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SUBJECT ELEMENTS

OCAMPO III. VS. PEOPLE


G.R Nos. 156547-51. February 4, 2008
FACTS:
The Department of Budget and Management released the amount
of Php 100 Million for the support of the local government unit of the
province of Tarlac. However, petitioner Ocampo, governor of Tarlac,
loaned out more than P 56.6 million in which he contracted with Lingkod
Tarlac Foundation, Inc., thus, it was the subject of 25 criminal charges
against the petitioner.
The Sandiganbayan convicted the petitioner of the crime of
malversation of public funds. However, the petitioner contended that the
loan was private in character since it was a loan contracted with the
Taralc Foundation.
ISSUE:
Whether or not the amount loaned out was private in nature.
RULING:
Yes, the loan was private in nature because Art. 1953 of the New
Civil Code provides that a person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is bound to pay
the creditor an equal amount of the same kind and quality.
The fact that the petitioner-Governor contracted the loan, the public
fund changed its nature to private character, thus it is not malversation
which is the subject of this case, instead it must be a simple collection of
money suit against the petitioner in case of non payment . Therefore, the
petitioner is acquitted for the crime of malversation.
SOURCES OF OBLIGATIONS

A.

LAW

1.
2.
3.
4.
5.
6.

LEUNG BEN VS. OBRIEN, 38 PHIL 182


PELAYO VS. LAURON, 12 PHIL 453
NIKKO HOTEL VS. REYES, 452 SCRA 532
ST. MARYS ACADEMY VS. CARPITANOS, FEB. 6, 2002
REGINO VS. PANGASINAN COLLEGE, NOV. 18, 2004
COSMO ENTERTAINMENT VS. LA VILLE, AUG. 20, 2004

LEUNG BEN; plaintiff,


VS. P. J. OBRIEN, JAMES A. OSTRAND and GEO. R. HARVEY, Judges
of First Instance of the City of Manila, defendants
April 6, 1918
FACTS:
On December 12, 1917, an action was instituted in the Court of First
Instance of Manila by P.J. OBrien to recover of Leung Ben the sum of P15,000, all
alleged to have been lost by the plaintiff to the defendant in a series of
gambling, banking, and percentage games conducted during the two or three
months prior to the institution of the suit. The plaintiff asked for an attachment
against the property of the defendant, on the ground that the latter was about to
depart from the Philippines with intent to defraud his creditors. This attachment
was issued. The provision of law under which this attachment was issued
requires that there should be a cause of action arising upon contract, express or
implied. The contention of the petitioner is that the statutory action to recover
money lost at gaming is not such an action as is contemplated in this provision,
and he insists that the original complaint shows on its face that the remedy of
attachment is not available in aid thereof; that the Court of First Instance acted
in excess of its jurisdiction in granting the writ of attachment; that the petitioner
has no plain, speedy, and adequate remedy by appeal or otherwise; and that
consequently the writ of certiorari supplies the appropriate remedy for this relief.
ISSUE:
Whether or not the statutory obligation to restore money won at gaming is
an obligation arising from contract, express or implied.
RULING:

Yes. In permitting the recovery money lost at play, Act No. 1757 has
introduced modifications in the application of Articles 1798, 1801, and 1305 of
the Civil Code.
The first two of these articles relate to gambling contracts, while article
1305 treats of the nullity of contracts proceeding from a vicious or illicit
consideration. Taking all these provisions together, it must be apparent that the
obligation to return money lost at play has a decided affinity to contractual
obligation; and the Court believes that it could, without violence to the doctrines
of the civil law, be held that such obligations is an innominate quasi-contract.

RULING:
No. The Court held that the rendering of medical assistance is one of the
obligations to which spouses are bound by mutual support, expressly
determined by law and readily demanded. Therefore, there was no obligation on
the part of the in-laws but rather on the part of the husband who is not a party.
Thus, decision affirmed.

It is however, unnecessary to place the decision on this ground. In the


opinion of the Court, the cause of action stated in the complaint in the court
below is based on a contract, express or implied, and is therefore of such nature
that the court had authority to issue the writ of attachment. The application for
the writ of certiorari must therefore be denied and the proceedings dismissed.
LAW AS A SOURCE OF OBLIGATION
ARTURO PELAYO, plaintiff-appellant
VS. MARCELO LAURON, defendant-appellee
12 Phil 453
January 12, 1909

LAW AS A SOURCE OF OBLIGATION

FACTS:
On November 23, 1906, Arturo Pelayo, a physician, filed a complaint
against Marcelo and Juana Abella. He alleged that on October 13, 1906 at night,
Pelayo was called to the house of the defendants to assist their daughter-in-law
who was about to give birth to a child. Unfortunately, the daughter-in-law died
as a consequence of said childbirth. Thus, the defendant refuses to pay. The
defendants argue that their daughter-in-law lived with her husband
independently and in a separate house without any relation, that her stay there
was accidental and due to fortuitous event.
ISSUE:
Whether or not the defendants should be held liable for the fees
demanded by the plaintiff upon rendering medical assistance to the defendants
daughter-in-law.

ASI CORPORATION, plaintiff-appellant VS.


EVANGELISTA, defendant-appellee
February 14, 2008
FACTS:
Private
respondent
Evangelista
contracted
Petitioner
ASJ
Corporation for the incubation and hatching of eggs and by products
owned by Evangelista Spouses. The contract includes the scheduled
payments of the service of ASJ Corporation that the amount of installment
shall be paid after the delivery of the chicks. However, the ASJ
Corporation detained the chicks because Evangelista Spouses failed to
pay the installment on time.
ISSUE:

Whether or not the detention of the alleged chicks valid and


recognized under the law?
RULING:
No, because ASJ Corporation must give due to the Evangelista
Spouses in paying the installment, thus, it must not delay the delivery of
the chicks. Thus, under the law, they are obliged to pay damages with
each other for the breach of the obligation.
Therefore, in a contract of service, each party must be in good faith
in the performance of their obligation, thus when the petitioner had
detained the hatched eggs of the respondents spouses, it is an implication
of putting prejudice to the business of the spouses due to the delay of
paying installment to the petitioner.

latter did not able to pay the installment, Davalon continued the payment
but when he became insolvent, he said that the motorcycle was taken by
Quiamcos men. However, after several years, the petitioner Ramas
together with policemen took the motorcycle without the respondents
permit and shouted that the respondent Quiamco is a thief of motorcycle.
Respondent then filed an action for damages against petitioner alleging
that petitioner is liable for unlawful taking of the motorcycle and
utterance of a defamatory remark and filing a baseless complaint. Also,
petitioners claim that they should not be held liable for petitioners
exercise of its right as seller-mortgagee to recover the mortgaged
motorcycle preliminary to the enforcement of its right to foreclose on the
mortgage in case of default.
ISSUE:
Whether or not the act of the petitioner is correct.
RULING:

LAW AS A SOURCE OF OBLIGATION

RAMAS, plaintiff-appellant VS.


QUIAMCO, defendant-appellee
December 6, 2006
FACTS:
Quiamco has amicably settled with Davalan, Gabutero and
Generoso for the crime of robbery and that in return, the three had
surrendered to Quiamco a motorcycle with its registration. However, Atty.
Ramas has sold to Gabutero the motorcycle in installment but when the

No. The petitioner being a lawyer must know the legal procedure
for the recovery of possession of the alleged mortgaged property in which
said procedure must be conducted through judicial action. Furthermore,
the petitioner acted in malice and intent to cause damage to the
respondent when even without probable cause, he still instituted an act
against the law on mortgage.

LAW AS A SOURCE OF OBLIGATION


NIKKO HOTEL MANILA GARDEN AND RUBY LIM
VS. ROBERTO REYES a.k.a. AMAY BISAYA
2005 Feb 28
G.R. No. 154259

FACTS:
In the evening of October 13, 1994, while drinking coffee at the lobby of
Hotel Nikko, respondent was invited by a friend, Dr. Filart to join her in a party in
celebration of the birthday of the hotels manager. During the party and when
respondent was lined-up at the buffet table, he was stopped by Ruby Lim, the
Executive Secretary of the hotel, and asked to leave the party. Shocked and
embarrassed, he tried to explain that he was invited by Dr. Filart, who was
herself a guest. Not long after, a Makati policeman approached him and
escorted him out of her party.

Code. Necessarily, neither can her employer, Hotel Nikko, be held liable as its
liability springs from that of its employees.

Ms. Lim admitted having asked respondent to leave the party but not
under the ignominious circumstances painted by Mr. Reyes, that she did the act
politely and discreetly. Mindful of the wish of the celebrant to keep the party
intimate and exclusive, she spoke to the respondent herself when she saw him
by the buffet table with no other guests in the immediate vicinity. She asked
him to leave the party after he finished eating. After she had turned to leave,
the latter screamed and made a big scene.

Without proof of any ill-motive on her part, Ms. Lims act cannot amount to
abusive conduct.

When a right is exercised in a manner which does not conform with the
norms enshrined in Article 19 and results in damage to another, a legal wrong is
thereby committed for which the wrongdoer must be responsible. Article 21
states that any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.

The maxim Volenti Non Fit Injuria (self-inflicted injury) was upheld by
the Court, that is, to which a person assents is not esteemed in law as injury,
that consent to injury precludes the recovery of damages by one who has
knowingly and voluntarily exposed himself to danger.

Dr. Filart testified that she did not want the celebrant to think that she
invited Mr. Reyes to the party.
LAW AS A SOURCE OF OBLIGATION
Respondent filed an action for actual, moral and/or exemplary damages
and attorneys fees. The lower court dismissed the complaint. On appeal, the
Court of Appeals reversed the ruling of the trial court, consequently imposing
upon Hotel Nikko moral and exemplary damages and attorneys fees. On motion
for reconsideration, the Court of Appeals affirmed its decision. Thus, this instant
petition for review.
ISSUES:
Whether or not Ms. Ruby Lim is liable under Articles 19 and 21 of the Civil
Code in asking Mr. Reyes to leave the party as he was not invited by the
celebrant thereof and whether or not Hotel Nikko, as the employer of Ms. Lim, be
solidarily liable with her.
RULING:
The Court found more credible the lower courts findings of facts. There
was no proof of motive on the part of Ms. Lim to humiliate Mr. Reyes and to
expose him to ridicule and shame. Mr. Reyes version of the story was
unsupported, failing to present any witness to back his story. Ms. Lim, not
having abused her right to ask Mr. Reyes to leave the party to which he was not
invited, cannot be made liable for damages under Articles 19 and 21 of the Civil

ST. MARYS ACADEMY, petitioner,


VS. WILLIAM CARPITANOS and LUCIA S. CARPITANOS, GUADA DANIEL,
JAMES DANIEL II, JAMES DANIEL, SR., and VIVENCIO VILLANUEVA,
respondents
February 6, 2002
FACTS:
From February 13 to 20, 1995, defendant-appellant St. Marys Academy of
Dipolog City conducted an enrollment drive for the school year 1995-1996. As a
student of St. Marys Academy, Sherwin Carpitanos was part of the campaigning
group. Accordingly, Sherwin, along with other high school students were riding
in a Mitsubishi jeep owned by defendant Vivencio Villanueva on their way to
Larayan Elementary School, Larayan, Dapitan City. The jeep was driven by
James Daniel II then 15 years old and a student of the same school. Allegedly,
the latter drove the jeep in a reckless manner and as a result the jeep turned
turtle. Sherwin Carpitanos died as a result of the injuries he sustained from the
accident.
The trial court ordered the defendants, St. Marys Academy principally
liable and the parents of James Daniel as subsidiarily liable for damages.

The Court of Appeals affirmed the decision of the trial court. The Court of
Appeals held petitioner St. Marys Academy liable for the death of Sherwin
Carpitanos under Articles 218 and 219 of the Family Code, pointing out that
petitioner was negligent in allowing a minor to drive and in not having a teacher
accompany the minor students in the jeep.
ISSUE:
Whether or not the appellant St. Marys Academy is principally liable for
damages for the death of Sherwin.

A.

CONTRACTS

1.
2.
3.
4.
5.
6.

TSPI, INC., VS. TSPOC EMPLOYEES UNION 545 S 215


REGINO VS. CA, NOVEMBER 18, 1992
PSBA VS. CA, FEB. 4, 1992
COSMO ENTERTAINMENT VS. LA VILLE, 20 AUGUST 2004
AYALA CORP. VS. ROSA DIANA REALTY, 346 SCRA 663
BRICKTOWN DEVELOPMENT VS. AMOR TIERRA
DEVELOPMENT, 239 SCRA 126
PILIPINAS HINO VS. CA, 338 SCRA 355

7.

RULING:
No. Under Article 219 of the Family Code, if the person under custody is a
minor, those exercising special parental authority are principally and solidarily
liable for damages caused by the acts or omissions of the unemancipated minor
while under their supervision, instruction, or custody.
However, for petitioner to be liable, there must be a finding that the act or
omission considered as negligent was the proximate cause of the injury caused
because the negligence must have a causal connection to the accident.
Respondents Daniel spouses and Villanueva admitted that the immediate
cause of the accident was not the negligence of petitioner or the reckless driving
of James Daniel II, but the detachment of the steering wheel guide of the jeep.
Hence, liability for the accident, whether caused by the negligence of the
minor driver or mechanical detachment of the steering wheel guide of the jeep,
must be pinned on the minors parents primarily. The negligence of petitioner
St. Marys Academy was only a remote cause of the accident. Between the
remote cause and the injury, there intervened the negligence of the minors
parents or the detachment of the steering wheel guide of the jeep. Considering
that the negligence of the minor driver or the detachment of the steering wheel
guide of the jeep owned by respondent Villanueva was an event over which
petitioner St. Marys Academy had no control, and which was the proximate
cause of the accident, petitioner may not be held liable for the death resulting
from such accident.

SOURCES OF OBLIGATIONS

TSPI, INCORPORATION VS. TSPIC EMPLOYEES UNION


G.R No. 163419. February 13, 2008

FACTS:
TSPI Corporation entered into a Collective Bargaining Agreement
with the corporation Union for the increase of salary for the latters
members for the year 2000 to 2002 starting from January 2000. thus, the
increased in salary was materialized on January 1, 2000. However, on
October 6, 2000, the Regional Tripartite Wage and production Board
raised daily minimum wage from P 223.50 to P 250.00 starting November
1, 2000. Conformably, the wages of the 17 probationary employees were
increased to P250.00 and became regular employees therefore receiving
another 10% increase in salary. In January 2001, TSPIC implemented the
new wage rates as mandated by the CBA. As a result, the nine employees
who were senior to the 17 recently regularized employees, received less
wages. On January 19, 2001, TSPICs HRD notified the 24 employees who
are private respondents, that due to an error in the automated payroll
system, they were overpaid and the overpayment would be deducted
from their salaries starting February 2001. The Union on the other hand,

asserted that there was no error and the deduction of the alleged
overpayment constituted diminution of pay.
ISSUE:
Whether the alleged overpayment constitutes diminution of pay as
alleged by the Union.

Regino, an underprivileged, failed to purchase the tickets because


of her status as well as that project was against her religious belief, thus,
she was not allowed to take the final examination by her two professors.
ISSUE:
Was the refusal of the university to allow Regino to take the final
examination valid?

RULING:
Yes, because it is considered that Collective Bargaining Agreement
entered into by unions and their employers are binding upon the parties
and be acted in strict compliance therewith. Thus, the CBA in this case is
the law between the employers and their employees.
Therefore, there was no overpayment when there was an increase
of salary for the members of the union simultaneous with the increasing
of minimum wage for workers in the National Capital Region. The CBA
should be followed thus, the senior employees who were first promoted as
regular employees shall be entitled for the increase in their salaries and
the same with lower rank workers.

RULING:
No, the Supreme Court declared that the act of PCST was not valid,
though, it can impose its administrative policies, necessarily, the amount
of tickets or payment shall be included or expressed in the student
handbooks given to every student before the start of the regular classes
of the semester. In this case, the fund raising project was not included in
the activities to be undertaken by the university during the semester. The
petitioner is entitled for damages due to her traumatic experience on the
acts of the university causing her to stop studying sand later transfer to
another school.

REGINO VS. PCST


G.R No. 156109. November 18, 2004

FACTS:
Petitioner Kristine Regino was a poor student enrolled at the
Pangasinan College of Science and Technology. Thus, a fund raising
project pertaining to a dance party was organized by PCST, requiring all
its students to purchase two tickets in consideration as a prerequisite for
the final exam.

CONTRACT AS A SOURCE OF OBLIGATION


PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, ET AL. petitioners,
VS. COURT OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, SEGUNDA R.
BAUTISTA, and ARSENIA D. BAUTISTA, respondents

February 4, 1992
FACTS:
Carlitos Bautista was a third year student at the Philippine School of
Business Administration. Assailants, who were not members of the schools
academic community, while in the premises of PSBA, stabbed Bautista to death.
This incident prompted his parents to file a suit against PSBA and its corporate
officers for damages due to their alleged negligence, recklessness and lack of
security precautions, means and methods before, during and after the attack on
the victim.
The defendants filed a motion to dismiss, claiming that the compliant
states no cause of action against them based on quasi-delicts, as the said rule
does not cover academic institutions. The trial court denied the motion to
dismiss. Their motion for reconsideration was likewise dismissed, and was
affirmed by the appellate court. Hence, the case was forwarded to the Supreme
Court.
ISSUE:
Whether or not PSBA is liable for the death of the student.
RULING:
Because the circumstances of the present case evince a contractual
relation between the PSBA and Carlitos Bautista, the rules on quasi-delict do not
really govern. A perusal of Article 2176 shows that obligations arising from
quasi-delicts or tort, also known as extra-contractual obligations, arise only
between parties not otherwise bound by contract, whether express or implied.
However, this impression has not prevented this Court from determining the
existence of a tort even when there obtains a contract.
Article 2180, in conjunction with Article 2176 of the Civil Code, establishes
the rule in in loco parentis. Article 2180 provides that the damage should have
been caused or inflicted by pupils or students of the educational institution
sought to be held liable for the acts of its pupils or students while in its custody.
However, this material situation does not exist in the present case for, as earlier
indicated, the assailants of Carlitos were not students of the PSBA, for whose
acts the school could be made liable. But it does not necessarily follow that
PSBA is absolved form liability.
When an academic institution accepts students for enrollment, there is
established a contract between them, resulting in bilateral obligations which

both parties is bound to comply with. For its part, the school undertakes to
provide the student with an education that would presumably suffice to equip
him with the necessary tools and skills to pursue higher education or a
profession. This includes ensuring the safety of the students while in the school
premises. On the other hand, the student covenants to abide by the school's
academic requirements and observe its rules and regulations.
Failing on its contractual and implied duty to ensure the safety of their
student, PSBA is therefore held liable for his death.
Petition denied.

CONTRACT AS A SOURCE OF OBLIGATION


COSMO ENTERTAINMENT MANAGEMENT, INC., Petitioner,
VS. LA VILLE COMMERCIAL CORPORATION, Respondent
G.R. No. 152801
20 August 2004
FACTS:
The respondent, La Ville Commercial Corporation, is the registered owner
of a parcel of land covered by Transfer Certificate of Title (TCT) No. 174250 of
the Registry of Deeds of Makati City together with the commercial building
thereon situated at the corner of Kalayaan and Neptune Streets in Makati City.
On March 17, 1993, it entered into a Contract of Lease with petitioner Cosmo
Entertainment Management, Inc. over the subject property for a period of seven
years with a monthly rental of P250 per square meter of the floor area of the
building and a security deposit equivalent to three monthly rentals in the
amount of P447,000 to guarantee the faithful compliance of the terms and
conditions of the lease agreement.
Upon execution of the contract, the
petitioner took possession of the subject property.
The petitioner, however, suffered business reverses and was constrained
to stop operations in September 1996. Thereafter, the petitioner defaulted in its
rental payments. Consequently, on February 1, 1997, the respondent made a
demand on the petitioner to vacate the premises as well as to pay the accrued
rentals plus interests which, as of January 31, 1997, amounted to P740,478.91.
In reply to the demand, the petitioner averred that its unpaid rentals amounted
to P698,500 only and since it made a security deposit of P419,100 with the
respondent, the said amount should be applied to the unpaid rentals; hence, the
outstanding accounts payable would only be P279,400. The respondent

requested that the interest charges be waived and it be given time to find a
solution to its financial problems.
After negotiations between the parties failed, the respondent, on May 27,
1997, reiterated its demand on the petitioner to pay the unpaid rentals as well
as to vacate and surrender the premises to the respondent. When the petitioner
refused to comply with its demand, the respondent filed with the Metropolitan
Trial Court (MeTC) of Makati City.
The petitioner, in its answer to the complaint, raised the defense that,
under the contract, it had the right to sublease the premises upon prior written
consent by the respondent and payment of transfer fees.
However, the
respondent, without any justifiable reason, refused to allow the petitioner to
sublease the premises.
After due proceedings, the MeTC rendered judgment in favor of the
respondent.
ISSUE:
Whether or not the contention of the petitioner is tenable.
RULING:
While petitioner pleads that a liberal, not literal, interpretation of the rules
should be our policy guidance, nevertheless procedural rules are not to be
disdained as mere technicalities.
They may not be ignored to suit the
convenience of a party. Adjective law ensures the effective enforcement of
substantive rights through the orderly and speedy administration of justice.
Rules are not intended to hamper litigants or complicate litigation. But they help
provide for a vital system of justice where suitors may be heard in the correct
form and manner, at the prescribed time in a peaceful though adversarial
confrontation before a judge whose authority litigants acknowledge. Public order
and our system of justice are well served by a conscientious observance of the
rules of procedure.
In any case, the Court is convinced that the findings and conclusions of
the court a quo and the RTC are in order. These courts uniformly found that,
under the terms of the contract of lease, the respondent, as the owner-lessor of
the premises, had reserved its right to approve the sublease of the same. The
petitioner, having voluntarily given its consent thereto, was bound by this
stipulation. And, having failed to pay the monthly rentals, the petitioner is
deemed to have violated the terms of the contract, warranting its ejectment
from the leased premises. The Court finds no cogent reason to depart from this

factual disquisition of the courts below in view of the rule that findings of facts of
the trial courts are, as a general rule, binding on this Court. The petition is
DENIED.
CONTRACT AS A SOURCE OF OBLIGATION
AYALA CORPORATION
VS. ROSA DIANA REALTY
346 SCRA 633
FACTS:
In April 1976, appellant-petitioner entered into a transaction with Manuel
Sy and Sy Ka Kieng where former sold a lot in Salcedo Village in Makati. The
deed of sale had some encumbrances contained in the Special Conditions of Sale
(SCS) and Deed of Restrictions (DR), which should be followed by the vendees.
The stipulations in the SCS are:
a building proposal must be submitted to Ayala which must be in accordance
with the DR,
the construction of the building must be completed on or before 1979, and
that there will be no resale of the lot.
The DR specified the limits in height and floor area of the building to be
constructed. However, Sy and Kieng, failed to build a building but nonetheless
with the permission of Ayala, the vendees sold the said lot to the respondent,
Rosa Diana Realty. Respondent Company agreed to abode by the SCS and the
DR stipulations. Prior to the construction, Rosa Diana submitted a building plan
to Ayala complying with the DR but it also passed a different building plan to the
building administrator of Makati, which did not comply with the stipulations in
the DR. While the building, The Peak, was being constructed, Ayala filed a
case praying that: 1) Rosa Diana, be compelled to comply with the DR and build
the building in accordance with the building plan submitted to Ayala; or 2) on the
alternative, the rescission of the deed of sale.
The trial court ruled in favor of the respondent and thus, Rosa Diana was
able to complete the construction of The Peak. Undeterred, Ayala filed before
the Register of Deeds (RD) of Makati a cause of annotation lis pendens. RD
refused to grant Ayala such registration for in the lower court; the case is of
personal action for a specific performance and/or rescission. However, the Land
Registration Authority (LRA) reversed RDs ruling. The appellate court upheld
the RDs ruling stating that the case before the trial court is a personal action for

the cause of action arises from the alleged violation of the DR. The trial court
sustained the respondents point saying that Ayala was guilty of abandonment
and/or estoppels due to its failure to enforce the terms of the DR and SCS
against Sy and Kieng. Ayala discriminately chose which obligor would be made
to follow certain conditions, which is not fair and legal. On appeal, the CA
affirmed the lower courts ruling. Hence, this petition.
ISSUE:
Whether or not Rosa Diana committed a breach of contract.
RULING:
Yes, the Supreme Court ruled that Rosa Diana committed a breach of
contract by submitting a building plan to Ayala complying with the DR and
submitting a different building plan to the building administrator of Makati, which
did not comply with the stipulations in the DR.
Contractual Obligations between parties have the force of law between
them and absent any allegation that the same are contrary to law, morals, good
customs, public order or public policy, they must complied with in good faith.
Thus, the assailed decision of the Court of Appeals is reversed and set
aside.

CONTRACT AS A SOURCE OF OBLIGATION


BRICKTOWN DEVELOPMENT CORP. and MARIANO Z. VERALDE
VS. AMOR TIERRA DEVELOPMENT CORPORATION and
the HON. COURT OF APPEALS
G.R. No. 112182
December 12, 1994
239 SCRA 127
FACTS:
Bricktown Development Corporation, represented by its President and copetitioner Mariano Z. Velarde, executed two Contracts to Sell in favor of Amor

Tierra Development Corporation, represented in these acts by its Vice-President,


Moises G. Petilla, covering a total of 96 residential lots at the Multinational
Village Subdivision, La Huerta, Paraaque, Metro Manila.
The total price of P21,639,875.00 was stipulated to be paid by private
respondent in such amounts and maturity dates, as follows: P2,200,000.00 on 31
March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31 December
1981; and the balance of P11,500,000.00 to be paid by means of an assumption
by private respondent of petitioner corporation's mortgage liability to the
Philippine Savings Bank or, alternately, to be made payable in cash. On date,
March 31, 1981, the parties executed a Supplemental Agreement, providing that
private respondent would additionally pay to petitioner corporation the amounts
of P55,364.68, or 21% interest on the balance of down payment for the period
from 31 March to 30 June 1981, and of P390,369.37 representing interest paid
by petitioner corporation to the Philippine Savings Bank in updating the bank
loan for the period from 01 February to 31 March 1981.
Private respondent was only able to pay petitioner corporation the sum of
P1,334,443.21. However, the parties continued to negotiate for a possible
modification of their agreement, but nothing conclusive happened. And on
October 12, 1981, petitioners counsel sent private respondent a Notice of
Cancellation of Contract because of the latters failure to pay the agreed
amount.
Several months later, private respondents counsel, demanded the refund
of private respondent's various payments to petitioner corporation, allegedly
"amounting to P2,455,497.71," with interest within fifteen days from receipt of
said letter, or, in lieu of a cash payment, to assign to private respondent an
equivalent number of unencumbered lots at the same price fixed in the
contracts. When the demand was not heeded, Amor Tierra filed an action with
the court a quo which rendered a decion in its favor. The decision of the lower
court was affirmed in toto by the Court of Appeals. Hence, this petition.
ISSUE:
Whether or not the contract was properly rescinded.
Whether or not Bricktown properly forfeited the payments of Amor Tierra.
RULING:
The contract between Bricktown and Amor Tierra was validly rescinded
because of the failure of the latter to pay the agreed amounts stipulated in the
contract on the proper date even after the sixty-days grace period.
Furthermore, the records showed that private respondent corporation paid less

than the amount agreed upon. The Supreme Court also added that such
cancellation must be respected. It may also be noteworthy to add that in a
contract to sell, the non-payment of the purchase price can prevent the
obligation to convey title from acquiring any obligatory force.
On the second issue, the Supreme Court ruled that since the private
respondent did not actually possessed the property under the contract, the
petitioner is then ordered to return to private respondent the amount remitted.
However, to adjudge any interest payment by petitioners on the amount to be
thus refunded, private respondent should not be allowed to totally free itself
from its own breach.

CONTRACT AS A SOURCE OF OBLIGATION


PILIPINAS HINO, INC. VS. COURT of APPEALS
G. R. No. 126570
August 18, 2000
338 SCRA 355
FACTS:
On or about August 14, 1989, a contract of lease was entered into
between Pilipinas Hino, Inc. and herein respondents, under which the
respondents, as lessors, leased real property located at Bulacan to Pilipinas Hino,
Inc. for a term of two years from August 16, 1989 to August 15, 1991. Pursuant
to the contract of lease, petitioner deposited with the respondents the amount of
P400,000.00 to answer repairs and damages that may be caused by the lessee
on the leased premises during the period of lease.

(respondents) the option to rescind the same upon failure of the buyer to pay
any of the first six installments with the corresponding obligation to return to the
buyer the amount paid by the buyer in excess of the down payment as stated in
paragraphs 7 and 9 of the Memorandum of Agreement. Pilipinas Hino, Inc.
remitted on August 10, 1990 to the respondents the amount of P1,811,000.00 as
down payment. Subsequently, petitioner paid the first and second installments
in the amount of P1,800,000.00 and P5,250,000.00, respectively, totaling the
down payment of P7,050,000.00.
Unfortunately, petitioner failed to pay the third installment and
subsequent installments. Respondents decided to rescind and terminate the
contract and promised to return to petitioner all the amounts paid in excess of
the down payment after deducing the interest due from third to sixth
installments, inclusive. From the amount of P7,050,000.00 due to be returned to
the petitioner, respondents deducted P924,000.00 as interest and P220,000.00
as rent for the period from February 15 to March 15, 1991, returning to the
petitioner the amount of P5,906,000.00 only.
After trial, the lower court rendered judgment stating that the petitioner
has no cause of action to demand the return of the balance of the deposits in the
amount P140,000.00 and the respondents have the legal right to demand
accrued interest on the unpaid installments in the amount of P924,00.00. The
Court of Appeals affirmed the decision of the trial court. Hence, this petition.
ISSUE:
Whether or not the petitioner is entitled to demand the balance of the
deposits in the amount of P140,000.00 and to the return of the amount of
P924,000.00.

After the expiration of the contract, the petitioner and respondents made
a joint inspection of the premises to determine the extent of damages thereon.
Both agreed that the cost or repairs would amount to P60,000.00 and that the
amount of P340,000.00 shall be returned to petitioner. However, respondents
returned only the amount of P200,000.00 leaving a balance of P140,000.00.
Notwithstanding repeated demands, respondents averred that the true and
actual damage amounted to P298,738.90.

RULING:
The Supreme Court held that the petitioner failed to prove his first cause
of action that the damages to the leased property amounted to more than
P60,000.00. In contrast, respondents were able to prove their counterclaim that
the damage to the leased property amounted to P338,732.50, as testified by
their witness who is an experienced contractor. The trial court did not hold
petitioner liable for the whole amount of P384,732.50, but only for the amount of
P200,000.00.

On August 10, 1990, petitioner and respondents entered into a contract to


sell denominated as Memorandum of Agreement to sell whereby the latter
agreed to sell to the former the leased property in the amount of
P45,611,000.00. The said Memorandum of Agreement to sell granted the owner

On the other hand, the Supreme Court held that both lower and appellate
court failed to consider paragraph 9 contained in the same memorandum of
agreement entered into by the parties. Said paragraphs provides in very clear
terms that when the owner exercise their option to forfeit the down payment,

they shall return to the buyer any amount paid by the buyer in excess of the
down payment with no obligation to pay interest thereon.
The private
respondents withholding of the amount corresponding to the interest violated
the specific and clear stipulation in paragraph 9 of the said memorandum. The
parties are bound by their agreement.
Hence, the decision of the Court of Appeals is modified in that private
respondent is ordered to return to the petitioner the amount of P924,000.00
representing the accrued interest for the unpaid installments and the decision
appealed is affirmed in all other respects.

B.

QUASI CONTRACTS

1.

TITAN-IKEDA CONNSTRUUCTION VS.


PRIMETOWN PROPERTY, 544 S 466
PADCOM CONDOMINIUM VS. ORTIGAS, MAY 9, 2002
MC ENGINEERING VS. CA, 380 SCRA 116
BPI VS. PIEDA, 156 SCRA 404
STATE INVESTMENT VS. CA, 198 SCRA 392

2.
3.
4.
5.

respondent had allegedly constructed almost one third of the project as


weel as selling some units to third persons unknown to the petitioner.
Integrated Inc. took over the project, thus the petitioner is demanding for
the return of its advanced payment in the amount of P2, 000,000.00 as
weel as the keys of the unit.
ISSUE:
Whether or not the petitioner is entitled to damages.
RULING:
No, because in a contract necessarily that there is a meeting of the
minds of the parties in which this will be the binding law upon them.
Thus, in a reciprocal obligation. Both parties are obliged to perform their
obligation simultaneously and in good faith. In this case, petitioner, TitanIkeda can not recover damages because it was found out there was no
solutio indebiti or mistake in payment in this case since the latter is just
entitled to the actual services it rendered to the respondent and thus it is
ordered to return the condominium units to the respondent.
QUASI-CONTRACT AS A SOURCE OF OBLIGATION
PADCOM CONDOMINIUM CORPORATION, petitioner,
VS. ORTIGAS CENTER ASSOCIATION, INC., respondent
G.R. No. 146807
May 9, 2002
382 SCRA 222

TITAN-IKEDA VS. PRIMETOWN


G.R No. 158768. February 12, 2008

FACTS:
The
respondent Primetown Property Corporation entered into
contract weith the petitioner Titan-Ikeda Construction Corporation for the
structural works of a 32-storey prime tower. After the construction of the
tower, respondent again awarded to the petitioner the amount of P
130,000,000.00 for the towers architectural design and structure.
Howevere, in 1994, the respondent entered inot a contract of sale of the
tower in favor of the petitioner in a manner called full-swapping. Since the

FACTS:
Petitioner PADCOM CONDOMINIUM CORPORATION (PADCOM) bought a
land from Tierra Development Corporation with terms and conditions among
which is that the transferee and its successor-in-interest must become members
of an Association for realty owners and long-term lessees at Ortigas Center. The
Ortigas Center Association (OCA) which was subsequently formed levies
membership dues of P2,700.00 per month to all members. Petitioner refused to
pay the membership dues on the ground that it did not become automatic

member of the Association when it bought the land. Herein respondent OCA
filed a civil case for recovery of the amounts due, which was dismissed by the
Regional Trial Court and reversed on appeal. Petitioner PADCOM appealed for
review on certiorari at the Supreme Court.
ISSUE:
Whether or not petitioner PADCOM can be compelled to become a
member of the OCA and thus pay the membership dues based on the condition
of the Deed of Sale.
RULING:
PADCOM became automatically a member of the OCA by virtue of the
conditions of the Deed of Sale attached to its Title of the property. By voluntarily
buying the land with the conditions, it subscribed to such conditions which gave
rise to a quasi-contract between it and the OCA. Therefore, it could not avoid
payment of the membership dues without violating the underlying principles of
quasi-contract which provides that certain lawful, unilateral, and voluntary act
gives rise to a juridical relation between the parties to the end that no one shall
be unjustly enriched of benefited at the expense of others.
Petition denied for lack of merit.

QUASI-CONTRACT AS A SOURCE OF OBLIGATION


MC ENGINEERING, INC. VS. THE COURT OF APPEALS, GERENT BUILDERS,
INC. and STRONGHOLD INSURANCE CO., INC.,
G.R. No. 104047
April 3, 2002
380 SCRA 116
FACTS:
On October 29, 1984, Mc Engineering, Inc. and Surigao Coconut
Development Corporation signed a contract for the restoration of the latters
building, land improvement, electrical, and mechanical equipment located at
Lipata, Surigao City, which was damaged by typhoon Nitang. The agreed

consideration was P5,150,000.00 of which P2,500,000.00 was for the restoration


of the damaged buildings and land improvement, while the P3,000,000.00 was
for the restoration of the electrical and mechanical works.
The next day, on October 30, 1984 defendant Mc Engineering and plaintiff
Gerent Builders, Inc. entered into an agreement wherein defendant
subcontracted to plaintiff the restoration of the buildings and land improvement
phase of its contract with Sucodeco but defendant retained for itself the
restoration of the electrical and mechanical works. The subcontracted work
covered the restoration of the buildings and improvement for P1,665,000.00.
Two (2) months later, on December 3, 1984, Sucodeco and defendant Mc
Engineering entered into an agreement amending provision No. VII, par 1 of their
contract dated October 29, 1984, by increasing the price of the civil works from
P2,250,000.00 to P3,104,851.51, or an increase of P854,851.51, with the express
proviso that except for the amendment above specified, all the other provisions
of the original contract shall remain the same.
The civil work aspect consisting of the building restoration and land
improvement from which plaintiff would get P1,665,000.00 was completed and
the corresponding certificate of acceptance was executed, but the electrical
works were cancelled. On January 2, 1985, plaintiff received from defendant the
amount of P1,339,720.00 as full payment of the sub-contract price, after
deducting earlier payments made by defendant to plaintiff, as evidenced by the
affidavit executed by plaintiffs president, Mr. Narciso C. Roque wherein the
latter acknowledged complete satisfaction for such payment on the basis of the
Statement of Account which plaintiff had earlier forwarded to defendant.
Nevertheless, plaintiff is still claiming from defendant the sum of
P632,590.13 as its share in the adjusted contract cost in the amount of
P854,851.51, alleging that the sub-contract is subject to the readjustment
provided for in Section VII of the agreement, and also the sum of P166,252.00 in
payment for additional electrical and civil works outside the scope of the subcontract. Petitioner refused to pay respondent Gerent.
ISSUE:
Whether or not respondent Gerent Builders, Inc. can claim a share in the
adjusted contract cost between petitioner and Surigao Coconut Development
Corporation basing its claim from its assertion that the quitclaim executed by
plaintiff-appellant is vitiated with fraud.
RULING:

Gerent Builders, Inc. cannot claim for a share in the adjusted contract cost
between petitioner and Sucodeco because petitioner was under no obligation to
disclose to respondent Gerent, a subcontractor, any price increase in petitioners
main contract with Sucodeco. Respondent Gerent is not a party to the main
contract. The subcontract between petitioner and respondent Gerent does not
require petitioner to disclose to Gerent any price increase in the main contract.
The non-disclosure by petitioner of the price increase cannot constitute fraud or
breach of any obligation on the part of petitioner.

Inc., placing the supervision and management of the aforementioned vessels in


the hands of GACET, Inc., which was to run for a period of six (6) months,
renewable at the will of the parties, without however, terminating the booking
agency of Interocean Shipping Corporation. Likewise, under the terms of said
Management Contract, the Peoples Bank and Trust Company was designated as
depository of all revenues coming from the operation of the subject vessels
thereby enabling it to control all expenses of GACET, Inc., since they win all be
drawn against said deposit.

Moreover, the record shows that the P139,720.30 representing final and
full payment of the subcontract price was paid by petitioner to respondent
Gerent based on the statement of account Gerent itself prepared and submitted
to petitioner.

During the period comprising March 16, 1967 and August 25, 1967,
GACET and Interocean in performing their obligations under said Management
Contract, contracted the services of herein plaintiff-appellee, Benjamin Pineda
doing business under the name and style "Pioneer Iron Works," to carry out
repairs, fabrication and installation of necessary parts in said vessels in order to
make them seaworthy and in good working operation. Accordingly, repairs on
the vessels were made. Labor and materials supplied in connection therewith,
amounted to P84,522.70, P18,141.75 of which was advanced by Interocean,
thereby leaving a balance of P62,095.95. For this balance, Interocean issued
three checks and the third one for P 17,377.57. When these checks were
however presented to the drawee, Peoples Bank and Trust Company, they were
dishonored as defendant Interocean stopped payment thereon.

QUASI-CONTRACT AS A SOURCE OF OBLIGATION


BANK OF THE PHILIPPINE ISLANDS
VS. BENJAMIN PINEDA
G.R. No. L-62441
156 SCRA 404
FACTS:
Southern Industrial Project (SIP) and/or Bacong purchased the vessels SS
"Southern Comet," SS "Southern Express" and SS "Southern Hope," thru
financing furnished by defendant Peoples Bank and Trust Company, now the
Bank of the Philippine Islands. To secure the payment of whatever amounts
maybe disbursed for the aforesaid purpose, the said vessels were mortgaged to
Peoples Bank and Trust Company. For the operation of the said vessels, these
were placed under the booking agency of defendant Interocean Shipping
Corporation, with the undertaking that the freight revenues from their charter
and operation shall be deposited with the Trust Department of Peoples Bank and
Trust Company and that disbursements made there from shall be covered by
vouchers bearing the approval of SIP. As Peoples Bank and Trust Company and
SIP were not satisfied with the amount of revenues being deposited with the said
Bank, it being suggested that diversions thereof were being made, Gregorio A.
Concon of SIP and/or Bacong and Roman Azanza of Peoples Bank and Trust
Company, organized S.A. Gacet, Inc. to manage and supervise the operation of
the vessels with Ezekiel P. Toeg as the manager thereof. Accordingly, on August
15, 1966, a Management Contract was entered into between SIP and GACET,

Meanwhile and by reason of the inability of SIP and/or Bacong to pay their
mortgage indebtedness which was past due since 1964, the mortgagee Peoples
Bank and Trust Company threatened to foreclose the mortgage on said vessels.
In order to avoid the inconvenience and expense of imminent foreclosure
proceedings, SIP and/or Bacong sold said vessels to Peoples Bank by way of
dacion en pago.
On October 1, 1968, plaintiff instituted the present action (Civil Case No.
74379) before the Court of First Instance of Manila, seeking to recover from SIP,
GACET, Interocean and the Peoples Bank and 'Trust Company the principal sum
of P62,095.92 with interests thereon from the respective dates of each repair
order until the same is fully paid, which amount was allegedly the total unpaid
balance of the cost of repairs, fabrication and installation of necessary parts
carried out by the said plaintiff on the a forenamed vessels.
Answering the complaint, defendants Peoples Bank and Trust Co., now
Bank of P.I. and Southern Industrial Projects, Inc. (SIP) alleged that the
abovementioned claim is the personal responsibility of Interocean Shipping
Corporation and/or Gacet, Inc. and deny liability thereof Defendant Bacong
Shipping Company, S.A.

The trial court rendered a decision dismissing the compliant against


defendants Interocean Shipping Corporation and Gacet, Inc.
QUASI-CONTRACT AS A SOURCE OF OBLIGATION

Defendants Bank of P.I. and Southern Industrial Projects, Inc. appealed to


the Court of Appeals but the latter, finding the aforequoted decision to be in
accordance with law and the evidence, affirmed the same.
ISSUE:
Whether or not People's Bank, now Bank of P.I. being the purchaser of said
vessels, is jointly and severally liable for the outstanding balance of said repairs,
admittedly a lien on the properties in question.
RULING:
There is no question that at the time subject obligation was incurred,
defendant Southern industrial Projects, Inc. owned the vessels although
mortgaged to People's Bank and Trust Company. Hence, the former as owner is
liable for the costs of repairs made on the vessels. On the other hand,
Interocean Shipping Corporation and S.A. Gacet undeniably mere agents of the
owner, a disclosed principal, cannot be held liable for repairs made on the
vessels to keep them in good running condition in order to earn revenue, there
being no showing that said agents exceeded their authority.
In view of the foregoing facts, it was aptly stated by the trial court and
affirmed by the Court of Appeals that when the parties executed the deed of
"Confirmation of Obligation" they really intended to confirm and acknowledge
the existing obligations for the purpose of the buyer assuming liability therefore
and charging them to the seller after proper accounting, verification and set offs
have been made. Indeed, there is merit in the trial court's view that if there was
no intention on the part of People's Bank (now Bank of P.I.) to assume
responsibility y for these obligations at the time of the sale of the vessels, there
is no sense in executing said Deed of Confirmation together with the deeds of
sale and the stipulations there under would be pointless.
Finally, it is
indisputable that the repairs made on the vessels ultimately redounded to the
benefit of the new owner for without said repairs, those vessels would not be
seaworthy. Under Art. 2142 of the Civil Code, such acts "give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched or
benefited at the expense of another."

STATE INVESTMENT VS. COURT OF APPEALS


198 SCRA 392
FACTS:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged
certain shares of stock to petitioner State Investment House Inc. (State) in
order to secure a loan of P120,000.00. Prior to the execution of the pledge,
respondent spouses Jose and Marcelina Aquino signed an agreement with
petitioner State for the latters purchase of receivables amounting to
P375,000.00. When the 1st Account fell due, respondent spouses paid the same
partly with their own funds and partly from the proceeds of another loan which
they obtained also from petitioner State designated as the 2 nd Account. This new
loan was secured by the same pledge agreement executed in relation to the 1 st
Account. When the new loan matured, State demanded payment. Respondents
expressed willingness to pay, requesting that upon payment, the shares of stock
pledged be released. Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and Marcelina Aquino has
remained unpaid.
On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a
Notice of Notarial Sale stating that upon request of State and by virtue of the
pledge agreement, he would sell at public auction the shares of stock pledged to
State. This prompted respondents to file a case before the Regional Trial Court
of Quezon City alleging that the intended foreclosure sale was illegal because
from the time the obligation under the 2nd Account became due, they had been
able and willing to pay the same, but petitioner had insisted that respondents
pay even the loan account of Jose and Marcelino Aquino, which had not been
secured by the pledge. It was further alleged that their failure to pay their loan
was excused because the Petitioner State itself had prevented the satisfaction of
the obligation.
On January 29, 1985, the trial court rendered a decision in favor of the
plaintiff ordering State to immediately release the pledge and to deliver to
respondents the share of stock upon payment of the loan. The CA affirmed in
toto the decision of the trial court.
ISSUES:

Whether or not the phrase upon payment in the trial courts decision
means upon payment of spouses loan in the principal amount of P110,000.00
alone without interest, penalties and other charges.
Whether or not the conditions to be complied with by the debtor desirous
of being released from his obligation in cases where the creditor unjustly refuses
to accept payment have been met by the spouses Aquino.
RULING:
Anent the 1st issue, NO. The phrase upon payment as held by the
Supreme Court means upon payment of the amount of P110,000.000 plus
seventeen percent (17%) per annum regular interest computed from the time of
maturity of the plaintiffs loan and until full payment of such principal and
interest to defendants. For respondent spouses to continue in possession of the
principal of the loan amounting to P110,000.00 and to continue to use the same
after maturity of the loan without payment of regular or monetary interest,
would constitute unjust enrichment on the part of the respondent spouses at the
expense of petitioner State even though the spouses had not been guilty of
mora.
With respect to the 2nd issue, NO. The conditions had not been complied
with. Article 1256 of the civil code states that: If the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall
be released from responsibility by consignation of the thing or sum due. Where
the creditor unjustly refuses to accept payment, the debtor desirous of being
released from his obligation must comply with two (2) conditions, viz: (a) tender
of payment; and (b) consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the effects of payment
may be produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a
written tender of payment alone, without consignation in court of the sum due,
does not suspend the accruing of regular or monetary interest. In the instant
case, respondent spouses Aquino, while they are properly regarded as having
made a written tender of payment to petitioner state, failed to consign in court
the amount due at the time of the maturity of the 2nd Account No. It follows that
their obligation to pay principal-cum-regular or monetary interest under the
terms and conditions of the said Account was not extinguished by such tender of
payment alone.

SOURCES OF OBLIGATIONS:

D.

DELICTS

1.
2.
3.
4.
5.
6.
7.
8.

PEOPLE VS. MALICSI, 543 S 93


PEOPLE VS. SIA, NOV. 21, 2001
PEOPLE VS. DOCTOLERO, AUG. 20, 2001
PEOPLE VS. ABULENCIA, AUG. 22, 2001
BERMUDEZ VS. MELECIO- HERRERA, FEB. 26, 1988
PEOPLE VS. RELOVA, MAR, 6, 1987
MANANTAN VS. CA, JAN. 29, 2001
PEOPLE VS. BAYOTAS, 236 SCRA 239

PEOPLE VS. MALICSI


G.R No. 175833. January 29, 2008
FACTS:
The accused-appellant was accused for the crime of rape against
his niece. The incident was repeated trice by the appellant. The appellant
contended that he and the victim were sweethearts but the trial court did
not give weight to that theory.
The trial court found appellant guilty of the crime of four counts of
qualified rape and was sentenced to suffer the penalty of death for each
count of rape, to pay P300,000.00 as civil indemnity (P75,000.00 for each
count), and P200,000.00 as moral damages (P50,000.00 for each count).
The CA however modified the findings of the RTC declaring that appellant
is guilty of four counts of simple rape and to suffer the penalty of
reclusion perpetua.
ISSUE:
Whether the award of damages was properly made.
RULING:
No, because the Supreme Court declared that the crime committed
was four count of simple rape only and not qualified rape because the
special aggravating circumstances of minority and relationship must be

alleged in the information but the prosecution failed to do so. Since it is


not included, four counts of simple rape should be undertaken. The
penalty imposed then should be reclusion perpetua. The appellate court
also correctly affirmed the award by the trial court of P200,000.00 for
moral damages. Moral damages are automatically granted to rape victim.
However, the award of civil indemnity is reduced to P200,000.00 in the
amount of P50,000.00 for each count of simple rape is automatically
granted.

DELICT AS A SOURCE OF OBLIGATION


PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. ROSAURO SIA y DICHOSO, JOHNNY BALALIO y DEZA, JIMMY PONCE y
TOL and JOHN DOE @ PEDRO MUOZ (at large), accused-appellants
G.R. No. 137457
2001 Nov 21
FACTS:
The taxi was taken from the garage and driven by its regular driver,
Christian Bermudez, at about 6:00 a.m. on August 23, 1995. The taxi was last
seen at the vicinity of the Pegasus Night Club at about 10:30 p.m. on the said
date with the passenger who is the accused Rosauro Sia. Accused Rosauro Sia
appears to have tipped driver Christian Bermudez to service him the following
day in the morning and to be paid P150.00 per hour which was apparently
accepted because Rosauro gave instructions to accused Johnny Balalio and
Jimmy Ponce to wait for him (Christian) that following morning. When Christian
returned to Sias residence he was told to come back in the afternoon. When
Christian returned in the afternoon, he was asked to get inside. As soon as he
alighted from the taxi, his hands were tied by Johnny Balalio and was handed to
a certain Pedro, the accused Peter Doe who has not been arrested. Christian
was taken to accused Rosauro and shortly afterwards, the latter was seen
lugging with him a big carton box from which blood was dripping. Accused
Jimmy Ponce saw Rosauro hand the carton-wrapped lifeless body of Christian
inside the carnapped FX taxi. Before leaving with the lifeless body of Christian
loaded in the taxi, accused Sia gave P3,000.00 each to Jimmy Ponce, Johnny
Balalio and Pedro and admonished them not to say anything about what
happened. The ring taken from Christian was given to accused Jimmy Ponce by
Rosauro Sia.

On August 26, 1995, the lifeless body of Christian Bermudez was found
and retrieved from a fishpond in Meycauayan, Bulacan. This fact was broadcast
over the radio and, after hearing the same, Agripina Bermudez went to see the
lifeless body retrieved from the fishpond and confirmed it to be that of Christian,
whom she claims is her eldest son who was earning about P650.00 a day as a
taxi driver.
ISSUE:
Whether or not the trial court is correct in awarding the damages to the
heirs of the victim.
RULING:
The Court finds no reason to reverse the ruling of the court a quo insofar
as the crimes were committed. Anent the civil indemnity award, this Court finds
the amount of P50,000.00 as death indemnity proper, following prevailing
jurisprudence and in line with controlling policy. Award of civil indemnity may be
granted without any need of proof other than the death of the victim.
The victims heirs are likewise entitled to moral damages, pegged at
P50,000.00 by controlling case law, taking into consideration the pain and
anguish of the victims family brought about by his death. However, the award of
P200,000.00 as burial and other expenses incurred in connection with the death
of the victim must be deleted. The records are bereft of any receipt or voucher
to justify the trial courts award of burial and other expenses incurred in
connection with the victims death.
The trial court was correct in awarding damages for loss of earning
capacity despite the non-availability of documentary evidence.
Damages
representing net earning capacity have been awarded by the Court based on
testimony in several cases. However, the amount of the trial courts award
needs to be recomputed and modified accordingly.
In determining the amount of lost income, the following must be taken
into account: (1) the number of years for which the victim would otherwise have
lived; and (2) the rate of the loss sustained by the heirs of the deceased. The
second variable is computed by multiplying the life expectancy by the net
earnings of the deceased, meaning total earnings less expenses necessary in the
creation of such earnings or income less living and other incidental expenses.
Considering that there is no proof of living expenses of the deceased, net
earnings are computed at fifty percent (50%) of the gross earnings. The formula
used by this Court in computing loss of earning capacity is:

Net Earning Capacity = [2/3 x (80 age at time of death) x (gross annual
income reasonable and necessary living expenses)]
In this case, the Court notes that the victim was 27 years old at the time
of his death and his mother testified that as a driver of the Tamaraw FX taxi, he
was earning P650.00 a day. Hence, the damages payable for the loss of the
victims earning capacity is computed thus:
Gross Annual Earnings = P650 x 261 working days in a year
=
Net Earning Capacity

= 2/3 x (80-27) x [P169,650.00 P84,825.00]


=

P169,650.00

35.33 x 84,825.00

P2,996,867.20

Based on the foregoing computation, the award of the trial court with
regard to lost income is thus modified accordingly.

DELICT AS A SOURCE OF OBLIGATION


PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. CARLOS DOCTOLERO, SR., accused-appellant
G.R. No. 131866
2001 Aug 20
FACTS:
On November 20, 1996 at around 7:00 in the evening, Vicente Ganongan
Jr. and Roderick Litorco went to their friends boarding house on Honeymoon
Road, Baguio City. Thereat, Vicente Ganongan, Roderick Litorco, Regie
Daodaoan, Rex Tabanganay, Jeffrey Alimani and Florencio Dagson agreed to
drink gin in Sangatan Store. After two (2) hours, the group decided to go home.
They went down Honeymoon road towards Rimando road to get a taxi for
Litorco. Upon noticing that Litorco could not carry himself, they decided to bring
him to their boarding house. Dagson assisted Litorco and walked ahead of
Ganongan, Daodaoan, Tabanganay and Alimani. As the latter four neared the

Garcia store along Honeymoon road, Carlos Garcia, with three companions, told
them to stop, pointing a gun at them. Hearing the commotion, Dagson who was
walking about 5 to 7 meters ahead with Litorco rushed to the boarding house
and sought help. When Dagson came back, he was with Oliver Alimani, Arman
Alimani and Dexter Daggay. When they arrived, they saw Garcia pointing a gun
at the group of Ganongan, Daodaoan, Tabanganay and Jeffrey Alimani. Oliver
Alimani approached Garcia who in turn pointed his gun at Oliver and identified
himself as barangay kagawad. At this time, Carlos Doctolero Sr. was standing at
the edge of Honeymoon road. He then put his arm over Daodaoans shoulder.
Daoadaoan shoved Doctoleros hand and retreated. Doctolero stepped back and
fired twice at Daodaoan but missed. Tabanganay asked Daodaoan if he was hit
and upon answering that he was not, Tabanganay shouted at his friends to run.
When Ganongan turned around to run, Doctolero fired at him, hitting him twice.
Oliver Alimani came to Ganongans aid when the latter yelled that he was hit.
Thereafter, they hailed a taxi and rushed Ganongan to Saint Louis University
Hospital where he expired.
Accused-appellant was convicted of murder after appreciating the
aggravating circumstance of treachery. He was sentenced to suffer the penalty
of reclusion perpetua and was ordered to indemnify the heirs of Ganongan the
amounts of P50,000.00 as civil indemnity, P227,808.00 as actual damages, and
P300,000.00 as moral damages plus costs.
ISSUE:
Whether or not the accused was guilty of murder and the damages
awarded to the heirs were proper.
RULING:
No. Since treachery was not proven to be resent in this case, the court
deemed it proper to convict the accused of the crime of homicide, instead of
murder thus damages were reduced to P112,413.40 representing funeral
expenses, which were duly proven and covered by receipts.
Expenses relating to the 9th day, 40th day and 1st year anniversaries
cannot be considered in the award of actual damages as these were incurred
after a considerable lapse of time from the burial of the victim. With respect to
the award of moral damages, the same is reduced to P50,000.00 in accordance
with existing jurisprudence

DELICT AS A SOURCE OF OBLIGATION


PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. ROLLY ABULENCIA Y COYOS, defendant-appellant
2001 Aug 22
G.R. No. 138403
FACTS:
It is established from the testimony of prosecution witness Reynaldo
Garcia, Jr. that he met the appellant in the morning of that fateful day of August
4, 1998 and later, both engaged in a drinking spree; that they slept on the papag
of Garcias house in the afternoon of that day; that the victim Rebelyn, was also
in the same house at that time; that after waking up, the appellant left the house
at about 5:30 oclock in the afternoon to buy dilis in the nearby store located 40
meters away, the victim tagging along; that the appellant and Rebelyn never
returned; that in the evening of the same day, the appellant surrendered to
Mayor Sevilleja, reporting that he was with the victim when the latter allegedly
fell from the bridge after he accidentally tripped (napatid) her off; that the
appellant admitted having raped the victim in a tape interview by Dennis
Mojares, another prosecution witness; that the victim was found dead the
following morning floating at the Colobong creek near the Aburido bridge; and
that the autopsy conducted on her cadaver shows that she was sexually abused
and, thereafter, brutally killed.
After the trial on the merits, the court a quo rendered its decision dated
March 16, 1999, convicting accused Rolly Abulencia of the crime as charged and
to suffer the penalty of death, to be implemented in the manner provided for by
law. Ordering the accused to indemnify the heirs of Rebelyn Garcia, the sum of
P75,000.00 damages, and another sum of P20,000.00 for exemplary damages
plus P6,425.00 as actual damages.
ISSUE:
Whether or not the court a quos award of civil liability is reasonable
based on the circumstances of the crime and whether circumstancial evidence is
sufficient to warrant a conviction.
RULING:
With regard to the civil indemnity, the trial court awarded only
P75,000.00. Current jurisprudence has fixed at P100,000.00 the civil indemnity
in cases of rape with homicide, which is fully justified and properly
commensurate with the seriousness of that special complex crime.

As regards to the sufficiency of circumstantial evidence to warrant


conviction, the Court held that the absence of direct evidence, however, does
not preclude the conviction of a person accused of the complex crime of rape
with homicide. Circumstantial evidence can be as potent as direct evidence to
sustain a conviction provided that there is a concurrence of all the requisites
prescribed in Section 5, Rule 133 of the Revised Rules on Evidence, thus:
Circumstantial Evidence, when sufficient.- Circumstantial evidence is sufficient
for conviction if: (a) There is more than one circumstance; (b) The facts from
which the inferences are derived are proven; and (c) The combination of all the
circumstances is such as to produce a conviction beyond a reasonable doubt.
Likewise this Court has held that an accused can be convicted based on
circumstantial evidence if the circumstances proven constitute an unbroken
chain which leads to a fair and reasonable conclusion pointing to the accused, to
the exclusion of all others, as the guilty person.
Thus, the appealed decision convicting Rolly Abulencia of the crime of
rape with homicide and sentencing him to suffer the penalty of death, is affirmed
with modification insofar as the civil aspect is concerned. Appellant is thus
ordered to pay the heirs of Rebelyn Garcia P100,000.00 as civil indemnity;
P50,000.00 as moral damages; P25,000.00 as exemplary damages; and
P6,425.00 as actual damages.

DELICT AS A SOURCE OF OBLIGATION


REYNALDO BERMUDEZ, SR., and,
ADONITA YABUT BERMUDEZ, petitioners-appellants,
VS. HON. JUDGE A. MELENCIO-HERRERA, DOMINGO PONTINO y TACORDA
and CORDOVA NG SUN KWAN, respondents-appellees
February 26, 1988
FACTS:
A cargo truck, driven by Domingo Pontino and owned by Cordova Ng Sun
Kwan, bumped a jeep on which Rogelio, a six-year old son of plaintiffsappellants, was riding. The boy sustained injuries which caused his death. As a
result, Criminal Case No. 92944 for Homicide Through Reckless Imprudence was
filed against Domingo Pontino. Plaintiffs-appellants filed on July 27, 1969 in the
said criminal case "A Reservation to File Separate Civil Action."

On July 28, 1969, the plaintiffs-appellants filed a civil case for damages
against Domingo Pontino y Tacorda and Cordova Ng Sun Kwan.

acquittal extinguishes the civil liability of the accused only when it includes a
declaration that the facts from which the civil liability might arise did not exist.

Finding that the plaintiffs instituted the action "on the assumption that
defendant Pontino's negligence in the accident of May 10, 1969 constituted a
quasi-delict," the trial court stated that plaintiffs had already elected to treat the
accident as a "crime" by reserving in the criminal case their right to file a
separate civil action. That being so, the trial court decided to order the dismissal
of the complaint against defendant Cordova Ng Sun Kwan and to suspend the
hearing of the case against Domingo Pontino until after the criminal case for
Homicide Through Reckless Imprudence is finally terminated.

DELICT AS A SOURCE OF OBLIGATION

ISSUE:
Whether or not the present action is based on quasi-delict under the Civil
Code and therefore could proceed independently of the criminal case for
homicide thru reckless imprudence.
RULING:
In cases of negligence, the injured party or his heirs has the choice
between an action to enforce the civil liability arising from crime under Article
100 of the Revised Penal Code and an action for quasi-delict under Article 21762194 of the Civil Code.
If a party chooses the latter, he may hold the employer solidarily liable for
the negligent act of his employee, subject to the employer's defense of exercise
of the diligence of a good father of the family.
In the case at bar, the action filed by appellant was an action for damages
based on quasi-delict. The fact that appellants reserved their right in the
criminal case to file an independent civil action did not preclude them from
choosing to file a civil action for quasi-delict.
The appellant precisely made a reservation to file an independent civil
action. In fact, even without such a reservation, the Court allowed the injured
party in the criminal case which resulted in the acquittal of the accused to
recover damages based on quasi-delict.
It does not follow that a person who is not criminally liable is also free
from civil liability. While the guilt of the accused in a criminal prosecution must
be established beyond reasonable doubt, only a preponderance of evidence is
required in a civil action for damages (Article 29, Civil Code). The judgment of

PEOPLE OF THE PHILIPPINES, petitioner,


VS. THE HONORABLE BENJAMIN RELOVA, and MANUEL OPULENCIA,
respondents
G.R. No. L-45129
March 6, 1987
FACTS:
On 1 February 1975, members of the Batangas City Police together with
personnel of the Batangas Electric Light System, equipped with a search warrant
issued by a city judge of Batangas City, searched and examined the premises of
the Opulencia Carpena Ice Plant and Cold Storage owned and operated by the
private respondent Manuel Opulencia. The police discovered that electric wiring,
devices and contraptions had been installed, without the necessary authority
from the city government, and "architecturally concealed inside the walls of the
building" owned by the private respondent.
These electric devices and
contraptions were, in the allegation of the petitioner "designed purposely to
lower or decrease the readings of electric current consumption in the electric
meter of the said electric plant."
During the subsequent investigation, Manuel Opulencia admitted in a
written statement that he had caused the installation of the electrical devices "in
order to lower or decrease the readings of his electric meter." On 24 November
1975, an Assistant City Fiscal of Batangas City filed before the City Court of
Batangas City an information against Manuel Opulencia for violation of
Ordinance No. 1, Series of 1974, Batangas City. A violation of this ordinance
was, under its terms, punishable by a fine "ranging from Five Pesos (P5.00) to
Fifty Pesos (P50.00) or imprisonment, which shall not exceed thirty (30) days, or
both, at the discretion of the court."

The accused Manuel Opulencia pleaded not guilty. On 2 February 1976,


he filed a motion to dismiss the information upon the grounds that the crime
there charged had already prescribed and that the civil indemnity there sought
to be recovered was beyond the jurisdiction of the Batangas City Court to award
which was dismissed by the judge.
Fourteen (14) days later, on 20 April 1976, the Acting City Fiscal of
Batangas City filed before the Court of First Instance of Batangas, Branch II,
another information against Manuel Opulencia, this time for theft of electric
power under Article 308 in relation to Article 309, paragraph (1), of the Revised
Penal Code. Before he could be arraigned thereon, Manuel Opulencia filed a
Motion to Quash, dated 5 May 1976, alleging that he had been previously
acquitted of the offense charged in the second information and that the filing
thereof was violative of his constitutional right against double jeopardy. By
Order dated 16 August 1976, the respondent Judge granted the accused's
Motion to Quash and ordered the case dismissed.
ISSUES:
Whether or not Manuel Opulencia can be tried for violation of the Revised
Penal Code after acquittal from the violation of an ordinance due to prescription
which were based from the same act and whether or not he may still be held
liable civilly.
RULING:
The Supreme Court held that the accused was placed in double jeopardy,
hence, could not be tried in the criminal case.
However, the civil liability aspects of this case are another matter.
Because no reservation of the right to file a separate civil action was made by
the Batangas City electric light system, the civil action for recovery of civil
liability arising from the offense charged was impliedly instituted with the
criminal action both before the City Court of Batangas City and the Court of First
Instance of Batangas.
The extinction of criminal liability whether by prescription or by the bar of
double jeopardy does not carry with it the extinction of civil liability arising from
the offense charged.
In the present case, accused Manuel Opulencia freely admitted during the
police investigation having stolen electric current through the installation and
use of unauthorized electrical connections or devices. While the accused
pleaded not guilty before the City Court of Batangas City, he did not deny having

appropriated electric power. However, there is no evidence in the record as to


the amount or value of the electric power appropriated by Manuel Opulencia, the
criminal informations having been dismissed both by the City Court and by the
Court of First Instance (from which dismissals the Batangas City electric light
system could not have appealed) before trial could begin. Accordingly, the
related civil action which has not been waived expressly or impliedly, should be
remanded to the Court of First Instance of Batangas City for reception of
evidence on the amount or value of the electric power appropriated and
converted by Manuel Opulencia and rendition of judgment conformably with
such evidence.

DELICT AS A SOURCE OF OBLIGATION


MANANTAN VS. COURT OF APPEALS
350 SCRA 387
January 29, 2001
FACTS:
On June 1, 1983, the Provincial Fiscal of Isabela filed an information
charging petitioner Manantan with reckless imprudence resulting to homicide,
allegedly committed on or about the 25th day of September 1982, in the
municipality of Santiago, Isabela. The said accused being then the driver and
person-in-charge of an automobile bearing Plate No. NGA-816 willfully and
unlawfully drove and operated the same while along the Daang Maharlika of the
said municipality, in a negligent manner causing the automobile to sideswipe a
passenger jeepney, thereby causing the said automobile to turn turtle twice
resulting to the death Ruben Nicolas passenger of the said automobile.
In its decision dated June 30, 1988, promulgated on August 4, 1988, the
trial court decided the criminal case in favor of Manantan.
Subsequently, the private respondent spouses Nicolas filed their notice of
appeal on the civil aspect of the trial courts judgment. The Nicolas spouses
prayed that the decision appealed from be modified and that the appellee be
ordered to pay indemnity and damages. On its decision, the Court of Appeals
decided in favor of the private respondents. In finding petitioner civil liability,
the court a quo noted that at the time the accident occurred, Manantan was in a
state of intoxication, due to his having consume all in all a total amount of at
least twelve bottles of beer between 9 a.m. to 11 p.m.

The petitioner moved for reconsideration but the appellate court denied
the motion.
ISSUE:
Whether or not the acquittal of the accused also extinguished his civil
liability.
RULING:
NO. Our law recognizes two kinds of acquittal, with different effects on
the civil liability of the accused. First is an acquittal on the ground that the
accused is not the author of the act or omission complained of as a felony. This
instance closes the door to civil liability, for a person who has been found not to
be the perpetrator of any act or omission cannot and can never be held liable for
such act or omission. There being no delict, civil liability ex delicto is out of the
question, and the civil action, if any, which will be instituted must be based on
ground other than the delict complained of. The second instance is an acquittal
based on reasonable doubt on the guilt of the accused. In this case, even if the
guilt of the accused has not been satisfactorily established, he is not exempt
from civil liability which may be proved by preponderance of evidence only.
In the case at bar, the accuseds acquittal is based on reasonable doubt.
The decision of the trial court did not state in clear and equivocal terms that
petitioner was not recklessly imprudent or negligent. Hence, impliedly, the trial
court acquitted him on reasonable doubt. Since civil liability is not extinguished
in criminal cases if the accused acquittal is based on reasonable doubt, the
decision of the Court of Appeals finding that the defendant is civilly liable for his
negligent and reckless act of driving his car which was the proximate cause of
the vehicular accident, and sentenced him to indemnify plaintiff-appellants in
the amount of P74,400.00 for the death of Ruben Nicolas.

DELICT AS A SOURCE OF OBLIGATION


PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
VS. ROGELIO BAYOTAS Y CORDOVA, accused-appellant
G.R. No. 102007

Sept. 2, 1994
236 SCRA 239
FACTS:
Rogelio Bayotas was charged with rape and eventually convicted on June
19, 1991. While the appeal was pending, Bayotas died. The Supreme Court
dismissed the criminal aspect of the appeal; however, it required the SolicitorGeneral to comment with regard to Bayotas civil liability arising from his
commission of the offense charged.
In his comment, the Solicitor-General expressed his view that the death of
accused-appellant did not extinguish his civil liability as a result of his
commission of the offense charged. This comment was opposed by the counsel
of accused-appellant, arguing that the death of the accused while judgment of
the conviction is pending appeal extinguishes both criminal and civil penalties,
he cited in support and invoked the ruling of the Court of Appeals in People v.
Castillo, which was held that the civil obligation in a criminal case takes root in
the criminal responsibility and therefore civil liability is extinguished if accused
should die before final judgment is rendered.
ISSUE:
Whether or not the death of the accused pending appeal of his conviction
extinguishes his civil liability.
RULING:
Yes, the death of the accused pending appeal of his conviction
extinguishes his civil liability because tire liability is based solely on the criminal
act committed. Corollarily, the claim for civil liability survives notwithstanding
the death of the accused, if the same may also be predicted as one source of
obligation other than delict.
Moreover, when a defendant dies before judgment becomes executory,
'there cannot be any determination by final judgment whether or not the felony
upon which the civil action might arise exists,' for the simple reason that `there
is no party defendant.' The Rules of Court state that a judgment in a criminal
case becomes final 'after the lapse of the period for perfecting an appeal or
when the sentence has been partially or totally satisfied or served, or the
defendant has expressly waived in writing his right to appeal.'
In addition, where the civil liability does not exist independently of the
criminal responsibility, the extinction of the latter by death, ipso facto
extinguishes the former, provided, of course, that death supervenes before final

judgment. As in this case, the right to institute a separate civil action is not
reserved, the decision to be rendered must, of necessity, cover 'both the
criminal and the civil aspects of the case.' The accused died before final
judgment was rendered, thus, he is absolved of both his criminal and civil
liabilities based solely on delict or the crime committed.
Appeal dismissed.

the road at high speed, and there was no showing that Barredo exercised the
diligence of a good father of a family.
Barredos theory of defense is that Fontanillas negligence being
punishable by the Revised Penal Code, that his liability as employer is only
subsidiary liable but Fontanilla was sued for civil liability, hence, Barredo claims
that he can not be held liable.
ISSUE:
Whether or not complainants liability as employer of Fontanilla was only
subsidiary and not as primarily and directly responsible under Article 1903 of the
Civil Code.

SOURCES OF OBLIGATIONS
E.

QUASI-DELICTS

1.
2.
3.
4.
5.
6.
7.
8.

BARREDO VS. GARCIA, 73 PHIL 607


DY TEBAN VS. CHING, 543 S 560
SAFEGUARD SECURITY VS. TANGCO, 511 S 67
VILLANUEVA VS. DOMINGO, 438 S 485
CALALAS VS. CA, 31 MAY 2000
LUDO AND LUYM CORP. VS. CA, FEB. 1, 2001
THERMOCHEM VS. NAVAL, OCT. 30, 2000
PICART VS. SMITH, 37 PHIL 813

FAUSTO BARREDO VS. SEVERINO GARCIA and TIMOTEO ALMARIO


G.R. No. 48006
July 08, 1942
73 PHIL 607
FACTS:
On May 3, 1936, there was a head-on collision between a taxi of the
Malate Taxi driven by Fontanilla and a carretela guided by Dimapilis. The
carretela was overturned and a passenger, 16-year-old boy Garcia, suffered
injuries from which resulted to his death. A criminal action was filed against
Fontanilla, and he was convicted. The court in the criminal case granted the
petition to reserve the civil action against Barredo, the proprietor of the Malate
Taxi and the employer of Fontanilla, making him primarily and directly
responsible under culpa aquiliana.
It was undisputed that Fontanillas
negligence was the cause of the accident as he was driving on the wrong side of

RULING:
No, the Supreme Court ruled that complainants liability is not only
subsidiary but also primary liability. The Court affirmed the decision of the Court
of Appeals which ruled that the liability sought to be imposed upon Barredo in
this action is not a civil obligation arising from a felony, but an obligation
imposed in Article 1903 of the Civil Code by reason of his negligence in the
selection or supervision of his servant or employee.
QUASI-DELICT OR CULPA AQUILIANA is a separate legal institution under
the Civil Code and is entirely distinct and independent from a delict or crime as
punished under the Revised Penal Code (RPC). In this jurisdiction, the same
negligent act causing damage may produce civil liability (subsidiary) arising from
a crime under Art. 103 of the RPC; or create an action for the quasi delict or
culpa aquiliana (primary) and the parties injured are free to choice which course
to take.
In the instant case, the negligent act of Fontanilla produced two liabilities
of Barredo. First, a subsidiary one because of the civil liability of Fontanilla
arising from the latters criminal negligence; and second, Barredos primary and
direct responsibility arising from his presumed negligence as an employer in the
selection of his employees or their supervision, under Art. 1903 of the Civil Code.
The parties instituted an action for damages under Art. 1903 of the Civil
Code.
Barredo was found guilty of negligence for carelessly employing
Fontanilla, who had been caught several times for violation of the Automobile
Law and speeding violation. Thus, the petition is denied. Barredo must
indemnify plaintiffs under the provisions of Art. 1903 of the Civil Code.

QUASI-DELICT AS A SOURCE OF OBLIGATION

DY TEBAN VS. LIBERTY FOREST


G.R No. 161803. February 4, 2008
FACTS:
A Prime Mover Trailer suffered a tire blow out during the night of its
travel at a national highway. The trailer was owned by the respondent
Liberty Forest. The driver allegedly put earl warning devices but the only
evidence being witnessed was a banana trunks and candles. Since the car
was placed at the right wing of the road, thus it cause the swerving of a
Nissan van owned by the petitioner when a passenger bus was coming in
between the trailer. The Nissan van owner claimed for damages against
the respondent. The trial court found that the proximate cause of the
three way accident is the negligence and carelessness of driver of the
respondent . However reversed the decision of the trial court.
ISSUE:
Whether there was negligence on the part of the respondent.
RULING:
Yes. There was negligence on the part of the respondent when the
latter failed to put and used an early warning device because it was found
out that there was no early warning device being prescribed by law that
was used by the driver in order to warn incoming vehicle. Furthermore,
the proximate cause of the accident was due to the position of the trailer
where it covered a cemented part of the road, thus confused and made
trick way for other vehicles to pass by. Thus the respondent is declared
liable due to violation of road rules and regulations.

FACTS:
The victim Evangeline Tangco was depositor of Ecology Bank. She
was also a licensed-fire arm holder, thus during the incident, she was
entering the bank to renew her time deposit and along with her was her
firearm. Suddenly, the security guard of the bank, upon knowing that the
victim carries a firearm, the security guard shot the victim causing the
latters instant death. The heirs of the victim filed a criminal case against
security guard and an action against Safeguard Security for failure to
observe diligence of a goof father implied upon the act of its agent.
ISSUE:
Whether Safeguard Security can be held liable for the acts of its
agent.
RULING:
Yes. The law presumes that any injury committed either by fault or
omission of an employee reflects the negligence of the employer. In
quasi-delicts cases, in order to overcome this presumption, the employer
must prove that there was no negligence on his part in the supervision of
his employees.
It was declared that in the selection of employees and agents,
employers are required to examine them as to their qualifications,
experience and service records. Thus, due diligence on the supervision
and operation of employees includes the formulation of suitable rules and
regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with
whom the employer has relations through his employees. Thus, in this
case, Safeguard Security committed negligence
in identifying
the
qualifications and ability of its agents.

QUASI-DELICT AS A SOURCE OF OBLIGATION

SAFEGUARD SECURITY VS. TANGCO


G.R No. 165732. December 14, 2006

QUASI-DELICT AS A SOURCE OF OBLIGATION

VILLANUEVA VS. DOMINGO


G.R No. 144274. September 20, 2004
FACTS:
In 1991, a collision was made by a green Mitsubishi lancer owned by
Ocfemia against a silver Mitsubishi lancer driven by Leandro Domingo and
owned by petitioner Priscilla Domingo. The incident caused the car of
Domingo bumped another two parked vehicles. A charged was filed
against Ocfemia and the owner Villanueva. Villanueva claimed that he
must not be held liable for the incident because he is no longer the owner
of the car, that it was already swapped to another car . however, the trial
court ordered the petitioner to pay the damages incurred by the silver
Mitsubishi lancer car.
ISSUE:
Whether the owner Villanueva be held liable for the mishap.
RULING:
Under the Motor Vehicle law, it was declared that the registered
owner of any vehicle is primary land directly liable for any injury it incurs
while it is being operated. Thus, even the petitioner claimed that he was
no longer the present owner of the car, still the registry was under his
name, thus it is presumed that he still possesses the car and that the
damages caused by the car be charge against him being the registered
owner. The primary function of Motor vehicle registration is to identify the
owner so that if any accident happens, or that any damage or injury is
caused by the vehicle, responsibility therefore can be fixed on a definite
individual, the registered owner.

QUASI-DELICT AS A SOURCE OF OBLIGATION

CALALAS VS. COURT OF APPEALS


G.R No. 122039. May 31, 2000

FACTS:
Eliza Sunga was a passenger of a jeepney owned and operated by
the petitioner Calalas. Private respondent Sunga sat in the rear protion of
the jeepney where the conductor gave Sunga an extension seat. When
the jeep stopped, Sunga gave way to a passenger going outside the jeep.
However, an Isuzu Truck driven by Verene and owned by Salva,
accidentally hit Sunga causing the latter to suffer physical injuries where
the attending physician ordered a three months of rest. Sunga filed an
action for damages against the petitioner for breach of contract of
common carriage by the petitioner.
On the other hand, the petitioner Calalas filed an action against
Salva, being the owner of the truck. The lower court ruled in favor of ther
petitioner, thus the truck owner is liable for the damage to the jeep of the
petitioner.
ISSUE:
Whether the petitionerr is liable.
RULING:
Yes. The petitioner is liable for the injury suffered by Sunga. Under
Article 1756 of the New Civil Code, it provides that common carriers are
presumed to have been at fault or to have acted negligently unless they
prove that they observed extraordinary diligence as defined in Arts. 1733
and 1755 of the Code. This provision necessarily shifts to the common
carrier the burden of proof.
In this case, the law presumes that any injury suffered by a
passenger of the jeep is deemed to be due to the negligence of the driver.
This is a case on Culpa Contractual where there was pre-existing
obligations and that the fault is incidental to the performance of the
obligation. Thus, it was clearly observed that the petitioner has
negligence in the conduct of his duty when he allowed Sunga to seat in
the rear portion of the jeep which is prone to accident.
QUASI-DELICT AS A SOURCE OF OBLIGATION

cluster, respondent did not show persuasively other possible causes of the
damage.
LUDO AND LUYM CORPORATION, petitioner,
VS. COURT OF APPEALS, GABISAN SHIPPING LINES, INC.
and/or ANSELMO OLASIMAN, respondents.
G.R. No. 125483
February 1, 2001
351 SCRA 35
FACTS:
Private respondent Anselmo Olasiman, as captain, was maneuvering the
ship MV Miguela owned by respondent Gabisan Shipping lines, at the pier owned
by petitioner Ludo and Luym Corporation when it rammed the pile cluster
damaging it and deforming the cable wires wound around it.
In an action for recovery of damages filed by Petitioner, the Regional Trial
Court ruled against respondents for incompetence and negligence. In an appeal
the Court of Appeals reversed the lower courts decision, saying that the
petitioners witness Naval was incompetent to testify on the negligence of the
crew and that petitioners evidence did not positively identify that MV Miguela
caused the damage.
Thus, petitioner filed this petition for review.
ISSUE:
Whether or not the private respondents are responsible for the damage
done to the pier by the ship based on the doctrine of RES IPSA LOQUITOR.
RULING:
The Supreme Court sustained the Regional Trial Court decision partly on
the ground that the incompetence of eyewitness Naval was not an assigned
error at the appellate court.
The doctrine of RES IPSA LOQUITOR says that when the thing that causes
the damage is in the control and management of the respondent, and in the
ordinary course of things the accident does not happen if those who have the
management use proper care, it affords reasonable evidence, in the absence of
explanation, that the accident arose from want of care. The principle applies
here. The MV Miguela was in the exclusive control of respondent Olasiman, and
aside from petitioners witness testimony that the vessel rammed the pile

Therefore, respondents were responsible for the damage. Petition


granted and the decision of the Regional Trial Court reinstated.

is

QUASI-DELICT AS A SOURCE OF OBLIGATION


THERMOCHEM INCORPORATED and JEROME O. CASTRO, petitioners,
VS. LEONORA NAVAL and THE COURT OF APPEALS, respondents
G.R. No. 131541
2000 Oct 20
FACTS:
On May 10, 1992, at around 12:00 o'clock midnight, Eduardo Edem was
driving a "Luring Taxi" along Ortigas Avenue, near Rosario, Pasig, going towards
Cainta. Prior to the collision, the taxicab was parked along the right side of
Ortigas Avenue, not far from the Rosario Bridge, to unload a passenger.
Thereafter, the driver executed a U-turn to traverse the same road, going to the
direction of EDSA. At this point, the Nissan Pathfinder traveling along the same
road going to the direction of Cainta collided with the taxicab. The point of
impact was so great that the taxicab was hit in the middle portion and was
pushed sideward, causing the driver to lose control of the vehicle. The taxicab
was then dragged into the nearby Question Tailoring Shop, thus, causing
damage to the said tailoring shop, and its driver, Eduardo Eden, sustained
injuries as a result of the incident.
Private respondent, as owner of the taxi, filed a damage suit against
petitioner, Thermochem Incorporated, as the owner of the Nissan Pathfinder, and
its driver, petitioner Jerome Castro.
After trial, the lower court adjudged petitioner Castro negligent and
ordered petitioners, jointly and severally, to pay private respondent actual,
compensatory and exemplary damages plus attorney's fees and costs of suit.
On appeal, the Court of Appeals affirmed the judgment of the court a quo.
Hence, this petition for review on certiorari.
ISSUE:
Whether or not the petitioners are liable based on quasi-delict.

RULING:
Yes. The Court held that the driver of the oncoming Nissan Pathfinder
vehicle was liable and the driver of the U-turning taxicab was contributorily
liable.
From petitioner Castro's testimonial admissions, it is established that he
was driving at a speed faster than 50 kilometers per hour. But as he allegedly
stepped on the brake, it locked causing his Nissan Pathfinder to skid to the left
and consequently hit the taxicab. The sudden malfunction of the vehicle's brake
system is the usual excuse of drivers involved in collisions which are the result of
speedy driving. Malfunction or loss of brake is not a fortuitous event. The owner
and his driver are presumed to know about the conditions of the vehicle and is
duty bound to take care thereof with the diligence of a good father of the family.
A mechanically defective vehicle should avoid the streets.
Moreover, the record shows that the Nissan Pathfinder was on the wrong
lane when the collision occurred. This was a disregard of traffic safety rules.
The law considers what would be reckless, blameworthy or negligent in a man of
ordinary diligence and prudence and determines liability by that.
As mentioned earlier, the driver of the taxi is contributorily liable. U-turns
are not generally advisable particularly on major streets. The driver of the taxi
ought to have known that vehicles coming from the Rosario bridge are on a
downhill slope. Obviously, there was lack of foresight on his part, making him
contributorily liable.
Considering the contributory negligence of the driver of private
respondent's taxi, the award of P47,850.00, for the repair of the taxi, should be
reduced in half. All other awards for damages are deleted for lack of merit.

QUASI-DELICT AS A SOURCE OF OBLIGATION


PICART VS. SMITH
37 PHIL 813
FACTS:
Plaintiff was riding on his pony across the bridge. Before he had gotten
half-way across, the defendant approached from the opposite direction in an
automobile. As the defendant neared the bridge, he saw the plaintiff and blew

his horn to give warning. The plaintiff heard the warning signal but instead of
going to the let, he pulled the pony closely up against the railing on the right
side of the bridge. He averred that he thought he did not have sufficient time to
get over the other side. As the automobile approached, the defendant guided it
toward the plaintiff, without diminution to speed, assuming the horseman would
move to the other side. When he had gotten quite near, there being no
possibility o the horse getting across to the other side, the defendant quickly
turned his car sufficiently to the right to escape hitting the horse. However, the
horse was still hit and died while the rider was thrown off violently.
ISSUE:
Whether the defendant was negligent in maneuvering his car giving rise
to a civil obligation.
RULING:
Yes. The Court held that the control of the situation has shifted to the
defendant when the incident occurred. At first, he has the right to assume that
the horse and rider would pass over to the other side but as he moved to the
center, it was demonstrated that this would not be done. It was then his duty to
bring his car to an immediate stop or, seeing that there were no other person on
the bridge, to take the other side and ass sufficiently far away from the horse to
avoid the danger of collision. Instead of doing this, the defendant ran straight on
until he was almost upon the horse. When the defendant exposed the horse and
rider to this danger he was negligent in the eye of the law.
Conduct is said to be negligent when a prudent man in the position of the
tortfeasor would have foreseen that an effect harmful to another was sufficiently
probable to warrant his foregoing the conduct or guarding against its
consequences. Applying this test to the conduct of the defendant, it is clear that
negligence is established. A prudent man, laced in the position o the defendant,
would have recognized that the course which he was pursuing was fraught with
risk, and would therefore have foreseen harm to the horse and rider as a
reasonable consequence of that course. Under these circumstances the law
imposed on the defendant the duty to guard against the threatened harm.
The plaintiff on the other hand was guilty of antecedent negligence in
planting himself on the wrong side o the road. The negligent acts of the two
arties were not contemporaneous, since the negligence of the defendant
succeeded the negligence of the plaintiff by an appreciable interval. Under these
circumstances, the law is that the person who has the last fair chance to avoid
the impending harm and fails to do is chargeable wit the consequences, without
reference to the prior negligence of the other party.

In sum, though the plaintiff was guilty of negligence or being on the wrong
side of the bridge, the defendant was civilly liable as he had fair chance to avoid
the accident.

NATURE AND EFFECT OF OBLIGATIONS


POSITIVE PERSONAL OBLIGATIONS / TO DO
1.
2.

FRANCISCO VS. CA, 401 SCRA 594


TANGUILING VS. CA, 266 SCRA 78

SPOUSES LORENZO G. FRANCISCO and LORENZA D. FRANCISCO,


petitioners,
VS. HONORABLE COURT OF APPEALS, and
BIENVENIDO C. MERCADO, respondents
April 25, 2003
401 SCRA 594
FACTS:
On 3 February 1984, the spouses Lorenzo and Lorenza Francisco and
Engineer Bienvenido C. Mercado entered into a Contract of Development for the
development into a subdivision of several parcels of land in Pampanga.
Respondent committed to complete the construction within 27 months.
Respondent also advanced P200,000.00 for the initial expenses of the
development work. In return, respondent would receive 50% of the total gross
sales of the subdivision lots and other income of the subdivision. Respondent
also enjoyed the exclusive and irrevocable authority to manage, control and
supervise the sales of the lots within the subdivision.
On 5 August 1986, respondent secured from the Human Settlements
Regulatory Commission ("HSRC") an extension of time to finish the subdivision
development until 30 July 1987. On 8 August 1986, petitioners instructed
respondent to stop selling subdivision lots and collecting payments from lot
buyers.

On 20 January 1987, petitioners granted respondent an authority to


resume the sale of subdivision lots and the collection of payments subject to the
following conditions: (1) all collections shall be deposited in a joint account with
China Banking Corporation, San Fernando, Pampanga branch; (2) withdrawals
shall be limited to 50% of the total collections or to respondent's share, which
can only be used for development expenses, and any withdrawal shall be subject
to the approval of petitioners; (3) only Franda Village Subdivision receipts, duly
countersigned by petitioners, shall be used; (4) collections shall be subject to a
weekly or monthly audit; and (5) any violation of these conditions shall result in
the automatic cancellation of the authority.
Respondent filed an action to rescind the contract on the ground that
conditional authority issued by petitioners violated the Contract. Petitioners
countered that respondent breached the Contract by failing to finish the
subdivision within the 27 months agreed upon, and therefore respondent was in
delay. Petitioners also alleged that respondent sold one subdivision lot to two
different buyers.
The trial Court ruled that the petitioners breached the Contract by: (1)
hiring Rosales to do development work on the subdivision within the 27-month
period exclusively granted to respondent; (2) interfering with the latters
development work; and (3) stopping respondent from managing the sale of lots
and collection of payments.
Because petitioners were the first to breach the Contract and even
interfered with the development work, the trial court declared that respondent
did not incur delay even if he completed only 28% of the development work.
Further, the HSRC extended the Contract up to July 1987. Since the Contract
had not expired at the time respondent filed the action for rescission,
petitioners defense that respondent did not finish the development work on
time was without basis.
The Court of Appeals affirmed the decision.
ISSUE:
Whether or not the respondent incurred delay in not finishing the work in
the stipulated time.
RULING:
The Supreme Court finds no merit in petitioners claim that respondent
incurred delay in the performance of his obligation under the Contract. At that

time, the law authorized HSRC to grant extensions of time for completion of
subdivision projects.
The law provides that delay may exist when the obligor fails to fulfill his
obligation within the time expressly stipulated. In this case, the HSRC extended
the period for respondent to finish the development work until 30 July 1987.
Respondent did not incur delay since the period granted him to fulfill his
obligation had not expired at the time respondent filed the action for rescission
on 27 February 1987.
Moreover petitioners hampered and interfered with respondents
development work. Petitioners also stopped respondent from selling lots and
collecting payments from lot buyers, which was the primary source of
development funds. In effect, petitioners rendered respondent incapable, or at
least made it difficult for him, to develop the subdivision within the allotted
period. In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply with what is incumbent upon him. It is only
when one of the parties fulfills his obligation that delay by the other begins.
Respondents failure to submit the monthly report cannot serve as
sufficient basis for the cancellation of the Contract. The cancellation of a
contract will not be permitted for a slight or casual breach. Only a substantial
and fundamental breach, which defeats the very object of the parties in making
the contract, will justify a cancellation. In the instant case, the development
work continued for more than two years despite the lack of a monthly report.

POSITIVE PERSONAL OBLIGATIONS / TO DO


JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner.
VS. COURT OF APPEALS and VICENTE HERCE JR., respondents
G.R. No. 117190
January 2, 1997
266 SCRA 78
FACTS:
Sometime in April 1987, petitioner entered into a contract with herein
private respondent to construct windmill for the latter. After some negotiations
they agreed on the construction of the windmill for a consideration of P60,000.00

with a one-year guaranty from the date of completion and acceptance by


respondent Herce Jr. of the project. Pursuant to the agreement respondent paid
petitioner a down payment of P30,000.00 and an installment payment of
P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the
balance, petitioner filed a complaint to collect the amount. However, private
respondent claimed that petitioner did not build a deep well so he was not
entitled for payment and also such windmill was defective and was easily
destroyed by a typhoon. Petitioner, on the other hand, denied the inclusion of
the construction of a deep well in their contract and besides the destruction of
the windmill is due to a force majeure. In finding for plaintiff, the trial court held
that the construction of the deep well was not part of the windmill project as
evidenced clearly by the letter proposals submitted by petitioner to respondent.
The defects and the construction were not also clearly proven by the
respondent.
However, Court of Appeals reversed the trial court. It
construction of the deep well was included in the agreement
because the term "deep well" was mentioned in both proposals.
reconsideration having been denied by the Court of Appeals,
seeks relief from the Supreme Court.

ruled that the


of the parties
His motion for
petitioner now

ISSUES:
Whether or not petitioner is obliged to construct the deep well and is
obliged to repair the windmills.
RULING:
On the first issue, the Supreme Court held that petitioner is not obliged to
construct the deep well, sustaining the trial court to be correct that said deep
well is not stipulated in their contract. Notably, nowhere in either proposal is the
installation of a deep well mentioned, even remotely. Neither is there an
itemization or description of the materials to be used in constructing the deep
well. There is absolutely no mention in the two (2) documents that a deep well
pump is a component of the proposed windmill system.
In order for a party to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code the event should be the sole
and proximate cause of the loss or destruction of the object of the contract. In
Nakpil vs. Court of Appeals, four (4) requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the
event must be either unforeseeable or unavoidable; (c) the event must be such

as to render it impossible for the debtor to fulfill his obligation in a normal


manner; and, (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to
a fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely stated
that there was a "strong wind." But a strong wind in this case cannot be
fortuitous, unforeseeable or unavoidable. On the contrary, a strong wind should
be present in places where windmills are constructed, otherwise the windmills
will not turn.

Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta


Zaragoza-Morgan.
On December 13, 1969, petitioner entered into a compromise agreement
with the Zaragozas and Periquets. The trial court approved the compromise
agreement. Also, an order for adjudication and transfer of the residue of the
estate to petitioner was issued.
On May 16, 1970, Felix Francisco filed an action to annul the Assignment
of Hereditary Rights he executed in favor of petitioner. The action for annulment
was based on gross misrepresentation and fraud, grave abuse of confidence,
mistake and undue influence and lack of cause and/or consideration in the
execution of the challenged Deed of Assignment.
The trial court declared the Assignment of Hereditary Rights executed by
Francisco in favor of Periquet Jr. valid and binding.

BREACH OF OBLIGATIIONS: CAUSES AND EFFECTS


1.
2.

PERIQUET VS. CA, 238 SCRA 697


LEGASPI OIL VS. CA, 224 SCRA 213

PERIQUET JR. VS. COURT OF APPEALS


238 SCRA 697
FACTS:
Spouses Fernando Periquet and Petra Francisco were left childless so they
took in a son out of wedlock of Maria, Petras sister. The boy was given the
name Fernando Periquet Jr., though he was not legally adopted.
On March 20, 1966, Fernando Periquet died. He left a will wherein he
named his wife Petra as his universal heir. Accordingly, Petra instituted a
Special Proceeding for probate of her deceased spouses will. Unfortunately,
Petra died after only four months and eighteen days later. Prior to her untimely
death, she asked her lawyer to prepare her last will and testament. Petra left
her estate to petitioner and provided for certain legacies to her brother, sister
and children of her deceased siblings. However, she died before she could sign
it.
On August 3,1966, Felix Francisco executed a document of Assignment of
Hereditary Rights in favor of Periquet Jr. other intestate heirs also executed a

On appeal, the then Intermediate Appellate Court annulled and rescinded


the Assignment of Hereditary Rights. A motion for reconsideration was denied
for lack of merit.
ISSUES:
Whether or not the CA erred in disregarding and ignoring the trial courts
strong and substantial findings of fact that no fraud, deception, gross
misrepresentation or undue influence attended the execution and signing of the
Deed of Assignment of Hereditary Rights.
Whether or not the Intermediate Appellate Court erred in disregarding the
trial courts strong and substantial findings of fact that no fraud, deception, gross
misrepresentation or undue influence attended the execution and signing of the
deed of Assignment.
Whether or not the Intermediate Appellate Court erred in disturbing and
setting aside the Compromise Agreement.

RULING:
Anent the 1st issue, YES. No fraud was employed by herein petitioner.
Felix Francisco could not be considered to have been deceived into
signing the subject deed of assignment. The kind of fraud that will vitiate a

contract refers to those insidious words or machinations resorted to by one of


the contracting parties to induce the other to enter into a contract which without
them he would not have agreed to. It must have a determining influence on the
consent of the victim. The will of the victim, in effect, is maliciously vitiated by
means of a false appearance of reality.
In the case at bench, manifestations of fraud are non-existent.
Resultantly, the Assignment of Hereditary Rights executed by Felix Francisco in
favor of herein petitioner is valid and effective. Furthermore, the allegations of
fraud, deception, gross misrepresentation, or undue influence were not
established by full, clear and convincing evidence. The finding of the trial court
as to its existence or non-existence is final and cannot be reviewed save only
when the finding id clearly shown to be erroneous.
Anent the 2nd issue, YES. The fraud that vitiates a contract refers to those
insidious words or machinations resorted to by one of the contracting parties to
induce the other to enter into a contract which without them he would not have
agreed to. In the case at bench, no such fraud was employed by herein
petitioner. Clearly, Felix Francisco executed the document voluntarily and freely
basing it on the Trial Courts findings. The finding of the Trial Court as to the
existence of fraud is final and cannot be reviewed save only when the finding is
clearly shown to be erroneous.
rd

Anent the 3 issue, YES.


It cannot be denied that a compromise
agreement was entered into by the parties in that case in order to end the suit
already filed in court. The same was approved by the court, cannot and should
not be disturbed except for vices of consent or forgery, it being the obvious
purpose of such compromise agreement to settle, once and for all, the claims of
the parties, and bar all future disputes and controversies thereon.
BREACH OF OBLIGATIIONS: CAUSES AND EFFECTS (Art. 1167, CC)
LEGASPI OIL CO., INC., petitioner,
VS. THE COURT OF APPEALS and BERNARD OSERAOS, respondents
G.R. No. 96505
July 1, 1993
224 SCRA 213
FACTS:

Respondent Bernard Oseraos acting through his authorized agents, had


several transactions with appellee Legaspi Oil Co. for the sale of copra to the
latter. The price at which appellant sells the copra varies from time to time,
depending on the prevailing market price when the contract is entered into. One
of his authorized agents, Jose Llover, had previous transactions with appellee for
the sale and delivery of copra. The records show that he concluded a sale for 70
tons of copra at P95.00 per 100 kilos on May 27, 1975 and another sale for 30
tons of P102.00 per 100 kilos on September 23, 1975. Subsequently, on
November 6, 1975, another designated agent signed a contract in behalf of
appellant for the sale of 100 tons of copra at P79.00 per 100 kilos with delivery
terms of 25 days effective December 15, 1975. At this point, it must be noted
that the price of copra had been fluctuating (going up and down), indicating its
unsteady position in the market.
On February 16, 1976, appellant's agent Jose Llover signed a contract for
the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20
days effective March 8, 1976. As compared to appellant's transaction on
November 6, 1975, the current price agreed upon is slightly higher than the last
contract. In all these contracts though, the selling price had always been stated
as "total price" rather than per 100 kilos. However, the parties have understood
the same to be per 100 kilos in their previous transactions.
After the period to deliver had lapsed, appellant sold only 46,334 kilos of
copra thus leaving a balance of 53,666 kilos as per running account card.
Accordingly, demands were made upon appellant to deliver the balance with a
final warning embodied in a letter dated October 6, 1976, that failure to deliver
will mean cancellation of the contract, the balance to be purchased at open
market and the price differential to be charged against appellant. On October
22, 1976, since there was still no compliance, appellee exercised its option
under the contract and purchased the undelivered balance from the open
market at the prevailing price of P168.00 per 100 kilos, or a price differential of
P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant.
The petitioner then filed a complaint against private respondent for
breach of a contract and for damages. The trial court held Oseraos liable for
damages amounting to P48,152.76. The Appellate Court ordered the dismissal
of the case on appeal. Hence, the instant petition for review on certiorari.
ISSUE:
Whether or not private respondent Oseraos is liable for damages arising
from fraud or bad faith in deliberately breaching the contract of sale entered into
by the parties.

RULING:
Yes. The private respondent is guilty of fraud in the performance of his
obligation under the sales contract whereunder he bound himself to deliver to
petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976.
However within the delivery period, Oseraos delivered only 46,334 kilograms of
copra to petitioner, leaving an undelivered thus a balance of 53,666 kilograms.
Petitioner made repeated demands upon private respondent to comply with his
contractual undertaking to deliver the balance of 53,666 kilograms but private
respondent elected to ignore the same.
In a letter dated October 6, 1976, petitioner made a final demand with a
warning that, should private respondent fail to complete delivery of the balance
of 53,666 kilograms of copra, petitioner would purchase the balance at the open
market and charge the price differential to private respondent. Still private
respondent failed to fulfill his contractual obligation to deliver the remaining
53,666 kilograms of copra. On October 22, 1976, since there was still no
compliance by private respondent, petitioner exercised its right under the
contract and purchased 53,666 kilograms of copra, the undelivered balance, at
the open market at the then prevailing price of P168.00 per 100 kilograms, a
price differential of P86.00 per 100 kilograms or a total price differential of
P46,152.76.
In general, fraud may be defined as the voluntary execution of a wrongful
act, or a wilfull omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in Article 1170
of the Civil Code of the Philippines is the deliberate and intentional evasion of
the normal fulfillment of obligation; it is distinguished from negligence by the
presence of deliberate intent, which is lacking in the latter. The conduct of
private respondent clearly manifests his deliberate fraudulent intent to evade his
contractual obligation for the price of copra had in the meantime more than
doubled from P82.00 to P168 per 100 kilograms.
Under Article 1170 of the Civil Code of the Philippines, those who in the
performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.
Pursuant to said article, private respondent is liable for damages.
In case of fraud, bad faith, malice, or wanton attitude, the guilty party is
liable for all damages, which may be reasonably attributed to the nonperformance of the obligation. On account of private respondent's deliberate
breach of his contractual obligation, petitioner was compelled to buy the balance

of 53,666 kilos of copra in the open market at the then prevailing price of P168
per 100 kilograms thereby paying P46,152.76 more than he would have paid had
private respondent completed delivery of the copra as agreed upon.
Thus, private respondent is liable to pay respondent the amount of
P46,152.76 as damages. Thus, petition granted. The trial court ruling reinstated.
BREACH OF OBLIGATIIONS: DEFAULT (Mora) (Art. 1169, CC)
TITAN-IKEDA CONSTRUCTION VS. PRIMETOWN PROPERTY
544 S 466
FACTS:

In 1992, respondent Primetown Property Group, Inc. awarded


the contract for the structural works of its 32-storey Makati Prime Tower
(MPT) to petitioner Titan-Ikeda Construction and Development
Corporation. In September 1995, respondent engaged the services of
Integratech, Inc. (ITI), an engineering consultancy firm, to evaluate the
progress of the project. In its report, ITI informed respondent that
petitioner, at that point, had only accomplished 31.89% of the project (or
was 11 months and six days behind schedule). Meanwhile, petitioner and
respondent were discussing the possibility of the latters take over of the
projects supervision. Despite ongoing negotiations, respondent did not
obtain petitioners consent in hiring ITI as the projects construction
manager. Neither did it inform petitioner of ITIs September 7, 1995
report.
Subsequently, both parties agreed that Primetown will take over the
project. Petitioner then demanded for the payment due him in relation to
its partial performance of its obligation. For failure of Primetown to pay
despite repeated demands, petitioner filed a case for specific
performance against Primetown. Meanwhile, Primetown demanded
reimbursement for the amount it spent in having the project completed.
ISSUE:
Whether or not Titan-Ikeda is responsible for the projects delay.

possession of the bank, and requesting a reply within five days. PNB MADECOR
received a similar notice.

RULING:
It was found that because respondent modified the MPT's
architectural design, petitioner had to adjust the scope of work. Moreover,
respondent belatedly informed petitioner of those modifications. It also
failed to deliver the concrete mix and rebars according to schedule. For
this reason, petitioner was not responsible for the project's delay. Mora or
delay is the failure to perform the obligation in due time because of dolo
(malice) or culpa (negligence). A debtor is deemed to have violated his
obligation to the creditor from the time the latter makes a demand. Once
the creditor makes a demand, the debtor incurs mora or delay.
Respondent never sent petitioner a written demand asking it to
accelerate work on the project and reduce, if not eliminate, slippage. In
view of the foregoing, we hold that petitioner did not incur delay in the
performance of its obligation.

NECESSITY OF DEMAND: EXTRAJUDICIAL OR JUDICIAL


PNB MADECOR VS. GERARDO C. UY
G.R. No. 129598
August 15, 2001
363 SCRA 128
FACTS:
Guillermo Uy, doing business under the name G.U. Enterprises, assigned
to respondent Gerardo Uy his receivables due from Pantranco North Express Inc.
(PNEI) amounting to P4,660,558.00. The deed of assignment included sales
invoices containing stipulations regarding payment of interest and attorneys
fees. Thus, Uy filed with the RTC a collection suit with an application for the
issuance of a writ of preliminary attachment against PNEI.
A writ of preliminary attachment was issued on January 26, 1995,
commanding the sheriff to attach the properties of the defendant, real or
personal, and/or (of) any person representing the defendant in such amount as
to cover Gerardo Uys demand. On January 27, 1995, the sheriff issued a notice
of garnishment addressed to the Philippine National Bank (PNB) attaching the
goods, effects, credits, monies and all other personal properties of PNEI in the

Petitioner then submitted a position paper stating that PNB MADECOR is a


creditor of PNEI with respect to the P8,784,227.48 and at the same time its
debtor with respect to the P7,884,000.00, PNB MADECOR and PNEI are therefore
creditors and debtors of each other and by force of the law on compensation,
both obligations of PNB MADECOR
and PNEI are already considered
extinguished to the concurrent amount or up to P7,884,000.00 so that PNEI is
still obligated to pay PNB MADECOR the amount of P900,227.48
Uy filed an omnibus motion opposing PNB MADECORs claim of
compensation in which the latter argued that the letter of PNEI on September 28,
1984 was not a demand letter but merely a request for the implementation of
the arrangement for set-off receivables. Therefore, PNEI did not earn an interest
of 18% annually.
ISSUE:
Whether or not the letter of PNEI on September 28, 1984 to PNB
MADECOR was a demand letter.
RULING:
The Supreme Court observed that petitioners obligation to PNEI appears
to be payable on demand. Petitioner is obligated to pay the amount stated in
the promissory note upon receipt of a notice to pay from PNEI. Henceforth, if
petitioner fails to pay after such notice, the obligation will earn an interest of 18
percentum per annum.
The records showed that the letter was not a demand letter but one that
merely informed petitioner of the conveyance of a certain portion of its
obligation to PNEI per a dacion en pago arrangement between PNEI and PNB,
and the unpaid balance of obligation after deducting the amount conveyed to
PNB. The letter only connotes that PNEI was advising petitioner to settle the
matter of implementing the earlier arrangement with PNB.

WHEN DEMAND NOT NECESSARY


1.
2.
3.

BARZAGA VS. CA, 268 S 105


TANGUILING VS, CA, 266 SCRA 78
TAYAG VS. CA, 219 SCRA 480

4.

PERIQUET VS. CA, 238 SCRA 697


WHEN DEMAND NOT NECESSARY

IGNACIO BARZAGA, petitioner,


VS. COURT OF APPEALS and ANGELITO ALVIAR, respondents
G.R. No. 115129
February 12, 1997
268 SCRA 105
FACTS:
Petitioner Ignacio Barzaga bought from the hardware store of respondent
Angelito Alviar construction materials for the niche of his wife scheduled for
internment on December 24, 1990. He paid for the materials purchased but the
circumstances of delivery with the specific date (December 22), time (8 A.M.),
and place (Memorial Cemetery, Dasmarinas) were not indicated in the invoice
receipts but were verbally acknowledged by the store attendant. Respondent
was not able to deliver the materials on the specified date and time which
resulted to the delay in the construction of the niche and consequently to the
delay in the internment of petitioners wife. The delay caused the inability of the
petitioner to accede to the dying wishes of his wife that she be buried on the 24 th
of the month. She was buried 2 and days later, after Christmas.
ISSUE:
Whether or not the respondent is liable for damages due to his nonperformance of his obligation to deliver the materials on the specified date and
time.
RULING:
Yes, private respondent is liable for damages. Respondents contention in
the appellate court that he did not incur delay in the performance of his
obligation to deliver the thing sold to petitioner since the time of delivery was
not indicated in the invoice receipt covering the sale could not be sustained in
view of the positive verbal commitment of the respondents employee. It was no
longer necessary to indicate the time of delivery. Respondent was negligent and
incurred delay in the performance of his contractual obligations. Respondent
had no right to manipulate petitioners timetable and substitute it with his own.
Therefore, he is liable for moral damage for causing further anguish and
pain, and suffering to the family of petitioner especially during Christmas day,
and for exemplary damages for not performing his obligation under the business
contract.

TANGUILIG v. COURT of APPEALS


G. R. No. 117190
January 2, 1997
266 SCRA 78
FACTS:
In April 1987, petitioner Jacinto Tanguilig, ( J.M.T. Engineering and General
Merchandising), proposed to respondent Vicente Herce, Jr. to construct a
windmill system for him. After some negotiations, they agreed on the
construction of the windmill for a consideration of P60,000.00 with a one-year
guaranty from the date of completion and acceptance by Herce, Jr. of the
project. Pursuant to the agreement, Herce, Jr. paid Tanguilig a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a balance of
P15,000.00. On March 14, 1988, due to the refusal and failure of respondent to
pay the balance, petitioner filed a complaint to the collect the amount. In his
Answer before the trial court, Herce, Jr. denied the claim saying that he had
already paid the amount to San Pedro General Merchandising, Inc. which the
windmill was to be connected. Since the deep well formed part of the system,
the payment Herce, Jr. tendered to SPGMI should be credited his account by
Tanguilig. Respondent also averred that assuming he owed petitioner a balance
of P15,000.00, this should be offset by the defects in the windmill which caused
the structure to collapse after a strong wind hit hteir place.
Tanguilig denied that the construction of a deep well was included in the
agreement to build the windmill sytem, for the contract price of P60,000.00 was
solely for the windmill assembly and its installation, exclusive of other incidental
materials needed for the project. Tanguilig also disowned any obligation to
repair or reconstruct the system and insisted that he delivered it in good and
working condition to respondent who accepted the same without protest. He
also contended that the collapse was attributable to a typhoon, a force majeure,
which relieved him of any liability.
ISSUE:
Whether or not the petitioner is under obligation to reconstruct the
windmill after it collapsed

RULING:
The Supreme Court held that when the windmill failed to function
properly, it becomes incumbent upon the petitioner to institute the proper
repairs in accordance with the guaranty stated in the contract.
Hence,
respondent cannot be said to have incurred in delay; instead it is the petitioner
who should bear the expenses for the reconstruction of the windmill. Thus, the
Supreme Court ruled that respondent Herce, Jr. should pay petitioner Tanguilig
the balance of P15,000.00 and likewise ordered petitioner Tanguilig to
reconstruct subject defective windmill system, in accordance with the one-year
guaranty.

vendors obligation to the Philippine Veterans Bank, the vendee paid only the
sum of P6,926.41 while the difference of the indebtedness came from Celerina
Labuguin. Moreover, petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was paid to them. Because of
the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed the complaint for specific
performance.

WHEN DEMAND NOT NECESSARY

RULING:
Both the trial and appellate courts were correct in sustaining the claim of
private respondent anchored on estopped or waiver by acceptance of delayed
payments under Article 1235 of the Civil Code in that:

JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN


GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners,
VS. COURT OF APPEALS and ALBRIGIDO LEYVA, respondents
G.R. No. 96053
March 3, 1993
219 SCRA 418
FACTS:
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr.,
prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva
involving the undivided one-half portion of a piece of land situated at Poblacion,
Guimba, Nueva Ecija is the subject matter of the present litigation between the
heirs of Juan Galicia, Sr. who assert breach of the conditions as against private
respondents claim anchored on full payment and compliance with the
stipulations thereof.
The court of origin which tried the suit for specific performance filed by
private respondent on account of the herein petitioners reluctance to abide by
the covenant, ruled in favor of the vendee while respondent court practically
agreed with the trial court except as to the amount to be paid to petitioners and
the refund to private respondent are concerned.
There is no dispute that the sum of P3,000.00 listed as first installment
was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to
be paid within ten days from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions from May 29, 1975,
up to November 3, 1979. Concerning private respondents assumption of the

ISSUE:
Whether or not private respondent correctly anchored on estopped or
waiver by acceptance of delayed payments.

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.
considering that the heirs of Juan Galicia, Sr. accommodated private
respondently by accepting the latters delayed payments not only beyond the
grace periods but also during the pendency of the case for specific performance.
Indeed, the right to rescind is not absolute and will not be granted where there
has been substantial compliance by partial payments. By and large, petitioners
actuation is susceptible of but one construction-that they are now estopped from
reneging from their commitment on account of acceptance of benefits arising
from overdue accounts of private respondent.
Now, as to the issue of whether payments had in fact been made, there is
no doubt that the second installment was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayags admission in judicio that the sum of
P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose
that the evidence in the records do not support this conclusion. A contrario,
when the court of origin, as well as the appellate court, emphasized the frank
representation along this line of Josefina Tayag before the trial court, petitioners
chose to remain completely mute even at this stage despite the opportunity
accorded to them, for clarification. Consequently, the prejudicial aftermath of
Josefina Tayags spontaneous reaction may no longer be obliterated on the basis
of estoppel.

Insofar as the third item of the contract is concerned, it may be recalled


that respondent court applied Article 1186 of the Civil Code on constructive
fulfillment which petitioners claim should not have been appreciated because
they are the obliges while the proviso in point speaks of the obligor.
But, petitioners must concede that in a reciprocal obligation like a contract of
purchase, both parties are mutually obligors and also obliges, and any of the
contracting parties may, upon non-fulfillment by the other privy of his part of the
prestation, rescind the contract or seek fulfillment (Article 1191, Civil Code).
Petitioners argue that there was no valid tender of payment nor
consignation of the sum of P18,520.00 which they acknowledge to have been
deposited in court on January 22, 1981 five years after the amount of P27,000.00
had to be paid. This suggestion ignores the fact that consignation alone
produced the effect of payment in the case at bar because it was established
that two or more heirs of Juan Galicia, Sr. claimed the same right to collect.
Moreover, petitioners did not bother to refute the evidence on hand that,
aside from the P18,520.00. These two figures representing private respondents
payment of the fourth condition amount to P32,428.25, less the P3,778.77 paid
by petitioners to the bank, will lead us to the sum of P28,649.48 or a refund of
P1,649.48 to private respondent as overpayment of the P27,000.00 balance.
WHEN DEMAND NOT NECESSARY
DR. FERNANDO PERIQUET, JR.,
VS. HONORABLE FOURTH CIVIL CASES DIVISION OF THE INTERMEDIATE
APPELLATE COURT and the HEIRS OF THE LATE FELIX R. FRANCISCO
G.R. No. 69996
December 5, 1994
238 SCRA 697

FACTS:

Spouses Fernando Periquet and Petra Francisco were left childless so they
took in a son out of wedlock of Maria, Petras sister. The boy was given the
name Fernando Periquet Jr., though he was not legally adopted.

On March 20, 1966, Fernando Periquet died. He left a will wherein he


named his wife Petra as his universal heir. Accordingly, Petra instituted a
Special Proceeding for probate of her deceased spouses will. Unfortunately,
Petra died after only four months and eighteen days later. Prior to her untimely
death, she asked her lawyer to prepare her last will and testament. Petra left
her estate to petitioner and provided for certain legacies to her brother, sister
and children of her deceased siblings. However, she died before she could sign
it.
On August 3,1966, Felix Francisco executed a document of Assignment of
Hereditary Rights in favor of Periquet Jr. other intestate heirs also executed a
Deed of assignment of Hereditary Rights except Florentino Zaragoza and Alberta
Zaragoza-Morgan.
On December 13, 1969, petitioner entered into a compromise agreement
with the Zaragozas and Periquets. The trial court approved the compromise
agreement. Also, an order for adjudication and transfer of the residue of the
estate to petitioner was issued.
On May 16, 1970, Felix Francisco filed an action to annul the Assignment
of Hereditary Rights he executed in favor of petitioner. The action for annulment
was based on gross misrepresentation and fraud, grave abuse of confidence,
mistake and undue influence and lack of cause and/or consideration in the
execution of the challenged Deed of Assignment.
The trial court declared the Assignment of Hereditary Rights executed by
Francisco in favor of Periquet Jr. valid and binding.
On appeal, the then Intermediate Appellate Court annulled and rescinded
the Assignment of Hereditary Rights. A motion for reconsideration was denied
for lack of merit.
ISSUE:
Whether or not the findings of the Court of Appeals that the assignment of
hereditary rights executed by Felix Francisco in favor of petitioner is void due to
fraud, deception, gross misrepresentation, or undue influence should be
sustained.
RULING:
The decision of the Court of Appeals was reversed and set aside for the
kind of fraud that will vitiate a contract refers to those insidious words or

machinations resorted to by one of the contracting parties to induce the other to


enter into a contract which without them he would not have agreed to.
In the case at bench, no such fraud was employed by herein petitioner.
Resultantly, the assignment of hereditary rights executed by Felix Francisco in
favor of herein petitioner is valid and effective.
And since, Felix is not a party to the compromise agreement; he cannot
be blinded by the same.

MORA SOLVENDI: EFFECTS


RIZAL COMMERCIAL BANKING CORPORATION
VS. COURT OF APPEALS and FELIPE LUSTRE
G.R. No. 133107
March 25, 1999
305 SCRA 449
FACTS:
On March 10, 1993, private respondent Atty. Felipe Lustre purchased a
Toyota Corolla from Toyota Shaw, Inc. for which he made a down payment of
P164,620.00, the balance of the purchase price to be paid in 24 equal monthly
installments. Private respondent thus issued 24 postdated checks for the
amount of P14, 976.00 each. The first was dated April 10, 1991; subsequent
checks were dated every 10th day of each succeeding month.
To secure the balance, private respondent executed a promissory note
and a contract of chattel mortgage over the vehicle in favor of Toyota Shaw, Inc.
The contract of chattel mortgage, in paragraph 11 thereof, provided for an
acceleration clause stating that should the mortgagor default in the payment of
any installment, the whole amount remaining unpaid shall become due. In
addition, the mortgagor shall be liable for 25% of the principal due as liquidated
damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests
in the chattel mortgage to petitioner Rizal Commercial Banking Corporation
(RCBC). All the checks dated April 10, 1991 to January 10, 1993 were thereafter
encashed and debited by RCBC from private respondent's account, except for
RCBC Check No. 279805 representing the payment for August 10, 1991, which
was unsigned. Previously, the amount represented by RCBC Check No. 279805

was debited from private respondent's account but was later recalled and recredited, to him. Because of the recall, the last two checks, dated February 10,
1993 and March 10, 1993, were no longer presented for payment. This was
purportedly in conformity with petitioner bank's procedure that once a client's
account was forwarded to its account representative, all remaining checks
outstanding as of the date the account was forwarded were no longer presented
for patent.
On the theory that respondent defaulted in his payments, the check
representing the payment for August 10, 1991 being unsigned, petitioner, in a
letter dated January 21, 1993, demanded from private respondent the payment
of the balance of the debt, including liquidated damages. The latter refused,
prompting petitioner to file an action for replevin and damages before the Pasay
City Regional Trial Court (RTC). Private respondent, in his Answer, interposed a
counterclaim for damages.
The RTC dismissed the petition. Likewise, the petition for appeal was
denied by the Court of Appeals. The Court of Appeals stated that the "default"
was not a case of failure to pay.
ISSUE:
Whether or not petitioners claim is meritorious.
RULING:
No. Petitioner's conduct, in the light of the circumstances of this case, can
only be described as mercenary. Petitioner had already debited the value of the
unsigned check from private respondent's account only to re-credit it much later
to him. Thereafter, petitioner encashed checks subsequently dated, and then
abruptly refused to encash the last two. More than a year after the date of the
unsigned check, petitioner, claiming delay, demanded from private respondent
payment of the value of said check and that of the last two checks, including
liquidated damages. As pointed out by the trial court, this whole controversy
could have been avoided if only petitioner bothered to call up private respondent
and ask him to sign the check. Good faith, not only in compliance with its
contractual obligations, but also in observance of the standard in human
relations, for every person "to act with justice, give everyone his due, and
observe honesty and good faith." behooved the bank to do so. Failing thus,
petitioner is liable for damages caused to private respondent. These include
moral damages for the mental anguish, serious anxiety, besmirched reputation,
wounded feelings and social humiliation suffered by the latter.

MORA ACCEPIENDI: EFFECTS


STATE INVESTMENT VS. COURT OF APPEALS
198 SCRA 392
FACTS:
On 5 April 1982, respondent spouses Rafael and Refugio Aquino pledged
certain shares of stock to petitioner State Investment House Inc. (State) in
order to secure a loan of P120,000.00. Prior to the execution of the pledge,
respondent spouses Jose and Marcelina Aquino signed an agreement with
petitioner State for the latters purchase of receivables amounting to
P375,000.00. When the 1st Account fell due, respondent spouses paid the same
partly with their own funds and partly from the proceeds of another loan which
they obtained also from petitioner State designated as the 2 nd Account. This new
loan was secured by the same pledge agreement executed in relation to the 1 st
Account. When the new loan matured, State demanded payment. Respondents
expressed willingness to pay, requesting that upon payment, the shares of stock
pledged be released. Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and Marcelina Aquino has
remained unpaid.
On 29, June 1984, Atty. Rolando Salonga sent to respondent spouses a
Notice of Notarial Sale stating that upon request of State and by virtue of the
pledge agreement, he would sell at public auction the shares of stock pledged to
State. This prompted respondents to file a case before the Regional Trial Court
of Quezon City alleging that the intended foreclosure sale was illegal because
from the time the obligation under the 2nd Account became due, they had been
able and willing to pay the same, but petitioner had insisted that respondents
pay even the loan account of Jose and Marcelino Aquino, which had not been
secured by the pledge. It was further alleged that their failure to pay their loan
was excused because the Petitioner State itself had prevented the satisfaction of
the obligation.
On January 29, 1985, the trial court rendered a decision in favor of the
plaintiff ordering State to immediately release the pledge and to deliver to
respondents the share of stock upon payment of the loan. The CA affirmed in
toto the decision of the trial court.
ISSUE:

Whether or not the conditions to be complied with by the debtor desirous


of being released from his obligation in cases where the creditor unjustly refuses
to accept payment have been met by the spouses Aquino.
RULING:
NO. The conditions had not been complied with. Article 1256 of the civil
code states that: If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be released from
responsibility by consignation of the thing or sum due. Where the creditor
unjustly refuses to accept payment, the debtor desirous of being released from
his obligation must comply with two (2) conditions, viz: (a) tender of payment;
and (b) consignation of the sum due. Tender of payment must be accompanied
or followed by consignation in order that the effects of payment may be
produced. Thus, in Llamas v. Abaya, the Supreme Court stressed that a written
tender of payment alone, without consignation in court of the sum due, does not
suspend the accruing of regular or monetary interest. In the instant case,
respondent spouses Aquino, while they are properly regarded as having made a
written tender of payment to petitioner state, failed to consign in court the
amount due at the time of the maturity of the 2 nd Account No. It follows that
their obligation to pay principal-cum-regular or monetary interest under the
terms and conditions of the said Account was not extinguished by such tender of
payment alone.

COMPENSATIO MORAE - EFFECTS


1.
2.
3.
4.
5.

BPI INVESTMENT VS. CA, 377 S 117


LEAO VS. CA, 369 SCRA 36
HEIRS OF BACUS VS. CA, 371 SCRA 295
INTEGRATED PACKING VS. CA, 333 SCRA 170
LAFORTEZA VS. MACHUCA, 333 SCRA 643

BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS


G.R. No. 133632. FEBRUARY 15, 2002
FACTS:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum


from Ayala Investment and Development Corporation (AIDC), predecessor
of petitioner BPIIC for the construction of a house on his lot. Said house
and lot were mortgaged to AIDC to secure the loan. Sometime in 1980,
Roa sold the house and lot to private respondents ALS and Antonio
Litonjua. They paid P350,000 in cash and assumed the P500,000 balance
of Roas indebtedness with AIDC. The latter, however, was not willing to
extend the old interest rate to private respondents and proposed to grant
them a new loan of P500,000 to be applied to Roas debt and secured by
the same property, at an interest rate of 20% per annum. In June 1984,
BPIIC instituted foreclosure proceedings against private respondents on
the ground that they failed to pay the mortgage indebtedness. Private
respondents on the other hand alleged that they were not in arrears in
their payment, but in fact made an overpayment as of June 30, 1984.
ISSUE:
Whether or not petitioner may be held liable for moral and
exemplary damages.
RULING:
Petitioner claims that it should not be held liable for moral and
exemplary damages for it did not act maliciously when it initiated the
foreclosure proceedings. It merely exercised its right under the mortgage
contract because private respondents were irregular in their monthly
amortization. Private respondents counter that BPIIC was guilty of bad
faith and should be liable for said damages because it insisted on the
payment of amortization on the loan even before it was released.
Further, it did not make the corresponding deduction in the monthly
amortization to conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private respondents
failed to make timely payment. But as admitted by private respondents
themselves, they were irregular in their payment of monthly
amortization. Thus, we can not properly declare BPIIC in bad faith.
Consequently, we should rule out the award of moral and exemplary
damages. However, in our view, BPIIC was negligent in relying merely on
the entries found in the deed of mortgage, without checking and
correspondingly adjusting its records on the amount actually released to
private respondents and the date when it was released. Such negligence

resulted in damage to private respondents, for which an award of nominal


damages should be given in recognition of their rights which were
violated by BPIIC. For this purpose, the amount of P25,000 is sufficient.
Lastly, we sustain the award of P50,000 in favor of private respondents as
attorneys fees since they were compelled to litigate.

COMPENSATIO MORAE - EFFECTS


LEAO VS. COURT OF APPEALS
369 SCRA 36
FACTS:
On November 13, 1985, private respondent Hermogenes Fernando, as
vendor and petitioner Carmelita Leao, as vendee entered into a contract
regarding the sale of a piece of land located at Baliuag, Bulacan.
Petitioner Leao agreed to pay the total purchase price of P 107,750.00.
Further, P10,000.00 was agreed as a down payment and the balance of
P96,975.00 shall be paid within the period of 10 years at a monthly amortization
of P1,747.30 to commence on December 7, 1985 with interest of 18% per
annum based on balances. It was also provided in the contract that there is a
grace period of one month within which to make payments, together with the
one corresponding to the month of grace. Should the month of grace expire
without the installments for both months having been satisfied, an interest of
18% per annum will be charged on the unpaid installments. Further, should the
period of 90 days elapse from the expiration of the grace period without the
overdue and unpaid installments having been paid with the corresponding
interests up to that date, the vendor Fernando was authorized to declare the
cancellation of the contract and dispose of the parcel of land. The payments and
all other improvements made on the premises shall be considered as rents paid
for the use and occupation of the premises and as liquidated damages.
Eventually, the contract was executed and Leao made several payments
in lump sum.
She constructed thereafter a house on the lot valued at
P800,000.00. The last payment she tendered was on April 1, 1989.

The trial court on September 16, 1991 rendered a decision on an


ejectment case filed by respondent Fernando, ordering Leao to vacate the
premises and to pay P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until the petitioner vacated the
premises, attorneys fees and cost of the suit. A writ of execution was thereafter
issued on August 24, 1993.
On September 27, 1993, the petitioner filed with the RTC of Bulacan a
compliant of specific performance with preliminary injunction.
Petitioner
assailed the decision of the municipal trial court that it was violative of her right
to due process and for being in contrary with the intentions of RA 6552 regarding
the protection of buyers of lots on installments. She further deposited the
amount of P18,000.00 with the clerk of court to cover the balance of the total
cost of the contested lot. She also posted a cash bond of P50,000.00 and on
November 4, 1993, the trial court issued a writ of preliminary injunction on the
assailed decision of the municipal trial court.
On February 6, 1995, the trial court rendered a decision favoring the
petitioner, making the preliminary injunction permanent, ordering the plaintiff to
pay the defendant P103,090.70 corresponding to the outstanding obligation
under the contract executed which consists of the principal together with
interest and surcharges, plus interest thereon at the rate of 18% per annum in
accordance with the contracts provision, ordering the defendant to pay the
plaintiff P10,000.00 by way of attorneys fees and costs of suit.
On February 21, 1995, Fernando filed a motion for reconsideration and the
supplement thereto.
According to the trial court, the transaction was an absolute sale, making
the petitioner the owner of the contested lot upon actual and constructive
delivery thereof. Therefore, Fernando was divested of ownership and cannot
recover the same unless the contract is rescinded pursuant to Article 1592 of the
Civil Code which requires a judicial or notarial demand. Since there had been no
rescission, petitioner cannot be evicted.
Regarding the issue of delay, the trial court pointed out that the plaintiff
defaulted in the payment of the amortization due and therefore she should be
liable for the payment of the interest and penalties.
The trial court disregarded the petitioners claim that she gave a down
payment of P10,000.00 at the time of the execution of the contract. The trial

court relied on the statement of account and the summary prepared by the
respondent to determine the liability of the petitioner for the payment of the
liabilities and penalties. The trial court held that the petitioners consignation on
the amount of P18,000.00 did not produce a legal effect since it was not
undertaken in accordance with Articles 1176, 1177 and 1178 of the Civil Code.
The Court of Appeals affirmed in toto the trial courts decision; hence, this
petition.
ISSUES:
1. Whether or not the transaction was an absolute and not a conditional sale.
2. Whether or not there was proper cancellation of the contract to sell.
3. Whether or not there was delay on the petitioners part in the payment of
the monthly amortization.
RULING:
1. NO, the transaction was not an absolute sale; rather, it was a conditional
sale. The very intention of the parties was to reserve the ownership of the land
in the seller (Fernando) until the buyer has paid the total purchase price. First,
the contract to sell makes the sale, cession and conveyance subject to
conditions set forth on the contract. Second, what was transferred was
possession and not ownership. Finally, the land is covered by the Torrens title,
the act of registration of the deed of sale was the operative act that could
transfer ownership over the lot. No deed could be registered in the case at bar
since as stipulated in the contract, such deed shall be executed upon completion
of payment by Leao.
In a contract to sell real property on installments, full payment of the
purchase price is a positive suspensive condition and the failure of the payment
is not a breach but rather shall be an event that will prevent the obligation of the
seller to convey the title from acquiring any obligatory force. The transfer of
ownership and title would occur after full payment of the price.
In the case at bar, Leao did not pay the installments after April 1, 1989,
which prevented the obligation of Fernando to convey the property. It brought
into effect the cancellation provision of the contract. Article 1592 of the Civil
Code is inapplicable in the case at bar. But the provisions of RA 6552 (The
Realty Installment Buyer Protection Act) governs the case at bar which
recognizes the right of the seller to cancel the contract upon non-payment of an
installment by the buyer.
2. NO, there was no proper cancellation of the contract to sell.

Leao did not pay the installments after April 1, 1989, which prevented the
obligation of Fernando to convey the property. It brought into effect the
cancellation provision of the contract. Nevertheless, what is controlling is not
Article 1592 of the Civil Code but the provisions of RA 6552 (The Realty
Installment Buyer Protection Act) which recognizes not only the right of the seller
to cancel the contract upon non-payment off an installment by the buyer but
also rights of the buyer in case of cancellation.
Although the ejectment case operated as the notice of cancellation required
under the provisions of RA 6552, petitioner was not given the cash surrender
value of the payments that she made; hence, there was no actual cancellation of
the contract.
Consequently, petitioner Leao may still reinstate the contract by updating
the account during the grace p[period and before actual cancellation.
3. YES, there was delay on the petitioners part to pay the monthly
amortizations.
Article 1169 of the Civil Code provides that in reciprocal
obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
Since respondent Fernando performed his part of the obligation by
allowing Leao to have possession over the property and the latter not having
paid the monthly amortization in accordance with the terms of the contract, the
petitioner incurred delay and therefore is liable for damages.
The Court affirmed the decision of the appellate court, in toto.

exclusive and irrevocable right to buy 2,000 square meters of the property
within five (5) years from the year of the effectivity of the contract at P200 per
square meter the rate of which shall be proportionately adjusted depending on
the peso rate against the US dollar, which at the time of the execution of the
contract was P14.00.
On March 15, 1990, the Duray spouses signified their intention to Roque
Bacus, one the decedents heirs, that they were willing and ready to purchase
the property under the option to buy clause. On March 30, 1990, due to the
heirs refusal to sell the property to the respondents, Durays adverse claim was
annotated by the Register of Deeds of Cebu.
On April 5, 1990, Duray filed a complaint for specific performance against
the heirs of the decedent with the Lupon Tagapamayapa of their barangay,
asking that he be allowed to purchase the land agreed upon in the contract with
the decedent.
Having failed to come to an agreement, the private respondents filed a
complaint before the trial court, praying that the heirs: a) execute a deed of sale
over the subject property in favor of them; b) receive the payment of the
purchase price; and c) pay the damages.
Petitioners alleged that prior to the death of the decedent, respondents
conveyed to them their lack of interest to but the subject land for want of
sufficient funds. They even requested the respondents to pay in full the
purchase price but the respondents refused.
On October 30, 1990, private respondents manifested in court that they
caused the issuance of a cashiers check in the amount of P 650,000 payable too
petitioners at anytime upon demand. On August 31, 1991, trail court rendered
its decision, favoring the private respondents. On appeal, the Court of appeals
denied the motion of the petitioners.

COMPENSATIO MORAE - EFFECTS


HEIRS OF BACUS VS. COURT OF APPEALS
371 SCRA 295
FACTS:
On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray
a parcel of agricultural land in Talisay, Cebu for 6 years, ending May 31, 1990.
The contract contained an option to buy clause where the lessee had the

Petitioners ratiocinated that they cannot be compelled to sell the disputed


property by virtue of the nonfulfillment of the obligation under the option
contract of the private respondents. Respondents argued that the petitioners
are unclear if Rule 65 or 45 of the Rules of Court govern their petition.
Further, that questions of fact, which were actually raised by the
petitioners, cannot be entertained by the Supreme Court in a petition for review.

Nonetheless, if the claim must be under Rule 45, the respondents opted to
exercise their option to buy as contained in the contract.

due course by the petitioners unless there is delivery of the sum of money. As
there was no compliance with what was incumbent upon the petitioners under
the option to but, private respondents had not incurred in delay when the
cashiers check was issued even after the contract expired.

ISSUES:
1. Whether or not when the respondents opted to buy the property, were
they already required to deliver the money or consign it in court before
the execution of the deed of transfer.

The instant petition is denied and the Court of Appeals decision is


affirmed.

2. Whether or not the private respondents incurred in delay when they did
not deliver the purchase price or consign it in court or before the
expiration of the contract.
RULING:
1.
NO, the petitioners were not required to deliver the money or consign it in
court. Obligations under an option to buy are reciprocal obligations. The
performance of one obligation is conditioned on the simultaneous fulfillment of
the other obligation. In an option to buy, the payment of the purchase price by
the creditor is contingent upon the execution and delivery of a deed of sale by
the debtor. In the case at bar, the respondents were not yet obliged to make
actual payment. Consequently, since the obligation was not yet due,
consignation in court of the purchase price was not yet required.
2.
NO, the private respondents did not incur delay when they did not deliver
the purchase price or consign it in court or before the expiration of the contract.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment
and it requires a prior tender of payment. Petitioners contention that private
respondents failed to comply with their obligation under the option to buy
because they failed to actually deliver the purchase price or consign it in court
before the contract expired is not tenable. Ergo, the private respondents did not
incur any delay when they did not yet deliver payment or make consignation
before the expiration of the contract. In reciprocal obligations, neither party
incurs delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. Only from the moment one of the
parties fulfills his obligation, does delay by the other begins.
In the case at bar, as early as March 15, 1990, respondents
communicated with the petitioners that they intended to exercise their exclusive
right to buy the parcel of land stipulated in the contract but which was not given

COMPENSATIO MORAE - EFFECTS


INTEGRATED PACKAGING CORPORATION VS. COURT OF APPEALS
333 SCRA 170
FACTS:
Petitioner Integrated Packaging Corporation (Integrated) entered into an
agreement with private respondent Fil-Anchor paper Co., Inc. (Fil-Anchor)
regarding the delivery of 3, 450 reams of printing papers in a staggered basis
from May to October 1979. Then, Integrated entered into a contract with
Philippine Appliance Corporation (Philacor) for the printing of a minimum of 300,
000 copies of books.
Out of the 3, 450 reams that were supposed to be delivered, Fil-Anchor
delivered only 1,097; so petitioner demanded immediate delivery of the rest of
the reams of paper. Fil-Anchor consequently delivered P766,101.00 worth of
printing papers to which Integrated encountered difficulties in its payment. The
former made a formal demand from the latter to settles its outstanding account.
Integrated made a partial payment totaling to P 97,200.00.
Integrated once again entered into an additional printing contract with
Philacor but failed to comply with what is incumbent upon it. Hence, Philacor
demanded compensation from Integrated for the delay and damages it suffered
on account of petitioners non-compliance with what was agreed upon in their
contract. Consequently, Fil-Anchor filed a collection suit against petitioner
totaling to P 766,101.70 which represents the unpaid purchase price of the
printing paper bought by Integrated.
Integrated denied the material allegations of the complaint and by way of
a counterclaim, it alleged that respondent breached when it failed to deliver
2,875 reams despite demand which made petitioner suffer actual damages and
failed to realized expected profits.

COMPENSATIO MORAE - EFFECTS


Eventually, the lower court rendered its judgment after due hearing and
trial. It ordered Integrated to pay P763,101.70 while it also ordered Fil-Anchor to
pay Integrated moral damages and compensatory damages of P790,324.30 for
the unrealized income of Integrated when Fil-Anchor failed to deliver the reams
of papers it needed for the printing of books. However, the CA affirmed the
decision of the lower court with respect only to Integrated liabilities and not with
Fil-Anchors liability to pay moral and compensatory damages.
ISSUES:
Whether or not private respondent violated the order agreement.
Whether or not private respondent is liable for petitioners breach of
contract with Philacor.
RULING:
Anent the 1st issue, NO. The transaction between the parties is a contract
of sale whereby Fil-Anchor obligates itself to deliver printing paper to Integrated
which, in turn, binds itself to pay a sum of money. Both parties conceded that
the order agreement gives rise to reciprocal obligations such that the obligation
of one is dependent upon the obligation of the other. Reciprocal obligations are
to be performed simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other. Fil-Anchor undertakes to deliver
printing paper of various quantities subject to petitioners corresponding
obligation to pay, on a maximum 90-day credit, for the materials. Petitioner
Integrated did not fulfill its side of the contract as its last payment in August
1981 could only cover materials covered by delivery invoices dated September
and October of 1980. Consequently, Fil-Anchors suspension of its deliveries to
petitioner whenever the latter failed to pay on time is legally justified. Fil-Anchor
has the right to cease making further delivery; hence, it did not violate the order
agreement. On the contrary, it was Integrated which breached the agreement
as it failed to pay on time the materials delivered by private respondent.
Anent the 2nd issue, NO. Fil-Anchor cannot be held liable under the
contracts entered into by petitioner with Philacor because it is not a party to said
agreements. It is also not a contract pour autriu. The contracts could not affect
third persons like private respondent because of the basic civil law principle of
relativity of contracts which provides that contracts can only bind the parties
who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof.

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z.


LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA,
petitioners,
VS. ALONZO MACHUCA, respondent
June 16, 2000
G.R. No. 137552
333 SCRA 643
FACTS:
On August 2, 1988, Lea Zulueta-Laforteza executed a Special Power of
Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza,
Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the
subject house and lot property and sign any document for the settlement of the
estate of the late Francisco Q. Laforteza. Likewise on the same day, Michael Z.
Laforteza executed a Special Power of Attorney in favor of Roberto and Gonzalo
Jr., likewise, granting the same authority. Both agency instruments contained a
provision that in any document or paper to exercise authority granted, the
signature of both attorneys-in-fact must be affixed. Dennis Laforteza also
executed Special Power of Attorneys on different dates.
In the exercise of the above authority, on January 20, 1989, the heirs of
the late Francisco Q. Laforteza represented by Roberto and Gonzalo entered into
a Memorandum of Agreement (Contract to Sell) with Alonzo Machuca over the
subject property for the sum of Six Hundred Thirty Thousand Only (P630,000.00)
to be payable as stipulated: P30,000 upon signing the agreement and the
remaining P600,000 upon issuance of the new certificate of title in the name of
the late Francisco Q. Laforteza and upon execution of an extra-judicial
settlement of the decedents estate with sale in favor of the plaintiff. On June
20, 1989, the defendant was able to pay P30,000 as stipulated in the agreement.
On September 18, 1989, defendants sent letter informing the defendant his
obligation to pay the remaining balance to be due after thirty (30) days, and the
reconstituted title, which the defendant received on the same date, of which on
October 18, 1983, asked for an extension until November 15, 1989. Roberto,
assisted by a lawyer, was the one who affirmed said request, but not Gonzalo.
On November 20, 1989, defendant informed the heirs that Roberto had
the payment for the balance, but said heirs refused to accept said payment.
Roberto declared the property not for sale for failure to comply with the
contractual obligations, and the agreement rescinded by the plaintiff-heirs.

Defendant insisted tender of payment but when the defendants refused to


accept such, an action for specific performance was filed in court. The trial court
ruled in favor of the defendant. When the petitioner-heirs appealed this to the
Court of Appeals, the decision was rendered against them. So, an appeal to the
Supreme Court was made.
ISSUE:
Whether or not the rescission of the agreement for failure by the private
respondent to fulfill his obligations was validly done.
RULING:
The Supreme Court ruled in the negative.
The issuance of the new certificate of title in the name of the late
Francisco Laforteza and the execution of an extrajudicial settlement of his estate
was not a condition which determined the perfection of the contract of sale.
Petitioners contention that since the condition was not met, they no longer had
an obligation to proceed with the sale of the house and lot is unconvincing. The
petitioners fail to distinguish between a condition imposed upon the perfection of
the contract and a condition imposed on the performance of an obligation.
Failure to comply with the first condition results in the failure of a contract, while
the failure to comply with the second condition only gives the other party the
option either to refuse to proceed with the sale or to waive the condition. Thus,
Art. 1545 of the Civil Code states: "Art. 1545. Where the obligation of either
party to a contract of sale is subject to any condition which is not performed,
such party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised that the condition
should happen or be performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty. Where the ownership
in the things has not passed, the buyer may treat the fulfillment by the seller of
his obligation to deliver the same as described and as warranted expressly or by
implication in the contract of sale as a condition of the obligation of the buyer to
perform his promise to accept and pay for the thing."
In the case at bar, there was already a perfected contract. The condition
was imposed only on the performance of the obligations contained therein.
Considering however that the title was eventually "reconstituted" and that the
petitioners admit their ability to execute the extrajudicial settlement of their
fathers estate, the respondent had a right to demand fulfillment of the
petitioners obligation to deliver and transfer ownership of the house and lot.

The Supreme Court did not subscribe to the petitioners view that the
Memorandum Agreement was a contract to sell. There is nothing contained in
the MOA from which it can reasonably be deduced that the parties intended to
enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the full payment of the price, such
payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the
obligation from acquiring any obligatory force.
There is clearly no express reservation of title made by the petitioners
over the property, or any provision which would impose non-payment of the
price as a condition for the contracts entering into force. Although the
memorandum agreement was also denominated as a "Contract to Sell", it held
that the parties contemplated a contract of sale. A deed of sale is absolute in
nature although denominated a conditional sale in the absence of a stipulation
reserving title in the petitioners until full payment of the purchase price. In such
cases, ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof.
The mere fact that the obligation of the
respondent to pay the balance of the purchase price was made subject to the
condition that the petitioners first deliver the reconstituted title of the house and
lot does not make the contract a contract to sell for such condition is not
inconsistent with a contract of sale.
The property in dispute, being an immovable property, is governed by
Article 1592 of the NCC, which needs the judicial or notarial act for its rescission.
It is not disputed that the petitioners did not make a judicial or notarial demand
for rescission. The November 20, 1989 letter of the petitioners informing the
respondent of the automatic rescission of the agreement did not amount to a
demand for rescission, as it was not notarized. It was also made five days after
the respondents attempt to make the payment of the purchase price. This offer
to pay prior to the demand for rescission is sufficient to defeat the petitioners
right under article 1592 of the Civil Code.
Besides, the Memorandum Agreement between the parties did not contain
a clause expressly authorizing the automatic cancellation of the contract without
court intervention in the event that the terms thereof were violated. A seller
cannot unilaterally and extrajudicially rescind a contract of sale where there is
no express stipulation authorizing him to extrajudicially rescind. Neither was
there a judicial demand for the rescission thereof.

Thus, when the respondent filed his complaint for specific performance,
the agreement was still in force inasmuch as the contract was not yet rescinded.
At any rate, considering that the six-month period was merely an
approximation of the time it would take to reconstitute the lost title and was not
a condition imposed on the perfection of the contract and considering further
that the delay in payment was only thirty days which was caused by the
respondents justified but mistaken belief that an extension to pay was granted
to him, the Court agreed with the CAs ruling that the delay of one month in
payment was a mere casual breach that would not entitle the respondents to
rescind the contract. RESCISSION of a contract will not be permitted for a slight
or casual breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement.

DOLO INCIDENTE EFFECTS:


1.
2.

INTERNATIONAL CORPORAL BANK VS. GUECO, 351 SCRA 516


REPUBLIC VS. COURT OF TAX APPEALS, 366 SCRA 516

the unpaid balance for the car loan which was lowered to P154,000.00 after
negotiations and recomputations. As a result of the non-payment of the reduced
amount on that date, the car was detained within the banks compound.
On August 28, 1995, Dr. Gueco further renegotiated for the reduction of
the outstanding loan to P150,000.00.
On August 29, 1995, Dr. Gueco delivered a managers check in the
amount of P150,000.00 but the car was not released because of his refusal to
sign the JOINT Motion to Dismiss.
After several demand letters and meetings with bank representatives, the
respondents initiated a civil action for damages which was dismissed for lack of
merit.
On appeal, the RTC ruled in favor of the Spouses, pointing out that there
was a meeting of the minds between the petitioner and the respondents as to
the reduction of the amount of indebtedness and the release of the car but said
agreement did not include the signing of the Joint Motion to Dismiss as a
condition sine qua non for the effectivity of the compromise.
On appeal, the Court of Appeals affirmed in toto the lower courts
decision.
Hence, the petitioner comes to the Supreme Court by way of certiorari.

INTERNATIONAL CORPORATE BANK VS. GUECO


351 SCRA 516
FACTS:
Respondents Gueco Spouses obtained a loan form petitioner International
Corporate Bank (now Union Bank of the Philippines) to obtain a car. In
consideration thereof, the Spouses executed promissory notes which were
payable in monthly installments and chattel mortgage over the car to serve as
security for the notes.
The Spouses defaulted in the payment of the installments and
consequently, the petitioner filed on August 7, 1995 a civil action for Sum of
Money with Prayer for a Writ of Replivin.
On August 25, 1995, Dr. Gueco was served summons and was fetched by
the sheriff and representative of the bank for a meeting in the bank premises.
The bank demanded payment of the amount of P184,000.00 which represents

ISSUES:
Whether or not there was no agreement with respect to the execution of the
Joint Motion to Dismiss as a condition for the compromise agreement.
Whether or not the respondents should be granted moral, exemplary
damages and attorneys fees.
Whether or not the Court of Appeals erred in holding that the petitioner
return the subject car to the respondents, without making any provision for the
issuance of the new managers/ cashiers check by the respondents in favor of
the petitioner in lieu of the original cashiers check that already became stale.
RULING:
1. NO, there was no agreement with respect to the execution of the Joint Motion
to Dismiss as a condition for the compromise agreement.

Petitioner has the burden of proof that the oral compromise entered into
by the parties included the stipulation that the parties would joint file a motion to
dismiss. Factual findings of the lower court and the appellate court found no
evidence to acknowledge the contestation of the petitioner bank that there was
indeed such an agreement. Further, the only findings was that the
agreement between the parties was merely regarding the lowering of the price
and not anent the Joint Motion to Dismiss.
2. NO, the respondents are not entitled to the damages awarded by the Court of
Appeals. In awarding the damages, both the trial and appellate courts found
out that there was fraud, when in the findings of the Supreme Court, there
was none. Fraud is the deliberate intention to cause damage or prejudice. It
is the voluntary execution of a wrongful act, or the willful omission. Knowing
and intending the effects which naturally and necessarily arise from such act
or omission. There was no fraud on the part of the petitioner bank in
requiring the respondent to sign the joint motion to dismiss.

3. YES, the Court of Appeals committed the error anent the 3rd issue.

Respondents contend that the petitioner should return the car or its value
and that the latter, due to its own negligence, should suffer the loss
occasioned of the fact that the check had become stale. Respondents aver
that the delivery of the managers check produced the effect of payment;
thus, petitioner was negligent in opting not to deposit or use said check. The
Court is not persuaded.

A stale check is one which has not been presented for payment within a
reasonable time after its issue. It is valueless, and should not be paid.
In the case at bar, the check involved is not an ordinary bill of exchange
but a managers check which is drawn by the bank manager upon the bank
itself. In this case, the Gueco spouses have not alleged or shown that they or
the bank which issued the managers check has suffered damage or loss by the
delay or non-presentment. There is no doubt that the petitioner bank held on
the check and refused to encash the same because of the controversy
surrounding the signing of the joint motion to dismiss. Hence, the Court is of the
opinion that there is no bad faith or negligence.
Premises considered, the decision of the Court of appeals affirming the
Trial courts decision is set aside. Respondents are further ordered to pay the
original obligation amounting to P150,000 to the petitioner upon surrender or

cancellation of the managers check in the latters possession, afterwhich,


petitioner is to return the subject motor vehicle in good working condition.
DOLO INCIDENTE EFFECTS:
REPUBLIC OF THE PHILIPPINES,
represented by the COMMISSIONER OF CUSTOMS, petitioner,
VS. THE COURT OF TAX APPEALS and AGFHA, INCORPORATED,
respondents
Oct 23, 2000
G.R. No. 139050
FACTS:
FIL-JAPAN, a shipping agent, requested for an amendment of the Inward
Foreign Manifest so as to correct the name of the consignee from that of GQ
GARMENTS, Inc., to that of AGFHA, Inc. when its shipments Inward Foreign
Manifest stated that the bales of cloth were consigned to GQ GARMENTS, Inc.,
while the Clean Report of Findings issued by the Societe Generale de Surveilance
mention AGFHA, Incorporated, to be the consignee.
FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest
which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed
the document to the Customs Intelligence Investigation Services (CIIS). The CIIS
placed the subject shipment under hold on the ground that GQ GARMENTS, Inc.,
could not be located in its given address and was thus suspected to be a
fictitious firm. Forfeiture proceedings under the Tariff and Customs Code were
initiated.
AGFHA, Inc.s motion for intervention contending that it is the lawful
owner and actual consignee of the subject shipment was granted. After hearing,
the Collector of Customs came up with a draft decision ordering the lifting of the
warrant of seizure and detention on the basis of its findings that GQ GARMENTS,
Inc., was not a fictitious corporation and that there was a valid waiver of rights
over the bales of cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc. The draft
decision was submitted to the Deputy Commissioner for clearance and approval,
who, in turn, transmitted it to the CIIS for comment. The CIIS opposed the draft
decision, insisting that GQ GARMENTS, Inc., was a fictitious corporation and that
even if it did exist, its president, John Barlin, had no authority to waive the right
over the subject shipment in favor of AGFHA, Inc. The Deputy Commissioner
then rejected the draft decision of the Collector of Customs.

GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for


reconsideration. Convinced that the evidence presented established the legal
existence of GQ GARMENTS, Inc., and finding that a resolution passed by the
Board of Directors of GQ GARMENTS, Inc., ratified the waiver of its president, the
Collector of Customs in another draft decision granted the joint motion. The
Office of the Commissioner of Customs, however, disapproved the new draft
decision and denied the release of the goods. In deference to the directive of
the Commissioner, the District Collector of Customs ordered the forfeiture of the
shipment. AGFHA, Inc., interposed an appeal to the Office of the Commissioner
of Customs but was dismissed.
AGFHA, Inc., therefore, filed a petition for review with the Court of Tax
Appeals questioning the forfeiture of the bales of textile cloth. Finding merit in
the plea of appellants, the Court of Tax Appeals granted the petition and ordered
the release of the goods to AGFHA, Inc., however, the Commissioner of Customs
then challenged before the Court of Appeals the decision of the tax court but
was dismissed for lack of merit. The appellate court ruled that the Bureau of
Customs has failed to satisfy its burden of proving fraud on the part of the
importer or consignee. The Court of Appeals attributed the error in indicating GQ
GARMENTS, Inc., instead of AGFHA, Inc., in the Inward Foreign Manifest as being
the consignee of the subject shipment to the shipping agent. It also noted the
finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered
importer. The BOC instituted the instant petition for review under Rule 45 of the
Revised Rules of Court assailing the affirmance by the Court of Appeals of the
tax court's decision.
ISSUE:
Whether or not AGFHA, Inc. committed fraud in the importation of bales of
cloth.
RULING:
The requisites for the forfeiture of goods under the Tariff and Customs
Code are: (a) the wrongful making by the owner, importer, exporter or consignee
of any declaration or affidavit, or the wrongful making or delivery by the same
person of any invoice, letter or paper - all touching on the importation or
exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice,
letter
or paper; and (c) an intention on the part of the importer/consignee to evade the
payment of the duties due.
Petitioner asserts that all of these requisites are present in this case. It
contends that it did not presume fraud, rather the events positively point to the

existence of fraud. On the other hand, AGFHA, Inc. maintains that there has only
been an inadvertent error and not an intentional wrongful declaration by the
shipper to evade payment of any tax due.
Fraud must be proved to justify forfeiture. It must be actual, amounting to
intentional wrong-doing with the clear purpose of avoiding the tax. Mere
negligence is not equivalent to the fraud contemplated by law. What is here
involved is an honest mistake, not even directly attributable to private
respondent, which will not deprive the government of its right to collect the
proper tax. The Collector of Customs, Court of Tax Appeals and the Court of
Appeals are unanimous in concluding that no fraud has been committed by
AGFHA, Inc. in the importation of the bales of cloth. Therefore, the forfeiture
cannot be justified.
Petition denied. Decision affirmed.

NEGLIGENCE AS A QUESTION OF FACT


1.
2.
3.
4.

YAMBAO VS. ZUIGA, 18 SCRA 266


SMITH BELL DODWELL SHIPPING VS. BORJA, 383 SCRA 341
ILUSORIO VS. CA, 393 SCRA 89
NPC VS. CA, 161 SCRA 334

YAMBAO VS. ZUIGA


418 SCRA 266
FACTS:
On May 6, 1992 at around 3:30 P.M, the bus owned by petitioner Cecilia
Yambao was being driven by her driver, one Ceferino G. Venturina along EDSA.
Suddenly, the bus bumped Herminigildo Zuiga, a pedestrian. Such was the
force of the impact that the left side of the front windshield of the bus was
cracked. Zuiga was rushed to the Quezon City General Hospital where he was
given medical attention, but due to the massive injuries sustained, he
succumbed shortly thereafter.

A complaint against petitioner and her driver for damages was filed at the
Regional Trial Court of Malolos City. In her answer, the petitioner vehemently
denied the material allegations of the complaint. She tried to shift the blame
upon the victim, theorizing that Herminigildo bumped into her bus, while
avoiding an unidentified woman who was chasing him. Furthermore, she alleged
that she was not liable for any damages because she exercised the proper
diligence of a good father of a family both in the selection and supervision of her
bus driver.
The trial court rendered its decision holding petitioner and her driver liable
for the untimely death of Zuiga and to indemnify his legal heirs, the herein
respondents. The Court of Appeals affirmed the said decision of the RTC.
Petitioner duly moved for reconsideration, but her motion was denied for lack of
merit.
ISSUE:
Whether or not the petitioner exercised the diligence of a good father of a
family in the selection and supervision of her employees thus absolving her from
any liability.
RULING:
YES. Whether a person is negligent or not is a question of fact. It was
Venturinas reckless and imprudent driving of petitioners bus, which is the
proximate cause of the victims death. It is thus evident that petitioner did not
exercise the diligence of a good father of a family in the selection and
supervision of her employees. The law governing petitioners liability, as the
employer of bus driver Venturina is Article 2180 of the Civil Code. The diligence
of a good father means diligence in the selection and supervision of employees.
Thus, when an employee, while performing his duties, causes damage to
persons or property due to his own negligence, there arises the juris tantum
presumption that the employer is negligent, either in the selection of the
employee or in the supervision over him after the selection. The presumption
juris tantum that there was negligence in the selection of her bus driver remains
unrebutted.

SMITH BELL DODWELL SHIPPING AGENCY CORPORATION


VS. CATALINO BORJA and INTERNATIONAL TO WAGE AND TRANSPORT
CORPORATION
G.R. No. 143008
June 10, 2002
383 SCRA 341
FACTS:
On September 23, 1987, Smith Bell filed a written request with the Bureau
of Customs for the attendance of the latters inspection team on vessel M/T King
Family which was due to arrive at the port of Manila on September 24, 1987.
The vessel contained 750 metric tons of alkyl benzene and methyl methacrylate
monomer.
On the same day, Supervising Customs Inspector Manuel Ma. D. Nalgan
instructed respondent Catalino Borja to board said vessel and perform his duties
as inspector upon the vessels arrival until its departure. At that time, Borja was
a customs inspector of the Bureau of Customs.
At about 11 oclock in the morning on September 24, 1987, while M/T King
Family was unloading chemicals unto two (2) barges owned by ITTC, a sudden
explosion occurred setting the vessels afire. Upon hearing the explosion, Borja,
who was at that time inside the cabin preparing reports, ran outside to check
what happened. Again, another explosion was heard. Seeing the fire and
fearing for his life, he hurriedly jumped over board to save himself. However,
the water was likewise on fire due mainly to the spilled chemicals. Despite the
tremendous heat, Borja swam his way for one hour until he was rescued by the
people living in the squatters area and sent to San Juan De Dios Hospital.
After weeks of intensive care at the hospital, his attending physician
diagnosed Borja was diagnosed to be permanently disabled due to the incident.
Thus, he made demands against Smith Bell and ITTC for the damages caused by
the explosion. However, both denied liabilities and attributed to each other
negligence.

Having failed to rebut the legal presumption of negligence in the selection


and supervision of her driver is responsible for damages, the basis of the liability
being the relationship of pater familias or on the employers own negligence.

After hearing, the trial court ruled in favor of respondent Borja and held
petitioner liable for damages and loss of income. On appeal, the same ruling
was also upheld. Hence this petition.

NEGLIGENCE AS A QUESTION OF FACT

ISSUE:
Whether or not the RTC and the Court of Appeals labored under a
misapprehension of facts regarding the negligence committed.

RULING:
Petitioner avers that both lower courts labored under a misapprehension
of the facts. It claims that the documents adduced in the RTC conclusively
revealed that the explosion that caused the fire on M/T King Family had
originated from the barge ITTC-101. However, the Supreme Court find no cogent
reason to overturn factual findings of the RTC and the Court of Appeals since
such findings were supported by substantial evidences.
Negligence is a conduct that creates undue risk of harm to another. It is
the failure to observe that degree of care, precaution and vigilance that the
circumstances justly demand, whereby that other person suffers injury.
Petitioners vessel was carrying chemical cargo -- alkyl benzene and methyl
methacrylate monomer. While knowing that their vessel was carrying dangerous
inflammable chemicals, its officers and crew failed to take all the necessary
precautions to prevent an accident. Petitioner was, therefore, negligent.
The three elements of QUASI-DELICT are:
1.
damages suffered by the plaintiff,
2.
fault or negligence of the defendant, and
3.
the connection of cause and effect between the fault or
negligence of the defendant and the damages inflicted on the
plaintiff.
All these elements were established in this case.
As a result of the fire and the explosion during the unloading of the
chemicals from petitioners vessel, Respondent Borja suffered the following
damage: and injuries: (1) chemical burns of the face and arms; (2) inhalation of
fumes from burning chemicals; (3) exposure to the elements while floating in sea
water for about three (3) hours; (4) homonymous hemianopsia or blurring of the
right eye [which was of] possible toxic origin; and (5) cerebral infract with neovascularization, left occipital region with right sided headache and the blurring of
vision of right eye.
Wherefore, the Petition is partly granted.
The assailed Decision is
AFFIRMED with the following MODIFICATIONS: petitioner is ordered to pay the
heirs of the victim damages in the amount of P320,240 as loss of earning
capacity, moral damages in the amount of P100,000, plus another P50,000 as
attorneys fees.

NEGLIGENCE AS A QUESTION OF FACT


ILUSORIO VS. COURT OF APPEALS
G. R. No. 139130
November 27, 2002
393 SCRA 89
FACTS:
Ramon Ilusorio is a prominent businessman, was the Managing Director of
Multinational Investment Bancorporation and the Chairman and/or President of
several other corporations he was a depositor in good standing of respondent
bank, the Manila Banking Corporation. As he was then running about 20
corporations, and was going out of the country a number of times, petitioner
entrusted to his secretary, Katherine Eugenio, his credit cards and checkbook
with blank checks. Eugenio was able to encash and deposit to her personal
account about seventeen checks drawn against the respondent bank. Petitioner
did not bother to check his statement of account until a business partner
apprised him that he saw Eugenio use his credit cards. Petitioner immediately
fired his secretary and filed a criminal case against her for estafa thru
falsification.
Respondent bank also lodged a complaint for estafa thru
falsification against Eugenio on the basis of petitioners statement that his
signatures in the checks were forged. Petitioner then requested the respondent
bank to credit back and restore to its account the value of the checks which
were wrongfully encashed but the respondent bank refused. Thus, petitioner
filed the instant case. In addition, Manila Bank also sought the expertise of the
National Bureau Investigation in determining the genuineness of the signatures
appearing on the checks. However, in a letter, the NBI informed the trial court
that they could not conduct the desired examination since the standard
specimens were not sufficient for purposes of rendering a definitive opinion. The
NBI then suggested that petitioner be asked to submit seven or more additional
standard signatures; however, the petitioner failed to comply with this request.
After evaluating the evidence on both sides, the trial court dismissed the case
for lack of sufficient basis. On appeal, the Court of Appeals affirmed the decision
of the trial court.
ISSUE:
Whether or not the respondent bank was negligent in not determining the
genuineness of the signatures of the petitioner on the checks.

RULING:
The Supreme Court held that it was the petitioner, not the bank, who was
negligent. Negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of human
affairs, would do, or the doing of something which a prudent and reasonable
man would do. In the present case, it appears that petitioner accorded his
secretary unusual degree of trust and unrestricted access to his credit cards,
passbooks, check books, bank statements, including custody and possession of
cancelled checks and reconciliation of accounts.
Petitioners failure to examine his bank statements appears as the
proximate cause of his own damage. Petitioner failed to examine his bank
statements not because he was prevented by some cause in not doing so, but
because he did not pay sufficient attention to the matter. In view of Article 2179
of the New Civil Code, when the plaintiffs own negligence was the immediate
and proximate cause of his injury, no recovery could be had for damages.
Hence, the petition is dismissed.

NEGLIGENCE AS A QUESTION OF FACT


NATIONAL POWER CORPORATION VS. COURT OF APPEALS
161 SCRA 334
G.R. No. L-47379
May 16, 1988

reservoir of the Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the dam, since the
water level had reached the danger height of 212 meters above sea level, the
defendant corporation caused the opening of the spillway gates.
The appellate court sustained the findings of the trial court that the
evidence preponderantly established the fact that due to the negligent manner
with which the spillway gates of the Angat Dam were opened, an extraordinary
large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at the Ipo Site with terrific impact as a result of which
the latters stockpile of materials and supplies, camp facilities and permanent
structures and accessories were either washed away, lost or destroyed.
ISSUE:
Whether or not NAPOCOR is exempt from liability because the lost or
deterioration of ECIs facilities was due to fortuitous event.
RULING:
It is clear from the CAS ruling that the petitioner NPC was undoubtedly
negligent because it opened the spillway gates of the Angat Dam only at the
height of typhoon Welming when it knew very well that it was safer to have
opened the same gradually and earlier, as it was also undeniable that NPC knew
of the coming typhoon at least four days before it actually struck. And even
though the typhoon was an act of God or what we may call force majeure, NPC
cannot escape liability because its negligence was the proximate cause of the
loss and damage.
Petitions dismissed. Decision affirmed.

FACTS:
On August 4, 1964, plaintiff Engineering Construction, Inc., being a
successful bidder, executed a contract in Manila with National Waterworks and
Sewerage Authority (NAWASA), whereby the former undertook to furnish all
tools, labor, equipment, and materials (not furnished by Owner), and to
construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and
to complete said works within eight hundred (800) calendar days from the date
the Constructor receives the formal notice to proceed.
The record shows that on November 4, 1967, typhoon Welming hit
Central Luzon, passing trough the defendants Angat Hydro-electric Project and
Dam at Ipo, Norzagaray, Bulacan. Strong winds struck the project area, and
heavy rains intermittently fell. Due to the heavy downpour, the water in the

CULPA CONTRACTUAL
1.
2.
3.
4.
5.
6.
7.
8.

MUAJE-TUAZON VS. WENPHIL, 511 S 521


RCPI VS. VERCHEZ, 481 S 384
VICTORY LINER VS. GAMMAD, 444 S 355
FGU VS. SARMIENTO, 386 S 312
LRTA VS. NATIVIDAD, 397 S 75
RODZSSEN VS. FAR EAST BANK, 357 S 618
UNIVERSITY OF THE EAST VS. JADER, FEB. 17, 2000
BAYNE ADJUSTERS VS. CA, 323 SCRA 231

MUAJE-TUAZON vs. WENPHIL


G.R. No. 162447. DECEMBER 27, 2006
FACTS:
Petitioners Annabelle M. Tuazon and Almer R. Abing worked as branch managers
of the Wendy's food chains. In Wendys Biggie Size It! Crew Challenge"
promotion contest, branches managed by petitioners won first and second
places, respectively. Because of its success, respondent had a second run of the
contest from April 26 to July 4, 1999. The Meycauayan branch won again. The
MCU Caloocan branch failed to make it among the winners. Before the
announcement of the third round winners, management received reports that as
early as the first round of the contest, the Meycauayan, MCU Caloocan, Tandang
Sora and Fairview branches cheated. An internal investigation ensued.
Petitioners were summoned to the main office regarding the reported anomaly.
Petitioners denied there was cheating. Immediately thereafter, petitioners were
notified, in writing, of hearings and of their immediate suspension. Thereafter,
petitioners were dismissed.
ISSUE:
Is the respondent guilty of illegal suspension and dismissal in the case at
bench?
RULING:
There is no denying that petitioners were managerial employees. They executed
management policies, they had the power to hire personnel and assign them
tasks; and discipline the employees in their branch. They recommended actions
on employees to the head office.Article 212 (m) of the Labor Code defines a
managerial employee as one who is vested with powers or prerogatives to lay
down and execute management policies and/or hire, transfer, suspend, lay-off,
recall, discharge, assign or discipline employees. Consequently, as managerial
employees, in the case of petitioners, the mere existence of grounds for the loss
of trust and confidence justify their dismissal. Pursuant to our ruling in Caoile v.
National Labor Relations Commission, as long as the employer has a reasonable
ground to believe that the managerial employee concerned is responsible for the
purported misconduct, or the nature of his participation renders him unworthy of
the trust and confidence demanded by his position, the managerial employee
can be dismissed.
In the present case, the tape receipts presented by respondents showed that
there were anomalies committed in the branches managed by the petitioners.
On the principle of respondeat superior or command responsibility alone,
petitioners may be held liable for negligence in the performance of their

managerial duties, unless petitioners can positively show that they were not
involved. Their position requires a high degree of responsibility that necessarily
includes unearthing of fraudulent and irregular activities. Their bare,
unsubstantiated and uncorroborated denial of any participation in the cheating
does not prove their innocence nor disprove their alleged guilt. Additionally,
some employees declared in their affidavits that the cheating was actually the
idea of the petitioners.
CULPA CONTRACTUAL
RCPI vs. VERCHEZ
G.R. No. 164349. JANUARY 31, 2006
FACTS:
Editha Hebron Verchez (Editha) was confined in the hospital due to an
ailment. Her daughter Grace immediately went to the Sorsogon Branch of RCPI
whose services she engaged to send a telegram to her sister Zenaida. As three
days after RCPI was engaged to send the telegram to Zenaida no response was
received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery
Service, reprimanding her for not sending any financial aid. Immediately after
she received Graces letter, Zenaida, along with her husband left for Sorsogon.
On her arrival at Sorsogon, she disclaimed having received any telegram.
The telegram was finally delivered to Zenaida 25 days later. On inquiry from
RCPI why it took that long to deliver it, RCPI claimed that delivery was not
immediately effected due to the occurrence of circumstances which were
beyond the control and foresight of RCPI.
ISSUE:
Whether or not RCPI is negligent in the performance of its obligation.
RULING:
Article 1170 of the Civil Code provides: Those who in the performance of
their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages. In culpa
contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law,

recognizing the obligatory force of contracts, will not permit a party to be set
free from liability for any kind of misperformance of the contractual undertaking
or a contravention of the tenor thereof.
Considering the public utility of RCPIs business and its contractual obligation to
transmit messages, it should exercise due diligence to ascertain that messages
are delivered to the persons at the given address and should provide a system
whereby in cases of undelivered messages the sender is given notice of nondelivery. Messages sent by cable or wireless means are usually more important
and urgent than those which can wait for the mail. RCPI argues, however,
against the presence of urgency in the delivery of the telegram, as well as the
basis for the award of moral damages. RCPIs arguments fail. For it is its breach
of contract upon which its liability is, it bears repeating, anchored. Since RCPI
breached its contract, the presumption is that it was at fault or negligent. It,
however, failed to rebut this presumption. For breach of contract then, RCPI is
liable to Grace for damages. RCPIs liability as an employer could of course be
avoided if it could prove that it observed the diligence of a good father of a
family to prevent damage.

CULPA CONTRACTUAL
VICTORY LINER, INC. vs. GAMMAD
G.R. No. 159636. NOVEMBER 25, 2004
FACTS:
Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory
Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the
bus while running at a high speed fell on a ravine which resulted in the death of
Marie Grace and physical injuries to other passengers. On May 14, 1996,
respondent heirs of the deceased filed a complaint for damages arising from
culpa contractual against petitioner. In its answer, the petitioner claimed that
the incident was purely accidental and that it has always exercised extraordinary
diligence in its 50 years of operation.
ISSUE:
Whether petitioner should be held liable for breach of contract of carriage.

RULING:
Petitioner was correctly found liable for breach of contract of carriage. A
common carrier is bound to carry its passengers safely as far as human care and
foresight can provide, using the utmost diligence of very cautious persons, with
due regard to all the circumstances. In a contract of carriage, it is presumed
that the common carrier was at fault or was negligent when a passenger dies or
is injured. Unless the presumption is rebutted, the court need not even make an
express finding of fault or negligence on the part of the common carrier. This
statutory presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence.
In the instant case, there is no evidence to rebut the statutory
presumption that the proximate cause of Marie Graces death was the
negligence of petitioner. Hence, the courts below correctly ruled that petitioner
was guilty of breach of contract of carriage.

CULPA CONTRACTUAL
FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION
G.R. No. 141910. AUGUST 6, 2002
FACTS:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver
refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the
plant site of Concepcion Industries, Inc. to the Central Luzon Appliances in
Dagupan City. While the truck was traversing the north diversion road along
McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an
unidentified truck, causing it to fall into a deep canal, resulting in damage to the
cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to
Concepcion Industries, Inc., the value of the covered cargoes. FGU, in turn,
being the subrogee of the rights and interests of Concepcion Industries, Inc.,
sought reimbursement of the amount it had paid to the latter from GPS. Since
the trucking company failed to heed the claim, FGU filed a complaint for
damages and breach of contract of carriage against GPS and its driver Lambert

Eroles. Respondents asserted that that the cause of damage was purely
accidental.
ISSUE:
Whether or not GPS is liable for damages arising from negligence.
RULING:
In culpa contractual, upon which the action of petitioner rests as being the
subrogee of Concepcion Industries, Inc., the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a corresponding
right of relief. Respondent trucking corporation recognizes the existence of a
contract of carriage between it and petitioner and admits that the cargoes it has
assumed to deliver have been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the obligation in this case,
the delivery of the goods in its custody to the place of destination - gives rise to
a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has
failed to do so.
Respondent driver, without concrete proof of his negligence or fault, may
not himself be ordered to pay petitioner. The driver, not being a party to the
contract of carriage between petitioner and defendant, may not be held liable
under the agreement. A contract can only bind the parties who have entered
into it or their successors who have assumed their personality or their juridical
position. Petitioners civil action against the driver can only be based on culpa
aquiliana, which, unlike culpa contractual, would require the claimant for
damages to prove negligence or fault on the part of the defendant.

CULPA CONTRACTUAL
LRTA vs. NAVIDAD
G.R. No. 145804. FEBRUARY 6, 2003

On 14 October 1993, in the evening, Nicanor Navidad, then drunk, entered


the EDSA LRT station. While Navidad was standing on the platform near the LRT
tracks, Junelito Escartin, the security guard assigned to the area approached
Navidad. A misunderstanding or an altercation between the two apparently
ensued that led to a fist fight. No evidence, however, was adduced to indicate
how the fight started or who, between the two, delivered the first blow or how
Navidad later fell on the LRT tracks. At the exact moment that Navidad fell, an
LRT train, operated by petitioner Rodolfo Roman, was coming in. Navidad was
struck by the moving train, and he was killed instantaneously. The widow of
Nicanor, along with her children, filed a complaint for damages against Junelito
Escartin, Rodolfo Roman, the LRTA, the Metro Transit Organization, Inc. (Metro
Transit), and Prudent for the death of her husband. LRTA and Roman filed a
counterclaim against Navidad and a cross-claim against Escartin and Prudent.
Prudent, in its answer, denied liability and averred that it had exercised due
diligence in the selection and supervision of its security guards.

ISSUE:
Who, if any, is liable for damages in relation to the death of Navidad?
RULING:
The foundation of LRTAs liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of that contract by
reason of its failure to exercise the high diligence required of the common
carrier. In the discharge of its commitment to ensure the safety of passengers, a
carrier may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the
common carrier is not relieved of its responsibilities under the contract of
carriage.
Regrettably for LRTA, as well as perhaps the surviving spouse and heirs of the
late Nicanor Navidad, this Court is concluded by the factual finding of the Court
of Appeals that there is nothing to link Prudent to the death of Navidad, for the
reason that the negligence of its employee, Escartin, has not been duly proven.
There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty
of any culpable act or omission, he must also be absolved from liability.

FACTS:
CULPA CONTRACTUAL

CULPA CONTRACTUAL
RODZSSEN SUPPLY CO. INC. VS. FAR EAST BANK & TRUST CO.
GR No. 109087
May 9, 2001
357 SCRA 618
FACTS:
Petitioner Rodzssen Supply opened a letter of credit with respondent Far
East Bank for the payment of 5 loaders bought by petitioner from Ekman and Co.
The letter of credit had a validity of 30 days to expire February 15, 1979 but was
subsequently extended to October 16, 1979.
Three of the loaders were
delivered to the petitioner and was paid by respondent. The two remaining
loaders were delivered to the petitioner belatedly but were still accepted by
petitioner on the ground that it was bound to do so under the trust receipt
arrangement with respondent bank.
The bank paid the two remaining loaders five months after the expiration
of the credit on March 1980. Petitioner refused to pay the P76,000 for the two
loaders since the bank paid for them beyond the expiration of the letter of
credit. Both the RTC and the CA ruled for the respondent. Thus, this petition for
review.
ISSUE:
Is the petitioner liable to pay respondent bank when the bank paid Ekman
only after 5 months beyond the expiration of the letter of credit?
RULING:
Yes. While respondent bank was negligent in paying the P76,000 to
Ekman within the validity of the letter of credit, petitioner voluntarily accepted
the late delivery of the equipment and used it for 3 years before respondent
demanded payment, without verifying the status of ownership or possession of
the loaders. By acknowledging receipt of the loaders, petitioner impliedly
accepted its obligation to pay the respondent bank even when the bank paid for
the delivery by Ekman after the expiration of the letter of credit.
When both parties are equally negligent in the performance of their
obligations under a contract, the fault of one cancels the negligent of the other.
Their rights and obligations may then be determined equally under the law
proscribing the unjust enrichment.

UNIVERSITY OF THE EAST, VS. ROMEO A. JADER,


2000 Feb 17
G.R. No. 132344
FACTS:
Plaintiff was enrolled in the defendants' College of Law from 1984 up to
1988. In the first semester of his last year (School year 1987-1988), he failed to
take the regular final examination in Practice Court I for which he was given an
incomplete grade. He enrolled for the second semester as fourth year law
student and on February 1, 1988 he filed an application for the removal of the
incomplete grade given him by Professor Carlos Ortega which was approved by
Dean Celedonio Tiongson after payment of the required fee. He took the
examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortega
submitted his grade. It was a grade of five (5).
The plaintiff's name appeared in the Tentative List of Candidates for
graduation for the Degree of Bachelor of Laws (LL.B) as of Second Semester
(1987-1988) with the following annotation:
"JADER ROMEO A.
Def. Conflict of Laws - x-1-87-88, Practice Court I - Inc., 1-87-88. C-1 to submit
transcript with S.O.
In the invitation for graduation the name of the plaintiff appeared as one
of the candidates. At the foot of the list of the names of the candidates there
appeared however the following annotation:
This is a tentative list. Degrees will be conferred upon these candidates
who satisfactorily complete requirements as stated in the University Bulletin and
as approved of the Department of Education, Culture and Sports.
The plaintiff attended the investiture ceremonies during the program of
which he went up the stage when his name was called. He tendered a blow-out
that evening. And there were pictures taken too during the blow-out.
He thereafter prepared himself for the bar examination. He took a leave
of absence without pay from his job from April 20, 1988 to September 30, 1988
and enrolled at the pre-bar review class in Far Eastern University. Having

learned of the deficiency, he dropped his review class and was not able to take
the bar examination.
Consequently, respondent sued petitioner for damages alleging that he
suffered moral shock, mental anguish, serious anxiety, besmirched reputation,
wounded feelings and sleepless nights when he was not able to take the 1988
bar examinations arising from the latter's negligence. He prayed for an award of
moral and exemplary damages, unrealized income, attorney's fees, and costs of
suit.
ISSUE:
Whether or not respondent can claim damages from petitioner school.
RULING:
It is the contractual obligation of the school to timely inform and furnish
sufficient notice and information to each and every student as to whether he or
she had already complied with all the requirements for the conferment of a
degree or whether they would be included among those who will graduate.
Although commencement exercises are but a formal ceremony, it nonetheless is
not an ordinary occasion, since such ceremony is the educational institution's
way of announcing to the whole world that the students included in the list of
those who will be conferred a degree during the baccalaureate ceremony have
satisfied all the requirements for such degree. Prior or subsequent to the
ceremony, the school has the obligation to promptly inform the student of any
problem involving the latter's grades and performance and also most
importantly, of the procedures for remedying the same.

person/persons who may be affected by his act or omission can support a claim
for damages.

CULPA CONTRACTUAL
BAYNE ADJUSTERS AND SURVEYORS, INC. VS. COURT OF APPEALS AND
INSURANCE COMPANY OF NORTH AMERICA
323 SCRA 231

The college dean is the senior officer responsible for the operation of an
academic program, enforcement of rules and regulations, and the supervision of
faculty and student services. He must see to it that his own professors and
teachers, regardless of their status or position outside of the university, must
comply with the rules set by the latter. The negligent act of a professor who fails
to observe the rules of the school, for instance by not promptly submitting a
student's grade, is not only imputable to the professor but is an act of the
school, being his employer.

FACTS:
On May 1987, Colgate Palmolive Philippines imported alkyl benzene from
Japan valued at US $255,802.88. It is insured with private respondent Insurance
Company of North America. Petitioner was contracted by the consignee to
supervise the proper handling and discharge of the cargo from the chemical
tanker to the receiving barge until the cargo is pumped into the consignees
shore tank. When the cargo arrived, the pumping operation commenced at
2020 hours of June 27, 1987. Nevertheless, the pumping was interrupted for
several times due to mechanical problems with the pump. When the pump
broke down once again at about 1300 hours, the petitioners surveyors left the
premises without leaving any instruction with the barge foremen what to do in
event that the pump becomes operational again. No other surveyor was left in
the premises and the assigned surveyor did not seal the valves to the tank to
avoid unsupervised pumping of the cargo. Consignee asked petitioner to send
surveyor to conduct tank sounding. Thus, the petitioner sent Armando Fontilla, a
cargo surveyor, not a liquid bulk surveyor. Then after, it was agreed that
operation would resume the following day at 1030 hours. Fontanilla tried to
inform bargemen and surveyor about the agreement but he could not find them
so he left the premises. When the bargemen arrived, they found that the valves
of the tank are open and resumed pumping operation in the absence of any
instruction from the surveyor. The following morning, undetermined amount of
alkyl benzene was lost due to overflow.

The University should have practiced what it inculcates in its students,


more specifically the principle of good dealings enshrined in Articles 19 and 20
of the Civil Code. Educational institutions are duty-bound to inform the students
of their academic status and not wait for the latter to inquire from the former.
The conscious indifference of a person to the rights or welfare of the

Consignee filed a claim with the insurance company. A conference


transpired which the petitioner, consignee and Claimsmen Adjustment Company
attended. The compromise quantity of the alkyl benzene, which was lost, was
67.649 MT. The insurance company agreed to pay consignee the net amount of
P84, 609.53.
Consequently, the insurance company instituted action for
collection of money as subrogee of the consignee after failure to extra judicially

settles the manner with Bayne Adjusters. Both the trial and appellate court
rendered a decision adverse to the petitioner for its failure to comply Standard
Operating Procedure for Handling Liquid Bulk Cargo.
ISSUE:
Whether or not the petitioner is liable for the loss of a certain amount of
alkyl benzene.
RULING:
Yes. The negligence of the obligor in the performance of the obligation
renders him liable for damages for the resulting loss suffered by the obligee.
The Supreme Court did not find that the trial court erred in holding the petitioner
liable because of its failure to exercise due diligence which is governed by the
Standard Operation Procedure in Handling Liquid Bulk Survey. Although the
cessation of the pumping operation in this case was not voluntarily requested by
the pumping operation in this case was not voluntarily requested by the
pumping operation in this case was not voluntarily requested by the consignee,
but was due to mechanical problems with the pump, there is greater reason to
comply with the SOP. The petitioner assigned surveyor disregarded SOP and left
the pump site without leaving any instruction or directive with the barge pump
operators.
The petition was dismissed.

CULPA CONTRACTUAL
CULPA ACQUILIANA
1.
2.
3.

DELSAN TRANSPORT VS. C & A CONSORTIUM, OCT. 1,


2003
PCIB VS. CA, 350 SCRA 446
SMC VS. HEIRS OF OUANA VS. CA, JULY 4, 2002

DELSAN TRANSPORT LINES, INC., petitioner,


VS. C & A CONSTRUCTION, INC., respondent
G.R. No. 156034
October 1, 2003

FACTS:
Respondent C & A Construction, Inc. was engaged by the National Housing
Authority (NHA) to construct a deflector wall at the Vitas Reclamation Area in
Vitas, Tondo, Manila. The project was completed in 1994 but it was not formally
turned over to NHA.
On October 9, 1994, M/V Delsan Express, a ship owned and operated by
petitioner Delsan Transport Lines, Inc., anchored at the Navotas Fish Port for the
purpose of installing a cargo pump and clearing the cargo oil tank. At around
12:00 midnight of October 20, 1994, Captain Demetrio T. Jusep of M/V Delsan
Express received a report from his radio head operator in Japan that a typhoon
was going to hit Manila in about eight (8) hours. At approximately 8:35 in the
morning of October 21, 1994, Capt. Jusep tried to seek shelter at the North
Harbor but could not enter the area because it was already congested. At 10:00
a.m., Capt. Jusep decided to drop anchor at the vicinity of Vitas mouth, 4 miles
away from a Napocor power barge. At that time, the waves were already
reaching 8 to 10 feet high. Capt. Jusep ordered his crew to go full ahead to
counter the wind which was dragging the ship towards the Napocor power barge.
To avoid collision, Capt. Jusep ordered a full stop of the vessel. He succeeded in
avoiding the power barge, but when the engine was re-started and the ship was
maneuvered full astern, it hit the deflector wall constructed by respondent.
The trial court ruled that petitioner was not guilty of negligence because it
had taken all the necessary precautions to avoid the accident. Applying the
emergency rule, it absolved petitioner of liability because the latter had no
opportunity to adequately weigh the best solution to a threatening situation. It
further held that even if the maneuver chosen by petitioner was a wrong move,
it cannot be held liable as the cause of the damage sustained by respondent was
typhoon Katring, which is an act of God.
On appeal to the Court of Appeals, the decision of the trial court was
reversed and set aside. It found Capt. Jusep guilty of negligence in deciding to
transfer the vessel to the North Harbor only at 8:35 a.m. of October 21, 1994
and thus held petitioner liable for damages.
ISSUE:
Whether or not petitioner is solidarily liable under Article 2180 of the Civil
Code for the quasi-delict committed by Capt. Jusep.
RULING:
The Court of Appeals was correct in holding that Capt. Jusep was negligent in
deciding to transfer the vessel only at 8:35 in the morning of October 21, 1994.

As early as 12:00 midnight of October 20, 1994, he received a report from


his radio head operator in Japan that a typhoon was going to hit Manila after 8
hours. This, notwithstanding, he did nothing, until 8:35 in the morning of
October 21, 1994, when he decided to seek shelter at the North Harbor, which
unfortunately was already congested. The finding of negligence cannot be
rebutted upon proof that the ship could not have sought refuge at the North
Harbor even if the transfer was done earlier. It is not the speculative success or
failure of a decision that determines the existence of negligence in the present
case, but the failure to take immediate and appropriate action under the
circumstances. Capt. Jusep, despite knowledge that the typhoon was to hit
Manila in 8 hours, complacently waited for the lapse of more than 8 hours
thinking that the typhoon might change direction. He cannot claim that he
waited for the sun to rise instead of moving the vessel at midnight immediately
after receiving the report because of the difficulty of traveling at night. The hour
of 8:35 a.m. is way past sunrise. Furthermore, he did not transfer as soon as the
sun rose because, according to him, it was not very cloudy and there was no
weather disturbance yet.
When he ignored the weather report notwithstanding reasonable foresight of
harm, Capt. Jusep showed an inexcusable lack of care and caution which an
ordinary prudent person would have observed in the same situation. Had he
moved the vessel earlier, he could have had greater chances of finding a space
at the North Harbor considering that the Navotas Port where they docked was
very near North Harbor. Even if the latter was already congested, he would still
have time to seek refuge in other ports.
The instant petition is denied.
CULPA ACQUILIANA
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR
BANK OF ASIA AND AMERICA), petitioner,
VS. COURT OF APPEALS and FORD PHILIPPINES, INC.
and CITIBANK, N.A., respondents
2001 Jan 29
350 SCRA 446
FACTS:
The consolidated petitions herein involve several fraudulently negotiated
checks. The original actions a quo were instituted by Ford Philippines to recover

from the drawee bank, CITIBANK, N.A. (Citibank) and collecting bank, Philippine
Commercial International Bank (PCIBank), the value of several checks payable to
the Commissioner of Internal Revenue, which were embezzled allegedly by an
organized syndicate.
G.R. Nos. 121413 and 121479 are twin petitions for review of the March
27, 1995 Decision of the Court of Appeals in CA-G.R. CV No. 25017, entitled Ford
Philippines, Inc. vs. Citibank, N.A. and Insular Bank of Asia and America (now
Philippine Commercial International Bank), and the August 8, 1995 Resolution
ordering the collecting bank, Philippine Commercial International Bank, to pay
the amount of Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15,
1996 Decision of the Court of Appeals and its March 5, 1997 Resolution in CAG.R. No. 28430 entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank," affirming in toto the judgment of the trial court
holding the defendant drawee bank, Citibank, N.A., solely liable to pay the
amount of P12,163,298.10 as damages for the misapplied proceeds of the
plaintiffs Citibank Check Numbers SN-10597 and 16508.
ISSUE:
Whether or not the petitioner Ford has the right to recover from the
collecting bank (PCIBank) and the drawee bank (Citibank) the value of the
checks intended as payment to the Commissioner of Internal Revenue.
RULING:
In G.R. Nos. 121413 and 121479, the Court held that banking business
requires that the one who first cashes and negotiates the check must take some
precautions to learn whether or not it is genuine. And if the one cashing the
check through indifference or other circumstance assists the forger in
committing the fraud, he should not be permitted to retain the proceeds of the
check from the drawee whose sole fault was that it did not discover the forgery
or the defect in the title of the person negotiating the instrument before paying
the check. For this reason, a bank which cashes a check drawn upon another
bank, without requiring proof as to the identity of persons presenting it, or
making inquiries with regard to them, cannot hold the proceeds against the
drawee when the proceeds of the checks were afterwards diverted to the hands
of a third party.
In such cases the drawee bank has a right to believe that the cashing
bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who

encashed a check which had been forged or diverted and in turn received
payment thereon from the drawee, is guilty of negligence which proximately
contributed to the success of the fraud practiced on the drawee bank. The latter
may recover from the holder the money paid on the check. Having established
that the collecting banks negligence is the proximate cause of the loss,
the Court concludes that PCIBank is liable in the amount corresponding to the
proceeds of Citibank Check No. SN-04867.
In G.R. No. 128604, the pro-manager of San Andres Branch of PCIBank,
Remberto Castro, received Citibank Check Numbers SN 10597 and 16508. He
passed the checks to a co-conspirator, an Assistant Manager of PCIBanks
Meralco Branch, who helped Castro open a Checking account of a fictitious
person named "Reynaldo Reyes." Castro deposited a worthless Bank of America
Check in exactly the same amount of Ford checks.
The syndicate tampered with the checks and succeeded in replacing the
worthless checks and the eventual encashment of Citibank Check Nos. SN 10597
and 16508. The PCIBank Pro-manager, Castro, and his co-conspirator Assistant
Manager apparently performed their activities using facilities in their official
capacity or authority but for their personal and private gain or benefit. A bank
holding out its officers and agents as worthy of confidence will not be permitted
to profit by the frauds these officers or agents were enabled to perpetrate in the
apparent course of their employment; nor will it be permitted to shirk its
responsibility for such frauds, even though no benefit may accrue to the bank
therefrom.
For the general rule is that a bank is liable for the fraudulent acts or
representations of an officer or agent acting within the course and apparent
scope of his employment or authority. And if an officer or employee of a bank, in
his official capacity, receives money to satisfy an evidence of indebtedness
lodged with his bank for collection, the bank is liable for his misappropriation of
such sum. But in this case, responsibility for negligence does not lie on
PCIBanks shoulders alone. The evidence on record shows that Citibank as
drawee bank was likewise negligent in the performance of its duties. Citibank
failed to establish that its payment of Fords checks were made in due course
and legally in order. Citibank should have scrutinized Citibank Check Numbers
SN 10597 and 16508 before paying the amount of the proceeds thereof to the
collecting bank of the BIR.
One thing is clear from the record: the clearing
stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any
initials. Citibank failed to notice and verify the absence of the clearing stamps.
Had this been duly examined, the switching of the worthless checks to Citibank

Check Nos. 10597 and 16508 would have been discovered in time. For this
reason, Citibank had indeed failed to perform what was incumbent upon it, which
is to ensure that the amount of the checks should be paid only to its designated
payee.
The fact that the drawee bank did not discover the irregularity
seasonably, in our view, constitutes negligence in carrying out the banks duty to
its depositors. The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
Thus, invoking the doctrine of comparative negligence, the Court is of the
view that both PCIBank and Citibank failed in their respective obligations and
both were negligent in the selection and supervision of their employees resulting
in the encashment of Citibank Check Nos. SN 10597 and 16508. Thus, the Court
is constrained to hold them equally liable for the loss of the proceeds of said
checks issued by Ford in favor of the CIR.Time and again, the Court has stressed
that banking business is so impressed with public interest where the trust and
confidence of the public in general is of paramount importance such that the
appropriate standard of diligence must be very high, if not the highest, degree of
diligence.
A banks liability as obligor is not merely vicarious but primary, wherein
the defense of exercise of due diligence in the selection and supervision of its
employees is of no moment. Banks handle daily transactions involving millions
of pesos. By the very nature of their work the degree of responsibility, care and
trustworthiness expected of their employees and officials is far greater than
those of ordinary clerks and employees. Banks are expected to exercise the
highest degree of diligence in the selection and supervision of their employees.
Thus the Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 25017, are affirmed. PCIBank, is declared solely responsible for the loss of
the proceeds of Citibank Check No. SN 04867 in the amount P4,746,114.41,
which shall be paid together with six percent (6%) interest thereon to Ford
Philippines Inc. from the date when the original complaint was filed until said
amount is fully paid. However, the Decision and Resolution of the Court of
Appeals in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank and Citibank are
adjudged liable for and must share the loss, (concerning the proceeds of Citibank
Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty
ratio, and each bank is ORDERED to pay Ford Philippines Inc. P6,081,649.05,
with six percent (6%) interest thereon, from the date the complaint was filed
until full payment of said amount.

CULPA ACQUILIANA

SAN MIGUEL CORPORATION, petitioner,


VS. HEIRS OF SABINIANO INGUITO, and JULIUS OUANO, respondents
2002 Jul 4
G.R. No. 141716
FACTS:
SMC entered into a Time Charter Party Agreement (TCPA) with Julius
Ouano, of J. Ouano Marine Services. Under the terms of the agreement, SMC
chartered the M/V Doa Roberta for a period of two years for the purpose of
transporting SMCs beverage products from its Mandaue City plant to various
points in Visayas and Mindanao. The TCPA provided, among others, that the
Ouano, the owner, warrants that the vessel is seaworthy and that there shall be
no employer-employee relations between the owner and/or its vessels crew on
one hand and the charterer on the other. The crew of the vessel shall continue
to be under the employ, control and supervision of the owner.
Consequently, damage or loss that may be attributable to the crew,
including loss of the vessel used shall continue to be the responsibility of, and
shall be borne, by the owner; the owner further covenants to hold the charterer
free from all claims and liabilities arising out of the acts of the crew and the
condition of the vessel; the owner shall be responsible to the charterer for
damages and losses arising from the incompetence and/or negligence of, and/or
the failure to observe the required extra-ordinary diligence by the crew.
On November 11, 1990, SMC issued sailing orders to the Master of the MN
Doa Roberta, Captain Inguito. Inguito obtained the necessary sailing clearance
from the Philippine Coast Guard. The vessel left Mandaue City at 6:00 a.rn. of
November 12. At 4:00 a.m., typhoon Ruping was spotted. At 7:00 a.m., SMC
Radio Operator Moreno contacted Inguito through the radio and advised him to
take shelter. Inguito replied that they will proceed since the typhoon was far
away from them, and that the winds were in their favor. At 2:00 p.m., Moreno
again communicated with Inguito and advised him to take shelter. The captain
responded that they can manage. Moreno again contacted Inguito at 4:00 p.m.
and reiterated the advice that it will be difficult to take shelter after passing
Balicasag Island because they were approaching an open sea. Still, the captain
refused to heed his advice.

At 11:40 p.m, Moreno made a series of calls to the M/V Doa Roberta but
he failed to get in touch with anyone in the vessel. At 1:15 a.m. of November
13, Inguito called Moreno over the radio and requested him to contact the son of
Julius Ouano because they needed a helicopter to rescue them. At 2:30 a.m. of
November 13, 1990, the M/V Doa Roberta sank. Out of the 25 officers and crew
on board the vessel, only five survived.
On November 24, 1990, Julius Ouano, in lieu of the captain who perished
in the sea tragedy, filed a Marine Protest. The heirs of the deceased captain
and crew, as well as the survivors, of the ill-fated M/V Doa Roberta filed a
complaint for tort against SMC and Julius Ouano before the RTC. Julius Ouano
alleged that the proximate cause of the loss of the vessel and its officers and
crew was the fault and negligence of SMC, which had complete control and
disposal of the vessel as charterer and which issued the sailing order for its
departure despite being forewarned of the impending typhoon. Thus, he prayed
that SMC indemnify him for the cost of the vessel and the unrealized rentals and
earnings thereof. SMC argued that the proximate cause of the sinking was
Ouanos breach of his obligation to provide SMC with a seaworthy vessel duly
manned by competent crew. SMC interposed counterclaims against Ouano for
the value of the cargo lost in the sea tragedy.
The trial court ruled that the proximate cause of the loss of the M/V Doa
Roberta was attributable to SMC and was ordered and sentenced to pay to the
heirs of the deceased crew. The CA modified the decision appealed from,
declaring defendant-appellants SMC and Julian C. Ouano jointly and severally
liable to plaintiffs-appellees, except to the heirs of Capt. Inguito.
ISSUE:
Whether or not the finding of the appellate court was in order.
RULING:
Under the terms of the TCPA between the parties, the charterer, SMC,
should be free from liability for any loss or damage sustained during the voyage,
unless it be shown that the same was due
to its fault or negligence. The evidence does not show that SMC or its
employees were amiss in their duties. SMCs Radio Operator Moreno, who was
tasked to monitor every shipment of its cargo, zealously contacted and advised
Capt. Inguito to take shelter from typhoon Ruping.
In contrast to the care exercised by Moreno, Rico Ouano tried to
communicate with the captain only after receiving the S.O.S. message. Neither

Ouano nor his son was available during the entire time that the vessel set out
and encountered foul weather. Considering that the charter was a contract of
affreightment, the shipowner had the clear duty to ensure the safe carriage and
arrival of goods transported on board its vessels. More specifically, Ouano
expressly warranted in the TCPA that his vessel was seaworthy. For a vessel to
be seaworthy, it must be adequately equipped for the voyage and manned with
a sufficient number of competent officers and crew.
The proximate cause of the sinking of the vessel was the gross failure of
the captain of the vessel to observe due care and to heed SMCs advice to take
shelter. Gilbert Gonsaga, Chief Engineer of Doa Roberta, testified that the ship
sank at 2:30 in the early morning of November 13th. On the other hand, from
the time the vessel left the port of Mandaue at six oclock in the morning,
Captain Sabiniano Inguito was able to contact the radio operator of SMC. He was
fully apprised of typhoon "Ruping" and its strength. Due diligence dictated that
at any time before the vessel was in distress, he should have taken shelter in
order to safeguard the vessel and its crew.
Ouano is vicariously liable for the negligent acts of his employee, Capt.
Inguito. Under Articles 2176 and 2180 of the Civil Code, owners and managers
are responsible for damages caused by the negligence of a servant or an
employee, the master or employer is presumed to be negligent either in the
selection or in the supervision of that employee. This presumption may be
overcome only by satisfactorily showing that the employer exercised the care
and the diligence of a good father of a family in the selection and the supervision
of its employee. Ouano miserably failed to overcome the presumption of his
negligence. He failed to present proof that he exercised the due diligence of a
bonus paterfamilias in the selection and supervision of the captain of the M/V
Doa Roberta. Hence, he is vicariously liable for the loss of lives and property
occasioned by the lack of care and negligence of his employee.
SMC is not liable for the losses. The contention that it was the issuance of
the sailing order by SMC which was the proximate cause of the sinking is
untenable. The fact that there was an approaching typhoon is of no moment. It
appears that on one previous occasion, SMC issued a sailing order to the captain
of the M/V Doa Roberta, but the vessel cancelled its voyage due to typhoon.
Likewise, it appears from the records that SMC issued the sailing order on
November 11, 1990, before typhoon "Ruping" was first spotted at 4:00 a.m. of
November 12, 1990.
Consequently, Ouano should answer for the loss of lives and damages
suffered by the heirs of the officers and crew who perished on board the M/V
Doa Roberta, except Captain Sabiniano Inguito. The award of damages granted

by the CA is affirmed only against Ouano, who should also indemnify SMC for the
cost of the lost cargo, in the total amount of P10,278,542.40.

Solidary
Employee

vs.

Independent

Liability

of

Employer

and/or

1. MERCURY DRUG VS. SPOUSES HUANG, 22 JUNE 2007


2. MENDOZA VS. SORIANO, 8 JUNE 2007
3. CEREZO VS. TUAZON, 426 S 167

MERCURY DRUG CORPORATION VS. HUANG


GR No. 172122 June 22, 2007
FACTS:
Petitioner Mercury Drug is the registered owner of a six-wheeler
1990 Mitsubishi Truck. It has in its employ petitioner Rolando Del Rosario
as driver. Respondent spouses Richard and Carmen Huang are the
parents of respondent Stephen Huang and own the red 1991 Toyota
Corolla. These two vehicles figured in a road accident. At the time of the
accident, petitioner Del Rosario only had a Traffic Violation Receipt. A
drivers license had been confiscated because he had been previously
apprehended for reckless driving. Respondent Stephen Huang sustained
massive injuries to his spinal cord, head, face and lung. He is paralyzed
for life from his chest down and requires continuous medical and
rehabilitation treatment. Respondents fault petitioner Del Rosario for
committing gross negligence and reckless imprudence while driving, and
petitioner Mercury Drug for failing to exercise the diligence of a good
father of a family in the selection and supervision of its driver.
The trial court found Mercury Drug and Del Rosario jointly and
severally liable to pay respondents. The Court of Appeals affirmed the
said decision.
ISSUE:

Whether or not petitioner Mercury Drug is liable for the negligence


of its employee.
RULING:
Article 2176 and 2180 of the Civil Code provide:
Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damages done.
Such fault or negligence, if there is no pre-existing contractual
relationship between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
The obligation imposed by article 2176 is demandable not
only for ones own acts or omissions, but also for those of persons for
whom one is responsible.
The liability of the employer under Article 2180 is direct and
immediate. It is not conditioned on a prior recourse against the negligent
employee, or a prior showing of insolvency of such employee. It is also
joint and solidary with the employee. To be relieved f the liability,
petitioner should show that it exercised the diligence of a good father of a
family, both in the selection of the employee and in the supervision of the
performance of his duties.
In this case, the petitioner Mercury Drug does not provide for backup driver for long trips. As the time of the accident, Del Rosario has been
driving for more than thirteen hours, without any alternate. Moreover, Del
Rosario took the driving test and psychological exam for the position of
Delivery Man and not as Truck Man.
With this, petitioner Mercury Drug is liable jointly and severally
liable to pay the respondents.
Solidary vs. Independent Liability of Employer and/or Employee

MENDOZA VS. SORIANO


GR No. 164012 June 8, 2007
FACTS:

Sonny Soriano, while crossing Commonwealth Avenue near Luzon


Avenue, was hit by a speeding Tamaraw FX driven by Lomer Macasasa.
Soriano was thrown five meters away, while the vehicle stopped some 25
meters from the point of impact. Gerard Villaspin, one of Sorianos
companions, asked Macasasa to bring Soriano to the hospital, but the first
flee. Respondents wife and daughter filed a complaint for damages
against Macasasa and petitioner Flordeliza Mendoza, the registered owner
of the vehicle.
Petitioner Mendoza contends that she was not liable since as owner
of the vehicle, she had exercised the diligence of a good father of a family
over her employee. Macasas.
The trial court dismissed the complaint against Macasasa and
Mendoza. It found Soriano negligent for crossing not in the pedestrian
overpass. The Court of Appeals, on the other hand, reversed the assailed
decision of the lower court.
ISSUE:
Whether or not petitioner is liable for damages.
RULING:
While the appellate court agreed that Soriano was negligent, it also
found Macasasa negligent for speeding, such that he was unable to avoid
hitting the victim. It observed that Sorianos own negligence did not
preclude recovery for damages from Macasasas negligence. It further
held that since petitioner failed to present evidenced to the contrary and
conformably with Article 2180 of the Civil Code, the presumption of
negligence of the employer in the selection and supervision of employees
stood.
The records show that Macasasa violated two traffic rules under the
Land Transportation and Office Code. Under Article 2185 of the Civil Code,
a person driving a motor vehicle is presumed negligent if at the time of
the mishap, he was violating traffic regulations.
Further, under Article 2180, employers are liable for the damages
caused by their employees acting within the scope of their assigned tasks.
The liability arises due to the presumed negligence of the employers in
supervising their employees unless they prove that they observed all the

diligence of a good father of a family to prevent the damage. In this case


petitioner is held primarily and solidarily liable for the damages caused by
Macasasa.
However, Article 2179 states that when the plaintiffs own
negligence was the immediate and proximate cause of his injury, he
cannot recover damages. But if his negligence was only contributory, the
immediate and proximate cause of the injury being the defendants lack
of due care, the plaintiff may recover damages, but the court shall
mitigate the damages awarded.
Ruling that Soriano was guilty of contributory negligence for not
using the pedestrian overpass, 20% reduction of the amount of the
damages awarded was awarded to petitioner.

Solidary vs. Independent Liability of Employer and/or Employee

CEREZO VS. TUAZON


GR No. 141538 March 23, 2004
FACTS:
Country Bus Lines passenger bus collided with a tricycle. Tricycle
driver Tuazon filed a complaint for damages against Mrs. Cerezo, as
owner of the bus line, her husband Attorney Juan Cerezo, and bus driver
Danilo A. Foronda.
After considering Tuazons testimonial and documentary evidence,
the trial court ruled in Tuazons favor.
The trial court made no
pronouncement on Forondas liability because there was no service of
summons on him. The trial court did not hold Atty. Cerezo liable as
Tuazon failed to show that Mrs. Cerezos business benefited the family,
pursuant to Article 121(3) of the Family Code. The trial court held Mrs.
Cerezo solely liable for the damages sustained by Tuazon arising from the
negligence of Mrs. Cerezos employee, pursuant to Article 2180 of the
Civil Code.

ISSUE:
Whether petitioner is solidarily liable.
RULING:
Contrary to Mrs. Cerezos assertion, Foronda is not an indispensable
party to the case. An indispensable party is one whose interest is
affected by the courts action in the litigation, and without whom no final
resolution of the case is possible. However, Mrs. Cerezos liability as an
employer in an action for a quasi-delict is not only solidary, it is also
primary and direct. Foronda is not an indispensable party to the final
resolution of Tuazons action for damages against Mrs. Cerezo.
The responsibility of two or more persons who are liable for a quasidelict is solidary. Where there is a solidary obligation on the part of
debtors, as in this case, each debtor is liable for the entire obligation.
Hence, each debtor is liable to pay for the entire obligation in full. There
is no merger or renunciation of rights, but only mutual representation.
Where the obligation of the parties is solidary, either of the parties is
indispensable, and the other is not even a necessary party because
complete relief is available from either. Therefore, jurisdiction over
Foronda is not even necessary as Tuazon may collect damages from Mrs.
Cerezo alone.
Moreover, an employers liability based on a quasi-delict is primary
and direct, while the employers liability based on a delict is merely
subsidiary.
The words primary and direct, as contrasted with
subsidiary, refer to the remedy provided by law for enforcing the
obligation rather than to the character and limits of the obligation.
Although liability under Article 2180 originates from the negligent act of
the employee, the aggrieved party may sue the employer directly.
When an employee causes damage, the law presumes that the
employer has himself committed an act of negligence in not preventing or
avoiding the damage. This is the fault that the law condemns. While the
employer is civilly liable in a subsidiary capacity for the employees
criminal negligence, the employer is also civilly liable directly and
separately for his own civil negligence in failing to exercise due diligence
in selecting and supervising his employee. The idea that the employers
liability is solely subsidiary is wrong.

To hold the employer liable in a subsidiary capacity under a


delict, the aggrieved party must initiate a criminal action where the
employees delict and corresponding primary liability are established. If
the present action proceeds from a delict, then the trial courts jurisdiction
over Foronda is necessary.
However, the present action is clearly for the quasi-delict of Mrs.
Cerezo and not for the delict of Foronda.
Thus, the petition was denied ordering the defendant Hermana
Cerezo to pay the plaintiff.

Presumption of Fault/Negligence of Employer

VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS


GR No. 54080 November 22, 2000
FACTS:
Defendant Alberto delos Santos was the driver of defendant
Rudy Samidan of the latters vehicle, a Forward Cargo Truck. At
about 12:30 in the afternoon, he was driving said truck along the
National Highway within the vicinity of Gerona, Tarlac. The Viron
Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and
he swerved to the right shoulder of the highway, but as soon as he
occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus
swerved to his lane to avoid an incoming bus on its opposite
direction. With the driver of another truck dealing likewise in
vegetables, Dulnuan, the two of them and the driver of the Viron
bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the
private respondents.
ISSUE:

Whether the employer is liable to the negligence of his


employee.
RULING:
As employers of the bus driver, the petitioner is, under Article
2180 of the Civil Code, directly and primarily liable for the resulting
damages. The presumption that they are negligent flows from the
negligence of their employee. That presumption, however, is only
jusris tantum, not juris et de jure. Their only possible defense is that
they exercised all the diligence of a good father of a family to
prevent the damage.
In fine, when the employee causes damage due to his own
negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, rebuttable only
by proof of observance of the diligence of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal
presumption of negligence in the selection and supervision of
employees, thus, petitioner as the employer is responsible for
damages, the basis of the liability being the relationship of pater
familias or on the employers own negligence. Hence, with the
allegations and subsequent proof of negligence against the bus
driver of petitioner, petitioner (employer) is liable for damages.

Proof of Employees Fault/Negligence


1. MERCURY DRUG VS. BAKING, 523 S 184
2. SAFEGUARD SECURITY VS. TANGCO, 511 S 67
3. PLEYTO VS. LOMBOY, 432 S 329

MERCURY DRUG CORPORATION VS. BAKING


GR No. 57435 May 25, 2007
FACTS:

Sebastian Baking, respondent, went to the clinic of Dr. Cesar Sy for


a medical check-up. Dr. Sy gave respondent two medical prescriptions
Diomicron for his blood sugar and Benalize tablets for his triglyceride.
Respondent then proceeded to petitioner Mercury Drug Corporation
(Alabang Branch) to buy the prescribed medicines. However, the
saleslady misread the prescription Diamicron as a prescription for
Dormicum. Unaware that what was given to him was the wrong medicine,
respondent took one pill of dormicum on three consecutive days. On the
third day he took the medicine, and he figured in a vehicular accident.
The car he was driving collided with the car of one Jose Peralta.
Respondent fell asleep while driving he could not remember anything
about the collision nor felt its impact.
Suspecting that the tablet he took may have bearing on his physical
and mental state at the time of the collision, respondent returned to Dr.
Sy. Upon being shown the medicine, Dr. Sy was shocked to find that what
was sold to him was Dormicum, instead of the prescribed Diamicron
The RTC and CA rendered their decision in favor of respondent.
ISSUE:

Article 2180 in complementing the preceding article states that the


obligation imposed by articles 2176 is demandable not only for ones own
acts or omissions, but also for those of persons for whom one is
responsible
It is thus clear that the employer of a negligent employee is liable
for the damages caused by the latter. When an injury is caused by the
negligence of an employee, there instantly arises a presumption of the
law that there has been negligence on the part of the employer either in
the selection of the employee or the supervision over him, after such
selection. The presumption, however, may be rebutted by a clear showing
on the part of the employer that he has exercised the care and diligence
of a good father of a family in the selection and supervision of his
employee.
In this case, petitioner failed to prove such exercised of due
diligence of a good father of a family in the selection and supervision of
employee, thus making the petitioner solidarily liable for the damages.

Proof of Employees and Negligence

Whether petitioner was negligent, and if so, whether such


negligence was the proximate cause of respondents accident.

SAFEGUARD SECURITY V. TANGCO


GR No. 165732 December 14, 2006

RULING:
Article 2176 states that whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for
the damages done. Such fault or negligence, if there is no pre-existing
contractual relationship between the parties, is called a quasi-delict
Obviously, petitioners employee was grossly negligent in selling
respondent domicrum, instead of the prescribed diamicron. Considering
that a fatal mistake could be a matter of life and death for a buying
patient, the employee should have been very cautious in dispensing
medicines.
Petitioner contends that the proximate cause of the accident was
respondents negligence in driving. The court disagrees. The accident
could have not occurred had petitioners employee been careful in
reading the prescription.

FACTS:
Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan
Branch, Quezon City, to renew her time deposit per advise of the bank's
cashier as she would sign a specimen card. Evangeline, a duly licensed
firearm holder with corresponding permit to carry the same outside her
residence, approached security guard Pajarillo, who was stationed outside
the bank, and pulled out her firearm from her bag to deposit the same for
safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun
hitting her in the abdomen instantly causing her death.
Respondent filed a complaint for damages against Pajarillo for
negligently shooting Evangeline and against Safeguard for failing to

observe the diligence of a good father of a family to prevent the damage


committed by its security guard.
Petitioners denied the material allegations in the complaint and
alleged that Safeguard exercised the diligence of a good father of a family
in the selection and supervision of Pajarillo; that Evangeline's death was
not due to Pajarillo's negligence as the latter acted only in self-defense.
The RTC found respondents to be entitled to damages. It rejected
Pajarillo's claim that he merely acted in self-defense. The RTC also found
Safeguard as employer of Pajarillo to be jointly and severally liable with
Pajarillo. It ruled that while it may be conceded that Safeguard had
perhaps exercised care in the selection of its employees, particularly of
Pajarillo, there was no sufficient evidence to show that Safeguard
exercised the diligence of a good father of a family in the supervision of
its employee.
ISSUES:
1. Whether Pajarillo is guilty of negligence in shooting Evangeline;
and
2. Whether Safeguard should be held solidarily liable for the
damages awarded to respondents.
RULING:
ARTICLE 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties is called a quasi-delict and is governed by
the provisions of this Chapter.
Safeguard contends that it cannot be jointly held liable since it had
adequately shown that it had exercised the diligence required in the
selection and supervision of its employees. It claims that it had required
the guards to undergo the necessary training and to submit the requisite
qualifications and credentials which even the RTC found to have been
complied with; that the RTC erroneously found that it did not exercise the
diligence required in the supervision of its employee. Safeguard further
claims that it conducts monitoring of the activities of its personnel,
wherein supervisors are assigned to routinely check the activities of the

security guards which include among others, whether or not they are in
their proper post and with proper equipment, as well as regular
evaluations of the employees' performances; that the fact that Pajarillo
loaded his firearm contrary to Safeguard's operating procedure is not
sufficient basis to say that Safeguard had failed its duty of proper
supervision; that it was likewise error to say that Safeguard was negligent
in seeing to it that the procedures and policies were not properly
implemented by reason of one unfortunate event. The Supreme Court was
not convinced.
Article 2180 of the Civil Code provides: The obligation
imposed by Article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
As the employer of Pajarillo, Safeguard is primarily and solidarily
liable for the quasi-delict committed by the former. Safeguard is
presumed to be negligent in the selection and supervision of his employee
by operation of law. This presumption may be overcome only by
satisfactorily showing that the employer exercised the care and the
diligence of a good father of a family in the selection and the supervision
of its employee. In the selection of prospective employees, employers are
required to examine them as to their qualifications, experience, and
service records. On the other hand, due diligence in the supervision of
employees includes the formulation of suitable rules and regulations for
the guidance of employees and the issuance of proper instructions
intended for the protection of the public and persons with whom the
employer has relations through his or its employees and the imposition of
necessary disciplinary measures upon employees in case of breach or as
may be warranted to ensure the performance of acts indispensable to the
business of and beneficial to their employer. To this, we add that actual
implementation and monitoring of consistent compliance with said rules
should be the constant concern of the employer, acting through
dependable supervisors who should regularly report on their supervisory
functions. To establish these factors in a trial involving the issue of
vicarious liability, employers must submit concrete proof, including
documentary evidence.

Did petitioner observed the proper diligence of a good father of a


family?
Proof of Employees and Negligence

PLEYTO VS. LOMBOY


GR No. 148737 December 16, 2004
FACTS:
Respondent Maria D. Lomboy of Calasiao, Pangasinan, is the
surviving spouse of the late Ricardo Lomboy, who died in Pasolingan,
Gerona, Tarlac, in a vehicular accident. The accident was a head-on
collision between the PRBL bus driven by petitioner Pleyto and the car
where Ricardo was a passenger. Carmela suffered injuries requiring
hospitalization in the same accident which resulted in her fathers death.
According to Rolly Orpilla, a witness and one of the bus passengers,
Pleyto tried to overtake Esguerras tricycle but hit it instead. Pleyto then
swerved into the left opposite lane. Coming down the lane, some fifty
meters away, was a southbound Mitsubishi Lancer car, driven by Arnulfo
Asuncion. The car was headed for Manila with some passengers. Seated
beside Arnulfo was his brother-in-law, Ricardo Lomboy, while in the back
seat were Ricardos 18-year old daughter Carmela and her friend, one
Rhino Daba. PRBL Bus No. 1539 smashed head-on the car, killing Arnulfo
and Ricardo instantly. Carmela and Rhino suffered injuries, but only
Carmela required hospitalization.
The Court of Appeals found PRBL liable for Pleytos negligence
pursuant to Article 2180 in relation to Article 2176 of the Civil Code. Under
Article 2180, when an injury is caused by the negligence of a servant or
an employee, the master or employer is presumed to be negligent either
in the selection or in the supervision of that employee. This presumption
may be overcome only by satisfactorily showing that the employer
exercised the care and the diligence of a good father of a family in the
selection and the supervision of its employee.
ISSUE:

RULING:
The negligence and fault of appellant driver is manifest.
He
overtook the tricycle despite the oncoming car only fifty (50) meters away
from him. Defendant-appellants claim that he was driving at a mere 30
to 35 kilometers per hour does not deserve credence as it would have
been easy to stop or properly maneuver the bus at this speed. The speed
of the bus, the drizzle that made the road slippery, and the proximity of
the car coming from the opposite direction were duly established by the
evidence. The speed at which the bus traveled, inappropriate in the light
of the aforementioned circumstances, is evident from the fact despite the
application of the brakes, the bus still bumped the tricycle, and then
proceeded to collide with the incoming car with such force that the car
was pushed beyond the edge of the road to the ricefield.
In the present case, petitioners presented several documents in
evidence to show the various tests and pre-qualification requirements
imposed upon petitioner Pleyto before his hiring as a driver by PRBL.
However, no documentary evidence was presented to prove that
petitioner PRBL exercised due diligence in the supervision of its
employees, including Pleyto. Citing precedents, the Court of Appeals
opined,
In order that the defense of due diligence in the selection and
supervision of employees may be deemed sufficient and plausible, it is
not enough for the employer to emptily invoke the existence of company
guidelines and policies on hiring and supervision. As the negligence of
the employee gives rise to the presumption of negligence on the part of
the employer, the latter has the burden of proving that it has been
diligent not only in the selection of employees but also in the actual
supervision of their work. The mere allegation of the existence of hiring
procedures and supervisory policies without anything more is decidedly
not sufficient to overcome such presumption.

Proof of Due Diligence

1. VIRON VS. DE LOS SANTOS, supra


2. SYKL VS. BEGASA, 414 S 237
3. YAMBAO VS. ZUNIGA, 418 S 266

VIRON TRANSPORTATION CO., INC. VS. DELOS SANTOS


GR No. 54080 November 22, 2000
FACTS:
Defendant Alberto delos Santos was the driver of defendant
Rudy Samidan of the latters vehicle, a Forward Cargo Truck. At
about 12:30 in the afternoon, he was driving said truck along the
National Highway within the vicinity of Gerona, Tarlac. The Viron
Bus, driven by Wilfredo Villanueva, tried to overtake his truck, and
he swerved to the right shoulder of the highway, but as soon as he
occupied the right lane of the road, the cargo truck which he was
driving was hit by the Viron bus on its left front side, as the bus
swerved to his lane to avoid an incoming bus on its opposite
direction. With the driver of another truck dealing likewise in
vegetables, Dulnuan, the two of them and the driver of the Viron
bus proceeded to report the incident to the Police Station.
Both the RTC and the CA rendered its decision in favor of the
private respondents.
ISSUE:
Whether the employer is liable to the negligence of his
employee.
RULING:
As employers of the bus driver, the petitioner is, under Article
2180 of the Civil Code, directly and primarily liable for the resulting
damages. The presumption that they are negligent flows from the
negligence of their employee. That presumption, however, is only
jusris tantum, not juris et de jure. Their only possible defense is that

they exercised all the diligence of a good father of a family to


prevent the damage.
In fine, when the employee causes damage due to his own
negligence while performing his own duties, there arises the juris
tantum presumption that the employer is negligent, rebuttable only
by proof of observance of the diligence of a good father of a family.
Petitioner, through its witnesses, failed to rebut such legal
presumption of negligence in the selection and supervision of
employees, thus, petitioner as the employer is responsible for
damages, the basis of the liability being the relationship of pater
familias or on the employers own negligence. Hence, with the
allegations and subsequent proof of negligence against the bus
driver of petitioner, petitioner (employer) is liable for damages.

Proof of Due Diligence

SYKL VS. BEGASA


GR No. 149149 October 23, 2003
FACTS:
Respondent Salvador Begasa and his three companions flagged
down a passenger jeepney driven by Joaquin Espina and owned by Aurora
Pisuena. While respondent was boarding the passenger jeepney (his right
foot already inside while his left foot still on the boarding step of the
passenger jeepney), a truck driven by Elizalde Sablayan and owned by
petitioner Ernesto Syki bumped the rear end of the passenger jeepney.
Respondent fell and fractured his left thigh bone.
Respondent filed a complaint for damages for breach of common
carriers contractual obligations and quasi-delict against Aurora Pisuena,
the owner of the passenger jeepney;, herein petitioner Ernesto Syki, the
owner of the truck;, and Elizalde Sablayan, the driver of the truck.
After hearing, the trial court dismissed the complaint against Aurora
Pisuena, the owner and operator of the passenger jeepney, but ordered

petitioner Ernesto Syki and his truck driver, Elizalde Sablayan, to pay
respondent Salvador Begasa, jointly and severally
ISSUE:
1. Whether or not petitioner is liable for the act of his employee.
2. Whether he exercised the diligence of a good father of a family.
RULING:
1. Article 2180 of the Civil Code provides:
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business
or industry.
From the above provision, when an injury is caused by the
negligence of an employee, a legal presumption instantly arises that the
employer was negligent, either or both, in the selection and/or supervision
of his said employee duties. The said presumption may be rebutted only
by a clear showing on the part of the employer that he had exercised the
diligence of a good father of a family in the selection and supervision of
his employee. If the employer successfully overcomes the legal
presumption of negligence, he is relieved of liability. In other words, the
burden of proof is on the employer.
2. The question is: how does an employer prove that he had indeed
exercised the diligence of a good father of a family in the selection and
supervision of his employee. Making proof in its or his case, it is
paramount that the best and most complete evidence is formally entered.
In the case at bar, while there is no rule which requires that
testimonial evidence, to hold sway, must be corroborated by documentary
evidence, inasmuch as the witnesses testimonies dwelt on mere
generalities, we cannot consider the same as sufficiently persuasive proof
that there was observance of due diligence in the selection and
supervision of employees. Petitioners attempt to prove its deligentissimi
patris familias in the selection and supervision of employees through oral
evidence must fail as it was unable to buttress the same with any other
evidence, object or documentary, which might obviate the apparent
biased nature of the testimony.

In the selection of prospective employees, employers are required


to examine them as to their qualifications, experience, and service
records. On the other hand, with respect to the supervision of employees,
employers should formulate standard operating procedures, monitor their
implementation, and impose disciplinary measures for breaches thereof.
To establish these factors in a trial involving the issue of vicarious liability,
employers must submit concrete proof, including documentary evidence.
The employer must not merely present testimonial evidence to
prove that he had observed the diligence of a good father of a family in
the selection and supervision of his employee, but he must also support
such testimonial evidence with concrete or documentary evidence. The
reason for this is to obviate the biased nature of the employers testimony
or that of his witnesses.
In this case, petitioners evidence consisted entirely of testimonial
evidence. He testified that before he hired Elizalde Sablayan, he required
him to submit a police clearance in order to determine if he was ever
involved in any vehicular accident. He also required Sablayan to undergo
a driving test with conducted by his mechanic, Esteban Jaca. Petitioner
claimed that he, in fact, accompanied Sablayan during the driving test
and that during the test, Sablayan was taught to read and understand
traffic signs like Do Not Enter, One Way, Left Turn, and Right
Turn.
Petitioners mechanic, Esteban Jaca, on the other hand, testified
that Sablayan passed the driving test and had never figured in any
vehicular accident except the one in question. He also testified that he
maintained in good condition all the trucks of petitioner by checking the
brakes, horns and tires thereof before leaving for providing hauling
services.
Petitioner, however, never presented the alleged police clearance
given to him by Sablayan, nor the results of Sablayans driving test.
Petitioner also did not present records of the regular inspections that his
mechanic allegedly conducted.
In sum, the sole and proximate cause of the accident was the
negligence of petitioners driver who, as found by the lower courts, did
not slow down even when he was already approaching a busy intersection
within the city proper. The passenger jeepney had long stopped to pick up
respondent and his three companions and, in fact, respondent was

already partly inside the jeepney, when petitioners driver bumped the
rear end ofrear-ended it.
Since the negligence of petitioners driver was the sole and
proximate cause of the accident, in the present case, petitioner is liable,
under Article 2180 of the Civil Code, to pay damages to respondent
Begasa for the injuries sustained by latter.

The petitioner vehemently denied the material allegations of the


complaint. She tried to shift the blame for the accident upon the victim,
theorizing that Herminigildo bumped into her bus, while avoiding an
unidentified woman who was chasing him. She further alleged that she
was not liable for any damages because as an employer, she exercised
the proper diligence of a good father of a family, both in the selection and
supervision of her bus driver.
ISSUE:
Whether or not petitioner observed the diligence of a good father of
a family, so as not to be liable for the act committed by her employee?
RULING:

Proof of Due Diligence

YAMBAO VS. ZUNIGA


GR No. 146173 December 11, 2003
FACTS:
The bus owned by the petitioner was being driven by her driver, one
Ceferino G. Venturina along the northbound lane of Epifanio delos Santos
Avenue (EDSA). With Venturina was the bus conductor, Fernando
Dumaliang.
Suddenly, the bus bumped Herminigildo Zuiga, a
pedestrian. Such was the force of the impact that the left side of the front
windshield of the bus was cracked. Zuiga was rushed to the Quezon City
General Hospital where he was given medical attention, but due to the
massive injuries sustained, he succumbed shortly thereafter.
Private respondents, as heirs of the victim, filed a Complaint against
petitioner and her driver, Venturina, for damages. The complaint
essentially alleged that Venturina drove the bus in a reckless, careless
and imprudent manner, in violation of traffic rules and regulations,
without due regard to public safety, thus resulting in the victims
premature death.

It held that this was a case of quasi-delict, there being no preexisting contractual relationship between the parties. The court a quo
then found the petitioner directly and primarily liable as Venturinas
employer pursuant to Article 2180 of the Civil Code as she failed to
present evidence to prove that she has observed the diligence of a good
father of a family in the selection and supervision of her employees.
Art. 2180 states that the obligation imposed by Article 2176 is
demandable not only for ones own acts or omissions, but also for those of
persons for whom one is responsible
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business
or industry.
Petitioner contends that as an employer, she observed the proper
diligence of a good father of a family, both in the selection and
supervision of her driver and therefore, is relieved from any liability for
the latters misdeed. To support her claim, she points out that when
Venturina applied with her as a driver in January 1992, she required him
to produce not just his drivers license, but also clearances from the
National Bureau of Investigation (NBI), the Philippine National Police, and
the barangay where he resides. She also required him to present his
Social Security System (SSS) Number prior to accepting him for
employment. She likewise stresses that she inquired from Venturinas

previous employer about his employment record, and only hired him after
it was shown to her satisfaction that he had no blot upon his record.
In sum, petitioners liability to private respondents for the negligent
and imprudent acts of her driver, Venturina, under Article 2180 of the Civil
Code is both manifest and clear. Petitioner, having failed to rebut the
legal presumption of negligence in the selection and supervision of her
driver, is responsible for damages, the basis of the liability being the
relationship of pater familias or on the employers own negligence.
Quasi-delictual liability even in the existence of a contract
between parties
1. REGINO VS. PANGASINAN COLLEGES, supra
2. YHT VS CA, 451 S 638

REGINO VS. PANGASINAN COLLEGES


GR No. 156109 November 18, 2004
FACTS:
Petitioner Khristine Rea M. Regino was a first year computer
science student at Respondent Pangasinan Colleges of Science and
Technology (PCST). In February 2002, PCST held a fund raising campaign
dubbed the Rave Party and Dance Revolution, the proceeds of which
were to go to the construction of the schools tennis and volleyball courts.
Each student was required to pay for two tickets at the price of P100
each. The project was allegedly implemented by recompensing students
who purchased tickets with additional points in their test scores; those
who refused to pay were denied the opportunity to take the final
examinations. Financially strapped and prohibited by her religion from
attending dance parties and celebrations, Regino refused to pay for the
tickets. On March 14 and March 15, 2002, the scheduled dates of the
final examinations in logic and statistics, her teachers -- Respondents
Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from
taking the tests.
ISSUE:

Whether or not the purchased of the tickets are mandatory and are
part of the contract between school and student.
RULING:
Reciprocity of the School-Student Contract
The school-student relationship is also reciprocal. Thus, it has
consequences appurtenant to and inherent in all contracts of such kind -it gives rise to bilateral or reciprocal rights and obligations. The school
undertakes to provide students with education sufficient to enable them
to pursue higher education or a profession. On the other hand, the
students agree to abide by the academic requirements of the school and
to observe its rules and regulations.
The terms of the school-student contract are defined at the moment
of its inception -- upon enrolment of the student. Standards of academic
performance and the code of behavior and discipline are usually set forth
in manuals distributed to new students at the start of every school year.
Further, schools inform prospective enrollees the amount of fees and the
terms of payment.
In practice, students are normally required to make a down
payment upon enrollment, with the balance to be paid before every
preliminary, midterm and final examination. Their failure to pay their
financial obligation is regarded as a valid ground for the school to deny
them the opportunity to take these examinations.
The foregoing practice does not merely ensure compliance with
financial obligations; it also underlines the importance of major
examinations. Failure to take a major examination is usually fatal to the
students promotion to the next grade or to graduation. Examination
results form a significant basis for their final grades. These tests are
usually a primary and an indispensable requisite to their elevation to the
next educational level and, ultimately, to their completion of a course.
Thus, students expect that upon their payment of tuition fees,
satisfaction of the set academic standards, completion of academic
requirements and observance of school rules and regulations, the school
would reward them by recognizing their completion of the course
enrolled in.

PCST imposed the assailed revenue-raising measure belatedly, in the


middle of the semester. It exacted the dance party fee as a condition for
the students taking the final examinations, and ultimately for its
recognition of their ability to finish a course. The fee, however, was not
part of the school-student contract entered into at the start of the school
year. Hence, it could not be unilaterally imposed to the prejudice of the
enrollees.
Quasi-delictual liability even in the existence of a contract between
parties

YHT REALTY VS. CA


GR. No. 126780 February 17, 2005
FACTS:
McLoughlin arrived from Australia and registered with Tropicana.
He rented a safety deposit box as it was his practice to rent a safety
deposit box every time he registered at Tropicana in previous trips. As a
tourist, McLoughlin was aware of the procedure observed by Tropicana
relative to its safety deposit boxes. The safety deposit box could only be
opened through the use of two keys, one of which is given to the
registered guest, and the other remaining in the possession of the
management of the hotel. When a registered guest wished to open his
safety deposit box, he alone could personally request the management
who then would assign one of its employees to accompany the guest and
assist him in opening the safety deposit box with the two keys.
However, when he returned coming from a trip, he noticed that his
money in the envelope was lacking and that the jewelries were gone.
ISSUE:
Whether petitioner is liable for the loss of the personal properties of
respondent.
RULING:

Under Article 1170 of the New Civil Code, those who, in the
performance of their obligations, are guilty of negligence, are liable for
damages. Article 2180 provides that the owners and managers of an
establishment or enterprise are likewise responsible for damages caused
by their employees in the service of the branches in which the latter are
employed or on the occasion of their functions. Also, this Court has ruled
that if an employee is found negligent, it is presumed that the employer
was negligent in selecting and/or supervising him for it is hard for the
victim to prove the negligence of such employer.
Thus, given the fact
that the loss of McLoughlins money was consummated through the
negligence of Tropicanas employees in allowing Tan to open the safety
deposit box without the guests consent, both the assisting employees
and YHT Realty Corporation itself, as owner and operator of Tropicana,
should be held solidarily liable.
Art. 2003. The hotel-keeper cannot free himself from responsibility
by posting notices to the effect that he is not liable for the articles
brought by the guest. Any stipulation between the hotel-keeper and the
guest whereby the responsibility of the former as set forth in Articles 1998
to 2001 is suppressed or diminished shall be void.
The hotel business like the common carriers business is imbued
with public interest. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called undertakings
that ordinarily appear in prepared forms imposed by hotel keepers on
guests for their signature.
In the case at bar, the responsibility of securing the safety
deposit box was shared not only by the guest himself but also by the
management since two keys are necessary to open the safety deposit
box. Without the assistance of hotel employees, the loss would not have
occurred.
Thus, Tropicana was guilty of concurrent negligence in allowing
Tan, who was not the registered guest, to open the safety deposit box of
McLoughlin, even assuming that the latter was also guilty of negligence in
allowing another person to use his key. To rule otherwise would result in
undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the
pretense of being a family member or a visitor of the guest, to have
access to the safety deposit box without fear of any liability that will

attach thereafter in case such person turns out to be a complete stranger.


This will allow the hotel to evade responsibility for any liability incurred by
its employees in conspiracy with the guests relatives and visitors.
Medical Malpractice/ Medical Negligence Cases
1.
2.
3.
4.
5.

RAMOS VS. CA, 321 S 584


REYES VS. SISTERS OF MERCY, 3 OCTOBER 2000
NOGALES VS. CAPITOL MEDICAL CENTER, 511 S 204
PROFESSIONAL SERVICES VS. AGANA, 513 S 478
PROFESSIONAL SERVICES VS. CA, 544 S 170

RAMOS VS. CA
GR No. 124354 December 29, 1999
FACTS:
Plaintiff Erlinda Ramos was a robust woman Except for occasional
complaints of discomfort due to pains allegedly caused by the presence of
a stone in her gall bladder. Because the discomforts somehow interfered
with her normal ways, she sought professional advice. She was advised
to undergo an operation for the removal of a stone in her gall bladder.
Through the intercession of a mutual friend, Dr. Buenviaje she and her
husband Rogelio met for the first time Dr. Orlino one of the defendants in
this case, on June 10, 1985. They agreed that their date at the operating
table at the DLSMC (another defendant. Dr. Hosaka decided that she
should undergo a "cholecystectomy" operation after examining the
documents (findings from the Capitol Medical Center, FEU Hospital and
DLSMC) presented to him. Rogelio E. Ramos, however, asked Dr. Hosaka
to look for a good anesthesiologist. Dr. Hosaka, in turn, assured Rogelio
that he will get a good anesthesiologist. Dr. Hosaka charged a fee of
P16,000.00, which was to include the anesthesiologist's fee and which
was to be paid after the operation. A day before the scheduled date of
operation, she was admitted at one of the rooms of the DLSMC, located
along E. Rodriguez Avenue, Quezon City.
At around 7:30 A.M. of June 17, 1985 and while still in her room, she
was prepared for the operation by the hospital staff. Her sister-in-law,
Herminda Cruz, who was the Dean of the College of Nursing at the Capitol

Medical Center, was also there for moral support. Herminda was allowed
to stay inside the operating room.
At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look
for Dr. Hosaka who was not yet in Dr. Gutierrez thereafter informed
Herminda Cruz about the prospect of a delay in the arrival of Dr. Hosaka.
Herminda then went back to the patient who asked, "Mindy, wala pa ba
ang Doctor"? The former replied, "Huwag kang mag-alaala, darating na
iyon. Thereafter, Herminda went out of the operating room and informed
the patient's husband, Rogelio, that the doctor was not yet around.
At about 12:15 P.M., Herminda Cruz, who was inside the operating
room with the patient, heard somebody say that "Dr. Hosaka is already
here." She then saw people inside the operating room "moving, doing
this and that, preparing the patient for the operation" As she held the
hand of Erlinda Ramos, she then saw Dr. Gutierrez intubating the hapless
patient. She thereafter heard Dr. Gutierrez say, "ang hirap ma-intubate
nito, mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the
remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez
was doing. She thereafter noticed bluish discoloration of the nailbeds of
the left hand of the hapless Erlinda even as Dr. Hosaka approached her.
She then heard Dr. Hosaka issue an order for someone to call Dr.
Calderon, another anesthesiologist. After Dr. Calderon arrived at the
operating room, she saw this anesthesiologist trying to intubate the
patient. The patient's nailbed became bluish and the patient was placed
in a trendelenburg position - a position where the head of the patient is
placed in a position lower than her feet which is an indication that there is
a decrease of blood supply to the patient's brain. Immediately thereafter,
she went out of the operating room, and she told Rogelio E. Ramos "that
something wrong was happening". Dr. Calderon was then able to intubate
the patient.
Meanwhile, Rogelio, who was outside the operating room, saw a
respiratory machine being rushed towards the door of the operating room.
He also saw several doctors rushing towards the operating room. When
informed by Herminda Cruz that something wrong was happening, he told
her (Herminda) to be back with the patient inside the operating room.
Herminda immediately rushed back, and saw that the patient was
still in trendelenburg position. At almost 3:00 P.M. of that fateful day, she
saw the patient taken to the Intensive Care Unit (ICU). Doctors Gutierrez
and Hosaka were also asked by the hospital to explain what happened to

the patient. The doctors explained that the patient had bronchospasm.
Erlinda Ramos stayed at the ICU for a month. About four months
thereafter the patient was released from the hospital.
ISSUE:
1. Whether the respondent doctors are negligent.
2. Whether the respondent doctors and the hospital are solidarily
liable.
RULING:
Res ipsa loquitur is a Latin phrase which literally means "the thing
or the transaction speaks for itself." The phrase "res ipsa loquitur" is a
maxim for the rule that the fact of the occurrence of an injury, taken with
the surrounding circumstances, may permit an inference or raise a
presumption of negligence, or make out a plaintiff's prima facie case, and
present a question of fact for defendant to meet with an explanation
At the time of submission, Erlinda was neurologically sound and,
except for a few minor discomforts, was likewise physically fit in mind and
body. However, during the administration of anesthesia and prior to the
performance of cholecystectomy she suffered irreparable damage to her
brain. Thus, without undergoing surgery, she went out of the operating
room already decerebrate and totally incapacitated. Obviously, brain
damage, which Erlinda sustained, is an injury which does not normally
occur in the process of a gall bladder operation. In fact, this kind of
situation does not happen in the absence of negligence of someone in the
administration of anesthesia and in the use of endotracheal tube.
Normally, a person being put under anesthesia is not rendered
decerebrate as a consequence of administering such anesthesia if the
proper procedure was followed. Furthermore, the instruments used in the
administration of anesthesia, including the endotracheal tube, were all
under the exclusive control of private respondents, who are the
physicians-in-charge. Likewise, petitioner Erlinda could not have been
guilty of contributory negligence because she was under the influence of
anesthetics which rendered her unconscious.

With regard to Dra. Gutierrez, we find her negligent in the care of


Erlinda during the anesthesia phase. As borne by the records, respondent
Dra. Gutierrez failed to properly intubate the patient.
The Court finds that she omitted to exercise reasonable care in not
only intubating the patient, but also in not repeating the administration of
atropine without due regard to the fact that the patient was inside the
operating room for almost three (3) hours. For after she committed a
mistake in intubating the patient, the patient's nailbed became bluish and
the patient, thereafter, was placed in trendelenburg position, because of
the decrease of blood supply to the patient's brain. The evidence further
shows that the hapless patient suffered brain damage because of the
absence of oxygen in her (patient's) brain for approximately four to five
minutes which, in turn, caused the patient to become comatose.
On the part of Dr. Orlino Hosaka, this Court finds that he is liable for
the acts of Dr. Perfecta Gutierrez whom he had chosen to administer
anesthesia on the patient as part of his obligation to provide the patient a
`good anesthesiologist', and for arriving for the scheduled operation
almost three (3) hours late.
On the part of DLSMC (the hospital), this Court finds that it is liable
for the acts of negligence of the doctors in their `practice of medicine' in
the operating room. Moreover, the hospital is liable for failing through its
responsible officials, to cancel the scheduled operation after Dr. Hosaka
inexcusably failed to arrive on time.
In having held thus, this Court rejects the defense raised by
defendants that they have acted with due care and prudence in rendering
medical services to plaintiff-patient. For if the patient was properly
intubated as claimed by them, the patient would not have become
comatose. And, the fact that another anesthesiologist was called to try to
intubate the patient after her (the patient's) nailbed turned bluish, belie
their claim. Furthermore, the defendants should have rescheduled the
operation to a later date. This, they should have done, if defendants
acted with due care and prudence as the patient's case was an elective,
not an emergency case.
Wherefore judgment is rendered in favor of the plaintiffs and
against the defendants. Accordingly, the latter are ordered to pay, jointly
and severally.

Medical Malpractice/ Medical Negligence Cases

REYES VS. SISTERS OF MERCY HOSPITAL


GR No. 130547 October 3, 2000
FACTS:
Jorge Reyes was taken to the Mercy Community Clinic. He was
attended to by respondent Dr. Marlyn Rico, a resident physician and
admitting physician on duty, who gave Jorge a physical examination and
took his medical records. Typhoid fever was then prevalent in the locality.
Suspecting that Jorge could be suffering from this disease, Dr. Rico
ordered a Widal Test, a standard test for typhoid fever, to be performed
on Jorge. The results of the test from which Dr. Rico concluded that Jorge
was positive for typhoid fever. As her shift was only up to 5:00 p.m., Dr.
Rico indorsed Jorge to respondent Dr. Marivie Blanes.
Dr. Blanes also took the physical examination of Jorge. Antibiotics
being the accepted treatment for typhoid fever, she ordered that a
compatibility test with the antibiotic chloromycetin be done on Jorge. As
she did not observe any adverse reaction, she ordered the first 500 mg. of
said antibiotic. At around 1:00 in the morning, Dr. Blanes was called as
Jorges temperature rose to 41 degrees and then valium was
administered. However, the patient did not respond to the treatment and
slipped into cyanosis, a bluish or purplish discoloration of the skin or
mucous membrane due to deficient oxygenation of the blood. At around
2:00 a.m. Jorge died.
ISSUES:
Whether the death of Jorge Reyes was due to or caused by the
negligence, carelessness, imprudence, and lack of skill or foresight
on the part of the defendants.
RULING:

Petitioners action is for medical malpractice. It is a form of


negligence which consists in the failure of the physician or surgeon to
apply to his practice of medicine that degree of care and skill which is
ordinarily employed by the profession. Four elements involve in medical
negligence cases, namely: duty, breach, injury, and proximate causation.
In this case, there is no doubt that physician-patient relationship
existed between respondent doctors and Jorge Reyes. It is breach of this
duty which constitutes actionable malpractice. As to this aspect of
medical malpractice, the determination of reasonable level of care and
breach thereof, expert testimony is essential.
The petitioner presented Dr. Vacalares, Chief Pathologist of the
Northern Mindanao Training Hospital, Cagayan de Oro, who performed the
autopsy of Jorge. He testified that Jorge did not die of typhoid fever but of
shock undetermined, which could be due to allergic reaction or
chloromycetin overdose. The court was not persuaded. Although Dr.
Vacalares may have had extensive experience in performing autopsies,
he admitted that he had yet to do one on the body of a typhoid victim at
the time he conducted the post mortem of Jorge. It is also plain from his
testimony that he treated only about three cases of typhoid fever.
On the other hand, the two doctors presented by respondents
clearly were experts on the subject. They vouched for the correctness of
Dr. Ricos diagnosis. Dr. Gotiong, a diplomate whose specialization is
infectious diseases and microbiology and an associate professor at the
Southern University College of Medicine and the Gullas College of
Medicine, testified that he has already treated over a thousand cases of
typhoid fever. According to him a case of typhoid fever is suspected using
the widal test, if the 1:320 results of the said test has been presented to
him. As to the treatment of the disease, he stated that chloromycetin was
the drug of choice. He also explained that despite the measures taken by
respondents and the intravenous administration of the two doses of
chloromycetin, complications of the disease could not be discounted.
Dr. Marilyn did not depart from the reasonable standard
recommended by the experts as she in fact observed the due care
required under the circumstances. Though the widal test is not conclusive,
it remains a standard diagnostic test for typhoid fever and, in the present
case, a greater accuracy through repeated testing was rendered
unobtainable by the early death of the patient. The results of the widal

test and the patients history of fever with chills for five days, taken with
the fact that typhoid fever was then prevalent, were sufficient to give
upon any doctor of reasonable skill the impression that the patient had
typhoid fever.

Medical Malpractice/ Medical Negligence Cases

NOGALES VS. CAPITOL MEDICAL CENTER


GR No. 45641 December 19, 2006
FACTS:
Pregnant with her fourth child, Corazon Nogales was under the
exclusive prenatal care of Dr. Estrada. While Corazon was on her lat
trimester of pregnancy, Dr. Estrada noted an increase in her blood
pressure and development of leg edema indicating preeclampsia, which is
dangerous complication of pregnancy. When Corazon started to
experience mild labor, he and her husband, prompted to see Dr. Estrada
at his home. After examining Corazon, he advised her to immediate
admission to the Capitol Medical Center. Upon admission at the CMC,
Rogelio Nogales executed and signed the Consent on Admission and
Agreement and Admission Agreement. Then Corazon was brought to the
labor room. Dr. Uy, a resident physician, conducted an internal
examination of Corazon and notified Dr. Estrada of her findings. Dr.
Estrada ordered for 10 mg. of valium to be administered immediately by
intramascular injection. Later he ordered that start of intravenous
administration of syntocinon admixed with dextrose, 5% in lactated
Ringers solution, at the rate of eight to ten micro-drops per minute.
Dr. Enriquez, an anesthesiologist, was notified of Corazons
admission. Subsequently he asked if Dr. Estrada needed his service but
the latter refused. Despite refusal he stayed to observe Corazons
condition.
Corazons water bag ruptured spontaneously and started to
experience convulsions. Dr. Estrada ordered the injectionof ten grams of

magnesium sulfate. However, Dr. Villaflor, who is assisting Dr. Estrada,


administered only 2.5 grams of magnesium sulfate. Dr. Estrada applied
low forceps to extract the baby. The baby came out in a weak and injured
condition and consequently had to be intubated and resuscitated.
Corazon began to manifest moderate vaginal bleeding which rapidly
became profuse. Dr. Estrada ordered blood typing and cross matching
with bottled blood. Dr. Espinola, head of the Obstetrics-Gynecology
Department of the CMC, was apprised of Corazons condition by
telephone. Upon being informed of Corazons profuse bleeding, Dr.
Espinola ordered immediate hysterectomy. Dr. Espinola, due to the
inclement weather, arrived about an hour late. he examined the patient
but despite his efforts Corazon died.
Petitioners filed a case against CMC personnel and physicians on
the ground that they were negligent in the treatment and management of
Corazons condition and charged CMC with negligence in the selection
and supervision of defendant physicians and hospital staff.
After more than 11 years the Trial Court rendered its judgment
finding Dr. Estrada solely liable for damages.
ISSUE:
Whether CMC is vicariously liable for the negligence of Dr. Estrada.
RULING:
In general, a hospital is not liable for the negligence of an
independent contractor-physician. However, the hospital may be held
liable if the physician is the ostensible agent of the hospital. This
exception is also known as the doctrine of apparent authority.
Under the doctrine of apparent authority a hospital can be held
vicariously liable for the negligent act of a physician providing care at eh
hospital, regardless of whether the physician is an independent
contractor, unless the patient knows, or should have known, that the
physician is an independent contractor.
The doctrine of apparent authority involves two factors to determine
the liability of an independent contractor-physician. First factor focuses on
the hospitals manifestations and is sometimes described as an inquiry
whether the hospital acted in a manner which would lead a responsible

person to conclude that the individual who was alleged to be negligent


was an employee or agent of the hospital. The second factor focuses on
the patients reliance. It is sometimes characterized as an inquiry on
whether the plaintiff acted in reliance upon the conduct of the hospital or
its agent, consistent with ordinary care and prudence.
In this case, CMC impliedly held out Dr. Estrada as a member of its
medical staff. First, CMC granted staff privileges to Dr. Estrada when it
extended its medical staff and facilities. Upon request to admit Corazon,
through its personnel, readily accommodated the patient and updated Dr.
Estrada of the patients condition. Second, CMC made Rogelio sign a
consent forms printed in CMC letterhead. And third, Dr. Estradas referral
to Dr. Espinola, who then was the Head of the Obstetrics and Gynecology
Department of CMC.
Wherefore the court finds respondent Capitol Medical Center
vicariously liable for the negligence of Dr. Oscar Estrada.
Medical Malpractice/ Medical Negligence Cases

PROFESSIONAL SERVICES VS. AGANA


GR No. 126467 February 11, 2008
FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical
City General Hospital because of difficulty of bowel movement and bloody
anal discharge. Dr. Ampil diagnosed her to be suffering from cancer of
the sigmoid. Thus, Dr. Ampil, assisted by the medical staff of Medical
City, performed a surgery upon her. During the surgery, he found that the
malignancy in her sigmoid area had spread to her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent
of Natividads husband to permit Dr. Fuentes to perform hysterectomy
upon Natividad. Dr. Fuentes performed and completed the hysterectomy.
Afterwards, Dr. Ampil took over, completed the operation and closed the
incision. The operation, however, appeared to be flawed as the attending
nurses entered in the corresponding Record of Operation that there were
2 lacking sponge and announced that it was searched by the surgeon but
to no avail.

After a couple of days, Natividad complained excruciating pain in


her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told
her that the pain was the natural consequence of the surgical operation
performed upon her. Dr. Ampil recommended that she consult an
oncologist to treat the cancerous nodes which were not removed.
Natividad and her husband went to the US to seek further treatment.
After 4 months she was told that she was free of cancer. They then flew
back to the Philippines. Two weeks thereafter , Natividads daughter
found a piece of gauze protruding from her vagina. Dr. Ampil saw
immediately informed. He proceeded to Natividads house where he
extracted by hand a piece of gauze. Natividad sought the treatment of
Polymedic General Hospital thereat Dr. Gutierrez detected a foreign
object in her vagina - a foul-smelling gauze which infected her vaginal
vault. A recto-vaginal fistula had formed in her reproductive organ which
forced stool to excrete in her vagina. Another surgical operation was
performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City),
Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly
and severally liable. The CA affirmed said decision with modification that
Dr. Fuentes was dismissed.
ISSUE:
Whether the Court of Appeals erred in absolving Dr. Fuentes of any
liability.
RULING:
It was duly established that Dr. Ampil was the lead surgeon during
the operation of Natividad. He requested the assistance of Dr. Fuentes
only to perform hysterectomy when he (Dr. Ampil) found that the
malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes
performed the surgery and thereafter reported and showed his work to
Dr. Ampil. The latter examined it and finding everything to be in order,
allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed
operating on Natividad. He was about to finish the procedure when the
attending nurses informed him that two pieces of gauze were missing. A
"diligent search" was conducted, but the misplaced gauzes were not

found. Dr. Ampil then directed that the incision be closed. During this
entire period, Dr. Fuentes was no longer in the operating room and had, in
fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the
person in complete charge of the surgery room and all personnel
connected with the operation. Their duty is to obey his orders. As stated
before, Dr. Ampil was the lead surgeon. In other words, he was the
"Captain of the Ship." That he discharged such role is evident from his
following conduct. Clearly, the control and management of the thing
which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
Here, the negligence was proven to have been committed by Dr.
Ampil and not by Dr. Fuentes.

Medical Malpractice/ Medical Negligence Cases

PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS


GR No. 126297 February 11, 2008

After a couple of days, Natividad complained excruciating pain in


her anal region. She consulted both Dr. Ampil and Dr. Fuentes. They told
her that the pain was the natural consequence of the surgical operation
performed upon her. Dr. Ampil recommended that she consult an
oncologist to treat the cancerous nodes which were not removed.
Natividad and her husband went to the US to seek further treatment.
After 4 months she was told that she was free of cancer. They then flew
back to the Philippines. Two weeks thereafter , Natividads daughter
found a piece of gauze protruding from her vagina. Dr. Ampil saw
immediately informed. He proceeded to Natividads house where he
extracted by hand a piece of gauze. Natividad sought the treatment of
Polymedic General Hospital thereat Dr. Gutierrez detected a foreign
object in her vagina - a foul-smelling gauze which infected her vaginal
vault. A recto-vaginal fistula had formed in her reproductive organ which
forced stool to excrete in her vagina. Another surgical operation was
performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City),
Dr. Ampil and Dr. Fuentes. The Trial Court found the respondents jointly
and severally liable. The CA affirmed said decision with modification that
Dr. Fuentes was dismissed.

FACTS:

ISSUE:

On April 04, 1984, Natividad Agana was admitted at the Medical


City General Hospital because of difficulty of bowel movement and bloody
anal discharge. Dr. Ampil diagnosed her to be suffering from cancer of
the sigmoid. Thus, Dr. Ampil, assisted by the medical staff of Medical
City, performed a surgery upon her. During the surgery, he found that the
malignancy in her sigmoid area had spread to her left ovary, necessitating
the removal of certain portions of it. Thus, Dr. Ampil obtained the consent
of Natividads husband topermit Dr. Fuentes to perform hysterectomy
upon Natividad. Dr. Fuentes performed and completed the hysterectomy.
Afterwards, Dr. Ampil took over, completed the operation and closed the
incision. The operation, however, appeared to be flawed as the attending
nurses entered in the corresponding Record of Operation that there were
2 lacking sponge and announced that it was searched by the surgeon but
to no avail.

Whether there is an employee-employer relationship in order to


hold PSI solidary liable.
RULING:
PSI contends that the proximate cause of Natividads injury was Dr.
Ampils negligence and that there is no employee-employer relationship
between them because Dr. Ampil is only a consultant of the said hospital.
The court held that there is an employee-employer relationship
between hospital and their attending and visiting physician. After a
physician is accepted, either as a visiting or attending consultant, he is
normally required to attend clinicopathological conferences, conduct
bedside rounds for clerks, interns and residents, moderate grand rounds
and patient audits and perform other tasks and responsibilities, for the
privilege of being able to maintain a clinic in the hospital, and/or privilege

of admitting patients into the hospital. The physicians performance is


generally evaluated and if said physician falls short of the minimum
standards he is normally terminated. In the said case, the hospital has a
control over its attending or visiting physician.
In general, a hospital is not liable for the negligence of an
independent contractor-physician. However, the hospital may be held
liable if the physician is the ostensible agent of the hospital. This
exception is also known as the doctrine of apparent authority.
The doctrine of apparent authority involves two factors to determine
the liability of an independent contractor-physician. First factor focuses on
the hospitals manifestations and is sometimes described as an inquiry
whether the hospital acted in a manner which would lead a responsible
person to conclude that the individual who was alleged to be negligent
was an employee or agent of the hospital. The second factor focuses on
the patients reliance. It is sometimes characterized as an inquiry on
whether the plaintiff acted in reliance upon the conduct of the hospital or
its agent, consistent with ordinary care and prudence.
In this case, it has been proven that the two factors were present.
The hospital indeed made it appear that Dr. Ampil was its employee when
they advertise and displayed his name in the directory at the lobby of the
said hospital and that Natividad relied on such knowledge that Dr. Ampil
was indeed an employee of the hospital.
Wherefore PSI and Dr. Ampil are liable jointly and severally.

Plaintiff asks for damages for defendants alleged malicious


prosecution of a criminal case of theft of electricity against him, for
plaintiffs filing of a charge of violation of P.D. 401 as amended after
dismissal of the theft case, the filing of a damage suit against him before
the RTC of Cebu City which was dismissed and the filing of another
damage suit before the same Cebu RTC which is still pending. Damages
are also being sought for defendants removal of Electric Meter, but this is
a subject matter of a case pending before Branch 13 of this Court and
therefore said court retains jurisdiction over the said cause of action.
The RTC held that while the City Prosecutor, and later the Secretary
of Justice, concluded that there was no probable cause for the crime of
theft, this did not change the fact that plaintiff made an illegal connection
for electricity. A persons right to litigate should not be penalized by
holding him liable for damages.
On October 1, 2003, the CA affirmed the decision of the RTC. It
concluded that the evidence on hand showed good faith on the part of
DLPC in filing the subject complaints. It pointed out that Diaz had been
using the electrical services of DLPC without its consent. As to the effect
of the compromise agreement, the CA ruled that it did not bar the filing of
the criminal action. Thus, under the principle of damnum absque injuria,
the legitimate exercise of a persons right, even if it causes loss to
another, does not automatically result in an actionable injury.
Diaz, now petitioner, comes before this Court in this petition for
review on certiorari
ISSUES:

Malicious Prosecution
1. DIAZ VS. DAVAO LIGHT, 4 APRIL 2007
2. YASONNA VS. DE RAMOS, 440 S 154

DIAZ VS. DAVAO LIGHT


GR No. 160959 April 2, 2007
FACTS:

1. Whether or not the compromise agreement entered into between


DLPC and Diaz barred the former from instituting further actions; and
2. Whether or not DLPC acted in bad faith in instituting the criminal
cases against Diaz
RULING:
The petition is without merit. Petitioner insists that the compromise
agreement as well as the decision of the CA already settled the
controversies between them; yet, DLPC instituted the theft case against
Diaz, and worse, instituted another action for violation of P.D. 401, as
amended by B.P. Blg. 876. Thus, the only conclusion that can be inferred

from the acts of DLPC is that they were designed to harass, embarrass,
prejudice, and ruin him. He further avers that the compromise agreement
completely erased litigious matters that could necessarily arise Moreover,
Diaz asserts that the evidence he presented is sufficient to prove the
damages he suffered by reason of the malicious institution of the criminal
cases.
The court does not agree. Article 2028 of the Civil Code defines a
compromise as a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced.
The purpose of compromise is to settle the claims of the parties and bar
all future disputes and controversies. However, criminal liability is not
affected by compromise for it is a public offense which must be
prosecuted and punished by the Government on its own motion, though
complete reparation should have been made of the damages suffered by
the offended party. A criminal case is committed against the People, and
the offended party may not waive or extinguish the criminal liability that
the law imposes for the commission of the offense. Moreover, a
compromise is not one of the grounds prescribed by the Revised Penal
Code for the extinction of criminal liability.
On the other hand, malicious prosecution has been defined as an
action for damages brought by or against whom a criminal prosecution,
civil suit or other legal proceeding has been instituted maliciously and
without probable cause, after the termination of such prosecution, suit, or
other proceeding in favor of the defendant therein. It is an established
rule that in order for malicious prosecution to prosper, the following
requisites must be proven by petitioner: (1) the fact of prosecution and
the further fact that the defendant (respondent) was himself the
prosecutor, and that the action finally terminated with an acquittal; (2)
that in bringing the action, the prosecutor acted without probable cause;
and (3) that the prosecutor was actuated or impelled by legal malice, that
is, by improper or sinister motive. The foregoing are necessary to
preserve a persons right to litigate which may be emasculated by the
undue
filing
of
malicious
prosecution
cases.
From the foregoing requirements, it can be inferred that malice and
want of probable cause must both be clearly established to justify an
award of damages based on malicious prosecution. DLPC was not
motivated by malicious intent or by a sinister design to unduly harass
petitioner, but only by a well-founded anxiety to protect its rights.

Respondent DLPC cannot therefore be faulted in availing of the remedies


provided for by law.
Malicious Prosecution

YASOA VS. DE RAMOS


GR No. 156339 October 6, 2004
FACTS:
Aurea Yasoa and her son, Saturnino, went to the house of Jovencio
de Ramos to ask for financial assistance in paying their loans to Philippine
National Bank (PNB), otherwise their residential house and lot would be
foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the
request. They agreed that, upon payment by Jovencio of the loan to PNB,
half of Yasoas subject property would be sold to him. Jovencio paid
Aureas bank loan. As agreed upon, Aurea executed a deed of absolute
sale in favor of Jovencio over half of the lot consisting of 123 square
meters. Thereafter, the lot was surveyed and separate titles were issued
by the Register of Deeds of Sta. Cruz, Laguna in the names of Aurea and
Jovencio
Twenty-two years later, in August 1993, Aurea filed an estafa
complaint against brothers Jovencio and Rodencio de Ramos on the
ground that she was deceived by them when she asked for their
assistance in 1971 concerning her mortgaged property. In her complaint,
Aurea alleged that Rodencio asked her to sign a blank paper on the
pretext that it would be used in the redemption of the mortgaged
property
On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B.
Zayenis dismissed the criminal complaint for estafa for lack of evidence.
On account of this dismissal, Jovencio and Rodencio filed a complaint for
damages on the ground of malicious prosecution. They alleged that the
filing of the estafa complaint against them was done with malice and it
caused irreparable injury to their reputation, as Aurea knew fully well that
she had already sold half of the property to Jovencio.

ISSUE:

ULPA CRIMINAL

Whether or not the filing of the criminal complaint for estafa by


petitioners against respondents constituted malicious prosecution?

PEOPLE VS. DE LOS SANTOS


G.R. No. 131588
March 27, 2001
355 SCRA 415

RULING:
To constitute malicious prosecution, there must be proof that the
prosecution was prompted by a sinister design to vex or humiliate a
person, and that it was initiated deliberately by the defendant knowing
that his charges were false and groundless. Concededly, the mere act of
submitting a case to the authorities for prosecution does not make one
liable for malicious prosecution.
In this case, the records show that the sale of the property was
evidenced by a deed of sale duly notarized and registered with the local
Register of Deeds. After the execution of the deed of sale, the property
was surveyed and divided into two portions. Separate titles were then
issued in the names of Yasoa and Jovencio. Since 1973, Jovencio had
been paying the realty taxes of the portion registered in his name. In
1974, Aurea even requested Jovencio to use his portion as bond for the
temporary release of her son who was charged with malicious mischief.
Also, when Aurea borrowed money from the Rural Bank of Lumban in
1973 and the PNB in 1979, only her portion was mortgaged.
All these pieces of evidence indicate that Aurea had long acknowledged
Jovencios ownership of half of the property. Furthermore, it was only in
1993 when petitioners decided to file the estafa complaint against
respondents. If petitioners had honestly believed that they still owned the
entire property, it would not have taken them 22 years to question
Jovencios ownership of half of the property.
Malicious prosecution, both in criminal and civil cases, requires the
elements of (1) malice and (2) absence of probable cause.These two
elements are present in the present controversy. The complaint for estafa
was dismissed outright as the prosecutor did not find any probable cause
against respondents. A suit for malicious prosecution will prosper where
legal prosecution is carried out without probable cause.

FACTS:
As part of the Special Counter Insurgency Operation Unit Training held at
Camp Damilag, Manolo Fortich, Bukidnon, several members of the Philippine
National Police were undergoing an endurance run on October 5, 1995 which
started at 2:20 am. The PNP trainees were divided into three columns and were
wearing black t-shirts, bl;ack short pants, and green and black combat shoes.
There were two rear guards assigned to each rear column. Their duty was to jog
backwards facing the oncoming vehicles and give hand signals for other
vehicles. From Alae to Maitum Highway, Puerto, Cagayan de Oro City, about 20
vehicles passed them, all of which slowed down and took the left portion of the
road when signaled to do so.
While they were negotiating Maitum Highway, they saw an Isuzu Elf truck
coming at high speed towards them. The vehicle lights were in the high beam.
At a distance of 100 meters, the rear security guards started waving their hands
for the vehicle to take the other side of the road, but the vehicle just kept its
speed, apparently ignoring their signals and coming closer and closer to them.
The rear guards told their co-trainees to retract. The guards jumped in
different directions. They saw their co-trainees being hit by the said vehicle,
falling like dominoes one after the other. Some were thrown, and others were
overrun by the vehicle. The driver, Glenn de los Santos did not reduce his speed
even after hitting the first and second columns.
After arraignment and trial, the court convicted accused-appellant guilty
of complex crime of multiple murder, multiple frustrated murder and multiple
attempted murder, with the use of motor vehicle as the qualifying circumstance.
ISSUE:
Whether or not the incident was a product of a malicious intent on the
part of accused-appellant
RULING:

The Supreme Court held that the incident, tragic though it was in the light
of the number of persons killed and seriously injured, was an accident than of a
malicious intent on Glenns part. Glenn showed an inexcusable lack of
precaution. Since the place of the incident was foggy and dark, he should have
observed due care in accordance with the conduct of a reasonably prudent man,
such as by slackening his speed, applying his brakes, or turning to the left side
even if it would mean entering the opposite lane.
Wherefore, the Supreme Court convicted Glenn de Los Santos of one
complex crime of reckless imprudence resulting in multiple homicide with
serious physical injuries and less serious physical injuries and sentenced him to
suffer an indeterminate penalty of four years of prision correccional, as
minimum, to 10 years of prision mayor, as maximum; and 10 counts of reckless
imprudence resulting in slight physical injuries and sentenced for each count, to
the penalty of 2 months of arresto mayor. The awards of death indemnity for
each group of heirs of trainees are reduced to P50,000, and the awards in favor
of other victims are deleted.

but he subsequently instructed his 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 letter of credit to cover
payment of the goods ordered by him. After some time, herein defendant failed
to comply with his obligation, and several demands were made by petitioner so
as to reinforce such contract, and even communicated if defendant would like to
rescind contract, but said defendant did not reply to such demands. The
defendant even used as a defense that the petitioner was delayed in delivering
the taximeters when the former was apprehended by U.S. Navy Exchange for not
complying with their agreement. As a consequence, petitioner filed a case
against the defendant but respondent judge dismissed such petition in a minute
order for lack of cause of action.
ISSUE:
Whether or not petitioner has a cause of action against the defendant for
the latters contravention of the terms of contract.
RULING:
Article 1170 of the Civil Code provides:

CONTRAVENTION OF THE TERMS


VICTORINO D. MAGAT, petitioner,
VS. HON. LEO D. MEDIALDEA and SANTIAGO A. GUERRERO, respondents
G.R. No. L-37120
April 20, 1983
FACTS:
Sometime in September 1972, the defendant entered into a contract with
the U.S. Navy Exchange, Subic Bay, Philippines, for the operation of a fleet of
taxicabs, each taxicab to be provided with the necessary taximeter and a radio
transceiver for receiving and sending of messages from mobile taxicab to fixed
base stations within the Naval Base at Subic Bay, Philippines. Since herein
petitioner is known of his good reputation as a businessman, the defendant,
through his agent, entered into a contract with the former. In said contract, the
defendant must open a letter of credit in favor of the petitioner, since the latter
would also engage a foreign company for such taximeter.
Defendant and his agent have repeatedly assured plaintiff herein of the
defendant's financial capabilities to pay for the goods ordered by him and in fact
he accomplished the necessary application for a letter of credit with his banker,

Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof are liable
for damages.
The phrase "in any manner contravene the tenor" of the obligation
includes any ilicit act or omission which impairs the strict and faithful fulfillment
of the obligation and every kind of defective performance. The damages which
the obligor is liable for includes not only the value of the loss suffered by the
obligee [dao emergente] but also the profits which the latter failed to obtain
[lucro cesante]. If the obligor acted in good faith, he shall be liable for those
damages that are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably
foreseen at the time the obligation was constituted; and in case of fraud, bad
faith, malice or wanton attitude, he shall be liable for all damages which may be
reasonably attributed to the non-performance of the obligation.
The same is true with respect to moral and exemplary damages. The
applicable legal provisions on the matter, Articles 2220 and 2232 of the Civil
Code, allow the award of such damages in breaches of contract where the
defendant acted in bad faith. To our mind, the complaint sufficiently alleges bad
faith on the part of the defendant. In fine, the Supreme Court held that on the

basis of the facts alleged in the complaint, the court could render a valid
judgment in accordance with the prayer thereof.

SPECIFIC PERFORMANCE: NECESSITY (Art. 1165, CC)


1.
2.

In the agreement, it was stipulated that payment could be made even


after ten (10) years from execution provided that the vendee paid 12% interest.
The stipulation of the parties constitute the law between them, thus court have
no alternative but to enforce them as agreed upon and written. Thus, the
Supreme Court ruled that the Court of Appeals did not commit an error in
deciding this issue.

VDA. DE MISTICA VS. NAGUIAT, 418 SCRA 73


CO VS. CA, AUG. 17, 1999
SPECIFIC PERFORMANCE: NECESSITY (Art. 1165, CC)
VDA DE MISTICA VS. NAGUAIT
418 SCRA 73

FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of
the parcel of land which was leased to respondent Bernardinio Naguiat.
Mistica entered into a contract to sell with respondent over a portion of
the aforementioned lot containing an area of 200 square meters.
This
agreement was reduced to writing in a document. Pursuant to said agreement,
respondent gave a down payment of P2,000. He made another partial payment
of P1,000 on February 8, 1980. He failed to make any payments thereafter.
Mistica died sometime in October 1986.
On December 4,1991, petitioner filed a complaint for rescission alleging,
among others that the failure and refusal of respondent to pay the balance of
the purchase price constitute a violation of the contract which established her to
rescind the same. That respondent have been in possession of the subject
matter, should be ordered to vacate and surrender possession of the same.
ISSUE:
Whether or not the Court of Appeals erred in the application of Article
1191 of the Civil Code, as it ruled that there is no breach of obligation in spite of
the lapse of their stipulated period and the failure of the respondent to pay.
RULING:
NO. The failure of respondent to pay the value of the purchase price
within ten (10) years from execution of the deed did not amount to a substantial
breach.

SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, petitioners,


VS. COURT OF APPEALS AND MRS. ADORACION CUSTODIO, represented
by her Attorney-in-fact, TRINIDAD KALAGAYAN, respondents
Aug 17, 1999
G.R. No. 112330
FACTS:
On October 9, 1984, the spouses Co entered into a verbal contract with
Custodio for her purchase of the their house and lot worth $100,000.00. One
week thereafter, and shortly before she left for the United States she paid
amounts of $1,000.00 and P40,000.00 as earnest money, in order that the same
may be reserved for her purchase, said earnest money to be deducted from the
total purchase price. The purchase price of $100,000.00 is payable in two
payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 on
January 5, 1985. On January 25, 1985, although the period of payment had
already expired, she paid to the defendant Melody Co in the United States, the
sum of $30,000.00, as partial payment of the purchase price. Spouses Cos
counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff dated March 15,
1985, demanding that she pay the balance of $70,000.00 and not receiving any
response thereto, said lawyer wrote another letter to plaintiff dated August 8,
1986, informing her that she has lost her option to purchase the property
subject of this case and offered to sell her another property.
Atty. Estrella O. Laysa, counsel of Custodio, wrote a letter to Atty.
Leopoldo Cotaco informing him that Custodio is now ready to pay the remaining
balance to complete the sum of $100,000.00, the agreed amount as selling
price and on October 24, 1986, plaintiff filed the instant complaint.
The trial court ruled in favor of Custodio and ordered the spouses Co to
refund the amount of $30,000.00. Not satisfied with the decision, the spouses

Co appealed to the Court of Appeals, which affirmed the decision of the RTC.
Hence, this appeal.
ISSUE:
Whether or not the Court of Appeals erred in ordering the Cos to return
the $30,000.00 paid by Custodio pursuant to the option granted to her.
RULING:
An option is a contract granting a privilege to buy or sell within an agreed
time and at a determined price. It is a separate and distinct contract from that
which the parties may enter into upon the consummation of the option. It must
be supported by consideration. However, the March 15, 1985 letter sent by the
COS through their lawyer to Custodio reveals that the parties entered into a
perfected contract of sale and not an option contract.
A contract of sale is a consensual contract and is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the contract
and upon the price. From that moment the parties may reciprocally demand
performance subject to the provisions of the law governing the form of
contracts.
The elements of a valid contract of sale under Article 1458 of the Civil
Code are (1) consent or meeting of the minds; (2) determinate subject matter;
and (3) price certain in money or its equivalent. As evidenced by the March 15,
1985 letter, all three elements of a contract of sale are present in the transaction
between the petitioners and respondent. Custodios offer to purchase the Beata
property, subject of the sale at a price of $100,000.00 was accepted by the Cos.
Even the manner of payment of the price was set forth in the letter. Earnest
money in the amounts of US$1,000.00 and P40,000.00 was already received by
the Cos. Under Article 1482 of the Civil Code, earnest money given in a sale
transaction is considered part of the purchase price and proof of the perfection
of the sale.
Despite the fact that Custodios failure to pay the amounts of
US$40,000.00 and US$60,000.00 on or before December 4, 1984 and January 5,
1985 respectively was a breach of her obligation under Article 1191 of the Civil
Code, the Cos did not sue for either specific performance or rescission of the
contract. The Cos were of the mistaken belief that Custodio had lost her
option over the Beata property when she failed to pay the remaining balance
of $70,000.00 pursuant to their August 8, 1986 letter. In the absence of an
express stipulation authorizing the sellers to extrajudicially rescind the contract

of sale, the Cos cannot unilaterally and extrajudicially rescind the contract of
sale.
Accordingly, Custodio acted well within her rights when she attempted to
pay the remaining balance of $70,000.00 to complete the sum owed of
$100,000.00 as the contract was still subsisting at that time. When the Cos
refused to accept said payment and to deliver the Beata property, Custodio
immediately sued for the rescission of the contract of sale and prayed for the
return of the $30,000.00 she had initially paid.
Under Article 1385 of the Civil Code, rescission creates the obligation to
return the things, which were the object of the contract, but such rescission can
only be carried out when the one who demands rescission can return whatever
he may be obliged to restore. This principle has been applied to rescission of
reciprocal obligations under Article 1191 of the Civil Code. The Court of Appeals
therefore did not err in ordering the Cos to return the amount of $30,000.00 to
Custodio after ordering the rescission of the contract of sale over the property.
Since it has been shown that the appellee who was not in default, was
willing to perform part of the contract while the appellants were not, rescission
of the contract is in order. 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, (Article 1191, same Code).
Rescission creates the
obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest x x x x (Article 1385, same Code).
In the case at bar, the property involved has not been delivered to the
appellee. She has therefore nothing to return to the appellants. The price
received by the appellants has to be returned to the appellee as aptly ruled by
the lower court, for such is a consequence of rescission, which is to restore the
parties in their former situations.
Petition denied. Decision affirmed.

RIGHT TO RESOLVE/RESCIND: REQUISITES


1. UFC VS. CA, 33 S 1

2.
3.
4.
5.
6.
7.
8.
9.

UP VS. DELOS ANGELES, 35 S 102


FRANCISCO VS. DEAC CONST. INC., 543 S 644
CANNU VS. GALANG, 459 S 80
VILLANUEVA VS. ESTATE OF GONZAGA, 498 S 285
PAGUYO VS. ASTORGA, 470 S 33
CASINO VS. CA, 470 S 57
CARRASCOSO VS. CA, 477 S 666
GOLDENROD VS. CA, 299 S 141

UNIVERSAL FOOD CORPORATION VS. CA


L-29155 February 22, 1971

RULING:
The Court concluded that what was actually ceded and transferred was
only the use of the Mafran sauce formula. The fact that the trademark
"Mafran" was duly registered in the name of the petitioner pursuant to the
Bill of Assignment, standing by itself alone, to borrow the petitioner's
language, is not sufficient proof that the respondent Francisco was
supposedly obligated to transfer and cede to the petitioner the formula
for Mafran sauce and not merely its use. For the said respondent allowed
the petitioner to register the trademark for purposes merely of the
"marketing of said project."

FACTS:
The petitioner contends that (a) under the terms of the Bill of
Assignment, exh. A, the respondent Magdalo V. Francisco ceded and
transferred to the petitioner not only the right to the use of the formula
for Mafran sauce but also the formula itself, because this, allegedly, was
the intention of the parties; (b) that on the basis of the entire evidence on
record and as found by the trial court, the petitioner did not dismiss the
respondent Francisco because he was, and still is, a member of the board
of directors, a stockholder, and an officer of the petitioner corporation,
and that as such, had actual knowledge of the resumption of production
by the petitioner, but that despite such knowledge, he refused to report
back for work notwithstanding the petitioner's call for him to do so; (c)
that the private respondents are not entitled to rescind the Bill of
Assignment; and (d) that the evidence on record shows that the
respondent Francisco was the one not ready, willing and able to comply
with his obligations under the Bill of Assignment, in the sense that he not
only irregularly reported for work but also failed to assign, transfer and
convey to the petitioner of the said deed of conveyance.
ISSUE:
Whether respondent Francisco ceded to the petitioner merely the
use of the formula for Mafran sauce and not the formula itself.

RIGHT TO RESOLVE/RESCIND: REQUISITES

UNIVERSITY OF THE PHILIPPINES VS. DELOS ANGELES


L-28602 September 29, 1970
FACTS:
UP and ALUMCO entered into a logging agreement under which the
latter was granted exclusive authority, for a period starting from the date
of the agreement to 31 December 1965, extendible for a further period of
five (5) years by mutual agreement, to cut, collect and remove timber
from the Land Grant, in consideration of payment to UP of royalties, forest
fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8
December 1964, it had incurred an unpaid account of P219,362.94, which,
despite repeated demands, it had failed to pay; that after it had received

notice that UP would rescind or terminate the logging agreement,


ALUMCO executed an instrument, entitled "Acknowledgment of Debt and
Proposed Manner of Payments," dated 9 December 1964, which was
approved by the president of UP. ALUMCO continued its logging
operations, but again incurred an unpaid account, for the period from 9
December 1964 to 15 July 1965, in the amount of P61,133.74, in addition
to the indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO
that it had, as of that date, considered as rescinded and of no further
legal effect the logging agreement that they had entered in 1960.
That before the issuance of the aforesaid preliminary injunction UP
had taken steps to have another concessionaire take over the logging
operation, and the concession was awarded to Sta. Clara Lumber
Company, Inc.
ISSUE:

In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without previous
court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally
settle whether the action taken was or was not correct in law. But the law
definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Otherwise, the party injured by
the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages.

RIGHT TO RESOLVE/RESCIND: REQUISITES

Whether petitioner U.P. can treat its contract with ALUMCO


rescinded, and may disregard the same before any judicial
pronouncement to that effect.
RULING:
Respondent ALUMCO contended, and the lower court, in issuing the
injunction order of 25 February 1966. apparently sustained it (although
the order expresses no specific findings in this regard), that it is only after
a final court decree declaring the contract rescinded for violation of its
terms that U.P. could disregard ALUMCO's rights under the contract and
treat the agreement as breached and of no force or effect.
UP and ALUMCO had expressly stipulated in the "Acknowledgment
of Debt and Proposed Manner of Payments" that, upon default by the
debtor ALUMCO, the creditor (UP) has "the right and the power to
consider the Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." "There is nothing in the law that
prohibits the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without
court intervention. In other words, it is not always necessary for the
injured party to resort to court for rescission of the contract."

FRANCISCO VS. DEAC CONSTRUCTION, INC.


GR No. 171312 February 4, 2008
FACTS:
Spouses Francisco obtained the services of DEAC Construction, Inc.
to construct a 3-storey residential building with mezzanine and roof deck
on their lot for a contract price of 3.5M. as agreed upon, a downpayment
of 2M should be paid upon signing of the construct of construction, and
the remaining balance of 1.5M was to be paid in two equal installments.
To undertake the said project, DEAC engaged the services of a subcontractor, Vigor Construction and Development Corporation, but
allegedly without the spouses knowledge and consent.
Even prior to the execution of the contract, spouses Francisco had
paid the downpayment. However, the said construction commenced
although DEAC had not yet obtained the necessary building permit for the
proposed construction and that the contractor deviated from the
approved plans.

Spouses Francisco demanded DEAC to comply with the approved


plan, otherwise, they would be compelled to invoke legal remedies. Work
stoppage was issued against Lino Francisco pursuant to the previous
Notice of Violations. The plaintiffs then file civil case for Rescission of
Contract and Damages against DEAC.
ISSUE:
Whether or not spouses Francisco may rescind the contract.
RULING:
Article 1191 of the Civil Code provides that the power to rescind
obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The rescission referred to in
this article, more appropriately referred to a resolution, is not predicated
on injury to economic interests on the part of the party plaintiff, but of
breach of faith by the defendant which is violative of the reciprocity
between the parties.
Given the fact that the construction in this case is already 75%
complete, that trial court was correct in ordering partial rescission of the
portion of the construction. Equitable considerations justify rescission of
the portion of the obligation which has not been delivered
RIGHT TO RESOLVE/RESCIND: REQUISITES

SPS. FELIPE AND LETICIA CANNU versus SPS. GIL AND


FERNANDINA GALANG AND NATIONAL HOME MORTGAGE FINANCE
CORPORATION
G.R. No. 139523
2005 May 26
FACTS:
Respondents-spouses Gil and Fernandina Galang obtained a loan
from Fortune Savings & Loan Association for P173,800.00 to purchase a
house and lot located at Pulang Lupa, Las Pias, in the names of

respondents-spouses. To secure payment, a real estate mortgage was


constituted on the said house and lot in favor of Fortune Savings & Loan
Association. In early 1990, NHMFC purchased the mortgage loan of
respondents-spouses from Fortune Savings & Loan Association for
P173,800.00. Petitioner Leticia Cannu agreed to buy the property for
P120,000.00 and to assume the balance of the mortgage obligations with
the NHMFC and with CERF Realty (the Developer of the property).
A Deed of Sale with Assumption of Mortgage Obligation dated 20
August 1990 was made and entered into by and between spouses
Fernandina and Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot and petitioners immediately took
possession and occupied the house and lot. However, despite requests
from Adelina R. Timbang and Fernandina Galang to pay the balance of
P45,000.00 or in the alternative to vacate the property in question,
petitioners refused to do so. Because the Cannus failed to fully comply
with their obligations, respondent Fernandina Galang, on 21 May 1993,
paid P233,957.64 as full payment of her remaining mortgage loan with
NHMFC.
From 1991 until the present, no other payments were made by
plaintiffs-appellants to defendants-appellees spouses Galang. Out of the
P250,000.00 purchase price which was supposed to be paid on the day of
the execution of contract in July, 1990 plaintiffs-appellants have paid, in
the span of eight (8) years, from 1990 to present, the amount of only
P75,000.00. Plaintiffs-appellants should have paid the P250,000.00 at the
time of the execution of contract in 1990. Eight (8) years have already
lapsed and plaintiffs-appellants have not yet complied with their
obligation.
ISSUE:
Whether or not the action for rescission was subsidiary, and that
there was a substantial breach of the obligation.
RULING:

Rescission or, more accurately, resolution, of a party to an


obligation under Article 1191 is predicated on a breach of faith by the
other party that violates the reciprocity between them.
Art. 1191 states that the power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him. The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible. The court shall
decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
Rescission will not be permitted for a slight or casual breach of the
contract.
Rescission may be had only for such breaches that are
substantial and fundamental as to defeat the object of the parties in
making the agreement. The question of whether a breach of contract is
substantial depends upon the attending circumstances and not merely on
the percentage of the amount not paid.
Thus, the petitioners failure to pay the remaining balance of
P45,000.00 is substantial.
Even assuming arguendo that only said
amount was left out of the supposed consideration of P250,000.00, or
eighteen percent thereof, this percentage is still substantial. Their failure
to fulfill their obligation gave the respondents-spouses Galang the right to
rescission.
Also, there was no waiver on the part of petitioners to demand the
rescission of the Deed of Sale with Assumption of Mortgage. The fact that
respondents-spouses accepted, through their attorney-in-fact, payments
in installments does not constitute waiver on their part to exercise their
right to rescind the Deed of Sale with Assumption of Mortgage. Adelina
Timbang merely accepted the installment payments as an
accommodation to petitioners since they kept on promising they would
pay. However, after the lapse of considerable time (18 months from last
payment) and the purchase price was not yet fully paid, respondentsspouses exercised their right of rescission when they paid the outstanding
balance of the mortgage loan with NHMFC. It was only after petitioners

stopped paying that respondents-spouses moved to exercise their right of


rescission.
The subsidiary character of the action for rescission applies to
contracts enumerated in Articles 1381 of the Civil Code. However, the
contract involved in the case is not one of those mentioned therein. The
provision that applies in the case at bar is Article 1191. Rescission under
Article 1191 is a principal action, while rescission under Article 1383 is a
subsidiary action. The former is based on breach by the other party that
violates the reciprocity between the parties, while the latter is not.
In the case at bar, the reciprocity between the parties was violated
when petitioners failed to fully pay the balance of P45,000.00 to
respondents-spouses and their failure to update their amortizations with
the NHMFC. Therefore, the Spouses Gil and Fernandina Galang are
ordered to return the partial payments made by petitioners in the amount
of P165,312.47.

RIGHT TO RESOLVE/RESCIND: REQUISITES

GENEROSO VILLANUEVA and RAUL VILLANUEVA JR.. versus


ESTATE OF GERARDO GONZAGA/ MA. VILLA GONZAGA in her
capacity as Administratrix
G.R. No. 15731 2006 August 09
FACTS:
On January 15, 1990, petitioners Generoso Villanueva and Raul
Villanueva, Jr., business entrepreneurs engaged in the operation of
transloading stations and sugar trading, and respondent Estate of Gerardo
L. Gonzaga, represented by its Judicial Administratrix, respondent Ma.
Villa J. Gonzaga, executed a MOA.

As stipulated in the agreement, petitioners introduced improvements after


paying P291,600.00 constituting sixty (60%) percent of the total purchase price
of the lots. Petitioners then requested permission from respondent
Administratrix to use the premises for the next milling season. Respondent

refused on the ground that petitioners cannot use the premises until full
payment of the purchase price. Petitioners informed respondent that their
immediate use of the premises was absolutely necessary and that any delay will
cause them substantial damages. Respondent remained firm in her refusal, and
demanded that petitioners stop using the lots as a transloading station to
service the Victorias Milling Company unless they pay the full purchase price. In
a letter-reply dated April 5, 1991, petitioners assured respondent of their
readiness to pay the balance but reminded respondent of her obligation to
redeem the lots from mortgage with the Philippine National Bank (PNB).
Petitioners gave respondent ten (10) days within which to do so.
On April 10, 1991, respondent Administratrix wrote petitioners informing
them that the PNB had agreed to release the lots from mortgage. She demanded
payment of the balance of the purchase price. Enclosed with the demand letter
was the PNBs letter of approval dated April 8, 1991. Petitioners demanded that
respondent show the clean titles to the lots first before they pay the balance of
the purchase price. Respondent merely reiterated the demand for payment.
Petitioners stood pat on their demand.
On May 28, 1991, respondent Administratrix executed a Deed of
Rescission rescinding the MOA. In their Letter dated June 13, 1991, petitioners,
through counsel, formally demanded the production of the titles to the lots
before they pay the balance of the purchase price. The demand was ignored.
Consequently, on June 19, 1991, petitioners filed a complaint against
respondents for breach of contract, specific performance and damages before
the RTC-Bacolod City. The trial court decided the case in favor of respondents.
Petitioners filed a petition for review before the Court of Appeals. The Court of
Appeals affirmed the trial courts decision but deleted the award for moral
damages on the ground that petitioners were not guilty of bad faith in refusing
to pay the balance of the purchase price.
ISSUE:
Whether there is legal, or even a factual, ground for the rescission of the
Memorandum of Agreement.
RULING:
There is no legal basis for the rescission. The remedy of rescission under
Art. 1191 of the Civil Code is predicated on a breach of faith by the other party
that violates the reciprocity between them. The court have held in numerous
cases that the remedy does not apply to contracts to sell.

In Santos v. Court of Appeals, in a contract to sell, title remains with the


vendor and does not pass on to the vendee until the purchase price is paid in
full. Thus, in a contract to sell, the payment of the purchase price is a positive
suspensive condition. Failure to pay the price agreed upon is not a mere breach,
casual or serious, but a situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. This is entirely different from the
situation in a contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale, the
vendor has lost ownership of the thing sold and cannot recover it, unless the
contract of sale is rescinded and set aside. In a contract to sell, however, the
vendor remains the owner for as long as the vendee has not complied fully with
the condition of paying the purchase price. If the vendor should eject the
vendee for failure to meet the condition precedent, he is enforcing the contract
and not rescinding it.
The MOA between petitioners and respondents is a conditional contract to
sell. Ownership over the lots is not to pass to the petitioners until full payment of
the purchase price. Petitioners obligation to pay, in turn, is conditioned upon the
release of the lots from mortgage with the PNB to be secured by the
respondents. Although there was no express provision regarding reserved
ownership until full payment of the purchase price, the intent of the parties in
this regard is evident from the provision that a deed of absolute sale shall be
executed only when the lots have been released from mortgage and the balance
paid by petitioners. Since ownership has not been transferred, no further legal
action need have been taken by the respondents, except an action to recover
possession in case petitioners refuse to voluntarily surrender the lots.

The records show that the lots were finally released from
mortgage in July 1991. Petitioners have always expressed readiness to
pay the balance of the purchase price once that is achieved. Hence,
petitioners should be allowed to pay the balance now, if they so desire,
since it is established that respondents demand for them to pay in April
1991 was premature. However, petitioners may not demand production
by the respondents of the titles to the lots as a condition for their
payment. It was not required under the MOA. The MOA merely states that
petitioners shall pay the balance upon approval by the PNB of the
release of the lots from mortgage. Petitioners may not add further
conditions now. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.

Thus, the petiotion is GRANTED, an the assailed decision is


REVERSED and SET ASIDE.

RIGHT TO RESOLVE/RESCIND: REQUISITES

SPOUSES DOMINGO and LOURDES PAGUYO versus Pierre Astorga


and St. Andrew Realty, Inc.
G.R. No. 130982
2005 September 16
FACTS:
Spouses Domingo Paguyo and Lourdes Paguyo, were the owners of
a small five-storey building known as the Paguyo Building located at
Makati Avenue, corner Valdez Street, Makati City. The lot on which the
Paguyo Building stands was the subject of Civil Case wherein the RTC of
Makati City, Branch 57, rendered a decision on 20 January 1988 approving
a Compromise Agreement made between the Armases and the
petitioners. The compromise agreement provided that in consideration of
the total sum of One Million Seven Hundred Thousand Pesos
(P1,700,000.00), the Armases committed to execute in favor of petitioners
a deed of sale and/or conveyance assigning and transferring unto said
petitioners all their rights and interests over the parcel of land containing
an area of 299 square meters. In order for the petitioners to complete
their title and ownership over the lot in question, there was an urgent
need to make complete payment to the Armases, which at that time
stood at P917,470.00 considering that petitioners had previously made
partial payments to the Armases.
On 29 November 1988, in order to raise the much needed amount,
petitioner Lourdes Paguyo entered into an agreement captioned as
Receipt of Earnest Money with respondent Pierre Astorga, for the sale of
the formers property consisting of the lot which was to be purchased
from the Armases, together with the improvements thereon, particularly,

the existing building known as the Paguyo Building. However, contrary to


their express representation with respect to the subject lot, petitioners
failed to comply with their obligation to acquire the lot from the Armas
family despite the full financial support of respondents. Nevertheless, the
parties maintained their business relationship under the terms and
conditions of the above-mentioned Receipt of Earnest Money.
On 12 December 1988, petitioners asked for and were given by
respondents an additional P50,000.00 to meet the formers urgent need
for money in connection with their construction business. Thus, on 5
January 1989, the parties executed the four documents in question
namely, the Deed of Absolute Sale of the Paguyo Building, the Mutual
Undertaking, the Deed of Real Estate Mortgage, and the Deed of
Assignment of Rights and Interest. Simultaneously with the signing of the
four documents, respondents paid petitioners the additional amount of
P500,000.00. Thereafter, the respondents renamed the Paguyo Building
into GINZA Bldg. and registered the same in the name of respondent St.
Andrew Realty, Inc. at the Makati Assessors Office after paying accrued
real estate taxes in the total amount of P169,174.95.
On 06 October 1989, petitioners filed a Complaint for the rescission
of the Receipt of Earnest Money with the undertaking to return the sum of
P763,890.50. They also sought the rescission of the Deed of Real Estate
Mortgage, the Mutual Undertaking, the Deed of Absolute Sale of Building,
and the Deed of Assignment of Rights and Interest.
After trial, the RTC ruled in favor of respondents. The petition for
preliminary injunction is denied, and the court ordered the plaintiff
spouses Domingo and Lourdes Paguyo to pay the defendants Pierre
Astorga and St. Andrew Realty, Inc. on their counterclaim. On appeal, the
Court of Appeals affirmed the decision of the trial court
ISSUE:
Did the Court of Appeals err in upholding the trial courts decision
denying petitioners complaint for rescission?
RULING:

No. The right to rescind a contract involving reciprocal obligations is


provided for in Article 1191 of the Civil Code. Article 1191 states: The
power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him. The
injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should
become impossible. The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Moreover, Articles 1355 and 1470 of the Civil Code state: Art. 1355.
Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue
influence. Art. 1470. Gross inadequacy of price does not affect a contract
of sale, except as may indicate a defect in the consent, or that the parties
really intended a donation or some other act or contract.
Petitioners failed to prove any of the instances mentioned in Articles
1355 and 1470 of the Civil Code, which would invalidate, or even affect,
the Deed of Sale of the Building and the related documents. Indeed,
there is no requirement that the price be equal to the exact value of the
subject matter of sale. In sum, petitioners pray for rescission of the Deed
of Sale of the building and offer to repay the purchase price after their
liquidity position would have improved and after respondents would have
refurbished the building, updated the real property taxes, and turned the
building into a profitable business venture. The court stated however
that, it will not allow itself to be an instrument to the dissolution of
contract validly entered into, for a party should not, after its opportunity
to enjoy the benefits of an agreement, be allowed to later disown the
arrangement when the terms thereof ultimately would prove to operate
against its hopeful expectations.
WHEREFORE, the Decision of the Court of Appeals is AFFIRMED with
MODIFICATION.
RIGHT TO RESOLVE/RESCIND: REQUISITES

BIENVENIDO M. CASIO, JR. versus THE COURT OF APPEALS and


OCTAGON REALTY DEVELOPMENT CORPORATION
G.R. No. 133803
2005 September 16
FACTS:
On October 2, 1991, respondent Octagon Realty Development
Corporation, filed a complaint for rescission of contract with damages
against petitioner Bienvenido M. Casio, Jr., owner and proprietor of the
Casio Wood Parquet and Sanding Services, relative to the parties
agreement for the supply and installation by petitioner of narra wood
parquet ordered by respondent.
In its complaint, respondent alleges that on December 22, 1989, it
entered into a contract with petitioner for the supply and installation by
the latter of narra wood parquet (kiln dried) to the Manila Luxury
Condominium Project, of which respondent is the developer, for a total
price of P1,158,487.00; that the contract stipulated that full delivery by
petitioner of labor and materials was in May 1990; that in accordance with
the terms of payment in the contract, respondent paid to petitioner the
amount P463,394.50, representing 40% of the total contract price;
that after delivering only 26,727.02 sq. ft. of wood parquet materials,
petitioner incurred in delay in the delivery of the remainder of 34,245.98
sq. ft.; that petitioner misrepresented to respondent that he is qualified
to do the work contracted when in truth and in fact he was not and,
furthermore, he lacked the necessary funds to execute the work
as
he was totally dependent on the funds advanced to him by
respondent; that due to petitioners unlawful and malicious refusal to
comply with its obligations, respondent incurred actual damages in the
amount of P912,452.39 representing estimated loss on the new price,
unliquidated damages and cost of money; that in order to minimize
losses, the respondent contracted the services of Hilvano Quality Parquet
and Sanding Services to complete the petitioners unfinished work,
respondent thereby agreeing to pay the latter P1,198,609.30.

However, petitioner avers that the manner of payment, period of


delivery and completion of work and/or full delivery of labor and materials
were modified; that the delivery and completion of the work could not be
done upon the request and/or representations by the respondent because
he failed to make available and/or to prepare the area in a suitable
manner for the work contracted, preventing the petitioner from complying
with the delivery schedule under the contract; that petitioner delivered
the required materials and performed the work despite these constraints;
that the respondent failed to pay the petitioners second and third billings
for deliveries and work performed in the sum of P105,425.68, which
amount the petitioner demanded from the respondent with the warning of
suspension of deliveries or rescission for contract for non-payment; that it
was the respondent who failed to prepare the area suitable for the
delivery and installation of the wood parquet, respondent who advised or
issued orders to the petitioner to suspend the delivery and installation of
the wood parquet, which created a storage problem for the petitioner.

The petitioner therefore, has failed to comply with his prestations


under his contract with respondent, the latter is vested by law with the
right to rescind the parties agreement, conformably with Article 1191 of
the Civil Code.
However, the right to rescind a contract for non-performance of its
stipulations is not absolute. The general rule is that rescission of a
contract will not be permitted for a slight or casual breach, but only for
such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. Contrary to petitioners
asseveration, the breach he committed cannot, by any measure, be
considered as slight or casual. For petitioners failure to make complete
delivery and installation way beyond the time stipulated despite
respondents demands, is doubtless a substantial and fundamental
breach, more so when viewed in the light of the large amount of money
respondent had to pay another contractor to complete petitioners
unfinished work.

ISSUE:
Whether or not the rescission of the contract by the private
respondent is valid.
RULING:
Under the contract, petitioner and respondent had respective
obligations, i.e., the former to supply and deliver the contracted volume of
narra wood parquet materials and install the same at respondents
condominium project by May, 1990, and the latter, to pay for said
materials in accordance with the terms of payment set out under the
parties agreement. But while respondent was able to fulfill that which is
incumbent upon it by making a downpayment representing 40% of the
agreed price upon the signing of the contract and even paid the first
billing of petitioner, the latter failed to comply with his contractual
commitment. For, after delivering only less than one-half of the
contracted materials, petitioner failed, by the end of the agreed period, to
deliver and install the remainder despite demands for him to do so. Thus,
it is petitioner who breached the contract.

Likewise, contrary to petitioners claim, it cannot be said that he


had no inkling whatsoever of respondents recourse to rescission. True,
the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other party must be made known to the
other. In the case, however, petitioner cannot feign ignorance of
respondents intention to rescind, fully aware, as he was, of his noncompliance with what was incumbent upon him, not to mention the
several letters respondent sent to him demanding compliance with his
obligation. It is thus proper that respondent acted well within its rights in
unilaterally terminating its contract with petitioner and in entering into a
new one with a third person in order to minimize its losses, without prior
need of resorting to judicial action.
WHEREFORE, the petition is DENIED and the assailed Decision
and Resolution of the appellate court AFFIRMED.

RIGHT TO RESOLVE/RESCIND: REQUISITES

FERNANDO CARRASCOSO JR. versus COURT OF APPEALS, LAURO


LEVISTE, as Director and Minority Stockholder and On Behaf of
Other Stockholders of El Dorado Plantation Inc. and EL DORADO
PLANTATION, INC., represented by one of its minority
stockholders, Lauro P. Leviste
G.R. No. 123672 & G. R. No. 164489 December 14, 2005
FACTS:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a
parcel of land with an area of approximately 1,825 hectares covered by
Transfer Certificate of Title (TCT) No. T-93 situated in Sablayan,
Occidental Mindoro.
On February 15, 1972, at a special meeting of El Dorados Board of
Directors, a Resolution was passed authorizing Feliciano Leviste, then
President of El Dorado, to negotiate the sale of the property and sign all
documents and contracts bearing thereon. El Dorado, through Feliciano
Leviste, sold the property to Fernando O. Carrascoso, Jr. Under the Deed
of Sale, Carrascoso was to pay the full amount of the purchase price on
March 23, 1975.
On March 24, 1972, Carrascoso and his wife Marlene executed a
Real Estate Mortgage] over the property in favor of Home Savings Bank
(HSB) to secure a loan in the amount of P1,000,000.00. Of this amount,
P290,000.00 was paid to Philippine National Bank to release the
mortgage priorly constituted on the property and P210,000.00 was paid
to El Dorado pursuant to the terms and conditions of the Deed of Sale.
On May 18, 1972, the real estate mortgage in favor of HSB was
amended to include an additional three year loan of P70,000.00 as
requested by the spouses Carrascoso. However, the 3-year period for
Carrascoso to fully pay for the property on March 23, 1975 passed
without him having complied therewith. In the meantime, on July 11,
1975, Carrascoso and the Philippine Long Distance Telephone Company
(PLDT), through its President Ramon Cojuangco, executed an Agreement

to Buy and Sell whereby the former agreed to sell 1,000 hectares of the
property to the latter at a consideration of P3,000.00 per hectare or a
total of P3,000,000.00.
Lauro Leviste, a stockholder and member of the Board of Directors
of El Dorado, called the attention of the Board to Carrascosos failure to
pay the balance of the purchase price of the property amounting to
P1,300,000.00. Lauros desire to rescind the sale was reiterated in two
other letters addressed to the Board. Jose P. Leviste, as President of El
Dorado, later sent a letter of February 21, 1977 to Carrascoso informing
him that in view of his failure to pay the balance of the purchase price of
the property, El Dorado was seeking the rescission of the March 23, 1972
Deed of Sale of Real Property. For the failure of Carrascoso to give his
reply, Lauro and El Dorado finally filed a complaint for rescission of the
Deed of Sale. They also sought the cancellation of TCT No. T-6055 in the
name of Carrascoso and the revival of TCT No. T-93 in the name of El
Dorado, free from any liens and encumbrances.
In the meantime, Carrascoso, as vendor and PLDT, as vendee
forged on April 6, 1977 a Deed of Absolute Sale over the 1,000 hectare
portion of the property subject of their July 11, 1975 Agreement to Buy
and Sell. In turn, PLDT, by Deed of Absolute Sale conveyed the aforesaid
1,000 hectare portion of the property to its subsidiary, PLDT Agricultural
Corporation (PLDTAC), for a consideration of P3,000,000.00, the amount
of P2,620,000.00 of which was payable to PLDT upon signing of said
Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for
Intervention which was granted by the trial court. PLDT and PLDTAC
thereupon filed their Answer In Intervention with Compulsory
Counterclaim and Crossclaim against Carrascoso. The RTC dismissed the
complaint. Carrascoso, PLDT and PLDTAC filed their respective appeals to
the Court of Appeals. The appellate court reversed the decision of the
trial court. Thereafter, different motions and actions were done by both
parties.
ISSUE:
Whether or not the rescission is valid.

RULING:
The right of rescission of a party to an obligation under Article 1191
is predicated on a breach of faith by the other party who violates the
reciprocity between them.
A contract of sale is a reciprocal obligation. The seller obligates
itself to transfer the ownership of and deliver a determinate thing, and
the buyer obligates itself to pay therefor a price certain in money or its
equivalent. The non-payment of the price by the buyer is a resolutory
condition which extinguishes the transaction that for a time existed, and
discharges the obligations created thereunder. Such failure to pay the
price in the manner prescribed by the contract of sale entitles the unpaid
seller to sue for collection or to rescind the contract.
In the case at bar, El Dorado already performed its obligation
through the execution of the March 23, 1972 Deed of Sale of Real
Property which effectively transferred ownership of the property to
Carrascoso. The latter, on the other hand, failed to perform his
correlative obligation of paying in full the contract price in the manner
and within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was
to pay the balance of the purchase price of the property amounting to
P1,300,000.00 plus interest thereon at the rate of 10% per annum within
a period of three (3) years from the signing of the contract on March 23,
1972. When Jose Leviste informed him that El Dorado was seeking
rescission of the contract by letter of February 21, 1977, the period given
to him within which to fully satisfy his obligation had long lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste
interposing no objection to Carrascosos mortgaging of the property to
any bank did not have the effect of suspending the period to fully pay the
purchase price, as expressly stipulated in the Deed, pending full payment
of any mortgage obligation of Carrascoso.

PLDT cannot shield itself from the notice of lis pendens because all that it
had at the time of its inscription was an Agreement to Buy and Sell with
Carrascoso, which in effect is a mere contract to sell that did not pass to
it the ownership of the property. Ownership was retained by Carrascoso
which El Dorado may very well recover through its action for rescission.
The appellate courts decision ordering the rescission of the March 23,
1972 Deed of Sale of Real Property between El Dorado and Carrascoso
being in order, mutual restitution follows to put back the parties to their
original situation prior to the consummation of the contract. Between
Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the
latter acted in good faith. This is so because it was Carrascosos refusal
to pay his just debt to El Dorado that caused PLDT/PLDTAC to suffer
pecuniary losses. Therefore, Carrascoso should return to PLDT/PLDTAC
the P3,000,000.00 price of the farm plus legal interest from receipt
thereof until paid.
The exercise of the power to rescind extinguishes the obligatory
relation as if it had never been created, the extinction having a
retroactive effect. The rescission is equivalent to invalidating and
unmaking the juridical tie, leaving things in their status before the
celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require
both parties to surrender that which they have respectively received and
to place each other as far as practicable in his original situation, the
rescission has the effect of abrogating the contract in all parts.
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being
subject to the notice of lis pendens, and as the Court affirms the
declaration by the appellate court of the rescission of the Deed of Sale
executed by El Dorado in favor of Carrascoso, possession of the 1,000
hectare portion of the property should be turned over by PLDT to El
Dorado.
As regards the improvements introduced by PLDT on the 1,000
hectare portion of the property, a distinction should be made between

those which it built prior to the annotation of the notice of lis pendens
and those which it introduced subsequent thereto.
WHEREFORE, the petitions are DENIED.

RIGHT TO RESOLVE/RESCIND: REQUISITES

GOLDENROD, INC. vs. COURT OF APPEALS BARRETTO & SONS,


INC., PIO BARRETTO REALTY DEVELOPMENT, INC., and ANTHONY
QUE
G.R. No. 126812
1998 Nov 24
FACTS:
Pio Barretto and Sons, Inc. (BARRETTO & SONS) owned forty-three
parcels of registered land with a total area of 18,500 square meters
located at Carlos Palanca St., Quiapo, Manila, which were mortgaged with
the United Coconut Planters Bank (UCPB). In 1988, the obligation of the
corporation with UCPB remained unpaid making foreclosure of the
mortgage imminent. Goldenrod, Inc. (GOLDENROD), offered to buy the
property from BARRETTO & SONS.
When the term of existence of BARRETTO & SONS expired, all its
assets and liabilities including the property located in Quiapo were
transferred to respondent Pio Barretto Realty Development, Inc.
Petitioner's offer to buy the property resulted in its agreement with
respondent BARRETTO REALTY that petitioner would pay P24.5 million
representing the outstanding obligations of BARRETTO REALTY with UCPB
on 30 June 1988, the deadline set by the bank for payment; and P20
million which was the balance of the purchase price of the property to be
paid in installments within a 3-year period with interest at 18% per
annum. However, petitioner did not pay UCPB the P24.5 million loan
obligation of BARRETTO REALTY on the deadline set for payment. It asked
for an extension of one month or up to 31 July 1988 to settle the
obligation, which the bank granted. Moreover, petitioner again requested
another extension of sixty days to pay the loan, but the bank demurred.

In the meantime BARRETTO REALTY was able to cause the


reconsolidation of the forty-three titles covering the property subject of
the purchase into two titles covering Lots 1 and 2. The reconsolidation of
the titles was made pursuant to the request of petitioner in its letter to
private respondents on 25 May 1988. Respondent BARRETTO REALTY
allegedly incurred expenses for the reconsolidation amounting to
P250,000.00.
On 30 August 1988 Alicia P. Logarta, President of Logarta Realty
and Development Corporation, which acted as agent and broker of
petitioner, wrote private respondent Anthony Que informing him on behalf
of petitioner that it could not go through with the purchase of the property
due to circumstances beyond its fault ( the denial by UCPB of its request
for extension of time to pay the obligation).
On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld
Trade Center Phils., Inc., Lot 2, one of the two consolidated lots, for the
price of P23 million. On 13 October 1988 respondent BARRETTO REALTY
executed a deed transferring by way of "dacion" the property
reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property
to ASIAWORLD for P24 million. Sometime after the said sale, Logarta
again wrote respondent Que demanding the return of the earnest money
to GOLDENROD, but to no avail. Petitioner then filed a complaint with the
RTC of Manila against private respondents for the return of the amount of
P1 million and the payment of damages including lost interests or profits.
ISSUE:
Whether or not the petitioner's extrajudicial rescission of its
agreement with private respondents was valid.
RULING:
Under Art. 1482 of the Civil Code, whenever earnest money is
given in a contract of sale, it shall be considered as part of the purchase
price and as proof of the perfection of the contract. Petitioner clearly
stated without any objection from private respondents that the earnest

money was intended to form part of the purchase price. It was an


advance payment which must be deducted from the total price. Hence,
the parties could not have intended that the earnest money or advance
payment would be forfeited when the buyer should fail to pay the balance
of the price, especially in the absence of a clear and express agreement
thereon. By reason of its failure to make payment petitioner, through its
agent, informed private respondents that it would no longer push through
with the sale. In other words, petitioner resorted to extrajudicial rescission
of its agreement with private respondents.
It was held in the case of University of the Philippines v. de los
Angeles that the right to rescind contracts is not absolute and is subject
to scrutiny and review by the proper court. It was held further that
rescission of reciprocal contracts may be extrajudicially rescinded unless
successfully impugned in court. If the party does not oppose the
declaration of rescission of the other party, specifying the grounds
therefor, and it fails to reply or protest against it, its silence thereon
suggests an admission of the veracity and validity of the rescinding
party's claim. A such, private respondents did not interpose any objection
to the rescission by petitioner of the agreement. As found by the Court of
Appeals, private respondent BARRETTO REALTY even sold Lot 2 of the
subject consolidated lots to another buyer, ASIAWORLD, one day after its
President Anthony Que received the broker's letter rescinding the sale.
Subsequently, on 13 October 1988 respondent BARRETTO REALTY also
conveyed ownership over Lot 1 to UCPB which, in turn, sold the same to
ASIAWORLD.
Article 1385 of the Civil Code provides that rescission creates the
obligation to return the things which were the object of the contract
together with their fruits and interest. Therefore, by virtue of the
extrajudicial rescission of the contract to sell by petitioner without
opposition from private respondents who, in turn, sold the property to
other persons, private respondent BARRETTO REALTY, as the vendor, had
the obligation to return the earnest money of P1,000,000.00 plus legal
interest from the date it received notice of rescission from petitioner, i.e.,
30 August 1988, up to the date of the return or payment. It would be most
inequitable if respondent BARRETTO REALTY would be allowed to retain

petitioner's payment of P1,000,000.00 and at the same time appropriate


the proceeds of the second sale made to another.

EFFECTS OF RESOLUTION/RESCISSION
1.
2.
3.
4.
5.
6.
7.
8.

SERRANO VS. CA, 417 SCRA 415


GIL VS. CA, 411 SCRA 18
REYES VS. LIM, 408 SCRA 560
ONG VS. TIU, FEB. 1, 2002
EQUATORIAL REALTY VS. MAYFAIR THEATER, 370 SCRA 56
VELARDE VS. CA, 361 SCRA 56
ASUNCION VS. EVANGELISTA, OCT. 13, 1999
UY VS. CA, SEPT. 9, 1999

LORETA SERRANO vs. COURT OF APPEALS and LONG LIFE


PAWNSHOP, INC.
G.R. No. 45125 1991 Apr 22
FACTS:
Sometime in early March 1968, petitioner Loreta Serrano bought
some pieces of jewelry for P48,500.00 from Niceta Ribaya. However, when
petitioner was in need of money, she instructed her private secretary,
Josefina Rocco, to pawn the jewelry. Josefina then went to private
respondent Long Life Pawnshop, Inc. ("Long Life"), pledged the jewelry for
P22,000.00 with its principal owner and General Manager, Yu An Kiong,
and then absconded with said amount and the pawn ticket. The pawnshop
ticket issued to Josefina Rocco stipulated that it was redeemable "on
presentation by the bearer."
Three months later, Gloria Duque and Amalia Celeste informed
Niceta Ribaya that a pawnshop ticket issued by private respondent was

being offered for sale. They told Niceta the ticket probably covered
jewelry once owned by the latter which jewelry had been pawned by one
Josefina Rocco. Suspecting that it was the same jewelry she had sold to
petitioner, Niceta informed the latter of this offer and suggested that
petitioner go to the Long Life pawnshop to check the matter out.
Petitioner claims she went to private respondent pawnshop, verified that
indeed her missing jewelry was pledged there and told Yu An Kiong not to
permit anyone to redeem the jewelry because she was the lawful owner
thereof. Petitioner claims that Yu An Kiong agreed.
On 9 July 1968, petitioner went to the Manila Police Department to
report the loss, and a complaint first for qualified theft and later changed
to estafa was subsequently filed against Josefina Rocco. Thereafter, a
member of the Manila Police went to the pawnshop, showed Yu An Kiong
petitioner's report and left the latter a note asking him to hold the jewelry
and notify the police in case someone should redeem the same. However,
the next day, Yu An Kiong permitted one Tomasa de Leon, exhibiting the
appropriate pawnshop ticket, to redeem the jewelry.
On 4 October 1968, petitioner filed a complaint for damages against
private respondent Long Life for failure to hold the jewelry and for
allowing its redemption without first notifying petitioner or the police.
Hon. Luis B. Reyes, rendered a decision in favor of petitioner. The decision
was however reversed on appeal and the complaint dismissed by the
public respondent Court of Appeals.

21 of the Civil Code. The circumstance that the pawn ticket stated that
the pawn was redeemable by the bearer, did not dissolve that duty. The
pawn ticket was not a negotiable instrument under the Negotiable
Instruments Law nor a negotiable document of title under Articles 1507 et
seq. of the Civil Code. If the third person Tomasa de Leon, who redeemed
the things pledged a day after petitioner and the police had notified Long
Life, claimed to be owner thereof, the prudent recourse of the pawnbroker
was to file an interpleader suit, impleading both petitioner and Tomasa de
Leon. The respondent pawnbroker was, of course, entitled to demand
payment of the loan extended on the security of the pledge before
surrendering the jewelry, upon the assumption that it had given the loan
in good faith and was not a "fence" for stolen articles and had not
conspired with the faithless Josefina Rocco or with Tomasa de Leon.
Respondent pawnbroker acted in reckless disregard of that duty in
the instant case and must bear the consequences, without prejudice to its
right to recover damages from Josefina Rocco. Hence, the trial court
correctly held that private respondent was liable to petitioner for actual
damages which corresponded to the difference in the value of the jewelry
and the amount of the loan, or the sum of P26,500.00. Petitioner is
entitled to collect the balance of the value of the jewelry, corresponding
to the amount of the loan, in an appropriate action against Josefina Rocco.
Private respondent Long Life in turn is entitled to seek reimbursement
from Josefina Rocco of the amount of the damages it must pay to
petitioner.
EFFECTS OF RESOLUTION/RESCISSION

ISSUE:
Whether or not the Court of Appeals committed reversible error in
rendering its Decision.
RULING:
Having been notified by petitioner and the police that jewelry
pawned to it was either stolen or involved in an embezzlement of the
proceeds of the pledge, private respondent pawnbroker became duty
bound to hold the things pledged and to give notice to petitioner and the
police of any effort to redeem them. Such a duty was imposed by Article

PERLA PALMA GIL, VICENTE HIZON, JR., and ANGEL PALMA GIL
VS. HON. COURT OF APPEALS, HEIRS OF EMILIO MATULAC, CONSTANCIO
MAGLANA, AGAPITO PACETES & The REGISTER OF DEEDS OF DAVAO
CITY
G.R. No. 127206
September 12, 2003
411 SCRA 19
FACTS:
Concepcion Palma Gil, and her sister, Nieves Palma Gil, married to Angel
Villarica, were the co-owners of a parcel of commercial land with an area of 829

square meters in Davao City. The spouses Angel and Nieves Villarica had
constructed a two-storey commercial building on the property.
On October 13, 1953, Concepcion filed a complaint against her sister
Nieves with the then Court of First Instance of Davao City for specific
performance, to compel the defendant to cede and deliver to her an undivided
portion of the said property with an area of 256.2 square meters. After due
proceedings, the court rendered judgment on April 7, 1954 in favor of
Concepcion, ordering the defendant to deliver to the plaintiff an undivided
portion of the said property with an area of 256.2 square meters.
Nieves appealed to the Court of Appeals which affirmed the assailed
decision. The court issued a writ of execution. Nieves, however, refused to
execute the requisite deed in favor of her sister.
On April 27, 1956, the court issued an order authorizing ex-officio Sheriff
Eriberto Unson to execute the requisite deed of transfer to the plaintiff over an
undivided portion of the property with a total area of 256.2 square meters.
Instead of doing so, the sheriff had the property subdivided into four lots namely,
Lot 59-C-1, with an area of 218 square meters; Lot 59-C-2, with an area of 38
square meters; Lot 59-C-3, with an area of 14 square meters; and Lot 59-C-4,
with an area of 560 square meters, all covered by a subdivision plan. The sheriff
thereafter executed a Deed of Transfer to Concepcion over Lot 59-C-1 and Lot
59-C-2 with a total area of 256.2 square meters.
On October 24, 1956, Concepcion executed a deed of absolute sale over
Lot 59-C-1 in favor of Iluminada Pacetes for a purchase price of P21,600.00 upon
which P7,500.00 is to be paid upon signing of the contract and the balance of
P14,100.00 to be paid upon delivery of the Title. On March 16, 1966, spouses
Iluminada Pacetes and Agapito Pacetes executed a deed of absolute sale over
the disputed lots in favor Constancio Maglana. And on April 22, 1980, Maglana
ewecuted a deed of sale in favor of Emilio Matulac for the purchase price of
P150,000.00.
And on August 4, 1959, Concepcion died, leaving all her
obligations to her heirs including the petitioners.
On June 11, 1993, the trial court rendered judgment in favor of the
defendants. The trial court ruled that this Court had affirmed, in G.R. No. 85538
and G.R. No. L-60690, the sales of the property from Concepcion Palma Gil to
Iluminada Pacetes, then to Constancio Maglana and to Emilio Matulac; hence,
the trial court was barred by the rulings of the Court. The plaintiffs appealed to
the Court of Appeals which affirmed the latters decision.

ISSUE:
Whether or not the trial court erred in not declaring the sale of the
properties in question from Iluminada Pacetes to Constancio Maglana, thence,
from Constancio Maglana to Emilio Matulac NULL and VOID for there was delay
incurred by Concepcion in not delivering the Title of the subject lands to Pacetes.
RULING:
Article 1191 in tandem with Article 1592 of the New Civil Code are central
to the issues at bar. Under the last paragraph of Article 1169 of the New Civil
Code, in reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him.
From the moment one of the parties fulfills his obligation, delay in the
other begins. Thus, reciprocal obligations are to be performed simultaneously so
that the performance of one is conditioned upon the simultaneous fulfillment of
the other. The right of rescission of a party to an obligation under Article 1191
of the New Civil Code is predicated on a breach of faith by the other party that
violates the reciprocity between them.
The petitioners therefore, as successors-in-interest of the vendor, are not
the injured parties entitled to a rescission of the deed of absolute sale. It was
Concepcions heirs, including the petitioners, who were obliged to deliver to the
vendee a certificate of title over the property under the latters name, free from
all liens and encumbrances within 120 days from the execution of the deed of
absolute sale on October 24, 1956, but had failed to comply with the obligation.
Furthermore, the consignation by the vendee of the purchase price of the
property is sufficient to defeat the right of the petitioners to demand for a
rescission of the said deed of absolute sale.
The petition for review was denied for lack of merit.

EFFECTS OF RESOLUTION/RESCISSION
SERRANO VS. COURT OF APPEALS
417 SCRA 415

FACTS
Petitioners spouses Arturo and Niceta Serrano are the owners of the
parcel of land and the house constructed thereon located in Quezon City and a
parcel of land located in Quezon City. The couple mortgaged said properties in
favor of Government Service Insurance System (GSIS) for a security loan of
P50,000. They were able to pay P18,000 on 1969. On the same year, the
spouses Serrano as vendors and respondents spouses Emilio and Evelyn Geli as
vendees executed a deed of absolute sale with partial assumption of the
mortgage for the price of P70,000. Spouses Geli paid the amount of P38,000
and the balance of P32,000 to be paid to GSIS. Emilio Geli and his children,
respondents herein, failed to settle the amount to the GSIS.
Petitioners filed a complaint for the rescission of the deed of absolute sale
with partial assumption of mortgage on September 6, 1984. The trial court
rendered a decision ordering rescission of the deed. Emilio and petitioners
appealed the decision to the Court of Appeals (CA). The GSIS foreclosed the
mortgage during the pendency of the appeal. A certificate of sale over the
property was issued in favor of the GSIS it being the highest bidder.
In 1987, Emilio paid the redemption price of P67,701.84 to GSIS.
Accordingly, the GSIS executed a deed of transfer and turned over to Emilio the
transfer certificate title (TCT) without informing Serrano and the CA. In 1991,
the CA dismissed Emilio and petitioners appeal for failure to pay the requisite
docket fees which became final and executory.
On February 15, 1994, the court granted the motion for execution of the
trial courts September 6, 1984 decision upon the motion of the petitioners
which was not implemented. Defendant filed a motion to quash on September 6,
1996 claming for the first time that he had redeemed the said properties from
GSIS in 1988 which was denied by the court.
The trial court issued an alias writ of execution upon issuance of order
granting petitioners motion. The petitioners filed with the CA a petition for
certiorari and/or prohibition praying for the nullification of the trial court orders.
CA issued an order restraining the implementation of the alias writ of execution
and the notice to vacate issued by the trial court. CA on May 12, 1998 granted
the respondents motion.

ISSUE:
Whether or not the trial courts September 6, 1984 judgment ordering the
rescission of the deed of absolute sale with partial assumption of mortgage
executed by petitioners and respondents is proper.
RULING:
YES. The payment by Emilio of the redemption price to the GSIS was
made pending appeal by the respondents from the trial courts order and
concealed said payment to petitioners. The respondents appealed the decision
before the CA which was subsequently dismissed for failure to pay the requisite
docket fees. Neither did respondents file any motion for reconsideration for the
dismissal of the appeal. Consequently, the trial courts decision became final
and executory.
With the rescission of the deed of sale, the rights of Emilio Geli under said
deed to redeem the property had been extinguished. The petitioners cannot
even be compelled to subrogate the respondents to their right under the real
estate mortgage over the property which the petitioners executed in favor of
GSIS since the payment of the redemption price was made without the
knowledge of the petitioners. The respondents, however, are entitled to be
reimbursed by the petitioners to the extent that the latter were benefited.
In sum, respondents are obliged to vacate the subject property. The
decision of the CA is reversed and set aside. The petitioners are obliged to
return the amount of P67,701.04 to be deducted from the amount due the
petitioners under said trial courts decision.

EFFECTS OF RESOLUTION/RESCISSION
REYES VS. LIM
G. R. No. 134241
August 11, 2003
408 SCRA 560
FACTS:
Petitioner David Reyes, as seller, and Jose Lim, as buyer, entered into a
contract to sell a parcel of land located along F.B. Harrison Street, Pasay City on
November 7, 1994. Harrison Lumber occupied the property as lessee with a
monthly rental of P35,000.00. The contract provided that the total consideration

for the purchase of the property is P28,000,000.00 and upon signing of the
contract, P10,000,000.00 should be paid as down payment. The balance of
P18,000,000.00 shall be paid at a bank designated by the buyer but upon the
complete vacation of all the tenants or occupants of the property. The contract
also provided that in the event, the tenants or occupants of the premises shall
not vacate the premises on March 8, 1995, the vendee shall withhold the
payment of the balance of P18,000,000.00 and the vendor agrees to pay a
penalty of 4% per month to the vendee based on the down payment of
P10,000,000.00 until the complete vacation of the premises by the tenants.
Petitioner claimed that he had informed Harrison Lumber to vacate the
property before the end of January 1995. Reyes also informed Chuy Cheng Keng
and Harrison Lumber that if they failed to vacate by March 8, 1995, he would
hold them liable for the penalty of P400,000.00 a month as provided in the
contract to sell. His complaint also alleged that Lim connived with Harrison
Lumber not to vacate the property until the P400,000.00 monthly penalty would
have accumulated and equaled the unpaid purchase price of P18,000,000.00.
Keng and Harrison Lumber denied that Lim had connived with them.
Harrison Lumber alleged that Reyes approved their request for an extension of
time to vacate the property and that as of March 1995, it had already started
transferring some of its merchandise to its new business location in Malabon.
On the other hand, Lim filed his Answer stating that he was ready and
willing to pay the balance of the purchase price on or before March 8, 1995. Lim
requested a meeting with Reyes through the latters daughter but Reyes kept
postponing them. On March 9, 1995, Reyes offered to return the P10 million
down payment to Lim because Reyes was having problems in removing the
lessee from the property. Lim rejected Reyes offer and proceeded to verify the
status of Reyes title to the property. He learned that Reyes had already sold
the property to Line One Foods Corporation on March 1, 1995 for P16,782,480.
Lim also denied conniving with Keng and Harrison Lumber.
On November 2, 1995, Reyes filed a Motion for Leave to File Amended
Complaint due to the filing by Lim of a complaint for estafa against Reyes as well
as an action for specific performance and nullification of sale and title plus
damages before another trial court.
Meanwhile, Lim prayed for the cancellation of the Contract to Sell and for
the issuance of writ of preliminary attachment against Reyes but the court
denied the writ. Lim requested on March 6, 1997 in open court that Reyes be

ordered to deposit the P10 million down payment with the cashier of the trial
court and the court granted this motion.
The trial court denied Reyes motion to set aside the order dated March 6,
1997. On October 3, 1997, the court denied Reyes motion for reconsideration
and ordered Reyes to deposit the P10 million down payment on or before
October 30, 1997. Reyes file a petition for certiorari with the Court of Appeals
but the appellate court dismissed the petition for lack of merit.
ISSUE:
Whether or not the petitioner should deposit the P10 million down
payment to the custody of the trial court as an effect of rescission of the
Contract to Sell
RULING:
The Supreme Court held that an action for rescission could prosper only if
the party demanding rescission can return whatever he may be obliged to
restore should the court grant the rescission. The trial court in the exercise of its
equity jurisdiction may validly order the deposit of P10 million down payment in
court. The purpose of the exercise of equity jurisdiction in this case is to prevent
unjust enrichment and to ensure restitution. Reyes is seeking rescission of the
Contract to Sell.
To subscribe top Reyes contention will unjustly enrich Reyes at the
expense of Lim. Reyes sold to Line One Foods Corporation the property. Reyes
cannot claim ownership of the P10 million down payment because Reyes had
already sold to another buyer the property for which Lim made the down
payment. The Supreme Court find the equities weigh heavily in favor of Lim,
who paid the P10 million down payment in good faith only to discover later that
Reyes had subsequently sold the property to another buyer.
Hence, the appealed decision of the appellate court is affirmed and the
petition is dismissed.
EFFECTS OF RESOLUTION/RESCISSION

ONG YONG, JUANITA TAN ONG, WILSON T. ONG, ANNA L. ONG, WILLIAM
T. ONG, WILLIE T. ONG, And JULIE ONG ALONZO, petitioners, VS. DAVID
S. TIU, CELY Y. TIU, MOLY YU GAW, BELEN SEE YU, D. TERENCE Y. TIU,

JOHN YU, LOURDES C. TIU, INTRALAND RESOURCES DEVELOPMENT


CORP., MASAGANA TELAMART, INC., REGISTER OF DEEDS OF PASAY
CITY, And the SECURITIES AND EXCHANGE COMMISSION, respondents
G.R. No. 144476
February 1, 2002
FACTS:
The Masagana Citimall, a commercial complex owned and managed by
the First Landlink Asia Development Corporation (FLADC) was threatened with
incompletion when its owner found in its financial distress in the amount of
P190M for being indebted to the Philippine National Bank (PNB). FLADC was
then fully owned by the Tiu Group composed of David S. Tiu, Cely Y. Tiu, Moly Yu
Gaw, Belen See Yu, D. Terence Y. Tiu, John Yu and Lourdes C. Tiu. In order to
recover from its floundering finances, the Ong Group composed of Ong Yong,
Juanita Tan Ong, Wilson T. Ong, Anna L. Ong, William T. Ong and Julie Ong
Alonzo, were invited by the Tius to invest in FLADC. Hence, the execution of a
Pre-Subscription Agreement by and between the Tiu and Ong Groups on August
15, 1994.
By the Pre-Subscription Agreement, both parties agreed to maintain
equal shareholdings in FLADC with the Ongs investing cash while the Tius
contributing property. Specifically, the Ongs were to subscribe to 1 million
shares of FLADC at a par value of P100.00 per share while the Tius were to
subscribe to 549,800 shares more of FLADC at a par value of P100.00 per share
over and above their previous subscription of 450,200 shares in order to
complete a subscription of 1 million shares.
Commensurate to their proposed subscriptions, the Ongs were to pay
P100,000,000.00 in cash, while the Tius were to contribute the properties by
way of separate Deeds of Assignments.
The controversy between the two parties arose when the Ongs refused to
credit the number of FLADC shares in the name of Masagana Telamart, Inc.
commensurate to its 1,902.30 square meter property contribution; also when
they refused to credit the number of FLADC shares in favor of the Tius
commensurate to their 151 square meter property contribution; and when David
S. Tiu and Cely Y. Tiu were proscribed from assuming and performing their
duties as Vice-President and Treasurer, respectively of FLADC. These became
the basis of the Tius' unilateral rescission of the Pre-Subscription Agreement on
February.

ISSUE:
Whether Court of Appeals erred in ruling that the Pre-Subscription
Agreement of the parties may be rescinded under Article 1191 of the New Civil
Code.
RULING:
No. The Court of Appeals did not err in ruling that the "Pre-Subscription
Agreement" of the parties dated August 15, 1994 may be rescinded under Article
1191 of the New Civil Code.The Ongs illustrate reciprocity in the following
manner: In a contract of sale, the correlative duty of the obligation of the seller
to deliver the property is the obligation of the buyer to pay the agreed price. In
the case at bar, the correlative obligation of the Tius to let the Ongs have and
exercise the functions of the positions of President and Secretary is the
obligation of the Ongs to let the Tius have and exercise the functions of VicePresident and Treasurer. Moreover, the Ongs are now estopped from denying
the applicability of Art. 1191 to the present controversy. the Ongs allege that
rescission is applicable only to reciprocal obligations and the "Pre-Subscription
Agreement" does not provide for reciprocity, hence, the remedy of rescission is
not available.
The Ongs cited the case of Songcuan vs. IAC, to illustrate their point
that "As in the Songcuan case, there are here two (2) separate and distinct
obligations each independent of the other the obligation to subscribe to, and to
pay, 50% of the increased capital stock of FLADC; and the obligation to install
the Ongs and the Tius as members of the Board of Directors and to certain
corporate positions, but only after the Ongs and the Tius have subscribed each
to 50% of the increased capital stock of FLADC." In this petition, in lieu of Art.
1191, the Ongs invoke Articles 1156 and 1159 of the New Civil Code which state

"Art. 1156.

An obligation is a juridical necessity to give, to do or not to do.

"Art. 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith."
and that should there be any violation, those who failed to fulfill their obligations
should be required to perform their obligations under the agreement.Contrary to
the Ongs' assertion, the Songcuan case does not apply squarely to this case.
In the Songcuan case, the Court ruled that Art. 1191 to rescind the right of

the Alviars to repurchase does not apply because their corresponding obligations
can hardly be called reciprocal because the obligation of the Alviars to lease to
Songcuan the subject premise arises only after the latter had reconveyed the
realties to them. On the other hand, in the instant case, the obligations of the
two (2) groups to pay 50% of the increased capital stock of FLADC and to install
them as members of the Board of Directors and to certain corporate positions
are simultaneous and arise upon the execution of the pre-subscription
agreement.
The Ongs illustrate reciprocity in the following manner: In a contract of
sale, the correlative duty of the obligation of the seller to deliver the property is
the obligation of the buyer to pay the agreed price. In the case at bar, the
correlative obligation of the Tius to let the Ongs have and exercise the functions
of the positions of President and Secretary is the obligation of the Ongs to let the
Tius have and exercise the functions of Vice-President and Treasurer.

EFFECTS OF RESOLUTION/RESCISSION
EQUATORIAL REALTY DEVELOPMENT, INC. VS. MAYFAIR THEATER, INC.
GR No. 133879
November 21, 2001
FACTS:
In June 1967, Carmelo & Bauerman, Inc. entered into a Contract of Lease
with Mayfair Theater for a parcel of land with 2-storey building for 20 years. Two
years later in March, 1969, Carmelo entered into a second Contract with Mayfair
for another portion of the property also for 20 years. In both contracts, Mayfair
was given the right-of-first refusal to purchase the properties. However, on July
30, 1978, within the 20-year period, Carmelo sold the same properties to
Equatorial for P11,300,000. Mayfair sued Equatorial for specific performance
and annulment of the Deed of Absolute Sate with Carmelo. The trial court ruled
in favor of Mayfair but was reversed by the CA. The Supreme Court, however,
upheld the trial court, for which Mayfair filed a motion for execution. The Deed
of Absolute Sale was rescinded and the lot was registered in the name of
Mayfair.
However, in September 1997, Equatorial filed a collection suit for a sum of
money against Mayfair claiming payment of rentals or reasonable compensation
for the use of the properties AFTER its lease contracts had expired. The trial
court ruled in favor Mayfair holding that the Deed of Absolute Sale in the mother

case DID NOT confer on Equatorial any vested or residual property rights.
Hence, the present case.
ISSUES:
1.
Did Equatorial obtain rights to the property when it entered into Deed
of Absolute Sale with Carmelo and hence, entitled to the fruits thereof?
2.

Is the right of first refusal granted to Mayfair through the lease contracts
with Carmelo superior to that of Equatorial, and therefore a bar to the
consummation of the Deed of Absolute Sale between Carmelo and
Equatorial?

RULING:
1. No. Equatorial did not obtain right of ownership over the property
when it entered into the Deed of Absolute Sale. Ownership of the
property which the buyer acquires only upon the delivery of the thing
to him. There is delivery if the thing sold is placed in the control and
possession of the vendee. While the execution of a public instrument
of sale is recognized by law as the equivalent of delivery of the thing
sold, such constructive or symbolic delivery, being only presumptive, is
deemed negated by the failure of the vendee to take actual possession
of the property sold. Since Mayfair was in actual possession of the
property by virtue of the lease contract with Carmelo, there was no
consummation of the sale, and therefore, Equatorial did not get
ownership right (real right).
2. The Deed of Absolute Sale entered into by Carmelo and Equatorial was
a violation of the right of first refusal granted by Carmelo to Mayfair.
The execution of the deed of absolute sale as a form of constructive
delivery is a legal fiction. It holds true only if there is no legal
impediment that may prevent the passing of the property from the
vendor to the vendee. The right of first refusal held by Mayfair was
such legal impediment. Therefore, there was no transfer of ownership
from Camelot to Equatorial.
Dissenting opinion:
The Deed of Absolute Sale was deemed a rescissible contract and should
remain valid until rescinded. Since the Deed was not actually rescinded in the
decision of the mother case, then it was valid until it is rescinded in a proper
court decision. Since there was no actual rescission of the contract, then

Equatorial was deemed the own of the property from the signing of the Deed to
the time the property was legally transferred to Mayfair.
EFFECTS OF RESOLUTION/RESCISSION
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE
VS. COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO
2001 Jul 11
G.R. No. 108346
FACTS:
David Raymundo is the absolute and registered owner of a parcel of land,
together with the house and other improvements thereon, located at 1918
Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177.
Defendant George Raymundo is Davids father who negotiated with plaintiffs
Avelina and Mariano Velarde for the sale of said property, which was, however,
under lease.
On August 8, 1986, a Deed of Sale with Assumption of Mortgage was
executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina
Velarde, as vendee, with terms and conditions one of which is:
That as part of the consideration of this sale, the VENDEE hereby assumes to
pay the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of the Philippine Islands, in the name of the VENDOR,
and further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by the
VENDOR in favor of BPI, including interests and other charges for late payment
levied by the Bank, as if the same were originally signed and executed by the
VENDEE.
The Vendee herby agreed that until such time as her assumption of the
mortgage obligations on the property purchased is approved by the mortgagee
bank, the Bank of the Philippine Islands, she shall continue to pay the said loan
in accordance with the terms and conditions of the Deed of Real Estate Mortgage
in the name of Mr. David A. Raymundo, the original Mortgagor. And further
agrees That, in the event there is violation in any of the terms and conditions of
the said Deed of Real Estate Mortgage, that the downpayment of P800,000.00,
plus all payments made with the Bank of the Philippine Islands on the mortgage

loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of


liquidated damages, without necessity of notice or any judicial declaration to
that effect, and Mr. David A Raymundo shall resume total and complete
ownership and possession of the property sold by way of Deed of Sale with
Assumption of Mortgage, and the same shall be deemed automatically cancelled
and be of no further force or effect, in the same manner as if (the) same had
never been executed or entered into.
Plaintiffs were advised that the Application for Assumption of Mortgage
with BPI was not approved. This prompted plaintiffs not to make any further
payment. Defendants, thru counsel, wrote plaintiffs informing the latter that
their non-payment to the mortgage bank constituted non-performance of their
obligation
Plaintiffs, thru counsel, responded, that they are willing to pay the balance
in cash not later than January 21, 1987 provided: (a) there is deliver actual
possession of the property to her not later than January 15, 1987 for her
immediate occupancy; (b) defendant cause the release of title and mortgage
from the Bank of P.I. and make the title available and free from any liens and
encumbrances; and (c) defendant must execute an absolute deed of sale in
plaintiffs favor free from any liens or encumbrances not later than January 21,
1987.
On January 8, 1987, defendants sent plaintiffs a notarial notice of
cancellation/rescission of the intended sale of the subject property allegedly due
to the latters failure to comply with the terms and conditions of the Deed of Sale
with Assumption of Mortgage
ISSUE:
Whether or not rescission should be granted in the case at bar.

RULING:
The right of rescission of a party to an obligation under Article 1191 of the
Civil Code is predicated on a breach of faith by the other party who violates the
reciprocity between them. The breach contemplated in the said provision is the
obligors failure to comply with an existing obligation. When the obligor cannot
comply with what is incumbent upon it, the obligee may seek rescission and, in

the absence of any just cause for the court to determine the period of
compliance, the court shall decree the rescission.
In the present case, private respondents validly exercised their right to
rescind the contract, because of the failure of petitioners to comply with their
obligation to pay the balance of the purchase price. Indubitably, the latter
violated the very essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of the
purchase price one month after it became due; however, this was not equivalent
to actual payment as would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the performance by
private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the
right to rescind.
In the instant case, the breach committed did not merely consist of a
slight delay in payment or an irregularity; such breach would not normally defeat
the intention of the parties to the contract. Here, petitioners not only failed to
pay the P1.8 million balance, but they also imposed upon private respondents
new obligations as preconditions to the performance of their own obligation. In
effect, the qualified offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of sale. Hence,
private respondents were left with the legal option of seeking rescission to
protect their own interest.

EFFECTS OF RESOLUTION/RESCISSION
ASUNCION VS. EVANGELISTA
G.R. No. 133491
October 13, 1999
316 SCRA 848
FACTS:
Private respondent has been operating a piggery since 1970, which was
under the trade name of Embassy Farms. In 1981, private respondents wife,

together with three others, organized Embassy Farms, Inc. and registered it with
the Securirties and Exchange Commission. Private respondent was the majority
stockholder of the corporation, president and chief executive officer. On
September 9, 1980, he borrowed P500,000.00 from Paluwagan ng Bayan
Savings and Loan Association to use as working capital for the farm. He
executed a real estate mortgage on three of his properties as security for the
loan. On November 4, 1981, he mortgaged ten titles more in favor of PAIC
Savings and Mortgage Bank as security for another loan in the amount of
P1,712,000.00. On February 16, 1982, he obtained another loan in the amount of
P844,625.78 from Mercator Finance Corporation. It was secured by a real estate
mortgage on five other landholdings of private respondent, all situated in
Bulacan.
However, he defaulted in his loan payments. By June 1984, private
respondent debt had ballooned to almost six million pesos in overdue principal
payments, interests, penalties and other financial charges. On August 2, 1984,
petitioner and private respondent executed a Memorandum of Agreement that
states that petitioner will pay all of the loans of respondent provided that the
latter will transfer the title of the farm and properties, which were mortgaged in
favor of the petitioner.
The petitioner was able to pay partially the loans of respondent from the
three creditors as compliance to the MOA. For his part, private respondent was
obligated under the MOA to execute, sign, and deliver any and all documents
necessary for the transfer and conveyance of the mortgaged properties as well
as of the farm. However, more than a year after signing the MOA, the
landholdings of the respondent still remained titled in his name. Neither did he
inform said mortgages of the transfer of his lands.
On April 10, 1986, petitioner filed in the RTC a compliant for rescission of
the MOA with a prayer for damages. The trial court ruled in favor of the private
respondent. On July 12, 1994, a copy of the decision of the trial court was sent
by registered mail to petitioners counsel however, unknown to petitioner, his
counsel died while the case was pending. On February 2, 1998, CA affirmed the
decision of the trial court and ordered its immediate execution. Petitioners
motion for reconsideration was likewise denied.
ISSUE:
Whether or not rescission of the MOA is a valid remedy for the petitioner.
RULING:

Yes. Article 1191 of the Civil Code governs the situation where there is
non-compliance by one party in case of reciprocal obligations.
The Supreme Court found that private respondent failed to perform his
substantial obligations under the MOA. Hence, petitioner sought the rescission
of the agreement and ceased infusing capital into the piggery business of private
respondent. He later justified his refusal to execute any deed of sale and deliver
the certificates of stock by accusing petitioner of having failed to assume his
debts.
The Court holds that the respondents insistence that petitioner execute a
formal assumption of mortgage independent and separate from his own
execution of a deed of cases is legally untenable, considering that a recorded
real estate mortgage is a lien inseparable from the property mortgaged and until
discharged, it follows the property.
The Court holds, in fine, that the MOA entered into by petitioner and
private respondent should indeed be rescinded. The respondent appellate court
erred in assessing damages against petitioner for his refusal to fully pay private
respondents overdue loans. Such refusal was justified, considering that private
respondent was the first to refuse to deliver to petitioner the lands and
certificates of stock that were the consideration for the almost 6M in debt that
petitioner was to assume and pay.
The effect of rescission is also provided in Article 1385 of the Civil Code.
The instant petition was granted. Decisions of the lower and appellate
courts were reversed and set aside. The MOA entered into by the parties is
declared rescinded.

EFFECTS OF RESOLUTION/RESCISSION

UY VS. COURT OF APPEALS


314 SCRA 69
September 9, 1999
FACTS:

Petitioners William Uy and Rodel Roxas are agents authorized to sell eight
(8) parcels of land by the owners thereof. By virtue of such authority, petitioners
offered to sell the lands, located in Tuba, Tadiangan, Benguet to respondent
National Housing Authority (NHA) to be utilized and developed as a housing
project.
On February 14, 1989, NHA approved the acquisition of the said parcels of
land with an area of 31.8231 hectares at the cost of P23.867 million, pursuant to
which the parties executed a series of Deeds of Absolute Sale covering the
subject lands. Of the eight parcels of lands, however, only five were paid for by
the NHA because of the report it received from the Land Geosciences Bureau of
the Department of Environment and Natural Resources that the remaining area
is located at an active landslide area and therefore, not suitable for development
into a housing project. NHA eventually cancelled the sale over the remaining
three (3) parcels of land.
On March 9, 1992, petitioners filed a complaint for damages. After trial,
the RTC of Quezon City rendered the cancellation of contract to be justified and
awarded P1.255 million as damages in favor of petitioners.
Upon appeal by petitioners, the Court of Appeals reversed the decision
and entered a new one dismissing the complaint including the award of
damages.
The motion for reconsideration having been denied, petitioners seek relief
from this court contending, inter alia, that the CA erred in declaring that NHA
had any legal basis to rescind the subject sale.
ISSUE:
Whether or not the contention of petitioner is correct.
RULING:
NO. Petitioners confuse the cancellation of the contract by the NHA as a
rescission of the contract under Article 1191 of the Civil Code. The right to
rescission is predicated on a breach of faith by the other party that violates the
reciprocity between them. The power to rescind is given to the injured party. In
this case, the NHA did not rescind the contract. Indeed, it did not have the right
to do so for the other parties to the contract, the vendors did not commit any
breach of their obligation. The NHA did not suffer any injury. The cancellation
was not therefore a rescission under Article 1191. Rather, it was based on the
negation of the cause arising from the realization that the lands, which were the
objects of the sale, were not suitable for housing.

damages; e. thirty percent (30%) as attorneys fees of whatever amount that


can be collected by the plaintiff; and f. the costs of the suit.
KINDS OF DAMAGES:
1.
2.
3.

VICTORY LINER VS. HEIRS, 394 SCRA 520


GSIS VS. LABUNG-DEANG, 365 SCRA 341
BPI INVESTMENT VS. D.G. CARREON, 371 SCRA 58

VICTORY LINER, INC. petitioner,


VS. HEIRS OF ANDRES MALECDAN, respondents
2002 Dec 27
G.R. No. 154278
394 SCRA 520
FACTS:
Andres Malecdan was a 75 year-old farmer. On July 15, 1994, at around
7:00 p.m., while Andres was crossing the National Highway on his way home
from the farm, a Dalin Liner bus on the southbound lane stopped to allow him
and his carabao to pass. However, as Andres was crossing the highway, a bus of
petitioner Victory Liner, driven by Ricardo C. Joson, Jr., bypassed the Dalin Bus.
In so doing, respondent hit the old man and the carabao on which he was riding.
As a result, Andres Malecdan was thrown off the carabao, while the beast
toppled over. The Victory Liner bus sped past the old man, while the Dalin bus
proceeded to its destination without helping him.
The incident was witnessed by Andres Malecdans neighbor, Virgilio
Lorena, who was resting in a nearby waiting shed after working on his farm.
Malecdan sustained a wound on his left shoulder, from which bone fragments
protruded. He was taken by Lorena and another person to the district hospital
where he died a few hours after arrival. The carabao also died soon afterwards.
Lorena executed a sworn statement before the police authorities. Subsequently,
a criminal complaint for reckless imprudence resulting in homicide and damage
to property was filed against the Victory Liner bus driver Ricardo Joson, Jr.
Private respondents brought the suit for damages in the RTC which found
the driver guilty of gross negligence in the operation of his vehicle and Victory
Liner, Inc. also guilty of gross negligence in the selection and supervision of
Joson, Jr. Petitioner and its driver were held liable jointly and severally for
damages as follows: a. P50,000.00 as death indemnity; b. P88,339.00 for actual
damages; c. P200,000.00 for moral damages; d. P50,000.00 as exemplary

On appeal, the decision was affirmed by the Court of Appeals, with the
modification that the award of attorneys fees was fixed at P50,000.00.
ISSUES:
1. Whether or not the CA erred in affirming the appealed decision of the
RTC granting P200,000.00 as moral damages which is double the P100,000.00
as prayed for by the private respondents in their complaint and in granting
actual damages not supported by official receipts and spent way beyond the
burial of the deceased victim.
2. Whether or not the affirmation by the CA of the appealed decision of
the RTC granting the award of moral and exemplary damages and attorneys
fees which were not proved and considering that there is no finding of bad faith
and gross negligence on the part of the petitioner was not established, is in
accord with law and jurisprudence.
RULING:
The Court found the appealed decision to be in order.
Article 2176 provides: Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay for the damage done.
Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of this
Chapter. Article 2180 provides for the solidary liability of an employer for the
quasi-delict committed by an employee. The responsibility of employers for the
negligence of their employees in the performance of their duties is primary and,
therefore, the injured party may recover from the employers directly, regardless
of the solvency of their employees.
Employers may be relieved of responsibility for the negligent acts of their
employees acting within the scope of their assigned task only if they can show
that "they observed all the diligence of a good father of a family to prevent
damage." For this purpose, they have the burden of proving that they have
indeed exercised such diligence, both in the selection of the employee and in the
supervision of the performance of his duties.
In the selection of prospective employees, employers are required to
examine them as to their qualifications, experience and service records. With

respect to the supervision of employees, employers must formulate standard


operating procedures, monitor their implementation and impose disciplinary
measures for breaches thereof. These facts must be shown by concrete proof,
including documentary evidence.
In the instant case, petitioner presented the results of Joson, Jr.s written
examination, actual driving tests, x-ray examination, psychological examination,
NBI clearance, physical examination, hematology examination, urinalysis,
student driver training, shop training, birth certificate, high school diploma and
reports from the General Maintenance Manager and the Personnel Manager
showing that he had passed all the tests and training sessions and was ready to
work as a professional driver. However, the trial court noted that petitioner did
not present proof that Joson, Jr. had nine years of driving experience. Petitioner
also presented testimonial evidence that drivers of the company were given
seminars on driving safety at least twice a year. However, the trial court noted
that there is no record of Joson, Jr. ever attending such a seminar. Petitioner
likewise failed to establish the speed of its buses during its daily trips or to
submit in evidence the trip tickets, speed meters and reports of field inspectors.
The finding of the trial court that petitioners bus was running at a very fast
speed when it overtook the Dalin bus and hit the deceased was not disputed by
petitioner. Thus it was held that the trial court did not err in finding petitioner to
be negligent in the supervision of its driver Joson, Jr.
To justify an award of actual damages, there should be proof of the actual
amount of loss incurred in connection with the death, wake or burial of the
victim. Receipts showing expenses incurred some time after the burial of the
victim, such as expenses relating to the 9th day, 40th day and 1st year death
anniversaries are not to be taken accounted for. In this case, the trial court
awarded P88,339.00 as actual damages. While these were duly supported by
receipts, these included the amount of P5,900.00, the cost of one pig which had
been butchered for the 9th day death anniversary of the deceased. The item
cannot be allowed.
The award of P200,000.00 for moral damages was reduced. The trial
court found that the wife and children of the deceased underwent "intense moral
suffering" as a result of the latters death. Under Art. 2206 of the Civil Code, the
spouse, legitimate children and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish by reason of the
death of the deceased. Under the circumstances of this case an award of
P100,000.00 would be in keeping with the purpose of the law in allowing moral
damages.

The award of P50,000.00 for indemnity is in accordance with current


rulings of the Court. Art. 2231 provides that exemplary damages may be
recovered in cases involving quasi-delicts if the defendant acted with gross
negligence. Exemplary damages are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive
to curb socially deleterious actions. In this case, petitioners driver Joson, Jr. was
grossly negligent in driving at such a high speed along the national highway and
overtaking another vehicle which had stopped to allow a pedestrian to cross.
Worse, after the accident, Joson, Jr. did not stop the bus to help the victim.
Under the circumstances, the trial courts award of P50,000.00 as exemplary
damages was proper.

EFFECTS OF RESOLUTION/RESCISSION
GOVERNMENT SERVICE INSURANCE SYSTEM
VS. SPOUSES GONZALO and MATILDE LABUNG-DEANG
G.R. No. 135644
September 17, 2001
365 SCRA 341
FACTS:
Sometime in December 1969, the spouses Deang obtained a housing loan
from the GSIS in the amount of eight thousand five hundred pesos (P8,500.00).
Under the agreement, the loan was to mature on December 23, 1979. The loan
was secured by a real estate mortgage constituted over the spouses property.
As required by the mortgage deed, the spouses Daeng deposited the owners
duplicate copy of the title with the GSIS.
On January 19, 1979, eleven (11) months before the maturity of the loan,
the spouses Deang settled their debt with the GSIS and requested for the release
of the owners duplicate copy of the title since they intended to secure a loan
from a private lender and use the land covered by it as collateral security for the
loan of fifty thousand pesos (P50,000.00) which they applied for with one
Milagros Runes. They would use the proceeds of the loan applied for the
renovation of the spouses residential house and for business.
However,
personnel of the GSIS were not able to release the owners duplicate of the title
as it could not be found despite diligent search.

Satisfied that the owners duplicate copy of the title was really lost, in
1979, GSIS commenced the reconstitution proceedings with the Court of First
Instance of Pampanga for the issuance of a new owners copy of the same.
On June 22, 1979, GSIS issued a certificate of release of mortgage. On
June 26, 1979, after the completion of judicial proceedings, GSIS finally secured
and released the reconstituted copy of the owners duplicate of Transfer
Certificate of Title No. 14926-R to the spouses Deang.
On July 6, 1979, the spouses Deang filed with the Court of First Instance,
Angeles City a complaint against GSIS for damages, claiming that as result of the
delay in releasing the duplicate copy of the owners title, they were unable to
secure a loan from Milagros Runes, the proceeds of which could have been used
in defraying the estimated cost of the renovation of their residential house and
which could have been invested in some profitable business undertaking.
The trial court rendered decision in favor of the spouses Labung-Deang.
The Court of Appeals also affirmed the decision of the lower court.
ISSUE:
Whether or not GSIS is liable for damages.
RULING:
Under the facts, there was a pre-existing contract between the parties.
GSIS and the spouses Deang had a loan agreement secured by a real estate
mortgage. The duty to return the owners duplicate copy of title arose as soon
as the mortgage was released. Negligence is obvious as the owners duplicate
copy could not be returned to the owners. Thus, GSIS is liable for damages.

Temperate damages may be granted on the amount of P20, 000.00 as a


reasonable amount considering that GSIS spent for the reconstitution of the
owners duplicate copy of the title.
Wherefore the petition is denied.

EFFECTS OF RESOLUTION/RESCISSION
BPI INVESTMENT CORPORATION, petitioner,
VS. D. G. CARREON COMMERCIAL CORPORATION, DANIEL G. CARREON,
AURORA J. CARREON, AND JOSEFA M. JECIEL, respondents
2001 Nov 29
371 SCRA 58
FACTS:
Petitioner BPI Investment Corporation (BPI Investments), formerly known
as Ayala Investment and Development Corporation, was engaged in money
market operations. Respondent D. G. Commercial Corporation was a client of
petitioner and started its money market placements in September, 1978. The
individual respondents, spouses Daniel and Aurora Carreon and Josefa M. Jeceil
also placed with BPI Investments their personal money in money market
placements.

First, in a breach of contract, moral damages are not awarded if the


defendant is not shown to have acted fraudulently or with malice or bad faith.
The fact that the complainant suffered economic hardship or worries and mental
anxiety is not enough.

On April 21, 1982, BPI Investments wrote respondents Daniel Carreon and
Aurora Carreon, demanding the return of the overpayment of P410,937.09. The
respondents asserted that there was no overpayment and asked for time to look
for the papers. Upon the request of BPI Investments, the spouses Daniel and
Aurora Carreon sent to BPI Investments a proposed memorandum of agreement,
dated May 7, 1982.

Second, actual damages cannot be awarded as there is no factual basis


for such award. Actual damages to be compensable must be proven by clear
evidence. A court cannot rely on speculation, conjecture or guess work as to
the fact and amount of damages, but must depend on actual proof.

The agreement provided that respondent company, in the spirit of


goodwill, agreed to temporarily reimburse BPI the amount of P410,937.09 while
the said controversy (transactions of the placement) would be checked within
five years.

On the other hand, it is also apparent that the spouses Deang suffered
financial damage because of the loss of the owners duplicate copy of the title.

On May 10, 1982, BPI Investments, without responding to the


memorandum and proposal of D. G. Carreon filed with the Court of First Instance
of Rizal, Branch 36, Makati, a complaint for recovery of a sum of money against

D. G. Carreon with preliminary attachment. On May 14, 1982, the trial court
issued an order for preliminary attachment after submission of affidavit of merit
to support the petition, and the posting of a bond in the amount of P200,000.00.
However, on October 8, 1982, the trial court lifted the writ of attachment. On
October 28, 1982, BPI Investments moved for reconsideration, but the trial court
denied the motion after finding the absence of double payment to the
defendants.
On July 30, 1982, respondents D. G. Carreon filed with the trial court an
answer to the complaint, with counterclaim.
D.G. Carreon asked for
compensatory damages in an amount to be proven during the trial; spouses
Daniel and Aurora Carreon asked for moral damages of P1,000,000.00 because
of the humiliation, great mental anguish, sleepless nights and deterioration of
health due to the filing of the complaint and indiscriminate and wrongful
attachment of their property, especially their residential house and payment of
their money market placement of P109,283.75. Josefa Jeceil asked for moral
damages of P500,000.00, because of sleepless nights and mental anguish, and
payment of her money market placement of P73,857.57; all defendants claimed
for exemplary damages and attorneys fees of P100,000.00.
On May 25, 1993, the trial court rendered a decision dismissing both the
complaint and the counterclaim. Both parties appealed. On July 19,1996, the
Court of Appeals affirmed the dismissal of the complaint but reversed and set
aside the dismissal of the counterclaim thereby awarding respondents damages
amounting to more than P5M in sum.
ISSUE:
Whether or not respondents are entitled to damages as awarded by Court
of Appeals.
RULING:
No. The Court found petitioner not guilty of gross negligence in the
handling of the money market placement of respondents.
Gross negligence implies a want or absence of or failure to exercise slight care
or diligence, or the entire absence of care. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.
However, while petitioner BPI Investments may not be guilty of gross
negligence, it failed to prove by clear and convincing evidence that D. G.
Carreon indeed received money in excess of what was due them. The alleged
payments in the complaint were admitted by plaintiff itself to be withdrawals

from validly issued commercial papers, duly verified and signed by at least two
authorized high-ranking officers of BPI Investments.
The law on exemplary damages is found in Section 5, Chapter 3, Title
XVIII, Book IV of the Civil Code. These are imposed by way of example or
correction for the public good, in addition to moral, temperate, liquidated, or
compensatory damages. They are recoverable in criminal cases as part of the
civil liability when the crime was committed with one or more aggravating
circumstances; in quasi-delicts, if the defendant acted with gross negligence;
and in contracts and quasi-contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
BPI Investments did not act in a wanton, fraudulent, reckless, oppressive,
or malevolent manner, when it asked for preliminary attachment. It was just
exercising a legal option. The sheriff of the issuing court did the execution and
the attachment. Hence, BPI Investments is not to be blamed for the excessive
and wrongful attachment.
The award of moral damages and attorneys fees is also not in keeping
with existing jurisprudence. Moral damages may be awarded in a breach of
contract when the defendant acted in bad faith, or was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligation.
Finally, with the elimination of award of moral damages, so must the award of
attorneys fees be deleted. There is no doubt, however, that the damages
sustained by respondents were due to petitioners fault or negligence, short of
gross negligence.
Temperate or moderate damages may be recovered when the court finds
that some pecuniary loss has been suffered but its amount cannot, from the
nature of the case, be proved with certainty. The Court deems it prudent to
award reasonable temperate damages to respondents under the circumstances.
As to the claim for payment of the money market placement of Josefa Jeceil, the
trial court may release the deposited amount of P73,857.57 to petitioner as the
consignation was not proper or warranted.
Thus, the decision of the Court of Appeals is affirmed with modification.
The award of moral, compensatory and exemplary damages and attorneys fees
are deleted. BPI Investments is ordered to pay to the estate of Daniel G. Carreon
and Aurora J. Carreon the money market placement of P109,238.75, with legal
interest of twelve (12%) percent per annum from June 3, 1982, until fully paid; to
pay the estate of Josefa M. Jeceil, the money market placement in the amount of
P73,857.57, with legal interest at twelve (12%) percent per annum from maturity

on July 12, 1982, until fully paid. The petitioner may withdraw its deposit from
the lower court at its peril. BPI Investments is likewise ordered to pay temperate
damages to the estate of the late Daniel G. Carreon in the amount of
P300,000.00, and to the estate of Aurora J. Carreon in the amount of
P300,000.00, and to the estate of Josefa M. Jeceil in the amount of P150,000.00.
REMEDIES IN CASE OF BREACH: ACCION PAULIANA
KHE HONG CHENG VS. COURT OF APPEALS
355 SCRA 701
G.R. No. 144169
March 28, 2001
FACTS:
Petitioner Khe Hong Cheng, is the owner of Butuan Shipping Lines. Its
vessel M/V Prince Eric was used by Philippine Agricultural Trading Corporation to
ship 3,400 bags of Copra at Masbate for delivery to Dipolog. The shipment was
covered by a marine insurance policy issued by American Home Insurance
Company (eventually Philam). However, M/V Prince Eric sank, which resulted to
the total loss of the shipment. Insurer Philam paid the amount of P 354,000.00,
which is the value of the copra, to Philippine Agricultural Trading Corporation.
American Home was thereby subrogated unto the rights of the consignee and
filed a case to recover money paid to the latter, based on breach of common
carriage.
While the case was pending, Khe Hong Cheng executed deeds of
donations of parcels of land in favor of his children. As a consequence of a
favorable judgment for American Home, a writ of execution to garnish Khe Hong
Chengs property was issued. But the writ of execution could not be
implemented because Chengs property were already transferred to his children.
Consequently, American filed a case for the rescission of the deeds of donation
executed by petitioner in favor of children on the ground that they were made in
fraud of his creditors. Petitioner answered that the action should be dismissed
for it already prescribed. Petitioner posited that the registration of the donation
was on December 27, 1989 and such constituted constructive notice. And since
the complaint was filed only in 1997, more than four (4) years after registration,
the action is thereby barred by prescription.
ISSUES:

Whether or not the action for the rescission of the deed of donation has
prescribed, and whether or not accion pauliana/ rescission of the deed of
donation is proper.
RULING:
NO for the first issue. Although the Civil Code provides that The action to
claim rescission must be commenced within four (4) years is silent as to where
the prescriptive period would commence, the general rule is such shall be
reckoned from the moment the cause of action accrues; i.e., the legal possibility
of bringing the action.
Since accion pauliana is an action of last resort after all other legal
remedies have been exhausted and have been proven futile, in the case at bar,
it was only in February 25, 1997, barely a month from discovering that petitioner
Khe Hong Cheng had no other property to satisfy the judgment award against
him that the action for rescission accrued. So the contention of Khe Hong Cheng
that the action accrued from the time of the constructive notice; i.e., December
27, 1989, the date that the deed of donation was registered, is untenable.
YES for the second issue. For an accion pauliana to accrue, the following
requisites must concur: first, the plaintiff asking for rescission has a credit prior
to the alienation, although demandable late. Second, that the debtor has made
a subsequent contract conveying a patrimonial benefit to a third person. Third,
that the creditor has no other legal remedy to satisfy his claim; but would benefit
by rescission of the conveyance to the third person. Fourth, that the act being
impugned is fraudulent, and fifth, that the third person who received the
property conveyed, if by onerous title, has been an accomplice in the fraud. All
the above enumerated elements are presents in the case at bar.

FORTUITOUS EVENTS/ CASO FORTUITO REQUISITES


1.
2.
3.

SICAM VS. JORGE, 8 AUGUST 2007


HUIBONHOA VS. CA, DEC. 14, 1999
ACE AGRO VS. CA, 266 SCRA 429

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU


V. JORGE and CESAR JORGE

G.R. NO. 159617

August 8, 2007

FACTS:
On different dates from September to October 1987, Lulu V. Jorge
pawned several pieces of jewelry with Agencia de R. C. Sicam located at
No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan
in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the pawnshop
vault. Petitioner Sicam sent respondent Lulu a letter dated October 19,
1987 informing her of the loss of her jewelry due to the robbery incident
in the pawnshop. On November 2, 1987, respondent Lulu then wrote a
letter to petitioner Sicam expressing disbelief stating that when the
robbery happened, all jewelry pawned were deposited with Far East Bank
near the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could
withdraw the jewelry from the bank. Respondent Lulu then requested
petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband,
Cesar Jorge, filed a complaint against petitioner Sicam with the Regional
Trial Court of Makati seeking indemnification for the loss of pawned
jewelry and payment of actual, moral and exemplary damages as well as
attorney's fees. However, petitioner Sicam contends that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987 and
known as Agencia de R.C. Sicam, Inc; that petitioner corporation had
exercised due care and diligence in the safekeeping of the articles
pledged with it and could not be made liable for an event that is
fortuitous.
After trial ,the RTC rendered its Decision dismissing respondents
complaint as well as petitioners counterclaim. The RTC held that robbery
is a fortuitous event which exempts the victim from liability for the loss
and
under Art. 1174 of the Civil Code. It further held that the
corresponding diligence required of a pawnshop is that it should take

steps to secure and protect the pledged items and should take steps to
insure itself against the loss of articles which are entrusted to its custody
as it derives earnings from the pawnshop trade which petitioners failed to
do and that robberies and hold-ups are foreseeable risks in that those
engaged in the pawnshop business are expected to foresee.
ISSUE:
Whether petitioners are liable for the loss of the pawned articles in
their possession.
RULING:
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event should
not have been foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid. The mere difficulty to
foresee the happening is not impossibility to foresee the same.
To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected occurrence or of
the failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be impossible
to avoid; (c) the occurrence must be such as to render it impossible for
the debtor to fulfill obligations in a normal manner; and, (d) the obligor
must be free from any participation in the aggravation of the injury or
loss.
The burden of proving that the loss was due to a fortuitous event
rests on him who invokes it. And, in order for a fortuitous event to
exempt one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss.
It has been held that an act of God cannot be invoked to protect a
person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with
an act of God in producing damage and injury to another; nonetheless,

showing that the immediate or proximate cause of the damage or injury


was a fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person's participation -- whether
by active intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God.
Petitioner Sicam had testified that there was a security guard in
their pawnshop at the time of the robbery and that when he started the
pawnshop business in 1983, he thought of opening a vault with the
nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be
stored in a vault inside the pawnshop.
The very measures which
petitioners had allegedly adopted show that to them the possibility of
robbery was not only foreseeable, but actually foreseen and anticipated.
The testimony, in effect, contradicts petitioners defense of fortuitous
event. Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It
does not foreclose the possibility of negligence on the part of herein
petitioners. The presentation of the police report of the Paraaque Police
Station on the robbery committed based on the report of petitioners'
employees is not sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault. Also, the robbery in this case took
place in 1987 when robbery was already prevalent and petitioners in fact
had already foreseen it as they wanted to deposit the pawn with a nearby
bank for safekeeping. Thus, petitioners are negligent in securing their
pawnshop.

FORTUITOUS EVENTS/ CASO FORTUITO REQUISITES

FLORENCIA T. HUIBONHOA, petitioner,


VS. COURT OF APPEALS, Spouses Rufina G. Lim and ANTHONY LIM,
LORETA GOJOCCO CHUA and Spouses SEVERINO and PRISCILLA
GOJOCCO, respondents
December 14, 1999
G.R. No. 95897
FACTS:
On June 8, 1983, Florencia T. Huibonhoa entered into a memorandum of
agreement with siblings Rufina Gojocco Lim, Severino Gojocco and Loreta
Gojocco Chua stipulating that Florencia T. Huibonhoa would lease from them
(Gojoccos) three (3) adjacent commercial lots at Ilaya Street, Binondo, Manila,
described as lot nos. 26-A, 26-B and 26-C, covered by Transfer Certificates of
Title Nos. 76098, 80728 and 155450, all in their (Gojoccos') names.
On June 30, 1983, pursuant to the said memorandum of agreement, the
parties inked a contract of lease of the same three lots for a period of fifteen (15)
years commencing on July 1, 1983 and renewable upon agreement of the
parties. Subject contract was to enable the lessee, Florencia T. Huibonhoa, to
construct a "four-storey reinforced concrete building with concrete roof deck,
according to plans and specifications approved by the City Engineer's Office."
The parties agreed that the lessee could let/sublease the building and/or
its spaces to interested parties under such terms and conditions as the lessee
would determine and that all amounts collected as rents or income from the
property would belong exclusively to the lessee. The lessee undertook to
complete construction of the building "within eight (8) months from the date of
the execution of the contract of lease." The parties also agreed that upon the
termination of the lease, the ownership and title to the building thus constructed
on the said lots would automatically transfer to the lessor, even without any
implementing document therefor. Real estate taxes on the land would be borne
by the lessor while that on the building, by the lessee, but the latter was
authorized to advance the money needed to meet the lessors' obligations such
as the payment of real estate taxes on their lots. The lessors would deduct from
the monthly rental due all such advances made by the lessee.
The construction of the building was not met on the date agreed upon due
to the assassination of the then Senator Benigno Aquino Jr. It was claimed that
increase in the value of the materials was a fortuitous event, which the lower
courts did not consider as such.

ISSUE:
Whether or not the assassination of Senator Benigno Aquino Jr., which
caused inflation, was a fortuitous event.
RULING:
The Supreme Court found no merit in petitioners submission that the
assassination of the late Senator Benigno Aquino, Jr. was a fortuitous event that
justified a modification of the terms of the lease contract.
A fortuitous event is that which could not be foreseen, or which even if
foreseen, was inevitable. To exempt the obligor from liability for a breach of an
obligation due to an "act of God", the following requisites must concur: (a) the
cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.
In the case under scrutiny, the assassination of Senator Aquino may
indeed be considered a fortuitous event. However, the said incident per se could
not have caused the delay in the construction of the building. What might have
caused the delay was the resulting escalation of prices of commodities including
construction materials. Be that as it may, there is no merit in Huibonhoa's
argument that the inflation borne by the Filipinos in 1983 justified the delayed
accrual of monthly rental, the reduction of its amount and the extension of the
lease by three (3) years.
Inflation is the sharp increase of money or credit or both without a
corresponding increase in business transaction. There is inflation when there is
an increase in the volume of money and credit relative to available goods
resulting in a substantial and continuing rise in the general price level. While it
is of judicial notice that there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be considered
unforeseeable considering that since the 1970's we have been experiencing
inflation. It is simply a universal trend that has not spared our country.
Conformably, this Court upheld the petitioner's view in Occena v. Jabson that
even a worldwide increase in prices does not constitute a sufficient cause of
action for modification of an instrument. It is only when an extraordinary
inflation supervenes that the law affords the parties a relief in contractual
obligations. In Filipino Pipe and Foundry Corporation v. NAWASA, the Court
explained extraordinary inflation thus:

"Extraordinary inflation exists when 'there is a decrease or increase in the


purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value of said currency, and such decrease or
increase could not have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the establishment of the obligation.
No decrease in the peso value of such magnitude having occurred,
Huibonhoa has no valid ground to ask this Court to intervene and modify the
lease agreement to suit her purpose. As it is, Huibonhoa even failed to prove by
evidence, documentary or testimonial, that there was an extraordinary inflation
from July 1983 to February 1984. Although she repeatedly alleged that the cost
of constructing the building doubled from P6 million to P12 million, she failed to
show by how much, for instance, the price index of goods and services had risen
during that intervening period. An extraordinary inflation cannot be assumed.
Hence, for Huibonhoa to claim exemption from liability by reason of
fortuitous event under Art. 1174 of the Civil Code, she must prove that inflation
was the sole and proximate cause of the loss or destruction of the or, in this
case, of the delay in the construction of the building. Having failed to do so,
Huibonhoa's contention is untenable.
Pathetically, if indeed a fortuitous event deterred the timely fulfillment of
Huibonhoa's obligation under the lease contract, she chose the wrong remedy in
filing the case for reformation of the contract. Instead, she should have availed
of the remedy of recission of contract in order that the court could release her
from performing her obligation under Arts. 1266 and 1267 of the Civil Code, so
that the parties could be restored to their status prior to the execution of the
lease contract.

FORTUITOUS EVENTS/ CASO FORTUITO REQUISITES


ACE-AGRO DEVELOPMENT CORP. VS. CA
266 SCRA 429
FACTS:
Petitioner Ace-Agro Development Corporation and private respondent
Cosmos Bottling Corporation entered into a service contract covering the period
from January 1, 1990 to December 31, 1990. According to the agreement, the
former shall clean soft drink bottles and repair wooden shells for private

respondent. The service contract was suspended on account of a fire on April


25, 1990 which destroyed the area where petitioner did its work.

which relieved the parties of their respective obligations but did not stop the
running of the period of their contract.

Respondent terminated the service contract due to the fire. Petitioner


sent several letters for reconsideration, which the respondent willingly
considered through its letters dated August 29, 1990 and November 7, 1990
directing petitioner to resume its work. Petitioner, however, refused to continue
its work on two reasons. First, the August 29 letter did not allow them to resume
their work on respondents premises which will be quite costly for them. Second,
petitioner requested for an extension of two (2) months for their contract on
account of the fire which the respondent did not heed into.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS


1.
2.
3.
4.
5.
6.
7.
8.

ISSUES:
1. Whether or not force majeure or fortuitous event is present in the case.
2. Whether or not the respondet was justified in unilaterally terminating the
contract due to a fortuitous event.
3. Whether or not the fortuitous event allows the extension of a contract.
RULING:
1. YES. Pursuant to Article 1174 of the Civil Code, Except in cases expressly
specified by law, or when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which though
foreseen, were inevitable. The requisites for an event to be considered a
fortuitous event are as follows:
First, the cause of breach must be
independent of the will of the obligor. Second, the event must be
unforeseeable or inevitable. Third, the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner. And
fourth, the debtor must be free from any participation in, or aggravation of,
the injury to the creditor. In this case, all the mentioned requisites are
present.

2. NO. The fortuitous event that happened in this case could not warrant a
termination of the service contract; but rather, it only temporarily suspends
the performance of the obligation. The unilateral termination therefore
shifted on petitioners part when it unreasonably refused to continue its
services.

3. NO.

Fortuitous events do not automatically warrant an extension for the


period of a contract, especially that this case is one which has a resolutory
condition. The fact is that the contract was subject to a resolutory period

DIOQUINO VS. LAUREANO, 33 SCRA 65


BACHELOR EXPRESS VS. CA, 193 S 216
VASQUEZ VS. CA, 138 SCRA 558
YOBIDO VS. CA, OCT. 17, 1997
JUNTILLA VS. FONTANAR, 136 SCRA 625
PHILAMGEN INSURANCE VS. MGG MARINE, MAR 8 , 2002
MINDEZ VS. MORILLO, MAR. 12, 2002
NAPOCOR VS. PHILLIP BROS, 369 SCRA 626

PEDRO DIOQUINO, plaintiff-appellee,


VS. FEDERICO LAUREANO, AIDA DE LAUREANO, and
JUANITO LAUREANO, defendants-appellants
33 SCRA 65
FACTS:
Petitioner Dioquino met respondent Laureano at the MVO office when the
former went to register his car at the said office. Respondent was a patrol
officer of the MVO office and at the time was waiting for a jeepney to take him to
the office of the Provincial Copmmander. Petitioner requested respondent to
introduce him to one of the clerks in the MVO office, who could facilitate the
registration of his car and the request was graciously attended to. Afterwards,
respondent rode on the car of petitioner with petitioners driver to the office of
the provincial commander. Along the way, some mischievous boys stoned the
car and its windshield was broken. Respondent chased and was able to catch
one of the boys and took him to petitioner. The petitioner, however, did not file
charges against the boy and his parents because the stone throwing was merely
accidental and due to force majeure. Respondent refused to pay the windshield
himself, even after petitioner tried to settle and even asked respondents wife to
convince her husband, since the same due to force majeure.
Petitioner prevailed in the trial court. Hence, this appeal to the Court was
filed.

ISSUE:
Whether or not the respondent is liable for the broken windshield of
petitioners car.
RULING:
The damage to the windshield caused by the mischievous boys was a
fortuitous event resulting in a loss, which must be borne by the owner of the car.
Article 1174 of the Civil Code provides that if the nature of the obligation
requires the assumption risk, compels the conclusion that in the absence of a
legal provision or an express covenant, no one should be held to account for
fortuitous cases.
Where the risk is quite evident such that the possibility of danger is not
only foreseeable, but also actually foreseen, then it could be said that the nature
of the obligation is such that a party could rightfully be deemed to have
assumed it. It is not enough therefore that the event should not have been
foreseen or anticipated, but it must be one impossible to foresee or to avoid in
order that a party may be said to have assumed the risk resulting from the
nature of the obligation itself.
In the case, there is no assumption of risk by the borrower of a car to
respond to damages for the broken windshield caused by an accidental stonethrowing incident by boys playing along the road. Decision reversed as to the
liability of respondent.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS

Bachelor Express vs CA
GR. NO. 85691, July 31, 1990
FACTS:
On 1 August 1980, Bus 800, owned by Bachelor Express, Inc. and
driven by Cresencio Rivera, came from Davao City on its way to Cagayan
de Oro City passing Butuan City. While at Tabon-Tabon, Butuan City, the

bus picked up a passenger. About 15 minutes later, a passenger at the


rear portion suddenly stabbed a PC soldier which caused commotion and
panic among the passengers. When the bus stopped, passengers
Ornominio Beter and Narcisa Rautraut were found lying down the road,
the former already dead as a result of head injuries and the latter also
suffering from severe injuries which caused her death later. The
passenger-assailant alighted from the bus and ran toward the bushes but
was killed by the police.
Thereafter, the heirs of Ornomino Beter and Narcisa Rautraut
(Ricardo Beter and Sergia Beter are the parents of Ornominio while Teofilo
Rautraut and Zotera Rautraut are the parents of Narcisa) filed a complaint
for sum of money against Bachelor Express, its alleged owner Samson
Yasay, and the driver Rivera. After due trial, the trial court issued an order
dated 8 August 1985 dismissing the complaint. The CA however reversed
the RTC decision.
ISSUES:
1. Whether or not the case at bar is within the context of force
majeure.
2. Should the petitioner be absolved from liability for the death of its
passengers?
RULING:
The sudden act o the passenger who stabbed another passenger in
the bus is within the context of force majeure. However, in order that a
common carrier may be absolved from liability in case of force majeure, it
is not enough that the accident was caused by force majeure. The
common carrier must still proves that it was not negligent in causing the
injuries resulting from such accident. Considering the factual findings in
this case, it is clear that petitioner has failed to overcome the
presumption of fault and negligence found in the law governing common
carriers. The argument that the petitioners are not insurers of their
passengers deserves no merit in view of the failure of the petitioners to
observe extraordinary diligence in transporting safely the passengers to
their destination as warranted by law.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS

VASQUEZ VS. COURT OF APPEALS


138 SCRA 558
FACTS:
A vessel sailed from Manila to Cebu despite the knowledge by the captain
and officers that a typhoon was building up somewhere in Mindanao. When it
passed Tanguigui Island, the weather suddenly changed and the vessel struck a
reef, sustained leaks and eventually sunk. The ship sunk with the children of the
petitioners who sued for damages before the CFI of Manila, which was granted.
Respondents defense of force majeure to extinguish its liability were not
entertained. On appeal, the judgment was reversed.
ISSUE:
Whether or not the defense of force majeure is tenable.
RULING:
NO. A fortuitous event is constituted by the following: 1) The event must
be independent of the human will; 2) the occurrence must render it impossible
for the debtor to fulfill the obligation in a normal manner; and 3) the obligor
must be free of participation in the aggravation of the injury suffered by the
obligee or if it could be foreseen, it must have been impossible to avoid. There
must be an entire exclusion of human agency from the cause of the injury or
loss. Such is not the case at bar. The vessel still proceeded even though the
captain already knew that they were within the typhoon zone and despite the
fact that they were kept posted about the weather conditions. They failed to
exercise that extraordinary diligence required from them, explicitly mandated by
the law, for the safety of the passengers.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
YOBIDO VS. COURT OF APPEALS
281 SCRA 01
G.R. No. 113003
Oct. 17, 1997
FACTS:

On April 26, 1988, spouses Tito and Leny Tumboy and their minor children
named Ardee and Jasmin, boarded at Mangagoy , Surigao Del Sur, a Yobido Liner
bus bound for Davao City. Along Picop Road in Km. 17, Sta.Maria, Agusan del
Sur, the left front tire of the bus exploded. The bus fell into a ravine around
three (3) feet from the road and struck a tree. The incident resulted in the death
of 28-year-old Tito Tumboy and physical injuries to other passengers. On Nov.
21, 1988, a complaint for breach of contract of carriage, damages and attorneys
fees was filed by Leny and her children against Alberta Yobido, the owner of the
bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao
City. When the defendants therein filed their answer to the complaint, they
raised the affirmative defense of caso fortuito. They also filed a third-party
complaint against Philippine Surety and Insurance, Inc.
This third-party
defendant filed an answer with compulsory counterclaim. At the pre-trial
conference, the parties agreed to a stipulation of facts.
On August 29, 1991, the lower court rendered a decision dismissing the
action for lack of merit. On the issue of whether or not the tire blowout was a
caso fortuito, it found that the falling of the bus to the cliff was a result of no
other outside factor than the tire bolw-out. It held that the ruling in the La
Mallorca and Pampanga Bus Co. v. De Jesus that a tire blowout is a mechanical
defect of the conveyance or a fault in its equipment which was easily
discoverable if the bus had been subjected to a more thorough or rigid check-up
before it took to the road that morning is inapplicable to this case. It reasoned
out that in said case. It reasoned out that in said case, it was found that the
blowout was caused by the established fact that the inner tube of the left front
tire was pressed between the inner circle of the left wheel and the rim which
had slipped out of the left wheel . In this case, however, the cause of the
explosion remains a mystery until at present. As such, the court added, the tire
blowout was a caso fortuito which is completely an extraordinary circumstance
independent of the will of the defendants who should be relieved of whatever
liability the plaintiffs may have suffered by reason of the explosion pursuant to
Article 1174 of the Civil Code.
ISSUE:
Whether or not the Trial Court erred in their findings that the tire blowout
was a caso fortuito.
RULING:
On August 23, 1193, the Court of Appeals rendered the decision reversing
the decision of the trial court. Article 1755 provides that (a) common carrier is
bound to carry the passenger safely as far as human care and foresight can
provide, using the utmost diligence very cautious persons, with a due regard for

all the circumstances. Accordingly, in culpa contractual, once a passenger dies


or is injured, the carrier is presumed to have been at fault or to have acted
negligently. The disputable presumption may only be overcome by evidence
that the carrier had observed extraordinary diligences as prescribed by Articles
1733, 1755 and 1756 of the Civil Code or that the injury of the passenger was
due to fortuitous event. Consequently, the court need make an express finding
of fault or negligence on the part of the carrier to hold it responsible for
damages sought by the passenger.
The decision of the Court of Appeals was affirmed subject to the
modification that petitioners shall, in addition to the monetary awards therein,
be liable for the award of exemplary damages in the amount of P20,000.00.
EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS
ROBERTO JUNTILLA VS. CLEMENTE FONTANAR
136 SCRA 625
G.R. No. L-45637
FACTS:
The plaintiff was a passenger of the public utility jeepney on the course of
the trip from Danao City to Cebu City. The jeepney was driven by defendant
Berfol Camoro. It was registered under the franchise of defendant Clemente
Fontanar but was actually owned by defendant Fernando Banzon. When the
jeepney reached Mandaue City, the right rear tire exploded causing the vehicle
to turn turtle. The plaintiff who was sitting at the front seat was thrown out of
the vehicle and momentarily lost consciousness. When he came to his senses,
he found that he had a lacerated wound on his right palm and injuries on his left
arm, right thigh and on his back. Because of his shock and injuries, he went
back to Danao City but on the way, he discovered that his "Omega" wrist watch
was lost. Upon his arrival in Danao City, he immediately entered the Danao City
Hospital to attend to his injuries, and also requested his father-in-law to proceed
immediately to the place of the accident and look for the watch. In spite of the
efforts of his father-in-law, the wrist watch could no longer be found.

NO. The accident was not due to a fortuitous event. There are specific
acts of negligence on the part of the respondents. The passenger jeepney
turned turtle and jumped into a ditch immediately after its right rear tire
exploded. It was running at a very high speed before the accident and was
overloaded. The petitioner stated that there were three (3) passengers in the
front seat and fourteen (14) passengers in the rear.
While the tire that blew-up was still good because the grooves were still
visible, this does not make the explosion of the tire a fortuitous event. No
evidence was presented to show that the accident was due to adverse road
conditions or that precautions were taken by the jeepney driver to avert possible
accidents. The blowing-up of the tire, therefore, could have been caused by too
much air pressure and aggravated by the fact that the jeepney was overloaded
and speeding at the time of the accident.
The accident was caused either through the negligence of the driver or
because of mechanical defects in the tire. Common carriers are obliged to
supervise their drivers and ensure that they follow rules and regulations such as
not to overload their vehicles, not to exceed safe and legal speed limits, and to
know the correct measures to take when a tire blows up.
The source of a common carrier's legal liability is the contract of carriage,
and by entering into the said contract, it binds itself to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of a very cautious person, with a due regard for all the circumstances.
The driver and the owner of the vehicle are liable for damages.

ISSUE:
Whether or not the accident that happened was due to a fortuitous event,
thereby, absolving the respondents from any obligation.
RULING:

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS


THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC,
VS. MGG MARINE SERVICES, INC. and DOROTEO GAERLAN

2002 Mar 8
G.R. No. 135645
FACTS:
On March 1, 1987, San Miguel Corporation insured several beer bottle
cases with an aggregate value of P5,836,222.80 with petitioner Philippine
American General Insurance Company. The cargo were loaded on board the M/V
Peatheray Patrick-G to be transported from Mandaue City to Bislig, Surigao del
Sur.
After having been cleared by the Coast Guard Station in Cebu the
previous day, the vessel left the port of Mandaue City for Bislig, Surigao del Sur
on March 2, 1987. The weather was calm when the vessel started its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and
subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a consequence
thereof, the cargo belonging to San Miguel Corporation was lost. Subsequently,
San Miguel Corporation claimed the amount of its loss from petitioner.
The Court of Appeals observed respondents from any liability because the
cargo was lost due to a fortuitous event; strong winds and huge waves caused
the vessel to sink.
ISSUE:
Whether the loss of the cargo was due to the occurrence of a natural
disaster, and if so, whether such natural disaster was the sole and proximate
cause of the loss or whether private respondents were partly to blame for failing
to exercise due diligence to prevent the loss of the cargo.
RULING:
Common carriers, from the nature of their business and for reasons of
public policy, are mandated to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported by them. Owing
to this high degree of diligence required of them, common carriers, as a general
rule, are presumed to have been at fault or negligent if the goods transported by
them are lost, destroyed or if the same deteriorated.
The parties do not dispute that on the day the M/V Peatheray Patrick-G
sunk, said vessel encountered strong winds and huge waves ranging from six to
ten feet in height. The vessel listed at the port side and eventually sunk at Cawit
Point, Cortes, Surigao del Sur.

In the case at bar, it was adequately shown that before the M/V Peatheray
Patrick-G left the port of Mandaue City, the Captain confirmed with the Coast
Guard that the weather condition would permit the safe travel of the vessel to
Bislig, Surigao del Sur. Thus, he could not be expected to have foreseen the
unfavorable weather condition that awaited the vessel in Cortes, Surigao del Sur.
It was the presence of the strong winds and enormous waves which caused the
vessel to list, keel over, and consequently lose the cargo contained therein. The
appellate court likewise found that there was no negligence on the part of the
crew of the M/V Peatheray Patrick-G. Since the presence of strong winds and
enormous waves at Cortes, Surigao del Sur on March 3, 1987 was shown to be
the proximate and only cause of the sinking of the M/V Peatheray Patrick-G and
the loss of the cargo belonging to San Miguel Corporation, private respondents
cannot be held liable for the said loss.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS


MINDEZ RESOURCES DEVELOPMENT VS. MORILLO
379 SCRA 144
March 12, 2002
FACTS:
On February 1991 a verbal agreement was entered into between Ephraim
Morillo and Mindex Resources Corporation fro the lease of the formers 6x6 10wheeler cargo truck for use in Mindexs mining operations in Oriental Mindoro at
a stipulated rental of P300.00 per hour for a minimum of 8 hours a day or a total
of P2,400.00 daily. Mindex was paying its rentals until April 10, 1991. On April
11, unidentified persons burned the truck while it was parked unattended at San
Teodoro, Oriental Mindoro due to mechanical trouble. Upon learning the burning
incident, Morillo offered to sell the truck to Mindex but the latter refused.
Instead, it replaced the vehicles burned tires and had it towed to a shop for
repair and overhauling. On April 15, 1991, Morillo sent a letter to Mindex
proposing that he will entrust the said vehicle in the amount of P275,000.00 that
is its cost price without charging for the encumbrance of P76,800.00.
Mindex responded by a hand written letter expressing their reservations
on the above demands due to their tight financial situation. However, he made
counter offers which state that they will pay the rental of the 6x6 truck in the
amount of P76,000.00, repair and overhaul the truck on their own expenses and
return it to Morillo on good running condition after repair. April 18, Morillo
replied that he will relinquish to Mindex the damaged truck; that he is amenable

to receive the rental in the amount of P76, 000.00; and that Mindex will pay
P50,000.00 monthly until the balance of P275,000.00 is fully paid. Except for his
acceptance of the proffered P76,000.00 unpaid rentals. Morillos stand has not
been changed as he merely lowered the first payment on the P275,000.00
valuation of the truck from P150,000.00 to P50,000.00.
The parties had since remain intransigent and so on August, Morillo pulled
out the truck from the repair shop of Mindex and had it repaired elsewhere for
which he spent the amount of P132,750.00.
The RTC found petitioner
responsible fro the destruction of loss of the leased 6x6 truck and ordered it to
pay respondent P76,000.00 as balance of the unpaid rental for the 6x6 truck
with interest of 12%, P132,750.00 representing the cost of repair and overhaul
of the truck with interest of 12% until fully paid; and P20,000.00 as attorneys
fees.
The appellate court sustained RTCs finding. The CA found petitioner was
not without fault for the loss and destruction of the truck and thus liable
therefore. However, it modified the 12% interest on the P76,000.00 rentals and
P132,750.00 repair cost to 6% per annum form June 22, 1994 to the date of
finality of the said decision. It affirmed the award of attorneys fees.
ISSUE:
Whether or not the CA is correct in finding the petitioner liable due to
negligence and cannot be exonerated due to the defense of fortuitous event.
RULING:
YES. As stated by the Court of Appeals, the burning of the subject truck
was impossible to foresee, but not impossible to avoid. Mindex could have
prevented the incident by immediately towing the truck to a motor shop for
repair.
In this case, petitioner was found negligent and thus liable for the loss or
destruction of the leased truck. Article 1174 of the Civil Code states that, No
person shall be responsible for a fortuitous event that could not be foreseen or,
though foreseen, was inevitable. In other words, there must be an exclusion of
human intervention form the cause of injury on loss. In this case, the petitioner
is contributory negligent to the incident.
Decision was denied. Deleting attorneys fees, modified the RTC and CAs
decision.

EFFECTS OF FORTUITOUS EVENT UPON OBLIGATIONS


NATIONAL POWER CORPORATION
VS. PHILIPP BROTHERS OCEANIC, INC.
G.R. No. 126204
November 20, 2001
369 SCRA 629
FACTS:
On May 14, 1987, the National Power Corporation (NAPOCOR) issued
invitations to bid for the supply and delivery of 120,000 metric tons of imported
coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The
Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to
participate as one of the bidders. After the public bidding was conducted,
PHIBROs bid was accepted. NAPOCORs acceptance was conveyed in a letter
dated July 8, 1987, which was received by PHIBRO on July 15, 1987.
On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes
might soon plague Australia, the shipments point of origin, which could seriously
hamper PHIBROs ability to supply the needed coal unless a strike-free clause
is incorporated in the charter party or the contract of carriage. In order to hasten
the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the
burden of a strike-free clause. NAPOCOR refused. On August 6, 1987, PHIBRO
received from NAPOCOR a confirmed and workable letter of credit. Instead of
delivering the coal on or before the thirtieth day after receipt of the Letter of
Credit, as agreed upon by the parties in the July contract, PHIBRO effected its
first shipment only on November 17, 1987.
Consequently, in October 1987, NAPOCOR once more advertised for the
delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this
subsequent bidding but its application was denied for not meeting the minimum
requirements. However, PHIBRO found that the real reason for the disapproval
was its purported failure to satisfy NAPOCORs demand for damages due to the
delay in the delivery of the first coal shipment. Thus, PHIBRO filed an action for
damages with application for injunction against NAPOCOR with the Regional Trial
Court, Branch 57, Makati City. In its complaint, PHIBRO alleged that NAPOCORs
act of disqualifying it in the October 1987 bidding and in all subsequent biddings
was tainted with malice and bad faith. PHIBRO prayed for actual, moral and
exemplary damages and attorneys fees.

On the other hand NAPOCOR averred that the strikes in Australia could not
be invoked as reason for the delay in the delivery of coal because PHIBRO itself
admitted that as of July 28, 1987 those strikes had already ceased. Furthermore,
NAPOCOR claimed that due to PHIBROs failure to deliver the coal on time, it was
compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for
actual damages in the amount of P12,436,185.73, representing the increase in
the price of coal, and a claim of P500,000.00 as litigation expenses.
On January 16, 1992, the trial court rendered a decision in favor of
PHIBRO. Unsatisfied, NAPOCOR elevated the case to the Court of Appeals which
affirmed in toto the latters decision. Hence, this present petition.
ISSUE:
Whether or not the lower court erred in holding that PHIBROs delay in the
delivery of imported coal was due to force majeure.
RULING:
It was disclosed from the records of the case that what prevented PHIBRO
from complying with its obligation under the July 1987 contract was the
industrial disputes which besieged Australia during that time. The Civil Code
provides that no person shall be responsible for those events which could not be
foreseeen, or which, though foreseen, were inevitable. This means that when an
obligor is unable to fulfill his obligation because of a fortuitous event or force
majeure, he cannot be held liable for damages for non-performance.
In addition to the above legal precept, it is worthy to note that PHIBRO
and NAPOCOR explicitly agreed in Section XVII of the Bidding Terms and
Specifications that neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable
for any delay in or failure of the performance of its obligations, other than the
payment of money due, if any such delay or failure is due to Force
Majeure. Strikes then are undoubtedly included in the force majeure clause
of the Bidding Terms and Specifications.

TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS


1.
2.

UNION BANK VS. SANTIBANEZ, 452 S 228


SAN AGUSTIN VS. CA, 371 SCRA 348

3.

PROJECT BUILDERS, INC. VS. CA, 358 SCRA 626

UNION BANK OF THE PHILIPPINES versus EDMUND SANTIBAEZ


and FLORENCE SANTIBAEZ ARIOLA
G.R. No. 149926
2005 Feb 23
FACTS:
On May 31, 1980, the First Countryside Credit Corporation (FCCC)
and Efraim M. Santibaez entered into a loan agreement in the amount of
P128,000.00. The amount was intended for the payment of the purchase
price of one unit Ford 6600 Agricultural All-Purpose Diesel Tractor. In view
thereof, Efraim and his son, Edmund, executed a promissory note in favor
of the FCCC, the principal sum payable in five equal annual amortizations
of P43,745.96 due on May 31, 1981 and every May 31st thereafter up to
May 31, 1985.
On December 13, 1980, the FCCC and Efraim entered into another
loan agreement, this time in the amount of P123,156.00. It was intended
to pay the balance of the purchase price of another unit of Ford 6600
Agricultural All-Purpose Diesel Tractor, with accessories, and one unit
Howard Rotamotor Model AR 60K. Again, Efraim and his son, Edmund,
executed a promissory note for the said amount in favor of the FCCC.
Aside from such promissory note, they also signed a Continuing Guaranty
Agreement for the loan dated December 13, 1980.
Sometime in February 1981, Efraim died, leaving a holographic will.
Subsequently in March 1981, testate proceedings commenced before the
RTC of Iloilo City. On April 9, 1981, Edmund, as one of the heirs, was
appointed as the special administrator of the estate of the decedent.
During the pendency of the testate proceedings, the surviving heirs,
Edmund and his sister Florence Santibaez Ariola, executed a Joint
Agreement dated July 22, 1981, wherein they agreed to divide between
themselves and take possession of the three tractors; that is, two tractors
for Edmund and one tractor for Florence. Each of them was to assume the

indebtedness of their late father to FCCC, corresponding to the tractor


respectively taken by them.
On August 20, 1981, a Deed of Assignment with Assumption of
Liabilities was executed by and between FCCC and Union Savings and
Mortgage Bank, wherein the FCCC as the assignor, among others,
assigned all its assets and liabilities to Union Savings and Mortgage Bank.
Demand letters for the settlement of his account were sent by petitioner
Union Bank of the Philippines (UBP) to Edmund, but the latter failed to
heed the same and refused to pay. Thus, on February 5, 1988, the
petitioner filed a Complaint for sum of money against the heirs of Efraim
Santibaez, Edmund and Florence, before the RTC of Makati City.
ISSUE:
1. Whether in testate succession, there can be no valid partition
among the heirs.
2. Whether or not the heirs assumption of the indebtedness of the
deceased is binding.
3. Whether or not the petitioner can hold the heirs liable on the
obligation of the deceased.
RULING:
1. In testate succession, there can be no valid partition among the
heirs until after the will has been probated. The law enjoins the probate
of a will and the public requires it, because unless a will is probated and
notice thereof given to the whole world, the right of a person to dispose of
his property by will may be rendered nugatory. It presupposes that the
properties to be partitioned are the same properties embraced in the will.
The court then agrees with the appellate court that the provisions
stated in the will is an all-encompassing provision embracing all the
properties left by the decedent which might have escaped his mind at
that time he was making his will, and other properties he may acquire
thereafter. This being so, any partition involving the said tractors among
the heirs is not valid. The joint agreement executed by Edmund and
Florence, partitioning the tractors among themselves, is invalid, specially

so since at the time of its execution, there was already a pending


proceeding for the probate of their late fathers holographic will covering
the said tractors.
2. The heirs assumption of the indebtedness is not binding. The
assumption of liability was conditioned upon the happening of an event,
that is, that each heir shall take
possession and use of their respective share under the agreement. It was
made dependent on the validity of the partition, and that they were to
assume the indebtedness corresponding to the chattel that they were
each to receive. The partition being invalid, the heirs in effect did not
receive any such tractor. It follows then that the assumption of liability
cannot be given any force and effect.
3. Florence S. Ariola could not be held accountable for any liability
incurred by her late father. The documentary evidence presented,
particularly the promissory notes and the continuing guaranty agreement,
were executed and signed only by the late Efraim Santibaez and his son
Edmund. As the petitioner failed to file its money claim with the probate
court, at most, it may only go after Edmund as co-maker of the decedent
under the said promissory notes and continuing guaranty, of course,
subject to any defenses Edmund may have as against the petitioner.
However, the court had not acquired jurisdiction over the person of
Edmund. Also, the petitioner had not sufficiently shown that it is the
successor-in-interest of the Union Savings and Mortgage Bank to which
the FCCC assigned its assets and liabilities.

TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS

SAN AGUSTIN VS. COURT OF APPEALS


371 S 348
FACTS:

On February 11, 1974, the Government Service Insurance System (GSIS)


sold to Macaria Vda de Caiquep, a parcel or residential land located in Pasig City,
part of the GSIS Low Cost Housing Project evidenced by a Deed of Absolute Sale.
On February 19, 1974, the Register of Deeds of Rizal issued in the name
of Caiquep, Transfer Certificate of Title. The next day, Caiquep sold the subject
lot to private respondent Maximo Menez.
Sometime in 1979, for being
suspected as a subversive, military men ransacked Menez's house in Rizal. He
surrendered to the authorities and was detained for two years. When released,
another order for his arrest was issued so he hid in Mindanao for another four
years or until March 1984. In December 1990, he discovered that the subject
TCT was missing. He consulted a lawyer but the latter did not act immediately
on the matter. Upon consulting a new counsel, an Affidavit of Loss was filed with
the Register of Deeds and a certified copy of TCT was issued. Private respondent
also declared the property for tax purposes and obtained a certification thereof
from the Assessors office. His search for the registered owner to different parts
of the country failed prompting the former to file a petition for the issuance of
owners duplicate copy to replace the lost one.
During the hearing, only Menez and counsel were present because the
Register of Deeds and the Provincial Prosecutor were not notified. The trial court
granted his petition after Menez presented his evidence ex parte. San Agustin
claimed this was the first time he became aware of the case of his aunt Ma. Vda
de Caiquep and the present occupant of the property. He filed A Motion to
Reopen Reconstitution Proceedings but RTC denied said motion. Petitioner
moved for motion for reconsideration but was again denied.
ISSUE:
Whether or not petitioner is bound by the contract entered into by his
predecessor-in-interest.
RULING:
Yes, petitioner is bound by contracts entered into by his predecessors-ininterest. Heirs are bound by contracts entered into by their predecessors-ininterest. In this case, the GSIS has not filed any action for the annulment of Deed
of Absolute Sale of the lot the latter sold to Caiquep, nor the forfeiture of the lot
in question.
In the Courts view, the contract of sale remains valid between the parties,
unless and until annulled in the proper suit filed by the rightful party, the GSIS.
For now, the said contract of sale is binding upon the heirs of Macaria Vda de
Caiquep., including petitioner who alleges to be one of her heirs, in line with the

rule that heirs are bound by contracts entered into by their predecessors-ininterest.

TRANSMISSIBILITY OF RIGHTS AND OBLIGATIONS


PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO
ENRIQUEZ, petitioners, vs. THE COURT OF APPEALS and INDUSTRIAL
FINANCE CORPORATION, respondents
2001 Jun 19
358 SCRA 626
FACTS:
On August 21, 1975, plaintiff and defendant PBI entered into an
agreement whereby it was agreed that plaintiff would provide a maximum
amount of P2,000,000.00 against which said defendant would discount and
assign to plaintiff on a with recourse non-collection basis its (PBIs) accounts
receivable under the contracts to sell specified in said agreement. Eventually,
the same parties entered into an agreement whereby it was agreed that PBIs
credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the
credit line of P5,000,000.00 granted includes the amount already
assigned/discounted.Against the above-mentioned credit line, defendant PBI
discounted with plaintiff on different dates accounts receivables with different
maturity dates from different condominium-unit buyers. The total amount of
receivables discounted by defendant PBI is P7,986,815.38 and consists of twenty
accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to
defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66
represents the discounting fee or finance fee.
To secure compliance with the terms and conditions of the agreement
defendants executed a Deed of Real Estate Mortgage in favor of plaintiff. When
defendants allegedly defaulted in the payment of the subject account, plaintiff
foreclosed the mortgage and plaintiff was the highest bidder in the amount of
P3,500,000.00. The foreclosed property was redeemed a year later but after
application of the redemption payment, plaintiff claims that there is still a
deficiency in the amount of P1,323,053.08.
A collection suit was then filed by IFC against PBI. However, PBI denied
liability alleging that IFC has no case or right of action because the obligation is
fully paid out of the proceeds of foreclosure sale of its property. Further, it

alleged that a proper accounting of the transaction between the parties will show
that it is the IFC who is liable to PBI.
The trial court dismissed the complaint but the Court of Appeals reversed
it. It ordered PBI to pay IFC the deficiency in the amount of P1,237,802.48 and
the monetary interests.
ISSUE:
Whether or not said Republic Act No. 5980 should govern the transaction
between petitioners and private respondent which in reality was bilateral, not
trilateral, and respondent financing company was not really subrogated in the
place of the supposed seller or assignor.
RULING:
The assignment of the contracts to sell falls within the purview of the Act.
The term credit has been defined to - "(c) x x x mean any loan, mortgage, deed
of trust, advance, or discount; any conditional sales contract, any contract to
sell, or sale or contract of sale of property or service, either for present or future
delivery, under which, part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; any option,
demand, lien, pledge, or other claim against, or for the delivery of, property or
money, any purchase, or other acquisition of or any credit upon the security of,
any obligation or claim arising out of the foregoing; and any transaction or series
of transactions having a similar purpose or effect.
An assignment of credit is an act of transferring, either onerously or
gratuitously, the right of an assignor to an assignee who would then be capable
of proceeding against the debtor for enforcement or satisfaction of the credit.
The transfer of rights takes place upon perfection of the contract, and ownership
of the right, including all appurtenant accessory rights, is thereupon acquired by
the assignee. The assignment binds the debtor only upon acquiring knowledge
of the assignment but he is entitled, even then, to raise against the assignee the
same defenses he could set up against the assignor. Where the assignment is
on account of pure liberality on the part of the assignor, the rules on donation
would likewise be pertinent; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or purchase.
Upon an assignment of a contract to sell, the assignee is effectively
subrogated in place of the assignor and in a position to enforce the contract to
sell to the same extent as the assignor could.

An insistence of petitioners that the subject transaction should be


considered a simple loan since private respondent did not communicate with the
debtors, condominium unit buyers, to collect payment from them, is untenable.
In an assignment of credit, the consent of the debtor is not essential for its
perfection, his knowledge thereof or lack of it affecting only the efficaciousness
or inefficaciousness of any payment he might make.
The assignment, it might be pointed out, was "with recourse," and default
in the payment of installments had been duly established when petitioner
corporation foreclosed on the mortgaged parcels of land.
The resort to
foreclosure of the mortgaged properties did not preclude private respondent
from collecting interest from the assigned Contracts To Sell from the time of
foreclosure to the redemption of the foreclosed property. The imposition of
interest was a mere enforcement or exercise of the right to the ownership of the
credit or receivables which the parties stipulated in the 1976 financing
agreement. Thus -"f. That the Assignor shall comply with all the terms and
conditions specified on the said Contracts to Sell, executed by the assignor and
its individual purchaser or customers, and assigned/discounted to Assignee.
One of the provisions in the contracts to sell, subject matter of the
assignment agreement, related to the imposition of interest in the event of
default by the debtor in the payment of installments, to wit: "All payments shall
be made on or before their respective due dates without necessity of demand
therefor, and failure to make such payments on time shall entitle the Developer
to charge interest at the rate of one percent (1%) per month without prejudice to
the other remedies available to the Developer. As owner of the account
receivables, private respondent was impressed with the entitlement over such
interest payment.

REQUISITES OF CONDITIONAL OBLIGATIONS (Art. 1179, CC)


DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
VS. COURT OF APPEALS, Sps. NORMY D. CARPIO and CARMEN ORQUISA;
Sps. ROLANDO D. CARPIO and RAFAELA VILLANUEVA; Sps. ELISEO D.
CARPIO and ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C.
REYES,
JULIET REYES-RUBIN, respondents
1996 September 20
G.R. No. 118180
262 SCRA 245

FACTS:
Private respondents were the original owner of a parcel of agricultural
land covered by a TCT, with an area of 113,695 square meters, more or less. On
30 May 1977, Private respondents mortgaged said land to petitioner. When
private respondents defaulted on their obligation, petitioner foreclosed the
mortgage on the land and emerged as sole bidder in the ensuing auction sale.
Consequently, a TCT was eventually issued in petitioner's name. On 6 April 1984
petitioner and private respondents entered into a Deed of Conditional Sale
wherein petitioner agreed to reconvey the foreclosed property to private
respondents.
The Deed provided, among others, that:
the VENDEES offered to
repurchase and the VENDOR agreed to sell the above-described property,
subject to the terms and stipulations as hereinafter stipulated, for the sum of
SEVENTY THREE THOUSAND SEVEN HUNDRED ONLY (P73,700.00), with a down
payment of P8,900.00 and the balance of P64,800 shall be payable in six (6)
years on equal quarterly amortization plan at 18% interest per annum. The first
quarterly amortization of P4,470.36 shall be payable three months from the date
of the execution of the documents and all subsequent amortization shall be due
and payable every quarter thereafter. . .that, upon completion of the payment
herein stipulated and agreed, the Vendor agrees to deliver to the Vendee/s(,) his
heirs, administrators and assigns(,) a good and sufficient deed of conveyance
covering the property, subject matter of this deed of conditional sale, in
accordance with the provision of law.
On 6 April 1990, upon completing the payment of the full repurchase
price, private respondents demanded from petitioner the execution of a Deed of
Conveyance in their favor. Petitioner then informed private respondents that the
prestation to execute and deliver a deed of conveyance in their favor had
become legally impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL) approved 10 June 1988, and Sec.
1 of E.O. 407 issued 10 June 1990.
Aggrieved, private respondents filed a complaint for specific performance
with damages against petitioner before the RTC. The trial court rendered
judgment ordering defendant to execute and deliver unto plaintiffs a deed of
final sale of there land subject of their deed of conditional sale.
Dissatisfied, petitioner appealed to the CA, still insisting that its obligation
to execute a Deed of Sale in favor of private respondents had become a legal
impossibility and that the non-impairment clause of the Constitution must yield

to the demands of police power.


petitioner's appeal.

The CA rendered judgment dismissing

ISSUE:
Whether or not the petitioners prestation to execute and deliver a deed of
conveyance in favor of private respondents had become legally impossible in
view of Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian Reform Law or
CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued 10 June 1990.
RULING:
If the obligation depends upon a suspensive condition, the demandability
as well as the acquisition or effectivity of the rights arising from the obligation is
suspended pending the happening or fulfillment of the fact or event which
constitutes the condition. Once the event which constitutes the condition is
fulfilled resulting in the effectivity of the obligation, its effects retroact to the
moment when the essential elements which gave birth to the obligation have
taken place. Applying this precept to the case, the full payment by the appellee
on April 6, 1990 retracts to the time the contract of conditional sale was
executed on April 6, 1984. From that time, all elements of the contract of sale
were present. Consequently, the contract of sale was perfected. As such, the
said sale does not come under the coverage of R.A. 6657.
Despite the mandate of Sec. 1, R.A. 6657, appellant continued to accept
the payments made by the appellant until it was fully paid on April 6, 1990. All
that the appellant has to do then is to execute the final deed of sale in favor of
the appellee. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
E.O. 407 can neither affect appellant's obligation under the deed of
conditional sale. Under the said law, appellant is required to transfer to the
Republic of the Philippines "all lands foreclosed" effective June 10, 1990. Under
the facts obtaining, the subject property has ceased to belong to the mass of
foreclosed property failing within the reach of said law. The property has
already been sold to herein appellees even before the said E.O. has been
enacted. On this same reason, the Court held that they need not delve on the
applicability of DBP Circular No. 11.
The Court ruled in favor of private respondents. In conditional obligations,
the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the
condition.
The deed of conditional sale between petitioner and private
respondents was executed on 6 April 1984. Private respondents had religiously

paid the agreed installments on the property until they completed payment on 6
April 1990. Petitioner, in fact, allowed private respondents to fulfill the condition
of effecting full payment, and invoked Section 6 of Rep. Act 6657 only after
private respondents, having fully paid the repurchase price, demanded the
execution of a Deed of Sale in their favor.
The Court ruled that the trial court and CA have correctly ruled that
neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair the
obligation of contract petitioner had much earlier concluded with private
respondents. Petitioner cannot invoke the last paragraph of Sec. 6 of Rep. Act
6657 to set aside its obligations already existing prior to its enactment. In the
first place, said last paragraph clearly deals with "any sale, lease, management
contract or transfer or possession of private lands executed by the original
landowner." The original owner in this case is not the petitioner but the private
respondents. Petitioner acquired the land through foreclosure proceedings but
agreed thereafter to reconvey it to private respondents, albeit conditionally.
Sec. 6 of Rep. Act 6657 in its entirety deals with retention limits allowed by law
to small landowners. Since the property here involved is more or less ten (10)
hectares, it is then within the jurisdiction of the Department of Agrarian Reform
(DAR) to determine whether or not the property can be subjected to agrarian
reform. But this necessitates an entirely differently proceeding.

G.R. No. 131784


19 September 1999
314 SCRA 585
FACTS:
On December 1, 1983, Paula Cruz together with the plaintiffs heirs of
Thomas and Paula Cruz, entered into a Contract of Lease/Purchase with the
defendant, Felix L. Gonzales, the sole proprietor and manager of Felgon Farms,
of a half-portion of a 'parcel of land containing an area of 12 hectares, more or
less, and an accretion of 2 hectares, more or less, situated in Rodriguez Town,
Province of Rizal. The contract of Lease/Purchase contains the following
provisions:
'1.......The terms of this Contract is for a period of one year upon the
signing thereof. After the period of this Contract, the LESSEE shall purchase the
property on the agreeable price of One Million Pesos (P1,000,000.00) payable
within Two (2) Years period with an interest of 12% per annum subject to the
devalued amount of the Philippine Peso, according to the following schedule of
payment: Upon the execution of the Deed of Sale 50% - and thereafter 25%
every six (6) months thereafter, payable within the first ten (10) days of the
beginning of each period of six (6) months.

While DBP committed egregious error in interpreting Sec. 6 of RA 6657,


the same is not equivalent to gross and evident bad faith when it refused to
execute the deed of sale in favor of private respondents.

'2.......The LESSEE shall pay by way of annual rental an amount equivalent


to Two Thousand Five Hundred (P2,500.00) Pesos per hectare, upon the signing
of this contract on Dec. 1, 1983.

The petition was DENIED, and the decision of the CA was AFFIRMED with
the MODIFICATION that attorney's fees and nominal damages awarded to private
respondent were DELETED.

'9.......The LESSORS hereby commit themselves and shall undertake to


obtain a separate and distinct T.C.T. over the herein leased portion to the
LESSEE within a reasonable period of time which shall not in any case exceed
four (4) years, after which a new Contract shall be executed by the herein
parties which shall be the same in all respects with this Contract of
Lease/Purchase insofar as the terms and conditions are concerned.

SUSPENSIVE CONDITIONS MEANING


1.
2.
3.

GONZALES VS. HEIRS, 314 SCRA 585


INSULAR LIFE VS. YOUNG, 373 SCRA 626
DIRECT FOUNDERS VS. LAVINA, 373 SCRA 645

FELIX L. GONZALES, petitioner,


VS. THE HEIRS OF THOMAS and PAULA CRUZ, herein represented by
ELENA C. TALENS, respondents

The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00


annual rental on the half-portion of the property in accordance with the second
provision of the Contract of Lease/Purchase and thereafter took possession of
the property, installing thereon the defendant Jesus Sambrano as his caretaker.
The defendant Gonzales did not, however, exercise his option to purchase the
property immediately after the expiration of the one-year lease on November 30,
1984. He remained in possession of the property without paying the purchase
price provided for in the Contract of Lease/Purchase and without paying any
further rentals thereon.

A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to


defendant Gonzales informing him of the lessors' decision to rescind
Contract of Lease/Purchase due to a breach thereof committed by
defendant. The letter also served as a demand on the defendant to vacate
premises within 10 days from receipt of said letter.

the
the
the
the

The defendant Gonzales refused to vacate the property and continued


possession thereof.
The property subject of the Contract of Lease/Purchase is currently the
subject of an Extra-Judicial Partition. Title to the property remains in the name of
the plaintiffs' predecessors-in-interest, Bernardina Calixto and Severo Cruz.
Alleging breach of the provisions of the Contract of Lease/Purchase, the
plaintiffs filed a complaint for recovery of possession of the property - subject of
the contract with damages, both moral and compensatory and attorney's fees
and litigation expenses.
ISSUE:
Whether or not the trial court gravely erred in holding that plaintiffsappellants could not validly rescind and terminate the lease/purchase contract
and thereafter to take possession of the land in question and eject therefrom
defendants-appellees.
RULING:
Alleging that petitioner has not purchased the property after the lapse of
one year, respondents seek to rescind the Contract and to recover the property.
Petitioner, on the other hand, argues that he could not be compelled to purchase
the property, because respondents have not complied with paragraph nine,
which obligates them to obtain a separate and distinct title in their names. He
contends that paragraph nine was a condition precedent to the purchase of the
property.
Both the trial court and the Court of Appeals (CA) interpreted this
provision to mean that the respondents had obliged themselves to obtain a TCT
in the name of petitioner-lessee. The trial court held that this obligation was a
condition precedent to petitioner's purchase of the property. Since respondents
had not performed their obligation, they could not compel petitioner to buy the
parcel of land. The CA took the opposite view, holding that the property should
be purchased first before respondents may be obliged to obtain a TCT in the
name of petitioner-lessee-buyer.

As earlier noted, petitioner disagrees with the interpretation of the two


courts and maintains that respondents were obligated to procure a TCT in their
names before he could be obliged to purchase the property in question.
Basic is the rule in the interpretation of contracts that if some stipulation
therein should admit of several meanings, it shall be understood as bearing that
import most adequate to render it effectual. Considering the antecedents of the
ownership of the disputed lot, it appears that petitioner's interpretation renders
clause nine most effectual.
The record shows that at the time the contract was executed, the land in
question was still registered in the name of Bernardina Calixto and Severo Cruz,
respondents' predecessors-in-interest. There is no showing whether respondents
were the only heirs of Severo Cruz or whether the other half of the land in the
name of Bernardina Calixto was adjudicated to them by any means. In fact, they
admit that extrajudicial proceedings were still ongoing. Hence, when the
Contract of Lease/Purchase was executed, there was no assurance that the
respondents were indeed the owners of the specific portion of the lot that
petitioner wanted to buy, and if so, in what concept and to what extent.
Thus, the clear intent of the ninth paragraph was for respondents to
obtain a separate and distinct TCT in their names. This was necessary to enable
them to show their ownership of the stipulated portion of the land and their
concomitant right to dispose of it. Absent any title in their names, they could not
have sold the disputed parcel of land.
SUSPENSIVE CONDITIONS: MEANING
INSULAR LIFE ASSURANCE COMPANY, LTD., INSULAR SAVINGS BANK
and JACINTO D. JIMENEZ
VS. ROBERT YOUNG, GABRIEL LA'O II, ARTHUR TAN, LOPE JUBAN, JR.,
MARIA LOURDES ONGPIN, ANTONIO ONGPIN, ELSIE DIZON, YOLANDA
BAYER, CECILIA VIRAY, MANUEL VIRAY and JOSE VITO BORROMEO
2002 Jan 16
G.R. No. 140964
FACTS:
In December, 1987, respondent Robert Young, together with his
associates and co-respondents, acquired by purchase Home Bankers Savings
and Trust Co., now petitioner Insular Savings Bank ("the Bank," for brevity), from

the Licaros family for P65,000,000.00. Young and his group obtained 55% equity
in the Bank, while Jorge Go and his group owned the remaining 45%.
However, Araneta backed out from the intended sale and demanded the
return of his downpayment.
On October 1, 1991, Insular Life and Insular Life Pension Fund formally
informed Young of their intention to acquire 30% and 12%, respectively, of the
Bank's outstanding shares, subject to due diligence audit and proper
documentation. On October 9, 1991, Insular Life and Young, authorized to
represent the other stockholders, entered into a Memorandum of Agreement
(MOA), wherein Insular Life and its Pension Fund agreed to purchase 830,860
common shares and 311,572 common shares, respectively, for a total
consideration of P198,000,000.00.
Under its terms, the MOA is subject to
Young's representations and warranties that, as of September 30, 1991, the
Bank has (a) a total outstanding paid-in capital of P157,714,900.00, (b) a total
net worth of P114,801,539.00, and (c) total
loans with doubtful recovery of P60,000,000.00.
The MOA is also subject to
these "condition precedents": (1) Young shall infuse additional capital of
P50,000,000.00 into the Bank, and (2) Insular Life and its Pension Fund shall
undertake a due diligence audit on the Bank to determine whether the provision
for P60,000,000.00 doubtful account made by Young is sufficient.
On October 21, 1991, Young signed a letter prepared by Atty. Jacinto
Jimenez, counsel of Insular Life, addressed to Mr. Vicente R. Ayllon, Chairman of
the Bank's Board of Directors, stating that due to business reverses, he shall not
be able to pay his obligations under the Credit Agreement between him and
Insular Life. Consequently, Young "unconditionally and irrevocably waive(s) the
benefit of the period" of the loan (up to December 26, 1991) and Insular "may
consider (his) obligations thereunder as defaulted." He likewise interposes no
objection to Insular Life's exercise of its rights under the said agreement.
Forthwith, Insular Life instructed its counsel to foreclose the pledge
constituted upon the shares. The latter then sent Young a notice informing him
of the sale of the shares in a public auction scheduled on October 28, 1991, and
in the event that the shares are not sold, a second auction sale shall be held the
next day, October 29.
From October 31, 1991 to December 27, 1991, Insular Life invested a total
of P325,000,000.00 in the Bank. Meanwhile, on November 27, 1991, its Board
of Directors, during its meeting, accepted the resignation of Young as President.
On January 7, 1992, Young and his associates filed with the Regional Trial Court

(RTC), Branch 142, Makati City, a complaint against the Bank, Insular Life and its
counsel, Atty. Jacinto Jimenez, petitioners, for annulment of notarial sale, specific
performance and damages, docketed as Civil Case No. 92-049. The complaint
alleges, inter alia, that the notarial sale conducted by petitioner Atty. Jacinto
Jimenez is void as it does not comply with the requirement of notice of the
second auction sale; that Young was forced by the officers of Insular Life to sign
letters to enable them to have control of the Bank; that under the MOA, Insular
Life should apply the purchase price of P198,000,000.00 (corresponding to the
55% of the outstanding capital stock of the Bank) to Young's loan of
P200,000,000.00 and pay the latter
P162,000,000.00, representing the
remaining 45% of its outstanding capital stock, which must be set-off against the
loans of the other respondents.
ISSUE:
Whether or not the respondent court erred in declaring the MOA dated
October 9, 1991 valid and enforceable between the parties despite respondent
Young's failure to comply with the terms and conditions thereof.
RULING:
Contrary to the findings of the Court of Appeals, the foregoing provisions
of the MOA negate the existence of a perfected contract of sale. The MOA is
merely a contract to sell since the parties therein specifically undertook to enter
into a contract of sale if the stipulated conditions are met and the representation
and warranties given by Young prove to be true. The obligation of petitioner
Insular Life to purchase, as well as the concomitant obligation of Young to
convey to it the shares, are subject to the fulfillment of the conditions contained
in the MOA. Once the conditions, representation and warranties are satisfied,
then it is incumbent upon the parties to perform their respective obligations
under the contract. Conversely, in the event that these conditions are not met
or complied with, no obligation on the part of either party arises. This is in
accord with Article 1181 of the Civil Code which provides that "(i)n conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which
constitutes the condition." And when the obligation assumed by a party to a
contract is expressly subjected to a condition, the obligation cannot be enforced
against him unless the condition is complied with.
Here, the MOA provides that Young shall infuse additional capital of
P50,000,000.00 into the Bank. It likewise specifies the warranty given by Young
that the doubtful accounts of petitioner Bank amounted to P60,000,000.00 only.

However, records show that Young failed to infuse the required additional
capital. Moreover, the due diligence audit shows that Young was involved in
fraudulent schemes like check-kiting which amounted to a staggering
P344,000,000.00. This belies his representation that the doubtful accounts of
petitioner Bank amounted only to P60,000,000.00.
As a result of these
anomalous transactions, the reserves of the Bank were depleted and it had to
undergo a ten-year rehabilitation plan under the supervision of the Central Bank.
Significantly, respondents do not dispute petitioners assertion that Young
committed fraud, misrepresented the warranties and failed to comply with his
obligations under the MOA. Accordingly, no right in favor of Young's arose and
no obligation on the part of Insular Life was created.
Since no sale transpired between the parties, the Court of Appeals erred in
concluding that Insular Life purchased 55% of the total shares of the Bank under
the MOA. Consequently, its findings that the debt of Young has been fully paid
and that Insular Life is liable to pay for the remaining 45% equity have no basis.
It must be emphasized that the MOA did not convey title of the shares to Insular
Life. If ever there was delivery of the said shares to Insular Life, it was because
they were pledged by Young to Insular Life under the Credit Agreement.
It would be unfair on the part of Young to demand compliance by Insular
Life of its obligations when he himself was remiss in his own. Neither can he
feign ignorance of the stipulation in the MOA since it is presumed that he read
the same and was satisfied with its provisions before he affixed his signature
therein. The fact that no deed of sale was subsequently executed by the parties
confirms the conclusion that no sale transpired between them.
SUSPENSIVE CONDITIONS: MEANING
DIRECT FUNDERS HOLDINGS CORPORATION, petitioner,
VS. JUDGE CELSO D. LAVIA, PRESIDING JUDGE OF RTC- Pasig City,
Branch 71 and KAMBIAK Y. CHAN, JR., respondents
January 16, 2002
G. R. No. 141851
FACTS:
Herein petitioner was granted with a writ of possession. During the
hearing for the issuance of temporary restraining order filed by herein private
respondent, it was made clear to the respondent Judge that the property in

question was occupied by the petitioner by virtue of a writ of possession issued


by the Regional Trial Court of Pasig, Branch 157 in LRC Case No. R-5475 in a
petition for the issuance of writ of possession thereof way back on October 23,
1997.
Despite the lawful order of a coordinate and co-equal court, the
respondent Judge, presiding Regional Trial Court of Pasig, Branch 71, issued the
questioned orders to restore possession to private respondent Chan, alleging an
obviously grave abuse of discretion, tantamount to lack of jurisdiction. On the
same date on December 8, 1997, the temporary restraining order (TRO) was
issued, the Court Sheriff IV Cresencio Rabello, Jr. implemented the TRO and
submitted the Return on December 9, 1997. Then, on January 21, 1998, the
respondent Judge issued the questioned order granting the issuance of a writ of
preliminary injunction who subsequently denied the petitioners motion to
dismiss and supplemental motion to dismiss and the very urgent motion for
reconsideration on February 16, 1998.
On May 29, 1998, the motion for inhibition and the motion to dissolve the
writ of preliminary injunction were also denied. On August 5, 1998, petitioner
filed with the Court of Appeals a petition for certiorari and prohibition assailing
the trial courts issuance of a writ of preliminary injunction. On September 28,
1999, the Court of Appeals promulgated a decision dismissing the petition ruling
that the trial court had jurisdiction to issue the injunction that did not interfere
with the writ of possession of a coordinate court. On October 19, 1999,
petitioner filed with the Court of Appeals a motion for reconsideration of the
decision. On February 2, 2000, the Court of Appeals denied petitioners motion
stating that the arguments advanced were mere reiteration and restatements
of those contained in their pleadings. Hence, this appeal to the Supreme Court.
ISSUE:
Who between petitioner and respondent Kambiak Y. Chan, Jr. has a better
right to the possession of the subject property?
RULING:
The Supreme Court ruled in favor of petitioner.
It found that the
conditional sale agreement is officious and ineffectual.
First, it was not
consummated. Second, it was not registered and duly annotated on the Transfer
Certificate of Title (No. 12357) covering the subject property. Third, it was
executed about eight (8) years after the execution of the real estate mortgage
over the subject property.

To emphasize, the mortgagee (United Savings Bank) did not give its
consent to the change of debtor. It is a fundamental axiom in the law on
contracts that a person not a party to an agreement cannot be affected thereby.
Worse, not only was the conditional sale agreement executed without the
consent of the mortgagee-creditor, United Savings Bank, the same was also a
material breach of the stipulations of the real estate mortgage over the subject
property. The conditions of the conditional sale agreement were not fulfilled,
hence, respondents claim to the subject property was as heretofore stated
ineffectual. Article 1181 of the Civil Code reads:

On December 4, 1991, petitioner filed a complaint for rescission alleging


that the failure and refusal of respondents to pay the balance of the purchase
price constitutes a violation of the contract which entitles her to rescind the
same; that respondents have been in possession of the subject portion and they
should be ordered to vacate and surrender possession of the same to petitioner;
that the reasonable amount of rental for the subject land is P200.00 a month;
that on account of the unjustified actuations of respondents, petitioner has been
constrained to litigate where she incurred expenses for attorneys fees and
litigation expenses.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the


extinguishments or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.

On the other hand, respondents contended that the contract couldnt be


rescinded on the ground that it clearly stipulates that in case of failure to pay the
balance as stipulated, a yearly interest of 12% is to be paid. Bernardino likewise
alleged that sometime in October 1986, during the wake of the late Eulalio
Mistica, he offered to pay the remaining balance to petitioner but the latter
refused and hence, there is no breach or violation committed by them and no
damages could yet be incurred by the late Eulalio Mistica, his heirs or assigns
pursuant to the said document; that he is presently the owner in fee simple of
the subject lot having acquired the same by virtue of a Free Patent Title duly
awarded to him by the Bureau of Lands; and that his title and ownership had
already become indefeasible and incontrovertible. As counterclaim, respondents
pray for moral damages in the amount of P50,000.00; exemplary damages in the
amount of P30,000.00; attorneys fees in the amount of P10,000.00 and other
litigation expenses.

POTESTATIVE SUSPENSIVE CONDITIONS


1.
2.
3.

VDA. DE MISTICA VS. NAGUIAT, 418 SCRA 73


HERMOSA VS. LONGARA, 93 PHIL 971
TRILLANA VS. QUEZON COLLEGES, 93 PHIL 383

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,


VS. Spouses BERNARDINO NAGUIAT and
MARIA PAULINA GERONA-NAGUIAT, respondents
December 11, 2003
G.R. No. 137909
418 SCRA 73
FACTS:
Eulalio Mistica, predecessor-in-interest of herein petitioner, is the owner of
a parcel of land, and a portion thereof was leased to Bernardino sometime in
1970. On April 5, 1979, Eulalio Mistica entered into a contract to sell with
Bernardino over a portion of the aforementioned lot containing an area of 200
square meters. This agreement was reduced to writing in a Kasulatan. Pursuant
to said agreement, Bernardino gave a downpayment of P2,000.00 and another
partial payment of P1,000.00 on February 7, 1980. However, he failed to make
any payments thereafter. Eulalio Mistica died sometime in October 1986.

The trial court dismissed the complaint and ordered the petitioner to pay
the respondents attorneys fee and the cost of suit while ordering the
respondents to pay the heirs of the petitioner the balance of the purchase price
and reconveyance of the extra area of 58 square meters from the land in
question.
Disallowing rescission, the Court of Appeals held that respondents did not
breach the Contract of Sale. It explained that the conclusion of the ten-year
period was not a resolutory term, because the Contract had stipulated that
payment, with interest of 12 percent, could still be made if respondents failed to
pay within the period. Petitioner did not disprove the allegation of respondents
that they had tendered payment of the balance of the purchase price during her
husbands funeral, which was well within the ten-year period.
Moreover,
rescission would be unjust to respondents, because they had already transferred
the land title to their names. The proper recourse, the CA held, was to order
them to pay the balance of the purchase price, with 12 percent interest. As to
the matter of the extra 58 square meters, the CA held that its reconveyance was

no longer feasible, because it had been included in the title issued to them. The
appellate court ruled that the only remedy available was to order them to pay
petitioner the fair market value of the usurped portion.
ISSUE:
Whether or not there is a potestative suspensive condition in the
Kasulatan.
RULING:
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. It was stipulated that payment could be made even after ten years from
the execution of the Contract, provided the vendee paid 12 percent interest.
Moreover, it is undisputed that during the ten-year period, petitioner and
her deceased husband never made any demand for the balance of the purchase
price. Petitioner even refused the payment tendered by respondents during her
husbands funeral, thus showing that she was not exactly blameless for the lapse
of the ten-year period. Had she accepted the tender, payment would have been
made well within the agreed period.
If petitioner would like to impress upon the Court that the parties intended
otherwise, she has to show competent proof to support her contention. Instead,
she argues that the period cannot be extended beyond ten years, because to do
so would convert the buyers obligation to a purely potestative obligation that
would annul the contract under Article 1182 of the Civil Code.
The Code prohibits purely potestative, suspensive, conditional obligations
that depend on the whims of the debtor, because such obligations are usually
not meant to be fulfilled. Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtors will would be to sanction illusory obligations. The
Kasulatan does not allow such thing. First, nowhere is it stated in the Deed that
payment of the purchase price is dependent upon whether respondents want to
pay it or not. Second, the fact that they already made partial payment thereof
only shows that the parties intended to be bound by the Kasulatan.

HERMOSA VS. LONGARA


93 PHIL 971
FACTS:
Intestate Fernando Hermosa, Sr. asked for three (3) credit advances from
respondent Epifanio M. Longara. Two (2) of said credit advances were made
during his lifetime and in his favor and in his son while the last credit was made
after his death and in favor of his grandson. Evidences show that said credits
were asked by the intestate on condition that their payment should be made by
him, as soon as he receives funds derived from the sale of his property in Spain.
After the intestates death and upon authorization of the probate court,
the administration of the intestates property, his wife, sold the property and the
same was paid for subsequently. As a consequence, respondent filed an action
for the payment of the aforesaid credits which was upheld by the lower court
and by the Court of Appeals.
However, the same was contested by herein petitioners, heirs of the
intestate, on the ground that the obligation contracted by the intestate was
subject to a condition exclusively dependent upon the will of the debtor
condicion potestiva and therefore null and void, in accordance with article 1115
of the Old Civil Code.
ISSUE:
Whether or not the condition made in the obligation is a purely suspensive
condition dependent or potestative upon the exclusive will of the debtor.
RULING:
NO, the condition of the obligation was that the payment was to be made
as soon as he (obligor) receives funds from the sale of his property in Spain.
The will to sell on the part of the debtor (intestate) was present in fact or
presumed legally to exist although the price and other condition thereof were
still within his discretion and final approval. But in addition to this acceptability
of the sale to him (obligor), there were still other conditions that had to concur to
effect the sale, mainly that of the presence of a buyer, ready, able and willing to
purchase the property under the condition demanded by the vendor.

Affirmed with the modification that the payment for the extra 58-square
meter lot included in respondents title is deleted.
POTESTATIVE SUSPENSIVE CONDITIONS (Art. 1182, CC)
POTESTATIVE SUSPENSIVE CONDITIONS (Art. 1182, CC)

TRILLANA VS QUEZON COLLEGES


GR No. L-5003, June 27, 1953
FACTS:
On June 1, 1948, Damasa Crisostomo applied for 200 shares of
stock worth PhP100.00 each at Quezon Colleges, Inc. Within her letter of
application, she stipulated, You will find (Babayaran kong lahat
pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial
payment and the balance payable in accordance with law and the rules
and regulations of the Quezon College. Damasa died on October 26,
1948. Since no payment was rendered on the subscription made in the
foregoing letter, Quezon College presented a claim of PhP20,000.00 on
her intestate proceedings. The petitioner administrator of the estate
then contests the validity of said proceedings?
ISSUE:
Is the condition laid down by Damasa Crisostomo valid?
RULING:
There is nothing in the record to show that the Quezon College, Inc.
accepted the term of payment suggested by Damasa Crisostomo, or that
if there was any acceptance the same came to her knowledge during her
lifetime. As the application of Damasa Crisostomo is obviously at variance
with the terms evidenced in the form letter issued by the Quezon College,
Inc., there was absolute necessity on the part of the College to express its
agreement to Damasa's offer in order to bind the latter. Conversely, said
acceptance was essential, because it would be unfair to immediately
obligate the Quezon College, Inc. under Damasa's promise to pay the
price of the subscription after she had caused fish to be caught. Thus, it
cannot be said that the letter ripened into a contract.
Indeed, the need for express acceptance on the part of the Quezon
College, Inc. becomes the more imperative, in view of the proposal of
Damasa Crisostomo to pay the value of the subscription after she has
harvested fish, a condition obviously dependent upon her sole will and,
therefore, facultative in nature, rendering the obligation void. Under the
Civil Code it is provided that if the fulfillment of the condition should
depend upon the exclusive will of the debtor, the conditional obligation
shall be void.

POSITIVE SUSPENSIVE CONDITIONS


1.
2.

VISAYAN SAWMILL VS. CA, 219 SCRA 378


LEANO VS. CA, 369 SCRA 36

VISAYAN SAWMILL COMPANY, INC. VS. COURT of APPEALS


G.R. No. 83851.
March 3, 1993
219 SCRA 378
FACTS:
On May 1, 1983, RJH Trading and Visayan Sawmill Company, Inc. entered
into a sale involving scrap iron located at the stockyard of petitioner company at
Cawitan, Sta. Catalina, Negros Oriental, subject to the condition that RJH Trading
will open a leter of credit in the amount of P250,000 in favor of petitioner
company on or before May 15, 1983. This is evidenced by a contract entitled
Purchase and Sale of Scrap Iron duly signed by both parties.
RJH Trading started to dig and gather scrap iron at the defendantappellants premises until May 30 when Visayan Sawmill Company Inc. allegedly
directed private respondent to desist from pursuing the work in view of an
alleged case filed against private respondent by a certain Alberto Pursuelo.
However, on May 23, 1983, petitioner company alleged that they sent a
telegram to private respondent canceling the contract of sale because of failure
of the latter to comply with the conditions. On May 24, 1983, RJH Trading
informed petitioner company by telegram that the letter of credit was opened
May 12, 1983 at BPI main office in Ayala, but that the transmittal was delayed.
On May 26, 1983, petitioner company received a letter of advice from the
Dumaguete City Branch of the BPI. On July 19, 1983, RJH Trading sent a series of
telegrams stating that the case filed against him by Pursuelo had been
dismissed and demanding that petitioner company comply with the Deed of
Sale, otherwise a case will be filed against them.
Petitioner companys counsel on July 20, 1983 informed private
respondents counsel that petitioner company is unwilling to continue with the
sale due to private respondents failure to comply with essential preconditions of
the contract. Private respondent filed an action for specific performance and
damages with the trial court.

The trial court rendered its decision in favor of the private respondent.
The petitioner appealed from said decision to the Court of Appeals; however, the
appellate court affirmed with modification the decision of the lower court.
Hence, this petition.
ISSUE:
Whether or not the private respondents non-compliance with essential
precondition justified the cancellation of the contract.
RULING:
The Supreme Court held that the nature of the transaction between the
petitioner company and the private respondent is a mere contract to sell, and
not a contract of sale. The petitioner companys obligation is subject to a
positive suspensive condition, which is the private respondents opening, making
or indorsing of an irrevocable and unconditional letter of credit. The failure of
the private respondent to comply with the positive suspensive condition cannot
even be considered a breach but simply an event that prevented the obligation
of petitioner company to convey title from acquiring binding force. Hence, the
petition is granted and the assailed decision is reversed.
POSITIVE SUSPENSIVE CONDITIONS (Art. 1184, CC)
LEANO VS. COURT OF APPEALS
369 SCRA 36
G.R. No.129018
Nov. 15, 2001
FACTS:
On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita
Leano, as vendee executed a contract to sell involving a piece of land, Lot No.
876-B, with an area of 431 square meters, located at Sto.Cristo, Baliuag,
Bulacan.
In the contract, Carmelita Leano bound herself to pay Hermogenes
Fernandez the sum of one hundred and fifty pesos (P107,750.00) as the total
purchase price of the lot.
The contract also provided for a grace period of one month within which to
make payments, together with the one corresponding the month of grace.
Should the month of grace be expired without the installments for both months

having been satisfied, an interest of 18% per annum will be charged on the
unpaid installments.
Should a period of (90) ninety days elapse from the expiration of the
grace period without the overdue and unpaid installments having been paid with
the corresponding interests up to that date, respondent Fernando, as vendor,
was authorized to declare the contract cancelled and to dispose of the parcel of
land, as if the contract had not been entered into. The payments made,
together with all the improvements made on the premises, shall be considered
as rents paid for the use and occupation of the premises and as liquidated
damages.
After the execution of the contract, Carmelita Leano made several
payments in lump sum. Thereafter, she constructed a house on the lot valued at
P800,000.00. The last payment that she made was on April 1, 1989.
On September 16, 1991, the Trial Court rendered a decision in an
ejectment case earlier filed by respondent Fernando ordering petitioner to
vacate the premises and to pay P250.00 per month by way of compensation for
the use and occupation of the property from May 27,1991 until she vacated the
premises, attorneys fees and costs of the suit. On August 24, 1993, the trial
court issued a writ of execution which was duly served on petitioner Leano.
On November 4, 1993, 1993, after petitioner Leano posted acash bond of
P50000.00, the trial court issued a writ of preliminary injunction to stay the
enforcement of the decision of the municipal trial court.
ISSUE:
Whether or not the petitioner was in delay the payment of the monthly
amortizations.
RULING:
While the contract provided that the total purchase price shall be paid in
monthly installments by claiming that the ten-year period, the same contract
specified that the purchase price shall be paid in monthly installments for which
the corresponding penalty shall be imposed in case of default. Petitioner Leano
cannot ignore the provision on payment of monthly installments by claiming that
the ten-year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to
comply or is not ready to comply in a proper manner with what is incumbent

upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.

among others that the matter of the claim of Intervenor Lina becomes a money
claim to be filed in the estate of the late Sandejas, Sr.

In the case at bar, respondent Fernando performed his part of the


obligation by allowing petitioner Leano to continue in possession and use of the
property. Clearly, when petitioner Leano did not pay the monthly amortization in
accordance with the terms and conditions of the contract, she was in delay and
liable for damages. However, the default committed by the petitioner Leano in
respect of the obligation could be compensated by the interest and surcharges
imposed upon her under the contract in question. Petition denied, judgment
affirmed in toto.

The lower court issued an Order directing the counsel for the four heirs
and other heirs of Teresita R. Sandejas to move for the appointment of a new
administrator within fifteen (15) days from receipt of this Order.

EFFECTS OF NON-FULFILLMENT OF SUSPENSIVE CONDITION


HEIRS OF SANDEJAS, petitioners VS. LINA, respondent
351 SCRA 183
GR NO. 141634
FACTS:
Eliodoro Sandejas, Sr. filed a petition in the lower court praying that
letters of administration be issued in his favor for the settlement of the estate of
his wife, Remedios R. Sandejas. On July 1, 1981, Letters of Administration were
issued by the lower court appointing him as administrator of the estate of the
decedent. The records of the letter of administration given to Sandejas,
however, were burned when the Manila City Hall was destroyed by fire. Thus,
Sandejas Sr. filed a Motion for Reconstitution of the records, which motion was
granted.
An Omnibus Pleading for motion to intervene and petition-in-intervention
was filed by respondent Lina alleging among others that he and Administrator
Sandejas Sr., in his capacity as seller, bound and obligated himself, his heirs,
administrators, and assigns, to sell forever and absolutely and in their entirety
parcels of land which formed part of the estate.
Consequently, the lower court issued an Order granting the intervention of
respondent Lina. Sandejas Sr. filed a Manifestation alleging among others that
the administrator, Eliodoro P. Sandejas, Sr., died in Canada. He also alleged,

Heirs Sixto, Roberto, Antonio and Benjamin, all surnamed Sandejas, filed a
Motion for Reconsideration and the appointment of another administrator, Mr.
Sixto Sandejas in lieu of respondent Lina stating that it was only lately that Mr.
Sixto Sandejas, a son and heir, expressed his willingness to act as a new
administrator. Thereafter, respondent Lina filed his Manifestation and Counter
Motion alleging that he had no objection to the appointment of Sixto Sandejas as
administrator provided that Sixto Sandejas be also appointed as administrator of
the intestate estate of his father, Eliodoro P. Sandejas, Sr. The lower court
granted the said Motion and substituted Alex Lina with Sixto Sandejas as
petitioner in the said Petitions. After the payment of the administrator's bond
and approval thereof by the court, Administrator Sixto Sandejas took his oath as
administrator of the estate of the deceased Remedios R. Sandejas and Eliodoro
P. Sandejas and was likewise issued Letters of Administration on the same.
On November 29, 1993, Intervenor filed an Omnibus Motion to approve
the deed of conditional sale executed between Plaintiff-in-lntervention Lina and
Elidioro Sandejas, Sr. on June 7, 1982; to compel the heirs of Remedios Sandejas
and Eliodoro Sandejas, Sr. thru their administrator, to execute a deed of absolute
sale in favor of Intervenor Lina pursuant to said conditional deed of sale to which
the administrator filed a Motion to Dismiss and/or Opposition to said omnibus
motion.
The lower court granted intervenor's Motion but was overturned by the
Court of Appeals.
ISSUE:
Whether or not Eliodoro P. Sandejas Sr. is legally obligated to convey title
to the property referred to in the subject document which was found to be in the
nature of a contract to sell - where the suspensive condition set forth therein,
was not complied with.
RULING:

Petitioners argue that the CA erred in ordering the conveyance of the


disputed 3/5 of the parcels of land, despite the nonfulfillment of the suspensive
condition -- court approval of the sale. They assert that because this condition
had not been satisfied, their obligation to deliver the disputed parcels of land
was converted into a money claim.
Petitioners admit that the agreement between the deceased Eliodoro
Sandejas Sr. and respondent was a contract to sell, in which case the payment of
the purchase price is a positive suspensive condition. The vendor's obligation to
convey the title does not become effective in case of failure to pay. On the
other hand, the agreement between Eliodoro Sr. and respondent is subject to a
suspensive condition -- the procurement of a court approval, not full payment.
There was no reservation of ownership in the agreement. Petitioners were
supposed to deed the disputed lots over to respondent. They could do this upon
the court's approval, even before full payment. Hence, their contract was a
conditional sale, rather than a contract to sell. When a contract is subject to a
suspensive condition, its birth or effectivity can take place only if and when the
condition happens or is fulfilled. Thus, the intestate court's grant of the Motion
for Approval of the sale filed by respondent resulted in petitioners' obligation to
execute the Deed of Sale of the disputed lots in his favor. The condition having
been satisfied, the contract was perfected. Henceforth, the parties were bound
to fulfill what they had expressly agreed upon.

PERIOD OR TERM, MEANING AND DEFINITION


1. CIR VS. PRIMETOWN, 28 AUGUST 2007 as compared to
2. NAMARCO VS. TECSON, 139 P 584

CIR VS PRIMETOWN
GR No. 162155. August 28, 2007
FACTS:
On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown
Property Group, Inc., applied for the refund or credit of income tax
respondent paid in 1997. According to Yap, because respondent suffered
losses, it was not liable for income taxes. Nevertheless, respondent paid
its quarterly corporate income tax and remitted creditable withholding tax

from real estate sales to the BIR in the total amount of P26,318,398.32.
Therefore, respondent was entitled to tax refund or tax credit.
On May 13, 1999, revenue officer Elizabeth Y. Santos required
respondent to submit additional documents to support its claim.
Respondent complied but its claim was not acted upon. Thus, on April 14,
2000, it filed a petition for review in the Court of Tax Appeals (CTA). On
December 15, 2000, the CTA dismissed the petition as it was filed beyond
the two-year prescriptive period for filing a judicial claim for tax refund or
tax credit. Respondents now assail that decision for dismissal of the CTA.
ISSUE:
What is the expiration period for the filing of the action?
RULING:
Both Article 13 of the Civil Code and Section 31, Chapter VIII,
Book I of the Administrative Code of 1987 deal with the same subject
matter the computation of legal periods. Under the Civil Code, a year is
equivalent to 365 days whether it be a regular year or a leap year. Under
the Administrative Code of 1987, however, a year is composed of 12
calendar months. Needless to state, under the Administrative Code of
1987, the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code
of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of
the Administrative Code of 1987, being the more recent law, governs the
computation of legal periods. Lex posteriori derogat priori.
Following this formula, respondents petition (filed on April 14,
2000) was filed on the last day of the 24th calendar month from the day
respondent filed its final adjusted return. Hence, it was filed within the
reglementary period.
PERIOD OR TERM, MEANING AND DEFINITION

compared to
NAMARCO vs Tecson
GR No. L-29131.
August 27, 1969

DISTINCTIONS: CONDITION VS. PERIOD/TERM

FACTS:
On a previous court case, the CFI rendered judgment:
(a) Ordering the defendants Miguel D. Tecson and Alto Surety
Insurance Co., Inc. to pay jointly and severally plaintiff PRATRA the sum of
P7,200.00 plus 7% interest from May 25, 1960 until the amount is fully
paid, plus P500.00 for attorney's fees, and plus costs;
(b) ordering defendant Miguel D. Tecson to indemnify his codefendant Alto Surety & Insurance Co., Inc. on the cross-claim for all the
amounts it would be made to pay in this decision, in case defendant Alto
Surety & Insurance Co., Inc. pay the amount adjudged to plaintiff in this
decision. From the date of such payment defendant Miguel D. Tecson
would pay the Alto Surety & Insurance Co., Inc., interest at 12% per
annum until Miguel D. Tecson has fully reimbursed plaintiff of the said
amount.
Defendant Miguel Tecson seeks the dismissal of the complaint on
the ground of lack of jurisdiction and prescription. This case was filed
exactly on December 21, 1965 but more than ten years have passed a
year is a period of 365 days (Art. 13, CCP). Plaintiff forgot that 1960, 1964
were both leap years so that when this present case was filed it was filed
two days too late.
ISSUE:
Should the complaint be dismissed on the grounds of prescription?
RULING:
In the language of this Court, in People vs. Del Rosario, with the
approval of the Civil Code of the Philippines (Republic Act 386) ... we have
reverted to the provisions of the Spanish Civil Code in accordance with
which a month is to be considered as the regular 30-day month ... and not
the solar or civil month," with the particularity that, whereas the Spanish
Code merely mentioned "months, days or nights," ours has added thereto
the term "years" and explicitly ordains that "it shall be understood that
years are of three hundred sixty-five days."
The decision was affirmed.

1.
2.
3.
4.

BERG VS. MAGDALENA ESTATES, 92 P 110


LIRAG VS. CA, 63 SCRA 375
DAGUHOY VS. PONCE, 96 PHIL 15
VICTORIA PLANTERS VS. VICTORIA MILLING, 97 PHIL 110

BERG VS. MAGDALENA ESTATES


92 PHIL 110
FACTS:
This is an action for partition of the property known as Crystal Arcade
situated in the City of Manila.
The complaint avers that plaintiff and defendant
are co-owners of said property, the former being the owner of one-third interest
and the latter of the remaining two-thirds. The division is asked because plaintiff
and defendant are unable to agree upon the management of the property and
upon the partition thereof.
Defendant answered setting up a special defense and counterclaim. As a
special defense, defendant claims that on September 22, 1943, it sold to plaintiff
one-third of the property in litigation subject to the express condition that should
either vendor or vendee decide to sell his undivided share, the party selling
would grant to the other party first an irrevocable option to purchase the same
at the sellers price. It avers that in January 1946, plaintiff fixed the sum of
P200,000 as the price of said share and offered to sell it to defendant, which
offer was accepted and for the payment of said price plaintiff gave defendant a
period of time which, including the extensions granted would expire on May 31,
1947. Defendant claims that in spite of its acceptance of the offer, plaintiff
refused to accept the payment of the price, and for this refusal defendant
suffered damages in the amount of P100,000. For these reasons, defendant
asks for specific performance.
ISSUE:
Whether or not the obligation is one subject to a term.
RULING:
NO, rather, the obligation is rather subject to a condition. Under Article
1125 of the old Civil Code, obligations with a term, for the fulfillment of which a
day certain has been fixed, shall be demandable only when the day arrives. A

day certain is understood to be that which must necessarily arrive, even though
it is not known when. In order that an obligation may be with a term, it is,
therefore, necessary that it should arrive, sooner or later; otherwise, if its arrival
is uncertain, the obligation is conditional.
Viewing in this light the clause on which defendant relies for the
enforcement of its right to buy the property, it would seem that it is not a term,
but a condition. Considering the first alternative, that is, until defendant shall
have obtained a loan from the National City Bank of New York, it is clear that the
granting of such loan is not definite and cannot be held to come within the terms
day certain. And if it is considered that the period given was until such time as
defendant could raise money from other sources, then it is also to be indefinite
and contingent, and so it is also a condition and not a term within the meaning
of the law. In any event, it is apparent that the fulfillment of the condition
contained in this second alternative is made to depend upon defendants
exclusive will, and viewed in this light, the plaintiffs obligation to sell did not
arise, for, under article 1115 of the old Civil Code, when the fulfillment of the
condition depends upon the exclusive will of the debtor the conditional
obligation shall be void.

Mills, Inc. As of May 11, 1960, plaintiff received a salary of P400.00 and
allowance of P100.00 per month.
Plaintiff's tenure of employment, per defendant Lirag Textile Mills, Inc.'s
above letter of May 9, 1960 was to be 'for an indefinite period, unless sooner
terminated by reason of voluntary resignation or by virtue of a valid cause or
causes'.
On March 4, 1960, per letter of defendant Lirag Textile Mills, Inc. of that
date, signed by its Executive Vice President and General Manager, plaintiff was
advised that effective November 15, 1960 he (Alcantara) was promoted to the
position of Assistant Administrative Officer. Subsequently, on July 22, 1961,
defendant Lirag Textile Mills, Inc. wrote plaintiff (Alcantara) a letter advising him
that because the company 'has suffered some serious reverses, both in terms of
pecuniary loss and in market opportunities,' the company was terminating his
services and effecting his separation from defendant corporation effective at the
close of working hours of August 22, 1961.
Because of this, plaintiff Alcantara filed a complaint before the Regional
Trial Court against defendant Lirag Textile Mills Inc. for illegal dismissal as in
accordance with the employment contract between herein then plaintiff and
then defendant.

DISTINCTIONS: CONDITION VS. PERIOD/TERM

LIRAG TEXTILE MILLS, INC. and FELIX K. LIRAG vs.COURT OF APPEALS


and CRISTAN ALCANTARA
G.R. No. L-30736
April 14, 1975
FACTS:
On May 11, 1960 and for sometime prior and subsequent thereto,
defendant Felix Lirag was a member of the Board of Directors of the Philippine
Chamber of Industries; and for about two months, more or less, prior to May 11,
1960, plaintiff Cristina Alcantara worked in a temporary capacity with defendant
Lirag Textile Mills, Inc. During this same period of time, defendant Felix Lirag
was a director and Chairman of the Board of Directors of defendant Lirag Textile
Mills, Inc. On May 9, 1960, defendant Lirag Textile Mills, Inc. wrote a letter to
plaintiff (Alcantara) advising him that, effective May 11, 1960, his temporary
designation as Technical Assistant to the Administrative Officer was made
permanent and as Assistant to the Administrative Officer of the Lirag Textile

Respondent Court of Appeals affirmed the decision of the lower court in


Civil Case No. 6884 principally its conclusion that the trial court did not commit
any error in its evaluation of the evidence when it found that it was not true that
petitioner Lirag Textile Mills (then defendant) suffered pecuniary loss and in
market opportunities which it used as a justification to terminate the services of
plaintiff Alcantara; that it was not also true that the latter suffered from lack of
skill; that, therefore, there was a violation of the written contract of employment
executed by and between petitioners and private respondent Alcantara; that
petitioner (then defendant) Felix Lirag was responsible for inducing private
respondent Alcantara to leave his employment with the Philippine Chamber of
Industries where he was holding a permanent position and to accept
employment with petitioner (then defendant) Lirag Textile Mills; and that
appellee Alcantara was correctly awarded moral damages and attorney's fees.
ISSUE:
Whether or not there has been a violation of the written contract for a
period of employment between petitioner and private respondent.
RULING:

The contract of employment was for an indefinite period as it shall


continue without ending, subject to a resolutory period, unless sooner
terminated by reason of voluntary resignation or by virtue of a valid cause or
causes (the resolutory period).
There is an indefinite period of time for employment agreed upon by and
between petitioners and the private respondent, subject only to the resolutory
period agreed upon which may end the indeterminate period of employment,
namely voluntary resignation on the part of private respondent Alcantara or
termination of employment at the option of petitioner Lirag Textile Mills, but for
a "valid cause or causes". It necessarily follows that if the petitioner-employer
Lirag Textile Mills terminates the employment without a "valid cause or causes",
as it admittedly did, it committed a breach of the contract of employment
executed by and between the parties. The measure of an employer's liability
provided for in Republic Act 1052, as amended by R. A. 1787, is solely intended
for contracts of employment without a stipulated period. It cannot possibly
apply as a limitation to an employer's liability in cases where the employer
commits a breach of contract by violating an indefinite period of employment
expressly agreed upon through his wrongful act of terminating said employment
without any valid cause or causes, which act may even amount to bad faith on
the employer's part.
The "indefinite period" of employment expressly agreed upon by and
between the parties in this case is really a resolutory period because the
employment is bound to terminate on a future "day certain" such as the
employee's resignation or employer's termination of employment upon a valid
cause or causes, like death of the employee or termination of employer's
corporate existence, although it may not be known when.
It is clear that petitioner Lirag Textile Mills, Inc. violated the contract of
employment with private respondent Alcantara when the former terminated his
services without a valid cause. The act was attended with bad faith and deceit
because said petitioner made false allegations of a supposed valid cause
knowing them to be false, thus making itself liable for payment of actual, moral
and exemplary damages, plus attorneys fees to private respondent Alcantara.
Petitioner Lirag Textile Mills, Inc. cannot with impunity be allowed the absolute
and unilateral power to terminate without valid cause a contract of employment
with a definite period it voluntarily entered into merely on the basis of its whim
or caprice and under the false pretense of financial distress.
DISTINCTIONS: CONDITION VS. PERIOD/TERM

DAGUHOY ENTERPRISES, INC. VS. PONCE


96 Phil 15
FACTS:
In the year 1950, defendant-appellant Domingo Ponce was chairman and
manager and his son Buhay M. Ponce was secretary-treasurer of the plaintiff
corporation Daguhoy Enterprises, Inc. On June 24, Rita L. Ponce, wife of
Domingo, executed in favor of plaintiff corporation a deed of mortgage over a
parcel of land including the improvements thereon to secure the payment of a
loan of P5, 000 granted to her by said corporation, payable within six years with
interests at 12% annum. On March 10, 1951, Rita L. Ponce with the consent of
her husband Domingo executed another mortgage deed amending the first one,
whereby the loan was increased from P5,000 to P6,190, the terms and
conditions of the mortgage remaining the same. Rita and Domingo presented
the two mortgage deeds for registration in the office of the register of deeds for
registrations in the office of the register of deeds, but the said register advised
the two to cure the defects and furnish the necessary data. Instead of
complying with the suggestion and requirements, the two withdrew the two
mortgage deeds and then mortgaged the same parcel of land in favor of the
Rehabilitation Finance Corporation (RFC) to secure a loan.
Potenciano Gapol, the majority stockholder in the corporation, upon
learning that the deeds of mortgage were not registered and that they were
withdrawn from the office of the register of deeds and the land covered by the
two deeds was again mortgaged to RFC, he filed a civil case against the
respondents, not only for the amount of the loan of P6,190 but for other sums,
possibly on the theory that the loan in question was granted by Domingo and
Buhay as officers of the corporation.
To account for the amount of the loan, Domingo and his son filed in court
a check of RFC in the amount of P6,190 and an interesr of P266.10 in favor of the
company. Thereafter, Gapol petitioned the court for permission to withdraw the
amounts as payment of the loan. But because the defendants opposed said
petition, the court denied it. Gapol, agreeing to the cancellation of the mortgage
as soon as the amounts are withdrawn and deposited with the Bank of America,
in the name of the company, filed a second petition for withdrawal. However,
the defendants failed to agree, thus it was again denied.

ISSUE:
Whether or not the sum in the form of an RFC check and some interest
deposited in the civil case may be withdrawn to satisfy the judgment and to pay
the loan of P6,190 and part of the interest due.
RULING:

undertakings of such central and the planters and the terms and conditions
under which the sugar cane produced by said planters would be milled in the
event of the construction of such sugar central by Ossorio. Such central was in
fact constructed by said Ossorio in Manapla, Negros Occidental, through the
North Negros Sugar Co., Inc., where after the standard form of milling contracts
were executed.

Yes. Although the original loan of P5,000 including the increase of P1,190
was payable within six years from June 1950 and so did not become due and
payable until 1956, the trial court held that under article 1198 of the Civil Code,
the debtor lost the benefit of the period by reason of her failure to give the
security in the form of the two deeds of mortgage and register them, including
defendants act in withdrawing said two deeds from the office of the register of
deeds and then mortgaging the same property in favor of the RFC; and so the
obligation became pure and without any condition and consequently, the loan
became due and immediately demandable. Likewise, even if the defendants
had already deposited a certain amount in favor of the corporation, they are not
yet relieved from the payment of interests from the time of the deposit because
the loan is not yet paid.

The parties cannot stipulate as to the milling contracts executed by the


planters by Victorias, Negros Occidental, other than as follows: 1) a number of
them executed such milling contracts with the North Negros Sugar Co., Inc.; 2)
while a number of them executed milling contracts with the Victorias Milling Co.,
Inc., which was likewise organized by Miguel J. Ossorio and which had
constructed another Central at Victorias, Negros Occidental. The North Negros
Sugar Co., Inc. had its first milling during the 1918-1919 crop years, and the
Victorias Milling Co., had its first milling during the 1921-1922 crop year.
Subsequent millings took place every successive crop year thereafter, except
the 6-year period, comprising 4 years of the last World War II and 2 years of
post-war reconstruction of respondent's central at Victorias, Negros Occidental.

DISTINCTIONS: CONDITION VS. PERIOD/TERM

VICTORIAS PLANTERS VS. VICTORIAS MILLING


97 PHIL. 318
FACTS
From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros
Occidental, executed identical milling contracts, under which the sugar central
"North Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane
planters of the Manapla and Cadiz districts.
The sugar cane planters of Manapla and Cadiz, Negros Occidental had
executed with Miguel J. Ossorio, a contract whereby Ossorio was given a period
up to December 31, 1916 within which to make a study of and decide whether
he would construct a sugar central or mill with a capacity of milling 300 tons of
sugar cane every 24 hours and setting forth the mutual obligations and

After the liberation, the North Negros Sugar Co., Inc. did not reconstruct
its destroyed central at Manapla, Negros Occidental, and in 1946, it advised the
North Negros Planters Association, Inc. that it had made arrangements with the
respondent Victorias Milling Co., Inc. for said respondent corporation to mill the
sugar cane produced by the planters of Manapla and Cadiz holding milling
contracts with it. Thus, after the war, all the sugar cane produced by the
planters of petitioner associations, in Manapla, Cadiz, as well as in Victorias, who
held milling contracts, were milled in only one central, that of the respondent
corporation at Victorias. Beginning with the year 1948, and in the following
years, when the planters-members of the North Negros Planters Association, Inc.
considered that the stipulated 30-year period of their milling contracts executed
in the year 1918 had already expired and terminated in the crop year 19471948, and the planters-members of the Victorias Planters Association, Inc.
likewise considered the stipulated 30-year period of their milling contracts, as
having likewise expired and terminated in the crop year 1948-1949, under the
pertinent provisions of the standard milling contract. Notwithstanding the
repeated representations made by the herein petitioners with the respondent
corporation, the herein respondent has refused and still refuses to accede to the
same, contending that under the provisions of the milling contract.
ISSUE:

Whether or not the trial court erred in rendering its disputed decision,
favoring the petitioner.

up for what they failed to deliver during those trying years, the fulfillment of
which was impossible, if granted, would in effect be an extension of the term of
the contracts entered into by and between the parties.

RULING:
NO.
obligation.

Fortuitous event relieves the obligor from fulfilling a contractual

The fact that the contracts make reference to "first milling" does not make
the period of thirty (30) years one of thirty (30) milling years. The term "first
milling" used in the contracts under consideration was for the purpose of
reckoning the thirty-year period stipulated therein. Even if the thirty-year period
provided for in the contracts be construed as milling years, the deduction or
extension of six (6) years would not be justified. At most on the last year of the
thirty-year period stipulated in the contracts the delivery of sugar cane could be
extended up to a time when all the amount of sugar cane raised and harvested
should have been delivered to the appellant's mill as agreed upon.
Further, the parties stipulated that in the event of flood, typhoon,
earthquake, or other force majeure, war, insurrection, civil commotion,
organized strike, etc., the contract shall be deemed suspended during said
period, does not mean that the happening of any of those events stops the
running of the period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during that time the planters from
delivering sugar cane and the central from milling it.
In order that the central, the herein appellant, may be entitled to demand
from the other parties the fulfillment of their part in the contracts, the latter
must have been able to perform it but failed or refused to do so and not when
they were prevented by force majeure such as war. To require the planters to
deliver the sugar cane which they failed to deliver during the four (4) years of
the Japanese occupation and the two (2) years after liberation when the mill was
being rebuilt is to demand from the obligors the fulfillment of an obligation which
was impossible of performance at the time it became due. Nemo tenetur ad
impossibilia.
The obligee not being entitled to demand from the obligors the
performance of the latters part of the contracts under those circumstances
cannot later on demand its fulfillment. The performance of what the law has
written off cannot be demanded and required. The prayer that the plaintiffs be
compelled to deliver sugar cane to the appellant for six (6) years more to make

POTESTATIVE PERIOD
1.
2.
3.

JESPAJO REALTY VS. CA, 390 SCRA 27


BORROMEO VS. CA, 47 SCRA 65
GONZALES VS. JOSE, 66 PHIL 369

JESPAJO REALTY CORPORATION, petitioner,


VS. HON. COURT OF APPEALS, TAN TE GUTIERREZ and CO TONG,
respondents
390 SCRA 27
FACTS:
The subject of this controversy is an apartment building owned by Jespajo
Realty Corporation. Said corporation, represented by its President, Jesus L. Uy,
entered into separate contracts of lease with Tan Te Gutierrez and Co Tong. The
lease period shall be effective as of February 1, 1985 and shall continue for an
indefinite period provided the lessee is up-to-date in the payment of his monthly
rentals. The lessee may, at his option, terminate this contract any time by
giving sixty (60) days prior written notice of termination to the lessor. However,
violation of any of the terms and conditions of this contract shall be a sufficient
ground for termination thereof by the lessor. For the duration of the contract,
the lessee agrees to an automatic 20% yearly increase in the monthly rentals.
On January 2, 1990, the lessor corporation sent a written notice to the
lessees informing them of the formers intention to increase the monthly rentals
on the occupied premises to P3,500.00 monthly effective February 1, 1990. The
lessees through its counsel in a letter dated March 10, 1990 manifested their
opposition alleging that the same is in contravention of the terms of the contract
of lease as agreed upon. Due to the opposition and the failure of the lessees to
pay the increased monthly rentals in the amount of P3,500.00, the lessor
through its counsel in a letter dated April 10, 1990 demanded that the lessees
vacate the premises and pay the amount of P7,000.00 corresponding to the
months of February and March, 1990.

The lessees exerted effort to pay the rentals due for the months of
February and March 1990 at the monthly rate stipulated in the contract but was
refused by the lessor so that on May 2, 1990, they instituted before the
Metropolitan Trial Court of Manila, Branch 16 a case for consignation.
The trial judge in the consignation case issued an order allowing the
plaintiffs therein to deposit with the City Treasurer of Manila the amount of
P33,480.28 for Co Tong and the amount of P32,710.32 for Tan Te Gutierrez
representing their respective rentals for thirteen (13) months from February,
1990 to January, 1991.
More than six (6) months from the filing of the case for consignation, the
lessor instituted an ejectment suit against the lessees before the Metropolitan
Trial Court of Manila Branch 20. The court in its decision dismissed the ejectment
suit for lack of merit. Regional Trial Court is constrained to reverse the appealed
decision and ordered another judgment to be entered in favor of appellant. This
was, however, reversed by the Court of Appeals
ISSUE:
Whether or not the subject contract of lease did not provide for a definite
period hence it falls under the ambit of Art. 1687 of the NCC, making the
agreement effective on a month-to-month basis since rental payments are made
monthly
RULING:
No. The Court held that Art. 1687 finds no application in the case at bar.
The lease contract between petitioner and respondents is with a period
subject to a resolutory condition. Art. 1687 provides that if the period for the
lease has not been fixed, it is understood to be from year to year, if the rent
agreed upon is annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to be paid daily.
However, even though a monthly rent is paid, and no period for the lease has
been set, the courts may fix a longer term for the lease after the lessee has
occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a longer period
after the lessee has been in possession for over six months. In case of daily
rent, the courts may also fix a longer period after the lessee has stayed in the
place for over one month. The wording of the agreement is unequivocal: The
lease period shall continue for an indefinite period provided the lessee is up-to-

date in the payment of his monthly rentals. The condition imposed in order
that the contract shall remain effective is that the lessee is up-to-date in his
monthly payments. It is undisputed that the lessees Gutierrez and Co Tong
religiously paid their rent at the increasing rate of 20% annually. The agreement
between the lessor and the lessees are therefore still subsisting, with the original
terms and conditions agreed upon, when the petitioner unilaterally increased the
rental payment to more than 20% or P3,500.00 a month.
POTESTATIVE PERIOD
BORROMEO VS. CA
47 SCRA 65
FACTS:
Before the year 1933, Jose A. Villamor was a distributor of lumber
belonging to Mr. Miller who was the agent of the Insular Lumber Company in
Cebu City.
Defendant being a friend and former classmate of plaintiff,
Borromeo, used to borrow from the latter certain amounts from time to time. On
one occasion with some pressing obligation to settle with Mr. Miller, defendant
borrowed from plaintiff a large sum of money for which he mortgaged his land
and house in Cebu City. Mr. Miller filed civil action against the defendant and
attached his properties including those mortgaged to plaintiff, inasmuch as the
deed of mortgage in favor of plaintiff could not be registered because it was not
properly drawn up. Plaintiff then pressed the defendant for the settlement of his
obligation, but defendant instead offered to execute a document promising to
pay his indebtedness even after the lapse of ten (10) years.
Liquidation was made and defendant was found to be indebted to plaintiff
in the sum of P7,220, for which defendant signed a promissory note on
November 29, 1933 with interest at the rate of 12% per annum, agreeing to
pay-as soon as I have money. The note further stipulates that defendant
hereby relinquish, renounce, or otherwise waive my rights to the prescriptions
established by our Code of Civil Procedure for the collection or recovery of the
above sum of P7,220.
ISSUE:
Whether or not prescription extinguished the obligation.
RULING:

NO. The obligation in this case is one which is subject to a potestative


condition, one which is dependent solely on the will of the debtor. The
statement as soon as I have money is the condition which is dependent on the
debtors will. Although this condition is void, it has been relied upon by the
creditor resulting to the delayed filing of the action.
Prescription in this case cannot be applied strictly for it will result to grave
injustice on the part of the creditor. For as was also made clear therein, there
had been since then verbal requests on the part of the creditor made to the
debtor for the settlement of the loan. Furthermore, plaintiff did not file any
complaint against the defendant within ten (10) years from the execution of the
document as there was no property registered in defendants name who
furthermore assured him that he could collect even after the lapse of ten years.
The debtor is therefore liable for the amount of the obligation plus interests.

If the obligation does not specify a term, but it is to be inferred from its nature
and circumstances that it was intended to grant the debtor time for its
performance, the period of the term shall be fixed by the court.
The action to ask the court to fix the period has already prescribed in
accordance with section 43 (1) of the Code of Civil Procedure. This period of
prescription is ten (10) years, which has already elapsed from the execution of
the promissory notes until the filing of the action on June 1, 1934. The action
which should be brought in accordance with Article 1128 is different from the
action for the recovery of the amount of the notes, although the effects of both
are the same, being, like other civil actions, subject to the rules of prescription.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS


POTESTATIVE PERIOD (Art. 1180 in rel to Art. 1197, CC)
1.
2.
3.
GONZALES VS. JOSE
66 PHIL 369
FACTS:
Defendant Florentino de Jose executed two (2) promissory notes on June
22, 1922 and September 13, 1922 in favor of plaintiff Benito Gonzales. The two
(2) promissory notes were both worded as follows: I promise to pay Mr. Benito
Gonzalez the sum of P (amount) as soon as possible. Defendant appealed from
the decision of the Court of First Instance of Manila ordering him to pay the
plaintiff the sum of P547.95 within thirty (30) days from the date of notification
of said decision, plus the costs. The defendant interposed the defense of
prescription because the action was not filed by the plaintiff within the
prescriptive period prescribed by law.
ISSUE:
Whether or not the action has already prescribed.
RULING:
NO. The words as soon as possible in the promissory notes denote that
such is an obligation subject to a potestative condition. Article 1128 of the Civil
Code provides:

4.
5.
6.
7.
8.
9.

BALUYOT VS. POBLETE, 514 S 370


MALAYAN REALTY VS. UY, 10 NOVEMBER 2006
KASAPIAN NG MANGGAGAWA NG COCA-COLA VS. CA, 487 S
487
SANTOS-VENTURA VS. SANTOS, 441 SCRA 472
MELOTINDOS VS. TOBIAS, 391 SCRA 299
LL AND COMPANY VS. HUANG, 378 SCRA 612
BRENT SCHOOL VS. ZAMORA, FEB. 5, 1990
LIM VS. PEOPLE, NOV. 21, 1984
PACIFIC BANKING VS. CA, MAY 5 1989

BALUYUT VS POBLETE
GR No. 144435.
February 6, 2007
FACTS:
On July 20, 1981, Guillermina Baluyut, mortgaged her house to
secure a loan in the amount of PhP850,000.00 from the spouses Eulogio
and Salud Poblete. The load was set to mature in one month. After a
month had passed, she was unable to pay her indebtedness which led the
spouses to extrajudicially foreclose the mortgage. The property was then

sold on Auction to the Poblete spouses who asked Baluyut to vacate the
premises. Baluyut instead filed an action for annulment of mortgage. His
claim was rejected by the RTC and the CA. Petitioner claims that based on
the testimony of Atty. Edwina Mendoza that the maturity of the loan
which she incurred is only for one year.
ISSUE:
Is petitioners contention tenable?
RULING:
Evidence of a prior or contemporaneous verbal agreement is
generally not admissible to vary, contradict or defeat the operation of a
valid contract. In the instant case, aside from the testimony of Atty.
Mendoza, no other evidence was presented to prove that the real date of
maturity is one year.
The terms that were thusly reduced to writing is deemed to contain
all the terms agreed upon and no evidence of such terms can be admitted
other than the contents of the agreement itself. The promissory note is
the law between petitioner and private respondents and it clearly states
that the loan shall mature in one month from date of the said Promissory
Note.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

MALAYAN REALTY VS UY
GR No. 163763. November 10, 2006
FACTS:
Malayan Realty, Inc. (Malayan), is the owner of an apartment unit
known as 3013 Interior No. 90 (the property), located at Nagtahan Street,
Sampaloc, Manila. In 1958, Malayan entered into a verbal lease contract
with Uy Han Yong (Uy) over the property at a monthly rental of P262.00.
The monthly rental was increased yearly starting 1989, and by 2001, the
monthly rental was P4,671.65.

On July 17, 2001, Malayan sent Uy a written notice informing him


that the lease contract would no longer be renewed or extended upon its
expiration on August 31, 2001, and asking him to vacate and turn over
the possession of the property within five days from August 31, 2001, or
on September 5, 2001. Despite Uys receipt of the notice on June 18,
2001, he refused to vacate the property, prompting Malayan to file before
the Metropolitan Trial Court (MeTC) of Manila a complaint for ejectment,
docketed as Civil Case No. 171256, and was raffled to Branch 3 thereof.
The Court ruled in favor of Uy and granted an extension period of five
years.
ISSUE:
Is respondent Uy entitled to a grant of extension by the Court?
RULING:
The 2nd paragraph of Article 1687 provides that in the event that the
lessee has occupied the leased premises for over a year, the courts may
fix a longer term for the lease.
The power of the courts to establish a grace period is potestative or
discretionary, depending on the particular circumstances of the case.
Thus, a longer term may be granted where equities come into play, and
may be denied where none appears, always with due deference to the
parties freedom to contract.
In the present case, respondent has remained in possession of the
property from the time the complaint for ejectment was filed on
September 18, 2001 up to the present time. Effectively, respondents
lease has been extended for more than five years, which time is, under the
circumstances, deemed sufficient as an extension and for him to find
another place to stay.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

KASAPIAN NG MANGGAGAWA NG COCA-COLA VS CA

GR No. 159828. April 19, 2006


FACTS:
On June 1998, a Collective Bargaining Agreement which was in
effect between petitioner union and private respondent company expired.
With the intervention of the NCMB Administrator, on December 26, 1998,
both parties executed and signed a MOA providing for salary increases
and other economic and non-economic benefits. As part of the MOA, 61
employees were regularized. Consequently, petitioner demanded the
payment and benefits of the newly regularized employees retroactive to
December 1, 1998. Petitioner then demanded renegotiation of the CBA
which private respondent refused. On December 9, 1999, despite the
pendency of petitioners complaint before the NLRC, private respondent
closed its Manila and Antipolo plants resulting in the termination of
employment of 646 employees. The affected employees were considered
on paid leave from December 9, 1999 to February 29, 2009 and were paid
their corresponding salaries. The Petitioners amended their complaint to
include union busting, illegal dismissal, etc.
ISSUE:
Is the closure of the Manila and Antipolo plants valid?
RULING:
Under Article 280 of the Labor Code, all those who have been with
the company for one year by said date must automatically be considered
regular employees by operation of law. The 61 employees all qualify as
regular employees by this provision.
The characterization of the employees services as no longer
necessary or sustainable, and therefore properly terminable, is an
exercise of business judgment on the part of the employer. The wisdom or
soundness of such characterizing or decision is not subject to
discretionary review on the part of the Labor Arbiter nor of the NLRC so
long, of course, as violation of law or merely arbitrary and malicious
action is not shown. As found by the NLRC, the private respondents
decision to close the plant was a result of a study conducted which
established that the most prudent course of action for the private
respondent was to stop operations in said plants and transfer production

to other more modern and technologically advanced plants of private


respondent.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS

SANTOS VENTURA HOCORMA FOUNDATION, INC., Petitioner,


VS. ERNESTO V. SANTOS and RIVERLAND, INC., Respondents
November 4, 2000
G.R. No. 153004
FACTS:
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI)
were the plaintiff and defendant, respectively, in several civil cases filed in
different courts in the Philippines. On October 26, 1990, the parties executed a
Compromise Agreement which amicably ended all their pending litigations. The
pertinent portions of the Agreement read as follows:
1.
Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the
following manner:
a) P1.5 Million immediately upon the execution of this agreement; and, b) the
balance of P13 Million shall be paid, whether in one lump sum or in installments,
at the discretion of the Foundation, within a period of not more than two (2)
years from the execution of this agreement; provided, however, that in the event
that the Foundation does not pay the whole or any part of such balance, the
same shall be paid with the corresponding portion of the land or real properties
subject of the aforesaid cases and previously covered by the notices of lis
pendens, under such terms and conditions as to area, valuation, and location
mutually acceptable to both parties; but in no case shall the payment of such
balance be later than two (2) years from the date of this agreement; otherwise,
payment of any unpaid portion shall only be in the form of land aforesaid;
2. Immediately upon the execution of this agreement (and [the] receipt of
the P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil
Cases Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and voluntarily
withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R. No. 26598) and 8845366 (C.A.-G.R. No. 24304) respectively and for the immediate lifting of the
aforesaid various notices of lis pendens on the real properties aforementioned

(by signing herein attached corresponding documents, for such lifting); provided,
however, that in the event that defendant Foundation shall sell or dispose of any
of the lands previously subject of lis pendens, the proceeds of any such sale, or
any part thereof as may be required, shall be partially devoted to the payment
of the Foundations obligations under this agreement as may still be subsisting
and payable at the time of any such sale or sales;
XXX
5. Failure of compliance of any of the foregoing terms and conditions by either
or both parties to this agreement shall ipso facto and ipso jure automatically
entitle the aggrieved party to a writ of execution for the enforcement of this
agreement.
In compliance with the Compromise Agreement, respondent Santos
moved for the dismissal of the aforesaid civil cases. He also caused the lifting of
the notices of lis pendens on the real properties involved. For its part, petitioner
SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood
Corporation two real properties, which were previously subjects of lis pendens.
Discovering the disposition made by the petitioner, respondent Santos sent a
letter to the petitioner demanding the payment of the remaining P13 million,
which was ignored by the latter. Meanwhile, on September 30, 1991, the
Regional Trial Court of Makati City, Branch 62, issued a Decision approving the
compromise agreement.
On October 28, 1992, respondent Santos sent another letter to petitioner
inquiring when it would pay the balance of P13 million. There was no response
from petitioner. Consequently, respondent Santos applied with the Regional
Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of its
compromise judgment dated September 30, 1991. The RTC granted the writ.
Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner,
which were formerly subjects of the lis pendens. Petitioner, however, filed
numerous motions to block the enforcement of the said writ. The challenge of
the execution of the aforesaid compromise judgment even reached the Supreme
Court. All these efforts, however, were futile.
On November 22, 1994, petitioners real properties located in Mabalacat,
Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest
bidder for P12 million and it was issued a Certificate of Sale covering the real

properties subject of the auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real properties of petitioner in Bacolod
City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale
issued for both properties provided for the right of redemption within one year
from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for
Declaratory Relief and Damages alleging that there was delay on the part of
petitioner in paying the balance of P13 million. They further alleged that under
the Compromise Agreement, the obligation became due on October 26, 1992,
but payment of the remaining P12 million was effected only on November 22,
1994. Thus, respondents prayed that petitioner be ordered to pay legal interest
on the obligation, penalty, attorneys fees and costs of litigation. Furthermore,
they prayed that the aforesaid sales be declared final and not subject to legal
redemption.
In its Answer, petitioner countered that respondents have no cause of
action against it since it had fully paid its obligation to the latter. It further
claimed that the alleged delay in the payment of the balance was due to its valid
exercise of its rights to protect its interests as provided under the Rules.
Petitioner counterclaimed for attorneys fees and exemplary damages.
On October 4, 1996, the trial court rendered a Decision dismissing herein
respondents complaint and ordering them to pay attorneys fees and exemplary
damages to petitioner. Respondents then appealed to the Court of Appeals. The
appellate court reversed the ruling of the trial court.
ISSUE:
Whether or not the Court of Appeals was correct in its decision, reversing
the trial courts decision, regarding the legal interest of herein respondents on
aforementioned properties.
RULING:
The Supreme Court held the decision of the Court of Appeals correct. A
compromise is a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced. It is an
agreement between two or more persons, who, for preventing or putting an end
to a lawsuit, adjust their difficulties by mutual consent in the manner which they
agree on, and which everyone of them prefers in the hope of gaining, balanced
by the danger of losing. The general rule is that a compromise has upon the
parties the effect and authority of res judicata, with respect to the matter
definitely stated therein, or which by implication from its terms should be

deemed to have been included therein. This holds true even if the agreement
has not been judicially approved.

demandable. Furthermore, the obligation is liquidated because the debtor


knows precisely how much he owes and when he should pay the amount due.

In the case at bar, the Compromise Agreement was entered into by the
parties on October 26, 1990. It was judicially approved on September 30, 1991.
Applying existing jurisprudence, the compromise agreement as a consensual
contract became binding between the parties upon its execution and not upon
its court approval. From the time a compromise is validly entered into, it
becomes the source of the rights and obligations of the parties thereto. The
purpose of the compromise is precisely to replace and terminate controverted
claims. In accordance with the compromise agreement, the respondents asked
for the dismissal of the pending civil cases. The petitioner, on the other hand,
paid the initial P1.5 million upon the execution of the agreement. This act of the
petitioner showed that it acknowledges that the agreement was immediately
executory and enforceable upon its execution. As to the remaining P13 million,
the terms and conditions of the compromise agreement are clear and
unambiguous.

The second requisite is also present. Petitioner delayed in the


performance. It was able to fully settle its outstanding balance only on February
8, 1995, which is more than two years after the extra-judicial demand.
Moreover, it filed several motions and elevated adverse resolutions to the
appellate court to hinder the execution of a final and executory judgment, and
further delay the fulfillment of its obligation.

The two-year period must be counted from October 26, 1990, the date of
execution of the compromise agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991. When respondents wrote a
demand letter to petitioner on October 28, 1992, the obligation was already due
and demandable. When the petitioner failed to pay its due obligation after the
demand was made, it incurred delay. Article 1169 of the New Civil Code
provides:

Third, the demand letter sent to the petitioner on October 28, 1992, was in
accordance with an extra-judicial demand contemplated by law.
Verily, the petitioner is liable for damages for the delay in the performance
of its obligation. This is provided for in Article 1170 of the New Civil Code. When
the debtor knows the amount and period when he is to pay, interest as damages
is generally allowed as a matter of right. The complaining party has been
deprived of funds to which he is entitled by virtue of their compromise
agreement.
The goal of compensation requires that the complainant be
compensated for the loss of use of those funds. This compensation is in the form
of interest. In the absence of agreement, the legal rate of interest shall prevail.
The legal interest for loan as forbearance of money is 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

Those obliged to deliver or to do something incur in delay from the time


the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
Delay as used in this article is synonymous to default or mora which
means delay in the fulfillment of obligations. It is the non-fulfillment of the
obligation with respect to time. In order for the debtor to be in default, it is
necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or extrajudicially.
In the case at bar, the obligation was already due and demandable after
the lapse of the two-year period from the execution of the contract. The twoyear period ended on October 26, 1992. When the respondents gave a demand
letter on October 28, 1992, to the petitioner, the obligation was already due and

MANUEL D. MELOTINDOS
VS. MELECIO TOBIAS, represented by JOSEFINA PINEDA
G.R. No. 146658
28 October 2002
391 SCRA 299
FACTS:
Eighty-seven-year old petitioner, Atty. Manuel D. Melontindos, was the
lessee of the ground floor of a house in Malate, Manila. He had been renting the

place since 1983 on a month-to-month basis from its owner, respondent Melecio
Tobias, who was then residing in Canada.
Sometime in the last quarter of 1995, owing to his sickly mother who
needed constant medical attention and filial care, respondent demanded from
petitioner either to pay an increased rate of monthly rentals or else to vacate the
place so he and his mother could use the house during her regular medical
check-up in Manila. For two (2) years nothing came out of the demand to
vacate, hence, in 1997 respondent insisted upon raising the rental fee once
again.
On 1 June 1998 respondent asked petitioner to restore the premises to
him for some essential repairs of its dilapidated structure. This time he did not
offer petitioner anymore the option to pay higher rentals. The renovation of the
house was commenced but had to stop midway because petitioner refused to
vacate the portion he was occupying and worse he neglected to pay for the
lease for four (4) months from May to August 1998. Hence for the second time,
or on 19 October 1998, respondent demanded the payment of the rental arrears
as well as the restoration of the house to him. On 3 February 1999, since
petitioner was insisting on keeping possession of the house but did not pay the
rental for January 1999, although he had settled the arrears of four (4) months,
respondent was compelled to file a complaint for ejectment.
The MeTC of Manila decided the ejectment complaint in favor of
respondent and ordered petitioner to vacate the leased premises and to pay
rental arrears in the amount of P60,000.00 as of December 1998 and P6,000.00
for every month thereafter until he finally restored possession thereof to
respondent plus attorneys fees of P15,000.00 and the costs of suit. The RTC of
Manila upheld in toto the MeTC Decision and denied the subsequent motion for
reconsideration for failure to set the date of hearing thereof not later than ten
(10) days from its filing. Petitioners recourse to the Court of Appeals by petition
for review was also unsuccessful since the assailed Decision was affirmed in its
entirety as the ensuing motion for reconsideration thereof was denied for late
filling, i.e., the motion was filed only on 30 October 2000 beyond the fifteen (15)
day period from his receipt of the CA Decision on 9 October 2000 as shown by
the registry return receipt.
ISSUE:
Whether or not the lower courts erred in their rulings.
RULING:

It is not only the evidence on record but petitioners pleadings themselves


that confirm his default in paying the rental fees for more than three (3) months
in 1999 and 1998 prior to the filing of the ejectment complaint. There is also
sufficient basis for the courts a quo to conclude that respondent desperately
needed the property in good faith for his own family and for the repair and
renovation of the house standing thereon. These facts represent legal grounds
to eject a tenant.
The Petition for Review is DENIED for lack of merit.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS


LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL
CORPORATION, petitioner,
VS. HUANG CHAO CHUN AND YANG TUNG FA, respondents
Mar 7, 2000
G.R. No. 142378
378 SCRA 612
FACTS:
The case originated from an unlawful detainer case filed by petitioner
before the trial court alleging that respondents Huang Chao Chun and Yang Tung
Fa violated their amended lease contract over a 1,112 square meter lot it owns,
when they did not pay the monthly rentals thereon in the total amount of
P4,322,900.00. It also alleged that the amended lease contract already expired
on September 16, 1996 but respondents refused to surrender possession thereof
plus the improvements made thereon, and pay the rental arrearages despite
repeated demands. The parties entered into the amended lease contract
sometime in August 1991. The same amended the lease contract previously
entered into by the parties on August 8, 1991.
Respondent were joined by the Tsai Chun International Resources Inc. in
their answer to the Complaint, wherein they alleged that the actual lessee is the
corporation. Respondents and the corporation denied petitioners allegations.
The MTC dismissed the case. The MTC ruled that the lessees could extend
the contract entered into by the parties unilaterally for another five years for
reasons of justice and equity. It also ruled that the corporations failure to pay
the monthly rentals as they fell due was justified by the fact that petitioner
refused to honor the basis of the rental increase as stated in their Lease

Agreement. This was affirmed by the RTC. It also held that the parties had a
reciprocal obligation: unless and until petitioner presented the increased realty
tax, private respondents were not under any obligation to pay the increased
monthly rental. The decision was likewise affirmed by the Court of Appeals.
ISSUE:
Whether or not the court could still extend the term of the lease, after its
expiration.
RULING:
In general, the power of the courts to fix a longer term for a lease is
discretionary. Such power is to be exercised only in accordance with the
particular circumstances of a case: a longer term to be granted where equities
demanding extension come into play; to be denied where none appear -- always
with due deference to the parties freedom to contract. Thus, courts are not
bound to extend the lease.
Article 1675 of the Civil Code excludes cases falling under Article 1673
from those under Article 1687. Article 1673 provides among others, that the
lessor may judicially eject the lessee upon the expiration of the period agreed
upon or that, which is fixed for the duration of the leases. Where no period has
been fixed by the parties, the courts, pursuant to Article 1687, have the
potestative authority to set a longer period of lease.
In the case, the Contract of Lease provided for a fixed period of five (5)
years -- specifically from September 16, 1991 to September 15, 1996.
Because the lease period was for a determinate time, it ceased, by express
provision of Article 1669 of the Civil Code, on the day fixed, without need of a
demand. Here, the five-year period expired on September 15, 1996, whereas
the Complaint for ejectment was filed on October 6, 1996. Because there was
no longer any lease that could be extended, the MeTC, in effect, made a new
contract for the parties, a power it did not have.
As stated in Bacolod-Murcia Milling v. Banco Nacional Filipino, It is not the
province of the court to alter a contract by construction or to make a new
contract for the parties; its duty is confined to the interpretation of the one
which they have made for themselves, without regard to its wisdom or folly, as
the court cannot supply material stipulations or read into contract words which it
does not contain.
Furthermore, the extension of a lease contract must be made before the
term of the agreement expires, not after. Upon the lapse of the stipulated

period, courts cannot belatedly extend or make a new lease for the parties, even
on the basis of equity. Because the Lease Contract ended on September
15, 1996, without the parties reaching any agreement for renewal, respondents
can be ejected from the premises.
On the other hand, respondents and the lower courts argue that the
Contract of Lease provided for an automatic renewal of the lease period. Citing
Koh v. Ongsiaco and Cruz v. Alberto, the MeTC -- upheld by the RTC and the CA
-- ruled that the stipulation in the Contract of Lease providing an option to renew
should be construed in favor of and for the benefit of the lessee. This ruling has
however, been expressly reversed in Fernandez v. CA and was recently
reiterated in Heirs of Amando Dalisay v. Court of Appeals. Thus, pursuant to
Fernandez, Dalisay and Article 1196 of the Civil Code, the period of the lease
contract is deemed to have been set for the benefit of both parties. Its renewal
may be authorized only upon their mutual agreement or at their joint will. Its
continuance, effectivity or fulfillment cannot be made to depend exclusively
upon the free and uncontrolled choice of just one party. While the lessee has
the option to continue or to stop paying the rentals, the lessor cannot be
completely deprived of any say on the matter. Absent any contrary stipulation
in a reciprocal contract, the period of lease is deemed to be for the benefit of
both parties.
In the instant case, there was nothing in the aforesaid stipulation or in the
actuation of the parties that showed that they intended an automatic renewal or
extension of the term of the contract. First, demonstrating petitioners
disinterest in renewing the contract was its letter dated August 23, 1996,
demanding that respondents vacate the premises for failure to pay rentals since
1993. As a rule, the owner-lessor has the prerogative to terminate the lease
upon its expiration. Second, in the present case, the disagreement of the parties
over the increased rental rate and private respondents failure to pay it
precluded the possibility of a mutual renewal. Third, the fact that the lessor
allowed the lessee to introduce improvements on the property was indicative,
not of the formers intention to extend the contract automatically, but merely of
its obedience to its express terms allowing the improvements. After all, at the
expiration of the lease, those improvements were to become its property.
As to the contention that it is not fair to eject respondents from the
premises after only five years, considering the value of the improvements they
introduced therein, suffice it to say that they did so with the knowledge of the
risk -- the contract had plainly provided for a five-year lease period.

Parties are free to enter into any contractual stipulation, provided it is not
illegal or contrary to public morals. When such agreement, freely and voluntarily
entered into, turns out to be disadvantageous to a party, the courts cannot
rescue it without crossing the constitutional right to contract. They are not
authorized to extricate parties from the necessary consequences of their acts,
and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve the latter of their obligations.
Petition granted. Decision set aside. Respondents ordered to vacate the
premises, to restore peaceful possession thereof to petitioner, and to pay
accrued rentals.

OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS


BRENT SCHOOL VS. ZAMORA
181 SCRA 702
FACTS:
The root of the controversy at bar is an employment contract in virtue of
which Doroteo R. Alegre as engaged as athletic director by Brent School, Inc. at
a yearly compensation of P20,000. The contract fixed a specific term for its
existence, five (5) years, i.e., from July 18, 1971, the date of execution of the
agreement, to July 17, 1976. Subsequent subsidiary agreements dated March
15, 1973, August 28, 1973, and September 14, 1974 reiterated the same terms
and conditions, including the expiry date, as those contained in the original
contract.
Some three (3) months before the expiration of the stipulated period, or
more precisely on April 20, 1976, Alegre was given a copy of the report filed by
Brent School with the Department of Labor advising of the termination of his
services effective on July 16, 1976.
Alegre objected to this termination of his employment contending that
since his services were necessary and desirable in the usual business of his
employer, and his employment had lasted for five (5) years, he had acquired the
status of a regular employee and could not be removed except for valid cause.

ISSUE:
Whether or not Alegres contention is tenable.
RULING:
NO. The provisions of the Labor Code recognize the existence and legality
of term employments. The case at bar is one which involves term employment.
Therefore, Alegres employment was terminated upon the expiration of his last
contract with Brent School on July 16, 1976 without the necessity of any notice.
The advance written advice given the Department of Labor with copy to said
petitioner was a mere reminder of the impending expiration of his contract, not a
letter of termination, nor an application for clearance to terminate which needed
the approval of the Department of Labor to make the termination of his services
effective. In any case, such clearance should properly have been given, not
denied.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
LOURDES VALERIO LIM VS. PEOPLE OF THE PHILIPPINES
G.R. No. L-34338
November 21, 1984
133 SCRA 333
FACTS:
On January 10, 1966, Lim (Appellant) went to the house of Maria Ayroso
and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the
appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The
appellant was to receive the overprice for which she could sell the tobacco.
Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment
of the balance of the value of the tobacco were made upon the appellant by
Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further
testified that she had gone to the house of the appellant several times, but the
appellant often eluded her; and that the 'camarin' of the appellant was empty.
Although the appellant denied that demands for payment were made upon her,
it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug stating
that she could not pay in full the amount of P799.50 because it is also hard to
demand payment from her suki in the market of Cabanatuan. Pursuant to this
letter, the appellant sent a money order for P100.00 on October 24, 1967, and
another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 or a

total of P240.00. As no further amount was paid, the complainant filed a


complaint against the appellant for estafa.

Clarkin, then President of Pepsi-Cola Bottling Co. in Manila, for financial


assiatance.

ISSUE:
Whether or not the Article 1197 of the Civil Code can be applied in this
case

On July 15, 1956, Joseph Hart and Clarkin signed a Memorandum of


Agreement. Due to financial difficulties, Insular Farms, Inc. borrowed from
Pacific Banking Corporation sometime in July 1956. On July 31, 1956, Insular
Farms, Inc. executed a Promissory Note of P250,000 to the bank payable on or
before July 1957. Such note provided that upon default in the payment of any
installment when due, all other installments shall become due and payable. This
loan was effected and the money released without any security except for the
Continuing Guaranty, executed on July 18, 1956, of John Clarkin, who owned
seven and half percent of the capital stock of the bank and his wife Helen.
Unfortunately, the business floundered; nevertheless, petitioner Pacific Banking
Corporation and its then Executive Vice President, petitioner Chester Babst, did
not demand payment for the initial July 1957 installment nor of the entire
obligation, but instead opted for more collateral in addition to the guaranty of
Clarkin. As the business further deteriorated, Hart agreed to Clarkins proposal
that all Insular Farms shares of stocks be pledged to petitioner bank in lieu of
additional collateral and to insure and extension of the period to pay the July
1957 installment. On March 3, 1958, Pacific Farms, Inc. was organized to
engage in the same business as Insular Farms, Inc. The next day, Pacific
Banking Corporation, through petitioner Chester Babst wrote Insular Farms, Inc.
giving the latter 48 hours to pay its entire obligation.

RULING:
NO. It is clear in the agreement that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was sold,
or, that the obligation was immediately demandable as soon as the tobacco was
disposed of. Hence, Article 1197 of the New Civil Code, which provides that the
courts may fix the duration of the obligation if it does not fix a period, does not
apply.
Anent the argument that petitioner was not an agent because the
agreement does not say that she would be paid the commission if the goods
were sold, the fact that appellant received the tobacco to be sold at P1.30 per
kilo and the proceeds to be given to complainant as soon as it was sold, strongly
negates transfer of ownership of the goods to the petitioner. The agreement
constituted her as an agent with the obligation to return the tobacco if the same
was not sold.
OBLIGATIONS WITH A TERM OR PERIOD: EFFECTS
PACIFIC BANKING CORPORATION VS. COURT of APPEALS
G. R. No. 45656
May 5, 1989
173 SCRA 102
FACTS:
On April 15, 1955, private respondents Joseph and Eleanor Hart
discovered an area consisting of 480 hectares of tidewater land in Tambac, Gulf
of Lingayen which had great potential for the cultivation of fish and saltmaking.
They organized Insular Farms, Inc., applied for and after eleven months,
obtained a lease from the Department of Agriculture for a period of 25 years,
renewable for another 25 years. Joseph Hart approached businessman John

On March 7, 1958, Hart received a notice that the pledged shared of


stocks of Insular Farms, Inc. would be sold at public auction on March 10, 1958
to satisfy Insular Farms obligation. Hart filed a complaint for reconveyance and
damages with prayer for a writ of preliminary injunction and the Court of First
Instance granted the writ. However, upon petitions for dissolution of preliminary
injunction filed by the petitioners PBC and Babst, the court lifted the writ of
preliminary injunction. On March 20, 1958, respondent Hart received a notice
from PBC signed by Babst that the shares of stocks on Insular Farms Inc. will be
sold at public auction on March 21, 1958. On March 21, 1958, PBC sold the 1,
000 shares of stocks of Insular Farms to Pacific Farms. The latter then sold its
shares of stocks to its own stockholders, who constituted themselves as
stockholders of Insular Farms and then resold back to Pacific Farms Inc. all of
Insular Farms assets except for a certificate of public convenience to operate an
ice plant. On September 28, 1959, Hart filed another case for recovery of sum of
money comprising his investments and earnings.
The trial court rendered a decision ordering Pacific Farms Inc. to pay
Joseph Hart for unpaid salaries and for loans made by private respondents to

Insular Farms, Inc. the private respondents, dissatisfied with the decision,
appealed to the Court of Appeals.
The appellate court modified the lower
courts decision, directing Pacific Banking Corporation to pay Joseph Hart
P100,000.00, subject to reimbursement from Babst.
ISSUES:
Whether or not the sale by the petitioner bank of the shares of stocks of
private respondent on March 21, 1958 is valid since the shares of stocks had
been pledged to insure an extension of the period to pay the July installment.
Whether or not the Court may fix a period in the parties agreement to
extend the payment of the loan, including the installment which was due on or
before July 1957 it being imprecise.

RULING:
The Supreme Court held that since there was an agreement to extend
indefinitely the payment of the installment of P50,000.00 in July 1957 as
provided in the promissory note, consequently, petitioner Pacific Banking
Corporation was precluded form enforcing the payment of the said installment of
July 1957, before the expiration of the indefinite period of extension, which
period had to be fixed by the court as provided in Article 1197 of the Civil Code.
Hence, the disputed foreclosure and subsequent sale was premature.
Wherefore, the petition is dismissed.
YES. In case the period of extension is not precise, the provisions of
Article 1197 of the Civil Code should apply. The pledge executed as collateral
security no longer contained a provision on installment due on or before July
1957. The pledge constituted on February 19, 1958 on the shares of stocks of
Insular was sufficient consideration for the extension, considering that pledge
was additional collateral required by the Pacific in addition to the continuing
guaranty of Carkin. Even the ledge did not provide for dates of payment of
installments; or any fixed date for maturity of the whole indebtedness.
Accordingly, the date of maturity of the indebtedness should be as may be
determined by the court under Article 1197 of the Civil Code.
ALTERNATIVE OBLIGATION: MEANING AND DEFINITION
1.

AGONCILLO VS. JAVIER, 38 PHIL 124

2.

ONG GUAN VS. CENTURY, 46 PHIL 592


AGONCILLO VS. JAVIER
38 PHIL 124

FACTS:
On February 27 1904, Anastasio Alano, Jlose Alano and Florencio Alano
executed in favor of the plaintiff, Dra. Marcela Marino a document stipulating
that the Alanos as testamentary heirs of deceased Rev. Anastacio Cruz, would
pay the sum of P2,730.50 within one (1) year with interest of 12 percent per
annum representing the amount of debt incurred by Cruz. Moreover, the
agreement provided that the Alanos are to convey the house and lot bequeathed
to them by Cruz in the event of failure to pay the debt in money at its maturity.
No part of interest or principal due has been paid except the sum of P200
paid in 1908 by Anastacio Alano. In 1912, Anastasio died intestate. On August
8, 1914, CFI of Batangas appointed Crisanto Javier as administrator of
Anastasios estate. On March 17, 1916, the plaintiffs filed the complaint against
Florencio, Jose and Crisanto praying that unless defendants pay the debt for the
recovery of which the action was brought, they be required to convey to
plaintiffs the house and lot described in the agreement, that the property be
appraised and if its value is found to be less than the amount of the debt, with
accrued interest at the stipulation rate, judgment be rendered in favor of the
plaintiffs for the balance.
ISSUE:
Whether or not the agreement that the defendant-appellant, at the
maturity of the debt, will pay the sum of the money lent by the appellees or will
transfer the rights to the ownership and possession of the house and lot
bequeathed to the former by the testator in favor of the appellees, is valid.
RULING:
YES, this stipulation is valid because it is simply an alternative obligation,
which is expressly allowed by law. The agreement to convey the house and lot
on an appraised value in the event of failure to pay the debt in money at its
maturity is valid. It is simply an undertaking that if debt is not paid in money, it
will be paid in another way. The agreement is not open to the objection that the
agreement is pacto comisorio. It is not an attempt to permit the creditor to
declare the forfeiture of the security upon the failure of the debtor to pay at its
maturity. It is simply provided that if the debt is not paid in money, it shall be
paid by the transfer of the property at a valuation. Such an agreement

unrecorded, creates no right in rem, but as between the parties, it is perfectly


valid and specific performance by its terms may be enforced unless prevented
by the creation of superior rights in favor of third persons.
The contract is not susceptible of the interpretation that the title to the
house and lot in question was to be transferred to the creditor ipso facto upon
the mere failure of the debtors to pay the debt at its maturity. The obligations
assumed by the debtors were in the alternative, and they had the right to elect
which they would perform. The conduct of parties shows that it was not their
understanding that the right to discharge the obligation by the payment of the
money was lost to the debtors by their failure to pay the debt at its maturity.
The plaintiff accepted the payment from Anastacio in 1908, several years after
the debt matured.
It is quite clear therefore that under the terms of the contract, and the
parties themselves have interpreted it, the liability of the defendant as to the
conveyance of the house and lot is subsidiary and conditional, being dependent
upon their failure to pay the debt in money. It must follow therefore that if the
action to recover the debt was prescribed, the action to compel a conveyance of
the house and lot is likewise barred, as the agreement to make such conveyance
was not an independent principal undertaking, but merely a subsidiary
alternative pact relating to the method by which the debt must be paid.
ALTERNATIVE OBLIGATION: MEANING AND DEFINITION
ONG GUAN CUAN AND
THE BANK OF THE PHILIPPINE ISLANDS, Plaintiff-appellees
VS. CENTURY INSURANCE COMPANY, defendant-appelant
46 SCRA 592
GR No. 22738
46 P 592
FACTS:
A building of plaintiff Ong Guan Cuan was insured with defendant Century
Insurance Company (Century) against fire for P30,000 as well as the
merchandise therein for P15,000. On February 28 1923, the building and the
merchandise were burned while the policies issued were in force. Under the
conditions of the policies, the defendant may at its option reinstate or replace
the destroyed property instead of paying for the amount of the loss and that it is
not bound to reinstate exactly or completely the damaged property.

Century proposed reconstruction of the house destroyed but plaintiff


denied that the new house which will be constructed would be smaller and of
materials of lower kind than those employed in the construction of the house
which was destroyed. Plaintiff filed a complaint compelling defendant to pay the
sum of P45,000, the value of the insurance of the building and the merchandise.
On April 19, 1924, the CFI of Iloilo City rendered judgment in favor of the
plaintiff.
Hence the defendant appealed from the judgment and prayed that it be
permitted to rebuild the house as provided in the conditions of the insurance
policies.
ISSUE:
Whether or not defendant Century may be allowed to rebuild the house as
its option instead of payment of the insured value as stipulated in the insurance
policies.
RULING:
NO. The conditions in the insurance policies that the parties entered into
allowed Century to either pay the insured value of the house, or rebuild it
making the obligation of the company an alternative one. In alternative
obligations, the debtor, Century, must notify the creditor of his election stating
which of the two prestations it is disposed to fulfill. The objective is to give the
creditor opportunity to give consent or deny the election of the debtor. Only
after said notice shall election take legal effect when consented by the creditor
(Article 120 Civil Code) or if impugned by the latter when declared proper by a
competent court. In the instant case, appellant company did not give formal
notice of its election to rebuild the house and the proposed reconstruction of the
house was rejected by the creditor.
In alternative obligations, the value of the prestations must be equivalent
or similar in value to each other. The proposed rebuilding of the house by the
insurance company would be of lesser value than the other prestation. The
petitioner would build a smaller house and of materials of lower kind than those
employed in the construction of the burned house. The other prestation is
payment of the amount of P45,000 corresponding to the value of the burned
building (P30, 000) and the value of the merchandise burned (P15,000).
Therefore, the only recourse of the insurer is to pay the stipulated value of the
insurance policy.

ALTERNATIVE OBLIGATIONS: EFFECTS: AS TO DEBTOR: RIGHT OF


CHOICE/ELECTION: NATURE AND LIMITATIONS (Art. 1200, 1202-1203, CC)
LEGARDA VS. MIAILHE
88 S 637

FACTS:
On June 3, 1944, plaintiffs filed a complaint against the original
defendant William J.B. Burke, alleging defendants unjustified refusal to
accept payment in discharge of a mortgage indebtedness in his favor, and
praying that the latter be order (1) to receive the sum of P75,920.83; (2)
to execute the corresponding deed of release of mortgage, and; (3) to pay
damages in the sum of P1,000. The Court then decided in favor of plaintiff
Legarda. After the war and the subsequent defeat of the Japanese
occupants, defendant filed a case in court claiming that plaintiff Clara de
Legarda violated her agreement with defendant, by forcing to deposit
worthless Japanese military notes when they originally agreed that the
interest was to be condoned until after the occupation and that payment
was rendered either in Philippine or English currency. Defendant was later
substituted upon death by his heir Miailhe and the Courts judged in
defendants favor. Plaintiff now assails said decision.
ISSUE:
Is the tender of payment by plaintiff valid?
RULING:
On February 17, 1943, the only currency available was the
Philippine currency, or the Japanese Military notes, because all other
currencies, including the English, were outlawed by a proclamation issued
by the Japanese Imperial Commander on January 3, 1942. The right to
election ceased to exist on the date of plaintiffs payment because it had
become legally impossible. And this is so because in alternative
obligations there is no right to choose undertakings that are impossible or
illegal. In other words, the obligation on the part of the debtor to pay the
mortgage indebtedness has since then ceased to be alternative. It
appears therefore, that the tender of payment in Japanese Military notes

was a valid tender because it was the only currency permissible at the
time and its payment was tantamount to payment in Philippine currency.
However, payment with the clerk of court did not have any legal
effect because it was made in certified check, and a check does not meet
the requirements of legal tender. Therefore, her consignation did not have
the effect of relieving her from her obligation of the defendant.
ALTERNATIVE OBLIGATION: EFFECTIVITY OF CHOICE (Art. 12012, CC)
REYES VS. MARTINEZ
55 Phil 493
FACTS:
Estanislao Reyes filed an action before the Court of First Instance of
Laguna against the Martinez heirs upon four several causes of action in which
the plaintiff seeks to recover five parcels of land, containing proximately one
thousand coconut trees, and to obtain a declaration of ownership in his favor as
against the defendants with respect to said parcels; to recover from the
defendants the sum of P9,377.50, being the alleged proceeds of some coconut
trees; to recover from the defendants the sum of P43,000, as alleged value of
the proceeds of the lands involved in the receivership in the case of Martinez vs.
Grano, to which the plaintiff supposes himself to be entitled, but which have
gone, so he claims, to the benefit of the defendants in said receivership and
lastly, to recover the sum of the P10,000 from the defendants as damages
resulting from their improper meddling in the administration of the receivership
property.
The plaintiff has been laboring along for several years in an unsuccessful
legal battle with the defendants, springing from his claim to be the owner of the
property involved in the receivership. This cause of action is founded upon the
contract and the claim put forth by the plaintiff is to have the five parcels
adjudge to him in lieu of another parcel formerly supposed to contain one
thousand trees between him and certain of the Martinez heirs. By this contract,
Reyes was to be given the parcel described in clause 8, but in a proviso to said
clause, the parties contracting with Reyes agreed to assure to him certain other
land containing an equivalent number of trees in case he should so elect. The
litigation shows that the plaintiff elected to take and hold the parcel described in
clause 8, and his right thereto has all along been recognized in the dispositions
made by the court with respect to said land. Thus, Reyes must be taken to have

elected to take that particular parcel and he is now estopped from asserting a
contrary election to take the five parcels of land described in his complaint.
However, the title of the parcel is in the heirs of Inocente Martinez and it
does not appear that they have transferred said title to Reyes.
ISSUE:
Whether or not Reyes is entitled to the damages against the partys
signatory to the contract of March 5, 1921 for the value of the said property.
RULING:
Yes. The claim of the defendants to the interest of P8,000 from July 31,
1926 cannot be conceded as the judgment itself bears interest at the lawful rate
from the date the same was rendered. The Martinez heirs are ordered to
procure the sufficient deed conveying to appellant Estanislao Reyes the parcels
of land mentioned in paragraph 8 of the contract. The judgment against Reyes
in favor of the Martinez heirs is enjoined.
ALTERNATIVE VS. FACULTATIVE OBLIGATION
QUIZANA VS. REDUGERIO
94 PHIL. 922
FACTS:
This is an appeal to the Court from a decision rendered by the Court of the
First Instance of Marinduque, wherein the defendant Gaudencio Redugerio was
to pay the plaintiff Martina Quizana the sum of P550 with the interest from the
time of the filing of the complaint and from an order of the same court denying a
motion of the defendant for the reconsideration of the judgment on the ground
that they were deprived of their day in court.
There were actionable documents attached to the complaint signed by the
defendant-appellant spouses Redugerio and Pastrado on October 4, 1948 and
containing the provision that Quizana is to be paid on January 1949 and in case
of failure, they will mortgage the coconut plantation in Sta. Cruz, Marinduque.
The defendants admitted that they offered the transfer of possession but was
eventually refused by the petitioner.
So eventually, the defendants appealed in the CFI which set the hearing
on August 16, 1951.

However, the counsel for defendants presented an urgent motion for


continuance for the date of hearing coincides with his appearance in two (2)
criminal cases previously set for trial before hearing on the aforesaid date.
The motion was not acted upon until the day of the trial.
The CFI denied the motion for continuance, and in the absence of
defendants, rendered its questioned decision.
ISSUE:
Whether or not the trial court was correct in ignoring the 2 nd part of the
written obligation and solely basing its decision on the last part of the 1 st part;
i.e., that payment should have been made on January 21, 1949.
RULING:
YES, the acceptance of plaintiff of the written obligation without objection
and protest and the fact that he kept and based his action therein, are concrete
and positive proof that he agreed and consented to all the terms, including the
paragraph on the constitution of the mortgage.
Article 1206 provides: When only one prestation has been agreed upon
but the obligation may render substitution, the obligation is facultative
obligation.
The defendant-appellant shall present a duly executed deed of mortgage
over the property in the written obligation, with a period of payment to be
agreed upon by the parties with the approval of the court.
JOINT OBLIGATIONS: HOW CREATED
ALIPIO VS. COURT OF APPEALS
341 SCRA 441
FACTS:
Respondent Romeo Jaring was the lessee of a 14.5 hectares fishpond in
Barilto, Bataan. The lease was for a period of five (5) years ending September
12, 1990. On June 19, he subleased the fishpond for the remaining period of his
lease to the spouses Placido and Purita Alipio and the spouses Bienvenido and
Remedons Manuel. The stipulated amount of the rent was P 485,600.00 payable
in two (2) installments of P300,00.00 and P185,600 with second installment

falling due on June 30, 1989.


contract.

Each of the four sublease parties signed the

The first installment was duly paid, but the second installment the sub
lessees only satisfied a portion thereof, leaving an unpaid of P50,600.00.
Despite due demand, the lessees failed to comply with their obligation so that on
October 13,1989 private respondent sued Alipio and Manuel spouses for the
collection of the said amount before the RTC, and in the alternative, he prayed
for the rescission of the sublease contract should the defendant failed to pay the
balance.
Petitioner Purita moved to dismiss the case on the ground that her
husband had passed away on December 1988. She based her action on Rule 3
Section 31 of 1964 Rules of Court.
ISSUE:
Whether or not a creditor can sue the surviving spouses for the collection
of debt which is owned by the conjugal partnership of gains, and not in a
proceeding for the settlement of the estate of the decedent.
RULING:
NO, creditor cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of the sum of money chargeable against the
conjugal partnership and that the proper remedy is for him to file a claim in the
settlement of the estate of the decedent.
Article 161(1) states that: All debts and obligation contracted by the
husband for the benefits of the conjugal partnership, and those contracted by
the wife, also for the same purpose, in the cases where she may legally bind the
partnership.
When petitioners husband died, their conjugal partnership was
automatically dissolved and debts chargeable against it are to be paid in the
settlement of estate proceeding in accordance with Rule 73 Section 2: When
marriage dissolved by death of the husband or wife, the community property
shall be inventoried, administered and liquidated, and the debts thereof paid in
the testate or intestate proceeding of the deceased spouse. If both spouses have
died, the conjugal partnership shall be liquidated in the testate or intestate
proceeding of either.

EFFECTS OF JOINT OBLIGATIONS


PH CREDIT CORPORATION, petitioner,
VS. COURT OF APPEALS and CARLOS M. FARRALES, respondents
2001 Nov 22
370 SCRA 441
FACTS:
I. CA-G.R. SP NO. 23324
PH Credit Corp., filed a case against Pacific Lloyd Corp., Carlos Farrales,
Thomas H. Van Sebille and Federico C. Lim, for sum of money. After service of
summons upon the defendants, they failed to file their answer within the
reglementary period, hence they were declared in default. Judgment is rendered
in favor of plaintiff PH Credit Corporation.
After the aforesaid decision has become final and executory, a Writ of
Execution was issued and consequently implemented by the assigned Deputy
Sheriff. Personal and real properties of defendant Carlos M. Farrales were levied
and sold at public auction wherein PH Credit Corp. was the highest bidder.
Motion for the issuance of a writ of possession was filed and the same was
granted. Petitioner claims that she, as a third-party claimant with the court
below, filed an Urgent Motion for Reconsideration and/or to Suspend the Order
dated October 12, 1990, but without acting there[on], respondent Judge issued
the writ of possession on October 26, 1990. She claims that the actuations of
respondent Judge was tainted with grave abuse of discretion. Respondent Judge
issued an order considering the assailed Order as well as the writ of possession
as of no force and effect thus the issue here has become moot and academic.
II. CA-G.R. SP NO. 25714
Petitioner claims that the respondent Judges Order dated January 31,
1991 was tainted with grave abuse of discretion based on the following grounds:
1. Respondent Judge refused to consider as waived private respondents
objection that his obligation in the January 31, 1984 decision was merely joint
and not solidary with the defendants therein. According to petitioner, private
respondent assailed the levy on execution twice in 1984 and once in 1985 but
not once did the latter even mention therein that his obligation was joint for
failure of the dispositive portion of the decision to indicate that it was solidary.
Thus, private respondent must be deemed to have waived that objection,
petitioner concludes.

2. The redemption period after the auction sale of the properties had long
lapsed so much [so] that the purchaser therein became the absolute owner
thereof. Thus, respondent Judge allegedly abused his discretion in setting aside
the auction sale after the redemption period had expired.
3. Respondent Judge erred in applying the presumption of a joint obligation in
the face of the conclusion of fact and law contained in the decision showing that
the obligation is solidary.
The Court of Appeals affirmed the trial courts ruling declaring null and
void (a) the auction sale of Respondent Ferrales real property and (b) the Writ of
Possession issued in consequence thereof. It held that, pursuant to the January
31, 1984 Decision of the trial court, the liability of Farrales was merely joint and
not solidary. Consequently, there was no legal basis for levying and selling
Farrales real and personal properties in order to satisfy the whole obligation.
ISSUE:
Whether or not the Court of Appeals erred when it disregarded the body of
the decision and concluded that the obligation was merely a joint obligation due
to the failure of the dispositive portion of the decision dated 31 January 1984 to
state that the obligation was joint and solidary.
RULING:
No. A solidary obligation is one in which each of the debtors is liable for
the entire obligation, and each of the creditors is entitled to demand the
satisfaction of the whole obligation from any or all of the debtors. On the other
hand, a joint obligation is one in which each debtors is liable only for a
proportionate part of the debt, and the creditor is entitled to demand only a
proportionate part of the credit from each debtor. The well-entrenched rule is
that solidary obligations cannot be inferred lightly. They must be positively and
clearly expressed. A liability is solidary only when the obligation expressly so
states, when the law so provides or when the nature of the obligation so
requires.
In the dispositive portion of the January 31, 1984 Decision of the trial
court, the word solidary neither appears nor can it be inferred therefrom. The
fallo merely stated that the following respondents were liable: Pacific Lloyd
Corporation, Thomas H. Van Sebille, Carlos M. Farrales and Federico C. Lim.
Under the circumstances, the liability is joint, as provided by the Civil Code,
which we quote: Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers[,] the contrary does not appear,
the credit or debt shall be presumed to be divided into as many equal shares as

there are creditors or debtors x x x. Hence the execution must conform with
that which is ordained or decreed in the dispositive portion of the decision.
Petitioner maintains that the Court of Appeals improperly and incorrectly
disregarded the body of the trial courts Decision, which clearly stated as follows:
To support the Promissory Note, a Continuing Suretyship Agreement was
executed by the defendants, Federico C. Lim, Carlos M. Farrales and Thomas H.
Van Sebille, in favor of the plaintiff corporation, to the effect that if Pacific Lloyd
Corporation cannot pay the amount loaned by plaintiff to said corporation, then
Federico C. Lim, Carlos M. Farrales and Thomas H. Van Sebille will hold
themselves jointly and severally together with defendant Pacific Lloyd
Corporation to answer for the payment of said obligation.
The only exception when the body of a decision prevails over the fallo is
when the inevitable conclusion from the former is that there was a glaring error
in the latter, in which case the body of the decision will prevail. In this instance,
there was no clear declaration in the body of the January 31, 1984 Decision to
warrant a conclusion that there was an error in the fallo. Nowhere in the former
can we find a definite declaration of the trial court that, indeed, respondents
liability was solidary. If petitioner had doubted this point, it should have filed a
motion for reconsideration before the finality of the Decision of the trial court.
SOLIDARY OBLIGATIONS: HOW CREATED
1.
2.
3.
4.

CDCP VS. ESTRELLA, 501 S 228


REPUBLIC GLASS CORP. VS. QUA, 30 JULY 2004
INDUSTRIAL MANAGEMENT VS. NLRC, 331 SCRA 640
METRO MANILA TRANSIT VS. CA, JUNE 21, 1993

CDCP VS ESTRELLA
GR No. 147791. September 8, 2006
FACTS:
On December 29, 1978, respondents Rebecca G. Estrella and her
granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a BLTB bus
bound for Pasay City. However, they never reached their destination
because their bus was rammed from behind by a tractor-truck of CDCP in

the South Expressway. The strong impact pushed forward their seats and
pinned their knees to the seats in front of them. They regained
consciousness only when rescuers created a hole in the bus and
extricated their legs from under the seats. They suffered physical injuries
as a result. Thereafter, respondents filed a Complaint for damages against
CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before the
Regional Trial Court of Manila, Branch 13.
ISSUE:
Are the accused jointly or solidarily liable?
RULING:
The case filed by respondents against petitioner is an action
for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code. The
liability for the negligent conduct of the subordinate is direct and primary,
but is subject to the defense of due diligence in the selection and
supervision of the employee. In the instant case, the trial court found that
petitioner failed to prove that it exercised the diligence of a good father of
a family in the selection and supervision of Payunan, Jr.
It is well-settled in Fabre, Jr. v. Court of Appeals, that the
owner of the other vehicle which collided with a common carrier is
solidarily liable to the injured passenger of the same. The Peitition was
thusly DENIED.
SOLIDARY OBLIGATIONS: HOW CREATED

REPUBLIC GLASS CORPORATION v. QUA


G.R. No. 14413 July 30, 2004
FACTS:
Petitioners and respondent were stockholders of Ladtek, Inc., which
obtained loans from Metrobank and PDCP where they stood as sureties.
Among themselves they executed Agreements for Contribution, Indemnity
and Pledge of shares of Stocks, stating that in case of default in the

payment of loans, the parties would reimburse each other the


proportionate share of any sum that any might pay to creditors. Ladtek
defaulted on its loan obligations, hence Metrobank filed a collection case.
During the pendency thereof, RGC and Gervel paid Metrobank where a
waiver and quitclaim in favor of the two was executed. Upon Quas
refusal to reimburse, RGC and Gervel foreclosed the pledged shares of
stocks owned by Qua at a public auction. On appeal, the CA issued the
assailed decision and held that there was an implied novation of the
agreement and that the payment did not extinguish the entire obligation
and did not benefit Qua. Hence, the petition, where the petitioners claim
the following: (1) Qua is estopped from claiming that the payment made
was not for the entire obligation, due to his judicial admissions; (2)
payment of the entire obligation is a condition sine qua non for the
demand of reimbursement under the indemnity agreements; and (3)
there is no novation in the instant case.
ISSUES:
(1) Whether payment of the entire obligation is an essential
condition for reimbursement; and (2) Whether there was no novation.
RULING:
The petition is denied. Although the Agreement does not state that
payment of the entire obligation is an essential condition for
reimbursement, RGC and Gervel cannot automatically claim for indemnity
from Qua because Qua himself is liable directly to Metrobank and PDCP.
The elements of novation are not established in the instant case.
Contrary to RGC and Gervels claim, payment of any amount will not
automatically result in reimbursement. If a solidary debtor pays the
obligation in part, he can recover reimbursement from the co-debtors only
in so far as his payment exceeded his share in the obligation. This is
precisely because if a solidary debtor pays an amount equal to his
proportionate share in the obligation, then he in effects pays only what is
due from him. If the debtor pays less than his share in the obligation, he
cannot demand reimbursement because his payment is less than his
actual debt.

SOLIDARY OBLIGATIONS: HOW CREATED


INDUSTRIAL MANAGEMENT VS. NLRC
331 SCRA 640
FACTS:
In September 1984, private respondents Enrique Sulit, Socorro Mahinay,
Esmeralco Pegarido, Tita Bacusimo, Nierre, Virginia Bagus, Nemenzo, Dariogo
and Roberto filed a complaint with the DOLE, Regional Arbitration Branch No.111
in Cebu City against Filipinas Carbon Mining Corp, Genardo Sicaty, Gonzales,
Dhin Gin, Lo Kuan Chin petitioner Industrial Management Development
Corporation for payment of separation pay and unpaid wages.
Labor Arbiter judgment-ordering Filipinas, Gonzales, Lo Kuan Chin to pay
complainant Enrique Sulit total amount of P82,800.00.
On September 3, 1987 petitioner filed a motion to quash alias writ of
execution and set aside decision alleging among that the alias writ of execution
altered and charged the tenor of the decision by charging the liability of therein
respondent from joint to solidary by the insertion of the words and/or between
Gonzales and Filipinas.
ISSUE:
Whether or not the petitioners liability pursuant to the decision of the
labor arbiter dated March 10, 1987 is solidary.
RULING:
NO, the liability pursuant to the decision of the labor arbiter dated March
10, 1987 should be as it is hereby, considered joint and petitioners payment
which has been accepted considered as full satisfaction of its liability, without
the prejudice to the enforcement of the awards against the other five
respondents in the said case.
A solidary or joint and several obligations is one in which each debtor is
liable for the entire obligation and each creditor is entitled to demand the
obligation. In a joint obligation each obligor answers only a part of the whole
liability and to each obligation belong only a part of the correlative rights.
There is solidary liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so required.

When it is not provided in a judgment that the defendant are liable to pay jointly
and severally a certain sum of money, none of them may be compelled to satisfy
in full said judgment.
SOLIDARY OBLIGATIONS: HOW CREATED
METRO MANILA TRANSIT CORPORATION, petitioner,
VS. THE COURT OF APPEALS and NENITA CUSTODIO, respondents.
Jun 21, 1993
G.R. No. 104408
FACTS:
Plaintiff-appellant Nenita Custodio boarded as a passenger of a public
utility jeepney, then driven by defendant Agudo Calebag and owned by his codefendant Victorino Lamayo, bound for her work at Dynetics Incorporated
located in Bicutan, Taguig, Metro Manila, where she then worked as a machine
operator. While the passenger jeepney was travelling at along DBP Avenue,
Bicutan, Taguig, Metro Manila another fast moving vehicle, a Metro Manila
Transit Corp. (MMTC) bus driven by defendant Godofredo C. Leonardo bound for
its terminal at Bicutan. As both vehicles approached the intersection of DBP
Avenue and Honeydew Road they failed to slow down and slacken their speed;
neither did they blow their horns to warn approaching vehicles.
As a
consequence, a collision between them occurred. The collision impact caused
plaintiff-appellant Nenita Custodio to hit the front windshield of the passenger
jeepney and was thrown out therefrom, falling onto the pavement unconscious
with serious physical injuries. She was brought to the Medical City Hospital
where she regained consciousness only after 1 week. Thereat, she was confined
for 24 days, and as a consequence, she was unable to work for three and one
half months 3 1/2. Defendants denied all the material allegations in the
complaint and pointed an accusing finger at each other as being the party at
fault for the negligence in the failure to exercise due diligence in the selection
and supervision of their respective employees.
By order of the trial court, defendant Calebag was declared in default for
failure to file an answer. Trial ensued after no amicable settlements were made.
The trial court found both drivers of the colliding vehicles concurrently negligent
for non-observance of appropriate traffic rules and regulations and for failure to
take the usual precautions when approaching an intersection.
As joint
tortfeasors, both drivers, as well as defendant Lamayo, were held solidarily liable
for damages sustained by plaintiff Custodio.

June 26, 1996


Plaintiff's motion to have that portion of the trial court's decision absolving
MMTC from liability reconsidered having been denied for lack of merit, an appeal
was filed by her with respondent appellate court. After consideration of the
appropriate pleadings on appeal and finding the appeal meritorious, the Court of
Appeals modified the trial court's decision by holding MMTC solidarily liable with
the other defendants for the damages awarded by the trial court because of
their concurrent negligence, hence, this appeal.
ISSUE:
Whether or not the appellate court erred in holding that MMTC should be
solidary liable with the other defendants.
RULING:
No, the appellate court did not err in its decision.
Whether or not the
diligence of a good father of a family has been observed by petitioner is a matter
of proof which under the circumstances in the case at bar has not been clearly
established. It is not felt by the Court that there is enough evidence on record
as would overturn the presumption of negligence, and for failure to submit all
evidence within its control, assuming the putative existence thereof; petitioner
MMTC must suffer the consequences of its own inaction and indifference.
The mere formulation of various company policies on safety without
showing that they were being complied with is not sufficient to exempt petitioner
from liability arising from negligence of its employees. It is incumbent upon
petitioner to show that in recruiting and employing the erring driver the
recruitment procedures and company policies on efficiency and safety were
followed. As joint tortfeasors, all defendants, including MMTC will be solidarily
liable for damages awarded by the trial court.
Decision affirmed.

FACTS:
Petitioner, together with Gregorio Pantanosas Jr., and Rene Naybe, had
their obligations arouse from the signing of a promissory note amounting to P50,
000 holding themselves jointly and severally liable to private respondent
Philippine Bank of Communications, Cagayan de Oro City branch.
The
promissory note was due on May 5, 1983.
The promissors failed to fulfill their obligations despite demand by the
bank. As a consequence, an action to collect was filed with the court but was
dismissed due to failure to prosecute. Said dismissal was reconsidered by the
trial court and later ordered the sheriff to serve the summons. On January 27,
1987, the lower court dismissed the case against defendant Pantanosas as
prayed for by the private respondent herein. Meanwhile, only the summons
addressed to petitioner was served as the sheriff learned that defendant Naybe
had gone to Saudi Arabia.
Petitioner argued that said promissory note has vitiated his consent
through fraud and deceit which was later corroborated by Pantanosas for he only
signed for the amount of P5,000 on one of the copies of the promissory note,
and not the alleged amount, to buy chainsaw. He also claimed that since the
liabilities of Pantanosas and Naybe, his co-promissors, had extinguished, his
should also be extinguished, as provided for by Article 2080 of the Civil Code on
guarantors. The Regional Trial Court and the Court of Appeals rejected his
petitions and so a petition for review on certiorari was filed with the Supreme
Court.
ISSUE:
Whether or not the petitioner is solidary co-maker of the promissory note
in issue and not merely a guarantor.

ACTIVE SOLIDARITY OR MUTUAL AGENCY: EFFECTS


1.
2.

INCIONG VS. CA, 257 SCRA 578


PHILIPPINE BLOOMING MILLS VS. CA, OCT. 15, 2003

BALDOMERO INCIONG, JR., petitioner,


VS. COURT OF APPEALS and
PHILIPPINE BANK OF COMMUNICATIONS, respondents
G.R. No. 96405

RULING:
The Supreme Court held that the petitioner signed the promissory note as
a solidary co-maker and not as a guarantor. A solidary or joint and several
obligation is one in which each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. On the other hand, Article
2047 of the Civil Code states:
By guaranty a person, called the guarantor, binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the
contract is called a suretyship. While a guarantor may bind himself solidarily
with the principal debtor, the liability of a guarantor is different from that of a
solidary debtor. Thus, Tolentino explains:
A guarantor who binds himself in solidum with the principal debtor under the
provisions of the second paragraph does not become a solidary co-debtor to all
intents and purposes. There is a difference between a solidary co-debtor and a
fiador in solidum (surety). The latter, outside of the liability he 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 reason of the
fiansa; while a solidary co-debtor has no other rights than those bestowed upon
him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.
Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and
several obligations. Under Art. 1207 thereof, when there are two or more
debtors in one and the same obligation, the presumption is that the obligation is
joint so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidary liability only when the obligation expressly
so states, when the law so provides or when the nature of the obligation so
requires.
Because the promissory note involved in this case expressly states that
the three signatories therein are jointly and severally liable, any one, some or all
of them may be proceeded against for the entire obligation. The choice is left to
the solidary creditor to determine against whom he will enforce collection.
Consequently, the dismissal of the case against Judge Pontanosas may not be
deemed as having discharged petitioner from liability as well.
As regards
Naybe, suffice it to say that the court never acquired jurisdiction over him.
Petitioner, therefore, may only have recourse against his co-makers, as provided
by law.
ACTIVE SOLIDARITY OR MUTUAL AGENCY: EFFECTS
PHILIPPINE BLOOMING MILLS VS. COURT OF APPEALS
413 SCRA 445
OCTOBER 15, 2003
FACTS:

Alfredo Ching (Ching) was the Senior Vice President of Philippine Blooming
Mills, Inc. (PBM). In his personal capacity and not as a corporate officer, Ching
signed a Deed of Suretyship dated 21 July 1977 binding himself solidarily liable
together with the debtor PBM.
On March 24 and August 6 1980, Traders Royal Bank (TRB) granted PBM
letters of Credit on application of Ching in his capacity as Senior Vice President
of PBM. Ching later accomplished and delivered to TRB trust receipts, which
acknowledged receipt in trust for TRB of the merchandise subject of the letters
of credit. Under the trust receipts, PBM had the right to sell the merchandise for
cash with the obligation to turn over the entire proceeds of the sale to TRB as
payment of PBMs indebtedness.
Ching further executed an Undertaking for each trust receipt, which
uniformly granted the TRB the right to take possession of the goods at any time
to protect the TRBs interests.
On 27 April 1981, PBM obtained a P3, 500,000 trust loan from TRB. Ching
signed as co-maker in the notarized Promissory Note evidencing said loan.
PBM defaulted in its payment of the two (2) trust receipts as well as the
trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of
payments with the Securities and Exchange Commission (SEC). The petition
sought to suspend payment of PBMs obligations and prayed that the SEC allow
PBM to continue its normal business operations free from the interference of its
creditors. One of the listed creditors of PBM was TRB.
On 9 July 1982, the SEC placed all of PBMs assets, liabilities, and
obligations under the rehabilitation receivership of Kalaw, Escaler and
Associates.
On 13 May 1983, ten months after the SEC placed PBM under
rehabilitation receivership, TRB filed with the trial court a complaint for collection
against PBM and Ching. TRB asked the trial court to order defendants to pay
solidarily the indebtedness of PBM.
On 25 May 1983, TRB moved to withdraw the complaint against PBM on
the ground that the SEC had already placed PBM under receivership. The trial
court thus dismissed the complaint against PBM.

On 23 July 1983, PBM and Ching also moved to dismiss the complaint on
the ground that the trial court had no jurisdiction over the subject matter of the
case. PBM and Ching invoked the assumption of jurisdiction by the SEC over all
of PBMs assets and liabilities.
The trial court denied the motion to dismiss with respect to Ching and
affirmed its dismissal of the case with respect to PBM. The trial court stressed
that TRB was holding Ching liable under the Deed of Suretyship. As Chings
obligation was solidary, the trial court ruled that TRB could proceed against
Ching as surety upon default of the principal debtor PBM.
Upon the trial courts denial of his Motion for Reconsideration, Ching filed
a Petition for Certiorari and Prohibition before the Court of Appeals. The
appellate court granted Chings petition and ordered the dismissal of the case.
The appellate court ruled that SEC assumed jurisdiction over Ching and PBM to
the exclusion of courts or tribunals of coordinate rank.
TRB assailed the Court of Appeals decision before the Supreme Court. In
Traders Royal Bank v. Court of Appeals, the highest tribunal upheld the TRB and
ruled that Ching was merely a nominal party in the SEC case. Creditors may sue
individual sureties of debtor corporations, like Ching, in a separate proceeding
before regular courts despite the pendency of a case before the SEC involving
the debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision approving a revised rehabilitation plan for PBMs creditors. He further
claimed that even as a surety, he has the right to the defenses personal to PBM.
Thus, his liability as surety would attach only if, after the rehabilitation of
payments scheduled under the rehabilitation plan, there would remain a balance
of PBMs debt to TRB.
The trial court ruled that Ching is liable to TB under the Deed of
Suretyship. On appeal, the Court of Appeals affirmed the decision of the lower
court. The Court of Appeals denied Chings Motion for Reconsideration for lack
of merit.
ISSUES:
Whether or not Ching is liable for obligations PBM contracted after the
execution of the Deed of Suretyship.

Whether or not Chings liability is limited to the amount stated in PBMs


rehabilitation plan.
RULING:
Ching is liable for credit obligations contracted by PBM against TRB before
and after the execution of the 21 July 1977 Deed of Suretyship. This is evident
from the tenor of the deed itself, referring to amounts PBM may now be
indebted or may hereafter become indebted to TRB. The law expressly allows a
suretyship for future debts as provided for in Article 2053 of the Civil Code.
Under the Civil Code, a guaranty may be given to secure even future debts; the
amount of which may not be known at the time the guaranty is executed. A
continuing guaranty is one which is not limited to a single transaction, but which
contemplates a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked.
Anent the second issue, in granting the loan to PBM, TRB required Chings
surety precisely to insure full recovery of the loan in case PBM becomes
insolvent or fails to pay in full. Ching cannot invoke Article 1222 of the Civil
Code. Thus, Ching cannot use PBMs failure to pay in full as justification for his
own reduced liability to TRB. TRB, as creditor, has the right under the surety to
proceed against Ching for the entire amount of PBMs loan. This is clear from
Article 1216 of the Civil Code, which states that: the creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those which
may subsequently be directed against the others, so long as the debt has not
been fully collected.

EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY


1. ESPARWA SECURITY VS. LICEO DE CAGAYAN, 508 S 373
2. DIMAYUGA VS. PCIB, AUG. 5, 1991
2. CERNA VS. CA, MAR. 30, 1993

EPARWA SECURITY, v. LICEO DE CAGAYAN UNIVERSITY


G.R. No. 150402 Nov 8, 2006

FACTS:
On 1 December 1997, Eparwa and LDCU, entered into a Contract for
Security Services. On 21 December 1998, 11 security guards (security
guards) whom Eparwa assigned to LDCU from 1 December 1997 to 30
November 1998, filed a complaint before the NLRC Regional Arbitration
Branch No. 10 in Cagayan de Oro City. The complaint was filed against
both Eparwa and LDCU for underpayment of salary, legal holiday pay,
13th month pay, rest day, service incentive leave, night shift differential,
overtime pay, and payment for attorneys fees.
The Labor Arbiter found that the security guards are entitled to
wage differentials and premium for holiday and rest day work. The Labor
Arbiter held Eparwa and LDCU solidarily liable pursuant to Article 109 of
the Labor Code. LDCU filed an appeal before the NLRC. LDCU agreed
with the Labor Arbiters decision on the security guards entitlement to
salary differential but challenged the propriety of the amount of the
award. LDCU alleged that security guards not similarly situated were
granted uniform monetary awards and that the decision did not include
the basis of the computation of the amount of the award.
Eparwa also filed an appeal before the NLRC. For its part, Eparwa
questioned its liability for the security guards claims and the awarded
cross-claim amounts. The NLRC found that the security guards are
entitled to wage differentials and premium for holiday and rest day work.
Although the NLRC held Eparwa and LDCU solidarily liable for the wage
differentials and premium for holiday and rest day work, the NLRC did not
require Eparwa to reimburse LDCU for its payments to the security
guards. Eparwa and LDCU again filed separate motions for partial
reconsideration. In its Resolution NLRC declared that although Eparwa
and LDCU are solidarily liable to the security guards for the monetary
award, LDCU alone is ultimately liable.
LDCU filed a petition for certiorari before the appellate court
assailing the NLRCs decision.
The appellate court granted LDCUs
petition and reinstated the Labor Arbiters decision. The appellate court
also allowed LDCU to claim reimbursement from Eparwa.
The
appellate
court
denied
Eparwas
motion
for
reconsideration.Hence, this petition.

ISSUE:
Is LDCU alone ultimately liable to the security guards for the wage
differentials and premium for holiday and rest day pay?
RULING:
Articles 106, 107 and 109 of the Labor Code read:
Art. 106. Contractor or subcontractor. Whenever an employer
enters into a contract with another person for the performance of the
formers work, the employees of the contractor and of the latters
subcontractor, if any, shall be paid in accordance with the provisions of
this Code.Article 107. Indirect employer. The provisions of the
immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer,
contracts with an independent contractor for the performance of any
work, task, job or project.
Article 109. Solidary liability. The provisions of existing laws to
the contrary notwithstanding, every employer or indirect employer shall
be held responsible with his contractor or subcontractor for any violation
of any provision of this Code. For purposes of determining the extent of
their civil liability under this Chapter, they shall be considered as direct
employers.
This joint and several liability of the contractor and the principal is
mandated by the Labor Code to assure compliance of the provisions
therein including the statutory minimum wage [Article 99, Labor Code].
The contractor is made liable by virtue of his status as direct employer.
The principal, on the other hand, is made the indirect employer of the
contractors employees for purposes of paying the employees their wages
should the contractor be unable to pay them. This joint and several
liability facilitates, if not guarantees, payment of the workers
performance of any work, task, job or project, thus giving the workers
ample protection as mandated by the 1987 Constitution. For the security
guards, the actual source of the payment of their wage differentials and
premium for holiday and rest day work does not matter as long as they
are paid. This is the import of Eparwa and LDCUs solidary liability.
Creditors, such as the security guards, may collect from anyone of the
solidary debtors. Solidary liability does not mean that, as between
themselves, two solidary debtors are liable for only half of the payment.

LDCUs ultimate liability comes into play because of the expiration


of the Contract for Security Services.
There is no privity of contract
between the security guards and LDCU, but LDCUs liability to the security
guards remains because of Articles 106, 107 and 109 of the Labor Code.
Eparwa is already precluded from asking LDCU for an adjustment in the
contract price because of the expiration of the contract, but Eparwas
liability to the security guards remains because of their employeremployee relationship. In lieu of an adjustment in the contract price,
Eparwa may claim reimbursement from LDCU for any payment it may
make to the security guards.
However, LDCU cannot claim any
reimbursement from Eparwa for any payment it may make to the security
guards. Hence, the petition is granted.

EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY


CARLOS DIMAYUGA, petitioner, VS. PHILIPPINE COMMERCIAL &
INDUSTRIAL BANK and COURT OF APPEALS, respondents
Aug 5, 1999
G.R. No. 42542
FACTS:
Petitioner is the defendant-appellant in a case for collection of sum of
money against whom the decision was rendered by the trial court on May 28,
1974. Plaintiff, who is now the respondent in the instant petition, is a banking
institution and is the creditor of petitioner.
On February 6, 1962, petitioner borrowed from the plaintiff the sum of
P10,000.00 as evidenced by a promissory note executed and signed by Pedro
Tanjuatco and Carlos Dimayuga. The indebtedness was to be paid on May 7,
1962 with interest at the rate of 10% per annum in case of non-payment at
maturity as evidenced by and in accordance with the terms and conditions of the
promissory note executed jointly and severally by defendants. Carlos Dimayuga
bound himself to pay jointly and severally with Pedro Tanjuatco interest at the
rate of 10% per annum on the said amount of P10,000.00 until fully paid.
Moreover, both undertook to "jointly and severally authorize the respondent
Philippine Commercial and Industrial Bank, at its option to apply to the payment
of this note any and all funds, securities or other real or personal property of
value which hands (sic) on deposit or otherwise belonging to anyone or all of us."

Upon the default of the promissors to pay, bank filed a complaint for the
collection of a sum of money. Defendant Carlos Dimayuga, now petitioner,
however, had remitted to the respondent the P4,000.00 by way of partial
payments made from August 1, 1969 to May 7, 1970 as evidenced by
corresponding receipts thereto. These payments were nevertheless applied to
past interests, charges and partly on the principal.
The trial court held the defendants jointly and severally liable to pay the
plaintiff the sum of P9,139.60 with interest at 10% per annum until fully paid
plus P913.96 as attorneys' fees and costs against defendants. Petitioner then
filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973,
the money claim of the respondents should be dismissed and prosecuted against
the estate of the late Pedro Tanjuatco as provided in Sec. 5, Rule 86, New Rules
of Court. The trial court denied the motion for lack of merit. On appeal, the
Court of Appeals dismissed the appeal for failure of the Record on Appeal to
show on its face that the appeal was timely perfected.
ISSUE:
Whether or not the money claim of PCIB should be dismissed and
prosecuted against the estate of the late Tanjuatco.
RULING:
From the evidence presented, there can be no dispute that Carlos
Dimayuga bound himself jointly and severally with Pedro C. Tanjuatco, now
deceased, to pay the obligation with PCIB in the amount of P10,000.00 plus 10%
interest per annum. In addition, as above stated, in case of non-payment, they
undertook among others to jointly and severally authorize respondent bank, at
its option to apply to the payment of this note, any and all funds, securities, real
or personal properties, etc. belonging to anyone or all of them. Otherwise
stated, the promissory note in question provides in unmistakable language that
the obligation of petitioner Dimayuga is joint and several with Pedro C.
Tanjuatco.
It is well settled under the law and jurisprudence that when the obligation
is solidary, the creditor may bring his action in toto against the debtors obligated
in solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor
may proceed against any one of the solidary debtors or some or all of them
simultaneously. "Hence, there is nothing improper in the creditor's filing of an
action against the surviving solidary debtors alone, instead of instituting a
proceeding for the settlement of the estate of the deceased debtor wherein his

claim could be filed." The notice is undoubtedly left to the solidary creditor to
determine against whom he will enforce collection.
Court of Appeals decision reversed and set aside.
affirmed.

ISSUE:
Whether or not petitioner is a co-debtor of Delgado; hence, liable to pay
the loan contracted by Delgado.

Trial court decision

EFFECTS OF PASSIVE SOLIDARITY/MUTUAL GUARANTY


CERNA VS. COURT OF APPEALS
220 SCRA 517
MARCH 30, 1993
FACTS:
Celerino Delgado and Conrad Leviste entered into a loan agreement on or
about October 16, 1972, which was evidenced by a promissory note. On the
same date, Delgado executed a chattel mortgage over a jeep owned by him.
And acting as the attorney-in-fact of herein petitioner, Manolo P. Cerna
(petitioner), he also mortgaged a Taunus car owned by the latter.
The period lapsed without Delgado paying the loan. This prompted
Leviste to file a collection suit against Delgado and petitioner as solidary
debtors. Petitioner filed a motion to dismiss. The grounds cited in the Motion
were lack of cause of action and the death of Delgado. Anent the latter,
petitioner claimed that the claim should be filed in the proceedings for the
settlement of the estate of Delgado as the action did not survive Delgados
death. Moreover, he also stated that since Leviste already opted to collect on
the note, he could no longer foreclose the mortgage. The trial court denied the
motion to dismiss.
The petitioner then filed a special civil action for certiorari, mandamus,
and prohibition with preliminary injunction on the ground that the respondent
judge committed grave abuse of discretion. However, the Court of Appeals
denied the petition because herein petitioner failed to prove the death of
Delgado and the consequent settlement of the latters estate.
On February 18, 1977, petitioner filed his second motion to dismiss. The
trial court again denied the said motion. Petitioner filed a motion to reconsider
the said order but this was denied. Then, petitioner filed another petition for
certiorari and prohibition with the Court of Appeals. The respondent court
dismissed the petition. The respondent court hold petitioner and Delgado were
solidary debtors.

RULING:
NO, petitioner is not a co-debtor of Delgado. Nowhere did it appear in the
promissory note that petitioner was a co-debtor. Article 1311 of the Civil Code is
clear that contracts take effect only between the parties Moreover, Article
1207 of the Civil Code states that there is solidary liability only when the
obligation expressly so states, or when the law or nature of the obligation so
requires. It was clear that petitioner had no part in the contract. It was
Delgado alone who signed the said agreement. Thus, nowhere could it be seen
from the agreement that petitioner was solidarily bound with Delgado for the
payment of the loan.
There is also no legal provision nor jurisprudence in our jurisdiction which
makes a third person who secures the fulfillment of anothers obligation by
mortgaging his own property solidarily bound with the principal obligor. A
chattel mortgage may be an accessory contract to a contract of loan, but that
fact alone does not make a third-party mortgagor solidarily bound with the
principal debtor in the fulfilling of the principal obligation that is, to pay the loan.
The signatory of the principal contract remains to be primarily bound. It is only
upon the default of the latter that the creditor may have recourse on the
mortgagors by foreclosing the mortgaged properties in lieu of an action for
recovery of the amount of the loan.
And the liability of the third-party
mortgagors extends only to the property mortgaged. Should there be any
deficiency, the creditor has recourse on the principal debtor.
INDIVISIBLE OBLIGATIONS:
CONVENTIONAL

KINDS OF INDIVISIBILITY:

NATURAL, LEGAL OR

NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR.


VS. COURT OF APPEALS, ESTATE OF MAXIMINO A. NAZARENO, SR.,
ROMEO P. NAZARENO and ELIZA NAZARENO
G.R. No. 138842
October 18, 2000
343 SCRA 637
FACTS:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea
died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They
had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino, Jr.

Natividad and Maximino, Jr. are the petitioners in this case, while the estate of
Maximino, Sr., Romeo, and his wife Eliza Nazareno are the respondents. During
their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in
Quezon City and in the Province of Cavite. Upon the reorganization of the courts
in 1983, the case was transferred to the RTC of Naic, Cavite. Romeo was
appointed administrator of his fathers estate. In the course of the intestate
proceedings, Romeo discovered that his parents had executed several deeds of
sale conveying a number of real properties in favor of his sister, Natividad. One
of the deeds involved six lots in Quezon City which were allegedly sold by
Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970 for
the total amount of P47,800.00.
Among the lots covered by the above Deed of Sale is Lot 3-B which is
registered under TCT No. 140946. This lot had been occupied by Romeo, his
wife Eliza, and by Maximino, Jr. since 1969. Unknown to Romeo, Natividad sold
Lot 3-B on July 31, 1982 to Maximino, Jr., for which reason the latter was issued
TCT No. 293701 by the Register of Deeds of Quezon City. When Romeo found
out about the sale to Maximino, Jr., he and his wife Eliza locked Maximino, Jr. out
of the house. On August 4, 1983, Maximino, Jr. brought an action for recovery of
possession and damages with prayer for writs of preliminary injunction and
mandatory injunction with the RTC of Quezon City. On December 12, 1986, the
trial court ruled in favor of Maximino, Jr. In CA-G.R. CV No. 12932, the CA
affirmed the decision of the trial court. On June 15, 1988, Romeo in turn filed, on
behalf of the estate of Maximino, Sr., the present case for annulment of sale with
damages against Natividad and Maximino, Jr. The case was filed in the RTC of
Quezon City. Romeo sought the declaration of nullity of the sale made on
January 29, 1970 to Natividad and that made on July 31, 1982 to Maximino, Jr. on
the ground that both sales were void for lack of consideration. On March 1,
1990, Natividad and Maximino, Jr. filed a third-party complaint against the
spouses Romeo and Eliza. They alleged that Lot 3, which was included in the
Deed of Absolute Sale of January 29, 1970 to Natividad, had been surreptitiously
appropriated by Romeo by securing for himself a new title in his name. They
alleged that Lot 3 is being leased by the spouses Romeo and Eliza to third
persons.
In the trial court, it rendered a decision declaring the nullity of the Deed of
Sale dated January 29, 1970 except as to lots 3, 3-b, 13 and 14 which had
passed on to third persons. On motion for reconsideration, the trial court
modified its decision. On appeal to the Court of Appelas, the decision of the trial
court was modified in the sense that the titles to Lot 3 (in the name of Romeo
Nazareno) and Lot 3-B ( in the name of Maximino Nazareno, Jr.), as well as to

Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino,
Sr.
ISSUE:
Whether or not the the Deed of Absolute Sale on January 29, 1970 is an
indivisible contract founded on an indivisible obligation
RULING:
An obligation is indivisible when it cannot be validly performed in parts,
whatever may be the nature of the thing which is the object thereof. The
indivisibility refers to the prestation and not to the object thereof. In the present
case, the Deed of Sale of January 29, 1970 supposedly conveyed the six lots to
Natividad. The obligation is clearly indivisible because the performance of the
contract cannot be done in parts; otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in basing the indivisibility of a
contract on the number of obligors. The decision of the Court of Appeals is
AFFIRMED.

KINDS OF PENALTIES:
1.
2.

ALONZO VS. SAN JUAN, 451 SCRA 45


DAVID VS. CA, 316 SCRA 710
AURELIO P. ALONZO and TERESITA A. SISON
VS. JAIME and PERLITA SAN JUAN
G. R. No. 137549
February 11, 2005
451 SCRA 45

FACTS:
Petitioners Alonzo and Sison alleged that they are the registered owners
of a parcel of land located at Lot 3, Block 11, M. Agoncillo St., Novaliches,
Quezon City, evidenced by TCT No. 152153. At around June 1996, petitioners
discovered that a portion on the left side of the parcel of land was occupied by
the respondents San Juan, without their knowledge or consent. A demand letter
was sent to the respondents requiring them to vacate the said premises, but
they refused to comply.
Petitioners then filed a complaint against the

respondents. During the pendency of the case, the parties agreed to enter into
a Compromise Agreement which the trial court approved in a judgment by
compromise dated May 7, 1997.
In the Compromise Agreement, it was
expressly stipulated that should any two of the installments of the purchase
price be not paid by the respondents, the said agreement shall be considered
null and void. Alleging that the respondents failed to abide by the provisions of
the Compromise Agreement by their failure to pay the amounts due thereon,
petitioners then filed an Amended Motion for Execution. Petitioners alleged that
the respondents failed to pay the installments for July 31, 1997 and August 31,
1997 on their due dates, thus the Compromise Agreement submitted by the
parties became null and void. With this, the trial court found no reason to direct
the issuance of the writ of execution and denied the petitioners Amended
Motion for Execution. Petitioners filed their motion for reconsideration to which
the respondents opposed. The trial court likewise denied the petitioners motion
for reconsideration.
ISSUE:
Whether or not the petitioners have a right to enforce the provision on
Compromise Agreement by asking for the issuance of a writ of execution
because of the failure of the respondents to pay.
RULING:
The Supreme Court held that the items 11 and 12 of the Compromise
Agreement provided, in clear terms, that in case of failure to pay on the part of
the respondents, they shall vacate and surrender possession of the land that
they are occupying and the petitioners shall be entitled to obtain immediately
from the trial court the corresponding writ of execution for the ejectment of the
respondents. This provision must be upheld, because the Agreement supplanted
the complaint itself. When the parties entered into a Compromise Agreement,
the original action for recovery of possession was set aside and the action was
changed to a monetary obligation. Once approved judicially, the Compromise
Agreement cannot and must not be disturbed except for vices of consent or
forgery. For failure of the respondents to abide by the judicial compromise,
petitioners are vested with the absolute right under the law and the agreement
to enforce it by asking for the issuance of the writ of execution. Doctrinally, a
Compromise Agreement is immediately final and executory. Petitioners course
of action, asking for the issuance of a writ of execution was in accordance with
the very stipulation in the agreement that the lower court could not change.
Hence, the petition is granted.
KINDS OF PENALTIES:

JESUS T. DAVID, petitioner.


VS. THE COURT OF APPEALS HON. EDGARDO P. CRUZ, MELCHOR P.
PENA AND VALENTIN AFABLE, JR. respondents
G.R. NO. 115821
OCTOBER 13, 1999
FACTS:
The RTC of Manila, Branch 27, with Judge Ricardo Diaz, then presiding,
issued a writ of attachment over real properties covered by TCT Nos. 80718 and
10281 of private respondents. In his decision Judge Diaz ordered private
respondent Afable to pay petitioner until fully paid. Respondent Afable appealed
to the Court of Appeals and then to the Supreme Court. In both instances, the
decision of the lower court was affirmed. Entries of judgment were made and
the record of the case was remanded to Branch 27 presided at that time by
respondent Judge Cruz. Petitioners elevated said orders to the Court of Appeals
in a petition for certiorari, prohibition and mandamus. However, respondent
appellate court dismissed the petiton.
ISSUE:
Whether or not respondent appellate court erred in affirming the
respondent Judges order for the payment of simple interest only rather than the
compounded interest.
RULING:
Petitioner insists that in computing the interest due should be computed
at 6% on the principal sum pursuant to Article 2209 and then interest on the
legal interest should also be computed in accordance with the language of
article 2212 of the Civil Code. In view of this means Compound interest.
In cases where no interest had been stipulated by the parties, no accrued
conventional interest could further earn interest upon judicial demand.
The instant petition is denied. The decision of the Court of Appeals is
affirmed.
OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST
1. MACALALAG VS. PEOPLE, 511 S 400
2. TAN VS. CA, 367 S 571
3. EASTERN SHIPPING VS. CA, 234 S 78

THERESA MACALALAG vs. PEOPLE OF THE PHILIPPINES


G.R. No. 164358
December 20, 2006
FACTS:
On two separate occasions, particularly on 30 July 1995 and 16
October 1995, petitioner Theresa Macalalag obtained loans from Grace
Estrella (Estrella), each in the amount of P100,000.00, each bearing an
interest of 10% per month. Macalalag consistently paid the interests.
Finding the interest rates so burdensome, Macalalag requested Estrella
for a reduction of the same to which the latter agreed. On 16 April 1996
and 1 May 1996, Macalalag executed
Acknowledgment/Affirmation
Receipts promising to pay Estrella the face value of the loans in the total
amount of P200,000.00 within two months from the date of its execution
plus 6% interest per month for each loan. Under the two
Acknowledgment/Affirmation Receipts, she further obligated herself to
pay for the two (2) loans the total sum of P100,000.00 as liquidated
damages and attorney's fees in the total sum of P40,000.00 as stipulated
by the parties the moment she breaches the terms and conditions
thereof.
As security for the payment of the aforesaid loans, Macalalag issued
two Philippine National Bank (PNB) Checks on 30 June 1996, each in the
amount of P100,000.00, in favor of Estrella. However, the said checks
were dishonored for the reason that the account against which the same
was drawn was already closed. Estrella sent a notice of dishonor and
demand to make good the said checks to Macalalag, but the latter failed
to do so. Hence, Estrella filed two criminal complaints for Violation of
Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC)
of Bacolod City.The MTCC found the accused Theresa Macalalag guilty
beyond reasonable doubt of the crime charged and is likewise ordered to
pay as civil indemnity the total amount of P200,000.00 with interest at the
legal rate from the time of the filing of the informations until the amount
is fully paid; less whatever amount was thus far paid and validly deducted
from the principal sum originally claimed. On appealed, the Court of
Appeals, affirmed the RTC and the MTCC decisions with modification to
the effect that accused was convicted only of one (1) count of Violation of
Batas Pambansa Blg. 22.

ISSUE:
Whether petitioner`s payments over and above the value of the
said checks would free her from criminal liability.
RULING:
The Court argued that, Even if we agree with petitioner Macalalag
that the interests on her loans should not be imputed to the face value of
the checks she issued, petitioner Macalalag is still liable for Violation of
Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before
the institution of the two cases against her, she has made a total payment
of P156,000.00. Applying this amount to the first check (No. C-889835),
what will be left is P56,000.00, an amount insufficient to cover her
obligation with respect to the second check. As stated above, when
Estrella presented the checks for payment, the same were dishonored on
the ground that they were drawn against a closed account. Despite notice
of dishonor, petitioner Macalalag failed to pay the full face value of the
second check issued.
Only a full payment of the face value of the second check at the time of
its presentment or during the five-day grace period15 could have
exonerated her from criminal liability. A contrary interpretation would
defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the
interest of the banking system and the legitimate public checking account
user,16 as the drawer could very well have himself exonerated by the
mere expediency of paying a minimal fraction of the face value of the
check. Hence, the Petition is denied.
OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST
TAN VS. COURT OF APPEALS
367 SCRA 571
GR NO. 116285
FACTS:
On May 14, 1978, petitioner Antonio Tan obtained two loans in the total
amount of four million pesos from respondent Cultural Center of the Philippines
(CCP), evidenced by 2 promissory notes with maturity dates on May 14, 1979

and July 6, 1979, respectively. Petitioner defaulted but later he had the loans
restructured by respondent CCP. Petitioner accordingly executed a promissory
note on August 31, 1979 in the amount of P3,411,421.32 payable in five (5)
installments. Petitioner however, failed to pay any of the supposed installments
and again offered another mode of paying restructured loan which respondent
CCP refused to consent.
On May 30, 1984, respondent wrote petitioner demanding the full
payment, within ten (10) days, from receipt of the letter, of the latters
restructured loan which as of April 30, 1984 amounted to P6, 088,735. On
August 29, 1984, respondent CCP filed with the RTC of Manila a complaint for a
collection of a sum of money. Eventually, petitioner was ordered to pay said
amount, with 25% thereof as attorneys fees and P500, 000.00 as exemplary
damages. On appeal, the Court of Appeals, reduced the attorneys fees to 5%
of the principal amount to be collected from petitioner and deleted the
exemplary damages.
Still unsatisfied with the decision, petitioner seeks for the deletion of the
attorneys fees and the reduction of the penalties.
ISSUE:
Whether or not interests and penalties may be both awarded.
RULING:
YES. Article 1226 of the New Civil Code provides that in obligations with a
penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may
be enforced only when it is demandable in accordance with the provisions.
In the case at bar, 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 payment of the subject restructured loan. Since the said
stipulation has the force of law between the parties and does not appear to be
inequitable or unjust, it must be respected.
OBLIGATIONS WITH A PENAL CLAUSE: PENALTIES VS. INTEREST

EASTERN SHIPPING INES, INC vs. HON. COURT OF APPEALS


G.R. No. 97412 Jul 12, 1994

FACTS:
On December 4, 1981, two fiber drums of riboflavin were shipped
from Yokohama, Japan for delivery vessel `SS EASTERN COMET' owned by
defendant Eastern Shipping 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.
Upon arrival of the shipment in Manila on December 12, 1981, it
was discharged unto the custody of defendant Metro Port Services, Inc.
The latter excepted to one drum, said to be in bad order, which damage
was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant Metro Port Service,
Inc., one drum opened and without. On January 8 and 14, 1982, defendant
Allied Brokerage Corporation made deliveries of the shipment to the
consignees' warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake Plaintiff
contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and
negligence of defendants. Claims were presented against defendants who
failed and refused to pay the same "As a consequence of the losses
sustained, plaintiff was compelled to pay the consignee P19,032.95 under
the aforestated marine insurance policy, so that it became subrogated to
all the rights of action of said consignee against defendants.
ISSUE:
a.)Whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or form the
date the decision appealed from is rendered; and b)Whether the
applicable rate of interest is twelve percent or six percent.
HELD:
When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor can
be held liable for damages. With regard particularly to an award of
interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a


sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 23 of the Civil
Code.
2. When a obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date of the judgment of the court
is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained).
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
ESCALATION CLAUSE VS. ACCELERATION CLAUSE
1. PCI VS. NG SHEUNG NGOR, 541 S 223
2. NSBC VS. PNB, 435 S 565
3. POLOTAN VS. CA, 296 S 247

Bank, Aimee Yu and Ben Apas, Defendants for Annulment and/or


Reformation of Documents and Contracts.
Respondents Antonio A. Bellones and Generoso B. Regalado are the
sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City.
For garnishing accounts maintained by Equitable PCI Bank, Inc.
(EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation
(HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of
Court, a complaint for grave abuse of authority was filed by Atty. Paulino
L. Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado.
There was an offer of other real property by petitioner.
ISSUE:
Did respondents violate the Rules of Court?
RULING:
By serving notices of garnishment on Citibank, N.A., HSBC and PNB,
Sheriff Regalado violated EPCIBs right to choose which property may be
levied upon to be sold at auction for the satisfaction of the judgment debt.
Thus, it is clear that when EPCIB offered its real properties, it exercised its
option because it cannot immediately pay the full amount stated in the
writ of execution and all lawful fees in cash, certified bank check or any
other mode of payment acceptable to the judgment obligee.
In the case at bar, EPCIB cannot immediately pay by way of
Managers Check so it exercised its option to choose and offered its real
properties. With the exercise of the option, Sheriff Regalado should have
ceased serving notices of garnishment and discontinued their
implementation. This is not true in the instant case. Sheriff Regalado was
adamant in his posture even if real properties have been offered which
were sufficient to satisfy the judgment debt.

PCI vs Ng Shueng Ngor


A.M. No. P-05-1973. March 18, 2005
FACTS:
Complainant EPCIB is the defendant in Civil Case No. CEB-26983
before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, Ng
Sheung Ngor, doing business under the name and style Ken Marketing,
Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI

ESCALATION CLAUSE VS. ACCELERATION CLAUSE

NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) and Spouses


EDUARDO R. DEE and ARCELITA M. DEE
VS. PHILIPPINE NATIONAL BANK
2004 Jul 30
G.R. No. 148753
435 SCRA 565
FACTS:
On February 11, 1989, Board Resolution No. 05, Series of 1989 was
approved by Petitioner NSBCI authorizing the company to x x x apply for or
secure a commercial loan with the PNB in an aggregate amount of P8.0M, under
such terms agreed by the Bank and the NSBCI, using or mortgaging the real
estate properties registered in the name of its President and Chairman of the
Board Petitioner Eduardo R. Dee as collateral; and authorizing petitioner-spouses
to secure the loan and to sign any and all documents which may be required by
Respondent PNB, and that petitioner-spouses shall act as sureties or co-obligors
who shall be jointly and severally liable with Petitioner NSBCI for the payment of
any [and all] obligations.
On August 15, 1989, Resolution No. 77 was approved by granting the
request of Respondent PNB thru its Board NSBCI for an P8 Million loan broken
down into a revolving credit line of P7.7M and an unadvised line of P0.3M for
additional operating and working capital to mobilize its various construction
projects. The loan of Petitioner NSBCI was secured by a first mortgage on the
following: a) three (3) parcels of residential land located at Mangaldan,
Pangasinan; b) six (6) parcels of residential land situated at San Fabian,
Pangasinan; and c) a residential lot and improvements thereon located at
Mangaldan. The loan was further secured by the joint and several signatures of
Petitioners Eduardo Dee and Arcelita Marquez Dee, who signed as
accommodation-mortgagors since all the collaterals were owned by them and
registered in their names. Moreover Petitioner NSBCI executed three promissory
notes. In addition, petitioner corporation also signed the Credit Agreement
dated August 31, 1989 relating to the revolving credit line of P7.7 Million x x x
and the Credit Agreement dated September 5, 1989 to support the unadvised
line of P300,000.00.
On September 6, 1991, Petitioner Eduardo Dee wrote the PNB Branch
Manager reiterating his proposals for the settlement of Petitioner NSBCIs past
due loan account amounting to P7,019,231.33. Petitioner Eduardo Dee later
tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in
favor of Respondent PNB

Upon presentment, however, x x x check nos. 03500087 and 03500088


dated September 29 and October 29, 1991 were dishonored by the drawee bank
and returned due to a stop payment order from petitioners. On November 12,
1991, PNBs Mr. Carcamo wrote Petitioner Eduardo Dee informing him that
unless the dishonored checks were made good, said PNB branch shall recall its
recommendation to the Head Office for the restructuring of the loan account and
refer the matter to its legal counsel for legal action. Petitioners did not heed
respondents warning and as a result, the PNB Dagupan Branch sent demand
letters to Petitioner NSBCI at its office address at 1611 ERDC Building, E.
Rodriguez Sr. Avenue, Quezon City, asking it to settle its past due loan account.
Petitioners nevertheless failed to pay their loan obligations within the time
frame given them and as a result, Respondent PNB filed with the Provincial
Sheriff of Pangasinan at Lingayen a Petition for Sale. The sheriff foreclosed the
real estate mortgage and sold at public auction the mortgaged properties of
petitioner-spouses, with Respondent PNB being declared the highest bidder for
the amount of P10,334,000.00. Petitioners refused to pay the above deficiency
claim which compelled Respondent PNB to institute the instant Complaint for the
collection of its deficiency claim.
ISSUE:
Whether or not the escalation clause is valid and whether or not it is
violative of the principle of mutuality of contracts.
RULING:
In each drawdown, the Promissory Notes specified the interest rate to be
charged: 19.5 percent in the first, and 21.5 percent in the second and again in
the third. However, a uniform clause therein permitted respondent to increase
the rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future x x x, without even giving prior notice to
petitioners. The Court holds that petitioners accessory duty to pay interest did
not give respondent unrestrained freedom to charge any rate other than that
which was agreed upon. No interest shall be due, unless expressly stipulated in
writing. It would be the zenith of farcicality to specify and agree upon rates that
could be subsequently upgraded at whim by only one party to the agreement.
The unilateral determination and imposition of increased rates is
violative of the principle of mutuality of contracts ordained in Article 1308 of
the Civil Code. One-sided impositions do not have the force of law between the
parties, because such impositions are not based on the parties essential
equality.

Although escalation clauses are valid in maintaining fiscal stability and


retaining the value of money on long-term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would
completely take away from petitioners the right to assent to an important
modification in their agreement and would also negate the element of mutuality
in their contracts. The clause cited earlier made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of respondent and was
therefore void. Besides, the pro forma promissory notes have the character of a
contract dadhsion, where the parties do not bargain on equal footing, the
weaker partys the debtors participation being reduced to the alternative to
take it or leave it.

ESCALATION CLAUSE VS. ACCELERATION CLAUSE

POLOTAN VS CA
GR No. 119379. September 25, 1998
FACTS:
Private respondent Security Diners International Corporation
(Diners Club), a credit card company, extends credit accomodations to its
cardholders for the purchase of goods and other services from member
establishments. Said goods and services are reimbursed later on by
cardholders upon proper billing. Petitioner Rodelo G. Polotan, Sr. applied
for membership and credit accmodations with Diners Club in October
1985. The application form contained terms and conditions governing the
use and availment of the Diners Club card, among which is for the
cardholder to pay all charges made through the use of said card within
the period indicated in the statement of account and any remaining
unpaid balance to earn 3% interest per annum plus prime rate of Security
Bank & Trust Company. Notably, in the application form submitted by
petitioner, Ofricano Canlas obligated himself to pay jointly and severally
with petitioner the latters obligation to private respondent.
Upon acceptance of his application, petitioner was issued Diners
Club card No. 3651-212766-3005. As of May 8, 1987, petitioner incurred
credit charges plus appropriate interest and service charges in the

aggregate amount of P33,819.84 which had become due and


demandable. Demands for payment made against petitioner proved
futile. Hence, private respondent filed a Complaint for Collection of Sum
of Money against petitioner before the lower court.
ISSUE:
Is petitioner liable for payment of credit charges plus interest and
service charges?
RULING:
A contract of adhesion is one in which one of the contracting parties
imposes a ready-made form of contract which the other party may accept
or reject, but cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his
adhesion thereto, giving no room for negotiation and depriving the
latter of the opportunity to bargain on equal footing. Nevertheless, these
types of contracts have been declared as binding as ordinary contracts,
the reason being that the party who adheres to the contract is free to
reject it entirely.
In this case, petitioner, in effect, claims that the subject contract is
one-sided in that the contract allows for the escalation of interests, but
does not provide for a downward adjustment of the same in violation of
Central Bank Circular 905. Admittedly, the second paragraph of the
questioned proviso which provides that the Cardholder hereby authorizes
Security Diners to correspondingly increase the rate of such interest in
the event of changes in prevailing market rates x x x is an escalation
clause. However, it cannot be said to be dependent solely on the will of
private respondent as it is also dependent on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long
as they are not solely potestative but based on reasonable and
valid grounds. Obviously, the fluctuation in the market rates is beyond
the control of private respondent.
REDUCTION OF CONVENTIONAL PENALTIES

1. PNB VS. ESCINA, 544 S 608


2. IMPERIAL VS. JAUCIAN, 427 SCRA 517

3.
4.
5.
6.
7.

PABUGAIS VS. SAHIJWANI, 423 SCRA 596


LO VS. CA, 411 SCRA 523, SEPT. 23, 2003
LIGUTAN VS. CA, FEB. 12, 2002
PASCUAL VS. RAMOS, 384 S 105
FIRST METRO INVESTMENT VS. ESTE DEL SOL, 369 SCRA

99
8. DOMEL TRADING VS. CA, 315 SCRA 13
9. MEDEL VS. CA, 299 S 481
10. REFORMINA VS. TOMOL, 139 SCRA 260, OCT. 11, 1985

PNB VS. ENCINA


544 S 608

FACTS:
The Philippine National Bank (PNB) assails the Decision of the Court
of Appeals dated 15 May 2005, rendered in CA-G.R. CV No. 79094 which,
among others, declared null and void the interest rate imposed by PNB on
the loan obtained from it by respondents and the consequent extrajudicial
foreclosure of the properties offered as security for the loan.
Respondents Encina spouses acquired several loans from PNB from
which it failed to pay within due time. Encina avers that there ought to be
longer gestation periods on its part being engaged in a business of
agricultural character.
ISSUE:
Was there a violation of the Usury Law?
RULING:
As borne by the records, the Encina spouses never challenged the
validity of their loan and the accessory contracts with PNB on the ground
that they violated the principle of mutuality of contracts in view of the
provision therein that the interest rate shall be set by management. Their
only contention concerning the interest rate was that the charges
imposed by the bank violated the Usury Law. This was the essence of the
second cause of action alleged in the complaint.

It should be definitively ruled in this regard that the Usury Law had
been rendered legally ineffective by Resolution No. 224 dated 3
December 1982 of the Monetary Board of the Central Bank, and later by
Central Bank Circular No. 905 which took effect on 1 January 1983 and
removed the ceiling on interest rates for secured and unsecured loans
regardless of maturity. The effect of these circulars is to allow the parties
to agree on any interest that may be charged on a loan. The virtual repeal
of the Usury Law is within the range of judicial notice which courts are
bound to take into account. After all, the fundamental tenet is that the law
is deemed part of the contract. Thus, the trial court was correct in ruling
that the second cause of action was without basis.
REDUCTION OF CONVENTIONAL PENALTIES
IMPERIAL VS. JAUCIAN
427 SCRA 517
2004 Apr 14
FACTS:
The present controversy arose from a case for collection of money, filed
by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The
complaint alleges, inter alia, that defendant obtained from plaintiff six (6)
separate loans for which the former executed in favor of the latter six (6)
separate promissory notes and issued several checks as guarantee for payment.
When the said loans became overdue and unpaid, especially when the
defendants checks were dishonored, plaintiff made repeated oral and written
demands for payment.
The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the amount
released to defendant because said face value already included the interest from
date of note to date of maturity. Said promissory notes indicate the interest of
16% per month, date of issue, due date, the corresponding guarantee checks
issued by defendant, penalties and attorneys fees. The trial courts clear and
detailed computation of petitioners outstanding obligation to respondent was
affirmed by the CA for being convincing and satisfactory. However, the CA held
that without judicial inquiry, it was improper for the RTC to rule on the
constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982.

ISSUES:
Whether or not the penalties charged per month is in the guise of hidden
interest.

equitably, when the principal obligation has been partly or irregularly complied
with. Upon this premise, we hold that the RTCs reduction of attorneys fees -from 25 percent to 10 percent of the total amount due and payable -- is
reasonable.

Whether or not the reduction of attorneys fees by the RTC is reasonable.


REDUCTION OF CONVENTIONAL PENALTIES
RULING:
Iniquitous and unconscionable stipulations on interest rates, penalties and
attorneys fees are contrary to morals. Consequently, courts are granted
authority to reduce them equitably. If reasonably exercised, such authority shall
not be disturbed by appellate courts.
Article 1229 of the Civil Code states thus:
The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been
no performance, the penalty may also be reduced by the courts if it is iniquitous
or unconscionable.
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case. What
may be iniquitous and unconscionable in one may be totally just and equitable in
another. In the present case, iniquitous and unconscionable was the parties
stipulated penalty charge of 5 percent per month or 60 percent per annum, in
addition to regular interests and attorneys fees. Also, there was partial
performance by petitioner when she remitted P116,540 as partial payment of
her principal obligation of P320,000. Under the circumstances, the trial court
was justified in reducing the stipulated penalty charge to the more equitable rate
of 14 percent per annum.The Promissory Note carried a stipulation for attorneys
fees of 25 percent of the principal amount and accrued interests. Strictly
speaking, this covenant on attorneys fees is different from that mentioned in
and regulated by the Rules of Court. Rather, the attorneys fees here are in the
nature of liquidated damages and the stipulation therefor is aptly called a penal
clause. So long as the stipulation does not contravene the law, morals, public
order or public policy, it is binding upon the obligor. It is the litigant, not the
counsel, who is the judgment creditor entitled to enforce the judgment by
execution.
Nevertheless, it appears that petitioners failure to comply fully with her
obligation was not motivated by ill will or malice. The twenty-nine partial
payments she made were a manifestation of her good faith. Again, Article 1229
of the Civil Code specifically empowers the judge to reduce the civil penalty

TEDDY G. PABUGAIS v. DAVE P. SAHIJWANI


G.R. No. 156846, February 23, 2004
FACTS:
Teddy G. Pabugais, agreed to sell to Dave P. Sahijwani a lot located
at North Forbes Park, Makati.
Dave paid Teddy the amount of
P600,000.00 as option/reservation fee and the balance of P14,887,500.00
to be paid within 60 days from the execution of the contract,
simultaneous with delivery of the owners duplicate TCT in Daves name
and other required documents. Teddy failed to deliver the required
documents, and returned to Dave the option/reservation fee by way of
check, which was, however, dishonored. On August11, 1994, Teddy wrote
to Dave saying that he is consigning the mount tendered with the RTC of
Makati City.
On August 15, 1994, Teddy filed a complaint for
consignation, alleging that he twice rendered to Dave, through his
counsel, the amount of P672,900.00 in the form of managers check, but
was refused. Daves counsel, on the other hand, admitted that his office
received petitioners letter, but claimed that no check was appended
thereto. He averred that there was no valid tender of payment because
no check was tendered and the computation of the amount to be
tendered was insufficient. The trial court declared the consignation
invalid for failure to prove that there was a prior tender of payment and
was refused by Dave. Teddy appealed the decision to the Court of
Appeals. Thereafter, he filed an Ex Parte Motion to Withdraw Consigned
Money, which was denied by the CA. On a motion for reconsideration, the
CA declared the consignation as valid, and thus held that Teddy cannot
withdraw his consignation. Unfazed, Teddy filed the present petition upon
the contention that he can withdraw the amount deposited with the trial
court as a matter of right since at the time he moved for the withdrawal,
the CA has yet to rule on its validity and Dave had not yet accepted the
same.

ISSUES:
(1) Whether or not there was a valid consignation; and (2) Whether
or not petitioner can withdraw the amount consigned as a matter of right?
RULING:
The petition for review is denied. Petitioners tender of payment is
valid. The amount consigned however can no longer be withdrawn
because respondents prayer in his answer that the amount consigned be
awarded to him is equivalent to an acceptance of the consignation, which
has the effect of extinguishing petitioners obligation.
The amount
consigned with the trial court can no longer be withdrawn by petitioner
because respondents prayer in his answer that the amount consigned be
awarded to him is equivalent to an acceptance of the consignation, which
has the effect of extinguishing petitioners obligation.
Moreover,
petitioner failed to manifest his intention to comply with the Agreement
And Undertaking by delivering the necessary documents and the lot
subject of the sale to respondent in exchange for the amount deposited.
Withdrawal of the money consigned would enrich petitioner and unjustly
prejudice respondent.

REDUCTION OF CONVENTIONAL PENALTIES

ANTONIO LO, petitioner,


VS. THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS
COOPERATIVE MARKETING ASSOCIATION, INC., respondents
FACTS:
At the core of the present controversy are two parcels of land measuring
a total of 2,147 square meters, with an office building constructed thereon.
Petitioner acquired the subject parcels of land in an auction sale on November 9,
1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private

respondent National Onion Growers Cooperative Marketing Association, Inc., an


agricultural cooperative, was the occupant of the disputed parcels of land under
a subsisting contract of lease with Land Bank. The lease was valid until
December 31, 1995. Upon the expiration of the lease contract, petitioner
demanded that private respondent vacate the leased premises and surrender its
possession to him. Private respondent refused on the ground that it was, at the
time, contesting petitioners acquisition of the parcels of land in question in an
action for annulment of sale, redemption and damages.
Petitioner filed an action for ejectment before the MTC. He asked, inter
alia, for the imposition of the contractually stipulated penalty of P5,000 per day
of delay in surrendering the possession of the property to him. On September 3,
1996, the trial court decided the case in favor of petitioner. On appeal to the
RTC, the MTC decision was affirmed in toto. The CA rendered its assailed
decision affirming the decision of the trial court, with the modification that the
penalty imposed upon private respondent for the delay in turning over the
leased property to petitioner was reduced from P 5,000 to P 1000 per day.
ISSUE:
Whether or not the Court of Appeals erred in reducing the penalty
awarded by the trial court, the same having been stipulated by the parties.
RULING:
No. Generally, courts are not at liberty to ignore the freedom of the
parties to agree on such terms and conditions as they see fit as long as they are
not contrary to law, morals, good customs, public order or public policy.
Nevertheless, courts may equitably reduce a stipulated penalty in the contract if
it is iniquitous or unconscionable, or if the principal obligation has been partly or
irregularly complied with. This power of the courts is explicitly sanctioned by
Article 1229 of the Civil Code which provides:
Article 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable.
The question of whether a penalty is reasonable or iniquitous is addressed
to the sound discretion of the court and depends on several factors, including,
but not limited to, the following: the type, extent and purpose of the penalty, the
nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties.

In this case, the stipulated penalty was reduced by the appellate court for
being unconscionable and iniquitous. Petition denied; CA decision affirmed.

REDUCTION OF CONVENTIONAL PENALTIES


LIGUTAN VS. COURT OF APPEALS
376 SCRA 561
FEBRUARY 12, 2002
FACTS:
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11,
1981 a loan in the amount of P120,000.00 from respondent Security Bank and
Trust Company. Petitioners executed a promissory note binding themselves,
jointly and severally, to pay the sum borrowed with an interest of 15.189% per
annum upon maturity and to pay a penalty of 5% every month on the
outstanding principal and interest in case of default. In addition, petitioners
agreed to pay 10% of the total amount due by way of attorneys fees if the
matter were indorsed to a lawyer for collection or if a suit were instituted to
enforce payment. The obligation matured on September 8, 1981; the bank,
however, granted an extension but only until December 29, 1981. When
petitioners defaulted on their obligation, the bank filed on November 3, 1982
with the RTC a complaint for recovery of the due amount. On September 5,
1988, the trial court ruled in favor of the bank. It ordered the petitioners to pay,
jointly and severally, the sum of P114,416.00 with interest thereon at the rate of
15.189% per annum, 2% service charge and 5% per month penalty charge,
commencing on May 20, 1982 until fully paid.
The CA affirmed it but deleted the 2% service charge pursuant to Central
Bank Circular No. 783. Not fully satisfied with the decision, both parties moved
for reconsideration. Petitioners prayed for the reduction of the 5% penalty for
being unconscionable. The bank asked that the payment of interest and penalty
be commenced not from the date of filing of complaint but from the time of
default as so stipulated in the contract of the parties. On October 28, 1998, the
CA resolved the two (2) motions granting the prayer of the bank that the
payment of interest and penalty be commenced on the date when the obligation
became due and on the other hand held that a penalty of 3% per month or 36%
per annum would suffice.

The petitioner, before the Court, contended, among others that the
15.189% interest and the penalty of 3% per month or 36% per annum imposed
by private respondent bank on petitioners loan obligation are still manifestly
exorbitant, iniquitous and unconscionable. Respondent bank, which did not take
an appeal, would, however, have it that the penalty sought to be deleted by
petitioners was even insufficient to fully cover and compensate for the cost of
money brought about by the radical devaluation and decrease in the purchasing
power of the peso.
ISSUE:
Whether or not the penalty is reasonable and not iniquitous.
RULING:
NO, the penalty is not unreasonable. The Court held that the question of
whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily
confide to, the type, extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its consequences, the supervening realities,
the standing and relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of the court. In Rizal
Commercial Banking Corp. v. Court of Appeals, for example, the Court has
tempered the penalty charges after taking into account the debtors pitiful
situation and its offer to settle the entire obligation with the creditor bank. The
stipulated penalty might likewise be reduced when a partial or irregular payment
is made by the payment. The stipulated penalty might even be deleted such as
when there has been substantial performance in good faith by the obligor, when
the penalty clause itself suffers from fatal infirmity, and when exceptional
circumstances so exist as to warrant it. In the case at bar, given the
circumstances, not to mention the repeated acts of breach by petitioners of their
contractual obligation, this Court sees no cogent ground to change the ruling of
the appellate court.
REDUCTION OF CONVENTIONAL PENALTIES
PASCUAL VS. RAMOS
384 S 105

FACTS:

Ramos alleged that on 3 June 1987, for and in consideration of


P150,000, the Spouses Pascual executed in his favor a Deed of Absolute
Sale with Right to Repurchase over two parcels of land and the
improvements thereon located in Bambang, Bulacan, Bulacan. This
document was annotated at the back of the title. The Pascuals did not
exercise their right to repurchase the property within the stipulated oneyear period; hence, Ramos prayed that the title or ownership over the
subject parcels of land and improvements thereon be consolidated in his
favor.
In their Answer, the Pascuals admitted having signed the Deed of
Absolute Sale with Right to Repurchase for a consideration of P150, 000
but averred that what the parties had actually agreed upon and entered
into was a real estate mortgage. They further alleged that there was no
agreement limiting the period within which to exercise the right to
repurchase and that they had even overpaid Ramos. The trial court found
that the transaction between the parties was actually a loan in the
amount of P150,000, the payment of which was secured by a mortgage of
the property covered by TCT No. 305626. It also found that the Pascuals
had made payments in the total sum of P344,000, and that with interest
at 7% per annum, they had overpaid the loan by P141,500. Accordingly,
in its Decision of 15 March 1995 the trial court ruled in favor of the
defendants. The Pascuals interposed the following defenses: (a) the trial
court had no jurisdiction over the subject or nature of the petition; (b)
Ramos had no legal capacity to sue; (c) the cause of action, if any, was
barred by the statute of limitations; (d) the petition stated no cause of
action; (e) the claim or demand set forth in Ramoss pleading had been
paid, waived, abandoned, or otherwise extinguished; and (f) Ramos has
not complied with the required confrontation and conciliation before the
barangay.
The Court of Appeals affirmed in toto the trial courts Orders of 5
June 1995 and 7 September 1995.
ISSUE:
Whether or not the contract entered into is a contract of loan.

RULING:
The Pascuals are actually raising as issue the validity of the
stipulated interest rate. It must be stressed that they never raised as a
defense or as basis for their counterclaim the nullity of the stipulated
interest. While overpayment was alleged in the Answer, no ultimate facts
which constituted the basis of the overpayment was alleged. In their pretrial brief, the Pascuals made a long list of issues, but not one of them
touched on the validity of the stipulated interest rate. Their own evidence
clearly shows that they have agreed on, and have in fact paid interest at,
the rate of 7% per month.
After the trial court sustained petitioners claim that their
agreement with RAMOS was actually a loan with real estate mortgage, the
Pascuals should not be allowed to turn their back on the stipulation in that
agreement to pay interest at the rate of 7% per month. The Pascuals
should accept not only the favorable aspect of the courts declaration that
the document is actually an equitable mortgage but also the necessary
consequence of such declaration, that is, that interest on the loan as
stipulated by the parties in that same document should be paid. Besides,
when Ramos moved for a reconsideration of the 15 March 1995 Decision
of the trial court pointing out that the interest rate to be used should be
7% per month, the Pascuals never lifted a finger to oppose the claim.
Admittedly, in their Motion for Reconsideration of the Order of 5 June
1995, the Pascuals argued that the interest rate, whether it be 5% or 7%,
is exorbitant, unconscionable, unreasonable, usurious and inequitable.
However, in their Appellants Brief, the only argument raised by the
Pascuals was that Ramoss petition did not contain a prayer for general
relief and, hence, the trial court had no basis for ordering them to pay
Ramos P511,000 representing the principal and unpaid interest. It was
only in their motion for the reconsideration of the decision of the Court of
Appeals that the Pascuals made an issue of the interest rate and prayed
for its reduction to 12% per annum.
It is a basic principle in civil law that parties are bound by the
stipulations in the contracts voluntarily entered into by them. Parties are
free to stipulate terms and conditions which they deem convenient
provided they are not contrary to law, morals, good customs, public order,

or public policy.
The interest rate of 7% per month was voluntarily agreed upon by
Ramos and the Pascuals. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of fraud when
they entered into the agreement with Ramos. Neither is there a showing
that in their contractual relations with Ramos, the Pascuals were at a
disadvantage on account of their moral dependence, ignorance, mental
weakness, tender age or other handicap, which would entitle them to the
vigilant protection of the courts as mandated by Article 24 of the Civil
Code.
REDUCTION OF CONVENTIONAL PENALTIES
FIRST METRO INVESTMENT petitioner,
VS. ESTE DEL SOL MOUNTAIN RESERVE, INC, respondent
369 SCRA 99
FACTS:
Petitioner FMIC granted respondent Este del Sol a loan of Seven Million
Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to
finance the construction and development of the Este del Sol Mountain Reserve,
a sports/resort complex project. Under the terms of the Loan Agreement, the
proceeds of the loan were to be released on staggered basis. Interest on the
loan was pegged at sixteen (16%) percent per annum based on the diminishing
balance. The loan was payable in thirty-six (36) equal and consecutive monthly
amortizations to commence at the beginning of the thirteenth month from the
date of the first release in accordance with the Schedule of Amortization. In
case of default, an acceleration clause was, among others, provided and the
amount due was made subject to a twenty (20%) percent one-time penalty on
the amount due and such amount shall bear interest at the highest rate
permitted by law from the date of default until full payment thereof plus
liquidated damages at the rate of two (2%) percent per month compounded
quarterly on the unpaid balance and accrued interests together with all the
penalties, fees, expenses or charges thereon until the unpaid balance is fully
paid, plus attorneys fees equivalent to twenty-five (25%) percent of the sum
sought to be recovered, which in no case shall be less than Twenty Thousand
Pesos (P20,000.00) if the services of a lawyer were hired. In accordance with the
terms of the Loan Agreement, respondent Este del Sol executed several

documents as security for payment, among them, (a) a Real Estate Mortgage
and (b) individual Continuing Suretyship agreements by co-respondents Valentin
S. Daez, Jr., et al. Respondent Este del Sol also executed, as provided for by the
Loan Agreement, an Underwriting Agreement whereby petitioner FMIC shall
underwrite on a best-efforts basis the public offering of 120,000 common shares
of respondent Este del Sols capital stock for a one-time underwriting fee of
P200,000.00.
The Underwriting Agreement also provided that for supervising the public
offering of the shares, respondent Este del Sol shall pay petitioner FMIC an
annual supervision fee of 200,000.00 per annum for a period of four consecutive
years.
The Underwriting Agreement also stipulated for the payment by
respondent Este del Sol to petitioner FMIC a consultancy fee of P332,500.00 per
annum for a period of four consecutive years. Simultaneous with the execution
of and in accordance with the terms of the Underwriting Agreement, a
Consultancy Agreement was also executed on January 31, 1978 whereby
respondent Este del Sol engaged the services of petitioner FMIC for a fee as
consultant to render general consultancy services. Since respondent Este del
Sol failed to meet the schedule of repayment in accordance with a revised
Schedule of Amortization, it appeared to have incurred a total obligation of
P12,679,630.98 per the petitioners Statement of Account dated June 23, 1980.
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real
estate mortgage on June 23, 1980. At the public auction, petitioner FMIC was
the highest bidder of the mortgaged properties for P9,000,000.00. Failing to
secure from the individual respondents, the payment of the alleged deficiency
balance, petitioner instituted the instant collection suit to collect the alleged
deficiency balance of P6,863,297.73 plus interest thereon at 21% percent per
annum from June 24, 1980 until fully paid, and 25% percent thereof as and for
attorneys fees and costs.
The trial court rendered its decision in favor of petitioner FMIC.
reversed the challenged decision of the trial court.

CA

ISSUE:
Whether or not the appellate court erred in reversing the decision of the
trial court as regards to the payment of penalties.
RULING:
No. First, Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latters effectivity. Thus,
retroactive application of a Central Bank Circular cannot, and should not, be
presumed. Second, several facts and circumstances taken altogether show that

the Underwriting and Consultancy Agreements were simply cloaks or devices to


cover an illegal scheme employed by petitioner FMIC to conceal and collect
excessively usurious interest. The Underwriting and Consultancy Agreements
which were executed and delivered contemporaneously with the Loan
Agreement on January 31, 1978 were exacted by petitioner FMIC as essential
conditions for the grant of the loan. An apparently lawful loan is usurious when
it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by
the borrower for the lenders services which are of little value or which are not in
fact to be rendered, such as in the instant case. In this connection, Article 1957
of the New Civil Code clearly provides that: Art. 1957. Contracts and
stipulations, under any cloak or device whatever, intended to circumvent the
laws against usury shall be void. The borrower may recover in accordance with
the laws on usury. In usurious loans, the entire obligation does not become
void because of an agreement for usurious interest; the unpaid principal debt
still stands and remains valid but the stipulation as to the usurious interest is
void, consequently, the debt is to be considered without stipulation as to the
interest.
Thus, the Court agrees with the factual findings and conclusion of the
appellate court, wherein it held that the stipulated penalties, liquidated damages
and attorneys fees, excessive, iniquitous and unconscionable. Accordingly, the
20% penalty on the amount due and 10% of the proceeds of the foreclosure sale
as attorneys fees would suffice to compensate the appellee, especially so
because there is no clear showing that the appellee hired the services of counsel
to effect the foreclosure; it engaged counsel only when it was seeking the
recovery of the alleged deficiency.
Attorneys fees as provided in penal clauses are in the nature of liquidated
damages. So long as such stipulation does not contravene any law, morals, or
public order, it is binding upon the parties. Nonetheless, courts are empowered
to reduce the amount of attorneys fees if the same is iniquitous or
unconscionable.[46] Articles 1229 and 2227 of the New Civil Code provide that:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether
intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

In the case at bar, the amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75)
for the stipulated attorneys fees equivalent to twenty-five (25%) percent of the
alleged amount due, as of the date of the auction sale on June 23, 1980, is
manifestly exorbitant and unconscionable. Accordingly, we agree with the
appellate court that a reduction of the attorneys fees to ten (10%) percent is
appropriate and reasonable under the facts and circumstances of this case.

REDUCTION OF CONVENTIONAL PENALTIES


DOMEL TRADING CORPORATION, petitioner,
VS. HONORABLE COURT OF APPEALS and NDC-NACIDA RAW MATERIALS,
CORPORATION, respondents
September 22, 1999
G.R. No. 84813
FACTS:
On June 3, 1981, private respondent NDC-NACIDA Raw Materials
Corporation (NNRMC) ordered from petitioner Domel Trading Corporation
(DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be delivered
within 30 working days from the date of the opening of a letter of credit. On
June 4, 1981, private respondent again ordered 300,000 pieces of rattan poles at
P9.65 per piece for a total price of P2,895,000.00, also to be delivered within 60
days from the date of the opening of a letter of credit. The specifications and
provisions of both transactions, which served as their agreement, were printed in
two separate purchase orders.
In accordance with their agreement, NNRMC, on July 9, 1981, opened a
letter of credit with Philippine National Bank (PNB) in favor of DOMEL in the
amount of P1,997,000.00 to cover its order for 206,943 pieces of rattan poles.
On July 13, 1981, NNRMC opened another letter of credit in favor of DOMEL in
the amount of P1,236,000.00 to cover the price of 93,057 pieces of rattan poles
and 22,000 bundles of buri midribs.
In violation of their agreement, DOMEL failed to deliver the buri midribs
and rattan poles within the stipulated period. Thus, on September 23, 1981,
DOMEL and NNRMC agreed to restructure the latters purchase orders in a
Memorandum of Agreement. Under the agreement, NNRMC extended the expiry
date of its two letters of credit to November 5, 1981. It also reduced the

quantity of the rattan poles from 300,000 to only 100,000 pieces while the
quantity of buri midribs remained at 22,000 bundles. Further, DOMEL undertook
to deliver the goods on or before October 31, 1981. However, no deliveries were
again made on the said date. Consequently, demands were made by NNRMC on
January 19, 1982 for the payment of damages, which demands were ignored by
DOMEL. Hence, NNRMC filed a complaint for damages before the Regional Trial
Court of Pasig. After trial, judgment was rendered in favor of plaintiff and
against defendant.
Both DOMEL and NNRMC assail the above-quoted decision in separate
petitions which have been consolidated before this Court. Based on the
pleadings submitted by the parties, this Court has resolved to give due course to
the petition and decides the same. DOMEL submits it has not breached its
contractual obligation to NNRMC inasmuch as it was the fault of the latter for not
inspecting and examining the rattan poles as well as the buri midribs already
shipped by the suppliers and stored in the formers warehouse. In short, DOMEL
claims that NNRMC must first inspect the ordered items before delivery could be
made.
ISSUE:
Whether or not the decision of the Court of Appeals in CA-G.R. CV No.
08952 which modified the decision of the lower court granting private
respondents prayer for damages, was correct.
RULING:
While the Supreme Court did not agree with the Court of Appeals that the
failure of NNRMC to conduct the inspection mitigated DOMELs liability for
liquidated damages, nevertheless, it agreed in the reduction of the amount of
liquidated damages to only P150,000.00. The amount of P2,000.00 as penalty
for every day of delay is excessive and unconscionable.
Article 1229 of the Civil Code states, thus:The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
Article 2227 of the Civil Code likewise states, thus: Liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable.

In determining whether a penalty clause is iniquitous and


unconscionable, a court may very well take into account the actual damages
sustained by a creditor who was compelled to sue the defaulting debtor, which
actual damages would include the interest and penalties the creditor may have
had to pay on its own from its funding source. In this case, NNRMC was only
able to prove that it incurred the amounts of P5,995.83 as opening charges on
the two Letters of Credit and an additional P1,911.85 as amendment charges on
the same Letters of Credit. Other than that, NNRMC failed to prove it had
suffered actual damages resulting from the nondelivery of the specified buri
midribs and rattan poles. In fact, what it allegedly suffered are what it calls
Foregone Interest Income and Foregone Profit from the two Letters of Credit.
Such could not be considered as actual damages.
The Court agreed with the following observation of the Court of Appeals:
Necessarily, We discern some merit in the second assignment of error.
The trial court erred in holding the appellant liable for P908,966.72 in damages.
The said unitemized amounts and various types of damages is too much and has
to be reduced within reasonable limits.
As already elaborated upon in
connection with the first assignment of error, the amount of liquidated damages
has to be lessened to P150,000.00. But the charges of P5,995.83 and P1,911.85
on the two letters of credit involved should be reimbursed by appellant. As
regards the alleged forgone profits of P206,943.00 testified on by Jose Victorioso
as the profit appellee could have realized had appellant been able to supply the
goods in question, we consider such amount of expected profit highly
conjectural and speculative. The aforesaid testimony regarding the matter of
profits is utterly lacking of the requisite details on how such huge amount of
profits could be made possible. Plaintiff-appellees witness did not detail out
how such huge amount of gain could have been derived from the would-be
exportation of buri midribs and rattan poles. Well-entrenched is the doctrine
that actual, compensatory and consequential damages must be proved, and
cannot be presumed. If, as in this case, the proof adduced thereon is flimsy and
insufficient, no damages will be allowed. Verily, the testimonial evidence on
alleged unrealized profits earlier referred to is not enough to warrant the award
of damages appealed from. It is too scanty, vague and unspecified to induce
faith and reliance. Absent the needed quantum of proof, We are of the sense
that, apart from the aforestated amount of liquidated damages and
reimbursement of the charges paid by appellee for the unutilized letters of
credit, no other damages can be granted.

REDUCTION OF CONVENTIONAL PENALTIES


MEDEL VS COURT OF APPEALS
299 S 481

September 22, 1999


FACTS:
On June 3, 1981, private respondent NDC-NACIDA Raw Materials
Corporation (NNRMC) ordered from petitioner Domel Trading Corporation
(DOMEL) 22,000 bundles of buri midribs at P16.00 per bundle to be
delivered within 30 working days from the date of the opening of a letter
of credit. On June 4, 1981, private respondent again ordered 300,000
pieces of rattan poles at P9.65 per piece for a total price of
P2,895,000.00, also to be delivered within 60 days from the date of the
opening of a letter of credit. The specifications and provisions of both
transactions, which served as their agreement, were printed in two
separate purchase orders.
In accordance with their agreement, NNRMC, on July 9, 1981, opened a
letter of credit with Philippine National Bank (PNB) in favor of DOMEL in
the amount of P1,997,000.00 to cover its order for 206,943 pieces of
rattan poles. On July 13, 1981, NNRMC opened another letter of credit in
favor of DOMEL in the amount of P1,236,000.00 to cover the price of
93,057 pieces of rattan poles and 22,000 bundles of buri midribs.
In violation of their agreement, DOMEL failed to deliver the buri midribs
and rattan poles within the stipulated period. Thus, on September 23,
1981, DOMEL and NNRMC agreed to restructure the latters purchase
orders in a Memorandum of Agreement. Under the agreement, NNRMC
extended the expiry date of its two letters of credit to November 5, 1981.
It also reduced the quantity of the rattan poles from 300,000 to only
100,000 pieces while the quantity of buri midribs remained at 22,000
bundles. Further, DOMEL undertook to deliver the goods on or before
October 31, 1981. However, no deliveries were again made on the said

date. Consequently, demands were made by NNRMC on January 19, 1982


for the payment of damages, which demands were ignored by DOMEL.
Hence, NNRMC filed a complaint for damages before the Regional Trial
Court of Pasig. After trial, judgment was rendered in favor of plaintiff and
against defendant.
Both DOMEL and NNRMC assail the above-quoted decision in separate
petitions which have been consolidated before this Court. Based on the
pleadings submitted by the parties, this Court has resolved to give due
course to the petition and decides the same. DOMEL submits it has not
breached its contractual obligation to NNRMC inasmuch as it was the fault
of the latter for not inspecting and examining the rattan poles as well as
the buri midribs already shipped by the suppliers and stored in the
formers warehouse. In short, DOMEL claims that NNRMC must first
inspect the ordered items before delivery could be made.
ISSUE:
Whether or not the decision of the Court of Appeals in CA-G.R. CV
No. 08952 which modified the decision of the lower court granting private
respondents prayer for damages, was correct.
RULING:
While the Supreme Court did not agree with the Court of Appeals
that the failure of NNRMC to conduct the inspection mitigated DOMELs
liability for liquidated damages, nevertheless, it agreed in the reduction of
the amount of liquidated damages to only P150,000.00. The amount of
P2,000.00 as penalty for every day of delay is excessive and
unconscionable.
Article 1229 of the Civil Code states, thus:The judge shall equitably
reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Article 2227 of the Civil Code likewise states, thus: Liquidated damages,
whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.

In determining whether a penalty clause is iniquitous and


unconscionable, a court may very well take into account the actual
damages sustained by a creditor who was compelled to sue the defaulting
debtor, which actual damages would include the interest and penalties
the creditor may have had to pay on its own from its funding source. In
this case, NNRMC was only able to prove that it incurred the amounts of
P5,995.83 as opening charges on the two Letters of Credit and an
additional P1,911.85 as amendment charges on the same Letters of
Credit. Other than that, NNRMC failed to prove it had suffered actual
damages resulting from the nondelivery of the specified buri midribs and
rattan poles. In fact, what it allegedly suffered are what it calls Foregone
Interest Income and Foregone Profit from the two Letters of Credit.
Such could not be considered as actual damages.

REDUCTION OF CONVENTIONAL PENALTIES

MEDEL VS CA
G.R. No. 131622 November 27, 1998
FACTS:
The Medel spouses obtained several loans of which they were unable to
pay in full. On July 23, 1986, Servando and Leticia with the latter's
husband, Dr. Rafael Medel, consolidated all their previous unpaid loans
totaling P440,000.00, and sought from Veronica another loan in the
amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00, payable on August 23, 1986. They executed a promissory
note indicating payment for the balance.
On maturity of the loan, the borrowers failed to pay the
indebtedness of P500,000.00, plus interests and penalties, evidenced by
the above-quoted promissory note. On February 20, 1990, Veronica R.

Gonzales, joined by her husband Danilo G. Gonzales, filed with the


Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a
complaint for collection of the full amount of the loan including interests
and other charges.
ISSUE:
What is the interest that must be collected on the instant case?
RULING:
Basically, the issue revolves on the validity of the interest rate
stipulated upon. Thus, the question presented is whether or not the
stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious. In
other words, is the Usury Law still effective, or has it been repealed by
Central Bank Circular No. 905, adopted on December 22, 1982, pursuant
to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at
5.5% per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. However, we can not consider the rate
"usurious" because this Court has consistently held that Circular No. 905
of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law and that the
Usury Law is now "legally inexistent".
Nevertheless, we find the interest at 5.5% per month, or 66% per
annum, stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals ("contra bonos mores"), if
not against the law. 20 The stipulation is void. The courts shall reduce
equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding the
stipulation of the parties. Rather, we agree with the trial court that, under
the circumstances, interest at 12% per annum, and an additional 1% a
month penalty charge as liquidated damages may be more reasonable.
REDUCTION OF CONVENTIONAL PENALTIES

REFORMINA VS. TOMOL


139 SCRA 260
OCTOBER 11, 1985

FACTS:
This is a Petition for Review on certiorari of the Resolution of the Hon.
respondent Judge Valeriano P. Tomol, Jr. of the then Court of First Instance of
Cebu-Branch XI, an action for Recovery of Damages for injury to Person and Loss
of Property. The petitioners prayed for the setting aside of the said Resolution
and for a declaration that the judgment in their favor should bear legal interest
at the rate of twelve (12%) percent per annum pursuant to Central Bank Circular
No. 416 dated July 29, 1974. The appellate court affirmed the decision but made
certain modifications. The said decision having become final on October 24,
1980, the case was remanded to the lower court for execution and this is where
the controversy started. In the computation of the "legal interest" decreed in
the judgment sought to be executed, petitioners claim that the "legal interest"
should be at the rate of twelve (12%) percent per annum, invoking in support of
their aforesaid submission, Central Bank of the Philippines Circular No. 416.
Upon the other hand, private respondents Shell and Michael, Incorporated insist
that said legal interest should be at the rate of six (6%) percent per annum only,
pursuant to and by authority of Article 2209 of the New Civil Code in relation to
Articles 2210 and 2211 thereof.
ISSUE:
Whether or not the petition is with merit.
RULING:
No. The petition is devoid of merit. Consequently, its dismissal is in order.
Central Bank Circular No. 416 which took effect on July 29, 1974 was issued and
promulgated by the Monetary Board pursuant to the authority granted to the
Central Bank by P.D. No. 116, which amended Act No. 2655, otherwise known as
the Usury Law.
Acting pursuant to this grant of authority, the Monetary Board increased
the rate of legal interest from that of six (6%) percent per annum originally
allowed under Section I of Act No. 2655 to twelve (12%) percent per annum.
It will be noted that Act No. 2655 deals with interest on (1) loans; (2)
forbearances of any money, goods, or credits; and (3) rate allowed in
judgments.Hence, not all money judgments are included in the said act. The
judgments spoken of and referred to are Judgments in litigations involving loans
or forbearance of any 'money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the Central Bank. The Monetary

Board may not tread on forbidden grounds. It cannot rewrite other laws. That
function is vested solely with the legislative authority. It is axiomatic in legal
hermeneutics that statutes should be construed as a whole and not as a series of
disconnected articles and phrases. In the absence of a clear contrary intention,
words and phrases in statutes should not be interpreted in isolation from one
another. A word or phrase in a statute is always used in association with other
words or phrases and its meaning may thus be modified or restricted by the
latter.
The instant petition is without merit, the same is DISMISSED with costs
against petitioners.
MEANING OF PAYMENT / PERFORMANCE (ART. 1232-1261, CC)
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC.,
respondent
2003 Oct 8
G.R. No. 149420
413 SCRA 182
FACTS:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation
engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing
business under the name and style Sans Enterprises, is a building contractor.
On February 22, 1990, petitioner ordered scaffolding equipments from
respondent worth P540,425.80. He paid a downpayment in the amount of
P150,000.00. The balance was made payable in ten monthly installments.
Respondent delivered the scaffoldings to petitioner. Petitioner was able
to pay the first two monthly installments. His business, however, encountered
financial difficulties and he was unable to settle his obligation to respondent
despite oral and written demands made against him.
On October 11, 1990, petitioner and respondent executed a Deed of
Assignment, whereby petitioner assigned to respondent his receivables in the
amount of P335,462.14 from Jomero Realty Corporation.
However, when respondent tried to collect the said credit from Jomero
Realty Corporation, the latter refused to honor the Deed of Assignment because
it claimed that petitioner was also indebted to it. On November 26, 1990,

respondent sent a letter to petitioner demanding payment of his obligation, but


petitioner refused to pay claiming that his obligation had been extinguished
when they executed the Deed of Assignment.
Consequently, on January 10, 1991, respondent filed an action for
recovery of a sum of money against the petitioner before the Regional Trial
Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.
During the trial, petitioner argued that his obligation was extinguished
with the execution of the Deed of Assignment of credit. Respondent, for its part,
presented the testimony of its employee, Almeda Baaga, who testified that
Jomero Realty refused to honor the assignment of credit because it claimed that
petitioner had an outstanding indebtedness to it.
On August 25, 1994, the trial court rendered a decision dismissing the
complaint on the ground that the assignment of credit extinguished the
obligation. Respondent appealed the decision to the Court of Appeals. On April
19, 2001, the appellate court rendered a decision reversing the appealed
Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the
plaintiff-appellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred
Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with
legal interest of 6% per annum from January 10, 1991 (filing of the Complaint)
until fully paid and attorneys fees equivalent to 10% of the amount due and
costs of the suit.
In finding that the Deed of Assignment did not extinguish the obligation of
the petitioner to the respondent, the Court of Appeals held that (1) petitioner
failed to comply with his warranty under the Deed; (2) the object of the Deed did
not exist at the time of the transaction, rendering it void pursuant to Article 1409
of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment
when he failed to execute and do all acts and deeds as shall be necessary to
effectually enable the respondent to recover the collectibles.
Petitioner filed a motion for reconsideration of the said decision, which
was denied by the Court of Appeals. Hence, this petition for review.
ISSUE:
Whether or not the Court Of Appeals erred in holding that the deed of
assignment did not extinguish petitioners obligation on the wrong notion that
petitioner failed to comply with his warranty thereunder.

RULING:
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a
credit, known as the assignor, by a legal cause, such as sale, dacion en pago,
exchange or donation, and without the consent of the debtor, transfers his credit
and accessory rights to another, known as the assignee, who acquires the power
to enforce it to the same extent as the assignor could enforce it against the
debtor.
Corollary thereto, in dacion en pago, as a special mode of payment, the
debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. In order that there be a valid dation in
payment, the following are the requisites: (1) There must be the performance of
the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit against the third person;
(2) There must be some difference between the prestation due and that which is
given in substitution (aliud pro alio); (3) There must be an agreement between
the creditor and debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that due.
The
undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is
to be charged against the debtors debt. As such, the vendor in good faith shall
be responsible, for the existence and legality of the credit at the time of the sale
but not for the solvency of the debtor, in specified circumstances.
Hence, it may well be that the assignment of credit, which is in the nature
of a sale of personal property, produced the effects of a dation in payment which
may extinguish the obligation. However, as in any other contract of sale, the
vendor or assignor is bound by certain warranties. More specifically, the first
paragraph of Article 1628 of the Civil Code provides:
The vendor in good faith shall be responsible for the existence and legality of the
credit at the time of the sale, unless it should have been sold as doubtful; but
not for the solvency of the debtor, unless it has been so expressly stipulated or
unless the insolvency was prior to the sale and of common knowledge.
From the above provision, petitioner, as vendor or assignor, is bound to
warrant the existence and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no longer indebted to petitioner
since the latter also had an unpaid obligation to it, it essentially meant that its
obligation to petitioner has been extinguished by compensation. In other words,

respondent alleged the non-existence of the credit and asserted its claim to
petitioners warranty under the assignment.
Therefore, it behooved on
petitioner to make good its warranty and paid the obligation.
Furthermore, the Court found that petitioner breached his obligation
under the Deed of Assignment, to wit:
And the ASSIGNOR further agrees and stipulates as aforesaid that the said
ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times
hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost
and expense, execute and do all such further acts and deeds as shall be
reasonably necessary to effectually enable said ASSIGNEE to recover whatever
collectibles said ASSIGNOR has in accordance with the true intent and meaning
of these presents.
The decision of the Court of Appeals was affirmed with modification that
upon finality of the Decision, the rate of legal interest shall be 12% per annum,
inasmuch as the obligation shall thereafter become equivalent to a forbearance
of credit. The award of attorneys fees is DELETED for lack of evidentiary basis.
REQUISITES OF PAYMENT/PERFORMANCE
PHILIPPINE NATIONAL BANK, petitioner,
VS. COURT OF APPEALS and LORETO TAN, respondents
April 02, 1996
G.R. No. 108630
256 SCRA 44
FACTS:
Private respondent Loreto Tan is the owner of a parcel of land in Bacolod
City. Expropriation proceedings were instituted by the government against
private respondent Tan and other property owners before a trial court in Negros
Occidental. Tan filed a motion requesting issuance of an order for the release to
him of the expropriation price of P32,480.00.
The trial court required petitioner PNB-Bacolod Branch to release to Tan
the amount of P32,480.00 deposited with it by the government. Through its
Assistant Branch Manager Juan Tagamolila, PNB issued a manager's check for
P32,480.00 and delivered the same to one Sonia Gonzaga without Tan's
knowledge, consent or authority. Sonia Gonzaga deposited it in her account with
Far East Bank and Trust Co. (FEBTC) and later on withdrew the said amount.

Private respondent Tan subsequently demanded payment in the amount


of P32,480.00 from petitioner, but the same was refused on the ground that
petitioner had already paid and delivered the amount to Sonia Gonzaga on the
strength of a Special Power of Attorney (SPA) allegedly executed in her favor by
Tan.
When he failed to recover the amount from PNB, private respondent filed
a motion with the court to require PNB to pay the same to him. Petitioner filed
an opposition contending that Sonia Gonzaga presented to it a copy of the May
22, 1978 order and a special power of attorney by virtue of which petitioner
delivered the check to her. The petitioner was directed by the court to produce
the said special power of attorney thereat. However, petitioner failed to do so.
The court decided that there was need for the matter to be ventilated in a
separate civil action and thus private respondent filed a complaint with the
Regional Trial Court in Bacolod City against petitioner and Juan Tagamolila,
PNB's Assistant Branch Manager, to recover the said amount. In its defense,
petitioner contended that private respondent had duly authorized Sonia Gonzaga
to act as his agent. Tagamolila, in his answer, stated that Sonia Gonzaga
presented a Special Power of Attorney to him but borrowed it later with the
promise to return it, claiming that she needed it to encash the check.
The petitioner likewise filed a third-party complaint against the spouses
Nilo and Sonia Gonzaga praying that they be ordered to pay private respondent
the amount of P32,480.00. However, for failure of petitioner to have the
summons served on the Gonzagas despite opportunities given to it, the thirdparty complaint was dismissed.
The trial court rendered judgment ordering petitioner and Tagamolila to
pay private respondent jointly and severally the amount of P32,480.00 with legal
interest, damages and attorney's fees. Both petitioner and Tagamolila appealed
the case to the Court of Appeals. However, the appellate court dismissed
Tagamolila's appeal for failure to pay the docket fee within the reglementary
period. The appellate court subsequently affirmed the trial courts decision.
ISSUE:
Whether or not payment was made to Loreto Tan.
RULING:
There is no question that no payment had ever been made to private
respondent as the check was never delivered to him. When the court ordered
petitioner to pay private respondent the amount of P32,480.00, it had the

obligation to deliver the same to him. Under Art. 1233 of the Civil Code, a debt
shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case
may be.
The burden of proof of such payment lies with the debtor. In the instant
case, neither the SPA nor the check issued by petitioner was ever presented in
court. The testimonies of petitioner's own witnesses regarding the check were
conflicting. Tagamolila testified that the check was issued to
the order of "Sonia Gonzaga as attorney-in-fact of Loreto Tan," while Elvira
Tibon, assistant cashier of PNB, stated that the check was issued to the order of
"Loreto Tan."
Furthermore, contrary to petitioner's contention that all that is needed to
be proved is the existence of the SPA, it is also necessary for evidence to be
presented regarding the nature and extent of the alleged powers and authority
granted to Sonia Gonzaga; more specifically, to determine whether the
document indeed authorized her to receive payment intended for private
respondent.
Considering that the contents of the SPA are also in issue here, the best
evidence rule applies. Hence, only the original document, which has not been
presented at all, is the best evidence of the fact as to whether or not private
respondent indeed authorized Sonia Gonzaga to receive the check from
petitioner. In the absence of such document, petitioner's arguments regarding
due payment must fail.
Decision affirmed with the modification that the award by the trial court of
P5,000.00 as attorney's fees is reinstated.

CITIBANK vs. SABENIANO


G.R.No. 156132, October 16, 2006
FACTS:
Petitioner Citibank is a banking corporation duly authorized
under the laws of the USA to do commercial banking activities n the
Philippines. Sabeniano was a client of both Petitioners Citibank and
FNCB Finance. Respondent filed a complaint against petitioners
claiming to have substantial deposits, the proceeds of which were
supposedly deposited automatically and directly to respondents
account with the petitioner Citibank and that allegedly petitioner
refused to despite repeated demands. Petitioner alleged that
respondent obtained several loans from the former and in default,
Citibank exercised its right to set-off respondents outstanding loans
with her deposits and money. RTC declared the act illegal, null and
void and ordered the petitioner to refund the amount plus interest,
ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the
respondent.
ISSUE:
Whether petitioner may exercise its right to set-off respondents
loans with her deposits and money in Citibank-Geneva
RULING:

OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION


1.
2.
3.
4.
5.
6.

CITIBANK VS. SABENIANO, 504 S 378


TELENGTON BROS VS. US LINES, 583 S 458
CF SHARP VS. NORTHWEST AIRLINES, 381 S 314
PADILLA VS. PAREDES, 328 SCRA 434
TIBAJIA VS. CA, 223 S 163
DBP VS CA, 494 S 25

Petition is partly granted with modification.


1. Citibank is ordered to return to respondent the principal amount
of P318,897.34 and P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondents CitibankGeneva account is declared illegal, null and void, thus Citibank is
ordered to refund said amount in Philippine currency or its
equivalent using exchange rate at the time of payment.

3. Citibank to pay respondent moral damages of P300,000,


exemplary damages for P250,000, attorneys fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding
loans of P1,069,847.40 inclusive off interest.

OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

The Supreme Court found as erroneous the trial courts decision as


affirmed y the Court of Appeals. The Court holds that there has been an
extraordinary inflation within the meaning of Article 1250 of the Civil
Code. There is no reason for ordering the payment of an obligation in an
amount different from what has been agreed upon because of the
purported supervention of an extraordinary inflation.
The assailed decision is affirmed with modification that the order for
re-computation as of the date of payment in accordance with the
provisions of Article 1250 of New Civil Code is deleted.

TELENGTAN BROTHERS and SONS


vs. UNITED STATES LINES
G.R.No. 132284,February 28,2006
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

FACTS:
Petitioner is a domestic corporation while US Lines is a foreign
corporation engaged in overseas shipping. It was made applicable that
consignees who fail to take delivery of their containerized cargo within the
10-day free period are liable to pay demurrage charges. On June 22,
1981, US Lines filed a suit against petitioner seeking payment of
demurrage charges plus interest and damages. Petitioner incurred
P94,000 which the latter refused to pay despite repeated demands.
Petitioner disclaims liability alleging that it has never entered into a
contract nor signed an agreement to be bound by it. RTC ruled that
petitioner is liable to respondent and all be computed as of the date of
payment in accordance with Article 1250 of the Civil Code. CA affirmed
the decision.
ISSUE:
Whether the re-computation of the judgment award in accordance
with Article 1250 of the Civil Code proper
RULING:

CF SHARP VS. NORTHWEST AIRLINES


381 SCRA 314
FACTS:
On May 9, 1974, respondent, through its Japan Branch, entered an
International Passenger Sales Agency Agreement with petitioner, authorizing the
latter to sell its air transport tickets. Petitioner, however, failed to remit the
proceeds of the ticket sales, for which reason the respondent filed a collection
suit against petitioner before the Tokyo District Court.
The said court ordered petitioner to pay respondent including damages for
the delay. Unable to execute the decision in Japan, respondent filed a case to
enforce said judgment with the regional trial court of Manila which dismissed the
case. This was affirmed by the Court of Appeals, and was subsequently partly
affirmed by the Supreme Court. CF Sharp was then ordered to pay Northwest so
that the RTC issued a writ of execution of decision ruling that Sharp is to pay
Northwest the sum of 83,158,195 yen at the exchange rate prevailing on the
date of the foreign judgment plus 6% per annum until fully paid, 6% damages
and 6% interest.

An appeal, the Court of Appeals reduced the interest and it ruled that the
basis of the conversion of petitioners liability in its peso equivalent should be
the prevailing rate at the time of payment and not the rate on the date of the
foreign judgment.
ISSUE:
Whether or not the basis for the payment of the amount due is the value
of the currency at the time of the establishment of the obligation.
RULING:
NO, the rule that the value of currency at the time of the establishment of
the obligation shall be the basis of payment finds application only when there is
an official pronouncement or declaration of the existence of an extraordinary
inflation or deflation. Hence, petitioners contention that Article 1250 of the Civil
Code which provides that in case of an extra ordinary inflation or deflation of
the currency stipulated should supervene, the value of the currency at the time
of establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary shall apply in this case is untenable.

OBLIGATIONS TO PAY MONEY


ALBERT R. PADILLA
VS. SPOUSES FLORESCO PAREDES and ADELINA PAREDES, and THE
HONORABLE COURT OF APPEALS
G.R. No. 124874
March 17, 2000
328 SCRA 434
FACTS:
On October 20, 1988, petitioner Albert R. Padilla and private respondents
Floresco and Adelina Paredes entered into a contract to sell involving a parcel of
land in San Juan, La Union. At that time, the land was untitled although private
respondents were paying taxes thereon.
Under the contract, petitioner
undertook to secure title to the property in private respondents' names. Of the
P312,840.00 purchase price, petitioner was to pay a downpayment of

P50,000.00 upon signing of the contract, and the balance was to be paid within
ten days from the issuance of a court order directing issuance of a decree of
registration for the property.
On December 27, 1989, the court ordered the issuance of a decree of land
registration for the subject property. The property was titled in the name of
private respondent Adelina Paredes. Private respondents then demanded
payment of the balance of the purchase price.
Petitioner then made several payments to private respondents, some
even before the court issued an order for the issuance of a decree of registration
and they also offered to pay the land through a check. Still, petitioner failed to
pay the full purchase price even after the expiration of the period set. In a letter
dated February 14, 1990, private respondents, through counsel, demanded
payment of the remaining balance, with interest and attorney's fees, within five
days from receipt of the letter. Otherwise, private respondents stated they
would consider the contract rescinded.
On February 28, 1990, petitioner made a payment of P100,000.00 to
private respondents, still insufficient to cover the full purchase price. Shortly
thereafter, in a letter dated April 17, 1990 private respondents offered to sell to
petitioner one-half of the property for all the payments the latter had made,
instead of rescinding the contract. If petitioner did not agree with the proposal,
private respondents said they would take steps to enforce the automatic
rescission of the contract. Petitioner did not accept private respondents'
proposal. Instead, in a letter dated May 2, 1990, he offered to pay the balance
in full for the entire property, plus interest and attorney's fees.
Private
respondents refused the offer.
On May 14, 1990, petitioner instituted an action for specific performance
against private respondents, alleging that he had already substantially complied
with his obligation under the contract to sell. He also averred that he had
already spent P190,000.00 in obtaining title to the property, subdividing it, and
improving its right-of-way. The lower court decided in favor of the petitioners
stating that the breach committed was only casual and slight but the Court of
Appeals reversed the ruling and favored respondents rescission of the contract
to sell.
ISSUE:
Whether or not the payment made by petitioner is one which is
contemplated on the contract.

RULING:
Petitioners offer to pay is clearly not the payment contemplated in the
contract. While he might have tendered payment through a check, this is not
considered payment until the check is encashed. Besides, a mere tender of
payment is not sufficient. Consignation is essential to extinguish petitioner's
obligation to pay the purchase price.
The Supreme Court also affirmed the decision of the Court of Appeals
where the respondents have the right to rescind the contract on the ground that
there is failure on the part of the petitioners to pay the balance within ten days
upon the conveyance of the Court of the Title of Land to respondents. Thus,
private respondents are under no obligation, and may not be compelled, to
convey title to petitioner and receive the full purchase price.

The ruling applies the statutory provisions which lay down the rule
that a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a managers check, cashiers or personal
check. The decision of the court of Appeals is affirmed.
OBLIGATIONS TO PAY MONEY

DEVELOPMENT BANK OF THE PHILIPPINES


APEEALS
G.R.No. 138703,June 30, 2006

v. COURT OF

FACTS:
OBLIGATIONS TO PAY MONEY

SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN


G. R. No. 100290, June 4, 1993
FACTS:
A suit of collection of sum of money was filed by Eden Tan against
the spouses. A writ of attachment was issued, the Deputy Sheriff filed a
return stating that a deposit made by Tibajia in the amount of P442,750 in
another case, had been garnished by him. RTC ruled in favor of Eden Tan
and ordered the spouses to pay her an amount in excess of P3,000,000.
Court of Appeals modified the decision by reducing the amount for
damages. Tibajia Spouses delivered to Sheriff Bolima the total money
judgment of P398483.70. Tan refused to accept the payment and insisted
that the garnished funds be withdrawn to satisfy the judgment obligation.
ISSUE:
Whether or not payment by means of check is considered payment
in legal tender

In March 1968, DBP granted to private respondents an industrial


loan in the amount of P2,500,000 P500,000 n cash and P2,000,000 in
DBP Progress Bank. It was evidenced by a promissory note and secured
by a mortgage executed by respondents over their present and future
properties. Another loan was granted by DBP in the for of a 5-year
revolving guarantee to P1,700,000. In 1975, the outstanding accounts wth
DBP was restructured in view of failure to pay. Amounting to
P4,655,992.35 were consolidated into a single account. On the other
hand, all accrued interest and charges due amounting to P3,074,672.21
were denominated as Notes Taken for Interests and evidenced by a
separate promissory note. For failure to comply with its obligation, DBP
initiated foreclosure proceedings upon its computation that respondents
loans were arrears by P62,954,473.68. Respondents contended that the
collection was unconscionable if not unlawful or usurious . RTC, as
affirmed by the CA, ruled in favor of the respondents.
ISSUE:
Whether the prestation to collect by the DBP is unconscionable or
usurious
RULING:

RULING:

It cannot be determined whether DBP in fact applied an interest rate


higher than what is prescribed under the law. Assuming it did exceed 12%
in addition to the other penalties stipulated in the note, this should be
stricken out for being usurious.
The petition is partly granted. Decision of the court of Appeals is
reversed and set aside. The case is remanded o the trial court for the
determination of the total amount of the respondents obligation based on
the promissory notes, according to the interest rate agreed upon by the
parties on the interest rate of 12% per annum, whichever is lower.
INSTRUMENTS/EVIDENCES OF CREDIT

is obvious that Metrobank was remiss in the duty and violated that
fiduciary relationship with its clients as it appeared that there are material
alterations on the check that are visble to the naked eye but the bank
failed to detect such.
Petition is denied. Court of Appeals decision is affirmed with
modification that exemplary damages in the amount of P50,000 be
awarded.
OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION
1. ALMEDA VS. BATHALA MKTNG., 542 S 470
2. PCI VS. NG SHEUNG NGOR, 541 S 223

METROBANK v. CABLZO
G.R. No. 154469
December 6, 2006
FACTS:
Respondent Cabilzo was one of the Metrobanks client who
maintained a current account. On November 12, 199, Cabilzo issued a
Metrobank check payable to cash in the amount of P1,000 and was paid
to a certain Mr. Marquez. The check was oresented to Westmont Bank or
payment and in turn indorsed to etrobank for appropriate clearing. It was
discovered that the amount withdrawn wa P91,000, thus, the check was
altered. Cabilzo re-credit the amount of P91,000 to his account but
Metrobank refused to comply despite demands. RTC ordered Metrobank
to pay the sum of P90,000 to Cabilzo. Court of Appeals affirmed the
decision with modification.
ISSUE:
Whether holding Metrobank, as
drawee bank, liable for the
alternations on the subject check bearing the authentic signature of the
drawer thereof
RULING:
The degree of diligence in the exercise of his tasks and the
performance of his duties have been faithfully complied with by Cabilzo. It

EUFEMIA and ROMEL ALMEDA v.


BATHALA MARKETING
G.R.No. 150806, January 28, 2008
FACTS:
In May 1997, Bathala Marketng, renewed its Contract of Lease
with Ponciano Almeda. Under the contract, Ponciano agreed to lease a
porton of Almeda Compound for a monthly rental of P1,107,348.69 for
four years. On January 26, 1998, petitioner informed respondent that its
monthly rental be increased by 73% pursuant to the condition No. 7 of the
contract and Article 1250. Respondent refused the demand and insisted
that there was no extraordinary inflation to warrant such application.
Respondent refused to pay the VAT and adjusted rentals as demanded by
the petitioners but continually paid the stipulated amount. RTC ruled in
favor of the respondent and declared that plaintiff is not liable for the
payment of VAT and the adjustment rental, there being no extraordinary
inflation or devaluation. CA
affirmed the decision deleting the amounts
representing 10% VAT and rental adjustment.
ISSUE:
Whether the amount of rentals due the petitioners should be
adjusted by reason of extraordinary inflation or devaluation

RULING:
Petitioners are stopped from shifting to respondent the burden of
paying the VAT. 6th Condition states that respondent can only be held
liable for new taxes imposed after the effectivity of the contract of lease,
after 1977, VAT cannot be considered a new tax. Neither can petitioners
legitimately demand rental adjustment because of extraordinary inflation
or devaluation. Absent an official pronouncement or declaration by
competent authorities of its existence, its effects are not to be applied.
Petition is denied. CA decision is affirmed.

Extraordinary inflation exists when there is an unusual


decrease in the purchasing power of currency and such decrease could
not be reasonably foreseen or was beyond the contemplation of the
parties at the time of the obligation. Deflation is an inverse situation.
Despite the devaluation of the peso, BSP never declared a
situation of extraordinary inflation. Respondents should pay their dollar
denominated loans at the exchange rate fixed by the BSP on the date of
maturity.
Decision of lower courts are reversed and set aside.

INTEGRITY OF PRESTATION / SUBSTANTIAL PAYMENT


OBLIGATIONS TO PAY MONEY: EFFECTS OF INFLATION

EQUITABLE PCI BANK, YU and APAS v. NG SHEUNG NGOR


G.R.NO. 171545, December 19, 2007
FACTS:
On October 7, 2001, respondents Ngor and Go filed an action
for amendment and/or reformation of documents and contracts against
Equitable and its employees. They claimed that they were induced by the
bank to avail of its peso and dollar credit facilities by offering low interests
so they accepted and signed Equitables proposal. They alleged that they
were unaware that the documents contained escalation clauses granting
Equitable authority to increase interest without their consent. These were
rebutted by the bank. RTC ordered the use of the 1996 dollar exchange
rate in computing respondents dollar-denominated loans. CA granted the
Banks application for injunction but the properties were sold to public
auction.
ISSUE:
Whether or not there was an extraordinary deflation
RULING:

SIMPLICIO PALANCA
VS. ULYSSIS GUIDES joined by her husband LORENZO GUIDES
February 28, 2005
452 SCRA 461
FACTS:
On August 23, 1983, Simplicio Palanca executed a Contract to Sell a
parcel of land on installment with a certain Josefa Jopson for P11, 250.00. Jopson
paid the petitioner in the amount of P1, 650 as her down payment, leaving a
balance of P9, 600.00. Sometime in December 1983, Jopson assigned and
transferred all her rights and interests over the property in question in favor of
the respondent Ulyssis Guides.
In the deed of transfer, respondent undertook to assume the balance of
Jopsons account and to pay the same in accordance with the terms and
conditions of the Contract to Sell.
After reimbursing Jopson P1,650.00,
respondent acquired possession of the lot and paid petitioner the stipulated
amortizations which were in turn acknowledged by petitioner through receipts
issued in the name of respondent. Believing that she had fully paid the purchase
price of the lot, respondent verified the status of the lot with the Register of
Deeds, only to find out that title thereto was not in the name of the petitioner as
it was covered by Transfer Certificate of Title No. 105742 issued on 26
September 1978 in the name of a certain Carissa T. de Leon. Respondent went
to petitioners office to secure the title to the lot, but petitioner informed her that
she could not as she still had unpaid accounts. Thereafter, respondent, through

a lawyer, sent a letter to petitioner demanding compliance with his obligation


and the release of the title in her name.
As petitioner did not heed her demands, respondent, joined by her
husband, filed a Complaint for specific performance with damages. Petitioner
sought the dismissal of the complaint on the ground of respondents alleged
failure to comply with the mandatory requirement of Presidential Decree (P.D.)
No. 1508.
Respondent alleged that she paid petitioner P14,880.00, which not
only fully settled her obligation to him, but in fact overpaid it by P3,620.00. In
addition, she claimed that petitioner charged her devaluation charges and illegal
interest. At the pre-trial in 1989, both parties admitted that Jopson assigned her
rights over the property in favor of respondent and respondent paid petitioner
the subsequent monthly amortizations on installments. Petitioner likewise
acknowledged the payments made by respondent as stated in the statement of
accounts initiated by its manager, Oscar Rivera. On November 1996, the trial
court rendered its decision ordering the petitioner to execute in favor of the
respondent a Deed of Sale. The petitioner appealed to the Court of Appeals;
however, it affirmed the decision of the lower court.
ISSUE:
Whether or not the petitioner has a right to claim for unpaid charges as
stipulated in the contract from the private respondent.
RULING:
The Supreme Court held that primarily preventing petitioner from
recovering the amounts claimed from respondent is the effective waiver of these
charges. Assuming that said charges are due, petitioner waived the same when
he accepted respondents payments without qualification, without any specific
demand for the individual charges he now seeks to recover. The same goes true
for the alleged forfeiture of the down payment made by Jopson. From its own
Statements of Accounts and Payments Made, petitioner credited to respondents
account the P1,650.00 down payment paid by Jopson at the commencement of
the contract. There is no indication that he informed respondent of the alleged
forfeiture, much more demanded the payment again of the amount previously
paid by Jopson. Art. 1235 of the Civil Code which provides that 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, is in point. Thus, when petitioner accepted respondents
installment payments despite the alleged charges incurred by the latter, and
without any showing that he protested the irregularity of such payment, nor

demanded the payment of the alleged charges, respondents liability, if any for
said charges, is deemed fully satisfied. The petition is denied.

WHO MAY DEMAND PAYMENT


1.
2.
3.

PCIB VS. CA, 481 S 127


LAGON VS. HOOVEN COMALCO, 349 SCRA 363
BPI VS. CA, 232 SCRA 302

PCIB v. COURT OF APPEALS


G.R. NO. 121989
January 31, 2006
FACTS:
PCIB and MBC were joint bidders in a foreclosure sale held of
assorted mining machinery and equipment previously mortgaged to them
by Philippine Iron Mines. Atlas agreed to purchase some of these
properties and the sale was evidenced by a Deed of Sale with a
downpayment of P12,000,000 and the balance of P18,000,000 payable in
6 monthly installments. In compliance with the contract, Atlas issued
HongKong and shanghai Bank check amounting to P12,000,000. Atlas
paid to NAMAWU the amount of P4,298,307.77 in compliance with the writ
of garnishment issued against Atlas to satisfy the judgment in favor of
NAMAWU. Atlas alleged that there was overpayment, hence the suit
against PCIB to obtain reimbursement. PCIB contended that Atlas still
owed P908,398.75 because NAAWU had been partially paid in the amount
of P601,260.00. RTC ruled against Atlas to pay P908,398.75 to PCIB. CA
reversed the decision.
ISSUE:
Whether atlas had complied with its obligation to PCIB
RULING:

While the original amount sought to be garnished was


P4,298,307,77, the partial payment of P601,260 naturally reduced it to
P3,697,047.77 Atlas overpaid NAMAWU, thus the remedy if Atlas would be
to proceed against NAAWU nut not against PCIB in relation to article 1236
of the Civil Code
The petition is partly granted.CA decision is reversed and set aside
and in lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96,
with the legal interest commencing from the time of first demand on
August 22, 1985.

WHO MAY DEMAND PAYMENT,


CREDITORS RIGHT OF PAYMENT (Art. 1240, CC)
JOSE V. LAGON, petitioner,
vs. HOOVEN COMALCO INDUSTRIES, INC., respondent

G.R. No. 135657


January 17, 2001
349 SCRA 363

FACTS:
Petitioner Jose V. Lagon is a businessman and owner of a commercial
building in Tacurong, Sultan Kudarat. Respondent HOOVEN on the other is a
domestic corporation known to be the biggest manufacturer and installer of
aluminum materials in the country with branch office at E. Quirino Avenue,
Davao City.
Sometime in April 1981 Lagon and HOOVEN entered into two (2)
contracts, both denominated Proposal, whereby for a total consideration of P104,
870.00 HOOVEN agreed to sell and install various aluminum materials in Lagons
commercial building in Tacurong, Sultan Kudarat.
Upon execution of the
contracts, Lagon paid HOOVEN P48,000.00 in advance.
Lagon, in his answer, denied liability and averred that HOOVEN was the
party guilty of breach of contract by failing to deliver and install some of the
materials specified in the proposals; that as a consequence he was compelled to
procure the undelivered materials from other sources; that as regards the
materials duly delivered and installed by HOOVEN, they were fully paid. He

counterclaimed for actual, moral, exemplary, temperate and nominal damages,


as well as for attorneys fees and expenses of litigation.
ISSUE:
Whether or not all the materials specified in the contracts had been
delivered and installed by respondent in petitioners commercial building in
Tacurong, Sultan Kudarat.
RULING:
Firstly, the quantity of materials and the amounts sated in the delivery
receipts do not tally with those in the invoices covering them, notwithstanding
that, according to HOOVEN OIC Alberto Villanueva, the invoices were based
merely on the delivery receipts.
Secondly, the total value of the materials as reflected in all the invoices is
P117, 329.00 while under the delivery receipts it is only P112, 870.50, or a
difference of P4,458.00
Even more strange is the fact that HOOVEN instituted the present action
for collection of sum of money against Lagon only on 24 February 1987, or more
than five (5) years after the supposed completion of the project. Indeed, it is
contrary to common experience that a creditor would take its own sweet time in
collecting its credit, more so in this case when the amount involved is not
miniscule but substantial.
All the delivery receipts did not appear to have been signed by petitioner
or his duly authorized representative acknowledging receipt of the materials
listed therein. A closer examination of the receipts clearly showed that the
deliveries were made to a certain Jose Rubin, claimed to be petitioners driver,
Armando Lagon, and a certain bookkeeper. Unfortunately for HOOVEN, the
identities of these persons were never been established, and there is no way of
determining now whether they were indeed authorized representatives of
petitioner.
WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April
1997 is MODIFIED. Petitioner Jose V. Lagon is ordered to pay respondent Hooven
Comalco Industries, Inc., P6, 377.66 representing the value of the unpaid
materials admittedly delivered to him. On the other hand, respondent is ordered
to pay petitioner P50,000.00 as moral damages, P30,000.00 as attorneys fees
and P46,554.50 as actual damages and litigation expenses.

WHO MAY DEMAND PAYMENT,


CREDITORS RIGHT OF PAYMENT (Art. 1240, CC)
BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS
232 SCRA302
G.R. NO. 104612
MAY 10, 1994

RULING:
Yes, for both issues.
Regarding the first, the Holdout Agreement
conferred on CBTC the power, not the duty, to set off the loan from the account
subject of the Agreement. When BPI demanded payment of the loan from
Eastern, it exercised its right to collect payment based on the promissory note,
and disregarded its option under the Holdout Agreement. Therefore, its demand
was in the correct order.

FACTS:
Private respondents Eastern Plywood Corporation and Benigno Lim as
officer of the corporation, had an AND/OR joint account with Commercial Bank
and Trust Co (CBTC), the predecessor-in-interest of petitioner Bank of the
Philippine Islands. Lim withdraw funds from such account and used it to open a
joint checking account (an AND account) with Mariano Velasco. When Velasco
died in 1977, said joint checking account had P662,522.87. By virtue of an
Indemnity Undertaking executed by Lim and as President and General Manager
of Eastern withdrew one half of this amount and deposited it to one of the
accounts of Eastern with CBTC.

Regarding the second issue, BPI was the debtor and Eastern was the
creditor with respect to the joint checking account. Therefore, BPI was obliged
to return the amount of the said account only to the creditor. When it allowed
the withdrawal of the balance of the account by the heirs of Velasco, it made the
payment to the wrong party. The law provides that payment made by the
debtor to the wrong party does not extinguish its obligation to the creditor who
is without fault or negligence. Therefore, BPI was still liable to the true creditor,
Eastern.

Eastern obtained a loan of P73,000.00 from CBTC which was not secured.
However, Eastern and CBTC executed a Holdout Agreement providing that the
loan was secured by the Holdout of the C/A No. 2310-001-42 referring to the
joint checking account of Velasco and Lim.

PAYMENT WHO MUST PAY: DEBTOR

Meanwhile, a judicial settlement of the estate of Velasco ordered the


withdrawal of the balance of the account of Velasco and Lim.
Asserting that the Holdout Agreement provides for the security of the loan
obtained by Eastern and that it is the duty of CBTC to debit the account of
respondents to set off the amount of P73,000 covered by the promissory note,
BPI filed the instant petition for recovery. Private respondents Eastern and Lim,
however, assert that the amount deposited in the joint account of Velasco and
Lim came from Eastern and therefore rightfully belong to Eastern and/or Lim.
Since the Holdout Agreement covers the loan of P73,000, then petitioner can
only hold that amount against the joint checking account and must return the
rest.
ISSUE:
Whether BPI can demand the payment of the loan despite the existence of
the Holdout Agreement and whether BPI is still liable to the private respondents
on the account subject of the withdrawal by the heirs of Velasco.

AUDION ELECTRIC CO., INC.,


VS. NATIONAL LABOR RELATIONS COMMISSION and NICOLAS MADOLID
1999 Jun 17
G.R. No. 106648
FACTS:
From the position paper and affidavit corroborated by oral testimony, it
appears that complainant was employed by respondent Audion Electric
Company on June 30, 1976 as fabricator and continuously rendered service
assigned in different offices or projects as helper electrician, stockman and
timekeeper. He has rendered thirteen (13) years of continuous, loyal and
dedicated service with a clean record. On August 3, complainant was surprised
to receive a letter informing him that he will be considered terminated after the
turnover of materials, including respondents tools and equipments not later
than August 15, 1989.
Complainant claims that he was dismissed without justifiable cause and
due process and that his dismissal was done in bad faith which renders the
dismissal illegal. For this reason, he claims that he is entitled to reinstatement
with full backwages. He also claims that he is entitled to moral and exemplary
damages.
He includes payment of his overtime pay, project allowance,

minimum wage increase adjustment, proportionate 13th month pay and


attorneys fees.
ISSUES:
Whether or not the respondent NLRC committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it ruled that private respondent
was a regular employee and not a project employee;
Whether or not petitioner was denied due process when all the money
claims of private respondent, i.e. overtime pay, project allowances, salary
differential, proportionate 13th month pay, moral and exemplary damages as
well as attorneys fees, were granted.
RULING:
Respondents assigning complainant to its various projects did not make
complainant a project worker. As found by the Labor Arbiter, it appears that
complainant was employed by respondent as fabricator and or projects as helper
electrician, stockman and timekeeper. Simply put, complainant was a regular
non-project worker.
Private respondents employment status was established by the
Certification of Employment dated April 10, 1989 issued by petitioner which
certified that private respondent is a bonafide employee of the petitioner from
June 30, 1976 up to the time the certification was issued on April 10, 1989. The
same certificate of employment showed that private respondents exposure to
their
field
of
operation
was
as
fabricator,
helper/electrician,
stockman/timekeeper. This proves that private respondent was regularly and
continuously employed by petitioner in various job assignments from 1976 to
1989, for a total of 13 years. The alleged gap in employment service cited by
petitioner does not defeat private respondents regular status as he was rehired
for many more projects without interruption and performed functions which are
vital, necessary and indispensable to the usual business of petitioner.
Petitioner failed to present such employment contract for a specific
project signed by private respondent that would show that his employment with
the petitioner was for the duration of a particular project.
Moreover, notwithstanding petitioners claim in its reply that in taking
interest in the welfare of its workers, petitioner would strive to provide them with
more continuous work by successively employing its workers, in this case,
private respondent, petitioner failed to present any report of termination.
Petitioner should have submitted or filed as many reports of termination as there

were construction projects actually finished, considering that private respondent


had been hired since 1976. The failure of petitioner to submit reports of
termination supports the claim of private respondent that he was indeed a
regular employee.
The Court finds no grave abuse of discretion committed by NLRC in finding
that private respondent was not a project employee.
Private respondent clearly specified in his affidavit the specific dates in
which he was not paid overtime pay, that is, from the period March 16, 1989 to
April 3, 1989 amounting to P765.63, project allowance from April 16, 1989 to July
31, 1989 in the total amount of P255.00, wage adjustment for the period from
August 1, 1989 to August 14, 1989 in the amount of P256.50 and the
proportionate 13th month pay for the period covering January to May 1988,
November-December 1988, and from January to August 1989. This same
affidavit was confirmed by private respondent in one of the scheduled hearings
where he moved that he be allowed to present his evidence ex-parte for failure
of petitioner or any of his representative to appear thereat. On the other hand,
petitioner submitted its unverified Comment to private respondents complaint
stating that he had already satisfied the unpaid wages and 13th month pay
claimed by private respondent, but this was not considered by the Labor Arbiter
for being unverified.
Petitioner failed to rebut the claims of private respondent. It failed to
show proof by means of payroll or other evidence to disprove the claim of
private respondent. Petitioner was given the opportunity to cross-examine
private respondent yet petitioner forfeited such chance when it did not attend
the hearing, and failed to rebut the claims of private respondent.
However, the award of moral and exemplary damages must be deleted for
being devoid of legal basis. Moral and exemplary damages are recoverable only
where the dismissal of an employee was attended by bad faith or fraud, or
constituted an act oppressive to labor, or was done in a manner contrary to
morals, good customs or public policy. The person claiming moral damages
must prove the existence of bad faith by clear and convincing evidence for the
law always presumes good faith. It is not enough that one merely suffered
sleepless nights, mental anguish, serious anxiety as the result of the actuations
of the other party. Invariably, such action must be shown to have been willfully
done in bad faith or with ill-motive, and bad faith or ill motive under the law
cannot be presumed but must be established with clear and convincing
evidence. Private respondent predicated his claim for such damages on his own

allegations of sleepless nights and mental anguish, without establishing bad


faith, fraud or ill motive as legal basis therefor.

P954,000 plus interest. There was no delay since there was no


demand.

Private respondent not being entitled to award of moral damages, an


award of exemplary damages is likewise baseless. Where the award of moral
and exemplary damages is eliminated, so must the award for attorneys fees be
deleted. Private respondent has not shown that he is entitled thereto pursuant
to Art. 2208 of the Civil Code.

ISSUE:
Whether or not respondent incurred delay in performing its
obligation under the contract of sale

WHEREFORE, the challenged resolutions of the respondent NLRC are


hereby AFFIRMED with the MODIFICATION that the awards of moral and
exemplary damages and attorneys fees are DELETED.

RULING:

WHERE PAYMENT MUST BE MADE


LORENZO SHIPPING VS. BJ MARTHEL
443 S 163

By accepting the cylinders when they were delivered to the


warehouse, petitioner waived the claimed delay in the delivery of
said items. Supreme Court geld that time was not of the essence.
There having been no failure on the part of the respondent to
perform its obligations, the power to rescind the contract is
unavailing to the petitioner.
Petition is denied. Court of appeals decision is affirmed.

November 19, 2004


FACTS:
Petitioner Lorenzo Shipping is engaged in coastwise
shipping and owns the cargo M/V Dadiangas Express. BJ Marthel is
engaged in trading, marketing an dselling various industrial
commodities. Lorenzo Shipping ordered for the
second time
cylinder lines from the respondent stating the term of payment to
be 25% upon delivery, the balance payable in 5 bi-monthly equal
installments, no again stating the date of the cylinders delivery. It
was allegedly paid through post dated checks but the same was
dishonored due to insufficiency of funds. Despite due demands by
the respondent, petitioner falied contending that time was of the
essence in the delivery of the cylinders and that there was a delay
since the respondent committed said items within two months
after receipt of fir order. RTC held respondents bound to the
quotation with respect to the term of payment, which was reversed
by the Court of appeals ordering appellee to pay
appellant

SPECIAL FORMS OF PAYMENT:


A. DACION EN PAGO / DATION IN PAYMENT
1.
2.
3.
4.

ESTANISLAO VS. EAST-WEST BANKING CORP., 544 S 369


AQUINTEY VS. TIBONG, 511 S 414
VDA. DE JAYME VS. CA, 390 SCRA 380
CALTEX VS. IAC, NOV. 13, 1992

SPOUSES RAFAEL ESTANISLAO v. EASTWEST BANKING


CORPORATION
G.R. No. 178537,February 11, 2008
FACTS:

On July 24,1997, petitioner obtained a loan fro the respondent


in the amount of P3,925,000 evidenced by a promissory note and
secured by two deeds of chattel mortgage covering two dump
trucks and a bull dozer . Petitioner defaulted entire obligation
became due and demandable. A deed of assignment was drafted by
the respondent on October 6, 2000 and March 8, 2001 respectively.
Petitioners completed the delivery of heavy equipment mentioned
in the deed of assignment to respondent which accepted the same
without protest or objection. Respondent manifested to admit an
amended complaint for the seizure and delivery of two more heavy
equipment which are covered under the second deed of the chattel
mortgage. RTC ruled that the deed of assignment and the
petitioners delivery of the heavy equipment effectively
extinguished the petitioners obligation and respondent as stopped.
CA reversed the decision ordering the petitioner the outstanding
debt of P4,275,919.69 plus interests.
ISSUE:
Did the Deed of Assignment operate to extinguish petitioners
debt to the respondent such that the replevin suit could
no longer prosper?

FACTS:
On May 6, 1999, petitioner Aquintey filed before RTC Baguio,
a complaint for sum of money and damages against respondents.
Agrifina alleged that Felicidad secured loans from her on several
occasions at monthly interest rates of 6% to 7%. Despite demands,
spouses Tibong failed to pay their outstanding loans of P773,000,00
exclusive of interests. However, spouses Tiong alleged that they
had executed deeds of assignment in favor of Agrifina amounting
to P546,459 and that their debtors had executed promissory notes
in favor of Agrifina. Spouses insisted that by virtue of these
documents, Agrifina became the new collector of their debts.
Agrifina was able to collect the total amount of P301,000 from
Felicdads debtors. She tried to collect the balance of Felicidad and
when the latter reneged on her promise, Agrifina filed a complaint
in the office of the barangay for the collection of P773,000.00. There
was no settlement. RTC favored Agrifina. Court of Appeals affirmed
the decision with modification ordering defendant to pay the
balance of total indebtedness in the amount of P51,341,00 plus 6%
per month.
ISSUE:

RULING:
The deed of assignment was a perfected agreement which
extinguished petitioners total outstanding obligation to the
respondent. The nature of the assignment was a dacion en pago
whereby property is alienated to the creditor in the satisfaction of a
debt in money. Since the agreement was consummated by the
delivery of the last unit of heavy equipment under the deed,
petitioners are deemed to have been released from all their
obligations from the respondents.
SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT

AQUINTEY v. SPOUSES TIBONG


G.R. No. 166704,December 20, 2006

Whether or not the deeds of assignment in favor of petitioner


has the effect of payment of the original obligation that
would partially extinguish the same
RULING:
Substitution of the person of the debtor ay be affected by
delegacion. Meaning, the debtor offers, the creditor accepts a third
person who consent of the substitution and assumes the obligation.
It is necessary that the old debtor be released fro the obligation and
the third person or new debtor takes his place in the relation .
Without such release, there is no novation. Court of Appeals
correctly found that the respondents obligation to pay the balance
of their account with petitioner was extinguished pro tanto by the
deeds of credit. CA decision is affirmed with the modification that
the principal amount of the respondents is P33,841.

SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT

VDA. DE JAYME VS. CA


390 SCRA 380
2002 Oct 4
FACTS:
On January 8, 1973, the spouses Graciano and Mamerta Jayme entered
into a Contract of Lease with George Neri, president of Airland Motors
Corporation (now Cebu Asiancars Inc.), covering one-half of Lot 2700 owned and
registered to the former. The lease was for twenty (20) years. The terms and
conditions of the lease contract stipulated that Cebu Asiancars Inc. may use the
leased premises as a collateral to secure payment of a loan which Asiancars may
obtain from any bank, provided that the proceeds of the loan shall be used solely
for the construction of a building which, upon the termination of the lease or the
voluntary surrender of the leased premises before the expiration of the contract,
shall automatically become the property of the Jayme spouses (the lessors).
In October 1977, Asiancars obtained a loan of P6,000,000 from the
Metropolitan Bank and Trust Company. The entire Lot 2700 was offered as one
of several properties given as collateral for the loan. As mortgagors, the
spouses signed a Deed of Real Estate Mortgage dated November 21, 1977 in
favor of MBTC. It stated that the deed was to secure the payment of a loan
obtained by Asiancars from the bank. Meeting financial difficulties and incurring
an outstanding balance on the loan, Asiancars conveyed ownership of the
building on the leased premises to MBTC, by way of "dacion en pago." The
building was valued at P980,000 and the amount was applied as partial payment
for the loan. There still remained a balance of P2,942,449.66, which Asiancars
failed to pay. Eventually, MBTC extrajudicially foreclosed the mortgage.
A public auction was held on February 4, 1981. MBTC was the highest
bidder for P1,067,344.35. A certificate of sale was issued and was registered
with the Register of Deeds on February 23, 1981. Meanwhile, Graciano Jayme
died, survived by his widow Mamerta and their children. As a result of the
foreclosure, Gracianos heirs filed a civil complaint, in January of 1982, for
Annulment of Contract with Damages with Prayer for Issuance of Preliminary
Injunction, against respondent Asiancars, its officers and incorporators and
MBTC. Later, in 1999, Mamerta Jayme also passed away.

The trial court ruled that the REM is valid and binding upon the Jaymes.
The CA affirmed with modifications. Both the trial and appellate courts found
that no fraud attended the execution of the deed of mortgage. The Motion for
Reconsideration was denied.
ISSUE:
Whether or not the dacion en pago by Asiancars in favor of MBTC is valid
and binding despite the stipulation in the lease contract that ownership of the
building will vest on the Jaymes at the termination of the lease.
RULING:
YES. The alienation of the building by Asiancars in favor of MBTC for the
partial satisfaction of its indebtedness is valid.
The ownership of the building had been effectively in the name of the
lessee-mortgagor (Asiancars), though with the provision that said ownership be
transferred to the Jaymes upon termination of the lease or the voluntary
surrender of the premises. The lease was constituted on January 8, 1973 and
was to expire 20 years thereafter, or on January 8, 1993. The alienation via
dacion en pago was made by Asiancars to MBTC on December 18, 1980, during
the subsistence of the lease. At this point, the mortgagor, Asiancars, could
validly exercise rights of ownership, including the right to alienate it, as it did to
MBTC.
Dacion en pago is the delivery and transmission of ownership of a thing by
the debtor to the creditor as an accepted equivalent of the performance of the
obligation. It is a special mode of payment where the debtor offers another
thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale, that is
the creditor is really buying the thing or property of the debtor, payment for
which is to be charged against
the debtors debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of
the performance of an obligation is considered as the object of the contract of
sale, while the debt is considered as the purchase price. In any case, common
consent is an essential prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation. Private respondent MBTC is ordered
to pay petitioners rentals in the total amount of P602,083.33, with six (6)
percent interest per annum until fully paid.

Thus, on September 13, 1982, private respondent filed a complaint


against petitioner in the Regional Trial Court of Manila, to collect the sum of
P510,550.63.00.
SPECIAL FORMS OF PAYMENT: DATION EN PAGO/ DATION IN PAYMENT
CALTEX (PHILIPPINES), INC., petitioner, VS. The INTERMEDIATE
APPELLATE COURT and ASIA PACIFIC AIRWAYS, INC., respondents
November 13, 1992
G.R. No. 72703
FACTS:
On January 12, 1978, private respondent Asia Pacific Airways Inc. entered
into an agreement with petitioner Caltex (Philippines) Inc., whereby petitioner
agreed to supply private respondent's aviation fuel requirements for two (2)
years, covering the period from January 1, 1978 until December 31, 1979.
Pursuant thereto, petitioner supplied private respondent's fuel supply
requirements.
As of June 30, 1980, private respondent had an outstanding obligation to
petitioner in the total amount of P4,072,682.13, representing the unpaid price of
the fuel supplied. To settle this outstanding obligation, private respondent
executed a Deed of Assignment dated July 31, 1980, wherein it assigned to
petitioner its receivables or refunds of Special Fund Import Payments from the
National Treasury of the Philippines to be applied as payment of the amount of
P4,072,683.13 which private respondent owed to petitioner. On February 12,
1981, pursuant to the Deed of Assignment, Treasury Warrant No. B04708613 in
the amount of P5,475,294.00 representing the refund to respondent of Special
Fund Import Payment on its fuel purchases was issued by the National Treasury
in favor of petitioner. Four days later, on February 16, 1981, private respondent,
having learned that the amount remitted to petitioner exceeded the amount
covered by the Deed of Assignment, wrote a letter to petitioner, requesting a
refund of said excess.
Petitioner, acting on said request, made a refund in the amount of
P900,000.00 plus in favor of private respondent. The latter, believing that it was
entitled to a larger amount by way of refund, wrote petitioner anew, demanding
the refund of the remaining amount. In response thereto, petitioner informed
private respondent that the amount not returned (P510,550.63) represented
interest and service charges at the rate of 18% per annum on the unpaid and
overdue account of respondent from June 1, 1980 to July 31, 1981.

Petitioner (defendant in the trial court) filed its answer, reiterating that the
amount not returned represented interest and service charges on the unpaid
and overdue account at the rate of 18% per annum. It was further alleged that
the collection of said interest and service charges is sanctioned by law, and is in
accordance with the terms and conditions of the sale of petroleum products to
respondent, which was made with the conformity of said private respondent who
had accepted the validity of said interest and service charges.
On November 7, 1983, the trial court rendered its decision dismissing the
complaint, as well as the counterclaim filed by defendant therein. Private
respondent (plaintiff) appealed to the Intermediate Appellate Court (IAC). On
August 27, 1985, a decision was rendered by the said appellate court reversing
the decision of the trial court, and ordering petitioner to return the amount of
P510,550.63 to private respondent.
ISSUE:
Whether or not there is a valid dation in payment in this case.
RULING:
The Supreme Court ruled that the Deed of Assignment executed by the
parties on July 31, 1980 is not a dation in payment and did not totally extinguish
respondent's obligations as stated therein.
The then Intermediate Appellate Court ruled that the three (3) requisites
of dacion en pago are all present in the instant case, and concluded that the
Deed of Assignment of July 31, 1980) constitutes a dacion in payment provided
for in Article 1245 of the Civil Code which has the effect of extinguishing the
obligation, thus supporting the claim of private respondent for the return of the
amount retained by petitioner.
The Supreme Court, speaking of the concept of dation in payment, in the
case of Lopez vs. Court of Appeals, among others, stated: "'The dation in
payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved, unless the
parties by agreement, express or implied, or by their silence, consider the thing
as equivalent to the obligation, in which case the obligation is totally
extinguished."

From the above, it is clear that a dation in payment does not necessarily
mean total extinguishment of the obligation.
The obligation is totally
extinguished only when the parties, by agreement, express or implied, or by
their silence, consider the thing as equivalent to the obligation. In the instant
case, the then Intermediate Appellate Court failed to take into account the
express recitals of the Deed of Assignment.
"That Whereas, ASSIGNOR has an outstanding obligation with ASSIGNEE in
the amount of P4,072,682.13 as of June 30, 1980, plus any applicable interest on
overdue account. Now therefore in consideration of the foregoing premises,
ASSIGNOR by virtue of these presents, does hereby irrevocably assign and
transfer unto ASSIGNEE any and all funds and/or Refund of Special Fund
Payments, including all its rights and benefits accruing out of the same, that
ASSIGNOR might be entitled to, by virtue of and pursuant to the decision in BOE
Case No. 80-123, in payment of ASSIGNOR's outstanding obligation plus any
applicable interest charges on overdue account and other avturbo fuel lifting and
deliveries that ASSIGNOR may from time to time receive from the ASSIGNEE, and
ASSIGNEE does hereby accepts such assignment in its favor."
Hence, it could easily be seen that the Deed of Assignment speaks of
three (3) obligations (1) the outstanding obligation of P4,072,682.13 as of June
30, 1980; (2) the applicable interest charges on overdue accounts; and (3) the
other avturbo fuel lifting and deliveries that assignor (private respondent) may
from time to time receive from assignee (Petitioner). As aptly argued by
petitioner, if it were the intention of the parties to limit or fix respondent's
obligation to P4,072.682.13, they should have so stated and there would have
been no need for them to qualify the statement of said amount with the clause
"as of June 30, 1980 plus any applicable interest charges on overdue account"
and the clause "and other avturbo fuel lifting and deliveries that ASSIGNOR may
from time to time receive from the ASSIGNEE".
The terms of the Deed of Assignment being clear, the literal meaning of its
stipulations should control. In the construction of an instrument where there are
several provisions or particulars, such a construction is, if possible, to be
adopted as will give effect to all.
Likewise, the then Intermediate Appellate Court failed to take into
consideration the subsequent acts of the parties which clearly show that they did
not intend the Deed of Assignment to totally extinguish the obligation: (1) After
the execution of the Deed of Assignment on July 31, 1980, petitioner continued
to charge respondent with interest on its overdue account up to January 31,

1981. This was pursuant to the Deed of Assignment which provides for
respondent's obligation for "applicable interest charges on overdue account".
The charges for interest were made every month and not once did respondent
question or take exception to the interest; and (2) In its letter of February 16,
1981, respondent addressed the following request to petitioner:
In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered (Art.
1253, Civil Code). The foregoing subsequent acts of the parties clearly show that
they did not intend the Deed of Assignment to have the effect of totally
extinguishing the obligations of private respondent without payment of the
applicable interest charges on the overdue account.
Finally, the payment of applicable interest charges on overdue account,
separate from the principal obligation of P4,072,682.13 was expressly stipulated
in the Deed of Assignment. The law provides that "if the debt produces interest,
payment of the principal shall not be deemed to have been made until the
interests have been covered." (Art. 1253, Civil Code).

PAYMENT BY CESSION OR ASSIGNMENT

ANTONIO LO, petitioner,


VS. THE HON. COURT OF APPEALS AND NATIONAL ONIONS GROWERS
COOPERATIVE MARKETING ASSOCIATION, INC., respondents
FACTS:
At the core of the present controversy are two parcels of land measuring
a total of 2,147 square meters, with an office building constructed thereon.
Petitioner acquired the subject parcels of land in an auction sale on November 9,
1995 for P20,170,000 from the Land Bank of the Philippines (Land Bank). Private
respondent National Onion Growers Cooperative Marketing Association, Inc., an
agricultural cooperative, was the occupant of the disputed parcels of land under
a subsisting contract of lease with Land Bank. The lease was valid until
December 31, 1995. Upon the expiration of the lease contract, petitioner
demanded that private respondent vacate the leased premises and surrender its
possession to him. Private respondent refused on the ground that it was, at the

time, contesting petitioners acquisition of the parcels of land in question in an


action for annulment of sale, redemption and damages.
Petitioner filed an action for ejectment before the MTC. He asked, inter
alia, for the imposition of the contractually stipulated penalty of P5,000 per day
of delay in surrendering the possession of the property to him. On September 3,
1996, the trial court decided the case in favor of petitioner. On appeal to the
RTC, the MTC decision was affirmed in toto. The CA rendered its assailed
decision affirming the decision of the trial court, with the modification that the
penalty imposed upon private respondent for the delay in turning over the
leased property to petitioner was reduced from P 5,000 to P 1000 per day.
ISSUE:
Whether or not the Court of Appeals erred in reducing the penalty
awarded by the trial court, the same having been stipulated by the parties.
RULING:
No. Generally, courts are not at liberty to ignore the freedom of the
parties to agree on such terms and conditions as they see fit as long as they are
not contrary to law, morals, good customs, public order or public policy.
Nevertheless, courts may equitably reduce a stipulated penalty in the contract if
it is iniquitous or unconscionable, or if the principal obligation has been partly or
irregularly complied with. This power of the courts is explicitly sanctioned by
Article 1229 of the Civil Code which provides:

1.
2.
3.
4.

ASI CORP., VS. EVANGELISTA, 545 S 300


PACULDO VS. REGALADO, 345 SCRA 134
CBC VS. CA, 265 SCRA 327
MOBIL VS. CA, 272 SCRA 523

ASI CORP and ANTONIO SAN JUAN


EVANGELISTA

v. SPOUSES EFREN

FACTS:
Respondents are engaged in the large-scale business of
buying broiler eggs, hatching and selling them and egg by-products. For
incubation and hatchings, respondents availed of the hatching services of
ASJ Corp. They agreed o service fees of 80 centavos per egg. Service fees
were paid upon release. Fro consecutive times the respondents failed to
pay the fee until such time that ASJ retained the chicks demanding full
payment from the respondent. ASJ received P15,000 for partial payment
but the chicks were still not released. RTC ruling, which was affirmed by
the Court of Appeals holding that ASJ Corp and Antonio San Juan be
solidarily liable to the respondents.

Article 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the courts
if it is iniquitous or unconscionable.

ISSUE:<