SONNY LO v.

KJS ECO-FORMWORK SYSTEM

G.R. No. 149420 October 8, 2003

FACTS:

KJS is engaged in the sale of steel scaffoldings while Lo is a building contractor.

On February 22, 1990, petitioner ordered scaffolding equipments from respondent
worth P540,425.80. He paid a downpayment in the amount of P150,000. The balance
was made payable in 10 monthly installments. Respondent delivered the equipments.
Petitioner was able to pay the first two monthly installments. His business suffered
financial difficulties and he was unable to settle his obligations despite demands. On
October 11, 1990, the parties executed a Deed of Assignment whereby petitioner
assigned to respondent his receivables from Jonero Realty. However, Jonero refused to
honor the Dees of Assign,nt because it claimed that petitioner was indebted to it.
Petitioner refused to pay claiming that that his obligation had been extinguished when
they executed the deed of assign,ent. RTC dismissed the complaint on the ground that
the assignment of credit extinguished the obligation. Court of appeals reversed the
decision and ordered Lo to pay the plaintiff KJS with legal interests of 6% per annum
until fully paid.

ISSUE:

Whether or not the Deed of Assignment extinguished the obligation

RULING:

An assignment of credit, by virtue of which the owner of the credit, the assignor,
by a legal cause, such as sale, dacion en pago, exchange or donation and without the
consent of the debtor transfers his credit and accessory rights to another, the assignee,
who acquires the power to enforce it against the debtor. Petitioner, as assignor, is bound
to warrant the existence and legality of the credit at the tim of the sale or assignment.
When Jonero claimed that it was no longer indebted to petitioner since the latter had
also as unpaid obligation to it, it essentially meant that its obligation to the petitioner
has been extinguished by compensation. Petitioner was found in breach of his obligation
under the Deed of assignment. Court of Appeals decision is affirmed.
CATHAY PACIFIC AIRWAYS v.Spouses Vazquez
G.R. No. 150843 March 14, 2003

FACTS:

Cathay is a common carrier engaged in transporting passenger and goods by air.

Spouses Vazquez are Gold Card Members of its Marc Polo Club. The Spouses, with two
friends and a maid went to HongKong for business. Spouses have the Business class
boarding passes and economy class for the maid. When boarding, the ground
stewardess declared a seat change from Business class to First Class for the Vazquez.
The Spouses refused but after insistence by the stewardess, the spouses gave in. When
the arrived in Manila, spouses demanded to be indemnified in the amount of one
million for the humiliation and embarrassment caused by the employee. RTC ruled
for the Vazquez ordering Cathay Airways to pay the spouses, stating further that there
was a breach of contract not because of overbooking but because the latter pushed
through with the upgrading despite objections of the spouses.

ISSUE:

Is an involuntary upgrading of an airlines accommodation at no extra costs cause a

breach of contract of carriage?

RULING:

The Vazquezes are aware of the privileges, but such privileges may be waived. Spouses
should have been consulted first. It should not have been imposed on them over their
vehement objection. By insisting of the upgrade, Pacific Airways breached its contract of
carriage with the Vazquezes. Nominal damages are adjudicated in order that the right of
the plaintiff, which have been violated may be vindicated or recognized and not for
indemnifying the plaintiff for any loss suffered by him.
Petition is partly granted. Court of Appeals decision is modified. Moral damages
deleted, nominal damages reduced to P5,000.
CITIBANK v.SABENIANO
G.R.No. 156132, October 16, 2006

FACTS:

Petitioner Citibank is a banking corporation duly authorized under the laws of the USA
to do commercial banking activities n the Philippines. Sabeniano was a client of both
Petitioners Citibank and FNCB Finance. Respondent filed a complaint against
petitioners claiming to have substantial deposits, the proceeds of which were supposedly
deposited automatically and directly to respondents account with the petitioner
Citibank and that allegedly petitioner refused to despite repeated demands. Petitioner
alleged that respondent obtained several loans from the former and in default, Citibank
exercised its right to set-off respondents outstanding loans with her deposits and
money. RTC declared the act illegal, null and void and ordered the petitioner to refund
the amount plus interest, ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of the respondent.

ISSUE:

Whether petitioner may exercise its right to set-off respondents loans with her deposits
and money in Citibank-Geneva

RULING:

Petition is partly granted with modification.

1. Citibank is ordered to return to respondent the principal amount of P318,897.34
and P203,150.00 plus 14.5% per annum
2. The remittance of US $149,632.99 from respondents Citibank-Geneva account is
declared illegal, null and void, thus Citibank is ordered to refund said amount in
Philippine currency or its equivalent using exchange rate at the time of payment.
3. Citibank to pay respondent moral damages of P300,000, exemplary damages for
P250,000, attorneys fees of P200,000.
4. Respondent to pay petitioner the balance of her outstanding loans of
P1,069,847.40 inclusive off interest.
VITARICH vs. LOSIN
G.R. No. 181560 November 15, 2010

FACTS:

Respondent Chona Losin (Losin) was in the fastfood and catering services business
named Glamours Chicken House. Since 1993, Vitarich, particularly its Davao Branch,
had been her supplier of poultry meat.
In the months of July to November 1996, Losins orders of dressed chicken and other
meat products allegedly amounted to P921,083.10. During this said period, Losins
poultry meat needs for her business were serviced by Rodrigo Directo (Directo) and
Allan Rosa (Rosa), both salesmen and authorized collectors of Vitarich, and Arnold
Baybay (Baybay), a supervisor of said corporation.
On August 24, 1996, Directos services were terminated by Vitarich without Losins
knowledge. He left without turning over some supporting invoices covering the orders of
Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996 and
December 30, 1996, respectively. Just like Directo, they did not also turn over pertinent
invoices covering Losins account.
On February 12, 1997, demand letters were sent to Losin covering her alleged unpaid
account amounting to P921,083.10. It appears that Losin had issued three (3) checks
amounting to P288,463.30 which were dishonored either for reasons - Drawn Against
Insufficient Funds (DAIF) or Stop Payment.
On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin, Directo,
Rosa, and Baybay before the RTC.
On August 9, 2001, the RTC rendered its Decision8 in favor of Vitarich, however the CA
rendered the assailed decision in favor of Losin.

ISSUE:

WON there is already payment on the part of Locsin.

RULING:

No. As a general rule, one who pleads payment has the burden of proving it.The burden
rests on the debtor to prove payment, rather than on the creditor to prove non-payment.
The debtor has the burden of showing with legal certainty that the obligation has been
discharged by payment.
True, the law requires in civil cases that the party who alleges a fact has the burden of
proving it. Section 1, Rule 131 of the Rules of Court24 provides that the burden of proof
is the duty of a party to prove the truth of his claim or defense, or any fact in issue by the
amount of evidence required by law. In this case, however, the burden of proof is on
Losin because she alleges an affirmative defense, namely, payment. Losin failed to
discharge that burden.
After examination of the evidence presented, this Court is of the opinion that Losin
failed to present a single official receipt to prove payment.25 This is contrary to the well-
settled rule that a receipt, which is a written and signed acknowledgment that money
and goods have been delivered, is the best evidence of the fact of payment although not
exclusive.26 All she presented were copies of the list of checks allegedly issued to
Vitarich through its agent Directo,27 a Statement of Payments Made to Vitarich,28 and
apparently copies of the pertinent history of her checking account with Rizal
Commercial Banking Corporation (RCBC). At best, these may only serve as
documentary records of her business dealings with Vitarich to keep track of the
payments made but these are not enough to prove payment.
EUFEMIA and ROMEL ALMEDA v. BATHALA MARKETING
G.R.No. 150806, January 28, 2008

FACTS:

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

ISSUE:

Whether the amount of rentals due the petitioners should be adjusted by reason of
extraordinary inflation or devaluation

RULING:

Petitioners are stopped from shifting to respondent the burden of paying the VAT. 6th
Condition states that respondent can only be held liable for new taxes imposed after the
effectivity of the contract of lease, after 1977, VAT cannot be considered a new tax.
Neither can petitioners legitimately demand rental adjustment because of extraordinary
inflation or devaluation. Absent an official pronouncement or declaration by competent
authorities of its existence, its effects are not to be applied.
Petition is denied. CA decision is affirmed.
SIMPLICIO PALANCA v.ULYSIUS GUIDES and LORENZO GUIDES
G.R. No. 146365 February 28, 2005

FACTS:

In August 1983, petitioner Palanca executed a contract to sell a parcel of land on

installment with Jopson for P11,250. Jopson paid petitioner P1,650 as downpayment,
leaving a balance of P9600. In December 1983, Jopson assigned ad transferred all her
rights and interests over the property to respondent Guides. Believing that she had fully
paid the purchase prize, respondent found out when she verified with the Register of
Deeds that the property in question was still in the name of de Leon. Petitioner stated
that she refused to execute the document of sale in favor of the respondent since the
latter failed with the said obligation- that he was not paid the complete amount in the
contract. RTC ruled in favor of the plaintiff and against Palanca, ordering him to execute
a Deed of Absolute Sale and the issuance of TCT, reimburse plaintiff the amount paid n
excess and for damages.

ISSUE:

Whether the petitioners claim of unpaid charges from the respondent proper

RULING:

Petitioner was deemed to have waived his right to present evidence and thus was
unable to adduce evidence of such inflation or fluctuation. Even if there were such,
petitioner did not make a demand on respondent for the satisfaction of the claim.
When petitioner accepted respondents installment payments despite the alleged
charges, and without any showing that he protested the irregularity of such payment,
nor demanded the payment of the alleged charges, respondents liability, if any for said
charges is deemed fully satisfied.
BINALBAGAN VS. COURT OF APPEALS
G.R. No. 100594, March 10, 1993

FACTS:

On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as
Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract
to Sell and a Deed of Sale of forty-two subdivision lots within the Phib-Khik Subdivision
of the Puentevella family, conveying and transferring said lots to petitioner Binalbagan
Tech., Inc. (hereinafter referred to as Binalbagan). In turn Binalbagan, through its
president, petitioner Hermilo J. Nava (hereinafter referred to as Nava), executed an
Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the
estate of Puentevella.
Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took
possession of the lots and the building and improvements thereon. Binalbagan started
operating a school on the property from 1967 when the titles and possession of the lots
were transferred to it.
It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court
stationed at Himamaylan, Negros Occidental. In this pending case the intestate estate
of the late Luis B. Puentevella, thru Judicial Administratrix, Angelina L. Puentevella
sold said aforementioned lots to Raul Javellana with the condition that the vendee-
promisee would not transfer his rights to said lots without the express consent of
Puentevella and that in case of the cancellation of the contract by reason of the violation
of any of the terms thereof, all payments therefor made and all improvements
introduced on the property shall pertain to the promissor and shall be considered as
rentals for the use and occupation thereof.
Javellana having failed to pay the installments for a period of five years, Civil Case No.
7435 was filed by defendant Puentevella against Raul Javellana and the Southern
Negros Colleges which was impleaded as a party defendant it being in actual possession
thereof, for the rescission of their contract to sell and the recovery of possession of the
lots and buildings with damages.
Accordingly, after trial, judgment was rendered in favor of Puentevella. Came December
29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim
based on an alleged Deed of Sale executed in their favor by spouses Jose and Lolita
Lopez, thus Puentevella was constrained to assert physical possession of the premises to
counteract the fictitious and unenforceable claim of herein plaintiffs.
Upon the filing of the instant case for injunction and damages on January 3, 1966, an
ex-parte writ of preliminary injunction was issued by the Honorable Presiding Judge
Carlos Abiera, which order, however, was elevated to the Honorable Court of Appeals
which issued a writ of preliminary injunction ordering Judge Carlos Abiera or any other
person or persons in his behalf to refrain from further enforcing the injunction issued by
him in this case and from further issuing any other writs or prohibitions which would in
any manner affect the enforcement of the judgment rendered in Civil Case 7435,
pending the finality of the decision of the Honorable Court of Appeals in the latter case.
Thus, defendant Puentevella was restored to the possession of the lots and buildings
subject of this case. However, plaintiffs filed a petition for review with the Supreme
Court which issued a restraining order against the sale of the properties claimed by the
spouses-plaintiffs.
When the Supreme Court dissolved the aforesaid injunction issued by the Court of
Appeals, possession of the building and other property was taken from petitioner
Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner
Binalbagan transferred its school to another location. In the meantime, the defendants
in Civil Case No. 293 with the Court of Appeals interposed an appeal. On October 30,
1978, the Court of Appeals rendered judgment, reversing the appealed decision in Civil
Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the
record of the case was remanded to the court of origin on December 22, 1981.
Consequently, in 1982 the judgment in Civil Case No. 7435 was finally executed and
enforced, and petitioner was restored to the possession of the subdivision lots an May
31, 1982. It will be noted that petitioner was not in possession of the lots from 1974 to
May 31, 1982.
After petitioner Binalbagan was again placed in possession of the subdivision lots,
private respondent Angelina Echaus demanded payment from petitioner Binalbagan for
the subdivision lots, enclosing in the letter of demand a statement of account as of
September 1982 showing a total amount due of P367,509.93, representing the price of
the land and accrued interest as of that date.
As petitioner Binalbagan failed to effect payment, private respondent Angelina P.
Echaus filed on October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the
Sixth Judicial Region stationed in Himamaylan, Negros Occidental against petitioners
for recovery of title and damages. Private respondent Angelina P. Echaus filed an
amended complaint by including her mother, brothers, and sisters as co-plaintiffs,
which was admitted by the trial court on March 18, 1983.
The trial court rendered a decision in favor of the petitioner because of prescription.
Nonetheless, the Court of Appeals reversed said decision.

ISSUE:

Whether or not the petition is with merit.

RULING:

No. A party to a contract cannot demand performance of the other party's

obligations unless he is in a position to comply with his own obligations. Similarly, the
right to rescind a contract can be demanded only if a party thereto is ready, willing and
able to comply with his own obligations there under (Art. 1191, Civil Code).
In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as
well as warrant, the thing which is the object of the sale (Art. 1495, Civil Code); he
warrants that the buyer shall, from the time ownership is passed, have and enjoy the
legal and peaceful possession of the thing. As afore-stated, petitioner was evicted from
the subject subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and
reinstated to the possession thereof only in 1982. During the period, therefore, from
1974 to 1982, seller private respondent Angelina Echaus' warranty against eviction given
to buyer petitioner was breached though, admittedly, through no fault of her own. It
follows that during that period, 1974 to 1982, private respondent Echaus was not in a
legal position to demand compliance of the prestation of petitioner to pay the price of
said subdivision lots. In short, her right to demand payment was suspended during that
period, 1974-1982.
The prescriptive period within which to institute an action upon a written contract is ten
years (Art. 1144, Civil Code). The cause of action of private respondent Echaus is based
on the deed of sale afore-mentioned. The deed of sale whereby private respondent
Echaus transferred ownership of the subdivision lots was executed on May 11, 1967. She
filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982.
From May 11, 1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly,
the 10-year prescriptive period had expired before she brought her action to recover
title. However, the period 1974 to 1982 should be deducted in computing the
prescriptive period for the reason that, as above discussed, from 1974 to 1982, private
respondent Echaus was not in a legal position to initiate action against petitioner since
as afore-stated, through no fault of hers, her warranty against eviction was breached. In
the case of it was held that a court order deferring action on the execution of judgment
suspended the running of the 5-year period for execution of a judgment. Here the
execution of the judgment in Civil Case No. 7435 was stopped by the writ of preliminary
injunction issued in Civil Case No. 293. It was only when Civil Case No. 293 was
dismissed that the writ of execution in Civil Case No. 7435 could be implemented and
petitioner Binalbagan restored to the possession of the subject lots.
Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years
elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive
period. Working against petitioner's position too is the principle against unjust
enrichment, which would certainly be the result if petitioner were allowed to own the 42
lots without full payment thereof.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-
G.R. CV No. 24635 is AFFIRMED.
LUZON DEVELOPMENT BANK vs. ENRIQUEZ
G.R. No. 168646 January 12, 2011
DELTA DEVELOPMENT vs. ENRIQUEZ and LUZON DEVELOPMENT BANK
G.R. No. 168666

FACTS:

On July 3, 1995, De Leon (owner of Delta) and his spouse obtained a P4 million loan
from the BANK for the express purpose of developing Delta Homes I.8 To secure the
loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM)
on several of their properties,9 including Lot 4. Subsequently, this REM was amended10
by increasing the amount of the secured loan from P4 million to P8 million. Both the
REM and the amendment were annotated on TCT No. T-637183.11
Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles
Catherine Enriquez (Enriquez)14 over the house and lot in Lot 4 with the condition that
upon full payment of the total consideration the Owner shall execute a final deed of sale
in favor of the Vendee/s.
When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the
REM, agreed to a dation in payment or a dacion en pago. Enriquez filed a complaint
against DELTA and the BANK before Office of the HLURB19 alleging that DELTA
violated the terms of its License to Sell. The HLURB Arbiter Atty. Raymundo A.
Foronda upheld the validity of the purchase price, but ordered DELTA to accept
payment of the balance of P108,013.36 from Enriquez, and (upon such payment) to
deliver to Enriquez the title to the house and lot free from liens and encumbrances.
DELTA appealed the arbiters Decision to the HLURB Board of Commissioners. The
Commission ordered [Enriquez] to pay [DELTA] the amount due from the time she
suspended payment up to filing of the complaint with 12% interest thereon per annum;
thereafter the provisions of the Contract to Sell shall apply until full payment is made.
The OP adopted by reference the findings of fact and conclusions of law of the HLURB
Decisions, which it affirmed in toto. The CA ruled against the validity of the dacion en
pago executed in favor of the BANK on the ground that DELTA had earlier relinquished
its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.46

ISSUE:
Whether the dacion en pago extinguished the loan obligation, such that DELTA
has no more obligations to the BANK.

RULING:

The violation of Section 18 renders the mortgage executed by DELTA void therefore the
8 million loans are unsecured. Since the Contract to sell did not transfer ownership of
Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly
transfer such ownership (as it did) to another person (the BANK). However, the
transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights
thereunder.
BANK is also not entitled to payment of the equivalent value of the lot 4 from DELTA
when the this court ruled in favor of ENRIQUEZ over lot 4. Like in all contracts, the
intention of the parties to the dation in payment is paramount and controlling. The
contractual intention determines whether the property subject of the dation will be
considered as the full equivalent of the debt and will therefore serve as full satisfaction
for the debt. "The dation in payment extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved,
unless the parties by agreement, express or implied, or by their silence, consider the
thing as equivalent to the obligation, in which case the obligation is totally
extinguished."
AQUINTEY v. SPOUSES TIBONG
G.R. No. 166704,December 20, 2006

FACTS:

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

ISSUE:

Whether or not the deeds of assignment in favor of petitioner has the effect of payment
of the original obligation that would partially extinguish the same

RULING:

Substitution of the person of the debtor ay be affected by delegacion. Meaning, the

debtor offers, the creditor accepts a third person who consent of the substitution and
assumes the obligation. It is necessary that the old debtor be released fro the obligation
and the third person or new debtor takes his place in the relation . Without such
release, there is no novation. Court of Appeals correctly found that the respondents
obligation to pay the balance of their account with petitioner was extinguished pro tanto
by the deeds of credit. CA decision is affirmed with the modification that the principal
amount of the respondents is P33,841.
NEREO PACULDO v. BONIFACIO REGALADO
G. R. No. 123855,November 20, 2000

FACTS:

On December 27, 1990, petitioner Paculdo and respondent Regalado entered into a
contract of lease over a parcel of land for 25 years. For the first 5 years, Paculdo would
pay monthly rental of P450,000 payable within 5 days of each month, with 2% penalty
for very month of delay. Aside from the above lease, petitioner leased 11 other property
from respondent. Petitioner failed to pay. Without the knowledge of petitioner,
respondent ortgaged the land subject of the lease contract including the improvements
to Monte de Piedad. On August 12, 1995, and on subsequent dates thereafter,
respondent refused to accepr petitioners daily rental payments. Petitioner filed an
action for injunction to enjoin respondent from disturbing his possession while
respondent filed a complaint for ejectment attaching the demand letters. MTC held in
favor of the plaintiff which was affired by the RTC. CA found that the petitioner
impliedly consented to respondents application of payment to his obligations, thus,
dismissed the petition for lack of merit.

ISSUE:

Whether petitioner was truly in arrears in the payment of rentals on the subject
property at the time of the filing of the complaint of ejectment

RULING:

The lease over the Fairview wet market property is the most onerous among all the
obligations of petitioner to respondent. It was established that the wet market is a going
concern and that petitioner has invested about P35,000,000 in form of improvements,
over the property. Hence, petitioner would stand to lose more if the lease would not
proceed. CA decision was based on a misapprehension of the facts and the law on the
application of payment. Hence, the ejectment case must be dismissed. CA decision is set
aside.
SPS. BONROSTRO V. SPS. LUNA, GR 172346, 24 JULY 2013

DOCTRINE
Art. 1186 speaks of a situation where it is the obligor who voluntarily prevents
fulfillment of the condition, not the obligee. Moreover, the mere intention to prevent the
happening of the condition or the mere placing of ineffective obstacles to its compliance,
without actually preventing fulfillment is not sufficient for the application of Art. 1186.
Two requisites must concur for its application, to wit: (1) intent to prevent fulfillment of
the condition; and, (2) actual prevention of compliance.

FACTS
Constancia Luna (Luna) bought a piece of land from Bliss Development Corporation in
Diliman, Quezon City in 1992. Less than a year later Luna executed a contract to sell the
lot to Lourdes Bonrostro. The contract contained a stipulation that should the vendee
fails to pay the amount of P630,000.00 by July 31, 1993 the contract to sell shall be
deemed cancelled and 5% of the contract price is forfeited in favor of the vendor. After
payment of the initial down payment and taking possession of the lot the Sps Bonrostro
failed to pay the subsequent installments.

Sps. Luna filed an action for recission of the contract and damages, delivery of
possession of property, and payment of unpaid obligations against the Sps. Bonrostro in
1994. In their answer, the Sps. Bonrostro alleged they are willing to pay and sought a
60-day extension to pay the price, and the Sps. They failed to show on the date of
payment. A letter later sent by the Sps. Bonrostro to the Sps. Lunas lawyer expressing
their willingness to pay was left unanswered. The Sps. Bonrosto prayed the court to set
the period within which they should settle their obligation.

Sps. Bonrostro also alleged that the Sps. Luna sent a letter to BLISS instructing the
company to refuse acceptance of amortizations of the lot from anyone other them, also
paying the amortization, thereby preventing the Sps. Bonrostro from complying with the
contract..

RTC ruled that the delay could not be considered a substantial breach considering that
Lourdes (1) requested for an extension within which to pay; (2) was willing and ready to
pay as early as the last week of October 1993 and even wrote Atty. Carbon about this on
November 24, 1993; (3) gave Constancia a down payment of P200,000.00; and, (4)
made payment to Bliss. Interest was imposed on the sums of P300,000.00 plus interest
of 2% per month from April 1993 to November 1993 and P330,000.00 plus interest of
2% per month from July 1993 to November 1993.

On appeal, the CA affirmed and ruled that the rescission done was not the proper
remedy, but instead should have followed the form and procedure under Sec. 4, RA
6552 (Maceda Law). Under the Maceda law there is a valid cancellation when after the
failure to pay the installment the buyer again fails to pay within the 60-day grace period
and the seller sends a notarized notice to the buyer of the cancellation of the contract.
The court additionally imposed the contractual 2% interest upon failure to pay the
installments, per installment price and period - 2% interest on the P300,000.00 from
May 1, 1993 until fully paid and by imposing interest at the legal rate on the
P330,000.00 reckoned from August 1, 1993 until fully paid and on the amortizations.

Sps. Bonrostro assails the imposition of the interest on petition for review on certiorari
to the SC.

ISSUE/S
(1) Whether the spouses Bonrostros were in delay in their payment of the installments
constitutes a substantial breach of their obligation under the contract warranting
rescission.
(2) Whether the imposition of the interest rate on the installments and amortizations
was correct.

HELD

(1) NO. In a contract to sell, payment of the price is a positive suspensive condition,
failure of which is not a breach of contract warranting rescission under Article 119129 of
the Civil Code but rather just an event that prevents the supposed seller from being
bound to convey title to the supposed buyer. Article 1191 cannot be applied to sales of
real property on installment since they are governed by the Maceda Law. There being no
breach to speak of, the RTCs factual finding that Lourdes was willing and able to pay
her obligation loses significance and cannot be used as an excuse for failure to pay their
obligation on November 24, 1993 and the interest beyond the said date.

(2) YES.

On the installments
The letter expressing willingness to pay without accompanying payment, or
consignation of the payment in court produces no effect and did not suspend the
running of interest.

Tender of payment "is the manifestation by the debtor of a desire to comply with or pay
an obligation. If refused without just cause, the tender of payment will discharge the
debtor of the obligation to pay but only after a valid consignation of the sum due shall
have been made with the proper court." "To have the effect of payment and the
consequent extinguishment of the obligation to pay, the law requires the companion
acts of tender of payment and consignation."

On the amortizations
The spouses Bonrostro want to be relieved from paying interest on the amount of
P214,492.62 which the spouses Luna paid to Bliss as amortizations, by asserting that
they were prevented by the latter from fulfilling such obligation. They invoke Art. 1186
of the Civil Code which provides that "the condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment."

However, Art. 1186 speaks of a situation where it is the obligor who voluntarily prevents
fulfillment of the condition, not the obligee. Moreover, the mere intention to prevent the
happening of the condition or the mere placing of ineffective obstacles to its compliance,
without actually preventing fulfillment is not sufficient for the application of Art. 1186.
Two requisites must concur for its application, to wit: (1) intent to prevent fulfillment of
the condition; and, (2) actual prevention of compliance.

Here, Sps. Luna is not the obligor but the obligee, and their actions were only sought to
ensure and not defeat the fulfillment of the contract. Their payment (1) avoided the
cancellation of both the contract of sale, and consequently, the contract to sell; and (2)
avoid the penalty for unpaid amortizations equivalent to 1/10th of 1% per day of delay
shall be imposed for all payments made after due date (3% monthly or 36% per annum
rate of interest).

Under the circumstances and considering that the spouses Bonrostro are obviously in
delay in complying with their obligation to pay the amortizations due from February
1993 to January 1995 for which the spouses Luna paid P214,492.62,45 the CA correctly
ordered the reimbursement to the latter of the said amount with interest. "Delay in the
performance of an obligation is looked upon with disfavor because, when a party to a
contract incurs delay, the other party who performs his part of the contract suffers
damages thereby." As discussed, the spouses Luna obviously suffered damages brought
about by the failure of the spouses Bonrostro to comply with their obligation on time.
"And, sans elaboration of the matter at hand, damages take the form of interest x x x."
DALTON, vs.FGR REALTY AND DEVELOPMENT CORP
G.R. No. 172577 January 19, 2011

FACTS:

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner
of Rama Avenue which Dalton leased portions of the property.
In June 1985, Dayrit sold the property to respondent FGR Realty and Development
Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments
because they wanted to terminate the lease agreements with Dalton and Sasam, et al.
Soledad Dalton built a house which she initially used as a dwelling and store space. She
vacated the premises when her children got married. She transferred her residence near
F. Ramos Public Market, Cebu City.
She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last
monthly rental was P69.00. When defendants refused to accept rent al and demanded
vacation of the premises, she consignated [sic] her monthly rentals in court.
The RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate the
property. The RTC held that:
The requisites of consignation are as follows:
1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation;
Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there
were no prior notices of consignation (before deposit) and subsequent notices of
consignation (after deposit) The Court of Appeals affirmed the RTCs 26 February 2002
Decision.

ISSUE:

WON the consignation was void.

RULING:

No. Compliance with the requisites of a valid consignation is mandatory. Failure to

comply strictly with any of the requisites will render the consignation void. Substantial
compliance is not enough. The requisites of a valid consignation: (1) a debt due; (2) the
creditor to whom tender of payment was made refused without just cause to accept the
payment, or the creditor was absent, unknown or incapacitated, or several persons
claimed the same right to collect, or the title of the obligation was lost; (3) the person
interested in the performance of the obligation was given notice before consignation was
made; (4) the amount was placed at the disposal of the court; and (5) the person
interested in the performance of the obligation was given notice after the consignation
was made.
Substantial compliance is not enough for that would render only a directory
construction to the law. The use of the words "shall" and "must" which are imperative,
operating to impose a duty which may be enforced, positively indicate that all the
essential requisites of a valid consignation must be complied with. The Civil Code
Articles expressly and explicitly direct what must be essentially done in order that
consignation shall be valid and effectual.
OCCENA V CA
G.R.No. 44349 October 29, 1976

FACTS:

On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for
modification of the terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao City), making the
following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant
worldwide spiralling of prices, which are not within the control of plaintiff, of all
commodities including basis raw materials required for such development work, the
cost of development has risen to levels which are unanticipated, unimagined and not
within the remotest contemplation of the parties at the time said agreement was entered
into and to such a degree that the conditions and factors which formed the original basis
of said contract, Annex 'A', have been totally changed;
"That further performance by the plaintiff under the contract, Annex 'A', will result in
situation where defendants would be unjustly enriched at the expense of the plaintiff;
will cause an inequitous distribution of proceeds from the sales of subdivided lots in
manifest contravention of the original essence of the agreement; and will actually result
in the unjust and intolerable exposure of plaintiff to implacable losses.

ISSUE:

Whether or not provisions of art 1267 of the new civil code is applicable in the case at a
bar?

RULING:

ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part."

Respondent's complaint seeks not release from the subdivision contract but that the
court "render judgment modifying the terms and conditions of the contract . . . by fixing
the proper shares that should pertain to the herein parties out of the gross proceeds
from the sales of subdivided lots of subject subdivision". The cited article does not grant
the courts this authority to remake, modify or revise the contract or to fix the division of
shares between the parties as contractually stipulated with the force of law between the
parties, so as to substitute its own terms for those covenanted by the parties themselves.
Respondent's complaints for modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular allegations of respondent's
complaint and the circumstances therein averred, the courts cannot even in equity grant
the relief sought.
MAGAT V CA
G.R.No. 124221 August 4, 2000

FACTS:

Private respondent Santiago A. Guerrero (hereinafter referred to as "Guerrero") was

President and Chairman of[4] "Guerrero Transport Services", a single proprietorship.
Sometime in 1972, Guerrero Transport Services won a bid for the operation of a fleet of
taxicabs within the Subic Naval Base, in Olongapo. As highest bidder, Guerrero was to
"provide radio-controlled taxi service within the U. S. Naval Base, Subic Bay, utilizing as
demand requires... 160 operational taxis consisting of four wheel, four-door, four
passenger, radio controlled, meter controlled, sedans, not more than one year.
On September 22, 1972, with the advent of martial law, President Ferdinand E. Marcos
issued Letter of Instruction No. 1. SEIZURE AND CONTROL OF ALL PRIVATELY
OWNED NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES AND
ALL OTHERMEDIA OF COMMUNICATION.

ISSUE:

Whether the contract between Victorino and Guerrero for the purchase of radio
transceivers was void.

RULING:

The contract was not void ab initio. Nowhere in the LOI and Admin. Circular is there an
express ban on the importation of transceivers.

The LOI and Administrative Circular did not render "radios and transceivers" illegal per
se. The Administrative Circular merely ordered the Radio Control Office to suspend the
"acceptance and processing .... of applications... for permits to possess, own, transfer,
purchase and sell radio transmitters and transceivers..."[41] Therefore, possession and
importation of the radio transmitters and transceivers was legal provided one had the
necessary license for it.[42] Transceivers were not prohibited but merely regulated
goods. The LOI and Administrative Circular did not render the transceivers outside the
commerce of man. They were valid objects of the contract.
REYNA V. COA
FEBRUARY 8, 2011

FACTS:

The Land Bank of the Philippines (Land Bank) was engaged in a cattle-financing
program wherein loans were granted to various cooperatives. Pursuant thereto, Land
Bank's Ipil, Zamboanga del Sur Branch (Ipil Branch) went into a massive information
campaign offering the program to cooperatives.Cooperatives who wish to avail of a loan
under the program must fill up a Credit Facility Proposal (CFP) which will be reviewed
by the Ipil Branch. The Ipil Branch approved the applications of four cooperatives.One
of the conditions stipulated in the CFP is that prior to the release of the loan, a
Memorandum of Agreement (MOA) between the supplier of the cattle, Remad Livestock
Corporation (REMAD), and the cooperative, shall have been signed. As alleged by
petitioners, the terms of the CFP allowed for pre-payments or advancement of the
payments prior to the delivery of the cattle by the supplier REMAD but such was not
stipulated in the contracts.
Three checks were issued by the Ipil Branch to REMAD to serve as advanced payment
for the cattle. REMAD, however, failed to supply the cattle on the dates agreed upon.
In post audit, the Land Bank Auditor disallowed the amount of P3,115,000.00 under
CSB No. 95-005 dated December 27, 1996 and Notices of Disallowance Nos. 96-014 to
96-019 in view of the non-delivery of the cattle. Also made as the basis of the
disallowance was the fact that advanced payment was made in violation of bank policies
and COA rules and regulations.
Petitioners were made liable for the amount

ISSUE:

Whether or not the writing off of a loan is considered as condonation

RULING:

This Court rules that writing-off a loan does not equate to a condonation or release of a
debt by the creditor.
As an accounting strategy, the use of write-off is a task that can help a company
maintain a more accurate inventory of the worth of its current assets. In general banking
practice, the write-off method is used when an account is determined to be uncollectible
and an uncollectible expense is recorded in the books of account. If in the future, the
debt appears to be collectible, as when the debtor becomes solvent, then the books will
be adjusted to reflect the amount to be collected as an asset. In turn, income will be
credited by the same amount of increase in the accounts receivable.
Write-off is not one of the legal grounds for extinguishing an obligation under the Civil
Code. It is not a compromise of liability. Neither is it a condonation, since in
condonation gratuity on the part of the obligee and acceptance by the obligor are
required. In making the write-off, only the creditor takes action by removing the
uncollectible account from its books even without the approval or participation of the
debtor.
DALUPAN V HARDEN
G.R.No. L-3975 November 27, 1951

FACTS:

On August 26, 1948, plaintiff filed an action against the defendant for the collection of
P113,837.17, with interest thereon from the filing of the complaint, which represents 50
per cent of the reduction plaintiff was able to secure from the Collector of Internal
Revenue in the amount of unpaid taxes claimed to be due from the defendant.
Defendant acknowledged this claim and prayed that judgment be rendered accordingly.
In the meantime, the receiver in the liquidation case No. R-59634 and the wife of the
defendant, Esperanza P. de Harden, filed an answer in intervention claiming that the
amount sought by the plaintiff was exorbitant and prayed that it be reduced to 10 per
cent of the rebate. By reason of the acquiescence of the defendant to the claim on one
hand, and the opposition of the receiver and of the wife on the other, an amicable
settlement was concluded by the plaintiff and the intervenor whereby it was agreed that
the sum of P22,767.43 be paid to the plaintiff from the funds under the control of the
receiver "and the balance of P91,069.74 shall be charged exclusively against the
defendant Fred M. Harden from whatever share he may still have in the conjugal
partnership between him and Esperanza P. de Harden.

ISSUE:

Whether or not the writ of execution asked for by the plaintiff on the two checks is
premature.

RULING:

Examining the terms the court finds that the stipulation limits the right of the plaintiff
to ask for the execution of the judgment to whatever share Fred M. Harden may still
have in the conjugal partnership between him and his wife after the final liquidation and
partition thereof. The execution of the judgment is premised upon a condition
precedent, which is the final liquidation and partition of the conjugal partnership. Note
that the condition does not refer to the liquidation of a particular property of the
partnership. It refers to the over-all and final liquidation of the partnership. Such being
the stipulation of the parties which was sanctioned and embodied by the Court in its
decision, it is clear that the writ of execution asked for by the plaintiff on the two checks
is premature.
LOPEZ VITO V TAMBUNTING
G.R.No. 9806 January 19, 1916

FACTS:

These proceedings were brought to recover from the defendant the sum of P2,000,
amount of the fees, which, according to the complaint, are owing for professional
medical services rendered by the plaintiff to a daughter of the defendant from March 10
to July 15, 1913, which fees the defendant refused to pay, notwithstanding the demands
therefor made upon him by the plaintiff.

The defendant denied the allegations of the complaint, and furthermore alleged that the
obligation which the plaintiff endeavored to compel him to fulfill was already
extinguished.

ISSUE:

Whether or not implied condonation can be legally pressumed in the instant case?

RULING:

It is true that number 8 of section 334 of the Code of Civil Procedure provides as a legal
presumption "that an obligation delivered up to the debtor has been paid." Article 1188
of the Civil Code also provides that the voluntary surrender by a creditor to his debtor,
of a private instrument proving a credit, implies the renunciation of the right of action
against the debtor; and article 1189 prescribes that whenever the private instrument
which evidences the debt is in the possession of the debtor, it will be presumed that the
creditor delivered it of his own free will, unless the contrary is proven.

But the legal presumption established by the foregoing provisions of law cannot stand if
sufficient proof is adduced against it. In the case at bar the trial court correctly held that
there was sufficient evidence to the contrary, in view of the preponderance thereof in
favor of the plaintiff and of the circumstances connected with the defendant's possession
of said receipt Exhibit 1. Furthermore, in order that such a presumption may be taken
into account, it is necessary, as stated in the laws cited, that the evidence of the
obligation be delivered up to the debtor and that the delivery of the instrument proving
the credit be made voluntarily by the creditor to the debtor. In the present case, it
cannot be said that these circumstances concurred, inasmuch as when the plaintiff sent
the receipt to the defendant for the purpose of collecting his fee, it was not his intention
that that document should remain in the possession of the defendant if the latter did not
forthwith pay the amount specified therein.
E.G.V. REALTY V CA
G.R.No. 120236 July 20, 1999

FACTS:

Petitioner E.G.V. Realty Development Corporation is the owner/developer of a seven-

storey condominium building known as Cristina Condominium. Cristina Condominium
Corporation holds title to all common areas of Cristina Condominium and is in charge of
managing, maintaining and administering the condominiums common areas and
providing for the buildings security. Respondent Unisphere International, Inc.
(hereinafter referred to as Unisphere) is the owner/occupant of Unit 301 of said
condominium. On November 28, 1981, respondent Unispheres Unit 301 was allegedly
robbed of various items valued at P6,165.00. The incident was reported to petitioner
CCC. On July 25, 1982, another robbery allegedly occurred at Unit 301 where the items
carted away were valued at P6,130.00, bringing the total value of items lost to
P12,295.00. This incident was likewise reported to petitioner CCC. On October 5, 1982,
respondent Unisphere demanded compensation and reimbursement from petitioner
CCC for the losses incurred as a result of the robbery. On January 28, 1987, petitioners
E.G.V. Realty and CCC jointly filed a petition with the Securities and Exchange
Commission (SEC) for the collection of the unpaid monthly dues in the amount of
P13,142.67 against respondent Unisphere.

ISSUE:

Whether or not set-off or compensation has taken place in the instant case.

RULING:

Compensation or offset under the New Civil Code takes place only when two persons or
entities in their own rights, are creditors and debtors of each other. (Art. 1278).

A distinction must be made between a debt and a mere claim. A debt is an amount
actually ascertained. It is a claim which has been formally passed upon by the courts or
quasi-judicial bodies to which it can in law be submitted and has been declared to be a
debt. A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and
must pass thru the process prescribed by law before it develops into what is properly
called a debt. Absent, however, any such categorical admission by an obligor or final
adjudication, no compensation or off-set can take place. Unless admitted by a debtor
himself, the conclusion that he is in truth indebted to another cannot be definitely and
finally pronounced, no matter how convinced he may be from the examination of the
pertinent records of the validity of that conclusion the indebtedness must be one that is
admitted by the alleged debtor or pronounced by final judgment of a competent court or
in this case by the Commission.

There can be no doubt that Unisphere is indebted to the Corporation for its unpaid
monthly dues in the amount of P13,142.67. This is admitted.
APODACA V NLRC
G.R.No. 80039 April1 8, 1989

FACTS:

Petitioner was employed in respondent corporation. On August 28, 1985, respondent

Jose M. Mirasol persuaded petitioner to subscribe to P1,500 shares of respondent
corporation it P100.00 per share or a total of P150,000.00. He made an initial payment
of P37,500.00. On September 1, 1975, petitioner was appointed President and General
Manager of the respondent corporation. However, on January 2, 1986, he resigned.
On December 19, 1986, petitioner instituted with the NLRC a complaint against private
respondents for the payment of his unpaid wages, his cost of living allowance, the
balance of his gasoline and representation expenses and his bonus compensation for
1986. Petitioner and private respondents submitted their position papers to the labor
arbiter. Private respondents admitted that there is due to petitioner the amount of
P17,060.07 but this was applied to the unpaid balance of his subscript in the amount of
P95,439.93. Petitioner questioned the set-off alleging that there was no call or notice for
the payment of unpaid subscription and that, accordingly, the alleged obligation is not
enforceable.

ISSUE:

Does the National Labor Relations Commission (NLRC) have jurisdiction to resolve a
claim for non-payment of stock subscriptions to a corporation? Assuming that it has,
can an obligation arising therefrom be offset against a money claim of an employee
against the employer?

RULING:

Firstly, the NLRC has no jurisdiction to determine such intra-corporate dispute between
the stockholder and the corporation as in the matter of unpaid subscriptions. This
controversy is within the exclusive jurisdiction of the Securities and Exchange
Commission.

Secondly, assuming arguendo that the NLRC may exercise jurisdiction over the said
subject matter under the circumstances of this case, the unpaid subscriptions are not
due and payable until a call is made by the corporation for payment. Private
respondents have not presented a resolution of the board of directors of respondent
corporation calling for the payment of the unpaid subscriptions. It does not even appear
that a notice of such call has been sent to petitioner by the respondent corporation.
MONDRAGO v. SOLA: MISSING
MONDRAGON V. SOLA
689 SCRA 18 [2013]

Civil Law; Obligations; Compensation; Legal Compensation; Compensation is a mode

of extinguishing to the concurrent amount the obligations of persons who in their own
right and as principals are reciprocally debtors and creditors of each other. Legal
compensation takes place by operation of law when all the requisites are present, as
opposed to conventional compensation which takes place when the parties agree to
compensate their mutual obligations even in the absence of some requisites.We find
that petitioners act of withholding respondents service fees/commissions and applying
them to the latters outstanding obligation with the former is merely an
acknowledgment of the legal compensation that occurred by operation of law between
the parties. Compensation is a mode of extinguishing to the concurrent amount the
obligations of persons who in their own right and as principals are reciprocally debtors
and creditors of each other. Legal compensation takes place by operation of law when all
the requisites are present, as opposed to conventional compensation which takes place
when the parties agree to compensate their mutual obligations even in the absence of
some requisites. Legal compensation requires the concurrence of the following
conditions: (1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other; (2) That both debts consist in a sum of
money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated; (3) That the two debts be due; (4) That they be
liquidated and demandable; (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the debtor.

Article 1279

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (1196)
CAROLINA HERNANDEZ-NIEVERA V. WILFREDO HERNANDEZ
GR No. 171165; February 14, 2011

FACTS:

Project Movers Realty & Development Corporation (PMRDC) is a duly organized

domestic corporation engaged in real estate development. It entered into a
Memorandum of Agreement (MOA) whereby it was given the option to buy pieces of
land owned by petitioners Carolina Hernandez-Nievera, Margarita H. Malvar and
Demetrio P. Hernandez, Jr. Demetrio, under authority of a Special Power of Attorney
to Sell or Mortgage, signed the MOA also in behalf of Carolina and Margarita. In the
aggregate, the realty measured 4,580,451 square meters and was segregated by
agreement into Area I and Area II.
On March 23, 1998, the PMRDC entered with LBP and Demetrio - the latter purportedly
acting under authority of the same special power of attorney as in the MOA - into a Deed
of Assignment and Conveyance (DAC). PMRDC delivered to petitioners certain checks
representing the money, the same however allegedly bounced. Hence, on January 8,
1999, petitioners demanded the return of the corresponding TCTs over the land but
PMRDC said that the TCTs could no longer be delivered back to petitioners as the
covered properties had already been conveyed and assigned to the Asset Pool pursuant
to the March 23, 1998 DAC. Petitioner contended that Demetrio could not have entered
into the said agreement as his power of attorney was limited only to selling or
mortgaging the properties and not conveying the same to the Asset Pool.

ISSUE:

Whether or not the novation of the MOA is valid.

RULING:

Thus, it becomes clear that Demetrio's special power of attorney to sell is sufficient to
enable him to make a binding commitment under the DAC in behalf of Carolina and
Margarita. In particular, it does include the authority to extinguish PMRDC's obligation
under the MOA to deliver option money and agree to a more flexible term by agreeing
instead to receive shares of stock in lieu thereof and in consideration of the assignment
and conveyance of the properties to the Asset Pool. Indeed, the terms of his special
power of attorney allow much leeway to accommodate not only the terms of the MOA
but also those of the subsequent agreement in the DAC which, in this case, necessarily
and consequently has resulted in a novation of PMRDC's integral obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the same.
The first is when novation has been explicitly stated and declared in unequivocal terms.
The second is when the old and the new obligations are incompatible on every point.
The test of incompatibility is whether the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible, and the latter
obligation novates the first.
BAUTISTA V PILAR DEVELOPMENT
G.R.NO. 135046 august 17, 1999

FACTS:

In 1978, petitioner spouses Florante and Laarni Bautista purchased a house and lot in
Pilar Village, Las Pinas, Metro Manila. To partially finance the purchase, they obtained
from the Apex Mortgage & Loan Corporation a loan in the amount of P100,180.00.
They executed a promissory note on December 22, 1978 obligating themselves, jointly
and severally, to pay the "principal sum of P100,180.00 with interest rate of 12% and
service charge of 3%" for a period of 240 months, or twenty years, from date, in monthly
installments of P1,378.83. Late payments were to be charged a penalty of one and one-
half per cent (1 1/2%) of the amount due. In the same promissory note, petitioners
authorized Apex to "increase the rate of interest and/or service charges" without notice
to them in the event that a law, Presidential Decree or any Central Bank regulation
should be enacted increasing the lawful rate of interest and service charges on the loan.
Payment of the promissory note was secured by a second mortgage on the house and lot
purchased by petitioners.Petitioner spouses failed to pay several installments. On
September 20, 1982, they executed another promissory note in favor of Apex. This note
was in the amount of P142,326.43 at the increased interest rate of twenty-one per cent
(21%) per annum with no provision for service charge but with penalty charge of 1 1/2%
for late payments.

ISSUE:

Whether or not there was valid novation in the case at bar?

RULING:

Novation has four (4) essential requisites: (1) the existence of a previous valid
obligation; (2) the agreement of all parties to the new contract; (3) the extinguishment
of the old contract; and (4) the validity of the new one. In the instant case, all four
requisites have been complied with. The first promissory note was a valid and
subsisting contract when petitioner spouses and Apex executed the second promissory
note. The second promissory note absorbed the unpaid principal and interest of
P142,326.43 in the first note which amount became the principal debt therein, payable
at a higher interest rate of 21% per annum. Thus, the terms of the second promissory
note provided for a higher principal, a higher interest rate, and a higher monthly
amortization, all to be paid within a shorter period of 16.33 years. These changes are
substantial and constitute the principal conditions of the obligation. Both parties
voluntarily accepted the terms of the second note; and also in the same note, they
unequivocally stipulated to extinguish the first note. Clearly, there was animus novandi,
an express intention to novate. The first promissory note was cancelled and replaced by
the second note. This second note became the new contract governing the parties'
obligations.
EVADEL REALTY V SORIANO
G.R.No. 144291 April 20, 2001

FACTS:

On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as
sellers, entered into a "Contract to Sell " with Evadel Realty and Development
Corporation (petitioner), as buyer, over a parcel of land denominated as Lot 5536-C of
the Subdivision Plan of Lot 5536 covered by Transfer Certificate of Title No. 125062
which was part of a huge tract of land known as the Imus Estate. Upon payment of the
first installment, petitioner introduced improvements thereon and fenced off the
property with concrete walls. Later, respondent spouses discovered that the area fenced
off by petitioner exceeded the area subject of the contract to sell by 2,450 square meters.
Upon verification by representatives of both parties, the area encroached upon was
denominated as Lot 5536-D-1 of the subdivision plan of Lot 5536-D of Psd-04-092419
and was later on segregated from the mother title and issued a new transfer certificate of
title, TCT No. 769166, in the name of respondent spouses. Respondent spouses
successively sent demand letters to petitioner on February 14, March 7, and April 24,
1997, to vacate the encroached area. Petitioner admitted receiving the demand letters
but refused to vacate the said area.

ISSUE:

Whether or not there was novation of contract?

RULING:

Petitioner's claim that there was a novation of contract because there was a "second"
agreement between the parties due to the encroachment made by the national road on
the property subject of the contract by 1,647 square meters, is unavailing. Novation, one
of the modes of extinguishing an obligation, requires the concurrence of the following:
(1) there is a valid previous obligation; (2) the parties concerned agree to a new contract;
(3) the old contract is extinguished; and (4) there is valid new contract. Novation may be
express or implied. In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms (express
novation) or that the old and the new obligations be on every point incompatible with
each other (implied novation).
In the instant case, there was no express novation because the "second" agreement was
not even put in writing. Neither was there implied novation since it was not shown that
the two agreements were materially and substantially incompatible with each other. We
quote with approval the following findings of the trial court: Since the alleged agreement
between the plaintiffs [herein respondents] and defendant [herein petitioner] is not in
writing and the alleged agreement pertains to the novation of the conditions of the
contract to sell of the parcel of land subject of the instant litigation, ipso facto, novation
is not applicable in this case since, as stated above, novation must be clearly proven by
the proponent thereof and the defendant in this case is clearly barred by the Statute of
Frauds from proving its claim.