Civil Law Review Cases PDF

Civil Law Review 2 • 2013 - 2014
CIVIL LAW
REVIEW 2
Obligations & Contracts • Sales • Lease • Partnership •Agency
Credit Transactions • Torts & Damages
Atty. VIVIANA MARTIN – PAGUIRIGAN

School Year 2013 2014
• ARAFAG, KAREN B.
• HABANA, JANETH G.
• JALAYAJAY, BETSY R.
*WARNING & DISCLAIMER: This compilation contains case digests for Civil Law Review 2. Some of the
contents are personal digests of the authors and some are gathered through research. Contents may not be
ARAFAG • HABANA • JALAYAJAY Page 1

accurate, hence, reading the cases in full text is highly recommended. This is for personal use only and no
copyright infringement intended.
LIST OF CASES
SY 2013 – 2014
OBLIGATIONS & CONTRACTS

ARTICLES 1156- 1246
Macasaet vs. COA……………………………………………………………………………………173 SCRA 352
Phil. Export vs. Eusebio Const.et al………………………………………………………….July 13, 2004
Tanguilig vs. CA……………………………………………………………………………………….266 SCRA 78
Comapnia General vs. Araza……………………………………………………………………7 Phil. 455
Veloso vs. Fontanosa……………………………………………………………………………….13 Phil. 79
Bayla vs. Silang transit………………………………………………………………………………73 Phil. 557
Lee vs. De Guzman…………………………………………………………………………………..187 SCRA 277
Barzaga vs. CA…………………………………………………………………………………………..268 SCRA 105
NPC vs. CA………………………………………………………………………………………..………161 SCRA 334
Picart vs. Smith…………………………………………………………………………………………37 Phil 813
Consolidated Bank vs. CA and Diaz…………………………………………………………..Sept. 11, 2003
Schmidtz transport vs. transport Venture………………………………………………..April 22, 2005
Real vs. Belo…………………………………………………………………………………………….Jan. 26, 2007
Phil. Communications vs. Globe Telecom………………………………………………..May 25, 2004
SBTC vs. CA………………………………………………………………………………………………249 SCRA 206
Mactan Cebu Int’l Airport vs. Tudtud……………………………………………………….Nov. 14, 2008
Song Fo vs. Hawaiin Phil. Co……………………………………………………………………..47 Phil 821
Cortez vs. CA…………………………………………………………………………………………….July 12, 2006
Gil vs. CA and Heirs of Matulac…………………………………………………………………Sept. 12, 2003
Spouses Rayos vs. CA and Miranda…………………………………………………………..July 14, 2004
Cordero vs. F.S. Management Dev’t………………………………………………………….Oct. 31, 2006
Calero vs. Carion……………………………………………………………………………………….107 Phil. 549
TRB vs. CA………………………………………………………………………………………………….177 SCRA 788
Phil. Blooming Mills vs. CA and TRB……………………………………………………………Oct. 15, 2003
Country Bankers vs. CA……………………………………………………………………………..201 SCRA 458
Com. Credit vs. CA……………………………………………………………………………………..169 SCRA 1
Pryce Corp. vs. Pagcor……………………………………………………………………………….May 6, 2005
Asiatrust Dev’t Bank vs. Concepts Trading………………………………………………….June 20, 2003
Jison vs. CA…………………………………………………………………………………………………164 SCRA 339
Lo vs. KJS Eco-Formwork…………………………………………………………………………….Oct. 8, 2003
PNB vs. Pineda…………………………………………………………………………………………….197 SCRA 1
PCIBank vs. CA…………………………………………………………………………………………….Jan. 31, 2006
Culaba vs. CA and san Miguel Corp……………………………………………………………..April 15, 2004
(SEE: Republic Act No. 8183 – repealed Republic Act No. 529 which prohibits payment of money obligations
in currency other than Philippine currency.)
ARTICLES 1247 – 1337
Towne & City Dev’t vs. CA and Voluntad…………………………………………………………July 14, 2004

Coronel vs. Capati…………………………………………………………………………………………..May 26, 2005
People’s Industrial Com. Corp. vs. CA……………………………………………………………..281 SCRA 207
EGMPI vs. CA………………………………………………………………………………………..………..282 SCRA 553

Naga Telephone Co vs. CA………………………………………………………………………………230 SCRA 351
Trans. Pacific Ind. Vs. CA…………………………………………………………………………………235 SCRA 494

Silahis vs. IAC………………………………………………………………………………………………….180 SCRA 21
Francia vs. CA………………………………………………………………………………………………….162 SCRA
753
BPI vs. CA (1279)……………………………………………………………………………………………..June 8, 2006
Citibank vs. Sabeniano…………………………………………………………………………………….Feb. 12, 2007
People’s Bank vs. Syvels………………………………………………………………………………….164 SCRA 247
Young vs. CA……………………………………………………………………………………………………196 SCRA
247
PSBank vs. Spouses Manalac (1292)………………………………………………………………...April 26, 2005
Astro Electronics vs. Phil. Export (1302)…………………………………………………………...Sept. 23, 2003
Carmelcraft vs. NLRC………………………………………………………………………………………..186 SCRA 393
Acol vs. PCIBank (1306)…………………………………………………………………………………….July 25, 2006
Tiu vs. Platinum Plans……………………………………………………………………………………….Feb. 28, 2007
Avon vs. Luna……………………………………………………………………………………………………Dec. 20,
2006
Piltel vs. Tecson………………………………………………………………………………………………..May 7, 2004
PNB vs. Padilla (1308)……………………………………………………………………………………….196 SCRA 537
DKC Holdings vs. CA (1311)………………………………………………………………………………329 SCRA 666
Tanay Recreation vs. Fausto (1311)………………………………………………………………….April 12, 2005
Llenado vs. Llenado………………………………………………………………………………………….March 4, 2009
Gilchrist vs. Cuddy (1314)…………………………………………………………………………………29 Phil. 542
Montecillo vs. Reynes (1317)……………………………………………………………………………July 26, 2002
Francisco vs. Herrera (1318)…………………………………………………………………………….Nov. 21, 2002
Coronel vs. Constantino (1317)………………………………………………………………………..Feb. 7, 2003
Laudicio vs. Arias (1319)…………………………………………………………………………………..43 Phil. 270
Villanueva vs. CA (1319)…………………………………………………………………………………..244 SCRA 395
Adelfa vs. CA (1324)…………………………………………………………………………………………240 SCRA 565
Serra vs. CA………………………………………………………………………………………………………229 SCRA
61
Malbarosa vs. CA (1324)…………………………………………………………………………………..April 30, 2003
Vda. De Ape vs. CA (1332)………………………………………………………………………………..April 15, 2005
Mayor vs. Belen……………………………………………………………………………………………….June 3, 2004
Bautista vs. CA………………………………………………………………………………………………..Aug. 11, 2004

Dauden Hernaez vs. Delos Angeles…………………………………………………………………27 SCRA 1276
Claudel vs. CA…………………………………………………………………………………………………199 SCRA 113
Berman Memorial vs. Cheng…………………………………………………………………………..May 6, 2005
Guzman Bocaling vs. Bonnevie……………………………………………………………………….206 SCRA 668
Equatorial Realty vs. Mayfair Theater……………………………………………………………..264 SCRA 483
Rivera vs. Del Rosario (1381)…………………………………………………………………………..Jan. 15, 2004
Tanay Recreation vs. Fausto……………………………………………………………………………April 12, 2005
Republic vs. David (1385)………………………………………………………………………………..Aug. 16, 2004
Air France vs. CA (separate action)………………………………………………………………….245 SCRA 485
China Banking vs. CA (1387)…………………………………………………………………………….327 SCRA 378
Cadwallader vs. Smith Bell Trading………………………………………………………………….7 Phil. 461

Vda. De Buncio vs. Estate of de Leon……………………………………………………………….156 SCRA 353
Asia Productions vs. Pano………………………………………………………………………………..205 SCRA

Averia vs. Averia (1403)……………………………………………………………………………………Aug. 13, 2004
Clemeno vs. Lobregat (1403)……………………………………………………………………………Sept. 9, 2004
Firme vs. Bukal Enterprises………………………………………………………………………………Oct. 23, 2003
Sumipat vs. Banga et al (1409)…………………………………………………………………………Aug. 13, 2004
Hulst vs. PR Builders………………………………………………………………………………………...Sept. 3, 2007
Hulst vs. PR Builders…………………………………………………………………………………………Sept. 25, 2008
Gochan vs. Heirs of Baba………………………………………………………………………………….Aug. 19, 2003
Fornilda vs. RTC………………………………………………………………………………………………..169 SCRA
351
Suntay vs. CA…………………………………………………………………………………………………….251 SCRA
430
Teja Marketing vs. CA………………………………………………………………………………………..148 SCRA 347
DBP vs. Adil………………………………………………………………………………………………………..161 SCRA
307
Roblett vs. CA…………………………………………………………………………………………………….266 SCRA

71
Bucton vs. Gabar………………………………………………………………………………………………..55 SCRA 499
Olaco vs. CA……………………………………………………………………………………………………….220 SCRA
656
Chiao Sing Tan vs. CA…………………………………………………………………………………………228 SCRA 75
Gicano vs. Gegato………………………………………………………………………………………………157 SCRA
141
Cruz vs. Fernando……………………………………………………………………………………………….Dec. 9, 2005
Pingol vs. CA……………………………………………………………………………………………………….226 SCRA
118
Portugal vs. CA……………………………………………………………………………………………………159 SCRA
179
Sanchez vs. Rigos (1479)…………………………………………………………………………………….45 SCRA 368
Eulogio vs. Apeles………………………………………………………………………………………………Sept. 20,
2009
Rosario vs. PCI (1484)…………………………………………………………………………………………Nov. 11, 2005
Pagtalunan vs. Vda. De Manzano ………………………………………………………………………Sept. 13, 2007
Fornilda vs. RTC (1491)………………………………………………………………………………………Jan. 24, 1989
Olaguer vs. Locsin (1491)…………………………………………………………………………………..Feb. 12, 2007
Norkis vs. CA (1496)…………………………………………………………………………………………..193 SCRA
694
Gaisano vs. ICNA (1504)…………………………………………………………………………………….June 8, 2006
Lawyers Publishing vs. Tabora (1504)………………………………………………………………..13 SCRA 694
Duran vs. IAC…………………………………………………………………………………………………….138 SCRA
489
Aznar vs. Yapdango……………………………………………………………………………………………13 SCRA 486

ARICLES 1520 – 1610
Radiowealth vs. Palileo (1544)……………………………………………………………………………197 SCRA 245

Nuguid vs. CA……………………………………………………………………………………………………..171 SCRA
213
Torrecampo vs. Alindogan (1544)……………………………………………………………………….Feb. 28, 2007
Gurrea vs. Suplico……………………………………………………………………………………………….April 26,
2006
Moles vs. IAC………………………………………………………………………………………………………169 SCRA
777
Villostas vs. CA…………………………………………………………………………………………………….210 SCRA
491
Spouses Uy vs. Arriza (1548,58,59)……………………………………………………………………..Aug. 17, 2006

De Guzman vs. Toyota (1566)……………………………………………………………………………..Nov. 29, 2006
Goodyear vs. Sy (1566)……………………………………………………………………………………….Nov. 9, 2005
Villarica vs. CA (1601)…………………………………………………………………………………………26 SCRA 189
Leal vs. CA………………………………………………………………………………………………………….155 SCRA
395
Buce vs. CA…………………………………………………………………………………………………………157 SCRA
330
Santos vs. CA………………………………………………………………………………………………………179 SCRA
363
Adorable vs. Inacala……………………………………………………………………………………………103 Phil 481
Bandong vs. Austria…………………………………………………………………………………………….31 Phil. 470
Bayquen vs. boloro……………………………………………………………………………………………..143 SCRA
412
Uy vs. CA…………………………………………………………………………………………………………….246
SCRA 703
Verdad vs. CA……………………………………………………………………………………………………..256 SCRA
593
LEASE
BPI vs. Domingo………………………………………………………………………………………………….Nov. 27,

2006
Nakpil vs. NTDC (1654)……………………………………………………………………………………….Sept. 26, 2006
Parilla vs. Pilar (1678)………………………………………………………………………………………….Nov. 30, 2006
Go King vs. Geronimo………………………………………………………………………………………….81 Phil. 445
CMS Investment vs. IAC………………………………………………………………………………………139 SCRA 75
Fermin vs. CA……………………………………………………………………………………………………...196 SCRA
725
Mantruste vs. CA (1678)………………………………………………………………………………………179 SCRA
137
Roman Catholic vs. CA…………………………………………………………………………………………269 SCRA
147

PARTNERSHIP
Agad vs. mabato…………………………………………………………………………………………………23 SCRA

1223
Obillos vs. CIR (1769)………………………………………………………………………………………….139 SCRA
436
Pascual vs. CIR…………………………………………………………………………………………………….166 SCRA
560
Litonjua vs. Litonjua (1771-73)……………………………………………………………………………Dec. 13, 2005
Ortega vs. CA (1804)…………………………………………………………………………………………...245 SCRA
529
Delos Reyes vs. Lukban (1816)…………………………………………………………………………….35 Phil 757
Munasque vs. CA…………………………………………………………………………………………………139 SCRA
533
AGENCY
Doles vs. Angeles (1868)……………………………………………………………………………………...June 26, 2006

Rallos vs. Yangco………………………………………………………………………………………………….20 Phil.
269
Gozun vs. Mercado (1873)……………………………………………………………………………………Dec. 19, 2006
Angeles vs. PNR……………………………………………………………………………………………………Aug. 31,
2006
Siasat vs. IAC………………………………………………………………………………………………………..139

SCRA 238
Vetoso vs. CA (1876)……………………………………………………………………………………………260 SCRA
593
Cuison vs. CA (1883)…………………………………………………………………………………………….227 SCRA
391
Rural Bank of Bonbon vs. CA (1883)…………………………………………………………………….212 SCRA 25
DBP vs. CA (1898)………………………………………………………………………………………………..231 SCRA
370
Green Valley vs. IAC (1905)………………………………………………………………………………….133 SCRA 697
Sevilla vs. CA )1927)……………………………………………………………………………………………..160 SCRA
171
Valenzuela vs. CA…………………………………………………………………………………………………191 SCRA
1
CREDIT TRANSACTIONS
LOAN

Estern Shipping Lines vs. CA……………………………………………………………………………….234 SCRA 78

Florendo vs. CA…………………………………………………………………………………………………..265 SCRA
678
PNB vs. CA………………………………………………………………………………………………………….238 SCRA
20
Siga-an vs. Villanueva…………………………………………………………………………………………Jan. 20, 2009
Alcaraz vs. Equitable………………………………………………………………………………………….July 28, 2006
DEPOSIT
Gullas vs. PNB………………………………………………………………………………………………….…62 Phil. 519

Guingona vs. City Fiscal………………………………………………………………………………………128 SCRA
577
Reyes vs. BPI……………………………………………………………………………………………………….254 SCRA
Central Bank vs. Citytrust……………………………………………………………………………………Feb. 4, 2009
GUARANTY
Traders Insurance vs. Dy Eng Giok………………………………………………………………………104 Phil 806

Spouses Toh vs. Solidbank…………………………………………………………………………………..Aug. 7, 2003
Totanes vs. Chinabank…………………………………………………………………………………………Jan. 19, 2009
PLEDGE AND MORTGAGE
Dizon vs. Suntay………………………………………………………………………………………………….47 SCRA

160
Uy Tong vs. CA…………………………………………………………………………………………………….161 SCRA
383
Acme Shoe Rubber vs. CA……………………………………………………………………………………260 SCRA
714
Roxas vs. CA………………………………………………………………………………………………………..221 SCRA
729
Cerna vs. CA………………………………………………………………………………………………………..220 SCRA
517
Northern Motors vs. Coquia………………………………………………………………………………..66 SCRA 374

Northern Motors vs. Coquia………………………………………………………………………………..68 SCRA 414
Makati Leasing vs. Wearever Textile……………………………………………………………………122 SCRA 296
Associated Insurance vs. Iya……………………………………………………………………………..…103 Phil. 972
CONCURRENCE AND PREFERENCE OF CREDITS
Republic vs. Peralta…………………………………………………………………………………………….150 SCRA 37

DBP vs. NLRC………………………………………………………………………………………………………236 SCRA

117
TORTS AND DAMAGES
Pci Leasing vs. UCPB (1276)…………………………………………………………………………………July 4, 2008

Cadiente vs. Macas (2179)…………………………………………………………………………………..Nov. 14, 2008
Capili vs. Cardana………………………………………………………………………………………………..Nov. 2, 2006
Professional Services Inc. vs. Agana…………………………………………………………………….Jan. 31, 2007
Glan People’s Lumber vs. IAC………………………………………………………………………………173 SCRA 465
Africa vs. Caltex……………………………………………………………………………………………………16 SCRA
448
Dulay vs. CA………………………………………………………………………………………………………….243
SCRA 220
Custodio vs. Ca……………………………………………………………………………………………………..253 SCRA
283
Libi vs. IAC…………………………………………………………………………………………………………….214
SCRA 16
Coca Cola vs. CA……………………………………………………………………………………………………227
SCRA 293
City of Manila vs. Teotico……………………………………………………………………………………..22 SCRA 267
Guilatco vs. City of Dagupan…………………………………………………………………………………171 SCRA 383
Gotesco vs. Chatto………………………………………………………………………………………………..210 SCRA
19
MMTC vs. CA…………………………………………………………………………………………………………298
SCRA 495
Geluz vs. CA…………………………………………………………………………………………………………..July 20,
1961
Flores vs. Pineda (2206)………………………………………………………………………………………..Nov. 14,
2008
Villanueva vs. UCPB………………………………………………………………………………………………327 SCRA
391
Inhelder vs. CA……………………………………………………………………………………………………..122 SCRA
577
Tan vs. CA……………………………………………………………………………………………………………..239
SCRA 311
Geraldez vs. CA……………………………………………………………………………………………………..230
SCRA 321
People vs. Prades………………………………………………………………………………………………….239 SCRA
411
RCPI vs. CA……………………………………………………………………………………………………………195
SCRA 147
Vda. De Medina vs. Crescencia……………………………………………………………………………..99 Phil. 507

Article VI of the Contract, has no bearing on the

OBLIGATIONS & present controversy either. It speaks of any major
CONTRACTS change in the planning and engineering aspects
necessitating the award and payment of additional
compensation. Admittedly, there was no additional work
by petitioner, which required additional compensation.
Rather, petitioner's claim is for payment of the balance of
FLAVIO K MACASAET & ASSOCIATES, INC. Vs. its professional fees based on the "final actual project
COA and cost" and not for additional compensation based on
PHILIPPINE TOURISM AUTHORITY Article VI.
G.R. No. 83748 May 12, 1989
The terminologies in the contract being clear,
FACTS: leaving no doubt as to the intention of the contracting
On 15 September 1977 respondent Philippine parties, their literal meaning control (Article 1370, Civil
Tourism Authority (PTA) entered into a Contract for Code). The price escalation cost must be deemed
"Project Design and Management Services for the included in the final actual project cost and petitioner
development of the proposed Zamboanga Golf and held entitled to the payment of its additional professional
Country Club” in Zamboanga City with petitioner fees. Obligations arising from contract have the force of
company, but originally with Flavio K Macasaet alone. law between the contracting parties and should be
Under Article IV of said Contract, petitioner was to be complied with in good faith (Article 11 59, Civil Code).
entitled to seven (7%) of the "actual construction cost."
Pursuant to the foregoing Schedule, the PTA FALLO:

made periodic payments of the stipulated professional The ruling of respondent Commission on Audit is
fees to petitioner. And, upon completion of the project, hereby SET ASIDE and respondent Philippines Tourism
PTA paid petitioners what it perceived to be the balance Authority is hereby ordered to pay petitioner the
of the latter's professional fees. additional amount of P219,302.47 to complete the
payment of its professional fee under their Contract for
It turned out, however, that after the project was Project Design and Management Services.
completed, PTA paid Supra Construction Company, the
main contractor, the additional sum of P3,148,198.26
representing the escalation cost of the contract price due DOCTRINE:
to the increase in the price of construction materials. The contract is the law between contracting
parties.
Upon learning of the price escalation, petitioner
requested payment of P219,302.47 additional
professional fee representing seven (7%) percent of
P3,148,198.26.
On 3 July 1985 PTA denied payment on the ground that
"the subject price escalation referred to increased cost of
construction materials and did not entail additional work
on the part of petitioner as to entitle it to additional
compensation under Article VI of the contract."
ISSUE:
Whether or not the price escalation should be
included in the "final actual project cost."
HELD:
That an escalation clause was not specifically
provided for in the Contract is of no moment either for it
may be considered as already "built-in" and understood
from the very terms "actual construction cost," and
eventually "final actual project cost."
negotiations for a foreign loan to finance the completion

of the project. It also wrote SOB protesting the call for
PHILIPPINE EXPORT AND FOREIGN LOAN lack of factual or legal basis, since the failure to
GUARANTEE CORPORATION Vs. V.P. EUSEBIO complete the Project was due to (1) the Iraqi
CONSTRUCTION, INC. government's lack of foreign exchange with which to pay
G.R. No. 140047 July 13, 2004 its (VPECI's) accomplishments and (2) SOB's
noncompliance for the past several years with the
FACTS: provision in the contract that 75% of the billings would be
On 11 June 1981, SOB and the joint venture paid in US dollars. Subsequently, or on 19 November
VPECI and Ajyal executed the service contract for the 1986, respondent VPECI advised the petitioner not to
construction of the Institute of Physical Therapy – pay yet Al Ahli Bank because efforts were being exerted
Medical Rehabilitation Center, Phase II, in Baghdad, for the amicable settlement of the Project.
Iraq, wherein the joint venture contractor undertook to
complete the Project within a period of 547 days or 18 On 14 April 1987, the petitioner received another
months. Under the Contract, the Joint Venture would telex message from Al Ahli Bank stating that it had
supply manpower and materials, and SOB would refund already paid to Rafidain Bank the sum of US$876,564
to the former 25% of the project cost in Iraqi Dinar and under its letter of guarantee, and demanding
the 75% in US dollars at the exchange rate of 1 Dinar to reimbursement by the petitioner of what it paid to the
3.37777 US Dollars. latter bank plus interest thereon and related expenses.
The construction, which was supposed to start On 6 November 1987, Philguarantee informed
on 2 June 1981, commenced only on the last week of VPECI that it would remit US$876,564 to Al Ahli Bank,
August 1981. Because of this delay and the slow and reiterated the joint and solidary obligation of the
progress of the construction work due to some setbacks respondents to reimburse the petitioner for the advances
and difficulties, the Project was not completed on 15 made on its counter-guarantee.
November 1982 as scheduled. But in October 1982,
upon foreseeing the impossibility of meeting the deadline The petitioner thus paid the amount of
and upon the request of Al Ahli Bank, the joint venture US$876,564 to Al Ahli Bank of Kuwait on 21 January
contractor worked for the renewal or extension of the 1988. Then, on 6 May 1988, the petitioner paid to Al Ahli
Performance Bond and Advance Payment Guarantee. Bank of Kuwait US$59,129.83 representing interest and
penalty charges demanded by the latter bank.
The surety bond was also extended for another
period of one year, from 12 May 1982 to 12 May On 19 June 1991, the petitioner sent to the
1983.18 The Performance Bond was further extended respondents separate letters demanding full payment of
twelve times up to 8 December 1986, while the Advance the amount of P47,872,373.98 plus accruing interest,
Payment Guarantee was extended three times more up penalty charges, and 10% attorney's fees pursuant to
to 24 May 1984 when the latter was cancelled after full their joint and solidary obligations under the deed of
refund or reimbursement by the joint venture contractor. undertaking and surety bond. When the respondents
The surety bond was likewise extended to 8 May 1987. failed to pay, the petitioner filed on 9 July 1991 a civil
case for collection of a sum of money against the
As of March 1986, the status of the Project was respondents before the RTC of Makati City.
51% accomplished, meaning the structures were already
finished. The remaining 47% consisted in electro- After due trial, the trial court ruled against
mechanical works and the 2%, sanitary works, which Philguarantee and held that the latter had no valid cause
both required importation of equipment and materials. of action against the respondents. It opined that at the
time the call was made on the guarantee which was
On 26 October 1986, Al Ahli Bank of Kuwait sent executed for a specific period, the guarantee had
a telex call to the petitioner demanding full payment of its already lapsed or expired. There was no valid renewal or
performance bond counter-guarantee. extension of the guarantee for failure of the petitioner to
secure respondents' express consent thereto. The trial
Upon receiving a copy of that telex message on court also found that the joint venture contractor incurred
27 October 1986, respondent VPECI requested Iraq no delay in the execution of the Project. Considering the
Trade and Economic Development Minister Mohammad Project owner's violations of the contract which rendered
Fadhi Hussein to recall the telex call on the performance impossible the joint venture contractor's performance of
guarantee for being a drastic action in contravention of its undertaking, no valid call on the guarantee could be
its mutual agreement with the latter that (1) the made. Furthermore, the trial court held that no valid
imposition of penalty would be held in abeyance until the notice was first made by the Project owner SOB to the
completion of the project; and (2) the time extension joint venture contractor before the call on the guarantee.
would be open, depending on the developments on the Accordingly, it dismissed the complaint, as well as the

counterclaims and cross-claim, and ordered the the delay was attributable to VPECI, still the effects of
petitioner to pay attorney's fees of P100,000 to that delay ceased upon the renunciation by the creditor,
respondents VPECI and Eusebio Spouses and SOB, which could be implied when the latter granted
P100,000 to 3-Plex and the Santos Spouses, plus costs. several extensions of time to the former. Besides, no
demand has yet been made by SOB against the
respondent contractor. Demand is generally necessary
ISSUE/S: even if a period has been fixed in the obligation. And
i. Whether the petitioner is entitled to default generally begins from the moment the creditor
reimbursement of what it paid to Al Ahli demands judicially or extra-judicially the performance of
Bank of Kuwait based on the deed of the obligation. Without such demand, the effects of
undertaking and surety bond from the default will not arise.
respondents.
ii. Whether the respondent contractor has Moreover, the petitioner as a guarantor is
defaulted in its obligations that would justify entitled to the benefit of excussion, that is, it cannot be
resort to the guaranty. compelled to pay the creditor SOB unless the property of
the debtor VPECI has been exhausted and all legal
remedies against the said debtor have been resorted to
HELD: by the creditor. It could also set up compensation as
I. NO. As found by both the Court of Appeals regards what the creditor SOB may owe the principal
and the trial court, the delay or the non-completion of the debtor VPECI.63 In this case, however, the petitioner
Project was caused by factors not imputable to the has clearly waived these rights and remedies by making
respondent contractor. It was rather due mainly to the the payment of an obligation that was yet to be shown to
persistent violations by SOB of the terms and conditions be rightfully due the creditor and demandable of the
of the contract, particularly its failure to pay 75% of the principal debtor.
accomplished work in US Dollars. Indeed, where one of
the parties to a contract does not perform in a proper It is clear that the payment made by the
manner the prestation which he is bound to perform petitioner guarantor did not in any way benefit the
under the contract, he is not entitled to demand the principal debtor, given the project status and the
performance of the other party. A party does not incur in conditions obtaining at the Project site at that time.
delay if the other party fails to perform the obligation Moreover, the respondent contractor was found to have
incumbent upon him. valid defenses against SOB, which are fully supported
by evidence and which have been meritoriously set up
The petitioner, however, maintains that the against the paying guarantor, the petitioner in this case.
payments by SOB of the monthly billings in purely Iraqi And even if the deed of undertaking and the surety bond
Dinars did not render impossible the performance of the secured petitioner's guaranty, the petitioner is precluded
Project by VPECI. Such posture is quite contrary to its from enforcing the same by reason of the petitioner's
previous representations. In his 26 March 1987 letter to undue payment on the guaranty. Rights under the deed
the Office of the Middle Eastern and African Affairs of undertaking and the surety bond do not arise because
(OMEAA), DFA, Manila, petitioner's Executive Vice- these contracts depend on the validity of the
President Jesus M. Tañedo stated that while VPECI had enforcement of the guaranty.
taken every possible measure to complete the Project,
the war situation in Iraq, particularly the lack of foreign
exchange, was proving to be a great obstacle.
i. In order that the debtor may be in default it
is necessary that the following requisites be
present: (1) that the obligation be
demandable and already liquidated; (2) that
the debtor delays performance; and (3) that
the creditor requires the performance
because it must appear that the tolerance or
benevolence of the creditor must have
ended.
As stated earlier, SOB cannot yet demand complete

performance from VPECI because it has not yet itself
performed its obligation in a proper manner, particularly
the payment of the 75% of the cost of the Project in US
Dollars. The VPECI cannot yet be said to have incurred
in delay. Even assuming that there was delay and that

JACINTO TANGUILIG Vs.COURT OF APPEALS ii. Whether petitioner is under obligation to

and VICENTE HERCE JR reconstruct the windmill after it collapsed.
G.R. No. 117190. January 2, 1997
HELD:
FACTS: I. The preponderance of evidence supports the
In April 1987 petitioner Jacinto M. Tanguilig finding of the trial court that the installation of a deep well
doing business proposed to respondent Vicente Herce was not included in the proposals of petitioner to
Jr. to construct a windmill system for him. After some construct a windmill system for respondent. Notably,
negotiations they agreed on the construction of the nowhere in either proposal is the installation of a deep
windmill for a consideration of P60,000.00 with a one- well mentioned, even remotely. Neither is there an
year guaranty from the date of completion and itemization or description of the materials to be used in
acceptance by respondent Herce Jr. of the project. constructing the deep well. There is absolutely no
Pursuant to the agreement respondent paid petitioner a mention in the two (2) documents that a deep well pump
down payment of P30,000.00 and an installment is a component of the proposed windmill system. The
payment of P15,000.00, leaving a balance of contract prices fixed in both proposals cover only the
P15,000.00. features specifically described therein and no other.
While the words "deep well" and "deep well pump" are
On 14 March 1988, due to the refusal and failure mentioned in both, these do not indicate that a deep well
of respondent to pay the balance, petitioner filed a is part of the windmill system. They merely describe the
complaint to collect the amount. In his Answer before type of deep well pump for which the proposed windmill
the trial court respondent denied the claim saying that he would be suitable. For if the real intent of petitioner was
had already paid this amount to the San Pedro General to include a deep well in the agreement to construct a
Merchandising Inc. (SPGMI) which constructed the deep windmill, he would have used instead the conjunctions
well to which the windmill system was to be connected. "and" or "with." Since the terms of the instruments are
According to respondent, since the deep well formed clear and leave no doubt as to their meaning they should
part of the system the payment he tendered to SPGMI not be disturbed.
should be credited to his account by petitioner.
Moreover, assuming that he owed petitioner a balance of Moreover, it is a cardinal rule in the
P15,000.00, this should be offset by the defects in the interpretation of contracts that the intention of the
windmill system which caused the structure to collapse parties shall be accorded primordial consideration and,
after a strong wind hit their place. in case of doubt, their contemporaneous and
subsequent acts shall be principally considered.
Petitioner denied that the construction of a deep
well was included in the agreement to build the windmill II. In a long line of cases this Court has
system, for the contract price of P60,000.00 was solely consistently held that in order for a party to claim
for the windmill assembly and its installation, exclusive of exemption from liability by reason of fortuitous event
other incidental materials needed for the project. He under Art. 1174 of the Civil Code the event should be the
also disowned any obligation to repair or reconstruct the sole and proximate cause of the loss or destruction of
system and insisted that he delivered it in good and the object of the contract. Four (4) requisites must
working condition to respondent who accepted the same concur: (a) the cause of the breach of the obligation
without protest. Besides, its collapse was attributable to must be independent of the will of the debtor; (b) the
a typhoon, a force majeure, which relieved him of any event must be either unforeseeable or unavoidable; (c)
liability. the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and,
RTC held that the construction of the deep well (d) the debtor must be free from any participation in or
was not part of the windmill project as evidenced aggravation of the injury to the creditor.
clearly by the letter proposals submitted by petitioner to
respondent. Petitioner failed to show that the collapse of the
CA reversed the trial court. It ruled that the construction windmill was due solely to a fortuitous event.
of the deep well was included in the agreement of the Interestingly, the evidence does not disclose that there
parties because the term "deep well" was mentioned in was actually a typhoon on the day the windmill
both proposals. collapsed. Petitioner merely stated that there was a
"strong wind." But a strong wind in this case cannot be
fortuitous - unforeseeable nor unavoidable. On the
ISSUE/S: contrary, a strong wind should be present in places
i. Whether the agreement to construct the where windmills are constructed, otherwise the windmills
windmill system included the installation of a will not turn.
deep well.

The appellate court correctly observed that

"given the newly-constructed windmill system, the same
would not have collapsed had there been no inherent
defect in it which could only be attributable to the
appellee." It emphasized that respondent had in his
favor the presumption that "things have happened
according to the ordinary course of nature and the
ordinary habits of life." This presumption has not been
rebutted by petitioner.
Finally, petitioner's argument that private respondent
was already in default in the payment of his outstanding
balance of P15,000.00 and hence should bear his own
loss, is untenable. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is
incumbent upon him. When the windmill failed to
function properly it became incumbent upon petitioner to
institute the proper repairs in accordance with the
guaranty stated in the contract. Thus, respondent
cannot be said to have incurred in delay; instead, it is
petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil
Code is explicit on this point that if a person obliged to
do something fails to do it, the same shall be executed at
his cost.
FALLO:
The appealed decision is MODIFIED.
Respondent VICENTE HERCE JR. is directed to pay
petitioner JACINTO M. TANGUILIG the balance of
P15,000.00 with interest at the legal rate from the date of
the filing of the complaint. In return, petitioner is ordered
to "reconstruct subject defective windmill system, in
accordance with the one-year guaranty" and to complete
the same within three (3) months from the finality of this
decision.

LA COMPAÑIA GENERAL DE TABACOS DE

FILIPINA
Vs.VICENTE ARAZA
G.R. No. 3019
FACTS:
The contract sends upon was executed on the
11th day of June, 1901. By terms thereof the defendant
promised to pay the plaintiff 8,000 pesos as follows: 500
pesos on the 30th of June, 1901, and the remainder at
the rate of 100 pesos a month, payable on the 30th day
of each month, until the entire 8,000 pesos was paid.
The defendant paid 400 pesos and no more.
The plaintiff brought this action in the court to

foreclose a mortgage for 8,000 pesos upon certain land
in the Province of Leyte. A demurrer to the complaint
was overruled, but to the order overruling it the
defendant did not except. The defendant answered,
alleging that the document, the basis of the plaintiff’s
claim, was executed through error on his part and
through fraud on the part of the plaintiff. A trial was had
and judgment was entered for the plaintiff as prayed for
in its complaint. The defendant moved for a new trial on
the ground that the decision was not justified by the
evidence, this motion was denied, to its denial the
defendant accepted, and he has brought the case to the
SC for review.
ISSUE:
Whether the debtor is to be considered to be in
default.
HELD:
This suit was commenced on the 12th day of
June, 1903. There was no provision in the contract by
which, upon failure to pay one installment of the debt,
the whole debt should thereupon become at once
payable. We are of the opinion that the obligation can be
enforced in this action for only the amount due and
payable on the 12th day of June, 1903.
The court below gave no credit for the payment

of 400 pesos admitted by the complaint to have been
received by the plaintiff. It is allowed interest upon the
entire debt from the 1st day of July, 1901. The contract
does not provide for the payment of any interest. There
is no provision in it declaring expressly that the failure to
pay when due should put the debtor in default. There
was therefore no default which would make him liable for
interest until a demand was made. (Civil Code, art. 1100;
Manresa, Com. on Civil Code, vol 8, p. 56.)
MARIANO VELOSO, ET AL. VS. ANICETA

FONTANOSA

G. R. No. 4874. March 2, 1909 Ancajas (art. 1108, Civil Code), but such default cannot
date back of September, 1893, that is, from the time of
the last payment made by them or by Aniceta
FACTS: Fontanosa.
Plaintiffs Mariano, Damiana, and Melchor
Veloso are the sole lawful heirs of Gavino Veloso and Article 1100 of the Civil Code reads “Persons
Buenaventura Veloso, their father and brother, obliged . . . are in default from the moment when the
respectively; while Defendants are Aniceta Fontanosa, creditor demands the fulfillment of their obligation,
as widow of Roberto Ancajas, and Florentina, Leona, judicially or extra-judicially,”
Maria, Juan, Romualdo, Vicenta, and Felix, all of the
surname of Ancajas, the lawful children of the deceased And the judicial demand for the fulfillment of said
Roberto, and Estefania Fontanosa, mother and legal obligation was only made in 1896; hence, as the date of
guardian of the minor Jose Ancajas. the complaint interposed in that year has not been fixed,
the net amount claimed therein should only commence
That at the death of Gavino Veloso, Roberto to bear legal interest from the latter part of 1896, or
Ancajas owed him the sum of 5,065 pesos which he had rather from the beginning of 1897. In a decision of
borrowed prior to the year 1881; in the apportionment of December 3, 1902, the supreme court of Spain held:
the estate, this debt of 5,065 pesos went to “That it is a principle of law, acknowledge and
Buenaventura Veloso as his portion; that in the year sanctioned by article 1100, in relation to article 1108 of
1882, Roberto Ancajas, after having acknowledged the the Civil Code, that interest upon default only becomes
transfer of his indebtedness by inheritance to due from the time of the judicial or extrajudicial notice by
Buenaventura Veloso, continued to receive sums of the creditor to the debtor, unless otherwise expressly
money from the latter of the same conditions, that is, as provided by law, or by virtue of a contract, or on account
loans, and bound himself to make annual payments in of special circumstances depending upon the nature of
sugar. the obligation. ”
On the 11th of October, 1883, the debt of

Roberto Ancajas amounted to 10,449. 18 pesos which
rose to 14,439. 40 pesos, which sum, however, was
reduced to 12,365. 20 pesos by the payment of 2,074.
20 pesos on account. Up to the year 1893 the
Defendants made payments amounting to 642. 27 pesos
which reduced the amount owing to 11,722. 43 pesos.
On the death of Buenaventura Veloso, the

Defendants, as his sole and lawful heirs, inherited, and
that same year divided between them all his property
with the exception of the above-mentioned credit, which
is at present held pro indiviso between them, and they,
as the lawful heirs of Buenaventura Veloso, the creditor,
have repeatedly called upon the Defendants to pay the
said credit, heirs deny being liable for debt since only
one heir continued to pay after death of decedent, thus
giving rise to the filing of the complaint.
ISSUE:
Whether or not defendants are in default and
should now be liable for the legal interest of the debt.
HELD:
Neither is the sentence contained in the
judgment appealed from, that “the legal interest on the
said sum at the rate of 6 per cent per annum shall be
payable from the month of September, 1893,” in
accordance with the law. It is proper to sentence the
Defendants to pay the legal interest of 6 per cent per
annum by reason of the default incurred by the heirs of

SOFRONIO T. BAYLA Vs. SILANG TRAFFIC CO.,

INC., HELD:
G.R. Nos. L-48195 and 48196 May 1, 1942 It seems clear from the terms of the contracts in
question that they are contracts of sale and not of
subscription. The lower courts erred in overlooking the
FACTS: distinction between subscription and purchase "A
Petitioners instituted an action in the CFI of subscription, properly speaking, is the mutual agreement
Cavite against the respondent Silang Traffic Co., Inc. to of the subscribers to take and pay for the stock of a
recover certain sums of money which they had paid corporation, while a purchase is an independent
severally to the corporation on account of shares of agreement between the individual and the corporation to
stock they individually agreed to take and pay for under buy shares of stock from it at stipulated price." In some
certain specified terms and conditions that, “subscriber particulars the rules governing subscriptions and sales of
further agrees that if he fails to pay any of said shares are different. For instance, the provisions of our
installment when due, or to perform any of the aforesaid Corporation Law regarding calls for unpaid subscription
conditions, or if said shares shall be attached or levied and assessment of stock (sections 37-50) do not apply
upon by creditors of the said subscriber, then the said to a purchase of stock.
shares are to revert to the seller and the payments
already made are to be forfeited in favor of said seller, Likewise the rule that corporation has no legal
and the latter may then take possession, without capacity to release an original subscriber to its capital
resorting to court proceedings.” stock from the obligation to pay for his shares, is
inapplicable to a contract of purchase of shares.
The respondent corporation set up the defense
that the subscribed shares of stock of petitioners had The contract did not expressly provide that the
already automatically reverted to the defendant, and the failure of the purchaser to pay any installment would give
installments paid by them had already been forfeited. rise to forfeiture and cancelation without the necessity of
any demand from the seller; and under article 1100 of
RTC absolved the defendant from the complaint the Civil Code persons obliged to deliver or do
and declared canceled (forfeited) in favor of the something are not in default until the moment the
defendant the shares of stock in question. It held that the creditor demands of them judicially or extra judicially the
resolution of August 1, 1937, was null and void, citing fulfillment of their obligation, unless (1) the obligation or
Velasco vs. Poizat (37 Phil., 802) that "a corporation has the law expressly provides that demand shall not be
no legal capacity to release an original subscriber to its necessary in order that default may arise, (2) by reason
capital stock from the obligation to pay for shares; and of the nature and circumstances of the obligation it shall
any agreement to this effect is invalid" appear that the designation of the time at which that
CA modified of the RTC decision. It held: that part of the thing was to be delivered or the service rendered was
judgment dismissing plaintiff's complaint is affirmed, but the principal inducement to the creation of the obligation.
that part thereof declaring their subscription canceled is
reversed. Defendant is directed to grant plaintiffs 30 FALLO:
days after final judgment within which to pay the arrears CA decision reversed. Defendant Silang Traffic
on their subscription. Co., Inc., was ordered to pay to the plaintiffs, the sums
of P360, P375, P675, and P675, respectively, with legal
Petitioners insist that they have the right to interest on each of said sums from May 28, 1938, the
recover the amounts it paid, while the respondent and date of the filing of the complaint, until the date of
cross-petitioner on its part contends that said amounts payment, and with costs in the three instances.
have been automatically forfeited and the shares of
stock have reverted to the corporation under their
agreement.
ISSUE:
Whether a particular contract is a subscription or
a sale of stock is a matter of construction and depends
upon its terms and the intention of the parties?
Whether under the contract between the parties

the failure of the purchaser to pay any of the quarterly
installments on the purchase price automatically gave
rise to the forfeiture of the amounts already paid and the
reversion of the shares to the corporation?

ALEX G. LEE, Vs. HON. SALVADOR P. DE GUZMAN, The relief left for petitioner Lee is that found
JR. under Article 1170 of the Civil Code which provides:
G.R. No. 90926 July 6, 1990 "(T)hose who in the performance of their obligations are
guilty of fraud, negligence or delay, and those who in
FACTS: any manner contravene the tenor thereof, are liable for
On November 8, 1983, petitioner Alex B. Lee damages."
purchased from respondent Motor Cars through its
freelance agent, one (1) unit Toyota Corolla Liftback, The reply letter of private respondent company
1983 model, with the quoted price of P149,700.00 plus dated December 19, 1983 which said that "due to the
miscellaneous expenses of P10,033.00. On the same sudden change of prices by the car manufacturer, they
date, petitioner Lee as customer, signed the vehicle have decided to exercise the option . . ." did not relieve
sales order. The delivery of the subject vehicle was Motorcars from the contract had entered into with
within the month of November, 1983. petitioner Lee. There was therefore delay in the delivery
of the subject vehicle which entitles petitioner to be
In view of such order, petitioner Lee deposited awarded damages. The records show that the subject
the amount of P1,000.00 on November 10, 1983 as vehicle should have been delivered within the month of
required in the aforesaid price quotation. Thereupon, on November, 1983.
December 15, 1983, petitioner's counsel, Atty. Doroteo
A. Dadal, wrote Mr. Nicolas O. Carranceja, Jr., Executive
Vice-President of Motorcars, demanding for delivery of
the said Toyota car. The respondent car company
replied on December 19, 1983, through its counsel Atty.
Benjamin S. Benito, that due to the sudden change of
prices by the car manufacturer, they had decided to
exercise the option contained in the vehicle sales order,
which states:
Whenever deposits are made by customers for

vehicles, parts and services ordered, the sales for such
vehicles, parts or services shall be at the option of
Motorcars, Inc., and refund of the deposits shall be
made upon request and without undue delay should
such option be exercised.
The respondent car company thus offered to refund
petitioner's deposit of P1,000.00. Respondent contended
that the obligation is impossible for the car manufacturer
had closed shop and no longer manufacturing 1983
models of Toyota.
Petitioner refused the offer.
ISSUE:
Should respondent Motorcars be made liable to
fulfill a seemingly impossible obligation?
HELD:
It is not possible for Motorcars to comply with
the writ of execution since admittedly, the then Delta
Motors who manufactured 1983 models of Toyota
Liftback had already closed shop, but be this as it may,
there is no question that indeed there was a perfected
contract of sale between petitioner Lee and private
respondent Motorcars pursuant to this Court's (through
the Third Division) resolution dated August 31, 1987.
IGNACIO BARZAGA Vs. CA and ANGELITO ALVIAR,

G.R. No. 115129. February 12, 1997
FACTS:
The petitioner’s wife was suffering from a

debilitating ailment and with forewarning of her
impending death, she expressed her wish to be laid to
rest before Christmas day to spare her family of the long
vigils as it was almost Christmas. After his wife passed
away, petitioner bought materials from herein private
respondents for the construction of her niche. Private
respondents however failed to deliver on agreed time
and date despite repeated follow-ups. The niche was
completed in the afternoon of the 27th of December, and
Barzaga's wife was finally laid to rest. However, it was
two-and-a-half (2-1/2) days behind schedule.
ISSUE:
Was there delay in the performance of the
private respondent's obligation?
HELD:
YES. Since the respondent was negligent and

incurred delay in the performance of his contractual
obligations, the petitioner is entitled to be indemnified for
the damage he suffered as a consequence of the delay
or contractual breach. There was a specific time agreed
upon for the delivery of the materials to the cemetery.
This is clearly a case of non-performance of a

reciprocal obligation, as in the contract of purchase and
sale, the petitioner had already done his part, which is
the payment of the price. It was incumbent upon
respondent to immediately fulfill his obligation to deliver
the goods otherwise delay would attach. An award of
moral damages is incumbent in this case as the
petitioner has suffered so much.
NATIONAL POWER CORPORATION

NPC VS. CAand (CEPALCO)
G.R. No. 113613 September 26, 1997
FACTS:

sustained by ECI could be attributed to NPC

ECI entered into a contract with NAWASA to notwithstanding the occurrence of a force majeure?
undertake a construction of a tunnel from Ipo Dam to
Bicti including all materials, equipment and labor for the 2. Whether or not ECI is entitled to exemplary
said construction for 800 days. The project involved 2 damages?
phases. The first involves tunnel works and the second
consists of outworks at both ends of the tunnel. HELD:
As soon as ECI finished the tunnel works in Yes. NPC was undoubtedly negligent because it
Bicti, it transferred all its equipments to Ipo Dam to finish opened the spillway gates of the Angat Dam only at the
the second phase of the project. height of typhoon “Welming” when it knew very well that
it was safer to have opened the same gradually and
The record shows that on November 4,1967, earlier, as it was also undeniable that NPC knew of the
typhoon ‘Welming’ hit Central Luzon, passing through coming typhoon at least four days before it actually
defendant’s (NPC) Angat Hydro-electric Project and struck. And even though the typhoon was an act of God
Dam at lpo, Norzagaray, Bulacan. Strong winds struck or what we may call force majeure, NPC cannot escape
the project area, and heavy rains intermittently fell. Due liability because its negligence was the proximate cause
to the heavy downpour, the water in the reservoir of the of the loss and damage. As we have ruled in Juan F.
Angat Dam was rising perilously at the rate of sixty (60) Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-
centimeters per hour. To prevent an overflow of water 607):
from the dam, since the water level had reached the
danger height of 212 meters above sea level, the Thus, if upon the happening of a
defendant corporation caused the opening of the fortuitous event or an act of God, there concurs
spillway gates.” a corresponding fraud, negligence, delay or
violation or contravention in any manner of the
ECI sued NPC for damages. The trial court and tenor of the obligation as provided for in Article
the court of appeals found that defendant NPC was 1170 of the Civil Code, which results in loss or
negligent when opened the gates only at the height of damage, the obligor cannot escape liability.
the typhoon holding that it could have opened the spill
gates gradually and should have done so before the The principle embodied in the act of God
‘typhoon’ came. Thus both courts awarded ECI for doctrine strictly requires that the act must be one
damages. occasioned exclusively by the violence of nature and
human agencies are to be excluded from creating or
NPC assails the decision of the CA as being entering into the cause of the mischief. When the effect,
erroneous on the grounds, inter alia, that the loss the cause of which is to be considered, is found to be in
sustained by ECI was due to force majeure. It argued part the result of the participation of man, whether it be
that the rapid rise of water level in the reservoir due to from active intervention or neglect, or failure to act, the
heavy rains brought about by the typhoon is an whole occurrence is thereby humanized, as it was, and
extraordinary occurrence that could not have been removed from the rules applicable to the acts of God. (1
foreseen. Corpus Juris, pp. 1174-1175).
On the other hand, ECI assails the decision of Thus, it has been held that when the negligence
the court of appeals modifying the decision of the trial of a person concurs with an act of God in producing a
court eliminating the awarding of exemplary damages. loss, such person is not exempt from liability by showing
that the immediate cause of the damage was the act of
God. To be exempt from liability for loss because of an
act of God, he must be free from any previous
negligence or misconduct by which the loss or damage
may have been occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil.
594, 604; Lasam v. Smith, 45 Phil. 657).
ISSUES: Substantial evidence is defined as such relevant

evidence as a reasonable mind might accept as
1. Whether or not NPC is liable for damages adequate to support a conclusion (Philippine Metal
even though the cause of the damage is due to a force Products, Inc. v. Court of Industrial Relations, 90 SCRA
majeure? Otherwise stated, whether or not the damage 135 [1979]; Police Commission v. Lood, 127 SCRA 757
[1984]; Canete v. WCC, 136 SCRA 302 [1985])

Exemplary Damages
No. As to the question of exemplary damages,

we sustain the appellate court in eliminating the same
since it found that there was no bad faith on the part of
NPC and that neither can the latter’s negligence be
considered gross. In Dee Hua Liong Electrical
Equipment Corp. v. Reyes, (145 SCRA 713, 719) we
ruled:
Neither may private respondent recover

exemplary damages since he is not entitled to moral
or compensatory damages, and again because the
petitioner is not shown to have acted in a wanton,
fraudulent, reckless or oppressive manner (Art. 2234,
Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377;
Francisco v. Government Service Insurance System,
7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527; Air
France v. Carrascoso, 18 SCRA 155; Pan Pacific
(Phil.) v. Phil. Advertising Corp., 23 SCRA 977;
Marchan v. Mendoza, 24 SCRA 888).
AMADO PICART VS. FRANK SMITH, JR.,

G.R. No. L-12219 March 15, 1918
FACTS:
Plaintiff Amado Picart was riding on his pony on

the Carlatan Bridge in San Fernando, La Union when the

defendant, riding on his car, approached. Defendant negligence of the defendant succeeded the negligence
blew his horn to give warning. Plaintiff moved the horse of the plaintiff by an appreciable interval. Under these
to the right instead of moving to the left, reasoning that circumstances the law is that the person who has the
he had no sufficient time to move to the right direction. last fair chance to avoid the impending harm and fails to
Defendant continued to approach, and when he had do so is chargeable with the consequences, without
gotten quite near, he quickly turned to the left. The horse reference to the prior negligence of the other party.
was frightened that it turned his body across the bridge.
His limb was broken and the rider was thrown off and got
injured. The horse died. An action for damages was filed
against the defendant.
ISSUE:
Whether or not the defendant in maneuvering

his car in the manner above described was guilty of
negligence such as gives rise to a civil obligation to
repair the damage done
HELD:
As the defendant started across the bridge, he

had the right to assume that the horse and rider would
pass over to the proper side; but as he moved toward
the center of the bridge it was demonstrated to his eyes
that this would not be done; and he must in a moment
have perceived that it was too late for the horse to cross
with safety in front of the moving vehicle. In the nature of
things this change of situation occurred while the
automobile was yet some distance away; and from this
moment it was no longer within the power of the plaintiff
to escape being run down by going to a place of greater
safety. The control of the situation had then passed
entirely to the defendant.
The test by which to determine the existence of

negligence in a particular case may be stated as follows:
Did the defendant in doing the alleged negligent act use
that reasonable care and caution which an ordinarily
prudent person would have used in the same situation?
If not, then he is guilty of negligence. Conduct is said to
be negligent when a prudent man in the position of the
tortfeasor would have foreseen that an effect harmful to
another was sufficiently probable to warrant his
foregoing the conduct or guarding against its
consequences.
THE CONSOLIDATED BANK and TRUST

It goes without saying that the plaintiff himself CORPORATION VS. CA and L.C. DIAZ & COMPANY
was not free from fault, for he was guilty of antecedent G.R. No. 138569. September 11, 2003
negligence in planting himself on the wrong side of the
road. But as we have already stated, the defendant was FACTS:
also negligent; and in such case the problem always is
to discover which agent is immediately and directly Private respondent L.C. Diaz instructed his
responsible. It will be noted that the negligent acts of the employee, Calapre, to deposit in his savings account in
two parties were not contemporaneous, since the petitioner bank. Calapre left the passbook of L.C. Diaz to

the teller of the petitioner bank because it was taking

time to accomplish the transaction and he had to go to No. The bank is liable for breach of contract due
another bank. When he returned, the teller told him that to negligence or culpa contractual. The contract between
somebody got it. The following day, an impostor the bank and its depositor is governed by the provisions
succeeded in withdrawing P300,000.00 by using said of the Civil Code on simple loan. Article 1172 of the Civil
passbook and a falsified withdrawal slip. Private Code provides that “responsibility arising from
respondent sued the bank for the amount withdrawn by negligence in the performance of every kind of obligation
the unknown third person. is demandable”. The bank is liable to its depositor for
breach of the savings deposit agreement due to
RTC applied rules on savings account written on negligence or culpa contractual. “The bank is under
the passbook ["Possession of this book shall raise the obligation to treat the accounts of its depositors with
presumption of ownership and any payment or payments meticulous care, always having in mind the fiduciary
made by the bank upon the production of the said book nature of their relationship (Simex International vs. CA)”.
and entry therein of the withdrawal shall have the same
effect as if made to the depositor personally."] RTC said The tellers know, or should know, that the rules
that the burden of proof shifted to LC Diaz to prove that on savings account provide that any person in
the signatures are not forged. Also, they applied the rule possession of the passbook is presumptively its owner. If
that the holder of the passport is presumed to be the the tellers give the passbook to the wrong person, they
owner. It was also held that Solidbank did not have any would be clothing that person presumptive ownership of
participation in the custody and care of the passbook the passbook, facilitating unauthorized withdrawals by
and as such, their act of allowing the withdrawal was not that person.
the proximate cause of the loss. The proximate cause
was LC Diaz’ negligence. As regards the contention that The doctrine of last clear chance states that
LC Diaz and Solidbank had precautionary procedures where both parties are negligent but the negligent act of
(like a secret handshake of sorts) whenever the former one is appreciably later than that of the other, or where it
withdrew a large sum, RTC pointed out that LC Diaz is impossible to determine whose fault or negligence
disregarded this in the past withdrawal. caused the loss, the one who had the last clear
opportunity to avoid the loss but failed to do so, is
CA, on the other hand, said that the proximate chargeable with the loss. This doctrine is not applicable
cause of the unauthorized withdrawal is Solidbank's to the present case. The contributory negligence of the
negligence, applying NCC 2176. CA said the 3 elements private respondent or his last clear chance to avoid the
of QD are present [damages; fault or negligence; loss would not exonerate the petitioner from liability.
connection of cause and effect]. The teller could have However, it serves to reduce the recovery of damages
called up LC Diaz since the amount being drawn was by the private respondent. Under Article 1172, “the
significant. Proximate cause is teller's failure to call LC liability may be regulated by the courts, according to the
Diaz. CA ruled that while LC Diaz was negligent in circumstances”. In this case, respondent L.C. Diaz was
entrusting its deposits to its messenger and its guilty of contributory negligence in allowing a withdrawal
messenger in leaving the passbook with the teller, slip signed by its authorized signatories to fall into the
Solidbank could not escape liability because of the hands of an impostor. Thus, the liability of petitioner
doctrine of “last clear chance.” Solidbank could have bank should be reduced.
averted the injury had it called up LC Diaz to verify the
withdrawal. In PHILIPPINE BANK OF COMMERCE VS. CA,
the Supreme Court allocated the damages between the
depositor who is guilty of contributory negligence and the
ISSUE: bank on a 40-60 ratio. The same ruling was applied to
this case. Petitioner bank must pay only 60% of the
Whether or not petitioner bank is liable solely for actual damages.
the amount withdrawn by the impostor?
HELD:
No. Petitioner Solidbank Corporation shall pay SCHMIDT TRANSPORT VS. TRANSPORT VENTURE
private respondent L.C. Diaz and Company, CPA’s only INC.
60% of the actual damages awarded by the Court of April 22, 2005
Appeals. The remaining 40% of the actual damages
shall be borne by private respondent L.C. Diaz and
Company, CPA’s. FACTS:

obligation, must be independent of human will; (2) it

On September 1991, STCO Pte. Ltd Singapore must be impossible to foresee the event which constitute
shipped 345 hot rolled steel sheets in coil from the port the caso fortuito, or if it can be foreseen it must be
of Russia. The cargoes which were to be discharged in impossible to avoid; (3) the occurrence must be such as
Manila were insured with Industrial Insurance Company. to render it impossible for the debtor to fulfill his
The consignee Little Giant Steel Pipe engaged the obligation in any manner; and (4) the obligor must be
services of petitioner Schmidt Transport to secure the free from any participation in the aggravation of the
requisite clearances and deliver the cargoes to Cainta injury resulting to the creditor.
Rizal.
The principle embodied in the act of God
Respondent Transport Venture on the other doctrine strictly requires that the act must be occasioned
hand was engaged by Schmidt to tow the barge solely by the violence of nature. Human intervention is to
containing the cargoes to the shipyard. The arrastre be excluded from creating or entering into the cause of
operator was able to unload only 37 out of the 345 coils the mischief. When the effect is found to be in part the
due to inclement weather conditions. The barge result of the participation of man, whether due to his
containing the 37 coils pitched and rolled with the waves active intervention or neglect or failure to act, the whole
and eventually capsized. Consignee Little Giant then occurrence is then humanized and removed from the
filed an insurance claim against Industrial Insurance rules applicable to the acts of God.
which in turn filed a complaint against Schmidt to
recover the amount it paid to Little Giant. The appellate court, in affirming the finding of
the trial court that human intervention in the form of
The Trial Court holds Schmidt Transport and contributory negligence by all the defendants resulted to
Transport Venture solidarily liable for the amount. The the loss of the cargoes, held that unloading outside the
decision was affirmed by the CA and the defense of breakwater, instead of inside the breakwater, while a
fortuitous event was discredited. Hence, Schmidt storm signal was up constitutes negligence. It thus
Transport filed this petition before the SC against TVI, concluded that the proximate cause of the loss was
Industrial Insurance and the Black Sea. Black Sea’s negligence in deciding to unload the
cargoes at an unsafe place and while a typhoon was
approaching. The loss thus falls outside the "act of God
ISSUE: doctrine."
Whether or not the loss of the cargoes was due
to a fortuitous event, hence, petitioners should not be
held liable?
HELD:
NO. The Supreme Court held that when a

fortuitous event occurs, Article 1174 of the Civil Code
absolves any party from any and all liability arising
therefrom:
ART. 1174. Except in cases expressly specified

by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible
for those events which could not be foreseen, or which
though foreseen, were inevitable.
In order, to be considered a fortuitous event,

however, (1) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtor to
comply with his
REAL VS. BELO
January 26, 2007

FACTS: tank installed at petitioner's fastfood stall and her

employees failed to prevent the fire from spreading and
Petitioner Virginia Real and respondent destroying the other fastfood stalls, including
Sesinendo Belo both owned and operated a fastfood respondent's fastfood stall. Such circumstances do not
stall in the food court center of PWU. A fire broke out at support petitioner's theory of fortuitous event.
the petitioner’s stall which spread and gutted other stalls
in the area including that of the respondent’s.
Respondent demanded payment from the petitioner but
the latter refused. Hence, a case for damages was filed
before the MTC.
Respondent alleged that petitioner failed to

exercise due diligence in the upkeep and maintenance
of her cooking equipments, as well as the selection and
supervision of her employees; that petitioner's
negligence was the proximate cause of the fire that
gutted the fastfood stalls. The petitioner on the other
hand denied liability on the grounds that the fire was a
fortuitous event and that she exercised due diligence in
the selection and supervision of her employees. MTC
rendered judgment in favour of respondent Belo and was
affirmed by the RTC and CA upon appeal.
ISSUE:
Whether or not the fire that broke out from

petitioner’s stall is a fortuitous event?
HELD:
NO. Jurisprudence defines the elements of a

"fortuitous event" as follows: (a) the cause of the
unforeseen and unexpected occurrence must be
independent of human will; (b) it must be impossible to
foresee the event which constitutes the caso fortuito, or
if it can be foreseen, it must be impossible to avoid; (c)
the occurrence must be such as to render it impossible
for the debtor to fulfill his obligation in a normal manner;
and (d) the obligor must be free from any participation in
the aggravation of the injury resulting to the creditor.
Article 1174 of the Civil Code provides that no

person shall be responsible for a fortuitous event which
could not be foreseen, or which, though foreseen, was
inevitable. In other words, there must be an entire
exclusion of human agency from the cause of injury or
loss.
PHILIPPINE COMMUNICATIONS VS. GLOBE
May 25, 2004
It is established by evidence that the fire

originated from leaking fumes from the LPG stove and FACTS:

the debtor to fulfill the obligation in a normal

On May 7, 1991 Philcomsat & Globe entered manner; and
into an agreement whereby Philcomsat obliged itself to c. the obligor must be free of participation in, or
establish, operate & provide an IBS standard B earth aggravation of, the injury to the creditor.
station for the exclusive use of US defense
communications Agency (USDCA). The term was for 60 Philcomsat and Globe had no control over the
months or 5 yrs In turn, Globe promised to pay non-renewal of the term of the RP-US Military Bases
Philcomsat monthly rentals. Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof
At the execution of the agreement, both parties belonged to the Senate.
knew that military Bases Agreement was to expire in Resolution No. 141 of the Philippine Senate and the
1991. Subsequently, Philcomsat installed the earth Note Verbale of the Philippine Government to the US
station & USDCA made use of the same. Government are acts, direction or request of the
Government of the Philippines and circumstances
The senate passed a resolution expressing its beyond the control of the defendant. The formal order
decision not to concur in the ratification of the treaty of from Cdr. Walter Corliss of the USN, the letter
friendship. So the RP-US Military bases Agreement notification from ATT and the complete withdrawal of all
terminate it on Dec. 31, 1992. the military forces and personnel from Cubi Point in the
year-end 1992 are also acts and circumstances beyond
Globe notified Philcomsat its instruction to the control of the defendant.
discontinue effective Nov. 8, 1992, in view of the
withdrawal of US military personnel. Philcomsat sent a Article 1174, which exempts an obligor from
reply to pay the stipulated rentals even after Globe shall liability on account of fortuitous events or force majeure,
have discontinued the use of earth station after Nov. 8 refers not only to events that are unforeseeable, but also
1992. to those which are foreseeable, but inevitable.
After the US military force left Subic, Philcomsat On the second issue, the US military forces and
sent a letter demanding payment. However, Globe personnel completely withdrew from Cubi Point only on
refused to heed Philcomsat ‘s demand because the 31 December 1992. Thus, until that date, the USDCA
termination of the US military bases agreement had control over the earth station and had the option of
constitute force majeure and said event exempted it from using the same. Furthermore, Philcomsat could not have
paying rentals. removed or rendered ineffective said communication
facility until after 31 December 1992 because Cubi Point
was accessible only to US naval personnel up to that
time. Hence, Globe is liable for payment of rentals until
ISSUE/S: December 1992.
Whether or not the termination of the RP-US
Military Bases Agreement constitutes force majeure
which would exempt Globe from complying with its
obligation to pay rentals under its Agreement with
Philcomsat?
Whether or not Globe is liable to pay rentals

under the agreement for the month of December 1992?
HELD:
YES. In order that Globe may be exempt from

non-compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements
must be established:
a. the event must be independent of the human

will; SECURITY BANK & TRUST COMPANY and ROSITO
b. the occurrence must render it impossible for C. MANHIT

VS. COURT OF APPEALS and YSMAEL C. FERRER WHEREFORE, with the above modification in
October 11, 1995 respect of the amount of attorney's fees, the appealed
decision of the Court of Appeals in CA G.R. CV No.
40450 is AFFIRMED.
FACTS:
SBTC and Manhit contracted Ferrer to construct

in 200 days a building in consideration of 1,760,000.00.
Ferrer was able to finish the construction of the building
within the prescribed time, but incurred additional
expenses of about 300,000.00 on top of the original cost
due to drastic increases in construction materials. Ferrer
made timely demands for payment of the increased cost,
and SBTC and a representative of an architectural firm
consulted by SBTC verified Ferrer’s claims for additional
cost. A recommendation was then made to settle the
claim for 200,000.00 but SBTC did not pay the amount,
and instead denied any liability for the additional cost.
Ferrer then filed a claim for breach of contract with
damages in the RTC, which ruled in favor of Ferrer,
Court of Appeals affirmed the decision.
ISSUE:
Whether or not SBTC should be held liable for

the increase in the cost of construction due to the drastic
increase in the cost of materials?
HELD:
YES. Under Art 1182 of the NCC, a conditional

obligation shall be void if its fulfillment depends upon the
sole will of the debtor. Under Art IX of the building
contract it allows for the adjustment of the contract price
upon mutual agreement of the parties.
It is the absence of this mutual agreement that

the bank is using to support its contention that it is not
liable for the increased cost, and in effect this is an
obligation dependent on SBTC’s sole will, since its
consent is required for the recovery of the increased cost
to be allowed.
This in effect allows SBTC to acquire the

constructed building at a price that is far below its actual
construction cost, and this constitutes unjust enrichment
for SBTC at the expense of Ferrer. This is not allowed by
law by virtue of Art 22 of NCC.
MACTAN CEBU INT’L AIRPORT VS. TUDTUD

November 14, 2008

While the MCIAA is obliged to reconvey Lot No.

FACTS: 988 to respondents, respondents must return to the
Predecessors-in-interest or respondents were MCIAA what they received as just compensation for the
the original owners of the lot in question. In 1949, the expropriation of Lot No. 988, plus legal interest to be
National Airports Corporation, a public corporation of the computed from default, which in this case runs from the
RP embarked on a project to expand the Cebu Lahug time the MCIAA complies with its obligation to the
Airport. For this purpose, an expropriation case was filed respondents.
and the land was later on transferred to the RP.
However no structures related to the operation of the Respondents must likewise pay the MCIAA the
Lahug Airport was constructed in the said lot. necessary expenses it may have incurred in sustaining
Lot No. 988 and the monetary value of its services in
The said lot was then transferred to the Air managing it to the extent that respondents were
Transport Office (ATO) then to Mactan Cebu benefited thereby.
International Airport Authority (MCIAA) but still no
construction was maid on the lot. When MCIA opened
Following Article 1187 of the Civil Code, the
for commercial flights, the Lahug Airport was closed and
MCIAA may keep whatever income or fruits it may have
abandoned. The respondents then demanded to
obtained from Lot No. 988, and respondents need not
repurchases the lot in question at the same price at the
account for the interests that the amounts they received
time of the taking, without interest, no structures or
as just compensation may have earned in the meantime.
improvements having been erected thereon and the
Lahug Airport having been closed and abandoned, the
purpose for which the lot was taken no longer exist. In accordance with the earlier-quoted Article
1190 of the Civil Code vis-à-vis Article 1189 which
As the demand remained unheeded, a case for provides that "[i]f a thing is improved by its nature, or by
reconveyance with damages was filed grounded on the time, the improvement shall inure to the benefit of the
alleged assurance made by NAC that the original creditor x x x," respondents, as creditors, do not have to
owners would be entitled to repurchases the lot when settle as part of the process of restitution the
and in the event it was no longer used for airport appreciation in value of Lot 988 which is a natural
purposes. consequence of nature and time.
RTC ruled in favour of the respondents and was

affirmed by the CA, hence, this appeal.
ISSUE:
Whether or not MCIAA is obliged to reconvey

the land the respondents?
HELD:
YES. The rights and duties between the

MCIAA and respondents are governed by Article 1190 of
the Civil Code which provides:
When the conditions have for their purpose the

extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions,
shall return to each other what they have
received.
In case of the loss, deterioration, or

improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the
preceding article [Article 1189] shall be applied SONG FO VS. HAWAIIN PHIL.CO
to the party who is bound to return. September 16, 1925

was only a slight breach of contract when the payment

was delayed for 20 days after which Hawaiian-Philippine
FACTS: Co. accepted the payment of the overdue accounts and
Hawaiian-Philippine Co. got into a contract with continued with the contract, waiving its right to rescind
Song Fo & Co. where it would deliver molasses to the the contract. The delay in the payment of Song Fo & Co.
latter. was not such a violation for the contract.
Hawaiian-Philippine Co. was able to deliver (3) With regard to the third question, the first
55,006 gallons of molasses before the breach of cause of action of Song Fo & Co. is based on the greater
contract. expense to which it was put in being compelled to
secure molasses from other sources to which Supreme
SFC filed a complaint for breach of contract Court ruled that P3,000 should be paid by Hawaiian-
against Hawaiian-Philippine Co. and asked P70,369.50. Philippine Co. with legal interest from October 2, 1923
Hawaiian-Philippine Co. answered that there was a until payment.
delay in the payment from Song Fo & Co. and that
Hawaiian-Philippine Co. has the right to rescind the The second cause of action was based on the
contract due to that and claims it as a special defense. lost profits on account of the breach of contract.
Supreme Court said that Song Fo & Co. is not entitled to
The judgment of the trial court condemned recover anything under the second cause of action
Hawaiian-Philippine Co. to pay Song Fo & Co. a total of because the testimony of Mr. Song Heng will follow the
P35,317.93, with legal interest from the date of the same line of thought as that of the trial court which in
presentation of the complaint, and with costs. unsustainable and there was no means for the court to
find out what items make up the P14,000 of alleged lost
profits.
ISSUE/S:
(1) Did Hawaiian-Philippine Co. agree to sell

400,000 gallons of molasses or 300,000 gallons of
molasses?
(2) Had Hawaiian-Philippine Co. the right to

rescind the contract of sale made with Song Fo & Co.?
(3) On the basis first, of a contract for 300,000

gallons of molasses, and second, of a contract
imprudently breached by Hawaiian-Philippine Co., what
is the measure of damages?
HELD:
(1) Only 300,000 gallons of molasses was

agreed to by Hawaiian-Philippine Co. as seen in the
documents presented in court. The language used with
reference to the additional 100,000 gallons was not a
definite promise.
(2) With reference to the second question, doubt

has risen as to when Song Fo & Co. was supposed to
make the payments for the delivery of molasses as
shown in the documents presented by the parties.
The Supreme Court said that Hawaiian-

Philippine Co. does not have the right to rescind the
contract. It should be noted that the time of payment
stipulated for in the contract should be treated as of the
presence of the contract. There

CORTES vs. COURT OF APPEALS

July 12, 2006 Cortes avers that he delivered the TCT’s
through the broker’s son. He further avers that the
broker’s son delivered it to the broker, who in turn
delivered them to the Corporation.
FACTS:
Marcosa Sanchez’s unrebutted testimony is that,
For the purchase price of 3.7M, Villa Esperanza she did not receive the TCTs. She also denied
Development Corporation (vendee) and Antonio Cortes knowledge of delivery thereof to her son, Manny.
(vendor) entered into a contract of sale over the lots
located at Baclaran, Parañaque, Metro Manila. The What further strengthened the findings of the
Corporation advanced to Cortes the total sum of Court of Appeals that Cortes did not surrender the
P1,213,000.00. In September 1983, the parties executed subject documents was the offer of Cortes’ counsel at
a deed of absolute sale on the following terms: the pre-trial to deliver the TCTs and the Deed of
The Corporation shall advance 2.2 M as downpayment, Absolute Sale if the Corporation will pay the balance of
and Cortes shall likewise deliver the TCT for the 3 lots. the down payment. Indeed, if the said documents were
The balance of 1.5M shall be payable within a year from already in the hands of the Corporation, there was no
the date of the execution. need for Cortes’ counsel to make such offer.
The Corporation filed the instant case for Considering that their obligation was reciprocal,
specific performance seeking to compel Cortes to deliver performance thereof must be simultaneous. The mutual
the TCTs and the original copy of the Deed of Absolute inaction of Cortes and the Corporation therefore gave
Sale. According to the Corporation, despite its readiness rise to a compensation morae or default on the part of
and ability to pay the purchase price, Cortes refused both parties because neither has completed their part in
delivery of the sought documents. It prayed for their reciprocal obligation. Cortes is yet to deliver the
damages, attorney’s fees and litigation expenses. Cortes original copy of the notarized Deed and the TCTs, while
claimed that the owner’s duplicate copy of the three the Corporation is yet to pay in full the agreed down
TCTs were surrendered to the Corporation and it is the payment of P2,200,000.00. This mutual delay of the
latter which refused to pay in full the agreed down parties cancels out the effects of default, such that it is
payment. as if no one is guilty of delay.
RTC rendered a decision rescinding the sale Under Article 1169 of the Civil Code, from the
and directed Cortes to return to the Corporation the moment one of the parties fulfills his obligation, delay by
amount of P1,213,000.00, plus interest. CA reversed the the other begins. Since Cortes did not perform his part,
decision and directed Cortes to execute a Deed of the provision of the contract requiring the Corporation to
Absolute Sale conveying the properties and to deliver pay in full the down payment never acquired obligatory
the same to the Corporation together with the TCTs, force.
simultaneous with the Corporation’s payment of the
balance of the purchase price of P2,487,000.00.
ISSUES:
Whether or not Cortes delivered the TCTs and
the original Deed to the Corporation?NO.
WON there is delay in the performance of the

parties’ obligation that would justify the rescission of the
contract of sale? THERE IS DELAY IN BOTH PARTIES
(compensation morae)
GIL VS. CA and HEIRS OD MATULAC

HELD:

September 12, 2003 Petitioners in this case assert that private respondent
Iluminada Pacetes failed to pay the balance of the
purchase price in the amount of P14,100.00. They did
FACTS: consign and deposit the amount of P11,983.00, but only
on August 8, 1977, twenty one years from the execution
The case at hand revolves around a disputed of the Deed of Absolute Sale in favor of the said
parcel of commercial land originally co-owned by spouses, without the latter instituting an action for the
Concepcion Palma Gil, and her sister, Nieves Palma Gil cancellation of their obligation. According to the
who was married to Angel Villarica. Concepcion filed a petitioners, the consignation made by Iluminada Pacetes
complaint against her sister Nieves Civil Case No. 1160 of the amount did not produce any legal effect.
for specific performance, to compel the defendant to In the procedural aspect, it is important to note that the
cede and deliver to her an undivided portion of the said petitioners failed to implead all the compulsory heirs of
property. The lower court ruled in favor of Concepcion. the deceased Concepcion Gil in their complaint. When
CA affirmed and the decision became final and she died intestate, Concepcion Gil, a spinster, was
executory. The sheriff had the property subdivided and survived by her sister Nieves, and her nephews and
executed a Deed of Transfer of one of the four lots to nieces, three of whom are the petitioners herein.
Concepcion. Concepcion executed a deed of absolute
sale over the said lot in favor of Iluminada Pacetes.
Also, Concepcion filed a complaint for unlawful detainer ISSUE:
against the spouses Angel and Nieves Villarica Civil
Case No. 2246, which the MTC decided in favor of Whether or not the property has been conveyed
Concepcion. Meanwhile, the spouses Angel and Nieves to Iluminada Pacetes and the subsequent vendees in
Villarica filed a complaint against the sheriff and spite of the balance that existed for 21 years?
Concepcion with the Civil Case No. 2151 for the
nullification of the deed of transfer executed by the
sheriff. Iluminada Pacetes filed a motion to intervene in HELD:
Civil Case No. 2151, as vendee of the property subject
of the case, which was granted by the court. She then YES. The subsequent transfers of the property
filed a motion to dismiss the complaint. The court from Pacetes to Maglana, and then from Maglana to
granted the motion. herein movant Matulac, was acquired pendente lite. The
latter (Matulac) as the latest owner of the property, was,
On the basis of the deed of transfer executed by as aptly put by the trial court, subrogated to all the rights
Sheriff, the Register of Deeds issued TCTs in the name and obligations of Pacetes. He is thus the party who now
of Concepcion. However, the latter failed to transfer title has a substantial interest in the property. Matulac is a
to the property to and under the name of Iluminada real party-in- interest subrogated to all the rights of
Pacetes. Consequently, the latter did not remit the Iluminada Pacetes, including the right to the issuance of
balance of the purchase price of the property to a writ of execution in his name.
Concepcion.
The vendee paid the downpayment of
More than five years having elapsed without the P7,500.00. By the terms of the contract, the obligation of
decision in the unlawful detainer case being enforced, the vendee to pay the balance of the purchase price
Iluminada filed a complaint Civil Case No. 4413 for the ensued only upon the issuance of the certificate of title
revival and execution of the decision of the unlawful by the Register of Deeds over the property sold to and
detainer case. under the name of the vendee, and the delivery thereof
by the vendor Concepcion Gil to the latter. Concepcion
Subsequently, the lot was sold to Constancio failed to secure a certificate of title over the property.
Maglana then to Emilio Matulac. In the meantime, on When she died intestate on August 4, 1959, her
August 8, 1977, Iluminada consigned with the court in obligation to deliver the said title to the vendee devolved
the specific performance case the amount of P11,983.00 upon her heirs, including the petitioners. The said heirs,
only as payment of the purchase price of the property. including the petitioners failed to do so, despite the lapse
Three of the surviving heirs of Concepcion Gil, namely, of eighteen years since Concepcions death. Iluminada
Perla Palma Gil, Vicente Hizon, Jr. and Angel Palma Gil was not yet obliged on August 8, 1977 to pay the
filed on June 17, 1982, a complaint against Emilio balance of the purchase price of the property, but as a
Matulac, Constancio Maglana, Agapito Pacetes, and the sign of good faith, she nevertheless consigned the
Register of Deeds, with the CFI for the cancellation of amount of P11,983.00, part of the balance of the
the deed of sale executed by Concepcion in favor of purchase price of P14,000.00, with the court in Civil
Iliminada Pacetes; the deed of sale executed by the Case No. 1160.
latter in favor of Constancio Maglana; the deed of sale
executed by the latter in favor of Emilio Matulac.

3. That upon full payment of the consideration

SPOUSES RAYOS VS. COURT OF APPEALS hereof, the SELLER shall execute a Deed of
July 14, 2004 Absolute Sale in favor of the BUYER that the
payment of capital gains tax shall be for the
account of the SELLER and that documentary
FACTS: stamps, transfer tax, registration expenses for
On 1985, Spouses Rayos secured a short term the transfer of title including the notarization and
loan from the Philippine Savings Bank payable within a preparation of this Contract and subsequent
period of one year in quarterly instalments. It was documents if any are to be executed, real estate
evidenced by a promissory note and the spouses taxes from January 1, 1986 and other
executed a REM over their property located in Las miscellaneous expenses shall be for the account
Pinas. of the BUYER; the SELLER hereby represents
that all association dues has been paid but that
On the same year the spouses executed a Deed subsequent to the execution of this Contract the
of Absolute Sale with Assumption of Mortgage over the payment of the same shall devolve upon the
property with spouses Miranda. However, the spouses BUYER.
executed another document, a contract to sell the said
property in favour of the respondents. Respondent Construing the contracts together, it is evident
Rogelio Miranda then filed an application with PSB to that the parties executed a contract to sell and not a
secure approval of his assumption of the petitioner’s contract of sale. The petitioners retained ownership
obligation on the loan but such was disapproved. without further remedies by the respondents until the
Nevertheless, Rogelio paid the first and second quarterly payment of the purchase price of the property in full.
instalment for the account of petitioners. Such payment is a positive suspensive condition, failure
of which is not really a breach, serious or otherwise, but
Petitoner then received a letter from the bank an event that prevents the obligation of the petitioners to
reminding him of the last quarterly instalment and fearing convey title from arising, in accordance with Article 1184
that the respondents will not be able to pay the of the Civil Code.
instalment, he paid the amount due. He then advised the
bank not to turn over the duplicate title to respondents. The non-fulfillment by the respondent of his
obligation to pay, which is a suspensive condition to the
Respondents then filed a case against obligation of the petitioners to sell and deliver the title to
petitioners and the bank claiming that the bank the property, rendered the contract to sell ineffective and
conspired with spouses Rayos in preventing him from without force and effect. The parties stand as if the
paying the last instalment and in refusing to turn over the conditional obligation had never existed. Article 1191 of
duplicate title thereby preventing the transfer of the the New Civil Code will not apply because it
property to his name. presupposes an obligation already extant. There can be
no rescission of an obligation that is still non-existing, the
suspensive condition not having happened.
ISSUE: However, the respondents may reinstate the
Whether or not petitioner had unilaterally contract to sell by paying the P29,223.67, and the
cancelled the contract when he paid the last quarterly petitioners may agree thereto and accept the
instalment? respondents' late payment. In this case, the petitioners
had decided before and after the respondents filed this
complaint in Civil Case No. 15639 to accept the
HELD: payment of P29,223.67, to execute the deed of absolute
sale over the property and cause the transfer of the title
NO.It bears stressing that the petitioners and the of the subject property to the respondents. The
respondents executed two interrelated contracts, viz: the petitioners even filed its amended complaint in Civil
Deed of Sale with Assumption of Mortgage dated Case No. 15984 for the collection of the said amount.
December 26, 1985, and the Contract to Sell dated The Court of Appeals cannot, thus, be faulted for
January 29, 1986. To determine the intention of the affirming the decision of the trial court and ordering the
parties, the two contracts must be read and interpreted petitioners to convey the property to the respondents
together. Under the two contracts, the petitioners bound upon the latter's payment of the amount of P29,223.67,
and obliged themselves to execute a deed of absolute provided that the property has not been sold to a third-
sale over the property and transfer title thereon to the party who acted in good faith.
respondents after the payment of the full purchase price
of the property, inclusive of the quarterly installments
due on the petitioners' loan with the PSB:

not really a breach, serious or otherwise, but an

event that prevents the obligations of the
CORDERO VS. F.S. MANAGEMENT DEVELOPMENT petitioners to convey title from arising, in
October 31, 2006 accordance with Article 1184 of the Civil Code. x
xx
FACTS:
The non-fulfillment by the respondent of his
Belen Cordero and 6 others, herein petitioners, obligation to pay, which is a suspensive
entered into a contract to sell with F.S. Management condition to the obligation of the petitioners to
Development over 5 parcels of land located in Nasugbo, sell and deliver the title to the property, rendered
Batangas. Under the terms of the contract, a down the contract to sell ineffective and without force
payment of P3.5M and the payment of the remaining and effect. The parties stand as if the conditional
balance in 6 quarterly instalments. However, respondent obligation had never existed. Article 1191 of the
defaulted from payment. Thus, after demanding the New Civil Code will not apply because it
respondents to pay the remaining amount, petitioners presupposes an obligation already extant. There
filed a complaint for rescission of the contract with can be no rescission of an obligation that is still
damages. Respondent contends that the petitioners non-existing, the suspensive condition not
were the first ones who violated the contract to sell by having happened. [Emphasis and underscoring
preventing access to the property despite the payment of supplied; citations omitted]
P2.5M worth of earnest money and that the petitioners
refused to execute the final contract of price. The subject contract to sell clearly states that "title will be
transferred by the owner (petitioners) to the buyer
The RTC ruled in favour of petitioners while the (respondent) upon complete payment of the agreed
CA ruled in favour of the respondents. In their MR, purchase price." Since respondent failed to fully pay the
petitioners contend that the contract to sell may be purchase price, petitioners’ obligation to convey title to
subject to rescission under Art. 1191 of the NCC as it the properties did not arise. While rescission does not
involves reciprocal obligations. apply in this case, petitioners may nevertheless cancel
the contract to sell, their obligation not having arisen.
ISSUE:
Whether or not a contract to sell may be subject
to rescission under Art. 1191?
HELD:
NO. Under a contract to sell, the seller retains

title to the thing to be sold until the purchaser fully pays
the agreed purchase price. The full payment is a positive
suspensive condition, the non-fulfillment of which is not a
breach of contract but merely an event that prevents the
seller from conveying title to the purchaser. The non-
payment of the purchase price renders the contract to
sell ineffective and without force and effect.
Since the obligation of petitioners did not arise because

of the failure of respondent to fully pay the purchase
price, Article 1191 of the Civil Code would have no
application.
Rayos v. Court of Appeals explained:
Construing the contracts together, it is evident

that the parties executed a contract to sell and
not a contract of sale. The petitioners retained
ownership without further remedies by the
respondents until the payment of the purchase CALERO VS. CARRION
price of the property in full. Such payment is a March 30, 1960
positive suspensive condition, failure of which is
his submission that the agreement created an implied

FACTS: trust, plaintiff-appellant cites the provisions of Articles
1452 and 1453 of the new Civil Code which read as
From the order of the Court of First Instance of follows:
Manila (in Civil Case No. 31409) dismissing his
complaint, on the ground of prescription, plaintiff ART. 1452. If two or more persons agree to
Federico Calero interposed this appeal directly to this purchase property and by common consent the
Court on questions purely of law. legal title is taken in the name of one of them for
the benefit of all, a trust is created by force of
On July 18,1957, defendant renewed their law in favor of the others in proportion to the
motion to dismiss, on the grounds that (1) the amended interest of each.
complaint states no cause of action (2) the plaintiff's
cause of action, if any, is barred by the Statute of ART. 1453. When property is conveyed to a
Limitations (Sec. 1[e], Rule 8, Rule of Court), and (3) the person in reliance upon his declared intention to
plaintiff's original complaint being without cause of hold it for, or transfer it to another or the grantor,
action, it cannot be amended and/or cured by said there is an implied trust in favor of the person
amended complaint which changes plaintiff's theory of whose benefit is contemplated.
the case. In connection with the second ground
mentioned, defendants stated: The contention is without merit, Article 1452
abovequoted is inapplicable to this case for the reason
Plaintiff's right of action accrued in the year 1937 that there is absolutely no stipulation in the contract,
when the first of plaintiffs alleged various offers Exhibit A, that there would be a joint purchase of the
to defendants to sell the property at price offered property and that the legal title thereto was to be placed
by buyers was refused by defendants (Pars. 13 in the name of the defendants for the benefit of
and 14 of Complaint). It is patent, therefore, that themselves and herein plaintiff. The recitals in the
is, ten (10) years from the year 1937. contracts preceding the paragraph containing the
Considering that plaintiff's complaint was filed on obligation assumed by the defendants, merely refer to
December 21, 1956, plaintiff's cause of action if the services rendered by the plaintiff as broker who
any, is obviously unenforceable and barred by negotiated the sale of the property to the defendants and
the Statue of Limitations. which the defendants agreed to compensate. Nothing
contained therein would indicate that the property was
To this motion, plaintiff filed his opposition on being purchased for the benefit of the plaintiff and the
August 2, 1957, to which defendants filed a rejoinder on defendants.
August 8, 1957. To this rejoinder, plaintiff filed a counter-
reply on August 12, 1957. The terms of the contract admit no doubt that
the 20% to be paid the plaintiff is of any amount which
On August 21, 1957, the court issued an order may be obtained by the sale of the property after
denying defendant's motion to dismiss. From this order, deducting the purchase price thereof, which shall be
defendants filed a motion for reconsideration on August taken from the liquidated benefit obtained by the owners
27, 1957, which was duly opposed by plaintiff on out of the sale of the said property.
September 7, 1957. On September 16, 1957,
defendants filed a rejoinder to said opposition. Neither is Article 1453 applicable, because there
is absolutely nothing in the agreement which even
From the above-quoted order, plaintiff filed a remotely indicates that the property was conveyed to the
motion for reconsideration on October 3, 1957, which defendants in reliance upon their declared intention to
was duly opposed by defendants on October 18, 1957. hold it for, or transfer it to, another or the grantor.
On October 23, 1957, the court denied said motion.
Hence, this appeal. Even the very allegations of plaintiff's complaint
clearly reflect the true nature of the agreement. It
Plaintiff claims that the lower court erred in appears therefrom that although the original parties to
dismissing his complaint, contending that (a) the purchase the property tribute P10,000.00 and the
agreement Exhibit A attached to the amended complaint defendants to put up P15,000.00 on account of the down
and made an integral part thereof, created "un payment of P25,000.00), the same was abandoned and
fideicomiso implicito" or an implied trust, which is not the parties subsequently agreed that the defendants
subject to prescription, and (b) that even admitting the would buy the property exclusively in their name and for
obligation is subject to a suspensive undetermined their own account.
period (not condition), the action to have such period
fixed by the court has not yet prescribed. In support of
Plaintiff-appellant next contends that the lower

court also erred in dismissing his complaint on the
finding that plaintiff's right of action to have the period
fixed for the sale of the property had already prescribed.
It is urged that the time for enforcing their right of action
to have the period judicially determined did not begin to
run until the defendants had been formally demanded
and they refused to sell the property. It was only then, it
is argued, that the period of prescription started to run.
This seems to be illogical. Before the period is fixed, the
defendants' obligation to sell is suspended and they,
therefore, cannot be compelled to act. For this reason, a
complaint to enforce immediately the principal obligation
subject to the suspensive period before this is fixed, will
not prosper. But this is not to say that the plaintiff has no
cause of action. His cause of action under the
agreement is to have the court fix the period and after
the expiration of that period, to compel the performance
of the principal obligation to sell. And this right to have
the period judicially fixed is born from the date of the
agreement itself which contains the undetermined
period. Extrajudicial demand is not essential for the
creation of this cause of action to have the period fixed. 1
It exists by operation of law from the moment such an
agreement subject to an undetermined period is entered
into, whether the period depends upon the will of the
debtor alone, or of the parties themselves, or where from
the nature and the circumstances of the obligation it can
be inferred that a period was intended.
This is the clear intendment of Article 1197 of

the New Civil Code as well as Article 1128 of the
Spanish Civil Code and the applicable doctrine laid down
by this Court. And since the agreement was executed on
May 28, 1937 and the complaint to have the period fixed
was filed on December 21, 1956 or after almost 20
years, plaintiff's action is clearly and indisputably barred
under the Statute of Limitations.
Wherefore, finding no reversible error in the

order appealed from, the same is hereby affirmed, with
costs against the plaintiff-appellant. So ordered.
TRADERS ROYAL BANK vs. CA
FACTS:
The Philippine Blooming Mills, Inc. and Alfredo

Ching jointly submitted to the Securities and Exchange subsequently be directed against the others, as long
Commission a petition for suspension of payments where as the debt has not been fully collected.
Alfredo Ching was joined as co-petitioner because under
the law, he was allegedly entitled, as surety, to avail of
the defenses of PBM and he was expected to raise most
It is elementary that a corporation has a
of the stockholders' equity of Pl00 million being required
personality distinct and separate from its individual
under the plan for the rehabilitation of PBM. Traders
stockholders or members. Being an officer or stockholder
Royal Bank was included among PBM's creditors named
of a corporation does not make one's property the
in Schedule A accompanying PBM's petition for
property also of the corporation, for they are separate
suspension of payments.
entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA
The petitioner bank filed a case to collect 482).Ching's act of joining as a co-petitioner with PBM in
Php22,227,794.05 representing PBM’s outstanding SEC Case No. 2250 did not vest in the SEC jurisdiction
obligation to the bank. Ching was impleaded as a over his person or property, for jurisdiction does not
defendant for having signed as a surety to the extent of depend on the consent or acts of the parties but upon
10M. SEC however issued an order that PBM will go express provision of law.
under a rehabilitation and receivership, thus ordered all
actions for claims pending before any court to be
suspended until further orders from the SEC.
As a result, the court dropped PBM from the

complaint but denied Ching’s motion to dismiss.
ISSUE:
Whether the court a quo could acquire

jurisdiction over Ching in his personal and individual
capacity as a surety of PBM in the collection suit filed by
the bank, despite the fact that PBM's obligation to the
bank had been placed under receivership by the SEC.
HELD:
YES. Although Ching was impleaded in SEC

Case No. 2250, as a co-petitioner of PBM, the SEC could
not assume jurisdiction over his person and properties.
The Securities and Exchange Commission was
empowered, as rehabilitation receiver, to take custody
and control of the assets and properties of PBM only, for
the SEC has jurisdiction over corporations only not over
private individuals, except stockholders in an intra-
corporate dispute.
Ching can be sued separately to enforce his

liability as surety for PBM, as expressly provided by
Article 1216 of the New Civil Code:
ART. 1216. The creditor may proceed

PHILIPPINE BLOOMING MILLS, INC. vs CA
against any of the solidary debtors or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those which may

FACTS: ART. 1216. The creditor may proceed

against any one of the solidary debtors or some or all
The case is an offshoot of the decision in Traders of them simultaneously. The demand made against
Royal Bank v.s. CA wherein the court ruled the issue of one of them shall not be an obstacle to those which
Ching’s separate liability as a surety despite the may subsequently be directed against the others, so
long as the debt has not been fully collected.
rehabilitaion proceedings before the SEC. Ching was the
Senior Vice President of PBM. In his personal capacity
and not as a corporate officer, Ching signed a Deed of
Suretyship dated 21 July 1977 binding himself to pay
10M.
Alfredo Ching now claims that since the SEC

had already issued a decision approving a revised
rehabilitation plan for PBM’s creditors, and that PBM
obtained the credit accommodations for corporate
purposes that did not redound to his personal benefit. He
further claimed that even as a surety, he has the right to
the defenses personal to PBM. Thus, his liability as
surety would attach only if, after the implementation of
payments scheduled under the rehabilitation plan, there
would remain a balance of PBM’s debt to TRB. That as
surety and solidary debtor, he should benefit from the
change of the nature of the obligation as provided in Art.
1222 NCC.
ISSUE:
Whether Ching’s liability is limited to the amount

stated in PBM’s rehabilitation plan?
HELD:
NO. Art.1222 of the NCC may not apply to Ching
“Art. 1222. A solidary debtor may, in actions

filed by the creditor, avail himself of all defenses which
are derived from the nature of the obligation and of
those which are personal to him, or pertain to his own
share. With respect to those which personally belong
to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are
responsible.”
In granting the loan to PBM, TRB required

Ching’s surety precisely to insure full recovery of the loan
in case PBM becomes insolvent or fails to pay in full.
This was the very purpose of the surety. Thus, Ching
cannot use PBM’s failure to pay in full as justification for
his own reduced liability to TRB. As surety, Ching
agreed to pay in full PBM’s loan in case PBM fails to pay
in full for any reason, including its insolvency.
TRB, as creditor, has the right under the surety

to proceed against Ching for the entire amount of PBM’s COUNTRY BANKERS INSURANCE CORPORATION
loan. This is clear from Article 1216 of the Civil Code: vs. CA

FACTS: A penal clause is an accessory obligation which

the parties attach to a principal obligation for the purpose
Respondent Oscar Ventanilla Enterprises of insuring the performance thereof by imposing on the
Corporation (OVEC), as lessor, and the petitioner debtor a special presentation (generally consisting in the
Enrique F. Sy, as lessee, entered into a lease agreement payment of a sum of money) in case the obligation is not
over the Avenue, Broadway and Capitol Theaters and the fulfilled or is irregularly or inadequately fulfilled.
land on which they are situated in Cabanatuan City for 6
years commencing from June 13, 1977 and ending June
12,1983.
As a general rule, in obligations with a penal
After more than two (2) years of operation of the clause, the penalty shall substitute the indemnity for
Avenue, Broadway and Capitol Theaters, the lessor damages and the payment of interests in case of non-
OVEC made demands for the repossession of the said compliance. This is specifically provided for in Article
leased properties in view of the Sy's arrears in monthly 1226, par. 1, New Civil Code. In such case, proof of
rentals and non-payment of amusement taxes. Due to actual damages suffered by the creditor is not necessary
Sy’s failure to pay the amount in full, OVEC padlocked in order that the penalty may be demanded (Article 1228,
the gates of three theaters. Sy asked for reformation of New Civil Code). However, there are exceptions to the
the lease agreement, damages and injuction. rule that the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-
OVEC on the other hand, alleged in its answer compliance with the principal obligation. They are first,
by way of counterclaims, that by reason of Sy's violation when there is a stipulation to the contrary; second, when
of the terms of the subject lease agreement, OVEC the obligor is sued for refusal to pay the agreed penalty;
became authorized to enter and possess the three and third, when the obligor is guilty of fraud.
theaters in question and to terminate said agreement and
the balance of the deposits given by Sy to OVEC had
thus become forfeited; that OVEC would be losing
P50,000.00 for every month that the possession and This supposed damage suffered by OVEC was
operation of said three theaters remain with Sy and that the alleged P10,000.00 a month increase in rental from
OVEC incurred P500,000.00 for attorney's service. P50,000.00 to P60,000,00), which OVEC failed to realize
for ten months from February to November, 1980 in the
The trial court ruled in favor of OVEC, and held total sum of P100,000.00. This opportunity cost which
that the cancellation of the agreement was in accordance was duly proven before the trial court, was correctly
with the stipulation in their lease agreement. An award for made chargeable by the said court against the injunction
damages and arrears in rental and taxes plus 100,000 as bond posted by CBISCO. The undertaking assumed by
injunction bond and forfeiture of the 290,000 deposit. It CBISCO under subject injunction refers to "all such
held that the forfeiture clause in their lease agreement damages as such party may sustain by reason of the
states that the deposit shall be deemed forfeited without injunction if the Court should finally decide that the
prejudice to any other obligations still owing by the lessee Plaintiff was/were not entitled thereto." Thus, the
to the lessor. respondent Court correctly sustained the trial court in
holding that the bond shall and may answer only for
damages which OVEC may suffer as a result of the
injunction.
ISSUE:
Whether or not the forfeiture clause would

unjustly enrich OVEC at the expense of Sy
HELD:
NO. A provision which calls for the forfeiture of

the remaining deposit still in the possession of the lessor,
without prejudice to any other obligation still owing, 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 of the agreement is a penal clause that may
be validly entered into.

COMMERCIAL CREDIT CORPORATION vs. CA In the present case, the compromise agreement
was voluntarily entered into by the parties assisted by
their respective counsel and was duly approved by the
trial court. Indeed, it was confirmed by the respondent
FACTS: appellate court to be lawful. There was, therefore, no
cogent basis for the respondent appellate court to modify
Sometime in 1978 private respondent Cagayan said compromise agreement by reducing the penalty and
De Oro Coliseum, Inc. executed a promissory note in the attorney's fees provided for therein.
amount of P329,852.54 in favor of petitioner Commercial
Credit Corporation of Cagayan de Oro, payable in 36
monthly installments. The note is secured by a real
estate mortgage duly executed by private respondent in
favor of petitioner. As said respondent defaulted in the
payment of the monthly installments due, petitioner
proceeded with the extrajudicial foreclosure of the real
estate mortgage in September, 1979.
Five minority stockholders of private respondent

instituted an action questioning the power of the private
respondent to execute the real estate mortgage without
the consent of its stockholders. A compromise agreement
was entered into which states that the stockholders ratify
the said loan and real estate mortgage entered into and
assigned by Coliseum. That the corporation had an
outstanding obligation to Commercial Credit in the
amount of P249,263.23, that they agree to pay interest of
16% per annum. However, Coliseum still failed to comply
with the terms of the judgment. Petitioner filed an ex
parte motion for the issuance of a writ of execution on
march 1983.
The court granted the motion, and an auction

sale was issued on march 11,1983. Private Respondent
seeks to annul the compromise-judgment.
ISSUE:
Whether or not a compromise judgment which

was found by the CA to be lawful may be modified by the
same court?
HELD:
NO. It is axiomatic that a compromise judgment

is final and immediately executory. Once a judgment
becomes final and executory, the prevailing party can
have it executed as a matter of right and the execution
becomes a ministerial duty on the part of the court . A
judicial compromise has the force and effect of res
judicata . Such a final and executory judgment cannot be
modified or amended. If an amendment is to be made, it
may consist only of supplying an omission, striking out a
superfluity or interpreting an ambiguous phrase therein in
relation to the body of the decision which gives it life . A
compromise judgment should not be disturbed except for
vices in consent or forgery. PRYCE CORPORATION vs. PAGCOR

FACTS: HELD:
In 1992, a representatives from Pryce Properties TERMINATED.

Corporation (PPC) made representations with the
Philippine Amusement and Gaming Corporation In termination, the contract is deemed valid at
(PAGCOR) on the possibility of setting up a casino in the inception prior to termination. The contract binds the
Pryce Plaza Hotel in Cagayan de Oro City. parties who are obliged to observe the provisions stated
therein. Rescission, it is deemed inexistent and the
On September 1992, PPC and PAGCOR parties are returned to their status quo ante.
entered into a lease contract for the operation of casino
in Pryce Hotel in Cagayan for 3 years. Hours before the Thus, mutual restitution is required in a
formal opening of the casino, a public rally staged by rescission (or resolution), in order to bring back the
some local officials, residents and religious leaders was parties to their original situation prior to the inception of
held. They alleged that in 1990 there was an ordinance the contract. Applying this principle to this case, it means
passed by the city prohibiting the operation of casinos in that PPC would re-acquire possession of the leased
their area. premises, and PAGCOR would get back the rentals it
paid the former for the use of the hotel space.
PAGCOR suspended the opening. It questioned
the ordinance alleging that it was unconstitutional. They In contrast, the parties in a case of termination
resumed the casino operations but still, they were are not restored to their original situation; neither is the
bombarded with rallies. The Office of the President contract treated as if it never existed. Prior to its
advised PAGCOR to stop operations. PPC sent termination, the parties are obliged to comply with their
PAGCOR a letter for the full rental payment in case of contractual obligations. Only after the contract has been
pre-termination of the lease. PAGCOR declined to pay, cancelled will they be released from their obligations.
and instead asked for reimbursement of the rental
deposit and expenses for permanent improvements. In this case, the actions and pleadings of
petitioner show that it never intended to rescind the
CA: in favor of PPC. It held that the PAGCOR’S Lease Contract from the beginning. This fact was
pretermination of the Contract of Lease was unjustified. evident when it first sought to collect the accrued rentals
The appellate court explained that public demonstrations from September to November 1993 because, as
and rallies could not be considered as fortuitous events previously stated, it actually demanded the enforcement
that would exempt the gaming corporation from of the Lease Contract prior to termination. Any intent to
complying with the latter’s contractual obligations. rescind was not shown, even when it abrogated the
Therefore, the Contract continued to be effective until Contract on November 25, 1993, because such
PPC elected to terminate it on November 25, 1993.As abrogation was not the rescission provided for under
PAGCOR had admitted its failure to pay the rentals for Article 1659.
September to November
Future rentals cannot be claimed as
1993, PPC correctly exercised the option to compensation for the use or enjoyment of another’s
terminate the lease agreement. Previously, the Contract property after the termination of a contract. We stress
remained effective, and PPC could collect the accrued that by abrogating the Contract in the present case, PPC
rentals. However, from the time it terminated the released PAGCOR from the latter’s future obligations,
Contract on November 25, 1993, PPC could no longer which included the payment of rentals. To grant that right
demand payment of the remaining rentals as part of to the former is to unjustly enrich it at the latter’s
actual damages expense. However, it appears that Section XX (c) was
intended to be a penalty clause. That fact is manifest
from a reading of the mandatory provision under
subparagraph (a) in conjunction with subparagraph (c) of
ISSUE: the Contract. A penal clause is “an accessory obligation
which the parties attach to a principal obligation for the
Whether the contract was rescinded or purpose of insuring the performance thereof by imposing
terminated? on the debtor a special prestation (generally consisting in
the payment of a sum of money) in case the obligation is
not fulfilled or is irregularly or inadequately fulfilled.”

In obligations with a penal clause, the general

rule is that the penalty serves as a substitute for the
indemnity for damages and the payment of interests in
case of noncompliance; that is, if there is no stipulation to
the contrary,in which case proof of actual damages is not
necessary for the penalty to be demanded. There are
exceptions to the aforementioned rule, however, as
enumerated in paragraph 1 of Article 1226 of the Civil
Code: 1) when there is a stipulation to the contrary, 2)
when the obligor is sued for refusal to pay the agreed
penalty, and 3) when the obligor is guilty of fraud. In
these cases, the purpose of the penalty is obviously to
punish the obligor for the breach. Hence, the obligee can
recover from the former not only the penalty, but also
other damages resulting from the nonfulfillment of the
principal obligation.
In the present case, the first exception applies

because Article XX (c) provides that, aside from the
payment of the rentals corresponding to the remaining
term of the lease, the lessee shall also be liable “for any
and all damages, actual or consequential, resulting from
such default and termination of this contract.” Having
entered into the Contract voluntarily and with full
knowledge of its provisions, PAGCOR must be held
bound to its obligations. It cannot evade further liability
for liquidated damages.
In this case, PAGCOR’s breach was occasioned

by events that, although not fortuitous in law, were in fact
real and pressing. we find that PAGCOR conducted a
series of negotiations and consultations before entering
into the Contract. It did so not only with the PPC, but
also with local government officials, who assured it that
the problems were surmountable. Likewise, PAGCOR
took pains to contes t the ordinances before the courts,
which consequently declared them unconstitutional. On
top of these developments, the gaming corporation was
advised by the Office of the President to stop the games
in Cagayan de Oro City, prompting the former to cease
operations prior to September 1993.
ASIATRUST DEVELOPMENT vs CONCEPTS

TRADING to completely rehabilitate” its account in accordance with

the MOA. When the respondent failed to make the said
payments, the petitioner on April 25, 1989 sent a final
demand on the respondent to pay its entire obligation
FACTS: under the IGLF in the amount of P2,361,970.10 within
five days from receipt thereof.
In March 1996, respondent Concepts Trading
Corporation obtained from petitioner Asiatrust Respondent filed with the RTC of Makati for
Development Corporation a credit accommodation in the declaratory relief and alleged that it is up to date in the
amount of P2,000,000 covered by a loan agreement and payment of its loan obligation and, according to its
secured by real and chattel mortgages. record, the remaining balance amounted to only
P316,550.48. The respondent prayed for the trial court to
The amount was drawn from an Industrial determine the rights and duties of the parties under the
Guarantee Loan Fund (IGLF) account opened by the MOA to avoid the miscomputation of the loan obligation
petitioner in favor of the respondent. On March 4, 1986, and any breach thereof.
the respondent executed Promissory Note in favor of the
petitioner. Under the promissory note, the principal In its answer, the petitioner averred that as of
amount of P2,000,000 would be charged an interest of February 15, 1988, the outstanding obligation of the
23% per annum, inclusive of 1% service fee. Attached to respondent amounted to P2,833,867.04. According to
and made part of the promissory note was the schedule the petitioner, the monthly amortizations paid by the
of amortization agreed upon by the parties. As set forth in respondent covered only the penalties accruing on the
the schedule, the payment of the loan was to be loan. Further, declaratory relief as a remedy sought by
amortized quarterly over a period of ten years with a two- the respondent was allegedly improper as it already
year grace period on the principal payment. The first committed a breach of its obligations. The respondent
payment fell due on May 15, 1986 and the subsequent filed the action a quo merely to defer or avoid payment
installments were to be paid every three months of its legally contracted loan obligation with the petitioner.
thereafter. In the event that the respondent defaulted in By way of compulsory counterclaim, the petitioner prayed
the payment of any installment or interest thereof, for damages and attorney’s fees.
paragraph 4 of the promissory note provided that:
The respondent then filed an amended complaint
... the entire amount outstanding under this alleging that as of August 1989, it had already paid the
Note shall immediately, without need for any notice,
petitioner the total amount of P2,259,259 and that there
demand, presentment, protest, or of any other act or
deed, the right to all of which is hereby waived by the was an overpayment of P100,000. The respondent
undersigned: (i) become due, payable and defaulted; prayed that the petitioner be ordered to refund the
(ii) be subject to a penalty equivalent to thirty-six amount overpaid, as well as to release the mortgages
percent (36%) per annum thereof; (iii) together with and to pay damages and attorney’s fees.
said penalty, commence to earn interest as [s ic] the
rate of twenty-three percent (23%) per annum counted
from the date of default until full payment thereof.
ISSUE:
Respondent failed to pay, prompting petitioner to
enforce the acceleration clause. Respondent expressed Whether or not petitioner waived the collection of
expressed its willingness to settle its obligation and, due accrued penalties an miscellaneous charges under the
to its tight financial situation, negotiated for a modified promissory note by entering into the MOA?
payment scheme and thus, the parties entered into a
Memorandum of Agreement.
In compliance with its undertaking under the

MOA, the respondent delivered the first check dated May
5, 1988 in the amount of P159,259.14 and four other
checks in the sum of P150,000 each or for the total
amount of P759,259.14. This was followed by another
batch of five checks covering the months of October
1988 to February 1989, also in the amount of P150,000
each or for a total amount of P750,000.
On March 30, 1989, the petitioner wrote to the HELD:

respondent requesting for the delivery of the “last checks

YES. By entering into a memorandum of the petitioner. Article 1229 of the Civil Code states:
agreement, the bank waived the demandability of the
entire loan. By such waiver, Concept Trading has not Art. 1229. The judge shall equitably reduce
been rendered in default, and also, the penalty was the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even
waived under the MOA.
if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or
Under the schedule of amortization contained in unconscionable.
the promissory note, the respondent obliged to pay the
principal obligation in quarterly amortizations over a
period of ten years and that in case of default, the entire
amount shall be due and demandable in its entirety. On
the other hand, under the MOA, a new mode of payment
was agreed upon, i.e., the payment by the respondent
of the initial amount of P159,259.14 and subsequent
payments of P150,000 every month until full payment of
the loan obligation. The MOA, in effect, rendered the
loan no longer due and demandable in its entirety at the
time of its execution, precisely because it allowed the
respondent under the new schedule of payments to pay
the same by monthly installments. It bears stressing that
the MOA provided that the mode of payment arose “out
of the BANK’s liberality.” To allow the petitioner to collect
penalty charges as if the respondent were in default,
notwithstanding the existence of a new payment
schedule, would be inconsistent with the aforesaid
agreement.
It must be stressed, however, that the foregoing

should not be construed as to mean that the respondent
could no longer be held in default and that the petitioner
completely waived collection of penalty charges in case
of default. Non-payment by the respondent of any of the
monthly installments as provided under the MOA would
render it in default and the petitioner could collect the
penalty charges therefor. As will be shown later, the CA
did in fact determine the exact time when the respondent
defaulted on its obligation under the MOA and
accordingly reckoned therefrom the penalty charges due
the petitioner.
As noted by the CA, after the last payment of

P150,000 on September 1989, the respondent still owed
the petitioner the sum of P309,298.58. The respondent’s
non-payment of the amortizations due after the said date
rendered the balance due and demandable in its entirety,
in accordance with the acceleration clause under the
MOA. Further, since the respondent defaulted in its
monthly payments after September 1989, it was only
then that it could be rightfully imposed the penalty
charges in accordance with the promissory note. Thus,
contrary to the petitioner’s contention, the CA did not rule
that the MOA operated as a waiver by the petitioner of its
right to collect penalty charges.
The petitioner faults the CA for reducing the

penalty charges from 36% to 3% per annum on its finding
that the former rate was too excessive, considering that
the petitioner had already charged an interest rate of
23% per annum and that the principal obligation had
been partly complied with. This Court does not agree with JISON V.S. CA
Not satisfied with the decision of the trial court, petitioners

appealed to the Court of Appeals. Agreeing with the
FACTS: findings and conclusions of the trial court, the Court of
Appeals on November 4, 1976 affirmed the former's
Petitioners, the spouses Newton and Salvacion decision.
Jison, entered into a Contract to Sell with private
respondent, Robert O. Phillips & Sons, Inc., whereby the
latter agreed to sell to the former a lot at the Victoria
Valley Subdivision in Antipolo, Rizal for P55,000.00, with ISSUE:
interest at 8,1965 per annum, payable on an installment
basis. Whether or not rescission of the contract and the
forfeiture of the payments already made by petitioner is
Petitioners paid private respondents a down valid?
payment of P11,000.00 on October 20, 1961 and from
October 27, 1961; to May 8, 1965 a monthly installment
of P533.85. Due to the failure of petitioners to build a
house as provided in the contract, the stipulated penalty HELD:
of P5.00 per square meter was imposed to the effect that
the monthly amortization was increased to P707.24. YES. RESCISSION OF CONTRACT WAS
VALID.
On January 1, 1966, February 1, 1966 and
March 1, 1966, petitioners failed to pay the monthly There is no denying that in the instant case the
installments due on said dates although petitioners resolution or rescission of the Contract to Sell was valid.
subsequently paid the amounts due and these were Neither can it be said that the cancellation of the contract
accepted by private respondent. was ineffective for failure of private respondents to give
petitioners notice thereof as petitioners were informed
Petitioners failed to pay from October 1966 to cancelled private respondent that the contract was
January 1967. On January 11, 1967, private respondent cancelled in the letter dated April 6, 1967 (Exh. "D"). As
sent a letter to petitioners calling their attention to the fact R.A. No. 65856, was not yet effective, the notice of
that their account was four months overdue. This letter cancellation need not be by notarial act, private
was followed up by another letter where private respondent's letter being sufficient compliance with the
respondent reminded petitioner of the automatic legal requirement.
rescission clause of the contract. Petitioners eventually
paid on March 1, 1967. The facts of 'fee instant case should be
distinguished from those in the Palay Inc. case, as
Petitioners again failed to pay the monthly such distinction will explain why the Court in said case
installments due .Thus, private respondent returned invalidated the resolution of the contract. In said case,
petitioners' check and informed them that the contract the subdivision developer, without informing the buyer of
was cancelled when on April 1, 1967 petitioners failed to the cancellation of the contract, resold the lot to another
pay the monthly installment due, thereby making their person. The lot buyer in said case was only informed of
account delinquent for three months. the resolution of the contract some six years later after
the developer, rejected his request for authority to assign
On April 19, 1967, petitioners tendered payment his rights under the contract. Such a situation does not
for all the installments already due but the tender was obtain illness: the instant case. In fact, petitioners were
refused. Petitioners countered by filing a complaint for informed of the cancellation of their contract in April
specific performance with the Court of First Instance of 1967, when private respondent wrote them the letter
Rizal on May 4, 1967 and consigning the monthly dated April 6, 1967 (Exh. "D"), and within a month they
installments due with the court. were able to file a complaint against Private respondent.
The TC rendered judgment in favor of private While the resolution of the contract and the
respondent, dismissing the complaint and declaring the forfeiture of the amounts already paid are valid and
contract cancelled and all payments already made by binding upon petitioners, the Court is convinced that the
petitioner franchise. ordering petitioners to pay P1,000.00 forfeiture of the amount of P5.00 although it includes the
as and for attorney's fees; and declaring the consignation accumulated fines for petitioners' failure to construct a
and tender of payment made by petitioners as not house as required by the contract, is clearly iniquitous
amounting to payment of the corresponding monthly considering that the contract price is only P6,173.15 The
installments. forfeiture of fifty percent (50%) of the amount already
paid, or P3,283.75 appears to be a fair settlement. In
arriving at this amount the Court gives weight to the fact
that although petitioners have been delinquent in paying

their amortizations several times to the prejudice of

private respondent, with the cancellation of the contract
the possession of the lot review.... to private respondent
who is free to resell it to another party. Also, had R.A. No.
65856, been applicable to the instant case, the same
percentage of the amount already paid would have been
forfeited [Torralba 3(b).]
The Court's decision to reduce the amount

forfeited finds support in the Civil Code. As stated in
paragraph 3 of the contract, in case the contract is
cancelled, the amounts already paid shall be forfeited in
favor of the vendor as liquidated damages. The Code
provides that liquidated damages, whether intended as
an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable ART.2227. Further,
in obligations with a penal clause, the judge shall
equitably reduce the penalty when the principal obligation
has been partly or irregularly complied with by the debtor
LO VS. KJS ECO-FORMWORK

been extinguished by compensation. In other words,

respondent alleged the non-existence of the credit and
FACTS: asserted its claim to petitioner’s warranty under the
assignment. Petitioner failed to make good his warranty
Petitioner Lo, a building contractor, ordered that the assignee will be able to recover whatever
scaffolding equipments from respondent KJS worth collectibles the said assignor have against a third person.
P540,425.80. He paid a downpayment in the amount of The assignment being inexistent and ineffectual it did not
P150,000. The balance was made payable in ten monthly extinguish the petitioner’s obligation.
instalments. Respondent delivered the scaffoldings to
petitioner. Petitioner was able to pay the first two monthly
instalments. However, his business, however,
encountered financial difficulties and he was unable to
settle his obligation despite demands. Petitioner and
respondent executed a Deed of Assignment, petitioner
assigning to respondent his receivables of P335,426.14
from Jomero Realty Corp. However, when the
respondent tried to collect from Jomero, the latter refused
to honor the Deed of Assignment claiming that petitioner
was also indebted to it. Respondent then demanded from
the petitioner the payment of his obligation, but petitioner
refused to pay claiming that his obligation had been
extinguished when they executed the Deed of
Assignment. As a result, respondent filed an action for
recovery of a sum of money against the petitioner.
ISSUE:
Whether the Deed of Assignment extinguished

the petitioner’s obligation?
HELD:
NO. An assignment of credit is an agreement,

which is in the nature of a sale personal property,
produced the effects of a dation in payment which may
extinguish the obligation. In dacion en pago, as a special
mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an
outstanding debt. In order that there be a valid dation in
payment, the following must be present: (1) There must
be the performance of the prestation in lieu of payment,
which can be a credit against third person; (2) There
must be some difference between the prestation due and
that which is given in substitution; (3) There must be an
agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of the
performance of a prestation different from that due.The
undertaking really partakes in one sense of the nature of
sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be
charged against the debtor’s debt. As such, petitioner, as
vendor or assignor, is bound to warrant the existence and
legality of the credit at the time of the sale or assignment.
When Jomero claimed that it was no longer indebted to
petitioner since the latter also had an unpaid obligation to
PNB VS. PINEDA
it, it essentially meant that its obligation to petitioner has

PNB's possession of the subject machinery and

equipment being precisely as a form of security for the
FACTS: advances given to TCC under the Letter of Credit, said
possession by itself cannot be considered payment of the
Arroyo Spouses)\, obtained a loan of loan secured thereby. Payment would legally result only
P580,000.00 from petitioner bank to purchase 60% of the after PNB had foreclosed on said securities, sold the
subscribed capital stock, and thereby acquire the same and applied the proceeds thereof to TCC's loan
controlling interest of private respondent Tayabas obligation. Mere possession does not amount to
Cement Company, Inc. (TCC). As security for said foreclosure. Neither can said repossession amount to
loan, the spouses Arroyo executed a real estate dacion en pago . Dation in payment takes place when
mortgage over a parcel of land La Vista property. TCC property is alienated to the creditor in satisfaction of a
then filed with petitioner bank an application and debt in money and the same is governed by sales. Dation
agreement for the establishment of an eight (8) year in payment is the delivery and transmission of ownership
deferred letter of credit (L/C) for $7,000,000.00 in favor of of a thing by the debtor to the creditor as an accepted
Toyo Menka Kaisha, Ltd. to cover the importation of a equivalent of the performance of the obligation. The
cement plant machinery and equipment. Upon approval repossession of the machinery and equipment in
of said application and opening of an L/C the Arroyo question was merely to secure the payment of TCC's
spouses executed a Surety Agreement and Covenant to loan obligation and not for the purpose of transferring
secure the loan accommodation. The imported cement ownership thereof to PNB in satisfaction of said loan.
plant machinery and equipment arrived from Japan and Thus, no dacion en pago was ever accomplished,
were released to TCC under a trust receipt agreement. hence, there is no payment made and obligation is not
TCC, failed to remit and/or pay the corresponding extinguished.
amount covered by the drawings. Thus, PNB notified
TCC of its intention to repossess, as it later did, the
imported machinery and equipment for failure of TCC to
settle its obligations under the L/C. In the meantime, the
personal accounts of the spouses Arroyo, which included
another loan of P160,000.00 secured by a real estate
mortgage over parcels of agricultural land known as
Hacienda Bacon had likewise become due. Failure of
Arroyo spouses to pay the loan, PNB filed a petition for
extra-judicial foreclosure of the real estate mortgages
over the properties known as the La Vista property and
Hacienda Bacon. TCC contends that such foreclosure
cannot be done because the bank has already
repossessed it’s imported machinery and equipment.
ISSUE:
Whether or not TCC’s liability has been

extinguished by the repossession of PNB of the imported
cement plant machinery and equipment?
HELD:
No, liability was not extinguished. In this case

PNB took possession of the imported cement plant
machinery and equipment pursuant to the trust receipt
agreement executed by and between PNB and TCC
giving the former the unqualified right to the possession
and disposal of all property shipped under the Letter of
Credit until such time as all the liabilities and obligations
undersaid letter had been discharged.

PCIBANK VS. CA proportionate part of the prestation which constitutes the

object of the obligation. Article 1208 of the Civil Code
mandates the equal sharing of creditors in the payment
of debt in the absence of any law or stipulation to the
FACTS: contrary. There was yet no agreement as of that date
concerning the corresponding share of each creditor. It
PCIB and, Manila Banking Corporation (MBC) was only on 8 March 1979 when PCIB communicated to
were joint bidders in a foreclosure sale of assorted Atlas the percentage of payments to be remitted to PCIB
mining machinery and equipment previously mortgaged and MBC. Before said date, Atlas could be secure in the
to them by the Philippine Iron Mines, Inc. (PIM). Four thought that the matter of sharing was best left to the
years later, Atlas agreed to purchase some of these creditors to decide. The amount entitle to PCIB is
properties owned jointly by PCIB and MBC, evidenced by therefore an internal matter between it and MBC.
a Deed of Sale with the parties agreeing therein to an
initial downpayment of P12,000,000.00 and the balance
of P18,000,000.00 payable in six monthly installments.
The contract contained certain provisions expressly (2) As found by the Court the judgment on
warranting the properties free from all liens and NAMAWU’s claim was reduced it toP3,697,047.77.
ecumbrances and freeing Atlas from all claims and Clearly, Atlas overpaid NAMAWU. It immediately paid
incidental actions of the union NAMAWU. The NAMAWU NAMAWU, without making any investigation or
then made a claim which stemmed from a labor dispute consultation with PCIB. Article 1236 of the Civil Code
wherein NAMAWU obtained a favorable judgment applies in this instance that whoever pays for another
against PIM in the amount of P4,298,307.77, which Atlas may demand from the debtor what he has paid, except
paid. that if he paid without the knowledge or against the will of
the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. PCIB is the debtor in
this case, while Atlas is the third person who paid the
According to Atlas, apart from the downpayment obligation of the debtor without the latter’s knowledge
and installment payments it should be credited with its and consent. Atlas then may only recover from PCIB the
payment of P4,298,307.77 to NAMAWU. Thus, Atlas amount of payment which has benefited the latter. If the
claims to have made an overpayment and that PCIB debt has been paid such as in this case, a payment by a
should reimburse to it P233,684.23. When PCIB refused third person would constitute a payment of what is not
to pay, Atlas sued PCIB to obtain reimbursement of the due; his remedy would be against the person who
alleged overpayment. PCIB contended that Atlas still received the payment (NAMAWU) and not against the
owed it a total of P908,398.75. It also alleged that even debtor who did not benefit from the payment.
before the writ of garnishment was served on Atlas, the
judgment in favor of NAMAWU was reduced and had
already been partially satisfied. Atlas could not credit the
amount received by NAMAWU in satisfaction of the Atlas
obligation to PCIB.
ISSUE:
Whether or not PCIB can demand from Atlas

more than what it received from MBC?
Whether or not Atlas can demand

reimbursement from PCIB for the payment made to
NAMAWU?
HELD:
(1) No. This case is deemed as a joint

obligation, where there is a concurrence of several
creditors, or of several debtors or of several debtors or of
several creditors and debtors, by virtue of which each of
the creditors has a right to demand, and each of the
debtors is bound to render, compliance with his

that discharged their obligation to the private respondent.

The petitioners’ loss could have been avoided if they had
simply exercised due diligence in ascertaining the identity
of the person to whom they allegedly made the
CULABA VS. CA and SAN MIGUEL CORP. payments. Negligence is the omission to do something
which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs,
would do, or the doing of something, which a prudent and
FACTS:
reasonable man would not do.The most prudent thing the
The spouses Culaba were the owners of the petitionshould have done was to ascertain the identity
Culaba store and were engaged in the sale and and authority of the person who collected their payments.
distribution of San Miguel Corp.’s beer products. SMC sol
Failing this, the petitioners cannot claim that they
beer products the Culaba spouses in the amount of
acted in good faith when they made such payments.
P28,650.00 as evidenced by a Temporary Credit Invoice.
Caluba spouses made a partial payment of P3,740
leaving an unpaid balance of P24,910. As they failed to
pay despite demands, SMC filed an action for collection
of a sum of money against them. Defendant –spouses
denied any liability, claiming that they had already paid
the plaintiff in full separate occasions. Defendants
presented four Temporary Charge Sales Liquidation
Receipts (TCSL). Francisco Caluba testified that he
made the payments to an SMC supervisor who came in
an SMC van. He was then showed a list of customer’s
accountabilities which included his account. SMC then
submitted a publisher’s affidavit to prove that the entire
booklet of TCSL Receipts bearing Nos. 27301-27350
were reported lost by it, and that it caused the publication
of the notice of loss in the July 9, 1983 issue of the Daily
Express.
ISSUE:
Whether or not the payment made by Francisco

Culaba to the alleged MC supervisor extinguished its
obligation with SMC?
HELD:
No. Payment is a mode of extinguishing an

obligation. Article 1240 of the Civil Code provides that
payment shall be made to the person in whose favor the
obligation has been constituted, or his successor-in-
interest, or any person authorized to receive it. In this
case, the payments were purportedly made to a
"supervisor" SMC, who was clad in an SMC uniform and
drove an SMC van. He appeared to be authorized to
accept payments as he showed a list of customers’
accountabilities and even issued SMC liquidation receipts
which looked genuine. Unfortunately for petitioner
Francisco Culaba, he did not ascertain the identity and
authority of the said supervisor, nor did he ask to be
shown any identification to prove that the latter was,
indeed, an SMC supervisor. The petitioners relied solely
on the man’s representation. Thus, the payments the
petitioners claimed they made were not the payments
TOWNE & CITY DEVELOPMENT CORPORATION VS. correctly pointed out by the trial court which the
CA and GUILLERMO R. VOLUNTAD appellate court upheld, vouchers are not receipts.
It should be noted that a voucher is not

FACTS: necessarily an evidence of payment. It is merely a way
or method of recording or keeping track of payments
Respondent Guillermo Voluntad (Guillermo) and made. A procedure adopted by companies for the
petitioner Towne & City Development Corporation were orderly and proper accounting of funds disbursed.
both engaged in the construction business. They entered Unless it is supported by an actual payment like the
into a contract for the (a) construction of several housing issuance of a check which is subsequently encashed or
units belonging to or reserved for different individuals; negotiated, or an actual payment of cash duly receipted
(b) repair of several existing housing units belonging to for as is customary among businessmen, a voucher
different individuals; and (c) repair of facilities, all located remains a piece of paper having no evidentiary weight.
at the Virginia Valley Subdivision, owned and developed
by the petitioner. The total contract cost amounted to A receipt is a written and signed
One Million Forty One Thousand Three Hundred Fifty acknowledgment that money has been or goods have
Nine (P1,041,359.00) Pesos. been delivered, while a voucher is documentary record
of a business transaction.
The parties agreed that Guillermo should be
paid in full by petitioner the agreed contract cost upon The references to alleged check payments in the
completion of the project. Pending completion of the vouchers presented by the petitioner do not vest them
project, Guillermo was allowed by petitioner to occupy, with the character of receipts. Under Article 1249 of the
free of charge, one of its houses at the Virginia Valley Civil Code, payment of debts in money has to be made
Subdivision. in legal tender and the delivery of mercantile documents,
After completing the construction and repair works including checks, “shall produce the effect of payment
subject of the contract, Guillermo demanded payment for only when they have been cashed, or when through the
his services. fault of the creditor they have been impaired.”
When petitioner failed to satisfy his claim in full, From the text of the Civil Code provision, it is
Guillermo filed on April 30, 1990 a Complaint for clear that there are two exceptions to the rule that
collection against petitioner before the RTC of Manila payment by check does not extinguish the obligation.
alleging that petitioner paid him only the amount of Neither exception is present in this case. Concerning
P69,400.00, leaving a balance of P971,959.00 under the the first, petitioner failed to produce the originals of the
terms of their contract. checks after their supposed encashment and even the
bank statements although the supposed payments by
In its Answer with Counter-claims (sic), check were effected only about 5 years before the filing
petitioner averred that it had already paid Guillermo the of the collection suit. Anent the second exception, the
amount of P1,022,793.46 for his services and that there doctrine is that it does not apply to instruments executed
was even an overpayment of P58,189.46 as evidenced by the debtor himself and delivered to the creditor.
by the vouchers issued to him. Petitioner further claimed Indubitably, that is not the situation in this case.
that Guillermo is liable for unpaid rentals amounting to
P66,000.00 as of June 1990 for his occupancy of one of Petitioner also relied upon the testimony of its
the houses in Virginia Valley Subdivision since 1985. Corporate Secretary, Rhodora Aguila. Again, the issue
about the credibility of said witness involves a question
of fact which is a definite incongruity in petitions for
review, as in the case before us. In any event, the Court
ISSUES: of Appeals convincingly debunked the testimony.
Whether petitioner had paid Guillermo in full in

accordance with their contract as evidenced by the
vouchers and whether these vouchers suffices as
evidence of payment.
HELD:
In the case at bar, petitioner has relied on

vouchers to prove its defense of payment. However, as

her to sign blank sheets of paper. She wants the court

NOEMI M. CORONEL VS. ENCARNACION C. CAPATI to believe that she did not know of the contents of
G. R. No. 157836. May 26, 2005 Exhibits “A-1” and “B-1,” and that these documentary
evidence could have been one of those blank sheets of
SM: Extinguishment of Payment paper that respondent has asked her to sign. We find
this tale unacceptable, absent any form of duress or
FACTS: intimidation from respondent, which petitioner does not
even allege. Time and again, we have held that one
Petitioner contracted two loans from respondent who is of age and a businesswise is presumed to have
on September 4, 1992 and October 25, 1992. The first acted with due care and to have signed the documents
amounted to P121,000.00 payable on or before in question with full knowledge of its contents and
February 4, 1993 and the second amounted to consequences. Petitioner is not one ignorant, illiterate
P363,000.00 payable on or before March 25, 1993. In person who could be easily duped into signing blank
return, petitioner issued respondent two checks for the sheets of papers. She has borrowed large sums of
first and second loan. The two loans are embodied in money from respondent. In fact, petitioner’s total loan
two handwritten instruments. obligation to respondent has reached over millions of
pesos. Petitioner has transacted business with
Petitioner failed to pay her loans upon maturity respondent several times. Among others, they include
despite repeated demands from respondent. The two transactions involving a pacto de retro sale which is the
checks she issued were dishonored when presented for subject of another pending case between the parties and
payment on February 16, 1993 and April 7, 1993. loans amounting to P2M and P1M, secured by deeds of
Hence, on September 14, 1993, respondent filed a real estate mortgage and chattel mortgage, respectively.
complaint for sum of money and damages with
attachment against petitioner before the Regional Trial As the lower court correctly pointed out,
Court of Guagua, Pampanga. petitioner apparently knows how to take care of her
business dealings. Thus, on October 21, 1992 and
Petitioner denied contracting the two loans in the February 22, 1993, she caused the execution of two
amounts of P121,000.00 and P363,000.00 from documents entitled “Discharge of Real Estate
respondent. She alleged that the Metrobank checks Mortgage”[27] and “Discharge of Chattel Mortgage,”[28]
representing the foregoing amounts were two of several respectively, when she paid respondent the full
checks she issued in favor of respondent for a loan consideration of the promissory notes of P2M and P1M,
amounting to P1.101 million which she has fully paid. wherein the mortgages served as security for the
She claimed that despite full payment, respondent still payment of said notes. Similarly, petitioner, upon
deposited the two checks because of a dispute between payment of P1M to respondent on November 13, 1992,
them arising from respondent’s demand for exorbitant retrieved the Metrobank Checks which she issued as
and additional interest on the P1.101 million loan. security to respondent. Interestingly, in the case of the
two checks subject matter of this litigation, petitioner did
Petitioner alleged further that there were not even demand their return from respondent,
instances when respondent asked her to affix her notwithstanding her claim that she has paid in full her
signature on blank sheets of paper¸ thereby implying that loan obligation. All she presented was a letter ordering
the contents of Exhibits containing the loan agreements Metrobank to stop payment of the checks without proof
were written by respondent on sheets of paper signed in that it has been received by, nor actually sent to
advance by petitioner. Metrobank Guagua.
The RTC ruled in favor of respondent ordering Again, we reiterate the rule that when the
him to pay. The CA affirmed such decision. Hence, this existence of a debt is fully established by the evidence
petition. contained in the record, the burden of proving that it has
been extinguished by payment devolves upon the debtor
who offers such defense to the claim of the creditor.
ISSUE: Even where respondent-creditor who was plaintiff in the
lower court, alleges non-payment, the general rule is that
Whether payment was made and that it was fully the onus rests on the petitioner-debtor who was
extinguished. defendant in the lower court, to prove payment, rather
than on the plaintiff-creditor to prove non-payment. The
debtor has the burden of showing with legal certainty
HELD: that the obligation has been discharged by payment.
This, petitioner failed to do
Petitioner tries to escape responsibility by
testifying that it has been respondent’s practice to ask FALLO: Denied. RTC and CA decision AFFIRMED

In petitioners' answer to the first cause of action,

they averred that it should be dismissed because (1) it
does not sufficiently state a cause of action for
NAGA TELEPHONE CO., INC. (NATELCO) AND reformation of contract; (2) it is barred by prescription,
LUCIANO M. MAGGAY VS. the same having been filed more than ten (10) years
CA AND CAMARINES SUR II ELECTRIC after the execution of the contract; and (3) it is barred by
COOPERATIVE, INC. (CASURECO II) estoppel, since private respondent seeks to enforce the
G.R. No. 107112 February 24, 1994 contract in the same action. Petitioners further alleged
that their utilization of private respondent's posts could
not have caused their deterioration because they have
FACTS: already been in use for eleven (11) years; and that the
value of their expenses for the ten (10) telephone lines
Petitioner Naga Telephone Co., Inc. (NATELCO) long enjoyed by private respondent free of charge are far
is a telephone company rendering local as well as long in excess of the amounts claimed by the latter for the
distance telephone service in Naga City while private use of the posts, so that if there was any inequity, it was
respondent Camarines Sur II Electric Cooperative, Inc. suffered by them.
(CASURECO II) is a private corporation established for
the purpose of operating an electric power service in the And with respect to the second cause of action,
same city. petitioners claimed, that their telephone service had
been categorized by the National Telecommunication
On November 1, 1977, the parties entered into a Corporation (NTC) as "very high" and of "superior
contract for the use by petitioners in the operation of its quality."
telephone service the electric light posts of private The RTC ruled that while in an action for reformation of
respondent in Naga City. In consideration therefor, contract, it cannot make another contract for the parties,
petitioners agreed to install, free of charge, ten (10) it can, however, for reasons of justice and equity, order
telephone connections for the use by private respondent. that the contract be reformed to abolish the inequities
The said contract also provided: therein. Thus, said court ruled that the contract should
be reformed by ordering petitioners to pay private
That the term or period of this contract shall be respondent compensation for the use of their posts in
as long as the party of the first part has need for the Naga City, while private respondent should also be
electric light posts of the party of the second part it being ordered to pay the monthly bills for the use of the
understood that this contract shall terminate when for telephones also in Naga City.
any reason whatsoever, the party of the second part is
forced to stop, abandoned [sic] its operation as a public Petitioners appealed to respondent CA, however
service and it becomes necessary to remove the electric the same was affirmed.
lightpost;
After the contract had been enforced for over ten ISSUES:
(10) years, private respondent filed with RTC against
petitioners for reformation of the contract with damages, 1. Whether Article 1267 of the New Civil Code
on the ground that it is too one-sided in favor of is applicable
petitioners; that it is not in conformity with the guidelines 2. Whether contract should be reformed
of the National Electrification Administration (NEA) which 3. Whether the contract was subject to a
direct that the reasonable compensation for the use of potestative condition which rendered said condition void.
the posts is P10.00 per post, per month; that after eleven
(11) years of petitioners' use of the posts, the telephone
cables strung by them thereon have become much HELD:
heavier with the increase in the volume of their
subscribers, worsened by the fact that their linemen bore Article 1267 speaks of "service" which has
holes through the posts at which points those posts were become so difficult. Taking into consideration the
broken during typhoons; that a post now costs as much rationale behind this provision, the term "service" should
as P2,630.00; so that justice and equity demand that the be understood as referring to the "performance" of the
contract be reformed to abolish the inequities thereon. obligation. In the present case, the obligation of private
Private respondent also complained about the poor respondent consists in allowing petitioners to use its
servicing by petitioners of the ten (10) telephone units posts in Naga City, which is the service contemplated in
which had caused it great inconvenience and damages said article. Furthermore, a bare reading of this article
to the tune of not less than P100,000.00 reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change.
According to Senator Arturo M. Tolentino, 10 Article

1267 states in our law the doctrine of unforseen events. is a potestative condition, is correct. However, it must
This is said to be based on the discredited theory of have overlooked the other conditions in the same
rebus sic stantibus in public international law; under this provision, to wit:
theory, the parties stipulate in the light of certain
. . . it being understood that this contract
prevailing conditions, and once these conditions cease shall terminate when for any reason whatsoever, the
to exist the contract also ceases to exist. Considering party of the second part (private respondent) is forced
practical needs and the demands of equity and good to stop, abandoned (sic) its operation as a public
faith, the disappearance of the basis of a contract gives service and it becomes necessary to remove the
rise to a right to relief in favor of the party prejudiced. electric light post ;
which are casual conditions since they depend on
On the issue of reformation of contract, chance, hazard, or the will of a third person. In sum,
petitioners allege that respondent court's ruling that the the contract is subject to mixed conditions, that is,
right of action "arose only after said contract had already they depend partly on the will of the debtor and partly
on chance, hazard or the will of a third person, which
become disadvantageous and unfair to it due to do not invalidate the aforementioned provision
subsequent events and conditions, which must be
sometime during the latter part of 1982 or in 1983 . . ." is FALLO: Petition DENIED. CA decision AFFIRMED.
erroneous. In reformation of contracts, what is reformed
is not the contract itself, but the instrument embodying
the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and
therefore, cannot be an element in the determination of
the period for prescription of the action to reform.
Article 1144 of the New Civil Code provides,

inter alia, that an action upon a written contract must be
brought within ten (10) years from the time the right of
action accrues. Clearly, the ten (10) year period is to be
reckoned from the time the right of action accrues which
is not necessarily the date of execution of the contract.
As correctly ruled by respondent court, private
respondent's right of action arose "sometime during the
latter part of 1982 or in 1983 when according to Atty.
Luis General, Jr. . . ., he was asked by (private
respondent's) Board of Directors to study said contract
as it already appeared disadvantageous to (private
respondent) (p. 31, tsn, May 8, 1989). (Private
respondent's) cause of action to ask for reformation of
said contract should thus be considered to have arisen
only in 1982 or 1983, and from 1982 to January 2, 1989
when the complaint in this case was filed, ten (10) years
had not yet elapsed."
Regarding the last issue, petitioners allege that

there is nothing purely potestative about the prestations
of either party because petitioner's permission for free
use of telephones is not made to depend purely on their
will, neither is private respondent's permission for free
use of its posts dependent purely on its will.
Petitioners' allegations must be upheld in this regard. A
potestative condition is a condition, the fulfillment of
which depends upon the sole will of the debtor, in which
case, the conditional obligation is void. Based on this
definition, respondent court's finding that the provision in
the contract, to wit:
(a) That the term or period of this contract

shall be as long as the party of the first part
(petitioner) has need for the electric light posts of the
party of the second part (private respondent) . . .. TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC.
VS. CA and ASSOCIATED BANK

G.R. No. 109172 August 19, 1994 Whether petitioner has indeed paid in full its
obligation to respondent bank.
FACTS:
HELD:
In 1979, petitioner applied for and was granted
several financial accommodations amounting to P1.3 M NO. The Court found no reversible error
by respondent Associated Bank. The loans were committed by the appellate court in disposing of the
evidenced and secured by four (4) promissory notes, a appealed decision. As gleaned from the decision of the
real estate mortgage covering three parcels of land and court a quo, judgment was rendered in favor of petitioner
a chattel mortgage over petitioner's stock and on the basis of presumptions. The above disquisition
inventories. finds no factual support, however, per review of the
Unable to settle its obligation in full, petitioner requested records. The presumption created by the Art. 1271 of the
for, and was granted by respondent bank, a restructuring Civil Code is not conclusive but merely prima facie. If
of the remaining indebtedness which then amounted to there be no evidence to the contrary, the presumption
P1,057,500.00, as all the previous payments made were stands. Conversely, the presumption loses its legal
applied to penalties and interests. efficacy in the face of proof or evidence to the contrary.
To secure the re-structured loan of In the case at bar, the Court finds sufficient
P1,213,400.00, three new promissory notes were justification to overthrow the presumption of payment
executed by Trans-Pacific. The mortgaged parcels of generated by the delivery of the documents evidencing
land were substituted by another mortgage covering two petitioners’ indebtedness.
other parcels of land and a chattel mortgage on
petitioner's stock inventory. The released parcels of land It may not be amiss to add that Article 1271 of
were then sold and the proceeds amounting to the Civil Code raises a presumption, not of payment, but
P1,386,614.20, according to petitioner, were turned over of the renunciation of the credit where more convincing
to the bank and applied to Trans-Pacific's restructured evidence would be required than what normally would be
loan. Subsequently, respondent bank returned the called for to prove payment. The rationale for allowing
duplicate original copies of the three promissory notes to the presumption of renunciation in the delivery of a
Trans-Pacific with the word "PAID" stamped thereon. private instrument is that, unlike that of a public
instrument, there could be just one copy of the evidence
Despite the return of the notes, or on December of credit. Where several originals are made out of a
12, 1985, Associated Bank demanded from Trans- private document, the intendment of the law would thus
Pacific payment of the amount of P492,100.00 be to refer to the delivery only of the original rather than
representing accrued interest on one of the PN’s. to the original duplicate of which the debtor would
According to the bank, the promissory note was normally retain a copy.
erroneously released.
FALLO: Petition is DENIED for lack of merit.
Initially, Trans-Pacific expressed its willingness

to pay the amount demanded by respondent bank. Later,
it had a change of heart and instead initiated an action
before the Regional Trial Court of Makati, Br. 146, for
specific performance and damages. There it prayed that
the mortgage over the two parcels of land be released
and its stock inventory be lifted and that its obligation to
the bank be declared as having been fully paid.
The RTC rendered judgment in favor of Trans-Pacific.
The CA reversed the RTC decision.
SILAHIS MARKETING CORPORATION VS. IAC

and GREGORIO DE LEON
ISSUES: G. R. No. L-74027 December 7, 1989

Undoubtedly, petitioner admits the validity of its

FACTS: outstanding accounts with private respondent in the
amount of P22,213.75 as contained in its answer. But
On various dates in October, November and whether private respondent is liable to pay the petitioner
December, 1975, Gregorio de Leon doing business a 20% margin or commission on the subject sale to Dole
under the name and style of Mark Industrial Sales sold Philippines, Inc. is vigorously disputed. This
and delivered to Silahis Marketing Corporation various circumstance prevents legal compensation from taking
items of merchandise covered by several invoices in the place.
aggregate amount of P22,213.75 payable within thirty
(30) days from date of the covering invoices. The Court agrees with respondent appellate
court that there is no evidence on record from which it
Allegedly due to Silahis' failure to pay its account can be inferred that there was any agreement between
upon maturity despite repeated demands, de Leon filed the petitioner and private respondent prohibiting the
a complaint for the collection of the said accounts latter from selling directly to Dole Philippines,
including accrued interest thereon in the amount of Incorporated. Definitely, it cannot be asserted that the
P661.03 and attorney's fees of P5,000.00 plus costs of debit memo was a contract binding between the parties
litigation. considering that the same, as correctly found by the
appellate court, was not signed by private respondent
The answer admitted the allegations of the nor was there any mention therein of any commitment by
complaint insofar as the invoices were concerned but the latter to pay any commission to the former involving
presented as affirmative defenses; [a] a debit memo for the sale of sprockets to Dole Philippines, Inc. in the
P22,200.00 as unrealized profit for a supposed amount of P111,000.00.
commission that Silahis should have received from de
Leon for the sale of sprockets in the amount of Indeed, such document can be taken as self-
P111,000.00 made directly to Dole Philippines, serving with no probative value absent a showing or at
Incorporated by the latter sometime in August 1975; and the very least an inference, that the party sought to be
[b] Silahis' claim that it is entitled to return the stainless bound assented to its contents or showed conformity
steel screen which was found defective by its client, thereto.
Borden International, Davao City, and to have the
corresponding amount cancelled from its account with FALLO: Questioned decision of respondent appellate
de Leon. court is hereby affirmed.
ISSUE:
Whether or not private respondent is liable to the

petitioner for the commission or margin for the direct
sale which the former concluded and consummated with
Dole Philippines, Incorporated without coursing the
same through herein petitioner.
HELD:
It must be remembered that compensation takes

place when two persons, in their own right, are creditors
and debtors to each other. Article 1279 of the Civil Code
provides that: "In order that compensation may be
proper, it is necessary: [1] that each one of the obligors
be bound principally, and that he be at the same time a
principal creditor of the other; [2] that both debts consist
in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if
the latter has been stated; [3] that the two debts be due;
[4] that they be liquidated and demandable; [5] that over
neither of them there be any retention or controversy, ENGRACIO FRANCIA VS. IAC and HO FERNANDEZ
commenced by third persons and communicated in due G.R. No. L-67649 June 28, 1988
time to the debtor."

FACTS: his tax when called upon by the collector because he

has a claim against the governmental body not included
Engracio Francia is the registered owner of a in the tax levy.
residential lot, 328 square meters, and a two-story house There are also other factors which compelled the Court
built upon it situated at Barrio San Isidro, now District of to rule against the petitioner. The tax was due to the city
Sta. Clara, Pasay City, Metro Manila. On October 15, government while the expropriation was effected by the
1977, a 125 square meter portion of Francia's property national government. Moreover, the amount of
was expropriated by the Republic of the Philippines for P4,116.00 paid by the national government for the 125
the sum of P4,116.00 representing the estimated square meter portion of his lot was deposited with the
amount equivalent to the assessed value of the Philippine National Bank long before the sale at public
aforesaid portion. Since 1963 up to 1977 inclusive, auction of his remaining property. Notice of the deposit
Francia failed to pay his real estate taxes. Thus, on dated September 28, 1977 was received by the
December 5, 1977, his property was sold at public petitioner on September 30, 1977. The petitioner
auction pursuant to Section 73 of Presidential Decree admitted in his testimony that he knew about the
No. 464 known as the Real Property Tax Code in order P4,116.00 deposited with the bank but he did not
to satisfy a tax delinquency of P2,400.00. Ho Fernandez withdraw it. It would have been an easy matter to
was the highest bidder for the property. On March 20, withdraw P2,400.00 from the deposit so that he could
1979, Francia filed a complaint to annul the auction sale. pay the tax obligation thus aborting the sale at public
He later amended his complaint on January 24, 1980. auction.
The petitioner seeks to set aside the auction sale of his
property which took place on December 5, 1977, and to FALLO: The petition for review was dismissed.
allow him to recover a 203 square meter lot which was
sold at public auction to Ho Fernandez and ordered titled
in the latter's name. He further averred that his tax
delinquency of P2,400.00 has been extinguished by
legal compensation since the government owed him P4,
116.00 when a portion of his land was expropriated.
The lower court rendered a decision in favor

Fernandez which was affirmed by the Intermediate
Appellate Court . Hence, this petition for review.
ISSUE:
Whether or not the tax delinquency of Francia

has been extinguished by legal compensation.
RULING:
There is no legal basis for the contention. By

legal compensation, obligations of persons, who in their
own right are reciprocally debtors and creditors of each
other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit: (1) that
each one of the obligors be bound principally and that he
be at the same time a principal creditor of the other; (2)
that the two debts be due.
The Court had consistently ruled that there can

be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater BANK OF THE PHILIPPINE ISLANDS VS. CA and
than the tax being collected. The collection of a tax JIMMY T. GO
cannot await the results of a lawsuit against the G.R. No. 142731 June 8, 2006
government. In addition, a taxpayer cannot refuse to pay

amounts to the outstanding obligation of Noah’s Ark, as

FACTS: expressed in a letter from FEBTC dated May 19, 1998,9
FEBTC has waived default, novated the contract of loan
Petitioner, Far East Bank and Trust Company, as embodied in the promissory notes and is therefore
granted a total of eight (8) loans to Noah’s Arc estopped from foreclosing on the mortgaged property.
Merchandising (Noah’s Ark is a single proprietorship
owned by Mr. Albert T. Looyuko). The said loans were FEBTC’s act of withholding the lease payments
evidenced by identical Promissory Notes all signed by and applying them to the outstanding obligation of
Albert T. Looyuko, private respondent Jimmy T. Go and Noah’s Ark is merely an acknowledgement of the legal
one Wilson Go. Likewise, all loans were secured by real compensation that occurred by operation of law between
estate mortgage constituted over a parcel of land the parties. The Court has expounded on compensation
registered in the names of Mr. Looyuko and herein and more specifically on legal compensation as follows:
private respondent. x x x compensation is a mode of extinguishing to the
concurrent amount the obligations of persons who in
Petitioner, claiming that Noah’s Ark defaulted in their own right and as principals are reciprocally debtors
its obligations, extrajudicially foreclosed the mortgage. and creditors of each other. Legal compensation takes
The auction sale was set on 14 April 1998 but on 8 April place by operation of law when all the requisites are
1998 private respondent filed a complaint for damages present, as opposed to conventional compensation
with prayer [for] issuance of TRO and/or writ of which takes place when the parties agree to compensate
preliminary injunction seeking [to] enjoin the auction their mutual obligations even in the absence of some
sale. In the Order dated 14 April 1998 a temporary requisites.10
restraining order was issued and in the same order the The Civil Code enumerates the requisites of legal
application for Preliminary Injunction was set for hearing compensation, thus:
[i]n the afternoon of the same day. Art. 1278. Compensation shall take
place when two persons, in their own right, are
creditors and debtors of each other.
ISSUE:
Art. 1279. In order that compensation
Whether petitioner corporation was already in may be proper, it is necessary:
default? (1) That each one of the obligors be bound
Whether there was a novation? principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money,
HELD: or if the things due are consumable, they be of
the same kind, and also of the same quality if
YES. Petitioner corporation alleges that there the latter has been stated;
had been no demand on the part of respondent bank (3) That the two debts be due;
previous to its filing a complaint against petitioner and (4) That they be liquidated and demandable;
Rene Knecht personally for collection on petitioner’s (5) That over neither of them there be any
indebtedness. For an obligation to become due there retention or controversy, commenced by third
must generally be a demand. Default generally begins persons and communicated in due time to the
from the moment the creditor demands the performance debtor.
of the obligation. Without such demand, judicial or
extrajudicial, the effects of default will not arise. It is clear from the facts that FEBTC and Noah’s
Ark are both principal obligors and creditors of each
The Civil Code in Article 11698 provides that other. Their debts to each other both consist in a sum of
one incurs in delay or is in default from the time the money. As discussed above, the eight promissory notes
obligor demands the fulfillment of the obligation from the of Noah’s Ark are all due; and the lease payments owed
obligee. However, the law expressly provides that by FEBTC become due each month. Noah’s Ark’s debt
demand is not necessary under certain circumstances, is liquidated and demandable; and FEBTC’s lease
and one of these circumstances is when the parties payments are liquidated and are demandable every
expressly waive demand. Hence, since the co-signors month as they fall due. Lastly, there is no retention or
expressly waived demand in the promissory notes, controversy commenced by third persons over either of
demand was unnecessary for them to be in default. the debts.
NONE. Private respondent further argues that Novation did not occur as private respondent
by withholding the lease payments Far East Bank and argued. The Court has declared that a contract cannot
Trust Company (FEBTC) owed Noah’s Ark for the space be novated in the absence of a new contract executed
FEBTC was leasing from Noah’s Ark and applying said between the parties. The legal compensation, which was

acknowledged by FEBTC in its May 19, 1998 letter,

occurred by operation of law, as discussed above. As a
consequence, it cannot be considered a new contract
between the parties. Hence, the loan agreement, as
embodied in the promissory notes and the real estate
mortgage, subsists.
Since the compensation between the parties

occurred by operation of law, FEBTC did not waive
Noah’s Ark’s default. As a result of the absence of
novation or waiver of default, FEBTC is therefore not
estopped from proceeding with the foreclosure.
FALLO: Petition is GRANTED.
CITIBANK VS. MODESTA R. SABENIANO

G.R. No. 156132 February 6, 2007
FACTS:
Petitioner Citibank is a banking corporation duly

authorized under the laws of the USA to do commercial
banking activities n the Philippines. Sabeniano was a

client of both Petitioners Citibank and FNCB Finance. authorized to establish branches within or outside the
Respondent filed a complaint against petitioners Philippines.
claiming to have substantial deposits, the proceeds of
which were supposedly deposited automatically and The General Banking Law of 2000, however,
directly to respondent’s account with the petitioner does not make the same categorical statement as
Citibank and that allegedly petitioner refused to despite regards to foreign banks and their branches in the
repeated demands. Petitioner alleged that respondent Philippines. What Section 74 of the said law provides is
obtained several loans from the former and in default, that in case of a foreign bank with several branches in
Citibank exercised its right to set-off respondent’s the country, all such branches shall be treated as one
outstanding loans with her deposits and money. RTC unit. As to the relations between the local branches of a
declared the act illegal, null and void and ordered the foreign bank and its head office, Section 75 of the
petitioner to refund the amount plus interest, ordering General Banking Law of 2000 and Section 5 of the
Sabeniano, on the other hand to pay Citibank her Foreign Banks Liberalization Law provide for a "Home
indebtedness. CA affirmed the decision entirely in favor Office Guarantee," in which the head office of the foreign
of the respondent. bank shall guarantee prompt payment of all liabilities of
its Philippine branches. While the Home Office
Guarantee is in accord with the principle that these local
ISSUE: branches, together with its head office, constitute but
one legal entity, it does not necessarily support the view
Whether petitioner may exercise its right to set- that said principle is true and applicable in all
off respondent’s loans with her deposits and money in circumstances.
Citibank-Geneva?
FALLO: Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the
HELD: principal amount of P318,897.34 and
P203,150.00 plus 14.5% per annum
It is the petitioners’ contention that the term 2. The remittance of US $149,632.99 from
"Citibank, N.A." used therein should be deemed to refer respondent’s Citibank-Geneva account is
to all branches of petitioner Citibank in the Philippines declared illegal, null and void, thus Citibank is
and abroad; thus, giving petitioner Citibank the authority ordered to refund said amount in Philippine
to apply as payment for the PNs even respondent’s currency or its equivalent using exchange rate at
dollar accounts with Citibank-Geneva. Still proceeding the time of payment.
from the premise that all branches of petitioner Citibank 3. Citibank to pay respondent moral damages of
should be considered as a single entity, then it should P300,000, exemplary damages for P250,000,
not matter that the respondent obtained the loans from attorney’s fees of P200,000.
Citibank-Manila and her deposits were with Citibank- 4. Respondent to pay petitioner the balance of
Geneva. Respondent should be considered the debtor her outstanding loans of P1,069,847.40 inclusive
(for the loans) and creditor (for her deposits) of the same off interest.
entity, petitioner Citibank. Since petitioner Citibank and
respondent were principal creditors of each other, in
compliance with the requirements under Article 1279 of
the Civil Code, then the former could have very well
used off-setting or compensation to extinguish the
parties’ obligations to one another. And even without the
PNs, off-setting or compensation was still authorized
because according to Article 1286 of the Civil Code,
"Compensation takes place by operation of law, even
though the debts may be payable at different places, but
there shall be an indemnity for expenses of exchange or
transportation to the place of payment."
PEOPLE'S BANK AND TRUST COMPANY VS.
It is true that the afore-quoted Section 20 of the SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and
General Banking Law of 2000 expressly states that the ANGEL Y SYYAP
bank and its branches shall be treated as one unit. It G.R. No. L-29280 August 11, 1988
should be pointed out, however, that the said provision
applies to a universal or commercial bank, duly
established and organized as a Philippine corporation in FACTS:
accordance with Section 8 of the same statute, and

This is an action for foreclosure of chattel

mortgage executed in favor of the plaintiff by the FALLO: Appeal is DISMISSED for lack of merit and the
defendant Syvel's Incorporated on its stocks of goods, judgment appealed from is AFFIRMED.
personal properties and other materials owned by it and
located at its stores or warehouses in different areas in
Manila. The chattel mortgage was in connection with a
credit commercial line in the amount of P900,000.00
granted the said defendant corporation, the expiry date
of which was May 20, 1966. On May 20, 1965,
defendants Antonio V. Syyap and Angel Y. Syyap
executed an undertaking in favor of the plaintiff whereby
they both agreed to guarantee absolutely and
unconditionally and without the benefit of excussion the
full and prompt payment of any indebtedness to be
incurred on account of the said credit line. Against the
credit line granted the defendant Syvel's Incorporated
the latter drew advances in the form of promissory notes.
In view of the failure of the defendant corporation to
make payment in accordance with the terms and
conditions agreed upon in the Commercial Credit
Agreement the plaintiff started to foreclose extrajudicially
the chattel mortgage. However, because of an attempt to
have the matter settled, the extra-judicial foreclosure
was not pushed thru. As no payment had been paid, this
case was eventually filed with the IAC of Manila.
ISSUE:
Whether the lower court erred in not holding that

the obligation secured by the Chattel Mortgage sought to
be foreclosed was novated by the subsequent execution
between appellee and appellant Antonio V, Syyap of a
real estate mortgage as additional collateral to the
obligation secured by said chattel mortgage?
HELD:
NO. Novation takes place when the object or

principal condition of an obligation is changed or altered.
It is elementary that novation is never presumed; it must
be explicitly stated or there must be manifest
incompatibility between the old and the new obligations
in every aspect.
In the case at bar, there is nothing in the Real

Estate Mortgage which supports appellants'submission.
The contract on its face does not show the existence of
an explicit novation nor incompatibility on every point JESSE YOUNG VS. CA and THE PEOPLE OF THE
between the "old and the "new" agreements as the PHILIPPINES
second contract evidently indicates that the same was G.R. No. 140425. March 10, 2005
executed as new additional security to the chattel
mortgage previously entered into by the parties.
FACTS:
Moreover, records show that in the real estate
mortgage, appellants agreed that the chattel mortgage On July 11, 1981, Jesse together with his
"shall remain in full force and shall not be impaired by mother Aida Young and his sister Juliet Young went to
this (real estate) mortgage." the house of private complainant Ines Uy asking her to

encash three checks with a total value of P50,000.00. Appeals, the subject check was issued for the mere
Since Ines is a close friend of the Youngs and because purpose of evidencing the private complainant’s share or
they badly needed money, Ines agreed to exchange the interest in a partnership he entered into with the drawer
three checks with cash. One of the checks is Philippine of the check. The check was simply meant to show the
Bank of Communications (PBC) with a value of drawer’s commitment that when the receivables of the
P20,000.00 drawn by Jesse. On August 31, 1981, Ines partnership are collected and goods are sold and only
deposited said check in her account with the when such collection and sale were realized, would the
Consolidated Bank and Trust Corporation (CBTC). On drawer give to the private complainant the net amount
September 1, 1981, CBTC called her up informing her due him representing his interest in the partnership; it did
that the subject check was dishonored because there not involve a debt of or any amount due and payable by
was a stop payment order and because of insufficiency the drawer. Thus, the operative facts in the present case
of funds to cover the amount appearing in the check. are different. Herein petitioner issued the subject check
Thereafter, Ines informed Jesse through telephone that in exchange for cash given to him and his mother and
the check was dishonored. Jesse assured her that he sister by private complainant. Hence, as distinguished
would make good the check. However, he did not fulfill from Magno and Idos, it is clear that in the instant case
his promise. This prompted Ines to seek the help of her the check was intended to apply for account or for value.
lawyer. Her lawyer wrote a demand letter and sent the
same to Jesse who refused to receive the same. Since the three elements of the offense
punished under the first paragraph of Section 1 of BP
On the other hand, Jesse denied these Blg. 22 are present in the instant case, we find no error
allegations and claims claims that he was not given in the Court of Appeals’ affirmation of the trial court’s
notice of dishonor. He contends that under Section 2 of decision convicting petitioner of violation of BP Blg. 22.
BP Blg. 22, notice of dishonor or demand for payment
coupled with his failure to pay within five banking days is FALLO: CA decision affirmed.
a prerequisite before he can be charged for violation of
BP Blg. 22.
The RTC rendered judgment finding Jesse guilty beyond
reasonable doubt of violating BP Blg. And a civil liability
to pay complainant the sum of P20,000.00.
CA affirmed in toto in RTC decision.
ISSUE:
Whether the conviction of petitioner of the crime

charged is proper in the absence of prior demand for
payment of the face value of subject check?
HELD:
We note that we have held in previous cases

that the drawer’s act of notifying the payee at the time of
the issuance of the check that he does not have
sufficient funds to cover the amount of such check may
operate to absolve the drawer from liability under BP
Blg. 22. However, it must be emphasized that in said
cases, the checks were drawn and issued in good faith PHILIPPINE SAVINGS BANK VS. SPOUSES
and without intention on the part of their respective MANALAC
drawers to apply said checks for account or for value. In April 26, 2005
Magno vs. Court of Appeals, the rubber checks were
simply issued to cover a warranty deposit in a lease FACTS:
contract returnable to the drawer upon the satisfactory
completion of the entire period of lease. The drawer did On 1976, Spouses Manalac obtained a loan
not benefit from the deposit since the checks were used from PS Bank covered by a promissory note. The
only as a deposit to serve as security for the faithful Spouses executed a REM as a security. Due to their
performance of the drawer’s obligation as a lessee of an inability to pay the loan, such was restructured in 1977
equipment. On the other hand, in Idos vs. Court of

and the Spouses signed another Promissory Note and ISSUE:

another REM over the same properties.
Whether or not there was novation of the
On 1979, Manalac and Spouses Galicia, with previous mortgage properties?
the consent of PS Bank entered into a Deed of Sale with
Assumption of Mortgage. Thereafter, the parcels of land
purchased by the Galicias together with other properties
were in turn mortgaged by them to secure a loan they HELD:
obtained also from PS Bank. the same year, Spouses
NO. Novation is the extinguishment of an
Manalac paid PS Bank the value of the parcels of lan
obligation by the substitution or change of the obligation
now registered in the name of the Galicias. PS Bank
by a subsequent one which extinguishes or modifies the
then executed a partial release of the REM covered by
first, either by changing the object or principal conditions,
the aforesaid properties.
or, by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor. In
Thereafter, Spouses Manalac defaulted again in
order for novation to take place, the concurrence of the
payment of their loan despite repeated demands, hence,
following requisites is indispensable:
PS Bank filed for a petition for extrajudicial foreclosure of
their 5 remaining mortgaged properties. The foreclosure 1. There must be a previous valid obligation,
sale proceeded with PS Bank as the highest bidder. The 2. There must be an agreement of the parties concerned
Spouses failed to redeem the said properties and new to a new contract,
certificates of title were issued in favour of the bank. 3. There must be the extinguishment of the old contract,
and
On December 16, 1983, Mañalac wrote the 4. There must be the validity of the new contract.
Chairman of the Board of PSBank asking information on
their request for the partial release of the mortgage The elements of novation are patently lacking in
.Enclosed in the same letter is a Cashier’s Check for the instant case. Mañalac tendered a check for
P1,200,000.00. Upon receipt of the check, The Bank’s P1,200,000.00 to PSBank for the release of 4 parcels of
Assistant Manager issued a receipt of the said Cashier’s land covered by TCT Nos. N-36192, 36193, and 36194,
Check. It is understood however, that receipt of said under the loan account of the Galicias and 417012 (now
check is not a commitment on the part of the Bank to TCT No. 79996) under the loan account of Mañalac.
release the Four (4) TCTs requested to be released on However, while the bank applied the tendered amount to
your letter dated 19 December 1983. the accounts as specified by Mañalac, it nevertheless
refused to release the subject properties. Instead, it
On December 19, 1983, the bank applied
issued a receipt with a notation that the acceptance of
P1,000,000.00 of the P1,200,000.00 to the loan account
the check is not a commitment on the part of the bank to
of the Galicias as payment for the arrearages in interest
release the 4 TCTs as requested by Mañalac.
and the remaining P200,000.00 thereof was applied to
From the foregoing, it is obvious that there was
the expenses relative to the account of Mañalac.
no agreement to form a new contract by novating the
On May 23, 1985, the bank sold the property mortgage contracts of the Mañalacs and the Galicias. In
covered by TCT No. 79996 (previously TCT No. 343593) accepting the check, the bank only acceded to
to Ester Villanueva who thereafter sold it to Mañalac. On Mañalac’s instruction on whose loan accounts the
October 30, 1985, the land covered by TCT No. 79995 proceeds shall be applied but rejected the other
was sold by the bank to Teresita Jalbuena. condition that the 4 parcels of land be released from
mortgage. Clearly, there is no mutual consent to replace
Thereafter, or on October 20, 1986, Mañalac the old mortgage contract with a new obligation. The
instituted an action for damages, docketed as Civil Case conflicting intention and acts of the parties underscore
No. 53967, before the Regional Trial Court of Pasig, the absence of any express disclosure or circumstances
Branch 161, against PSBank and its officers namely with which to deduce a clear and unequivocal intent by
Cezar Valenzuela, Alfredo Barretto and Antonio Viray, the parties to novate the old agreement.
and spouses Alejandro and Teresita Jalbuena.
Novation is never presumed, and the animus
The RTC rendered judgment of annulment of the novandi, whether totally or partially, must appear by
Certificate of Sale issued in favour of PS Bank as well as express agreement of the parties, or by their acts that
the Contract to Sell executed by the bank in favour are too clear and unmistakable. The extinguishment of
Spouses Jalbuena. The decision was affirmed by the the old obligation by the new one is a necessary element
CA, hence, this appeal before the SC. of novation, which may be effected either expressly or
impliedly. The term "expressly" means that the
contracting parties incontrovertibly disclose that their
object in executing the new contract is to extinguish the

old one. Upon the other hand, no specific form is

required for an implied novation, and all that is
prescribed by law would be an incompatibility between
the two contracts. While there is really no hard and fast
rule to determine what might constitute to be a sufficient
change that can bring about novation, the touchstone for
contrariety, however, would be an irreconcilable
incompatibility between the old and the new obligations.
Neither can Mañalac be deemed substitute

debtor within the contemplation of Article 1293 of the
Civil Code, which states that:
Art. 1293. Novation which consists in

substituting a new debtor in the place of the original one,
may be made without the knowledge or against the will
of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.
In order to change the person of the debtor, the

old one must be expressly released from the obligation,
and the third person or new debtor must assume the
former’s place in the relation. Novation is never
presumed. Consequently, that which arises from a
purported change in the person of the debtor must be
clear and express. It is thus incumbent on Mañalac to
show clearly and unequivocally that novation has indeed
taken place. In Magdalena Estates Inc. v. Rodriguez, we
held that "the mere fact that the creditor receives a
guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no
agreement that the first debtor shall be released from
responsibility, does not constitute a novation, and the
creditor can still enforce the obligation against the
original debtor."
Mañalac has not shown by competent evidence

that they were expressly taking the place of Galicia as
debtor, or that the latter were being released from their
solidary obligation. Nor was it shown that the obligation
of the Galicias was being extinguished and replaced by
a new one. The existence of novation must be shown in
clear and unmistakable terms.
Granting arguendo that a new obligation was

established with the acceptance by the bank of the PCIB
Check and its application to the loan account of Mañalac ASTRO ELECTRONICS AND PETER ROXAS VS.
on the condition that TCT No. 417012 would be PHIL. EXPORT
released, this new obligation however could not supplant AND FOREIGN LOAN GUARANTEE CORP.
the October 13, 1977 real estate mortgage executed by September 23, 2003
Mañalac, which, by all intents and purposes, is now a
defunct and non-existent contract. As mentioned earlier,
novation cannot be presumed. FACTS:
Petitioner Astro was granted several loans by

PhilTrust with interest and promissory notes. In each
promissory notes, Petitioner Roxas signed twice, as
President of Astro and in his personal capacity. Roxas

also signed a Continuing Suretyship Agreement in necessarily would imply that he is undertaking the
favour of PhilTrust Bank, as President of Astro and as obligation in two different capacities, official and
surety. personal.
Thereafter, Philguarantee with the consent of The three promissory notes uniformly provide:
Astro guaranteed in favour of PhilTrust the payment of “FOR VALUE RECEIVED, I/We jointly, severally and
70% of Astro’s loan, subject to the condition that upon solidarily, promise to pay to PHILTRUST BANK or
payment, it shall be proportionally subrogated to the order...” An instrument which begins with “I”, “We”, or
rights of PhilTrust against Astro. “Either of us” promise to pay, when signed by two or
more persons, makes them solidarily liable. Also, the
As a result of Astro’s failure to pay despite phrase “joint and several” binds the makers jointly and
demands, Phil Guarantee filed against Astro and Roxas individually to the payee so that all may be sued together
a complaint for sum of money in the Makati RTC. RTC for its enforcement, or the creditor may select one or
rendered judgment giants petitioner which was affirmed more as the object of the suit. Having signed under such
by the CA. terms, Roxas assumed the solidary liability of a debtor
and Philtrust Bank may choose to enforce the notes
against him alone or jointly with Astro.
ISSUE:
Roxas’ claim that the phrases “in his personal
Whether or not Roxas should be held solidarily capacity” and “in his official capacity” were inserted on
liable with Astro for the sum of money? the notes without his knowledge was correctly
disregarded by the RTC and the Court of Appeals. It is
not disputed that Roxas does not deny that he signed
HELD: the notes twice. As aptly found by both the trial and
appellate court, Roxas did not offer any explanation why
YES. The instant case is one of the legal he did so. It devolves upon him to overcome the
subrogation that occurs by operation of law, and without presumptions that private transactions are presumed to
need of the debtor’s knowledge. Further, Philguarantee, be fair and regular and that a person takes ordinary care
as guarantor, became the transferee of all the rights of of his concerns. Aside from his self-serving allegations,
Philtrust as against Roxas and Astro because the Roxas failed to prove the truth of such allegations.
“guarantor who pays is subrogated by virtue thereof to Thus, said presumptions prevail over his claims. Bare
all the rights which the creditor had against the debtor.” allegations, when unsubstantiated by evidence,
documentary or otherwise, are not equivalent to proof
Subrogation is the transfer of all rights of the under our Rules of Court.
creditor to a third person, who substitutes him in all his
rights. It may either be legal or conventional. Legal
subrogation is that which takes without agreement but by
operation of law because of certain acts. Instances of
legal subrogation are those provided in Art. 1302 of the
Civil Code. Conventional subrogation, on the other hand,
is that which takes place by agreement of the parties.
In the instant case, Astro’s loan with Philtrust

Bank is secured by three promissory notes. These
promissory notes are valid and binding against Astro and
Roxas. As it appears on the notes, Roxas signed twice:
first, as president of Astro and second, in his personal
capacity. In signing his name aside from being the CARMELCRAFT CORPORATION &/OR
President of Asro, Roxas became a co-maker of the CARMEN V. YULO VS. NLRC
promissory notes and cannot escape any liability arising June 6, 1990
from it. Under the Negotiable Instruments Law, persons
who write their names on the face of promissory notes
are makers, promising that they will pay to the order of FACTS:
the payee or any holder according to its tenor. Thus,
even without the phrase “personal capacity,” Roxas will The Camelcraft Employees Union sought but did
still be primarily liable as a joint and several debtor under not get recognition from the petitioners. Consequently, it
the notes considering that his intention to be liable as filed a petition for certification election in June 1987. On
such is manifested by the fact that he affixed his July 13, 1987, Camelcraft Corporation, through its
signature on each of the promissory notes twice which president and general manager, Carmen Yulo,

announced in a meeting with the employees that it would deem convenient, provided they are not contrary to law,
cease operations on August 13, 1987, due to serious morals, good customs, public order, or public policy.
financial losses. Operations did cease as announced.
On August 17, 1987, the union filed a complaint with the The subordinate position of the individual
Department of Labor against the petitioners for illegal employee vis-a-vis management renders him especially
lockout, unfair labor practice and damages, followed the vulnerable to its blandishments and importunings, and
next day with another complaint for payment of unpaid even intimidations, that may result in his improvidently if
wages, emergency cost of living allowances, holiday reluctantly signing over benefits to which he is clearly
pay, and other benefits. entitled. Recognizing this danger, we have consistently
held that quitclaims of the workers' benefits win not
On November 29, 1988, the Labor Arbiter estop them from asserting them just the same on the
declared the shutdown illegal and violative of the ground that public policy prohibits such waivers.
employees' right to self-organization. The claim for
unpaid benefits was also granted. NLRC affirmed the That the employee has signed a satisfaction
decision with modifications. receipt does not result in a waiver; the law does not
consider as valid any agreement to receive less
It was the contention of petitioner that the compensation than what a worker is entitled to recover.
employees are stopped from claiming the alleged unpaid A deed of release or quitclaim cannot bar an employee
wages and other compensation as they signed waivers from demanding benefits to which he is legally entitled.
made voluntarily and that this contract between the two
parties should be respected. Release and quitclaim is inequitable and
incongruous to the declared public policy of the State to
afford protection to labor and to assure the rights of
ISSUE: workers to security of tenure.
Whether or not the waivers signed by the All told, the conduct of the petitioners toward the
employees valid or not? employees has been less than commendable. Indeed, it
is reprehensible. First, the company inveigled them to
waive their claims to compensation due them on the
HELD: promise that future benefits would be paid (and to make
matters worse, there is no showing that they were
NO. The contention of the petitioners that the indeed paid). Second, it refused to recognize the
employees are estopped from claiming the alleged respondent union, suggesting to the employees that they
unpaid wages and other compensation must also be join another union acceptable to management. Third, it
rejected. This claim is based on the waivers supposedly threatened the employees with the closure of the
made by the complainants on the understanding that company and then actually did so when the employees
"the management will implement prospectively all insisted on their demands. All these acts reflect on the
benefits under existing labor standard laws." The bona fides of the petitioners and unmistakably indicate
petitioners argue that this assurance provided the their ill will toward the employees.
consideration that made the quitclaims executed by the
employees valid. They add that the waivers were made
voluntarily and contend that the contract should be
respected as the law between the parties.
Even if voluntarily executed, agreements are

invalid if they are contrary to public policy. This is
elementary. The protection of labor is one of the policies
laid down by the Constitution not only by specific ACOL VS. PHILIPPINE COMMERCIAL CREDIT CARD
provision but also as part of social justice. The Civil INCORPORATED
Code itself provides: July 25, 2006
ART. 6. Rights may be waived, unless the waiver is FACTS:

contrary to law, public order, public policy, morals, or
good customs, or prejudicial to a third person with a right On August 20, 1982, petitioner Manuel Acol
recognized by law. applied with respondent for a Bankard credit card and
extension. Both were issued to him shortly thereafter.
ART. 1306. The contracting parties may establish such For several years, he regularly used this card,
stipulations, clauses, terms and conditions as they may purchasing from respondent's accredited establishments
and paying the corresponding charges for such

purchases. Petitioner discovered the loss of his credit The verbal and written notices notwithstanding,
card. After exhausting all efforts to find it, on April 19, respondent insisted on billing petitioner Luis Ermitaño,
1987, a Sunday, he called up respondent's office and Manuelita's husband and the principal cardholder, for
reported the loss. The representative he spoke to told purchases made after the date of the loss totalling
him that his card would be immediately included in the P3,197.70. To justify the billing, respondent BECC cited
circular of lost cards. the following stipulation in their contract:
In the event the card is lost or stolen, the cardholder agrees
to immediately report its loss or theft in writing to BECC…
Again, on April 20, 1987, petitioner called up purchases made/incurred arising from the use of the
respondent to reiterate his report on the loss of his card. lost/stolen card shall be for the exclusive account of the
He inquired if there were other requirements he needed cardholder and the cardholder continues to be liable for the
to comply with in connection with the loss. Respondent's purchases made through the use of the lost/stolen BPI
Express Card until after such notice has been given to
representative advised him to put into writing the notice BECC and the latter has communicated such loss/theft to its
of loss and to submit it, together with the extension cards member establishments.
of his wife and daughter. Petitioner promptly wrote a
letter dated April 20, 1987 confirming the loss and sent it It is worth noting that, just like the assailed
to respondent which received it on April 22, 1987. provision in this case, the stipulation devised by
respondent BECC required two conditions before the
On April 21, 1987, a day before receiving the cardholder could be relieved of responsibility from
written notice, respondent issued a special cancellation unauthorized charges: (1) the receipt by the card issuer
bulletin informing its accredited establishments of the of a written notice from the cardholder regarding the loss
loss of the cards of the enumerated holders, including and (2) the notification to the issuer's accredited
petitioner's. Unfortunately, it turned out that somebody establishments regarding such loss.
used petitioner's card on April 19 and 20, 1987 to buy
commodities worth P76,067.28. The accredited We struck down this stipulation as contrary to
establishments reported the invoices for such purchases public policy and granted the Ermitaños' petition:
to respondent which then billed petitioner for that Prompt notice by the cardholder to the credit card
company of the loss or theft of his card should be enough to
amount. relieve the former of any liability occasioned by the
unauthorized use of his lost or stolen card. The questioned
Nonetheless, respondent insisted on colleting stipulation in this case, which still requires the cardholder to
and alleged that it was the most practicable procedure of wait until the credit card company has notified all its
member-establishments, puts the cardholder at the mercy of
the company. It cited provision no. 1 of the "Terms and the credit card company which may delay indefinitely the
Conditions Governing The Issuance and Use of the notification of its members to minimize if not to eliminate the
Bankard" found at the back of the application form: possibility of incurring any loss from unauthorized
xxx Holder's responsibility for all charges made through the use of the purchases. Or, as in this case, the credit card company may
card shall continue until the expiration or its return to the Card Issuer or for some reason fail to promptly notify its members through
until a reasonable time after receipt by the Card Issuer of written absolutely no fault of the cardholder. To require the
notice of loss of the Card and its actual inclusion in the Cancellation cardholder to still pay for the unauthorized purchases after
Bulletin. xxx he has given prompt notice of the loss or theft of his card to
the credit card company would simply be unfair and unjust.
The Court cannot give its assent to such a stipulation which
RTC ruled in favour of petitioner but was could clearly run against public policy.
reversed by CA. Hence this instant petition before the
SC. In this case, the stipulation in question is just as
repugnant to public policy as that in Ermitaño. As
ISSUE: petitioner points out, the effectivity of the cancellation of
Whether or not Provision No. 1 is valid and the lost card rests on an act entirely beyond the control
binding on the petitioner given that the contract was one of the cardholder. Worse, the phrase "after a reasonable
of adhesion? time" gives the issuer the opportunity to actually profit
from unauthorized charges despite receipt of immediate
HELD: written notice from the cardholder.
NO. The facts of this case are virtually identical Under such a stipulation, petitioner could have
with those of Ermitaño v. CA. In that case, petitioner- theoretically done everything in his power to give
extension cardholder Manuelita Ermitaño lost her card respondent the required written notice. But if respondent
on the night of August 29, 1989 when her bag was took a "reasonable" time (which could be indefinite) to
snatched in Makati. That very same evening, she include the card in its cancellation bulletin, it could still
reported the loss and immediately thereafter sent written hold the cardholder liable for whatever unauthorized
notice to the respondent credit card company, BPI charges were incurred within that span of time. This
Express Card Corp. (BECC). would have been truly iniquitous, considering the amount
respondent wanted to hold petitioner liable for.

Article 1306 of the Civil Code prohibits

contracting parties from establishing stipulations contrary
to public policy. The assailed provision was just such a
stipulation. It is without any hesitation therefore that we
strike it down.
TIU vs. PLATINUM PLANS PHILIPPINES

February 28, 2007
FACTS:
Respondent Platinum Plans Philippines, Inc. is a

domestic corporation engaged in the pre-need industry.
From 1987 to 1989, petitioner Daisy B. Tiu was its
Division Marketing Director. On January 1, 1993,
respondent re-hired petitioner as Senior Assistant Vice-
President and Territorial Operations Head in charge of
its Hong Kong and Asean operations. The parties
executed a contract of employment valid for five years.

On September 16, 1995, petitioner stopped In sum, The Court finds the non-involvement
reporting for work. In November 1995, she became the clause not contrary to public welfare and not greater
Vice President for Sales of Professional Pension Plans, than is necessary to afford a fair and reasonable
Inc., a corporation engaged also in pre-need industry. protection to respondent. Hence the restraint is valid and
such stipulation prevails.
Consequently, respondent sued petitioner for
damages before the RTC of Pasig City, Branch 261.
Respondent alleged, among others, that petitioner’s
employment with Professional Pension Plans, Inc.
violated the non-involvement clause in her contract of
employment. In upholding the validity of the non-
involvement clause, the trial court ruled that a contract in
restraint of trade is valid provided that there is a
limitation upon either time or place. In the case of the
pre-need industry, the trial court found the two-year
restriction to be valid and reasonable. On appeal, the
Court of Appeals affirmed the trial court’s ruling. It
reasoned that petitioner entered into the contract on her
own will and volition.
Thus, she bound herself to fulfill not only what

was expressly stipulated in the contract, but also all its
consequences that were not against good faith, usage,
and law. The appellate court also ruled that the
stipulations prohibiting non-employment for two years
was valid and enforceable considering the nature of
respondents business.
ISSUE:
Whether or not the CA erred in sustaining the

validity of the non-involvement clause?
HELD: AVON COSMETICS vs. LUNA

511 SCRA 376
YES. In this case, the non-involvement clause
has a time limit: two years from the time petitioner’s
employment with respondent ends. It is also limited as to FACTS:
trade, since it only prohibits petitioner from engaging in
any pre-need business akin to respondent’s. The present petition stemmed from a complaint
dated 1 December 1988, filed by herein respondent
More significantly, since petitioner was the Luna alleging, inter alia¸ that she began working for
Senior Assistant Vice-President and Territorial Beautifont, Inc. in 1972, first as a franchise dealer and
Operations Head in charge of respondent’s Hongkong then a year later, as a Supervisor. Sometime in 1978,
and Asean operations, she had been privy to confidential Avon Cosmetics, Inc. (Avon), herein petitioner, acquired
and highly sensitive marketing strategies of respondent’s and took over the management and operations of
business. To allow her to engage in a rival business Beautifont, Inc. Nonetheless, respondent Luna continued
soon after she leaves would make respondent’s trade working for said successor company. Aside from her
secrets vulnerable especially in a highly competitive work as a supervisor, respondent Luna also acted as a
marketing environment. make-up artist of petitioner, for which she received a per

diem for each theatrical performance. The contract was of the person, but law which in certain respects affects
that: the interest of society. Plainly put, public policy is that
principle of the law which holds that no subject or citizen
The Company agrees: can lawfully do that which has a tendency to be injurious
1) To allow the Supervisor to purchase at wholesale the to the public or against the public good. As applied to
products of the Company. contracts, in the absence of express legislation or
constitutional prohibition, a court, in order to declare a
The Supervisor agrees: contract void as against public policy, must find that the
1) To purchase products from the Company exclusively contract as to the consideration or thing to be done, has
for resale and to be responsible for obtaining all permits a tendency to injure the public, is against the public
and licenses required to sell the products on retail. good, or contravenes some established interests of
society, or is inconsistent with sound policy and good
The Company and the Supervisor mutually agree: morals, or tends clearly to undermine the security of
1) That this agreement in no way makes the Supervisor individual rights, whether of personal liability or of private
an employee or agent of the Company, therefore, the property.
Supervisor has no authority to bind the Company in any
contracts with other parties. From another perspective, the main objection
2) That the Supervisor is an independent retailer/dealer to exclusive dealing is its tendency to foreclose existing
insofar as the Company is concerned, and shall have the competitors or new entrants from competition in the
sole discretion to determine where and how products covered portion of the relevant market during the term of
purchased from the Company will be sold. However, the the agreement. Only those arrangements whose
Supervisor shall not sell such products to stores, probable effect is to foreclose competition in a
supermarkets or to any entity or person who sells things substantial share of the line of commerce affected can
at a fixed place of business. be considered as void for being against public policy.
3) That this agreement supersedes any agreement/s The foreclosure effect, if any, depends on the market
between the Company and the Supervisor. share involved. The relevant market for this purpose
4) That the Supervisor shall sell or offer to sell, display or includes the full range of selling opportunities reasonably
promote only and exclusively products sold by the open to rivals, namely, all the product and geographic
Company. sales they may readily compete for, using easily
5) Either party may terminate this agreement at will, with convertible plants and marketing organizations.
or without cause, at any time upon notice to the other.
Applying the preceding principles to the case at
Later, respondent Luna entered into the sales force of bar, there is nothing invalid or contrary to public policy
Sandre Philippines which caused her termination for the either in the objectives sought to be attained by
alleged violation of the terms of the contract. The trial paragraph 5, i.e., the exclusivity clause, in prohibiting
court ruled in favor of Luna that the contract was respondent Luna, and all other Avon supervisors, from
contrary to public policy thus the dismissal was not selling products other than those manufactured by
proper. The Court of Appeals affirmed the decision, petitioner Avon.
hence this petition.
Having held that the “exclusivity clause” as embodied in
paragraph 5 of the Supervisor’s Agreement is valid and
not against public policy, we now pass to a consideration
of respondent Luna’s objections to the validity of her
termination as provided for under paragraph 6 of the
ISSUE: Supervisor’s Agreement giving petitioner Avon the right
to terminate or cancel such contract. The paragraph 6 or
Whether the Court of Appeals erred in ruling that the “termination clause” therein expressly provides that:
the Supervisor’s Agreement was invalid for being
contrary to public policy? The Company and the Supervisor mutually agree:
Whether there was subversion of the autonomy 6) Either party may terminate this agreement at will, with
of contracts by the lower courts? or without cause, at any time upon notice to the other.
In the case at bar, the termination clause of the

HELD: Supervisor’s Agreement clearly provides for two ways of
terminating and/or canceling the contract. One mode
Agreements in violation of orden público must be does not exclude the other. The contract provided that it
considered as those which conflict with law, whether can be terminated or cancelled for cause, it also stated
properly, strictly and wholly a public law or whether a law that it can be terminated without cause, both at any time

and after written notice. Thus, whether or not the

termination or cancellation of the Supervisor’s
Agreement was “for cause,” is immaterial. The only
requirement is that of notice to the other party. When
petitioner Avon chose to terminate the contract, for
cause, respondent Luna was duly notified thereof.
Worth stressing is that the right to unilaterally terminate

or cancel the Supervisor’s Agreement with or without
cause is equally available to respondent Luna, subject to
the same notice requirement. Obviously, no advantage
is taken against each other by the contracting parties.
PILIPINO TELEPHONE CORPORATION VS. TECSON

May 7, 2004
FACTS:
Mr. Tecson applied for six cellular phone

subscriptions with Pilipino Telephone Corporation
(PILTEL). The applications were approved and covered
by six mobiline service agreements, all of which
provides: “Venue of all suits arising from this Agreement
or any other suit directly or indirectly arising from the
relationship between PILTEL and subscriber shall be in
the proper courts of Makati, Metro Manila. Subscriber
hereby expressly waives any other venues.”
Mr. Tecson filed with the RTC, Iligan City, Lanao

Del Norte, a complaint against petitioner for a “Sum of

Money and Damages.” PILTEL moved for the dismissal

of the complaint on the ground of improper venue.
ISSUE:
Whether or not the complaint was filed in the

wrong venue?
HELD:
Section 4, Rule 4, of the Revised Rules of Civil

Procedure allows the parties to agree and stipulate in
writing, before the filing of an action, on the exclusive
venue of any litigation between them. Such an
agreement would be valid and binding provided that the
stipulation on the chosen venue is exclusive in nature or
in intent, that it is expressed in writing by the parties
thereto, and that it is entered into before the filing of the
suit.
The provision contained in paragraph 22 of the

“Mobile Service Agreement,” a standard contract made
out by petitioner PILTEL to its subscribers, apparently
accepted and signed by respondent, states that the
venue of all suits arising from the agreement, or any
other suit directly or indirectly arising from the
relationship between PILTEL and subscriber, “shall be in
the proper courts of Makati, Metro Manila.” The added
stipulation that the subscriber “expressly waives any
other venue” should indicate, clearly enough, the intent
of the parties to consider the venue stipulation as being
preclusive in character.
PHILIPPINE NATIONAL BANK VS. CA

April 30, 1991
FACTS:
Private respondent (PR) Ambrosio Padilla,

applied for and was granted a credit line of 321.8million,
by petitioner PNB. This was for a term of 2 years at 18%
interest per annum and was secured byreal estate
mortgage and 2 promissory notes executed in favor of
Petitioner by PR.
The credit agreementand the promissory notes,

in effect, provide that PR agrees to be bound by
“increases to the interest ratestipulated, provided it is
within the limits provided for by law”.Conflict in this case
arose when Petitioner unilaterally increased the interest
rate from 18% to: (1) 32%[July 1984]; (2) 41% [October
1984]; and (3) 48% [November 1984], or 3 times within
the span of a singleyear.

This was done despite the numerous letters of imposed by PNB in excess of 24% per annum. Interest
request made by PR that the interest rate beincreased rate imposed by PNB, as correctly found by CA, is
only to 21% or 24%.PR filed a complaint against indubitably excessive.
Petitioner with the RTC. The latter dismissed the case
for lack of merit. Appeal by PR to CA resulted in his
favor. Hence the petition for certiorari under Rule 45 of
ROC filed byPNB with SC.
ISSUE:
Despite the removal of the Usury Law ceiling on

interest, may the bank validly increase the stipulated
interest rate on loans contracted with third persons as
often as necessary and against the protest of such
persons?
HELD:
NO. Although under Sec. 2 of PD 116, the

Monetary Board is authorized to prescribe the maximum
rate of interest for loans and to change such rates
whenever warranted by prevailing economic and social
conditions, by express provision, it may not do so
“oftener than once every 12 months”. If the Monetary
Board cannot, much less can PNB, effect increases on
the interest rates more than once a year. Based on the
credit agreement and promissory notes executed
between the parties, although PR did agree to increase
on the interest rates allowed by law, no law was passed
warranting Petitioner to effect increase on the interest
rates on the existing loan of PR for the months of July to
November of 1984.Neither there being any document
executed and delivered by PR to effect such increase.
For escalation clauses to be valid and warrant

the increase of the interest rates on loans, there must
be:(1) increase was made by law or by the Monetary
Board; (2) stipulation must include a clause for the DKC HOLDINGS CORPORATION VS. CA
reduction of the stipulated interest rate in the event that April 5, 2000
the maximum interest is lowered by law or by the
Monetary board.
FACTS:
In this case, PNB merely relied on its own Board
Resolutions, which are not laws nor resolutions of the The subject of the controversy is a parcel of land
Monetary Board. Despite the suspension of the Usury located in Malinta, Valenzuela, which was originally
Law, imposing a ceiling on interest rates, this does not owned by private respondent Victor U. Bartolome’s
authorize banks to unilaterally and successively increase deceased mother, Encarnacion Bartolome. This lot was
interest rates in violation of Sec. 2 PD 116.Increases in front of one of the textile plants of petitioner and, as
unilaterally effected by PNB was in violation of the such, was seen by the latter as a potential warehouse
Mutuality of Contracts under Art. 1308. This provides site.
that the validity and compliance of the parties to the
contract cannot be left to the will of one of the On March 16, 1988, petitioner entered into a
contracting parties. Increases made are therefore void. Contract of Lease with Option to Buy with Encarnacion
Increase on the stipulated interest rates made by PNB Bartolome, whereby petitioner was given the option to
also contravenes Art. 1956. It provides that, “no interest lease or lease with purchase the subject land, which
shall be due unless it has been expressly stipulated in option must be exercised within a period of two years
writing”. PR never agreed in writing to pay interest counted from the signing of the Contract. Within the two-

year period, petitioner shall serve formal written notice

upon the lessor Encarnacion Bartolome of its desire to Whether or not the Contract of Lease with
exercise its option. The contract also provided that in Option to Buy entered into by the late Encarnacion
case petitioner chose to lease the property, it may take Bartolome with petitioner was terminated upon her death
actual possession of the premises. In such an event, the or whether it binds her sole heir, Victor, even after her
lease shall be for a period of six years, renewable for demise?
another six years, and the monthly rental fee shall be
P15,000.00 for the first six years and P18,000.00 for the
next six years, in case of renewal. HELD:
Petitioner regularly paid the monthly rental NO. Article 1311 of the Civil Code provides, as
provided for by the Contract to Encarnacion until her follows-
death in January 1990. Thereafter, petitioner coursed its "ART. 1311. Contracts take effect only between the
payment to private respondent Victor Bartolome, being parties, their assigns and heirs, except in case where the rights
the sole heir of Encarnacion. Victor, however, refused to and obligations arising from the contract are not transmissible
accept these payments. Meanwhile, on January 10, by their nature, or by stipulation or by provision of law. The heir
is not liable beyond the value of the property he received from
1990, Victor executed an Affidavit of Self-Adjudication the decedent.
over all the properties of Encarnacion, including the
subject lot. Accordingly, respondent Register of Deeds The general rule, therefore, is that heirs are
cancelled Transfer Certificate of Title and issued bound by contracts entered into by their predecessors-
Transfer Certificate of Title in the name of Victor in-interest except when the rights and obligations arising
Bartolome. therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law.
On March 14, 1990, petitioner served upon
Victor, via registered mail, notice that it was exercising In the case at bar, there is neither contractual
its option to lease the property, tendering the amount of stipulation nor legal provision making the rights and
P15,000.00 as rent for the month of March. Again, Victor obligations under the contract intransmissible. More
refused to accept the tendered rental fee and to importantly, the nature of the rights and obligations
surrender possession of the property to petitioner. therein are, by their nature, transmissible.
Petitioner thus opened Savings Account No. 1-04-
02558-I-1 with the China Banking Corporation, Cubao The nature of intransmissible rights as explained
Branch, in the name of Victor Bartolome and deposited by Arturo Tolentino, an eminent civilist, is as follows:
therein the P15,000.00 rental fee for March as well as "Among contracts which are intransmissible are those
P6,000.00 reservation fees for the months of February which are purely personal, either by provision of law,
and March. such as in cases of partnerships and agency, or by the
very nature of the obligations arising therefrom, such as
Petitioner also tried to register and annotate the those requiring special personal qualifications of the
Contract on the title of Victor to the property. Although obligor. It may also be stated that contracts for the
respondent Register of Deeds accepted the required payment of money debts are not transmitted to the heirs
fees, he nevertheless refused to register or annotate the of a party, but constitute a charge against his estate.
same or even enter it in the day book or primary register. Thus, where the client in a contract for professional
Thus, on April 23, 1990, petitioner filed a services of a lawyer died, leaving minor heirs, and the
complaint for specific performance and damages against lawyer, instead of presenting his claim for professional
Victor and the Register of Deeds. Meanwhile, on May 8, services under the contract to the probate court,
1990, a Motion for Intervention with Motion to Dismiss substituted the minors as parties for his client, it was
was filed by one Andres Lanozo, who claimed that he held that the contract could not be enforced against the
was and has been a tenant-tiller of the subject property, minors; the lawyer was limited to a recovery on the basis
which was agricultural riceland, for forty-five years. He of quantum meruit."
questioned the jurisdiction of the lower court over the
property and invoked the Comprehensive Agrarian In American jurisprudence, "(W)here acts
Reform Law to protect his rights that would be affected stipulated in a contract require the exercise of special
by the dispute between the original parties to the case. knowledge, genius, skill, taste, ability, experience,
judgment, discretion, integrity, or other personal
After trial on the merits, the RTC rendered qualification of one or both parties, the agreement is of a
judgment dismissing the Complaint and was affirmed by personal nature, and terminates on the death of the
the CA. party who is required to render such service."
In the case at bar, there is no personal act

ISSUE: required from the late Encarnacion Bartolome. Rather,

the obligation of Encarnacion in the contract to deliver Likewise, petitioner complied with its duty to
possession of the subject property to petitioner upon the inform the other party of its intention to exercise its
exercise by the latter of its option to lease the same may option to lease through its letter dated Match 12, 1990, 2
very well be performed by her heir Victor. [21] well within the two-year period for it to exercise its
As early as 1903, it was held that "(H)e who contracts option. Considering that at that time Encarnacion
does so for himself and his heirs." In 1952, it was ruled Bartolome had already passed away, it was legitimate
that if the predecessor was duty-bound to reconvey land for petitioner to have addressed its letter to her heir.
to another, and at his death the reconveyance had not
been made, the heirs can be compelled to execute the It appears, therefore, that the exercise by
proper deed for reconveyance. This was grounded upon petitioner of its option to lease the subject property was
the principle that heirs cannot escape the legal made in accordance with the contractual provisions.
consequence of a transaction entered into by their Concomitantly, private respondent Victor Bartolome has
predecessor-in-interest because they have inherited the the obligation to surrender possession of and lease the
property subject to the liability affecting their common premises to petitioner for a period of six (6) years,
ancestor. pursuant to the Contract of Lease with Option to Buy.
It is futile for Victor to insist that he is not a party

to the contract because of the clear provision of Article
1311 of the Civil Code. Indeed, being an heir of
Encarnacion, there is privity of interest between him and
his deceased mother. He only succeeds to what rights
his mother had and what is valid and binding against her
is also valid and binding as against him.
In the case at bar, the subject matter of the

contract is likewise a lease, which is a property right.
The death of a party does not excuse nonperformance of
a contract which involves a property right, and the rights
and obligations thereunder pass to the personal
representatives of the deceased. Similarly,
nonperformance is not excused by the death of the party
when the other party has a property interest in the TANAY RECREATION CENTER AND DEVELOPMENT
subject matter of the contract. CORP.
vs. CATALINA MATIENZO FAUSTO
Under both Article 1311 of the Civil Code and April 12, 2005
jurisprudence, therefore, Victor is bound by the subject
Contract of Lease with Option to Buy. That being
resolved, we now rule on the issue of whether petitioner FACTS:
had complied with its obligations under the contract and
with the requisites to exercise its option. The payment by Petitioner Tanay Recreation Center and
petitioner of the reservation fees during the two-year Development Corp. (TRCDC) is the lessee of a 3,090-
period within which it had the option to lease or purchase square meter property located in Sitio Gayas, Tanay,
the property is not disputed. In fact, the payment of such Rizal, owned by Catalina Matienzo Fausto, under a
reservation fees, except those for February and March, Contract of Lease. On this property stands the Tanay
1990 were admitted by Victor Coliseum Cockpit operated by petitioner. The lease
contract provided for a 20-year term, subject to renewal
Petitioner also paid the P15,000.00 monthly within sixty days prior to its expiration. The contract also
rental fee on the subject property by depositing the same provided that should Fausto decide to sell the property,
in China Bank Savings Account No. 1-04-02558-I-1, in petitioner shall have the “priority right” to purchase the
the name of Victor as the sole heir of Encarnacion same.
Bartolome,1[19] for the months of March to July 30,
1990, or a total of five (5) months, despite the refusal of On June 17, 1991, petitioner wrote Fausto
Victor to turn over the subject property. informing her of its intention to renew the lease.
However, it was Fausto’s daughter, respondent
Anunciacion F. Pacunayen, who replied, asking that
1 2

petitioner remove the improvements built thereon, as to sell the property to anybody, even her relatives, at any
she is now the absolute owner of the property. It appears price until after she has made an offer to sell to petitioner
that Fausto had earlier sold the property to Pacunayen at a certain price and said offer was rejected by
and title has already been transferred in her name. petitioner.
Petitioner filed an Amended Complaint for Annulment of
Deed of Sale, Specific Performance with Damages, and
Injunction.
In her Answer, respondent claimed that

petitioner is estopped from assailing the validity of the
deed of sale as the latter acknowledged her ownership
when it merely asked for a renewal of the lease.
According to respondent, when they met to discuss the
matter, petitioner did not demand for the exercise of its
option to purchase the property, and it even asked for
grace period to vacate the premises.
ISSUE:
Whetehr or not petitioner’s priority right to

purchase also reffered to the right of first refusal?
HELD:
When a lease contract contains a right of first

refusal, the lessor is under a legal duty to the lessee not
to sell to anybody at any price until after he has made an
offer to sell to the latter at a certain price and the lessee
has failed to accept it. The lessee has a right that the
lessor's first offer shall be in his favor. Petitioner’s right of
first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole
contract. The consideration for the lease includes the
consideration for the right of first refusal and is built into
the reciprocal obligations of the parties. ESTATE OF LLENADO VS. LLENADO
March 4, 2009
It was erroneous for the CA to rule that the right
of first refusal does not apply when the property is sold
to Fausto’s relative. When the terms of an agreement FACTS:
have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can The subject of this controversy is a parcel of
be, between the parties and their successors in interest, land in Barrio Malinta, Valenzuela, and registered in the
no evidence of such terms other than the contents of the names of Eduardo Llenado and Jorge Llenado. The
written agreement, except when it fails to express the subject lot once formed part of Lot 249-D owned by and
true intent and agreement of the parties. In this case, the registered in the name of their father, Cornelio Llenado
wording of the stipulation giving petitioner the right of (Cornelio).
first refusal is plain and unambiguous, and leaves no
room for interpretation. It simply means that should On December 2, 1975, Cornelio leased to his
Fausto decide to sell the leased property during the term nephew, Romeo Llenado (Romeo), for a period of five
of the lease, such sale should first be offered to years, renewable for another five years at the option of
petitioner. Cornelio. On March 31, 1978, Cornelio, Romeo and the
latter’s cousin Orlando Llenado (Orlando) executed an
The stipulation does not provide for the Agreement whereby Romeo assigned all his rights to
qualification that such right may be exercised only when Orlando over the unexpired portion of the aforesaid
the sale is made to strangers or persons other than lease contract. The parties further agreed that Orlando
Fausto’s kin. Thus, under the terms of petitioner’s right shall have the option to renew the lease contract for
of first refusal, Fausto has the legal duty to petitioner not another three years commencing from December 3,

1980, up to December 2, 1983, renewable for another Petitioner alleged that the transfer and
four years or up to December 2, 1987, and that "during conveyance of the subject lot by Cornelio in favor of
the period that [this agreement] is enforced, the x x x respondents Eduardo and Jorge, was fraudulent and in
property cannot be sold, transferred, alienated or bad faith considering that the March 31, 1978
conveyed in whatever manner to any third party." Agreement provided that while the lease is in force, the
subject lot cannot be sold, transferred or conveyed to
Shortly thereafter or on June 24, 1978, Cornelio any third party; that the period of the lease was until
and Orlando entered into a Supplementary Agreement December 3, 1987 with the option to renew granted to
amending the March 31, 1978 Agreement. Under the Orlando; that the subject lot was transferred and
Supplementary Agreement, Orlando was given an conveyed to respondents Eduardo and Jorge on January
additional option to renew the lease contract for an 29, 1987 when the lease was in full force and effect
aggregate period of 10 years at five-year intervals, that making the sale null and void; that Cornelio verbally
is, from December 3, 1987 to December 2, 1992 and promised Orlando that in case he (Cornelio) decides to
from December 3, 1992 to December 2, 1997. The said sell the subject lot, Orlando or his heirs shall have first
provision was inserted in order to comply with the priority or option to buy the subject lot so as not to
requirements of Mobil Philippines, Inc. for the operation prejudice Orlando’s business and because Orlando is
of a gasoline station which was subsequently built on the the owner of the property adjacent to the subject lot; and
subject lot. that this promise was wantonly disregarded when
Cornelio sold the said lot to respondents Jorge and
Upon the death of Orlando on November 7, Eduardo.
1983, his wife, Wenifreda Llenado (Wenifreda), took
over the operation of the gasoline station. Meanwhile, on
January 29, 1987, Cornelio sold Lot 249-D to his ISSUE:
children, namely, Eduardo, Jorge, Virginia and Cornelio,
Jr., through a deed of sale, denominated as "Kasulatan Whether or not the sale of the subject lot by
sa Ganap Na Bilihan," for the sum of P160,000.00. As Cornelio to his sons, respondents Eduardo and Jorge, is
stated earlier, the subject lot, which forms part of Lot invalid for (1) violating the prohibitory clause in the lease
249-D, was sold to Eduardo and Jorge, and titled in their agreement between Cornelio and Orlando; (2)
names under TCT No. V-1689. Several months contravening the right of first refusal of Orlando over the
thereafter or on September 7, 1987, Cornelio passed subject lot.
away.
Sometime in 1993, Eduardo informed Wenifreda HELD:

of his desire to take over the subject lot. However, the
latter refused to vacate the premises despite repeated It is not disputed that the lease agreement
demands. Thus, Eduardo filed a complaint for unlawful contained an option to renew and a prohibition on the
detainer before the MTC against Wenifreda. sale of the subject lot in favor of third persons while the
lease is in force. Petitioner claims that when Cornelio
On July 22, 1996, the Metropolitan Trial Court sold the subject lot to respondents Eduardo and Jorge
rendered its Decision in favor of Eduardo and ordered the lease was in full force and effect, thus, the sale
Wenifreda to: (1) vacate the leased premises; (2) pay violated the prohibitory clause rendering it invalid. In
Eduardo reasonable compensation for the use and resolving this issue, it is necessary to determine whether
occupation of the premises plus attorney’s fees, and (3) the lease agreement was in force at the time of the
pay the costs of the suit. Winifreda appealed the subject sale and, if it was in force, whether the violation
decision and was reversed by the RTC but also reversed of the prohibitory clause invalidated the sale.
by the CA upon Eduardo’s appeal.
Under Article 1311 of the Civil Code, the heirs
Previously, after Eduardo instituted the aforesaid are bound by the contracts entered into by their
unlawful detainer case on September 24, 1993, herein predecessors-in-interest except when the rights and
petitioner Wenifreda, in her capacity as administratrix of obligations therein are not transmissible by their nature,
the estate of Orlando Llenado, judicial guardian of their by stipulation or by provision of law. A contract of lease
minor children, and surviving spouse and legal heir of is, therefore, generally transmissible to the heirs of the
Orlando, commenced the subject Complaint,11 later lessor or lessee. It involves a property right and, as
amended, on November 10, 1993 for annulment of deed such, the death of a party does not excuse non-
of conveyance, title and damages against herein performance of the contract. The rights and obligations
respondents Eduardo, Jorge, Feliza Llenado (mother of pass to the heirs of the deceased and the heir of the
the Llenado brothers), and the Register of Deeds of deceased lessor is bound to respect the period of the
Valenzuela, Metro Manila. lease. The same principle applies to the option to renew
the lease. As a general rule, covenants to renew a lease

are not personal but will run with the land. Consequently, positive act that Orlando or his heirs exercised the option
the successors-in-interest of the lessee are entitled to to renew the lease. After going over the records of this
the benefits, while that of the lessor are burdened with case, we find no evidence, testimonial or documentary,
the duties and obligations, which said covenants of such nature was presented before the trial court to
conferred and imposed on the original parties. prove that Orlando or his heirs exercised the option to
The foregoing principles apply with greater force in this renew prior to or at the time of the expiration of the lease
case because the parties expressly stipulated in the on December 3, 1983. In particular, the testimony of
March 31, 1978 Agreement that Romeo, as lessee, shall petitioner Wenifreda is wanting in detail as to the events
transfer all his rights and interests under the lease surrounding the implementation of the subject lease
contract with option to renew "in favor of the party of the agreement after the death of Orlando and any overt acts
Third Part (Orlando), the latter’s heirs, successors and to establish the renewal of said lease.
assigns" indicating the clear intent to allow the
transmissibility of all the rights and interests of Orlando Given the foregoing, it becomes unnecessary to
under the lease contract unto his heirs, successors or resolve the issue on whether the violation of the
assigns. Accordingly, the rights and obligations under prohibitory clause invalidated the sale and conferred
the lease contract with option to renew were transmitted ownership over the subject lot to Orlando’s heirs, who
from Orlando to his heirs upon his death on November 7, are mere lessees, considering that at the time of said
1983. sale on January 29, 1987 the lease agreement had long
been terminated for failure of Orlando or his heirs to
It does not follow, however, that the lease validly renew the same. As a result, there was no
subsisted at the time of the sale of the subject lot on obstacle to the sale of the subject lot by Cornelio to
January 29, 1987. When Orlando died on November 7, respondents Eduardo and Jorge as the prohibitory
1983, the lease contract was set to expire 26 days later clause under the lease contract was no longer in force.
or on December 3, 1983, unless renewed by Orlando’s
heirs for another four years. While the option to renew is Petitioner also anchors its claim over the subject
an enforceable right, it must necessarily be first lot on the alleged verbal promise of Cornelio to Orlando
exercised to be given effect. that should he (Cornelio) sell the same, Orlando would
be given the first opportunity to purchase said property.
There is no dispute that in the instant case, the According to petitioner, this amounted to a right of first
lessees (private respondents) were granted the option to refusal in favor of Orlando which may be proved by
renew the lease for another five (5) years after the parole evidence because it is not one of the contracts
termination of the original period of fifteen years. Yet, covered by the statute of frauds. Considering that
there was never any positive act on the part of private Cornelio sold the subject lot to respondents Eduardo and
respondents before or after the termination of the Jorge without first offering the same to Orlando’s heirs,
original period to show their exercise of such option. The petitioner argues that the sale is in violation of the latter’s
silence of the lessees after the termination of the original right of first refusal and is, thus, rescissible.
period cannot be taken to mean that they opted to renew
the contract by virtue of the promise by the lessor, as
stated in the original contract of lease, to allow them to
renew. Neither can the exercise of the option to renew
be inferred from their persistence to remain in the
premises despite petitioners’ demand for them to vacate.
GILCHRIST VS. CUDDY
Similarly, the election of the option to renew the 29 Phil 542
lease in this case cannot be inferred from petitioner
Wenifreda’s continued possession of the subject lot and
operation of the gasoline station even after the death of FACTS:
Orlando on November 7, 1983 and the expiration of the
lease contract on December 3, 1983. In the unlawful Cuddy leased a cinematograph film ‘Zigomar” to
detainer case against petitioner Wenifreda and in the Gilchrist who owned a theater inIloilo for one week
subject complaint for annulment of conveyance, beginning May 26, 1913 at an agreed rental of P125.00.
respondents consistently maintained that after the death DefendantsEspejo and Zaldariaga induced their co-
of Orlando, the lease was terminated and that they defendant Cuddy to break his contract of leasewith plaintiff
permitted petitioner Wenifreda and her children to Gilchrist by offering Cuddy a rental of P350.00.
remain in possession of the subject property out of
tolerance and respect for the close blood relationship
between Cornelio and Orlando. It was incumbent, ISSUE:
therefore, upon petitioner as the plaintiff with the burden
of proof during the trial below to establish by some

Whether or not such acts of Espejo and Zaldariaga

were actionable and if so under what legal principle?
HELD:
“The liability of the appellants (Espejo

and Zaldariaga) arises from unlawful actsand
not from contractual obligations, as they were
under no such obligation to induce Cuddy to violate
his contract with Gilchrist. So that if the action of Gilchrist
had been onefor damages, it would be governed
by Chapter 2, title 16, book 4 of the (Spanish)
CivilCode. Article 1902 of that code provides that a
person who, by act or omission, causesdamage to another
when there is fault or negligence, shall be obliged to repair the
damageso done. There is nothing in this article
which requires as a condition precedent to
theliability of a tortfeasor that he must know the
identity of a person to whom he causesdamage.
In fact, the chapter wherein this article is found
clearly shows that no such knowledge is required in order
that the injured party may recover for the damage suffered.”
MONTECILLO V. REYNES
JULY 26, 2002
FACTS:
Ignacia Reynes is the owner of a lot situated in

Mabolo, Cebu City, with an area of 448 square meters. In
1981, Reynes sold 185 square meters of the Mabolo Lot
to the Abucay Spouses who built a residential house on
the lot they bought. Reynes alleged further that on March
1, 1984 she signed a Deed of Sale of the Mabolo Lot in
favor of Montecillo. Reynes, being illiterate, signed by
affixing her thumb-mark on the document. Montecillo
promised to pay the agreed P47,000.00 purchase price
within one month from the signing of the Deed of Sale.
Reynes further alleged that Montecillo failed to pay the
purchase price after the lapse of the one-month period,
prompting Reynes to demand from Montecillo the return
of the Deed of Sale. Since Montecillo refused to return

the Deed of Sale, Reynes executed a document Deed of Sale has all the requisites of a valid contract.
unilaterally revoking the sale and gave a copy of the Montecillo asserts there is no lack of consideration that
document to Montecillo. Subsequently, Reynes signed a would prevent the existence of a valid contract.
Deed of Sale transferring to the Abucay Spouses the Montecillo argues there is only a breach of his obligation
entire Mabolo Lot, and at the same time confirmed the to pay the full purchase price on time. Such breach
previous sale in 1981 of a 185-square meter portion of merely gives Reynes a right to as k for specific
the lot. performance, or for annulment of the obligation to sell the
Mabolo Lot under Art. 1191. Montecillo also asserts that
Reynes and the Abucay Spouses alleged that the only issue in controversy is “the mode and/or manner
on June 18, 1984 they received information that the of payment and/or whether or not payment has been
Register of Deeds of Cebu City issued Certificate of Title made.” Montecillo implies that the mode or manner of
No. 90805 in the name of Montecillo for the Mabolo Lot. payment is separate from the consideration and does not
Reynes and Spouses Abucay then filed a complaint for affect the validity of the contract.
Declaration of Nullity and Quieting of Title against
petitioner Rido Montecillo. Reynes and the Abucay
Spouses argued that “for lack of consideration there was
no meeting of the minds” between Reynes and Montecillo ISSUES:
.
1. Was there an agreement between Reynes and
In his Answer, Montecillo, a bank executive with Montecillo that the stated consideration of P47,000.00 in
a B.S. Commerce degree claimed he was a buyer in the Deed of Sale be paid to Cebu Ice and Cold Storage
good faith and had actually paid the P47,000.00 to secure the release of the Transfer Certificate of Title?
consideration stated in his Deed of Sale. Montecillo,
2. If there was none, is the Deed of Sale void
however, admitted he still owed Reynes a balance of
from the beginning or simply rescissible?
P10,000.00. He also alleged that he paid P50,000.00 for
the release of the chattel mortgage which he argued
constituted a lien on the Mabolo Lot. He further alleged
that he paid for the real property tax as well as the capital
gains tax on the sale of the Mabolo Lot. Montecillo also
claimed that the consideration for the sale of the Mabolo
Lot was the amount he paid to Cebu Ice and Cold
Storage Corporation for the mortgage debt of Bienvenido
Jayag. Montecillo argued that the release of the
mortgage was necessary since the mortgage constituted
a lien on the Mabolo Lot.
The trial court rendered a decision declaring the HELD:

Deed of Sale to Montecillo null and void and ordered the
cancellation of Montecillo’s Transfer Certificate of Title 1. NONE . Montecillo’s Deed of Sale does
No. 90805 and the issuance of a new certificate of title in not state that the P47,000.00 purchase price should be
favor of the Abucay Spouses. The trial court found that paid by Montecillo to Cebu Ice Storage. Montecillo failed
Montecillo’s Deed of Sale had no cause or consideration to adduce any evidence before the trial court showing
because Montecillo never paid Reynes the P47,000.00 that Reynes had agreed, verbally or in writing, that the
purchase price, contrary to what is stated in the Deed of P47,000.00 purchase price should be paid to Cebu Ice
Sale that Reynes received the purchase price. The trial Storage. Absent any evidence showing that Reynes had
court ruled that Montecillo’s Deed of Sale produced no agreed to the payment of the purchase price to any other
effect whatsoever for want of consideration. Not satisfied party, the payment to be effective must be made to
with the trial court’s Decision, Montecillo appealed the Reynes, the vendor in the sale. Thus, Montecillo’s
same to the Court of Appeals. The CA affirmed the payment to Cebu Ice Storage is not the payment that
Decision of the trial court in toto and dismissed the would extinguish Montecillo’s obligation to Reynes under
appeal. Still dissatisfied, Montecillo filed the present the Deed of Sale. The trial court found that Reynes had
petition for review on certiorari. Montecillo argues that his nothing to do with Jayag’s mortgage debt with Cebu Ice
Storage. The trial court made the following findings of
fact that Ignacia Reynes was not a party to nor privy of disagreement on the manner of its payment will not result
the obligation in favor of the Cebu Ice and Cold Storage in consent, thus preventing the existence of a valid
Corporation, the obligation being exclusively of contract for lack of consent . This lack of consent is
Bienvenido Jayag and wife who mortgaged their separate and distinct from lack of consideration where
residential house constructed on the land subject matter the contract states that the price has been paid when in
of the complaint. The payment by the defendant to fact it has never been paid.
release the residential house from the mortgage is a
matter between him and Jayag and cannot by implication In summary, Montecillo’s Deed of Sale is null and
or deception be made to appear as an encumbrance void ab initio not only for lack of consideration, but also
upon the land. Thus, Montecillo’s payment to Jayag’s for lack of consent.
creditor could not possibly redound to the benefit of
Reynes.
2. VOID AB INITIO Under Article 1318 of the

Civil Code, “[T]here is no contract unless the following
requisites concur: (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the
contract; (3) Cause of the obligation which is
established.” Article 1352 of the Civil Code also provides
that “[C]ontracts without cause x x x produce no effect
whatsoever.”
On its face, Montecillo’s Deed of Absolute Sale

appears supported by a valuable consideration.
However, based on the evidence presented by both
Reynes and Montecillo, the trial court found that
Montecillo never paid to Reynes, and Reynes never
received from Montecillo, the P47,000.00 purchase price.
There was indisputably a total absence of consideration
contrary to what is stated in Montecillo’s Deed of Sale.
Where the deed of sale states that the purchase price
has been paid but in fact has never been paid, the deed
of sale is null and void ab initio for lack of consideration.
This is not merely a case of failure to pay the FRANCISCO V. HERRERA

purchase price, as Montecillo claims, which can only
amount to a breach of obligation with rescission as the FACTS:
proper remedy. What we have here is a purported
Eligio Herrera, Sr., the father of respondent,
contract that lacks a cause - one of the three essential
was the owner of two parcels of land, one consisting of
requisites of a valid contract. Failure to pay the
500 sq. m.(First parcel of land) and another consisting of
consideration is different from lack of consideration. The
451 sq. m.(Second Parcel of land), both were located at
former results in a right to demand the fulfillmentor
Barangay San Andres, Cainta, Rizal. Julian Francisco
cancellation of the obligation under an existing valid
bought from said landowner the first parcel for the price
contract while the latter prevents the existence of a valid
of P1,000,000, paid in installments from November 30,
contract.
1990 to August 10, 1991. Later, petitioner bought the
One of the three essential requisites of a valid second parcel for P750,000. Contending that the contract
contract is consent of the parties on the object and cause price for the two parcels of land was grossly inadequate,
of the contract. In a contract of sale, the parties must the children of Eligio, Sr. tried to negotiate with petitioner
agree not only on the price, but also on the manner of to increase the purchase price. When petitioner refused,
payment of the price. An agreement on the price but a herein respondent then filed a complaint for annulment of

sale, with the RTC of Antipolo City. those where one of the essential requisites of a valid
contract as provided for by Article 1318 of the Civil Code
In his complaint, respondent claimed ownership is totally wanting; and (2) those declared to be so under
over the second parcel, allegedly by virtue of a sale in his Article 1409 of the Civil Code. By contrast, a voidable or
favor since 1973. He likewise claimed that the first parcel annullable contract is one in which the essential
was subject to the co-ownership of the surviving heirs of requisites for validity under Article 1318 are present, but
Francisca A. Herrera, the wife of Eligio, Sr., considering vitiated by want of capacity, error,violence, intimidation,
that she died intestate on April 2, 1990, before the undue influence, or deceit. Article 1318 of the Civil Code
alleged sale to petitioner. Finally, respondent also states that no contract exists unless there is a
alleged that the sale of the two lots was null and void on concurrence of consent of the parties, object certain as
the ground that at the time of sale, Eligio, Sr. was already subject matter, and cause of the obligation established.
incapacitated to give consent to a contract because he Article 1327 provides that insane or demented persons
was already afflicted with senile dementia, cannot give consent to a contract. But, if an insane or
characterized by deteriorating mental and physical demented person does enter into a contract, the legal
condition including loss of memory. In his answer, effect is that the contract is voidable or annullable as
petitioner as defendant below alleged that respondent specifically provided in Article 1390.
was estopped from assailing the sale of the lots.
Petitioner contended that respondent had effectively In the present case, it was established that the
ratified both contracts of sales, by receiving the vendor Eligio, Sr. entered into an agreement with
consideration offered in each transaction. The RTC ruled petitioner, but that the former’s capacity to consent was
in favor of respondent, which decision was affirmed by vitiated by senile dementia. Hence, we must rule that the
the CA. assailed contracts are not void or inexistent per se;
rather, these are contracts that are valid and binding
Francisco elevated the matter to the SC via a unless annulled through a proper action filed in court
petition for review on certiorari. He argues that the seasonably. An annullable contract may be rendered
contracts of sale in the instant case, following Article perfectly valid by ratification, which can be express or
1390 of the Civil Code are merely voidable and not void implied. Implied ratification may take the form of
ab initio. Hence, said contracts can be ratified. Petitioner accepting and retaining the benefits of a contract. This is
argues that while it is true that a demented person cannot what happened in this case. Respondent’s contention
give consent to a contract pursuant to Article 1327, that he merely received payments on behalf of his father
nonetheless the dementia affecting one of the parties will merely to avoid their misuse and that he did not intend to
not make the contract void per se but merely voidable. concur with the contracts is unconvincing. If he was not
Hence, when respondent accepted the purchase price on agreeable with the contracts, he could have prevented
behalf of his father who was allegedly suffering from petitioner from delivering the payments, or if this was
senile dementia, respondent effectively ratified the impossible, he could have immediately instituted the
contracts. The ratified contracts then become valid and action for reconveyance and have the payments
enforceable as between the parties. consigned with the court. None of these happened. As
found by the trial court and the Court of Appeals, upon
learning of the sale, respondent negotiated for the
ISSUE: increase of the purchase price while receiving the
installment payments. It was only when respondent failed
Are the assailed contracts of sale void or merely to convince petitioner to increase the price that the
voidable and hence capable of being ratified? former instituted the complaint for reconveyance of the
properties. Clearly, respondent was agreeable to the
contracts, only he wanted to get more. Further, there is
no showing that respondent returned the payments or
HELD:
made an offer to do so. This bolsters the view that indeed
VIODABLE . A void or inexistent contract is one there was ratification. One cannot negotiate for an
which has no force and effect from the very beginning. increase in the price in one breath and in the same
Hence, it is as if it has never been entered into and breath contend that the contract of sale is void.
cannot be validated either by the passage of time or by
Nor can we find for respondent’s argument that
ratification. There are two types of void contracts: (1)
the contracts were void as Eligio, Sr., could not sell the
lots in question as one of the properties had already been
sold to him, while the other was the subject of a co-
ownership among the heirs of the deceased wife of
Eligio, Sr. Note that it was found by both the trial court
and the Court of Appeals that Eligio, Sr., was the
“declared owner” of said lots. This finding is conclusive
on us. As declared owner of said parcels of land, it
follows that Eligio, Sr., had the right to transfer the
ownership thereof under the principle of jus disponendi.
In sum, the appellate court erred in sustaining the
judgment of the trial court that the deeds of sale of the
two lots in question were null and void.
CORONEL V. CONSTANTINO
FACTS:
The subject property consists of two parcels of

land situated in Sta. Monica, Hagonoy, Bulacan,
designated as Cadastral Lots Nos. 5737 and 5738. The
property is originally owned by Honoria Aguinaldo. One-
half (1/2) of it was inherited by Emilia Meking Vda. de
Coronel together with her sons Benjamin, Catalino and
Ceferino, all surnamed Coronel. The other half was
inherited by Florentino Constantino and Aurea
Buensuceso. Constantino and Buensuceso filed a

complaint for declaration of ownership, quieting of title SA KATUNAYAN NITO, kami ay lumagda sa kasulatang
and damages with prayer for writ of mandatory and/or ito sa bayan ng Malabon, Rizal
prohibitory injunction with the Regional Trial Court of
Bulacan (Branch 8) against Benjamin, Emilia and John ngayong ika-23 ng Abril, 1981.
Does. Plaintiffs allege that: on April 23, 1981, Jess C.
(Signed) (Signed)
Santos and Priscilla Bernardo purchased the property
belonging to Emilia and her sons by virtue of a deed of EMILIA MICKING Vda. CORONEL JESS C. SANTOS
sale signed by Emilia for the amount of P25,000; on
June 21, 1990, Santos and Bernardo in turn sold the Nagbili Nakabili
same to Constantino and Buensuceso by virtue of a
compromise agreement in Civil Case No. 8289-M; they (Unsigned) (Signed)
are the owners of the subject property and defendants
BENJAMIN M. CORONEL PRISCILLA BERNARDO
have illegally started to introduce construction on the
premises in question; and pray that “defendants respect, Nagbili Nakabili”
acknowledge and confirm the right of ownership of the
plaintiffs to the share, interest and participation of the
one-third (1/3) portion of the above described property”.
The RTC ruled in favor of the plaintiffs. On appeal, the Thus, it is clear, as already stated, that petitioner
CA affirmed the decision of the lower court. Benjamin did not sign the document and that the shares
of Catalino and Ceferino in the subject property were not
sold by them. Since the shares of Catalino and Ceferino
were not sold, plaintiffs Constantino and Buensuceso
ISSUES: have no cause of action against them or against any of
their heirs. In the present case, the heirs of Catalino and
1. Whether or not the contract of sale executed
Ceferino are not indispensable parties because a
by a parent co-owner, in her own behalf, is unenforceable
complete determination of the rights of herein petitioners
with respect to the shares of her co-heirs children?
and respondents can be had even if the said heirs are
2. Whether or not the minor children can ratify not impleaded. Besides, it is undisputed that petitioners
unauthorized actions of their parents? never raised before the trial court the issue of the private
respondents’ failure to implead said heirs in their
3. Whether or no the co-heirs are indispensable complaint. Instead, petitioners actively participated in the
defendants in an action for declaration of ownership and proceedings in the lower court and raised only the said
quieting of title? issue on appeal with the Court of Appeals. In the present
case, petitioners’ participation in all stages of the case
during trial, without raising the issue of the trial court’s
lack of jurisdiction over indispensable parties, estops
them from challenging the validity of the proceedings
therein.
HELD: Further, the deed of sale is not a competent

proof that petitioner Benjamin had sold his own share of
A careful reading of the “Kasulatan ng Bilihang the subject property. It cannot be disputed that Benjamin
Patuluyan” which is a private document, not having been did not sign the document and therefore, it is
duly notarized, shows that only the share of Emilia in the unenforceable against him. Emilia executed the
subject property was sold because Benjamin did not sign instrument in her own behalf and not in representation of
the document and the shares of Ceferino and Catalino her three children. Consequently, the sale of the subject
were not subject of the sale. Pertinent portions of the property made by Emilia in favor of Santos and Bernardo
document read as follows: is limited to the portion which may be allotted to her upon
the termination of her co-ownership over the subject
property with her children.
“KASULATAN NG BILIHANG PATULUYAN” The three sons of Emilia did not ratify the sale.

“Ratification means that one under no disability

voluntarily adopts and gives sanction to some
unauthorized act or defective proceeding, which without
hissanction would not be binding on him. It is this
voluntary choice, knowingly made, which amounts to a
ratification of what was theretofore unauthorized, and
becomes the authorized act of the party so making the
ratification. No evidence was presented to show that the
three brothers were aware of the sale made by their
mother. Unaware of such sale, Catalino, Ceferino and
Benjamin could not be considered as having voluntarily
remained silent and knowingly chose not to file an action
for the annulment of the sale. Their alleged silence and
inaction may not be interpreted as an act of ratification on
their part.
To repeat, the sale is valid insofar as the share

of petitioner Emilia Meking Vda. de Coronel is concerned.
Hence, Jess C. Santos and Priscilla Bernardo, who
purchased the share of Emilia, became co-owners of the
subject property together with Benjamin and the heirs of
Ceferino and Catalino. As such, Santos and Bernardo
could validly dispose of that portion of the subject
property pertaining to Emilia in favor of herein private
respondents Constantino and Buensuceso. However, the
particular portions properly pertaining to each of the co-
owners are not yet defined and determined as no
partition in the proper forum or extrajudicial settlement
among the parties has been effected among the parties.
Consequently, the prayer of respondents for a

mandatory or prohibitory injunction lacks merit. Plaintiffs-
private respondents Florentino Constantino and Aurea
Buensuceso are declared owners of one-half (1/2)
undivided portion of the subject property plus the one-
fourth (¼) undivided share of defendant-petitioner Emilia
Meking Vda. de Coronel; and, defendant-petitioner
Benjamin Coronel together with the heirs of Catalino
Coronel and the heirs of Ceferino Coronel are declared
owners of one-fourth (¼) share each of the other one-half LAUDICO V. ARIAS
(1/2) portion of the subject property, without prejudice to
the parties entering into partition of the subject property,
judicial or otherwise.
FACTS:
Vicente Arias, who, with his co-defendants,

owned the building Nos. 205 to 221 on Carriedo Street,
on his behalf and that of his co-owners, wrote a letter to
the plaintiff, Mamerto Laudico, giving him an option to
lease the building to a third person, and transmitting to
him for that purpose a tentative contract in writing
containing the conditions upon which the proposed lease
should be made. Later Mr. Laudico presented his co-
plaintiff, Mr. Fred. M. Harden, as the party desiring to Our attention has been called to a doctrine laid
lease the building. On one hand, other conditions were down in some decisions to the effect that ordinarily notice
added to those originally contained in the tentative of the revocation of an offer must be given to avoid an
contract, and, on the other, counter-propositions were acceptance which may convert in into a binding contract,
made and explanations requested on certain points in and that no such notice can be deemed to have been
order to make them clear. These negotiations were given to the person to whom the offer was made unless
carried on by correspondence and verbally at interviews the revocation was in fact brought home to his
held with Mr. Vicente Arias, no definite agreement having knowledge.
been arrived at until the plaintiff, Mr. Laudico, finally wrote
a letter to Mr. Arias on March 6, 1919, advising him that This, however, has no application in the instant
all his propositions, as amended and supplemented, case, because when Arias received the letter of
were accepted. It is admitted that this letter was received acceptance, his letter of revocation had already been
by Mr. Arias by special delivery at 2.53 p.m. of that day. received. The latter was sent through a messenger at
On that same day, at 11.25 in the morning, Mr. Arias had, 11.25 in the morning directly to the office of Laudico and
in turn, written a letter to the plaintiff, Mr. Laudico, should have been received immediately on that same
withdrawing the offer to lease the building. morning, or at least, before Arias received the letter of
acceptance. On this point we do not give any credence to
The chief prayer of the plaintiff in this action is the testimony of Laudico that he received this letter of
that the defendants be compelled to execute the contract revocation at 3.30 in the afternoon of that day. Laudico is
of lease of the building in question. It thus results that interested in destroying the effect of this revocation so
when Arias sent his letter of withdrawal to Laudico, he that the acceptance may be valid, which is the principal
had not yet received the letter of acceptance, and when it ground of his complaint.
reached him, he had already sent his letter of withdrawal.
But even supposing Laudico's testimony to be
true, still the doctrine invoked has no application here.
With regard to contracts between absent persons there
ISSUE: are two principal theories, to wit, one holding that an
acceptance by letter of an offer has no effect until it
Whether or not there was a perfected contract of
comes to the knowledge of the offerer, and the other
lease between the parties?
maintaining that it is effective from the time the letter is
sent. The Civil Code, in paragraph 2 of article 1262, has
adopted the first theory and, according to its most
HELD: eminent commentators, it means that, before the
acceptance is known, the offer can be revoked, it not
None. Under article 1262, paragraph 2, of the being necessary, in order for the revocation to have the
Civil Code, an acceptance by letter does not have any effect of impeding the perfection of the contract, that it be
effect until it comes to the knowledge of the offerer. known by the acceptant.Mucius Scaevola says apropros:
Therefore, before he learns of the acceptance, the latter "To our mind, the power to revoke is implied in the
is not yet bound by it and can still withdraw the offer. criterion that no contract exists until the acceptance is
Consequently, when Mr. Arias wrote Mr. Laudico, known. As the tie or bond springs from the meeting or
withdrawing the offer, he had the right to do so, inasmuch concurrence of the minds, since up to that moment there
as he had notyet receive notice of the acceptance. And exists only a unilateral act, it is evident that he who
when the notice of the acceptance was received by Mr. makes it must have the power to revoke it by withdrawing
Arias, it no longer had any effect, as the offer was not his proposition, although with the obligation to pay such
then in existence, the same having already been damages as may have been sustained by the person or
withdrawn. There was no meeting of the minds, through persons to whom the offer was made and by whom it was
offer and acceptance, which is the essence of the accepted, if he in turn failed to give them notice of the
contract. While there was an offer, there was no withdrawal of the offer. This view is confirmed by the
acceptance, and when the latter was made and could provision of article 1257, paragraph 2, concerning the
have a binding effect, the offer was then lacking. Though case where a stipulation is made in favor of a third
both the offer and the acceptance existed, they did not person, which provision authorizes the contracting parties
meet to give birth to a contract. to revoke the stipulation before the notice of its

acceptance. That case is quite similar to that under

comment, as said stipulation in favor of a third person
(who, for the very reason of being a third person, is not a
contracting party) is tantamount to an offer made by the
makers of the contract which may or may not be
accepted by him, and which does not have any effect
until the obligor is notified, and may, before it is accepted,
be revoked by those who have made it; therefore, the
case being similar, the same rule applies."
VILLANUEVA V. CA
FACTS:
In 1991, private respondent, Almario Go Manuel

filed a civil action for sum of money with damages before
the Regional Trial Court of Cebu City, Branch 8 against
petitioner, Felix Villanueva and his wife Melchora. The
subject matter of the action involved a check dated June
30, 1991 in the amount of P167,600.00 issued by

petitioner in favor of private respondent. The check I. When an obligation, regardless of its source, i.e., law,
supposedly represented payment of loans previously contracts, quasi-contracts, delicts or quasi-delicts is
obtained by petitioner from private respondent as capital breached, the contravenor can be held liable for
for the former's mining and fertilizer business. The check damages. The provisions under Title XVII on "Damages"
when duly represented for payment was dishonored due of the Civil Code govern in determining the measure of
to insufficiency of funds. A demand was made upon recoverable damages.
petitioner to make good the check but he failed to do so.
Private respondent then filed a criminal complaint for II. With regard particularly to an award of interest in the
violation of Batas Pambansa Bilang 22 before the Cebu concept of actual and c ompensatory damages, the rate
City Prosecutor's Office and the subject civil complaint for of interest, as well as the accrual thereof, is imposed, as
sum of money. Petitioner, on the other hand, avers that follows:
his principal obligation only amounts to P23,420.00. The
1. When the obligation is breached, and it consists in the
RTC ruled in favor of private respondent directing payment of a sum of money, i.e., a loan or forbearance of
Villanueva to pay P167,600. Apparently aggrieved, both money, the interest due is that which may have been stipulated
parties appealed the decision to the Court of Appeals. in writing. Furthermore, the interest due shall itself earn legal
Petitioner prayed for the reversal of the trial court's interest from the time it is judicially demanded. In the absence
decision and contended that his principal obligation is of stipulation, the rate of interest shall be 12% per annum to be
only P23,420.00, while private respondent sought interest computed from default, i.e., from judicial or extrajudicial demand
of ten percent (10%) of the principal obligation; twenty- under and subject to the provisions of Article 1169 of the Civil
Code.
five percent (25%) as attorney's fees, as well as moral
and exemplary damages. 2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
The Court of Appeals dismissed the petition and awarded may be imposed at the discretion of the court at the
affirmed the decision of the trial court subject to the rate of 6% per annum. .
modification that petitioner was directed to additionally
pay private respondent attorney's fees and litigation 3. When the judgment of the court awarding a sum of money
expenses in the amount of ten (10%) percent of becomes final and executory, the rate of legal interest, whether
P167,000.00, and the entire obligation to earn interest at the case falls under paragraph 1 or paragraph 2, above, shall
be 12% per annum from such finality until its satisfaction, this
six (6%) percent per annum from the filing of the
interim period being deemed to be by then an equivalent to a
complaint. Petitioner now comes before this Court
forbearance of credit.
basically alleging the same issues raised before the
Court of Appeals as follows: (a) the Court of Appeals Applying the foregoing rules, since the principal
erred in not ruling that the five (5%) and ten (10%) obligation in the amount of P167,600.00 is a loan, the
percent interest imposed is not enforceable due to same should earn legal interest at the rate of 12% per
absence of such stipulation in writing; (b) the Court of annum computed from the time the complaint was filed
Appeals erred in not finding that petitioner is only liable until the finality of this decision. On the other hand, if the
for the amount P23,420.00; and (c) the Court of Appeals total obligation is not satisfied it shall further earn legal
erred in not declaring that the Central Bank and Monetary interest at the rate of 12% per annum computed from the
Board has no power or authority to repeal the usury law. finality of the decision until payment thereof, the interim
period being deemed to be a forbearance of credit.
ISSUE:
ADELFA PROPERTIES vs. CA
Whether or not the interest imposed is valid?
FACTS:
HELD:
Rosario-Jimenez Castaneda, Salud Jimenez
As regards the matter of legal interest, this
(private respondents), their brothers Jose and Dominador
Court, in the case of Eastern Shipping Lines, Inc. v. Court
Jimenez were co-owners of a registered land located in
of Appeals laid down the following guidelines:
Las Pinas. Jose and Dominador entered into an

Agreement to Sell with Adelfa with respect to the eastern contract?

portion of the land which was apportioned to the two
brothers through an extrajudicial partition among the 2. Whether or not there was a valid suspension
siblings. of payment of the purchase price by said petitioner, and
the legal effects thereof on the contractual relations of the
Adelfa also wished to buy the western portion parties?
belonging to private respondents so petitioner and private
respondents executed an Exclusive Option to Purchase
the property amounting to P2,856,150.00. P50,000 was
HELD:
agreed to be paid as option money which shall be
credited as partial payment. Upon failure of Adelfa to pay The distinction between the two is important for
the balance, the option shall be cancelled and that 50% in contract of sale, the title passes to the vendee upon
of the option money will be forfeited while the other 50% the delivery of the thing sold; whereas in a contract to
will be returned to Adelfa when the property will be sold sell, by agreement the ownership is reserved in the
to another. vendor and is not to pass until the full payment of the
price. In a contract of sale, the vendor has lost and
Atty. Bernardo, counsel of private respondents,
cannot recover ownership until and unless the contract is
held the title of Salud until it was turned over to Adelfa.
resolved or rescinded; whereas in a contract to sell, title
The latter then made annotations on the title of the
is retained by the vendor until the full payment of the
exclusive option to purchase. Before Adelfa was able to
price, such payment being a positive suspensive
pay the balance of the price, the nephews and nieces of
condition and failure of which is not a breach but an
private respondents filed an action for recovery of
event that prevents the obligation of the vendor to convey
ownership against Adelfa, private respondents, Jose and
title from becoming effective. Thus, a deed of sale is
Dominador Jimenez. Adelfa then notified private
considered absolute in nature where there is neither a
respondents that they should settle the case with their
stipulation in the deed that title to the property sold is
nephews and nieces while the payment was suspended
reserved in the seller until the full payment of the price,
until the matter was resolved. Salud attributed the action
nor one giving the vendor the right to unilaterally resolve
of Adelfa as “lack of word of honor”. Subsequently, the
the contract the moment the buyer fails to pay within a
case filed by their nephews and nieces were dismissed.
fixed period.
On that same day, a deed of conditional sale was
executed in favor of Emylene Chua byprivate The parties never intended to transfer ownership
respondents. Adelfa, upon learning of the dismissal of the to petitioner except upon the full payment of the purchase
case informed private respondents, through Atty. price. Firstly, the exclusive option to purchase, although it
Bernardo, of its willingness to pay the purchase price and provided for automatic rescission of the contract and
that the necessary deed of sale be given in its favor. partial forfeiture of the amount already paid in case of
Private respondents ignored the same. Subsequently, default, does not mention that petitioner is obliged to
private respondents returned the 50% of the option price return possession or ownership of the property as a
and asked Adelfa to return the title. Judgment of the trial consequence of non-payment. There is no stipulation
court held that that the agreement entered into by the anent reversion or reconveyance of the property to herein
parties was merely an option contract, and declaring that private respondents in the event that petitioner does not
the suspension of payment by herein petitioner comply with its obligation. With the absence of such a
constituted a counter-offer which, therefore, was stipulation, although there is a provisionon the remedies
tantamount to a rejection of the option. The CA affirmed available to the parties in case of breach, it may legally
this decision. be inferred that the parties never intended to transfer
ownership to the petitioner to completion of payment of
the purchase price.
ISSUES:
1. Whether of not the "Exclusive Option to

The controverted document should legally be
Purchase" executed between petitioner Adelfa
considered as a perfected contract to sell. An option, as
Properties, Inc. and private respondents Rosario
used in the law on sales, is a continuing offer or contract
Jimenez-Castañeda and Salud Jimenez is an option

by which the owner stipulates with another that the latter a party becomes binding only when it is accepted by the
shall have the right to buy the property at a fixed price other. In the case of private respondents, they actually
within a certain time, or under, or in compliance with, refused to concur in said offer of petitioner, by reason of
certain terms and conditions, or which gives to the owner which the original terms of the contract continued to be
of the property the right to sell or demand a sale. It is also enforceable.
sometimes called an "unaccepted offer." An option is not
of itself a purchase, but merely secures the privilege to At any rate, the same cannot be considered a
buy. It is not a sale of property but a sale of property but counter-offer for the simple reason that petitioner's sole
a sale of the right to purchase. It is simply a contract by purpose was to settle the civil case in order that it could
which the owner of property agrees with another person already comply with its obligation. In fact, it was even
that he shall have the right to buy his property at a fixed indicative of a desire by petitioner to immediately comply
price within a certain time. He does not sell his land; he therewith, except that it was being prevented from doing
does not then agree to sell it; but he does sell something, so because of the filing of the civil case which, it believed
that it is, the right or privilege to buy at the election or in good faith, rendered compliance improbable at that
option of the other party. Its distinguishing characteristic time. In addition, no inference can be drawn from that
is that it imposes no bindingobligation on the person suggestion given by petitioner that it was totally
holding the option, aside from the consideration for the abandoning the original contract.
offer. Until acceptance, it is not, properly speaking, a
The test in determining whether a contract is a
contract, and does not vest, transfer, or agree to transfer,
"contract of sale or purchase" or a mere "option" is
any title to, or any interest or right in the subject matter,
whether or not the agreement could be specifically
but is merely a contract by which the owner of property
enforced. There is no doubt that the obligation of
gives the optionee the right or privilege of accepting the
petitioner to pay the purchase price is specific, definite
offer and buying the property on certain terms.
and certain, and consequently binding and enforceable.
On the other hand, a contract, like a contract to Had private respondents chosen to enforce the contract,
sell, involves a meeting of minds two persons whereby they could have specifically compelled petitioner to pay
one binds himself, with respect to the other, to give the balance of P2,806,150.00. This is distinctly made
something or to render some service. Contracts, in manifest in the contract itself as an integral stipulation,
general, are perfected by mere consent, which is compliance with which could legally and definitely be
manifested by the meeting of the offer and the demanded from petitioner as a consequence.
acceptance upon the thing and the cause which are to
The alleged option money of P50,000.00 was
constitute the contract. The offer must be certain and the
actually earnest money which was intended to form part
acceptance absolute.
of the purchase price. The amount of P50,000.00 was not
The distinction between an "option" and a distinct from the cause or consideration for the sale of the
contract of sale is that an option is an unaccepted offer. It property, but was itself a part thereof. It is a statutory rule
states the terms and conditions on which the owner is that whenever earnest money is given in a contract of
willing to sell the land, if the holder elects toaccept them sale, it shall be considered as part of the price and as
within the time limited. If the holder does so elect, he proof of the perfection of the contract. It constitutes an
must give notice to the other party, and the accepted advance payment and must, therefore, be deducted from
offer thereupon becomes a valid and binding contract. If the total price. Also, earnest money is given by the buyer
an acceptance is not made within the time fixed, the to the seller to bind the bargain.
owner is no longer bound by his offer, and the option is at
There are clear distinctions between earnest
an end. A contract of sale, on the other hand, fixes
money and option money: (a) earnest money is part of
definitely the relative rights and obligations of both parties
the purchase price, while option money ids the money
at the time of its execution. The offer and the acceptance
given as a distinct consideration for an optioncontract; (b)
are concurrent, since the minds of the contracting parties
earnest money is given only where there is already a
meet in the terms of the agreement.
sale, while option money applies to a sale not yet
It must be stressed that there already existed a perfected; and (c) when earnest money is given, the
perfected contract between the parties at the time the buyer is bound to pay the balance, while when the would-
alleged counter-offer was made. Thus, any new offer by be buyer gives option money, he is not required to buy.

therein plaintiffs' share in that parcel of land specifically

covered by TCT No. 309773. In other words, the plaintiffs
The aforequoted characteristics of earnest therein were claiming to be co-owners of the entire parcel
money are apparent in the so-called option contract of land described in TCT No. 309773, and not only of a
under review, even though it was called "option money" portion thereof nor, as incorrectly interpreted by the lower
by the parties. In addition, private respondents failed to courts, did their claim pertain exclusively to the eastern
show that the payment of the balance of the purchase half adjudicated to the Jimenez brothers.
price was only a condition precedent to the acceptance of
the offer or to the exercise of the right to buy. On the Such being the case, petitioner was justified in
contrary, it has been sufficiently established that such suspending payment of the balance of thepurchase price
payment was but an element of the performance of by reason of the aforesaid vindicatory action filed against
petitioner's obligation under the contract to sell. it. The assurance made by private respondents that
petitioner did not have to worry about the case because it
II was pure and simple harassment is not the kind of
guaranty contemplated under the exceptive clause in
To justify its failure to pay the purchase price
Article 1590 wherein the vendor is bound to make
within the agreed period, petitioner invokes Article 1590
payment even with the existence of a vindicatory action if
of the civil Code which provides:
the vendee should give a security for the return of the
Art. 1590. Should the vendee be disturbed in price.
the possession or ownership of the thinacquired, or
should he have reasonable grounds to fear such 2. Be that as it may, and the validity of the
disturbance, by a vindicatory action or a foreclosure of suspension of payment notwithstanding, we find and hold
mortgage, he may suspend the payment of the price that private respondents may no longer be compelled to
until the vendor has caused the disturbance or danger sell and deliver the subject property to petitioner for two
to cease, unless the latter gives security for the return reasons, that is, petitioner's failure to duly effect the
of the price in a proper case, or it has been stipulated consignation of the purchase price after the disturbance
that, notwithstanding any such contingency, the
had ceased; and, secondarily, the fact that the contract to
vendee shall be bound to make the payment. A mere
sell had been validly rescinded by private respondents.
act of trespass shall not authorize the suspension of
the payment of the price.
The records of this case reveal that as early as
Respondent court refused to apply the February 28, 1990 when petitioner caused its exclusive
aforequoted provision of law on the erroneous option to be annotated anew on the certificate of title, it
assumption that the true agreement between the parties already knew of the dismissal of civil Case No. 89-5541.
was a contract of option. As we have hereinbefore However, it was only on April 16, 1990 that petitioner,
discussed, it was not an option contract but a perfected through its counsel, wrote private respondents
contract to sell. Verily, therefore, Article 1590 would expressing its willingness to pay the balance of the
properly apply. purchase price uponthe execution of the corresponding
deed of absolute sale. At most, that was merely a notice
Both lower courts, however, are in accord that to pay. There was no proper tender of payment nor
since Civil Case No. 89-5541 filed against the parties consignation in this case as required by law.
herein involved only the eastern half of the land subject
of the deed of sale between petitioner andthe Jimenez The mere sending of a letter by the vendee
brothers, it did not, therefore, have any adverse effect on expressing the intention to pay, without the
private respondents' title and Ownership over the western accompanying payment, is not considered a valid tender
half of the land which is covered by the contract subject of payment. Besides, a meretender of payment is
of the present case. We have gone over the complaint for notsufficient to compel private respondents to deliver the
recovery of ownership filed in said case and we are not property and execute the deed of absolute sale. It is
persuaded by the factual findings made by said courts. At consignation which is essential in order to extinguish
a glance, it is easily discernible that, although the petitioner's obligation to pay the balance of the purchase
complaint prayed for the annulment only of the contract price. The rule is different in case of an option contract
of sale executed between petitioner and the Jimenez or in legal redemption or in a sale with right to
brothers, the same likewise prayed for the recovery of repurchase, wherein consignation is not necessary
because these cases involve an exercise of a right or
privilege (to buy, redeem or repurchase) rather than the had theretofore disdained.
dischargeof an obligation, hence tender of payment
would be sufficient to preserve the right or privilege. This
is because the provisions on consignation are not
applicable when there is no obligation to pay. A
contract to sell, as in the case before us, involves the
performance of an obligation, not merely the exercise of
a privilege of a right. consequently, performance or
payment may be effected not by tender of payment alone
but by both tender and consignation.
Furthermore, petitioner no longer had the right to

suspend payment after the disturbance ceased with the
dismissal of the civil case filed against it. Necessarily,
therefore, its obligation to pay the balancagain arose and
resumed after it received notice of such dismissal.
Unfortunately, petitioner failed to seasonably make
payment, as in fact it has deposit the money with the trial
court when this case was originally filed therein.
By reason of petitioner's failure to comply with its

obligation, private respondents elected to resort to and
did announce the rescission of the contract through its
letter to petitioner dated July 27, 1990. That written notice
of rescission is deemed sufficient under the
circumstances. Article 1592 of the Civil Code which
requires rescission either by judicial action or notarial act
is not applicable to a contract to sell. Furthermore,
judicial action for rescission of a contract is not necessary
where the contract provides for automatic rescission in
case of breach, as in the contract involved in the
present controversy.
In the case at bar, it has been shown that

although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds
therefore, it failed to reply thereto or protest against it. Its
silence thereon suggests an admission of the veracity
and validity of private respondents' claim. Furthermore,
the initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic
rescission clause in the contract. But then, the records
bear out the fact that asidefrom the lackadaisical manner
with which petitioner treated private respondents' latter of
cancellation, it utterly failed to seriously seek redress
from the court for the enforcement of its alleged rights
under the contract. If private respondents had not taken
SERRA VS. COURT OF APPEALS, RCBC
the initiative of filing Civil Case No. 7532, evidently 229 SCRA 61
petitioner had no intention to take any legal action to
compel specific performance from the former. By such FACTS:
cavalier disregard, it has been effectively estopped from
seeking the affirmative relief it now desires but which it Serra owned a parcel of unregistered land
located in Masbate. In 1975, he entered with respondent
RCBC into a Contract of Lease with an Option to Buy. In a unilateral promise to sell, where the debtor
The essential provisions provide that RCBC will lease ails to withdraw the promise before the acceptance by
the land for 25 years from June 1, 1975 to June 1, 2000, the creditor, the transaction becomes a bilateral contract
with an option to buy within 10 years from the date of
to sell and to buy and the parties may reciprocally
signing the contract (May 20,1975) at a price not greater
than P210. Serra registered the land within three years demand performance.
from the signing of the contract. He then pursued RCBC
to exercise the option but it was not until September 4, A price is considered certain if it is so with
1984 that RCBC expressed its option. It offered to buy reference to another thing certain or when the
the property at the agreed price of not greater than P210 determination is left to the judgment of a specified
per square meter or a total of P78,430. Serra told RCBC person. And generally, gross inadequacy of price does
that he is no longer selling the property. RCBC sought not affect a contract of sale. Contracts are to be
an action for specific performance against Serra. construed according to the sense and meaning of the
Petitioner argued that the option was not supported by
terms which the parties have used. In this case, there is
any consideration distinct from the price and hence not
binding upon him; that as a condition for the validity of evidence to show that the intention of the parties is to
the option, it should have exercised its option within a peg the price P210 per square meter. This was confirmed
reasonable time after the registration of the land under by petitioner himself in his testimony. Moreover, by his
the Torrens system, that in its delayed action to enforce subsequent acts of having the land titled under the
the option, it has forfeited whatever its claim to the Torrens system, and in pursuing the bank manager to
same. The lower courts ruled in favor of RCBC finding effect the sale immediately, means that he understood
the option contract valid and is supported by a distinct
perfectly well the terms of the contract. He even had the
and separate consideration as embodied in the
agreement. same property mortgaged to the respondent sometime in
1979, without the slightest hint of wanting to abandon his
offer to sell the property at the agreed price of P210. The
decision of the appellate court was affirmed.
ISSUE:
Whether the price “not greater than P210” is

certain or definite. ?
HELD:
There is no dispute that the contract was valid

and existing between the parties. Neither the provisions
show a contract of adhesion. Serra was a CPA-lawyer
when he entered into the contract. In his stature, he
should have been more careful in entering into
transactions specially those concerning valuable
properties.
Article 1324 provides that when an offer has

allowed the offeree a certain period to accept, the offer
maybe withdrawn at anytime before acceptance by
communicating such withdrawal, except when the option
is founded upon consideration, as something paid or
promised. On the other hand, Article 1429 provides that
an accepted unilateral promise to buy and sell a MALBAROSA VS. CA, S.E.A. DEVELOPMENT CORP.
determinate thing for a price certain is binding upon the APRIL 30.2003
promisor if the promise is supported by a consideration
distinct from the price. FACTS:
Salvador Malbarosa was the president and

general manager of Philtectic Corp., and an officer of
other companies owned by respondent S.E.A. Anent the first issue, the petitioner posits that the
Development Corp. (SEADC). He was issued with a 1982 respondent had given him a reasonable time from March
Mitsubishi Gallant by SEADC. He expressed his desire to 14, 1990 within which to accept or reject its March 14,
retire from the respondent’s group of companies to 1990 Letter-offer. He had already accepted the offer of
Valero, vice-chairman of the Board of Directors of the respondent when he affixed his conformity thereto on
respondent, and requested for his 1989 incentive the space provided therefor on March 28, 1990 and had
compensation. He wrote a resignation letter to Valero sent to the respondent corporation on April 7, 1990 a
and repeated his incentive compensation. copy of said March 14, 1990 Letter-offer bearing his
conformity to the offer of the respondent; hence, the
Da Costa, president of respondent, met with respondent can no longer demand the return of the
petitioner to discuss his retirement incentives and the vehicle in question. He further avers that he had already
mode of payment and he was told that Malbarosa will be impliedly accepted the offer when after said respondent's
receiving P395,000. On March 14, 1990, respondent offer, he retained possession of the car.
through Valero wrote a letter offer to petitioner stating
that they have accepted his resignation and that the For its part, the respondent contends that the
incentive he will receive is P251,057.67, It proposed that issues raised by the petitioner are factual. The jurisdiction
the incentive will be paid as follows: the 1982 mitsubishi of the Court under Rule 45 of the Rules of Court, as
worth P220,000 and P60,000 worth of shares with amended, is limited to revising and correcting errors of
Tradestar Intl., a subsidiary of SEADC. If he agrees, law of the CA. As concluded by the Court of Appeals,
petitioner should affix his signature below the word there had been no acceptance by the petitioner of its
AGREED: SALVADOR MALBAROSA on the space March 14, 1990 Letter-offer. The receipt by the petitioner
provided in the letter. Dismayed with the offer, he refused of the original of the March 14, 1990 Letter-offer for
to sign the original but instead affixed his signature on review purposes amounted merely to a counter-offer of
the duplicate copy writing therein “RECEIVED ORIGINAL the petitioner. The findings of the Court of Appeals are
FOR REVIEW PURPOSES. binding on the petitioner. The petitioner adduced no proof
that the respondent had granted him a period within
Two weeks from then, respondent has not which to accept its offer. The latter deemed its offer as
received nor heard from petitioner so it ordered Valero to not accepted by the petitioner in light of petitioner's
withdraw the offer and to recover the car. Respondent ambivalence and indecision on March 16, 1990 when he
was able to secure a writ of replevin but Malbarosa filed a received the letter-offer of respondent.
counterbond so the cur remained in his possession.
Petitioner alleged that he has accepted the offer on We do not agree with the petitioner.
March 28,1990 by affixing his signature on the letter-offer
and on the following day, he called up Da Costa in his Under Article 1318 of the Civil Code, the
office to tell him about his acceptance but he was only essential requisites of a contract are as follows:
able to talk to his secretary since he was out. The
Art. 1318. There is no contract unless the
secretary promised to relay the same and testified that following requisites concur:
she did. The only response of Da Costa was a nod.
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the

ISSUES: contract;
Whether there was a valid acceptance made by (3) Cause of the obligation which is established.
petitioner. ?
Whether there was a valid withdrawal of letter-

offer by respondent? Under Article 1319 of the New Civil Code, the
consent by a party is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. An offer may be
HELD: reached at any time until it is accepted. An offer that is
not accepted does not give rise to a consent. The
The petition is dismissed.

contract does not come into existence. To produce a respondent corporation. Although the petitioner claims
contract, there must be acceptance of the offer which that he had affixed his conformity to the letter-offer on
may be express or implied but must not qualify the terms March 28, 1990, the petitioner failed to transmit the said
of the offer. The acceptance must be absolute, copy to the respondent. It was only on April 7, 1990 when
unconditional and without variance of any sort from the the petitioner appended to his letter to the respondent a
offer.The acceptance of an offer must be made known to copy of the said March 14, 1990 Letter-offer bearing his
the offeror. Unless the offeror knows of the acceptance, conformity that he notified the respondent of his
there is no meeting of the minds of the parties, no real acceptance to said offer. But then, the respondent,
concurrence of offer and acceptance. The offeror may through Philtectic Corporation, had already withdrawn its
withdraw its offer and revoke the same before offer and had already notified the petitioner of said
acceptance thereof by the offeree. The contract is withdrawalvia respondent's letter dated April 4, 1990
perfected only from the time an acceptance of an offer is which was delivered to the petitioner on the same day.
made known to the offeror. If an offeror prescribes the Indubitably, there was no contract perfected by the
exclusive manner in which acceptance of his offer shall parties on the March 14, 1990 Letter-offer of the
be indicated by the offeree, an acceptance of the offer in respondent.
the manner prescribed will bind the offeror. On the other
hand, an attempt on the part of the offeree to accept the The petitioner's plaint that he was not accorded
offer in a different manner does not bind the offeror as by the respondent reasonable time to accept or reject its
the absence of the meeting of the minds on the altered offer does not persuade. It must be underscored that
type of acceptance. An offer made inter praesentes there was no time frame fixed by the respondent for the
must be accepted immediately. If the parties intended petitioner to accept or reject its offer. When the offeror
that there should be an express acceptance, the contract has not fixed a period for the offeree to accept the offer,
will be perfected only upon knowledge by the offeror of and the offer is made to a person present, the
the express acceptance by the offeree of the offer. An acceptance must be madeimmediately. In this case, the
acceptance which is not made in the manner prescribed respondent made its offer to the petitioner when Da
by the offeror is not effective but constitutes a counter- Costa handed over on March 16, 1990 to the petitioner
offer which the offeror may accept or reject. The contract its March 14, 1990 Letter-offer but that the petitioner did
is not perfected if the offeror revokes or withdraws its not accept the offer. The respondent, thus, had the option
offer and the revocation or withdrawal of the offeror is the to withdraw or revoke the offer, which the respondent did
first to reach the offeree. The acceptance by the offeree on April 4, 1990.
of the offer after knowledge of the revocation or
Even if it is assumed that the petitioner was
withdrawal of the offer is inefficacious. The termination of
given a reasonable period to accept or reject the offer of
the contract when the negotiations of the parties
the respondent, the evidence on record shows that from
terminate and the offer and acceptance concur, is largely
March 16, 1990 to April 3, 1990, the petitioner had more
a question of fact to be determined by the trial court.
than two weeks which was more than sufficient for the
In this case, the respondent made its offer petitioner to accept the offer of the respondent. Although
through its Vice-Chairman of the Board of Directors, the petitioner avers that he had accepted the offer of the
Senen Valero. On March 16, 1990, Da Costa handed respondent on March 28, 1990, however, he failed to
over the original of the March 14, 1990 Letter-offer of the transmit to the respondent the copy of the March 14,
respondent to the petitioner. The respondent required the 1990 Letter-offer bearing his conformity thereto. Unless
petitioner to accept the offer by affixing his signature on and until the respondent received said copy of the letter-
the space provided in said letter-offer and writing the date offer, it cannot be argued that a contract had already
of said acceptance, thus foreclosing an implied been perfected between the petitioner and the
acceptance or any other mode of acceptance by the respondent.
petitioner. However, whenthe
On the second issue, the petitioner avers that
letter-offer of the respondent was delivered to the Philtectic Corporation, although a wholly-owned and
petitioner on March 16, 1990, he did not accept or reject controlled subsidiary of the respondent, had no authority
the same for the reason that he needed time to decide to withdraw the offer of the respondent. The resolution of
whether to reject or accept the same. Therewas no the respondent authorizing Philtectic Corporation to take
contract perfected between the petitioner and the such action against the petitioner including the institution

of an action against him for the recovery of the subject

car does not authorize Philtectic Corporation to withdraw
the March 14, 1990 Letter-offer of the respondent. The
withdrawal by Philtectic Corporation on April 4, 1990 of
the offer of the respondent was ineffective insofar as the
petitioner was concerned. The respondent, for its part,
asserts that the petitioner had failed to put in issue the
matter of lack of authority of Philtectic Corporation to
withdraw for and in behalf of the respondent its March 14,
1990 Letter-offer. It contends that the authority of
Philtectic Corporation to take such action including the
institution of an action against the petitioner for the
recovery of the car necessarily included the authority to
withdraw the respondent's offer. Even then, there was no
need for the respondent towithdraw its offer because the
petitioner had already rejected the respondent's offer on
March 16, 1990 when the petitioner received the original
of the March 14, 1990 Letter-offer of the respondent
without the petitioner affixing his signature on the space
therefor.
We do not agree with the petitioner. Implicit in

the authority given to Philtectic Corporation to demand
for and recover from the petitioner the subject car and to
institute the appropriate action against him to recover
possession of the car is the authority to withdraw the
respondent's March 14, 1990 Letter-offer. It cannot be
argued that respondent authorized Philtectic Corporation
to demand and sue for the recovery of the car and yet did
not authorize it to withdraw its March 14, 1990 Letter-
offer to thepetitioner. Besides, when he testified, Senen
Valero stated that the April 4, 1990 letter of Philtectic
Corporation to the petitioner was upon his instruction and
conformably with the aforesaid resolution of the Board of
Directors of the respondent.
VDA. DE APE V. CA

FACTS: ISSUE:
Petitioner was the wife of Fortunato Ape Whether or not a contract of sale existed
(deceased). Fortunato was one of the eleven children between the parties?
who inherited 1/11 of a land owned by his father
Cleopas. During the lifetime of Fortunato, Generosa
Cawit de Lumayno (private respondent) instituted an
HELD:
action for specific performance of a deed of sale with
damages against Fortunato and his wife, petitioner. The records of this case betray the stance of
private respondent that Fortunato Ape entered into such
an agreement with her.
Generosa averred that she entered with a
A contract of sale is a consensual contract, thus,
contract of sale with Fortunato regarding his share in the
it is perfected by mere consent of the parties. It is born
property for P5,000.00. Fortunato went to her store at the
from the moment there is a meeting of minds upon the
time when their lease contract was about toexpire. He
thing which is the object of the sale and upon the price.
allegedly demanded the rental payment for his land but
Upon its perfection, the parties may reciprocally demand
as she was no longer interested in renewing their lease
performance, that is, the vendee may compel the transfer
agreement, they agreed instead to enter into a contract of
of the ownership and to deliver the object of the sale
sale which Fortunato acceded to provided private
while the vendor may demand the vendee to pay the
respondent bought his portion of Lot No. 2319 for
thing sold. For there to be a perfected contract of sale,
P5,000.00. Thereafter, she asked her son-in-law Flores
however, the following elements must be present:
to prepare the aforementioned receipt. Flores read the
consent, object, and price in money or its equivalent. The
document to Fortunato and asked the latter whether he
essence of consent is the agreement of the parties on the
had any objection thereto. Fortunato then went on to
terms of the contract, the acceptance by one of the offer
affix his signature on the receipt. The agreement was
made by the other. It is the concurrence of the minds of
evidenced by a receipt presented in court. Fortunato
the parties on the object and the cause which constitutes
denied the sale and alleged that the signature appearing
the contract. The area of agreement must extend to all
as his was forged. According to Fortunato, what was
points that the parties deem material or there is no
executed between them was a lease contract for five
consent at all.
years which was paid annually by Generosa on
installment. On the day that Fortunato and his wife went To be valid, consent must meet the following
to collect the payment of rent, he was made to sign a requisites: (a) it should be intelligent, or with an exact
paper by Generosa without explaining what was written notion of the matter to which it refers; (b) it should be free
thereon. Petitioner insisted that the entire Lot No. 2319 and (c) it should be spontaneous. Intelligence in consent
had not yet been formally subdivided that on 11 April is vitiated by error; freedom by violence, intimidation or
1971 she and her husband went to private respondent’s undue influence; spontaneity by fraud. In this jurisdiction,
house to collect past rentals for their land then leased by the general rule is that he who alleges fraud or mistake in
the former, however, they managed to collect only thirty a transaction must substantiate his allegation as the
pesos, that private respondent made her (petitioner’s) presumption is that a person takes ordinary care for his
husband sign a receipt acknowledging the receipt of said concerns and that private dealings have been entered
amount of money and that the contents of said into fairly and regularly. The exception to this rule is
receipt(prepared by Andres Flores, nephew of Generosa) provided for under Article 1332 of the Civil Code which
were never explained to them. She also stated in her provides that “when one of the parties is unable to read,
testimony that her husband was an illiterate and only or if the contract is in a language not understood by him,
learned how to write his name in order to be employed in and mistake or fraud is alleged, the person enforcing the
a sugar central. As for private respondent’s purchase of contract must show that the terms thereof have been fully
the shares owned by Fortunato’s co-owners, petitioner explained to the former.”
maintained that neither she nor her husband received
any notice regarding those sales transactions.
The RTC ruled in favor of petitioner but was In this case, as private respondent is the one
reversed by the CA. seeking to enforce the claimed contract of sale, she
bears the burden of proving that the terms of the

agreement were fully explained to Fortunato Ape who
was an illiterate. This she failed to do. While she
claimed in her testimony that the contents of the receipt
were made clear to Fortunato, such allegation was
debunked by Andres Flores himself when the latter took
the witness stand. As can be gleaned from Flores’s
testimony, while he was very much aware of Fortunato’s
inability to read and write in the English language, he did
not bother to fully explain to the latter the substance of
the receipt. He even dismissed the idea of asking
somebody else to assist Fortunato considering that a
measly sum of thirty pesos was involved. Evidently, it did
not occur to Flores that the document he himself
prepared pertains to the transfer altogether of Fortunato’s
property to his mother-in-law. It is precisely in situations
such as this when the wisdom of Article 1332 of the Civil
Code readily becomes apparent which is “to protect a
party to a contract disadvantaged by illiteracy, ignorance,
mental weakness or some other handicap.”
ANDREA MAYOR, VERGEL ROMULO VS. LOURDES

BELEN

FACTS: ordinarily prudent person into error, taking into account

the circumstances of each case.
Andrea Mayor was the original owner of the
subject land. She sold it to respondent Lourdes Belen for This brings to the fore Lourdes M. Belen’s limited
P18,000on an instalment basis. Lourdes was able to pay educational attainment. While indeed petitioners point out
P11,445. Lourdes sold it back to Andrea for the same that the deeds denominated as Kasulatan ng Bilihang
price and a Kasulatan ng Bilihang Tuluyan was executed Tuluyan and Kasulatan ng Sanglaan were executed in
in favour of Andrea. A few days after, Andrea executed a Tagalog , a close scrutiny thereof shows that they are
mortgage over the same property in favour of a loan practically literal translations of their English counterparts.
obtained from Belen for P12,000. Belen then filed a case Thus, the mere fact that the documents were executed in
against petitioners alleging fraud employed by Andrea the vernacular neither clarified nor simplified matters for
and Romulo. She averred that the petitioners made her Lourdes who admitted on cross-examination that she
believe that the deed of sale initially executed was void merely finished Grade 3, could write a little, and
because it did not reflect the true agreement with regard understand a little of the Tagalog language.
to the mode of payment. According to petitioners, the
deed stated that the sale was paid in cash while the The appellate court could not then be faulted
payment was really in instalment basis. Because of when it invoked Article 1332 of the Civil Code which
thisshe was made to believe that she was to lose states:
whatever she has paid which was 70% of the total price.
ART. 1332. When one of the parties is
Petitioners convinced her to execute a deed of mortgage unable to read, or if the contract is in a language not
in favour of Andrea. Believing that this will protect her understood by him, and mistake or fraud is alleged,
right, she executed two documents, the Kasulatan ng the person enforcing the contract must show that the
Bilihang Tuluyan at Kasulatan ng Sanglaan. As it turned terms thereof have been fully explained to the former.
out, this was just a scheme made by petitioners in order
to recover the property from her, hence she wanted to As aptly pointed out by the Court of Appeals, the
annul the said deeds. Petitioners denied the allegations principle that a party is presumed to know the import of a
and stated that Belen freely and voluntarily made the said document to which he affixes his signature is modified by
contracts and the two are binding between them. the foregoing article. Under the said article,where a party
Judgment was given in favour of Belen. is unable to read or when the contract is in a language
not understood by a party and mistake or fraud is
alleged, the obligation to show that the terms of the
contract had been fully explained to said party who is
ISSUE: unable to read or understand the language of the
contract devolves on the party seeking to enforce it. The
Whether the courts correctly found that
burden rests upon the party who seeks to enforce the
petitioners employed fraud and undue influence over
contract to show that the other party fully understood the
Belen in executing the two contracts?
contents of the document. If he fails to discharge this
burden, the presumption of mistake, if not, fraud, stands
unrebutted and controlling.
HELD:
In this case, petitioners alleged that Lourdes M.
ART. 1338. There is fraud when, through Belen affixed her signature on the questioned contracts
insidious words or machinations of one of the contracting freely and voluntarily. We have assiduously scoured the
parties, the other is induced to enter into a contract record but like the appellate court we have not come
which, without them, he would not have agreed to. across convincing evidence to support their allegations.
In civil cases, he who alleges a fact has the burden of
proving it by a preponderance of evidence. Suffice it to
state that such self-serving claims are not enough to
As defined, fraud refers to all kinds of deception, whether
rebut the presumption of fraud provided for in Article
through insidious machination, manipulation,
1332 of the Civil Code. As the party claiming affirmative
concealment or misrepresentation to lead another party
relief from the court, it is incumbent upon petitioners to
into error. The deceit employed FOR must be
convincingly prove their claim. This they failed to do.
serious. It must be sufficient to impress or lead an

Bare allegations, unsubstantiated by evidence are not wanted to immediately dispose of the subject property
equivalent to proof under our Rules. In short, mere because the area would be soon converted into a park. If
allegations are not evidence. this were so, why would Lourdes Belen thereafter accept
the very same property as security knowing fully well that
Concededly, both the Kasulatan ng Bilihang it would revert to the public domain?
Tuluyan and the Kasulatan ng Sanglaan are public
documents and there is no dispute that generally, a A mortgage subjects the property upon which it is
notarized document carries the evidentiary weight imposed, whoever the possessor may be, to the
conferred upon it with respect to its due execution. In fulfillment of the obligation whose security it was
addition, documents acknowledged before a notary constituted. Thus, in case of non-payment, the creditor
public have in their favor the presumption of regularity. may proceed against the property for the fulfillment of the
However, the presumption is not absolute and may be obligation. No creditor would accept property as security
rebutted by clear and convincing evidence to the for the fulfillment of the obligation knowing that the
contrary. The presumption cannot be made to apply in property offered as security would soon be out of the
this case because the regularity in the execution of the commerce of man.
documents were challenged in the proceedings below
where their prima facie validity was overthrown by the Finally, the non-presentation of petitioner Andrea
highly questionable circumstances pointed out by both Mayor on the witness stand is likewise not lost on us and
trial and appellate courts. Furthermore, notarization adds to the weakness of petitioners’ cause. While it is
per se is not a guarantee of the validity of the contents of true that the non-presentation of a witness is not a
a document. reason for discrediting a party’s defense, still we are
inclined to take this omission against them in view of the
There are, moreover, other factual numerous loopholes in their defense.
circumstances pointed out by both the trial and appellate
courts which militate against the contention of petitioners. All told, we see no reason in overturning the
The evidence on record shows that the respondents findings of the appellate court. As has often been stated,
Belens intended to stay and occupy the subject land for a "[t]he jurisdiction of this Court over cases brought to it
considerable length of time. As borne out by the records, from the Court of Appeals is limited to a review of
respondents bought from Celita Bordeos the house questions of law since the factual conclusions thereon
standing on the subject land then owned by Andrea are conclusive. There are of course exceptions to this
Mayor. Four years later or on November 27, 1979, rule, but none obtain in the case at bar to warrant a
respondents bought the subject land from petitioner scrutiny of the Court of Appeals’ conclusions which are
Andrea Mayor. supported by the evidence on record and carry more
weight, it having affirmed the trial court’s factual
They bought the said land through installments conclusions."
and already paid P11,445.00 of the P18,000.00 purchase
price. They also caused the transfer in their names of the
tax declarations over the subject land and house. This
they did even before they could have completed the
payment of the purchase price. In short, their intention
and desire to stay on the property is very evident.
Petitioners’ suggestion,therefore, that respondents made
a sudden volte face and decided to resell the property to
them – seven months from the date of the property’s
acquisition, after payment of almost two-thirds of the
purchase price and transferring the tax declarations
thereof in respondents’ names, borders on the absurd
and the incredible. It simply is contrary to human
experience for respondents to have had a hasty change
of heart to dispose of the land on which they intend to
make their home and upon which they had invested so
much. Petitioners advance the excuse that respondents

The authenticity of signatures is not a highly

LAURA and ERIBERTO BAUTISTA vs. CA technical issue in the same sense that questions
and FERNANDO MORELOS, concerning, e.g., quantum physics or topology or
G.R. No. 158015. August 11, 2004 molecular biology, would constitute matters of a highly
technical nature. The opinion of a handwriting expert on
FACTS: the genuineness of a questioned signature is certainly
much less compelling upon a judge than an opinion
The dispute involves a parcel of land situated rendered by a specialist on a highly technical issue.
along Maceda Street, Sampaloc, Manila, containing an
area of approximately 105 square meters. This parcel of In the case at bar, the presumption of validity
land was previously owned and registered in the name and regularity prevails over allegations of forgery and
of the late Cesar Morelos. Cesar is the uncle of fraud. As against direct evidence consisting of the
petitioner Laura Morelos Bautista, being the brother of testimony of a witness who was physically present at the
her mother, Rosario Morelos. signing of the contract and who had personal knowledge
Cesar, who was married to Rosario Duran, did not have thereof, the testimony of an expert witness constitutes
any children. Rosario died in 1972. Cesar died of indirect or circumstantial evidence at best. Carmelita
cardiac arrest on April 15, 1982. During his lifetime, Marcelino, the witness to the Deed of Absolute Sale,
Cesar sold and conveyed the above-mentioned parcel of confirmed the genuineness, authenticity and due
land in favor of petitioner Laura Morelos Bautista, as execution thereof. Having been physically present to see
evidenced by a “Deed of Absolute Sale” notarized by the decedent Cesar Morelos and petitioner Laura
Luis M. de Guzman. Accordingly, Transfer Certificate of Bautista affix their signatures on the document, the
Title was issued in the name of petitioner Laura Bautista. weight of evidence preponderates in favor of petitioners.
Respondent Fernando Morelos, claiming to be As to the alleged insufficient consideration of the

the illegitimate child of Cesar Morelos with Angelina Lim- sale of the property, the mere inadequacy of the price
Gue, instituted a complaint for the declaration of nullity of does not affect its validity when both parties are in a
sale and title with damages before the RTC Manila. At position to form an independent judgment concerning
the trial, he presented testimonies of expert witnesses the transaction, unless fraud, mistake or undue influence
who claimed that the signature of Cesar Morelos on the indicative of a defect in consent is present. A contract
Deed of Absolute Sale and the fingerprints appearing on may consequently be annulled on the ground of vitiated
his Residence Certificate were not his. Petitioners consent and not due to the inadequacy of the price. In
countered that the Deed of Absolute Sale was valid. the case at bar, however, no evidence to prove fraud,
The witness to the Deed, Carmelita Marcelino, testified mistake or undue influence indicative of vitiated consent
that she saw Cesar Morelos and petitioner Laura was presented other than the respondent’s self-serving
Bautista sign the same. allegations.
The RTC ruled in favor of Bautista and declared FALLO: the Petition is GRANTED. CA decision
the sale valid. The CA declared the sale as null and void REVERSED. RTC decision REINSTATED.
ISSUE:
Whether the sale is valid?

Whether inadequacy of the price invalidates the
sale?
HELD:
As a general rule, forgery cannot be presumed

and must be proved by clear, positive and convincing
evidence. The burden of proof lies on the party alleging
forgery. Hence, a finding of forgery does not depend
entirely on the testimony of handwriting experts.
Although such testimony may be useful, the judge still
exercises independent judgment on the issue of
authenticity of the signatures under scrutiny; he cannot
rely on the mere testimony of the handwriting expert. MARLENE DAUDEN-HERNAEZ vs. DE LOS
ANGELES

G.R. No. L-27010 April 30, 1969 according to their nature, may be in keeping with
good faith, usage and law.
FACTS: Concordantly, the first part of Article 1356 of the

Code Provides:
Petitioner Marlene Dauden-Hernaez, a motion
picture actress, had filed a complaint against herein ART. 1356. Contracts shall be obligatory in
private respondents, Hollywood Far East Productions, whatever form they may have been entered into,
provided all the essential requisites for their validity
Inc., and its President and General Manager, Ramon are present....
Valenzuela, to recover P14,700.00 representing a
balance allegedly due said petitioner for her services as These essential requisites last mentioned are
leading actress in two motion pictures produced by the normally (1) consent (2) proper subject matter, and (3)
company, and to recover damages. Upon motion of consideration or causa for the obligation assumed
defendants, the respondent court (Judge Walfrido de los (Article 1318). So that once the three elements exist, the
Angeles) ordered the complaint dismissed, mainly contract is generally valid and obligatory, regardless of
because the "claim of plaintiff was not evidenced by any the form, oral or written, in which they are couched.
written document, either public or private", and the
complaint "was defective on its face" for violating Articles To this general rule, the Code admits exceptions,
1356 and 1358 of the Civil, Code of the Philippines, as set forth in the second portion of Article 1356:
well as for containing defective allege, petitions. However, when the law requires that a contract be
in some form in order that it may be valid or enforceable,
Plaintiff sought reconsideration of the dismissal or that a contract be proved in a certain way, that
and for admission of an amended complaint, attached to requirement is absolute and indispensable....
the motion. The court denied reconsideration and the
leave to amend on grounds that the complaint is being It is thus seen that to the general rule that the
pro forma, and further declared the dismissal final and form (oral or written) is irrelevant to the binding effect
unappealable. Hence this petition. inter parties of a contract that possesses the three
validating elements of consent, subject matter, and
causa, Article 1356 of the Code establishes only two
ISSUE: exceptions, to wit:
Whether the lower court abused its discretion in (a) Contracts for which the law itself requires
ruling that a contract for personal services involving that they be in some particular form (writing) in order to
more than P500.00 was either invalid or unenforceable make them valid and enforceable (the so-called solemn
under the last paragraph of Article 1358 of the Civil Code contracts). Of these the typical example is the donation
of the Philippines? of immovable property that the law (Article 749) requires
to be embodied in a public instrument in order "that the
donation may be valid", i.e., existing or binding. Other
HELD: instances are the donation of movables worth more than
P5,000.00 which must be in writing, "otherwise the
YES. We hold that there was abuse, since the donation shall be void" (Article 748); contracts to pay
ruling herein contested betrays a basic and lamentable interest on loans (mutuum) that must be "expressly
misunderstanding of the role of the written form in stipulated in writing" (Article 1956); and the agreements
contracts, as ordained in the present Civil Code. contemplated by Article 1744, 1773, 1874 and 2134 of
the present Civil Code.
In the matter of formalities, the contractual
system of our Civil Code still follows that of the Spanish (b) Contracts that the law requires to be proved
Civil Code of 1889 and of the "Ordenamiento de Alcala" by some writing (memorandum) of its terms, as in those
of upholding the spirit and intent of the parties over covered by the old Statute of Frauds, now Article
formalities: hence, in general, contracts are valid and 1403(2) of the Civil Code. Their existence not being
binding from their perfection regardless of form whether provable by mere oral testimony (unless wholly or partly
they be oral or written. This is plain from Articles 1315 executed), these contracts are exceptional in requiring a
and 1356 of the present Civil Code. Thus, the first cited writing embodying the terms thereof for their
provision prescribes: enforceability by action in court.
The contract sued upon by petitioner herein
ART. 1315. Contracts are perfected by mere (compensation for services) does not come under either
consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly
exception. It is true that it appears included in Article
stipulated but also to all the consequences which, 1358, last clause, providing that "all other contracts
where the amount involved exceeds five hundred pesos

must appear in writing, even a private one." But Article

1358 nowhere provides that the absence of written form
in this case will make the agreement invalid or
unenforceable. On the contrary, Article 1357 clearly
indicates that contracts covered by Article 1358 are
binding and enforceable by action or suit despite the
absence of writing.
ART. 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated in
the following article, the contracting parties may compel
each other to observe that form, once the contract has
been perfected. This right may be exercised
simultaneously with the action the contract.
It thus becomes inevitable to conclude that both

the court a quo as well as the private respondents herein
were grossly mistaken in holding that because petitioner
Dauden's contract for services was not in writing the
same could not be sued upon, or that her complaint
should be dismissed for failure to state a cause of action
because it did not plead any written agreement.
The basic error in the court's decision lies in

overlooking that in our contractual system it is not
enough that the law should require that the contract be
in writing, as it does in Article 1358. The law must further
prescribe that without the writing the contract is not valid
or not enforceable by action.
FALLO: The order dismissing the complaint was set

aside, and the case was ordered remanded to the court
of origin for further proceedings not at variance with this
decision.
HEIRS OF CECILIO (also known as BASILIO)

CLAUDEL vs.CA, HEIRS OF MACARIO,
ESPERIDIONA, RAYMUNDA and CELESTINA, all
surnamed CLAUDEL

G.R. No. 85240 July 12, 1991

The rule of thumb is that a sale of land, once
consummated, is valid regardless of the form it may
FACTS: have been entered into. For nowhere does law or
jurisprudence prescribe that the contract of sale be put in
As early as December 28, 1922, Basilio also writing before such contract can validly cede or transmit
known as "Cecilio" Claudel, acquired from the Bureau of rights over a certain real property between the parties
Lands some parcel of lands of the Muntinlupa Estate themselves.
Subdivision, located in the poblacion of Muntinlupa,
Rizal, with an area of 10,107 square meters; he secured However, in the event that a third party, as in
TCT ‘s in 1923; he also declared the lot in his name. He this case, disputes the ownership of the property, the
dutifully paid the real estate taxes thereon until his death person against whom those claim is brought cannot
in 1937. 3 Thereafter, his widow "Basilia" and later, her present any proof of such sale and hence has no means
son Jose, one of the herein petitioners, paid the taxes. to enforce the contract. Thus the Statute of Frauds was
precisely devised to protect the parties in a contract of
Thirty nine years after Cecilio’s death, two sale of real property so that no such contract is
branches of Cecilio's family contested the ownership enforceable unless certain requisites, for purposes of
over the land-on one hand the children of Cecilio herein proof, are met.
petitioners (hereinafter referred to as HEIRS OF
CECILIO), and on the other, the brother and sisters of The provisions of the Statute of Frauds pertinent
Cecilio herein private respondents (hereinafter referred to the present controversy, state:
to as SIBLINGS OF CECILIO). In 1972, the HEIRS OF
CECILIO partitioned this lot among themselves and Art. 1403 (Civil Code). The following
obtained the corresponding Transfer Certificates of Title contracts are unenforceable, unless they are ratified:
on their shares. xxx xxx xxx
2) Those that do not comply with the
Statute of Frauds as set forth in this number. In the
Four years later, on December 7, 1976, private following cases, an agreement hereafter made shall
respondents SIBLINGS OF CECILIO, filed a "Complaint be unenforceable by action unless the same, or some
for Cancellation of Titles and Reconveyance with note or memorandum thereof, be in writing, and
Damages," alleging that 46 years earlier, or sometime in subscribed by the party charged, or by his agent;
1930, their parents had purchased from the late Cecilio evidence, therefore, of the agreement cannot be
Claudel several portions of the subject lot.They admitted received without the writing, or a secondary evidence
that the transaction was verbal. However, as proof of the of its contents:
sale, the SIBLINGS OF CECILIO presented a xxx xxx xxx
subdivision plan of the said land, dated March 25, 1930, e) An agreement for the leasing for a
longer period than one year, or for the sale of real
indicating the portions allegedly sold to the SIBLINGS property or of an interest therein;
OF CECILIO. xxx xxx xxx
CFI-Rizal dismissed the complaint, disregarding The purpose of the Statute of Frauds is to
the above sole evidence (subdivision plan) presented by prevent fraud and perjury in the enforcement of
the SIBLINGS OF CECILIO. CA reversed the RTC obligations depending for their evidence upon the
decision. unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced
in Writing.
ISSUES:
The provisions of the Statute of Frauds originally
Whether or not a contract of sale of land may be appeared under the old Rules of Evidence. However
proven orally? when the Civil Code was re-written in 1949 (to take
effect in 1950), the provisions of the Statute of Frauds
Whether or not the prescriptive period for filing were taken out of the Rules of Evidence in order to be
an action for cancellation of titles and reconveyance with included under the title on Unenforceable Contracts in
damages (the action filed by the SIBLINGS OF the Civil Code. The transfer was not only a matter of
CECILIO) should be counted from the alleged sale upon style but to show that the Statute of Frauds is also a
which they claim their ownership (1930) or from the date substantive law. Therefore, except under the conditions
of the issuance of the titles sought to be cancelled in provided by the Statute of Frauds, the existence of the
favor of the HEIRS OF CECILIO (1976)? contract of sale made by Cecilio with his siblings 13
cannot be proved.
HELD: 2nd Issue:

The Civil Code states:

Art. 1145. The following actions must
be commenced within six years:
(1) Upon an oral contract . .
If the parties SIBLINGS OF CECILIO had

allegedly derived their right of action from the oral
purchase made by their parents in 1930, then the action
filed in 1976 would have clearly prescribed. More than
six years had lapsed.
We do not agree with the parties SIBLINGS OF

CECILIO when they reason that an implied trust in favor
of the SIBLINGS OF CECILIO was established in 1972,
when the HEIRS OF CECILIO executed a contract of
partition over the said properties.
But as we had pointed out, the law recognizes

the superiority of the torrens title.
Above all, the torrens title in the possession of

the HEIRS OF CECILIO carries more weight as proof of
ownership than the survey or subdivision plan of a parcel
of land in the name of SIBLINGS OF CECILIO.
The Court has invariably upheld the

indefeasibility of the torrens title. No possession by any
person of any portion of the land could defeat the title of
the registered owners thereof. In the present case,
however, the facts belie the claim of ownership.
FALLO: Petition GRANTED. CA decision REVERSED

and SET ASIDE. CFI decision REINSTATED
BERMAN MEMORIAL PARK, INC. and LUISA CHONG

VS.
FRANCISCO CHENG
G.R. No. 154630 May 6, 2005
FACTS:

Berman Memorial Park, Inc. (BMPI) is the owner pretext that he was suffering from hernia and had to be
and operator of the Iloilo Memorial Park (IMP) located in operated on in five days.
Jaro, Iloilo City. One of the sales counselors of the
corporation was Luisa Chong. First. At the bottom of the agreement is the
advice given to the respondent: "Please Read This
On January 18, 1994, Conchita Cheng, Contract."
Francisco Cheng’s wife, died. On January 20, 1994, Second. The respondent had been a businessman for
Cheng purchased from BMPI a memorial lot. The 50 years before he signed the agreement. The Court
remains of Conchita were interred in the said lot. cannot believe that he would sign a blank agreement
without first reading and reviewing the terms and
Sometime in May 1994, Cheng purchased from conditions contained therein. The respondent is
the BMPI a bigger lot in the IMP where the remains of presumed to take ordinary care of his concerns; that the
his wife would be transferred. He was shown a price list private transaction was fair and regular; that the ordinary
of the lots in the said park, including 24-Lot Family course of business has been followed; and that the
Estate, Sr., with an at-need price of P350,000.00, respondent intended the ordinary consequences of his
inclusive of the cost of perpetual care. BMPI offered to voluntary act.
sell the said lot to Cheng at a pre-need price of
P250,000.00, less P110,000.00 of his payment of Third. The respondent admitted in his Comment
P150,000.00 or in the net price of P140,000.00. He was dated February 13, 1997 that he had agreed to the
given a computation of the price for his consideration conversion of 12-Lot to 24-Lot, and that the petitioner
and approval. Cheng agreed to purchase the lot under furnished him a computation which he appended to his
their Pre-Need Purchase Agreement . Cheng then paid pleading. The computation shows that the net price of
on monthly installment. 24-Lot is P140,000.00.
Subsequently, Cheng received a statement of Fourth. The respondent complied with the terms
account from BMPI showing that he still had a balance. and conditions of the Pre-Need Purchase Agreement
Cheng, through counsel, informed BMPI that he had, in and made the requisite downpayment and the monthly
fact, made an overpayment, demanded that the excess installments for 17 months without any plaint. He never
payment be refunded to him, and that the Certificate of demanded for a copy of the said agreement, or
Ownership for 24-Lot be issued to him. In a statement of complained to the petitioners that the contents thereof
account Cheng prepared, He stated therein that the cost did not reflect their arrangement, or demanded that the
of the two lots was P250,000.00, and that he had made said agreement be reformed to reflect their true
a total payment of P327,375.00. agreement. It was only when the respondent received
the statement of his account from BMPI sometime in
BMPI came out with their own statement of March 1996 that he alleged for the first time that he had
accounts that that Cheng has a balance. overpaid BMPI for 24-Lot.
Cheng filed a Complaint against the IMP, not against
BMPI, and Luisa Chong in the RTC of Iloilo City, for Fifth. The respondent failed to adduce evidence
specific performance with damages. He asserted that he that he was suffering from hernia and that he was to be
had made an overpayment for the said lot. operated on in five days after signing the May 11, 1994
The trial court rendered judgment in favor of Cheng. Pre-Need Purchase Agreement.
CA affirmed the RTC decision.
Article 1370 of the New Civil Code provides that
if the terms of a contract are clear and leave no doubt
ISSUE: upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. No amount of
Whether the petitioners and the respondent had extrinsic aids are required and no further extraneous
agreed that the net price of 24-Lot was only P140,000.00 sources are necessary in order to ascertain the parties’
as it appears in the Pre-Need Purchase Agreement42 is intent, determinable as it is, from the contract itself. The
factual? records are clear that the respondent understood the
HELD: nature of the contract he entered into.
If, indeed, the stipulations as embodied in the
The respondent signed the agreement and was aforementioned Pre-Need Purchase Agreement were
furnished with a copy. Indeed, the respondent confirmed not the true intention of the parties, the respondent
in his complaint that he signed the agreement. should have filed the corresponding action for
The respondent cannot feign ignorance of the terms of reformation of the contract. But he did not.
the agreement by alleging that he affixed his signature
on a blank form, and on his barefaced and self-serving The hornbook rule on interpretation of contracts
gives primacy to the intention of the parties, which is the

law among them. Ultimately, their intention is to be

deciphered not from the unilateral post facto assertions
of one of the parties, but from the language used in the
contract. And when the terms of the agreement, as
expressed in such language, are clear, they are to be
understood literally, just as they appear on the face of
the contract.
GUZMAN, BOCALING & CO. VS. RAOUL S. V.

BONNEVIE
G.R. No. 86150 March 2, 1992
FACTS:
The subject of the controversy is a parcel of land

measuring 600 square meters, more or less, with two
buildings constructed thereon, belonging to the Intestate
Estate of Jose L. Reynoso.

This property was leased to Raoul S. Bonnevie RTC decided in favor of the Reynoso and
and Christopher Bonnevie by the administratrix, Africa ordered respondent to vacate the premises asap.
Valdez de Reynoso, for a period of one year beginning
August 8, 1976, at a monthly rental of P4,000.00.
ISSUE:
The Contract of lease contained the following
stipulation: Whether the respondent court erred in ruling that
— In case the LESSOR desire or decides to sell the the grant of first priority to purchase the subject
lease property, the LESSEES shall be given a first properties by the judicial administratrix needed no
priority to purchase the same, all things and authority from the probate court?
considerations being equal.
On November 3, 1976 Reynoso claims she notified the Whether the Contract of Sale was not voidable
private respondents by registered mail that she was but rescissible?
selling the leased premises for P600.000.00 less a
mortgage loan of P100,000.00, and was giving them 30 Whether petitioner buyer is in good faith?
days from receipt of the letter within which to exercise
their right of first priority to purchase the subject
property. She said that in the event that they did not
exercise the said right, she would expect them to vacate HELD:
the property not later than March, 1977.
On January 20, 1977, Reynoso sent another letter to 1st Issue:
private respondents advising them that in view of their The Court agrees with the respondent court that
failure to exercise their right of first priority, she had it was not necessary to secure the approval by the
already sold the property. probate court of the Contract of Lease because it did not
involve an alienation of real property of the estate nor did
Upon receipt of this letter, the private the term of the lease exceed one year so as top make it
respondents wrote Reynoso informing her that neither of fall under Article 1878(8) of the Civil Code. Only if
them had received her letter dated November 3, 1976; Paragraph 20 of the Contract of Lease was activated
that they had advised her agent to inform them officially and the said property was intended to be sold would it
should she decide to sell the property so negotiations be required of the administratrix to secure the approval
could be initiated; and that they were "constrained to of the probate court pursuant to Rule 89 of the Rules of
refuse (her) request for the termination of the lease. Court.
On March 7, 1977, the leased premises were 2nd Issue

formally sold to petitioner Guzman, Bocaling & Co. The
Contract of Sale provided for immediate payment of Even if the order of the probate court was valid,
P137,500.00 on the purchase price, the balance of the private respondents still had a right to rescind the
P262,500.00 to be paid only when the premises were Contract of Sale because of the failure of Reynoso to
vacated. comply with her duty to give them the first opportunity to
purchase the subject property.
On April 12, 1977, Reynoso wrote a letter to the
private respondents demanding that they vacate the The petitioner argues that assuming the
premises within 15 days for their failure to pay the Contract of Sale to be voidable, only the parties thereto
rentals for four months. When they refuse, Reynoso filed could bring an action to annul it pursuant to Article 1397
a complaint for ejectment against them in the city court of the Civil Code. It is stressed that private respondents
of Manila. On September 25, 1979, the parties submitted are strangers to the agreement and therefore have no
a Compromise Agreement, which provided inter alia that personality to seek its annulment.
"the defendant Raoul S.V. Bonnevie shall vacate the
premises subject of the Lease Contract, Voluntarily and The respondent court correctly held that the
Peacefully not later than October 31, 1979." Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract
This agreement was approved by the City Court otherwise valid may nonetheless be subsequently
and became the basis of its decision. However, as the rescinded by reason of injury to third persons, like
private respondents failed to comply with the above- creditors. The status of creditors could be validly
qouted stipulation, Reynoso filed a motion for execution accorded the Bonnevies for they had substantial
of the judgment by compromise, which was granted on interests that were prejudiced by the sale of the subject
November 8, 1979. property to the petitioner without recognizing their right
of first priority under the Contract of Lease.

Rescission is a remedy granted by law to the FALLO: Petition DENIED.

contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract,
even if this should be valid, by means of the restoration
of things to their condition at the moment prior to the
celebration of said contract. It is a relief allowed for the
protection of one of the contracting parties and even
third persons from all injury and damage the contract
may cause, or to protect some incompatible and
preference right created by the contract. Recission
implies a contract which, even if initially valid, produces
a lesion or pecuniary damage to someone that justifies
its invalidation for reasons of equity.
It is true that the acquisition by a third person of

the property subject of the contract is an obstacle to the
action for its rescission where it is shown that such third
person is in lawful possession of the subject of the
contract and that he did not act in bad faith. However,
this rule is not applicable in the case before us because
the petitioner is not considered a third party in relation to
the Contract of Sale nor may its possession of the
subject property be regarded as acquired lawfully and in
good faith.
3rd Issue:
The petitioner cannot be deemed a purchaser in

good faith for the record shows that its categorically
admitted it was aware of the lease in favor of the
Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the
Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso
and Africa Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to and
indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys
the property of another without notice that some other
person has a right to or interest in such property and
pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest
of some other person in the property. Good faith
connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a
buyer in good faith as it had notice of the lease of the EQUATORIAL REALTY VS. MAYFAIR
property by the Bonnevies and such knowledge should November 21, 1996
have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice FACTS:
its own interests. Moreover, the petitioner also cannot
invoke the Compromise Agreement which it says Petitioner Carmelo and Bauermann Inc. leased
canceled the right of first priority granted to the its parcel of land with 2-storey building to respondent
Bonnevies by the Contract of Lease. This agreement Mayfair Theater Inc.
was set aside by the parties thereto, resulting in the
restoration of the original rights of the private They entered a contract which provides that if
respondents under the Contract of Lease. the LESSOR should desire to sell the leased premises,

the LESSEE shall be given 30-days exclusive option to

purchase the same.
Carmelo informed Mayfair that it will sell the property to
Equatorial. Mayfair made known its interest to buy the
property but only to the extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the
property to Equatorial.
ISSUE:
WON the sale of the property to Equatorial is

valid?
HELD:
The sale of the property should be rescinded

because Mayfair has the right of first refusal. Both
Equatorial and Carmelo are in bad faith because they
knew of the stipulation in the contract regarding the right
of first refusal.
The stipulation is a not an option contract but a right of
first refusal and as such the requirement of a separate
consideration for the option, has no applicability in the
instant case. The consideration is built in the reciprocal
obligation of the parties.
In reciprocal contract, the obligation or promise

of each party is the consideration for that of the other.
(Promise to lease in return of the right to first refusal)
With regard to the impossibility of performance,

only Carmelo can be blamed for not including the entire
property in the right of first refusal. Court held that
Mayfair may not have the option to buy the property. Not
only the leased area but the entire property.
RIVERA VS. DEL ROSARIO

G.R. No. 144934 January 15, 2004
FACTS:
Del Rosario is the registered owners of Lot No.

1083-C, a parcel of land situated at Lolomboy, Bulacan.
Fidela del Rosario borrowed P250,000 from Mariano
Rivera in the early part of 1987. To secure the loan, she
and Mariano Rivera agreed to execute a deed of real
estate mortgage and an agreement to sell the land.
Consequently, Mariano drafted the Deed of Real Estate

Mortgage, a Kasunduan (Agreement to Sell), and a payment of the purchase price is a positive suspensive
Deed of Absolute Sale. condition, the failure of which is not a breach, casual or
serious, but a situation that prevents the obligation of the
The Kasunduan provided the Riveras would purchase vendor to convey title from acquiring an obligatory force.
the lot for P2.1M. There were 3 installments:
o 250 K upon the signing of the Kasunduan Respondents bound themselves to deliver a
o 750K on August 31, 1987 deed of absolute sale and clean title after petitioners
o 1.1M on December 31, 1987. have made the second installment. This promise to sell
was subject to the fulfillment of the suspensive condition.
The Deed of Absolute Sale would be executed only after Petitioners however failed to complete payment of the
the second installment is paid and a postdated check for second installment. The non-fulfillment of the condition
the last installment is deposited with Fidela.Although rendered the contract to sell ineffective and without force
Fidela intended to sign only the Kasunduan & the real and effect. It must be stressed that the breach
estate mortgage, she inadvertently affixed her signature contemplated in Article 1191 of the New Civil Code is the
on all 3 documents. obligor’s failure to comply with an obligation already
extant, not a failure of a condition to render binding that
Rivera failed to complete the payment in the 2nd obligation. Failure to pay, in this instance, is not even a
installment.Respondents filed a complaint asking for the breach but an event that prevents the vendor’s obligation
rescission of Kasunduan for failure of Rivera’s to comply to convey title from acquiring binding force. Hence, the
with its condition’s. They also sought the annulment of agreement of the parties in the instant case may be set
the deed of absolute sale on the ground of fraud & the aside, but not because of a breach on the part of
reconveyance of the entire property. petitioners for failure to complete payment of the second
installment. Rather, their failure to do so prevented the
Petitioners say that there can be no rescission obligation of respondents to convey title from acquiring
because in accordance with Article 1383, the del an obligatory force.
Rosarios must show that there were no other legal
means available to obtain reparation other than to file a While Article 1191 uses the term rescission, the
case for rescission. original term used in Article 1124 of the old Civil Code,
NB: Nieto was the tenant of the property. When the from which Article 1191 was based, was resolution.46
Riveras showed to Nieto that they were the new owners, Resolution is a principal action that is based on breach
he desisted from vacating the property. The Riveras of a party, while rescission under Article 1383 is a
agreed to give him a small piece of the land in question. subsidiary action limited to cases of rescission for lesion
under Article 1381 of the New Civil Code.
The RTC declared the deed of absolute sale as
null and void. The CA modified the RTC’s decision
insofar as it deemed the portion pertaining to Nieto as
valid.
ISSUE:
WON the contract entered into between the

parties may be rescinded based on Art 1191? NO
WON the deed of absolute sale is null and void TANAY RECREATION CENTER AND DEVELOPMENT
in its entirety as opposed to the CA’s decision of validity CORP.
pertaining to Nieto’s share? YES, VOID IN ITS VS. CATALINA MATIENZO FAUSTO
ENTIRETY G.R. No. 140182. April 12, 2005
HELD: FACTS:
The Kasunduan reveals that it is in the nature of Petitioner Tanay Recreation Center and
a contract to sell, as distinguished from a contract of Development Corp. (TRCDC) is the lessee of a 3,090-
sale. In a contract of sale, the title to the property passes square meter property located in Sitio Gayas, Tanay,
to the vendee upon the delivery of the thing sold; while in Rizal, owned by Catalina Matienzo Fausto, under a
a contract to sell, ownership is, by agreement, reserved Contract of Lease. On this property stands the Tanay
in the vendor and is not to pass to the vendee until full Coliseum Cockpit operated by petitioner. The lease
payment of the purchase price. In a contract to sell, the contract provided for a 20-year term, subject to renewal

within sixty days prior to its expiration. The contract also room for interpretation. It simply means that should
provided that should Fausto decide to sell the property, Fausto decide to sell the leased property during the term
petitioner shall have the “priority right” to purchase the of the lease, such sale should first be offered to
same. petitioner. The stipulation does not provide for the
qualification that such right may be exercised only when
On June 17, 1991, petitioner wrote Fausto the sale is made to strangers or persons other than
informing her of its intention to renew the lease. Fausto’s kin. Thus, under the terms of petitioner’s right
However, it was Fausto’s daughter, respondent of first refusal, Fausto has the legal duty to petitioner not
Anunciacion F. Pacunayen, who replied, asking that to sell the property to anybody, even her relatives, at any
petitioner remove the improvements built thereon, as price until after she has made an offer to sell to petitioner
she is now the absolute owner of the property. It appears at a certain price and said offer was rejected by
that Fausto had earlier sold the property to Pacunayen petitioner.
and title has already been transferred in her name.
Petitioner filed an Amended Complaint for Annulment of
Deed of Sale, Specific Performance with Damages, and
Injunction.
In her Answer, respondent claimed that

petitioner is estopped from assailing the validity of the
deed of sale as the latter acknowledged her ownership
when it merely asked for a renewal of the lease.
According to respondent, when they met to discuss the
matter, petitioner did not demand for the exercise of its
option to purchase the property, and it even asked for
grace period to vacate the premises.
ISSUE:
The contention in this case refers to petitioner’s

priority right to purchase, also referred to as the right of
first refusal?
HELD:
When a lease contract contains a right of first

refusal, the lessor is under a legal duty to the lessee not
to sell to anybody at any price until after he has made an
offer to sell to the latter at a certain price and the lessee
has failed to accept it. The lessee has a right that the
lessor's first offer shall be in his favor. Petitioner’s right of
first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole
contract. The consideration for the lease includes the REPUBLIC OF THE PHILIPPINES, Represented by
consideration for the right of first refusal and is built into the SOCIAL SECURITY SYSTEM VS. JERRY V.
the reciprocal obligations of the parties. DAVID
G.R. No. 155634. August 16, 2004
It was erroneous for the CA to rule that the right
of first refusal does not apply when the property is sold
to Fausto’s relative. When the terms of an agreement FACTS:
have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can Jerry V. David is an employee of the SSS.
be, between the parties and their successors in interest, Pursuant to its Employees’ Housing Loan Program, SSS
no evidence of such terms other than the contents of the awarded David a house and lot located at North
written agreement, except when it fails to express the Fairview, Quezon City. A Deed of Conditional Sale over
true intent and agreement of the parties. In this case, the the subject property was thereafter executed between
wording of the stipulation giving petitioner the right of the parties.
first refusal is plain and unambiguous, and leaves no

On reports that numerous violations have been construction of a contract, must also be carefully
committed by some of the housing awardees in considered.
connection with the conditions governing their sales,
SSS conducted an investigation on the matter. The The conditions that were allegedly violated by
investigation revealed that in the case of [Respondent] respondent are contained in paragraph 10 of the Deed of
David, he committed two (2) violations of his deed of Conditional Sale.
conditional sale, to wit: (1) neither the [respondent] nor Plainly, the primary intention behind the above-quoted
his immediate family resided and/or occupied the said stipulations is to restrict the sale, the use and the benefit
housing unit, and (2) he allowed a certain Buenaventura of the housing units to SSS employees and their
Penus to possess and occupy the property. As a immediate families only. This objective is in line with
consequence of these violations, SSS sent a letter to that of the SSS housing loan program -- to aid its
David formally revoking, terminating and/or rescinding employees in acquiring their own dwelling units at a low
the deed of conditional sale. However, the latter refused cost. Such intent, draws life also from the social justice
to vacate and surrender possession of the subject policy of RA 1161, as amended, otherwise known as the
property, prompting SSS to institute a complaint with the “Social Security System Law” granting direct housing
Quezon City RTC on March 28, 1996 revoking the deed loans to covered employees and giving priority to low-
of conditional sale and likewise praying for the issuance income groups.
of a writ of possession in its favor.
[Respondent] David denied the alleged violations of the Indeed, the above goal is confirmed by the
deed of conditional sale, stating that Buenaventura requirement that respondent-vendee and his heirs or
Penus, alluded to by the [petitioner] as possessor- assigns must actually occupy and possess the property
occupant of the subject property, was in fact a caretaker at all times; by the proscription that he must not sell,
until and after the necessary renovations and assign, encumber, mortgage, lease, sublet or in any
modifications on the house were made. manner alter or dispose of the property for the first five
RTC dismissed the case and ruled in favor of David. (5) years; and by the further proviso that he may alienate
CA affirmed in toto the RTC decision. or transfer his rights thereto at any time prior to full
payment, but only to petitioner under its right of first
refusal or to any other eligible SSS employee. These
ISSUE: restrictive covenants are undeniably valid under Article
1306 of the Civil Code.
Whether respondent violated the terms and
conditions of the “Deed of Conditional Sale”? The use of the conjunctive and in subparagraph
(c) is not by any chance a surplusage. Neither is it
Whether Rescission is the proper recourse? meant to be without any legal signification. Its use is
confirmatory of the restrictive intent that the houses
provided by petitioner should be for the exclusive use
HELD: and benefit of the SSS employee-beneficiary.
1st Issue It is easily discernible, therefore, that both

Petitioner avers that respondent violated the “actual occupancy” and “possession at all times” -- not
terms and conditions of the Deed of Conditional Sale, just one or the other -- were imposed as conditions upon
when he failed to “actually occupy and possess the respondent. The word and -- whether it is used to
property at all times” and allowed other persons to do so. connect words, phrases or full sentences -- must be
Certain rules of contract interpretation come to mind at accepted in its common and usual meaning as “binding
this point. First, in construing a contract, it is a together and as relating to one another.” And implies a
fundamental task to ascertain the intention of the conjunction, joinder or union.
contracting parties. As a rule, such intention is Thus, respondent had to comply with not one, but two,
determined by looking at the words used -- at all the concurring conditions -- actual occupancy and
words rather than at a particular word or two; and at possession at all times. The question is, did he? We
words in context rather than just words standing alone. rule that he did not.
Indeed, under Article 1374 of the Civil Code, “the various
stipulations of a contract shall be interpreted together, 2nd Issue:
attributing to the doubtful ones that sense which may In view of the foregoing discussion, we rule that
result from all of them taken jointly.” Second, the rescission of the Contract is the proper recourse. Article
ascertained intention of the parties is deemed an integral 1191 of the Civil Code provides:
part of the contract, as though it has been originally
expressed in unequivocal terms. And third, the “Art. 1191. The power to rescind obligations is implied in
reasonableness of the result obtained, after analysis and reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

“The injured party may choose between fulfillment and

the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission
even after he has chosen fulfillment, if the latter should
become impossible.”
As noted in previous cases, the rescission contemplated
under Article 1191 is a principal action for “resolution,”
which is based on a breach by a party of its reciprocal
obligations. The present Contract is one of conditional
sale -- oftentimes referred to as a contract to sell,
wherein ownership or title is retained by the vendor until
“full payment by the VENDEE of the full purchase price
of the PROPERTY, with all the interest due thereon, as
well as taxes and other charges AND upon their faithful
compliance with all the conditions of this Contract x x x.”
Although a transfer of ownership or title from the

seller to the buyer is normally predicated upon the
payment of the purchase price, the parties are
nevertheless free to stipulate other lawful conditions by
which they bind themselves and upon which transfer of
ownership depends. In this case, that other obligation
was faithful compliance with the conditions of the
Contract. Respondent did not faithfully comply with the
conditions under subparagraphs (10)(a) and (c). His
noncompliance also constituted a breach of his
reciprocal obligations under the Deed.
The Deed itself provides for its annulment and
cancellation by reason of a breach of the terms and
conditions stipulated therein.
Doctrinally, mutual restitution must follow

rescission. Under Article 1385 of the Civil Code,
“rescission creates the obligation to return the things
which were the object of the contract, together with their
fruits, and the price with its interests x x x.” Moreover,
“[t]o rescind is to declare a contract void at its inception
and to put an end to it as though it never was.” Hence,
rescission restores the parties to their relative positions,
as if no contract has been made. Paragraph 11, cited
above, supports the mutual restitution required in
rescission.
Respondent is thus obliged to return the house

and lot sold, as well as rental payments he may have
earned, if any. On the other hand, petitioner is
mandated to refund to him his full payment of AIR FRANCE VS. CA
P172,978.85 plus legal interest of 6 percent per annum, G.R. No. L-57339 December 29, 1983
as well as the value of substantial improvements
introduced by him, as appraised by petitioner. Indeed,
stipulated in the Deed is such appraisal by the vendor, FACTS:
upon transfer of the property to petitioner or to any of its
eligible employees. This condition is reasonably and Sometime in February, 1970, the late Jose G.
justly applicable and proper in the present case. Gana and his family (the GANAS), purchased from AIR
FRANCE through Imperial Travels, Incorporated, nine
(9) "open-dated" air passage tickets for the
FALLO: Petition GRANTED. Manila/Osaka/Tokyo/Manila route.

On 24 April 1970, AIR FRANCE exchanged or enrichment considering that an increase of fares took
substituted the aforementioned tickets with other tickets effect, as authorized by the Civil Aeronautics Board
for the same route. At this time, the GANAS were (CAB) in April, 1971.
booked for the Manila/Osaka segment on AIR FRANCE
Flight 184 for 8 May 1970, and for the Tokyo/Manila The conclusion is inevitable that the GANAS
return trip on AIR FRANCE Flight 187 on 22 May 1970. brought upon themselves the predicament they were in
The aforesaid tickets were valid until 8 May 1971, the for having insisted on using tickets that were due to
date written under the printed words "Non valuable apres expire in an effort, perhaps, to beat the deadline and in
de (meaning, "not valid after the"). The GANAS did not the thought that by commencing the trip the day before
depart on 8 May 1970. the expiry date, they could complete the trip even
thereafter. It should be recalled that AIR FRANCE was
In the meantime, the GANAS had scheduled even unaware of the validating SAS and JAL. stickers
their departure on 7 May 1971 or one day before the that Ella had affixed spuriously. Consequently, Japan Air
expiry date. In the morning of the very day of their Lines and AIR FRANCE merely acted within their
scheduled departure on the first leg of their trip, Teresita contractual rights when they dishonored the tickets on
requested travel agent Ella to arrange the revalidation of the remaining segments of the trip and when AIR
the tickets. Ella gave the same negative answer and FRANCE demanded payment of the adjusted fare rates
warned her that although the tickets could be used by and travel taxes for the Tokyo/Manila flight.
the GANAS if they left on 7 May 1971, the tickets would
no longer be valid for the rest of their trip because the FALLO: Judgment REVERSED
tickets would then have expired on 8 May 1971. Teresita
replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella on his own,
attached to the tickets validating stickers for the
Osaka/Tokyo flight, one a JAL. sticker and the other an
SAS (Scandinavian Airways System) sticker. The SAS
sticker indicates thereon that it was "Reevaluated by: the
Philippine Travel Bureau, Branch No. 2" (as shown by a
circular rubber stamp) and signed "Ador", and the date is
handwritten in the center of the circle. Then appear
under printed headings the notations: JL. 108 (Flight), 16
May (Date), 1040 (Time), OK (status). Apparently, Ella
made no more attempt to contact AIR FRANCE as there
was no more time. Notwithstanding the warnings, the
GANAS departed from Manila in the afternoon of 7 May
1971 on board AIR FRANCE Flight 184 for Osaka,
Japan.
ISSUE:
Whether or not, under the environmental milieu

the GANAS have made out a case for breach of contract
of carriage entitling them to an award of damages?
CHINA BANKING CORPORATION VS. CA

HELD: 327 SCRA 378
No. it is clear that AIR FRANCE cannot be FACTS:

faulted for breach of contract when it dishonored the
tickets of the GANAS after 8 May 1971 since those Alfonso Roxas Chua and his wife Kiang Ming
tickets expired on said date; nor when it required the Chu Chua were the owners of a residential land in San
GANAS to buy new tickets or have their tickets re-issued Juan, Metro Manila, covered by Transfer Certificate of
for the Tokyo/Manila segment of their trip. Neither can it Title No. 410603. On June19, 1985, petitioner China
be said that, when upon sale of the new tickets, it Bank filed with the Regional Trial Court of Manila,
imposed additional charges representing fare Branch 29, an action for collection of sum of money
differentials, it was motivated by self-interest or unjust against Pacific Multi Agro-Industrial Corporation and

Alfonso Chua which was docketed as Civil Case No. 85- presumption that the conveyance is fraudulent has not
31257. On November 7, 1985, the trial court been overcome.
promulgated its decision in Civil Case No. 85-31257 in
favor of China Banking Corporation. On November 21, At the time a judgment was rendered in favor of
1988, Alfonso Roxas Chua executed a public instrument China Bank against Alfonso and the corporation, Paulino
denominated as "Assignment of Rights to Redeem," was still living with his parents in the subject property.
whereby he assigned his rights to redeem the one-half Paulino himself admitted that he knew his father was
undivided portion of the property to his son, private heavily indebted and could not afford to pay his debts.
respondent Paulino RoxasChua. Paulino redeemed said The transfer was undoubtedly made between father and
one-half share on the very same day. son at a time when the father was insolvent and had no
other property to pay off his creditors. Hence, it is of no
On the other hand, in connection with Civil Case consequence whether or not Paulino had given valuable
No. 85-31257, another notice of levy on execution was consideration for the conveyance. Petition is granted.
issued on February 4, 1991 by the Deputy Sheriff of
Manila against the right and interest of Alfonso Roxas
Chua in TCT 410603. Thereafter, a certificate of sale on
execution dated April 13, 1992 was issued by the Sheriff
of Branch 39, RTC Manila in Civil Case No. 85-31257, in
favor of ChinaBank and inscribed at the back of TCT
410603 as Entry No. 01896 on May 4, 1992.
On May 20,1993, Paulino Roxas Chua and

Kiang Ming Chu Chua instituted Civil Case No. 63199
before theRTC of Pasig, Metro Manila against China
Bank, averring that Paulino has a prior and better right
over the rights, title, interest and participation of China
Banking Corporation in TCT410603. The trial court
rendered a decision on July 15, 1994 in favor of private
respondentPaulino Roxas Chua. On appeal, the Court of
Appeals affirmed the ruling of the trial court
ISSUE:
Whether or not the assignment of the right of

redemption made by Alfonso Roxas Chua in favor of
private respondent Paulino was done to defraud his
creditors and may be rescinded under Article 1387 of the
Civil Code?
CADWALLADER & COMPANY VS. SMITH, BELL &

COMPANY
HELD: February 9, 1907
YES. Existence of fraud or intent to defraud

creditors may either be presumed in accordance with FACTS:
Article 1387 of the Civil Code or duly proved as the case
may be. After his conjugal share in TCT 410603 was In this action the plaintiff, as assignee of the
foreclosed by Metrobank, the only property that Alfonso Pacific Export Lumber Company, sues for $3,486,
Roxas Chua had was his right to redeem the same, it United States currency, the differences between the
forming part of his patrimony. "Property" under civil law amount turned over to the company on account of a
comprehends every species of title, inchoate or cargo of cedar piles consigned to the defendants as its
complete, legal or equitable. In the case at bar,the agents and afterwards bought by them, and the amount
actually received by them on the subsequent sale

thereof. The defendant were allowed by the court below YES. It is plaint that in concealing from their
a counterclaim of $6,993.80, United States currency, principal the negotiations with the Government, resulting
from which was deducted $2,063.16 for the plaintiffs in a sale of the piles at 19 a piece and in
claim, leaving a balance in favor of the defendants of misrepresenting the condition of the market, the agents
$4,930.64, for the equipment of which, to wit, 9,861.28 committed a breach of duty from which they should
pesos, judgment was entered. The defendants have not benefit. The contract of sale to themselves thereby
appealed. The plaintiff took several exceptions, but on induced was founded on their fraud and was subject to
the argument its counsel stated that its contention was annulment by the aggrieved party. (Civil Code, articles
confined to the allowance by the trial court of the 1265 and 1269.) Upon annulment the parties should be
commissions of the defendant on selling the piling. restored to their original position by mutual restitution.
(Article 1303 and 1306.) Therefore the defendants are
In May 1902, the Pacific Export Lumber not entitled to retain their commission realized upon the
Company of Portland shipped upon the steamer Quito piles included under the contract so annulled. In respect
five hundred and eighty-one (581) piles to the defendant, of the 213 piles, which at the time of the making of this
Henry W. Peabody & Company, at Manila, on the sale of contract on August 5 they had already sold under the
which before storage the consignees were to receive a original agency, their commission should be allowed.
commission of one half of whatever sum was obtained
over $15 for each pile and 5 per cent of the price of the The court below found the net amount due from
piles sold after storage. After the arrival of the steamer the defendants to the plaintiff for the Quito piles, after
on August 2, Peabody and Company wrote the agent of deducting the expense of landing the same and $543.10
the Pacific Company at Shanghai that for lack of a commission, was $1,760.88, on which it allowed interest
demand the piles would have to be sold at considerably at the rate of 6 per cent from March 1, 1903. This
less than $15 apiece; whereupon the company’s agent amount should be increased by the addition thereto of
directed them to make the best possible offer for the the amount of the commission disallowed, to wit,
piles, in response to which on August 5 they telegraphed $331.17 giving $2,092.05. Interest computed on this sum
him an offer of $12 apiece. It was accepted by him on to the date of the entry of judgment below amounts to
August 6, in consequence of which the defendant paid $359.77, which added to the principal sum makes
the Pacific Company $6,972. $2,241.82, the amount of plaintiff’s claim, which is to be
deducted from defendants’ counterclaim of $6,993.80,
It afterwards appeared that on July 9 Peabody & leaving a balance of $4,541.98, equivalent to 9,083.96
Company had entered into negotiations with the Insular pesos, the amount for which judgment below should
Purchasing Agent for the sale for the piles at $20 a have been entered in favor of the defendants.
piece, resulting of August 4 in the sale to the
Government of two hundred and thirteen (213) piles at
$19 each. More of them were afterwards sold to the
Government at the same figure and the remainder to
other parties at carrying prices, the whole realizing to the
defendants $10,41.66, amounting to $3,445.66 above
the amount paid by the defendant to the plaintiff therefor.
Thus it is clear that at the time when the agents were
buying from their principal these piles at $12 apiece on
the strength of their representation that no better price
was obtainable, they had already sold a substantial part
of them at $19.
In these transactions the defendant, Smith, Bell
& Company, were associated with the defendants, Henry VDA. DE BUNCIO VS. ESTATE OS SPOUSES DE
W. Peabody & Company, who conducted the LEON
negotiations, and are consequently accountable with December 14, 1987
them.
FACTS:
ISSUE:
Involved in this case is an attempt by a daughter
Whether or not the sale was fraudulent, hence to claim her share in her father's estate some sixty-three
may be annulled by the aggrieved party? years after the latter's demise. The father, Andres
Arroyo, died sometime in 1901. He left an estate
apparently of no mean size, comprised of properties
HELD: located mainly in Iloilo and Negros Occidental. He was
survived by three compulsory heirs: Felix Arroyo, a

legitimate son by his first wife, and Filomena Arroyo and YES. The action to annul a contract on the
Simplicio Arroyo, legitimate children by his second wife. ground that consent is vitiated by mistake, violence,
Administration of his estate was assumed and intimidation, undue influence or fraud prescribes in four
undertaken by Felix Arroyo, as the oldest son, evidently (4) years; and the period is reckoned, in case of mistake
without objection from his brother or sister. or fraud, from the time of the discovery of the same. It is
noteworthy that as early as March 14, 1946 the
On February 19, 1964, his daughter, the appellants already had pleaded fraud in the motion filed
aforenamed Filomena Arroyo, then already 84 years of by them on that day to set aside the judgment rendered
age and a widow, together with her six (6) children, filed in Civil Case No. 7268: their contention was that their
suit in the then Court of First Instance of Negros consent to the convenio de transaccion which the
Occidental, seeking to recover from the estate of the judgment had approved, had been obtained by fraud, or
late Spouses Anita de Leon and Serafin Villanueva, Sr. undue machinations. It is thus not unreasonable, surely,
and their children, what she claimed to be one third (1/3) to consider March 14, 1946 as the day of the discovery
of the properties left by her deceased father. Her of the fraud. So considered, it should at once be
complaint alleged that her share in the inheritance had at apparent that the prescriptive period of four (4) years
all times been held in trust by Felix Arroyo and after his had long elapsed when Civil Case No. 7200 was
death, by his heirs and successors-in-interest, who are instituted by the appellants on February 19, 1964,
the defendants named in her complaint, and she had eighteen (18) years afterwards.
been deprived of that share through fraud and
misrepresentation. Alternatively categorizing the appellants' cause
of action as one for recovery of property held by
The defendant Anita de Leon was the defendants under a constructive trust, would not improve
granddaughter of Felix Arroyo by his daughter, their situation. The statute of limitations would still
Fortunata. Serafin Villanueva was her husband. They preclude their success. Assuming the creation of an
moved to dismiss the complaint on several grounds: implied trust over the real property in question from the
failure of the complaint to state a cause of action, res time that Felix Arroyo took over possession and
judicata, laches, estoppel, release, and bar by the administration thereof sometime in 1901, the period of
statute of limitations. The Trial Court sustained the prescription to recover the property-set by law at ten (10)
motion and dismissed the action, by Order dated March years-began to run from the time that Torrens titles were
14, 1966. It also directed the Register of Deeds of Iloilo, obtained over the property in the name of the trustee or
Negros Occidental, etc., to cancel the annotation of lis his successors-in-interest.
pendens caused to be made by the plaintiffs on all the
certificates of title of the land involved in the litigation. An action for reconveyance based on an implied
or constructive trust must perforce prescribe in ten years
On February 19, 1940, the parties executed a and not otherwise. A long line of decisions of this Court,
compromise agreement entitled Convenio de and of very recent vintage at that, illustrates this rule.
Transaccion which they acknowledged before a notary Undoubtedly, it is now well-settled that an action for
public. By it, the Buncio Spouses and their co-plaintiffs reconveyance based on an implied or constructive trust
sold, transferred and conveyed all their rights, title and prescribes in ten years from the issuance of the Torrens
interests over all the properties involved in the litigation title over the property. It being clear from the record that
in favor of the defendant spouses, Anita and Serafin the appellants had brought their suit, Civil Case No.
Villanueva. On the same day the parties filed a Peticion 7268, more than ten (10) years after titles had been
with the Court praying that judgment be rendered in obtained over the property claimed by the appellees or
accordance with their convenio This the Court did the their predecessor-in-interest, their cause of action
following day, February 20, 1940. predicated on constructive trust is barred by prescription.
However, on March 14, 1946 (after Liberation),

the plaintiffs filed a motion to vacate the decision of ASIA PRODUCTION VS. PANO
February 20, 1940. They alleged as grounds therefor January 27, 1992
fraud, misrepresentation, deceit and undue influence
vitiating their consent to the Convenio de Transaccion.
FACTS:
ISSUE: Sometime in March 1976, private respondents,

Whether or not the action for annulment on the who claimed to be the owners of a building constructed
ground of fraud has been barred by prescription? on a lot leased from Lucio San Andres and located in
Valenzuela, Bulacan, offered to sell the building to the
petitioners for P170,000.00. Petitioners agreed because
HELD: of private respondents' assurance that they will also

assign to the petitioners the contract of lease over the Partial execution is even enough to bar the application of
land. The above agreement and promise were not the statute .
reduced to writing. Private respondents undertook to
deliver to the petitioners the deed of conveyance over WHEREFORE, the petition is hereby
the building and the deed of assignment of the contract GRANTED. The challenged Orders of 18 April 1979 and
of lease within sixty (60) days from the date of payment 21 June1979 in Civil Case No. Q-23593 of the court
of the down payment of P20,000.00. The balance was to below are hereby ANNULLED and SET ASIDE, and the
be paid in monthly installments. complaint in said case is hereby ordered REINSTATED.
The default order against private respondent Lolita Lee
On20 March 1976, petitioners paid the down Le Hua shall stand and private respondent Alberto Dy is
payment and issued eight (8) post dated checks drawn ordered to file his Answer to the complaint with the court
against the Equitable Banking Corporation for the below within ten (10) days from receipt of this decision.
payment of the eight (8) monthly instalments. Relying on This decision shall be immediately executor.
the good faith of private respondents, petitioners
constructed in May 1976 a weaving factory on the
leased lot.
Unfortunately, private respondents, despite

extensions granted, failed to comply with their
undertaking to execute the deed to sale and to assign
the contract despite the fact that they were able to
encash the checks dated 30 June and 30 July 1976 in
the total amount of P30,000.00. Worse, the lot owner
made it plain to petitioners that he was unwilling to give
consent to the assignment of the lease unless petitioners
agreed to certain onerous terms, such as an increase in
rental, or the purchase of the land at a very
unconscionable price. Petitioners thereafter removed
their effects from the disputed land and therefore filed a
case for the collection of the paid instalments which the
lower court dismissed because it falls within the purview
of the requirements as set forth in the Statute of Frauds.
Hence, this petition.
ISSUE:
Whether or not an action for the refund of partial

payments of the purchase price of a building covered
byan oral agreement to sell it with an oral promise to
assign the contract of lease on the lot where thebuilding
is constructed is barred by the Statute of Frauds?
GREGORIO AVERIA VS. DOMINGO AVERIA

August 13, 2004
HELD:
FACTS:
NO. The statute of frauds is not applicable
because there is partial performance in the Macaria Francisco (Macaria) and Marcos Averia
aforementioned contract which is the payment of contracted marriage which bore six issues, namely:
consideration in liu of the promise of the defendants. Gregorio, Teresa, Domingo, Angel, Felipe and Felimon.
Macaria was widowed and she contracted a second
It goes without saying then, as held in the early marriage with Roberto Romero (Romero) which bore no
case of Almirol, et al. vs. Monserrat, that the statute will issue.
apply only to executory rather than executed contracts.

Romero died on February 28, 1968, leaving The alleged conveyances purportedly made by
three adjoining residential lots located at Sampaloc, Macaria Francisco and plaintiff-appellant Domingo
Manila. In a Deed of Extrajudicial Partition and Summary Averia are unenforceable as the requirements under the
Settlement of the Estate of Romero, the house and lot Statute of Frauds have not been complied with. Article
containing 150 square meters at 725 Extremadura 1403, 2(e) of the New Civil Code.
Street, Sampaloc was apportioned to Macaria.
The two (2) transactions in question being
Alleging that fraud was employed by her co- agreements for the sale of real property or of an interest
heirs in the partition of the estate of Romero, Macaria therein are in clear contravention of the prescription that
filed on June 1, 1970 an action for annulment of title and it must be in writing and subscribed by the party charged
damages before the Court of First Instance of Manila or by an agent thereof. Hence, the strong insistence by
against her co-heirs Domingo Viray. Macaria’s son defendants-appellees on the verbal conveyances cannot
Gregorio and his family and daughter Teresa’s family be made the basis for the alleged ownership over the
lived with her at Extremadura until her death on March undivided interests claimed by Gregorio Averia.
28, 1983.
The parol evidence upon which the trial court
Close to six years after Macaria’s demise or on anchored its award in favor of defendant-appellee
January 19, 1989, her children Domingo, Angel and Gregorio Averia is irregular as such kind of evidence is
Felipe, along with Susan Pelayo vda. de Averia (widow foreclosed by Article 1403 of the Civil Code that no
of Macaria’s deceased son Felimon), filed before evidence of the alleged agreements can be received
theRTC of Manila a complaint against their brother without the writing of secondary evidence which
Gregorio and niece Sylvanna Vergara "representing her embodies the sale of the real property. The introduction
absentee mother" Teresa Averia, for judicial partition of of the testimonies of Gregorio Averia’s witnesses were
the Extremadura property inclusive of the 30 square timely objected to by plaintiffs-appellants. Since the
meters judicially awarded. testimonies of defendants-appellees’ witnesses are
inadmissible, then such exclusion has pulled the rug
The defendants Gregorio and Sylvanna Vergara, under the assailed decision of the trial court and it has
in their Answer to the Complaint, countered that no more leg to stand on.
Gregorio and his late wife Agripina spent for the litigation
expenses in Civil Case No. 79955, upon the request of
Macaria, and the couple spent not less P20,000.00 for
the purpose "which amount due to the inflation of the ISSUE:
Philippine peso is now equivalent to more or less Whether or not reception of parol evidence in
P200,000.00;" that from 1974 to 1983, Macaria was this case is in accordance with the law?
bedridden and it was Gregorio’s wife Agripina who
nursed and took care of her; that before Macaria died,
she in consideration of the court and other expenses
which were defrayed by Gregorio and his wife in
prosecuting Civil Case No. 79955 and of "the kindness
of the said couple in caring for her," verbally sold to the
spouses Gregorio and Agripina one-half (½) of her
Extremadura property.
HELD:
YES. respondents waived any objection to the

admission of parol evidence, hence, it is admissible and
The RTC rendered judgment in favour of enforceable following Article 1405 of the Civil Code.
Gregorio Averia. On appeal, CA reversed the decision of
the trial court. CA held that the alleged transfers made Indeed, except for the testimony of petitioner
by Macaria and Domingo in favor of Gregorio were Gregorio bearing on the verbal sale to him by Macaria of
bereft of any written memoranda, held that it was error the property, the testimonies of petitioners’ witnesses
for the trial court to rely solely on the evidence adduced Sylvanna Vergara Clutario and Flora Lazaro Rivera
by the defendants consisting of the testimonies of bearing on the same matter were not objected to by
Gregorio, Veronica Bautista, Sylvanna Vergara Clutario, respondents. Just as the testimonies of Gregorio, Jr. and
Atty. Mario C.R. Domingo, Felimon Dagondon and Veronica Bautista bearing on the receipt by respondent
Gregorio Averia, Jr. The CA explained its ruling in this Domingo on July 23, 1983 from Gregorio’s wife of
wise: P5,000.00 representing partial payment of the
P10,000.00 valuation of his (Domingo’s) 1/6 share in the

property, and of the testimony of Felimon Dagondon partial performance may be proved by either
bearing on the receipt by Domingo of P5,000.00 from documentary or oral evidence.
Gregorio were not objected to. Following Article 1405 of
the Civil Code, the contracts which infringed the Statute
of Frauds were ratified by the failure to object to the
presentation of parol evidence, hence, enforceable.
ARTICLE 1403. The following contracts are
unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
x x x (Emphasis and underscoring supplied),
Contrary then to the finding of the CA, the

admission of parol evidence upon which the trial court
anchored its decision in favor of respondents is not
irregular and is not foreclosed by Article 1405.
In any event, the Statute of Frauds applies only

to executory contracts and not to contracts which are
either partially or totally performed. In the case at bar,
petitioners claimed that there was total performance of
the contracts, full payment of the objects thereof having
already been made and the vendee Gregorio having,
even after Macaria’s death in 1983, continued to occupy
the property until and after the filing on January 19, 1989
of the complaint subject of the case at bar as in fact he is
still occupying it.
In proving the fact of partial or total performance,

oral evidence may be received as what the trial court in
the case at bar did. Noted civilist Arturo M. Tolentino
elucidates on the matter:
The statute of frauds is not applicable to CLEMENO VS. LOBREGAT
contracts which are either totally or partially performed, September 9, 2004
on the theory that there is a wide field for the
commission of frauds in executory contracts which can
only be prevented by requiring them to be in writing, a FACTS:
fact which is reduced to a minimum in executed
contracts because the intention of the parties becomes The Spouses Nilus and Teresita Sacramento
apparent by their execution, and execution concludes, in were the owners of a parcel of land and the house
most cases, the rights of the parties. However it is not constructed thereon located in Novaliches, Quezon City.
enough for a party to allege partial performance in order The Spouses Sacramento mortgaged the property with
to render the Statute of Frauds inapplicable; such partial the SSS as security for their housing loan and, likewise,
performance must be duly proved. But neither is such surrendered the owner’s and duplicate copies of the
party required to establish such partial performance by certificate of title.
documentary proof before he could have the opportunity
to introduce oral testimony on the transaction. The On September 2, 1980, the spouses executed a
Deed of Sale with Assumption of Mortgage in favour of

Spouses Clemeno with the consent of SSS. On March The trial court rendered judgment in favour of
6, 1981, the Register of Deeds issued TCT No. 277244 petitioners. Respondent appealed to the CA which
over the property in the name of the vendees, who, in reversed the decision ruling thatthe contract entered into
turn, executed a Real Estate Mortgage Contract over the between the parties was a contract of sale, not a
property in favor of the SSS to secure the payment of contract to sell. The appellate court also ruled that Article
the amount of P22,900.00, the balance of the loan. The 1403(2) was not applicable because the contract was
Spouses Clemeno also surrendered the owner’s already partly performed, since partial payments had
duplicate copy of the said title to the SSS. However, per been made by the respondent as evidenced by receipts
the records of the SSS Loans Department, the vendors signed by the petitioners.
(the Spouses Sacramento) remained to be the debtors.
On July 1, 1992, respondent Romeo R. ISSUE:

Lobregat, a lawyer and an Election Registrar in the
Commission on Elections, filed a Complaint against the Whether or not the instants case falls under
petitioners, the Spouses Clemeno, and Nilus Article 1403 of the NCC, hence unenforceable?
Sacramento for breach of contract, specific performance
with damages with the RTC of Quezon City. The
petitioners, for their part, filed a Complaint against the HELD:
respondent for recovery of possession of property with NO. Article 1403 is applicable only to executory
damages. contracts and not to completed, executed or partially
executed contracts as such in the case at bar.
Respondent claimed that he entered into a
verbal agreement with petitioner Clemeno for the sale of We find and so hold that the contract between
the subject property and that he made several the parties was a perfected verbal contract of sale, not a
instalments for the purchased price. He further claimed contract to sell over the subject property, with the
that Clemeno, in reply to his letter said that he never petitioner as vendor and the respondent as vendee. Sale
sold the property to respondent and that he merely is a consensual contract and is perfected by mere
tolerated respondent’s possession of the property for consent, which is manifested by a meeting of the minds
one year; that the latter offered to buy the property but as to the offer and acceptance thereof on three
he rejected the offer; and that he instead consented to elements: subject matter, price and terms of payment of
lease the property to the respondent. The petitioner also the price.
declared in his letter to respondent that even though he
consented into the sale, such was unenforceable as The contract entered into by the parties was not
there was no document executed by them to evince the a contract to sell because there was no agreement for
sale. the petitioners to retain ownership over the property until
after the respondent shall have paid the purchase price
Petitioner Clemeno on the other hand claimed in full, nor an agreement reserving to the petitioners the
that sometime in June 1987, petitioner Clemeno, Jr. right to unilaterally resolve the contract upon the buyer’s
agreed to sell the property for P270,000.00 payable in failure to pay within a fixed period. Unlike in a contract of
three (3) installments: (a) P90,000.00 upon the sale, the payment of the price is a positive suspensive
respondent’s taking possession of the property; (b) condition in a contract to sell, failure of which is not a
P90,000.00 payable within six (6) months thereafter; and breach but an event that prevents the obligation of the
(c) P90,000.00 not later than June 1, 1988. The vendor to convey the title from becoming effective.
respondent assured petitioner Clemeno, Jr. that there
would be nothing to worry about the documentation of
the sale; being a lawyer, he would take care of The contract of sale of the parties is enforceable
everything. However, the respondent failed to pay the notwithstanding the fact that it was an oral agreement
balance of the purchase price of the property in the and not reduced in writing as required by Article 1403(2)
amount of P156,970.04 despite promises to do so. of the New Civil Code, which reads:
On September 16, 1989, petitioner Clemeno, Jr. Art. 1403. The following contracts are unenforceable, unless they are
ratified:
went to the respondent’s house to talk to him anew, but …
the latter was nowhere to be found. He made a "(2) Those that do not comply with the Statute of Frauds as set forth in
typewritten letter to the respondent, stating that the latter this number. In the following cases, an agreement hereafter made shall
had been given more than enough time to exercise the be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the parties
option to buy the property but failed to do so; hence, the charged, or by his agent; evidence, therefore, of the agreement cannot
offer was deemed cancelled. The petitioner left the letter be received without the writing, or a secondary evidence of its
with the respondent’s daughter, Michelle Lobregat. contents:
…

‘(d) An agreement for the sale of goods, chattels or things in action, at

a price not less than five hundred pesos, unless the buyer accepts and
receives part of such goods and chattels, or the evidences, or some of
them, of such things in action, or pay at the time some part of the
purchase money: but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the
amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a
sufficient memorandum; …’"
This is so because the provision applies only to

executory, and not to completed, executed or partially
executed contracts. In this case, the contract of sale had
been partially executed by the parties, with the transfer
of the possession of the property to the respondent and
the partial payments made by the latter of the purchase
price thereof.
We agree with the petitioners’ contention that

the respondent did not pay the total purchase price of
the property within the stipulated period. Moreover, the
respondent did not pay the balance of the purchase
price of the property. However, such failure to pay on the
part of the respondent was not because he could not
pay, but because petitioner Angel Clemeno, Jr. told him
not to do so. The latter instructed the respondent to
continue paying the monthly amortizations due to the
SSS on the loan. Unknown to the respondent, petitioner
Angel Clemeno, Jr. wanted to increase the purchase
price of the property at the prevailing market value in
1992, and not its value in 1987 when the contract of sale
was perfected.
The petitioners failed to prove their claim that a

lease purchase agreement over the property was
entered into. Except for their bare claim, they failed to
adduce a morsel of documentary evidence to prove the
same. On the other hand, all the receipts issued by them
on the partial payments made by the respondent were
for the purchase price of the property, and not as rentals
thereof.
SPOUSES FIRME VS. BUKAL ENTERPRISES &

DEVELOPMENT
October 23, 2003
FACTS:
Spouses Constante and Azucena Firme are the

registered owners of a parcel of land located on Dahlia
Avenue, Fairview Park, Quezon City. Renato de Castro,
the vice president of Bukal Enterprises and Development
Corporation authorized his friend, Teodoro Aviles, a
broker, to negotiate with the Spouses Firme for the
purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a

complaint for specific performance and damages with
the trial court, alleging that the Spouses Firme reneged
on their agreement to sell the Property. The complaint

asked the trial court to order the Spouses Firme to terms of payment as would result in a perfected contract
execute the deed of sale and to deliver the title to the of sale.
Property to Bukal Enterprises upon payment of the
agreed purchase price. On 7 August 1998, the trial court Further, there was no approval from the Board
rendered judgment against Bukal Enterprises, of Directors of Bukal Enterprises as would finalize any
dismissing the case and ordering Bukal Enterprises to transaction with the Spouses Firme. Aviles did not have
pay the Spouses Constante and Azucena Firme (1) the the proper authority to negotiate for Bukal Enterprises.
sum of P335,964.90 as and by way of actual and Aviles testified that his friend, De Castro, had asked him
compensatory damages; (2) the sum of P500,000.00 as to negotiate with the Spouses Firme to buy the Property.
and by way of moral damages; (3) the sum of De Castro, as Bukal Enterprises’ vice president, testified
P100,000.00 as and by way of attorney’s fees; and (4) that he authorized Aviles to buy the Property. However,
the costs of the suit. there is no Board Resolution authorizing Aviles to
negotiate and purchase the Property on behalf of Bukal
The trial court held there was no perfected Enterprises. A corporation can only exercise its powers
contract of sale as Bukal Enterprises failed to establish and transact its business through its board of directors
that the Spouses Firme gave their consent to the sale of and through its officers and agents when authorized by a
the Property; and that Aviles had no valid authority to board resolution or its by-laws. Aviles, who negotiated
bind Bukal Enterprises in the sale transaction. Bukal the purchase of the Property, is neither an officer of
Enterprises appealed to the Court of Appeals, which Bukal Enterprises nor a member of the Board of
reversed and set aside the decision of the trial court. The Directors of Bukal Enterprises.
appellate court ordered the Spouses Firme to execute
the Deed of Absolute Sale transferring the ownership of There is no Board Resolution authorizing Aviles
the subject property to Bukal Enterprises immediately to negotiate and purchase the Property for Bukal
upon receipt of the purchase price of P3,224,000.00 and Enterprises. There is also no evidence to prove that
to perform all such acts necessary and proper to effect Bukal Enterprises approved whatever transaction Aviles
the transfer of the property covered by TCT 264243 to made with the Spouses Firme. In fact, the president of
Bulak Enterprises; and directed Bukal Enterprises to Bukal Enterprises did not sign any of the deeds of sale
deliver the payment of the purchase price of the property presented to the Spouses Firme. Even De Castro
within 60 days from the finality of the judgment. The admitted that he had never met the Spouses Firme.
Court of Appeals held that the lack of a board resolution Considering all these circumstances, it is highly
authorizing Aviles to act on behalf of Bukal Enterprises improbable for Aviles to finalize any contract of sale with
in the purchase of the Property was cured by ratification; the Spouses Firme. Furthermore, the Court notes that in
inasmuch as Bukal Enterprises ratified the purchase the Complaint filed by Bukal Enterprises with the trial
when it filed the complaint for the enforcement of the court, Aviles signed the verification and certification of
sale. The spouses Firme filed the petition for review on non-forum shopping. The verification and certification of
certiorari before the Supreme Court. non-forum shopping was not accompanied by proof that
Bukal Enterprises authorized Aviles to file the complaint
on behalf of Bukal Enterprises. The power of a
corporation to sue and be sued is exercised by the board
of directors. “The physical acts of the corporation, like
the signing of documents, can be performed only by
ISSUE: natural persons duly authorized for the purpose by
Whether there was a perfected contract between corporate by-laws or by a specific act of the board of
the Spouses Firme and Bukal Enterprises, the latter directors.” The purpose of verification is to secure an
allegedly being represented by Aviles? assurance that the allegations in the pleading are true
and correct and that it is filed in good faith. True, this
requirement is procedural and not jurisdictional.
HELD: However, the trial court should have ordered the
correction of the complaint since Aviles was neither an
NO. There was no consent on the part of the officer of Bukal Enterprises nor authorized by its Board
Spouses Firme. Consent is an essential element for the of Directors to act on behalf of Bukal Enterprises.
existence of a contract, and where it is wanting, the
contract is non-existent. The essence of consent is the
conformity of the parties on the terms of the contract, the
acceptance by one of the offer made by the other. The
Spouses Firme flatly rejected the offer of Aviles to buy
the Property on behalf of Bukal Enterprises. There was
therefore no concurrence of the offer and the
acceptance on the subject matter, consideration and

LYDIA SUMIPAT VS. BRIGIDO BANGA

August 13, 2004
FACTS:
The spouses Placida Tabo-tabo and Lauro

Sumipat, who are childless, acquired three parcels of
land. Lauro Sumipat, however, sired five illegitimate
children out of an extra-marital affair with Pedra Dacola,
namely: herein defendants-appellees Lydia,
Laurito,Alicia, Alejandro and Lirafe, all surnamed
Sumipat.
On January 5, 1983, Lauro Sumipat executed a

document denominated "DEED OF ABSOLUTE
TRANSFER AND/OR QUIT-CLAIM OVER REAL
PROPERTIES" (the assailed document) in favour of
defendants-appellees covering the three parcels of land
(the properties).
It appears that on January 5, 1983 when the

assailed document was executed, Lauro Sumipat was

already very sick and bedridden; that upon defendant- The deed covers three (3) parcels of land. Being
appellee Lydia’s request, their neighbor Benjamin Rivera a donation of immovable property, the requirements for
lifted the body of Lauro Sumip atwhere upon Lydia validity set forth in Article 749 of the Civil Code should
guided his (Lauro Sumipat’s) hand in affixing his have been followed,
signature on the assailed document which she had Viz: In order that the donation of the immovable
may bevalid, it must be made in a public document,
brought; that Lydia thereafter left but later returned on specifying thereinthe property donated and the value of the
the same day and requested Lauro’s unlettered wife charges which thedonee must satisfy.The acceptance may
Placida to sign on the assailed document, as she did in be made in the same deed of donationor in a separate public
haste, even without the latter getting a responsive document, but it shall not take effect unless it is done during
the lifetime of the donor.
answer to her query on what it was all about.
After Lauro Sumipat’s death,his wife Placida, If the acceptance is made in a separate
and defendants-appellees jointly administered the instrument, the donor shall be notified thereof in an
properties 50% of the produce of which went to plaintiff- authentic form, and this step shall be noted in both
appellant. But as Placida’s share in theproduce of the instruments.
properties dwindled until she no longer received any and
learning that the titles to the properties in question were In this case,the donees’ acceptance of the
already transferred/made in favor of the defendants- donation is not manifested either in the deed itself or in a
appellees, she filed a complaint for declaration of nullity separate document.
of titles, contracts, partition, recovery of ownership now Hence, the deed as an instrument of donation is patently
the subject of the present appeal.’ void.
The trial court found that the subject properties 2.) NO. Being an absolute nullity, both as a
are conjugal. However, because Placida failed to donation and as a sale, the deed is subject to attack at
question the genuineness and due execution of the deed any time, in accordance with the rule in Article 1410 of
and even admitted having affixed her signature thereon, the Civil Code that an action to declare the inexistence
the trial court declared that the entirety of the subject of a void contract does not prescribe.
properties, and not just Lauro Sumipat’s conjugal share,
were validly transferred to the defendants, the petitioners When there is a showing of illegality, the
herein. property registered is deemed to be simply held in trust
for the real owner by the person in whose name it is
But the Court of Appeals annulled the deed registered, and the former then has the right to sue for
insofar as it covers Placida’s conjugal share in the the reconveyance of the property. The action for the
subject properties because the latter’s consent thereto purpose is also imprescriptible. As long as the land
was vitiated by mistake when she affixed her signature wrongfully registered under the Torrens system is still in
on the document. the name of the person who caused such registration, an
action in personam will lie to compel him to reconvey the
property to the real owner.
ISSUES:
HULST VS. PR BUILDERS INC.
Whether or not the questioned deed by its terms September 3, 2007
or under the surrounding circumstances has validly
transferred title to the disputed properties to the
petitioners? FACTS:
Jacobus Hulst and Ida are spouses and Dutch
Whether or not the questioned deed is subject to nationals, and entered a
prescription? Contract to Sell with PR Builders to buy a townhouse in
Batangas. PR Builders failed to comply with its verbal
promise to complete theproject by June 1995, so the
HELD: Hulst spouses filed before the HLURB for rescission of
contract with interest, damages and attorney fees.
1.) NO. A perusal of the deed reveals that it is
actually a gratuitous disposition of property —a donation The HLURB Arbiter decided in favor of the
— although Lauro Sumipat imposed upon the petitioners spouses. Afterwards, the spouses divorced. Ida
the condition that he and his wife, Placida, shall be assigned her rights over thetownhouse to Jacobus, who
entitled to one-half (1/2) of all the fruits or produce of the continued to pursue the case.
parcels of land for their subsistence and support.
The Sheriff implemented the Writ of Execution
by levying on
respondent‟s 15 parcels of land covered by 13 TCTs. A

public auction was set afterwards of the levied Art 1409 of the Civil Code provides that all
properties. Respondent filed an Urgent Motion to Quash contracts whose cause, object or purpose is contrary to
Writ of Levy on the ground that an over levy was made. law or public policy and those expressly prohibited or
The aggregated appraised value of the properties based declared void by law are inexistent and void from the
on the Appraisal Report is over P83.6 million. beginning. Art 1410 provides that the action or defense
for the declaration of the inexistence of a contract does
Without a restraining order from the HLURB, the not prescribe. A void contract is equivalent to nothing; it
Sheriff proceeded to sell the properties at the public produces no civil effect. It does not create, modify or
auction. Holly Properties Realty Corporation won the bid extinguish a juridical relation.
for all 15 parcels of land at P5.4 million. P5.3 million was
turned over to Hulst to satisfy the judgment award. Later 2. Exceptions to Pari Delicto
on the same day, the Sheriff received an order dated on Generally, parties to a void agreement cannot
the day of the auction from the HLURB Arbiter to expect the aid of the lawwhen they are deemed in pari
suspend execution. delicto. There should have been no suitto recover from
one to the other.
The HLURB Arbiter and Director ordered to set
aside the Sheriff‟s levy, There are exceptions, particularly
saying that the valuations of the Sheriff and the Article 1414 (c) which provides that: “When money is
Appraisal Report is so egregious at P6 million and P83.6 paid or property delivered for an illegal purpose, the
million respectively. The court is justified to intervene contract may be repudiated by one of the parties before
where the inadequacy of price shocksthe conscience. the purpose has been accomplished, or before any
The Sheriff should have looked into the matter first and damage has been cause to a third person. In such case,
not disregard the objections of PR Builders‟ counsel. the courts may, if the public interest will be subserved,
allow the party repudiating the contract to recover the
What is at issue is not the value of the properties money or property.”
as determined during the auction sale, but the
determination of value levied upon by the Sheriff taking 3. Contract to Sell, not Contract of Sale. 1414, not 1412
in consideration the fair market value of the properties Hulst spouses and PR Builders entered a
levied upon to determine whether they are sufficient to Contract to Sell, not a Contract of Sale. In a Contract of
satisfy the judgment. Any levy in excess of the judgment Sale, the title passes to the buyer upon delivery of the
award is void. purchase price. A Contract to Sell is a conditional sale
where the obligatory force of the seller‟s obligation to
Hulst filed before the CA. The CA dismissed the transfer title is subordinated to the happening of a future
petition saying that the inadequacy of price being and uncertain event. If the suspensive condition does
supposedly immaterial in the right to redeemis not not take place, the parties would stand as if the
applicable, because the adequacy in the present case is conditional obligation never existed.
not mere inadequacy but an inadequacy that shocks the
senses. The aggregate value of P83.6 million shockingly Art 1414, not Art 1412 applies because the
exceeds the judgment debt of only around P6 million. unlawful or forbidden cause that does not constitute a
criminal offense referred to in Art 1412 has not taken
ISSUE: place before the purpose was accomplished or before
any damage has been cause. Ownership was not
Whether or not the Contract to Sell was a void transferred to the alien petitioner in the Contract to Sell
and inexistent contract? before Hulst filed for rescission.
In a Contract to Sell, ownership has not yet

RULING: transferred to Hulst when he filed for rescission. The
intent to circumvent the constitutional proscription on
YES. SC granted petition and declared HLURB aliens owning real property or the violation of the law did
order NULL and VOID. not materialize because petitioner caused the rescission
of the contract before the execution of the final deed
1. Foreigners acquiring Philippine property transferring ownership.
First, SC immediately addressed the important
fact that the Hulst spouses are foreign nationals who are Hulst can recover under the exception (c) under
disqualified under the Constitution from owning real Article 1414. One who repudiates the agreement and
property in their names. It is unequivocal that the demands his money before the illegal act has taken
Contract to Sell entered into by the Hulst spouses is place is entitled to recover. The contract being void and
void, since they are both Dutch nationals. inexistent, he is, however, only entitled to recover the

purchase price paid and not damages and interests due

to absence of a juridical tie.
4. Gross inadequacy of price

Gross inadequacy of price does not nullify an
execution sale, except if itis one that shocks the
conscience to allow the courts to intervene. Furthermore,
where there is right to redeem, the inadequacy of price
should be immaterial since the judgment debtor may
reacquire the property or else sell his right to redeem
and recover any loss.
The HLURB Arbiter and Director had no

sufficient factual basis to determine the value of the
properties. PR Builders only submitted an Appraisal
Report based on surmises and assumption that the unit
appraised had already been built. The projected value
did not become a reality because the property has not
been developed. The Appraisal Report is not the best
proof to show that there was inadequacy that shocks the
conscience.
The HLURB Arbiter lost jurisdiction by virtue of

the consummation of the auction sale. The winning
bidder, Holly Properties Realty Corporation, rightfully
acquired the properties. The Sheriff was right to proceed
with the public auction absent any order from the
HLURB Arbiter and Director on the set date. Each of the
15 properties were successfully bidded upon and sold
and the debt and fees fully satisfied and remitted upon
payment by Holly Properties. What was only left to be
done was the issuance of the certificates of sale to the
winning bidder.
FELIX GOCHAN vs. HEIRS OF BABA
FACTS:
The conjugal property of spouses Raymundo

Baba and Dorotea Inot, was originally titled in thename
of Dorotea. After Raymundo’s demise, an extrajudicial
settlement of his estate, including Lot No. 3537, was
executed among the heirs of Raymundo, namely,
Dorotea Inot and his 2 children, Victoriano Baba and
Gregorio Baba. One-half undivided portion of the 6,326
square meter lot was adjudicated infavor of Dorotea, and
the other half divided between Victoriano and Gregorio.
On December 28, 1966, Dorotea, Victoriano and

Gregorio, in consideration of the amount of P2,346.70,
sold Lot No. 3537 to petitioner Felix Gochan and Sons
Realty Corporation (Gochan Realty ). Consequently,
OCT No. RO-0820 was cancelled and in lieu thereof,
Transfer Certificate of Title No. T-1842, dated February
23, 1968 was issued in favor of Gochan Realty.
Sometime in 1995, Gochan entered into a joint venture

agreement with Sta. Lucia Realty and Development not prescribe, pursuant to Article 1410 of the same
Corporation Inc. for the development, among others, of Code.
Lot No. 3537, into a subdivision. On June 13, 1996,
respondents’ heirs, filed a complaint for quieting of title In Delos Reyes v. Court of Appeals , it was
and reconveyance with damages against petitioners with held that one of the requisites of a valid contract under
the RTC of Lapu-Lapu City. They alleged that they are Article 1318 of the Civil Code, namely, the consent and
among the 7 children of Dorotea Inot and Raymundo the capacity to give consent of the parties to the
Baba; that petitioners connived with Dorotea Inot, contract, is an indispensable condition for the existence
Victoriano and Gregorio Baba in executing the of consent. There is no effective consent in law without
extrajudicial settlement and deed of sale which the capacity to give such consent. In other words, legal
fraudulently deprived them of their hereditary share in consent presupposes capacity.
Lot No. 3537; and that said transactions are void insofar
as their respective shares are concerned because they In Heirs of Romana Ingjug-Tiro v. Casals , the
never consented to the said sale and extrajudicial Court, applying Article 1410 of the Civil Code 1 [ 2 0
settlement, which came to their knowledge barely a year declared that a claim of prescription is unavailing where
prior to the filing of the complaint. In its answer, the assailed conveyance is void ab initio with respect
petitioner Gochan Realty averred that respondents have to those who had no knowledge of the transaction. The
no personality to sue because they are not children of case involved a fraudulent sale and extrajudicial
Dorotea Inot and Raymundo Baba; that even assuming settlement of a lot executed without the knowledge and
they are lawful heirs of the spouses, their action is consent of some of the co-owners. It was held that the
barred by estoppel, laches and prescription for having sale of the realty is void in so far as it prejudiced the
been filed more than 28 years after the issuance of the shares of said co-owners and that the issuance of a
transfer certificate of title in its name; and that any defect certificate of title over the whole property in favor of the
in the transactions leading to its acquisition of Lot No. vendee does not divest the other co-owners of the
3537 will not affect its title because it is a purchaser in shares that rightfully belonged to them. The nullity of the
good faith and for value. On May 3, 1997, the complaint said sale proceeds from the absence of legal capacity
for quieting of title and reconveyance with damages filed and consent to dispose of the property. Nemo dat quod
against petitioner was dismissed on the ground of non habet — No one can give more than what he has.
prescription and laches. The trial court ruled that Assuming that the allegations in respondents’ complaint
respondents’ action is one for enforcement of implied or are true, their claim that the execution of the extrajudicial
constructive trust based on fraud which prescribes in 10 settlement and the deed of sale involving Lot No. 3537,
years from the issuance of title over the property. which led to the issuance of a certificate of title in the
Hence, respondents’ action was barred by prescription name of Gochan Realty, was without their knowledge or
and laches for having been filed after 28 years from the consent, gives rise to an imprescriptible cause of action
time Gochan Realty obtained title to the property. to declare said transaction inexistent on the ground of
Respondents appealed to the Court of Appeals which absence of legal capacity and consent. Hence, the
reversed the decision of the trial court and reinstated the dismissal of respondents’ complaint on the ground of
complaint of respondents. prescription was erroneous. .It is but fair, without
prejudging the issues, that the parties be allowed to
substantiate their respective claims and defenses in a
ISSUE: full-blown trial, and obtain a ruling on all the issues
presented in their pleadings. Indeed, while the
Whether there is a cause of action to declare the averments in the complaint show that respondents’
inexistence of the contract of sale with respect to the action is imprescriptible, Gochan Realty is not precluded
share of respondents in the subject lot on the ground of from presenting evidence that it is a purchaser in good
absence of any of the essential requisites of a valid faith or that respondents have no personality to sue for
contract? reconveyance or, even assuming that they are lawful
heirs of Dorotea Inot and Raymundo Baba, that they are
guilty of laches or are estopped from questioning
HELD: thevalidity of the extrajudicial partition and deed of sale
of Lot No. 3537 with respect to their shares. The trial
Under Article 1318 of the Civil Code, there is no court thus erred in dismissing respondent’s complaint on
contract unless the following requisites concur: (1) the ground of prescription and laches, and while the
consent of the contracting parties; (2) object certain Court of Appeals is correct in ordering the reinstatement
which is the subject matter of the contract; and (3) cause of the complaint.
of the obligation. The absence of any of these essential
requisites renders the contract inexistent and an action
or defense to declare said contract void ab initio does

DAVID P. FORNILDA VS RTC
FACTS:
The deceased, Julio M. Catolos formerly owned

six (6) parcels of land located in Tanay, Rizal, which are
the controverted properties in the present litigation. His
estate was the subject of settlement in
SpecialProceedings No. 3103 of the then Court of First
Instance of Rizal. ForniIda and Asuncion M. Pasamba
were some of the legal heirs and were represented in
the case by Atty. Sergio Amonoy (hereinafter referred to
as Respondent Amonoy). A Project of Partition was filed
in the Intestate Court whereby the Controverted Parcels
were adjudicated to Alfonso I. Fornilda and Asuncion M.
Pasamba.
On 12 January 1965, the Court approved the

Project of Partition. It was not until 6 August 1969,
however, that the estate was declared closed and
terminated after estate and inheritance taxes had been
paid, the claims against the estate settled and all
properties adjudicated.

Eight (8) days thereafter, or on 20 January 1965, within the scope of the prohibition in Art. 1491 of the Civil
Alfonso 1. Fornilda and Asuncion M. Pasamba executed Code?
a Contract of Mortgage wherein they mortgaged the
Controverted Parcels to Respondent Amonoy as security
for the payment of his attorney's fees for services HELD:
rendered in the aforementioned intestate proceedings.
Under Art. 1491 of the Civil Code:
Asuncion M. Pasamba died on 24 February
1969 while Alfonso 1. Fornilda passed away on 2 July The following persons cannot acquire by
1969. Petitioners are some of the heirs of Alfonso I. purchase even at a public or judicial or auction, either in
Fornilda. person
or through the mediation of another:
Since the mortgage indebtedness was not paid,
on 21 January 1970, Respondent Amonoy instituted (5) Justices, judges, prosecuting attorneys, ...
foreclosure proceedings before the Court of First the property and rights in litigation or levied upon on
Instance of Rizal, at Pasig, Branch VIII entitled" Sergio I. execution before the court within whose junction or
Amonoy vs. Heirs of Asuncion M. Pasamba and Heirs of territory they exercise their respective functions; this
Alfonso 1. Fornilda" prohibition includes the act of acquitting by assignment
and shall apply to lawyers with respect to the property
Petitioners, as defendants therein, alleged that and rights which may be the object of any litigation in
the amount agreed upon as attorney's fees was only which they may take part by virtue of their profession .
Pll,695.92 and that the sum of P27,600.00 was
unconscionable and unreasonable. Under the aforequoted provision, a lawyer is
prohibited from acquiring either by purchase or
On 28 September 1972, the Trial Court assignment the property or rights involved which are the
rendered judgement in the Foreclosure Case ordering object of the litigation in which they intervene by virtue of
the Pasamba and Fornilda heirs to pay Respondent their profession The prohibition on purchase is all
Amonoy, within ninety (90).days from receipt of the embracing to include not only sales to private individuals
decision, On 6 February 1973, the Controverted Parcels but also public or judicial sales The rationale advanced
were foreclosed and on 23 March 1973, an auction sale for the prohibition is that public policy disallows the
was held with Respondent Amonoy as the sole bidder transactions in view of the fiduciary relationship involved
for P23,760.00. Said sale was confirmed by the Trial i.e., the relation of trust and confidence and the peculiar
Court. To satisfy the deficiency, another execution sale control exercised by these persons
was conducted with Respondent Amonoy as the sole
bidder for P12,137.50. On the basis of an Affidavit of In the instant case, it is undisputed that the
Consolidation of Ownership by Respondent Amonoy, the Controverted Parcels were part of the estate of the
corresponding tax declarations covering the late Julio M. Catolos subject of intestate estate
Controverted Parcels were consolidated in his name. proceedings, wherein Respondent Amonoy acted as
counsel for some of the heirs from 1959 until 1968 by his
On 19 December 1973, or a year after the own admission that these properties were adjudicated to
judgment in the Foreclosure Case, an action for Alfonso Fornilda and Asuncion M. Pasamba in the
Annulment of Judgment entitled " Maria Penano et al. Project of Partition approved by the Court on 12 January
vs. Sergio Amonoy, et al ." squarely put in issue were 1965; that on 20 January 1965, or only eight (8) days
the properiety of the mortgage, the validity of the thereafter, and while he was still intervening in the case
judgment of foreclosure sale and the tenability of as counsel, these properties were mortgaged by
aquisition by respondent Omonoy at the sheriff’s sale. petitioners' predecessor-in-interest to Respondent
Amonoy to secure payment of the latter's attorney's fees
This petition mainly asserts that the mortgage in the amount of P27,600.00; that since the mortgage
and the sheriff sale are void for they are contrary to Art. indebtedness was not paid, Respondent Amonoy
1491 of the Civil Code. Under this provision, a lawyer is instituted an action for judicial foreclosure of mortgage
prohibited from acquiring either by purchase or on 21 January 1970; that the mortgage was
assignment the property or rights involved which are the subsequently ordered
object of the litigation in which they intervene by virtue of foreclosed and auction sale followed where Respondent
their profession. Amonoy was the sole bidder for P23,600.00; and that
being short of the mortgage indebtedness, he applied for
and further obtained a deficiency judgment.
ISSUE:
Whether the mortgage constituted on the The fact that the properties were first mortgaged
controverted parcels of land in favor of Amonoy comes and only subsequently acquired in an auction sale long

after the termination of the intestate proceedings will not

remove it from the scope of the prohibition. To rule
otherwise would be to countenance indirectly what
cannot be done directly.
Being a void contract, the action or defense for

the declaration of its inesistence is imprescriptible . The
defect of a void or inexistence contract is permanent.
Mere lapse of time cannot give it efficacy. Neither can
the right to set up the defense of illegality be waived.
The six (6) parcels of land herein controverted are
hereby ordered returned to petitioners unless some of
them have been conveyed to innocent third persons.
With respect to petitioners' prayer for disbarment

by reason of malpractice of Respondent Amonoy
embodied in their pleading entitled 'Mahigpit na
Musiyung para Papanagutin Kaugnay ng
Paglalapastangan' and 'Masasamang Gawain (Mal-
Pracrices) and "Paninindigan (Memorandum)" both filed
on Sergio I. Amonoy is hereby required, within fifteen
(15) days from notice hereof, to submit an Answer
thereto. After receipt of the same, a new docket number
will be assigned to the case.
SUNTAY VS. CA
FACTS:
Respondent Federico Suntay was the

registered owner of a parcel of land situated in Sto.
Niño, Hagonoy, Bulacan. Federico applied as a miller-
contractor of the then National Rice and Corn
Corporation (NARIC). However, his application, although
prepared by his nephew-lawyer, petitioner Rafael
Suntay, was disapproved, obviously because at that
time he was tied up with several unpaid
loans. For purposes of circumvention, he had thought of
allowing Rafael to make the application for him. Rafael
prepared an absolute deed of sale whereby Federico,
for and in consideration of P20,000.00
conveyed to Rafael said parcel of land with all its
existing structures. Less than three months after this
conveyance, a counter sale was prepared and signed
by Rafael who also caused its delivery to Federico.
Through this counter conveyance, the same parcel of
land with all its existing structures was sold by Rafael
back to Federico for the same consideration of

P20,000.00. Federico then requested Rafael to deliver

his copy of the TCT for the subject land so that he can
have the counter deed of sle in his favor registered in his
name, Rafael refused such request. As a result,
Federico filed a complaint for reconveyance and
damages against Rafael. Federico allged that the first
sale of the land was perfected
since Rafael never paid or delivered the payment and he
never demande and received the sum of P20,000 or any
valuable consideration. Also, that the Deed of Absolute
Sale is an absolutely simulated or
fictitious transaction.
ISSUE:
Whether or not there was a valid sale between

Federico and Rafael?
HELD:
No, there was no perfected sale. It is provided

by law that a contract of purchase and sale is void and
produces no effect whatsoever where the same is
without cause or consideration in that the purchase
price, which appears in the said contract, has in fact
never been paid by the purchaser to the vendor. In this
case, considering the following facts: (1) That the 2
instruments were executed closely one the other
involving transfer and re-transfer of the same property at
exactly the same price; (2) The existing close
relationship between the parties; and (3) The
inadequacy of the price in relation to the location and
nature of the property, the Deed of Sale is found to be
a mere accommodation arrangement executed without TEJA MARKETING VS. CA
any consideration and therefore a simulated contract of
sale. Furthermore, the complete absence of an attempt
in any manner on the part of Rafael to assert his rights of FACTS:
ownership over the land
and the ricemill is a clear badge of fraud. Federico On May 1975, defendant Pedro Nale bought
remained in actual possession, cultivation and from the plaintiff Teja Marketing a motorcycle for the
occupation of the disputed lot further proves the sum of P8,000. Defendant paid a downpayment of
fictitiousness of the transfer. Therefore, the deed of sale P1,700 with a promise that he would pay plaintiff the
executed by Federico in favor of his nephew, Raphael, is balance within 60 days. The defendant, however, failed
absolutely simulated and fictitious and, hence, null and to comply with his promise and requested for an
void. extension. However, defendant still failed to comply. In
this particular transaction a chattel mortgage was
constituted as a security for the payment of the balance
of the purchase price. It was first mortgaged to
Teja Marketing, however, it was found that Teja
Marketing and Angel Jaucian are one and the same, and
it was made to appear that way so that Nale could
attached the unit to Juacian’s franchise/MCH Line. The
agreement also provides that Teja Marketing will make
the yearly registration of the motorcycle. Teja Marketing,
however, failed to register on the ground that defendant
failed to comply with some requirements. Teja Marketing

filed an action for Sum of Money with Damages against

Nale.
ISSUE:
ISSUE: Whether or not a promissory note executed in

consideration of a previous promissory note which had
Whether or not there is a valid and existing Contract of been barred by prescription constitutes as a waiver to
Sale? the right of prescription of the action?
HELD: HELD:
No, the contract is null and void. The parties Yes. The Court ruled that when a debt is already
operated under an arrangement known as the “kabit barred by prescription, it cannot be enforced by the
system” whereby a person who has been granted a creditor. But a new contract recognizing and assuming
certificate of public convenience allows another person the prescribed debt would be valid and enforceable. In
who owns motor vehicles to operate under such this case, respondent Confesor executed a second
franchise for a fee. A certificate of public convenience is promissory note whereby he promised to pay the
a special privilege conferred by the government. Abuse amount covered by the previous promissory note, and
of this privilege by the grantees thereof cannot be upon failure to do so, agreed to the foreclosure of the
countenanced. Although not outrightly penalized as a mortgage. Respondent thereby effectively and expressly
criminal offense, the kabit system is invariably renounced and waived is right to the prescription
recognized as being contrary to public policy and, covering the first promissory note. Since the second
therefore, void and in existent under Article 1409 of the promissory note states that failure to pay will allow such
Civil Code. As provided in Article 1422 of the Civil Code, foreclosure of mortgage the conjugal property used to
“A contract which is the direct result of a previous illegal secure the mortgage is liable for this obligation.
contract, is also void and inexistent”. It is a fundamental
principle that the court will not aid either party to enforce
an illegal contract, but will leave both where it finds then.
DBP VS. ADIL

ROBLETT VS. CA
FACTS:
FACTS:
On February1940 spouses Patricio Confesor
and Jovita Villafuerte obtained an agricultural loan from On December 1985 Roblett Industrial
DBP, in the sum of P2,000.00, as evidenced by a Construction Corporation (RICC) trough its Asst,-VP
promissory note of said date whereby they bound Aller,Jr., entered into an agreement with Contractors
themselves jointly and severally to pay the account in 10 Equipment Corporation (CEC) wherein the latter would
equal yearly amortizations. As the obligation remained lease to the former various construction equipment for its
outstanding and unpaid even after the lapse of the projects. An off-setting arrangement was also made
aforesaid ten-year period, Confesor, who was by then a wherein respondent CEC received from RICC
member of the Congress of the Philippines, executed a construction materials worth P115,000 thus reducing
second promissory note on April 11, 1961 expressly petitioner’s balance to P227,909.38. A day before the
acknowledging said loan and promising to pay the same execution of the agreement, RICC paid CEC P10,000 in
on or before June 15, 1961 and upon his failure to pay postdated checks which were eventually dishonored.
he agrees to the foreclosure of mortgage over a certain CEC debited the amount to RICC’s account increasing
conjugal property. Said spouses not having paid the its balance to P237, 909.38. On September 1986 CEC
obligation on the specified date, the DBP filed a instituted an action for a sum of money against petitioner
complaint dated September 11, 1970 in the City Court of RICC. RICC contends that after deliberation and audit it
Iloilo City against the spouses for the payment of the appeared that petitioner overpaid respondent CEC by
loan. P12,000. However, Manaligod, General Manager of

CEC declared that RICC received a statement of

account in the amount of P237,350.18 which it never
questioned.
ISSUE:
Whether the defendant may be considered to

have fully paid its obligation by way of offsetting for the
P115,000 construction materials received by the
plaintiff?
HELD:
No. Petitiner-defendant RICC have not yet paid

its obligation. Estoppel in pais arises when one, by is
acts, representations or admissions, or by his own
silence when he ought to speak out, intentionally or
through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the
former is permitted t deny the existence of such facts.
This is applicable in the present case. A statement of
account for P376,35018 covering a certain period was
received from respondent by petitioner without a protest
from the latter. Neither did petitioner controvert the
demand letter concerning the overdue account of
P327,909,38, rather it even asked that they be given
ample time to source funds to settle the account.
BUCTON VS. GABAR
FACTS:
Sometime in 1946 defendant Josefina Llamoso

Gabar bought a land from the spouses Villarin on
installment basis, P500 down, the balance payable in
installments. Josefina entered into a verbal agreement
with her sister-in-law, plaintiff Nicanora Gabar Bucton,
that the latter would pay one-half of the price (P3,000)
and would then own one-half of the land. Pursuant to
this understanding Nicanora gave her sister-in-law
Josefina the initial amount of P1,000, for which the latter
signed a receipt. Meanwhile, after Josefina had
received in January, 1946 the initial amount of P1,000 as
above stated, plaintiffs took possession of the portion of
the land indicated to them by defendants and built a
modest nipa house therein. About two years later
plaintiffs built behind the nipa house another house for
rent. And, subsequently, plaintiffs constructed a house of
strong materials, with three apartments in the lower
portion for rental purposes.

In January, 1947 the spouses Villarin executed nevertheless proved by both documentary and parole
the deed of sale of the land in favor of defendant evidence.
Josefina Llamoso Gabar, Plaintiffs then sought to obtain
a separate title for their portion of the land in question.
Defendants repeatedly declined to accommodate
plaintiffs. Their excuse: the entire land was still
mortgaged with the Philippine National Bank as
guarantee for defendants' loan of P3,500 contracted on
June 16, 1947. Plaintiffs continued enjoying their portion
of the land. planting fruit trees and receiving the rentals
of their buildings. In 1953, with the consent of
defendants (who were living on their portion), plaintiffs
had the entire land surveyed and subdivided preparatory
to obtaining their separate title to their portion. After the
survey and the planting of the concrete monuments
defendants erected a fence. Bucton filed an action for
specific performance ordering defendant spouses to
execute in their favor a deed of sale of the one half of
the property. Defendants denies agreement to sell to
plaintiffs one-half of the land in litigation. She declared
that the amounts she had received from plaintiff
Nicanora Gabar Bucton — first, P1,000, then P400 —
were loans, not payment of one-half of the price of the
land (which was P3,000).
ISSUE:
Whether or not petitioner is entitled to compel

respondent to execute a formal deed of conveyance
over the subject land?
HELD:
Yes, petitioner may compel respondent to

execute a formal deed of conveyance and to obtain their OLACO VS. CA
separate title to the land. It is clear that petitioner Bucton
paid P1,500 to respondent Josefina Gabar as purchase
price of one-half of the subject lot. The sale, although ot FACTS:
consigned in a public instrument or formal writing, is
nevertheless valid and binding between petitioners and It appears that on May 1943, the Philippine
private respondents, for the time-honored rule is that Sugar Estate Development Company, Ltd., sold a parcel
even a verbal contract of sale or real estate produces of land, , situated at Oroquieta St., Sta. Cruz , Manila,
legal effects between the parties. Although at the time with the Deed of Absolute Sale naming Emilia O'Laco as
said petitioner paid P1,000.00 as part payment of the vendee; thereafter, Transfer Certificate of Title No.
purchase price on January 19, 1946, private 66456 was issued in her name. On May 1960, private
respondents were not yet the owners of the lot, they respondent-spouses Valentin Co Cho Chit and O Lay
became such owners on January 24, 1947, when a deed Kia learned from the newspapersthat EmiliaO'Laco sold
of sale was executed in their favor by the Villarin the same property to the Roman Catholic Archbishop of
spouses. Under Article Manila for P230,000.00, with assumption of the real
1434 of the Civil Code, “when a person who is not the estate mortgage constituted thereon. Respondent-
owner of a thing sells or alienates and delivers it, and spouses sued petitionerspouses Emilia O'Laco and
later the seller or grantor acquires title thereto, such title Hugo Luna to recover the purchase price of the land,
passes by operation of law to the buyer or grantee." respondent-spouses asserting that petitioner Emilia
Petitioners therefore became owners of the one-half O'Laco knew that they were the real vendees of the
portion of the lot in question by virtue of a sale which, Oroquieta property and that the legal title thereto was
though not evidenced by a formal deed, was merely placed in her name. They contend that Emilia
O'Laco breached the trust when she sold the land. On

September 1976, finding no trust relation between the Hence, prescription did not begin to run until the
parties, the trial court dismissed the complaint together sale of the subject property, which is clearly an act of
with the counterclaim. Petitioners and respondents repudiation.
appealed.
ISSUE:
Whether or not there was an existing trust

relations between parties?
Whether or not prescription has set in?
HELD:
Yes, there is an existing trust relations. The

Court held that a resulting trust was indeed intended by
the parties under Art. 1448 of the Civil Code, which
states that “There is an implied trust when property is
sold, and the legal estate is granted to one party but the
price is paid by another for the purpose ofhaving the
beneficial interest of the property. The former is the
trustee, while the latter is the beneficiary..”Respondent-
spouses explained that the reason why they did not
place the properties in their name was that being
Chinese nationals at the time of the purchase they did
not want to execute the required affidavit to the effect
that they were allies of the Japanese. Since O Lay Kia
took care of Emilia when she was still young, she did not
hesitate to place the title of the property in Emilia’s
name. This arrangement was also made by the said
respondent-spouses in another lot where it was place
under the name of Ambrosio O’Laco, the brother of
Emilia. It was established by Ambrosio in another action
for reconveyance insitituted against him by the
respondent-spouses that the latter used his name in CHIAO LIONG TAN vs. CA
buyingthe Kusang-loob property while that of petitioner
Emilia was used in the purchase of the Oroquieta FACTS:
property. In effect, there was an implied admission by
Ambrosio that his sister Emilia, like him was merely used Petitioner Chiao Liong Tan claims to be the
as a dummy. owner of a Isuzu Elf van, which he purchased in March,
1987. As owner thereof, petitioner says he has been in
As for the prescription, the Court ruled that it has possession, enjoyment and utilization of the said motor
not set in. In resulting trust, the rule of imprescriptibility vehicle until it was taken from him by his older brother,
may apply as long as trustee has not repudiated the Tan Ban Yong. Petitioner relies principally on the fact
trust. Once it is repudiated, it is converted to a that the Isuzu Elf van is registered in his name under
constructive trust and subject to prescription. Certificate of Registration No. 1501909. He claims in his
testimony before the trial court that the said vehicle was
A resulting trust is repudiated if the purchased from Balintawak Isuzu Motor Center for a
followingrequisites concur: (1) the trustee has performed price of over P100,000.00; that he sent his brother to
unequivocal acts of repudiation ; (2) Such positive ats of pay for the van and the receipt for payment was placed
repudiation have been made known to the cestui qui in his (petitioner's) name because it was his money that
trust; (3) the evidence is clear and convincing. Thus until was used to pay for thevehicle; that he allowed his
that point, respondent-spouses were not aware of the brother to use the van because the latter was working for
act of Emilia which would convey to them the idea that his company, the CLT Industries; and that his brother
she was repudiating the resulting trust. The second later refused to return the van to him and appropriated
requisite is therefore absent. the same for himself.

On the other hand, private respondent testified theconfidence one reposes on another especially
that CLT Industries is a family business that was placed between brothers, does not lose that character simply
in petitioner's name because at that time he was then because of what appears in a legal document.
leaving for the United States and petitioner is the
remaining Filipino in the family residing in the WHEREFORE, the instant petition for review is
Philippines. When the family business needed a vehicle hereby DENIED.
in 1987 for use in the delivery of machinery to its
customers, he asked petitioner to look for a vehicle and
gave him the amount of P5,000.00 to be deposited as
down payment for an Isuzu Elf Van which would be
available in about a month. After a month, he himself
paid the whole price out of a loan of P140,000.00 which
he obtained from his friend Tan Pit Sin. Inasmuch as the
receipt for the downpayment was placed in the name of
petitioner and since he was still on good terms with him,
private respondent allowed the registration of the vehicle
in petitioner's name. It was also their understanding that
he would keep the van for himself because CLT
Industries was not in a position to pay him. Hence, from
the time of thepurchase, he had been in possession of
the vehicle including the original registration papers
thereof,
but allowing petitioner from time to time to use the van
for deliveries of machinery.
After hearing, the trial court found for private

respondent.
Finding no merit in the appeal, the respondent

Court of Appeals affirmed the decision of the trial court.
ISSUE:
WON the Certificate of Registration of the
subject motor vehicle is proof of ownership by the
petitioner-appellant? GICANO VS GEGATO
FACTS:
HELD:
This case concerns a rather large tract of land
A certificate of registration of a motor vehicle in situated in Hinigaran, Negros Occidental. The land,
one's name indeed creates a strong presumption of known as Lot 818, was originally owned by two co-
ownership. For all practical purposes, the person in owners in equal shares: (1) Maximo Juanico , married
whose favor it has been issued is virtually the owner to Rosa Gegato, and (2) Matilde Geolingo , married to
thereof unless proved otherwise. In other words, such Dionisio Mongcal. Their co-ownership was so set out in
presumption is rebuttable by competent proof. their certificate of title. Maximo Juanico died on May 21,
1942, survived by his wife, the aforenamed Rosa
The New Civil Code recognizes cases of implied Gegato, and three (3) minor children: Presentacion,
trust other than those enumerated therein. Thus, Resurreccion, and Catalina.
although no specific provision could be cited to apply to
the parties herein, it is undeniable that an implied trust The other co-owner, Matilde Geolingo, and her
was created when the certificate of registration of the husband, Dionisio Mongcal, also died; and their only
motor vehicle was placed in the name of the petitioner child, Loreto Mongcal, executed an affidavit adjudicating
although the price thereof was not paid by him but by to herself, as sole heir, her mother's one-half (1/2) share
private respondent. The principle that a trustee who puts in Lot 818. That share she sold on December 14, 1951
a certificate of registration in his name cannot repudiate to Rosa Gicano. In virtue thereof, TCT of the original co-
the trust by relying on the owners was cancelled and a new one was issued in the
registration is one of the well-known limitations upon a names of (1) Maximo Juanico , married to Rosa
title. A trust, which derives its strength from

Gegato (1/2 share) and (2) Rosa Gicano , married to Gicano. Now, if it be true that they were deceived into
Gorgonio Geollegue (1/2 share). executing that deed of sale by Rosa Gicano, who taking
advantage of their ignorance had made them believe
On August 23, 1952, a document was executed that the deed conveyed only 1/3 of the children's share
which gave rise to the controversy at bar. That document in their inheritance from their father, they certainly had
purported to be a Deed of Sale, or more properly, a deed the right to sue Rosa Gicano, and after presenting
of dacion en pago de deuda , intended to satisfy a debt evidence of the fraud perpetrated upon them, recover so
of P2,333.33 of the late Maximo Juanico to Rosa Gicano much of the property as they had never intended to
by the conveyance of said Maximo Juanico's one-half transfer, and recover the damages thereby suffered by
(1/2) share in Lot 818. them. But they certainly did not have all the time in the
world to that suit. They had to do it within ten (10) years
Twenty-three (23) years afterwards, or on from the issuance to Rosa Gicano of title to the property
February 13, 1976, Rosa Gegato and her daughters, on the strength of the supposedly fraudulent deed of
Resurreccion and Catalina, brought an action in the sale. They did not file their action within this statutory
Court of First Instance of Negros Occidental against period. They filed it only after twenty-three (23) years.
Rosa Gicano and her husband, Gorgonio Geollegue, to When filed, their action had already been by
compel the latter to reconvey Lot No. 818 to them and/or prescription. They had slept on their rights. Time eroded
pay damages. Rosa Gegato and her daughters alleged their right of action and ultimately erased it, as a sand
that it had never been their intention to transfer the entire castle on a shore is slowly and inexorably obliterated by
one-half (1/2) share in Lot No. 818 to Rosa Gicano in the rising tide.
payment of Maximo Juanico's debt in the sum of
P2,333.33, but only one-third of the share of the minors WHEREFORE, the Decision of the Court of
in said undivided half of the property; that they Appeals is REVERSED.
discovered the fraud perpetrated on them only in 1975,
when they hired a surveyor to partition the property and
the latter informed them that title to Lot No. 818 had long
since issued solely in the name of Nenita Geollegue,
who had purchased it from her mother, Rosa Gegato
Geollegue and had in due course obtained title in her
name; and that on October 17, 1974, said Nenita SPS. CRUZ VS. SPS. FERNANDO
Geollegue had mortgaged the lot to the Philippine December 9, 2005
Commercial and Industrial Bank as security for a loan.
FACTS:
Rosa Gicano and her co-defendants filed a
motion to dismiss the complaint alleging as grounds Luis V. Cruz and Aida Cruz (petitioners) are
therefor, plaintiffs' lack of cause of action, laches, occupants of the front portion of a property located in
estoppel, and prescription. The Trial Court promulgated Bulacan. Spouses Alejandro Fernando, Sr. and Rita
an Order dismissing the complaint. Fernando (respondents) filed before the RTC a
complaint for accion publiciana against petitioners,
The Trial Court's Order was however reversed demanding the latter to vacate the premises and to pay
by the Court of Appeals and the case was remanded the amount of P500.00 a month as reasonable rental for
with instructions that a full dress trial on the merits be the use thereof.
conducted.
Respondents alleged in their complaint that: (1)
they are owners of the property, having bought the same
ISSUE: from the spouses Clodualdo and Teresita Glorioso
(Gloriosos); (2) prior to their acquisition of the property,
WON dismissal of the case was proper? the Gloriosos offered to sell to petitioners the rear
portion of the property but the transaction did not
materialize due to petitioners’ failure to exercise their
HELD: option; (3) the offer to sell is embodied in a Kasunduan;
(4) due to petitioners’ failure to buy the allotted portion,
In the case at bar, Rosa Gegato and her minor respondents bought the whole property from the
children by her deceased husband, Maximo Juanico Gloriosos; and (5) despite repeated demands,
(said children being represented by their judicial petitioners refused to vacate the property.
guardian, Ramundo Pundon) had executed a deed of
sale and acknowledged it before a notary public which, The RTC ruled in favor of the spouses
upon its face, transferred the entirety of Maximo Fernando.
Juanico's right, share and interest in Lot 181 to Rosa

confirms the conclusion that it is a contract to sell. This

ISSUE: is because the manner of payment of the purchase price
is an essential element before a valid and binding
Whether the (Kasunduan) between the parties contract of sale can exist. Although the Civil Code does
was a “mere offer to sell,” and not a perfected “Contract not expressly state that the minds of the parties must
of Purchase and Sale”? also meet on the terms or manner of payment of the
price, the same is needed, otherwise there is no sale. As
held in Toyota Shaw, Inc. vs. Court of Appeals, a definite
HELD: agreement on the manner of payment of the price is an
essential element in the formation of a binding and
Under Article 1458 of the Civil Code, a contract enforceable contract of sale.
of sale is a contract by which one of the contracting SPOUSES PINGOL VS. CA and
parties obligates himself to transfer the ownership and to HEIRS OF FRANCISCO DONASCO
deliver a determinate thing, and the other to pay 226 SCRA 118
therefore a price certain in money or its
equivalent. Article 1475 of the Code further provides
that the contract of sale is perfected at the moment there FACTS:
is meeting of the minds upon the thing which is the
object of the contract and upon the price. From In 1969, Pingol, the owner of a lot (Lot No. 3223)
that moment the parties may reciprocally demand in Caloocan City, executed a DEED OF ABSOLUTE
performance subject to the provisions of the law SALE OF ONE-HALF OF AN UNDIVIDED PORTION OF
governing the form of contracts. [his] PARCEL OF LAND in favor of Donasco (private
respondent), payable in 6 years.
In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold, In 1984, Donasco died and was only able to pay
as distinguished from a contract to sell where ownership P8,369 plus P2,000 downpayment, leaving a balance of
is, by agreement, reserved in the vendor and is not to P10,161. The heirs of Donasco remained in possession
pass to the vendee until full payment of the purchase of such lot and offered to settle the balance with Pingol.
price. Otherwise stated, in a contract of sale, the vendor However, Pingol refused to accept the offer and
loses ownership over the property and cannot recover it demanded a larger amount. Thus, the heirs of Donasco
until and unless the contract is resolved or rescinded; filed an action for specific performance (with Prayer for
whereas, in a contract to sell, title is retained by the Writ of Prelim. Injunction, because Pingol were
vendor until full payment of the price. In the latter encroaching upon Donasco’s lot). Pingol averred that the
contract, payment of the price is a positive suspensive sale and transfer of title was conditional upon the full
condition, failure of which is not a breach but an event payment of Donasco (contract to sell, not contract of
that prevents the obligation of the vendor to convey title sale). With Donasco’s breach of the contract in 1976 and
from becoming effective. death in 1984, the sale was deemed cancelled, and the
heirs’ continuous occupancy was only being tolerated by
The Kasunduan provides for the following terms Pingol.
and conditions: (a) that the Gloriosos agreed to sell to
petitioners a portion of the property with an area of 213
meters at the price of P40.00 per square meter; (b) that ISSUES:
in the title that will be caused to be issued, the aggregate
area is 223 square meters with 10 meters thereof (1) Whether or not Pingol can refuse to transfer
serving as right of way; (c) that the right of way shall title to Donasco?
have a width of 1.75 meters from Lopez Jaena road
going towards the back of the lot where petitioners will (2) Whether or not Donasco has the right to
build their house on the portion of the lot that they will quiet title?
buy; (d) that the expenses for the survey and for the
issuance of the title will be divided between the parties
with each party giving an amount of no less than HELD:
P400.00; and (e) that petitioners will definitely relocate
their house to the portion they bought or will buy by (1) No. The contract between Pingol and
January 31, 1984. Donasco is a contract of sale and not a contract to sell.
The acts of the parties, contemporaneous and
The foregoing terms and conditions show that it subsequent to the contract, clearly show that the parties
is a contract to sell and not a contract of sale. For one, intended an absolute deed of sale; the ownership of the
the conspicuous absence of a definite manner of lot was transferred to the Donasco upon its actual (upon
payment of the purchase price in the agreement Donasco’s possession and construction of the house)

and constructive delivery (upon execution of the Emiliano. Confronted by his mother of this fraud,
contract). The delivery of the lot divested Pingol of his Emiliano denied any participation. And to show his good
ownership and he cannot recover the title unless the faith, Emiliano caused the reconveyance of the other
contract is resolved or rescinded under Art. 1592 of and which was conveyed to him in the void deed of sale.
NCC. It states that the vendee may pay even after the Hugo, on the other hand, refused to make the necessary
expiration of the period stipulated as long as no demand restitution thus compelling the petitioners, his mother
for rescission has been made upon him either judicially and his other brothers and sisters, to institute an action
or by notarial act. Pingol neither did so. Hence, Donasco for the annulment of the controversial deed of sale and
has equitable title over the property. the reconveyance of the title.
(2) Although the complaint filed by the Donascos RTC ruled in favor of Cornelia and declares the
was an action for specific performance, it was actually deeds inoperative. Appellate court reversed said
an action to quiet title. A cloud has been cast on the title, decision.
since despite the fact that the title had been transferred
to them by the execution of the deed of sale and the
delivery of the object of the contract, Pingol adamantly ISSUE:
refused to accept the payment by Donascos and insisted
that they no longer had the obligation to transfer the title. Whether the sale is void ab initio?
Donasco, who had made partial payments and

improvements upon the property, is entitled to bring suit HELD:
to clear his title against Pingol who refused to transfer
title to him. It is not necessary that Donasco should have We find the petition meritorious.
an absolute title, an equitable title being sufficient to The case at bar is not purely an action for
clothe him with personality to bring an action to quiet reconveyance based on an implied or constructive trust.
title. Neither is it one for the annullment of a fraudulent
contract. A closer scrutiny of the records of the case
Prescription cannot also be invoked against the readily supports a finding that fraud and mistake are not
Donascos because an action to quiet title to property in the only vices present in the assailed contract of sale as
ONE’s POSSESSION is imprescriptible. held by the trial court. More than these, the alleged
contract of sale is vitiated by the total absence of a valid
FALLO: Decision appealed from was AFFIRMED by SC. cause or consideration. The petitioners in their
complaint, assert that they, particularly Cornelia, never
VDA. DE PORTUGAL VS. IAC and HUGO PORTUGAL knew of the existence of the questioned deed of sale.
G.R. No. 73564 March 25, 1988 They claim that they came to know of the supposed sale
only after the private respondent, upon their repeated
entreaties to produce and return the owner's duplicate
FACTS: copy of the transfer certificate of title covering the two
parcels of land, showed to them the controversial deed.
Petitioner Cornelia Clanor and her late husband And their claim was immeasurably bolstered when the
Pascual Portugal were the owners of the parcels of land private respondent's co-defendant below, his brother
located in Cavite. Sometime in 1967, Private respond Emiliano Portugal, who was allegedly his co-vendee in
Hugo Portugal, a son of the spouses, borrowed from his the transaction, disclaimed any knowledge or
mother, Cornelia, the Certificates of title on pretext that participation therein. If this is so, and this is not
he had to use them in securing a loan that he was contradicted by the decisions of the courts below, the
negotiating. Cornelia delivered the two titles to her son. inevitable implication of the allegations is that contrary to
When Pascual Portugal died in 1974, the other heirs for the recitals found in the assailed deed, no consideration
purposes of executing an extra judicial partition of the was ever paid at all by the private respondent. Applying
properties wished to have all the properties of the the provisions of Articles 1350, 1352, and 1409 of the
spouses collated. Cornelia then asked Hugo for the new Civil Code in relation to the indispensable requisite
return of the titles however, Hugo manifested that the of a valid cause or consideration in any contract, and
said titles no longer exist that the titles are already what constitutes a void or inexistent contract, we rule
transferred and registered in his brother’s name—Emilio that the disputed deed of sale is void ab initio or
Portugal. inexistent, not merely voidable. And it is provided in
Article 1410 of the Civil Code, that '(T)he action or
This falsification was triggered by a deed of sale defense for the declaration of the inexistence of a
by which the spouses Pascual Portugal and Cornelia contract does not prescribe.
Clanor purportedly sold for P8,000.00 the two parcels of
land adverted to earlier to their two sons, Hugo and

But even if the action of the petitioners is for

reconveyance of the parcel of land based on an implied
or constructive trust, still it has been seasonably filed. HELD:
For as heretofore stated, it is now settled that actions of
this nature prescribe in ten years, the point of reference The Supreme Court affirmed the lower court’s
being the date of registration of the deed or the date of decision. The instrument executed in 1961 is not a
the issuance of the certificate of titIe over the property. In "contract to buy and sell," but merely granted plaintiff an
this case, the petitioner commenced the instant action "option" to buy, as indicated by its own title "Option to
for reconveyance in the trial court on October 26, 1976, Purchase." The option did not impose upon plaintiff
or less than ten years from January 23, 1967 when the Sanchez the obligation to purchase defendant Rigos'
deed of sale was registered with the Register of Deeds. property. Rigos "agreed, promised and committed"
Clearly, even on this basis alone, the present action has herself to sell the land to Sanchez for P1,510.00, but
not yet prescribed. there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is
FALLO: Petition was partly granted. Both the trial and supported by a consideration "distinct from the price"
appellate decisions, reversed. stipulated for the sale of the land. The lower court relied
upon Article 1354 of the Civil Code when it presumed
SANCHEZ VS. RIGOS the existence of said consideration, but the said Article
45 SCRA 368 June 1972 only applies to contracts in general.
However, it is not Article 1354 but the Article

FACTS: 1479 of the same Code which is controlling in the case
at bar because the latter’s 2nd paragraph refers to
In an instrument entitled "Option to Purchase," "sales" in particular, and, more specifically, to "an
executed on April 3, 1961, defendant-appellant Severina accepted unilateral promise to buy or to sell." Since
Rigos "agreed, promised and committed ... to sell" to there may be no valid contract without a cause or
plaintiff-appellee Nicolas Sanchez for the sum of consideration, the promisor is not bound by his promise
P1,510.00 within two (2) years from said date, a parcel and may, accordingly, withdraw it. Pending notice of its
of land situated in the barrios of Abar and Sibot, San withdrawal, his accepted promise partakes, however, of
Jose, Nueva Ecija. It was agreed that said option shall the nature of an offer to sell which, if accepted, results in
be deemed "terminated and elapsed," if “Sanchez shall a perfected contract of sale. Upon mature deliberation,
fail to exercise his right to buy the property" within the the Court reiterates the doctrine laid down in the Atkins
stipulated period. On March 12, 1963, Sanchez case and deemed abandoned or modified the view
deposited the sum of Pl,510.00 with the CFI of Nueva adhered to in the Southwestern Company case.
Ecija and filed an action for specific performance and
damages against Rigos for the latter’s refusal to accept
several tenders of payment that Sanchez made to ENRICO S. EULOGIO VS. SPOUSES CLEMENTE
purchase the subject land. APELES
G.R. No. 167884 January 20, 2009
Defendant Rigos contended that the contract
between them was only “a unilateral promise to sell, and
the same being unsupported by any valuable FACTS:
consideration, by force of the New Civil Code, is null and
void." Plaintiff Sanchez, on the other hand, alleged in his The real property in question consists of a house
compliant that, by virtue of the option under and lot situated at No. 87 Timog Avenue, Quezon City
consideration, "defendant agreed and committed to sell" (subject property). In 1979, the spouses Apeles leased
and "the plaintiff agreed and committed to buy" the land the subject property to Arturo Eulogio (Arturo), Enrico’s
described in the option. The lower court rendered father. Upon Arturo’s death, his son Enrico succeeded
judgment in favor of Sanchez and ordered Rigos to as lessor of the subject property. Enrico used the
accept the sum Sanchez judicially consigned, and to subject property as his residence and place of business.
execute in his favor the requisite deed of conveyance. Enrico was engaged in the business of buying and
The Court of Appeals certified the case at bar to the selling imported cars.
Supreme Court for it involves a question purely of law.
On 6 January 1987, the spouses Apeles and
Enrico allegedly entered into a Contract of Lease with
ISSUE: Option to Purchase involving the subject property.
According to the said lease contract, Luz Apeles was
Was there a contract to buy and sell between authorized to enter into the same as the attorney-in-fact
the parties or only a unilateral promise to sell? of her husband, Clemente, pursuant to a Special Power

of Attorney executed by the latter in favor of the former The second paragraph of Article 1479 provides
on 24 January 1979. The contract purportedly afforded for the definition and consequent rights and obligations
Enrico, before the expiration of the three-year lease under an option contract. For an option contract to be
period, the option to purchase the subject property for a valid and enforceable against the promissor, there must
price not exceeding P1.5 Million. be a separate and distinct consideration that supports it.
Before the expiration of the three-year lease We have painstakingly examined the Contract of
period provided in the lease contract, Enrico exercised Lease with Option to Purchase, as well as the pleadings
his option to purchase the subject property by submitted by the parties, and their testimonies in open
communicating verbally and in writing to Luz his court, for any direct evidence or evidence aliunde to
willingness to pay the agreed purchase price, but the prove the existence of consideration for the option
spouses Apeles supposedly ignored Enrico’s contract, but we have found none. The only
manifestation. consideration agreed upon by the parties in the said
Contract is the supposed purchase price for the subject
The RTC rendered a Decision in favor of Enrico. property in the amount not exceeding P1.5 Million, which
On appeal, the CA reversed the rtc decision. could not be deemed to be the same consideration for
the option contract since the law and jurisprudence
explicitly dictate that for the option contract to be valid, it
ISSUE: must be supported by a consideration separate and
distinct from the price.
Whether the Contract of Lease with Option to
purchase should be upheld? In the present case, it is indubitable that no
consideration was given by Enrico to the spouses
Apeles for the option contract. The absence of monetary
HELD: or any material consideration keeps this Court from
enforcing the rights of the parties under said option
An option is a contract by which the owner of the contract.
property agrees with another person that the latter shall
have the right to buy the former’s property at a fixed FALLO: Petition is DENIED.
price within a certain time. It is a condition offered or
contract by which the owner stipulates with another that SPOUSES ROSARIO VS. PCI LEASING AND
the latter shall have the right to buy the FINANCE, INC.,
property at a fixed price within a certain time, or under, G.R. No. 139233, November 11, 2005
or in compliance with certain terms and conditions; or
which gives to the owner of the property the right to sell
or demand a sale. An option is not of itself a purchase, FACTS:
but merely secures the privilege to buy. It is not a sale
of property but a sale of the right to purchase. It is On April 18, 1994, the spouses Rosario
simply a contract by which the owner of the property purchased an Isuzu Elf Pick-up Utility vehicle from
agrees with another person that he shall have the right CarMerchants, Inc. The transaction was covered by a
to buy his property at a fixed price within a certain time. Purchase Agreement whereby the spouses undertook to
He does not sell his land; he does not then agree to sell make a downpayment of P190,000.00 of the total
it; but he does sell something, i.e., the right or privilege purchase price of P380,000.00. The spouses then
to buy at the election or option of the other party. Its applied for a loan with PCI Leasing to pay for the
distinguishing characteristic is that it imposes no binding balance of P190,000.00.
obligation on the person holding the option, aside from
the consideration for the offer. Upon approval of their loan application, the
spouses Rosario executed a promisory note and
It is also sometimes called an “unaccepted offer” undertook to pay the loan on monthly installment. To
and is sanctioned by Article 1479 of the Civil Code: secure the payment of the loan, they executed a chattel
mortgage in favor of PCI over the Isuzu pick-up. The
Art. 1479. A promise to buy and sell a motor vehicle was then delivered to the spouses and
determinate thing for a price certain is reciprocally was registered in their names.
demandable.
An accepted unilateral promise to buy or to Despite demands, the spouses Rosario failed to
sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a
pay the amortizations on their loan prompting PCI to file
consideration distinct from the price. a complaint for “Sum of Money with Damages with a
Prayer for a Writ of Replevin” which was granted by the
court.

prayer for a writ of replevin based on the promissory

In their Answer to the complaint, the spouses note and the chattel mortgage executed by the
Rosario alleged that the chattel mortgage they executed petitioners in its favor.
in favor of PCI Leasing covering the motor vehicle was in
effect a contract of sale of personal property, payable in Even assuming that the respondent is the
installments to be governed by Article 1484[13] of the assignee of CarMerchants, Inc. and that Article 1484 of
New Civil Code of the Philippines. They further alleged the New Civil Code is applicable, it is not proscribed
that since PCI Leasing opted to foreclose the chattel from suing the petitioners for their unpaid balance. The
mortgage, it was estopped from collecting the balance of fact of the matter is that the respondent did not foreclose
their account under the promissory note and chattel the chattel mortgage, but opted to sue the petitioners for
mortgage. the balance of their account under the promissory note,
with a plea for a writ of replevin. By securing a writ of
RTC rendered judgment in favor of PCI. They replevin, the respondent did not thereby foreclose the
went on appeal but the CA dismissed the same. chattel mortgage.
FALLO: Petition PARTIALLY GRANTED. CA decision

ISSUE: AFFIRMED with modifications.
PAGTALUNAN VS. VDA. DE MANZANO
1. Whether PCI (as an assignee of Car G.R. No. 147695 September 13, 2007
Merchnats, Inc.) is proscribe from collecting the balance
of the purchase price of the vehicle?
FACTS:
2. Whether the provisions of Art.1484 of the CC
applies to the case at bar? Patricio Pagtalunan entered into a Contract to
Sell with private respondent Manzano over a house and
HELD: lot for P17K, to be paid in installments. P1500 as
downpayment upon execution of the Contract P150 as
There is no factual basis for the petitioners’ equal monthly installments until the full price is paid.
claim that CarMerchants, Inc. had assigned its rights to
collect the balance of the purchase price to the The contract provides that in case of default in
respondent. The fact of the matter is that the petitioners the payment of any of the installments for 90 days after
admitted in their petition at bench that they were its due date, the contract would be automatically
declared in default and failed to prove such claim. The rescinded without need of judicial declaration, and that
evidence on record clearly shows that the petitioners all payments made and all improvements done on the
secured a loan from the respondent to pay the premises by respondent would be considered as rentals
P190,000.00 balance to CarMerchants, Inc., and even for the use and occupation of the property or payment
executed a promissory note evidencing their loan in for damages suffered, and respondent was obliged to
favor of the respondent. The petitioners forthwith peacefully vacate the premises and deliver the
executed a chattel mortgage in favor of the respondent possession thereof to the vendor.
over the vehicle as security for the payment of their loan
and the interests thereon. Manzano paid only P12,950. She allegedly
stopped paying after December 1979 without any
It bears stressing that, under Article 1625 of the justification or explanation.
New Civil Code, an assignment of credit, right or action
must appear in a public document to bind third persons. Pagtalunan asserted that when respondent
There is no evidence on record to prove that Car ceased paying her installments, her status of buyer was
Merchants, Inc. executed such a deed, assigning its right automatically transformed to that of a lessee. Therefore,
to collect the balance of the purchase price of the vehicle she continued to possess the property by mere tolerance
from the petitioners; hence, Article 1484 of the New Civil of Patricio and, subsequently, of petitioner.
Code does not apply in this case.
Pagtalunan issued a demand letter for Manzano
Even a cursory reading of the respondent’s to vacate the premises of the property.
complaint in the RTC will readily show that the
respondent did not allege that it was the assignee of
CarMerchants, Inc. insofar as the right to collect the ISSUE:
balance of the purchase price of the vehicle from the
petitioners was concerned. Neither did the respondent Whether Pagtalunan may validly rescind the
adduce any evidence that it was such assignee. The contract to sell on account that the Manzano stopped
respondent sued the petitioners for sum of money with paying the installments?

mortgage indebtedness, he applied for and further

obtained a deficiency judgment.
HELD: ISSUE:
NO, the rescission must be notarial. The Whether the mortgage constituted on the
agreement could not be automatically rescinded since Controverted Parcels in favor of Respondent Amonoy
there was delivery to the buyer. A judicial determination comes within the scope of the prohibition in Article 1491
of rescission must be secured by petitioner as a of the Civil Code?
condition precedent to convert the possession de facto
of respondent from lawful to unlawful. HELD:
R.A No. 6552, which governs sales of real YES. The pertinent portions of the said Articles
estate on installment, is applicable in the resolution of read:
this case. Now, it is incumbent upon petitioner to prove
that the Contract to Sell had been cancelled in Art. 1491.The following persons cannot
accordance with R.A. No. 6552. R.A. No. 6552, which acquire by purchase even at a public or judicial or
requires a notarial act of rescission and the refund to the auction, either in person or through the mediation of
buyer of the full payment of the cash surrender value of another:
the payments on the property. xxx xxx xxx
There being no valid cancellation of the Contract to Sell, (5) Justices, judges, prosecuting
Manzano has the right to continue occupying the attorneys, ... the property and rights in litigation or
property subject of the Contract to Sell and the dismissal levied upon on execution before the court within
of the unlawful detainer case was proper. whose junction or territory they exercise their
respective functions; this prohibition includes the act
But considering that the Contract to Sell was not of acquitting by assignment and shall apply to lawyers
cancelled by the vendor validly in accordance with R.A. with respect to the property and rights which may be
No. 6552 and after 22 years of continuous possession of the object of any litigation in which they may take part
by virtue of their profession
the property, it is only right and just to allow respondent
to pay her arrears and settle the balance of the purchase
price, subject to interests.
Under the afore quoted provision, a lawyer is
FORNILDA VS. RTC
prohibited from acquiring either by purchase or
G.R. No. 72306 October 6, 1988
assignment the property or rights involved which are the
object of the litigation in which they intervene by virtue of
their profession. The prohibition on purchase is all
FACTS:
embracing to include not only sales to private individuals
but also public or judicial sales at the time the mortgage
The Controverted Parcels of land were part of
was executed, therefore, the relationship of lawyer and
the estate of the late JulioM. Catolos subject of intestate
client still existed, the very relation of trust and
estate proceedings, wherein Respondent Amonoy acted
confidence sought to be protected by the prohibition,
as counsel for some of the heirs from1959 until 1968 by
when a lawyer occupies a vantage position to press
his own admission. These properties were adjudicated to
upon ordictate terms to a harassed client. From the time
Alfonso Fornilda and Asuncion M. Pasamba in the
of the execution of the mortgage in his favor,
Project of Partition approved by the Court on 12 January
Respondent Amonoy had already asserted a title
1965.
adverse to his clients' interests at a time when the
relationship of lawyer and client had not yet been
On 20 January 1965, or only eight (8) days
severed.
thereafter, and while he was still intervening in the case
as counsel, these properties were mortgaged by
Considering that the mortgage contract, entered
petitioners' predecessor-in-interest to Respondent
into in contravention of Article 1491 of the Civil Code is
Amonoy to secure payment of the latter's attorney’s fees
expressly prohibited by law, the same must be held in
in the amount of P27,600.00.
existent and void ab initio.
Since the mortgage indebtedness was not paid,
EDUARDO B. OLAGUER VS. EMILIO PURUGGANAN
Respondent Amonoy instituted an action for judicial
G.R. No. 158907
foreclosure of mortgage on 21 January 1970. The
mortgage was subsequently ordered foreclosed and
auction sale followed where Respondent Amonoy was
FACTS:
the sole bidder forP23,600.00. Being short of the

There are two versions of the story: ISSUE:
Petitioner Eduardo B. Olaguer alleges that he Whether there was a PERFECTED CONTRACT
was the owner of 60,000 shares of stock of Businessday OF SALE BETWEEN PETITIONER AND MR. LOCSIN
Corporation (Businessday) . At the time he was OVER THE SHARES?
employed with the corporation, petitioner with
respondents was active in the political opposition
against the Marcos dictatorship. Anticipating the HELD:
possibility that petitioner would be arrested and detained
by the Marcos military, Locsin, Joaquin, and Hector YES. Petitioner alleges that the purported sale
Holifeña had an unwritten agreement that, in the event between himself and respondent Locsin of the disputed
that petitioner was arrested, they would support the shares of stock is void since it contravenes Article 1491
petitioner’s family by the continued payment of his of the Civil Code, which provides that:
salary. Petitioner also executed a Special Power of
Attorney (SPA), on 26 May 1979, appointing as his ART. 1491. The following persons
attorneys-in-fact Locsin, Joaquin and Hofileña for the cannot acquire by purchase, even at a public or
purpose of selling or transferring petitioner’s shares of judicial auction, either in person or through the
stock with Businessday mediation of another:
xxxx
On 24 December 1979, petitioner was arrested (2) Agents, the property whose
by the Marcos military by virtue of an Arrest, Search and administration or sale may have been entrusted to
Seizure Order and detained for allegedly committing them, unless the consent of the principal has been
arson. During the petitioner’s detention, respondent given; x x x.
Locsin ordered fellow respondent Purugganan to cancel
the petitioner’s shares in the books of the corporation It is, indeed, a familiar and universally
and to transfer them to respondent Locsin’s name. recognized doctrine that a person who undertakes to act
as agent for another cannot be permitted to deal in the
Respondent Locsin contended that petitioner agency matter on his own account and for his own
approached him and requested him to sell, and, if benefit without the consent of his principal, freely given,
necessary, buy petitioner’s shares of stock in with full knowledge of every detail known to the agent
Businessday, to assure support for petitioner’s family in which might affect the transaction. The prohibition
the event that something should happen to him, against agents purchasing property in their hands for
particularly if he was jailed, exiled or forced to go sale or management is, however, clearly, not absolute.
underground. At the time petitioner was employed with It does not apply where the principal consents to the sale
Businessday, respondent Locsin was unaware that of the property in the hands of the agent or
petitioner was part of a group, Light-a-Fire Movement, administrator.
which actively sought the overthrow of the Marcos
government through an armed struggle. He denied that In the present case, the parties have conflicting
he made any arrangements to continue paying the allegations. While respondent Locsin averred that
petitioner’s salary in the event of the latter’s petitioner had permitted him to purchase petitioner’s
imprisonment shares, petitioner vehemently denies having known of
the transaction. However, records show that petitioner’s
The trial court in its Decision, dated 26 July position is less credible than that taken by respondent
1995, dismissed the Complaint filed by the petitioner. It Locsin given petitioner’s contemporaneous and
ruled that the sale of shares between petitioner and subsequent acts. In 1980, when Fernando returned a
respondent Locsin was valid. The trial court concluded stock certificate she borrowed from the petitioner, it was
that petitioner had intended to sell the shares of stock to marked “cancelled.” Although the petitioner alleged that
anyone, including respondent Locsin, in order to provide he was furious when he saw the word cancelled, he had
for the needs of his family should he be jailed or forced not demanded the issuance of a new certificate in his
to go underground; and that the SPA drafted by the name. Instead of having been put on his guard,
petitioner empowered respondent Locsin, and two other petitioner remained silent over this obvious red flag and
agents, to sell the shares for such price and under such continued receiving, through his wife, payments which
terms and conditions that the agents may deem proper. totalled to the aggregate amount of the shares of stock
It further found that petitioner consented to have valued at par. When the payments stopped, no demand
respondent Locsin buy the shares himself. was made by either petitioner or his wife for further
On appeal, the Court of Appeals affirmed the Decision of payments.
the trial court that there was a perfected contract of sale.
From the foregoing, it is clear that petitioner knew
of the transaction, agreed to the purchase price of

P600,000.00 for the shares of stock, and had in fact delivered to private respondent before the accident,
facilitated the implementation of the terms of the hence, he should bear the risk of loss or damage as
payment by providing respondent Locsin, through owner of the unit. The lower court ruled in favor of
petitioner’s wife, with the information on the bank Nepales, and the Court of Appeals affirmed the decision
accounts of his in-laws. Petitioner’s wife and his son but deleted the award of damages "in the amount of
even provided receipts for the payments that were made P50.00 a day from February 3, 1980 until payment of the
to them by respondent Locsin,[43] a practice that present value of the damaged vehicle." Norkis concedes
bespeaks of an onerous transaction and not an act of that there was no "actual" delivery of the vehicle, but
gratuity. insists that there was constructive delivery of the unit
upon the issuance of the sales invoice, upon the
registration of the unit in Nepales’ name, and upon the
FALLO: Petition was DENIED. issuance of the official receipt.
NORKIS DISTRIBUTORS INC. VS. CA and NEPALES

193 SCRA 694 February 1991
ISSUE:
FACTS: Who should bear the risk of loss?
On September 20, 1979, private respondent

Alberto Nepales bought from the Norkis Distributors, Inc. HELD:
(Norkis) in its Bacolod branch a brand new Yamaha
Wonderbike motorcycle Model YL2DX with Engine Affirming the decision of the Court of Appeals,
No.L2-329401K Frame No.NL2-0329401, color maroon, the Supreme Court reiterated that Article 1496 of the
which was then on display in the Norkis showroom. The Civil Code which provides that "in the absence of an
Branch Manager Avelino Labajo agreed to accept the express assumption of risk by the buyer, the things sold
P7,500.00 price payable by means of a Letter of remain at seller's risk until the ownership thereof is
Guaranty from the Development Bank of the Philippines transferred to the buyer," is applicable in the case at bar
(DBP), Kabankalan. Hence, credit was extended to for there was neither an actual nor constructive delivery
Nepales, and as security for the loan, he executed a of the thing sold.
chattel mortgage on the motorcycle in favor of DBP.
Labajo issued the Norkis Sales Invoice No. 0120 The Court of Appeals correctly ruled that the
perfecting the contract of sale, and Nepales signed the purpose of the execution of the sales invoice dated
same to conform to the terms of the sale, while the unit September 20, 1979 and the registration of the vehicle in
remained in Norkis' possession. On November 6, 1979, the name of Alberto Nepales with the Land Registration
it was registered under Alberto Nepales’ name in the Commission was not to transfer the ownership and
Land Transportation Commission. dominion over the motorcycle to him, but only to comply
with the requirements of the DBP for processing private
On January 22, 1980, the motorcycle was respondent's motorcycle loan. The circumstances in the
delivered to a certain Julian Nepales who was allegedly case itself more than amply rebut the disputable
the agent of Alberto Nepales but the latter denies it. The presumption of delivery upon which Norkis anchors its
record shows, however, that Alberto and Julian Nepales defense to Nepales' action.
presented the unit to DBP's Appraiser-Investigator
Ernesto Arriesta at the DBP offices in Kabankalan,
Negros Occidental Branch. On February 3, 1980, the
motorcycle met an accident at Binalbagan, Negros
Occidental while being driven by a certain Zacarias
Payba. The unit was a total wreck, was returned, and GAISANO VS. INSURANCE
stored inside Norkis' warehouse. June 8, 2006
On March 20, 1980, DBP released the proceeds

of private respondent's motorcycle loan to Norkis in the FACTS:
total sum of P7,500. As the price of the motorcycle later
increased to P7,828 in March, 1980, Nepales paid the IMC and Levi Strauss (Phils.) Inc. (LSPI)
difference of P328 and demanded the delivery of the separately obtained from respondent fire insurance
motorcycle. Norkis failed to deliver the unit, and Nepales policies with book debt endorsements. The insurance
filed an action for specific performance with damages in policies provide for coverage on "book debts in
the RTC of Himamaylan, Negros Occidental. Norkis connection with ready-made clothing materials which
answered that the motorcycle had already been

have been sold or delivered to various customers and merely for purpose of securing the payment of the
dealers of the Insured anywhere in the Philippines." purchase price the above described merchandise
remains the property of the vendor until the purchase
The policies defined book debts as the "unpaid price thereof is fully paid."
account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under 3. WON petitioner is liable for the unpaid
this Policy." The policies also provide for the following accounts
conditions:
4. WON it has been established that petitioner
1. Warranted that the Company shall not be liable for has outstanding accounts with IMC and LSPI.
any unpaid account in respect of the merchandise sold
and delivered by the Insured which are outstanding at
the date of loss for a period in excess of six (6) months HELD:
from the date of the covering invoice or actual delivery of
the merchandise whichever shall first occur. 1. NO. Nowhere is it provided in the questioned
2. Warranted that the Insured shall submit to the insurance policies that the subject of the insurance is the
Company within twelve (12) days after the close of every goods sold and delivered to the customers and dealers
calendar month all amount shown in their books of of the insured.
accounts as unpaid and thus become receivable item
from their customers and dealers. Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which
Gaisano is a customer and dealer of the remained unpaid 45 days after the loss through fire, and
products of IMC and LSPI. On February 25, 1991, the not the loss or destruction of the goods delivered.
Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in 2. YES. The present case clearly falls under
the items lost or destroyed in the fire were stocks of paragraph (1), Article 1504 of the Civil Code:
ready-made clothing materials sold and delivered by
IMC and LSPI. ART. 1504. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein is
Insurance of America filed a complaint for transferred to the buyer, but when the ownership therein
damages against Gaisano. It alleges that IMC and LSPI is transferred to the buyer the goods are at the buyer's
were paid for their claims and that the unpaid accounts risk whether actual delivery has been made or not,
of petitioner on the sale and delivery of ready-made except that:
clothing materials with IMC was P2,119,205.00 while
with LSPI it was P535,613.00. (1) Where delivery of the goods has been made to the
The RTC rendered its decision dismissing Insurance's buyer or to a bailee for the buyer, in pursuance of the
complaint. It held that the fire was purely accidental; that contract and the ownership in the goods has been
the cause of the fire was not attributable to the retained by the seller merely to secure performance by
negligence of the petitioner. Also, it said that IMC and the buyer of his obligations under the contract, the goods
LSPI retained ownership of the delivered goods and are at the buyer's risk from the time of such delivery
must bear the loss. Thus, when the seller retains ownership only to
The CA rendered its decision and set aside the decision insure that the buyer will pay its debt, the risk of loss is
of the RTC. It ordered Gaisano to pay Insurance the P 2 borne by the buyer. Petitioner bears the risk of loss of
million and the P 500,000 the latter paid to IMC and Levi the goods delivered.
Strauss.
IMC and LSPI had an insurable interest until full
Hence this petition. payment of the value of the delivered goods. Unlike the
civil law concept of res perit domino, where ownership is
the basis for consideration of who bears the risk of loss,
ISSUE/S: in property insurance, one's interest is not determined by
1. WON the CA erred in construing a fire concept of title, but whether insured has substantial
insurance policy on book debts as one covering the economic interest in the property.
unpaid accounts of IMC and LSPI since such insurance
applies to loss of the ready-made clothing materials sold Section 13 of our Insurance Code defines
and delivered to petitioner insurable interest as "every interest in property, whether
real or personal, or any relation thereto, or liability in
2. WON IMC bears the risk of loss because it respect thereof, of such nature that a contemplated peril
expressly reserved ownership of the goods by stipulating might directly damnify the insured." Parenthetically,
in the sales invoices that "[i]t is further agreed that under Section 14 of the same Code, an insurable

interest in property may consist in: (a) an existing Art. 2207. If the plaintiff's property has been
interest; (b) an inchoate interest founded on existing insured, and he has received indemnity from the
interest; or (c) an expectancy, coupled with an existing insurance company for the injury or loss arising out of
interest in that out of which the expectancy arises. the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of
Anyone has an insurable interest in property the insured against the wrongdoer or the person who
who derives a benefit from its existence or would suffer has violated the contract.
loss from its destruction. Indeed, a vendor or seller
retains an insurable interest in the property sold so long As to LSPI, respondent failed to present
as he has any interest therein, in other words, so long as sufficient evidence to prove its cause of action. There
he would suffer by its destruction, as where he has a was no evidence that respondent has been subrogated
vendor's lien. In this case, the insurable interest of IMC to any right which LSPI may have against petitioner.
and LSPI pertain to the unpaid accounts appearing in Failure to substantiate the claim of subrogation is fatal to
their Books of Account 45 days after the time of the loss petitioner's case for recovery of P535,613.00.
covered by the policies. LAWYERS COOPERATIVE PUBLISHING VS.
PERFECTO
3. YES. Petitioner's argument that it is not liable April 30, 1965
because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier,
petitioner bears the loss under Article 1504 (1) of the FACTS:
Civil Code.
Perfecto A. Tabora(buyer) bought from the
Moreover, it must be stressed that the insurance Lawyers Cooperative Publishing Company(seller) one
in this case is not for loss of goods by fire but for complete set of American Jurisprudence consisting of
petitioner's accounts with IMC and LSPI that remained 48volumes with 1954 pocket parts, plus one set of
unpaid 45 days after the fire. Accordingly, petitioner's American Jurisprudence, General Index, consisting of 4
obligation is for the payment of money. As correctly volumes, for a total price of P1,675.50 which, in addition
stated by the CA, where the obligation consists in the to the cost of freight of P6.90, makes a total of
payment of money, the failure of the debtor to make the P1,682.40. Tabora made a partial payment of P300.00,
payment even by reason of a fortuitous event shall not leaving a balance of P1,382.40. The books were duly
relieve him of his liability. The rationale for this is that the delivered and receipted for by Tabora on May 15, 1955
rule that an obligor should be held exempt from liability in his law office in Naga City.
when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a However, a big fire broke out in that locality
determinate thing and there is no stipulation holding him which destroyed and burned all the buildings standing on
liable even in case of fortuitous event. It does not apply one whole block including at the law office and library of
when the obligation is pecuniary in nature. Tabora.
Under Article 1263 of the Civil Code, "[i]n an As a result, the books bought from the company
obligation to deliver a generic thing, the loss or as above stated, together with Tabora's important
destruction of anything of the same kind does not documents and papers, were burned during the
extinguish the obligation." This rule is based on the conflagration.
principle that the genus of a thing can never perish. An
obligation to pay money is generic; therefore, it is not This unfortunate event was immediately
excused by fortuitous loss of any specific property of the reported by Tabora to the company in a letter he sent on
debtor. May 20, 1955. On May 23, the company replied and as a
token of goodwill it sent to Tabora free of charge
4. YES. With respect to IMC, the respondent has volumes 75, 76, 77 and 78 of the Philippine Reports.
adequately established its claim. The P 3 m claim has
been proven. The subrogation receipt, by itself, is As Tabora failed to pay he monthly installments
sufficient to establish not only the relationship of agreed upon on the balance of the purchase price
respondent as insurer and IMC as the insured, but also notwithstanding the long time that had elapsed, the
the amount paid to settle the insurance claim. The right company demanded payment of the installments due,
of subrogation accrues simply upon payment by the and having failed, to pay the same, it commenced the
insurance company of the insurance claim Respondent's present action before the CFI of Manila for the recovery
action against petitioner is squarely sanctioned by Article of the balance of the obligation.
2207 of the Civil Code which provides:
Defendant, in his answer, pleaded force majeure
as a defense. He alleged that the books bought from the

plaintiff were burned during the fire that broke out in DURAN VS. IAC
Naga City on May 15, 1955, and since the loss was due G.R. No. L - 64159
to force majeure he cannot be held responsible for the
loss.
FACTS:
CFI rendered judgment for the plaintiff. It
ordered Tabora to pay the sum of P1,382.40, with legal Petitioner Circe S. Duran owned two (2) parcels
interest thereon from the filing of the complaint, plus a of land in Caloocan City which she had purchased from
sum equivalent to 25% of the total amount due as the Moja Estate. She left the Philippines for the US in
liquidated damages, and the cost of action. June 1954 and returned in May 1966. On May 13, 1963,
a Deed of Sale of the two lots mentioned above was
made in favor of Circe’s mother, Fe S. Duran who, on
December 3, 1965, mortgaged the same property to
private respondent Erlinda B. Marcelo-Tiangco. When
petitioner Circe S. Duran came to know about the
mortgage made by her mother, she wrote the Register of
ISSUE: Deeds of Caloocan City informing the latter that she had
Whether or not respondent Tabora should bear not given her mother any authority to sell or mortgage
the loss and pay the unpaid purchase price. any of her properties in the Philippines. Failing to get an
answer from the registrar, she returned to the
Philippines.
HELD:
Meanwhile, when her mother, Fe S. Duran,
YES. Though it was agreed that the title of the failed to redeem the mortgage properties, foreclosure
ownership of the books should remain with the seller proceedings were initiated by private respondent Erlinda
until the purchase shall have been fully pai, it was also B. Marcelo Tiangco and, ultimately, the sale by the
expressly agreed upon that the loss or damage after the sheriff and the issuance of Certificate of Sale in favor of
delivery shall be borne by the buyer. In pursuance of the the latter.
contract, the ownership of the goods has been retained
by the seller merely to secure performance by the of his Petitioner Circe S. Duran claims that the Deed of
obligation. Moreover, the goods were at the buyer’s risk Sale in favor of her mother Fe S. Duran is a forgery,
from the time of delivery. saying that at the time of its execution in 1963 she was
in the United States. On the other hand, the adverse
Though it was agreed that the title of the party alleges that the signatures of Circe S. Duran in the
ownership of the books should remain with the seller said Deed are genuine and, consequently, the mortgage
until made by Fe S. Duran in favor of private respondent is
the purchase price shall have been fully paid, it was also valid. The appellate court held the same to be genuine
expressly agreed upon that the loss or damage after because there is the presumption of regularity in the
delivery shall be borne by the buyer. In pursuance of the case of a public document and “the fact that Circe has
contract, the ownership of the goods has been retained not been able to satisfactorily prove that she was in the
by the seller merely to secure performance by the buyer United States at the time the deed was executed in
of his 1963.
obligation. Moreover, the goods were at the buyer’s risk
from the time of the delivery. But even if the signatures were a forgery, and
the sale would be regarded as void, still it is Our opinion
It was provided in the contract that "title to and that the Deed of Mortgage is VALID, with respect to the
ownership of the books shall remain with the seller until mortgagees, the defendants-appellants. While it is true
the purchase price shall have been fully paid. Loss or that under Art. 2085 of the Civil Code, it is essential that
damage to the books after delivery to the buyershall be the mortgagor be the absolute owner of the property
borne by the buyer." mortgaged, and while as between the daughter and the
mother, it was the daughter who still owned the lots,
STILL insofar as innocent third persons are concerned
General Rule: the loss of the object of the the owner was already the mother (Fe S. Duran)
contract of sale is borne by the owner, or in case of inasmuch as she had already become the registered
force majeure the one under obligation to deliver owner. The mortgagee had the right to rely upon what
theobject is exempt from liability. BUT, this rule does not appeared in the certificate of title, and did not have to
apply in this case because the parties clearly agreed to inquire further. If the rule were otherwise, the efficacy
the abovementioned contrary. and conclusiveness of Torrens Certificate of Titles would
be futile and nugatory.

faulted for their estoppel by laches.”
ISSUE: AZNAR VS. YAPDIANGCO

Whether or not Erlinda B. Marcelo-Tiangco was
a buyer in good faith and for value? FACTS:
HELD: Theodoro Santos advertised in the newspapers

the sale of his Ford Fairlane 500. After the
Good faith, while it is always to be presumed in advertisement, a certain de Dios, claiming to be the
the absence of proof to the contrary, requires a well- nephew of Marella, went to the residence of Santos and
founded belief that the person from whom title was expressing his uncle’s intent to purchase the car. Since
received was himself the owner of the land, with the right Santos wasn't around, it was Irineo who talked with de
to convey it. Otherwise stated, good faith is the opposite Dios. On being informed, Santos advised his son to see
of fraud and it refers to the state of mind which is
manifested by the acts of the individual concerned. In Marella, which the son did. Marella expressed
the case at bar, private respondents, in good faith relied his intention to purchase the car. A deed of sale was
on the certificate of title in the name of Fe S. Duran and prepared and Irineo was instructed by his father not to
as aptly stated by respondent appellate court “[e]ven on part with the deed and the car without receiving the
the supposition that the sale was void, the general rule purchase price from Marella. When irineo and de Dios
that the direct result of a previous illegal contract cannot arrived at the residence of Marella, the latter averred that
be valid (on the theory that the spring cannot rise higher his money was short and had to borrow from his sister.
than its source) cannot apply here for We are confronted He then instructed de Dios and Irineo to go the
with the functionings of the Torrens System of supposed house of the sister to obtain the money with
Registration. The doctrine to follow is simple enough: a an unidentified person. He also asked Irineo to leave the
fraudulent or forged document of sale may become the deed to have his lawyer see it. Relying on the good faith
ROOT of a valid title if the certificate of title has already of Marella, Irineo did as requested.
been transferred from the name of the true owner to the
name of the forger or the name indicated by the forger.” Upon arriving at the house of Marella’s
supposed to be sister, de Dios and the unidentified
Thus, where innocent third persons relying on person then disappeared together with the car. This
the correctness of the certificate of title issued, acquire prompted Santos to report the incident to the authorities.
rights over the property, the court cannot disregard such Thereafter, Marella was able to sell the land to Aznar.
rights and order the total cancellation of the certificate for And while in possession of the car, police authorities
that would impair public confidence in the certificate of confiscated the same. This prompted Aznar to file an
title. Stated differently, an innocent purchaser for value action for replevin.
relying on a torrens title issued is protected. A
mortgagee has the right to rely on what appears in the ISSUE:
certificate of title and, in the absence of anything to
excite suspicion, he is under no obligation to look Who has better right over the car?
beyond the certificate and investigate the title of the HELD:
mortgagor appearing on the face of saidcertificate.
Marella never had title to the car as the car
Likewise, We take note of the finding and wasn't ever delivered to him. While there was a deed of
observation of respondent appellate court in that sale in his favor, he was only able to obtain possession
petitioners were guilty of estoppel by laches “in not of the car since he stole it from Santos. The applicable
bringing the case to court within a reasonable period. law is Article 559. The rule is to the effect that if the
Antero Gaspar, husband of Circe, was in the Philippines owner has lost a thing, or if he has been unlawfully
in 1964 to construct the apartment on the disputed lots. deprived of it, he has a right to recover it, not only from
This was testified to by Circe herself. In the process of its finder, thief or robber, but also from third persons who
construction, specifically in the matter of obtaining a may have acquired it in good faith from such finder, thief
building permit, he could have discovered that the deed or robber.
of sale sought to be set aside had been executed on
May 13, 1963 (the building permit needed an application
by the apparent owner of the land, namely, Circe’s
mother, Fe S. Duran). And then again both plaintiffs The said article establishes 2 exceptions to the
could have intervened in the foreclosure suit but they did general rule of irrevindicabilty—to wit, the owner has lost
not. They kept silent until almost the last moment when the thing or has been unlawfully deprived thereof. In
they finally decided, shortly before the sheriff’s sale, to these cases, the possessor cannot retain the thing as
file a third-party claim. Clearly, the plaintiffs can be against the owner who may recover it without paying any

indemnity, except when the possessor acquired it in a

public sale. Furthermore, the common law principle that
where one of two innocent persons must suffer a fraud
perpetrated by another, the law imposes the loss upon
the party who, by his misplaced confidence, has enable
the fraud to be committed, cannot be applied in this
case, which is covered by an express provision of law.
RADIOWEALTH FINANCE COMPANY VS. PALILEO HELD:

May 20, 1991
The Supreme Court likewise affirmed the
appellate court’s decision on this case. There is no doubt
FACTS: that had the subject property been a registered land, this
case would have been decided in favor of Radiowealth
In April 1970, defendant spouses Enrique Castro since it was the company that had its claim first recorded
and Herminio R. Castro (spouse Castro) sold to herein in the Registry of Deeds for it is the act of registration
respondent Manuelito Palileo a parcel of unregistered that operates to convey and affect registered land.
coconut land in Surigao del Norte. The sale is evidenced Therefore, a bonafide purchaser of a registered land at
by a notarized Deed of Absolute Sale, but the deed was an execution sale acquires a good title as against a prior
not registered in the Registry of Property for transferee, if such transfer was unrecorded.
unregistered lands in the province of Surigao del Norte.
Since the execution of the deed of sale, Palileo who was However, a different set of rules applies in the
then employed in Lianga, Surigao del Sur, exercised case at bar which deals with a parcel of unregistered
acts of ownership over the land through his mother land. Under Act No. 3344, registration of instruments
Rafaela Palileo, as administratrix or overseer. Manuelito affecting unregistered lands is "without prejudice to a
Palileo has continuously paid the real estate taxes on third party with a better right." The afore quoted phrase
said land from 1971 until the present. has been held by the Supreme Court to mean that the
mere registration of a sale in one's favor does not give
In November 1976, the CFI of Manila rendered a him any right over the land if the vendor was not
judgment was rendered against defendant Enrique T. anymore the owner of the land having previously sold
Castro to pay herein petitioner Radiowealth Finance the same to somebody else even if the earlier sale was
Company (Radiowealth), the sum of P22,350.35 with unrecorded. Applying this principle, the Court of Appeals
interest rate of 16% per annum from November 2, 1975 correctly held that the execution sale of the unregistered
until fully paid, and upon the finality of the judgment, a land in favor of petitioner is of no effect because the land
writ of execution was issued. The Provincial Sheriff no longer belonged to the judgment debtor as of the time
Marietta E. Eviota, through defendant Deputy Provincial of the said execution sale.
Sheriff Leopoldo Risma, levied upon and finally sold at
public auction the subject land that defendant Enrique NUGUID VS. CA
Castro had sold to Palileo in 1970. The said Provincial March 13, 1989
Sheriff executed a certificate of sale was by the in favor
of Radiowealth as the only bidder, and upon expiration
of the redemption period, she also executed a deed of FACTS:
final sale. Both documents were registered with the
Registry of Deeds. The deceased spouses Victorino and Crisanta
dela Rosa were the registered owners of a parcel of land
Learning of what happened to the land, Palileo situated in Bataan, and covered by OCT. Victorino dela
filed an action for recovery of the subject property. The Rosa (widowed by then) sold one¬ half of the said
court a quo rendered a decision in favor of Palileo, which property to Juliana Salazar for P 95.00. This sale was
the Court of Appeals affirmed. not registered. Immediately after the sale, Juliana
Salazar constructed a house on the lot she purchased.
Petitioner spouses caused the registration of a
document entitled “Kasulatan ng Partihan at Bilihan.” In
ISSUE: this document, Marciana dela Rosa, Victoria
Buenaventura, Ernesto Buenaventura, Virgilio
Who is the rightful owner of the subject Buenaventura, and Felicisimo Buenaventura-all heirs of
property? Victorino and Crisanta dela Rosa- sold to the petitioners
the entire area of the property for the sum of P300.00.
Subsequently, the OCT was cancelled by the Register of

Deeds, and TCT was issued in the names of the made no mention of the prior unregistered sale to their
petitioners. predecessor-in-interest, Juliana Salazar.
The private respondents claim that the Thus, when the petitioners registered the sale in
document is a forged deed. The petitioners assert that their favor with the Register of Deeds, they did so
the land subject of this case was offered to them for sale without any knowledge about the prior sale in favor of
by Nicolas dela Rosa who then claimed that he had Juliana Salazar. The petitioners, therefore, had acted in
already purchased the shares of the heirs over the good faith.
subject property as evidenced by a private document SPS. TORRECAMPO VS. ALINDOGAN
entitled “Kasunduan”. The RTC dismissed the complaint February 28, 2007
filed by the private respondents, but on appeal, this was
reversed by the Court of Appeals. Hence, this petition.
FACTS:
ISSUE: On May 24, 1997, spouses Jose and Lina

Belmes executed a deed of sale to here inrespondents,
Whether or not the subsequent sale is valid, the over Lot No. 5524-H and the house constructed thereon
petitioner spouses being purchasers in good faith. located in Rawis, LegazpiCity. On July 4, 1997, Lina
Belmes wrote respondents wherein she delivered the
possession of the house and lot to them. However, on
July 5, 1997, before they could take the actual
HELD: possession of the property, the herein petitioners, and
spouses Jonathan Lozares and Jocelyn Torrecampo,
YES.The Original Certificate of Title No. 3778 entered and occupied the premises.
covering the entire property was clean and free from any
annotation of an encumbrance, and there was nothing As the petitioners refused to vacate the property
whatsoever to indicate on its face any vice or infirmity in despite repeated demands, respondent spouses
the title of the registered owners-the spouses Victorino Alindogan filed against them a complaint for recovery for
and Crisanta dela Rosa. Thus, the petitioners could not ownership and possession with damages with the RTC
have known of the prior sale to Juliana Salazar as, of Legazpi City. In their Answer to the complaint,
precjsely, ¬it was not registered. The general rule is that petitioners claimed that on March 25, 1997, spouses
if the property sold is registered land, the purchaser in Belmes received from them P73,000.00 as advance
good faith has a right to rely on the certificate of title and payment for the sale of the house and lot. On April 8,
is under no duty to go behind it to look for flaws. This 1997, petitioners and spouses Belmes executed a
notwithstanding, the petitioners did not rely solely upon "Contract to Buy and Sell" covering the same property.
the certificate of title. They personally inspected the The parties agreed as follows: that the total
subject property. consideration is P350,000.00; that upon the signing of
the contract, petitioners shall pay spouses Belmes
Undeniably, they found the same to be occupied P220,000.00; and that the balance of P130,000.00 shall
by two houses, one belonging to a certain Doray dela be paid upon the issuance of the certificate of title in the
Rosa and the other to spouses Pedro Guevarra and names of petitioners.
Pascuala Tolentino, parents of the respondents
Guevarras. Upon being informed of the petitioners’ To complete the agreed partial payment of
desire to purchase the land, Doray dela Rosa apparently P220,000.00 mentioned in the contract, petitioners paid
offered to sell her house, which offer was accepted by spouses Belmes P130,000.00,but the latter refused to
the petitioners. As regards the spouses Guevarra, we accept the amount. Thus, on July 7, 1997, petitioners
find no reason to disturb the trial court’s finding that they filed with the RTC, Branch 18, Tabaco, Albay, Civil Case
themselves requested that they be allowed to refrain on No. T-1914, a Complaint for Specific Performance
the property until such time that the petitioners would againstspouses Belmes. On July 14, 2000, the RTC, in
need the entire premises; and in lieu of rentals to the Civil Case No. 9421, now before us, rendered aDecision
petitioners, they offered to continue paying the real in favor of respondents
estate taxes for one-half of the property as this was their
arrangement with the previous owners-to which request
the petitioners acceded. Evidently, neither Doray dela ISSUE:
Rosa nor the spouses Guevarra professed ownership
over the portions of land they were occupying; on the Whether or not the Honorable Court of Appeals
contrary, by their actuations they expressly erred when it declared the respondents as the owners
acknowledged that they were not the real owners of the and entitled them to the possession of the lot in
said property. The spouses Guevarra, in particular, question.

transferred to his daughter. Finally, the transfer of the

piso worth P64,000.00 was executed and the heirs
arrived at an amicable settlement regarding the estate of
HELD: Adelina Gurrea. Hence, Ricardo Gurrea withdrew his
Opposition and the heirs then drew up a project of
partition which was eventually approved by the probate
The trial court held that the transaction between court. Pursuant to the project of partition, the following
petitioners and spouses Belmes is a mere contract to properties were adjudicated to Ricardo Gurrea: (1) the
sell. Thus, the latter did not transfer ownership of the whole of the Baguio lot (with assessed value of
house and lot to petitioners. The tenor of the afore- P26,350.00); (2) the whole of the San Juan lot (with
quoted provision of the contract clearly confirms that the assessed value of P9,630.00); and (3) a parcel of land in
transaction between the defendants and the Belmeses Pontevedra, Negros Occidental (with assessed value of
was not a contract of sale, as defined by Art. 1458 of the P300.00).
Civil Code.
As payment of his attorney’s fees, Ricardo
Indeed, the true agreement between petitioners Gurrea offered the San Juan lot to Atty. Suplico who was
and spouses Belmes is a contract to sell. Not only did initially hesitant to accept the same as the property is
the parties denominate their contract as “Contract to Buy occupied by squatters. However, in order not to
and Sell,” but also specified there in that the balance of antagonize his client, Atty. Suplico agreed to Ricardo
the purchase price in the amount of ₱130, 000.00 is to Gurrea’s proposal with the further understanding that he
be paid by petitioners upon the issuance of a certificate will receive an additional commission of 5% if he sells
of title. That spouses Belmes have in their possession the Baguio property. Thereafter, the deed of Transfer of
the certificate of title indicates that ownership of the Rights and Interest was drafted. The said deed was
subject properly did not pass to petitioners. presented to Ricardo Gurrea for his signature. That
before signing the same, the contents of the deed were
Thus, the petition is denied and the assailed first explained to Ricardo Gurrea by Atty. Suplico and
Decision of the Court of Appeals dated November 18, Atty. Manuel Pama, the notary public. On August 20,
2002 in CA-G.R. CV No. 68583 Affirmed 1975, the deed was finally signed by Ricardo Gurrea at
the office of Atty. Pama, in the presence of the latter,
Atty. Suplico, Victor Tupas and another person, the last
VDA. DE GURREA VS. SUPLICO
two acting as witnesses. Later, on October 7, 1980, Atty.
April 26, 2006 Suplico registered the deed and obtained a title/TCT to
the San Juan property under his name. Ricardo Gurrea
FACTS: died on October 22, 1980. After his death, his heirs
instituted a proceeding for the settlement of Ricardo
The lot in question situated at 245 Marne Street, Gurrea’s estate. In the said proceedings, Atty. Suplico
San Juan, Metro Manila was originally owned by one of filed several claims for unpaid attorney’s fees; however,
herein plaintiffs’ Attorney-in-Fact, Rosalina Gurrea. That all were dismissed with finality. Also in the same case,
sometime in 1958, Rosalina Gurrea transferred the the estate’s administrator, Carlos Gurrea, filed an
ownership of said lot to Adelina Gurrea, whose Inventory of Properties left by the decedent, which did
ownership was evidenced by TCT That Adelina Gurrea not initially include the property subject of this case. The
continued to be the owner of the lot until her death. said lot was included only subsequently in the Amended
Thereafter, a special proceeding was instituted to have Inventory.
the will she executed during her lifetime probated and to
settle her estate. Plaintiffs and defendant appealed the case to
the CA.
Ricardo Gurrea, represented by and through his Plaintiffs-appellants contended that the RTC erred: in
counsel Atty. Enrique Suplico (the defendant), filed an upholding the validity of the supposed contract of
Opposition in Special Proc. No. 7185. In consideration of attorney’s fees between Ricardo and defendant-
said representation, Ricardo Gurrea agreed to pay Atty. appellant which provided for the payment of attorney’s
Suplico "a contingent fee of twenty (20%) of whatever is fees in the form of real property because such an
due me, either real or personal property. During the agreement is prohibited by Article 1491 of the Civil
pendency of the proceedings and upon the oral Code; in limiting its evaluation of the transfer of rights
instructions of Ricardo Gurrea, Atty. Suplico negotiated and interests in defendant-appelant’s favor only on the
with the other heirs of Adelina Gurrea regarding the basis of whether the deed evidencing said transfer of
transfer of the piso (apartment building) in Spain to rights and interests was forged, without regard to the
Ricardo Gurrea’s daughter, Juliet Gurrea de Melendres. facts and circumstances surrounding its execution; in not
Ricardo Gurrea further instructed Atty. Suplico not to finding that defendant-appellant has been fully paid for
enter into any settlement with the heirs unless the piso is all the services he had rendered for Ricardo; in not

declaring the payment of the subject lot as attorney’s object of any litigation in which they may take part by
fees to be unconscionable based on the guidelines for virtue of their profession.
determining attorney’s fees.
On February 24, 2000, the CA rendered its We agree with the petitioners’ undisputed
Decision affirming, in toto, the judgment of the RTC. The contention that when the deed of Transfer of Rights and
CA maintained the lower court’s ruling that the plaintiffs- Interest was executed, the title over the subject lot was
appellants failed to present clear and convincing still in the name of Adelina Gurrea and that it was only
evidence that defendant-appellant defrauded and on October 7, 1980 that the title was transferred in the
exerted undue influence on Ricardo in the latter’s name of Ricardo. The rule is that as long as the order for
execution of the deed of Transfer of Rights and Interest the distribution of the estate has not been complied with,
and in consequently transferring his ownership of the the probate proceedings cannot be deemed closed and
San Juan lot in his (defendant-appellant’s) favor; and terminated. The probate court loses jurisdiction of an
that based on the evidence, the San Juan lot may be estate under administration only after the payment of all
considered as reasonable attorney’s fees for defendant- the debts and the remaining estate delivered to the heirs
appellant. entitled to receive the same. In the present case, while
the subject lot was assigned as Ricardo’s share in the
project of partition executed by the heirs of Adelina
ISSUE/S: Gurrea, the title over the subject lot was still in the name
of the latter and was not yet conveyed to Ricardo when
1. Whether or not the transfer of rights and the Transfer of Rights and Interest was executed. As
interests violative of Article 1491 of the NCC, therefore correctly cited by petitioners, the Court held in Lucero v.
null and void? Bañaga that:
2. Whether or not the supposed contract for [t]he term "delivery" or tradition has two
attorney’s fees in the form of the manifestation providing aspects: (1) the de jure delivery or the execution
for the payment out of the properties in litigation is valid? of deeds of conveyance and (2) the delivery of
the material possession (Florendo vs. Foz, 20
3. Whether or not petitioners are entitled to the Phil. 388, 393). The usual practice is that, if the
cancellation of respondent attorney’s title over the land to be delivered is in the name of the
property and the reconveyance thereof to herein decedent, the administrator executes a deed,
petitioners? conveying the land to the distributee. That deed,
together with the project of partition, the order
approving it, the letters of administration and the
HELD: certification as to the payment of the estate,
inheritance and realty taxes, is registered in the
The Court finds the petition meritorious. corresponding Registry of Deeds. Title would
then be issued to the distributee. Thereafter, the
Anent the first issue, it is necessary to resolve administrator or executor places him in material
whether the subject property was still the object of possession of the land if the same is in the
litigation at the time the deed of Transfer of Rights and custody of the former.
Interest in favor of respondent was executed; and if so,
whether the same should be considered null and void for It follows that, since at the time of execution of
being violative of the provisions of Article 1491 of the the deed of Transfer of Rights and Interest, the subject
Civil Code. property still formed part of the estate of Adelina, and
there being no evidence to show that material
Article 1491(5) of the Civil Code provides: possession of the property was given to Ricardo, the
1491. The following persons cannot acquire probate proceedings concerning Adelina’s estate cannot
by purchase, even at a public or judicial auction, be deemed to have been closed and terminated and the
either in person or through the mediation of another: subject property still the object of litigation.
…
(5) Justices, judges, prosecuting attorneys, clerks of Having been established that the subject
superior and inferior courts, and other officers and
employees connected with the administration of
property was still the object of litigation at the time the
justice, the property and rights in litigation or levied subject deed of Transfer of Rights and Interest was
upon an execution before the court within whose executed, the assignment of rights and interest over the
jurisdiction or territory they exercise their respective subject property in favor of respondent is null and void
functions; this prohibition includes the act of acquiring for being violative of the provisions of Article 1491 of the
by assignment and shall apply to lawyers, with Civil Code which expressly prohibits lawyers from
respect to the property and rights which may be the acquiring property or rights which may be the object of

any litigation in which they may take part by virtue of

their profession. 2. Whether the hidden defects in the machine
is sufficient to warrant a rescission of the contract
Article 1409 of the same Code provides, among between the parties.
others, that contracts which are expressly prohibited or
declared void by law are considered inexistent and void
from the beginning.
HELD:
Anent the second issue, the Court has already
held that the said property is still the object of litigation at 1. It is generally held that in the sale of a
the time the subject Manifestation and Transfer of Rights designated and specific article sold as second hand,
and Interest were executed and, thus, may not be there is no implied warranty as to its quality or fitness for
acquired by respondent pursuant to the provisions of the purpose intended, at least where it is subject to
Article 1491 of the Civil Code. inspection at the time of the sale. On the other hand,
there is also authority to the effect that in a sale of
As to the third issue, it follows that respondent’s second hand articles there may be, under some
title over the subject property should be cancelled and circumstances, an implied warranty of fitness for the
the property reconveyed to the estate of Ricardo, the ordinary purpose of the article sold or for the particular
same to be distributed to the latter’s heirs. This is without purpose of the buyer.
prejudice, however, to respondent’s right to claim his
attorney’s fees from the estate of Ricardo, it being
undisputed that he rendered legal services for the latter.
Said general rule, however, is not without

MOLES VS. IAC exceptions. Article 1562 of our Civil Code, which was
January 31, 1989 taken from the Uniform Sales Act, provides:
"Art. 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of the
FACTS: goods, as follows:
Jerry Moles(petitioner) bought from Mariano (1) Where the buyer, expressly or by implication,
Diolosa owner of Diolosa Publishing House a linotype makes known to the seller the particular purpose for
printing machine(secondhand machine). Moles promised which the goods are acquired, and it appears that the
Diolosa that will pay the full amount after the loan from buyer relies on the seller's skill or judgment (whether he
DBP worth P50,000.00 will be released. Private be the grower or manufacturer or not), there is an
respondent on return issued a certification wherein he implied warranty that the goods shall be reasonably fit
warrated that the machine was in A-1 condition, together for such purpose;"
with other express warranties. After the release of the of
the money from DBP, Petitioner required the
Respondent to accomplish some of the requirements. 2. We have to consider the rule on
On which the dependant complied the requirements on redhibitory defects contemplated in Article 1561 of the
the same day. Civil Code. A redhibitory defect must be an imperfection
or defect of such nature as to engender a certain degree
On November 29, 1977, petitioner wrote private of importance. An imperfection or defect of little
respondent that the machine was not functioning consequence does not come within the category of
properly. The petitioner found out that the said machine being redhibitory.
was not in good condition as experts advised and it was
worth lesser than the purchase price. After several
telephone calls regarding the defects in the machine, As already narrated, an expert witness for
private respondent sent two technicians to make the petitioner categorically established that the machine
necessary repairs but they failed to put the machine in required major repairs before it could be used. This,
running condition and since then the petitioner wan plus the fact that petitioner never made appropriate use
unable to use the machine anymore. of the machine from the time of purchase until an action
was filed, attest to the major defects in said machine, by
reason of which the rescission of the contract of sale is
ISSUE/S: sought. The factual finding, therefore, of the trial court
that the machine is not reasonably fit for the particular
1. Whether there is an implied warranty of its purpose for which it was intended must be upheld, there
quality or fitness. being ample evidence to sustain the same.

Electrolux’s branch manager offered to change the water

At a belated stage of this appeal, private purifier with another brand or any of its appliance of the
respondent came up for the first time with the contention unit in her favor. Petitioner did not accept it as she was
that the action for rescission is barred by prescription. disappointed with the original unit which did not perform
While it is true that Article 1571 of the Civil Code as warranted.
provides for a prescriptive period of six months for a
redhibitory action, a cursory reading of the ten preceding
articles to which it refers will reveal that said rule may be ISSUE:
applied only in case of implied warranties. The present
case involves one with an express warranty. Whether or not the petitioner is entitled to
Consequently, the general rule on rescission of contract, rescind the contract on the basis of a violation of the
which is four years shall apply. Considering that the warranty of the article delivered by the respondent
original case for rescission was filed only one year after HELD:
the delivery of the subject machine, the same is well
within the prescriptive period. This is aside from the YES. At the time the Electrolux Aqua Guard
doctrinal rule that the defense of prescription is waived water puritier was delivered and installed at petitioner
and cannot be considered on appeal if not raised in the Villostas’ residence a Warranty Certificate was issued by
trial court, and this case does not have the features for private respondent Electrolux which provides that the
an exception to said rule. product will perform efficiently for one full year from date
of original purchase.
VILLOSTAS VS. CA
June 26, 1992 It clearly expresses warranty regarding the
efficiency of the water purifier. On this regard, while it is
FACTS: true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action,
Petitioner Villostas and her husband placed an a cursory reading of the ten preceding articles to which it
order for one unit of water purifier from private refers will reveal that said rule may be applied only in
respondent’s Electrolux sales agents. Private case of implied warranties. The present case involves
respondent’s sales agents assured petitioner of the very one with an express warranty.
special features of their brand of water purifier. On
September 13, 1986, an Electrolux Aqua Guard Water Anent the jurisdictional competence of the
purifier was delivered and installed at petitioner’s Metropolitan Trial Court to order rescission of contract,
residence. Petitioner signed the Sales Order and the suffice it to say that the action was initiated by herein
Contract of Sale with Reservation of Title in October private respondent Electrolux when it filed a complaint
1986. A warranty certificate was issued by private for collection of a sum of money worth P14,540.00,
respondent which provides that the product will perform against petitioner Villostas. Said amount is indubitably
efficiently for one full year from date of original purchase. within the jurisdiction of the Metropolitan Trial Court
The purchase of said unit was on installment basis under since it does not exceed P20,000.00 exclusive of interest
which petitioner would pay the amount of P16,190.00 in and costs but inclusive of damages of whatever (Maceda
20 monthly installments of P635.00 a month. However, v. CA, G.R. No. 83545, 176 SCRA 440 [1989]).
after two (2) weeks, petitioner verbally complained about Moreover, the jurisdiction of the court over the subject
the impurities, dirtiness and bad odor coming out of the matter is determined by the allegations of the complaint
unit. Thus, private respondent Electrolux changed the irrespective of whether or not the plaintiff is entitled to
filter of the unit. Petitioner complained for the second recover upon all or some of the claims asserted therein
and third time when dirty water still came out of the (Caparros v. CA, G.R. No. 56803, 170 SCRA 758
water purifier after the replacement of the filter. It was on [1989]). When the petitioner, therefore, raised rescission
the third complaint of petitioner when the service of contract in her answer, the court is not divested of its
technician gave advise that the filter should be changed jurisdiction over the case on account of defenses raised
every six (6) months costing about P300.00 which was by the answer. The court is then merely authorized to
considered to be uneconomical by the former. receive evidence thereon (Dela Cruz v. Bautista, G.R.
No. 39692, 186 SCRA 517, [1990]). Clearly, the
On December 9, 1986, petitioner sent a letter to jurisdiction of the court cannot be made to depend upon
the private respondent’s branch manager stating therein the defenses set up in the answer or upon the motion to
her complaint that the actual performance of the carbon dismiss. Otherwise, the question of jurisdiction would
filter was only for a month instead of the private depend almost entirely upon the defendant (Caparros v.
respondent’s claim that the replacement of such filter will CA, supra.).
be only once every six (6) months. The petitioner, citing
the above incident as uneconomical, decided to return SPOUSES UY VS. ARIZA
the unit and demand a refund for the amount paid.

ISSUE:
FACTS:
Whether or not the remedy of the petitioners is
Spouses Uy, petitioners, purchased 200 square an action fro enforcement of warranty against eviction?
meters of the parcel of land from respondents. The
contract stipulated that petitioners had the right of choice
to designate which portion of the land would be the HELD:
subject of the sale. Petitioners exercised their right to
choose within two to three months from the sale, Yes. It is a clear case of eviction. The case for
informing respondents that they have selected and in specific performance which was filed by petitioners
fact occupied around 200 square meters of a portion of against respondents is not the proper remedy in this
land. petitioners purchased another 200 square meters case. Rather, said action was purely an afterthought on
of the same land with the same option to choose which the part of petitioners when they were eventually evicted
portion. They selected and occupied an adjoining portion from the lots they bought fromrespondents. The facts of
to the lot in their first sale appears that the parcels of the case are very clear. Petitioners bought from
land petitioners had chosen and occupied were already respondents a 200 square meter lot which was part of a
titled in the names of the Delgados. bigger parcel of land registered in the names of
respondents, and which petitioners immediately took
However, the parcels of land petitioners had possession of. After a year, petitioners again bought
chosen and occupied were already titled in the names of from respondents and took possession of the adjacent
the Delgados. Petitioners were sued for unlawful lot also measuring 200 square meters. Since the sale,
detainer by the Delgados. Then, petitioners entered into petitioners had been in peaceful possession of the lots
a compromise agreement with the Delgados and until they were evicted from the same by third persons
surrendered possession of the subject parcels of land. claiming to be the owners for the enforcement of
Petitioners compromised the case without giving notice warranty against eviction and not one for specific
to respondents. performance.
Thereafter, petitioners demanded from Thus, the action for specific performance filed
respondents that they be allowed to choose again from by petitioners against respondents must necessarily fail.
said property. When respondents refused, petitioners If at all, petitioners may file an action for the enforcement
filed a case for specific performance with delivery of of warranty in case of eviction which every vendor of a
possession of real property and damages. Petitioners parcel of land is enjoined by law to guarantee as
anchored their claim for specific performance on the provided under Article 1548 of the New Civil Code:
averment that they could not exercise their right to
choose the portion bought from the parcel ofland afore- Art. 1548. Eviction shall take place
described because the portion pointed out by the whenever by a final judgment based on a right
petitioners were already sold and claimed by third prior to the sale or an act imputable to the
persons. vendor, the vendee is deprived of the whole or
part of the thing purchased. The vendor shall
Respondents filed their answer and by way of answer for the eviction even though nothing has
special and affirmative defenses alleged that they had been said in the contract on the subject.
already complied with their obligation to deliver, as
petitioners had already chosen and been in possession The contracting parties, however, may increase,
of the parcels of land they chose. Respondents also diminish or suppress this legal obligation of the
faulted petitioners for losing possession of the parcels of vendor.But even if [petitioners] would file an action for
land by entering into a compromise agreement with the the enforcement of warranty in case of eviction against
Delgados on two grounds: first , because [respondents], We are afraid that the same will not
respondents have allegedly initiated the necessary legal prosper. The records of the case reveal that the unlawful
steps to defend their possessory rights to the disputed detainer case filed by third persons against [petitioners],
land by filing a case for the declaration of nullity of the which led to the ouster of the latter
title of the Delgados, and second , because from the subject lots, was decided by compromise
petitioners failed to interpose a third-party complaint to agreement without impleading [respondents] as third-
implead respondents in the unlawful detainer case. The party defendants. It should be stressed that in order for
RtC dismissed the complaint. The Ca affirmed the the case to prosper, it is a precondition that the seller
decision of the RtC. must have been summoned in the suit for the eviction of
the buyer. This rule is provided under the provisions of
Articles 1558 and 1559 of the New Civil Code, to wit:

Art. 1558. The vendor shall not be while if it based on an express warranty[,] the action
obliged to make good the proper warranty, prescribes in four (4) years. Under RA No. 7394, the
unless he is summoned in the suit for eviction at implied warranty cannot be more than one (1) year;
the instance of the vendee. however, the implied warranty can only be of equal
duration to that an express warranty when the implied
Art. 1559. The defendant vendee shall warranty of merchantability accompanies an express
ask, within the time fixed in the Rules of Court warranty (Art. 68, par. [e]). Therefore, the prescriptive
for answering the complaint, that the vendor be period of two years under Art. 169 does not cover an
made a co-defendant. implied warranty, which is not accompanied by an
express warranty. It is applicable to cases where there is
In order that a vendor’s liability for eviction may an express warranty in the sale of the consumer product.
be enforced, the following requisites must concur – a)
there must be a final judgment; b) the purchaser has Since the case was filed almost nineteen (19)
been deprived of the whole or part of the thing sold; c) months from [the] sale and/or delivery. Applying Art.
said deprivation was by virtue of a right prior to the sale 1571 of Civil Code, the action is barred by prescription
made by the vendor; and d) the vendor has been because the complaint was filed more than six (6)
summoned and made co-defendant in the suit for months after the sale and/or delivery of the vehicle. In
eviction at the instance of the vendee. In the case at addition, the duration of the implied warranty of not more
bar, the fourth requisite – that of being summoned in the than one (1) year under Art. 68, par (e) of RA No. 7394
suit for eviction at the instance of the has already elapsed.
vendee – is not present.
DE GUZMAN VS. TOYOTA
FACTS: ISSUE:
Petitioner purchased from respondent a brand Whether the action of the petitioner has
new white Toyota Hi-Lux 2.4 SS double cab motor prescribed.?
vehicle, 1996 model, in the amount of P508,000.
Petitioner made a down payment of P152,400, leaving a
balance of P355,600 which was payable in 36 months
with 54% interest. The vehicle was delivered to HELD:
petitioner two days later. On October 18, 1998,
petitioner demanded the replacement of the engine of Petitioner’s argument is erroneous. Article 1495
the vehicle because it developed a crack after traversing of the Civil Code states that in a contract of salethe
Marcos Highway during a heavy rain. Petitioner vendor is bound to transfer the ownership of and to
asserted that respondent should replace the engine with deliver the thing that is the object of sale. Corollarily, the
a new one based on an implied warranty. Respondent pertinent provisions of the Code set forth the available
countered that the alleged damage on the engine was remedies of a buyer against the seller on the basis of a
not covered by a warranty. warranty against hidden defects:
Petitioner filed a complaint for damages against Art. 1561. The vendor shall be responsible
respondent with the RTC. Respondent moved to for warranty against the hidden defects which the
dismissthe case on the ground that under Article 1571 of thing sold may have, should they render it unfit for the
the Civil Code, the petitioner’s cause of action had use for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the
prescribed as the case was filed more than six months vendee been aware thereof, he would not have
from the date the vehicle was sold and/or delivered The acquired it or would have given a lower price for it; but
RTC dismissed the complaint and affirmed by the CA. said vendor shall not be answerable for patent defects
Since no warranty card or agreement was attached to or those which may be visible, or for those which are
the complaint, the contract of sale of the subject pick-up not visible if the vendee is an expert who, by reason
carried an implied warranty that it was free from any of this trade or profession, should have known them.
hidden faults or defects, or any charge or encumbrance
not declared or known to the buyer. The prescriptive Art. 1566. The vendor is responsible to the
period thereof is six (6) months under the Civil Code vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof. This
(Art. 1571). provision shall not apply if the contrary has been
stipulated and the vendor was not aware of the
According to the RTC and CA, in the Civil Code, hidden faults or defects in the thing sold.
a redhibitory action for violation of an implied warranty
against hidden defects prescribes in six (6) months,

Art. 1571. Actions arising from the registration, because of the non-lifting of the alert status
provisions of the preceding ten articles shall be barred issued at its instance. That petitioner had to execute all
after six months from the delivery of the thing sold. documents necessary to confer a perfect title to him
before he could seek recourse to the courts was deemed
Under Article 1599 of the Civil Code, once an express a ludicrous condition precedent, because it could easily
warranty is breached, the buyer can accept or keep the refuse to fulfill that condition in order to obviate the filing
goods and maintain an action against the seller for of a case against it.
damages. In the absence of an existingexpress
warranty on the part of the respondent, as in this case,
the allegations in petitioner’s complaint for damages ISSUE:
were clearly anchored on the enforcement of an implied
warranty against hidden defects, i.e ., that the engine of Whether or not petitioner breach the implied
the vehicle which respondent had sold to him was not warranty against hidden encumbrances?
defective. By filing a case, petitioner wants to hold
respondent responsible for breach of implied warranty
for having sold a vehicle with defective engine. Such HELD:
being the case, petitioner should have exercised this
right within six months from the delivery of the thing sold Petitioner did not brech the implied warranty
more than nineteen months from the date of the delivery against hidden encumbrances. Petitioner did not breach
of the motor vehicle, his cause of action had become the implied warranty against hidden encumbrances. The
time-barred. subject vehicle that had earlier been stolen by a third
party was subsequently recovered by the authorities and
GOODYEAR PHILIPPINES VS. SY restored to petitioner, its rightful owner. Whether Sy had
knowledge of the loss and subsequent recovery, the fact
FACTS: remained that the vehicle continued to be owned by
petitioner, free from any charge or encumbrance
The vehicle was originally owned by Goodyear whatsoever.
Philippines, which it purchased from Industrial and
Transport Equipment, Inc. in 1983. It had been used by The Complaint did not allege that petitioner had
the petitioner since been in the service when it was a creditor with a legal right to or interest in the subject
hijacked. This hijacking was reported to the Philippine vehicle. There was no indication either of any debt that
National Police which issued out an alert alarm on the was secured by the vehicle. In fact, there was not even
said vehicle as a stolen one. It was later on recovered any claim, liability or some other right attached to the
and sold to respondent Sy and later sold to Jose Lee. vehicle that would lessen its value. Its impoundment, as
But the Lee filed an action for rescission of contract with well as the refusal of its registration, was not the
damages against Sy because he could not register the hindrance or obstruction in the contemplation of law that
vehicle in his name due to the certification from the PNP the vendor warranted against. Neither of those
Regional Traffic Management Office that it was a stolen instances arose from any liability or obligation that could
vehicle and the alarm covering the same was not lifted. be satisfied by a legal claim or charge on, or property
Instead, the PNP impounded the vehicle and charged right to -- other than an ownership interest in -- the
Lee criminally. subject vehicle.
Petitioner was impleaded as the third party Assuming that there was a breach of the
defendant by Sy. A motion to dismiss was filed by implied warranty against hidden encumbrances, notice
petitioner on the twin grounds that the complaint failed to of the breach was not given to petitioner within a
state a cause of action and even if it did, such cause of reasonable time. Article 1586 of the Civil Code
action was already extinguished. The RTC granted the requirethat notice be given after the breach, of which Sy
motion of the petitioner. However, the CA reversed the ought to have known. In his Complaint against
RTC and reasoned that the Complaint had stated a petitioner, there was no allegation that respondent had
cause of action. Because petitioner did not make given petitioner the requisite notice. More important, an
good its warranty in the Deed of Sale: to convey the action for damages for a breach of implied warranties
vehicle to Respondent Anthony Sy free from all liens, must be brought within six months rom the delivery of
encumbrances and legal impediments. The reported the thing sold.The vehicle was understood to have been
hijacking of the vehicle was a legal impediment that delivered to Sy when it was placed in his control or
prevented its subsequent sale. And also Respondent Sy possession. Upon execution of the Deed of Sale, control
had a right to protect and a warranty to enforce, while and possession of the vehicle was transferred to
petitioner had the corresponding obligation to honor that respondent. That the vehicle had been delivered is
warranty. The latter caused the impairment of that right, bolstered by the fact thatno contrary allegation was
though, when the vehicle it had sold to him was refused raised in the Third-Party Complaint. Whether the period

should be reckoned from the actual or from the of the civil code, which provides: Conventional
constructive delivery through a public instrument, more redemption shall take place when the vendor reserves
than six months had lapsed before the filing of the the right to repurchase the thing sold, with the obligation
Complaint. to comply with the provisions of art 1616 and other
stipulation which may have agreed upon.
Moreover, the argument that there was a
breach of the implied warranty against eviction does not The right of repurchase is not a right granted by
hold water, for there was never any final judgment based the vendor by the vendee in a subsequent instrument
on either a right prior to the sale; or an act that could be but is a right reserved by the vendor in the same
imputed to petitioner and deprive Sy of ownership or instrument of sale as one of the stipulations of the
possession of the vehicle purchased. contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to
repurchase and any right thereafter granted to the
VILLARICA VS. CA vendor by the vendee in a separate instrument cannot
be a right of repurchase but some other right lie the
option to buy. Since the instrument granted an option to
FACTS: buy, the extension of the period of one year for the
exercise of the option by one month does not fall under
Spouses Villarica sold to the spouses no.3 of Art 1602 of Civil code, which provides that: when
Monteverde a lot containing an area of 1,174 upon or after the expiration of the right to repurchase
squaremeters situated in dvao for the price of P35,000. another instrument extending the period of redemption
On the same day, spouses consunji executed another or granting a new period is executed.
public instrument whereby they granted the spouses
Villarica an option to buy the same property within a IRENEO LEAL vs. IAC
period of one year for the price of P37,000. The Spouses
Consunji registered the absolute deed of sale in FACTS:
consequence of which the proerty was cancelled in the
name of spouses Villarica and issued in favor them. The On March 21, 1941, when a document entitled
spouses consunji sold the property to Jovito Francisco "Compraventa," written entirely in the Spanish language,
for the price of P47,000 by means of public instrument involving three parcels of land, was executed by the
of sale. Then the TCT was issued in the name of Jovito private respondent's predecessors-ininterest, Vicente
Francisco. Santiago and his brother, Luis Santiago, in favor of
Cirilio Leal the deceased father of some of the
Spouses Villarica brought an action in the CFI petitioners, Pursuant to this "Compraventa," the title over
of davao against the Spouses Consunji and Jovito the three parcels of land in the name of the vendors was
Francisco for the reformation of the instrument of cancelled and a new one was issued in the name of
absolute sale into an equitable mortgage as a security Cirilo Leal who immediately took possession and
from a usurious loan of P28,000 alleging that such was exercised ownership over the said lands. When Cirilo
the real intention of the parties. Defendants answered died on December 10, 1959, the subject lands were
that the deed of absolute sale expressed the real inherited by his six children, who are among the
intention of the parties and they also alleged a petitioners, and who caused the consolidation and
counterclaim for sums of money borrowed by Spouses subdivision of the properties among themselves.
Villaricas from the spouses consunjs which were Between the years 1960 and 1965, the properties were
then due and demandable. either mortgaged or leased by the petitioners-children of
ISSUE: Cirilo Leal.
Whether the instrument is a contract of sale with Sometime before the agricultural year 1966-
pacto de retro sale or an option to buy? 1967, Vicente Santiago approached the petitioners and
offered re- repurchase the subject properties.
HELD: Petitioners, however, refused the offer. Consequently,
Vicente Santiago instituted a complaint for specific
The Instrument is a contract of sale with an performance .
option to buy. The spouses as the new owners of the
property granted the spouses Villaricas an option to buy At the trial, the court a quo rendered its
within the period of one year from the execution of the decision,-dismissing the complaint on the ground that
instrument. Said option to buy is different and distinct the same was still premature considering that there was,
from the right to repurchase which must be reserved by as yet, no sale nor any alienation equivalent to a sale.
the vendor, by stipulation to that effect, in the contract of
sale. This is clear from article 1601

However, It is admitted by both parties that the be exercised within ten years, because the law does not
phrase "they shall not sell to others these three lots but favor suspended ownership. Since the alleged right to
only to the seller Vicente Santiago or to his heirs or repurchase was attempted to be exercised by Vicente
successors" is an express prohibition against e sale of Santiago only in 1966, or 25 years from the date of the
the lots described in the "Compraventa" to third persons contract, the said right has undoubtedly expired.
or strangers to the contract. SPOUSES BUCE VS. CA
.
FACTS:
ISSUE:
Plaintiffs were the registered owners of three
Whether or not under the aforequoted paragraph parcels of land one of which is situated at Cainta Taytay,
(b) of the "Compraventa" a right of repurchase in favor of Rizal, and the other two situated at Pandacan, Manila,
the private respondent exist? which they mortgaged with Monte de Piedad & Savings
Bank to secure a loan of Pl78,953.37. When the loan
matured, plaintiffs could not pay, so, the mortgage was
foreclosed by the Monte de Piedad & Savings Bank.
HELD:
Plaintiffs sold to the defendants-spouses the
No. The law provides that for conventional afore-mentioned properties, together with all the
redemption to take place, the vendor should reserve, in improvements therein for a consideration of Pl79,000.00,
no uncertain terms, the right to repurchase the thing and the transaction is covered by a Deed of Sale. The
sold. Thus, the right to redeem must be expressly consideration of the deed of sale was used by plaintiffs
stipulated in the contract of sale in order that it may have to repurchase the foreclosed propertiesfrom the Monte
legal existence. de Piedad & Savings Bank. After the foreclosed
properties were repurchased by the plaintiffs, they were
There can be no express or implied grant of a simultaneously sold and delivered to the defendants-
right to repurchase, nor can we infer, from any word or spouses as previously stated, by virtue of a deed of sale.
words in the questioned paragraph, the existence of any
such right. The phrase "in case case" of should be Plaintiffs filed the case for reformation of the
construed to mean "should the buyers wish to sell which deed of sale with damages. They alleged that although
is the plain and simple import of the words, and not "the there is an absolute deed of sale, it does not reflect or
buyers should sell," which is clearly a contorted express the true intention between the parties by reason
construction of the same phre. The resort to Article 1373 of fraud and/or inequitable conduct on the part of the
of the Civil Code of the Philippines is erroneous. The defendants, citing article 1369 of the Civil Code.That the
subject phrase is patent and unambiguous, hence, it amount of P179,000.00, as consideration of the alleged
must not be given another interpretation deed of sale, was only a loan extended by defendants to
plaintiffs, and that the properties described therein were
But even assuming that such a right of mortgaged to secure the loan. That the verbal
repurchase is granted under the "Compraventa," the understanding was for plaintiffs to pay a monthly interest
petitioner correctly asserts that the same has already of P4,000.00, and that defendants actually paid the
prescribed. Under Art. 1508 of the Civil Code of Spain amount of P20,000.00 as interest.
(Art,. 1606 of the Civil Code of the Philippines), the right
to redeem or repurchase, in the absence of an express The trial court dismissed the complaint
agreement as to time, shall last four years from the date
of the contract. In this case then, the right to repurchase, The plaintiffs appealed to the court of appeals
if it was at four guaranteed under in the "Compraventa," which set aside the trial court's decision, and declared
should have been exercise within four years from March the subject document, denominated as Deed of Sale, as
21, 1941 (indubitably the date of execution of the one of real estate mortgage.
contract), or at the latest in 1945.
ISSUE:
It is further ruled that the right to repurchase
was given birth by the condition precedent provided for Whether or not the contract entered into
in the phrase "siempre y cuando estos ultimos pueden between the petitioners and private respondent is one of
hacer la compra" (when the buyer has money to buy). In real estate mortgage?
other words, it is the respondent court's contention that HELD:
the right may be exercised only when the buyer has
money to buy. If this were so, the second paragraph of Yes. The consideration of the supposed sale
Article 1508 would apply — there is agreement as to the in the amount of P179,000.00 is inadequate. Thus,
time, although it is indefinite, therefore, the right should

the most logical conclusion that may be derived from the executed a promise to sell the property in favor of the
foregoing is that the P179.000 pesos was, in Ferreras for P30,000.00 within six months.
truth, a loan by the petitioners to the private respondent Notwithstanding, the sale of the property to the
to enable the latter to redeem his property which was Santoses, spouses Ferrera continued in possession of
foreclosed by the bank. Besides, had it been the private the property thru their tenants, the Nazareths. The
respondent's real intention to sell rather than to Santoses informed the Nazareths that they are the new
mortgage, we believe that he could have easily found owners of the property in question and required the latter
buyers for the properties who would be willing and able to pay the rent for the property in question to them but
to pay a price considerably higher than P179,000.00. the Nazareths refused to recognize them as the owner of
the property and continued to deliver the harvest shares
Furthermore, it has been satisfactorily proven to the Ferreras.
that from the time of execution of the contract in issue,
the realty taxes, for the years 1980 and 1981, on the Nearly seven years after, plaintiffs, filed an
three properties objects of the "sale', were still paid by action for breach of warranty and damages against the
the private respondent-apparent vendor. defendants based on the alleged Deed of Absolute Sale.
Article 1602, in relation to Article 1604 of the In defense, the defendants argue that they never
Civil Code finds strong application in the case at hand in intended to sell their land for such an inadequate price
the light of the following attendant circumstances: 1) the and that the transfer certificate of title in favor of
price of the "sale" was unusually inadequate; 2) the Apolonia Santos is null and void, the real contract
apparent vendor remained in possession of the between the parties being one of equitable mortgage
properties "sold;" 3) the vendor continued to pay the only.
taxes on the things 'sold;" and 4) the vendor paid interest
on the supposed consideration of the "sale." The trial court dismissed the complaint and
declared that the transaction is merely an equitable
From these circumstances it may be fairly mortgage.
inferred that the real intention of the parties was to
secure payment of the P179,000 loan extended by the The appellate court affirmed the decision.
petitioners to the respondent.
ISSUE:
SANTOS VS. CA Whether or not the transaction is merely an
equitable mortgage?
FACTS:
HELD:
Defendants Ferrera and Pedronia were the
registered owners of the property in question. The Yes. Article 1370 of the New Civil Code
property had been planted to rice for sometime by provides that; if the terms of contract are clear and leave
defendants Nazareths under a tenancy agreement with no doubt upon the intention of the contracting parties,
Romana Aniana Vda. de Ferrera, predecessor-in- the literal meaning of its stipula petitions shall control. If
interest of defendant Ferrera. the words appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.
On February 1, 1971 defendants Ferrera and Article 1371 of the same code further states that; In
Pedronia executed a deed of sale over the said property order to judge the intention of the contracting parties
in favor of spouses Apolonia and Ruflno Santos for the their contemporaneous and subsequent acts shall be
sum of P22,000,00. Upon the issuance of a new title in principally considered.
the name of vendees the amount of P16,000.00 was
delivered to defendant Ferrera. Simultaneous with the It is an undisputed fact that respondent
execution of the deed of sale, an -instrument entitled spouses were "in dire need of money" to settle certain
Promise to Sell was executed by the spouses Santos in obligations when they entered into the subject
favor of defendants Ferrera, whereby the former transaction with the petitioners. Simultaneous with the
promised to sell back the land in question to the latter for execution of the said document., petitioners executed a
P22,00.00 within a period of six months from February 1, separate document, which is the Promise to Sell for the
1971. same amount of money. From the time the Deed of
Absolute Sale was executed up to the time the action
Defendants Ferrera failed to exercise the right to was instituted in court, respondent spouses continued to
repurchase the property. Spouses Santos executed a remain in actual physical possession of the land in
deed of absolute sale covering the property in question dispute, through their tenants Nazareths who were also
in favor of their daughter Felicitacio for P30,000.00. On made respondents. From the foregoing
the same date, Felicitacion and Gregorio Santos contemporaneous and subsequent acts of the parties,

the trial court found that the contract in issue could not vendor to repurchase, as seen from the two (2) sets of
be deemed to be an absolute sale. The Court agreed Promise to Sell.
with the trial court's findings. The acts of the parties ADORABLE VS INACALA.
indicate the presence of an equitable mortgage.
Equitable mortgage hasbeen defined as one in which FACTS:
although lacking in some formality, form or words or
other requisites demanded by a statute nevertheless Respondent Inacala was the registered owner
reveals the intention of the parties to charge a real of a parcel of land located in barrio Valdefuente,
property as security for a debt, and contains nothing Cabanatuan, Nueva Ecija. On July 1, 1941, through the
impossible or contrary to law. The applicable law, as intervention of Claro Pacis, she executed a deed of sale
found inthe New Civil Code, provides: covering a 15-hectare lot in favor of Arcadio Mendoza for
P420.00. The latter thereupon executed a private
Art. 1602. The contract shall be presumed to be instrument granting said respondent the option to
an equitable mortgage, in any of the repurchase the lot for the same consideration within the
following cases: period of one year from the date of the sale. Mendoza
afterwards sold the property to the spouses Eugenio and
(1) When the price of a sale with right to purchase is Margarita Ramos to whom a transfer certificate of title
unusually inadequate; was issued. The petitioners herein, all surnamed
Adorable, in turn bought the land from the Ramos
(2) When the vendor remains in possession as lessee or spouses, and the corresponding transfer certificate of
otherwise; title was issued.
(3) When upon or after the expiration of the right to Since the first sale in 1941, Inacala, who had
repurchase another instrument not redeemed the land from Mendoza, never
extending the period of redemption or granting a new relinquished the possession thereof. It was only in 1951,
period is executed; during the opening of the Pampanga River Irrigation
Project, when the petitioners attempted to take physical
(4) When the purchaser retains for himself a part of the possession through one Geronimo Fajardo, who leased
purchase price; it from them, that said petitioners were apprised for the
first time of Inacala's claim over the lot.
(5) When the vendor binds himself to pay the taxes on
the thing sold; ISSUE:
(6) In any other cases where it may be fairly inferred that
the real intention of the parties Whether or not the deed of sale between respondent
is that the transaction shall secure the payment of a debt Inacala and Mendoza should be given the effect of a
or the performance of any other mere pacto de retro sale and should be permitted the
obligation. right to repurchase under Article 1606?
HELD:
Article 1604 of the same Code, which reads:
No. The Court of Appeals erred in applying the
Art. 1604. The provisions of article 1602 shall third paragraph of Article 1606 of the new Civil Code.
also apply to contract purporting to be an This provision refers to cases involving a transaction
absolute sale. where one of the parties contests or denies that the true
agreement is one of sale with right of repurchase. In this
Firstly, it was found that the lot in question is case, the sale is expressly with right to repurchase
located within the town proper ofPasig, Metro Manila, granting respondent Inacala the right to redeem within
behind the elementary school of Caniogan, Pasig, Metro one year. As this stipulated period
Manila. Petitioner himself admitted the fact that the has expired without said respondent having redeemed
subject lot is within the town proper of Pasig, Being so, it the land in question, the original purchaser, Arcadio
could thus easily command a much higher price than Mendoza, had irrevocably acquired ownership over the
P22,000.00, considering further that the same measures property in accordance with Article 1509
about 2,221.86 square meters, more or less. Secondly, it of the old Civil Code which was in force at the time of the
was clearly established that the private respondents, transaction in dispute.
through their tenant, remained in physical possession of
the land. Thirdly, the respondent court noted thatthere BANDONG VS AUSTRIA
had always been an extension of the period to
repurchase arising from the fact that there were two (2) FACTS:
sets of deed of sale and with a period given to the

On the 29th of April, 1905, the plaintiffs sold to had a perfect right to do, and the judgment of the trial
Antonio Ventenilla, since deceased, a parcel of land for court which denies their right to enforce the terms of
the sum of P350, expressly reserving a right to their contract on the ground that the period of
repurchase under and in accordance with the terms of redemption had expired by statutory limitation cannot,
the deed of sale. therefore, be sustained.
The written contract contained the following BAYQUEN VS. BOLORO

stipulation:
FACTS:
We also set forth that one of the promises
we have made to Don Antonio is that we will This is an appeal from the decision of the then
repurchase this land at the same price; neither of us Court of First Instance of Abra dismissing the complaint
make any stipulation as to interest on the money or of plaintiffs-appellants against defendant-appellee.
products of the land, but in the month of March of any
year, if we repurchase.The vendors offered to
repurchase in the month of March, 1913, but this offer On January 16, 1954, appellants sold the land
was declined on the ground that the right to under question to the appellee, reserving their right to
repurchase had prescribed. repurchase the said land within four (4) years. The
plaintiffs-appellants failed to repurchase the land within
The court was of opinion that the right to the four-year period. They now assert their right to
repurchase expired at the end of four years from the repurchase the subject property after more than thirteen
date of the contract, relying in support of this ruling on (13) years.
the provisions of article 1508 of the Civil Code. In case
of stipulation, the period of redemption shall not exceed The trial court ruled that the vendors-appellants
ten years. have lost their right to repurchase the land under
controversy and that by operation of law, ownership of
such land had become consolidated in the vendee-
ISSUE: appellee.
Whether or not the right to repurchase had The plaintiffs-appellants appealed the decision,
already prescribed? alleging that the trial court erred in holding that there is
no dispute between the parties regarding the nature of
HELD: the purported "deed of sale with right to repurchase" and
that actually the transaction is a mortgage. Defendant-
No. The statutory limitation upon the right of appellee refutes this by putting up the claim that the fact
repurchase to a period of four years is not applicable to that the contract is in truth a deed of sale with right to
the contract under consideration, that limitation being repurchase has been admitted by appellants and the
applicable only to cases wherein there is no express same has been stipulated upon by the parties.
agreement touching the date of redemption.
ISSUE:
The parties having expressly agreed that the
vendors should have the right to repurchase in the Whether or not the transaction is indeed a
month of March of any year after the date of the mortgage?
contract, the only statutory limitation placed upon them
in the exercise of that right is the limitation found in the HELD:
second paragraph of article 1508 of the Civil Code cited
above, which limits the power of the vendor, even by No. The trial court's finding that the contract is
express agreement, to reserve a right to repurchase for not an equitable mortgage but a deed of sale with right
a longer period than ten years. We conclude, therefore, to repurchase is correct. The purchase price as
that the provisions of the contractof sale, whereby the P2,000.00 for a parcel of land, partly riceland and partly
parties undertook by express agreement to secure to the pasture land, with an assessed value of P440.00. Based
vendors a right to repurchase in the month of March of on the size, productivity and accessibility, the price of
any year after the date of the contract, were valid and P2,000.00 for said parcel is adequate.
binding upon the parties for a period of ten years from
the date of the contract but wholly without force and The vendee admittedly took immediate
effect thereafter. possession after the execution of the contract; no
extension of the period of redemption, at or after its
It is admitted that the vendors offered to repurchase expiration, was made. The vendee did not retain any
the land in question in the month of March, 1913, less part of the purchase price. The sum of Two Hundred
than eight years from the date of the contract. This they Fifty Pesos (P250.00) claimed by vendors-plaintiffs to be

delivered to them is not part of the purchase price incapacitated to participate in the administration of the
retained by the vendee, but merely the excess of the conjugal properties. However, Teodoro filed his
value of the yearly crops over the purchase price opposition to the proceedings being unaware and not
resulting from the computation of the plaintiffs. The knowing that a decision has already been rendered on
vendee has declared the property under his name and the case. He also questioned the propriety of the sale of
paid the corresponding real estate taxes, and there is no the lot and its improvements thereon supposedly to pay
circumstance by which the Court could fairly infer that the accumulated financial obligations and hospitalization.
the transaction was intended by the parties to secure the
payment of a debt or loan. There is no doubt as to the
true nature of the transaction and it was, the Court finds, ISSUE:
a contract of sale with right to purchase.Besides, not one
of the instances enumerated in Article 1602 of the Civil Whether petitioner Gilda L. Jardeleza may
Code (re presumption that the contract is one of assume sole powers of administration of the conjugal
equitable mortgage) exists in this case. Appellants also property?
insist that the trial court erred in holding that the
ownership over the property in question consolidated by
operation of law in the defendant-appellee immediately HELD:
after plaintiffs-appellants failed to repurchase the
property within four years. The Court had already ruled Article 124 of the Family Code provides as
in Rosario vs. Rosario that where the contract between follows:
the parties is admitted and which has been stipulated by
the parties to be a deed of sale with right to repurchase, “ART. 124. The administration and
there should be no issue or dispute about the effects enjoyment of the conjugal partnership property shall
thereof that once there is failure to redeem within the belong to both spouses jointly. In case of
stipulated period, ownership thereof becomes vested or disagreement, the husband’s decision shall prevail,
subject to recourse to the court by the wife for a
consolidated by operation of law on the vendee. Any proper remedy which must be availed of within five
other interpretation would be violative of the sanctity of years from the date of the contract implementing such
the contract between the parties. decision.
SPS. JOSE UY VS. CA and TEODORO L.

JARDELEZA
G.R. No. 109557. November 29, 2000
“In the event that one spouse is incapacitated or

FACTS: otherwise unable to participate in the administration of
the conjugal properties, the other spouse may assume
Teodoro Jardeleza, petitioner, filed a petition in sole powers of administration. These powers do not
the matter of the guardianship of Dr. Ernesto Jardeleza, include the powers of disposition or encumbrance which
Sr., upon learning that one piece of real property must have the authority of the court or the written
belonging to the latter spouses was about to be sold. consent of the other spouse. In the absence of such
The petitioner averred therein that the present physical authority or consent, the disposition or encumbrance
and mental incapacity of Dr. Ernesto Jardeleza Sr. shall be void. However, the transaction shall be
prevent him from competently administering his construed as a continuing offer on the part of the
properties, in order to prevent the loss and dissipation of consenting spouse and the third person, and may be
the Jardeleza’s real and personal assets, there was a perfected as a binding contract upon the acceptance by
need for a court-appointed guardian to administer said the other spouse or authorization by the court before the
properties. offer is withdrawn by either or both offerors.”
Gilda Jardeleza, respondent, filed a petition In regular manner, the rules on summary judicial
regarding the declaration of incapacity of Dr. Ernesto proceedings under the Family Code govern the
Jardeleza Sr., assumption of sole powers of proceedings under Article 124 of the Family Code. The
administration of conjugal properties and authorization to situation contemplated is one where the spouse is
sell the property. She alleged that her husband’s medical absent, or separated in fact or has abandoned the other
treatment and hospitalization expenses were piling up or consent is withheld or cannot be obtained. Such rules
and that she need to sell one piece of real property and do not apply to cases where the non-consenting spouse
its improvements. She prayed for authorization from the is incapacitated or incompetent to give consent. In this
court to sell said property. case, the trial court found that the subject spouse "is an
RTC of Iloilo City rendered its decision, finding that it incompetent" who was in comatose or semi-comatose
was convinced that Dr. Ernesto Jardeleza Sr. was truly condition, a victim of stroke, cerebrovascular accident,
without motor and mental faculties, and with a diagnosis
of brain stem infarct. In such case, the proper remedy is

a judicial guardianship proceeding under Rule 93 of the
1964 Revised Rules of Court. ISSUE:
In the case at bar, the trial court did not comply Whether Socorro Rosales may redeem the
with the procedure under the Revised Rules of Court. property?
Indeed, the trial court did not even observe the
requirements of the summary judicial proceedings under
the Family Code. Thus, the trial court did not serve
notice of the petition to the incapacitated spouse; it did HELD:
not require him to show cause why the petition should
When their interest in the property was sold by
not be granted.
the Burdeos heirs to petitioner, a right of redemption
ZOSIMA VERDAD VS. CA arose in favor of private respondents; thus:
“ART. 1619. Legal redemption is the right to

G.R. No. 109972. April 29, 1996 be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or
FACTS: by any other transaction whereby ownership is
transmitted by onerous title.”
The petitioner, Zosima Verdad, is the purchaser
of a 248-square meter residential lot located in Butuan “ART. 1620. A co-owner of a thing may
city. Private respondent, Socorro Cordero Vda. de exercise the right of redemption in case the shares of
all the other co-owners or of any of them, are sold to a
Rosales, seeks to exercise a right of legal redemption
third person. If the price of the alienation is grossly
over the subject property and traces her title to the late excessive, the redemptioner shall pay only a
Macaria Atega, her mother-in-law, who died intestate on reasonable one.”
08 March 1956.
We hold that the right of redemption was timely
During her lifetime, Macaria contracted two exercised by private respondents. Concededly, no
marriages: the first with Angel Burdeos and the second, written notice of the sale was given by the Burdeos heirs
following the latter’s death, with Canuto Rosales. At the (vendors) to the co-owners required under article 1623
time of her own death, Macaria was survived by her son of the Civil Code –
Ramon A. Burdeos and her grandchild (by her daughter
Felicidad A. Burdeos) Estela Lozada of the first marriage ”ART. 1623. The right of legal pre-emption
and her children of the second marriage, namely, David or redemption shall not be exercised except within
Rosales, Justo Rosales, Romulo Rosales, and Aurora thirty days from the notice in writing by the
Rosales. prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the
Socorro Rosales is the widow of David Rosales Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice
who himself, sometime after Macaria’s death, died
thereof to all possible redemptioners.”
intestate without an issue. In an instrument, dated 14
June 1982, the heirs of Ramon Burdeos sold to Hence, the thirty-day period of redemption had
petitioner Zosima Verdad (their interest on) the disputed yet to commence when private respondent Rosales
lot. sought to exercise the right of redemption on 31 March
1987, a day after she discovered the sale from the Office
Socorro discovered the sale. She sought for the
of the City Treasurer of Butuan City, or when the case
redemption of the property. She tendered the purchase
was initiated, on 16 October 1987, before the trial court.
price of P23,000.00 to Zosima. The latter refused to
accept the amount for being much less than the lot’s The written notice of sale is mandatory. This
current value of P80,000.00. No settlement having been Court has long established the rule that notwithstanding
reached before the Lupong Tagapayapa, private actual knowledge of a co-owner, the latter is still entitled
respondents, on 16 October 1987, initiated against to a written notice from the selling co-owner in order to
petitioner an action for “Legal Redemption with remove all uncertainties about the sale, its terms and
Preliminary Injunction” before the Regional Trial Court of conditions, as well as its efficacy and status.
Butuan City.
FALLO: Petition DENIED.
The RTC ruled that the right to redeem the
property had already lapsed. On appeal, the CA
reversed the lower court’s decision and held that
Rosales may redeem the inheritance right.

prosper. Hence, after only about a year of operation,

Villa decided to close it down.
Mrs. Zenaida Domingo indicated her interested

in taking over his restaurant business. Negotiations
pushed through and the price of P650,000.00 was
agreed upon between the two. Villa, however, informed
Mrs. Domingo that as a mere sub lessee under his
sublease contract with BPI-FSB, he was prohibited from
assigning his rights as a sub lessee. It was, therefore,
necessary to rescind his sublease contract with BPI-FSB
so that the latter could directly execute a sublease
contract with the Domingo spouses. Villa informed the
principal lessee BPI-FSB about the arrangement and the
latter acceded.
On the very same day, Villa vacated the subject

premises and turned over the key thereof to the
Domingos. The following day - June 27, 1990 - the
Domingos went to clean and fix the premises but could
not enter because the door was padlocked. Apparently,
Julian Cruz, the owner-lessor, preempted the Domingos'
in entering the premises.
The Domingos thus demanded of Villa either

compliance with their contract of sublease or the return
LEASE of their payment of P650,000.00. Efforts exerted by Villa
and BPI-FSB to place the Domingos in possession of the
subject premises proved futile due to the refusal of Cruz
to open the same.
BPI-FAMILY SAVINGS BANK VS. SPS. ZENAIDA
DOMINGO
G.R. No. 158676 November 27, 2006
On account of Villa’s failure to return their total
payment of P650,000.00 for the place, the Domingos
FACTS: filed suit in the RTC of Quezon City for a sum of money
with damages against both Villa and BPI-FSB. In turn,
Respondent Julian Cruz is the owner of a Villa and BPI-FSB filed their respective third-party
commercial lot and building located in Novaliches, complaints against Cruz.
Quezon City. Sometime in April 1976, he leased out the
premises to the Family Savings Bank (FSB). In April Before the RTC, petitioner BPI-FSB denies
1989, after the Bank of the Philippine Islands (BPI) knowledge of, let alone having anything to do with, the
acquired FSB but before the expiration of the original transaction between Villa and the Domingos. It points to
lease contract between Cruz and FSB, a new lease the express admission of both the Domingos and Villa
agreement over the same property was executed, this that BPI-FSB did not receive any portion of the amount
time between BPI-FSB and Cruz. of P650,000.00 as it was Villa alone who received the
same from the Domingos. As petitioner further claims, it
On February 23, 1989, while the original lease came to know of such payment only when the case at
agreement between FSB and Cruz was still subsisting, bar was filed. Not being a privy to the agreement
BPI-FSB subleased the same premises to respondent between the Domingos and Villa, petitioner contends
Benjamin Villa (now deceased), a former Vice President that it cannot be found solidarily liable with Villa for the
of BPI-FSB. While BPI-FSB apparently did not secure amount.
the written consent of Julian Cruz, it appears that the
latter was aware of the sublease and acceded to it
because he made neither an objection nor a protest
thereto. ISSUE:
Benjamin Villa occupied and used the premises Whether BPI-FSB is solidarily liable with Villa to
as a restaurant, operating there at the "Carousel Food respondent Domingo?
House." His restaurant business, however, failed to

FALLO: CA decision AFFIRMED in all aspects.
HELD:
Yes. We rule and so hold, as did the CA, that

neither BPI-FSB nor Villa can escape liability by
disclaiming privity to an agreement with the Domingos.
The Court cannot give credence to BPI-FSB's

posture that it had nothing to do with, nor even had
knowledge of, the agreement between Villa and the
Domingos. This scenario is far-fetched, what with the
fact that BPI-FSB is a party to the sublease contract with
the Domingos, and, in pursuance thereof, even executed
a deed of rescission of its earlier sublease agreement
with Villa. It had also exerted efforts, along with Villa,
towards putting the Domingos in possession of the
premises by seeking out Cruz. With such a factual
backdrop, it is difficult to grasp how BPI-FSB could not
have taken part and assured the Domingos of
possession of the premises, as found by the two (2)
courts below. Indeed, it insults one’s credulity for the
petitioner to feign ignorance of the sublease agreement
between Villa and the Domingos. In any event, it is clear
that BPI-FSB’s failure to put the Domingos in possession
of the premises as its sub lessees, in breach of its own
contract with them, makes the petitioner solidarily liable
with Villa for the amount the Domingos had paid to enjoy
the premises.
Villa, on the other hand, though not a privy to the

second (BPI-FSB – Domingos) sublease contract, had
his own contract with the Domingos which he had
breached. We refer to the sale by Villa for P650, 000.00,
of the goodwill of his restaurant business in the premises
and the assignment of all his rights and interests
thereon, including the equipment and improvements
made thereat. To cap it all, Villa cannot possibly escape
liability for said amount as it was he who had received
the same and even issued a receipt therefor.
To our mind, the CA was correct in affirming the

trial court's distinguishing between a sublease and an
assignment of rights. In a sublease situation, the lessee
(BPI-FSB, in this case) continues to be liable to the
lessor (Cruz) for the payment of rent. The sub lessee
(the Domingos in this case) pays rent not to the lessor
(Cruz) but to the lessee/sub-lessor (BPI-FSB). On the
other hand, in an assignment of rights, the assignee
steps into the shoes of the lessee who is thereupon
freed from his obligations under the lease because from
then on it is the assignee who is liable to the lessor for
rental payment. In other words, in an assignment of
rights, there is a change of lessor, which is not so in a
sublease situation. It is thus understandable why it is not
necessary for the lessor to give his consent to a
sublease, while in an assignment of rights, it is a
necessity for the lessor to require his prior consent. This
is for the lessor's own protection.

About eight (8) years later, an ocular inspection

was made by the city office of Manila to determine its
safety. The City Engineer and Building Official had
ordered the building condemned after inspection. When
the MTDC was about to initiate the repairs on the
building, the tenants filed several suits against it; this
prevented MTDC from complying with the said order.
Upon his arrival in the Philippines, Atty. Nakpil

filed, on November 5, 1996, a complaint in the Regional
Trial Court (RTC) of Manila against the MTDC, seeking
for actual, moral, and exemplary damages, attorney's
fees, litigation expenses, costs of suit and other reliefs.
He alleged that the MTDC, through its agents and
representatives and the policemen who accompanied
the demolition team, forced the guard to open the gate to
the building, and, thereafter, 200 people armed with
hammer and crowbars started destroying the mezzanine
floor of the building on July 19, 1996. His room was
destroyed, the walls and partitions were completely
hammered down, and the electricity was cut off. His
personal belongings were scattered, thrown away, or
stolen. He pointed out that he had been renting the
premises and complying with the conditions of the lease
since 1965. The MTDC violated his right as lessee to the
possession of the premises, unlawfully depriving him of
said possession without any lawful authority or court
order.
NAKPIL VS. MANILA TOWERS DEVELOPMENT The RTC dismissed the complaint on grounds
CORP. that Nakpil failed to prove that the building was
G.R. No. 160886 September 20, 2006 demolished.
ISSUE:
FACTS:
Whether or not the MTDC is liable for actual,
A 14-storey high rise building situated in Sta. moral and exemplary damages to Nakpil?
Cruz, owned by Cheong Kiao Ang, leased the building to
about 200 Filipino-Chinese tenants. One of these
tenants was Atty. Bonifacio Nakpil who leased Room HELD:
204 in the mezzanine floor. He used the unit as his law
office. The tenants of the building later formed the The petition of the MTDC is meritorious. Article
House International Building Tenants Association, Inc. 1654 of the Civil Code enumerates the obligations of the
(HIBTAI). lessor:
The property was mortgaged with the (1) To deliver the thing which is the object of
Government Service Insurance System (GSIS) as the contract in such a condition as to render it fit for
security for a loan Ang had earlier obtained. Upon failure the use intended;
(2) To make on the same during the lease all
to pay the loan, the GSIS had the real estate mortgage
the necessary repairs in order to keep it suitable for
foreclosed and the property sold at public auction, with the use for which it has been devoted, unless there is
GSIS as the winning bidder. The latter, in turn, sold the a stipulation to the contrary;
property to the Centertown Marketing Corporation (3) To maintain the lessee in the peaceful
(CMC) which assigned all its rights to its sister- and adequate enjoyment of the lease for the entire
corporation, the Manila Tower Development Corporation duration of the contract.
(MTDC). The HIBTAI protested, claiming that its
members had the priority to buy the property. The Failure of the lessor to fulfill any of these
tenants refused to pay their rentals and instead remitted obligations will render the lessor liable for damages. In
them to HIBTAI. contracts, the obligor (lessor) who acted in good faith is
liable for damages that are the material and probable

consequence of the breach of the obligation and which

the parties have foreseen or could have reasonably
foreseen at the time the obligation was contracted. In
case of fraud, bad faith, malice or wanton attitude, he
shall be responsible for all damages which may be
reasonably attributed to the non-performance of the
obligation.
What is evident in the present case is that the

disturbance on the leased premises on July 19, 1996
was actually done by the employees under the City
Engineer of Manila and the City Building Official on
orders of the City Mayor without the participation of the
MTDC. It bears stressing that the City Building Official is
authorized and mandated under Section 214 of the
National Building Code to order the repair, maintenance
or demolition of the building found or declared to be
dangerous or ruinous, depending upon the degree of
danger to life, health, safety and/or well-being of the
general public and its occupants as provided in Section
215 thereof.
There is no question that the possession by

respondent of the leased premises had been disturbed
by the attempt of the personnel of the City Building
Official to repair and rehabilitate the building due to
MTDC's failure to undertake the same. Any act or
omission by the lessor which causes a substantial
interference with the actual possession of the lessee will
constitute a breach of the obligation of quiet enjoyment.
In some jurisdictions, the lessor's failure to make repairs
or alterations to the leased premises as required by
public authorities, particularly those that are substantial
and structural in nature, constitutes constructive eviction,
which makes the lessor liable for damages. Such
conclusion is grounded on the fact that the lessors, in
those cases, were obliged to make structural and
substantial repairs on the leased property. The same
doctrine could very well be applied in our jurisdiction
considering that, under our laws, the lessor is likewise
obliged to make the necessary repairs on the leased
premises which would undoubtedly include those that
are structural and substantial in nature. In fact, there
may be a constructive eviction if the landlord does a
wrongful act or is guilty of any default or neglect whereby
the leased premises are rendered unsafe, unfit, or
unsuitable for occupancy, in whole, or in substantial part,
for the purposes for which they were leased.
Assuming that Atty. Nakpil lost any of his

personal properties, at the very least, he should have
inquired from the office of the City Engineer/City Building
Official and requested that they be returned to him.
FALLO: Petition DENIED.

On appeal, the RTC affirmed the MTC decision.
ISSUE:
Whether petitioners should be reimbursed for

the improvements made thereon?
HELD:
The right of the lessor upon the termination of a

lease contract with respect to useful improvements
introduced on the leased property by a lessee is covered
by Article 1678 which reads:
Art. 1678. If the lessee makes, in good faith,

useful improvements which are suitable to the use for
which the lease is intended, without altering the form
or substance of the property leased, the lessor upon
the termination of the lease shall pay the lessee one-
half of the value of the improvements at that time.
Should the lessor refuse to reimburse said amount,
the lessee may remove the improvements, even
though the principal thing may suffer damage thereby.
He shall not; however cause any more impairment
upon the property leased than is necessary.
Clearly, it is Article 1678 of the New Civil Code

PARILLA VS. DR. PROSPERO PILAR, which applies to the present case.
G.R. No. 167680 November 30, 2006 Petitioners' claim for reimbursement of the alleged entire
value of the improvements does not thus lie under Article
1678.Not even for one-half of such alleged value, there
FACTS: being no substantial evidence, e.g., receipts or other
documentary evidence detailing costs of construction.
Petitioner-spouses Samuel and Chinita Parilla Besides, by petitioners' admission, of the structures they
and their co-petitioner-son Deodato Parilla, as dealers of originally built ' the billiard hall, restaurant, sari-sari store
Pilipinas Shell Petroleum Corporation (Pilipinas Shell), and a parking lot, only the 'bodega-like sari-sari store
have been in possession of a parcel of land (the and the parking lot now exist.
property) located at the poblacion of Bantay, Ilocos Sur
which was leased to it by respondent Dr. Prospero Pilar At all events, under Article 1678, it is the lessor
under a 10-year Lease Agreement entered into in 1990. who is given the option, upon termination of the lease
contract, either to appropriate the useful improvements
When the lease contract between Pilipinas Shell by paying one-half of their value at that time, or to allow
and respondent expired in 2000, petitioners remained in the lessee to remove the improvements. This option
possession of the property on which they built solely belongs to the lessor as the law is explicit that
improvements consisting of a billiard hall and a '[s]hould the lessor refuse to reimburse said amount, the
restaurant. Despite demands to vacate, petitioners and lessee may remove the improvements, even though the
the other occupants remained in the property. Hence, principal thing may suffer damage thereby. It appears
respondent who has been residing in the United States, that the lessor has opted not to reimburse.
through his attorney-in-fact filed a complaint for
ejectment before the Bantay MTC with prayer for the FALLO: Petition DENIED.
issuance of a writ of preliminary injunction with damages
against petitioners and the other occupants of the
property.
MTC ordered herein petitioners and their co-

defendants and all persons claiming rights under them to
vacate the property plus compensation.

The order of eviction against the tenant affected

the sub-tenants, even if the latter had not been sued in
the detainer litigation. That opinion following previous
rulings of this Court should be conclusive on the instant
controversy. These seem to be no cogent reason in law
or logic requiring a different view. The sub-lessees hold
the premises subject to the right of the lessee: once that
right disappears they have nothing to stand on. Unless
they can claim an understanding or relation with the
owner in which event the situation would be better than
that of mere sub-lessees.
GO KING VS. GERONIMO

G.R. No. L-2126 August 27, 1948
FACTS:
Sabino Padilla, owner of some lots on Echague

Street, Manila, sought to eject Felipe Aguasin from the
premises for his failure to comply with their lease
contract whereby Aguasin was enabled to construct
thereon some "barong-barongs". Judgment of eviction
was in due course rendered, which in time became final
and executory. It happened that the structures were
occupied by some sub-lessees of Aguasin, Chinese
persons operating stores therein; and when the sheriff
attempted to comply with the order and to clear the
premises they appeared before the municipal court
alleging that they had not been made parties to the
litigation, and that consequently the eviction order could
not be legally enforced as against them, they petitioned
for a declaration that said order did not apply to them
and their possessions. The judge denied their request.
Consequently said sub-lessees instituted this proceeding
and requested for a preliminary injunction. After hearing
both sides, this Court declined to issue a restraining
directive, because it was of the opinion that the order to
vacate affected both the lessee and the sub-lessees.
ISSUE:
Whether the restraining directives should be

issued?
HELD:

ISSUE:
Whether the contention of petitioner is tenable?
HELD:
There is an action for damages. An action for

damages specifically applicable in a lessor-lessee
relationship is authorized in Article 1659 of the New Civil
Code which states that:
Art. 1659. If the lessor or the lessee should

not comply with the obligations set forth in articles
1654 and 1657, the aggrieved party may ask for the
rescission of the contract and indemnification for
damages, or only the latter, allowing the contract to
remain in force.
Article 1657 of the New Civil Code enumerates
the duties of lessee, to quote:
CMS INVESTMENTS VS. IAC and JOSE TAN
Art. 1657. The lessee is obliged:
(1) To pay the price of the lease according to
FACTS: the terms stipulated;
(2) To use the thing leased as a diligent
In 1978, private respondent ( Jose Tan) entered father of a family, devoting it to the use stipulated; and
into an oral contract of lease for ten years with the in the absence of stipulation, to that which may be
petitioner CMS Investment and Management inferred from the nature of the thing leased, according
Corporation. The contract involved a certain parcel of to the custom of the place;
(3) To pay the expense for the deed of lease.
land owned by petitioner situated at Sucat Road ,
Paranaque Metro Manila. The private respondent
And Article 1654 of the New Civil Code lists
constructed therein a building with the agreement that
downs the obligations of a lessor, to wit:
private respondent will pay the lessor the sum of two
thousand pesos (P2,000.00) monthly which was later on Art. 1654. The lessor is obliged:
increased to three thousand pesos (P3,000.00) a month. (1) To deliver the thing which is the object of
the contract in such a condition as to render it fit for
In 1982 officers for CMS informed the private the use intended;
respondent to vacate the premises. Private respondent (2) To make on the same during the lease all
"requested the defendant that they cannot leave the the necessary repairs in order to keep it suitable for
premises on said date due to the volume of his business the use to which it has been devoted, unless there is
as he has many customers and further informed the a stipulation to the contrary:
defendants that it was their agreement when they just (3) To maintain the lessee in the peaceful
land adequate enjoyment of the lease for the entire
leased the land in question that plaintiff could stay in the duration of the contract.
premises for not less than ten (10) years from January
24, 1978" It is very clear that Article 1659 of the New Civil
Code allows the aggrieved party two remedies: (1)
However, one day private respondent was rescission with damages, or (2) damages only "allowing
shocked and surprised upon arriving at his lumber when the contract to remain in force."
he found out that there were several men guarding the
premises aided by and under instruction from CMS. The private respondent opted for the second
remedy granted by Article 1659 of the New Civil Code,
Respondents sued petitioner for damages. hence the action for "damages with preliminary
Petitioner alleged that private respondent's complaint did mandatory injunction. Section 3 of Article 1654 of the
not have a cause of action for "there is no such thing in New Civil Code requires that the lessor must "maintain
law as an action for damages or a cause of action for the lessee in the peaceful and adequate enjoyment of
damages" and that "the cause of action stated in private the lease for the entire duration of the contract."
respondent's complaint is one of forcible entry and not of
damages”. The act of padlocking the offices of the private
respondent in 1982 and the act of enclosing with barbed

wire the leased land and the private respondent's offices

are a clear violation by the lessor, the petitioners herein,
of their third obligation mandated by Section 3 of Article
1659 of the New Civil Code. These acts by the lessor set
at naught the duty required of the lessor in the New Civil
Code.
Article 1659 allows the lessor or the lessee two

remedies provided he is the aggrieved party.
There is no doubt that the lessee, the private

respondent, is the aggrieved party. The duties of the
lessee contained in Article 1657 have been complied
with by the private respondent. Moreover, the contract of
lease entered into by the petitioners and the private
respondent was an oral contract for a ten-year period.
When the petitioner padlocked and fenced the leased
land and private respondent's offices in 1982, only four
(4) years from the inception of the contract of lease, with
six (6) more years to go in the life of the contract of
lease, the private respondent became the aggrieved
party.
The private respondent was obviously within his

rights to file a complaint for "damages with preliminary
mandatory injunction." Hence, the lower court's
assumption of jurisdiction over the original case was
warranted.
FALLO: WHEREFORE, THE HEREIN PETITION IS

HEREBY DISMISSED.

with law, equity and fair play. In the view that MSI has
been disqualified from the public bidding, the property
was eventually awarded to Makati Agro Trading and La
Filipina Uy Gongco Corporation.
MSI filed a petition for preliminary injunction with

the lower court. The said court granted the petition but
the Court of Appeals nullified the lower court’s ruling for
being violative to Section 1 of Proclamation No. 50 which
provides: "No court or administrative agency shall issue
any restraining order or injunction against the trust in
connection with the acquisition, sale or disposition of
assets transferred to it. Nor shall such order or injunction
MANUSTRE SYSTEMS VS. CA be issued against any purchaser of assets sold by the
179 SCRA 136 Trust to prevent such purchaser from taking possession
of any assets purchased by him."
FACTS: The CA rejected the lower court’s opinion that

said proclamation is unconstitutional, rather it upheld
Mantruste Systems, Inc. (MSI) entered into an that it continues to be operative after the affectivity of the
interim lease agreement dated August 26, 1986with the 1987 Constitution by virtue of Section 3 Art.XVIII. It also
Development Bank of the Philippines, the owner of noted that MSI has not been deprived of its property
Bayview Plaza Hotel. The agreement provides that MSI rights since those rights are non-existent and its only
would operate the hotel for a minimum of three months property right was the alleged reimbursable advances
or until such time that the said properties are sold to MSI made to DBP, which it may sue to collect in a separate
or other third parties by DBP. During the said period, the action. It further held that the issuance of writ of
President issued Proclamation No. 50 entitled Launching preliminary injunction by the lower court against APT
a Program for the Expeditious Disposition or may not be justified as a valid exercise of judicial power
Privatization of certain Government Corporations and/or for MSI does not have a legally demandable and
the (acquired) assets thereof and creating a Committee enforceable right of retention over the said property. The
on Privatization and the Asset Privatization Trust. MSI then filed this petition for certiorari with this Court.
The Bayview Hotel has been one of the

identified assets for privatization and it was transferred
from DBP to APT ford is position. The DBP notified MSI ISSUE:
that it was terminating the interim lease agreement. It
has been agreed that 30days from the signing of the Whether the CA erred in holding that MSI’s
Certification, the lease contract will be considered as rights to the property are non-existent except its right to
terminated; the Bayview Hotel will be made available for use the refund of its alleged advances; and in not
inspection at all times by other bidders; and said declaring unconstitutional Section 31 of Proclamation
property will be ready for delivery to any new owners 30 No. 50?
days from signing the Certification.
A letter granting an extension of 30 days was

sent by APT to MSI. This is to allow the latter to wind up HELD:
affairs and to facilitate a smooth turn-over of the facilities
The Court upheld the ruling of the CA.
to its new owners without necessarily interrupting the
hotels regular operation. After 15 days, MSI informed It affirmed the Court of appeals finding that
APT that since its lease on the hotel properties has been MSI’s claim to a patent contractual right to retain
for more than one year now, its lessee status has taken possession of the Bayview Hotel until all its advances
the character of a long term one. As such MSI as the are paid is on-existent; and as the right of retention does
lessee has acquired certain rights and privileges under not exist, neither does the right to the relief demanded. A
the law and equity. It also contends that it has acquired a mere lessee like MSI is not a builder in good faith, hence
priority right to purchase said properties above other the right of retention given to a possessor in good faith
interested parties. pending reimbursement of his advances for necessary
repairs and useful improvements on another’s property
APT, on a reply said that it has not found any
is not available to a lessee whose possession is not that
stipulation tending to support MSI’s claim and since the
of an owner.
Pre-Bidding Conference has been conducted, for APT to
consider the request of MSI would not be inconsonance

The Court stated that it is a settled rule that

lessees are not possessor in good faith because they
know that their occupancy of the premises continue only
during the life of the lease, hence they cannot recover,
as a matter of right, the value of their improvements from
the lessor, much less retain the premises until they are
reimbursed thereof.
The Court also ruled that Section 31 of

Proclamation No. 50 does not impair the inherent
powers of the courts to settle actual controversies which
are legally demandable and enforceable and to
determine whether or not there has been a grave abuse
of discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the
government. It also noted that the power of the courts
over the other branches and instrumentalities of the
government is limited only to the determination of
whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction in
the exercise of their authority and in the performance of
their assigned tasks. There can be no justification on
judicial interference in the business of an administrative
agency except when it violates citizen’s constitutional
rights, or commits a grave abuse of discretion, or acts in
excess of, or without jurisdiction.
FALLO: The petition is dismissed.

Moreover, the law grants the lessee the right to suspend

payment of rentals only for the area of the leased
property which is not delivered.
Petitioner moved to dismiss the appeal on the

ground that the case raises only pure questions of law
and that respondent appellate court had no jurisdiction
over the same.
ISSUE:
ROMAN CATHOLIC ARCHBISHOP OF MANILA
VS. CA and SPS. REYES Whether the contention of herein petitioner is
G.R. No. 111324. July 5, 1996 correct?
FACTS:
HELD:
A lease agreement executed by petitioner-
lessor, the Roman Catholic Archbishop of Manila, and It is underscored that the lease contract simply
private respondent-lessees, spouses Ernesto and Lorna gives the plaintiffs a right of pre-emission over the
Reyes on August 1, 1985 over a parcel of land located in leased premises. There was as yet no definite offer and
Intramuros, Manila. The lease contract provided for a acceptance as regards the sale of the property. The
ten-year lease, renewable for another ten years at the several communications submitted by the parties clearly
option of the lessor. The contract likewise provided for a established such fact. The parties are still in the process
graduated schedule of rental fees, starting with P4.50 of negotiations; therefore, there is no contract,
per square meter on the first and second years, agreement or undertaking between the parties which can
increasing up to P6.50 per square meter on the ninth be enforced by this Court (See Article 1305 & 1319, Civil
and tenth years. Private respondent lessees were also Code). In the absence of a definite offer and
given the right of pre-emption, with first priority to unconditional acceptance as to the sale of the property
purchase the property if the owner, herein petitioner, in dispute, as in this case, neither of the parties may sue
offered it for sale. for specific performance of a non-existent contract.
Intending to have a fire wall constructed, private The disputes in the case at bar for specific
respondents allegedly had the property relocated. As a performance have arisen from the demand to make
result, they discovered that the adjacent owner's adjustments on the property where the adjacent owner is
concrete fence abutted on and encroached upon 30.96 alleged to have usurped a part thereof, the exercise of
square meters of the leased property. Private the right of pre-emption and the payment of rental
respondents requested petitioner to make adjustments in arrearages. A ruling on the issue of encroachment will
order to correct the encroachment problem. The perforce be determinative of the issue of unpaid rentals.
spouses Reyes claim that despite repeated follow-up, These two points do not arise from two or more causes
petitioner has failed to take any action on their demand. of action, but from the same cause of action. Hence,
Consequently, they decided to withhold rental payments this suit does not require multiple appeals. There is no
as "leverage" against petitioner and to force the latter to ground for the splitting of appeals in this case, even if it
make corrections or adjustments in the area of subject involves an Order granting (and denying) a motion to
land. dismiss and a Partial Judgment granting a motion for
judgment on the pleadings. The subject matter covered
In 1989, petitioner offered to sell the parcel of in the Order and in the Partial Judgment pertains to the
land on a higher terms but private respondent insist that same lessor-lessee relationship, lease contract and
it be sold to them at the prevailing price when the lot was parcel of land. Splitting appeals in the instant case
first offered in 1987. No agreement was reached. would, in effect, be violative of the rule against
Private respondent spouses filed an action for specific multiplicity of appeals.
performance and damages before the RTC.
The lower court held that private respondent

spouses were indeed obligated to pay rent after having
admitted that they deliberately defaulted in payments.

Based on the copy of the public instrument

attached in the complaint, the partnership was
established to operate a fishpond", and not to "engage in
a fishpond business.” Thus, Mabato’scontention that “it
is really inconceivable how a partnership engaged in the
fishpond business could exist without said fishpond
property (being) contributed to the partnership” is without
merit.
Their contributions were limited to P1000 each

and neither a fishpond nor a real right thereto was
contributed to the partnership. Therefore, Article 1773 of
the Civil Code finds no application in the case at bar.
Case remanded to the lower court for further
PARTNERSHIP proceedings.
OBILLOS VS. CIR

AGAD VS. MABATO
FACTS: FACTS:
Petitioner Mauricio Agad claims that he and On March 2, 1973, Jose Obillos, Sr. completed
defendant Severino Mabato are partners in afishpond payment to Ortigas & Co., Ltd. On two lots located at
business to which they contributed P1000 each. As Greenhills. The next day he transferred his rights to his
managing partner, Mabato yearly renderedthe accounts four children, the petitioners, to enable them to build
of the operations of the partnership. However, for the their residences. The company sold the two lots to
years 1957-1963, defendant failedto render the accounts petitioners for around P178Kon March 13. Seemingly,
despite repeated demands. Petitioner filed a complaint the Torrens titles issued to them would show that they
against Mabato to whicha copy of the public instrument were co-owners of the two lots. After having held the two
evidencing their partnership is attached. Aside from the lots for more than a year, the petitioners resold them to
share of profits (P14,000) and attorney’s fees (P1000), the Walled City Securities Corporation and Olga Cruz
petitioner prayed for the dissolution of the partnership Canada for around 313K. They derived from the sale a
and winding up of its affairs. total profit of about 134K or 33K for each of them. They
treated the profit as a capital gain and paid an income
Mabato denied the existence of the partnership tax on ½ thereof or about 16K.In April, 1980, or one day
alleging that Agad failed to pay hisP1000 contribution. before the expiration of the 5-yearprescriptive period, the
He then filed a motion to dismiss on the ground of lack of CIR required the four petitioners to pay corporate
cause of action. The lower court dismissed the complaint income tax on the total profit of 134K in addition to
finding a failure to state a cause of action predicated individual income tax on their shares thereof. He
upon the theory that the contract of partnership is null assessed around 37K as corporate income tax, around
and void, pursuant to Art. 1773 of our Civil Code, 18K as50% fraud surcharge and around 15K as 42%
because an inventory of the fishpond referred in said accumulated interest, or a total of 71K. Moreover, he
instrument had not been attached thereto .Art. 1771. A also considered the share of the profits of each petitioner
partnership may be constituted in any form, except in the sum of about 33K as a " taxable in full (not a mere
where immovable property or real rights are contributed capital gain of which ½is taxable) and required them to
thereto, in which case a public instrument shall be pay deficiency income taxes aggregating P56,707.20
necessary. Art. 1773. A contract of partnership is void, including the 50% fraud surcharge and the accumulated
whenever immovable property is contributed thereto, interest. Thus, the petitioners are being held liable for
if inventory of said property is not made, signed by the deficiency income taxes and penalties totaling about
parties; and attached to the public instrument. 127K on their profit of 134K, in addition to the tax on
capital gains already paid. The Commissioner acted on
the theory that the four petitioners had formed an
ISSUE: unregistered partnership or joint venture within the
meaning of Sections 24 (a) and 84 (b) of the Tax Code.
Whether or not immovable property or real rights The petitioners contested the assessments. Two judges
have been contributed to the partnership. of the Tax Court sustained the same. Hence, the instant
appeal.
HELD:

ISSUE:
Whether or not the petitioners have formed a FACTS:

partnership?
Petitioners bought two (2) parcels of land from
Santiago Bernardino, et al. and on they bought another
HELD: three (3)parcels of land from Juan Roque. The first two
parcels of land were sold by petitioners in 1968to
NO. The judgment of the Tax Court is reversed Marenir Development Corporation, while the
and set aside. The assessments are cancelled. The threeparcels of land were sold by petitioners to Erlinda
court held that it is error to consider the petitioners as Reyes and Maria Samson.
having formed a partnership under Art. 1767 of the Civil
Code simply because they allegedly contributed 178K to Petitioners realized a net profit in the sales and
buy the two lots, resold the same and divided the profit they paid thecorresponding capital gains taxes by
among themselves. To regard the petitioners as having availing of the taxamnesties granted at the time.
formed a taxable unregistered partnership would result
in oppressive taxation and confirm the dictum that the However, in a letter of then Acting BIR
power to tax involves the power to destroy. That Commissioner Efren I.Plana, petitioners were assessed
eventuality should be obviated. As testified by Jose and required to pay a total amount of P107,101.70 as
Obillos, Jr., they had no such intention. They were co- alleged deficiency corporate income taxes for the years
owners pure and simple. To consider them as partners 1968 and 1970 (the years of sales). Petitioners protested
would obliterate the distinction between a co-ownership the said assessment in a letter asserting that they had
and a partnership. The petitioners were not engaged in availed of tax amnesties way back in1974.
any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for COMMISSIONER: that in the years 1968 and
residential purposes. If later on they found it not feasible 1970, petitioners as co-owners in the real estate
to build their residences on the lots because of the high transactions formed an unregistered partnership or joint
cost of construction, then they had no choice but to venture taxable as a corporation under Section 20(b)
resell the same to dissolve the co-ownership. The and its income was subject to the taxes prescribed under
division of the profit was merely incidental to the Section 24, both of the National Internal Revenue Code
dissolution of the co-ownership which was in the nature that the unregistered partnership was subject to
of things a temporary state. It had to be terminated corporate income tax as distinguished from profits
sooner or later. derived from the partnership by them which is subject to
individual income tax; and that the availment of tax
Article 1769(3) of the Civil Code provides that amnesty under P.D. No. 23, as amended, by petitioners
"the sharing of gross returns does not of itself establish a relieved petitioners of their individual income tax
partnership, whether or not the persons sharing them liabilities but did not relieve them from the tax liability
have a joint or common right or interest in any property of the unregistered partnership. Hence, the petitioners
from which the returns are derived". There must be an were required to pay the deficiency income tax
unmistakable intention to form a partnership or joint assessed.
venture. The Court went on to compare the instant case
to other cases like Reyes vs. Commissioner of Internal CTA: affirmed the decision and action taken by
Revenue, 24 SCRA198, where father and son respondent commissioner with costs against petitioners.
purchased a lot and building, entrusted the
administration of the building to an administrator and In a separate dissenting opinion, Associate
divided equally the net income, and from Evangelista vs. Judge Constante Roaquin stated that considering the
Collector of Internal Revenue, 102 Phil. 140,where the circumstances of this case, although there might in fact
three Evangelista sisters bought four pieces of real be a co-ownership between the petitioners, there was no
property which they leased to various tenants and adequate basis for the conclusion that they thereby
derived rentals there from. Clearly, the petitioners in formed an unregistered partnership which made "hem
these two cases had formed an unregistered liable for corporate income tax under the Tax Code.
partnership. These cases are different from the case at
bar. In the instant case, what the Commissioner should
have investigated was whether the father donated the
two lots to the petitioners and whether he paid the
donor's tax (See Art.1448, Civil Code.
ISSUE:
PASCUAL Vs. CIR
October 18, 1988

Whetehr or not petitioners formed an Concurring opinion of Mr. Justice Angelo Bautista in
unregistered partnership subject to corporate income Evangelista
tax? he said:I wish however to make the following
observation Article 1769of the new Civil Code lays down
the rule for determining whena transaction should be
HELD: deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides; (2) Co-ownership or co-
NO. The basis of the subject decision of the possession does not itself establish a partnership,
respondent court is the ruling of this Court in whether such co-owners or co-possessors do or donot
Evangelista. share any profits made by the use of the property; (3)
Thesharing of gross returns does not of itself establish
EVANGELISTA CASE: Petitioners borrowed a sum a partnership, whether or not the persons sharing them
of money from their father which together with their own have a joint or common right or interest in any property
personal funds they used in buying several real from whichthe returns are derived;From the above it
properties. They appointed their brother to manage their appears that the fact that those who agree to form a co-
propertieswith full power to lease, collect, rent, issue ownership share or do not share any profits made by the
receipts ,etc. They had the real properties rented or use of the property held incommon does not convert
leased to various tenants for several years and they their venture into a partnership. Or the sharing of the
gained net profits from the rental income. Thus, the gross returns does not of itself establish a partnership
Collector of Internal Revenue demanded the payment of whether or not the persons sharing therein have a joint
income tax on a corporation, among others, from them. or common right or interest in the property. This
The essential elements of a partnership are namely: only means that, aside from the circumstance of profit,
the presenceof other elements constituting partnership is
(a) an agreement to contribute money, property or necessary, suchas the clear intent to form a partnership,
industry to a common fund; and the existence of a juridical personality different from that
of the individual partners, and the freedom to transfer or
(b)intent to divide the profits among the contracting assign any interest inthe property by one with the
parties are present There is no evidence that petitioners consent of the others It is evident that an isolated
entered into an agreement to contribute money, property transaction whereby two or more personscontribute
or industry to a common fund, and that they intended to funds to buy certain real estate for profit in theabsence
divide the profits among themselves. of other circumstances showing a contrary
Respondent commissioner and/ or his representative intentioncannot be considered a partnership.
just assumed these conditions to be present on the basis
of the fact that petitioners purchased certain parcels of
land and became co-owners thereof. There was a series The sharing of returns does not in itself establish
of transactions where petitioners purchased twenty-four apartnership whether or not the persons sharing therein
(24) lots showing that the purpose was not limited to the havea joint or common right or interest in the property.
conservation or preservation of the common fund or Theremust be a clear intent to form a partnership, the
even the properties acquired by them. The character existence of a juridical personality different from the
of habituality peculiar to business transactions engaged individual partners,and the freedom of each party to
in for the purpose of gain was present. Petitioners transfer or assign the wholeproperty.
bought two(2) parcels of land in1965. They did not
sellthe same nor make any improvements thereon.In
1966, they bought another three (3)parcels of land from In the present case, there is clear evidence of
oneseller. It was only 1968When they sold the two(2) co-ownershipbetween the petitioners. There is no
parcels of land afterwhich they did not make any adequate basis tosupport the proposition that they
additional ornew purchase. Theremaining three thereby formed anunregistered partnership. The two
(3)parcels were sold bythem in 1970. Thetransactions isolated transactionswhereby they purchased properties
wereisolated. The characterof habituality peculiarto and sold the same a fewyears thereafter did not thereby
business transactionsfor the purpose of gainwas not make them partners. Theyshared in the gross profits as
present.Properties were leased out totenants for several co- owners and paid theircapital gains taxes on their net
years. Thebusiness was under themanagement of one profits and availed of the taxamnesty thereby. Under the
of thepartners. Such conditionexisted for over fifteen circumstances, they cannot beconsidered to have
(15)yearsNo properties wereleased formed an unregistered partnershipwhich is thereby
liable for corporate income tax, as therespondent
Evangelista case relied upon by the CAis not similar to commissioner proposes.
the case at bar and was incorrectly used.

And even assuming for the sake of argument that unsigned and undated. As an unsigned document, there
suchunregistered partnership appears to have been can be no quibbling that said letter does not meet the
formed, since public instrumentation requirements exacted under
there is no such existing unregistered partnership with Article 1771 (how partnership is constituted) of the Civil
adistinct personality nor with assets that can be held Code. Moreover, being unsigned and doubtless referring
liable forsaid deficiency corporate income tax, then to a partnership involving more than P3,000.00 in money
petitioners can beheld individually liable as partners for or property, said letter cannot be presented for
this unpaid obligationof the partnership . notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the
However, as petitioners have availed of the Article 1772 (capitalization of a partnership) of the Code.
benefits of tax amnesty as individual taxpayers in And inasmuch as the inventory requirement under the
thesetransactions, they are thereby relieved of any succeeding Article 1773 goes into the matter of validity
further taxliability arising therefrom when immovable property is contributed to the
partnership, the next logical point of inquiry turns on the
nature of Aurelio’s contribution, if any, to the supposed
partnership.
LITONJUA JR. VS. LITONJUA SR.
December 13, 2005 The Memorandum is also not a proof of the
partnership for the same is not a public instrument and
again, no inventory was made of the immovable property
FACTS: and no inventory was attached to the Memorandum.
Article 1773 of the Civil Code requires that if immovable
Aurelio and Eduardo are brothers. In 1973, property is contributed to the partnership an inventory
Aurelio alleged that Eduardo entered into a contract of shall be had and attached to the contract.
partnership with him. Aurelio showed as evidence a
letter sent to him by Eduardo that the latter is allowing ORTEGA VS. CA
Aurelio to manage their family business (if Eduardo’s 245 SCRA 529
away) and in exchange thereof he will be giving Aurelio
P1 million or 10% equity, whichever is higher. A
memorandum was subsequently made for the said FACTS:
partnership agreement. The memorandum this time
stated that in exchange of Aurelio, who just got married, Ortega, then a senior partner in the law firm Bito,
retaining his share in the family business (movie Misa, and Lozada withdrew in said firm.He filed with
theatres, shipping and land development) and some SEC a petition for dissolution and liquidation of
other immovable properties, he will be given P1 Million partnership.
or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater.
The hearing officer rendered decision ruling that
In 1992 however, the relationship between the Petitioner’s withdrawal from the law firm Bito, Misa &
brothers went sour. And so Aurelio demanded an Lozada did not dissolve the said law partnership.
accounting and the liquidation of his share in the Accordingly, the petitioner and respondents are hereby
partnership. Eduardo did not heed and so Aurelio sued enjoined to abide by the provisions of the Agreement
Eduardo. relative to the matter governing the liquidation of the
shares of any retiring or withdrawing parner in the
partnership of interest.
ISSUE:
SEC en banc ruled that withdrawal of Misa from
Whether or not there exists a partnership? the firm had dissolved the partnership.Reason: since it is
partnership at will, the law firm could be dissolved by any
partner atanytime, such as by withdrawal therefrom,
HELD: regardless of good faith or bad faith, since nopartner can
be forced to continue in the partnership against his will.
No. The partnership is void and legally
nonexistent. The documentary evidence presented by During the pendency of the case,Atty. Bito and
Aurelio, i.e. the letter from Eduardo and the Atty Lozada both died. The death of the two partners, as
Memorandum, did not prove partnership. well as the admission of new partners, in the law firm
prompted Atty. Misa to renew hi application for
The 1973 letter from Eduardo on its face, recievership
contains typewritten entries, personal in tone, but is

merchandise they bought on credit by the firmLukban &

ISSUE: Borja from the plaintiff's ship supply store named La
Industria. A judgment was rendered, on which the
1. WON the partnership of Bito, Misa & Lozada defendant firm wasordered to pay the sum of P1,086.65
(now Bito, Lozada, Ortega & Castillo)is a partnership at with interest thereon amounting toP1,102.95. Esperidion
will? Borja paid P522.69. Teodoro delos Reyes later
onbrought a suit against Lukban & Borja to recover the
2. WON the withdrawal of Misa dissolved the sum of P853, theremaining unpaid balance plus legal
partnership regardlessof his good or bad faith? interest.Defendant Lukban contended that he is not
liable, he was merelyan industrial partner in the firm and
it was Borja who furnished thecapital. As it was proven
HELD: on trial that the partnership has no moreremaining
property, as it is already insolvent, the court rendered
1. Yes. The partnership agreement of the firm judgmentholding Borja and Lukban jointly and severally
provides that ”[t]he partnership shallcontinue so long as liable to pay the sum toplaintiff delos Reyes.
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by
the surviving partners.” ISSUE:
2. Yes. Any one of the partners may, at his sole Is a creditor entitled to collect individually from
pleasure, dictate a dissolution of thepartnership at will the partners theamount of the debt that the dissolved
(e.g. by way of withdrawal of a partner). He must, partnership owed at the time of itsdissolution?
however, act in goodfaith, not that the attendance of bad
faith can prevent the dissolution of the partnership
butthat it can result in a liability for damages. HELD:
A partnership that does not fix its term is a Yes. The creditor has the right to recover from
partnership at will. That the law firm “Bito, Misa & the partners thereof in the manner provided by Art. 127
Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is of the Code of Commerce (nowgoverned by Art. 1816 of
indeed such a partnership. the Civil Code of the Philippines). Art. 127 of the Code of
Commerce provides:"All the members of the general co-
The birth and life of a partnership at will is partnership, be they or be theynot managing partners of
predicated on the mutual desire and consent of the the same, are personally and severally liablewith all their
partners. The right to choose with whom a person properties for the results of the transactions made in
wishes to associate himself is the very foundation and thename and for the account of the partnership, under
essence of the partnership. Its continued existence is, in the signature of thelatter, and by the person authorized
turn, dependent on the constancy of that mutual resolve, to make use thereof"
along with each partner’s capability to give it, and the
absence of a cause for dissolution provided by law itself. With respect to the first assignment of error, the
contents of the writ and the return of the execution of the
The dissolution of a partnership is the change in final judgment rendered in the said case No. 3759 show
the relation of the parties caused by any partner ceasing that the dissolved partnership of Lukban & Borja had
to be associated in the carrying on, as might be absolutely no property whatever of its own. Had any
distinguished from the winding up of, the business. Upon property whatever of the said partnership still remained,
its dissolution, the partnership continues and its legal the defendant Lukban would have pointed it out inorder
personality is retained until the complete winding up of to avoid being obliged to pay in solidum all the balance
its business culminating in its termination. of the sum which the firm was sentenced to pay by the
said final judgment of October 19, 1905. He did not do
The SC denied the petition. so because the firm of Lukban & Borja no longer had
any kind of property or credits, as shown by the
TEODORO DE LOS REYES vs. VICENTE LUKBAN document setting forth the agreement made by and
G.R. No. 10695, December 15, 1916 between several creditors of the said firm, a third party
named Ramon Tinsay and the former partner of the firm,
Espiridion Borja, in which document it appears that the
FACTS: firm Lukban & Borja owed four creditors, among them
the plaintiff De los Reyes, the total sum of P10,165.01
Teodoro delos Reyes brought a suit in the Court and these creditors with some difficulty succeeded in
of First Instanceof Manila against Vicente Lukban and collecting the sum of P5,000 through a transaction with
Espiridion Borja to recover fromthem payment for the the said Ramon Tinsay who paid this last amount for the

account of the partner Espiridion Borja. It appears that changed the name of the payee on thesecond check
the latter paid to the creditor De los Reyes the from Munasque to “Galan and Associates” which
aforementioned sum of P522.69, on account of the firm's enabled Galan to encashthe second check.Meanwhile,
debt to Teodoro de los Reyes, a debt which was the construction was continued through Munasque’s sole
recognized in the said judgment of October 19, 1905. efforts by incurringdebts from various suppliers. The
The attachment, or recourse to the property, the lack of construction work was finished ahead of schedule
which proceeding was complained of, is a proceeding withthe total expenditure reaching P 34, 000 (note yung
that was resorted to when attempt was made to execute contract nila 25k lang).
the final judgment rendered against the partnership of
Lukban & Borja, which proceeding gave negative results; Munasque filed a complaint for payment of sum
therefore, if the requirement of article 237 of the Code of of money and damages against Galan,Tropical, and
Commerce must be complied with by the creditor it is Tropical’s Cebu branch manager Pons. Cebu Southern
evident that it has already been done for the defendant Hardware Companyand Blue Diamond Glass Palace
Lukban was unable to show that the partnership to which intervened in the case for the credit which they
he belonged actually possessed any more assets. extendedto the partnership of Munasque and Galan for
With respect to the second assignment of error, if the construction project.Both trial court and Court of
Teodoro de los Reyes is entitled to collect individually Appeals absolved respondents Tropical and its
from the partners Lukban and Borja the amount of the Cebumanager, Pons, from any liability. TC held Galvan
debt that the dissolved partnership owed at the time of and Munasque “jointly and severally”liable to its creditors
its dissolution, it is unquestionable that such a right has which decision was modified by CA and held them
given rise to the corresponding right of action to demand “jointly” liable.
the payment of the debt from the partners individually, or
from each of them, by the insolvency of the partnership, ISSUES:
inasmuch as they are personally and severally liable with
all their property for the results of the operations of the Whether the obligation of Munasque and Galan
partnership which they conducted. is joint or solidary?
Article 127 of the Code of Commerce provides: HELD:

All the member of the general copartnership, be they or
be they not managing partners of the same, are Solidary.While it is true that under Article 1816
personally and severally liable with all their property for of CC, “All partners, including industrial ones,shall be
the results of the transactions made in the name and for liable pro rate with all their property and after all the
the account of the partnership, under the signature of the partnership assets have beenexhausted, for the
latter, and by a person authorized to make use thereof. contracts which may be entered into the name and for
account of the partnership, under its signature and by a
MUNASQUE VS. CA person authorized to act for the partnership.xxx”, this
G.R. No. L-39780 November 11, 1985 provision should be construed together with Article 1824
which provides that:“All partners are liable solidarily with
the partnership for everything chargeable to
FACTS: the partnership under Articles 1822 and 1823.” While the
liability of the partners are merely joint in transactions
Munasque (petitioner) entered into a partnership entered into by the partnership, a third person who
with Galan under the registered name“Galan and transacted withsaid partnership can hold the partners
Associates” as Contractor. They entered into a written solidarily liable for the whole obligation if the caseof the
contract withrespondent Tropical for remodeling the third person falls under Articles 1822 and 1823.
latter’s Cebu branch building. Under the contract,the
project totaled 25,000 to be paid in installments; 7, 000 The obligation is solidary because the law
upon signing and 6, 000 every15 working days.Tropical protects him, who in good faith relied upon theauthority
made the first payment by check in the name of of a partner, whether such authority is real or
Munasque. apparent.Tropical had every reason to believe that a
partnership existed between Munasque andGalan and
Munasque indorsedthe check in favor of Galan no fault or error can be imputed against it for making
to enable Galan to deposit it in the bank and pay for payments to “Galan andAssociates” because as far as it
thematerials and labor used in the project. However, was concerned, Galan was a true partner with
Galan allegedly spent P6, 183.37 for his personal use. realauthority to transact in behalf of the partnership it
When the second check came, Munasque refused to was dealing with (because in the first place they entered
indorse it again toGalan.Galan informed Tropical of the into a duly registered partnership name and secondly,
misunderstanding between him and Munasque Munasqueendorsed the first check payment to Galan).
as partners. Hence upon second payment, Tropical This is even more true in the cases of theintervenors

who supplied materials on credit to the partnership. her capitalist Arsenio Pua. She alleged that her friends
Thus, it is but fair that theconsequences of any wrongful borrowed money from respondent and issued personal
act committed by any of the partners therein should checks in payment of the loan; that the checks bounced
beanswered solidarily by all the partners and the for insufficient fund and the she could no longer locate
partnership as a whole.However, as between Munasque them.
and Galan, Galan must reimburse Munasque for
the payments made to the intervenors as it was That because of this, respondent became
satisfactorily established that Galan acted in bad faith in furious and threatened petitioner that he will file a
his dealings with Munasque as a partner. criminal complaint.
RALLOS V YANGCO
FACTS:
Yangco sent Rallos a letter inviting the latter to

AGENCY be the consignor in buying and selling leaf tobacco and
DOLES VS. ANGELES other native products. Terms and conditions were also
G.R. No. 149353 June 26, 2006 contained in the letter.
*
FACTS: Accepting the invitation, Rallos proceeded to do
a considerable business with Yangco trhough the said
Ma. Aura Angeles, respondent filed with the Collantes, as his factor, sending to him as agent for
RTC a complaint for Specific Performance with Yangco a good deal of produce to be sold on
Damages against Jocelyn Doles. Respondent alleged commission.
that petitioner was indebted to the former in the concept
of a personal loan amounting to P405,430.00 * Rallos sent to the said Collantes, as agent for
representing the principal amount and interest; that on Yangco, 218 bundles of tobacco in the leaf to be sold on
October 5, 1996, by virtue of a Deed of Absolute Sale, commission, as had been other produce previously.
petitioner, as seller, ceded to respondent, as buyer, a
parcel of land, as well as the improvement theron, with * The said Collantes received said tobacco and
an area of 42 square meters located in Camella sold it for the sum of P1,744. The charges for such sale
Towhomes Sorrente in Bacoor Cavite, in order to satisfy were P206.96, leaving in the hands of said Collantes the
her personal loan with respondent; that this property was sum of 1,537.08 belonging to Rallos. This sum was,
mortgaged to National Home Mortgage Finance apparently, converted to his own use by said agent.
Corporation to secure petitioner’s loan in the sum of
P337, 050 with that entity; that as a condition for the * It appears, however, that prior to the sending
foregoing sale, respondent shall assume the undue of said tobacco Yangco had severed his relations with
balance of the mortgage and pay the monthly Collantes and that the latter was no longer acting as his
amortization of P4,748.11 for the remainder of the 25 factor. This fact was not known to Rallos; and it is
years which began on September 3, 1994; that upon conceded in the case that no notice of any kind was
verification with the NHMFC, respondent learned that given by Yangco of the termination of the relations
petitioner had incurred arrearages amounting to between Yangco and his agent, Collantes.
P26,744.09, inclusive of penalties and interest; that upon
informing teh petitioner of her arrears, petitioner, * Yangco thus refused to pay the said sum upon
deneied that she incurred them and refused to pay the demand of Rallos, placing such refusal upon the ground
same; that despite repeated demend, petitioner refused that at the time the said tobacco was received and sold
to cooperate with respondent to execute the necessary by Collantes, he was acting personally and not as agent
documents and other formalities required to effect the of Yangco.
transfer of title over the property; that petitioner collected
rent over the property fort he month of January 1997 and
refused to remit the proceed to responden; and that ISSUE:
respondent suffered damages as a result and was
forced to litigat. W/N Collantes is an agent of Yangco. If so,
Yangco as principal must refund to Rallos the said sum
Petitioner, then defendant, while admitting some brought by the sale of the produce?
allegations in the Compliant, denied that she borrowed
money from respondent, and averred that from June to
September 1995, she reffered her friends to respondent HELD:
whom she knew to be engaged in the business of
lending money in exchange for personal checks through

Yes. Yangco, as principal is liable. Having Contracts entered into in the name of another
advertised the fact that Collantes was his agent and person by one who has been given no authority orlegal
having given special notice to Rallos of that fact, and representation or who has acted beyond his powers are
having given them a special invitation to deal with such classified as unauthorized contractsand are declared
agent, it was the duty of Yangco on the termination of unenforceable, unless they are ratified.
the relationship of the principal and agent to give due
and timely notice thereof to Rallos. Generally, the agency may be oral, unless the
law requires a specific form.
However, a specialpower of attorney is

Failing to do so, he is responsible to them for necessary for an agent to, as in this case, borrow
whatever goods may been in good faith and without money, unless it be urgentand indispensable for the
negligence sent to the agent without knowledge, actual preservation of the things which are under
or constructive, of the termination of such relationship. administration.
JESUS M. GOZUN VS. JOSE MERCADO
G.R. No. 167812 December 19, 2006 Sincenothing in this case involves the
FACTS: preservation of things under administration, a
determination of whether Soriano had the special
In the local elections of 1995, respondent vied authority to borrow money on behalf of respondent is in
for the gubernatorial post in Pampanga. order.It is a general rule in the law of agency that, in
Upon respondent’s request, petitioner, owner of JMG order to bind the principal by a mortgage on realproperty
Publishing House, a printing shop located executed by an agent, it must upon its face purport to be
in San Fernando, Pampanga, submitted to respondent made, signed and sealed in thename of the principal,
draft samples and price quotation of campaign materials. otherwise, it will bind the agent only. It is not enough
By petitioner’s claim, respondent’s wife had told him that merely that the agent was in fact authorized to make the
respondent already approved his price mortgage, if he has not acted in the name of
quotation and that he could start printing the campaign theprincipal.
materials, hence, he did print campaignmaterials like
posters bearing respondent’s photograph leaflets ANGELEES VS. PNR
containing the slate of partycandidates sample ballots
poll watcher identification cards, and stickers.Given the
urgency and limited time to do the job order, petitioner FACTS:
availed of the services andfacilities of Metro Angeles
Printing and of St. Joseph Printing Press, owned by his On May 5, 1980, the respondent Philippine
daughterJennifer Gozun and mother Epifania Macalino National Railways (PNR) informed a certain Gaudencio
Gozun, respectively Romualdez that it has accepted the latter’s offer to buy,
on an "AS IS, WHERE IS" basis, the PNR’s
Meanwhile, on March 31, 1995, respondent’s scrap/unserviceable rails located in Del Carmen and
sister Lubao, Pampanga at P1,300.00 and P2,100.00 per
-in-law, Lilian Soriano (Lilian) obtained frompetitioner metric ton, respectively, for the total amount of
"cash advance" of P253,000 allegedly for the allowances P96,600.00. After paying the stated purchase price,
of poll watchers who were attending a seminar and for Romualdez addressed a letter to Atty. Cipriano Dizon,
other related expenses. Lilian acknowledged on PNR’s Acting Purchasing Agent.
petitioner’s 1995
diaryreceipt of the amount. The Lizette R. Wijanco mentioned in the letter
was Lizette Wijanco- Angeles, petitioner's now deceased
ISSUE: wife. That very same day – May 26, 1980 – Lizette
requested the PNR to transfer the location of withdrawal
W/N Lilian R. Soriano was authorized by the for the reason that the scrap/unserviceable rails located
respondent to receive the cash advancefrom the in Del Carmen and Lubao, Pampanga were not ready for
petitioner in the amount of P253,000.00? hauling. The PNR granted said request and allowed
Lizette to withdraw scrap/unserviceable rails in Murcia,
Capas and San Miguel, Tarlac instead. However, the
HELD: PNR subsequently suspended the withdrawal in view of
By the contract of agency a person binds himself what it considered as documentary discrepancies
to render some service or to dosomething in coupled by reported pilferages of over P500,000.00
representation or on behalf of another, with the consent worth of PNR scrap properties in Tarlac.
or authority of the latter

Consequently, the spouses Angeles demanded apparent that Lizette was to act just as a
the refund of the amount ofP96,000.00. The PNR, "representative" of Romualdez in the "withdrawal of
however, refused to pay, alleging that as per delivery rails," and not an assignee. If Lizette was without legal
receipt duly signed by Lizette, 54.658 metric tons of standing to sue and appear in this case, there is more
unserviceable rails had already been withdrawn which, reason to hold that her petitioner husband, either as her
at P2,100.00 per metric ton, were worth P114,781.80, an conjugal partner or her heir, is also without such
amount that exceeds the claim for refund. standing.
On August 10, 1988, the spouses Angeles filed Petitioner makes much of the fact that the
suit against the PNR and its corporate ecretary, Rodolfo terms "agent" or "attorney-in-fact" were no tused in the
Flores, among others, for specific performance and Romualdez letter a foretasted. It bears to stress,
damages before the Regional Trial Court of Quezon however, that the words "principal" and "agent," are not
City. In it, they prayed that PNR be directed to deliver 46 the only terms used to designate the parties in an
metric tons of scrap/unserviceable rails and to pay them agency relation. The agent may also be called an
damages and attorney's fees. attorney, proxy, delegate or, as here, representative. It
cannot be over emphasized that Romualdez's use
On April 16, 1996, the trial court, on the of the active verb "authorized," instead of "assigned,"
postulate that the spouses Angeles are not the real indicated an intent on his part to keep and retain his
parties-in-interest, rendered judgment dismissing their interest in the subject matter. Stated a bit differently, he
complaint for lack of cause of action. As held by the intended to limit Lizette’s role in the scrap
court, Lizette was merely a representative of Romualdez transaction to being the representative of his interest
in the withdrawal of scrap or unserviceable rails awarded therein.
to him and not an assignee to the latter's rights with
respect to the award. On appeal, the decision of the trail A power of attorney is only but an instrument in
court was affirmed by the Court of Appeals, hence, this writing by which a person, as principal, appoints another
petition. as his agent and confers upon him the authority to
perform certain specified acts on behalf of the principal.
ISSUE: The written authorization itself is the power of attorney,
and this is clearly indicated by the fact that it has also
Whether or not Lizette Angeles was an assignee. been called a "letter of attorney." Its primary purpose is
not to define the authority of the agent as between
himself and his principal but to evidence the authority of
HELD: the agent to third parties with
whom the agent deals. The letter under consideration is
No. Where agency exists, the third party's (in sufficient to constitute a power of attorney. Except as
this case, PNR's) liability on a contract is to the principal may be required by statute, a power of attorney is valid
and not to the agent and the relationship of the third although no notary public intervened in its execution. A
party to the principal is the same as that in a contract in power of attorney must be strictly construed and
which there is no agent. Normally, the agent has neither pursued. The instrument will beheld to grant only those
rights nor liabilities as against the third party. He cannot powers which are specified therein, and the agent may
thus sue or be sued on the contract. Since a contract neither go beyond nor deviate
may be violated only by the from the power of attorney. Contextually, all that Lizette
parties thereto as against each other, the real party-in- was authorized to do was to withdraw the
interest, either as plaintiff or defendant in an action upon unserviceable/scrap railings. Allowing her authority to
that contract must, generally, be a contracting party. sue therefor, especially in her own name, would be to
read something not intended, let alone written in the
The legal situation is, however, different where Romualdez letter.
an agent is constituted as an assignee. In such a case, SIASAT VS. IAC
the agent may, in his own behalf, sue on a contract
made for his principal, as an assignee of such contract. Facts:
The rule requiring every action to be prosecuted in the
name of the real party-in-interest recognizes the Respondent Teresita Nacianceno succeeded in
assignment of rights of action and also recognizes that convincing officials of the then Department of Education
when one has a right assigned to him, he is then the real and Culture, hereinafter called Department, to purchase
party-in-interest and may maintain an action upon such without public bidding, one million pesos worth of
claim or right. national flags for the use of public schools throughout
the country. When Nacianceno was informed by the
Upon scrutiny of the subject Romualdez's letter Chief of the Budget Division of the Department that the
to Atty. Cipriano Dizon dated May 26,1980, it is at once purchase orders could not be released unless a formal

offer to deliver the flags in accordance with the required negotiations leading to,and the execution of, a contract
specifications was first submitted for approval, she of sale of petitioners' merchandise with any entity or
contacted the owners of the United Flag Industry on organization. The petitioners' evidence does not
September 17, 1974. The next day, after the transaction necessarily prove that there were two separate
was discussed, a document was drawn up with the transactions. The document is a general indorsement
following words “This is to formalize our agreement for made by Secretary Manuel for the purchase of the
you to represent United Flag Industry to deal with any national flags for public schools. It contains no reference
entity or organization, private or government in to the number of flags to be ordered or the amount of
connection with the marketing of our products-flags and funds to be released. If the contracts were separate and
all its accessories. For your service, you will be entitled distinct from one another, the whole or at least a
to a commission of thirty (30%) percent”. substantial part of the government's supply procurement
process would have been repeated. In this case, what
The letter was signed by Mr. Primitivo Siasat, were issued were mere indorsements for the release of
owner and general manager of United Flag Industry. funds and authorization for the next purchase. Since
After the first delivery of 7,399 flags, respondent’s only one transaction was involved, we deny the
authority was revoked by petitioner. Siasat, after petitioners' contention that respondent Nacianceno is not
receiving the payment of P469,980.00 on October 23, entitled to the stipulated commission on the second
1974 for the first delivery, tendered the amount of delivery because of the revocation of the agency
P23,900.00 or five percent (5%) of the amount received, effected after the first delivery. The revocation of agency
to the respondent as payment of her commission. The could not prevent the respondent from earning her
latter allegedly protested. She refused to accept the said commission because as the trial court opined, it came
amount insisting on the 30% commission agreed upon. too late, the contract of sale having been already
The respondent was prevailed upon to accept the same, perfected and partly executed.
however, because of the assurance of the petitionersthat
they would pay the commission in full after they VELOSO VS CA
delivered the other half of the order. The respondent
states that she later on learned that petitioner Siasat had
already received payment for the second delivery of Facts:
7,833 flags. When she confronted the petitioners, they
vehemently denied receipt of the payment, at the same Petitioner Francisco Veloso alleged that he
time claiming that the respondent had no participation was the absolute owner of the subject property and he
whatsoever with regard to the second delivery of flags never authorized anybody, not even his wife, to sell it.
and that the agency had already been revoked. An He alleged that he was in possession of the title but
action to recover her commissions was filed by the when his wife, Irma, left for abroad, he found out that his
respondent. The trial court and the court of appeals both copy was missing. He then verified with the Registry of
decided in favor of the respondent. Hence, this appeal. Deeds of Manila and there he discovered that his title
was already cancelled in favor ofdefendant Aglaloma
Escario. The transfer of property was supported by a
Issue: General Power of Attorney dated November 29, 1985
and Deed of Absolute Sale, dated November 2, 1987,
Whether or not respondent Nacianceno is executed by Irma Veloso, wife of the petitioner and
entitled to the commission as agent of United Flag appearing as his attorney-in-fact, and defendant
Industry. Aglaloma Escario.
Issue:
Held:
Whether or not there was a valid sale of the
The Court ruled in the affirmative. property.
One does not have to undertake a close scrutiny Held:

of the document embodying the agreement between the
petitioners and the respondent to deduce that the 'latter The Court ruled in the affirmative.
was instituted as a general agent. Indeed, it can easily
be seen by the way general words were employed in the An examination of the records showed that the
agreement that no restrictions were intended as to the assailed power of attorney was valid and regular on its
manner the agency was to be carried out or in the place face. It was notarized and as such, it carries the
where it was to be executed. The power granted to the evidentiary weight conferred upon it with respect to its
respondent was so broad that it practically covers the due execution. While it is true that it was denominated

as a general power of attorney, the general power of Quezon City, and Sto. Cristo, Binondo, Manila. From
attorney had expressly authorized the agent or attorney December 4, 1979 to February 15, 1980, private
in fact the power to sell the subject respondent delivered various kinds of paper products
property. The special power of attorney can be included amounting to P297,487.30 to a certain Lilian Tan of LT
in the general power when it is specified therein Trading. The deliveries were made by respondent
the act or transaction for which the special power is pursuant to orders allegedly placed by Tiu Huy Tiac who
required. Whether the instrument be denominated as was then employed in the Binondo office of petitioner. It
"general power of attorney" or "special power of was likewise pursuant to Tiac's instructions that the
attorney", what matters is the extent of the power or merchandise was delivered to Lilian Tan. Upon delivery,
powers contemplated upon the agent or attorney in fact. Lilian Tan paid for the merchandise by issuing several
If the power is couched in general terms, then checks payable to cash at the specific request of Tiu
such power cannot go beyond acts of administration. Huy Tiac. In turn, Tiac issued nine (9) postdated checks
However, where the power to sell is specific, it not to private respondent as payment for the paper products.
being merely implied, much less couched in general Unfortunately, sad checks were later dishonored by the
terms, there can not be any doubt that the attorney in drawee bank.
fact may execute a valid sale. An instrument may be
captioned as "special power of attorney" but if the Thereafter, private respondent made several
powers granted are couched in general terms without demands upon petitioner to pay for the merchandise in
mentioning any specific power to sell or mortgage question, claiming that Tiu Huy Tiac was duly authorized
or to do other specific acts of strict dominion, then in that by petitioner as the manager of his Binondo office, to
case only acts of administration may be deemed enter into the questioned transactions with private
conferred. respondent and Lilian Tan. Petitioner denied
any involvement in the transaction entered into by Tiu
The Court found however, that the basis Huy Tiac and refused to pay private respondent the
presented by the petitioner was inadequate to sustain amount corresponding to the selling price of the subject
his allegation of forgery. Mere variance of the signatures merchandise.
cannot be considered as conclusive proof that the same
were forged. Forgery cannot be presumed. Petitioner, Left with no recourse, private respondent filed
however, failed to prove his allegation and simply relied an action against petitioner for the collection
on the apparent difference of the signatures. His denial ofP297,487.30 representing the price of the
had not established that the signature on the power of merchandise. The petitioner ruled in favor of the
attorney was not his. petitioner but the trial court’s decision was subsequently
reversed by the Court of Appeals. Hence, this petition.
The Court agrees with the conclusion of the
lower court that private respondent was an innocent
purchaser for value. Respondent Aglaloma relied on the Issue:
power of attorney presented by petitioner's wife,
Irma. Being the wife of the owner and having with her Whether or not Tiu Huy Tiac possessed the
the title of the property, there was no reason for the required authority from petitioner sufficient to hold the
private respondent not to believe in her authority. latter liable for the disputed transaction.
Moreover, the power of attorney was notarized and as
such, carried with it the presumption of its due execution.
Thus, having had no inkling on any irregularity and Held:
having no participation thereof, private respondent was a
buyer in good faith. It has been consistently held that a The Court ruled in the affirmative.
purchaser in good faith is one who buys property of
another, without notice that some other person has a It is a well-established rule that one who
right to, or interest in such property and pays a full and clothes another with apparent authority as his agent and
fair price for the same, at the time of such purchase, or holds him out to the public as such cannot be permitted
before he has notice of the claim or interest of some to deny the authority of such person to act as his agent,
other person in the property. to the prejudice of innocent third parties dealing with
such person in good faith and in the honest
CUISON VS CA belief that he is what he appears to be (Macke, et al, v.
Camps, 7 Phil. 553 (1907]; Philippine National Bank. v
Facts: Court of Appeals, 94 SCRA 357 [1979]). From the facts
and the evidence on record, there is no doubt that this
Petitioner Kue Cuison is a sole proprietorship rule obtains. The petition must therefore fail.
engaged in the purchase and sale of newsprint, bond
paper and scrap, with places of business at Baesa,

It is evident from the records that by his own Whether or not the Deed of Real Estate
acts and admission, petitioner held out Tiu Huy Tiac to Mortgage executed by Aquino to the Bank is valid.
the public as the manager of his store in Sto. Cristo,
Binondo, Manila. More particularly, petitioner explicitly
introduced Tiu Huy Tiac to Bernardino Villanueva, Held:
respondent's manager, as his (petitioner's) branch
manager as testified to by Bernardino Villanueva. No. Aquino’s act of signing the Deed of Real
Secondly, Lilian Tan, who has been doing business with Estate Mortgage in his name alone as mortgagor,
petitioner for quite a while, also testified that she knew without any indication that he was signing for and in
Tiu Huy Tiac to be the manager of petitioner's Sto. behalf of the property owner, Gallarado, bound himself
Cristo, Binondo branch. This general perception of Tiu alone in his personal capacity as a debtor of the Bank
Huy Tiac as the manager of petitioner's Sto. Cristo store and not as the agent or attorney in fact of Galalrdo. The
is even made manifest by the fact that Tiu Huy Tiac is Court of Appeals further observed that the deed of
known in the community to be the "kinakapatid" mortgage was executed on August 26, 1981 therein
(godbrother) of petitioner. In fact, even petitioner clearly stipulating that it was being executed "as security
admitted his close relationship with Tiu Huy Tiac when for the payment of certain loans, advances or other
he said that they are "like brothers" ( Rollo , p. 54). accommodation obtained by the Mortgagor from the
There was thus no reason for anybody especially those Mortgagee in the total sum of
transacting business with petitioner to even doubt the Three Hundred Fifty Thousand Pesos only
authority of Tiu Huy Tiac as his manager in the Sto. (P350,000.00)" although at the time no such loan or
Cristo Binondo branch. advance
Rural Bank v. Court of Appeals had been obtained. The promissory notes were dated
August 31, September 23 and October 26, 1981 which
were subsequent to the execution of the deed of
Facts: mortgage. The appellant is correct in claiming that the
defendant Rural Bank should not have agreed to extend
Ederlinda Gallardo, wife of Daniel Manzo, or constitute the mortgage on the properties of Gallardo
executed a special power of attorney inf avor of Rufino who had no existing indebtedness with it at the time.
S. Aquino authorizing him to “secure a loan from any
bank for any amount or otherwise mortgage a property in Under the facts the defendant Rural Bank
las pinas”. Aquino executed a Deed of Real Estate in appeared to have ignored the representative capacity of
favor of Rural Bank(referred herein as the Bank) for the Aquino and dealt with him and his wife in their personal
payment ofloans and advances obtained by the capacities. Said appellee Rural Bank also did not
mortgagor totaling php 350,000 with 14% interestrate. conduct an inquiry on whether the subject loans were to
benefit the interest of the principal (plaintiff
Gallardo and Manzo filed an action against Gallardo) rather than that of the agent although the deed
Rufino and the Bank because Aquino allegedly left his of mortgage was explicit that the loan was for
residence in Bulacan and that the plaintiffs were purpose of the bangus and sugpo production of
allegedly surprised to discover that the property was defendant Aquino.
mortgaged to pay personal loans obtained by Aquino
from the Bank solely for personal use and benefit of In effect, with the execution of the mortgage
Aquino. Plaintiffs allege that Aquino, in the real estate under the circumstances and assuming it to be valid but
mortgage, appointed the Bank as attorney in fact because the loan taken was to be used exclusively for
and incase of judicial foreclosure as receiver with Aquino's business in the "bangus" and "sugpo"
corresponding power to sell and that although without production, Gallardo in effect becomes a surety who is
any express authority from Gallardo, Aquino waived the made primarily answerable for loans taken by Aquino in
former’s rights under Section 12, Rule 39 of the his personal capacity in the event Aquino defaults in
Rules of Court. such payment. Under Art. 1878 of the Civil
Code, to obligate the principal as a guarantor or surety,
The trial court issued a TRO against the Bank. a special power of attorney is required. No such
Aquino in his defense said that plaintiff authorized him to special power of attorney for Gallardo to be a surety of
mortgage her property to the Bank in order to liquidate Aquino had been executed.
herphp350,000 obligation to him. The trial court issued a
judgment in favor of the Bankbut the Court of Appeals
reversed.
Issue:

the original contracts (Housing Loan Agreement, Promissory

Note and Real Estate Mortgage) with (respondent bank);
ISSUE:
May a bank unilaterally raise the interest rate on

a housing loan granted an employee, by reason of the
voluntary resignation of the borrower?
HELD:
It will not be amiss to point out that the unilateral

determination and imposition of increased interest rates
by the herein respondent bank is obviously violative of
the principle of mutuality of contractsordained in Article
1308 of the Civil Code.
In order that obligations arising from contracts

may have the force of law between the parties, there
CREDIT TRANSACTIONS must be mutuality between the parties based on their
essential equality. A contract containing a condition
which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is
SPOUSES FLORENDO VS. CA and LAND BANK void. Hence, even assuming that the . . . loan agreement
G.R. No. 101771 December 17, 1996 between the PNB and the private respondent gave the
PNB a license (although in fact there was none) to
FACTS: increase the interest rate at will during the term of the
loan, that license would have been null and void for
Petitioner Gilda Florendo (was) an employee of being violative of the principle of mutuality essential in
(Respondent Bank) from May 17, 1976 until August 16, contracts. It would have invested the loan agreement
1984 when she voluntarily resigned. However, before with the character of a contract of adhesion, where the
her resignation, she applied for a housing loan of parties do not bargain on equal footing, the weaker
P148,000.00, payable within 25 years from (respondent party's (the debtor) participation being reduced to the
bank's) Provident Fund on July 20, 1983; alternative "to take it or leave i.” Such a contract is a
veritable trap for the weaker party whom the courts of
That the loan . . . was actually given to (petitioner) Gilda justice must protect against abuse and imposition.
Florendo, . . ., in her capacity as employee of (respondent
bank);
That on March 19, 1985, (respondent bank) increased the
The respondent bank tried to sidestep this
interest rate on (petitioner's) loan from 9% per annum to 17%, difficulty by averring that petitioner Gilda Florendo as a
the said increase to take effect on March 19, 1985; former bank employee was very knowledgeable
That the details of the increase are embodied in (Landbank's) concerning respondent bank's lending rates and
ManCom Resolution No. 85-08 dated March 19, 1985, . . . , procedures, and therefore, petitioners were "on an equal
and in a PF (Provident Fund) Memorandum Circular (No. 85- footing" with respondent bank as far as the subject loan
08, Series of 1985), . . contract was concerned. That may have been true
That (petitioners) protested the increase, thereafter, insofar as entering into the original loan agreement and
(respondent bank) kept on demanding that (petitioner) pay the mortgage contract was concerned. However, that does
increased interest or the new monthly installments based on
the increased interest rate, but Plaintiff just as vehemently
not hold true when it comes to the determination and
maintained that the said increase is unlawful and unjustifiable. imposition of escalated rates of interest as unilaterally
Because of (respondent bank's) repeated demands, provided in the ManCom Resolution, where she had no
(petitioners) were forced to file the instant suit for Injunction voice at all in its preparation and application.
and Damages; To allay fears that respondent bank will inordinately be
That, just the same, despite (respondent bank's) demands that prejudiced by being stuck with this "sweetheart loan" at
(petitioners) pay the increased interest or increased monthly patently concessionary interest rates, which according to
installments, they (petitioners) have faithfully paid and respondent bank is the "sweetest deal" anyone could
discharged their loan obligations, more particularly the monthly obtain and is an act of generosity considering that in
payment of the original stipulated installment of P1,248.72.
Disregarding (respondent bank's) repeated demand for
1985 lending rates in the banking industry were peaking
increased interest and monthly installment, (petitioners) are well over 30% p.a., we need only point out that the bank
presently up-to-date in the payments of their obligations under had the option to impose in its loan contracts the
condition that resignation of an employee-borrower

would be a ground for escalation. The fact is it did not. and confidence between them. According to her
Hence, it must live with such omission. And it would be computation, the total amount she paid to petitioner for
totally unfair to now impose said condition, not to the loan and interest accumulated toP1,200,000.00.
mention that it would violate the principle of mutuality of
consent in contracts. It goes without saying that such Since she paid petitioner a total amount
escalation ground can be included in future contracts — of P1,200,000.00 for the P540,000.00 worth of loan, and
not to agreements already validly entered into. upon being advised by her lawyer that she made
Let it be clear that this Court understands overpayment to petitioner, she sent a demand letter to
respondent bank's position that the concessional interest petitioner asking for the return of the excess amount
rate was really intended as a means to remunerate its of P660,000.00. Petitioner, despite receipt of the
employees and thus an escalation due to resignation demand letter, ignored her claim for reimbursement.
would have been a valid stipulation. But no such
stipulation was in fact made, and thus the escalation The RTC rendered a Decision holding that
provision could not be legally applied and enforced as respondent made an overpayment of her loan obligation
against herein petitioners. to petitioner and that the latter should refund the excess
amount to the former. It ratiocinated that respondent’s
obligation was only to pay the loaned amount
of P540,000.00, and that the alleged interests due
should not be included in the computation of
SEBASTIAN SIGA-AN VS. ALICIA VILLANUEVA respondent’s total monetary debt because there was no
G.R. No. 173227 January 20, 2009 agreement between them regarding payment of interest.
It concluded that since respondent made an excess
FACTS: payment to petitioner in the amount of P660,000.00
through mistake, petitioner should return the said
Respondent alleged that she was a amount to respondent pursuant to the principle of solutio
businesswoman engaged in supplying office materials indebiti.
and equipments to the Philippine Navy Office (PNO)
located at Fort Bonifacio, Taguig City, while petitioner The RTC also ruled that petitioner should pay
was a military officer and comptroller of the PNO from moral damages for the sleepless nights and wounded
1991 to 1996. feelings experienced by respondent.
Respondent claimed that sometime in 1992,

petitioner approached her inside the PNO and offered to ISSUE:
loan her the amount of P540,000.00. Since she needed
capital for her business transactions with the PNO, she THE RTC AND THE CA ERRED IN RULING
accepted petitioner’s proposal. The loan agreement was THAT NO INTEREST WAS DUE TO PETITIONER.
not reduced in writing. Also, there was no stipulation as THE RTC AND THE CA ERRED IN APPLYING THE
to the payment of interest for the loan. PRINCIPLE OF SOLUTIO INDEBITI?
On 31 August 1993, respondent issued a check

worth P500,000.00 to petitioner as partial payment of the HELD:
loan. On 31 October 1993, she issued another check in
the amount of P200,000.00 to petitioner as payment of Interest is a compensation fixed by the parties
the remaining balance of the loan. Petitioner told her that for the use or forbearance of money. This is referred to
since she paid a total amount of P700,000.00 for as monetary interest. Interest may also be imposed by
theP540,000.00 worth of loan, the excess amount law or by courts as penalty or indemnity for damages.
of P160,000.00 would be applied as interest for the loan. This is called compensatory interest. The right to interest
Not satisfied with the amount applied as interest, arises only by virtue of a contract or by virtue of
petitioner pestered her to pay additional interest. damages for delay or failure to pay the principal loan on
Petitioner threatened to block or disapprove her which interest is demanded.1
transactions with the PNO if she would not comply with
his demand. As all her transactions with the PNO were Article 1956 of the Civil Code, which refers to
subject to the approval of petitioner as comptroller of the monetary interest, specifically mandates that no interest
PNO, and fearing that petitioner might block or unduly shall be due unless it has been expressly stipulated in
influence the payment of her vouchers in the PNO, she writing. As can be gleaned from the foregoing provision,
conceded. Thus, she paid additional amounts in cash payment of monetary interest is allowed only if: (1) there
and checks as interests for the loan. She asked was an express stipulation for the payment of interest;
petitioner for receipt for the payments but petitioner told and (2) the agreement for the payment of interest was
her that it was not necessary as there was mutual trust reduced in writing. The concurrence of the two

conditions is required for the payment of monetary another. The principle of solutio indebiti applies where
interest. Thus, we have held that collection of interest (1) a payment is made when there exists no binding
without any stipulation therefor in writing is prohibited by relation between the payor, who has no duty to pay, and
law. the person who received the payment; and (2) the
payment is made through mistake, and not through
It appears that petitioner and respondent did not liberality or some other cause. We have held that the
agree on the payment of interest for the loan. Neither principle of solutio indebiti applies in case of erroneous
was there convincing proof Petitioner’s reliance on payment of undue interest.
respondent’s alleged admission in the Batas Pambansa
Blg. 22 cases that they had agreed on the payment of It was duly established that respondent paid
interest at the rate of 7% deserves scant consideration. interest to petitioner. Respondent was under no duty to
In the said case, respondent merely testified that after make such payment because there was no express
paying the total amount of loan, petitioner ordered her to stipulation in writing to that effect. There was no binding
pay interest. Respondent did not categorically declare in relation between petitioner and respondent as regards
the same case that she and respondent made the payment of interest. The payment was clearly a
an express stipulation in writing as regards payment of mistake. Since petitioner received something when there
interest at the rate of 7%. As earlier discussed, monetary was no right to demand it, he has an obligation to return
interest is due only if there was anexpress stipulation in it.
writing for the payment of interest.
There are instances in which an interest may be When an obligation, not constituting a loan or
imposed even in the absence of express stipulation, forbearance of money is breached, an interest on the
verbal or written, regarding payment of interest. Article amount of damages awarded may be imposed at the
2209 of the Civil Code states that if the obligation rate of 6% per annum. We further declared that when
consists in the payment of a sum of money, and the the judgment of the court awarding a sum of money
debtor incurs delay, a legal interest of 12% per annum becomes final and executory, the rate of legal interest,
may be imposed as indemnity for damages if no whether it is a loan/forbearance of money or not, shall be
stipulation on the payment of interest was agreed upon. 12% per annum from such finality until its satisfaction,
Likewise, Article 2212 of the Civil Code provides that this interim period being deemed equivalent to a
interest due shall earn legal interest from the time it is forbearance of credit.
judicially demanded, although the obligation may be
silent on this point. In the present case, petitioner’s obligation arose
from a quasi-contract of solutio indebiti and not from a
All the same, the interest under these two loan or forbearance of money. Thus, an interest of 6%
instances may be imposed only as a penalty or damages per annum should be imposed on the amount to be
for breach of contractual obligations. It cannot be refunded as well as on the damages awarded and on the
charged as a compensation for the use or forbearance of attorney’s fees, to be computed from the time of the
money. In other words, the two instances apply only to extra-judicial demand up to the finality of this Decision.
compensatory interest and not to monetary interest. The In addition, the interest shall become 12% per annum
case at bar involves petitioner’s claim for monetary from the finality of this Decision up to its satisfaction.
interest.
FALLO: CA decision AFFIRMED
Second Issue:
Under Article 1960 of the Civil Code, if the

borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code
concerning solutio indebiti shall be applied. Article 2154
of the Civil Code explains the principle of solutio indebiti.
Said provision provides that if something is received
when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it
arises. In such a case, a creditor-debtor relationship is
created under a quasi-contract whereby the payor
becomes the creditor who then has the right to demand
the return of payment made by mistake, and the person
who has no right to receive such payment becomes
obligated to return the same. The quasi-contract of
solutio indebiti harks back to the ancient principle that no
one shall enrich himself unjustly at the expense of

Petitioner alleged that he was issued the credit card as

an “honorary member.” As such, he was not required to
submit any application or sign any document prior to the
issuance of the card and he was entitled to pay on an
installment basis without any interest. He denied signing
the document Terms and Conditions Governing the
Issuance and Use of Equitable Visa Card.
ISSUE:
Whether petitioner is not required to pay the

interest of his credit card?
HELD:
The private respondent maintains that the above

stipulation is a standard clause printed at the back of
each credit card that it issued and that the Agreement
CRISOSTOMO ALCARAZ VS. CA mentioned therein refers to the Terms and Conditions
G.R. No. 152202 which governs the use of the credit card as contained in
private respondent Equitable’s standard application
FACTS: form. Thus, by signing the back of the credit card,
petitioner Alcaraz has explicitly consented to the Terms
Private respondent, Equitable Credit Card and Conditions including the applicable interests, service
Network, Inc. (Equitable), is a company engaged in the fees, attorney’s fees and liquidated damages in the
business of extending credit accommodations/facilities event of nonpayment within the period stated in the
through the use of the credit cards issued to its clientele. statements of account regularly sent every month to the
petitioner.
In May 1995, private respondent Equitable
issued a credit card to petitioner Crisostomo Alcaraz. It is, however, undeniable that petitioner Alcaraz
The petitioner through the use of the said credit card accumulated unpaid obligations both in his peso and
secured cash advances and purchased goods and dollar accounts through the use of the credit card issued
services on credit. Thus, the petitioner accumulated to him by private respondent Equitable. As such,
unpaid credit with private respondent and despite the petitioner Alcaraz is liable for the payment
receipt of several demand letters, failed to pay his thereof. Since the provisions of the Terms and
outstanding obligations. Conditions are inapplicable to petitioner Alcaraz, the
legal interest on obligations consisting of loan or
Private respondent Equitable sought the forbearance of money shall apply, to wit:
payment of the accumulated outstanding balance
including interest of 2.5% per month as well as a 1. When the obligation is breached, and it
monthly late penalty/surcharge of 1.5% for the peso consists in the payment of a sum of money, i.e., a
account, and 1.5% monthly interest and 1% late loan or forbearance of money, the interest due should
penalty/surcharge per month for the dollar account until be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn
full payment thereof as provided in the “Terms and legal interest from the time it is judicially
Conditions Governing the Issuance and Use of Equitable demanded. In the absence of stipulation, the rate
Visa Card” (hereinafter referred to as the Terms and of interest shall be 12% per annum to be
Conditions). The private respondent also prayed for computed from default, i.e., from judicial or
liquidated damages of 25% of the total amount of both extrajudicial demand under and subject to the
accounts and attorney’s fees at the same rate allegedly provisions of Article 1169 of the Civil Code.
also in accordance with the Terms and Conditions. ....
Private respondent Equitable claims petitioner Alcaraz 3. When the judgment of the court awarding
has an accumulated outstanding balance of a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under
US$8,970.54 in his dollar account as of February 18, paragraph 1 or paragraph 2, above, shall be 12% per
1999, and P192,500.00 on his peso account as of annum from such finality until its satisfaction, this
February 28, 1999 inclusive of interest and surcharges. interim period being deemed to be by then an
equivalent to a forbearance of credit.
The petitioner admitted he had made use of the
credit card issued in his name by private respondent In the present case, the records reveal that the
Equitable, but contested the amount of his liability. principal amount of the obligation on the peso account

of the subject credit card as of March 17, 1996

isP81,000.00, while the dollar account of the same credit (1)Whether PNB has the right to apply a deposit
card has an unpaid balance of $4,397.34 exclusive of to the debt of depositor to the bank?
any interests, penalties and other charges as of March 3,
1996. The extrajudicial demand for payment for the (2) Whether Gullas is entitled to damages?
dollar account was made on June 25, 1996 by virtue of a
letter sent to and duly received by the
petitioner. The June 25, 1996 demand letter was, HELD:
however, silent on the unpaid balance on the peso
account. The records likewise reveal that it was only The Civil Code contains provisions regarding
on October 5, 1996 that private respondent Equitable compensation (set off) and deposit. (Articles 1195 et
may be deemed to have extrajudicially demanded seq., 1758 et seq. The portions of Philippine law provide
payment of the outstanding obligation of petitioner that compensation shall take place when two persons
Alcaraz on his peso account. Hence, it is only from the are reciprocally creditor and debtor of each other (Civil
aforesaid dates that the legal rate of interest shall apply Code, article 1195). In his connection, it has been held
on the dollar and peso accounts, respectively, until full that the relation existing between a depositor and a bank
payment thereof. is that of creditor and debtor.
Starting, therefore, from the premise that the

Philippine National Bank had with respect to the deposit
DEPOSIT of Gullas a right of set off, we next consider if that
remedy was enforced properly. The fact we believe is
undeniable that prior to the mailing of notice of dishonor,
PAULINO GULLAS VS. PHILIPPINE NATIONAL and without waiting for any action by Gullas, the bank
G.R. No. L-43191 November 13, 1935 made use of the money standing in his account to make
good for the treasury warrant. At this point recall that
Gullas was merely an indorser and had issued in good
FACTS: faith.
The parties to the case are Paulino Gullas and As to a depositor who has funds sufficient to
PNB. The first named is a member of the Philippine Bar, meet payment of a check drawn by him in favor of a third
resident in the City of Cebu. The second named is a party, it has been held that he has a right of action
banking corporation with a branch in the same city. against the bank for its refusal to pay such a check in the
Attorney Gullas has had a current account with the bank. absence of notice to him that the bank has applied the
funds so deposited in extinguishment of past due claims
It appears from the record that on August 2, held against him. The decision cited represents the
1933, the Treasurer of the United States for the United minority doctrine, for on principle it would seem that
States Veterans Bureau issued a Warrant in the amount notice is not necessary to a maker because the right is
of $361, payable to the order of Francisco Sabectoria based on the doctrine that the relationship is that of
Bacos. Paulino Gullas and Pedro Lopez signed as creditor and debtor. However this may be, as to an
endorsers of this check. Thereupon it was cashed by the indorser the situation is different, and notice should
Philippine National Bank. Subsequently the treasury actually have been given him in order that he might
warrant was dishonored by the Insular Treasurer. protect his interests.
At that time the outstanding balance of Attorney We accordingly are of the opinion that the action
Gullas on the books of the bank was P509. Against this of the bank was prejudicial to Gullas. But to follow up
balance he had issued certain checks which could not that statement with others proving exact damages is not
be paid when the money was sequestered by the On so easy. For instance, for alleged libelous articles the
August 20, 1933, Attorney Gullas left his residence for bank would not be primarily liable. The same remark
Manila. could be made relative to the loss of business which
The bank on learning of the dishonor of the treasury Gullas claims but which could not be traced definitely to
warrant sent notices by mail to Mr. Gullas which could this occurrence. Also Gullas having eventually been
not be delivered to him at that time because he was in reimbursed lost little through the actual levy by the bank
Manila. The bank applied the outstanding balances in on his funds. On the other hand, it was not agreeable for
the current account of Atty. Gullas with PNB to part for one to draw checks in all good faith, then, leave for
the payment of the foregoing checks. Manila, and on return find that those checks had not
been cashed because of the action taken by the bank.
That caused a disturbance in Gullas' finances, especially
ISSUES: with reference to his insurance, which was injurious to

him. All facts and circumstances considered, we are of and the Nation Savings and Loan Association is that of
the opinion that Gullas should be awarded nominal creditor and debtor; consequently, the ownership of the
damages because of the premature action of the bank amount deposited was transmitted to the Bank upon the
against which Gullas had no means of protection, and perfection of the contract and it can make use of the
have finally determined that the amount should be P250. amount deposited for its banking operations, such as to
pay interests on deposits and to pay withdrawals. While
the Bank has the obligation to return theamount
deposited, it has, however, no obligation to return or
deliver the same money that was deposited. And, the
failure of the Bank to return the amount deposited will
not constitute estafa through misappropriation
punishable under Article 315, par. l(b) of the Revised
Penal Code, but it will only give rise to civil liability over
which the public respondents have no jurisdiction.
But even granting that the failure of the bank to

pay the time and savings deposits of private respondent
David would constitute a violation of paragraph 1(b) of
GUINGONA VS. FLAMINIANO Article 315 of the Revised Penal Code, nevertheless any
incipient criminal liability was deemed avoided, because
FACTS: when the aforesaid bank was placed under receivership
by the Central Bank, petitioners Guingona and Martin
From March 1979 to March 1981, Clement assumed the obligation of the bank to private respondent
David made several investments with the National David, thereby resulting in the novation of the original
Savings and Loan Association. On March 21, 1981, the contractual obligation arising from deposit into a contract
bank was placed under receivership by the Bangko of loan and converting the original trust relation between
Sentral. Upon David’s request, petitioners Guingona and the bank and private respondent David into an ordinary
Martin issued a joint promissory note, absorbing the debtor-creditor relation between the petitioners and
obligations of the bank. On July 17, 1981, they divided private respondent. Consequently, the failure of the bank
the indebtedness. David filed a complaint for estafa and or petitioners Guingona and Martin to pay the deposits of
violation of Central Bank Circular No. 364 and related private respondent would not constitute a breach of trust
regulations regarding foreign exchange transactions but would merely be a failure to pay the obligation as a
before the Office of the City Fiscal of Manila. Petitioners debtor. Moreover, while it is true that novation does not
filed the herein petition for prohibition and injunction with extinguish criminal liability, it may however, prevent the
a prayer for immediate issuance of restraining order rise of criminal liability as long as it occurs prior to the
and/or writ of preliminary injunction to enjoin the public filing of the criminal information in court. In the case at
respondents to proceed with the preliminary bar, there is no dispute that petitioners Guingona and
investigation on the ground that the petitioners’ Martin executed a promissory note on June 17, 1981
obligation is civil in nature. assuming the obligation of the bank to private
respondent David; while the criminal complaint for estafa
was filed on December 23, 1981 with the Office of the
ISSUE: City Fiscal. Hence, it is clear that novation occurred long
before the filing of the criminal complaint with the Office
1. Whether the contract between NSLA and of the City Fiscal. Consequently, as aforestated, any
David is a contract of depositor a contract of loan, which incipient criminal liability would be avoided but there will
answer determines whether the City Fiscal has the still be a civil liability on the part of petitioners Guingona
jurisdiction to file a case for estafa? and Martin to pay the assumed obligation.
2. Whether there was a violation of Central (2) Petitioner Guingona merely accommodated
Bank Circular No. 364? the request of the Nation Savings and loan Association
in order to clear the bank draft through his dollar account
because the bank did not have a dollar account.
HELD: Immediately after the bank draft was cleared, petitioner
Guingona authorized Nation Savings and Loan
1) When private respondent David invested his Association to withdraw the same in order to be utilized
money on nine. and savings deposits with the aforesaid by the bank for its operations. It is safe to assume that
bank, the contract that was perfected was a contract of the U.S. dollars were converted first into Philippine
simple loan or mutuum and not a contract of deposit. pesos before they were accepted and deposited in
Hence, the relationship between the private respondent Nation Savings and Loan Association, because the bank

is presumed to have followed the ordinary course of the petitioners in Iloilo City after Transbuilders defaulted in
business which is to accept deposits in Philippine its payments.
currency only, and that the transaction was regular and
fair, in the absence of a clear and convincing evidence to The Manila RTC dismissed petitioners’ actions
the contrary. for mandamus and prohibition. Their appeal to the Court
In conclusion, considering that the liability of the of Appeals was likewise dismissed.
petitioners is purely civil in nature and that there is no
clear showing that they engaged in foreign exchange ISSUE:
transactions, We hold that the public respondents acted Whether there was a novation of the mortgage
without jurisdiction when they investigated the charges loan contract between petitioners and BPI-FSB that
against the petitioners. Consequently, public would result in the extinguishment of petitioners’ liability
respondents should be restrained from further to the bank?
proceeding with the criminal case for to allow the case to
continue, even if the petitioners could have appealed to HELD:
the Ministry of Justice, would work great injustice to
petitioners and would render meaningless the proper Novation is defined as the extinguishment of an
administration of justice. obligation by the substitution or change of the obligation
by a subsequent one which terminates the first, either by
changing the object or principal conditions, or by
SPS.REYES VS. BPI FAMILY SAVINGS BANK substituting the person of the debtor, or subrogating a
G.R. Nos. 149840-41 March 31, 2006 third person in the rights of the creditor.
FACTS: Article 1292 of the Civil Code on

novation further provides: Article 1292. In order that
On March 24, 1995, the Reyes spouses an obligation may be extinguished by another which
executed a real estate mortgage on their property in substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the
Iloilo City in favor of respondent BPI Family Savings new obligations be on every point incompatible with
Bank, Inc. (BPI-FSB) to secure a P15M loan of each other.
Transbuilders Resources and Development Corporation
(Transbuilders). The mortgage contract between The cancellation of the old obligation by the new
petitioners and BPI-FSB provided, among others: one is a necessary element of novation which may be
effected either expressly or impliedly. While there is
When Transbuilders failed to pay its P15M loan really no hard and fast rule to determine what might
within the stipulated period of one year, the bank constitute sufficient change resulting in novation, the
restructured the loan through a promissory note touchstone, however, is irreconcilable incompatibility
executed by Transbuilders in its favor. The pertinent between the old and the new obligations.
provisions of the promissory note stated that:
1. The proceeds of the Note shall be applied to loan account Thus, the well-settled rule is that, with respect to
no. 21108336 obligations to pay a sum of money, the obligation is not
2. The new obligation of Transbuilders to respondent Bank for
fifteen million (P15,000,000.00) shall be paid in twenty (20)
novated by an instrument that expressly recognizes the
quarterly installments commencing on September 28, 1996 old, changes only the terms of payment, adds other
and at an interest rate of eighteen (18%) per annum. obligations not incompatible with the old ones, or the
new contract merely supplements the old one.
Petitioners aver that they were not informed
about the restructuring of Transbuilders’ loan. In fact, BPI-FSB and Transbuilders only extended the
when they learned of the new loan agreement sometime repayment term of the loan from one year to twenty
in December 1996, they wrote BPI-FSB requesting the quarterly installments at 18% interest per annum. There
cancellation of their mortgage and the return of their was absolutely no intention by the parties to supersede
certificate of title to the mortgaged property. They or abrogate the old loan contract secured by the real
claimed that the new loan novated the loan agreement of estate mortgage executed by petitioners in favor of BPI-
March 24, 1995. Because the novation was without their FSB. In fact, the intention of the new agreement was
knowledge and consent, they were allegedly released precisely to revive the old obligation after the original
from their obligation under the mortgage. period expired and the loan remained unpaid. The
When BPI-FSB refused to cancel the mortgage, novation of a contract cannot be presumed. In the
petitioners filed separate petitions for mandamus and absence of an express agreement, novation takes place
prohibition with the Regional Trial Court (RTC) of Manila only when the old and the new obligations are
to compel the bank to return their certificate of title and incompatible on every point.
cancel the mortgage. BPI-FSB, on the other hand,
instituted extrajudicial foreclosure proceedings against

Moreover, under the real estate mortgage Citytrust later filed a complaint for estafa, with
executed by them in favor of BPI-FSB, petitioners reservation on the filing of a separate civil action, against
undertook to secure the P15M loan of Transbuilders to Flores. Flores was convicted.
BPI-FSB "and other credit accommodations of whatever
nature obtained by the Borrower/Mortgagor." While this Citytrust thereafter filed before the Regional Trial
stipulation proved to be onerous to petitioners, neither Court (RTC) of Manila a complaint for recovery of sum of
the law nor the courts will extricate a party from an money with damages against petitioner which it alleged
unwise or undesirable contract entered into with all the erred in encashing the checks and in charging the
required formalities and with full awareness of its proceeds thereof to its account, despite the lack of
consequences. Petitioners voluntarily executed the real authority of "Rosauro C. Cayabyab."
estate mortgage on their property in favor of BPI-FSB to
secure the P15M loan of Transbuilders. They cannot
now be allowed to repudiate their obligation to the bank ISSUE:
after Transbuilders’ default. While petitioners’ liability
was written in fine print and in a contract prepared by Whether Citytrust should be liable solely for the
BPI-FSB, it has been the consistent holding of this Court loss?
that contracts of adhesion are not invalid per se. On
numerous occasions, we have upheld the binding effects HELD:
of such contracts.
The contract between the bank and its depositor
is governed by the provisions of the Civil Code
CENTRAL BANK VS. CITYTRUST BANKING on simple loan. Article 1980 of the Civil Code
CORPORATION expressly provides that "x x x savings x x x
G.R. No. 141835 February 4, 2009 deposits of money in banks and similar
institutions shall be governed by the provisions
FACTS: concerning simple loan." There is a debtor-
creditor relationship between the bank and its
Citytrust furnished petitioner with the names and depositor. The bank is the debtor and the
corresponding signatures of five of its officers authorized depositor is the creditor. The depositor lends the
to sign checks and serve as drawers and indorsers for bank money and the bank agrees to pay the
its account as well as those authorized to withdraw, sign depositor on demand. The savings deposit
receipts and perform other transactions on its behalf. agreement between the bank and the depositor
Petitioner later issued security identification cards to the is the contract that determines the rights and
roving tellers one of whom was "Rounceval Flores" obligations of the parties.
(Flores).
The law imposes on banks high standards in
On July 15, 1977, Flores presented for payment view of the fiduciary nature of banking. Section 2 of
to petitioner’s Senior Teller Iluminada dela Cruz Republic Act No. 8791 ("RA 8791"), which took effect on
(Iluminada) two Citytrust checks of even date, payable to 13 June 2000, declares that the State recognizes the
Citytrust, one in the amount of P850,000 and the other in "fiduciary nature of banking that requires high standards
the amount ofP900,000, both of which were signed and of integrity and performance." This new provision in the
indorsed by Citytrust’s authorized signatory-drawers. general banking law, introduced in 2000, is a statutory
affirmation of Supreme Court decisions, starting with the
After the checks were certified by petitioner’s 1990 case of Simex International v. Court of Appeals,
Accounting Department, Iluminada verified them, holding that "the bank is under obligation to treat the
prepared the cash transfer slip on which she affixed her accounts of its depositors with meticulous care, always
signature, stamped the checks with the notation having in mind the fiduciary nature of their relationship."
"Received Payment" and asked Flores to, as he did, sign
on the space above such notation. Instead of signing his This fiduciary relationship means that the bank’s
name, however, Flores signed as "Rosauro C. obligation to observe "high standards of integrity and
Cayabyab" – a fact Iluminada failed to notice. performance" is deemed written into every deposit
More than a year and nine months later, Citytrust, agreement between a bank and its depositor. The
alleging that the checks were already cancelled because fiduciary nature of banking requires banks to assume a
they were stolen, demanded petitioner to restore the degree of diligence higher than that of a good father of a
amounts covered thereby to its demand deposit account. family. Article 1172 of the Civil Code states that the
Petitioner did not heed the demand, however. degree of diligence required of an obligor is that
prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family.
Section 2 of RA 8791 prescribes the statutory diligence

required from banks – that banks must observe "high operates prospectively and not retroactively. It only
standards of integrity and performance" in servicing their secures the debts contracted after the guaranty takes
depositors. effect. To apply the payment to the obligations
contracted before the guaranty would make the
Citytrust’s failure to timely examine its account, surety answer for debts outside the guaranty. The
cancel the checks and notify petitioner of their alleged surety agreement didn't guarantee the payment of any
loss/theft should mitigate petitioner’s liability, in outstanding balance due from the principal debtor but
accordance with Article 2179 of the Civil Code which only he would turn out the sales proceeds to the
provides that if the plaintiff’s negligence was only Distileria and this he has done, since his remittances
contributory, the immediate and proximate cause of the exceeded the value of the sales during the period
injury being the defendant’s lack of due care, the plaintiff of the guaranty.
may recover damages, but the courts shall mitigate the
damages to be awarded. For had Citytrust timely Second, since the Dy Eng Biok’s obligations
discovered the loss/theft and/or subsequent prior to the guaranty were not covered, and absent any
encashment, their proceeds or part thereof could have express stipulation, any prior payment made should
been recovered. be applied to the debts that were guaranteed since they
are to be regarded as the more onerous debts.
FALLO: CA decision AFFIRMED with MODIFICATION,
in that petitioner and Citytrust should bear the loss on a
60-40 ratio.
GUARANTY
TRADERS INSURANCE VS. DY ENG BIOK
104 PHIL 806
FACTS:
Dy Eng Giok was a provincial sales agent of

Distillery corporation, with the responsibility of remitting
sales proceeds to the principal corporation. He has a
running balance and to satisfy payment, a surety
bond was issued with petitioner as guarantor, whereby
they bound themselves liable to the distillery corporation.
More purchases was made by Dy Eng Giok

and he was able to pay for these additional
purchases. Nonetheless, the payment was first applied
to his prior payables. A remaining balance still is
unpaid. Thus, an action was filed against sales
agent and surety company. Judgment was rendered
in favor of the corporation.
ISSUE:
Whether surety should answer for debts outside

the guaranty?
HELD:
The remittances of Dy Eng Giok should first

be applied to the obligation first contracted by him and
covered by the surety agreement. First, in the absence
of express stipulation, a guaranty or suretyship

unpaid overdue accounts on the letters of credit plus

interests and penalties within twenty-four (24) hours from
receipt thereof. The Bank also invoked the Continuing
Guaranty executed by petitioner-spouses Luis Toh and
Vicky Tan Toh who were the only parties known to be
within national jurisdiction to answer as sureties for the
credit facility of FBPC.
Petitioner-spouses however could not be certain

whether to deny or admit the due execution and
authenticity of the Continuing Guaranty. They could only
allege that they were made to sign papers in blank and
the Continuing Guaranty could have been one of them.
The RTC found that petitioners “voluntarily

affixed their signature[s]” on the Continuing Guaranty
and were thus “at some given point in time willing to be
liable under those forms,” although it held that petitioners
were not bound by the surety contract since the letters of
SPOUSES TAN TOHVS. SOLID BANK credit it was supposed to secure were opened long after
CORPORATION petitioners had ceased to be part of FBPC.
G.R. No. 154183. August 7, 2003
The appellate court modified the Decision of the
FACTS: trial court and held that by signing the Continuing
Guaranty, petitioner-spouses became solidarily liable
Respondent Solid Bank agreed to extend an with FBPC to pay respondent Bank the amount of
“omnibus line” credit facility worth 10 M in facvor of P10,539,758.68 as principal with twelve percent (12%)
respondent First Business Paper Corporation (FBPC). interest per annum from finality of the judgment until
The terms and conditions were stipulated in a “letter- completely paid.
advise” of the bank where a stipulation of a “continuing
guaranty for any and all amounts signed by the Spouses
Toh and Ng Li.” ISSUE:
The Continuing Guaranty set forth no maximum limit on
the indebtedness that respondent FBPC may incur and Whether Spouses Toh as a guarantor for FBPC
for which the sureties may be liable, stating that the are solidarily liable to pay respondent Bank?
credit facility “covers any and all existing indebtedness
of, and such other loans and credit facilities which may
hereafter be granted to FIRST BUSINESS PAPER HELD:
CORPORATION.” The surety also contained a de facto
acceleration clause if “default be made in the payment of This Court holds that the Continuing Guaranty is
any of the instruments, indebtedness, or other a valid and binding contract of petitioner-spouses as it is
obligation” guaranteed by petitioners and respondents. a public document that enjoys the presumption of
So as to strengthen this security, the Continuing authenticity and due execution. Although petitioners as
Guaranty waived rights of the sureties against delay or appellees may raise issues that have not been assigned
absence of notice or demand on the part of respondent as errors by respondent Bank as party-appellant, i.e.,
Bank, and gave future consent to the Bank’s action to unenforceability of the surety contract, we are bound by
“extend or change the time payment, and/or the manner, the consistent finding of the courts a quo that petitioner-
place or terms of payment,” including renewal, of the spouses Luis Toh and Vicky Tan Toh “voluntarily affixed
credit facility or any part thereof in such manner and their signature[s]” on the surety agreement and were
upon such terms as the Bank may deem proper without thus “at some given point in time willing to be liable
notice to or further assent from the sureties. under those forms.”In the absence of clear, convincing
and more than preponderant evidence to the contrary,
On 13 January 1994 respondent Bank received our ruling cannot be otherwise.
information that respondent-spouses Kenneth Ng Li and
Ma. Victoria Ng Li had fraudulently departed from their Insofar as petitioners stipulate in the Continuing
conjugal home. On 14 January 1994 the Bank served a Guaranty that respondent Bank “may at any time, or
demand letter upon FBPC and petitioner Luis Toh from time to time, in [its] discretion x x x extend or
invoking the acceleration clause in the trust receipts of change the time payment,” this provision even if
FBPC and claimed payment for P10,539,758.68 as understood as a waiver is confined per se to the grant of

an extension and does not surrender the prerequisites obligations as sureties of respondent FBPC under Art.
therefor as mandated in the “letter-advise.” In other 2079 of the Civil Code.
words, the authority of the Bank to defer collection
contemplates only authorized extensions, that is, those Further, we note several suspicious
that meet the terms of the “letter-advise.” circumstances that militate against the enforcement of
the Continuing Guaranty against the accommodation
Certainly, while the Bank may extend the due sureties. Firstly, the guaranty was executed more than
date at its discretion pursuant to the Continuing thirty (30) days from the original acceptance period as
Guaranty, it should nonetheless comply with the required in the “letter-advise.” Thereafter, barely two (2)
requirements that domestic letters of credit be supported days after the Continuing Guaranty was signed,
by fifteen percent (15%) marginal deposit extendible corporate agents of FBPC were replaced on 12 May
three (3) times for a period of thirty (30) days for each 1993 and other adjustments in the corporate structure of
extension, subject to twenty-five percent (25%) partial FBPC ensued in the month of June 1993, which the
payment per extension. This reading of the Continuing Bank did not investigate although such were made
Guaranty is consistent with Philippine National Bank v. known to it.
Court of Appeals that any doubt on the terms and The consequence of these omissions is to discharge the
conditions of the surety agreement should be resolved in surety, petitioners herein, under Art. 2080 of the Civil
favor of the surety. Code, or at the very least, mitigate the liability of the
surety up to the value of the property or lien released.
Furthermore, the assurance of the sureties in
the Continuing Guaranty that “[n]o act or omission of any Finally, the foregoing omission or negligence of
kind on [the Bank’s] part in the premises shall in any respondent Bank in failing to safe-keep the security
event affect or impair this guaranty” must also be read provided by the marginal deposit and the twenty-five
“strictissimi juris” for the reason that petitioners are only percent (25%) requirement results in the material
accommodation sureties, i.e., they received nothing out alteration of the principal contract, i.e., the “letter-
of the security contract they signed. Thus said, the acts advise,” and consequently releases the surety. This
or omissions of the Bank conceded by petitioners as not inference was admitted by the Bank through the
affecting nor impairing the surety contract refer only to testimony of its lone witness that “[w]henever this
those occurring “in the premises,” or those that have obligation becomes due and demandable, except when
been the subject of the waiver in the Continuing you roll it over, (so) there is novation there on the
Guaranty, and stretch to no other. Stated otherwise, an original obligations.” As has been said, “if the suretyship
extension of the period for enforcing the indebtedness contract was made upon the condition that the principal
does not by itself bring about the discharge of the shall furnish the creditor additional security, and the
sureties unless the extra time is not permitted within the security being furnished under these conditions is
terms of the waiver, i.e., where there is no payment or afterwards released by the creditor, the surety is wholly
there is deficient settlement of the marginal deposit and discharged, without regard to the value of the securities
the twenty-five percent (25%) consideration, in which released, for such a transaction amounts to an alteration
case the illicit extension releases the sureties. Under of the main contract.”
Art. 2055 of the Civil Code, the liability of a surety is
measured by the terms of his contract, and while he is
liable to the full extent thereof, his accountability is FALLO: Petition GRANTED.
strictly limited to that assumed by its terms.
The foregoing extensions of the letters of credit

made by respondent Bank without observing the rigid
restrictions for exercising the privilege are not covered
by the waiver stipulated in the Continuing Guaranty.
Evidently, they constitute illicit extensions prohibited
under Art. 2079 of the Civil Code, “[a]n extension
granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty.” This act of
the Bank is not mere failure or delay on its part to
demand payment after the debt has become due, as
was the case in unpaid five (5) letters of credit which the
Bank did not extend, defer or put off, but comprises
conscious, separate and binding agreements to extend
the due date, as was admitted by the Bank itself.
As a result of these illicit extensions, petitioner-spouses
Luis Toh and Vicky Tan Toh are relieved of their

liability, however, was limited to P300,000.00, plus

interest.
For the alleged acts of defraudation committed

by Antiquera, Marquez and the petitioner; and for failure
of Antiquera to pay his obligations covered by the
promissory notes, respondent instituted a complaint for
sum of money with damages. Antiquera and the
petitioner were declared in default, hence, ex parte
hearings ensued.
The RTC rendered decision in favour of

respondent but dismissed the case against petitioner.
The CA upon appeal sustained the validity of the
continuing surety agreement signed by petitioner. The
suretyship, according to the CA, was not limited to a
single transaction; rather, it contemplated a future
course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked.
TOTANES VS. CHINA BANKING CORPORATION ISSUE:

January 19, 2009
FACTS: Whether or not the petitioner may be held jointly and

severally liable with Antiquera for the latter’s unsettled
Petitioner and Manuel Antiquera (Antiquera) obligation with the respondent?
maintained their individual savings and current accounts
with respondent in the latter’s Legaspi City Branch.
Petitioner and Antiquera, in conspiracy with respondent’s HELD:
branch manager Ronnie Lou Marquez (Marquez),
allegedly engaged in what is commonly known in YES. Petitioner’s liability was based on the
banking as "kiting operation," by manipulating the surety agreement he executed and signed freely and
handling and operations of their deposit accounts. voluntarily. He, however, argues that said agreement
Petitioner and Antiquera, likewise, effected transfers of was not perfected because the principal obligation,
funds to each other’s accounts by drawing checks from which is the credit line, did not materialize. As such,
their respective current accounts and depositing the being a stranger to any contract entered into by
same with the other’s accounts by way of debit and Antiquera with the respondent, he should not be held
credit memos, all in connivance with Marquez, to make it liable.
appear that their respective accounts were sufficiently
funded, when in truth and in fact, they were not. From the terms of the contract, it appears that
petitioner jointly and severally undertook, bound himself
On July 9, 1986, Antiquera duly executed and and warranted to the respondent "the prompt payment of
delivered Promissory Note No. 2081 in favor of the all overdrafts, promissory notes, discounts, letters of
respondent, whereby he promised to pay the latter on credit, drafts, bills of exchange, and other obligations of
July 16, 1986, the sum of P150,000.00 with 24% interest every kind and nature, including trust receipts and
per annum until fully paid. On July 29, 1986, Antiquera discounts of drafts, bills of exchange, promissory notes,
executed Promissory Note No. 2099 for another etc. x x x for which the Principal(s) may now be indebted
P150,000.00, payable on August 5, 1986, with the same or may hereafter become indebted to the Creditor."
rate of interest. Antiquera agreed in both promissory
notes that he would pay an additional amount by way of The fact that the contract of suretyship was
penalty, equivalent to 1/10 of 1% per day of the total signed by the petitioner prior to the execution of the
amount due from date of default until full payment. promissory note does not negate the former’s liability.
The contract entered into by the petitioner is commonly
To secure the aforesaid obligations, a surety known as a continuing surety agreement. Of course, a
agreement form was executed and signed by Antiquera surety is not bound to any particular principal obligation
as principal and the petitioner as surety. As surety, until that principal obligation is born. But there is no
petitioner bound himself to pay jointly and severally with theoretical or doctrinal impediment for us to say that the
Antiquera, the latter’s obligation with the respondent. His suretyship agreement itself is valid and binding even
before the principal obligation intended to be secured

thereby is born, any more than there would be in saying

that obligations which are subject to a condition
precedent are valid and binding before the occurrence of
the condition precedent.
Comprehensive or continuing surety agreements

are, in fact, quite commonplace in present day financial
and commercial practice. A bank or financing company
which anticipates entering into a series of credit
transactions with a particular company, normally
requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By
executing such an agreement, the principal places itself
in a position to enter into the projected series of
transactions with its creditor; with such suretyship
agreement, there would be no need to execute a
separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor.
As surety, petitioner’s liability is joint and

several. He does not insure the solvency of the debtor,
but rather the debt itself. Suretyship arises upon the
solidary binding of a person – deemed the surety – with
the principal debtor, for the purpose of fulfilling an
obligation. The prestation is not an original and direct
obligation for the performance of the surety’s own act,
but merely accessory or collateral to the obligation
contracted by the principal. Although a surety contract is
secondary to the principal obligation, the liability of the
surety is direct, primary and absolute, or equivalent to
that of a regular party to the undertaking. A surety
becomes liable for the debt and duty of the principal
obligor even without possessing a direct or personal
interest in the obligations constituted by the latter.
WHEREFORE, premises considered, the

petition is DENIED for lack of merit. The Decision of the
Court of Appeals dated June 26, 2007 and its Resolution
dated September 19, 2007, in CA-G.R. CV No. 68795,
are AFFIRMED.
SO ORDERED.

NO. It reiterated the ruling in de Garcia v. CA,

that the controlling provision is Art. 559 of the CC which
states that the possession of movable property acquired
in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same. If the possessor of a movable
lost of which the owner has been unlawfully deprived,
has acquired it in good faith at a public sale, the owner
cannot obtain its return without reimbursing the price
paid there for.
Lourdes, being unlawfully deprived of her ring

thus she has a right to recover it from the current
possessor. Dizon is engaged in a business where
presumably ordinary prudence would require him to
inquire whether or not an individual who is offering the
PLEDGE AND MORTGAGE jewelry by pledge is entitled to do so. The principle of
estoppel cannot help him at all. Since there was no
precaution availed of, perhaps
because of the difficulty of resisting opportunity for profit,
DIZON VS. SUNTAY he only has himself to blame and should be the last to
September 1972 complain if the right of the true owner of the jewelry
should be recognized.
FACTS:
DOCTRINE:
Lourdes Suntay is the owner of a 3-carat
diamond ring valued at P5,500. She and Clarita Sison Pledge of Immovable
entered into a transaction wherein the ring would be sold
on commission. Clarita received the ring and issued a An owner of a movable unlawfully pledged by another is
receipt. After some time, Lourdes made demands for the not estopped from recovering possession. Where the
return of the ring but the latter refused to comply. owner delivered the diamond ring solely for sale on
commission but the seller instead pawned it without
When Lourdes insisted on the return, Clarita authority, the owner is not stopped form pursuing an
gave her the pawnshop ticket which is the receipt of the action against the pawnshop.
pledge and she found out that 3 days after the ring was
received by Clarita, it was pledged by Melia Sison, the
niece of Clarita’s husband in connivance with Clarita with
the pawnshop of Dominador Dizon for P2,600. Lourdes
then filed an estafa case. She then asked Dominador
Dizon for the return of the ring pledged but refused to
return the ring thus the case filed by Lourdes.
The CFI issued a writ of replevin so Lourdes

was able to have possession of the ring during the
pendency of the case. The CFI also ruled in her favor
which was affirmed by the CA on appeal. Thus, the case
at bar.
ISSUE:
Whether or not the CA erred in ruling that

Lourdes has a right to possession of the ring?
HELD:

SPOUSES, an action for recovery of possession with

damages was filed. The case was decided in favor of
bayanihan. Not satisfied with this decision, the
SPOUSES appealed to the Court of Appeals. The
respondent Court of Appeals affirmed in toto the
decision appealed from. A motion for reconsideration of
the said decision was denied by the respondent Court.
ISSUE :
Whether or not the deed of assignment is null

and void because it is in the nature of
a pactumcommissorium and/or was borne out of the
same.
UY TONG VS. CA
FACTS : HELD :
Petitioners Uy Tong and Kho Po Giok The prohibition on pactum commissorium

(SPOUSES) used to be the owners of Apartment stipulations is provided for by Article 2088 of the Civil
together with the leasehold right over the land on which Code: Art. 2088. The creditor cannot appropriate the
the building stands. The land is registered in the name of things given by way of pledge or mortgage, or dispose of
Ligaya Investments, Inc.. It appears that Ligaya the same. Any stipulation to the contrary is null and void.
Investments, Inc. owned the building which houses the The aforequoted provision furnishes the two elements
apartment units but sold said apartment and leased a for
portion of the land in which the building stands to the pactum commissorium to exist:
SPOUSES. Spouses purchased from private respondent
Bayanihan Automotive, Inc. (BAYANIHAN) 7 units (1) that there should be a pledge or mortgage wherein a
of motor vehicles. The transaction was evidenced by a property is pledged or mortgaged by way of security for
written "Agreement" wherein stated that if the vendee the payment of the principal obligation; and
fails to pay, the vendor shall become automatically the (2) that there should be a stipulation for an automatic
owner of the apartment. appropriation by the creditor of the thing pledged or
mortgaged in the event of non-payment of the principal
Spouses failed to pay the balance of the obligation within the stipulated period.
purchased, due to this Bayanihan filed an action for
specific performance.The trial court rendered a judgment A perusal of the terms of the questioned
in favor of Bayanihan ordering the defendant to pay the agreement evinces no basis for the application of the
balance to the plaintiff and in the event of failure to do so pactum commissorium provision. First, there is no
, they are hereby to execute the deed of absolute sale indication of 'any contract of mortgage entered into by
and or the assignment of the leasehold right. the parties. It is a fact that the parties agreed on the sale
and purchase of trucks. Second, there is no case of
An order for execution pending appeal was automatic appropriation of the property by BAYANIHAN.
issued by the trial court and a deed of assignment was When theSPOUSES defaulted in their payments of the
executed by the Spouses over the apartment together second and third installments of the trucks they
with the leasehold right over the land on which the purchased, BAYANIHAN filed an action in court for
building stands. Notwithstanding the execution of the specific performance. The trial court rendered favorable
deed of assignment the SPOUSES remained in judgment for BAYANIHAN and ordered the SPOUSES to
possession of the premises. Despite the expiration of the pay the balance of their obligation and in case of failure
said period, the SPOUSES failed to to do so, to execute a deed of assignment over the
surrender possession of the premises in favor of property involved in this case. The SPOUSES elected to
BAYANIHAN. This prompted BAYANIHAN to file an execute the deed of assignment pursuant to said
ejectment case against them. This action was however judgment.
dismissed on the ground that BAYANIHAN was not the
real party in interest, not being the owner of the building. Clearly, there was no automatic vesting of title
After demands to vacate the subject apartment made by on BAYANIHAN because it took the intervention of the
BAYANIHAN's counsel was again ignored by the trial court to exact fulfillment of the obligation, which, by

its very nature is ". . anathema to theconcept of pacto 1984, bank again obtained loan of P1M in 4 promissory
commissorio [Northern Motors, Inc. v. Herrera, G.R. No. notes of 250K each. Due to financial constraints, the
L-32674, February 22,1973, 49 SCRA 392]. And even loan was not settled at maturity. Bank applied for
granting that the original agreement between the parties extrajudicial foreclosure of chattel mortgage. Acme filed
had thebadges of action for injunction however RTCulti mately dismissed
pactum commissorium, the deed of assignment does complaint and ordered foreclosure saying Acme was
not suffer the same fate as this was executed pursuant bound by stipulations.
to a valid judgment. This being the case, there is no
reason to impugn the validity of the said deed of CA dismissed appeal and affirmed RTC.
assignment.
ISSUE:
Whether or not it is valid and effective to have a
clause in a chattel mortgage that extends its coverage to
obligations yet to be contracted or incurred?
HELD:
NO. RTC and CA decisions set aside.Chattel
mortgage can cover only obligations existing at the time
ACME Shoe Rubber vs. CA mortgage is constituted [Act 1508 Chattel Mortgage
August 22, 1996 Law]. While a pledge, real estate mortgage, or
antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately
FACTS: described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is
On 27 June 1978 - Chua Pac (general manager) constituted
of Acme Shoe, Rubber & Plastic Corporation executed in
behalf of Acme, a chattel mortgage in favour of Although a promise expressed in a chattel mortgage to
Producers Bank of the Philippines. This is to secure a include debts that are yet to be contracted can be a
corporate loan of P3M. binding commitment that can be compelled upon, the
security itself, however, does not come into existence
The Chattel mortgage had a provision that: or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by
(c) If the MORTGAGOR, his heirs, executors or concluding a fresh chattel mortgage or by amending the
administrators shall well and truly perform the full old contract conformably with the form prescribed by the
obligation or obligations above-stated according to the Chattel Mortgage Law.
terms thereof, then this mortgage shall be null and void. .
. .In case the MORTGAGOR executes subsequent Refusal on the part of the borrower to execute
promissory note or notes either as a renewal of the the agreement so as to cover the after-incurred
former note, as an extension thereof, or as a new loan, obligation can constitute an act of default on the part of
or is given any other kind of accommodations such as the borrower of the financing agreement whereon the
overdrafts, letters of credit, acceptances and bills of promise is written but, of course, the remedy of
exchange, releases of import shipments on Trust foreclosure can only cover the debts extant at the time of
Receipts, etc., this mortgage shall also stand as security constitution and during the life of the chattel mortgage
for the payment of the said promissory note or notes sought to be foreclosed. Affidavit of Good Faith
and/or accommodations without the necessity of requirement makes it obvious that the obligation is
executing a new contract and this mortgage shall have current.
the same force and effect as if the said promissory note
or notes and/or accommodations were existing on the A chattel mortgage, as hereinbefore so
date thereof. This mortgage shall also stand as security intimated, must comply substantially with the form
for said obligations and any and all other obligations of prescribed by the Chattel Mortgage Law itself.
the MORTGAGOR to the MORTGAGEE of whatever Sec 5 thereof requires an affidavit of good faith. If this is
kind and nature, whether such obligations have been not appended to the agreement chattel mortgage would
contracted before, during or after the constitution of this still be valid between the parties (not against third
mortgage. persons acting in good faith ), The fact, however, that
the statute has provided that the parties to the contract
The loan of P3M paid. Obtained another loan in must execute an oath that (the) mortgage is made for
1981 P2.7M and was also paid. On 10 and 11 January the purpose of securing the obligation specified in the

conditions thereof, and for no other purpose, and that was there any information from Manuel Roxas about the
the same is a just and valid obligation, and one not maturity of the loan. Theforeclosure did not comply with
entered into for the purpose of fraud makes it obvious the requirement of giving written notices to all possible
that the debt referred to in the law is a current, not an redemptioners,
obligation that is yet merelycontemplated. neither did Manuel Roxas inform her about the
foreclosure.
In the chattel mortgage here involved, the only
obligation specified in the chattel mortgagecontract was
the P3,000,000.00 loan which petitioner corporation later ISSUE:
fully paid.
Whether the foreclosure and the auction sale is
Sec 3 of the Chattel Mortgage Law, the payment null and void.
of the obligation automatically rendered the
chattelmortgage void or terminated.
A mortgage that contains a stipulation in regard to future HELD:
advances in the creditwill take effect only from the date
the same are made and not from the date of the Yes. Section 5 of R.A. No. 720, as amended by
mortgage. R.A. No. 5939, provides that notices of
foreclosureshould be posted in at least three (3) of the
most conspicuous public places in the municipality and
barriowhere the land mortgaged is situated . In the case
at bar, the Certificate of Posting which was executedby
the sheriff states that he posted three (3) copies of the
ROXAS VS. CA notice of public auction sale in three (3)conspicuous
public places in the municipality of Panay, where the
subject land was situated and in like manner in Roxas
FACTS: City, where the public auction sale took place.
Petitioner Blanca Consuelo Roxas is the owner It is beyond despute that there was afailure to
of a parcel of land. she executed a special powerof publish the notices of auction sale as required by law.
attorney appointing her brother, the late Manuel Roxas, Section provides further that proof ofpublication shall be
as her attorney-in-fact for the purpose ofapplying for an accomplished by an affidavit of the sheriff or officer
agricultural loan with private respondent Rural Bank of conducting the foreclosure sale.
Dumalag, Inc. using said land ascollateral. Armed with
said special power of attorney, Manuel Roxas applied In this case, the sheriff executed a certificate of
for, was granted andreceived an agricultural loan in the posting, which is not the affidavit required by law.
amount of P2,000.00 from private respondent on Therationale behind this is simple: an affidavit is a sworn
December 26, 1969. statement in writing. Strict compliance with
theaforementioned provisions is mandated.
As security for the loan, he executed the
corresponding real estate mortgage over the subject
land.
private respondent foreclosed the real estate mortgage
for failure to pay the loan on maturity. On January7,
1974, the subject land was sold at public auction to
private respondent, being the highest bidder
forP3,009.37. For failure to exercise the right of
redemption, private respondent consilidated its
ownershipover the subject land. On October 4, 1982,
possession thereof was taken from Jennifer Roxas,
daughter
of Manuel Roxas.
Petitioner filed a complaint for cancellation of

foreclosure of mortgage and annulment ofauction sale
against private respondent. Petitioner claimed that
Manuel Roxas never informed her about the approval of
the loan. When the loan matured, she did not received
any demand for payment fromprivate respondent nor

HELD:
1. NO. Only Delgado signed the promissory note

and accordingly, he was the only one bound by the
contract of loan. Nowhere did it appear in the promissory
note that petitioner was a co-debtor. The law is clear that
“contracts take effect only between the parties..” The law
provides that there is solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity. There is also
no legal provision nor jurisprudence in our jurisdiction
which makes third person who secures the fulfilment of
another’s obligation by mortgaging his own property to
be solidarily bound with the principal debtor.
2. YES. A mortgagee who files a suit for

collection abandons the remedy of foreclosure of the
chattel mortagage constituted over the personal property
as a security for the debt of value of the promissory note
which he seeks to recover in the said collection suit. The
reason for this rule is that: when, however, the mortagee
elects to file a suit for collection, not foreclosure, thereby
CERNA VS. CA abandoning the chattel mortgage as basis for relief, he
G.R. No. L-48359 March 30, 1993 clearly manifest his lack of desire to go after the
mortgaged property as security for the promissory note.
FACTS:
Celerina Delgado and Conrad Leviste entered

into a loan agreement which was evidenced by a
promissory note in the amount of P17,500 with 12%
interest per annum. On the same date, Delgado
executed a chattel mortagage over a Willy’s jeep owned
by him. And acting as the attorney-in-fact of herein
petitioner, Manolo Cerna, he also mortgage a “Taunus”
car owned by the latter.
The period lapsed without Delgado paying the

loan. This prompted Leviste to file a collection suit
against Delgado and petitioner as solidary debtors.
Herein petitioner filed his first Motion to Dismiss on the
ground that since Leviste already opted to collect on the
note, he could no longer foreclose the mortgage.
Petitioner filed with the CA a special civil action for
certiorari, mandamus and prohibition with preliminary
injunction. The CA denied the petition. Petitioner filed his
second Motion to Dismiss in the Trial Court but was
dismissed.
ISSUE:
1. Whether the petitioner and Delgado are

solidary debtors?
2. Whether the filing of the collection case is
deemed an abandonment of the security of the chattel
mortgage?

HELD:
Respondent Sheriff is directed to deliver to

Northern Motors (a) the proceeds of the execution sale
held on December 18, 1974 for the 8 taxicabs
mortgaged to it less the expenses of execution and (b)
the 7 taxicabs which were levied upon by him and which
are also mortgaged to the corporation. Respondent
Honesto Ong is held solidarily liable with manila Yellow
Taxicab for the mortgage obligations secured by the 8
mortagaged taxicabs which were sold at the execution
sale, less the proceeds of the sale.
The chattel mortgagee may file a third-party

calim, even before there is a breach of mortgage
because, as already noted, the recording of the mortage
gives him the symbolical possession of the mortgaged
NORTHERN MOTORS VS. COQUIA chattel which was construed as equivalent to the actual
G.R. No. L-40018 August 29, 1975 delivery of possession to the creditor and because of
what a judgment of a chattel mortgage can attach is only
FACTS: the equity or right of redemption and, to effectuate the
attachment levy is not requisite that the mortgaged
Manila Yellow Taxicab Co.,Inc., in May and June chattel itself be seized by the sheriff.
1974 purchases on isntallment plan from Northern
Motors Inc., 200 Holden Torana cars at the price of
P28,250 for each car. It made a downpayment of P1,00
on each car. It executed mortagages on the cars in
favour of Northern Motors, Inc. As a security for the
promissory notes covering the balance of the price. The
notes and the chattel mortgages for 172 cars were
assigned to Filinvest Credit Corporation. Tropical
Commercial Co. Inc. In civil Case obtained a judgement
for P167, 311.27 against Manila Yello Taxicab. Part of
the judgment or the sum of P110,000 was eventually
assigned to Honesto Ong for an unspecified valuable
consideration. To justify the judgment credit, the sheriff
levied upon taxicabs of which eight were mortgage to
Northern Motors and 12 to Filinvest under the
assignment already mentioned. Northern Motors and
Filinvest filed the corresponding third party claims with
the sheriff. Tropical Commercial Inc., posted indemnity
bonds.
On the same day, at 2pm, the cars were sold at

public auction although there was an alleged agreement
that the cars would be sold at 4pm. Later, the lower court
cancelled the indemnity bonds without notice to the third
party claimants. An additional levy on 35 taxicabs to
satisfy the unpaid balance of the judgments. Of those 35
taxicabs, 7 were mortgage to Northern Motors while 28
were mortgaged to Filinvest. Again, they filed a third
party claims.
ISSUE:
Whether the act of the sheriff is proper?

private respondent is stopped from caliming that the

machine is real property by constituting a chattel
mortagage.
ISSUE:
Whether or not the machinery in suit is real or

personal property?
HELD:
The machinery in this case is considered as

personal property. When petitioner returned the subject
motor drive and considering that petitioner has reserved
its
right to question the propriety of the Court of Appeals'
MAKATI LEASING VS. WEAREVER TEXTILE decision, the contention of private respondent that this
122 SCRA 296 petition has been mooted by such return may not be
sustained.
FACTS:
With regard to the machinery, a similar, if not Identical
Petitioner Makati Leasing and Finance issue was raised in Tumalad v. Vicencio:Although there
Corporation discounted and assigned several is no specific statement referring to the subject house as
recievables with private respondent Wearever Textiles personal property, yet by ceding,selling or transferring a
under a Recievable Purchase Agreement in order to property by way of chattel mortgage defendants-
obtain financial accommodations from the latter. To appellants could only have meantto convey the house as
secure the collection of the recievables assigned, private chattel, or at least, intended to treat the same as such,
respondent executed a Chattel Mortgage over certain so that they should not
raw materials invebtory as well as machinery described now be allowed to make an inconsistent stand by
as an Artos Aero Dryer Stentering Range. claiming otherwise.
Upon private respondent’s default, petitioner If a house of strong materials may be

filed for extrajudiacial foreclosure of the properties considered as personal property for purposes of
mortgaged to it. However, the Deputy Sheriff failed to executinga chattel mortgage thereon as long as the
gain entry into private respondent’s premises and was parties to the contract so agree and no innocent third
not able to seize the machinery. Petitioner thereafter party willbe prejudiced thereby, there is absolutely no
filed a complaint for judicial foreclosure with the lower reason why a machinery, which is movable in its nature
court. The lower court issued a writ of seizure, but was andbecomes immobilized only by destination or purpose,
subsequently restrained when private respondent filed may not be likewise treated as such.
an MR. After several incidents, the lower court ordered
the enforcement of the writ of seizure and to break open This is reallybecause one who has so agreed is
premises of private respondent to enforce said writ. estopped from denying the existence of the chattel
Private respondents motion for reconsideration was mortgage.It must be pointed out that the characterization
denied. The sheriff then removed the main drive motor of of the subject machinery as chattel by the
the subject machinery. privaterespondent is indicative of intention and
impresses upon the property the character determined
The CA set aside the Orders of the lower court by theparties. It is undeniable that the parties to a
and ordered the return of the drive motor seized by the contract may by agreement treat as personal property
sheriff, after reluing that the machinery in suit cannot be thatwhich by nature would be real property, as long as
subject of repliven, much less of a chattel mortgage, no interest of third parties would be prejudicedthereby.
because it is real property pursuant to Article 415 of the
NCC, the same being attached to the ground by means As aptly pointed out by petitioner and not denied by
of bolts and the only way to remove it from respondents the respondent, the status of the subjectmachinery as
plant would be to drill out or destroy the concrete floor, movable or immovable was never placed in issue before
the reason why all that the sheriff could do to enforce the the lower court and the Court ofMoreover, even granting
writ was to take the main drive motor of said machinery. that the charge is true, such fact alone does not render a
The appellate court rejected petitioner’s argument that contract void ab initio,but can only be a ground for

rendering said contract voidable, or annullable pursuant Thesurety company then caused the said house
to Article 1390 of to be declared in its name for tax purposes.The surety
the new Civil Code, by a proper action in court. company learned of the existence of the real estate
mortgage over the lot together with theimprovements
thereon so it instituted a civil case against Adriano and
Lucia Valino and Isabel Iya for theexclusion of the
residential house from the real estate mortgage in favor
of defendant Iya and thedeclaration and recognition of
plaintiff's right to ownership over the same.Defendant
Isabel Iya alleged, that in virtue of the real estate
mortgage executed by her co-defendants, she acquired
a real right overthe lot and the house constructed
thereon and that the auction sale allegedly conducted
was null and voidfor non-compliance with the form
required by law.
Isabel Iya then filed a civil action against the

Valinos and the surety company stating that pursuant to
the contract of mortgage executed by the spouses
ASSOCIATED INSURANCE VS. IYA Valino, the latter undertook to pay a loan of P12,000.00
with interest at 12% per annum, which indebtedness was
payable in 4 years, extendible for one year, thatdefault in
FACTS: the payment of the interest would entitle the mortgagee
to foreclose the same even before thelapse of the 4-year
Spouses Adriano Valino and Lucia Valino were period and as defendant spouses had failed to pay the
the owners and possessors of a house of strong interest for more than 6months, plaintiff prayed that
materials defendants pay the sum of P12,000.00 with interest
in Caloocan, Rizal which they purchased on installment thereon at 12% per annum from March 25, 1953, until
basis from the Philippine Realty Corporation. fully paid; for an additional sum equivalent to 20% of the
OnNovember 6, 1951, to enable her to purchase on total obligationas damages. Defendant Surety Company
credit rice from the NARIC, Lucia filed a bond in the insisted on its right over the building.
sumof P11,000.00 subscribed by the Associated
Insurance and Surety Co., Inc., and as counter-guaranty The two cases were jointly heard upon
forit, the spouses Valino executed an alleged chattel agreement of the parties, after which the Court rendered
mortgage on the house in favor of the surety company, judgment holding that the chattel mortgage in favor of
which was duly registered with the Chattel Mortgage the Associated Insurance and Surety Co., Inc., was
Register of Rizal. At the time of this saidundertaking, the preferredand superior over the real estate mortgage
parcel of land on which the house is erected was still subsequently executed in favor of Isabel Iya. It was ruled
registered in the name of thePhilippine Realty thatas the Valinos were not yet the registered owner of
Corporation. Having completed payment on the the land on which the building in question
purchase price of the lot, the Valinoswere able to secure wasconstructed at the time the first encumbrance was
a certificate of title in their name. made, the building then was still a personality and a
chattel mortgage over the same was proper. However,
Subsequently, however, the Valinos, to secure as the mortgagors were already the owner of theland at
payment of an indebtedness in the amount of the time the contract with Isabel Iya was entered into,
P12,000.00, executed a real estate mortgage over the building was transformed into a realproperty and the
theproperty in favor of Isabel Iya, which was duly real estate mortgage created thereon was likewise
registered and annotated at the back of the certificate of adjudged as proper.
title. On the other hand, as Lucia failed to satisfy her
obligation to the NARIC, the surety company was
compelled to pay the same pursuant to the undertaking ISSUE:
of the bond. In turn, the surety company demanded
reimbursement from the spouses Valino, and when they Whether or not Iya’s encumbrance should be
failed to do so, the companyforeclosed the chattel given preference over the claim of the surety company?
mortgage over the house. As a result thereof, a public
sale was conducted by theProvincial Sheriff of Rizal
wherein the property was awarded to the surety HELD:
company for P8,000.00.

A building certainly cannot be divested of its

character of a realty by the fact that the land on which it
is
constructed belongs to another. To hold it the other way,
the possibility is not remote that it would result
inconfusion, for to cloak the building with an uncertain
status made dependent on the ownership of theland,
would create a situation where a permanent fixture
changes its nature or character as the ownershipof the
land changes hands. In the case at bar, as personal
properties could only be the subject of achattel mortgage
and as obviously the structure in question is not one, the
execution of the chattelmortgage covering said building
is clearly invalid and a nullity. While it is true that said
document wascorrespondingly registered in the Chattel
Mortgage Register of Rizal, this act produced no
effectwhatsoever for where the interest conveyed is in
the nature of a real property, the registration of
thedocument in the registry of chattels is merely a futile
act.
A mortgage creditor who purchases real

properties at an extrajudicial foreclosure sale thereof by
virtue of
a chattel mortgage constituted in his favor, which
mortgage has been declared null and void with respect
to said real properties, acquires no right thereto by virtue
of said sale.

Whether or not the separation pay sought in this

case should be preferred over the claims of the Bureau
of Customs and the BIR.
Ruling:
For the specific purposes of Article 110 and in

the context of insolvency termination or separation pay is
reasonably regarded as forming part of the remuneration
or other money benefits accruing to employees or
workers by reason of their having previously rendered
services to their employer; as such, they fall within the
scope of "remuneration or earnings — for services
rendered or to be rendered —Article 110 must be read in
relation to the provisions of the Civil Code concerning
the classification, concurrence andpreference of credits,
which provisions find particular application in insolvency
proceedings where the claims of all creditors, preferred
or non-preferred, may be adjudicated in a binding
REPUBLIC VS. PERALTA manner. Those
provisions may be seen to classify credits against a
Facts: particular insolvent into three general categories,
namely:
In the voluntary insolvency proceedings
commenced in May 1977 by private respondent Quality (a) special preferred credits listed in Articles 2241 and
Tobacco Corporation (the "Insolvent"), the following 2242,
claims of creditors were filed: (i) P2,806,729.92, by the (b) ordinary preferred credits listed in Article 2244; and
USTC Association of Employees and workers Union- (c) common credits under Article 2245.
PTGWO USTC as separation pay for their members.
This amount plus an additional sum of P280,672.99 as Articles 2241 and 2242 jointly with Articles 2246
attorney's fees had been awarded by the National Labor to 2249 establish a two-tier order of preference. The first
Relations Commission in NLRC Case No. RB-IV-9775- tier includes only taxes, duties and fees due on specific
77. (ii) P53,805.05 by the Federacion de la Industria movable or immovable property. All other special
Tabaquera y Otros Trabajadores de Filipinas ("FOITAF), preferred credits stand on the same second tier to be
as separation pay for their members, an amount similarly satisfied, pari passu and pro rata, out of any residual
awarded by the NLRC in the same NLRC Case.(iii) value of the specific property to which such other credits
P1,085,188.22 by the Bureau of Internal Revenue for relate.
tobacco inspection fees covering the period 1 October
1967 to 28 February 1973; (iv) P276,161.00 by the Credits which are specially preferred because
Bureau of Customs for customs duties and taxes they constitute liens (tax or non-tax) in turn, take
payable on various importations by the Insolvent. These precedence over ordinary preferred credits so far as
obligations appear to be secured by surety bonds. concerns the property to which the liens have attached.
Some of these imported items are apparently still in The specially preferred credits must be discharged first
customs custody so far as the record before this Court out of the proceeds of the property to which they relate,
goes. before ordinary preferred creditors may lay claim to any
part of such proceeds. In contrast with Articles 2241 and
The trial court held that the above-enumerated 2242, Article 2244 creates no liens on determinate
claims of USTC and FOITAF for separation pay of their property which followsuch property. What Article 2244
respective members embodied in final awards of the creates are simply rights in favor of certain creditors to
National Labor Relations Commission were to be have the cash and other assets of the insolvent applied
preferred over the claims of the Bureau of Customs and in a certain sequence or order of priority.
the Bureau of Internal Revenue. The Solicitor General,
in seeking the reversal of the questioned Orders, argues A. Claim of the Bureau of Customs for Unpaid
that Article 110 of the Labor Code is not applicable as it Customs Duties and Taxes-
speaks of "wages," a term which he asserts does not
include the separation pay claimed by the Unions. Clearly, the claim of the Bureau of Customs for
unpaid customs duties and taxes enjoys the status of a
Issue: specially preferred credit under Article 2241, No. 1, of

the Civil Code only in respect of the articles importation Unions may be given effect only after the Bureau of
of which by the Insolvent resulted in the assessment of Internal Revenue's claim for unpaid tobacco inspection
the unpaid taxes and duties, and which are still in the fees shall have been satisfied out of the products so
custody or subject to the control of the Bureau of manufactured by the Insolvent. It is frequently said that
Customs. Customs duties and taxes which remain taxes are the very lifeblood of government. The effective
unsatisfied after levy upon the imported articles on which collection of taxes is a task of highest importance for the
such duties and taxes are due, would have to be paid sovereign. It is critical indeed for its own survival. It
out of the Insolvent's "free property" in accordance with follows that language of a much higher degree of
the order of preference embodied in Article 2244 of the specificity than that exhibited in Article 110 of the Labor
Civil Code. Such unsatisfied customs duties and taxes Code is necessary to set aside the intent and purpose of
would fall within Article 2244, No. 9, of the Civil Code the legislator that shines through the precisely crafted
and hence would be ninth in priority. provisions of the Civil Code.
B. Claims of the Bureau of Internal Revenue for Thus, very substantial effect may be given to the
Tabacco Inspection Fees — provisions of Article 110 without grievously distorting the
framework established in the Civil Code by holding, as
Tobacco inspection fees are specifically we so hold, that Article 110 of the Labor Code has
mentioned as one of the miscellaneous taxes imposed modified Article 2244 of the Civil Code in two respects:
under the (a) firstly, by removing the one year limitation found in
National Internal Revenue Code. Tobacco inspection Article 2244, number 2; and (b) secondly, by moving up
fees are collected both for purposes of regulation claims for unpaid wages of laborers or workers of the
and control and for purposes of revenue generation. Insolvent from second priority to first priority in the order
Tobacco inspection fees, in other words, are imposed of preference established I by Article 2244. Accordingly,
both as a regulatory measure and as a revenue-raising and by way of recapitulating the application of Civil Code
measure. It follows that the claim of the Bureau of and Labor Code provisions to the facts herein, the trial
Internal Revenue for unpaid tobacco inspection fees court should inventory the properties of the Insolvent so
constitutes a claim for unpaid internal revenue taxes as to determine specifically:
which gives rise to a tax lien upon all the properties and
assets, movable and immovable, of the Insolvent as (a) whether the assets of the Insolvent before the trial
taxpayer. Clearly, this tax claim must be given court includes stocks of processed or manufactured
preference over any other claim of any other creditor, in tobacco products; and
respect of any and all properties of the Insolvent. (b) whether the Bureau of Customs still has in its
custody or control articles imported by the Insolvent and
C. Claims of the Unions for Separation Pay of Their subject to the lien of the government for unpaid customs
Members — duties and taxes.
Article 110 of the Labor Code does not purport to create WHEREFORE, this case is hereby remanded to the
a lien in favor of workers or employees for unpaid wages trial court for further proceedings in insolvency
either upon all of the properties or upon any particular compatible with the rulings set forth above.
property owned by their employer.
Claims for unpaid wages do not therefore fall at all within
the category of specially preferred claims established
under Articles 2241 and 2242 of the Civil Code, except
to the extent that such claims for unpaid wages are
already covered by Article 2241, number 6 or by Article
2242, number 3. To the extent
that claims for unpaid wages fall outside the scope of
Article 2241, number 6 and 2242, number 3, they
would come within the ambit of the category of ordinary
preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the

claims of the Unions for separation pay oftheir members
constitute liens attaching to the processed leaf tobacco,
cigars and cigarettes and other products produced or
manufactured by the Insolvent, but not to other assets
owned by the Insolvent. And even in respect of such
tobacco and tobacco products produced by the
Insolvent, the claims of the

jeep of the deceased Calibo was "zigzagging”; that ther

were skid marks left by the truck's tires at the scene, and
none by the jeep; and that the jeep had onimpact fallen
on its right side is indication that it was running at high
speed. Under the circumstances, according to the Court,
given "the curvature of the road and the descending
grade of the jeep's lane, it was negligence on the part of
the driver of the jeep, Engr. Calibo, for not reducing his
speed upon sight of the truck and failing to apply the
brakes as he got within collision range with the truck."
The Court of Appeals reversed the Trial Court.

It found Zacarias to be negligent because the truck
driven by him occupied the lane of the jeep when the
collision occurred, and although Zacarias saw the jeep
from a distance of about 150 meters, he did not drive his
truck back to his lane in order to avoid collision with the
oncoming jeep.
The Appellate Court opined that Zacarias'

GLAN PEOPLE’S LUMBER VS. IAC negligence gave rise to the presumption of negligence
on the part of his employer, and their liability is both
primary and solidary.
FACTS:
Engineer Orlando T. Calibo, Agripino Roranes, ISSUE:

and Maximo Patos were on the jeep owned by the
Bacnotan Consolidated Industries, Inc., with Calibo at Whether or not the defendant is negligent in this
the wheel, as it approached from the South Lizada case and should be liable for the death of the victim and
Bridge going towards the direction of Davao City at other damages caused by the accident.
about 1:45 in the afternoon of July 4, 1979. At about that
time, the cargo track loaded with cement bags, GI
sheets, plywood, driven by defendant Paul Zacarias, HELD:
coming from the opposite direction of Davao City and
bound for Glan, South Cotabato, had just crossed said The appealed judgment is reversed.
bridge. At about 59 yards after crossing the bridge, the
cargo truck and the jeep collided as a consequence of Although it was not disputed that the truck
which Engineer Calibo died while Roranes and Patos overrode the painted stripe by twenty-five (25)
sustained physical injuries. Zacarias was unhurt. centimeters it was still at least eleven (11) centimeters
away from its side of the true center line of the road and
A case for damages was filed by the surviving well inside its own lane when the accident occurred. By
spouse and children of the late Engineer Calibo. The this same reckoning, since it was unquestionably the
defendants' answer however alleged that the lumber and jeep that rammed into the stopped truck, it may also be
hardware business was exclusively owned by George Y. deduced that the jeep was at the time travelling beyond
Lim, this being evidenced by the Certificate of its own lane and intruding into the lane of the truck by at
Registration issued by the Bureau of Domestic Trade, least the same 11-centimeter width of space.
that Fabio S. Agad was not a co-owner thereof but
merely employed as a bookkeeper and Felix Lim had no It being also shown that the accident happened
connection with said business, he being a child only at or near the point of the truck's approach to a curve,
eight years of age. which called for extra precautions against driving too
near the shoulder, it could hardly be accounted negligent
The Court dismissed the complaint (and on the part of its driver to intrude temporarily into the
defendants' counterclaim) for insufficiency of evidence. It opposite lane in order to insure his vehicle's safety.
likewise dismissed the third-party complaint presented Being well within his own lane, Zacarias had no duty to
by the defendants against the insurer of the truck. swerve out of the jeep's way as said Court would have
had him do. And even supposing that he was in fact
The circumstances leading to the Court's partly inside the opposite lane, coming to a full stop with
conclusion are as follows: that moments before its the jeep still thirty (30) meters away cannot be
collission with the truck being operated by Zacarias, the considered an unsafe or imprudent action, there also

being uncontradicted evidence that the jeep was

"zigzagging" and hence no way of telling in which
direction it would go as it approached the truck.
Also clearly erroneous is the finding of the

Intermediate Appellate Court that Zacarias had no
driver's license at the time. The traffic accident report
attests to the proven fact that Zacarias voluntarily
surrendered to the investigating officers his driver's
license, valid for 1979, that had been renewed just the
day before the accident, on July 3, 1979.
The evidence not only acquits Zacarias of any

negligence in the matter; there are also quite a few
significant indicators that it was rather Engineer Calibo's
negligence that was the proximate cause of the accident.
There is moreover more than a suggestion that Calibo
had been drinking shortly before theaccident. The
decision of the Trial Court adverts to further testimony of
Esparcia to the effect that three of Calibo's companions
at the beach party he was driving home from when the
collision occurred, who, having left ahead of him went to
the scene when they heard about the accident, had said
that there had been a drinking spree at the party.
The doctrine of the last clear chance provides

as valid and complete a defense to accident liability
today as it did when invoked and applied in the 1918
case of Picart vs. Smith, supra, which involved a similar
state of facts. Since said ruling clearly applies to
exonerate petitioner Zacarias and his employer (and co-
petitioner) George Lim, an inquiry into whether or not the
evidence supports the latter's additional defense of due
diligence in the selection and supervision of said driver is
no longer necessary and wig not
be undertaken.

whatsoever. It is a fair and reasonable inference that the

incident happened because of want of care. The
negligence of the employees was the proximate cause of
the fire, which in the ordinary course of things does not
happen. Therefore, the petitioners are entitled to the
award for damages.
AFRICA VS. CALTEX
FACTS:
In the afternoon of March 18, 1948, a fire broke

out at the Caltex service station at the corner of Antipolo
St. and Rizal Avenue, Manila. It started while gasoline
was being hosed from a tank truck into the underground
storage, right at the opening of the receiving tank where
the nozzle of the hose was inserted. The fire spread to
and burned several houses. The owners, among them
petitioner spouses Africa and heirs of Ong, sued
respondents Caltex Phil., Inc., the alleged owner of the
station, and Mateo Boquiren, the agent in charge of its
operation, for damages. The CFI and CA found that the
petitioners failed to prove negligence of the respondents,
and that there was due care in the premises and with
respect to the supervision of their employees.
ISSUE:
Whether or not, without proof as to the cause

and origin of the fire, the doctrine of res ipsa loquitur
should apply so as to presume negligence on the part of
the respondents.
HELD:
Yes. Res ipsa loquitur literally means “the

thing or transaction speaks for itself.” For the doctrine of
res ipsa loquitur to apply, the following requisites should
be present: (a) the accident is of a kind which ordinarily
does not occur in the absence of someone's negligence;
(b) it is caused by an instrumentality within the exclusive
control of the defendant or defendants; and (c) the
possibility of contributing conduct which would make the
plaintiff responsible is eliminated. In the case at bar, the
gasoline station, with all its appliances, equipment and
employees, was under the control of respondents. A fire
occurred therein and spread to and burned the
neighboring houses. The persons who knew or could
have known how the fire started were respondents and
their employees, but they gave no explanation thereof

(2) Whether or not Article 33 of the New Civil

Code applies only to injuries intentionally committed; and
(3) Whether or not the liability or respondents is

subsidiary under the Revised Penal Code.
HELD:
DULAY VS COURT OF APPEALS (1) Yes. Article 2176 of the New Civil Code
provides that “whoever by act or omission causes
FACTS: damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
On December 7, 1988, an altercation between negligence, if there is no pre-existing contractual relation
Benigno Torzuela and Atty. Napoleon Dulay occurred at between the parties is called a quasi-delict and is
the "Big Bang Sa Alabang," Alabang Village, Muntinlupa governed by the provisions of this Chapter.” Contrary to
as a result of which Benigno Torzuela, the security guard the theory of private respondents, there is no justification
on duty at the said carnival, shot and killed Atty. for limiting the scope of Article 2176 of the Civil Code to
Napoleon Dulay. Petitioner Maria Benita A. Dulay, widow acts or omissions resulting from negligence. Well-
of the deceased Napoleon Dulay, in her own behalf and entrenched is the doctrine that article 2176 covers not
in behalf of her minor children, filed an action for only acts committed with negligence, but also acts which
damages against Benigno Torzuela and private are voluntary and intentional.
respondents Safeguard and/or Superguard, alleged
employers of defendant Torzuela. Respondent (2) No. The term "physical injuries" in Article 33
Superguard filed a Motion to Dismiss on the ground that has already been construed to include bodily injuries
the complaint does not state a valid cause of action. causing death. It is not the crime of physical injuries
Superguard claimed that Torzuela's act of shooting defined in the Revised Penal Code. It includes not only
Dulay was beyond the scope of his duties, and that since physical injuries but also consummated, frustrated, and
the alleged act of shooting was committed with attempted homicide. Although in the Marcia case, it was
deliberate intent (dolo), the civil liability therefor is held that no independent civil action may be filed under
governed by Article 100of the Revised Penal Code. Article 33 where the crime is the result of criminal
Superguard further alleged that a complaint for damages negligence, it must be noted, however, that Torzuela, the
based on negligence under Article 2176 of the New Civil accused in the case at bar, is charged with homicide, not
Code, such as the one filed by petitioners, cannot lie, with reckless imprudence, whereas the defendant in
since the civil liability under Article 2176 applies only to Marcia was charged with reckless imprudence.
quasi-offenses under Article 365 of the Revised Penal Therefore, in this case, a civil action based on Article 33
Code. In addition, the respondent argued that petitioners' lies.
filing of the complaint is premature considering that the
conviction of Torzuela in a criminal case is a condition (3) No. Under Article 2180 of the New Civil
sine qua non for the employer's subsidiary liability. Code, when an injury is caused by the negligence of the
Respondent Safeguard also filed a motion praying that it employee, there instantly arises a presumption of law
be excluded as defendant on the ground that defendant that there was negligence on the part of the master or
Torzuela is not one of its employees. Petitioners employer either in the selection of the servant or
opposed both motions, stating that their cause of action employee, or in supervision over him after selection or
against the private respondents is based on their liability both. The liability of the employer under Article 2180 is
under Article 2180 of the New Civil Code. Respondent direct and immediate; it is not conditioned upon prior
judge declared that the complaint was one for damages recourse against the negligent employee and a prior
founded on crimes punishable under Articles 100 and showing of the insolvency of such employee. Therefore,
103 of the Revised Penal Code as distinguished from it is incumbent upon the private respondents to prove
those arising from, quasi-delict. that they exercised the diligence of a good father of a
family in the selection and supervision of their employee.
ISSUES:
(1) Whether or not Torzuela' s act of shooting

Napoleon Dulay constitutes a quasi-delict actionable
under Article 2176 of the New Civil Code;

by the defendant, and damage resulting to the plaintiff

therefrom. Wrong without damage, or damage without
wrong, does not constitute a cause of action, since
damages are merely part of the remedy allowed for the
injury caused by a breach or wrong. There is a material
distinction between damages and injury. Injury is the
illegal invasion of a legal right; damage is the loss, hurt,
or harm which results from the injury, and damages are
the recompense or compensation awarded for the
CUSTODIO VS. COURT OF APPEALS damage suffered. Thus, there can be damage without
253 SCRA 483 injury in those instances in which the loss or harm was
not the result of a violation of a legal duty. These
FACTS : situations are often called damnum absque injuria . In
order that a plaintiff may maintain an action for the
Respondents owned a parcel of land wherein a injuries of which he complains, he must establish that
two-door apartment was erected. Said property was such injuries resulted from a breach of duty which the
surrounded by other immovables owned by petitioners, defendant owed to the plaintiff. There must be a
spouses Custodio and spouses Santos. As an access to concurrence of injury to the plaintiff and legal
P. Burgos Street from the subject property, there are two responsibility by the person causing it.
possible passageways. The first passageway is
approximately one meter wide and is about 20 meters In the instant case, although there was damage,
distant from Mabasa's residence to P. Burgos Street. there was no legal injury. Contrary to the claim of
Such path is passing in between the previously respondents, petitioners could not be said to have
mentioned row of houses. The second passageway is violated the principle of abuse of right. In order that the
about 3 meters in width and length from plaintiff principle of abuse of right provided in Article 21 of the
Mabasa's residence to P. Burgos Street; it is about 26 Civil Code can be applied, it is essential that the
meters. In passing thru said passageway, a less than a following requisites concur: (1) The defendant should
meter wide path through the septic tank and with 5-6 have acted in a manner that is contrary to morals, good
meters in length, has to be traversed. Petitioners customs or public policy; (2) The acts should be willful;
constructed an adobe fence in the first passageway and (3) There was damage or injury to the plaintiff. The
making it narrower in width. Said adobe fence was first act of petitioners in constructing a fence within their lot is
constructed by defendants Santoses along their property a valid exercise of their right as owners, hence not
which is also along the first passageway. Defendant contrary to morals, good customs or public policy. The
Morato constructed her adobe fence and even extended law recognizes in the owner the right to enjoy and
said fence in such a way that the entire passageway was dispose of a thing, without other limitations than those
enclosed. As a result, the tenants left the apartment established by law. It is within the right of petitioners, as
because there was no longer a permanent access to the owners, to enclose and fence their property. Article 430
public street. Respondents then filed an action for the of the Civil Code provides that “(e)very owner may
grant of an easement of right of way. The trial court enclose or fence his land or tenements by means of
ordered the petitioner to give respondents a permanent walls, ditches, live or dead hedges, or by any other
access to the public street and that in turn, the means without detriment to servitudes constituted
respondent will pay a sum of Php 8,000.00 to the thereon.”
petitioner as an indemnity for the permanent use of the
passageway. On appeal by the respondent to the CA, At the time of the construction of the fence, the
the decision of the trial court was affirmed, such that a lot was not subject to any servitudes. There was no
right of way and an award of actual, moral and easement of way existing in favor of private
exemplary damages were given to the respondents. respondents, either by law or by contract. The fact that
Hence, this petition. respondents had no existing right over the said
passageway is confirmed by the very decision of the trial
court granting a compulsory right of way in their favor
ISSUE : after payment of just compensation. It was onlythat
decision which gave private respondents the right to use
Whether or not the award of damages is proper? the said passageway after payment of the compensation
and imposed a corresponding duty on petitioners not to
interfere in the exercise of said right. The proper
HELD : exercise of a lawful right cannot constitute a legal wrong
for which an action will lie, although the act may result in
No. To warrant the recovery of damages, there damage to another, for no legal right has been invaded.
must be both a right of action for a legal wrong inflicted One may use any lawful means to accomplish a lawful

purpose and though the means adopted may cause key was left negligently lying around and that he has free
damage to another, no cause of action arises in the access of the mother’s bag where the key was kept.
latter's favor. An injury or damage occasioned thereby is The spouses failed to observe and exercise the required
damnum absque injuria . The courts can give no redress diligence of a good father to prevent such damage.
for hardship to an individual resulting from action
reasonably calculated to achieve a lawful means.
COCA-COLA VS. CA and MS. LYDIA GERONIMO

G.R. No. 110295 October 18, 1993
TORTS AND DAMAGES
FACTS:
LIBI VS. IAC
214 SCRA 16 Private respondent was the proprietress of
Kindergarten Wonderland Canteen in Dagupan City. In
August 1989, some parents of the students complained
FACTS: to her that the Coke and Sprite soft drinks sold by her
contained fiber-like matter and other foreign substances.
Julie Ann Gotiong and Wendell Libi were a She brought the said bottles for examination to DOH and
sweetheart until the former broke up with the latter after it was found out that the soft drinks “are adulterated.” As
she found out the Wendell was irresponsible and a result, her per day sales of soft drinks severely
sadistic. Wendell wanted reconciliation but was not plummeted that she had to close her shop on 12
granted by Julie so it prompted him to resort to threats. December 1989 for losses. She demanded damages
One day, there were found dead from a single gunshot from petitioner before the RTC which dismissed the
wound each coming from the same gun. The parents of same on motion by petitioner based on the ground of
Julie herein private respondents filed a civil case against Prescription. On appeal, the CA annulled the orders of
the parents of Wendell to recover damages. Trial court the RTC.
dismissed the complaint for insufficiency of evidence but
was set aside by CA.
ISSUE:
ISSUE: WON the action for damages by the proprietress

against the soft drinks manufacturer should be treated
WON the parents should be held liable for such as one for breach of implied warranty under article 1561
damages? of the CC which prescribes after six months from
delivery of the thing sold?
HELD:
HELD:
The subsidiary liability of parents for damages caused by
their minor children imposed under Art 2180 of the Civil Petition Denied. The SC agrees with the CA’s
Code and Art. 101 of Revised Penal Code covered conclusion that the cause of action in the case at bar is
obligations arising from both quasi-delicts and criminal found on quasi-delict under Article 1146 of the CC which
offenses. The court held that the civil liability of the prescribes in four years and not on breach of warranty
parents for quasi-delict of their minor children is primary under article 1562 of the same code. This is supported
and not subsidiary and that responsibility shall cease by the allegations in the complaint which makes
when the persons can prove that they observe all the reference to the reckless and negligent manufacture of
diligence of a good father of a family to prevent damage. "adulterated food items intended to be sold for public
However, Wendell’s mother testified that her husband consumption."
owns a gun which he kept in a safety deposit box inside
a drawer in their bedroom. Each of the spouses had
their own key. She likewise admitted that during the
incident, the gun was no longer in the safety deposit box.
Wendell could not have gotten hold of the gun unless the

that regardless if whether or not the road is national,

provincial, city, or municipal, so long as it is under the
City’s control and supervision, it shall be responsible for
damages by reason of the defective conditions thereof.
In the case at bar, the City admitted they have control
and supervision over the road where Teotico fell when
the City alleged that it has been doing constant and
regular inspection of the city’s roads, P. Burgos included.
PROPRIETORS OF BUILDING, FACTORY

CITY OF MANILA VS. TEOTICO ETC.GUILATCO
22 SCRA 267 VS. CITY OF DAGUPAN
FACTS: FACTS:
In January 1958, at about 8pm, Teotico was Gilatco, (Court Interpreter) was about to board a
about to board a jeepney in P. Burgos, Manila when he tricycle at a sidewalk when at Perez Blvd whenshe
fell into an uncovered manhole. This caused injuries accidentally fell into a manhole causing her right leg to
upon him. Thereafter he sued for damages under Article be fractured. Perez Blvd is a National Roadunder the
2189 of the Civil Code the City of Manila, the mayor, the control and supervision of City of Dagupan.Such
city engineer, the city health officer, the city treasurer, manhole is partially covered by a flowerpot leaving a
and the chief of police. CFI Manila ruled against Teotico. gaping hole about 2 ft long and 1½feet wide.She was
The CA, on appeal, ruled that the City of Manila should hospitalized, operated on and confined. She had been
pay damages to Teotico. The City of Manila assailed the deprived of income. She sued for damages.
decision of the CA on the ground that the charter of
Manila states that it shall not be liable for damages ISSUE:
caused by the negligence of the city officers in enforcing
the charter; that the charter is a special law and shall WON Control or supervision over a national road by the
prevail over the Civil Code which is a general law; and City of Dagupan exists which makes City liable under Art
that the accident happened in national highway. 2189?
ISSUE: HELD:
Whether or not the City of Manila is liable in the
case at bar? YES. Art 2189 says : Provinces, cities and
municipalities shall be liable for damages for the death
HELD: of, or injuries, suffered by, any person by reason of the
defective conditions of roads, streets, bridges,
YES. It is true that in case of conflict, a special publicbuildings, and other public works, under their
law prevails over a general law; that the charter of control and supervision.Thus, it is not even necessary
Manila is a special law and that the Civil Code is a that such defective road or street belongs to the City.In
general law. However, looking at the particular the case at bar, the control and supervision of the
provisions of each law concerned, the provision of the national road exists and is provided for in thecharter of
Manila Charter exempting it from liability caused by the Dagupan. It provided that the laying out, construction
negligence of its officers is a general law in the sense and improvement of streets, avenues andalleys and
that it exempts the city from negligence of its officers in sidewalks, and regulation of the use thereof, may be
general. There is no particular exemption but merely a legislated by the Municipal Board.Such control and
general exemption. On the other hand, Article 2189 of supervision is exercised through the City Engineer
the Civil Code provides a particular prescription to the Tangco, who aside from hisofficial capacity as City
effect that it makes provinces, cities, and municipalities Engineer, was also Ex Officio Highway Engineer, Ex
liable for the damages caused to a certain person by Officio City Engineer of Bureau of Public Works, and
reason of the “…defective condition of roads, streets, Building Official and received compensation for these
bridges, public buildings, and other-public works under functions.
their control or supervision.”
The function of supervision over streets, public
The allegation that the incident happened in a buildings and public works, pertaining through theCity
national highway was only raised for the first time in the Engineer is coursed through a Maintenance Foreman
City’s motion for reconsideration in the Court of Appeals, and a Maintenance Engineer. Although thesetwo officials
hence it cannot be given due weight. At any rate, even are employees of the Nat’l Gov’t, they are detailed with
though it is a national highway, the law contemplates the City of Dagupan and hencereceive instruction and

supervision from the city through the City Petitioner could have easily discovered the
Engineer.Hence the City is liable. cause of the collapse if indeed it were due to force
majeure. To Our mind, the real reason why Mr. Ong
could not explain the cause or reason is that either he
did not actually conduct the investigation or that he is, as
the respondent Court impliedly held, incompetent. He is
not an engineer, but an architect who had not even
passed the government's examination. Verily, post-
incident investigation cannot be considered as material
to the present proceedings. What is significant is the
GOTESCO INVESTMENT CORPORATION finding of the trial court, affirmed by the respondent
VS. GLORIA E. CHATTO Court, that the collapse was due to construction defects.
G.R. No. L-87584 June 16, 1992 There was no evidence offered to overturn this finding.
The building was constructed barely four (4) years prior
FACTS: to the accident in question. It was not shown that any of
the causes denominates as force majeure obtained
Gloria A. Chatto with her 15-year old daughter immediately before or at the time of the collapse of the
went to petitioners’s theater to see a movie. They bougt ceiling. Such defects could have been easily discovered
balcony tickets but were unable to find seats. Hardly 10 if only petitioner exercised due diligence and care in
minutes after entering the theater, the ceiling of its keeping and maintaining the premises. But as disclosed
balcony collapsed. Shocked and hurt, plaintiffs by the testimony of Mr. Ong, there was no adequate
managed to crawl under the fallen ceiling. As soon as inspection of the premises before the date of the
they were able to get out to the street, they walked the accident. His answers to the leading questions on
nearby FEU hospital where they were confined and inspection disclosed neither the exact dates of said.
treated. The following day, they transferred to the UST inspection nor the nature and extent of the same. That
hospital. the structural designs and plans of the building were duly
approved by the City Engineer and the building permits
Due to continuing pain in the neck, headache and certificate of occupancy were issued do not at all
and dizziness, plaintiff went to Illinois, USA in July 1982 prove that there were no defects in the construction,
for further treatment (Exh "E"). She was treated at the especially as regards the ceiling, considering that no
Cook County Hospital in Chicago, Illinois. She stayed in testimony was offered to prove that it was ever inspected
the U.S. for about three (3) months during which time at all.
she had to return to the Cook County Hospital five (5) or,
six (6) times. It is settled that:
It has been established thru the uncontradicted The owner or proprietor of a place of
testimony of Mrs. Chatto that during the chaos and public amusement impliedly warrants that the
confusion at the theater she lost a pair of earrings worth premises, appliances and amusement devices
P2,500 and the sum of P1,000.00 in cash contained in are safe for the purpose for which they are
her wallet which was lost; and that she incurred the designed, the doctrine being subject to no other
following expenses: P500.00 as transportation fare from exception or qualification than that he does not
Cebu City to Manila on the first leg of her trip to the contract against unknown defects not
United States; P350.00 for her passport; and P46,978.00 discoverable by ordinary or reasonable means.
for her expense relative to her treatment in the United
States, including the cost of a round-trip ticket
(P11,798.00) hospital and medical bills and other This implied warranty has given rise to the rule
attendant expenses. The total is P51,328.00, which is that:
more than the sum of P49,050.00 claimed in the
complaint, hence should be reduced accordingly. Where a patron of a theater or other place of
public amusement is injured, and the thing that caused
The herein petitioner now claims that the the injury is wholly and exclusively under the control and
collapse was due to a force majeure. management of the defendant, and the accident is such
as in the ordinary course of events would not have
ISSUE: happened if proper care had been exercised, its
occurrence raises a presumption or permits of an
Whether petitioner is liable for damages? inference of negligence on the part of the defendant.
HELD: That presumption or inference was not

overcome by the petitioner.

imposed by Article 2176 is demandable not only for

FALLO: Petition DENIED for lack of merit. one’s own acts or omissions-, but also for those of
persons for whom one is responsible.
It should be shown that whenever an

employee’s negligence causes damage or injury to
another, there instantly arises a presumption juris tantum
that there was negligence on the part of the employer,
either in the selection of the employee (culpa in
eligiendo) or the supervision over him after the selection
(culpa in vigilando). Hence, to escape solidary liability for
a quasi-delict committed by his employee, an employer
METRO MANILA TRANSPORT VS. CA & COL. must rebut the presumption by presenting convincing
SABALBURO proof that in the selection and supervision of his
August 1, 2002 employee, he has exercised the care and diligence of a
good father of a family. In the present case, petitioner
MMTC failed to rebut the presumption of negligence on
FACTS: its part.
Last December 24 1986 Florentina Sabalburo

and her companions were making their way to Baclaran
to buy foodstuffs for Noche Buena. Florentina Sabalburo Obligations and Contracts Terms:
and her companions waited for the traffic light to turn red
so that they could cross the street to take a ride to
Baclaran. Upon crossing the street during the red light, CULPA AQUILIANA- refers to acts or omissions which
Florentina Sabalburo was hit by a fast moving MMTC cause damage to another, there being fault or
bus, driven by Apolinario Ajoc. negligence on the part of the defendant, who is obliged
by law to pay for the damages done.
Ms. Sabalburo was then taken by the driver
and conductress of the MMTC bus to San Juan de Dios
hospital. The victim was not able to regain Art 2176 of the Civil Code is applied if there’s no pre-
consciousness and she succumbed to her injuries on existing contractual relation between the parties.
January 03, 1987. The Trial court decided in favor of Although the Supreme Court has already held that a
Sabalburo et. al and ordered MMTC to pay damages. quasi- delict can occur even if there is a contractual
MMTC then appealed the case to the Court of Appeals relation, since the act that lead to the breaking a contract
which affirmed the decision of the trial court. may also be a tort
ISSUE:
Whether or not MMTC is liable to pay damages
to private respondent?
HELD:
YES. According to the S.C. both courts are

correct in awarding damages to the plaintiff.
Even though MMTC argues that the proximate

cause of the victim’s death is her negligence thus
requesting the court to apply Art 2179 of the civil code,
instead of Art 2176, the S.C upheld the findings of the
trial courts that the driver and MMTC had been negligent
in its duties and it is this negligence that led to the death
of the victim thus showing that Art 2176 is the more
applicable provision in thiscase.
Also MMTC is liable for the death of the victim

due to Art 2180 of the civil code, wherein the obligation

no such right of action could derivatively accrue to the

parents or heirs of an unborn child. In fact, even if a
cause of action did accrue on behalf of the unborn child,
the same was extinguished by its pre-natal death, since
no transmission to anyone can take place from one that
lacked juridical personality (or juridical capacity, as
distinguished from capacity to act). It is no answer to
invoke the provisional personality of a conceived child
(conceptus pro nato habetur) under Article 40 of the Civil
Cod, because that same article expressly limits such
provisional personality by imposing the condition that the
GELUZ VS. CA child should be subsequently born alive: "provided it be
July 20, 1961 born later with the condition specified in the
followingarticle."
FACTS: In the present case, there is no dispute that the

child was dead when separated from its mother's womb.
Nita Villanueva came to know the defendant (2) This is not to say that the parents are not entitled to
(Antonio Geluz) for the first time in 1948-- thru her aunt. collect any damages at all. But such damages must be
In 1950, she became pregnant by her present husband those inflicted directly upon them, as distinguished from
before they were legally married. During to conceal her the injury or violation of the rights of the deceased, his
pregnancy from her parent, she had herself aborted by right to life and physical integrity. Because the parents
def. After the marriage with the plaintiff., she again cannot expect either help, support or services from an
became pregnant. unborn child, they would normally be limited to moral
damages for the illegal arrest of the normal development
As she was employed in the COMELEC and her of the spes hominis that was the foetus, i.e., on account
pregnancy proved to be inconvenient, she had herself of distress and anguish attendant to its loss, and the
aborted again by def. in Oct 1953. Less than 2 years disappointment of their parental expectations (Art. 2217,
later, she again became pregnant. On 2/21/55, she CC), as well as to exemplary damages, if the
again repaired to the defendant’s clinic. Nita was again circumstances should warrant them (Art. 2230,CC).
aborted of a 2-month old foetus, in consideration of the
sum of P50.It is the third and last abortion that But in this case, there is no basis for an award of
constitutes plaintiff’s basis in filing this action and award moral damages, evidently because the husband's
of damages. indifference to the previous abortions clearly indicates
that he was unconcerned with the frustration of his
The CA and the trial court predicated the award parental hopes and affection. Art. 41. For civil purposes,
of damages upon the provisions of the initial par. of Art. the foetus is considered born if it is alive at the time it is
2206 of the NCC. completely delivered from the mother’s womb. However,
if the foetus had an intrauterine life of less than seven
months, it is not deemed born if it dies within twenty-four
hours after its complete delivery from the maternal womb
ISSUE:
Whether or not award of damages is proper in
this case?
RULING:
NO. This award, we believe, to be error for the

said art., in fixing an award for the death of a person,
does not cover the case of an unborn foetus that is not
endowed with personality.
Parents of unborn foetus cannot sue for

damages on its behalf. A husband of a woman who
voluntarily procured her abortion could not recover
damages from the physician who caused the same. (1)
Since an action for pecuniary damages on account of
personal injury or death pertains primarily to the injured,

Dr. Felicisma also interviewed and conducted an

internal vaginal examination of the patient which lasted
for about 15 minutes. Dr. Felicisma then called the
laboratory for the results of the patient’s tests. At that
time, only the results for the blood sugar (10.67 mmol/L),
uric acid determination, cholesterol determination, and
CBC (109 g/L) were available.
Based on these preparations, Dr. Felicisma
proceeded with the D&C operation with Dr. Fredelicto
administering the general anesthesia. The D&C
SPOUSES FLORES VS. SPOUSES PINEDA operation lasted for about 10-15 minutes. By 3:40 pm,
November 14, 2008 Teresita was wheeled back to her room.
A day after the operation (April 29, 1987),

FACTS: Teresita was subjected to an ultrasound examination as
a confirmatory procedure. Results showed that she had
Teresita Pineda (Teresita) was a 51 y/o an enlarged uterus and myoma uteri. Dr. Felicisma,
unmarried woman living in Sto. Domingo, Nueva Ecija. however, advised Teresita that she could spend her
Teresita consulted her townmate, Dr. Fredelicto Flores, recovery period at home. Still feeling weak, Teresita
regarding her medical condition (general body opted for hospital confinement.
weakness, loss of appetite, frequent urination and thirst,
and on-and-off vaginal bleeding) Teresita’s complete lab exam results came only
on April 29, 1987. Teresita’s urinalysis showed a 3+
Dr. Fredelicto initially interviewed the patient and indicating that the sugar in her urine was very high. She
asked the history of her monthly period to analyze the was then placed under the care of Dr. Amado Jorge, an
probable cause of the vaginal bleeding. Dr. Fredelicto internist.
advised the patient to return the following week or to go
the United Doctors Medical Center (UDMC) in Quezon By April 30, 1987, Teresita’s condition had
City for a general check-up. He suspected that her other worsened. She experienced difficulty breathing and was
symptoms might be due to diabetes and told her to rushed to the ICU. Further tests confirmed that she was
continue her medications. suffering from DM Type II. Insulin was administered to
the patient, but the medication might have arrived too
Teresita did not return the next week as advised. late.
When her condition persisted, she went to further
consult Dr. Flores at his UDMC clinic on April 28, 1987. Due to complications induced by diabetes,
To get there she traveled for at least 2 hours from Nueva Teresita died in the morning of May 6, 1987.
Ecija to Quezon City with her sister, Lucena Pineda.
They arrived at UDMC at around 11:15 am.
ISSUE:
Lucena later testified that her sister was then so Whether the decision to proceed with the D&C
weak that she had to lie down on the couch of the clinic operation was an honest mistake of judgment OR one
while they waited for Dr. Fredelicto to arrive. When Dr. amounting to negligence
Fredelicto arrived, he did a routine check-up and ordered
Teresita’s admission to the hospital. In the admission
slip, he directed the hospital staff to prepare the patient Medical Negligence Case – type of claim to redress a
for an “on call” D&C operation to be performed by his wrong committed by a medical professional that has
wife, Dr. Felicisma Flores (Dr. Felicisma). caused bodily harm or the death of a patient.
Teresita was brought to her hospital room at 4 Elements in a Medical Negligence Case:
around 12 noon; hospital staff took her blood and urine 1. Duty
samples for the lab tests which Dr. Fredelicto ordered. 2. Breach
Teresita was taken to the operating room at 2:40 pm of 3. Injury
the same day. It was only then that she met Dr. 4. Proximate Causation
Felicisma, an ob-gyn. The 2 doctors (Dr. Felicisma and
Dr. Fredelicto) conferred on the patient’s medical
condition. The resident physician and the medical intern
gave Dr. Felicisma their own briefings. HELD:

The court did not find the petition meritorious.

Both the trial and the appellate court awarded actual
damages as compensation for the pecuniary loss the
respondents suffered. The loss was presented in terms
of the hospital bills and expenses the respondents
incurred on account of Teresita’s confinement and
death.
The court affirmed the award of actual damages

of P36,000.00 representing the hospital expenses the
patient incurred. In addition to the award for actual
damages, the respondent heirs of Teresita are likewise
entitled to P50,000.00 as death indemnity pursuant to
Article 2206 of the Civil Code which states that “the
amount of damages for death caused by a xxx quasi-
delict shall be at least three thousand pesos, even
though there may have been mitigating circumstances
xxx”
Moral damages are designed to compensate the

claimant for the injury suffered, that is, for the mental
anguish, serious anxiety, wounded feelings which the
respondents herein must have surely felt with the
unexpected loss of their daughter. They affirmed the
appellate court’s award of P400,000.00 by way of moral
damages to the respondents.
They similarly affirmed the grant of exemplary

damages. Because of the petitioner spouses’ negligence
in subjecting Teresita to an operation without first
recognizing and addressing her diabetic condition, the
appellate court awarded exemplary damages to the
respondents in the amount of P100,000.00.
·

6. violation of Section 87-A-1(d) and Section 87-A-2(a) of

the General Banking Act, RA No. 337, as amended by
PD No. 71
The RTC rendered judgment against petitioners.

In view of his acquittal in the criminal cases, Hector
VILLANUEVA VS. UCPB Villanueva filed a complaint for damages on the ground
March 7, 2000 of alleged malicious prosecution with the Regional Trial
Court of Dumaguete City against [respondent bank],
which was docketed as Civil Case No. 172-B and raffled
FACTS: to Branch [44] of the court. The complaint alleged,
among others, that [petitioner] is a respectable member
Sometime in December 1978, Hermenegildo of the community, a professional, a member of various
Villanueva, father of [herein Petitioner] Hector C. civic organizations, a businessman, and a political
Villanueva, applied for and was granted a loan by leader; that the filing of the criminal cases against him by
[Respondent] United Coconut Planters’ Bank (UCPB), [respondent bank] was done with malice which resulted
Dumaguete City Branch, which at that time was in the undue maligning, blackening x x x of his integrity,
managed by one Bobby Cafe. The loan was for the honesty and good reputation, as well as adversely
alleged purpose of agricultural coconut production and affecting his political career and business dealings, for
for processing under the Coconut Production Loan which [petitioner] prayed that [respondent bank] be held
Program. As security therefor, Hermenegildo Villanueva liable to him for the amount [of] P200,000.00 in actual
mortgaged to the bank a parcel of land registered in his damages, P6,000,000.00 in moral damages,
name located at Mauban, Quezon. P2,000,000.00 in exemplary damages, P1,000,000.00 in
nominal damages, and P800,000.00 in attorney’s fees,
In the course of a bank audit, certain fraud, as well as P5,000.00 charge per court appearance.
anomalies and irregularities were discovered in the
application, processing and granting of said loan The Court of Appeals however, ruled that the
prompting UCPB to conduct further investigation on the petitioner had failed to prove the elements of malicious
matter. After due inquiry, the [respondent] bank found prosecution.
and concluded that [petitioner], together with his father, First, even if the respondent bank filed the six criminal
Hermenegildo Villanueva, Bobby Cafe (UCPB Complaints against the petitioner, it was not the
Dumaguete City Branch Manager) and a certain prosecutor but merely the complainant. The prosecution
Reynaldo Ramos, confederated and conspired with each of those criminal cases was left solely to the discretion
other in perpetrating the fraud, anomalies and and control of the city fiscal. Second, the prosecutor
irregularities to the detriment of the bank. acted with probable cause. The Resolution of the city
fiscal of Dumaguete clearly showed petitioner’s
On June 8, 1979, UCPB, through its counsel, participation in the alleged crimes and the reasons why
filed the following criminal complaints against petitioner: the accused was probably guilty as charged. Third, the
petitioner also failed to establish malice behind the filing
with the Office of the City Fiscal (now of the criminal Complaints.
Prosecutor) of Dumaguete City, to wit: The adverse result of an action does not by itself make
1. violation of Section 77 of the General Banking Act, the prosecution thereof wrongful; neither does it subject
Republic Act (RA) No. 337, as amended by Presidential the actor to payment of damages. The law does not
Decree (PD) No. 71, in relation to Central Bank Circular impose a penalty on the right to litigate.
No. 517, Series of 1976, and Section 87 of the General Hence, this Petition.
Banking Act
2. violation of Section 87-A-2(d) of the General Banking

Act, RA No. 337, as amended by PD No. 71 ISSUE:
3. violation of Section 87-A-1 (c) of the General Banking Whether or not there was malicious prosecution
Act, RA No. 337, as amended by PD No. 71 in the instant case?
4. violation of Section 87-A-2(b) of the General Banking

Act, RA No. 337, as amended by PD No. 71 HELD:
5. violation of Articles 315(2)(a) and 316(2) of the The Petition has no merit. The respondent bank
Revised Penal Code filed the criminal Complaints for violations of the General
Banking Act in its honest belief that these charges were

meritorious. There is no credible evidence to show that it

was impelled by a desire to unjustly vex, annoy and
inflict injury on the petitioner. Before these cases were
referred to the city fiscal, it had even conducted its own
investigation with the assistance of the National Bureau
of Investigation.
Malicious prosecution requires proof that the

prosecution was prompted by a sinister design to vex
and humiliate the plaintiff. The respondent bank had
neither a "bone to pick" with the petitioner nor a
"previous dealing with petitioner that could have
prompted the respondent bank to turn the tables on him.
Resort to judicial processes, by itself, is not

evidence of ill will, as the mere act of filing a criminal
complaint does not make the complainant liable for
malicious prosecution.3[22] There must be proof that the
suit was prompted by legal malice -- an inexcusable
intent to injure, oppress, vex, annoy or humiliate. A
contrary rule would discourage peaceful recourse to the
courts and unjustly penalize the exercise of a citizen’s
right to litigate. Where the action is filed in good faith, no
penalty should be imposed thereon.
WHEREFORE, the Petition is DENIED and the assailed

Decision and Resolution AFFIRMED. Costs against
petitioner.
DOCTRINE:
A suit for malicious prosecution cannot prosper unless

the plaintiff satisfactorily proves that the earlier criminal
action lacked probable cause and was filed, by a sinister
design, mainly to injure, vex, annoy or humiliate. An
acquittal, by itself, does not necessarily prove the
absence of probable cause in the criminal information or
complaint. Upon the other hand, the complainant cannot
escape liability merely on the ground that it was the
fiscal who prosecuted the proceedings in court.

initiateddeliberately knowing that the charge was false

INHELDER CORPORATION VS. CA and groundless.
May 30, 1983
In the present case, there is no evidence on

record, clearly establishing these two elements.Although
FACTS: there may be want of probable cause, there is no proof
that petitioner deliberately initiated theCOLLECTION
What commenced the instant proceedings is a CASE knowing that the same was false and groundless.
case (hereinafter referred to as the DAMAGECASE)
instituted by private respondents (hereinafter referred to It should also be stressed that the mere filing
as the PANGANIBANS), residents ofCalapan, Oriental of a suit does not render a person liable formalicious
Mindoro, against petitioner (hereinafter referred to as prosecution should he be unsuccessful. The law could
INHELDER), domiciled inMandaluyong, Rizal, before the not have meant to impose a penalty onthe right to
Court of First Instance of Oriental Mindoro (hereinafter litigate. Sound principles of justice and public policy
referred to as the demand that persons shall have free
MINDORO COURT). The Complaint alleged that resort to Courts of law for redress of wrongs and
INHELDER had filed a case (hereinafter referred to vindication of their rights without fear of later on
asthe COLLECTION CASE) against the PANGANIBANS standingtrial for damages should their actions lose
before the Municipal Court of Mandaluyong, ground.
Rizal(hereinafter referred to as MANDALUYONG
COURT), which was subsequently dismiss; that It may not be amiss to remind Trial Courts to
theCOLLECTION CASE (Civil Case No. 5582), was guard against the award of exorbitant damages thatare
clearly unfounded, - and that the PANGANIBANS were way out of proportion to the environmental
entitled, as against INHELDER, to quantified damages circumstances of a case and which, time and again,
totalling P169,550.00. thisCourt has reduced or eliminated. Judicial discretion
granted to the Courts in the assessment of
As will be seen, the complaint of the damagesmust always be exercised with balanced
PANGANIBANS was essentially for actual restraint and measured objectivity.
andcompensatory damages, moral damages and
exemplary damages, based on the alleged
clearlyunfounded COLLECTION CASE.
After declaring INHELDER in default in the DAMAGE

CASE, the MINDORO COURT renderedjudgment in
favor of the PANGANIBANS. On appeal, the Appellate
Court reduced the total damagesawarded to the
PANGANIBANS from P212,650.00 to P41,550.00 by
modifying the judgment of the
MINDORO COURT
ISSUE:
Whether or not the complaint constitutes

malicious prosecution and whether or not damages can
be awarded as a result thereon.
HELD:
The Supreme Court does not agree. Neither

may it be said that the COLLECTION CASE was
malicious. Malicious prosecution, to bethe basis of a suit,
requires the elements of malice and want of probable
cause. There must be proof that
the prosecution was prompted by a sinister design to vex
and humiliate a person, and that it was

effects of dolo causante are the nullity of the contract

and the indemnification of damages, and dolo incidente
also obliges the person employing it to pay damages.
In either case, whether private respondent has

GERALDEZ VS. CA committed dolo causante or dolo incidente by making
February 23, 1994 misrepresentations in its contracts with petitioner and
other members of the tour group, which deceptions
FACTS: became patent in the light of after-events when, contrary
to its representations, it employed an inexperienced tour
An action for damages by reason of contractual breach guide, housed the tourist group in substandard hotels,
was filed by petitioner Lydia L. Geraldez against private and reneged on its promise of a European tour manager
respondent Kenstar Travel Corporation. Sometime in and the visit to the leather factory, it is indubitably liable
October 1989, Petitioner came to know about private for damages to petitioner.
respondent from numerous advertisements in
newspapers of general circulation regarding tours in
Europe. She then contacted private respondent by
phone and the latter sent its representative, who gave
her the brochure for the tour and later discussed its
highlights. The European tours offered were classified
into four, and petitioner chose the classification
denominated as "VOLARE 3" covering a 22-day tour of
Europe for S2,990.00. She paid the total equivalent
amount of P190,000.00 charged by private respondent
for her and her sister, Dolores. Petitioner claimed that,
during the tour, she was very uneasy and disappointed
when it turned out that, contrary to what was stated in
the brochure, there was no European tour manager for
their group of tourists, the hotels in which she and the
group stayed were not first-class, the UGC Leather
Factory which was specifically added as a highlight of
the tour was not visited, and the Filipino lady tour guide
by private respondent was a first timer, that is, she was
performing her duties and responsibilities as such for the
first time.
ISSUE:
Whether or not the respondent company

committed fraud in order for the petitioner to enter into
the contract.
HELD:
This fraud or dolo, which is present or employed

at the time of birth or perfection of a contract, may either
be dolo causante or dolo incidente. The first, or causal
fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by
one party and without which the other party would not
have entered into the contract. Dolo incidente, or
incidental fraud which is referred to in Article 1344, are
those, which are not serious in character and without
which the other party would still have entered into the
contract. Dolo causante determines or is the essential
cause of the consent, while dolo incidente refers only to
some particular or accident of the obligations. The

The findings of the respondent court are

persuasive.
RCPI vs.CA
March 13, 1991 . . When plaintiffs placed an order for
transmission of their social condolence telegram,
FACTS: defendant did not inform the plaintiff of the exhaustion of
such social condolence forms. Defendant-appellant
A social condolence telegram sent through the accepted through its authorized agent or agency the
facilities of the RADIO COMMUNICATIONS OF THE order and received the corresponding compensation
PHILIPPINES, INC (RCPI). The condolence telegram therefor. …. Gross negligence or carelessness can be
was correctly transmitted as far as the written text was attributed to defendant-appellant in not supplying its
concerned. However, the condolence message as various stations with such sufficient and adequate social
communicated and delivered to the addressees was condolence forms when it held out to the public … the
typewritten on a “Happy Birthday” card and placed inside availability of such social condolence forms and
a “Christmasgram” envelope. The RCPI’s defense is that accepted for a fee the transmission of messages on said
it ran out of social forms and envelope for condolence forms. Knowing that there are no such forms as testified
telegrams. to by its Material Control Manager and entering into a
contract for the transmission of messages in such forms,
The trial court rendered judgment in favor of the defendant-appellant committed acts of bad faith, fraud or
respondents Timans which was affirmed in toto by the malice. . . .
CA. RCPI now submits assignment of errors regarding
the award of damages and attorney’s fees against it. Anyone who avails of the facilities of a telegram
company like RCPI can choose to send his message in
the ordinary form or in a social form. In the ordinary
ISSUE: form, the text of the message is typed on plain newsprint
paper. On the other hand, a social telegram is placed in
WON RCPI is liable for breach of contract and a special form with the proper decorations and
negligence as decided by the 2 courts? embellishments to suit the occasion and the message
and delivered in an envelope matching the purpose of
the occasion and the words and intent of the message.
HELD: , The sender pays a higher amount for the social telegram
than for one in the ordinary form.
The decision appealed from is AFFIRMED in
toto
It is clear, therefore, that when the message was
YES. The SC fully agrees with the appellate being prepared, it committed a breach of contract as well
court’s endorsement of the trial court’s conclusion that as gross negligence. It could not have been faulted had
RCPI, a corporation dealing in telecommunications and it delivered the message in the ordinary form and
offering its services to the public, is engaged in a reimbursed the difference in the cost to the private
business affected with public interest. As such, it is respondents.
bound to exercise that degree of diligence expected of it
in the performance of its obligation.
One of RCPI’s main arguments is that despite the fact NOTES:
that there was “error” in the social form and envelope
used, it asserts that there was no showing that it has any It was not unexpected that because of this
motive to cause harm or damage on private unusual incident, which caused much embarrassment
respondents: and distress to respondent Timan, he suffered
nervousness and hypertension resulting in his
In the present case, it is self-evident that a confinement for three days at a hospital.
telegram of condolence is intended and meant to convey The petitioner argues that “a court cannot rely on
a message of sorrow and sympathy. It seems out of this speculation, conjectures or guess work as to the fact and
world, therefore, to place that message of condolence in amount of damages, but must depend on the actual
a birthday card and deliver the same in a Christmas proof that damages had been suffered and evidence of
envelope for such acts of carelessness and the actual
incompetence not only render violence to good taste and amount. In other words, RCPI insists that there is no
common sense, they depict a bizarre presentation of the causal relation of the illness suffered by Mr. Timan with
sender’s feelings. the foul-up caused by the petitioner. But that is a
question of fact. The findings of fact of the trial court and
the respondent court concur in favor of the private

respondents. We are bound by such findings—that is the

general rule well-established by a long line of cases.
Nothing has been shown to convince us to justify the
relaxation of this rule in the petitioner’s favor. On the
contrary, these factual findings are supported by
substantial evidence on record.

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Civil Law Review 2 • 2013 - 2014

Credit Transactions • Torts & Damages

Atty. VIVIANA MARTIN – PAGUIRIGAN

ARAFAG • HABANA • JALAYAJAY Page 1

OBLIGATIONS & CONTRACTS

ARTICLES 1247 – 1337

Towne & City Dev’t vs. CA and Voluntad…………………………………………………………July 14, 2004

ARAFAG • HABANA • JALAYAJAY Page 2

Naga Telephone Co vs. CA………………………………………………………………………………230 SCRA 351

Trans. Pacific Ind. Vs. CA…………………………………………………………………………………235 SCRA 494

ARTICLES 1338 – 1428

Bautista vs. CA………………………………………………………………………………………………..Aug. 11, 2004

ARAFAG • HABANA • JALAYAJAY Page 3

Vda. De Buncio vs. Estate of de Leon……………………………………………………………….156 SCRA 353

Asia Productions vs. Pano………………………………………………………………………………..205 SCRA

ARTICLES 1429 – 1519

Roblett vs. CA…………………………………………………………………………………………………….266 SCRA

ARAFAG • HABANA • JALAYAJAY Page 4

ARICLES 1520 – 1610

Radiowealth vs. Palileo (1544)……………………………………………………………………………197 SCRA 245

Spouses Uy vs. Arriza (1548,58,59)……………………………………………………………………..Aug. 17, 2006

BPI vs. Domingo………………………………………………………………………………………………….Nov. 27,

ARAFAG • HABANA • JALAYAJAY Page 5

Agad vs. mabato…………………………………………………………………………………………………23 SCRA

Doles vs. Angeles (1868)……………………………………………………………………………………...June 26, 2006

Siasat vs. IAC………………………………………………………………………………………………………..139

ARAFAG • HABANA • JALAYAJAY Page 6

Estern Shipping Lines vs. CA……………………………………………………………………………….234 SCRA 78

Gullas vs. PNB………………………………………………………………………………………………….…62 Phil. 519

Traders Insurance vs. Dy Eng Giok………………………………………………………………………104 Phil 806

PLEDGE AND MORTGAGE

Dizon vs. Suntay………………………………………………………………………………………………….47 SCRA

Northern Motors vs. Coquia………………………………………………………………………………..66 SCRA 374

CONCURRENCE AND PREFERENCE OF CREDITS

Republic vs. Peralta…………………………………………………………………………………………….150 SCRA 37

ARAFAG • HABANA • JALAYAJAY Page 7

DBP vs. NLRC………………………………………………………………………………………………………236 SCRA

TORTS AND DAMAGES

Pci Leasing vs. UCPB (1276)…………………………………………………………………………………July 4, 2008

ARAFAG • HABANA • JALAYAJAY Page 8

Article VI of the Contract, has no bearing on the

Pursuant to the foregoing Schedule, the PTA FALLO:

negotiations for a foreign loan to finance the completion

ARAFAG • HABANA • JALAYAJAY Page 10

As stated earlier, SOB cannot yet demand complete

ARAFAG • HABANA • JALAYAJAY Page 11

JACINTO TANGUILIG Vs.COURT OF APPEALS ii. Whether petitioner is under obligation to

ARAFAG • HABANA • JALAYAJAY Page 12

The appellate court correctly observed that

ARAFAG • HABANA • JALAYAJAY Page 13

LA COMPAÑIA GENERAL DE TABACOS DE

The plaintiff brought this action in the court to

The court below gave no credit for the payment

MARIANO VELOSO, ET AL. VS. ANICETA

ARAFAG • HABANA • JALAYAJAY Page 14

On the 11th of October, 1883, the debt of

On the death of Buenaventura Veloso, the

ARAFAG • HABANA • JALAYAJAY Page 15

SOFRONIO T. BAYLA Vs. SILANG TRAFFIC CO.,

Whether under the contract between the parties

ARAFAG • HABANA • JALAYAJAY Page 16

Whenever deposits are made by customers for

Petitioner refused the offer.