Case Number # (*Name*)

DUE DATE: Aug 31, 2019 (tentative)

Case Distribution: Case Name
D. Kinds of Civil Obligations GR No | Date | Ponente | Division or En Banc | Topic
1. Pay v Palanca - ZUÑO
2. Smith Bell v Sotelo Matti - VERGARA
NOTE: please indicate if petitioner/respondent or
3. Chavez v Gonzales - AGUSTIN
4. Encarnacion v Baldomar - KANG plaintiff-appellant/defendant-appellee, etc.
5. Eleizegui v Lawn Tennis Club - MANLONGAT Petitioner/Plaintiff:
6. Philbanking v Lui She - MORDEN Respondent/Defendant:
7. Lim v People - NACITA
8. Araneta v Phil Sugar - NEPOMUCENO Nature of the Action:
9. Millare v Hernando - PANISALES
Doctrine:
10. Ronquillo v CA - SOBREVEGA
11. Malayan Insurance v CA - VERGARA
12. PNB v Independent Planters - ZUÑO
13. Calang and Philtranco v People - AGUSTIN
14. Ruks Konsult and Construction v Adworld - KANG
15. TMBI v Fem Mitsui - MANLONGAT
16. Sanico v Colipano (repeated, copy paste check I.A.C) - MORDEN

17. Sps Lam v Kodak Philippines - NACITA

18. Bacrach v Espiritu - NEPOMUCENO

19. Robes-Francisco v CFI - PANISALES
20. Pamintuan v CA - SOBREVEGA FACTS:
21. Castillo v Security Bank - MORDEN ISSUES:
22. Sps Poon v Prime Savings Bank - ZUÑO
RULING:
DISPOSITIVE:
Case Number #1 (ZUÑO)
GEORGE PAY v. SEGUNDINA CHUA VDA. DE PALANCA
G.R. No. L-29900 | June 28, 1974 | FERNANDO, J. | Second Division |
Prescription
Petitioner: ​GEORGE PAY
Respondent: ​SEGUNDINA CHUA VDA. DE PALANCA
Nature of the Action:
For resolution is whether the creditor, George Pay, is barred by prescription in his
attempt to collect on a promissory note executed more than fifteen years earlier
with the debtor who promised to pay either: (1) upon receipt by him of his share
from a certain estate; or (2) upon demand, with the basis for the action being the
latter alternative.
Doctrine:
The ten-year period of limitation of actions does apply, the note being
immediately due and demandable, with the creditor admitting expressly that he
was relying on the wording "upon demand."
FACTS:
1. Petitioner George Pay is a creditor of the Late Justo Palanca who died in
Manila on July 3, 1963.
2. The claim of the petitioner is based on a promissory note dated January 30,
1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos
Palanca promised to pay George Pay the amount of P26,900.00, with
interest thereon at the rate of 12% per annum.
3. George Pay is now before this Court, asking that Segundina Chua vda. de
Palanca, surviving spouse of the late Justo Palanca - Segundina being the
appointed administratrix of the deceased’s residential property found at Taft
Avenue, Manila, assessed at P41,800.00.
4. The petitioner’s contention is that once the said property is brought under
Segundina’s administration, George Pay, as creditor, can file his claim
against the administratrix.
5. The respondent contends that the petition could not prosper as there was a
refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no longer
belonged to the debtor, the late Justo Palanca; and that the rights of
petitioner-creditor had already prescribed.
6. The promissory note is worded thus: " `For value received from time to time
since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at
his office at the China Banking Corporation the sum of [Twenty Six
Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the
rate of 12% per annum upon receipt by either of the undersigned of cash
payment from the Estate of the late Don Carlos Palanca or upon demand.’
7. The lower court ruled that the wording of the promissory note being "upon
demand," the obligation was immediately due. Since it was dated January
30, 1952, it was clear that more "than ten (10) years has already transpired
from that time until to date. The action, therefore, of the creditor has
definitely prescribed." Thus, the petition was dismissed.
8. From the manner in which the promissory note was executed, it would
appear that petitioner was hopeful that the satisfaction of his credit could be
realized either: (1) through the debtor, by receiving cash payment from the
estate of the late Carlos Palanca, presumptively as one of the heirs; or, (2) as
expressed therein, "upon demand."
9. There is nothing in the record that would indicate whether or not the first
alternative was fulfilled. What is undeniable is that on August 26, 1967,
more than fifteen years after the execution of the promissory note on
January 30, 1952, this petition was filed. Thus, the defense interposed was
prescription.
ISSUE: ​Whether or not a creditor is barred by prescription in his attempt to collect
on a promissory note executed more than fifteen years earlier, upon demand. - YES.
RULING:
1. The ten-year period of limitation of actions did apply, the note being
immediately due and demandable.
2. Article 1179 of the Civil Code provides: "Every obligation whose
performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once." This
used to be Article 1113 of the Spanish Civil Code of 1889. As far back as
Floriano v. Delgado, a 1908 decision, it has been applied according to its
express language.
3. The obligation being due and demandable, it would appear that the
filing of the suit after fifteen years was much too late. ​For again,
according to the Civil Code, which is based on Section 43 of Act No. 190,
the prescriptive period for a written contract is that of ten years.
 4. This is another instance where this Court has consistently adhered to the
express language of the applicable norm. There is no necessity therefore of
passing upon the other legal questions as to whether or not it did suffice for
the petition to fail just because the surviving spouse refuses to be made
administratrix, or just because the estate was left with no other property.
5. The decision of the lower court cannot be overturned.

DISPOSITIVE: ​WHEREFORE, the lower court decision of July 24, 1968 is

affirmed. Costs against George Pay.
Case Number #2 (JAO)
SMITH, BELL & CO., LTD. v. VICENTE SOTELO MATTI
March 9, 1922 | ROMUALDEZ, J | En Banc | Conditional Obli
Petitioner: ​SMITH, BELL & CO., LTD.
Respondent:​ ​VICENTE SOTELO MATTI
Nature of the Action:
Doctrine:
Where the fulfillment of the condition does not depend on the will of the obligor,
but on that of a third person who can in no way be compelled to carry it out, the
obligor's part of the contract is complied with, if he does all that is in his power,
and it then becomes incumbent upon the other contracting party to comply with
the terms of the contract.
FACTS:
1. In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente
Sotelo, entered into contracts whereby the former obligated itself to sell,
and the latter to purchase from it:
a. Two steel tanks, for the total price of twenty-one thousand pesos,
the same to be shipped from New York and delivered at Manila
"within three or four months;"
b. Two expellers at the price of twenty five thousand pesos each,
which were to be shipped from San Francisco in the month of
September, 1918, or as soon as possible;
c. The two electric motors at the price of two thousand pesos each, as
to the delivery of which stipulation was made, couched in these
words: ​"Approximate delivery within ninety days. — This is not
guaranteed."
2. The tanks arrived at Manila on the 27th of April, 1919; the expellers on the
26th of October, 1918; and the motors on the 27th of February, 1919.
3. The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of
these goods, but Mr. Sotelo refused to receive them and to pay the prices
stipulated.
4. PLAINTIFF: The plaintiff brought suit against the defendant, based on four
separate causes of action, alleging, among other facts, that it immediately
notified the defendant of the arrival of the goods, and asked instructions
from him as to the delivery thereof, and that the defendant refused to
receive any of them and to pay their price.
a. The plaintiff, further, alleged that the expellers and the motors
were in good condition.
5. Defendant: Mr. Sotelo, and the intervenor denied the plaintiff's allegations
as to the shipment of these goods and their arrival at Manila, the notification
to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay
their price, and the good condition of the expellers and the motors, alleging
as special defense that Mr. Sotelo had made the contracts in question as
Manager of the intervenor, which fact was known to the plaintiff, and that
"​it was only in May, 1919, that it notified the intervenor that said tanks had
arrived, the motors and the expellers having arrived incomplete and long
after the date stipulated.​ "
6. Lower Court:
a. Absolved the defendants from the complaint insofar as the tanks
and the electric motors were concerned
b. But ordering them to "receive the aforesaid expellers and pay the
plaintiff the sum of fifty thousand pesos (50,000) with legal
interest thereon from July 26, 1919
ISSUES: ​Whether or not the plaintiff has fulfilled, in due time, its obligation to
bring the goods in question to Manila. ​YES.
RULING:
1. It cannot be said that any definite date was fixed for the delivery of the
goods. As to the tanks, the agreement was that the delivery was to be made
"within 3 or 4 months," but that period was subject to the contingencies
referred to in a subsequent clause.
2. With regard to the expellers, the contract says "within the month of
September, 1918," but to this is added "or as soon as possible."
3. And with reference to the motors, the contract contains this expressions,
"Approximate delivery within ninety days," but right after this, it is noted
that "this is not guaranteed.​"
4. Pertinent part of the contract:
"To be delivered within 3 or 4 months — The promise or indication
of shipment carries with it absolutely no obligation on our part —
Government regulations, railroad embargoes, lack of vessel space, the
exigencies of the requirements of the United States Government, or a
number of causes ​may act to entirely vitiate the indication of shipment as
stated.​ In other words, the order is accepted on the basis of shipment at
Mill's convenience​, time of shipment being merely an indication of what we
hope to accomplish."
 "The following articles, herein below more particularly described, plaintiff, but upon the will of third persons ​who could in no way be
to be shipped at San Francisco within the month of September /18, or as compelled to fulfill the condition. In cases like this, which are not expressly
soon as possible. — Two Anderson oil expellers . . ." provided for, but impliedly covered, by the Civil Code, th​e obligor will be
5. In all these contracts, there is a final clause as follows: deemed to have sufficiently performed his part of the obligation, if he has
" The sellers are not responsible for delays caused by fires, riots on done all that was in his power, ​even if the condition has not been fulfilled in
land or on the sea, strikes or other cause known as 'Force Majeure' entirely reality.
beyond the control of the sellers or their representatives." 9. The record shows, as we have stated, that the plaintiff did all within its
a. From the record it appears that these contracts were executed at the power to have the machinery arrive at Manila as soon as possible, and
time of the world war when there existed rigid restrictions on the immediately upon its arrival it notified the purchaser of the fact and offered
export from the United States of articles like the machinery in to deliver it to him. ​Taking these circumstances into account, the hold that
question, and maritime, as well as railroad, ​transportation was the said machinery was brought to Manila by the plaintiff within a
difficult​, which fact was known to the parties; reasonable time​.
b. Hence clauses were inserted in the contracts, regarding
"Government regulations, railroad embargoes, lack of vessel space,
the exigencies of the requirements of the United States DISPOSITIVE:
Government," in connection with the tanks and "Priority Wherefore, the judgment appealed from is modified, and the defendant, Mr. Vicente
Certificate, subject to the United States Government Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the
requirements," with respect to the motors. expellers and the motors is question, and to pay the plaintiff the sum of ninety-six
c. At the time of the execution of the contracts, the parties were not thousand pesos (96,000), with legal interest thereon from July 17, 1919, the date of
unmindful of the contingency of the United States Government not the filing of the complaint, until fully paid , and the costs of both instances. So
allowing the export of the goods, nor of the fact that the other ordered.
foreseen circumstances therein stated might prevent it.
6. *Definition* Hence, the obligation must be regarded as conditional.
"Obligations for the performance of which a day certain has been fixed shall
be demandable only when the day arrives. "A day certain is understood to
be one which must necessarily arrive, even though its date be unknown.
a. "If the uncertainty should consist in the arrival or non arrival of the
day, the obligation is conditional and shall be governed by the
rules of the pure and conditional obligations”
7. *IMPORTANT* It is s​ufficiently proven in the record that the plaintiff has
made all the efforts it could possibly by expected to make under the
circumstances, to bring the goods in question to Manila, as soon as possible.
And, as a matter of fact, through such efforts, it succeeded in importing
them and placing them at the disposal of the defendant, Mr. Sotelo, in April,
1919.
8. And as the export of the machinery in question was as stated in the contract,
contingent upon the sellers obtaining certificate of priority and permission
of the United States Government, subject to the rules and regulations, as
well as to railroad embargoes, ​then the delivery was subject to a condition
the fulfillment of which depended not only upon the effort of the herein
Case Number 3 (AGUSTIN)
CHAVEZ V. GONZALEZ
G.R. No. L-27454 | 30 April 1970 | REYES, J.B.L., J: | SUPREME COURT EN
BANC
| As to Perfection and Extinguishment – with a term or period
Plaintiff: ​Rosendo O. Chaves
Defendant:​ ​Ructuoso Gonzales
Nature of the Action: ​A direct appeal by the party who prevailed in a suit for
breach of oral contract and recovery of damages but was unsatisfied with the
decision rendered by the CFI
Doctrine:
ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost. This same rule shall be observed if he does it in contravention
of the tenor of the obligation. Furthermore it may be decreed that what has been
poorly done he undone.
FACTS:
● In the early part of July, 1963, the plaintiff delivered to the defendant, who
is a typewriter repairer, a portable typewriter for routine cleaning and
servicing. The defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff. The defendant merely
gave assurances, but failed to comply with the same.
● In October, 1963, the defendant asked from the plaintiff the sum of P6.00
for the purchase of spare parts, which amount the plaintiff gave to the
defendant.
● On October 26, 1963, after getting exasperated with the delay of the repair
of the typewriter, the plaintiff went to the house of the defendant and asked
for the return of the typewriter. The defendant delivered the typewriter in a
wrapped package.
● On reaching home, the plaintiff examined the typewriter returned to him by
the defendant and found out that the same was in shambles, with the interior
cover and some parts and screws missing.
● On October 29, 1963. the plaintiff sent a letter to the defendant formally
demanding the return of the missing parts, the interior cover and the sum of
P6.00 (Exhibit D).
● The following day, the defendant returned to the plaintiff some of the
missing parts, the interior cover and the P6.00. In his answer as well as in
his testimony given before this court, the defendant made no denials of the
facts narrated above, except the claim of the plaintiff that the typewriter was
delivered to the defendant through a certain Julio Bocalin, which the
defendant denied allegedly because the typewriter was delivered to him
personally by the plaintiff.
ISSUE: ​W/N the defense that the court should first fix a period is tenable?
RULING:
The inferences derivable from these findings of fact are that the appellant and the
appellee had a perfected contract for cleaning and servicing a typewriter; that they
intended that the defendant was to finish it at some future time although such time
was not specified; and that such time had passed without the work having been
accomplished, far the defendant returned the typewriter cannibalized and unrepaired,
which in itself is a breach of his obligation, without demanding that he should be
given more time to finish the job, or compensation for the work he had already done.
The time for compliance having evidently expired, and there being a breach of
contract by non-performance, it was academic for the plaintiff to have first petitioned
the court to fix a period for the performance of the contract before filing his
complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for
he virtually admitted non-performance by returning the typewriter that he was
obliged to repair in a non-working condition, with essential parts missing. The fixing
of a period would thus be a mere formality and would serve no purpose than to
delay.
It is clear that the defendant-appellee contravened the tenor of his obligation because
he not only did not repair the typewriter but returned it "in shambles", according to
the appealed decision. For such contravention, as appellant contends, he is liable
under Article 1167 of the Civil Code. jam quot, for the cost of executing the
obligation in a proper manner. The cost of the execution of the obligation in this case
should be the cost of the labor or service expended in the repair of the typewriter,
which is in the amount of P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code,
for the cost of the missing parts, in the amount of P31.10, for in his obligation to
repair the typewriter he was bound, but failed or neglected, to return it in the same
condition it was when he received it.

DISPOSITIVE:
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby
modified, by ordering the defendant-appellee to pay, as he is hereby ordered to pay,
the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing
of the complaint. Costs in all instances against appellee Fructuoso Gonzales.
Case Number #4 (KANG)
Encarnacion v. Baldomar
G.R. No. L-264 | October 4, 1946 | Hilado, J.| En Banc| Kinds of Obligation; as
to perfection and extinguishment
Petitioner/Plaintiff: ​plaintiff-appellee,​ Vincente Singson Encarnacion
Respondent/Defendant:​ ​defendants-appellants, ​Jacinta Baldomar, et. al
Nature of the Action: ​Appeal from judgment of CFI
Doctrine: ​The continuance and fulfillment of the contract of lease cannot be made
to depend solely and exclusively upon the free and uncontrolled choice of the
lessees between continuing paying the rentals or not, completely depriving the
owner of all say in the matter.
The continuance and fulfillment of the contract of lease cannot be made to depend
solely and exclusively upon the free and uncontrolled choice of the lessees between
continuing paying the rentals or not, completely depriving the owner of all say in the
matter.
If this were allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be able to discontinue
it. Even if the lessor wanted to continue the lease, the lessee could effectively thwart
his purpose if they should prefer to terminate the contract by the simple expedient of
stopping payment of the rentals. This is prohibited by article 1256 of the (old) civil
code.
DISPOSITIVE:
Upon the whole, we are clearly of opinion that the judgment appealed from should
be, as it is hereby, affirmed, with the costs of the three instances to appellantes.
So ordered.

FACTS:
1. Vincente Singson Encarnacion is the owner of the house (numbered 589 Legarda
Street, Manila) leased the said house to Jacinto Baldomar and her son, Lefrado
Fernando, monthly basis, rental of P35. Six years ago.
2. After the liberation of Manila from war, and in need of new office, Encarnacion
notified the defendants, to vacate the said house on or before April 15, 1945.
3. Despite demand, defendants continued their occupancy.
4. When the case was filed in the MTC, the defendants were not able to pay the
monthly rental, MTC ordered the defendants to pay for the same from May 1, 1945
until they vacate the premises.
5. The defendants filed a motion to dismiss when the case was appealed to the CFI
on the grounds that CFI had no jurisdiction over the subject matter.
6. ​CFI​: denied the motion to dismiss on the ground that plaintiff had waived said
claim for damages in the MTC, hence the same waiver was understood to have been
made in the CFI.

Hence this petition.

ISSUES: w/n the validity and fulfillment of an obligation (to pay and occupy the
house) can be left to the exclusive will of the lessee (obligor) – No.

RULING:
Case Number #5 (MANLONGAT)
​Eleizegui v Lawn Tennis Club
G.R. No. 967 | May 19, 1903 | Arellano, C.J.| En Banc| Obligation with a term:
When may the court fix the period
Petitioner/Plaintiff: ​plaintiff-appellee,​ Dario and Gaudencio Eleizegui
Respondent/Defendant:​ ​defendants-appellants, ​Manila Lawn Tennis Club
Doctrine: ​The Civil Code has made provision for such a case in all kinds of
obligations. In speaking in general of obligations with a term it has supplied
the deficiency of the former law with respect to the "duration of the term
when it has been left to the will of the debtor," and provides that in this
case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is
entitled to demand the performance, and a debtor upon whom rests the
obligation to perform the undertaking. In bilateral contracts the contracting
parties are mutually creditors and debtors. Thus, in this contract of lease,
the lessee is the creditor with respect to the rights enumerated in article
1554, and is the debtor with respect to the obligations imposed by articles
1555 and 1561. The term within which performance of the latter obligation
is due is what has been left to the will of the debtor. ​This term it is which
must be fixed by the courts.
FACTS:
1. A contract of lease was executed on January 25, 1980 over a piece of land owned
by the plaintiffs Eleizegui (Lessor) to the Manila Lawn Tennis Club, an English
association (represented by Mr. Williamson) for a fixed consideration of P25 per
month and accordingly, to last at the will of the lessee. Under the contract, the lessee
can make improvements deemed desirable for the comfort and amusement of its
members. It appeared that the plaintiffs terminated the lease right on the first month.
The defendant is in the belief that there can be no other mode of terminating the lease
than by its own will, as what they believe has been stipulated.
2. As a result the plaintiff filed a case for unlawful detainer for the restitution of the
land claiming that article 1569 of the Civil Code provided that a lessor may
judicially dispossess the lessee upon the expiration of the conventional term or of the
legal term; the ​conventional t​ erm — that is, the one agreed upon by the parties; the
legal term, in defect of the conventional, fixed for leases by articles 1577 and 1581.
The Plaintiffs argued that the duration of the lease depends upon the will of the
lessor on the basis of Art. 1581 which provides that, "When the term has not been
fixed for the lease, it is understood to be for years when an annual rental has been
fixed, for months when the rent is ​monthly.​ . . ." The second clause of the contract
provides as follows: "The rent of the said land is fixed at 25 pesos​ per month​."
3. The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the
Civil Code, the law which was in force at the time the contract was entered into. It is
of the opinion that the contract of lease was terminated by the notice given by the
plaintiff. The judgment was entered upon the theory of the expiration of a legal term
which does not exist, as the case requires that a term be fixed by the courts under the
provisions of article 1128 with respect to obligations which, as is the present, are
terminable at the will of the obligee.
ISSUE​:
1. Whether or not the parties have agreed upon the duration of the lease
2. Whether or not the lease depends upon the will of the lessee
RULING:
1. YES, the parties have agreed upon a term hence Art. 1581 is
inapplicable.
The legal term cannot be applied under Art 1581 as it appears that there was actually
an agreement between the parties as to the duration of the lease, albeit implied that
the lease is to be dependent upon the will of the lessee. It would be absurd to accept
the argument of the plaintiff that the contract was terminated at its notice, given this
implication.
Interestingly, the contract should not be understood as one stipulated as a life
tenancy, and still less as a perpetual lease since the terms of the contract express
nothing to this effect, even if they implied this idea. If the lease could last during
such time as the lessee might see fit, because it has been so stipulated by the lessor, it
would last, first, as long as the will of the lessee — that is, all his life; second, during
all the time that he may have succession, inasmuch as he who contracts does so for
himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question does not
fall within any of the cases in which the rights and obligations arising from a contract
can not be transmitted to heirs, either by its nature, by agreement, or by provision of
law. Moreover, being a lease, then it must be for a ​determinate period​. (Art. 1543.)
By its very nature it must be temporary, just as by reason of its nature, an
emphyteusis must be perpetual, or for an unlimited period. (Art. 1608.)
 place of the ruthless method of annihilating a solemn obligation, which the plaintiffs
2. The duration of the lease does not depend solely upon the will of the Lessee in this case have sought to pursue, the Code has provided a legitimate and easily
(defendant). available remedy. . . . The Code has provided for the proper disposition of those
covenants, and a case can hardly arise more clearly demonstrating the usefulness of
It cannot be concluded that the termination of the contract is to be left completely at that provision than the case at bar."
the will of the lessee simply because it has been stipulated that its duration is to be
left to his will. DISPOSITIVE: The lower court’s judgement is erroneous and therefore reversed
and the case was remanded with directions to enter a judgment of dismissal of the
The Civil Code has made provision for such a case in all kinds of obligations. In action in favor of the defendant, the Manila Lawn Tennis Club.
speaking in general of obligations with a term it has supplied the deficiency of the
former law with respect to the "duration of the term when it has been left to the will
of the debtor," and provides that in this case the term shall be fixed by the courts.
(Art. 1128, sec. 2.) In every contract, as laid down by the authorities, there is always
a creditor who is entitled to demand the performance, and a debtor upon whom rests
the obligation to perform the undertaking. In bilateral contracts the contracting
parties are mutually creditors and debtors. Thus, in this contract of lease, the lessee is
the creditor with respect to the rights enumerated in article 1554, and is the debtor
with respect to the obligations imposed by articles 1555 and 1561. The term within
which performance of the latter obligation is due is what has been left to the will of
the debtor. This term it is which must be fixed by the courts.

The only action which can be maintained under the terms of the contract is that by
which it is sought to obtain from the judge the determination of this period, and not
the unlawful detainer action which has been brought — an action which presupposes
the expiration of the term and makes it the duty of the judge to simply decree an
eviction. To maintain the latter action it is sufficient to show the expiration of the
term of the contract, whether conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge to look into the character
and conditions of the mutual undertakings with a view to supplying the lacking
element of a time at which the lease is to expire.

In the case of a loan of money or a commodatum of furniture, the payment or return

to be made when the borrower "can conveniently do so" does not mean that he is to
be allowed to enjoy the money or to make use of the thing indefinitely or perpetually.
The courts will fix in each case, according to the circumstances, the time for the
payment or return. This is the theory also maintained by the defendant in his
demonstration of the fifth assignment of error. "Under article 1128 of the Civil
Code," thus his proposition concludes, "contracts whose term is left to the will of one
of the contracting parties must be fixed by the courts, . . . the conditions as to the
term of this lease has a direct legislative sanction," and he cites articles 1128. "In
Case #6 MORDEN
Phil. Banking Corp. V. Lui She
G.R. No. L-17587 | September 12, 1967 | Castro, J. | En Banc | Resolutory Condition
PETITIONER: ​Philippine Banking Corporation, representing the estate of
Justina Santos Y Canon Faustino, deceased, plaintiff-appellant,
RESPONDENT: ​Lui She in her own behalf and as administratrix of the intestate
estate of Wong Heng, deceased, defendant-appellant.
SUMMARY:
Justina, an owner of a land, in grateful acknowledgement of Wong Heng, executed
a contract of lease covering the entire property for 99 years ​with right to withdraw
at any time​. Justina however changed her mind. She filed for the annulment of
their contracts, contending that the “option to withdraw at any time” contravenes
Art. 1308 of the CC.
SC held that it was a valid contract. Nevertheless, they annulled the contract
because it will defeat the spirit of the Constitutional prohibition against transfer of
lands to aliens.
DOCTRINE:
Article 1256 [now art. 1308] of the Civil Code states: ​The contract must bind both
contracting parties​; its validity or compliance cannot be left to the will of one of
them.” However, this creates no impediment to the insertion in a contract for
personal service of a resolutory condition permitting the cancellation of the
contract by one of the parties.
Such a stipulation does not make either the validity or the fulfillment of the
contract dependent upon the will of the party to whom is conceded the privilege of
cancellation. The cancellation of a contract in accordance with the conditions
agreed upon beforehand is fulfillment.
FACTS:
1. Justina Santos and her sister Lorenzo were the owners in common of a piece
of land in Manila. In it are two residential houses and a restaurant. Wong
Heng, a Chinese, lived with his family in the restaurant. Wong had been a
long-time lesse, paying a monthly rental.
2. Sept. 22, 1957: Justina Santos became the owner of the entire property as
her sister died with no other heir. Then already well advanced in years,
being at the time 90 years old, she was left with no other relative to live
with. Her only companions in the house were her 17 dogs and 8 maids.
3. Wong was a trusted man to whom she delivered various amounts for
safekeeping, including rentals from her properties. Wong also took care of
the payment; in her behalf, of taxes, fees, salaries of maids and security
guard, and her household expenses.
4. In November 1957, in grateful acknowledgement of his personal services,
Justina executed a contract of lease in favor of Wong covering the entire
property for 50 years with right to withdraw at any time.
5. In December 1957, Justina executed a contract for option to buy the leased
property with a condition that Wong obtain Philippine Citizenship then
pending before the Court of First Instance of Rizal. However, the
application was withdrawn because it was discovered that he was not a
resident of Rizal.
6. In October 1958, Justina filed a petition to adopt Wong and his children in
the belief that adoption would confer him Philippine Citizenship.
Discovering there was error, the proceedings were abandoned.
7. In November 1958, Justina executed two other contracts extending the lease
to 99 years, and fixing the term of option to buy at 50 years. In two wills
executed on August 1959, Justina bade her legatees to respect the contracts
entered into with Wong.
8. However, Justina appeared to have a change of heart, and claimed that the
contracts were made through machinations and inducements practiced by
Wong. Thus, Justina directed her executor to secure the annulment of the
contracts.
9. In November 1959, a complaint was then filed before the Court of First
Instance of Manila on the said grounds, and asked the court to direct the
Register of Deeds of Manila to cancel the registration of the contracts.
10. Wong denied having taken advantage of the trust and confidence given to
him by Justina. The CFI rendered its decision annulling all the contracts,
except the lease contract, and condemned Wong to pay Justina the unpaid
rentals.
11. Both parties filed an appeal before the Supreme Court. Justina (through
Petitioner Philippine Banking Corporation) maintained that the lease
contract should have been annulled as it lacks mutuality, that it was
obtained in violation of the fiduciary relations of the parties, and that her
consent was obtained through undue influence, fraud and misrepresentation.
[IMPORTANT] ​Paragraph 5 of the lease contract states that "The ​lessee may at any
time withdraw from this agreement​." It is claimed that this stipulation offends article
1308 of the Civil Code which provides that "the contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them."
Pending the petition, both parties died. Wong Heng was substituted by his wife Lui
She. Justina Santos was substituted by the Phil. Banking Corp.
ISSUES:
(1) W/N the lease contracts are valid despite its compliance left to the will of Wong
Heng. ​YES.
(2) W/N Justina voluntarily gave consent to the contract. ​YES
(3) W/N the contract is valid despite the Constitutional prohibition against transfer of
land to aliens. ​YES
RULING:
#1:
● Article 1256 [now art. 1308] of the Civil Code states: The contract must
bind both contracting parties; its validity or compliance cannot be left to the
will of one of them.” However, this creates no impediment to the insertion
in a contract for personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties.
● Such a stipulation, as can be readily seen, does not make either the validity
or the fulfillment of the contract dependent upon the will of the party to
whom is conceded the privilege of cancellation; for where the contracting
parties have agreed that such option shall exist, the exercise of the option is
as much in the fulfillment of the contract as any other act which may have
been the subject of agreement.
● Indeed, the cancellation of a contract in accordance with conditions agreed
upon beforehand is fulfillment. (Taylor v. Uy Tieng Piao)
● A "provision in a lease contract that the lessee, at any time before he erected
any building on the land, might rescind the lease, can hardly be regarded as
a violation of article 1256 [now art. 1308] of the Civil Code." (Melencio v.
Dy Tiao Lay)
#2:
● Atty. Tomas S. Yumol who prepared the lease contract on the basis of data
given to him by Wong, testified and said that Justina told him that
"whatever Mr. Wong wants must be followed.”
● The contract was even fully explained to Justina Santos by her own lawyer.
● Considering her age, ninety (90) years old at the time and her condition, she
is a wealthy woman, it is just natural when she said "This is what I want and
this will be done." In particular reference to this contract of lease, when I
said "This is not proper," she said — "You just go ahead, you prepare that, I
am the owner, and if there is any illegality, I am the only one that can
question the illegality."
● This persuaded the lower court to uphold the validity of the lease contract
against the claim that it was procured through undue influence.
● Hence, the consent of Justina was given freely and voluntarily.
#3
DESPITE THE CONTRACT’S VALIDITY, IT IS ANNULLED:
● The SC held that despite validity of the lease contract, it also gives the clue
to a circumvention of the Constitutional prohibition against transfer of land
to aliens.
● Taken singly, the contracts show nothing that is necessarily illegal, but
considered collectively, they reveal an insidious pattern to subvert by
indirection what the Constitution directly prohibits.
● To be sure, a lease to an alien for a reasonable period is valid. So is the
option giving an alien the right to buy the property on condition that he is
granted Philippine Citizenship.
● But if an alien is given not only a lease, but also an option to buy, a piece of
land, by virtue of which the Filipino owner cannot sell or otherwise dispose
of his property, this is to last for 50 years, is a virtual transfer of ownership
whereby the owner divests himself in stages not only of the right to enjoy
the land but also the right to dispose of it – rights the sum total of which
makes up ownership.
● That policy would be defeated and its continued violation sanctioned if the
contracts will not be set aside.
DISPOSITIVE:
ACCORDINGLY, the contracts in question are annulled and set aside; the land
subject-matter of the contracts is ordered returned to the estate of Justina Santos as
represented by the Philippine Banking Corporation.
Note not pertinent to the topic:​ (In case tanungin)
It is next contended that the lease contract was obtained by Wong in violation of his
fiduciary relationship with Justina Santos, contrary to Article 1646 which
disqualifies "agents (from leasing) the property whose administration or sale may
have been entrusted to them." But Wong was never an agent of Justina Santos. The
relationship of the parties, although admittedly close and confidential, did not
amount to an agency so as to bring the case within the prohibition of the law.
Case Number #7 Andrew
Lim V. People
GR No. L-34338 | November 21, 1984 | Obligation with a Period / Art. 1997
PETITIONER: Lourdes Valerio Lim
RESPONDENT:​ People of the Philippines
DOCTRINE:
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the
tobacco should be turned over to the complainant as soon as the same was
sold, or, that the obligation was immediately demandable as soon as the
tobacco was disposed of Hence, Article 1197 of the New Civil Code, which
provides that the courts may fix the duration of the obligation if it does not
fix a period, does not apply
Background of the Case:
● Lim was found guilty of the crime of ​Estafa and was sentenced
accordingly. Likewise, to indemnify the offended party in the amount of
P559.50 with subsidiary imprisonment in case of insolvency, and to pay the
cost.
● CA: ​affirmed the decision of the lower court but modified the penalty
imposed to suffer an indeterminate penalty of prision correccional as
maximum and to pay the amount of P550.50 without subsidiary
imprisonment.
FACTS:
● Lim, a business woman went to the house of Maria Ayroso and proposed to
sell Ayroso’s tobacco to which Ayroso agreed. The appellant was to receive
the overprice for which she could sell the tobacco.
● The negotiation was made in the presence of Salud Bantug, the plaintiff’s
sister. Bantug drew the document which is now “Exhibit A”
EXHIBIT A STATES:
'To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de Guzman Vda. de
Ayroso, of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at
P1.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and
50/100 (P799.50) will be given to her as soon as it was sold.'
● Such was signed by appellant and witnessed by Bantug and their
maid, Genova Ruiz
● The total value was P799.50 but the appellant had paid only P240
and was paid 3 different times. Demands on the payment was made
by both Ayroso and Bantug but to no avail.
● On october 19, 1966 she wrote a letter to Salud Bantug (written in
tagalog) which states that she was having a hard time selling offthe
products at cabanatuan since her “mga suki ay nagsisilipat ng
puesto”.
● Pursuant to the letter, she sent 3 payments on different dates with a
total of P240.
ISSUES: W/N the receipt, exhibit A is a contract of agency/sale of the subject
tobacco between petitioner and the complainant, Maria de Ayroso, thereby
precluding criminal liability of the petitioner
RULING:
It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco
should be turned over to the complainant as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the tobacco was disposed of.
Hence, ​Article 1197 of the New Civil Code, which provides that the courts may
fix the duration of the obligation if it does not fix a period,​ does not apply.
The argument that the petitioner was not an agent because Exhibit A does not say
that she would be paid the commission if the goods were sold, the CA correctly
resolved the matter. The fact that appellant received the tobacco to be sold at P1.30
per kilo and the proceeds to be given to complainant as soon as it was sold, strongly
negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit
"A") constituted her as an agent with the obligation to return the tobacco if the same
was not sold.
DISPOSITIVE:
ACCORDINGLY, the petition for review on certiorari is dismissed for lack of
merit. With costs
Case Number #8 CEL
Araneta Inc v Phil Sugar Estates
GR No L-22558 | May 31 1967 | Reyes, JBL, J | En Banc | Art 1197 Obligations
with a Period
Petitioner: ​Gregorio Araneta, Inc
Respondent/Defendant:​ ​The Philippiine Sugar Estates Development Co, LTD
Nature of the Action: ​Petition for Review by Certiorari
Doctrine:
Art 1197 involves a 2 step process
1) The Court must first determine that “the obligation does not fix a period”
(or that the period is made to depend upon the will of the debtor), “but from
the nature and circumstances it can be inferred that a period was intended”
2) The Court must then decide what period was “probably contemplated by
the parties”.
FACTS:
● JM Tuason & Co though Gergorio Araneta Inc, sold a portion of their land
in Sta Mesa Heights Subdivision, Quezon City. It has an area of 43,034.4
sqm and more or less for the sum of P430,514.00 to herein respondent
Philippine Sugar Estates.
● The parties stipulated in the contract that
○ The buyer will build on the parcel of land the Sto Domingo church
and convent
○ The seller will construct streets on the NE and NW and SW sides
of the land herein sold so that the latter will be a block surrounded
by streets on all four sides; and the street on the NE side shall be
named “Sto Domingo Avenue”
● The buyer (Philippine Sugar Estates) finished the Construction of the
Church but the seller (Gergorio Araneta Inc) began construction of she
streets but was unable to finish the construction of the street in the NE side
(named Sto Domingo Ave) because a certain 3rd party, Manuel Abundo,
who has been physically occupying a middle part thereof, refused to vacate
the same
● Philippine Sugar Estates filed a complaint against JM Tuason Inc and
Gregorio Araneta Inc in the Court of First Instance, ​seeking to compel the
latter to comply with their obligation​, as stipulated in the deed of sale,
and/or to pay damages in the event they failed or refused to perform said
obligation
● Petitioner’s Contention: Action was premature since its obligation to
construct the streets was without a definite period which needs to be fixed
first by the court in a proper suit for that purpose before a complaint for
specific performance will prosper
● CFI Decision:​ ruled in favor of Gregorio Araneta Inc
○ Philippine Sugar Estates moved for reconsideration and prayed
that the court fix a period within which Gregorio Araneta Inc
within which defendants will comply with their obligation to
construct the streets → granted
○ Gregorio Araneta Inc opposed said motion, maintaining that
plaintiff's complaint did not expressly or impliedly allege and pray
for the fixing of a period to comply with its obligation and that the
evidence presented at the trial was insufficient to warrant the fixing
of such a period
○ Gregorio Araneta presented a MR → denied. Hence, he appealed
to the CA
● Court of Appeals
○ declared that the fixing of a period was within the pleadings and
that there was no true change of theory after the submission of the
case for decision since defendant-appellant Gregorio Araneta, Inc.
itself squarely placed said issue by alleging in paragraph 7 of the
affirmative defenses contained in its answer which reads —
"7. Under the Deed of Sale with Mortgage of July
28, 1950, herein defendant has a reasonable time
within which to comply with its obligations to
construct and complete the streets on the NE, NW
and SW sides of the lot in question; that under the
circumstances, said reasonable time has not elapsed;
● Hence, this petition for review by certiorari
ISSUES: ​Whether or not the parties agreed that Gregorio Araneta Inc should have
reasonable time to perform its part of the obligation
RULING:
● If the contract so provided, then there was a period fixed, a “reasonable
time”; and all that the court should have done was to determine if tht
reasonable time had already elapsed when suit was filed. If it had passed,
then the court should declare that petitioner had breached the contract, as
averred in the complaint and fix the resulting damages. On the other hand, if
the reasonable time had not yet elapsed, the court perforce was bound to
dismiss the action for being premature
● Art 1197 involves a 2 step process
3) The Court must first determine that “the obligation does not fix a
period” (or that the period is made to depend upon the will of the
debtor), “but from the nature and circumstances it can be inferred
that a period was intended”
4) The Court must then decide what period was “probably
contemplated by the parties”.
● In this connection, it is to be borne in mind that the contract shows that the
parties were fully aware that the land was occupied by squatters. As the
parties must have known that they could not take the law into their own
hands, but must resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought would not be under
their control nor could the same be determined in advance.
● The conclusion is thus forced that the parties must have intended to defer
the performance of the obligations under the contact until the squatters were
duly evicted

DISPOSITIVE:
In view of the foregoing, the decision appealed from is reversed, and the time for the
performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at
the date that all the squatters on affected areas are finally evicted therefrom.

Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So

ordered.
Case Number #9 PANISALES
PACIFICA MILLARE v. HON. HAROLD M. HERNANDO, ANTONIO CO,
and ELSA CO
GR No. L-55480 | June 30, 1987 | Feliciano, ​J. ​ | First Division | Obligations with
a Term or Period
Petitioner: Pacifica Millare
Respondents: Hon. Harold M. Hernando, ​In his capacity as Presiding Judge of
the CFI of Abra, Second Judicial District, Branch I, ​Antonio Co, and Elsa Co
Nature of the Action: ​Petition for Certiorari, Prohibition and Mandamus
Doctrine: ​Contractual terms and conditions created by a court for two parties are
a contradiction in terms. If they are imposed by a judge who draws upon his own
private notions of what "morals, good customs, justice, equity and public policy"
demand, the resulting "agreement" cannot, by definition, be consensual or
contractual in nature. It would also follow that such coerced terms and conditions
cannot be the law as between the parties themselves. Contracts spring from the
volition of the parties. That volition cannot be supplied by a judge and a judge
who pretends to do so, acts tyrannically, arbitrarily and in excess of his
jurisdiction.
FACTS:
1. On June 17, 1975, a five-year Contract of Lease was executed between
petitioner Millare as lessor and private respondent Elsa Co, married to Antonio
Co, as lessee to rent out the “People’s Restaurant”, a commercial establishment
in Bangued, Abra.
2. (CO’s VERSION) ​According to the Co spouses, in May 1980, the lessor
informed them that they could continue leasing the People’s Restaurant as long
as they were willing to pay the increased rental of P1200 per month. In their
response, the Co spouses made a counteroffer of P700 per month. The lessor
then said that the rental fee could be resolved at a later time since "the matter is
simple among us", which alleged remark was supposedly taken by the spouses
Co to mean that the Contract of Lease had been renewed, prompting them to
continue occupying the subject premises and to forego their search for a
substitute place to rent.
3. However, the lessor flatly denied ever having considered, much less offered, a
renewal of the Contract of Lease.
4. (ON RECORD) ​The variance in versions notwithstanding, the record shows
that on July 22, 1980, petitioner wrote the Co spouses requesting them to vacate
the leased premises as she had no intention of renewing their contract. In reply,
the Co spouses reiterated their unwillingness to pay the increased rental which
they considered “highly excessive, oppressive and contrary to existing laws”.
They also signified their intention to deposit the amount of rentals in court, in
view of petitioner’s refusal to accept their counter-offer.
5. Another letter of demand from petitioner was then received by the Co spouses,
who responded by depositing the rentals for June and July (at P700 a month) in
court.
6. The Co spouses then filed a Complaint with the CFI of Abra against petitioner
seeking judgment:
a. Ordering the renewal of the Contract of Lease at a rental rate
of P700 a month and for a period of ten years;
b. Ordering the defendants to collect the sum of P1400 deposited
by them with the Court;
c. Ordering the defendant to pay damages in the amount of
P50K.
7. Thereafter, petitioner Millare filed an ejectment case against the Co spouses
with the Municipal Court. The Co spouses, defendants therein, set up lis pendens
as a defense against the complaint for ejectment.
8. Millare (petitioner herein), defendant in the civil case filed by the Co spouses,
countered with an Omnibus Motion to Dismiss grounded on:
a. Lack of cause of action due to plaintiff’s failure to establish a
valid renewal of the Contract of Lease; and
b. Lack of jurisdiction by the trial court over the complaint for
failure of plaintiffs to secure a certification from the Lupong
Tagapayapa of the barangay where both disputants reside
attesting that no amicable settlement between them had been
reached despite efforts to arrive at one.

9. The Co spouses opposed the Motion to Dismiss.
ISSUE: ​W/N the Co spouses have a valid cause of action against petitioner? ​-NO.
RULING:
1. Paragraph 13 of the Contract of Lease of the parties reads as follows:
"13. This contract of lease is subject to the laws and regulations of the government;
and that ​this contract of lease may be renewed after a period of five (5) years
(under the terms and conditions as win be mutually agreed upon by the parties
at the time of renewal) ​. . ."
2. In respondent judge’s answer and comment, he urges that under the said
paragraph:
"there was already a consummated and finished mutual agreement of the parties to
renew the contract of lease after five years; what is only left unsettled between the
parties to the contract of lease is the amount of the monthly rental; the lessor insists
P1,200 a month, while the lessee is begging P700 a month which doubled the P350
monthly rental under the original contract . . . . In short, the lease contract has never
expired because paragraph 13 thereof had expressly mandated that it is
renewable…"
3. Paragraph 13 of the Contract of Lease can only mean that the lessor and
lessee may agree to renew the contract upon their reaching of an agreement
on the terms and conditions to be embodied in such renewal contract.
Failure to reach agreement on the terms and conditions of the renewal
contract will of course prevent the contract from being renewed at all.
4. In this case, the ​lessor and the lessee conspicuously failed to reach an
agreement both on the amount of the rental to be payable during the renewal
term, and on the term of the renewed contract.
5. The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain
the "Judgment by Default" by which he ordered the renewal of the lease for
another term of five years and fixed monthly rental thereunder at P700.00 a
month. Article 1197 of the Civil Code provides as follows:
"If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of
the debtor.
In every case, the courts shall determine such period as may, under the
circumstances, have been probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them."
The ​first paragraph of Article 1197 is clearly inapplicable, since the Contract of
Lease did in fact fix an original period of five years, which had expired. It is also
clear from paragraph 13 of the Contract of Lease that the parties reserved to
themselves the faculty of agreeing upon the period of the renewal contract. The
second paragraph of Article 1197 is equally clearly inapplicable since the
duration of the renewal period was not left to the will of the lessee alone, but
rather to the will of both the lessor and the lessee​. Most importantly, Article 1197
applies only where a contract of lease clearly exists. Here, the ​contract was not
renewed at all, there was in fact no contract at all the period of which could
have been fixed.
6. Contractual terms and conditions created by a court for two parties are a
contradiction in terms. If they are imposed by a judge who draws upon his
own private notions of what "morals, good customs, justice, equity and
public policy" demand, the resulting "agreement" cannot, by definition, be
consensual or contractual in nature. It would also follow that such coerced
terms and conditions cannot be the law as between the parties themselves.
Contracts spring from the volition of the parties. That volition cannot be
supplied by a judge and a judge who pretends to do so, acts tyrannically,
arbitrarily and in excess of his jurisdiction.
DISPOSITIVE:
WHEREFORE, the Petition for Certiorari, Prohibition and Mandamus is granted.
The Orders of the respondent judge in Civil Case No. 1434 dated 26 September 1980
(denying petitioner's motion to dismiss) and 4 November 1980 (denying petitioner's
motion for reconsideration), and the "Judgment by Default" rendered by the
respondent judge dated 26 November 1980, are hereby annulled and set aside and
Civil Case No. 1434 is hereby dismissed. The temporary restraining order dated 21
November 1980 issued by this Court is hereby made permanent. No pronouncement
as to costs.
Case Number # 10 (SOBREVEGA)
Ernesto V. Ronquillo v. Court of Appeals
G.R. No. L-55138 | September 28, 1984 | CUEVAS, J | Second Division | Joint /
Solidary Obligation
Petitioner/Plaintiff: ​Ernesto V. Ronquillo
Respondent/Defendant:​ ​Court of Appeals and Antonio P. So
Nature of the Action: ​Petition to review the Resolution dated June 30, 1980 of
the then Court of Appeals and the Order of said court dated August 20, 1980,
denying petitioner's motion for reconsideration of the above resolution.
Doctrine:
Art. 1207. ​The concurrence of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to demand, or that each one
of the latter is bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligation to which
the preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors and
debtors, the credits or debts being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of suits.
FACTS:
· ​This is a case of solidary liability. Ronquillo was one of four debtors for the
sum of P117, 498.98 from Antonio So. The amount represents the checks signed by
the debtors in exchange for foodstuffs delivered by So.
· ​When they failed to pay, So filed a civil case for collection before the Court
of First Instance of Rizal. Ronquillo and his co-debtors negotiated with So, who
agreed to reduce the debt to P110,000, with the payment to be done in two
instalments of P55,000 each.
· ​The compromise agreement stated that the debtors agreed to pay “individually
and jointly” before June 1980 and that in case of failure to comply with the terms of
the agreement, the innocent party will be entitled to an execution of the decision
based on this compromise agreement and the defaulting party agrees and hold
themselves to reimburse the innocent party for attorney’s fees, execution fees and
other fees related with the execution.
· ​So filed a motion for execution when the debtors failed to pay the first tranche in
December 1979, but Ronquillo said they could not find So on December 24, the last
date for payment. Ronquillo and his co-debtor, Pilar Tan, later deposited half of the
P55,000 with the clerk of court because So at first wanted the full amount paid, but
So later withdrew the deposited amount.
· ​The lower court however issued a motion for execution against the two
other co-debtors, for the remaining half of the initial payment. So moved for the
execution of the order “against all defendants, jointly and severally.”
· ​Ronquillo opposed this, saying that the lower court’s order did not declare the
defendants’ liability to be solidary.
· ​The court however noted that only one-fourth of the debt had been paid, and
ordered a writ of execution for the remaining P82,500. The sheriff issued a notice of
sale for certain appliances and furniture in Ronquillo’s residence to satisfy the debt.
· ​Ronquillo filed an appeal with the Court of Appeals, which was then
denied.
ISSUES: WON Ronquillo is solidarily liable with the other defendants in the civil
case
RULING: Yes. The term individually has the same meaning as collectively,
separately, distinctively, respectively or severally.
An agreement to be individually liable undoubtedly creates a several obligation
and a several obligation is one which binds himself to perform the whole
obligation.
The Supreme Court noted that Ronquillo and his co-debtors individually and jointly
agreed to pay the debt.
On the issue as to the nature of the liability of Ronquillo, as one of the defendants,
whether or not he is liable jointly or solidarily, Article 1207 and 1208 of the Civil
Code provides —
Art. 1207. The concurrence of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to demand, or that each one of
the latter is bound to render, entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.

Art. 1208. ​If from the law,or the nature or the wording of the obligation to which the
preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors and debtors,
the credits or debts being considered distinct from one another, subject to the Rules
of Court governing the multiplicity of suits.

“Clearly then, by the express term of the compromise agreement and the
decision based upon it, the defendants obligated themselves to pay their
obligation “individually and jointly”.

The term “individually” has the same meaning as “collectively”, “separately”,

“distinctively”, respectively or “severally”. An agreement to be “individually liable”
undoubtedly creates a several obligation, and a “several obligation is one by which
one individual binds himself to perform the whole obligation.”
“The obligation in the case at bar being described as “individually and jointly”, the
same is therefore enforceable against one of the numerous obligors.”

DISPOSITIVE: ​IN VIEW OF THE FOREGOING CONSIDERATIONS, the

instant petition is hereby DISMISSED. Cost against petitioner.
Case Number #11
Malayan Insurance v CA
GR No L-36413| Sept 26 1988 | Padilla J | Second Division | Solidary
Obligations
Petitioner: ​Malayan Insurance Co., Inc.
Respondent: ​The Hon. Court of Appeals (Third Division) Martin C. Vallejos, Sio
Choy, San Leon Rice Mill, Inc. and Pangasinan Transportation Co., Inc.
Nature of the Action: Review on ​certiorari o​ f the judgment * of the respondent
appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, which
affirmed, with some modifications, the decision, ** dated 27 April 1970, rendered
in Civil Case No. U-2021 of the Court of First Instance of Pangasinan.
Doctrine: In solidary obligations, the creditor may enforce the entire obligation
against one of the solidary debtors. On the other hand, insurance is defined as "a
contract whereby one undertakes for a consideration to indemnify another against
loss, damage, or liability arising from an unknown or contingent event."
FACTS: Malayan Insurance Co. issued a car comprehensive policy in favor Sio
Choy covering a jeep. The insurance coverage was for “own damage” not to exceed
P600 and “third party liability” amounting to P20,000
1. While to policy was in force, the jeep, while driven by Campollo (San Leon
Rice Mil employee), collided with a bus operated by PANTRANCO, causing
damage to the insured jeep, injuries to the driver and respondent Vallejos, who
was one of the jeepney passenger
2. Vallejos filed an action for damages against Sio Choy, Malayan, and
PANTRANCO
3. PANTRANCO’s defenses: the jeep was running at an excessive speed, and that
the bus stopped at the shoulder of the highway to avoid the jeep. Sio Choy failed
to observe ordinary diligence in the selection and supervision of its employees
4. Sio Choy and Malayan’s defenses: the accident was solely imputable to
PANTRANCO
5. Sio Choy later filed a cross-claim against Malayan, claiming that it had already
paid Vallejos P5,000 for hospitalization and as insurer, Malayan should
reimburse Sio Choy for the expenses he incurred
6. Malayan, in turn, filed a third-party claim against San Leon Rice Mill for the
reason that its employee was driving the jeep at the time of the accident.
Malayan alleged that San Leon was liable for the acts of its employee under Art
2180 NCC
7. The trial court ruled in favor of Vallejos and held Sio Chooy, Malayan and San
Leon solidarily liable. However, the court limited Malayan’s liability to P20,000
8. On appeal, CA affirmed the solidary liability of the parties but ruled that San
Leon was not obliged to indemnify the insurer since it was not privy to the
insurance contract between Sio Choy and Malayan
ISSUE WON Sio Choy, San Leon and Malayan are solidarily liable to Vallejos
HELD: No. While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the insurer,
however, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based on
contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos,
but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with
the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill,
Inc. For if petitioner-insurer were solidarily liable with said 2 respondents by reason
of the indemnity contract against third party liability — under which an insurer can
be directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts.
In solidary obligation, the creditor may enforce the entire obligation against one of
the solidary debtors. On the other hand, insurance is defined as "a contract whereby
one undertakes for a consideration to indemnify another against loss, damage, or
liability arising from an unknown or contingent event."
CAB: The qualification made in the decision of the trial court to the effect that
petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary, is an evident breach of the concept of a solidary
obligation
ISSUE:​ WON Malayan is entitled to be reimbursed by San Leon
HELD: ​No. Subrogation is a normal incident of indemnity insurance. Upon payment
of the loss, the insurer is entitled to be subrogated pro tanto to any right of action
which the insured may have against the third person whose negligence or wrongful
act caused the loss. When the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property and all remedies
which the insured may have for the recovery thereof. That right is not dependent
upon, nor does it grow out of, any privity of contract, (italics supplied) or upon
written assignment of claim, and payment to the insured makes the insurer an
assignee in equity.

CAB: Only respondents Sio Choy and San Leon Rice Mill, Inc. are solidarily liable
to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may
enforce the entire obligation on only one of said solidary debtors. If Sio Choy as
solidary debtor is made to pay for the entire obligation (P29,103.00) and petitioner,
as insurer of Sio Choy, is compelled to pay P20,000.00 of said entire obligation,
petitioner would be entitled, as subrogee of Sio Choy as against San Leon Rice
Mills, Inc., to be reimbursed by the latter in the amount of P14,551.50 (which is 1/2
of P29,103.00).

WHEREFORE, the petition is GRANTED. The decision of the trial court, as

affirmed by the Court of Appeals, is hereby AFFIRMED, with the modification
above-mentioned. Without pronouncement as to costs.
SO ORDERED.
Case Number #12 (ZUÑO) SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is solidary
with another debtor, the claim shall be filed against the decedent as if he were the
PHILIPPINE NATIONAL BANK v. INDEPENDENT PLANTERS only debtor, without prejudice to the right of the estate to recover contribution from
ASSOCIATION, INC. the other debtor. In a joint obligation of the decedent, the claim shall be confined to
G.R. No. L-28046 | May 16, 1983 | PLANA, J. | First Division | Actions the portion belonging to him.

2. The appellant assails the order of dismissal, invoking its right of recourse
Plaintiff-appellant: ​PHILIPPINE NATIONAL BANK
against one, some or all of its solidary debtors under Article 1216 of the
Defendant-appellees: ​INDEPENDENT PLANTERS ASSOCIATION, INC.,
Civil Code —
ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA,
MOISES CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA,
ART. 1216. The creditor may proceed against any one of the solidary debtors or
LAURO LEVISTE, GAVINO GONZALES, LOPE GEVANA and BONIFACIO
some or all of them simultaneously. The demand made against one of them shall not
LAUREANA
be an obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
Nature of the Action:
See: (1) in FACTS.
ISSUE: ​Whether or not the death of one defendant, in an action for collection of a
sum of money based on contract against all the solidary debtors, deprives the court of
Doctrine:
jurisdiction to proceed with the case against the surviving defendants. - NO.
Article 1216 of the Civil Code grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his solidary debtors, as he deems
RULING:
fit or convenient for the protection of his interests; and if, after instituting a
1. Article 1216 grants the creditor the substantive right to seek satisfaction of
collection suit based on contract against some or all of them and, during its
his credit from one, some or all of his solidary debtors, as he deems fit or
pendency, one of the defendants dies, the court retains jurisdiction to continue the
convenient for the protection of his interests; and if, after instituting a
proceedings and decide the case in respect of the surviving defendants.
collection suit based on contract against some or all of them and, during its
pendency, one of the defendants dies, the court retains jurisdiction to
Section 6, Rule 86 of the Revised Rules of Court cannot be made to prevail over
continue the proceedings and decide the case in respect of the surviving
Article 1216 of the New Civil Code, the former being merely procedural, while
defendants.
the latter, substantive.
2. Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that
where two persons are bound in solidum for the same debt and one of them
FACTS: dies, the whole indebtedness can be proved against the estate of the latter,
1. Appeal by the Philippine National Bank (PNB) from the Order of the Court the decedent's liability being absolute and primary; and if the claim is not
of First Instance which dismissed PNB's complaint against several solidary presented within the time provided by the rules, the same will be barred as
debtors for the collection of a sum of money on the ground that one of the against the estate.
defendants (Ceferino Valencia) died during the pendency of the case, and 3. It is evident then that ​Rule 86 provides the procedure should the creditor
therefore the complaint, being a money claim based on contract, should be desire to go against the deceased debtor - but there is certainly nothing in
prosecuted in the testate or intestate proceeding for the settlement of the the said provision making compliance with such procedure a condition
estate of the deceased defendant pursuant to Section 6 of Rule 86 of the precedent before an ordinary action against the surviving solidary debtors
Rules of Court. could be entertained to the extent that failure to observe the same would
 deprive the court jurisdiction to take cognizance of the action against the
surviving debtors.
4. Upon the other hand, ​the Civil Code expressly allows the creditor to
proceed against any one of the solidary debtors or some or all of them
simultaneously. There is, therefore, nothing improper in the creditor's filing
of an action against the surviving solidary debtors alone, instead of
instituting a proceeding for the settlement of the estate of the deceased
debtor wherein his claim could be filed.
5. The choice is undoubtedly left to the creditor to determine against
whom he will enforce collection. In case of the death of one of the solidary
debtors the creditor may, if he so chooses, proceed against the surviving
solidary debtors without necessity of filing a claim in the estate of the
deceased debtors. It is not mandatory for him to have the case dismissed
against the surviving debtors and file its claim in the estate of the deceased
solidary debtor.
6. As correctly argued by petitioner, if Section 6, Rule 86 of the Revised Rules
of Court were applied literally, Article 1216 of the New Civil Code would,
in effect, be repealed since under the Rules of Court, petitioner has no
choice but to proceed against the estate of Manuel Barredo only.
7. Obviously, this construction diminishes the Bank's right under the New
Civil Code. Such a construction is not sanctioned by the principle that a
substantive law cannot be amended by a procedural rule.
8. Otherwise stated, ​Section 6, Rule 86 of the Revised Rules of Court
cannot be made to prevail over Article 1216 of the New Civil Code, the
former being merely procedural, while the latter, substantive.

DISPOSITIVE: ​WHEREFORE the appealed order of dismissal of the court a quo is

hereby set aside in respect of the surviving defendants; and the case is remanded to
the corresponding Regional Trial Court for further proceedings.
Case Number 13 (AGUSTIN)
CALANG AND PHILTRANCO V. PEOPLE
G.R. No. 190969 | 03 August 2010 | BRION, J. | Third Division
| As to Rights and Obligations of Multiple Parties – Subsidiary Liable
Petitioner: ​Rolito Calang and Philtranco Service Enterprises, Inc.,
Respondent:​ ​People of the Philippines
Nature of the Action: ​A motion for reconsideration filed by the petitioners to
challenge the Court’s Resolution denying their petition for review on certiorari for
failure to show any reversible error sufficient to warrant the exercise of the Court's
discretionary appellate jurisdiction.
Doctrine:
Before the employers’ subsidiary liability is enforced, adequate evidence must
exist establishing that (1) they are indeed the employers of the convicted
employees; (2) they are engaged in some kind of industry; (3) the crime was
committed by the employees in the discharge of their duties; and (4) the execution
against the latter has not been satisfied due to insolvency. The determination of
these conditions may be done in the same criminal action in which the employee’s
liability, criminal and civil, has been pronounced, in a hearing set for that precise
purpose, with due notice to the employer, as part of the proceedings for the
execution of the judgment.
FACTS:
● At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving
Philtranco Bus No. 7001, owned by Philtranco along Daang Maharlika
Highway in Barangay Lambao, Sta. Margarita, Samar when its rear left side
hit the front left portion of a Sarao jeep coming from the opposite direction.
As a result of the collision, Cresencio Pinohermoso, the jeeps driver, lost
control of the vehicle, and bumped and killed Jose Mabansag, a bystander
who was standing along the highways shoulder.
● The jeep turned turtle three (3) times before finally stopping at about 25
meters from the point of impact. Two of the jeeps passengers, Armando
Nablo and an unidentified woman, were instantly killed, while the other
passengers sustained serious physical injuries.
● The prosecution charged Calang with multiple homicide, multiple serious
physical injuries and damage to property thru reckless imprudence before
the Regional Trial Court (RTC), Branch 31, Calbayog City.
● The RTC, in its decision dated May 21, 2001, found Calang guilty beyond
reasonable doubt of reckless imprudence resulting to multiple homicide,
multiple physical injuries and damage to property, and sentenced him to
suffer an indeterminate penalty of thirty days of arresto menor, as
minimum, to four years and two months of prision correccional, as
maximum.
● The RTC ordered Calang and Philtranco, jointly and severally, to pay
P50,000.00 as death indemnity to the heirs of Armando; P50,000.00 as
death indemnity to the heirs of Mabansag; and P90,083.93 as actual
damages to the private complainants.
ISSUE: ​W/N the RTC and CA err in ruling that Philtranco is jointly and severally
liable with Calang?
RULING:
Yes. Philtranco as employer is only subsidiarily liable. The RTC and the CA both
erred in holding Philtranco jointly and severally liable with Calang. We emphasize
that Calang was charged criminally before the RTC. Undisputedly, Philtranco was
not a direct party in this case. Since the cause of action against Calang was based on
delict, both the RTC and the CA erred in holding Philtranco jointly and severally
liable with Calang, based on quasi-delict under Articles 2176[1] and 2180[2] of the
Civil Code. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability
of an employer for quasi-delicts that an employee has committed. Such provision of
law does not apply to civil liability arising from delict.
The provisions of the Revised Penal Code on subsidiary liability Articles 102 and
103 are deemed written into the judgments in cases to which they are applicable.
Thus, in the dispositive portion of its decision, the trial court need not expressly
pronounce the subsidiary liability of the employer. Nonetheless, before the
employers subsidiary liability is enforced, adequate evidence must exist establishing
that (1) they are indeed the employers of the convicted employees; (2) they are
engaged in some kind of industry; (3) the crime was committed by the employees in
the discharge of their duties; and (4) the execution against the latter has not been
satisfied due to insolvency. The determination of these conditions may be done in the
same criminal action in which the employees liability, criminal and civil, has been
pronounced, in a hearing set for that precise purpose, with due notice to the
employer, as part of the proceedings for the execution of the judgment.

DISPOSITIVE:
WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals
decision that affirmed in toto the RTC decision, finding Rolito Calang guilty beyond
reasonable doubt of reckless imprudence resulting in multiple homicide, multiple
serious physical injuries and damage to property, is AFFIRMED, with the
MODIFICATION that Philtranco’s liability should only be subsidiary. No costs.
Case Number # 14 (KANG)
Ruks Konsult and Construction v. Adworld
GR No 204866 | January 21, 2015| Perlas-Bernabe, J. | 1​st​ Division| Kinds of
Obligation; As to rights & obligations of multiple parties
Petitioner: ​Ruks Konsult and Construction
Respondents: ​Adworld Sign and Advertising Corp. and Transworld Media Ads,
Inc.
Nature of the Action: ​Petition for review on certiorari, assailing the decision and
resolution of the CA.
Doctrine: ​Under Article 2194 of the CC, joint tortfeasors are solidarily liable as
principals, to the same extent and in the same manner as if they had performed the
wrongful act themselves.
In ​People v. Velasco, ​“where several causes producing an injury are concurrent
and each is an efficient cause without which the injury would not have happened,
the injury may be attributed to all or any of the causes and recovery may be had
against any or all of the responsible persons.”
There is no contribution between joint tortfeasors whose liability is solidary since
both of them are liable for the total damage.
FACTS:
1. This case arose from a complaint for damages filed by Adworld against
Transworld and Comark International Corporation (Comark) before RTC.
2. Adworld, alleged that it is the owner of a 75ft. x 60 ft. billboard structure (located
at EDSA Tulay, Guadalupe, Barangka Mandaluyong) which was misaligned and its
foundation impaired when the adjacent billboard structure owned by Transworld and
used by Camark collapsed and crashed against it.
3. Transworld admitted that the damage was caused by its billboard structure on
Adworld’s billboard, but refused and failed to pay.
4. Hence, filed a complaint praying for damages.
5. In its Answer in the counterclaim Transworld averred that: the damage was caused
due to extraordinarily strong wind, and the damage was barely noticeable.
6. Trasnworld filed a Third-Party Complaint against Ruks, the company which built
the collapsed billboard structure in their favor. Alleging that Ruks should be liable
since the structure constructed by it had a weak and poor foundation not suited for
billboards.
7. Comark denied liability ofr dmages mainintaint that it does not have any interest
on Transworld’s collapsed billboard structure since it contracted only to use the
same. Then it prayed for exemplary damages. (from Transworld and Ruks)
8. Ruks admitted that it has contributed in the building of the structure in accordance
with the contract entered between Transworld, but denied having liabilities since it
merely finished the structure in the existing foundation.
RTC: ​ruled in Adworld’s favor; declared Trnasworld and Ruks jointly and severally
liable to Adworld for damages. On the grounds that Transworld and Ruks negligent
in the construction of the collapsed billboard as they knew of the weak existing
foundation.
CA: ​denied Ruk’s appeal and affirmed the ruling of the RTC.
ISSUES: w/n CA correctly affirmed the ruling of the RTC declaring Ruks
jointly and severally liable with Transworld for damages sustained by Adworld
– YES.
RULING:
Jurisprudence defines negligence as the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent and
reasonable man would not do. It is the failure to observe for the protection of the
interests of another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.
Transworld's initial construction of its billboard's lower structure without the proper
foundation, and that of Ruks's finishing its upper structure and just merely assuming
that Transworld would reinforce the weak foundation are the two (2) successive acts
which were the direct and proximate cause of the damages sustained by Adworld.
Ruks and Transworld were fully aware that the foundation for the former’s billboard
was weak, yet neither of them took any positive step to reinforce the same. No repair
was done. Hence they should be held liable in the collapse of the billboard structure.
As joint tortfeasors, they are solidarily liable to Adworld.
Verily, "[j]oint tortfeasors are those who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of a tort, or approve of
it after it is done, if done for their benefit.

- ​They are also referred to as those who act together in committing

wrong or whose acts, if independent of each other, unite in causing a
single injury.

Under Article 2194 of the CC, joint tortfeasors are solidairily liable as principals, to
the same extent and in the same manner as if they had performed the wrongful act
themselves.

In ​People v. Velasco, ​“where several causes producing an injury are concurrent and
each is an efficient cause without which the injury would not have happened, the
injury may be attributed to all or any of the causes and recovery may be had against
any or all of the responsible persons.”

There is no contribution between joint tortfeasors whose liability is solidary since

both of them are liable for the total damage.
“Where the concurrent or successive negligent acts or omissions of two or
more persons, although acting independently, are in combination the direct
and proximate cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury and either of
them is responsible for the whole injury…”

DISPOSITIVE:
WHEREFORE, the petition is DENIED. The Decision dated November 16, 2011
and the Resolution dated December 10, 2012 of the Court of Appeals in CA-G.R.
CV No. 94693 are hereby AFFIRMED.
 proving that he observed the diligence of a good father of a family to
Case Number #15 (MANLONGAT)
prevent the damage.

TMBI v. FEB MITSUI

G.R. No. 194121 | July 11, 2016 | Brion, J. | Second Division | As to rights & FACTS:
Obligations of multiple parties 1. A shipment of various electronic goods from Thailand and Malaysia arrived
at the Port of Manila for Sony Philippines, Inc. (Sony). Previous to the
arrival, Sony had engaged the services of TMBI to facilitate, process,
Plaintiff-appellant: ​Torres-Madrid Brokerage Inc.
withdraw, and deliver the shipment from the port to its warehouse in Biñan,
Defendant-appellees: ​Feb Mitsui Marine INsurance Co., Inc. and Benjamin P.
Laguna.
Manalastas doing business under the name of BMT Trucking Services
2. TMBI subcontracted the services of Benjamin Manalastas' company, BMT
Trucking Services (BMT), to transport the shipment from the port to the
Nature of the Action:
Biñan warehouse.
Petition for review on certiorari challenging the CA’s Oct. 14, 2010 decision
3. Four BMT trucks picked up the shipment from the port at about 11:00 a.m.
of October 7, 2000. However, BMT could not immediately undertake the
Doctrine:
delivery because of the truck ban and because the following day was a
● A brokerage may be considered a common carrier if it also undertakes to
Sunday. Thus, BMT scheduled the delivery on October 9, 2000.
deliver the goods for its customers. Under Article 1736, a common
4. In the early morning of October 9, 2000, the four trucks left BMT's garage
carrier's extraordinary responsibility over the shipper's goods lasts from
for Laguna. However, only three trucks arrived at Sony's Biñan warehouse.
the time these goods are unconditionally placed in the possession of, and
The truck driven by Rufo Reynaldo Lapesura was found abandoned along
received by, the carrier for transportation, until they are delivered,
the Diversion Road in Filinvest, Alabang, Muntinlupa City. Both the driver
actually or constructively, by the carrier to the consignee.
and the shipment were missing.
● TMBI and BMT are not solidarily liable to Mitsui. We disagree with the
5. Later that evening, BMT's Operations Manager Melchor Manalastas
lower courts' ruling that TMBI and BMT are solidarily liable to Mitsui
informed Victor Torres, TMBI's General Manager, of the development.
for the loss as joint tortfeasors. The ruling was based on Article 2194 of
They went to Muntinlupa together to inspect the truck and to report the
the Civil Code: Art. 2194. The responsibility of two or more persons who
matter to the police.
are liable for quasi-delict is solidary.
6. Victor Torres also filed a complaint with the National Bureau of
● In culpa contractual, the plaintiff only needs to establish the existence of
Investigation (NBI) against Lapesura for "hijacking.” which resulted in a
the contract and the obligor's failure to perform his obligation. It is not
recommendation by the NBI to Manila City Prosecutor’s Office to
necessary for the plaintiff to prove or even allege that the obligor's
prosecute Lapesura for qualified theft.
non-compliance was due to fault on negligence because Article 1735
7. TMBI notified Sony of the loss through a letter dated October 10, 2000. It
already presumes that the common carrier is negligent. The common
also sent BMT a letter dated March 29, 2001, demanding payment for the
carrier can only free itself from liability by proving that it observed
lost shipment. (BMT refused to pay)
extraordinary diligence. It cannot discharge this liability by shifting the
8. Sony filed an insurance claim with the Mitsui, the insurer of the goods.
blame on its agents or servants.
After evaluating the merits of the claim, Mitsui paid Sony PHP7,293,386.23
● The plaintiff in culpa aquiliana must clearly establish the defendant's
corresponding to the value of the lost goods.
fault or negligence because this is the very basis of the action. Moreover,
9. After being subrogated to Sony's rights, Mitsui sent TMBI a demand letter
if the injury to the plaintiff resulted from the act or omission of the
dated August 30, 2001 for payment of the lost goods. TMBI refused to pay
defendant's employee or servant, the defendant may absolve himself by
Mitsui's claim which resulted to Mitsui filing of complaint against TMBI.
 10. TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as
a third party defendant
11. At the trial, it was revealed that BMT and TMBI have been doing business
with each other since the early 80's. It also came out that there had been a
previous hijacking incident involving Sony's cargo in 1997, but neither
Sony nor its insurer filed a complaint against BMT or TMBI.
12. RTC​: found TMBI and Benjamin Manalastas jointly and solidarily liable to
pay Mitsui PHP7,293,386.23 as actual damages, attorney's fees equivalent
to 25% of the amount claimed, and the costs of the suit. They were common
carriers and had acted negligently.
13. TMBI and BMT appealed RTC’s decision
14. CA affirmed RTC’s decision and reduced the award of atty’s fees: ​(1)
that "hijacking" is not necessarily a fortuitous event because the term refers
to the general stealing of cargo during transit; (2) that TMBI is a common
carrier engaged in the business of transporting goods for the general public
for a fee; (3) even if the "hijacking" were a fortuitous event, TMBI's failure
to observe extraordinary diligence in overseeing the cargo and adopting
security measures rendered it liable for the loss; and (4) even if TMBI had
not been negligent in the handling, transport and the delivery of the
shipment, TMBI still breached its contractual obligation to Sony when it
failed to deliver the shipment.
15. TMBI disagreed with CA’s ruling and filed the present petition
ISSUE:
1. W/N TMBI is a common carrier engaged in doing business of transporting
goods for the general public for a fee? YES
2. W/N TMBI and BMT are solidarily liable to Mitsui? NO
3. W/N BMT is directly liable to Sony or Mitsui? NO
4. W/N BMT is liable to TMBi for their breach of contract of carriage? YES
RULING:
1. A brokerage may be considered a common carrier if it also undertakes to
deliver the goods for its customers. Common carriers are persons,
corporations, firms or associations engaged in the business of transporting
passengers or goods or both, by land, water, or air, for compensation,
offering their services to the public. By the nature of their business and for
reasons of public policy, they are bound to observe extraordinary diligence
in the vigilance over the goods and in the safety of their passengers.
IN AF Sanchez Brokerage v CA it was held that a customs broker is still
considered a common carrier if it also undertakes to deliver the goods for its
customers. The law does not distinguish between one whose principal
business activity is the carrying of goods and one who undertakes this task
only as an ancillary activity.
Despite TMBI's present denials, we find that the delivery of the goods is an
integral, albeit ancillary, part of its brokerage services. TMBI admitted that
it was contracted to facilitate, process, and clear the shipments from the
customs authorities, withdraw them from the pier, then transport and deliver
them to Sony's warehouse in Laguna.
Consequently, TMBI should be held responsible for the loss, destruction, or
deterioration of the goods it transports. For all other cases — such as theft
or robbery — a common carrier is presumed to have been at fault or to have
acted negligently, unless it can prove that it observed extraordinary
diligence.
In the present case, the shipper, Sony, engaged the services of TMBI, a
common carrier, to facilitate the release of its shipment and deliver the
goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation — the delivery of the cargo — to another common carrier, BMT.
Despite the subcontract, TMBI remained responsible for the cargo. Under
Article 1736, a common carrier's extraordinary responsibility over the
shipper's goods lasts from the time these goods are unconditionally placed
in the possession of, and received by, the carrier for transportation, ​until
they are delivered, actually or constructively, by the carrier to the
consignee.
That the cargo disappeared during transit while under the custody of BMT
— TMBI's subcontractor — did not diminish nor terminate TMBI's
responsibility over the cargo. Article 1735 of the Civil Code presumes that
it was at fault.
2. TMBI and BMT are not solidarily liable to Mitsui. We disagree with the
lower courts' ruling that TMBI and BMT are solidarily liable to Mitsui for
the loss as joint tortfeasors. The ruling was based on Article 2194 of the
Civil Code: Art. 2194. The responsibility of two or more persons who are
liable for quasi-delict is solidary.
Notably, TMBI's liability to Mitsui does not stem from a quasi-delict (culpa
aquiliana) but from its breach of contract (culpa contractual). The tie that
binds TMBI with Mitsui is contractual, albeit one that passed on to Mitsui
as a result of TMBI's contract of carriage with Sony to which Mitsui had
been subrogated as an insurer who had paid Sony's insurance claim. The
legal reality that results from this contractual tie precludes the application of
quasi-delict based Article 2194.
3. The court disagrees with the finding that BMT is directly liable to
Sony/Mitsui for the loss of the cargo. While it is undisputed that the cargo
was lost under the actual custody of BMT (whose employee is the primary
suspect in the hijacking or robbery of the shipment), no direct contractual
relationship existed between Sony/Mitsui and BMT. If at all, Sony/Mitsui's
cause of action against BMT could only arise from quasi-delict, as a third
party suffering damage from the action of another due to the latter's fault or
negligence, pursuant to Article 2176 of the Civil Code.
In culpa contractual, the plaintiff only needs to establish the existence of the
contract and the obligor's failure to perform his obligation. It is not
necessary for the plaintiff to prove or even allege that the obligor's
non-compliance was due to fault on negligence because Article 1735
already presumes that the common carrier is negligent. The common carrier
can only free itself from liability by proving that it observed extraordinary
diligence. It cannot discharge this liability by shifting the blame on its
agents or servants.
4. The cargo was lost after its transfer to BMT's custody based on its
contract of carriage with TMBI. Following Article 1735, BMT is presumed
to be at fault. Since BMT failed to prove that it observed extraordinary
diligence in the performance of its obligation to TMBI, it is liable to TMBI
for breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching
the contract of carriage. In turn, TMBI is entitled to reimbursement from
BMT due to the latter's own breach of its contract of carriage with TMBI.
The proverbial buck stops with BMT who may either: (a) absorb the loss, or
(b) proceed after its missing driver, the suspected culprit, pursuant to Article
2181.
DISPOSITIVE​:
WHEREFORE, the Court hereby ORDERS petitioner Torres-Madrid Brokerage,
Inc. to pay the respondent FEB Mitsui Marine Insurance Co., Inc. the following:
a. Actual damages in the amount of PHP7,293,386.23 plus legal interest
from the time the complaint was filed until it is fully paid;
b. Attorney's fees in the amount of PHP200,000.00; and
c. Costs of suit. cDHAES
Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE
Torres-Madrid Brokerage, Inc. of the above-mentioned amounts.

The plaintiff in culpa aquiliana must clearly establish the defendant's fault
or negligence because this is the very basis of the action. Moreover, if the
injury to the plaintiff resulted from the act or omission of the defendant's
employee or servant, the defendant may absolve himself by proving that he
observed the diligence of a good father of a family to prevent the damage.

In the present case, Mitsui's action is solely premised on TMBI's breach of

contract. Mitsui did not even sue BMT, much less prove any negligence on
its part. If BMT has entered the picture at all, it is because TMBI sued it for
reimbursement for the liability that TMBI might incur from its contract of
carriage with Sony/Mitsui. Accordingly, there is no basis to directly hold
BMT liable to Mitsui for quasi-delict.
Case #16 MORDEN
SANICO v. CALIPANO
G.R. No. 209969 | September 27, 2017 | Second Division | Caguioa, J. | Inapplicable
solidary obligation
PETITIONER​: Jose Sanico And Vicente Castro
RESPONDENT​: Werherlina P. Colipano
DOCTRINE:
In a contract of carriage, the driver and the owner or operator are ​not solidary
liable. In a contract of carriage, only the operator, and not the driver, is a party
thereto. This being the case, the owner/operator is solely liable in case of breach of
contract.
In case of death of or injury to their passengers, common carriers are presumed to
have been at fault or negligent, and this presumption can be overcome only by
proof of the extraordinary diligence exercised to ensure the safety of the
passengers.
FACTS:
1. Colipano claimed that at 4PM Christmas Day 1993, she and her daughter
were paying passengers in the jeepney operated by Sanico, which was
driven by Castro.
2. Colipano claimed she was made to sit on an empty beer case at the edge of
the rear entrance/exit of the jeepney with her sleeping child on her lap.
3. At an uphill incline in the road to Natimao-an, Carmen, Cebu, the jeepney
slid backwards because it did not have the power to reach the top.
4. Colipano pushed both her feet against the step board to prevent herself and
her child from being thrown out of the exit, but because the step board was
wet, her left foot slipped and got crushed between the step board and a
coconut tree which the jeepney bumped, causing the jeepney to stop its
backward movement.
5. Colipano's leg was badly injured and was eventually amputated.
6. Colipano prayed for actual damages, loss of income, moral damages,
exemplary damages, and attorney's fees.
7. In their answer, Sanico and Castro admitted that Colipano's leg was crushed
and amputated but claimed that it was Colipano's fault that her leg was
crushed.
8. They admitted that the jeepney slid backwards because the jeepney lost
power. The conductor then instructed everyone not to panic but Colipano
tried to disembark and her foot got caught in between the step board and the
coconut tree.
9. Sanico claimed that he paid for all the hospital and medical expenses of
Colipano, and that Colipano eventually freely and voluntarily executed an
Affidavit of Desistance and Release of Claim.
10. RTC​: Sanico and Castro breached the contract of carriage between them
and Colipano but only awarded actual and compensatory damages in favor
of Colipano.
11. CA​: affirmed with modification.
12. Sanico and Castro filed this petition before the Court assailing the CA
Decision.
ISSUES:
(1) W/N Sanico and Castro are solidary liable - ​NO​.
(2) Whether the Affidavit of Desistance and Release of Claim is binding on Colipano
(not pertinent to our topic) - ​NO
RULING:
The Court partly grants the petition. Only Sanico is liable. Castro not being a part of
the contract of carriage.
ISSUE #1: ​Only Sanico breached the contract of carriage.
● Colipano was injured while she was a passenger in the jeepney owned and
operated by Sanico that was being driven by Castro. Both the CA and RTC
found Sanico and Castro solidary liable​. This, however, is erroneous
because only Sanico was the party to the contract of carriage with Colipano.
● Since the cause of action is based on a breach of a contract of carriage, the
liability of Sanico is direct as the contract is between him and Colipano.
Castro, being merely the driver of Sanico's jeepney, cannot be made liable
as he is not a party to the contract of carriage.
● Although he was driving the jeepney, he was a mere employee of Sanico,
who was the operator and owner of the jeepney.
The elements of a contract of carriage existed between Colipano and Sanico​.
(1) ​Consent​, as shown when Castro, as employee of Sanico, accepted Colipano as a
passenger when he allowed Colipano to board the jeepney, and as to Colipano, when
she boarded the jeepney;
(2) ​Cause or consideration​, when Colipano, for her part, paid her fare; and
(3) ​Object​, the transportation of Colipano from the place of departure to the place of
destination.
[IMPORTANT] ​There is ​no solidary liability between Castro and Sanico​, Castro
not being a part of the contract. This follows that Colipano has no cause of action
against Castro, and the complaint should be dismissed.
Sanico is liable as operator and owner of a common carrier.
● Specific to a contract of carriage, the Civil Code requires common carriers
to observe ​extraordinary diligence​ in safely transporting their passengers.
● Art. 1733 of the Civil Code states: “x x x common carriers have the
obligation to carry passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due
regard for all the circumstances.”
● In case of death of or injury to their passengers, Article 1756 of the Civil
Code provides that ​common carriers are presumed to have been at fault or
negligent​, and this presumption can be ​overcome only by proof of the
extraordinary diligence ​exercised to ensure the safety of the passengers.
● Sanico failed to rebut the presumption of fault or negligence under the Civil
Code. More than this, the evidence indubitably established Sanico's
negligence when Castro made Colipano sit on an empty beer case at the
edge of the rear entrance/exit of the jeepney with a child on her lap, which
put them in greater peril.
● The defense of engine failure, instead of exonerating Sanico, ​only
aggravated his position​. The engine failure "hinted lack of regular check
and maintenance to ensure that the engine is at its best, considering that the
jeepney regularly passes through a mountainous area." This is proof of fault
on Sanico's part.
Hence, Sanico is PRIMARILY SOLELY LIABLE.
DISPOSITIVE:
WHEREFORE, the petition for review is hereby PARTLY GRANTED.
As to petitioner Vicente Castro, the Decision of the CA is REVERSED and SET
ASIDE and the complaint against him is dismissed for lack of cause of action.
As to petitioner Jose Sanico, the Decision CA is AFFIRMED with
MODIFICATIONS. Petitioner Jose Sanico is liable to pay actual damages
amounting to P2,098.80;
Compensatory damages for loss of income - P212,000.00;
Interest on the total amount of the damages - 6% per annum reckoned from October
27, 2006 until finality of this Decision until full payment thereof.
ISSUE#2: ​[NOT PERTINENT]
The Affidavit of Desistance and Release of Claim is void.
● Sanico cannot be exonerated from liability under the Affidavit of Desistance
and Release of Claim.
● The Affidavit of Desistance and Release of Claim is not binding on plaintiff
(Colipano) in the absence of proof that the contents thereof were
sufficiently translated and explained to her."
● For there to be a valid waiver, the following requisites are essential:
○ (1) that the person making the waiver possesses the right, (2) that
he has the capacity and power to dispose of the right, (3) that the
waiver must be clear and unequivocal although it may be made
expressly or impliedly, and (4) that the waiver is not contrary to
law, public policy, public order, morals, good customs or
prejudicial to a third person with a right recognized by law.
● For the waiver to be clear and unequivocal, the person waiving the right
should understand what she is waiving and the effect of such waiver.
● Colipano could not have clearly and unequivocally waived her right to
claim damages when she had no understanding of the right she was waiving
and the extent of that right. Worse, she was made to sign a document
written in a language she did not understand.
● The fourth requirement for a valid waiver is also lacking as the waiver,
based on the attendant facts, can only be construed as contrary to public
policy.
● Waiver was considered offensive to public policy because it was shown that
the passenger was still in the hospital and was dizzy when she signed the
document.
NOTE: ​(Another ObliCon Doctrine in the case)
Contravention of tenor​: "The phrase 'in any manner contravene the tenor' of the
obligation includes any illicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance." (​Magat v.
Medialdea)​
There is no question here that making Colipano sit on the empty beer case was a
clear showing of how Sanico contravened the tenor of his obligation to safely
transport Colipano from the place of departure to the place of destination as far as
human care and foresight can provide, using the utmost diligence of very cautious
persons, and with due regard for all the circumstances.
Case Number # 17 (Andrew)
SPS Lam V. Kodak Philippines
GR No. 167615 | January 11, 2016 | Leonen, J. | Art 1225
Petitioner/Plaintiff: Spouses Alexander and Julie Lam
Respondent/Defendant:​ Kodak Philippines, LTD.
Nature of the Action: ​Petition for review on certiorari assailing the decision of
the CA which modified the decision of the RTC by reducing the amount of
damages awarded to petitioner Lam SPS. The Lam Spouses argue that respondent
Kodak Philippines, Ltd.'s breach of their contract of sale entitles them to damages
more than the amount awarded by the Court of Appeals.
Doctrine:
In determining the divisibility of an obligation, the following factors may be
considered, to wit: (1) the will or intention of the parties, which may be expressed
or presumed; (2) the objective or purpose of the stipulated prestation; (3) the
nature of the thing; and (4) provisions of law affecting the prestation”
T​he intention ​of the parties is for there to be a single transaction covering all
three (3) units of the Minilab Equipment
FACTS:
● The Lam SPS entered into an agreement for the sale of 3 units of Kodak
Minilab System 22XL in the amount of P1,796,000.00 per unit. With the
following terms: (sorry mahaba but important syafor the facts):
○ Said Minilab Equipment packages will avail a total of 19%
multiple order discount based on prevailing equipment price
provided said equipment packages will be purchased not later than
June 30, 1992.
○ 19% Multiple Order Discount shall be applied in the form of
merchandise and delivered in advance immediately after signing of
the contract. * Also includes start-up packages worth P61,000.00.
○ NO DOWNPAYMENT.
○ Minilab Equipment Package shall be payable in 48 monthly
installments at THIRTY FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the 8rst 12 months; the balance
shall be re-amortized for the remaining 36 months and the
prevailing interest shall be applied.
○ Prevailing price of Kodak Minilab System 22XL as of January 8,
1992 is at ONE MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.
○ Price is subject to change without prior notice.
● Kodak delivered 1 unit of Minilab Equipment in Tagu, Davao. The Lam
SPS issued postdated checks amounting to P35,000.00 each for 12 months
as payment for the 1st delivered unit. The first check was due on march 12,
1992.
● The Lam SPS requested that Kodak. Not negotiate the check dated March
31, 1992 allegedly due to insufficiency of funds. The same request was
made for the check on April 30, 1992.
● However, both checks were negotiated by the respondents and were
honored by the bank. The 10 other checks were subsequently dishonored
after the Lam SPS ordered the depositary bank to stop payment.
● [​IMPORTANT] ​As such, Kodak ​canceled the sale ​and demanded that the
Lam SPS return the unit it delivered together with its accessories. The Lam
SPS ignored such demand BUT also ​RESCINDED ​the contract through the
letter on account of Kodak’s failure to deliver the 2 remaining Minilab
Equipments.
● Kodak then filed a ​complaint for Replevin (to obtain possession of a
personal/moveable property “Doctrine under Property to ha in case tanungin
ni ser) of sum of money. The Lam SPS failed to appear. Thus, they were
declared in default.
RTC: Kodak presented evidence ex-parte. The RTC issued the decision in favor of
Kodak, ordering the seizure of the Minilab Equipment. Due to this, they were able to
obtain a Writ of Seizure for the equipment located at Tagum, Davao Province.
CA: The Lam SPS then filed in the CAa Petition to Set Aside the Orders issued by
the RTC. ​It was granted​ and the case was remanded back to the RTC for pre-trial
RTC PRE-TRIAL: ​RTC ​DISMISSED ​the case and ordered Kodak to pay Lam
SPS. It was found that Kodak defaulted in the performance of their obligation. ​It
held that Kodak Philippines, Ltd.'s failure to deliver two (2) out of the three (3)
units of the Minilab Equipment caused the Lam Spouses to stop paying for the
rest of the installments.
● The RTC noted that while the Letter Agreement did not specify a period
within which the delivery of all units was to be made, the NCC provides
 “reasonable time” as the standard period of compliance under Par. 2 Art.
1521
● [IMPORTANT] ​Kodak failed to give sufficient explanation for its failure
to deliver all 3 purchased units w/in a reasonable time. The RTC held that
there should have been simultaneous delivery even if only 2 payment by
installment was honored. Kodak was not at liberty to determine the
defendant’s capacity to pay
● Lam SPS (questioning the damages to be awarded for them lang) and
Kodak both filed for an appeal. However, CA dismissed it for Kodak for
failure to file its appellant’s brief.
CA​: [​IMPORTANT] Affirmed with MODIFICATIONS the decision of the
RTC.​ Under Article 1225 of the NCC, their obligation ​DIVISIBLE. It states that:
“In determining the divisibility of an obligation, the following factors may
be considered, to wit: (1) the will or intention of the parties, which may be expressed
or presumed; (2) the objective or purpose of the stipulated prestation; (3) the nature
of the thing; and (4) provisions of law affecting the prestation”
The CA held that the ​intention of the parties is to be bound SEPARATELY for
each Minilab Equipment. Under such principle, Sps. Lam shall be liable for the
entire amount of the purchase price of the Minilab Equipment delivered considering
that Kodak had already completely fulfilled its obligation to deliver the same.
The CA also held that their contract was “​Severable in Character” ​- "If the part to be
performed by one party consists in several distinct and separate items and the price is
apportioned to each of them, the contract will generally be held to be severable.”
Considering this, Kodak's breach of its obligation to deliver the other two (2)
equipment cannot bar its recovery for the full payment of the equipment already
delivered. As far as Kodak is concerned, it had already fully complied with its
separable obligation to deliver the first unit of Minilab Equipment.
CA’s Discussion on RECISSION: ​The recission was based on Art. 1191 of the
NCC which provides:
“The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.”
In its letter, Kodak demanded that the Lam SPS surrender the 1 delivered unit along
with its standard accessories. Likewise, the Lam SPS rescinded its contract through
its letter on account of Kodak’s breach of obligations. Due to this, “both parties must
be restored to their original situation”. Extinguishing the obligation as if it was never
created.
ISSUES:
1. [PERTINENT ISSUE] W/N ​the contracts between Lam SPS and Kodak
pertained to obligations that are SEVERABLE, DIVISIBLE, and
SUSCEPTIBLE of PARTIAL PERFORMANCE under art 1225 of the
NCC - ​NO.
RULING:
1. The letter agreement contained an ​INDIVISIBLE OBLIGATION. ​T​he
intention ​of the parties is for there to be a single transaction covering all
three (3) units of the Minilab Equipment. Respondent’s obligation was to
deliver all products purchased under a "package," and, in turn, petitioners’
obligation was to pay for the total purchase price, payable in installments.
The ​intention of the parties to bind themselves to an indivisible obligation can be
further discerned through their direct acts in relation to the package deal. There was
only one agreement covering all three (3) units of the Minilab Equipment and their
accessories. The Letter Agreement specified only one purpose for the buyer, which
was to obtain these units for three different outlets. If the intention of the parties were
to have a divisible contract, then separate agreements could have been made for each
Minilab Equipment unit instead of covering all three in one package deal.
Furthermore, the 19% multiple order discount as contained in the Letter Agreement
was applied to all three acquired units. The "no downpayment" term contained in the
Letter Agreement was also applicable to all the Minilab Equipment units. Lastly, the
fourth clause of the Letter Agreement clearly referred to the object of the contract as
"Minilab Equipment Package."
In ruling that the contract between the parties intended to cover divisible obligations,
the Court of Appeals highlighted: (a) the separate purchase price of each item; (b)
petitioners’ acceptance of separate deliveries of the units; and (c) the separate
payment arrangements for each unit. However, through the specified terms and
conditions, ​the tenor of the Letter Agreement INDICATED AN INTENTION
FOR A SINGLE TRANSACTION This intent must prevail even though the
articles involved are physically separable and capable of being paid for and delivered
individually, consistent with the New Civil Code: Article 1225. For the purposes of
the preceding articles, obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be indivisible. When the
obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature
are susceptible of partial performance, it shall be divisible. However, even though
the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In ​Nazareno v. Court of Appeals, the indivisibility of an obligation is tested
against whether it can be the subject of partial performance: ​An obligation is
indivisible when it cannot be validly performed in parts, whatever may be the nature
of the thing which is the object thereof. The indivisibility refers to the prestation and
not to the object thereof. I​ n the present case, the Deed of Sale of January 29, 1970
supposedly conveyed the six lots to Natividad. The obligation is clearly indivisible
because the performance of the contract cannot be done in parts, otherwise the value
of what is transferred is diminished. Petitioners are therefore mistaken in basing the
indivisibility of a contract on the number of obligors.
There is no indication in the Letter Agreement that the units petitioners ordered were
covered by three (3) separate transactions. The factors considered by the Court of
Appeals are mere incidents of the execution of the obligation, which is to deliver
three units of the Minilab Equipment on the part of respondent and payment for all
three on the part of petitioners. The intention to create an indivisible contract is
apparent from the benefits that the Letter Agreement afforded to both parties.
DISPOSITIVE:
WHEREFORE, the Petition is DENIED. The Amended Decision dated
September 9, 2005 is AFFIRMED with MODIFICATION
[EXTRA DISCUSSION ON RESCISSION/ NOT PERTINENT TO OUR
DISCUSSION]
The injured party may choose between the fulfilment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
Rescission under Article 1191 has the effect of mutual restitution. In Velarde v.
Court of Appeals: Rescission abrogates the contract from its inception and requires a
mutual restitution of benefits received.
The Court of Appeals correctly ruled that both parties must be restored to their
original situation as far as practicable, as if the contract was never entered into.
Petitioners must relinquish possession of the delivered Minilab Equipment unit and
accessories, while respondent must return the amount tendered by petitioners as
partial payment for the unit received. Further, respondent cannot claim that the two
(2) monthly installments should be offset against the amount awarded by the Court
of Appeals to petitioners because the effect of rescission under Article 1191 is to
bring the parties back to their original positions before the contract was entered into.
When rescission is sought under Article 1191 of the Civil Code, ​it need not be
judicially invoked because the power to resolve is implied in reciprocal
obligations. ​The right to resolve allows an injured party to minimize the damages he
or she may suffer on account of the other party’s failure to perform what is
incumbent upon him or her. When a party fails to comply with his or her obligation,
the other party’s right to resolve the contract is triggered. The resolution immediately
produces legal effects if the non-performing party does not question the resolution.
Court intervention only becomes necessary when the party who allegedly failed to
comply with his or her obligation disputes the resolution of the contract. Since both
parties in this case have exercised their right to resolve under Article 1191, there is
no need for a judicial decree before the resolution produces effects.
Case Number #18 CEL
The Bachrach Motor Co Inc v Espiritu
GR No28497-98 | Nov 6 1928 | Avacena, CJ | En Banc | Obligations with a
Penal Clause
Plaintiff-Appellee: ​The Bachrach Motor Co., Inc.
Defendant-Appellant: ​Faustino Espiritu and Rosario Espiritu as
Intervenor-appellant
Nature of the Action: ​Appeal
Doctrine: ​Article 1152 of the Civil Code permits the agreement upon a penalty
apart from the interest. Should there be such an agreement, the penalty does not
include the interest, and as such the two are different and distinct things which
may be demanded separately.
Art 1164 - When obligation is partially performed, the court is allowed to reduce
the penalty imposed therein
FACTS:
GR 28497
● July 28 1925: Espiritu purchased from Bachrach a two-ton white truck for
P11,983.50, paying P1,000 down to apply to account of its price, and
obligating himself to pay the remaining P10,983.50 within the period agreed
upon
● To secure the payment of this sum, Espiritu mortgaged the said truck
purchased, and besides three others (two of which are numbered 77197 and
92744) , and all of the White trucks
○ The two trucks (77197 and 92744) were purchased and were fully
paid for by Espirut and his brother, Rosario Espiritu
● Espiritu then failed to pay P10.477.82 of the price secured by his mortgage
GR 28498
● Feb 18 1925 Espiritu bought a one-ton White truck for the sum of
P7,136.59, and after having deducted the P500 cash payment and the 12%
annual interest of the unpaid principal, obligated himself to make payments
of this sum within the period agreed upon
● To secure this payment, Espiritu mortgaged to Bachrach the said truck
purchased and trucks no. 77197 and 92744 (the same trucks that were
mortgaged in the purchase of the other truck in GR 28497)
● Espiritu failed to pay P4,208.28
In both sales, it was agreed that 12% interest would be paid upon the unpaid portion
of the price at the execution of the contracts, and in case of non-payment of the total
debt upon its maturity 25% thereon, as penalty
In addition to the mortgage deeds, Espiritu also signed a promissory note solidarily
with his brother for the several sums secured by the two mortgages
Rosario Espiritu appeared in these two cases as intervenor, alleging to be the
exclusive owner of the two White trucks Nos. 77197 and 92744, which appear to
have been mortgaged by the defendant to the plaintiff.
While these two cases were pending in the lower court the mortgaged trucks were
sold by virtue of the mortgage, all of them together bringing in, after deducting the
sheriff's fees and transportation charges to Manila, the net sum of P3,269.58.
ISSUES: ​W/N the 25% penalty upon the debt plus the 12% per annum makes the
contract usurious - NO
RULING:
Article 1152 of the Civil Code permits the agreement upon a penalty apart from the
interest. Should there be such an agreement, the penalty, as was held in the case of
Lopez vs. Hernaez, does not include the interest, and as such the two are different
and distinct things which may be demanded separately.
According to this, the penalty is not to be added to the interest for the determination
of whether the interest exceeds the rate fixed by the law, since said rate was fixed
only for the interest. But considering that the obligation was partly performed, and
making use of the power given to the court by article 1154 of the Civil Code, this
penalty is reduced to 10 per cent of the unpaid debt
DISPOSITIVE:
With the sole modification that instead of 25 per cent upon the sum owed, the
defendants need to pay only 10 per cent thereon as penalty, the judgment appealed
from is affirmed in all other respects without special pronouncement as to costs. So
ordered.
Case Number #19 PANISALES
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION v.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXIV), and LOLITA
MILLAN
GR No. L-41093 | October 30, 1978 | Munoz Palma, ​J. ​ | First Division |
Presence of an Accessory Undertaking in case of Breach
Petitioner: Robes-Francisco Realty and Development Corporation
Respondents: Court of First Instance of Rizal (Branch XXIV) and Lolita
Millan
Nature of the Action: ​Direct appeal from a Decision of the CFI
Doctrine: ​Nominal damages are not intended for indemnification of loss suffered
but for the vindication or recognition of a right violated or invaded. They are
recoverable where some injury has been done the amount of which the evidence
fails to show, the assessment of damages being left to the discretion of the court
according to the circumstances of the case.
​ ACTS:
F 8. ​CFI RULING: ​Finding that the realty corporation failed to cause the issuance of
1. ​In May 1962, petitioner Robes-Francisco Realty & Development Corp. agreed to
sell to private respondent Lolita Millan a piece of land in Caloocan City for the
amount of P3864, payable in installments.
2. Respondent Millan complied with her obligation under the contract and paid the
installments stipulated therein, the final payment of P5,193.63 having been made
on December 1971.
3. Thereafter, Millan made repeated demands upon the corporation for the
execution of the final deed of sale and the issuance to her of the TCT over the
lot.
4. In March 1973, the parties executed a deed of absolute sale of the
aforementioned parcel of land. In contained this particular provision:
"That the VENDOR further warrants that the transfer certificate of title of the above
described parcel of land shall be transferred in the name of the VENDEE within the
period of six (6) months from the date of full payment and in case the VENDOR
fails to issue said transfer certificate of title, it shall bear the obligation to refund to
the VENDEE the total amount already paid for, plus an interest at the rate of 4% per
annum."
5. ​Notwithstanding the lapse of the said period of six months, the corporation failed
to cause the issuance of the corresponding TCT of the lot sold to Millan. This
prompted Millan to file a Complaint for Specific Performance and Damages
against petitioner with the CFI of Rizal.
6.​ T
​ he complaint prayed for judgment:
a. Ordering the reformation of the Deed of Absolute Sale;
b. Ordering the defendant to deliver to plaintiff the certificate of
title over the lot free from any lien or encumbrance;
c. Should this be not possible, to pay plaintiff the value of the lot
which should not be less than P27,600 (allegedly the present
estimated value of the lot; and
d. Ordering the defendant to pay the plaintiff damages, corrective
and actual in the sum of P15k.
7. In its answer, the corporation prayed that the complaint be dismissed alleging
that the deed of absolute sale was voluntarily executed between the parties and
the interest of the plaintiff was amply protected by the provision in said contract
for payment of interest at 4% per annum of the total amount paid, for the delay
in the issuance of the title.
the corresponding transfer certificate of title because the parcel of land conveyed
to Millan was included among other properties of the corporation mortgaged to
the GSIS to secure an obligation of P10 million and that the owner's duplicate
certificate of title of the subdivision was in the possession of the GSIS, the CFI
held petitioner corporation liable to Millan. It ordered that the Deed of Absolute
Sale be registered in the name of Millan. It also ordered the payment of nominal
damages and payment of attorney’s fee.
9. Petitioner corporation then filed this case questioning the award for nominal
damages of P20,000.00 and attorney's fee of P5,000.00 which are allegedly
excessive and unjustified.
ISSUE: ​W/N the CFI erred in awarding nominal damages to petitioner? ​NO but the
circumstances of the case warrant a reduction of the amount.
RULING:
1. ​There can be no dispute in this case under the pleadings and the admitted facts
that petitioner corporation was guilty of delay, amounting to nonperformance of
 its obligation, in issuing the transfer certificate of title to vendee Millan who had
fully paid up her installments on the lot bought by her. ​Article 1170 of the Civil
Code expressly provides that those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof are liable for damages.
2. ​Petitioner contends that the deed of absolute sale executed between the parties
stipulates that should the vendor fail to issue the transfer certificate of title
within six months from the date of full payment, it shall refund to the vendee the
total amount paid for with interest at the rate of 4% per annum, hence, the
vendee is bound by the terms of the provision and cannot recover more than
what is agreed upon.
3. ​Presumably, petitioner is invoking Article 1226 of the Civil Code which
provides that in obligations with a 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.
4. ​We would agree with petitioner if the clause in question were to be considered as
a penal clause. Nevertheless, for very obvious reasons, ​said clause does not
convey any penalty, for even without it, pursuant to Article 2209 of the
Civil Code, the vendee would be entitled to recover the amount paid by her
with legal rate of interest which is even more than the 4% provided for in
the clause.
5. The facts show that the right of the vendee to acquire title to the lot brought by
her was violated by petitioner and this entitles her at the very least to nominal
damages. The relevant provisions are:
"​Art. 2221. ​Nominal damages are adjudicated in order that a right of the plaintiff,
which has been ​violated or invaded by the defendant​, may be vindicated or
recognized, and ​not for the purpose of indemnifying the plaintiff for any loss
suffered by him​."
"​Art. 2222. ​The court may award nominal damages in every obligation arising
from any source enumerated in article 1157, or in every case where any
property right has been invaded."
6. Under the foregoing provisions nominal damages are not intended for
indemnification of loss suffered but for the vindication or recognition of a
right violated or invaded. They are recoverable where some injury has been
done the amount of which the evidence fails to show, the assessment of damages
being left to the discretion of the court according to the circumstances of the
case.
7. The circumstances of a particular case will determine whether or not the amount
assessed as nominal damages is within the scope or intent of the law, more
particularly, Article 2221 of the Civil Code.
8. ​In this case, the Court of the view that the amount of P20,000.00 is excessive.
The admitted fact that petitioner corporation failed to convey a transfer
certificate of title to respondent Millan because the subdivision property was
mortgaged to the GSIS does not in itself show that there was bad faith or fraud.
Bad faith is not to be presumed. Moreover, there was the expectation of the
vendor that arrangements were possible for the GSIS to make partial releases of
the subdivision lots from the overall real estate mortgage. It was simply
unfortunate that petitioner did not succeed in that regard.
9. In case of breach of contract, exemplary damages may be awarded if the
guilty party acted in wanton, fraudulent, reckless, oppressive or malevolent
manner. Furthermore, exemplary or corrective damages are to be ​imposed by
way of example or correction for the public good, only if the injured party
has shown that he is entitled to recover moral, temperate or compensatory
damages​. Here, respondent ​Millan did not submit any evidence to prove that
she suffered actual or compensatory damages.
10. The sum of Ten Thousand Pesos (P10K) by way of nominal damages is fair and
just under the following circumstances, viz: respondent Millan bought the lot
from petitioner in May, 1962, and paid in full her installments on December 22,
1971, but it was only on March 2, 1973, that a deed of absolute sale was
executed in her favor, and notwithstanding the lapse of almost three years since
she made her last payment, petitioner still failed to convey the corresponding
transfer certificate of title to Millan who accordingly was compelled to file the
instant complaint in August of 1974.
DISPOSITIVE: ​PREMISES CONSIDERED, We modify the decision of the trial
court and reduce the nominal damages to Ten Thousand Pesos (P10,000.00). In all
other respects the aforesaid decision stands.
Case Number # 20 (SOBREVEGA)
Mariano C. Pamintuan v. Court of Appeals
G.R. No. L-26339 | December 14, 1979 | AQUINO, J | Second Division |
Obligations with a Penal Clause
Petitioner/Plaintiff: ​Mariano C. Pamintuan
Respondent/Defendant:​ ​Court of Appeals and Yu Ping Kun Co., Inc.
Nature of the Action: ​Recovery compensatory, damages for breach of a contract
of sale in addition to liquidated damages.
Doctrine:
Art. 1226, par. 1​. In obligations with a 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.
FACTS:
· ​Mariano Pamintuan was in an agreement with Yu Ping Kun Co., Inc. to sell
plastic sheetings imported by the former from Japan through a barter license he had
for the export of white flint corn to Toyo Menka Kaisha, Ltd.
· ​While the plastic sheetings were arriving in Manila, Pamintuan informed the
President of Yu Ping Kun that he was in dire need of cash and requested that he be
paid immediately for the plastic sheetings. Consequently, the two parties fixed a
price to the plastic sheetings regardless of the kind, quality or actual invoice value
thereof and based it on dividing the total price of the shipment with its aggregate
quantity.
· ​After the shipments arrived in Manila (4 shipments in total), Pamintuan
only delivered a portion or 224, 150 yards of the expected 339, 440 yards of plastic
sheetings he received to Yu Ping Kun's warehouse.
· ​Furthermore, ​he delivered plastic sheetings of inferior quality that were
valued at a lesser price than what Yu Ping Kun had paid.
· ​Subsequently, Yu Ping Kun filed an action to enforce a provision in their
contract of sale which states that any violation of the stipulations of that contract
would entitle the aggrieved party to liquidated damages in the amount of Php 10, 000
from the offending party.
· ​RTC​: Added to these two items of damages (P67, 174.17 as unrealized profits
and P12, 282.26 as overpayment): (a) P10, 000 as stipulated liquidated damages, (b)
P10,000 as moral damages, (c) Pl,102.85 as premium paid by the company on the
bond of P102,502.13 for the issuance of the writ of preliminary attachment and (d)
P10,000 as attorney's fees, or total damages of P110,559.28 (​in favor of Yu Ping
Kun​).
· ​The CA found that Pamintuan was guilty of fraud because (1) he was able to
make the company agree to change the manner of paying the price by falsely alleging
that there was a delay in obtaining confirmation of the suppliers' acceptance of the
offer to buy; (2) he caused the plastic sheetings to be deposited in the bonded
warehouse of his brother and then required his brother to make him Pamintuan), his
attorney-in-fact so that he could control the disposal of the goods; (3) Pamintuan, as
attorney-in-fact of the warehouseman, endorsed to the customs broker the warehouse
receipts covering the plastic sheetings withheld by him and (4) he overpriced the
plastic sheetings which he delivered to the company.
· ​CA: Affirmed the RTC’s judgment with the modification that the moral
damages were disallowed.
ISSUES: ​WON compensatory damages may be awarded for breach of a contract of
sale in addition to liquidated damages/stipulated penalty in the said contract
.
RULING: Yes. Compensatory damages may be awarded for breach of a
contract of sale in addition to liquidated damages/stipulated penalty in the said
contract. Paragraph 1 of Article 1226 of the New Civil Code states that:
“In obligations with a 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.”
Thus, ​as a general rule, the penalty takes the place of the indemnity for damages
and the payment of interest. However there are ​exceptions ​to this rule under the
Civil Code, and one of them is; when the obligor is guilty of fraud in the
fulfillment of the obligation​, indemnity for damages may be awarded in addition to
and apart from the penalty stipulated.
The factual findings of the lower courts that Pamintuan was guilty of fraud because
he did not make a complete delivery of the plastic sheetings and he overpriced the
same is conclusive upon the Supreme Court.

Hence, based on this fact, Pamintuan should pay damages. However, in case of fraud
the creditor, Ping Kun, in addition to and apart from the stipulated penalty, may only
recover the difference between the actual proven damages and the stipulated penalty.

DISPOSITIVE: ​With that modification the judgment of the Court of Appeals is

affirmed in all respects. No costs in this instance.
Case No 21 (JAO)
Castillo v Security Bank
July 30, 2014 | PERALTA, J | THIRD DIVISION | Obli w/ Penal Clause
Petitioner: ​LEONARDO C. CASTILLO, represented by LENNARD V.
CASTILLO
Respondent: S​ECURITY BANK CORPORATION, JRC POULTRY FARMS or
SPOUSES LEON C. CASTILLO, JR., and TERESITA FLORES-CASTILLO
Nature of the Action:
This is a Petition for Review questioning the Decision 1 of the Court of Appeals
(CA) dated November 26, 2010, as well as its Resolution 2 dated March 17, 2011
in CA-G.R. CV No. 88914. The CA reversed and set aside the Decision 3 of the
Regional Trial Court (RTC) of San Pablo City, Laguna, Branch 32, dated October
16, 2006 in Civil Case No. SP-5882 (02), and consequently, upheld the validity of
the real estate mortgage entered into by respondents spouses Leon C. Castillo, Jr.
and Teresita Flores-Castillo, and Security Bank Corporation (SBC).
Doctrine:
FACTS:
1. Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr. are
siblings. Leon and Teresita Flores-Castillo (the Spouses Castillo) were
doing business under the name of JRC Poultry Farms. Sometime in 1994,
the Spouses Castillo obtained a loan from respondent SBC in the amount of
P45,000,000.00.
a. To secure said loan, they executed a real estate mortgage on
August 5, 1994 over eleven (11) parcels of land belonging to
different members of the Castillo family and which are all located
in San Pablo City.
b. They also procured a second loan 5 amounting to P2,500,000.00,
which was covered by a mortgage on a land in Pasay City.
2. Subsequently, the Spouses Castillo failed to settle the loan, prompting SBC
to proceed with the foreclosure of the properties. SBC was then adjudged as
the winning bidder in the foreclosure sale held on July 29, 1999. Thereafter,
they were able to redeem the foreclosed properties, with the exception of
the lots covered by Torrens Certificate of Title (TCT) Nos. 28302 and
28297.
3. On January 30, 2002, Leonardo filed a complaint for the partial annulment
of the real estate mortgage. He alleged that he owns the property covered by
TCT No. 28297 and that the Spouses Castillo used it as one of the
collaterals for a loan without his consent.
a. He contested his supposed Special Power of Attorney (SPA) in
Leon's favor, claiming that it is falsified.
b. According to him, the date of issuance of his Community Tax
Certificate (CTC) as indicated on the notarization of said SPA is
January 11, 1993, when he only secured the same on May 17,
1993. He also assailed the foreclosure of the lots which were still
registered in the name of their deceased father.
c. *IMPORTANT* Lastly, Leonardo attacked SBC's imposition of
penalty and interest on the loans as being arbitrary and
unconscionable.
4. On the other hand, the Spouses Castillo insisted on the validity of
Leonardo's SPA. They alleged that they incurred the loan not only for
themselves, but also for the other members of the Castillo family who
needed money at that time.
a. Upon receipt of the proceeds of the loan, they distributed the same
to their family members, as agreed upon. However, when the loan
became due, their relatives failed to pay their respective shares
such that Leon was forced to use his own money until SBC had to
finally foreclose the mortgage over the lots.
5. RTC:
a. Ruled in Leonardo's favor. declaring as null and void the Real
Estate Mortgage, Memorandum of Agreement dated October 28,
1997 and the Certificate of Sale dated August 27, 1999. The
Security Bank Corporation is likewise ordered to return the
ownership of the Transfer Certificate of Title No. T-28297 to
plaintiff Leonardo Castillo.
b. *IMPORTANT* Spouses Leon C. Castillo, Jr. and Teresita
Flores-Castillo are also ordered to pay plaintiff moral damages in
the total amount of P500,000.00 and exemplary damages of
P20,000.00.
6. CA: Reversed and set aside the RTC Decision, essentially ruling that the
August 5, 1994 real estate mortgage is valid.
ISSUES: ​The main issue sought to be resolved here is whether or not the real estate WHEREFORE, premises considered, the petition is DENIED. The Decision of
mortgage constituted over the property is valid and binding. YES the Court of Appeals, dated November 26, 2010, as well as its Resolution dated
RULING: March 17, 2011 in CA-G.R. CV No. 88914, are hereby AFFIRMED.
1. Section 47 of The General Banking Law of 2000 27 thus provides: Case Number #22 (ZUÑO)
Section 47. ​Foreclosure of Real Estate Mortgage. — In the event of
foreclosure, whether judicially or extra-judicially, of any mortgage
on real estate which is security for any loan or other credit
accommodation granted, ​the mortgagor or debtor whose real
property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the
real estate, to redeem the property by paying the amount due under
the mortgage deed, with interest thereon at the rate specified in the
mortgage, and all the costs and expenses incurred by the bank or
institution from the sale and custody of said property less the
income derived therefrom.
2. Verily, the redemption price comprises not only the total amount due under
the mortgage deed, but also with interest at the rate specified in the
mortgage, and all the foreclosure expenses incurred by the mortgagee bank.
3. To sustain Leonardo's claim that their payment of P45,000,000.00 had
already extinguished their entire obligation with SBC would mean that no
interest ever accrued from 1994, when the loan was availed, up to the time
the payment of P45,000,000.00 was made in 2000-2001. SBC's 16% rate of
interest is not computed per month, but rather per annum or only 1.33% per
month.
4. In Spouses Bacolor v. Banco Filipino Savings and Mortgage Bank,
Dagupan City Branch, 29 the Court held that the interest rate of 24% per
annum on a loan of P244,000.00 is not considered as unconscionable and
excessive. As such, the Court ruled that the debtors cannot renege on their
obligation to comply with what is incumbent upon them under the contract
of loan as they are bound by its stipulations.
5. The enforcement of penalty can be demanded by the creditor in case of
non-performance due to the debtor's fault or fraud.
6. The non-performance gives rise to the presumption of fault and in order to
avoid the penalty, the debtor has the burden of proving that the failure of the
performance was due to either force majeure or the creditor's own acts.
a. In the instant case, petitioner failed to discharge said burden and
thus cannot avoid the payment of the penalty charge agreed upon.

DISPOSITIVE:
 SPS. POON v. PRIME SAVINGS BANK
G.R. No. 183794 | June 13, 2016 | SERENO, CJ. | First Division |
Petitioners: ​SPOUSES JAIME and MATILDE POON
Respondent/Defendant: ​PRIME SAVINGS BANK represented by the
PHILIPPINE DEPOSIT INSURANCE CORPORATION as STATUTORY
LIQUIDATOR
Nature of the Action:
This is a Petition for Review on Certiorari assailing the Court of Appeals (CA)
Decision which affirmed the Decision of the Regional Trial Court (RTC) of Naga
City.
The RTC ordered the partial rescission of the penal clause in the lease contract
over the commercial building of Spouses Jaime and Matilde Poon (petitioners). It
directed petitioners to return to Prime Savings Bank (respondent) the sum of
P1,740,000, representing one-half of the unused portion of its advance rentals, in
view of the closure of respondent's business upon order by the Bangko Sentral ng
Pilipinas (BSP).
FACTS:
● Petitioners owned a commercial building in Naga City, which they used for
their bakery business.
● On November 3, 2006, Matilde Poon and respondent executed a 10-year
Contract of Lease (Contract) over said the building for the respondent's use
as its branch office in Naga City.
● They agreed to a fixed monthly rental of P60,000, with an advance payment
of the rentals for the first 100 months in the amount of P6,000,000. The
advance payment was to be applied immediately, while the rentals for the
remaining period were to be paid on a monthly basis.
● In addition, paragraph 24 of the Contract provides:
Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the
LESSOR shall have the right to terminate the lease without the necessity of serving a
court order and to immediately repossess the leased premises. x x x The LESSOR
shall thereupon have the right to enter into a new contract with another party. All
advanced rentals shall be forfeited in favor of the LESSOR.
● Barely three years later, however, the BSP placed respondent under the
receivership of the Philippine Deposit Insurance Corporation (PDIC) by
virtue of BSP Monetary Board Resolution No. 22, which reads:
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift Banks and
Non-Bank Financial Institutions (DTBNBF) x x x [it] showed that the Prime Savings
Bank, Inc. (a) is unable to pay its liabilities as they became due in the ordinary
course of business; (b) has insufficient realizable assets as determined by the Bangko
Sentral ng Pilipinas to meet its liabilities; (c) cannot continue in business without
involving probable losses to its depositors and creditors; and (​ d) has wilfully
violated cease and desist orders under Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the
institution;​ x x x.
● The BSP eventually ordered respondent's liquidation under Monetary Board
Resolution No. 664, and on May 12, 2000, respondent vacated the leased
premises and surrendered them to petitioners.
● Subsequently, the PDIC issued petitioners a demand letter asking for the
return of the unused advance rental amounting to P3,480,000 on the ground
that paragraph 24 of the lease agreement had become inoperative, because
respondent's closure constituted force majeure.
● The PDIC likewise invoked the principle of rebus sic stantibus under
Article 1267 of the Civil Code as alternative legal basis for demanding the
refund.
● Petitioners, however, refused the PDIC's demand. They maintained that
they were entitled to retain the remainder of the advance rentals following
paragraph 24 of their Contract.
● Consequently, respondent sued petitioners before the RTC for a partial
rescission of contract and/or recovery of a sum of money.
RTC
● After trial, the RTC ordered the partial rescission of the lease agreement,
particularly the second paragraph of Par. 24 thereof, and directed the
spouses Poon to return or refund to the sum of One Million Seven Hundred
Forty Thousand Pesos (P1,740,000) representing one-half of the unused
portion of the advance rentals.
● The trial court ruled that the second clause in paragraph 24 of the Contract
was penal in nature, and that the clause was a valid contractual agreement.
● Citing Provident Savings Bank v. CA as legal precedent, it ruled that the
premature termination of the lease due to the BSP's closure of respondent's
 business was actually involuntary. Consequently, it would be iniquitous for
petitioners to forfeit the entire amount of P3,480,000.
● Invoking its equity jurisdiction under Article 1229 of the Civil Code, the
trial court limited the forfeiture to only one-half of that amount to answer
for respondent's unpaid utility bills and E-VAT, as well as petitioner's lost
business opportunity from its former bakery business.
CA
● On appeal, the CA affirmed the RTC Decision, but had a different rationale
for applying Article 1229. The appellate court ruled that the closure of
respondent's business was not a fortuitous event.
● Unlike Provident Savings Bank, the instant case was one in which
respondent was found to have committed fraudulent acts and transactions.
Lacking, therefore, was the first requisite of a fortuitous event, i.e, that the
cause of the breach of obligation must be independent of the will of the
debtor.
● Still, the CA sustained the trial court's interpretation of the proviso on the
forfeiture of advance rentals as a penal clause and the consequent
application of Article 1229.
● The appellate court found that the forfeiture clause in the Contract was
intended to prevent respondent from defaulting on the latter's obligation to
finish the term of the lease.
● It further found that respondent had partially performed that obligation and,
therefore, the reduction of the penalty was only proper. Similarly, it ruled
that the RTC had properly denied petitioners' claims for actual and moral
damages for lack of basis.
● On 10 July 2008, the CA denied petitioners' Motion for Reconsideration.
Hence, this Petition.
ISSUES:
(1) Whether or not respondent may be released from its contractual obligations to
petitioners on grounds of fortuitous event under Article 1174 of the Civil Code and
unforeseen event under Article 1267 of the Civil Code. - NO.
(2) Whether or not the proviso in the parties' Contract allowing the forfeiture of
advance rentals was a penal clause. - YES.
(3) Whether or not the penalty agreed upon by the parties may be equitably reduced
under Article 1229 of the Civil Code. - YES.
RULING:
(1) The closure of respondent's business was neither: (a) a fortuitous; nor (b) an
unforeseen event, that rendered the lease agreement functus officio.
● (a) BSP’s decision to place respondent under receivership and
liquidation proceedings was pursuant to Section 30 of Republic Act No.
7653. Moreover, respondent was partly accountable for the closure of
its banking business.
● It cannot be said, then, that the closure of its business was independent
of its will as in the case of Provident Savings Bank. The legal effect is
analogous to that created by contributory negligence in quasi-delict actions.
● The period during which the bank cannot do business due to insolvency is
not a fortuitous event unless it is shown that the government's action to
place a bank under receivership or liquidation proceedings is tainted with
arbitrariness, or that the regulatory body has acted without jurisdiction.
● (b) ​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.
● The theory of rebus sic stantibus in public international law is often cited as
the basis of the above article. Under this theory, the parties stipulate in light
of certain prevailing conditions, and the theory can be made to apply when
these conditions cease to exist.
● The Court, however, has once cautioned that Article 1267 is not an
absolute application of the principle of rebus sic stantibus, otherwise, it
would endanger the security of contractual relations. It is only in
absolutely exceptional changes of circumstance, therefore, that equity
demands assistance for the debtor.
● Tagaytay Realty Co., Inc. v. Gacutan lays down the requisites for the
application of Article 1267, as follows:
1. The event or change in circumstance could not have been
foreseen at the time of the execution of the contract.
2. It makes the performance of the contract extremely difficult but
not impossible.
3. It must not be due to the act of any of the parties.
4. The contract is for a future prestation.
● In a reciprocal contract such as the lease in this case, one obligation of
respondent as the lessee was to pay the agreed rents for the whole contract
period. It would be hard-pressed to complete the lease term since it was
already out of business only three and a half years into the 10-year contract
period. Without a doubt, the second and the fourth requisites mentioned
above are present in this case.
 ● The first and the third requisites, however, are lacking. As shown by the
unrebutted testimony of Jaime Poon during trial, the parties had actually
considered the possibility of a deterioration or loss of respondent's business
within that period. Thus, the closure of respondent's business was not an
unforeseen event - it was in fact even covered by the terms of their
Contract.
(2) The forfeiture clause in the Contract is penal in nature.
● It is settled that a provision is a penal clause if it calls for the forfeiture
of any remaining deposit still in the possession of the lessor in the event
of the termination or cancellation of the agreement by reason of the
lessee's violation of any of the terms and conditions thereof. This kind of
agreement may be validly entered into by the parties.
● The clause is an accessory obligation meant to ensure the performance of
the principal obligation by imposing on the debtor a special prestation in
case of nonperformance or inadequate performance of the principal
obligation.
● In effect, the penalty for the premature termination of the Contract works
both ways. As the CA correctly found, the penalty was to compel
respondent to complete the 10-year term of the lease.
● Petitioners, too, were similarly obliged to ensure the peaceful use of their
building by respondent for the entire duration of the lease under pain of
losing the remaining advance rentals paid by the latter.
[Because in the testimony of Jaime Poon, it shows that the building was
under mortgage - their agreement was that if the building were to be
foreclosed, the Poons would return the said advance rentals already paid.
Note that the Poons want the money because they needed it to pay their
debts.]
● The forfeiture clauses of the Contract, therefore, served the two
functions of a penal clause, i.e., (1) to provide for liquidated damages
and (2) to strengthen the coercive force of the obligation by the threat
of greater responsibility in case of breach.
● As the CA correctly found, the prestation secured by those clauses was the
parties' mutual obligation to observe the fixed term of the lease. ​For this
reason, We sustain the lower courts' finding that the forfeiture clause in
paragraph 24 is a penal clause, even if it is not expressly labelled as
such.
(3) A reduction of the penalty agreed upon by the parties is warranted under
Article 1229 of the Civil Code.
● If this were an ordinary contest of rights of private contracting parties,
respondent lessee would be obligated to abide by its commitment to
petitioners. ​However, it must be noted that this case was initiated by the
PDIC in furtherance of its statutory role as the fiduciary of Prime
Savings Bank.
● As the state-appointed receiver and liquidator, the PDIC is mandated to
recover and conserve the assets of the foreclosed bank on behalf of the
latter's depositors and creditors. In other words, ​at stake in this case are
not just the rights of petitioners and the correlative liabilities of
respondent lessee. Over and above those rights and liabilities is the interest
of innocent debtors and creditors of a delinquent bank establishment.
● These overriding considerations justify the 50% reduction of the
penalty agreed upon by petitioners and respondent lessee in keeping
with Article 1229 of the Civil Code, which provides:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable
● The reasonableness of a penalty depends on the circumstances in each case.
In resolving this issue, courts may consider factors including but not limited
to the type, extent and purpose of the penalty; the nature of the obligation;
the mode of the breach and its consequences; the supervening realities; and
the standing and relationship of the parties.
● Under the circumstances, it is neither fair nor reasonable to deprive
depositors and creditors of what could be their last chance to recoup
whatever bank assets or receivables the PDIC can still legally recover.
● Strict adherence to the doctrine of freedom of contracts, at the expense
of the rights of innocent creditors and investors, will only work
injustice rather than promote justice in this case. Such adherence may
even be misconstrued as condoning profligate bank operations. We
cannot allow this to happen.
Finally, in line with prevailing jurisprudence, legal interest at the rate of 6%
per annum is imposed on the monetary award computed from the finality of
this Decision until full payment.
DISPOSITIVE: ​WHEREFORE, the Petition for Review on Certiorari is DENIED.
The CA Decision is MODIFIED in that legal interest at the rate of 6% per annum is
imposed on the monetary award computed from the finality of this Decision until full
payment.