B2013 241pp

B 0bligations anu Contiacts Piof Labitag
TITLE I: OBLIGATIONS
CHAPTER 1: GENERAL PROVISIONS
II. Sources of Obligations
E. Quasi-Delicts
BARREDO VS. GARCIA
Fausto Barredo, petitioner, vs. Severino Garcia and Timotea Almario, respondents
Ponente: Bocobo, J.
Legal Doctrine: Plaintiffs are free to choose on which of
the two remedies to recover damages they will take.

Facts:
At about half past one in the morning of May 3, 1936, on
the road between Malabon and Navotas, Province of
Rizal, there was a head-on collision between a taxi of
the Malate Taxicab driven by Pedro Fontanilla and a
carretela guided by Pedro Dimapalis.
The carretela was overturned, and one of its
passengers, 16-year-old boy Faustino Garcia,
suffered injuries from which he died two days later.
A criminal action was filed against Fontanilla in the Court
of First Instance of Rizal, and he was convicted.
The court in the criminal case granted the petition that the
right to bring a separate civil action be reserved.
The Court of Appeals affirmed the sentence of the lower
court in the criminal case.
Severino Garcia and Timotea Almario, parents of the
deceased on March 7, 1939, brought an action in the
Court of First Instance of Manila against Fausto Barredo
as the sole proprietor of the Malate Taxicab and employer
of Pedro Fontanilla.
On July 8, 1939, the Court of First Instance of Manila
awarded damages in favor of the plaintiffs for P2,000 plus
legal interest from the date of the complaint.
This decision was modified by the Court of Appeals by
reducing the damages to P1,000 with legal interest from
the time the action was instituted.
It is undisputed that Fontanilla's negligence was the
cause of the mishap, as he was driving on the wrong side
of the road, and at high speed.
As to Barredo's responsibility, the Court of Appeals found:
In fact it is shown he was careless in employing
Fontanilla who had been caught several times for
violation of the Automobile Law and speeding (Exhibit A) -
violation which appeared in the records of the Bureau of
Public Works available to be public and to himself.
Therefore, he must indemnify plaintiffs under the
provisions of article 1903 of the Civil Code.
Main theory of Barredo is that his liability is governed by
the Revised Penal Code; hence, his liability is only
subsidiary, and as there has been no civil action against
Pedro Fontanilla, the person criminally liable, Barredo
cannot be held responsible in the case.
Respondents assert that the Court of Appeals holds that
the Barredo is being sued for his failure to exercise all the
diligence of a good father of a family in the selection and
supervision of Pedro Fontanilla to prevent damages
suffered by the respondents.

Issue: Whether the Garcia and Almario may bring a
separate civil action against Fausto Barredo, thus making
him primarily and directly, responsible under article 1903
of the Civil Code as an employer of Pedro Fontanilla.

Held/Ratio:
Yes. The same negligent act causing damages may
produce civil liability arising from a crime under
article 100 of the Revised Penal Code, or create an
action for cuasi-delito or culpa extra-contractual
under articles 1902-1910 of the Civil Code.

Some of the differences between crimes under the Penal
Code and the culpa aquiliana or cuasi-delito under the
Civil Code are:
1. That crimes affect the public interest, while
cuasi-delitos are only of private concern.
2. That, the Penal Code punishes or corrects the
criminal act, while the Civil Code, by means of
indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts,
because the former are punished only if there is
a penal law clearly covering them, while the
latter, cuasi-delitos, include all acts in which "any
kind of fault or negligence intervenes." However,
it should be noted that not all violations of the
penal law produce civil responsibility, such as
begging in contravention of ordinances, violation
of the game laws, infraction of the rules of traffic
when nobody is hurt.
An employer is, under article 1903 of the Civil Code,
primarily and directly responsible for the negligent acts of
his employee.
In the present case, the taxi driver was found guilty of
criminal negligence, so that if he had even sued for his
civil responsibility arising from the crime, he would have
been held primarily liable for civil damages, and Barredo
would have been held subsidiarily liable for the same. But
the plaintiffs are directly suing Barredo, on his primary
responsibility because of his own presumed negligence
which he did not overcome under article 1903.
Thus, there were two liabilities of Barredo:
x first, the subsidiary one because of the civil
liability of the taxi driver arising from the latter's
criminal negligence; and,
x second, Barredo's primary liability as an
employer under article 1903.
The plaintiffs were free to choose which course to take,
and they preferred the second remedy. In so doing, they
were acting within their rights. It might be observed in
passing, that the plaintiff choose the more expeditious
and effective method of relief, because Fontanilla was
either in prison, or had just been released, and besides,
he was probably without property which might be seized
in enforcing any judgment against him for damages.
The Revised Penal Code in article 365 punishes not only
reckless but also simple negligence. If the Court were to
hold that articles 1902 to 1910 of the Civil Code refer only
to fault or negligence not punished by law, according to
the literal import of article 1093 of the Civil Code, the legal
institution of culpa aquiliana would have very little scope
and application in actual life. Death or injury to persons
and damage to property through any degree of
negligence even the slightest would have to be
indemnified only through the principle of civil liability
arising from a crime.
To find the accused guilty in a criminal case, proof of guilt
beyond reasonable doubt is required, while in a civil case,
preponderance of evidence is sufficient to make the
defendant pay in damages. There are numerous cases of
criminal negligence which can not be shown beyond
reasonable doubt, but can be proved by a preponderance
of evidence. In such cases, the defendant can and should
be made responsible in a civil action under articles 1902
to 1910 of the Civil Code. Otherwise, there would be
many instances of unvindicated civil wrongs. Ubi jus ibi
remedium.
To hold that there is only one way to make defendant's
liability effective, and that is, to sue the driver and exhaust
his (the latter's) property first, would be tantamount to
compelling the plaintiff to follow a devious and
cumbersome method of obtaining relief. True, there is
such a remedy under our laws, but there is also a more
expeditious way, which is based on the primary and direct
responsibility of the defendant under article 1903 of the
Civil Code. It is a matter of common knowledge that
professional drivers of taxis and similar public
conveyance usually do not have sufficient means with
which to pay damages. Why, then, should the plaintiff be
required in all cases to go through this roundabout,
unnecessary, and probably useless procedure? In
construing the laws, courts have endeavored to shorten
and facilitate the pathways of right and justice.
Because of the broad sweep of the provisions of both the
Penal Code and the Civil Code on this subject, which has
given rise to the overlapping or concurrence of spheres
already discussed, and for lack of understanding of the
character and efficacy of the action for culpa aquiliana,
there has grown up a common practice to seek damages
only by virtue of the civil responsibility arising from a
crime, forgetting that there is another remedy, which is by
invoking articles 1902-1910 of the Civil Code. Although
this habitual method is allowed by our laws, it has
nevertheless rendered practically useless and nugatory
the more expeditious and effective remedy based on
culpa aquiliana or culpa extra-contractual. In the present
case, we are asked to help perpetuate this usual course.
But we believe it is high time we pointed out to the harm
done by such practice and to restore the principle of
responsibility for fault or negligence under articles 1902 et
seq. of the Civil Code to its full rigor. It is high time we
caused the stream of quasi-delict or culpa aquiliana to
flow on its own natural channel, so that its waters may no
longer be diverted into that of a crime under the Penal

Code. This will, it is believed, make for the better
safeguarding of private rights because it re-establishes an
ancient and additional remedy, and for the further reason
that an independent civil action, not depending on the
issues, limitations and results of a criminal prosecution,
and entirely directed by the party wronged or his counsel,
is more likely to secure adequate and efficacious redress.

Cy Arnesto

MENDOZA VS. ARRIETA
Edgardo E. Mendoza, petitioner, vs. Hon. Abundio Z. Arrieta, Presiding Judge of Branch VIII, CFI Manila, Felino Timbol and
Rodolfo Salazar, respondents
Ponente: Melencio-Herrera, J.

Legal Doctrines:
1. Actions based on quasi-delict may proceed
independently of the criminal proceedings.
2. No reservation of civil action in a criminal case is
required. (according to Justice Barredo) an
independent civil action is substantive in
character and is not within the power of the
Supreme Court to supersede. Rule 111 of ROC
is a procedural law which cannot amend a
substantive law, such as CC Art. 32, 33, 34 do
not provide for the reservation of a separate civil
action.
3. The same negligent act may produce either a
civil liability arising from a crime under the Penal
Code, or a separate responsibility for fault or
negligence under the Civil Code.

Facts:
A three way vehicular accident occurred along
McArthur Highway, Marilao, Bulacan on October 22, 1969
around 4:00pm.
Collision involved a Mercedes Benz, a private jeep, and
a gravel and sand Truck.
x Benz owned and driven by Mendoza (petitioner)
x Jeep owned by driven Salazar
x Truck owned by Timbol, driven by Montoya
Two separate Criminal actions were filed against Rodolfo
Salazar and Freddie Montoya. Criminal case against
Montoya was for causing damage to the jeep owned by
Salazar in the amount of P1, 604. Criminal case against
Salazar was for causing damage to the Mercedes Benz of
Mendoza.
Note: Mendoza was not a party in the case against
Montoya
In the joint trial Mendoza testified that the jeep overtook
the truck, swerved to the left going towards the poblacion
of Marilao, and hit his car. And that before the impact,
Salazar had jumped from the jeep and that he was not
aware that Salazars jeep was bumped from behind by
the truck.
Montoya adopted the version of Mendoza.
Salazar tried to show that, after overtaking the truck, he
flashed a signal indicating his intention to turn left towards
the poblacion but was stopped at the intersection by a
policeman who was directing traffic, that while he was at a
stop position, his jeep was bumped by the truck causing
him to be thrown out of the jeep of, which then swerved to
the left and hit Mendozas car.
Trial Court rendered judgment which absolved jeep-
owner-driver Salazar of any liability, civil and criminal in
view that the collision between the jeep and the car was
the result of the jeep being bumped by the truck.
Trial Court did not award damages to Mendoza as he was
not a complainant against the truck-driver but only against
jeep-driver Mendoza.

After termination of the criminal cases, Mendoza filed Civil
Case against Salazar and Timbol (Owner of the truck).

Issue: WON the civil case against Timbol and Salazar is
barred by the judgment in the criminal action.

Held:
As for Timbol (truck owner), the civil case against him is
not barred by the fact that Mendoza failed to reserve, in
the criminal action, his right to file an independent civil
action based on quasi-delict.
For a prior judgment to constitute a bar to a subsequent
case (Res Judicata):
1. It must be a final judgment
2. It must have been rendered by a Court having
jurisdiction over the subject matter and over the
parties
3. It must be a judgment on the merits
4. There must be, between the first and second
actions, identity of parties, identity of subject
matter and identity of cause of actions
In the instant case, the first three requisites are present,
however there is no identity in the cause of action
between the criminal case and the civil case.
In the criminal case the truck-driver Montoya was not
prosecuted for damage for Mendozas car but for damage
to the jeep, neither was Timbol a party in the said case.
MORE importantly, in criminal cases, the cause of action
was the enforcement of civil liability arising from criminal
negligence under Art 100 RPC, whereas the civil case
filed was based on quasi-delict under CC 2180.
Mendozas cause of action being based on quasi-delict
may proceed independently of the criminal proceedings
and regardless of the result of the criminal case.
Two factors consisting the cause of action in quasi-delict:
1. Plaintiffs primary right (Mendoza is the owner of
the Mercedes Benz)
2. Defendants delict or wrongful act or omission
which violated the plaintiffs primary right (the
negligence or lack of skill either by Salazar or
Montoya.
Article 2176 and 2177 of the CC create a civil liability
distinct and different from the civil actions arising from the
offense of negligence under the revised penal code.
According to Justice Barredo an independent civil action
is substantive in character and is not within the power of
the Supreme Court to supersede, thus no reservation in a
criminal case is required. Rule 111 of ROC is a
procedural law which cannot amend a substantive
law, such as CC Art. 32, 33, 34 do not provide for the
reservation of a separate civil action.
As for Salazar, Crystal clear that the trial Courts
pronouncement that under the facts of the case, he
cannot be held liable for the damages Mendozas car
sustained. in other words, the fact from which the civil
liability might arise did not exist.
Cy Arnesto

PSBA v. CA
Philippine School of Business Administration, Juan D. Lim, Benjamin P. Paulino, Antonio M. Magtalas, Col. Pedro Sacro, and
Lt. M. Soriano, petitioners, vs. Court of Appeals, Hon. Regina Ordonez-Benitez, in her capacity as Presiding Judge of Branch
47, Regional Trial Court, Manila, Segunda R. Bautista, and Arsenia D. Bautista, respondents
Ponente: Padilla, J.

Legal Doctrine: Torts arise between parties without
contractual relationship, but should the act which
breaches a contract be done in bad faith and be violative
of Art. 21, then there is cause to view the act as
constituting a quasi-delict.
Facts:
Aug. 30, 1985 Carlitos Bautista was stabbed and died
while on the 2
nd
floor premises of PSBA; his assailants
were elements from outside the school.

His parents filed suit for damages against PSBA and its
corporate officers and sought to adjudge them liable for
Carlitos death due to their alleged negligence,
recklessness and lack of safety precautions, means and
methods before, during and after the attack on the victim.
Petitioners filed a motion to dismiss, which was denied by
the RTC and affirmed by the CA.

Issue: Is PSBA liable for damages for the death of
Carlitos?

Held: To be determined by the RTC (case remanded).

Ratio:
CA correctly denied the motion to dismiss; however, the
SC does not agree with the premises of the CAs ruling.
CA: liability based on quasi-delicts; teachers and head of
schools are liable unless they relieve themselves of such
liability by proving that they observed all diligence to
prevent damage
Art. 2180 provides that the damage should have been
caused or inflicted by pupils or students of the educational
institution sought to be held liable for the acts of its pupils
or students while in its custody; in this case, Art. 2180
does not apply since the killers were outsiders.
When an academic institution accepts students for
enrolment, there is established a contract between them,
resulting in bilateral obligations which both parties are
bound to comply with.
Institutions of learning must meet the implicit or built-in
obligation of providing their students with an atmosphere
that promotes or assists in attaining its primary
undertaking of imparting knowledge.
The school must ensure that adequate steps are taken to
maintain peace and order within the campus premises
and to prevent the breakdown thereof.
Rules on quasi-delict do not really govern since there is a
contractual relation between Carlitos and PSBA.
But should the act which breaches a contract be done in
bad faith and be violative of Art. 21, then there is cause to
view the act as constituting a quasi-delict.
o Art. 21 CC: Any person who willfully causes loss
or injury to another in a manner that is contrary
to morals, good customs or public policy shall
compensate the latter for the damage.
A contractual relation is a condition sine qua non to the
schools liability. The negligence of the school cannot
exist independently of the contract, unless the negligence
occurs under the circumstances set out in Art. 21.
SC remanded the case to RTC to determine W/N the
contract between PSBA and Carlitos had been breached
through PSBAs negligence in providing security
measures.
PSBA may still avoid liability by proving that the breach of
contract was not due to its negligence.
Negligence: the omission of that degree of diligence
which is required by the nature of the obligation and
corresponding to the circumstances of persons, time and
place.
Anisah Azis


AMADORA VS. CA
Jose S. Amadora, et al, petitioners, vs. Honorable Court of Appeals, Colegio de San Jose-Recoletos, Victor Lluch, Sergio P.
Damaso, Jr., Celestino Dicon, Aniano Abellana, Pablito Daffon, thru his parents and natural guardians, Mr. and Mrs. Nicanor
Gumban, and Rolando Valencia, thru his guardian, Atty. Francisco Alonso, respondents
Ponente: Cruz, J.

Legal Doctrine: Art 2180 applies to all schools, academic
or non-academic. In academic schools, the teacher-in-
charge is liable for a student's misconduct. In non-
academic schools, the head is liable. Custody is not
coterminous with semester. As long as the student is
under the control and influence of school and within its
premises in pursuance of a legitimate right, obligation or
privilege, he is considered under school custody.

Facts:
April 13, 1972 Alfredo Amadora went to the San Jose-
Recoletos and while in the auditorium, was shot to death
by his classmate, Pablito Daffon.
The parents alleged that Alfredo went to school to finish
his physics experiment; thus, he was under the custody of
the school. However, the respondents claimed that
Alfredo had gone to school to submit his physics report
and that he was no longer under their custody as the
semester had already ended.
Daffon was convicted of homicide through reckless
imprudence. The victims parents also filed a civil action
for damages under Art. 2180 of the Civil Code against the
school, its rector, the high school principal, the dean of
boys and the physics teacher.
o Art. 2180: teachers or heads of establishments
of arts and trades shall be liable for damages
caused by their pupils and students or
apprentices so long as they remain in their
custody.
The school claims that it was not a school of arts and
trades but an academic institution not within the purview
of the article, and that it had exercised the necessary
diligence in preventing the injury.
April 7, 1972 Damaso, dean of the boys, confiscated
from Jose Gumban an unlicensed pistol but later returned
it to him without making a report to the principal or taking
further action. Petitioners contend that the confiscated
pistol was used to shoot Alfredo and that their son would
not have been killed if it had not been returned by
Damaso.
CFI: The defendants were made liable to the plaintiffs.
CA: Reversed CFIs decision on the ground that it is not a
school of arts and trades but an academic institution not
within the purview of the provision. Also, the students
were not in the custody of the school at the time the
incident as the semester had ended.

Issue: W/N the school is liable for the death of Amadora.

Held: No, it is not.

Ratio:
The student is in the custody of the school authorities as
long as he is under the control and influence of the school
and within its premises, whether the semester has not yet
begun or has already ended. As long as the student is in
the school premises in pursuance of a legitimate student
objective, in the exercise of a legitimate student right, and
even in the enjoyment of a legitimate student privilege,
the responsibility of the school authority over the student
continues.
Teachers in general shall be liable for the acts of their
students except where the school is technical in nature, in
which case it is the head thereof that shall be liable.
The teacher-in-charge must answer for his students torts
when committed within the premises of the school at any
time when its authority could be validly exercised, unless
it can be shown that necessary precautions were
undertaken to prevent the injury.
In the instant case, it has not been established that the
physics teacher supposedly in-charge of Daffon was
negligent in enforcing the school rules and regulations in
maintaining that discipline. Moreover, it has not been

shown that the gun earlier confiscated by the dean of
boys is the same gun used to kill Amadora, so the dean of
boys cannot also be held liable. Consequently, neither the
school nor its teachers and officials can be held liable for
damages incurred by him.

Anisah Azis

CHAPTER 2: NATURE AND EFFECTS OF OBLIGATIONS
II. Breach of Obligation
A. Concept
SONG FO & COMPANY VS. HAWAIIAN PHILIPPINE CO.
Song Fo & Company, plaintiff-appellee, vs. Hawaiian Philippine Co., defendant-appellant
Ponente: Malcolm, J.

Legal Doctrine: Rescission will be permitted for a
substantial breach of the contract and, at the case at bar,
the court ruled that Hawaiian-Philippine Co. did not have
the right to rescind the contract of sale, since failure of
Song Fo & Co. to pay for the molasses did not violate an
essential condition of the contract.

Facts:
Song Fo & Company, plaintiff, presented before the CFI
of Iloilo a complaint with two causes of action for breach
of contract against the Hawaiian-Philippine Co.,
defendant, in which judgment was asked for P70,369.50,
with legal interest, and costs.
Hawaiian-Philippine Co. set up the special defense that
since the Song Fo & Co. had defaulted in the payment for
the molasses delivered to it by the defendant under the
contract between the parties, the latter was compelled to
cancel and rescind the said contract.
The judgment of the trial court condemned the defendant
to pay to the plaintiff a total of P35,317.93. Hence, this
appeal.

Issues:
1.) Did the defendant agree to sell to the plaintiff 400,000
gallons of molasses or 300,000 gallons of molasses?
2.) Had the Hawaiian-Philippine Co. the right to rescind
the contract of sale made with Song Fo & Company?

Held/Ratio:
1.) The defendant agreed to sell to the plaintiff 300, 000
gallons of molasses. The Hawaiian-Philippine Co. also
believed it possible to accommodate Song Fo & Company
by supplying the latter company with an extra 100,000
gallons. But the language used with reference to the
additional 100,000 gallons was not a definite promise. Still
less did it constitute an obligation.

2.) The defendant had no right to rescind the contract of
sale made with the plaintiff.
In Exhibit F, the Court finds that the defendant had an
understanding with the plaintiff that the latter, Song Fo &
Co. would pay the former at the end of each month for
molasses delivered. In Exhibit G, the Court likewise finds
that Song Fo & Co understood the things in Exhibit F and
accepted all the arrangements therein presented.
Song Fo & Company should have paid for the molasses
delivered in December, 1922, and for which accounts
were received by it on January 5, 1923, not later than
January 31 of that year. Instead, payment was not made
until February 20, 1923. All the rest of the molasses was
paid for either on time or ahead of time. It is on the basis

of this that the defendant gave notice of the termination of
the contract and rescission of the same.
The general rule is that rescission will not be permitted
for a slight or casual breach of the contract, but only
for such breaches that are substantial and fundamental
as to defeat the object of the parties in making the
agreement. A delay in payment for a small quantity of
molasses for some twenty days is not such a violation of
an essential condition of the contract. The Hawaiian-
Philippine Co. also waived this condition when it arose by
accepting payment of the overdue accounts and
continuing with the contract.
Dispositive: We rule that the appellant had no legal right
to rescind the contract of sale because of the failure of
Song Fo & Company to pay for the molasses within the
time agreed upon by the parties.

Lala Badi

VELARDE, ET AL. VS. CA
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF APPEALS, DAVID A.
RAYMUNDO and GEORGE RAYMUNDO, respondents
Ponente: Panganiban, J.

Legal Doctrine: Rescission will be permitted for a
substantial breach of the contract and, in this case,
rescission pursuant to Art 1191 was justified because the
breach committed by the petitioners was not so much
their nonpayment of the mortgage obligations but their
nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale.

Facts:
David Raymundo [herein private respondent] is the
absolute and registered owner of a parcel of land,
together with the house and other improvements thereon.
Defendant George Raymundo [herein private respondent]
is Davids father who negotiated with plaintiffs Avelina and
Mariano Velarde [herein petitioners] for the sale of said
property, which was, however, under lease. David
Raymundo, as vendor, executed a Deed of Sale with
Assumption of Mortgage in favor of Avelina Velarde, as
vendee, with the following terms and conditions:
x That David sells the land and house with
improvements to the Velardes in consideration of
Php800,000.00
x That the parcel of land was mortgaged by David
to BPI to secure the payment of a loan of
Php1,800,000.00
x That the Velardes hereby assume to pay the
mortgage obligations of P1, 800,000.00 in favor
of BPI.

Avelina then executed an Undertaking in favor of David
Raymundo stipulating that:
x She paid David the sum of Php800,000.00 and
assumed the mortgage obligations with BPI as
per the Deed of Sale with Assumption of
Mortgage
x While her application for the assumption of the
mortgage obligations is pending with the bank,
she would pay the mortgage obligation in the
name of David until such time when her
application is approved
x In the event she violated the terms, the
downpayment of Php 800,000.00 plus all
payments made on the mortgage loan shall be
forfeited in favor of David.

After the execution of the sale, the Velardes paid the
mortgage obligation with the bank for three months until
the plaintiffs were advised that the Application for
Assumption of Mortgage with BPI was not approved. This
prompted the plaintiffs not to make any further payment.
Defendants, thru counsel, wrote to the plaintiffs informing
the latter that their non-payment to the mortgage bank
constitute[d] non-performance of their obligation.
Plaintiffs responded saying that they are willing to pay the
balance in cash not later than January 21, 1987 granted
some conditions. Defendants, on the other hand, sent
plaintiffs a notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to the
latters failure to comply with the terms and conditions of

the Deed of Sale with Assumption of Mortgage and the
Undertaking. The Velardes filed a Complaint against the
defendants for specific performance, nullity of
cancellation, writ of possession and damages.

Issues:
1. Whether or not the non-payment of the mortgage
obligation of the Velardes resulted in a breach of
contract?
2. Whether or not the rescission of the contract by the
Raymundos was justified?

Held/Ratio:
1. Yes, the non-payment of the mortgage obligation of the
Velardes resulted in a breach of contract.
Petitioners contend that their nonpayment of private
respondents mortgage obligation did not constitute a
breach of contract, considering that their request to
assume the obligation had been disapproved by the
mortgage bank. Accordingly, payment of the monthly
amortizations ceased to be their obligation but they are
still mandated to pay the purchase price balance of P1.8
million to private respondents in case the request to
assume the mortgage would be disapproved. As admitted
by both parties, their agreement provided this mandate.
Thus when petitioners received notice of the banks
disapproval of their application to assume respondents
mortgage, they should have paid the balance of the P1.8
million loan. Instead of doing so, petitioners sent a letter
to private respondents offering to make such payment
only upon the fulfillment of certain conditions not originally
agreed upon in the contract of sale. Such conditional offer
to pay cannot take the place of actual payment as would
discharge the obligation of a buyer under a contract of
sale. Moreover, in a contract of sale, private respondents
had already performed their obligation through the
execution of the Deed of Sale, which effectively
transferred ownership of the property to petitioner through
constructive delivery. Petitioners, on the other hand, did
not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they
wanted private respondents to perform obligations
beyond those stipulated in the contract before fulfilling
their own obligation to pay the full purchase price.
2. Petitioners also contend that the rescission of the
contract was not justified since they signified their
willingness to pay the entire obligation. But the breach
committed by petitioners was not that they didnt pay their
mortgage obligations. Rather, it was their
nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. The power to
rescind the contract is based on Art. 1191 of the CC
which provides that The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him the
injured party may choose between fulfillment and the
rescission of the obligation... The Velardes violated the
very essence of reciprocity in the contract of sale, a
violation that consequently gave rise to private
respondents right to rescind the same.

Dispositive:
The assailed CA Decision is hereby AFFIRMED with the
MODIFICATION that private respondents are ordered to
return to petitioners the amount of P874, 150, which the
latter paid as a consequence of the rescinded contract.

Lala Badi


II. Breach of Obligation
B. Modes of Breach (Fraud)

WOODHOUSE VS. HALILI
Charles F. Woodhouse, plaintiff-appellant, vs. Fortunato F. Halili, defendant-appellant
Ponente: Labrador, J.

Legal Doctrine: In order for fraud to vitiate consent it
should be the causal not just the incidental inducement of
the making of the contract.

Facts:
Pertinent provisions of written agreement entered into by
the parties state that they shall organize a partnership for
the bottling & distribution of Mission softdrinks where:
x Woodhouse(plaintiff) shall:
1. be the industrial manager
2. be in charge of operations &
development of bottling plant
3. secure the franchise
4. receive 30 % of the net profits
x Halili (defendant) shall:
1. provide the capital
2. decide on matters of general policies
regarding the business
Prior to formal agreement, plaintiff requested Missions
Dry Corporation (L.A.), in order that he may close the deal
with defendant, that the right to bottle and distribute be
granted him (plaintiff) for a limited time under the
condition that it will finally be transferred to the
corporation. Pursuant for this request, plaintiff was given
"a thirty-days" option on exclusive bottling and distribution
rights for the Philippines.
Dec 3, 1947: contract signed.
Dec 10, 1947: franchise agreement was entered into the
Mission Dry Corp. and Halili and/or Woodhouse, it
granted HALILI (defendant) the exclusive right, license
and authority to produce, bottle, distribute and sell
Mission Beverages in the Phils.
When bottling plant was already in operation, plaintiff
demanded that the partnership papers be executed.
Nothing definite was coming. Defendant refused to give
allowance to Woodhouse. A settlement was first
attempted & since none could be arrived at, the present
action was instituted.
Defendant counter-argued that there was FALSE
REPRESENTATION on the part of the plaintiff in claiming
that he was the owner or was about to be the owner of
an exclusive bottling franchise when in fact he was not.
The franchise was given to the defendant himself during
their transaction with Mission Dry Corp in the US. Thus
the plaintiff failed in carrying out his undertakings by
failing to contribute the franchise into the partnership.

Issue/s:
1. WON defendant had falsely represented that he
held an exclusive franchise to bottle Mission
beverages.
2. WON such false representation/fraud annuls the
agreement to form a partnership.
3. WON agreement be carried out or executed.

Held/Ratio:
1. YES. There was representation on the part of the
plaintiff i.e., that he was the holder of the exclusive
franchise.
It was improbable ad incredible for Woodhouse to
have disclosed that (1) he had the OPTION to the
exclusive franchise for 30 days and (2) that the said
option has already EXPIRED at the time of the
signing the formal agreement. Either could have had
his bargaining power and authority destroyed an
probably lost the deal itself.

Moreover in par. 3 of the contract:
xxx and the manager is ready and willing to
allow the capitalists (defendant) to use the
exclusive contract xxx
and par 11 of the agreement
in the event of the dissolution or termination of
the partnershipthe franchise from Mission Dry
Corp shall be reassigned to the manager.
Thus the defendant was led to believe that the
plaintiff had the franchise.

2. NO. It does not amount to fraud that will vitiate the
contract. So contract is not null and void.
Fraud can be either of the ff:
a. Causal fraud (dolo causante): resulting to the
annulment of the contract.
b. Incidental fraud (dolo incidente): renders the
party who employs fraud liable for damages
In order for fraud to vitiate consent it should be the causal
not just the incidental inducement of the making of the
contract.
In this case Woodhouse was guilty of a false
representation but this was not the causal consideration
or the principal inducement that led Halili to enter into the
partnership agreement.
But the alleged possession of the rights to the franchise
induced the defendant to give 30% of the net profit to
plaintiff when plaintiff has minimal knowledge pertaining
to bottling (thus incidental fraud).

3. NO. The defendant may not be compelled against his
will to carry out the agreement nor execute the
partnership papers. Under the Spanish Civil Code,
the defendant has an obligation to do, not to give.
The law recognizes the individual's freedom or liberty
to do an act he has promised to do, or not to do it, as
he pleases. It falls within what Spanish
commentators call a very personal act (acto
personalismo), of which courts may not compel
compliance, as it is considered an act of violence to
do so.

Note: Damages = plaintiff's share of 15 per cent of the net
profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.

Joie Bajo

Geraldez vs. Court of Appeals
Lydia L. Geraldez, petitioner, vs. Hon. Court of Appeals and Kenstar Travel Corporation, respondents
Ponente: Regalado, J.

Legal Doctrine: Dolo causante are deceptions or
misrepresentations without which a party would not have
entered into the contract, while dolo incidente is of minor
character, without which a party will still enter the
contract.

Facts:
Petitioner, with her sister, availed of a 22-day tour of
Europe for US$2,990 (equivalent to Php190,000 during
1989) offered by private respondent.

Out of four, she chose the tour package denominated as
Volare 3 with the following features, above all:

x European Tour Manager knowledgeable and
experienced in European destinations
(accompanied by a Filipino Tour Escort)
x First-class hotel accommodations
x Trip to the UGC Leather Factory as one of the
main highlights of the tour.
However, no European Tour Manager appeared in the
entirety of the tour but in its stead is a first-timer
Filipino lady tour guide- first time as in first time in
performing the duties and responsibilities of a tour guide
in Europe, thus lacking in experience and expertise in
said trade. They were booked and lodged to two-, three-
, or four-star hotels far off the way of the tour itinerary
and with substandard (with respect to first-class hotels
in Manila and in Europe) amenities. Some even lack
towels and soaps. Also, the trip to the UGC Leather
Factory was a flop which cannot be considered a tour at
all. They arrived too late when the place was already
closed and the tourists could no longer avail of the
discounted merchandise as promised by private
respondent. These happenings, especially the UGC
Leather Factory fiasco brought respondent anxiety and
distress.

Issue: WON private respondent is guilty of causal fraud
(dolo causante) or incidental fraud (dolo incidente).

Held: Yes. CA decision SET ASIDE. Moral and
exemplary damages and attorneys fees awarded to
petitioner. Nominal damages deleted.
Ratio:
Under dolo causante or causal fraud (in NCC Art. 1338)
are deceptions or misrepresentations of a party to a
contract without which the other party/parties would
not have entered into the contract. The fraud was
employed in order to secure the consent of the
defrauded party, thus existing before and during
creation of the contract. The fraud itself is the
essential source of the consent. Its effects are nullity
of the contract and indemnification of damages.
On the other hand, dolo incidente or incidental fraud
(in NCC Arts. 1170 and 1344) is of minor character,
without which the other party will still enter the
contract. The fraud refers only to some particular or
accident of the obligation. Since the fraud did not vitiate
consent of the party while entering in the contract, said
contract is valid. The party who committed dolo
incidente is liable for damages as well.
Private respondent committed fraud in the inducement
(or dolo causante), with promising the attendance of a
European tour manager that would take care of her and
her sister during the entirety of the tour. The other
breaches of contract committed by private respondent,
whether considered as dolo causante or dolo
incidente, likewise will bring about to said respondent the
obligation to pay moral and exemplary damages.

Aboy Bayalan


B. Modes of Breach (Negligence)
GUTIERREZ v. GUTIERREZ
NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants

Facts:
A passenger truck (bus) and a private automobile
collided. Narciso Gutierrez, a passenger of the bus, seeks
to recover damages in the amount of P10, 000, for
physical injuries suffered as a result of an automobile
accident
Truck: driven by the chauffeur Abelardo Velasco, and
was owned by Saturnino Cortez.
Private automobile:
x operated by Bonifacio Gutierrez, a lad 18 years
of age, and was owned by Bonifacio's father
and mother, Mr. and Mrs. Manuel Gutierrez
x The father was not in the car at the time of the
accident, but the mother as well as other
members of the family where accomodated
therein.

Issue: Who is liable for the injuries suffered by Narciso
Gutierrez?

Held: Manuel Gutiererez (father of the kid who drove the
car), and Abelardo Velasco (driver of the bus), and
Saturnino Cortez (owner of the bus) are JOINTLY and
SEVERALLY liable.

Ratio:
Liability of father
Article 1903 of the Civil Code: the father alone and not
the minor or the mother, would be liable for the damages
caused by the minor
US jurisprudence shows that the head of a house, the
owner of an automobile, who maintains it for the general
use of his family is liable for its negligent operation by
one of his children.
The running of the machine by a child to carry other
members of the family is within the scope of the owner's
business, so that he is liable for the negligence of the
child because of the relationship of master and servant.

Liability of the truck owner and driver
The liability of the truck owner and the driver is based
from contract.

Mary Beley


VAZQUEZ VS. BORJA
Antonio Vasquez, petitioner, vs. Francisco de Borja, respondent
Francisco de Borja, petitioner, vs. Antonio Vasquez, respondent
Ponente: Ozaeta, J.

Facts:
The action was commenced by de Borja against Vasquez
and Fernando Busuego to recover from them jointly and
severally the total of PhP 4702.70 upon three alleged
causes:
First, Vasquez and defendants jointly and severally
obligated themselves to sell to the plaintiff 4,000 cavans
of palay, which they will deliver. Vasquez and Busuego,
after receiving 8,400 pesos from de Borja, only delivered
5,224 pesos worth of cavans of palay. They refused to
deliver the remaining cavans amounting to 3,175.20
pesos.
Second, de Borja suffered damages as a result of the
refusal to deliver
Third, on account of the agreement mentioned, de Borja
delivered 4000 empty sacks but only 2,490 were returned
to the plaintiff. 1,510 sacks were refused to deliver. There
are also damages for the non-delivery of the empty sacks.
Vasquez denies that he entered into the contract
mentioned in his own and personal capacity. He said that
the agreement for the purchase of the cavans of palay
and the payment of the price of 8,400 were made by de
Borja not with him but with Natividad- Vasquez Sabani
Development Co. Inc. (NVSDCI), a corporation organized
and existing under the laws of the Philippines. Vasquez
was the acting manager when the transaction took place.
On account of the filing of this action against him, he filed
a counterclaim of 1,000 pesos for damages.
Vasquez was ordered by the trial court to pay de Borja
the sum of P3,175.20 plus P377.50. The said court
absolved Busuego, the corporations treasurer, from
paying the said sums. Said amount was reduced by the
Court of Appeals. The case was then remanded to the
court of origin for further proceedings upon Vasquezs
motion for reconsideration. Vasquez filed a petition for
certiorari for the review and reverse of the CA judgement.
De Borja also filed a cross-petition for certiorari to
maintain the original CA judgement.
The trial court found Vasquez guilty of negligence in the
performance of the contract and held him personally liable
on that account. Likewise, CA ruled that he was not only
negligent but should also responsible for paying the
amount of the demand under Arts. 1102, 1103 and 1902
of the Civil Code.

Issues:
1. Whether the plaintiff entered into the contract
with the defendant Antonio Vasquez in his
personal capacity or as manager of the
Natividad-Vasquez Sabani Development Co.,
Inc.
2. Whether the trial court and/or the Court of
Appeals erred in its rulings.
3. Whether Vasquez could claim damages against
Borja.

Held/ Ratio:
1. Vasquez entered the contract in his capacity as
acting president and manager of NVSDCI.
The action being on a contact, with the NCSDCM
being the party liable on the contract, the complaint
should have been dismissed.
A corporation is an artificial being invested by law
with its own personality, which is distinct and
separate from its stockholders or the people who run
its affairs. Even if the agents are the one acting for
the corporation, it does not make the agent
personally liable for entering a contract in behalf of
the corporation. The corporations personality, a legal
fiction, may only be disregarded if the agent used the
corporation to hide an unlawful or fraudulent purpose.
There is no legal basis upon which to hold Vasquez
liable on the contract either principally or subsidiarily.
There are no allegations that Vasquez personally

benefited through the contract that he entered for the
corporation. It was also not contended that he
entered into the contract for the corporation in bad
faith and with intent to defraud the plaintiff.

2. Both the trial court and CA erred in their ruling that
Vasquez is guilty of negligence and must be
personally liable. Since it was the corporations
contract, the corporation is the one liable and not the
agent even if the non-fulfilment of the contract is due
to negligence or fault or any other cause.
Vasquez could be principally liable under article 1902
of the Civil Code if independent of the contract, he
caused damage to the plaintiff by his fault or
negligence. The basis of such separate liability
should be on culpa aquiliana and not based on the
contract. But since there was no such cause of action
in this complaint, the trial court has no jurisdiction
over that issue.

3. No. As the acting president and manager of the
corporation, he has a moral duty towards the part
with whom he contracted in said capacaity to see to it
that the corporation he represents fulfilled the
contract by delivering the palay it had sold. Since he
was not able to fulfill that moral duty, he has no
legitimate cause for his claim of damages.

Dissenting Opinion (Paras, J.):
Vasquez should be made liable to de Borja. As acting
president and manager of NCSDCM, Vasquez has full
knowledge of the insolvent status of his company but still
agreed to sell to de Borja 4000 cavans of palay. The
failure and refusal to deliver the undelivered cavans
resulted from his negligence.

Richard Beltran

DE GUIA VS. MANILA ELECTRIC RAILROAD & LIGHT COMPANY
Manuel De Guia, plaintiff, v. Manila Electric Railroad & Light Company, defendant
Ponente: Street, J.

Summary:
The plaintiff got injured after he boarded a car (which I
think in this case refers to one of the old trains) which got
derailed and hit a post. Because the motorman who was
driving the car was held to be negligent, it was also held
that the company was also liable for damages. The
relationship between the parties was contractual in nature
and thus the company was bound to deliver the plaintiff
safely and securely with reference to the degree of care
which, under the circumstances, is required by law and
custom applicable to the case.

Facts:
De Guia boarded the car (of a train) and he remained at
the back platform holding the right-hand door. The wheels
of the rear car, after coming out of a switch, got derailed
and it ran for a short distance until it struck a concrete
post. The post was shattered and the De Guia was
thrown against the door with some violence, receiving
bruises and possibly certain internal injuries.
The company of the car alleged that the derailment was
due to the presence of a stone in the juncture of the
switch which had accidentally been lodged there. Thus in
this view, the derailment would have been due to casus
fortuitous and not chargeable to the negligence of the
motorman.

Issue: WON the motorman and the company were liable
for damages to the injured plaintiff

Held: Yes. The motorman had been negligent and it
results that the company is liable for damage resulting to
the plaintiff as a consequence of that negligence.

Ratio:
As regards the motormans negligence: The inference
that there had been negligence in the operation of the car
could be gleaned from the distance which the car was
allowed to run with the front wheels of the rear truck
derailed. An experienced and attentive motorman should
have discovered that something was wrong and would
have stopped before he had driven the car over the entire
distance from the point the wheels left the track to the
place where the post was struck.
As regard the companys liability: Because the motorman
was negligent, it also results that the company was liable
for the damage to the plaintiff as a consequence of that
negligence. The plaintiff had boarded the car as a
passenger bound for Manila and the company undertook
to convey him for hire. The contractual nature of the
relation between the parties meant that the duty of the
carrier was to convey and deliver the plaintiff safely and
securely with reference to the degree of care which under
the circumstances, was required by law and custom
applicable to the case. Upon failure to comply with that
obligation, the company incurred liability. The liability
already incurred, the company could not avail itself of the
defense that it had exercised due care in selecting and
instructing the motorman because such defense could
only be availed in the absence of a contractual relation, or
in other words to quasi-delicts.

Welga Carrasco

SARMIENTO VS. SPOUSES CABRIDO
Tomasa Sarmiento, petitioner, vs. Sps. Luis & Rose Sun-Cabrido and Maria Lourdes Sun, respondents
Ponente: Corona, J.

Legal Doctrine: Dismounting a diamond from its original
setting is part of the verbal contract of service to reset the
diamonds from a pair of earrings to two gold rings.

Facts:
Petitioner Sarmiento states that Dra. Lao requested her to
have a pair of diamond earrings reset into two gold rings.
Petitioner sent Payag with the pair of earrings to
Dingdings jewelry shop, owned by the respondent
spouses, which accepted the job for 400 pesos.
Payag delivered to the jewelry shop one of the diamond
earrings. Respondent Sun attempted to dismount the
diamond from its setting. Unsuccessful, she asked their
goldsmith Santos to do it. Santos removed the diamond
by twisting the setting with pliers, breaking the gem in the
process.
Petitioner required respondents to replace the diamond
with the same size and quality. When they refused,
petitioner was forced to buy replacement for 30,000
pesos.
Respondent Cabrido denied having entered into any
transaction with Payag. It was possible that Payag availed
of their services as she could not have known every
customer who came to their shop.
Respondent Sun admitted knowing Payag. Payag went
inside the shop to see Santos and when Santos broke the
gem, Payag demanded 15,000 from him. Santos had no
money so she demanded from Sun.
Santos recalled that Payag requested him to dismount a
sapphire. The gem accidentally broke. Santos denied
being an employee of Dingdings Jewelry.
Petitioner filed a complaint for damages.
Realizing the futility of their position, private respondents
conceded, on appeal, the existence of an agreement with
the petitioner. However, they denied assuming any
obligation to dismount the diamonds from their original
settings.

Issue/Held: Is the dismounting of the diamond from its
original setting part of the obligation assumed by the
private respondents under the contract of service

(resetting diamonds from a pair of earrings to two rings)?
Yes.

Ratio:
Sun expressed no reservation when Payag asked her to
dismount the diamonds. Sun should have instructed
Payag to have the diamonds dismounted first if Sun
actually intended to spare the jewelry shop of the task but
she did not.
Petitioner was charged 400 pesos for the job order which
was accepted. A perfected contract to reset the diamonds
arose between the petitioner, through Payag, and the
jewelry shop, through Sun.
Suns actions were revealing as regards the scope of
obligation assumed by the jewelry shop. After the new
settings were completed, she called the petitioner to bring
the diamond earrings to be reset. After examining one of
the earrings, she went on to dismount the diamond. Sun
cannot now deny the shops obligation.
Those who, in the performance of their obligations, are
guilty of negligence are liable for damages. In the case at
bar, Santos acted negligently in dismounting the diamond.
The practice of the trade is to use a miniature wire saw in
dismounting gems from their settings. Santos employed a
pair of pliers. Marilou examined the diamond and found it
in order. Its subsequent breakage could only have been
caused by negligence.
Private respondents seek to avoid liability by blaming
Santos who claimed to be an independent worker. They
also claim that Sun simply happened to drop by the shop.
Facts show that Santos had been working for the shop as
goldsmith for 6 months. Payag stated that she had
transacted with Dingdings Jewelry Shop on at least 10
occassions, always with Sun.
Respondents are obliged to pay actual damages in favor
of petitioner amounting to 30,000 pesos, and moral
damages because of the negligence of their employee,
Santos.

Faye Celso

CRISOSTOMO VS. CA
Estela L. Crisostomo, petitioner, vs. The Court of Appeals and Caravan Travel and Tours International, Inc., respondents
Ponente: Ynares-Santiago, J.

Legal Doctrine: Since the contract is not a contract of
carriage but an ordinary one for services, the standard of
care required of the respondent company is that of a good
father of a family under Art. 1173 of the Civil Code.

Facts:
Petitioner Estela L. Crisosotomo contracted the services
of respondent Caravan Travel and Tours International,
Inc. to arrange and facilitate her booking, ticketing and
accommodation in a tour dubbed Jewels of Europe.
Crisostomos niece, Meriam Menor, who is also the
respondent companys ticketing manager went to
Crisostomo on a Wednesday (June 12, 1991) to deliver
the latters travel documents and plane tickets and
informed her to go the airport on a Saturday, two hours
before the flight. Crisostomo went to the airport on June
15, 1991 without checking her travel documents. She
learned that the flight she was supposed to take had
already departed, the schedule being June 14, 1991.
Thus, Crisostomo complained to Menor.
Crisostomo instead agreed to take another tour, the
British Pageant. Crisostomo was asked to pay P 20,
881.00. Crisostomo gave P 7, 980 as partial payment and
commenced the trip in July 1991. Upon her return, she
demanded from the respondent the reimbursement of P
61, 421.70 representing the difference between the sum
she paid for Jewels of Europe and the amount she owed
respondent for the British Pageant tour. Respondent
company refused to reimburse the said amount.
TRIAL COURT: the respondent company was negligent in
erroneously advising Crisostomo of her departure date
through its employee Menor. However, Crisostomo also
had contributory negligence because she should have

verified the exact date and time of departure by looking at
her ticket and not simply relying on Menors statement.
Thus, 10% is deducted from the amount being claimed.
The Court of Appeals likewise found both parties to be at
fault but held that petitioner Crisostomo is more negligent
than the respondent company because as a lawyer and
as a well-travelled person, she should have known better
than to simply rely on Menors statement. Thus, she is not
entitled to any form of damages, she forfeits her right to
the Jewels of Europe tour and must therefore pay
respondent the balance of the price for the British
Pageant tour.
Petitioner now seeks to reverse CA decision on the
ground that the respondent company did not observe the
standard of care required of a common carrier when it
informed her wrongly of the flight schedule. She could not
be deemed more negligent than the respondent company
since the latter is required by law to exercise
extraordinary diligence in the fulfilment of its obligation. If
ever she was negligent, it was merely contributory and
not the proximate cause.

Issues/Held:
1. Is Crisostomo correct in her assumption that the
respondent company Caravan Travel and Tours
International is a common carrier? NO
2. Did the respondent company Caravan Travel
and Tours International, Inc. observe the
standard of care in its service of arranging and
facilitating petitioners booking, ticketing and
accommodation? YES

Ratio:
A common carrier is defined under Art. 1732 of CC as
persons, corporations, firms or associations engaged in
the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation,
offering their services to the public. The respondent
company is not engaged in transporting passengers or
goods. Its covenant with its customers is simply to make
travel arrangements on their behalf. Since the contract is
not a contract of carriage but an ordinary one for services,
the standard of care required of the respondent company
is that of a good father of a family under Art. 1173 of the
CC, and not the utmost care and extra-ordinary diligence
which is higher in degree than the ordinary diligence
required of the passenger.
The test to determine whether negligence attended the
performance of an obligation is: 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. In the case at bar, the evidence shows that
the respondent company exercised due diligence in
performing its obligations under the contract and followed
procedure in rendering service. The plane ticket issued to
the petitioner clearly reflected the departure date and time
and the travel documents were delivered to the petitioner
two days before the trip for her to prepare. Respondent
also properly booked the petitioner for the tour, prepared
all the necessary documents and arranged hotel
accommodation. The respondent performed its prestation
under the contract. After the delivery of the travel papers,
it became incumbent upon Crisostomo to take ordinary
care of her concerns including knowledge of details
regarding the trip. Thus, respondent company performed
its duty diligently and did not commit any contractual
breach.
There is no fixed standard of diligence applicable to each
and every contractual obligation and each case must be
determined upon its particular facts. The degree of
diligence required depends on the circumstances of the
specific obligation and whether one has been negligent is
a question of fact that is to be determined after taking into
account the particulars of each case.

Dispositive:
CA decision is affirmed. Petitioner Crisostomo is ordered
to pay the respondent the balance of the price of the
British Pageant Package with interest.

Arianne Cerezo


B. Modes of Breach (Delay: Mora Solvendi)
CETUS DEVELOPMENT, INC. VS. COURT OF APPEALS
Cetus Development, Inc., petitioner, v. Court of Appeals and Ederlina Navalta, respondents
Ponente: Medialdea, J.

Facts:
Respondents Navalta et al were lessees of the premises
originally owned bySusana Realty. They would pay on a
month-to-month basis to a collector who would come
every month to collect the rent.
The premises were later sold to Cetus Development and
the respondents continued paying their monthly rentals to
a collector sent by the petitioner.
For a period of three months (July, Aug, Sept), however,
no collector came and thus the respondents could not
pay.
On October, the petitioner sent a letter to the respondents
demanding that they vacate the premises and pay the
back rentals for the 3 months. Respondents then paid the
back rentals as well as subsequent monthly rentals which
were all accepted by petitioner but without prejudice to
the filing of an ejectment suit.
Petitioner filed for respondents ejectment but
respondents counter that their non-paymet was due to
petitioners failure to send a collector.

Issue: WON there is a cause for ejectment due to
respondents supposed failure to pay during the 3
months.

Held: There is no cause for ejectment because there is
no failure to pay on the part of the respondents. CA is
affirmed in denying ejectment suit.
Ratio:
In order to file an ejectment suit, there must be 1. A failure
to pay or to comply with the conditions agreed upon and
2. Demand both to pay or comply and vacate.
However, there is no failure to pay on the part of the
respondents for the 3 months because, as a general rule,
default in the fulfillment of an obligation exists only when
the creditor demands payment at the time of maturity or at
any time thereafter.
1
(from Art 1169) The petitioner has
failed to prove that their agreement with respondents falls
under the exceptions where demand is required: a.) when
law declares as such, b.) when it can be inferred from the
essence of the contract, c.) when demand would be
useless.
Demand can also come in any form, provided it can be
proved by the creditor. But the petitioner in this case has
failed to prove that demand was made, more so since no
collector was sent during the 3 months. It could not
therefore be said that the respondents were in delay of
payment rentals. Moreover, when petitioner actually made
the demand (in the form of the letter), respondents lost no
time in making payment, which the petitioner accepted.
Therefore, petitioner can not ask for respondents
ejectment because there is no right on his part to rescind
the contract of lease.

Mickey Chatto

1
Indigestersownwords:Asageneralrule,thereisnodelayif
thereisnodemand.


SVHF VS. SANTOS
Santos Ventura Hocorma Foundation, Inc., petitioner, vs. Ernesto V. Santos and Riverland, Inc., respondents
Ponente: Quisumbing, J.

Legal Doctrine: When the one fails to pay its due
obligation after the demand was made, it incurred delay.

Facts:
SVHF and Ernesto Santos entered into a Compromise
Agreement on Oct. 26, 1990:
a. SVHF will pay P14.5M to Santos and the latter
will drop the civil cases against the former and
lift the various notices of lis pendens on the real
properties of SVHF. P14.5M breakdown:
a. P1.5M immediately upon the execution of
the agreement
b. P13.5M in one lump or installments (at the
discretion of SVHF) not later than 2 years
from the execution of the agreement. If
SVHF does not pay the whole or has a
balance, the payment shall be in the form of
real properties mentioned.
SVHF paid P1.5M, Santos dropped the civil cases. SVHF
sold two properties previously subject of lis pendens but
did not pay Santos despite the latters letter of demand.
Sept. 30, 1991: Agreement was approved by the court.
Oct. 28, 1992: Santos sent a letter again to SVHF but to
no avail.
Santos filed (RTC) a writ of execution of the agreement
dated Sept. 30, 1991. Granted.
March 19, 1993: The sheriff levied the properties
Auctions were made on Nov. 22, 1994 (Mabalacat
property sold for P12M) and Feb. 8, 1995 (Bacold City
property sold). Riverland, Inc. was the highest bidder in
both auctions.
Santos and Riverland filed a Complaint for Declaratory
Relief and Damages and prays to recover LEGAL
INTEREST on the obligations, among others, since the
P13M obligation became due on Oct. 26, 1992 but SVHF
paid only the P12M++ on Nov. 22, 1994.

Issue: WoN Santos and Riverland are entitled to legal
interest.

Held: They are entitled to legal interest.

Ratio:
Relevant Law:
Art. 1169 of the NCC: Those obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
Art. 1170 of the NCC

The compromise agreement as a consensual contract
became binding between the parties upon its execution
and not upon its court approval.
The two-year period must be counted from October 26,
1990, the date of execution of the compromise
agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991. Delay
was incurred when the petitioner failed to pay its due
obligation after the demand was made.
Delay as used in the case is synonymous to default or
mora which means delay in the fulfillment of obligations. It
is the non-fulfillment of the obligation with respect to time.
Requisites:
1. That the obligation be demandable and already
liquidated
-The obligation was already due and
demandable when Santos gave a letter to SVHF
on October 28, 1992. Furthermore, the obligation
is liquidated because the debtor knows precisely
how much he is to pay and when he is to pay it.
2. That the debtor delays performance

-SVHF was able to fully settle its outstanding
balance only on February 8, 1995.
3. That the creditor requires the performance
judicially or extra-judicially.
-The demand letter sent to the petitioner on
October 28, 1992, was in accordance with an
extra-judicial demand contemplated by law.
When the debtor knows the amount and period when he
is to pay, interest as damages is generally allowed as a
matter of right.

Santos has been deprived of funds to which he is entitled
by virtue of their compromise agreement.
The goal of compensation requires that the complainant
be compensated for the loss of use of those funds. This
compensation is in the form of interest.
In the absence of agreement (such as in this case), the
legal rate of interest shall prevail.
The legal interest for loan as forbearance of money is
12% per annum

to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

Jiselle Compuesto

VASQUEZ VS. AYALA CORPORATION
Dr. Daniel Vazquez and Ma. Luiza M. Vazquez, petitioners, vs. Ayala Corporation, respondent
Ponente: Tinga, J.

Legal Doctrine: There is no delay or default when no
demand is made or when the obligation is not
demandable

Facts:
Vasquez spouses entered into MOA with Ayala because
Ayala will buy from the Vasquez spouses (shares of stock
in the Company, Conduit, which has a main asset of 49.9
hectares in Ayala Alabang, which was being developed
by Conduit)
MOA: Ayala develops entire property (called remaining
area) except for retained area which was to be retained
by Vasquez spouses; Ayala develops remaining area into
first class subdivision within 3 years; Ayala agrees to give
Vasquez spouses a first option to purchase four
developed lots next to the retained area at prevailing
market price; the representations and warranties of the
Vasquez spouses are true at the time of the Closing;
Company shall have no obligation to any party except
billings payable to GP Construction & Devt Corp; the
Company has no liabilities of any nature; Vasquez
spouses do not know of any basis for assertion against
Company as at closing or any liability of any nature;
Company not engaged in any or a party in or threatened
with any legal action before any court; no default or
breach exists in the part of the company.
After execution of MOA, Ayala received letter from Del
Rosario (Lancer Builder Corp.) claiming that he was
claiming the money as subcontractor of GP Construction.
Lancer sued GP, Conduit, and Ayala

Issues:
1. W/N Vasquez spouses breached their warranties
under the MOA when they failed to disclose
Lancer claim
2. W/N there was delay or default
3. Whether theres an option contract or right of first
refusal
Held:
1. Petitioners did not violate the foregoing
warranties

2. There was no default or delay
3. There is a mere right of first refusal

Ratio:
1. Exchanges of communication show that
Vasquez spouses substantially apprised Ayala of
Lancer claim and reminded Ayala of such.
Petitioners gave this information to Ayala
because latter intimated a desire to break
contract of Conduit with GP. Ayalas letter shows
that they had knowledge of Lancer claim before
its acquisition of Conduit. Ayala came to know of
such before Closing of MOA and MOA states
phrases except as disclosed to Ayala on or
before the Closing. Hence, petitioners warranty
that Conduit is not engaged, a party to, or
threatened with legal action is qualified by
Ayalas actual knowledge of Lancer claim before
the Closing.

2. The Court of Appeals ruled that there was no
delay as petitioners never made a demand for
Ayala Corporation to sell the subject lots to
them. According to the appellate court, what
petitioners sent were mere reminder letters the
last of which was dated prior to April 23, 1984
when the obligation was not yet demandable.
The Supreme Court says: In order that there
may be default the obligation must be
demandable and liquidated, and the debtor
delays in performance, and the creditor requires
performance judicially or extrajudicially. Under
Art. 1193 of Civil Code, obligations with a fixed
day of fulfillment shall be demandable upon that
day. But the MOA did not specify such day.
Petitioners cant demand performance after 3
year period fixed by MOA since this is not the
same period contemplated in the land
development. The petitioners should have asked
the court to fix a period in order for it to be
demandable and so that their claim will not be
considered premature.

3. It is only a right of first refusal and not an option
contract because the price is not specified. The
phrase at prevailing market price connotes no
definite period wherein Ayala is bound to reserve
subject lots to exercise privilege to purchase.

Gia Comsti

ABELLA VS. FRANCISCO
Julio Abella, plaintiff and appellant, vs. Guillermo Francisco, defendant and appellee
Ponente: Avancea, C.J.

Legal Doctrine: Time is of the essence. (In an
agreement of this nature [option for purchase of lots] the
period is deemed essential.)

Facts:
Guillermo FRANCISCO bought, on installment, lots 937 to
945 of the Tala Estates in Rizal from the Government for
which he was in arrears. On 31 October 1928, he
received P500 as payment for said lots from Julio
ABELLA. The total area of the lots was about 221
hectares and sold at a rate of P100/ha. The balance was
due on or before 15 December 1928, extendible 15 days
thereafter.
Abella proposed the sale of the land to George Sellner
from which he received P10,000 on 29 December 1928.
But before he made the sale to Sellner, Abella made his
second payment of P415.31 on 13 November 1928 upon
Franciscos demand.
On 27 December, Francisco authorized (power of
attorney) Roman MABANTA to sign in his behalf the
necessary documents for the transfer of the lots to Abella.
At the same time, Mabanta was instructed to inform
Abella that should he fail to pay the remainder of the
selling price, the option of purchase would be considered

cancelled and the P915.31 already delivered will be
returned.
Mabanta gave Abella up to 5 January 1929 to pay the
remaining balance which Abella was unable to comply
with. On 9 January, he tried to pay the balance but
Mabanta refused to accept the payment, informed him
that the contract was already rescinded, and returned the
P915.31. Thus this action to compel Francisco to execute
the deed of sale of the lots.

Issue: Whether or not Abellas failure to pay the
remaining balance within the deadline given merited the
rescission of the contract. (YES)

Held/Ratio:
The SC, in affirming the CFIs decision, held that since
the contract was an option for the purchase of the lots,
time was deemed an essential element in the transaction.
Furthermore, since Francisco had certain obligations to
pay by December 1928, time was essential for him as
evinced by his instruction to Mabanta to consider the
contract rescinded if Abella failed to pay in time. In
accordance with CC1124, Francisco was entitled to
resolve the contract for failure to pay the price within the
time specified.

Crystal Dunuan

B. Modes of Breach (Delay: Mora Accipiendi)
VDA. DE VILLARUEL VS. MANILA MOTORS
Claudina Vda. de Villaruel, et al., plaintiffs, vs. Manila Motor Co., Inc. and Arturo Colmenares, defendants
Ponente: Reyes, J. B. L., J.

Facts:
Manila Motors and Villaruel entered into a contract
whereby the former agreed to convey by lease to the
latter some premises. The term of lease is 5 years. The
premises were invaded by the Japanese and then the
American occupied the same building. The occupants
paid the same rate as the Manila Motors after which they
have vacated the premises. Manila Motors renewed the
contract for an additional 5 yrs. Villaruel, as per his
lawyers advise, demanded for rental from Manila Motors
for the period when the Japanese and the Americans
occupied the premises. The premises were set on fire, the
reason unknown.

Issue: Whether or not Villaruel has power to demand
rentals and recover the same due to default.

Held: They cannot demand rentals

Ratio:
Art. 1554 of CC of Spain states the duties of a lessor.
a. deliver to the lessee the subject matter
b. make thereon, during the lease, all repairs
necessary and maintain serviceable condition
c. maintain lessee in peaceful enjoyment of lease.
1560, lessor shall not be liable for any act of mere
disturbance of 3
rd
person but lessee would have direct
action against trespassers. No lessee would agree to pay
rent for premises he could not enjoy.

Raf Galon


TENGCO VS. CA
Emilia Tengco, petitioner, vs. Court of Appeals and Benjamin Cifra, Jr., respondents

Legal Doctrine: Tender of payment must be made to the
proper person or consigned in court.

Facts:
In 1942, Tengco entered into a verbal lease agreement
with Lutgarda Cifra over the premises in question. The
rentals were collected from her residence by Cifras
collector, a sister of private respondent herein, who went
to her house to collect payment from time to time, with no
fixed frequency. However sometime in 1974, the lessors
collector stopped going to her residence to collect the
rentals. Since no demand for payment was made upon
her, the petitioner decided to keep the money until the
collector demands for it. Then sometime in May 1976, she
received a letter from another sister of the private
respondent, Aurora C. Recto, that Recto is the owner of
the property and that it is being offered for sale. Then in
August 1977, she received another letter this time from
the private respondent, Benjamin Cifra, demanding the
surrender of the possession of the premises in question,
also claiming to be the owner of the property. Upon
receiving the letter, Tengco went to the collector to whom
she had been paying her rentals to pay but this was
refused without justification.
The MTC of Navotas, CFI of Rizal and Court of Appeals
decided in favor of Benjamin Cifra. The motion for
reconsideration was also denied by the CA. Hence, the
present recourse.

Issues:
(1)Main- WON the lessor was guilty of mora accipiendi.
(2) WON Benjamin Cifra is the owner of the said
premises.
(3) WON petitioners version of facts is more credible than
private respondents.
(4) WON laches had deprived the lessor of the right to
eject her; and
(5) WON private respondent failed to establish a cause of
action against the petitioner.

Held:
(1) No, the lessor was not guilty of mora accipiendi.
(2) Yes, he is considered the owner of the premises.
(3) No, petitioners version of facts is inconsistent.
(4) No, lessor is entitled to eject her.
(5) No, respondent has a cause of action against
the petitioner.

Ratio:
(1) The refusal to accept the proferred rentals is not
without justification. The ownership of the property had
been transferred to Benjamin and the person to whom
payment was offered had no authority to accept payment.
Petitioner should have tendered payment of the rentals to
Benjamin and if that was not possible, she should have
consigned such rentals in court.
(2) The question of who is the owner of the leased
premises is one fact which is within the cognizance of the
trial court whose findings thereon will not be disturbed on
appeal unless there is a showing that the trial court
overlooked, misunderstood, or misapplied some fact or
circumstance of weight and substance that would have
affected the result of the case. Besides, the petitioners
contention that the Benjamin is not the owner of the
leased premises is inconsistent with her claim that she
had tendered payment of the rentals to Benjamin.
(3) The petitioners contention that the provisions of
Section 1, Commonwealth Act No. 53, should be applied
in this case in determining the credibility of witnesses is
untenable. This can only be invoked when there is a
dispute between the owner of the land and the lessee or
tenant on share tenancy as to the terms of an unwritten
contract or where the contract is written in a language not
known to the lessee or tenant. In this case, there is no
dispute to the terms of the contact.

(4) The lessor has the privilege to waive his right to bring
an action against his tenant and give the latter credit for
the payment of the rents and allow him to continue
indefinitely in the possession of the premises. During
such period, the tenant would not be in illegal possession
of the premises and the landlord cannot maintain an
action until after he has taken steps to convert the legal
possession into illegal possession.
(5) The nonpayment of rentals entitles the private
respondent to eject her from the premises.

Al Hajim

B. Modes of Breach (Delay: Compensatio Morae)
CENTRAL BANK VS. CA
Central Bank of the Philippines and Acting Director Antonio T. Castro, Jr. of the Department of Commercial and Savings
Bank, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs. The Honorable Court of Appeals and
Sulpicio M. Tolentino, respondents
Ponente: Makasiar, C.J.

Tolentino and Island Savings bank entered into a contract
involving a loan by the former, who mortgaged his land.
The bank was unable to furnish the entire loan, Tolentino
was unable to pay the principal and interests of the initial
amount given; their actions offset the damages one could
claim from the other. Since there was no obligation for
Tolentino to pay the entire 80,000, the Bank could only
enforce the debt on the property corresponding to his
17,000 debt.

Facts:
Apr 1965 Island Savings Bank approved the loan
of Sulpicio Tolentino for 80,000, with
the latters 100-ha property as security.
The amount plus interest was to be
paid within 3 years. Only 17,000 of the
entire amount was released, for which
Tolentino signed a promissory note.
Aug 1965 The Bank was prohibited from engaging
in new transactions
Jun 1968 It was prohibited from doing any further
business due to its insolvency.
Aug 1968 The Bank filed for foreclosure of
Tolentinos property due to his non-
payment.
Jan 1969 Tolentino filed for injunction, damages
and specific performance (release of
the 63,000 balance) of the Bank, or for
the same to rescind the real estate
mortgage
CFI: dismissed petition for specific performance ordered
Tolentino to pay for 17 debt, allowed foreclosure
CA: affirmed dismissal, Bank cannot collect 17k debt nor
foreclose the mortgage

Issue/s:
1. What is the bank liable for?
2. What is Tolentino liable for?
3. Could the mortgage be foreclosed?

Held/ Ratio:
1. The Bank is in default for its inability to fulfill its
obligation under the loan agreement, for which
specific performance or rescission with damages
would be required. The initial prohibition against
new transactions was not a bar to its release of
the balance of the loan, however, as the Bank
has also been prohibited against all transactions,
only rescission is available. But since Sulpicio is

reciprocally in default for his non-payment of the
partial loan released, for which he signed a
promissory note and therefore created an
obligation separate from the initial loan, the Bank
is liable for nothing.
2. Tolentino is liable for the amount released to
him, plus the interests corresponding to such
debt. Had he not signed a promissory note for
the 17,000 released, rescission plus damages
could have been available to him, since his
obligation to pay would not have begun since the
Bank had not complied with its obligation to
furnish the entire amount.
3. Yes, but not entirely. The property could only be
held liable for the amount of debt incurred by
Tolentino. The mortgage is only enforceable in
proportion to the Banks compliance with its
obligation. As the 17,000 debt corresponds to
only 21.25% of the total loan, 21.25% of the 100-
ha property could be foreclosed.

Jill Hernandez

B. Modes of Breach (Contravention of the Tenor)
TELEFAST COMMUNICATION VS. CASTRO ET AL.
Telefast Communications/Philippine Wireless, Inc., petitioner, vs. Ignacio Castro, Sr., Sofia C. Crouch, Ignacio Castro Jr.,
Aurora Castro, Salvador Castro, Mario Castro, Conrado Castro, Esmeralda C. Floro, Agerico Castro, Rolando Castro, Virgilio
Castro and Gloria Castro, and Honorable Intermediate Appellate Court, respondents

Summary: Contravention of tenor of the agreement
existed. Telefast is liable as they had no evidence of any
efforts made to overcome technical and atmospheric
factors beyond their control in order to send the
telegram.

Facts:
Consolacion Bravo- Castro died. Sofia Crouch (daughter
of Consolacion), telegrammed Ignacio, (Consoloacions
husband) in the U.S. of the news via Telefast.
Ignacio and all of Consolacions other children did not go
to the funeral. Upon Sofias return in the US, she found
out that the family never received the telegram.
Ignatios family sues. CFI makes telefast liable. (See
Chart Below)
IAC affirms decision but has modification on liabilities
(See Chart).
Telefast appeals to SC that they should not be held liable
for moral damages.

Issue: Does lack of fraud, malice or recklessness exempt
Telefast from moral damages?

Ratio:
No it does not. Civil Code 1170 states that those who in
the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor, thereof are liable for damages.
There was a contract: Sofia pays fee and Telefast sends
telegram. Sofia performed her obligation to pay, Telefast
didnt. Telefast contravened the obligation. They must
pay through money as A. 2217 states that Though
incapable of pecuniary computation, moral damages may
be recovered if they are the proximate results of the
defendants wrongful act or omission.


CFI IAC SC
Compensatory
Damages
Sofia: P31.92 and
P16K
No more 16k Sofia: 16K
Moral Damages Sofia: 20K

Husband &other kids:
20K-10K
All are 10K 10K/ respondent
Exemplary Damages Attorneys Fee: 5K
1K/ plaintiff
No more
1K/plaintiff
Attorneys Fee: 5K
1K/ plaintiff
Costs of suits

Margie Lim

ARRIETA VS. NATIONAL RICE AND CORN CORP.
Paz P. Arrieta and Vitaliado Arrieta, plaintiffs-appellees, vs. National Rice and Corn Corporation, defendant-appellant, Manila
Underwriters Insurance Co., Inc., defendant-appellee
Ponente: Regala, J.

Facts:
On May 19, 1952 plaintiff-appellee Paz P. Atrieta won the
public bidding called by the National Rice and Corn
administration (NARIC) for the supply of P20,000 metric
tons of Burmese Rice as her bid of $203 per metric ton
was the lowest.
The defendant corporation committed itself to pay for the
imported rice by means of an irrevocable, confirmed and
assignable letter of credit in US currency in favor of the
plaintiff-appellee and/or supplier in Burma, immediately.
It was only on July 30, 1952, or a full month after from the
execution of the contract, that the defendant NARIC took
the first step to open a letter of credit by forwarding to the
Philippine National Bank (PNB) its Application for
Commercial Letter of Credit with a transmittal letter which
read: In view of the fact that we do not have sufficient
deposit with your institution with to cover the amount
required to be deposited as a condition for the opening of
letters of credit, we will appreciate it if this application
could be considered a special case
On the same day, Paz P. Arieta advised the appellant
corporation of the extreme necessity for the immediate
opening of the letter of credit since she had by then made
a tender to her supplier in Rangoon, Burma, equivalent
to 5% of the F.O.B. price of 20,000 tons at $180.70 and in
compliance with the regulation in Rangoon; this 5% will
be confiscated if the required letter of credit is not
received by them before August 4, 1952
PNB informed the appellant corporation of the extreme
necessity for the immediate opening of the letter of credit
for $3,614,000 in favor of Thiri Setkya has been approved
with the condition that 50% marginal cash deposit be paid
and that drafts are to be paid upon presentment. PNB will
hold NARICs application in abeyance pending
compliance with the requirement
However, NARIC was not in a financial position to meet
the condition. NARIC bluntly confessed to the appellee
this dilemma through a letter.
The credit instrument applied for was opened only of
September 8, 1952 in favor of Thiri Setkya, Rangoon,
Burma, and/or assignee for $3,614,000 (which is more
than two months from the execution of the contract)
As a result of the delay, the allocation of appellees
supplier in Rangoon was cancelled and the 5% deposit,
amounting to 524,000 Kyats or approximately P200,000
was forfeited
The appellee endeavored, but failed, to restore the
cancelled Burmese rice allocation. When the futility of

reinstating the same became apparent, Paz offered to
substitute Thailand rice instead to the defendant NARIC.
This offer of substitution, however, was rejected by
appellant in a resolution.
On the foregoing, the appellee sent a letter to the
appellant, demanding compensation for the damages
caused her in the sum of $286,000 US currency,
representing unrealized profit. The demand having been
rejected, she instituted this case now on appeal, alleging
that NARICs failure to open immediately the letter of
credit in dispute amounted to a breach of the contract of
July 1, 1952.
Appellant corporation disclaims responsibility for the delay
and insists that the fault lies with the appellee.
NARIC contends that the disputed negotiable instrument
was not promptly secured because the Paz failed to
seasonable furnish data necessary and required for
opening the same, namely: (1) the amount of the letter of
credit, (2) the person, company or corporation in whose
favor it is to be opened, and (3) the place and bank where
it may be negotiated
NARIC also argues that the subsequent offer of appellant
Paz to substitute Thailand rice for the originally contracted
Burmese rice amounted to a waiver of whatever rights
she might have derived from the alleged breach of
contract.
Appellant NARIC also filed a counter-claim asserting that
it has suffered, likewise by way of unrealized profit,
damages in the sum of $406,000 from the failure of the
projected contract to materialize.

Issues:
1. WON appellants failure to open immediately the
letter of credit in dispute amounted to a breach
of the contract of July 1, 1952
2. WON the subsequent offer of appellant Paz to
substitute Thailand rice for the originally
contracted Burmese rice amounted to a waiver
of whatever rights she might have derived from
the alleged breach of contract
3. WON appellants counter-claim is valid

Held:
1. YES
2. NO
2. NO

Ratio:
1. It is clear upon the records that the sole and
principal reason for the cancellation of the
allocation contracted by the appellee herein in
Rangoon, Burma, was the failure of the letter of
credit to be opened with the contemplated
period.
This failure, must, therefore, be the immediate
cause of for the consequent damage which
resulted.
Appellants defense has no merit.
First, the appellants defense reaches into an
area of the proceedings which the court is not at
liberty to encroach. Appellants defense refers to
a question of fact, for the court is denied to
disturb questions of fact, consonant to the time-
honored tradition to hold that trial judges are
better situated to make conclusions on questions
of fact.
Second, It is clear that what singularly delayed
the opening of the stipulated letter of credit and
which, in turn, caused the cancellation of the
allocation in Burma, was the inability of appellant
NARIC to meet the condition imposed by PNB
for granting the same. NARICs defense does
not hold for even if appellant Paz furnished the
necessary data for opening the letter of credit,
NARIC would still not be in the position to meet
the condition of PNB.
The liability of NARIC arises from its willful and
deliberate assumption of contractual obligations
even as it was well aware of its financial
incapacity to undertake the prestation.
Despite awareness that it was financially
incompetent to open a letter of credit
immediately, appellant agreed in its contract with
Paz to pay immediately by means of an
irrevocable, confirmed and assignable letter of
credit

Article 1170 of the Civil Code: Those who in the
performance of their obligations are guilty of
fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are
liable in damages.
Under this provision, not only debtors are guilty
of fraud, negligence or default in the
performance of obligations are decreed liable; in
general, every debtor who fails in the
performance of his obligations I bound to
indemnify for the losses and damages caused
thereby.
The phrase in any manner contravene the
tenor of the obligation includes any illicit act
which impairs the strict and fulfillment of the
obligation, or every kind of defective
performance. NARIC executed such a defective
performance by agreeing to sign its contract with
Paz despite its awareness that it was financially
incompetent to open a letter of credit.
The decision appealed from is affirmed, with the
minor sole modification that the award should be
converted into the Philippine peso at the rat of
exchange prevailing at the time of the obligation.

2. Waivers are not presumed, but must be clearly
and convincingly shown, either by express
stipulation or acts admitting no other reasonable
explanation (Ramirez v. CA).
In the case at bar, no such intent has been
established.

3. NARICs unrealized profit was realizable by it
despite a number of expenses which the
appellee, under contract, did not have to incur.
Thus, banking and unloading charges were to be
shouldered by NARIC. Such charges, if
shouldered by NARIC, would still leave NARIC
with profit over P400, 000.

Pao Lorica

MAGAT V. MEDIALDEA
Victorino Magat, petitioner, vs. Hon. Leo D. Medialdea and Santiago Guerrero, respondents
Ponente: Escolin, J.

Legal Doctrine: Contravention of the tenor would result
in liability for damages not only for losses suffered but
also for expected profits which were not obtained.

Facts:
Guerrero had entered into a contract with the US Navy
Exchange, Subic Bay, for the operation of a fleet of
taxicabs, with each taxicab to be provided with a
taximeter and radio transceiver for purposes of
communicating from the taxi to fixed base stations within
the Naval Base. To meet the contracts requirements,
Isidro Aligada, Guerreros agent, approached Magat in
behalf of Guerrero with a proposal to import said
taximeters and transceiver from Japan thru Magat or thru
Magats business associates.
Aligada secured a firm offer in writing from Magat, and
Magat received notice that Guerrero accepted his offer to
sell the items as well as the terms and conditions of the
offer. With the belief that Guerrero would fulfill his part of
the contract, Magat took steps to advise the Japanese
entity they had contacted to manufacture the items that
the contract had been perfected. However, given that it
was normal business practice in case of foreign
importation that the buyer open a letter of credit in favor of
foreign supplier first before the delivery of the goods,
Magat waited for the opening of such; however, it appears
that Guerrero instructed his banker not to do so.
Thereafter, Magat found out that Guerrero had been
operating his taxicabs without the required equipment,
and that Guerrero had been impliedly blaming Magat for
the delay of the installation of the transceivers, thus
damaging Magats business reputation with the Naval
Authorities.

As such, Magat filed a complaint against Guerrero, stating
the abovementioned events and the damages he will
suffer because of Guerreros failure to fulfill his
contractual obligations. However, the Judge Medialdea
dismissed the complaint for lack of cause of action,
upholding Guerreros contentions that Magat had not yet
suffered anything; he was merely anticipating his loss or
damage w/c might result from the alleged failure to
comply with the contracts terms.

Issue: W/N Magats complaint states a specific cause of
action.

Held: The essential elements of a cause of action are
present.

Ratio:
The Court held that the test of legal sufficiency of the
cause of action was adequately satisfeied. The complaint
recited the circumstances which led to the contracts
perfection, the fulfillment of Magat of his part of the
bargain, and Guerreros failure to comply with his
obligations by refusing to open a letter of credit to cover
the payment of the goods ordered by him.
Both parties entered into the contract with the intent to
profit from it. Upon breach by any of them, the other
would necessarily suffer loss of expected profits. The loss
arises at the very moment of breach; given that, such loss
is real, fixed, and vested; thus, it is recoverable under the
law.
Art. 1170 of the CC is then cited, with reference to the
phrase in any manner contravene the tenor. The Court
said that the obligation includes any illicit act or omission
that impairs the fulfillment of the obligation and every kind
of defective performance. It also held that the obligor may
be held liable not only for the loss suffered by the 30blige
[dao emergente] but the profits which the 30blige failed
to obtain [lucro cesante] as well. Had the obligor acted in
good faith, he would be liable for damages which are the
natural and probable consequences of the breach; if in
bad faith, then he would be liable for all damages w/c may
be reasonably attributed to the breach. The same is true
with the moral and exemplary damages w/c Magat seeks
to claim from Guerrero. Therefore, because the complaint
is sufficient, the case was remanded to the court of origin
for further proceedings.

Loraine Mendoza

III. Remedies of Creditor in Case of Breach
A. Action for Performance (Substituted Performance)
CHAVEZ VS. GONZALES

Ponente: Reyes, JBL, J.

Legal Doctrine: A person shall be liable for the cost of
executing the obligation he failed to do.

Facts :
Plaintiff contracted the defendant to fix his typewriter.
Despite several demands of the plaintiff after giving the
defendant the money to buy the spare parts, the
defendant was still unable to fix the typewriter.
Exasperated with the delay, the plaintiff took back the
typewriter from the defendant. Defendant returned the
typewriter in shambles (not fixed and essential parts were
missing). The plaintiff then had his typewriter fixed by a
3
rd
party costing Php 89.85. He then files to claim from
the defendant 90 for actual and compensatory damages,

100 for temperate damages and 500 for moral damages
and 500 for attorneys fees.
While the defendant claims that he is not liable for
anything since the contract between him and the
petitioner did not have a period hence he insists that that
the plaintiff should first fix the period before he can be
held liable under Art. 1197 for breach of contract.
CFI awarded 31.10(total value of missing parts) and cost
of suit, hence this direct appeal by the petitioner
unsatisfied with the claims awarded to him.

Issues/ Held: Will the defendant be held liable for the
execution of the obligation he failed to do? YES

Ratio:
Although the contract of cleaning and servicing the
typewriter between the parties did not specify the time,
the defendant in returning the typewriter without having it
fixed, returning it with essential parts missing and without
demanding for more time to finish the job amounts that
the contract was perfected and that none performance of
his obligation is an outright breach of contract. Filing to fix
the period of the contract before he can be held liable
under Art 1197 would be just academic for the period
would just be mere formality. Defendant would be held
liable under Art 1167 for the cost of fixing the typewriter
by a 3
rd
party (58.75) and cost of the missing parts and
failure to return it in the same condition it was received
under Art 1170 (31.10).
However moral, temperate damages were not alleged in
the complaint hence no factws can be found to base the
award the claim.

Mary Mendoza

TANGUILIG VS. COURT OF APPEALS
Jacinto Tanguilig, under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. Court
of Appeals and Vicente Herce, Jr., respondents
Ponente: Bellosillo, J.

Facts:
On April 1987, petitioner Jacinto M. Tanguilig doing
business under the name and style J.M.T. Engineering
and General Merchandising proposed to respondent
Vicente Herce Jr. to construct a windmill system for him.
After some negotiations they agreed on the construction
of the windmill for a consideration of P60, 000.00 with a
one-year guaranty from the date of completion and
acceptance by respondent Herce Jr. of the project.
Pursuant to the agreement respondent paid petitioner a
down payment of P30, 000.00 and an installment
payment of P15, 000.00, leaving a balance of P15,
000.00
On March 14, 1988, due to the refusal and failure of
respondent to pay the balance, petitioner filed a complaint
to collect the amount.
Respondent Herce claimed that since the deep well
formed part of the system, the P15, 000 he paid to San
Pedro General Merchandising Inc. (SPGMI) should be
credited to his account by petitioner and assuming that
respondents owed petitioner a balance of P15, 000.00,
this should be offset by the defects in the windmill system
which caused the structure to collapse after a strong wind
hit their place.
Petitioner stated in his counterclaim that the construction
of a deep well was not included in the agreement to build
the windmill system. The contract price of P60, 000.00
was solely for the windmill assembly and its installation,
exclusive of other incidental materials needed for the
project. He also disowned any obligation to repair or
reconstruct the system and insisted that he delivered it in
good and working condition to respondent who accepted
the same without protest. He claims that the collapse was

attributable to a typhoon, a force majeure, which relieved
him of any liability.
RTC ruled in favor of plaintiff-petitioner: It ruled that the
construction of the deep well was not part of the windmill
project & that there is no clear and convincing proof that
the windmill system fell down due to the defect of the
construction.
CA reversed the decision of the RTC. It ruled that the
construction of the deep well was included in the
agreement of the parties because the term "deep well"
was mentioned in both proposals. It also rejected
petitioner's claim of force majeure and ordered the latter
to reconstruct the windmill in accordance with the
stipulated one-year guaranty. The Motion for
Reconsideration was also denied, hence the present
petition.

Issue(s):
(1) Whether the installation of a deep well was included in
the agreement to construct the windmill system
(2) Whether petitioner is under obligation to reconstruct
the windmill after it collapsed and to bear the costs.
(3) Whether private respondent is already in default in the
payment of his outstanding balance.

Dispositive:
Judgment modified. Herce is directed to pay balance of
P15, 000 with interest. Tanguilig ordered to reconstruct
subject defective windmill system, in accordance with the
one-year guaranty, within 3 months from the finality of
decision.

Held/ Ratio:
(1) No. Nowhere in either of the two proposals is the
installation of a deep well mentioned, even remotely. The
words "deep well" preceded by the prepositions "for" and
"suitable for" were meant only to convey the idea that the
proposed windmill would be appropriate for a deep well
pump with a diameter of 2 to 3 inches.
Where the terms of the instruments are clear and leave
no doubt as to their meaning, they should not be
disturbed. In interpreting contracts, the intention of the
parties shall be accorded primordial consideration and, in
case of doubt, their contemporaneous & subsequent acts
shall be principally considered.
If indeed the deep well were part of the windmill project,
the contract for its installation would have been strictly a
matter between petitioner and SPGMI with the former
assuming the obligation to pay the price. But it was
respondent who paid for it. Moreover, if the price of
P60,000.00 included the deep well, the obligation of
respondent was to pay the entire amount to petitioner
without prejudice to any action that Guillermo Pili or
SPGMI may take, if any, against the latter.
Also, Guillermo Pilis claim (witness from SPGMI) that
Herce Jr. wrote him a letter asking him to build a deep
well pump as part of the price/contract Herce had with
Tanguilig is unsubstantiated.

(2) Yes. He can not claim exemption by reason of force
majeure. In order for a party to claim exemption from
liability by reason of fortuitous event under Art. 1174 of
the Civil Code the event should be the sole and proximate
cause of the loss or destruction of the object of the
contract. Four requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforeseeable or
unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal
manner; and, (d) the debtor must be free from any
participation in or aggravation of the injury to the creditor.
(Nakpil v CA)
In this case, the petitioner failed to show that the collapse
of the windmill was due solely to a fortuitous event. A
strong wind in this case cannot be fortuitous
unforeseeable nor unavoidable. On the contrary, a strong
wind should be present in places where windmills are
constructed, otherwise the windmills will not turn.
Regarding the cost of the reconstruction, Art. 1167, of the
Civil Code states that if a person obliged to do
something fails to do it, the same shall be executed at his
cost. Thus, when the windmill failed to function properly it
became incumbent upon the petitioner to institute the
proper repairs in accordance with the guaranty stated in
the contract.

(3)No. Art. 1169 of the Civil Code provides that 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. In the
present case, it became incumbent upon the petitioner
Tanguilig to institute proper repairs in accordance with the
guaranty, when the windmill failed to function properly.
Since Tanguilig has not complied with his obligation to
repair the system, the respondent Herce cannot be said
to have incurred delay.

Andrei Milaor

IV. Subsidiary Remedies of Creditor
B. Accion Pauliana
KHE HONG CHENG VS. CA
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners, vs. COURT OF APPEALS,
HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO., inc., respondents
Ponente: Kapunan, J.

Legal Doctrine: An accion pauliana accrues only when
the creditor discovers that he has no other legal remedy
for the satisfaction of his claim against the debtor other
than an accion pauliana (read with Art 1150 CC)
Facts:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner
of Butuan Shipping Lines. On October 4, 1985, the
Philippine Agricultural Trading Corporation shipped on
board the vessel M/V Prince Eric 3,400 bags of copra at
Masbate, Masbate, for delivery to Dipolog City,
Zamboanga del Norte. The shipment was covered by a
marine insurance policy issued by American Home
Insurance Company (respondent Philams assured). M/V
Prince Eric sank somewhere between Negros Island and
Northeast Mindanao, resulting in the total loss of the
shipment. The insurer, American Home, paid the amount
of P345, 000.00 to the consignee.
American Home filed a civil case in Makati RTC to
recover the money paid to the consignee, based on
breach of contract of carriage. While the case was
pending, Khe Hong Cheng executed deeds of donations
of parcels of land in favor of his children Sandra Joy and
Ray Steven on December 20, 1989. The trial court then
rendered judgment against Khe Hong on December 29,
1993, four years after the donations were made.
Despite earnest efforts, the sheriff found no property
under the name of Butuan Shipping Lines or Khe Hong
Cheng to levy for the satisfaction of the courts decision.
When the sheriff, accompanied by Philams counsel, went
to Butuan City on January 17, 1997, to enforce the writ of
execution, they discovered that Khe Hong no longer had
any property and that he had conveyed the subject
properties to his children.
On February 25, 1997, Philam filed a complaint with
Makati RTC for the rescission of the deeds of donation
executed by petitioner Khe Hong Cheng in favor of his
children. Petitioners subsequently filed their answer to the
complaint and moved for its dismissal on the ground that
the action has already prescribed. Trial court denied the
motion to dismiss holding that complaint had not yet
prescribed and prescriptive period began to run only from
Dec 29, 1993, the date of the decision of the trial court.
CA affirmed the TCs decision but stated that the four
year period to institute the action for rescission began to
run only in January 1997, the time when it first learned
that the judgment award could not be satisfied because
the judgment creditor had no more properties.

Issue: When did the four year prescriptive period as
provided for in Article 1389 of the Civil Code for
respondent Philam to file its action for rescission of the
subject deeds of donation commence to run?

Held: It commenced on January 1997. The petition is
without merit.


Ratio:
Article 1389 of CC simply provides that The action to
claim rescission must be commenced within four years.
This provision is silent as to when the prescriptive period
would commence, the general rule, i.e., from the moment
the cause of action accrues, therefore applies. Article
1150 of the CC is instructive:
Article 1150. The time for prescription for all
kinds of actions, when there is no special
provision which ordains otherwise, shall be
counted the day they may be brought.
This court enunciated the principle that it is the legal
possibility of bringing the action which determines the
starting point for the computation of the prescriptive
period for the action. Article 1383 provides:
Article 1383. An action for rescission is
subsidiary; it cannot be instituted except when
the party suffering damage has no other
legal means to obtain reparation for the same.
It is apparent that an action to rescind or an accion
pauliana must be of last resort, availed of only after all the
other legal remedies have been exhausted and have
been proven futile. The requisites of accion pauliana are
as follows:
1) that the plaintiff asking for rescission has a
credit prior to the alienation, although
demandable later;
2) that the debtor has made a subsequent
contract conveying a patrimonial benefit to a
third person;
3) that the creditor has no other legal remedy to
satisfy his claim, but would benefit by rescission
of the conveyance to the third person;
4) that the act being impugned is fraudulent;
5) that the third person who received the
property conveyed, if onerous title, has been an
accomplice in the fraud.
An accion pauliana presupposes the following: 1) A
judgment; 2) the issuance by the trial court of a writ of
execution for the satisfaction of the judgment; and 3) the
failure of the sheriff to enforce and satisfy the judgment of
the court. It requires that the creditor has exhausted the
property of the debtor. Respondent Philam only learned
about the unlawful conveyances made by the petitioner
Khe Hong Cheng in January 1997. It was only then that
the respondent Philams action for rescission of the deeds
of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to
satisfy the trial courts judgment in its favor.

Arman Mislang

SIGUAN VS. LIM
MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM, respondents
Ponente: Davide, Jr., C.J.

Facts:
On 25 and 26 August 1990, Respondent LIM issued two
Metrobank checks that were dishonored for the reason of
a closed account. Demands to make good the checks
proved futile and as a consequence, a criminal case for
violation of BP 22 was filed by petitioner against LIM. The
lower court convicted LIM as charged.
It also appears that LIM was previously convicted of
estafa by the RTC of Quezon City. On appeal, however,
the Supreme Court acquitted LIM but held her civilly
liable.

Meanwhile, on 2 July 1991, a Deed of Donation
conveying 4 parcels of land situated at Cebu City and
purportedly executed by LIM on 10 August 1989 in favor
of her children, Linde, Ingrid and Neil, was registered with
the Office of the Register of Deeds of Cebu City. New
transfer certificates of title were thereafter issued in the
names of the donees.
On 23 June 1993, petitioner filed an accion pauliana
against LIM and her to rescind the questioned Deed of
Donation and to declare as null and void the new transfer
certificates of title issued for the lots covered by the
questioned Deed. Petitioner claimed that LIM, through a
Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of
creditors, including her; that LIM conspired and
confederated with her children in antedating the
questioned Deed of Donation, to petitioners and other
creditors prejudice; and that LIM, at the time of the
fraudulent conveyance, left no sufficient properties to pay
her obligations.
On the other hand, LIM denied any liability to petitioner.
She claimed that her previous conviction was erroneous.
As to the questioned Deed of Donation, she maintained
that it was not antedated but was made in good faith at a
time when she had sufficient property and that it was
registered only on 2 July 1991 because she was seriously
ill.
Although the trial court ordered the rescission of the
questioned deed of donation, the Court of Appeals,
reversed its decision and dismissed petitioners accion
pauliana. It held that two of the requisites for filing an
accion pauliana were absent, namely, (1) there must be a
credit existing prior to the celebration of the contract; and
(2) there must be a fraud, or at least the intent to commit
fraud, to the prejudice of the creditor seeking the
rescission.

Issue: W/N the questioned Deed of Donation was made
in fraud of petitioner and, therefore, rescissible.

Held/Ratio:
Article 1381 of the Civil Code enumerates the contracts
which are rescissible, and among them are those
contracts undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them.
The action to rescind contracts in fraud of creditors is
known as accion pauliana. For this action to prosper, the
following requisites must be present: (1) the plaintiff
asking for rescission has a credit prior to the alienation,
although demandable later; (2) the debtor has made a
subsequent contract conveying a patrimonial benefit to a
third person; (3) the creditor has no other legal remedy to
satisfy his claim; (4) the act being impugned is fraudulent;
(5) the third person who received the property conveyed,
if it is by onerous title, has been an accomplice in the
fraud.
In the instant case, the alleged debt of LIM in favor of
petitioner was incurred in August 1990, while the deed of
donation (a public document)was purportedly executed on
10 August 1989.
SEC. 23. Rule 132 of the Rules of Court. Public
documents as evidence. Documents consisting of
entries in public records made in the performance of a
duty by a public officer are prima facie evidence of the
facts therein stated. All other public documents are
evidence, even against a third person, of the fact which
gave rise to their execution and of the date of the latter.
The fact that the questioned Deed was registered only on
2 July 1991 is not enough to overcome the presumption
as to the truthfulness of the statement of the date in the
questioned deed, which is 10 August 1989. Petitioners
claim against LIM was constituted only in August 1990, or
a year after the questioned alienation. Thus, the first two
requisites for the rescission of contracts are absent.
Under Article 1381 of the Civil Code, contracts entered
into in fraud of creditors may be rescinded only when the
creditors cannot in any manner collect the claims due
them. It is, therefore, essential that the party asking for
rescission prove that he has exhausted all other legal
means to obtain satisfaction of his claim. Petitioner
neither alleged nor proved that she did so. On this score,
her action for the rescission of the questioned deed is not
maintainable even if the fraud charged actually did exist.
The fourth requisite for an accion pauliana to prosper is
not present either.
Article 1387, first paragraph, of the Civil Code provides:
All contracts by virtue of which the debtor alienates
property by gratuitous title are presumed to have been
entered into in fraud of creditors when the donor did not
reserve sufficient property to pay all debts contracted
before the donation. Likewise, Article 759 of the same
Code, second paragraph, states that the donation is
always presumed to be in fraud of creditors when at the
time thereof the donor did not reserve sufficient property
to pay his debts prior to the donation.

For this presumption of fraud to apply, it must be
established that the donor did not leave adequate
properties, which creditors might have recourse for the
collection of their credits existing before the execution of
the donation.
Petitioners alleged credit existed only a year after the
deed of donation was executed. She cannot, therefore,
be said to have been prejudiced or defrauded by such
alienation. When the deed of donation was executed,
LIM still had properties in Cebu and Leyte. It was not,
therefore, sufficiently established that the properties left
behind by LIM were not sufficient to cover her debts
existing before the donation was made. Hence, the
presumption of fraud will not come into play.
Accordingly, since the four requirements for the rescission
of a gratuitous contract are not present in this case,
petitioners action must fail.

Sophia Mo

V. Extinguishment of Liability in Case of Breach Due to Fortuitous Event
JUAN NAKPIL & SONS VS. CA
Juan Nakpil & Sons, and Juan F. Nakpil, petitioners, vs. Court of Appeals, United Construction Company, Inc., Juan J.
Carlos, and the Philippine Bar Association, respondents
United Construction Co., Inc., petitioner, vs. Court of Appeals, et al., respondents
Philippine Bar Association, et al., petitioners, vs. Court of Appeals, et al., respondents
Ponente: Paras, J.

Legal Doctrine: One who negligently creates a
dangerous condition cannot escape liability for the natural
and probable consequences thereof, although the act of a
third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss (Tucker vs.
Milan).

Facts:
The plaintiff, Philippine Bar Association (PBA), contracted
the defendant, United Construction Co., Inc. (UCCI), for
the construction of an office building in Intramuros. The
plans and specifications for the building were prepared by
third-party defendants Juan F. Nakpil & Sons (Nakpils).
On August 2, 1968, an unusually strong earthquake hit
Manila and the building in question sustained major
damage. The front columns of the building buckled,
causing the building to tilt forward dangerously.
The plaintiff commenced an action for the recovery of
damages arising from the partial collapse of the building
against UCCI and its President and General Manager
Juan J. Carlos as defendants alleging that the collapse
was caused by defects in the construction, failure of the
contractors to follow plans and specifications, and
violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the
architects who prepared the plans and specifications
alleging in essence that the collapse of the building was
due to the defects in the plans and specifications. The
parties agreed to refer the technical issues involved in the
case to a Commissioner while the non-technical issues
were tried by the court.

Issue: W/N an act of God (earthquake) exempts from
liability parties who are otherwise liable because of their
negligence

Held/Ratio:
Art. 1723, CC provides that the engineer or architect who
drew up the plans and specifications for a building is
liable for damages if within 15 years from the completion
of the structure the same should collapse by reason of a
defect in those plans and specifications, or due to the
defects in the ground. On the other hand, the general

rule is that no person shall be responsible for events
which could not be foreseen or which though foreseen,
were inevitable (Art. 1174, CC).
An act of God has been defined as an accident, due
directly and exclusively to natural causes without human
intervention, which by no amount of foresight, pains or
care, reasonably to have been expected, could have been
prevented. To exempt the obligor from liability under Art.
1174, CC for a breach of an obligation due to an act of
God, the following must concur:
1. The cause of the breach of the obligations must
be independent of the will of the debtor
2. The event must be either unforeseeable or
unavoidable
3. The event must be such as to render it
impossible for the debtor to fulfill his obligation in
a normal manner
4. The debtor must be free from any participation
in, or aggravation of, the injury to the creditor
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively
by the violence of nature and all human agencies are to
be excluded from creating or entering into the cause of
the mischief. When the effect is found to be in part the
result of the participation of man, whether from active
intervention or neglect or failure to act, the whole
occurrence is humanized and removed from the rules
applicable to the acts of God. When the negligence of a
person concurs with an act of God in producing a loss,
such person is NOT exempt from liability by showing that
the immediate cause of the damage was the act of God.
The negligence of the defendant and the third-party
defendants was established beyond dispute. The UCCI
was found to have made substantial deviations from the
plans and specifications, failed to observe the requisite
workmanship in the construction as well as to exercise
the requisite degree of supervision. The Nakpils, on the
other hand, were found to have inadequacies or defects
in the plans and specifications prepared by them. For
these reasons, the defendant and third-party defendants
CANNOT claim exemption from liability in case of breach
due to an act of God or fortuitous event.

Eden Mopia

REPUBLIC v. LUZON STEVEDORING CORPORATION
Republic of the Philippines, plaintiff-appellee, vs. Luzon Stevedoring Corporation, defendant-appellant
Ponente: Reyes, J.B.L., J.

Facts:
A barge owned by the Luzon Stevedoring Corporation
was being towed down the Pasig river by tugboats
Bangus and Barbero also owned by the same
corporation. Unfortunately, the barge rammed against one
of the wooden piles of the Nagtahan bailey bridge,
smashing the posta and causing the bridge to list. The
river , at that time, was swollen and the current was swift
on account of the heavy downpour on Manila and the
surrounding provinces.
The Republic of the Philippines sued the corporation for
actual and consequential damages caused by its
employees. The Luzon Stevedoring disclaimed liability by
postulating the following grounds as a defense: that it had
exercised due diligence in the selection and supervision
of its employees; that the damages to the bridge were
caused by force majeure; that the Nagtahan bailey bridge
is an obstruction to navigation; and that the plaintiff has
no personality to sue. The trial court did not find merit on
the defenses and awarded the damages in favor of the
republic. Aggrieved, the defendant holding on to the last
strand of hope appealed the case to the Supreme Court.
The defendant desperately insisted that: (1) the ramming
of the Nagtahan bridge was caused by force majeure; (2)
that the bridge was an obstruction to navigation; and (3)
that the damage was caused by improper placement of
dolphins.

Issue: The core issue that is germane to the resolution of
the case is whether the collision of appellants barge was

in contemplation of law caused by fortuitous event or
force majeure.

Held: The defenses were not impressed with merit. The
award of damages in favor of the republic was sustained.

Ratio:
Caso Fortuito or Force Majeure by definition are
extraordinary events not foreseeable or avoidable. It is
therefore not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or avoid. The
defendant corporation knowing and appreciating the perils
posed by the swollen stream and its swift current,
voluntary entered into a situation involving obvious
danger. It therefore assured the risk and cannot shed
responsibility merely because the precaution it adopted
turned out to be insufficient.
The defendant aught to argue that the bridge and the
dolphins are improperly located but, even if true, this
circumstances would only emphasize the need of even
higher degree of care.

Mark Oyales

DIOQUINO VS. LAUREANO
Pedro Dioquino, petitioner, vs. Federico Laureano, Aida de Laureano, Juanito Laureano, respondents
Ponente: Fernando, J.

Legal Doctrine: Mere difficulty to foresee an event is not
equivalent to impossibility of foreseeing the same.

Facts:
Federico borrowed the car of Pedro. But then a boy threw
a stone while playing pranks with his friends, breaking the
cars windshield. Pedro did not press charges against the
boy and his parents, and an amicable settlement between
Pedro and Federico was even tried. But since Federico
refused to pay for the repairs, Pedro filed suit against
Federico for damages (and also against Federicos wife
and father). The lower court ruled against Federico, but
absolved his wife and father. All three appeal to the SC.
Art. 1174 (CC) 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.

Issues/Held:
[1] Whether the defendant Federico is liable and should
pay damages, since the damage resulted from a
fortuitous event anyway. NO.
[2] Whether the plaintiff Pedro should pay damages for
the unwarranted inclusion of the defendants wife and
father in the suit. NO.

Ratio:
[1] Federico should not be made responsible for the
damages of the broken windshield. What had happened
was clearly unforeseen and unavoidable, a fortuitous
event exempting the obligor from liability because of
some extraordinary circumstance independent of the
obligors will (caso fortuito or force majeure).
Note, however, that mere difficulty to foresee an event is
NOT impossibility to foresee the same. So where one
voluntarily entered into a situation involving some obvious
danger whose effects are difficult to foresee, one cannot
shed liability (Republic v. Luzon Stevedoring). But in the
instant case, since Federico could absolutely not have
foreseen/avoided such stone-throwing, there is caso

fortuito, and he is not bound to assume a risk of this
nature. The lower court erred in finding Federico liable
and in making him pay P30,000.00 in damages.

[2] Plaintiff (a lawyer) ought to have exercised greater
care in selecting the parties whom to file suit against. But
he is not to be penalized further by his mistaken view of
including the wife and father. (It cannot be said that he
merely wanted to inflict needless vexation on the two.)

Disposition: Lower court decision reversed (insofar as it
ordered Federico to pay P30, 000.00 as damages plus
costs), but affirmed (insofar as the other two defendants
are absolved). No moral damages should be awarded.

JC Punongbayan

AUSTRIA VS. COURT OF APPEALS
Guillermo Austria, petitioner, vs. The Court of Appeals (Second Division), Pacifico Abad and Maria G. Abad, respondents

Legal Doctrine: Fortuitous events exempt a debtor from
responsibility, provided that he did not act with fault or
negligence.

Facts:
On January 1961, Guillerma Austria consigned one
pendant with diamonds (valued at Php 4,500.00) to Maria
G. Abad to be sold on commission basis or to be returned
on demand
On February 1961, Abad claimed to have been robbed by
two men while she was walking on her way home. The
robbers snatched her purse which contained jewelry and
cash, among them was the consigned pendant with
diamonds. Abad filed a criminal case in the CFI of Rizal
against certain persons but nobody was found guilty of
the alleged crime.
When Austria demanded the return of the pendant, Abad
failed to return it or pay its value. Hence, Austria filed an
action against Abad and her husband for the recovery of
the pendant or its value and damages.
Trial Court: Held that the Abad spouses failed to prove
the fact of robbery and that Maria Abad was guilty of
negligence when she went home alone knowing that it
was dark and she was carrying cash and other valuables
with her. The trial court ordered the Abad spouses to pay
Austria the sum of Php 4,500.00, with legal interest
thereon, plus Php 450.00 for attorneys fees.
Court of Appeals: Reversed the trial court judgment and
relieved the Abad spouses from liability. Held that the fact
of the robbery was duly established and that the Abad
spouses were not responsible for the loss of the pendant
because of the fortuitous event.
Austria elevated the matter to the SC claiming that the CA
erred in finding the fact of robbery although nobody was
found guilty. She contends that for robbery to fall under
fortuitous events, there must be a final judgment
convicting persons responsible for it.

Issues:
1. Whether or not it is necessary that there be a
prior conviction for robbery before the loss of an
article shall exempt the consignee from liability in
a contract of agency (consignment of goods for
sale)
2. Whether or not Abad is guilty of negligence

Held/Ratio:
1. NO, prior conviction for robbery is not necessary
for it to be considered a fortuitous event. Art.
1174 CC states that no person shall be
responsible for those events which could not be
foreseen, or though foreseen, were inevitable.
The provision stresses the events, not the

agents or factors responsible for them. To
constitute a fortuitous event based on Art. 1174
of the CC, it is not a requirement that the
persons responsible for the occurrence be
punished. Instead, mere preponderance of
evidence that the unforeseeable event took
place without the debtors fault is sufficient to be
exempt from responsibility.

2. NO, Abad did not manifest negligence in her
actions. Art. 1170 CC states that those guilty of
fraud, negligence, or delay in the performance of
their obligations can be held liable for damages.
Although there has been an increase in the
criminality in the streets of Manila over the years,
in 1961, when the robbery took place, the
conditions were different. During that time,
crimes were not very rampant. Therefore, it can
be said that Abad was not negligent in walking
home alone late at night.

Raffi Reyes

NPC VS. CA
National Power Corporation, petitioner, vs. Hon. Court of Appeals and Engineering Construction, Inc., respondents
Engineering Construction, Inc., petitioner, vs. Court of Appeals and National Power Corporation, respondents
Ponente: Gutierrez, J.

Legal Doctrine: There is negligence on the part of NPC
because they knew that a storm was coming and thus
should have prepared. When an act of God concurs with
the negligence of man, he is not exempt from liability
arising from it.

Facts:
Engineering Construction Inc (ECI) won the bidding and
executed a contract with NAWASA wherein they would
furnish all tools, equipments, labor and materials and to
construct the 2nd lpo-Bicti Tunnel, Intake and Outlet
Structures, and Appurtenant Structures, and Appurtenant
Features, at Norzagaray, Bulacan to be completed in 800
calendar days.
The first phase of excavating the tunnel was completed
and all unneeded materials from the Bicti site was
transferred to the Ipo Site.
However, Typhoon Welming came and due to the
alarming rising level of the Angat Dam, the defendant
NPC opened the spillage gates which caused terrific
impact and damages to ECI's stockpile of materials and
supplies, camp facilities and permanent structures and
accessories either washed away, lost or destroyed in the
IPO site
The lower court found NPC negligent and awarded actual
and compensatory damages to ECI
CA affirmed lower court's decision except for the award
for consequential damages of P332,000. This was
awarded by lower court for the damage for the rental of a
crane to replace the one that was damaged beyond repair
and for the 1month bonus of ECI would have had if not for
the damage it received. CA argued that he computation of
damages must not include the new crane they bought but
only the rentals of a crane which only amounts to P19,200
and the repair of the old crane which P77,000. In regards
to the bonus damage, it must not be awarded since the
incident occurred after 1,170 days, thus no bonus could
have been possibly received by ECI even if their materials
were not damaged.
NPC now files an appeal to SC o reverse the decision
because the damages was a result of force majeure. On
the other hand, ECI files an appeals and assails the
reduction of the consequential damages.

Issue: WON NPC was liable for the damages on ECI?

Held: Yes, they are liable

Ratio:
The fact that they knew that the storm Welming was
coming 4 days prior to its arrival, they should have
prepared for it and started to gradually release the water
from the Angat Dam. Though the typhoon was an act of
God or a fortuitous event (force majeure), the proximate
cause for the loss or damage still falls on NPC.

In relation of Heading in syllabus: Effect of Concurrent
Fault
When the negligence of a person concurs with an act of
God in producing a loss. Such person is not exempt from
liability by showing that the immediate cause of the
damage was the act of God.
Thus, in the case at hand, there being negligence on the
part of the NPC, they are not exempt from liability from
the damage caused by the opening of the flood gates due
to the typhoon.
The finding of the CA which is based on facts is generally
held final and conclusive. CA was correct in reducing the
consequential damages.

Andrew Santiago

YOBIDO v. CA
Alberta Yobido and Cresencio Yobido, petitioners, vs. Court of Appeals, Leny Tumboy, Ardee Tumboy, and Jasmin Tumboy,
respondents
Ponente: Romero, J.

Legal Doctrine: A common carrier may not be absolved
from liability in case of force majeure or fortuitous event
alone. The common carrier must still prove that it was not
negligent in causing the death or injury resulting from an
accident.

Facts:
The left front tire of a Yobido Liner bus that the Tumboy
family was riding exploded, resulting to the death of Tito
Tumboy (the father) and physical injuries to other
passengers.
A complaint for breach of contract of carriage was filed by
Leny Tumboy and her children against Alberta Yobido,
owner of the bus, and Cresencio Yobido, its driver. They
asserted that the driver failed to exercise the diligence
required of the carrier in transporting passengers safely to
their place of destination. Leny Tumboy contended that
the road was not cemented and was wet due to rain. The
bus was running fast and she cautioned the driver to slow
down but he merely stared at her.
The defendants, on the other hand, tried to establish that
the accident was due to a fortuitous event. They
contended that the tire was new and that driver applicants
in Yobido Liner underwent actual driving tests before
getting hired.
The lower court rendered a decision holding that the
accident was due to a fortuitous event. The CA reversed
the ruling and held the defendants liable.

Issue: WON the explosion of the newly installed tire is a
fortuitous event that exempts Yobido from liability for the
death of Tumboy.

Held/Ratio:
NO. Defendants should be held liable. Art. 1756 of the
Civil Code provides:
Art. 1756. In case of death of or injuries to passengers,
common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they

observed extraordinary diligence as prescribed in Articles
1733 and 1755.
When a passenger is injured or dies while travelling, the
law presumes that the common carrier is negligent. This
presumption can be overcome by evidence that the
carrier had observed extraordinary diligence or that the
death or injury of the passenger was due to a fortuitous
event.
A fortuitous event has the following characteristics: (a) the
cause of the unforeseen and unexpected occurrence, or
the failure of the debtor to comply with his obligations,
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.
The explosion of the new tire may not be considered a
fortuitous event. There are human factors in the situation,
such as manufacturing defects or improper mounting on
the vehicle. It is settled that defects in automobile or
through the negligence of its driver is not a caso fortuito
that would exempt the carrier from liability for damages.
Moreover, a common carrier may not be absolved from
liability in case of force majeure or fortuitous event alone.
The common carrier must still prove that it was not
negligent in causing the death or injury resulting from an
accident.
Finally, defendants failed to rebut the presumption of
negligence of the carrier in law. They failed to rebut
Lenys testimony that the bus was running fast and she
cautioned the driver to slow down. This must be resolved
in favor of liability in view of the presumption of
negligence of the carrier.

Elaine Tiu

BACOLOD-MURCIA MILLING CO., INC. VS. COURT OF APPEALS
Bacolod-Murcia Milling Co., Inc., petitioner, vs. Hon. Court of Appeals and Alonso Gatuslao, respondents
Bacolod-Murcia Milling Co., Inc., petitioner, vs. Hon. Court of Appeals, Alonso Gatuslao, Agro-Industrial Development of
Silay-Saravia (AIDSISA) and Bacolod-Murcia Agricultural Cooperative Marketing Association (BM-ACMA), respondents
Ponente: Paras, J.

Legal Doctrine: When an obligor is exempted from
liability due to fortuitous event or force majeure, the
following elements must concur: (a) the cause of the
breach of the obligation must be independent of the will of
the debtor; (b) the event must either be unforeseeable or
unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any
participation in, or aggravation of the injury to the creditor.

Facts:
Bacolod-Murcia Milling Co., Inc (BMMC) is in the
business of milling sugar canes. It entered into various
milling contracts with planters, one being Alfonso
Gatuslao, the private respondent.
Since the crop year 1920-1921 to the crop year 1967-
1968, the canes of planters adhered to the mill of BMMC
were transported from the plantation to the mill by means
of cane cars and through the railway system operated by
BMMC. This railway system traversed the land of the
adherent planters, corresponding to the rights of way on
their lands granted by the planters to BMMC for the
duration of the milling contracts.
1964-1965- Another planter, Hacienda Helvetia, had a
contract with BMMC which expired at the end of the 1964-
1965 crop year, the corresponding right of way of the
Hacienda Helvetia grated to the Central also expired. The
portion of the railway that traversed Hacienda Helvetia is
critical in the transportation of the sugar canes from the
other plantations to the milling station.

1965- BMMC filed a complaint for legal easement against
the owners of Hacienda Helvetia. The outcome of the
case was not favorable to BMMC.
1967-1968- Writ of preliminary injunction was issued
which allowed BMMC to use the railroad tracks passing
through Hacienda Helvetia during the 1967-1968 milling
season only, for the same purpose for which they have
been previously used.
1968-1969- BMMC was unable to use its railroad facilities
due to closure of portion of railway.
1968 (Civil Case No. 8719)- Alfonso Gatuslao filed a case
against BMMC for breach of contract, praying among
others, for:
Issuance of preliminary mandatory injunction ordering
defendant to immediately send transportation facilities
and haul the already cut sugarcane to the mill site;
Judgment be rendered declaring the rescission of the
milling contract executed in 1957 for seventeen (17) years
up to crop year 1973-1974, invoking as ground the
alleged failure and/or inability of defendant to comply with
its specific obligation of providing the necessary
transportation facilities.
1968 (Civil Case No. 8715)- BMMC filed case against
Alfonso Gatuslao seeking (1) specific performance under
the milling contract and praying for the (2) issuance of writ
of preliminary mandatory injunction to stop the alleged
violation of the contract by Gatuslao in confederation,
collaboration and connivance with BM-ACMA, AIDSISA,
and for the (3) recovery of actual, moral and exemplary
damages.
1968-1969- BMMC hired trucks to haul the canes.
Present case is the consolidation of two (2) separate civil
cases (Civil Case No. 8719 and 8745).

Issues:
1. WON the termination of BMMCs right of way
over Hacienda Helvetia caused by the expiration
of its milling contracts is a fortuitous event of
force majeure which will exempt BMMC from
fulfillment of its contractual obligations.
2. WON private Respondent Alfonso Gatuslao has
the right to rescind the milling contract.

Held/Ratio:
1. NO. The termination of BMMCs right of way
over Hacienda Helvetia was not a fortuitous
event.
Art 1174 of the Civil Code- 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.
When an obligor is exempted from liability due to
fortuitous event or force majeure, the following
elements must concur: (a) the cause of the
breach of the obligation must be independent of
the will of the debtor; (b) the event must either
be unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner;
and (d) the debtor must be free from any
participation in, or aggravation of the injury to the
creditor.
The terms of the milling contracts were clear
and undoubtedly there was no reason for BMMC
to expect otherwise. BMMC could have
anticipated and should have provided for the
eventuality before committing itself.
Despite BMMCs awareness of risk of closure of
a portion of its railway, it took the calculated risk
that all landowners would renew its contracts.
For exemption to operate, there must be an
entire exclusion of human agency from the
cause of the injury or loss.
The closure of the railway lines was not an act of
God, nor does it constitute force majeure. It was
due to termination of contractual relationships,
for which petitioner is charged with knowledge.

2. YES. Alfonso Gatuslao has the right to ask for
the rescission of the contract.
The contract in question involves reciprocal
obligations; as such party is a debtor and
creditor of the other, such that the obligation of
one is dependent upon the obligation of the
other. They are to be performed simultaneously
so that the performance of one is conditioned
upon the simultaneous fulfillment of the other.

The power to rescind obligations if implied in
reciprocal obligations in case one of the obligors
should not comply with what is incumbent upon
him. It is well established that the party who
deems the contract violated may consider it
revoked or rescinded, even without prior court
action.
BMMC was not able to provide adequate and
efficient transportation facilities of the canes of
Gatuslao and other planters milling with BMMC.
BMMC is guilty of breach of contract. The injured
party, Gatuslao, may choose between the
fulfillment and rescission of the obligation.

Karen Torres

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION VS. GLOBE TELECOM, INC.
Philippine Communications Satellite Corporation, petitioner, vs. Globe Telecom, Inc., respondent
Ponente: Tinga, J.

Legal Doctrine: force majeure refers not only to events
that are unforeseeable, but also to those which are
forseeable, but inevitable

Facts:
Prior to 1991, Globe Telecom, Inc. (Globe) had been
engaged in the coordination of the provision of various
communication facilities for the military bases of US in
Clark Air Base, Angeles, Pampanga and Subic Naval
Bases in Cubi Point, Zambales
On May 7, 1991, Philcomsat and Globe entered into an
agreement
Philcomsat obligated itself to establish, operate and
provide an IBS standard B earth station within Cubi point
for exclusive use of USDCA. Globe promised to pay
rentals. The term was for 60 months or 5 years
At the time of execution, both parties knew that the MBA
between RP and US, which was the basis of occupancy
of Clark Air Base and Subic Naval Base, was to expire in
1991.
Philcomsat installed and established the earth station and
USDCA made use of the same
On September 16, 1991, Senate passes Senate
Resolution No. 141, expressing its decision not to concur
in the ratification of the treaty of friendship, cooperation
and security that was supposed to extend the term of the
use by US of the naval base, among others.
On August 6, 1992, Globe notified Philcomsat of its
intention to discontinue to use of the earth station
effective November 8, 1992 in view of the withdrawal of
US military personnel from Subic Naval Base
Globe invoked as basis Section 8 of the Agreement which
provides:
Neither party shall be held liable or deemed to be in
default for any failure to perform its obligation under this
Agreement if such failure results directly or indirectly from
force majeure or fortuitous event. x x x force majeure
shall mean circumstances beyond the control of the party
involved including, but not limited to, any law, order,
regulation, direction or request of the Government of the
Philippines, x x x
After the US military forces left Subic Naval Base,
Philcomsat sent Globe demanding payment of its
outstanding obligations under the Agreement amounting
to US$4,910,136.00 plus interest and attorneys fees.
However, Globe refused to heed Philcomsats demand.

Issue: WON the non-ratification of the treaty constitutes
force majeure

Held: Yes, it is force majeure

Ratio:
Art. 1174. Except in cases 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.
Philcomsat argues that non-ratification of the treaty
cannot constitute force majeure because the happening
thereof was foreseeable. However, court held that force
majeure refers not only to events that are unforeseeable,
but also to those which are foreseeable, but inevitable.
Elements:
(1) the event must be independent of the human
will
Philcomsat and Globe had no control over the
non-renewal of the term of the RP-US Military
Bases Agreement when the same expired in
1991, because the prerogative to ratify the treaty
extending the life thereof belonged to the
Senate.
(2) the occurrence must render it impossible for
the debtor to fulfill the obligation in a normal
manner
Since the US military forces and personnel left or
withdrew from Cubi Point in the year end
December 1992, there was no longer any
necessity for the plaintiff to continue maintaining
the IBS facility
It is unjust to require Globe to continue paying
rentals even though Philcomsat cannot be
compelled to perform its corresponding
obligation under the Agreement.
(3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.
Acts, direction or request of the Government of
the Philippines and the complete withdrawal of
all the military forces and personnel are acts and
circumstances beyond the control of the
defendant.
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
Not being contrary to law, morals, etc. the agreement of
Globe and Philcomsat has the force of law between them

Camille Umali

VI. Usurious Transactions
EASTERN SHIPPING LINES VS. CA
Eastern Shipping Lines, Inc., petitioner, vs. Hon. Court of Appeals and Mercantile Insurance Company, Inc., respondents
Ponente: Vitug, J.

Facts:
December 4, 1981 - two Fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel owned
by defendant Eastern Shipping Lines, Inc. The shipment
was insured under plaintiffs Marine Insurance
December 12, 1981 shipment arrived in Manila and was
then discharged unto the custody of defendant Metro Port

Service, Inc. The latter excepted to one drum, said to be
in bad order, which damage was unknown to plaintiff
January 7, 1982 - defendant Allied Brokerage Corporation
received the shipment from defendant Metro Port Service,
Inc., one drum opened and without seal
January 8 and 14, 1982 - defendant Allied Brokerage
Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents
was adulterated/fake
Plaintiff contended that due to the losses/damage
sustained by said drum, the consignee suffered losses
totaling P19, 032.95, due to the fault and negligence of
defendants
As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19, 032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee
against defendants
The lower Court held that the shipment sustained
losses/damages under the custody of the defendants and
ordered them to pay the plaintiff, jointly and severally with
the present legal interest of 12% per annum from October
1, 1982, the date of filing of the complaints, until fully paid
The defendants appealed regarding the decision of the
lower Court

Issues:
1. W/N a claim for damage sustained on a
shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the
arrastre operator and the customs broker
2. Whether the payment of legal interest on an
award for loss or damage is to be computed
from the time the complaint is filed or from the
date the decision appealed from is rendered
3. Whether the applicable rate of interest, referred
to above, is twelve percent (12%) or six percent
(6%)

Held:
1. The liability imposed on Eastern Shipping Lines,
Inc., the sole petitioner in this case, is inevitable
regardless of whether there are others solidarily
liable with it.
2. The legal interest to be paid is computed
from the decision, dated February 3, 1988, of the
court a quo
3. The legal interest to be paid is SIX
PERCENT (6%) on the amount due computed
from the decision of the court a quo. A TWELVE
PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such
amount upon finality of this decision until the
payment thereof.

Ratio:
1. The common carrier's duty to observe the
requisite diligence in the shipment of goods lasts
from the time the articles are surrendered to or
unconditionally placed in the possession of, and
received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled
to receive them
When the goods shipped either are lost or arrive
in damaged condition, a presumption arises
against the carrier of its failure to observe that
diligence, and there need not be an express
finding of negligence to hold it liable
Since it is the duty of the ARRASTRE to take
good care of the goods that are in its custody
and to deliver them in good condition to the
consignee, such responsibility also devolves
upon the CARRIER. Both the ARRASTRE and
the CARRIER are therefore charged with the
obligation to deliver the goods in good condition
to the consignee
The instant petition has been brought solely by
Eastern Shipping Lines, which, being the carrier
and not having been able to rebut the
presumption of fault, is, in any event, to be held
liable in this particular case. A factual finding of
both the court a quo and the appellate court, we
take note, is that "there is sufficient evidence
that the shipment sustained damage while in the
successive possession of appellants" (the herein
petitioner among them)


2. Certain jurisprudence dictates as to when the
legal interest would be computed and what
interest would be used. As such, the Court laid
out the following guidelines:
a. When an obligation, regardless of its
source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts 18 is breached, the
contravenor can be held liable for damages.
19 The provisions under Title XVIII on
"Damages" of the Civil Code govern in
determining the measure of recoverable
damages. 20

b. With regard particularly to an award of
interest in the concept of actual and
compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed,
as follows:
x When the obligation is breached,
and it consists in the payment of a
sum of money, i.e., a loan or
forbearance of money, the interest
due should be that which may have
been stipulated in writing. 21
Furthermore, the interest due shall
itself earn legal interest from the
time it is judicially demanded. 22 In
the absence of stipulation, the rate
of interest shall be 12% per annum
to be computed from default, i.e.,
from judicial or extrajudicial
demand under and subject to the
provisions of Article 1169 23 of the
Civil Code.

x When an obligation, not
constituting a loan or forbearance
of money, is breached, an interest
on the amount of damages
awarded may be imposed at the
discretion of the court 24 at the
rate of 6% per annum. 25 No
interest, however, shall be
adjudged on unliquidated claims or
damages except when or until the
demand can be established with
reasonable certainty. 26
Accordingly, where the demand is
established with reasonable
certainty, the interest shall begin to
run from the time the claim is made
judicially or extrajudicially (Art.
1169, Civil Code) but when such
certainty cannot be so reasonably
established at the time the demand
is made, the interest shall begin to
run only from the date the
judgment of the court is made (at
which time the quantification of
damages may be deemed to have
been reasonably ascertained). The
actual base for the computation of
legal interest shall, in any case, be
on the amount finally adjudged.

x When the judgment of the court
awarding a sum of money
becomes final and executory, the
rate of legal interest, whether the
case falls under paragraph 1 or
paragraph 2, above, shall be 12%
per annum from such finality until
its satisfaction, this interim period
being deemed to be by then an
equivalent to a forbearance of
credit.

ADAPT 2009

CRISMINA GARMENTS VS. COURT OF APPEALS
Crismina Garments, Inc., petitioner, vs. Court of Appeals and Norma Siapno, respondents
Ponente: Panganiban J.

Facts: Crismina Garments, Inc. contracted the services of
Norma Siapno for sewing 20, 762 pieces of assorted girls
denims. The petitioner was obliged to pay the respondent

for her services in the total amount of P76, 410. The
respondent fulfilled her part of the obligation and
delivered the materials to petitioner who acknowledged
the same in good order condition.
At first, respondent was informed that the sewing of some
of the pants was defective, though she was later told that
the goods were already good. The petitioner, however,
failed to pay the respondent for her services. Likewise,
the vice-president/comptroller of Crismina Garments
wrote a letter to the respondent asserting that 6,164 of the
pants which she delivered were defective, thus owing the
company the value of the damaged pairs of denim pants
amounting to P49, 925.51.
Hence, Siapno filed her complaint against Crismina
Garments with the trial court for the collection of the
principal amount of P76, 410. Judgment was rendered in
favor of Siapno, ordering Crismina Garments, Inc. to pay
the total sum with interest thereon at 12% per annum.
The Court of Appeals affirmed the trial courts ruling,
hence this petition for review.

Issue: WON it is proper to impose interest at the rate of
12% per annum for an obligation that does not involve a
loan or forbearance
2
of money in the absence of
stipulation of the parties

Held: No, it is not proper to impose an interest at the rate
of 12% per annum. The decision of the CA was modified,
um. However, if the
rest remain unpaid
reducing the rate to 6% per ann
adjudged principal and the inte

2
Forbearance, in the context of Usury Law, refers to the
contractual obligation of the lender or creditor to refrain,
during a given period of time, from requiring the borrower or
debtortorepayaloanordebtthendueandpayable.
thereafter, the interest shall be 12% per annum from the
time the judgment becomes final and executor until it is
fully satisfied.

Ratio:
The present case is an action for the enforcement of an
obligation for payment of money arising from contract for
a piece of work, thus the interest rate should be 6% per
annum pursuant to Article 2209 of the Civil Code, which
states that:
If the obligation consists in the payment of
money and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary,
shall be the payment of the interest agreed upon, and in
the absence of stipulation, the legal interest, which is
6% per annum.
Private respondents contention that since the money
sought to be recovered by her is in the form of
forbearance, Central Bank Circular No. 416 should be
applied. The said circular provides that the prescribed
rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest,
shall be 12% per annum. Cases beyond the scope of the
said circular shall be governed by Article 2209 of the Civil
Code.
Since the amount due in this case did not arise from loan
or forbearance of money (see definition of forbearance in
the previous page), the legal interest of 6% per annum
should be applied.

KENG HUA PAPER PRODUCTS CO., INC. VS. COURT OF APPEALS
Keng Hua Paper Products Co., Inc., petitioner, vs. Court of Appeals, RTC of Manila, Sea-land Service, Inc., respondents

Legal Doctrine: A bill of lading delivered and accepted
constitutes the contract of carriage even though not
signed. Acceptance of a bill of lading by the shipper and
the consignee, with full knowledge of its contents, gives
rise tao the presumption that the same was a perfected
and binding contract.

Facts:
Sea-land Service, Inc., a shipping company, shipped a
container containing unsorted waste paper from Hong
Kong to the Philippines. Said shipment was for Keng Hua
Paper Products Co., Inc. (Keng Hua). After said shipment
was discharged at Manila, notices of arrival were
transmitted to Keng Hua but the latter failed to discharge
the shipment from the container during the grace period.
The shipment remained in the container for a total of 481
days and the grace period already elapsed. Letters
demanding payment were sent by Sea-land Service, Inc.
to Keng Hua but the latter refused to settle its obligation.
Numerous demands were made after but payment was
still not made. As such, Sea-land commenced a civil
action for collection and damages.
Keng Hua argues the following:
x That from the 50 tons of waste paper that it
purchased from the shipper in Hong Kong, there
is only a remaining balance of 10 metric tons, as
stated under the letter of credit. However, Sea-
land is asking Keng Hua to accept 20 metric
tons.
x That if they will accept the shipment, they would
be violating Central Bank rules and regulations
and custom and tariff laws.
x That since they didnt hire Sea-land to carry the
merchandise, the latter has no cause of action
against them. The cause of action should be
against the shipper (Ho Kee) and not on them.
x That it notified Sea-land about the wrong
shipment through a letter.

Issues:
1. Whether the petitioner is bound by the bill of
lading
3

2. Whether the award of the sum of 67,340.00 to
Sea-land is proper
3. Whether Keng Hua is correct in not accepting
the overshipment
4. Whether the award of legal interest was proper

Held/ Ratio:
1. Yes. In this case, the bill of lading was held as a
valid and perfected contract between the
shipper, the consignee and the carrier.
Prolonged failure of petitioner to receive and
discharge the cargo from the private
respondents vessel constitute a violation of the
terms of the bill of lading.

3
Billofladingservestofunctions:1.)asareceiptforthegoods
shipped; and 2.) as a contract by which three parties, namely,
the shipper, the carrier and the consignee undertake specific
responsibilitiesandassumestipulatedobligations.
Petitioner Court
Although petitioner admits physical acceptance of the
bill of lading, it contends that it should not be bound by
such because it never gave its consent thereto.
A bill of lading delivered and accepted constitutes the
contract of carriage even though not signed. Acceptance
of a bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the
presumption that the same was a perfected and binding
contract.

Keng-Hua did not immediately object to any terms of the
bill of lading. It only made its objections six months after
it received the bill of lading. Petitioners inaction for such
a long period conveys the clear inference that it
accepted the terms and condition of the bill of lading.
It declined the acceptance of shipment as stated in the
Notice of Refused or On Hand Freight, which that copy
was sent to Ho Kee. Said decline was acknowledged by
Sea-land. This action belies the finding that it accepted
the terms and conditions of the bill of lading.
The significance of the notice is that it highlights
petitioners prolonged failure to object to the bill of
lading.
It sent a letter to Sea-land stressing that its acceptance
of the bill of lading would be tantamount to smuggling
and could lay them vulnerable to legal sanctions for
violation of customs, tariff and Central Bank law. This
also action belies the finding that it accepted the terms
and conditions of the bill of lading.
Said letter spoke only of Keng Huas inability to pick up
the cargo due to the shippers failure to comply with the
terms and conditions of the letter of credit. The letter
merely proved petitioners refusal to pick-up the cargo,
not its rejection of the bill of lading.

Petitioner cant accept the obligation because receipt of
the shipment would cause it to violate customs, tariff and
central bank laws
Non-demonstration as to how it is legally impossible to
accept the delivery cannot defeat the petitioners
contractual obligation and liability under the bill of lading.

2. Yes. The amount of demurrage charges in the
said sum is a factual conclusion of the Court.
Said demurrage resulted from the prolonged
non-claim of the cargo.

3. No. The contract of carriage is different from the
contract of carriage. The issue of overshipment
must be dealt with the shipper and not with the
carrier. The discrepancy with what was delivered
with what was only agreed with between the
shipper and the petitioner does not negate the
petitioners obligation to Sea-Land, which arises
from the contract of transportation.

4. No. The case involves an obligation not arising
from a loan or forbearance of money. Thus, the
legal interest rate is six percent. The rate of
twelve percent per annum shall be charged from
the time the judgment becomes final and
executory.

SECURITY BANK AND TRUST VS. RTC OF MAKATI
Security Bank and Trust vs. RTC of Makati
Ponente: Hermosisima, Jr., J.

Summary: The private respondent had executed three
promissory notes in favour of the petitioner bank, all of
which had an interest rate of 23% per annum. When he
failed to pay all three, the petitioner bank filed a collection
case and won. However, the lower court ordered the
private respondent to pay with the interest rate of a
reduced 12% per annum. The Supreme Court held that
Central Bank Circular 905 allowed contracting parties to
stipulate freely regarding any subsequent loan adjustment
in the interest rate that shall accrue to a loan. Only in the
absence of a stipulation could the court stipulate the 12%
rate of interest.

Facts:
Private respondent Eusebio executed three promissory
notes in favor of Security and Trust Bank Co. as follows:
x April 27, 1983 --- 100 000 in 6 monthly
installments with interest rate of 23% per annum
x July 28, 1983 --- 100 000 in 6 monthly
x August 31, 1983 --- 65 000 in 6 monthly
Upon his failure to pay, the bank filed a collection case
against him and won. But the dispositive portion, pursuant
to the Usury Law, ordered Eusebio to pay his remaining
debt under an interest rate of only 12% per annum.

Issue: WON the 23% interest rate per annum agree
upon by petitioner and private respondent is allowable
and not against the Usury Law

Held: Yes.

Ratio:
PD 1684 empowered the Central Banks Monetary Board
to prescribe maximum rates of interest for loans and
certain forbearances. Pursuant to this, CB Circular no.
905 took effect in December 22, 1982 (before the
promissory notes were executed), and it provided that the
rate of interest that may be charged or collected by any
person, whether natural or juridical, shall not be subject to
any ceiling prescribed under or pursuant to the Usury
Law.
Furthermore, the 12% rate of interest shall be applied by
the court only in the absence of stipulation.

Lastly, Article 1306 of the New Civil Code also provides
that contracting parties may establish stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.

ALMEDA VS. CA
Spouses Ponciano Almeda and Eufemia P. Almeda, petitioner, vs. The Court of Appeals and Philippine National Bank,
respondents

Legal Doctrine: A bank cannot unilaterally raise the
interest rate on a loan, based on the escalation clause of
a contract signed by the said bank and the debtor, when it
is contrary to the stipulations made in the same contract
and to the principle of mutuality of contracts.

P.D. 385: Requiring Government Financial Institutions to
Foreclose Mandatorily All Loans with Arrearages,
Including Interest and Charges Amounting to At Least
Twenty Percent of the Total Outstanding Obligation

Facts:
In 1981, PNB granted to petitioners spouses Almeda
several credit accommodations payable in 6 years with an
interest rate of 21% per annum. To secure the loan, the
spouses Almeda executed a Real Estate Mortgage
Contract covering a parcel of land and the Marvin Plaza
building thereon.
In 1984, PNB raised the interest rate to 28%. The interest
rate reached a high of 68% in 1986. Before the loan was
to mature, the spouses filed a petition seeking clarification
as to whether or not the PNB could unilaterally raise
interest rates on the loan, pursuant to the credit
agreement's escalation clause.
The lower court issued a writ of preliminary injunction
enjoining the PNB from enforcing an interest rate above
the 21% stipulated in the credit agreement. By this time
the spouses were already in default of their loan
obligations. So PNB countered by ordering the
extrajudicial foreclosure of petitioner's mortgaged
properties and scheduled an auction sale.
Prior to the scheduled date, however, petitioners tendered
to respondent bank the amount of P40,142,518.00,
consisting of the principal (P18,000,000.00) and accrued
interest calculated at the originally stipulated rate of 21%.
The PNB refused to accept the payment.
In a Civil Case, the court issued an order granting the writ
of preliminary injunction enjoining the foreclosure sale of
Marvin Plaza. For the courts refusal to lift the writ of
preliminary injunction, respondent PNB filed a petition for
Certiorari, Prohibition, and Mandamus with respondent
CA. CA granted the petition of respondent PNB.

Issues/Held:
1. Was respondent bank authorized to raise its
interest rates from 21% to as high as 68% under
the credit agreement? NO
2. Is respondent bank granted the authority to
foreclose Marvin Plaza under the mandatory
foreclosure provisions of P.D. 385? NO

Ratio:
The binding effect of any agreement between parties to a
contract is premised on two settled principles: 1) that any
obligation arising from contract has the force of law
between the parties; and 2) that there must be mutuality
between the parties based on their essential equality.
Respondent bank unilaterally altered the terms of its
contract with petitioners by increasing the interest rates
without the prior assent of the latter. In fact, the manner of
agreement is itself explicitly stipulated by the Civil Code
when it provides, in Article 1956 that No interest shall be
due unless it has been expressly stipulated in writing.

What has been stipulated in writing in the credit
agreement signed by the parties is that petitioners were to
pay 21% interest, subject to a possible escalation or de-
escalation, when 1) the circumstances warrant such
escalation or de-escalation; 2) within the limits allowed by
law; and 3) upon agreement.
The interest rates imposed by respondent PNB violated
the principle of mutuality of contracts and the requirement
that the increase be within the limits allowed by law.
Because of the dispute regarding the interest rate
increases, the exact amount of petitioners obligations
could not be determined. Thus, the foreclosure provisions
of P.D. 385 could be validly invoked by respondent only
after settlement of the question involving the interest rate
on the loan.
Furthermore, petitioners made a valid consignation of
what they, in good faith and in compliance with the letter
of the Credit Agreement, believed to be the real amount
of their remaining obligations. PNB could not claim that
there was no attempt on the part of the spouses to settle
their obligations.

FIRST METRO INVESTMENT CORPORATION VS. ESTE DEL SOL MOUNTAIN RESERVE INC.
First Metro Investment Corporation, petitioner, vs. Este del Sol Mountain Reserve, Inc., Valentin S. Daez, Jr., Manuel Q.
Salientes, Ma. Rocio A. de Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr., and Felipe B. Sese,
respondents
Ponente: De Leon, Jr., J.

Legal Doctrine: Contracts and stipulations, under any
cloak or device whatever intended to circumvent the laws
against usury shall be void. The borrower may recover in
accordance with the laws in usury. In usurious loans, the
entire obligation does not become void because of an
agreement for usurious interest. The unpaid principal
remains valid and only the stipulation as to the usurious
interest is void.

Facts:
Este del Sol entered a Loan Agreement with First Metro
Investment Corporation wherein the latter granted them a
loan of P7,385,500 to finance the construction and
development of the Este del Sol Mountain Reserve, a
sports/resort complex project at Montalban Rizal. Under
the terms, the loan was to be released on a staggered
basis, the interest on the loan was pegged at 16% per
annum based on the diminishing balance, and that the
loan as payable in 36 equal and consecutive monthly
amortizations to commence at the beginning of the 13
th

month from the date of first release. In case of default, the
amount due was subject to 20% one-time penalty on the
amount due and such amount shall bear an interest at the
highest rate permitted by law from the date of the default
until full payment plus liquidated damages plus attorneys
fees equivalent to 25% of the sum sought to be recovered
which cannot be less than P20,000 if the services of the
lawyer were hired. As security for payment, Este del Sol
executed several documents including a Real Estate
Mortgage over two parcels of land and individual
Continuing Suretyship agreements by the co-
respondents.
It was also provided in the Loan Agreement that there
shall be an Underwriting Agreement between the two
parties wherein FMIC shall underwrite on a best efforts
basis the public offering of 120,000 common shares of
Este del Sols capital stock for a one time underwriting fee
of P200,000. Este del Sol shall also pay FMIC an annual
supervision fee (for supervising public offering of the
shares) P200,000 per annum for a period of 4
consecutive years. In the Underwriting Agreement, a
Consultancy Agreement was also executed wherein Este
del Sol engaged the services of FMIC as consultant to
general consultancy services and the consultancy fee for
a period of 4 years was P1,330,000. When FMIC billed
Este del Sol (for the amounts mentioned in this bullet), the
said amounts were deemed paid from the deductions
made from the first release of the loan.

Failing to meet the schedule of repayment, Este del Sol
incurred a total obligation of P12, 679, 630. 98. Petitioner
FMIC caused the extrajudicial foreclosure of the real
estate mortgage. At the public auction, FMIC was the
highest bidder. As a result, a balance was still left. Failing
to secure the said amounts from the individual
respondents who were Sureties, FMIC instituted an
instant collection suit against respondents to collect the
alleged deficiency plus interest at 21% per annum and
25% thereof as attorneys fees and costs.
DEFENSE OF RESPONDENTS: The Underwriting and
Consultancy Agreements executed simultaneously with
and as integral parts of the Loan Agreement and which
provide for the payment of Underwriting, Consultancy and
Supervision fees were in reality subterfuges resorted to
by FMIC and imposed upon Este del Sol to camouflage
the usurious interest charged by FMIC

Issue/Held:
1. Should the Central Bank Circular No. 905 which
removed the ceiling on interest rates for secured
and unsecured loans be applied retroactively?
NO
2. Were the Underwriting and Consultancy
Agreements mere subterfuges to camouflage the
usurious interest charged by the petitioner? YES
3. Should the attorneys fees be reduced? YES

Ratio:
1. It is an elementary rule of contracts that the laws
in force at the time the contract was made and
entered into govern it. The said circular took
effect on January 1, 1983 while the contract was
executed on January 31, 1978. Also, Central
Bank Circular No. 905 did no repeal nor in any
way amend the Usury Law but simply
suspended the latters effectivity. A Central Bank
circular cannot repeal a law.

2. The Underwriting and Consultancy Agreements
which were executed and delivered
contemporaneously with the Loan Agreement
were essential conditions for the grant of the
loan. An apparently lawful loan is usurious when
it is intended that additional compensation for
the loan be disguised by an ostensibly unrelated
contract providing for payment by the borrower
for the lenders services which are of little value
or which are not in fact to be rendered in such
case. Article 1957 provides that: Contracts and
stipulations, under any cloak or device whatever
intended to circumvent the laws against usury
shall be void. The borrower may recover in
accordance with the laws in usury. In usurious
loans, the entire obligation does not become
void because of an agreement for usurious
interest. The unpaid principal remains valid and
only the stipulation as to the usurious interest is
void. Thus, the nullity of the stipulation does not
affect the lenders right to receive back the
principal amount and the debtor may recover the
amount paid as interest under the usurious
agreement since the payment is deemed to have
been made under restraint.
Some facts showing that the Underwriting and
Consultancy Agreements were just cloaks:
a. The three agreements had the same
date and were to mature and remain
effective for the same period of time.
b. The Underwriting Agreement was a
condition for the Loan
c. FMIC failed to comply with the
obligation set in the Underwriting
Agreement and Consultancy
Agreement

3. A reduction of the attorneys fees to 10% is
appropriate and reasonable. The stipulated
attorneys fees stipulated in the agreement which
is 25% of the total amount is exorbitant and
unconscionable. Attorneys fees provided in the
penal clauses are in the nature of liquidated
damages. If the same is iniquitous or
unconscionable, the courts are empowered to
reduce the amount of the attorneys fees.


CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS
I. Pure and Conditional Obligations
B. Conditional Obligations
GAITE VS. FONACIER
Fernando A. Gaite, plaintiff and appellee, vs. Isabelo Fonacier, et al., defendants-appellants

Facts:
Fonacier, owner of 11 iron lode mineral claims, appointed
Gaite as his attorney-in-fact and authorized him to enter
into a contract with any person for the exploration and
development of his mining claims on a royalty basis of
Php 0.5 per ton of ore that might be extracted.
Gaite conveyed the development and exploration of the
mining claims to Larap Iron Mills, a single proprietorship
which he owns. Gaite then went on the business of the
development and exploration of the mining claims.
Fonacier revoked the authority granted to Gaite to exploit
the mining claims, and Gaite agreed. They executed a
Revocation of Power of Attorney and Contract which
contained the ff. terms:
Gaite transferring to Fonacier Larap Iron Mills (all his
rights and interests on all roads, improvements and
facilities in or outside the mines, the right to use the
business name of Larap Iron Mines, its goodwill, and all
pertinent documents re the mines) in exchange for Php
20,000 + 10% interest of royalties Fonacier would receive
from the mining claims.
Gaite transferring to Fonacier the 24,000 tons of iron ore
he had already extracted in exchange for Php 75,000, of
which Php10,000 is to be paid upon signing and
Php65,000 which will be paid from the first shipment of
iron ores and from the amount to be derived from its sale.
Fonacier executing a surety (bond) with himself as
principal with his company, et al, as sureties..
A second bond was made with Far Eastern Surety and
Insurance Co., which stated that Far Easterns liability
would not attach unless sales of iron ore amounting to at
least Php65,000 were made and that it would expire on
Dec. 8, 1955.
No sale of iron ore was made even until the Far Eastern
bond had already expired. Fonacier and his sureties failed
to pay when Gaite made demand.
Fonacier asserts that 1. The obligation was based upon a
suspensive condition, in that it was subject to either the
first shipment of iron ore or the first sale. However, no
sale had yet been made hence the condition was not yet
fulfilled. 2. Only 7,573 of the 24,000 tons of iron ore had
been delivered by Gaite.

Issues:
1. W/N the obligation to pay the Php 65,000 rested
upon a suspensive condition or a period.
2. W/N Gaite made complete delivery of the
promised 24,000 iron ores.

Held:
1. It was a period, not a suspensive condition.
Fonacier ordered to pay the Php 65,000
2. Gaite made complete delivery of the 24,000
tons.

Ratio:
1. A conditional obligations efficacy or
obligatory force is subject to the happening
of a future and uncertain event; if the event
does not take place, it would be as if the
obligation had never existed. That the contract
was subject to a period is proven by:
a. The words will be paid indicates that
there is no uncertainty that payment will
be made, the obligation is recognized
by the parties. It is only the exact date

of payment, or the demandability, that
is unknown.
b. There is nothing in the contract which
indicated that Gaite was willing to risk
losing his iron ore without getting paid
for it, as proven by his insistence on the
sureties. The fact that bonds were
made indicates that the parties
recognized the existence of the
obligation.
c. To subject the payment to the sale of
the iron ores would be tantamount to
leaving the payment at the discretion of
the debtor, and Fonacier would simply
be able to avoid his obligation
indefinitely.
d. The greater reciprocity of interests is
achieved by holding the obligation as
existing with only its demandability
deferred.
e. The court held that Fonacier had
forfeited the right to make use of the
period due to his failure to renew the
Far Eastern bond or to make an
equivalent guarantee. The obligation is
therefore already demandable.

2. Neither of the parties were smart enough to
actually weigh or measure the pile of iron ore
sitting in the mines. They merely looked at the
junk and thought hey, I think this is 7,000 tons,
hence the inconsistencies in weights presented
to the Court. So the Court brought in an amicus
curiae who measured the pile and discovered
that it was actually 21,000 tons of iron ore, which
is pretty darn close to Gaites estimate of
24,000 tons, more or less. Yay!

GONZALES VS. HEIRS OF THOMAS AND PAULA CRUZ
Felix I. Gonzales, petitioner, vs. Heirs of Thomas and Paula Cruz, herein represented by Elena C. Talens, respondents

Legal Doctrine: If some stipulation therein should admit
of several meanings, it shall be understood as bearing
that import most adequate to render it effectual.

Facts:
December 1, 1983: Paula Cruz (together with heirs)
entered into a Contract of Lease/Purchase with Felix
Gonzales (sole proprietor of Felgon Farms) of a half-
portion of a parcel of land containing an area of 12
hectares, more or less, and an accretion of 2 hectares,
more or less, situated in Rodriguez Town, Province of
Rizal.
The contract has the following provisions:
1. Contract is for a period of one year
upon signing. After the period, the
lessee shall purchase the property on
the agreeable price (Php1M) payable
within 2 years with 12% interest
(upon execution of deed of sale: 50%
payment; 25% every 6 months
thereafter, payable within the
first 10 days of beginning of each
period)
2. Lessee shall pay by way of annual
rental Php2,500 per hectare upon
signing
3. Lessors hereby commit themselves and
shall undertake to obtain a separate
distinct TCT over the leased portion to
lessee within reasonable period of time
which shall not in any case exceed 4
years, after which a new contract shall
be executed by the parties which shall
be the same in all respects with this
Contract of Lease/Purchase insofar as
terms and conditions are concerned.
Gonzales paid the rent but after the expiration of the one
year lease, he did not exercise his option to purchase the
property and stopped paying rent but remained in
possession of the property.

A letter was sent to him informing him of the rescission of
contract due to his breach and ordered him to vacate the
premises but Gonzales refused.
Paragraph1 says that the Gonzales will lease the property
for one year and after which he shall purchase it while
Paragraph9 requires the heirs to obtain a separate and
distinct TCT over the property. The heirs say that after
lapse of one year, rescission of contract can be effected
while Gonzales says that the separate and distinct TCT in
their names must first be obtained as it is a condition
precedent to purchase or transfer of property.

Issues:
1. Is there a conflict between the statement in
paragraph 1 of the Lease/Purchase Contract and
that in paragraph 9 thereof?
2. Is paragraph 9 of the Lease/Purchase Contract a
condition precedent before petitioner could
exercise his option to buy the property?
3. Can respondents rescind or terminate the
Contract of Lease after the one year period?

Held/Ratio:
1. NO. The first paragraph was effectively modified
by the ninth. Gonzales can only be compelled to
perform his obligation under paragraph1 only
after the heirs have complied with the ninth
paragraph. Unless, heirs do so, the first
paragraph is not enforceable against Gonzales.
The ninth paragraph was intended to ensure that
heirs would have a valid title over the specific
portion they were selling to Gonzales. Gonzales
obligation to purchase has not yet ripened and
cant be enforced until and unless the heirs can
prove their title to the property subject of the
contract.

2. YES. It is a condition precedent because it was
required Gonzales obligation to purchase the
land is a conditional one dependent upon the
happening of paragraph 9. The suspensive
condition is the obtaining of the heirs of a
separate TCT.
3. NO. The heirs cannot rescing as they have not
complied with paragraph 9, which is a condition
precedent to Gonzales obligation. Thus there
can be no rescission of an obligation that is still
non-existent because the suspensive condition
has not yet happened.

B. Conditional Obligations (Suspensive)
CORONEL VS. CA
Romulo Coronel, et al., petitioners, vs. Court Of Appeals, Concepcion Alcaraz and Ramona Patricia Alcaraz, respondents
Ponente: Melo, J.

Legal Doctrine: In a conditional contract of sale, the sale
becomes absolute upon the fulfillment of the suspensive
condition.

Facts:
On January 19, 1985, the Coronels (petitioners) executed
a Receipt of Downpayment in favor of Ramona Alcaraz
as purchase price of their inherited house and lot in
Quezon City. In said document, the Coronels bind
themselves to transfer the title under their deceased
fathers name to theirs upon receipt of said downpayment.
Upon transfer in their names of said property, they shall
execute the deed of absolute sale in favor of Ramona,
who shall then pay the balance of 1.9 million pesos.
Ramonas mother, Concepcion paid the downpayment on
Ramonas behalf.
February 6, 1985, the property registered to the late
Coronel patriarch was transferred to the petittioners.
February 18, 1985, the Coronels sold the property to
Catalina Mabanag for 1.58 million pesos.
They canceled the contract with Ramona and deposited
her downpayment in the bank in trust in her name.

February 22, 1985, Concepcion filed a complaint for
specific performance and had the notice of lis pendens
annotated at the back of the TCT.
April 2, 1985, Mabanag caused the annotation of a notice
of adverse claim on the same property with the registry of
Deeds.
April 25, 1985, the Coronels executed a Deed of Absolute
Sale in favor of Mabanag and a new title was issued in
her name on June 5.
The RTC of Quezon City ordered the execution of specific
performance in favor of Alcaraz. A motion for
reconsideration filed by the Coronels was dismissed by
the same court. The CA later affirmed the RTC decision.
The respondents claim that the contract was a perfected
contract of sale which they seek to be enforced while the
petitioners content that it was a mere executory contract
to sell subject to certain suspensive conditions.

Issue(s):
1. Whether or not the Receipt of Downpayment
was a contract of sale.
2. [What was the suspensive condition in the
contract?]

Held/Ratio:
Yes, the contract was a contract of sale (conditional).
CC 1458 defined a contract of sale as [a contract
wherein] one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate
thing, and the other (party) to pay therefor a price certain
in money or its equivalent. It has 3 elements: consent of
the parties to transfer ownership in exchange for price, a
determinate thing, and the price certain. Sale is perfected
by mere consent. In a contract to sell, on the other hand,
the prospective seller has yet to consent to transfer
ownership of the thing (thus, he still retains ownership)
until the fulfillment of a suspensive condition, i.e. full
payment of the purchase price.
In the case at hand and as stated in the receipt of
downpayment the Coronels received P50,000 as
purchase price of the house and lot without any
reservation of title until full payment of the entire
P1,240,000 purchase price, which can be understood that
they had in fact already sold their property. However, they
could not fully effect the transfer of ownership since the
transfer certificate of title was still in the name of their
deceased father even though Concepcion was willing and
able to pay the full purchase price. [suspensive condition:]
It was then up to the Coronels to cause to have a new title
in their names. Upon obtaining the new title, they shall
execute a deed of absolute sale in favor of Ramona and
Concepcion shall, in turn, pay the entire balance of the
purchase price. This suspensive condition was fulfilled on
February 6 when the title named after the Coronel
children. Therefore, it became obligatory for the Coronels
to deliver the property through the execution of the deed
of absolute sale in favor of the private respondents who
were also obliged to pay the rest of the purchase price.

Other issues:
Petitioners SC
That on January 19, 1985, they were not yet absolute
owners of the inherited property (since title was still in the
name of their father) and as such were not allowed to sell it.
The children are compulsory heirs who are called to
succession by operation of law. Any rights or obligations
pertaining to the property became binding and enforceable
upon the children at the point their father drew his last
breath. Moreover, they are estopped from raising their
supposed lack of capacity having represented themselves as
the true owners of the property at the time of the sale.
That Ramonas absence (she went to the US) rendered
impossible the consummation of the sale and so they were
unilaterally rescinding the contract.
There was no evidence to support these allegations besides,
there was not express stipulation authorizing them to
extrajudicially rescind the contract of sale. Again, they are
estopped from raising the issue since they never questioned
the authority of Concepcion to represent her daughter,
Ramona.

Whether or not Catalina Mabanag was a buyer in good faith
thereby giving rise to a case of double sale.
NO, she was not a buyer in good faith. She had already
known of the adverse claim (annotated on 22 February) on
the property but still proceeded to register the deed of
absolute sale on April 25.

B. Conditional Obligations (Resolutory)
PARKS VS. PROVINCE OF TARLAC
George L. Parks, plaintiff and appellant, vs. Province of Tarlac, Municipality of Tarlac, Concepcion Cirer and James Hill, her
husband, defendants and appellees
Ponente: Avancea, C.J.

Legal Doctrine: In a condition precedent, the acquisition
of the right is not effected while the condition is not
complied with or is not deemed complied with.

Facts:
On October 18, 1910, Concepcion Cirer and James Hill
donated a parcel of land to the Municipality of Tarlac
under the condition that on said land, there shall be
erected an elementary school and a park. The work on
these projects shall commence within six months from the
ratification of both partied to the donation. The donation
was registered in the name of the Municipality of Tarlac.
However, on January 15, 1921, Cirer and Hill sold this
same parcel of land to plaintiff, George L. Parks.
On August 24, 1923, the Municipality of Tarlac transferred
the parcel to the Province of Tarlac which was registered
and the corresponding certificate title issued.
Parks now prays that he be declared the absolute owner
of the land claiming that the conditions of the donation
were not complied with.
The lower court dismissed his complaint.

Issue: Whether or not Parks has a right of action.

Held/Ratio:
NO, having been donated to and accepted by the
Municipality of Tarlac, Cirer and Hill were no longer
owners of the land and could not have sold it to Parks.
Parks contends that the condition was not complied with
and therefore the donation never became effective is
unavailing. In a condition precedent, the acquisition of the
right is not effected while the condition is not complied
with or is not deemed complied with. Meaning, Tarlac
must have first complied with the condition before
acquiring ownership. On the other hand, when a condition
is imposed, compliance cannot take place unless the right
is deemed acquired- such condition cannot be a condition
precedent. The compliance with this type of condition
would be fulfilled once the right over the land has already
been acquired. Tarlac could not begin work on said land if
the donation had not really been effected because it
would have been an invasion of anothers title since it
would have still been the property of the donors.
Even though noncompliance of the condition of the
donation is sufficient ground for revocation, the period for
bringing an action for the revocation of the donation had
already prescribed (Sec. 43, Code of Civ. Proc.: 10 years
prescriptive period). The action for revocation of donation
arose on 19 April 1911 six months after the ratification of
the instrument of donation on 18 October 1910. This
action was filed on 5 July 1924, more than 10 years after
the cause accrued.
SC affirmed the lower courts dismissal of the complaint.


CENTRAL PHILIPPINE UNIVERSITY VS. CA
Central Philippine University, plaintiffs-appellees, vs. Court of Appeals and Remedio Franco et al., defendants-respondents

Legal Doctrine: Breach of resolutory conditions
terminates the rights of the done, rendering the donation
revocable.

Facts:
In 1939, Don Ramon Lopez, Sr., a member of the board
of trustees of the Central Philippine University executed a
deed of donation of a parcel of land in favour of Central
Philippine University under the following conditions: 1)
The land shall be utilized by the CPU exclusively for the
establishment and use of a medical college with all its
buildings; 2) The college shall not sell, transfer or convey
to any third party nor in any way encumber said land; 3)
The land shall be called "RAMON LOPEZ CAMPUS", and
the said college shall be under obligation to erect a
cornerstone bearing that name. Any net income from the
land or any of its parks shall be put in a fund to be known
as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building
thereon.
On 1989, the heirs of Lopez filed an action for annulment
of said donation, alleging that CPU did not comply with
the conditions set in the donation. They also brought up
that CPU negotiated with NHA to exchange the property
with another parcel of land. In its answer, CPU alleged
that the right to file said action has prescribed; that they
did not violate the conditions; and that they did not sell to
any 3
rd
party.
On 1991, Trial Court ruled that CPU failed to comply with
the conditions of the donation and declared it null and
void, further directing them to execute a deed of
reconveyance of the property.
Petitioner appealed to the CA which on 1993 ruled that
the annotations at the back of petitioner's certificate of
title were resolutory conditions breach of which should
terminate the rights of the donee thus making the
donation revocable. CA also found that there was no fixed
period with which to fulfill the condition, therefore, CPU
cannot be considered as having failed to comply with the
conditions.
CPU now alleges that CA erred in holding that 1) the
quoted annotations in the certificate of title of petitioner
are onerous obligations and resolutory conditions of the
donation which must be fulfilled non-compliance of which
would render the donation revocable; 2) the issue of
prescription does not deserve disquisition; 3) in
remanding the case to the trial court for the fixing of the
period within which petitioner would establish a medical
college.

Issue: Whether or not the said donation can be revoked
by reason of non-compliance with the conditions.

Held: Yes, it can be revoked.

Ratio:
A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no
alternative but to conclude that his donation was onerous,
one executed for a valuable consideration which is
considered the equivalent of the donation itself, as when
a donation imposes a burden equivalent to the value of
the donation.
Under Art. 1181 of the Civil Code, on conditional
obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall
depend upon the happening of the event which
constitutes the condition. Thus, when a person donates
land to another on the condition that the latter would build
upon the land a school, the condition imposed was not a
condition precedent or a suspensive condition but a
resolutory one.

It is not correct to say that the
schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become
the owner of the land, otherwise, it would be invading the
property rights of the donor. The donation had to be valid
before the fulfillment of the condition.
5
If there was no
fulfillment or compliance with the condition, such as what

obtains in the instant case, the donation may now be
revoked and all rights which the donee may have
acquired under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant
action of private respondents is unavailing. The building
of a medical school upon the land depended upon the
exclusive will of the donee as to when this condition shall
be fulfilled. When petitioner accepted the donation, it
bound itself to comply with the condition thereof. Since
the time within which the condition should be fulfilled
depended upon the exclusive will of the petitioner, it has
been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of
donation were sufficient to prevent the statute of
limitations from barring the action of private respondents
upon the original contract which was the deed of
donation.
Moreover, the time from which the cause of action
accrued for the revocation of the donation and recovery of
the property donated cannot be specifically determined in
the case. A cause of action arises when that which should
have been done is not done, or that which should not
have been done is done.

In cases where there is no
special provision for such computation, recourse must be
had to the rule that the period must be counted from the
day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action
which determines the starting point for the computation of
the period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the
donor.
The general rule of having the courts fix the duration (Art
1197 CC) cannot apply in this case because of other
factors. There is no more need to fix the duration since
CPU has already been given more than 50 years to
comply with the said condition. Additionally, 1197CC
provides that when one of the obligors cannot comply with
what is incumbent upon him, the obligee may seek
rescission and the court shall decree the same unless
there is just cause authorizing the fixing of a period. In the
absence of any just cause for the court to determine the
period of the compliance, there is no more obstacle for
the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is
basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved
in favor of the least transmission of rights and interests.
Petitioner has slept on its obligation for an unreasonable
length of time. Hence, it is only just and equitable now to
declare the subject donation already ineffective and, for
all purposes, revoked so that petitioner as donee should
now return the donated property to the heirs of the donor,
private respondents herein, by means of reconveyance.

QUIJADA VS. CA
Alfonso Quijada, et al., plaintiffs-appellees, vs. Court of Appeals and Regalado Mondejar, et al., defendants-respondents
Ponente: Martinez, J.

Legal Doctrine: A perfected contract of sale cannot be
challenged on the ground of non-ownership on the part of
the seller at the time of its perfection.

Facts:
Trinidad Quijada, mother of plaintiffs, was the heir of
Pedro Corvera, from which she inherited a 2-hectare
parcel of land. On 1956, Trinidad and her siblings
executed a conditional deed of donation in favor of the
municipality of Talacogon, the condition being that the
land will be used solely as part of the proposed provincial
high school in said municipality. Trinidad, however
remained in possession of the land and on 1962, sold 1
hectare of it to Regalado Mondejar. She then sold the
other hectare to Mondejar without a deed of sale. In 1987,
the school failed to materialize and the Sangguniang
Bayan of the municipality of Talacogon enacted a
resolution reverting the 2 hectares of land donated back
to the donors. In 1988, plaintiffs filed this action against
defendant claiming that their mother never sold the land
to Mondejar. The court ruled in favour of the plaintiffs
because 'Trinidad Quijada had no legal title or right to sell
the land to defendant Mondejar in 1962, 1966, 1967 and
1968, the same not being hers to dispose of because
ownership belongs to the Municipality of Talacogon' and,
secondly, that the deed of sale executed by Trinidad

Quijada in favor of Mondejar did not carry with it the
conformity and acquiescence of her children, more so that
she was already 63 years old at the time, and a widow.
On appeal, the Court of Appeals reversed and set aside
the judgment a quo ruling that the sale made by Trinidad
Quijada to Mondejar was valid as the former retained an
inchoate interest on the lots by virtue of the automatic
reversion clause in the deed of donation. Thereafter,
petitioners filed a motion for reconsideration. When the
CA denied their motion, petitioners instituted a petition for
review to this Court arguing principally that the sale of the
subject property made by Trinidad Quijada to respondent
Mondejar is void, considering that at that time, ownership
was already transferred to the Municipality of Talacogon.
On the contrary, private respondents contend that the
sale was valid, that they are buyers in good faith, and that
petitioners' case is barred by laches.

Issue: Whether or not the sale of the land was valid.

Held: The Sale was VALID.

Ratio:
When the Municipality's acceptance of the donation was
made known to the donor, the former became the new
owner of the donated property, notwithstanding the
condition imposed by the donee. The donation is
perfected once the acceptance by the donee is made
known to the donor. Accordingly, ownership is
immediately transferred to the latter and that ownership
will only revert to the donor if the resolutory condition is
not fulfilled.
In this case, the condition is not a condition precedent or
a suspensive condition but a resolutory one. Thus, at the
time of the sales made in 1962 towards 1968, the
Trinidad could not have sold the lots since she had earlier
transferred ownership thereof by virtue of the deed of
donation. So long as the resolutory condition subsists
and is capable of fulfillment, the donation remains
effective and the donee continues to be the owner subject
only to the rights of the donor or his successors-in-interest
under the deed of donation. Since no period was
imposed by the donor on when the donee must comply
with the condition, the latter remains the owner so long as
he has tried to comply with the condition within a
reasonable period. Such period, however, became
irrelevant herein when the Municipality manifested
through a resolution that it cannot comply with the
condition of building a school and the same was made
known to the donor. Only when the non-fulfillment of the
resolutory condition was brought to the donor's
knowledge did ownership of the donated property revert
to the donor as provided in the automatic reversion clause
of the deed of donation.
As to laches, petitioners' action is not yet barred. Laches
presupposes failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier.
(and just when you thought they were winning) However,
sale, being a consensual contract, is perfected by mere
consent, which is manifested the moment there is a
meeting of the minds as to the offer and acceptance
thereof on three (3) elements: subject matter, price and
terms of payment of the price. Ownership by the seller on
the thing sold at the time of the perfection of the contract
of sale is not an element for its perfection. What the law
requires is that the seller has the right to transfer
ownership at the time the thing sold is delivered.
Perfection per se does not transfer ownership which
occurs upon the actual or constructive delivery of the
thing sold. A perfected contract of sale cannot be
challenged on the ground of non-ownership on the part of
the seller at the time of its perfection; hence, the sale is
still valid.
The consummation, of the contract occurs upon the
constructive or actual delivery of the subject matter to the
buyer when the seller or her successors-in-interest
subsequently acquires ownership thereof. Such
circumstance happened in this case when petitioners --
who are Trinidad Quijada's heirs and successors-in-
interest -- became the owners of the subject property
upon the reversion of the ownership of the land to them.
Consequently, ownership is transferred to respondent
Mondejar and those who claim their right from him.
Article 1434 of the New Civil Code supports the ruling that
the seller's "title passes by operation of law to the buyer."


B. Conditional Obligations (Potestative)
LIM VS. CA
Francisco Lao Lim, petitioner, vs.Court of Appeals and Benito Villavicencio Dy, respondents

Legal Doctrine: A condition that solely depends upon the
will of one part is void.

Facts:
Lim is the lessor. Dy is the lessee. They entered into a
contract of lease for a period of three (3) years. It expired
in 1979. However, Dy refused to vacate the said
premises. Lim instituted an ejectment suit. However this
was terminated due to a judicially approved compromise
agreement. The compromise agreement contained a
provision that it shall be renewed every three years
retroacting from October 1978 to 1982 and that there is
an automatic 20% increase in rental payments. There is
also a clause that says that as long as the defendant
needed the premises and can meet and pay the said
increases, the defendant to give notice of his intent to
renew sixty (60) days before the expiration of the term.
This compromise agreement led to the extension of the
original lease term by 6 years or two renewals. However
on April 17, 1985, Lim advised Dy that he would no longer
renew the contract effective October, 1985. In response
to this, on August 5, 1985, Dy informed Lim in writing of
his intention to renew the contract for another term. Lim
did not agree to this. Then for the second time, Lim
instituted an ejectment suit due to Dys refusal to vacate
the said premises.
The RTC dismissed this complaint and held that (1) it
depended on the lessees need and ability to pay and that
(2) the compromise agreement constituted res judicata.
The CA affirmed the RTC and added that the compromise
agreement is valid since it based on a resolutory
condition.

Issues:
(1) WON it was a continuing lease.
(2) WON the compromise agreement is valid or not.
(3) WON the compromise agreement constituted res
judicata.
(4) WON the refusal of the lessee to vacate the premises
is justified.

Held:
(1) No, it is one with a period.
(2) Yes, it is valid. It is susceptible of two interpretations
and the court will adopt the interpretation that would make
it valid.
(3) No, the compromise agreement did not amount to res
judicata.
(4) No, it is not justified.

Ratio:
(1) The condition is not resolutory contrary to what CA
said. It is a potestative condition since it leaves the
effectivity and enjoyment of leasehold rights to the sole
and exclusive will of the lessee. It should not be
overlooked that it is not resolutory due to the fact that it is
not a condition that terminates the lease contract. The
lease is for a definite period which is three years, then it
automatically terminates. At the same time it is a
suspensive condition. The renewal of the lease which
gives rise to a new lease depends upon the said
condition. As was held in Encarnacion v. Baldomar, this is
not mutual in nature and there is no equality. The
interpretation of the CA is wrong; the phrase renewaed
every three years should be interpreted to require mutual
agreement. It is not a continuing lease. There would be
no renewal if said lease did not expire, otherwise there
was nothing to renew.

(2) The court does not favor the covenant for continuous
renewals tending to create a perpetuity unless clearly and

unambiguously the intention and purpose of the parties.
The cases of Koh v. Ongsiaco and Cruz v. Alberto are
therefore overruled by this court. This is due to the era of
rapid economic change. The very specific language is
necessary to show intent to grant a unilateral faculty to
extend or renew a contract of lease to the lessee or lessor
alone. Also, the provision for as long as the defendant
needed the premises and can meet and pay said
increases was already satisfied in 1982 for another three
(3) years. A general covenant to renew is satisfied by one
renewal and will not be a construed to confer the right to
more than one renewal unless the provision is clearly and
expressly made for further renewals. The case of Buccat
v. Dispo, et al is not in point since the lease for that case
is for an indefinite period. In this case, there is a period.

(3) It is true that a compromise agreement has the effect
of res judicata. However, it does not apply to the present
case. It is elementary that for a judgment to be a bar to a
subsequent case, (1) it must be a final judgment, (2) the
court which rendered it had jurisdiction over the subject
matter and the parties, (3) it must be a judgment on the
merits and (4) there must be identity between the two
cases as to the parties, subject matter and cause of
action. In the case at bar, the fourth requisite is lacking.
Although there is identity of parties, there is no identity of
subject matter and cause of action. The subject matter in
the first ejectment case is the original lease contract while
the subject matter in the case at bar is the lease created
under the terms provided in the subsequent compromise
agreement. There is also no identity of causes of action.
The test generally applied to determine the identity of
causes of action is to consider the identity of facts
essential to their maintenance, or whether the same
evidence would sustain both causes of action. In the case
at bar, the delict or wrong in the first case is different from
that in the second, and the evidence that will support and
establish the cause of action in the former wll not suffice
to support and establish the latter. While the compromise
agreement may be res judicata as far as the cause of
action and issues in the first ejectment case is concerned,
any cause of action that arises from the application or
violation of the compromise agreement cannot be said to
have been settled in the first case. The fact that the
compromise agreement has been judicially approved
does not foreclose any cause of action arising from a
violation of the terms.

(4) In view of the fact that it is in violation of Article 1308
of the CC, the court orders the lessee to vacate the said
premises.

B. Conditional Obligations (Casual)
NATELCO VS. CA
Naga Telephone Co., Inc., (NATELCO) and Luciano Maggay, petitioners, vs. Court of Appeals, Camarines Sur II Electric
Cooperative Inc. (CASURECO II), respondents
Ponente: Nocon, J.

Legal Doctrine: A casual condition, that which depend
on chance, hazard, or the will of third parties, does not
render a contract or an obligation void.

Facts:
1977 NATELCO and CASURECO entered into a contract.
CASURECO would allow NATELCOs use of its electric
posts within Naga City. NATELCO would install 10
telephone connections for CASURECOs use for free.
Relevant provision of the contract:
The term or period of this contract shall be as
long as the party of the first part (NATELCO) has
need for the electric light posts of the party of the
second part (CASURECO) it being understood
that this contract shall terminate when for any
reason whatsoever, the party of the second part
is forced to stop, abandon its operation as a
public service and it becomes necessary to
remove the electric light posts
1977 1989 Increased number of NATELCOs
consumers within and beyond Naga City translated to

heavier load of cables carried by CASURECOs electric
light posts.
02 Jan 1989 CASURECO: filed for reformation of their
contract with damages, citing the contract as being one-
sided in favor of NATELCO. They sought reformation,
compensation for the use of their electric posts, and
sought damages due to the poor service of NATELCO.
NATELCO: action for reformation should be dismissed
since it was not sufficiently stated, it was barred by
prescription and estoppel.
Trial court: granted reformation of contract according to
Art. 1267. NATELCO ordered to pay CASURECO for use
of electric posts. CASURECO ordered to pay for
telephone services received from NATELCO.
CA: affirmed TC ruling, but based on different grounds. It
applied 1267 to release CASURECO from its obligation to
avoid further unjust enrichment. In affirming the ruling,
they were not making a new contract for the parties but
instead avoiding inconvenience to the public since both
parties provide service. Any subsequent agreement by
them shall supersede the ruling. Declared the underlined
provisions as purely potestative, meaning the agreement
is entirely dependent on the will of NATELCO.

Issues/ Held/ Ratio:
1. Did CASURECO state a sufficient cause of
action? Yes, for reformation of contract.
2. Was the contract fair? Yes, at the time of its
execution.
3. When does period for prescription start in
reformation of contracts? According to Art. 1144,
10 years from the time the right of action
accrues, which may not be the date of the
execution of the contract.
4. Has CASURECO acquired a right to an action
for reformation of contract? No. Despite the fact
that the contract has become highly unfavorable,
an action for reformation of contract was
contemplated for cases of mistake, accident or
fraud. Neither of the three were proven nor
alleged.
5. What causes of action may CASURECO avail
of? 1. Release from obligation according to Art.
1267, since CASURECO was required to
perform an obligation beyond the contemplation
of the parties at the time the contract was
entered into, particularly since it believed, as
NATELCO expressed, that the latter did not see
expansion in the future due to internal problems.
6. Was the cited provision a potestative condition?
No. Only the underlined provision was a
potestaive condition, while the italicized, was a
casual condition. As it is therefore a mixed
condition, it does not invalidate the condition.

HERMOSA VS. LONGARA
Luz Hermosa & Fernando Hermosa Jr., petitioners, vs. Epifanio Longara, respondent

Facts:
1932-1944 3 claims were presented by Epifanio
Longara against the intestate estate of credit advances
amounting to Php2, 341.41 to the intestate.
1945-1947- Php12, 924.12 made to Hermosa Sr.s son;
Php3, 772 made to his grandson. These advances were
made after the death of the intestate.
The credit advances were asked by the intestate for
himself and for the members of his family.
The credit advances were to be payable as soon as
Fernando Hermosa Sr.s property in Spain was sold and
he received money derived from the sale.

CAs Ruling: The payment of the advances didnt
become due until the administratrix received the money
(P20,000.00) from the buyer of the property.
Nov 1947- the property was sold
Oct 1948- the claim was filed

It is contended on this appeal that the obligation
contracted by the intestate was subject to a condition
exclusively dependent upon the will of the debtor or (a
condition potestativa) and therefore null & void.

Issue: Whether or not the obligation contracted by
Hermosa Sr was subject to condition potestativa.

Held/Ratio:
No. The Condition upon without the payment of the sums
advanced was made to depend as soon as he (the
intestate) receive funds derived from the sale of his
property in Spain discloses the fact that the condition in
question does not depend exclusively upon the will of the
debtor but also upon other circumstances beyond his
control.
From the language of the condition, it implies that the
intestate had already decided to sell the property; the will
to sell on the part of the intestate was in fact present,
although the price and other conditions were still within
his discretion and final approval. In addition to this
acceptability of the price and other conditions of the sale
to him, there were still other conditions that had to concur
to effect the sale i.e. presence of a buyer, ready, willing
and able to purchase the property under the conditions
demanded by the intestate.
It is evident therefore that the condition of the obligation
was not a purely potestative, but a mixed condition,
depending partly upon the will of the intestate and partly
upon chance.
Moreover, the condition partakes the nature of a
suspensive condition, upon the happening of which the
obligation to pay is made dependent; and upon the
happening of the condition the debt became immediately
due and demandable.
In the case at bar, the obligation to pay became due and
demandable only when the house was sold and the
proceeds received in the islands. Therefore, the action to
recover has not yet prescribed.

TAYLOR VS. UY TIENG PIAO
M.D. Taylor, plaintiff-appellant, vs. Uy Tieng Piao and Tan Liuan, doing business under the firm name and style of Tan Liuan
& Co., defendants
Ponente: Street, J.

Facts:
Taylor contracted his services to Tan Liuan & Co as
superintendent of an oil factory which the latter
contemplated establishing. The contract extended over 2
years and the salary was P600/month during the first year
and P700/month during the second with electric, light and
water for domestic consumption or in lieu thereof,
P60/month. At this time, the machinery for contemplated
factory had not been acquired, though ten expellers had
been ordered from the US.
It was understood that should the machinery to be
installed fail, for any reason, to arrive in Manila within the
period of 6 months, the contract may be cancelled by the
party of the second part at its option, such cancellation
not to occur before the expiration of such 6 months.
The machinery did not arrive in Manila within the 6
months; the reason does not appear, but a
preponderance of evidence show that the defendants
seeing that oil business no longer promised large returns,
either cancelled the order for machinery from choice or
were unable to supply the capital necessary to finance the
project.
Defendants communicated to Taylor that they had
decided to rescind the contract.
Taylor instituted this action to recover damages in the
amount of P13k, covering salary and perks due and to
become due

Issue: WON in a contract for the prestation of service, it
is lawful for the parties to insert a provision giving the

employer the power to cancel the contract in contingency
which may be dominated by himself.

Held/Ratio:
YES. One of the consequences of the stipulation was
that the employers were left in a position where they
could dominate the contingency, and the result was about
the same as if they had been given an unqualified option
to dispense with the services of Taylor at the end of 6
months. But this circumstance does not make the
stipulation illegal.
A condition at once facultative and resolutory may be
valid even though the condition is made to depend upon
the will of the obligor.
If it were apparent, or could be demonstrated that the
defendants were under positive obligation to cause the
machinery to arrive in Manila, they would of course be
liable, in the absence of affirmative proof showing that the
non-arrival of the machinery was due to some cause not
having its origin in their own act or will.
The contract, however, expresses no such positive
obligation, and its existence cannot be implied in the face
of the stipulation, defining the conditions under which the
defendants can cancel the contract.
CFI no error in rejecting Taylors claim in so far as
damages are sought for the period subsequent to the
expiration of 6 months, but in assessing the damages due
for the six-month period, the trial judge overlooked the
item of P60 (commutation of house rent) This amount
Taylor is entitled to recover in addition to P300 awarded
by CFI.

SMITH BELL VS. SOTELO MATTI
Smith, Bell & Co., Ltd., plaintiff-appellant, vs. Vicente Sotelo Matti, defendant-appellant
Ponente: Romualdez, J.

Facts:
Aug 1918, plaintiff corporation and defendant, Mr. Sotelo
entered into contracts whereby Smith, Bell & Co.
obligated itself to sell, and Sotelo to purchase the
following:
x 2 steel tanks for Php. 21,000, to be shipped from
New York and delivered at Manila within 4
months
x 2 expellers at Php. 25,000 each, to be shipped
from San Francisco in the month of September,
1918 or asap; and
x 2 electric motors Php. 2,000 each. Stipulaiton as
to delivery is as follows--Approximate delivery
within 90 days. This is not guaranteed.
The tanks arrived at Manila on 27 Apr 1919, the expellers
on 26 Oct 1918, and the motors on 27 Feb 1919. The
corporation notified Sotelo of the arrival of these goods
but Sotelo refused to receive them and to pay the prices
stipulated.
Plaintiff corporation brought suit. Sotelo and intervenor,
Manila Oil Refining and By-Products Co., Inc., denied
plaintiff's allegations and averred that Sotelo made the
contracts in question as manager of the intervenor,
Manila Oil Refining and By-Products Co., Inc., and that it
was only in 19 May 1919 that plaintiff notified intervenor
that said tanks arrived, the motors and expellers having
arrived incomplete and long after the date stipulated.
Also, as consequence of the delay in the delivery of
goods, the intervenor suffered damages.
The lower court absolved the defendants insofar as the
tanks and electric motors were concerned, but ordered
them to receive the expellers and pay the plaintiffs Php.
50,000, the price of said goods.
Both parties appealed.

Issue: WON the plaintiff has fulfilled its obligation in due
time


Held/Ratio:
Yes. To solve the issue, the period fixed for the delivery
needs to be determined.
In all the 3 contracts, there is a final clause which states
that sellers are not responsible for delays caused by
Force Majeure entirely beyond the control of the sellers or
their representatives. There were also stipulations which
suggest that there was no definite date for the delivery of
the goods: re tanks--within 3 or 4 months, but subject to
contingencies; re expellers--within the month of
September 1918 or as soon as possible; and re motors--
approximate delivery within 90 days. This is not
guaranteed. It should also be noted that the contracts
were executed at the time of the world war when there
existed rigid restrictions on the export from the US of
articles such as the machineries in question.
The term the parties attempted to fix is so uncertain that
one cannot tell whether the articles could be brought to
Manila. Hence, the obligation must be regarded as
conditional. The delivery was subject to a condition the
fulfillment of which depended not only upon the effort of
the plaintiff but also upon the will of third persons who
could ion no way be compelled to fulfill the condition. In
such case, the obligor will be deemed to have sufficiently
performed his part of the obligation if he has done all that
was in his power, even if the condition has not been
fulfilled in reality. Having done all that was in his power,
he is entitled to enforce performance of obligation.
Plaintiff did all in its power to have the machinery arrive at
Manila asap, and immediately upon its arrival, it notified
the purchaser and offered to deliver it to him. Therefore,
the said machinery was brought to Manila by the plaintiff
within a reasonable time.

Dispositive:
Sotelo sentenced to accept and receive from the plaintiff
the tanks, the expellers, and the motors in question, and
to pay the sum of Php. 96,000.

RUSTAN PULP AND PAPER MILLS VS. IAC
RUSTAN PULP & PAPER MILSS, INC., BIENVENIDO TANTOCO, SR., and ROMEO VERGARA, petitioners, vs. THE
INTERMEDIATE APPELLATE COURT AND ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH, and ROBERTO
G. BORROMEO, respondents
Ponente: Melo, J.

Facts:
Petitioner had established a pulp and paper mill, and
respondent Lluch, a holder of a forest products license,
sent a letter to negotiate with petitioner wherein in
essence, the latter would supply raw materials to the
former. Such negotiations concluded in a contract of sale,
subject to the ff. Stipulations:
x That Rustan has the option to buy from other
sllers wo are equally qualified and holders of
appropriate licenses
x That Rustan will not buy from sellers whose
goods emanated from Lluchs concession
x That Lluch has priority in supplying materials to
Rustan
x That Rustan has the right to stop delivery of raw
materials when it has determined that its supply
is sufficient, and will have the prerogative to
have deliveries continue when raw materials
become necessary, provided that the seller is
given sufficient notice.
On Sept. 30, 1968, Vergara [Manager of Rustan] sent a
letter to Lluch informing him that their supply had become
sufficient and that they will not be needing further
delivery. Lluch sought to clarify the contents of said letter,
inquiring as to whether the said requested stoppage was
temporary or permanent, an inquiry which remained
unanswered by Rustan. Thus, Lluch resumed deliveries,
which continued to be accepted by Rustan until
December 23, 1968. The petitioners also continued to
accept deliveries of supplies from other sellers.
Because of those events, however, Lluch filed a
complaint for contractual breach against Rustan, which

was dismissed. On appeal, however, they have raised the
issues to the SC, hence, this case.

Issues:
1. W/N the contractual stipulations [the Stipulation
as to Rustans right to stop delivery of raw
materials] are valid.
2. W/N the Tantoco [President of the Company]
and Vergara [Manager] should be held liable for
damages.

Held/Ratio:
1. Lluch is correctly apprehensive as to the
conditions for delivery, considering that the
stipulated prerogative suggests a condition
solely dependent upon the will of Rustan. Rustan
can stop delivery of raw materials from Lluch if
the supply at the plant is sufficent, a fact which
only petitioners can ascertain. The resumption of
delivery is dependent as well on the will of
Rustan, given that it will happen only if according
to the petitioners, supply is once more
necessary.
Furthermore, given that the company still
continued to accept supplies from Lluch and
other sellers, it is doubtful that Rustan truly had
sufficient supplies. Rustans contentions that
such actions were just an act of generous
accomodation are almost unbelievable; aside
from being contrary to normal business practices
[no company is that accomodating], why would
any business continue to accept raw materials
which they do not need and which would result
in losses just to be accomodating?
Therefore, because of the purely potestative
imposition, the stipulation must be taken out
without affecting the rest of the stipulations
ocnisdering that the condition relates to the
fulfillment of an already existing obligation and
not to its inception. Of course, it is true that a
condition which is both potestative and
resolutory may be valid; however, that applies
only at the birth, not the fulfillment, of an existing
obligation.
2. With regard to the claim of damages and
attorneys fees against Tantoco and Vergara, the
Court said that the Petitioner and Manager of a
corporation who entered into and signed a
contract in his official capacity cannot be made
libale under his individual capacity in the
absence of stipulations to that effect, because
the personality of the corporation is separate and
distinct from that of theirs.

ROMERO VS. CA
Virgilio R. Romero, petitioner, vs. Hon. Court of Appeals and Enriqueta Chua Vda. de Ongsiong, respondents
Ponente: Vitug, J.

Legal Doctrine: Mixed condition refers to condition that
depends partly on the will of the debtor, partly upon the
will of the third person and or upon chance. (In the
syllabus, the case was used to illustrate mixed condition
but I think the following doctrines are also worth noting.)
From the moment the contract is perfected the parties will
be obliged to fulfill everything they have stipulated in their
contract including all its natural consequences.
Rescission of a contract is available to the injured party
and not to the person that caused the failure of the
condition.

Facts:
Virgilio Romero (petitioner), together with his foreign
partners decided to put up a warehouse measuring a land

area of 2000 sq. m. Alfonso Flores, his wife Enriqueta
Vda. de Ongsiong (private respondent) accompanied by a
broker offer to sell their land to the petitioner. The
petitioner surveyed the land, except for the fact that there
are informal settlers he finds it suitable as a warehouse.
Flores then called the petitioner and said that he will sell
his property at the rate of Php800 per square meter but
asks for an advance payment of Php50, 000 for the
ejection of the informal settlers.
June 9, 1988: Petitioner accepted the offer of the
respondent; the parties proceeded to execute the contract
conditional sale on. The contract stipulated the following:
Respondent would sell the land (1,952 sq. m.) to the
petitioner for the price of 1,561,600.00.
50,000 shall be paid upon the execution of the contract
and that the remaining balance shall be paid within 45
days after the removal of all squatters in the property.
Upon the full payment the vendor without the necessity of
demand from the vendee shall immediately sign, execute
and deliver the absolute sale in favor of the vendee.
If after 60 days (Aug. 9, 1988) from the date of signing the
contract the vendor failed to remove the squatters, the
downpayment of 50,000 shall be returned by the vendor
to the vendee.
The respondent accepted the downpayment.
March 30, 1989: (past the 60 day prd) respondent filed
the case of ejection of the squatters and MTC granted the
order of the squatters ejection.
Apr. 7, 1989: respondent wanted to return the 50,000
downpayment for she could not get rid of the squatters.
Petitioner refused to accept the reimbursement of 50,000
and further added to take upon himself to enforce the
MTC order of ejection provided that the expenses that will
be incurred shall be chargeable to the balance.
Apr. 21, 1989: MTC granted the request of 45days grace
period of Presidential Comm. for the Urban Poor to
relocate squatters.
June 8, 1989: Petitioner reminded the respondent of the
expiration of the 45 days grace period and their
willingness to underwrite the expenses of ejection of the
squatters.
June 19, 1989: Respondent claims that the contract of
conditional sale was rendered null and void for the failure
to evict the squatters within the 60day prd and said they
wanted to retain the property.
June 23, 1989: Petitioner said that the respondent cant
rescind the contract of sale for the contract was perfected
when they agreed upon to sell their land for the said
amount and it has already been partially executed when
the respondent accepted the partial payment. The option
to rescind the contract was with the petitioner (upon the
failure to eject the squatters in 60days), despite that
option the petitioner chose to continue with the contract of
sale. Upon the petitioners refusal the respondent filed
rescission of the contract of conditional sale.
June 27, 1989: RTC-respondent that she has no right to
rescind the contract of conditional sale
June 26, 1990: CA reversed RTCs decision, said that
the failure of ejection of the squatters resulted in the
failure of the contracts object hence the petitioner filed for
this certiorari

Issues/ Held:
1. Can the vendor rescind the contract of sale
when the cause of failure to satisfy the condition
(ejection of squatters w/in 60days) was due to
her fault? NO!
2. Is the condition of ejecting the squatters a
potestative condition? NO! rather it is a
Mixed condition (the syllabus used the case to
illustrate a mixed condition)

Ratio:
1. Under Art 1475 the parties had already perfected
the contract of sale, the moment respondent
agreed to obligate himself to deliver and transfer
ownership to the petitioner upon their agreed
price. The perfection of the contract gave rise to
the obligation for the parties to fulfill. The
condition of the squatters ejection was not
imposed on the birth of the obligation rather only
on its fulfillment, hence would not affect the
obligation itself. It served only as an operative
act to determine the period of compliance of the
petitioners obligation to pay. In concurrence with
Art 1545, the remedy to rescind the contract is
granted to the respondent (option to reimburse
50,000 if the respondent failed to evict the
squatters in 60 days) and not the petitioner.

2. The condition(evicting squatters) was not
solely dependent on the will of the

respondent (potestative condition- which can
render the contract void Art 1182), rather the
condition is subject partly to the will of the
respondent, the squatters and the
government qualifying it as a mixed
condition.

B. Conditional Obligations (Impossible)
ROMAN CATHOLIC ARCHIBISHOP OF MANILA VS. CA
THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES
FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, vs. HON. COURT OF APPEALS, THE ESTATE OF
DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and
THERESA RIETA TOLENTINO, respondent

Legal Doctrine: A condition is considered impossible
when it unreasonably and unduly restrict the right of the
donee to dispose ones property, which is an innate right
of the ownership-the right conveyed by the donor to the
donee.
Donation that expressly provided its provision of
automatic revocation would be governed by the rules on
contract and general prescription instead of rules
governing effects & limitations on donation.

Facts:
In 1930, spouses Eusebio Castro and Martina Rieta
donated a parcel of land to the RCA of Manila. The deed
of donation stipulated that the donee cannot sell or
dispose the land for a period of 100 years, or else it would
render the donation ipso facto null and void and the
donation shall revert to the estate of the donor.
Apr. 26, 1962- Roman Catholic Bishop of Imus,
administrating the donated estate of RCA of Manila,
executed a deed of sale of the said land to Florencio and
Soledad Ignao.
Nov. 29, 1984- the private respondents filed complaint,
nullification of the donation and reconveyance of the title
of the said land from Ignaos citing that the sale was
made within the prohibited period (100 yrs) stipulated in
the contract of donation.
Separately, Ignao and RCA(petitioner) filed the dismissal
of the complaint, the trial court dismissed the complaint
for the action has already prescribed.
CA- reversed the TCs decision, holding that the action
has not yet prescribed and then remanded the case to the
lower court for further proceedings. As a consequence,
petitioners filed this certiorari.

Issues/ Held:
1. Does the private respondent need to file a
judicial declaration of rescinding the contract of
donation? It is not needed.
2. Did the action for rescission of the contract have
already prescribed? No
3. Is the prohibition to dispose the land for a period
of 100 years an impossible condition? Yes

Ratio:
1. The donation contains an explicit provision of
automatic revocation of donation upon meeting
the resolutory condition (disposing the land
before the expiration of 100yr prohibition prd)
hence the donation would be rendered revoke by
the virtue of the agreement without the need for
judicial intervention.

2. When a deed of donation expressly provides for
its automatic revocation and reconveyance of
property donated it be governed by the rules on
contract and general rules on prescription which
is 10 years for a written contract and not Art.
764, CC. Clearly, the action has not prescribed
yet.

3. (The court held that the case be dismissed,
although not by ground of prescription rather on
the grounds that the respondent has no cause of
action.) The respondent cause for action is
based on the resolutory condition (no disposal of
property within 100 years) but this condition is an
unreasonable restriction on the essential right of
the owner to dispose his land. The restriction
period on the disposal of land for 100 years is
clearly a denial of an integral right of the owner
hence it should be considered as an impossible
condition. As stated in Art. 727, CC an
impossible condition is considered not imposed;
consequently the respondent would have no
cause for action.

B. Conditional Obligations (Effect of Fulfillment of the Condition by the Obligor)
HERRERA VS. LEVISTE
Jose V. Herrera, petitioner, vs. L.P. Leviste & Co., Inc., Jose T. Marcelo, Government Service In-Insurance System,
Provincial Sheriff of Rizal, Register of Deeds of Rizal and the Hon. Court of Appeals, respondents
Ponente: Melencio-Herrera, J.

Legal Doctrine: Petitioners loss arose from his failure to
fully comply with his obligations under the Contract of
Sale.

Facts:
June 10, 1969 - Leviste had obtained a loan from the
GSIS. As security therefore, Leviste mortgaged 2 lots,
one located at Paraaque, and the other located at
Buendia.
November 3, 1971- Leviste sold to Petitioner, Jose V.
Herrera, the Buendia Property for the amount of
P3,750,000.00. The conditions were that petitioner would:
(1) pay Leviste P11,895,688.50; (2) assume Leviste's
indebtedness of P1854,311.50 to the GSIS; and (3)
substitute the Paranaque property with his own within a
period of six (6) months.
Leviste undertook that it would arrange for the conformity
of the GSIS to Herrera's assumption of its mortgage
obligation. Further stipulated in the Contract to Sell was
that "failure to comply with any of the conditions
contained therein, particularly the payment of the
scheduled amortizations on the dates herein specified
shall render this contract automatically cancelled and any
and all payments made shall be forfeited in favor of the
vendor and deemed as rental and/or liquidated
damages."
Herrera took possession of the Buendia property,
received rentals of P21, 000.00 monthly, and collected
approximately P800,000.00 from December, 1971, up to
March, 1975. However, he remitted a total of only P300,
000.00 to the GSIS.
April 15, 1973 Petitioner Herrera requested GSIS for
restructuring of mortgage obligation. GSIS replied that as
a matter of policy, it could not act on his request unless
he first performed the substitution of his property, updated
the account, and paid 20% to GSIS. There was NO
requirement by GSIS for the execution of a final deed of
sale by Leviste in favor of petitioner.
June 2, 1974 GSIS sent notice to Leviste because it
intended to foreclose the mortgaged properties by reason
of default of payment of amortizations.
February 15, 1975 - the foreclosed properties were sold
at public auction and a Certificate of Sale in favor of the
GSIS, as the highest bidder, was issued.
March 3, 1975- Leviste assigned its right to redeem both
foreclosed properties to respondent Jose Marcelo, Jr.
Later, Marcelo redeemed the properties from the GSIS by
paying it the sum of P3, 232, 766.94 for which he was
issued a certificate of redemption. The Paranaque
property was turned over by Marcelo to Leviste upon
payment by the latter of approximately P250, 000.00 as
disclosed at the hearing. Leviste needed the Paraque
Property as it had sold the same and suit had been filed
against it for its recovery.

May 6, 1975 - Herrera wrote the GSIS informing the latter
of his right to redeem the foreclosed properties and
asking that he be allowed to do so in installments.
However, the GSIS had not favorably acted thereon.

Issue: Whether Levistes assignment of right of
redemption to Marcelo would result in the unjust
enrichment of the former (as not only will Herrera forfeit
the Buendia property, but also the sums of money he
already paid to Leviste and GSIS).

Held/Ratio:
No. The GSIS has not benefited in any way at the
expense of petitioner. What it received, by way of
redemption from respondent Marcelo, was the mortgage
loan it had extended plus interest and sundry charges.
Neither has Marcelo benefited at the expense of
petitioner. He had paid to GSIS the amount
P3,232,766.94, which is not far below the sum of P
3,750,000.00, which was the consideration petitioner
would have paid to Leviste had his contract been
consummated.
Leviste had neither profited at the expense of petitioner,
For Losing his Buendia Property, all he had received was
P 1,854,311.50 from GSIS less amounts he had paid,
plus P 1,895,688.00 paid to him by Herrera, the total of
which is substantially a reasonable value of the Buendia
Property.
It is quite true that petitioner had lost the P 1,895,688.00
he had paid to Leviste, plus P 300,000.00 he had paid to
GSIS, less the rentals he had received when in
possession of the Buendia Property.
That loss is attributable to his fault in:
(a) Not having been able to submit collateral to
GSIS in substitution of the Paranaque Property;
(b) Not paying off the mortgage debt when GSIS
decided to foreclose; and
(c) Not making an earnest effort to redeem the
property as a possible redemptioner.
It cannot be validly said that petitioner had fully complied
with all the conditions of his contract with Leviste. For one
thing, he was not able to substitute the Paraaque
Property with another collateral for the GSIS loan.
Moreover, as stated by the Court of Appeals, "nowhere in
the letter (of the GSIS) was mentioned that a final deed of
sale must first be executed and presented before the
assumption may be considered. For if it was really the
intention of GSIS, the requirement of Deed of Sale should
have been stated in its letter."

TEEHANKEE, Dissenting:
Leviste patently had no justification to refuse to execute
the final deed of sale to Herrera, after receiving full
payment of the stipulated amount, and thereby prevent
fulfillment of the remaining condition for Herrera's
assumption of its mortgage obligation with GSIS, which it
had expressly undertaken to secure from GSIS. There
was constructive fulfillment on Herrera's part of his
obligations under the Contract and under Article 1186 of
the Civil Code, "The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment."
While it is true that under paragraph No. 11 of the
Contract to Sell, failure to comply with any of the
conditions therein enumerated would render the contract
automatically cancelled and all the sums paid by
petitioner forfeited, Herrera was prevented from fulfilling
the condition of assuming the GSIS mortgage because of
Leviste's own non-compliance with its obligation of
securing the consent of GSIS thereto. The contract
expressly obligated Leviste to work out with the GSIS
Herrera's assumption of the mortgage. But obviously
because of selfish and self-serving motives and designs,
as borne out by the events, Leviste made no effort to
assist and arrange for Herrera's assumption of its
mortgage obligation. In spite of the fact that Herrera had
already paid Leviste the full amount of P1, 895, 688.50,
Leviste refused to execute the final deed of sale in favor
of Herrera as required by GSIS.
The substitution of Leviste's Paranaque property with
Herrera's own property as additional security for Leviste's
indebtedness, as well as the assumption of Leviste's
mortgage obligation and restructuring of the loan, could
not be worked out and agreed upon by Herrera with
GSIS, which refused to deal with him without such final
deed of sale from Leviste. But Leviste refused to execute
such final deed of sale notwithstanding that he had been
paid by Herrera the full amount of P1,895,688.50 due to
him and what was left was Leviste's outstanding
mortgage indebtedness to GSIS. The GSIS also refused
(abetted by Leviste's absolute non-cooperation, contrary
to his contractual obligation) to have Herrera assume the
mortgage obligation. Instead, GSIS without notice to
Herrera foreclose the mortgage and completely shut off

Herrera-even from his right of redemption as Leviste's
vendee.
Leviste's unjustifiable act virtually prevented Herrera from
complying with his obligation to assume the GSIS
mortgage and Leviste cannot now in equity and justice
insist on rescission of the contract because of Herrera's
failure which Leviste itself had brought about. Leviste's
non-compliance with its own undertaking which prevented
Herrera from assuming the GSIS mortgage bars it from
invoking the rescission clause.

C. Reciprocal Obligations
SONG FO & COMPANY VS. HAWAIIAN PHILIPPINE CO.
Song Fo, petitioner, vs. Hawaiian Philippine Co., respondent

Legal Doctrine: The general rule is that rescission will
not be permitted for a slight or casual breach of contract,
but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in
making the agreement.

Facts:
Song Fo & Company presented before the CFI of Iloilo a
complaint with two causes of action for breach of contract
against the Hawaiian-Philippine Co. where the judgment
asked for P70, 369.50, with legal interest, and costs.
The defendant,Hawaiian-Philippine Co, set up the
defense that since the Song Fo & Co. had defaulted in the
payment for the molasses delivered to it by the defendant
under the contract between the parties, the latter was
compelled to cancel and rescind the said contract. The
trial court condemned the defendant to pay P 35, 317.93.
Hence, this appeal from the judgment of the trial court.

Issues:
1. Did the defendant agree to sell to the plaintiff
400,000 gallons of molasses or 300,000 gallons
of molasses?
2. [main issue] Had the Hawaiian-Philippine Co. the
right to rescind the contract of sale made with
Song Fo & Company?

Dispositive:
Judgment appealed from modified. Plaintiff entitled to
recover damages from defendant for breach of contract.

Held/Ratio:
1. It can be inferred from the evidence the
defendant agreed to sell to the plaintiff 300, 000
gallons of molasses. The Hawaiian-Philippine
Co. also believed it possible to accommodate
Song Fo & Company by supplying the latter
company with an extra 100,000 gallons. But the
language used with reference to the additional
100,000 gallons (in Exhibits F & G) was not a
definite promise. However, Exhibit A is a letter
which expressly mentions an understanding
between the parties of a contract for 300,000
gallons of molasses.

2. NO. The defendant had no right to rescind the
contract of sale made with the plaintiff.
In Exhibit F, the Court finds that the defendant
had an understanding with the plaintiff that the
latter, Song Fo & Co. would pay the former at
the end of each month for molasses delivered. In
Exhibit G, the Court likewise finds that Song Fo

& Co understood the things in Exhibit F and
accepted all the arrangements therein
presented.
Song Fo & Company should have paid for the
molasses delivered in December, 1922, and for
which accounts were received by it on January
5, 1923, not later than January 31 of that year.
Instead, payment was not made until February
20, 1923. It can be deduced from the records of
the trial that payment was not made for one
month (Dec 1922) and that all the rest of the
molasses were paid either on time of ahead of
time. It is on the basis of this that the defendant
gave notice of the termination of the contract and
rescission of the same.
The general rule is that rescission will not be
permitted for a slight or casual breach of the
contract, but only for such breaches that are
substantial and fundamental as to defeat the
object of the parties in making the agreement. A
delay in payment for a small quantity of
molasses for some twenty days is not such a
violation of an essential condition of the contract.
The Hawaiian-Philippine Co. also waived this
condition when it arose by accepting payment of
the overdue accounts and continuing with the
contract.
Also, the Hawaiian Philippine Co. has waived
this condition when it arose by accepting the
payment of the overdue accounts and continuing
with the contract.

BOYSAW VS. INTERPHIL PROMOTIONS
SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants, vs. INTERPHIL PROMOTIONS INC, LOPE
SARREAL, SR., and MANUEL NIETO, JR., defendants-appellees
Ponente: Fernan, J.

Legal Doctrine: Reciprocal obligations are those which
arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation
of one is dependent upon the obligation of the other.

Facts:
May 1, 1961 - Solomon Boysaw and his then manager,
Willie Ketchum, signed with Interphil Promotions Inc.
represented by Lope Sarreal Sr., a contract to engage
Gabriel Flash Elorde in a boxing contest for the junior
lightweight championship of the world. It was stipulated in
the contract that the fight would be on September 30,
1961 or not later than 30 days thereafter should a
postponement be agreed on and that Boysaw would not
engage in any fights without the written consent of
Interphil.
June 19, 1961 Boysaw fought and defeated Louis Avila
in Las Vegas, Nevada.
June 2, 1961, Ketchum assigned managerial rights over
Boysaw to J. Amado Araneta.
September 1, 1961 Araneta assigned managerial rights
to Alfredo Yulo Jr.
Septmeber 5, 1961 Sarreal wrote to the Games and
Amusement Board (GAB) expressing concern over switch
of managers
The GAB scheduled the Elorde-Boysaw match on
November 4, 1961. The USA National Boxing Association
approved it. Yulo, however, refused to accept the date
change, maintaining his refusal even after Sarreal offered
to advance the fight on October 28, 1961, which falls
within the 30-day period allowable in the original contract.
The Elorde-Boysaw fight contemplated in the May 1, 1961
contract never materialized. Boysaw and Yulo sued
Interphil, Sarreal and Manuel Nieto for damages allegedly
occasioned by Interphil and aided and abetted by Nieto,
then GAB Chairman, to honor their commitments under
said contract.
The case dragged into 1963 because Boysaw left the
country without informing the court or his counsel. After
several rescheduling, Boysaw still failed to appear and
therefore, the court deemed the plaintiffs case submitted

after declining to submit documentary evidence when
they had no other witnesses left. The court rendered
judgment ordering Boysaw and Yulo to jointly and
severally pay Nieto P25,000 and Interphil and Sarreal
P250,000 among others.

Issue: Whether or not there was a violation of the fight
contract of May 1, 1961; and if there was, who was guilty
of such violation. (There are other issues. Just refer to the
original case.)

Held: Yes, the contract was violated by Boysaw and Yulo.
Decision of the CFI affirmed except the award of moral
damages.

Ratio:
The evidence established that the contract of May 1, 1961
was violated by Boysaw himself, when, without the
consent of Interphil, he fought Louis Avila in Las Vegas,
which Yulo admitted during trial. While the contract
imposed no penalty for such violation, this does not grant
any of the parties the unbridled liberty to breach it with
impunity. Our law on contracts recognizes the principle
that actionable injury inheres in every contractual breach.
There is no doubt that the contract in question gave rise
to reciprocal obligations. Reciprocal obligations are those
which arise from the same cause, and in which each part
is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the other. They are to
be performed simultaneously, so that the performance of
one is conditioned upon the simultaneous fulfillment of the
other. Also, the power to rescind is given to the injured
party. Where the plaintiff is the party who did not perform
the undertaking which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon the
performance of the contract by the defendant, or recover
damages by reason of his own breach.
Another violation of the contract was the assignment and
transfer of managerial rights over Boysaw without the
knowledge or consent of Interphil. The assignments were
in fact novations of the original contract which, to be valid,
should have been consented to by Interphil. Under the
law, when a contract is unlawfully novated by an
applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with
the substitute.
The consent of the creditor to the change of
debtors, whether in expromision or delegacion is
an indispensable requirementSubstitution of
one debtor for another may delay or prevent the
fulfillment of the obligation by reason of the
inability or insolvency of the new debtor, hence,
the creditor should agree to accept the
substitution in order that it may be binding on
him.

UNIVERSITY OF THE PHILIPPINES VS. DE LOS ANGELES
University of the Philippines, petitioner, vs. Walfrido de los Angeles, in his capacity as Judge of the CFI in Quezon City, et al.,
respondents
Ponente: REYES, J.B.L., J.

Facts:
The petition alleged that on or about 2 November 1960,
UP and ALUMCO entered into a logging agreement under
which the latter was granted exclusive authority, for a
period starting from the date of the agreement to 31
December 1965, extendible for a further period of five (5)
years by mutual agreement, to cut, collect and remove
timber from the Land Grant, in consideration of payment
to UP of royalties, forest fees.
ALUMCO, as of 8 December 1964, had incurred an
unpaid account of P219,362.94, which, despite repeated
demands, it had failed to pay; that after it had received
notice that UP would rescind or terminate the logging
agreement, ALUMCO executed an instrument, entitled

"Acknowledgment of Debt and Proposed Manner of
Payments," dated 9 December 1964, which was
approved by the president of UP, and which stipulated the
following:
In the event that the payments called for in Nos. 1 and 2
of this paragraph are not sufficient to liquidate the
foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said
payments have been applied shall be paid by the
DEBTOR in full no later than June 30, 1965;
In the event that the DEBTOR fails to comply with any of
its promises or undertakings in this document, the
DEBTOR agrees without reservation that the CREDITOR
shall have the right and the power to consider the Logging
Agreement dated December 2, 1960 as rescinded without
the necessity of any judicial suit, and the CREDITOR
shall be entitled as a matter of right to Fifty Thousand
Pesos (P50, 000.00) by way of and for liquidated
damages;
ALUMCO continued its logging operations, but again
incurred an unpaid account, for the period from 9
December 1964 to 15 July 1965, in the amount of P61,
133.74, in addition to the indebtedness that it had
previously acknowledged.
On 19 July 1965, petitioner UP informed respondent
ALUMCO that it had, as of that date, considered the
agreement as rescinded and of no further legal effect. UP
filed a complaint against ALUMCO for the collection or
payment of debts and a prayed for a restraining order
against ALUMCO from continuing its logging operations in
the Land Grant.
UP now conducted a bidding to have another
concessionaire take over the logging operation, and the
concession was awarded to Sta. Clara Lumber Company,
Inc.; the logging contract was signed on 16 February
1966.
ALUMCO filed a petition to enjoin petitioner University
from conducting the bidding and, on 25 February 1966,
was awarded by respondent judge. UP received the order
after it had concluded its contract with Sta. Clara Lumber
Company, Inc., and said company had started logging
operations. A second order declared petitioner UP in
contempt of court and directed Sta. Clara Lumber
Company, Inc., to refrain from exercising logging rights or
conducting logging operations in the concession. UP
moved for reconsideration of the aforesaid order, but the
motion was denied.
Respondent claims that UP's unilateral rescission of the
logging contract, without a court order, was invalid and
that only after a final court decree declaring the contract
rescinded for violation of its terms that U.P. could
disregard ALUMCO's rights under the contract and treat
the agreement as breached and of no force or effect.

Issue: W/N petitioner U.P. can treat its contract with
ALUMCO rescinded, and may disregard the same before
any judicial pronouncement to that effect.

Held/Ratio:
Yes. UP and ALUMCO had expressly stipulated in the
"Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the
creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." As to such
special stipulation, and in connection with Article 1191 of
the Civil Code, there is nothing in the law that prohibits
the parties from entering into agreement that violation of
the terms of the contract would cause cancellation
thereof, even without court intervention. In other words, it
is not always necessary for the injured party to resort to
court for rescission of the contract.
Of course, it must be understood that the act of party in
treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made
known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the
other party denies that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be
affirmed, and the consequent indemnity awarded to the
party prejudiced.
In other words, the party who deems the contract violated
may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds
at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle
whether the action taken was or was not correct in law.
But the law definitely does not require that the contracting
party who believes itself injured must first file suit and wait
for a judgment before taking extrajudicial steps to protect
its interest. Otherwise, the party injured by the other's

breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize
its own damages (Civil Code, Article 2203).

DE ERQUIAGA VS. CA
Gloria M. De Erquiaga, administratrix of the estate of the late Santiago De Erquiaga & Hon. Feliciano S. Gonzales,
petitioners, vs. Hon. Court of Appeals, Africa Valdez vda. De Reynoso, Joses V. Reynoso, Jr., Ernesto, Sylvia Reynoso,
Lourdes Reynoso, Cecile Reynoso, Edna Reynoso, Erlinda Reynoso & Emily Reynoso, respondents
Ponente: Grino-Aquino, J.

Legal Doctrine: In rescission, there should be
simultaneous mutual restitution of the principal object (not
fruits) of the contract and of the consideration paid.

Facts:
Erquiaga was the owner of 100% or 3, 100 paid-up
shares of stock of the Erquiaga Development Corporation
(EDC) which owns the Hacienda San Jose, the
corporations only asset. He entered into an agreement
to sell all of his shares to Reynoso for P900, 000 payable
in installments on definite dates fixed in the contract. By
December 17, 1968, Reynoso was able to pay the total
sum of P410, 000 to Erquiaga who then transferred all his
shares in EDC to Reynoso as well as possession of the
hacienda. However, Reynoso failed to pay the balance
which, by that time, included brokers commission and
interest for late payments so Erquiaga formally informed
Reynoso that he was rescinding the sale. Erquiaga filed
a complaint for rescission with preliminary injunction
against Reynosoo, the CFI of Sorsogon which resulted
into a series of CFI and CA decisions. When the case
finally reached the Supreme Court, only the following
have been done by the parties in compliance with the final
judgment in the main case filed with the CFI:
1. The Hacienda San Jose was returned to
Erquiaga
2. Reynoso has returned to Erquiaga only the
pledged 1, 500 shares of stock of EDC, instead
of 3, 100 shares as ordered
What the parties have not done yet (in connection with
the topic) are:
1. Reynoso has not returned the remaining 1, 600
shares of stock to Erquiaga
2. Reynoso has not rendered a full accounting of
the fruits he has received from Hacienda San
Jose
3. Erquiaga has not returned the sum of P410, 000
with legal interest paid by Reynoso

Issue: W/N Erquiaga should pay Reynoso P410, 000
plus legal interest without waiting for Reynosos
accounting of the fruits

Held/Ratio:
Erquiaga should pay Reynoso the principal amount BUT
the payment of legal interest should await Reynosos
accounting of the fruits received by him from the
hacienda. Art. 1385, CC provides that Rescission
creates the obligation to return the things which were the
object of the contract, together with their fruits, and the
price with its interest. The hacienda and 1, 500 shares of
stock have already been returned to Erquiaga. Therefore,
he should return the P410, 000 upon Reynosos
conveyance of the remaining 1, 600 shares. There
should be simultaneous mutual restitution of the principal
object of the contract to sell (1, 300 shares) and of the
consideration paid (P410, 000). This restitution should
not await the mutual restitution of the fruits, namely: the
legal interest earned by Reynosos P410, 000 while in the
possession of Erquiaga and the fruits of the hacienda
which Reynoso received from the time it was delivered to
him. It is inequitable and oppressive to require Erquiaga
to pay the legal interest earned by Reynosos P410, 000
since 1968 or for the past 20 years (amounting to over
P400, 000 by this time) without first requiring Reynoso to
account for the fruits of Erquiagas hacienda.

ANGELES VS. CALASANZ
Buenaventura Angeles, et al., petitioners, vs. Ursula Calasanz, et al., respondents
Ponente: Gutierrez Jr., J.

Legal Doctrine: Where one party chooses to accept
delayed payments although such are in violation of the
contract, they are estopped from exercising their right of
rescission.

Facts:
In 1957 Calasanz and Angeles entered into a contract to
sell a piece of land on instalment for P3, 920 plus 7%
annual interest. Angeles paid the monthly instalments
until July 1966, where the aggregate payment already
reached P4, 533.38. On numerous occasions, Calasanz
accepted and received delayed instalment payments from
Angeles. On December 1966, Calasanz wrote Angeles
requesting the remittance of past due accounts. On
January 1967, Calasanz cancelled the contract because
Angles failed to meet subsequent payments. Angeless
letter for reconsideration was denied by Calasanz.
Angeles et al. filed a civil case to compel Calasanz, et al.
to execute in their favor the final deed of sale, alleging
that after computations, all subsequent payments for the
land have already been paid totally, including interest,
realty taxes, etc. Defendants Calasanz et al. allege that
plaintiffs violated the contract when they failed to pay the
monthly instalments on time.
The lower court ruled in favor of Angeles, et al.

Issue: Whether the contract had been validly rescinded
by Calasanz.

Held: NO. Lower court decision affirmed with
modification.

Ratio:
Rescission of a contract will not be permitted for a slight
or casual breach, as in this case (the plaintiffs had
already paid the aggregate amount of P4, 533.38). To
sanction the rescission made by Calasanz, et al. would
unjustly enrich them (Calasanz, et al.).
Also, in reciprocal obligations, either party has the right to
rescind the contract upon failure of the other to perform
his/her obligation assumed thereunder. When Calasanz,
instead of availing their alleged right to rescind, accepted
and received delayed payments of instalments, they are
now estopped from exercising their right of rescission.
Finally, since the contract to sell is a contract of
adhesion*, it must be construed against the party causing
it.
Thus, the cancellation will not be upheld. Nevertheless,
Angeles is ordered to pay the balance without interest.

*contract of adhesion: a contract that heavily restricts
one party while leaving the other free; implies inequality in
bargaining power


ONG VS. CA
Jaime G. Ong, petitioner, vs. The Honorable Court of Appeals, Spouses Miguel K. Robles and Alejandro M. Robles,
respondents

Facts:
May 10, 1983 petitioner Jaime Ong and respondent
spouses Miguel K. Robles and Alejandra Robles
executed an Agreement of Purchase and Sale
respecting two parcels of land in Barrio Puri, San Antonio,
Quezon. The terms and conditions of the contract include
the following conditions:
a. That the agreed purchase price of Php
2,000,000 shall be paid in this manner:
1. Initial payment of Php 600,000 as verbally
agreed upon shall be broken down as
follows
2. Php 103, 499.91 shall be paid by the buyer
to the seller through check
3. Php 496,500.09 shall be paid directly by
Ong to the Bank of Philippine Islands to
answer for the loan of the spouses Robles
b. The balance of Php 1,400,000 shall be paid by
Ong to the spouses Robles in four equal
quarterly instalments of Php 350,000 until the
whole amount is fully paid, after which spouses
Robles promise to sell to Ong the two parcels of
agricultural land including the rice mill and the
piggery
May 15, 1983 Ong took possession of the parcels of
land together with the piggery, building, ricemill,
residential house, and other improvements
Ong paid spouses Robles the sum of Php 103, 499.91 by
depositing it with the United Coconut Planters Bank.
Subsequent deposits of sums of money were also made
by Ong with the Bank of the Philippine Islands in
accordance with the stipulations of their contract.
For Ongs remaining balance of Php 1,400,000, he issued
four post-dated Metro Bank checks payable to the Robles
in the amount of Php 350,000 each. However, the checks
were dishonoured due to insufficient funds. Ong promised
to replace the checks but he failed to do so.
Out of the Php 496,500 loan of spouses Robles with the
BPI, Ong managed to pay no more than Php 393,679.60.
When the bank threatened to foreclose the mortgage, the
spouses had to sell three transformers of the rice mill
worth Php 51,411 to pay off their obligation to the bank.
Ong voluntarily gave the spouses authority to operate the
rice mill while he continued to be in possession of the two
parcels of land.
August 2, 1985 spouses Robles sent a demand letter
asking for the return of the properties.
September 2, 1985 spouses Robles filed with the RTC
of Lucena a complaint for rescission of contract and
recovery of properties with damages
Trial court rendered a decision ordering Ong to deliver the
two parcels of land, pay Php 100,000 as exemplary
damages, and litigation expenses. On the other hand,
spouses Robles were ordered to return to Ong the sum of
Php 497,179.51.
Ong appealed to the Court of Appeals but it affirmed the
decision of the Regional Trial Court but deleted the award
for exemplary damages. Aside from this, the Court of
Appeals stated that the failure of Ong to completely pay
the purchase price is a substantial breach of his obligation
which entitles the spouses to rescind their contract under
Article 1191 of the New Civil Code.

Issues:
1. Whether the contract entered into by the parties
may be validly rescinded under Article 1191 of
the New Civil Code
2. Whether the parties had novated their original
contract as to the time and manner of payment

Held/Ratio:
1. No, Article 1191 is not applicable. Article 1191 of
the New Civil Code refers to rescission
applicable to reciprocal obligations. In the
stipulations stated in the agreement between
Ong and the spouses Robles, their contract is in
the nature of a contract to sell as distinguished
from a contract of sale. In a contract to sell,

ownership is by agreement reserved in the
vendor and is not passed to the vendee until full
payment of the purchase price. The payment of
the purchase price is a positive suspensive
condition, the failure of which is not a breach, but
a situation that prevents the obligation of the
vendor to convey title from acquiring an
obligatory force.
In the case at bar, the spouses Robles have not
yet sold the land to Ong. Through the contract,
they promised to sell the land to Ong once he
has completed the payment. The failure on the
part of Ong to pay the purchase price is not a
breach as contemplated in Article 1191 but it
simply prevented the obligation to convey the
title. Consequently, Ongs failure rendered the
contract to sell ineffective and without force and
effect.

2. No, novation is never presumed for it must be
proven as a fact either by express stipulation of
the parties or by implication derived from an
irreconcilable incompatibility between the old
and the new obligation. For novation to take
place, there must be a concurrence of the
following: (1) a previous valid obligation; (2) an
agreement of the parties concerned to a new
contract; (3) there must be an extinguishment of
the old contract; and (4) there must be the
validity of the new contract. In present case, the
aforementioned requisites are not present. Aside
from this, the parties never intended to novate
their previous agreement. The spouses Robles
had to sell the transformers simply because the
bank threatened to foreclose the mortgage.

VISAYAN SAWMILL VS. CA
Visayan Sawmill Co., Inc., and Ang Tay, petitioners, vs. The Hon. Court of Appeals and RJH Trading, represented by Ramon
J. Hibionada, proprietor, respondents
Ponente: Davide, J.

Legal Doctrine: An automatic rescission shall take place
when there is a failure to deliver on the part of one of the
contracting parties.

Facts:
Plaintiff and defendants enter a contract of sale involving
scrap iron in the stockyard of defendant. The condition is
that plaintiff would open a credit of P250, 000 in favor of
defendant corporation.
Plaintiff then started to dig on the defendants premises
by May 17, 1983. However, on May 30, they were
ordered to desist from digging because of a case filed by
defendants. On the other hand, defendants allege that the
order of desistance was actually a cancellation of the
contract for the petitioner to comply with the conditions
which had been sent on a telegram on May 23, 1983
On May 24, petitioner informed defendant through a
telegram that the letter of credit has been opened on May
12, 1983. Two days later, they were informed by the bank
of the said credit which was opened.
On July 19, plaintiff demanded the contract be complied
with or else he would file a case against them. Defendant
was unwilling to do so and thus a case was filed.
Defendants counterclaim states that they were justified to
cancel the contract because plaintiff failed to comply with
the essential pre-conditions of the contract which is
opening of an irrevocable and unconditional letter of credit
not later than 15 May 1983
RTC ruled in favor of plaintiff and awarded damages on
the basis that the breach was only a slight one and thus
could not lead to automatic rescission. Moreover, they
argued that:
Delivery has already been made. The delivery was
completed by the defendants allowing plaintiff to dig in
the premises.
It is indeed correct that a breach of contract automatically
rescinds the contract by a mere notice to the buyer if he

committed the breach. However, it does not apply in this
case because as was stated, the delivery has already
been made. Thus, it is left to the courts to decide the
rescission of the contract.
CA affirmed the decision. Defendants appealed to SC.

Issue: WON defendants were justified in the cancellation
of the contract with the plaintiff

Held: Yes, the cancellation was justified

Ratio:
The error that was committed by RTC and defendant
court is that they viewed the case as one of a contract of
sale. However, in this case, there was no contract of sale
because it is under a positive suspensive condition
wherein the sale would only be perfect upon the
compliance with said condition. Thus, there was no
breach because there was no contract to begin with.
In this case, the condition was not complied with. First,
the stipulations inn the opening of the credit was not
complied with which are:
1. Opened by a third party-Visayan Saw Mill was
the one who opened it.
2. Bank agreed upon- not the bank agreed upon
3. Irrevocable and unconditional- it was set to
expire.
It cannot be argued that the delivery implies that the court
should decide the rescission because this only applied to
existing obligations. However, as stated earlier, there is
not an obligation to start with. Thus because the delivery
has not been made, the defendants were justified in
rescinding the contract by a mere notice to the plaintiff.

DEIPARINE, JR. VS. CA
Ernesto Deiparine, Jr., petitioner, vs. The Hon. Court of Appeals, Cesario Carungay and Engr. Nicanor Trinidad, respondents
Ponente: Cruz, J.

Legal Doctrine: Art. 1191 is not predicated on economic
prejudice to one of the parties but on breach of faith by
one of them that violates the reciprocity between them.
(Art. 1191 is applicable to reciprocal obligations.)

Facts:
Spouses Cesario and Teresita Carungay entered into an
agreement with Ernesto Deiparine, Jr. for the construction
of a 3-storey dormitory in Cebu City. Deiparine bound
himself to erect the building in strict accordance to plans
and specifications in exchange of P970,000.00. Nicanor
Trinidad, a civil engineer, acted as representative of the
Carungay spouses with powers of inspection and
coordination with the contractor.
Trinidad sent Deiparine a document entitled General
Conditions and Specifications which prescribed 3,000 psi
(pounds per square inch) as the minimum acceptable
compressive strength of the building.
In the course of the construction, Trinidad reported to
Carungay that Deiparine had been deviating from the
plans and specifications, thus impairing the strength and
safety of the building. After several conferences, the
parties agreed to conduct cylinder tests to ascertain of the
structure thus far built complied with safety standards.
Carungay suggested core testing. Deiparine was first
reluctant but agreed eventually. He even offered to pay
for the tests if results would show total failure.
After the tests, results showed that the building was
structurally defective. In view of this finding, Carungay
filed with the RTC of Cebu for the rescission of the
construction contract and for damages. After trial, the
court declared the construction agreement rescinded
under Art. 1191 of the Civil Code. CA affirmed the RTCs
decision. Art. 1191 provides:
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.

The injured party may choose between the
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.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law.
Deiparine contends that the Philippine Construction
Development Board (that is, the Philippine Domestic
Construction Board) has exclusive jurisdiction to hear and
try disputes arising from domestic constructions. He also
contends that contract between him and Carungay did not
specify any compressive strength for the structure nor
does it require that the same be subjected to any kind of
stress test. He further contends that the applicable
provisions in the case are Arts. 1385 and 1725 which
provide:
Art. 1385. Rescission creates the obligation to
return the things which were the object of the
contract, together with their fruits, and the price
with its interest; consequently, it can be carried
out only when he who demands rescission can
return whatever he may be obliged to restore.
Neither shall rescission take place when the
things which are the object of the contract are
legally in the possession of third persons who
did not act in bad faith.
In this case, indemnity for damages may be
demanded from the person causing the loss.
Art. 1725. The owner may withdraw at will from
the construction of the work, although it may
have been commenced, indemnifying the
contractor for all the latter's expenses, work, and
the usefulness which the owner may obtain
therefrom, and damages.

Issues:
1. WON RTC has jurisdiction over the case
2. WON there is a ground for the rescission of the
contract between the parties
Held/Ratio:
1. YES. The adjudicatory powers of the Philippine
Domestic Construction Board are meant to apply
only to public construction contracts. Its power
over private construction contracts is limited to
formulation and recommendation of rules and
procedures for the adjudication and settlement of
disputes involving such private contracts. The
counsel of the petitioner, by purposely
misquoting PD 1746 (Creating the Construction
Industry Authority of the Philippines), has
committed contempt of this Court and thus must
be disciplined.

2. The document entitled General Conditions and
Specifications was delivered to DEiparine after
he commenced the construction of the building.
According to Eduardo Logarta, the petitioners
own project engineer, Deiparine instructed him
and some of his workers to ignore the specific
orders or instructions, mostly involving safety
measures, of the Carungay and Trinidad.
Deiparine obviously wanted to avoid additional
expenses which would reduce his profit. It is
clear that Deiparne did not deal with the
Carungays in good faith. His breach of his duty
constituted a substantial violation of the contract
correctible by judicial rescission.
Art. 1385, upon which Deiparine relies, is not
applicable to the construction agreement in
question. Art. 1385 covers rescissible contracts
under Art. 1381, which are:
(1) Those which are entered into by
guardians whenever the wards whom
they represent suffer lesion by more
than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in
representation of absentees, if the latter
suffer the lesion stated in the preceding
number;
(3) Those undertaken in fraud of
creditors when the latter cannot in any
other manner collect the claims due
them;
(4) Those which refer to things under
litigation if they have been entered into
by the defendant without the knowledge

and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially
declared by law to be subject to
rescission.
Art. 1191 is applicable to reciprocal obligations
like the subject construction contract. It imposes
upon Deiparine the obligation to build the
structure and upon the Carungays the obligation
to pay for the project upon its completion. Art.
1385 is predicated on economic prejudice to one
of the parties and not on breach of faith by one
of them that violates the reciprocity between
them. Art. 1725 is also not applicable, for this
contemplates a voluntary withdrawal by the
owner without fault on the part of the contractor,
who is therefore entitled to indemnity, and even
damages, for the work he has already
commenced.

IRINGAN VS. CA
Alfonso L. Iringan, petitioner, vs. Hon. Court of Appeals and Antonio Palao, represented by his Attorney-in-Fact, Felisa P.
delos Santos, respondents

Legal Doctrine: A judicial or notarial act is necessary
before a valid rescission can take place, whether or not
automatic rescission has been stipulated. The party
entitled to rescind should apply to the court for a decree
of rescission (action for Judicial Confirmation of
Rescission is acceptable). The right cannot be exercised
solely on a partys own judgment that the other committed
a breach of obligation.

Facts:
March 22, 1985- Private respondent Antonio Palao sold to
petitioner Alfonso Iringan, an undivided potion of land.
The parties executed a Deed of Sale on the same date
with ourchase price of Php295, 000, payable as follows:
a. Php10,000- upon execution of Deed of Sale-;
b. Php140,000- on or before April 30, 1985;
c. Php145,000- on or before December 31, 1985.
Iringan was able to pay Php10, 000 upon execution of the
instrument, but only Php40, 000 with respect to the
installment due on or before April 30, 1985. Palao sent a
letter to Iringan stating that he considered the contract
rescinded and that he would not accept any further
payment considering that Iringan failed to comply with his
obligation.
August 10, 1985- Iringan replied through counsel that he
did not oppose the revocation of the Deed of Sale but
asked for reimbursement for payments paid, geodetic
engineers fee, attorneys fee and interest- to which Palao
was not amenable.
February 21, 1989- Palao proposed reimbursement of
Php50, 000 or sale of an equivalent portion of the land.
Palao replied with demand for outstanding obligation
relating to rentals in arrears. Parties failed to arrive at an
agreement.
July 1, 1991- Palao filed Complaint for Judicial
Confirmation of Rescission of Contract and Damages
against Iringan.

Issues:
1. WON the contract of sale was validly rescinded;
and
2. WON the award of moral and exemplary
damages is proper.

Held/Ratio:
1. YES. The contract of sale was validly rescinded.
Article 1592 of the Civil Code is the applicable
provision:

Art. 1592. In the sale of immovable
property, even though it may have been
stipulated that upon failure to pay the
price at the time agreed upon the
rescission of the contract shall of right
take place, the vendee may pay, even
after the expiration of the period, as
long as no demand for rescission of the
contract has been made upon him
either judicially or by a notarial act.
After the demand, the court may not
grant him a new term. (1504a)
Article 1592 requires the rescinding party to
serve judicial or notarial notice of his intent to
resolve the contract, whether or not automatic
rescission has been stipulated. It is to be be
noted that the law uses the phrase even
though emphasizing that when no stipulation is
found on automatic rescission, the judicial or
notarial requirement still applies.
Even if Article 1191 were applied, petitioner
would still be entitled to rescission. In Escueta
vs. Pando, the Court held that, under the Article
1124 (now Article 1191), the right to resolve
reciprocal obligations is deemed implied in
case one of the obligors shall fail to comply with
what is incumbent upon him, but the right must
be invoked judicially. The same article also
provides that: The Court shall decree the
resolution demanded, unless there should be
grounds which justify the allowance of a term for
the performance of the obligation.
When private respondent filed for Judicial
Confirmation of Rescission and Damages, he
complied with the requirement of the law for
judicial decree of rescission. The complaint
categorically stated that the purpose was (1) to
compel appellants to formalize in a public
document their mutual agreement of revocation
and rescission, and/or (2) to have a judicial
confirmation of the said revocation/rescission
under terms and conditions fair, proper, and just
for both parties.
Under the applicable Article 1141, which
provides that the action upon a written contract
be brought within ten (10) years from the right
of action accrues, the suit being brought within
six (6) years from default thereof, the contract of
sale can still be validly rescinded.

2. YES. The awards for moral and exemplary
damages is proper. Petitioner knew
respondents reason for selling his property.
Petitioner adamantly refused to formally execute
an instrument showing their mutual agreement to
rescind the contract of sale, notwithstanding that
it was petitioner who breached the obligation.
Petitioner did not substantiate, by clear and
convincing proof, his allegation that he was
ready and willing to pay respondent.

VDA. DE MISTICA VS. SPOUSES NAGUIAT
Fidela Del Castillo Vda de Mistica, petitioner, vs. Spouses Bernardino Naguiat and Maria Paulina Gerona-Naguiat,
respondents

Legal Doctrine: Under A.1191, the right to rescind an
obligation is predicated on the violation of the reciprocity
between the parties, brought about by a breach of faith by
one of them. Rescission is allowed only where the breach
is substantial and fundamental in the fulfillment of
obligation.

Facts:
Eulalio Mistica is the owner of a parcel of land located in
Malhacan, Meycauayan, Bulacan. In 1970, he leased a
portion of the said land to Bernardino Naguiat,
respondent. In 1979, he entered into a contract to sell
200 square meters of the lot with the respondent for P20,
000.

Terms:
a. Downpayment of P2,000
b. Remaining P18,000 will be payable in 10 years
c. In case of failure to pay the balance as
stipulated, a yearly interest of 12% will be
imposed.
Respondent paid the downpayment and another partial
payment of P1,000 in 1980. However, he failed to make
any payments thereafter. Mistica died in 1986. His wife
filed a complaint for rescission alleging that the failure and
refusal to pay constitutes a violation of the contract which
entitles her to rescind.
Respondents contend that the contract cannot be
rescinded on the ground that it is stipulated that a yearly
interest of 12% will be imposed in case of their failure to
pay.
TC: Dismissed. Contract is not rescinded.
CA: Disallowed rescission. Conclusion of 10-year period
was not a resolutory term.

Issue: WON the contract can be rescinded.

Held: No. (see doctrine)

Ratio:
Petitioner Court
She is entitled to rescind
because the respondents
committed a substantial
breach when they did not
pay the balance.
Transaction was clearly a contract of sale. A deed of sale is considered absolute
when:
No stipulation in the deed that title of property sold is reserved to seller until full
payment
No stipulation giving vendor the right to unilaterally resolve the contract when
buyer fails to pay within fixed period
Remedy is either performance or rescission.
In this case, contract cannot be rescinded because breach is not substantial and
fundamental to the fulfillment of the obligation.
There is also no demand from the petitioners.
Minor issues
Proviso on the payment of
interest did not extend the
period to pay. If it does,
then the obligation will be
purely potestative and
void under A.1182
Code prohibits purely potestative, suspensive, conditional obligations that depend
on the whims of debtor.
The transaction is not potestative because:
Nowhere in the deed that the purchase price is dependent upon whether
respondents want to pay it or not
The fact that they already paid partial payments shows their intention to be bound
by the Kasulatan.
Other issues:
Issuance of certificate of title in favor of respondents does not determine whether petitioner is entitled to
rescission.
Registration is not a mode of acquiring ownership over immovable properties because it does not create or
vest title but merely confirms one already created or vested.

II. Obligations with a Period
E. Benefit of Period
DE LEON VS. SYJUCO
Jose Ponce de Leon, plaintiff-appellant, vs. Santiago Syjuco, Inc., defendant-appellant, Philippine National Bank, defendant-
appellee
Ponente: Bautista Angelo, J.

Legal Doctrine: in a monetary obligation contracted with
a period, the presumption is that the same is deemed
constituted in favor of both the creditor and the debtor
unless from its tenor or from other circumstances it
appears that the period has been established for the
benefit of either one of them.

Facts:
PNB, the owner of two parcels of land in Murcia Cadastre,
Negros Occidental, sold said lands to Jose Ponce de
Leon on March 9, 1936.
In 1944, Ponce de Leon then obtained two loans from
Santiago Syjuco, Inc.: one amounting to P200, 000, and
another P16,000. Both were in Japanese Military Notes,
payable within 1 year from May 5, 1948. In both
promissory notes, it was provided that Ponce de Leon
could not pay and Syjuco could not demand the payment
of the note except within the said period.
To secure payment for the obligation, Ponce de Leon
mortgaged, in favor of Syjuco, the parcels of land he
purchased from PNB.
Ponce de Leon then paid PNB the balance of the
purchase price in Japanese Military Notes. The Bank then
executed a deed of absolute sale in favor of Ponce de
Leon.
In October 1944, Ponce de Leon wanted to pay Syjuco
since he was being hunted by the Japanese and was
afraid of getting caught, but the latter refused to accept
the payments.
Since Syjuco refused to accept the payments, Ponce de
Leon deposited the payment of the Clerk of the CFI of
Manila and also filed a complaint consigning
4
the amount
to Syjuco.
On May 15, 1946, Ponce de Leon, taking advantage of
the destruction of records of the Registry of Deeds of
Negros Occidental, filed for the reconstitution of transfer
of the titles of the two parcels of land to PNB. His petition
was granted.
Ponce de Leon also executed a mortgage of the two
parcels to secure the payment of any amount he may
obtain from PNB. PNB was not aware of the other
mortgage, which the former executed in favor of Syjuco
during the Japanese occupation, since no encumbrance
appears annotated, but it was noted thereon that they
would be subject to whatever claim may be filed by virtue
of documents or instruments previously registered.

Issue:
1. Is the consignation made by Ponce de Leon
valid, given the law and the stipulations agreed
upon in the two promissory notes signed by him?
(TOPICAL ISSUE)
2. Should the payments of said promissory notes
be reduced to their just proportions using as a
pattern the Ballantyne schedule
5
?
3. Should the defense of moratorium by Ponce de
Leon against the counterclaim of Syjuco be
hat it was not raised by
eadings?
disregarded, given t
Ponce de Leon in his pl

4
consign: deliver (something) to a person's custody, typically
inorderforittobesold
5
Ballantyneschedule:saidscheduleisapplicabletoobligations
contracted during the Japanese occupation where said
obligations, are made payable on demand or during said
Japanese occupation, but not after the war or at a specified
date or period which may indicate that the parties were
speculatingonthecontinuationorcessationofthewarattime
ofpayment

4. Who has the priority between the two mortgage
claims on the same set of properties?

Held/Ratio:
1. No, the consignation is not valid, therefore
Ponce de Leon is not relieved of his obligation.
The promissory notes expressly stated that
Ponce de Leon shall pay the loans within one
year from May 5, 1948
The requirements of consignation are as follows:
(1) that there was a debt due; (2) that the
consignation of the obligation had been made
because the creditor to whom tender of payment
was made refused to accept it, or because he
was absent for incapacitated, or because several
persons claimed to be entitled to receive the
amount due; (3) that previous notice of the
consignation have been given to the person
interested in the performance of the obligation;
(4) that the amount due was placed at the
disposal of the court; and (5) that after the
consignation had been made the person
interested was notified thereof.
In this case, at least 2 of the requirements have
not been complied with: (1) that Ponce de Leon,
before making the consignation with the clerk of
the court, failed to give previous notice to the
person interested in the performance of the
obligation; and (2) that the obligation was not yet
due and demandable when the money was
consigned, because the obligation was to be
paid within one year after May 5, 1948, and the
consignation was made before this period
matured. Therefore, the consignation is
ineffective.
Under the law, in a monetary obligation
contracted with a period, the presumption is that
the same is deemed constituted in favor of both
the creditor and the debtor unless from its tenor
or from other circumstances it appears that the
period has been established for the benefit of
either one of them (Art. 1127, Civil Code).

2. No. The terms that Ponce de Leon and Syjuco
agreed upon, which includes the term within
which payment of the obligation should be paid
and on the currency in which payment should be
made, are not contrary to law, moral or public
order. Moreover, they are clear and conclusive
because the plaintiff agreed not only to pay the
obligation within one year from May 5, 1948, but
also to pay peso for peso in the coin or currency
of the Government that at the time of payment it
is the legal tender for public and private debts.

3. No, the defense must not be disregarded
because Syjuco did not contest this allegation in
the pleadings filed in the lower court. EO No. 32
suspended payment of all obligations contracted
before March 10, 1945. RA 342 also modified
the moratorium orders by limiting the ban on
obligations contracted before the outbreak of the
war to creditors who have filed claims for
reparations with the Philippine War Damage
Commission. This left open the obligations
contracted during the Japanese occupation. The
obligation in this case was contracted during the
Japanese occupation, and therefore covered by
the moratorium orders.

The mortgage claim of the defendant Syjuco is
entitled to priority over that of the Philippine
National Bank since it was executed before the
mortgage in favor of PNB. Moreover, PNB must
have known the encumbrances that exist on the
titles since there was a warning appearing on the
titles, and it was its duty to find out the risks
included in the titles.

Paras dissent:
The mortgagor has the right to pay the
indebtedness at any time within three years
provided that, as in this case, he pays the
interest for the whole term of the mortgage.
The borrower had to obtain a loan during
wartime, when living conditions were abnormal
and oppressive, everything was uncertain, and
everybody was fighting for his survival, our
conscience and common sense demand that his
acts be judged by compatible standards.
At any rate, the contract of loan herein involved
is clearly not dependent upon any uncertain
event. The loan was granted on a definite date
and has to be paid on a definite date. Both dates

are certain. The payment of the loan has to be
effected regardless of the result of the war.

Padillas dissent:
The creditor should not be allowed to exact and
impose unfair terms and conditions, such as that
of barring the debtor from paying the principal of
the loan before the time agreed upon. By the
payment of the principal of the loan together with
the stipulated interests accrued and to accrue up
to the time agreed upon for the payment of the
principal, the purpose or aim of the loan is
attained all to the advantage and benefit of
the creditor.
To compel the debtor after the moratorium shall
have been removed to pay in the present
currency the principal of the loan made in
Japanese war notes which at the time of the loan
had very little value or purchasing power, and
the stipulated interests up to the date of payment
thereof, is so shocking to the conscience of a
fair-minded person that it will constitute a blot on
the administration of justice in this Republic.
The consignation made by the debtor should
have been upheld, or if the provisions as to
consignation were not adhered to or complied
with, then the creditor should be entitled at most
to the sum awarded by the trial court.

BUCE VS. CA
Anita C. Buce, petitioner, vs. The Hon. Court of Appeals, Sps. Bernardo C. Tiongco and Araceli Tiongco, Sps. Dionisio
Tiongco and Lucila Tiongco, and Jose M. Tiongco, respondents
Ponente: Davide, Jr., J.

Legal Doctrine: [I]n a reciprocal contract like a lease,
the period must be deemed to have been agreed upon for
the benefit of both parties, absent language showing that
the term was deliberately set for the benefit of the lessee
or lessor alone. Renewal of the contract can only be
made upon their mutual agreement or at the will of both of
them.

Facts:
Anita Buce leased a parcel of land along Quirino Avenue,
Pandacan, Manila. The lease contract was for 15 years
(June 1, 1979 June 1, 1994), subject to renewal for
another ten (10) years, under the same terms and
conditions. Buce then constructed a building (Anitas
Grocery and Store) and paid a monthly rental fee of P200.
The respondents, the Tiongcos, later demanded an
increase in the rental, reaching P400 in 1985.
Buce paid P1,000 as monthly rental for July and August
1991. Pursuant to the Rent Control Law, private
respondents informed Buce of the increase in rent to
P1,576.58, effective January 1992. Buce only paid P400
for 6 months. Private respondents refused to accept
these payments.
The RTC declared that the lease contract automatically
renewed for 10 years as evidenced by the stipulations in
the contract permitting the construction of buildings and
improvements and the filing of the complaint of Buce
almost 1 year before the expiration of the contract.
However, the CA reversed the RTCs decision and
ordered Buce to vacate the premises since the contract
had already expired without being renewed.

Issue: W/N the parties intended an automatic renewal of
the lease contract when they agreed that the lease shall
be for a period of fifteen years subject to renewal for
another ten (10) years.

Held/Ratio:
There is nothing in the contract nor in the private
respondents acts that show that they intended an
automatic renewal or extension of the contract. The

stipulation that the lessee may construct buildings on the
property does not indicate the intention of the lessors to
automatically extend the contract. It is only natural that
improvements would be introduced to the property
considering the 15-year duration of the contract.
The filing of the complaint a year before the expiration of
the contract nor private respondents acceptance of the
increased rentals do not have any bearing on the
intention of the parties regarding renewal. The filing of the
complaint was due to the private respondents refusal to
accept the payment of monthly rental.
[I]n a reciprocal contract like a lease, the period must be
deemed to have been agreed upon for the benefit of both
parties, absent language showing that the term was
deliberately set for the benefit of the lessee or lessor
alone. There is no presumption that term was
deliberately set for the benefit of the lessee alone. Since
in this case, there was no specification on who may
exercise the option to renew, pursuant to Article 1196 of
the Civil Code, the period of the lease contract is deemed
to have been set for the benefit of both parties. Renewal
of the contract can only be made upon their mutual
agreement or at the will of both of them. Since the private
respondents did not want a renewal of the lease contract,
they cannot be compelled to execute a new contract
when the old contract expired. It is the lessors
prerogative to terminate the lease at its expiration.

F. When Court May Fix Period
ARANETA VS. PHILIPPINE SUGAR ESTATES DEVELOPMENT CO.
Gregorio Araneta, Inc., petitioner, vs. The Philippine Sugar Estates Development Co., Ltd., respondent

Facts:
J.M. Tuason & Co., Inc. owned Sta. Mesa Heights
Subdivision in Quezon City. The company, through
Gregorio Araneta, Inc., sold a portion of the land to the
Philippine Sugar Estates Development Co., Ltd.
In the contract of purchase and sale with mortgage, it was
stipulated that Philippine Sugar will Build on the said
parcel land the Sto. Domingo Church and Convent while
Araneta will Construct streets on the NE and NW and
SW sides of the land herein sold so that the latter will be a
block surrounded by streets on all four sides; and the
street on the NE side shall be named Sto. Domingo
Avenue; (we live here haha!)
Philippine Sugar was able to finish the construction of the
church and convent, but Araneta was unable to finish the
construction of the street in the Northeast side because
Manuel Abundo, who was occupying a part of it, refused
to vacate it.
Philippine Sugar then filed a complaint against J.M.
Tuason & Co., Inc. in order to compel the latter to comply
with their obligation. The latter answered that the action
was premature since the obligation to construct the
streets was without a definite period, which means that
the court will first need to fix the period before the
complaint can prosper.
The CFI then rendered a decision, giving the plaintiff 2
years to comply with its obligation, which the CA affirmed.

Issue: Is the court warranted to fix the period for J.M.
Tuason/Aranetas obligation?

Held/Ratio:
No. The fixing of the period by the court under Article
1197 is only warranted when there is an absence of any
period fixed by the parties. In this case, however, there
was a period: reasonable time within which to comply
with its obligation to construct and complete the streets."
Even if there was no period stipulated, a fixing of a period
is still not warranted since it was not what the complaint
sought (the complaint wanted specific performance, not
the fixing of a period for performance; the complaint
assumed that the period had already elapsed). Moreover,
there is no basis to support the conclusion that period be
set at 2 years.

Article 1197 of the Civil Code involves a two-step
process: (1) determine that "the obligation does not fix a
period" (or that the period is made to depend upon the will
of the debtor)," but from the nature and the circumstances
it can be inferred that a period was intended"; and (2)
decide what period was "probably contemplated by the
parties.
The parties were fully aware that the land in question was
occupied by squatters. Therefore, they would have
realized that the duration of the performance of the
obligation would not be under their control nor could it be
determined in advance. The parties must have intended
to defer the performance of the obligations under the
contract until the squatters were duly evicted. This is a
reasonable explanation for why the agreement did not
specify any exact periods or dates of performance.

Dispositive:
The time for the performance of the obligations of
petitioner Gregorio Araneta, Inc. is hereby fixed at the
date that all the squatters on affected areas are finally
evicted therefrom.

IV. Joint and Solidary Obligations
YNCHAUSTI VS. YULO
Inchausti & Co., plaintiff, vs. Fernando Gerardo Yulo, defendant-appellee
Ponente: Arellano, J.

Legal Doctrine: When the obligation is a solidary one, the creditor may bring his action in toto against any of the debtors
obligated in solidum.
The remission of any part of the debt, made by the creditor in favor of one or more of his solidary debtors, inures to the
benefit of the rest of the debtors, and these latter may utilize in their favor the defense of remission.

Facts:
Teodoro Yulo. A property owner in Iloilo, had been
borrowing money from the firm of Inchausti & Co. under
specific conditions.
He died intestate. Later his wife also died. Yulo Siblings
are Pedro, Francisco, Teodoro (mentally incompetent),
Manuel, Gregorio, Mariano, Carmen, Concepcion
(minor), and Jose (minor).
The properties left by the couple were held by their
children in common, under the name of Hijos de T. Yulo
continuing their current account with Inchausti & Co.
until their balance amounted to two hundred thousand
pesos.
The creditor firm tried to obtain security for the payment
of the disbursement of money it had been making in
favor of the Yulos.
On June 26, 1908, gregorio, in behalf of the siblings,
executed a notarial document whereby all (except
Teodoro the incompetent, and minors Concepcion and
Jose) submitted their indebtedness to Inchausti and Co.
I the sum of P203,221.27 with interest of 10% per
annnum, ,ortgaging sixt-ninth of their undivided 38 rural
properties, urban properties, lorchas and family credits.
January 11, 1909, balance amounted to P271, 863.12,
to which Hijos de T. Yulo conformed with.
July 17, 1909 Inchausti Co. reduced the balance to
P253, 445.42. Hijos de T. Yulo conformed with such.

August 12, 1909 Gregorio Yulo, Manuel, Pedro,
Francisco, Carmen, and Concepcion ratified the
documents of June 26, 1908, severally and jointly
acknowledged and admitted their indebtedness to
inchausti Co. for the amount of P253, 445.42. terms: 5
installments; interest 10% per annum; beginning June
30, 1910 ; payment every 30
th
of June til June 30, 1914.
The default in payment of any of the installment will
result in the maturity of all the installments
It was stipulated in the notarial document that the
siblings contracted in solidum, and that Mariano Yulo
wil confirm and ratify the instrument in all parts,
otherwise it will not be binding to Inchausti and Co. who
can make use of their right to demand and obtain the
immediate payment of their credit.
Mariano neither ratified nor confirmed the instrument.
March 27, 1911 Inchausti & Co. filed an action against
Gregorio Yulo for the payment of the balance due of
P253, 445.42.
May 12 1911 Francisco, Manuel, and Carmen,
executed another notarial document in favor of
Inchausti & Co. in recognition of the debt and obligation
of payment in the terms: debt reduced to P225, 000;
interest reduced to 6% per annnum; installment
increased to eight; beginning June 30, 1911; payment
every 30
th
June til June 30, 1919.

Issue:
1. WON plaintiff can sue Gregorio Yulo alone,
there being other obligors
2. If yes to the 1
st
, WON the plaintiff lost such
right by the fact of its having agreed with the
terms of May 12, 1911 notarial document of
Francisco, Manuel and Carmen
3. WON the contract of May 12, 1911 constitutes
novation of the Aug. 12, 1909 document
4. Whether the instrument of May 12, 1911 has
any effect in the action brought against
Gregorio Yulo

Ratio:
1. Yes. According to the Civil Code when an
obligation is constituted as a conjoint and
solidary obligations each one of the debtors is
bound to perform in full the undertaking which
is the subject matter of such obligations,
therefore, the debtors having obligated
themselves in solidum, the creditor can bring
its action in toto against anyone of them.

2. No. Even if the creditor has agreed with some
of the solidary debtors on a different
installments and conditions, as in the case of
Francisco, Manuel, and Carmen through the
instrument of May 12, 1911, it does not lead to
the conclusion that the solidarity stipulated in
the instrument of Auhust 12, 1909, is broken.
The Civil Code provides Solidarity may exist
even though the debtors are not bound in the
same manner and for the same periods and
under the same conditions.

3. No. the contract of May 12, 1911 does not
constitute novation of the former August 12,
1909, with respect to defendant Gregorio Yulo.
Under the Civil Code In order that an
obligation may be extinguished by another
which substitutes it, it is necessary that it
should be so expressly declared or that the old
and the new be incompatible in all points.
There exist no incompatibility with the old and
the new obligation as the new contract
stipulated that the suit against Gregorio Yulo
must continue and the three who executed the
new document would cooperate in order for
the action to prosper. Further, an obligation to
pay a sum of money is not novated in a new
instrument wherein the old is ratified by
changing only the term of payment and adding
other obligations not incompatible with the old
one.

4. The effects are:
The defendant has a right to enjoy the benefits
of partial remission of the debt granted by the
creditor to the defendants co-solidary debtors

Under the Civil Code (Art. 1143). The amount
stated in the contract of August 12,
1909,cannot be recovered but only that stated
in the contract of May 12, 1911, which
amounts to P225,000.
Further, under Art. 1148 of the Civil Code, the
solidary debtor may utilize against the claims
of the creditor all the defenses arising from the
nature of the obligation and those which are
personal to him. Those personally pertaining
to the others may be employed by him only
with regard to the share of the debt for which
the latter may be liable.
Not all of the P225, 000 can be demanded of
him, for that part of Francisco, Manuel and
Carmen are not yet due. (refer to the
difference of 1
st
payment due of the two
contracts)
Thus, Gregorio Yulo shall pay the amount of
P112, 500 the three-sixths part which feel due
on the first contract, with interest stipulated in
the May 12, 1911 contract.

LAFARGE CEMENT PHIL. VS. CONTINENTAL CEMENT


Legal Doctrine: Obligations arising from tort are, by
their nature, always solidary.

Facts:
Aug. 11, 1988 Lafarge and Continental executed a
Letter of Intent, whereby Lafarge agreed to purchase the
cement business of Continental.
Oct. 21, 1988 Both parties entered into a Sale and
Purchase Agreement (SPA).
At the time of the foregoing transactions, Lafarge was well
aware that Continental had a case pending with the SC,
entitled Asset Privatization Trust (APT) v. CA and
Continental Cement Corp.
In anticipation of the liability that the SC might adjudge
against Continental, the parties, under clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a
portion of the contract price in the amount of
P117,020,846.84.
Lafarge allegedly refused to apply the sum to the
payment to APT, despite the subsequent finality of the
decision in favor of APT and the repeated instructions of
Continental.
Continental filed before the QC RTC a Complaint with
Application for Preliminary Attachment, praying that
Lafarge be directed to pay the APT Retained Amount
referred to in Clause 2 (c) of the SPA.
Lafarge filed their Counterclaim, alleging that Continental,
through Lim (majority stockholder and president) and
Mariano (corporate secretary), had filed the baseless
Complaint and procured the Writ of Attachment in bad
faith. Also, it is prayed that both Lim and Mariano be held
jointly and solidarily liable with Continental.
RTC dismissed Lafarges counterclaim insofar as it
impleaded Lim and Mariano, even if it included
Continental.

Issue: W/N Lafarge can implead in their counterclaims
persons who were not parties to the original complaints.

Held: YES.


Ratio:
Lafarges counterclaims for damages were the result of
respondents (Lim and Mariano) act of filing the Complaint
and securing the Writ of Attachment in bad faith.
The ruling in Sapugay v. CA is applicable to the case at
bar: The inclusion of a corporate officer or stockholder is
not premised on the assumption that the plaintiff
corporation does not have the financial ability to answer
for damages, such that it has to share its liability with
individual defendants. Rather, such inclusion is based on
the allegations of fraud and bad faith on the part of the
corporate officer or stockholder. These allegations may
warrant the piercing of the veil of corporate fiction, so that
the said individual may not seek refuge therein, but may
be held individually and personally liable for his or her
actions.
Lafarges usage of the term "joint and solidary" is
confusing and ambiguous. Notwithstanding this
ambiguity, respondents' liability, if proven, is solidary.
CC Art. 1207: Obligations are generally considered joint,
except when otherwise expressly stated or when the law
or the nature of the obligation requires solidarity.
Obligations arising from tort are, by their nature, always
solidary.
Worcester v. Ocampo: "Joint tort feasors are jointly and
severally liable for the tort which they commit. The
persons injured may sue all of them or any number less
than all. Each is liable for the whole damages caused by
all, and all together are jointly liable for the whole
damage.
The fact that the liability sought against the Continental is
for specific performance and tort, while that sought
against the individual respondents is based solely on tort
does not negate the solidary nature of their liability for
tortuous acts alleged in the counterclaims.
CC Art. 1211: "Solidarity may exist although the creditors
and the debtors may not be bound in the same manner
and by the same periods and conditions.

JAUCIAN VS. QUEROL
ROMAN JAUCIAN, plaintiff and appellant, vs. FRANCISCO QUEROL, administrator of the intestate estate of the
deceased Hermenegilda Rogero, defendant and appellee
Ponente: J. Street

Legal Doctrine: Where a guarantor or surety is jointly and severally bound with the principal debtor, the obligation of the
guarantor or surety, equally with that of the principal debtor, is absolute and not contingent within the meaning of section
746 of the Code of Civil Procedure. Where two persons are bound in solidum for the same debt and one of them dies,
the whole indebtedness can be proved against the estate of the latter; and if the claim is not presented to the committee
appointed to allow claims against the estate within the time contemplated in section 689 of the Code of Civil Procedure
the same will be barred as against such estate, under the provisions of section 695 of the same Code.

Facts:
Oct 1908- Lino Dayandante and Hermenegilda Rogero
executed a private writing in which they acknowledge
themselves to be indebted to Jaucian in the sum of P 13,
332.33. Rogero signed this document in the capacity of
surety for Dayandante; but as clearly appears from the
instrument itself both debtors bound themselves jointly and
severally to the creditor or, and there is nothing in the
terms of the obligation itself to show that the relation
between the two debtors was that of principal and surety.
Nov 1909- Rogero brought an action in the CFI of Albay
against Jaucian, asking that the document in question be
cancelled as to her upon the ground that her signature was
obtained by means of fraud.
Jaucian responded, by way of cross-complaint, asking for
judgment against Rogero for the amount due upon the
obligation, which appears to have matured at that time. But
CFI decided in favor of Rogero hence Jaucian appealed in
the Supreme Court.

While the case was pending in the Supreme Court, Rogero
died and the administrator of her estate was substituted as
the party plaintiff and appellee. Francisco Querol was
named administrator; and a committee was appointed to
pass upon claims against the estate of Rogero. This
committee made its report on claims against Rogero estate
on September 3, 1912.
Nov 25, 1913 - the Supreme Court reversed the judgment
of the trial court and held that the disputed claim was valid.
March 24, 1914- Jaucian entered an appearance in the
estate proceedings, and filed with the court a petition for
the execution of the document of October, 1908, by the
deceased; since there is a failure on the part her co-obligor
Dayandante, to pay any part of the debt, except the P100
received from him in March, 1914. Dayandante was
completely insolvent.
Upon these facts, Jaucian asked the court for an order
directing Querol, as administrator of Rogero estate, to pay
him the principal sum of P13, 332.33 plus its interest. But
Querol opposed the granting of the petition upon grounds
that the claim had never been presented to the committee
for allowance; that 18 mths (Sept 1912-Mar 1914) had
passed since the filing of the report of the committee, and
that the court was therefore without jurisdiction to entertain
the demand of the claimant.

On April 13, 1914, CFI (Hon. Moir) ruled that:
This claim is a contingent claim, because, according to
the decision of the Supreme Court, Hermenegilda Rogero
was a surety of Lino Dayandante. The object of presenting
the claim to the commissioners is simply to allow them to
pass on the claim and to give the administrator an
opportunity to defend the estate against the claim. This
having been given by the administrator defending the suit
in the Supreme Court he cannot now come into court
and hide behind a technicality and say that the claim had
not been presented to the commissioners and that, the
commissioners having long since made report, the claim
cannot be referred to the commissioners and therefore the
claim of Roman Jaucian is barred.
"Hermenegilda Rogero having been simply surety for Lino
Dayandante, the administrator has a right to require that
Roman Jaucian produce a judgment for his claim against
Lino Dayandante, in order that the said administrator may
be subrogated to the rights of Jaucian against Dayandante.
When this action shall have been taken against Lino
Dayandante and an execution returned 'no effects,' then
the claim of Jaucian against the estate will be ordered paid
or any balance that may be due to him." The court further
added that there must be a legal action taken against Lino
Dayandante to determine whether or not he is insolvent
and that a simple affidavit saying that he has no property
except P100 worth of property, which he has ceded to
Roman Jaucian, is not sufficient.
And so, following this suggestion by the court, Jaucian
brought a legal action against Dayandante and recovered
a judgment against him for the full amount of the obligation
evidenced by the document of October 24, 1908.
Execution was issued upon this judgment, but was
returned by the sheriff wholly unsatisfied, no property of
the judgment debtor having been found.
Then On October 28, 1914, counsel for Jaucian filed
another petition in the estate proceedings of Rogero, in
which they averred, upon the grounds last stated, that
Dayandante was insolvent, and renewed the prayer of the
original petition. It was contended that the court, by, its
order of April 13, 1914, had "admitted the claim."
The petition was again opposed by the administrator of the
estate upon the grounds that the claim was not admitted by
the order of April 13, 1914; that the said claim was a mere
contingent claim against the property of Rogero; that the
claim was not reduced to judgment during the lifetime of
Rogero; that it was not presented to the commissioners;
that this credit is outlawed or prescribed; and that this court
has no jurisdiction to consider this claim.

Issues:
1. WON the order of April 13, 1914 is final and
hence appealable
2. WON Rogeros liability was that of principal,
though she was only a surety for Dayandante

Held/Ratio:
1. No, it was not final and therefore it was not appealable.
In effect, it held that whatever rights Jaucian might have
against the estate of Rogero were subject to the
performance of a condition precedent, namely, that he
should first exhaust this remedy against Dayandante... The
pivotal fact upon which the order was based was the failure
of appellant to show that he had exhausted his remedy
against Dayandante, and this failure the court regarded as

a complete bar to the granting of the petition at that time.
The order of April 13, 1914, required no action by the
administrator at that time, was not final, and therefore was
not appealable. We therefore conclude that no rights were
conferred by the said order of April 13, 1914, and that it did
not preclude the administrator from making opposition to
the petition of the appellant when it was renewed.

2. Yes, Rogeros liability is that of a principal even though
she was only a surety for Dayadante
But Hon. Jenkins was correct in rejecting the claim of
Jaucian, since it was absolute claim and not contingent.
-Bearing in mind that the deceased Hermenegilda Rogero,
though surety for Lino Dayandante, was nevertheless
bound jointly and severally with him in the obligation, the
following provisions of law are here pertinent.

Article 1822 of the Civil Code provides:
"By security a person binds himself to pay or perform for a
third person in case the latter should fail to do so.
"If the surety binds himself jointly with the principal debtor,
the provisions of section fourth, chapter third, title first, of
this book shall be observed."

Article 1144 of the same code provides:
"A creditor may sue any of the joint and several (solidarios)
debtors or all of them simultaneously. The claims instituted
against one shall not be an obstacle for those that may be
later presented against the others, as long as it does not
appear that the debt has been collected in full."

Article 1830 of the same code provides:
"The surety can not be compelled to pay a creditor until
application has been previously made of all the property of
the debtor."

Article 1831 provides:
"This application can not take place " (1) * * * (2) If he has
jointly bound himself with the debtor * * *."

The foregoing articles of the Civil Code make it clear that
Hermenegilda Rogero was liable absolutely and
unconditionally for the full amount of the obligation without
any right to demand the exhaustion of the property of the
principal debtor previous to its payment. Her position so far
as the creditor was concerned was exactly the same as if
she had been the principal debtor.
-The absolute character of the claim and the duty of the
committee to have allowed it in full as such against the
estate of Hermenegilda Rogero had it been opportunely
presented and found to be a valid claim is further
established by section 698 of the Code of Civil Procedure,
which provides:
"When two or more persons are indebted on a joint
contract, or upon a judgment founded on a joint contract,
and either of them dies, his estate shall be liable therefor,
and it shall be allowed by the committee as if the contract
had been with him alone or the judgment against him
alone. But the estate shall have the right to recover
contribution from the other joint debtor."
- In the official Spanish translation of the Code of Civil
Procedure, the sense of the English word "joint," as used
in two places in the section above quoted, is rendered by
the Spanish word "mancomunadamente." This is incorrect.
The sense of the word "joint," as here used, would be more
properly translated in Spanish by the word "solidaria,"
though even this word does not express the meaning of
the English with entire fidelity.
- The section quoted, it should be explained, was originally
taken by the author, or compiler, of our Code of Civil
Procedure from the statutes of the State of Vermont; and
the word "joint" is, therefore, here used in the sense which
attaches to it in the common law where there is no
conception of obligation corresponding to the divisible joint
obligation contemplated in article 1138 of the Civil Code. It
is just to say, the obligation is apportionable among the
debtors; and in case of the simple joint contract neither
debtor can be required to satisfy more than his aliquot part.
- To avoid the inconvenience of this procedural
requirement and to permit the creditor in a joint contract to
do what the creditor in a solidary obligation can do under
article 1144 of the Civil Code, it is not unusual for the
parties to a common law contract to stipulate that the
debtors shall be "jointly and severally" liable. The force of
this expression is to enable the creditor to sue any one of
the debtors or all together at pleasure.

- From what has been said it is clear that Hermenegilda
Rogero, and her estate after her death, was liable
absolutely for the whole obligation, under section 698 of
the Code of Civil Procedure; and if the claim had been duly
presented to the committee for allowance it should have
been allowed, just as if the contract had been with her
alone.
- It is thus apparent that by the express and
incontrovertible provisions both of the Civil Code and the
Code of Civil Procedure, this claim was an absolute claim.
Applying section 695 of the Code of, Civil Procedure, this
court has frequently decided that such claims are barred if
not presented to the committee in time; and we are of the
opinion that, for this reason, the claim was properly
rejected by Judge Jenkins.
- There is no force, in our judgment, in the contention that
the pendency of the suit instituted by the deceased for the
cancellation of the document in which the obligation in
question was recorded was a bar to the presentation of the
claim against the estate. The fact that the lower court had
declared the-document void was not conclusive, as its
judgment was not final, and even assuming that if the claim
had been presented to the committee for allowance, it
would have been rejected and that the decision of the
committee would have been sustained by the Court of First
Instance, the rights of the creditor could have been
protected by an appeal from that decision.
- The only concrete illustration of a contingent claim given
in section 746 is the case where a person is liable as
surety for the deceased, that is, where the principal debtor
is dead. This is a very different situation from that
presented in the concrete case now before us, where the
surety is the person who is dead.
- It is enough to say that where, as in the case now before
us, liability extends unconditionally to the entire amount
stated in the obligation, or, in other words, where the
debtor is liable in solidum and without postponement of
execution, the liability is not contingent but absolute.

Dispositive: For the reasons stated, the decision of the
trial court denying appellant's petition and his motion for a
new trial was correct and must be affirmed.

MALCOLM and FISHER, JJ., concurring:
With respect to the contention that the bar established by
section 695 is limited to claims "proper to be allowed by
the committee" our reply is that contingent claims fall within
this, definition equally with absolute claims. It is true that as
long as they are contingent the committee is not required
to pass upon them finally, but merely to report them so that
the court may make provision for their payment by
directing the retention of assets. But if they become
absolute after they have been so presented, unless
admitted by the administrator or executor, they are to be
proved before the committee, just as are other claims. We
are of the opinion that the expression "proper to be allowed
by the Committee," as limiting the word "claims" in section
695 is not intended to distinguish absolute claims from
contingent claims, but to distinguish those which may in no
event be passed upon by the committee, because
excluded by section 703, from those over which it has
jurisdiction. We are of the opinion, therefore, that
contingent claims not presented to the committee on
claims within the time named for that purpose are barred.

Judgment affirmed.


RFC VS. CA
REHABILITATION FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS and REALTY INVESTMENTS,
INC., respondents.
Ponente: REYES, A., J.

Legal Doctrine: A guaranty is a contract whereby a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter fail to do so. In solidary obligation, any one or some or all of the
solidary debtors simultaneously, may be made to pay the debt so long as it has not been fully collected. A solidary
guaranty is a suretyship which means that the guarantors are liable to the creditor solidarily with the principal debtor.

Facts:
June 17, 1948 Dominguez signed a contract with Realty
Investments, Inc. to purchase a registered lot (Riverside
Subdivision). He made a downpayment of 39.98 and
promising to pay the balance in 119 monthly installments.
After 3 months, RFC agreed to loan him 10,000 on the
security of a mortgage upon the house and lot.
September 17, 1948 RFC requested that the necessary
documents for the transfer of title of the vendee be
executed so that it can be registered together with the
mortgage, this with the assurance that as soon as title to
the lot had been issued in the name of Dominguez and
the mortgage in favor of RFC registered as first lien on
the lot and building thereon, the RFC would ay Realty
Investments the balance of the purchase price of the lot
in the amount of P3, 086.98.
Complying and relying on the assurance made by RFC,
Realty investment deeded over the lot to Dominguez free
of all liens and encumbrances and thereafter the
mortgage deed was recorded in the Registry of Deeds in
Manila.
Once the mortgage was recorded RFC released to
Dominguez P6, 500 but the remainder of the loan was
never released because Dominguez defaulted in the
payment of the amortization due and as a consequence
RFC foreclosed the mortgage. RFC bought the
mortgaged property in the foreclosure sale and obtained
title thereto upon failure of the mortgagor to exercise his
right of redemption.
RFC refused to pay Realty Investments the balance of the
purchase price of the lot.
Realty Investments commenced the present action in the
Court of First Instance of Manila for the recovery of the
said balance from either Delfin Dominguez or the RFC.
Trial Court allowed recovery from Dominguez, but
absolved the RFC from the complaint.
But on appeal, the Court of Appeals reversed that verdict,
declared the judgment against Dominguez void for having
been rendered after his exclusion from the case, and
sentenced the RFC to pay plaintiff the amount claimed
together with interests and costs.

Issue: W/N RFC is liable for the balance of the purchase
price of the lot?

Held/Ratio: Yes, it is liable.
While the amount sought to be recovered by plaintiff was
originally owing from Dominguez, being the balance of the
purchase price of the lot he had agreed to buy, the
obligation of paying it to plaintiff has already been
assumed by the RFC with no other condition than that title
to the lot be first conveyed to Dominguez and RFC's
mortgage lien thereon registered, and that condition has
already been fulfilled.
Dominguez and RFC kept the Realty Investment ignorant
on the terms and conditions of their agreement
concerning the loan of 10,000 and the manner that sum
was to be released
Realty Investment was induced to part with his title to a
piece of realty property upon the assurance of RFC that it
would itself pay the balance of the purchase price due

from the Dominguez after its mortgage lien thereon had
been registered.
If RFC was not to make any further release of funds on
the loan, or if such release was to subject to future
developments, it was the duty of RFC to answer the letter
dated September 20, and to inform Realty Investment of
the terms and conditions of the loan. The officers of RFC
failed to do this and cannot be upheld by the courts of
justice.
It was the RFC that induced Realty Investment to issue
title to the lot free from all encumbrances to Dominguez
on its guaranty.
Dominguezs original obligation to pay realty was affirmed
by RFC upon the conveyance of the title of the lot to
Dominguez and the registration thereon of the mortgage
in favour of RFC. This condition was already fulfilled
hence RFCs obligation to pay the remaining balance
became due and demandable.

Dispositive: The decision appealed from is affirmed, with
costs against the RFC.

Quiombing v. CA
Nicencio Tan Quiombing, petitioner, vs. CA & Sps Francisco & Manuelita Saligo, respondents
Ponente: Cruz, J.

Legal Doctrine:
The distinction between joint and solidary obligations from Tolentino:
x JOINT OBLIGATION: each party can be held liable or entitled (as the case may be) to a PROPORTIONATE
part of the debt or credit. EACH can pay or recover only HIS SHARE of the obligation.
x SOLIDARY OBLIGATION: each party is liable for or can demand THE ENTIRE obligation. Debtor can be
obliged to pay the ENTIRE obligation. Creditor has the right to enforce the entire oblig .

The essence of ACTIVE SOLIDARITY consists in the authority of each creditor to claim & enforce the rights of all, the
resulting obligation of paying everyone what belongs to him. There is no merger much less renunciation of rights, but
only MUTUAL REPRESENTATION.

Facts:
Through a Construction and Service Agreement
(CSA) , Nicencio Tan Quiombing and Dante Biscocho
as the First Party, jointly & severally bound themselves
to construct a house for Francisco & Manuelita Saligo
for Php 137, 947.00 on August 30, 1983.
On October 10, 1984 Quiombing & Manuelita (the wife)
entered into a 2
nd
written agreement [1] acknowledging
the completion of the house and [2] paying the balance
amounting to Php 125, 363.50.
Then on November 19, 1984, Manuelita executed a
promissory note representing the Php 125, 363.50 still
due from her & her husband payable to Quiombing on
or before Dec. 31, 1984.
Almost two years later, on Oct 29, 1986 filed a
complaint for the recovery of the amountplus
surcharge and interestsas the balance of the
contracted price of the construction of the house.

Pertinent arguments:
x Private respondents argued that the complaint
cannot prosper since Biscocho (Quiombings co-
creditor) is an indispensable party.

Issue:
WON one of the 2 solidary creditors can sue by
himself alone for the recovery of the amounts due
to both of them w/o joining the other as co-plaintiff?
(That is, is the 2
nd
solidary creditor an indispensable
party?)

Held/Ratio:
YES, he can. It did not matter who between Quiombing
and Biscocho filed the complaint because the private
respondents were liable to either of the 2 as a solidary
creditor for the full amount of the debt.
In explaining the distinction between joint and solidary
obligs, the SC relied on Tolentino:
x JOINT OBLIGATION: each party can be held liable
or entitled (as the case may be) to a
PROPORTIONATE part of the debt or credit.
EACH can pay or recover only HIS SHARE of the
obligation.
x SOLIDARY OBLIGATION: each party is liable for
or can demand THE ENTIRE obligation. Debtor
can be obliged to pay the ENTIRE oblig. Creditor
has the right to enforce the entire oblig.

The essence of ACTIVE SOLIDARITY consists in the
authority of each creditor to claim & enforce the rights
of all, the resulting obligation of paying everyone what
belongs to him. There is no merger much less
renunciation of rights, but only MUTUAL
REPRESENTATION.
Thus as far as the Saligos were concerned, payment to
Quiombing will be considered payment to the other
even if Biscocho was not made a party to the suit.
Art. 1212. Each one of the solidary creditors
may do whatever may be useful to the others,
but not anything which may be prejudicial to
the latter. (1141a)
Art. 1214. The debtor may pay any one of the
solidary creditors; but if any demand, judicial
or extrajudicial, has been made by one of
them, payment should be made to him.
(1142a)

NOTES on corollary issue/s:
x The Saligos cannot plead for breach of contract
since they acknowledged the completion of the
house & agreed to pay the balance of the contract
price as per the 2
nd
agreement.
x The participation of Biscocho is not indispensable
much less necessary.
INDISPENSABLE parties are with such interest in the
controversy that a final decree will necessarily affect
their rights, so the court cannot proceed without their
presence.

NECESSARY parties are those whose presence is
necessary to adjudicate the whole controversy but
whose interest are separable that a final decree can be
made in their presence without affecting them.


INCIONG VS. CA
Baldomero Inciong, Jr., petitioner, vs. Court of Appeals and Philippine Bank of Communications, respondents
Ponente: Romero, J.

Legal Doctrine: A solidary or joint & several obligation is one in which each debtor is liable for the entire obligation, &
each creditor is entitled to demand the whole obligation.
CC 2080: The guarantors, even though they be solidary, are released from their obligation whenever by some act of the
creditor, they cannot be subrogated to the rights, mortgages, & preferences of the latter.

Facts:
Inciong, Naybe, & Pantanosas signed a promissory note
of P50, 000, holding themselves jointly & severally liable
to respondent PBC, Cagayan de Oro City branch.
Promissors did not pay on due date.
PBC twice sent Inciong telegrams demanding payment, &
sent a final letter of demand to Naybe. Obligors did not
respond to demands.
PBC filed a complaint for collection of the sum of
P50,000. Complaint dismissed for failure of PBC to
prosecute the case. Lower court reconsidered the
dismissal & required the sheriff to serve the summonses.
Lower court dismissed the case against Pantanosas. Only
the summons addressed to Inciong was served as Naybe
had gone to Saudi Arabia.
According to Inciong:
He was approached by Campos, who told him
(1) that he was a partner of Pio Tio, the branch
manager of PBC, in a logs operation business
(2) that Naybe would contribute a chainsaw to
the venture (3) that, although Naybe had no
money, Pio Tio had assured Naybe of the
approval of a loan he would make with PBC (4)
that Inciong should act as a co-maker in the
said loan.
5 copies of a blank promissory note were
brought to him by Campos. He affixed his
signature thereto but in one copy, he indicated
that he bound himself only for P5, 000. Thus, it
was by trickery, fraud & misrepresentation that
he was made liable for the amount of P50, 000.
The lower court decided that Inciongs testimony on his
limited liability cannot prevail over the presumed regularity
& fairness of the transaction, since the figure "50,000"
appears directly below the signature of Inciong in the
promissory note. The lower court added that it was "rather
odd" for petitioner to have indicated in a copy & not in the
original, his supposed obligation in the amount of P5,000
only, considering that Inciong had a Bachelor of Laws
degree & is a labor consultant.

Issue/Held:
Is Inciong liable to pay the entire amount of the obligation
as a solidary co-debtor? YES

Ratio:
There is no merit in Inciong's assertion that since the
promissory note is not a public deed with the formalities
prescribed by law but a mere commercial paper, parol
evidence may overcome it.
The parol evidence rule states: When the terms of an
agreement have been reduced to writing, it is considered
as containing all the terms agreed upon & there can be,
between the parties & their successors in interest, no
evidence of such terms other than the contents of the
written agreement.
The rule does not specify that the agreement be a public
document. What is required is that the agreement be in
writing.
By alleging fraud, petitioner was in the right direction
towards proving that he & his co-makers agreed to a loan
of P5, 000 only. However, fraud must be established by
clear & convincing evidence, mere preponderance is not
adequate. Petitioner's allegation was evidenced only by
his own testimony.

Inciong argues that the dismissal of the complaint against

Naybe (the principal debtor) & against Pantanosas (co-
maker), should release him of obligation, based on CC
2080. However, Inciong signed the promissory note as a
solidary co-maker & not as a guarantor. A solidary or joint
& several obligation is one in which each debtor is liable
for the entire obligation, & each creditor is entitled to
demand the whole obligation.
Because the promissory note expressly states that the
signatories are jointly & severally liable, any one of them
may be proceeded against for the entire obligation. The
choice is left to the creditor to determine against whom he
will enforce collection. Consequently, the dismissal of the
case against Judge Pontanosas may not be deemed as
having discharged petitioner from liability as well.

ALIPIO VS. CA
Purita Alipio, petitioner v. Court of Appeals and Romeo Jaring, represented by attorney-in fact Ramon Jaring,
respondents
Ponente: Mendoza, J.

Facts:
Respondent Jaring was the lessee of a 14.5 ha. fishpond
in Bataan. His lease was for 5 years ending on 12
September, 1990. On June 1987, he subleased the pond
to spouses Alipio and spouses Manuel for the remaining
period for Php 485,600, payable in 2 instalments. All four
spouses signed the contract.
The second instalment of Php 185,600 was due on 30
June 1989. However, the spouses only made partial
payment of Php 50,600. They filed to comply despite
Jarings demand. Jaring then sued (October 1989) for the
collection of the rent or, as an alternative, for the
rescission of the sublease.
Purita Alipio moved to dismiss since her husband died on
December 1, 1988. She grounded her motion on the 1964
Rules of Court provision stating that in an action for the
recovery of a debt, if the defendant dies before final
judgment the case must be dismissed in order to be
prosecuted in the manner provided. However, this
provision was later amended to read that the case is not
to be dismissed but instead allowed to continue until final
judgment.

Issues: W/N creditor can sue surviving spouse for the
collection of a debt incurred by the conjugal partnership of
gains or whether such claim must be filed in the
proceedings for the settlement of estate.

Held: The claim must be filed in the proceeding for
settlement of estate. Petition to dismiss the case granted.

Ratio:
The husband died 10 months prior to the time when the
suit for recovery was filed. Therefore, this case falls
outside the ambit of the Rules of Court provision stating
that if died during the pendency of the case, the suit
continues.
When the spouses Alipio entered into the contract, the
debt was incurred by the conjugal partnership of gains
and not by themselves separately. When the husband
dies, the conjugal partnership was automatically dissolved
and the debts charged to it could only be paid during the
proceedings for the settlement of the estate. The proper
remedy is to claim from the conjugal property and not
from the surviving spouse, who no longer becomes the
administrator of the property. Since the CPG is now
dissolved, the proper avenue is to claim during the
settlement of the estate, where an inventory of property is
necessary before claims against it can be made.
The case of Climaco and Imperial does not apply here
because here is a different set of facts. In Climaco,
petitioner was awarded damages for malicious
prosecution. Therefore, the claim was not shouldered by
the conjugal partnership and thus survives after the death
of one spouse. The case of Imperial likewise does not
apply here because the spouses in that case were jointly
and severally liable and therefore could be independently
sued.

Obligations are presumed joint. They are solidarily only

when it is expressly stipulated or when the law or nature
of the obligation so requires. An obligation would be
solidarily liable by law if, after being in default, the
petitioners would refuse to leave. However, there was no
showing of this. Neither was there any showing that the
nature of the obligation in this case required a solidary
liability. Therefore, since the obligation is joint, it is
demandable from the conjugal partnership and not to
each party of the contract.

VI. Obligations with a Penal Clause
MAKATI DEVELOPMENT CORP. VS. EMPIRE INSURANCE CO.
Makati Development Corporation, plaintiff-appellant, vs. Empire Insurance Co., defendant-appellee, and Rodolfo P.
Andal, third-party defendant-appellee
Ponente: Castro, J.

Legal Doctrine: Where there has been partial or irregular compliance with the provisions in a contract for special
indemnification in the event of failure to comply with its terms, courts will rigidly apply the doctrine of strict construction
against the enforcement in its entirety of the indemnification, where it is clear from the contract that the amount or
character of the indemnity is fixed without regard to the probable damages which might be anticipated as a result of a
breach of the terms of the contract, or, in other words, where the indemnity provided for is essentially a mere penalty
having for its object the enforcement of compliance with the contract.

Facts:
March 31, 1959: MDC sold to Andal a lot (1,589 m
2
) in the
Urdaneta Village, Makati, Rizal for P 55, 615.
The deed of sale contains a special condition: "[T]he
VENDEE/S shall commence the construction and
complete at least 50% of his/her/their/its residence on the
property within two (2) years from March 31, 1959 to the
satisfaction of the VENDOR and, in the event of
his/her/their/its failure to do so, the bond which the
VENDEE/S has delivered to the VENDOR in the sum of
P11,123.00 and evidenced by a cash bond receipt dated
April 10, 1959 will be forfeited in favor of the VENDOR by
the mere fact of failure of the VENDEE/S to comply with
this special condition."
April 10, 1959: Andal (principal) and EIC (surety) gave a
surety bond, jointly and severally. They will pay P12, 000
to MDC in case Andal failed to comply with his obligation.
Andal did not build house. Instead, he sold the lot to Juan
Carlos on Jan. 18, 1960.
April 3, 1961 (three after the lapse of the 2-year period):
MDC sent a notice to EIC demanding for P12,000.
EIC refused: MDC filed a complaint against EIC to
recover the bond plus attorneys fees
EIC filed its answer with a third-party complaint againt
Andal. It asked that MDC complaint be dismissed or if it
the judgement will be favourable to MDC, that Andal will
be ordered to pay EIC whatever amount it may be
ordered to pay to MDC + 12% interest + attorneys fees
Andal: The special condition is contrary to law, morals,
and public policy. Nonetheless, Carlos had started the
construction of a house and lot.
CFI: EIC should pay P1,500 to MDC + interest +
attorneys fees. In case the EIC pays such, Andal is
ordered to pay EIC the same amount.
MDS appealed directly to the SC.

Issue/ Held:
Is the decision of CFI reducing Andals liability correct?
Yes.


Ratio:
CFI: The entire area was already fenced with a stone wall
and building materials were also stocked. It is a clear
indicia of the owners desire to construct the house
though with a little delay.
The penal clause in this case was not for indemnification
to MDF for any damage it might suffer for non-compliance
of the obligation, but rather to compel the performance of
the special condition.
Article 1229 of the Civil Code states:
The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
The building of a house shortly after the period stipulated
justifies reducing the penalty. There was a partial
performance of the obligation.
Though Carlos bears no contractual relation to MDC, the
contract must not impose strict personal obligation to
Andal. He has the right to sell the lot, one of the rights of
ownership.

TAN VS. CA
Antonio Tan, petitioner, vs. Court of Appeals and the Cultural Center of the Philippines, respondents
Ponente: De Leon, Jr., J.

Legal Doctrine: In obligations with penal clause, the penalty shall substitute indemnity for damages any payment of
interests in case of non compliance, if there is no stipulation to contrary.

Facts :
May 14 and July 6, 1978: Antonio Tan obtained 2 loans
each in principal amounts of 2M (or 4M in total) from CCP
evidenced by 2 promissory notes with maturity dates on
May 14 and July 6, 1979.
Tan defaulted but after a few partial payments he had
loans restructured by CCP and he accordingly executed a
promissory note on Aug 31, 1979 in amount of P3, 411,
421.32 payable in 5 installments.
Tan failed to pay any installment (last installment falling
due on Dec 31, 1980.) and wrote a letter (Jan 26, 1982)
requesting and proposing to CCP a restructured loan 20%
of principal to be paid and the balance to be paid in 36
equal monthly installments. Oct 20, 1983 Tan wrote
another letter requesting moratorium on his loan due to
dedeuction of the volume of his business and peso
devaluation. No favorable responses were made to the
letters.
CCP wrote a letter (May 30 1984) demanding full
payment within 10 days of receipt of letter for P6, 088,
735.03.
CCP filed in RTC Manila for complaint of collection of sum
of money after Tan failed to pay restructured loan. Tan
interposed that he merely accommodated friend Lucmen
who asked for help in obtaining loan from CCP and now
he is unable to locate Lucmen.
RTC and CA ruled in favor of CCP. RTC charged interest,
surcharges, attorneys fees, exemplary damages,
penalties and charges on his loan obligation. CA deleted
award for exemplary damages and reduced attorneys
fees.
Tan doesnt question his liability for his restructured loan
under promissory note.

Issue: Whether there are contractual and legal bases for
the imposition of the penalty, interest on the penalty, and
attorneys fees.

Held: Yes there are contractual or legal bases.


Ratio:
- Tan says that CA erred in not totally eliminating the
award of attorneys fees and in not reducing the penalties
considering he has allegedly made partial payments on
the loan. And if the penalty is to be awarded, Tan wants
non-imposition of interest on surcharges inasmuch as the
compounding of interest on surcharges is not provided in
the promissory note. He also says that there is no basis
for charging of interest on surcharges. But Art.1226 of
New Civil Code applies. In the case at bar, the promissory
note expressly provides for the imposition of both interest
and penalties in case of default on Tans part. This can be
seen in the stipulation In case of non-payment of this
noteI agree to pay additional penalty charges per
month until paid
- Tan says there is no legal basis for imposition of interest
on penalty charge because law only allows imposition of
interest on monetary interest but not the charging of
interest on penalty. But the court says that penalty
clauses can be in form of penalty or compensatory
interest. The compounding of penalty or compensatory
interest is sanctioned in Art1959 of New Civil Code.
Therefore any penalty interest not paid when due shall
earn the legal interest of 12% per annum in the absence
of express stipulation.Art2212 of New Civil Code provides
interest due shall earn legal interest from time it is
judicially demanded, although obligation may be silent
upon this point.
- Tan seeks elimination of compounded interest imposed
on total amount based allegedly on case of Napocor vs
Natl Merchandising Corp, wherein we ruled that
imposition of interest on damages from filing complaint is
unjust where litigation was prolonged for 25 yrs through
no fault of defendant. This is not applicable inasmuch as
the ruling on issue of interest in that case was based on
equitable considerations and on fact that case lasted for
25 yrs through no fault of defendant while in this case
equity cant be considered inasmuch as there is a
contractual stipulation in the promissory note whereby
Tan expressly agreed to compounding of interest in case
of failure on his part to pay loan at maturity. Inasmuch as
stipulation on compounding of interest has the force of
law between parties and does not appear to be
inequitable or unjust, said stipulation should be respected.
- Art1229 of New civil Code says the judge shall
equitably reduce the penalty when principal pbligation has
been partly or irregularly complied with. Even if there has
been no performance, penalty may be reduced by courts
if it is iniquitous or unconscionable. Considerinf Tans
several partial payments and the fact that he is liable
under the note for 2% penalty charge per month on total
amount due, compounded monthly, for 21 yrs since his
default in 1980, we find it fair and equitable to reduce the
penalty charge to a straight 12% starting August 28, 1986
(date of last Statement of Accounts). The court also took
into consideration Tans offers to enter into compromise
and the way he showed his good faith despite difficulty in
complying with his loan obligation due to financial
problems.
- Tan says that his obligation to pay interest and
surcharge should be suspended because the obligation
became conditional based on Tans request for
condonation of interest and surcharge would be
recommended by Commission on audit and Office of
Pres. To House of Representatives as required under
PD1445. But the court says that the running of interest
and surcharge wasnt suspended because the letter
doesnt contain any categorical agreement on the part of
CCP that the payment of interest and surcharge is
deemed suspended while appeal for condonation was
being processed.

COUNTRY BAKERS INSURANCE VS. CA
COUNTRY BANKERS INSURANCE CORPORATION (CBSICO) and ENRIQUE SY, petitioners, vs. COURT OF
APPEALS and OSCAR VENTANILLA ENTERPRISES CORPORATION (OVEC), respondents
Ponente: Medialdea, J.

Legal Doctrine: A penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

Facts:
OVEC (lessor) and Enrique Sy (lessee) entered into a
lease agreement for three properties- Avenue, Broadway
and Capitol Theatres- all located in Cabanatuan City,
including accessories needed for film showing.
The lease was to last from June 13 1977 to June 12,
1983 or a period of 6 years. However, after two (2) years,
OVEC demanded the repossession of said properties in
view of Sys arrears in monthly rentals as well as non-
payment of amusement taxes.
On August 8, 1979, the two parties had a conference in
which Sy was allowed to continue his lease with certain
conditions as imposed in a supplemental agreement
made on August 13. The new agreement reduced the
arrears in rental from P125, 455.76 to P71, 028.91.
However, the accumulated amusement tax amounted to
P84, 000 which he Sy was also unable to pay.
OVEC sent letters of demand dated January 7, 1980 and
February 3, 1980 to Sy for the arrears in rental and the
amusement tax due. It also warned that pursuance to the
agreements made in 1977 and 1979, the company would
take possession of the theaters on February 11, 1980.
Sy failed to pay his debts so OVEC made do its warning
by posting men around the premises of the theaters and
padlocking the gates. Thereafter, Sy filed the present
action for reformation of the lease agreement, damages
and injunction late on the same day. And by virtue of a
restraining order dated February 12, 1980 followed by an
order directing the issuance of a writ of preliminary
injunction issued in said case, Sy regained possession
and operation of the Avenue, Broadway and Capital
theaters.
The trial court found that OVEC was deprived of the
possession and enjoyment of the leased premises and
also suffered damages as a result of the filing of the case
by Sy and his violation of the terms and conditions of the
lease agreement. Hence, it held that OVEC is entitled to
recover the following damages in addition to the arrears in
rentals and amusement tax delinquency of Sy and the
accrued interest:
As of the end of November, 1980, when OVEC finally
regained the possession of the three (3) theaters under
lease, unpaid rentals and amusement tax liability
amounting to P289, 534.78.
P10,000.00 every month from February to November,
1980 or the total amount of P100,000.00 with interest on
each (the original rental fee was P50,000 which was
increased to P60,000 in view of the offer of RTG
Productions, Inc. to lease the three theaters for P60,000 a
month.
Attorney's fees equivalent to 10% of the amounts above-
mentioned.
The CA found that the termination of the agreement prior
was justified by Sy's default in his compliance with the
terms of the agreement and not "motivated by fraud or
greed." It also affirmed the award to OVEC of the amount
of P100, 000.00 chargeable against the injunction bond
posted by CBISCO which was soundly and amply justified
by the trial court.

Issue:
Whether or not OVEC was unjustly enriched or benefited
at the expense of Sy.

Held/Ratio:
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.
A penal clause is an accessory obligation which the
parties attach to a principal obligation for the purpose of
insuring the performance thereof by imposing on the
debtor a special presentation (generally consisting in the
payment of a sum of money) in case the obligation is not
fulfilled or is irregularly or inadequately fulfilled...
However, there are exceptions to the rule (a) when there
is a stipulation to the contrary; (b) when the obligor is
sued for refusal to pay the agreed penalty; and (c) when
the obligor is guilty of fraud.
Sy was unable to pay his rent and the amusement tax
and as a result, the agreement was cancelled and the
remaining deposit of P300, 000 was forfeited.Aside from
the forfeited deposit (the penalty), OVEC is also entitled
to the P100,000 opportunity cost representing the

P10,000 increase in rental fees during the ten months of

injunction period against the injunction bond posted by
CBISCO.

CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS
II. Payment or Performance
B. Requisites
KALALO VS. LUZ
Octavio KALALO, plaintiff-appellee, v.s Alfredo LUZ, defendant-appellant
Ponente: Zaldivar, J.

Legal Doctrine: RA 529 provides that if the obligation was incurred prior to its enactment (June 16, 1950) and the
required payment is in a currency other than the Philippine currency the payment shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time the obligation was incurred. On the other hand, for
obligations incurred after RA 529 the rate of exchange should be that prevailing at the time of payment.

Facts:
On November 17, 1959 Kalalo (civil engineer from OA
Kalalo and Assoc.) entered into an agreement with Luz
(architect from AJ Luz and Assoc) whereby the former
was to render engineering design services to the latter for
fees, as stipulated in the agreement. The projects entered
into by both parties included: (a)Fil-American Life
Insurance Building at Legaspi City; (b)Fil-American Life
Insurance Building at Iloilo City; (c)General Milling
Corporation Flour Mill at Opon, Cebu; (d)Menzi Building
at Ayala Blvd., Makati, Rizal; (e)International Rice
Research Institute, Research Center, Los Baos, Laguna;
(f)Aurelia's Building at Mabina, Ermita, Manila; (g)Far
East Bank's Office at Fil-American Life Insurance Building
at Isaac Peral, Ernita, Manila; (h)Arthur Young's
residence at Forbes Park, Makati, Rizal; (i) L & S Building
at Dewey Blvd., Manila; and (j)Stanvac Refinery Service
Building at Limay, Bataan.
On December 11, 1961, Kalalo sent to Luz itemized
statement according to which the total service fee asked
owed amounted to P116, 565.00. Minus the previous
payments made in the amount of P57, 000.00, thus
leaving a balance due in the amount of P59, 565.00. On
the other hand, on May 18, 1962 Luz sent Kalalo a
resume of fees due which according to him, amounted to
P10, 861.08 instead of the amount claimed by Kalalo. On
June 14, 1962 Luz sent Kalalo a check for said amount,
which Kalalo refused to accept.
On August 10, 1962, Kalalo filed a complaint against Luz
seeking:
x for services rendered: $28,000 (U.S.) and P100,
204.46, excluding interests minus (paid) P69,
323.21 thus leaving unpaid the $28,000.00 and
the balance of P30,881.25
x P17, 000.00 as consequential and moral
damages
x P55, 000.00 as moral damages, attorney's fees
and expenses of litigation
x P25, 000.00 as actual damages, and also for
attorney's fees and expenses of litigation.
Luz on the other hand claimed that the amount actually
due to Kalalo was only P80, 336.29, of which P69, 475.21
had already been paid, thus leaving a balance of only
P10, 861.08. Luz denied liability for any damage claimed
by Kalalo to have suffered. Moreover, he alleged that
Kalalo was in estoppel because of certain acts,
representations, admissions and/or silence, which led Luz
to believe certain facts to exist and to act upon said facts,
that Kalalo's claim regarding the Menzi project was
premature because Luz had not yet been paid for said

project, and that Kalalo's services were not complete or

were performed in violation of the agreement and/or
otherwise unsatisfactory. Luz also set up a counterclaim
for actual and moral damages for such amount as the
court may deem fair to assess, and for attorney's fees of
P10, 000.00.
The case was heard by a Commissioner which rendered
the following judgment:
x that the amount due to Kalalo was $28,000.00
as his fee in the International Research Institute
(IRRI) Project or 20% of the $140,000.00 paid to
Luz, plus
x P51,539.91 for the other projects, minus
P69,475.46 which was already paid by Luz.
Luz was ordered to pay the sum of P51,539.91 and
$28,000.00, the latter to be converted into the Philippine
currency on the basis of the current rate of exchange at
the time of the payment of the judgment, as certified to by
the Central Bank of the Philippines.
(There were 5 issues/erors raised by the appellant of
which only the pertinent one will be discussed.)

Issue: What exchange rate should be applied when
converting the balance of $28,000.00?

Held: The rate of exchange should be that prevailing at
the time of payment

Ratio: Republic Act 529 which provides that if the
obligation was incurred prior to its enactment (June 16,
1950) and the required payment is in a particular kind of
coin or currency other than the Philippine currency the
payment shall be discharged in Philippine currency
measured at the prevailing rate of exchange at the time
the obligation was incurred. The amount of $28,000.00,
accrued after the enactment of RA 529. Therefore this
provision of RA No. 529 cannot be applied neither does it
provide for the rate of exchange for the payment of
obligation incurred after the enactment of said Act.
Therefore, the rate of exchange should be that prevailing
at the time of payment. Luz should pay the Kalalo the
equivalent in pesos of the $28,000.00 at the free market
rate of exchange at the time of payment. Moreover, it was
not shown in the record that the parties had fixed or
agreed upon a peso equivalent during the different times
when partial payments were made.
(On August 25, 1962, the official rate at the time Luz
received his architrectures fee from the IRRI project and
his corresponding obligation to Kalalo was P2.00 to $1.00
and the free market rate. The trial court assumed that Luz
had converted said amount at the free market rate
because it is hard to believe that a person possessing
dollars would exchange his dollars at the preferred rate of
P2 to $1 when he is not obliged to do so, rather than at
the free market rate which is much higher. A person is
presumed to take ordinary care of his concerns, and that
the ordinary course of business has been followed.)

ST. PAUL FIRE AND MARINE INSURANCE VS. MACONDRAY
St. Paul Fire and Marine Insurance, plaintiffs-appellees, vs. Macondray & Co., Inc., Barber Steamship Lines, Inc.,
Wilhelm Wilhelmsen, Manila Port Service and/or Manila Railroad Company, defendants-respondents
Ponente: Antonio, J.

Legal Doctrine: Liability is limited to stipulations in the contract

Facts: On June 29, 1960, Winthrop Products, Inc.,
shipped aboard the SS "Tai Ping", owned and operated
by Wilhelm Wilhelmsen 218 cartons and drums of drugs
and medicine. On August 7, 1960, the SS "Tai Ping"

arrived at the Port of Manila and discharged the shipment

into the custody of Manila Port Service, the arrastre
contractor for the Port of Manila.
Everything was discharged in order save for a drum and a
few cartons which were in bad condition. Because of
these defects, Winthrop-Stearns Inc., the consignee, filed
a claim for the CIF (cost insurance and freight yata) value
of the damaged goods. St. Paul Fire & Marine insurance
Co. (Exhibit "N"), and the insurance company, on the
basis of such claim, paid to the consignee the insured
value of the lost and damaged goods, including other
expenses in connection therewith, in the total amount of
$1,134.46.
On August 5, 1961, as subrogee of the rights of the
shipper and/or consignee, the insurer, St. Paul Fire &
Marine Insurance Co., instituted with the Court of First
Instance of Manila the present action against the
defendants for the recovery of said amount of $1,134.46,
plus costs.
On August 23, 1961, the Manila Port Service and Manila
Railroad Company resisted the action, contending, that
the whole cargo was delivered to the consignee in the
same condition in which it was received from the carrying
vessel; that their rights, duties and obligations as arrastre
contractor at the Port of Manila are governed by and
subject to the terms, conditions and limitations contained
in the Management Contract between the Bureau of
Customs and Manila Port Service, and their liability is
limited to the invoice value of the goods, but in no case
more than P500.00 per package, pursuant to paragraph
15 of the said Management Contract; and that they are
not the agents of the carrying vessel in the receipt and
delivery of cargoes in the Port of Manila.
On September 7, 1961, Macondray & Co., Inc., Barber
Steamship Lines, Inc. and Wilhelm Wilhelmsen also
contested the claim alleging, that the carrier's liability for
the shipment ceased upon discharge thereof from the
ship's tackle; that they and their co-defendant Manila Port
Service are not the agents of the vessel; that the said 218
packages were discharged from the vessel SS "Tai Ping"
into the custody of defendant Manila Port Service as
operator of the arrastre service for the Port of Manila; that
if any damage was sustained by the shipment while it was
under the control of the vessel, such damage was caused
by insufficiency of packing, force majeure and/or perils of
the sea; and that they, in good faith and for the purpose
only of avoiding litigation without admitting liability to the
consignee, offered to settle the latter's claim in full by
paying the C.I.F. value of 27 lbs. caramel 4.13 kilos
methyl salicylate and 12 pieces pharmaceutical vials of
the shipment, but their offer was declined by the
consignee and/or the plaintiff.
After trial, the lower court ruled against the defendants
(Macondray, Barber and Wilhelm to pay 300 jointly and
severally and Manila Railroad and Manila Port to pay
809.67 jointly and severally). Plaintiff was not satisfied
and filed a motion for reconsideration but was denied,
hence this appeal.

Issue: Whether or not, in case of loss or damage, the
liability of the carrier to the consignee is limited to the
C.I.F. value of the goods which were lost or damaged,
and

Held: The liability is limited as stipulated in the contract

Ratio: The stipulation in the bill of lading limiting the
common carrier's liability to the value of the goods
appearing in the bill, unless the shipper or owner declares
a greater value, is valid and binding. This limitation of the
carrier's liability is sanctioned by the freedom of the
contracting parties to establish such stipulations, clauses,
terms, or conditions as they may deem convenient,
provided they are not contrary to law, morals, good
customs and public policy. In the case at bar, the liabilities
of the defendants- appellees with respect to the lost or
damaged shipments are expressly limited to the C.I.F.
value of the goods as per contract of sea carriage
embodied in the bill of lading.
It is not pretended that those conditions are unreasonable
or were not freely and fairly agreed upon. The shipper
and consignee are, therefore, bound by such stipulations
since it is expressly stated in the bill of lading that in
"accepting this Bill of Lading, the shipper, owner and
consignee of the goods, and the holder of the Bill of
Lading agree to be bound by all its stipulations,
exceptions and conditions, whether written, stamped or
printed, as fully as if they were all signed by such shipper,
owner, consignee or holder. It is obviously for this reason
that the consignee filed its claim against the defendants-
appellees on the basis of the C.I.F. value of the lost or
damaged goods in the aggregate amount of P1, 109.67
The plaintiff-appellant, as insurer, after paying the claim of
the insured for damages under the insurance, is
subrogated merely to the rights of the assured. As
subrogee, it can recover only the amount that is
recoverable by the latter. Since the right of the assured, in

case of loss or damage to the goods, is limited or

restricted by the provisions in the bill of lading, a suit by
the insurer as subrogee necessarily is subject to like
limitations and restrictions.

PAPA VS. A.V. VALENCIA, ET AL.
MYRON C. PAPA, plaintiffs-appellees, vs. A. U. VALENCIA, et al., defendants- respondents

Legal Doctrine: payment by way of check or other negotiable instrument is conditioned on its being cashed, except
when through the fault of the creditor, the instrument is impaired.

Facts:
Sometime in June 1982, A.U. Valencia and Co., Inc. and
Felix Pearroyo, filed a complaint for specific
performance against Myron C. Papa, in his capacity as
administrator of the Testate Estate of one Angela M.
Butte.
The complaint alleged that on 15 June 1973, petitioner
Myron C. Papa, acting as attorney-in-fact of Angela M.
Butte, sold to respondent Pearroyo a parcel of land and
that prior to alleged sale, the land had been mortgaged to
Associated Banking Corporation; and that after the sale
the bank refused to release it unless and until all the
mortgaged properties of the late Angela M. Butte were
also redeemed.
The complaint further alleged that it was only upon the
release of the title to the property, sometime in April 1977,
that respondents Valencia and Pearroyo discovered
that the mortgage rights of the bank had been assigned
to one Tomas L. Parpana (now deceased), as special
administrator of the Estate of Ramon Papa, Jr., on 12
April 1977; that since then, herein petitioner had been
collecting monthly rentals in the amount of P800.00 from
the tenants of the property, knowing that said property
had already been sold to private respondents on 15 June
1973; that despite repeated demands from said
respondents, petitioner refused and failed to deliver the
title to the property.
In his answer, Papa admitted the mortgage but contended
that the complaint did not have a cause of action; that the
case was a claim against the estate of Butte; and that he
cannot be held responsible as he only acted as
administrator.
Papa, as administrator of Buttes estate, filed a third party
complaint against the Reyes spouses, who allegedly
acquired the property through a public auction by paying
only 14,000 pesos. Petitioner prayed that judgment be
rendered cancelling the tax sale to respondent Reyes
spouses; restoring the subject property to him upon
payment by him to said respondent Reyes spouses of
the amount of P14,000.00, plus legal interest; and,
ordering respondents Valencia and Pearroyo to pay
him at least P55,000.00 plus everything they might have
to pay the Reyes spouses in recovering the property.

Issue: Whether or not the sale of the land was
consummated.

Held/Ratio: The Sale was consummated. Valencia and
Pearroyo had given petitioner Papa the amounts
of 5,000.00 in cash and 40,000.00 in check in payment of
the lot. Petitioner himself admits having received said
amounts, and having issued receipts therefor.
Petitioners assertion that he never encashed the
aforesaid check is not subtantiated and is at odds with his
statement in his answer that he can no longer recall the
transaction which is supposed to have happened 10
years ago. After more than 10 years from the payment in
part by cash and in part by check, the presumption is that
the check had been encashed. As already stated, he
even waived the presentation of oral evidence.
Granting that petitioner had never encashed the check,
his failure to do so for more than ten 10 years

undoubtedly resulted in the impairment of the check

through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the
effect of payment only when it is cashed, pursuant to Art.
1249 of the Civil Code, the rule is otherwise if the debtor
is prejudiced by the creditors unreasonable delay in
presentment. The acceptance of a check implies an
undertaking of due diligence in presenting it for payment,
and if he from whom it is received sustains loss by want
of such diligence, it will be held to operate as actual
payment of the debt or obligation for which it was given.
It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss
or injury unless presentment is otherwise excused. This
is in harmony with Article 1249 of the Civil Code under
which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except
when through the fault of the creditor, the instrument is
impaired.
Considering that respondents Valencia and Pearroyo
had fulfilled their part of the contract of sale by delivering
the payment of the purchase price, said respondents,
therefore, had the right to compel petitioner to deliver to
them the title and the peaceful possession and enjoyment
of the lot.

PAL VS. CA
Philippine Airlines, Inc., petitioner, vs. Honorable Court of Appeals, Honorable Judge Ricardo D. Galano, CFI of Manila,
Branch XIII, Jaime K. Del Rosario, Deputy Sheriff, CFI, Manila and Amelia Tan, respondents
Ponente: Gutierrez, Jr., J.

Facts:
On November 8, 1967, Amelia Tan under the name and
style of Able Printing Press commenced a complaint for
damages before the CFI of Manila. Judge Morfe rendered
judgment on June 29, 1972, in favor of private respondent
Tan ordering PAL to pay Php 75,000 as actual damages
with legal interest thereon, Php 18,200 for the unrealized
profit of 10% included in the contract price of Php 200,000
plus legal interest thereon, and Php 5,000 as attorneys
fee. CA modified the judgment to Php 25,000 as damages
and Php 5,000 as attorneys fee. This judgment became
final and executory.
The case was remanded to the trial court for execution
and on September 2, 1977, respondent Tan filed a motion
praying for the issuance of a writ of execution of the
judgment rendered. On October 11, 1977, the trial court
issued its order of execution with the corresponding writ in
favor of the respondent. The writ was duly referred to
Deputy Sheriff Emilio Z. Reyes of Branch 13 of the CFI of
Manila for enforcement.
Four months later, Tan moved for the issuance of an alias
writ of execution stating that the judgment rendered by
the lower court and affirmed with modifications by the CA
remained unsatisfied. Petitioner filed an opposition stating
that it has already fully paid its obligation to plaintiff
through the deputy sheriff of the respondent court, Emilio
Reyes, as evidenced by cash vouchers properly signed
and receipted by Reyes. CA then ordered the executing
sheriff to appear with his return and explain the reason for
failure to surrender the amounts paid to him by PAL.
However, he absconded or disappeared.

Issue: Can an alias writ of execution be issued without
prior return of the original writ by the implementing
officer?

Held: In this case, yes.

Ratio: A judgment cannot be rendered nugatory by the
unreasonable application of a strict rule of procedure.
Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to
inform the court and the parties, of any and all actions
taken under the writ of execution. Where such information
can be established in some other manner, the absence of
an executing officers return will not preclude a judgment
from being treated as discharged or being executed
through an alias writ of execution as the case may be.
More so, as in the case at bar, where the return cannot be

expected to be forthcoming, to require the same would be

to compel the enforcement of rights under a judgment to
rest on an impossibility, thereby allowing the total
avoidance of judgment debts. So long as a judgment is
not satisfied, a plaintiff is entitled to other writs of
execution.
In general, a payment, in order to be effective to
discharge an obligation, must be made to the proper
person. Article 1240 of the CC provides: 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.
The theory is where payment is made to a person
authorized and recognized by the creditor; the payment to
such person so authorized is deemed payment to the
creditor. Under ordinary circumstances, payment by the
judgment debtor in the case at bar, to the sheriff should
be valid payment to extinguish the judgment debt. There
are circumstances in this case, however, which compel a
different conclusion. The payment was made in checks
and not in cash or legal tender and not payable to Amelia
Tan or Able Printing Press but to absconding sheriff.
Article 1249 provides that payment in other mercantile
documents shall produce effect of payment only when
they have been cashed, or when through the fault of the
creditor they have been impaired. Payment in checks is
precisely intended to avoid the possibility of the money
going to the wrong party. PAL should have done so
properly. As a protective measure, therefore, the courts
encourage the practice of payments in check provided
adequate controls are instituted to prevent wrongful
payment and illegal withdrawal or disbursement of funds.
Having failed to employ proper safeguards to protect
itself, the judgment debtor whose act made possible the
loss had but itself to blame.
Blondeau, et al v Nano, et al As between two innocent
persons, one of whom must suffer the consequences of a
breach of trust, the one who made it possible by his act of
confidence must bear the loss
If a sheriff directs a judgment debtor to issue the checks
in the sheriffs name, claiming he must get his
commission or fees, the debtor must report the sheriff
immediately to the lower court or Supreme Court. This is
an ingenuous practice by sheriffs in order to earn interest
at the expense of the litigants.

Narvassa, J., dissenting: The payment to the Sheriff is
valid. This is in accordance with common practice and
has long been accepted.

Feliciano, J., dissenting: PAL was not negligent. The
Sheriff could also abscond if payment was in cash. The
Sheriff do not accept checks in the name of judgment
creditor.

Padilla, J., Dissenting: The encashment of the checks in
the name of the sheriff has the effect of valid payment of
the judgment on execution.

C. Application of Payments
REPARATIONS COMMISSION VS. UNIVERSAL DEEP SEA FISHING
Reparations Commission, plaintiff-appellants, vs. Universal Deep-Sea Fishing Corporation and Manila Surety and
Fidelity Co., Inc., defendant-appellants
Manila Surety & Fidelity Co., Inc., third-party plaintiff-appellee, vs. Pablo S. Sarmiento, third-party defendant-appellant
Ponente: Concepcion Jr., J.

Legal Doctrine: CC 1252-1254 applies to a payment made by a debtor, who has various debts of the same kind to the
same creditor, where such payment is not sufficient to cover the entire debt.

Facts:
The Reparations Commission (Commission) awarded
Universal Deep-Sea Fishing Corporation (Universal) six
trawl boats. The contracts between them provided,
among others, the payment schedules. The 1
st

installment represented 10% of the aggregate cost per
delivery; the balance, including interest, was to be paid
in 10 annual installments due a year from the date of
the 1
st
installment.

Trawl Boats
Total Cost/
Date of Contract
Amount of 1
st
Installment/ Date Due
Amount of #1 of 10
Installments/ Date Due
M/S Unifish 1
M/S Unifish 2
P 536, 428. 44
12 February 1960
P 53,642.84
08 May 1961
P 55,597.20
08 May 1962
M/S Unifish 3
M/S Unifish 4
P 687, 777. 76
25 November 1959
P 68,777.77
July 1961
P 72,565.68
July 1962
M/S Unifish 5
M/S Unifish 6
P 545, 000. 00
12 February 1960
P 54,500.00
17 October 1961
P 57,501.57
17 October 1962

Performance bonds were executed by Universal as
principal, and Manila Surety & Fidelity Co., Inc.
(Manila Surety) for the payment of the 1
st
installment
for the first, second and third deliveries, as well as for
the faithful compliance of the obligations in the
contract. A corresponding indemnity agreement was
executed in favor of Manila Surety for any damage,
loss, charges, etc. it incurs as a consequence of
having become a surety upon the performance bond.
10 August 1962 Commission filed action to recover
the various amounts due. Universal and Manila
Surety claim they are not yet due and demandable.
Manila Surety filed a counter-claim against Universal
for reimbursement of any money to be paid or already
paid to the Commission, and against Pablo
Sarmiento, the acting general manager of Universal.

CFI: Amounts stated plus interests to be paid:
Obligee Obligor 1
st
delivery 2
nd
delivery 3
rd
delivery
1 Commission Universal P 100,242.04^ P 141,343.45 P 54,500.00
2 Commission Universal Manila Surety P 53,643.00 P 68,777.77 P 54,508.00
3 Commission Universal Pablo Sarmiento P 53,643.00 P 68,777.77
4 Manila Surety Universal P 54, 508^
^I think typo. Few pesos too expensive than amount stated in case or my computation -

1. Are payments already due and demandable
at the time of the complaint? Yes. The
contracts were very clear (those in bold in
the first table are those payable at the time
of complaint). The amounts to be paid and
when they were due clearly show that the 1
st

installments were different from the first
payment of the 10 annual payments
corresponding to the balance of the
purchase price.

2. Did the trial court err in not awarding P
7,251.42 to Manila Surety. It did. The
amount serves as the payment of premiums
on the bonds to the surety company which
Universal undertook as part of the indemnity
agreement. Such premium is the
consideration for furnishing the bonds and
the obligation to pay subsists for as long as
the liability of the surety exists.

3. Is CC 1254 applicable? No. The rules

contained in CC 1252-1254 apply to a
person owing several debts of the same kind
to a single creditor. They cannot be made
applicable to a person whose obligation as a
mere surety is both contingent and singular,
which in this case is the full and faithful
compliance with the terms of the contract.
The P10,000 down payment of Universal
does not release Manila Surety of its
obligation, which includes the payment of all
the amounts which have become due.

4. Should Pablo Sarmiento be held liable? Yes.
He executed the indemnity agreements in
both his individual capacity and his capacity
as acting general manager of Universal, as
shown by the indemnity agreements he twice
signed.

Dispositive: CFI decision affirmed with modification that
Universal is to pay Manila Surety P7, 251.42 for the
premiums and documentary stamps on the performance
bonds.

PACULDO VS. REGALADO
NEREO J. PACULDO, petitioner, vs. BONIFACIO C. REGALADO, respondent.
Ponente: Pardo, J.

Legal Doctrine: If the debtor did not declare at the time he made the payment to which of his debts with the creditor the
payment is to be applied, the payment has to be applied first to the debt most onerous to the debtor and no payment is to
be made to a debt that is not yet due.

Short Version of Facts:
Noreo Paculdo entered a contract of lease on a wet
market building with Bonifacio Regalado. This contract
was one of many other lease contracts on properties in
Fairview between Paculdo and Regalado.. On a certain
date, Regalado claimed that Paculdo had failed to pay for
his June and July wet market payment and part of his
May rental. After making two demand letters, Regalado
mortgaged the market building inclusive of the 35 million
worth of improvements made by Paculdo. Regalado then
after refused to accept the payments of Paculdo.
Trial in the MTC and the RTC were conducted resulting to
Paculdo being ordered to vacate the market building.
Upon appeal at the CA, Paculdo claims that he had paid
for the rentals of January July but that Regalado decided
that the payments were to be used for payments with his
other obligations (contracts with Regalado on the other
Fairview properties). CA dismissed the case stating that
Paculdo consented implicitly.

Detailed Version of Facts (Because we never know
what Sir will ask)
Dec 27, 1990 - Paculdo and enter into a contract of lease
over a wet market building in Fairview Park. Contract
details were as follows: (1) Contract of lease was for 25
years, from January 1, 1991 until December 31, 2015, (2)
First 5 years, pay a monthly rental of P450, 000.00, (3)
Payable within the first 5 days of each. Aside from wet
market lease, Paculdo also leased 11 other properties
from Regalado. Paculdo also bought 8 heavy equipment
and vehicles.
July 6&17, 1992 - Due to non-payment of P361, 895.55
on May 1992, and nonpayment of full monthly rental of

June and July 1992, Regalado sent a demand letter

demanding payment of the back rentals, and if no
payment was made within 15 days from receipt of the
lette, it would cause the cancellation of the lease
contract.
Aug 3, 1992 - Regalado mortgaged wet market building
including 35 million wrth of improvements which Regalado
made.
Aug 20, 1992 - Paculdo filed an action for injunction and
damages seeking to enjoin Regalado from disturbing his
possession of the property subject of the lease contract at
the RTC. Meanwhile Regalado filed a complaint for
ejectment with the MTC.
Jan 31, 1994 - MTC: in favor of Regalado. Orders
Paculdo to vacate the leased premises and pay the back
rental fees with interest. This is eventually affirmed by the
RTC.
Feb 19, 1994 - Regalado with the support of 50 armed
security guards forcibly entered the property and took
possession of the wet market building.
July 21, 1994 - Paculdo files a petition for review with the
CA. He alleges that he paid the amount of
P11,478,121.85 for security deposit and rentals on the
wet market building, but respondent, without his consent,
applied portions of the payment to his other obligations.
The vouchers and receipts indicated that the payments
made were for rentals. Thus, at the time of payment
petitioner had declared as to which obligation the
payment must be applied.

Issue/ Held: Was Paculdo in arrears in payment of wet
market building lease? No!

Ratio:
Who has right to specify which payment should be
prioritized? Paculdo the Debtor.
The right to specify which obligation to pay first is given to
the debtor. According to Article 1252, He who has
various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the
payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to
debts which are not yet due. If the debtor accepts from
the creditor a receipt in which an application of the
payment is made, the former cannot complain of the
same, unless there is a cause for invalidating the
contract.
Paculdo clearly told Regalado that payment was to be for
the wet market property. This was the property that had
due dates and this was the property that. Payment to the
heavy duty equipment and the other properties were
payment to which were not yet due. Paculdo was
prioritizing which contract to pay first. The lease over the
wet market property was the most onerous among all the
obligations of petitioner to respondent. It was a going-
concern where Paculdo had invested P35, 000, 000.00, in
the form of improvements, on the property. Paculdo
would stand to lose more if the lease would be rescinded,
than if the contract of sale of heavy equipment would not
proceed.

Does not replying to the proposed application of
payments by Regaldo mean that Paculdo agreed? No.
Regalado claims that by not objecting in the July 15 letter
indicated that Paculdo agreed with the application of
payments indicated. Paculdo claims silence does not
mean acceptance; it means rejection. The contents of the
letter are as follows.
July 15 Letter- Regaldo informed Paculdo that the
payment were to be applied to another lot, the market
building and 2 heavy equiptment. There was no
conformity clause in the letter. There was no signature of
Paculdo.
Nov 19 Letter - Regalado proposed that the security
deposit in another lot be applied as partial payment on
Paculdos wet market rental. Paculdo signed the letter
indicating he had to objections.

There was no clear assent by Paculdo to the change in
the manner of application of payment. Paculdos silence
as regards the application of payment by Regalado
cannot mean that he consented. There was no meeting
of the minds. Though an offer may be made, the
acceptance of such offer must be unconditional and
unbounded in order that concurrence can give rise to a
perfected contract.


What if Paculdo never indicated which obligation hed

prioritize first? Can Regalado assign the application of
payments?
Yes Regalado may. BUT this is subject to the condition
that Paculdo must give his consent. Also as discussed in
1252, if the debtor did not declare at the time he made the
payment to which of his debts with the creditor the
payment is to be applied, no payment is to be made to a
debt that is not yet due and the payment has to be
applied first to the debt most onerous to the debtor.

F. Tender of Payment and Consignation
DE GUZMAN VS. CA
PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA GESTUVO, petitioners, vs. THE HON. COURT OF
APPEALS, THE HON. JUDGE PEDRO JL. BAUTISTA, Presiding Judge of the Court of First Instance of Rizal, Branch
III, Pasay City, and LEONIDA P. SINGH, respondents
Ponente: Concepcion, Jr., J.

Legal Doctrine: When through no fault of the debtor, payment is not made when due, she will be deemed to have
substantially complied still with the obligation.

Facts:
The petitioners and private respondent had entered into a
Contract to Sell re: 2 parcels of land at Pasay City. They
stipulated that Singh would pay the balance of the
purchase price (P133,640) on or before Feb. 15, 1975.
Two days before the due date, Singh asked to have (1)
statement of accounts of the balance due; (2) copies of
the Certificates of Title for the subject lands; and (3) the
power of attorney executed by R. Gestuvo in favor of De
Guzman. Petitioners refused, and so Singh filed a
complaint for specific performance against them.
They were able to resolve the issue by means of a
Compromise Agreement, however, wherein they agreed
that Singh would pay them (P240,000 if able to pay on or
before Dec. 18, 1977 or P250,000 if past Dec. 18 but until
Jan. 27, 1978), upon which they would execute the
necessary documents transferring the land titles to Singh.
It was also stipulated in the Agreement that payment of
the previously mentioned amounts would take place in the
courtroom of the CFI of Rizal in Pasay City before the
Hon. Judge Pedro JL. Bautista, at 10:00 am on January
27, 1978 unless payment had already been made, in
which case, petitioners would present the receipt of
payment.
Singh failed to pay by Jan. 27, however; thus, on Jan. 28,
petitioners filed a motion for the issuance of a writ of
execution, contending that Singh had failed to fulfill her
duty as stipulated in the Compromise Agreement. This
was of course opposed by Singh, who contends that she
had substantially complied with her obligations, hence,
this case.

Issue: W/N Singh should be held liable for her failure to
pay the balance by Jan. 27 as accdg. to the terms of the
Compromise Agreement.

Held/Ratio: The issue is a question of fact, and in this
case, the Court decided in favor of Singh. This is because
it was established that it was not Singhs fault that she
was unable to pay on time. The records showed that
Singh did exert efforts to pay when it became due. It was
established that on Jan. 27, the appointed day for
payment, she went to Judge Bautistas sala as agreed
upon in their Compromise Agreement. However, the
petitioners were not there to receive it. Only their counsel
appeared later, and he then informed her that he had no
authority to receive and accept payment. Instead, he
directed her to petitioners house to pay there, but they
were not there either, although Singh and the counsel
were informed that they would arrive late in the afternoon,
maybe at around 4, and that Singh would be informed

when they arrived. She waited for the call, but none
came, and thus, she unwittingly let the period lapse. The
following day, Jan. 28, was a Saturday, so she was not
able to deposit the balance of the purchase price with the
Clerk of Court even if she went to the CFI of Rizal. It was
only on Monday, Jan. 30, that she was able to deposit the
amount of P30, 000 with the Court.
The Court held that the deposit of the balance had been
made in good faith, and Singhs failure to deposit it on the
date specified was due to the petitioners. Notably, the
petitioners also do not contend that they suffered
damages because of the delay of 2 days. Thus, the Court
held that there was still substantial compliance with the
stipulations in the Compromise Agreement.

TLG INTERNATIONAL CONTINENTAL ENTERPRISING, INC. VS. FLORES
TLG INTERNATIONAL CONTINENTAL ENTERPRISING, INC., petitioner, vs.
HON. DELFIN B. FLORES, Presiding Judge, Court of First Instance of Rizal, Branch XI, respondent
Ponente: Antonio, J.

Legal Doctrine: The amount deposited as a consignation may be withdrawn if the creditor has not accepted the
consignation yet or if the court has not yet judicially recognized that a valid consignation has been made.

Facts:
Precedent this case is the civil case between Bearcon
Trading Co., Inc. vs. Juan Fabella, regarding the rights
of Bearcon as a lessee of Febellas properties. During
the pendency of this case TLG (petitioner) filed Motion
to Intervene and Complaint in Intervention to protect
its rights as a sub-lessee of Bearcon and to make a
consignation of the monthly rentals.
The respondent judge then granted the cases filed by
the petitioner. As a consequence, petitioner deposited
with the Clerk of Court the ff:
x October 27, 1971P900.00
x November 29, 1971P600.00
x January 19, 1972P750.00
x March 8, 1972 1,500.00 or a total of P3,
750.00, which deposits are properly covered
by official receipts.

On October 20, 1971, Febella filed an action to dismiss
the Motion to Intervene and Complaint in
Intervention for they opted to have an ejectment case
against Bearcon instead. The respondent judge
dismissed the case. Then petitioner filed a motion to
withdraw the 3,750 they deposited however the
respondent judge denied the petition hence this
certiorari.

Issue/Held: Can the respondent judge authorize the
withdrawal of the deposit Php 3,750 considering that
according to respondent, the Court "has not ordered the
intervenor to make any deposit in connection" with the
case? YES

Ratio: Although the court did not explicitly order the
intervenor to make the deposit, the act was done as a
consequence of the courts admission of complaint in
intervention. Also the case was dismissed before the
amount deposited was either accepted by the creditor
or a declaration made by the Court approving such
consignation; thus it made the consignation ineffectual.
With Art 1260 it clearly authorizes the debtors
withdrawal of the sum deposited.


MCLAUGHLIN VS. CA
LUISA F. MCLAUGHLIN, petitioner, vs. THE COURT OF APPEALS AND RAMON FLORES, respondents
Ponente: Feria, J.

Legal Doctrine: Timely tender of payment, if refused to be accepted by the creditor wont release the debtor of his
obligations unless he makes a valid consignation.

Facts:
Feb. 28, 1977, petitioner Luisa F. McLaughlin and private
respondent Ramon Flores entered into a contract of
conditional sale of real property. The purchase price is
140,000.00 and is payable as follows: a) P26,550.00
upon the execution of the deed; b) the balance of
P113,450.00 to be paid not later than May 31, 1977. The
parties also agreed that the balance shall bear interest at
the rate of 1% per month to commence from December 1,
1976, until the full purchase price was paid.
Jun. 19, 1979, petitioner filed for the rescission of the
deed of conditional sale due to the failure of private
respondent to pay the balance due on May 31, 1977.
Dec. 27, 1979, the parties had a Compromise Agreement
stipulating the indebtedness of respondent amounts to
119, 050.71 and are payable as follows: a) P50,000.00
upon signing of the agreement b) the balance of
P69,059.71 in two equal installments on Jun. 30, 1980
and Dec. 31, 1980 c)"escalation cost" of P25,000.00 d) P
l,000.00) pesos monthly rental beginning December 5,
1979 until the obligation is duly paid, for the use of the
property subject matter of the deed of conditional sale.
Failure to comply with the obligations would entitle
McLaughlin to rescind the contract and all payments
made by Flores would be forfeited as liquidated damages
in favor of McLaughlin.
Oct. 15, 1980, petitioner wrote to private respondent
demanding that the latter pay the balance of
P69,059.71on or before October 31, 1980. It included the
installment due on Jun. and Dec.
Nov. 7, 1980, petitioner filed rescission of the contract
and a Motion for Writ of Execution since respondent failed
to pay the installment due on June 1980 and that since
June 1980 he had failed to pay the monthly rental of P
l,000.00. Trial court granted the motion for writ of
execution.
Issues/Held:
1. Can the petitioner rescind the contract
considering the respondent had substantially
complied (101,550 out of 148,126.97) with the
contract? NO
2. Is the respondent still liable for the payment of
his obligation (rentals in arrears of P 1,
000.00/mo from Jan. 1, 1981 until full payment
thereof) because of his failure to deposit the
amount due with the court (consignation) even if
he made a timely valid tender of payment?

Ratio:
1. It would be inequitable for the petitioner to
rescind the contract. As a general rule rescission
will not be permitted for a slight or casual breach
of the contract, but only for such breaches as are
substantial and fundamental as to defeat the
object of the parties in making the agreement. In
the case, respondent having already paid Php
101,550 out of his obligation amounting to
148,126.97 thus he has substantially complied
with the contract. As regards with the term of
paying the balance of 69,059.71 not later than
Oct. 30, the petitioner has the right to rescind the
contract only after 30 days upon the receipt of
respondent of the said cancellation notice (Nov
7). The respondent made a tender of payment
on Nov 17 (just 10 days from the receipt of
notice) hence he preserved his right as a buyer.

2. In the case at bar, although respondent had
preserved his rights as a buyer by a timely valid
tender of payment (presenting the managers
check on Nov 17) of the balance of his obligation

which was not accepted by petitioner, he

remains liable for the payment of his obligation
because of his failure to deposit the amount due
with the court. Consignation must be made in
order for him to be released from the
responsibility. Since respondent did not deposit
said amount with the court, his obligation was
not paid and he is liable in addition for the
payment of the monthly rental of P1, 000.00 from
Jan. 1, 1981 until said obligation is duly paid.

MEAT PACKING CORP. VS. SANDIGANBAYAN
MEAT PACKING, petitioner, vs. THE HONORABLE SANDIGANBAYAN, THE PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT and PHILIPPINE INTEGRATED MEAT CORPORATION, respondents

Facts:
Petitioner Meat Packing Corporation of the Philippines
(MPCP) is a wholly owned corporation by the GSIS. It
owns 3 parcels of land situated in Barrio Ugong, Pasig
City as well as the meat processing and packing plant
thereon.
November 3, 1975 - MPCP and the Philippine Integrated
Meat Corporation (PIMECO) entered into a lease
purchase agreement wherein MPCP would lease out its
property and plant to PIMECO an annual rate of P 1, 375,
563.92 payable over a period of 28 years or for a total
consideration of P 38, 515, 789.87.
The agreement also provided for a rescission clause
which stated:
5. If for any reason whatsoever the LESSEE-
VENDEE should fail or default in the
paymentto the cumulative sum of 3 annual
installments, this Agreement shall be deemed
automatically cancelled and forfeited without
need of judicial interventionLESSOR-
VENDOR shall have the complete and absolute
powerto transfer, convey, leasein the same
manner as if this lease-purchase agreement was
never entered into.
16. Violation of any of the terms and
conditionsshall be sufficient ground for the
LESSOR-VENDOR to rescindthis Agreement
without need of judicial intervention by giving the
LESSEE-VENDEE 180 days written notice
November 3, 1975 - MPCP and PIMECO entered into a
Supplementary and Loan Agreement wherein the total
contract price of the lease-purchase agreement was
increased to P93, 695, 552.59 payable over 28 years
commencing on January 1, 1981 at the annual rate of P3,
346, 269.70
March 17, 1986 - the PCGG sequestered all the assets,
properties and records of PIMECO. The sequestration
included the meat packing plant and the lease-purchase
agreement.
November 1986 - MPCP gave a written notice to PIMECO
of its rescission of the lease-purchase agreement on the
ground of non-payment of rentals of more than P2M for
the year 1986. GSIS asked the PCGG to exclude the
meat packing plant since MPCP is owned by them and
that the lease-purchase agreement had already been
rescinded. Which the PCGG granted.
July 1987 - PCGG instituted with the Sandiganbayan a
complaint for reconveyance, reversion, accounting and
damages against Peter Sabido. Complaint alleged that
Peter Sabido obtained under favored and very liberal
terms, large loans from the GSIS in favor of PIMECO and
that PIMECO was granted the monopoly to supply meat
in the Greater Manila Area. Sabido averred that the
contracts were executed by his father and were done in
good faith. Sabido filed an Urgent Manifestation and
Motion arguing that the transfer of management, control
and possession of PIMECO be declared null and void for
having been done without the approval of the
Sandiganbayan which he argues is needed since
PIMECO was a sequestered asset.
Furthermore, the Sandiganbayan received a letter from
the PIMECO Labor Union asking that the status quo be
maintained and that they continue their work and have
security of tenure.
The Sandiganbayan declared that the PCGG committed
grave abuse of discretion in unilaterally terminating the
lease-purchase agreement of PIMECO with MPCP finding

that the transfer will result in the dissipation of assets that

will cause irreparable injury to Sabidos rights and interest
s in the company in the event that the Sandiganbayan
shall ultimately rule that the same was not ill-gotten.
November 1989 - the Sandiganbayan issued a
Resolution declaring that the PCGG gravely abused its
discretion when it turned over the meat packing complex
to the GSIS/MPCP and that the turnover was null and
void ab initio.
August 1990 - PIMECO filed a petition for declaratory
relief and other similar remedies against the GSIS and
MPCP with the Sandiganbayan. PIMECO alleged that
from 1981-1985 it had been regularly paying its dues all
the way up to the moment of its sequestration.
Furthermore, it alleged that was only after PCGG took
over that its payments became erratic thus presenting the
danger that PIMECO would be declared in default. It also
prayed that it be absolved from its obligations under
paragraph 5 of the lease purchase agreement. In the
meantime, PCGG tendered payment to MPCP in the
amount of P5M as partial payment of its accrued rentals.
MPCP however, refused to accept the payment.
MPCP averred that:
x Sandiganbayan had no jurisdiction over MPCP
since it was not a party in the civil case against
Peter Sabido.
x The lease-purchase agreement with PIMECO
had been rescinded as early as November 1986
x PIMECO was in arrears in the payment of
rentals amounting to P12, 378, 171.06 wich is
more than the equivalent of 3 cumulative rentals.
The Sandiganbayan declared that the tender of payment
and consignation of the P5M of PCGG had been validly
made and ordered MPCP to accept.
MPCP filed a motion for reconsideration but the
Sandigabayan denied such and stated that when the
PCGG sequestered the assets and records of PIMECO, it
assumed the duty to preserve and conserve those assets
and that duty did not disappear when the writ was
deemed ipso facto lifted. On the contrary, it continued
until the sequestered assetswere returned to PIMECO
and the PCGG made the timely tender of payment and
consignation which the Resolution sought to be
considered sustained. To rule otherwise would be unfair
and unjust to PIMECO considering that during the time
the PCGG had possession and control of the sequestered
assets.
The Sandiganbayan also dismissed the case of PIMECO
for declaratory relief for being moot and academic
because the P5M consignation of PCGG averted the
accumulation of the unpaid rentals to 3 yearly
installments.

Issues:
1. Was the consignation made by PCGG in the
amount of P5M valid?
2. PCGG in estoppel because it admitted that the
lease-purchase agreement had been rescinded?

Dispositive: Petition DISMISSED for lack of merit.

Held/Ratio:
Consignation VALID. Sandiganbayan approved the P5M
consignation of the PCGG as payment for back rentals.
Tender of Payment distinguished from Consignation
Consignation is the act of depositing the thing due with
the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it
generally requires a prior tender of payment.
While, tender of Payment is the antecedent of
consignation (an act preparatory to consignation). It may
be extrajudicial while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of
consignation. Furthermore, tender and consignation
where validly made, produces the effect of payment and
extinguishes the obligation.
Art. 1256 of the CC provides that If the creditor to whom
tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum
due.
Consignation alone shall produce the same effect in the
following cases:
1. When the creditor is absent or unknown, or does
not appear at the place of payment
2. When he is incapacitated to receive the payment
at the time it is due

3. When without just cause he refuses to accept it

4. When two or more persons claim the right to
collect
5. When the title of the obligation has been lost
In the case at bar, the refusal of MPCP to accept the
tender of payment in the amount of P5M by PCGG on the
ground that the agreement with PIMECO had been
rescinded was unjustified.
The Sandiganbayan found that PIMECO paid several
amortizations and dues in the total of P15, 921, 205.83
which negates any rescission of the agreement.
Further more under the terms of the lease-purchase
agreement, it must be shown that a cumulative sum of 3
yearly payments had not been made to warrant rescission
but even assuming that the arrears were P12M as MPCP
alleged them to be the tender and consignation of the
P5M would bring the amount down to less than the
needed amount to total 3 years of non payment.

PCGG NOT ESTOPPED.
MPCP avers that PCGG estopped from taking a contrary
position since it made a resolution to turn over the
properties to the GSIS does not hold
However, the turn over was dependent on certain
conditions and one such condition was approval by the
Sandiganbayan which the Sandiganbayan never gave
and even declared the turn-over null and void.
The Sandiganbayans jurisdiction valid and did not
exercise grave abuse of discretion
Grave abuse implies a capricious and whimsical exercise
of judgment or when the power is exercised in an arbitrary
and despotic manner. Which the Sandiganbayan did not
show.
MPCP actively participated in the discussion of the merits
of the civil case against Sabido even going to the extent
of seeking affirmative relief.
Jurisdiction is acquired by his voluntary appearance in
court and his submission to its authority or by service of
summons and active participation is tantamount to an
invocation of the courts jurisdiction and willingness to
abide by the resolution of the case.

PABUGAIS VS. SAHIJWANI
TEDDY G. PABUGAIS, petitioner, vs. DAVE P. SAHIJWANI, respondent

Overview: Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it generally requires a prior tender of payment. Its requisites are 1)
there is a debt due; 2) consignation was made because creditor refused/ was absent/ incapacitated/ there are many
claimants to payment/ entitlement to obligation was lost; 3) previous notice of consignation was made to person
interested in performance of obligation; 4) amount placed @ courts disposal; 5) creditor duly notified of consignation.

Facts:
On December 3, 1993, Petitioner Pabugais agreed to sell
a 1239 sq. mtr. lot (located in North Forbes Park, Makati)
to respondent Sahijwani for the amount of P15, 487,
500.00.
Respondent paid petitioner the amount of P600, 000.00
as option/reservation fee and the balance of P14, 887,
500.00 to be paid within 60 days from the execution of the
contract, simultaneous with delivery of the owners
duplicate Transfer Certificate of Title in respondents
name the Deed of Absolute Sale; the Certificate of Non-
Tax Delinquency on real estate taxes and Clearance on
Payment of Association Dues.

The parties further agreed (in section 5 of their

agreement) that failure on the part of respondent to pay
the balance of the purchase price entitles petitioner to
forfeit the P600, 000.00 option/reservation fee; while non-
delivery by the latter of the necessary documents obliges
him to return to respondent the said option/reservation fee
with interest at 18% per annum
Petitioner failed to perform his obligation. He returned
payment via check by Far East Bank and Trust Co. but
check was dishonored. He claimed to have tendered
payment twice, on August 3 and 8, 1994 the amount of
Php 672,900 to include the interest stipulated in the
contract but said counsel refused to accept the same
He informed respondents counsel of the consignation
(through a letter) on August 11 and filed for consignation
on August 15.
Respondent admitted that his office received petitioners
letter dated August 5, 1994, but claimed that no check
was appended thereto. He averred that there was no valid
tender of payment because no check was tendered and
the computation of the amount to be tendered was
insufficient, because petitioner verbally promised to pay
3% monthly interest and 25% attorneys fees as penalty
for default, in addition to the interest of 18% per annum
on the P600, 000.00 option/reservation fee
November 29, 1996 - the trial court rendered a decision
declaring the consignation invalid for failure to prove that
petitioner tendered payment to respondent and that the
latter refused to receive the same.
Petitioner appealed to the Court of Appeals, but while
case was pending, his counsel Atty. Wilhelmina Joven
died and was replaced by Atty. Salvador De Guzman.
Petitioner executed Deed of Assignment on 21 Dec 2001
in favor of De Guzman to apportion part of the consigned
money as payment for atty.s fees. 7 Jan 2002, he asked
for ex parte motion to withdraw consigned money for
which De Guzman intervened praying the release of said
amount asserting his right to a part of said money
CA denied petition to withdraw and TC decision affirmed
Upon motion for reconsideration, the Court of Appeals
declared the consignation as valid in an Amended
Decision dated January 16, 2003. It held that the validity
of the consignation had the effect of extinguishing
petitioners obligation to return the option/reservation fee
to respondent. Hence, petitioner can no longer withdraw
the same and extinguished obligation of petitioner to
Sahijwani. Hence this action, claiming that at time of
withdrawal, no decision yet was made by CA.
Issues:
1. Was there a valid consignation?
2. Can petitioner withdraw the amount consigned
as a matter of right?

Held:
1. There was a valid consignation
2. There being a valid consignation, petitioner
cannot withdraw the amount consigned

Ratio:
1. Consignation is the act of depositing the thing
due with the court or judicial authorities
whenever the creditor cannot accept or refuses
to accept payment and it generally requires a
prior tender of payment.
Requisites of valid Consignation:
a. there was a debt due
b. the consignation of the obligation had
been made because the creditor to
whom tender of payment was made
refused to accept it, or because he was
absent or incapacitated, or because
several persons claimed to be entitled
to receive the amount due or because
the title to the obligation has been lost
c. previous notice of the consignation had
been given to the person interested in
the performance of the obligation
d. the amount due was placed at the
disposal of the court
e. after the consignation had been made
the person interested was notified
thereof
The reason for respondents non-acceptance of
the tender of payment was the alleged
insufficiency thereof and not because the said
check was not tendered to respondent, or
because it was in the form of managers check.
While it is true that in general, a managers
check is not legal tender, the creditor has the

option of refusing or accepting it. Payment in

check by the debtor may be acceptable as valid,
if no prompt objection to said payment is made.
Consequently, petitioners tender of payment in
the form of managers check is valid.
About the sufficiency of the amount tendered,
only the interest of 18% per annum on the P600,
000.00 option/reservation fee stated in the
default clause of the Agreement and
Undertaking was agreed upon by the parties.
Therefore, the managers check in the amount of
P672,900.00 (representing the P600,000.00
option/reservation fee plus 18% interest per
annum computed from December 3, 1993 to
August 3, 1994) which was tendered but refused
by respondent, and thereafter consigned with the
court, was enough to satisfy the obligation and
thus, there being a valid tender of payment in an
amount sufficient to extinguish the obligation, the
consignation is valid.
The amount consigned with the trial court can no
longer be withdrawn by petitioner because
respondents prayer in his answer that the
amount consigned be awarded to him is
equivalent to an acceptance of the consignation,
which has the effect of extinguishing petitioners
obligation.
Moreover, petitioner failed to manifest his
intention to comply with the Agreement And
Undertaking by delivering the necessary
documents and the lot subject of the sale to
respondent in exchange for the amount
deposited. Petitioners reliance on Art 1260 CC
is untenable since respondent prayed for the
awarding of said amount to them and this is as
good as acceptance.
Another thing was the manifestation of petitioner
of no longer being interested in pushing through
with the contract. Withdrawal may very well be
an act of unjust enrichment by petitioner to the
prejudice of respondent.
Counsel for petitioner also violated Art 1490 of
CC and Canon 10 of CPR for showing interest in
the subject of the litigation he is handling.
Granting his prayer is sanctioning a void
contract.

III. Loss or Impossibility
OCCENA VS. CA
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners, vs. HON. RAMON V. JABSON, Presiding Judge of the
Court of First Instance of Rizal, Branch XXVI, COURT OF APPEALS and TROPICAL HOMES, INC., respondents
Ponente: Teehankee, J.

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

Facts:
February 25, 1975 Tropical Homes Inc. filed a complaint
for modification of the terms and conditions of its
subdivision contract with petitioners (landowners of a
55,330 square meter parcel of land in Davao City), basing
the same on increase of oil prices and its derivatives and
that without modification, contract will result to defendants
(herein petitioners) being unjustly enriched at the expense
of the plaintiff (herein defendant).
In the contract, respondent guaranteed that petitioners
share would be 40% of all cash receipts from the sale of
the subdivision lots. Respondent prayed that the Court
render judgment modifying the terms and conditions of
the contract fixing proper shares that should pertain to
each party.
Petitioners moved to dismiss the complaint principally for
the lack of cause of action, and upon denial, elevated the
matter on certiorari to respondent Court of Appeals. CA

dismissed the petition on the ground that Article 1267 of

the CC provides that: When the service has become so
difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in
whole or in part.
Petitioners contend that worldwide increase in prices
does not constitute a sufficient cause of action to modify
the subdivision contract.

Issue: Whether or not Article 1267 is applicable in the
case at bar.

Held: No, it is not.

Ratio: Article 1267 of the CC provides for a remedy in
cases wherein the contract turns out to be hard and
improvident, unprofitable or impracticable, ill-advised or
even foolish, or less profitable or unexpectedly
burdensome. However, this cannot be applied to the case
at hand because respondents complaint seeks not
release from the contract but the modification of it by
fixing the proper shares that should pertain to each party.
Respondents complaint for modification of the contract
has no basis in law and therefore states no cause of
action.

NAGA TELEPHONE CO. VS. CA
Naga Telephone Co., Inc. (NATELCO) and Luciano M. Maggay, petitioners, vs. The Court of Appeals and Camarines
Sur II Electric Cooperative, Inc. (CASURECO II), respondents
Ponente: Nocon, J.

Facts:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a
telephone company rendering local as well as long
distance telephone service in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc.
(CASURECO II) is a private corporation established for
the purpose of operating an electric power service in the
same city.
On November 1, 1977, the parties entered into a contract
for the use by petitioners in the operation of its telephone
service the electric light posts of private respondent in
Naga City. In consideration therefor, petitioners agreed to
install, free of charge, ten (10) telephone connections for
the use by private respondent. Said contract also
provided:
(a) That the term or period of this contract
shall be as long as the party of the first part
has need for the electric light posts of the
party of the second part it being understood
that this contract shall terminate when for
any reason whatsoever, the party of the
second part is forced to stop, abandoned its
operation as a public service and it becomes
necessary to remove the electric lightpost;
After the contract had been enforced for over ten (10)
years, private respondent filed on January 2, 1989
against petitioners for reformation of the contract with
damages.


Disagreeing with the judgment of the trial court,
petitioners appealed to the CA which in turn
reaffirmed the decision of the trial court, but based on
different grounds: (1) that Article 1267 of the New
Civil Code is applicable and (2) that the contract was
subject to a potestative condition which rendered said
condition void.

Issues:
1. W/N by Art. 1267 is applicable.
2. W/N the prescription of the action for
reformation of the contract in this case
commenced from the time it became
disadvantageous to private respondent
3. W/N the contract was subject to a
potestative condition in favor of petitioners.
Held/Ratio:
1. Article 1267: When the service has become
so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may
also be released therefrom, in whole or in
part.

The general rule is that impossibility of
performance releases the obligor. However,
it is submitted that when the service has
become so difficult as to be manifestly
beyond the contemplation of the parties, the
court should be authorized to release the
obligor in whole or in part. The intention of
the parties should govern and if it appears
that the service turns out to be so difficult as
to have been beyond their contemplation, it
would be doing violence to that intention to
hold their contemplation, it would be doing
Cause of
Action
Private Respondent/ Plaintiff
CASURECO
Petitioner/ Defendant
NATELCO
Trial Court
1
st
Too one side in favor of
petitioners.
Not in conformity with the
guidelines of Natl Electrification
Administration which direct that
the reasonable compensation for
the use of the posts is P10.00
per post, per month
After eleven (11) years of
petitioners' use of the posts, the
telephone cables have become
much heavier with the increase
in the volume of their
subscribers; that a post now
costs as much as P2,630.00.
It should be dismissed because:
(1) it does not sufficiently state a
cause of action for reformation of
contract;
(2) it is barred by prescription, the
same having been filed more than
ten (10) years after the execution of
the contract;
(3) it is barred by estoppel. since
private respondent seeks to
enforce the contract in the same
action.
The contract should be
reformed:
NATELCO to pay
CASURECOs electric poles in
Naga City and in the towns of
Milaor, Canaman, Magarao
and Pili, Camarines Sur and in
other places where defendant
NATELCO uses plaintiff's
electric poles, the sum of TEN
(P10.00) PESOS per plaintiff's
pole, per month beginning
January, 1989
CASURECO to pay NATELCO
the monthly dues of all its
telephones including those
installed at the residence of its
officers.

2
nd
Starting with the year 1981,
petitioners have used 319 posts
in the towns outside Naga City,
without any contract with it; that
at the rate of P10.00 per post,
petitioners should pay private
respondent for the use thereof
the total amount of P267,960.00
from 1981 up to the filing of its
complaint.
Private respondent had asked for
telephone lines in areas outside
Naga City for which its posts were
used by them; and that if
petitioners had refused to comply
with private respondent's demands
for payment for the use of the posts
outside Naga City, it was probably
because what is due to them from
private respondent is more than its
claim against them.
3
rd
The poor servicing by petitioners
of the ten (10) telephone units
had caused it great
inconvenience and damages to
the tune of not less than
P100,000.00
Their telephone service had been
categorized by the National
Telecommunication Corporation
(NTC) as "very high" and of
"superior quality."
Claim not sufficiently proved.

violence to that intention to hold the obligor

still responsible.

That the aforesaid contract has become
inequitous or unfavorable or
disadvantageous to the plaintiff with the
expansion of the business of appellant and
the increase in the volume of its subscribers
in Naga City and environs through the years,
necessitating the stringing of more and
bigger telephone cable wires by appellant to
plaintiff's electric posts without a
corresponding increase in the ten (10)
telephone connections given by appellant to
plaintiff free of charge in the agreement as
consideration for its use of the latter's electric
posts in Naga City.
In short, the continued enforcement of said
contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it
should now be released therefrom under Art.
1267 of the New Civil Code to avoid
appellant's unjust enrichment at its
(plaintiff's) expense. As stated by Tolentino
in his commentaries on the Civil Code citing
foreign civilist Ruggiero, "equity demands a
certain economic equilibrium between the
prestation and the counter-prestation, and
does not permit the unlimited
impoverishment of one party for the benefit
of the other by the excessive rigidity of the
principle of the obligatory force of contracts.

2. 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, which is not necessarily the date of
execution of the contract. Private
respondent's right of action arose "sometime
during the latter part of 1982 or in 1983 when
according to private respondent asked its
private counsel to study said contract as it
already appeared disadvantageous to them.
Thus it will be considered to have arisen only
in 1982 or 1983, and from this time to
January 2, 1989 when the complaint in this
case was filed, ten (10) years had not yet
elapsed.

3. The provision in said agreement that states
(a) That the term or period of this contract
shall be as long as the party of the first part
has need for the electric light posts of the
party of the second part it being understood
that this contract shall terminate when for
any reason whatsoever, the party of the
second part is forced to stop, abandoned its
operation as a public service and it becomes
necessary to remove the electric light post is
invalid for being purely potestative on the
part of appellant as it leaves the continued
effectivity of the aforesaid agreement to the
latter's sole and exclusive will as long as
plaintiff is in operation.
There is no mutuality and equality between
them under the afore-quoted provision
thereof since the life and continuity of said
agreement is made to depend as long as
appellant needs plaintiff's electric posts. And
this is precisely why, since 1977 when said
agreement was executed and up to 1989
when this case was finally filed by plaintiff, it
could do nothing to be released from or
terminate said agreement notwithstanding
that its continued effectivity has become very
disadvantageous and inequitous to it.


PNCC VS. CA
Philippine National Construction Corporation, petitioner, vs. Court of Appeals, Ma. Teresa S. Raymundo-Abarra, Jose S.
Raymundo, Antonio S. Raymundo, Rene S. Raymundo, and Amador S. Raymundo, respondents
Ponente: Davide, Jr., J.

Legal Doctrine: The exception to the principle of the obligatory force of contracts laid down in Art. 1266, CC is applicable
only to obligations to do, and not obligations to give.

Facts:
Nov. 18, 1985Petitioner and private respondents
executed a lease contract for a 30, 000 square meter
parcel of land which stipulated that the period of lease will
commence on the date of issuance of the industrial
clearance by the Ministry of Human Settlements
(Ministry), among others (see pp. 185-186 for other
contract details).
Jan. 7, 1986Petitioner obtained from the Ministry a
Temporary Use Permit (TUP) for a proposed rock
crushing project which was to be valid for 2 years unless
sooner revoked by the Ministry.
Jan. 16, 1986Private respondents wrote petitioner
requesting payment of the first annual rental due and
payable upon the execution of the contract (P240,
000.00). They also assured the latter that they had
already stopped considering the proposals of other
aggregates plants to lease the property because of the
existing contract with petitioner. In its reply, however,
petitioner argued that the payment of rental would
commence on the date of the issuance of an industrial
clearance by the Ministry, and not from the date of signing
of the contract. It then expressed its intention to
terminate the contract, as it had decided to discontinue
with the project due to financial, as well as technical,
difficulties.

Issues:
1. W/N the issuance of an industrial clearance is a
suspensive condition
2. W/N petitioner should be released from the
obligatory force of the contract of lease because
the purpose of the contract did not materialize
due to unforeseen events and causes beyond its
control (EDSA Revolution)
3. W/N the award of damages is excessive,
considering that it did not benefit from the
property
4. W/N petitioners right to be heard was denied

Held/Ratio:
1. Petitioner is now ESTOPPED from claiming that
the TUP was not the industrial clearance
contemplated in the contract by virtue of its letter
dated April 24, 1986 (see italics of last
paragraph in p. 189). From this letter it can be
gleaned that petitioner has considered the permit
as industrial clearance; otherwise, petitioner
could have simply told private respondents that
its obligation to pay rentals had not yet arisen.
From its earlier letter (see p. 190), it can also be
deduced that the suspensive condition
issuance of industrial clearancehas already
been fulfilled and that the lease contract has
become operative. Moreover, the reason of
petitioner in discontinuing with its project and in
consequently cancelling the lease contract was
not the alleged insufficiency of the TUP.


2.
Petitioner Supreme Court
They should be released from the obligatory force of the
contract of lease because the purpose of the contract
did not materialize due to unforeseen events and causes
beyond its control, i.e. due to the abrupt change in
political climate after the EDSA Revolution.
Petitioner CANNOT be released from the obligatory
force of the contract of lease. The exception to the
principle of the obligatory force of contracts laid down in
Art. 1266, CC is applicable only to obligations to do,
and not obligations to give. An obligation to do
includes all kinds of work or service; while an obligation
to give is a prestation which consists in the delivery of
a movable or an immovable thing in order to create a
real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. The
obligation to pay rentals or deliver the thing in a contract
of lease falls within the prestation to give. At any rate,
the unforeseen event and causes mentioned by
petitioner are not the legal or physical impossibilities
contemplated in the said article.
The abrupt change in the political climate of the country
after the EDSA Revolution and its poor financial
condition rendered the performance of the lease
contract impractical and inimical to the corporate
survival of the petitioner.
The principle of rebus sic stantibus (at this point of
affairs; in these circumstances) neither fits in with the
facts of the case. Art. 1267, CC is not an absolute
application of the principle as this would only endanger
the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks
of unfavorable developments and it is only in absolutely
exceptional changes of circumstances that equity
demands assistance for the debtor (see the quoted
Memorandum for the Private Respondents on p. 193 for
details).
Petitioner should be released from the binding effect of
the contract of lease because of its alleged poor
financial condition.
No. Mere pecuniary inability to fulfill an engagement
does not discharge a contractual obligation, nor does it
constitute a defense to an action for specific
performance (Central Bank vs. CA).
The non-materialization of petitioners particular purpose
in entering into the contract of lease invalidates the
contract.
No. The cause of essential purpose in a contract of
lease is the use or enjoyment of a thing. As a general
principle, the motive or particular purpose of a party in
entering into a contract does not affect the validity nor
existence of the contract.

3. P492, 000.00 is NOT excessive. The temporary
permit was valid for 2 years but was
automatically revoked because of its non-use
within one year from its issuance. The non-use
of the permit and the non-entry into the property
subject of the lease contract were both
imputable to petitioner and cannot be taken
advantage of in order to evade or lessen
petitioners monetary obligation. The pecuniary
losses suffered by private respondents are
beyond dispute because of their inability to use
the leased premises.

4. Petitioner was not deprived of due process. The
essence of due process is simply an opportunity
to be heard. To be heard does not only mean
oral arguments in court; one may be heard also
through pleadings. Where opportunity to be
heard, either through oral arguments or
pleadings is accorded, there is no denial of
procedural due process.


V. Compensation
GAN TION VS. CA
Gan Tion, petitioner, vs. CA, Judge Agustin Montesa as Judge of CFI-Manila, Ong Wan Sieng, and the Sheriff of Manila,
respondents
Ponente: Makalintal, J.

Legal Doctrine: Attorneys fees belong to the litigant and not his/her counsel, and may be the subject of legal
compensation.
(If the person who won the case [and has a right to attorneys fees from the loser] is indebted to the loser, the loser can
recover the debt from the attorneys fees he owes, and may not be required to pay the attorneys fees anymore.)

Facts:
O.W.S. was a tenant in the premises owned by G.T. In
1961, G.T. filed an ejectment case against the former for
non-payment of rents for 2 months (sum of P360). O.W.S.
denied the allegation, saying the agreed payment was
merely a total of P320 or P160 a month, and that he
offered to pay this but was refused by G.T. The
landlord/defendant won in the municipal court of Manila,
but on appeal lost in the CFI. The municipal court ruling
was reversed (with finality), and landlord was ordered to
pay the tenant-defendant P500 as attorneys fees.
Later landlord served notice on tenant that he was
increasing the rent, and was demanding at the same time
the rents in arrears at the old rate (P4, 320). Meanwhile
tenant obtained a writ of execution of the CFI judgment
for attorneys fees. Landlord went on certiorari to the CA,
pleading legal compensation since tenant was indebted to
him of the unpaid rents (the P4, 320). CA ruled for the
tenant, saying that although tenant is indebted, the
payment cannot be taken from the P500 the landlord
owes him, because its a trust fund for the benefit of the
lawyer, which the client must turn over to his counsel.

Issue: Whether the award for attorneys fees may be
the subject of legal compensation.

Held: YES. CA judgment reversed. Writ of execution
issued by CFI-Manila is set aside.

Ratio: The award for attorneys fees is made in favor of
the litigant, not of his counsel. It is the litigant, not the
counsel, who is the judgment creditor and who may
enforce the judgment by execution. Such credit may
therefore properly be the subject of legal compensation. It
would be unjust to compel petitioner to pay his debt of
P500 when admittedly his creditor is indebted to him for
more than P4, 000.

SILAHIS MARKETING CORP. VS. IAC
Silahis Marketing Corporation, petitioner, vs. Intermediate Appellate Court and Gregorio De Leon, doing business under
the name and style of MARK INDUSTRIAL SALES, respondents
Ponente: Fernan, C.J.

Legal Doctrine: In order that compensation be proper, it must be clear and liquidated.

Facts:
In 1975, Gregorio De Leon (of Mark Industrial Sales) sold
and delivered various items of merchandise to Silahis
Marketing Corporation. It was covered by several
invoices with the total amount of Php 22, 213.75 payable
within thirty days from the date of the invoices.
Upon maturity and after repeated demands, Silahis failed
to pay for the items. Because of this, De Leon filed a
complaint for the collection of the said accounts including
an interest amounting to Php 661.03 and attorneys fees
of Php 5, 000 in the CFI of Manila.
Silahis admitted the allegations of De Leon but presented
these affirmative defenses: (1) debit memo for Php 22,
200 as unrealized profit for a supposed commission that
Silahis should have received from De Leon for the sale of
sprockets in the amount of Php 111, 000 made directly to
Dole Philippines, Inc.; and (2) Silahis claim that it is
entitled to return the stainless steel screen (worth Php
6,000) brought from De Leon which was found defective
by their client Borden International and to have the
corresponding amount cancelled from its account with De
Leon.

Issue: Whether or not De Leon is liable to Silahis
Marketing Corporation for the commission or margin for
the direct sale which De Leon concluded and
consummated with Dole Philippines, Inc.

Held/Ratio: No, De Leon is not liable to Silahis
Corporation. The debit memo and the other records in this
case do not contain anything that would manifest that De
Leon obligated himself to set-off or compensate Silahis
outstanding accounts with the alleged unrealized
commission from the assailed sale of sprockets in the
amount of Php 111, 000 made to Dole Philippines, Inc.
Article 1279 CC provides that compensation
takes place when two persons, in their own right,
are creditors and debtors to each other. The
requisites in order that compensation may be
proper are the following: (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 liquated and demandable;
and (5) that over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
In order for legal compensation to take place, Article 1279
requires that the two debts be due and they be
liquidated and demandable. Hence, compensation is not
proper where the claim of the person asserting the set-off
against the other is not clear nor liquidated; compensation
cannot extend to unliquidated, disputed claim existing
from breach of contract. The Supreme Court held that
there is no evidence on record from that there was an
agreement between De Leon and Silahis prohibiting De
Leon from selling directly to Dole Philippines. The debit
memo cannot be considered binding between the parties
because it was not signed by De Leon and it did not
mention any communicated in due time to the debtor.

BPI VS. REYES
Bank of the Philippines Island and Grace Romero, petitioners, vs. Court of Appeals and Edvin F. Reyes, respondents
Ponente: Puno, J.

Legal Doctrine: The rule as to mutuality is strictly applied at law. But not in equity, where to allow the same would defeat
a clear right or permit irremediable injustice (in relation to Art 1279 no. 1).


Facts:
Edwin Reyes opened an joint and/or savings account with
his wife (Account 1) in BPI Cubao. He also opened
another joint and/or savings account with his grandmother
Emeteria Fernandez (Account 2) and in this account he
deposits the monthly pension that Fernandez receives
from the US Treasury of Warrants.
Fernandez died on December 28, 1989, without the
knowledge f the US Treasury Department. Thus a check
amounting to P10, 556 was still sent to her for her
monthly pension.
Reyes got the check and deposited it to Account 2. The
US Veterans Adminstration cleared the check and it was
sent to the US Treasury of Warrants (USTW) for further
clearing.
On March 8, 1990, Reyes closed Account 2 and
transferred all its funds to Account 1.
On January 1991, USTW dishonored the check because
Fernandez died 3 days prior to it issuance and is
requesting a refund from BPI. BPI informed Reyes about
it and he gave his verbal authorization to debit from his
account the required amount.
Afterwards, Reyes, with his lawyer, went to BPI to
demand for restitution stating that because of the debited
amount, he was not able to withdraw the money that he
needed at that time.
Thus he filed a suit for damages. BPI presented a
counterclaim stating that Reyes gave them his verbal
authorization to debit from his account.
RTC dismissed the case for lack of action. CA reversed
the decision ang granted Reyes legal compensation

Issues:
1. WON there was verbal authorization on the part
of Reyes for BPI to debit from his account.
2. WON CA erred in not ruling that legal
compensation is proper for Reyes

Held:
1. Yes, preponderance of evidebnce shows this
plus Reyes was not a credible witness
2. Yes, it should have been awarded

Ratio:
1. The prepondenrance of evidence and
testimonies of Bernardo and Romero about the
conversation they had with Reyes, proved that
Reyes indeed gave a verbal authorizations.
Moreover, Reyes has lost his credibility after all
the things that had happened which are 1.)
concealing the death of Fernandez, 2.) receiving
the check depit knowing that Fernandez is no
longer entitled to it 3.) pre-empting refund by
transferring the funds from Account 2 to Account
1.

2. Compensation shall take place when two
persons, in their own right, are creditors and
debtors of each other. Article 1279 states 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,
commenced by third persons and
communicated in due time to the
debtor.
In this case, all this requisites are present. BPI is
a debtor of Reyes, a depositor. BPI also a
creditor of Reyes because of the dishonored
USTW warrant check which was illegally
transferred to Reyess account. The debts are in
sum money, are due, liquidated and
demandable. Moreover, the presence of private
respondent's wife does not negate the element

of mutuality of parties (requisite no.1 in Art

1279). She never asserted her right to the
debited USTW and she is not a party to the
case. The rule as to mutuality is strictly applied
at law. But not in equity, where to allow the same
would defeat a clear right or permit irremediable
injustice.

PNB VS. SAPPHIRE SHIPPING
Philippine National Bank, petitioner, vs. The Court of Appeals and Ramon Lapez, doing business under the name and
style Sapphire Shipping, respondents

Legal Doctrine: In order that compensation may be proper, it is necessary that each one of the obligors be
boundprincipally, and that he be at the same time a principal creditor of the other.

Facts:
There were 2 instances in the past when Sapphire
Shippings account was doubly credited with the
equivalents of $5, 679.23 and $5, 885.38 which amounted
to an aggregate amount of P87, 380.44. PNB made a
demand upon plaintiff for refund of the doubled credits.
PNB intercepted the amounts of $2,627.11 and P34,
340.38 from remittances of the plaintiffs principals
abroad. The first remittance was made by the National
Commercial Bank (NCB) of Jeddah for the benefit of
Sapphire Shipping, to be credited to his account at
Citibank, Greenhills branch. The second was from Libya
and was intended to be deposited at Sapphire Shippings
account with PNB. PNB intercepted the said remittances
as payment for the amounts doubly credited to Sapphire
Shippings account.
The deduction of P34, 340.58 was made with the
knowledge and consent of Sapphire Shipping. A receipt
was issued in favor of private respondent. Sapphire
Shipping made a written demand upon the defendant for
remittance of the equivalent of $2, 627.11.
PNB argued that it made a compensation or set-off
against the remittances coursed through it to recover on
the double credits it erroneously made, based on the
principle of solutio indebiti. The trial court and the CA
ruled that it had no justification in making such
compensation.

Issue: WON PNB was legally justified in making
compensation or set-off against the two remittances
coursed through it in favor of Sapphire Shipping to
recover the double credits it erroneously made, based on
the principle of solutio indebiti

Held/Ratio:
NO. Assailed decision is affirmed in toto.
Art. 1279 of the Civil Code provides:
Art. 1279. In order that compensation may be proper, it is
necessary:
1. That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
2. That both debts consist in a sum of money, or if
the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention
or controversy, commenced by third persons and
communicated in due time to the debtor.

With respect to the amount of $2,627.11, requisites

numbers 2 to 5 are present. However, the parties are not
both principally bound with respect to the said amount;
neither are they at the same time principal creditor of the
other. They are debtor and creditor only with respect to
the double payments, but are trustee-beneficiary as to the
fund transfer of $2,627.11. PNB is the local
correspondent of NCB of Jeddah. It is in effect acting as
an agent of NCB. All that PNB could do under the
remittance arrangement is to transmit the telegraphic
money transfer to the Citibank so that the amount can be
promptly credited to the account of Sapphire Shipping
with the said bank.
Only Sapphire Shipping is principally bound as a debtor of
PNB to the extent of the double credits. On the other
hand, the PNB was an implied trustee, who was obliged
to deliver to Citibank for the benefit of Sapphire Shipping
the sum of $2.627.11.
PNBs actuation in intercepting the amount of $2,627.11
supposed to be remitted to another bank is not only
improper; it will also erode the trust and confidence of the
international banking community in the banking system of
the country.
As regards the intercepted amount of P34, 340.58, all
requirements of Art. 1279 are present, thus, the said
amount may properly be the subject of compensation or
set-off.

MIRASOL VS. CA
Spouses Alejandro Mirasol and Lilia Mirasol, petitioner, vs. Court of Appeals, Philippine National Bank and Philippine
Exchange Co., Inc., respondents

Legal Doctrine: For legal compensation to take place, parties should be mutually creditors and debtors of each other and
the claim should already be liquidate d and no longer a subject of litigation.

Facts:
Mirasols were sugarland owner and planters.
x 1973-1974: 70,501.08 piculs of sugar | 25,662.36 for export
x 1974-1975: 65,100 piculs of sugar | 23,696.40 for export
PNB financed the Mirasols sugar production venture under a crop loan financing scheme:
x Credit Agreement
x Chattel Mortgage sell the sugar in both domestic and export market and get proceeds
x Real Estate Mortgage
President Marcos issued PD No. 579 which authorized PHILEX to purchase sugar allocated for export and PNB to finance
such purchases and whatever profit PHILEX might realize will be remitted to the government.

PNB then asked petitioners to pay their due and demandable accounts. Mirasols conveyed real properties by way of dacion
en pago (P1, 410,466) leaving an unpaid overdrawn account of P1, 513, 347.78 which petitioners failed to pay despite
demands. After auction sale, petitioners still owe PNB P12, 551, 252.93
Petitioners: sale of export sugar, if properly liquidated, could offset their outstanding obligations
PNB: all earnings from the export sales of sugar were remitted to the government

Issue: (Topical) WON the foreclosure and dacion en pago were valid

Held: Both were valid

Ratio:
Petitioners Court
Loans had been fully paid by virtue of legal
compensation
Foreclosure was invalid and has no effect since
mortgages were fully discharged.
They admitted that they were indebted to PNB.
For legal compensation to take place, the requirements
in A.1278 and A.1279 must be present.
Neither parties are mutually creditors and debtors of
each other. There was nothing with which PNB was
supposed to have set-off Mirasols admitted
indebtedness because by virtue of PD 579, any profits
realized will be remitted to the government
Compensation cannot take place where ones claim is
still the subject of litigation not yet liquidated
They agreed to dacion en pago by virtue of martial law
Arrest, Search and Seizure Order (ASSO
No evidence to support claim

VIII. Novation
C. Requisites
MAGDALENA ESTATES INC. VS. RODRIGUEZ
Magdalena Estates, Inc., plaintiff-appelle, vs. Antonio A. Rodriguez and Herminia C. Rodriguez, defendants-appellants
Ponente: Regala, J.

Legal Doctrine: Novation by presumption has never
been favored. For novation to be credited, the parties
must expressly provide for it, it does not accrue when the
new contract merely supplements the old one.

Facts:
Antonio and Herminia Rodriguex bought from Magdalena
Estates a parcel of land in Quezon City. For the balance
of PHP 5,000.00, Rodriguez executed a promissory note
indicating that they would pay the balance with an interest
rate of 9% per annum, within 60 days from the execution
of said promissory note (January 4, 1957).
On the same date that appellants executed the
promissory note, they and Luzon Surety Co. Inc executed

a bond in favor of appellee for the price of PHP 5,000.00

representing the unpaid balance of Rodriguez.
On June 20, 1958, Luzon Surety paid the balance to
Magdalena Estates. Subsequently, Magdalena Estates
demanded from the appellants the payment of PHP
655.89 for the accumulated interest on the principal PHP
5,000.00. Upon refusal of appellants to do so, Magdalena
Estates started a suit in the Municipal Court of Manila
where the judgment rendered was in favor of appellee.
Rodriguez appealed in CFI Manila but to no avail,
wherefore, this present action was ensued.

Issue: W/N the execution of the bond by Rodriguez and
Luzon Surety constitute novation and therefore
extinguished the obligation of appellant to pay the interest
to appellee.

Held/Ratio:
NO. The appellee did not demand from Luzon Surety the
interest due appellants for in the capacity of the latter as
surety the payment of the PHP 5,000 obligation was the
only thing expected from them (bond contract). The
acceptance of Magdalena Estates of the PHP 5,000 does
not constitute a waiver or condonation of the interests due
them. The promissory note that Rodriguez executed
clearly stated that they would pay the outstanding balance
apart from the interest.
The rule is settled that novation by presumption has never
been favored. To be sustained, it needs to be established
that the old and new contracts are incompatible in all
points, or that the will to novate appears by express
agreement of the parties or in acts of similar import.
An obligation to pay a sum of money is not novated, in a
new instrument wherein the old is ratified, by changing
only the terms of payment and adding other obligations
not incompatible with the old one, or wherein the old
contract is merely supplemented by the new one. Thus,
Rodriguez is still obligated to pay the interests to
Magdalena Estates.

COCHINGYAN VS. R & B SURETY AND INSURANCE
Joseph Cochingyan Jr. and Jose K. Villanueva, petitioners, vs. R & B Surety and Insurance Company Inc., respondent
Ponente: Feliciano, J.

Legal Doctrine: Novation is never presumed. It is
imperative that the new obligation expressly declare that
the old obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the old one.

Facts:
Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for
and was granted an increase in its line of credit from
P400, 000 to P800, 000 with the Philippine National Bank
(PNB). To secure the latters approval, PAGRICO had to
give a good and sufficient bond of P400, 000 (principal
obligation) to secure its faithful compliance. PAGRICO
submitted an R & B Surety Bond in the specified amount
in favor of PNB.
R & B Surety entered into two identical Indemnity
Agreements in consideration of its issuance of the surety
bond. One was executed by the Catholic Church Mart
(CCM) and by petitioner Cochingyan Jr. not only in his
capacity as president of CCM, but also in his personal
capacity. The other agreement was executed by
PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K.
Villanueva and Lu Tua Ben. Villanueva signed both as
president of PACOCO and in his personal capacity.
Under both indemnity agreements, the indemnitors bound
themselves jointly and severally to R & B Surety to pay an
annual premium of P5, 103. 05 and for the compliance of
the terms and agreements set forth in the said surety
bond.
When PAGRICO failed to fulfill its principal obligation to
PNB, a Trust Agreement was executed between 1) Jose
and Susana Cochingyan Sr., doing business and style of
the CCM represented by Cochingyan Jr. as Trustors, 2)

Tomas Besa, a PNB official, as Trustee, and 3) the PNB

as Beneficiary. Under the Trust Agreement, the Trustor
undertook to assume the obligation due in order to
forestall impending suits by PNB against R & B Surety.
However, R & B Surety made a series of payments
amounting to P70, 000 when PNB demanded payment
from it the sum of P400, 000 (principal obligation).
Hence, R & B Surety sent formal demand letters to
petitioners for reimbursement. When petitioners failed to
heed its demands, R & B Surety brought suit against
them.

Issue: WON the Trust Agreement had extinguished, by
novation, the obligation of R & B Surety to the PNB under
the Surety Bond which, in turn, extinguished the
obligation of the petitioners under the Indemnity
Agreements

Held: The Surety Bond was not novated by the Trust
Agreement. Both agreements can co-exist. The Trust
Agreement merely furnished to PNB another party obligor
to the principal obligation in addition to PAGRICO and R
& B Surety

Ratio:
The Trust Agreement does not expressly terminate the
obligation of R & B Surety under the Surety Bond. On the
contrary, the Trust Agreement expressly provides for the
continuing subsistence of that obligation by stipulating
that the Trust Agreement shall not in any manner release
R & B Surety from the obligation under the Surety Bond.
Petitioner cannot anchor their defense on implied
novation. Novation is never presumed. It is imperative
that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new
obligation be on every point incompatible with the old one.
The Trustor (CCM) in the Trust Agreement was already
previously bound to R & B Surety under the Indemnity
Agreement. Under the Trust Agreement, CCM became
directly liable to PNB. In effect, there are now three
obligors directly and solidarily bound to PNB: PAGRICO,
R & B Surety and the Trustor.

BROADWAY CENTRUM CONDOMINIUM CORP VS. TROPICAL HUT
Broadway Centrum Corporation, petitioner, vs. Tropical Hut Food Market, Inc. and The Honorable Court of Appeals,
respondents

Legal Doctrine: Novation is never presumed, is not
avoided by merely referring to partial novation. The will to
novate, whether totally or partially, must appear by
express agreement of the parties, by their acts which are
too clear and unequivocal to be mistaken.

Facts:
Broadway and Tropical executed an 28 November 1980 a
contract of lease of 10 years to which, Tropical agreed to
pay Broadway a rental fee of P120,000 per month during
the first three years; P140,000 per month on the
succeeding three years; and P165,000 per month on the
last four years.
Period would be from February 1, 1981 to February 1,
1991.
The contact covered a 3,042.19 square meter portion of
the Broadway Centrum Commercial Complex.
On 5 February 1982, Tropical wrote to Broadway stating
that Tropical's rental payments to Broadway were
equivalent to 7.31% of Tropical's actual sales of P17,
246,103.00 in 1981, while "[Tropical's] gross profit, rate
[was] only 10%."
The "low sales volume" that the Tropical Supermarket in
the Broadway Centrum was experiencing, apparently was
a result of the temporary closure of Doa Juana
Rodriguez Avenue.

Tropical proposed to reduce the present monthly rental

to P50, 000.00 or 2.0% of their monthly sales whichever
is higher, up to the end of the third year after which it shall
again be subject to renegotiations
Broadway made a counter-proposal consisting of
conditional reduction of the stipulated rental by P20,
000.00 for a limited period of four (4) months
Broadway's President, Mrs. Cita Fernandez Orosa, was
aware that the temporary closure of the Doa Juana
Rodriguez Avenue had affected the business of all the
Broadway's tenants, including Tropical. She, therefore,
agreed on 20 April 1982 to a "provisional and temporary
agreement."
The letter of Mrs. Orosa states the following:
our provisional and temporary agreement to a reduction
of your monthly rental on the basis of 2% of gross
receipts or P60,000.00 whichever is higher.
This Provisional arrangement should not be interpreted
as amendment to the lease contract entered into between
us.
Tropical further agreed to return 466.56 square meters to
Broadway in order for the temporary agreement to
commence.
The road expansion project at the Doa Juana Rodriguez
Avenue was completed, thus, Broadway is now seeking
payment based on the original contract, which Tropical
argues to be novated by the April 20, 1982 agreement.

Issue: Whether or not the latter-agreement dated 20 April
1982 had novated the Contract of Lease of 28 November
1980

Held: No. The letter-agreement of 20 April 1992 did not
extinguish or alter the obligations of respondent Tropical
and the rights of petitioner Broadway under their lease
contract dated 28 November 1980.

Ratio:
Novation is the extinguishment of an obligation by the
substitution of that obligation with a subsequent one.
Novation through a change of the object or principal
conditions of an existing obligation is referred to as
objective (or real) novation.
Novation by the change of either the person of the debtor
or of the creditor is described as subjective (or personal)
novation.
Novation may also be objective and subjective (mixed) at
the same time.
Novation is never presumed; it must be established either
by the discharge of use old debt by the express terms of
the new agreement, or by the acts of the parties whose
intention to dissolve the old obligation as a consideration
of the emergence of the new one must be clearly
manifested.
In the case at bar (1), the letter-agreement of 20 April
1982 was, by its own terms, a " provisional and temporary
agreement to a reduction of [Tropical's] monthly rental
." The letter-agreement, as noted earlier, also contained
the following sentence:
This provisional agreement should not be
interpreted as amendment to the contract entered into by
us.
There is nothing in the text of the 20 April 1982 letter-
agreement to suggest that the reduced concessional
rental rates could not be terminated Broadway without the
consent of Tropical.
(2) the formal notarized Lease Contract of 28 November
1980 made it clear that a temporary and provisional
concessional reduction of rentals which Broadway might
grant to Tropical was not to be construed as alteration or
waiver of any; of the terms of the Lease Contract itself.
Lease Contract provided:
32. NON-WAIVER OF CONDITIONS &
COVENANTS The failure of the LESSOR to insist
upon strict performance of any of the terms,
conditions and stipulation hereof shall not be deemed a
relinquishment or waiver of any right or remedy that
said LESSOR may have, nor shall it be construed as a
waiver of any subsequent breach of, or default in the
terms, conditions and covenants hereof, which terms,
conditions and covenants shall continue under this
Contract and shall be deemed to have been made unless
express in writing and signed by the LESSOR.
(3) the course of negotiations between Broadway and
Tropical before the execution of their letter-agreement of
20 April 1982, quite clearly indicated that what they were

negotiating was a temporary and provisional reduction of

rentals.
(4) the course of discussions between Broadway and
Tropical, as disclosed in their correspondence, after
execution of the 20 April 1982 letter-agreement, shows
that the reduction of rentals agreed upon in the letter-
agreement was not to persist, for the rest of the life of the
ten (10)-year Contract of Lease.

Dispositive:
WHEREFORE, for all the foregoing, the Petition for
Review on Certiorari is hereby GIVEN DUE COURSE,
and the Comment filed by private respondent Tropical is
hereby TREATED as its ANSWER and the Decision
dated 30 January 1987 of the Court, of Appeals and the
Decision dated 14 March 1985 of the trial court are
hereby REVERSED and SET ASIDE. A new judgment is
hereby entered dismissing the complaint filed by private
respondent Tropical, and requiring private respondent
Tropical to pay to petitioner Broadway the following rental
rates:
1. P80,000.00 per month from 1 January 1983
up to 30 June 1983;
2. P100,000.00 per, month from 1 July 1983
up to 31 January 1984;
3. P140,000.00 per month from 1 February
1984 to 1 February 1987; and
4. P160,000.00 per month from 1 February
1987 to 31 January 1991.
The penalty of 2% per month on unpaid rentals specified
in Section 5 of the 28 November 1980 Contract of Lease
is, in the exercise of the Court's discretion, hereby
equitably REDUCED to ten percent (10%) per annum
computed from accrual of such rentals as above specified
until fully paid. In addition, private respondent Tropical
shall pay to petitioner Broadway attorney's fees in the
amount of ten percent (10%) (and not twenty percent
[20%] as specified in Section 33 of the Contract of lease)
of the total amount due and payable to petitioner
Broadway under this Decision. Costs against private
respondent.

CALIFORNIA BUS LINE VS. STATE INVESTMENT
California Bus Lines, Inc., petitioner, vs. State Investment House, Inc., respondent

Legal Doctrine: An obligation is not novated by an
instrument that expressly recognizes the old, changes
only the terms of payment, and adds other obligations not
incompatible with the old ones, or where the new contract
merely supplements the old one.

Facts:
1979 Delta applied for financial assistance from
respondent SIHI, a domestic corporation engaged in the
business of quasi-banking.
April 1979 to May 1980 California executed 16
promissory notes to Delta to secure the payment of the 35
buses that California purchased.
Oct. 7, 1981 When California defaulted on all payments
due, it entered into a restructuring agreement with Delta
to cover its obligations under the promissory notes. The
restructuring agreement provided for a new schedule of
payments of Californias past due installments, extending
the period to pay, and stipulating daily remittance instead
of the previously agreed monthly remittance of payments.
Dec. 23, 1981 Delta executed a Continuing Deed of
Assignment of Receivables in favor of SIHI as security for
the payment of its obligations to SIHI per the credit
agreements.
May 3, 1982 California filed a complaint for injunction,
docketed as Civil Case No. 0023-P, to pre-empt Deltas
management takeover per restructuring agreement. Delta
filed its amended answer with applications for the
issuance of a writ of preliminary mandatory injunction to
enforce the management takeover clause and a writ of

preliminary attachment over the buses it sold to

California. The trial court granted Deltas prayer.
Sept. 15, 1983 Delta executed a Deed of Sale assigning
to SIHI 5 of the 16 promissory notes from California.
Dec. 13, 1983 SIHI sent a demand letter to California
requiring the latter to remit the payments due on the 5
promissory notes directly to it. California replied informing
SIHI of Civil Case No. 0023-P and of the fact that Delta
had taken over its management and operations.
July 24, 1984 Delta and California entered into a
compromise agreement in Civil Case No. 0023-P.
Following this, California vehemently refused to pay SIHI
the value of the 5 promissory notes, contending that the
compromise agreement was in full settlement of all its
obligations to Delta including its obligations under the
promissory notes.
RTC discharged California from liability on the 5
promissory notes. It held that the restructuring agreement
dated October 7, 1981, between Delta and California
novated the 5 promissory notes; hence, at the time Delta
assigned the 5 promissory notes to SIHI, the notes were
already merged in the restructuring agreement and
cannot be enforced against California.
CA reversed RTCs decision and held California liable for
the 5 notes.

Issue: W/N the restructuring agreement between
California and Delta novated the 5 promissory notes Delta
assigned to SIHI.

Held: NO.

Ratio:
The obligation is not novated by an instrument that
expressly recognizes the old, changes only the terms of
payment, and adds other obligations not incompatible
with the old ones, or where the new contract merely
supplements the old one.
Inchausti & Co. v. Yulo: an obligation to pay a sum of
money is not novated in a new instrument wherein the old
is ratified, by changing only the term of payment and
adding other obligations not incompatible with the old
one.
The restructuring agreement between Delta and
California executed on October 7, 1981, shows that the
parties did not expressly stipulate that the restructuring
agreement novated the promissory notes.
The restructuring agreement, instead of containing
provisions absolutely incompatible with the obligations
of the judgment, expressly ratifies such obligations and
contains provisions for satisfying them. There was no
change in the object of the prior obligations. The
restructuring agreement merely provided for a new
schedule of payments and additional. Where the parties
to the new obligation expressly recognize the continuing
existence and validity of the old one, there can be no
novation.
The restructuring agreement can stand together with the
promissory notes.
As regards the compromise agreement, having previously
assigned the 5 promissory notes to SIHI, Delta had no
more right to compromise the same.
SIHIs demand letter dated December 13, 1983, requiring
California to remit the payments directly to SIHI effectively
revoked Deltas limited right to collect in behalf of SIHI.
As a result of the assignment, Delta relinquished all its
rights to the subject promissory notes in favor of SIHI.
This had the effect of separating the 5 promissory notes
from the 16 promissory notes subject of Civil Case No.
0023-P.
The compromise agreement covered the rights and
obligations only of Delta and California and only with
respect to the 11 other promissory notes that remained
with Delta.


G. Subjective Novation
GARCIA VS. LLAMAS
Romeo C. Garcia, petitioner, vs. Dionisio V. Llamas, respondent

Legal Doctrine: Novation cannot be presumed. It must
be clearly shown either by the express assent of the
parties or by the complete incompatibility between the old
and the new agreements.

Facts:
23 December 1996 - [Petitioner] Romeo Garcia and
Eduardo de Jesus borrowed P400, 000.00 from
[respondent] Dionisio Llamas. On the same day, [they]
executed a promissory note wherein they bound
themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month;
that the loan has long been overdue and, despite
repeated demands, petitioner and de Jesus have failed
and refused to pay it; and that, by reason of the
unjustified refusal, respondent was compelled to engage
the services of counsel to whom he agreed to pay 25% of
the sum to be recovered from the petitioner and de Jesus,
plus P2,000.00 for every appearance in court.
Defense of the petitioner Garcia- Petitioner seeks to
extricate himself from his obligation as joint and solidary
debtor by insisting that novation took place, either through
the substitution of De Jesus as sole debtor or the
replacement of the promissory note by the check.
Alternatively, petitioner argues that the original obligation
was extinguished when de Jesus, who was his co-obligor,
paid the loan with the check; and that, in any event, the
issuance of the check and respondents acceptance
thereof novated or superseded the note.
Defense of de Jesus- He asserted in his Answer with
Counterclaim that out of the supposed P400,000.00 loan,
he received only P360,000.00, the P40,000.00 having
been advance interest thereon for two months, that is, for
January and February 1997; that he paid to respondents
daughter, one Nits Llamas-Quijencio, the sum of
P120,000.00 representing the peso equivalent of his
accumulated leave credits plus the advance interest, and
the interest for the months of March and April 1997; that
he had difficulty in paying the loan and had asked
respondent for an extension of time; that respondent
acted in bad faith in instituting the case, respondent
having agreed to accept the benefits he (de Jesus) would
receive for his retirement, but respondent nonetheless
filed the instant case while his retirement was being
processed;
Respondent filed a Manifestation/Motion to submit the
case for judgment on the pleadings, and asserted that
petitioners and de Jesus solidary liability under the
promissory note cannot be any clearer, and that the
check issued by de Jesus did not discharge the loan
since the check bounced. The loan remained unpaid.
RTC ruled against petitioner and De Jesus, and ordered
them to pay, jointly and severally, the respondent the
following sums, P400,000.00 plus interests less the
amount of P120,000.00 representing interests already
paid by de Jesus; plus attorneys fees plus appearance
fee for each day of court appearance, and cost of this
suit.
CA AFFIRMED, subject to the modification that the award
for attorneys fees and cost of suit is DELETED. The
portion of the judgment that pertains to Eduardo de Jesus
is SET ASIDE and VACATED. Accordingly, the case
against Eduardo de Jesus is REMANDED to RTC to
receive ex parte respondents evidence against Eduardo
de Jesus.

Issues: Whether there was novation of the obligation and
therefore extricated the petitioner from liability.

Held: There was no novation.

Ratio:
Novation is a mode of extinguishing an obligation by
changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the creditor.
Article 1293 of the Civil Code defines novation as follows:

Art. 1293. Novation which consists in

substituting a new debtor in the place of the
original one, may be made even 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 rights mentioned in
articles 1236 and 1237.
Novation may be express or implied. It is express when
the new obligation declares in unequivocal terms that the
old obligation is extinguished. It is implied when the new
obligation is incompatible with the old one on every point.
The test of incompatibility is whether the two obligations
can stand together, each one with its own independent
existence.
In the case at bar, the parties did not unequivocally
declare that the old obligation had been extinguished by
the issuance and the acceptance of the check, or that the
check would take the place of the note. There is no
incompatibility between the promissory note and the
check. As the CA correctly observed, the check had been
issued precisely to answer for the obligation. On the one
hand, the note evidences the loan obligation; and on the
other, the check answers for it. Verily, the two can stand
together.
The petitioner has not shown that he was expressly
released from the obligation, that a third person was
substituted in his place, or that the joint and solidary
obligation was cancelled and substituted by the solitary
undertaking of De Jesus.
Neither could the payment of interests change the terms
and conditions of the obligation. Such payment was
already provided for in the promissory note and, like the
check, was totally in accord with the terms thereof.
Moreover, it must be noted that for novation to be valid
and legal, the law requires that the creditor expressly
consent to the substitution of a new debtor. Since
novation implies a waiver of the right the creditor had
before the novation, such waiver must be express. It
cannot be supposed, without clear proof, that the present
respondent has done away with his right to exact
fulfillment from either of the solidary debtors. More
important, De Jesus was not a third person to the
obligation. From the beginning, he was a joint and
solidary obligor of the P400, 000 loan; thus, he can be
released from it only upon its extinguishment.
Respondents acceptance of his check did not change the
person of the debtor, because a joint and solidary obligor
is required to pay the entirety of the obligation.
It must be noted that in a solidary obligation, the creditor
is entitled to demand the satisfaction of the whole
obligation from any or all of the debtors. It is up to the
former to determine against whom to enforce collection.
Having made himself jointly and severally liable with De
Jesus, petitioner is therefore liable for the entire
obligation.

Dispositive: WHEREFORE, this Petition is hereby
DENIED and the assailed Decision AFFIRMED.

QUINTO VS. PEOPLE
Leonida C. Quinto, petitioner, vs. People of the Philippines, respondent
Ponente: Vitug, J.

Legal Doctrine: It is a very common thing in business
affairs for a stranger to a contract to assume its
obligations but it does not necessarily imply the
extinguishment of the liability of the first debtor. The mere
fact that the creditor receives 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.
Facts:
March 23, 1997 Petitioner Quinto went to see Aurelia
Cariaga (private complainant) at the latter's residence in
Makati. Quinto asked Cariaga to allow her have some
pieces of jewelry that she could show to prospective
buyers. Cariaga agreed and handed over to Quinto one
(1) set of marques with briliantitos worth P17,500.00, one
(1) solo ring of 2.30 karats worth P16,000.00 and one (1)
rosetas ring worth P2,500.00. Leonida signed a receipt.

The receipt stated that Quinto received the jewelries

worth P 36,000 for the purpose of selling the same on
commission basis and with the express obligation on the
part of the petitioner to turn over the proceeds of sale
thereof, or to return the said jewelries, if not sold, five (5)
days after receipt thereof.
But when the 5-day period given to her had lapsed,
Quinto requested for and was granted additional time
within which to vend the items. Leonida failed to conclude
any sale and, about six (6) months later, Cariaga asked
that the pieces of jewelry be returned. She sent to Quinto
a demand letter which the latter ignored. The inexplicable
delay of Leonida in returning the items spurred the filing
of the case for estafa against her.
Quinto, in her defense, said that, sometime in 1975, she
and Cariaga started to transact business in pieces of
jewelry among which included a solo ring which was sold
to Mrs. Camacho who paid initially in check and later
directly paid the balance to Aurelia in installments. The
last transaction Quinto had with Mrs. Camacho involved a
"marques" worth P16, 000.00 and a ring valued at P4,
000.00. Mrs. Camacho was not able to pay the due
amount in full. Quinto brought Mrs. Camacho to Cariaga
who agreed to allow Mrs. Camacho to pay the balance in
installments. Quinto was also able to sell for Cariaga a 2-
karat diamond ring worth P17, 000.00 to Mrs. Concordia
Ramos who was also unable to pay the whole amount.
Quinto brought Mrs. Ramos to Cariaga and they talked
about the terms of payment. (In short, Quintos defense is
that their agreement was novated when Cariaga agreed
to be paid directly by the buyers and on installment basis.
She added that her liability is merely civil in nature.)
RTC found Quinto guilty beyond reasonable doubt of the
crime of estafa and sentenced her to suffer the penalty of
imprisonment and to indemnify private complainant in the
amount of P36, 000.00. CA affirmed. Hence, this petition
for review on certiorari.

Issue: Whether or not the agreement between petitioner
Quinto and private complainant Cariaga was effectively
novated when the latter consented to receive payment on
installments directly from Mrs. Camacho and Mrs.
Ramos?

Held: NO, it did not.

Ratio:
Novation, in its broad concept, may either be extinctive or
modificatory. An extinctive novation results either by
changing the object or principal conditions (objective or
real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor
(subjective or personal).
There are two ways which could indicate the presence of
extinctive novation. The first is when novation has been
explicitly stated and declared in unequivocal terms. The
second is when the old and the new obligations are
incompatible on every point. The test of incompatibility is
whether or not the two obligations can stand together,
each one having its independent existence. If they
cannot, they are incompatible and the latter obligation
novates the first. Corollarily, changes that breed
incompatibility must be essential in nature and not merely
accidental. The incompatibility must take place in any of
the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise,
the change would be merely modificatory in nature and
insufficient to extinguish the original obligation.
In the case at bar, the changes alluded to by petitioner
consists only in the manner of payment. There was really
no substitution of debtors since private complainant
merely acquiesced to the payment but did not give her
consent to enter into a new contract.
The SC cited the decision of the Appellate Court in this
case saying: It is remembered that one of the buyers,
Concordia Ramos, was not presented to testify on the
alleged aforesaid manner of payment. The acceptance by
complainant of partial payment tendered by the buyer,
Leonor Camacho, does not evince the intention of the
complainant to have their agreement novated. It was
simply necessitated by the fact that, at that time,
Camacho had substantial accounts payable to
complainant, and because of the fact that appellant made
herself scarce to complainant. Thus, to obviate the
situation where complainant would end up with nothing,
she was forced to receive the tender of Camacho.
There are two forms of novation by substituting the
person of the debtor, depending on whose initiative it
comes from, to wit: expromision and delegacion. In both
cases, a third person would substitute for the original
debtor and assume the obligation, thereby releasing the
original debtor from the obligation; thus in both cases, the
consent of the new debtor and the consent of the creditor
are necessary.

It is thus easy to see why Cariaga's acceptance of Ramos

and Camacho's payment on installment basis cannot be
construed as a case of either expromision or delegacion
sufficient to justify the attendance of extinctive novation. It
is a very common thing for a stranger to a contract to
assume its obligations; and while this may have the effect
of adding to the number of persons liable, it does not
necessarily imply the extinguishment of the liability of the
first debtor. The mere fact that the creditor receives
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.

Dispositive: WHEREFORE, the assailed decision of the
Court of Appeals is AFFIRMED except that the
imprisonment term is MODIFIED by now sentencing
petitioner to an indeterminate penalty. The civil liability of
appellant for P36, 000.00 in favor of private complainant
is maintained.

LICAROS VS. GATMAITAN
Abelardo Licaros, petitioner, vs. Antonio Gatmaitan, respondent
Ponente: Gonzaga-Reyes, J.

Legal Doctrine/s:
In conventional subrogation, agreement among the 3
parties is necessary: original creditor, debtor and the new
creditor; in the assignment of credit consent of the debtor
is not required.
While it is true that conventional subrogation has the
effect of extinguishing the old obligation and giving rise to
a new one, the extinguishment of the old obligation is the
effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract
for conventional subrogation may not be created. As
such, the extinguishment of the original obligation is not
determinative of whether or not a contract of conventional
subrogation was constituted.

Facts:
The Anglo-Asean Bank and Trust Limited (Anglo-Asean)
is a private bank registered & recognized in the Republic
of Vanuatu but not in the Philippines. Its business is in
receiving fund placements through deposits from
institutions & individual investors from different parts of
the world and then investing the deposits in money
market placements and potentially profitable capital
ventures in Hongkong, Europe & the United States for the
purpose of maximizing the returns on those investments.
Abelardo Licaros, a Filipino businessman, decided to
make a fund placement with said bank sometime in the
1980s. But this overseas fund investment did not turn out
as expected. He encountered difficulties in retrieving not
only his interests/profits but his very investments as well.
He asked for help from Antonio P. Gatmaitan, a reputable
banker and investment manager who had been offering
consultancy services to local and international
corporations.
Gatmaitan voluntarily offered to assume the payment of
Anglo-Aseans indebtedness to Licaros subject to certain
terms and conditions. They executed a notarized
MEMORANDUM OF AGREEMENT on July 29,88 to
formalize the agreement:
Pertinent clause:
xxx
WHEREAS, the parties herein have come to an
agreement on the nature, form and extent of
their mutual prestations which they now record
herein with the express conformity of the third
parties concerned xxx
In line with the MoA, Gatmaitan executed a NON-
NEGOTIABLE PROMISSORY NOTE WITH
ASSIGNMENT OF CASH DIVIDENDS stating that he will
pay Licaros the equivalent of his (Licaros) investment
amounting to $ 150, 000. (P3, 150, 000) (note: Php

21=$1) without interest as material consideration for the

full settlement of his money claims from ANGLO-ASEAN
BANK. As a security for the payment of this promissory
note, he assigned 70% of all cash dividends from his
shares of stock in the Prudential Life Realty, Inc. and
Prudential Life Plan, Inc.
Gatmaitan presented the MoA to Anglo-Asean. The bank
said that they would look into it but nothing has been
heard from the bank since. Because of Gatmaitans
inability to collect, he did not bother anymore to make
good his promise to pay Licaros the amount stated in his
promissory note.
Licaros felt that he had a right to collect on the basis of
the promissory note regardless of the outcome of
Gatmaitan's recovery efforts.
Thus, in July 1996, Licaros, thru counsel, addressed
successive demand letters to Gatmaitan, demanding
payment of the latters obligations under the promissory
note. Gatmaitan, however, did not accede to these
demands.
Licaros then filed a complaint to the RTC. RTC ruled in
favor of Licaros.
CA reversed RTC decision.

Issue/s:
1. Whether the Memorandum of Agreement
between petitioner and respondent is one of
assignment of credit or one of conventional
subrogation.
2. WON respondent became liable to petitioner
under the promissory note.
(note: the efficacy of the promissory note is dependent on
the Memorandum of Agreement since the note is only an
annex to the said memorandum)

Held/Ratio:
1. The MoA was in the nature of a conventional
subrogation.
It was clear in the stipulation in the contract that
the 2 parties involved intended the MoA to be a
conventional subrogation since they sought to
get the consent of the 3
rd
parties involved as
explicitly stated in one of the whereas clauses of
the MoA:
xxx
WHEREAS, the parties herein have
come to an agreement on the nature,
form and extent of their mutual
prestations which they now record
herein with the express conformity of
the third parties concerned xxx
Contrary to Licaros assertion, the Court believes
that this preambulatory clause should be taken
with the contract as whole. Thus stating the
intention of the party, requiring the consent of
Anglo-Asean, the contract was therefore with the
nature of a conventional subrogation.

Assignment of credit Subrogation
definition the process of transferring the right of the
assignor to the assignee who would then
have the right to proceed against the debtor.
The assignment may be done gratuitously or
onerously, in which case, the assignment
has an effect similar to that of a sale.
the transfer of all the rights of the creditor to a
third person, who substitutes him in all his rights.
It may either be legal or conventional.
Legal subrogation takes place without agreement
but by operation of law because of certain acts.
Conventional subrogation takes place by
agreement of parties.

Difference as
to requisite
(consent)
consent of the debtor is not required.

agreement among the 3 parties is necessary:
original creditor, debtor and the new creditor
Differences as
to effects
refers to the same right which passes from
one person to another.
the nullity of an obligation is not remedied by
the assignment of the creditors right to
another
extinguishes the obligation and gives rise to a new
obligation
The nullity of an old obligation may be cured by
subrogation, such that a new obligation will be
perfectly valid

Licaros asserts that obligation between Licaros

and Anglo-Asean was not extinguished in the
MoA. What was entered into was therefore not a
conventional subrogation.
While it is true that conventional subrogation has
the effect of extinguishing the old obligation and
giving rise to a new one, the extinguishment of
the old obligation is the effect of the
establishment of a contract for conventional
subrogation. It is not a requisite without which a
contract for conventional subrogation may not be
created. As such, the extinguishment of the
original obligation is not determinative of whether
or not a contract of conventional subrogation
was constituted.

2. NO. Gatmaitan cannot be held liable since the
MoA was not perfected owing to the lack of
consent from Anglo-Asean required in a
conventional subrogation.

Dispositive: petition DENIED, CA affirmed

ASTRO ELECTRONICS CORP. VS. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORP.
Astro Electronics Corp. and Peter Roxas, petitioners, vs. Philippine Export and Foreign Loan Guarantee Corporation,
respondent
Ponente: Austria-Martinez, J.

Legal Doctrine: The consent of a debtor is not needed
under a legal subrogation (in NCC Art. 1302).

Facts:
Petitioner Astro Electronics Corp. (Astro) was granted
loans by Philippine Trust Company (Philtrust) amounting
to Php. 3 million, with interest.
The loan was secured by 3 promissory notes for: Php.
600, 000, Php. 400, 000, and Php. 2 million.
Astro President Peter Roxas signed twice, as president
and in his personal capacity, on the notes. He also signed
as Astro President and as a surety in a Continuing Surety
Agreement in favor of Philtrust Bank.
Philguarantee guaranteed Philtrust the payment of 70% of
Astros loans, subject to the condition that it shall be
subrogated to the rights of Philtrust against Astro.
Astro failed to pay its obligations despite demands, thus
Philguarantee filed a complaint for sum of money against
Astro and Roxas.
Roxas denies liability on the promissory notes, alleging
that the phrases in his personal capacity and in his
official capacity were fraudulently inserted without his
knowledge.
RTC and CA held for respondent herein. Astro and Roxas
jointly and severally liable.

Issue: WON Roxas should be jointly and severally liable
with Astro to Philguarantee.

Held: Yes. CA decision affirmed in toto.

Ratio:
(Topical) Roxas consent was not needed for the
subrogation to take place because it falls under legal
subrogation as provided by NCC Art. 1302, par. 3:
Art. 1032. xxx
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of

the obligation pays, without prejudice to the

effects of confusion as to the latters share.
(Philguarantee is an interested party (benefited by the
extinguishment of obligation) because it is Philtrusts
guarantor, hence par.3 applies.)
Philguarantee, being Philtrusts (original creditor)
guarantor, is subrogated to all the rights of Philtrust
against Astro and Roxas upon its (Philguarantees)
payment of the latters (Astros and Roxas) loan
obligations by virtue of NCC Art. 2067.
Roxas signing of the promissory notes twice is evident
that he is undertaking the obligation in said notes in two
different capacities, namely official and personal.
His allegation that the phrases in his personal capacity
and in his official capacity were inserted without his
knowledge was unsubstantiated. His signature covered
portions of the typewritten words personal capacity
which should have been the opposite if we are to follow
his allegation.
Further, persons who write their names on the face of a
promissory note are makers of such note and promising
that they will pay the payee or the note holder according
to its tenor, as provided by the Negotiable Instrument Law
(Act No. 2031), Secs. 184 and 60.
The promissory notes Roxas signed provide that: xxx
I/We jointly, severally and solidarily, promise to pay to
xxx. An instrument like that (starting with I, We or
Either of us promise to pay) makes the two or more
persons who signed in such note solidarily liable.

TITLE II: CONTRACTS
C. Characteristics
GSIS VS. CA
Government Service Insurance System (GSIS), petitioner v. CA, and spouses Raul and Esperanza Leuterio, respondents

Facts:
Petitioner GSIS conducted a lottery draw for the allocation
of lots and housing units in Project 8-C of GSIS Village.
Private respondent Esperanza Leuterio won and was
issued a Certificate of Acknowledgment to purchase the
subject house and in 1965, the parties entered into a
Deed of Conditional Sale evidencing the conveyance of
the subject property and all improvements thereon to the
Leuterio spouses for the purchase price of P19, 740.00,
payable over a fifteen-year period, in 180 equal monthly
installments of P168.53 each. Three years elapsed before
the Deed was notarized, and a copy of the same was
given to the private respondents.
After the land development and housing construction of
Project 8-C were completed in 1966, petitioner's Board of
Trustees increased the purchase price indicated in the
Deed of Conditional Sale covering houses and lots
therein. It is noted that marginal notation "subject to
adjustment pending approval of the Board of Trustees.
The trial court found that the appended words were
inserted into the document WITHOUT THE
KNOWLEDGE OR CONSENT of the Leuterio spouses.
Subsequently, a three-man Ad Hoc committee found that
the final cost of the Village justified a higher price range
for the houses and lots in the project.
After years of diligently paying the monthly amortizations

and real estate taxes on the subject property, the private
respondents spouses informed

petitioner that the
payments for the property had been completed, and
hence, the execution of an absolute deed of sale in their

favor was in order. Petitioner GSIS failed to execute the

same.
RTC & CA in favor of the Leuterio spouses

Issue: Whether or not the spouses Leuterio agreed to the
notation "subject to adjustment pending approval of the
Board of Trustees" appearing on the margin of the parties'
Conditional Deed of Sale.

Held: No. The Leuterio spouses cannot be made to pay
for the increased value of the property involved. Petition
for review on certiorari is DISMISSED.

Ratio:
The trial court DID NOT grossly erred when it found that
the purchase price agreed upon by the parties was P19,
740.00 and this agreement was not made subject to any
posterior event or condition.
The purchase price mutually agreed upon by the parties
was P19, 740.00. The spouses Leuterio did not give their
consent for petitioner to make a unilateral upward
adjustment of this purchase price depending on the final
cost of construction of the subject house and lot.
Article 1473 of the Civil Code provides that "the fixing of
the price can never be left to the discretion of one of the
contracting parties. . . ."
If petitioner failed to factor this increase in the cost of the
construction in the purchase price of the subject house
and lot, it has nobody to blame but itself and it alone
should suffer the loss.

MANILA RAILROAD CO. VS. COMPANIA TRANSATLANTICA
Manila Railroad Co., plaintiff-appellant, vs. Compania Transatlantica, defendant-appellee, and Atlantic, Gulf, and Pacific
Company, defendant-appellant
Ponente: Street, J.

Facts:
Manila Railroad Company (Manila Railroad) purchased
certain locomotive boilers in Europe and contracted with
Compania Transatlantica (Compania) to transport the
same to Manila by its steamship Alicante
Since the equipment of the steamship Alicante is
insufficient to discharge the boilers, Compania contracted
with Atlantic, Gulf, and Pacific Company (Atlantic). Such
endeavour was known to Manila Railroad. Atlantic agreed
to discharge the said locomotive boilers from Alicante.
In the effort of Atlantic to discharge the locomotive boilers
from Alicante, the apparatus used broke which caused
the boiler to fall. The crane was then repaired and then
the boiler was discharged but it was found out that it was
badly damaged. The boiler had to be reshipped again
England for rebuilding, then will be returned again to
Manila. The entire repairing cost Manila Railroad
22,343.29. To recover these damages, Manila Railroad
filed an action against Compania. The latter caused
Atlantic to be brought as a co-defendant and insisted that
liabilities should be charged upon Atlantic since it was the
one who discharged the boilers.
The said mishap was undoubtedly due to the negligence
of Leyden, the foreman in charge and was working under
Atlantic. The first fall of the boiler was due to the improper
adjustment of sling, which Leyden just neglected despite
his attention being called. The second fall was due to the
weakening of the bolt, which was caused by the first fall.
A person of sufficient skill to be trusted with the operation
of the said machine should have known that the crane
had possibly been weakened after the first accident.
The Court of First Instance absolved Compania of the
damages. Damages were charged to Atlantic. Manila
Railroad appealed for the said absolution. Also, Atlantc
appealed for the judgement of court against it.


Issues/ Held:
1. Is Compania liable to Manila Railroad for
delivering the boiler in a damaged condition?
Yes
2. Is Atlantic liable to Compania for the amount the
latter may be required to pay to Manila Railroad
for the damage done? Yes
3. Is Atlantic directly liable to Manila Railroad? No.

Ratio:
1. The obligation to transport the boiler involvers
the duty to convey and deliver it in a proper
condition. The contract to convey also involves
the duty to convey and deliver safely and
securely with reference to the degree of care
that is required by law and custom. Since the
boiler has been destroyed as it was being
discharged from the ship, Compania is liable
under articles 1103 and 1104 of the civil code for
the consequences of the omission of the care
necessary to the proper performance of its
obligation. It cannot escape its liability just
because it was Atlantic which discharged the
boilers. Atlantic was no more than a servant or
employee of Compania.
Compania is also liable under article 1101 of civil
code which states that a party is bound to the full
performance of his contractual engagements. If
he falls short of complete performance by reason
of his own negligence or that of any person to
whom he may commit the work, he is liable for
the damages resulting therefrom.

2. Atlantics defense was that it entered an
agreement wherein it would use all due care in
getting the boilers out, but no responsibility was
assumed for damage done either to ship or
cargo. This was denied by Companias agent
saying that such terms were not announced
while the arrangements were pending.
Atlantic tried to use as evidence letters showing
that they are not accustomed to assume the risk
incident to services it performs and that they
required the parties to whom they render the
services to carry the risk or insure against it. One
of the letters in fact was addressed to Compania
in a previous engagement. However, services
offered by Atlantic, as tackled in the letter, was
rejected by Compania for being too onerous.
The stipulations in the letters directed to third
parties cant be applied to Compania but could
just be used to interpret the reservations that
Atlantic intends to make. Based on the letters
made to third parties, the company recognizes
its duty to exercise due supervisory care; and
the exemption from liability had reference only to
disasters and other unforeseen occurrences.

It is rudimentary principle that the contractor is
responsible for the work executed by persons
whom he employs in its performance, as stated
in Civil Code article 1596. Also, liability arising
from negligence is demandable in the fulfilment
of all kinds of obligations as stated in article
1103. Contracts that exempts people from
liability for negligence are not favoured by law
and are prohibited as against public policy. Thus,
assuming that it was really stated in the contract
that Atlantic shall not be liable for the
consequences of its negligence, the contract
would be invalid as against law and public policy.
The claim of Atlantic that its liability should be
absolved under the last paragraph of article
1903 of the Civil Code is also untenable. Even if
Atlantic used proper care in the selection of
Leyden, article 1903 cant be applied since the
negligence arose in the course of the
performance of a contractual obligation. 1903
applies only for cases where the negligence
arises in the absence of an agreement or in
quasi-contracts.

3. Had Atlantic and Compania had not entered into
a contract, Manila Railroad could have claimed
damages directly from Atlantic. This is because
of the principle that a person taking care of the
property of another into his possession and
control has an obligation to use due care with
respect thereto. However, given the fact that
there is a contract between Atlantic and
Compania, Atlantic cant be made liable directly
to Manila railroad because two liabilities cannot
coexist. Atlanctics contract to Manila Railroad is
just an implied one and an implied contract
never arises where an express contract has
been made.

Johnson and Malcolm, dissenting:

Atlantic cant be made to pay damages to Manila Railroad
and it is just Compania who should bear it. A contract was
entered between Atlantic and Compania, which stipulates
that Atlantic shall not assume any responsibility for any
damage which may occur from any cause. Compania
had the option to not enter a contract having that
stipulation but it still chose to do so. As such, it should be
bound by such stipulation in the said contract. Men
entering into contracts are bound by the stipulations that
they freely entered into.

DKC HOLDINGS VS. CA
DKC Holdings Corporation, petitioner, vs. Court of Appeals, Victor U. Bartolome and Register of Deeds for Metro Manila,
District III, respondents

Legal Doctrine: In the case at bar, there is neither
contractual stipulation nor legal provision making the
rights and obligations under the contract intransmissible.
More importantly, the nature of the rights and obligations
therein are, by their nature, transmissible.

Facts:
Background: The subject of the controversy is a 14,021
square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by
private respondent Victor U. Bartolomes deceased
mother, Encarnacion Bartolome. This lot was in front of
one of the textile plants of petitioner and, as such, was
seen by the latter as a potential warehouse site.
The Contract: Petitioner entered into a Contract of Lease
with Option to Buy with Encarnacion Bartolome, whereby
petitioner was given the option to lease or lease with
purchase the subject land, which option must be
exercised within a period of 2 years counted from the
signing of the Contract. In turn, petitioner undertook to
pay P3,000.00 a month as consideration for the
reservation of its option. Within the two-year period,
petitioner shall serve formal written notice upon the lessor
Encarnacion Bartolome of its desire to exercise its option.
The contract also provided that in case petitioner chose to
lease the property, it may take actual possession of the
premises. In such an event, the lease shall be for a period
of 6 years, renewable for another 6 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.
Petitioner regularly paid the monthly P3,000.00 provided
for by the Contract to Encarnacion until her death in
January 1990. Thereafter, petitioner coursed its payment
to private respondent Victor Bartolome, being the sole
heir of Encarnacion. Victor, however, refused to accept
these payments. Petitioner served upon Victor, via
registered mail, notice that it was exercising its option to
lease the property, tendering the amount of P15,000.00
as rent for the month of March. Again, Victor refused to
accept the tendered rental fee and to surrender
possession of the property to petitioner.
Petitioner thus opened Savings Account No. 1-04-02558-
I-1 with the China Banking Corporation, Cubao Branch, in
the name of Victor Bartolome and deposited therein the
P15, 000.00 rental fee for March as well as P6,000.00
reservation fees for the months of February and March.

Issues:
1. WON Contract of Lease with Option to Buy
entered into by the late Encarnacion Bartolome
with petitioner was terminated upon her death or
whether it binds her sole heir, Victor, even after
her demise.
2. WON petitioner had complied with its obligations
under the contract and with the requisites to
exercise its option

Held/Ratio:
1. No. The general rule under Art. 1131 of the Civil
Code is that heirs are bound by contracts

entered into by their predecessors-in-interest

except when the rights and obligations arising
therefrom are not transmissible by (1) their
nature, (2) stipulation or (3) provision of law. In
the case at bar, there is neither contractual
stipulation nor legal provision making the rights
and obligations under the contract
intransmissible. More importantly, the nature of
the rights and obligations therein are, by their
nature, transmissible. 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 subject
matter of the contract.

2. Yes. The payment by petitioner of the
reservation fees during the two-year period
within which it had the option to lease or
purchase the property is not disputed. Petitioner
also paid the P15,000.00 monthly rental fee on
the subject property by depositing the same in a
China Bank Savings Account in the name of
Victor as the sole heir of Encarnacion
Bartolome, for the months of March to July 30,
1990, or a total of five (5) months, despite the
refusal of Victor to turn over the subject property.
Also, petitioner complied with its duty to inform
the other party of its intention to exercise its
option to lease through its letter dated Match 12,
1990, well within the two-year period for it to
exercise its option. Considering that at that time
Encarnacion Bartolome had already passed
away, it was legitimate for petitioner to have
addressed its letter to her heir.

D. Parties
GABRIEL VS. MONTE DE PIEDAD Y CAJA DE AHARROS
Leoncio Gabriel, petitioner, vs. MONTE DE PIEDAD Y CAJA DE AHARROS and The Court Of Appeals, respondents
Ponente: Laurel, J.

Legal Doctrine: The freedom of contract is both a
constitutional and statutory right and to uphold this right,
courts should move with all the necessary caution and
prudence in holding contracts void

Facts:
Ladaga was employed as appraiser of jewels in the
pawnshop of the Monte de Piedad from 1913 up to May,
1933.
On December 13, 1932, he executed a chattel mortgage
to pay for deficiencies which resulted from his erroneous
appraisal of the jewels pawned to the shop in the sum of
P14, 679.07, plus 6% interest from said date. Accordingly,
Ladaga is supposed to pay P300 a month until the whole
amount plus interest is fully paid.
Monte de Piedad instituted a civil case in the CFI of
Manila to recover the said sum less what had already
been paid P3,333.25 = P11, 345.75 and in case of
default, to effectuate the chattel mortgage.
Ladaga denied the specifications therein as well as the
genuiness of the execution of the alleged chattel
mortgage attached. By way of special defense, he
alleged (1) that the chattel mortgage was a part of a
scheme on the part of the management of the Monte de
Piedad to cover up supposed losses incurred in its
pawnshop department; (2) that a criminal action had been
instituted at the instance of the plaintiff against him
wherein said chattel mortgage was presented by the
prosecution with regard his supposed responsibility as
expert appraiser of jewels of the plaintiff entity but he was
acquitted; and (3) that said acquittal constituted a bar to
the civil case.

By way of cross-complaint, the Ladaga alleged (1) that

the chattel mortgage was entered into by E. Marco for
and in behalf of the Monte de Piedad without being duly
authorized to do so by the latter; (2) that the defendant
was induced, through false representation, to sign said
chattel mortgage against his will; (3) that the chattel
mortgage was based upon all non-existing subject matter
and non-existing consideration; and (4) that the chattel
mortgage was null and void ab initio for being contrary to
law, morals and public policy
By way of counterclaim, the Ladaga alleged (1) that the
payments made amounting to P3,333.25 were made
through deceit and without his consent because P300
was deducted from his monthly salary; (2) that he was
paid P356.25 a month and that he was separated
arbitrarily on May 1933 and was not paid on said month
as well as in June 1933, in accordance with law; and (3)
that he is claiming P15,000 in damages.

Issues:
1. Whether or not the provisions of the chattel
mortgage contract is void for being contrary to
law, morals and public policy.
2. Whether or not the chattel mortgage is void
because it lacks consideration.

Held/Ratio:
1. NO. A contract is to be judged by its character, and
courts will look to the substances and not to the mere
form of the transaction. The freedom of contract is both a
constitutional and statutory right and to uphold this right,
courts should move with all the necessary caution and
prudence in holding contracts void. The court cannot
judge too recklessly in holding a contract void against
public policy for such term is vague and uncertain in
meaning, floating and changeable in connotation. In
general, a contract which is neither prohibited by law nor
condemned by judicial decision, nor contrary to public
morals, contravenes no public policy. The contract as to
the consideration or thing to be done, neither contravenes
the policy of the law nor the established interests of
society.

2. NO. A consideration, in the legal sense of the word, is
some right, interest, benefit, or advantage conferred upon
the promisor, to which he is otherwise not lawfully
entitled, or any detriment, prejudice, loss, or disadvantage
suffered or undertaken by the promisee other than to
such as he is at the time of consent bound to suffer. It
was recognized that the chattel mortgage was executed
voluntarily by the Ladaga to guarantee the deficiencies
resulting from his erroneous appraisals of the jewels. A
preexisting admitted liability is a good consideration for a
promise. The fact that the bargain is a hard one will not
deprived it of validity. The exception to this rule in modern
legislation is where the inadequacy is so gross as to
amount to fraud, oppression or undue influence, or when
statutes require the consideration to be adequate. The
instant case falls within the exception.

Other issues: there is substantial compliance with the
requirements of the Chattel Mortgage Law; E. Marco was
confirmed with the authority to enter into the contract;
Ladagas acquittal in the criminal case is different from
the case at bar (no identity of subject matter).

PAKISTAN INTERNATIONAL AIRLINES VS. OPLE
Pakistan International Airlines Corporation (PIA), petitioner, vs. Hon. Blas F. Ople, in his capacity as Minister of Labor
(MOLE), et. al, respondents

Legal Doctrine: Although CC 1306 provides that
contracting parties may establish stipulations as they may
deem convenient provided they are not contrary to law,
morals, good customs, public order or public policy, the
principle of party autonomy is not an absolute principle.
Parties may not contract away provisions of law

especially those unconditional provisions dealing with

matters heavily impressed with public interest

Facts:
On 2 December 1978, Pakistan International Airlines
Corporation, a foreign corporation licensed to do business
in the Philippines, executed in Manila two separate
contracts of employment, hiring Ethelynne B. Farrales
and Ma. M.C. Mamasig. Pertinent portions of the
contracts include:
5. Duration of employment and penaltyfor a
period of 3 years, but can be extended by the
mutual consent of the parties;
6. Termination PIA reserves the right to
terminate the agreement at any time by giving
the employee notice in writing in advance
one month before the intended termination or in
lieu thereof, by paying the employee wages
equivalent to one month's salary;
10. Applicable law: This agreement shall be
construed and governed under and by the laws
of Pakistan, and only the Courts of Karachi,
Pakistan shall have the jurisdiction to consider
any matter arising out of or under this
agreement.
Farrales and Marnasig, after training in Pakistan, began
work as flight attendants for PIA with base station in
Manila and flying assignments to different parts of the
Middle East and Europe.
However, on 2 August 1980, around 1 year and 4 months
before the expiration of their contracts, they were advised
that their services were terminated effective on 1
September 1980.
On 9 September 1980, They jointly instituted with the
MOLE a complaint for illegal dismissal and non-payment
of company benefits and bonuses. Both parties were
required to submit their position papers in which the PIA
justified their actions by claiming that private respondents
were habitual absentees and that they had the habit of
bringing in from abroad sizeable quantities of personal
effects (pasalubong?) and that customs officials had
warned PIA to advise them to discontinue the practice.
PIA further claimed that the termination was pursuant to
the provisions of the employment contract.
MOLE Regional Director Francisco L. Estrella ordered the
reinstatement of private respondents with full backwages
or, in the alternative, (1) the payment of salaries for the
remainder of the fixed three-year period of their
employment contracts;(2) the payment to Mamasig of an
amount equivalent to the value of a round trip ticket
Manila-USA Manila;(3) and payment of a bonus to each
equivalent to their one-month salary.
Moreover, the Order stated that private respondents had
attained the status of regular employees after they had
rendered more than a year of continued service; that the
stipulation limiting the period of the employment contract
to 3 years was null and void as violative of the provisions
of the Labor Code; and that the dismissal, having been
carried out without the requisite clearance from the
MOLE, was illegal and entitled private respondents to
reinstatement with full backwages.
On appeal, the Deputy Minister adopted the save for the
portion giving PIA the option, in lieu of reinstatement, to
pay each of the private respondents their salaries
corresponding to the unexpired portion of their
employment contracts.
PIA now alleges that the MOLE decisions were rendered
without jurisdiction and in violation of petitioners rights
under the employment contracts with private respondents.

Issues:
1. Whether or not MOLE had no jurisdiction
over the subject matter.
2. Whether or not PIA were deprived of due
process.
3. MAIN: Whether or not the relationships
between PIA and private respondents were
governed by the contract or by the
provisions of the Labor Code. (principle of
party autonomy)

Held/Ratio:
1. YES. PIA claims that jurisdiction is lodged in the
NLRC. However, under during the years of 1980 and
1982 when the complaints were initiated, Art. 278 of the
(Old) Labor Code forbade the termination of the services
of employees within at least 1 year of service without prior
clearance from the Department of Labor and
Employment. According to Rule XIV, Book No. 5 of the
Rules and Regulations Implementing the Labor Code, in
case of a termination without the necessary clearance,
the Regional Director was authorized to order the
reinstatement of the employee concerned and the

payment of backwages; therefore, the Regional Director

must have been given jurisdiction over such termination
cases. The same is affirmed by Policy Instruction No. 14
issued by the Secretary of Labor, dated 23 April 1976,
was similarly very explicit about the jurisdiction of the
Regional Director over termination of employment cases
as well as in PD 850.

2. NO. PIA was ordered to submit a position paper and
evidence. Only the position paper was provided and it
was assumed that it had no evidence to sustain its
assertions. Even if no formal or oral hearing was
conducted, PIA had ample time to explain its side and
they were even able to make an appeal. Moreover, the
Labor Code at that time provided that a "dismissal without
prior clearance shall be conclusively presumed to be
termination of employment without a cause", and the
Regional Director was required in such case to" order the
immediate reinstatement of the employee and the
payment of his wages from the time of the shutdown or
dismiss until . . . reinstatement."

3. NO. PIA contends that a contract freely entered should
be respect since the contract is the law between the
parties. However, the principle of party autonomy is not
an absolute principle. CC 1306 provides that contracting
parties may establish stipulations as they may deem
convenient provided they are not contrary to law, morals,
good customs, public order or public policy. Parties may
not contract away provisions of law especially those
unconditional provisions dealing with matters heavily
impressed with public interest. Parties are not at liberty
to insulate themselves and their relationships from the
impact of labor laws and regulations by simply contracting
with each other.
Paragraph 5 of the employment contract stipulating the
duration of employment was inconsistent with Arts 280
and 281 of the Labor Code as regards security of tenure
wherein the employer shall not terminate the services of
an employee except for a just cause or when authorized
and that an employee who is unjustly dismissed from
work shall be entitled to reinstatement without loss of
seniority rights and to his backwages computed from the
time his compensation was withheld from him up to the
time his reinstatement. In addition Art. 281 recognizes
that any employee who has rendered at least one year of
service, whether such service is continuous or broken,
shall be considered as regular employee with respect to
the activity in which he is employed and his employment
shall continue while such actually exists. Fixed terms of
employment are not necessarily unlawful however,
where from the circumstances it is apparent that periods
have been imposed to preclude acquisition of tenurial
security by the employee, they should be struck down or
disregarded as contrary to public policy, morals, etc It
should have no application to instances where a fixed
period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or
improper pressure being brought to bear upon the
employee and absent any other circumstances vitiating
his consent, or where it satisfactorily appears that the
employer and employee dealt with each other on more or
less equal terms with no moral dominance whatever
being exercised by the former over the latter.
Read together with paragraph 6, the 3-year period
granted by paragraph 5 was rendered ineffective since
PIA had the option to terminate the contract at its own
prerogative for any cause rendering the private
respondents employees at the pleasure of PIA. The SC
considered both paragraphs as preventing respondents
any security of tenure from accruing and thus escaping
Arts. 280 and 281 of the Labor Code.
PIA cannot also invoke paragraph 10 where it specifies
that the law of Pakistan as the applicable law and lays the
venue for settlement of dispute. The employer-employee
relationship, being of public interest, the applicable law
must be Philippine laws and regulations which cannot be
rendered illusory by the parties agreeing upon some other
law to govern their relationship. In addition, the contract
was not only executed in the Philippines, it was also
performed here, at least partially; private respondents are
Philippine citizens while petitioner, although a foreign
corporation, is licensed to do business and hence
resident in the Philippines; lastly, private respondents
were based in the Philippines in between their assigned
flights to the Middle East and Europe. All the above
contacts point to the Philippine courts and administrative
agencies as a proper forum for the resolution of
contractual disputes between the parties. Under these
circumstances, paragraph 10 of the employment
agreement cannot be given effect so as to oust Philippine
agencies and courts of the jurisdiction vested upon them
by Philippine law. Finally, and in any event, the petitioner
PIA did not undertake to plead and prove the contents of
Pakistan law on the matter; it must therefore be presumed
that the applicable provisions of the law of Pakistan are
the same as the applicable provisions of Philippine law.

Dispositive: Petition dismissed. Reinstatement with
backwages of three years. Should their reinstatement to
their former or other substantially equivalent positions not

be feasible in view of the length of time which has gone

by since their services were unlawfully terminated,
petitioner should be required to pay separation pay to
private respondents amounting to one 1 month's salary
for every year of service rendered by them, including the
three 3 years service putatively rendered.

CUI VS. ARELLANO
Emeterio Cui, complainant, vs. Arellano University, respondent
Ponente: Concepcion, J.

Facts:
Cui took up his undergrad and law studies (until 1
st

semester of 4
th
year) at Arellano. His uncle, Capistrano,
the dean of Arellano law and its legal counsel transferred
and accepted the Deanship at Abad Santos University.
Cui failed to pay his tuition fee during his last semester of
his first year and subsequently enrolled in Abad Santos
and finished his law studies there.
After graduating from Abad Santos University, Cui applied
to take the Bar exams. He needed to get his transcript
from Arellano but Arellano refused until Cui has paid back
the cost of the scholarship grant given to him during his
stay in Arellano.
Before Arellano awarded to Cui the scholarship grants as
above stated, he was made to sign the following contract
covenant and agreement:
"In consideration of the scholarship granted to
me by the University, I hereby waive my right to
transfer to another school without having
refunded to the University (defendant) the
equivalent of my scholarship cash.
On August 16, 1949, the Director of Private Schools
issued Memorandum No. 38, series of 1949, on the
subject of "Scholarship," addressed to "All heads of
private schools, colleges and universities," reading:
1. School catalogs and prospectuses submitted
to this, Bureau show that some schools offer full
or partial scholarships to deserving students
for excellence in scholarship or for leadership in
extra-curricular activities. Such inducements to
poor but gifted students should be encouraged.
But to stipulate the condition that such
scholarships are good only if the students
concerned continue in the same school nullifies
the principle of merit in the award of these
scholarships.
2. When students are given full or partial
scholarships, it is understood that such
scholarships are merited and earned. The
amount in tuition and other fees corresponding
to these scholarships should not be
subsequently charged to the recipient students
when they decide to quit school or to transfer to
another institution. Scholarships should not be
offered merely to attract and keep students in a
school.
3. Several complaints have actually been
received from students who have enjoyed
scholarships, full or partial, to the effect that they
could not transfer to other schools since their
credentials would not be released unless they
would pay the fees corresponding to the period
of the scholarships. Where the Bureau believes
that the right of the student to transfer is being
denied on this ground, it reserves the right to
authorize such transfer.
The lower court decided the case in favor of Arellano,
upon the ground that the memorandum of the Director of
Private Schools is not a law; that the provisions thereof
are advisory, not mandatory in nature; and that, although
the contractual provision "may be unethical, yet it was
more unethical for plaintiff to quit studying with the
defendant without good reasons and simply because he
wanted to follow the example of his uncle." Moreover,
defendant maintains in its brief that the aforementioned
memorandum of the Director of Private Schools is null
and void because said officer had no authority to issue it,
and because it had been neither approved by the
corresponding department head nor published in the
official gazette.

Issue: Whether the above quoted provision of the

contract between plaintiff and the defendant, whereby the
former waived his right to transfer to another school
without refunding to the latter the equivalent of his
scholarships in cash, is valid or not.

Held/Ratio:
The provision is void as it is contrary to public policy.
We do not deem it necessary or advisable to consider the
question whether plaintiff had sufficient reasons or not to
transfer from defendant University to the Abad Santos
University. The nature of the issue before us, and its far
reaching effects, transcend personal equations and
demand a determination of the case from a high
impersonal plane. Neither do we deem it essential to pass
upon the validity of said Memorandum No. 38, for,
regardless of the same, we are of the opinion that the
stipulation in question is contrary to public policy and,
hence, null and void. The aforesaid memorandum merely
incorporates a sound principle of public policy.
If Arellano University understood clearly the real essence
of scholarships and the motives which prompted this
office to issue Memorandum No. 38, s. 1949, it should
have not entered into a contract of waiver with Cui on
September 10, 1951, which is a direct violation of our
Memorandum and an open challenge to the authority of
the Director of Private Schools because the contract was
repugnant to sound morality and civic honesty.
In Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec.
6, 1941, p. 67 we read: 'In order to declare a contract void
as against public policy, a court must find that the contract
as to consideration or the thing to be done, contravenes
some established interest of society, or is inconsistent
with sound policy and good morals or tends clearly to
undermine the security of individual rights. The policy
enunciated in Memorandum No. 38, s. 1949 is sound
policy. Scholarship are awarded in recognition of merit not
to keep outstanding students in school to bolster its
prestige. In the understanding of that university
scholarships award is a business scheme designed to
increase the business potential of an education institution.
Thus conceived it is not only inconsistent with sound
policy but also good morals. But what is morals? Manresa
has this definition. It is good customs; those generally
accepted principles of morality which have received some
kind of social and practical confirmation. The practice of
awarding scholarships to attract students and keep them
in school is not good customs nor has it received some
kind of social and practical confirmation except in some
private institutions as in Arellano University. The
University of the Philippines which implements Section 5
of Article XIV of the Constitution with reference to the
giving of free scholarships to gifted children, does not
require scholars to reimburse the corresponding value of
the scholarships if they transfer to other schools. So also
with the leading colleges and universities of the United
States after which our educational practices or policies
are patterned. In these institutions scholarships are
granted not to attract and to keep brilliant students in
school for their propaganda mine but to reward merit or
help gifted students in whom society has an established
interest or a first lien.

ARROYO VS. BERWIN
Ignacio Arroyo, complainant, vs. Alfred Berwin, respondents
Ponente: Carson, J.

Facts:
Berwin is a procurador judicial in the law office of the
Attorney John Bordman, and is duly authorized by the
court to practice in justice of the peaces courts of the
Province of Iloilo. As procurador judicial, represented
Marcela Juanesa in the justice of the peace court of Iloilo
in proceeding for theft prosecuted by the plaintiff Ignacio
Arroyo. Said cause was decided by the said justice of the
peace against the accused, and the latter appealed to the
Court of First Instance of Iloilo.
On August 14, 1914, which was the day set for the
hearing of the appeal of the said cause against Marcela
Juaneza for theft, the Berwin requested Arroyo to agree
to dismiss the said criminal proceeding, and, on August

14, 1914, stipulated with the plaintiff in the presence of

Roque Samson, among other things, that his client
Marcela Juaneza would recognize the plaintiff's
ownership in the land situated on Calle San Juan, Iloilo,
where his said client ordered the cane cut, which land and
which cut cane are referred to in the cause for theft
above-mentioned; and the defendant furthermore agreed
that the plaintiff should obtain a Torrens title to the said
land during the next term of the court for the trial of
cadastral cases, and that the defendant's client, Marcela
Juaneza, would not oppose the application for registration
to be filed by the said applicant; provided that the plaintiff
would ask the prosecuting attorney to dismiss the said
proceedings filed against Marcela Juaneza and Alejandro
Castro for the crime of theft.
Arroyo on his part complied with the agreement, and
requested the prosecuting attorney to dismiss the case. In
exchange, Berwin does not wish to comply with the
above-mentioned agreement. Arroyo delivered to Berwin
the signature of the said Marcela Juaneza a written
agreement stating that the defendant's said client
recognized the plaintiff's ownership in the described land
and that she would not oppose the plaintiff's application
for registration. Up to the present time, the defendant has
not returned to the plaintiff the said written agreement,
notwithstanding the plaintiff's many demands.
Therefore, the Arroyo prays the court to render judgment
ordering the defendant to comply with the agreement by
causing the latter's said client Marcela Juaneza to sign
the document in which she recognizes the plaintiff's
ownership of the land on which she ordered the cane cut
and states that she will not oppose the plaintiff's
application for the registration of the said land, and,
further, by awarding to the plaintiff the costs of the
present suit, as well as any other relief that justice and
equity require.

Issue:
Whether or not the agreement between the parties was
valid

Held/Ratio:
The agreement is void as it is contrary to public policy.
The trial judge dismissed this complaint on the ground of
the illegality of the consideration of the alleged contract.
An agreement by the owner of stolen goods to stifle the
prosecution of the person charged with the theft, for a
pecuniary or other valuable consideration, is manifestly
contrary to public policy and the due administration of
justice. In the interest of the public it is of the utmost
importance that criminals should be prosecuted, and that
all criminal proceedings should be instituted and
maintained in the form and manner prescribed by law;
and to permit an offender to escape the penalties
prescribed by law by the purchase of immunity from
private individuals would result in a manifest perversion of
justice.
Article 1255 of the Civil Code provides that:
The contracting parties may make the
agreement and establish the clauses and
conditions which they may dream advisable,
provided they are not in contravention of law,
morals, or public order.

Article 1275 provides that:
Contracts without consideration or with an illicit
one have no effect whatsoever. A consideration
is illicit when it is contrary to law and good
morals.


FILIPINAS CIA DE SEGURUS, ET AL VS. MANDANAS

Filipinas Compania de Segurus, et al., petitioner, vs. Hon. Francisco Y. Mandanas, in his capacity as Insurance
Commissioner, respondents, and Agiricultural Fire Insurance and Surety Co., Inc., et al., intervenors-appellees
Ponente: Concepcion, C. J.

Facts:
Accordingly on March 11, 1960, the Insurance
Commissioner wrote to the Philippine Rating Bureau
expressing his doubt of the validity of Article 22 of the
Constitution of Philippine Rating Bureau and requesting
that said provision be repealed. Article 22 reads: In
respect to the classes of insurance in the Objects of the
Bureau and for Philippine business only, the members of
this Bureau agree not to represent nor to effect
reinsurance with, nor to accept reinsurance from, any
Company, Body, or Underwriter licensed to do business
in the Philippines not a Member in good standing of this
Bureau. The Bureau replied that it is now under
consideration. The insurance commissioner then advised
the respondent that if it would not be repealed, he would
be compelled to suspend the license of the Bureau since
the provision is illegal as a combination in restraint of
trade. 39 nonlife insurance companies instituted a case in
CFI Manila to secure a declaration of legality of Art 22 of
the Constitution of the Philippine Rating Bureau, of which
they are members, since respondent Insurance
Commissioner assails its validity upon the ground that it
constitutes an illegal or undue restraint of trade.
Subsequently, 20 other nonlife insurance companies were
allowed to intervene. CFI Manila declared that it is legal.
Hence this appeal by the Insurance Commissioner.

Issue: WON the said provision is in restraint of trade and
therefore illegal.

Held: No, it is not illegal.
Ratio:
The test as to whether a given agreement constitute an
unlawful machination or a combination in restraint of trade
is whether, under the particular circumstances of the case
and the nature of the particular contract involved in it, the
contract is, or is not, unreasonable. Restrictions upon
trade may be upheld when not contrary to the public
welfare and not greater than is necessary to afford a fair
and reasonable protection to the party in whose favor it is
imposed. The question to be determined is whether the
restraint imposed I such a merely regulates and perhaps
thereby promotes competition, or whether it is such as
may suppress or even destroy competition. Applying this
test to the case at bar, there is nothing unlawful, immoral,
unreasonable or contrary to the public policy either in the
objectives sought to be attained by the Bureau in
adopting Art 22 of its constitution or in the means availed
of to achieve said objectives, or in the consequences of
the accomplishment thereof. Said Art 22s purpose is not
to eliminate competition but to promote ethical principles
among non-life insurance companies, although
incidentally, it may discharge, and hence, eliminate unfair
competition, through underrating, which, in itself, is
eventually injurious to the public. The limitation upon
reinsurance contained in Art 22 does not affect the public
at all, for whether there is reinsurance or not, the liability
of the insurer in favor of the insured is the same, What is
more, whatever the Bureau may do in the matter of rate-
fixing is not decisive insofar as the public is concerned,
for no insurance company in the Philippines may charge a
rate of premium that has not been approved by the
Insurance Commissioner. The said Art 22 does not
constitute an illegal or undue restraint of trade.


BUSTAMANTE VS. ROSEL

Natalia P. Bustamante, petitioner, vs. Sps. Rodito F. Rosel and Norma A. Rosel, respondents
Ponente: Pardo, J.

Legal Doctrine: Stipulation in contract which require
automatic appropriation by the creditor of property
mortgaged in case of failure to pay is within the concept
of pactum commissorium and is prohibited by law.

Facts:
x 08 March 1987 Norma Rosel and Natalia and
Ismael Bustamante entered into a loan
agreement
x Rosel: creditor; Bustamante: debtor
x P100, 000 loan with 70 sq. m. property +
apartment as collateral (part of 423 sq. m.
property of the Bustamantes situated along
Congressional Avenue)
x Loan payable in 2 years from 01 March 87 at
18% interest per annum
x If loan not paid, Rosel has option to purchase
the collateral for P200, 000 inclusive of borrowed
amount plus interest
x 01 March 1989 Spouses Rosel proposed to buy
the collateral. Bustamantes tried to pay the
Rosels but the latter refused to accept payment
and executing an absolute deed of sale.
x 28 Feb 1990 Bustamantes filed with QC RTC for
specific performance with consignation against
the Rosels
x 04 March 1990 Rosels sent a demand for the
sale of collateral
x 10 August 1990 Bustamante consigned P153,
000 which represented loan plus interest
x Rosels consigned P47, 500 with trial court
x RTC: Bustamantes to pay loan plus interest until
10 Aug 1990 when they consigned the payment
x CA: reversed RTC; Bustamantes to execute the
deed of sale and to accept the P47, 500

1. W/N Bustamantes failed to pay the loan at
its maturity date. They did not. They tried to
pay on the date it was due but payment was
refused. They thereafter consigned the
amount with the court. The obligation to sell
the lot was with the suspensive condition of
the Bustamantes failure to pay. Since they
did not, the right to purchase was not
acquired by the Rosels.

2. W/N stipulation #3 was valid and
enforceable. It is not. Although contracts
have the force of law between parties, there
are exceptions. It comes within the scope of
pactum commissorium which is prohibited
by CC 2088. The following are the elements
of pactum commissorium: 1) there should
be a property mortgaged by way of security
for the payment of a principal obligation, 2)
there should be a stipulation of automatic
appropriation by the creditor of the thing
mortgaged in case of non-payment of the
principal obligation within the stipulated
period.

Relevant provisions:
CC 2088 The creditor cannot appropriate the things given
away by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void.
CC 1306 The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.


E. Classification
DIZON VS. GABORRO
Jose P. Dizon, petitioner, vs.Alfredo G. Gaborro (Substituted by Pacita de Guzman Gaborro as Judicial Administratrix of
the Estate of Alfredo G. Gaborro) and the Development Bank of the Philippines, respondents
Ponente: Guerrero, J.

Facts:
Dizon was the owner of the three parcels of land in
Pampanga. He had a first mortgage lien in favor DBP in
order to secure a loan in the sum of P38,000.00. He had
a second mortgage lien in favor of PNB to cure his
indebtedness to said bank in the amount of P93,831.91.
Having defaulted in the payment of his debt, DBP
foreclosed the mortgage and bought the land afterwards.
A few months after Gaborro met Dizon. Gaborro became
interested in the lands of Dizon. Dizon originally intended
to lease to Gaborro the property which had been lying idle
for some time. But as the mortgage was already
foreclosed by the DPB the bank in fact purchased the
lands at the foreclosure sale a few months prior, they
abandoned the projected lease.
Gaborro and Dizon entered into a contract of Deed of
Sale with Assumption of Mortgage. The contract stated
that Gaborro would buy Dizon's 3 parcels of land for
P131,831.91 and would assume the entire mortgage
indebtedness with both DBP and PNB. The contract was
in the nature of an absolute sale.
A second contract was executed the same day called
Option to Purchase Real Estate. The contract stated
that Dizon had the right to repurchase the 3 parcels of
land from Jan. 1965 to Dec. 31, 1970, for the amount of
P131.831.91 plus 8% interest. In the event that Dizon
finds a purchaser on or before the fifth year from the date
of execution of the contract, Gaborro shall be refunded
the aggregate amount which was paid to DBP and PNB
plus 8% interest.
Take note that the P131,831.91 paid by Gaborro went to
the aggregate debts of the petitioner with DBP and PNB.
After the execution of said contracts, Alfredo G. Gaborro
took possession of the three parcels of land in question.
The following day, Gaborro wrote to DBP stating that hed
pay for the indebtedness through 10 equal annual
amortizations as he needed to cultivate the land first. DBP
agreed.
On July 5, 1961, Dizon wrote to Gaborro offering to
reimburse the latter of what he paid to the banks but
without, however, tendering any cash, and demanded an
accounting of the property's income. However, Gaborro
refused, prompting Dizon to file a complaint. Dizon claims
that two deeds he executed with Gaborro actually consist
not of an absolute sale, but an equitable mortgage or
conveyance by way of security for the reimbursement or
refund by Dizon to Gaborro. (Aka that Gaborro assumes
Dizon's debts in return for enjoyment of the Dizon's land,
until Dizon can reimburse Gaborro for the amounts paid
to DBP and PNB.) Dizon asks that Gaborro be ordered to
accept Dizons offer to reimburse him of what he paid to
the banks; to surrender the possession of the lands to
plaintiff; to make an accounting of all the fruits, produce,
harvest and other income which he had received from the
three parcels of land; and to pay Dizon for the loss of two
barns and for damages.
DBP reply: Denied the complaint:
Dizon was no longer the owner of the land in question
because the DBP acquired them at the extrajudicial
foreclosure sale
Only right which plaintiff possessed was a mere right to
redeem the lands.
Gaborros reply: Denied the complaint:
The "Deed of Sale with Assumption of Mortgage" (1
st

Contract) expresses the true agreement of the parties
"fully, truthfully and religiously"
The Option to Purchase Real Estate" (2
nd
Contract) does
not express the true intention of the parties because it
was made only to protect the reputation of the plaintiff
among his townmates, and even in the supposition that
said option is valid, the action is premature.

Issue: What was the nature of the contract entered? Was
it an absolute sale of the three parcels of land to
Gaborro? OR Was it that Gaborro would assume Dizon's

debts in return for enjoyment of the Dizon's land, until

Dizon can reimburse Gaborro for the amounts paid to
DBP and PNB.

Held: Gaborro assumes Dizon's debts in return for
enjoyment of the Dizon's land, until Dizon can reimburse
Gaborro for the amounts paid to DBP and PNB.

Ratio:
On DBPs claim that they owned the property as they
bought it in the foreclosure sale
According to Act 3135, properties extrajudicially
foreclosed shall be available for redemption by any
person having a lien on the property within one year from
the date of sale. According to Rule 39, of ROC, The
judgment debtor remains in possession of the property
during the period of redemption, and may transfer his
right of redemption to anyone. The purchaser is entitled to
a deed of conveyance only after the redemption period
when no redemption has been made.
What right was conveyed on Gaborro? Sale or rights to
redemption?
In this case, the only rights Dizon could have conveyed to
Gaborro were the right to redemption and the possession,
use, and enjoyment of the land during the redemption
period. Therefore, the instrument that the two executed
cannot be considered a real and unconditional sale
because Dizon had lost his full right to dispose of the
lands by the time the instrument was executed.
Based on the purpose of the parties (the payment of the
bank obligations, the productivity of the lands for
Gaborro's benefit, and assurance for Dizon that the land
would return to him), their agreement is therefore one of
those innominate contracts under Art. 1307, CC, where
both parties agree to give and to do certain rights and
obligations with respect to the lands and mortgage debts.
The reformation of an instrument when the true intention
of the parties is not expressed in the instrument is allowed
when there is a mutual mistake of the parties (Art. 1359,
CC). In this case, it was a mistake for the parties to
execute a deed of sale with option to repurchase.

H. With Respect to Third Persons
CONSTANTINO VS. ESPIRITU
Pastor Constantino, plaintiff-appellant, vs. Herminia Espiritu, defendant-appellee
Ponente: Dizon, J.

Legal Doctrine: In contract with stipulations pour atrui,
the one to be benefited by the contract is entitled to ask
for its fulfillment, provided that he communicates his
acceptance to the obligor before the stipulation in his
favor is revoked.

Facts:
According to the appellant (Pastor Constantino), he had
conveyed to Espiritu by way of a fictitious deed of sale a
2-storey house and 4 subdivision lots, the titles of which
were in the name of appellant (married to Honorata
Geukeko). He contends that their understanding was that
the conveyance was for the benefit of Pastor Constantino,
Jr., the illegitimate son of the appellant with Espiritu, and
that she was to hold the properties in trust for Pastor Jr,
who was already conceived at that time, though yet to be
born. He alleges, however, that Espiritu mortgaged the
properties with the Republic Savings Bank of Manila to
secure payment for 2 loans (a P3,000 and P2,000 loan)
and that she offered them for sale afterwards. Thus, in the
complaint, he asks that she be enjoined from alienating
the properties, and prays for a judgment ordering her to
execute a deed of absolute sale of the properties in favor
of Pastor Jr.
Espiritu, of course, moved to dismiss the complaint,
alleging 2 grounds: (1) that because Pastor Jr., the
beneficiary of the alleged trust, was not a party-plaintiff,
then appellant had no cause of action; and (2) appellants
action was barred by the Statute of Frauds. On the other

hand, appellant contends that the Statute of Frauds does

not apply to cestui que trusts, which he says is the trust
between Espiritu and Pastor Jr. However, the trial court
dismissed the complaint, which prompted the appellant to
file an amended complaint, wherein he mainly (1)
included Pastor Jr. as the co-plaintiff and (2) prayed that
he be appointed as his guardian ad litem.

Issue: W/N the appellant is entitled to bring this action to
enforce the contract (in particular, to compel Espiritu to
convey the properties to Pastor Jr.)

Held/Ratio:
The Court found that given the facts, it appears that the
contract between the appellant and Espiritu is not a deed
of sale, but rather, a contract pour atrui; thus, the action
that the appellant has brought to the court is actually an
action for specific performance. As one of the parties to
the contract, the appellant is definitely entitled to bring an
action for its enforcement or to prevent the breach of the
contract. In addition, as there is a stipulation pour atrui in
the contract concerning Pastor Jr., he may also ask for its
enforcement of the contract given that the rule is that the
third person for whose benefit the contract was executed
may also demand its fulfillment, provided, that he
communicates his acceptance to the obligor before the
stipulation in his favor is revoked. It is only correct that
Pastor Jr. be impleaded in the amended complaint.
The Court declined, however, to render judgment on
whether or not the contract appellant and Espiritu entered
into was actually subject to the agreement that the
properties be held in trust for their child. The SC said that
it was a question of fact which was for the trial court to
adjudicate. The Court did say, however, that Espiritus
contention that the Statute of Frauds barred the
appellants action is not quite accurate. The Statute of
Frauds does not apply to contracts which have already
been partially performed. In this case, one phase (the
conveyance of the properties to Espiritu) had already
been completed; what was left to be done was the next
phase (the conveyance by Espiritu to Pastor Jr. of the
properties).
For the above reasons, the case was remanded to the
lower court for the appropriate proceedings.

Concurring Opinion:
Barredo: The position of Espiritu is that there is a written
contract (the contract conveying the properties to her) and
a verbal condition separate and distinct from the contract
(that the properties are for the benefit of their unborn
child), and her contention is that because the separate
agreement was not in writing, then it is unenforceable
because of the Statute of Frauds. Justice Barredo finds
this position untenable, however. He holds that the
obligation to convey the properties to Pastor Jr. was part
of a single agreement, the initial stage of which was the
conveyance of the properties to her. The situation
contemplated is that found in Art. 1453 of the Civil Code,
which is an implied trust.

INTEGRATED PACKAGING CORP VS. CA
Integrated Packaging Corp., petitioner, vs. Court of Appeals and Fil-Anchor Paper Co., Inc. respondents

Legal Doctrine: Contracts can only bind parties who
entered into it and cannot favor or prejudiced third person,
even if he is aware of such contract and has acted with
the knowledge thereof.

Facts:
May 5, 1978-Integrated Packaging Corp.(petitioner)
entered into an order agreement with Fil-Anchor Paper
Co.(respondent) where respondent was obliged to deliver
3,450 reams of paper worth Php1,040,060.00 under the
following schedule:

May and June 1978 450 reams (P290.00/ream)

August and September 700 reams (P290/ream)
January 1979 575 reams (P307.20/ream)
March 575 reams (P307.20/ream)
July 575 reams (P307.20/ream)
October 575 reams (P307.20/ream)

which the petitioner should pay within a min. of 30 days to
max of 90 days from delivery.
Jun. 7, 1978- Philacor contracted petitioner to print
300,000 books for them
Jul. 30, 1979- respondent has only delivered 1,097 out of
3450 reams of paper hence the petitioner made a
demand to deliver the remaining materials
Jun Jul 1980 respondent delivered reams of paper
amounting to 766,101.70 but petitioner was in default and
was able to pay 97,200 which covered for the previous
accounts dated Sept and Oct 1980.
Aug. 14, 1981- respondent filed a collection suit
(766,101.70) against petitioner
Apr. 12, 1983 & May 13, 1983 -petitioner entered into
additional printing contract with Philacor but they failed to
deliver its good on time. In Feb. 15, 1984 Philacor then
filed for damages against petitioner for the delay in
delivering the books.
As supplement counterclaims filed by the petitioner, they
demand damages for the delay of paper delivery which
they claim that caused their delay in delivering books for
Philacor hence they ask for additional compensatory
damages 790,324.30(for unrealized profit)
Issues/ Held:
1. WON the respondent violated the order
(delivery of paper) agreement? NO
2. WON respondent is liable for petitioners
breach of contract with Philacor? NO

Ratio:
1. Petitioners failed to pay for the printing paper
covered by the delivery invoices on time.
Consequently, private respondent has the right
1

to cease making further delivery, hence the
private respondent did not violate the order
agreement. respondent.

2. Respondent being not a party to the said
agreements cannot be held liable under the
contracts entered into by petitioner with Philacor.
It is also NOT a contract pour autrui (defn. -
gives the third-party beneficiary a cause of
action against the promisor for specific
performance). Principle of relativity of contracts
which provides that contracts can only bind the
parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of
such contract and has acted with knowledge
thereof hence contracts could not affect third
persons.

DAYWALT VS. CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS
Geo W. Daywalt, plaintiff-appellant, vs. La Corporacion De Los Padres Agustinos Recoletos, et al., defendants-appellees
Ponente: Street, J.

Legal Doctrine: Although a stranger to a contract may be
held liable if he induces another to violate his contract, the
stranger cant be held more liable than the party on
whose behalf he intermeddles.

Facts:
Teodorica Edencia contracted to convey the TCT of the
tract of land (452 hectars) to Geo Daywalt for Php 4,000.
The contract was not yet executed since the government
has not issued it yet. Subsequently, the parties entered
into another agreement replacing the first. The new

contract stipulated that Teodorica will deliver TCT to HK

and Shanghai Bank and Daywalt will pay the Php3,100
balance. When the TCT was issued in 1909 Teodorica
delivered the TCT to Father Sanz (a member of
Corporacion de PP Agustinos Recoletos) for safe
keeping. The TCT reflected that it was actually 1,248
hectares and not just 452ha as initially estimated. This
made Teodorica reluctant in continuing the contract. It led
to litigations which ultimately favored Daywalt and
ordered Teodorica to execute the TCT in favor of him (in
1914). Despite Father Sanzs awareness of all the
developments and the contract of sale to Daywalt, he
influenced Teodorica not to give the TCT to Daywalt.
From 1909-1914 he also made an arrangement with
Teodorica to rent the land(that Daywalt has bought) for
pasturing large herd of cattle owned by the respondent
congregation.

Issues/Held:
1. Can a stranger to the contract for the sale of
land can be held liable for damages beyond the
value(Php 500,000) for the illegal use and
occupation of the said land?NO
2. Can the petitioner claim damages with a sum of
Php 24,000 for the illegal use of land? NO

Ratio:
1. Although, Art 1314 states Any third person who
induces another to violate his contract shall be
liable for damages to the other contracting party
respondents advice/influence of not conveying
the TCT to Daywalt despite a final order would
would render him liable he cannot be more liable
THAN the party in whose behalf he
intermeddles.
Daywalt instituted an action for specific
performance against Teodorica, but he did
not seek for special damages. The extent of
liability for the breach of contract must be
determined in the light of the situation at the time
it was made. The different types of damages that
may be recovered are ordinary (necessary
damage-in this case the use of land) and special
damages (can recover more than the actual
damage- in this case Php500,000 for the
unrealized profit for the probable selling of the
tract of land to Wakefield to be used as sugar
plantation). In the case, there was no express
stipulation for recovering special damages and
the claim for special damages was too
speculative and remote hence it was not
awarded.

2. The respondent should be held liable only for the
amount of Php 2,497 based on the previous rate
of instead of the proposed over priced rate of
petitioner which is 24,000.

SO PING BUN VS. CA
So Ping Bun, petitioner, vs. Court of Appeals, Tek Hua Enterprising Corp. and Manuel C. Tiong, respondents

Legal Doctrine: There is tort interference when during
the existence of a valid contract, a third person, to whom
the existence of such contract is known, interferes without
legal justification or excuse. The elements of tort
interference are: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence
of contract; and (3) interference of the third person is
without legal justification or excuse. Petitioners
Trendsetter Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner deprived
respondent corporation of the latters property right.
Clearly, as correctly viewed by the appellate court, these
elements are present in the instant case.


Facts:
In 1963, Tek Hua Trading Co, through its managing
partner, So Pek Giok, entered into lease agreements with
lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of
four (4) lease contracts were premises located at Nos.
930, 930-Int., 924-B and 924-C, Soler Street, Binondo,
Manila which Tek Hua used as storage space for its
textiles. The contracts each had a one-year term. They
provided that should the lessee continue to occupy the
premises after the term, the lease shall be on a month-to-
month basis.
When the contracts expired, the parties did not renew the
contracts, but Tek Hua continued to occupy the premises.
In 1976, Tek Hua Trading Co. was dissolved. Later, the
original members of Tek Hua Trading Co. including
Manuel C. Tiong, formed Tek Hua Enterprising Corp.,
herein respondent corporation.
When So Pek Giok, managing partner of Tek Hua
Trading, died in 1986, So Pek Gioks grandson, petitioner
So Ping Bun, occupied the warehouse for his own textile
business, Trendsetter Marketing
On March 1, 1991, private respondent Tiong, president of
Tek Hua Enterprising Corp sent a letter to petitioner So
Ping Bun asking him to vacate the premises as they had
need of it because he went back into textile business.
Petitioner So Ping Bun, however, refused to vacate but
instead requested formal contracts of lease with DCCSI in
favor Trendsetter Marketing. So Ping Bun claimed that
after the death of his grandfather, So Pek Giok, he had
been occupying the premises for his textile business and
religiously paid rent. DCCSI acceded to petitioner's
request.
Instead, on March 4, 1992, petitioner requested formal
contracts of lease with DCCSI in favor of Trendsetter
Marketing. The lease contracts in favor of Trendsetter
were executed. Private respondents filed a petition for
injunction, pressing for the nullification of the lease
contracts between DCCSI and petitioner and damages.
Trial Court ruled in favor of respondents. Court of
Appeals affirmed.

Issues:
1. WON So Ping Bun is guilty of tortuous
interference of contract
2. WON So Ping Bun should be liable for attorneys
fees
Held/Ratio:
1. YES. There is tort interference when during the
existence of a valid contract, a third person, to
whom the existence of such contract is known,
interferes without legal justification or excuse.
A duty which the law of torts is concerned with is
respect for the property of others, and a cause of
action ex delicto may be predicated upon an
unlawful interference by one person of the
enjoyment by the other of his private property.
This may pertain to a situation where a third
person induces a party to renege on or violate
his undertaking under a contract.
In the case at bar, petitioners Trendsetter
Marketing asked DCCSI to execute lease
contracts in its favor, and as a result petitioner
deprived respondent corporation of the latters
property right. Clearly, and as correctly viewed
by the appellate court, the three elements of tort
interference, (1) existence of a valid contract; (2)
knowledge on the part of the third person of the
existence of contract; and (3) interference of the
third person is without legal justification or
excuse, are present in the instant case.
As early as Gilchrist vs. Cuddy, the court held
that where there was no malice in the
interference of a contract, and the impulse
behind ones conduct lies in a proper business
interest rather than in wrongful motives, a party
cannot be a malicious interferer.
In the instant case, though petitioner took
interest in the property of respondent corporation
and benefited from it, nothing on record imputes
deliberate wrongful motives or malice on him.
Section 1314 of the Civil Code categorically
provides that, Any third person who induces
another to violate his contract shall be liable for
damages to the other contracting party.
Lack of malice, however, precludes damages.
But it does not relieve petitioner of the legal
liability for entering into contracts and causing
breach of existing ones. The respondent
appellate court correctly confirmed the
permanent injunction and nullification of the
lease contracts between DCCSI and Trendsetter
Marketing, without awarding damages.


2. YES. When the defendants act or omission has

compelled the plaintiff to litigate with third
persons or to incur expenses to protect his
interest, the recovery of attorneys fees is
allowed.
Art. 2208 of the Civil Code states that:
In the absence of stipulation, attorney's fees and
expenses of litigation, other than judicial costs,
cannot be recovered, except:
(2) When the defendant's act or
omission has compelled the plaintiff to
litigate with third persons or to incur
expenses to protect his interest.
The court has consistently held that the award of
considerable damages should have clear factual
and legal bases.
Considering that the respondent corporations
lease contract, at the time when the cause of
action accrued, ran only on a month-to-month
basis whence before it was on a yearly basis,
the reduced amount of attorneys fees ordered
by the Court of Appeals is still exorbitant in the
light of prevailing jurisprudence. Consequently,
the amount of two hundred thousand (P200,
000.00) awarded by respondent appellate court
should be reduced to one hundred thousand
(P100, 000.00) pesos as the reasonable award
for attorneys fees in favor of private respondent
corporation.

Dispositive: Petition DENIED. The assailed Decision and
Resolution of the Court of Appeals are hereby
AFFIRMED, with MODIFICATION that the award of
attorneys fees is reduced from two hundred thousand
(P200, 000.00) to one hundred thousand (P100,000.00)
pesos.

CHAPTER 2: ESSENTIAL REQUISITES OF CONTRACTS
A. Consent (Offer and Acceptance)
ROSENSTOCK VS. BURKE
CW Rosenstock, as administrator of the estate of HW Elser, petitioner, vs. Edwin Burke, respondent
Ponente: Avancena , J.

Legal Doctrine: The question of whether or not an
expression is a definite offer to purchase or merely an
invitation to a proposition being made to him is one of
intention of the person using said expression, which is to
be determined by the circumstances surrounding the
case. The expression I am in a position to entertain the
purchase of the vessel upon the following terms does
not mean a definite offer to purchase but merely the idea
that a proposition be made to him which he would accept
or reject according to the result of his deliberation.

Facts:
Edwin Burke owned a motor yacht known as the
Bronzewing which he acquired from Australia (1920) in
order to sell here. But since there were no offers and that
the yacht was mainly for recreation purposes, it was
moored for several months.
HW Elser came (1922) and negotiated with Burke on the
purchase of the yacht, which was at this time mortgaged
to Asia Banking Corporation (ABC). The mortgage of the
yacht was done sometime in 1921 by Burke to secure
payment of a debt of P100K, due and unpaid, in favor of
Mr. Avery, the manager of ABC.

Elser, the plaintiff, negotiated for the purchase of the

yacht. Elsers plan was to create a yacht club and sell it
afterwards for P120,000. P20,00 to be retained by Elser
and P100,000 to be paid to Burke.
On February 12, 1922. Defendant wrote a letter to plaintiff
as follows:
For the purpose expressed by you of organizing a yacht
club, I take pleasure in confirming my verbal offer to you
of the motor yacht Bronzewing, at a price of one hundred
and twenty thousand pesos (P120,000). This offer is open
for thirty days from date.
In order to make such sale, Elser told Burke to make a
voyage on board the yacht to the south, with prominent
business men for the purpose, undoubtedly, of making an
advantageous sale. But as the yacht needed some
repairs to make it seaworthy for this voyage, and as, on
the other hand, the defendant said that he had no funds
to make said repairs, the plaintiff paid almost all their
amount (and yet, there was a stipulation that Elser was
not to pay anything for the use of the yacht).
The costs of the repair was as follows:
P 6,972.21 repairs paid by Elser
P1,730.84 due to Cooper Company
which is still unpaid
P832.93 due to Elser still unpaid.
Once the yacht was repaired, Elser immediately made his
pleasure voyage south. Elser never accepted the offer of
Burke for the purchase of the yacht contained in the letter
of option of February 12, 1922. He believed, though, that
it would be convenient that the engine be replaced (P20K)
to have his desired result selling the yacht. Elser never
accepted the offer for the purchase rather requested that
the engine should replaced thus asking for a loan of P20,
000.
But Mr. Avery, to whom the yacht was mortgaged to, did
want to give a cent of loan to Elser and so the latter
discussed to Burke that Burke talk to Mr. Avery regarding
the matter, also stating that he was not disposed to
purchase the vessel for more than P70K.
After a talk with the bank manager Mr. Avery, they agreed
that the yacht was to be sold to Elser for the amount of
P80, 000.
Elser agreed but stated in the letter that he is in a position
to entertain the purchase of the said yacht. The case
focuses on the recovery of the money used to repair the
yacht in the amount of P6, 139.28 that is asked by Elser.
The trial court ruled in favor of Elser and asked Burke to
pay for P6, 139.28 with legal interest of 6 percent per
annum as well as the Cooper Company the sume of
P1,730.84 with legal interest of 6 per cent.
The plaintiff is then asked to comply with the conditions
stated in the letter. Hence this appeal coming from the
plaintiff.

Issues:
1. Whether the contract is valid and binding against
the plaintiff (Whether the language in the April
03, 1922 letter constitute as a valid/definite offer
by Elser in buying the yacht; and having been
accepted and consented by Burke and Mr.
Avery,)
2. WON plaintiff is required to pay for the repairs of
the yacht

Held/Ratio:
1. NO. The court looked at the intent of the plaintiff
in using the language. Instead of using clear and
simple words such as I offer to purchase, I want
to purchase, or I am in the position to purchase
he used the word entertain which implies that he
is in a position to deliberate whether or not he
would purchase such yacht. The word "entertain"
applied to an act does not mean the resolution to
perform said act, but simply a position to
deliberate for deciding to perform or not to
perform said act. Taking into account only the
literal and technical meaning of the word
"entertain," it seems to us clear that the letter of
the plaintiff cannot be interpreted as a definite
offer to purchase the yacht, but simply a position
to deliberate whether or not he would purchase
the yacht. It is a mere invitation that is
discretionary upon him.

2. YES. The fact that the defendant was to ask for
nothing in exchange for the travel thus making
the repair the only exchange that is expected.
Elser was the one who directly and personally
ordered these repairs. It was agreed between

Elser and Burke that the former was not to pay

anything for the use of the yacht and yet he did
and ordered the same. It seems strange that the
defendant should accept liability for the amount
of these repairs, leaving their extent entirely to
the discretion of the plaintiff. And this discretion,
according to the contention of the plaintiff,
includes even that of determining what repairs
must be paid by the defendant, as evidenced by
the fact that the plaintiff has not claimed the
amount of any, such as the wireless telegraph
that was installed in the yacht, and yet he claims
as a part thereof the salaries of the officers and
the crew which do not represent any
improvement on the vessel.

Dispositive: Judgment REVERSED. The petitioner is not
obliged to buy the yacht but is ordered to pay for the
repairs done.

MALBAROSA VS. CA
Salvador P. Malbarosa, petitioner, vs. Hon. Court of Appeals and S.E.A. Development Corp. respondents
Ponente: Callejo, Sr., J.

Facts:
Philtectic Corporation and Commonwealth Insurance Co.,
Inc. were two companies wholly-owned and controlled by
SEA Development Corporation. Petitioner Malbarosa was
the president and general manager of Philtectic.
Respondent assigned to petitioner a 1982 Mitsubishi
Gallant Super Saloon and membership in the
Architectural Center.
Sometime in January 1990, petitioner expressed his
desire to leave the company and requested that his 1989
incentive compensation be paid to him. He formally sent a
letter to Senen Valero, Vice-Chairman of respondent
company and reiterated his request for incentive
compensation for 1989.
Louis Da Costa, president of the company, met with
petitioner to discuss the amount of the compensation. Da
Costa ventured that petitioner would be entitled to an
amount of around P395,000.
March 14, 1990respondent through Valero signed a
letter-offer addressed to petitioner stating that his
resignation had been accepted and that he was entitled to
a compensation of P251,057.67 and that the amount be
satisfied as consisting of: the car valued at P220,000 and
the membership in the Architectural center valued at
around P60,000. Respondent required that if the
petitioner agreed to the offer, he should affix his signature
at the bottom of the page.
March 16, 1990Da Costa met with petitioner and
handed him the original copy of the March 14 Letter-offer.
Petitioner was dismayed when he read what he was
about to get. Petitioner refused to sign the letter-offer and
said that he would review it. Despite the lapse of more
than two weeks, respondent had not received the original
letter with petitioners signature. Respondent decided to
withdraw its offer.
April 3, 1996the Board of Directors authorized
Philtectic/Senen to demand from the petitioner for the
return of the car and to take action against petitioner
including court action.
April 4, 1990Philtectic wrote the petitioner withdrawing
the March 14, 1990 Letter-offer and demanding petitioner
return the car and his membership certificate.
April 7, 1990petitioner wrote Philtectic informing them
that he cant comply with the demand as he already
accepted the March 14 offer when he affixed on March
28, 1990 his signature on the original.
May 8, 1990TC issued writ of replevin.
6

May 11sheriff served the writ and took possession of
the car
May 15petitioner recovered possession of car upon
filing a counter-bond.

6
Replevin an action to recover possession of tangible
personalpropertywrongfullytakenorwithheldbyanother.

July 28, 1992trial court rendered decision stating that

there existed no perfected contract between petitioner
and respondent for failure of the respondent to effectively
notify the respondent of his acceptance. Petitioner was
ordered to deliver car or pay its value.
Court of Appeals affirmed the decision of the TC with
modification by allowing the payment of the rental of the
car at the rate of P1000.00 per day.

Issues:
1. Whether or not a contract exists between parties
by virtue of petitioners acceptance of the Letter-
offer.
2. Whether or not there was an effective withdrawal
by respondent of said letter-order.

Held: There is no contract between the parties.
Withdrawal of respondent is valid. Petition is dismissed
and CA decision affirmed.

Ratio:
As concluded by the CA, there had been no acceptance
by the petitioner of its March 14, 1990. The petitioner
adduced no proof that the respondent had granted him a
period within which to accept the offer. Under Article 1318
of the CC, the essential requisites of a contract are: 1)
consent of contracting parties; 2) Object certain which is
the subject matter of the contract; and 3) Cause of the
obligation which is established.
Under Article 1319 of the NCC, 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. To produce a contract, there must
be acceptance of the offer which may be express or
implied but must not qualify the terms of the offer. The
acceptance of an offer must be made known to the
offeror. Unless the offeror knows of the acceptance, there
is no meeting of minds of the parties. The contract is
perfected only from the time an acceptance of an offer is
made known to the offeror. Also, an acceptance which is
not made in the manner prescribed by the offeror is not
effective but constitutes a counter-offer which the offeror
may accept or reject.
In the present case, petitioner failed to transmit the copy
of the conformity to the letter-offer to the respondent. And
respondent had already withdrawn its offer. Indubitably,
there was no contract perfected by the parties. It must
also be underscored that there was no time frame fixed
by respondent for petitioner to accept or reject its offer.
When the offeror had not fixed a period for offeror to
accept the offer, and the offer is made to a person
present, the acceptance must be made immediately. The
respondent had the option to withdraw or revoke the offer.

JARDINE DAVIES INC. VS.COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION
Jardine Davies Inc., petitioner, vs. Court of Appeals and Far East Mills Supply Corporation, respondents
Pure Foods Corporation, petitioner, vs. Court of Appeals and Far East Mills Supply Corporation, respondents

Legal Doctrine: Contracts are perfected by mere
consent, upon the acceptance by the offeree of the offer
made by the offeror.

Facts:
On 1992 at the height of the power crisis in the country,
petitioner PURE FOODS CORPORATION, in order to
remedy and curtail further losses due to the series of
power failures, decided to install two (2) 1500 KW
generators in its food processing plant in San Roque,
Marikina City.

On November 1992 a bidding for the supply and

installation of the generators was held.
On December 12, 1992 a letter addressed to FEMSCO
President Alfonso Po, PUREFOODS confirmed the award
of the contract to FEMSCO subject to the following basic
terms and conditions:
1. Lump sum contract of P6, 137, 293.00 for the
supply of local and imported materials and labor,
payable by progress billing twice a month, with
10% retention to be released 30 days after
acceptance of the completed project and upon
posting of Guarantee Bond (valid for 1 year
from completion and acceptance of project) in an
amount equivalent to 20% of the contract price
(includes future increase/s in costs of materials
and labor).

2. The projects shall be undertaken pursuant to
the attached specifications. Any item required to
complete the project including those not in the
list of items shall be deemed included and
covered, and shall be performed.
3. All materials shall be brand new.
4. The project shall commence immediately and
must be completed within 20 working days after
the delivery of Generator Set to Marikina Plant,
penalty equivalent to 1/10 of 1% of the purchase
price for every day of delay.
5. The Contractor shall put up Performance
Bond equivalent to 30% of the contract price,
and shall procure All Risk Insurance equivalent
to the contract price upon commencement of the
project. The All Risk Insurance Policy shall be
endorsed in favor of and shall be delivered to
Pure Foods Corporation.
6. 1 year warranty against defective material
and/or workmanship.
Immediately, FEMSCO submitted the required
performance bond in the amount of P1,841,187.90 and
contractor's all-risk insurance policy in the amount of
P6,137,293.00 which PUREFOODS acknowledged.
FEMSCO also made arrangements with its principal and
started the project by purchasing the necessary materials.
PUREFOODS on the other hand returned FEMSCO's
Bidder's Bond in the amount of P1,000,000.00, as
requested.
On December 22, 1992, PUREFOODS unilaterally
canceled the award as "significant factors were
uncovered and brought to their attention which dictate the
cancellation and warrant a total review and re-bid of the
project." FEMSCO protested the cancellation of the award
and sought a meeting with PUREFOODS.
On March 26, 1993, before the matter could be resolved,
PUREFOODS awarded the project and entered into a
contract with JARDINE NELL (Jardine Davies, Inc.),
which was not one of the bidders.
FEMSCO thus wrote PUREFOODS to honor its contract
with them, and to JARDINE to cease and desist from
delivering and installing the 2 generators at
PUREFOODS. Its demand letters unheeded, FEMSCO
sued PUREFOODS for reneging on its contract, and
JARDINE for its unwarranted interference and
inducement.

Issues:
1. W/N there existed a perfected contract between
PUREFOODS and FEMSCO
2. W/N there is any showing that JARDINE induced
or connived with PUREFOODS to violate the
latter's contract with FEMSCO.

Held/Ratio:
1. There can be no contract unless the following
requisites concur: (a) consent of the contracting
parties; (b) object certain which is the subject
matter of the contract; and, (c) cause of the
obligation which is established. A contract binds
both contracting parties and has the force of law
between them.
Contracts are perfected by mere consent, upon
the acceptance by the offeree of the offer made
by the offeror. From that moment, the parties are
bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and
law.
Petitioner PUREFOODS started the process of
entering into the contract by conducting a
bidding. The bid proposals or quotations
submitted by the prospective suppliers including
respondent FEMSCO, are the offers. And, the

reply of petitioner PUREFOODS, the acceptance

or rejection of the respective offers. The letter
sent by petitioner on December 12, 1998
constituted acceptance of respondent's offer as
contemplated by law. The tenor of the letter,
which confirms that PUREFOODS has awarded
to FEMSCO the project, could not be more
categorical. The enumerated "basic terms and
conditions" were mere prescriptions on how the
obligation was to be performed and
implemented. They were far from being
conditions imposed on the perfection of the
contract.
Accordingly, for all intents and purposes, the
contract at that point has been perfected, and
respondent FEMSCO's conforme would only be
a mere surplusage. Hence, by the unilateral
cancellation of the contract, petitioner
PUREFOODS has acted with bad faith and this
was further aggravated by the subsequent inking
of a contract between defendant Purefoods and
Jardine Davies. It is very evident that Purefoods
thought that by the expedient means of merely
writing a letter would automatically cancel or
nullify the existing contract entered into by both
parties after a process of bidding. This is a
flagrant violation of the express provisions of the
law and is contrary to fair and just dealings to
which every man is due.
In the instant case, respondent FEMSCO has
sufficiently shown that its reputation was
tarnished after it immediately ordered equipment
from its suppliers on account of the urgency of
the project, only to be canceled later.
Respondent deserves moral and exemplary
damages of P1, 000, 000.00, and P100, 000.00,
respectively.

2. While it may seem that petitioners PUREFOODS
and JARDINE connived to deceive respondent
FEMSCO, there are no specific evidence on
record to support such perception.

SANCHEZ VS. RIGOS
Nicolas Sanchez, plaintiff-appellee, vs. Severina Rigos, defendant-appellant
Ponente: Concepcion, C.J.

Legal Doctrine: If the option is given without a
consideration, it is a mere offer of a contract of sale which
is not binding until accepted. If, however, acceptance is
made before a withdrawal, it constitutes a binding
contract of sale even though the option was not supported
by sufficient consideration.

Facts:
On April 3, 1961, plaintiff Nicolas Sanchez and defendant
Severina Rigos executed an instrument entitled Option to
Purchase where the latter agreed, promised and
committedto sell to the former a parcel of land situated
in San Jose, Nueva Ecija for P1, 510. It was further
stipulated that the option shall be deemed terminated if
Sanchez fails to exercise his right to buy the property
within 2 years. Within the same period, Sanchez
attempted to make several tenders of payment of P1, 510
to no avail because Rigos rejected the same. Because of
this, the former deposited said amount with the CFI of
Nueva Ecija and commenced an action for specific
performance and damages against the latter. The CFI
rendered judgment for Sanchez.

Issue: W/N the offer can still be withdrawn after Sanchez
notified Rigos of his acceptance of the option within the
period agreed upon


Held/Ratio:
Defendant-Appellant Supreme Court
Yes. The contract between the parties is a unilateral
promise to sell. Art. 1479(2), CC provides that an
accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. Since the option was not
supported by any valuable consideration as required by
law, the contract is null and void.
No. The option did not impose upon Sanchez the
obligation to purchase her property. The instrument is
not a contract to buy and sell; it is a mere option as
evinced by the title of the document itself.

Moreover, Art. 1324, CC provides the general rule
regarding offer and acceptance that, when the offerrer
gives to the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance except
when the option is founded upon consideration. In other
words, if the option is given without a consideration, it is
a mere offer of a contract of sale which is not binding
until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale even
though the option was not supported by a sufficient
consideration. The concurrence of both actsthe offer
and the acceptancegenerates a contract if there was
none existing before.

Antonio, J., concurring: While the law permits the
offeror to withdraw the offer at any time before
acceptance even before the period has expired, the
offeror cannot exercise this right in an arbitrary or
capricious manner for the reason that a contrary view
would remove the stability and security of business
transactions. Since Sanchez had offered P1, 510 before
any withdrawal from the contract has been made by
Rigos, a bilateral reciprocal contract to sell and to buy
was generated.

ADELFA PROPERTIES, INC VS. COURT OF APPEALS
Adelfa Properties, Inc., petitioner, versus, Court of Appeals, Rosario Jimenez-Castenda and Salud Jimenez, respondents

Facts:
Herein private respondents and their brothers, Jose and
Dominador Jimenez, were the registerd co-owners of a
parcel of land consisting of 17,710 square meters situated
in Barrio Culasi, Las Pinas.
On July 28, 1988, Jose and Dominador Jimenez sold their
share consisting of of said parcel of land, specifically
the eastern portion thereof, petitioner pursuant to a
Kasulatan sa Bilihan ng Lupa. Subsequently, a
Confirmatory Extrajudicial Partition Agreement was
executed by the Jimenezes, wherein the eastern portion
of the subject lot was adjudicated to Jose and Dominador
Jimenez, while the western portion was allocated to
herein private respondents.
Thereafter, herein petitioner expressed interest in buying
the western portion of the property from private
respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters
of the subject property is P2,856,150.00.
2. The sum of P50,000 w/c we received from
Adelfa Properties, Inc. as an option money shall
be credited as partial payment upon the
consummation of the sale and the balance in the
sum of P2,806,150.00 to be paid on or before
November 30, 1989;
3. In case of default on the part of petitioner to
pay said balance in accordance with paragraph
2 hereof, this option shall be cancelled and 50%
of the option money to be forfeited in our favor

and we will refund the remaining 50% of said

option money upon the sale of said property to a
third party.
4. All expenses including the corresponding
capital gains tax, cost of documentary stamps
are for the account of the vendors, and
expenses for the registration of the deed of sale
in the Registry of Deeds are for the account of
Adelfa properties, Inc.
Considering, however, that the owners copy of the
certificate of the title issued to respondent Salud Jimenez
had been lost, a petition for the re-issuance of a new
owners copy of said certificate of title was issued but it
remained in the possession of Atty. Bernardo until he
turned it over to petitioner Adelfa Properties, Inc.
Before petitioner could make payment, it received
summons involving a complaint filed by the nieces and
nephews of respondents (annulment of the deed of sale)
against the latter. As a consequence, petitioner withhold
payment of payment until the case was settled.
On December 14, 1989, private respondents, through
counsel, cancelled the transaction. Atty. Bernard offered
to pay two times provided that certain deductions are
made of which respondents vehemently rejected.
On Feb 23, 1990 the complaint filed by respondents
nieces and nephews was dismissed.
On Feb 28, 1990, private respondents executed a Deed
of Conditional Sale in favor of Emylene Chua.
Petitioner declared its intention to pay the purchase price
since the civil case was now dismissed. This was ignored
by private respondents and instead returned the sum of
P25,000 representing the refund of 50% of the option
money paid under the exclusive option to purchase.
Private respondent requested petitioner to return the
duplicate copy of the certificate of title of which the latter
failed to return. Thus, private respondent filed a suit for
the annulment of contract with damages, praying that the
exclusive option to purchase be declared void and that
petitioner be ordered to return the owners duplicate of
title.
TC rendered judgment I favor of private respondent. It
held that the agreement was merely an option contract
and that suspension of payment constituted a
counteroffer which is tantamount to a rejection.
CA affirmed the decision of the TC in toto.

Issues:
1. Whether or not the Exclusive Option to
Purchase executed between petitioner and
private respondents is an option contract
2. Whether or not the suspension of payment of the
purchase price by said petitioner was justified.

Held/Ratio:
1. The controverted document was a perfected
contract to sell. Although the CA is correct in so
far as it awarded the correct relief, it was
incorrect in categorizing the instrument as
strictly an option contract. It should be noted
that in contract interpretation the ascertainment
of the intention of the contracting parties shall be
a controlling guide. The import of the text and
the subsequent acts of the parties indubitably
project that the intention of the parties was to
enter a contract to sell. Hene, the fact that the
document under discussion is entitled Exclusive
Option to Purchase is not controlling where the
text shows it is a contract to sell. An option is a
continuing offer or contract by which the owner
stipulates with another that the latter shall have
the right to buy the property at a fixed price at a
certain time, or under, 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. It also sometimes called an
unaccepted offer. An option is not itself a
purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of the
right to purchase. On the other hand, a contract,
like a contract to sell, involves the meeting of the
minds between two persons whereby on binds
himself, with respect to the other, to give
something or to render some service. The
distinction between an option and a contract of
sale is that an option is an unaccepted offer. It
states the terms and conditions on which the
owner is willing to sell the land, if the holder
elects to accept them within the time limited. A
perusal of the contract in the case at bar, readily
shows that there is concurrence of petitioners
offer to buy and private respondents acceptance
thereof.
The Court also did not subscribe to the private
respondents submission that the offer of
petitioner to deduct P500,000 (later reduced to
P300,000) from the purchase price was

tantamount to a counter-offer. It must be

stressed that there already existed a perfected
contract between the parties at the time the
alleged counter-offer was made. Thus, any new
offer by a party becomes binding only when it is
accepted by the other. At any rate, the same
cannot be considered a counter-offer for the
simple reason that petitioners sole purpose was
to settle the civil case in order that it could
already comply with the obligation.
The obligation of the petitioner consisted of an
obligation to give something, that is, the payment
of the purchase price. The test in determining
whether a contract is a contract of sale or
purchase or a mere option is whether or not
the agreement could be specifically enforced.
There is no doubt that the obligation of petitioner
to pay was specific, definite, and certain.

2. The suspension was justified. The civil case filed
against the parties involved only the eastern half
of the land. It did not have any adverse effect on
private respondents title and ownership over the
western half of the land. The petitioner was
justified in suspending payment of the balance of
the purchase price by reason of the vindicatory
action filed against it. The assurance made by
private respondents that petitioner did not have
to worry about the case because it was pure and
simple harassment is not the kind of guaranty
under the exceptive clause in Art 1590 wherein
the vendor is bound to make payment even with
the existence of a vindicatory action if the
vendee should give a security for the return of
the price.
Be that as it may, and the validity of the
suspension of payment notwithstanding, the
Court find and hold that private respondents may
no longer be compelled to sell and deliver the
subject property to petitioner for two reasons,
that is, petitioners failure to duly effect the
consignation of the purchase price after the
disturbance had ceased; and, secondarily, the
fact that the contract to sell had been validly
rescinded by private respondents.

Dispositive: Wherefore, on the foregoing modificatory
premises, and considering that the same result has been
reached by respondent Court of Appeals with respect to
the relief awarded to private respondentits assailed
judgment is hereby affirmed.

A. Consent (Vices of Consent: Mistake)
ASIAIN VS. JALANDONI
Luis Asiain, petitioner, vs. Benjamin Jalandoni, respondent

Legal Doctrine: Mutual mistake as to the quantity of land
sold (where there is a gross difference between the actual
and estimated areas of the land sold) may be a ground for
equitable relief.

Facts:
In May 1920, Asiain was offering to sell a portion of his
hacienda in La Carlota, Negros Occidental to Jalandoni
for P55,000. With a wave of his hand, Asiain indicated the
tract of land in question, saying it contained between 25
to 30 hectares more or less, and the crop of sugar
planted then would produce not less than 2,000 piculs of
sugar [1 picul | 133 pounds].
Throughout the negotiations, Jalandoni was doubtful
about the figures Asiain said, suspecting that these were
overestimated. In a letter to Jalandoni, Asiain himself
admitted that he was no surveyor, but he was more or
less knowledgeable of the area of the land in question.
Asiain even offered that in case the sugar to be harvested
did not amount to 2,000 piculs, Asiain would pay in sugar
the balance; but if the harvest exceeded 2,000 piculs, the
excess would go to Asiain.

July that year they signed the memorandum-agreement,

stipulating the above details, in addition to the fact that
vendor Asiain is under obligation to take care of all
plantations until the planting is finished, and Asiain would
vacate the parcel sold once the planting of cane is
completely finished. In order to further appease the
doubts in Jalandonis mind, both execute in Iloilo an
agreement such that if vendor Asiain withdraws from the
contract and desists from signing the document of final
sale, Jalandoni shall have the right to collect all payments
advanced; but if Jalandoni withdraws, he will lose all such
advanced payments to Asiain.
Once in possession of the land, Jalandoni milled the
sugar. And it turns out that the total output was a mere
800 piculs and 23 cates of centrifugal sugar. Further, he
engaged the services of a surveyor, and it turned out that
the actual area of the parcel was just 18 hectares, 54
ares, and 22 centiares.
Jalandoni had already advanced P30,000 of the purchase
price of P55,000. He filed an action to recover such
amount, and Asiain countered and asked to be absolved
from the complaint. The lower court declared the
document of purchase and its accompanying
memorandum null and void, absolving Asiain from the
payment of the balance, ordering Asiain to turn over the
tract of land, and ordering Jalandoni to pay the P30,000
with legal interest.

Issue: Can the contract be annulled on the ground of
mutual mistake?

Held: YES. Lower court judgment AFFIRMED, without
prejudice to Jalandonis right to establish in this action the
amount of rent during the time Asiain was in possession
of the land.

Ratio:
There was always a difference of opinion between the two
parties as to the area of the tract and the crop of sugar
cane. The pertinent provision is Art. 1471 of the Civil
Code (Art. 1542 in the New Civil Code):
Art. 1542. In the sale of real estate, made for a
lump sum and not at the rate of a certain sum for
a unit of measure or number, there shall be no
increase or decrease of the price, although there
be a greater or less area or number than that
stated in the contract.
The same rule shall be applied when two or
more immovables as sold for a single price; but
if, besides mentioning the boundaries, which is
indispensable in every conveyance of real
estate, its area or number should be designated
in the contract, the vendor shall be bound to
deliver all that is included within said boundaries,
even when it exceeds the area or number
specified in the contract; and, should he not be
able to do so, he shall suffer a reduction in the
price, in proportion to what is lacking in the area
or number, unless the contract is rescinded
because the vendee does not accede to the
failure to deliver what has been stipulated.
(1471)
Although the meaning of 1471 is quite unclear, Manresa
comments that if land is sold within boundaries with an
expression of the area, and the area turns out to be
grossly deficient, the vendee has an option either have
the right to reduce the price proportionately to what is
lacking in area or number, OR rescind the contract at his
option.
The case of Irureta Goyena v. Tambunting (1902)
illustrates Art. 1471 in action, but it is different from the
case at hand, since the private contract there, deemed
enforceable despite the fact that the area was less than
whats mentioned in the contract, specified a specific
thing (specified located in No. 20, Calle San Jose, etc.)
without mention of the area, and without any hint that
either party was misled. So, when the contract is not for
the sale of a specific quantity of land, but for the sale of a
particular tract in a bona fide transaction without
reference to acreage (a contract of hazard/sale in gross),
a mutual mistake of quantity will NOT entitle the
purchaser compensation or a ground for rescission.
But the instant case involved mutual mistake in a contract
to sell a specific quantity of land, sold on the basis of
acreage or quantity as the basis of price. Since it was
very difficult, if not impossible, to ascertain the quantity of
the tract with perfect accuracy, slight excesses or
deficiencies would not have affected the validity of the
contract. However, the difference is very great between
the actual and estimated quantities of acres of land sold
in gross.
Although the contract contained the phrase more or
less, it can only excuse differences in estimated and
actual areas to very small excesses or deficiencies, and
not to gross differences as in this case. Hence, both

parties are obviously acting under a gross and palpable

mistake, which a court of equity must correct. Relief will
be granted in this case, since the mistake is so material
that if the truth had been known to the parties, the sale
would not have been made, as in the instant case.
Had it been a contract of hazard, where the sale is a sale
in gross (a sale of a tract of land as a whole without
warranty as to the acreage), relief will not be granted, and
mistakes of the vendor on the actual acreage constitutes
no ground for the rescission. (Hazard in the sense that
the buyer assumes risk for whatever the land may
actually look like in terms of size/acreage.)

The contract in question in the instant case, however, is
NOT a contract of hazard. It was a sale of land with
descriptions of acreage, with mutual mistake as to the
quantity of the land sold and the amount of the standing
crop, so important as to go to the essence of the contract.
Since without such mistake the agreement would not
have been made, the agreement is inoperative and void.
It is not a case of misrepresentation or fraud, but of a
bilateral mistake which entitles Jalandoni to relief. The
parties must be put back exactly in their respective
positions before they became involved in the negotiations.

Summary of concepts:
If the land was sold WITH a description/estimate of the
area, mutual mistake may give rise to relief, provided that
theres a gross difference between the actual and
estimated areas.
If the land was sold WITHOUT a description/estimate of
the area (a contract of hazard/sale in gross), mutual
mistake may NOT give rise to relief, even if theres a
gross difference between the actual area and what was
envisoned/imagined by the buyer (he takes the risk for
whatever it might actually look like, being a contract of
hazard.)

Note on the case:
The ratio decidendi is actually confusing, since it held
that, This was not a contract of hazard. It was a sale in
gross in which there was mutual mistake as to the
quantity of land sold and as to the amount of the standing
crop. However, isnt it true that a contract of hazard is
synonymous to a sale in gross, both meaning that theres
no mention of the lands acreage? I guess the Court
meant that this is not a contract of hazard nor a sale in
gross, but a sale where there was mention of acreage.

THEIS VS. COURT OF APPEALS
Spouses Heinzrich Theis and Betty Theis, petitioners, vs. Honorable Court of Appeals, Honorable Eleuterio Guerrero, Acting
Presiding Judge, Branch XVIII, Regional Trial Court, Tagaytay City, Calsons Development Corporation, respondents

Legal Doctrine: A contract may be annulled where the
consent of one of the parties was procured by mistake.

Facts:
Calsons Development Corporation owns three adjacent
parcels of land situated along Ligaya Drive, Barangay
Francisco, Tagaytay City:
TCT No. 15515 Parcel No. 1
Adjacent to Parcel No. 3 is a land covered by Transfer
Certificate Title (TCT) No. 15684
7
, a vacant lot which will
be known as Parcel No. 4.
1985 Private respondent constructed a two-storey
house on Parcel No. 3
A survey was conducted and
erroneously indicated to be cover

Parcel No. 3 was
ed by by TCT No.

7
Note from digester: I think there was a typographical error
regardingtheTCTNo.ofParcelNo.4asprintedinthecase.It
is exactly the same as the TCT No. of Parcel No. 3 which the
privaterespondentowns.ImnotsurethoughthatswhyIjust
copiedtheTCTNos.astheywereprintedintheoriginalcase.

15515, while Parcels No. 1 and 2 were mistakenly

surveyed to be located on Parcel No. 4 (which was not
owned by private respondent).
October 26, 1987 unaware of the mistake (that private
respondent appeared to be the owner of Parcel No. 4)
and based on the erroneous information given by the
surveyor that Parcel No. 4 is covered by TCT No. 15516
and 15684, private respondent through Atty. Tarcisio S.
Calilung sold Parcel No. 4 to the spouses Theis.
When the Deed of Sale was executed, private respondent
delivered TCT Nos. 15516 and 15684 to the spouses
Theis.
October 28, 1987 spouses Theis registered the titles
with the Registry of Deeds of Tagaytay City. TCT Nos.
17041 and 17042 were issued in the names of the
petitioner spouses.
The Deed of Sale indicated Php 130,000 as the purchase
price. However, the actual price agreed upon was Php
486,000. The amount was not immediately paid to the
private respondent but was rather deposited in escrow
8
in
an interest-bearing account in its favor with the United
Coconut Planters Bank in Makati City. The Php 486,000
in escrow was released to and received by private
respondents on December 4, 1987.
The spouses Theis did not immediately occupy and take
possession of the two parcels of land purchased because
they went to Germany.
1990 spouses Theis went back to the Philippines. They
went to Tagaytay to look over the vacant lots and to plan
the construction of their house thereon, however, they
discovered that Parcel No. 4 was owned by another
person. They also discovered that the lots actually sold to
them were Parcel Nos. 2 and 3 (TCT Nos. 15516 and
15584). Parcel No. 3, however, could not have been sold
to the petitioners because a two-storey house had already
been built thereon prior to the execution of the contract
and the cost of construction far exceeded the price paid
by the petitioners.

8
Escrowalegaldocument(suchasadeed),money,stock,or
other property delivered by the grantor, promisor, or obligor
into the handsof a third person, to be held by the latter until
thehappeningofacontingencyorperformanceofacondition,
and then by him delivered to the grantee, promisee, or
obligee;asystemofdocumenttransferinwhichadeed,bond,
stock,funds,orotherpropertyisdeliveredtoathirdpersonto
hold until all conditions in a contract are fulfilled (Blacks Law
Dictionary).
To remedy the mistake, private respondent offered Parcel
Nos. 1 and 2 (TCT Nos. 15515 and 15516) as these were
the two vacant lots which the private respondent owned
and intended to sell in the first place. However, the
petitioners adamantly refused the offer and insisted on
taking Parcel No. 3 (where the two-storey house stands)
and Parcel No. 2 because the TCTs of these lots were
already issued in their name.
Private respondent made another offer, this time the
return of an amount double the price paid by the
petitioners. However, the petitioners still refused and
insisted on their stand.
Private respondent filled an action for annulment of deed
of sale and reconveyance of the properties in the RTC of
Tagaytay.
Trial Court: ruled in favor of the private respondent. The
issue identified was the voidability of the contract on the
ground of mistake. After finding that there was indeed a
mistake in the identification of the parcels of land, the trial
court annulled the contract of sale between the parties.
The trial court highlighted the real intent of the parties
when they entered into the contract. When the spouses
Theis attempted to take possession of the parcels of land,
they admittedly wanted to take the vacant area which
turned out to be a property not owned by Calsons
Development Corporation. This act by the spouses Theis
clearly indicates that right from the beginning, what they
intended to buy was the vacant lot and not the lot where
the two-storey house stands.
The Theis spouses appealed to the Court of Appeals. The
CA, however, affirmed the decision of the trial court. The
CA stated that there was clearly an honest mistake on the
part of Calsons Development Corporation in the sale of
Parcel No. 4 to the Theis spouses.

Issue: Whether or not the contract of sale between the
parties can be annulled on the ground of mistake.

Held/Ratio:
Yes, the contract of sale may be annulled because the
consent of the contracting parties was procured by
mistake.
Art. 1390 paragraph 2 CC states that those contracts
where the consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud are voidable or

annullable even though there may have been no damage

to the contracting parties. In the present case, private
respondent obviously committed an honest mistake in
selling Parcel No. 4. It was impossible for them to sell the
lot in question because it was not owned by it. Their good
faith is also evident in the fact that when the mistake was
discovered, they immediately offered two other vacant
lots or to reimburse the petitioners with twice the amount
paid.
Art. 1331 CC provides for the situations whereby mistake
may invalidate consent. It states that in order that
mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract,
or to those conditions which have principally moved one
or both parties to enter into the contract. The concept of
error in this provision includes both ignorance (absence of
knowledge with respect to a thing) and mistake (wrong
conception about said thing or a belief in the existence of
some circumstances, fact, or event which in reality does
not exist). In both instances, there is a lack of full and
correct knowledge about the thing. In the case at bar, the
error falls under the concept of mistake. Such mistake
invalidated the consent of the parties and as such, the
annulment of the deed of sale is proper.
The petitioners cannot be justified in their insistence that
Parcel No. 3 (where the private respondent constructed
their two-storey house) be given to them in lieu of Parcel
No. 4. The cost of construction for the said house (Php
1,500,000) far exceeds the amount paid by the petitioners
(Php 486,000). To allow the petitioners to take Parcel No.
3 would result to unjust enrichment.

HEIRS OF WILLIAM SEVILLA VS. LEOPOLDO SEVILLA
Heirs of William Sevilla, namely: Wilfredo Sevilla, Wilson Sevilla, Wilma Sevilla, Willington Sevilla, and William Sevilla, Jr.,
Heirs of Maria Sevilla, namely: Amador Sevilla, Jeno Cortes, Victor Cortes, Maricel Cortes, Alelei Cortes and Anjei Cortes,
petitioners, vs. Leopoldo Sevilla, Peter Sevilla, and Luzvilla Sevilla, respondents
Ponente: Ynares-Santiago

Facts:
Filomena Sevilla died intestate leaving 3 parcels of land.
Parcel 1, being her paraphernal property co-owned with
her sisters, Honorata and Felisa. Parcel 2, 3 and 4 as
conjugal properties. She had 8 children, namely: William,
Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla, and
Jimmy, all surnamed Sevilla. William, Jimmy and Maria
are now deceased and are survived by their respective
spouses and children
When Honorata died, her share in the Parcel 1 was
divided among her descendants. Felisa and Honorata
used to live in the house of Filomena together with their
nephew Leopoldo. He was the one who took care of the
needs of the sisters
Before Felisa died, she executed in a will giving of her
share in Parcel 1 to Leopoldo and his wife on 1985. In
1986, she executed a donation inter vivos of the other half
of her share in Parcel 1.
They then obtained together with Peter and Luzilla Sevilla
a cancellation of Transfer Certificate Title of Parcel 1 and
made an extra-judicial partition of the property.
Felipe, Rosa and the heirs of William and Jimmy then
filed a case for the annulment of the Deed of Donation
and Deed of Extra-judicial partition
They argue that Felisa, being 81 years old, was seriously
ill and was of unsound mind during the donation and
extra-judicial partition and thus are void.
RTC, upheld the validly of the donation and extra-judicial
partition.
Both appealed, the heirs holding the nullity of the deeds.
Leopoldo arguing against the unenforceability of the deed
of extra-judicial partition against the other heirs of
Filomena who are not parties to the deed.
Thus the instant petition to SC.

Issue: WON the deeds are void?

Held: The deed of donation is valid. The Deed of extra-
judicial partition is void ab initio.

Deed of Donation
Fraud and undue influence that vitiated a partys consent
must be established by full, clear and convincing
evidence. In this case, self-serving testimony of the
petitioners are vague on what acts of Leopoldo Sevilla
constituted fraud and undue influence and on how these
acts vitiated the consent of Felisa Almirol. The notary
public also testified to the soundness of the mind of Felisa
and that she can talk sensibly.

Deed of Extra-Judicial Partition
Considering that the donation is valid, Felisa is no longer
a party to the contract considering that her share in the
land was already transferred to Leopoldo by means of the
Deed of Donation. Thus, the Extra-judicial partition is void
because, she did not have the capacity to give consent or
execute the contract.

DUMASUG VS. MODELO
Andrea Dumasug, plaintiff-appellee, vs. Felix Modelo, defendant-appellant
Ponente: Torres, J.

Facts:
Prior the present case, plaintiff filed suit against Rosales
Albarracin and Gaudencio Saniel for the recovery of a
parcel of land belonging to her. Judgment was rendered
on her favor. Albarracin and Saniel appealed and
Dumasug contracted the services of Atty. Andres Jayme.
Sometime later, defendant persuaded plaintiff, who
doesnt know how to read and write, to sign a document
by falsely and maliciously making her believe that it
contained an engagement on the part of the plaintiff to
pay defendant a sum she owed to him for money he had
advanced her to maintain two actions against Albarracion
and Saniel. Plaintiff signed by affixing her mark believing
in good faith that defendant had told her the truth and said
document referred to the expenses incurred by
defendant.
Three months after the execution of the said document,
defendant took possession of a carabao and 2 parcels of
land belonging to plaintiff. The document in question sets
forth that in consideration of the sum of P333.49 which
plaintiff received from defendant, the former sold and
conveyed to the latter the said properties.
Defendant said that he took possession of the said
properties because plaintiff conveyed them to him by
means of absolute sale, which was recorded in a public
instrument duly executed and signed by plaintiff in the
presence of witnesses. Defendant further argued that the
sale was in payment of the money she owed him.
Plaintiff, on the other hand, said that what she signed is a
document acknowledging that she owed him the sum of
P101 for the work he had performed on her behalf in the
two actions she had brought to recover her land. There
were no witnesses when she signed the said document
and the notary said nothing to her about her pretended
sale of her property.

Issue: WON the instrument of purchase and sale of two
parcels of land and a plow carabao is null and void

Held/Ratio:
YES. It is perfectly evident that the document in question
is not the instrument of debt which Dumasug had signed,
and if it is the same one its contents were not duly and
faithfully explained to plaintiff in the act of its execution. It
is undeniable that she was deceived in order to obtain her
consent. The consent given is null and void. It also follows
that the document is null and void.
The defendant must return and deliver to plaintiff the two
parcels of land in question with their fruits. With respect to
the plow carabao that died while in defendants
possession, the value of which is P120, defendant is

obliged to deliver the value of said animal with interest as

an indemnity for the detriment caused to its owner.
*Note: The Court also held that it was improbable that the
amount owed was P333.49. Only a demurrer was filed
(for the Albarracin and Saniel appeal) and Atty. Jayme
testified that he only received P80 or P90 from the
plaintiff.

HEMEDES VS. CA
Maxima Hemedes, petitioner, vs. The Hon. Court of Appeals, Dominium Realty and Construction Corporation, Enrique D.
Hemedes and R&B Insurance Corporation, respondents
R&B Insurance Corporation, petitioner, vs. The Hon. Court of Appeals, Dominium Realty and Construction Corporation,
Enrique D. Hemedes and Maxima Hemedes, respondents
Ponente: Gonzaga-Reyes, J.

Legal Doctrine: Article 1332 of the Civil Code
contemplates a situation wherein a contract has been
entered into, but the consent of one of the parties is
vitiated by mistake or fraud committed by the other
contracting party.

Facts:
Short version of facts: Property (land) was donated inter
vivos by husband to third wife. Third wife is unable to read
and write, thus issue on applicability of Artiocle 1332 of
Civil Code. She donated inter vivos the same property to
her daughter. Later on, she executed a Kasunduan
transferring the same property to his stepson (son of his
husband from previous marriage. Daughter-donee
mortgaged the land; the same was foreclosed. Stepson-
donee sold the land. Ownership over the land is now in
dispute.

Long version of facts:
1947- Property in dispute is a parcel of land (in Cabuyao,
Laguna) originally owned by Enrique Hemedes, father of
petitioner. This land was donated inter vivos, subject to
certain resolutory conditions, by Enrique to his third wife
Justa Kauapin, mother of petitioner. Enrique executed a
Donation Inter Vivos With Resolutory Conditions" to
convey ownership over the land. The resolutory
conditions are as follows:
Upon the death or remarriage of the DONEE, the title to
the property donated shall revert to any of the children, or
their heirs, of the DONOR expressly designated by the
DONEE in a public document conveying the property to
the latter; or
In absence of such an express designation made by the
DONEE before her death or remarriage contained in a
public instrument as above provided, the title to the
property shall automatically revert to the legal heirs of the
DONOR in common.
1960- Pursuant to first resolutory condition, Justa donated
the property to her daughter Maxima, with reservation that
the possession and enjoyment of the said property shall
remain vested in Justa during her lifetime. A "Deed of
Conveyance of Unregistered Real Property by Reversion
was executed embodying the transfer. Justa affixed her
thumbmark in the said document as she was unable to
read and write.
1962- Original Certificate of Title (OCT) No. (0-941) 0-198
5
was issued in the name of Maxima Hemedes married to
Raul Rodriguez by the Registry of Deeds of Laguna, with
the annotation that "Justa Kausapin shall have the
usufructuary rights over the parcel of land herein
described during her lifetime or widowhood."
1964- Maxima constituted a real estate mortgage over the
subject property in favor of R&B Insuarnce to serve as
security for a loan which they obtained in the amount of
P6,000.
1971- Despite the earlier conveyance of the subject land
in favor of Maxima Hemedes, Justa Kausapin executed a
"Kasunduan" whereby she transferred the same land to
her stepson Enrique D. Hemedes. It was alleged that

Justa depended on her stepson for support. Enrique

(stepson) obtained two declarations of real property in
1972, and again, in 1974, when the assessed value of the
property was raised. Also, he has been paying the realty
taxes on the property from the time Justa Kausapin
conveyed the property to him in 1971 until 1979.
1974- For failure to pay the loan, the property was
extrajudicially foreclosed and publicly auctioned wherein
R&B Insurance was the highest bidder. Register of Deeds
of Laguna cancelled OCT No. (0-941) 0-198 and issued
Transfer Certificate of Title (TCT) No. 41985 in the name
of R & B Insurance. The annotation of usufruct in favor of
Justa Kausapin was maintained in the new title.
1979- Enrique (stepson) sold the property to Dominium
Realty and Construction Corporation.
1981- Justa Kausapin executed an affidavit affirming the
conveyance of the subject property in favor of Enrique D.
Hemedes as embodied in the "Kasunduan" dated May 27,
1971, and at the same time denying the conveyance
made to Maxima Hemedes.
1981- R&B Insurance learned of transfer and occupancy
of Dominium in the property (Dominium leased the same
to sister company and structures were being built on the
land). An agreement was not reached between the
parties.
Private respondent alleges that initial conveyance to
Maxima is invalid per article 1332 of the Civil Code as
Justa is unable to read and write. Private respondent
alleges that the deed of conveyance was forged.

Issue: Which of the two conveyances by Justa Kausapin,
the first in favor of Maxima Hemedes and the second in
favor of Enrique D. Hemedes, effectively transferred
ownership over the subject land?

Held: The conveyance in favor of Maxima Hemedes.

Ratio:
Public respondent's finding that the "Deed of Conveyance
of Unregistered Real Property By Reversion" executed by
Justa Kausapin in favor of Maxima Hemedes is spurious
is not supported by the factual findings in this case. It is
grounded upon the mere denial of the same by Justa
Kausapin.
Although a comparison of Justa Kausapin's thumbmark
with the thumbmark affixed upon the deed of conveyance
would have easily cleared any doubts as to whether or
not the deed was forged, comparison was not made,
however. It is a legal presumption that evidence willfully
suppressed would be adverse if produced.
Public respondent was in error when it sustained the trial
court's decision to nullify the "Deed of Conveyance of
Unregistered Real Property by Reversion" for failure of
Maxima Hemedes to comply with article 1332 of the Civil
Code, which states:
When one of the parties is unable to read, or if the
contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the
contract must show that the terms thereof have been fully
explained to the former.
Art. 1332 was intended for the protection of a party to a
contract who is at a disadvantage due to his illiteracy,
ignorance, mental weakness or other handicap. This
article contemplates a situation wherein a contract has
been entered into, but the consent of one of the parties is
vitiated by mistake or fraud committed by the other
contracting party. Clearly, article 1332 assumes that the
consent of the contracting party imputing the mistake or
fraud was given, although vitiated, and does not cover a
situation where there is a complete absence of consent.

In this case, Justa disclaims any knowledge of the "Deed
of Conveyance of Unregistered Real Property by
Reversion" in favor of Maxima Hemedes. In fact, she
asserts that it was only during the hearing conducted
before the trial court that she first caught a glimpse of the
deed of conveyance and thus, she could not have
possibly affixed her thumbmark thereto. It is private
respondents' own allegations which render article 1332
inapplicable for it is useless to determine whether or not
Justa was induced to execute said deed of conveyance
by means of fraud employed by Maxima, who allegedly
took advantage of the fact that the former could not
understand English, when Justa denies even having seen
the document before the present case was initiated in
1981.


KATIPUNAN VS. KATIPUNAN

Miguel Katipunan, Inocencion Valdez, Edgardo Balguma and Leopoldo Balguma Jr., petitioners, vs. Braulio Katipunan Jr.,
respondent
Ponente: Sandoval-Gutierrez, J.

Legal Doctrine: A contract where one of the parties is
incapable of giving consent or where consent is vitiated
by mistake, fraud or intimidation is not void ab initio but
only voidable and is binding until annulled. The effect is to
restore the parties to their original positions however
under Article 1339, incapacitated person is not obliged to
make restitution except when he has been benefited by
the things or price received by him.

Facts:
Braulio Katipunan, respondent, owns a 203 square meter
lot and a five door apartment in 385-F Matienza St., San
Miguel, Manila. On December 29, 1985, his brother
entered into a Deed of Absolute Sale for the subject
property with the brothers Balguma (co-petitioners)
represented by Atty. Leopoldo Balguma for P187,000.
Respondent filed for annulment of the Deed of Absolute
sale claiming that:
x his brother convince him to work abroad
x petitioners through insidious words and
machinations made him sign a document which
he believed was a contract of employment but
turned to be the Deed of Absolute Sale.
x He did not receive the payment stipulated in the
contract
Petitioners denied the allegations and claiming that:
x Respondent was instigated by his sister to file
the case
x Amicable settlement has been reached
TC: Respondent failed to prove his causes of action
CA: Reversed

Issue: WON the deed of absolute sale was valid

Held: No. it is voidable. (see doctrine)

Ratio:
Incapable of giving consent
Respondent is slow in comprehension and has very low
IQ. He reached only Grade 3, illiterate and cannot read.
He has mental age of a six-year old child.
It is impossible for the respondent to understand the
contract which is written in English embellished with legal
jargon and there is no showing that its nature and
contents were explained to him.
Article 1332: When one of the parties is unable
to read, or if the contract is in a language not
understood by him, and mistake or fraud is
alleged, the person enforcing the contract must
show that the terms thereof have been fully
explained to the former.

Consent was vitiated
Respondents consent was vitiated by undue influence of
his brother:
x It was his brother who negotiated with Atty.
Balguma
x He was told that if he will not sign, something will
happen.
x Threat: He was shoved aside by Inocencio
He did not receive the purchase price and that his brother
only gave him small amount of money (barya-barya) and
that amount is grossly disproportionate to the value of his
property. It is most probable that it was his brother who
wanted to go abroad and needed the money.


A. Consent (Vices of Consent: Violence and Intimidation)

MARTINEZ VS. HSBC

Ponente: Moreland, J.

Legal Doctrine: For duress to be a ground in rendering a
contract voidable, the fact that the one who signed the
contract was rendered to have been deprived of proper
judgment (as to time, advice, and favorability) should be
proven.

Facts:
Macleod was a former managing partner of Aldecoa &
Co. to which he resigned after when the said company
went into liquidation. HSBC was one of the companys
creditors. In a civil suit filed by the bank, it alleged that a
certain undertaking in favor of Aldecoa had been
hypothecated to the bank has been transferred to
Martinez.
Aldecoa then filed civil and criminal actions against
Macleod for the latters mismanagement and
encumbrance of shares of stock from the former.
Aldecoa then went to Macao where the extradition treaty
between US and Portugal was not covered. After which
Martinez, through her counsel commenced an action for
negotiation with Aldecoa. Aldecoa and HSBC were
insisting that a portion of Martinezs property be included
in the compromise.
The lawyers then came to an agreement in the
negotiation that would abrogate the civil and criminal
charges against the spouses. It was alleged that the
lawyers of Aldecoa gave the proposition to the effect that
if Martinez would not succumb, she and her husband
would face greater consequences.
Martinezs lawyer then drafted the Contract of Settlement
which he also signed in behalf of Martinez. The charges
were then dispensed and Macleod who was hiding in
Macao came back to the Philippines. The Malate property
which Martinez previously declined to be included in the
settlement was then surveyed.

Issue: W/N the issued Contract of Settlement was
entered into by Martinez under duress therefore rendering
it voidable?

Held/ Ratio:
NO. The elements of duress were not present in the case
at bar. Not all contracts made by a wife relieving her
husband from the consequences of his crimes are
voidable. The question to be answered thus is, was she
acting according to the dictates of her own judgment,
whether good or bad, or from fear, force, or undue
influence? From the facts of the case, it could be seen
that Martinez was acting in line with her judgment
considering that:
1. The negotiation was commenced by her party
2. At no time during the negotiation had there been
any direct personal relations or communications
between the parties
3. The negotiations and settlement in question was
engaged partly at least in the settlement of her
own suits and controversies (The 45,000 that
Macleod transferred to her)
4. Martinez was always accompanied by her
counsel and/or relatives during the negotiation
5. She took advantage of the Settlement Contract
after its execution when she required the
fulfillment of the provisions stipulated therein in
favor of herself


A. Consent (Vices of Consent: Fraud or Dolo)

HILL VS. VELOSO
L.L. Hill, plaintiff-apellant, vs. Maximina Ch. Veloso, et al., defendants-appellees
Ponente: Arellano, C.J.

Legal Doctrine: For fraud to be accepted as a ground for
annulment of a contract, (a) it should be proved that the
other party is not aware of the purpose whatsoever of the
contract, (b) that the fraud be done by the active or the
passive subjects of the obligation, and (c) that it is clearly
proven that the obligation is not due to the one alleging
fraud thereof.

Facts:
On Dec. 30, 1910, Maximina Ch. Veloso, with the consent
of her husband Manuel M. Tio Cuana, and Domingo
Franco executed a promissory note in favor of Michael
and Co. which stated that they would pay the amount of
PHP 6, 319.33 with an interest of 1.5% per month to any
balance remaining unpaid. The obligation would be paid
in a monthly installment of PHP 500.00, failure of such
promise that would lead to a suit was said to be paid by
the debtor jointly and severally including the attys fees.
The note was then indorsed to L.L.Hill.
Upon failure to pay the balance of PHP 4, 319.33 of the
said obligation, and Franco being dead, Hill brought this
action against Veloso for the payment of the balance.
Veloso then used the special defense of fraud, saying that
Franco, his son-in-law induced him to sign a blank note
for an obligation that was due to Levering, the guardian of
the heirs of her former creditor, Damasa Ricablanca and
therefore she had no obligation to pay to Michael and Co.

Issue: W/N Veloso can be absolved in the obligation
stated in the promissory note by her special defense of
fraud.

Held/Ratio:
NO. As to her contention that:
1. She was made to believe that the purpose of the
blank note she signed was for her obligation to
Levering.
As the defendant alleged that there was fraud,
she was obliged to prove the same. Upon cross-
examination, she testified that she signed the
blank note for it really was for a debt. As in 1911,
Levering commenced an action against her for a
payment of the debt, which she refused to
acknowledged, saying that her obligation is on
Ricablanca alone and not upon her heirs it could
not be that as stated by the respondent, she
acknowledged the said debt. This contradiction
thus refuted her contention that she signed the
promissory note in favor of Levering.
2. She was induced by Domingo Franco in signing
the erred document.
"There is deceit when by words or insidious
machinations on the part of one of the
contracting parties, the other is induced to
execute a contract which without them he would
not have made." (Civ. Code, art. 1269.) The law
refers to the active and passive subjects of the
contracts. In the case at bar, the parties are
Michael and Co. (active) and Veloso and Franco
(passive). Being co-signatories, they are
considered as pne party in the said case.
Therefore, fraud as induced by a third person
could not be accepted as a defense in the case
at bar.

As to the true cause of the contract:
There was not enough adduced evidence that Veloso had
not obligation to pay Miachael and Co. Being the owner of
La Cooperativa Filipina, regardless whether Domingo had
a share in the company or otherwise, it is her
responsibility to pay the amount due being that it was
unrebutted that the aforesaid company received goods
from Micahel and Co.

Dispositive: Decision appealed from is reversed. Veloso
is ordered to pay the balance of the principal and its

interests together with the attys fees to Hill. However, the

interest of PHP 473.18 as stipulated in the promissory
note cannt be recovered for as CC 1110, a receipt of the
creditor of the principal, that contains no stipulation
regarding interest, extinguishes the obligation of the
debtor with regard thereof.

TUASON VS. MARQUEZ
Mariano S. Tuason, plaintiff-appellant, vs. Crisanto Marquez, defendant-appellee

Legal Doctrine: The innocent non-disclosure of a fact
does not affect the formation of the contract or operate to
discharge the parties from their agreement.

Facts:
Crisanto Marquez, owner of the electric light plant of
Lucena, Tayabas (Sucesores del Lucena Electric) gave
an option to Antonio Tuason for the purchase of the plant
for P14, 400, which the latter took advantage of. The
agreement was that Tuason was to pay Marquez P2, 400
within sixty days, and the remaining balance within the
year. The first installment was paid, but the second
installment has not been given.
Nonetheless, Tuason operated the plant (under the
management of the Consolidated Electric Company) for
sixteen months, from March 20, 1921 to July 19, 1922.
On the date last mentioned, the property was sold under
execution by reason of a judgment. The purchaser was
Gregorio Marquez, brother of Crisanto Marquez, who paid
P5, 501.57 for the property.
It appears originally in either 1913 or 1914, a franchise for
35 years was granted the Lucena Electric Company. The
rights of the company passed to Crisanto Marquez at a
sheriffs sale on September 10, 1919. However, due to
inefficiencies, Marquez announced to the Public Utility
Commissioner his intention to give up the franchise. The
same was granted on March 29, 1921.
Meanwhile, Tuason and his outfit were allowed to operate
the plant pursuant to a special license until they have
obtained a new franchise. The new franchise was granted
with certain conditions, which amounted to a renovation of
the entire plant. This gave Tuason an idea of bringing
against Marquez for rescission of the contract. The
plaintiff claims that he should be allowed damages on
account of respondents misrepresentation and fraud
(failure of respondent to inform him that he had already
given up his rights to the franchise), for a total of P37,
400.

Issue: WON the sale may be rescinded on the ground of
misrepresentation and fraud

Held: Contract may not be rescinded

Ratio:
The contract may not be rescinded for the following
reasons:
1. The contract in making mention of the property
of the electric light company merely renewed a
previous inventory of the property. The
franchise, therefore, was not the determining
cause of the purchase. The innocent non-
disclosure of a fact does not affect the formation
of the contract or operate to discharge the
parties from their agreement.

2. The equitable doctrine termed with questionable
propriety estoppel by laches has particular
applicability to the facts at hand. Inexcusable
delay in asserting a right and acquiescence in
existing conditions are a bar to legal action. The
plaintiff operated the plant for 16 months without
question, and he has made his first payment on
the contract without protest.

3. There is no proof of fraud on the part of the
defendant and find the plaintiff is stopped to
press his actions.

RURAL BANK OF STA. MARIA VS. COURT OF APPEALS
Rural Bank of Sta. Maria, Pangasinan, petitioner, vs. The Honorable Court of Appeals, Rosario R. Rayandayan, Carmen R.
Arceno, respondents
Rosario R. Rayandayan and Carmen R. Arceno, petitioners, vs. Court of Appeals, Halsema Inc. and Rural Bank of Sta.
Maria, Pangasinan, Inc., respondents
Ponente: Gonzaga- Reyes, J.

Legal Doctrine: Silence or concealing, by itself, does not
constitute fraud, unless there is a special duty to disclose
certain fact, or unless according to good faith and the
usages of commerce the communication should be made.

Facts:
A parcel of land registered in the name of Manuel Behis
was mortgage by the latter in favor of the bank as security
for loans obtained. Unfortunately, Behis was delinquent in
paying his debts. Thereafter, a Deed of Absolute Sale
with Assumption of Mortgage was executed between
Manuel Behis as vendor and Rayandayan and Arceno as
vendees for the sum of P250, 000. On the same day, the
same parties executed another agreement embodying the
real consideration of the sale of the land in the sum of P2,
400, 000.
Subsequently, Rayandayan and Arceno negotiated with
the principal stockholder of the bank, Engr. Edilberto
Natividad, for the assumption of the indebtedness of
Manuel Behis and the subsequent release of the
mortgage on the property by the bank. However, they did
not present the Agreement with Manuel Behis for the real
consideration of P2, 400, 000 for the sale of the property.
The bank consented to the substitution of plaintiffs as
mortgage debtors in place of Manuel Behis in a
Memorandum of Agreement between private respondents
and the bank with reconstructed and liberalized terms for
the payment of the mortgage debt. Instead of the bank
foreclosing immediately for the non-payment of the
delinquent account, the bank agreed to receive only a
partial payment of P143, 000 by installment. After
payment thereof, the bank agreed to release the
mortgage of Manuel Behis, to give its consent to the
transfer of the title to the private respondents, and to the
payment of the balance of P200, 000 under new terms.
The bank, however, failed to comply with its obligations.
Meanwhile, an Assignment of Mortgage was entered into
between Hanselma and the bank in consideration of the
total indebtedness of Manuel Behis. Because of the non-
compliance with their MOA, Rayandayan and Arceno
instituted an action for specific performance, declaration
of nullity of assignment of mortgage and damages. The
bank argued that its consent to the MOA was secured by
the private respondents through fraud as the bank was
not shown the agreement containing the real
consideration of P2, 400, 000.
Judgment was rendered declaring the MOA as annulled
due to fraud of Rayandayan and Arceno. Upon appeal,
the Court of Appeals reversed said judgment and affirmed
the validity of the MOA between the parties thereto.

Issue: WON the private respondents withholding of
material information from the bank would render their
MOA voidable on the ground that its consent to enter the
agreement was verified by fraud

Held: The Memorandum of Agreement between the bank
and private respondents is valid. The Supreme Court
cannot see how the concealment of the real purchase
price could have induced the bank into giving its consent
to the agreement.


Ratio:
The kind of fraud that will vitiate a contract are those
insidious words or machinations resorted to by one of the
contracting parties to induce the other to enter into a
contract which without them he would not have agreed to.
The fraud must be the determining cause of the contract,
or must have caused the consent to be given.
For all intents and purposes, the bank entered into the
MOA in order to effect the payment on the indebtedness
of Manuel Behis. Moreover, the alleged nullity of the said
agreement was only brought up by the bank after it was
sued.
Pursuant to Article 1339 of the Civil Code, silence or
concealing, by itself, does not constitute fraud, unless
there is a special duty to disclose certain fact, or unless
according to good faith and the usages of commerce the
communication should be made. Private respondents had
no duty, and therefore did not act in bad faith, in failing to
disclose the real consideration of the sale between them
and Manuel Behis.
Finally, not all elements of fraud vitiating consent for
purposes of annulling a contract concur, since the bank
has not sufficiently shown that it was induced by the other
party to enter into the agreement, and that it suffered
damages for entering into such.

AZARRAGA VS. GAY
Leodegario Azarraga, plaintiff-appellee, vs. Maria Gay, defendant-appellant
Ponente: Villamor, J.

Legal Doctrine: The law allows considerable latitude to
seller's statements, or dealer's talk; and experience
teaches that it as exceedingly risky to accept it at its face
value. Assertions concerning the property which is the
subject of a contract of sale, or in regard to its qualities
and characteristics, are the usual and ordinary means
used by sellers to obtain a high price and are always
understood as affording to buyers no grund from omitting
to make inquires. A man who relies upon such an
affirmation made by a person whose interest might so
readily prompt him to exaggerate the value of his property
does so at his peril, and must take the consequences of
his own imprudence.

Facts:
On January 17, 1921 Azarraga sold two parcels of lands
to Gay for the lump sum of P47, 000, payable in
installments. The conditions of the payment were:
x P5, 000 at the time of signing the contract
x P20, 000 upon delivery by the vendor to the
purchaser of the Torrens title to the first parcel
described in the deed of sale;
x P10, 000 upon delivery by the vendor to the
purchaser of Torrens title to the second parcel;
x P12, 000 one year after the delivery of the
Torrens title to the second parcel.
Gay paid P5, 000 to the vendor when the contract was
signed. Azarraga delivered the Torrens title to the first
parcel to Gay who paid him P20, 000.
In the month of March 1921, Torrens title to the second
parcel was issued and delivered by Azarraga to Gay who
failed to pay the P10,000 as agreed, neither did she pay
the remaining P12, 000 one year after having received
the Torrens title to the second parcel.
Azarraga claims the sum of P22, 000, with legal interest
from the month of April 1921 on the sum of P10, 000, and
from April 1922 on the sum of P12, 000, until full payment
of the amounts claimed.
Gay admitted she purchased the two parcels of land
referred to by plaintiff but alleges:
(a) That the Azarraga knowing that the second
parcels of land he sold had an area of 60
hectares, by misrepresentation lead the
defendant to believe that said second parcel
contained 98 hectares, and thus made it appear
in the deed of sale and induced the vendee to
bind herself to pay the price of P47,000 for the
two parcels of land, which he represented

contained an area of no less than 200 hectares,

to which price the defendant would not have
bound herself had she known that the real area
of the second parcel was 60 hectares, and,
consequently, she is entitled to a reduction in the
price of the two parcels in proportion to the area
lacking, that is, that the price be reduced to
P38,000;
(b) that she, in addition to the amounts
acknowledged by Azarraga, had paid other sums
amounting to P4,000;
(c) that she never refused to pay the justly
reduced price, but Azarraga refused to receive
the just amount of the debt.
Azarraga alleges that the contract of sale in question was
made only for the lump sum of P47, 000, and not at the
rate of so much per hectare, and that the Gays claim for
alleged damages has prescribed.

Issue: WON Azarraga employed deceit in order to sell
the lots to Gay.

Held: No, there was no fraud on the part of Azarraga.

Ratio:
Gay went over Azarragas land and made her own
calculations as to the area of said two parcels.
Azarraga delivered to the defendant the documents
covering the land he was trying to sell. As to the first
parcel there is no question whatever and the defendant's
contention is limited solely to the actual area of the
second parcel. Gay had document in her possession
which is the deed by which the Azarraga acquired the
land from the original owner, Crispulo Beramo, in which
document it appears that the area of the second parcel is
about 70 hectares.
It was the defendant who intrusted the drawing of the
deed of sale to her attorney and notary, Hontiveros, and it
is to be presumed that both she and the lawyer who drew
the deed of sale, had read the contents of the document
of acquisition by Azarraga from Beramo.
Azarraga declares that he signed the document between
5 and 7 in the afternoon of that day and he did not pay
any attention to the area of the second parcel, probably in
the belief that in the drawing of the document the data
concerning the area of the land had been taken from the
document of acquisition (from Beramo to Azarraga).
Gay testified that she received from the plaintiff a note or
piece of paper containing the data to be inserted in the
Deed of Sale. The Azarraga denies this and said note or
piece of paper was not presented at the trial. We are of
opinion that this testimony of the Gay's is unimportant,
because, in reality, if the plaintiff had delivered the
document of his acquisition to Gay, there was no need to
deliver to her another note to indicate the area of the
second which already appeared in the said document.
There is no evidence of record that the plaintiff made
representation to the defendant as to the area of said
second parcel, and even if he did make such false
representations as are now imputed to him by the
defendant, the latter accepted such representations at her
own risk and she is the only one responsible for the
consequences of her inexcusable credulousness.
The law allows considerable latitude to seller's
statements, or dealer's talk; and experience teaches that
it as exceedingly risky to accept it at its face value.
Assertions concerning the property which is the subject of
a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used by
sellers to obtain a high price and are always understood
as affording to buyers no ground from omitting to make
inquires. A man who relies upon such an affirmation
made by a person whose interest might so readily prompt
him to exaggerate the value of his property does so at his
peril, and must take the consequences of his own
imprudence.
Gay was free to investigate about the land and Azarraga
did not do anything to prevent her from doing so, thus, it
was her fault.


TRINIDAD VS. IAC

Laureta Trinidad, petitioner, vs. Intermediate Appellate Court and Vicente J. Francisco, respondents
Ponente: Cruz, J.

Legal Doctrine: Fraud is never lightly inferred; it is good
faith that is. Under the Rules of Court, it is presumed that
"a person is innocent of crime or wrong" and that "private
transactions have been fair and regular." While
disputable, these presumptions can be overcome only by
clear and preponderant evidence.
One who contracts for the purchase of real estate in
reliance on the representations and statements of the
vendor as to its character and value, but after he has
visited and examined it for himself and has had the
means and opportunity of verifying such statements,
cannot avoid the contract on the ground that they were
false and exaggerated.

Facts:
Trinidad bought a house from Francisco. Purchase price
was P70, 000.00 with a down payment of P17, 500.00.
The balance was to be paid in five equal annual
installments not later than July 1 of each year at 12%
interest per annum.
On March 29, 1969, Trinidad paid Francisco P5, 000.00
as earnest money and entered into the possession of the
house.
Trinidad heard from her new neighbors that two buyers
had previously vacated the property because it was
subject to flooding.
Trinidad talked to Francisco about this matter and that he
told her everything had been fixed and the house would
never be flooded again.
Assured, she gave him P12, 500.00 to complete the down
payment. They signed the Contract of Conditional Sale on
August 8, 1969.
Trinidad paid installments. However, she eventually
decided not to continue paying the amortizations because
the house was flooded again on July 18, 21, and 30,
1972, the waters rising to as high as five feet on July 21.
Trinidad requested an inspection of the subject premises
to determine the cause of the flooding. The finding of City
Engineer Pantaleon P. Tabora was that "the lot is low and
is a narrowed portion of the creek."
On January 10, 1973, the petitioner filed her complaint
against Francisco alleging that she was induced to enter
into the contract of sale because of his
misrepresentations. She asked that the agreement be
annulled and her payments refunded to her, together with
the actual expenses she had incurred for the "annexes
and decorations" she had made on the house.
Trial Court ruled in favor of Trinidad, (Sergio Apostol yung
Judge). Both parties appealed. CA reversed judgment in
favor of Francisco.

Issue: WON, there was misrepresentation on the part of
Francisco to justify the rescission of the sale and the
award damages to the petitioner.

Held: There was no fraudulent act on the part of
Francisco.

Ratio:
Relevant CC provisions
Art. 1338. There is fraud when, through insidious
words or machinations of one of the contracting
parties, the other is induced to enter into a
contract which, without them, he would not have
agreed to.
Art. 1339. Failure to disclose facts, when there is
a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud.
Art. 1340. The usual exaggerations in trade,
when the other party had an opportunity to know
the facts, are not in themselves fraudulent.
1) it was the petitioner who admittedly approached the
private respondent, who never advertised the property nor
offered it for sale to her.

2) the petitioner had full opportunity to inspect the

premises, including the drainage canals indicated in the
vicinity map that was furnished her, before she entered
into the contract of conditional sale.
3) it is assumed that she made her appraisal of the
property not with the untrained eye of the ordinary
prospective buyer but with the experience and even
expertise of the licensed real estate broker that she was.
If she minimized the presence of the drainage canals, she
has only her own negligence to blame.
4) seeing that the lot was depressed and there was a
drainage lot abutting it, she cannot say she was not
forewarned of the possibility that the place might be
flooded. Notwithstanding the obvious condition of the
property, she still decided to buy it.
5) there is no evidence except her own testimony that two
previous owners of the property had vacated it because of
the floods and that Francisco assured her that the house
would not be flooded again. The supposed previous
owners were not presented as witnesses and neither
were the neighbors. Francisco himself denied having
made the alleged assurance.
6) the petitioner paid the 1970 and 1971 amortizations
even if, according to her Complaint, "since 1969 said lot
had been under floods of about one (1) foot deep," and
despite the floods of September and November 1970.
7) it is also curious that notwithstanding the said floods,
the petitioner still "made annexes and decorations on the
house," all of a permanent nature, for which she now
claims reimbursement from the private respondent.
In sum, it has not been satisfactorily established that
Francisco inveigled the petitioner through false
representation to buy the subject property. Assuming that
he did make such representations, Trinidad is deemed to
have accepted them at her own risk and must therefore
be responsible for the consequences of her careless
credulousness.

SONGCO VS. SELLNER
Lamberto Songco, plaintiff-appellee, vs. George C. Sellner, defendant-appellant
Ponente: Street, J.

Legal Doctrine: A misinterpretation upon a mere matter
of opinion is not an actionable deceit, nor is it a sufficient
ground for avoiding a contract as fraudulent. For a false
representation relating to the subject matter of a contract
be rendered void, it must be as to matters of fact
substantially affecting the buyer's interest, not as to
matters of opinion, judgment, probability, or expectation.

Facts:
Dec. 1915 George Sellner and Lamberto Songco
owned adjoining farms.
Sellner desired to mill his cane at a central. However, the
owners of the central were not sure they could mill his
cane and would not promise to take it.
Sellner, learning that the central was going to mill
Songco's cane, conceived the idea of buying the cane of
the latter, expecting to run his own cane in that same time
the other should be milled. Also, he wanted to get a right
of way over Songco's land for converting his own sugar to
the central.
He bought Songco's cane as it stood in the fields for the
agreed sum of P12,000 and executed three promissory
notes of P4,000 each. Only the first 2 notes were paid.
Sellner refused to pay the third, alleging that promissory
note was obtained from him by means of certain false and
fraudulent representations.
Songco estimated that the uncut cane would produce
3,000 piculs of the sugar and that Sellner bought the crop
believing this estimate to be substantially correct. As the
crop turned out, it produced 2,017 piculs, gross, and after
the toll for milling was deducted the net left to Sellner was
very much less. In the course of negotiations, Sellner
requested Songco to guarantee the quantity which the
latter claimed to be in fields but he would not do so.


Issue: W/N Sellner is liable for the remaining promissory

note.

Held: YES.

Ratio:
Songco knew at the time he made the representation in
question that he was greatly exaggerating the probable
produce of his fields, and it is impossible to believe that
his estimate honestly reflected his true opinion.
The representation in question can only be considered
matter of opinion as the cane was still standing in the
field, and the quantity of the sugar it would produce could
not be known with certainty until it should be harvested
and milled.
A misinterpretation upon a mere matter of opinion is not
an actionable deceit, nor is it a sufficient ground for
avoiding a contract as fraudulent.
The law allows considerable latitude to seller's
statements, or dealer's talk; and experience teaches that
it is exceedingly risky to accept it at its face value. The
refusal of the seller to warrant his estimate should have
admonished the purchaser that that estimate was put
forth as a mere opinion
Assertions concerning the property which is the subject of
a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used by
sellers to obtain a high price and are always understood
as affording to buyers no ground for omitting to make
inquiries. A man who relies upon such an affirmation
made by a person whose interest might so readily prompt
him to exaggerate the value of his property does so at his
peril, and must take the consequences of his own
imprudence.
For a false representation relating to the subject matter of
a contract be rendered void, it must be as to matters of
fact substantially affecting the buyer's interest, not as to
matters of opinion, judgment, probability, or expectation.
Where one party to a contract, having special or expert
knowledge, takes advantage of the ignorance of another
to impose upon him, the false representation may afford
ground for relief, though otherwise the injured party would
be bound. The fact that Songco was an experienced
farmer, while Sellner was, as he claims, a mere novice in
the business, does not bring this case within that
exception.

A. Consent (Vices of Consent: Misrepresentation)
MERCADO AND MERCADO VS. ESPIRITU

Ponente: Torres, J.

Legal Doctrine: The sale of real estate, effected by
minors who have already passed the ages of puberty and
adolescence and are near the adult age when they
pretend to have already reached their majority, while in
fact they have not, is valid, and they cannot be permitted
afterwards to excuse themselves from compliance with
the obligation assumed by them or to seek their
annulment.

Facts:
May 25, 1894 Margarita Espiritu, the mother of the
plaintiffs (Domingo and Josefa), sold to Luis Espiritu, her
brother, a portion of her land for P2,000 which she
acquired from her father, Lucas Espiritu.
May 17, 1910 The plaintiffs, alleging themselves to be
of legal age, executed, with their sisters Maria del
Consejo and Maria de la Paz, the notarial instrument
ratifying said sale under pacto de retro of the land that
had belonged to their mother Margarita Espiritu, effected
by their father Wenceslao Mercado in favor of Luis

Espiritu for the sum of P2,600, they sold absolutely and

perpetually to said Luis Espiritu.
Plaintiffs alleged that at the time of the execution of the
deed of sale the plaintiffs were still minors, and that since
they reached their majority the four years fixed by law for
the annulment of said contract had not yet elapsed.
Wenceslao kept a personal journal which states that the
plaintiffs were indeed minors upon the sale of the land in
1894 (Domingo was 19 years old while Josefa was 18).

Issue: W/N the sale was valid.
Held: YES.

Ratio:
The plaintiffs are guilty of active misrepresentation.
The sale of real estate, effected by minors who have
already passed the ages of puberty and adolescence and
are near the adult age when they pretend to have already
reached their majority, while in fact they have not, is valid,
and they cannot be permitted afterwards to excuse
themselves from compliance with the obligation assumed
by them or to seek their annulment.

A. Consent (Vices of Consent: Simulation of Contracts)
RODRIGUEZ VS. RODRIGUEZ
Concepcion Felix Vda. De Rodriguez, plaintiff-appellant, vs. Geronimo Rodriguez., et al., defendants-appellees

Legal Doctrine: The characteristic of simulation is the
fact that the apparent contract is not really desired or
intended to produce legal effects or in way alter the
juridical situation of the parties. Thus, where a person, in
order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not
really intend to divest himself of his title and control of the
property.

Facts:
Concepcion Felix, widow of the late Don Felipe Calderon
and with whom she had one living child, Concepcion
Calderon, contracted a second marriage with Domingo
Rodriguez, widower with four children by a previous
marriage, named Geronimo, Esmeragdo, Jose and
Mauricio, all surnamed Rodriguez.
Concepcion Felix appeared to have executed a deed of
sale conveying ownership of the 2 fishponds to her
daughter, Concepcion Calderon, which the latter in turn
appeared to have transferred to her mother and
stepfather by means of a document dated January 27,
1934.
In 1953, Domingo Rodriguez died intestate, survived by
the widow, Concepcion Felix, his children Geronimo
Esmeragdo and Mauricio and grandchildren. Concepcion
Vda. De Rodriguez, children and grandchildren of the
deceased entered into an extra-judicial settlement of his
(Domingo's) estate, consisting of one-half of the
properties allegedly belonging to the conjugal partnership.
Children and grandchildren of Domingo Rodriguez,
executed a power of attorney naming Concepcion Felix
Vda. de Rodriguez as their attorney in-fact and
authorizing her to manage their shares in the fishponds.
On July 2, 1954, the heirs ended their co-ownership by
executing a deed of partition, dividing and segregating
their respective shares in the properties.
On October 12, 1954, the Rodriguez children executed
another document granting unto the widow lifetime
usufruct over one-third of the fishpond which they
received as hereditary share in the estate of Domingo
Rodriguez, which grant was accepted by Concepcion
Felix Vda. de Rodriguez.
Then, in a contract dated December 15, 1961, the widow
appeared to have leased from the Rodriguez children and
grandchildren the fishpond for a period of 5 years
commencing August 16, 1962. When she failed to deliver

to them the balance of the earnings of the fishponds, in

the amount of P3,000.00, her stepchildren endorsed the
matter to their lawyer who, on May 16, 1962, sent a letter
of demand to the widow for payment thereof.
On, May 28, 1962, Concepcion Felix Vda. de Rodriguez
filed the present action in the Court of First Instance of
Manila against the children and grandchildren of the late
Domingo Rodriguez.
The action to declare null and void the deeds of transfer
of plaintiff's properties to the conjugal partnership was
based on the alleged employment or exercise by plaintiff's
deceased husband of force and pressure on her; that the
conveyances of the properties from plaintiff to her
daughter and then to the conjugal partnership of plaintiff
and her husband are both without consideration; that
plaintiff participated in the extrajudicial settlement of
estate (of the deceased Domingo Rodriguez) and in other
subsequent deeds or instruments involving the properties
in dispute, on the false assumption that the said
properties had become conjugal by reason of the
execution of the deeds of transfer in 1934; that laboring
under the same false assumption, plaintiff delivered to
defendants, as income of the properties from 1956 to
1961, the total amount of P56,976.58. As alternative
cause of action, she contended that she would claim for
her share, as surviving widow, of 1/5 of the properties in
controversy, should such properties be adjudged as
belonging to the conjugal partnership. Thus, plaintiff
prayed that the deeds of transfer mentioned in the
complaint be declared fictitious and simulated.
In their separate answers, defendants not only denied the
material allegations of the complaint, but also set up as
affirmative defenses lack of cause of action, prescription,
estoppel and laches. They also asked for payment by the
plaintiff of the unpaid balance of the earnings of the land
plus attorney's fees and expenses of litigation.
On October 5, 1963, judgment was rendered upholding
the validity of the contracts. The court found that although
the two documents were executed for the purpose of
converting plaintiff's separate properties into conjugal
assets of the marriage with Domingo Rodriguez, the
consent of the parties thereto was voluntary.
From the decision of the Court of First Instance, plaintiff
duly appealed to this Court.

Issue: WON the conveyances in issue were obtained
through duress, and were inexistent, being simulated and
without consideration
Held: No, the conveyances were not obtained through
duress. They were not simulated.

Ratio:
We agree with the trial Court that the evidence is not
convincing that the contracts of transfer from Concepcion
Felix to her daughter, and from the latter to her mother
and stepfather were executed through violence or
intimidation. The charge is predicated solely upon the
improbable and biased testimony of appellant's daughter,
Concepcion C. Martelino, whom the trial court, refused to
believe, considering that her version of violence and
harassment was contradicted by Bartolome Gualberto
who had lived with the Rodriguez spouses from 1917 to
1953, and by the improbability of Rodriguez threatening
his stepdaughter in front of the Notary Public who ratified
her signature. This cause of action is also barred.
Appellant's main stand in attacking the conveyances in
question is that they are simulated or fictitious, and
inexistent for lack of consideration. The charge of
simulation is untenable, for the characteristic of simulation
is the fact that the apparent contract is not really desired
or intended to produce legal effects or in way alter the
juridical situation of the parties. Thus, where a person, in
order to place his property beyond the reach of his
creditors, simulates a transfer of it to another, he does not
really intend to divest himself of his title and control of the
property; hence, the deed of transfer is but a sham. But
appellant contends that the sale by her to her daughter,
and the subsequent sale by the latter to appellant and her
husband, the late Domingo Rodriguez, were done for the
purpose of converting the property from paraphernal to
conjugal, thereby vesting a half interest in Rodriguez, and
evading the prohibition against donations from one
spouse to another during. If this is true, then the appellant
and her daughter must have intended the two
conveyances to be real and effective; for appellant could
not intend to keep the ownership of the fishponds and at
the same time vest half of them in her husband. The two
contracts of sale then could not have been simulated, but
were real and intended to be fully operative, being the
means to achieve the result desired.
Nor does the intention of the parties to circumvent by
these contracts the law against donations between
spouses make them simulated ones.
Were the two conveyances from appellant to her daughter
and from the latter to the spouses Rodriguez void ab initio
or inexistent for lack of consideration? We do not find
them to be so.

In onerous contracts the cause is understood to be, for

each contracting party, the prestation or promise of a
thing or service by the other. Since in each conveyance
the buyer became obligated to pay a definite price in
money, such undertaking constituted in themselves actual
causa or consideration for the conveyance of the
fishponds.
Finally, it cannot be denied that plaintiff-appellant had
knowledge of the nullity of the contract for the transfer of
her properties in 1934, because she was even a party
thereto. And yet, her present action was filed only on May
28, 1962 and after the breaking up of friendly relations
between her and defendants-appellees. Appellant's
inaction to enforce her right, for 28 years, cannot be
justified by the lame excuse that she assumed that the
transfer was valid. Knowledge of the effect of that
transaction would have been obtained by the exercise of
diligence. Ignorance which is the effect of inexcusable
negligence, it has been said, is no excuse for laches. In
the circumstances, appellant's cause has become a stale
demand and her conduct placed her in estoppel to
question the Validity of the transfer of her properties.

SUNTAY VS. CA
Rafael G. Suntay, substituted by his heirs, namely: Rosario, Rafael, Jr., Apolinario, Raymund, Maria Victoria, Maria Rosario
and Maria Lourdes, All Surnamed Suntay, petitioners, vs. The Hon. Court of Appeals and Federico C. Suntay, respondents

Legal Doctrine: Parties having entered into a sale
transaction to which they did not intend to be legally
bound is said to have executed a simulated and fictitious
deed of sale; hence, it is null and void.

Facts:
Respondent Federico Suntay was the registered owner of
a parcel of land situated in Sto. Nio, Hagonoy, Bulacan.
A rice miller, Federico, applied as a miller-contractor of
the then National Rice and Corn Corporation (NARIC).
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 the delivery of the same parcel of land with
all its existing structures back to Federico for the same
consideration of P20,000.00. The second deed of sale
was not however notarized.
Upon the execution and registration of the first deed,
Transfer Certificate of Title (TCT) No. T-36714 was
issued in the name of Rafael. Rafael became the titled
owner of said land and rice mill but he never made any
attempt to take possession thereof at any time. Federico
remained in possession of the property sold and
continued to exercise rights of absolute ownership over
the property.
In 1969, Federico, through his new counsel, Agrava &
Agrava, requested that Rafael deliver his copy of TCT No.
T-36714 so that Federico could have the counter deed of
sale in his favor registered in his name. Rafael refused
and so Agrava & Agrava filed a petition with the Court of
First Instance of Bulacan asking Rafael to surrender his
owner's duplicate TCT certificate. In opposition thereto,
Rafael chronicled the discrepancy in the notarization of
the second deed of sale upon which said petition was
premised and ultimately concluded that said deed was a
counterfeit or "at least not a public document which is
sufficient to transfer real rights according to law." In 1970,
Federico filed a complaint for reconveyance and damages
against Rafael.
Rafael, in his answer, insisted that the said property was
absolutely sold and conveyed for a consideration of
P20,000 and that the plaintiff is now estopped for
questioning the validity and due execution of the Deed of
Absolute Sale
Trial Court upheld the validity and genuineness of the first
deed of sale executed by Federico in favor of Rafael, and
ruled that the counter-deed executed by Rafael in favor of

Federico was simulated and without consideration ,

hence, null and void ab initio. CA affirmed. But upon
motion for consideration CA reversed itself and ruled that
the parties meant in the first sale to be a mere
accommodation arrangement without any consideration
and therefore simulated contract of sale considering of
the ff: 1. Two (2) instruments were executed closely one
after 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 value
and location of the property purportedly sold, which
project in bold relief the gross inadequacy of the stated
contractual consideration therefor.

Issue: WON the deed of sale executed by Federico in
favor of Rafael was simulated and without consideration?

Held/Ratio:
Yes it is simulated and without consideration.
The late Rafael Suntay and private respondent Federico
Suntay were relatives, undisputedly, whose blood relation
was the foundation of their professional and business
relationship. The late Rafael testified that he had
completely trusted Federico and so he signed and
delivered the counter-deed of sale even without prior
payment of the alleged repurchase price of P20, 000.00.
Federico had such faith and confidence in the late Rafael,
as nephew and counsel, that he blindly signed and
executed the sale in question. He had entrusted to Rafael
many of his business documents and personal papers,
the return of which he did not demand even upon
termination of their professional relationship. It was
precisely because of this relationship that Federico
consented to what he alleged as a loan of title over his
land and rice mill in favor of the late Rafael. We are all too
familiar with the practice in the typical Filipino family
where the patriarch with the capital and business standing
takes into his fold the young, upcoming, inexperienced
but brilliant and brashly ambitious son, nephew or
godchild who, in turn, becomes to his father, uncle, or
godparent, the jack of all trades, trouble shooter and most
trusted liaison officer cum adviser. He wittingly serves his
patron without the security of a formal contract and
without clarifying the matter of compensation.
The history and relationship of trust, interdependence and
intimacy between the late Rafael and Federico is an
unmistakable token of simulation. It has been observed
that fraud is generally accompanied by trust. Hardly is it
inconsistent with practical experience, especially in the
context of the Filipino family's way of life, that Federico,
the uncle, would almost naively lend his land title to his
nephew and agree to its cancellation in his nephew's
favor because Federico, in the first place, trusted his
nephew; was well aware of his power over him as uncle,
client, and patron; and was actually in possession of the
land and rice mill. No one could even conceive of the
possibility of ejecting Federico therefrom on the basis of
the sham transaction. The late Rafael never attempted to
physically dispossess his uncle or actually take over the
rice mill during his lifetime.
Indeed the most protuberant index of simulation is the
complete absence of an attempt in any manner on the
part of the late Rafael to assert his rights of ownership
over the land and rice mill in question. All that the late
Rafael had was a title in his name.
Neither does the undisputed fact that the deed of sale
executed by Federico in favor of the late Rafael, is a
notarized document, justify the conclusion that said sale
is undoubtedly a true conveyance to which the parties
thereto are irrevocably and undeniably bound. The
cumulative effect of the evidence on record as chronicled
aforesaid identified badges of simulation proving that the
sale by Federico to his deceased nephew of his land and
rice mill, was not intended to have any legal effect
between them. Though the notarization of the deed of
sale in question vests in its favor the presumption of
regularity, it is not the intention nor the function of the
notary public to validate and make binding an instrument
never, in the first place, intended to have any binding
legal effect upon the parties thereto. The intention of the
parties still and always is the primary consideration in
determining the true nature of a contract.

BLANCO VS. QUASHA
J.R. Blanco, as the administrator of the intestate estate of Mary Ruth C. Elizaldo, petitioners, vs. William H. Quasha, Cirilo
Asperilla, Jr., Sylvia E. Marcos, Delfin A. Manuel, Jr., Cirilo E. Doronila and Parex Realty Corporation, respondents

Legal Doctrine: In order to find out a WON a contract is

simulated one has to look at the intent of the parties and
find out if the parties intended to be bound by the
contract.

Facts:
Mary Ruth Elizalde, an American, owned a house and lot
in Forbes Park under TCT No. 106110. On 5/22/75, she
sold the said property to Parex Realty for PHP 625,000
payable in 25 annual installments of PHP 25,000 to end
on May 22, 1999. As a result of the said sale, TCT No. S
6798 was issued to Parex. On the same date, (May 22m,
1975)Parex executed a Contract of Lease with Mary
Elizalde, whereby they leased the same parcel of land to
Elizalde also for PHP 25K. The rental payment shall be
credited to and applied in reduction of the agree yearly
instalments of the purchase price of the property.
By virtue of the sale the previous TCT (106110) was
cancelled and a new one (TCT 6798) was issued in the
name of Parex Corp on May, 27, 1975.
Oct 17, 1975 M.R. Elizalde executed a Confirmation &
Ratification of the Deed of Sale executed on her behalf by
her atty-in-fact, Don Manuel Elizalde.
But until her death, Mr. Elizalde still paid the Forbes Park
Assoc dues and garbages fees; the realty tax on the
property during the term of the lease pursuant to the
Contract of Lease.
On March 26, 1990, Elizalde passed away. Herein
petitioner Blanco, the special administrator of the estate
of Elizalde, demanded the reconveyance of the title to the
estate of Elizalde or the assignment of all shares of Parex
to Elizaldes estate. Blanco claims that the aforesaid sale
of the property by Elizalde to Parex was absolutely
simulated and fictitious and thus null and void.

Issue/Held/ Ratio:
WON the sale executed by M.R. Elizalde in favor of Parex
Realty Corp. is fictitious and simulated. NO
In order to find out a WON a contract is simulated one
has to look at the intent of the parties and find out if the
parties intended to be bound by the contract. (This is a
question of fact, not of law and therefore not properly
discussed by the SC. SC affirmed the findings of the CA.)
The deed of sale in May 22, 1975 was properly executed
in accordance to CC 1498. The transfer of the ownership
(done by Elizalde thru her atty-in-fact knowing that she
cannot own real property) was implemented by the
cancellation of Elizaldes TCT and the issuance of a new
one in the name of Parex under TCT No. S6798.
There was also an obligation on both parties to pay a
price certain for the property. There was no actual
exchange of money made but the payment was effected
between the vendee and the vendor by mutual
arrangement where the monthly rentals which was due
Elizalde was paid from the annual installment due from
Parex pursuant to the lease contract execute between
them. The SC finds that there is nothing in this mutual
arrangement that is contrary to law, morals, good
customs, public order or public policy (CC 1306)
Elizalde, it must be stressed, never contested the sale of
her property and even went on to confirm and ratify the
same in an instrument acknowledged before a notary
public.
Elizalde, likewise, never questioned the cancellation of
her TCT and the issuance of the new one in favor of
Parex. While she may have continued paying the real
estate taxes, this was stipulated in the Contract of Lease.
The preponderance of evidence clearly indicates that the
deed of sale executed by Elizalde in favor of Parex is
valid and binding. While it may be true that Elizalde did
not receive any monetary amount. Her continued
occupancy of the premises even after she sold it to Parex
constitutes valuable consideration which she received as
compensation for the sale.

Dispositive: CA affirmed. Petition Dismissed.

Notes:
Simulation of a contract may be absolute or relative. Abs
olute simulation takes place when the parties do not
intend to be bound at all. Relative simulation is when the
parties conceal their true agreement.
An absolutely simulated or fictitious contract is void. A rel
ative simulation, when it does not prejudice a third person
and is not intended for any purpose contrary to the law,
morals, good customs, public policy binds the parties to
their real agreement.


B. Object of Contracts
BLAS VS. SANTOS
Maria Gerrvacio Blas, Manuel Gervacio Blas, Leoncio Gervacio Blas and Loda Gervacio Blas, plaintiffs-appellants, vs.
Rosalina Santos, in her capacity as special administratrix of the estate of the deceased Maxima Santos Vda. De Blas, in Sp.
Proc. No. 2524, CFI of Rizal, Marta Gervacio Blas and Dr. Jose Chivi, defendants-appellants

Legal Doctrine: What is prohibited to be the subject
matter of a contract under Article 1271 of the Civil Code is
"future inheritance." Future inheritance, as defined by the
SC, is any property or right not in existence or capable of
determination at the time of the contract, that a person
may in the future acquire by succession.

Facts:
Simeon Blas contracted marriage with Marta Cruz; they
had three children. The following year after the death of
Marta Cruz, Simeon Blas contracted another marriage
with Maxima Santos.
At the time of this second marriage, no liquidation of the
properties required by Simeon Blas and Marta Cruz was
made. Three of the properties left are fishponds located in
Obando, Bulacan. Maxima Santos does not appear to
have apported properties to her marriage with Simeon
Blas.
A week before his death, Simeon Blas executed a last will
and testament. In the said testament, Simeon Blas
declared that one-half of the properties having acquired
during the marriage will be accorded to his wife, pursuant
to the law.
On the other hand, alongside with the will of Simeon,
Maxima Santos declared that one-half of the shares that
she will receive from the conjugal properties will be given
to herein plaintiffs-appellants.
Andres Pascual, a son-in-law of the testator who was
present during the execution of the said document,
averred that said document was made because the
properties that the testator acquired during his first
marriage with Marta Cruz had not been liquidated and
were not separated from those acquired during the
second marriage.

Issues/Held/Ratio:
1. WON the contract is a contract of future
inheritance. NO.
What is prohibited to be the subject matter of a
contract under Article 1271 of the Civil Code is
" future inheritance." Future inheritance, as
defined by the SC, is any property or right not in
existence or capable of determination at the time
of the contract, that a person may in the future
acquire by succession. The properties subject of
the contract in question are well defined
properties, existing at the time of the agreement,
which Simeon Blas declares in his statement as
belonging to his wife as her share in the conjugal
partnership. Certainly his wife's actual share in
the conjugal properties may not be considered
as future inheritance because they were actually
in existence at the time the contract was
executed.

2. WON the document executed by Simeon and
Maxima was in the nature of a compromise to
avoid litigation? YES
Considering that the properties acquired during
the first marriage were not liquidated at the time
Simeon Blas executed the will and the further
fact that such properties actually included in the
conjugal properties of the second marriage, the
court found that the document was prepared to
prevent Simeons heirs by his first marriage from
contesting his will and testament and demanding
liquidation of the conjugal properties acquired
during the first marriage. Thus, the document
falls on the compromise defined in Article 1809
of the Civil Code of Spain which provides,
Compromise is a contract by which each of the
properties in interest, by giving, promising, or
retaining something avoids the provocation of a

suit or terminates one which has already been

instituted.

Notes: Re issue of prescription. The action has not yet
prescribed because the right of action arose at the time of
the death of Maxima Santos on October 5, 1956, when
she failed to comply with the promise made by her in the
contract in question. The plaintiffs-appellants immediately
presented this action on December 27, 1956, upon
learning of such failure on the part of Maxima Santos to
comply with said promise.

Dispositive: Reversed and the defendant-appellee,
administratrix of the estate of Maxima Santos, is ordered
to convey and deliver one-half of the properties
adjudicated to Maxima Santos (as her share in the
conjugal properties) to the heirs and the legatees of her
husband Simeon Blas. Remanded to determine the
participation of each and every one of the heirs and
legatees (of Simeon Blas) in properties in question.

TAEDO VS. CA
Belinda Taedo, for herself and in representation of her brothers and sisters, and Teofila Corpuz Taedo, representing her
minor daughter Verna Taedo, petitioners, vs. The Court of Appeals, spouses Ricardo M. Taedo and Teresita Barera
Taedo, respondents

Facts:
Lazaro Taedo (younger brother of respondent Ricardo,
father of petitioners) executed an absolute deed of sale in
1962 in favor of private respondents concerning his future
inheritance of land from his parents.
Lazaro executed an Affidavit of Conformity reaffirming
his sale made in 1962 upon his fathers death.
29 December 1980- Lazaro executed a deed of sale of
1/12 of his parcel of land to petitioners.
Abovementioned sale was known to respondents only on
February 1981, about a month after a deed of sale for the
same property was executed by Lazaro in favor of
respondents (for a Php.10000 consideration).
Petitioners filed a complaint for rescission (plus damages)
of the deed of sale executed in favor of respondents.
Petitioners pointed as evidence the deed of sale executed
by Lazaro in favor of respondents (10 children all in all) as
well as the private writing of their deceased grandfather
Matias who allegedly willed that Lazaros inheritance
should be given to his (Lazaros) children. Further, they
showed evidence that Lazaro confirmed to follow the
aforesaid will of his father.
Respondents, on the other hand, showed a Deed of
Revocation of a Deed of Sale wherein Lazaro revoked
the sale of land in question in favor of petitioners.
Lazaro testified against the Deed of Revocation of a Deed
of Sale and of a Deed of Sale both in favor of
respondents. However he testified that he sold the
property in question to Ricardo and that the sale in favor
of petitioners was only through lawyers inducement.

Issues:
1. WON 1962 sale of future inheritance as well as
its reaffirmation valid.
2. Which between the deeds of sale in favor of
petitioners and respondents is valid?

Held: Petition denied. CA decision affirmed.
1. No. Both invalid.
2. Deed of Sale in favor of private respondents
valid.


Ratio:
1. The 1962 deed of sale is not valid and can
neither be a source of rights nor of obligations
between the contracting parties (NCC Art. 1347
(2)). The same is with the Affidavit of
Conformity which only supports to validate the
mentioned invalid sale.

2. Art. 1544 (2) provides that the ownership of an
immovable property, like the land in question,
will belong to the person acquiring it in good faith
who first recorded it in the Registry of Property.
Even though the deed of sale executed in favor
of private respondents was later than that of
petitioners, the former was undoubtedly
registered prior to the latter (the latter being not
registered at all). Here, ownership will be vested
to the respondents. Further, petitioners failed to
prove bad faith in respondents side.

C. Cause of Contracts
LIGUEZ VS. CA
Conchita Liguez, petitioner, vs. The Honorable Court of Appeals, Maria Ngo Vda. De Lopez, et al., respondents

Facts:
Salvador Lopez, before being killed by some guerrillas,
donated a parcel of 51.84 Ha of land to petitioner
Conchita Liguez in consideration of her cohabitation with
him. In this way, petitioners parents will allow the then
16-year old minor to live with Salvador.
However, even prior said donation, Salvador was already
married to respondent Maria Ngo and had children with
her.
It was contended by respondent that the donation to
Liguez should be void for being tainted with an illegal
causa, i.e., for Salvador to be able to cohabit with
petitioner-donee despite the fact that he had a subsisting
marriage.

Issue: WON donation of deceased Salvador Lopez in
favor of petitioner Conchita Liguez is void for having been
tainted with an unlawful cause (now under NCC Art.
1352).

Held: No. Petitioner entitled to so much as not to
prejudice respondent Maria Ngo in the conjugal
partnership ot the forced heir of Salvador of their legitimes
as to make such donation inofficious.
Ratio:
Petitioners defense that donors causa is not illicit for
such causa is Salvadors liberality must fail because such
argument applies only to donations of pure beneficence,
i.e., the contract was executed for the beneficiarys
welfare without donors satisfaction. This is not the case
here because it was evident in Salvadors statements to
some witnesses that the cause that moved him was his
desire to have sexual union with Liguez. Lopez would not
have executed the donation if he does not have the desire
to cohabit with her. Such cohabitation is an implied
condition to the donation in question.
The principle that neither may recover from each other
when both parties to a donation (NCC Art. 1412) are in
pari delicto wherein neither may recover what s/he has
given not compel the other to perform his/her obligation
does not apply here. It seems more likely that petitioner
was seduced rather than she entered into an immoral
bargaining (land, for heaven, something like that). She
was only 16, a minor, when the negotiations and the
donation pushed through. Further, it was her parents who
participated in the negotiations.
Respondent cannot raise the defense of illegality, they
being just privies/heirs to the deceased Salvador who
himself cannot raise such defense against petitioner. The
donation, which in itself appears to be valid at face value,
is not void, although It should not prejudice Maria Ngo as
well as Salvadors forced heirs as regards their legitimes

(donation should not b e inofficious). The husbands

power to donate a part of the CPG is limited by Old CC
Arts. 1409, 1413 and 1415).

CARANTES VS. CA
Maximino Carantes, petitioner, vs. Court of Appeals, et al., respondents
Ponente: Castro, J.

Facts:
Mateo Carantes is the original owner of Lot No. 44
situated at Loakan, Baguio City. He was survived by his
widow Ogasia and six children.
In 1930, the construction of the Loakan Airport was
commenced by the government. Because a portion of Lot
No. 44 was needed for the landing field, the government
instituted proceedings for its expropriation.
In 1933, Special Proceedings for the settlement of estate
of the late Maximo Carantes was filed. One of his sons,
herein petitioner Maximino Carantes, was appointed and
qualified as judicial administrator of the estate. A project
of partition was later on commenced.
On October 23, 1939, a deed denominated Assignment of
Right to Inheritance was executed by four of Mateo
Caarantes children, assigning to Maximino Carantes their
right to inheritance in Lot No. 44. The stated monetary
consideration was P1.00.
On the same date, Maximino Carantes sold to the
government Lots Nos. 44-B and 440C and divided the
proceed of the sale among himself and the other heirs of
Mateo.
Private respondents allege that:
x They executed the deed of Assignment of Right
to Inheritance only because they were made to
believe by the defendant (petitioner) Maximino
that said instrument embodied the understanding
that it merely authorized defendant (petitioner)
Maximino to convery portions of Lot No. 44 to
the government IN THEIR BEHALF to minimize
expenses and facilitate the transaction; and

x That it was only on February 18, 1958, when the
plaintiffs(respondents) secured a copy of the
deed, that they came to know that the same
purported to assign in favor of Maximino their
rights to inheritance from Mateo Carantes.
Petitioner argues:
x That the assignors (respondents) knew fully well
that the deed of assignment contained what, on
its face, it represented.

x That any supposed agreement between the
plaintiffs (respondents) and Maximino, other than
the deed of assignment, is barred by the statute
of frauds and is null and void because not in
writing, much less, in a public instrument.

x The plaintiffs right of action has already
prescribed.

x Petitioner Maximino has acquired absolute
ownership over the property in question by
acquisitive prescription and registration

x Any obligation on the part of petitioner in relation
to the property had been discharged by
novation, condonation, and compensation.
RTC: Fraud must be deemed to have been discovered
on March 16, 1940 when the deed of assignment was
registered; the plaintiffs right of action has already
prescribed when they filed the action in 1958.
CA: Reversed

Issue/Held/Ratio:
As regards simulation of contract due to lack of
consideration
Art 1409(2) of CC provides that contracts which
are absolutely simulated or fictitious are

inexistent and void from the beginning. The

basic characteristic of simulation is the fact that
the apparent contract is not really desired or
intended to produce legal effects or in any way
alter the juridical situation of the parties.
In the case at bar, consideration was NOT ABSENT.

As regards prescription
The annulment of contract on the ground of fraud has the
prescriptive period of four years from the discovery of the
fraud. However, when is fraud deemed to be discovered?
Is it on the alleged discovery through rumors (February
18, 1958, as postulated by respondents) OR upon
registration of the deed (March 16, 1940, as postulated by
petitioner)?

SC concludes that the registration of an instrument in the
Office of the Registrar of Deeds constitutes
CONSTRUCTIVE NOTICE to the whole world, and
therefore, the discovery of fraud is deemed to have taken
place at the time of the registration (March 16, 1940).
Thus, the filing of the case on September 4, 1958 is
already barred by the statute of limitations.

As regards the fiduciary relationship between the parties
In constructive trusts, there is neither a promise nor
fiduciary relations. Moreover, an action for reconveyance
based on implied or constructive trust is prescriptible after
a period of ten years. Thus, the action is still barred by
extinctive prescription.

COMPLAINT DISMISSED.

BUENAVENTURA VS. CA
Spouses Bernardo Buenaventura and Consolacion Joaquin, et al., petitioners, vs. Court of Appeals, et al., respondents
Ponente: Carpio, J.

Facts:
Defendant spouses are parents of plaintiffs COnsolacion,
Nora, Emma, and Natividad as well as of defendants
Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and
surnamed JOAQUIN. (a total of 11 children!) Petitioners
sought to be declared null and void ab initio certain deeds
of sale of real property executed by respondent parents in
favor of their co-respondent children.
Petitioners argue that such deeds of sale are null void on
the following grounds:
x There was no actual valid consideration for the
deeds of sale over the properties in litis
x Assuming that there was consideration in the
sums reflected in the questioned deeds, the
properties are more than three0fold times more
valuable than the measly sums appearing
therein.
x The deeds of sale do not reflect and express the
true intent of the parties
x The purported sale of properties in litis was the
result of deliberate conspiracy design to unjustly
deprive the rest of the compulsory heirs of their
legitime.
Respondents argue that:
x The plaintiff do not have a cause of action
against them as well as the requisite standing
and interest to assail their titles over the
properties in litis.
x The sales were with sufficient considerations
and made by the defendant parents voluntarily,
in good faith, and with full knowledge of the
consequences of their deeds of sale.
x The certificates of title were issued with sufficient
factual and legal basis.


Issues/Held/Ratio:
1. Whether the petitioners have a legal interest
over the properties subject of the Deeds of Sale
If the Deeds of Sale are declared void, the
ownership of lots would eventually revert to their
respondent parents. Petitioners are evidently
interested in the properties in question, but they
have failed to show any LEGAL RIGHT to the
properties.
Real party-in-interest: Whether he is the party
who would be ebnefited or injured by the
judgment, or the party entitled to avail of the
suit.
In actions for the annulment of contracts, such
as this action, the real parties are those who are
parties to the agreement or are bound either
principally or are prejudiced in their rights x x x.
Petitioners right to their parents properties are
MERELY INCHOATE and bests only upon their
parents death.

2. Whether the Deeds of Sale are void for lack of
consideration
A contract of sale is NOT a real contract, but
CONSENSUAL CONTRACT. It becomes binding
and valid contract upon the meeting of the minds
as to the price.
It is VALID despite the manner of payment, or
even the breach of that manner of payment.
If the real price is not stated in the contract, then
the contract of sale is VALID but subject to
reformation.
If there is no meeting of the minds of the parties
as to the price, because the price stipulated in
the contract is simulated, then the contract is
VOID. (Art. 1471, CC)
Payment of the price has nothing to do with the
perfection of the contract. Failure to pay the
consideration is different from lack of
consideration.
Petitioners failed to show that the priced were
absolutely simulated. Failure to prove their
knowledge on their respondent siblings financial
capacity to buy the questioned lots.

3. Whether the Deeds of Sake are void for gross
inadequacy of price
Art. 1355 of CC provides:
Art 1355. Except in cases specified by
law, lesion or inadequacy of cause shall
not invalidate a contract, unless there
has been fraud, mistake, or undue
influence.
Art. 1470 of CC provides:
Art. 1470. Gross inadequacy of price
does not affect a contract of sale,
except as may indicate a defect in the
consent, or that the parties really
intended a donation or some other act
or contract.
Petitioners failed to prove any of the instances
mentioned in Articles 1355 and 1470 of CC
which would invalidate, or even affects, the
Deeds of Sale.


CHAPTER 3: FORM OF CONTRACTS

DAUDEN-HERNAEZ VS. DELOS ANGELES
Marlene Dauden-Hernaez, petitioner, vs. Hon. Walfrido de los Angeles, Judge of the CFI of Quezon City, Hollywood Far East
Productions, Inc., and Ramon Valenzuela, respondents

Legal Doctrine: A contract where the amount involved
exceeds P500 must appear in writing but it does not
necessarily follow that it is invalid or unenforceable if it is
not in writing.

Facts:
Marlene Dauden-Hernaez, a motion picture actress, had
filed a complaint against the respondents, Hollywood Far
East Productions and its President and General Manager
to recover the balance for her services as leading actress
in the in two motion pictures produced by the company
including damages.
The respondent court dismissed Hernaezs complaint
because there is no written document that was presented
as evidence. The complaint was also said to be defective
on its face for violating Civil code Article 1356 because
the contract was not in writing. Article 1358 of the civil
code was also violated because the writing was absolute
and indispensable because the amount involved exceeds
five hundred pesos. The said complaint was also said to
be containing defective allegations.
Her motion for reconsideration and admission of an
amended complaint were denied by the court. The
second motion for reconsideration was also denied for
being pro forma, or having allegations that are more or
less the same as the first motion.

Issues:
1. Whether the court abused its discretion in ruling
that the contract (an oral one) for the actress
services was invalid or unenforceable under the
last paragraph of Article 1358 of Civil Code?
2. Whether the petitioner was within her rights in
filing her second motion for reconsideration?
3. Whether the second motion for reconsideration
was merely pro forma?
Held/ Ratio:
1. Yes. The ruling was a misunderstanding of
the role of the written form in contracts.
Under Articles 1315 and 1356, contracts are
valid and binding from their perfection
regardless of form, whether they be oral or
written. A contract is generally valid and
obligatory once the three elements of (1)
consent, (2) proper subject matter and (3)
consideration or cause for the obligation
assumed, are present. The contract sued
upon by the petitioner does not fall under
the those types of contracts that has to be in
writing in order to be valid and enforceable
nor in those contracts that the law requires
to be proved in some writing. Though article
1358 states that all other contracts where
the amount involved exceeds P500 must
appear in writing, it does not state that the
absence of written fgorm will make the
agreement invalid or unenforceable.

A contract is only required to be in writing
under the following exceptions in order to be
valid and enforceable: donations of
immovable property, donations of movables
worth more than P5000, contracts to pay
interest on loans; agreements contemplated
under articles 1744, 1773, 1874 and 2134 of
the Civil Code.

2. Yes. It is error for the court to dismiss the
complaint without giving the party plaintiff an
opportunity to amend his complaint if he so
chooses.

3. No. The second motion for reconsideration
was addressed to the courts refusal to allow

an amendment to original complaint. This

ground was not invoked in the first motion
for reconsideration.

CHAPTER 4: REFORMATION OF INSTRUMENTS
A. Requisites
GARCIA VS. BISAYA

Ponente: Reyes, A., J.

Legal Doctrine: A complaint for reformation that does not
state cause of action shall be dismissed.

Facts:
In a deed of sale issued by defendants to plaintiff, the
parcel of land there described was erroneously
designated as an unregistered land when in truth the said
land is a portion of a big mass of land that is registered in
the Register of Deeds. Because the defendants
continuously refuse to correct the error, the plaintiff filed
this case.
Defendants denied having executed the alleged deed of
sale and pleaded prescription as a defense. They also
stated that they do not know about the error and that they
only discovered it recently.

Issues:
1. Whether the appellants complaint states a
cause of action?
2. Whether the court could reform the instrument
based from the complaint?
3. Whether the action for the deed of sale already
prescribed?

Held/ Ratio:
1. No. The complaint fails to allege that the
instrument to be reformed does not express the
real agreement or intention of the parties. It does
not even allege what the real agreement or
intention was.

2. No. Courts do not reform instruments merely for
the sake of reforming them. There was no cause
of action stated in the complaint.

3. No. The Prescription of ten years shall be
counted from the day it could have been
instituted, which is the date when the error was
discovered. There is nothing in the pleadings to
show that the error was discovered more than
ten years before the present action.

Note: The real grievance perhaps of the appellant is that
the defendants committed fraud when it issued the deed
of sale because they were made to believe that the land
they were buying is unregistered. The proper remedy for
fraud is not reformation but annulment of contract.


BENTIR VS. LEANDE

Summary: The remedy of reformation of an instrument is
grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an
instrument already executed is allowed by law to be
reformed. In the case at bar, In the case at bar,
respondent corporation had ten (10) years from 1968, the
time when the contract of lease was executed, to file an
action for reformation but it did so only on May 15, 1992
or twenty-four (24) years after the cause of action
accrued, hence, its cause of action has become stale,
hence, time-barred.

Facts:
Respondent Leyte Gulf Traders, Inc. filed a complaint for
reformation of instrument, specific performance,
annulment of conditional sale and damages with prayer
for writ of injunction against petitioners Yolanda Rosello-
Bentir and the spouses Samuel and Charito Pormida.
Respondent corporation alleged that it entered into a
contract of lease of a parcel of land with petitioner Bentir
for a period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was
extended for another four (4) years or until May 31, 1992.
On May 5, 1989, petitioner Bentir sold the leased
premises to petitioner spouses Samuel Pormada and
Charito Pormada. Respondent corporation questioned the
sale alleging that it had a right of first refusal. Rebuffed, it
filed a case seeking the reformation of the expired
contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of
lease executed in 1968, the verbal agreement or
understanding between the parties that in the event
petitioner Bentir leases or sells the lot after the expiration
of the lease, respondent corporation has the right to equal
the highest offer.
In due time, petitioners filed their answer alleging that the
inadvertence of the lawyer who prepared the lease
contract is not a ground for reformation. They further
contended that respondent corporation is guilty of laches
for not bringing the case for reformation of the lease
contract within the prescriptive period of ten (10) years
from its execution.

Issue: WON complaint for reformation of instrument has
prescribed

Held/Ratio:
Yes. The remedy of reformation of an instrument is
grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an
instrument already executed is allowed by law to be
reformed. The right of reformation is necessarily an
invasion or limitation of the parol evidence rule since,
when a writing is reformed, the result is that an oral
agreement is by court decree made legally
effective. Consequently, the courts, as the agencies
authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power
sparingly and with great caution and zealous care.
Moreover, the remedy, being an extraordinary one, must
be subject to limitations as may be provided by law. Our
law and jurisprudence set such limitations, among which
is laches. A suit for reformation of an instrument may be
barred by lapse of time. The prescriptive period for
actions based upon a written contract and for reformation
of an instrument is ten (10) years under Article 1144 of
the Civil Code. Prescription is intended to suppress stale
and fraudulent claims arising from transactions like the
one at bar which facts had become so obscure from the
lapse of time or defective memory. In the case at bar,
respondent corporation had ten (10) years from 1968, the
time when the contract of lease was executed, to file an
action for reformation. Sadly, it did so only on May 15,
1992 or twenty-four (24) years after the cause of action
accrued, hence, its cause of action has become stale,
hence, time-barred.


ATILANO VS. ATILANO

Asuncion Atilano, Cristina Atilano, Rosario Atilano, assisted by their respective husbands, Hilario Romano, Felipe Bernardo,
and Maximo Lacandalo, Isabel Atilano and Gregorio Atilano, plaintiffs-appellees, vs. Ladislao Atilano and Gregorio M.
Atilano, defendants-appellants

Summary: The mistake in the lot nunmbers did not vitiate
the consent of the parties, or affect the validity and
binding effect of the contract between them. The new Civil
Code provides a remedy for such a situation by means of
reformation of the instrument. This remedy is available
when, there having been a meeting of the funds of the
parties to a contract, their true intention is not expressed
in the instrument purporting to embody the agreement by
reason of mistake, fraud, inequitable conduct on accident
(Art. 1359, et seq.) In this case, the deed of sale executed
in 1920 need no longer reformed. The parties have
retained possession of their respective properties
conformably to the real intention of the parties to that
sale, and all they should do is to execute mutual deeds of
conveyance.

Facts:
Respondent, Eulogio Atilano I owned property which he
subdivided into five parts, identified as lots Nos. 535-A,
535-B, 535-C, 535-D and 535-E, respectively. He then
sold lot No. 535-E in favor of his brother Eulogio Atilano II,
who thereupon obtained transfer certificate in his name.
Three other portions, namely lots Nos. 535-B, 535-C and
535-D, were likewise sold to other persons, the original
owner, Eulogio Atilano I, retaining for himself only the
remaining portion of the land, presumably covered by the
title to lot No. 535-A. Upon his death the title to this lot
passed to Ladislao Atilano, defendant in this case
When Eulogio Atilano II became a widower upon the
death of his wife Luisa Bautista, he and his children
obtained transfer certificate of title over lot No. 535-E in
their names as co-owners. Then later, desiring to put an
end to the co-ownership, they had the land resurveyed so
that it could properly be subdivided; and it was then
discovered that the land they were actually occupying on
the strength of the deed of sale executed in 1920 was lot
No. 535-A and not lot 535-E, as referred to in the deed,
while the land which remained in the possession of the
vendor, Eulogio Atilano I, and which passed to his
successor, defendant Ladislao Atilano, was lot No. 535-E
and not lot No. 535-A.
The heirs of Eulogio Atilano II, who was by then also
deceased, filed the present action in the Court of First
Instance of Zamboanga, alleging that they had offered to
surrender to the defendants the possession of lot No.
535-A and demanded in return the possession of lot No.
535-E, but that the defendants had refused to accept the
exchange. The plaintiffs' insistence is quite
understandable, since lot No. 535-E has an area of 2,612
square meters, as compared to the 1,808 square-meter
area of lot No. 535-A.
In their answer to the complaint the defendants alleged
that the reference to lot No. 535-E in the deed of sale was
an involuntary error; that the intention of the parties to that
sale was to convey the lot correctly identified as lot No.
535-A; that since 1916, when he acquired the entirety of
lot No. 535, and up to the time of his death, Eulogio
Atilano I had been possessing and had his house on the
portion designated as lot No. 535-E, after which he was
succeeded in such possession by the defendants herein;
and that as a matter of fact Eulogio Atilano I even
increased the area under his possession when on June
11, 1920 he bought a portion of an adjoining lot, No. 536,
from its owner Fruto del Carpio.

Issue: WON the designation as lot No. 535-E in the deed
of sale was a simple mistake in the drafting of the
document and WON it vitiated the consent and affected
the validity of the contract between the parties

Held/Ratio:
No it did not. Logic and common sense of the situation
lean heavily in favor of the defendants' contention. When
one sells or buys real property a piece of land, for
example one sells or buys the property as he sees it, in
its actual setting and by its physical metes and bounds,
and not by the mere lot number assigned to it in the
certificate of title. In the particular case before us, the
portion correctly referred to as lot No. 535-A was already
in the possession of the vendee, Eulogio Atilano II, who
had constructed his residence therein, even before the

sale in his favor even before the subdivision of the entire

lot No. 535 at the instance of its owner, Eulogio Atillano I.
In like manner the latter had his house on the portion
correctly identified, after the subdivision, as lot No. 535-E,
even adding to the area thereof by purchasing a portion of
an adjoining property belonging to a different owner. The
two brothers continued in possession of the respective
portions the rest of their lives, obviously ignorant of the
initial mistake in the designation of the lot subject of the
1920 until 1959, when the mistake was discovered for the
first time.
The real issue here is not adverse possession, but the
real intention of the parties to that sale. From all the facts
and circumstances the object thereof, as intended and
understood by the parties, was that specific portion where
the vendee was then already residing, where he
reconstructed his house at the end of the war, and where
his heirs, the plaintiffs herein, continued to reside
thereafter: namely, lot No. 535-A; and that its designation
as lot No. 535-E in the deed of sale was simple mistake in
the drafting of the document.
The mistake did not vitiate the consent of the parties, or
affect the validity and binding effect of the contract
between them. The new Civil Code provides a remedy for
such a situation by means of reformation of the
instrument. This remedy is available when, there having
been a meeting of the funds of the parties to a contract,
their true intention is not expressed in the instrument
purporting to embody the agreement by reason of
mistake, fraud, inequitable conduct on accident (Art.
1359, et seq.) In this case, the deed of sale executed in
1920 need no longer reformed. The parties have retained
possession of their respective properties conformably to
the real intention of the parties to that sale, and all they
should do is to execute mutual deeds of conveyance.

SARMING VS. CRESENCIO DY
Rita Sarming, Rufino Sarming, Manuel Sarming, Leonora Vda. De Loy, Erlinda Darming, Nicandra Sarming, Mansueta
Sarming, Arturo Corsame, Fely Corsame, Federico Corsame, Isabelita Corsame, Norma Corsame, Cesar Corsame, Rudy
Corsame, Roberta Corsame, Artemio Corsame, Elpidio Corsame, Enriquita Corsame, and Guadalupe Corsame Tan,
petitioners, vs. Cresencio Dy, Ludivina Dy-Chan, Trinidad Flores, Luisa Flores, Saturnina Organista, Remedios Organista,
Ofelia Organista, Lydia Organista, Zosimo Organista, Domisiano Flores, Florita Flores, Eduardo Flores, Benigna Glores,
Angelina Flores, Marcial Flores, and Mario Flores, respondents

Legal Doctrine: Reformation is that remedy in equity by
means of which a written instrument is made or construed
so as to express or conform to the real intention of the
parties.

Facts:
Petitioners are successors-in-interest of original
defendant Silveria, while respondents are the successors-
in-interest of the original plaintiff Alejandra. In their
complaint for reformation of instrument against Silveria,
the original plaintiffs alleged that they are the heirs of
Valentina who owned several lots in Dumaguete City.
After the death of Valentina, her three children, namely:
Jose, Venancio, & Silveria, took possession of one of her
lots. Upon their death, their children & grandchildren took
over. The other parcel, which is solely registered under
the name of Silveria, was sub-divided between Jose &
Silveria.
Grandchildren of Jose, now owners of one-half of the
subdivided lot, entered into a contract with plaintiff
Alejandra, for the sale of one-half share of the lot, after
offering the same to their co-owner, Silveria, who declined
for lack of money. Silveria did not object to the sale.
In a conference between Alejandras lawyer & Silveria
she agreed to sell her three coconut trees to Alejandra for
P15. Silveria through her daughter, Cristita, delivered the
Original Certificate of Title not of the object lot but of
another lot.
Believing that the OCT was correct, Alejandras lawyer
prepared a notarized Deed of Sale duly signed by the
parties. As a result, the OCT was cancelled & a TCT was
issued in the names of Silveria & Alejandra, with one-half
share each.

Alejandra took possession & introduced improvements on

the purchased lot, which was actually one-half of Lot 4163
instead of Lot 5734 as designated in the deed. When
Alejandra purchased the adjoining portion of the lot, she
discovered that what was designated in the deed was the
wrong lot.
Alejandra filed a complaint against Silveria for reformation
of the deed of sale with damages. In her answer, Silveria
claimed that she was the sole owner of the object lot &
respondents had no right to sell it. According to her, the
contract of sale clearly stated that the property being sold
was Lot 5734, not Lot 4163. She also claimed that
respondents illegally took possession of one-half of Lot
4163.

Issues/Held:
1. Is there a cause of action for reformation of
instrument against Silveria & the petitioners?
YES
2. Is reformation of the deed proper by reason of
mistake in designating the correct lot number?
YES
3. Are the heirs of Alejandra are entitled to actual &
moral damages? NO

Ratio:
1. First issue: However, the deed showed that
Silveria was a party to the contract. She was one
of the heirs entitled to the estate of Jose. What
was sold was the one-half share of Jose, as
represented by his heirs. It was Silveria herself
who delivered the subject lot to the vendee
Alejandra.
Through her actions, Silveria Flores had made
the parties to the deed believe that the lot
intended to be the object of the contract was the
same lot described in the deed. Thus, by
mistake or accident, as well as inequitable
conduct, neither she nor her successors-in-
interest could deny involvement in the
transaction that resulted in a deed that now
ought to be reformed.
Participation in a contract is not an element to
determine the existence of a cause of action.
The test of sufficiency of the facts as constituting
a cause of action is whether or not, admitting the
facts alleged, the court can render a valid
judgment upon the same.

2. Second issue: Reformation is that remedy in
equity by means of which a written instrument is
made or construed so as to express or conform
to the real intention of the parties. CC 1359.
When, there having been a meeting of the minds
of the parties to a contract, their true intention is
not expressed in the instrument purporting to
embody the agreement by reason of mistake,
fraud, inequitable conduct or accident, one of the
parties may ask for the reformation of the
instrument to the end that such true intention
may be expressed. If mistake, fraud, inequitable
conduct, or accident has prevented a meeting of
the minds of the parties, the proper remedy is
not reformation of the instrument but annulment
of the contract.
There was a meeting of the minds between the
parties to the contract but the deed did not
express the true intention of the parties due to
mistake in the designation of the lot subject of
the deed. There is no dispute as to the intention
of the parties to sell the land to Alejandra but
there was a mistake as to the designation of the
lot intended to be sold.

3. Third issue: In the matter of damages, the award
of actual damages in the amount of P5, 000
lacks evidentiary support. Actual damages if not
supported by the evidence on record cannot be
granted. Moral damages was also improperly
awarded, absent a specific finding &
pronouncement from the trial court that
petitioners acted in bad faith or with malice.


CHAPTER 5: INTERPRETATION OF CONTRACTS

BORROMEO VS. CA

Ponente: Fernando, J.

Legal Doctrine: It is a fundamental principle in the
interpretation of contracts that while the literal sense of
the words is to be followed, such is not the case where
they appear to be contrary to the evident intention of the
contracting parties.

Facts:
Defendant Villamor was a distributor of lumber belonging
to Miller who was the agent of the Insular Lumber
Company in Cebu. Defendant being a former classmate
of plaintiff Borromeo, borrowed money from the latter
because of an obligation to settle with Miller, for which he
mortgaged his house and lot.
Miller filed civil action against the defendant and attached
his properties including those mortgaged to plaintiff,
inasmuch as the deed of mortgage in favor of plaintiff
could not be registered because not properly drawn up.
Plaintiff pressed the defendant to settle his obligation, but
defendant instead offered to execute a promissory note
even after ten years.
Defendant was indebted to plaintiff for P7,220.00, with
interest rate 12% per annum. The promissory note
stipulates that defendant hereby relinquish, renounce, or
otherwise waive my rights to the prescriptions established
by our Code of Civil Procedure for the collection or
recovery of the above sum of P7,220.00 at any time even
after the lapse of ten years from the date of this
instrument.

Issue/Held: Is the promissory note void because of the
renouncement of future prescription? NO

Ratio:
The creditor, moved by friendship, was willing to give the
debtor latitude as to when his scanty resources will allow
him to pay. He was not renouncing any right; he was just
being considerate. Under the view of respondent Court,
however, what had been agreed upon was voided
because of the renouncement of future prescription. This
decision would amount not to just negating an agreement
but would put a premium on conduct that is hardly fair. It
would reflect on a debtor bent on repudiating his
obligation.
Facts of the case show that the words employed in the
instrument imply that the debtor could be trusted to pay
even after the termination of the ten-year prescriptive
period.
Whatever obscurity in the words used is explained by the
friendship between the parties as well as the
unsuccessful effort to execute a mortgage. It is a
fundamental principle in the interpretation of contracts
that while the literal sense of the words is to be followed,
such is not the case where they appear to be contrary to
the evident intention of the contracting parties.
Anglo-American law: Where an agreement founded on a
legal consideration contains several promises, or a
promise to do several things, and a part only of the things
to be done are illegal, the promises which can be
separated, or the promise, so far as it can be separated,
from the illegality, may be valid.
The interest of justice and equity should not be ignored.
No sacrifice of the substantial rights of a litigant in the
altar of sophisticated technicalities with impairment of the
sacred principles of justice. There has been disapproval
when the result reached is neither fair, nor equitable.
What is to be avoided is an interpretation that may work
injustice rather than promote justice.


KASILAG VS. RODRIGUEZ

Marcial Kasilag, petitioner, vs. Rafaela Rodriguez, Urbano Roque, Severo Mapilisan and Ignacio del Rosario, respondents
Ponente: Imperial, J.

Legal Doctrine: The cardinal rule in the interpretation of
contracts is that the intention of the contracting parties
should always prevail because their will has the force of
law between them. CC Art. 1281 provides that if the terms
of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal sense of its
stipulations shall be followed; and if the words appear to
be contrary to the evident intention of the contracting
parties, the intention shall prevail.

Facts:
Emiliana Ambrosio and Marcial Kasilag entered into an
agreement through a public deed wherein the former, the
absolute registered owner of a parcel of land in Bataan
(evidenced by a homestead certificate of title),
encumbered and hypothecated by way of mortgage the
improvements to the said land. The improvements
included four mango trees, fruit bearing; one hundred ten
hills of bamboo trees and one tamarind and six bonga
trees, the assessed value of the improvements amounting
to P 860. The encumbrance by way of mortgage was for
a consideration of P1000 of Philippine currency paid by
Kasilag.
The conditions for the said mortgage are:
x If Ambrosio pays on or before four and one-half
years after the date of execution the instrument
the sum of P1000 with 12% interest per annum,
the mortgage shall be null and void; otherwise,
the same shall remain in full force and effect and
subject to foreclosure in the manner and form
provided by law for the amount due thereunder.
x Ambrosio shall pay for all the taxes and
assessments which are or may become due of
the described land and improvements during the
term of the agreement.
x CLAUSE VII: Within 30 days from the date of the
contract, Kasilag would file a motion in the CFI of
Bataan asking that the certificate of title(the
homestead certificate) be cancelled and that in
lieu thereof another be issued under the
provision of the land Registration Act as
amended by Act No. 3901
x Should Ambrosio fail to redeem the mortgage
within the stipulated period of four years and a
half, she would execute an absolute deed of sale
of the land in favour of the mortgagee kasilag for
the same amount of the loan of P1000 including
unpaid interest
x In case clause VII should be disapproved by the
CFI of Bataan, the contract of sale would
automatically be void and the mortgage would
subsist in all its force
One year after the execution of the deed, Ambrosio was
unable to pay the stipulated interest as well as the tax on
the land and its improvements. Thus, Ambrosio and
kasilag entered into a verbal contract (contract of
antichresis) (1933) whereby Ambrosio conveyed to the
latter the possession of the land on condition that the
latter would not collect the interest on the loan, would
attend to the payment of the land tax, would benefit by the
fruits of the land, and would introduce benefits thereon.
Consequently, Kasilag entered upon the possession of
the land, gathered the products thereof, did not collect the
interest on the loan, introduced improvements upon the
land valued at P 5000, according to him, and on May
22,1934, the tax declaration was transferred in his name
and on March 6, 1936, the assessed value of the land
was increase from P1020 to P2180.
The respondents, children and heirs of the deceased
Ambrosio commenced the civil case to recover from
Kasilag the possession of the land and its improvements
granted by way of homestead to Ambrosio
CA: The contract was one of absolute purchase and sale
of the land and its improvements;

Issues/Held:
1. What is the nature of the contract? Principal
contract of loan with an accessory contract of
mortgage, not a contract of absolute sale
2. Is the contract of antichresis valid? NO
3. Did Kasilag act in bad faith in taking possession
of the land and in taking advantage of the fruits
thereof, resulting in the denial of his right to be

reimbursed for the value of the improvements

introduced by him? NO

Ratio:
1. The cardinal rule in the interpretation of
contracts is that the intention of the contracting
parties should always prevail because their will
has the force of law between them. CC Art. 1281
provides that if the terms of a contract are clear
and leave no doubt as to the intention of the
contracting parties, the literal sense of its
stipulations shall be followed; and if the words
appear to be contrary to the evident intention of
the contracting parties, the intention shall prevail.
The words used by the contracting parties
Ambrosio and Kasilag show that they intended to
enter into the principal contract of loan in the
amount of P1000 with interest at 12% per annum
and into the accessory contract of mortgage of
the improvements on the land acquired as
homestead. The parties entered into a contract
of mortgage of the improvements on the land
acquired as homestead, to secure the payment
of the indebtedness for P1000 and the stipulated
interest.

2. Another fundamental rule in the interpretation of
contracts is that the terms, clauses and
conditions contrary to law, morals and public
order should be separated from the valid and
legal contract when such separation can be
made because they are independent of the valid
contract which expresses the will of the
contracting parties. In the case at bar, both the
contract of loan and the mortgage contract were
valid as they are not against the law and the
latter is expressly authorized by section 116 of
Act No. 2874 as amended by section 23 of Act
No. 3517 (allowing mortgage of improvements or
crops on the land). However, the verbal contract
which was made after one year altered the
mortgage contract, converting the latter into a
contract of antichresis. The contract of
antichresis, being a real encumbrance burdening
the land, is illegal and void because it is
condemned by section 116 of Act No. 2874 as
amended but the clauses regarding the contract
of antichresis, being independent of and
separable from the contract of mortgage, can be
eliminated, thereby leaving the latter in being
because it is legal and valid.

3. Section 433 provides that every person who is
unaware of any flaw in his title or in the manner
of its acquisition by which it is invalidated shall
be deemed a possessor in good faith.
Possessors aware of such flaw are deemed
possessors in bad faith. Thus, a possessor in
bad faith is one who knows that there is a flaw in
his title or in the manner of its acquisition by
which it is invalidated. Gross and inexcusable
ignorance of the law may not be the basis of
good faith but possible, excusable ignorance
may be such basis. In the case at bar, it is a fact
that petitioner is not conversant with the laws
because he is not a lawyer. His ignorance of the
provisions of section 116 is excusable and may
therefore be the basis of his good faith. Thus,
petitioner acted in good faith in taking
possession of the land and enjoying its fruits.

Dispositive: Respondents are entitled to have the
improvement and plants upon indemnifying the petitioner
the value fixed by the Court: P3000; or the respondents
may elect to compel the petitioner to have the land by
paying its market value to be fixed by the court of origin.
The respondents have a right to the possession of the
land and to enjoy the mortgaged improvements. The
respondents may redeem the mortgage of the
improvements by paying the petitioner within 3 months
the amount of P 1000 without interest (why? Offset by the
value of the fruits received by petitioner); and in default
thereof, Kasilag may ask for the public sale of said
improvements for the purpose of applying the proceeds
thereof to the payment of his said credit.


CHAPTER 6: RESCISSIBLE CONTRACTS

UNIVERSAL FOOD CORPORATION VS. CA
Universal Food Corporation, petitioner, vs. The Court of Appeals, Magdalo V. Francisco, Sr. and Victorian V. Francisco,
respondents
Ponente: Castro, J.

Legal Doctrine: Art. 1191 provides that the power to
rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is
incumbent upon him. The injured party may choose
between fulfillment and rescission of the obligation, with
payment of damages in either case. Rescission of the
contract is allowed in case of fundamental and substantial
breach.

Facts:
1938: Magdalo V. Francisco Sr. Invented and discovered
a formula for the manufacture of a food seasoning derived
from banana fruits popularly known as MAFRAN sauce.
1942: The manufacture of MAFRAN was used in
commercial sale and Francisco Sr. registered his
trademark in his name as owner and inventor with the
Bureau of Patents.
1960: Due to lack of funds to finance capital for the
expansion of Business, he entered into a contract called
Bill of Assignment with the Universal Food Corporation.
According to the terms and conditions of the contract:
x That the Party of the First part (Magdalo V.
Francisco Sr.) is the sole and exclusive owner of
the MAFRAN trademark and the FORMULA for
the MAFRAN SAUCE; xxxx
x That for and in consideration of the royalty of
TWO PER CENTUM of the net annual profit
which the Party of the second part (Universal
Food Corporation) may realize by and/or out of
its production of MAFRAN SAUCE and other
food products and from other business [of UFC],
said party of the first part hereby assign, transfer
and convey all its property rights and interest
over said Mafran trademark and formula for
MAFRAN SAUCE unto the party of the second
part; xxx
x That Magdalo V. Francisco shall improve the
quality of products by engaging in research and
the property rights and interest thereon shall also
be assigned, transferred and conveyed unto
UFC in consideration of stipulations including the
appointment of Magdalo V. Francisco as Chief
Chemist of UFC with a salary of P300/month and
as Second Vice-President which is permanent in
character, and the appointment of Victoriano
Francisco as Auditor having a salary of
P250/month.
Magdalo Francisco Sr. never allowed anyone to enter the
laboratory too keep the secret to himself but he
expressed the willingness to give the formula provided
that it will be kept in a safe to be opened only when he is
already incapacitated to do his duties as Chief Chemist
but General Manager Tirso Reyes never acquired a safe
for that purpose. When General Manager Reyes
requested him to allow two of his family members to
observe the preparation of the Mafran sauce, Francisco
Sr. refused.
In Nov. 28, 1960, due to the alleged scarcity of materials,
a memorandum was issued ordering the salary of
Magdalo Francisco Sr. to be stopped until the corporation
resumes operation, and the retention of Magdalos son
Supervisor Ricardo. Another memorandum was issued
ordering Victoriano Francisco (brother) to produce Mafran
Sauce at the rate of 100 cases a day. The third
memorandum instructed assistant chief chemist Ricardo
Francisco to recall all daily employees connected with the
production of of Mafran and some additional employees
for the production of Porky Pops. The fourth
memorandum instructed Ricardo Francisco (son) as Chief
Chemist to produce Mafran Sauce and Porky Pos in full
swing.
January 9 and 16, 1961: UFC was already looking for a
buyer of the corporation including its trademarks, formula
and assets at a price of not less than 300,000.
Due to these successive memoranda, without Magdalo V.
Francisco Sr. being recalled back to work, the later filed
the present action.


Issues/ Held:
1. Did Magdalo V. Francisco, by Sr. virtue of the
terms of the Bill of Assignment, cede and
transfer to UFC the formula for Mafran sauce?
NO
2. Was Magdalo Francsico Sr. dismissed from his
position as chief chemist of the corporation
without justifiable cause and in violation of the
Bill of Assignment stating that his appointment in
character? YES
3. Is Magdalo V. Francisco entitled to rescission?
YES
4. Is Magdalo Francisco entitled to his monthly
salary of P300 from Dec. 1, 1960 until the return
to him of the Mafran trademark and formula
notwithstanding the rescission?

Ratio:
1. What was actually ceded and transferred in the
contract was only the use of the Mafran sauce
formula which was the precise intention of the
parties as given evidence by:
The payment of royalty of 2%. Royalty, when
employed in connection with a license under a
patent means the compensation paid for the use
of a patented invention
The provisions in the Bill of Assignment
providing for the appointment of Francisco Sr. as
chief chemist which is permanent in character;
that in case of his death or disabilities, his heirs
or assigns who may have necessary
qualifications shall be preferred to succeed him
as chief chemist; for the exercise of absolute
control and supervision over the laboratory
assistants. These show that the intention of
Francisco Sr. was to part not with the formula of
the Mafran sauce but only its use, to preserve
the monopoly and to effectively prohibit anyone
from availing of the invention
Pursuant to the last paragraph of the Bill of
Assignment, should dissolution of UFC
eventually take place, the property rights and
interests over said trademark and formula shall
automatically revert to the Francisco Sr. This is
because there could be no reversion of the
trademark and formula if UFC is right in
contending that Francisco Sr. assigned, ceded
and transferred the trademark and formula and
not merely the right to use it- for then such
assignment passes the property in such patent
right to the UFC, which on the corporation
becoming insolvent, will become part of the
property in the hands of the receiver thereof.
It is alleged in par. 3 of Francisco Sr.s complaint
that what was ceded and transferred was the
use of the formula and not the formula itself.
UFC, in its answer to the complaint, admitted the
allegations contained in paragraph 3.
The facts compellingly demonstrate continued
possession of the Mafran sauce formula by
Francisco Sr.
The conclusion is supported by the Civil Code
which states that a conveyance should be
interpreted to effect the least transmission of
rights. In this case, least transmission of rights:
allowing or permitting only the use without
transfer of ownership, of the formula for Mafran
sauce.

2. The uncontroverted facts show that UFC
schemed and maneuvered to ease out, separate
and dismiss Francisco Sr. as permanent chief
chemist, in violation of the Bill of Assignment. In
addition to the uncontroverted facts, it was
stated by the same president and general
manager during a hearing held on October 24,
1961 that I consider that the two months we
paid him is the separation pay.

3. Art. 1191 provides that the power to rescind
obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what
is incumbent upon him. The injured party may
choose between fulfillment and rescission of the
obligation, with payment of damages in either
case. In this case, it is clear that UFC violated
the Bill of Assignment in dismissing Francsico
Sr. without lawful and justifiable cause. The
rescission of the contract shall be permitted
since the dismissal is fundamental and
substantial breach of the Bill of Assignment.
Francisco Sr. would not have agreed to the other
terms of the Bill of Assignment were it not for the
basic commitment of UFC to appoint him as its
Second Vice-President and Chief Chemist on a
permanent basis, that he would have absolute

control of the laboratory assistants in the

manufacture of the sauce.

4. The contract placed the use of the formula for
Mafran sauce subject to defined limitations. One
of the considerations for the transfer of the use
of the formula was the undertaking on the part of
the petitioner corporation to employ the
respondent patentee as Second Vice-President
and Chief Chemist on a permanent status, at a
monthly salary of P300, unless death or other
disabilities supervened. Thus, UFC could not
escape the liability to pay Francisco Sr. his
agreed monthly salary as long as the use as well
as the right to use of the formula remained with
the corporation.

ORIA VS. MCMICKING
Manuel Oria y Gonzales, plaintiff-appellant, vs. Jose McMicking, as Sheriff of the City of Manila, Gutierrez Hermanos, Miguel
Gutierrez de Celis, Daniel Perez, and Leopoldo Criado, defendants-appellees
Ponente: Moreland, C.J.

Legal Doctrine: The Rules on the Badges of Fraud.

Facts:
Gutierrez Hermanos filed two suits against Oria
Hermanos & Co. for the collection of an aggregate
amount of Php 160,000. However, the members of Oria
Hermanos & Co. subsequently dissolved the company
and liquidated its assets.
Tomas Oria, as managing partner in liquidation, sold all
the liquidated assets of the company to his son, Don
Manuel Oria y Gonzales for a consideration of Php
274,000 (payable over 12 years) and the promise that
Manuel will not subsequently sell or encumber any of the
properties in question without the written authorization of
Tomas Oria.
CFI found in favour of Gutierrez and issued a writ of
execution on the properties of the company. The sheriff
levied the steam ship Serantes and set it up for auction.
Three days before the sale, Don Manuel claimed to be
the owner of the steamer by reason of the sale made by
Tomas to him.

Issues: W/N the sale of all the properties of Oria
Hermanos & Co. to Manuel Oria was valid.

Held: No, it is void in so far as it is necessary for
Hermanos to collect what is due to him. The contract of
sale is tainted with fraud.

Ratio:
The Court noted that the Company sold all of its assets
(amounting to Php 274,000) to the son of the managing
partner despite the fact that they knew that they had a
debt of Php 160,000. Such son was only 25 years old and
a student without any assets or any gainful occupation. It
thus seems that the sale was made without consideration.
No delivery of properties was even made. Indeed, they
would have never made the same contract with a
stranger. The Court also noted that the contract of sale
offered no protection to creditors. Such are the facts that
betray the presence of fraud.
For a conveyance to be a bona fide transaction, it must
have the elements of GOOD CONSIDERATION and
INTENT. The absence of either or both of these elements,
albeit acceptable to both parties, is voidable to creditors.
The Rules on the Badges of Fraud are as follows:
1. The fact that the consideration of the
conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been
begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete
insolvency.

5. The transfer of all or nearly all of his property by

a debtor, especially when he is insolvent or
greatly embarrassed financially.
6. The fact that the transfer is made between father
and son, when there are present other of the
above circumstances.
7. The failure of the vendee to take exclusive
possession of all the property.
It appears that all the badges of fraud were present in this
case.

CHAPTER 7: VOIDABLE OR ANNULLABLE CONTRACTS
SINGSONG VS. ISABELLA SAWMILL
Manuel Singsong, et al., plaintiffs-appellees, vs. Isabela Sawmill, et al., defendants-appellants
Ponente: Fernandez, J.

Legal Doctrine: The validity of a contract cannot be
assailed by one who is not a party thereto. However,
when a contract prejudices the rights of a third person, he
may file an action to annul the contract.

Facts:
1951: Garibay, Saldajeno, and Tubungbanua entered into
a Contract of Partnership to do business under the name
Isabella Sawmill.
Feb 1956: Plaintiff Oppen, Esteban, Inc. sold to the
partnership a motor truck and two tractors worth Php
20,500 in consideration for the agreement that the
partnership would make arrangements with International
Harvest Co. for the latter to sell farm machinery to Oppen
Esteban. Such sale would be paid for by the partnership.
Isabella Sawmill paid only Php 19,211.11, leaving a
balance of Php 1,288.89.
April-May 1958: they decided to dissolve the partnership
with Saldajeno suing Isabella Sawmill, Garibay and
Tubungbanua. They entered into a chattel mortgage
agreement
9
on certain trucks, tractors, machinery and
office equipment owned by Isabella in favour of
Saldajeno. They also entered into a MOA which released
Saldajeno of any liability to third persons.

9
AssignmentofRightwithMortgageAgreement

Garibay and Tubungbanua, however, did not divide the
assets of Isabella Sawmill despite the dissolution and
continued the business under that name.

Oct 1958-Jan 1959: Isabella sawmill contracted with the
individual plaintiffs, leaving unpaid debts from cash
advances or sales on credit in the following manner:
Plaintiff Object Unpaid Balance
Tonssay Delivery of
lumber
Php 933.73
Singsong Payment for rice
& bran + nipa
3723.5
(3580.5+143)
Espinos Delivery of
lumber
1579.44
Bacolod
Southern
Lumber Yard
Delivery of
lumber
1048.78
Balzunce Payment for
gasoline and oils
2052.10

October 1959: Provincial Sheriff of Negros Occidental
foreclosed the machinery and equipment covered by the
chattel mortgage in a public auction, which went to
Saldajeno. Saldajeno then sold the machinery,
equipment, etc that she won in the auction to Pan Oriental
Lumber Co.
CFI of Negros Occidental annulled the chattel mortgage
contract and ordered Saldajeno to pay the plaintiffs their
unpaid balances, with Garibay and Tubungbanua having
secondary liability. It reasoned that, as creditors, they

have a preferred right over the assets of the partnership

and the product of the public auction over Saldajeno. This
was affirmed by the CA.
Saldajeno contends that: 1.) since Isabella sawmill was
dissolved, Garibay and Tubungbanua became its
successors-in-interest to the defunct partnership and thus
obliged themselves to be liable for any of its obligations.
2.) she executed the chattel mortgage in order to secure
performance of the obligations of Garibay and
Tubungbanua. 3.) Oppen Esteban Inc is a creditor of
Garibay and Tubungbanua and not the defunct
partnership. 4.) the other plaintiffs entered into their
respective contracts with full knowledge that the
partnership had already been dissolved.

Issues:
1. Defendants claim that the CFI of Negros
Occidental has no jurisdiction because some of
the plaintiffs sought to collect sums of money
below Php 2000, and therefore should be under
the jurisdiction of the municipal court.
2. Defendants also contend that the chattel
mortgage may no longer be annulled because it
had been judicially approved by the CFI of
Negros Occidental (different branch from the one
that annulled the chattel mortgage) and it had
also already been foreclosed by the same court.
(Issue here is: W/N a court may nullify a final
judgment of another court of co-equal,
concurrent, and coordinate jurisdiction)
3. W/N the partnership of Isabella Sawmill was
indeed terminated
4. (TOPICAL) Defendants contend that the
plaintiffs can not file to annul the chattel
mortgage contract because they were not a
party to it

Held/Ratio:
1. Incorrect, CFI has jurisdiction. All of the plaintiffs
seek to nullify the chattel mortgage and therefore
this cause of action is not capable of pecuniary
estimation. It is held that where the basic issue is
primarily something more than the right to
recover a sum of money, it is deemed incapable
of pecuniary estimation and is thus under the
exclusive jurisdiction of the CFI.

2. It is erroneous because such a court may
reverse the decision of its co-equal court.
Originally, the doctrine is that coordinate courts
cannot be allowed to interfere with each others
judgments. In Mas v. Dumaraog, it was held that
he power to open, modify or vacant a judgment
is not only possessed by but restricted to the
court in which the judgment was rendered. This
was a policy meant for judicial stability.
However, in Dupla v. Court of Appeals, the ruling
was reversed and is now the current
jurisprudence. Therefore, the CFI of Negros
Occidental may reverse a final decision by the
other branches of the same-court.

3. A partnership is dissolved when any partner
ceases to be associated with the partnership.
However, the partnership continues until the
winding up of the business. The remaining
partners did not terminate the business but
rather continued its operation under the same
name and using the same properties. There was
no liquidation of properties and neither was the
dissolution publicly announced.
Saldajeno should pay the plaintiffs (and should
likewise be reimbursed by Garibay and
Tubungbanua) she purchased the properties
belonging to the partnership, which she
mortgaged. In fact, she is partly to blame
because she did not insist on the proper
dissolution of the partnership or the liquidation of
its assets.

4. As a general rule, the validity of a contract
cannot be assailed by one who is not a party
thereto. However, when a contract prejudices
the rights of a third person, he may file an action
to annul the contract. Since the rights of the
plaintiffs were prejudiced by the chattel
mortgage, they have a right to file an action to
nullify it.

Dispositive: Saldajeno is to pay the plaintiffs. Garibay
and Tubungbanua are to reimburse Saldajeno whatever
she shall pay to the plaintiffs. (as per the MOA freeing her
of liability from 3
rd
persons)

CADWALLER & CO. VS. SMITH, BELL & CO.

Ponente: Tracey, J.

Legal Doctrine: Upon annulment the parties should be
restored to their original position by mutual restitution.

Facts:
May 1902: Pacific Export Lumber Company of Portland
[PELC] shipped upon the steamer Quito five hundred and
eighty-one (581) cedar piles to the defendant, Henry W.
Peabody & Company, at Manila. The agreement is that
the consignees were to receive a commission of one half
of whatever sum was obtained over $15 for each pile
before storage and 5% of the price of the piles sold after
storage.
After the arrival of the steamer on August 2, Peabody &
Company wrote the agent of the PELC at Shanghai that
for lack of a demand, the piles would have to be sold at
considerably less than $15 apiece.
The agent directed Peabody & Company to make the
best possible offer for the piles. Peabody responded on
August 5 thru telegraph giving an offer of $12 apiece. It
was accepted by PELC. Peabody and Company paid
PELC $6,972 [581 x $ 12].
However, on July 9, Peabody & Company had entered
into negotiations with the Insular Purchasing Agent for the
sale for the piles at $20 a 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 [PELC] 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, was associated with
the defendants, Henry W. Peabody & Company, who
conducted the negotiations, and are consequently
accountable with them.

Issue: Can the contract be rescinded?

Held/Ratio:
Yes. It is plaint that in concealing from their principal the
negotiations with the Government, resulting in a sale of
the piles at 19 a piece and in misrepresenting the
condition of the market, the agents committed a breach of
duty from which they should benefit. The contract of sale
to themselves thereby induced was founded on their fraud
and was subject to annulment by the aggrieved party.
Upon annulment the parties should be restored to their
original position by mutual restitution. Therefore the
defendants are not entitled to retain their commission
realized upon the piles included under the contract so
annulled. In respect of the 213 piles, which at the time of
the making of this contract on August 5 they had already
sold under the original agency, their commission should
be allowed.


UY SOO LIM VS. UNCHUAN

Uy Soo Lim, plaintiff-appellant, vs. Benito Tan Unchuan, Francisca Pastrano and Basilio Cefrano Uy Bundan, defendants-
appellees
Ponente: Fisher, J.

Legal Doctrine: The right of a minor to rescind, upon
attaining his majority, a contract entered into during his
minority is subject to the conditions (1) that the election to
rescind must be made within a reasonable time after
majority and (2) that all of the consideration which was in
the minor's possession upon his reaching majority must
be returned. The disposal of any part of the consideration
after the attainment of majority imports an affirmation of
the contract.

Facts:
Santiago Pastran is a Chinese man who resided
continuously in the Philippine Islands and is married to a
Filipina, Candida Vivares. They have two daughters
Francisca and Concepion. In 1891, he visited China and
stayed for less than a year. While there, he entered into
illicit relations with a Chinese woman, Chan Quieg. He
never saw Chan Quieg again, but received letters from
her informing him that she had borne him a son, Uy Soo
Lim (plaintiff). He believed that he was his only son and
with this, he tried to dispose a large part of his assets in
his will in favor of Uy Soo Lim.
On March 6, 1901, Santiago Pastrano died in Cebu,
leaving a large estate. [Before marriage, he only had a
tienda worth 2k. He acquired most of the propertied
during his marriage with Vivares.] The persons who
survived him and laid claim to an interest in the estate,
were his wife, Candida Vivares, his two daughters, his
mistress Chan Quieg, and the plaintiff Uy Soo Lim who
was still a minor at the time.
The Pastranos and Quieg filed proceedings impeaching
Uy Soo Lims interest in the will, so he came to Manila
(from China) to defend his rights. He employed as his
agent and adviser one Choa Tek Hee and executed a
power of attorney. He also secured the services of two
attorneys, Major Bishop to represent him in Manila and
Levering, of Cebu, to represent him in Cebu.
However, Uy Soo Lim and the Pastranos, advised by their
respective counsels, entered into an agreement under the
informal arbitration of 3 designated of friendly advisers
(respectable Chinese merchants). Uy Soo Lim executed a
deed by which he relinquished and sold to Francisca
Pastrano all his rights, title, and interest in the estate of
the deceased Santiago Pastrano in consideration of
P82,500, of which sum P10,000 was received in cash and
the balance was represented by six promissory notes
payable to Choa Tek Hee as attorney in fact for Uy Soo
Lim, the first for P22,500 and the remaining five for
P10,000 each.
Of these notes the first three, were paid to Hee as they
fell due. It appears, however, that he failed to account to
the satisfaction of Uy Soo Lim. On March 1913, Uy Soo
Lim filed a case to revoke the power of attorney and for
the accounting of the money received by Hee.
Uy Soo Lim reached the age of majority on October 8,
1913 and continued collecting the payments of the last 3
promissory deposited in the clerk of courts.
August 24, 1914: USL now assails the deed claiming that
it was voidable on the grounds that his consent was
obtained through undue influence and fraud.
Lower Court: CFI dismissed the case. He had not been
induced by deceit, or undue influence to enter into the
contract, but did so deliberately, with full knowledge of the
facts, after mature deliberation and upon the advice of
capable counsel. And although the plaintiff was a minor at
the time of the execution of the contract in question, he
not only failed to repudiate the contract promptly upon
reaching his majority but tacitly ratified it by disposing of
the greater part of the proceeds after he became of age
and after he had full knowledge of the facts upon which
he now seeks to disaffirm the agreement.

Issue: WON the deed executed by Uy Soo Lim is
VOIDABLE on the grounds of fraud and undue influence.

Held/Ratio: No. There was no fraud and undue influence.
CFI judgment affirmed.


Related Laws:
ART. 1295 Rescission obliges the return of the
things which were the objects of the contract,
with their fruits and the sum with interest;
therefore it can only be carried into effect when
the person who may have claimed it can return
that which, on his part, he is bound to do
ART. 1304 When the nullity arises from the
incapacity of one of the contracting parties, the
incapacitated person is not obliged to make
restitution, except to the extent he has profited
by the thing or by the sum he may have
received.
ART. 1308 While one of the contracting parties
does not return that which he is obliged to
deliver by virtue of the declaration of nullity, the
other cannot be compelled to fulfill, on his part,
what is incumbent on him.
Article 1314 The action for nullity of a contract
shall also be extinguished when the thing which
is the object thereof should be lost by fraud or
fault of the person having the right to bring the
action.

Goodnow v. Empire Lumber Company
The rule holding certain contracts of an infant voidable
(among them his conveyances of real estate), and giving
him the right to affirm or disaffirm after he arrives at
majority, is for the protection of minors, and so that they
shall not be prejudiced by acts done or obligations
incurred at a time when they are not capable of
determining what is for their interest to do. For this
purpose of protection the law gives them an opportunity,
after they have become capable of judging for
themselves, to determine whether such acts or
obligations are beneficial or prejudicial to them, and
whether they will abide by or avoid them. If the right to
affirm or disaffirm extends beyond an adequate
opportunity to so determine and to act of the result, it
ceases to be a measure of protection, and becomes, in
the language of the court in Wallace vs. Lewis, a
dangerous weapon of offense, instead of a defense.
Prompt Election: Uy Soo Lim had secured and disposed
of the P82,500 awarded to him before and after he
reached the age of majority. He should have immediately
assailed the contract when he reached 21 instead of
collecting the payments and spending them, which means
that he tacitly ratified the deed. The privilege granted
minors of disaffirming their contracts upon reaching
majority is subject to prompt election in the matter.
Jurisprudence: every other case of a right to disaffirm,
the party holding it is required, out of regard to the rights
of those who may be affected by its exercise, to act upon
it within a reasonable time.
Not only should plaintiff have refunded all moneys in his
possession upon filing his action to rescind, but, by
insisting upon receiving and spending such consideration
after reaching majority, knowing the rights conferred upon
him by law, he must be held to have forfeited any right to
bring such action.

CHAPTER 8: UNENFORCEABLE CONTRACTS
PNB VS. THE PHILIPPINE VEGETABLE OIL CO.
Philippine National Bank, plaintiff-appellee, vs. Philippine Vegetable Oil Co., Inc., defendant-appellee, and Phil C. Whitaker,
intervenor-appellant

Facts:
In 1920 Phil. Vegetable Oil Co. (VOC), was in debt of
approximately 30 million, of which PNB was the largest
creditor owed 17 million. PNB was secured by a real and
chattel mortgage for 3.5M. On January 10, 1921, VOC
executed another chattel mortgage in favor of the bank on
its vessels Tankerville and H. S. Everett to guarantee the
payment of sums not to exceed P4, 000, 000.
On January 1, 1921, Mr. Whitaker made his first offer to
pledge certain private properties to secure the creditors of

the Oil Company. In February of the same year, a

creditors' meeting was held. At the instance of Mr.
Whitaker but inspired to such action by the bank, a
receiver for the Vegetable Oil Company was appointed by
the Court of First Instance of Manila on March 11, 1921.
During this period, the creditors transferred to Mr.
Whitaker a part of their claims against the Vegetable Oil
Company in consideration of the execution by Mr.
Whitaker of a trust deed of his property. Shortly
thereafter, on February 28, 1922, the receivership for the
Vegetable Oil Company was terminated. The bank
suspended the operation of the Vegetable Oil Company in
May, 1922, and definitely closed the Oil Company's plant
on August 14, 1922.
PNB filed an action to foreclose its mortgage on the
property of the VOC. Phil. C. Whitaker presented a
complaint in intervention. The judgment rendered was in
against VOC, which was ordered to pay the sum of
P15,787,454.54, representing the liquidation between the
two, with legal interest beginning with May 8, 1923,
together with P25,000 attorney's fees, and costs, with the
addition of the usual order to foreclose the mortgage. The
counterclaim of the defendant and the complaint in
intervention were dismissed.

Issues:
1. Whether the execution of the mortgage was the
free act of the defendant.
2. Whether this mortgage was null and without
force because at the time of its execution all the
property of the defendant was under the control
of a receiver appointed by the court and neither
the approval of the receiver nor of the court had
been obtained
3. Whether the plaintiff had failed to comply with
the contract, that it was alleged to have
celebrated with the defendant and the
intervenor, that it would furnish funds to the
defendant so that it could continue operating its
factory.

Held/Ratio:
1. PNB challenges the right of Whitaker as
intervenor to ask that the mortgage contract
executed by the VOC be declared null and void.
PNB is right as to the premises. The VOC is the
defendant. The corporation has not appealed. At
the same time, it is evident that Phil. C. Whitaker
was one of the largest individual stockholders of
the VOC, and was until the inauguration of the
receivership, exercising control over and
dictating the policy of that company. In truth, Mr.
Whitaker is more vitally interested in the
outcome of this case than is the VOC.
Conceivably if the mortgage had been the free
act of the Vegetable Oil Company, it could not
be heard to allege its own fraud, and only a
creditor could take advantage of the fraud to
intervene to avoid the conveyance.

2. The mortgage, Exhibit A, was executed on
February 20, 1922. At this time, E. W. Wilson
and Miguel Cuaderno, a Director of the
Philippine National Bank, were serving as
Directors of the VOC. Messrs. Wilson had on
July 26, 1921, in a letter to Mr. Whitaker relative
to the reorganization of the VOC, suggested the
resignation of two members of the Board of
Directors so that the bank might "have rather a
close working relationship with the Philippine
Vegetable Oil Co." The resolution of the Board of
Directors of September 2, 1921, naming Messrs.
Wilson and Cuaderno "to represent the PNB in
the Board of Directors of the VOC as members
thereof" did so with the understanding "that
neither one of them has any interest other than
that of the bank's in the VOC and that in
accepting these directorships they are doing it
solely for the bank." According to the testimony
of Major Randall, Mr. Wilson became President
of the Vegetable Oil Company on September 12,
1921.
To all this the appellee as well as the trial court
have answered that while it is true that the
document was executed on February 20, 1922,
at a time when the properties of the mortgagor
were under receivership, the mortgage was not
acknowledged before a notary public until March
8, 1922, after the court had determined that the
necessity for a receiver no longer existed. But
the additional fact remains that while the
mortgage could not have been executed without
the dissolution of the receivership, such
dissolution was apparently secured through
representations made to the court by counsel for
the bank that the bank would continue to finance
the operations of the VOC. Instead of so doing,
the bank within less than two months after the
mortgage was recorded, withdrew its support

from VOC, and in effect closed its establishment.

Also it must not be forgotten that the hands of
other creditors were tied pursuant to the
creditors' agreement of June 27, 1921.
To place emphasis on the outstanding facts, it
must be repeated that the mortgage was
executed while a receiver was in charge of the
Vegetable Oil Company. A mortgage
accomplished at such a time by the corporation
under receivership and a creditor would be a
nullity. The mortgage was definitely perfected
subsequent to the lifting of the receivership
pursuant to implied promises that the bank
would continue to operate VOC. It was then
accomplished when the PNB was a dominating
influence in the affairs of VOC. On the one hand
was the PNB in person. On the other hand was
the PNB by proxy. Under such circumstances, it
would be unconscionable to allow the bank, after
the hands of the other creditors were tied,
virtually to appropriate to itself all the property of
the VOC.
Whether we consider the action taken as not
expressing the free will of the Vegetable Oil
Company, or as disclosing undue influence on
the part of the Philippine National Bank in
procuring the mortgage, or as constituting deceit
under the civil law, or whether we go still further
and classify the facts as constructive fraud, the
result is the same. The mortgage is clearly
voidable.

3. Before it need be decided if the intervenor has a
right to recover damages from either the plaintiff
or the defendant because of the plaintiff's refusal
to finance the operations of the defendant, it
must be determined if the PNB ever entered into
any valid agreement by which it bound itself to
provide the necessary operating capital of VOC.
The question presents both legal and factual
aspects. The legal inquiry relates to the
applicability or non-applicability of the Statute of
Frauds as found in section 335 of our Code of
Civil Procedure. The question of fact goes on the
assumption that the oral evidence can be
received without violating the Statute of Frauds
and then, of course, comes down to the
weighing of the evidence.
The broad view is that the Statute of Frauds
applies only to agreements not to be performed
on either side within a year from the making
thereof. Agreements to be fully performed on
one side within the year are taken out of the
operation of the statute. As intervenor's theory
proceeds on the assumption that Mr. Whitaker
has entirely performed his part of the agreement,
equity would argue that all evidence be admitted
to prove the alleged agreement. Surely since the
Statute of Frauds was enacted for the purpose of
preventing frauds, it should not be made the
instrument to further them.
As preliminary to a presentation of the evidence,
it is well to have an understanding of the
applicable law. The Charter of the Philippine
National Bank, Act No. 2612, section 20, as
amended by Act No. 2938, provides that "The
General Manager of the Bank, shall, among
others, have the following powers and duties: . . .
(b) To make, with advice and consent of the
board of directors, all contracts on beheld of the
said bank and to enter into all necessary
obligations by this Act required or permitted."
Predicated on our general liberal point of view,
we feel free to take into consideration the
applicable law although no special defense to
this effect was interposed by the Philippine
National Bank to intervenor's complaint.
Let us now look into the evidence in detail. We
may properly begin with the applicable
resolutions of the Board of Directors of the
Philippine National Bank.
In the minutes of the Board of Directors of the
Philippine National Bank of October 4, 1921, is
found the following:
x Philippine Vegetable Oil Co. On
motion of Director Westerhouse, duly
seconded, the following resolution was
adopted by the Board: Be it resolved,
that the General Manager be, and he is,
hereby authorized to finance the
operation of the Philippine Vegetable
Oil Co. under the Receivership to the
extent of P500,000 to be secured by
copra and oil and to be further secured
by P500,000 pledged by Phil. C.
Whitaker in his creditor's agreement.
Under date of October 28, 1921, is found the
following:

x The following additional loans with

which to buy more copra were
approved by the Board, at the
recommendation of the Oil Factory
Committee. Philippine Vegetable Oil
Co. F. W. Carpenter, Receiver, P. V.
O., P200, 000.
Under date of December 5, 1921, is found the
following:
x After a long discussion and careful
deliberation, and on motion of Director
Westerhouse, duly seconded by
Director Seaver, the following was
unanimously approved by the Board:
To protect the large investments of the
Bank, it is the sense of the Board of
Directors to continue financing the
operation under receivership of the
Philippine Vegetable Oil Co., the
Philippine Manufacturing Co., the
Cristobal Oil Co., and the Santa Ana Oil
Mills, in as modest and economical way
as is consistent with conditions, the
General Manager to report and secure
the approval of the Board for necessary
credits from time to time, and that the
Board also recommends that the Oil
Committee continue studying the
advisability of financing the operation of
other oil mills indebted to the Bank.
Other portions of the minutes of the Board of
Directors disclose that the Board authorized
advances to the Vegetable Oil Company to the
extent of more than P1, 000, 000.
Logically, our review of the evidence should stop
here. No contract entered into by the General
Manager of the Bank would be valid unless
made with the advice and consent of its Board of
Directors. What the Board of Directors had
decreed was that the Vegetable Oil Company be
financed under the receivership to the extent of
P500, 000, a sum which was later increased.
The Board not alone specified the amounts of
the loans but cautiously added that the General
Manager "report and secure the approval of the
Board for necessary credits from time to time."
There was no indication in any action taken by
the Board of Directors that it had ever consented
to an agreement for practically unlimited backing
of the Vegetable Oil Company, or that it had
ratified any such promise made by its General
Manager.
Mr. Whitaker was in no way personally
responsible for any part of the obligations of the
Vegetable Oil Company. Nevertheless, he
signed the creditors' agreement. That was a
praiseworthy act. We sympathize with him in the
situation in which he finds himself. The various
creditors have a large amount of his property.
The Philippine National Bank has taken over the
assets of the Vegetable Oil Company. The latter
company has ceased operations. Mr. Whitaker
has not made himself the successor in interest of
the Vegetable Oil Company and so cannot
recover from it in these proceedings. But
sympathy cannot be transmuted into legal
authoritativeness. If Mr. Whitaker has any other
remedy, that is for him to determine. Here we
cannot give him redress for he has not made out
his case except insofar as he has been
successful in overturning the last mortgage of
the Philippine National Bank on the property of
the Vegetable Oil Company.


LIMKETKAI VS. CA
Limketkai Sons Milling, Inc., petitioner, vs. Court of Appeals, Bank of the Philippine Islands and National Bookstore,
respondents
Ponente: Melo, J.

Facts:
On 14 May 1976, Philippine Remnants Co., Inc.
constituted BPI as its trustee to manage, administer, and
sell its real estate property. One such piece of property
placed under trust was the disputed lot.
On 23 June 1988, Pedro Revilla, Jr., a licensed real
estate broker was given formal authority by BPI to sell the
lot for P1, 000.00 per sq.m. This arrangement was agreed
upon by the owners of the Philippine Remnants. Broker
Revilla contacted Alfonso Lim of Limketkai Sons Milling
(LSM) who agreed to buy the land.
On 8 July 1988, LSMs officials and Revilla were given
permission to enter and view the property they were
buying. On 9 July 1988, Revilla formally informed BPI that
he had procured a buyer, LSM. 2 days after, LSMs
officials, Alfonso Lim and Albino Limketkai, went to BPI to
confirm the sale. They were entertained by Vice-President
Merlin Albano and Asst. Vice-President Aromin. LSM
asked that the price of P1, 000.00 per sq.m. be reduced
to P900.00 while Albano stated the price to be P1,
100.00. The parties finally agreed that the lot would be
sold at P1, 000.00 per sq.m. to be paid in cash.
Since the authority to sell was on a first come, first
served and non-exclusive basis, it may be mentioned at
this juncture that there is no dispute over LSMs being the
first comer and the buyer to be first served.
Notwithstanding the final agreement to pay P1, 000.00
per sq.m. on a cash basis, Alfonso Lim asked if it was
possible to pay on terms. The bank officials stated that
there was no harm in trying to ask for payment on terms
because in previous transactions, the same had been
allowed. It was the understanding, however, that should
the term payment be disapproved, then the price shall be
paid in cash. It was Albano who dictated the terms under
which the installment payment may be approved, and
acting thereon, Alfonso Lim, on the same date, 11 July
1988, wrote BPI through Merlin Albano embodying the
payment initially of 10% and the remaining 90% within a
period of 90 days. 2 or 3 days later, LSM learned that its
offer to pay on terms had been frozen.
Alfonso Lim went to BPI on 18 July 1988 and tendered
the full payment of P33, 056, 000.00 to Albano. The
payment was refused because Albano stated that the
authority to sell that particular piece of property in Pasig
had been withdrawn from his unit. The same check was
tendered to BPI Vice-President Nelson Bona who also
refused to receive payment.
An action for specific performance with damages was
thereupon filed on 25 August 1988 by LSM against BPI
with the RTC Pasig. In the course of the trial, BPI
informed the trial court that it had sold the property under
litigation to National Book Store (NBS) on 14 July 1989.
The complaint was thus amended to include NBS.
On 10 June 1991, the trial court rendered judgment in
favor of LSM; holding that there was a perfected contract
between LSM and BPI, and thus declared the Deed of
Sale involving the lot in Pasig in the name of BPI and in
favor of NBS as null and void; ordered the Register of
Deeds of the Province of Rizal to cancel the TCT which
may have been issued in favor of NBS by virtue of the
said deed; ordered BPI upon receipt by it from LSM of the
sum of P33,056,000,00 to execute a Deed of Sale in favor
of the latter of the said property at the price of P1,000.00
per sq.m. and in default thereof, the Clerk of Court is
directed to execute the deed dated 14 July 1989; ordered
the Register of Deeds of Pasig, upon registration of the
said deed, whether executed by BPI or the Clerk of Court
and payment of the corresponding fees and charges, to
cancel said TCT 493122 and to issue, in lieu thereof,
another transfer certificate of title in the name of LSM;
ordered BPI and NBS to pay in solidum to LSM the sums
of P10,000,000.00 as actual and consequential damages
and P150,000.00 as attorneys fees and litigation
expenses, both with interest at 12% per annum from date
of judgment; on the cross-claim by the bank against NBS,
ordered NBS to indemnify the bank of whatever BPI shall
have paid to LSM; dismissed the counterclaim of both BPI
and NBS against LSM and the cross-claim of NBS
against BPI; with costs against BPI and NBS.
Upon elevation of the case to the Court of Appeals, the
decision of the trial court was reversed and the complaint
dismissed on 12 August 1994. It was held that no contract
of sale was perfected because there was no concurrence
of the three requisites enumerated in Article 1318 of the
Civil Code. Hence, the petition.

Issue: Whether or not there was a perfected contract

between petitioner Limketkai Sons Milling, Inc. and
respondent Bank of the Philippine Islands

Held/Ratio:
The alleged lack of authority of the bank officials acting in
behalf of BPI is not sustained by the record. At the start of
the transactions, broker Revilla by himself already had full
authority to sell the disputed lot. We agree with Revilla's
testimony that the authority given to him was to sell and
not merely to look for a buyer, as contended by
respondents. Revilla testified that at the time he perfected
the agreement to sell the litigated property, he was acting
for and in behalf of the BPI as if he were the Bank itself.
This notwithstanding and to firm up the sale of the land,
Revilla saw it fit to bring BPI officials into the transaction.
If BPI could give the authority to sell to a licensed broker,
we see no reason to doubt the authority to sell of the two
BPI Vice-Presidents whose precise job in the Bank was to
manage and administer real estate property.
There is nothing to show that Alfonso Lim and Albino
Limketkai knew Aromin before the incident. Revilla
brought the brothers directly to Aromin upon entering the
BPI premises. Aromin acted in a perfectly natural manner
on the transaction before him with not the slightest
indication that he was acting ultra vires. This shows that
BPI held Aromin out to the public as the officer routinely
handling real estate transactions and, as Trust Officer,
entering into contracts to sell trust properties.
Respondents state and the record shows that the
authority to buy and sell this particular trust property was
later withdrawn from Trust Officer Aromin and his entire
unit. If Aromin did not have any authority to act as
alleged, there was no need to withdraw authority which he
never possessed.
Respondents' second contention is that there was no
perfected contract because petitioner's request to pay on
terms constituted a counter-offer and that negotiations
were still in progress at that point.
The requirements in the payment of the purchase price on
terms instead of cash were suggested by BPI Vice-
President Albano. Since the authority given to broker
Revilla specified cash payment, the possibility of paying
on terms was referred to the Trust Committee but with the
mutual agreement that "if the proposed payment on terms
will not be approved by our Trust Committee, Limketkai
should pay in cash . . . the amount was no longer subject
to the approval or disapproval of the Committee, it is only
on the terms." The record shows that if payment was in
cash, either broker Revilla or Aromin had full authority.
But because petitioner took advantage of the suggestion
of Vice-President Albano, the matter was sent to higher
officials. Immediately upon learning that payment on
terms was frozen and/or denied, Limketkai exercised his
right within the period given to him and tendered payment
in full. The BPI rejected the payment. The perfection of
the contract took place when Aromin and Albano, acting
for BPI, agreed to sell and Alfonso Lim with Albino
Limketkai, acting for petitioner Limketkai, agreed to buy
the disputed lot at P1,000.00 per square meter. Aside
from this there was the earlier agreement between
petitioner and the authorized broker. There was a
concurrence of offer and acceptance, on the object, and
on the cause thereof.
Regarding the admissibility and competence of the
evidence adduced by petitioner, respondent Court of
Appeals ruled that because the sale involved real
property, the statute of frauds is applicable. In any event,
petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916])
wherein it was held that contracts infringing the Statute of
Frauds are ratified when the defense fails to object, or
asks questions on cross-examination. In the instant case,
counsel for respondents cross-examined petitioner's
witnesses at length on the contract itself, the purchase
price, the tender of cash payment, the authority of Aromin
and Revilla, and other details of the litigated contract.
Under the Abrenica rule (reiterated in a number of cases,
among them Talosig vs. Vda. de Nieba 43 SCRA 472
[1972]), even assuming that parol evidence was initially
inadmissible, the same became competent and
admissible because of the cross-examination, which
elicited evidence proving the evidence of a perfected
contract. The cross-examination on the contract is
deemed a waiver of the defense of the Statute of Frauds
Moreover, under Article 1403 of the Civil Code, an
exception to the unenforceability of contracts pursuant to
the Statute of Frauds is the existence of a written note or
memorandum evidencing the contract. The memorandum
may be found in several writings, not necessarily in one
document. The memorandum or memoranda is/are
written evidence that such a contract was entered into.
We rule that the profits and the use of the land which
were denied to petitioner because of the non-compliance
or interference with a solemn obligation by respondents is
somehow made up by the appreciation in land values in
the meantime.
Prescinding from the above, we rule that there was a
perfected contract between BPI and petitioner Limketkai;

that the BPI officials who transacted with petitioner had

full authority to bind the bank; that the evidence
supporting the sale is competent and admissible; and that
the sale of the lot to NBS during the trial of the case was
characterized by bad faith.

SWEDISH MATCH, AB VS. COURT OF APPEALS
Swedish Match, AB, Juan Enriquez, Rene Dizon, etc., petitioners, vs. CA, ALS Management & Development Corporation and
Antonio K. Li, respondents
Ponente: Tinga, J.

Facts:
Swedish Match, AB (SMAB) is a corporation organized
under the laws of Sweden not doing business in the
Philippines. However, it has three subsidiary corporations
in the Philippines, all organized under the Philippine laws,
to wit: Phimco, Provident Tree Farms, Inc. and
OTT/Louie, Inc. Sometime in 1988, STORA, the then
parent company of Swedish Match AB (SMAB), decided
to sell SMAB of Sweden and the latters worldwide match,
lighter and shaving products operation to Eemland
Management Services, now known as Swedish Match NV
of Netherlands, (SMNV), a corporation organized and
existing under the laws of Netherlands. Ed Enriquez
(Enriquez), Vice-President of Swedish Match Sociedad
Anonimas (SMSA)the management company of the
Swedish Match groupwas commissioned and granted
full powers to negotiate by SMNV, with the resulting
transaction, however, made subject to final approval by
the board. In his letter dated 3 November 1989, Antonio
Litonjua, president of ALS, submitted to SMAB a firm offer
to buy all of the latters shares in Phimco and all of
Phimcos shares in Provident Tree Farm, Inc. and
OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.
Thereafter, an exchange of correspondence ensued
between petitioners (Rossi, SMAB CEO) and respondents
regarding the projected sale of the Phimco shares. In his
letter dated 21 May 1990, Litonjua offered to buy the
disputed shares, excluding the lighter division for
US$30.6 million, which per another letter of the same
date was increased to US$36 million. Responding to
Litonjuas offer, Rossi informed the former that ALS
should undertake a due diligence process or pre-
acquisition audit and review of the draft contract for the
Match and Forestry activities of Phimco at ALS
convenience. However, Rossi made it clear that it should
submit its offer not later than 30 June 1990. Litonjua in a
letter dated 18 June 1990, informed Rossi that it may not
be possible for them to submit their final bid on 30 June
1990, citing the advice to him of the auditing firm that the
financial statements would not be completed until the end
of July. Two days prior to the deadline for submission of
the final bid, Litonjua again advised Rossi that they would
be unable to submit the final offer by 30 June 1990,
considering that the acquisition audit of Phimco and the
review of the draft agreements had not yet been
completed. He said, however, that they would be able to
finalize their bid on 17 July 1990 and that in case their bid
would turn out better than any other proponent, they
would remit payment within ten (10) days from the
execution of the contracts. In a letter dated 3 July 1990,
Rossi informed Litonjua that on 2 July 1990, they signed a
conditional contract with a local group. He told Litonjua
that his bid would no longer be considered unless the
local group would fail to consummate the transaction on
or before 15 September1990. After more than two
months, Enriquez sent a fax communication to the former,
advising him that the proposed sale of SMABs shares
with local buyers did not materialize. Enriquez then
invited Litonjua to resume negotiations with SMAB for the
sale of Phimco shares. He indicated that SMAB would be
prepared to negotiate witteh ALS on an exclusive basis
for a period of fifteen (15) days from 26 September 1990
subject to the terms contained in the letter. Additionally,
Enriquez clarified that if the sale would not be completed
at the end of the fifteen (15)-day period, SMAB would
enter into negotiations with other buyers. Shortly
thereafter, Litonjua sent a letter expressing his objections
to the totally new set of terms and conditions. He
emphasized that the new offer constituted an attempt to
reopen the already perfected contract of sale of the
shares in his favor. He intimated that he could not accept
the new terms and conditions contained therein. On 14
December 1990, respondents, as plaintiffs, filed a
complaint for specific performance with damages, with a
prayer for the issuance of a writ of preliminary injunction,
against defendants, now petitioners.

Issue: WON the contract between ALS and SMAB is

enforceable under the Statute of Frauds.

Held: No, the contract is unenforceable. So, specific
performance does not lie. But for damages, this case is
remanded.

Ratio:
The Statute of Frauds embodied in Article 1403,
paragraph (2), of the Civil Code requires certain contracts
enumerated therein to be evidenced by some note or
memorandum in order to be enforceable. The term
Statute of Frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The Statute
does not deprive the parties of the right to contract with
respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to
render it enforceable. The purpose of the Statute is to
prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the
unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced
by a writing signed by the party to be charged. However,
for a note or memorandum to satisfy the Statute, it must
be complete in itself and cannot rest partly in writing and
partly in parol. The note or memorandum must contain
the names of the parties, the terms and conditions of the
contract, and a description of the property sufficient to
render it capable of identification. Such note or
memorandum must contain the essential elements of the
contract expressed with certainty that may be ascertained
from the note or memorandum itself, or some other
writing to which it refers or within which it is connected,
without resorting to parol evidence. The exchange of
correspondence between the parties hardly constitutes
the note or memorandum within the context of Article
1403 of the Civil Code. Rossis letter dated 11 June
1990, heavily relied upon by respondents, is not complete
in itself. First, it does not indicate at what price the shares
were being sold. In paragraph (5) of the letter,
respondents were supposed to submit their final offer in
U.S. dollar terms, at that after the completion of the due
diligence process. The paragraph undoubtedly proves
that there was as yet no definite agreement as to the
price. Second, the letter does not state the mode of
payment of the price. In fact, Litonjua was supposed to
indicate in his final offer how and where payment for the
shares was planned to be made.

CARBONNEL VS. PONCIO, ET AL.
Rosario Carbonnel, plaintiff, vs. Jose Poncio, Ramon Infante and Emma Infante, defendants
Ponente: Concepcion, J.

Facts:
Plaintiff says that she purchased from Poncio at P9.50 a
square meter, a parcel of land of about 195 square
meters, more or less, located in San Juan del Monte,
Rizal, excluding the improvements thereon. She says that
she paid P247.26 on account of the price and assumed
Poncio's obligation with the Republic Savings Bank
amounting to P1,177.48, with the understanding that the
balance would be payable upon execution of the
corresponding deed of conveyance; that one of the
conditions of the sale was that Poncio would continue
staying in said land for one year, as stated in a document
signed by him. Poncio refuses to execute the
corresponding deed of sale, despite repeated demands;
Poncio has conveyed the same property to defendants
Ramn R. Infante and Emma L. Infante, which the plaintiff
alleged knew of the first sale to the latter. Plaintiff prayed
that she be declared owner of the land in question and
that the sale to the Infantes be annulled and to pay
damages. Defendants moved to dismiss said complaint
upon the ground that plaintiff's claim is unenforceable
under the Statute of Frauds.
The Infantes filed an answer saying that they did not have
knowledge of the alleged sale to plaintiff. Poncio says that
he had no knowledge sufficient to form a belief as to the
truth of the other averments therein. He says that he has
continuously denied offers by the plaintiff to buy the land.
Poncio only signed a document relying upon the
statement of the plaintiff that the document was a permit
for him to remain in the premises in the event that that the
defendant decided to sell the property to plaintiff at P20
per square meter.

Constancio Meonanda was presented was plaintiff as

witness. He is a janitor at Sto. Domingo Church and a
high school as well as auto mechanic graduate. Meonada
was the one who read the contents of the document
signed by Poncio.

Issue: WON the case should be dismissed on the ground
that it is unenforceable under the Statute of Frauds

Held: No, this case is remanded to the lower court.

Ratio:
Statute of Frauds is applicable only to executory
contracts, not to contracts that are totally or partially
performed. The reason is simple. In executory contracts
there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of
the contracting parties. The statute has precisely been
enacted to prevent fraud. However, if a contract has been
totally or partially performed, the exclusion of parol
evidence would promote fraud or bad faith, for it would
enable the defendant to keep the benefits already derived
by him from the transaction in litigation, and, at the same
time, evade the obligations, responsibilities or liabilities
assumed or contracted by him thereby. So, when the
party concerned has pleaded partial performance, such
party is entitled to a reasonable chance to establish by
parol evidence the truth of this allegation, as well as the
contract itself. "The recognition of the exceptional effect of
part performance in taking an oral contract out of the
statute of frauds involves the principle that oral evidence
is admissible in such cases to prove both the contract and
the part performance of the contract".

CHAPTER 9: VOID OR INEXISTENT CONTRACTS
UBARRA VS. MAPALAD
Atty. Manuel T. Ubarra, complainant, vs. Judge Luzviminda M. Mapalad, respondent
Per Curiam

Legal Doctrine: Pari delicto applies only to civil cases.

Facts:
Atty. Manuel Ubarra filed the complaint in behalf of his
client, Juanito Calderon, against respondent judge
Luzviminda Mapalad. It is alleged that Mapalad had
committed grave misconduct when she decided the case
of Grave Threats filed by Calderon against Roberto Cruda
in the latters favor. Mapalad ratiocinated that since the
criminal act of Cruda was provoked by Calderon, the
latter had no cause of action against Cruda, based on the
principle of pari delicto.
In response to this complaint, Mapalad narrated how she
tried to help and reform Cruda. In the process of doing so:
x He became her brother-in-law. She
solemnized the marriage between
Cruda and her sister.
x She helped him negotiate with other
parties who had filed criminal cases
against Cruda.
x She inhibited herself from the second
Grave Threats charge against Cruda.

Issues:
1. W/N pari delicto is applicable in this case.
2. W/N Mapalad is guilty of grave misconduct.

Held/ Ratio:
1. It is not. Pari delicto is applies to civil cases, not
to criminal ones. It is governed by CC 1411
which provides, When the nullity proceeds from
the illegality of the cause or object of the
contract, and the act constitutes a criminal

offense, both parties being in pari delicto, they

shall have no action against each other, and
both shall be prosecuted.
To apply pari delicto to criminal cases would
essentially weaken the States actions in
prosecuting criminal acts. As the offended party
is but a complainant, acts committed by him to
provoke the accused can only be invoked to
justify his actions or mitigate his liability, and not
to bar State prosecution for criminal offenses.

2. Court found her guilty of grave misconduct,
gross inefficiency and neglect of duty, gross
ignorance of the law and conduct prejudicial to
the best interest of the service. She was
dismissed from service. The Court did not find
her guilty of gross misconduct for rendering the
questioned judgment, even if she was at that
time disqualified from rendering such judgment.
At most they believed she was guilty of gross
ignorance of the law since there is no convincing
evidence to show that she knew such judgment
to be unjust and that she rendered the same with
the conscious and deliberate intent to commit an
injustice.
In helping Cruda negotiate with other parties
who filed action against him, it is likely that they
acceded to Mapalads intercession not because
they forgave the former but because of her office
and influence. For this, the Court found her guilty
of improper conduct which served to diminish
public confidence in the integrity and impartiality
of the judiciary. Her behavior amounted to a
violation of Rule 2.01, Canon 2 of the Code of
Judicial Conduct.
She was aware that judges are disqualified from
hearing cases where one of parties is a relative
within the sixth degree and when the permission
of the parties have not been obtained. Despite
her being absolutely disqualified to do so,
Mapalad, in rendering judgment to the case,
displayed behavior amounting to grave
misconduct and conduct prejudicial to the best
interest of the service.

MODINA VS. CA
Serafin Modina, petitioner, vs. Court of Appeals, Ernesto Hontarciego, Paul Figueroa, Teodoro Hipalla, Ramon Chiang, and
Merlinda Chiang, respondents
Ponente: Purisima, J.

Legal Doctrine: Exception to the application of pari
delicto is to inexistent contracts.

Facts:
Properties owned by Merlinda Chiang and her former
husband Nelson Plana is the subject of controversy. It is
being leased by respondents (in bold). It is also claimed
by Ramon Chiang as sold by Merlinda to him, which he
subsequently sold to Modina. For both transactions,
Deeds of Absolute Sale were executed.
Modina filed for Recovery against the respondents;
Merlinda filed an intervention seeking to have the Deed of
Sale between Modina and her husband a nullity as the
properties were never legally transferred to Ramon.
TC: declared Deed of Absolute Sale between Merlinda
and Ramon, and Ramon and Modina, as nullities. For the
sale between the spouses, it is inexistent due to the lack
of consideration, holding the principle of pari delicto
inapplicable. For the sale between Ramon and Modina, it
was prohibited by law as Ramon never became the owner
of the property.
CA: affirmed TC decision. It found that Merlinda not being
at fault, pari delicto becomes inapplicable.

1. W/N the sale of subject lots should be nullified. It
can. Pari delicto denies all recovery to the guilty
parties inter se. It applies to all cases where the

nullity arises from the illegality of the

consideration or the purpose of the contract.
When two parties are at fault, the law does not
relieve them. The exception to this general rule
is when the principle is invoked with respect to
inexistent contracts. The contract being
inexistent, CC 1411 and 1142 are inapplicable.
Since an inexistent contract produces no legal
effect, Merlinda may recover the property from
the petitioner who never acquired title to it.
2. W/N petitioner was a purchaser in good faith. He
is not. Purchaser in good faith refers to one who
buys and pays a fair price for the property
without any notice that another has a right or
interest in such property. As petitioner knew of
the sale between the spouses, had met the
lessees of the property who did not know
ownership was transferred to Ramon, he could
not be considered a purchaser in good faith.

RELLOSA VS. GAW CHEE HUN
Dionisio Rellosa, petitioner, vs. Gaw Chee Hun, respondent
Ponente: Bautista, J.

Facts:
Dionisio Rellosa sold to Gaw Chee Hun (A Chinese
Citizen) a parcel of land and a house for P25, 000.
It was agreed that Rellosa would lease the land on the
condition that Gaw Chee Hun obtain the approval of the
Japanese Military Administration (JMA) in accordance
with Seirei No. 6 issued on April 2, 1943.
Gaw was unable to get the approval from the JMA so
Relloso asked the court for the lease contract to be
considered void and asked for the return of the title of the
property. Relloso also contends that the sale was void
under article XIII, section 5, of our Constitution
Gaw responds stating the salewas absolute,
unconditional, and valid. Gaw also contends that Rellosa
is guilty of estoppel.
TC and CA both declared sale and lease valid. Relloso
appeals to SC.

Issues/Held/Ratio:
1. Did the contract of sale violate the Constitution?
Yes.
Rellosa says sale is not valid as sale with the
approval of the Director General is not binding
because the occupation government could not
have issued it under article 43 of the Hague
Regulations. What must be followed during
occupation are political laws. The lease was a
municipal law not a political law.
SC states that JMA Seirei No 6 doesnt matter.
The law that should govern is the Constitution.
The Constitution states in Art. VIII, Sec. 5, that
"no private agricultural land shall be transferred
or assigned except to individuals, corporations,
or associations qualified to acquire or hold lands
of the public domain in the Philippines".
According to previous cases, private agricultural
land includes residential lands.

2. Can Rellosa have the sale declared null and void
and recover the property considering that this
was a rescission of contract? No.
The court applied the doctrine of PARI
DELICTO. The doctrine states that the
proposition is universal that no action arises, in
equity or at law, from an illegal contract; no suit
can be maintained for its specific performance,
or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or
damages for its violation.
Quoting a similar case, the court stated that
even if the plaintiffs can still invoke the
Constitution they are now prevented from doing
because of their guilty knowledge that what they
were doing was in violation of the Constitution. A
party to an illegal contract cannot come into a

court of law and ask to have his illegal objects

carried out. The law will not aid either party to an
illegal agreement; it leaves the parties where it
finds them.

3. But does this case come under the exception?
No.
Pari Delicto has one limitation, namely,
"whenever public policy is considered. This
case is not intrinsically contrary to public policy.
Those that could be exempted are contracts
such as usurious contracts, marriage-brokerage
contracts and gambling contracts.
This case is illegal not because it is against
public policy but because it is against the
Constitution.
Understandably, there a danger in this ruling as
it is allows an alien to remain in the illegal
possession of the land. The SC recommends
that a law be laid down to address this concern.
Also, the executive could follow a more militant
policy in the conservation of the Philippines
natural resources
At present there are two ways the executive may
still remedy the situation. (1) action for reversion
found in the Public lands act, and (2) escheat to
the state which may be instituted as a
consequence of a violation of the Constitution,
which prohibits transfers of private agricultural
lands to aliens.
In both cases, the reversion of the title would
seem to be but a consequence of the annulment
and cancellation of the original grant or title. It
doesnt mean that it rewards a party in pari
delicto.

FRENZEL VS. CATITO
Alfred Fritz Frenzel, petitioner, vs. Ederlina P. Catito, respondent
Ponente: Callejo, Sr., J.

Facts: (Telenovela story)
Alfred Frenzel, an Australian citizen of German descent
married a Filipina, Teresita Santos. After a while, they
parted ways without obtaining a divorce. Alfred then went
on a vacation in Australia and met Ederlina Catito (who
was a masseuse in a nightspot). Unknown to Frenzel,
Catito was married to Klaus Miller, a German national.
They talked and spent 3 nights together. Alfred,
completely enamored, persuated Ederlina to return to the
Philippines. He said he would help her build a legitimate
business (a beauty salon). Ederlina agreed and Frenzel
paid for the fare. In Manila, Alfred told Ederlina he was
married but was going to get a divorce so he could marry
Ederlina. Ederlina told Alfred to wait. They began setting
up the parlor with Alfred financing. Alfred paid 20,000 for
the place and 300,000 for the equiptment.
Ederlina then went back to Germany. In her brother Aser
special power of attorney to manage the business. The
dead stated that Ederlina was married to Klaus. When
Alfred visited Ederlinas place in Manila while she was in
Germany, he found the place unsuitable for his queen.-
He decided to buy her a house and lot. Knowing that he
was an alien and disqualified from owning lands in
the Philippines, he purchase the house and lot and
agreed to have Ederlinas name appear in the deed of
sale as the buyer of the property. Frenzel, completely
lovestruck, decided to stay permanently in the Philippines
so he sold all his business interest and his fiber glass
boat in Australia. Frenzel then oppened an account for
Ederlina. The account was under Ederlinas name.
Frensel then transferred the deposits from his account to
Ederlinas!
A couple of years later Klaus wrote a letter to Franzel
informing him that he and Ederlina had been married
since 1978 and that Franzel had ruined their marriage. He
begged Frenzel to leave Ederlina alone and return
Ederlina to him. Frenzel confronted Ederlina about the
matter and she admitted that she was married to Klaus;
but, she assured him that she would divorce Klaus.
Frenzel decided to continue the relationship even got the
services of a lawyer in Germany to help with the
proceedings. While waiting for the divorce proceedings

outcome, Franzel bought another house with the deeds

having Ederlina as the only vendee. Ederlina also
deposited an amount of $250, 000 in their joint account.
They also purchased a property in Davao as they decided
to put up a resort. All under Ederlinas name.
The divorce proceedings were denied as Klaus opposed
it. Klaus said that he would only consent to the divorce if
half of all the properties of Ederlina were given to him. He
even threatened to file a bigamy case against her.
Frenzel proposed the creation of a partnership or
corporation to protect the property interests Ederlina
agreed but, at the last minute, decided on claiming
ownership of the properties. (Kapal!)
Frenzel and Ederlina break up and Frenzel writes
Ederlinas father demanding that the properties he
acquired under Ederlinas name and now in possession of
the Catito family be returned. Frenzel filed a complaint
with the RTC alleging that Ederlina without his knowledge
or consent transferred funds from their joint account into
her own account and using the funds was able to
purchase the properties in question and he also claimed
that the beauty parlor was purchased by his own money.
He also filed a complaint for specific performance,
declaration of ownership and damages.
RTC found in favor of respondent Ederlina Catito stating
that from the documentary evidence, the purchaser is
Ederlina. Even if Frenzel was the buyer he cannot acquire
the property because he is an alien and automatically
disqualified. The sale to the petitioner would it null and
void ab initio. Applying the in pari delicto doctrine,
petitioner was precluded from recovering the properties.
The CA affirmed the RTC decision and ruled that
petitioner knowingly violated the Constitution.
Issue: Should the pari delicto doctrine be applied?

Held/Ratio: Yes. The petitioner, being a party to an
illegal contract cannot come into a court of law and ask to
have his illegal objective carried out. Petitioner cannot
feign ignorance. He had knowledge of the constitutional
provision when he tried to skirt it by making Ederlina the
sole owner.
Art. XIV, sec. 14 of the 1973 Constitution provides: Save
in cases of hereditary succession, no private land shall be
transferred or conveyed except to individuals,
corporations or associations qualified to acquire or hold
lands in the public domain.
Aliens, whether individuals or corporations are
disqualified from acquiring lands of the public domain.
Even if the sales in question were entered into by him as
the real vendee, the said transactions are in violation of
the Constitution and are null and void ab initio. A contract
that violates the Constitution is null and vests no rights
and creates no obligation.
Alfred tried to reason out that under Art 1416 When an
agreement is not illegel per se but is merely prohibited,
and the prohibition by the law is designed for the
protection of the palinteff, he ma, if public policy is thereby
enhanced, recover what he has paid or delivers. The
court responded by saying that this was not a contract
that was merely prohibited. It was a VOID contract; the
contract was illegal.

TITLE IV: ESTOPPEL
A. Definition
KALALO VS. LUZ
Octavio Kalalo, plaintiff-appellee, vs. Alfredo J. Luz, defendant-appellant
Ponente: Zaldivar, J.

Legal Doctrine: Elements of Estoppel; All the elements
of estoppel have to be proved; It is crucial that the person
invoking the estoppel has been influenced or relied on the
representation or conduct of the person sought to be
estopped.

Facts:
Kalalo (a civil engineer) and Luz (an architect) entered
into an agreement (on Nov. 17, 1959), wherein Kalalo
would render engineering design services (i.e. design
computation, sketches, contract drawing, and technical
specifications of all engineering phases of the project
designed by Kalalo, etc.) for fees. The fees they agreed
upon wre percentages of Luz's fees as an architect.
By virtue of that agreement, Kalalo rendered engineering
services to Luz in several projects. Subsequently (on Dec.
11, 1961), Kalalo sent Luz a statement of account
(referred to as Exhibit 1) wherein an itemized statement of
Luz's account (Exhibit 1-A) was attached. It stated that
the total engineering fee that Kalalo was asking for
amounted to P116,565, and to be deducted from it were
previous payments made amounting to P57,000, such
that only the balance of P59,565 was left to be paid.
Luz apparently disagreed, however, for he thensent
Kalalo a resume of fees that only P10,861.08 was due to
be paid, and not the amount Kalalo stated. Luz then sent
him a check for that amount, which Kalalo refused to
accept as full payment, and he subsequently filed a
complaint against Luz. In the complaint, Kalalo alleged,
as one of the causes of action, that the amount due him
was $28,000 and the balance of P30,881.25. In answer,
Luz sets up the defense of estoppel because of certain
acts, representations, and admissions (probably referring
to Exhibit 1 which states an amount due which is different
from the amount Kalalo is asking for in the complaint)
which led appellant to believe certain facts to exist and to
act upon said facts.
The Commissioner who heard the case rendered a report
which states that the amount due was the $28,000 (for
the IRRI project) and P51, 539.91 (for other projects),
minus the sum of P69, 475.46 which Luz had already
paid. The trial court more or les appealed that
pronouncement, and thus, the case was raised to the SC.
Luz assigns 5 errors to the lower court, but the topical one
concerns the defense of estoppel which he is trying to set
up.

Issue: W/N Luz's defense of estoppel can prosper.

Held/Ratio:
Luz points to the statement of accounts sent by Kalalo
(Exhibit 1-A) which specifies the various projects for
which he claimed engineering fees and which also stated
the precise amounts due on each particular engineering
service. He claims that the said statement barred Kalalo
from asserting any claim different from what was stated
there, and as such, the trial court should not have
awarded fees more than what was stated there. He also
claims that for estoppel to apply, it is not necessary that
he should have relied on the mistrepresentation; he
argues that it is enough that the representation was
intended to make him act upon it.
On the other hand, Kalalo argues that he is not in
estoppel (1st) because when he prepared the statement
of accounts, he was then laboring under an honest
mistake); (2nd) Luz knew of the services he had rendered
and the fees that were actually due him; and (3rd) Luz did
not rely on the data in Exhibit 1-A anyway nor act
because of it.
The Court in this case found in favor of Kalalo. This is
because of the lack of a crucial element provided by Art.
1431, which is that the person invoking it has been
influenced and relied on the representation or conduct of
the person sought to be estopped. All the elements of
estoppel have to be clearly proved, because when it is
misused or misapplied, it can have the effect of barring a
person from speaking the truth or from truth to be given
weight in a case.
The Court then discussed the essential elements of
estoppel in pais. With regard to the party to be estopped,
the eseential elements are:
(1) conduct amounting to false representation or
concealment of material facts or at least
calculated to convey the impression that the
facts are otherwise than, and inconsistent with,
those which the party subesequently attempts to
assert;
(2) intent, or at least an expectation, that this
conduct shall be acted upon by the other party,
or that it will at least influence him
(3) actual or contructive knowledge of the real
facts.
With regard to the party invoking estoppel, the essential
elements are:
(1) lack of knowledge as well as the means of
knowledge of the truth as the facts in question
(2) reliance, in good faith, upon the conduct or
statements of the party to be estopped

(3) action or inaction basd on it of such character

as to change the position or status of the party
claiming the estoppel, to his injury, detriment, or
prejudice.
In this case, the SC found that the 1st essential element
re: the party to be estopped is not present, for when
Kalalo made the statement of accounts, he had not yet
consulted the services of his counsel. It was only upon his
counsel's advice that the terms of the contract were
interpreted to him, resulting in his subsequent letters to
Luz for the payment of his fees pursuant to the
agreement. Because an act, conduct, or
misrepresentation of the party to be estopped, if due to
ignorance or an innocent mistake, will not lie, then
estoppel does not arise.
As for the elements of estoppel in relation to the party
invoking it, the SC found that all 3 elements do not exist
here. Re: the first one, it cannot be said that Luz did not
know, or at least, did not have the means to know that the
services Kalalo rendered and the corresponding fees for
those. Re: the 2nd one, Luz consistently denied the
accounts stated in the itemized statement of accounts. As
for the 3rd one, Luz did not act on the basis of the
representations in Exhibit 1-A, and there was no change
in his position which would have prejudiced or injured
him.
With regard to his other contentions and assignment of
errors, the Court found no merit in those as well.
Therefore, the SC affirmed the judgment of the trial court.

C. Persons Bound
MANILA LODGE NO. 761 VS. CA
Manila Lodge No. 761, Benevolent and Protective Order of the Elks, Inc., petitioner, vs. The Honorable Court of Appeals, City
of Manila, and Tarlac Development Corporation, respondents
Tarlac Development Corporation, petitioner, vs. Honorable Court of Appeals, City of Manila, Lodge No. 761, Benevolent and
Protective Order of Elks, Inc., respondents
Ponente: Castro, J.

Legal Doctrine: Estoppel against the Government cannot
arise through the mistakes and errors of its agents. Also,
estoppel does not apply to municipal corporations which
would lead to the validation of contracts which are
prohibited by law or against public policy.

Facts:
June 26, 1905 - The Phil. Commission passed Act. No.
1360 authorizing the City of Manila to reclaim a portion of
Manila Bay, which would then form part of the Luneta
extension. It also provided that the reclaimed area shall
be the property of the City of Manila, which was
authorized to set aside a portion of the reclaimed land for
a hotel site, and to lease it with the approval of the
Governor General to a responsible person or corporation
for a period not exceeding 99 years.
May 18, 1907 - Act No. 1657 amending the above Act is
passed, which authorized the City either to lease or to sell
the portion set aside as a hotel site.
In any case, the City applied for a registration of the
reclaimed area (which was about 25 hectares) and a TCT
was issued in its name, though subject to the
incumbrances mentioned in Art. 39 of the Land
Registration Act as may be subsiting.
July 13, 1911 - The City conveyed 5,543.07 square
meters of the reclaimed area to Manila Lodge No. 761,
Benevolent and Protective Order of the Elks (BPOE) in a
sale. They also (in 1963) petitioned the CFI of Manila to
cancel the right of the City to repurchase the property, w/c
was granted.
Nov. 19, 1963 - BPOE sold the property to Tarlac Dev't.
Corp. (TDC); at this time, there was no annotation of any
subsisting lien on the title.

June1964 - The City petitioned to have its right to

repurchase the property after 50 years reannotated,
which the court granted. The TDC and BPOE then
appealed this order to the SC, which affirmed the order,
but nevertheless reserved to TDC the right to bring an
action for the clarification of its rights.
They filed an action, and the trial court pronounced that
the subject property was part of the public domain (being
part of Luneta) and then declared the sale between the
City and BPOE void; that TDC was a purchaser in good
faith and for value from BPOE so it had a right to enforce
its right against BPOE; and that BPOE had a right to
recover from the City for the consideration it had paid for
the sale.

Issues:
1. W/N the subject property is owned by the City as
its patrimonial property or as public domain.
2. W/N the City is estopped from questioning the
sale to BPOE.

Held/Ratio:
There is no doubt that the subject property, an extension
of Luneta, was declared to be the property of the City.
The question is if that ownership is of pulic ownership or
of private ownership, and the Court answered that it is of
public dominion, intended for public use. They reached
this conclusion by statutory construction, that is, looking
at the intent of the legislatives in enacting Act. No. 1360.
Among the reasons that they concluded it was public
dominion was: (1) if the area had been patrimonial
property, the City should have been able to dispose of it
without need of authorization from a lawmaking body.
That is not the case here. (2) the area, being an extension
of Luneta, is deemed to be of the same nature as the old
Luneta, which is a public park for public use. Thus, the
extension to Luneta must also be for public use. (3) The
reclaimed area was previously part of Manila Bay, which
is an inlet of the sea. According to Art. 1 of the Law of
Waters of 1866, bays, roadsteads, coast sea, inlets and
shores are part of the national domain open for public
use. (4) Act. 1360 as amended authorized the lease or
sale of the northern portion of the reclaimed area as a
hotel site, but the subject property is the southern portion.
Hence, the City was not authorized to sell that portion of
the land. (5) Art. 344 of the Civil Code of Spain provides
for proeprties which are for public use, which undoubtedly
included parks or plazas, such as the extension of
Luneta.
However, the petitioners point to circumstantial evidence
which, according to them, shows that the legislative intent
favors them. The SC pointed out that their alleged
circumstantial evidence actually were acts very far
removed in time from the date of the enactment of Act
1360, so they cannot be considered contemporaneous
with the enactment. Also, given that at the time, there had
already been the occurrence of a series of invalid acts, it
is not farfetched that such evidence might have been
influenced by said acts.
On a different note, the TDC is claiming that the City is
estopped from questioning the validity of the sale it made
to Manila Lodge. This claim cannot be entertained,
however, for the doctrine is that the Government is never
estopped by mistakes or errors of its agents, and estoppel
does not apply to a muncipal corporation which would
lead to a validation of a contract which is prohibited by
law or against its policy, suh as the sale between the City
and the Manila Lodge. Estoppel cannot arise even if the
City accepted the benefits of the contract of sale, because
if it is applied, then it would be similar to enabling the City
to do indirectly what it could not do directly.


D. Cases Where Estoppel Applies

MIGUEL VS. CATALINO
Simeon B. Miguel, et al., plaintiffs-appellants, vs. Florendo Catalino, defendant-appellee

Legal Doctrine: The court will not favor parties who, by
their silence, delay and inaction, knowingly induce
another to spend time, effort and expense in cultivating
the land and later on after sleeping on their rights would
subsequently assert their right over the said land.

Facts:
1928- Bacaquio(non-Christian inhabitant, father of
plaintiff) sold the land to Catalino Agyapao(father of
defendant) for the price of 300 without the Governors
approval. Purchase price was paid but the receipt was
lost. No formal deed of sale was executed but the
defendants since the sale in 1928 had occupied the land,
paid its taxes and made improvements on it.
1949- Grace Ventura (one of the plaintiffs, child of
Bacaquio with his first wife) sold again the same land to
defendant Catalino for 300. She also executed an affidavit
of transfer in favor of defendant.
1961- Catalino Agyapao sold the same land to his son
Florendo.
1962- Plaintiffs filed a case against defendant and assert
that they are the rightful owners of the land. They claim
that defendants had unlawfully taken possession, gather
its produce for themselves. While defendants averred that
they had continuous possession of the land for over 30
years.

Issues/ Held:
1. Was the sale of the land in 1928 by Bacaquio to
Catalino Agyapao null and void ab initio? YES
2. WON plaintiffs right over the ownership has
been barred by laches? YES

Ratio:
Sec 145 and 146 of Administrative Code of Mindanao and
Sulu provides that alienation without governors approval
of real properties owned by non-Christian inhabitant will
be rendered void ab initio, hence Bacaquio remained the
lawful owner of the land until his death in 1943.
Despite the invalidity of the sale, it was undeniable that
the plaintiffs didnt reclaim or even prevent defendants
from occupying the land. Although there was no
prescription to settle the title, plaintiffs passivity and
inaction for more than 34 years (1928-1962) justifies the
defendant in setting up the equitable defense of laches in
his own behalf. As a result, plaintiffs action to reclaim the
land must be considered barred. Courts can not look with
favor at parties who, by their silence, delay and inaction,
knowingly induce another to spend time, effort and
expense in cultivating the land, paying taxes and making
improvements thereon for 30 long years, only to spring
from ambush and claim title when the possessor's efforts
and the rise of land values offer an opportunity to make
easy profit at his expense.


TITLE V: TRUSTS
D. Kinds
SALAO VS. SALAO
Benita Salao, assisted by her husband, Gregorio Marcelo; Almario Alcuriza, Arturo Alcuriza, Oscar Alcuriza And Anita
Alcuriza, the latter two being minors are represented by guardian ad litem, Arturo Alcuriza, plaintiffs-appellants, vs. Juan S.
Salao, Later Substituted By Pablo P. Salao, administrator of the intestate of Juan S. Salao; Now Mercedes P. Vda. De Salao,
Roberto P. Salao, Maria Salao Vda. De Santos, Luciana P. Salao, Isabel Salao De Santos, and Pablo P. Salao, as
successors-in-interest of the late Juan S. Salao, together with Pablo P. Salao, administrator, defendants-appellants
Ponente: Aquino, J.

Legal Doctrine: Express trust for immovable objects
shall be proved by documentary evidence; although an
implied trust may be proven by oral evidence it must be
trustworthy oral evidence.
The person invoking laches is asserting that an opposing
party has "slept on its rights," and that, as a result of this
delay, that other party is no longer entitled to its original
claim.

Facts:

Manuel Salao and Valentina Ignacio begot 4 children,
Patricio, Alejandra, Juan Sr. (Banli) and Ambrosia.
Manuel died in 1885. Patricio died in 1886 and was
survived by his son Valentin. When Valentina died, her
estate was administered by Ambrosia. It was partitioned
extra-judicially to Alejandra, Juan, Ambrosia and Valentin
(to represent his dead father Patricio). Valentin was given
a land which has an appraised value of 13,501 which
exceeded Valentin's distributive share hence was directed
to pay to his co-heirs the sum of P5,365.75(so as not to
divide the land).
In 1911, prior to Valentinas death, Juan and Ambrosia
secured a Torrens title for 47 hectare fishpond
(CAUNLARAN FISHPOND) located at Sitio Calunuran,
Lubao, Pampanga. Subsequently, Ambrosia bought
another fishpond (LEWA) which also has a title secured in
the name of Ambrosia and Juan Sr.
Plaintiffs aver that Valentin Salao and Alejandra Salao
also participated in the acquisition of the said fishpond.
They also claimed that Juan Sr. and Ambrosia held in
trust for Valentin 1/3 of the share of Caunlaran and Lewa
Fishpond. Defendants contend that the Calunuran
fishpond consisted of lands purchased by Juan Y. Salao,
Sr. and Ambrosia Salao.

In 1911 Juan Sr. and Ambrosia secured the title and

exercised dominical rights over it to the exclusion of their
nephew, Valentin.
November 3, 1931-Juan Y. Salao, Sr. died. Valentin
Salao died on February 9, 1933. His estate, which
consists of 2 fishponds he had inherited in 1918 from his
grandmother, Valentina Ignacio, was partitioned to her
two daughters, Benita Salao-Marcelo and Victorina Salao-
Alcuriza. No mention of the alleged 1/3 interest in the
Calunuran and Lewa fishponds was mentioned.
On April 8, 1940 Ambrosia donated parcels of land to her
grandniece, plaintiff Benita. On that occasion she didnt
asked Ambrosia to deliver to her and Victorina, the
Calunuran fishpond. It was only after Ambrosia's death
that she thought of filing an action for the reconveyance.
About a year before Ambrosia Salao's death on
September 14, 1945, she donated her one-half share in
Caunlaran and Lewa fishpond in question to her nephew,
Juan Jr. (Juani) leaving only the usufruct for herself
during her lifetime. Juan Jr. (Juani) at that time was
already the owner of the other half of the said fishponds,
having inherited it from his father, Juan Sr. (Banli).
January 26, 1951-Plaintiffs lawyer sent a letter to
Juani(defendant) to claim 1/3 share in the fishpond that
was allegedly held in trust for their father Valentin but
Juani refused to give them the share and asserted that
the fishpond was bought and was registered exclusively
in the name of his father and aunt. In 1952 plaintiff
formally filed the case.

Issues/ Held:
1. Is Caunlaran & Lewa Fishpond held in trust for
Valentin (beneficiary) by Jaun Sr. and
Ambrosia? No, in fact there was no trust at all
2. WON the plaintiffs right for reconveyance of the
Caunlaran & Lewa Fishpond had already
prescribed? YES
3. WON defendants have the right to claim for
damages (attys fees, moral damages)? NO

Ratio:
1. The court found that there was no community of
property among Juan Sr., Ambrosia and Valentin
when the Calunuran and Pinanganacan (Lewa)
lands were acquired. There was however, co-
ownership between 1914, the time of Valentinas
death until 1918, the time the estate was extra-
judicially partitioned. The trial court surmised that
the co-ownership which existed from 1914 to
1918 misled the plaintiffs and their witnesses
and caused them to believe erroneously that
there was a co-ownership and trust.
Plaintiffs only presented parol evidence
10
and
failed to present documentary evidence which is
needed to prove an express trust
11
. There can
be no resulting trust
12
since there was never any
intention on the part of Juan Sr. and Ambrosia to
create a trust for Valentin. Nor a constructive
trust
13
may result since the registration of
Caunlaran & Lewa Fishpond was not vitiated by
fraud or mistake. The plaintiffs pleadings,
witness accounts and other evidence presented
was not enough to prove implied trust
14
and
EVEN assuming that there was an implied trust it
was already barred by laches.

2. They also rationalized that Valentin's omission
during his lifetime to assail the Torrens titles of
Juan and Ambrosia signified that "he was not a
co-owner" of the fishponds. More so, they only
filed the action for reconveyance in 1952 which
is more than 40 years from the date of the
registration thus the defendant may invoke its
defense of laches
15
.

10
Oralevidence.
11
Created by direct and positive acts of the parties, by some
writing or deed or will or by words expressly or impliedly
evincinganintentiontocreateatrust.
12
Actorconstructionoflaw,butinamorerestrictedsenseitis
implicatedbylawandisalwayspresumedtobecontemplated
by the parties (although not expressed in the
deed/instrument).
13
Arises by operation of nlaw but is different from resulting
trust. It does not arise by agreement or intention but by
equity in order to satisfy the demans of justice (e.g. if a
property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the
propertycomes).
14
Withoutbeingexpressed,aredeductiblefromthenatureof
thetransactionasmattersofintent.
15
An equitable defense or doctrine. The person invoking
laches is asserting that an opposing party has slept on its
rights,andthat,asaresultofthisdelay,theotherpartyisno
longerentitledtoitsoriginalclaim.

3. The plaintiffs presented 15 witnesses and fought

for this case tenaciously for four years, incurring
considerable expenses. This indicated that they
perused their case with sincerity and in good
faith hence it is clearly not a malicious suit that
can warrant an award for moral damages. Also
an adverse decision does not ipso facto justify
the award of Attys fees to the winning party, if
the other party filed it in good faith.

FABIAN VS. FABIAN
Esperanza Fabian, Benita Fabian, and Damaso Papa y Fabian, petitioners (plaintiffs-appellants), vs. Silbina Fabian,
Feliciano Landrito, Teodora Fabian and Francisco del Monte, respondents (defendants-appellees)
Ponente: Castro, J.

Legal Doctrine: This reservation of the title in favor of the
Government is made merely to protect the interest of the
Government so as to preclude or prevent the purchaser
from encumbering or disposing of the lot purchased
before the full payment of the purchase price. When the
said purchaser pays the final installment on the purchase
price and is given a deed of conveyance and a certificate
of title, the title at least in equity, retroacts to the time he
first occupied the land, paid the first installment and was
issued the corresponding certificate of sale. In other
words, pending the completion of the payment of the
purchase price, the purchaser is entitled to all benefits
and advantages which may accrue to the land as well as
suffer the losses that may befall it. If property is acquired
through fraud, the person obtaining it is considered a
trustee of an implied trust for the benefit of the person
from whom the property comes.

Facts:
January 1, 1909 - Pablo Fabian, father of the plaintiffs
and Silbina, bought an area of 1hectare, 42ares, and
80centares, from the Philippine Government lot 164 of the
Friar Lands Estate in Muntinlupa, Rizal, for the sum of
P112 payable in installments. He was issued Sale
Certificate 547 for this purchase.
He died on August 2, 1928, survived by his four children,
namely, Esperanza, Benita I, Benita II and Silbina.
However, Benita II later died and is now represented by
her surviving child Damaso Papa y Fabian.
Silbina Fabian and Teodora Fabian, niece of the
deceased, thereafter executed an affidavit reciting that
they are the only heirs of the deceased which led to the
assignment of Sale Certificate 547 in their favor.
Eventually, in November 14, 1928, the lot was sold by the
Acting Director of Lands to Silbina Fabian, married to
Feliciano Landrito and Teodora Fabian, married to
Francisco Del Monte for the sum of P120, under deed
17272.
From 1929, the spouses took physical possession of the
property, cultivated it and appropriated the produce there
from for themselves, up to the present. Since 1929 up to
the present, they have been paying the real taxes
thereon. They were also able to have the land equally
subdivided between them in 1945 and secured separate
certificates of title issued under their respective names.
July 18, 1960 - The plaintiffs filed the present action for
reconveyance against the defendants, averring that
Silbina and Teodora, through fraud perpetrated in their
affidavits, making it appear that Silbina is the only
daughter and heir of the deceased Pablo Fabian and that
Teodora is entitled to inherit from him, which is a false
narration in clear knowledge of the defendants.
In their answer, the defendants claimed that Pablo Fabian
was not the owner of lot 164 at the time of his death
because he has not yet fully paid he amortizations on the
lot; that they are the absolute owners thereof having
purchased the same from the Government, and from that
year having exercised all the attributes of ownership
thereof up to the present; and that the present action for
reconveyane has already prescribed.
June 28, 1962 - The lower court rendered judgment
declaring that the defendants had acquired a valid and
complete title to the property by acquisitive prescription.
The motion for reconsideration was thereafter denied.
Hence, the present appeal.

Issues:
1. Whether Pablo Fabian was the owner of lot 164
at the time of his death
2. Whether laches constitute a bar to an action to
enforce a constructive trust
3. Whether the title to the land vested in the
appellees through the mode of acquisitive
prescription

Dispositive: Judgment a quo dismissing the complaint is
affirmed.

Held/Ratio:
1. YES, because the equitable and beneficial title
to the land went to Pablo Fabian as purchaser
the moment he paid the first installment and was
given certificate of sale 547. Lot 164 is part of
the Friar Lands Estate in Muntinlupa therefore it
was governed by the Friar Lands Act (Act 1120)
Sec. 15 of which governs the parcel of land in
question, which states that title to the land sold is
reserved to the Government until the purchaser
makes full payment of all the required
installments and interest thereon, merely refers
to the bare, naked title. This reservation of the
title in favor of the Government is made merely
to protect the interest of the Government so as
to preclude or prevent the purchaser from
encumbering or disposing of the lot purchased
before the full payment of the purchase price.
When the said purchaser pays the final
installment on the purchase price and is given a
deed of conveyance and a certificate of title, the
title at least in equity, retroacts to the time he
first occupied the land, paid the first instalment
and was issued the corresponding certificate of
sale. In other words, pending the completion of
the payment of the purchase price, the
purchaser is entitled to all benefits and
advantages which may accrue to the land as
well as suffer the losses that may befall it.
For that reason, Pablo Fabian was the owner of
lot 164 at the time of his death, and all the rights
and interest over said lot passed to his four
surviving daughters. The assignment and sale of
the lot to the defendants were therefore, null and
void as to that portion sold to Teodora, and as
well as to that portion which lawfully devolved in
favor of the appellants. If property is acquired
through fraud, the person obtaining it is
considered a trustee of an implied trust for the
benefit of the person from whom the property
comes.

2. YES. According to Justice JBL Reyes, in Diaz et
al. vs. Gorricho et. al., laches may bar an
action to enforce a constructive trust, and
repudiation is not required, unless there is a
concealment of the facts giving rise to the trust.
Unlike constructive trusts (exclusively created by
law), express trusts (created by the intention of
the parties) may not be barred by the lapse of
time thus disabling the trustee from acquiring for
his own benefit the property committed to his
management or custody, at least while he does
not openly repudiate the trust and make such
repudiation known to the beneficiary or cestui
que trust.
The appellants in the present case are not only
barred by laches since it took them 32 years
from the transfer of lot to the appellees in
November 1928 to file this action in July 8 1960
but their right to enforce the constructive trust
had already prescribed. Furthermore, the
records does not reveal that the appellees
concealed the facts giving rise to the trust, since
it was alleged that the defendants had been in
possession of the land in question since 1929 up
to the present publicly and continuously under
claim of ownership; they have cultivated it,
harvested and appropriated the fruits for
themselves.

3. YES, the appellees, through their adverse,
actual, public and continuous possession of the
land in question and untimely repudiated by the
appellants, have been entitled to it by acquisitive
prescription.
Citing the then Associate Justice Roberto
Concepcion in Gerona et. al. Vs. De Guzman et.
al., an action for reconveyance of real property
based upon a constructive or implied trust,
resulting from fraud, may be barred by the
statute of limitations, and that the action may be
filed within 4 years from the discovery of the
fraud. In this case, discovery of the fraud took

place when new certificates of title were issued

exclusively in the names of the appellees.
Hence, appellants action for reconveyance was
not only barred by laches but their right to
enforce the constructive trust had also
prescribed.
Acquisitive prescription has likewise operated to
vest absolute title in the appellees, pursuant to
the provisions of Sec.41 of Act 190 that 10
years of actual adverse possession by any
person claiming to be the owner for that time of
any land or interest in land, uninterruptedly
continued for 10 years by occupancy, descent,
grants or otherwise, in whatever way such
occupancy may have commenced or continued,
shall vest in every actual occupant or possessor
of such land a full and complete title.
The stringent mandate of Sec.41 that the
possession by the claimant or by the person
under or through whom he claims must have
been actual, open, public continuous, under a
claim of title exclusive of any other right and
adverse to all other claimants, was adjudged by
the lower court as having been fulfilled by the
appellees in this case and agreed to by the
Supreme Court.

BUENO VS. REYES
Rufino Bueno, Filomena B. Guerrero, Luis B. Guerrero, Benjamin B. Guerrero, Violeta B. Reyes-Samonte, Felicidad B.
Reyes-Fonacier, Mercedes B. Reyes, Honesta B. Reyes-Sarmiento, Teodora B. Reyes-Dalumpines, Mamerta B. Reyes-
Mercado, Rosario B. Reyes-Concepcion, Federico B. Reyes And Concepcion B. Reyes, petitioners (plaintiffs-appellants) vs.
Mateo H.Reyes and Juan H. Reyes, respondents (defendants-appellees)

Legal Doctrine: What was apparently designed to be an
express trust was for Francisco Reyes to file an answer in
the cadastral proceeding and to obtain the title of the land
for and in behalf of all the heirs of Jorge Bueno.
However, this failed to materialize. Instead, the trust
existing in the case is an implied one, arising by operation
of law not from any presumed intention of the parties but
to satisfy the demands of justice and equity and as a
protection against unfair dealing or downright fraud.

Facts:
January 7, 1936: Francisco Reyes filed an anwer in
Cadastre proceedings (Cadastral Case No. 47 of Ilocos
Norte), claiming a lot of Laoag Cadastre as property
belonging to himself and to his 2 brothers, Juan and
Mateo. The case was heard without opposition and the
lot was adjudicated in favor of them. They were issued
the Original Certificate of Title.
December 12, 1962: 23 years after, Bueno et al., filed the
action for reconveyance of the said lot. They allege that
the said lot originally belonged to Jorge Bueno who died
leaving 3 children: Brigida, Eugenia and Rufino, to whom
the property descended by intestate succession. Brigida
and Eugenia died leaving children who are now the
plaintiffs together with Rufino Bueno.
They further allege that Francisco Reyes was Eugenias
husband who by agreement among the heirs of Jorge
Bueno, was entrusted in filing the answer in the cadastral
proceedings and in obtaining the title for and in behalf of
all the heirs of Jorge Bueno including his wife Eugenia.
Francisco Reyes declared the lot in his name and either
in bad faith or by mistake filed an answer in the cadastral
proceedings and obtained title to it in his name and those
of his brothers who connived and consented to the
malicious or erroneous acts of the late Francisco Reyes,
knowing fully well that the lot was never owned by them
and has never been in their possession, and knowing that
the lot belonged to, and possessed by the wife of
Francisco Reyes together with her sister and brother,
Brigida and Rufino
Bueno et al. have demanded from the defendants the
reconveyance and/or quitclaiming of their undivided
shares in the said lot but said defendants refused and
continued to refuse to do so.
Defense of the Reyes: laches, imprescriptibility of title,
prescription of action

CFI: action for reconveyance predicated on existence of

implied trust and such an action prescribes in 10 years,
dismissed. Appellees contend that the court erred in
dismissing the complaint on the ground of prescription.
Hence, this appeal.

Issue/s: Whether there was an express or implied trust
(sub - Whether the action has prescribed action based on
an implied trust)

Dispositive: Order appealed from is set aside; Case
remanded for further proceedings.

Held: The trust existing is an implied trust.

Ratio:
What was apparently designed to be an express trust was
for Francisco Reyes to file an answer in the cadastral
proceeding and to obtain the title of the land for and in
behalf of all the heirs of Jorge Bueno. However, this
failed to materialize. Instead, there was an implied trust
arising by operation of law not from any presumed
intention of the parties but to satisfy the demands of
justice and equity and as a protection against unfair
dealing or downright fraud.
In implied or constructive trust, there exists a certain
antagonism between the cestui que trust and the trustee.
Thus, for instance, under Article 1456 of the Civil Code, "if
property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the
property comes."
In a number of cases the Court has held that registration
of property by one person in his name, whether by
mistake or fraud, the real owner being another person,
impresses upon the title so acquired the character of a
constructive trust for the real owner, which would justify
an action for reconveyance.

(On prescription)
While there are some decisions which hold that an action
upon a trust is imprescriptible, without distinguishing
between express and implied trusts, the better rule, as
laid down in other decisions, is that prescription does
supervene where the trust is merely an implied one
Upon the general proposition that an action for
reconveyance such as the present is subject to
prescription in ten years the appellees and the court a
quo are correct. The question is: from what time should
the prescriptive period be counted, in the light of the
allegations in the complaint?
It should be noted that constructive trust arose by reason
of the bad faith or mistake of the deceased Francisco
Reyes, compounded by the connivance of Juan and
Mateo Reyes. The cause of action upon such trust must
be deemed to have accrued only upon the discovery of
such bad faith or mistake. The cause of action upon such
trust must be deemed to have accrued only upon the
discovery by Bueno et al. of such bad faith or mistake or
specifically upon discovery that Francisco Reyes, in
violation of their agreement with him, had obtained
registration of the disputed property in his own name and
in the names of his brothers. On top of this, it was Bueno
et al. who were in possession of the property as owners
continuously up to 1962, when for the first time, the
Reyes appeared upon the scene and tried to get
possession, thereby revealing to them the fact of the
mistaken or fraudulent registration.
However, that the facts have not yet been established by
evidence. They are only alleged in the complaint and are
admitted right now for purposes of this motion to dismiss
filed by defendants. At the very least, the grounds upon
which the order of dismissal is based do not appear to us
to be indubitable; and it would be more in keeping with
justice to afford the plaintiffs as well as the defendants the
opportunity to lay their respective claims and defenses
before the Court in a full blown litigation.


TAMAYO VS. CALLEJO AND CA

Mariano Tamayo, petitioner, vs. Aurelio Callejo and the Hon. Court of Appeals, respondents
Ponente: Concepcion, CJ.

Facts:
This action was brought by Aurelio Callejo in the CFI of
Pangasinan, originally against Mariano Tamayo which
later included his brother Marcos Tamayo, also, for the
reconveyance of the northern portion of a parcel of land in
the names of the brothers. CFI dismissed the complaint.
Court of Appeals reversed and the land was declared
reconveyed unto him.
Spouses Vicente Tamayo and Cirila Velasco Tamayo
owned a parcel of land in the barrio of Oalsic or Gualsic.
Prior to Feb. 1, 1912, said spouses sold part of the
northern portion of said land (22, 125 1/3 sq. Meters) to
Fernando Domantay, who took possession thereof.
Sometime after this sale, but before said date, Vicente
Tamayo died. His widow having waived her rights to the
remaining portion of their original property in favor of her
children Mariano Tamayo and Marcos Tamayo, these
brothers were, on February 1, 1912, declared sole heirs
of the deceased. The brothers applied for the registration
in their names, of a tract of land of about 383,509 square
meters, alleging that they had thus inherited the same
from their deceased father.
Judgment was rendered, directing the registration, in the
name of Mariano Tamayo and Marcos Tamayo, of
205,421 sqm only of the land applied for, said applicants
having acknowledged that the remaining portion thereot
belonged to the estate of Gregorio Flor Mata, deceased.
Fernando Domantay sold his above-mentioned land of
22,125-1/3 square meters to Aurelio Callejo, who took
possession thereof since then.
Subsequently, Marcos Tamayo sold his undivided share
in the property (the 200k sqm land) to his brother Mariano
Tamayo. Then, Mariano sold 70,000 sqm to Proceso
Estacio, upon whose request surveyor Fidel Diaz went to
the land for the purpose of preparing a subdivision plan
and segregating the 7 hectares thus conveyed by
Mariano Tamayo, but Diaz did not accomplish his
purpose, for he was not allowed by Callejo to enter the
portion held by the latter.
Callejo asked Mariano Tamayo to exclude the land held
by the former, but the latter refused to do so. Callejo filed
his complaint for reconveyance and damages. Having
failed to answer the amended complaint, defendant
Marcos Tamayo was declared in default, whereas
defendant Mariano Tamayo filed his answer with
counterclaim. His main defense was that the land claimed
by Callejo is outside the perimeter of the area covered by
the aforementioned certificates of title. The CFI rendered
a decision dismissing the complaint, upon the ground that
the land purchased by Fernando Domantay from the
parents of Mariano and Marcos Tamayo is not included in
said titles.
The CFI was reversed by CA which found that the land
claimed by Callejo is part of the land covered by the
aforementioned certificates of title held by Tamayo, and
overruled the plea of prescription set up by Mariano
Tamayo, upon the theory that the title to said portion of
land now claimed by Callejo, and, before, by Fernando
Domantay, is held in trust by the Tamayos and that the
action to enforce said trust does not prescribe.
Tamayo maintains that the CA has erred: (1) in not
holding that the respondent Aurelio Callejo's cause of
action, if any, had already prescribed; (2) in holding that
the petitioner's failure to appeal from the decision that did
not grant him affirmative relief on the matter of
possession, constituted res adjudicata thereon; (3) in
disregarding the judicial admission made by the
respondent Callejo and his counsel; (4) in making
conclusions not supported by the facts on record", (5) "in
not affirming the decision rendered by the trial court.

Issues:
1. Whether or not Callejos cause of action had
already prescribed.
2. Whether or not petitioners failure to appeal from
the decision that did not grant him affirmative
relief constituted res (ad)judicata.
3. Whether or not the judicial admission made by
Callejo and his counsel should have been
disregarded.

4. Whether or not the court made conclusions not

supported by facts.
5. Whether or not Callejo has the right to demand a
reconveyance.

Held/Ratio:
1. NO. The express recognition by Mariano
Tamayoon his behlaf and that of his brother
of the previous sale, made by their parents, to
Fernando Domantay had the effect of imparting
to the aforementioned trust the nature of an
express trustit having been created by the will
of the parties, no particular words being required
for the creation of an express trust, it being
sufficient that a trust is clearly intendedwhich
express trust is a contitnuing and subsisting
trust, not subject to the statute of limitations, until
repudiated, in which event the period of
prescription begins to run only from the time of
the repudiation. In the instant case, repudiation
took place only in early June, 1952, when
Mariano Tamayo rejected Callejo's demand that
the disputed portion be excluded from TCT No.
5486 in the former's name. When the instant
case for reconveyance was filed on June 25,
1952, the period of prescription had barely
begun to run.

2. Petitioner's pretense is manifestly devoid of
merit, for the Court of Appeals had explicitly
acknowledged Callejo's title over the disputed
land and declared the same reconveyed to him.
This necessarily implied that Callejo is entitled to
remain in possession of said land.

3. The finding of the Court of Appeals to the effect
that the land sold by petitioner's parents to
Domantay is within the perimeter of the property
covered by TCT No. 5486 is essentially a
question of fact, and, consequently, the finding
to this effect is final and not subject to review in
the present appeal on certiorari.

4. Petitioner's argument that the conclusion of the
Court of Appeals to the effect that Lot No, 12340
was acquired by respondent Callon from Maximo
Rico "is not supported by any direct testimonial
evidence", is in the nature of a negative
pregnant. It does not deny the existence of
indirect testimonial evidence, such as the
circumstances considered by the Court of
Appeals. Neither does it assail the existence of
direct documentary evidence. In short, it does
not deny the existence of substantial evidence in
support of the contested conclusion of fact of the
Court of Appeals.

5. Petitioner questions the right of Callejo to
demand a reconveyance, insofar as it may affect
the portion of 70,000 square meters sold by him
to Proceso Estacio, upon the ground that the
latter is a purchaser in good faith for value. This
is, however, a defense not available to petitioner
herein, aside from the fact that he has not even
pleaded it in the trial court or otherwise raised it
either in that court or in the Court of Appeals.

Dispositive: Accordingly, this case should be remanded
to the court of origin for the preparation of a subdivision
plan of the portion thus to be segregated and the judicial
approval of such plan, and only after such approval has
become final and executory may the reconveyance be
either made or deemed effected.

B2013 241pp

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B 0bligations anu Contiacts Piof Labitag

Inciong argues that the dismissal of the complaint against

Obligations are presumed joint. They are solidarily only

P10,000 increase in rental fees during the ten months of

project, and that Kalalo's services were not complete or

arrived at the Port of Manila and discharged the shipment

case of loss or damage to the goods, is limited or

undoubtedly resulted in the impairment of the check

expected to be forthcoming, to require the same would be

3. Is CC 1254 applicable? No. The rules

June and July 1992, Regalado sent a demand letter

What if Paculdo never indicated which obligation hed

which was not accepted by petitioner, he

that the transfer will result in the dissipation of assets that

3. When without just cause he refuses to accept it

The parties further agreed (in section 5 of their

option of refusing or accepting it. Payment in

dismissed the petition on the ground that Article 1267 of

violence to that intention to hold the obligor

of mutuality of parties (requisite no.1 in Art

With respect to the amount of $2,627.11, requisites

a bond in favor of appellee for the price of PHP 5,000.00

Tomas Besa, a PNB official, as Trustee, and 3) the PNB

Tropical proposed to reduce the present monthly rental

negotiating was a temporary and provisional reduction of

preliminary attachment over the buses it sold to

Art. 1293. Novation which consists in

The receipt stated that Quinto received the jewelries

It is thus easy to see why Cariaga's acceptance of Ramos

21=$1) without interest as material consideration for the

Licaros asserts that obligation between Licaros

the obligation pays, without prejudice to the

favor was in order. Petitioner GSIS failed to execute the

Johnson and Malcolm, dissenting:

entered into by their predecessors-in-interest

By way of cross-complaint, the Ladaga alleged (1) that

especially those unconditional provisions dealing with

payment of backwages; therefore, the Regional Director

be feasible in view of the length of time which has gone

Issue: Whether the above quoted provision of the

14, 1914, stipulated with the plaintiff in the presence of

FILIPINAS CIA DE SEGURUS, ET AL VS. MANDANAS

BUSTAMANTE VS. ROSEL

debts in return for enjoyment of the Dizon's land, until

hand, appellant contends that the Statute of Frauds does

May and June 1978 450 reams (P290.00/ream)

contract stipulated that Teodorica will deliver TCT to HK

2. YES. When the defendants act or omission has

Elser, the plaintiff, negotiated for the purchase of the

Elser and Burke that the former was not to pay

July 28, 1992trial court rendered decision stating that

On November 1992 a bidding for the supply and

reply of petitioner PUREFOODS, the acceptance

and we will refund the remaining 50% of said

tantamount to a counter-offer. It must be

July that year they signed the memorandum-agreement,

parties are obviously acting under a gross and palpable

B 0bligations anu Contiacts Piof Labitag

15515, while Parcels No. 1 and 2 were mistakenly

annullable even though there may have been no damage

obliged to deliver the value of said animal with interest as

Justa depended on her stepson for support. Enrique