73THE

WELLEX GROUP, INC. vs. U-LAND AIRLINES, CO., LTD., G.R. No. 167519. January 14, 2015

Facts:
On May 16, 1998, Wellex and U-Land entered into a Memorandum of Agreement to expand their respective airline
operations in Asia. Under said agreement, the Wellex and U-Land agreed to develop a long-term business relationship
through the creation of joint interest in airline operations and property development projects in the Philippines. This
long-term business relationship would be implemented through several transactions. However, Wellex and U-Land failed
to enter into an agreement with some of those transactions-the share purchase agreement and the joint development
agreement. On July 30, 1999, U-Land filed a Complaint praying for rescission of the First Memorandum of Agreement
and damages against Wellex and for the issuance of a Writ of Preliminary Attachment.
Issue: Whether or not U-Land may rescind the First Memorandum of Agreement.
Ruling:
Yes. Wellex and U-Land bound themselves to negotiate with each other within a 40-day period to enter into a share
purchase agreement. If no share purchase agreement was entered into, both parties would be freed from their
respective undertakings. U-Land correctly sought the principal relief of rescission or resolution under Article 1191,
where there must be reciprocal prestations as distinguished from mutual obligations between or among the parties to
apply. The obligations of the parties gave rise to reciprocal prestations, which arose from the same cause: the desire of
both parties to enter into a share purchase agreement that would allow both parties to expand their respective airline
operations in the Philippines and other neighboring countries.
__________________________________________________________________________________________________
74NATIONAL

POWER CORPORATION vs. LUCMAN M. IBRAHIM et al., G.R. No. 175863, February 18,

2015

Facts:
In 1978, petitioner took possession of a parcel of land in Marawi City for the purpose of building thereon a hydroelectric
power plant pursuant to its Agus 1 project. The subject land, while in truth a portion of a private estate registered in the
name of herein respondent Mangondato, was occupied by petitioner under the mistaken belief that such land is part of
the vast tract of public land reserved for its use by the government. Mangondato began demanding compensation for
the subject land from petitioner when he first discovered petitioners occupation of the subject land. It was later found
out that the Ibrahims and Maruhoms are the real owners of the lands and that Mangondato actually holds no claim or
right over the lands except that of a trustee who merely holds the said lands in trust for them. Thus, Ibrahims and
Maruhoms filed a complaint
Issue:
Whether or not petitioner is liable in favor of the Ibrahims and Maruhoms for the rental fees and expropriation
indemnity adjudged due for the subject land.
Ruling:
No. Article 1242 of the Civil Code is an exception to the rule that a valid payment of an obligation can only be made to
the person to whom such obligation is rightfully owed. It contemplates a situation where a debtor pays a possessor of
credit i.e., someone who is not the real creditor but appears, under the circumstances, to be the real creditor. In such
scenario, the law considers the payment to the possessor of credit as valid even as against the real creditor taking into
account the good faith of the debtor. Hence, NAPOCORs payment to Mangondato of the fees and indemnity due for the
subject land as a consequence of the execution of Civil Case No. 605-92 and Civil Case No. 610-92 could still validly
extinguish its obligation to pay for the same even as against the Ibrahims and Maruhoms.

75

AZCONA vs. JAMANDRE, G.R. NO. L-30597, June 30, 1987

Facts:
Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in Negros Occidental to Cirilo
Jamandre. The agreed yearly rental was P7200 and the term was for 3 agricultural years beginning 1960. On March 30,
1960, when the first annual rent was due, petitioner was not able to deliver possession of the leased property thus he
waived payment of that rental. Respondent only entered the premises on October 26, 1960 after paying P7000, which
was acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner notified respondent that the contract
of lease was deemed cancelled for violation of the conditions of the contract. Earlier, in fact, the respondent had been
ousted from the possession of the 60 hectares of the leased premises and let with only 20 hectares of the original area.
Issue: Whether or not the payment of P7000, which was short of P200, was a violation of the agreement thus the
contract should be deemed cancelled.
Ruling:
No. The rental stipulated therein was P7,200.00 but payment being acknowledged in the receipt was P7,000.00 only, yet
no mention was made in the receipt of the discrepancy and, on the contrary, the payment was acknowledged "as per
contract". When the obligee accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.

76 J. M. Tuason & Co., Inc. vs. Javier, NO. L-28569

Facts:
Petitioner J.M. Tuason & Co., Inc. entered a contract to sell with respondent Ligaya Javier a parcel of land for the sum of
P3,691.20 with 10% interest per annum; Php396.12 will be payable upon execution of the contract, and an installment
of P43.92 monthly for a period of 10 years. It was further stipulated in the contract, particularly the sixth paragraph,
that upon failure of respondent to pay the monthly installment, she is given a one month grace period to pay such
installment together with the monthly installment falling on the said grace period. And after 90 days from the end of the
grace period, petitioner can rescind the contract, the payments made by respondent will be considered as rentals. Upon
the execution of the contract, respondent religiously paid the monthly installment until January 5, 1962. Respondent,
however, was unable to the pay the monthly installments within the grace period which petitioner, subsequently, sent a
letter to respondent that the contract has been rescinded and asked the respondent to vacate the said land.
Issue:
Whether or not the rescission of the contract to sell is valid.
Ruling:
Yes. Apart from the initial installment of P396.12, paid upon the execution of the contract, the defendant religiously
satisfied the monthly installments accruing thereafter, for a period of almost eight (8) years and although the principal
obligation under the contract was P3,691.20, the total payments made by the defendant including stipulated interest,
aggregated P4,134.08. If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee.

77Spouses

Miniano vs. Conception G.R. No. 172825. October 11, 2012

Facts:
On March 25, 1996, petitioners entered into a Contract to Sell with respondent involving a house and lot in Antipolo City
for a 2 million consideration. Respondent was able to pay the 2 million total obligation.
Before respondent issued the 500,000 replacement check, she told petitioners that based on the computation of her
accountant; her unpaid obligation which includes interests and penalties was only 200,000. Petitioners agreed with
respondent. Despite repeated demands, petitioners failed to collect the amounts they claimed. Hence, the complaint for
sum of money with damages filed with the RTC. In her answer with Compulsory counterclaim and during the
presentation of evidence, respondent presented a receipt purportedly indicating payment of the remaining balance of
200,000 to Losloso who allegedly received the same on behalf of petitioners.
Issue:
Whether or not payment received by Losloso on behalf of petiotioners was valid.
Ruling:
Yes. Respondents obligation consists of payment of a sum of money, and in general, a payment in order to be effective
to discharge an obligation, must be made to the proper person, thus, payment must be made to the obligee himself or
to an agent having authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, is treated as though actual authority had been given for its
receipt. If payment is made to one who by law is authorized to act for the creditor, it will work as a discharge.

78ARANAS

vs. TUTAAN

Facts:
The stocks of Universal Textile Mills (UTEX) were issued to co-defendants Manuel and Castaneda. Subsequently, in 1971,
the lower court declared that Luisa Aranas is the rightful owner of the 400 shares of stocks at UTEX. Further, it ordered
that dividends in cash or stocks pertaining to the same be delivered to Aranas. UTEX then filed a motion to clarify the
phrase in said decision which states to deliver to her all dividends appertaining to the same, whether in cash or in
stocks meant dividends properly pertaining to the plaintiffs after the courts declaration of her ownership. The said
motion was granted, where the court ordered UTEX to pay the plaintiff the cash dividends which accrued to the stocks in
question after the current decision was rendered but the cash dividends already paid to the co-defendants before the
court decision may not be claimed by the plaintiffs.
Issue:
Whether or not there was a valid payment.
Ruling:
All dividends accruing to the said shares after the rendition of judgment belonged to Aranas but UTEX paid the codefendants despite its knowledge and understanding of the final judgment. It is elementary that payment made by a
judgment debtor to a wrong party cannot extinguish the obligation of such debtor to its creditor. When UTEX paid the
wrong parties, despite its knowledge and understanding of the final judgment, it is still liable to pay Aranas as the lawful
declared owners of the said shares. The burden to recover the wrong payment is on UTEX and cannot be passed on to
the Aranas as the innocent parties.

79HYDRO

RESOURCES vs. NATIONAL IRRIGATION ADMINISTRATION, G.R. NO. 160215, November 10, 2004

Facts:
A contract was entered into between Hydro and NIA for the project of the latter. The contract price is to be payable
partly in Philippine peso and US dollars. Once the project was being executed, there was depreciation in value of Peso
resulting to price differential. In order to resolve the issue, the administrator of NIA and Hydro made a joint computation
of the amount corresponding to the foreign currency differential. The computation showed that NIA owed Hydro for the
differential. When a demand was made by Hydro against NIA, NIA refused to pay contending that it has no authority to
participate into a joint computation of the foreign currency differential and that it has no authority to bind NIA.
Issue:
Whether or not Hydros claim of the amount corresponding to the foreign currency differential is valid.
Ruling:
Yes. The contract between NIA and Hydro is an internationally tendered contract considering that it was funded by the
International Bank for Reconstruction and Development (IBRD). As a contract funded by an international organization,
particularly one recognized by the Philippines, the contract is exempt from the provisions of R.A. No. 529, as amended
by. R.A. No. 4100 (Act To Assure Uniform Value to Philippine Coin And Currency).Even assuming that R.A. No. 529 is
applicable, it is still erroneous to deny Hydros claim because Section 1 of R.A. No. 529 states that only the stipulation
requiring payment in foreign currency is void, but not the obligation to make payment. This can be gleaned from the
provision that every other domestic obligation heretofore or hereafter incurred shall be discharged upon payment in
any coin and currency which at the time is legal tender for public and private debts.
80

PONCE vs. THE HONORABLE COURT OF APPEALS, G.R. NO. L-49494 May 31, 1979

Facts:
In 1969, Jesusa Afable and two others procured a loan from Nelia Ponce in the amount of $194,016.29. In June 1969,
Afable and her co-debtors executed a promissory note in favor of Ponce in the peso equivalent of the loan amount
which was P814,868.42. The promissory note went due and was left unpaid despite demands from Ponce. This
prompted Ponce to sue Afable et al. The trial court ruled in favor of Ponce. The Court of Appeals initially affirmed the
trial court but it later reversed its decisions as it ruled that the promissory note under consideration was payable in US
dollars, and, therefore pursuant to Republic Act 529, the transaction was illegal with neither party entitled to recover
under the in pari delicto rule.
Issue:
Whether or not Ponce may recover
Ruling:
Yes. The promissory note in question provided on its face for payment of the obligation in Philippine currency, but the
agreement between the parties originally involved a dollar transaction. If there is any agreement to pay an obligation in
a currency other than Philippine legal tender, the same is null and void as contrary to public policy, pursuant to Republic
Act No. 529, and the most that could be demanded is to pay said obligation in Philippine currency, hence, a creditor
herein cannot oblige the debtor to pay him in dollars, even if the loan were given in said currency.
81KALALO

vs. LUZ, G.R. NO. L-27782, July 31, 1970

Facts: Octavio Kalalo is an engineer whose services were contracted by Alfredo Luz, an architect in 1961. Luz contracted
Kalalo to work on ten projects across the country, one of which was an in the International Rice Research Institute (IRRI)
Research Center in Los Baos, Laguna. Luz was to be paid $140,000.00 for the entire project. For Kalalos work, Luz
agreed to pay him 20% of what IRRI is going to pay or equivalent to $28,000.00.
Issue: Whether or not Kalalo should be paid in US currency.
Ruling: No. Even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in
American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at
the time of judgment rather than at the rate of exchange prevailing on the date of defendant's breach.

92 FILINVEST vs PHILIPPINE ACETYLENE, G.R. NO. L-50449 January 30, 1982

Facts:
Philippine Acetylene Co. Bought a Chevrolet 1969 model vehicle from Alexander Lim to be paid through installment. To secure the
payment, Filinvest Credit executed a chattel mortgage over the said vehicle in favor of Lim, who later assigned all his rights, title and
interest to the Plaintiff by virtue of Deed of Assignment. The defendant failed to pay 9 consecutive installments that pushed the plaintiff
to issue a demand letter. The latter replied, stating their desire to return the mortgaged property for their debts satisfaction. So the
vehicle was returned to the plaintiff together with the document Voluntary Surrender with Special Power of Attorney to sell. The
plaintiff had a hard time selling the thing due to the unpaid taxes imposed on the vehicle. So the latter instituted an action for collection
of a sum of money with damages, at the same time, they offered to deliver back the motor vehicle to the appellant but the latter refused
to accept it with the following defense: The delivery of the motor vehicle to Filinvest extinguished its money obligation as it amounted to
a dation in payment. Assuming arguendo that the return did not extinguish, it was justified in refusing payment since the app ellee is not
entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim.
Issue:
WON there was dation in payment that extinguished Phil Acetylenes obligation.
Ruling:
No. In the absence of clear consent of appellee to the proffered special mode of payment, there can be no transfer of ownership from
appellant to appellee by mere delivery to and acceptance by him of the vehicle and should not be construed as actual payment or more
specifically, dacion en pago.

93 CITIZENS SURETY vs. COURT OF APPEALS, G.R. NO. L-48958 June 28, 1988
Facts:
On December 4, 1959, the petitioner issued two surety bonds to the defendant to ensure the compliance of the latter
while he entered a transaction with Singer Sewing Machine Co. The respondent also put up collaterals such as his
lumber stock and a second real estate mortgage to reimburse the cost paid by the petitioner in case that the respondent
will not comply to the agreement. The respondent failed to comply with his obligations to Singer Sewing Machine Co.
and the petitioner paid payments as a result of non-compliance of the respondent. The respondent failed to reimburse
the petitioner due to the losses he encountered thereby the petitioner filed a claim of the sum of the money against the
estate of the respondent. Respondent opposed the money claim by stating that the surety bonds and the indemnity
agreements had been extinguished by the execution of the deed of assignment. Thus, after the trial, the lower declared
that the collateral is jointly and severally liable to the petitioner, hereby, requiring respondent to pay the required
amount with 10% interest perannum.
Issue:
Whether or not administrators obligation under the surety bonds agreements had been extinguished through execution
of the deed of assignment.
Ruling:
No. In opposing the money claim, Respondent alleged that the surety bonds and the indemnity agreements had been
extinguished by the execution of the deed of assignment, because this amounted to dation in payment whereby the
former is considered to have alienated his property in favor of the latter in satisfaction of a monetary debt (Artide 1245).
The transaction could not be dation in payment because the deed of assignment was executed on December 4, 1959,
the obligation of the assignor to refund the assignee had not yet arisen, hence, there was no obligation yet on the part
of the petitioner.

94 FIRST UNITED CONSTRUCTORS CORP. AND BLUE STAR CONSTRUCTION CORPORATION VS. BAYANIHAN
AUTOMOTIVE CORPORATION G.R No. 164985 January 15, 2014
Facts:
Petitioners were associate construction firms sharing financial resources, equipment and technical personnel on a caseto-case basis. From May 27, 1992 to July 8, 1992, they ordered six units of dump trucks from the respondent .On
September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime Mover and ordered again on September
29, 1992, one unit of Isuzu Transit Mixer. For the two purchases, FUCC partially paid in cash, and the balance through
post-dated checks. Upon presentment of the checks for payment, the respondent learned that FUCC had ordered the
payment stopped. The respondent immediately demanded the full settlement of their obligation from the petitioners,
but to no avail. The petitioners informed the respondent that they were withholding payment of the checks due to the
breakdown of one of the dump trucks they had earlier purchased from respondent. The petitioners submit that they
were justified in stopping the payment of the two checks due to the respondents breach of warranty by refusing to
repair or replace the defective second dump truck earlier purchased.
Issue:
Whether the petitioners can validly exercised the right of recoupment through the withholding of payment of the
unpaid balance of the purchase price.
Ruling:
No, Petitioners could not validly resort to recoupment against respondent. Recoupment (reconvencion) is the act of
rebating or recouping a part of a claim. Defendants-appellants act of ordering the payment on the prime mover and
transit mixer stopped was improper considering that the said sale was a different contract from that of the dump trucks
earlier purchased by defendants-appellants. The claim of defendants-appellants for breach of warranty is therefore not
a proper subject of recoupment since it does not arise out of the contract or transaction sued on or the claim of plaintiffappellee for unpaid balances on the last two (2) purchases. Recoupment must arise out of the contract or transaction
upon which the plaintiffs claim is founded. To be entitled to recoupment, therefore, the claim must arise from the same
transaction. That there was a series of purchases made by petitioners could not be considered as a single transaction.
95 UNION BANK OF THE PHILIPPINES vs. DEVELOPMENT BANK OF THE PHILIPPINES G.R. NO. 191555 January 20, 2014
Facts:
Union Bank filed a Manifestation and Motion to Affirm Legal Compensation, praying that the RTC apply legal
compensation between itself and DBP in order to offset the return of the funds it previously received from DBP. Union
Bank anchored its motion on two grounds which were allegedly not in existence prior to or during trial, namely: (a) on
December 29, 1998, DBPs assumed obligations became due and demandable; and (b) considering that Foodmasters
Worldwide, Inc. became non-operational and non-existent, DBP became primarily liable to the balance of its assumed
obligation, which as of Union Banks computation after its claimed set-off, amounted to P1,849,391.87.45.
Issue: Whether Union Banks Motion to Affirm Legal Compensation is valid.
Ruling:
No. Compensation is defined as a mode of extinguishing obligations whereby two persons in their capacity as principals
are mutual debtors and creditors of each other with respect to equally liquidated and demandable obligations to which
no retention or controversy has been timely commenced and communicated by third parties.
The rule on legal compensation is stated in Article 1290 of the Civil Code which provides that "when all the requisites
mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and debtors are not aware of the compensation."
In this case, however, legal compensation could not have taken place between these debts mentioned by Union Bank for
the apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not present.

96 CESAR V. AREZA and LOLITA B. AREZA vs. EXPRESS SAVINGS BANK, INC. and MICHAEL POTENCIANO,
G.R. No. 176697, September 10, 2014
Facts:
The spouses filed a Complaint for Sum of Money with Damages against Express Savings Bank, when the latter
dishonored the check the spouses issued, with notation Deposit Under Hold. Upon demand by the spouses to honor
the check, the bank closed the special saving account, transferred the balance to the savings account of the spouses,
then debited the amount of P1,800,000.00 representing the amount of the nine dishonored checks, from the spouses
savings account.
Issue:
Whether or not the Bank had the right to debit P1,800,000.00 from petitioners accounts
Ruling:
No. When the drawee bank pays a materially altered check, it violates the terms of the check, as well as its duty to
charge its clients account only for bona fide disbursements he had made. If the drawee did not pay according to the
original tenor of the instrument, as directed by the drawer, then it has no right to claim reimbursement from the
drawer, much less, the right to deduct the erroneous payment it made from the drawers account which it was expected
to treat with utmost fidelity. The drawee, however, still has recourse to recover its loss. The collecting banks are
ultimately liable for the amount of the materially altered check. It cannot further pass the liability back to Cesar and
Lolita absent any showing in the negligence on the part of Cesar and Lolita which substantially contributed to the loss
from alteration.
97 FEDERAL BUILDERS, INC (FBI) vs. FOUNDATION SPECIALISTS, INC. (FSI)
Facts:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement with Foundation Specialist, Inc. (FSI) whereby
the latter, as subcontractor, undertook the construction of the diaphragm wall, capping beam, and guide walls of the
Trafalgar Plaza located at Salcedo Village, Makati City. Under the agreement, FBI was to pay a down payment equivalent
to twenty percent (20%) of the contract price and the balance, through a progress billing every fifteen (15) days, payable
not later than one (1) week from presentation of the billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC of Makati City seeking to collect
the amount of P1,635,278.91, representing Billing No. 3 and 4, with accrued interest from August 1, 1991 plus moral and
exemplary damages with attorneys fees. FSI alleged that FBI refused to pay said amount despite demand and its
completion of the contracted works.
In its Answer with Counterclaim, FBI claimed that FSI completed only 85% of the contracted works, failing to finish the
diaphragm wall and component works in accordance with the plans and specifications and abandoning the jobsite. FBI
maintains that because of FSIs inadequacy, its schedule in finishing the Project has been delayed resulting in the Project
owners deferment of its own progress billings. It further interposed counter-claims for amounts it spent for the
remedial works on the alleged defects in FSIs work.
Issue:
WON FBI was liable to pay the balance of P1,024,600.00 less the amount of P33,354.40 notwithstanding that the
diaphragm wall constructed by FSI was concededly defective and out-of-specifications and that petitioner had to redo it
at its own expense.
Ruling:
Yes. Contrary to the allegations of FBI, FSI had indeed completed its assigned obligations, with the exception of certain
assigned tasks, which was due to the failure of FBI to fulfill its end of the bargain. The defects FBI complained of, such as
the misaligned diaphragm wall and the erroneous location of the rebar dowels, were not only anticipated by the parties,
having stipulated alternative plans to remedy the same, but more importantly, are also attributable to the very actions
of FBI. Accordingly, considering that the alleged defects in FSIs contracted works were not so much due to the fault or
negligence of the FSI, but were satisfactorily proven to be caused by FBIs own acts, FBIs claim of P8,582,756.29
representing the cost of the measures it undertook to rectify the alleged defects must necessarily fail.

98 SOLINAP vs. DEL ROSARIO, G.R. No. L-50638 July 25, 1983

Facts:
The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda to
petitioner Loreto Solinap for 10 years for the stipulated rental of P50,000.00 a year. It was further agreed in the
lease contract that P25,000.00 from the rental should be paid by Solinap to the PNB to amortize the indebtedness
of the spouses Lutero. When Tiburcio Lutero died, his heirs instituted the testate estate proceedings.
On the basis of an order, respondents Juanito Lutero and his wife Hardivi R. Lutero paid the PNB the sum of
P25,000.00 as partial settlement of the deceased's obligations. Spouses Lutero filed a motion seeking
reimbursement from the petitioner. They argued that the said amount should have been paid by petitioner to the
PNB, as stipulated in the lease contract. Before the motion could be resolved, petitioner filed a separate action
against the spouses for collection of P71,000.00 they borrowed from the petitioner.
The spouses answered and pleaded a counterclaim against petitioner for P125,000.00 representing unpaid rentals
on Hacienda Tambal and that petitioners purchased one-half of Hacienda Tambal. The respondent judge issued an
order granting the spouses motion for reimbursement from petitioner of the sum of P25,000.00, plus interest.
Petitioner filed a petition for certiorari before this Court, assailing the above order. Acting on the petition, the
P25,000.00 to be paid by the petitioner to the private respondent Luteros may well be taken up in the final
liquidation of the account between petitioner as lessee and the subject estate as lessor.
Thereafter the respondent Luteros filed with the respondent court a motion raising that the amount payable to
private respondents should be compensated against the latter's indebtedness to him amounting to P71,000.00..
ISSUE:
WON the obligation of petitioner to private respondents may be compensated or set-off against the amount
sought to be recovered in an action for a sum of money filed by the former against the latter.
Ruling:
No. For compensation to take place, it is required that the amount involved be certain and liquidated.
Compensation cannot take place where one's claim against the other is still the subject of court litigation. In the
case at bar, the petitioner's claim against the spouses was still pending determination by the court. Petitioners
claim in the case could not be categorized as liquidated credit which may properly be set-off against his obligation.

99 BPI vs CA, G.R. NO. 136202, January 25, 2007

Facts:
Templonuevo demanded payment from petitioner of a sum of money representing the aggregate value of
three checks which were allegedly payable to him but which were deposited with the petitioner to
Salazars account, without his knowledge and corresponding endorsement. Finding merit in the demands of
Templonuevo, the bank then froze the account of the engineering firm as the account of Salazar was already closed
or had insufficient funds. Failure of any settlement between Templonuevo and Salazar, this prompted the bank
to debit the account of Salazar and give back the money to Templonuevo through cashiers check. The account of
Salazar was also debited for whatever charges incurred for the issuance of the cashiers check.
Issue:
WON BPI had the authority to unilaterally withdraw from Salazars account the amount it has previously paid upon
certain unendorsed order instrument.
Ruling:
Yes. A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the
part of a depositor, because fixed, savings, and current deposits of money in banks and similar institutions are
governed by the provisions concerning simple loan, hence, the relationship between banks and depositors is that
of creditor and debtor. Legal compensation under Article 1278 of the Civil Code may take place when all the
requisites mentioned in Article 1279 are present.

100 GAN TION vs. HON. COURT OF APPEALS, G.R. NO. L-22490, May 21, 1969

Facts:
Landowner Gan Tion filed an Ejectment Case against Tenant Ong Wan Sieng for alleged non-payment of rents, Ong
contends that rent was P160/m and that he had offered to pay but was refused. CFI initially held in favour of Gan but
reversed upon appeal in favour of Ong, ordering payment by Gan to Ong of P500 as attorney's fees. Gan demanded by
way of Notice of payment of rents in arrears worth P4,320. Ong was able to obtain a writ of execution of the judgment
for attorney's fees in his favor. Gan went on certiorari to the Court of Appeals, where he pleaded legal compensation,
claiming that Ong was indebted to him in the sum of P4,320 for unpaid rents.
Issue: Whether or not there can be legal compensation between petitioner Gan Tion and respondent Ong Wan Sieng
Ruling:
Yes. The award for attorney's fees is made in favor of the litigant, not of his counsel, hence, it is the litigant, not his
counsel, who is the judgment creditor and who may enforce the judgment by execution, such credit, therefore, may
properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitioner to pay his debt
for P500 when admittedly his creditor is indebted to him for more than P4,000.

101 PNB vs VDA. DE ONG ACERO, G.R. NO. L-69255, February 27, 1987

Facts:
Isabela Wood Construction & Dvpt Corp (ISABELA) has a savings account with PNB in the amount of P2 Million. Said
account is the subject of two conflicting claims. One claim is asserted by the Aceros (respondents), and the other is by
PNB.
PNB's main thesis is that when it opened a savings account for ISABELA, it (PNB) became indebted to ISABELA, so that
when ISABELA itself subsequently came to be indebted to it on account of ISABELA's breach of the terms of the Credit
Agreement, ISABELA and PNB became at the same time creditors and debtors of each other, thus compensation
automatically took place between them, in accordance with Article 1278 of the Civil Code.
Issue: WON PNBs contentions are correct, and that compensation automatically took place between the parties thus
preventing the Aceros garnishment thereof
Ruling:
Compensation shall take when two persons, in their own right, are creditors and debtors of each other and that
compensation may transpire by operation of law, as when all the requisites therefore, set out in Article 1279, are
present. Nonetheless these legal provisions cannot apply if it has not proven by competent evidence that PNB is a
creditor of ISABELA.

102 FRANCIA vs. IAC, G.R. NO. L-67649 June 28, 1988

Facts:
Engracio Francia was the registered owner of a house and lot located in Pasay City. A portion of such property was
expropriated by the Republic of the Philippines in 1977. It appeared that Francia did not pay his real estate taxes from
1963 to 1977. Thus, his property was sold in a public auction by the City Treasurer of Pasay City. Francia filed a complaint
to annul the auction sale. The lower court dismissed the complaint and the Intermediate Appellate Court affirmed the
decision of the lower court in toto. Hence, this petition for review. Francia contends that his tax delinquency of P 2,400
has been extinguished by legal compensation. He claims that the government owed him P 4,116 when a portion of his
land was expropriated on October 15, 1977.
Issue: WON the expropriation payment compensate for the real estate taxes due
Ruling:
The general rule based on grounds of public policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes because taxes are not in the nature of contracts between the party

and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which,
the personal consent of individual taxpayers is not required.

103 SYCIP vs. HONORABLE COURT OF APPEALS, G.R. NO. L-38711, January 31, 1985

Facts:
On August 25, 1970, the then Court of First Instance of Manila rendered a decision convicting the herein petitioner
Francisco Sycip of the crime of estafa and sentencing him to an indeterminate penalty of three (3) months of
arresto mayor, as minimum to one (1) year and eight (8) months of prision correccional, as maximum; to indemnify
complainant Jose K. Lapuz the sum of P5,000.00, with subsidiary imprisonment in case of insolvency; and to pay the
costs. In a petition for review on certiorari Petitioner contends that respondent Court of Appeals erred in not
applying the provisions on compensation or setting-off debts under Articles 1278 and 1279 of the New Civil Code,
despite evidence showing that Jose K. Lapuz still owed him an amount of more than P5,000.00 and in not
dismissing the appeal considering that the latter is not legally the aggrieved party.
Issue: WON the provisions on compensation should be applied.
Ruling:
No. Petitioner contends that respondent Court of Appeals erred in not applying the provisions on compensation or
setting-off debts despite evidence showing that Lapuz, an agent of Albert Smith and/or Dr. Dwight Dill, owed him.
Compensation takes place only when two persons in their own right are creditors and debtors of each other, and
that each one of the obligors is bound principally and is at the same time a principal creditor of the other.

104 MINDANAO PORTLAND CEMENT CORPORATION vs. CA, G.R. NO. L-62169, February 28, 1983
Facts:
Petitioner Mindanao Portland Cement Corporation (appellant) and respondent Pacweld Steel Corporation (appellee),
were creditors and debtors of each other, their debts to each other consisting in final and executory judgments of the
Court of First Instance in two (2) separate cases, ordering the payment to each other of the sum of P10,000.00 by way of
attorney's fees.
Issue: WON the two obligations are extinguished reciprocally by operation of law.
Ruling:

Yes. The two (2) obligations, respectively offset each other, compensation having taken effect by operation of law
and extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions of Arts. 1278,
1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said Code for automatic
compensation "even though the creditors and debtors are not aware of the compensation" were duly present.
105 THE INTERNATIONAL CORPORATE BANK INC. vs. IAC, G.R. NO. L-69560 June 30, 1988
Facts:
Private respondent secured from petitioner's predecessors-in-interest, the then Investment and Underwriting
Corp. of the Philippines and Atrium Capital Corp., a loan. To secure this loan, private respondent mortgaged her
real properties in Quiapo, Manila and in San Rafael, Bulacan, which she claimed to have a total market value of
P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was approved for release. The same amount was
applied to pay her other obligations to petitioner, bank charges and fees.
Petitioner contended that, after extrajudicially foreclosing the mortgage, private respondent still owes the former
an amount, by way of deficiency. Petitioner also claimed that it has the right to apply or set off private
respondent's money market claim despite the fact that the validity of the extrajudicial foreclosure sale and
petitioner's claim for deficiency are still in question.
Issue: WON there can be legal compensation in the case at bar.
Ruling:

No. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
"When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by
operation of law, even without the consent or knowledge of the debtors." Article 1279 of the Civil Code requires
among others, that in order that legal compensation shall take place, "the two debts be due" and "they be
liquidated and demandable", because compensation is not proper where the claim of the person asserting the setoff against the other is not clear nor liquidated.

106 MONDRAGON vs. SOLA, JR., G.R. NO. 174882 January 21, 2013
Facts:
Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various consumer products
through a network of sales representatives, entered into a Contract of Services with Respondent Victoriano S. Sola,
Jr. for a period of three years . Under the said contract, Respondent, as service contractor, would provide service
facilities to Petitioner's products, sales force and customers in General Santos City and as such, he was entitled to
commission or service fee. Prior to the execution of the contract, however, Respondents wife, Lina Sola, had an
existing obligation with Petitioner. Thus, Respondent wrote a letter addressed to petitioner wherein he
acknowledged and confirmed his wifes indebtedness to Petitioner and together with his wife, bound himself to
pay on installment basis the said debt. Petitioner thereafter withheld the payment of respondent's service fees and
applied the same as partial payments of the debt by way of compensation.
Issue: WON Petitioner's act of withholding Respondent's service fees and thereafter applying them as partial
payment to the obligation of Respondent's wife with Petitioner was unlawful.
Ruling:
No. Petitioner's act of withholding respondent's service fees and applying them to the latter's outstanding
obligation with the former is merely an acknowledgment of the legal compensation that occurred by operation of
law between the parties. Compensation is a mode of extinguishing to the concurrent amount the obligations of
persons who in their own right and as principals are reciprocally debtors and creditors of each other. Legal
compensation takes place by operation of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their mutual obligations even in the
absence of some requisites.
107 MONTEMAYOR vs. MILLORA, G.R. NO. 168251. July 27, 2011
Facts:
On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a loan of P400,000.00 from petitioner Dr.
Jesus M. Montemayor (Jesus) as evidenced by a promissory note executed by Vicente. On August 10, 1990, the
parties executed a loan contract wherein it was provided that the loan has a stipulated monthly interest of 2% and
that Vicente had already paid the amount of P100,000.00 as well as the P8,000.00 representing the interest for the
period July 24 to August 23, 1990.
Subsequently and with Vicentes consent, the interest rate was increased to 3.5% or P10,500.00 a month. From
March 24, 1991 to July 23, 1991, or for a period of four months, Vicente was supposed to pay P42,000.00 as
interest but was able to pay only P24,000.00. This was the last payment Vicente made. Jesus made several
demands for Vicente to settle his obligation but to no avail. Thus, on August 17, 1993, Jesus filed before the RTC of
Quezon City a Complaint for Sum of Money against Vicente. Jesus contends that offsetting cannot be made
because the judgment of the RTC failed to specify the amount of attorneys fees and maintains that for offsetting
to apply, the two debts must be liquidated or ascertainable and the trial court merely awarded to Vicente
attorneys fees based on quantum meruit without specifying the exact amount thereof.
Issue: WON compensation can properly be applied.
Ruling:
Yes. A debt is considered liquidated, not only when it is expressed already in definite figures which do not require
verification, but also when the determination of the exact amount depends only on a simple arithmetical
operation.

In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesus in the amount
of P300,000.00 with interest at the rate of 12% per annum counted from the filing of the instant complaint on August
17, 1993 until fully paid. Jesus, on the other hand, has the obligation to pay attorneys fees which the RTC had already
determined to be equivalent to whatever amount recoverable from Vicente. The said attorneys fees were awarded by
the RTC on the counterclaim of Vicente on the basis of "quantum meruit" for the legal services he previously rendered
to Jesus.

108 ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS vs. DAN T. LIM, doing business
under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES
G.R. No. 206806. June 25, 2014
Facts:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name
Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill business. From February
2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco
Pulp and Paper) through its Chief Executive Officer and President, Candida A. Santos. The parties allegedly agreed
that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials or deliver to him their finished
products of equivalent value.
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated
April 18, 2007 in the amount of 1,487,766.68 as partial payment, with the assurance that the check would not
bounce. When he deposited the check on April 18, 2007, it was dishonored for being drawn against a closed
account. On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement where
Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation,
owned by Eric Sy, for his account.
On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper demanding payment of the amount of
7,220,968.31, but no payment was made to him.
Issue: Whether or not there was novation.
Ruling:
No. Arco Pulp and Paper had an alternative obligation whereby it would either pay Dan T. Lim the value of the raw
materials or deliver to him their finished products of equivalent value. When petitioner Arco Pulp and Paper
tendered a check to Lim in partial payment for the scrap papers, they exercised their option to pay the price.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. The consent of the
creditor must be secured for the novation to be valid. In this case, Lim was not privy to the memorandum of
agreement, thus, his conformity to the contract need not be secured. If the memorandum of agreement was
intended to novate the original agreement between the parties, respondent must have first agreed to the
substitution of Eric Sy as his new debtor.
109 THE WELLEX GROUP, INC. vs. U-LAND AIRLINES (Refer to case 73)
110 FORT BONIFACIO DEVELOPMENT CORPORATION vs. VALENTIN L. FONG., G.R. No. 209370, March 25, 2015
Facts:
Fort Bonifacio Development Corporation (FBDC) and MS Maxco Company Inc., entered into a Trade Contract for the
execution of the structural and partial architectural works on one of its projects; under the contract the FBDC had the
option to hire other contractors to rectify errors committed by MS Maxco by reason of its negligence, omission, act, or
default. It was also prohibited from assigning or transferring any of its rights, obligations or liabilities without the
express consent of FBDC. For failure of MS Maxco comply with the Trade Contract, FBDC had to hire other contractors
and perform corrective works which eventually cost FBDC.
FBDC received a letter from the counsel of one Valentin Fong, informing it that MS Maxco had already assigned its
receivables from FBDC to him (Valentin), thru a Deed of Assignment to be taken from the retention money with the
FBDC. Replying, FBDC acknowledged the 5% retention money of MS Maxco but asserted that the same was not yet due
and demandable and the subject of garnishment by MS Maxcos creditors. Despite repeated requests, FBDC refused to
release the retention money. FBDC informed Fong that nothing was left of MS Maxcos retention money after the
rectification of the defects in the projects.

Issue: WON FBDC was bound by the Deed of Assignment between Fong and MS Maxco
Ruling:
Yes. By virtue of the Deed of Assignment, the assignee is deemed subrogated to the rights and obligations of the
assignor and is bound by exactly the same conditions as those which bound the assignor. Accordingly, an assignee
cannot acquire greater rights than those pertaining to the assignor. The general rule is that an assignee of a
nonnegotiable chose in action acquires no greater right than what was possessed by his assignor and simply stands into
the shoes of the latter. Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor, cannot assign or
transfer any of its rights, obligations, or liabilities under the Trade Contract without the written consent of FBDC.
111 BANK OF THE PHILIPPINE ISLANDS vs. AMADOR DOMINGO G.R. No. 169407 March 25, 2015
Facts:
On September 27, 1993, respondent spouses Domingo executed a Promissory Note in favor of Makati Auto Center, Inc.,
payable in 48 successive monthly installments. They simultaneously executed a Deed of Chattel Mortgage over a subject
vehicle to secure the payment of their Promissory Note. Makati Auto Center, Inc. then assigned, ceded, and transferred
all its rights and interests over the said Promissory Note and chattel mortgage to Far East Bank and Trust Company
(FEBTC).
Sometime later, a merger executed between BPI, the surviving corporation, and FEBTC, the absorbed corporation. By
virtue of said merger, all the assets and liabilities of FEBTC were transferred to and absorbed by BPI.
The spouses Domingo defaulted when they failed to pay 21 monthly installments that had fallen due consecutively. BPI,
being the surviving corporation after the merger, demanded that the spouses Domingo pay the balance of the
Promissory Note including accrued late payment charges/interests or to return the possession of the subject vehicle for
the purpose of foreclosure in accordance with the undertaking stated in the chattel mortgage.
BPI was already aware that the subject vehicle was in the possession of a third person (Carmelita) but did not yet know
the identity of said person.
Issue: WON there had been novation of the loan obligation with chattel mortgage of the spouses Domingo to BPI so
that the spouses Domingo were released from said obligation and Carmelita was substituted as debtor.
Ruling:
NO. The burden of establishing a novation is on the party who asserts its existence. Contrary to the findings of the CA
and the RTC, Amador failed to discharge such burden as he was unable to present proof of the clear and unmistakable
consent of BPI to the substitution of debtors. There is simply not enough evidence to establish the prima facie existence
of novation to shift the burden of evidence to BPI to controvert the same. Absent proof that BPI gave its clear and
unmistakable consent to release the spouses Domingo from the obligation to pay the car loan, Carmelita is simply
considered an additional debtor. Consequently, BPI can still enforce the obligation against the spouses Domingo even 30
months after it had started accepting payments from Carmelita.
112 LBP vs. ONG, , G.R. NO. 190755, November 24, 2010

Facts:
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount
of PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under
the loan agreement, P6 million of the loan would be short-term and would mature on February 28, 1997, while the
balance of P10 million would be payable in seven (7) years. The Spouses Sy could no longer pay their loan which
resulted to the sale of three (3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong,
Evangelines mother, under a Deed of Sale with Assumption of Mortgage.
Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform them about the sale and assumption
of mortgage. Land Bank Branch Head told Alfredo that there was nothing wrong with agreement with the Spouses
Sy and provided him requirements for the assumption of mortgage. Alfredo later found out that his application for
assumption of mortgage was not approved by Land Bank. On December 12, 1997, Alfredo initiated an action for
recovery of sum of money with damages against Land Bank, as Alfredos payment was not returned by Land Bank.
Alfredo said that Land Banks foreclosure without informing him of the denial of his assumption of the mortgage
was done in bad faith and that he was made to believed that P750,000 would cause Land Bank to approve his
assumption to the mortgage. He also claimed incurring expenses for attorneys fees of P150,000, filing fee of
P15,000, and P250,000 in moral damages. This prompted Alfredo to file a case with RTC against Land Bank.

Issue: WON Art. 1236 of the Civil Code does not apply and in finding that there is novation
Ruling:
Land Bank faults the CA for finding that novation given that substitution of debtors was made without its consent, thus,
it was not bound to recognize the substitution under the rules on novation. Novation which consists in substituting a
new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter,
but not without the consent of the creditor. There was no novation in the contract between the parties because not all
elements of novation were present.
113 BOYSAW vs. INTERPHIL PROMOTIONS, G.R. NO. L-22590, March 20, 1987

Facts:
Solomon Boysaw, a boxer signed an agreement with Interphil Promotions, Inc. , a promotion agency to arrange and
promote a boxing match with Flash Elorde. The boxer violated the terms of the contract, but in spite of these, the
agency proceeded except it negotiated for a new date for the match. Eventually, the match as originally stated in
the contract did not materialize. Boxer and manager is now suing the promotion agency for breach of contract.
Issue: WON offending party in a reciprocal obligation can compel the other party for specific performance
Ruling:
No. Evidence established that the contract was violated by Boysaw when, without the approval or consent of Interphil,
he fought a boxing match in Las Vegas. Another violation was the assignment and transfer of the managerial rights over
Boysaw without the knowledge or consent of Interphil.

Under the law, when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with the substitute. However, from the evidence, it is clear
that the Interphil, instead of availing themselves of the options given to them by law of rescission or refusal to
recognize the substitute obligor, really wanted to postpone the fight date owing to an injury that Elorde sustained
in a recent bout. That Interphil had justification to re-negotiate the original contract; particularly the fight date is
undeniable from the facts. Under the circumstances, Interphil's desire to postpone the fight date could neither be
unlawful nor unreasonable.
114 CALIFORNIA BUS LINES, INC. vs. STATE INVESTMENT HOUSE, INC.,
G.R. NO. 147950. December 11, 2003
Facts:
Delta Motors Corporation applied for financial assistance from respondent State Investment House, Inc., a
domestic corporation engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta which
eventually became indebted to SIHI. Meanwhile, petitioner purchased on installment basis several buses to Delta.
To secure the payment of the obligation petitioner executed promissory notes in favor of Delta. When petitioner
defaulted on the payments of the debts, it entered into an agreement with delta to cover its due obligations.
However, petitioner still had trouble meeting its obligations with delta. Pursuant to the memorandum of
agreement delta executed a deed of sale assigning to respondent, the promissory notes from petitioner.
Respondent subsequently sent a demand letter to petitioner requiring remitting payments due on the promissory
notes. Petitioner replied informing respondent of the fact that delta had taken over its management and
operations.
Issue: Whether the Restructuring Agreement between petitioner CBLI and Delta Motors, Corp. novated the five
promissory notes Delta Motors, Corp. assigned to respondent SIHI,
Ruling:
No. There was no change in the object of the prior obligations in the restructuring agreement since it merely
provided for a new schedule of payments and additional security giving Delta authority to take over the
management and operations of CBLI in case CBLI fails to pay installments equivalent to 60 days. With respect to
obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the obligation is
not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds
other obligations not incompatible with the old ones, or where the new contract merely supplements the old one.

115 AJAX MARKETING vs. HON. COURT OF APPEALS, G.R. NO. 118585 September 14, 1995
Facts:
The spouses Marcial See and Lilian Tan constituted three real estate mortgages over their property in Paco, Manila
in favor of and for the following amounts: 1.) Ylang-Ylang Merchandising Co. for P250,000, 2.) Ajax Marketing Co.
for P150,000, and 3.) Ajax Marketing and Development Corp. for P600,000. The 3 loans with an aggregate amount
of P1,000,000 were restructured and consolidated into 1 loan, and Ajax Marketing and Devt. Corp. executed a
promissory note. The property was extra-judicially foreclosed in favor of Metrobank for the P1,000,000 promissory
note. Petitioners argue that a novation occurred when their three (3) loans, which are all secured by the same real
estate property were consolidated into a single loan of P1 million under Promissory Note, thereby extinguishing
their monetary obligations and releasing the mortgaged property from liability.
Issue: WON novation extinguished petitioners' obligations.
Ruling:
No. The well settled rule is that novation is never presumed and it will not be allowed unless it is clearly shown by
express agreement, or by acts of equal import, thus, to effect an objective novation it is imperative that the new
obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every
point incompatible with the new one. The facts herein do not make a case of novation. There is nothing in the
records to show the unequivocal intent of the parties to novate the three loan agreements. Neither can it be validly
contended that there was a change, or substitution in the persons of either the creditor (Metrobank) or more
specifically the debtors (petitioners) upon the consolidation of the loans.
116 SANGGUNIANG PANLUNGSOD NG BAGUIO CITY vs. JADEWELL PARKING SYSTEMS CORPORATION, G.R. No.
160025, April 23, 2014
Facts:
The two principal parties executed a Memorandum of Agreement (MOA) on 26 June 2000, whereby the City of
Baguio authorized Jadewell to regulate and collect parking fees for on-street parking in the city, as well as to
implement the installation of modern parking meters.
The Sangguniang Panlungsod of Baguio City (Sanggunian) revoked the MOA through a City Resolution, alleging
substantial breach of the MOA on the part of Jadewell. Then Mayor Alfredo Vergara vetoed the Resolution. The
Sanggunian Panlungsod overrode the veto through an unnumbered Resolution. These twin Resolutions constitute
as the first act of rescission of the MOA by the city officials of Baguio. Jadewell denied the breach and commenced
an action before the Regional Trial Court (RTC) of Baguio, questioning the validity of the MOAs revocation and the
Sanggunians capacity to pass a resolution revoking the MOA. There was also a second act of rescission that the city
officials of Baguio performed.
Issue: WON of Saggunians two distinct acts of rescission of the MOA are valid.
Ruling:
Yes. In the instant case, the assailed act by the Sanggunian Panlungsod in rescinding the MOA be it first or second
act of rescission was clearly in the exercise of its legislative or administrative functions and was not an exercise of
a judicial or quasi-judicial function. The Sanggunian Panlungsod does not possess any judicial or quasi-judicial
functions. The preamble of the MOA lends support to this view. Evidently, the foremost reason why the agreement
was entered into by the parties was to provide order, given Baguio Citys parking problems in identified areas, as
well as to generate income.
The objectives of the Sanggunian Panlungsod, as well as its intention to rescind the MOA; because it deems to no
longer serve the interest of the City of Baguio, are clearly an exercise of its legislative or administrative function.
However, it is another matter as to whether the City of Baguio was able to clearly establish the grounds as basis for
the exercise of its right to
rescind.
117 METROPOLITAN BANK AND TRUST COMPANY vs. WILFRED N. CHIOK/ BANK OF THE PHILIPPINE ISLANDS vs.
WILFRED N. CHIOK/ GLOBAL BUSINESS BANK, INC. vs. WILFRED N. CHIOK G.R. No. 172652, G.R. No. 175302, G.R.
No. 175394, November 26, 2014
Facts:
Respondent Wilfred N. Chiok (Chiok) had been engaged in dollar trading for several years. He usually buys dollars
from Gonzalo B. Nuguid (Nuguid) at the exchange rate prevailing on the date of the sale. Chiok pays Nuguid either
in cash or managers check, to be picked up by the latter or deposited in the latters bank account. Chiok
maintained accounts with petitioners Metropolitan Bank and Trust Company (Metrobank) and Global Business
Bank, Inc. (Global Bank), the latter being then referred to as the Asian Banking Corporation (Asian Bank). Chiok
likewise entered into a Bills Purchase Line Agreement (BPLA) with Asian Bank. Under the BPLA, checks drawn in
favor of, or negotiated to, Chiok may be purchased by Asian Bank. Upon such purchase, Chiok receives a
discounted cash equivalent of the amount of the check earlier than the normal clearing period.

Pursuant to the BPLA, Asian Bank bills purchased Security Bank & Trust Company (SBTC) Managers Check issued
in the name of Chiok, and credited the same amount to the latters Savings Account. Asian Bank issued the
manager's checks to Gonzalo Bernardo, who is the same person as Gonzalo B. Nuguid. The two Asian Bank
managers checks were issued pursuant to Chioks instruction and was debited from his account. Likewise upon
Chioks application, Metrobank issued Cashiers Check in the name of Gonzalo Bernardo. The same was debited
from Chioks Savings Account.
Issue:
Whether or not the purchaser of managers and cashiers checks has the right to have the checks cancelled by filing
an action for rescission of its contract with the payee.
Ruling:
Clearing should not be confused with acceptance. Managers and cashiers checks are still the subject of clearing to
ensure that the same have not been materially altered or otherwise completely counterfeited. However,
managers and cashiers checks are pre-accepted by the mere issuance thereof by the bank, which is both its
drawer and drawee. Thus, while managers and cashiers checks are still subject to clearing, they cannot be
countermanded for being drawn against a closed account, for being drawn against insufficient funds, or for similar
reasons such as a condition not appearing on the face of the check. Long standing and accepted banking practices
do not countenance the countermanding of managers and cashiers checks on the basis of a mere allegation of
failure of the payee to comply with its obligations towards the purchaser. On the contrary, the accepted banking
practice is that such checks are as good as cash. However, in view of the peculiar circumstances of the case at
bench, We are constrained to set aside the foregoing concepts and principles in favor of the exercise of the right to
rescind a contract upon the failure of consideration thereof.
118 THE WELLEX GROUP, INC. vs. U-LAND AIRLINES, CO., LTD., (Refer to Case 73)
119 (refer to case 55)
120 (refer to case 37
121 DEL CASTILLO Vda. DE MISTICA vs. SPOUSES NAGUIAT, G.R. NO. 137909, December 11, 2003
Facts:
Predecessor-in-interest of Petitioner and herein Defendants entered into a contract to sell in which the latter prayed the
initial payment and undertake to pay the remaining by installment within 10 years subject to 12% interest per annum.
The agreement was reduced to writing in a document entitled Kasulatan sa Pagbibilihan. Petitioner filed a complaint
for rescission alleging failure and refusal of Defendants to pay the balance within the ten-year period constitutes a
violation of the contract which entitles her to rescind the same.
Issue: WON petitioner may rescind the contract.
Ruling:
No. In the Kasulatan, it was stipulated that payment could be made even after ten years from the execution of the
Contract, provided the vendee paid percent interest. The stipulations of the contract constitute the law between the
parties; thus, courts have no alternative but to enforce them as agreed upon and written. The failure of respondents to
pay the balance of the purchase price within ten years from the execution of the Deed did not amount to a substantial
breach. Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the violation of the
reciprocity between parties, brought about by a breach of faith by one of them however, rescission is allowed only
where the breach is substantial and fundamental to the fulfillment of the obligation.

122 PALAY vs. CLAVE , G.R. NO. L-56076 September 21, 1983
Facts:
Petitioner Palay, Inc., through its President, Albert Onstott sold a parcel of land owned by the corporation to the
private respondent, Nazario Dumpit, by virtue of a Contract to Sell, payable with a down-payment and monthly
installments until fully paid. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon
default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of
one month, without need of notice and with forfeiture of all installments paid. Private respondent Dumpit paid the
down-payment and several installments. However, Dumpit failed to continue paying the installments for almost 6
years. Thereafter, Dumpit wrote petitioner offering to update all his overdue accounts with interest, and seeking its
written consent to the assignment of his rights to a certain Lourdes Dizon. Petitioners replied that the Contract to
Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold.
Issue: WON demand is necessary to rescind a contract

Ruling:
No. The contract agreed upon by the parties provided for automatic extrajudicial rescission upon default in
payment without need of notice and with forfeiture of all installments paid. Upon default of the respondent,
petitioner rescinded the contract. Respondent questioned the validity of the rescission. The judicial action for the
rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions, however there should be at least a written notice sent to the defaulter
informing him of the rescission.
123 (refer to case 74)
124 SOLAR HARVEST, INC., vs DAVAO CORRUGATED CARTON CORPORATION, G.R. NO. 176868. July 26, 2010
Facts:
Solar Harvest, Inc. (SHI), entered into an agreement with Davao Corrugated Carton Corporation (DCCC) for the
purchase of corrugated carton boxes. This agreement was not reduced into writing. To start the production, SHI
deposited US$40,150.00 in DCCCs US Dollar Savings Account with Westmont Bank, as full payment for the ordered
boxes. However, SHI did not receive any boxes from DCCC. SHI wrote a demand letter for reimbursement but DCCC
replied that the boxes had been completed in April and that SHI failed to pick them up from the formers
warehouse 30 days from completion, as agreed upon. DCCC mentioned that SHI even placed an additional order of
24,000 boxes, out of which, 14,000 had been manufactured without any advanced payment from SHI. DCCC then
demanded SHI to remove the boxes from the factory and to pay the balance of US$15,400 for the additional boxes
and P132,000 as storage fee.
Issue: WON respondent committed a breach of contract, thus giving petitioner a cause of action to rescind the
contract.
Ruling:
No. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties
respective obligations should be simultaneous. But when different dates for performance of the obligations are
fixed, the other party would incur in delay only from the moment the other party demands fulfillment of the
formers obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed,
demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of
action for rescission will accrue. SHIs witness also testified that they made a follow-up of the boxes, but not a
demand. SHI failed to establish a cause of action for rescission.

125 OSMEA III vs SSS, September 13, 2007

Facts:
Osmena III and 4 other members of the Senate and SSS members seek for nullification of the following issuances of
Social Security Commission: Res. No. 428 and Res. 485. SSS in order to liquify its long term investments and
diversify them into higher yielding and less volatile investments which includes its shareholdings in Equitable PCI
Bank, Inc. (EPCIB). In a purchase agreement it was agreed in that SSS will sell all its EPCIB shares to BDO.
Bidding was made subject to the right of BDO Capital to match the highest bid. BDO turned out t be the highest
bidder. Petitioner alleged that BDO to buy EPCIB shares is inconsistent with the idea of public bidding. BDO and
EPCIB had a merger, all EPCIB shares were transferred to BDO.
Issue: WON in questioning the alleged resolution can still recover the shares and subject it to a proper bidding
process
Ruling:
No. The Letter-Agreement, the Share Purchase Agreement, the SSC resolutions assailed in this recourse, and the
Invitation to Bid sent out to implement said resolutions, all have a common subject: the Shares the 187.84 Million
EPCIB common shares, which, as a necessary consequence of the BDO-EPCIB merger which saw EPCIB being
absorbed by the surviving BDO, have been transferred to BDO and converted into BDO common shares under the
exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the subject Shares are no longer
equity security issuances of the now defunct EPCIB, but those of BDO-EPCI, which, needless to stress, is a totally
separate and distinct entity from what used to be EPCIB.
Under the law on obligations and contracts, the obligation to give a determinate thing is extinguished if the object
is lost without the fault of the debtor, and per Art. 1192 (2) of the Civil Code, a thing is considered lost when it
perishes or disappears in such a way that it cannot be recovered.
126 VILLAMAR vs. MANGAOIL, G.R. NO. 188661 April 11, 2012

Facts:
Petitioner Villamar, the registered owner of the property, entered into an agreement with the respondent
Mangaoil to purchase and sale a parcel of land. The terms in their agreement includes the down payment of P
185,000 pesos, which will be for the payment of a loan secured from the Rural Bank of Cauayan so that it will be
withdrawn and released from the bank and that a deed of absolute sale will be executed in favor of the respondent
Mangaoil which was complied by the parties.
Consequently, the respondent Mangaoil informed the petitioner that he will withdraw from the agreement for the
land was not yet free from incumbrances as there were still tenant who were not willing to vacate the land without
giving them back the amount that they mortgaged the land. Also, the petitioner failed and refused, despite
repeated demands, to hand over the Certificate of Title. Then, the respondent Mangaoil demanded the refund of
the down payment that he had secured with the petitioner and filed a complaint with the RTC to rescindthe
contract of sale. In the response of the petitioner, she averred that she had already compliedwith the obligations
and caused the release of the mortgaged land and the delivery of the Certificate of Title will be facilitated by a
certain Atty. Pedro C. Antonio. The respondent insisted that he can rescind the contract for the petitioner had
failed to deliver the Certificate of Title.
Issue: WON the failure of delivery of the Certificate of Title will constitute rescission of the contract
Ruling:
Petitioner alleged that the absence of stipulations in the agreement and absolute deed of sale entered into by
Petitioner and Respondent expressly indicating the consequences of the former's failure to deliver the physical
possession of the subject property and the certificate of title covering the same, the Respondent is not entitled to
demand for the rescission of their contract pursuant to Article 1191 of the New Civil Code.
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him", this remains true notwithstanding the absence of express stipulations in the
agreement indicating the consequences of breaches which the parties may commit.

156 Citizens Surety and Insurance Company vs. Court of Appeals G.R. No. L-48958
Facts:
On December 4, 1959, the petitioner issued two surety bonds to the defendant to ensure the compliance of
the latter while he entered a transaction with Singer Sewing Machine Co. The respondent also put up
collaterals such as his lumber stock worth P400,000 and a second real estate mortgage to reimburse the cost
paid by the petitioner in case that the respondent will not comply to the agreement. The respondent failed to
comply with his obligations to Singer Sewing Machine Co. and the petitioner paid payments as a result of noncompliance of the respondent. The respondent failed to reimburse the petitioner due to the losses he
encountered thereby the petitioner filed a claim of the sum of the money against the estate of the
respondent. Respondent opposed the money claim by stating that the surety bonds and the indemnity
agreements had been extinguished by the execution of the deed of assignment. Thus, after the trial, the lower
declared that the collateral is jointly and severally liable to the petitioner, hereby, requiring respondent to pay
the required amount with 10% interest per annum. The decision of the lower court was reversed by the Court
of Appeals when the respondent appealed.
Issue:
Whether or not administrators obligation under the surety bonds agreements had been extinguished through
execution of the deed of assignment.
Ruling:
Obligation under the surety bonds had not been extinguished by reason on the execution of deed of
assignment. The deed of assignment was intended as a collateral security for the issuance of two (2) surety
bonds by the petitioner towards respondent as evidenced by the latters subsequent acts. These are partial
payments made by respondent after the execution the deed of assignment to pay his indebtedness.
Moreover, with the execution of the second mortgage by respondent, it follows that there is no
extinguishment of obligation since indemnity bonds still existed by virtue of its execution.
Thus, upon the failure of the respondent to comply with its obligation under the contract of sale of goods
towards Singer Sewing Machine Co., the petitioner is still adequately protected by the lumber collateral which
worth P400,000, more than enough to guaranty the obligations. Here, the Supreme Court dismissed the
appeal and money claim by the petitioner.

157 LIM YHI LUYA vs. COURT OF APPEALS, G.R. NO. L-40258 September 11, 1980
Facts:
On November 12, 1970, Lim Yhi Luya (petitioner) received from Manager Abalos (respondent) a telegram, in a
manner of invitation: Please come tomorrow morning without fail. Thus, on November 13, 1970 Luya attended to it
and came to an agreement with the latters offer to sell sugar. The CONTRACT OF SALE OF SUGAR stated the seller (Hind
Sugar Company), buyer (Lim Yhi Luya), quantity of sugar agreed to purchase: 4,085 piculs of sugar, at a price:
P35.00/picul, and the terms: cash upon signing of this contract, as well are the signatures and names of buyer and
seller.
Issue:
Whether or not the plaintiff-appellee has paid the sum of P142,975.00 which is the purchase price of the 4,085 piculs of
sugar covered by the contract of sale
Ruling:
The veracity of the stipulation in the contract which is in the terms agreed upon by the two contracting parties is
translucent in its implication that the intention of both parties will be interpreted in the manner calculated for, and must
be in command in this case. Thus, it is clear that the stipulation is that payment was completed on the occasion of or at
the time of the signing of the contract and not subsequently done.
Words which may have different significations shall be understood in that which is most in keeping with the nature and
object of the contract and in the interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.

158 BRIONES vs. CAMMAYO, ET AL., G.R. NO. L-23559, October 4, 1971
Facts:
Briones filed against Cammayo to recover P1500. They executed a real mortgage as security for the loan of P1200 given
by Cammayo upon usurious agreement and reserved to himself P300 payment of interest for a year. Plaintiff paid total
sum of P330 but Cammayo refused to acknowledge it as payment for principal but for interest of loan for a year.
Issue: WON creditor entitled to collect the principal obligation and interest.
Held:
Yes. But only as to the principal. Stipulations authorizing the imposition of iniquitous or unconscionable interest are
contrary to morals, if not against the law for these contracts are inexistent and void from the beginning. Thu, creditor is
entitled to the principal obligation only, usurious interest is not enforced.

159 ASIAN CATHAY FINANCE AND LEASING CORPORATION vs.

SPOUSES G.R.AVADOR et al, G.R. NO. 186550, July 5, 2010
FACTS:
On October 22, 1999, petitioner Asain Cathay Finance and Leasing Corporation (ACFLC) extended a loan of Eight
Hundred Thousand Pesos (800,000.00) to respondent Cesario Gravador, with respondents Norma de Vera and Emma
Concepcion Dumigpi as co-makers. The loan was payable in sixty (60) monthly installments of 24,000.00 each. To
secure the loan, respondent Cesario executed real estate mortgage over his property in Sta. Maria, Bulacan, covered by
Transfer Certificate of Title No. T-29234.
Respondents paid the initial installment due in November 1999. However, they were unable to pay the subsequent
ones. Consequently, on February 1, 2000, respondents received a letter demanding payment of 1,871,480.00 within
five (5) days from receipt thereof. Respondents requested for an additional period to settle their account, but ACFLC
denied the request. Petitioner filed a petition for extrajudicial foreclosure of mortgage with the Office of the Deputy
Sherrif of Malolos, Bulacan.

ISSUE: WON the Honorable Court of Appeals erred in invalidating the interest rates imposed on the
loan, and the waiver of the right of redemption.

respondents

RULING: No. The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoilation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support on law, in principles of justice, or in the human conscience nor
is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within
the sphere of public or private morals.
Settled is the rule that for a waiver to be valid and effective, it must, in the first place, be couched in clear and
unequivocal terms which will leave no doubt as to the intention of a party to give up a right or benefit which legally
pertains to him. Additonally, the intention to waive a right or an advantage must be shown clearly and convincingly.
Unfortunately, ACFLC failed to convince us that respondents waived their right of redemption voluntarily.
160 TIU vs. PLATINUM PLANS PHIL., INC., G.R. NO. 163512 February 28, 2007
Facts:
Respondent Platinum Plans, re-hired petitioner as Senior Assistant Vice President and Territorial Operations Head in
charge of its Hongkong and Asean operations. The parties executed a contract of employment valid for five years
Petitioner stopped reporting for work and became the Vice-President for Sales of Professional Pension Plans, Inc., a
corporation also engaged in the same industry respondent then sued petitioner for damages alleging that petitioners
employment with Professional Pension Plans, Inc. violated the non-involvement clause in her contract of employment.
In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of trade is valid
provided that there is a limitation upon either time or place. On appeal, the Court of Appeals affirmed the trial courts
ruling. It reasoned that petitioner entered into the contract on her own will and volition. Thus, she bound herself to
fulfill not only what was expressly stipulated in the contract, but also all its consequences that were not against good
faith, usage, and law. The appellate court also ruled that the stipulation prohibiting non-employment for two years was
valid and enforceable considering the nature of respondents business. Petitioner moved for reconsideration but was
denied. Hence, the petition.
Issue:
Whether or not the non-involvement clause under the contract is valid.
Ruling:
Yes. A non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable
limitations as to time, trade, and place. In this case, the non-involvement clause has a time limit: two years from the
time petitioners employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from
engaging in any pre-need business akin to respondents.
More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of
respondents Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing

strategies of respondents business. To allow her to engage in a rival business soon after she leaves would make
respondents trade secrets vulnerable especially in a highly competitive marketing environment. In sum, we find the
non-involvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable
protection to respondent.
In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy.
Article 11591 of the same Code also provides that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so
would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and
effect thereto.Not being contrary to public policy, the non-involvement clause, which petitioner and respondent freely
agreed upon, has the force of law between them, and thus, should be complied with in good faith.