable.
however, the checks were dishonored due to insufficient funds. - The "Agreement of Purchase and Sale" shows that it is in the nature of a contract
- Petitioner promised to replace the checks but failed to do so. To make matters to sell, as distinguished from a contract of sale. In a contract of sale, the title to the
worse, out of the P496,500.00 loan of respondent spouses with the Bank of the property passes to the vendee upon the delivery of the thing sold; while in a
Philippine Islands, which petitioner, should have paid, petitioner only managed to contract to sell, ownership is, by agreement, reserved in the vendor and is not to
dole out no more than P393,679.60. pass to the vendee until full payment of the purchase price. In a contract to sell, the
- When the bank threatened to foreclose the respondent spouses' mortgage, they payment of the purchase price is a positive suspensive condition, the failure of
sold three transformers of the rice mill worth P51,411.00 to pay off their which is not a breach, casual or serious, but a situation that prevents the obligation
outstanding obligation with said bank, with the knowledge and conformity of of the vendor to convey title from acquiring an obligatory force.
petitioner. - Respondents in the case at bar bound themselves to deliver a deed of absolute
- Petitioner, in return, voluntarily gave the spouses authority to operate the rice sale and clean title covering the two parcels of land upon full payment by the buyer
mill. He, however, continued to be in possession of the two parcels of land while of the purchase price of P2,000,000.00. This promise to sell was subject to the
private respondents were forced to use the rice mill for residential purposes. fulfillment of the suspensive condition of full payment of the purchase price by the
- Respondent spouses, sent petitioner a demand letter asking for the return of the petitioner. Petitioner, however, failed to complete payment of the purchase price.
properties. Their demand was left unheeded, so, on September 2, 1985, they filed a The non-fulfillment of the condition of full payment rendered the contract to sell
complaint for rescission of contract and recovery of properties with damages. ineffective and without force and effect. It must be stressed that the breach
- Later, while the case was still pending with the trial court, petitioner introduced contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply
major improvements on the subject properties by constructing a complete fence with an obligation. Failure to pay, in this instance, is not even a breach but merely
made of hollow blocks and expanding the piggery. These prompted the respondent an event which prevents the vendor's obligation to convey title from acquiring
spouses to ask for a writ of preliminary injunction. The trial court granted the binding force. Hence, the agreement of the parties may be set aside, but not
application and enjoined petitioner from introducing improvements on the because of a breach on the part of petitioner for failure to complete payment of the
properties except for repairs. purchase price. Rather, his failure to do so brought about a situation which
- The trial court rendered a decision, ordering that the contract entered into by prevented the obligation of respondent spouses to convey title from acquiring an
plaintiff spouses and the defendant, Jaime Ong be set aside obligatory force.
- Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC 2. NO.
but deleted the award of exemplary damages. In affirming the decision of the trial - Novation is never presumed, it must be proven as a fact either by express
court, the Court of Appeals noted that the failure of petitioner to completely pay the stipulation of the parties or by implication derived from an irreconcilable
purchase price is a substantial breach of his obligation which entitles the private incompatibility between the old and the new obligation. Contrary to petitioner's
respondents to rescind their contract under Article 1191 of the New Civil Code. claim, records show that the parties never even intended to novate their previous
Hence, the instant petition. agreement.
Obligations and Contracts A2010 page 57
Prof. Labitag
- In order for novation to take place, the concurrence of the following requisites is iron as well as other pieces of machinery can no longer be found on the premises of
indispensable: (1) there must be a previous valid obligation; (2) there must be an the corporation.
agreement of the parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the validity of the new ISSUES
contract. 1. WON the "Purchase and Sale of Scrap Iron" contract entered into by both parties
- The aforesaid requisites are not found in the case at bench. The subsequent acts is a contract to sell (promise to sell) or a contact of sale
of the parties hardly demonstrate their intent to dissolve the old obligation as a 2. WON there was delivery of the scrap iron subject of the sale
consideration for the emergence of the new one. 3. WON moral and exemplary damages should lie
Disposition The decision rendered by the Court of Appeals was AFFIRMED with the
MODIFICATION that respondent spouses were ordered to return to petitioner the HELD
sum of P48,680.00 in addition to the amounts already awarded. 1. What obtains in the case at bar is a mere contract to sell or promise to sell,
and not a contract of sale. The contract is not one of sale where the buyer acquired
ownership over the property subject to the resolutory condition that the purchase
VISAYAN SAWMILL COMPANY, INC. V CA price would be paid after delivery. There was to be no actual sale until the opening,
DAVIDE; March 3, 1993 making or indorsing of the irrevocable and unconditional letter of credit.
-VSC’s obligation to sell is unequivocally subject to a positive suspensive condition,
NATURE i.e., RJH Trading’s making or indorsing of an irrevocable and unconditional letter of
Petition for review on certiorari to set aside CA decision in favor of RJH Trading in an credit. VSC agreed to deliver the scrap iron only upon payment of the purchase
action for specific performance and damages against Visayan Sawmill Company price by means of an irrevocable and unconditional letter of credit.
(VSC) and Ang Tay -Since what obtains in the case at bar is a mere promise to sell, the failure of the
RJH TRading to comply with the positive suspensive condition cannot even be
FACTS considered a breach – casual or serious – but simply an event that prevented the
-1 May 1983: RJH Trading and VSC entered into a sale involving scrap iron subject obligation of VSC to convey title from acquiring binding force.
subject to the condition that RJH Trading will open a letter of credit in the amount of -In the instant case, not only did RJH Trading fail to open, make or indorse an
P250k in favor of VSC on or before May 15, 1983. This is evidenced by a contract irrevocable and unconditional letter of credit on or before 15 May 1983, it also
entitled "Purchase and Sale of Scrap Iron" duly signed by both parties. violated certain stipulations of the agreement: (1) it was not opened, made or
-17 May 1983: RJH Trading sent laborers to dig and gather scrap iron at the VSC’s indorsed by RJH Trading but by a corporation which is not a party to the contract;
premises, proceeding with such endeavor until May 30 when VSC allegedly directed (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable and
the laborers to desist from pursuing the work in view of an alleged case filed unconditional, for it is without recourse, it is set to expire on a specific date and it
against RJH Trading by a certain Alberto Pursuelo. This is denied by VSC which stipulates certain conditions with respect to shipment.
alleges that on May 23, 1983, they sent a telegram to RJH Trading cancelling the -Consequently, the obligation of VSC to sell did not arise; it therefore cannot be
contract of sale because of failure of the latter to comply with the conditions compelled by specific performance to comply with its prestation. In short, Article
thereof. 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of
24 May 1983: RJH Trading informed VSC by telegram that the letter of credit was the Civil Code, VSC may totally rescind, as it did in this case, the contract.
opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but 2. NONE. The permission or consent in par6 of the agreement cannot be construed
that the transmittal was delayed. as delivery of the scrap iron.
26 May 1983: VSC received a letter advice from BPI Dumaguete City Branch dated -the obligation imposed in Article 1497, NCC is premised on an existing obligation to
May 26, 1983 to the effect that on that date a letter of credit was opened in favor of deliver the subject of the contract. In the instant case, in view of the RJH Trading’s
petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn on ARMACO-MARSTEEL failure to comply within the positive suspensive condition, such an obligation had
ALLOY CORPORATION and set to expire on 24 July 1983. not yet arisen.
19 July 1983: RJH Trading sent a series of telegrams stating that the case filed -RJH Trading was not placed in possession of and control over the scrap iron.
against him by Pursuelo had been dismissed and demanding that VSC comply with Indeed, VSC demanded the fulfillment of the suspensive condition and eventually
the deed of sale, otherwise a case will be filed against them. cancelled the contract.
In reply to those telegrams, VSC’s lawyer informed RJH Trading’s lawyer that VSC is 3. NO. In contracts, moral damages may be recovered if defendants acted
unwilling to continue with the sale due to RJH Trading's failure to comply with fraudulently and in bad faith, while exemplary damages may only be awarded if
essential preconditions of the contract. defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent
29 July 1983: RJH Trading filed an action for specific performance and damages with manner. Moral damages are emphatically not intended to enrich a complainant at
a petition for preliminary attachment. The writ of attachment was returned the expense of the defendant.
unserved because the VSC was no longer in operation and also because the scrap -In the instant case, the refusal of the petitioners to deliver the scrap iron was
founded on the non-fulfillment by the private respondent of a suspensive condition.
There is no evidence of bad faith.
Obligations and Contracts A2010 page 58
Prof. Labitag
Disposition Petition granted. CA decision reversed. Civil Case dismissed. The spouses even issued a memorandum complaining that the construction works
Costs against the private respondent. were faulty and done haphazardly mainly due to lax supervision coupled with
Voting 8 concur, 5 disssent, 2 no part, 1 on leave. inexperienced and unqualified staff. The memorandum was ignored.
After several conferences, the parties agreed to conduct cylinder tests to ascertain
SEPARATE OPINION compliance with safety standards. Carungay suggested core testing (a more reliable
test of safety and strength), and although Deiparine was relunctant at first, he
ROMERO [ dissent] agreed to it and even promised that should the structure fail the test, he would
-the agreement in question is a contract of sale. The breach of the contract was not shoulder the test expenses. The core test was conducted, and the building was
substantial and therefore petitioners were not justified in law to rescind the found to be structurally defective.
agreement. - The spouses then filed in the RTC for rescission of the construction contract and
-When the parties entered into the contract entitled "Purchase and Sale of Scrap for damages. Deiparine alleged that RTC did not have jurisdiction for construction
Iron" on May 1, 1983, the contract reached the stage of perfection, there being a contracts are now cognizable by the Philippine Construction Development Board.
meeting of the minds upon the object which is the subject matter of the contract RTC declared the contract rescinded, Deiparine to have forfeited his expenses in the
and the price which is the consideration. construction, and ordered Deiparine to reimburse the spouses for the core testing
-From the time the seller gave access to the buyer to enter his premises, and restore the premises to their former condition before the construction began.
manifesting no objection thereto but even sending 18 or 20 people to start the CA affirmed RTC.
operation, he has placed the goods in the control and possession of the vendee and
delivery is effected. ISSUES
-That payment of the price in any form was not yet effected is immaterial to the 1. WON RTC had jurisdiction over the case
transfer of the right of ownership. In a contract of sale, the non-payment of the 2. WON rescission is the proper remedy
price is a resolutory condition which extinguishes the transaction that, for a time,
existed and discharges the obligations created thereunder. HELD
-Dignos v. Court of Appeals: Absent a proviso in the contract that the title to the 1. Yes. Firstly, there is no Philippine Construction Development Board in existence.
property is reserved in the vendor until full payment of the purchase price or a There is however, a Philippine Domestic Construction Board (PDCB), but this body
stipulation giving the vendor the right to unilaterally rescind the contract the has jurisdiction to settle claims and disputes in the implementation of PUBLIC
moment the vendee fails to pay within the fixed period, the transaction is an construction contracts (only), and thus does not have jurisdiction over private
absolute contract of sale and not a contract to sell. construction contracts. (Deiparine’s counsel is even held in contempt of court for
-In every contract which contains reciprocal obligations, the right to rescind is changing the wording of the relevant provision in the law, making it appear that the
always implied under Article 1191 of the Civil Code in case one of the parties fails to PDCB had jurisdiction over the instant case.)
comply with his obligations. 2. Yes.
-Song Fo and Co. v. Hawaiian-Philippine Co.: a delay in payment for 20 days was not - The facts show that Deiparine deliberately deviated from the specifications of the
a violation of an essential condition of the contract which would warrant rescission Carungays (changing the minimum strength, concrete mixture, etc.), possibly to
for non-performance. In the instant case, the contract is bereft of any suggestion avoid additional expenses so as to avoid reduction in profits. His breach of duty
that time was of the essence; the eleven-day delay must be deemed a casual constituted a substantial violation of the contract, which is correctible by judicial
breach which cannot justify a rescission. rescission.
Particularly for reciprocal obligations, Art.1191 CC provides that: “The power to
DEIPARINE, JR. V CA rewind obligations is implied in reciprocal ones, in case one of the obligors should
CRUZ; April 23, 1993 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
NATURE
rescission, even after he has chosen fulfillment, if the latter should become
Petition for review of decision of CA
impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
FACTS
the fixing of a period.”
- Spouses Carungay entered into an agreement with Deiparine for the construction
- Clearly, the construction contract falls squarely under the coverage of Art.1191
of a 3-storey dormitory. The Carungays agreed to pay Php970K, and Deiparine
because it imposes upon Deiparine the obligation to build the structure and upon
bound himself to erect the building in strict accordance to the plans and
the Carungays the obligation to pay for the project upon its completion.
specifications. In the General Conditions and Specifications document, the minimum
- Art.1191 is not predicated on economic prejudice to one of the parties but on
acceptable compressive strength of the building was set at 3,000 psi (pounds per
breach of faith by one of them that violates the reciprocity between them. The
square inch). However, the Carungays found out that Deiparine was deviating from
violation of reciprocity between the parties, to wit, the breach caused by Deiparine's
the plans and specifications, thus impairing the strength and safety of the building.
Obligations and Contracts A2010 page 59
Prof. Labitag
failure to follow the stipulated plans and specifications, has given the Carungay 1. WON the contract of sale was validly rescinded;
spouses the right to rescind or cancel the contract. 2. WON the award of moral and exemplary damages is proper.
Disposition Decision affirmed.
HELD
IRINGAN V COURT OF APPEALS 1. Ratio The contract of sale between the parties as far as the prescriptive period
QUISIMBING; September 26, 2006 applies, can still be, validly rescinded.
\ Reasoning
NATURE - Art 1592 requires the rescinding party to serve judicial or notarial notice of his
Petition assailing decision of Court of Appeals. intent to resolve the contract.
ART. 1592. In the sale of immovable property, even though it may have
FACTS been stipulated that upon failure to pay the price at the time agreed upon the
- On March 22, 1985 private respondent Antonio Palao sold to petitioner Alfonso rescission of the contract shall of right take place, the vendee may pay xxx as
Iringan an undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located in long as no demand for rescission of the contract has been made upon him
Poblacion of Tuguegarao. Parties executed a Deed of Sale on same date with the either judicially or by a notarial act.
purchase price of P295K, payable as follows: - Art 1592 “refers to a demand that the vendor makes upon the vendee for the
a) P10K upon execution of this instrument, and vendor acknowledges having latter to agree to the resolution of the obligation and to create no obstacle to this
received the amount; contractual mode of extinguishing obligations.” (Manresa)
b) P140K on or before April 30, 1985; - A judicial and notarial act is necessary before a valid rescission can take place,
c) P145K on or before December 31, 1985. whether or not automatic rescission has been stipulated. The phrase “even
- When second payment was due, Iringan paid only P40K. On July 18, 1985, Palao though” emphasizes that when no stipulation is found on automatic rescission, the
sent a letter to Iringan stating that he would not accept any further payment judicial or notarial requirement still applies.
considering that Iringan failed to comply with his obligation to pay full amount of ART. 1191. The power to rescind obligations is implied in reciprocal ones, in
second installment. case one of the obligors should not comply with what is incumbent upon him.
- On August 20, 1985, Iringan replied that they were not opposing the revocation of The injured party may choose between the fulfillment and the rescission of
the Deed of Sale, but asked for the reimbursement of the ff: the obligation, with payment of damages in either case. He may also seek
• P50K –cash received; rescission, even after he has chosen fulfillment, if the latter should become
impossible.
• P3,200—geodetic engineer’s fee;
The court shall decree the rescission claimed xxx.
• P500—attorney’s fee;
- The right to resolve reciprocal obligations is deemed implied in case one of the
• Interest on P53,700 obligors shall fail to comply with what is incumbent upon him. But the right must be
- Palao declared he was not amenable to the reimbursements claimed by Iringan. invoked judicially. Even if the right to rescind is made available to the injured party,
Iringan then proposed that the P50K which he had paid Palao be reimbursed, or the obligation is not ipso facto erased by the failure of the other party to comply
Palao could sell to Iringin an equivalent portion of the land. with what is incumbent upon him. The party entitled to rescind should apply to the
- Palao replied that Iringan’s standing obligation had reached P61,600 representing court for a decree of rescission. The operative act is the decree of the court.
payment of arrears for rentals from October 1985 to March 1989. - However, when private respondent filed an action for Judicial
- Spouses Iringan alleged that the contract of sale was a consummated contract, Confirmation of Rescission and Damages before RTC, he complied with the
hence the remedy for Palao was for collection of the balance of the purchase price requirement of the law for judicial decree of rescission in stating that its
and not rescission. In addition they declared that they had always been ready and purpose is:
willing to comply with their obligations to Palao. 1) To compel appellants to formalize in public document, their mutual
- RTC ruled in favor of Palao and affirmed the rescission of the contract. agreement of revocation and rescission;
Petitioner’s Claim 2) To have judicial confirmation.
- That no rescission was effected simply by virtue of the letter sent by respondent 2. Ratio The award of moral and exemplary damages is proper.
stating that he considered the contract of sale rescinded. Reasoning Petitioner claimed he was ready to pay but never actually paid
- That a judicial or notarial act is necessary before one party can unilaterally effect a respondent, even when he knew that the reason for selling the lot was for Palao to
rescission. needed to raise money to pay his SSS loan.
Respondent’s Comment 1) Iringan knew Palao’s reason for selling the property, and still he did not
- The right to rescind is vested by law on the obligee and since petitioner did not pay Palao.
oppose the intent to rescind the contract, Iringan in effect agreed to it and had the 2) Petitioner refused to formally execute an instrument showing their mutual
legal effect of a mutually agreed rescission. agreement to rescind the contract of sale, even when it was Iringan who
breached the terms of their contract, leaving Palao desperate to find other
ISSUES sources of funds to pay off the loan.
Obligations and Contracts A2010 page 60
Prof. Labitag
3) Petitioner did not substantiate by clear and convincing proof that he was between parties brought about by the breach of faith by one of them. It is allowed
ready and willing to pay respondent. It was more of an afterthought to only is the breach is substantial and fundamental. The present case shows that it is
evade the consequence of the breach. not given that the 12 percent interest is in place for late payment. Petitioner also
did not give any demand for the remaining balance. Petitioner also refused to
VDA. DE MISTICA V NAGUIAT accept the payment at the time of her husband’s funeral.
PANGANIBAN; December 11, 2003 2. NO, it is still feasible.
- The title is merely an evidence of an indefeasible and incontrovertible title to the
NATURE party in favor of the person whose name appears therein. However, such title could
Petition for review on certiorari of the decision and resolution of the Court of only be modified, altered, or canceled in direct proceedings in accordance with law.
Appeals Hence it is not determinable in the present civil case.
3. YES, it was a mistake.
FACTS - Such ruling allows a collateral attack on the certificate of title. However, given that
- Eulalio Mistica owned a parcel of land in Meycauayan, Bulacan, a portion of it was there is already a case filed by the State in favor of the petitioner and the heirs of
leased by Bernardino Naguiat sometime during 1970. On 5 April 1979 they entered her husband there is no need to pass upon the right of respondents to the
into a contract to sell a portion of the lot that contains around 200 sq. meters. A registration of the subject land under their names. There is no necessity to ask for
written document was signed by both parties acknowledging the sale for the the payment of 58 sq.m. importunately included in the title.
amount of Php. 20,000 with the downpayment of Php. 2,000 and the rest of the
balance of Php. 18,000 to be paid within ten (10) years. Naguiat paid the LACHICA V ARANETA
downpayment of two thousand and subsequently paid another one-thousand, PAREDES; August 19, 1949
however, no other payment was given thereafter the said payment in 1980. Eulalio
died in 1986. In 1991 the wife of the late Eulalio filed for a complaint for rescission FACTS
for the failure of Naguiat to pay the remaining balance of Php. 17,000. Naguiat - Early part of July 1943 – defendant Araneta Inc. offered for sale a parcel of land
responded that there was no breach of contract and that he got hold of the land with improvements thereon (TCT No. 14841, Land Records of Manila)
through the Free Patent Title duly awarded to him by the Bureau of lands making it - First week of July 1943 – RIC’s fieldman Navarro informed Sadang of the offer to
indefeasible and incontrovertible. Judgment was served by the CA disallowing sell the property by the defendant
rescission saying that the contract did not have a resolutory term and that it was - Rizal Investment Corp (RIC; where plaintiff Sadang was at that time the Sales
highlighted by the option of paying 12 percent interest if the respondent Naguiat so Manager) acted as defendant’s agent in the sale of such property
chooses, Also, it was said that payment was offered during the funeral of Eulalio but - July 12, 1943 (morning) – Sadang submitted to Jose Araneta (president of
was not accepted by his wife. With regards to the additional 58 sq. meters that was defendant corp) a letter of the same date addressed by RIC to the defendant,
taken by Naguiat the CA held that since it is already included in the title then it was containing a proposal of the buyer:
no longer feasible to reconvey, payment was for the said land is the only remedy for PROPOSAL I: (Exhibit E; this was rejected by Araneta)
petitioner. 1) to purchase property for P 18,000
2) with a downpayment of P 7,500
ISSUE 3) the balance to be paid anytime bet now and within 90 days after
1. WON the CA erred in applying Art. 1191 of the Civil Code in their ruling that there the peace of treaty bet warring nations
is no Breach of Contract regardless of the lapse of the stipulated period for Naguiat - July 12, 1943 (afternoon) – Sadang submitted another proposalto Jose Araneta
to pay addressed by RIC to the defendant, ctg a proposal of the buyer:
2. WON rescission is no longer feasible due to the certificate of title issued in favor PROPOSAL II (Exhibit F; Araneta told Sadang to return after 2 days – he wanted to
of Naguiat consider other offers and to select amongst them, that with a bigger dp and w the
3. WON the CA erred in ruling that the 58 sq. m. portion in question is covered by a fastest mode of settlement)
certificate of title in the names of respondents reconveyance and thus is no longer 1) purchase price: P20k
feasible and proper 2) dp: P7.5k
3) the balance to be paid anytime bet now and w/in 90 days
HELD after the peace of treaty bet warring nations
1. NO, it did not. - July 14, 1943- after further negotiations a letter addressed to RIC, signed by
- The Kasulatan was a Contract of Sale therefore absolute in nature given that there Araneta in behalf of the defendant corp (delivered to Sadang, accompanied by
is neither a stipulation in the deed that title to the property sold is reserved to the Flores, RIC president and mgr)
seller until the full payment of the price nor a stipulation giving the vendor the right RIC letter (Exhibit A; product of negotiations)
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed 1) Purchase price: P20k
period. Art. 1191 gives the right to rescind on the violation of the reciprocity 2) P8k of purchase price to be paid in cash
Obligations and Contracts A2010 page 61
Prof. Labitag
3) 12k of purchase price to be paid in installments: - Lachica returned said check to defendant (april 12, 1944) stating that she
4) 1k on or before Dec. 31, 1943 acknowledges her being “forced to assume an oblication which I could now very
5) 1k on or before Dec. 31, 1944 well pay”
6) 10k (balance) on or before Dec. 31, 1945 - April 12, 1944 – Araneta wrote back to Lachica stating that “besides the interest
7) “this same property will be mortgaged to us to guarantee the you have to pay us for the balance of P6k at the rate of 8% per annum, we will also
unpaid balance; charge you the interest in accordance with the terms of the contract, which interest
8) And the same will bear an interest of 8% per annum; represents P317.80 on P5k (March 16 – Dec 30, 1944) and P320 on P4k (Dec 31,
9) Said interest to be paid in advance” 1944 – Dec 31, 1945).
- July 15, 1943 – pursuant ot par 7 of the provisions of the RIC letter, plaintiffs - April 1944 – Lachica wrote Araneta another letter asking for the computations to
deposited with defendant corp a sum of P1k “as good faith money” be made for the period April 15, 1944 – Dec 31, 1945 (enclosing PNB check No.
- July 16, 1943 (noon): 37255-K for P73.33 to cover the payment of interests on P11k for March 16 – April
DEED OF SALE with MORTGAGE (Exhibit C) 15, 1944)
1) parties: - Defendant corp thereafter applied the P5k sum to the payment of indebtedness of
a) VENDEE–MORTGAGOR: plaintiff Lachica with the plaintiff, and received payments on interest charges, so theat as of Sept 15,
concurrence of husband Sadang 1944, plaintiff’s account with the defendant under the mortgage contract was P6k
b) VENDOR– MORTGAGEE: Gregorio Araneta, Inc unpaid balance of the principal
2) conditions: - Sept 5, 1944 – plaintiff Sadang went to Araneta to pay the entire balance
a) form and manner of the payment of the P12k (including interest) and to ask the cancellation of the mortgage but Araneta refused
balance (as stated in RIC letter, Exhibit A); to accept the tender of the payment then made
b) P12k balance shall bear interest of 8% per annum; - Sept 5, 1944 afternoon – Sadang said Atty Salazar to intervene in the case but
c) Interest payable in advance within the first 5 days of Araneta persisted in his denial
each month; - Sept 6, 1944 – Atty Quisumbing, in behalf of the plaintiffs, tendered to Araneta the
d) Interest, while not paid, shall be paid liquidated and sum of P7,060.03 in satisfaction of the balance of the mortgage indebtedness
accumulated monthly and added to the capital until the vendee has (including interests not yet due, which the defendant would have earned were the
brought payments up-to-date (periods of payment agreed for the benefit payments made on Dec 31, 1945) but Araneta reasoned that his non-acceptance
of both vendor and vendee) was due to the payments in accordance with the terns of the deed of sale with
e) Shoud the vendee be in default in payment of any mortgage.
amount due, either for capital or interest, the whole balance shall - Atty Salazar gave notice of plaintiffs’ intention to consign the sum of P7,060.03 as
automatically become due and payable and the vendor shall have the he did in effect deposit the sum of P7,061 on Sept 6, 1944 with the Manila CFI by
right to foreclose the mortgage in its entrirety way of consignation, and at the same time presented the complaint
- Payments by plaintiff to defendant: - Sept 11, 1944 – counsel for plaintiffs notified the defendant in writing of the fact of
P1k – July 15, 1943 (deposit) consignation
P7k – upon execution of deed of sale with mortgage
P80 – Aug 16 (interest) ISSUES
P80 – Sep 16 (interest) 1. WON TC erred in holding that the plaintiffs had a right to pay the remaining
P80 – Oct 18 (interest) principal of P6k (balance of theor obligation) before Dec 31, 1945 (date of maturity)
P80 – Nov 15 (interest) – NO
P80 – Dec 16 (interest) 2. WON TC erred in holding that the plaintiffs made a valid tender of payment to
P1k – Jan 15, 1944 (on account of principal) defendant – NO
P73.33 – Jan 15 (interest) 3. WON TC erred in dismissing defendant’s counterclaim – NO
P73.33 – Feb 19 (interest)
P73.33 – Mar 15 (interest)
P5k – Apr 10 (on account of principal) HELD
P73.33 – Apr 13 (interest) 1. Plaintiffs did not appeal form the TC findings that the Deed of Sale with Mortgage
P146.66 – Jun 17 (interest) is the contract that defines the duties and obligations of the parties.
P219.99 – Aug 31 (interest) - Proposal I (Exhibit E), Proposal II (Exhibit F), verbal negotiations, and RIC Letter
- Anent the P5k (April 10, 1944) payment, Pres. Araneta wrote to Lachica, returning (Exhibit A) were merely among the steps taken in the transactions leading to the
the check covering the payment because it is not in accord with what was stated in formulation of the Deed of Sale with Mortgage
the contract. - While the RIC letter may be a skeleton of the contract, it should be reduced into a
public document sufficient in form, so that it may be recorded in the corresponding
Obligations and Contracts A2010 page 62
Prof. Labitag
office of the register of deeds, for the purposes of transfer under the Torrens not explain or call the attention of the plaintiffs to the changes made and effect of
system such changes
- Theory of Integration of Jural Acts-a written contract merges all prior and - The construction by plaintiffs as to the terms of the agreement should prevail
contemporaneous negotiations in connection with the same subject, and all (“When the terms of an agreement have been intended in a different sense by the
agreements verbal or written, made at, or before the time of the execution of that different parties to it, that sense to prevail against either party in which he
contract are to be considered as merged and integrated in the same written supposed the other understood it.”)
instrument. Such payment may be made on or before the date specified.
-was the RIC letter novated by the formal deed of sale with mortgage?-yes - Defendant alleges that the payment must be made on the date specified and
but this is immaterial. not before
- While diligence and erudiation were displayed by plaintiffs counsel in their - Contract does not prohibit if payment is done before due dates
dissertation on the question of novation, the materiality of this cannot be seen in - A term is foxed and “it is presumed to have been established for the benefit of
the present issues the creditor as well as that of the debtor, unless from its tenor or other
- All that may be conceded for the RIC letter is that it may explain the intention of circumstances it should appear that the term was established for the benefit of
the parties in having entered into the contract of the deed of sale with mortgage one or the other.” (Art 1127, CC)
-did Sadang and Lachica sign the deed of sale with mortgage without reading - Deed of Sale with Mortgage: “these periods of payment have been agreed for
the contents thereof?-no. the benefit of the vendor and vendee”
- We believe that the plaintiffs had read the deed of sale with mortgage before - Mutual benefit has been interpreted to consist of the time granted a debtor to
signing it, considering that Sadang was a USAFFE captain and that he was a find means to comply with his obligation, and the fruits of such interest
licensed real estate man and manager of RIC. accruing to the creditor
- The testimony of the defendant’s attorney also attested to the fact that plaintiffs - The only impediment to a debtor making payment before the term is fixed, is
first read the said document before it was signed. the denial of the creditor of the benefits, such as the interests, accruing to the
- It is by legal presumption that a person takes ordinary care and precaution of his latter by reason of the fixed term (inferred from the SC decision on Villasenor v.
business. Javellana)
- It is however reasonable to conclude that although they read the contents of the - To uphold defendants’ claim would be virtually compelling an obligor to
Deed of Sale with Mortgage (Ex C) due to the mistaken belief that the RIC letter (Ex assume an obligation later when he offers to, and could very well, discharge it
A) was reproduced in toto in the Deed of Sale with Mortgage, for in fact, all of the earlier
terms of both exhibits are the same except:-the omission of the word “or before” in - The law should not be so interpreted as to compel a debtor to remain so,
the Deed of Sale with Mortgage for the time of the payment; insertion of the equally when he is in a position to release himself
technical clause “these periods of payment have been agreed for the benefit of - The parties could not have contemplated payments of the last installments on
both vendor and vendee” Dec. 31, 1945, in good Philippine currency
- Plaintiffs might not have noticed the change, or if they had, they might not have - Because at the execution of the contract, they did not expect such
attached much importance to it depreciation of currency as would render the interest on a loan barely sufficient
- If to trained legalists, such terms had caused a great divergence of opinions, how to cover the depreciation of the military notes
much more to an ordinary layman, unassisted by a lawyer in the execution of a - If such depreciation occurred and the performance of the obligation had
contract who had not been apprised of such clause by the attorney who had become more burdensome in its operation than was anticipated, then the
prepared the Deed of Sale with Mortgage parties should not complain
- In the realm of reality, how many persons stamp their signatures on documents - The rights of the parties must be measured by the contract which they
because of the representations of people who command great respect, faith and themselves made, and the courts can not alter them because they work a
truth in their fellow beings hardship
- There is a case where plaintiffs construed the contract according to the way they - The fact that the Americans were already in the Islands on December 31,
understood it contrary to the construction made by defendant because it did not 1945 and the placing of that date as the maturity date of the last installment of
make its position clear to the other party 10k constitutes a mere coincidence
“on or before December 31, 1943/December 31, 1944/December 31, - The contentions of the appellant (Araneta et al) are not well-taken
1945” - The rule is to the effect that the benefit which would be derived by the
- This proposition was accepted by the plaintiffs as shown by the fact that they had creditor from the fixing of a term for the performance of an obligation to pay
deposited the sum of 1k with the defendant corporation as “good faith money” money is the stipulated interest for the prescribed term, is true under normal
- The plaintiffs (as revealed by records) understood these terms as conveying the circumstances;
simple meaning which they plainly express that these installments might be paid on - But Deed of Sale with Mortgage, executed during the Japanese occupation,
or before the due dates the benefit which it was to derive consisted of the receipt of the last installment
- As in the RIC letter (Ex A), the plaintiffs did not have intervention in the of 10k in good Philippine money and not in Japanese military notes
preparation of the Deed of Sale with Mortgage, and the attorney who prepared it did - The real benefit thereto was foreseen and contemplated by the parties
Obligations and Contracts A2010 page 63
Prof. Labitag
- Conditions when Deed was executed (July 16, 1943, when Japanese invaders - It does not necessarily imply with appellees’ expectation to receive his back
were lords of the pacific) were comparatively normal (Ballantine schedule: 1 pay as a USAFFE after the liberation of the Philippines that he would have
war peso = P.1.40 Japanese military notes) and at the time, few would agreed to a prohibition of payment before due dates
prophesy in whose favor the world war would end, and when it would end - expected back pay was merely in the nature of a guaranty or
- It would be presumptuous to say that on Dec. 31, 1945 (stipulated date), the inducement that even if the worst should happen, he would still be able
American liberation would be here, and the parties fixed purposely this to pay the obligation
particular date for the payment of the last installment of 10k. - the appellees’ offers to buy (Proposals I and II) provides for the
- When MacArthur promised return, he did not day when settlement of the balance: “at any time between now and within 90 days
- When Americans landed in Leyte on October 1944, many remarked that it was after the signing of the peace treaty between the “warring nations”
sooner than expected - this indicates the spirit guiding the parties then was the desire to
- Were it not for the great naval battle at the Sibuyan Sea, the wr would have permit the plaintiffs to pay within a specific period, on a specific date
been prolonged for another year more or at least beyond Dec. 31, 1945
- Benefit which defendant (Araneta) wanted to reap by the insertion of the disputed 2. Appellant did not refuse payment by check as tendered, for insufficiency of funds
clause, was the payment of the interest, more than anything else in the letter of in the bank, or on account of the medium in which the payment was made, but
April 12, 1944 because it believed that it could not be forced to accept the payment prior to the
- the defendant meant that besides the interest that would have to be paid for date specified in the contract.
the balance of 6k at the rate of 8% per annum, the defendant shall also charge - General rule: an objection to tender must, to be available to the creditor, be made
the interest in accordance with the terms of the contract which interest in good time and that the grounds for objection must be specified, and that an
represents: objection to a tender on one ground is waiver of all other objections which could
P317.80 on P5k (March 16-Dec, 30, 1944) have been made at that time.
P320 on P4k (Dec. 31, 1944-Dec. 1945) - To afford the debtor an opportunity to secure the specific money which the law
- Defendant credited the plaintiffs with the sum of 5k notwithstanding that: 1) prescribes shall be accepted in payment of debts
the acceptance of the payment was made under protest; and 2) payment was - Non-observance of this duty would mislead the debtor and might inflict a loss
made under protest which could be avoided if the creditor had objected to the form and character of the
- The refusal of the defendant to follow this construction on Sept. 5, 1944 (the tender
balance of 6k and the interests of the unexpired period was tendered to it) was - By the mere fact of the drawing of the check, the plaintiffs engaged that on die
because the Japanese notes had been greatly depreciated presentment, they would honor it, or if dishonored, they would pay the amount
- While the acceleration clause is a standard one contained in most mortgage thereof to the holder
deeds, we cannot escape the conclusion derived from the clause itself that the - Presumption that they have the sufficient funds in bank to cover the amount of
payments may be made by the vendee before the dates stated in the contract said check, was not rebutted by the appellant upon which the burden of proving
- The mortgage loan is payable in several installments that ther were no funds in the bank fails
- Deed of Sale with Mortgage Acceleration Clause: in the event of defaults in - Where the great bilk of business is transacted through the medium of checks,
the payment of any amount due, either for capital or interest, the whole drafts, and negotiable instruments, “it would be a dangerous rule, which could be
balance shall automatically become due and payable, and the vendor shall easily turned into an engine of oppression that a tender of payment especially
have the right the foreclosure the mortgage in its entirety where it involves the maturing of obligations not then due (as in this case), could
- Even if it were true that the appellees could not be sure of their ability to pay not be made by check where no question was raised as to the value of the check
during the Japanese occupation, they, as any businessman of ordinary foresight, tendered
would not have agreed to a stipulation which would prohibit them from paying, even - It is ordinarily required of one to whom payment is offered in the form of check
if they had the money with which to pay the same that he make his objection at the time, to the offer of a check, instead of an offer of
- Contentions of appellant were not tenable payment
- With the Deed containing an acceleration clause, it could practically be sure - Payment by check has been generally so recognized as acceptable in business
that the plaintiffs would pay the installments on time, since failure to do so transactions that it has been held that omissions to make objection to a check as
would have made the balance due and payable tender of payment is regarded as waiver of right to demand payment in money
- This was one contingency which said plaintiffs would have naturally desired to - Allegation, that apellees did not introduce to show that the president of the
avoid, since it appears that their income was only P2,500 a month which was appellant corp to whom the alleged tender was made was not shown so as to have
not big enough, considering its purchase power during the Japanese occupation given him the opportunity to object, runs counter to the facts of the case as found
- Appellees were precisely looking for investments and not for obligations by the TC
‘plaintiff Sadang was then engaged in real estate business - If the president had not seen the check, he could not have refused the tender of
Sadang’s wife was engaged in jewelry business payment
- It could not have been probable that plaintiffs would agree to prohibition of
payment
Obligations and Contracts A2010 page 64
Prof. Labitag
- And as stated, the president reasoned tat his non-acceptance was due to his - On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the
opinion that such payment was not in accordance with the terms of the deed of amount of P254,880 in Japanese military notes in full payment of his indebtedness
sale. to Syjuco.
- The amount tendered included not only the interest up to the time of the tender,
3) In view of the positive resolution of the second issue, dismissal of counterclaim but also all the interest up to May 5, 1948.
was fully justified - Ponce de Leon also wrote to Syjuco a letter tendering the payment of his
Moreover, as state by the appellant, this assignment of error is made as a mere indebtedness, including interests up to May 5, 1948.
formality. - Syjuco, however, refused to accept such repeated tenders.
Disposition The judgment appealed from is affirmed, with costs against the - During the trial, Ponce de Leon explained that he wanted to settle his obligations
defendant-appellant. because as a member of the guerilla forces he was being hunted by the Japanese
and he was afraid of getting caught and killed.
PONCE DE LEON V SYJUCO, INC. - In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the
BAUTISTA; October 31, 1951 latter deposited with the Clerk of Court P254,880.
- On November 4, 1944, Ponce de Leon filed a complaint consigning the amount so
NATURE deposited to Syjuco.
This is an appeal from a decision of the Court of First Instance of Manila absolving - On May 15, 1946, Ponce de Leon filed a petition for the reconstitution of Transfer
defendant Santiago Syjuco, Inc. of the complaint and condemning the plaintiff to Certificates of Title Nos. 17175 and 17176 in the name of the Bank.
pay to said defendant the sum of P18,000 as principal and the further sum of - The Court ordered the reconstitution of said titles.
P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or a total of - On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank
P23,130, Philippine currency, with interest thereon at the rate of 6% per annum in an amount not exceeding P135,000.
from May 6, 1949, until said amount is paid in full, with costs against the plaintiff. - Ponce de Leon executed a mortgage of the two parcels of land covered by the
reconstituted Transfer Certificates of Title in favor of the said Bank to secure the
FACTS payment of any amount, which he may obtain from the Bank under the
- The appellee, Philippine National Bank, was the owner of 2 parcels of land known aforementioned overdraft account.
as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental. - The overdraft account was granted by the Bank to Ponce de Leon in good faith,
- On March 9, 1936 the Bank executed a contract to sell the said properties to the said Bank not being aware of the mortgage which Ponce de Leon had executed in
plaintiff, Jose Ponce de Leon, the total price of P26,300, payable as follows: (a) favor of Syjuco and the said Bank believing that the said properties had no lien or
P2,630 upon the execution of the said deed; and (b) the balance P23,670 in 10 encumbrance.
annual amortizations, the first amortization to fall due one year after the execution - Syjuco claimed that Ponce de Leon had violated the conditions of the mortgage
of the said contract. which Ponce de Leon had executed in its favor.
- On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., in the - Syjuco prayed that the mortgage executed by Ponce de Leon in favor of the Bank
amount of P200,000 in Japanese Military Notes, payable within one (1) year from be declared null and void.
May 5, 1948. - The lower court absolved Syjuco from Ponce de Leon's complaint and condemned
- It was also provided in said promissory note that the promisor (Ponce de Leon) Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal
could not pay, and the payee (Syjuco) could not demand, the payment of said note rate from May 6, 1949, until fully paid.
except within the aforementioned period.
- To secure the payment of said obligation, Ponce de Leon mortgaged in favor of ISSUES
Syjuco the parcels of land which he agreed to purchase from the Bank. 1. WON the plaintiff is justified in accelerating the payment of the obligation
- On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price because he was willing to pay the interests due up to the date of its maturity
amounting to P23,670 in Japanese Military notes and, on the same date, the Bank 2. WON the consignation made by the plaintiff is valid in the light of the law and the
executed in favor of Ponce de Leon, a deed of absolute sale of the aforementioned stipulations agreed upon in the two promissory notes signed by the plaintiff -
parcels of land.
- The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of HELD
mortgage executed by Ponce de Leon in favor of Syjuco were registered in the 1. NO.
Office of the Register of Deeds. Ratio
- On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the - In the 2 promissory notes, it was expressly agreed upon that plaintiff shall pay the
amount of P16,000 in Japanese Military notes and executed in the latter's favor a loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency
promissory note of the same tenor as the one had previously executed. of the Government of the Philippines that, at the time of payment above fixed it is
the legal tender for public and private debts, with interests at the rate of 6% per
annum, payable in advance for the first year, and semi-annually in advance during
the succeeding years".
Obligations and Contracts A2010 page 65
Prof. Labitag
- And that, the period above set forth having been established for the mutual because he was absent for incapacitated, or because several persons
benefit of the debtor and creditor, the former binds himself to pay, and the latter claimed to be entitled to receive the amount due (Art. 1176, Civil Code);
not to demand the payment of, the loans except within the period above (3) that previous notice of the consignation have been given to the person
mentioned. interested in the performance of the obligation (Art. 1177, Civil Code);
Reasoning (4) that the amount due was placed at the disposal of the court (Art 1178, Civil
- Under the law, in a monetary obligation contracted with a period, the Code); and
presumption is that the same is deemed constituted in favor of both the (5) that after the consignation had been made the person interested was
creditor and the debtor unless from its tenor or from other circumstances notified thereof (Art. 1178, Civil Code).
it appears that the period has been established for the benefit of either
one of them (Art. 1127, Civil Code). BUCE V CA
- Here no such exception or circumstance exists. DAVIDE; May 12, 2000
- It may be argued that the creditor has nothing to lose but everything to gain by
the acceleration of payment of the obligation because the debtor has offered to pay NATURE
all the interests up to the date it would become due. Petition to review the decision of the CA.
- But this argument loses force if we consider that the payment of interests is not
the only reason why a creditor cannot be forced to accept payment contrary to the FACTS
stipulation. - Petitioner leased a 56-square meter parcel of land. The lease contract was for a
- There are other reasons why this cannot be done. One of them is that the creditor period of fifteen years to commence on 1 June 1979 and to end on 1 June 1994
may want to keep his money invested safely instead of having it in his hands, or "subject to renewal for another ten (10) years, under the same terms and
that the creditor by fixing a period protects himself against sudden decline in the conditions."
purchasing power of the currency loaned specially at a time when there are many -Petitioner then constructed a building and paid the required monthly rental of
factors that influence the fluctuation of the currency. P200. Private respondents, later demanded a gradual increase in the rental until it
- Unless the creditor consents, the debtor has no right to accelerate the time of reached P400 in 1985. For July and August 1991, petitioner paid private
payment even if the premature tender included an offer to pay principal and respondents P1,000 as monthly rental.
interest in full. - On 6 December 1991, private respondents' counsel wrote petitioner informing her
of the increase in the rent to P1,576.58 effective January 1992 pursuant to the
2. NO. The consignation is invalid, and, therefore, did not have the effect of provisions of the Rent Control Law. Petitioner, however, tendered checks dated 5
relieving him of his obligation. October 1991, 5 November 1991, 5 December 1991, 5 January 1992, 31 May 1992,
Ratio and 2 January 1993 for only P400 each. Private respondents refused to accept the
- In order that consignation may be effective, the debtor must first comply with same.
certain requirements. - Petitioner filed with the RTC of Manila a complaint for specific performance with
- In the instant case, while it is admitted a debt existed, that the consignation was prayer for consignation, that private respondents be ordered to accept the rentals
made because of the refusal of the creditor to accept it, and the filing of the in accordance with the lease contract and to respect the lease of fifteen years,
complaint to compel its acceptance on the part of the creditor can be considered which was renewable for another ten years, at the rate of P200 a month.
sufficient notice of the consignation to the creditor, nevertheless, it appears that at - In their Answer, private respondents countered that petitioner had already paid
least two of the requirements have not been complied with. the monthly rent of P1,000 for July and August 1991. Under Republic Act No. 877, as
- The plaintiff, before making the consignation with the clerk of the court, failed to amended, rental payments should already be P1,576.5810 per month; hence, they
give previous notice thereof to the person interested in the performance of the were justified in refusing the checks for P400 that petitioner tendered. Moreover,
obligation. the phrase in the lease contract authorizing renewal for another ten years does not
- More importantly, the obligation was not yet due and demandable when the mean automatic renewal; rather, it contemplates a mutual agreement between the
money was consigned, because the obligation was to be paid within one year after parties.
May 5, 1948. - During the pendency of the controversy, counsel for private respondents wrote
- The consignation was made before this period matured. petitioner reminding her that the contract expired on 1 June 1994 and demanding
- The failure of these two requirements is enough ground to render the consignation that she pay the rentals in arrears, which then amounted to P33,000.
ineffective. - RTC declared the lease contract automatically renewed for ten years and
Reasoning In order that cogsignation may be effective, the debtor must first considered as evidence thereof (a) the stipulations in the contract giving the lessee
comply with certain requirements prescribed by law. The debtor must show the right to construct buildings and improvements and (b) the filing by petitioner of
(1) that there was a debt due; the complaint almost one year before the expiration of the initial term of fifteen
(2) that the consignation of the obligation had been made bacause the years. It then fixed the monthly rent at P400 from 1 June 1990 to 1 June 1994;
creditor to whom tender of payment was made refused to accept it, or P1,000 from 1 June 1994 until 1 June 1999; and P1,500 for the rest of the period or
Obligations and Contracts A2010 page 66
Prof. Labitag
from 1 June 2000 to 1 June 2004, reasoning that the continuous increase of rent 2. YES
from P200 to P250 then P300, P400 and finally P1,000 caused "an inevitable - After the lease terminated on 1 June 1994 without any agreement for renewal
novation of their contract." being reached, petitioner became subject to ejectment from the premises. It must
- Court of Appeals reversed the decision of the RTC, and ordered petitioner to be noted, however, that private respondents did not include in their Answer with
immediately vacate the leased premises on the ground that the contract expired on Counterclaim a prayer for the restoration of possession of the leased premises.
1 June 1994 without being renewed and to pay the rental arrearages at the rate of Neither did they file with the proper Metropolitan Trial Court an unlawful detainer
P1,000 monthly. suit against petitioner after the expiration of the lease contact. Moreover, the issues
- The Court of Appeals denied petitioner's motion for reconsideration. Hence this agreed upon by the parties to be resolved during the pre-trial were the correct
petition. interpretation of the contract and the validity of private respondents' refusal to
accept petitioner's payment of P400 as monthly rental. The issue of possession of
ISSUES the leased premises was not among the issues agreed upon by the parties or
1. WON the parties intended an automatic renewal of the lease contract when they threshed out before the court a quo. Neither was it raised by private respondents on
agreed that the lease shall be for a period of fifteen years "subject to renewal for appeal. T he Court of Appeals went beyond the bounds of its authority when after
another ten (10) years." interpreting the questioned provision of the lease contract in favor of the private
2. WON CA erred in ordering the petitioner to vacate the land upon expiration of the respondents it proceeded to order petitioner to vacate the subject premises.
lease contract. Disposition Petition is partly GRANTED. The decision of the CA is REVERSED
insofar as it ordered the petitioner to immediately vacate the leased premises,
HELD without prejudice, however, to the filing by the private respondents of an action for
1. NO. the recovery of possession of the subject property.
- Rules of interpretation: the literal meaning of the stipulations shall control if the
terms of the contract are clear and leave no doubt upon the intention of the ARANETA V PHILIPPINE SUGAR ESTATES DEVT. CO.
contracting parties. However, if the terms of the agreement are ambiguous resort is REYES; May 31, 1967
made to contract interpretation which is the determination of the meaning attached
to written or spoken words that make the contract. Also, to ascertain the true NATURE
intention of the parties, their actions, subsequent or contemporaneous, must be Review by certiorari
principally considered.
- *The phrase "subject to renewal for another ten (10) years" is unclear on whether FACTS
the parties contemplated an automatic renewal or extension of the term, or just an - On July 28, 1950, J. M. Tuason & Co. sold a portion of its land in Sta. Mesa Heights
option to renew the contract; and if what exists is the latter, who may exercise the Subdivision, Q.C. to Philippine Sugar Estates Development (PSED) Co., Ltd., through
same or for whose benefit it was stipulated. Gregorio Araneta Inc. (GAI) for P 430, 514. In their contract of purchase and sale,
-There is nothing in the stipulations in the contract and the parties' actuation that the parties stipulated that the buyer will build the Sto. Domingo Church and the
shows that the parties intended an automatic renewal or extension of the term of seller will construct streets on the NE and NW and SW sides of the land.
the contract. The fact that the lessee was allowed to introduce improvements on - The buyer PSED finished the construction of the church but the seller, GAI, was
the property is not indicative of the intention of the lessors to automatically extend unable to finish the construction of the street in the NE side because a certain third
the contract. Neither the filing of the complaint a year before the expiration of the party, Manuel Abundo, who has been physically occupying a middle part thereof,
15-year term nor private respondents' acceptance of the increased rentals has any refused to vacate the same.
bearing on the intention of the parties regarding renewal. It must be recalled that - On May 7, 1958, PSED filed a complaint against J. M. Tuason & Co, Inc., and GAI in
the filing of the complaint was even spawned by private respondents' refusal to CFI Manila, seeking to compel the latter to comply with their obligation and/or to
accept the payment of monthly rental in the amount of only P400. pay damages in the event they failed or refused to perform the obligation.
- Fernandez v. CA is applicable to the case at bar, thus: In a reciprocal contract like - Both defendants answered the complaint with GAI setting up the principal defense
a lease, the period must be deemed to have been agreed upon for the benefit of that the action was premature since its obligation to construct the streets in
both parties, absent language showing that the term was deliberately set for the question was without a definite period which needs to be fixed first by the court in a
benefit of the lessee or lessor alone. It was not specifically indicated who may proper suit for that purpose before a complaint for specific performance will
exercise the option to renew, neither was it stated that the option was given for the prosper.
benefit of herein petitioner. Thus, pursuant to the Fernandez ruling and Article 1196 - After the lower court dismissed the complaint, PSED moved for a reconsideration
of the Civil Code, the period of the lease contract is deemed to have been set for praying that the court fix a period within which defendants will comply with their
the benefit of both parties. Renewal of the contract may be had only upon their obligation to construct the streets in question. Defendant GAI opposed said motion,
mutual agreement or at the will of both of them. Since the private respondents maintaining that plaintiff's complaint did not expressly or impliedly allege and pray
were not amenable to a renewal, they cannot be compelled to execute a new for the fixing of a period to comply with its obligation and that the evidence
contract when the old contract terminated on 1 June 1994. It is the owner-lessor's presented at the trial was insufficient to warrant the fixing of such a period.
prerogative to terminate the lease at its expiration.
Obligations and Contracts A2010 page 67
Prof. Labitag
- On July 16, 1960, the lower court amended its previous decision and, after finding conclusion is thus forced that the parties must have intended to defer the
that the proven facts warrant the fixing of such a period, rendered judgment giving performance of the obligations under the contract until the squatters were duly
defendant GAI, a period of Two (2) Years from notice within which to comply with its evicted, as contended by the petitioner GAI.
obligation under the contract: to construct streets on the NE, NW and SW sides of - CA objected to this conclusion that it would render the date of performance
the land sold to plaintiff so that the same would be a block surrounded by streets on indefinite. However, this very indefiniteness is what explains why the agreement did
all four sides. not specify any exact periods or dates of performance. It follows that there is no
- The case was brought to the CA by GAI and the same rendered a decision justification in law, for the setting of the date of performance at any other time than
affirming that of the lower court’s, setting a period of 2 years from finality of that of the eviction of the squatters occupying the land in question; and in not so
judgment to comply with the obligation. GAI now resorted to the SC, hence this holding, both the trial court and the CA committed reversible error. In addition, the
petition for certiorari case against one of the squatters, Abundo, was still pending in the CA when its
decision in this case was rendered.
ISSUE Disposition decision appealed from is reversed. The time for the performance of
WON the trial court and the CA erred in setting the date for the performance of the the obligations of petitioner Gregorio Araneta, Inc. fixed at the date that all the
contract squatters on affected areas are finally evicted.

HELD YNCHAUSTI V YULO


The decision of the CA, affirming that of the CFI is legally untenable. It does not lie ARELLANO; March 25, 1914
within them to fix the period of the performance of the obligation.
Ratio Article 1197 is predicated on the absence of any period fixed by the parties NATURE
and it involves a two-step process. The court must first determine that “the Suit for the recovery of a certain sum of money, the balance of a current account
obligation does not fix a period” (or that the period is made to depend upon the will opened by the firm of Inchausti & Company with Teodoro Yulo and after his death
of the debtor), “but from the nature and the circumstances it can be inferred that a continued with his widow and children, whose principal representative is Gregorio
period was intended.” The court must then proceed to the second step, and decide Yulo.
what period was “probably contemplated by the parties.”
Reasoning FACTS
- In no case can it be logically held that the intervention of the court to fix the - Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his
period for performance was warranted, for even on the assumption that the court numerous haciendas in the province of Negros Occidental, had been borrowing
should have found that no reasonable time or no period at all had been fixed (the money from the firm of Inchausti & Company under specific conditions.
trial court's amended decision nowhere declared any such fact) still, the complaint - On April 9, 1903, Teodoro Yulo died testate and for the execution of the provisions
not having sought that the court should set a period, the court could not proceed to of his will he had appointed as administrators his widow and five of his sons,
do so unless the complaint was first amended; for the original decision is clear that Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who
the complaint proceeded on the theory that the period for performance had elapsed died on October 22d of the following year, 1904, there remaining of the marriage
already, that the contract had been breached and defendant was already the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio,
answerable in damages. Mariano, Carmen, Concepción, and Jose Yulo y Regalado. Of these children
- Granting, however, that it lay within the Court's power to fix the period of Concepcion and Jose were minors, while Teodoro was mentally incompetent. His
performance, still the amended decision is defective in that no basis is stated to widow and children held the conjugal property in common and at the death of
support the conclusion that the period should be set at two years after finality of the Gregoria, these children preserved the same relations under the name of Hijos de T.
judgment. The last paragraph of Article 1197 is clear that the period can not be set Yulo continuing their current account with Inchausti & Company until said balance
arbitrarily. The law expressly prescribes that “the courts shall determine such amounted to P200,000 upon which the creditor firm tried to obtain security for the
period as may under the circumstance have been probably contemplated by the payment of the money.
parties.” - Gregorio Yulo, for himself and in representation of his brothers Pedro, Francisco,
All that the trial court's amended decision says is that “the proven facts precisely Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document
warrant the fixing of such a period,” which is insufficient to explain how the two- whereby all admitted their indebtedness to Inchausti & Company in the sum of
year period given to petitioner herein was arrived at. The trial court appears to have P203,221.27 and, in order to secure the same with interest thereon at 10% per
pulled the two-year period set in its decision out of thin air, no circumstances are annum, they especially mortgaged an undivided six-ninth of their 38 rural
mentioned to support it. properties, their remaining urban properties, lorchas, and family credits which were
- The contract shows that the parties were fully aware that the land described was listed, obligating themselves to make a formal inventory and to describe in due
occupied by squatters. As the parties must have known that they could not take the form all the said properties, as well as to cure all the defects which might prevent
law into their own hands and must resort to legal processes in evicting the the inscription of the said instrument in the registry of property and finally to
squatters, they must have realized that the duration of the suits to be brought extend by the necessary formalities the mortgage over the remaining three-ninths
would not be under their control nor could the same be determined in advance. The
Obligations and Contracts A2010 page 68
Prof. Labitag
part of all the property and rights belonging to their other brothers, the incompetent remains unpaid, and that Messrs. Inchausti & Co. may consider the total obligation
Teodoro, and the minors Concepcion and Jose. due and demandable, and proceed to collect the same together with the interest for
- On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered the delay above stipulated through all legal means."
a letter of the firm of Inchausti & Company in these terms: "With your favor of the - Stipulated in addition: Inchausti & Co. should include in their suit brought in the
2d inst. we have received an abstract of our current account with your important CFI of Iloilo against Gregorio Yulo, his brother and joint co-obligee, Pedro Yulo, and
firm, closed on the 31st of last December, with which we desire to express our they will procure by all legal means and in the least time possible a judgment in
entire conformity as also with the balance in your favor of P271,863.12." On July 17, their favor against Gregorio and Pedro, sentencing the latter to pay the total
1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said amount of the obligation acknowledged by them in the instrument of August 12,
balance to P253,445.42, with which balance Hijos de T. Yulo expressed its 1909; with the understanding that if they should deem it convenient for their
conformity by means of a letter of the 19th of the same month and year. Regarding interests, Francisco, Manuel, and Carmen Yulo may appoint an attorney to
this conformity a new document evidencing the mortgage credit was formalized. cooperate with the lawyers of Inchausti & Co. in the proceedings of the said case.
- On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother [Traitors!]
Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and - On July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses:
Concepcion Yulo, the latter being of age at the time, ratified all the contents of the first, that an accumulation of interest had taken place and that compound interest
prior document of June 26, 1908, severally and jointly acknowledged and admitted was asked for in Philippine currency at par with Mexican; second, that in the
their indebtedness to Inchausti & Company for the net amount of P253,445.42 instrument of August 12, 1909, two conditions were agreed one of which ought to
which they obligated themselves to pay, with interest at 10% per annum, in five be approved by the CFI, and the other ratified and confirmed by the other brother
installments at the rate of P50,000, except the last, this being P53,445.42, Mariano Yulo, neither of which was complied with; third, that with regard to the
beginning June 30, 1910, continuing successively on the 30th of each June until the same debt claims were presented before the commissioners in the special
last payment on June 30, 1914. proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though
- Among other clauses, they expressly stipulated the following: later they were dismissed, pending the present suit; fourth and finally, that the
- The default in payment of any of the installments or the noncompliance of any instrument of August 12, 1909, was novated by that of May 12, 1911, executed by
of the other obligations will result in the maturity of all the said installments, Manuel, Francisco and Carmen Yulo.
and Inchausti & Co. may exercise at once all the rights and actions in order to - The CFI of Iloilo decided the case "in favor of the defendant without prejudice to
obtain the immediate and total payment of our debt. the plaintiff's bringing within the proper time another suit for his proportional part of
- All the obligations will be understood as having been contracted in solidum by the joint debt, and that the plaintiff pay the costs."
all the Yulos, brothers and sisters.
- The instrument shall be confirmed and ratified in all its parts, within the present ISSUES
week, by their brother Mariano Yulo y Regalado who resides in Bacolod, otherwise 1. WON the plaintiff can sue Gregorio Yulo alone, there being other obligors
it will not be binding on Inchausti & Co. who can make use of their rights to 2. WON plaintiff lost this right by the fact of its having agreed with the other
demand and obtain the immediate payment of their credit without any further obligors in the reduction of the debt, the proroguing of the obligation and the
extension or delay. extension of the time for payment, in accordance with the instrument of May 12,
- This instrument was neither ratified nor confirmed by Mariano Yulo. 1911
- The Yulos did not pay the first installment of the obligation. 3. WON the contract with the three obligors constitutes a novation of that of August
- On March 27, 1911, Inchausti & Co. brought an ordinary action in the CFI of Iloilo, 12, 1999, entered into with the six debtors who assumed the payment of
against Gregorio Yulo for the payment of the balance of P253,445.42 with interest P253,445.42
at 10% per annum, on that date aggregating to P42,944.76. 4. If in the negative, WON it has any effect in the action brought and in this present
- On May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in suit
favor of Inchausti & Co. another notarial instrument in recognition of the debt and
the obligation of payment in the following terms: "First, the debt is reduced for HELD
them to P225,000; second, the interest is likewise reduced for them to 6% per 1. Yes.
annum, from March 15, 1911; third, the installments are increased to 8, the first of Ratio The debtors having obligated themselves in solidum, the creditor can bring
P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same its action in toto against any one of them.
date of each successive year until the total obligation shall be finally and Reasoning This was surely the purpose in demanding that the obligation
satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the contracted should be solidary having in mind the principle of law that, "when the
partial payments specified in the foregoing clause be not paid at its maturity, the obligation is constituted as a conjoint and solidary obligation each one of the
amount of the said partial payment together with its interest shall bear interest at debtors is bound to perform in full the undertaking which is the subject matter of
the rate of 15% per annum from the date of said maturity, without the necessity of such obligation."
demand until its complete payment;" that "if during two consecutive years the 2. No.
partial payments agreed upon be not made, they shall lose the right to make use of Ratio Solidarity may exist even though the debtors are not bound in the same
the period granted to them for the payment of the debt or the part thereof which manner and for the same periods and under the same conditions.
Obligations and Contracts A2010 page 69
Prof. Labitag
Reasoning Even though the creditor may have stipulated with some of the solidary premature. When the suit was brought on March 27, 1911, the first installment of
debtors diverse installments and conditions, as in this case, Inchausti & Co. did with the obligation had already matured as of June 30, 1910, and not having been paid,
its debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12, the whole debt had become mature, according to the express agreement of the
1911, this does not lead to the conclusion that the solidarity stipulated in the parties, independently of the resolutory condition which gave the creditor the right
instrument of August 12, 1909 is broken. to demand the immediate payment of the whole debt upon the expiration of the
3. No. stipulated term of one week allowed to secure from Mariano Yulo the ratification
Ratio An obligation to pay a sum of money is not novated in a new instrument and confirmation of the contract of August 12, 1909. Neither could he invoke a like
wherein the old is ratified, by changing only the term of payment and adding other exception for the shares of his solidary co-debtors Pedro and Concepcion Yulo, they
obligations not incompatible with the old one. being in identical condition as he. But as regards Francisco, Manuel, and Carmen
Reasoning The contract of May 12, 1911, does not constitute a novation of the Yulo, none of the installments payable under their obligation, contracted later, had
former one of August 12, 1909, with respect to the other debtors who executed this as yet matured. The first payment, as already stated, was to mature on June 30,
contract, or more concretely, with respect to the defendant Gregorio Yulo: First, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo
because in order that an obligation may be extinguished by another which "as to that part of the debt for which they were responsible" can be set up by
substitutes it, it is necessary that it should be so expressly declared or that the old Gregorio Yulo as a partial defense to the action. The part of the debt for which these
and the new be incompatible in all points; and the instrument of May 12, 1911, far three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo
from expressly declaring that the obligation of the three who executed it substitutes may claim that, even acknowledging that the debt for which he is liable is P225,000,
the former signed by Gregorio Yulo and the other debtors, expressly and clearly nevertheless not all of it can now be demanded of him, for that part of it which
stated that the said obligation of Gregorio Yulo to pay the P253,445.42 sued for pertained to his co-debtors is not yet due, a state of affairs which not only prevents
exists, stipulating that the suit must continue its course and, if necessary, these any action against the persons who were granted the term which has not yet
three parties would cooperate in order that the action against Gregorio Yulo might matured, but also against the other solidary debtors who being ordered to pay
prosper. It is always necessary to state that it is the intention of the contracting could not now sue for a contribution, and for this reason the action will be only as to
parties to extinguish the former obligation by the new one. There exist no the P112,500. Against the propriety and legality of a judgment against Gregorio
incompatibility between the old and the new obligation. Yulo for this sum, to wit, the three-sixths part of the debt which forms the subject
4. Yes. [Total amount and amount due and demandable, respectively.] matter of the suit, we do not think that there was any reason or argument offered
Ratio The obligation being solidary, the remission of any part of the debt made by which sustains an opinion that for the present it is not proper to order him to pay all
a creditor in favor of one or more of the solidary debtors necessarily benefits the or part of the debt, the object of the action.
others. Disposition We therefore sentence the defendant Gregorio Yulo to pay the plaintiff
Reasoning Although the contract of May 12, 1911, has not novated that of August Inchausti & Co. P112,500, with the interest stipulated in the instrument of May 12,
12, 1909, it has affected that contract and the outcome of the suit brought against 1911, from March 15, 1911, and the legal interest on this interest due, from the
Gregorio Yulo alone for the sum of P253,445.42; and in consequence, the amount time that it was claimed, without any special finding as to costs. The judgment
stated in the contract of August 12, 1909, cannot be recovered but only that stated appealed from is reversed. So ordered.
in the contract of May 12, 1911, by virtue of the remission granted to the three of
the solidary debtors in this instrument. He cannot be ordered to pay the LAFARGE CEMENT PHLIPPINES, INC. V CONTINENTAL
P253,445.42 claimed from him in the suit here, because he has been benefited by CEMENT CORPORATION
the remission made by the plaintiff to three of his co-debtors. Consequently, the PANGANIBAN; November 23, 2004
debt is reduced to 225,000 pesos.
5. FACTS
Ratio Before the performance of the condition, or before the execution of a term - 8/11/98: in a Letter of Intent (LOI), petitioner Lafarge—on behalf of its affiliates
which affects one debtor alone, proceedings may be had against him or against any including Petitioner Luzon Continental Land Corp. (LCLC) agreed to purchase
of the others for the remainder which may be already demandable but the respondent Continental Cement Corporation (CCC). At the time, CCC were
conditional obligation or that which has not yet matured cannot be demanded from respondents in a pending case against Asset Privatization Trust (APT) [GR No.
any one of them. 119712]
Reasoning If the efficacy of the later instrument over the former touching the - 10/21/98: both parties entered into a Sale and Purchase Agreement (SPA)
amount of the debt had been recognized, should such efficacy not likewise be - under clause 2 of the SPA the parties allegedly agreed to retain P117,020,846.84
recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen from the purchase price to be deposited in an interest-bearing account in Citibank
had been included in the suit, they could have alleged the defense of the non- NY for payment to APT
maturity of the installments since the first installment did not mature until June 30, - petitioners allegedly refused to pay APT; fearing foreclosure, CCC filed w/ the RTC
1912, and without doubt the defense would have prospered. Cannot this defense of of QC a “Complaint w/ Application for Preliminary Attachment” against petitioners
the pre-maturity of the action, which is implied in the last special defense set up in [CC No. Q-00-41103]
the answer of the defendant Gregorio Yulo be made available to him in this - petitioners moved to dismiss the complaint on the grounds of forum-shopping
proceeding? Gregorio Yulo cannot allege as a defense to the action that it is
Obligations and Contracts A2010 page 70
Prof. Labitag
- to avoid being in default, petitioners filed their Answer and Compulsory 3. Lim and Mariano should pay P5M each for counsel fees and litigation costs.
Counterclaims ad Cautelam against Respondent CCC, its majority stockholder For damage to the reputations of defendants, a sum of P100M each for
Gregory Lim, and its corporate secretary Anthony Mariano, praying for the sums of moral damages is prayed for
P2.7M as actual damages, P100M as exemplary damages, P100M as moral damages - since the alleged damages suffered by the defendants were a consequence of
and P5M as atty’s fees and costs each petiitioners’ actions, the requisites for compulsory counterclaim are met.
- petitioners allege that the Writ of Attachment was procured in bad faith
- the RTC dismissed petitioners’ counterclaims since the counterclaims against Lim 1(b) In the Sugapay case, Respondent Mobil Phils. filed an action for replevin
and Mariano were not compulsory, the Sapugay ruling wasn’t applicable, and the against the sps Sugapay. The sps failed to keep their end of a Dealership
Counterclaims violated procedural rules on the proper joinder of causes of action Agreement; they answered with a counterclaim alleging the plaintiff refused to give
- acting for MFR, the TC admitted an error in pronouncing the counterclaim was them gas. They still had a post surety bond w/c they couldn’t claim w/o the
against Lim and Mariano only; the RTC clarified that it impleaded the two, even if Agreement, later discovering Mobil and its manager, Cardenas, intended all along to
CCC was included then award the agreement to Island Air Product Corp.
- an issue raised was whether Cardenas, who wasn’t a party to the original action,
ISSUES could be impleaded in the counterclaim
1. WON the RTC gravely erred in ruling that (a) petitioners’ counterclaims against - the Court held that new parties may be brought to the action to accord complete
Respondents Lim and Mariano are not compulsory; (b) Sapugay v. Court of Appeals relief to all in a single action and to avert a multiplicity of suits
is inapplicable here; and (c) petitioners violated the rule on joinder of causes of - respondent CCC contends that as a corporation with a separate legal personality,
action.” it has the juridical capacity to indemnify petitioners even w/o Lim and Mariano; the
2. WON the RTC gravely erred in refusing to rule that Respondent CCC has no Court however points out that the inclusion of the co-defendants is not premised on
personality to move to dismiss petitioners’ compulsory counterclaims on the assumption of CCC’s financial ability but on the allegations of fraud and bad
Respondents Lim and Mariano’s behalf. faith against them, making them indispensable parties
- in Sagupay, Cardenas was furnished w/ a copy of the Answer w/ Counterclaim but
HELD he did not respond. Hence the Court considered his apparent acquiescence, despite
1. his active participation in the trial, and adopted as his answer the allegations in the
1(a) Sec 6 Rule 6 of the Rules of Civil Procedure states: “(A counterclaim is) any complaint, and is deemed to have submitted to the TC’s jurisdiction. Sec 12 Rule 6
claim which a defending party may have against an opposing party” of the Rules of Court state that “only upon service of summons can the TC obtain
- they are generally allowed to facilitate the disposition of the whole controversy in jurisdiction over them.”
a single action - in the instant case, no records show that Lim and Mariano are aware of the
- a counterclaim is permissive if it is not necessarily connected w/ the subject counterclaims or that they actively participated in the proceeding. So unlike in
matter of the opposing party’s claim and may be filed in a separate case Sagupay, the court cannot be said to have treated CCC’s motion to dismiss as
- a counterclaim is compulsory if it arises out of the transaction or occurrence of the having been filed on their behalf
subject matter
- compulsory counterclaims must be set up in the same action or be barred forever 1(c) CCC claims that while the original complaint was a suit for specific performance
NAMARCO v. Fed of United Namarco Dist. lays down the criteria to determine based on a contract, the counterclaim was based on tortuous acts of the
counterclaim type: respondents, violating the rule on joinder of causes of action as stated in S5 Rule 2
1. are issues of fact and law raised by the claim and by the counterclaim and S6 Rule 3 of the Rules of Civil Procedure
largely the same? -these rules are founded on practicality—dismissing the counterclaim for damages
2. Would res judicata bar a subsequent suit on defendant’s claim, absent the would likely only lead to a separate case re-filing it. Nevertheless, the two are
indispensable parties
compulsory counterclaim rule?
3. Will substantially the same evidence support or refute plaintiff’s
2. Art 1207 of the Civil Code provides that obligations are generally considered joint
claim/counterclaim?
unless expressly stated or when the nature of the obligation requires solidarity.
4. Is there any logical relation b/w the claim and counterclaim?
Obligations arising from tort, however, are always solidary.
- a positive answer to all four would indicate it is compulsory
-the fact that liability sought against CCC is for specific performance and tort, while
- The court then examined petitioners’ basis for their allegations using these
those against Lim and Mariano are based solely on tort does not negate the solidary
criteria:
nature of their liablility
1. Lim and Mariano were responsible for making the bad faith decisions and
-petitioners’ assertion that CCC cannot move to dismiss the counterclaims on the
causing the plaintiff to file this baseless suit and procure an unwarranted
grounds that pertain solely to its individual co-debtors cannot be given credence.
Writ of Attachment
A1222 of the CC provides:
2. They are also the plaintiff’s co-joint tortfeasors in the commission of
complained acts and as such are jointly and solidarily liable
Obligations and Contracts A2010 page 71
Prof. Labitag
“With respect to (defenses) w/c personally belong to the others, (a solidary debtor) judgment for his claim against Lino Dayandante, in order that the said administrator
may avail himself thereof as regards that part of the debt for w/c the latter are may be subrogated to the rights of Jaucian against Dayandante. The simple affidavit
responsible.” of the principal debtor that he had no property except P100 worth of property which
-the filing of CCC of a motion to dismiss on grounds pertaining to its individual he has ceded to the creditor is not sufficient for the court to order the surety to pay
debtors is allowed the debt of the principal. When this action shall have been taken against Lino
-however, it lacks the requisite authority to file this motion on the behalf of Lim and Dayandante and an execution returned 'no effects,' then the claim of Jaucian
Mariano—thus, unless expressly adopted by Lim and Mariano, the motion has no against the estate will be ordered paid or any balance that may be due to him."
force and effect as to them - Acting upon the suggestions contained in this order Jaucian brought an action
Disposition Wherefore, the petition is granted and the assailed orders reversed. against Dayandante and recovered a judgment against him for the full amount of
The court of origin is ordered to take cognizance of the counterclaims and to cause the obligation evidenced by the document of October 24, 1908. Execution was
the service of summons on Lim and Mariano issued upon this judgment, but was returned by the sheriff wholly unsatisfied, no
JAUCIAN V QUEROL property of the judgment debtor having been found.
STREET; October 5, 1918 - On October 28, 1914, counsel for Jaucian filed another petition in the proceedings
upon the estate of Hermenegilda Rogero, in which they averred, upon the grounds
FACTS last stated, that Dayandante was insolvent, and renewed the prayer of the original
- In October, 1908, Lino Dayandante and Hermenegilda Rogero executed a private petition. It was contended that the court, by, its order of April 13, 1914, had
writing in which they acknowledged themselves to be indebted to Roman Jaucian in "admitted the claim" of Dayadante that he had no property left.
the sum of P13,332.33. - CFI, after hearing argument, entered an order refusing to grant Jaucian's petition.
- Hermenegilda Rogero signed this document in the capacity of surety for Lino To this ruling the appellant excepted and moved for a rehearing. On December 11,
Dayandante; but as clearly appears from the instrument itself both debtors bound 1914, the judge a quo entered an order denying the rehearing and setting forth at
themselves jointly and severally to the creditor length, the reasons upon which he based his denial of the petition.
- There is nothing in the terms of the obligation itself to show that the relation - In this court the appellant contends that the trial judge erred (a) in refusing to give
between the two debtors was that of principal and surety. effect to the order made by the CFI, dated April 13, 1914; and (b), in refusing to
- In November, 1909, Hermenegilda Rogero brought an action in the Court of First order the administrator of the estate of Hermenegilda, Rogero to pay the appellant
Instance of Albay against Jaucian, asking that the document in question be the amount demanded by him. The contention with regard to the order of April
cancelled as to her upon the ground that her signature was obtained by means of 13, 1914, is that no appeal from it having been taken, it became final.
fraud. - An examination of the order in question, however, leads us to conclude that it was
- In his answer to the complaint, Jaucian, by way of cross-complaint, asked for not a final order, and therefore it was not appealable.
judgment against the plaintiff for the amount due upon the obligation, which - In effect, it held that whatever rights Jaucian might have against the estate of
appears to have matured at that time. Rogero were subject to the performance of a condition precedent, namely, that he
- While the case was pending in the Supreme Court, Hermenegilda Rogero died and should first exhaust this remedy against Dayandante.
the administrator of her estate was substituted as the party plaintiff and appellee. - The court regarded Dayandante as the principal debtor, and the deceased as a
On November 25, 1913, the Supreme Court rendered its decision reversing the surety only liable for such deficiency as might result after the exhaustion of the
judgment of the trial court and holding that the disputed claim was valid. assets of the principal coöbligor.
- During the pendency of the appeal, proceedings were had in the Court of First - The pivotal fact upon which the order was based was the failure of appellant to
Instance of Albay for the administration of the estate of Hermenegilda Rogero; show that he had exhausted his remedy against Dayandante, and this failure the
Francisco Querol was named administrator; and a committee was appointed to pass court regarded as a complete bar to the granting of the petition at that time.
upon claims against the estate.
- This committee made its report on September 3, 1912. On March 24, 1914, or ISSUES
about a year and a half after the filing of the report of the committee on claims 1. WON the order of April 13, 1914 is final and hence appealable
against the Rogero estate, Jaucian entered an appearance in the estate 2. WON Hermenegilda Rogero’s liability was that of principal, though she was only
proceedings, and filed with the court a petition in which he averred the execution of a surety for Lino Dayadante
the document of October, 1908, by the deceased, the failure of her coöbligor
Dayandante, to pay any part of the debt, except P100 received from him in March, HELD
1914, and the complete insolvency of Dayandante (note: 1918 pa ito kaya mahal na 1. NO
ang P100). - The court made no order requiring the appellee to make any payment whatever,
- Upon these facts Jaucian prayed the court for an order directing the administrator and that part of the opinion, upon which the order was based, which contained
of the Rogero estate to pay him the principal sum plus its interest. statements of what the court intended to do when the petition should be renewed,
- CFI held that: "Hermenegilda Rogero having been simply surety for Lino was not binding upon him or any other judge by whom he might be succeeded.
Dayandante, the administrator has a right to require that Roman Jaucian produce a
Obligations and Contracts A2010 page 72
Prof. Labitag
- It is quite clear from what we have stated that the order of April 13, 1914, • This article declares in effect that, if not otherwise expressly
required no action by the administrator at that time, was not final, and therefore determined, every obligation in which there are numerous
was not appealable. debtors--we here ignore plurality of creditors-shall be considered
- We therefore conclude that no rights were conferred by the said order of April 13, divided into as many parts as there are debtors, and each part
1914, and that it did not preclude the administrator from making opposition to the shall be deemed to be the distinct obligation of one of the
petition of the appellant when it was renewed. respective debtors.
2. YES - In other words, the obligation is apportionable among the debtors; and in case of
- Bearing in mind that the deceased Hermenegilda Rogero, though surety for Lino the simple joint contract neither debtor can be required to satisfy more than his
Dayandante, was nevertheless bound jointly and severally with him in the aliquot part.
obligation, the following provisions of the Old Civil Code are here pertinent: - In the common law system every debtor in a joint obligation is liable in solidum for
- Art 1822: “By security a person binds himself to pay or perform for a third person the whole; and the only legal peculiarity worthy of remark concerning the "joint"
in case the latter should fail to do so. If the surety binds himself jointly with the contract at common law is that the creditor is required to sue all the debtors at
principal debtor, the provisions of section fourth, chapter third, title first, of this once.
book shall be observed." - To avoid the inconvenience of this procedural requirement and to permit the
- Art 1144: "A creditor may sue any of the joint and several (solidarios) debtors or creditor in a joint contract to do what the creditor in a solidary obligation can do
all of them simultaneously. The claims instituted against one shall not be an under article 1144 of the Civil Code, it is not unusual for the parties to a common
obstacle for those that may be later presented against the others, as long as it does law contract to stipulate that the debtors shall be "jointly and severally" liable.
not appear that the debt has been collected in full." - The force of this expression is to enable the creditor to sue any one of the debtors
- Art 1830: "The surety can not be compelled to pay a creditor until application has or all together at pleasure.
been previously made of all the property of the debtor." - The joint contract of the common law is and always has been a solidary obligation
- Art 1831: "This application can not take place… …. If he has jointly bound himself so far as the extent of the debtor's liability is concerned.
with the debtor " - Hermenegilda Rogero, and her estate after her death, was liable absolutely for the
- The foregoing articles of the Civil Code make it clear that Hermenegilda Rogero whole obligation, under section 698 of the Code of Civil Procedure; and if the claim
was liable absolutely and unconditionally for the full amount of the obligation had been duly presented to the committee for allowance it should have been
without any right to demand the exhaustion of the property of the principal debtor allowed, just as if the contract had been with her alone.
previous to its payment. Her position so far as the creditor was concerned was - There is no force, in our judgment, in the contention that the pendency of the suit
exactly the same as if she had been the principal debtor. was a bar to the presentation of the claim against the estate. The fact that the
- The absolute character of the claim and the duty of the committee to have allowed lower court had declared the document void was not conclusive, as its judgment
it in full as such against the estate of Hermenegilda Rogero had it been was not final, and even assuming that if the claim had been presented to the
opportunely presented and found to be a valid claim is further established by committee for allowance, it would have been rejected and that the decision of the
section 698 of the Code of Civil Procedure, which provides: committee would have been sustained by the CFI, the rights of the creditor could
• "When two or more persons are indebted on a joint contract, or have been protected by an appeal from that decision.
upon a judgment founded on a joint contract, and either of them - Furthermore, even had Jaucian, in his appeal from the decision in the cancellation
dies, his estate shall be liable therefor, and it shall be allowed by suit, endeavored to obtain judgment on his crosscomplaint, the death of the debtor
the committee as if the contract had been with him alone or the would probably have required the discontinuance of the action presented by cross-
judgment against him alone. But the estate shall have the right to complaint or counterclaim, under section 703.
recover contribution from the other joint debtor." - The only concrete illustration of a contingent claim given in section 746 of the
- In the official Spanish translation of the Code of Civil Procedure, the sense of the Code of Civil Procedure is the case where a person is liable as surety for the
English word "joint," as used in two places in the section above quoted, is rendered deceased, that is, where the principal debtor is dead. In the case before us, it is the
by the Spanish word "mancomunadamente." This is incorrect. The sense of the surety who is dead. In the illustration put in section 746-where the principal debtor
word "joint," as here used, would be more properly translated in Spanish by the is dead and the surety is the party preferring the claim against the estate of the
word "solidaria," though even this word does not express the meaning of the deceased-it is obvious that the surety has no claim against the estate of the
English with entire fidelity. principal debtor, unless he himself satisfies the obligation in whole or in part upon
• The section quoted, it should be explained, was originally taken which both are bound. It is at this moment, and not before, that the obligation of
by the author, or compiler, of our Code of Civil Procedure from the the principal to indemnify the surety arises (art. 1838, Civil Code); and by virtue of
statutes of the State of Vermont; and the word "joint" is, such payment the surety is subrogated in all the rights which the creditor had
therefore, here used in the sense which attaches to it in the against the debtor (art. 1839, same Code).
common law. - It is possible that "contingency," in the cases contemplated in section 746, may
- In the common law system there is no conception of obligation corresponding to depend upon other facts than those which relate to the creation or inception of
the divisible joint obligation contemplated in article 1138 of the Civil Code. liability. It may be, for instance, that the circumstance that a liability is subsidiary,
Obligations and Contracts A2010 page 73
Prof. Labitag
and the execution has to be postponed after judgment is obtained until the - Similarly, the receipts issued by the bank acknowledging said payments without
exhaustion of the assets of the person or entity primarily liable, makes a claim qualification belie its alleged objection thereto. The bank as a creditor had no
contingent within the meaning of said section; but upon this point it is unnecessary other right than to exact payment.
to express an opinion. It is enough to say that where, as in the case now before us, - Two consequences flow from the foregoing:
liability extends unconditionally to the entire amount stated in the obligation, or, in o Good or bad faith is immaterial to the issue.
other words, where the debtor is liable in solidum and without postponement of o The bank cannot invoke the provision that the payor may opnly recover from
execution, the liability is not contingent but absolute. the debtor insofar as the payment has been beneficial to him. This defense
Disposition For the reasons stated, the decision of the trial court denying may be availed only by the debtor. For the debtor to avail of this defense, he
appellant's petition and his motion for a new trial was correct and must be affirmed. must oppose the payments before or at the time the same were made.
Disposition Decision affirmed
RFC V CA
CONCEPCION; May 14, 1954
QUIOMBING V CA
FACTS CRUZ; August 30, 1990
- On October 31, 1951, Jesus Anduiza and Quintana Cano executed a promissory
note binding themselves to jointly and severally pay the Agricultural and NATURE
Industrial Bank P13800, with an interest rate of 6%. Payments are to be paid in PETITION to review the decision of the Court of Appeals
10 years in annual installments.
- Anduiza and Cano failed to pay the yearly amortizations that fall due on October FACTS
1942 and 1943. When Estelito Madrid, who temporarily lived in Anduiza’s house - This case stemmed from a "Construction and Service Agreement"1 concluded on
during the Japanese occupation, learned this, he offered to pay for Anduiza’s August 30, 1983, whereby Nicencio Tan Quiombing and Dante Biscocho, as the 1st
indebtedness. He paid P10000 on Oct 23, 1944. Party, jointly and severally bound themselves to construct a house for private
- Alleging that Anduiza failed to pay, the Agricultural and Industrial Bank (now RFC) respondents Francisco and Manuelita Saligo, as the 2nd Party, for the contract price
refused to cancel his mortgage. Madrid then instituted an action with the CFI to of P137,940.00, which the latter agreed to pay. On October 10, 1984, Quiombing
declare that Anduiza’s indebtedness of P16,425.17 has been paid, to release and Manuelita Saligo entered into a second written agreement under which the
the properties mortgaged to RFC, and condemning Anduiza to pay him P16, latter acknowledged the completion of the house and undertook to pay the balance
425.17. of the contract price in the manner prescribed in the said second agreement.
- RFC replied that the loan was not due and demandable in Oct 1944. They also - On November 19,1984, Manuelita Saligo signed a promissory note for P1
claim that they only held Madrid’s payment as deposit pending proof of 25,363.50 representing the amount still due from her and her husband, payable on
approval by Anduiza and that if Anduiza refused to approve, the deposit will be or before December 31, 1984, to Nicencio Tan Quiombing. On October 9,1986,
annulled. Quiombing filed a complaint for recovery of the said amount, plus charges and
- Anduiza claims that the payment made by Madrid was without his knowledge or interests, which the private respondents had acknowledged and promised to pay
consent and that RFC did not accept such payment. but had not, despite repeated demands. Instead of filing an answer, the defendants
- The trial court rendered in favor of RFC, but the CA reversed. moved to dismiss the complaint on February 4, 1987, contending that Biscocho was
an indispensable party and therefore should have been included as a co-plaintiff.
ISSUE The motion was initially denied but was subsequently reconsidered and granted by
WON Madrid’s payment should be accepted the trial court. The complaint was dismissed, but without prejudice to the filing of
an amended complaint to include the other solidary creditor as a co-plaintiff.
HELD - Rather than file the amended complaint, Quiombing chose to appeal the order of
YES. dismissal to the respondent court, where he argued that as a solidary creditor he
- Art 1158 of the Spanish CC states that payment can be made by any person, could act by himself alone in the enforcement of his claim against the private
whether approved by the debtor or not. One who makes the payment may respondents. Moreover, the amounts due were payable only to him under the
recover from the debtor, unless it was made against his express will. In the second agreement, where Biscocho was not mentioned at all.
latter case, he can recover only in so far as the payment was beneficial to him.
- Madrid then is entitled to pay the obligation irrespective of Anduiza’s will or the ISSUES
bank. WON one of the two solidary creditors may sue by himself alone for the recovery of
- The payments were not made against the objection of either Anduiza or Madrid. amounts due to both of them without joining the other creditor as a co-plaintiff.
Although Anduiza later on questioned such payments, he impliedly acquiesced
therin, for he joined Madrid in his appeal from the decision of the CFI. HELD
1. Ratio YES. The essence of active solidarity consists in the authority of each
Obligations and Contracts A2010 page 74
Prof. Labitag
creditor to claim and enforce the rights of all, with the resulting obligation of paying - In his answer, petitioner Inciong alleged that he was persuaded by Campos to act
every one what belongs to him; there is no merger, much less a renunciation of as a co-maker in the said loan in order to go into the falcate log operations business
rights, but only mutual representation. Inclusion of Biscocho as a coplaintiff, when - Petitioner alleged further that five (5) copies of a blank promissory note were
Quiombing was competent to sue by himself alone, would be a useless formality. brought to him by Campos at his office. He affixed his signature thereto but in one
Reasoning The question of who should sue the private respondents was a personal copy, he indicated that he bound himself only for the amount of P5,000.00. Thus, it
issue between Quiombing and Biscocho in which the spouses Saligo had no right to was by trickery, fraud and misrepresentation that he was made liable for the
interfere. It did not matter who as between them filed the complaint because the amount of P50,000.00.
private respondents were liable to either of the two as a solidary creditor for the full - Annexed to the present petition is a copy of an affidavit executed by Gregorio
amount of the debt. Full satisfaction of a judgment obtained against them by Pantanosas, who is a co-maker in the promissory note. In the affidavit, he supports
Quiombing would discharge their obligation to Biscocho, and vice versa. Each one of the allegation that they were induced to sign the promissory note on the belief that
the solidary creditors may do whatever may be useful to the others, but not it was only for P5,000.
anything which may be prejudicial to the latter. Suing for the recovery of the - He also said that the promissory note should be declared bull and void also on the
contract price is certainly a useful act that Quiombing could do by himself alone. grounds that:
Parenthetically, it must be observed that the complaint having been filed by the o The promissory note was signed outside the premises of the bank
petitioner, whatever amount is awarded against the debtor must be paid exclusively o The loan was incurred only for the purpose of buying a chainsaw
to him, pursuant to Article 1214. This provision states that "the debtor may pay any worth 5thousand; even a new chain saw would cost only P27k
of the solidary creditors; but if any demand, judicial or extrajudicial, has been made o Petitioner and Pantanosas were not present during the time the
by any one of them, payment should be made to him." If Quiombing eventually loan was released
collects the amount due from the solidary debtors, Biscocho may later claim his
share thereof, but that decision is for him alone to make. It will affect only the ISSUE
petitioner as the other solidary creditor and not the private respondents, who have WON the promissory note should be declared null and void
absolutely nothing to do with this matter. As far as they are concerned, payment of
the judgment debt to the complainant will be considered payment to the other HELD
solidary creditor even if the latter was not a party to the suit. No
Disposition Petition granted. Decision set aside. - The stated points are factual, which should be determined in the lower court not in
this court
INCIONG V COURT OF APPEALS - By alleging fraud in his answer, petitioner was in the right direction towards
ROMERO; June 26, 1996 proving that he agreed to a loan of P5k only. However, fraud must be established
by clear and convincing evidence. Mere preponderance of evidence is not adequate
- On his argument that since the complaint against Naybe was dismissed, his should
NATURE be dismissed as well: It is to be noted, however, that petitioner signed the
A petition for review on certiorari of the decision of the Court of Appeals affirming promissory note as a solidary co-maker and not as a guarantor. While a guarantor
that of the Regional Trial Court of Misamis Oriental, which disposed of Civil Case No. may bind himself solidarily with the principal debtor, the liability of a guarantor is
10507 for collection of a sum of money and damages different from that of a solidary debtor
- A solidary or joint and several obligation is one in which each debtor is liable for
FACTS the entire obligation, and each creditor is entitled to demand the whole obligation.
- RTC ordered Inciong to pay Phil. Bank of Communications (PBC) P50,000 w/ - Because the promissory note involved in this case expressly states that the three
interest. His liability resulted from the promissory note (P50,000) w/c he signed w/ signatories therein are jointly and severally liable, any one, some or all of them may
Rene Naybe and Gregorio Pantanosas on Feb. 3, 1983 holding themselves jointly be proceeded against for the entire obligation
and severally liable to private respondent PBC. The promissory note was due on - The choice is left to the solidary creditor to determine against whom he will
May 5, 1983 enforce collection.
- The due date expired w/o the promissors having paid their obligation Ratio
- PBC sent telegrams demanding payment and a final letter demand through - as a general rule, bills, notes and other instruments of a similar nature are not
registered mail subject to be varied or contradicted by parol or extrinsic evidence
- Since both obligors did not respond, PBC filed a complaint for collection of the - (Tolentino) explains: "A guarantor who binds himself in solidum with the principal
money against the 3 obligors. debtor under the provisions of the second paragraph does not become a solidary
- Only the summon addressed to Inciong was served bec. Naybe was already in co-debtor to all intents and purposes. There is a difference between a solidary co-
Saudi Arabia debtor, and a fiador in solidum (surely). The later, outside of the liability he
Petitioners' Claim assumes to pay the debt before the property of the principal debtor has been
exhausted, retains all the other rights, actions and benefits which pertain to him by
Obligations and Contracts A2010 page 75
Prof. Labitag
reason of the fiansa; while a solidary co-debtor has no other rights than those error to hold that the claim against her as well as the claim against her husband
bestowed upon him in Section 4, Chapter 3, title 1, Book IV of the Civil Code. should be made in the decedent's estate.”
- when there are two or more debtors in one and the same obligation, the - Petitioner filed a motion for reconsideration but it was also denied, hence this
presumption is that the obligation is joint so that each of the debtors is liable only appeal.
for a proportionate part of the debt. There is a solidarily liability only when the
obligation expressly so states, when the law so provides or when the nature of the ISSUE
obligation so requires. WON a creditor can sue the surviving spouse for the collection of a debt which is
owed by the conjugal partnership of gains, or whether such claim must be filed in
ALIPIO V COURT OF APPEALS proceedings for the settlement of the estate of the decedent
MENDOZA; September 29, 2000
HELD
FACTS NO.
- Respondent Romeo Jaring[1] was the lessee of a 14.5 hectare fishpond in Barito, Ratio We hold that a creditor cannot sue the surviving spouse of a decedent in an
Mabuco, Hermosa, Bataan. The lease was for a period of five years ending on ordinary proceeding for the collection of a sum of money chargeable against the
September 12, 1990. On June 19, 1987, he subleased the fishpond, for the conjugal partnership and that the proper remedy is for him to file a claim in the
remaining period of his lease, to the spouses Placido and Purita Alipio and the settlement of estate of the decedent.
spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was - Petitioner's husband died on December 1, 1988, more than ten months before
P485,600.00, payable in two installments of P300,000.00 and P185,600.00, with the private respondent filed the collection suit in the trial court on October 13, 1989.
second installment falling due on June 30, 1989. Each of the four sublessees signed This case thus falls outside of the ambit of Rule 3, §21 which deals with dismissals
the contract. of collection suits because of the death of the defendant during the pendency of the
- The first installment was duly paid but only a portion of the second was paid case and the subsequent procedure to be undertaken by the plaintiff. The issue to
leaving a balance of P50,600. despite demand, the balance remained unpaid thus be resolved is whether private respondent can, in the first place, file this case
Jaring sued for the collection of such amount. In the alternative, he prayed for the against petitioner.
recission of the sublease contract should the defendants fail to pay the balance. Under the law, the Alipios' obligation (and also that of the Manuels) is one which is
Purita Alipio on the other hand moved to dismiss the case on the ground that her chargeable against their conjugal partnership. When petitioner's husband died, their
husband, Placido Alipio, had passed away on December 1, 1988.[2] She based her conjugal partnership was automatically dissolved[9] and debts chargeable against it
action on Rule 3, §21 of the 1964 Rules of Court which is now amended and reads: are to be paid in the settlement of estate proceedings in accordance with Rule 73,
- When the action is for the recovery of money arising from contract, express or §2 which states: “…When the marriage is dissolved by the death of the husband or
implied, and the defendant dies before entry of final judgment in the court in which wife, the community property shall be inventoried, administered, and liquidated,
the action was pending at the time of such death, it shall not be dismissed but shall and the debts thereof paid, in the testate or intestate proceedings of the deceased
instead be allowed to continue until entry of final judgment. A favorable judgment spouse.”
obtained by the plaintiff therein shall be enforced in the manner especially provided - As held in Calma v. Tañedo, after the death of either of the spouses, no complaint
in these Rules for prosecuting claims against the estate of a deceased person. for the collection of indebtedness chargeable against the conjugal partnership can
- Trial court denied motion on the ground that since petitioner was herself a party to be brought against the surviving spouse. Instead, the claim must be made in the
the sublease contract, she could be independently impleaded in the suit together proceedings for the liquidation and settlement of the conjugal property. The reason
with the Manuel spouses and that the death of her husband merely resulted in his for this is that upon the death of one spouse, the powers of administration of the
exclusion from the case. CA also denied appeal stating: surviving spouse ceases and is passed to the administrator appointed by the court
- The rule that an action for recovery of money, debt or interest thereon must be having jurisdiction over the settlement of estate proceedings. Indeed, the surviving
dismissed when the defendant dies before final judgment in the regional trial court, spouse is not even a de facto administrator such that conveyances made by him of
does not apply where there are other defendants against whom the action should any property belonging to the partnership prior to the liquidation of the mass of
be maintained as mentioned in Climaco v. Siy Uy wherein the court stated that “the conjugal partnership property is void
deceased Siy Uy was not the only defendant, Manuel Co was also named defendant - This ruling was reaffirmed in the recent case of Ventura v. Militante wherein it was
in the complaint… the remaining defendants cannot avoid the action by claiming stated that “the conjugal partnership terminates upon the death of either spouse. . .
that the death of one of the parties to the contract has totally extinguished their . Where a complaint is brought against the surviving spouse for the recovery of an
obligation”. This was also the case in Imperial Insurance, Inc. v. David. In the said indebtedness chargeable against said conjugal [partnership], any judgment
case, the court stated that “. Under the law and well settled jurisprudence, when obtained thereby is void. The proper action should be in the form of a claim to be
the obligation is a solidary one, the creditor may bring his action in toto against any filed in the testate or intestate proceedings of the deceased spouse.” Furthermore,
of the debtors obligated in solidum. Thus, if husband and wife bound themselves the Court said that the cases cited by the CA were based on facts different from the
jointly and severally, in case of his death, her liability is independent of and case at hand.
separate from her husband's; she may be sued for the whole debt and it would be - It must be noted that for marriages governed by the rules of conjugal partnership
of gains, an obligation entered into by the husband and wife is chargeable against
Obligations and Contracts A2010 page 76
Prof. Labitag
their conjugal partnership and it is the partnership which is primarily bound for its - March 28, 1963 - CFI sentenced EIC to pay the MDC P1,500, with interest at 12%
repayment. Thus, when the spouses are sued for the enforcement of an obligation from the time of filing of the complaint until the amount was fully paid, and to pay
entered into by them, they are being impleaded in their capacity as representatives attorney's fees of P500, and the proportionate part of the costs and EIC is to be
of the conjugal partnership and not as independent debtors such that the concept reimbursed by Andal. MDC appealed directly to SC.
of joint or solidary liability, as between them, does not apply
Disposition complaint against petitioner is dismissed without prejudice to the ISSUES
filing of a claim by private respondent in the proceedings for the settlement of 1. WON the reduction in liability for breach in the undertaking is valid
estate of Placido Alipio for the collection of the share of the Alipio spouses in the 2. WON partial performance by Carlos can be considered partial performance by
unpaid balance of the rent in the amount of P25,300.00.” Andal

HELD
1. YES
MAKATI DEVELOPMENT CORP. V EMPIRE INSURANCE CO.
- CFI noted that reducing liability from P12,000 (as stipulated in the bond) to P1,500
CASTRO; June 30, 1967 that
> While no building has actually been constructed before the target date which
NATURE is March 31, 1961, it is also a fact that even before that date the entire area
Appeal from CFI Rizal was already fenced with a stone wall and building materials were also stocked
in the premises which are clear indicia of the owner's desire to construct his
FACTS house with the least possible delay
- March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a > incontrovertible testimony of Juan Carlos is that by the end of April 1961, he
lot, with an area of 1,589 square meters, in the Urdaneta Village, Makati, Rizal, for had finished very much more than the required 50% stipulated in the contract
P55,615 of sale TF there was only really a little delay
- so-called "special condition" contained in the deed of sale provides that - MDC argues that Andal became liable for full amount of his bond upon his failure
> vendee/s shall commence the construction and complete at least 50% of to build a house within the two-year period and that the trial court was without
residence on the property within two (2) years from March 31, 1959 to the authority to reduce Andal's liability on the basis of Carlos' construction of a house a
satisfaction of the vendor month after the stipulated period because there was no privity of contract between
> in the event of failure to do so, the bond which the vendee/s has delivered to Carlos and the Makati Development Corporation. But, to begin with, the so-called
the vendor in the sum of P11,123.00 and evidenced by a cash bond receipt dated "special condition" in the deed of sale is in reality an obligation — to build a house
April 10, 1959 will be forfeited in favor of the vendor by the mere fact of failure of at least 50% of which must be finished within 2 years, inserting a penal clause to
the vendee/s to comply with this special condition secure the performance of this obligation.
> to insure faithful compliance with this "condition," Andal gave a surety bond on - While in obligations with a penal sanction the penalty takes the place of damages
April 10, 1959 wherein he, as principal, and the Empire Insurance Company, as and the payment of interest in case of non-compliance and that the obligee is
surety, jointly and severally, undertook to pay the MDC the sum of P12,000 in entitled to recover upon the breach of the obligation without the need of proving
case Andal failed to comply with his obligation under the deed of sale damages, it is true that a mitigation of the obligor's liability is allowed under A1229
- January 18, 1960 - Andal did not build his house and instead sold the lot to Juan CC:
Carlos The judge shall equitably reduce the penalty when the principal obligation has
- April 3, 1961 - neither Andal nor Juan Carlos built a house on the lot within the been partly or irregularly complied with by the debtor. Even if there has been
stipulated period, the MDC, three days after the lapse of the two-year period, sent a no performance, the penalty may also be reduced by the courts if it is
notice of claim to the EIC advising Andal's failure to comply with his undertaking. iniquitous or unconscionable.
- May 22, 1961 - Demand for the payment of P12,000 was refused and MDC filed a - General Ins. & Surety Corp. vs. Republic cannot be invoked for the forfeiture of the
complaint in CFI Rizal against the Empire Insurance Co. to recover on the bond in full amount of the bond because unlike this case there was in that case no
the full amount, plus attorney's fees performance at all of any part of the obligation to secure the payment of salaries to
- EIC filed answer with a third-party complaint against Andal and asked that the teachers
complaint be dismissed or, in the event of a judgment in favor of the MDC, - Partial performance or irregular compliance with the provisions in a contract for
judgment be rendered ordering Andal to pay the EIC whatever amount it maybe special indemnification in the event of failure to comply with its terms, courts will
ordered to pay the MDC plus interest at 12%, from the date of the filing of the rigidly apply the doctrine of strict construction against the enforcement in its
complaint until said amount was fully reimbursed and attorney's fees. entirety of the indemnification, where it is clear from the contract that the amount
- Andal admitted the execution of the bond but alleged that the "special condition" or character of the indemnity is fixed without regard to the probable damages
was contrary to law, morals and public policy. Also, Juan Carlos had started which might be anticipated as a result of a breach of the terms of the contract, or,
construction of a house on the lot. in other words, where the indemnity provided for is essentially a mere penalty
having for its object the enforcement of compliance with the contract
Obligations and Contracts A2010 page 77
Prof. Labitag
- penal clause in this case was inserted not to indemnify MDC for any damage it Trial Court’s Ruling
might suffer as a result of a breach of the contract but rather to compel (1) gave little weight to the petitioner’s contention that the loan was merely for the
performance of the so-called "special condition" and thus encourage home building accommodation of Wilson Lucmen for the reason that the defense propounded was
among lot owners in the Urdaneta Village not credible in itself.
2. YES (2) assuming, that the petitioner did not personally benefit from the said loan, he
- In Insular Gov't. vs. Amechazurra where SC allowed mitigation of liability even if should have filed a third party complaint against Wilson Lucmen, but he did not.
recovery of the firearms was made possible through the efforts of third parties (the (3) in fact, Tan offered to settle his loan obligation with respondent CCP thrice.
Constabulary) (4) he may not avoid his liability to pay his obligation under the promissory note,
Disposition Decision appealed from is affirmed which he must comply with in good faith pursuant to Article 1159 of the New Civil
Code.
TAN V COURT OF APPEALS (5) he is estopped from denying his liability or loan obligation to the private
DE LEON, JR; October 19, 2001 respondent.
CA’s Ruling
NATURE - His liability cannot be modified on account of partial or irregular performance
Petition for review on certiorari of a decision of the CA because there is none. His offer or tender of payment cannot be deemed as a
partial or irregular performance of the contract, not a single centavo appears to
FACTS have been paid by the defendant.
- On May 14, 1978 and July 6, 1978, petitioner Antonio TAN obtained two (2) loans Petitioners' Claim
from respondent Cultural Center of the Philippines (CCP), each in the principal - If penalty is to be awarded, he is asking for the non-imposition of interest on the
amount of Two Million Pesos. This is evidenced by 2 promissory notes with maturity surcharges because the compounding of interest on surcharges is not provided in
dates on May 14, 1979 and July 6, 1979. the promissory note. HE also contests the computation whereby the interest,
- TAN defaulted but after a few partial payments, he had the loans restructured by surcharge and the principal were added together and that on the total sum interest
CCP. TAN executed a promissory note on Aug 31, 1979 in the amount of was imposed.
P3,411,421.32 payable in 5 installments. He failed to pay any installment, the last - There is no basis in law for the charging of interest on the surcharges for the
one falling due on December 31, 1980. reason that the New Civil Code is devoid of any provision allowing the imposition of
- In a letter dated Jan 26, 1982, petitioner requested and proposed to CCP a mode of interest on surcharges.
paying the restructured loan, i.e., (a) 20% of the principal amount of the loan upon - His obligation to pay the interest and surcharge should have been suspended
CCP’s conformity to the proposal; and (b) the balance on the principal obligation because this obligation has become conditional, which consists of whether the
payable in 36 equal monthly installments until fully paid. petitioner’s request for condonation of interest and surcharge would be
- Oct 20, 1983 – TAN again sent a letter to CCP requesting for a moratorium on his recommended by the Commission on Audit and the Office of the President to the
loan obligation until the following year allegedly due to a substantial deduction in House of Representatives for approval. Since the condition has not happened due to
the volume of his business and on account of the peso devaluation. No favorable respondent’s reneging on its promise, his liability to pay the interest and surcharge
response was made to these letters. on the loan has not arisen.
- Instead, CCP wrote TAN a letter dated May 30, 1984 demanding full payment of
the petitioner’s restructured loan (as of April 30, 1984 amounted to P6,088,735.03 ISSUES
within 10 days from receipt of the letter. 1. WON there are contractual and legal bases for the imposition of the penalty
- Aug 29, 1984 – CCP filed in the RTC of Manila a complaint for collection of a sum of 2. WON interest may accrue on the penalty or compensatory interest without violating Art. 19591 of NCC
money. TAN interposed the defense that he merely accommodated a friend, Wilson 3. WON the penalty should be reduced pursuant to Art. 12292
Lucmen, who allegedly asked for his help to obtain a loan from CCP and he has not 4. WON imposition of interest should be suspended for the period of time that respondent failed to assist
been able to locate Lucmen. While the case was pending in the trial court, the petitioner in applying for relief of liability through COA and Office of the President
petitioner filed a Manifestation wherein he proposed to settle his indebtedness to 5. WON CA erred in not deleting award of attorney’s fees and in reducing penalties
respondent CCP by proposing to make a down payment of P140,000.00 and to issue
12 checks every beginning of the year to cover installment payments for one year, HELD
and every year thereafter until the balance is fully paid. However, respondent CCP 1. YES
did not agree to the petitioner’s proposals and so the trial of the case ensued.
1
- On May 8, 1991, the trial court ruled against Tan, ordering him to pay CCP the Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn
amount of P7,996,314.67, representing his outstanding account as of August 28, interest. However, the contracting parties may by stipulation capitalize the interest due and
1986, with the corresponding stipulated interest and charges, until fully paid, plus unpaid, which as added principal, shall earn new interest.
2
attorney’s fees in an amount equivalent to 25% of said outstanding account, plus Art. 1229: “The judge shall equitably reduce the penalty when the principal obligation has
P50,000.00, as exemplary damages. been partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may be also be reduced by the courts if it is iniquitous or unconscionable.”
Obligations and Contracts A2010 page 78
Prof. Labitag
Article 1226 of the New Civil Code provides that: - The appellate court ruled correctly and justly in reducing the trial court’s award of
“In obligations with a penal clause, the penalty shall substitute the indemnity for twenty-five percent (25%) attorney’s fees to five percent (5%) of the total amount
damages and the payment of interests in case of non-compliance, if there is no due.
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor Disposition Decision appealed from is AFFIRMED with MODIFICATION in that the
refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. penalty charge of two percent (2%) per month on the total amount due,
The penalty may be enforced only when it is demandable in accordance with the compounded monthly, is hereby reduced to a straight twelve percent (12%) per
provisions of this Code.” annum starting from August 28, 1986.
Reasoning The promissory note expressly provides for the imposition of both
interest and penalties in case of default on the part of the petitioner in the COUNTRY BANKERS INSURANCE V CA
payment of the restructured loan. MEDIALDEA; September 9, 1991
- The stipulated 14% per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956 of NATURE
the New Civil Code. The stipulated 2% per month penalty is in the form of penalty Petition for certiorari to review the decision of the Court of Appeals.
charge which is separate and distinct from the monetary interest on the principal.
- The penalty charge of two percent (2%) per month in the case at bar began to FACTS
accrue from the time of default by the petitioner. The penalty charge is also called - The CA affirmed the RTC’s decision, to wit:
penalty or compensatory interest. “WHEREFORE, THE COMPLAINT OF THE PLAINTIFF Enrique F. Sy is dismissed,
2. YES and on the counterclaim of the defendant O. Ventanilla Enterprises Corporation,
Since penalty clauses can be in the form of penalty or compensatory interest, the judgment is hereby rendered:
compounding of the penalty or compensatory interest is allowed pursuant to Art. ‘1. Declaring as lawful, the cancellation and termination of the Lease
1959. Agreement (Exh. A) and the defendant’s re-entry and repossession of the Avenue,
Reasoning First, there is an express stipulation in the promissory note permitting Broadway and Capitol theaters under lease on February 11, 1980;
the compounding of interest. Second, Article 2212 of the NCC provides that ‘2. Declaring as lawful, the forfeiture clause under paragraph 12 of the said
“Interest due shall earn legal interest from the time it is judicially demanded, Lease Agreement, and confirming the forfeiture of the plaintiff’s remaining cash
although the obligation may be silent upon this point.” In this case, interest began deposit of P290,000.00 in favor of the defendant thereunder, as of February 11,
to run on the penalty interest upon the filing of the complaint in court. 1980;
3. YES ‘3. Ordering the plaintiff to pay the defendant the sum of P289,534.78,
- The continued monthly accrual of the 2% penalty charge on the total amount due representing arrears in rentals, unremitted amounts for amusement tax
is “unconscionable” inasmuch as it is compounded monthly. (But it shall not be delinquency and accrued interest thereon, with further interest on said amounts at
reduced to 10% of the unpaid balance as the petitioner contends) the rate of 12% per annum (per lease agreement) from December 1, 1980 until the
Reasoning Considering petitioner’s several partial payments and the fact he is same is fully paid;
liable under the note for 21 years since his default in 1980, it is equitable to reduce ‘4. Ordering the plaintiff to pay the defendant the amount of P100,000.00,
the penalty charge to a straight 12% per annum on the total amount due starting representing the P10,000 portion of the monthly lease rental which were not
Aug 28, 1986 (the date of the last Statement of Account) deducted from the cash deposit of the plaintiff from February to November, 1980,
- Also considered were petitioner’s offers to enter into a compromise for the with interest thereon at the rate of 12% per annum on each of the said monthly
settlement of his debt by presenting proposed payment schemes to CCP. This amounts of P10,000.00 from the time the same became due until it is paid;
showed his good faith despite difficulty in complying with his loan obligation due to ‘5. Ordering the plaintiff to pay the defendant through the injunction bond, the
his financial problems. sum of P100,000.00, representing the P10,000.00 monthly increase in rentals which
4. NO the defendant failed to realize from February to November 1980 resulting from the
Reasoning It was the primary responsibility of petitioner to inform the Commission injunction, with legal interest thereon from the finality of this decision until fully
on Audit and the Office of the President of his application for condonation of interest paid;
and surcharge. ‘6. Ordering the plaintiff to pay the defendant the sum equivalent to ten per
- Also, the letter dated Sept 28, 1988 alleged to have been sent by the CCP to the centum (10%) of the above-mentioned amounts of P289,534.78, P100,000.00 and
petitioner is not part of the formally offered documentary evidence of either party P100,000.00, as and for attorney’s fees; and
in the trial court. It also does not contain any categorical agreement on the part of ‘7. Ordering the plaintiff to pay the costs.’”
respondent CCP that the payment of the interest and surcharge on the loan is -Respondent Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the
deemed suspended while his appeal for condonation of the interest and surcharge petitioner Enrique F. Sy, as lessee entered into a lease agreement over the Avenue,
was being processed. Broadway and Capitol Theaters and the land on which they are situated in
5. NO Cabanatuan City. The term of the lease was for six years from June 13, 1977 to June
12, 1983. After more than two years of operation of the theaters, the lessor OVEC
Obligations and Contracts A2010 page 79
Prof. Labitag
made demands for the repossession of the said leased properties in view of Sy’s Ratio As a general rule, in obligations with a penal clause, the penalty shall
arrears in monthly rentals and non-payment of amusement taxes. On August 8, substitute the indemnity for damages and the payment of interests in case of non-
1979, OVEC and Sy had a conference and by reason of Sy’s request for compliance. However, there are exceptions:
reconsideration, he was allowed to continue operating the leased premises upon his 1) when there is a stipulation to the contrary
conformity to certain conditions imposed by the latter in a supplemental agreement 2) when the obligor is sued fro refusal to pay the agreed penalty
dated August 13, 1979. 3) when the obligor is guilty of fraud
- In pursuance to their latter agreement, Sy reduced his arrears in rental. However, Reasoning The forfeiture clause in the lease agreement would not unjustly enrich
the accrued amusement liability tax had accumulated to 84,000.00 despite the fact OVEC at expense of Sy and CBISCO—contrary to law, morals, good customs, public
that Sy had been deducting amounts from his monthly rental with the obligation to order or policy. A penal clause is an accessory obligation which the parties attach to
remit said deductions to the city government. Hence, letters of demand dated a principal obligation for the purpose of insuring the performance thereof by
January 7, 1980 and February 3, 1980 were sent to Sy demanding payment of the imposing on the debtor a special prestation (generally consisting in the payment of
arrears in rentals and amusement tax delinquency. The latter demand was with the a sum of money) in case the obligation is not fulfilled or is irregularly or
warning that OVEC will repossess the theaters on February 11, 1980 in pursuance inadequately fulfilled.
with their lease contract and their supplemental letter-agreement. But In the case at bar, the penalty cannot substitute for the P100,000.00 supposed
notwithstanding the said demands and warnings Sy failed to pay the above- damage suffered by OVEC from opportunity cost. It represents the P10,000 per
mentioned amounts in full. Consequently, OVEC took possession thereof in the month in additional rental during the ten months of injunction period. Thus, it must
morning of February 11, 1990. be applied against the injunction bond.
- Sy filed the present action for reformation of the lease agreement, damages and Disposition ACCORDINGLY, finding no merit in the grounds relied upon by
injunction. And by virtue of a restraining order dated February 12, 1980 followed by petitioners in their petition, the same is hereby DENIED and the decision dated June
an order to issue a writ of preliminary injunction, Sy regained possession of the 15, 1988 and the resolution dated September 21, 1988, both of the respondent
theaters. Court of Appeals are AFFIRMED.
Petitioners' Claim
- Sy alleged that the amount of deposit—P600,00.00 as agreed upon, P300,000.00 KALALO V LUZ
of which was to be paid on June 13, 1977 and the balance on December 13, 1977— ZALDIVAR; JULY 31, 1970
was too big; and OVEC assured him that said forfeiture will not come to pass.
- Sy sought to recover from OVEC the sums of P100,000.00 for repairs in the
Broadway theater; P48,000.00 for electrical cost of OVEC’s “illegal connection” in
NATURE
the Capitol theater; and P31,000.00 for electrical cost of OVEC’s “illegal connection” Appeal from the decision, dated February 10, 1967, of the Court of First Instance of
in the Broadway theater and for damages suffered by SY as a result of each Rizal (Branch V. Quezon City) in its Civil Case No. Q-6561
connection.
- It is also alleged that on February 11, 1980, OVEC had the three theaters FACTS
padlocked with the use of force, and as aresult, Sy suffered damages at the rate of - On November 17, 1959, appellee Kalalo, a licensed civil engineer doing business
P5,000 a day because of his failure to go thru the contracts with movie and booking under the firm name of O. A. Kalalo and Associates, entered into an agreement with
companies for the showing of movies. appellant Luz, a licensed architect, doing business under the firm name of AJ. Luz
- Finally, Sy prayed for the issuance of a restraining order/ preliminary injunction to and Associates, whereby the former was to render engineering design services to
enjoin OVEC from entering and taking possession of the theaters upon Sy’s filing of the latter for fees, as stipulated in the agreement. The services included design
a P500,000.00 bond supplied by Country Bankers Insurance Corporation (CBISCO). computation and sketches, contract drawing and technical specifications of all
Respondents' Counterclaim engineering phases of the project designed by O.A. Kalalo and Associates, bill of
- By reason of Sy’s violation of the lease agreement, OVRC became authorized to quantities and cost estimate, and consultation and advice during construction
enter and possess the theaters as well as to terminate said agreement so the relative to the work. Pursuant to said agreement, appellee rendered engineering
balance of deposits given by Sy had thus become forfeited. services to appellant in the following projects:
- OVEC would be losing P50,000.00 for every month that the possession and (a)Fil-American Life Insurance Building at Legaspi City;
operation of the theaters remain with Sy. (b)Fil-American Life Insurance Building at Iloilo City;
- OVEC incurred P500,000.00 for attorney’s fees. (c)General Milling Corporation Flour Mill at Opon, Cebu;
(d)Menzi Building at Ayala Blvd., Makati, Rizal;
ISSUE (e)International Rice Research Institute, Research Center, Los Baños, Laguna;
WON respondent is unjustly enriched at the expense of petitioners (f)Aurelia's Building at Mabina, Ermita, Manila;
(g)Far East Bank's Office at Fil-American Life Insurance Building at Isaac Peral,
HELD Ernita, Manila;
NO. (h)Arthur Young's residence at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
Obligations and Contracts A2010 page 80
Prof. Labitag
(j)Stanvac Refinery Service Building at Limay, Bataan. ISSUE
- On December 11, 1961, appellee sent to appellant a statement of account to WON payment of the amount due to the appellee in dollars is legally permissible,
which was attached an itemized statement of defendant-appellant's account, and if not, at what rate of exchange it should be paid in pesos
according to which the total engineering fee asked by appellee for services
rendered amounted to P116,565.00 from which sum was to be deducted the HELD
previous payments made in the amount of P57,000.00, thus leaving a balance due NO. Payment in dollars is prohibited by Republic Act (RA) No. 529 which provides
in the amount of P59,565.00. On May 18, 1962 appellant sent appellee a resume of that if the obligation was incurred prior to the enactment of the Act and require
fees due to the latter. Said fees, according to appellant, amounted to P10,861.08 payment in a particular kind of coin or currency other than the Philippine currency
instead of the amount claimed by the appellee. On June 14, 1962 appellant sent the same shall be discharged in Philippine currency measured at the prevailing rate
appellee a check for said amount, which appellee refused to accept as full payment of exchange at the time the obligation was incurred. RA No. 529 was enacted on
of the balance of the fees due him. June 16, 1950. In the case now before Us the obligation of appellant to pay appellee
- On August 10, 1962, appellee filed a complaint against appellant, containing four the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or
causes of action. In the first cause of action, appellee alleged that for services after the enactment of RA No. 529. It follows that the provision of RA No. 529 which
rendered in connection with the different projects therein mentioned there was due requires payment at the prevailing rate of exchange when the obligation was
him fees in sums consisting of $28,000 (U.S.) and P100,204.46, excluding interests, incurred cannot be applied. RA No. 529 does not provide for the rate of exchange
of which sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 for the payment of obligation incurred after the enactment of said Act. The logical
and the balance of P30,881.25. In the second cause of action, appellee claimed conclusion, therefore, is that the rate of exchange should be that prevailing at the
P17,000.00 as consequential and moral damages; in the third cause of action he time of payment. This view finds support in the ruling of this Court in the case of
claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation; Engel vs. Velasco & Co. where this Court held that even if the obligation assumed
and in the fourth cause of action he claimed P25,000.00 as actual damages, and by the defendant was to pay the plaintiff a sum of money expressed in American
also for attorney's fees and expenses of litigation. currency, the indemnity to be allowed should be expressed in Philippine currency at
- In his answer, appellant admitted that appellee rendered engineering services, as the rate of exchange at the time of judgment rather than at the rate of exchange
alleged in the first cause of action, but averred that some of appellee's services prevailing on the date of defendant's breach.
were not in accordance with the agreement and appellee's claims were not justified Disposition Therefore, appellant should pay the appellee the equivalent in pesos
by the services actually rendered, and that the aggregate amount actually due to of the $28,000.00 at the free market rate of exchange at the time of payment. The
appellee was only P80,336.29, of which P69,475.21 had already been paid, thus trial court did not err when it held that herein appellant should pay appellee
leaving a balance of only P10,861.08. Appellant denied liability for any damage $28,000.00 to be converted into the Philippine currency on the basis of the current
claimed by appellee to have suffered, as alleged in the second, third and fourth rate of exchange at the time of payment of this judgment, as certified to by the
causes of action. Appellant set up affirmative and special defenses, alleging that Central Bank of the Philippines.
appellee had no cause of action, that appellee was in estoppel because of certain
acts, representations, admissions and/or silence, which led appellant to believe ST. PAUL FIRE & MARINE INSURANCE CO. V MACONDRAY
certain facts to exist and to act upon said facts, that appellee's claim regarding the & CO., INC.
Menzi project was premature because appellant had not yet been paid for said ANTONIO; March 25, 1976
project, and that appellee's services were not complete or were performed in
violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a NATURE
counterclaim for actual and moral damages for such amount as the court may deem Certified by CA in its Resolution of May 8, 1967 on the ground that the appeal
fair to assess, and for attorney's fees of P10,000.00. involves purely questions of law.
- Inasmuch as the pleadings showed that the appellee's right to certain fees for
services rendered was not denied, the only question being the assessment of the FACTS
proper fees and the balance due to appellee after deducting the admitted payments - June 29, 1960, Winthrop Products, Inc., of New York, shipped aboard the SS "Tai
made by appellant, the trial court, upon agreement of the parties, authorized the Ping", owned and operated by Wilhelm Wilhelmsen, 218 cartons and drums of drugs
case to be heard before a Commissioner. The Commissioner rendered a report and medicine, with the freight prepaid, which were consigned to Winthrop-Stearns,
which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as Inc., Manila, Philippines.
his fee in the International Research Institute Project which was 20% of the - Barber Steamship Lines, Inc., agent of Wilhelmsen, issued Bill of Lading No. 34, in
$140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the name of Winthrop Products, Inc. as shipper, with arrival notice in Manila to
the sum of P69,475.46 which was already paid by the appellant. The trial court consignee Winthrop-Stearns, Inc., Manila, Philippines.
ruled in favor of Kalalo by ordering Luz to pay him the sum of P51,539.91 and - The shipment was insured by the shipper against loss and/or damage with the St.
$28,000.00, the latter to be converted into the Philippine currency on the basis of Paul Fire & Marine Insurance Company under its insurance Special Policy No.
the current rate of exchange at the time of the payment of this judgment, as OC173766 dated June 23, 1960
certified to by the Central Bank of the Philippines. - Aug 7, 1960, SS "Tai Ping" arrived at the Port of Manila and discharged its
Obligations and Contracts A2010 page 81
Prof. Labitag
shipment into the custody of Manila Port Service. The shipment was complete and - The purpose of the bill of lading is to provide for the rights and liabilities of the
in good order with the exception of one (1) drum and several cartons, which were in parties in reference to the contract to carry. The stipulation in the bill of lading
bad order condition. limiting the common carrier's liability to the value of the goods appearing in the bill,
- Consignee filed the corresponding claim in the amount of P1,109.67 representing unless the shipper or owner declares a greater value, is valid and binding. This
the C.I.F. value of the damaged drum and cartons of medicine with the carrier and limitation of the carrier's liability is sanctioned by the freedom of the contracting
the Manila Port Service. However, both refused to pay such claim. parties to establish such stipulations, clauses, terms, or conditions as they may
- Consignee filed its claim with the insurer, St. Paul Fire & Marine Insurance Co. The deem convenient, provided they are not contrary to law, morals, good customs and
insurance company paid to consignee the insured value of the lost and damaged public policy. A stipulation fixing or limiting the sum that may be recovered from
goods, including other expenses in connection therewith, in the total amount of the carrier on the loss or deterioration of the goods is valid, provided it is (a)
$1,134.46. reasonable and just under the circumstances, and (b) has been fairly and freely
- Aug 5, 1961, as subrogee of the rights of the shipper and/or consignee, St. Paul agreed upon. In this case, the liabilities of the defendants-appellees with respect to
Fire & Marine Insurance Co. instituted with the CFI Manila the present action against the lost or damaged shipments are expressly limited to the C.I.F. value of the goods
the defendants for the recovery of $1,134.46, plus costs. as per contract of sea carriage embodied in the bill of lading.
- Mar 10, 1965 lower court rendered judgment ordering defendants Macondray & - The plaintiff-appellant, as insurer, after paying the claim of the insured for
Co., Inc. Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the damages under the insurance, is subrogated merely to the rights of the assured. As
plaintiff, jointly and severally, P300.00, with legal interest from the filing of the subrogee, it can recover only the amount that is recoverable by the latter. Since the
complaint until fully paid, and defendants Manila Railroad Company and Manila Port right of the assured, in case of loss or damage to the goods, is limited or restricted
Service to pay to plaintiff, jointly and severally, P809.67, with legal interest thereon by the provisions in the bill of lading, a suit by the insurer as subrogee necessarily is
from the filing of the complaint until fully paid, the costs to be borne by all the said subject to like limitations and restrictions.
defendants. 2. The contention of the plaintiff-appellant that because of extraordinary inflation, it
Plaintiff’s Claims should be reimbursed for its dollar payments at the rate of exchange on the date of
- Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled the judgment and not on the date of the loss or damage, is untenable. The
to recover from defendants-appellees the amount of $1,134.46 which it actually obligation of the carrier to pay for the damage commenced on the date it failed to
paid to the consignee and which represents the value of the lost and damaged deliver the shipment in good condition to the consignee. The C.I.F. Manila value of
shipment as well as other legitimate expenses such as the duties and cost of survey the goods which were lost or damaged, according to the claim of the consignee
of said shipment, and that the exchange rate on the date of the judgment, which dated September 26, 1960 is $226.37 and $324.3 or P456.14 and P653.53,
was P3.90 for every US$1.00, should have been applied by the lower court. respectively, in Philippine Currency. The peso equivalent was based by the
Defendants’ Comments consignee on the exchange rate of P2.015 to $1.00 which was the rate existing at
- They countered that their liability is limited to the C.I.F. value of the goods, that time. The trial court committed no error in adopting the aforesaid rate of
pursuant to contract of sea carriage embodied in the bill of lading; that the exchange.
consignee's (Winthro, Stearns, Inc.) claim against the carrier (Macondray & Co., Inc., Disposition Appealed decision is affirmed, with costs against the plaintiff-
Barber Steamship Lines, Inc., Wilhelm Wilhelmsen) and the arrastre operators appellant.
(Manila Port Service and Manila Railroad Company) was only for the sum of PAPA V VALENCIA
1,109.67 representing the C.I.F. value of the loss and damage sustained by the KAPUNAN; 1998
shipment which was the amount awarded by the lower court to the plaintiff-
appellant; defendants appellees are not insurers of the goods and as such they FACTS
should not be made to pay the insured value; the obligation of the defendants- - In June 1982, herein private respondents A.U. Valencia and Co., Inc. and
appellees was established as of the date of discharge, hence the rate of exchange Felix Peñarroyo, filed a complaint for specific performance against herein
should be based on the rate existing on that date, i.e., August 7, 1960, and not the petitioner Myron C. Papa, in his capacity as administrator of the Testate
value of the currency at the time the lower court rendered its decision on March 10, Estate of one Angela M. Butte
1965. - The complaint alleged that on 15 June 1973, petitioner Myron C. Papa,
acting as attorney-in-fact of Angela M. Butte, sold to respondent
ISSUES Peñarroyo, through respondent Valencia, a parcel of land, consisting of
1. WON in case of loss or damage, the liability of the carrier to the consignee is 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma,
limited to the C.I.F. value of the goods which were lost or damaged Quezon City, and covered by Transfer Certificate of Title No. 28993 of the
2. Whether the insurer who has paid the claim in dollars to the consignee should be Register of Deeds of Quezon City
reimbursed in its peso equivalent on the date of discharge of the cargo or on the - Prior to the alleged sale, the said property, together with several other
date of the decision parcels of land likewise owned by Angela M. Butte, had been mortgaged by
her to the Associated Banking Corporation
HELD - After the alleged sale, but before the title to the subject property had been
1. YES released, Angela M. Butte passed away
Obligations and Contracts A2010 page 82
Prof. Labitag
- Despite representations made by herein respondents to the bank to possession and enjoyment of the said property to the said plaintiff, free from
release the title to the property sold to respondent Peñarroyo, the bank any liens and encumbrances. Should this not be possible, for any reason not
refused to release it unless and until all the mortgaged properties of the attributable to defendant, said defendant is ordered to pay to plaintiff Felix
late Angela M. Butte were also redeemed Peñarroyo the sum of P45,000.00 plus legal interest of 12% from June 15,
- In order to protect his rights and interests over the property, respondent 1973
Peñarroyo caused the annotation on the title of an adverse claim as 3. Ordering plaintiff Felix Peñarroyo to execute and deliver to intervenor a deed
evidenced by Entry No. PE. - 6118/T-28993, inscribed on 18 January 1977 of absolute sale over the same property, upon the latter's payment to the
- The complaint further alleged that it was only upon the release of the title former of the balance of the purchase price of P71,500.000. Should this not
to the property, sometime in April 1977, that respondents Valencia and be possible, plaintiff Felix Peñarroyo is ordered to pay intervenor the sum of
Peñarroyo discovered that the mortgage rights of the bank had been P5,000.00 plus legal interest of 12% from August 23, 1973
assigned to one Tomas L. Parpana (now deceased), as special 4. Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as
administrator of the Estate of Ramon Papa. Jr., on 12 April 1977 attorney's fees and litigation expenses.
- That since then, herein petitioner had been collecting monthly rentals in - Petitioner appealed the aforesaid decision of the trial court to the Court of
the amount of P800.00 from the tenants of the property, knowing that said Appeals, alleging among others that the sale was never "consummated" as
property had already been sold to private respondents on 15 June 1973 he did not encash the check (in the amount of P40,000.00) given by
- Despite repeated demands from said respondents, petitioner refused and respondents Valencia and Peñarroyo in payment of the full purchase price
failed to deliver the title to the property of the subject lot. He maintained that what said respondents had actually
- Thereupon, respondents Valencia and Peñarroyo filed a complaint for paid was only the amount of P5,000.00 (in cash) as earnest money.
specific performance - Respondent Reyes spouses, likewise, appealed the above decision.
- In his Answer, petitioner admitted that the lot had been mortgaged to the However, their appeal was dismissed because of failure to file their
Associated Banking Corporation. He contended, however, that the appellants' brief
complaint did not state a cause of action; that the real property in interest - On 27 January 1992, the Court of Appeals rendered a decision, affirming
was the Testate Estate of Angela M. Butte, which should have been joined with modification the trial court's decision
as a party defendant; that the case amounted to a claim against the Estate - In affirming the trial court's decision, respondent court held that contrary
of Angela M. Butte and should have been filed in Special Proceedings No. to petitioner's claim that he did not encash the aforesaid check, and
A-17910 before the Probate Court in Quezon City; and that, if as alleged in therefore, the sale was not consummated, there was no evidence at all
the complaint, the property had been assigned to Tomas L. Parpana, as that petitioner did not, in fact, encash said check. On the other hand,
special administrator of the Estate of Ramon Papa, Jr., said estate should respondent Peñarroyo testified in court that petitioner Papa had received
be impleaded the amount of P45,000.00 and issued receipts therefor. According to
- Petitioner, likewise, claimed that he could not recall in detail the respondent court, the presumption is that the check was encashed,
transaction which allegedly occurred in 1973; that he did not have TCT No. especially since the payment by check was not denied by defendant-
28993 in his possession; that he could not be held personally liable as he appellant (herein petitioner) who, in his Answer, merely alleged that he
signed the deed merely as attorney-in-fact of said Angela M. Butte "can no longer recall the transaction which is supposed to have happened
- Finally, petitioner asseverated that as a result of the filing of the case, he 10 years ago."
was compelled to hire the services of counsel for a fee of P20,000.00, for - On petitioner's claim that he cannot be held personally liable as he had
which respondents should be held liable. acted merely as attorney-in-fact of the owner, Angela M. Butte, respondent
- Upon his motion, herein private respondent Delfin Jao was allowed to court held that such contention is without merit
intervene in the case - Petitioner filed a motion for reconsideration of the above decision, which
- For his part, petitioner, as administrator of the Testate Estate of Angela M. motion was denied by respondent Court of Appeals.
Butte, filed a third-party complaint against herein private respondents,
spouses Arsenio B. Reyes and Amanda Santos ISSUES
- Respondent Reyes spouses in their Answer raised the defense of 1. WON the sale in question was consummated
prescription of petitioner's right to redeem the property. 2. WON the decision of the CA cancelled the assignment of the subject property rights in favor of the
- At the trial, only respondent Peñarroyo testified. All the other parties only estate of Ramon Papa, Jr.
submitted documentary proof. 3. WON the estate of Angela M. Butte and the estate of Ramon Papa, Jr. are
- On 29 June 1987, the trial court rendered a decision: indispensable parties
1. Allowing defendant to redeem from third-party defendants and ordering the
latter to allow the former to redeem the property in question, by paying the HELD
sum of P14,000.00 plus legal interest of 12% thereon from January 2, 1980 1. YES.
2. Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff - Petitioner argues that respondent Court of Appeals erred in concluding that the
Felix Peñarroyo covering the property in question and to deliver peaceful alleged sale of the subject property had been consummated. He contends that such
Obligations and Contracts A2010 page 83
Prof. Labitag
a conclusion is based on the erroneous presumption that the check (in the amount enforce such lien. The cause of action for specific performance which respondents
of P40,000.00) had been cashed, citing Art. 1249 of the Civil Code, which provides, Valencia and Peñarroyo have against petitioner is different from the cause of action
in part, that payment by checks shall produce the effect of payment only when they which the estate of Ramon Papa, Jr. may have to enforce whatever rights or liens it
have been cashed or when through the fault of the creditor they have been has on the property by reason of its being an alleged assignee of the bank's rights
impaired. Petitioner insists that he never cashed said check; and, such being the of mortgage.
case, its delivery never produced the effect of payment. 3. NO.
- It is an undisputed fact that respondents Valencia and Peñarroyo had given - Under Section 3 of Rule 3 of the Rules of Court, an executor or administrator may
petitioner Myron C. Papa the amounts of Five Thousand Pesos (P5,000.00) in cash sue or be sued without joining the party for whose benefit the action is presented or
on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15 June 1973, defended, thus:
in payment of the purchase price of the subject lot. Petitioner himself admits having Sec. 3. Representative parties. - A trustee of an express trust, a guardian,
received said amounts, and having issued receipts therefor. Petitioner's assertion executor or administrator, or a party authorized by statute, may sue or be sued
that he never encashed the aforesaid check is not substantiated and is at odds with without joining the party for whose benefit the action is presented or defended; but
his statement in his answer that "he can no longer recall the transaction which is the court may, at any stage of the proceedings, order such beneficiary to be made
supposed to have happened 10 years ago." After more than ten (10) years from the a party. An agent acting in his own name and for the benefit of an undisclosed
payment in part by cash and in part by check, the presumption is that the check principal may sue or be sued without joining the principal except when the contract
had been encashed. As already stated, he even waived the presentation of oral involves things belonging to the
evidence. principal.
- Granting that petitioner had never encashed the check, his failure to do so for - Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no
more than ten (10) years undoubtedly resulted in the impairment of the check final determination of the action can be had. Whatever prior and subsisting
through his unreasonable and unexplained delay. mortgage rights the estate of Ramon Papa, Jr. has over the property may still be
- While it is true that the delivery of a check produces the effect of payment only enforced regardless of the change in ownership thereof.
when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the Disposition CA decision affirmed.
debtor is prejudiced by the creditor's unreasonable delay in presentment. The
acceptance of a cheek implies an undertaking of due diligence in presenting it for
payment, and if he from whom it is received sustains loss by want of such diligence, PHILIPPINE AIRLINES, INC V COURT OF APPEALS, STO.
it will be held to operate as actual payment of the debt or obligation for which it was TOMAS
given. It has, likewise, been held that if no presentment is made at all, the drawer REGALADO; August 13, 1990
cannot be held liable irrespective of loss or injury unless presentment is otherwise
excused. This is in harmony with Article 1249 of the Civil Code under which NATURE
payment by way of check or other negotiable instrument is conditioned on its being Certiorari
cashed, except when through the fault of the creditor, the instrument is impaired.
The payee of a check would be a creditor under this provision and if its non- FACTS
payment is caused by his negligence, payment will be deemed effected and the - November 16, 1970,- Adelina Bagadiong and Rosario Sto. Tomas, made
obligation for which the check was given as conditional payment will be discharged. reservations with, and bought 2 plane tickets from,PAL (Naga City branch
- Considering that respondents Valencia and Peñarroyo had fulfilled their part of the station), , a common carrier engaged in the business of transporting
contract of sale by delivering the payment of the purchase price, said respondents, passengers by air for compensation, for Naga-Manila flight on November 26,
therefore, had the right to compel petitioner to deliver to them the owner's 1970
duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and - November 24, 1970- they went back to PAL Naga City branch station and paid the
enjoyment of the lot in question fare for two round trip tickets. They were not only issued their round trips
2. NO. tickets, but also their reservation in PAL's 3:40 pm Naga-Manila flight on
- With regard to the alleged assignment of mortgage rights, respondent Court of November 26, 1970 were expressly confirmed by the Naga City branch station;
Appeals has found that the conditions under which said mortgage rights of the bank - At 3 PM of November 26, 1970, or 45 minutes before the scheduled departure
were assigned are not clear. Indeed, a perusal of the original records of the case time of the Naga-Manila flight, they checked in at the Pili airport counter of PAL
would show that there is nothing there that could shed light on the transactions and there the latter's agent or employees got the tickets of the plaintiffs
leading to the said assignment of rights; nor is there any evidence on record of the allegedly for the purpose of issuing to them a boarding pass
conditions under which said mortgage rights were assigned. What is certain is that - A few minutes before departure time, their luggage was loaded to the plane, but
despite the said assignment of mortgage rights, the title to the subject property has they were not given back their tickets and were not allowed by PAL' s agent or
remained in the name of the late Angela M. Butte. Assuming arguendo that the employees to board the plane
mortgage rights of the Associated Citizens Bank had been assigned to the estate of
Ramon Papa, Jr., and granting that the assigned mortgage rights validly exist and
constitute a lien on the property, the estate may file the appropriate action to
Obligations and Contracts A2010 page 84
Prof. Labitag
- After the plane had taken off from the Pili airport with their luggage, in spite of - TC- there was a breach of contract; awarded moral, actual and exemplary
their complaint, PAL’ s agent or employees at the Naga City branch station just damages and legal interest to the complainants in both cases. Affirmed
returned their fares. decision on MR.
- (This is another case consolidated with above case) November 24, 1970- Ladislao - CA- on appeal it affirmed with modifications said decision of the lower court.
Santos, bought a plane ticket at the branch station of defendant in Naga City
for Flight 296 from Naga to Manila scheduled on the afternoon of November 26, ISSUES
1970. 1. WON moral damages could be awarded to a passenger when the failure of the
- He was assured by the PAL employees that his reservation for the flight was carrier to accommodate the passenger resulted from unlawful acts of third parties
confirmed against the carrier's personnel
- At 2 PM of November 29, 1970, 1 hr and 40 minutes before the departure of 2. WON respondents are entitled to exemplary damages when there is no sufficient
Flight 296, Santos checked in at the Pili airport counter and there the PAL evidence to show, and neither the appellate court nor the trial court found facts
employees asked for his ticket, allegedly for the purpose of issuing to him a showing reckless, oppressive or malevolent conduct by the carrier
boarding pass 3. WON a passenger in a contract of air transportation can validly claim damages
- About 3 minutes before departure of Flight 296, the ticket was returned to him by when she could have taken the flight had she not instead opted, of her own volition,
a PAL employee, informing him that there was no more seat available and he to give her confirmed seat to another passenger who was accommodated by the
could not ride on that flight to Manila carrier in her place
- The employees of PAL acted rudely and discourteously to his embarrassment in 4. WON a trial court, in a MR, may increase the damages it awarded in the original
the presence of so many people who were at the airport at that time decision to an amount drastically over that it initially found to be warranted and
- It was very important and urgent for him to be in Manila on the afternoon of significantly more than claimed by plaintiffs themselves
November 26, 1970, because he had an appointment with an eye specialist for
medical treatment of his eye and he and his brother were "to close a contract HELD
they entered into to supply shrimps to some restaurants and market vendors in - On first and second issue: SC finds no error in awarding moral and exemplary
Manila damages to respondents.
- He and his brother failed to close the contract to supply shrimps, because it was - On the third issue: SC finds it without merit. As noted by the CA, the act of
on December 1, 1970 that he was finally able to reach Manila by train. respondent Bagadiong was motivated solely by her concern for her son who also
- In both cases the appellees alleged that there is a breach of contract and asked risked being denied accommodation but who was then returning to school in Manila.
for moral damages. Such sacrifice was not voluntary on her part, and her inability to take the flight was
- PAL’s defense: the consequence of the wrongful act of PAL's employees for which it has to answer.
o that due to the cancellation of a morning flight from Virac, some of its - On the last issue: CA precisely resolved said issue by modifying the decision of the
passengers for said flight took Flight 296R; lower court, awarding each respondent instead an aggregate amount of P30,000.00
o that on the representations of Gov Alberto of Catanduanes, one of those in as moral and exemplary damages, plus P6,000.00 as attorney's fees. The award of
the cancelled morning flight, its employees at its Virac station were moral and exemplary damages in an aggregate amount may not be the usual way
constrained "to allow the Governor to take Flight 296R together with several of awarding said damages. However, there can be no question that the entitlement
companions" with the assurance of the Governor that two (2) of his to moral damages having been established, exemplary damages may be awarded;
companions would deplane in Naga; that on arrival in Naga, the two and exemplary damages may be awarded even though not so expressly pleaded in
companions of the Governor refused to deplane despite repeated pleas and the complaint nor proved .
entreaties of its employees Reasoning
o unable to persuade the 2 Virac passengers to deplane in Naga and - Moral damages are recoverable in a breach of contract of carriage where the air carrier through its
"compelled by a reasonable and well-grounded fear that an untoward agents acted fraudulently or in bad faith. The TC and the CA are in agreement that PAL through its
incident may ensue should the two (2) be forced to leave the aircraft," its agents acted in bad faith in "bumping off" private respondents. CA-> the failure of PAL to accommodate
employee "had to act in a manner dictated by the circumstances and by private respondents was not the result of an honest mistake, because its employees knew and were aware
reasons of safety both of the passenger and the aircraft and crew;" that what they were doing was wrong. This whole incident could have been avoided had Mr. Borjal
o it was necessitated by reason of safety and/or compliance with applicable (branch supervisor) not recklessly took a chance on the two overbooked passengers (Gov. Alberto and
laws regulations, or orders, and the same are valid grounds for refusal to Mayor Antonio) in getting confirmed reservations in Naga. The PAL employees knowingly and
carry plaintiffs in accordance with its Domestic Passenger Tariff No. 2 deliberately disregarded the rights of the plaintiffs to board the plane and take Flight 296R by virtue of
(Section A, Rule 8[a]) which is incorporated by reference into the conditions their being holders of tickets duly issued and paid for with confirmed reservations on Flight 296R.
of carriage as expressly provided for in plaintiffs plane tickets; and - A contract to transport passengers is quite different in kind and degree from any
o the error of its employees was an honest mistake or constitutes excusable other contractual relation. And this, because of the relation which an air-carrier with
the public. Its business is mainly with the travelling public. It invites people to avail
negligence.
of the comforts and advantages it offers. The contract of air carriage, therefore,
Obligations and Contracts A2010 page 85
Prof. Labitag
generates a relation attended with a public duty. Neglect or malfeasance of the Surety & Fidelity Co., Inc., as surety, was executed in favor of the Reparations
carrier's employees naturally could give ground for an action for damages. Commission. A corresponding indemnity agreement was executed to indemnify the
The operation of a common carrier is a business affected with public interest and surety company for any damage, loss charges, etc., which it may sustain or incur as
must be directed to serve the comfort and convenience of the passengers. In case a consequence of having become a surety upon the performance bond
of breach in bad faith of a contract of carriage, award of damages is in order. - The next 2 boats were delivered April 20, 1959 with contract dated Nov 25, 1959
- The contention of PAL that was due to the unlawful acts of third persons provided for a similar stipulation on the schedule of payments. A performance bond
and, constitutes caso fortuito, is untenable. To constitute a caso fortuito in the amount of P68,777.77, issued by the Manila Surety & Fidelity Co., Inc., was
that would exempt a person from responsibility, it is essential that (a) the also submitted to guarantee the faithful compliance with the obligations set forth in
event must be independent of the will of the obligor; (b) it must be either the contract,6 and indemnity agreement was executed in favor of the surety
unforseeable or inevitable; (c) its occurrence renders it impossible for the company in consideration of the said bond.
obligor to fulfill his obligation in a normal manner; and (d) the obligor - The delivery of the last 2 boats were covered by a contract for the Utilization of
must be free from any participation in the aggravation of the injury Reparation Goods executed by the parties on February 12, 1960 with a similar
resulting to the obligee or creditor. schedule of 10 equal yearly installments. A performance bond in the amount of
- One essential characteristic of a fortuitous event is that it was independent of the P54,500.00 issued by the Manila Surety & Fidelity Co., Inc., was submitted, and an
will of the obligor or of his employees, is N/A in this case. The alleged fortuitous indemnity agreement was executed by UNIVERSAL in favor of the surety company.
event, supposedly consisting of the unlawful acts of Gov Alberto and Mayor Antonio, - On August 10, 1962, the Reparations Commission instituted the present action
is not independent of the will of PAL as the obligor but was caused by the very act against UNIVERSAL and the surety company to recover various amounts of money
of its agents in allowing the governor and the mayor to board Flight 296R in excess due under these contracts. In answer, UNIVERSAL claimed that the amounts of
of the number of passengers allotted to them and with full knowledge that the said money sought to be collected are not yet due and demandable. The surety
flight for Manila was fully booked. The impossibility of their being accommodated company also contended that the action is premature, but set up a cross-claim
was necessarily forseeable. The fear spoken of by witness Azuela is speculative, against UNIVERSAL for reimbursement of whatever amount of money it may have to
fanciful and remote. The statement attributed to Governor Alberto and/or the pay the plaintiff by reason of the complaint, including interest, and for the collection
mayors, that "if we cannot board the plane there will be something that will of accumulated and unpaid premiums on the bonds with interest thereon. With
happen," is vague. The threat, if ever it was, was not of such a serious character leave of courts first obtained, the surety company filed a third-party complaint
and imminent as to create fear of greater injury in the minds of the PAL employees against Pablo S. Sarmiento, one of the indemnitors in the indemnity agreements.
if they would not allow Governor Alberto and the mayors to remain in the plane The third-party defendant Pablo S. Sarmiento denied personal liability claiming that
which was then scheduled to fly to Manila. It is difficult to believe that Governor he signed the indemnity agreements in question in his capacity as acting general
Alberto and the mayors would make any threat or intimidation to keep their seats in manager of UNIVERSAL. After appropriate proceedings and upon the preceding
the plane. They were provincial and municipal executives with a common duty to facts, the trial court rendered the judgment stated. Hence, this appeal.
maintain peace and order and to prevent the commission of crimes. - UNIVERSAL claims that there is an obscurity in the terms of the contracts in
Disposition CA’s decision is AFFIRMED in toto. question which were caused by the plaintiff as to the amounts and due dates of the
first installments which should have been first fixed before a creditor can demand
REPARATIONS COMMISSION V UNIVERSAL DEEP- SEA its payment from the debtor. The Schedule of Payment attached to, and forming a
FISHING CORPORATION part of, the contract for the purchase and sale of the first 2 boats which states that
CONCEPCION; June 27, 1978 the amount of first installment is P53,642.84 and the due date of is payment is May
8, 1961. However, the amount of the first of the succeeding itemized installments is
NATURE P56,597.20 and the due date is May 8, 1962. In the case of the 3 rd and 4th boats, the
Appeal from the decision of the Court of First Instance first installments are P68,777.77 and due in July, 1961 and P72,565.68 and due in
July, 1962, respectively. In the contract for the purchase and sale of the last 2
boats, the amounts indicated as first installments are P54,500.00 and P57,501.57,
FACTS and the due dates of payment are October 17, 1961 and October 17, 1962,
- Universal was awarded 6 trawl boats by the Reparations Commission as end-user respectively.
of reparation goods. These were delivered 2 at a time.
- The first 2 boats were delivered Nov 20, 1958 and the Contract of Conditional ISSUES
Purchase and Sale of Reparations Goods executed Feb 12, 1960 provided among 1. WON the first installments under the 3 contracts of conditional purchase and sale
others, that "the first installment representing 10% of the amount… shall be paid were already due and demandable when the complaint was filed
within 24 months from the date of complete delivery thereof, the balance shall be 2. WON the TC erred in not awarding the surety company premiums on the
paid in the manner herein stated as shown in the Schedule of Payments". To performance bonds
guarantee the compliance with the obligations under said contract, a performance
bond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila
Obligations and Contracts A2010 page 86
Prof. Labitag
3. WON the court erred in not applying the down payment to the guaranteed pay the Manila Surety & Fidelity Co., Inc., the amount of P7,251.42 for the
indebtedness applying Art 12543 premiums and documentary stamps on the performance bonds. Appellants shall
4. WON Pablo Sarmiento is liable having executed the indemnity agreements in his pay proportionate costs.
capacity as acting general manager of universal
PACULDO V REGALADO
HELD PARDO; 2000
1. YES
Ratio The obligation of UNIVERSAL to pay the first installments on the purchase NATURE
price of the six (6) reparations vessels was already due and demandable when the APPEAL via certiorari from a decision of the CA on ejectment case
present action was commenced on August 10, 1962. Also due and demanded from
UNIVERSAL were the first of the ten (10) equal yearly installments on the balance of FACTS
the purchase price of the first 2 boats as well as the second pair of boats. The first - Nereo Paculdo, petitioner, and Bonifacio Regalado, respondent, entered into a
accrued on May 8, 1962, while the second fell due on July 31,1962. lease contract over a 16,478 square meter property with a wet market building
Reasoning In the contract concerning the first 2 boats, the parties expressly located along Don Mariano Marcos Avenue, Fairview Park, Quezon City on
agreed that the first installment representing 10% of the purchase price or December 27, 1990. Lease period is for 25 years beginning January 1, 1991 up to
P53,642.84 shall be paid within 24 months from the date of complete delivery of the December 31 , 2015.
vessel or on May 8, 1961, and the balance to be paid in ten (10) equal yearly - On top of this lease contract, petitioner also leased from respondent eleven other
installments. The amount of P56,597.20 due on May 8, 1962, which is also claimed properties and purchased from the same respondent eight units of heavy
to be a "first installment," is but the first of the ten (10) equal yearly installments of equipment and vehicles.
the balance of the purchase price. - The petitioner failed to pay rentals for the wet market property for May, June, and
- The 24 months fixed by the law for the payment of the 'first' installment are the July 1992. Respondent on July 6, wrote demand letter to petitioner for payment of
very dates stated in the aforementioned schedules for the payment of the the due rent with advise that if payment is not received within fifteen days the
respective '1st' installments. What is more, in view of said legal provision, the lease contract will be cancelled.
Commission had no authority to agree that the 1st installment shall be paid on any - Another letter was sent by the respondent on July 17, 1992 reiterating demand for
later date, and the Buyer must have been aware of this fact. payment and for the petitioner to vacate the premises.
2. YES - Petitioner tried to pay on a daily basis the rental beginning August 25, 1992 but
- Universal should award the premiums to the surety company. the petitioner refused to accept the same.
Reasoning The payment of premiums on the bonds to the surety company had - On August 20, 1992, petitioner filed an action for injunction and damages seeking
been expressly undertaken by UNIVERSAL in the indemnity agreements executed to enjoin respondent from disturbing his possession of the leased property. On the
by .it in favor of the surety company. The premium is the consideration for same day the respondent filed an ejectment case against the petitioner. The
furnishing the bonds and the obligation to pay the same subsists for as long as the ejectment case was however withdrawn five days later on the ground that certain
liability of the surety shall exist. details included therein had been omitted and must be re-computed.
3. NO - On April 22, 1993, the case for ejectment was re-filed with the MTC. On January
- Art 1254 is not applicable. 31, 1994, the MTC ruled in favor of Regalado and ordered the petitioner and all
Reasoning The rules contained in Articles 1252 to 1254 of the Civil Code apply to a persons claiming right under him to vacate the leased premises and to pay the
person owing several debts of the same kind to a single creditor. They cannot be respondent the back rentals beginning July 1992. This order was appealed to the
made applicable to a person whose obligation as a mere surety is both contingent RTC which subsequently affirmed the MTC decision en toto.
and singular, which in this case is the full and faithful compliance with the terms of - Despite having completely turned over the leased property, petitioner
the contract of conditional purchase and sale of reparations goods. nevertheless filed a petition for review with the Court of Appeals alledging among
4. YES others that portions of his payments to respondents were applied to his other
- He is liable. obligations. The CA found for the respondent when it ruled that petitioner consented
Reasoning He signed the indemnity agreement twice – the first in his capacity as to the respondent’s application of payment to the petitioner’s other obligations.
acting general manager and second in his individual capacity. Besides - Hence the appeal.
acknowledgment, stated that Pablo Sarmiento for himself and in behalf of Universal
personally appeared before the notary and acknowledged that the document is his ISSUE
own free and voluntary act and deed. WON the petitioner was truly in arrears in the payment of the rentals on the subject
Disposition WHEREFORE, the judgment appealed from is hereby affirmed with the property at the time of the filing of the complaint for ejectment
modification that the UNIVERSAL Deep-Sea Fishing Corporation is further ordered to
HELD
3
Where there is no imputation of payment made by either the debtor or creditor, the debt which is the most NO.
onerous to the debtor shall be deemed to have been satisfied
Obligations and Contracts A2010 page 87
Prof. Labitag
- There was no clear assent from the petitioner to the change in the manner of defendant Caperal, as well as the Assignment of Leasehold Rights executed by
application of payment. The silence of the petitioner with regard the request of the Caperal in favor of DBP, were also void and ineffective; awarding P1,067,500.00 for
respondent with regard the application of the rental did not mean that he consented actual damages.; P100,000.00as moral damages; P50,000.00 for exemplary
thereto. damages;
- Assuming further that petitioner did not choose the obligation to be first satisfied, P100,000.00 for attorney's fees; and ordering DBP to reimburse and pay to
giving the respondent the right to apply the payments to the other obligations of defendant Agripina Caperal P1,532,610.75 representing the amounts paid by
the petitioner, the law provided that no payment shall be made to a debt not yet defendant Agripina Caperal to defendant Development Bank of the Philippines
due (Article 1252 of the Civil Code) and that payment must be first applied to the under their Deed of Conditional Sale;
debt most onerous to the debtor (Article 1254 of the Civil Code). - CA: declared valid the ff: (1) the act of DBP in appropriating Cuba's leasehold
- The decision of the CA was a misappreciation of the facts and of the law. rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of
assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale
DBP V CA between CUBA and DBP; and (4) the deed of conditional sale between DBP and
DAVIDE; January 5, 1998 Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of
leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn
NATURE over possession of the property to Caperal as lawful holder of the leasehold rights
Consolidated petition for review of the decision of the Court of Appeals and to pay CUBA the following amounts: (a) P1,067,500 as actual damages;
P50,000 as moral damages; and P50,000 as attorney's fees.
FACTS
- Plaintiff CUBA is a grantee of a Fishpond Lease Agreement from the Government; ISSUES
- CUBA obtained from DBP three separate loans totalling P335,000, each of which 1. WON the assignment of leasehold rights was a mortgage contract, not amounting
was covered by a promissory note and as security for said loans, CUBA executed to novation, cession under Art. 1255 of Civil Code, nor a Dation under Art. 1254
two Deeds of Assignment of her Leasehold Rights; 2. WON condition no. 12 of the deed of assignment constituted pactum
- Plaintiff failed to pay her loan on the scheduled dates in accordance with the terms commissionrum, as was held by the trial court
of the Promissory Notes; 3. WON the act of DBP of appropriating CUBA’s leasehold rights was violative of Art.
- Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP 2088 of the Civil Code, and that DBP should have just conducted a foreclosure
appropriated the leasehold Rights of plaintiff CUBA over the fishpond in question; proceeding, so that the execution of the Deed of Conditional Sale in favor of Caperal
then executed a Deed of Conditional Sale of the Leasehold Rights in favor of was void
plaintiff CUBA over the same fishpond; 4. WON CUBA is estopped from questioning DBP’s act of appropriation
- In the negotiation for repurchase, plaintiff CUBA addressed two letters (offers to 5. WON the award for the damages were correctly awarded
repurchase the fishpond) to the Manager DBP, which DBP accepted; 5.1 WON the award for actual damages was correctly awarded
- After the Deed of Conditional Sale was executed in favor of plaintiff CUBA, a new 5.2 WON the award for moral damages was correctly awarded, and therefore the
Fishpond Lease Agreement was issued by the Ministry of Agriculture and Food in awarding of exemplary damages and attorney’s fees
favor of plaintiff CUBA but CUBA failed to pay the amortizations stipulated in the
Deed of Conditional Sale and entered with the DBP a temporary arrangement HELD
whereby in consideration for the deferment of the Notarial Rescission of Deed of 1. YES, the assignment of leasehold rights was a mortgage contract.
Conditional Sale, plaintiff CUBA promised to make certain payments as stated in Ratio An assignment to guarantee an obligation is in effect a mortgage, and being
temporary Arrangement; in its essence a mortgage, is but a security and not a satisfaction of indebtedness.
- Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act which CUBA Reasoning The stipulations of the deeds of assignment constantly referred to the
received,a and thereafter, defendant DBP took possession of the Leasehold Rights contract as a mortgage contract. The parties admitted that the assignment was by
of the fishpond in question, advertised the public bidding to dispose of the property; way of security for the payment of the loans.
and thereafter executed a Deed of Conditional Sale in favor of defendant Agripina - on NOVATION: the said assignment merely complemented or supplemented the
Caperal; defendant Caperal was awarded Fishpond Lease Agreement by the notes; both could stand together. The obligation to pay a sum of money remained,
Ministry of Agriculture and Food. and the assignment merely served as security for the loans covered by the
- CUBA filed complaint against DBP and Caperal promissory notes.
- RTC: sided with CUBA, holding that (1) DBP's taking possession and ownership of - on CESSION: Article 1255 contemplates the existence of two or more creditors and
the property without foreclosure was plainly violative of Article 2088 of the Civil involves the assignment of all the debtor's property, but in the case only DBP is the
Code; (2) condition no. 12 of the Assignment of Leasehold Rights is void for being a creditor
clear case of pactum commissorium expressly prohibited and declared null and void - on DATION: The assignment, being in its essence a mortgage, was but a security and not a satisfaction
by Article 2088 of the Civil Code; (3) the Deed of Conditional Sale in favor of CUBA, of indebtedness so not Dation as defined in Article 1254
the notarial rescission of such sale, and the Deed of Conditional Sale in favor of
2. NO
Obligations and Contracts A2010 page 88
Prof. Labitag
Ratio To have a pactum commissiorum, the following elements must be present: Agriculture and Natural Resources that it had "foreclosed the mortgage," an award
(1) there should be a property mortgaged by way of security for the payment of the of moral damages in the amount of P50,000 is in order.
principal obligation, and (2) there should be a stipulation for automatic - Exemplary or corrective damages in the amount of P25,000 should likewise be
appropriation by the creditor of the thing mortgaged in case of non-payment of the awarded by way of example or correction for the public good. There being an award
principal obligation within the stipulated period. of exemplary damages, attorney's fees are also recoverable.
Reasoning Condition no. 12 merely provided for the appointment of DBP as Disposition WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-
attorney-in-fact with authority, among other things, to sell or otherwise dispose of G.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral
the said real rights, in case of default by CUBA, and to apply the proceeds to the damages, which is hereby sustained. The 31 January 1990 Decision of the Regional
payment of the loan. Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting
-The provision is a standard condition in mortgage contracts and is in conformity aside the finding that condition no. 12 of the deed of assignment constituted
with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the pactum commissorium and the award of actual damages; and by reducing the
mortgage and alienate the mortgaged property for the payment of the principal amounts of moral damages from P100,000 to P50,000; the exemplary damages,
obligation. from P50,000 to P25,000; and the attorney's fees, from P100,000 to P20,000. The
3. YES Development Bank of the Philippines is hereby ordered to render an accounting of
Ratio Even in cases where foreclosure proceedings were had, this Court had not the income derived from the operation of the fishpond in question. Case is
hesitated to nullify the consequent auction sale for failure to comply with the REMANDED to the trial court for the reception of the income statement of DBP, as
requirements laid down by law, such as Act No. 3135, as amended. 15 With more well as the statement of the account of Lydia P. Cuba, and for the determination of
reason that the sale of property given as security for the payment of a debt be set each party's financial obligation to one another.
aside if there was no prior foreclosure proceeding.
Reasoning Article 2088 of the Civil Code forbids a creditor from appropriating, or FILINVEST CREDIT CORP. V PHILIPPINE ACETYLENE CO,
disposing of, the thing given as security for the payment of a debt. INC.
- DBP knew that foreclosure proceedings were necessary, however it did not DE CASTRO; January 30, 1982
conduct any. In view of the false representation of DBP that it had already
foreclosed the mortgage, the Bureau of Fisheries canceled CUBA's original lease NATURE
permit, approved the deed of conditional sale, and issued a new permit in favor of Appeal from the decision of the Court of First Instance of Manila
CUBA. Said acts which were predicated on such false representation, as well as the
subsequent acts emanating from DBP's appropriation of the leasehold rights, should FACTS
therefore be set aside. To validate these acts would open the floodgates to - On October 30, 1971, the Philippine Acetylene Co., Inc. purchased from Alexander
circumvention of Article 2088 of the Civil Code. Lim a 1969 Chevorlet for P55,247.80 with a down payment of P20,000.00 and the
4. NO balance of P35,247.80 payable, under the terms and conditions of the promissory
Ratio Estoppel cannot give validity to an act that is prohibited by law or against note, at a monthly installment of P1,036.70 for thirty-four months, due and payable
public policy on the first day of each month starting December 1971 through and inclusive
Reasoning The appropriation of the leasehold rights, being contrary to Article 2088 September 1, 1974 with 12 % interest per annum on each unpaid installment, and
of the Civil Code and to public policy, cannot be deemed validated by estoppel. attorney's fees in the amount equivalent to 25% of the total of the outstanding
5. unpaid amount. As security for the payment, the appellant executed a chattel
5.1 NO mortgage over vehicle in favor of Lim. On November 2, 1971, Alexander Lim
Ratio Actual or compensatory damages cannot be presumed, but must be proved assigned to the Filinvest Finance Corporation all his rights, title, and interests in the
with reasonable degree of certainty. promissory note and chattel mortgage by virtue of a Deed of Assignment.
Reasoning Other than the testimony of CUBA and her caretaker, there was no Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with
proof as to the existence of those items which were allegedly damaged before DBP the Credit and Development Corporation assigned to the new corporation, Filinvest
took over the fishpond in question (no inventory, receipts presented). Credit Corporation, all its rights, title, and interests on the aforesaid promissory
- Such claim for "losses of property," having been made before knowledge of the note and chattel mortgage which, in effect, the payment of the unpaid balance
alleged actual loss, was therefore speculative. The alleged loss could have been a owed by Phil. Acetylene to Alexander Lim was financed by Filinvest such that Lim
mere afterthought or subterfuge to justify her claim for actual damages. became fully paid. Phil Acetylene had defaulted in the payment of nine successive
- From 1979 until after the filing of her complaint in court in May 1985, CUBA did installments. Filinvest then sent a demand letter for the aforesaid amount in full in
not bring to the attention of DBP the alleged loss, and CUBA even admitted that the addition to stipulated interest and charges or return the mortgaged property to be
loss was due to the fraudulent acts of her fishpond workers. remitted at Filinvest’s office within five days from date of the letter during office
5.2 YES, but reduced hours. Appellant, thru its asst. general-manager advised Filinvest of its decision to
Reasoning DBP's act of appropriating CUBA's leasehold rights which was contrary return the mortgaged property, which return shall be in full satisfaction of its
to law and public policy, as well as its false representation to the then Ministry of indebtedness pursuant to Article 1484 of the New Civil Code. The car was returned
Obligations and Contracts A2010 page 89
Prof. Labitag
to the Filinvest together with the document "Voluntary Surrender with Special mortgaged motor vehicle took place, for it is quite possible that appellee, as
Power of Attorney To Sell" executed by appellant on March 12, 1973 and confirmed mortgagee, merely wanted to secure possession to forestall the loss, destruction,
to by Filinvest's vice-president. On April 4, 1973, Filinvest wrote a letter to appellant fraudulent transfer of the vehicle to third persons, or its being rendered valueless if
informing the latter that Filinvest cannot sell the car as there were unpaid taxes left in the hands of the appellant. Filinvest is also not guilty of estoppel since it
worth P70,122.00 on the car. Filinvest requested the appellant to update its account never accepted the mortgaged car in full satisfaction of the debt. It is the fact of
by paying the installments in arrears and accruing interest in the amount of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the
P4,232.21 on or before April 9, 1973. On May 8, 1973, Filinvest offered to deliver vendor of any balance of the purchaser's outstanding obligation not satisfied by the
back the motor vehicle to the appellant but the latter refused to accept it, so sale
Filinvest instituted an action for collection of a sum of money with damages in this 2. NO
petition. Ratio The unpaid taxes on the vehicle is a burden on the property and must be
Respondent’s Comments borne by the owner.
- Filinvest has no cause of action against it since its obligation towards Filinvest was Reasoning There is a specific provision in the Deed of Sale that the Lim warrants
extinguished when in compliance with the demand letter, it returned the mortgaged the sale of the car to be free from liens and encumbrances. When Filinvest accepted
property. Assuming that the return of the property did not extinguish its obligation, the assignment of credit from the Lim, there is a specific agreement that Lim
it was nonetheless justified in refusing payment since Filinvest is not entitled to continued to be bound by the warranties he had given to Filinvest and that if it
recover the same due to the breach of warranty committed by Lim. appears subsequently that "there are such counterclaims, offsets or defenses that
may be interposed by the debtor at the time of the assignment, such counterclaims,
ISSUES offsets or defenses shall not prejudice the FILINVEST FINANCE CORPORATION and I
1. WON the return of the mortgaged motor vehicle to Filinvest by totally extinguished and/or cancelled (Alexander Lim) further warrant and hold the said corporation free and harmless
Phil Acetylene’s obligation from any such claims, offsets, or defenses that may be availed of.". Since as earlier
2. WON the warranty for the unpaid taxes on the mortgaged motor vehicle may be shown, the ownership of the mortgaged property never left the mortgagor, the Phil
properly raised and imputed to or passed over to the appellee. Acetylene Co., the burden of the unpaid taxes should be borne by him, who, in any
case, may not be said to be without remedy under the law, but definitely not
HELD against appellee to whom were transferred only rights, title and interest, as such is
1. NO the essence of assignment of credit.
Ratio The mere return of the mortgaged motor vehicle by the mortgagor, the Disposition The judgment appealed from is hereby affirmed in toto with costs
herein appellant, to the mortgagee, the herein appellee, does not constitute dation against defendant-appellant.
in payment or dacion en pago in the absence, express or implied of the true
intention of the parties. SEPARATE OPINION
Reasoning 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 ABAD SANTOS [ concur]
dacion en pago, as a special mode of payment, the debtor offers another thing to
The document indicated that the appellee was to foreclose the chattel mortgage.
the creditor who accepts it as equivalent of payment of an outstanding debt. The
The surrender of the car to the appellee was a mere preparatory act for its sale in a
undertaking really partakes in one sense of the nature of sale, that is, the creditor is
foreclosure of the chattel mortgage. After the appellee discovered, without
really buying the thing or property of the debtor, payment for which is to be
negligence on its part, that foreclosure of the chattel mortgage was impractical, it
charged against the debtor's debt. As such, the essential elements of a contract of
had the right which it exercised to abandon the chattel mortgage and demand
sale, namely, consent, object certain, and cause or consideration must be present.
fulfillment of the obligation.
In its modern concept, what actually takes place in dacion en pago is an objective
DE GUZMAN V COURT OF APPEALS
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,
CONCEPCION, July 23, 1985
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 NATURE
extinguishing the debt or obligation. The evidence on the record fails to show that Petition for the reversal of the decision of the respondent appeal appellate court
Filinvest consented, or at least intended, that the mere delivery to, and acceptance which dismissed the petition to annul and set aside the orders of the Court of First
by him, of the mortgaged motor vehicle be construed as actual payment, more Instance of Rizal, Pasay City Branch, dismissing the petitioners' appeal in Civil Case
specifically dation in payment or dacion en pago. The fact that the mortgaged No. 5247- P and to restrain the respondents from enforcing the same
motor vehicle was delivered to him does not necessarily mean that ownership
thereof, as juridically contemplated by dacion en pago, was transferred from FACTS
appellant to appellee. In the absence of clear consent of appellee to the proferred - The de Guzman et al, as SELLER, and Singh, as BUYER, executed a Contract to Sell
special mode of payment, there can be no transfer of ownership of the mortgaged covering two parcels of land owned by the petitioners located at Pasay City
motor vehicle from appellant to appellee. If at all, only transfer of possession of the
Obligations and Contracts A2010 page 90
Prof. Labitag
- Sigh should pay the balance of the purchase price of P133,640 on or before
February 17, 1975. ISSUE
- Two days before the said date, Singh asked the petitioners to furnish her with a WON Singh had complied with the terms of the compromise agreement
statement of account of the balance due; copies of the certificates of title covering
the two parcels of land subject of the sale; and a copy of the power of attorney HELD
executed by Gestuvo in favor of de Guzman. Petitioners denied the request. YES.
- Singh filed a complaint for specific performance with damages against the - Singh had substantially complied with the terms and conditions of the compromise
petitioners before the CFI of Rizal. agreement. Her failure to deliver to the petitioners the full amount on January 27,
- She said that petitioners committed a breach of contract, and had also acted 1978 was not her fault. The blame lies with the petitioners. The record shows that
unfairly and in manifest bad faith for which they should be held liable for damages. Singh went to the sala of Judge Bautista on the appointed day to make payment, as
- Petitioners claimed that the complaint failed to state a cause of action; that the agreed upon in their compromise agreement. But, the petitioners were not there to
balance due was already pre-determined in the contract; that the petitioners have receive it. Only the petitioners' counsel appeared later, but, he informed Singh that
no obligation to furnish Singh with copies of the documents requested; and that he had no authority to receive and accept payment. Instead, he invited Singh and
Singh's failure to pay the balance of the purchase price on the date specified had her companions to the house of the petitioners to effect payment. But, the
caused the contract to expire and become ineffective without necessity of notice or petitioners were not there either. They were informed that the petitioner Pilar de
of any judicial declaration to that effect. Guzman would arrive late in the afternoon. Singh was assured, however, that she
- Trial court approved the compromise agreement submitted by the parties wherein would be informed as soon as the petitioners arrived. Singh, in her eagerness to
they agreed on the following: settle her obligation, consented and waited for the call which did not come and
1. Not later than December 18, 1977, plaintiff will pay defendants the total unwittingly let the period lapse.
amount of P240,000 and in case of failure to do so, she shall have only - The next day, January 28, 1978, Singh went to the office of the Clerk of the Court
until January 27, 1978 within which to pay the total amount of P250,000, of First Instance of Rizal, Pasay City Branch, to deposit the balance of the purchase
which shall be treated as complete and final payment of the consideration price. But, it being a Saturday, the cashier was not there to receive it. So, on the
in the contract to sell next working day, Monday, January 30, 1978, Singh deposited the amount of
2. Immediately upon receipt of either amount within the periods so P30,000 with the cashier of the Office of the Clerk of the Court of First Instance of
contemplated, defendants undertake to immediately execute the Rizal, Pasay City Branch, to complete the payment of the purchase price of
necessary legal instruments to transfer to plaintiff the title to the parcels of P250,000.
land - Since the deposit of the balance of the purchase price was made in good faith and
3. That defendants would temporarily desist from enforcing their right or that the failure of Singh to deposit the purchase price on the date specified was due
possession over the properties involved herein until January 27, 1978, but to the petitioners who also make no claim that they had sustained damages
this shall not be construed as an abandonment or waiver of its causes of because of the two days delay, there was substantial compliance with the terms
action and conditions of the compromise agreement.
4. Should plaintiff fail to pay either of the amounts within the period herein Disposition WHEREFORE, the petition should be, as it is hereby DISMISSED. The
stipulated, the aforesaid Contract to Sell dated February 17, 1971 shall be temporary restraining order heretofore issued is LIFTED and SET ASIDE. With costs
deemed rescinded and plaintiff agrees to voluntarily surrender and vacate against the petitioners.
the same without further notice or demand;
5. That payment of either amounts above-stated shall take place at CFI TLG INTERNATIONAL CONTINENTAL ENTERPRISING, INC. V
Rizal Branch 3 at 10:00 a.m. Friday, January 27, 1978 unless payment has FLORES
been earlier made, in which case plaintiff shall produce receipt of the same ANTONIO; October 31, 1972
at the same time and place
6.Both parties waive and abandon, by reason hereof, their respective
NATURE
claims and counterclaims as embodied in the Complaint and Answer.
Petition for certiorari to set aside orders (of June 23, 1972 and July 30, 1972) of
- On January 28, 1978, the petitioners filed a motion for the issuance of a writ of
respondent judge denying petitioner’s motion to withdraw sum of P3,750.00
execution, claiming that Singh had failed to abide by the terms of the compromise
deposited by it by way of consignation
agreement and pay the amount specified in their compromise agreement within the
period stipulated.
FACTS
- Singh opposed the motion, saying that she had complied with the terms and
- In Oct. 5, 1971, Respondent judge granted petitioner’s “Motion To Intervene”, and
conditions of the compromise agreement and asked the court to direct the
admitted its “Complaint in Intervention” in the case of Bearcon Trading Co., Inc. v.
petitioners to comply with the court's decision and execute the necessary
Juan Fabella Et Al
documents to effect the transfer of ownership of the two parcels of land to her.
- the case was an action for declaratory relief involving the rights of Bearcon as
- CFI directed the petitioners to immediately execute the necessary documents,
lessee of the premises of the defendants in that case.
transferring to private respondent the title to the properties. CA affirmed.
Obligations and Contracts A2010 page 91
Prof. Labitag
- Petitioner intervened as sub-lessee of Bearcon over the property. NATURE
- Purpose: 1. to protect its rights as such sub-lessee, 2. to make a consignation Appeal by certiorari from the decision of the Court of Appeals
of the monthly rentals as it didn’t know who was lawfully entitled to receive
payments of the monthly rentals. FACTS
- Because of the admission of the “Complaint In Intervention”, petitioner deposited - On Feb 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon
P3,750 with the CFI, by way of rentals. Flores entered into a contract of conditional sale of real property. Paragraph 1 of
- Oct. 20, 1971: defendants in the case filed an “Omnibus Motion”, praying that the the deed of conditional sale fixed the total purchase price of P140,000.00 payable
complain, as well as the Complaint In Intervention be dismissed. as follows: a) P26,550.00 upon the execution of the deed; and b) the balance of
- the court a quo dismissed both the complaint and the complaint in intervention P113,450.00 to be paid not later than May 31, 1977. The parties also agreed that
- May, 1972: petitioner filed Motion to withdraw the sums it deposited, because the the balance shall bear interest at the rate of 1% per month to commence from
order which dismissed the case without a resolution left the intervenor “without any Dec 1, 1976, until the full purchase price was paid.
recourse but to apply for authority to withdraw the amount and turn over the same - On June 19, 1979, petitioner filed a complaint for the rescission of the deed of
to the defendants in accordance with the understanding arrived at between the conditional sale due to the failure of Flores to pay the balance due on May 31,
parties hereto”. 1977.
- June 23 and July 15, 1972: respondent denied the motion and the motion for - On Dec 27, 1979, the parties submitted a Compromise Agreement on the basis of
consideration which the court rendered a decision on Jan 22, 1980. In said compromise
agreement, Flores acknowledged his indebtedness to petitioner under the deed of
ISSUE conditional sale in the amount of P119,050.71, and the parties agreed that said
WON Respondent could authorize the withdrawal of the deposits considering that amount would be payable as follows: a) P50,000.00 upon signing of the agreement;
according to Respondent, the Court “has not ordered the intervenor to make any and b) the balance of P69,059.71 in two equal installments on June 30, 1980 and
deposit in connection” with the case Dec 31, 1980.
- As agreed upon, Flores paid P50,000.00 upon the signing of the agreement and
HELD he also paid an "escalation cost" of P25,000.00.
Yes. Respondent Judge had the authority to authorize the withdrawal of the - Under paragraph 3 of the Compromise Agreement, private respondent agreed to
deposits. pay P1,000 pesos monthly rental beginning Dec 5, 1979 until the obligation is
Ratio A court shall have the authority to authorize the withdrawal of a deposit, duly paid, for the use of the said property
when the intervenor made the deposit as a consequence of the admission by the - Paragraphs 6 and 7 of the Compromise Agreement further state:
Court of its “Complaint In Intervention”. -"That the parties are agreed that in the event the defendant (Flores) fails to
Reasoning - In general, Art. 1260: Before the creditor has accepted the comply with his obligations herein provided, the plaintiff (Mclaughlin) will be
consignation, or before a judicial declaration that the consignation has been entitled to the issuance of a writ of execution rescinding the Deed of
properly made, the debtor may withdraw the thing or the sum deposited, allowing Conditional Sale of Real Property. In such eventuality, defendant (Flores)
the obligation to remain in force”. hereby waives his right to appeal to (from) the Order of Rescission and the Writ
- The case was dismissed before the amount deposited was either accepted by the of Execution which the Court shall render in accordance with the stipulations
creditor, or a declaration was made by the court approving such consignation. herein provided for.
- Dismissal rendered the consignation ineffectual -"That in the event of execution all payments made by defendant (private
- the Respondent should have allowed withdrawal. respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated
- Repondent’s claim that it had no authority since it “has not ordered intervenor to damages."
make” the deposit ignores the fact that the deposit was made because of the - On Oct 15, 1980, McLaughlin wrote to private respondent demanding that he pay
admission of its “Complaint in Intervention” the balance of P69,059.71 on or before Oct 31, 1980. This demand included not
- Deposit was made and officially receipted by the Clerk of Court only the installment due on June 30, 1980 but also the installment due on Dec 31,
- From the moment the money was deposited, the money remained under the 1980.
control and jurisdiction of the court and the former could not recover it without an - On Oct 30, 1980, Flores sent a letter to petitioner signifying his willingness and
express order of restitution.” intention to pay the full balance of P69,059.71
Disposition WHEREFORE, the orders dated June 23, 1972 and July 15, 1972 subject - On Nov 7, 1980, petitioner filed a Motion for Writ of Execution alleging that Flores
of the petition for certiorari are hereby set aside and Respondent directed to grant failed to pay the installment due on June 1980 and that since June 1980 he had
the withdrawal of the deposit in accordance with the foregoing. failed to pay the monthly rental of P1,000.00. Petitioner prayed that a) the deed of
conditional sale of real property be declared rescinded with forfeiture of all
MCLAUGHLIN V COURT OF APPEALS payments as liquidated damages; and b) the court order the payment of P1,000.00
FERIA; October 10, 1986 back rentals since June 1980 and the eviction of private respondent.
- TC granted the motion for writ of execution.
Obligations and Contracts A2010 page 92
Prof. Labitag
- CA held that the Song Fo v Hawaian Ruling is applicable in the case at bar – - According to Article 1256 (Civil Code), if the creditor to whom tender of payment
Recission will not be permitted for slight breach of contract. has been made refuses without just cause to accept it, the debtor shall be released
ISSUES from responsibility by the consignation of the thing or sum due, and that
1. WON contract should be rescinded consignation alone shall produce the same effect in the five cases enumerated
2. WON respondent is liable for the P76,059.71 he attempted to pay to the therein; Article 1257 provides that in order that the consignation of the thing (or
petitioner but the petitioner did not accept (even though the 30-day period provided sum) due may release the obligor, it must first be announced to the persons
by R.A. 6552 has not yet expired) interested in the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due at the disposal of
HELD the judicial authority and that the interested parties shall also be notified thereof.
1. NO - Soco vs. Militante: "Tender of payment must be distinguished from consignation.
- SC agrees with the CA that it would be inequitable to cancel the contract of Tender is the antecedent of consignation, that is, an act preparatory to the
conditional sale and to have the amount of P101,550.00 (P148,126.97 according to consignation, which is the principal, and from which are derived the immediate
private respondent in his brief) already paid by him under said contract, excluding consequences which the debtor desires or seeks to obtain. Tender of payment may
the monthly rentals paid, forfeited in favor of petitioner, particularly after private be extrajudicial, while consignation is necessarily judicial, and the priority of the
respondent had tendered the amount of P76,059.71 in full payment of his first is the attempt to make a private settlement before proceeding to the
obligation. solemnities of consignation.
- Private respondent had substantially complied with the terms and conditions of - Although private respondent had preserved his rights as a vendee in the contract
the compromise agreement. of conditional sale of real property by a timely valid tender of payment of the
- Section 4 of RA No. 6552 which took effect on Sept14, 1972 provides as balance of his obligation which was not accepted by petitioner, he remains liable for
follows: the payment of his obligation because of his failure to deposit the amount due with
"In case where less than two years of installments were paid, the seller shall give the court.
the buyer a grace period of not less than sixty days from the date the installment - Inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on
became due. If the buyer fails to pay the installments due at the expiration of the private respondent to deposit the same with the court in order to be released from
grace period, the seller may cancel the contract after thirty days from receipt by responsibility. Since private respondent did not deposit said amount with the court,
the buyer of the notice of the cancellation or the demand for rescission of the his obligation was not paid and he is liable in addition for the payment of the
contract by a notarial act." monthly rental of P1,000.00 from January 1, 1981 until said obligation is duly paid,
- Petitioner demanded payment of the balance of P69,059.71 on or before in accordance with paragraph 3 of the Compromise Agreement. Upon full payment
October 31, 1980, petitioner could cancel the contract after 30 days from receipt by of the amount of P76,059.71 and the rentals in arrears, private respondent shall be
private respondent of the notice of cancellation. Considering petitioner's motion for entitled to a deed of absolute sale in his favor of the real property in question.
execution filed on November 7, 1980 as a notice of cancellation, petitioner could Disposition. Decision of the CA AFFIRMED w/ the modifications:
cancel the contract of conditional sale after 30 days from receipt by private (a) Petitioner ordered to accept from private respondent the Metrobank Cashier's
respondent of said motion. Private respondent's tender of payment of the amount Check in the amount of P76,059.71
of P76,059.71 together with his motion for reconsideration on November 17, 1980 (b) Private respondent ordered to pay petitioner the rentals in arrears of P1,000.00
was, therefore, within the thirty-day period granted by R.A.6552. a month from Jan 1, 1981 until full payment; and
(c) Petitioner ordered to execute a deed of absolute sale in favor of private
2. YES respondent over the real property upon full payment of the amounts .
- The tender made by private respondent of a certified bank manager's check
payable to petitioner was a valid tender of payment. The certified check covered
not only the balance of the purchase price in the amount of P69,059.71, but also
the arrears in the rental payments from June to December, 1980 (P7,000.00) or a
total of P76,059.71.
Section 49, Rule 130 of the Revised Rules of Court provides that: "An offer in
writing to pay a particular sum of money or to deliver a written instrument or
specific property is, if rejected, equivalent to the actual production and tender
of the money, instrument, or property."
- However, although private respondent had made a valid tender of payment which
SOCO V MILITANTE
preserved his rights as a vendee in the contract of conditional sale of real property, GUERRERO; June 28, 1983
respondent did not follow it with a consignation or deposit of the sum due with the
court. The Manager's Check tendered by private respondent on November 17, 1980 NATURE
was subsequently cancelled and converted into cash, but the cash was not Petition to review the decision of the Court of First Instance of Cebu
deposited with the court.
Obligations and Contracts A2010 page 93
Prof. Labitag
FACTS - The Court of First Instance reversed this judgment and found the consignation to
- Soco and Francisco entered a contract of lease on January 17, 1973 whereby Soco be valid. Hence, this appeal.
leased her commercial building and lot situated at Manalili Street, Cebu City, to
Francisco for a monthly rental of Php 800.00 for a period of 10 years renewable for ISSUES
another 10 years at the option of the lessee. 1. WON the lessee failed to pay the monthly rentals beginning May, 1977 up to the
- Sometime later, Francisco noticed that Soco did not anymore send her collector for time the complaint for eviction was filed on January 8, 1979. (WON lessee made a
the payment of rentals and at times there were payments made but no receipts valid tender of payment)
were issued. This situation prompted Francisco to write Soco, the letter dated 2. WON the consignation of the rentals was valid
February 7, 1975 which the latter received.
- On May 13, 1975, Francisco wrote the Vice-President of Comtrust, Cebu Branch HELD
requesting the latter to issue checks to Soco in the amount of Php 840.00 every 1 YES (NO)
10th of the month, obviously for payment of his monthly rentals. This request of - The June and July, 1977 letters may be proof of tender of payment but only for the
Francisco was complied with by Comtrust in its letter dated June 4, 1975. months they refer to. They are not proof of tender of payment of other or
- Pursuant to his letter dated February 7, 1975, Francisco paid his monthly rentals subsequent monthly rentals. The November, 1978 letter likewise is not a proof of
to Soco by issuing checks of the Commercial Bank and Trust Company where he tender of payment for the said month. It merely proves rental deposit for the
had a checking account. particular month of November, 1978 and no other.
- These payments in checks were received because Soco admitted that prior to May - Furthermore, there is no factual basis for the lower court’s finding that the lessee
1977 defendant Francisco had been religiously paying the rental. had tendered payment of the monthly rentals, thru his bank, citing the lessee’s
- Soon after Soco learned that Francisco sub-leased a portion of the building to letter requesting the bank to issue checks in favor of Soco in the amount of
NACIDA, at a monthly rental of more than Php 3,000.00 which is much higher than Php840.00 every 10th of each month and to deduct the full amount and service fee
what Francisco was paying to Soco, the latter felt that she was on the losing end so from his current account. It must be noted that the letter also requested said bank
she tried to look for ways and means to terminate the contract. to notify them every time the check is ready so they may send somebody to get it.
- In view of the alleged non-payment of rental of the leased premises from May, Evidently, it was the lessee’s duty to send someone to get the cashier’s check from
1977, Soco, through her lawyer, sent a letter dated November 23, 1978 to Francisco the bank and logically, the lessee has the obligation to make and tender the check
serving notice to the latter “to vacate the premises leased.” to the lessor. This the lessee failed to do.
- In answer to this letter, Francisco through his lawyer informed Soco and her lawyer - Tender of payment must be made in lawful currency. While payment in check by
that all payments of rental due her were in fact paid by Commercial Bank and Trust the debtor may be acceptable as valid, if no prompt objection to said payment is
Company through the Clerk of Court of the City Court of Cebu. Despite this made the fact that in previous years payment in check was accepted does not place
explanation, Soco filed this instant case of Illegal Detainer on January 8, 1979. its creditor in estoppel from requiring the debtor to pay his obligation in cash. Thus,
- Soco alleged that she personally demanded form Francisco the May, June, July and tender of a check to pay for an obligation is not a valid tender of payment thereof.
August rentals but Francisco did not pay for the reason that he had no funds 2. NO
available at that time. - For a consignation to be valid, its essential requisites must be complied with fully
- This allegation of Soco was denied by Francisco because per his instructions, the and strictly in accordance with the law, Articles 1256 to 1261, new Civil Code. That
Commercial Bank and Trust Company issued checks in favor of Soco representing these articles must be accorded a mandatory construction is clearly evident from
payments for monthly rentals for the months of May, June, July, August, 1977 as the very language of the codal provisions themselves which require absolute
shown in Debit Memorandum issued by Comtrust. These payments are further compliance with the essential requisites therein provided.
bolstered by the certification issued by Comtrust dated October 29, 1979. - Consignation is the act of depositing the thing due with the court or judicial
- Soco was informed of the deposits made to the Clerk of Court through a letter of authorities whenever the creditor cannot accept or refuses to accept payment and
Atty. Pampio Abarientos dated June 9, 1977 (requesting Soco to claim the rental it generally requires a prior tender of payment.
payment from Francisco’s office otherwise the latter would be constrained to make In order that consignation may be effective, the debtor must first comply with
a consignation) and July 6, 1977 (informing Soco that Francisco has consigned certain requirements prescribed by laws. The debtor must show,
rental payment for May and June, 1977 to the Clerk of Court of City Court of Cebu) (a) that there was a debt due;
as well as in the answer of Francisco in Civil Case R-16261. -She was further (b) that the consignation of the obligation had been made because the creditor to
notified of these payments by consignation in the letter of Atty. Menchavez dated whom tender of payment was made refused to accept it, or because he was absent
November 28, 1978 (answer to Soco’s letter alleging non-payment; the letter or incapacitated, or because several persons claimed to be entitled to receive the
proved Francisco’s payment for November, 1978 as deposited in the Clerk of Court). amount due, Article 1176;
- The City Court of Cebu ruled that the consignation was not valid and ordered (c) that previous notice of the consignation had been given to the person interested
Francisco to vacate immediately the leased premises, pay the rentals due, pay the in the performance of the obligation, Article 1177;
plaintiff’s attorney’s fee, pay for damages and incidental litigation expenses and (d) that the amount due was placed at the disposal of the court, Article 1178;
pay the costs. (e) that after the consignation had been made the person interested was notified
thereof, Article 1178. - Failure in any of these requirements is enough ground to
Obligations and Contracts A2010 page 94
Prof. Labitag
render a consignation ineffective. Furthermore, without notice first announced to - On November 26, 1962 the lower court ordered the defendants to deposit said
the persons interested in the fulfillment of the obligation, the consignation as amount to the Clerk of Court
payment is void. - On November 28, 1962 plaintiff filed a motion for partial judgment on the
- In the case at bar, respondent Francisco failed to prove the following requisites of pleadings with respect to the amount of P5,106.00, modifying their previous request
a valid consignation, for judicial deposit, which had already been granted
(a) tender of payment of the monthly rentals to the lesser except that indicated in - Defendants moved to reconsider the order of November 26, explaining that
the June, 1977 letter (tender of payment already discussed above); through oversight they failed to allege in their "Opposition" that the sum of
(b) respondent lessee failed to prove the first notice to the lessor prior to P5,106.00 was actually secured by a real estate mortgage. They would thus
consignation, except payment referred to in the June, 1977 letter. The lessee must premise their willingness to deposit said amount upon the condition that the
give prior notice of consignation for each monthly rental; plaintiff will cancel the mortgage above-mentioned
(c) respondent lessee likewise failed to prove the second notice, that is after - On March 20, 1963 the lower court resolved both motions, in effect denying them
consignation has been made, to the lessor except the consignation referred to in and reiterating its previous order
the May and June cashier’s check. The lessee should give a notice of consignation - Hence, this appeal
of each deposit every monthly rental. The bank did not send notice to Soco that
checks will be deposited and have actually been deposited in consignation with the ISSUES
Clerk of Court because no instructions were given by its depositor; Procedural
(d) the respondent failed to prove actual deposit or consignation of the monthly rentals except the two WON the order is unappealable
cashier’s checks previously mentioned. Not a single copy of the official receipts issued by the Clerk of Substantive
Court was presented at the trial of the case to prove actual deposit or consignation. The official receipts WON the court below acted with authority and in the judicious exercise of its
are the best proof of actual consignation. The court also found that the tenant only made the deposits due discretion in ordering the defendants to make the deposit but without the condition
in court two years later and after the filing of the complaint for illegal detainer. The debit memorandums they had stated
presented as evidence does not prove payment of rentals or deposits in court. These debit memorandums
are merely internal banking practices or office procedures involving the bank and its depositor which is HELD
not binding upon a third person such as the lessor. What is important is whether the checks were picked Procedural
up by the lessee as per the arrangement, wherein the lessee shall pick up the check issued by the bank to Plaintiff-appellant maintains that the order is interlocutory, since it does not dispose
tender the same to the lessor. The lessee failed to prove that he complied with the arrangement of the case with finality but leaves something still to be done, and hence is
unappealable.
SOTTO V MIJARES - The remedy, it is pointed out, should have been by petition for certiorari but this
MAKALINTAL; May 8, 1969 Court sees fit to disregard technicalities and treat this appeal as such a petition and
consider it on the merits
NATURE Substantive
Appeal from the order of the CFI of Negros Occidental - Whether or not to deposit at all the amount of an admitted indebtedness, or to do
so under certain conditions, is a right which belongs to the debtor exclusively
FACTS - If he refuses he may not be compelled to do so, and the creditor must fall back on
- Cristina Sotto (plaintiff-appellee) and Hernani Mijares along with other individuals the proper coercive processes provided by law to secure or satisfy his credit, as by
(defendants-appellants), were parties to a contract attachment, judgment and execution
- On November 13, 1962, during the pendency of Civil Case No. 6796, a proceeding - From the viewpoint of the debtor a deposit such as the one involved here is in the
to foreclose a real estate mortgage earlier executed by defendants to plaintiff in nature of consignation, and consignation is a facultative remedy which he may or
consideration of a P5,000.00 loan which the former had allegedly failed to pay, may not avail of.
plaintiff filed a "Motion for Deposit" which stated: - Indeed, the law says that "before the creditor has accepted the consignation or
1. that the balance indebtedness of the defendants in favor of the plaintiff is the before a judicial declaration that the consignation has been properly made, the
amount of P5,106.00 debtor may withdraw the thing or the sum deposited, allowing the obligation to
2. that defendants, in their answer, admitted the said claim of P5,106.00 3. that in remain in force.
view of the admission of the defendants of the same it is fitting and proper that the - If the debtor has such right of withdrawal, he surely has the right to refuse to
said amount of P5,106.00 be deposited in the Office of the Clerk of Court of this make the deposit in the first place
province or to deliver the same to the plaintiff and/or her counsel. - The court, in issuing the order complained of, committed grave abuse of discretion
- Defendants, in their "Opposition" signified their willingness to deposit the amounting to excess of jurisdiction.
requested amount provided that the complaint be dismissed and that they be Disposition The order appealed from is set aside
absolved of all other liabilities, expenses and costs.
Obligations and Contracts A2010 page 95
Prof. Labitag
MEAT PACKING CORPORATION OF THE PHILIPPINES V extinguishes the obligation. Refusal due to the said rescission of contract is
SANDIGANBAYAN untenable since MPCP accepted annual amortizations or rentals, advances,
YNARES-SANTIAGO; June 22, 2001 insurance, and taxes from PIMECO. The acceptance negates the said rescission.

NATURE 2. YES
Special Civil Action - The voluntary appearance in court and its submission to its authority or by service
of summons gives the courts jurisdiction over the person. MPCPs appearance in the
FACTS courts in the Civil Case alreadr created the said jurisdiction
Meat Packing Corporation of the Philippines (MPCP) is a corporation wholly owned
by the GSIS the MPCP entered an Agreement with the Philippine Integrated Meat at PABUGAIS V SAHIJWANI
the rate of P1,375,563.92 payable over 28 years with it totaling P38,515,789.87. In YNARES-SANTIAGO; February 23, 2004
1986, PCGG sequestered all the assets, properties, and records of PIMECO which
included the meat packing plant and the lease-purchase agreement. MPCP wrote a NATURE
letter of rescission of the lease-purchase agreement on ther ground of non-payment Petition for review on certiorari of the decision of Court of Appeals which set aside
of non-payment of rentals of more than P.2,000,000.00 for the year 1986. A case the Decision of the Regional Trial Court of Makati.
was filed in the Sandiganbayan for a Writ of Preliminary Injunction stating that the
transfer of PIMECO to MPCP will result in the dissipation of assets and that the PCGG FACTS
commited a grave abuse of authority in its termination of the lease-purchase - Pursuant to an "Agreement And Undertaking", petitioner Teddy G. Pabugais, in
agreement. The Sandiganbayan issued the writ of preliminary injunction; it also consideration of the amount of Fifteen Million Four Hundred Eighty Seven Thousand
continued to conduct its hearings regarding the validity of the turn-over of the meat Five Hundred Pesos (P15,487,500.00), agreed to sell to respondent Dave P.
packing plant to GSIS. The Sandiganbayan ruled that the PCGG gravely abused its Sahijwani a lot containing 1,239 square meters located at Jacaranda Street, North
discretion. PIMECO asked for declaratory relief and remedies. It stated that it has Forbes Park, Makati, Metro Manila. Respondent paid petitioner the amount of
paid rentals from 1981-1985 and prior to the sequestration it was able to pay MPCP P600,000.00 as option/reservation fee and the balance of P14,887,500.00 to be
P846,269.70, however, since the PCGG management took over the plant and paid within 60 days from the execution of the contract, simultaneous with delivery
presented the danger of making PIMECO in default in the payment of the rentals to of the owner's duplicate Transfer Certificate of Title in respondent's name the Deed
MPCP for three annual installments and causing the cancellation. PIMECO prayed for of Absolute Sale; the Certificate of Non-Tax Delinquency on real estate taxes and
a declaration that it was not bound by the said payment. PCGG paid MPCP two Clearance on Payment of Association Dues. The parties further agreed that failure
checks amounting to P5 M. The Sandiganbayan set a hearing for the declaration on the part of respondent to pay the balance of the purchase price entitles
and MPCP through a special appearance filed its comment. The Sandiganbayan petitioner to forfeit the P600,000.00 option/reservation fee; while non-delivery by
ruled that MPCP should accept the P5 M payment made by the PCGG. MPCP filed for the latter of the necessary documents obliges him to return to respondent the said
a Motion for Reconsideration that was denied. The Petition for relief on the other option/reservation fee with interest at 18% per annum.
hand was dismissed since the P5 M already covered part of the P7,530,036.21 - Petitioner failed to deliver the required documents. In compliance with their
previously unpaid rentals thus making it moot and academic. This gave rise to this agreement, he returned to respondent the latter's P600,000.00 option/reservation
petition for certiorari, mandamus, and prohibition. fee by way of Far East Bank & Trust Company which was, however, dishonored.
ISSUES Petitioner's Claims
1. WON MPCPs refusal to accept the payment was unjustified - He twice tendered to respondent, through his counsel, the amount of P672,900.00
2. WON Sandiganbayan has a jurisdiction to accept the consignation (representing the P600,000.00 option/reservation fee plus 18% interest per annum
computed from December 3, 1993 to August 3, 1994) in the form of a check but
HELD said counsel refused to accept the same (1st-via messenger; 2nd-via DHL) Because
1. YES, it is unjustified. of these refusals, he wrote a letter saying saying that he is consigning the amount
- The Sandiganbayan already approved the consignation by the PCGG wherein tendered with the RTC Makati City.
consignation is the act of depositing the thing due with the court or judicial Respondent's Claims
authorities whenever the creditor cannot accept or refuses to accept payment, and - Admitted that his office received petitioner's letter but claimed that no check was
it generally requiresa a prior tendser of payment. Tender on the otherhand is the appended thereto. He averred that there was no valid tender of payment because
antecedent of conmsignation, an act preparatory to the consignation, which is the no check was tendered and the computation of the amount to be tendered was
principal, and from which are derived the immediate consequences which the insufficient, because petitioner verbally promised to pay 3% monthly interest and
debtor desires or seeks to obtain. Tender of payment maybe extrajudicial while 25% attorney's fees as penalty for default, in addition to the interest of 18% per
consigning is necessarily judicial. The priority of tendering payment is to attempt to annum on the P600,000.00 option/reservation fee.
make a private settlement before proceeding to the solemnities of consignation.
Both tender and consignation validly made produces the effect of payment and ISSUES
Obligations and Contracts A2010 page 96
Prof. Labitag
1. WON there was a valid consignation
2. WON the petitioner can withdraw the amount consigned as a matter of right OCCEÑA V COURT OF APPEALS
TEEHANKEE; October 29, 1976
HELD
1. YES NATURE
- If there is a valid tender of payment in an amount sufficient to extinguish the Appeal from resolution of CA
obligation, the consignation is valid.
Reasoning FACTS
a. The amount tendered is sufficient since it appears that only the interest of 18% - Tropical Homes filed complaint for modification of terms and conditions of its
per annum on the P600,000.00 option/reservation fee stated in the default clause of subdivision contract with petitioners due to increase in price of oil w/c are not w/in
the "Agreement And Undertaking" was agreed upon by the parties. control. Accdg to them, it will result in situation where defendants would be
b. petitioner's tender of payment in the form of manager's check is valid even unjustly enriched at expense of plaintiff.
though it is not a legal tender since he did not object to the form. - They are invoking Art 1267 of Civil Code w/c states that a positive right is created
- Consignation is the act of depositing the thing due with the court or judicial in favor of obligor to be released fr performance when its performance has become
authorities whenever the creditor cannot accept or refuses to accept payment and so difficult as to be manifestly beyond the contemplation of the parties
it generally requires a prior tender of payment.
- Requisites of an effective consignation: ISSUE
(1) there was a debt due; WON the ground cited justifies modification of the subdivision contract
(2) the consignation of the obligation had been made because the creditor to
whom tender of payment was made refused to accept it, or because he was HELD
absent or incapacitated, or because several persons claimed to be entitled to NO
receive the amount due or because the title to the obligation has been lost; - Release could have been granted. However, the complaint seeks not release from
(3) previous notice of the consignation had been given to the person interested contract but that the court modify the terms and conditions.
in the performance of the obligation; - Court does not have authority to remake, modify, revise contract. Modification
(4) the amount due was placed at the disposal of the court; and has no basis in law.
(5) after the consignation had been made the person interested was notified Disposition Resolution is reversed and certiorari is granted.
thereof.
2. NO. PNCC V COURT OF APPEALS
- Withdrawal of the money consigned would enrich petitioner and unjustly prejudice DAVIDE; May 5, 1997
respondent.
Reasoning
NATURE
a. Article 1260 is not applicable here. It provides that “Once the consignation has
- Petition for review on certiorari.
been duly made, the debtor may ask the judge to order the cancellation of the
obligation”
FACTS
b. Respondent's prayer in his answer that the amount consigned be awarded to
- The lease contract executed by petitioner and private respondents Raymundos on
him is equivalent to an acceptance of the consignation, which has the effect of
November 18, 1985, reads in part as follows:
extinguishing petitioner's obligation.
1.TERM OF LEASE - 5 years, commencing on the date of issuance of the industrial
c. Petitioner failed to manifest his intention to comply with the "Agreement And
clearance by the Ministry of Human Settlements (MHS), renewable for 5 years or
Undertaking" by delivering the necessary documents and the lot subject of the sale
other period at the option of the Lessee under the same terms and conditions.
to respondent in exchange for the amount deposited.
2.RATE OF RENT - monthly rate of P20,000, to be increased yearly by 5% based on
Disposition
the agreed monthly rate of P20,000.00 as follows: P21,000 starting on the 2nd year;
The instant petition for review is DENIED and the petitioner's obligation to
P22,000 starting on the 3rd year; P23,000 starting on the 4th year; P24.000 starting
respondent under paragraph 5 of the "Agreement And Undertaking" as having been
on the 5th year
extinguished, is AFFIRMED.
3.TERMS OF PAYMENT - The rent stipulated shall be paid yearly in advance. The first
annual rent of P240,000.00 shall be due and payable upon the execution of this
Agreement and the succeeding annual rents shall be payable every 12 months
thereafter during the effectivity of this Agreement.
4.USE OF LEASED PROPERTY - Property shall be used as the site, grounds and
premises of a rock crushing plant and field office, sleeping quarters and
canteen/mess hall.
Obligations and Contracts A2010 page 97
Prof. Labitag
xxx xxx xxx “We wish to reiterate PNCC Management's previous stand that it is only obligated to
11.TERMINATION OF LEASE - This Agreement may be terminated by mutual pay your clients the amount of P20,000.00 as rental payments for the one-month
agreement of the parties. Upon the termination or expiration of the period of lease period of the lease, counted from January 7, 1986 when the Industrial Permit was
without the same being renewed, the Lessee shall vacate the Leased Property at its issued by the MHS up to February 7, 1986 when the Notice of Termination was
expense. served on your clients”. The Industrial Permit mentioned in the said letter could only
- On 7 January 1986, petitioner obtained from the MHS a Temporary Use Permit for refer to the Temporary Use Permit issued by the MHS January 7, 1986. And it can be
the proposed rock crushing project, valid for 2 years unless sooner revoked by MHS. gleaned from this letter that petitioner has considered the permit as industrial
- On 16 January 1986, private respondents wrote petitioner requesting payment of clearance; otherwise, petitioner could have simply told private respondents that its
the first annual rental in the amount of P240,000 which was due and payable upon obligation to pay rentals has not yet arisen because the Temporary Use Permit is
the execution of the contract. They also assured the latter that they had already not the industrial clearance contemplated by them. Instead, petitioner recognized
stopped considering the proposals of other aggregates plants to lease the property its obligation to pay rentals counted from the date the permit was issued.
because of the existing contract with petitioner. 2. YES
- Petitioner argued that under paragraph 1 of the lease contract, payment of rental - Aside from the letter mentioned in no. 1, it can be deduced from another letter by
would commence on the date of the issuance of an industrial clearance by the MHS, petitioner that the suspensive condition - issuance of industrial clearance - has
and not from the date of signing of the contract. It then expressed its intention to already been fulfilled and that the lease contract has become operative. The letter
terminate the contract, as it had decided to cancel or discontinue with the rock states: “Please be advised of PNCC Management's decision to cancel or discontinue
crushing project "due to financial, as well as technical, difficulties." with the rock crushing project due to financial as well as technical difficulties. In
- Private respondents refused to accede to petitioner's request for the view thereof, we would like to terminate our Lease Contract dated 18 November,
pretermination of the lease contract. They insisted on the performance of 1985. Should you agree to the mutual termination of our Lease Contract, kindly
petitioner's obligation and reiterated their demand for the payment of the first indicate your conformity hereto by affixing your signature on the space provided
annual rental. below.” If petitioner thought otherwise, it did not have to solicit the conformity of
- Petitioner objected to private respondents' claim and argued that it was "only private respondents to the termination of the contract for the simple reason that no
obligated to pay the amount of P20,000.00 as rental payments for the one-month juridical relation was created because of the non-fulfillment of the condition.
period of lease, counted from January 7, 1986 when the Industrial Permit was issued - Moreover, the reason of petitioner in discontinuing with its project and in
by the MHS up to February 7, 1986 when the Notice of Termination was served on consequently cancelling the lease contract was "financial as well as technical
private respondents. difficulties," not the alleged insufficiency of the Temporary Use Permit.
- On 19 May 1986, private respondents instituted an action against petitioner for 3. NO
Specific Performance with Damages. - The fundamental rule that contracts, once perfected, bind both contracting
- On 12 April 1989, the trial court rendered a decision ordering petitioner to pay parties, and obligations arising therefrom have the force of law between the parties
private respondents the amount of P492,000 which represented the rentals for two and should be compiled with in good faith, recognizes exceptions. One exception is
years, with legal interest from January 7,1986 until the amount was fully paid, plus laid down in Article 1266 of the Civil Code, which reads: 'The debtor in obligations
attorney's fees in the amount of P20,000 and costs. to do shall also be released when the prestation becomes legally or physically
- Upon appeal by petitioner, the CA affirmed the trial court’s decision. impossible without the fault of the obligor.’ However, petitioner cannot successfully
take refuge in the said article, since it is applicable only to obligations "to do," and
ISSUES not to obligations "to give". The obligation to pay rentals or deliver the thing in a
1. WON the Temporary Use Permit is the Industrial Clearance referred to in the contract of lease falls within the prestation "to give"; hence, it is not covered within
contract the scope of Article 1266. At any rate, the unforeseen event and causes mentioned
2. WON the suspensive condition -issuance of an industrial clearance- has been by petitioner are not the legal or physical impossibilities contemplated in the said
fulfilled article. Besides, petitioner failed to state specifically the circumstances brought
3. WON Article 1266 and the principle of rebus sic stantibus apply to this case about by 'the abrupt change in the political climate in the country" except the
4. WON the award of P492,000.00 representing the rent for two years is excessive, alleged prevailing uncertainties in government policies on infrastructure projects.
considering that PNCC did not benefit from the property - The principle of rebus sic stantibus neither fits in with the facts of the case. Under
this theory, the parties stipulate in the light of certain prevailing conditions, and
HELD once these conditions cease to exist, the contract also ceases to exist. This theory is
1. NO said to be the basis of Article 1267 of the Civil Code, which provides: When the
- The Temporary Use Permit is not the industrial clearance referred to in the service has become so difficult as to be manifestly beyond the contemplation of the
contract, for the said permit requires that a clearance from the National Production parties, the obligor may also be released therefrom, in whole or in part. This article,
Control Commission be first secured. However, petitioner is estopped from claiming which enunciates the doctrine of unforeseen events, is not, however, an absolute
that the Temporary Use Permit was not the industrial clearance contemplated in the application of the principle of rebus sic stantibus, which would endanger the
contract. In its letter dated 24 April 1986, petitioner states: security of contractual relations. The parties to the contract must be presumed to
have assumed the risks of unfavorable developments. It is therefore only in
Obligations and Contracts A2010 page 98
Prof. Labitag
absolutely exceptional changes of circumstances that equity demands assistance private respondent was placed under receivership by the Central Bank and Ricardo
for the debtor. Lirio and Cristina Destajo were appointed as receiver and in-house examiner,
- This Court cannot subscribe to the argument that the abrupt change in the respectively.
political climate of the country after the EDSA Revolution and its poor financial - On May 17, 1986, petitioners made a partial payment of P50,000.00 on the second
condition "rendered the performance of the lease contract impractical and inimical loan. They later wrote private respondent a letter, dated June 18, 1986, proposing
to the corporate survival of the petitioner." PNCC entered into the contract of lease to settle their obligation. On July 2, 1986, private respondent, through its counsel,
with private respondents with open eyes of the deteriorating conditions of the replied with a counter-offer, namely, that it would reduce the penalty charges up to
country. P140,000.00, provided petitioners can pay their obligation on or before July 30,
- Anent petitioner's alleged poor financial condition, the same will neither release 1986.
petitioner from the binding effect of the contract of lease. Mere pecuniary inability - As of July 31, 1986, petitioners’ total liability to private respondent was
to fulfill an engagement does not discharge a contractual obligation, nor does it P727,001.35, broken down as follows:
constitute a defense to an action for specific performance. Principal - P295,469.47
- With regard to the non-materialization of petitioner's particular purpose in entering Interest - 165,385.00
into the contract of lease, i.e., to use the leased premises as a site of a rock Penalties - 254,820.55
crushing plant, the same will not invalidate the contract. The cause or essential Service Charges - 11,326.33
purpose in a contract of lease is the use or enjoyment of a thing. As a general TOTAL P 727,001.35
principle, the motive or particular purpose of a party in entering into a contract - On this date, petitioners paid P410,854.47 by means of a Pilipinas Bank check,
does not affect the validity nor existence of the contract; an exception is when the receipt of which was acknowledged by Destajo. The corresponding voucher for the
realization of such motive or particular purpose has been made a condition upon check bears the following notation: “full payment of IGLF LOAN.”
which the contract is made to depend.24 The exception does not apply here. - The amount of P410,854.47 was the sum of the principal (P295,469.47) and the
4. NO interest (P165,385.00) less the partial payment of P50,000.00. The private
- Petitioner cannot be heard to complain that the award is excessive. The temporary respondent sent two demand letters to petitioners, dated September 4, 1986 and
permit was valid for two years but was automatically revoked because of its non- September 25, 1986, seeking payment of the balance of P266,146.88. As
use within one year from its issuance. The non-use of the permit and the non-entry petitioners did not respond, private respondent filed this case in the Regional Trial
into the property subject of the lease contract were both imputable to petitioner Court of Metro Manila for the collection of P266,146.88 plus interests, penalties,
and cannot, therefore, be taken advantage of in order to evade or lessen and service charges or, in the alternative, for the foreclosure of the mortgaged
petitioner's monetary obligation. The damage or prejudice to private respondents is machineries.
beyond dispute. They unquestionably suffered pecuniary losses because of their - In their Answer, petitioners claimed that they had fully paid their obligation to
inability to use the leased premises. Thus, in accordance with Article 1659 of the private respondent. They contended that some time after receiving private
Civil Code, they are entitled to indemnification for damages; and the award of respondent’s letter of July 2, 1986 (concerning the conditional offer to reduce their
P492,000 is fair and just under the circumstances of the case. penalty charges), petitioner Victor Yam and his wife, Elena Yam, met with Carlos
Disposition Petition is DENIED. Sobrepeñas, president of respondent corporation, during which the latter agreed to
waive the penalties and service charges (in short, there allegedly was condonation),
YAM V COURT OF APPEALS provided petitioners paid the principal and interest, computed as of July 31, 1986,
MENDOZA; February 11, 1999 less the earlier payment of P50,000.00. This is the reason why according to them
they only paid P410,854.47. Petitioners added that this fact of full payment is
reflected in the voucher accompanying the Pilipinas Bank check they issued, which
FACTS
bore the notation “full payment of IGLF loan.”
- On May 10, 1979, the parties in this case entered into a Loan Agreement with
Assumption of Solidary Liability whereby petitioners were given a loan of
ISSUE
P500,000.00 by private respondent. The contract provided for the payment of 12%
WON petitioners are liable for the payment of the penalties and service charges on
annual interest, 2% monthly penalty, 1 1/2% monthly service charge, and 10%
their loan which, as of July 31, 1986, amounted to P266,146.88
attorney’s fees. Denominated the first Industrial Guarantee and Loan Fund (IGLF),
the loan was secured by a chattel mortgage on the printing machinery in
HELD
petitioners’ establishment. Petitioners subsequently obtained a second IGLF loan of
YES
P300,000.00 evidenced by two promissory notes, dated July 3, 1981 and September
- Art. 1270, par. 2 of the Civil Code provides that express condonation must comply
30, 1981. For this purpose, a new loan agreement was entered into by the parties
with the forms of donation. Art. 748, par. 3 provides that the donation and
containing identical provisions as the first one, except as to the annual interest
acceptance of a movable, the value of which exceeds P5,000.00, must be made in
which was increased to 14% and the service charge which was reduced to 1% per
writing, otherwise the same shall be void. In this connection, under Art. 417, par. 1,
annum. The deed of chattel mortgage was amended correspondingly. By April 2,
obligations, actually referring to credits, are considered movable property. In the
1985, petitioners had paid their first loan of P500,000.00. On November 4, 1985,
Obligations and Contracts A2010 page 99
Prof. Labitag
case at bar, it is undisputed that the alleged agreement to condone P266,146.88 of Disposition The judgment of the Court of Appeals was reversed, and the writ of
the second IGLF loan was not reduced in writing. execution issued by the CFI of Manila is set aside. Costs against respondent.
Disposition the decision of the Court of Appeals is AFFIRMED.

GAN TION V COURT OF APPEALS SILAHIS MARKETING CORP V IAC


MAKALINTAL; May 21, 1969 FERNAN; December 7, 1989
FACTS NATURE
- Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. Petition for certiorari to review the decision of IAC disallowing Silahis Marketing
- In 1961 the latter filed an ejectment case against the former, alleging non- Corporation’s counterclaim for commission to partially offset the claim against it of
payment of rents for August and September of that year, at P180 a month, or P360 Gregorio de Leon (doing business under the name and style of Mark Industrial
altogether. Sales) for the purchase price of certain merchandise.
Defendant denied the allegation and said that the agreed monthly rental was only
P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained FACTS
a favorable judgment in the municipal court, but upon appeal the CFI, reversed the - On various dates in Oct-Dec 1975, De Leon sold and delivered to Silahis various
judgment and dismissed the complaint, and ordered the plaintiff to pay the items of merchandise in the aggregate amount of P22,213.75 payable within
defendant the sum of P500 as attorney's fees. That judgment became final. 30days from date of the covering invoices. Allegedly due to Silahis' failure to pay its
- On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was account upon maturity despite repeated demands, de Leon filed before CFI Manila a
increasing the rent to P180 a month, effective November 1st, and at the same time complaint for the collection of the said accounts including accrued interest thereon
demanded the rents in arrears at the old rate in the aggregate amount of in the amount of P 661.03 and attorney's fees of P 5,000.00 plus costs of litigation.
P4,320.00, corresponding to a period from August 1961 to October 1963. - Silahis admitted the allegations insofar as the invoices were concerned but
- Ong Wan Sieng was able to obtain a writ of execution of the judgment for presented a debit memo for P 22,200 as unrealized profit for a supposed
attorney's fees in his favor. commission that Silahis should have received from de Leon for the sale of sprockets
- Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal made directly to Dole Philippines, Inc in violation of their usual practice. Silahis also
compensation, claiming that Ong Wan Sieng was indebted to him in the sum of claim that it is entitled to return the stainless steel screen which was found
P4,320 for unpaid rents. defective by its client, Borden International, Davao City, and to have the
- The appellate court accepted the petition but eventually decided for the corresponding amount cancelled from its account with de Leon.
respondent, holding that although "respondent Ong is indebted to the petitioner for - RTC confirmed the liability of Silahis for the claim of de Leon but at the same time
unpaid rentals in an amount of more than P4,000.00," the sum of P500 could not be ordered that it be partially offset by Silahis' counterclaim as contained in the debit
the subject of legal compensation, it being a "trust fund for the benefit of the memo for unrealized profit and commission. IAC set aside the RTC decision and
lawyer, which would have to be turned over by the client to his counsel." dismissed herein Silahis’ counterclaim for lack of factual or legal basis.
- In the opinion of said Court, the requisites of legal compensation, namely, that the
parties must be creditors and debtors of each other in their own right (Art. 1278, ISSUE
Civil Code) and that each one of them must be bound principally and at the same WON de Leon is liable to Silahis for the commission or margin for the direct sale
time be a principal creditor of the other (Art. 1279), are not present in the instant which the former concluded and consummated with Dole Philippines, Inc without
case, since the real creditor with respect to the sum of P500 was the defendant's coursing the same through Silahis.
counsel.
HELD
ISSUE Ratio Compensation is not proper where the claim of the person asserting the set-
WON the award for attorney’s fees may be the subject of legal compensation off against the other is not clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of contract. Compensation takes
HELD place when two persons, in their own right, are creditors and debtors to each other.
YES Article 1279 of the Civil Code provides that: “In order that compensation may be
- The award for attorney's fees is made in favor of the litigant, not of his counsel, proper, it is necessary:
and is justified by way of indemnity for damages recoverable by the former in the [1] that each one of the obligors be bound principally, and that he be at the
cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his counsel, same time a principal creditor of the other;
who is the judgment creditor and who may enforce the judgment by execution. [2] that both debts consist in a sum of money, or if the things due are
Such credit, may properly be the subject of legal compensation. Quite obviously it consumable, they be of the same kind, and also of the same quality if the
would be unjust to compel petitioner to pay his debt for P500 when admittedly his latter has been stated;
creditor is indebted to him for more than P4,000. [3] that the two debts be due;
Obligations and Contracts A2010 page
100 Prof. Labitag
[4] that they be liquidated and demandable; 1. YES
[5] that over neither of them there be any retention or controversy, Ratio: There was verbal authorization as it was proven by preponderance of
commenced by third persons and communicated in due time to the debtor. evidence
Reasoning Silahis admits the validity of its outstanding accounts with de Leon. But Reasoning: Based on the testimony of the bank manager and the assistant bank
whether de Leon is liable to pay Silahis a 20% margin or commission on the subject manager, it was proven that he indeed gave his verbal authorization. Also, Reyes’
sale to Dole Philippines, Inc. is vigorously disputed. This circumstance prevents claim that he gave no such authorization was uncorroborated and he does not
legal compensation from taking place. inspire credence for his previous fraudulent acts. He concealed from BPI the death
-There is no evidence on record from which it can be inferred that there was any of his grandmother, knew she was no longer entitled to receive pension and yet still
agreement between Silahis and de Leon prohibiting the latter from selling directly deposited the warrant received after the death. Worse, he declared under the
to Dole Philippines, Inc. The debit memo is not a binding contract since it was not penalties of perjury in the withdrawal slip dated March 8, 1990 (when he closed the
signed by de Leon nor was there any mention therein of any commitment by the account) that his co-depositor, is still living (note: in joint “and/or” accounts,
latter to pay any commission to the former involving the subject sale of sprockets. depositors sign in the deposit slip a statement that has the effect of “I certify that
Disposition Decision affirmed. my co-depositor is still alive”). By his acts, private respondent has stripped himself
BPI V REYES of credibility.
PUNO; MARCH 29, 1996 2. YES
Ratio: Compensation shall take place when two persons, in their own right, are
NATURE creditors and debtors of each other.
Petition for review of decision of CA Reasoning: Article 1290 of the Civil Code provides that “when all the requisites
mentioned in Article 1279 are present, compensation takes effect by operation of
FACTS law, and extinguishes both debts to the concurrent amount, even though the
- Reyes maintained two joint “and/or” accounts in BPI Cubao branch: one with his creditors and debtors are not aware of the compensation.” Legal compensation
wife and another with his grandmother. He normally deposits US Treasury warrants operates even against the will of the interested parties and even without the
payable to the order of his grandmother (as a monthly pension) in the latter joint consent of them.
“and/or” account. Article 1279 states that in order that compensation may be proper, it is necessary:
- The grandmother died on December 28, 1989 without the knowledge of the US (1) That each one of the obligors be bound principally, and that he be at the
Treasury. A US Treasury Warrant dated January 1, 1990 was still sent to her in the same time a principal creditor of the other;
amount of $377 (P10,556). Reyes deposited the check in the joint account with the (2) That both debts consist in a sum of money, or if the things due are
grandmother. The US Veterans Administration Office in Manila conditionally cleared consumable, they be of the same kind, and also of the same quality if the latter
the check and sent the same to the US for further clearing. has been stated;
- 2 months after (March 8, 1990), Reyes closed the joint account with his (3) That the two debts be due;
grandmother and transferred the funds to the joint account with his wife. Almost a (4) That they be liquidated and demandable;
year later (January 16, 1991), the last US Treasury Warrant was dishonored as it (5) That over neither of them there be any retention or controversy,
was discovered that it was issued 3 days after the (pensioned) grandmother died. commenced by third persons and communicated in due time to the debtor.
The US treasury requested BPI for a refund. A month later, Reyes received an - The elements of legal compensation are all present in the case at bar. The obligors
urgent telegram requesting him to contact the bank, and when he did, he was bound principally are at the same time creditors of each other. BPI stands as a
informed that the treasury check was the subject of a claim of Citibank. Reyes debtor of Reyes, a depositor. At the same time, said bank is the creditor of Reyes
assured the bank and verbally authorized them to debit from his joint account the with respect to the dishonored U.S. Treasury Warrant which the latter illegally
amount in the warrant. Few days later, Reyes went to the bank with his lawyer and transferred to his joint account. The debts involved consist of a sum of money. They
“surprisingly, demanded from BPI restitution of the debited amount.” He claimed are due, liquidated, and demandable. They are not claimed by a third person.
that because of the debit, he failed to withdraw his money when he needed them. Disposition Decision (of CA) is set aside and judgment of RTC is reinstated.
He filed suit for damages. RTC dismissed for lack of cause of action, but CA
reversed and ordered BPI to credit the amount to Reyes’ account. PHILIPPINE NATIONAL BANK V COURT OF APPEALS
PANGANIBAN; July 24, 1996
ISSUES
1. WON Reyes gave a verbal authorization to transfer funds from the joint account NATURE
with his wife Appeal assailing the petition of Court of Appeals affirming decision of Regional Trial
2. WON legal compensation was proper in this case (legal compensation was Court.
alleged by the bank in the appeal)
FACTS
HELD
Obligations and Contracts A2010 page
101 Prof. Labitag
- PNB applied/ appropriated the amounts of $2,627.11 and P34,340.38 from plaintiff, as creditor and the Citibank as debtor. Withal the telegraphic money
remittances of the plaintiff’s principal abroad. First remittance was made by the transfer, no such creditor-debtor relationship could have been created between the
NCB of Jedah for the benefit of Ramon Lapez (petitioner) to be credited at his plaintiff and defendant. All that PNB can do is transmit the telegraphic money
account at Citibank Greenhills; second was from Libya and was intended to be transfer to Citibank so that the amount can be promptly credited to Lapez’s account
deposited at the plaintiff’s account with PNB. with the same bank.
- Plaintiff demanded upon PNB for remittance of the equivalent of $2,627.11 by - According to the theory of PNB:
means of a letter. 1. CA ruled that petitioner bank could not do a shortcut and simply intercept
- There were two instances in the past, one in November 1980 and the other in funds coursed through it, for transmittal to another bank, and eventually to
January 1981 when the plaintiff’s account No. 830-2410 was doubly credited with be deposited to the account of an individual who owes money to PNB;
the equivalents of $5,679.23 and $5,885.38 amounting to an aggregate amount of 2. Court ordered PNB to return the intercepted amount to said individual who
P87,380.44. For this PNB demanded upon the plaintiff for refund the double credits in turn was found by CA to be indebted to PNB;
erroneously made on plaintiff’s account. 3. Therefore there must now be legal compensation of the amounts each
- The deduction of P43,430.58 was made by PNB not without the knowledge and owes the other, hence there is no need for petitioner bank to actually
consent of the plaintiff who was issued a receipt by PNB. return the amount;
Code of Civil Procedure ART. 1279: 4. Finally, the petitioner ends up in the same position as when it first took the
In order that compensation may prosper, it is necessary: improper and unwarranted shortcut when it intercepted the transfer,
1. That each one of the obligors be bound principally, and that he be at the notwithstanding the Decision saying that it could not be done.
same time a principal creditor of the other; - The Supreme Court regarded this as a clever ploy to validate an improper act of
2. That both debts consists in a sum of money xxx; PNB with the possible intention of using this case as a precedent for similar acts of
3. That the two debts are due; interception in the future.
4. That they be liquidated and demandable;
5. That over neither of them there be and retention or controversy, MIRASOL V CA
commenced by third persons and communicated in due time to the debtor. QUISUMBING; February 1, 2001
- In the case of $2,627.11 requisites 2 through 5 are present, except for no. 1 where
the relationship between PNB and Lapez depends on the obligation. They are FACTS
debtor-creditor only with respect to the double payments under a quasi- - The Mirasols are sugarland owners and planters. In 1973-1974, they produced
contract (ART 2154 Civil Code, Lapez is obliged to return the double-credits); but 70,501.08 piculs 1 of sugar, 25,662.36 of which were assigned for export. The
are trustee-beneficiary as to the fund transfer of $2,627.11. following crop year, their acreage planted to the same crop was lower, yielding
pour autrui – a stipulation in facor of a third person, as with PNB and National 65,100 piculs of sugar, with 23,696.40 piculs marked for export.
Commercial Bank of Jedah, having Lapez as beneficiary. - Private respondent Philippine National Bank (PNB) financed the Mirasols' sugar
ISSUE production venture for crop years, 1973-1974 and 1974-1975 under a crop loan
WON a local bank, while acting as local correspondent bank, have the right to financing scheme. Under said scheme, the Mirasols signed Credit Agreements, a
intercept funds being coursed through it by its foreign counterpart for transmittal Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB.
and deposit to the account of an individual, and apply said funds to certain The Chattel Mortgage empowered PNB as the petitioners' attorney-in-fact to
obligations owed to it by the said individual negotiate and to sell the latter's sugar in both domestic and export markets and to
apply the proceeds to the payment of their obligations to it.
HELD - Exercising his law-making powers under Martial Law, then President Ferdinand
Ratio PNB was is obligated to pay Lapez the amount of US $2,627.11 or its peso Marcos issued Presidential Decree (P.D.) No. 579 2 in November, 1974. The decree
equivalent, with interest at the legal rate. authorized private respondent Philippine Exchange Co., Inc. (PHILEX) to purchase
Reasoning While it may be concluded that Lapez owes PNB the equivalent of the sugar allocated for export to the United States and to other foreign markets. The
sums of $5,179.23 and $5,885.38 erroneously credited to his account, the price and quantity was determined by the Sugar Quota Administration, PNB, the
defendant’s actuation in intercepting the amount of $2,627.11 supposed to be Department of Trade and Industry, and finally, by the Office of the President. The
remitted to another bank is not only improper; it will also erode the trust and decree further authorized PNB to finance PHILEX's purchases. Finally, the decree
confidence of the international banking community in the banking system of the directed that whatever profit PHILEX might realize from sales of sugar abroad was
country. to be remitted to a special fund of the national government, after commissions,
- It would have been different had the telex advice from NCB of Jeddah been for overhead expenses and liabilities had been deducted. The government offices and
deposit to plaintiff’s account with the defendant bank (it was for Lapez’s account in entities tasked by existing laws and administrative regulations to oversee the sugar
Citibank). The set-off or compensation against the double payments is not in export pegged the purchase price of export sugar in crop years 1973-1974 and
accordance with law. 1974-1975 at P180.00 per picul.
- The amount stated in the telegraphic money transfer is to be credited in Lapez’s
account with Citibank, and presupposes a creditor-debtor relationship between the
Obligations and Contracts A2010 page
102 Prof. Labitag
- PNB continued to finance the sugar production of the Mirasols for crop years an accounting is an issue, which can be determined, without having to rule on the
1975-1976 and 1976-1977. These crop loans and similar obligations were secured constitutionality of P.D. No. 579. In fact there is nothing in P.D. No. 579, which is
by real estate mortgages over several properties of the Mirasols and chattel applicable to PNB's intransigence in refusing to give an accounting. The governing
mortgages over standing crops. Believing that the proceeds of their sugar sales to law should be the law on agency, it being undisputed that PNB acted as petitioners'
PNB, if properly accounted for, were more than enough to pay their obligations, agent. In other words, the requisite that the constitutionality of the law in question
petitioners asked PNB for an accounting of the proceeds of the sale of their export be the very lis mota of the case is absent. Thus we cannot rule on the
sugar. PNB ignored the request. Meanwhile, petitioners continued to avail of other constitutionality of P.D. No. 579.
loans from PNB and to make unfunded withdrawals from their current accounts with 3. To resolve the third issue, petitioners ask us to apply the doctrine of piercing the
said bank. PNB then asked petitioners to settle their due and demandable accounts. veil of corporate fiction with respect to PNB and PHILEX. Petitioners submit that
As a result of these demands for payment, petitioners on August 4, 1977, conveyed PHILEX was a wholly-owned subsidiary of PNB prior to the latter's privatization.
to PNB real properties valued at P1,410,466.00 by way of dacion en pago, leaving - We note, however, that the appellate court made the following finding of fact:
an unpaid overdrawn account of P1,513,347.78. "1. PNB and PHILEX are separate juridical persons and there is no reason to
- On August 10, 1982, the balance of outstanding sugar crop and other loans owed pierce the veil of corporate personality. Both existed by virtue of separate
by petitioners to PNB stood at P15,964,252.93. Despite demands, the Mirasols failed organic acts. They had separate operations and different purposes and
to settle said due and demandable accounts. PNB then proceeded to extrajudicially powers."
foreclose the mortgaged properties. After applying the proceeds of the auction sale 4. On the fourth issue, the appellate court found that there were two sets of accounts between petitioners
of the mortgaged realties, PNB still had a deficiency claim of P12,551,252.93. and PNB, namely:
- Petitioners continued to ask PNB to account for the proceeds of the sale of their "1. The accounts relative to the loan financing scheme entered into by the
export sugar for crop years 1973-1974 and 1974-1975, insisting that said proceeds, Mirasols with PNB (PNB's Brief, p. 16) On the question of how much the PNB
if properly liquidated, could offset their outstanding obligations with the bank. PNB lent the Mirasols for crop years 1973-1974 and 1974-1975, the evidence
remained adamant in its stance that under P.D. No. 579, there was nothing to recited by the lower court in its decision was deficient. We are offered (sic) PNB
account since under said law, all earnings from the export sales of sugar pertained the amount of FIFTEEN MILLION NINE HUNDRED SIXTY FOUR THOUSAND TWO
to the National Government and were subject to the disposition of the President of HUNDRED FIFTY TWO PESOS and NINETY THREE Centavos (Ps15,964,252.93)
the Philippines for public purposes. but this is the alleged balance the Mirasols owe PNB covering the years 1975 to
1982.
ISSUES "2. The account relative to the Mirasol's current account Numbers 5186 and
1. WON the Trial Court has jurisdiction to declare a statute unconstitutional without 5177 involving the amount of THREE MILLION FOUR HUNDRED THOUSAND
notice to the Solicitor General where the parties have agreed to submit such issue Pesos (P3,400,000.00) PNB claims against the Mirasols. (PNB's Brief, p. 17)
for the resolution of the Trial Court (whether it was proper for the trial court to have HTSaEC
exercised judicial review) "In regard to the first set of accounts, besides the proceeds from PNB's sale of
2. WON PD 579 and subsequent issuances 7 thereof are unconstitutional. sugar (involving the defendant PHILEX in relation to the export portion of the
3. WON the Honorable Court of Appeals committed manifest error in not applying stock), the PNB foreclosed the Mirasols' mortgaged properties realizing
the doctrine of piercing the corporate veil between respondents PNB and PHILEX. therefrom in 1982 THREE MILLION FOUR HUNDRED THIRTEEN THOUSAND Pesos
4. WON the Honorable Court of Appeals committed manifest error in upholding the (P3,413,000.00), the PNB itself having acquired the properties as the highest
validity of the foreclosure on petitioners property and in upholding the validity of bidder.
the dacion en pago in this case. "As to the second set of accounts, PNB proposed, and the Mirasols accepted, a
5. WON the Honorable Court of Appeals committed manifest error in not awarding dacion en pago scheme by which the Mirasols conveyed to PNB pieces of
damages to petitioners grounds relied upon the allowance of the petition. property valued at ONE MILLION FOUR HUNDRED TEN THOUSAND FOUR
HUNDRED SIXTY-SIX Pesos (Ps1,410,466.00) (PNB's Brief, pp. 16-17)." 25
HELD - Petitioners now claim that the dacion en pago and the foreclosure of their mortgaged properties were
1. YES. The Constitution vests the power of judicial review or the power to declare a void for want of consideration. Petitioners insist that the loans granted them by PNB from 1975 to 1982
law, treaty, international or executive agreement, presidential decree, order, had been fully paid by virtue of legal compensation. Hence, the foreclosure was invalid and of no effect,
instruction, ordinance, or regulation not only in this Court, but in all Regional Trial since the mortgages were already fully discharged. It is also averred that they agreed to the dacion only
Courts. Pivotal issue: In this case, the Solicitor General was never notified about by virtue of a martial law Arrest, Search, and Seizure Order (ASSO).
Civil Case No. 14725. Nor did the trial court ever require him to appear in person or - We find petitioners' arguments unpersuasive. Both the lower court and the
by a representative or to file any pleading or memorandum on the constitutionality appellate court found that the Mirasols admitted that they were indebted to PNB in
of the assailed decree. Hence, the Court of Appeals did not err in holding that lack the sum stated in the latter's counterclaim. 26 Petitioners nonetheless insist that
of the required notice made it improper for the trial court to pass upon the the same can be offset by the unliquidated amounts owed them by PNB for crop
constitutional validity of the questioned presidential decrees. years 1973-74 and 1974-75. Petitioners' argument has no basis in law. For legal
2. The present case was instituted primarily for accounting and specific compensation to take place, the requirements set forth in Articles 1278 and 1279 of
performance. The Court of Appeals correctly ruled that PNB's obligation to render the Civil Code must be present. Said articles read as follows:
Obligations and Contracts A2010 page
103 Prof. Labitag
"ARTICLE 1278. Compensation shall take place when two persons, in their own - Gabriel filed motion for suspension of the execution sale on the ground of
right, are creditors and debtors of each other. satisfaction of payment by implied novation.
"ARTICLE 1279 In order that compensation may be proper, it is necessary: - CA decided for Gabriel, holding that subsequent agreement of the parties
(1) That each one of the obligors be bound principally, and that he be at the same time a principal impliedly novated the judgment obligation
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) ISSUE
That the two debts are due; (4) That they be liquidated and demandable; (5) That over neither WON the subsequent agreement of the parties as embodied in the deed of chattel
of them there be any retention or controversy, commenced by third persons and communicated in mortgage impliedly novated the judgment obligation
due time to the debtor."
In the present case, set-off or compensation cannot take place between the HELD
parties because: NO
First, neither of the parties are mutually creditors and debtors of each other. Ratio
Under P.D. No. 579, neither PNB nor PHILEX could retain any difference claimed CA – the chattel mortgage: SC
by the Mirasols in the price of sugar sold by the two firms. P.D. No. 579 Limits principal oblig from Gabriel made partial payments
prescribed where the profits from the sales are to be paid, to wit: "SECTION 7 . . P1,746.95 to P1,700 between rendition of judgment and
After deducting its commission of two and one-half (2-1/2%) percent of gross execution of chattel mortgage
sales, the balance of the proceeds of sugar trading operations for every crop Stipulates mode of payment Stipulation for payment under chattel
year shall be set aside by the Philippine Exchange Company, Inc,. as profits in 2 installments while orig mortgage serves only as specific
which shall be paid to a special fund of the National Government subject to the contract doesn’t method for extinguishments
disposition of the President for public purposes." Obligates Gabriel to pay Amount was paid as attorney’s fees,
- Thus, as correctly found by the Court of Appeals, "there was nothing with which liquidated damages in case of not liquidated damages
PNB was supposed to have off-set Mirasols' admitted indebtedness." his default
- Second, compensation cannot take place where one claim, as in the instant case, Secured the obligation; Chattel agreement clearly shows
is still the subject of litigation, as the same cannot be deemed liquidated. judgment debt, unsecured purpose as solely to secure the
5. In the instant case, petitioners have failed to show malice or bad faith 32 on the satisfaction of the then existing
part of PNB in failing to render an accounting. Absent such showing, moral damages liability.
cannot be awarded. The same applies to attorney’s fees and costs of suit Reasoning
Disposition Petition is DENIED and the assailed decision of the respondent court in - Implied novation requires clear proof of complete incompatibility between two
CA-G.R. CV 38607 AFFIRMED. obligations.
- The law requires no specific form. The test is WON two oblig can stand together.
MILLAR V CA If they cannot, incompatibility arises, and the second oblig novates the first.
CASTRO; April 30, 1971 - Where the new obligation merely reiterates the old obligation, such changes do
not effectuate any substantial incompatibility between the 2.
NATURE Disposition
Petition for review on certiorari to review the decision of the Court of Appeals The decision of CA of implied novation is set aside.
holding that the mortgage obligation superseded, through implied novation, the
judgment debt DORMITORIO V FERNANDEZ
FERNANDO; August 21, 1976
FACTS
- Petitioner Millar obtained a favorable judgment from CFI condemning Antonio FACTS
Gabriel to ay P1,746.95 - The parties Lazalita and spouses Dormitorio in Civil Case No. 5111 and Civil Case
- Petitioner moved for the issuance of a writ of execution No. 6553 are the same except that the plaintiffs in Civil Case No. 5111 were the
- As a result, sheriff seized Gabriel’s jeep defendants in Civil Case No. 6553, and vice-versa; ...
- Gabriel pleaded with Millar to release the jeep under a chattel mortgage where the - That in the "Agreed Stipulation of Facts" in Civil Case No. 6553 which was the
former, to secure payment of the judgment debt, mortgaged the jeep in favor of basis of the Honorable Court judgment dated February 12, 1965, it was agreed by
Millar. defendant spouses Dormitorio, who are the plaintiffs in Civil Case No. 5111 that the
- The chattel mortgage provided payment of P1,700 in two installments on fixed defendant Serafin Lazalita should be reimbursed for his expenses in transferring his
dates house to another Lot to be assigned to him by the Municipality of Victorias, and that
- Gabriel failed to pay. Petitioner obtained writs of execution. Sheriff levied on the Decision in Civil Case No. 5111 shall not be enforced and executed anymore;
property of respondent for execution sale. That by means of fraud, misrepresentation and concealment of the true facts of the
Obligations and Contracts A2010 page
104 Prof. Labitag
case, the plaintiffs were able to mislead the Honorable Court, thru an Ex-Parte Municipality of Victorias is willing to amicably settle the case, now before this
Motion to issue by mistake an Order for the issuance of a Writ of Execution by Honorable Court, by giving the plaintiff another lot, if they could open their newly
making this Honorable Court believe that the Decision of September 5, 1961 is still proposed subdivision, or pay back Lazalita the amount necessary and just for
enforceable and executory; ..." Respondent Judge granted the relief prayed for and plaintiff to acquire another lot for his residence, and for the expenses of transferring
set aside the writ of execution, in view of the conclusion reached by him that such his present residential house thereto. ....:"
later decision, arrived at as the result of a compromise between the same parties, - The parties did respectfully pray "that judgment be rendered by this Honorable
evidenced by the agreed stipulation of facts, was clear proof of an animus novandi Court, on the basis of the foregoing agreed stipulation of facts, and on such other
and thus superseded the previous judgment which as a result of an ex parte motion basis just and equitable, without special pronouncement of costs." So it was
was mistakenly ordered executed. granted in the disposition portion of such decision: "[Wherefore], judgment is
- The “Agreed Stipulation of Facts” states: “The Municipality of Victorias, is the hereby rendered in accordance with the above-mentioned Agreed Stipulation of
owner of several parcels of lands which were consolidated and subdivided into small Facts."
lots for sale to the inhabitants thereof. Serafin Lazalita, bought from the - Insofar as pertinent, the assailed order is worded thus: "That the above-mentioned
Municipality of Victorias, Lot No. 1, Block 16 payable in installment and in the year order of Execution to be set aside is based on the decision of the Honorable Court
1958, upon full payment by plaintiff Lazalita of the purchase price of the land, a dated September 5, 1961 in the above-entitled case which is no longer enforceable,
deed of definite sale was executed in his favor by the then Municipal Mayor and executory by virtue of the "Agreed Stipulation of Facts" entered into by the
Montinola of Victorias and thereafter a Certificate of Title No. T-23098 covering the Plaintiffs and Defendants in Civil Case No. 6553, and which said "Agreed Stipulation
property, was issued him by the Register of Deeds. From February 7, 1948, until of Facts" was the basis for the judgment of the Honorable Court dated February 12,
about eight continuous years thereafter, Lazalita had been in full and peaceful 1965.
possession of the said land, and he introduced permanent and valuable
improvements thereon and built a house of strong materials, valued at P5,000.00; ISSUE
Lazalita, was placed in possession of the said Lot No. 1, Block 16 of the subdivision WON Judge Fernandez committed a grave abuse of discretion when he ordered to
plan of Victorias, by the persons designated by the Municipality to take charge of set aside the writ of execution based on the “Agreed Stipulation of Facts” entered
the sale of said lots to the people, and from the time, he had occupied by same, up into by the plaintiffs and defendants in Civil Case No. 6553
to the present, there has not been a change in the location thereof, as described in
the Certificate of Title covering the property, now registered in plaintiff's name. HELD
About the year 1955, however, the spouses Agustin Dormitorio and Leoncia D. NO
Dormitorio, purchased also, from the defendant Municipality of Victorias, their lot - There was no grave abuse of discretion when Judge Fernandez set aside the writ of
known as Lot 2, Block 16. However, the spouses Dormitorio, have not taken actual execution. He had no choice on the matter. That was made even more evident in
possession of the land, they have purchased from the defendant Municipality of the answer to the petition filed by respondents. It must have been the realization by
Victorias, up to the present. On December 12, 1958, the spouses Dormitorio, petitioners that certiorari certainly did not lie that led to their not only failing to
brought a suit against the plaintiff Lazalita, for Ejectment and the conflict between make an attempt at a refutation of what was asserted in the answer but also failing
them was made known to the office of the Municipal Mayor and the Council of to appear at the hearing when this case was set for oral argument. As noted at the
Victorias, who tried to settle the matter between the parties — Dormitorio and outset, this petition must be dismissed.
Lazalita. Later, a private Land Surveyor, was hired by the Municipality of Victorias, a) What was done by respondent Judge in setting aside the writ of execution in Civil
and it was found out that the Lot sold by the Municipality of Victorias, to Lazalita, Case No. 5111 finds support in the applicable authorities. In Santos v. Acuña, it was
was converted into the new Municipal. Road known as "Jover Street" and that the lot contended that a lower court decision was novated by subsequent agreement of the
presently occupied by him, is supposed to be the lot No. 2, bought by the spouses parties. Implicit in this Court's ruling is that such a plea would merit approval if
Dormitorio from the Municipality of Victorias; and so, availing of the said discovery, indeed that was what the parties intended. Nonetheless, it was not granted, for as
the Court of First Instance of Negros Occidental, Branch V, Presided over by Hon. explained by the ponente, Justice J. B. L. Reyes: "Appellants understood and
Jose F. Fernandez, rendered judgment in that case No. 5111, in favor of Dormitorio, expressly agreed to be bound by this condition, when they stipulated that "they will
ordering the plaintiff herein Lazalita, to vacate the land and to pay a monthly rental voluntarily deliver and surrender possession of the premises to the plaintiff in such
of P20.00, to said Dormitorio, besides his Attorney's fees. Lazalita, having failed to event" ... Hence, it is plain that in no case were the subsequent arrangements
appeal from said judgment in Civil Case No. 5111 of this Honorable Court, brought entered into with any unqualified intention to discard or replace the judgment in
this present action, against the Municipality of Victorias, and joined the Dormitorios, favor of the plaintiff-appellee; and without such intent or animus novandi, no
as formal parties, because of the value of his permanent improvements and substitution of obligations could possibly take place." When, after judgment has
building introduced or constructed on Lot No. 2, Block 16, ascertained to be that, become final, facts and circumstances transpire which render its execution
very lot purchased by Dormitorio from the defendant Municipality of Victorias, which impossible or unjust, the interested party may ask the court to modify or alter the
building and improvements, have far exceed then, the original purchase price of the judgment to harmonize the same with justice and the facts" Molina v. de la Riva.
land. That the present fair market value of residential lots in the Poblacion of The present case is far stronger, for there is a later decision expressly superseding
Victorias, ranges between P15.00 to P25.00 per square meter and the lots in the earlier one relied upon on which the writ of execution thereafter set aside was
controversy, are saleable at present, at P20.00 per square meter. That the based.
Obligations and Contracts A2010 page
105 Prof. Labitag
b) Nor can it be denied that as the later decision in Civil Case No. 6553 was the case directly to the Supreme Court for appeal. They base their claims on Arts. 1235
result of a compromise, it had the effect of res judicata. This was made clear in and 1253 of the Civil Code:
Salazar v. Jarabe. There are later decisions to the same effect. 15 The parties were, Art. 1235 When the obligee accepts the performance, knowing its incompleteness or
therefore, bound by it. There was thus an element of bad faith when petitioners did irregularity, and without expressing any protest or objection, the obligation is deemed fully
try to evade its terms. At first, they were quite successful. Respondent Judge, complied with.
however, upon being duly informed, set matters right. He set aside the writ of Art. 1253 If the debt produces interest, payment of the principal shall not
execution. That was to act in accordance with law. He is to be commended, not be deemed to have been made until interests have been covered.
condemned. Petitioner’s claims
c) There is no merit likewise to the point raised by petitioners that they were not 1. The lower court erred in concluding as a fact from the pleadings that the plaintiff-
informed by respondent Judge of the petition by private respondent to set aside the appellee demanded, and the Luzon Surety Co. Inc. refused, the payment of interest
writ of execution. The order granting such petition was the subject of a motion for in the amount of P 655.89, and in not finding and declaring that said plaintiff-
reconsideration. The motion for reconsideration was thereafter denied. Under the appellee waived or condoned the said interests.
circumstances, the failure to give notice to petitioners had been cured. That is a 2. The lower court erred in not finding and declaring that their obligation in favor of
well-settled doctrine. Their complaint was that they were not heard. They were the plaintiff-appellee was totally extinguished by payment and/or condonation.
given the opportunity to file a motion for reconsideration. So they did. That was to 3. The lower court erred in not finding and declaring that the promissory note they
free the order from the alleged infirmity. Petitioners then cannot be heard to claim executed in favor of the plaintiff-appellee was novated when the plaintiff-appellee
that they were denied procedural due process. unqualifiedly accepted the surety bond which merely guaranteed payment of the
Disposition Petition for certiorari is dismissed. principal in the sum of P5, 000.

MAGDALENA ESTATES INC v RODRIGUEZ ISSUES


REGALA; December 17, 1966 1. WON there was a novation and/or modification of the obligation of the appellants
in favor of the appellee when appellee accepted without reservation the subsequent
NATURE agreement set forth in the surety bond
Appeal from a judgment of the CFI of Manila 2. WON the appellee’s unqualified acceptance of payment made by the Luzon
Surety Co. Inc. of P 5,000 amounted to a waiver or condonation on its part.
FACTS
- Appellants (Antonio and Herminia Rodriguez) bought from the appellee Magdalena HELD
Estates, Inc.) a parcel of land in Quezon City. Because of an unpaid balance of P 1. NO
5,000 on account of the purchase price of the lot, the appellants executed a - The rule is settled that novation by presumption has never been favored. To be
promissory note on Jan. 4, 1957. sustained, it needs to be established that the old and new contracts are
- On the same date, the appellants and the Luzon Surety Co. Inc. executed a bond incompatible in all points, or that the will to novate appears by express agreement
wherein the Surety will undertake the compliance with the obligation to pay the of the parties or in acts of similar import.
amount of P 5,000 (the unpaid balance of the purchase price of the parcel of land) Reasoning An obligation to pay a sum of money is not novated, in a new
within 60 days from Jan. 7, 1957; It was also stated that the Surety shall be notified instrument wherein the old is ratified, by changing only the terms of payment and
in writing within 10 days from moment of default otherwise, their undertaking will adding other obligations not incompatible with the old one or wherein the old
automatically be null and void. contract is merely supplemented by the new one. The mere fact that the creditor
- On June 20, 1958, when the obligation of the appellants became due and receives a guaranty or accepts payments from a third person who has agreed to
demandable, the Luzon Surety Co. Inc. paid to the appellee the sum of P 5,000. assume the obligation, when there is no agreement that the first debtor shall be
Subsequently, the appellee demanded from the appellants the payment of P 655.89 released from responsibility, does not constitute a novation, and the creditor can
which is the alleged accumulated interests on the principal of P 5,000. Due to the still enforce the obligation against the original debtor. In the instant case, the surety
refusal of the appellants to pay the said interest, the appellee started this suit in bond is not a new and separate contract but an accessory of the promissory note.
the Municipal Court of Manila to enforce the collection. 2. NO
- On Feb. 5, 1959, the said court rendered judgment in favor of the appellee and - It is very clear in the promissory note that the principal obligation is the balance of the purchase price of
against the appellants, ordering the latter to pay jointly and severally the appellee P 5,000. In the surety bond, the Luzon Surety Co. Inc. undertook to pay this amount. The appellee did not
the sum of P 655.89, with interest thereon at the legal rate, from Nov. 10, 1958, the protest nor object when it accepted the payment of P 5,000 because it knew that that was the complete
date of the filing of the complaint, until the whole amount is fully paid. Not satisfied, amount undertaken by the surety as appearing in the contract. The liability of a surety is not extended, by
appellants appealed to the CFI of Manila. The CFI rendered a decision ordering the implication, beyond the terms of his contract. It is for the same reason that the appellee cannot apply a
defendants-appellants to pay jointly and severally to the plaintiff -appellee the sum part of the P 5,000 as payment for the accrued interest. Appellants are relying on Article 1253 of the Civil
of P 655.89, plus legal interest thereon from the date of the judicial demand, the Code, but the rules contained in Arts. 1252 to 1254 of the Civil Code apply to a person owing several
sum of P100.00 as attorney's fees, and to pay the costs. The appellants brought the debts of the same kind of a single creditor. They cannot be made applicable to a person whose obligation
as a mere surety is both contingent and singular; his liability is confined to such obligation, and he is
Obligations and Contracts A2010 page
106 Prof. Labitag
entitled to have all payments made applied exclusively to said application and to no other. Besides, Art. AFP-MBAI, it constituted novation, extinguishing any criminal liability on the
1253 of the Civil Code is merely directory, and not mandatory. Inasmuch as the appellee cannot protest part of Eleazar.
for non-payment of the interest when it accepted the amount of P5,000 from the Luzon Surety Co., Inc., - Reyes filed a petition for review of the said resolution with respondent Secretary
nor apply a part of that amount as payment for the interest, we cannot now say that there was a waiver or of Justice contending that novation did not take place.
condonation on the interest due. - The Secretary of Justice dismissed the petition holding that "the novation of the
Disposition The judgment appealed from is affirmed with costs against appellants. loan agreement prevents the rise of any incipient criminal liability since the
novation had the effect of canceling the checks and rendering without effect
REYES V SECRETARY OF JUSTICE the subsequent dishonor of the already cancelled checks."
1996
- At the time of the pendency of the cases filed by Elsa Reyes against Graciela
FACTS Eleazar, AFP-MBAI lodged a separate complaint for estafa and a violation of BP
- Elsa Reyes is the president of Eurotrust Capital Corporation (EUROTRUST), a 22 against Elsa Reyes with the office of the city prosecutor of Quezon City
domestic corporation engaged in credit financing. Graciela Eleazar, private docketed as I.S. 92-926. Between August 1989 and September 1990, Eurotrust
respondent, is the president of B.E. Ritz Mansion International Corporation offered to sell to AFP-MBAI various marketable securities, including government
(BERMIC), a domestic enterprise engaged in real estate development. The securities
other respondent, Armed Forces of the Philippines Mutual Benefit Asso., Inc. - AFP-MBAI decided to purchase several securities amounting to P120,000,000.00
(AFP-MBAI), is a corporation duly organized primarily to perform welfare from Eurotrust. From February 1990 to September 1990, a total of 21
services for the Armed Forces of the Philippines. transactions were entered into between Eurotrust and AFP-MBAI. Eurotrust
- Eurotrust and Bermic entered into a loan agreement. Pursuant to the said delivered to AFP-MBAI treasury notes amounting to P73 million. However,
contract, Eurotrust extended to Bermic P216.053,126.80 to finance the Eurotrust fraudulently borrowed all those treasury notes from the AFP-MBAI for
construction of the latter's Ritz Condominium and Gold Business Park. In turn, purposes of verification with the Central Bank. Despite AFP-MBAI's repeated
Bermic issued 21 postdated checks to cover payments of the loan packages. demands, Eurotrust failed to return the said treasury notes. Instead it delivered
However, when those checks were presented for payment, the same were 21 postdated checks in favor of AFP-MBAI which were dishonored upon
dishonored by the drawee bank, Rizal Commercial Banking Corporation (RCBC), presentment for payment. Eurotrust nonetheless made partial payment to AFP-
due to stop payment order made by Graciela Eleazar. Despite Eurotrust's MBAI amounting to P35,151,637.72. However, after deducting this partial
notices and repeated demands to pay, Eleazar failed to make good the payment, the amounts of P73 million treasury notes with interest and
dishonored checks, prompting Reyes to file against her several criminal P35,151,637.72 have remained unpaid. Consequently, AFP-MBAI filed with the
complaints for violation of B.P. 22 and estafa under Article 315, 4th paragraph, Office of the City Prosecutor of Quezon City a complaint for violation of BP 22
No. 2 (d) of the Revised Penal Code. and estafa against Elsa Reyes.
- Meanwhile, respondent AFP-MBAI which invested its funds with Eurotrust, by - Reyes interposed the defense of novation and insisted that AFP-MBAI's claim of
buying from it government securities, conducted its own investigation and unreturned P73 million worth of government securities has been satisfied upon
found that after Eurotrust delivered to AFP-MBAI the securities it purchased, the her payment of P30 million. With respect to the remaining P43 million, the
former borrowed the same securities but failed to return them to AFP-MBAI; same was paid when Eurotrust assigned its Participation Certificates to AFP-
and that the amounts paid by AFP-MBAI to Eurotrust for those securities were in MBAI.
turn lent by Elsa Reyes to Bermic and others. - Office of the City Prosecutor of Quezon City issued a resolution recommending
- On February 15, 1991, the representatives of Eurotrust and Bermic agreed that the filing of an information against Reyes for violation of BP 22 and estafa.
Bermic would directly settle its obligations with the real owners of the fund- - Reyes filed a petition for review with respondent Secretary of Justice. The latter
AFP-MBAI and DECS-IMC. Pursuant to this understanding, Bermic negotiated dismissed the petition on the ground that only resolutions of the prosecutors
with AFP-MBAI and DECS-IMC and made payments to the latter. In fact, Bermic dismissing criminal complaints are cognizable for review by the Department of
paid AFP-MBAI P31,711.11 and a check of P1-million. Justice.
- However, Graciela Eleazar later learned that Elsa Reyes continued to collect on - On February 2, 1994, petitioner seeking the nullification of either of the two
the postdated checks issued by her (Eleazar) contrary to their agreement. So, resolutions of the respondent Secretary of Justice filed a petition for certiorari,
Bermic wrote to Eurotrust to hold the amounts "in constructive trust" for the prohibition and mandamus with the respondent court which, however, denied
real owners. But Reyes continued to collect on the other postdated checks and dismissed her petition. Her motion for reconsideration was likewise denied
dated April 17 to June 28, 1991. Upon her counsel's advise, Eleazar had the in a Resolution 5 dated June 27, 1995. Hence, this present petition.
payment stopped. Hence, her checks issued in favor of Eurotrust were - The first Department of Justice Resolution dated January 23, 1992 which
dishonored. sustained the Provincial Prosecutor's decision dismissing petitioner's
- After investigation, the Office of the Provincial Prosecutor of Rizal issued a complaints against respondent Eleazar for violation of B.P. 22 and estafa ruled
resolution dismissing the complaints filed by Elsa Reyes against Graciela that the contract of loan between petitioner and respondent Eleazar had been
Eleazar on the ground that when the latter assumed the obligation of Reyes to novated when they agreed that respondent Eleazar should settle her firm's
(BERMIC) loan obligations directly with AFP-MBAI and DECS-IMC instead of
Obligations and Contracts A2010 page
107 Prof. Labitag
settling it with petitioner Reyes. This finding was affirmed by the respondent CONCHINGYAN V R & B SURETY & INSURANCE
court which pointed out that "the first contract was novated in the sense that FELICIANO; June 30,1987
there was a substitution of creditor" 6 when respondent Eleazar, with the
agreement of Reyes, directly paid her obligations to AFP-MBAI. NATURE
Certified to the SC by the CA as one involving only questions of law and, therefore,
ISSUE falling within the exclusive appellate jurisdiction of the SC.
WON novation took place in the instant case
FACTS
HELD - In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and
NO was granted an increase in its line of credit from P400,000 to P800,000 (the
Ratio In order that a novation can take place, the concurrence of the following "Principal Obligation"), with the Philippine National Bank (PNB). To secure PNB's
requisites is indispensable: approval, PAGRICO had to give a good and sufficient bond in the amount of
a) there must be a previous valid obligation, P400,000, representing the increment in its line of credit. In compliance with this
b) there must be an agreement of the parties concerned to a new contract, requirement, PAGRICO submitted Surety Bond No. 4765, issued by R & B Surety and
c) there must be the extinguishment of the old contract, and Insurance Co., Inc. ("R & B Surety") in the specified amount in favor of the PNB.
d) there must be the validity of the new contract. Under the terms of the Surety Bond, PAGRICO and R & B Surety bound themselves
- Last three essential requisites of novation are wanting in the instant case. No new agreement for jointly and severally to comply with the "terms and conditions of the advance line
substitution of creditor war forged among the parties concerned which would take the place of the [of credit] established by the [PNB]." PNB had the right under the Surety Bond to
preceding contract. The absence of a new contract extinguishing the old one destroys any possibility of proceed directly against R & B Surety "without the necessity of first exhausting the
novation by conventional subrogation assets" of the principal obligor, PAGRICO. The Surety Bond also provided that R & B
- Nothing therein that would evince that respondent AFP-MBAI agreed to substitute Surety's liability was not to be limited to the principal sum of P400,000, but would
for the petitioner as the new creditor of respondent Eleazar in the contract of loan. also include "accrued interest" on the said amount "plus all expenses, charges or
It is evident that the two letters merely gave respondent Eleazar an authority to other legal costs incident to collection of the obligation [of R & B Surety]" under the
directly settle the obligation of petitioner to AFP-MBAI and DECS-IMC. It is Surety Bond.
essentially an agreement between petitioner and respondent Eleazar only. There - In consideration of R & B Surety's issuance of the Surety Bond, two identical indemnity agreements
was no mention whatsoever of AFP-MBAI's consent to the new agreement between were entered into with R & B Surety: (a) one agreement dated 23 December 1963 was executed by the
petitioner and respondent Eleazar much less an indication of AFP-MBAI's intention to Catholic Church Mart (CM and by petitioner Joseph Cochingyan, Jr.; the latter signed not only as
be the substitute creditor in the loan contract. President of CCM but also in his personal and individual capacity; and (b) another agreement dated 24
- Novation by substitution of creditor requires an agreement among the three December 1963 was executed by PAGRICO, Pacific Copra Export Inc.(PACOCO), Jose K. Villanueva
parties concerned — the original creditor, the debtor and the new creditor. It is and Liu Tua Beh; Mr. Villanueva signed both as Manager of PAGRICO and in his personal and
a new contractual relation based on the mutual agreement among all the individual capacity; Mr. Liu signed both as President of PACOCO and in his individual and personal
necessary parties, Hence, there is no novation if no new contract was executed capacity. Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R
by the parties. & B Surety to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and
- The fact that respondent Eleazar made payments to AFP-MBAI and the latter conditions set forth in said SURETY BOND for a period beginning x x x x until the same is
accepted them does not ipso facto result in novation. There must be an express CANCELLED and/or DISCHARGED."
intention to novate — animus novandi. Novation is never presumed. - When PAGRICO, failed to comply with its Principal Obligation to the PNB, the PNB
- A thorough examination of the records shows that no hard evidence was demanded payment from R & B Surety of the sum of P400,000. R & B Surety made
presented which would expressly and unequivocably demonstrate the intention a series of payments to PNB by virtue of that demand totaling P70,000 evidenced
of respondent AFP-MBAI to release petitioner from her obligation to pay under by detailed vouchers and receipts.
the contract of sale of securities. It is a rule that novation by substitution of - R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan,
debtor must always be made with the consent of the creditor. Jr. and Jose K. Villanueva for reimbursement of the payments made by it to the PNB
- The consent of the creditor to a novation by change of debtor is as indispensable and for a discharge of its liability to the PNB under the Surety Bond. When
as the creditor's consent in conventional subrogation in order that a novation petitioners failed to heed its demands, R & B Surety brought suit against Joseph
shall legally take place. The mere circumstance of AFP-MBAI receiving Cochingyan, Jr., Jose K. Villanueva and Liu Tua Beh in the CFI of Manila.
payments from respondent Eleazar who acquiesced to assume the obligation of - Joseph Cochingyan, Jr. in his answer maintained that the Indemnity Agreement he
petitioner under the contract of sale of securities, when there is clearly no executed in favor of R & B Surety: (i) did not expess the true intent of the parties
agreement to release petitioner from her responsibility, does not constitute thereto in that he had been asked by R & B Surety to execute the Indemnity
novation. The foregoing elements are found wanting in the case at bar. Agreement merely in order to make it appear that R & B Surety had complied with
Disposition ACCORDINGLY, finding no reversible error in the decision appealed the requirements of the PNB that credit lines be secured; (ii) was executed so that R
from dated May 12, 1995, the same is hereby AFFIRMED in all respects. & B Surety could show that it was complying with the regulations of the Insurance
Commission concerning bonding companies; (iii) that R & B Surety had assured him
Obligations and Contracts A2010 page
108 Prof. Labitag
that the execution of the agreement was a mere formality and that he was to be 1. WON the Trust Agreement had extinguished, by novation, the obligation of R & B Surety to the PNB
considered a stranger to the transaction between the PNB and R & B Surety; and under the Surety Bond which, in turn, extinguished the obligations of the petitioners under the Indemnity
(iv) that R & B Surety was estopped from enforcing the Indemnity Agreement as Agreements
against him. 2. WON the Trust Agreement extended the term of the Surety Bond so as to release
- Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity petitioners from their obligation as indemnitors thereof as they did not give their
Agreement in favor of R & B Surety only "for accomodation purposes" and that it did consent to the execution of the Trust Agreement
not express their true intention; (ii) that the Principal Obligation of PAGRICO to the 3. WON the filing of this complaint was premature since the PNB had not yet filed a
PNB secured by the Surety Bond had already been assumed by CCM by virtue of a suit against R & B Surety for the forfeiture of its Surety Bond
Trust Agreement entered into with the PNB, where CCM represented by Joseph
Cochingyan, Jr. undertook to pay the Principal Obligation of PAGRICO to the PNB; HELD
(iii) that his obligation under the Indemnity Agreement was thereby extinguished by 1. NO
novation arising from the change of debtor under the Principal Obligation; and (iv) Ratio Novation is never presumed: it must be established either by the discharge of
that the filing of the complaint was premature, considering that R & B Surety filed the old debt by the express terms of the new agreement, or by the acts of the
the case against him as indemnitor although the PNB had not yet proceeded against parties whose intention to dissolve the old obligation as a consideration of the
R & B Surety to enforce the latter's liability under the Surety Bond. emergence of the new one must be clearly discernible.
- The Trust Agreement referred to by both petitioners was executed on 28 Reasoning Novation is the extinguishment of an obligation by the substitution or
December 1965 (two years after the Surety Bond and the Indemnity Agreements change of the obligation by a subsequent one which terminates it, either by
were executed) between: (1) Jose and Susana Cochingyan, Sr., doing business changing its object or principal conditions, or by substituting a new debtor in place
under the name and style of the Catholic Church Mart, represented by Joseph of the old one, or by subrogating a third person to the rights of the creditor.
Cochingyan, Jr., as Trustor[s]; (2) Tomas Besa, a PNB official, as Trustee; and (3) the Novation through a change of the object or principal conditions of an existing
PNB as beneficiary. The Trust Agreement provided, in pertinent part, as follows: obligation is referred to as objective (or real) novation. Novation by the change of
'WHEREAS, the TRUSTOR has guaranteed a bond in the amount of P400,000 issued either the person of the debtor or of the creditor is described as subjective (or
by R & B Surety at the instance of PAGRICO on December 21, 1963, in favor of the personal) novation. Novation may also be both objective and subjective (mixed) at
BENEFICIARY in connection with the application of PAGRICO for an advance line of the same time. In both objective and subjective novation, a dual purpose is
P400,000 to P800,000; achieved - an obligation is extinguished and a new one is created in lieu thereof. If
'WHEREAS, the TRUSTOR has also guaranteed a bond issued by the Consolacion objective novation is to take place, it is imperative that the new obligation expressly
Insurance & Surety Co., Inc. (CONSOLACION) in the amount of P900,000 in favor of declare that the old obligation is thereby extinguished, or that the new obligation be
the BENEFICIARY to secure certain credit facilities extended by the BENEFICIARY to on every point incompatible with the old one.
the PACOCO; - If subjective novation by a change in the person of the debtor is to occur, it is not
'WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment of their enough that the juridical relation between the parties to the original contract is
respective obligations in favor of the BENEFICIARY guaranteed by the bonds issued extended to a third person. It is essential that the old debtor be released from the
by the R & B and the CONSOLACION, respectively, and by reason of said default, the obligation, and the third person or new debtor take his place in the new relation. If
BENEFICIARY has demanded compliance by the R & B and the CONSOLACION of the old debtor is not released, no novation occurs and the third person who has
their respective obligations under the aforesaid bonds; assumed the obligation of the debtor becomes merely a co-debtor or surety or a co-
'WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation under surety. The Trust Agreement expressly provides for the continuing subsistence of
the indemnity agreements aforementioned executed by him in favor of R & B and that obligation by stipulating that "the Trust Agreement] shall not in any manner
the CONSOLACION, respectively and in order to forestall impending suits by the release" R & B Surety from its obligation under the Surety Bond. Neither can the
BENEFICIARY against said companies, he is willing as he hereby agrees to pay the petitioners anchor their defense on implied novation. Absent an unequivocal
obligations of said companies in favor of the BENEFICIARY in the total amount of declaration of extinguishment of a pre-existing obligation, a showing of complete
P1,300,000 without interest from the net profits arising from the procurement of incompatibility between the old and the new obligation (and nothing else) would
reparations consumer goods made thru the allocation of WARVETS. [war veterans?] sustain a finding of novation by implication. But where, as in this case, the parties
x x x This agreement shall not in any manner release the R & B and CONSOLACION to the new obligation expressly recognize the continuing existence and validity of
from their respective liabilities under the bonds mentioned above. the old one, where, in other words, the parties expressly negated the lapsing of the
- The CFI of Manila rendered a decision in favor of R & B Surety, ordering the old obligation, there can be no novation.
defendants to pay the total amount of the liability (P400,000) plus interest, unpaid 2. NO
premiums and attorney’s fees. Ratio Any extension of time granted by a creditor to any of the first-tier obligors
- Not satisfied with the decision of the trial court, the petitioners appealed to the CA could not prejudice the second-tier parties.
which certified the case to the SC as one raising only questions of law. Reasoning The petitioner-indemnitors are, as it were, second-tier parties so far as
the PNB was concerned. The record is bereft of any indication that the petitioners-
indemnitors ever in fact became co-sureties of R & B Surety vis-a-vis the PNB. The
ISSUES petitioners, so far as the record goes, remained simply indemnitors bound to R & B
Obligations and Contracts A2010 page
109 Prof. Labitag
Surety but not to PNB, such that PNB could not have directly demanded payment of proposal consisting of a conditional reduction of the rental by P20,000 for a limited
the Principal Obligation from the petitioners. Thus, we do not see how Article 2079 period of 4 months, to be repaid spread over the last 6 months of the years only if a
of the Civil Code-which provides in part that "[a]n extension granted to the debtor target 15% of sales is achieved. The proposal emphasized that any reduction in rent
by the creditor without the conse