Siga-an v. Villanueva (2009)
As explained by
Chico-Nazario, J.
Facts:
 Alicia Villanueva filed a complaint against Sebastian Sigaan
bec she wants a return of her money (the excess interest she
paid). Events according to her:
o Sigaan, the comptroller of the Phillipine Navy,
offered to loan money to her. She accepted
because she needed capital for her office supply
business venture. She currently supplies office
mat’l and equipment to the Phil Navy.
o She agrees to the loan of P540k. Loan was not in
writing and there was no stipulation as to payment
of interest.
o She issues a check worth P500; as partial payment.
2 months later, she issues another check worth
P200k.
o Sigaan (who now received P700k from Villanueva)
said the excess money Villanueva paid would be
applied as interest. But Sigaan still kept pestering
her for additional interest and threatened to block
her transactions with the Phil Navy if she won’t
comply. Fearing this, she paid additional amounts
totalling to P1.2m. She asked for a receipt but was
told that there was no need bec they had mutual
trust and confidence.
o She then consulted a lawyer who told her that
Sigaan could not validly collect interest because
there was no agreement of interest. She demands
from Sigaan the return of the P660k.
 According to Sigaan, however:
o He did not offer to loan but was instead
propositioned by Villanueva and insists that there
was no overpayment, as that there was a
promissory note by Villanueva admitting to having
borrowed P1.24m.
o As payment, Villanueva issued 6 postdated checks.
Only 1 was honoured. He filed criminal cases
against Villanueva (BP 22). In this BP 22 case,
Sigaan claims that Villanueva, in her testimony,
admitted to having agreed to a 7% interest. This
should be an exception (to the rule that interests
should be in writing) because it would be unfair
since Villanueva already admits to the interest.
o Also Villanueva was already estopped from
complaining because she was given several times
to settle her obligation but failed.
 RTC says: there was overpayment. Villanueva’s obligation
only amounted to P540k because there was no interest
agreement. CA affirmed.
Issue: Was there overpayment? What about interest?
Held: [Yes. Sigaan should return the excess amounts.] [No interest to
be paid by Villanueva. However, Sigaan should pay interest on the
amounts he should refund Villanueva.]
Ratio:
 SC defines interest: monetary and compensatory:
o Monetary interest: Interest is a COMPENSATION
fixed by the PARTIES for the use or forbearance of
money.
o Compensatory: Interest imposed by LAW or by
COURTS as PENALTY or INDEMNITY.
 The right to interest arises only:
1. By a contract; or
2. By virtue of damages for delay or failure to pay the
principal loan
RE: Interest should be stipulated in writing
 NCC 1956: Refers to monetary interest and mandates that no
interest shall be due unless stipulated in writing. So, it is
allowed only when the following concur:
1. If there was express stipulation for interest payment
2. AND if the agreement was in writing
 In this case, the parties did not agree.
Villanueva, the presented promissory note was in her
handwriting because Sigaan told her to copy it and she did
because she feared the threats of Sigaan to block her deals
with the Phil Navy. (this was not rebutted by Sigaan so the SC
believed this explanation)
o Clearly, there was NO CONSENT to the payment
of interest, she was coerced.
RE: Exceptions
 Sigaan’s claim that Villanueva admitting to the interest should
be an exception, SC says: In the BP22 case, Villanueva did
not declare to have made an express stipulation in writing as
to the interest. There instances in which interest may be
imposed in the absence of stipulation, verbal or written, are:
1. NCC 2209: If obligation consists in payment of sum
of money, no stipulation on interest, and debtor
incurs delay = legal interest 12% per annum
2. NCC 2212: interest due shall earn legal interest
from the time it is judicially demanded
 Under those 2 instances, interest MAY be imposed only as
PENALTY or damages for breach of CONTRACTUAL
obligations and NOT for compensation for the use or
forbearance of money.
o MEANING: those 2 are only applicable to
COMPENSATORY interests and not to monetary
interest.
o This case involves a claim for monetary interest.
Compensatory is not chargeable because it was not
proven that Villanueva defaulted in paying the loan.
RE: Solutio indebiti (NCC 2154: 1. if something is received where there
is no right to demand it and 2. it was delivered through mistake, the
obligation to return it arises)
 Principle: no one shall enrich himself unjustly at expense of
another
RE: Interest payment
 Eastern Shipping v. CA:
o when an obligation NOT constituting a loan or
forbearance of money is breached, interest on
amount of damages may be imposed at the rate of
6% per annum.
o When judgment awarding a sum of money
becomes final and executory, legal interest
(whether loan/forbearance or money or not) shall
be 12% per annum from finality
o The INTERIM period is deemed a forbearance of
credit
 Sigaan’s obligation arises from a quasi-contract of solutio
indebitu and NOT from a loan or forbearance of money. So:
o 6% per annum should be imposed on the amount
to be refunded (as well as to the damages and atty
fees) from time of extra judicial demand (March
3, 1998) up to finality.
o Amount shall become 12% per annum from
finality of decision up to its satisfaction
PRISMA CONSTRUCTION & DEVELOPMENT
CORPORATION and ROGELIO S. PANTALEON vs ARTHUR
F. MENCHAVEZ
G.R. No. 160545; March 9, 2010
FACTS:
December 8, 1993, Pantaleon, President and Chairman
of the Board of PRISMA, obtained a P1M loan from the
respondent, with monthly interest of P40,000.00
payable for 6 months, or a total obligation of
P1,240,000.00 payable within 6 mos. To secure the
payment of the loan, Pantaleon issued a promissory.
Pantaleon signed the promissory note in his personal
capacity and as duly authorized by the Board of Directors
of PRISMA. The petitioners failed to completely pay the
loan within the 6-month period.
As of January 4, 1997, respondent found that the
petitioners still had an outstanding balance of
P1,364,151.00, to which respondent applied a 4%
monthly interest.
On August 28, 1997, respondent filed a complaint for
sum of money to enforce the unpaid balance, plus 4%
monthly interest. In their Answer, the petitioners
admitted the loan of P1,240,000.00, but denied the
stipulation on the 4% monthly interest, arguing that the
interest was not provided in the promissory note.
Pantaleon also denied that he made himself personally
liable and that he made representations that the loan
would be repaid within six (6) months.
RTC found that the respondent issued a check for P1M in
favor of the petitioners for a loan that would earn an
interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. RTC ordered the
petitioners to jointly and severally pay the respondent
the amount of P3,526,117.00 plus 4% per month interest
from February 11, 1999 until fully paid.
Petitioners appealed to CA insisting that there was no
express stipulation on the 4% monthly interest. CA
favored respondent but noted that the interest of 4% per
month, or 48% per annum, was unreasonable and should
be reduced to 12% per annum. MR denied hence this
petition.
ISSUE:
Whether the parties agreed to the 4% monthly interest
on the loan. If so, does the rate of interest apply to the
6-month payment period only or until full payment of the
loan?
RULING:
Petition is meritorious. Interest due should be stipulated
in writing; otherwise, 12% per annum
Obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith. When the terms of a contract are clear
and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs.
Courts have no authority to alter the contract by
construction or to make a new contract for the parties; a
court’s duty is confined to the interpretation of the
contract the parties made for themselves without regard
to its wisdom or folly, as the court cannot supply material
stipulations or read into the contract words the contract
does not contain. It is only when the contract is vague
and ambiguous that courts are permitted to resort to the
interpretation of its terms to determine the parties’
intent.
In the present case, the respondent issued a check for
P1M. In turn, Pantaleon, in his personal capacity and as
authorized by the Board, executed the promissory note.
Thus, the P1M loan shall be payable within 6 months. The
loan shall earn an interest of P40,000.00 per month, for
a total obligation of P1,240,000.00 for the six-month
period. We note that this agreed sum can be computed
at 4% interest per month, but no such rate of interest
was stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that
“no interest shall be due unless it has been expressly
stipulated in writing.” The payment of interest in loans or
forbearance of money is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2)
the agreement for the payment of interest was reduced
in writing. The concurrence of the two conditions is
required for the payment of interest at a stipulated rate.
The collection of interest without any stipulation in
writing is prohibited by law.
The interest of P40,000.00 per month corresponds only
to the six-month period of the loan, or from January 8,
1994 to June 8, 1994, as agreed upon by the parties in
the promissory note. Thereafter, the interest on the loan
should be at the legal interest rate of 12% per annum.
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article
1169 of the Civil Code.
The facts show that the parties agreed to the payment of
a specific sum of money of P40,000.00 per month for six
months, not to a 4% rate of interest payable within a 6-
month period.
No issue on the excessiveness of the stipulated amount
of P40,000.00 per month was ever put in issue by the
petitioners; they only assailed the application of a 4%
interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that
the parties are bound by the stipulations, clauses, terms
and conditions they have agreed to, which is the law
between them, the only limitation being that these
stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy. The
payment of the specific sum of money of P40,000.00 per
month was voluntarily agreed upon by the petitioners
and the respondent. There is nothing from the records
and, in fact, there is no allegation showing that
petitioners were victims of fraud when they entered into
the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1M shall
earn P40,000.00 per month for a period of 6 months, for
a total principal and interest amount of P1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall
apply. The amounts already paid by the petitioners
during the pendency of the suit, amounting
toP1,228,772.00 as of February 12, 1999, should be
deducted from the total amount due, computed as
indicated above. We remand the case to the trial court
for the actual computation of the total amount due.
WHEREFORE, in light of all the foregoing, we hereby
REVERSE and SET ASIDE the Decision CA
Inciong, Jr. vs. Court of Appeals
Co-maker (D) vs. Creditor (P)
GR 96405
Summary: A co-maker to a loan is facing collection
demands from a creditor bank. One of his co-defendant
is outside the Philippine jurisdiction while the creditor
chose to dismiss their claim against the other.
Rule of Law: In solidary obligations, any one, some or all
of the debtors may be proceeded against for the entire
obligation. The choice is left to the solidary creditor to
determine against whom he will enforce collection.
Facts: Baldomero Inciong, Jr. (D) cosigned a P50,000-
promissory note with Rene Naybe and Gregorio
Pantanosas holding themselves jointly and severally
liable to creditor Philippine Bank of Communications
(P)—PBCOM, Cagayan de Oro City branch.

The due date expired without the promissors paying
their obligation. Consequently, creditor PBCOM (P)
demanded payment from the obligors who did not
respond. So, creditor PBCOM (P) filed for collection of
the sum of P50,000.00 against the three obligors.
A solidary or joint and several obligation is one in which
each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation.
—Tolention, Civil Code of the Philippines, Vol. IV, 1991,
p. 217.

The complaint was dismissed for failure of the plaintiff to

prosecute the case, but the lower court reconsidered
and the summonses were eventually served. As prayed
for by PBCOM (P), the lower court dismissed the case
against defendant Pantanosas. With co-defendant
Naybe in Saudi Arabia, only the summons to co-maker
Inciong (D) was duly served.
Inciong (D) contended that he only agreed to limit his
liability to P5,000 and that his consent was vitiated by
fraud. On appeal, he annexed to his petition an affidavit
supporting his claim of fraud.
On the other hand, Article 2047 of the Civil Code states:
By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of
this Book shall be observed. In such a case the contract is
called a suretyship.

Issues: Can the creditor file a claim for the entire Section 4, Chapter 3, Title I, Book IV of the Civil Code
obligation against a co-maker to a loan? states the law on joint and several obligations.

When there are two or more debtors in one and the

Ruling: Yes. Because the promissory note involved in this
case expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of
them may be proceeded against for the entire obligation.
The choice is left to the solidary creditor to determine
against whom he will enforce collection.
same obligation, the presumption is that the obligation
is joint so that each of the debtors is liable only for a
proportionate part of the debt. There is a solidary liability
only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so
requires.
—Article 1207 of the New Civil Code

Consequently, the dismissal of the case against co-

defendant Pantanosas may not be deemed as having
discharged petitioner from liability. As regards co-
defendant Naybe, suffice it to say that the court never
acquired jurisdiction over him. Therefore, PBCOM (P)
only have recourse against his co-makers, as provided by
law.

Inciong (D) signed the promissory note as a solidary co-

maker and not as a guarantor.
PCIB v. COURT OF APPEALS
G.R. NO. 121989 January 31, 2006
FACTS: PCIB and MBC were joint bidders in a foreclosure
sale held of assorted mining machinery and equipment
previously mortgaged to them by Philippine Iron Mines.
Atlas agreed to purchase some of these properties and
the sale was evidenced by a Deed of Sale with a
downpayment of P12,000,000 and the balance of
P18,000,000 payable in 6 monthly installments. In
compliance with the contract, Atlas issued HongKong
and shanghai Bank check amounting to P12,000,000.
Atlas paid to NAMAWU the amount of P4,298,307.77 in
compliance with the writ of garnishment issued against
Atlas to satisfy the judgment in favor of NAMAWU. Atlas
alleged that there was overpayment, hence the suit
against PCIB to obtain reimbursement. PCIB contended
that Atlas still owed P908,398.75 because NAAWU had
been partially paid in the amount of P601,260.00. RTC
ruled against Atlas to pay P908,398.75 to PCIB. CA
reversed the decision.
ISSUE: Whether atlas had complied with its obligation to
PCIB
RULING: While the original amount sought to be
garnished was P4,298,307,77, the partial payment of
P601,260 naturally reduced it to P3,697,047.77 Atlas
overpaid NAMAWU, thus the remedy if Atlas would be to
proceed against NAAWU nut not against PCIB in relation
to article 1236 of the Civil Code
The petition is partly granted.CA decision is reversed and
set aside and in lieu thereof Atlas is ordered to pay PCIB
the sum of P146,058.96, with the legal interest
commencing from the time of first demand on August 22,
1985.
Industrial Management International Development
Corp. (INIMACO) vs National Laabor Relations
Commission, Cebu City, and Enrique Sulit, Socorro
Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino Niere,
Virginia Bacus, Roberto Nemenzo, Dario Go, and Robert
Alegarbes
331 Scra 640
FACTS:
• Private respondents filed a complaint with the
Department of Labor and Employment against Filipinas
Carbon Mining Corporation, Gerardo Sicat, Antonio
Gonzales, Chin Chin Gin, Lo Kuan Chin, and petitioner
Industrial Management Development Corporation
(INIMACO), for payment of separation pay and unpaid
wages.
•The decision of the Labor Arbiter held that respondents
Filipinas Carbon and Mining Corp., Gerardo Sicat,
Antonio Gonzales/INIMACO, Chiu Chin Gin and Lo Kuan
Chin to pay complainants Enrique Sulit, Esmeraldo
Pegarido, Roberto Nemenzo and Dario Go to be
deposited with the Commission within 10 days from
receipt of the Decision. All other claims were dismissed.
•Since no appeal was filed within the reglementary
period, the Decision of the Labor Arbiter became final
and executor. The Labor Arbiter then issued a writ of
execution but was returned unsatisfied. The Labor
Arbiter then issued an Alias Writ of Execution
commanding the complainants to proceed to the
premises of respondents to collect and turn over the
ordered amount. Should a failure to collect the said
amount in cash be encountered, they were authorized to
cause the satisfaction of the same on the movable or
immovable property(s) of respondent not exempt from
execution.
•Petitioner then filed a Motion to Quash Alias Writ of
Execution and set aside the Decision alleging that the
alias writ of execution altered and changed the decision
by changing the liability of therein respondents from
joint to solidary. The motion was denied by the labor
Arbiter.
•The petitioner then filed and appeal and the NLRC
dismissed the appeal holding that the Writ of Execution
be given due course in all respects.
•A Motion to Compel Sheriff to Accept Payment
representing one sixth pro rate share of petitioner as full
and final satisfaction of judgment. The private
respondents opposed the motion and the Labor Arbiter
denied the motion ruling that the amount offered by
INIMACO is to be accepted by the Sheriff as partial
satisfaction of the judgment and to proceed with the
enforcement of the Alias Writ of Execution.
•An appeal was again filed to the NLRC which was
consequently denied ruling that INIMACO would reopen
the issue which was already resolved against it thus, not
keeping with the established rules of practice and
procedure to allow the attempt of INIMACO to delay final
disposition of the case.
ISSUE:
Whether or not petitioner’s liability is solidary or not.
HELD:
The court held, NO. INIMACO’s liability is not
solidary but merely joint and that the respondent NLRC
acted with grave abuse of discretion in upholding the
Alias Writ of Execution.
A solidary or joint and several obligation is one in
which each debtor is liable for the entire obligation, and
each creditor is entitled to demand the whole obligation.
In a joint obligation each obligor answers only for a part
of the whole liability and to each obligee belongs only a
part of the correlative rights.
Well-entrenched is the rule that solidary
obligation cannot lightly be inferred. There is a solidary
liability only when the obligation expressly so states,
when the law so provides or when the nature of the
obligation so requires.
Escaño and Silos vs Ortigas Jr.
March 25, 2016
G.R. No. 151953 (2007)
Ponente: J. Tinga
Facts:
On April 28, 1980, Private Development Corp. of the
Philippines (PDCP) entered into a loan agreement with
the Falcon Minerals, Inc. (Falcon) whereby PDCP agreed
to male available and lend to Falcon the amount of US
$320, 000.00 for specific purposes and subject to certain
terms and conditions.
Three stockholder officers of the Falcon assumed
solidary liability, in their individual capacity, with Falcon
for the due and punctual payment of the loan.
Two years later, control of Falcon was ceded to Escaño,
Silos and Matti, and the shares of deceased Scholey,
through his heirs Ortigas, Scholey and Inductivo, were
assigned to the three new stock-holders, as well as all of
their guaranteed to PDCP and PAIC.
On April 28, 1989, PDCP filed a complaint for sum of
money with the RTC of Makati. A counterclaim was filed
by Ortigas.
The other parties entered into compromise agreement
with PDCP. Ortigas pursued his claim against Escaño,
Silos and Matti, and filing a motion for Summary
Judgement in his favor against Escaño, Silos and Matti.
The RTC ruled in favor of Ortigas, ordering the three to
pay jointly and severally the amount of P1,300,000.00 as
well as P20,000.00 in attorney’s fees.
On appeal, the Court of Appeals affirmed the Summary
Judgement. Hence, the present petition for review.
Issue: Whether or not there was solidary obligation.
Ruling:
No. The obligation was joint.
In this case, there is a concurrence of two or more
creditors or of two or more debtors in one and the same
obligation. Article 1207 of the Civil Code states that
among them, there is a solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity. Article 1210
supplies further caution against the broad interpretation
of solidarity by providing that the indivisibility of an
obligation does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility.
These Civil Code provisions establish that in case of
concurrence of two or more creditors or of two or more
debtors in one and the same obligation, and in the
absence of express and indubitable terms characterizing
the obligation as solidary, the presumption is that the
obligation is only joint. It thus becomes incumbent upon
the party alleging that the obligation is indeed solidary in
character to prove such fact with a preponderance of
evidence.
The Undertaking does not contain any express
stipulation that the petitioners agreed to bind
themselves jointly and severally in their obligations to
the Ortigas group, or any such terms to that effect.
Hence, such obligation established in the Undertaking is
presumed only to be joint. Ortigas, as the party alleging
that the obligation is in fact solidary, bears the burden to
overcome the presumption of jointless of obligations.
The SC ruled that he failed to discharge such burden.
In 1977, Chua and Jacinto Sunga verbally agreed to form
a partnership for the sale and distribution of Shellane
LPGs. Their business was very profitable but in 1989
Jacinto died. Upon Jacinto’s death, his daughter Lilibeth
took over the business as well as the business assets.
Chua then demanded for an accounting but Lilibeth kept
on evading him. In 1992 however, Lilibeth gave Chua
P200k. She said that the same represents a partial
payment; that the rest will come after she finally made
an accounting. She never made an accounting so in 1992,
Chua filed a complaint for “Winding Up of Partnership
Affairs, Accounting, Appraisal and Recovery of Shares
and Damages with Writ of Preliminary Attachment”
against Lilibeth.
Lilibeth in her defense argued among others that Chua’s
action has prescribed.
ISSUE: Whether or not Chua’s claim is barred by
prescription.
HELD: No. The action for accounting filed by Chua three
(3) years after Jacinto’s death was well within the
prescribed period. The Civil Code provides that an action
to enforce an oral contract prescribes in six (6) years
while the right to demand an accounting for a partner’s
interest as against the person continuing the business
accrues at the date of dissolution, in the absence of any
contrary agreement. Considering that the death of a
partner results in the dissolution of the partnership, in
this case, it was after Jacinto’s death that Chua as the
surviving partner had the right to an account of his
interest as against Lilibeth. It bears stressing that while
Jacinto’s death dissolved the partnership, the dissolution
did not immediately terminate the partnership. The Civil
Code expressly provides that upon dissolution, the
partnership continues and its legal personality is retained
until the complete winding up of its business,
culminating in its termination.
STRONGHOLD INSURANCE COMPANY, INC., Petitioner,
vs. REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
G.R. No. 147561 June 22, 2006 obligations that are personal or are identified with the
persons themselves are extinguished by death.
PANGANIBAN, CJ:
In the present case, whatever monetary liabilities or
Republic-Asahi Glass Corporation (Asahi) entered into a
obligations Santos had under his contracts with
contract with Jose D. Santos, Jr., the proprietor of JDS
respondent were not in transmissible by their nature, by
Construction (JDS), for the construction of roadways and
stipulation, or by provision of law. Hence, his death did
a drainage system in Asahi’s compound in Pasig City.
not result in the extinguishment of those obligations or
Asahi was to pay JDS P5,300,000.00 for the construction,
liabilities, which merely passed on to his estate. Death is
which was supposed to be completed by JDS within 240
not a defense that he or his estate can set up to wipe out
days.
the obligations under the performance bond.
To guarantee the faithful and satisfactory performance Consequently, Stronghold as surety cannot use his death
of its undertakings, JDS shall post a performance bond of to escape its monetary obligation under its performance
P795,000. JDS executed solidarily with Stronghold bond.
Insurance Co., Inc. (Stronghold) the Performance Bond.

During the construction, Asahi called the attention of JDS

to the alarmingly slow pace of the construction, which
resulted in the fear that the construction will not be
finished within the stipulated 240-day period. However,
said reminders went unheeded by JDS.
Dissatisfied with the progress of the work undertaken by
JDS, Asahi extrajudicially rescinded the contract. Because
of the rescission, Asahi had to hire another contractor to
finish the project, incurring an additional P3,256,874.00.
Asahi then sent a letter to SICI filing its claim under the
performance bond, but the letter went unheeded.
Asahi eventually filed a complaint against JDS and
Stronghold for damages. However, Jose D. Santos, Jr. had
already died and JDS Construction was no longer at its
registered address, with its whereabouts unknown.
In its defense, On July 10, 1991, Stronghold maintains
that Asahi’s money claims against it and JDS have been
extinguished by the death of Jose D. Santos, Jr.
ISSUE: Whether or not the death of Santos can be a
defense of Stronghold. Otherwise stated, Whether or not
Stronghold’s liability under the performance bond was
automatically extinguished by the death of Santos, the
principal.
RULING: No.
As a general rule, the death of either the creditor or the
debtor does not extinguish the obligation. Obligations
are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of
the parties, or the nature of the obligation. Only
Filinvest Land vs. Court of Appeals (470 SCRA 57)
06 MAR
FILINVEST LAND, INC., petitioner,
vs. THE HONORABLE COURT OF APPEALS, PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY and PACIFIC
EQUIPMENT CORPORATION, respondents.
[G.R. No. 138980. September 20, 2005]
FACTS:
Petitioner awarded to respondent Pacific Equipment
Corp (Pecorp) development of its residential
subdivisions, a contract amounting to P12,470,000.00.
Pecorp posted two surety bonds to guarantee faithful
compliance. Both agreed that liquidated damages of
P15,000/day shall be paid by Pecorp in case of delay.
Petitioner claimed that Pecorp failed to complete the
works (94.53%) and claims for damages. Pecorp on the
other hand contended that their work stopped due to
failure of petitioner to pay for certain completed portion.
RTC assigned a commissioner to evaluate the claims and
counter-claims. The total amount due to Pecorp was
computed to be P1,881,867.66. Petitioner claimed that
liquidated damages amounted to P3,990,000.00 Both
claims and counter-claims were dismissed. Court of
Appeals affirmed the ruling of RTC.
ISSUE:
Whether or not the penalty (liquidated damages) of
P15,000.00 per day of delay shall be binding upon mutual
agreement of parties.
RULING:
NO. As a general rule, courts are not at liberty to ignore
the freedom of the parties to agree on such terms and
conditions as they see fit as long as they are not contrary
to law, morals, good customs, public order or public
policy. The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable (Art.1229,
NCC). A penalty interest of P15,000.00 per day of delay
as liquidated damages or P3,990,000.00 (representing
32% penalty of the P12,470,000.00 contract price) is
unconscionable considering that the construction was
already not far from completion.
Nicolas vs Del-Nacia Corporation
Facts:
Spouses Nicolas bought a parcel of land in Bulacan from
Del Nacia via an Agreement. It was agreed that the
downpayment would be P40k and the rest (P510k) would
be payable in 120 months at about P9k/mo. inclusive of
interest (18%/yr). No specific date of monthly payment
was indicated but it said payment was to start on April
20, 1988. Also, arrears shall incur 18%/yr interest. On top
of that would be 10% of the amount due for atty’s fees
in case of default.
Shortly after the Agreement, Mr. Nicolas died. Mrs.
Nicolas defaulted. Del Nacia then caused the notarial
cancellation of the Agreement. It then sent Mrs. Nicolas
a check representing the cash surrender amounting to
P270k.
Mrs. Nicolas filed a complaint against Del Nacia before
the HLURB. The Arbiter found Mrs. Nicolas to be in
default and ordered Del Nacia to compute what she
owes inclusive of interests and other penalties.
Nicolas appealed before the HLURB Board. She avers that
what she has paid in interest is more than the principal
amount. And that payments she made were applied to
interest (in bulk) hence there is no basis for Del Nacia to
charge her more interest (as per Agreement). And that
she’s not in default because there is no specific dated
cited in the Agreement (w/c was agreed upon by HLURB
Board).
ISSUE: Whether or not Mrs. Nicolas is right.
HELD: No. The ruling of the Arbiter is reinstated. Mrs.
Nicolas is clearly in default and as per the Agreement
which they voluntarily entered into, she has to suffer the
consequences for it is the law between them. Hence, as
agreed upon, Del Nacia can unilaterally compute what
Nicolas owe the corporation inclusive of interest and
penalties incurred. The law allows the imposition of a
separate penalty (in case of default) other than interest
penalty so long as it is stipulated in writing (Art. 1956 of
the Civil Code). The court cannot relieve a party from
complying with the terms of a contract if it turns out to
be financially disadvantageous to such party.
FLORENTINO v SUPERVALUE
G.R. No. 172384, 12 September 2007
FACTS:
Florentino is a lessee of Supervalue (SM). Florentino is
the owner of Empanada Royale, a food cart business
entered into a contract of lease with SM. The contract
was good for 4 months and after the end of the contract,
both parties had the option to either renew or terminate
the contract. Florentino and SM was able to renew the
contract several times that it even lasted for a year.
However, SM terminated the contract with Florentino
for the following violations: failure to open on two
separate occasions; closing before mall closing time
;introducing a new variety of empanada without the
approval of SM. The store management then ordered the
foreclosure of the space and along with it were the
personal belongings of the petitioner. Florentino
demanded for the return of her personal belongings and
of the security deposit that she has given SM.
ISSUE:
1. Whether or not Florentino can claim for
reimbursement on the improvements that she has
made?
2. Whether or not Florentino is entitled to claim for
the security bond that she has posted?
HELD:
(1) Florentino is no longer entitled for reimbursement on
the improvements that she has done on her stall.
Article 1678: If the lessee makes in good faith, useful
improvements which are suitable to the use for which
the lease is intended, without altering the form or
substance of the property leased, the lessor upon the
termination of the lease shall pay the lessee one-half of
the of the improvements at that time. Should the lessor
refused to reimburse said amount the lessee may
remove the improvements, even though the principal
thing may suffer damages thereby. He shall not,
however, cause any more impairment upon the property
leased than is necessary."
As stated in Geminiano vs CA: "Being mere lessees, the
private respondents knew that their occupation of the
premises would continue only for the life of the lease.
Plainly, they cannot be considered as possessors
nor builders in good faith"
(2) Florentino is entitled to half of the security
deposits made with SM because it would
unconscionable for the former to be imposed such
penalty.
Obligations with Penal clause:
Article 1226: In obligations with penal clause, the
penalty shall substitute the indemnity for damages
and the payment of interests in case of
noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of
this code.
As a rule the courts are not in the liberty to ignore
the freedoms of the parties to agree on such terms
and conditions.The courts may equitably reduce a
stipulated penalty in the contracts in two instances:
1. if the principal obligation has been partly
or ireegularly complied with;
2. If there has been no compliance if the
penalty is iniquitous or unconscionable in
accordance with Article 1229:
Article 1229: The judge shall equitably reduce the
penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or
unconscionable.
Diamond Builders Conglomeration vs Country Bankers
Insurance Corporation
G.R. No. 171820 (2007)
Ponente: J. Nachura
Facts:
A civil case was filed by Borja against Acidre, the owner
of the Diamond Builders Conglomeration for a breach of
his obligation to construct a residential and commercial
building.
A compromise agreement was entered into and was
approved by the RTC.
In accordance with the agreement, Acidre obtained a
Surety Bond from Country Bankers in favor of Borja.
Country Bankers received a Motion for Execution of the
surety bond filed by Borja with the RTC. Country Bankers
advised the petitioners that in the event it is constrained
to pay under the surety bond of Borja, it shall proceed
against the petitioners for reimbursement. The
petitioners informed Country Bank of the Opposition to
Borja’s Motion for Execution which they filed.
Subsequently, the RTC ruled in favor of Borja. Petitioners
then filed a motion for reconsideration.

Country Banks payed Borja, and demanded for

reimbursement from the petitioners. The petitioners
refused. The Coutry Bankers filed a complaint for sum of
money. The RTC dismissed the complaint. The CA
reversed it.

Issue:

Whether or not the payment was voluntary and thus

absolves petitioner from reimbursing.

Held:

NO.

Article 2047 of the civil code specifically calls for the

application of the provisions on solidary obligations to
surety-ship contracts. In particular, article 1217 of the
Civil Code recognizes the right of reimbursement from a
co-debtor in favor of the one who paid.

In contract, article 1218 of the Civil Code is definitive on

when reimbursement is unavailable such that only those
payments made after the obligation has prescribed or
became illegal shall not entitle a solidary debtor to
management.