CIVIL LAW REVIEW 2

as if a motion to dismiss had been filed. This was

granted by the trial court.

CASE DIGEST
PRELIM
2

nd

Issue: Whether or Not the action was barred by

Semester SY 2013-2014

prescription?
Ruling: Pet.is without merit, claim is imprescriptible.
Respondents anchored their action for reconveyance

PRESCRIPTION

in the trial court on the nullity of the Deed of Sale

between petitioner Aznar and the supposed owners of

1.

AZNAR BROTHERS

VS.

HEIRS

OF ANICETO

AUGUSTO

the property. Respondents impugned the validity of

the document because the sellers were not the true
owners of the land.

Facts: The subject matter of this controversy is Lot

No. 4397 owned by Aniceto Augusto who was married

Respondents sought the declaration of nullity

to Petrona Calipan. When Aniceto died on December

(inexistence) of the Deed of Sale because of the

3, 1934, he left behind five children: Geronimo,

absence of their consent as the true and lawful

Zacarias, Teoderica, Arsenia and Irenea. Apparently,

owners of the land. They argued that the sale to

the property remained undivided as evidenced by

petitioner

Tax

"owners" who signed the Deed of Sale as vendors

Declaration

No.

026794

issued

to

Petrona

Calipan in 1945.

Aznar

was

void

since

the

purported

were not even heirs of Aniceto Augusto and Petrona

Calipan.

They

pointed

out

that

the

1945

Tax

Tax Declaration No. 02679 in the name of Calipan

Declaration in the name of Petrona Calipan indicated

was

that the property was undivided as of the time

cancelled

pursuant

to

an

"Extrajudicial

Partition"5 executed before Notary Public Vicente

Aniceto Augusto died in 1932.

Fanilag. In lieu thereof, tax declaration certificates

covering Lot No. 4397 were issued to the following:

The "owners" who sold the land to petitioner Aznar

Filomeno

Augusto,

Ciriaco

Icoy,

Zacarias

Augusto,

Abdon

Augusto,

Aying,

Realty could not have been the true owners of the

Teoderica

land since there was no showing how they acquired

Augusto, Pedro Tampus and Anacleto Augusto. These

the land in the first place. Thus, the trial court

persons

Aznar

should not have dismissed the complaint without

Brothers Realty Company (Aznar Realty) through a

looking into the validity of the sale of land to

Deed of Sale of Unregistered Land.

petitioner Aznar Realty.

Respondent Heirs filed Civil Case No. 2666-L against

In actions for reconveyance of property predicated

petitioner Aznar Realty, and Carlos and Filomeno

on the fact that the conveyance complained of was

Augusto in the RTC of Lapu-Lapu City, Branch 27, for

null and void ab initio, a claim of prescription of

(1) recovery of Lot No. 4397; (2) the declaration of

action would be unavailing. The action or defense for

the Deed of Sale dated February 13, 1962 as null and

the declaration of the inexistence of a contract does

void; (3) the recognition of the Heirs; (4) the

not prescribe. Neither could laches be invoked in the

cancellation of the TCT issued to petitioner Aznar

case at bar. Laches is a doctrine in equity and our

Realty and (5) the issuance of a restraining order

courts are basically courts of law and not courts of

and/or writ of preliminary injunction.

equity. Equity, which has been aptly described as

sold

the

property

to

Felipe

petitioner

"justice outside legality," should be applied only in

Aznar Realty filed an answer interposing the defense

the absence of, and never against, statutory law.

of lack of cause of action and prescription. It asked

Aequetas nunguam contravenit legis.

for a preliminary hearing on the affirmative defenses

The positive mandate of Art. 1410 of the New Civil

respective fathers Francisco and Zacarias, was just a

Code conferring imprescriptibility to actions for

mistress of Fabian, hence, Francisco and Zacarias (as

declaration of the inexistence of a contract should

well as Manuel) were illegitimate who were not

pre-empt and prevail over all abstract arguments

entitled to inherit under the old Civil

based only on equity. Respondents were evicted from

their land in November 1991 and they filed their

RTC dismissed the complaint upon the grounds of

complaint with the trial court on July 28, 1992. Only

prescription and laches.

eight months had passed from the time they were

ejected to the time they asserted their rights over

Issue: W/N the action has already prescribed

their property. They certainly could not be deemed

to have slept on their rights.
Ruling: ART. 1134. Ownership and other real rights
Thus, the Court of Appeals did not err in setting

over immovable property are acquired by ordinary

aside the decision of the trial court and ordering

prescription through possession of ten years.

that the case be remanded for trial.

Art. 1137, New Civil Code
2. CAPITLE VS VDA DE GABAN

ART. 1137.

Ownership and other real rights over

immovables also prescribe through uninterrupted

Facts: Julians brother Zacarias died in 1984. He was

adverse possession thereof for thirty years, without

survived by the other petitioners herein, Aurora P.

need of title or of good faith.

vda. de Correjado, Lilia Capitle, Artemio Correjado,

Cecilia

Correjado,

Rogelia

Correjado

(Rogelia),

Assuming

arguendo

that

petitioners

respective

Sofronio Correjado, Vicente Correjado and Gloria

fathers Francisco and Zacarias were legitimate and,

vda. de Beduna.

therefore, were co-owners of the property: From the

moment co-owner Julian occupied in 1919 and

On

November

claimed to be the absolute and exclusive owner of

and

the property and denied his brothers any share

damages before the Regional Trial Court (RTC) of La

therein up to the time of his death in 1950, the

Carlota

that

question involved is no longer one of partition but of

Fabian contracted two marriages, the first with

ownership in which case imprescriptibility of the

Brigida Salenda who was the mother of Julian, and

action for partition can no longer be invoked.

the subsequent one with Maria Catahay (Maria) who

adverse possession by Julian and his successors-in-

was the mother of Zacarias, Manuel and Francisco;

interest- herein respondents as exclusive owner of

that the property remained undivided even after the

the property having entailed a period of about 67

death

years at the time of the filing of the case at bar in

complaint[1]
City

of

26,

for

partition

against

Julian

1986,

in

petitioners
of

the

respondents,

1950,

his

filed

property
alleging

children-herein

respondents having arrogated unto themselves the

The

1986, ownership by prescription had vested in them.

use and enjoyment of the property, to the exclusion

of petitioners; and that respondents refused to

As for estoppel by laches which is a creation of

deliver petitioners share in the property despite

equity,[13] since laches cannot interfere with the

demands therefor and for partition.

running of the period of prescription, absent any

conduct of the parties operating as estoppel,[14] in

To the Complaint respondents countered in their

light of the prescription of petitioners action,

Answer[2] that in the proceedings in the intestate

discussion thereof is dispensed with.

estate of their great grandfather Santos Correjado,

state that while laches may not be strictly applied

petitioners were not adjudicated any share in the

between

property,

circumstances

for Maria,

the

mother

of petitioners

near

Suffice it to

relatives,

under

the

facts

and

of

case,

especially

the

the

uncontroverted

claim of respondents

father

and

Julian,

the

that

documented

their

claim

of

promised to do so but failed to deliver the title to

them.

respondent Julieta, had paid realty taxes on the

property as exclusive owner, as well as the admission

On December 4, 1986, after Albertas heirs left for

of petitioner Rogelia that, as quoted above, she and

the States, Arnold used the OCT he borrowed from

her

were

the deceased vendee Alberta Morales, subdivided the

deprived of any benefits from the property since

entire lot no. 265 into three sublots, and registered

1919 up to the time of the filing of the case in 1986

them all under his name, viz: lot no. 265-A (with TCT

before the RTC or for a period of 67 years, despite

No. 16895), lot no. 265-B (with TCT No. 16896) and

demands

lot no. 265-C (with TCT No. 16897). He then paid the

co-petitioners

therefor,

never

even

benefited

an

or

extremely

liberal

application of laches would bar the filing of the case.

real estate taxes on the property.

After the death of Arnold, the three (3) nieces-heirs
of Alberta Morales learned about the second sale of

3. OCCEA VS. ESPONILLA

their lot to the Occea spouses when they were

Facts: After the death of the Tordesillas spouses, the

lot was inherited by their children Harod and Angela,
and grandchildren Arnold and Lilia. In 1951, the
heirs executed a Deed of Pacto de Retro Sale1 in
favor of Alberta Morales covering the southwestern
portion of the lot

notified by caretaker Abas that they were being

ejected from the land. The heirs filed a case7 for
annulment of sale and cancellation of titles, with
damages,

against

the

second

vendees

Occea

spouses. In their complaint, they alleged that the

Occeas purchased the land in bad faith as they were
aware that the lots sold to them had already been

in 1954, Arnold and Lilia executed a Deed of Definite

sold to Alberta Morales in 1954. They averred that

Sale of Shares, Rights, Interests and Participations2

before the sale, when Tomas Occea conducted an

over the same 748 sq. m. lot in favor of Alberta

ocular inspection of the lots, Morito Abas, the

Morales.

caretaker appointed by Alberta Morales to oversee

Alberta possessed the lot as owner, constructed a

house on it and appointed a caretaker to oversee her
property. Thereafter, in July 1956, vendor Arnold de
la Flor borrowed the OCT from Alberta covering the
lot. He executed an Affidavit3 acknowledging receipt
of the OCT in trust and undertook to return said title
free from changes, modifications or cancellations.
Arnold and Angela, nephew and daughter respectively
of the Tordesillas spouses, without the knowledge of
Alberta,

executed

Deed

of

Extrajudicial

Settlement4 declaring the two of them as the only

co-owners of the undivided 1,198 sq. m. lot no. 265,
without acknowledging their previous sale of 748 sq.
m. thereof to Alberta.
In 1985, vendee Alberta Morales died. Her niecesheirs, Lydia, Elsa and Dafrosa, succeeded in the
ownership of the lot. Months later, as the heirs were
about to leave for the United States, they asked
Arnold to deliver to them the title to the land so
they can register it in their name. Arnold repeatedly

her property, warned them not to push through with

the sale as the land was no longer owned by vendor
Arnold as the latter had previously sold the lot to
Alberta

Morales

who

had

house

constructed

thereon.
For their part, the Occea spouses claimed that the
OCT in the name of the original owners of the lots,
the Tordesillas spouses, was cancelled after it was
subdivided between Angela and Arnold in 1969; that
new TCTs had been issued in the latters names; that
they were unaware that the subject lots were already
previously sold to Morales as they denied that Tomas
had a talk with caretaker Abas on the matter; that as
of December 4, 1987, the TCTs covering the lots
were in the name of Arnold and his wife, without any
adverse claim annotated thereon; that vendor Arnold
represented to them that the occupants they saw on
the land were squatters and that he merely tolerated
their

presence;

that

they

did

not

personally

investigate the alleged squatters on the land and

merely relied on the representation of vendor Arnold;

had a house built thereon and had appointed a

that sometime in 1966-1967, Arnold and his co-heir

caretaker to oversee her property. Her undisturbed

Angela caused the survey of the original lot and

possession of the land for a period of fifty (50) long

subdivided it into 3 lots, without opposition from

years gave her and her heirs a continuing right to

Morales or her heirs. Thus, three (3) TCTs were

seek the aid of a court of equity to determine the

issued in 1969 to Arnold and Angela and, two of the

nature of the claim of ownership of petitioner-

lots were then sold to the Occea spouses, again

spouses.

without objection from Alberta Morales.

In the case at bar, Morales caretaker became aware
The Occea spouses alleged that they were buyers in

of the second sale to petitioner-spouses only in 1991

good faith as the titles to the subject lots were free

when he received from the latter a notice to vacate

from liens or encumbrances when they purchased

the land. Respondents-heirs did not sleep on their

them. They claimed that in 1989, Arnold offered to

rights for in 1994, they filed their action to annul

sell the subject lots to them. On August 13, 1990,

petitioners title over the land. It likewise bears to

after they verified with the Antique Registry of

stress that when vendor Arnold reacquired title to

Deeds

the

that

Arnolds

TCTs

were

clean

and

subject

property

by

means

of

fraud

and

unencumbered, Arnold signed the instrument of sale

concealment after he has sold it to Alberta Morales, a

over the subject lots in favor of the Occeas for

constructive trust was created in favor of Morales

P100,000.00 and new titles were issued in their

and her heirs. As the defrauded parties who were in

names.

actual possession of the property, an action of the

respondents-heirs to enforce the trust and recover

The Occeas likewise set up the defenses of laches

the property cannot prescribe. They may vindicate

and

and

their right over the property regardless of the lapse

plaintiffs-heirs were barred from prosecuting their

of time.21 Hence, the rule that registration of the

action as they failed to assert their right for forty

property has the effect of constructive notice to the

(40) years.

whole world cannot be availed of by petitioners and

prescription.

They

argue

that

Alberta

the defense of prescription cannot be successfully

Issue: Whether Or Not The Period Of More Than

raised against respondents.

Forty (40) Years Without Positive Action Taken By

Respondents, As Well As By Alberta Morales, To
Protect Their Interest Can Be Considered Laches And

4. SALUDARES VS. CA

Thus Their Present Action Has Prescribed

Facts: Pomposa died on May 1, 1923, leaving herein
Ruling: the action to annul title filed by respondents-

petitioners, Enrica, Petra, Restituto, Amado, Delfina,

heirs is not barred by laches and prescription.

Beata, Vicenta and Isabel, all surnamed Dator, as her

Firstly, laches is a creation of equity and its

compulsory heirs

application is controlled by equitable considerations.

Laches cannot be used to defeat justice or perpetuate
fraud and injustice. Neither should its application be
used to prevent the rightful owners of a property
from

recovering

what

has

been

fraudulently

registered in the name of another.17 Secondly,

prescription does not apply when the person seeking
annulment of title or reconveyance is in possession
of the lot because the action partakes of a suit to
quiet title which is imprescriptible.18 In this case,
Morales had actual possession of the land when she

Heirs and their father Juan executed a deed of extrajudicial partition of the share of Pomposa in the
Tanza estate. The settlement conferred the eastern
half of the Tanza estate to Juan and the western half
to the Heirs.
Juan was in possession of the entire Tanza estate.
After the partition, the Heirs took possession of their
share and had the same tenanted by a certain Miguel
Dahilig, husband of Petra, one of the Heirs, who in
turn managed the land in behalf of the other siblings.

Juan, the father, remained in possession of his half

of the land until his death on April 6, 1940.

Issue: W/N CA erred when it did not consider that

On December 13, 1976, Isabel Dator applied for a

the complaint filed by the private respondents for

free patent over the entire Tanza estate, including

reconveyance and cancellation of title before the

Lot 5793, in behalf of the Heirs. On May 26, 1977,

trial court eleven (11) years after a torrens title over

after all the requirements were complied with, the

the

Register of Deeds of Quezon awarded Free Patent No.

petitioners (had) prescribed.

4A-2-8976 and issued Original Certificate of Title

Ruling: There is but one instance when prescription

(OCT) No. 0-23617 in the names of the Heirs.

cannot be invoked in an action for reconveyance,

property

was

issued

in

the

name

of

the

that is, when the plaintiff is in possession of the land

Sometime in 1988, the Heirs were informed by their
tenant

that

private

respondents

cut

some

to be reconveyed.9

50

coconut trees located within the subject lot. Thus,

In a series of cases, this Court permitted the filing of

the Heirs sent a letter,3 dated July 26, 1988, to

an action for reconveyance despite the lapse of ten

private respondents demanding an explanation for

years and declared that said action, when based on

their intrusion into their property and unauthorized

fraud, is imprescriptible as long as the land has not

felling of trees.

passed to an innocent purchaser for value. But in all

those cases including Vital vs. Anore11 on which the

On August 25, 1988, private respondents retaliated

appellate court based its assailed decision, the

by

against

common factual backdrop was that the registered

petitioners, docketed as civil case no. 88-121, in the

owners were never in possession of the disputed

Regional

Private

property. Instead, it was the persons with the better

respondents alleged in their complaint that: (a) they

right or the legal owners of the land who had always

were the owners in fee simple and possessors of Lot

been in possession of the same. Thus, the Court

No.

filing

an
Trial

5793;

(b)

action

for

Court

they

of

reconveyance
Lucena

bought

the

City.

the

allowed the action for reconveyance to prosper in

successors-in-interest of Petra Dator, one of the

land

from

those cases despite the lapse of more than ten years

heirs; (c) they were in possession of the subject land

from the issuance of title to the land. The exception

from 1966 to the present and (d) petitioner Isabel

was

Dator obtained free patent OCT P-23617 over Lot

proceedings could not be used as a shield for fraud or

5793 in favor of the Heirs by means of fraud and

for enriching a person at the expense of another.12

based

on

the

theory

that

registration

misrepresentation. Thus, private respondents prayed

for the cancellation of OCT P-23617 and the issuance

In the case at bar, however, it is the rule rather than

of a new title in their names.

the exception which should apply.

In their answer, the Heirs denied having sold any

The trial court declared the Heirs as having been in

portion of the Tanza estate to anyone. They alleged

actual, open and continuous possession of the

that: (a) they and their predecessors-in-interest had

disputed lot. On the other hand, the appellate court

been and were still in actual, continuous, adverse

ruled that it was private respondents.

and public possession of the subject land in the

concept of an owner since time immemorial and (b)

Private

title to Lot 5793 was issued in their favor after

purportedly showing a series of transactions which

faithful

led to the alleged transfer of ownership of Lot 5793

compliance

with

all

the

requirements

necessary for the issuance of a free patent.

respondents

presented

documents

from the Heirs to them. Other than the presentation

of these documents, however, private respondents

After trial, the lower court rendered a decision

failed to prove that they were in actual, open and

dismissing the action primarily on the ground of

continuous possession of Lot 5793.

prescription of action.

On the other hand, Isabel Dator, who testified for the

But even assuming that private respondents indeed

Heirs,

the

validly acquired Lot 5793 in 1966 as they claimed,

Kasulatan Ng Pagbibilihang Lampasan and pointed

they nevertheless slept on their right to secure title

out the absence of the signatures of her other

thereto. Their unexplained inaction for more than 11

siblings Vicenta, Barcelisa and Adoracion.

years rendered their demand for reconveyance stale.

vehemently

denied

having

signed

Vigilantibus sed non dormientibus jura subverniunt.

The Heirs likewise presented proof of payment of

The law aids the vigilant, not those who sleep on

realty taxes from 1956 to 1974 in the names of their

their

deceased parents, and from 1975 to 1988 in their

application in the case at bar.

rights.

This

legal

precept

finds

perfect

names.
Accordingly, we find that the Court of Appeals
More importantly, the Heirs convincingly established

committed reversible error in disregarding the ten-

their open and continuous occupation of the entire

year prescriptive period for the reconveyance of

Tanza estate, including Lot 5793, through their

registered real property and in giving due course to

tenant Miguel Dahilig.

said action despite the lapse of more than 11 years

from the issuance of title thereto, which was clearly

Saludares identified each and every landmark and

barred by prescription.

boundary of the subject lot. He also enumerated all

the trees planted on the subject lot and, when asked

WHEREFORE, the petition is hereby granted. The

about the fruits of the land, he told the court that he

decision of the Court of Appeals, dated July 31,

shared the harvest with the surviving Heirs.

1996, is REVERSED and SET ASIDE and the decision

of the Regional Trial Court, dated August 27, 1992,

In stark contrast, private respondents witness, farm

worker

Perpetuo

Daya

could

not

identify

is REINSTATED.

the

boundaries of the disputed property, its adjoining

owners or recall the dates he worked and tilled the
subject lot.
Furthermore,
Dators

we

note

declaration

private

that

he

respondent

was

the

Jose

cadastral

claimant of and free patent applicant for Lot 5794

which was adjacent to Lot 5793. This being the case,
we find private respondents inaction difficult to
understand, considering that they were among those
who received notices of petitioners free patent
application dated January 2, 1979 from the Bureau
of Lands.14
If private respondents indeed owned Lot 5793, they
should have filed an application for free patent for it
just as they did for Lot 5794, or at least opposed the
Heirs application for free patent over Lot 5793, to
protect their interests. As a matter of fact, they were
aware that the Heirs tenant, Marcelo Saludares,
repeatedly harvested the fruits of Lot 5793.

5. OO VS. LIM
Facts: Lim filed in the RTC in Cebu City a petition
for the reconstitution of the owners duplicate copy
of OCT No. RO-9969-(O-20449), alleging that said
OCT had been lost during World War II by his mother,
Luisa, that Lot No. 943 of the Balamban Cadastre in
Cebu City covered by said OCT had been sold in 1937
to Luisa by Spouses Diego Oo and Estefania Apas
(Spouses Oo), the lots registered owners; and that
although the deed evidencing the sale had been lost
without being registered, Antonio Oo (Antonio), the
only legitimate heir of Spouses Oo, had executed on
April

23,

1961

in

favor

of

Luisa

notarized

document denominated as confirmation of sale,5

which was duly filed in the Provincial Assessors
Office of Cebu.
Zosimo Oo and petitioner Teofisto Oo (Oos)
opposed Lims petition, contending that they had the
certificate

of

title

in

their

possession

successors-in-interest of Spouses Oo.

as

the

Luisa had acquired the property in 1937, she had

On account of the Oos opposition, and upon order

taken over its possession in the concept of an owner,

of

for

and had performed her obligation by paying real

reconstitution into a complaint for quieting of title,6

the

RTC,

property taxes on the property, as evidenced by tax

averring additionally that he and his predecessor-in-

declarations issued in her name;20 and that in view

interest

possession of the

of the delivery of the property, coupled with Luisas

property since 1937, cultivating and developing it,

actual occupation of it, all that remained to be done

enjoying

was the issuance of a new transfer certificate of title

had

Lim

converted

been in

its

fruits,

actual
and

the

paying

petition

the

taxes

corresponding to it. He prayed, inter alia, that the

in her name.

Oos be ordered to surrender the reconstituted

owners duplicate copy of OCT No. RO-9969-(O20449), and that said OCT be cancelled and a new

6. MARIANO VS.PETRON CORPORATION

certificate of title be issued in the name of Luisa in

lieu of said OCT.

Facts: Pacita V. Aure, Nicomedes Aure Bundac, and

Zeny Abundo (Aure Group), owners of a 2,064 square

In their answer,7 the Oos claimed that their

meter parcel of land in Tagaytay City4 (Property),

predecessors-in-interest, Spouses Oo, never sold Lot

leased the Property to ESSO Standard Eastern, Inc.,

No. 943 to Luisa; and that the confirmation of sale

(ESSO Eastern), a foreign corporation doing business

purportedly executed by Antonio was fabricated, his

in the country through its subsidiary ESSO Standard

signature thereon not being authentic.

Philippines, Inc. (ESSO Philippines). The lease period

is 90 years5 and the rent is payable monthly for the
over

first 10 years, and annually for the remaining

registered land could be lost by prescription, laches,

period.6 The lease contract (Contract) contained an

or adverse possession.

assignment veto clause barring the parties from

Issue:

Whether

or

not

the

ownership

assigning the lease without prior consent of the

Ruling: Prescription was not relevant

other.7 Excluded from the prohibition were certain

corporations to whom ESSO Eastern may unilaterally

The petitioners assert that the lot, being titled in the

assign its leasehold right.

name of their predecessors-in-interest, could not be

acquired by prescription or adverse possession.

On 23 December 1977, ESSO Eastern sold ESSO

Philippines

The assertion is unwarranted.

to

the

Philippine

National

Oil

Corporation (PNOC).9 Apparently, the Aure Group

was not informed of the sale. ESSO Philippines,

Prescription, in general, is a mode of acquiring or

whose corporate name was successively changed to

losing ownership and other real rights through the

Petrophil Corporation then to Petron Corporation

lapse

(Petron), took possession of the Property.

of

time

in

the

manner

and

under

the

conditions laid down by law.19 However, prescription

was not relevant to the determination of the dispute

On 18 November 1993, petitioner Romeo D. Mariano

herein, considering that Lim did not base his right of

(petitioner) bought the Property from the Aure Group

ownership on an adverse possession over a certain

and obtained title to the Property issued in his name

period. He insisted herein, instead, that title to the

bearing an annotation of ESSO Easterns lease.10

land

had

registered

been

voluntarily

owners

transferred

themselves

to

by

the

Luisa,

his

predecessor-in-interest.

On 17 December 1998, petitioner sent to Petron a

notice to vacate the Property. Petitioner informed
Petron that Presidential Decree No. 471 (PD 471),11

Lim showed that his mother had derived a just title

dated 24 May 1974, reduced the Contracts duration

to the property by virtue of sale; that from the time

from 90 to 25 years, ending on 13 November 1993.12

Despite

receiving

the

notice

to

vacate

on

21

December 1998, Petron remained on the Property.

Facts: In a judgment rendered in Cadastral Case,

Regional Trial Court (RTC), adjudicated in favor of
Spouses Antonio L. Caballero several parcels of land,

On 18 March 1999, petitioner sued Petron in the

Regional Trial Court of Tagaytay City, Branch 18,

one of which was the subject of this controversy.

On May 25, 1987, the same court, ordered the

(trial court) to rescind the Contract and recover

National

possession of the Property. Aside from invoking PD

Administration to issue the decree of registration

471,

and the corresponding titles of the lots in favor of

petitioner

alternatively

theorized

that

the

Land

Titles

and

Deeds

Registration

Contract was terminated on 23 December 1977 when

the Caballeros.4

ESSO Eastern sold ESSO Philippines to PNOC, thus

On June 11, 1990, respondents sold to petitioner,

assigning to PNOC its lease on the Property, without

Carmen del Prado, the said lot.

seeking the Aure Groups prior consent.

Original Certificate of Title (OCT) covering the lot

was issued only on November 15, 1990, and entered

In its Answer, Petron countered that the Contract

in the "Registration Book" of the City of Cebu on

was not breached because PNOC merely acquired

December 19, 1990.5

ESSO

Within 1 year from date of entry of decree of

Petron

registration, (On March 20, 1991), petitioner filed in

Easterns

separate

shares

corporate

in

entity.

ESSO

Philippines,

Alternatively,

argued that petitioners suit, filed on 18 March 1999,

the

same cadastral

proceedings

"Petition

for

was barred by prescription under Article 1389 and

Registration of Document Under Presidential Decree

Article 1146(1) of the Civil Code as petitioner should

(P.D.) 1529"7 in order that a certificate of title be

have sought rescission within four years from PNOCs

issued in her name.

purchase of ESSO Philippines on 23 December

Respondents opposed, on the main ground that the

197713 or before 23 December 1981.

claimed area was substantially excessive than that

originally agreed upon. They moved for the outright

Issue: W/N the action is barred by Prescription

dismissal of the petition on grounds of prescription

and lack of jurisdiction.

Ruling: Petitioners Suit Barred by Prescription

RTC found in favor of petitioner

CA

reverse

RTC,

because

the

latter

has

no

Petitioners waiver of Petrons contractual breach

jurisdiction. Petition for registration of document

was compounded by his long inaction to seek judicial

is not a remedy under PD 1529. One year period has

redress. Petitioner filed his complaint nearly 22

lapsed.

years after PNOC acquired the leasehold rights to the

Property and almost six years after petitioner bought

ISSUE: WON prescription has set in.

the Property from the Aure Group. The more than

two decades lapse puts this case well within the

HELD: Yes. For filing wrong remedy, the 1 year

territory of the 10 year prescriptive bar to suits

period had expired.

based upon a written contract under Article 1144 (1)

Petitioners

of the Civil Code.

registration

recourse,
in

the

by

filing the petition for

same

cadastral

case,

was

improper. It is a fundamental principle in land

registration that a certificate of title serves as
evidence of an indefeasible and incontrovertible title
to the property in favor of the person whose name
appears therein. Such indefeasibility commences
after one year from the date of entry of the decree of
7. CARMEN DEL PRADO, vs. SPOUSES ANTONIO L.

registration. Inasmuch

as

the

petition

for

CABALLERO and LEONARDA CABALLERO,

registration of document did not interrupt the

running of the period to file the appropriate petition

for review and considering that the prescribed one-

The prescriptive period for the reconveyance of

year period had long since expired, the decree of

fraudulently registered real property is 10 years,

registration, as well as the certificate of title issued

reckoned from the date of the issuance of the

in

certificate

favor

of

respondents,

had

become

incontrovertible.
ANTHONY

title,

if

the

plaintiff

is

not

in

possession, but imprescriptible if he is in possession

of

8.

of

ORDUNA

ET.

AL.,

VS

EDUARDO

FUENTEBELLA ET AL.,

property.[38] Thus,

the

one

who

is

in

actual

possession of a piece of land claiming to be the

owner thereof may wait until his possession is
disturbed or his title is attacked before taking steps

FACTS: During the lifetime of Gabriel Sr., he sold by

to vindicate his right.[39] As it is, petitioners action

installment a parcel of land to Orduna. The sale was

for reconveyance is imprescriptible.

not reduced in writing.

After his fathers death, Gabriel Jr. inherited subject
lot and for which he was issued TCT.

Since the

Gabriel Sr. Orduna sales transaction called for

(Note: As to enforceability of sale not reduced in

writing, the statute of frauds (1403) will not apply
because the contract has been partially executed.)

payment of the contract price in installments,

Gabriel Jr. received payments from the Orduas and

9. HEIRS OF JUANITA PADILLA VS DOMINADOR

even authorized them to enclose the subject lot with

MAGDUA

a fence.
Gabriel Jr. sold the land to respondents, whom

Facts:

Juanita Padilla (Juanita), the mother of

subsequently registered the land in their favor.

petitioners, owned a piece of land located in San

Petitioners filed an annulment of title, which the

Roque,

respondent assailed.

on 1989, petitioners,

The RTC and CA found the purchaser-respondents

sought to have the land partitioned. Petitioners sent

thesis on prescription correct stating in this regard

word to their eldest brother Ricardo Bahia (Ricardo)

that Respondents TCT was issued on May 16, 2000

regarding their plans for the partition of the land. In

while petitioners filed their complaint for annulment

a letter dated 5 June 1998 written by Ricardo

only on July 3, 2001. To the courts below, the one-

addressed to them, petitioners were surprised to find

year prescriptive period to assail the issuance of a

out that Ricardo had declared the land for himself,

certificate of title had already elapsed.

prejudicing their rights as co-heirs. It was then

Tanauan,

Leyte. After

Juanitas

death

as legal heirs of Juanita,

discovered that Juanita had allegedly executed a

ISSUE: WON the action to annul title has prescribed.

notarized
Property

HELD: NO.

[4]

Affidavit

of

Transfer

of

Real

(Affidavit) in favor of Ricardo on 4 June

Having possession of the subject lot,

1966 making him the sole owner of the land. The

petitioners right to the reconveyance thereof, and

records do not show that the land was registered

the

under the Torrens system.

annulment

of

the

covering

title,

has

not

prescribed or is not time-barred. This is so for an

action for annulment of title or reconveyance based

On 26 October 2001, petitioners filed an

on fraud is imprescriptible where the suitor is in

action with the RTC for recovery of ownership,

possession of the property subject of the acts, [36] the

possession,

action partaking as it does of a suit for quieting of

sought to declare void the sale of the land by

title which is imprescriptible.

[37]

Such is the case in

partition

and

damages. Petitioners

Ricardos daughters, Josephine Bahia and Virginia

this instance. Petitioners have possession of subject

Bahia-Abas,

lots as owners having purchased the same from

(Dominador). The sale was made during the lifetime

Gabriel, Sr. subject only to the full payment of the

of Ricardo.

agreed price.

to

respondent

Dominador

Magdua

The RTC dismissed the case on the ground of

FACTS: The basis of the complaint against the

prescription; that the case was filed only in 2001 or

defendant corporation is a telegram sent through its

more than 30 years since the Affidavit was executed

Manila Office to the offended party, Loreto Dionela,

in 1966. The RTC explained that while the right of

reading as follows:

an heir to his inheritance is imprescriptible, yet

SA IYO WALANG PAKINABANG DUMATING KA DIYAN-

when one of the co-heirs appropriates the property

WALA-KANG PADALA DITO KAHIT BULBUL MO

as his own to the exclusion of all other heirs, then

Plaintiff-respondent

prescription can set in.

(libelous) words on the telegram sent to him not only

ISSUE: WON the action for partition has prescribed.

wounded his feelings but also caused him undue

HELD: NO. Reckoning date should start from 1998,

embarrassment and affected adversely his business

when Ricardo repudiated co-ownership against co-

as well because other people have come to know of

heirs in accordance with Art. 494 of the Civil Code.

said defamatory words.

alleges

that

the

defamatory

Ricardo and petitioners are co-heirs or co-owners of

Defendant corporation as a defense, alleges that the

the land. Co-heirs or co-owners cannot acquire by

additional words in Tagalog was a private joke

acquisitive prescription the share of the other co-

between the sending and receiving operators and

heirs or co-owners absent a clear repudiation of the

that they were not addressed to or intended for

co-ownership

plaintiff

Since possession of co-owners is like that of a

trustee, in order that a co-owners possession may be

ISSUE: WON the employer is directly and primarily

deemed adverse to the cestui que trust or other co-

liable to the civil liability arising from the criminal

owners, the following requisites must concur: (1) that

act of its employee.

he has performed unequivocal acts of repudiation

amounting to an ouster of the cestui que trust or

HELD: Yes.

other co-owners, (2) that such positive acts of

The action for damages was filed in the lower court

repudiation

to

directly against respondent corporation not as an

(3)

employer subsidiarily liable under the provisions of

and

Article 1161 of the New Civil Code in relation to Art.

have

been

made

known

the cestui que trust or other co-owners, and

that

the

evidence

thereon

must

be

clear

convincing

103 of the Revised Penal Code. The cause of action

In the present case, the prescriptive period began to

of the private respondent is based on Arts. 19 and 20

run only from 1998, the date petitioners received

of the New Civil Code (supra). As well as on

notice of Ricardos repudiation of their claims to the

respondent's breach of contract thru the negligence

land. Since petitioners filed an action for recovery

of its own employees.

of ownership and possession, partition and damages

Petitioner is a domestic corporation engaged in the

with the RTC on 26 October 2001, only a mere three

business of receiving and transmitting messages.

years had lapsed. This three-year period falls short

Everytime a person transmits a message through the

of the 10-year or 30-year acquisitive prescription

facilities of the petitioner, a contract is entered into.

period required by law in order to be entitled to

There is no question that in the case at bar, libelous

claim

matters were included in the message transmitted,

legal

ownership

over

the

land.

Thus,

Dominador cannot invoke acquisitive prescription.

without the consent or knowledge of the sender.

There is a clear case of breach of contract by the
petitioner in adding extraneous and libelous matters
in the message sent to the private respondent. As a

OBLIGATIONS CASES

corporation, the petitioner can act only through its

employees. Hence the acts of its employees in
receiving and transmitting messages are the acts of

1. RCPI vs CA and Loreto Dionela

the petitioner.

Since negligence may be hard to substantiate in

This fraud or dolo which is present or employed at

some cases, we may apply the doctrine of RES IPSA

the time of birth or perfection of the contract may

LOQUITUR

either be dolo causante or dolo incidente

(the

thing

speaks

for

itself),

by

considering the presence of facts or circumstances

surrounding the injury.

Dolo Causante or Causal Fraud

Referred to in Art 1338, are those deceptions or
misrepresentations of a serious character employed

2. GERALDEZ VS CA and Kenstar Travel and Tours

by one party and without which the other party

would not have entered into the contract. Dolo

Facts: Petitioner opt a 22-day Europe tour travel

causante determines or is the essential cause of the

package offered by Respondent Corporation. The tour

consent.

did not end up as expected by herein petitioner, it

indemnification of damages

did not as represented in the brochure: no European

tour manager, hotels were not 1st class and the

Dolo Incidente or Incidental Fraud

Filipino tour guide who is supposed to accompany

Referred to in Art. 1344, are those which are not

them is a 1st timer. Petitioner then filed a breach of

serious in character and without which the other

contract

for

party still would have entered into the contract.

constituting

Dolo incidente refers only to some particular or

against

committing

acts

Respondent
of

Corporation

representations

fraud in contracting the obligation.

Effect: nullity of the contract and the

accident of the obligation. Effect: obliges person

employing it to pay damages

RTC

rendered

judgment

ordering

Respondent

Corporation to pay petitioner 500,000 as moral

In either case, whether Kenstar has committed dolo

damages, 200,000 as nominal damages, 300,000 as

causante or dolo incidente, it is indubitably liable for

exemplary damages and 50,000 as litigation and

damages

attorneys fees (all in pesos).

damages deleted.

both

moral

and

exemplary.

Nominal

On appeal, award for moral and exemplary damages

were deleted and a reduction of nominal damages to

3. SPS. CULABA VS CA and San Mig Corp.

40,000 pesos, this on account that the Respondent

has substantially complied with the prestation and

FACTS:

no malice or bad faith is imputable as a

distribution of San Miguel Corporations (SMC) beer

consequence .

products. SMC sold beer products on credit to the

The

spouses

engaged

in

the

sale

and

Culaba spouses. Thereafter, the Culaba spouses made

Issue: Whether or not private respondent acted in

a partial payment, leaving an unpaid balance.

bad faith or with gross negligence in discharging its

they failed to pay despite repeated demands, SMC

obligation under contract.

filed an action for collection of a sum of money

As

against them .
Held:

Yes.On

the

considerations,

The defendant-spouses denied any liability, claiming

respondent court erred in deleting the award for

that they had already paid the plaintiff in full on four

moral and exemplary damages which may be awarded

separate occasions. To substantiate this claim, the

in breaches of contract where fraud is evident.

defendants presented four (4) Temporary Charge

Private

Sales (TCS) Liquidation Receipts.

respondent

foregoing

faulted

with

fraud

in

the

inducement,

According to the trial court, it was unusual that

which is employed by a party to a contract in

defendant Francisco Culaba forgot the name of the

securing the consent of the other.

collector to whom he made the payments and that he

did not require the said collector to print his name
on the receipts.

According to the petitioners, receiving receipts from

4. SANTOS VENTURA HOCORMA FOUNDATION, INC.

the

VS ERNESTO SANTOS & RIVERLAND, INC.

private

respondents

agents

instead

of

its

salesmen was a usual occurrence, as they had been

G.R. No. 1530004

operating the store since 1979.

November 5, 2004

ISSUE: WoN petitioner is liable to pay again.

FACTS: Subject of the present petition for review on

certiorari is the Decision, dated January 30, 2002, as
well as the April 12, 2002, Resolution of the Court of

HELD: Yes, payment must be made to true creditor

Appeals, The appellate court reversed the Decision,

not on impostor; they were negligent.

dated October 4, 1996, of the Regional Trial Court of

Payment

is

an

Makati City, and likewise denied petitioner's Motion

obligation.Article 1240 of the Civil Code provides

for Reconsideration. On October 26, 1990, the

that payment shall be made to the person in whose

parties executed a Compromise Agreement which

favor the obligation has been constituted, or his

amicably ended all their pending litigations. The

successor-in-interest, or any person authorized to

pertinent portions of the Agreement, include the

receive

following:

it.

In

mode

this

case,

of

extinguishing

the

payments

were

(1)

Defendant

Foundation

shall

pay

purportedly made to a supervisor of the private

Plaintiff Santos P14.5 Million on (a) P1.5 Million

respondent, who was clad in an SMC uniform and

immediately upon the execution of this agreement

drove an SMC van. He appeared to be authorized to

and (b) The balance of P13 Million shall be paid,

accept payments as he showed a list of customers

whether in one lump sum or in installments, at the

accountabilities and even issued SMC liquidation

discretion of the Foundation, within a period of not

receipts which looked genuine. Unfortunately for

more than two years from the execution of this

petitioner Francisco Culaba, he did not ascertain the

agreement; (2) Immediately upon the execution of

identity and authority of the said supervisor, nor did

this agreement (and [the] receipt of the P1.5 Million),

he ask to be shown any identification to prove that

plaintiff

the latter was, indeed, an SMC supervisor. The

prejudice of Civil Cases; (3) Failure of compliance of

petitioners relied solely on the mans representation

any of the foregoing terms and conditions by either

that he was collecting payments for SMC. Thus, the

or both parties to this agreement shall ipso facto and

payments the petitioners claimed they made were

ipso jure automatically entitle the aggrieved party to

not the payments that discharged their obligation to

a writ of execution for the enforcement of this

the private respondent.

agreement.

Santos

shall

cause

the

dismissal

with

Negligence is the omission to do something which a

reasonable man, guided by those considerations

In compliance with the Compromise Agreement,

which ordinarily regulate the conduct of human

respondent Santos moved for the dismissal of the

affairs, would do, or the doing of something, which a

aforesaid civil cases. He also caused the lifting of the

prudent and reasonable man would not do. In the

notices

case at bar, the most prudent thing the petitioners

involved. For its part, petitioner SVHFI, paid P1.5

should have done was to ascertain the identity and

million to respondent Santos, leaving a balance of

authority

P13 million.

of

the

person

who

collected

their

of

lis

pendens

on

the

real

properties

payments. Failing this, the petitioners cannot claim

that they acted in good faith when they made such

On

October

28,

1992,

respondent

Santos

sent

payments. Their claim therefor is negated by their

another letter to petitioner inquiring when it would

negligence, and they are bound by its consequences.

pay the balance of P13 million. There was no

Being negligent in this regard, the petitioners cannot

response from petitioner. Consequently, respondent

seek relief on the basis of a supposed agency.

Santos applied with the Regional Trial Court of

Makati City, for the issuance of a writ of execution of

its compromise judgment dated September 30, 1991.

The only issue to be resolved is whether the

The RTC granted the writ.

respondents are entitled to legal interest.

Petitioner, however, filed numerous motions to block

The appellate court reversed the ruling of the trial

the enforcement of the said writ. The challenge of

court: WHEREFORE, finding merit in the appeal, the

the execution of the aforesaid compromise judgment

appealed

even reached the Supreme Court. All these efforts,

judgment is hereby rendered ordering appellee SVHFI

however, were futile.

to pay appellants Santos and Riverland, Inc.: (1) legal

Decision

is

hereby

REVERSED

and

interest on the principal amount of P13 million at

On November 22, 1994, petitioner's real properties

the rate of 12% per annum from the date of demand

located in Mabalacat, Pampanga were auctioned. In

on October 28, 1992 up to the date of actual

the said auction, Riverland, Inc. was the highest

payment of the whole obligation; and (2) P20,000 as

bidder for P12 million and it was issued a Certificate

attorney's fees and costs of suit. SO ORDERED.

of Sale covering the real properties subject of the

Delay

auction sale. Subsequently, another auction sale was

held on February 8, 1995, for the sale of real

Delay as used in this article is synonymous to default

properties of petitioner in Bacolod City. Again,

or mora which means delay in the fulfillment of

Riverland,

The

obligations. It is the non-fulfillment of the obligation

properties

with respect to time. In the case at bar, the

provided for the right of redemption within one year

obligation was already due and demandable after the

from the date of registration of the said properties.

lapse of the two-year period from the execution of

On June 2, 1995, Santos and Riverland Inc. filed a

the contract. The two-year period ended on October

Complaint

26, 1992. When the respondents gave a demand

Certificates

alleging

Inc.
of

for

that

was
Sale

the

highest

issued

Declaratory
there

was

for

Relief

delay

bidder.

both

on

and
the

Damages
part

of

petitioner in paying the balance of P13 million.

letter on October 28, 1992, to the petitioner, the

obligation

was

already

due

and

demandable.

Furthermore, the obligation is liquidated because the

Issues: a)W/N the CA committed reversible error

debtor knows precisely how much he is to pay and

when it awarded legal interest in favor of the

when he is to pay it.

respondents notwithstanding the fact that neither in

The petition lacks merit

the compromise agreement nor in the compromise of

In the case at bar, the Compromise Agreement was

judgment by the judge provides for payment of

entered into by the parties on October 26, 1990. It

interest to the respondent?

was judicially approved on September 30, 1991.

b)W/N the CA erred in awarding legal interest to the

Applying existing jurisprudence, the compromise

respondents although the obligation of the petitioner

agreement as a consensual contract became binding

to the respondent is to pay a sum of money that had

between the parties upon its execution and not upon

been converted into an obligation to pay in kind?

its court approval. From the time a compromise is

c)W/N

demanding

validly entered into, it becomes the source of the

payment of interest by reason of the waiver provision

rights and obligations of the parties thereto. The

in the compromise agreement, which became the law

purpose of the compromise is precisely to replace

among the parties.

and terminate controverted claims.

Held:On October 4, 1996, the trial court rendered a

As to the remaining P13 million, the terms and

Decision dismissing the respondents' complaint and

conditions of the compromise agreement are clear

ordering them to pay attorney's fees and exemplary

and unambiguous. It provides that the balance of P13

damages to petitioner. Respondents then appealed to

Million shall be paid, whether in one lump sum or in

the Court of Appeals.

installments, at the discretion of the Foundation,

respondents

are

barred

from

within a period of not more than two (2) years from

the execution of this agreement.

2176 of the Civil Code; or (b) where the injured party

WHEREFORE, the petition is DENIED for lack of

is granted a right to file an action independent and

merit. The Decision dated January 30, 2002 of the

distinct from the criminal proceedings. While the

Court of Appeals and its April 12, 2002 Resolution in

cause

CA-G.R. CV No. 55122 are AFFIRMED. Costs against

prescribed, petitioners can still pursue the remaining

petitioner. SO ORDERED

avenue opened for them by their reservation, i.e., the

of

action

ex

quasi

delicto

had

already

surviving cause of action ex delicto. This is so

because the prescription of the action ex quasi

5. Santos vs. Pizarro; 465 SCRA 232

delicto does not operate as a bar to an action to

FACTS: In April 1994, Viron Transit driver Sibayan

enforce

the

civil

was charged with reckless imprudence resulting to

especially as the latter action had been expressly

multiple homicide and multiple physical injuries for

reserved. We held that the dismissal of the action

which Sibayan was eventually convicted in December

based on culpa aquiliana is not a bar to the

1998. As there was a reservation to file a separate

enforcement

civil action, no pronouncement of civil liability was

employer. Once there is a conviction for a felony,

made by the MCTC. In October 2000 Santos filed a

final in character, the employer becomes subsidiarily

complaint for damages against Sibayan and Rondaris,

liable if the commission of the crime was in

the president and chairman of VironTransit. Viron

discharge of the duties of the employees. This is so

Transit moved for the dismissal of the complaint

because

citing, among others,

prescription alleging that

controlling force to obviate the possibility of the

actions based on quasi delict prescribe in 4 years

aggrieved party being deprived of indemnity even

from the accrual of the cause of action.

after the rendition of a final judgment convicting the

of

liability

the

Article

arising

subsidiary

103

of

the

from

liability

RPC

crime

of

operates

the

the

employee.
HELD: Petitioners expressly made a reservation of
their right to file a separate civil action as a result of

6. L AND L FOOTWEAR; 468 SCRA 393

the crime committed by Sibayan. On account of this

reservation

the

MCTC

did

not

make

any

FACTS: "PCI Leasing and L & L Lawrence entered into

pronouncement as to the latters civil liability.

several

LOAN

contracts

embodied

in

several

Although there were allegations of negligence on the

Memoranda of Agreement and Disclosure Statements

part of Sibayan and Viron Transit, such does not

from 1994 up to 1997 involving various shoe making

necessarily mean that petitioners were pursuing a

equipment. x x x.

cause of action based on quasi delict, considering

that at the time of the filing of the complaint, the

"As a condition for the loan extended by PCI Leasing

cause

already

to L & L, the latter was also made to enter into

prescribed. Besides, in cases of negligence, the

several LEASE CONTRACTS embodied in numerous

offended party has the choice between an action to

Lease Schedules whereby the imported shoe making

enforce

equipment

of

action

liability

ex

quasi

arising

delicto

from

crime

had

under

the

would

be

considered

as

the

leased

Revised Penal Code and an action for quasi delict

property. Pursuant to the agreement between the

under the Civil Code. An act or omission causing

parties, L & L gave PCI Leasing a THIRTY (30%)

damage to another may give rise to 2 separate civil

PERCENT GUARANTY DEPOSIT for ALL the leased

liabilities on the part of the offender, i.e. (1) civil

contracts

liability ex delicto, under Article 100 of the RPC; and

US$359,525.90. Furthermore, PCI Leasing received

(2)independent civil liabilities (a) not arising from an

from L & L a total of US$1,164,380.42 as rental

act or omission complained of as a felony, e.g., culpa

payments under the numerous Lease Schedules.

contractual or obligations arising from law under

"Sae Chae Lee, the former President of L & L, was

Article 31 of the Civil Code, intentional torts under

made to sign a x x x Continuing Guaranty of Lease

Articles 32 and 34, and culpa aquiliana under Article

Obligations dated 16 May 1994 securing the payment

between

them

in

the

total

sum

of

of the obligation of L & L under [a] Lease Agreement

enter into a contract known as a financial leasing

dated 13 May 1994.

agreement.

"L & L, by reason of the economic crisis that hit the

In such an agreement, "a finance company purchases

country

the

on behalf of or at the instance of the lessee the

contracts with its buyers abroad and its labor

equipment which the latter is interested to buy but

problems, failed to meet its obligations on time. For

has insufficient funds for the purpose. The finance

this reason, L & L tried its best to negotiate with the

company therefore leases the equipment to the

PCI Leasing for a possible amicable settlement

lessee in consideration of the periodic payment by

between the parties.

the lessee of a fixed amount of rental." Recognized

coupled

with

the

cancellation

of

by this Court as being fairly common transactions in

"In the course of the negotiation between the

the commercial world, agreements such as these

parties, PCI Leasing sent to L & L a letter dated 05

have been accepted as genuine and legitimate. In

May 1998, stating that: Demand is hereby made on

Cebu Contractors Consortium v. CA, the Court

you to pay in full the outstanding balance in the

elucidated on the nature of a financial leasing

amount

agreement as follows:

of

$826,003.27

plus

penalty

charges

amounting to $6,329.05 on or before May 12, 1998

or to surrender to us the various equipments.

"A financing lease may be seen to be a contract sui

generis, possessing some but not necessarily all the

PCI Leasing filed a complaint for recovery of sum of

elements of an ordinary or civil law lease. Thus, legal

money and/or personal property with prayer for the

title to the equipment leased is lodged in the

issuance of a writ of replevin against L & L Lawrence

financial lessor. The financial lessee is entitled to the

Footwear, Inc., Sae Chae Lee and a certain John Doe

possession and use of the leased equipment. At the

with the Regional Trial Court of Quezon City.

same time, the financial lessee is obligated to make

periodic payments denominated as lease rentals,

The RTC rendered a decision against the petitioner.

which enable the financial lessor to recover the

CA affirmed the trial court decision.

purchase price of the equipment which had been paid

to the supplier thereof."

ISSUE:Whether

corporation

can

be

held

in

ESTOPPEL by reason of the representation of its

officer

7. LALICON VS. NHA; JULY 31, 2011

HELD: No Estoppel

FACTS: On November 25, 1980 the National Housing

Petitioners emphasize that the account officer of PCI

Authority (NHA) executed a Deed of Sale with

Leasing testified that respondent had admittedly

Mortgage over a Quezon City lot in favor of the

deducted the proceeds of the sale of the leased

spouses Isidro and Flaviana Alfaro. It was provided in

properties from the outstanding obligations. They

the deed of sale that the Alfaros could sell the land

argue that, by its admission, respondent recognized

within five years from the date of its release from

that the properties were in fact owned by L & L

mortgage without NHAs prior written consent. Nine

Lawrence Corporation. In turn, this fact allegedly

years later the Alfaros sold the land to their son,

proves that the Contract between the parties was

Victor Alfaro, who had a common-law wife, Cecilia,

one of loan, not of lease.

who had the means, had a house built on the

property and paid for the amortizations. On March

This argument is patently without merit. No such

21, 1991, the NHA released the mortgage. After four

inference can be made from the statements of the

and a half years since the mortgaged was released

witness. On the contrary, her testimony reinforced

Victor registered the sale of land in his favor,

the fact that the true intent of the parties was to

resulting in the cancellation of his parents title. On

Since

mutual

restitution

is

required

in

cases

December 14, 1995

involving rescission under Article 1191, the NHA

must return the full amount of the amortizations it

Victor mortgaged the land to Marcela Lao Chua, Rosa

received for the property, plus the value of the

Sy,

on

improvements introduced on the same, with 6%

February14, 1997 Victor sold the property to Chua,

interest per annum from the time of the finality of

one of the mortgagees, resulting in the cancellation

this judgment. Hence, the Court affirms the Decision

of his TCT140646 and the issuance of TCT N-172342

of the Court of Appeals.

Amparo

Ong,

and

Ida

See.

Afterward,

in Chuas name.
Moreover, a year later the NHA instituted a case

8. GMC VS. SPS. RAMOS; JULY 20, 2011

before the Quezon City Regional Trial Court (RTC) for

the annulment of the NHAs 1980 sale of the land to

FACTS: General Milling Corporation (GMC) entered

their son Victor and the subsequent sale of Victor to

into a Growers Contract with spouses Librado and

Chua was a violation of NHA rules and regulations.

Remedios

The RTC ruled that although the Alfaros clearly

contract, GMC was to supply broiler chickens for the

violated the five-year prohibition, the NHA could no

spouses to raise on their land. To guarantee full

longer rescind its sale to them since its right to do

compliance, the Growers Contract was accompanied

so had already prescribed, applying Article 1389 of

by a Deed of Real Estate Mortgage over a piece of real

the New Civil Code. While the CA declared TCT

property upon which their conjugal home was built.

277321 in the name of the Alfaros and all subsequent

The spouses further agreed to put up a surety bond

titles and deeds of sale null and void.

at the rate of PhP 20,000 per 1,000 chicks delivered

Ramos

(Spouses

Ramos).

Under

the

by GMC. The Deed of Real Estate Mortgage extended

ISSUES:* Whether or not the CA erred in holding that

to Spouses Ramos a maximum credit line of PhP

the Alfaros violated their contract with the NHA;

215,000 payable within an indefinite period with an

*Whether or not the NHAs right to rescind has

interest of twelve percent (12%) per annum.

prescribed; and

Spouses Ramos eventually were unable to settle their

*Whether or not the subsequent buyers of the land

account with GMC. They alleged that they suffered

acted in good faith and their rights, therefore,

business losses because of the negligence of GMC and

cannot be affected by the rescission.

its violation of the Growers Contract.

On March 31, 1997, the counsel for GMC notified

HELD: The CA correctly ruled that such violation

Spouses Ramos that GMC would institute foreclosure

comes under Article 1191 where the applicable

proceedings on their mortgaged property.

prescriptive period is that provided in Article 1144

which is 10 years from the time the right of action

On

May

7,

1997,

GMC

filed

Petition

for

accrues. It is clearly said that the Alfaros violated

Extrajudicial Foreclosure of Mortgage. On June 10,

the five-year restriction, thus entitling the NHA to

1997, the property subject of the foreclosure was

rescind the contract. The NHAs right of action

subsequently sold by public auction to GMC after the

accrued on February 18, 1992 when it learned of the

required posting and publication.

Alfaros forbidden sale of the property to Victor.

Since the NHA filed its action for annulment of sale

Spouses Ramos filed a Complaint for Annulment

on April 10, 1998, it did so well within the 10-year

and/or Declaration of Nullity of the Extrajudicial

prescriptive period. The Court also agrees with the

Foreclosure Sale with Damages. They contended that

CA that the Lalicons and Chua were not buyers in

the extrajudicial foreclosure sale on June 10, 1997

good faith. As regards Chua, she and a few others

was null and void, since there was no compliance

with her took the property by way of mortgage from

with the requirements of posting and publication of

Victor in 1995, well within the prohibited period.

notices under Act No. 3135, as amended. Librado

Ramos

alleged

that,

when

the

property

was

foreclosed, GMC did not notify him at all of the

to serve the interests of a justice or to avoid

dispensing piecemeal justice;

foreclosure.
(d) Matters not specifically assigned as errors on
In

its

Answer,

repeatedly

appeal but raised in the trial court and are matters of

reminded Spouses Ramos of their liabilities under

record having some bearing on the issue submitted

the

which the parties failed to raise or which the lower

Growers

GMC

argued

Contract.

It

that

argued

it

that

it

was

compelled to foreclose the mortgage because of

court ignored;

Spouses Ramos' failure to pay their obligation. GMC

insisted that it had observed all the requirements of

(e) Matters not assigned as errors on appeal but

posting and publication of notices under Act No.

closely related to an error assigned;

3135.
(f) Matters not assigned as errors on appeal but upon
RTC rendered a decision in favor of the Spouses

which the determination of a question properly

Ramos. The CA sustained the RTC decision.

assigned, is dependent.

ISSUES: A.

WHETHER [THE CA] MAY CONSIDER

Paragraph (c) above applies to the instant case, for

ISSUES NOT ALLEGED AND DISCUSSED IN THE

there would be a just and complete resolution of the

LOWER COURT AND LIKEWISE NOT RAISED BY THE

appeal if there is a ruling on whether the Spouses

PARTIES ON APPEAL, THEREFORE HAD DECIDED

Ramos were actually in default of their obligation to

THE

GMC.

CASE

NOT

IN

ACCORD

WITH

LAW

AND

APPLICABLE DECISIONS OF THE SUPREME COURT.

B.

WHETHER [THE CA] ERRED IN RULING THAT

PETITIONER

GMC

MADE

NO

DEMAND

TO

Was there sufficient demand?

Wedisagree.

RESPONDENT SPOUSES FOR THE FULL PAYMENT

There are three requisites necessary for a finding of

OF THEIR OBLIGATION CONSIDERING THAT THE

default. First, the obligation is demandable and

LETTER DATED MARCH 31, 1997 OF PETITIONER

liquidated; second, the debtor delays performance;

GMC TO RESPONDENT SPOUSES IS TANTAMOUNT

and third, the creditor judicially or extrajudicially

TO A FINAL DEMAND TO PAY, THEREFORE IT

requires the debtor's performance.

DEPARTED

FROM

THE

ACCEPTED

AND

USUAL

COURSE OF JUDICIAL PROCEEDINGS.

According to the CA, GMC did not make a demand on

Spouses Ramos but merely requested them to go to

HELD: In Diamonon v. Department of Labor and

GMC's office to discuss the settlement of their

Employment, [20] We explained that an appellate

account. In spite of the lack of demand made on the

court has a broad discretionary power in waiving the

spouses,

lack

foreclosure

of

assignment

of

errors

in

the

following

however,

GMC

proceedings.

proceeded
Neither

was

with

the

there

any

instances:

provision in the Deed of Real Estate Mortgage

(a) Grounds not assigned as errors but affecting the

allowing

jurisdiction of the court over the subject matter;

mortgage without need of demand.

(b) Matters not assigned as errors on appeal but are

Indeed, Article 1169 of the Civil Code on delay

evidently

requires the following:

plain

or

clerical

errors

within

contemplation of law;

GMC

to

extrajudicially

foreclose

the

Those obliged to deliver or to do something incur in

delay

from

the

time

the

obligee

judicially

or

(c) Matters not assigned as errors on appeal but

extrajudicially demands from them the fulfilment of

consideration of which is necessary in arriving at a

their obligation.

just decision and complete resolution of the case or

However, the demand by the creditor shall not be

FACTS:

FR

Cement

Corporation

issued

several

necessary in order that delay may exist:

withdrawal authorities for the account of cement

dealers and traders, Fil-Cement and Tiger bilt. Each

(1) When the obligation or the law expressly so

withdrawal authority contained provision that it is

declares; x x x

valid for six months from its date of issuance, unless

revoked by FRCC Marketing Department .Filcement

As the contract in the instant case carries no such

and Tigerbilt sold their withdrawal authorities to Co.

provision on demand not being necessary for delay to

On

exist, We

agree with the appellate court that GMC

authorities to Lim. Using the withdrawal authorities

should have first made a demand on the spouses

Lim withdrew cement bags from FRCC on a staggered

before

basis. Sometime in April 1999, FRCC did not allow

proceeding

to

foreclose

the

real

estate

mortgage.

February

Co

then

sold

these

withdrawal

Lim to withdraw the remaining bags covered by the

withdrawal authorities. Lim clarified the matter with

Development Bank of the Philippines v. Licuanan

Co and administrative manager of Fil-Cement, who

finds application to the instant case:

explained

The issue of whether demand was made before the

increase and would only release the goods once Lim

foreclosure was effected is essential. If demand was

pays the price difference or agrees to receive lesser

made and duly received by the respondents and the

quantity of cement. Lim filed case of Estafa through

latter still did not pay, then they were already in

Misappropriation or Conversion against Co. The

default and foreclosure was proper.

However, if

Regional Trial Court acquitted Co. After the trial on

demand was not made, then the loans had not yet

the civil aspect of the criminal case the court also

become due and demandable. This

found

meant that

that

Co

not

the

plant

civilly

liable.

sought

premature.

denied. On March 14, 2005 Lim filed her notice of

Foreclosure is valid only when the debtor is in

appeal on the civil aspect of the criminal case. On

default in the payment of his obligation.

April 19, 2005 Lim filed a complaint for specific

was

trial

the

petitioner

regional

price

reconsideration

by

the

Lim

respondents had not defaulted in their payments and

foreclosure

which

implemented

Court

performance and damages before the RTC.

ISSUE: Whether or not there is no forum shopping
for a private complainant to pursue a civil complaint
9. LILY LIM VS. KOU CO PING; AUGUST 23, 2012

for

specific

performance

and

damages

while

appealing the judgment on the civil aspect of a

Principle: A single act or omission that cause damage

criminal case for estafa?

to an offended party may gave rise to two separate

civil liabilities on the part of the offender (1)civil

HELD: A single act or omission that cause damage to

liability ex delicto, that is, civil liability arising from

an offended party may gave rise to two separate civil

the criminal offense under Article 100 of the Revised

liabilities on the part of the offender (1)civil liability

Penal Code and (2) independent civil liability, that is

ex delicto, that is, civil liability arising from the

civil liability that may be pursued independently of

criminal offense under Article 100 of the Revised

the criminal proceedings. The independent civil

Penal Code and (2) independent civil liability, that is

liability may be based on an obligation not arising

civil liability that may be pursued independently of

from the act or omission complained of as felony. It

the criminal proceedings. The independent civil

may also be based on an act or omission that may

liability may be based on an obligation not arising

constitute

treated

from the act or omission complained of as felony. It

independently from the criminal action by specific

may also be based on an act or omission that may

provision of the Article 33 of the Civil Code.

constitute

felony

but,

nevertheless,

felony

but,

nevertheless,

treated

independently from the criminal action by specific

provision of the Article 33 of the Civil Code. Because

of which were left blank and which showed that they

of the distinct and independent nature of the two

would still be obliged to pay on installment in 12

kinds of civil liabilities, jurisprudence holds that the

months for the car even if checks in full payment

offended

civil

thereof in 90 days were to be issued, the two replied

liabilities simultaneously or cumulatively, without

that it was only for formality, for in case the checks

offending

were not cleared, the documents would take effect,

party
the

may

pursue

rules

on

two

forum

types

of

shopping,

litis

pendentia or res judicata. The criminal cases of

otherwise they would be cancelled.

estafa are based on culpa criminal while the civil

action

for

collection

is

anchored

on

culpa

The Aguilars did sign the promissory note

contractual. The first action is clearly a civil action

binding them to be jointly and severally liable to

ex delicto, it having been instituted together with

World Cars.

criminal action. On the other hand, the second

By Josephines claim, at the time she and her

action, judging by the allegations contained in the

husband signed the promissory note, its date, May

complaint, is a civil action arising from contractual

30,

obligation and fortuitous conduct. The Civil Case

amortization which was agreed to be every 3rd day of

involves only the obligation arising from contract

each month starting July 1992 were not reflected

and from tort, whereas the appeal in the estafa case

therein.

1992,

and

the

due

date

of

the

monthly

involves only the civil obligations of Co arising from

the offense charged.

The Aguilars did execute too a chattel

mortgage in favor of World Cars which embodied a

16. AGUILAR VS. CITY TRUST FINANCE CORP.

deed of assignment in favor of Citytrust Finance

Corporation (Citytrust).

the date May 30, 1992

Facts: Sometime in May 1992, Josephine Aguilar

appearing in the chattel mortgage cum deed of

(Josephine) canvassed, via telephone, prices of cars

assignment was not yet filled up at the time she and

from different car dealers listed in the yellow pages

her husband signed it.

of the Philippine Long Distance Telephone directory.

After the Aguilars signing of the documents,
On May 23, 1992, World Cars, Inc. (World Cars)

Perez asked Josephine to make the check payments

sent its representative Joselito Perez (Perez) and

payable to him, prompting her to call up Perezs

Vangie Tayag (Vangie) to the Aguilar residence in New

boss, a certain Lily Paloma, to inquire whether Perez

Manila, Quezon City bringing with them calling

could collect payment to which Lily replied in the

cards, brochures and price list for different car

affirmative, the latter advising her to just secure a

models, among other things. The two representatives

receipt.

discussed

with

Josephine

the

advantages

and

disadvantages of the different models, their prices

and terms of payment.

Josephine thus issued four Far East Bank and

Trust Company (FEBTC) checks. Three checks were
made payable to Perez. The other one was made

1992

Josephine having decided to purchase a white

payable to World Cars represented payment of the

Nissan California

premium on the car insurance.

at

the

agreed

price

of

P370,000.00, payable in 90 days, Perez and Vangie

repaired to the Aguilar residence on May 30, 1992,

In mid-June of 1992, Perez and Vangie went back to

bringing with them a white 1992 Nissan California

the Aguilar residence requesting that the two checks

and the documents bearing on the sale.

issued to Perez be cancelled and that two be issued

in replacement thereof, to be made payable to Sunny

As(the Aguilars) were being made to sign by

Motors, which appears to be a sales outlet of World

the two representatives a promissory note, chattel

Cars, for processing fee of the documents, and the

mortgage, disclosures and other documents the dates

other to be again made payable to Perez. Josephine

scheme, her account would be referred to its legal

obliged and accordingly issued the said checks.

counsel for collection.

No official receipt for the checks having been

Josephine again called Ana Marie inquiring

issued to Josephine, she warned Perez that if she did

what was going on and the latter replied that no

not get any by the end of July 1992, she would

payment for the car had been received.

request for stop payment of the last check she issued

also called up World Cars and spoke to its Vice-

in his name.

President, a certain Domondon, who informed her

Josephine

that based on company records, the last payment

The clearing of one of the checks having been

had not been received.

stopped on Josephines advice, Perez repaired to the

Aguilar residence, asking the reason therefor. On

The spouses Aguilar thus filed a complaint for

being informed by Josephine of the reason, Perez

annulment

explained that receipts were in Bulacan where the

against Citytrust and World Cars before the Regional

main office of World Cars is, and he had no time to

Trial Court (RTC) of Quezon City.

go there owing to its distance.

of

chattel

mortgage

plus

damages

Perez then advised

Josephine that if she did not issue another check to

In its Answer, Citytrust disclaimed knowledge

replace the check that was stopped the 12-month

of the alleged prior arrangement and the alleged

installment term of payment under the documents

subsequent payments made by the Aguilars to World

she and her husband signed would take effect.

Cars.

And

it

claimed

that

it

accepted

the

endorsement and assignment of the promissory note

Not wanting to be bound by the 12-month
installment

term,

Josephine

issued

the

and chattel mortgage in good faith, relying on the

check

terms and conditions thereof; and that assuming

payable to Perez who issued her Sunny Motor Sales

that the Aguilars claim were true, World Cars

Provisional Receipt

appeared to have violated the terms and conditions

of the Receivables Financing Agreement (RFA) it

In September 1992, Josephine received a

executed with it

letter dated August 20, 1992 from Ana Marie Caber

(Ana Marie), Account Specialist of Citytrust, advising

In its Answer with Counterclaim, World Cars

her that as of August 20, 1992, her overdue account

claimed that, among other things, it received only

with it in connection with the purchase of the car

the check in the amount of P148,000.00 (Check No.

had amounted to P1,045.39 inclusive of past due

112703 payable to Perez) as downpayment for the

charges.

car; and that the Aguilars defaulted in the payment

of their monthly amortizations to Citytrust, and it
Josephine at once informed Ana Marie that

should not be held accountable for the personal and

she had fully paid the car to which Ana Marie replied

unilateral obligations of the Aguilars to Citytrust.

that maybe not all of the papers have been

RTC found Perez to be an agent of World Cars, hence,

processed yet, hence, she advised Josephine not to

an extension of its personality as far as the sale of

worry about it.

the car to the Aguilars was concerned.

In December 1992, Josephine received another

letter

dated

December

9,

1992

from

The

trial

court

further

found

that

Perez

was

Citytrust

authorized to receive payment for the car, hence, all

advising her that her account had been, as of

payments made to him for the purchase of the car

December 9, 1992, overdue inclusive of unpaid

were payments made to his principal, World Cars;

installments plus accumulated penalty charges; and

and that the Aguilars had no intention to be bound

that if she failed to arrange for another payment

by the promissory note which they signed in favor of

World Cars or its assignee nor by the terms of the

Chattel Mortgage, the conforme in the undated

mortgage

and

Letter (Notice of Assignment) of World Cars and the

executed which were to take effect only in the event

Disclosure Statement of Loan/Credit Transaction

the

having been predicated on the validity of the

nullified, all the checks having been cleared.

checks

other

would

accessory

be

documents

dishonored

were

they

deemed

promissory note.
Since the condition for the instruments to
Moreover, the trial court held that the fact that on

become effective was fulfilled, the obligation on the

May 30, 1992, the same date of the promissory note,

part of the Aguilars to be bound thereby did not arise

Josephine issued three checks to fully cover the

and

purchase price of the car (the fourth represented

thereunder following Art. 1181 of the Civil Code

payment of insurance premium), the last of which

which provides:

World

Cars

did

not

thus

acquire

rights

was still to mature on July 30, 1992, proves that the

Aguilars

signed

the

promissory

note

without

intending to be bound by its terms.

ARTICLE 1181. In conditional

obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired,

In fine, the trial court held that the Aguilars had

shall depend upon the happening of the event which

paid World Cars the full purchase price of the car,

constitutes the condition. (Emphasis supplied)

and Citytrust as the assignee of World Cars had no

right to collect from them the amount stated in the

As no right against the Aguilars was acquired

Chattel Mortgage cum Deed of Assignment which is

by World Cars under the promissory note and chattel

simulated and, therefore, void, following Art. 1346 of

mortgage, it had nothing to assign to Citytrust.

the Civil Code.

Consequently,

Citytrust

cannot

enforce

the

instruments against the Aguilars, for an assignee

On appeal, the appellate court modified that of the

cannot acquire greater rights than those pertaining

trial court.Hence, the present separate petitions of

to the assignor.

the Aguilars and World Cars.

At all events, the Aguilars having fully paid
Held: Clearly, Perez was the agent of World Cars and

the car before they became aware of the assignment

was duly authorized to accept payment for the car.

of the instruments to Citytrust when they received

Josephines testimony that before issuing the checks

notice thereof by Citytrust, they were released of

in

their obligation thereunder.

the

name

of

Perez,

she

verified

from

his

supervisor and the latter confirmed Perez authority

The Civil Code so

provides:

to receive payment remains unrefuted by World Cars.

In fact, World Cars admitted in its Answer with

ARTICLE 1626.

Counterclaim that [w]hat was actually paid [by the

knowledge of the assignment, pays his creditor, shall

The debtor who, before having

Aguilars] and received by [it] was [Josephines] check

be released from the obligation.

in the amount of P148,000.00 as downpayment for

the said car. Parenthetically, as earlier stated, when

While Citytrust cannot enforce the

Josephine spoke to World Cars Vice President

instruments against the Aguilars, since under the

Domondon, the latter informed her that the last

RFA,

payment had not been received. This information of

guaranteed that it has full right and legal authority

Domondon does not jibe with the claim of World Cars

to make the assignment or discounting; that the

that it received only Josephines first check in the

installment papers so discounted by virtue of this

amount of P148,000.00 as downpayment.

agreement, are subsisting, valid, enforceable and in

World

Cars,

its

successors,

and

assigns,

all respects what they purport to be; that the papers

Since the Aguilars payment to Perez is deemed

contain the entire agreement between the customers

payment to World Cars, the promissory note, chattel

and [World Cars]; x x x that it has absolute and good

title to such contracts and the personalties covered

Respondent informed the petitioner that it

thereby and the right to sell and transfer the same in

will no longer renew the Contracts of Lease for the

favor of Citytrust.

three outlets, upon their expiration

Petitioner explained that the mini-embutido
is not a new variety of empanada but had similar

17. FLORENTINO VS. SUPERVALUE

fillings, taste and ingredients as those of pork

empanada; only, its size was reduced in order to

FACTS:Petitioner

is

business

Empanada

name

doing

business

under

make it more affordable to the buyers.

Such explanation notwithstanding, respondent

proprietorship engaged in the retail of empanada

still refused to renew its Contracts of Lease with the

with

petitioner.

in

different

malls

and

the
sole

outlets

Royale,

business

To

the

contrary,

respondent

took

establishments within Metro Manila.

possession of the store space in SM Megamall and

Respondent, on the other hand, is a domestic

confiscated the equipment and personal belongings

corporation engaged in the business of leasing stalls

of the petitioner found therein after the expiration of

and commercial store spaces located inside SM Malls

the lease contract.

found all throughout the country.

An action for Specific Performance, Sum of Money

On 8 March 1999, petitioner and respondent

and Damages was filed by the petitioner against the

executed three Contracts of Lease containing similar

respondent before the RTC of Makati.

terms and conditions over the cart-type stalls at SM

In

North Edsa and SMSouthmall and a store space at SM

respondent made verbal representations that the

Megamall. The term of each contract is for a period

Contracts of Lease will be renewed from time to time

of four months and may be renewed upon agreement

and, through the said representations, the petitioner

of the parties.

was induced to introduce improvements upon the

Upon the expiration of the original Contracts

her

store

Complaint

space

at

petitioner

SM

Megamall

alleged

in

that

the

sum

the

of

of Lease, the parties agreed to renew the same by

P200,000.00, only to find out a year later that the

extending their terms until 31 March 2000.

respondent will no longer renew her lease contracts

Before the expiration of said Contracts of

for all three outlets.

Lease, or on 4 February 2000, petitioner received

Petitioner alleged that the respondent,

two letters from the respondent, both dated 14

without

January

demand, refused to return the security deposits.

2000,

transmitted

through

facsimile

transmissions.

justifiable

cause

and

without

previous

Petitioner claimed that the respondent seized her

In the first letter, petitioner was charged with

equipment and personal belongings found inside the

violating Section 8 of the Contracts of Lease

store space in SM Megamall after the lease contract

Respondent also charged petitioner with selling a

for the said outlet expired and despite repeated

new variety of empanada called mini-embutido and

written demands from the petitioner, respondent

of increasing the price of her merchandise without

continuously refused to return the seized items.

the prior approval of the respondent.

The RTC rendered a Judgment in favor of the

Respondent observed that petitioner was frequently

petitioner and found that the physical takeover by

closing earlier than the usual mall hours, either

the respondent of the leased premises and the

because of non-delivery or delay in the delivery of

seizure

stocks to her outlets, again in violation of the terms

belongings without prior notice were illegal.

of the contract. A stern warning was thus given to

petitioner

to

refrain

from

committing

similar

of

petitioners

equipment

and

personal

Aggrieved, the respondent appealed the

adverse RTC Judgment to the Court of Appeals.

infractions in the future in order to avoid the

The Court of Appeals modified the RTC Judgment

termination of the lease contract.

and found that the respondent was justified in

forfeiting the security deposits and was not liable to

reimburse

the

petitioner

for

the

value

of

the

improvements introduced in the leased premises.

performance and has a double function: (1) to

provide for liquidated damages, and (2) to strengthen

Hence, this instant Petition for Review on

the coercive force of the obligation by the threat of

Certiorari filed by the petitioner assailing the Court

greater responsibility in the event of breach. The

of Appeals Decision.

obligor would then be bound to pay the stipulated

indemnity without the necessity of proof of the

ISSUES:

existence and the measure of damages caused by the

I.

Whether or not the respondent is liable to

return the security deposits to the petitions.

breach. Article 1226 of the Civil Code states:

Art. 1226.

In obligations with a penal clause, the

penalty shall substitute the indemnity for damages

II.

Whether or not the respondent is liable to

reimburse

petitioner

for

the

sum

of

the

payment

of

interests

in

case

of

the

noncompliance, if there is no stipulation to the

improvements she introduced in the leased premises.

contrary. Nevertheless, damages shall be paid if the

Held:

obligor refuses to pay the penalty or is guilty of fraud

I.

the

and

The appellate court, in finding that the

in the fulfillment of the obligation.

respondent is authorized to forfeit the security

deposits, relied on the provisions of Sections 5 and

The penalty may be enforced only when it is

18 of the Contract of Lease, to wit:

demandable in accordance with the provisions of this

Section 5. DEPOSIT. The LESSEE shall make a

Code.

cash deposit in the sum of SIXTY THOUSAND PESOS

As a general rule, courts are not at liberty to

(P60,000.00) equivalent to three (3) months rent as

ignore the freedoms of the parties to agree on such

security for the full and faithful performance to each

terms and conditions as they see fit as long as they

and every term, provision, covenant and condition of

are not contrary to law, morals, good customs, public

this lease and not as a pre-payment of rent.

order or public policy.

Section 18. TERMINATION. Any breach,

equitably

reduce

Nevertheless, courts may

stipulated

penalty

in

the

non-performance or non-observance of the terms and

contracts in two instances: (1) if the principal

conditions herein provided shall constitute default

obligation has been partly or irregularly complied

which shall be sufficient ground to terminate this

with; and (2) even if there has been no compliance if

lease, its extension or renewal. and LESSOR shall

the

forfeit in its favor the deposit tendered without

accordance with Article 1229 of the Civil Code which

prejudice to any such other appropriate action as

clearly provides:

may be legally authorized.

Art. 1229.

penalty

is

iniquitous

or unconscionable

in

The judge shall equitably reduce the

Since it was already established by the trial

penalty when the principal obligation has been partly

court that the petitioner was guilty of committing

or irregularly complied with by the debtor. Even if

several breaches of contract, the Court of Appeals

there has been no performance, the penalty may also

decreed that she cannot therefore rightfully demand

be reduced by the courts if it is iniquitous or

the return of the security deposits for the same are

unconscionable.

deemed forfeited by reason of evident contractual

violations.

In ascertaining whether the penalty is

unconscionable or not, this

It is undisputed that the above-quoted

court set out the

following standard in Ligutan v. Court of Appeals, to

provision found in all Contracts of Lease is in the

wit:

nature of a penal clause to ensure petitioners

The question of whether a penalty is reasonable or

faithful compliance with the terms and conditions of

iniquitous

the said contracts.

objective.

A penal clause is an accessory undertaking to

assume greater liability in case of breach.
attached

to

an

obligation

in

order

to

can

be

partly

subjective

and

partly

Its resolution would depend on such

factor as, but not necessarily confined to, the type,

It is

extent and purpose of the penalty, the nature of the

insure

obligation, the mode of breach and its consequences,

the

supervening

relationship

of

realities,

the

parties,

the

standing

and

only a matter of necessity that a lessee should re-

and

the

the

design its place of business but a business strategy

like,

application of which, by and large, is addressed to

as well.

the sound discretion of the court. xxx.

In ruling that the respondent is liable to

In the instant case, the forfeiture of the entire

reimburse petitioner one half of the amount of

amount of the security deposits was excessive and

improvements made on the leased store space should

unconscionable considering that the gravity of the

it choose to appropriate the same, the RTC relied on

breaches committed by the petitioner is not of such

the provision of Article 1678 of the Civil Code.

degree that the respondent was unduly prejudiced

While it is true that under the above-quoted

thereby. It is but equitable therefore to reduce the

provision of the Civil Code, the lessor is under the

penalty of the petitioner to 50% of the total amount

obligation to pay the lessee one-half of the value of

of security deposits.

the improvements made should the lessor choose to

The forfeiture of the entire sum of P192,000.00 is

appropriate the improvements, Article 1678 however

clearly a usurious and iniquitous penalty for the

should be read together with Article 448 and Article

transgressions committed by the petitioner.

546 of the same statute.

The

respondent is therefore under the obligation to

Thus,

to

be

return the 50% of P192,000.00 to the petitioner.

improvements

II.

As to the liability of the respondent to

petitioner must be considered a builder in good faith.

reimburse the petitioner for one-half of the expenses

Further, Articles 448 and 546 of the Civil Code,

incurred for the improvements on the leased store

which

space at SMMegamall.

improvements and retention of the premises until

allow

entitled
introduced

full

to
on

reimbursement
the

property,

reimbursement

of

for
the

useful

The provisions in the Contract of Lease

reimbursement is made, apply only to a possessor in

mandates that before the petitioner can introduce

good faith, i.e.,one who builds on land with the belief

any improvement on the leased premises, she should

that he is the owner thereof. A builder in good faith

first obtain respondents consent.

In the case at

is one who is unaware of any flaw in his title to the

bar, it was not shown that petitioner previously

land at the time he builds on it. In this case, the

secured the consent of the respondent before she

petitioner cannot claim that she was not aware of

made the improvements on the leased space in SM

any flaw in her title or was under the belief that she

Megamall. It was not even alleged by the petitioner

is the owner of the subject premises for it is a settled

that she obtained such consent or she at least

fact that she is merely a lessee thereof.

attempted to secure the same.

On the other hand,

Since petitioners interest in the store space is

the petitioner asserted that respondent allegedly

merely that of the lessee under the lease contract,

misrepresented to her that it would renew the terms

she cannot therefore be considered a builder in good

of the contracts from time to time after their

faith. Consequently, respondent may appropriate the

expirations, and that the petitioner was so induced

improvements introduced on the leased premises

thereby that she expended the sum of P200,000.00

without any obligation to reimburse the petitioner

for the improvement of the store space leased.

for the sum expended.

Moreover, it is consonant with human

18. Gonzales vs. Lim

experience that lessees, before occupying the leased

premises, especially store spaces located inside malls

19. JEANETTE D. MOLINO VS. SECURITY DINER

and big commercial establishments, would renovate

INTL. CORP.

the

place

and

introduce

improvements

thereon

according to the needs and nature of their business

FACTS:

and in harmony with their trademark designs as part

Corporation (SDIC) operates a credit card system

of

customers.

under the name of Diners Club through which it

Certainly, no inducement or misrepresentation from

extends credit accommodation to its cardholders for

the lessor is necessary for this purpose, for it is not

the purchase of goods and payment of services from

their

marketing

ploy

to

attract

The

Security

Diners

International

its member establishments to be reimbursed later on

upgraded to Diamond (Edition) petitioner consented

by the cardholder upon proper billing.

or agreed to act as surety for Danilo.

There are

two types of credit cards issued: one, the Regular

The trial court went on further to state that

(Local)

to

petitioner was not liable for any amount, not even for

purchase goods and pay services from member

P10,000.00 which is the maximum credit limit for

establishments

exceeding

Regular Diners Club Cards, since at the time of the

P10,000.00; and two, the Diamond (Edition) Card

upgrading Danilo had no outstanding credit card

which entitles the cardholder to purchase goods and

debts.[6]

pay

in

The Court of Appeals found contrary to the lower

unlimited amounts. One of the requirements for the

court, and declared that the Surety Undertaking

issuance of either of these cards is that an applicant

signed by petitioner when Danilo Alto first applied

should have a surety.

for a Regular Diners Club Card clearly applied to the

On July 24, 1987, Danilo A. Alto applied for a

unpaid purchases of Danilo Alto under the Diamond

Regular (Local) Card with SDIC. He got as his surety

card.

his own sister-in-law Jeanette Molino Alto.

Petitioners motion for reconsideration of the above

On the basis of the completed and signed Application

decision was denied Hence, the petition.

Card

which
in

services

from

entitles
an

the

amount

member

cardholder
not

establishments

Form and Surety Undertaking, the SDIC issued to

Danilo Diners Card The latter used this card and

ISSUES: 1.

Whether petitioner is liable as surety

initially paid his obligations to SDIC. On February 8,

under the Diamond card revolves around the effect of

1988, Danilo wrote SDIC a letter requesting it to

the upgrading by Danilo Alto of his card.

upgrade his Regular (Local) Diners Club Card to a

Diamond (Edition) one.

As a requirement of SDIC,

Danilo secured from Jeanette her approval.

2.

Was the upgrading a novation of the original

The

agreement governing the use of Danilo Altos first

latter obliged and so on March 2, 1988, she signed a

credit card, as to extinguish that obligation and the

Note which states:

Surety Undertaking which was simply accessory to

This certifies that I, Jeanette D. Molino, approve of

it?

the request of Danilo and Gloria Alto with Card No.

3651-203216-0006

and

3651-203412-5007

to

HELD: Petitioner posits that she did not expressly

upgrade their card from regular to diamond edition.

give her consent to be bound as surety under the

Danilos request was granted and he was issued a

upgraded card.

Diamond (Edition) Diners Club Card.

signed, registering her approval of the request of

card

and

made

Danilo Alto to upgrade his card, renders the Surety

On October 1, 1988 Danilo had

Undertaking she signed under the terms of the

incurred credit charged plus appropriate interest and

previous card without probative value, immaterial

service

of

and irrelevant as it covers only the liability of the

He defaulted in the payment of this

surety in the use of the regular credit card by the

charges

P166,408.31.

in

the

from

She points out that the note she

member

establishments.

purchases

He used this

aggregate

amount

obligation.

principal debtor She argues further that because the

SDIC demanded of Danilo and Jeanette to pay said

principal debtor, Danilo Alto, was not held liable,

obligation but they did not pay.

having been dropped as a defendant, she could not be

So, SDIC filed an

action to collect said indebtedness against Danilo

said to have incurred liability as surety.

and Jeanette.

The petition is devoid of merit.

The trial court rendered a decision dismissing the

Novation, as a mode of extinguishing obligations,

complaint for failure of respondent to prove its case

may be done in two ways: by explicit declaration, or

by a preponderance of the evidence.

by material incompatibility (implied novation).

It found that

As

while petitioner clearly bound herself as surety under

we stated in Fortune Motors vs. Court of Appeals,

the terms of Danilo Altos Regular Diners Club Card,

supra:

there was no evidence that after the card had been

xxx The test of incompatibility is whether the two

are clear and leave no doubt upon the intention of

obligations can stand together, each one having its

the contracting parties, the literal meaning of its

independent existence.

stipulations shall control.

If they cannot, they are

incompatible and the latter obligation novates the

As a last-ditch measure, petitioner asseverates that,

first.

Novation must be established either by the

being merely a surety, a pronouncement should first

express terms of the new agreement or by the acts of

be made declaring the principal debtor liable before

the parties clearly demonstrating the intent to

she herself can be proceeded against. The argument,

dissolve the old obligation as a consideration for the

which is hinged upon the dropping of Danilo as

emergence of the new one. The will to novate,

defendant in the complaint, is bereft of merit.

whether totally or partially, must appear by express

The Surety Undertaking expressly provides that

agreement of the parties, or by their acts which are

petitioners

too clear or unequivocal to be mistaken.

considered in law as being the same party as the

There is no doubt that the upgrading was a novation

debtor in relation to whatever is adjudged touching

of the original agreement covering the first credit

the obligation of the latter, and their liabilities are

card issued to Danilo Alto, basically since it was

interwoven

committed

and

contract of a surety is in essence secondary only to a

replacing the said card. However, the novation did

valid principal obligation, his liability to the creditor

not serve to release petitioner from her surety

is direct, primary and absolute; he becomes liable for

obligations because in the Surety Undertaking she

the debt and duty of another although he possesses

expressly waived discharge in case of change or

no direct or personal interest over the obligations

novation in the agreement governing the use of the

nor does he receive any benefit therefrom.

first credit card.

being no question that Danilo Alto incurred debts of

The nature and extent of petitioners obligations are

P166,408.31 in credit card advances, an obligation

set out in clear and unmistakable terms in the

shared

Surety Undertaking. Thus:

certainly within its rights to proceed singly against

1.

She bound herself jointly and severally with

petitioner, as surety and solidary debtor, without

Danilo Alto to pay SDIC all obligations and charges in

prejudice to any action it may later file against

the use of the Diners Club Card, including fees,

Danilo Alto, until the obligation is fully satisfied.

interest, attorneys fees, and costs;

This is so provided under Article 1216 of the Civil

2. She declared that any change or novation in the

Code:

Agreement or any extension of time granted by

The creditor may proceed against any one of the

SECURITY DINERS to pay such obligation, charges,

solidary

and fees, shall not release (her) from this Surety

simultaneously.

Undertaking;

them shall not be an obstacle to those which may be

3. (S)aid undertaking is a continuous one and shall

subsequently directed against the others, so long as

subsist and bind (her) until all such obligations,

the debt has not been fully collected.

charges and fees have been fully paid and satisfied;

Petitioner is a graduate of business administration,

and

and

4. The indication of a credit limit to the cardholder

several banks.

shall not relieve (her) of liability for charges and all

consequence of the Surety Undertaking that she

other

executed.

with

amounts

the

intent

voluntarily

of

cancelling

incurred

by

the

liability

as

to

solidarily

possesses

be

by

debtors

is

solidary.

inseparable.

petitioner,

or

some

surety

Although

the

There

respondent

or

all

of

is

was

them

The demand made against one of

considerable

work

experience

in

She knew the full import and

She had the option to withdraw her

cardholder in excess of said credit limit.

suretyship when Danilo upgraded his card to one

We cannot give any additional meaning to the plain

that permitted unlimited purchases, but instead she

language of the subject undertaking. The extent of a

approved the upgrading.

suretys liability is determined by the language of the

the financial predicament she now faces, it is also

suretyship contract or bond itself. Article 1370 of

evident that the liability she incurred is only the

the Civil Code provides: If the terms of a contract

legitimate consequence of an undertaking that she

While we commiserate in

freely and intelligently obliged to.

Prospective

sureties to credit card applicants would be well-

In defense, defendant Pacific claims that its failure

advised

the

to finish the contracted work was due to inclement

agreements prepared by the credit card companies

to

study

weather and the fact that several items of finished

before

to

work and change order which plaintiff refused to

stipulations that could lead to onerous effects, like

accept and pay for caused the disruption of work.

in the present case where the credit applied for was

Since the contractual relation between plaintiff and

limitless. At the same time, it bears articulating that

defendant Pacific created a reciprocal obligation, the

although courts in appropriate cases may equitably

failure of the plaintiff to pay its progressing bills

reduce the award for penalty as provided under such

estops it from demanding fulfillment of what is

suretyship agreements if the same is iniquitous or

incumbent upon defendant Pacific. The acquiescence

unconscionable, we are unable to give relief to

by plaintiff in granting three extensions to defendant

petitioner by way of reducing the amount of the

Pacific is likewise a waiver of the formers right to

principal liability as surety under the circumstances

claim any damages for the delay. Further, the

of this case.

unilateral

giving

carefully

their

the

consent,

terms

and

pay

of
heed

and

voluntary

action

of

plaintiff

in

preventing defendant Pacific from completing the

20. FILINVEST LAND VS. CA

work has relieved the latter from the obligation of

completing the same.

FACTS:

Filinvest

Land,

for

On the other hand, Philamgen contends that the

brevity), a corporation engaged in the development

various amendments made on the principal contract

and sale of residential subdivisions, awarded to

and the deviations in the implementation thereof

defendant

Corporation

which were resorted to by plaintiff and co-defendant

(PACIFIC, for brevity) the development of its

Pacific without its (defendant Philamgens) written

residential subdivisions consisting of two (2) parcels

consent thereto, have automatically released the

of land located at Payatas, Quezon City, the terms

latter from any or all liability within the purview and

and

an

contemplation of the coverage of the surety bonds it

Agreement. To guarantee its faithful compliance

has issued. Upon agreement of the parties to appoint

and pursuant to the agreement, defendant Pacific

a commissioner to assist the court in resolving the

posted two (2) Surety Bonds in favor of plaintiff

issues confronting the parties, an order was issued

which were issued by defendant Philippine American

naming

General Insurance (PHILAMGEN, for brevity).

Commissioner to conduct an ocular inspection and

Pacific

conditions

of

Inc.

(FILINVEST,

Equipment

which

are

contained

in

Architect

Antonio

Dimalanta

as

Court

to determine the amount of work accomplished by

Notwithstanding

three

extensions

granted

by

plaintiff to defendant Pacific, the latter failed to

the defendant Pacific and the amount of work done

by plaintiff to complete the project.

finish the contracted works. On 16 October 1979,

plaintiff wrote defendant Pacific advising the latter

According to the Commissioner, no better basis in

of its intention to takeover the project and to hold

the work done or undone could be made other than

said defendant liable for all damages which it had

the contract billings and payments made by both

incurred and will incur to finish the project.

parties as there was no proper procedure followed in

terminating the contract, lack of inventory of work

On 26 October 1979, plaintiff submitted its claim

accomplished, absence of appropriate record of work

against defendant Philamgen under its performance

progress (logbook) and inadequate documentation

and

and system of construction management.

guarantee

bond

but

Philamgen

refused

to

acknowledge its liability for the simple reason that

its

principal,

defendant

Pacific,

refused

acknowledge liability therefore. Hence, this action.

to

Based on the billings of defendant Pacific and the

payments made by plaintiff, the work accomplished

by the former amounted to P11,788,282.40 with the

b)

We are willing to waive all penalties for delay

exception of the last billing (which was not acted

which have accrued since April 25, 1979 provided

upon or processed by plaintiff) in the amount of

that you are able to finish all the items of the

P844,396.42. The total amount of work left to be

contracted works as per revised CPM; otherwise you

accomplished by plaintiff was based on the original

shall continue to be liable to pay the penalty up to

contract amount less value of work accomplished by

the time that all the contracted works shall have

defendant Pacific in the amount of P681,717.58

been actually finished, in addition to other damages

(12,470,000-11,788,282.42).

which we may suffer by reason of the delays

incurred.

As regards the alleged repairs made by plaintiff on

the

construction

deficiencies,

the

Court

Defendant Pacific therefore became liable for delay

Commissioner found no sufficient basis to justify the

when it did not finish the project on the date agreed

same. On the other hand, he found the additional

on October 15, 1979. The court however, finds the

work done by defendant Pacific in the amount of

claim of P3,990,000.00 in the form of penalty by

P477,000.00 to be in order.

reason of delay (P15,000.00/day from April 25, 1979

to Jan. 15, 1980) to be excessive. A forfeiture of the

On the basis of the commissioners report, the trial

amount due defendant from plaintiff appears to be a

court dismissed Filinvests complaint It held:

reasonable penalty for the delay in finishing the

project considering the amount of work already

The unpaid balance due defendant therefore is

performed and the fact that plaintiff consented to

P1,939,191.67.

three prior extensions.

To this amount should be added

additional work performed by defendant at plaintiffs

The Court of Appeals, finding no reversible error in

instance in the sum ofP475,000.00.

the appealed decision, affirmed the same.

And from this

total of P2,414,191.67 should be deducted the sum

Hence, the instant petition.

of P532,324.01 which is the cost to repair the

deficiency or defect in the work done by defendant.

ISSUE:Whether or not the liquidated damages agreed

The

of

upon by the parties should be reduced considering

between

that: (a) time is of the essence of the contract; (b) the

plaintiffs claim of P758,080.37 and defendants

liquidated damages was fixed by the parties to serve

allegation of P306,567.67.

commissioner

P532,324.01

by

arrived

getting

at

the

the
average

figure

The amount due to

not only as penalty in case Pecorp fails to fulfill its

defendant per the commissioners report is therefore

obligation on time, but also as indemnity for actual

P1,881,867.66.

and anticipated damages which Filinvest may suffer

by reason of such failure; and (c) the total liquidated

Although the said amount of P1,881,867.66 would be

damages sought is only 32% of the total contract

owing to defendant Pacific, the fact remains that

price, and the same was freely and voluntarily agreed

said defendant was in delay since April 25, 1979.

upon by the parties.

The third extension agreement of September 15,

1979 is very clear in this regard.

The pertinent

paragraphs read:

HELD: Filinvest argues that the penalty in its

entirety should be respected as it was a product of
mutual agreement and it represents only 32% of the

a)

You will complete all the unfinished works not

P12,470,000.00 contract price, thus, not shocking

later than Oct. 15, 1979. It is agreed and understood

and

unconscionable

under

the

circumstances.

that this date shall DEFINITELY be the LAST and

Moreover, the penalty was fixed to provide for actual

FINAL extension & there will be no further extension

or anticipated liquidated damages and not simply to

for any cause whatsoever.

ensure compliance with the terms of the contract;

hence, courts should be slow in exercising the
authority conferred by Art. 1229 of the Civil Code.

In herein case, the trial court ruled that the penalty

We are not swayed.

charge for delay pegged at P15,000.00 per day of

delay in the aggregate amount of P3,990,000.00 --

There is no question that the penalty of P15,000.00

was

per day of delay was mutually agreed upon by the

P1,881,867.66 considering the amount of work

parties and that the same is sanctioned by law.

already performed and the fact that [Filinvest]

penal clause is an accessory undertaking to assume

consented to three (3) prior extensions. The Court

greater liability in case of breach. It is attached to an

of Appeals affirmed the ruling but added as well that

obligation in order to insure performance and has a

the penalty was unconscionable as the construction

double

was already not far from completion.

function:

(1)

to

provide

for

liquidated

excessive

and

accordingly

reduced

it

to

damages, and (2) to strengthen the coercive force of

the obligation by the threat of greater responsibility

This Court finds no fault in the cost estimates of the

in the event of breach.

court-appointed commissioner as to the cost to

Article 1226 of the Civil

Code states:

repair deficiency or defect in the works which was

based on the average between plaintiffs claim of

Art. 1226.

In obligations with a penal clause, the

P758,080.37

and

defendants

P306,567.67

penalty shall substitute the indemnity for damages

considering the following factors: that plaintiff did

and

of

not follow the standard practice of joint survey upon

noncompliance, if there is no stipulation to the

take over to establish work already accomplished,

contrary. Nevertheless, damages shall be paid if the

balance of work per contract still to be done, and

obligor refuses to pay the penalty or is guilty of fraud

estimate and inventory of repair (Exhibit H).

in the fulfillment of the obligation.

for the cost to finish the remaining works, plaintiffs

the

payment

of

interests

in

case

As

estimates were brushed aside by the commissioner

The penalty may be enforced only when it is

on the reasoned observation that plaintiffs cost

demandable in accordance with the provisions of this

estimate for work (to be) done by the plaintiff to

Code.

complete the project is based on a contract awarded

to

another

contractor

(JPT),

the

nature

and

As a general rule, courts are not at liberty to ignore

magnitude of which appears to be inconsistent with

the freedom of the parties to agree on such terms

the basic contract between defendant PECORP and

and conditions as they see fit as long as they are not

plaintiff FILINVEST.

contrary to law, morals, good customs, public order

or public policy. Nevertheless, courts may equitably

We are hamstrung to reverse the Court of Appeals as

reduce a stipulated penalty in the contract in two

it is rudimentary that the application of Article 1229

instances: (1) if the principal obligation has been

is essentially addressed to the sound discretion of

partly or irregularly complied; and (2) even if there

the court. As it is settled that the project was

has been no compliance if the penalty is iniquitous

already 94.53% complete and that Filinvest did agree

or unconscionable in accordance with Article 1229 of

to extend the period for completion of the project,

the Civil Code which provides:

which extensions Filinvest included in computing

the amount of the penalty, the reduction thereof is

Art. 1229.

The judge shall equitably reduce the

clearly warranted.

penalty when the principal obligation has been partly

or irregularly complied with by the debtor.

Even if

Filinvest, however, hammers on the case of Laureano

there has been no performance, the penalty may also

v. Kilayco, decided in 1915, which cautions courts to

be reduced by the courts if it is iniquitous or

distinguish between two kinds of penalty clauses in

unconscionable.

order to better apply their authority in reducing the

amount recoverable. We held therein that:

. . . [I]n any case wherein there has been a partial or

liquidated

irregular

concerned. The distinction is thus more apparent

contract for special indemnification in the event of

than real especially in the light of certain provisions

failure to comply with its terms, courts will rigidly

of the Civil Code of the Philippines which provides

apply the doctrine of strict construction against the

in Articles 2226 and Article 2227 thereof:

compliance

with

the

provisions

in

damages

insofar

as

legal

results

are

enforcement in its entirety of the indemnification,

where it is clear from the terms of the contract that

Art. 2226.

Liquidated damages are those agreed

the amount or character of the indemnity is fixed

upon by the parties to a contract to be paid in case

without regard to the probable damages which might

of breach thereof.

be anticipated as a result of a breach of the terms of

the contract; or, in other words, where the indemnity

Art. 2227.

Liquidated damages, whether intended

provided for is essentially a mere penalty having for

as an indemnity or a penalty, shall be equitably

its principal object the enforcement of compliance

reduced if they are iniquitous or unconscionable.

with the contract. But the courts will be slow in

exercising the jurisdiction conferred upon them in

Thus, we lamented in one case that (t)here is

article 1154 so as to modify the terms of an agreed

no justification for the Civil Code to make an

upon indemnification where it appears that in fixing

apparent

such indemnification the parties had in mind a fair

liquidated damages because the settled rule is that

and reasonable compensation for actual damages

there is no difference between penalty and liquidated

anticipated as a result of a breach of the contract, or,

damages insofar as legal results are concerned and

in other words, where the principal purpose of the

that either may be recovered without the necessity

indemnification agreed upon appears to have been to

of proving actual damages and both may be reduced

provide for the payment of actual anticipated and

when proper.

distinction

between

penalty

and

liquidated damages rather than the penalization of a

breach of the contract. (Emphases supplied)

Finally, Filinvest advances the argument that

while it may be true that courts may mitigate the

Filinvest contends that the subject penalty clause

amount of liquidated damages agreed upon by the

falls under the second type, i.e., the principal

parties on the basis of the extent of the work done,

purpose for its inclusion was to provide for payment

this contemplates a situation where the full amount

of actual anticipated and liquidated damages rather

of damages is payable in case of total breach of

than the penalization of a breach of the contract.

contract. In the instant case, as the penalty clause

Thus, Filinvest argues that had Pecorp completed the

was

project on time, it (Filinvest) could have sold the lots

completion of the project considering that time is of

sooner and earned its projected income that would

the essence, the parties thus clearly contemplated

have been used for its other projects.

the payment of accumulated liquidated damages

agreed

despite,

upon

and

to

answer

precisely

for

because

delay

of,

in

the

partial

Unfortunately for Filinvest, the above-quoted

performance. In effect, it is Filinvests position that

doctrine is inapplicable to herein case. The Supreme

the first part of Article 1229 on partial performance

Court in Laureano instructed that a distinction

should not apply precisely because, in all likelihood,

between a penalty clause imposed essentially as

the penalty clause would kick in in situations where

penalty in case of breach and a penalty clause

Pecorp had already begun work but could not finish

imposed as indemnity for damages should be made in

it on time, thus, it is being penalized for delay in its

cases where there has been neither partial nor

completion.

irregular compliance with the terms of the contract.

In cases where there has been partial or irregular
compliance, as in this
substantial

difference

case, there will be no

between

penalty

and

The above argument, albeit sound, is

insufficient to reverse the ruling of the Court of
Appeals.

It must be remembered that the Court of

Appeals

not only held that the penalty should be

August 1996, 14 March 1997, and 14 July 1997.

reduced because there was partial compliance but

Each of thepromissory notes is in the amount of

categorically stated as well that the penalty was

US$50,000 payable after three years from its date

unconscionable.

Otherwise stated, the Court of

with an interest of 15% per annum payable every

Appeals affirmed the reduction of the penalty not

three months. In a letter dated 16 December 1998,

simply because there was partial compliance per se

Christian informed the petitioner corporation that

on the part of Pecorp with what was incumbent upon

he was terminating the loansand demanded from the

it but, more fundamentally, because it deemed the

latter payment of said loans.

penalty unconscionable in the light of Pecorps

94.53% completion rate.

On 2 February 1999, Christian filed with the RTC a

complaint for a sum of money and damages against

In Ligutan v. Court of Appeals, we pointed out that

the

the question of whether a penalty is reasonable or

Infante.

iniquitous

can

be

partly

subjective

and

petitioner

corporation,

Hegerty,

and

Atty.

partly

objective as its resolution would depend on such

The

factors as, but not necessarily confined to, the type,

president and vice-president, filed an Answer raising

extent and purpose of the penalty, the nature of the

as defenses lack of cause of action. According to

obligation, the mode of breach and its consequences,

them, Christian had no cause of action because the

the

supervening

relationship

of

realities,

the

parties,

petitioner

the

standing

and

three

and

the

the

demandable.

like,

promissory

corporation,

notes

were

together

not yet

with

its

due and

application of which, by and large, is addressed to

the sound discretion of the court.

The trial court ruled that under Section 5 of Rule 10

of the 1997 Rules of Civil Procedure, a complaint

In herein case, there has been substantial

which states no cause of action may be cured by

compliance in good faith on the part of Pecorp which

evidence presented without objection. Thus, even if

renders unconscionable the application of the full

the plaintiff had no cause of action at the time he

force of the penalty especially if we consider that in

filed the instant complaint, as defendants obligation

1979 the amount of P15,000.00 as penalty for delay

are not yet due and demandable then, he may

per day was quite steep indeed.

Nothing in the

nevertheless recover on the first twopromissory

records

delay

notes

suggests

that

Pecorps

in

the

in view of the

introduction of evidence

performance of 5.47% of the contract was due to it

showing that the obligations covered by the two

having acted negligently or in bad faith. Finally, we

promissory notes are now due and demandable. When

factor in the fact that Filinvest is not free of blame

the instant case was filed on February 2, 1999, none

either as it likewise failed to do that which was

of the promissory notes was due and demandable,

incumbent upon it, i.e., it failed to pay Pecorp for

but , the first and the second promissory notes have

work actually performed by the latter in the total

already matured during the course of the proceeding.

amount

Hence, payment is already due.

of

P1,881,867.66.

Thus,

all

things

considered, we find no reversible error in the Court

of Appeals exercise of discretion in the instant case.

This finding was affirmed in toto by the CA.

21. SWAGMAN VS. CA [GR NO. 161135, APRIL 8,

ISSUE: Whether or not a complaint that lacks a cause

2005]

of action at the time it was filed be cured by the

accrual of a cause of action during the pendency of

FACTS: Sometime in 1996 and 1997, Swagman

the case.

through Atty. Infante and Hegerty, its president and

vice-president, respectively, obtained from Christian

HELD: No. Cause of action, as defined in Section 2,

loans evidenced by three promissory notes dated 7

Rule 2 of the 1997 Rules of Civil Procedure, is the

act or omission by which a party violates the right of

Santiago. She issued the checks for P76,000 and

another. Its essential elements are as follows:

P20,000

not

as

payment

of

interest

but

to

accommodate petitioners request that respondent

1. A right in favor of the plaintiff by whatever means

use her own checks instead of Santiagos.

and under whatever law it arises or is created;

RTC ruled in favor of petitioner. CA reversed

2. An obligation on the part of the named defendant

RTC and ruled that there was no contract of loan

to respect or not to violate such right; and

between the parties.

3. Act or omission on the part of such defendant in

violation of the right of the plaintiff or constituting a

ISSUE: (1)

Whether or not there was a contract of

breach of the obligation of the defendant to the

loan between petitioner and respondent.

plaintiff for which the latter may maintain an action

(2)

for recovery of damages or other appropriate relief.

respondent or Marilou Santiago?

It is, thus, only upon the occurrence of the last

HELD:

element that a cause of action arises, giving the

(1)

plaintiff the right to maintain an action in court for

a real contract, not consensual, and as such I

recovery of damages or other appropriate relief.

perfected only upon the delivery of the object of the

Who borrowed money from petitioner, the

The Court held in the affirmative. A loan is

contract. Upon delivery of the contract of loan (in

Such interpretation by the trial court and CA of

this case the money received by the debtor when the

Section 5, Rule 10 of the 1997 Rules of Civil

checks were encashed) the debtor acquires ownership

Procedure is erroneous. The curing effect under

of such money or loan proceeds and is bound to pay

Section 5 is applicable only if a cause of action in

the creditor an equal amount. It is undisputed that

fact exists at the time the complaint is filed, but the

the checks were delivered to respondent.

complaint is defective for failure to allege the

(2)

essential facts. Amendments of pleadings are allowed

payable not to the order of the respondent but to the

under Rule 10 of the 1997 Rules of Civil Procedure in

order of a certain Marilou Santiago. Delivery is the

order that the actual merits of a case may be

act by which the res or substance is thereof placed

determined in the most expeditious and inexpensive

within the actual or constructive possession or

manner without regard to technicalities and that all

control of another. Although respondent did not

other

physically receive the proceeds of the checks, these

matters

included

in

the

case

may

be

determined in a single proceeding, thereby avoiding

instruments

multiplicity of suits.

possession

However, the checks were crossed and

were
under

placed
an

in

her

control

and

arrangement

whereby

she

actually re-lent the amount to Santiago.

22. CAROLYN M. GARCIA VS. RICA MARIE S. THIO,

Petition granted; judgment and resolution reversed

GR NO. 154878, 16 MARCH 2007

and set aside.

FACTS:

Respondent Thio received from

petitioner Garcia two crossed checks which amount

23. FAR EAST BANK & TRUST V. DIAZ REALTY INC.,

to

G.R. NO. 138588, AUGUST 23, 2001

US$100,000

and

US$500,000,

respectively,

payable to the order of Marilou Santiago. According

to petitioner, respondent failed to pay the principal

FACTS: 1. Diaz and Co. obtained a loan from Pacific

amounts of the loans when they fell due and so she

Banking Corp. in 1974 in the amount of P720,000 at

filed a complaint for sum of money and damages with

12% interest p.a. which was increased thereafter.

the RTC. Respondent denied that she contracted the

The said loan was secured with a real estate

two loans and countered that it was Marilou Satiago

mortgage over two parcels of land owned by Diaz

to whom petitioner lent the money. She claimed she

Realty, herein respondent. Subsequently, the loan

was merely asked y petitioner to give the checks to

account was purchased by the petitioner Far East

Bank (FEBTC). Two years after, the respondent

24. LICAROS v GATMAITAN

through its President inquired about its obligation

and upon learning of the outstanding obligation, it
tendered payment in the form of an Interbank check

FACTS:

Abelardo

Licaros

invested

his

money

in the amount of P1,450,000 in order to avoid the

worth$150,000 with Anglo-Asean Bank, a money

further imposition of interests. The payment was

market placement by way of deposit, based in the

with a notation for the full settlement of the

Republic of Venatu. Unexpectedly, he had a hard time

obligation.

getting back his investments as well as the interest

earned. He then sought the counsel of Antonio

2. The petitioner accepted the check but it alleged in

Gatmaitan, a reputable banker and investor. They

its defense that it was merely a deposit. When the

entered into an agreement,where a non-negotiable

petitioner refused to release the mortgage, the

promissory note was to be executed in favor of

respondent filed a suit. The lower court ruled that

Licaros worth $150,000, and that Gatmaitan would

there was a valid tender of payment and ordered the

take over the value of the investment made by

petitioner to cancel the mortgage. Upon appeal, the

Licaros with the Anglo-Asean Bank at the former's

appellate court affirmed the decision.

expense. When Gatmaitan contacted the foreign

bank, it said they will look into it, but it didn't

ISSUE: Whether or not there was a valid tender of

prosper. Because of the inability to collect,Gatmaitan

payment

did not bother to pay Licaros the value of the

to

extinguish

the

obligation

of

the

respondent

promissory note. Licaros, however, believing that he

had a right to collect from Gatmaitan regardless of

RULING: Yes. Although jurisprudence tells us that a

the outcome, demanded payment, but was ignore.

check is not a legal tender and a creditor may validly

Licaros filed a complaint against Gatmaitan for the

refuse it, this dictum does not prevent a creditor

collection of the note. The trial court ruled in favor

from accepting a check as payment. Herein, the

of Licaros, but CA reversed.

petitioner accepted the check and the same was

cleared.

ISSUE:Whether
between

the

petitioner

A tender of payment is the definitive act of of

assignment

offering the creditor what is due him or her, together

subrogation

of

memorandum
and

credit

or

of

respondent
one

of

agreement
is

one

of

conventional

with the demand that he accepts it. More important

is that there must be a concurrence of intent, ability

RULING:

It is a conventional subrogation. An

and capability to make good such offer, and must be

assignment of credit has been defined as the process

absolute and must cover the amount due. The acts of

of transferring the right of the assignor to the

the respondent manifest its intent, ability and

assignee who would then have a right to proceed

capability. Hence, there was a valid tender of

against the debtor. Consent of the debtor is not

payment.

required is not necessary to product its legal effects,

since notice of the assignment would be enough. On

Meanwhile, the transfer of credit from Pacific Bank

the other hand, subrogation of credit has been

to

effective

defined as the transfer of all the rights of the

novation but an assignment of credit. As such, the

creditor to a third person, who substitutes him in all

petitioner has the right to collect the full value of

his rights. It requires that all the related parties

the credit from the respondent subject to the

thereto, the original creditor, the new creditor and

conditions

the debtor, enter into a new agreement, requiring the

the

petitioner

executed.

of

the

did

not

involve

promissory

an

note

previously

consent of the debtor of such transfer of rights. In

the case at hand, it was clearly stipulated by the
parties in the memorandum of agreement that the

express conformity of the third party (debtor) is

P35M. Mortgage was used as security for a loan

needed. The memorandum contains a space for the

amounting to P20M.

signature of the Anglo-ASEAN Bank written therein

On Aug. 12, 1992 onwards, Regalado refused to

"with our conforme". Without such signature, there

accept Paculdos daily rental payments.

was no transfer of rights. The usage of the word

Ultimately, on Aug. 20, 1992, Paculdo filed an action

"Assignment" was used as a general term, since

for injunction & damages to enjoin Regalado from

Gatmaitan was not a lawyer, and therefore was not

disturbing his possession of property under the

well-versed with the language of the law.

contract.

Regalado on the

other hand, filed a

complaint for ejectment against Paculdo. Later on

withdrawn

and

then

re-filed

w/claim

of

P3,924,000.00.
25.

NEREO

J.

PACULDO,

PETITIONER,

VS.

BONIFACIO C. REGALADO, RESPONDENT [2000]

MTC: Ordered Paculdo to vacate the premises & pay

P527,119.27 of unpaid monthly rentals as of June
30, 1992 w/2% interest + P450k/month w/2%

FACTS: On Dec. 27, 1990: Contract of Lease between

interest from July 1992 onwards until place has been

Paculdo (lessee) & Regalado (lessor) over a parcel of

vacated & turned over to Regalado + P5M for attys

land w/a wet market bldg located along Don Mariano

fees + costs.

Marcos Ave., Fairview Park, QC. Contract was for 5

Feb. 19, 1994: Regalado w/50 armed security guards

yrs from this date w/monthly rental of P450k

forcibly entered the property & took possession of

payable w/in first 5 days of each month at Regalados

the wet market.

office + 2% penalty for every month of late payment.

RTC

Paculdo leased 11 other properties from Regalado, 10

execution

of w/c were located in Fairview while the 11th was

voluntarily & there was complete turn over by July

located along Quirino Highway, QC. Paculdo also

12, 1994.

purchased 8 units of heavy equipment & vehicles

Paculdo appealed to the CA claiming that:

from Regalado amounting to P1,020,000.00.

He paid P11,478,121.85 as security deposit & rentals

Then, on July 15, 1991, Regalado informed Paculdo

on the wet market building.

that his payment was to be applied to the following:

Portions of the amount paid was applied by Regalado

monthly rentals for the wet market, Quirino lot, and

w/o his consent, to his other obligations. Vouchers

the heavy equipment purchased. This letter had no

& receipts indicated that the payments were made

conformity portion. Paculdo did not act on the letter.

for rentals, proof of Paculdos declaration as to w/c

On Nov. 19, 1991, Regalado proposed that Paculdos

obligation the payment must be applied.

security deposit for the Quirino lot be applied as

CA: Dismissed the petition for lack of merit. Paculdo

partial payment for his account under the subject lot

impliedly consented to Regalados application of

as well as to the real estate taxes on the Quirino lot.

payment to his other obligations.

affirmed

MTC

thus

decision.

Paculdo

Issued

vacated

the

writ

of

property

Paculdo did not object and he signed the conformity

portion.

ISSUE: WON Paculdo was truly in arrears in the

Regalado claims that Paculdo failed to pay P361,

payment of rentals on the subject property at the

895.55 in rental for the month of May, 1992 and

time of the filing of the complaint for ejectment.

monthly rental of P450k for the months of June &

NO.

July, 1992. Thus he sent 2 demand letters (both in

July, 1992) asking for payment and later on asked
Paculdo to vacate the property.

RATIO: 1.

Regalado mortgaged the land under the contract to

Paculdo paid a total of P10,949,447.18 to Regalado

Based

on

MTC

&

RTC

findings,

Monte de Piedad Savings Bank. It included the

as of July 2, 1992. And if this will be applied solely

improvements introduced by Paculdo amounting to

to the rentals on the Fairview wet market, there

would even be an excess payment of P1,049,447.18.

FACTS: Guillermo Uy assigned to respondent his

(see p.139 for computation)

receivables due from Pantranco North Express Inc.

2.

Paculdo goes back to the July 15, 1991 letter.

(PNEI). Respondent filed a collection suit with an

He emphasized that applying the payment to the

application for issuance of preliminary attachment

purchased equipment was crucial because it was

against PNEI which was granted by the RTC. The

equivalent to 2 mos rental & was the basis for the

sheriff issued a notice of garnishment addressed to

ejectment

PNB

case.

He

further

claims

that

his

and

PNB

MADECOR.
PNEI

with

RTC

rendered

of

execution

silence/lack of protest did not mean consent; rather,

judgment

it was a rejection.

causing the sheriff to garnish the amount therein

3.

CC Art. 1252 & 1254: Debtor has the rt to

from the credits and collectibles of PNEI from

specify w/c among his various obligations to the

petitioner and levy upon the assets of petitioner

same creditor is to be satisfied at the time of making

should its personal assets be insufficient to cover its

the payment. If the debtor did not exercise this rt,

debt with PNEI. Petitioner claimed that as debtor, it

law provides that no payment is to be made to a debt

is likewise a creditor for PNEI considering unpaid

that is not yet due (CC Art. 1252) and payment has

rentals of PNEI for its parcel of land and by operation

to be applied first to the debt most onerous to the

of law on compensation, it is actually the PNEI that

debtor (CC Art. 1254).

still has outstanding obligations to it.

a.

against

The
writ

Paculdo made it clear that payments were to

be applied to his rental obligations on the wet market

ISSUE: Whether or not there was legal compensation

property.

between the petitioner and PNEI as a defense of the

b.

former.

Regalado claims that Paculdo assented to the

application as inferred from his silence.

c.

A big chunk of the amount paid went into the

RULING: NO. There could not be any compensation

satisfaction of an obligation w/c was not yet due &

between PNEIs receivables from PNB MADECOR and

demandable

the latters obligation to the former because PNB

(payment

of

heavy

equipment).

Application was contrary to law.

MADECORs supposed debt to PNEI is the subject of

d.

Paculdos silence was not tantamount to

attachment proceedings initiated by a third party,

consent. Consent must be clear & definite. There was

herein respondent Gerardo Uy. This is a controversy

no meeting of the minds. Though there was an offer

that would prevent legal compensation from taking

by Regalado, there was no acceptance by Paculdo.

place, per the requirements set forth in Article 1279

Even if Paculdo did not exercise his rt to choose the

of the Civil Code.

obligation to be satisfied first & such rt was

whether, at the time compensation was supposed to

transferred to Regalado, latters choice is still subject

have taken place, the rentals being claimed by

to formers consent.

petitioner were indeed still unpaid.

e.

not present evidence in this regard, apart from a

Lease over the Fairview property is the most

onerous among all the obligations of petitioner to

Moreover, it was not clear

Petitioner did

statement of account.

respondent. Its a going-concern (?) and investments

on the improvements were made amounting to

27.

AZOLLA

FARMS

P35M. Paculdo was bound to lose more if lease would

NOVEMBER 11, 2004

VS

CA

G.R.NO.

138085

be rescinded than if the contract of sale of heavy

equipment would not proceed.

FACTS:

The

trial

court

rendered

its

decision

annulling the promissory notes and real estate

Holding: Petition granted. CA decision reversed & set

mortgage, and awarding damages to petitioners. The

aside.

dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered:

26. PNB MADECOR VS. UY (363 SCRA 128)

(a)

the promissory notes and real estate mortgage

executed

by

plaintiff

Yuseco

novated,

if

not

evidenced by the promissory notes and real estate

mortgage - how can it be possibly claimed by

unenforceable;

plaintiffs that these notes and mortgage were

(b) any subsequent foreclosure or sale of the real

novated when no previous notes or mortgage or

estate property, without any binding effect;

loan

As

alleged

by

petitioners,

the

testimony

agreement

had

been

executed?

What

of

transpired was an application for loan was filed by

respondents witness, Jesus Venturina, established

plaintiffs with Credit Manila in an amount greater

the novation of the promissory notes and the real

than the P2 million eventually granted.

estate mortgage, and the illegality of the foreclosure

application was endorsed to defendant Savings

of petitioner

Bank

Yusecos property. The trial court

of

Manila,

processed

by the

This loan
latter and

agreed with petitioners, ruling that there was a

eventually approved by it in the amount of P2

novation of the promissory notes and real estate

million.

mortgage.

It cannot be said that the loan application of

plaintiffs or their initial representations with Credit

ISSUE:

W/N there was no novation, hence, the

Manilas Michael de Guzman was already in itself a

promissory notes and the real estate mortgage are

binding original contract that was later novated by

valid and binding.

defendant.

Plaintiff Yuseco being himself a banker,

cannot pretend to have been unaware of banking

RULING: YES, no novation took place.

procedures

Novation is the extinguishment of an obligation by

application as just that, a mere application.

the substitution or change of the obligation by a

upon the banks approval of the loan application in

subsequent one which extinguishes or modifies the

the amount and under such terms it deems viable

first, either by changing the object or principal

and acceptable, that a binding and effective loan

conditions, or, by substituting another in place of the

agreement comes into existence. Without any such

debtor, or by subrogating a third person in the rights

first or original loan agreement as approved in the

of the creditor. In order for novation to take place,

amount and under specified terms by the bank, there

the

can be nothing whatsoever that can be subsequently

concurrence

of

the

following

requisites

is

indispensable:
1.
2.

normally

recognize

loan
Only

novated.

there must be a previous valid obligation,

there must be an agreement of the parties

28. HEIRS OF LUIS BACUS VS COURT OF APPEALS,

concerned to a new contract,

SPOUSES

3.

DURAY

there must be the extinguishment of the old

contract, and
4.

that

FAUSTINO

DURAY

AND

VICTORIANA

G.R. NO. 127695 03DECEMBER2001

there must be the validity of the new contract.

All these requisites are patently lacking in this case.

In the first place, there is no new obligation that

FACTS OF THE CASE: On 1984 Luis Bacus leased to

supposedly novated the promissory notes or the real

Faustino Duray a parcel of agricultural land with

estate mortgage, or a pre-existing obligation that was

total land area of 3,002 of square meters, in Cebu.

novated by the promissory notes and the real estate

The lease was for six years ending in 1990, the

mortgage.

In fact, there is only one agreement

contract contained an option to buy clause. Under

between the parties in this case, i.e., petitioners

the said option, the lessee had the exclusive and

P2,000,000.00 loan with respondent, as evidenced by

irrevocable right to buy 2,000 square meters 5 years

the 3 promissory notes dated September 13 and 27,

from a year after the effectivity of the contract, at

1982, and January 4, 1983, and the real estate

P200

mortgage. As the Court of Appeals held:

proportionately adjusted depending on the peso rate

There was only one single loan agreement in the

against the US dollar, which at the time of the

amount of P2 million between the parties as

execution of the contract was 14 pesos.

per

square

meter.

That

rate

shall

be

Close to the expiration of the contract Luis Bacus

29.

THE

MANILA

BANKING

died on 1989, after Duray informed the heirs of

UNIVERSITY

Bacus that they are willing and ready to purchase the

DEVELOPERS, INC.

property under the option to buy clause. The heirs

G.R. No. 159189 ; February 21, 2007

OF

CORPORATION

BAGUIO,INC.

and

vs.

GROUP

refused to sell, thus Duray filed a complaint for

specific performance against the heirs of Bacus. He
showed that he is ready and able to meet his

FACTS:On November 26, 1981, the herein petitioner

obligations under the contract with Bacus. The RTC

granted a 14 million credit line to the herein

ruled in favor of the Durays and the CA later affirmed

respondents

the decision.

buildings and purchase of new equipment. On behalf

for

the

construction

of

additional

of the university, then Vice-Chairman Fernando C.

ISSUE: Can the heirs of Luis Bacus be compelled to

Bautista, Jr. signed PN Nos. 10660, 10672, 10687,

sell the portion of the lot under the option to buy

and

clause?

agreement. However, Bautista, Jr. diverted the net

10708

and

executed

continuing

surety

proceeds of the loan. He endorsed and delivered the

HELD: - Yes, Obligations under an option to buy are

four

reciprocal

obligations.

obligation

is

The

the

net

proceeds

to

one

respondent Group Developers, Inc. The loan was not

paid. On February 12, 1990, the bank filed a

fulfillment of the other obligation. In other words, in

complaint for a sum of money with application for

an option to buy, the payment of the purchase price

preliminary

by the creditor is contingent upon the execution and

Bautista, Jr. and his wife Milagros, before the RTC of

delivery of the deed of sale by the debtor.

Makati City. Five years later, on March 31, 1995, the

- When the Durays exercised their option to buy the

bank amended the complaint and impleaded GDI as

property their obligation was to advise the Bacus of

additional defendant. Consequently, even if the loan

their decision and readiness to pay the price, they

was overdue, the bank did not demand payment until

were not yet obliged to make the payment. Only

February

upon the Bacus actual execution and delivery of the

university prayed that GDI be ordered to pay the

deed of sale were they required to pay.

university the amount it would have to pay the bank.

- The Durays did not incur in delay when they did

On December 14, 1995, the bank and GDI executed a

not yet deliver the payment nor make a consignation

deed of dacion en pago. On March 19, 1998, the

before the expiration of the contract. In reciprocal

university moved to dismiss the amended complaint.

obligations, neither party incurs in delay if the other

On October 14, 1999 the university moved to set the

party does not comply or is not ready to comply in a

case for pre-trial on December 2,1999. On August 3,

proper manner with what is incumbent upon him.

2000, the trial court resolved GDIs motion to

Only from the moment one of the parties fulfils his

resolve the motion to dismiss and defer pre-trial. On

obligation, does delay by the other begin.

August 29, 2001, the university filed a manifestation

Obligations and Contracts Terms:

with motion for reconsideration of the August 17,

Reciprocal Obligations- Those which arise from the

1999 Order denying the universitys motion to

same cause, and in which each party is a debtor and

dismiss the amended complaint.

on

the

of

representing

simultaneous

conditioned

performance

checks

8,

attachment

1989.

By

against

way

of

the

university,

cross-claim,

the

a creditor of the other, such that the obligation of

one is dependent upon the obligation of the other.

ISSUE: Whether or not the trial court erred in

They are to be performed simultaneously such that

dismissing the amended complaint, without trial,

the performance of one is conditioned upon the

upon motion of respondent university.

simultaneous fulfilment of the other.

\
RULING: In this case, the universitys March 19,
1998 motion to dismiss the amended complaint was

improper under Rule 16 because it was filed after

Petitioner filed a complaint for violation of Batas

respondent university filed its responsive pleading,

Pambansa Blg. 22 or the Bouncing Checks Law, but

its Answer. Also the motions merit could not be

respondent Roland was acquitted.

determined based solely on the allegations of the

initiatory pleading, the amended complaint, since

Respondent Rolands unpaid debt allegedly ballooned

the motion was based on the deed of dacion en pago,

to P2,555,362.34, hence, petitioner terminated the

which was not even alleged in the complaint. And

dealership contract on August 24, 1987.

since the deed of dacion en pago had been expunged

formal demand for payment was unheeded, petitioner

from the record, the trial court erred in its finding of

instituted an action for collection of sum of money

payment and lack of cause of action base on the

with preliminary

deed.

Roland.

When its

attachment against respondent

His parents, respondents Reynaldo C.

Tolentino, Sr. and Lucia B. Tolentino, and siblings,

In the case at bar, there had been no presentation of

respondents Reynaldo, Jr. and Rex, were impleaded

evidence yet and petitioner had not rested its case.

as co-defendants. The respondents-spouses Reynaldo,

Therefore the August 17, 1999 Order properly denied

Sr. and Lucia were impleaded in the suit allegedly

the motion to dismiss for being improper under

because they were the ones who actually secured the

either Rule 16 or 33. The trial court had also made a

dealership contract with petitioner.

premature statement in its Omnibus Order dated

Reynaldo, Jr. and Rex were sued for the chattel

April 21, 1997 that the dacion en pago settled the

mortgage of their vehicles executed as security for

loan and the case, even as it also stated that

their brothers obligation with petitioner.

respondent university was used as a dummy of

Petitioner, however, contends that the appellate

GDI. If indeed there was fraud, considering the

court erred in holding that respondent Roland only

uncollateralized loan, its diversion, non-payment,

owes it P1,541,211.51 and not P2,183,895.43 as

absence of demand although overdue, and the dacion

claimed.

Respondents

en pago where title of the property accepted as

payment cannot be transferred, the fraud should be

ISSUE: W/N the amount of P412,683.39, of which

uncovered to determine who are liable to pay the

only P364,464.39 was credited by the Court of

loan. Thus, this petition was granted and set aside

Appeals in favor of respondent Roland, does not

the trial courts April 11, 2002 and June 27, 2003

represent

Orders.

Roland.

The trial court is ordered to proceed with the pre-

RULING:

trial and hear this case with dispatch.

The Court rejects the claim of respondent Roland

payment

duly

made

by

respondent

YES

that he made several payments but were unrecorded

30. UNION REFINERY VS. TOLENTINO SR.

by the petitioner. This claim runs against the grain

of the rule that the one who pleads payment has the

Doctrine: The basic civil law principle of relativity of

burden of proving it. In the world of business, it is

contracts[9] demands that contracts only bind the

unnatural to make payments and allow them to be

parties (their heirs and assigns) who entered into it.

unrecorded.

It cannot favor or prejudice third persons. Thus, the

alleges nonpayment, the general rule is that the

appellate court was correct in holding that the MOA

burden rests on the defendant to prove payment,

between petitioner and respondent Roland binds only

rather than on the plaintiff to prove nonpayment.

them, and that any obligation arising therefrom may

only be invoked against each or both of them.
FACTS:
184124

Respondent
bounced

Rolands
for

UCPB

insufficiency

Check
of

No.

funds.

To be sure, even where the plaintiff