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OBLIGATIONS

A. In general 1. Definition Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n) 2. Kinds of obligations as to basis and enforceability Aticle 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles. Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered. Article 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid. Article 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact that he has not been benefited thereby, there is no right to demand the thing or price thus returned. Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. (1160A) Article 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered. Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by

the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer. Article 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable. Article 1139. Actions prescribe by the mere lapse of time fixed by law. (1961) Article 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to articles 1132, and without prejudice to the provisions of articles 559, 1505, and 1133. (1962a) Article 1141. Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. (1963) Article 1142. A mortgage action prescribes after ten years. (1964a) Article 1143. The following rights, among others specified elsewhere in this Code, are not extinguished by prescription: (1) To demand a right of way, regulated in article 649; (2) To bring an action to abate a public or private nuisance. (n) Article 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. (n) Article 1145. The following actions must be commenced within six years: (1) Upon an oral contract; (2) Upon a quasi-contract. (n) Article 1146. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff; (2) Upon a quasi-delict; However, when the action arises from or out of any act, activity, or conduct of any public officer involving the exercise of powers or authority arising from Martial Law including the arrest, detention and/or trial of the plaintiff, the same must be brought within one (1) year. (As amended by PD No. 1755, Dec. 24, 1980.) Article 1147. The following actions must be filed within one year:
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(1) For forcible entry and detainer; (2) For defamation. (n) Article 1148. The limitations of action mentioned in articles 1140 to 1142, and 1144 to 1147 are without prejudice to those specified in other parts of this Code, in the Code of Commerce, and in special laws. (n) Article 1149. All other actions whose periods are not fixed in this Code or in other laws must be brought within five years from the time the right of action accrues. (n) Article 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. (1969) Article 1151. The time for the prescription of actions which have for their object the enforcement of obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the interest. (1970a) Article 1152. The period for prescription of actions to demand the fulfillment of obligation declared by a judgment commences from the time the judgment became final. (1971) Article 1153. The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions. The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties. (1972) Article 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him. (n) Article 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. (1973a) VILLAROEL V. ESTRADA Nature: Complaint for sum of money Ponente: AVANCEA Date: December 19, 1940

DOCTRINE: The rule that a new promise to pay a debt must be made by the same person obligated or otherwise legally authorized by it, is not applicable to this case since there was voluntarily assumption of the obligation.

FACTS: Relevant Provision of Law: On May 9, 1912, Alexandra F. Callao, mother of defendant John F. Villarroel, obtained from the spouses Mariano Estrada and Severina a loan of P1, 000 payable after seven years. Alexandra died, leaving as the only heir the defendant. Spouses Mariano Estrada and Severina died too, leaving as the only heir to the plaintiff Bernardino Estrada. On August 9, 1930, the defendant signed a document which states in duty to the plaintiff the amount of P1, 000, with an interest of 12 percent per year. This action relates to the collection of this amount. LC: condemn the defendant to pay the claimed amount of P1, 000 with legal interest of 12 percent per year from the August 9, 1930 until fully pay. ISSUE: RULING: Although the action to recover the original debt has prescribed and when the lawsuit was filed in this case. However, this action is based on the original obligation contracted by the mother of the defendant, who has prescribed, but in which the defendant contracted the August 9, 1930 (Exhibito B) to assume the fulfillment of that obligation, as prescribed. Being the only defendant of the primitive herdero debtor entitled to succeed him in his inheritance, that debt legally brought by his mother, but lost its effectiveness by prescription, it is now, however, for a moral obligation, which is consideration enough to create and effective and enforceable his obligation voluntarily contracted the August 9, 1930 in Exhibito B. The rule that a new promise to pay a debt prrescrita must be made by the same person obligated or otherwise legally authorized by it, is not applicable to this case that does not require compliance with the mandatory obligation orignalmente but from which they would voluntarily assume the obligation. NOTE: The case is in Spanish. ANSAY V. NDC Nature: Complaint for 20% Christmas bonus Ponente: PARAS, C. J. Date: April 29, 1960
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DOCTRINE: Civil obligations are a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof". FACTS: Relevant Provision of Law: Article 1423 of the New Civil Code On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a complaint praying for a 20% Christmas bonus for the years 1954 and 1955. TC dismissed the complaint, and held, among others: the Court does not see how petitioners may have a cause of action to secure such bonus because: (a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers to command respondents to be liberal; (b) Petitioners admit that respondents are not under legal duty to give such bonus but that they had only ask that such bonus be given to them because it is a moral obligation of respondents to give that but as this Court understands, it has no power to compel a party to comply with a moral obligation (Art. 142, New Civil Code.). Appellants contend that there exists a cause of action in their complaint because their claim rests on moral grounds or what in brief is defined by law as a natural obligation. ISSUE: W/N a Christmas bonus is a demandable obligation. RULING: Generally, a Christmas bonus, being a natural obligation, is not demandable. Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, BUT after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof". It is thus readily seen that an element of natural obligation before it can be cognizable by the court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has been voluntary performance. But here there has been no voluntary performance. In fact, the court cannot order the performance.

Philippine Education Co. vs. CIR: From the legal point of view a bonus is not a demandable and enforceable obligation. It is so when it is made a part of the wage or salary compensation. H. E. Heacock vs. National Labor Union: Even if a bonus is not demandable for not forming part of the wage, salary or compensation of an employee, the same may nevertheless, be granted on equitable consideration as when it was given in the past, though withheld in succeeding two years from low salaried employees due to salary increases. Still the facts in said Heacock case are not the same as in the instant one, and hence the ruling applied in said case cannot be considered in the present action. DBP V. CONFESOR Nature: Complaint for payment of loan Ponente: GANCAYCO, J. Date: May 11, 1989 DOCTRINE: FACTS: Relevant Provision of Law: Art. 165 of the CC [1st PN] On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said date whereby they bound themselves jointly and severally to pay the account in ten (10) equal yearly amortizations. [2nd PN] As the obligation remained outstanding and unpaid even after the lapse of the aforesaid ten-year period, Confesor (only the H), who was by then a member of the Congress of the Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same on or before June 15, 1961. The new promissory note reads as follows I hereby promise to pay the amount covered by my promissory note on or before June 15, 1961. Upon my failure to do so, I hereby agree to the foreclosure of my mortgage. It is understood that if I can secure a certificate of indebtedness from the government of my back pay I will be allowed to pay the amount out of it. Said spouses not having paid the obligation on the specified date, the DBP filed a complaint against the spouses for the payment of the loan.
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CITY COURT: ordered the defendants Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff Development Bank of the Philippines, jointly and severally the sum of P5,760.96 plus additional daily interest, etc CFI: reversed; dismissed the complaint in signing the promissory note alone, respondent Confesor cannot thereby bind his wife, respondent Jovita Villafuerte, pursuant to Article 166 of the New Civil Code which provides: Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without, the wife's consent. If she ay compel her to refuses unreasonably to give her consent, the court m grant the same. Petitioner Bank contends, that the right to prescription may be renounced or waived; and that in signing the second promissory note respondent Patricio Confesor can bind the conjugal partnership; or otherwise said respondent became liable in his personal capacity. ISSUE: W/N the right to prescription may be renounced or waived

... It is this new promise, either made in express terms or deduced from an acknowledgement as a legal implication, which is to be regarded as reanimating the old promise, or as imparting vitality to the remedy (which by lapse of time had become extinct) and thus enabling the creditor to recover upon his original contract. ISSUE #2: W/N the debt is chargeable against the conjugal partnership considering that the husband, alone, signed the 2nd PN RULING: YES. The debt in favor of the bank is chargeable to the conjugal partnership. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As such administrator, all debts and obligations contracted by the husband for the benefit of the conjugal partnership, are chargeable to the conjugal partnership. 3. Elements of obligations

B. Sources of civil obligations RULING: YES. The right to prescription may be waived or renounced. Article 1112 of Civil Code provides: Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future. Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the abandonment of the right acquired. There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However, when respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to pay the amount covered by the previous promissory note on or before June 15, 1961, and upon failure to do so, agreed to the foreclosure of the mortgage, said respondent thereby effectively and expressly renounced and waived his right to the prescription of the action covering the first promissory note. This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The consideration of the new promissory note is the pre-existing obligation under the first promissory note. The statutory limitation bars the remedy but does not discharge the debt. Article 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts. (1089a) 1. Law

Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090) 2. Contracts

Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. (1091a)
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Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. (1254a) 3. Quasi-contracts

The responsibility of two or more officious managers shall be solidary, unless the management was assumed to save the thing or business from imminent danger. (1890a) Article 2147. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations which the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith. (1891a) Article 2148. Except when the management was assumed to save property or business from imminent danger, the officious manager shall be liable for fortuitous events: (1) If he is manifestly unfit to carry on the management; (2) If by his intervention he prevented a more competent person from taking up the management. (n) Article 2149. The ratification of the management by the owner of the business produces the effects of an express agency, even if the business may not have been successful. (1892a) Article 2150. Although the officious management may not have been expressly ratified, the owner of the property or business who enjoys the advantages of the same shall be liable for obligations incurred in his interest, and shall reimburse the officious manager for the necessary and useful expenses and for the damages which the latter may have suffered in the performance of his duties. The same obligation shall be incumbent upon him when the management had for its purpose the prevention of an imminent and manifest loss, although no benefit may have been derived. (1893) Article 2151. Even though the owner did not derive any benefit and there has been no imminent and manifest danger to the property or business, the owner is liable as under the first paragraph of the preceding article, provided: (1) The officious manager has acted in good faith, and (2) The property or business is intact, ready to be returned to the owner. (n) Article 2152. The officious manager is personally liable for contracts which he has entered into with third persons, even though he acted in the name of the owner, and there shall be no right of action between the owner and third persons. These provisions shall not apply: (1) If the owner has expressly or tacitly ratified the management, or (2) When the contract refers to things pertaining to the owner of the business. (n)
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Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book. (n) Article 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. (n) Article 2143. The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article. (n) SECTION 1 Negotiorum Gestio Article 2144. Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to substitute him, if the owner is in a position to do so. This juridical relation does not arise in either of these instances: (1) When the property or business is not neglected or abandoned; (2) If in fact the manager has been tacitly authorized by the owner. In the first case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding unauthorized contracts shall govern. In the second case, the rules on agency in Title X of this Book shall be applicable. (1888a) Article 2145. The officious manager shall perform his duties with all the diligence of a good father of a family, and pay the damages which through his fault or negligence may be suffered by the owner of the property or business under management. The courts may, however, increase or moderate the indemnity according to the circumstances of each case. (1889a) Article 2146. If the officious manager delegates to another person all or some of his duties, he shall be liable for the acts of the delegate, without prejudice to the direct obligation of the latter toward the owner of the business.

Article 2153. The management is extinguished: (1) When the owner repudiates it or puts an end thereto; (2) When the officious manager withdraws from the management, subject to the provisions of article 2144; (3) By the death, civil interdiction, insanity or insolvency of the owner or the officious manager. (n) SECTION 2 Solutio Indebiti Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. (1895) Article 2155. Payment by reason of a mistake in the construction or application of a doubtful or difficult question of law may come within the scope of the preceding article. (n) Article 2156. If the payer was in doubt whether the debt was due, he may recover if he proves that it was not due. (n) Article 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary. (n) Article 2158. When the property delivered or money paid belongs to a third person, the payee shall comply with the provisions of article 1984. (n) Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits. He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered. (1896a) Article 2160. He who in good faith accepts an undue payment of a thing certain and determinate shall only be responsible for the impairment or loss of the same or its accessories and accessions insofar as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to collect the sum. (1897) Article 2161. As regards the reimbursement for improvements and expenses incurred by him who unduly received the thing, the provisions of Title V of Book II shall govern. (1898) Article 2162. He shall be exempt from the obligation to restore who, believing in good faith that the payment was being made of a legitimate and subsisting claim, destroyed the document, or allowed the action to prescribe,

or gave up the pledges, or cancelled the guaranties for his right. He who paid unduly may proceed only against the true debtor or the guarantors with regard to whom the action is still effective. (1899) Article 2163. It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause. (1901) SECTION 3 Other Quasi-Contracts Article 2164. When, without the knowledge of the person obliged to give support, it is given by a stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and without intention of being repaid. (1894a) Article 2165. When funeral expenses are borne by a third person, without the knowledge of those relatives who were obliged to give support to the deceased, said relatives shall reimburse the third person, should the latter claim reimbursement. (1894a) Article 2166. When the person obliged to support an orphan, or an insane or other indigent person unjustly refuses to give support to the latter, any third person may furnish support to the needy individual, with right of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother of a child under eighteen years of age unjustly refuses to support him. Article 2167. When through an accident or other cause a person is injured or becomes seriously ill, and he is treated or helped while he is not in a condition to give consent to a contract, he shall be liable to pay for the services of the physician or other person aiding him, unless the service has been rendered out of pure generosity. Article 2168. When during a fire, flood, storm, or other calamity, property is saved from destruction by another person without the knowledge of the owner, the latter is bound to pay the former just compensation. Article 2169. When the government, upon the failure of any person to comply with health or safety regulations concerning property, undertakes to do the necessary work, even over his objection, he shall be liable to pay the expenses. Article 2170. When by accident or other fortuitous event, movables separately pertaining to two or more persons are commingled or confused, the rules on co-ownership shall be applicable.
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Article 2171. The rights and obligations of the finder of lost personal property shall be governed by articles 719 and 720. Article 2172. The right of every possessor in good faith to reimbursement for necessary and useful expenses is governed by article 546. Article 2173. When a third person, without the knowledge of the debtor, pays the debt, the rights of the former are governed by articles 1236 and 1237. Article 2174. When in a small community a majority of the inhabitants of age decide upon a measure for protection against lawlessness, fire, flood, storm or other calamity, any one who objects to the plan and refuses to contribute to the expenses but is benefited by the project as executed shall be liable to pay his share of said expenses. Article 2175. Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter. CRUZ V. TUASON AND CO. Nature: complaint for recovery of improvements and conveyance of land Ponente: BARREDO, J Date: April 29, 1977 DOCTRINE: a presumed qauasi-contract cannot emerge as against one party when the subject matter thereof is already covered by an existing contract with another party. FACTS: Relevant Provision of Law: Art 2141, CC (quasi-contract) Faustino Cruz filed a complaint for recovery of improvements and conveyance of land. He alleged two separate causes of action, namely: (1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in question on the strength of an "informacion posesoria" ) plaintiff made permanent improvements valued at P30,400.00 on said land having an area of more or less 20 quinones and for which he also incurred expenses in the amount of P7,781.74, and since defendants-appellees are being benefited by said improvements, he is entitled to reimbursement from them of said amounts and (2) that in 1952, defendants availed of plaintiff's services as an intermediary with the Deudors to work for the amicable settlement of Civil Case No. Q-135, then pending also in the Court of First Instance of Quezon City, and involving 50 quinones of land, of Which the 20 quinones aforementioned form part, and notwithstanding his having

performed his services, as in fact, a compromise agreement entered into on March 16, 1963 between the Deudors and the defendants was approved by the court, the latter have refused to convey to him the 3,000 square meters of land occupied by him, (a part of the 20 quinones above) which said defendants had promised to do "within ten years from and after date of signing of the compromise agreement", as consideration for his services. Defendants filed a MD on the following grounds: (1) As regards that improvements made by plaintiff, that the complaint states no cause of action, the agreement regarding the same having been made by plaintiff with the Deudors and not with the defendants, hence the theory of plaintiff based on Article 2142 of the Code on unjust enrichment is untenable; and (2) anent the alleged agreement about plaintiffs services as intermediary in consideration of which, defendants promised to convey to him 3,000 square meters of land, that the same is unenforceable under the Statute of Frauds, there being nothing in writing about it, and, in any event, (3) that the action of plaintiff to compel such conveyance has already prescribed. CFI: dismissed the complaint on three grounds: (1) failure of the complaint to state a cause of action (defendant is not privy to the agreement between plaintiff and the Deudors); (2) the cause of action of plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has already prescribed. ISSUE: W/N plaintiffs claim (2nd COA) is unenforceable under the State of Frauds RULING: No. Statute of Frauds is inapplicable. Nevertheless, plaintiff still cannot claim from defendant. It is elementary that the Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated therein. The contract is not a sale of real property or any interest therein: In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square meters of land which he claims defendants promised to do in consideration of his services as mediator or intermediary in effecting a compromise of the civil action, Civil Case No. 135, between the defendants and the Deudors. In no sense may such alleged contract be considered as being a "sale of real property or of any interest therein." Indeed, not all dealings involving interest in real property come under the Statute.
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There is already partial execution of the agreement: Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the bargains to induce the Deudors to amicably settle their differences with defendants as, in fact, on March 16, 1963, through his efforts, a compromise agreement between these parties was approved by the court. In other words, the agreement in question has already been partially consummated, and is no longer merely executory. And it is likewise a fundamental principle governing the application of the Statute that the contract in dispute should be purely executory on the part of both parties thereto. We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied upon by appellant, that in several cases We have decided, We have declared the same rescinded and of no effect. Thus, viewed from what would be the ultimate conclusion of appellant's case, We entertain grave doubts as to whether or not he can successfully maintain his alleged cause of action against defendants, considering that the compromise agreement that he invokes did not actually materialize and defendants have not benefited therefrom ISSUE #2 (TOPICAL): W/N plaintiff can claim based on a quasi-contract (unjust enrichment). RULING: No. Art 2142, CC is not applicable. Art. 2142 states, Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shall be unjustly enriched or benefited at the expense of another. From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as against one party when the subject matter thereof is already covered by an existing contract with another party. Predicated on the principle that no one should be allowed to unjustly enrich himself at the expense of another, Article 2124 creates the legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the parties concerned. Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract with a third party, his cause of action should be against the latter, who in turn may, if there is any ground therefor, seek relief against the party benefited. It is essential that the act by which the defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. As one distinguished civilian (Ambrosio Padilla) puts it, "The act is voluntary, because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is

unilateral, because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. The reason why the law creates a juridical relation and imposes certain obligation is to prevent a situation where a person is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said actor." In the case at bar, since appellant has a clearer and more direct recourse against the Deudors with whom he had entered into an agreement regarding the improvements and expenditures made by him on the land of appellees. it Cannot be said, in the sense contemplated in Article 2142, that appellees have been enriched at the expense of appellant. SIDE ISSUE (Procedural): the impugned main order was issued on August 13, 1964, while the appeal was made on September 24, 1964 or 42 days later. Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the subject order of dismissal was already final and executory when appellant filed his appeal. GUTIERREZ HERMANOS V. ORENSE Nature: Complaint to compel defendant to execute an instrument transferring all the right, interest, title and share which the defendant has in the subject property. Ponente: TORRES, J. Date: December 4, 1914 DOCTRINE: FACTS: Relevant Provision of Law: Article 1259 of the Civil Code On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, against Engacio Orense, in which he set forth, that on and before February 14, 1907, the defendant Orense had been the owner of a parcel of land, with the buildings and improvements thereon (masonry house with the nipa roof), situated in the pueblo of Guinobatan, Albay, xxx; hat the said property has up to date been recorded in the new property registry in the name of the said Orense xxx; that, on February 14, 1907, Jose Duran, a nephew of the defendant, with the latter's knowledge and consent, executed before a notary a public instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned property, the vendor Duran reserving to himself the right to repurchase it for the same price within a period of four years from the date of the said instrument;
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that the plaintiff company had not entered into possession of the purchased property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February 14, 1911; that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely confirmed and ratified by the defendant Orense; that, in order to perfect the title to the said property, but that the defendant Orense refused to do so, without any justifiable cause or reason, wherefore he should be compelled to execute the said deed by an express order of the court, xxx that the defendant had been occupying the said property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him for its payment at the rate of P30 per month, the just and reasonable value for the occupancy of the said property, the possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the continuous demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the said property.

RULING: YES. The owner of the property consented to the sale made by the nephew. It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.) Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the defendant, the owner of the property, approved the action of his nephew, who in this case acted as the manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization to make the said sale. (Civil Code, arts. 1888 and 1892.) Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by him or without his legal representation according to law. A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void, unless it should be ratified by the person in whose name it was executed before being revoked by the other contracting party. The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself consented to his nephew Jose Duran's making the said sale. If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that admission, to the prejudice of the purchaser, who gave P1,500 for the said property. ADILLE V. CA Nature: Action for partition with accounting Ponente: SARMIENTO, J Date: January 29, 1988 DOCTRINE:
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CFI: ordered the defendant to make immediate delivery of the property in question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the property described in the complaint (FACTS WHICH LED TO THE FILING OF CIVIL CASE) After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof. His refusal was based on the allegations that he had not executed any written power of attorney to Jose Duran, nor had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name; and that, prior to the execution of the deed of sale, the defendant performed no act such as might have induced the plaintiff to believe that Jose Duran was empowered and authorized by the defendant to effect the said sale. The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with estafa (CRIMINAL CASE). CFI acquitted Duran since Orense, when called to the witness stand, stated that he had consented to the sale of the property. Thus, plaintiff firm filed the present civil case. ISSUE: W/N defendant must fulfill the obligation contracted by his nephew.

FACTS: Relevant Provision of Law: Art. 1456, implied trust The land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her own private property; she married twice in her lifetime; the first, with one Bernabe Adille, with whom she had as an only child, herein defendant Rustico Adille; in her second marriage with one Procopio Asejo, her children were herein plaintiffs, [sale] Now, sometime in 1939, said Felisa sold the property in pacto de retro to certain 3rd persons, period of repurchase being 3 years, but she died in 1942 without being able to redeem and after her death, but during the period of redemption, herein defendant (child of 1st M) repurchased, by himself alone, and after that, he executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother Felisa with the consequence that he was able to secure title in his name alone also, so that OCT. No. 21137 in the name of his mother was transferred to his name, that was in 1955. After some efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs, filed present case for partition with accounting on the position that he was only a trustee on an implied trust when he redeemed,and this is the evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was occupying a portion, defendant counterclaimed for her to vacate. LC: defendant was and became absolute owner, he was not a trustee, and therefore, dismissed case and also condemned plaintiff occupant, Emeteria to vacate CA: reversed TC; Petitioner (defendant) contends, the property subject of dispute devolved upon him upon the failure of his co-heirs to join him in its redemption within the period required by law. He relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code, giving the vendee a retro the right to demand redemption of the entire property. ISSUE: May petitioner, as a co-owner, acquire exclusive ownership over the property held in common? If not, whether petitioner acts as a TRUSTEE or a NEGOTIORUM GESTOR. RULING:

No, petitioner cannot acquire exclusive ownership under the circumstances. Since there is fraud, petitioner is a mere trustee of the property. The doctrine of negotiorum gestio cannot apply in the case at bar. The right of repurchase may be exercised by a co-owner with respect to his share alone. Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from the remaining co-owners. There is no doubt that redemption of property entails a necessary expense. Under the Civil Code: ART. 488. Each co-owner shall have a right to compel the other coowners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the co-ownership. The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership over it. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title thereto in his name. ut the provision does not give to the redeeming co-owner the right to the entire property. It does not provide for a mode of terminating a co-ownership. Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the existing coownership. Registration of property is not a means of acquiring ownership. It operates as a mere notice of existing title, that is, if there is one. The petitioner must then be said to be a trustee of the property on behalf of the private respondents. The Civil Code states: ART. 1456. 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. The petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole dominion over the property. RE: negotiorum gestio It is the view of the CA that the petitioner, in taking over the property, did so either on behalf of his co-heirs, in which event, he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code, OR for his exclusive
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benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents being the beneficiaries, under the Article 1456. The evidence, of course, points to the second alternative (TRUST) the petitioner having asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot therefore be said to have assume the mere management of the property abandoned by his co-heirs, the situation Article 2144 of the Code contemplates. In any case, as the CA itself affirms, the result would be the same whether it is one or the other. The petitioner would remain liable to the Private respondents, his co-heirs. RE: prescription This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in common) held by another (coowner) following the required number of years. In that event, the party in possession acquires title to the property and the state of co-ownership is ended. In the case at bar, the property was registered in 1955 by the petitioner, solely in his name, while the claim of the private respondents was presented in 1974. Has prescription then, set in? We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been preceded by repudiation (of the coownership). (No repudiation on the part of the private respondents/plaintiffs. ANDRES v. MANTRUST Ponente: CORTES, J. Date: September 15, 1989 DOCTRINE: Requisites of solution indebiti: (1) that he who paid was not under obligation to do so; and, (2) that payment was made by reason of an essential mistake of fact FACTS: Relevant Provision of Law: Art. 2154, CC Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States. In the course of the business transaction between the two, FACETS from time to time remitted certain amounts of money to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A.

(hereinafter referred to as FNSB) to transfer $10,000.00 to petitioner via PNB. Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to effect the abovementioned transfer through its facilities and to charge the amount to the account of FNSB with private respondent. Although private respondent was able to send a telex to PNB to pay petitioner $10,000.00 through the Pilipinas Bank, where petitioner had an account, the payment was not effected immediately because the payee designated in the telex was only "Wearing Apparel." Upon query by PNB, private respondent sent PNB another telex dated August 27, 1980 stating that the payment was to be made to "Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through Demand Draft No. 225654 of the PNB. Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner, FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already received the remittance, FACETS informed private respondent about the delay and at the same time amended its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB. Accordingly, private respondent, which was also unaware that petitioner had already received the remittance of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980, petitioner received a second $10,000.00 remittance. Private respondent (Mantrust) asked petitioner for the return of the second remittance of $10,000.00 but the latter refused to pay. LC: in favor of petitioner as defendant; Art. 2154 of the New Civil Code is not applicable to the case because the second remittance was made not by mistake but by negligence and petitioner was not unjustly enriched by virtue thereof CA: Art 2154 is applicable; reversed CFI ISSUE: W/N petitioner has an obligation to return the $10,000. RULING: Art. 2154 of the New Civil Code provides that: Art. 2154. If something received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.
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This provision is taken from Art. 1895 of the Spanish Civil Code which provided that: Art. 1895. If a thing is received when there was no right to claim it and which, through an error, has been unduly delivered, an obligation to restore it arises. Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal provision, which determines the quasicontract of solution indebiti, is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. For this article to apply the following requisites must concur: (1) that he who paid was not under obligation to do so; and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)]. Petitioner: he had the right to demand and therefore to retain the second $10,000.00 remittance. It is alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables from FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being in payment of a pre-existing debt, petitioner was not thereby unjustly enriched. SC: The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was the latter and not private respondent which was indebted to petitioner. On the other hand, the contract for the transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB. Petitioner, although named as the payee was not privy to the contract of remittance of dollars. There being no contractual relation between them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake by private respondent to the outstanding account of FACETS. Petitioner: the payment by respondent bank of the second $10,000.00 remittance was not made by mistake but was the result of negligence of its employees. SC: The Court holds that the finding by the Court of Appeals that the second $10,000.00 remittance was made by mistake, being based on substantial evidence, is final and conclusive. CA held: The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written interrogatories sent to the First National State

Bank of New Jersey through the Consulate General of the Philippines in New York, Adelaide C. Schachel, the investigation and reconciliation clerk in the said bank testified that a request to remit a payment for Facet Funwear Inc. was made in August, 1980. That there was a mistake in the second remittance of US $10,000.00 is borne out by the fact that both remittances have the same reference invoice number which is 263 80. Petitioner: when one of two innocent persons must suffer by the wrongful act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the loss. SC: The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a case. PUYAT AND SONS V. MANILA Nature: action for refund Ponente: PAREDES, J Date: April 30, 1963 DOCTRINE: (Citing a US case) It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of law or fact, essentially affecting the rights of the parties, and which in law or conscience was not payable, and should not be retained by the party receiving it, it may be recovered. Both law and sound morality so dictate FACTS: Relevant Provision of Law: On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail Dealerls Taxes paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00, against the City of Manila and its City Treasurer. The case was submitted on the following stipulation of facts, to wit "1. That the plaintiff is a corporation duly organized and existing according to the laws of the Philippines, with offices at Manila; while defendant City Manila is a Municipal Corporation duly organized in accordance with the laws of the Philippines, and defendant Marcelino Sarmiento is the duly qualified incumbent City Treasurer of Manila; "2. That plaintiff is engaged in the business of manufacturing and selling all kinds of furniture xxx "3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance No. 3364, defendant City Treasurer of Manila assessed from plaintiff retail dealer's tax corresponding to the quarters hereunder stated on the sales of
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furniture manufactured and sold by it at its factory site, all of which assessments plaintiff paid without protest in the erroneous belief that it was liable therefor xxx "4. That plaintiff, being a manufacturer of various kinds of furniture, is exempt from the payment of taxes imposed under the provisions of Sec. 1, Group II, of Ordinance No. 3364, which took effect on September 24, 1956, on the sale of the various kinds of furniture manufactured by it pursuant to the provisions of Sec. 18(n) of Republic Act No. 409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816. xxx "6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila, a formal request for refund of the retail dealer's taxes unduly paid by it. "7. That on July 24, 1958, the defendant City Treasurer of Manila definitely denied said request for refund. LC: ordered the defendants to refund the amount of P29,824.00; Of the payments made by the plaintiff, only that made on October 25, 1950 in the amount of P1,250.00 has prescribed Payments made in 1951 and thereafter are still recoverable since the extra-judicial demand made on October 30, 1956 was well within the six-year prescriptive period of the New Civil Code. CITY OF MANILA (defendants): the taxes in question were voluntarily paid by appellee company and since, in this jurisdiction, in order that a legal basis arise for claim of refund of taxes erroneously assessed, payment thereof must be made under protest, and this being a condition sine qua non, and no protest having been made, -- verbally or in writing, thereby indicating that the payment was voluntary, the action must fail. PUYAT AND SONS: the payments could not have been voluntary. At most, they were paid "mistakenly and in good faith" and "without protest in the erroneous belief that it was liable thereof." Voluntariness is incompatible with protest and mistake. It submits that this is a simple case of "solutio indebiti" ISSUE: W/N the amounts paid by plaintiff-appelele, as retail dealer's taxes under Ordinance 1925, as amended by Ordinance No. 3364of the City of Manila, without protest, are refundable RULING: Plaintiff-Appellee is entitled to the refund.

Appellants do not dispute the fact that appellee-company is exempted from the payment of the tax in question. Newport v. Ringo (US case): "It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of law or fact, essentially affecting the rights of the parties, and which in law or conscience was not payable, and should not be retained by the party receiving it, it may be recovered. Both law and sound morality so dictate. Especially should this be the rule as to illegal taxation RE: Requirement of protest In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question similar to the case at bar, it was held that the requiredment of protest refers only to the payment of taxes which are directly imposed by the charter itself, that is, real estate taxes, which view was sustained by judicial and administrative precedents, one of which is the case of Medina, et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words, protest is not necessary for the recovery of retail dealer's taxes, like the present, because they are not directly imposed by the charter. ISSUE #2: IF yes on #1, W/N the claim for refund filed in October 1956, in so far as said claim refers to taxes paid from 1950 to 1952 has already prescribed CITY OF MANILA: article 1146 (NCC), which provides for a period of four (4) years (upon injury to the rights of the plaintiff), apply to the case. PUYAT AND SONS: provisions of Act 190 (Code of Civ. Procedure) should apply, insofar as payments made before the effectivity of the New Civil Code on August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC), for payments made after said effectivity, providing for a period of six (6) years (upon quasi-contracts like solutio indebiti). RULING: Even if the provisions of Act No. 190 should apply to those payments made before the effectivity of the new Civil Code, because "prescription already running before the effectivity of of this Code shall be govern by laws previously in force xxx " (Art. 1116, NCC), Still payments made before August 30, 1950 are no longer recoverable in view of the second paragraph of said article (1116), which provides: "but if since the time this Code took effect the entire period herein required for prescription should elapse the present Code shall be
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applicable even though by the former laws a longer period might be required". Anent the payments made after August 30, 1950, it is obvious that the action has prescribed with respect to those made before October 30, 1950 only, considering the fact that the prescription of action is interrupted xxx when is a written extra-judicial demand x x x" (Art. 1155, NCC), and the written demand in the case at bar was made on October 30, 1956 (Stipulation of Facts). MODIFIED in the sense that only payments made on or after October 30, 1950 should be refunded, the decision appealed from is affirmed, in all other respects. 4. Acts or omissions punished by law

negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (1902a) SALUDAGA V. FEU Nature: Complaint for damages Ponente: YNARES-SANTIAGO, J. Date: April 30, 2008 DOCTRINE: FACTS: Relevant Provision of Law: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEUNRMF) due to the wound he sustained. Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually released considering that no formal complaint was filed against him. Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. TC: held FEU and GALAXY liable CA: reversed; dismissed the complaint; shooting was a fortuitous event ISSUE: W/N FEU is liable based on the contract between it and its student

Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098) Article 2177. Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the defendant.(n) RPC Article 100. Civil liability of a person guilty of felony. - Every person criminally liable for a felony is also civilly liable. RPC Article 104. What is included in civil liability. - The civil liability established in Articles 100, 101, 102, and 103 of this Code includes: 1. Restitution; 2. Reparation of the damage caused; 3. Indemnification for consequential damages. 5. Quasi-delicts

Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book, and by special laws. (1093a) Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or

RULING: YES. FEU is liable (culpa contractual).

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PSBA v CA: When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and regulations. It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. In the instant case, we find that, when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. Re: Force majeure Respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of Rosete as a security guard for the university was offered. It was not proven that they examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting away its inherent obligation to ensure a safe learning environment for its students. Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered, respondents must show that no negligence or misconduct was committed that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation - whether by active intervention, neglect or failure to act - the whole occurrence is humanized and removed from the rules applicable to acts of God

Re: Damages Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU is liable to petitioner for damages. DISPOSITIVE: a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction; b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00; c. the award of exemplary damages is DELETED. The Complaint against respondent Edilberto C. De Jesus (Prfesident of FEU) is DISMISSED. The counterclaims of respondents are likewise DISMISSED. SAGRADA ORDEN VS NACOCO Nature: Action to recover the possession of a parcel of land and the warehouses, as well as the rentals for its occupation and use Ponente: Labrador Date: June 30, 1952 DOCTRINE: In order for an obligation to exist, it must be created by law, contract, quasi-contract, delicts, or quasi-delicts. FACTS: Relevant Provision of Law: Old Civil Code Article 1089. Obligations are created by law, by contracts, by quasi-contracts, and by illicit acts and omissions or by those in which any kind of fault or negligence occur On January 4, 1942, during the Japanese occupation, a Japanese corporation by the name of Taiwan Tekkosho acquired a certain parcel of land owned by the plaintiff for the sum of Php140,000.00, and title was issued in its name. After the end of World War 2, the Alien Property Custodian of the USA took possession, control and custody thereof for the reason that the land belonged to an enemy national. Afterwards the property was occupied by the Copra
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Export Management Company, which later vacated it in favor of the National Coconut Corporation. Sagrada Orden made a claim of the property before the Alien Property Custodian but this was denied, so it brought an action at the CFI of Manila to annul the sale of the property to Taiwan Tekkosho and to recover its possession. The case did not come to trial as the parties presented a joint petition where it was claimed that the sale in favor of Taiwan Tekkosho was null and voide because it was executed under threats, duress, and intimidation, and it was agreed that the title should be re-issued in favor of Sagrada Orden. The parties also prayed that NACOCO and the Alien Property Administration be released from liability, and that NACOCO would pay rentals. CFI released NACOCO from any liability but denied plaintiff the right to recover reasonable rentals. Plaintiff appeals to recover reasonable rentals from August 1946, which as when NACOCO began occupying the premises, and to vacate it. Respondent, on the other hand, admits rentals but only starting February 28, 1949, when the judgment of the CFI was issued. It defends itself by saying it occupied the property in good faith, and had no obligation whatsoever to pay rentals for the use and occupation of the warehouse. ISSUE: Whether or not NACOCO is liable for rentals from the time of its occupancy or from the time of the judgment of the CFI. RULING: It is not liable for rentals at all. If defendant is liable at all, its obligations must arise from any of the four sources of obligations: law, contract or quasi-contract, crime, or negligence. NACOCO is not guilty of any offense at all since it entered the premises and occupied the same with the permission of the Alien Property Administration, which had legal control and administration. Its not negligent of anything either. There was no privity of contract or obligation between the Alien Property Custodian and Taiwan Tekkosho such that the Alien Property Custodian or its permittee (NACOCO) can be held responsible for the illegal occupation by Taiwan Takkosho. Note: the Alien Property Custodian did not occupy the property as successor to the interests of Taiwan Tekkosho, but by expression provision of the law. When NACOCO took possession of the property, the Alien Property Administration had the absolute control of the property as the trustee of the US Government; as such, if NACOCO is liable for rentals, it would accrue to the US Government and not to Sagrada Orden.

Furtehrmore, there was no agreement between the Alien Property Custodian and NACOCO for the payment of rentals on the property. The predecessor of NACOCO, Copra Export, did not pay any rentals or had to pay any compensation of any kind. When the NACOCO succeeded Copra Export, it must have also been free from payment of rentals, especially since its a Government corporation. As such, there is no basis on any of the sources of obligations to find that NACOCO is liable for rentals to Sagrada Orden.

PEOPLES CAR INC. VS COMMANDO SECURITY SERVICE AGENCY Nature: Action for damages Ponente: Teehankee Date: May 22, 1973 DOCTRINE: Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith FACTS: Relevant Provision of Law: NCC Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Peoples Car Inc and Commando Security Service Agency entered into a Guard Service Contract where the latter would safeguard and protect the business premises of Peoples Car from theft, pilferage, robbery, vandalism and all other unlawful acts of any person or persons prejudicial to the interest of the plaintiff. On April 5, 1970, at around 1AM, one of the security guards, without any authority or consent whatsoever, brought out of the compound of the plaintiff a car belonging to Joseph Luy, a customer, and eventually lost control of the said car, causing the same to fall into a ditch. Plaintiff filed a complaint of qualified theft against the security guard; plaintiff alleges that it had to suffer damages by way of payment for the repairs of the car in the amount of Php7,079, as well as car rental value in the sum of Php1,410 as plaintiff had to loan a car to Joseph Luy for 47 days while the car was being repaired. As such, plaintiff incurred a total of Php8,489.10 in damages.
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Plaintiff claimed that the entire amount is imputable to Commando Security as, under paragraph 5 of their contract, defendant assumed liability for acts done during their watch hours by guards, while Commando alleges, under paragraph 4 of the contract, that its liability should not exceed Php1,000. TC ruled in favor of the interpretation of Commando Security. ISSUE: What is the extent of the liability of Commando Security in light of the contract that the parties entered into RULING: It is liable for the entire Php8,489.10. The limitation to Php1,000 per guard post is only applicable for loss or damage through the negligence of its guards during watch hours provided that the same is duly reported to the plaintiff within 24 hours of the occurrence and the negligence is verified after proper investigation with the attendance of both contracting parties. Its inapplicable in this case as the property of the plaintiff was not lost or damaged at its premises, and was there just mere negligence of the security guard. Rather, this case involves a security guard who willfully and unlawfully drove out a car and lost control of the same, causing the plaintiff to incur actual damages in the amount of Php8,489.10. Consequently, defendant is liable for the entire damages under paragraph 5, where the defendant assumes liability for the acts during their watch hours and that it releases plaintiff from any and all liabilities to the third parties arising from acts or omissions done by guards during their tour of duty. As the act here is wanton and unlawful, the defendant is liable. Contrary to TCs determination, plaintiff was not required to tell Luy that it was not liable under the Guard Service Contract with Commando, and that it should have brought the action in court. The TC also required that Luy would file a third-party complaint (rather than dismiss the action vs. plaintiff) or to have plaintiff file a crossclaim (if Luy did not opt to dismiss the action). The recommendations of the TC are unduly technical and unrealistic Plaintiff was in law liable to Luy for the damages caused by the security guard, but it was also justified in making good such damages and relying in turn on the defendants honoring its contract. Plaintiff couldnt tell its customer that it was not liable since the customer could not hold defendant to account for damages as the customer had no privity of contract with the defendant. CANGCO VS MANILA RAILROAD Nature: Action for damages based on quasi-delict

Ponente: Fisher Date: October 4, 1918 DOCTRINE: The liability arising from culpa aquillana is based on a voluntary act or omission, which, without willful intent but by mere negligence, has caused damage to another. An employer who exercises all possible care in the selection and direction of his employee would not occur any liability. For the liability to exist, there should actually be some fault attributable to the defendant personally. FACTS: Relevant Provision of Law: Civil Code ART. 1903. The obligation imposs=ed by the next preceding articles is enforceable not only for personal acts and omissions, but also for those of persons for whom another is responsible.. Jose Cango was an employee of the Mania Railroad Company as a clerk. To travel from his home to his place of work, he used a pass, as supplied by the company, which entitled him to ride on the companys trains for free. On January 20, 1915, at around 7 to 8PM, Cangco was about to disembark from the slowing train, when one or both of his feet came in contact with sack of watermelons resulting in him falling violently on the platform; his body rolled from the platform and was drawn under the moving car where his right arm was badly crushed and lacerated. The platform was dimly lit so that it was difficult to discern the objects on the platform. Pit appears that the sack of melons were on the platform as it was customary season for harvesting and a large lot had been brought to the station for the shipment to the market. They were contained in numbers sacks, which had been piled on the platform in a row upon another near the edge of the platform. As a result of the accident, Cangco had to undergo two surgeries resulting in the amputation of his arm until near the shoulder, and he expended actual medical damages in the amount of Php790.25. He thus filed an action with the CFI of Manila to recover damages based on the negligence of the employees in leaving the sacks of watermelons at the edge of the platform. CFI ruled that while negligence was attributable to the defendant, the plaintiff had failed to exercise due caution in alighting from the train and so was precluded from recovering ISSUE: Whether or not Cangco is entitled to recover damages from MRR for the negligent actions of MRRs employees in placing the sacks of watermelons at the edge of the platform
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RULING: Yes, Manila railroad is liable for damages for breach of contract of carriage. It cannot be doubted that the employees of the railroad company were negligent in piling the sacks on the platform and that their presence caused the plaintiff to suffer his injuries; as such, they constituted an effective legal cause of the injuries sustained by the plaintiff. However, it must still be weighed against the contributory negligence of the plaintiff. The foundation of the legal liability of the defendant is the contract of carriage; the obligation to respond for the damage arises from the failure of the defendant to exercise due care in its performance. The liability of is direct and immediate, and differs from the presumptive responsibility for the negligence of its employees as imposed by Civil Code Article 1903, which can be rebutted by proof of the exercise of due care in the selection and supervision of employees. Article 1903 is not applicable to contractual obligations (culpa contractual), but only to extra-contractual obligations (culpa aquiliana). Court cites precedent in the Rakes case where the Court stated that Article 1903 of the Civil Code is inapplicable to acts of negligence which constitute the breach of contract; they would be subject instead to articles 1101, 1103 and 1104. The distinction is important as the liability imposed on employers for damages based on the negligence of the employees is not based on respondeat superior which would impose the master liable in every case and unconditionally but on the principle in Article 1902, which imposes upon all persons who by their own fault or negligence cause injury to another, the obligation to indemnify the damages. As such, the employer would not be liable for damages done by a negligent employee if the employer were not negligent in the selection and direction of the employee, and the act did not amount to breach of the contract between the third person and the employer. The liability arising from culpa aquillana is based on a voluntary act or omission, which, without willful intent but by mere negligence, has caused damage to another. An employer who exercises all possible care in the selection and direction of his employee would not occur any liability. For the liability to exist, there should actually be some fault attributable to the defendant personally. On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents, when such acts or omissions cause damages which amount to the breach of a contact, is not based upon a mere presumption of the master's negligence in their selection or control, and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract.

The Court describes extra-contractual obligations arise from the breach or omission of the mutual duties which civilized society imposes on its members such that the breach of these will result in the obligation to indemnify. The viniculum juris is the wrongful or negligent act or omission itself, while in contractual relations, the viniculum exists independently from the breach of the voluntary duty. The positions of parties who have taken a contract with each other versus those who havent are different. The burden of proof is on the plaintiff to show the negligence in culpa aquillana, while in a contract, it is sufficient to prove the contract and the nonperformance. Here: the duty was based on a contract of carriage, which is direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendants e mployees. Defendants allegation that the plaintiff should not have gotten off from the train prior to its slowing down is insufficient to deny damages as it is not negligence per se for a passenger to alight from a moving train. The train here was barely moving and it seems to be a common practice to do so without any injury. Any contributory negligence on the part of the plaintiff would still be on the negligence of the defendant as the platform was dark and dimly lit. Dissent: J. Malcolm The contributory negligence of the plaintiff, in attempting to alight from a moving train should absolve defendant from liability. GUTIERREZ VS. GUTIERREZ Nature: Action to recover damages from physical injuries from an automobile accident Ponente: Malcolm Date: September 23, 1931 DOCTRINE: The head of the house, the owner of an automobile, who maintains it for the general use of the family, is liable for its negligent operation by one of his children where the car is occupied and being used at the time of the injury for the pleasure of other members of the owners family. FACTS: Relevant Provision of Law: Spanish Civil Code ART. 1903. The obligation imposed by the next preceding articles is enforceable not only for personal acts and omissions, but also for
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those of persons for whom another is responsible. The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the minor children who live with them. On February 2, 1930, a passenger truck, and an automobile, driven by Bonifacio Gutierrez and owned by his parents, Mr. and Mrs. Manuel Gutierrez, collided with one another as they were passing on the Talon Bridge on the Manila South Road. Narciso was a passenger on the truck, and he suffered a fracture in his right leg, which required medical attendance and had not yet healed at the date of the trial. The parties conceded that the collusion was caused by negligence. However, the plaintiff blames both sets of drivers, while the truck owner blames the automobile driver, while the automobile owners blame the truck driver. ISSUE: Who among the defendants are liable the truck owner or the automobile owner? RULING: Bonifacio, at the time of the accident, was only 18 and was driving at an excessive rate and so contributed to the accident by his negligence. As such, based on article 1903 of the Civil Code, the father would be liable for damages caused by the minor. Citing US cases as precedent, the Court ruled that it has been held that the head of the house, the owner of an automobile, who maintains it for the general use of the family, is liable for its negligent operation by one of his children where the car is occupied and being used at the time of the injury for the pleasure of other members of the owners family. On the other hand, the liability of Cortez, the owner of the passenger truck, and Velasco, the drier, rests on a contract, which was sufficiently proven in evidence. The trial court found that the speed of the truck at the time and lack of care of the driver also contributed to the accident. Cortez and Velascos contention that Narciso contributed to the accident by sticking his leg outside the truck cant be counted on as it was not pleaded in court and there was no evidence presented. NOTES: Villa-Real had a concurring opinion which merely voted for an indemnity of Php7,500. C. Compliance with obligations

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a) Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. (1095) Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a) Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a) Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a) Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180) Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially. (353)
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Article 442. Natural fruits are the spontaneous products of the soil, and the young and other products of animals. Industrial fruits are those produced by lands of any kind through cultivation or labor. Civil fruits are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other similar income. (355a) D. Kinds of civil obligations 1. As to perfection and extinguishment a. Pure Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1128a) (NOTE: My syllabus is cut and I dont know what follows after these provisions, Im sorry. Macel) PAY VS PALANCA Nature: Action for a sum of money based on a promissory note Ponente: Fernando Date: June 28, 1974 DOCTRINE: An obligation that does not depend on a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. The filing of an action only 15 years after is too late to enforce. FACTS:

Relevant Provision of Law: NCC 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once George Pay is a creditor of the late Justo Palanca. Pays claim is based on a promissory noted dated January 30, 1952, wherein Justo Palanca and Rosa Palanca promised to pay the amount of Php26,900.00. Pay comes to the court seeking that Segunda, the widow, be appointed as the administratrix under the belief that once a certain parcel of land is under her administration, Pay, as the creditor, could seek his claim against the administratrix. Palanca denies stating that she had refused to be appointed as the administratrix, that the property no longer belonged to the deceased, and that the rights of Pay on the instrument had already prescribe; the note had been executed 15 years prior. TC ruled in favor of Palanca and dismissed the case ISSUE: Whether a creditor is barred by prescription in his attempted to collect on a promissory note executed more than 15 years earlier. RULING: Yes. Based on the evidence presented, the only argument that merits the attention of the Court is that of prescription. As noted by NCC 1179, any obligation that does not depend on a future or uncertain event, or upon a past event unknown to the parties is demandable at once. As the obligation was due and demandable, the filing of the suit after 15 years was much too late. The Civil Code additionally states that the prescriptive period of a written contract is 10 years. SMITH BELL VS SOTELO MATTI Nature: Specific Performance payment of goods and to receive the same Ponente: Romualdez Date: March 9, 1922 FACTS: Relevant Provision of Law: Civil Code 1125. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives. A day certain is understood to be one which must necessarily arrive, even though its date be unknown.

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If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be governed by the rules of the next preceding section. In August 1918, Smith Bell and Sotelo entered into contracts whereby the former obligated itself to sell to Sotelo two steel tanks for the price of Php21,000, the tanks were to be shipped from New York and delivered at Manila within 3-4 months; two expellers for the price of Php25,000, which were to be shipped from San Francisco in the month of September 1918 or as soon as possible; and two electric motors at the price of Php2,000 each the delivery stipulation read approximate delivery within 90 days this is not guaranteed. All of the contracts were subject to contingencies such as the sellers not being responsible for delays caused by force majeure. The tanks arrived on April 27, 1919, the expellers on October 26 1918, and the motors on February 27, 1919. Plaintiff notified Sotelo of the arrival of the goods, but he refused to receive and pay for them. Smith Bell alleges that it immediately notified Sotelo of the arrival of the goods yet Sotelo has refused to receive any of them to pay for their price. Sotelo counters that the he made the contracts as the manager of the Manila Oil Refining and By-Products Company, and that it was only in May 1919 that he was notified of the arrival of the goods, which arrived incomplete and long after the dates stipulated. They allege that the delay in the delivery resulted in suffering damages for the non-delivery of the tanks (P116,783.91) and on the expellers and motors (P21,250) TC absolved the defendant from paying for the tanks and motors but ordered that defendant pay P50,000 for the expellers, which includes legal interest ISSUE: Whether or not under the contracts entered into and the circumstances established in record, the plaintiff fulfilled its obligation to bring the goods and in due time. RULING: Yes, the obligations were conditional. None of the contracts fixed a specific date for the delivery of goods they stated within 3-4 months, in September 1918, or as soon as possible or approximate delivery within 90 days this is not guaranteed and all of them were subject to the clause that force majeure was a possible defense in case of delays. The record discloses that the contracts were executed at the time of World War I, which mean that there were rigid restrictions on exports from the USA of articles such as machinery in question, and that transportation was difficult, which was known to the parties.

Considering these contracts in light of civil law, the Court ruled that the term the parties attempted to fix is so uncertain that one cannot tell whether or not the goods could actually be brought to Manila, so the obligations must be considered as conditional. The export of the machinery was contingent on the sellers obtaining certificate of priority and permission of the US Government, so it was subject to a condition that depended on the effort of Smith Bell and on the will of third persons who could in no way be compelled to fulfill the obligation. The obligor is considered as having sufficiently performed his part of the obligation if he has done all in his power, even if the condition has not been fulfilled. As such, Soleto is sentenced to accept and receive the machinery and to pay Php96,000.00 including legal interest from the date of the filing of the complaint until fully paid.

CHAVES VS GONZALES Nature: Action for damages Ponente: Reyes Date: April 30, 1970 DOCTRINE: When the time for compliance of an obligation had evidently expired, even if a term was not properly fixed by the parties, there is a breach of contract by non-performance. FACTS: Relevant Provision of Law: NCC 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. The same shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone NCC 1170. 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. NCC 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may
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fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. In July 1963, Chaves delivered to Gonzales a typewriter for routine cleaning and servicing. Gonzales was unable to finish the job after some time in spite of repeated reminders made by Chaves. Instead, he constantly gave assurances. In October 1963, defendant asked from plaintiff the sum of P6.00 for the purchase of spare parts, which plaintiff gave. On October 26, finally fed up with the delay, plaintiff demanded that the typewriter be returned. The defendant returned the same in a wrapped package; the plaintiff discovered that the same was completely in shames with the interior cover and some parts and screws missing. Plaintiff sent a letter formally demanded the return of the missing parts, the interior cover and P6.00. The next day, defendant returned some of the missing parts, the interior cover and P6.00 The plaintiff had his typewriter repaired by Freixas Business Machines, which was successful in doing so for the cost of P89.85. Plaintiff commenced an action at the CFI of Manila, asking for P90 as actual damages, P100 as temperate, P500 for moral, and P500 as attorneys fees. TC ruled that the defendant should not be liable for the repairs made by Freixas, but should only be liable for the value of the missing parts. As such it ordered the defendant to pay the sum of P31.10, and the costs of the suit. Plaintiff alleges that based on NCC 1167, he should be entitled to the whole cost of labor and materials that went into the repair of the machine. Defendant alleges that it should not be held liable as his contract with the plaintiff did not contain a period under NCC 1197, such that the plaintiff should have first filed an action to fix the period, within which he should have complied with the contract before he is liable for breach ISSUE: Whether or not defendant is liable to plaintiff for the cost of actually repairing the typewriter, which it had failed to do RULING: The Court ruled that there was a perfected contract for cleaning and servicing a typewriter, which was properly intended that the defendant finish it at a future time though it was not specified. Furthermore, some time had passed without the work having been finished, and the defendant returned the

typewriter cannibalized and unrepaired, which is a breach of his contract, and he did so without asking for more time to finish the job or for compensation for the work he had done. Consequently, the Court rules that the time for compliance had evidently expired and there was already breach of contract by non-performance. Defendant cannot invoke NCC 1197 as the fixing of a period would be a mere formality and would only serve as a delay. Clear that the defendant breached his obligation, so he is liable under NCC 1167 for the cost of the execution of the obligation in the proper manner, which is P89.85 He is also liable under NCC 1170 for the cost of the missing parts for his negligence in returning the typewriter in the same condition in which he had received it. The other damages were correctly rejected as they were not alleged in his complaint.

ENCARNACION VS BALDOMAR Nature: Ponente: Hilado Date: October 4, 1946 DOCTRINE: The validity and fulfillment of a contract of lease cannot be left solely and exclusively to the will of one of the parties here the lessees as it would deprive the owner from being able discontinue the lease FACTS: Encarnacion leased a house to Jacinto Baldomar and her son Lefrado Fernando on a month-to-month basis for the monthly rental of P35. After the end of World War 2, Encarnacion informed Baldomar and her son to vacate the house by April 15, 1945 as he needed it for his offices as a result of the destruction of the building where his office previously was. In spite of his demand, the defendants insisted on their occupancy. Baldomar and Fernanco contend that Encarnacion authorized them to continue their occupancy indefinitely while they are able to faithfully fulfill their obligation with respect to the payment of rentals.

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Encarnacion contends that the lease had always been on a month-to-moth basis. CFI ruled in favor of Encarnacion ISSUE: Whether or not Encarnacion is justified in ordering the ejectment of Baldomar and Fernando from the house that he leased to them RULING: Yes. The Court puts more credit on the witness of Encarnacion that the lease was for a month to month basis. The defense set up by Fernando basically left the validity and fulfillment of the contract of lease solely and exclusively to the will of one of the parties whether or not they would continue paying rentals or not and would deprive the owner from any say in the matter. If this defense were allowed, the owner could potentially never be able to discontinue the lease. Conversely, if the owner wished the lease to continue, the lessees could just stop paying in order to terminate the lease. The Court states that this is void according to 1256 of the Spanish Civil Code.

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ELEIZEGUI VS MANILA LAWN TENNIS CLUB Nature: Action for ejectment Ponente: Arellano Date: May 19, 1903 DOCTRINE: FACTS: Relevant Provision of Law: Art 1128 Should the obligation not fix a period, but it can be inferred from its nature and circumstances that there was an intention to grant it to the debtor, the courts shall fix the duration of the same. The court shall also fix the duration of the period when it may have been left to the will of the debtor. Eleizegui leased a parcel of land for a fixed consideration and to endure at the will of the lessee, who was authorized to make improvements upon the land such as erecting buildings of both permanent and temporary character, by making fills, laying pipes, and making such other improvements as may be desirable for the comfort and amusement of the members. Eleizegui later tried to terminate the lease by sending notice to the Tennis Club but this was ignored. As such, he filed an action to recover the land. Elezegui contends that, based on Article 1569 of the Spanish Civil Code, the lessor may judicially dispossess the lessee upon the expiration of the conventional term or of the legal term. TC ruled in favor of Eleizegui contending that the lease was on a per month basis ISSUES (1) Whether or not there was a conventional term RULING: Yes, so 1581 which imposes a legal term is not applicable The Court notes that there are clauses, which do stipulate a term, so the legal term as imposed by 1581 cannot be applied. Clause 3 of the contract states that Mr. Williamson, or whoever may succeed him as secretary of the club, may terminate this lease whenever desired without other formality other than that of giving a months notice. The owners of the land undertake to maintain the club as tenant as long as the latter shall see fit. As such, the contract of lease cannot be considered as being one without a conditional term as there is one, which is dependent on the lessee. As such, the lease could not be considered terminated by the notice given by Eleizegui

as this notice is necessary only when it becomes necessary to have recourse to the legal term. It is also evident that the lessors did not intend to reserve to themselves the right to rescind which they expressly conferred upon the lessee by establishing it exclusively with the latter. (2) Whether or not the lease depends upon the will of the lessee. RULING: However, It cannot be concluded that the termination of the contract is to be left completely at the will of the lessee simply because it has been stipulated that its duration is to be left to his will. The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of obligations with a term it has supplied the deficiency of the former law with respect to the "duration of the term when it has been left to the will of the debtor," and provides that in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every contract, as laid down by the authorities, there is always a creditor who is entitled to demand the performance, and a debtor upon whom rests the obligation to perform the undertaking. In bilateral contracts the contracting parties are mutually creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with respect to the rights enumerated in article 1554, and is the debtor with respect to the obligations imposed by articles 1555 and 1561. The term within which performance of the latter obligation is due is what has been left to the will of the debtor. This term it is which must be fixed by the courts. The only action which can be maintained under the terms of the contract is that by which it is sought to obtain from the judge the determination of this period, and not the unlawful detainer action which has been brought an action which presupposes the expiration of the term and makes it the duty of the judge to simply decree an eviction. To maintain the latter action it is sufficient to show the expiration of the term of the contract, whether conventional or legal; in order to decree the relief to be granted in the former action it is necessary for the judge to look into the character and conditions of the mutual undertakings with a view to supplying the lacking element of a time at which the lease is to expire. The lower courts judgment is erroneous and therefore reversed and the case was remanded with directions to enter a judgment of dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club. SEPARATE OPINION: Concurring by J. Willard: Willard contends that 1128 should apply generally to unilateral contracts those in which the credit parted with something of value, leaving it to the debtor to say when it should be returned. It should not be applied to the contract of lease. But he agrees that 1581 is inapplicable
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PHILIPPINE BANKING representing estate of JUSTINA SANTOS v. LUI SHE as administratrix of WONG HENG Nature: Annulment of contract Ponente: Castro Date: 12 September 1962 DOCTRINE: Contracts at bar cannot be annulled on the ground of 1308 that the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. At bar, the contract of lease was not dependent on Wongs will, as there was a fixed term. FACTS: Relevant Provision of Law: 1308, 1416 Santos and her sister Lorenzo both owned a Manila compound. Wong was their lessor. He had a restaurant on the compound and also lived therein. When Lorenzo died, Santos exclusively owned the property. It was at this time when she became close with Wongs children. Wong himself was the trusted man to whom she delivered various amounts for safekeeping, including rentals from her property. He also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses, masses, salaries of maids and security guard, and her household expenses. Santos and Wong then entered into several contracts with each other: 1. Contract of lease covering the area already leased to Wong and an additional area for 50 years, with right to lessee to withdraw. The contract was then amended to include the entire compound of Santos, including the very house where she loved; 2. An option to buy the leased premises in favor of Wong. This was conditioned on his obtaining Filipino citizenship; 3. A contract extending the lease to 99 years; and 4. Another fixing the option to buy at 50 years. Santos then executed two wills where she asked her heirs to respect the contracts made. However, a codicil later executed said differently: it claimed that the contracts were made only because of inducement and machination employed by Wong. Santos then filed a case to annul the above contracts and for collection of unpaid rentals. CFI ruled for Santos, and annulled all contracts except the first contract of lease. At this point, the original parties passed away. ISSUE: W/N contracts should be annulled

RULING: Yes, they should be. 1. But they cannot be annulled on the ground of 1308 that the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. At bar, the contract of lease was not dependent on Wongs will, as there was a fixed term. 2. They cannot also be annulled on the ground that Santos was not the owner. When Lorenzo died, the entire property became Santos therefore she could validly dispose. 3. Neither can they be annulled because a fiduciary relationship existed between Santos and Wong, with the latter as agent, contrary to article 1646, in relation to article 1941 of the Civil Code, which disqualifies "agents (from leasing) the property whose administration or sale may have been entrusted to them." Wong was never an agent of Justina Santos. 4. Cannot annul based on fraud. There was no fraud employed, as Santos dictated the terms of these contracts to her lawyer with Wongs aid. The lawyer fully explained the effects of the contracts. 5. Neither can these contracts be annulled on the grounds that Santos was blind, and that the contracts were in English, which she did not understand. Nor can they be voided because of an alleged mistaken belief that Wong rescued Santos and her sister from a fire. 6. But they are invalidated because of an illegal cause! Contracts were executed to circumvent the constitutional prohibition against alien ownership of land. If an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it becomes clear that the arrangement is a virtual transfer of ownership. But pari delicto does not avail at bar because: 1) the parties are dead; and 2) article 1416 of the Civil Code provides, as an exception to the rule on pari delicto, that "When the agreement is not illegal per se but is merely prohibited, and the prohibition by law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered." Further, if the pari delicto rule were to apply and neither party may have recourse against the other, then this would further defeat the constitutional prohibition. Since all contracts are annulled, the property is returned to the Santos estate.

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ARANETA V. PHILIPPINE SUGAR ESTATES DEVT. CO. LTD LIM V. PEOPLE Nature: Estafa Ponente: Relova Date: 21 November 1984 DOCTRINE: Since the agreement fixed a period, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. FACTS: Relevant Provision of Law: 1197 Lim was a businesswoman. She went to the home of Maria Ayroso and offered to sell the latters tobacco. They agreed that Lim would receive the overprice for which she would sell the tobacco for. The product was then loaded in Lims jeep. Lim eventually only paid for part of the tobacco she took. Ayroso demanded payment for the rest. But Lim alleges that the contract between them was not one of agency but one of sale. She alleged that since a sale took place, ownership was now vested in her and she is not obligated to remit anything further to Ayroso. The CFI found Lim guilty of estafa. CA affirmed, and in doing so stated that the contract contained a fixed period so the obligation was immediately demandable as soon as the tobacco was sold. ISSUE: W/N Lim is guilty of estafa RULING: Yes, Lim is guilty. From the agreement of Lim and Ayroso, it is clear that the proceeds of the sale of the tobacco should be turned over to the Ayroso as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. Their agreement constituted Lim as an agent with the obligation to return the tobacco if the same was not sold. Nature: Specific performance Ponente: Reyes, JBL Date: 31 May 1967 DOCTRINE: 1197 provides a two-step process: 1. The court must first determine that "the obligation does not fix a period (or that the period is made to depend upon the will of the debtor), but from the nature and the circumstances it can be inferred that a period was intended." 2. This preliminary point settled, the court must then proceed to the second step, and decide what period was "probably contemplated by the parties." FACTS: Relevant Provision of Law: 1197 Araneta sold part of its Sta. Mesa Hts. Subdivision to Phil. Sugar. The contract included an obligation on the sellers end to construct roads on the NE, NW and SW sides of the buyers land within a reasonable time. However, the respondent already finished constructing a church and convent but the NE street was not yet constructed. They filed action to compel petitioner to fulfill its end of the deal. Petitioner attempts to excuse itself by reasoning that such failure is because of a squatter, Abundo who still refuses to vacate. The CFI and CA ruled in favor of respondent, even fixing a two-year period for petitioner to comply with its obligation to construct the NE street. Petitioner questions this ruling. ISSUE: W/N the lower courts were correct to impose a period RULING: No. The contract between petitioner and respondent granted the former reasonable time within which to comply the lower courts should not have imposed their own period of two years. Instead, they should have limited themselves to ruling whether or not this reasonable period had lapsed. If it did, then there is breach, if not, then the action should be dismissed for it was filed prematurely. Further, the two-year period was arbitrarily set. 1197 provides a two-step process: 1. The court must first determine that "the obligation does not fix a period (or that the period is made to depend upon the will of the debtor), but from the nature and the circumstances it can be inferred that a period was intended."
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2. This preliminary point settled, the court must then proceed to the second step, and decide what period was "probably contemplated by the parties." This process was not followed. The two-year period was made out of thin air. At bar, the parties were both aware that squatters existed. This, the conclusion is that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted. MILLARE V. HERNANDO Nature: To order renewal of lease Ponente: Feliciano Date: 30 June 1987 DOCTRINE: The first paragraph of Article 1197 is inapplicable when the contract fixes a period. The second paragraph of Article 1197 is equally inapplicable when the duration of the renewal period was not left to the will of one party alone. Relevant Provision of Law: 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them FACTS: The Cos were lessees to Millare under a lease contract for a five-year period. In May 1980, Millare informed the Cos that they could continue leasing so long as they were amenable to paying creased rentals of P1,200.00 a month. In response, a counteroffer of P700.00 a month was made and to this, Millare allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us." This led the spouses Co to think that the lease had been renewed, but Millare thought otherwise and demanded that they vacate the property. Paragraph 13 of the lease contract states the following: This contract of lease is subject to the laws and regulations of the government; and that this contract of lease may be renewed after a period of five (5) years under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal.

The Co spouses went to court to ask for the renewal of the lease contract at P700 for 10 years. The CFI ruled on their behalf. The lower court judge interpreted paragraph 13 to mean that since the original lease was fixed for five years, it follows, therefore, that the lease contract is renewable for another five. ISSUE: W/N the lease was renewed. RULING: No. The lease contract (paragraph 13) can only mean that the lessor and lessee may agree to renew the contract upon their reaching agreement on the terms and conditions. Failure to reach agreement will of course prevent the contract from being renewed at all. In the instant case, the lessor and the lessee conspicuously failed to reach agreement both on the amount of the rental to be payable during the renewal term, therefore there was no renewal. The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of five years, which had expired. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal period was not left to the will of the lessee alone, but rather to the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of which could have been fixed. Even if an implied lease took place, this would not be for an entire five-year period, but only for month-to-month. 2. As to plurality of prestation a. Conjunctive b. Alternative

ARTICLE 1199. A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131) Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. (1132)

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Article 1201. The choice shall produce no effect except from the time it has been communicated. (1133) Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. (1134) Article 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. (n) Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible. The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible. Damages other than the value of the last thing or service may also be awarded. (1135a) Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists; (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages; (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. (1136a) c. Facultative Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the

substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. (n) 3. As to rights and multiple parties obligations of

Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. (1137a) Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a) Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139) Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n) Article 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. (1140) Article 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) Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n) Article 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)

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Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1144a) Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a) Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n) Article 1219. The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1146a) Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n) Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a) Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a) a. Joint

b. Solidary Article 927. If two or more heirs take possession of the estate, they shall be solidarily liable for the loss or destruction of a thing devised or bequeathed, even though only one of them should have been negligent. (n) Article 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under articles 1822 and 1823. (n) Article 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. (n) Article 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. (1731) Article 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. (1748a) Article 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary. (n) Article 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary. (n)

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Article 2146. If the officious manager delegates to another person all or some of his duties, he shall be liable for the acts of the delegate, without prejudice to the direct obligation of the latter toward the owner of the business. The responsibility of two or more officious managers shall be solidary, unless the management was assumed to save the thing or business from imminent danger. (1890a) Family Code Art. 94. The absolute community of property shall be liable for: (1) The support of the spouses, their common children, and legitimate children of either spouse; however, the support of illegitimate children shall be governed by the provisions of this Code on Support; (2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the community, or by both spouses, or by one spouse with the consent of the other; (3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have been benefited; (4) All taxes, liens, charges and expenses, including major or minor repairs, upon the community property; (5) All taxes and expenses for mere preservation made during marriage upon the separate property of either spouse used by the family; (6) Expenses to enable either spouse to commence or complete a professional or vocational course, or other activity for self-improvement; (7) Antenuptial debts of either spouse insofar as they have redounded to the benefit of the family; (8) The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for selfimprovement; (9) Antenuptial debts of either spouse other than those falling under paragraph (7) of this Article, the support of illegitimate children of either spouse, and liabilities incurred by either spouse by reason of a crime or a quasi-delict, in case of absence or insufficiency of the exclusive property of the debtor-spouse, the payment of which shall be considered as advances to be deducted from the share of the debtor-spouse upon liquidation of the community; and

(10) Expenses of litigation between the spouses unless the suit is found to be groundless. If the community property is insufficient to cover the foregoing liabilities, except those falling under paragraph (9), the spouses shall be solidarily liable for the unpaid balance with their separate properties. (161a, 162a, 163a, 202a-205a) Art. 121. The conjugal partnership shall be liable for: (1) The support of the spouse, their common children, and the legitimate children of either spouse; however, the support of illegitimate children shall be governed by the provisions of this Code on Support; (2) All debts and obligations contracted during the marriage by the designated administrator-spouse for the benefit of the conjugal partnership of gains, or by both spouses or by one of them with the consent of the other; (3) Debts and obligations contracted by either spouse without the consent of the other to the extent that the family may have benefited; (4) All taxes, liens, charges, and expenses, including major or minor repairs upon the conjugal partnership property; (5) All taxes and expenses for mere preservation made during the marriage upon the separate property of either spouse; (6) Expenses to enable either spouse to commence or complete a professional, vocational, or other activity for self-improvement; (7) Antenuptial debts of either spouse insofar as they have redounded to the benefit of the family; (8) The value of what is donated or promised by both spouses in favor of their common legitimate children for the exclusive purpose of commencing or completing a professional or vocational course or other activity for selfimprovement; and (9) Expenses of litigation between the spouses unless the suit is found to groundless. If the conjugal partnership is insufficient to cover the foregoing liabilities, the spouses shall be solidarily liable for the unpaid balance with their separate properties. (161a) Revised Penal Code

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Article 100. Civil liability of a person guilty of felony. - Every person criminally liable for a felony is also civilly liable. Article 101. Rules regarding civil liability in certain cases. - The exemption from criminal liability established in subdivisions 1, 2, 3, 5 and 6 of Article 12 and in subdivision 4 of Article 11 of this Code does not include exemption from civil liability, which shall be enforced subject to the following rules: First. In cases of subdivisions 1, 2, and 3 of Article 12, the civil liability for acts committed by an imbecile or insane person, and by a person under nine years of age, or by one over nine but under fifteen years of age, who has acted without discernment, shall devolve upon those having such person under their legal authority or control, unless it appears that there was no fault or negligence on their part. Should there be no person having such insane, imbecile or minor under his authority, legal guardianship or control, or if such person be insolvent, said insane, imbecile, or minor shall respond with their own property, excepting property exempt from execution, in accordance with the civil law. Second. In cases falling within subdivision 4 of Article 11, the persons for whose benefit the harm has been prevented shall be civilly liable in proportion to the benefit which they may have received. The courts shall determine, in sound discretion, the proportionate amount for which each one shall be liable. When the respective shares cannot be equitably determined, even approximately, or when the liability also attaches to the Government, or to the majority of the inhabitants of the town, and, in all events, whenever the damages have been caused with the consent of the authorities or their agents, indemnification shall be made in the manner prescribed by special laws or regulations. Third. In cases falling within subdivisions 5 and 6 of Article 12, the persons using violence or causing the fears shall be primarily liable and secondarily, or, if there be no such persons, those doing the act shall be liable, saving always to the latter that part of their property exempt from execution. Article 102. Subsidiary civil liability of innkeepers, tavernkeepers and proprietors of establishments. - In default of the persons criminally liable, innkeepers, tavernkeepers, and any other persons or corporations shall be civilly liable for crimes committed in their establishments, in all cases where a violation of municipal ordinances or some general or special police regulation shall have been committed by them or their employees.

Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within their houses from guests lodging therein, or for the payment of the value thereof, provided that such guests shall have notified in advance the innkeeper himself, or the person representing him, of the deposit of such goods within the inn; and shall furthermore have followed the directions which such innkeeper or his representative may have given them with respect to the care and vigilance over such goods. No liability shall attach in case of robbery with violence against or intimidation of persons unless committed by the innkeeper's employees. Article 103. Subsidiary civil liability of other persons. - The subsidiary liability established in the next preceding article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their duties. c. Disjunctive

CALANG V. PEOPLE Nature: Criminal, reckless imprudence Ponente: Brion Date: 3 August 2010 DOCTRINE: Since the charge was criminal, it was error for the lower courts to hold Philtranco jointly and severally liable under Articles 2176 and 2180 on quasi delicts. FACTS: Relevant Provision of Law: 2168, 2180, RPC 102, 103 Calang was driving a Philtranco bus when its rear left side hit the front left of a Sarao jeep coming from the opposite direction. As a result of the collision, the jeep driver Pinohermoso lost control and bumped and killed bystander Mabansag. Two jeep passengers were also killed and others injured. RTC ruled that Calang was guilty of multiple homicide, multiple physical injuries and damage to property through reckless imprudence. It ordered that Calang be liable jointly and severally with Philtranco to pay damages. CA affirmed this ruling. ISSUE: W/N the lower courts were correct in imposing joint and several liability
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RULING: No. Philtranco should not be held jointly and severally liable

with Calang. The charge against Calang was criminal, therefore it was error for the lower courts to hold Philtranco jointly and severally liable under Articles 2176 and 2180 on quasi delicts.
If at all, Philtrancos liability may only be subsidiary under RPC, Articles 102 and 103. These liabilities are deemed written into the judgments in cases to which they are applicable. Thus, in the dispositive portion of its decision, the trial court need not expressly pronounce the subsidiary liability of the employer. Nonetheless, before the employers subsidiary liability is enforced, adequate evidence must exist establishing that (1) they are indeed the employers of the convicted employees; (2) they are engaged in some kind of industry; (3) the crime was committed by the employees in the discharge of their duties; and (4) the execution against the latter has not been satisfied due to insolvency. RONQUILLO V. CA and SO Nature: Collection suit and execution thereof Ponente: Cuevas Date: 28 September 1984 DOCTRINE: The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable against one of the numerous obligors. FACTS: Relevant Provision of Law: None mentioned Ronquillo was one of four defendants in a collection case filed by private respondent So. A compromise agreement was reached between the parties, which stated that the debtors obligated themselves to pay their obligation individually and jointly. In a motion for modification of the order to execute the compromise, So prayed that the execution be done against all defendants, jointly and severally. The writ of execution was then issued for the satisfaction of P 82,500, with debtors (including petitioner) singly or jointly liable. ISSUE: How should payment be enforced? RULING: Individually and jointly.

The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or "severally". An agreement to be "individually liable" undoubtedly creates a several obligation, and a "several obligation is one by which one individual binds himself to perform the whole obligation. The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable against one of the numerous obligors. MALAYAN INSURANCE V. CA Nature: Action for damages Ponente: Padilla Date: 26 September 1988 DOCTRINE: Direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. FACTS: Relevant Provision of Law: 1217, 2180, 2184 Malayan issued an insurance policy for respondent Sio Choy covering a jeep. While the policy was in effect, the insured jeep, while driven by Campollo (employee of San Leon Rice Mill), collided with a Pantranco bus, causing injuries to jeep passenger Vallejos and driver Campollo, as well as damage to the jeep. Vallejos filed an action for damages against Sio Choy, Malayan, and San Leon Rice Mill, praying that they be held jointly and severally liable. The RTC and CA ruled in Vallejos favor finding all three solidarily liable. 1st ISSUE: W/N Malayan should be held solidarily liable alongside Sio Choy and San Leon Rice Mill RULING: No. Only respondents Sio Choy and San Leon Rice Mill are solidarily liable to respondent Vallejos for the damages. Respondents Sio Choy and San Leon Rice Mill are the principal tortfeasors who are primarily liable to respondent Vallejos. The law states that the responsibility of two or more persons who are liable for a quasi-delict is solidarily (2180, 2184). While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The
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liability of the insurer is based on contract; that of the insured is based on tort. 2nd ISSUE: W/N Malayan is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. even if the latter respondent is not privy to the contract of insurance RULING: Yes, Malayan is entitled to reimbursement. Since Malayan paid Vallejos, it has become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his codebtors for the share which corresponds to each. PNB V. INDEPENDENT PLANTERS ASSN. Nature: Collection suit Ponente: Plana Date: 16 May 1983 DOCTRINE: In case of the death of one of the solidary debtors, the creditor may, if he so chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors FACTS: Relevant Provision of Law: 1216 PNB filed a complaint with the CFI against several solidary debtors for the collection of a sum of money. But the CFI dismissed this because one of the defendants (Ceferino Valencia) died. CFI directed PNB to instead file a money claim in the testate or intestate proceeding for the settlement of the estate of the deceased. PNB challenged this decision based on Art. 1216, where the creditor may proceed against any one, some or all of the solidary debtors. ISSUE: W/N CFI was correct to dismiss case because of the death of one debtor RULING: No. CFI was wrong. The choice is undoubtedly left to the creditor to determine against whom he will enforce collection. In case of the death of one of the solidary debtors, the creditor may, if he so chooses, proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors. It is

not mandatory for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased solidary debtor.

4.

As to performance of prestation

Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall apply. (1147a) Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1148a) Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. (1149) Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligation consists. (1150) Article 1225. For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.
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When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. (1151a) Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139) Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n) a. b. c. d. Divisible Indivisible Joint indivisible Solidary indivisible

Espiritu purchased two white trucks from petitioner. Both were secured by mortgage on other trucks and by promissory notes. However, Espiritu failed to make full payment on both trucks. After the securities were sold and the proceeds applied to the loan: Case 28497: Balance of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926 until fully paid, and 25 per cent thereof in addition as penalty. Case 28498: Balance of P4,208.28 with interest at 12 per cent per annum from December 1, 1925 until fully paid, and 25 per cent thereon as penalty. Espiritu assails the 25 % penalty upon the debt, in addition to the interest of 12 % per annum. He claims the contract is usurious. ISSUE: W/N the contract is usurious RULING: No, it is not usurious. Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an agreement, the penalty does not include the interest, and may be demanded separately. The penalty is not to be added to the interest for the determination of whether the interest exceeds the rate fixed by the law, since said rate was fixed only for the interest. But considering that the obligation was partly performed, and making use of the power given to the court by article 1154 of the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt. ROBES-FRANCISCO v. CFI Nature: Direct appeal on questions of law Ponente: J. Munoz Palma Date: October 30, 1978 DOCTRINE: A stipulation in a deed of absolute sale that should the vendor fail to issue the transfer certificate of title within six months from date of full payment, the vendor shall refund to the vendee the total amount cannot be considered a penal clause in contemplation of Article 1226 of the New Civil Code as to preclude recovery of damages. For obvious reasons, the clause does not convey any penalty, for even without it, pursuant to Article 2209 of the Civil Code, the vendee would still recover the amount paid by her with legal rate of interest which is even more than the 4% provided for in the clause. FACTS: Relevant Provision of Law: Article 1226 and 2209 (Civil Code)

5. As to presence of an accessory undertaking in case of breach a. With a penal clause; Distinguish from liquidated damages THE BACHRACH MOTOR CO. INC. V. ESPIRITU Nature: Collection suit Ponente: Avancea Date: 6 November 1928 DOCTRINE: Article 1152 of the Old Civil Code permits the agreement upon a penalty apart from the interest. Should there be such an agreement, the penalty does not include the interest, and may be demanded separately. FACTS: Relevant Provision of Law: Article 1152, Old Civil Code

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Private respondent Millan bought a lot from petitioner Robes Realty corporation in May, 1962, and paid in full her installments on December 22, 1971, but it was only on March 2, 1973, that a deed of absolute sale was executed in her favor. The deed had the provision: - The seller warrants that the TCT shall be transferred in the name of the buyer within 6 months from full payment. - In case the seller fails to issue the TCT, the seller bears the obligation to refund the total amount already paid, plus 4% per annum interest. Notwithstanding the lapse of almost three years since she made her last payment, petitioner still failed to convey the corresponding transfer certificate of title to private respondent who accordingly was compelled to file a complaint for specific performance. The complaint prays: Judgment ordering the reformation of the deed of absolute sale; Judgment ordering the seller corporation to deliver the TCT; or, if not possible, pay buyer Millan the value of the lot and Judgment ordering the seller corp to pay damages, corrective and actual (P15k). Seller corp answered. They want the complaint to be dismissed because the deed of absolute sale was voluntarily executed between them and the interest of the buyer Millan was protected by the provision of interest at 4% per annum. The case was submitted for decision on the pleadings. awarded nominal damages for P20,000. The trial court

vendor shall refund to the vendee the total amount cannot be considered a penal clause in contemplation of Article 1226 of the New Civil Code as to preclude recovery of damages. For obvious reasons, the clause does not convey any penalty, for even without it, pursuant to Article 2209 of the Civil Code, the vendee would still recover the amount paid by her with legal rate of interest which is even more than the 4% provided for in the clause. Under Articles 2221 and 2222 of the New Civil Code, nominal damages are not intended as indemnification for the loss suffered but for the vindication or recognition of a right violated or invaded. They are recoverable where some injury has been done the amount of which the evidence fails to show, the assessment of damages being left to the discretion of the court. Nominal damages are by their very nature small sums fixed by the court without regard to the extent of the harm done to the injured party. A nominal damage is a substantial claim if based upon the violation of a legal right; in such case the law presumes a damage, although actual or compensatory damages are not proven ; in truth, nominal damages are damages in name only, and not in fact and are allowed, not as an equivalent of a wrong inflicted, but simply in recognition of the existence of a technical injury. It cannot co-exist with compensatory or exemplary damages. The circumstances of a particular case determine whether or not the amount assessed as nominal damages is within the scope or intention of Article 2221 of the Civil Code. Bad faith is not to be presumed. Thus, the fact that the reality corporation failed to convey a transfer certificate of title to the buyer because the subdivision property was mortgaged does not itself show that there was bad faith or fraud; especially where the vendor expected that arrangements were possible from the mortgagee to make partial releases of the subdivision lots from the overall real estate mortgage but the vendor did not simply succeed in that regard. The amount of P20,000 awarded as nominal damages against realty corporation for failure to convey a transfer certificate of title to the buyer who had fully paid the purchase price of the lot is excessive. Nor may such award be considered in the nature of exemplary damages where the failure to convey the transfer certificate of title was not attended by fraud or bad faith, because in breach of a contract exemplary damages are awarded if the guilty party acted in wanton, fraudulent, reckless, oppressive or malevolent manner. Exemplary or corrective damages are imposed by way of example or correction for the public good only if the injured party has shown that he is entitled to recover moral, temperate or compensatory damages. PAMINTUAN v. CA Nature: Complaint for Damages Ponente: J. Aquino
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PETITIONER - The deed of absolute sale executed between the parties stipulates that should the vendor fail to issue the transfer certificate of title within six months from the date of full payment, it shall refund to the vendee the total amount paid for with interest at the rate of 4% per annum, Hence, the vendee is bound by the terms of the provision and cannot recover more than what is agreed upon. Article 1226 of the Civil: in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. ISSUE: WON the award of nominal damages was proper under the circumstances RULING: The trial court did not err in awarding nominal damages; however, the circumstances of the case warrant a reduction of the amount to P10,000. A stipulation in a deed of absolute sale that should the vendor fail to issue the transfer certificate of title within six months from date of full payment, the

Date: December 14, 1979 DOCTRINE: Responsibility arising from fraud is demandable in all obligations. FACTS: Relevant Provision of Law: Article 1171 (Civil Code) In 1960, Pamintuan was the holder of a barter license wherein he was authorized to export to Japan 1,000 metric tons of white flint corn valued at 47,000 US dollars in exchange for a collateral importation of plastic sheetings of an equivalent value. By virtue of that license, he entered into an agreement to ship his corn to Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for plastic sheetings. He contracted to sell the plastic sheetings to Yu Ping Kun Co., Inc. for P265,550. The company undertook to open an irrevocable domestic letter of credit for that amount in favor of Pamintuan. It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its bodegas in Manila or suburbs directly from the piers "within one month upon arrival of" the carrying vessels. Any violation of the contract of sale would entitle the aggrieved party to collect from the offending party liquidated damages in the sum of P10,000. Upon receipt of the letter from the Manila branch of Tokyo Menka confirming the acceptance by Japanese suppliers of firm offers for the consignment to Pamintuan of plastic sheetings, the company immediately secured an irrevocable letter of credit for Pamintuan. On September 27 and 30 and October 4, 1960, the Japanese suppliers shipped to Pamintuan, through Toyo Menka Kaisha, Ltd., the plastic sheetings in four shipments. The plastic sheetings arrived in Manila and were received by Pamintuan. Out of the shipments, Pamintuan delivered to the company's warehouse only a part of the shipments. He withheld delivery of (1) 50 cases of plastic sheetings containing 26,000 yards valued at $5,200; (2) 37 cases containing 18,440 yards valued at $2,305; (3) 60 cases containing 30,000 yards valued at $5,400 and (4) 83 cases containing 40,850 yards valued at $5,236.97. While the plastic sheetings were arriving in Manila, Pamintuan informed the president of Yu Ping Kun Co., Inc. that he was in dire need of cash with which to pay his obligations to the PNB. Inasmuch as the computation of the prices of each delivery would allegedly be a long process, Pamintuan requested that he be paid immediately.

Pamintuan and the president of the company agreed to fix the price of the plastic sheetings at P0.782 a yard, regardless of the kind, quality or actual invoice value thereof. The parties arrived at that figure by dividing the total price of P265,550 by 339,440 yards, the aggregate quantity of the shipments. After Pamintuan had delivered 224,150 yards of sheetings of inferior quality valued at P163,.047.87, he refused to deliver the remainder of the shipments with a total value of P102,502.13. As justification for his refusal, Pamintuan said that the company failed to comply with the conditions of the contract and that it was novated with respect to the price. The company filed its amended complaint for damages. RTC awarded the company actual damages for unrealized profits and overpayment as well as (a) P10,000 as stipulated liquidated damages, (b) P10,000 as moral damages, (c) Pl,102.85 as premium paid by the company on the bond of P102,502.13 for the issuance of the writ of preliminary attachment and (d) P10,000 as attorney's fees, or total damages of P110,559.28. CA found that the contract of sale between Pamintuan and the company was partly consummated. The company fulfilled its obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm offers totalling $47,000. Pamintuan reaped certain benefits from the contract. Hence, he is estopped to repudiate it; otherwise, he would unjustly enrich himself at the expense of the company. PETITIONER: The buyer, Yu Ping Kun Co., Inc., is entitled to recover only liquidated damages based on the stipulation "that any violation of the provisions of this contract (of sale) shall entitle the aggrieved party to collect from the offending party liquidated damages in the sum of P10,000 ". In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation to the contrary " (1st sentence of Art. 1226, Civil Code). ISSUE: WON the buyer is entitled to recover only liquidated damages RULING: NO. The second sentence of article 1226 itself provides that I nevertheless, damages shall be paid if the obligor ... is guilty of fraud in the fulfillment of the obligation". "Responsibility arising from fraud is demandable in all obligations" (Art. 1171, Civil Code). "In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for an damages which may be reasonably attributed to the non-performance of the obligation" (Ibid, art. 2201). The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not make a complete delivery of the plastic sheetings
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and he overpriced the same. That factual finding is conclusive upon this Court. There is no justification for the Civil Code to make an apparent distinction between penalty and liquidated damages because the settled rule is that there is no difference between penalty and liquidated damages insofar as legal results are concerned and that either may be recovered without the necessity of proving actual damages and both may be reduced when proper (Arts. 1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p. 251). Castan Tobeas notes that the penal clause in an obligation has three functions: "1. Una funcion coercitiva o de garantia, consistente en estimular al deudor al complimiento de la obligacion principal, ante la amenaza de tener que pagar la pena. 2. Una funcion liquidadora del dao, o sea la de evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el incumplimiento o cumplimiento inadecuado de la obligacion. 3. Una funcionestrictamente penal, consistente en sancionar o castigar dicho incumplimiento o cumplimiento inadecuado, atribuyendole consecuencias mas onerosas para el deudor que las que normalmente lleva aparejadas la infraccion contractual. " (3 Derecho Civil Espanol, 9th Ed., p. 128). [Rough Translation] Castan Tobeas notes that the penal clause in an obligation has three functions: "1. A coercive function or warranty, of stimulating the debtor to comply with the principal obligation, under the threat of having to pay the penalty. 2. A liquidation of the damage function, ie to evaluate in advance the damages that the creditor would have to cause the failure or inadequacy of the obligation. 3 A criminal function consisting of a sanction or punish such failure or inadequate performance, attributing more onerous consequences for the debtor that normally carries with it the contractual breach. The penalty clause is strictly penal or cumulative in character and does not partake of the nature of liquidated damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir, en el supuesto incumplimiento o mero retardo de la obligacion principal, ademas de la pena, los danos y perjuicios. Se habla en este caso de pena cumulativa, a differencia de aquellos otros ordinarios, en que la pena es sustitutiva de la reparacion ordinaria." (Ibid, Castan Tobenas, p. 130). [Rough Translation] The penalty clause is strictly penal or cumulative in character and does not partake of the nature of liquidated damages ( pena sustitutiva) when the parties agree that the creditor may request, assuming there is mere breach or delay principal obligation, in addition to the sentence, damages, where the penalty is a substitute for the ordinary repair.

In this case, Yu Ping Kun Co., Inc. is allowed to recover only the actual damages proven and not to award to it the stipulated liquidated damages of ten thousand pesos for any breach of the contract. The proven damages supersede the stipulated liquidated damages. E. Breach of obligations Article 1170. 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. (1101)

Manner of breach 1. Fraud Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a) Article 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. (1269) Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. Incidental fraud only obliges the person employing it to pay damages. (1270) 2. Negligence Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is void. (1102a) Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but such liability may be regulated by the courts, according to the circumstances. (1103) Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.

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If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. (1104a) 3. Delay Article 1169. 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. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. 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. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a) Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a) Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (1682)

Article 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency. (1724a) Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1) If he devotes the thing to any purpose different from that for which it has been loaned; (2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted; (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; (4) If he lends or leases the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and 1745) 4. Any other manner of contravention Excuse for non-performance 1. Fortuitous event Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a) Article 552. A possessor in good faith shall not be liable for the deterioration or loss of the thing possessed, except in cases in which it is proved that he has acted with fraudulent intent or negligence, after the judicial summons. A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event. (457a) Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096)
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Article 2147. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations which the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith. (1891a) Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits. He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered. (1896a) 2. Acts of creditor SICAM v. JORGE Nature: Complaint for indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees Ponente: J. Austria-Martinez Date: August 8, 2007 DOCTRINE: The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. When the effect is found to be partly the result of a person's participation -whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. FACTS: Relevant Provision of Law: Article 1174 (Civil Code) Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam to secure a loan. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. Sicam sent respondent Lulu a letter informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Respondent Lulu expressed disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be

given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on but petitioner Sicam failed to return the jewelry. Respondent Lulu is seeking indemnification for the loss of pawned jewelry and payment of damages. Petitioner is interposing the defense of caso fortuito on the robbery committed against the pawnshop. ISSUE: WON petitioners are liable for the loss of the pawned articles in their possession RULING: YES. Fortuitous events 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 to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that 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 obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. Here, petitioner failed to prove that the robbery was a fortuitous event. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. Pawnshops Responsibility Art. 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis. The provision on pledge, particularly Art. 2099, provides that the creditor shall take case of the thing pledged with the diligence of a good father of a
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family. This means that the petitioners (Sicam and his incorporated pawnshop) must take care of the pawns the way a prudent person would as to his own property. Sicam was Negligent Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do. It is want of care required by the circumstances. Petitioners were guilty of negligence in the operations of their pawnshop business. There were no security measures adopted by petitioners in the operations of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with calibre .45 pistols each, which were allegedly poked at the employees. Furthermore, petitioner Sicams admission that the vault was open at the time of robbery is clearly a proof of petitioners failure to observe the case, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination to the vault was already off. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. The robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria v. CA [148-A Phil. 462 (1971)], where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed. MERALCO v. RAMOY Nature: Case for Ejectment Ponente: J. Austria-Martinez Date: March 4, 2008 DOCTRINE: Article 1173 provides that the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of

the obligation and corresponds with the circumstances of the persons, of the time and of the place. FACTS: Relevant Provision of Law: Article 1170 (Civil Code) In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon City. Among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar. On April 28, 1989 the MTC rendered judgment for MERALCO, to demolish or remove the building and structure they built on the land of the plaintiff and to vacate the premises. On June 20, 1999 NPC wrote to MERALCO requesting the immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines along Baesa, Quezon City. In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all the establishments which are considered under NPC property. In due time, the electric service connection of the plaintiffs was disconnected. During the ocular inspection ordered by the Court, it was found out that the residence of the plaintiffsspouses was indeed outside the NPC property. Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by TCT No. 326346. When the MERALCO employees were disconnecting plaintiffs' power connection, plaintiff Leoncio Ramoy objected by informing the Meralco foreman that his property was outside the NPC property and pointing out the monuments showing the boundaries of his property. However, he was threatened and told not to interfere by the armed men who accompanied the MERALCO employees. After the electric power in Ramoy's apartment was cut off, the plaintiffslessees left the premises. ISSUES: (1) WON the Court of Appeals gravely erred when it found MERALCO negligent when it disconnected the subject electric service of respondents (2) WON the Court of Appeals gravely erred when it awarded moral and exemplary damages and attorneys fees against MERALCO under the circumstances that the latter acted in good faith in the disconnection of the electric services of the respondents RULING: (1) NO. The Court agrees with the CA that under the factual milieu of the present case, MERALCO failed to exercise the utmost degree of care and diligence required of it, pursuant to Articles 1170 & 1173 of the Civil Code. It was not enough for MERALCO to merely
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rely on the Decision of the MTC without ascertaining whether it had become final and executory. Verily, only upon finality of the said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property, thus, are not entitled to the services of MERALCO. (2) Should be moral damages only. MERALCO willfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. This is contrary to public policy because, MERALCO, being a vital public utility, is expected to exercise utmost care and diligence in the performance of its obligation. Thus, MERALCOs failure to exercise utmost care and diligenc e in the performance of its obligation to Leoncio Ramoy is tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded feelings because of MERALCOs actions. Furthermore, due to the lack of power supply, the lessees of his four apartments on subject lot left the premises. Clearly, therefore Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA. Nevertheless, Leoncio is the soleperson entitled to moral damages as he is the only who testified on the witness stand of his wounded feelings. Pursuant to Article 2232 of the Civil Code, exemplary damages cannot be awarded as MERALCOs acts cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Since the Court does not deem it proper to award exemplary damages in this case then the CAs award of attorneys fees should likewise be deleted, as pursuant to Article 2208 of the Civil Code of which grounds were not present. SOLAR HARVEST, INC. v. DAVAO CORRUGATED CARTON CORP. Nature: Complaint for sum of money and damages Ponente: J. Nachura Date: July 26, 2010 DOCTRINE: Even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. FACTS: Relevant Provision of Law: Articles 1191 and 1169 (Civil Code) In the Quarter of 1998, Solar Harvest and Davao Corrugated entered into an unwritten agreement. Solar Harvest placed orders for customized boxes for its business of exporting bananas at USD 1.10 each. Petitioner made a full payment of USD 40,150.00. By Jan. 3, 2001 petitioner had not received any 1st

of the ordered boxes. On Feb. 19, 2001, Davao Corrugated replied that as early as April 3, 1998, order/boxes are completed and Solar Harvest failed to pick them up from their warehouse within 30 days from completion as agreed upon. Respondent mentioned that petitioner even placed additional order of 24,000.00 boxes, out of which, 14,000 had already been manufactured without any advance payment from Solar Harvest. Davao Corrugated then demanded that Solar Harvest remove boxes from their warehouse, pay balance of USD 15,400.00 for the additional boxes and P132,000 as storage fee. On August 17, 2001 Solar harvest filed complaint against Davao Corrugated for sum of money and damages claiming that the agreement was for the delivery of the boxes, which Davao Corrugated did not do. They further alleged that whenever repeated follow-up was made to Davao Corrugated, they would only see sample boxes and get promise of delivery. Due to Davao Corrugateds failure to deliver, Solar Harvest had to cancel the order and demanded payment and/or refund which Davao Corrugated refused to pay. Davao Corrugated counterclaimed that they had already completed production of the 36,500 boxes plus an additional 14,000 boxes (which was part of the additional 24,000 order that is unpaid). The agreement was for Solar Harvest to pick up the boxes, which they did not do. They even averred that on Oct. 8, 1998 Solar Harvests representative Bobby Que even went to the warehouse to inspect and saw that indeed boxes were ready for pick up. On Feb. 20, 1999, Que visited the factory again and said that they ought to sell the boxes to recoup some of the costs of the 14,000 additional orders because their transaction to ship the bananas did not materialize. Solar Harvest denies that they made the additional order. On March 20, 2004, the RTC ruled in favor of Davao Corrugated. CA denied the appeal. In this petition, petitioner insists that respondent did not completely manufacture the boxes and that it was respondent which was obliged to deliver the boxes to TADECO. ISSUE: WON Davao Corrugated was responsible for breach of contract as Solar Harvest had not yet demanded from it the delivery of the boxes RULING: NO. The CA held that it was unthinkable that for around 2 years petitioner merely followed up and did not demand the delivery of the boxes. Even assuming that the agreement is for delivery by Davao Corrugated, respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes. There is no error in the decision of the RTC. Furthermore, the claim for reimbursement is actually one for rescission or resolution of contract under Article 1191 of the Civil Code. The right to rescind contracts arises once the party defaults in the performance of his obligation. Article 1191 should be taken in conjunction with Article 1169: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands form them the fulfilment of their
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obligation. However the demand from creditor shall not be necessary in order that delay may exist: 1. When the obligation or the law expressly so declares,; 2. When from the nature and the circumstance of the obligation it appears that the designation of the timewhen the thing is to be delivered or the service is to be rendered was a controlling motive for theestablishment of the contract; OR 3. When the demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, as in a contract of sale, the general rule is that the fulfillment of the parties respective obligations should be simultaneous. Hence, no demand is generally necessary because, once a party fulfills his obligation and the other party does not fulfill his, the latter automatically incurs in delay. But when different dates for performance of the obligations are fixed, the default for each obligation must be determined by the rules given in the first paragraph of Article 1169, that is, the other party would incur in delay only from the moment the other party demands fulfillment of the formers obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of the obligation is fixed, demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. In the case of Solar Harvest, merely following up the order was not the same as demanding for the boxes. The SC held that Solar Harvests petition is denied and that Davao Corrugated did not commit breach of contract and may remove the boxes from their premises after petitioner is given a period of time to remove them from their warehouse as they deem proper. The Court gave 30-day period to comply with this. MINDANAO TERMINAL v. PHOENIX ASSURANCE Nature: Complaint for Damages Ponente: J. Tinga Date: May 8, 2009 DOCTRINE: If the law or contract does not state the degree of diligence which is to be observed in the performance of an obligation then that which is expected of a good father of a family or ordinary diligence shall be required. FACTS: Relevant Provision of Law: Article 1173 (Civil Code) Del Monte Philippines, Inc. contracted petitioner Mindanao Terminal and Brokerage Service, Inc., a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh green Philippine bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh Produce into the cargo hold of the vessel M/V Mistrau. The vessel was docked at the port of Davao City and

the goods were to be transported by it to the port of Incheon, Korea in favor of consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an open cargo policy with private respondent Phoenix Assurance Company of New York, a non-life insurance company, and private respondent McGee & Co. Inc. (McGee), the underwriting manager/agent of Phoenix. Upon arrival of the vessel at the port of Incheon, Korea, it was discovered upon discharge that some of the cargo was in bad condition. The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the extent of the damage of the shipment. In a survey report, it was stated that 16,069 cartons of the banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they no longer had commercial value. Del Monte Produce filed a claim under the open cargo policy for the damages to its shipment. A check for the recommended amount was sent to Del Monte Produce; the latter then issued a subrogation receipt to Phoenix and McGee. Phoenix and McGee instituted an action for damages in the RTC Davao City. RTC dismissed the complaint holding that the only participation of Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the direction and supervision of the ships officers, who would not have accepted the cargoes on board the vessel and signed the foremans report unless they were properly arranged and tightly secured to withstand voyage across the open seas. Accordingly, Mindanao Terminal cannot be held liable for whatever happened to the cargoes after it had loaded and stowed them. It was further held that Phoenix and McGee had no cause of action against Mindanao Terminal because the latter, whose services were contracted by Del Monte, a distinct corporation from Del Monte Produce, had no contract with the assured Del Monte Produce. CA reversed and set aside. MR denied. ISSUES: (1) WON Phoenix and McGee have a cause of action against Mindanao Terminal (2) WON Mindanao Terminal, as a stevedoring company, is under obligation to observe the same extraordinary degree of diligence in the conduct of its business as required by law for common carriers and warehousemen (3) WON Mindanao Terminal observed the degree of diligence required by law of a stevedoring company RULING:
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(1) YES. The present action is based on quasi-delict, arising from the negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of the Courts consistent ruling that the act that breaks the contract may be also a tort. In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a cause of action arising from quasi-delict. Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence which is to be observed in the performance of an obligation then that which is expected of a good father of a family or ordinary diligence shall be required. Mindanao Terminal, a stevedoring company which was charged with the loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There is no specific provision of law that imposes a higher degree of diligence than ordinary diligence for a stevedoring company or one who is charged only with the loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by contractual stipulation to observe a higher degree of diligence than that required of a good father of a family. We therefore conclude that following Article 1173, Mindanao Terminal was required to observe ordinary diligence only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau. (2) NO. There is a distinction between an arrastre and a stevedore. Arrastre, a Spanish word which refers to hauling of cargo, comprehends the handling of cargo on the wharf or between the establishment of the consignee or shipper and the ship's tackle. The responsibility of the arrastre operator lasts until the delivery of the cargo to the consignee. The service is usually performed by longshoremen. On the other hand, stevedoring refers to the handling of the cargo in the holds of the vessel or between the ship's tackle and the holds of the vessel. The responsibility of the stevedore ends upon the loading and stowing of the cargo in the vessel. In the present case, Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes from the pier to the ship s cargo hold; it was never the custodian of the shipment of Del Monte Produce. A

stevedore is not a common carrier for it does not transport goods or passengers; it is not akin to a warehouseman for it does not store goods for profit. The loading and stowing of cargoes would not have a far reaching public ramification as that of a common carrier and a warehouseman; the public is adequately protected by our laws on contract and on quasi-delict. The public policy considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients. (3) YES. The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau. It was not disputed by Phoenix and McGee that the materials, such as ropes, pallets, and cardboards, used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry standard. Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the stowage plan, a guide for the area assignments of the goods in the v essels hold, prepared by Del Monte Produce and the officers of M/V Mistrau. The loading and stowing was done under the direction and supervision of the ship officers. The said ship officers would not have accepted the cargoes on board the vessel if they were not properly arranged and tightly secured to withstand the voyage in open seas. They would order the stevedore to rectify any error in its loading and stowing. A foremans report, as proof of work done on board the vessel, was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded. However, there is no basis for an award of attorneys fees. AGCAOILI v. GSIS Nature: Action for Specific Performance and Damages Ponente: J. Narvasa Date: August 30, 1988 DOCTRINE: 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. Relevant Provision of Law: Article 1169 (Civil Code) FACTS: The appellant Government Service Insurance System (GSIS) approved the application of the appellee Marcelo Agcaoili for the purchase of the house and lot in the GSIS Housing Project in Nangka, Marikina, Rizal,
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but said application was subject to the condition that the latter should forthwith occupy the house. Agcaoili lost no time in occupying the house but he could not stay in it and had to leave the very next day because the house was nothing more than a shell, in such a state that civilized occupation was not possible: ceiling, stairs, double walling, lighting facilities, water connection, bathroom, toilet, kitchen, drainage, were inexistent. Agcaoili did, however, ask a homeless friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending the completion of the construction of the house. He thereafter complained to the GSIS, but to no avail. Subsequently, the GSIS asked Agcaoili to pay the monthly amortizations of P35.36 and other fees. He paid the first monthly amortizations and incidental fees but he refused to make further payments until and unless the GSIS completed the housing unit. Thereafter, GSIS cancelled the award and required Agcaoili to vacate the premises. The house and lot was consequently awarded to another applicant. Agcaoili reacted by instituting suit in the CFI Manila for specific performance and damages. Judgment was rendered in favor of Agcaoili. GSIS then appealed from that judgment. ISSUES: WON the cancellation by the GSIS of the award in favor of petitioner Agcaoili just and proper RULING: NO. Respondent GSIS did not fulfill its obligation to deliver the house in a habitable state, therefore, it cannot invoke the petitioners suspension of payment as a cause to cancel the contract between them. There was a perfected contract of sale, it was then the duty of GSIS as seller to deliver the thing sold in a condition suitable for its enjoyment by the buyer and for the purpose contemplated. The house contemplated was one that could be occupied for purpose of residence in reasonable comfort and convenience. There would be no sense in requiring the awardee to immediately occupy and live in a shell of a house, the structure consisting only of four walls with openings, and a roof. Since GSIS did not fulfill the obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoili's suspension of payment of amortizations as cause to cancel the contract between them. 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. The contract between the parties relative to the property should be modified by adding to the cost of the land, as of the time of perfection of the contract, the cost of the house in its unfinished state also as of the time of perfection of the contract, and correspondingly adjusting the amortizations to be paid by petitioner Agcaoili, the modification to be effected after determination by the Court a quo of the value of said house on the basis of the agreement of the

parties, or if this is not possible by such commissioner or commissioners as the Court may appoint. ARRIETA v. NARIC Nature: Complaint for Damages Ponente: J. Regala Date: January 24, 1964 DOCTRINE: One who assumes a contractual obligation and fails to perform the same on account of his inability to meet certain bank requirements, which inability he knew and was aware of when he entered into the contract, should be held liable in damages for breach of contract. FACTS: Relevant Provision of Law: Article 1170 (Civil Code) On May 19, 1952, Paz and Vitaliado Arrieta participated in the public bidding called by NARIC for the supply of 20,000 metric tons of Burmese rice. As her bid of $203 per metric ton was the lowest, she was awarded the contract for the same. On July 1, 1952, Arrieta and NARIC entered into a Contract of Sale of Rice under the term of which Arrieta obligated hersef to deliver to NARIC 20,000 metric tons of Burmese rice at $203,000 per metric ton. In turn, the defendant corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma, immediately." However, it was only on July 30, 1952, or a full month from the execution of the contract, that the defendant corporation took the first to open a letter of credit by forwarding to the PNB its Application for Commercial Letter Credit. On the same day, Arrieta thru counsel, advised NARIC of the extreme necessity for the immediate opening of the letter 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 regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4, 1952. On August 4, 1952, PNB informed NARIC that its application for a letter of has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment. It turned out, however, NARIC was not in a financial position to meet the condition.
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As a result of the delay in the opening of the letter of credit by NARIC, the allocation of Arrietas supplier in Rangoon was cancelled and the 5% deposit amounting to an equivalent of P200,000 was forfeited. Arrieta endeavored but failed to restore the cancelled Burmese rice allocation, and thus offered Thailand rice instead. Such offer was rejected by NARIC. Subsequently, Arrieta sent a letter to NARIC, demanding compensation for the damages caused her in the sum of US$286,000 representing unrealized profit. The demand having been rejected, she instituted the case. ISSUES: (1) WON NARIC is liable for damages (2) WON the rate of exchange to be applied in the conversion is that prevailing at the time of breach, or at the time the obligation was incurred, or on the promulgation of the decision RULING: (1) YES. One who assumes a contractual obligation and fails to perform the same on account of his inability to meet certain bank requirements, which inability he knew and was aware of when he entered into the contract, should be held liable in damages for breach of contract. Under Article 1170 of the Civil Code, not only debtors guilty of fraud, negligence or default but also every debtor, in general, who fails in the performance of his obligations is bound to indemnify for the losses and damages caused thereby. The phrase "in any manner contravene the tenor" of the obligation in Art. 1170, Civil Code, includes any illicit task which impairs the strict and faithful fulfillment of the obligation, or every kind of defective performance. Waivers are not presumed, but must be clearly and convincingly shown, either by express stipulation or acts admitting of no other reasonable explanation. (2) In view of Republic Act 529 which specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debt", the award of damages in U.S. dollars made by the lower court in the case at bar is modified by converting it into Philippine pesos at the rate of exchange prevailing at the time the obligation was incurred or when the contract in question was executed. As pronounced in Eastboard Navigation vs. Ismael, if there is any agreement to pay an obligation in the currency other than Philippine legal tender, the

same is null and void as contrary to public policy (RA 529), and the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate of exchange at the time the obligation was incurred. Herein, the rate of exchange to be applied is that of 1 July 1952, when the contract was executed. TELEFAST v. CASTRO Nature: Complaint for Damages Ponente: J. Padilla Date: February 29, 1988 DOCTRINE: Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176 also provides that "whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done." FACTS: Relevant Provision of Law: Article 1170 (Civil Code) The petitioner is a company engaged in transmitting telegrams. The plaintiffs are the children and spouse of Consolacion Castro who died in the Philippines. One of the plaintiffs, Sofia was in the Philippines for vacation when their mother died. On the same day, Sofia sent a telegram thru Telefast to her father and other siblings in the USA to inform about the death of their mother. The defendants, after receiving the required fees and charges, accepted the telegram for transmission. Unfortunately, the deceased had already been interred but not one from the relatives abroad was able to pay their last respects. Sofia found out upon her return in the US that the telegram was never received. Hence, the present suit for damages on the ground of breach of contract. The only defense of defendants was that the failure was due to the technical and atmospheric factors beyond its control. The defendant-petitioner argues that it should only pay the actual amount paid to it. No evidence appeared on record that the defendant ever made any attempt to advise Sofia as to why they could not transmit the telegram. The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, exemplary, damages to each of the plaintiffs with 6% interest per annum plus attorneys fees. The Court of Appeals affirmed this ruling but modified and eliminated the compensatory damages to Sofia and exemplary damages to each plaintiff, it also reduced the moral damages for each. The petitioner appealed contending that, it can only be held liable for P 31.92, the
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fee or charges paid by Sofia C. Crouch for the telegram that was never sent to the addressee, and that the moral damages should be removed since defendant's negligent act was not motivated by "fraud, malice or recklessness. ISSUE: WON the award of the moral, compensatory and exemplary damages is proper RULING: YES. There was a contract between the petitioner and private respondent Sofia C. Crouch whereby, for a fee, petitioner undertook to send said private respondent's message overseas by telegram. Petitioner failed to do this despite performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of contravening its and is thus liable for damages. This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this regard would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago. Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176 also provides that "whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done." Award of Moral, compensatory and exemplary damages is proper The petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private respondents had to undergo. Art. 2217 of the Civil Code states: "Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission ." Then, the award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony. The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount of P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers. NPC v. CA

Nature: Action for damages Ponente: Gutierrez, J. Date: May 16, 1988 DOCTRINE: 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. To be exempt from liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which the loss or damage may have been occasioned. FACTS: Engineering Construction, Inc. (ECI), being a successful bidder, executed a contract with the National Waterworks and Sewerage Authority (NAWASA), whereby the former undertook to furnish all tools, labor, equipment, and materials, and to construct the proposed 2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant Structures, and Appurtenant Features, at Norzagaray, Bulacan, and to complete said works within 800 calendar days from the date the Contractor receives the formal notice to proceed. The project involved 2 major phases: the first phase comprising, the tunnel work covering a distance of 7 kilometers, passing through the mountain, from the Ipo river, a part of Norzagaray, Bulacan, where the Ipo Dam of the defendant National Power Corporation is located, to Bicti; the other phase consisting of the outworks at both ends of the tunnel. ECI already had completed the first major phase of the work. Some portions of the outworks at the Bicti site were still under construction. As soon as the ECI had finished the tunnel excavation work at the Bicti site, all the equipment no longer needed there were transferred to the Ipo site where some projects were yet to be completed. Typhoon 'Welming' hit Central Luzon, passing through National Power Corporation's (NPC) Angat Hydro-electric Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck the project area, and heavy rains intermittently fell. Due to the heavy downpour brought about by typhoon Welming, the water in the reservoir of the Angat Dam was rising perilously at the rate of 60 centimeters per hour. To prevent an overflow of water from the dam, NPC caused the opening of the spillway gates. ECI sued NPC for damages. The trial court and the CA found that NPC was negligent when it opened the gates only at the height of the typhoon holding that it could have opened the spill gates gradually and should have done so before the typhoon came. Both courts awarded ECI for damages. NPC assails the decision of the CA as being erroneous on the grounds, inter alia, that the loss sustained by ECI was due to force majeure. The rapid rise of
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water level in the reservoir due to heavy rains brought about by the typhoon is an extraordinary occurrence that could not have been foreseen. On the other hand, ECI assails the decision of the court of appeals modifying the decision of the trial court eliminating the awarding of exemplary damages. ISSUES (1) WON NPC is liable for damages in light of the typhoon which hit the area RULING: YES. NPC was undoubtedly negligent because it opened the spillway gates of the Angat Dam only at the height of typhoon "Welming" when it knew very well that it was safer to have opened the same gradually and earlier, as it was also undeniable that NPC knew of the coming typhoon at least four days before it actually struck. And even though the typhoon was an act of God or what we may call force majeure, NPC cannot escape liability because its negligence was the proximate cause of the loss and damage. As was held in Nakpil & Sons v. CA: Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. 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 human agencies are to be excluded from creating or entering into the cause of the mischief. When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it was, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). (2) WON ECI is entitled to exemplary damages? RULING: NO. CA did not err in eliminating the award since it found that there was no bad faith on the part of NPC and that neither can the latter's negligence be considered gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, the Court ruled: Neither may private respondent recover exemplary damages since he is not entitled to moral or compensatory damages, and again because the petitioner is not shown to have acted in a wanton, fraudulent, reckless or oppressive manner (Art. 2234, Civil Code) _____________________________________________________

JIMENEZ v. CITY OF MANILA Nature: Action for Damages Ponente: Paras, J. Date: May 29, 1987 DOCTRINE: Under Article 2189 of the Civil Code, it is not necessary for the liability therein established to attach, that the defective public works belong to the province, city or municipality from which responsibility is exacted. What said article requires is that the province, city or municipality has either "control or supervision" over the public building in question. FACTS: Relevant Provision of Law: Art. 2189, Civil Code. Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by, any person by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under their control or supervision. In the morning of August 15, 1974 Bernardino Jimenez, together with his neighbors, went to the Sta. Ana Public Market to buy bagoong. The market was flooded with ankle-deep rainwater. After purchasing the bagoong, he turned around to return home but he stepped on an uncovered opening which could not be seen because of the dirty rainwater, causing a dirty and rusty four- inch nail which was stuck inside the uncovered opening to pierce his left leg, penetrating to a depth of about one and a half inches. After administering first aid treatment at a nearby drugstore, his companions helped him hobble home. He felt ill and developed fever and he had to be carried to Dr. Juanita Mascardo; despite the medicine administered, his left leg swelled with great pain. He was then rushed to the Veterans Memorial Hospital where he had to be confined for 20 days due to high fever and severe pain. Upon his discharge from the hospital, he had to walk around with crutches for 15 days. His injury prevented him from attending to the school buses he was operating; he had to engage the services of one Bienvenido Valdez to supervise his business, paying him P900. Jimenez sued the City of Manila and the Asiatic Integrated Corp., under whose administration the Sta. Ana Public Market had been placed by virtue of a Management and Operating Contract, for damages. The lower court decided in favor of the City of Manila and Asiatic Integrated Corp. On appeal, the Intermediate Appellate Court held that Asiatic Integrated Corp liable for damages but absolved the City of Manila from any liability.
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ISSUE: WON the City of Manila should be held jointly and severally liable with Asiatic for damages RULING: YES. There is no question that the Sta. Ana Public Market, despite the Management and Operating Contract between respondent City and Asiatic Integrated Corporation remained under the control of the former, and as such it is liable under Art. 2189 of the Civil Code. The Management and Operating Contract is explicit in this regard when its several provisions impose obligations on the Asiatic Integrated Corp., but still subject to the control of the City: start the painting, cleaning, sanitizing and repair of the public markets and talipapas... submit a program of improvement, development, rehabilitation and reconstruction of the city public markets and talipapas subject to prior approval of the FIRST PARTY (the City) all present personnel of the City public markets and talipapas shall be retained by the SECOND PARTY (Asiatic Integrated Corp.) as long as their services remain satisfactory and they shall be extended the same rights and privileges as heretofore enjoyed by them the SECOND PARTY may from time to time be required by the FIRST PARTY, or his duly authorized representative or representatives, to report, on the activities and operation of the City public markets and talipapas and the facilities and conveniences installed therein, particularly as to their cost of construction, operation and maintenance Also, the fact of supervision and control of the City over subject public market was admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata wherein it is stated that the City retains the power of supervision and control over its public markets and talipapas under the terms of the contract. In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary duty is to take direct supervision and control of that particular market, more specifically, to check the safety of the place for the public. The contention of respondent City of Manila that petitioner should not have ventured to go to Sta. Ana Public Market during a stormy weather is indeed untenable. As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of a good father of a family. (Art. 1173 of the Civil Code). While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods, it must however, be admitted that ordinary precautions could have been taken during good weather to minimize the dangers to life and limb under those difficult circumstances.

For instance, the drainage hole could have been placed under the stalls instead of on the passageways. Even more important is the fact, that the City should have seen to it that the openings were covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already uncovered, and 5 months after the incident happened, the opening was still uncovered. Moreover, while there are findings that during floods the vendors remove the iron grills to hasten the flow of water, there is no showing that such practice has ever been prohibited, much less penalized by the City of Manila. Neither was it shown that any sign had been placed thereabouts to warn passersby of the impending danger. Petitioner had the right to assume that there were no openings in the middle of the passageways and if any, that they were adequately covered. Had the opening been covered, petitioner could not have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury suffered; the City is therefore liable for the injury suffered by the petitioner. Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article 2194 of the Civil Code. _____________________________________________________ NAKPIL & SONS v. CA Nature: Action for Damages DOCTRINE: If upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code, which results in loss or damage, the obligor cannot escape liability. FACTS: Relevant Provision of Law: Art. 1723, Civil Code. The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen 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. The contractor is likewise responsible for the damages if the edifice falls, within the same period, on account of defects in the construction or the use of materials of inferior quality furnished by him, or due to any violation of the terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable with the contractor. Acceptance of the building, after completion, does not imply waiver of any of the cause of action by reason of any defect mentioned in the preceding paragraph.
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The action must be brought within ten years following the collapse of the building. Art. 1174, 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. The Philippine Bar Association (PBA) decided to construct an office building on its 840 square meter lot. It engaged the services of United Construction Inc., as contractor, and the architect was Juan F. Nakpil & Sons. The building was completed in June, 1966. In the early morning of August 2, 1968, an unusually strong earthquake hit Manila and the building sustained major damage. The front columns of the building buckled, causing the building to tilt forward dangerously. On November 29, 1968 PBA commenced action or the recovery of damages arising from the partial collapse of the building. PBA claims that the collapse was due to defects in the construction, the failure of contractors to follow plans and specifications and violations by the defendants of the terms of the contract. On the other hand, United Construction Inc. filed a third-party complaint against the Nakpils, alleging in essence that the collapse of the building was due to the defects in the architects" plans, specifications and design. PBA moved twice for the demolition of the building on the ground that it would topple down in case of a strong earthquake. Three more earthquakes occurred and with the PBAs request for demolition was granted. The appointed Commissioner, Hizon, submitted his report which stated that the damage sustained by the PBA building was directly caused by the earthquake and was also caused by the defects in the plans and specifications prepared by the architects, deviations from said plans and specifications by the contractor and failure of the contractor to observe the requisite workmanship in the construction of the building. The trial court agreed with the findings of the Commissioner. Thus, it held that United is entitled to the claim for damages. CA affirmed the decision of the trial court but modified the decision by granting PBA an additional P200,000 to be paid by the contractor and architects jointly. The parties appealed from the decision of the CA. The United Architects of the Philippines and The Philippine Institute of Architects intervened as amicus curiae and submitted a position paper which said that the plans and specifications of the Nakpils were not defective. When

asked by the Court to comment, the Commissioner reiterated his findings and said that there were deficiencies in the design of the architects which contributed to the collapse of the building. Petitioners Nakpil and UCCI on the other hand claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility. ISSUE: WON the defendants are exempt from liability (WON an act of Godan unusually strong earthquake-which caused the failure of the building, exempts from liability, parties who are otherwise liable because of their negligence.) RULING: NO. The negligence of the defendants was established beyond dispute. United Construction Co., Inc. was found to have made substantial deviations from the plans and specifications. and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision; while the Nakpils were found to have inadequacies or defects in the plans and specifications prepared by them. As correctly assessed by both courts, the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake. There is no dispute that the earthquake is a fortuitous event or an act of God. To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to an "act of God," the following 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 unforseeable 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 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, the cause of which is to be considered, is found to be in part the result of the participation of man, whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were, and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175). NOTES: The defendants filed Motions for Reconsideration from the decision of the 2nd Division of the Supreme Court. The Court held: ISSUE: Article 1723 does not apply in view of the findings of the Commissioner that the building did not collapse as a result of the earthquake.
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COURT: In the assasiled decision, the Court is in complete accord with the findings of the trial court and affirmed by the CA, that after the earthquake the building was not totally lost, the collapse was only partial and the building could still be restored. But after the subsequent earthquakes on there was no question that further damage was caused to the property resulting in an eventual and unavoidable collapse or demolition (compete collapse). Note that a needed demolition is in fact a form of "collapse". The bone of contention is therefore, not on the fact of collapse but on who should shoulder the damages resulting from the partial and eventual collapse. As ruled by this Court in said decision, there should be no question that the NAKPILS and UNITED are liable for the damage. ISSUE: The finding of bad faith is not warranted in fact and is without basis in law. COURT: A careful study of the decision will show that there is no contradiction between the above finding of negligence by the trial court which was formed by the CA and the ruling of this Court. On the contrary, on the basis of such finding, it was held that such wanton negligence of both the defendant and the third-party defendants in effecting the plans, designs, specifications, and construction of the PBA building is equivalent to bad faith in the performance of their respective tasks. ************************************************************************ F. Remedies for breach of obligations Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned. (1097a) Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone. (1098)

Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his expense. (1099a) Article 1170. 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. (1101) Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary. (1112) Article 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. (1124) Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (n) Article 2236. The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided by law. (1911a) Article 302. Neither the right to receive legal support nor any money or property obtained as such support or any pension or gratuity from the government is subject to attachment or execution. (n)

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Article 1708. The laborer's wages shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing and medical attendance. FC Art. 153. The family home is deemed constituted on a house and lot from the time it is occupied as a family residence. From the time of its constitution and so long as any of its beneficiaries actually resides therein, the family home continues to be such and is exempt from execution, forced sale or attachment except as hereinafter provided and to the extent of the value allowed by law. (223a) FC Art. 155. The family home shall be exempt from execution, forced sale or attachment except: (1) For nonpayment of taxes; (2) For debts incurred prior to the constitution of the family home; (3) For debts secured by mortgages on the premises before or after such constitution; and (4) For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or furnished material for the construction of the building. (243a) RULE 39, ROC Sec. 13. Property exempt from execution. Except as otherwise expressly provided by law, the following property, and no other, shall be exempt from execution: (a) The judgment obligor's family home as provided by law, or the homestead in which he resides, and land necessarily used in connection therewith; (b) Ordinary tools and implements personally used by him in his trade, employment, or livelihood; (c) Three horses, or three cows, or three carabaos, or other beasts of burden such as the judgment obligor may select necessarily used by him in his ordinary occupation; (d) His necessary clothing and articles for ordinary personal use, excluding jewelry; (e) Household furniture and utensils necessary for housekeeping, and used for that purpose by the judgment obligor and his family, such as the judgment obligor may select, of a value not exceeding one hundred thousand pesos; (f) Provisions for individual or family use sufficient for four months; (g) The professional libraries and equipment of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors, clergymen, teachers, and other professionals, not exceeding three hundred thousand pesos in value; (h) One fishing boat and accessories not exceeding the total value of one hundred thousand pesos owned by a fisherman and by the lawful use of which he earns his livelihood;

(i) So much of the salaries, wages, or earnings of the judgment obligor of his personal services within the four months preceding the levy as are necessary for the support of his family; (j) Lettered gravestones; (k) Monies benefits, privileges, or annuities accruing or in any manner growing out of any life insurance; (l) The right to receive legal support, or money or property obtained as such support, or any pension or gratuity from the Government; (m) Properties specially exempt by law. But no article or species of property mentioned in his section shall be exempt from execution issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon. 1. Extra judicial remedies a. Expressly granted by law Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a) Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (1682) Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has: (1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale as limited by this Title; (4) A right to rescind the sale as likewise limited by this Title. Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer. (n)
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b. Stipulated

2. Judicial remedies a. Principal remedies Article 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. (1124) Article 1170. 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. (1101) b. Subsidiary remedies Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290) Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111) c. Ancillary remedies Rules of Court ********************************************************************** UNLAD RESOURCES DEVELOPMENT v. DRAGON Nature: Rescission of the agreement and the return of control and management of the Rural Bank, plus damages Ponente: Nachura J. Date: July 28, 2008

DOCTRINE: Rescission has the effect of unmaking a contract, or its undoing from the beginning, and not merely its termination. Hence, rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. FACTS: Relevant Provision of Law: Art. 1389, Civil Code. The action to claim rescission must be commenced within four years. x x x Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. Art. 1381. The following contracts are rescissible: (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. Article 1191, Civil Code. The power to rescind reciprocal 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.

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On December 29, 1981, Respondents and Unlad Resources, through its Chairman, Helena Benitez, entered into a Memorandum of Agreement wherein it is provided that respondents, as controlling stockholders of the Rural Bank of Noveleta shall allow Unlad Resources to invest P4,800,000.00 in the Rural Bank in the form of additional equity. On the other hand, Unlad Resources bound itself to invest the said amount in the Rural Bank; upon signing, it was, likewise, agreed that Unlad Resources shall subscribe to a minimum P480,000 common or preferred non-voting shares of stock; that the respondents, upon the signing of the said agreement shall transfer control and management over the Rural Bank to Unlad Resources. Immediately after the signing of the agreement, the respondents complied with their obligation and transferred control of the Rural Bank to Unlad Resources and its nominees and the Bank was renamed the Unlad Rural Bank of Noveleta, Inc. However, they claim that despite repeated demands, Unlad Resources has failed and refused to comply with their obligation under the said Memorandum of Agreement On July 3, 1987, respondents filed before the RTC of Makati City, a Complaint for rescission of the agreement and the return of control and management of the Rural Bank from petitioners to respondents, plus damages. RTC declared that the MOA is rescinded and that the Unlad should return control and management of the Rural Bank to the respondents. CA affirmed the decision of the RTC. Hence, the present petition. Petitioners argue, inter alia, that the action for rescission has prescribed under Article 1398 of the Civil Code. Also, they argue that they have fully complied with their undertaking, but that the undertaking has become a legal and factual impossibility because the authorized capital stock of the Rural Bank was increased from P1.7 million to only P5 million, and could not accommodate the subscription by petitioners of P4.8 million worth of shares. Such deficiency, petitioners contend, is with the knowledge and approval of respondent Renato P. Dragon and his nominees to the Board of Directors. ISSUES: (1) WON the action for rescission has prescribed RULING: NO. The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144, which provides that the action upon a written contract should be brought within ten years from the time the right of action accrues. Article 1389 specifically refers to rescissible contracts as, clearly, this provision is under the chapter entitled Rescissible Contracts.

In the case of Iringan, the Court has held that Article 1389 applies to rescissible contracts, as enumerated and defined in Articles 1380 and 1381. The rescission in Article 1381 is not akin to the term rescission in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article. The MOA does not fall under the enumeration in Article 1381. Accordingly, the prescriptive period that should apply to this case is that provided for in Article 1144 for written contracts (10 years) The action was commenced on July 3, 1987, while the MOA was entered into on December 29, 1981. Article 1144 specifically provides that the 10-year period is counted from the time the right of action accrues. The right of action accrues from the moment the breach of right or duty occurs. Thus, the original Complaint was filed well within the prescriptive period. (2) WON the trial court correctly ruled for the rescission of the Agreement RULING: NO. Petitioners failed to fulfill their end of the agreement, and thus, there was just cause for rescission. With the contract thus rescinded, the parties must be restored to the status quo ante, that is, before they entered into the Memorandum of Agreement. It is true that respondents increased the Rural Banks authorized capital stock to only P5 million, which was not enough to accommodate the P4.8 million worth of stocks that petitioners were to subscribe to and pay for. However, respondents failure to fulfill their undertaking would have given rise to the scenario contemplated by Article 1191 of the Civil Code. Thus, petitioners should have exacted fulfillment from the respondents or asked for the rescission of the contract instead of simply not performing their part of the Agreement. But in the course of things, it was the respondents who availed of the remedy under Article 1191, opting for the rescission of the Agreement in order to regain control of the Rural Bank. Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus: 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 obligated to restore.
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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. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. _____________________________________________________ UNIVERSAL FOOD CORP. v. CA Nature: Action for Rescission of Contract Ponente: Castro, J. Date: May 13, 1970 DOCTRINE: In Art. 1191 (unlike in Art. 1383), 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. FACTS: Relevant Provision of Law: ART. 1191, Civil Code. 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 of the Mortgage Law. ART. 1383, Civil Code. The 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.

ART. 1384, Civil Code. Rescission shall be only to the extent necessary to cover the damages caused. As far back as 1938, Magdalo Francisco, Sr. discovered or invented a formula for the manufacture of a food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce. Due to lack of sufficient capital to finance the expansion of the business, in 1960, he secured the financial assistance of Tirso Reyes who, after a series of negotiations, formed with others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 a "Bill of Assignment". Conformably with the terms and conditions, Magdalo Francisco, Sr. was appointed Chief Chemist and his son, Victoriano Francisco, was appointed auditor and superintendent. Since the start of the operation of the corporation, Magdalo Francisco, Sr., when preparing the secret materials inside the laboratory, never allowed anyone, not even his own son, or the President and General Manager Tirso Reyes, of defendant, to enter the laboratory in order to keep the formula secret to himself. Thereafter, however, due to the alleged scarcity and high prices of raw materials, Secretary-Treasurer Ciriaco de Guzman of Universal Food issued a Memorandum, that only Supervisor Ricardo Francisco should be retained in the factory and that the salary of Magdalo Francisco, Sr., should be stopped for the time being until the corporation should resume its operation. Magdalo Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until his services were terminated. After a few days, the president issued another memorandum to allow the supervisor, now assistant chief chemist, to recall some employees to produce the sauce and Porky Pops. Within a month, the corporation through its president authorized Zarraga and Bacula to look for a buyer of the corporation including its formula, trademarks and assets at a price not less than P300.00 without Francisco being recalled back to work. Because of this, Magdalo Francisco filed an action for rescission of the contract called Bill of Assignment in the CFI against Universal Food, rejecting the subsequent offer of the corporation to recall him to work after the action was filed. The CFI dismissed the case but the CA reversed the decision, rescinding the contract and ordering the corporation to return the trademark and formula of the sauce to Francisco and pay him his salary until those were returned. Hence, the present petition. The corporation appealed the decision, saying that Francisco is not entitled to rescission under Art. 1191 of the Civil Code.

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ISSUE: WON Magdalo Francisco is entitled to the rescission of the Bill of Assignment RULING: YES. The dismissal of the respondent patentee Magdalo Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. Thus, apart from the legal principle that the option to demand performance or ask for rescission of a contract belongs to the injured party, the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. In accordance with the provisions of the Bill of Assignment, what was ceded and transferred by Francisco was only the use of the Mafran sauce formula. The word royalty was used in the contract which means compensation paid by the licensee to the licensor for the use of the licensors invention. Moreover, it is stipulated that in case of the dissolution of the corporation, the property rights over the trademark and formula shall revert back to Francisco. First, royalty was paid by UFC to Magdalo Francisco. Second, the formula of said Mafran sauce was never disclosed to anybody else. Third, the Bill acknowledged the fact that upon dissolution of said Corporation, the patentee rights and interests of said trademark shall automatically revert back to Magdalo Francisco. Fourth, paragraph 3 of the Bill declared only the transfer of the use of the Mafran sauce and not the formula itself which was admitted by UFC in its answer. Fifth, the facts of the case undeniably show that what was transferred was only the use. Finally, the Civil Code allows only the least transmission of right, hence, what better way is there to show the least transmission of right of the transfer of the use of the transfer of the formula itself. The facts indicate that the petitioner, acting through its corporate officers, schemed and maneuvered to ease out, separate and dismiss the said respondent from the service as permanent chief chemist, in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. The late request to call him back to work was only to placate Francisco. 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. There is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause.

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. 12 The question of whether a breach of a contract is substantial depends upon the attendant circumstances. The petitioner contends that rescission of the Bill of Assignment should be denied, because under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. However, in this case the dismissal of the respondent patentee Magdalo Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. Thus, apart from the legal principle that the option to demand performance or ask for rescission of a contract belongs to the injured party, the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. It is to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products;" and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest. _____________________________________________________ MAGDALENA ESTATE v. MYRICK Nature: Action for Collection Ponente: Laurel, J. Date: March 14, 1941
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DOCTRINE: Under Art. 1124 of the old Civil Code (basis of Article 1191, New Civil Code), the injured party may choose between demanding the fulfillment of the contract or its resolution. These remedies are alternative and not cumulative. FACTS: The Magdalena Estate, Inc., sold to Louis Myrick lots Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan Subdivision, San Juan Rizal, their contract of sale No. SJ-639 providing that the price of P7,953 shall be payable in 120 equal monthly installments of P96.39 each on the second day of every month beginning the date of execution of the agreement. Simultaneously, the vendee executed and delivered to the vendor a promissory note for the whole purchase price. In pursuance of said agreement, the vendee made several monthly payments amounting to P2,596.08, the last being on October 4, 1930, although the first installment due and unpaid was that of May 2, 1930. By reason of this default, the vendor, through its president, K.H. Hemady, on December 14, 1932, notified the vendee that, in view of his inability to comply with the terms of their contract, said agreement had been cancelled as of that date, thereby relieving him of any further obligation thereunder, and that all amounts paid by him had been forfeited in favor of the vendor, who assumes the absolute right over the lots in question. To this communication, the vendee did not reply, and it appears likewise that the vendor thereafter did not require him to make any further disbursements on account of the purchase price. Louis Myrick commenced the present action in the CFI, praying for an entry of judgment against the Magdalena Estate, Inc. for the sum of P2,596.08 with legal interest thereon from the filing of the complaint until its payment, and for costs of the suit. CFI rendered its decision ordering the defendant to pay the plaintiff the sum of P2,596.08 with legal interest from December 14, 1932 until paid and costs, and dismissing defendant's counterclaim. CA confirmed the decision of the lower court, with the only modification that the payment of interest was to be computed from the date of the filing of the complaint instead of from the date of the cancellation of the contract. Hence, the present petition. It is argued that the contract being a bilateral agreement, in the absence of a stipulation permitting its cancellation, may not be resolved by the mere act of the petitioner. ISSUE: WON forfeiture of the payments was valid RULING: NO. The contract of sale contains no provision authorizing the vendor, in the event of failure of the vendee to continue in the payment of the

stipulated monthly installments, to retain the amounts paid to him on account of the purchase price The fact that the contracting parties herein did not provide for resolution is now of no moment, for the reason that the obligations arising from the contract of sale being reciprocal, such obligations are governed by article 1124 of the Civil Code which declares that the power to resolve, in the event that one of the obligors should not perform his part, is implied. Upon the other hand, where, as in this case, the petitioner cancelled the contract, advised the respondent that he has been relieved of his obligations thereunder, and led said respondent to believe it so and act upon such belief, the petitioner may not be allowed, in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court), in any litigation the course of litigation or in dealings in nais, be permitted to repudiate his representations, or occupy inconsistent positions, or, in the letter of the Scotch law, to "approbate and reprobate." The claim, therefore, of the petitioner that it has the right to forfeit said sums in its favor is untenable. Under article 1124 of the Civil Code, however, he may choose between demanding the fulfillment of the contract or its resolution. These remedies are alternative and not cumulative, and the petitioner in this case, having to cancel the contract, cannot avail himself of the other remedy of exacting performance. As a consequence of the resolution, the parties should be restored, as far as practicable, to their original situation which can be approximated only by ordering, as we do now, the return of the things which were the object of the contract, with their fruits and of the price, with its interest (article 1295, Civil Code), computed from the date of the institution of the action.

UP v. DE LOS ANGELES Nature: Petition for Injunction Ponente: Reyes, J.B.L., J. Date: September 29, 1970 DOCTRINE: Article 1191 of the Civil Code allows that the resolution of reciprocal contracts may be made extra-judicially unless successfully impugned in court. This gives the obligee the opportunity to prevent imminent losses which may be incurred due to the blatant negligence of the obligor.
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FACTS: UP and Associated Lumber Manufacturing Company, Inc. (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 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, etc.. As of 8 December 1964, ALUMCO had incurred unpaid account which, despite repeated demands, it had failed to pay. ALUMCO received notice that UP would rescind or terminate the logging agreement, thus, it executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," in which it guaranteed that it would pay its debt otherwise they would agree to the rescission of the contract without necessity of suit and shall pay the creditor P 50,ooo in liquidated damages. Despite this, ALUMCO continued its operations and incurred another debt in addition to the previous one. On 19 July 1965, UP informed ALUMCO that it had considered as rescinded and of no further legal effect the logging agreement that they had entered into. UP filed a complaint against ALUMCO in the CFI, for the collection or payment of the debts and for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations. Before the issuance of the aforesaid preliminary injunction UP had awarded a concession to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966. ALUMCO filed a petition for injunction to enjoin UP from conducting the bidding. The respondent judge issued the orders, enjoining UP from awarding logging rights over the concession to any other party. ALUMCO contended, that it is only after a final court decree declaring the contract rescinded for violation of its terms that UP could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect. ISSUE: WON UP can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. RULING: YES. UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, 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." It was held in Froilan vs. Pan Oriental Shipping Co., as to such special stipulation, and in connection with Article 1191 of the Civil Code, that:

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. The act of a 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. There is no conflict between the present ruling and the previous jurisprudence of the Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription. Even without express provision conferring the power of cancellation upon one contracting party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of the Civil; Code is practically a reproduction), has repeatedly held that, a resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in court. The acts of the court a quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the issues tendered by the parties, and in subsequently refusing to dissolve the injunction, were in grave abuse of discretion, correctible by certiorari, since appeal was not available or adequate. Such injunction, therefore, must be set aside. _____________________________________________________ ZULUETA v. MARIANO Nature: Ejectment suit Ponente: Melencio-Herrera, J. Date: January 30, 1982
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DOCTRINE: A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and' determination. FACTS: Petitioner Jose Zulueta is the registered owner of a residential house and lot situated within the Antonio Subdivision, Pasig, Rizal. Zulueta and private respondent Lamberto Avellana, a movie director, entered into a "Contract to Sell" the aforementioned property for P75,000.00 payable in twenty years with respondent buyer assuming to pay a down payment of P5,000.00 and a monthly installment of P630.00 payable in advance before the 5th day of the corresponding month, starting with December, 1964. It was stipulated, among others, that upon failure of the buyer to fulfill any of the conditions being stipulated, the buyer automatically and irrevocably authorizes owner to recover extrajudicially, physical possession of the land, building and other improvements, which were the subject of the said contract, and to take possession also extra-judicially whatever personal properties may be found within the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations buyer may have with owner. Demand was also waived. Upon the allegation that Avellana had failed to comply with the monthly amortizations, despite demands to pay and to vacate the premises, and that thereby the contract was converted into one of lease, petitioner commenced an Ejectment suit against respondent before the Municipal Court of Pasig, praying that judgment be rendered ordering respondent 1) to vacate the premises; 2) to pay petitioner the sum of P11,751.30 representing respondent's balance owing as of May, 1966; 3) to pay petitioner the sum of P 630.00 every month after May, 1966, and costs. Respondent controverted by contending that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract. Municipal Court ruled in favor of Zulueta. The conclusion was premised on title finding that breach of any of the conditions by private respondent converted the agreement into a lease contract. Upon appeal, CFI Judge dismissed the case on the ground of lack of jurisdiction of the Municipal Court. ISSUE: WON the action before the Municipal Court is essentially for detainer and, therefore, within its exclusive original jurisdiction, or one for rescission or annulment of a contract, which should be litigated before the CFI

RULING: RESCISSION. The basic issue is not possession but one of rescission or annulment of a contract. which is beyond the jurisdiction of the Municipal Court to hear and determine. The Municipal Court of Pasig was bereft of jurisdiction to take cognizance of the case filed before it. In his Complaint, petitioner had alleged violation by respondent Avellana of the stipulations of their agreement to sell and thus unilaterally considered the contract rescinded. Respondent Avellana denied any breach on his part and argued that the principal issue was one of interpretation and/or rescission of the contract as well as of set-off. Under those circumstances, proof of violation is a condition precedent to resolution or rescission. It is only when the violation has been established that the contract can be declared resolved or rescinded. Upon such rescission, in turn, hinges a pronouncement that possession of the realty has become unlawful. True, the contract between the parties provided for extrajudicial rescission. This has legal effect, however, where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary. But while respondent Judge correctly ruled that the Municipal Court had no jurisdiction over the case and correctly dismissed the appeal, he erred in assuming original jurisdiction, in the face of the objection interposed by petitioner. Section 11, Rule 40, leaves no room for doubt on this point: Section 11. Lack of jurisdiction A case tried by an inferior court without jurisdiction over the subject matter shall be dismiss on appeal by the Court of First Instance. But instead of dismissing the case, the Court of First Instance may try the case on the merits, if the parties therein file their pleadings and go to trial without any objection to such jurisdiction. There was no other recourse left for respondent Judge, therefore, except to dismiss the appeal. If an inferior court tries a case without jurisdiction over the subject-matter on appeal, the only authority of the CFI is to declare the inferior court to have acted without jurisdiction and dismiss the case, unless the parties agree to the exercise by the CFI of its original jurisdiction to try the case on the merits. ______________________________________________________ PALAY, INC v. CLAVE Nature: Complaint for Reconveyance with alternative prayer for Refund Ponente: Melencio-Herrera, J. Date: September 21, 1983

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DOCTRINE: A written notice is required to be sent to the defaulter for the rescission of a contract even though the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. FACTS: Relevant Provision of Law: ART. 1385, Civil Code. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Neither sham 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. Palay, Inc., through its President, Albert Onstott executed in favor of private respondent, Nazario Dumpit, a Contract to Sell a parcel of Land of the Crestview Heights Subdivision in Antipolo, Rizal,. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last payment was made on December 5, 1967 for installments up to September 1967. On May 10, 1973, or almost 6 years later, private respondent wrote petitioner offering to update all his overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. He followed this up with another letter reiterating the same request. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract, and that the lot had already been resold. Respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund. NHA, finding the rescission void in the absence of either judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation, jointly and severally, to refund Nazario Dumpit immediately. On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law, respondent Presidential Executive Assistant, affirmed the Resolution of the NHA. Petitioners argue that it was justified in cancelling the contract to sell without prior notice or demand in view of paragraph 6 of the Contract to Sell.

ISSUES: (1) WON demand was necessary before the Contract to Sell may be rescinded RULING: YES. Resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution, as held in the U.P. vs. Angeles case. Well-settled is the rule, as held in previous jurisprudence, that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. However, even in these cases, there was at least a written notice sent to the defaulter informing him of the rescission. As stressed in UP vs. De Los Angeles the act of a party in treating a contract as cancelled should be made known to the other. Of similar import is the ruling in Nera vs. Vacante, reading: A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex propio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and determination. This was reiterated in Zulueta vs. Mariano where the Court held that extrajudicial rescission has legal effect where the other party does not oppose it. Where it is objected to, a judicial determination of the issue is still necessary. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. If the debtor impugns the declaration, it shall be subject to judicial determination. In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It is now for the Court to determine whether resolution of the contract by petitioners was warranted. Petitioner relies on Torralba vs. De los Angeles where it was held that "there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments, the contract between the parties was deemed ipso facto rescinded." However, it should be noted that even in that case notice in writing was made to the vendee of the cancellation and annulment of the contract although the contract entitled the seller to immediate repossessing of the land upon default by the buyer. The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 6551 entitled "An Act to Provide Protection
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to Buyers of Real Estate on Installment Payments." which took effect on September 14, 1972, when it specifically provided: Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation, and private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently made; such waiver follows only where liberty of choice has been fully accorded. Moreover, it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. (2) WON petitioners may be held liable for the refund of the installment payments made by respondent Nazario Dumpit. RULING: YES. Indemnity for damages may be demanded from the person causing the loss under Article 1385 of the Civil Code. As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. However, considering that the property had already been sold to a third person and there is no evidence on record that other lots are still available, private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12% computed from the date of the institution of the action. 10 It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another.

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ANGELES V CALASANZ Nature: Action to compel execution of deed of sale Ponente: Gutierrez Date: March 18, 1985 Doctrine: The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The question of whether a breach of a contract is substantial depends upon the attendant circumstances. FACTS: Ursula and Tomas Calasanz and plaintiffs Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land in Cainta, Rizal for the amount of P3,920.The plaintiffs made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P 41.20 until fully paid which they paid monthly until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed installment payments. The Calasanzes then cancelled the contract because the plaintiffs failed to meet subsequent payments. Plaintiffs seek to compel the defendants to execute in their favor the final deed of sale alleging that after computing all subsequent payments, they have already paid the total amount of P4,533.38. Defendants alleged that plaintiffs violated par. 6 of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments, constraining the defendants-appellants to cancel the said contract. ISSUE: WON the contract to sell has been automatically and validly cancelled by the defendants. NO The defendants argue that the plaintiffs failed to pay the August, 1966 installment despite demands for more than 4 months, thus he may automatically cancel a contract to sell on the strength of a provision or stipulation (paragraph 6) of the contract in this case. Also, they alleged that they had the right to cancel the contract to sell under Article 1191. SC RULING: Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention. Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it

may be revoked and cancelled for violation of any of its terms and conditions. However, the right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. The question of whether a breach of a contract is substantial depends upon the attendant circumstances. Here, the breach of the contract adverted to by the defendants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs. It would unjustly enrich the defendants. _____________________________________________________ BOYSAW V. INTERPHIL PROMOTIONS Nature: Action for damages Ponente: Fernan Date: March 20, 1987 DOCTRINE: 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. Thus, Art. 1170 and 1191 of the Civil Code. 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. FACTS: 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 that the bout would be held at the Rizal Memorial Stadium in Manila on September 30, 1961 or not later than 30 days thereafter should a postponement be mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest without the written consent of Interphil Promotions, Inc. Afterwards, Ketchum assigned to J. Amado Araneta who then assigned to Yulo the managerial rights over Solomon Boysaw. Boysaw arrived in the Philippines. Yulo then wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract. Sarreal wrote a letter to the Games and Amusement Board expressing concern over reports that there had been a switch of managers in the case of Boysaw. Thus, GAB decided to schedule the Elorde-Boysaw fight for November 4, 1961. Yulo, Jr. refused to accept the
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change in the fight date. While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never materialized. ISSUE 1: Whether or not there was a violation of the fight contract; who was guilty of such violation. YES. BOYSAW IS GUILTY. On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the contract was violated by appellant Boysaw himself when, without the approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. 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. Thus, Art. 1170 and 1191 of the Civil Code. 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 4 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 in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil. The assignments, from Ketchum to Araneta, and from Araneta to Yulo, 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. From the evidence, it is clear that the appellees, instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That the appellees had the justification to renegotiate the original contract, particularly the fight date is undeniable from the facts aforestated. Under the circumstances, the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable. ISSUE 2: Whether or not there was legal ground for the postponement of the fight date from September 1, 1961, as stipulated in the May 1, 1961 boxing contract, to November 4,1961. YES. Since all the rights on the matter rested with the appellees, and appellants' claims, if any, to the enforcement of the contract hung entirely upon the former's pleasure and sufferance, the GAB

did not act arbitrarily in acceding to the appellee's request to reset the fight date to November 4, 1961. PILIPINAS BANK V IAC Nature: Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale Ponente: Paras Date: June 30, 1987 DOCTRINE: There is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many extensions and the fact that the petitioner never called attention to the proviso on "automatic rescission.". FACTS: Hacienda Benito, Inc. (petitioner's predecessor-in-interest) as vendor, and private respondents, as vendees executed a Contract to Sell over a parcel of land in Antipolo with a provision that the contract shall be considered automatically rescinded and cancelled and of no further force and effect upon failure of the vendee to pay when due, three or more consecutive installments as stipulated therein or to comply with any of the terms and conditions thereof, in which case the vendor shall have right to resell the said parcel of land to any person interested Eventually, petitioner sent private respondents a simple demand letter showing a delinquency in their monthly amortizations for 19 months. They then again sent private respondents a demand letter showing total arrearages of 20 months as of April 1965, but this time advising that unless they up-date their installment payments, petitioner shall be constrained to avail of the automatic rescission clause. Respondents made a partial payment with the request for an extension (repeated a number of times). However, private respondents failed to update their arrearages and did not request for any further extension of time within which to update their account. Petitioner then wrote a letter to private respondents, informing them that the contract to sell had been rescinded/cancelled by a notarial act, to which letter was annexed a "Demand for Rescission of Contract". TC: Petitioner could not rescind the contract to sell, because: (a) petitioner waived the automatic rescission clause by accepting payment on September 1967, and by sending letters advising private respondents of the balances due, thus, looking forward to receiving payments thereon. ISSUE: WON the contract was rescinded or cancelled, under the automatic rescission clause contained therein. NO. While it is true that the Supreme Court reiterated among other things that a contractual provision allowing "automatic rescission" (without prior need of judicial rescission, resolution or cancellation) is VALID, the remedy of one who feels aggrieved being to go to Court for the cancellation of the rescission
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itself, in case the rescission is found unjustified under the circumstances, still in the instant case there is a clear WAIVER of the stipulated right of "automatic rescission," as evidenced by the many extensions granted private respondents by the petitioner. In all these extensions, the petitioner never called attention to the proviso on "automatic rescission." _____________________________________________________ CENTRAL BANK V CA Nature: Petition for injunction, specific performance or rescission, and damages with preliminary injunction. Ponente: Makasiar Date: October 3, 1985 DOCTRINE: When one is in default in fulfilling its reciprocal obligation under their loan agreement, the other party, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since the defaulting party is already prohibited from fulfilling its obligation, rescission is the only alternative remedy left. FACTS: Island Savings Bank approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land in Agusan. The approved loan application called for a lump sum P80,000.00 loan, repayable in semiannual installments for a period of 3 years. It was required that Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision. A mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank. An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. The Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which prohibited the bank from making new loans and investments excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage. Tolentino filed for injunction, specific performance or rescission alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 and if said balance cannot be delivered, to rescind the real estate mortgage.

ISSUE 1: WON the action for specific performance may prosper? NO, only rescission. Island Savings Bank and Tolentino undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. The Bank's delay in furnishing the entire loan lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967. Such resolution made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino. Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. RE: DAMAGES AND REAL ESTATE MORTGAGE Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. We hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt. When there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure.
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G. Modes of extinguishment of obligations Article 1231. Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a) ************************************************************************ SAURA V DBP Nature: Action for damages Ponente: Makalintal Date: April 27, 1972 DOCTRINE: Mutual desistance or "mutuo disenso" is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. FACTS: Saura, Inc applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00, to be used as follows: P250,000.00 for the construction of a factory building (for the manufacture of jute sacks); P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment; and P9,100.00 as additional working capital. RFC passed Resolution No. 145 approving the loan application for P500,000.00, to be secured by a first mortgage on the factory building to be constructed, the land site thereof, and the machinery and equipment to be installed. In a meeting of the RFC Board of Governors it was decided to reduce the loan from P500,000.00 to P300,000.00. F.R. Halling, who had signed the promissory note for China Engineers Ltd. jointly and severally with the other RFC that his company no longer to of the loan and therefore considered the same as cancelled as far as it was concerned. On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing to sign.

The action thus taken was communicated to Saura, Inc. in a letter of RFC dated December 22, 1954, wherein it was explained that the certification by the Department of Agriculture and Natural Resources was required "as the intention of the original approval (of the loan) is to develop the manufacture of sacks on the basis of locally available raw materials." Saura, Inc. does not deny that the factory he was building in Davao was for the manufacture of bags from local raw materials. The explanatory note on page 1 of the same brochure states that, the venture "is the first serious attempt in this country to use 100% locally grown raw materials notably kenaf which is presently grown commercially in theIsland of Mindanao where the proposed jutemill is located ..." This fact, according to defendant DBP, is what moved RFC to approve the loan application in the first place. ISSUE: WON there was a perfected contract to speak of. YES but there was mutual desistance. We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 (An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.) There was undoubtedly offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the corresponding mortgage was executed and registered. But this fact alone falls short of resolving the basic claim that the defendant failed to fulfill its obligation and the plaintiff is therefore entitled to recover damages. It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to be constructed would utilize locally grown raw materials, principally kenaf. There is no serious dispute about this. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954, restored the loan to the original amount of P500,000.00. it imposed two conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to carry out its operation are available in the immediate vicinity; and (2) that there is prospect of increased production thereof to provide adequately for the requirements of the factory." The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a step in its implementation. Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter of January 21, 1955, stating that local jute "will not be able in sufficient quantity this year or probably next year," and asking that out of the loan agreed upon the sum of P67,586.09 be released "for raw materials and labor." This was a deviation from the terms laid down in Resolution No. 145 and embodied in the mortgage contract, implying as it did a diversion of part of the proceeds of the loan to purposes other than those agreed upon. When RFC turned down the request in its letter of January 25,
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1955 the negotiations which had been going on for the implementation of the agreement reached an impasse. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on June 15, 1955. The action thus taken by both parties was in the nature of mutual desistance what Manresa terms "mutuo disenso" 1 which is a mode of extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment. The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's non-compliance. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request, that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-appellee itself. ************************************************************************ 1. Payment or performance Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. (n) Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. (1157) Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n) Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. (n) Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. (1158a)

Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. (1159a) Article 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid as to the creditor who has accepted it. (n) Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on "Natural Obligations." (1160a) Article 1240. 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. (1162a) Article 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the payment. (1163a) Article 1242. Payment made in good faith to any person in possession of the credit shall release the debtor. (1164) Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165) Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as, or more valuable than that which is due. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will. (1166a) Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. (1167a)
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Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a) Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a) Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. (n) Article 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. (1171a) Article 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (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 latter's share. (1210a)

Republic Act No. 529, as repealed by RA 8183 June 16, 1950 AN ACT TO ASSURE UNIFORM VALUE TO PHILIPPINE COIN AND CURRENCY Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled; WHEREAS, the value of Philippine coin and currency affects public interest and is subject to regulation by the Congress of the Philippines; and WHEREAS, it has been disclosed that the provisions of certain obligations contracted in the Philippines purport to give the obligee the right to require payment in gold or in a particular kind of coin or currency or in an amount in money of the Philippines measured thereby, thus obstructing the power of the Congress to regulate the value of the money of the Philippines and contravening the policy of the Congress, here declared, to maintain at all times the equal and stable power of every peso coined or issued by the Philippines, in the markets and in the payment of debts; Now, therefore. Section 1. Every provision contained in, or made with respect to, any obligation which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. Every obligation heretofore or hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That, if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred, except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private.
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Section 2. All acts and parts of acts inconsistent with this Act are hereby repealed. Section 3. This Act shall take effect upon its approval. Approved: June 16, 1950 Republic Act No. 8183, Repealing RA 529 June 11, 1996 AN ACT REPEALING REPUBLIC ACT NUMBERED FIVE HUNDRED TWENTY-NINE AS AMENDED, ENTITLED "AN ACT TO ASSURE THE UNIFORM VALUE OF PHILIPPINE COIN AND CURRENCY." Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled; Section 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment. Sec. 2. Republic Act Numbered Five Hundred Twenty-Nine (R.A. No. 529), as amended entitled "An Act to Assume the Uniform Value of Philippine Coin and Currency," is hereby repealed. Sec. 3. This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in two (2) national newspapers of general circulation. The Bangko Sentral ng Pilipinas and the Department of Finance shall conduct an intensive information campaign on the effect of this Act. Approved: June 11, 1996 PD 72 Section 31. Section fifty-four of the same Act is hereby amended to read as follows: "Sec. 54. Legal tender power. All notes and coins issued by the Central Bank shall fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private: Provided, however, That coins shall be legal tender in amounts not exceeding fifty pesos for denominations from ten centavos to one peso, and in amounts not exceeding twenty pesos for denominations of five centavos or less." PD 72 Section 32. Section sixty-three of the same Act is hereby amended to read as follows: "Sec. 63. Legal character. Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, That a check which has been cleared and credited to the account of

the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account."

LANDBANK V ONG Nature: Action for recovery of sum of money with damages Ponente: Velasco Date: November 24, 2010 DOCTRINE: The second paragraph of Art. 1236 does not apply to a third person who does not have an interest in the fulfillment of the obligation. FACTS: Sps Johnson and Evangeline Sy secured a loan from Land Bank in the amount of PhP 16 million. The loan was secured by three 3 residential lots, 5 cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan would be short-termwhile the balance of PhP 10 million would be payable in 7 years. Spouses Sy found they could no longer pay their loan, they sold three 3 of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale with Assumption of Mortgage. Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed at PhP 750,000 so Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco. Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank after a credit investigation. Land Bank foreclosed the mortgage of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the subject mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC. Issue: WON Art. 1236 of the Civil Code is applicable. Partly Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides: The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the
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debtor, he can recover only insofar as the payment has been beneficial to the debtor.1avvphi1 We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept Alfredos payment, since as far as the former was concerned, he did not have an interest in the payment of the loan of the Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make payment before his assumption of mortgage would be approved. He was informed that the certificate of title would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the trial court stated that the contract was not perfected or consummated because of the adverse finding in the credit investigation which led to the disapproval of the proposed assumption. Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy, since his interest hinged on Land Banks approval of his application, which was denied. The circumstances of the instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid. ISSUE 2: WON there was a novation. NO We do not agree with the CA in holding that there was a novation in the contract between the parties. Not all the elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement.15 Land Bank is thus correct when it argues that there was no novation in the following: [W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent of Spouses Sy, he may still pay the obligation for the reason that even before he paid the amount of P750,000.00 on January 31, 1997, the substitution of debtors was already perfected by and between Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the substitution of debtors was made without the consent of Land Bank a requirement which is indispensable in order to effect a novation of the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not intervene in the contract between

Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution. _____________________________________________________ JM TUASON V JAVIER DOCTRINE: When a party religiously satisfied the monthly installments and already paid beyong the stipulated amount, he may be able to recover everything due thereto in the interest of justice and equity in accord with Art. 1234. FACTS: On September 7, 1954, petitioner J.M. Tuason & Co., Inc. entered a contract to sell with respondent Ligaya Javier a parcel of land known as Lot No. 28, Block No. 356, PSD 30328, of the Sta. Mesa Heights Subdivision for the sum of Php3,691.20 with 10% interest per annum; Php396.12 will be payable upon execution of the contract, and an installment of Php43.92 monthly for a period of ten (10) years. It was further stipulated in the contract, particularly the sixth paragraph, that upon failure of respondent to pay the monthly installment, she is given a one month grace period to pay such installment together with the monthly installment falling on the said grace period. Furthermore, failure to pay both monthly installments, respondent will pay an additional 10% interest. And after 90 days from the end of the grace period, petitioner can rescind the contract, the payments made by respondent will be considered as rentals. Upon the execution of the contract, respondent religiously paid the monthly installment until January 5, 1962. Respondent, however, was unable to the pay the monthly installments within the grace period which petitioner, subsequently, sent a letter to respondent on May 22, 1964 that the contract has been rescinded and asked the respondent to vacate the said land. So, upon failure of respondent to vacate the said land, petitioner filed an action to the Court of First Instance of Rizal for the rescission of the contract. The CFI rendered a decision in favor of respondent in applying Article 1592 of the New Civil Code. Hence, petitioner made an appeal to the Supreme Court alleging that since Article 1592 of the New Civil applies only to contracts of sale and not in contracts to sell. ISSUE: Did the CFI erroneously apply Article 1592 of the New Civil Code? Yes. Regardless, however, of the propriety of applying Article 1592, petitioner has not been denied substantial justice under Article 1234 of the New Civil Code. In this connection, respondent religiously satisfied the monthly installments for almost eight (8) years or up to January 5, 1962. It has been shown that respondent had already paid Php4,134.08 as of January 5, 1962 which is beyond the stipulated amount of Php3,691.20. Also, respondent has offered to pay all installments overdue including the stipulated interest, attorneys fees and the costs which the CFI accordingly sentenced respondent to pay such installment, interest, fees and costs. Thus, petitioner will be able recover everything that was due thereto. Under these
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circumstances, the SC feel that, in the interest of justice and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the New Civil Code. NOTE: I couldnt find a copy online of this case. I got this from other online digests.

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LEGARDA V SALDANA Nature: Complaint for delivery of land Ponente: Teehankee Date: January 28, 1974 DOCTRINE: A defaulting party may be granted lesser benefits, since no rescission of contractmay be permitted, for, according to Art. 1234 of said Code: 'If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. FACTS: The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for execution of the corresponding deed of conveyance after payment of the balance still due on their purchase price. Private respondent entered into two written contracts with petitioner subdivision owner, whereby the latter agreed to sell to him 2 lots for the sum of P1,500.00 per lot, payable over the span of ten years divided into 120 equal monthly installments of P19.83. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and sisters, and the two lots were among those allotted to co-petitioner Jose Legarda. Respondent faithfully paid for eight continuous years about 95 (of the stipulated 120) monthly installments totalling P3,582.06 up to the month of February, 1956. After that, respondent did not make further payments, leaving a balance of P1,317.72. Almost five years later, respondent wrote petitioners stating that his desire to build a house on the lots was prevented by their failure to introduce improvements on the subdivision as "there is still no road to these lots," and requesting information of the amount owing to update his account as "I intend to continue paying the balance due on said lots." Petitioners replied that cancellation was in order ISSUE: WON defendants be compelled to allow plaintiff to complete payment of the purchase price of the two lots in dispute and to execute the final deeds of conveyance. NO. However, 1 lot should be given. The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06 already paid by respondent (which was more than the value of two lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28 was already more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by respondent would be considered as fully paid, is fair and just and in accordance with law and equity. The monthly payments for eight years made by respondent were applied to his account without specifying or distinguishing between the two lots subject of the two agreements under petitioners' own statement of account. Even considering respondent as having defaulted after February

1956, he had as of the already paid by way of principal (P1,682.28) more than the full value of one lot (P1,500.00). The Court's doctrine in J.M. Tuason & Co. Inc. vs. Javier is applicable, with the respondent at bar being granted lesser benefits, since no rescission of contract was therein permitted. There, the Court held that "Regardless, however, of the propriety of applying said Art. 1592 thereto, We find that plaintiff herein has not been denied substantial justice, for, according to Art. 1234 of said Code: 'If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee,'" and "that in the interest of justice and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the Civil Code."

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AZCONA V JAMANDRE Nature: Action for damages Ponente: Cruz Date: June 30, 1987 DOCTRINE: The applicable provision is Article 1235 of the Civil Code, declaring that: Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. FACTS: Through a contract, Guillermo Azcona leased 80 hectares of his 150hectarepro indiviso share in Hacienda Sta. Fe in Escalante, Negros Occidental, to Cirilo Jamandre. The agreed yearly rental was P7,200.00. The lease was for three agricultural years beginning 1960, extendible at the lessee's option to two more agricultural years. The first annual rental was due but because the petitioner did not deliver possession, he "waived" payment. The respondent actually entered the premises. Petitioner notified the respondent that the contract of lease was deemed cancelled, terminated pursuant to its paragraph 8, for violation of the conditions specified in the said agreement. Earlier, in fact, the respondent had been ousted from the possession of 60 hectares of the leased premises. ISSUE 1: WON the lack of the parcelary plan nullified the contract. NO According to the petitioners, the parcelary plan was never agreed upon or annexed to the contract, which thereby became null and void under Article 1318 of the Civil Code for lack of a subject matter. The correct view, as we see it, is that there was an agreed subject-matter, to wit, the 80 hectares of the petitioner's share in the Sta. Fe hacienda, although it was not expressly
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defined because the parcelary plan was not annexed and never approved by the parties. Despite this lack, however, there was an ascertainable object because the leased premises were sufficiently Identified and delineated as the petitioner admitted in his amended answer and in his direct testimony. Moreover, it appears that the failure to attach the parcelary plan to the contract is imputable to the petitioner himself because it was he who was supposed to cause the preparation of the said plan. The Identification of the 80 hectares being leased rendered the parcelary plan unnecessary, and its absence did not nullify the agreement. ISSUE 2: WON respondent has fully paid the rentals in the amount of 7,200 (not 7,000). YES When the parties agreed on the lease for the succeeding agricultural year 1961-62, the respondent paying and the petitioner receiving therefrom the sum of P7,000.00Citing the stipulation in the lease c ontract for an annual rental of P7,200.00, the petitioner now submits that there was default in the payment thereof by the respondent because he was P200.00 short of such rental. That deficiency never having been repaired, the petitioner concludes, the contract should be deemed cancelled in accordance with its paragraph 8. Court holds that the amount of P7,000.00 paid to by the respondent and received by the petitioner represented payment in full of the rental for the agricultural year 1961-62. The language is clear enough: "The amount of P7,000.00, Philippine Currency, as payment for the rental corresponding to crop year 1961-62 ... to the rental due on or before January 30, 1961, as per contract." The conclusion should be equally clear. The words "as per contract" are especially significant as they suggest that the parties were aware of the provisions of the agreement, which was described in detail elsewhere in the receipt. The rental stipulated therein was P7,200.00. The payment being acknowledged in the receipt was P7,000.00 only. Yet no mention was made in the receipt of the discrepancy and, on the contrary, the payment was acknowledged "as per contract." We read this as meaning that the provisions of the contract were being maintained and respected except only for the reduction of the agreed rental. The respondent court held that the amount of P200.00 had been condoned, but we do not think so. The petitioner is correct in arguing that the requisites of condonation under Article 1270 of the Civil Code are not present. What we see here instead is a mere reduction of the stipulated rental in consideration of the withdrawal from the leased premises of the 16 hectares where the petitioner intended to graze his cattle. It seems to us that this meaning was adequately conveyed in the acknowledgment made by the petitioner that this was "payment for the rental

corresponding to crop year 1961-62" and "corresponds to the rentals due on or before January 30, 1961, as per contract. The applicable provision is Article 1235 of the Civil Code, declaring that: Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. _____________________________________________________ ARAAS VS. TUTAAN FACTS: On May 3, 1971 the lower court declared thatPetitioner Luisa Quijencio (and by her spouse Jose Araas)was the owner of 400 shares including the stock dividendsthat accrued to said shares, of respondent Universal Textile Mills, Inc. (UTEX) as defendant and Gene Manueland B. R. Castaeda as codefendants, and subsequently ordered UTEX to cancel said certificates and issue new ones in the name of Plaintiff and to deliver all dividendsappertaining to the same, whether in cash or in stocks.UTEX filed a motion for clarification whether thephrase to deliver to her all dividends appertaining to thesame, whether in cash or in stocks meant dividends properly pertaining to plaintiffs after the courtsdeclaration of plaintiff ownership of said 400 shares of stock. Defendant UTEX has always maintained it would rightfully abide by whatever decision may be rendered since such would be the logical consequence after the ruling in respect to the rightful ownership of said shares of stock. The motion was granted which ruled against UTEX, ordering it to pay plaintiff the cash dividends, which accrued to the stocks in question after rendition of its current decision excluding cash dividends already paid to Gene Manuel and B. R. Castaeda which accrued before its decision. UTEX alleged that the cash dividends had already been paid thereby absolving it from payment thereof. ISSUE: Was the contention of UTEX, alleging that the cash dividends of stock had already been paid and thereby absolving it from any further payment, valid? RULING: No. The final and executory judgment against UTEX declared petitioners as the owners of the questioned UTEX shares of stock against its co-defendants. It was further made clear in the motion for clarification that all dividends accruing to the said shares after the rendition of the decision of Aug. 7, 1971 rightfully belonged to petitioners. If UTEX nevertheless chose to pay the wrong parties, notwithstanding its full knowledge and understanding of the final judgment, it was still liable to pay the petitioners as the lawful declared owners of the questions shares of stocks. The burden of recovering the supposed payment of the cash dividends made by UTEX to the wrong parties Castaeda and Manuel falls upon itself by its own action and cannot be passed by it to the petitioner as the innocent parties. It is elementary that
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payment made by a judgment debtor to a wrong party cannot extinguish the judgment obligation of such debtor to its creditor. KALALO vs. LUZ NATURE: Collection of Sum of Money and Damages Zaldivar, J. July 31, 1970 DOCTRINE: If an obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing Rate of exchange at the time the obligation was incurred. FACTS: PROVISION/S: RA 529 - On November 17, 1959, appellee Kalalo, a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered into an agreement with appellant Luz, a licensed architect, doing business under the firm name of AJ. Luz and Associates, whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. The services included design computation and sketches, contract drawing and technical specifications of all engineering phases of the project designed by O.A. Kalalo and Associates, bill of quantities and cost estimate, and consultation and advice during construction relative to the work. Pursuant to said agreement, appellee rendered engineering services to appellant in the following projects:(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, appellee sent to appellant a statement of account to which was attached an itemized statement of defendant-appellant's account, according to which the total engineering fee asked by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00. On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to appellant, amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962 appellant sent appellee a check for said amount, which appellee refused to accept as full paymentof the balance of the fees due him.

- On August 10, 1962, appellee filed a complaint against appellant, containing four causes of action. In the first cause of action, appellee alleged that for services rendered in connection with the different projects therein mentioned there was due him fees in sums consisting of $28,000 (U.S.) and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In the second cause of action, appellee claimedP17,000.00 as consequential and moral damages; in the third cause of action he claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation; and in the fourth cause of action he claimed P25,000.00 as actual damages, and also for attorney's fees and expenses of litigation. - In his answer, appellant admitted that appellee rendered engineering services, as alleged in the first cause of action, but averred that some of appellee's services were not in accordance with the agreement and appellee's claims were not justified by the services actually rendered, and that the aggregate amount actually due to appellee was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08. Appellant denied liability for any damage claimed by appellee to have suffered, as alleged in the second, third and fourth causes of action. Appellant set up affirmative and special defenses, alleging that appellee had no cause of action, that appellee was in estoppel because of certain acts, representations, admissions and/or silence, which led appellant to believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project was premature because appellant had not yet been paid for said project, and that appellee's services were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory. Appellant 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.- Inasmuch as the pleadings showed that the appellee's right to certain fees for services rendered was not denied, the only question being the assessment of the proper fees and the balance due to appellee after deducting the admitted payments made by appellant, the trial court, upon agreement of the parties, authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was 20% of the$140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the appellant. The trial court ruled in favor of Kalalo by ordering Luz to pay him 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 this judgment, as certified to by the Central Bank of the Philippines. ISSUE: WON payment of the amount due to the appellee in dollars is legally permissible, and if not, at what rate of exchange it should be paid in pesos RULING:
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NO. Payment in dollars is prohibited by Republic Act (RA) No. 529 which provides that if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing Rate of exchange at the time the obligation was incurred. RA No. 529 was enacted on June 16, 1950. In the case now before Us the obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of RA No. 529. It follows that the provision of RA No. 529 which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. RA No. 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment. This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange prevailing on the date of defendant's breach. Therefore, appellant should pay the appellee the equivalent in pesos of the $28,000.00 at the free market rate of exchange at the time of payment. The trial court did not err when it held that herein appellant should pay appellee$28,000.00 to be converted into the Philippine currency on the basis of the current rate of exchange at the time of payment of this judgment, as certified to by the Central Bank of the Philippines. _____________________________________________________ PONCE vs. CA NATURE: Recovery of sum of money Melencio Herrera, J. May 31, 1979 DOCTRINE: While an agreement to pay in dollars is declared as null and void and of no effect, what the law specifically prohibits is payment in currency other than legal tender. FACTS: PROVISION/S: RA 529 (cited below) June 3, 1969, private respondent Jesusa B. Afable, together with Felisa L. Mendoza and Ma. Aurora C. Dio executed a promissory note in favor of petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine Currency, payable, without interest, on or before July 31, 1969. It was further provided therein that should the indebtedness be not paid at maturity, it shall draw interest at 12% per annum, without demand; that should it be necessary to

bring suit to enforce pay ment of the note, the debtors shall pay a sum equivalent to 10% of the total amount due for attorney's fees; and, in the event of failure to pay the indebtedness plus interest in accordance with its terms, the debtors shall execute a first mortgage in favor of the creditor over their properties or of the Carmen Planas Memorial, Inc For failure to comply w/, a Complaint was filed by PONCE at CFI-Manila for the recovery of the principal sum of P814,868.42, plus interest and damages Trial Court rendered judgment ordering respondent Afable and her codebtors, Felisa L. Mendoza and Ma. Aurora C. Dio , to pay petitioners, jointly and severally, the sum of P814,868.42, plus 12% interest per annum from July 31, 1969 until full payment, and a sum equivalent to 10% of the total amount due as attorney's fees and costs From said Decision, by respondent Afable appealed to the Court of Appeals. She argued that the contract under consideration involved the payment of US dollars and was, therefore, illegal; and that under the in pari delicto rule, since both parties are guilty of violating the law, neither one can recover. It is to be noted that said defense was not raised in her Ans CA affirmed TC. MR denied. CAs holding: the agreement is null and void and of no effect under Republic Act No. 529. Under the doctrine of pari delicto, no recovery can be made in favor of the plaintiffs for being themselves guilty of violating the law ISSUE: WON the subject matter of the transaction is illegal and against public policy, thus, doctrine of pari delicto applies. RULING: NO. It is to be noted that while an agreement to pay in dollars is declared as null and void and of no effect, what the law specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor's claim for payment, as it specifically provides that "every other domestic obligation ... whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts." A contrary rule would allow a Section 1 of Republic Act No. 529, which was enacted on June 16, 1950: Section 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other
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than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null and void and of no effect and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred. The above prohibition shall not apply to (a) transactions were the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial and banking institutions so long as the funds are Identifiable, as having emanated from the sources enumerated above; (b) transactions affecting high priority economic projects for agricultural industrial and power development as may be determined by the National Economic Council which are financed by or through foreign funds; (c) forward exchange transactions entered into between banks or between banks and individuals or juridical persons; (d) import-export and other international banking financial investment and industrial transactions. With the exception of the cases enumerated in items (a) (b), (c) and (d) in the foregoing provision, in, which cases the terms of the parties' agreement shall apply, every other domestic obligation heretofore or hereafter incurred whether or not any such provision as to payment is contained therein or made with- respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharge in Philippine currency measured at the prevailing rates of exchange at the time the obligation was incurred, except in case of a loan made in foreign currency stipulated to be payable in the currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail All coin and currency, including Central Bank notes, heretofore and hereafter issued and d by the Government of the Philippines shall be legal tender for all debts, public and private. (As amended by RA 4100, Section 1, approved June 19, 1964) As the Court of Appeals itself found, the promissory note in question provided on its face for payment of the obligation in Philippine currency, i.e., P814,868.42. So that, while the agreement between the parties originally involved a dollar transaction and that petitioners expected to be paid in the amount of US$194,016.29, petitioners are not now insisting on their agreement with respondent Afable for the payment of the obligation in dollars. On the contrary, they are suing on the basis of the promissory note whereby the parties have already agreed to convert the dollar loan into Philippine currency at the rate of P4.20 to $1.00. It may likewise be pointed out that the Promissory Note contains no provision "giving the obligee the

right to require payment in a particular kind of currency other than Philippine currency, " which is what is specifically prohibited by RA No. 529. At any rate, even if we were to disregard the promissory note providing for the payment of the obligation in Philippine currency and consider that the intention of the parties was really to provide for payment of the obligation would be made in dollars, petitioners can still recover the amount of US$194,016.29, which respondent Afable and her co-debtors do not deny having received, in its peso equivalent. As held in Eastboard Navigation, Ltd. vs. Juan Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta vs. National Rice & Corn Corp., if there is any agreement to pay an obligation in a currency other than Philippine legal tender, the same is nun and void as contrary to public policy, pursuant to Republic Act No. 529, and the most that could be demanded is to pay said obligation in Philippine currency. In other words, what is prohibited by RA No. 529 is the payment of an obligation in dollars, meaning that a creditor cannot oblige the debtor to pay him in dollars, even if the loan were given in said currency. In such a case, the indemnity to be allowed should be expressed in Philippine currency on the basis of the current rate of exchange at the time of payment. _____________________________________________________ NEW PACIFIC TIMBER vs. SENERIS NATURE: Collection of Money Concepcion, J. December 19, 1980 DOCTRINE: It is well known & accepted practice in the business sector that a Cashier's check is deemed as cash FACTS: PROVISION/S: Sec. 63 CB Act Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorneys fee of which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the Equitable Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent refused to accept the check and the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the highest bidder with a deficiency of P13,130.00. Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was denied by the respondent Judge. Hence
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this present petition, alleging that the respondent Judge capriciously and whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation was fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In upholding the refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money do not have legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be compelled to accept partial payment unless there is an express stipulation to the contrary. ISSUE: Can the check be considered a valid payment of the judgment obligation? RULING: YES. It is to be emphasized that the check deposited by the petitioner in the amount of P50,000 is not an ordinary check but a Cashier's check of the Equitable Banking Corp., a bank of good standing & reputation. It was even a certified crossed check. It is well known & accepted practice in the business sector that a Cashier's check is deemed as cash Moreover, since the said check has been certified by the drawee bank, by the certification, the funds represented by the check are transferred fr. the credit of the maker to that of the payee or holder, & for all intents & purposes, the latter becomes the depositor of the drawee bank, w/ rights & duties of one in such situation. Where a check is certified by the bank on w/c it is drawn, the certification is equivalent to acceptance. Said certification "implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart fort its satisfaction, & that they shall be so applied whenever the check is presented for payment. It is an understanding that the check is good then, & shall continue to be good, & this agreement is as binding on the bank as its notes in circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The object of certifying a check, as regards both parties, is to enable the holder to use it as money." When the holder procures the check to be certified, "the check operates as an assignment of a part of the funds to the creditors." Hence, the exception to the rule enunciated under Sec. 63 of the CB Act shall apply in this case: Sec. 63. Legal Character Checks representing deposit do not have legal tender power and their acceptance in payment of debts, both pub & priv, is at the option of the Cr. Provided, however that a check w/c has been cleared & credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash in an amount equal to the amount credited to his account. The Cashiers Check and the cash are valid payment of the obligation of the petitioner. The private respondent has

no valid reason to refuse the acceptance of the check and cash as full payment of the obligation

ROMAN CATHOLIC BISHOP OF MALOLOS, INC. vs. IAC NATURE: Specific performance with damages SARMIENTO, J. Nov. 16, 1990 DOCTRINE: Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formers obligation and demanding that the latter accept the same. FACTS: PROVISION/S: NCC 1249 The property subject matter of the contract consists of a parcel of land in the Province of Bulacan, issued and registered in the name of the petitioner which it sold to the private respondent. On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within four (4) years from execution of the contract. The contract likewise provides for cancellation, forfeiture of previous payments, and reconveyance of the land in question in case the private respondent would fail to complete payment within the said period. After the expiration of the stipulated period for payment, Atty. Adalia Francisco (president of the company who bought land) wrote the petitioner a formal request that her company be allowed to pay the principal amount of P100,000.00 in three (3) equal installments of six (6) months each with the first installment and the accrued interest of P24,000.00 to be paid immediately upon approval of the said request. The petitioner formally denied the said request of the private respondent, but granted the latter a grace period of five (5) days from the receipt of the denial to pay the total balance of P124,000.00. The private respondent wrote the petitioner requesting an extension of 30 days from said date to fully settle its account but this was still denied. Consequently, Atty. Francisco wrote a letter directly addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of payment made by the former on the last day of the grace period. But the private respondent demanded the execution of a deed of absolute sale over the land in question
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Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to execute the deed of absolute sale so the petitioner cancelled the contract and considered all previous payments forfeited and the land as ipso facto reconveyed. From a perusal of the foregoing facts, SC found that both the contending parties have conflicting versions on the main question of tender of payment. According to the trial court: . . . What made Atty. Francisco suddenly decide to pay plaintiffs obligation on tender her payment, when her request to extend the grace period has not yet been acted upon? Atty. Franciscos claim that she made a tender of payment is not worthy of credence. The trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof. Not satisfied with the said decision, the private respondent appealed to the IAC. The IAC reversed the decision of the trial court. The IAC, in finding that the private respondent had sufficient available funds, ipso facto concluded that the latter had tendered payment. ISSUE1: WON a finding that private respondent had sufficient available funds on or before the grace period for the payment of its obligation proof that it (private respondent) did a tender of payment for its said obligation within the said period? RULING1: No. Tender of payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formers obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence. Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his obligation. Ab posse ad actu non vale illatio. A proof that an act could have been done is no proof that it was actually done. The respondent court was therefore in error to have concluded from the sheer proof of sufficient available funds on the part of the private respondent to meet more than the total obligation within the grace period, the alleged truth of tender of payment. The same is a classic case of non-sequitur. ISSUE2: Whether or not an offer of a check is a valid tender of payment of an obligation under a contract which stipulates that the consideration of the sale is in Philippine Currency.

RULING2: No. In the case of Philippine Airlines v. Court of Appeals: Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment. A check, whether a managers check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite payment in legal tender or currency stipulated within the grace period and as such, was validly refused receipt by the petitioner, the subsequent consignation did not operate to discharge the former from its obligation to the latter. In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did validly order therefore the cancellation of the said contract, the forfeiture of the previous payment, and the reconveyance ipso facto of the land in question. _____________________________________________________ TIBAJIA, JR. vs. CA NATURE: Motion to lift writ of execution Padilla, J. June 4, 1993 DOCTRINE: Payment by means of check (even by cashier's check) is not considered payment in legal tender as required by the Civil Code, Republic Act No. 529, and the Central Bank Act. FACTS: PROVISION/S: RA 265 Sec. 63, RA 529 Sec. 1, Art. 1249, NCC Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in RTC Kalookan City in the amount of P442,750.00 in another case, had been garnished by him. On 10 March 1988, the RTC of Pasig, rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay her an amount in excess of P300,000.00. On appeal, the CA modified the decision by reducing the award of moral and exemplary damages. The decision having become final, Eden Tan filed the corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with the cashier of the RTC Pasig, were levied upon. On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment in the following form:
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Cashier's Check Cash Total P398,483.70

P262,750.00 135,733.70

Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and instead insisted that the garnished funds deposited with the cashier of Pasig RTC be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial court on the ground that payment in cashier's check is not payment in legal tender and that payment was made by a third party other than the defendant. A motion for reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari, prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on 24 April 1991 holding that payment by cashier's check is not payment in legal tender as required by Republic Act No. 529. The motion for reconsideration was denied on 27 May 1991. ISSUE: Whether or not payment by means of check (even by cashier's check) is considered payment in legal tender as required by the Civil Code, Republic Act No. 529, and the Central Bank Act.

Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the obligee the right to require payment in gold or in any particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby declared against public policy null and void, and of no effect, and no such provision shall be contained in, or made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts. c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides: Sec. 63. Legal character Checks representing deposit money do not have legal tender power and their acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided, however, that a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account. From the aforequoted provisions of law, it is clear that this petition must fail. In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, this Court held that A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. The ruling in these 2 cases merely applies the statutory provisions which lay down the rule that a check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager's, cashier's or personal check. _____________________________________________________ VELASCO vs. MERALCO

HELD: The provisions of law applicable to the case at bar are the following: a. Article 1249 of the Civil Code which provides: Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in abeyance.; b. Section 1 of Republic Act No. 529, as amended, which provides:

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(Note: Case cited in the syllabus is a resolution of an MR. Hence, no facts are indicated. However, the doctrine is clear in this case.) NATURE: MR from the decision of the Court Reyes, JBL December 20, 1971 DOCTRINE: It can be seen from the employment of the words "extraordinary inflation or deflation of the currency stipulated" that the legal rule envisages contractual obligations where a specific currency is selected by the parties as the medium of payment; hence it is inapplicable to obligations arising from tort and not from contract FACTS: PROVISION/S: Art. 1250 NCC Both appellant Velasco and appellee Manila Electric have filed their respective motions to reconsider the decision of the Court dated 6 August 1971. The only motion relevant to this case is that of the appellant. The thrust of this motion is that the decision has incorrectly assessed appellant's damages and unreasonably reduced their amount. It is first argued that the decision erred in not taking into account, in computing appellant's loss of income, the appellant's undeclared income of P8,338.20, assessed by the Bureau of Internal Revenue for the year 1954, in addition to his declared income for that year (P10,975), it being argued that appellant never claim any other source of income besides his professional earnings. Court ruled however that several circumstances of record disprove this claim. Appellant further urges that the damages awarded him are inadequate considering the present high cost of living, and calls attention to Article 1250 of the present Civil Code, and to the doctrines laid down in People vs. Pantoja. ISSUE: WON legal rule contemplated in Sec. 1249 of the NCC is applicable to obligations arising from tort. RULING: NO. It can be seen from the employment of the words "extraordinary inflation or deflation of the currency stipulated" that the legal rule envisages contractual obligations where a specific currency is selected by the parties as the medium of payment; hence it is inapplicable to obligations arising from tort and not from contract, as in the case at bar, besides there being no showing that the factual assumption of the article has come into existence. As to the Pantoja ruling, the regard paid to the decreasing purchase of the peso was considered a factor in estimating the indemnity due for loss of life, which in itself is not susceptible of accurate estimation. It should not be forgotten that the damages awarded to herein appellant were by no means full compensatory damages, since the decision makes clear that appellant, by his failure to minimize his damages by means easily within his reach, was declared entitled only to a reduced award for the nuisance sued upon and the

amount granted him had already taken into account the changed economic circumstances.

COMMISSIONER VS. BURGOS NATURE: Complaint for recovery of ownership and possession of land De Castro, J. March 31, 1980 DOCTRINE: Art. 1250 applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contracts. FACTS: PROVISION/S: 1250, NCC On 1924, the government took private respondent Victor Amigable's land for road-right-of-way purpose. On 1959, Amigable filed in the Court of First Instance a complaint to recover the ownership and possession of the land and for damages for the alleged illegal occupation of the land by the government (entitled Victor Amigable vs. Nicolas Cuenco, in his capacity as Commissioner of Public Highways and Republic of the Philippines). Amigable's complaint was dismissed on the grounds that the land was either donated or sold by its owners to enhance its value, and that in any case, the right of the owner to recover the value of said property was already barred by estoppel and the statute of limitations. Also, the non-suability of the government was invoked. In the hearing, the government proved that the price of the property at the time of taking was P2.37 per square meter. Amigable, on the other hand, presented a newspaper showing that the price was P6.775. The public respondent Judge ruled in favor of Amigable and directed the Republic of the Philippines to pay Amigable the value of the property taken with interest at 6% and the attorney's fees.

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ISSUE: WON Article 1250 is applicable in determining just compensation payable to Amigable from the taking in 1924. HELD: No. Art. 1250 applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contracts. It is to be noted that respondent judge did consider the value of the property at the time of the taking, which as proven by the petitioner was P2.37 per square meter in 1924. However, applying Article 1250 of the New Civil Code, and considering that the value of the peso to the dollar during the hearing in 1972 was P6.775 to a dollar, as proven by the evidence of the private respondent Victoria Amigable the Court fixed the value of the property at the deflated value of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just compensation to be paid by the Government. To this action of the respondent judge, the Solicitor General has taken exception. Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for payment of an obligation in an amount different from what has been agreed upon by the parties because of the supervention of extra-ordinary inflation or deflation. It is clear that the provision applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contract. The taking of private property by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation. Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of the obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at the time of the taking of the property when the obligation of the Government to pay arises. It is only when there is an "agreement to the contrary" that the extraordinary inflation will make the value of the currency at the time of payment, not at the time of the establishment of the obligation, the basis for payment. In other words, an agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation. Under the law, in the absence of any agreement to the contrary, even assuming that there has been an extraordinary inflation within the meaning of Article 1250 of the New Civil Code, a fact SC declines to declare categorically, the value of the peso at the time of the establishment of the obligation, which in the instant case is when the property was taken possession of by the Government, must be considered for the purpose of determining just compensation. Obviously, there can be no "agreement to the contrary" to speak of because the obligation of the Government sought to be enforced in the present action does not originate from contract, but from law

which, generally is not subject to the will of the parties. And there being no other legal provision cited which would justify a departure from the rule that just compensation is determined on the basis of the value of the property at the time of the taking thereof in expropriation by the Government, the value of the property as it is when the Government took possession of the land in question, not the increased value resulting from the passage of time which invariably brings unearned increment to landed properties, represents the true value to be paid as just compensation for the property taken. In the present case, the unusually long delay of private respondent in bringing the present action-period of almost 25 years which a stricter application of the law on estoppel and the statute of limitations and prescription may have divested her of the rights she seeks on this action over the property in question, is an added circumstance militating against payment to her of an amount bigger-may three-fold more than the value of the property as should have been paid at the time of the taking. For conformably to the rule that one should take good care of his own concern, private respondent should have commenced proper action soon after she had been deprived of her right of ownership and possession over the land, a deprivation she knew was permanent in character, for the land was intended for, and had become, avenues in the City of Cebu. A penalty is always visited upon one for his inaction, neglect or laches in the assertion of his rights allegedly withheld from him, or otherwise transgressed upon by another. _____________________________________________________ FILIPINO PIPE & FOUNDRY CORP. vs. NAWASA NATURE: Complaint seeking for adjustment of unpaid balance Grino Aquino, J June 3, 1988 DOCTRINE: Extraordinary inflation exists "when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the parties at the time of the establishment of the obligation. FACTS: PROVISION/S: NCC 1250 On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the latter to supply it with 4" and 6" diameter centrifugally cast iron pressure pipes worth P270,187.50 to be used in the construction of the Anonoy Waterworks in Masbate and the Barrio San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid in instalments on various
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dates, a total of P134,680.00 leaving a balance of P135,507.50 excluding interest. Having completed the delivery of the pipes, the plaintiff demanded payment from the defendant of the unpaid balance of the price with interest in accordance with the terms of their contract. When the NAWASA failed to pay the balance of its account, the plaintiff filed a collection suit on March 16, 1967 which was docketed as Civil Case No. 66784 in the Court of First Instance of Manila. On November 23, 1967, the trial court rendered judgment in Civil Case No. 66784 ordering the defendant to pay the unpaid balance of P135,507.50 in NAWASA negotiable bonds, redeemable after ten years from their issuance with interest at 6% per annum, P40,944.73 as interest up to March 15, 1966 and the interest accruing thereafter to the issuance of the bonds at 6% per annum and the costs. Defendant, however, failed to satisfy the decision. It did not deliver the bonds to the judgment creditor. On February 18, 1971, the plaintiff FPFC filed another complaint which was docketed as Civil Case No. 82296, seeking an adjustment of the unpaid balance in accordance with the value of the Philippine peso when the decision in Civil Case No. 66784 was rendered on November 23, 1967. On May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground that it is barred by the 1967 decision in Civil Case No. 66784. The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the ground that the bar by prior judgment did not apply to the case because the causes of action in the two cases are different: the first action being for collection of the defendant's indebtedness for the pipes, while the second case is for adjustment of the value of said judgment due to alleged supervening extraordinary inflation of the Philippine peso which has reduced the value of the bonds paid to the plaintiff. Article 1250 of the Civil Code provides: In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.. The court suggested to the parties during the trial that they present expert testimony to help it in deciding whether the economic conditions then, and still prevailing, would justify the application of Article 1250 of the Civil Code. The plaintiff presented voluminous records and statistics showing that a spiralling inflation has marked the progress of the country from 1962 up to the present. There is no denying that the price index of commodities, which is the usual evidence of the value of the currency, has been rising.

The trial court pointed out, however, than this is a worldwide occurrence, but hardly proof that the inflation is extraordinary in the sense contemplated by Article 1250 of the Civil Code, which was adopted by the Code Commission to provide "a just solution" to the "uncertainty and confusion as a result of Malabanan contracts entered into or payments made during the last war." Noting that the situation during the Japanese Occupation "cannot be compared with the economic conditions today," the Malabanan trial court, on September 5, 1973, rendered judgment dismissing the complaint. ISSUE: WON on the basis of the continuously spiralling price index indisputably shown by the plaintiff, there exists an extraordinary inflation of the currency justifying an adjustment of defendant appellee's unpaid judgment obligation the plaintiff-appellant. HELD: NO. Extraordinary inflation exists "when there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the parties at the time of the establishment of the obligation. an example of extraordinary inflation is the following description of what happened to the Deutschmark in 1920: More recently, in the 1920's Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar! (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]). As reported, "prices were going up every week, then every day, then every hour. Women were paid several times a day so that they could rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Some workers tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives, who would rush to upload the nearly worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions." While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power of the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is simply a universal trend that has not spared our country. _____________________________________________________
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DEL ROSARIO vs. SHELL Nature: Complaint to compel payment of increased monthly rentals Ponente: Paras Date: August 19, 1988 DOCTRINE: In the interpretation of the contract of lease between the parties, the term devaluation was held to be synonymous to depreciation because the Court interpreted it in the laymans point of view even though they have different technical meanings. FACTS: Relevant Provision of Law: None used. On September 20, 1960, the parties entered into a least agreement wherein the herein plaintiff leased a parcel of land in Albay from defendant with a monthly rate of 250php. Paragraph 14 of their contract provides that in the event of an official devaluation or appreciation of the Philippine Peso, the rental shall be adjusted in accordance with the provisions of any law or decree declaring such devaluation or appreciation as may specifically apply to rentals. On November 6, 1965, President Diosdado Macapagal promulgated E.O. No. 195 which changed the par value of the peso from $0.5 to $0.2564103. Because of the enacted EO, plaintiff demanded that the rent be increased from 250php to 487.50php a month. Defendant refused so plaintiff filed a complaint with the CFI of Manila praying that defendant be ordered to pay the increased rent. She also asked for damages. However, the CFI dismissed the complaint. It stated that the EO has not officially devalued the peso because the changing of the par value did not change the gold value of the Philippine Peso which at the time was set at 713/21 grains of gold 0.900 fine. Plaintiff appeals stating that by virtue of the EO there has been an effective devaluation or depreciation of the peso which justifies the increase in rent. ISSUE: Should the rent be increased because of the enactment of the EO? RULING: Yes. The Court defined the important terms found in the contract which is mainly devaluation and appreciation. According to Sloan and Zurchers classic treatise, A Dictionary of Economics, devaluation is a reduction in its metallic content as determined by law resulting in the lowering of the value of one nations currency in terms of the currencies of other nations. In the book of Samuelson and Nordhaus, devaluation is when a countrys official exchange rate relative to gold or another currency is

lowered. Gerardo Sicat states that depreciation (opposite of appreciation) occurs when a currencys value falls in relation to foreign currencies. The Court also noted that devaluation is an official act of the government which refers to a reduction in metallic content while depreciation can take place with or without an official act and does not depend on metallic content. Although the contract uses the term devaluation and admittedly the EO did not decrease the gold equivalent of the peso, the Court ruled that there has been a diminution or lessening in the purchasing power of the peso. When the laymen who are unskilled in economics use the term devaluation or depreciation, they mean them in their ordinary signification which is decrease in value. Therefore, devaluation in the contract should be held synonymous with depreciation because they refer both to a decrease in the value of the currency. Therefore, the rentals should be adjusted accordingly. ************************************************************************ Special forms of payment a. Dation in payment Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. (n) b. Application of payments Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a) 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. (1172a)

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Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered. (1173) Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been satisfied. If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately. (1174a)

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c. Payment by cession or assignment Article 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws. (1175a) d. Tender of payment and consignation Article 1256. 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 give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. (1176a) Article 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177) Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. (1178) Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1179) Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180)

Article 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released. (1181a) ********************************************************************** FILINVEST VS. PHIL. ACETYLENE Nature: Collection of a sum of money with damages Ponente: De Castro Date: January 30, 1982 DOCTRINE: The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the parties. FACTS: Relevant Provision of Law: Articles 1484, 1232, 1245 and 1497 of the Civil Code
Article 1484. Civil Code. - In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: 1) Exact fulfillment of the obligation, should the vendee fail to pay; 2) Cancel the sale, should the vendee's failure to pay cover two or more installments; 3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Article 1232. Payment means not only the delivery of money but also the performance, in any manner, of an obligation. Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee.

On October 30, 1971, the Philippine Acetylene Co. (PAC) purchased from Alexander Lim (Lim), as evidenced by a deed of sale, a 1969 Chevrolet for 55,257.80php. PAC paid a down payment of 20,000php and the balance was payable, according to the promissory note PAC issued, at a monthly installment for 34 months which was due and payable at the first day of each month. Any unpaid installment will earn 12% interest per annum. As security, PAC executed a chattel mortgage over the vehicle in favor of Lim. Subsequently, Lim assigned to Filinvest Finance Corporation (FFC) all his rights, title and interests in the promissory note and chattel mortgage by virtue of a deed of assignment. Subsequently, FFC merged with the Credit and Development Corporation (CDC) and FFC assigned all its rights to the
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promissory note and chattel mortgage to the new corporation formed by the merger, Filinvest Credit Corporation (FCC). In effect, FCC financed the unpaid balance owed by PAC to Lim such that Lim became fully paid. PAC defaulted and failed to pay 9 successive installments. FCC sent a demand letter where its counsel asked that the amount be paid in full with interests and charges or that the vehicle be returned. PAC wrote FCC stating that it decided to merely return the vehicle as full satisfaction of its indebtedness pursuant to Article 1484 of the Civil Code. PAC returned the vehicle and gave FCC a document entitled Volunt ary Surrender with Special Power of Attorney to Sell. FCC subsequently wrote PAC that it cannot sell the vehicle because of unpaid taxes in the sum of 70,122php so it asked that PAC pay the corresponding indebtedness instead. FCC offered to give back the vehicle to PAC but PAC refused to accept it. FCC then filed a case for collection of sum of money with damages with the CFI of Manila. PAC states in its answer that FCC has no cause of action because its return of the vehicle satisfied all its indebtedness to FCC and assuming that it didnt, that FCC still cannot recover because of the original vendor Lims breach of warranty for the unpaid taxes. CFI ruled in favor of FCC and ordered PAC to pay and accept the vehicle. ISSUE: Did the return by PAC of the mortgaged vehicle extinguish the obligation? RULING: No. PAC argues that FCC already chose its remedy when it accepted the return of the vehicle which is tantamount to foreclosing the chattel mortgage. PAC states that FCC then is precluded from exercising any of the other remedies in Article 1484. PAC also argues that its return of the vehicle is already a mode of payment by virtue of dacion en pago citing Articles 1232, 1245, and 1497 of the Civil Code. Court ruled however that there was no dacion en pago in this case because there is an absence of the express or implied intention of the parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent

of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation. The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant. Moreover, the document given which is denominated as a Voluntary Surrender with Power of Attorney to Sell shows clearly that it was never the intention of the parties to transfer ownership. If it was, then there would be no need for such power of attorney because FCC would have full power to dispose of the vehicle as it sees fit. FCC is also not estopped to ask for payment when it accepted the return of the vehicle. Such return only extinguishes the obligation if the mortgagee causes the foreclosure sale. If the mortgagee desisted on his own initiative, such desistance is a timely disavowal of the remedy and the vendor can still sue for specific performance. On the issue of the breach of warranty, it is Lim who should be held liable and not FFC. The assignment between Lim and FFC has a specific provision absolves FFC of any liability. The taxes on the vehicle is a burden on the property and therefore should be borne by owner which is PAC. Although PAC may have an action against Lim, the original vendor, such remedy though cannot be held against FFC. _____________________________________________________ CITIZENS SURETY VS. CA Nature: Action for a sum of money Ponente: Gutierrez Jr. Date: June 28, 1988

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DOCTRINE: A deed of assignment the content of which purports to be an absolute deed of assignment cannot be held to be a valid dacion en pago when it is clear from the circumstances and subsequent action of the parties that the intention was to make it a security. Moreover, it cannot be a valid dacion en pago when at the date of the assignment, there was no obligation yet to be fulfilled. FACTS: Relevant Provision of Law: Article 1245 of the Civil Code
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. (n)

evident intention of the parties. In that situation the intent of the parties shall prevail. In this case, the assignment could not have been a dacion en pago because as correctly stated by the dissenting opinions of the CA decision, at the time the assignment was done, there was no obligation yet to be extinguished because Citizens had not yet advanced or paid anything yet by virtue of the surety bonds. Moreover, the subsequent acts of Pascual show that the deed was merely a security and not an absolute assignment. Pascual paying partial payments of 55,600php shows that the assignment was merely a security. If the assignment was absolute, there would have been no reason for subsequent payments because it extinguished the obligation. Also, the execution of a second real estate mortgage, although it was later cancelled, after the execution of the deed of assignment shows further that there still exists an obligation on the indemnity agreements. However, the case against the estate of Nicasia Sarmiento should still be dismissed because Citizens is more than adequately protected. It should have collected the remaining balance of 88,400php from the sales of the lumber and returned the excess to Pascual. Citizens is also not entitled to attorneys fees and interest because it had the means to recoup its investment but instead chose to litigate therefore it should bear the burden. _____________________________________________________ SOCO VS. MILITANTE Nature: Case for illegal detainer Ponente: Guerrero Date: June 28, 1983 DOCTRINE: The following are requirements for a valid consignation: 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 or incapacitated or because several persons claimed to be entitled to receive the amount due 3. That previous notice of the consignation had 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 5. That after the consignation had been made the person interested was notified thereof. FACTS: Relevant Provision of Law: Articles 1249, 1256-1261 of the Civil Code
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Pascual M. Perez Enterprises (Enterprises) purchased some goods from Singer Sewing Machine Co. under a Contract of Sale of Goods. Petitioner Citizens Surety (Citizens) issued 2 surety bonds to guarantee compliance of Pascual with its obligation. In consideration of the surety bonds, Pascual in his personal capacity and as attorney in fact of his wife Nicasia Sarmiento, and in behalf of Pascual Enterprises executed 2 indemnity agreements in favor of Citizens wherein he obligated himself and the Enterprises to indemnify Citizens whatever payments, advances and damages it may suffer as a result of the surety bonds. In addition, Enterprises were required to put up collateral security so it assigned by virtue of a deed of assignment a stock of lumber worth 400,000php. A second real estate mortgage was also executed in favor of Citizens as security but such was subsequently cancelled. Enterprises failed to pay for its obligation and Citizens had to pay Singer 144,000php. Enterprises was able to pay Citizens 55,600php but failed to pay the rest. Enterprises filed a claim for sum of money against the estate of Nicasia Sarmiento. Pasual opposed such claim stating that the deed of assignment extinguished the indemnity agreements. The CFI ruled in favor of the Enterprises and ordered Pascual as administrator to pay. On appeal to the CA however, the CA reversed the CFI stating that by virtue of the execution of the deed of assignment wherein the ownership of the lumber was transferred to Citizens, it amounted to a dacion en pago under Article 1245 of the Civil Code. ISSUE: Was the deed of assignment a dacion en pago? RULING: No. On the face of the deed of assignment, there seems to be a complete conveyance of the stocks of lumber to Citizens. However, the circumstances surrounding the assignment disproves this. The Court cited Sy vs. CA stating that if the terms of a contract are clear, the literal meaning of the stipulations shall control except when the words appear contrary to the

Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170) Article 1256. 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 give a receipt; (4) When two or more persons claim the same right to collect; (5) When the title of the obligation has been lost. (1176a) Article 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment. (1177) Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases. The consignation having been made, the interested parties shall also be notified thereof. (1178) Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor. (1179) Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the obligation. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force. (1180) Article 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall lose every preference which he may have over the thing. The codebtors, guarantors and sureties shall be released. (1181a)

Soco duly received them because she admits that Francisco has been paying religiously prior to May 1977. Soco subsequently through her lawyer sent a letter to Francisco asking him to vacate the premises for alleged non-payment starting from May 1977. Soco alleged that she had sent her daughter and salesgirl to collect the rental payments but Francisco refused to pay. Francisco also through his lawyer answered that she had been paying through Comtrust and that the checks were deposited with the Clerk of the Court of Cebu City. He argues that Soco refused to accept the checks when he sent it through the messengerial services of FAR Corporation so he ordered Comtrust to consign it with the clerk. Despite this explanation, Soco still filed a case for illegal detainer on January 8, 1979. Francisco alleges that Soco had been trying to find ways to terminate their lease contract because she found out that Francisco had been subleasing the same property to NACIDA for 3,000php a month which is a lot higher that what Francisco is paying Soco. The City Court ruled that there was no valid consignation because there was no showing that the letter delivered by the FAR Corporation contained cash money, check, money order or any other form of note of value therefore there was no valid tender of payment. The City Court further stated that assuming that there was tender, there was no evidence presented to establish actual deposit with the clerk and that he notified Soco after such deposit. The Court ordered Francisco to pay and vacate the premises and to pay damages. On appeal to the CFI however, it reversed the decision of the City Court stating that there was substantial compliance in the requisites for a valid consignation and ruled in favor of Francisco thereby dismissing the case of illegal detainer against him. Hence this case. ISSUE: Was there a valid consignation in this case? RULING: No. At the outset, the SC clearly and unequivocally stated that the essential requisites of a valid consignation must be complied with fully and strictly in accordance with the law, specifically Articles 1256-1261 of the Civil Code. The SC stated that the language of the provisions which use the words shall and must readily show that strict compliance is mandatory. Next, the SC looked on the jurisprudence regarding the matter. The Court in the case of Jose Ponce de Leon vs. Santiago Syjuco laid down the requirements for a valid consignation mainly: 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
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Soco as lessor and Francisco as lessee entered into a contract of lease on January 17, 1973 wherein Soco leased her commercial building and lot in Cebu to Francisco for period of 10 years renewable for another 10 at the option of the lessee in consideration for 800php per month. Francisco started paying Soco by checks when Soco stopped sending her collector and when sometimes the collector failed to issue receipts. She issued checks under Commercial Bank and Trust Company (Comtrust) and

because he was absent or incapacitated or because several persons claimed to be entitled to receive the amount due 3. That previous notice of the consignation had 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 5. That after the consignation had been made the person interested was notified thereof. Failure in any of these requirements is enough ground to render the consignation ineffective. Moreover, the Court stressed that In order to be valid, the tender of payment must be made in lawful currency. While payment in check by the debtor may be acceptable as valid, if no prompt objection to said payment is made the fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor to pay his obligation in cash. Thus, the tender of a check to pay for an obligation is not a valid tender of payment thereof. Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of payment 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. The SC reviewed the evidence presented by Francisco on which the CFI concluded that there was substantial compliance and the SC found that the CFIs conclusion is manifestly wrong and based on misapprehension of facts. Such evidence scrutinized were mainly: 1. Exhibit 10 Letter of Atty. Abarintos dated June 9, 1977 2. Exhibit 12 Letter of Atty. Abarintos dated July 6, 1977 3. Exhibit 14 Answer of Francisco in a related civil case for reformation of the contract of lease (not related to consignation) 4. Exhibit 1 Letter of Atty. Menchavez dated November 28, 1977 SC ruled that each of the letters at most may prove valid tender of payment for a specific month but failed to prove the other requirements mainly previous notice and notice after the consignation. Exhibit 14 was held to be self-serving. Francisco tried to prove valid tender and first notice by proving his monthly requests to his bank to write a check for the rentals. However, the arrangement specifically stated that the bank would issue the checks but it was still the job of Francisco to pick it up and tender it to Soco.

Francisco also failed to prove notice after consignation. The testimony of Bank Comptroller clearly stated that after he deposited the check with the clerk, he did not send any notice to Soco. Last, there was no proof of actual deposit with the clerk because no receipts issued by the clerk were presented in evidence. Francisco tried to prove actual deposit by virtue of the debt memorandums of the bank wherein it shows a monthly debit to his account. But the SC brushed this aside stating that such memorandums are merely internal banking practices or office procedures which are not binding on third parties. For failure to prove valid consignation, therefore in effect there was no valid payment for certain months, Francisco as lessee has violated the terms of the contract and may be judicially ejected. _____________________________________________________ IMMACULATA VS. NAVARRO Nature: Motion for consideration on issue of legal redemption Ponente: Paras Date: April 15, 1988 DOCTRINE: The right to redeem is a right, not an obligation, therefore, there is no consignation required to preserve the right to redeem. FACTS: Relevant Provision of Law: None used This case is a motion for reconsideration of a previous case wherein petitioner Lauro Immaculata represented by his wife Amparo Velasco tried to annul a judgment and deed of sale with reconveyance of property in favor of Juanita Victoria (one of the respondents, Navarro is the judge who issued the judgment). The SC upheld the deed of sale. However, in the decision, they failed to take into consideration the alternative prayer of the petitioner to allow legal redemption in case the validity of the deed of sale is upheld. Therefore, the SC granted the reconsideration. However, the respondents argue against legal redemption stating that the offer to redeem was not sincere since it was not accompanied by consignation of the amount in Court. ISSUE: Does legal redemption require consignation to preserve the right? RULING: No. First, the SC stated that although the sale was done in December 1969, the deed of conveyance was only executed on February 3, 1974. So the offer to redeem made on March 24, 1975 was clearly within the 5 year period allowed by the Public Land Act. This shows that the period is counted not from the date of the sale, but on the date of formal conveyance.
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The SC ruled that the right to redeem is a right and not an obligation, therefore, there is no consignation required to preserve the right to redeem. Therefore, the petitioner is allowed to redeem the property.

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2. Loss of the thing due or impossibility of performance Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the assumption of risk. (1182a) Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. (n) Article 1264. The courts shall determine whether, under the circumstances, the partial loss of the object of the obligation is so important as to extinguish the obligation. (n) Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity. (1183a) Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor. (1184a) 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. (n) Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185) Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action which the debtor may have against third persons by reason of the loss. (1186) Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122) Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable. (1105a) Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096) Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him to the person who should receive it, the latter refused without justification to accept it. (1185) Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1) If he devotes the thing to any purpose different from that for which it has been loaned; (2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted; (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event;
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(4) If he lends or leases the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and 1745) Article 1979. The depositary is liable for the loss of the thing through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing without the depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even though he himself may have been authorized to use the same. (n) Article 2147. The officious manager shall be liable for any fortuitous event: (1) If he undertakes risky operations which the owner was not accustomed to embark upon; (2) If he has preferred his own interest to that of the owner; (3) If he fails to return the property or business after demand by the owner; (4) If he assumed the management in bad faith. (1891a) Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits. He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered. (1896a) ********************************************************************** PEOPLE VS. FRANKLIN Nature: Appeal by surety company of forfeiture of bail bond and denial of petition for reduction of bail Ponente: Dizon Date: June 7, 1971 DOCTRINE: Article 1266 of the Civil Code does not apply to a surety upon a bail bond because 1266 speaks of a debtor-creditor relationship which is not present between a bail bond surety and the State. FACTS: Relevant Provision of Law: Article 1266 of the Civil Code
Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor.

released from custody upon a bail bond posted by the Asian Surety & Insurance Company (Company) in the amount of 2,000php. The CFI set her arraignment on July 14, 1962 but Franklin failed to appear. The Company filed a motion to postpone the arraignment to July 28 but still Franklin failed to appear. Her arrest was ordered and the Court required the Company to show cause why the bail bond should not be forfeited. On September 25, 1962, the Court granted the Company a period of 30 days to produce the accused and warned them that failure to do so would cause the forfeiture of the bond. On October 25, 1962, the Company filed another Motion for Extension for another 30 days but still failed to produce the accused. Subsequently, the Company filed a motion to reduce bail stating that the reason why it cannot surrender the accused is that the Government allowed the accused to leave the country for the US on February 27, 1962. Such motion was denied, and the subsequent MR also denied. The Company appeals its case using as basis Article 1266 of the Civil Code. It argues that it should be released from liability because it became impossible to produce the accused because of the negligence of the Government in issuing a passport to Franklin thus enabling her to leave. ISSUE: Should the Company be absolved from liability? RULING: No. The SC ruled that Article 1266 is inapplicable because it refers to a situation where there is a debtor-creditor relationship which is absent in the relationship of a bail bond surety and the State. The Court also noted the difference between an ordinary surety (those sureties on ordinary bonds or commercial contracts) and a bail bond surety. Citing the case of US vs. Bonoan, the Court stated that a bail bond surety may discharge themselves from liability by surrendering their principal while an ordinary surety can only be released by payment of the debt or performance of the act stipulated. Moreover, citing the case of Uy Tuising, the Court stated that it is the responsibility of the bail bond surety to keep the principal from leaving the jurisdiction because in the eyes of the law, the bail bond surety becomes the legal custodian and jailer of the accused. The Court stated that the Company should have informed the DFA and other government agencies of the fact that Franklin was facing a criminal charge. She would not have been issued a passport if the Company had done this, according to the Court.

An information was filed with the Justice of the Peace Court of Angeles, Pampanga against Natividad Franklin for the crime of estafa. She was

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LAGUNA VS. MANABAT Nature: Action for sum of money for rentals Ponente: Makasiar Date: August 29, 1974 DOCTRINE: Article 1680 of the Civil Code is not a general provision that can be applied to leases of all kinds. Moreover, even if it were held to apply to this case, increase in operating costs is not an unforeseen fortuitous event that can excuse them from obligation. FACTS: Relevant Provision of Law: Article 1680 of the Civil Code
Article 1680. The lessee shall have no right to a reduction of the rent on account of the sterility of the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he shall have such right in case of the loss of more than one-half of the fruits through extraordinary and unforeseen fortuitous events, save always when there is a specific stipulation to the contrary. Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts, earthquake, or others which are uncommon, and which the contracting parties could not have reasonably foreseen. (1575)

citing increase in costs of procuring spare parts abroad, reduction of dollar allocation, and the lack of passenger traffic which leads to financial losses. They asked that they be allowed to suspend operations until operating expenses went back to normal levels. Manabat and others opposed the petition stating that it will impair the obligation of contracts and the fact that the PSC does not have authority to interpret contracts. The PSC brushed aside their oppositions stating that they were not interpreting the lease contracts but were merely exercising its regulatory power over the leased contract. While proceedings in the PSC were going on, Manabat filed an action against the LTBC and BATC in the CFI of Laguna for the recovery of 42,500php in accrued rentals and the unauthorized deduction. Meanwhile , the PSC granted the petition of LTBC and BATC and granted them authority to suspend their operations. In the CFI, LTBC and BATC pointed to the authority to suspend and argued that the rentals should be reduced because the lease is suspended during that period. They argued further that when the BITC became insolvent, the lease lost force and the rentals paid after were by mistake and should be returned to them. The CFI ruled in favor of BITC and ordered that LTBC and BATC pay for accrued rentals even for the months where the suspension was effective, as well as to pay for the unauthorized deduction, and the rentals that may accrue after the suspension is lifted as well as interest. On appeal to the CA, the CA affirmed the CFI. On appeal to the SC, LTBC and BATC basically stated that it was wrong for the CA to completely disregard the fact that they could not enjoy the thing leased during the time of suspension and therefore the rentals should be reduced. However, the SC denied such for lack of merit. One day before the resolution of the SC became final, LTBC and BATC filed a motion to admit amended petition stating that there is another authority for the reduction of rentals which is Article 1680 of the Civil Code and the case of Reyes vs. Caltex. ISSUE: Should the rentals be reduced pursuant to Article 1680 of the Civil Code? RULING: No. The Court ruled that Article 1680 is a special provision for leases of rural lands. If it was the intention of the lawmakers to make it applicable to ordinary leases, they would have placed the article among the general provisions on lease. Even if it were a general rule on leases, it would still not extend to petitioners because the requisite is that the loss of the fruits
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On January 20, 1956, the Binan Transportation Company (BITC) leased to the Laguna Tayabas Bus Company (LTBC) its certificates of public convenience over the its Manila-Binan, Manila-Canlubang, And Sta. RosaManila lines for 2,50ophp per month. It also leased to Batangas Transportation Company (BATC) its certificates over its life Manila-Batangas Wharf and an international truck for 5 years renewable for another 5. The Public Service Commission provisionally approved the lease contracts on the same date on the condition that the lessees should operate the lines in accordance with the prescribed time schedule and was subject to modification or cancellation and to whatever decision might be rendered in the case. Subsequently, the BITC was declared insolvent and Francisco Manabat was appointed as its assignee. From the time of declaration of insolvency, the defendants paid the rentals to Manabat. However, beginning January 1958, notwithstanding demands, defendants failed to pay rentals despite assurances they gave Manabat. The defendants also deducted the amount of 1,862.92 without authorization from the rent they paid for August 1957 because their workers went on strike. Manabat also opposed such unauthorized deduction as the agreement states that the deduction can only be made if the lessors workers or officers went on strike and not the lessees. Additionally, such deduction gave undue preference to LTBC and BATC in the insolvency proceedings. On February 18, 1958, the LTBC and BATC filed with the Public Service Commission a petition for authority to suspend the operation of the lines

of leased property must be an extraordinary and unforeseen fortuit ous event. The alleged causes for suspension were the high prices of spare parts and gasoline and the reduction of dollar allocations were already existing when the contracts of lease were executed. Therefore, the cause of inability of petitioners cannot be ascribed to fortuitous events but to their voluntary desistance. Absent the requisite of fortuitous event, Article 1680 militates strongly against their plea as evidenced by the Articles opening statement. No reduction can be sustained by the suspension based on mere speculation that operating will yield no profits. The SC also took note of the fact that despite the suspension, there is still benefit to the lessees. Because the suspension would only cover the operation of the lessees, but it does not cover the obligation of the lessor not to operate or own certificates covering the same lines. Because petitioners LBTC and BATC still have their own certificates covering the same lines which are not covered by the suspension, the public would have no choice except to patronize them. The cited case by petitioners actually does not help their case because in Reyes vs. Caltex, the plea for equitable reduction was denied.
Where a person by his contract charges himself with an obligation possible to be performed, he must perform it, unless the performance is rendered impossible by the act of God, by the law, or by the other party, it being the rule that in case the party desires to be excused from the performance in the event of contingencies arising, it is his duty to provide therefor in his contract. Hence, performance is not excused by subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by breaking of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits to be had under the contract, by weather conditions, by financial stringency or by stagnation of business. Neither is performance excused by the fact that the contract turns out to be hard and improvident, unprofitable, or impracticable, ill-advised, or even foolish, or less profitable, unexpectedly burdensome. Since, by the lease, the lessee was to have the advantage of casual profits of the leased premises, he should run the hazard of casual losses during the term and not lay the whole burden upon the lessor."

OCCENA VS. JABSON Nature: Appeal from the decision of the CA allowing modification of contract Ponente: Teehankee Date: October 29, 1976 DOCTRINE: Article 1267 of the Civil Code allows the release of the obligor when the service has become so difficult as to be manifestly beyond the contemplation of the parties. But such Article does not authorize the Courts to modify or alter the terms and conditions of the contract. FACTS: Relevant Provision of Law: Article 1267 of the Civil Code
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. (n)

Tropical Homes Inc. (Tropical) filed a complaint in the CFI of Rizal for modification of the terms and conditions of its subdivision contract with petitioners who are landowners in Davao City. Tropical alleged:
That due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of prices, which are not within the control of plaintiff, of all commodities including basis raw materials required for such development work, the cost of development has risen to levels which are unanticipated, unimagined and not within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree that the conditions and factors which formed the original basis of said contract, Annex 'A', have been totally changed; 'That further performance by the plaintiff under the contract. That further performance by the plaintiff under the contract,Annex 'S', will result in situation where defendants would be unustly enriched at the expense of the plaintiff; will cause an inequitous distribution of proceeds from the sales of subdivided lots in manifest actually result in the unjust and intolerable exposure of plaintiff to implacable losses, all such situations resulting in an unconscionable, unjust and immoral situation contrary to and in violation of the primordial concepts of good faith, fairness and equity which should pervade all human relations.

Lastly, the Court noted that the conduct of petitioners were not according to fair play and justice. They promised Manabat that they would pay rentals. But when they found an opportunity to excuse themselves, they reneged on this promise. Moreover, the Court is of the opinion that the petition for suspension is malicious because they did not ask their own certificates to be suspended, only those they leased. If the reasons for the suspension were true, why should they not petition their own certificates to be suspended as well. It becomes clear that the petition for suspension was a scheme to lessen their operating costs for greater profit.

Tropical sought to change, based on the reasons cited, the provision which granted the landowners 40% of all cash receipts from the sale of subdivision lots. The CFI and CA ruled in favor of Tropical citing Article 1267 as basis. (but the decision did not state how such provision should be modified) Petitioners appeal to the SC stating that the CFI and CA were erroneous in the application of 1267 and that Tropical has no cause of action.
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ISSUE: Can the Courts modify or alter the contract when it has become so difficult as to be manifestly beyond the contemplation of parties? RULING: No. The SC stated that the CFI and the CA would have been correct in applying Article 1267 if the complaint of Tropical sought to have itself be excused from complying with the obligation. However, what Tropical seeks here is not release but that the Court modify the terms and conditions of the Contract which the Article does not authorize the Court to do so. His complaint for modification has no basis in law and therefore does not state a cause of action. Procedural: SC stated that the general rule is that the denial of a motion to dismiss is interlocutory and should not be corrected by certiorari but by appeal in due course. But this case falls under the exception that an appeal would not prove to be a speedy and adequate remedy. ************************************************************************ 3. Condonation or remission of debt Article 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made expressly or impliedly. One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall, furthermore, comply with the forms of donation. (1187) Article 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the renunciation of the action which the former had against the latter. If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the delivery of the document was made in virtue of payment of the debt. (1188) Article 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189) Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. (1190) Article 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a) Article 748. The donation of a movable may be made orally or in writing. An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.

If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in writing. Otherwise, the donation shall be void. (632a) Article 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. (633) 4. Confusion or merger of rights Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person. (1192a) Article 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion which takes place in the person of any of the latter does not extinguish the obligation. (1193) Article 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or debtor in whom the two characters concur. (1194) Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. (1145a) 5. Compensation
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Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) Article 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196) Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what the creditor may owe the principal debtor. (1197) Article 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation. (n) Article 1282. The parties may agree upon the compensation of debts which are not yet due. (n) Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it off by proving his right to said damages and the amount thereof. (n) Article 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are judicially rescinded or avoided. (n) Article 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)

Article 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment. (1199a) Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of paragraph 2 of article 301. (1200a) Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense. (n) Article 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the application of payments shall apply to the order of the compensation. (1201) Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. (1202a) Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid. (1165) Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) Kinds of compensation a. legal b. conventional; facultative c. judicial ********************************************************************** BPI VS. CA Nature: Action to recover a sum of money Ponente: Azcuna Date: January 25, 2007

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DOCTRINE: Legal compensation may take place when all the requisites in Article 1279 are present. But when done maliciously by a bank, even if it is entitled to set off, it can be liable for damages. FACTS: Relevant Provision of Law: Article 1278 and 1279 of the Civil Code
Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) Article 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196)

For BPIs part, it simply admits to the mistake of depositing the check to Salazars account and defends the act of debiting by citing Articles 1278 and 1279 of the Civil Code and its right to set off. ISSUE: Did BPI had the right to set off? RULING: Yes. However, it is still liable for damages for its failure to act judiciously in its exercise of its right. The SC stated that the CFI and the CA were wrong in holding that the Salazar had sufficiently proven that she was entitled to the checks. The Court stated that transferees who are neither payees or indorsees do not have any presumption in their favor. Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive payment may be inferred. The Court also stated that the presumption stated in Section 131(s) of the Rules of Court cannot inure to the benefit of Salazar because it assumes that there has been a valid transfer which in the case of checks which are order instruments, require both delivery and endorsement. Regarding the right to set off, the SC cited the case of Associated Bank vs. Tan. The right of set-off was explained in Associated Bank v. Tan which states that abank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Hence, the relationship between banks and depositors is one of creditor and debtor, thus legal compensation may take place once the requirements set forth in Article 1279 have been complied with. However, the bank is still liable for damages because it is in a business affected with public interest and therefore they should treat the accounts of their customers with meticulous care. To begin with, it was the banks negligence which allowed Salazar to deposit 3 checks at 3 separate instances without endorsement. Moreover, the bank assured Salazar that it would not touch the account of Salazars company pending the resolution of the dispute with Templonuevo. But contrary to their assurances, in less than 2 weeks, the bank already debited the account of her company. This led to damages
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A.A. Salazar Construction and Engineering, which was later substituted by Anabelle A. Salazar as the real party in interest, filed a case for a sum of money against amounting to 267,707.70php BPI in the RTC of Pasig City. The case stemmed from the claim of Julio R. Templonuevo who demanded from BPI the amount representing the aggregate value of 3 checks which were payable to JRT Construction which belonged to Templonuevo but which were allegedly maliciously deposited by Salazar to her own personal account. Because of Templonuevos claim, BPI froze account No. 0201 -0588-48 of AA Salazar and Construction instead of Salazars personal account where the checks were deposited because the account was already closed. BPI guaranteed Salazar that her companys account would not be touched until the matter was settled, but 2 weeks after, BPI debited the amount from her account. The CFI and the CA both ruled in favor of Salazar and ordered BPI to return the amount to Salazar because they believed Salazar was entitled to the checks notwithstanding the lack of endorsement by the payee, JRT Construction, because of an internal arrangement between JRT and Salazar with the acquiescence and knowledge of BPI. The CFI and the CA took note of the fact that BPI honored the checks and deposited them in Salazars account 3 separate instances. Both Courts explained that the only probable reason why a bank would deposit in 3 separate instances a check without the endorsement of the payee is that it had knowledge of the internal arrangement between JRT and Salazar. Lastly, they also took note of the fact that Templonuevo only claimed the amount a year after the last check was deposited, which according to both Courts, show the existence of the internal arrangement because of the lapse of time.

suffered by Salazar because she had already issued checks drawn on her companys account. The debiting of BPI contrary to their assurances caused her checks to bounce causing her embarrassment and damage to her standing in the business community. Therefore, she is still entitled to damages, but she is not entitled to the return of the money that BPI debited.

On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month, effective November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a period from August 1961 to October 1963. In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his favor. Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The appellate court accepted the petition but eventually decided for the respondent Ong, holding that Ong is indebted to the petitioner for unpaid rentals in an amount of more than P4,000.00," the sum of P500 could not be the subject of legal compensation, it being a "trust fund for the benefit of the lawyer, which would have to be turned over by the client to his counsel." Appellate Court: The requisites of legal compensation, namely, that the parties must be creditors and debtors of each other in their own right (Art. 1278, Civil Code) and that each one of them must be bound principally and at the same time be a principal creditor of the other (Art. 1279), are not present in the instant case, since the real creditor with respect to the sum of P500 was the defendant's counsel. ISSUE: WON there has been legal compensation between petitioner Gan Tion and respondent Ong Wan Sieng. Or WON legal compensation can occur between a judgment debt and a judgment awarding attorneys fees RULING: The award is made in favor of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable by the former in the cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by execution. Such credit, therefore, may properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for more than P4,000. _____________________________________________________ PHILIPPINE NATIONAL BANK v. GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA Nature: Action to enforce executory judgment Ponente: Narvasa, J. Date: February 27, 1987
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GAN TIONCO v. COURT OF APPEALS Nature: Ejectment Case Ponente: Makalintal, J. Date: May 21, 1969 DOCTRINE: Attorneys Fees can be the proper subject of legal compensation because it is the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by execution. Such credit, therefore, may properly be the subject of legal compensation FACTS: Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (1195) Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts be due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (1196) Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 Gan Tion filed an ejectment case against the former, alleging nonpayment of rents for August and September of that year, at P180 a month, or P360 altogether. Ong Wang Sen denied the allegation and said that the agreed monthly rental was only P160, which he had offered to pay but he was refused by the plaintiff. Gan Tion won in the municipal trial court but upon appeal, was reversed by the CFI. Gan Tion was ordered to pay the defendant the sum of P500 as attorney's fees. That judgment became final.

FACTS: Depositor Isabela Wood Construction & Development Corporation opened a Savings Account with PNB in the amount of 2 million. The Aceros are judgment creditors of Isabela Corporation, who seek to enforce against said savings account the final and executory judgment rendered in their favor. The partial judgment ordered payment by ISABELA to the ACEROS of the amount of P1,532,000.07. Notice of garnisment was served on the PNB on January 9, 1980, pursuant to the writ of execution dated December 23, 1979. This was followed by an Order issued on February 15, 1980 directing PNB to hand over this amount of P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. This partial judgment was made final plus interest. Meanwhile, PNB's claim to the two-million-peso deposit in question is made to rest on an agreement between it and ISABELA in virtue of which, according to PNB: (1) the deposit was made by ISABELA as "collateral" in connection with its indebtedness to PNB as to which it (ISABELA) had assumed certain contractual undertakings; and (2) in the event of ISABELA's failure to fulfill those undertakings, PNB was empowered to apply the deposit to the payment of that indebtedness. This agreement concerned a Letter of Credit issued in favor of a German company from whom Isabela bought 35 trucks. Since Isabela failed to deliver to PNB by way of mortgage its Paranaque property, and secure consent of Metropolitan Bank and Homeowners Savings and Loan Association to secure a 2nd mortgage, and considering that the obligation of defendant corporation to PNB have been due and unsettled, PNB applied the amount of P 2,102804.11 in defendant's savings account of PNB. With this basis, PNB intervened in the action between the Aceros and Isabela. PNB claims that since ISABELA was at some point in time both its debtor and creditor-ISABELA's deposit being deemed a loan to it (PNB)there had occurred a mutual set-off between them, which effectively precluded the ACEROS' recourse to that deposit. The Trial Court ruled in favor of PNB. But, the Intermediate Appellate Court ruled in favor of the Aceros. ISSUE: (1) WON legal compensation can take place between PNB and Isabela RULING: Article 1278 of the Civil Code does indeed provide that "Compensation shall take when two persons, in their own right, are creditors and debtors of each other. " Also true is that compensation may transpire by operation of law, as when all the requisites therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can not apply to PNB's advantage under the circumstances of the case at bar.

The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC, by which upon firmly established rules even this Court is bound, that it has not proven by competent evidence that it is a creditor of ISABELA. The only evidence present by PNB towards this end consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by PNB, but not that the credit was ever availed of (by ISABELA's foreign correspondent MAN, or that the goods thereby covered were in fact shipped, and received by ISABELA. The Failure is fatal to its claim. (2) WON 2M Deposit applied as collateral can be subject to voluntary compensation RULING: Petitioner: PNB has however deposited an alternative theory, which is that the P2M deposit had been assigned to it by ISABELA as "collateral," although not by way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of its indebtedness; and that PNB had in fact applied the deposit to the payment of ISABELA's debt on February 26, 1980, in concept of voluntary compensation. Supreme Court: This second, alternative theory, is as untenable as the first. In the first place, there being no indebtedness to PNB on ISABELA's part, there is in consequence no occasion to speak of any mutual set-off, or compensation, whether it be legal, i.e., which automatically occurs by operation of law, or voluntary, i.e., which can only take place by agreement of the parties. In the second place, the documents indicated by PNB as constitutive of the claimed assignment do not in truth make out any such transaction. While the Credit Agreement declares it to be ISABELA's intention to "assign to the BANK the proceeds of its contract with the Department of Public Works for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan," it does not appear that that intention was adhered to, much less carried out. Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to apply the P2M deposit to the satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the application was attempted to be made by PNB only on February 26, 1980, that essayed application was ineffectual and futile because at that time, the deposit was already in custodia legis, notice of garnishment thereof having been served on PNB on January 9, 1980 (pursuant to the writ of execution issued by the Court of First Instance on December 23, 1979 for the
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enforcement of the partial judgment in the ACEROS' favor rendered on November 18,1979). ________________________________________________ ENGRACIO FRANCIA V. IAC Nature: Complaint to annul sale Ponente: Gutierrez Date: June 28, 1988 DOCTRINE: The Court had consistently ruled that there can be no offsetting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. FACTS: Engracio Francia is the registered owner of a residential lot, 328 square meters, and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at public auction pursuant to Section 73 of Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. The petitioner seeks to set aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot which was sold at public auction to Ho Fernandez and ordered titled in the latter's name. He further averred that his tax delinquency of P2,400.00 has been extinguished by legal compensation since the government owed him P4, 116.00 when a portion of his land was expropriated. The lower court rendered a decision in favor Fernandez which was affirmed by the Intermediate Appellate Court. Fernandez appealed to the court. ISSUE: Whether or not the tax delinquency of Francia has been extinguished by legal compensation.

RULING: There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements provided by Article 1279, to wit: (1) that each one of the obligors be bound principally and that he be at the same time a principal creditor of the other; (2) that the two debts be due. The Court had consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. In addition, a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. There are also other factors which compelled the Court to rule against the petitioner. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not withdraw from the expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly asking for the annulment of the sale. The petition for review was dismissed. ________________________________________________

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REPUBLIC, in behalf of the RICE AND CORN ADMINISTRATION v. HON. WALFRIDO DE LOS ANGELES Nature: Complaint to annul sale Ponente: Concepcion, J. Date: June 25, 1980 DOCTRINE: Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient and no other proof may be required.

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FACTS: On Oct 29, 1964 spouses Petra and Benjamin Farin obtained a loan from Marcelo Steel Corporation in the amount of P600k, with a real estate mortgage on a parcel of land in Quezon City as security. Mortgagee Marcelo Steel requested for extrajudicial foreclosure which the sheriff advertised and scheduled. Spouses Farin filed petition for prohibition against the sheriff and mortgagee. Acting upon petition, Hon. De los Angeles issued an order commanding the Sheriff from proceeding with the public auction sale. While the above case was pending, Petra Farin lease portions of the "Doa Petra Building situated on the mortgaged premises, to the Rice and Corn Administration, (RCA). On December 9, 1967, Marcelo Steel filed a motion praying that RCA to channel its rental payments to Marcelo Steel, by invoking paragraph 5 of mortgage consent. Respondent judge de los Angeles issued assailed order granting said motion. The RCA filed a motion for the reconsideration of said order, praying that it be excluded therefrom, for the reasons that (a) the rents due Petra Farin had been assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b) Petra Farin has an outstanding obligation with the RCA in the amount of P263,062.40, representing rice shortages incurred by her as a bonded warehouse under contract with the RCA, which should be compensated with the rents due and may be due; and (c) RCA was never given an opportunity to be heard on these matters RTC denied said motion and said that he records does not show any proof that the plaintiff, Petra Farin, is indebted to the aforesaid movant, RCA, as allegedly in the said motion and assuming that the herein plaintiff is really indebted to the RCA, the records further does not show that a case has been filed against her for the payment of such obligation, and therefore, there is no apparent legal ground to hold the payment of the rentals due the plaintiff. On August 28, 1968, the RCA filed a motion to vacate the orders directing the RCA to pay rentals to Marcelo Steel Corporation, reiterating therein the grounds alleged in its motion for reconsideration dated January 19, 1968, and in its second motion for reconsideration dated April 17, 1968, which has remained unacted upon. In said motion, the RCA emphasized that it is not a party to the case; that it had been denied due process for lack of notice and the right to be heard; that compensation took place by operation of law pursuant to Art. 1286 of the Civil Code without the need of a case against Petra R. Farin, or a decision rendered against her for the payment of such obligation. Motion was denied, and so RCA filed petition for review. ISSUE: WON RCA can validly claim that compensation of debts had taken place, even if no case had been filed.

RULING: Insofar as it recognized the right of the herein private respondent, Marcelo Steel Corporation, to collect and receive rentals from the lessees of the Doa Petra Building, the order of December 23, 1967 was within the competence of the respondent Judge, since the lessor-mortgagor, Petra Farin, had empowered the said corporation to collect and receive any interest, dividend, rents, profits or other income or benefit produced by or derived from the mortgaged property under the terms of the real estate mortgage contract executed by them. The respondent Judge also erred in denying the claim of the RCA that compensation of debts had taken place allegedly because "The records does not show any proof that the plaintiff is indebted to the aforesaid movant, RCA, as alleged in the said motion and assuming that the herein plaintiff is really indebted to the RCA, the records further does not show that a case has been filed against her, or a decision has been rendered against her for the payment of such obligation." Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is disputed. But, if the claim is undisputed, as in the case at bar, the statement is sufficient and no other proof may be required. In the instant case, the claim of the RCA that Petra R. Farin has an outstanding obligation to the RCA in the amount of P263,062.40 which should be compensated against the rents already due or may be due, was raised by the RCA in its motion for the reconsideration of the order of December 23, 1967. A copy of said motion was duly furnished counsel for Petra R. Farin and although the said Petra R. Farin subsequently filed a similar motion for the reconsideration of the order of December 23, 1967, she did not dispute nor deny such claim Neither did the Marcelo Steel Corporation dispute such claim of compensation in its opposition to the motion for the reconsideration of the order of December 23, 1967. The silence of Petra R. Farin, order of December 23, 1967. although the declaration is such as naturally one to call for action or comment if not true, could be taken as an admission of the existence and validity of such a claim. Therefore, since the claim of the RCA is undisputed, proof of its liquidation is not necessary. At any rate, if the record is bereft of the proof mentioned by the respondent Judge of first instance, it is because the respondent Judge did not call for the submission of such proof. Had the respondent Judge issued an order calling for proof, the RCA would have presented sufficient evidence to the satisfaction of the court.
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Aquino concurs: I concur in the result and on the understanding that the trial court should hold a hearing to determine the merits of the claim of petitioner RCA that it is entitled to retain the rentals by way of compensation. Petition of RCA granted. ________________________________________________ LORETO J. SOLINAP v. HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First Instance of Iloilo, SPOUSES JUANITO and HARDEVI R. LUTERO, and THE PROVINCIAL SHERIFF OF ILOILO Nature: Complaint to annul sale Ponente: Escolin, J. Date: July 25, 1983 DOCTRINE: Compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to take place, that the amount involved be certain and liquidated." FACTS: The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda to petitioner Loreto Solinap for 10 years for the stipulated rental of P50,000.00 a year. It was further agreed in the lease contract that P25,000.00 from the rental should be paid by Solinap to the PNB to amortize the indebtedness of the spouses Lutero. When Tiburcio Lutero died, his heirs instituted the testate estate proceedings. On the basis of an order, respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid the PNB the sum of P25,000.00 as partial settlement of the deceased's obligations. Spouses Lutero filed a motion seeking reimbursement from the petitioner. They argued that the said amount should have been paid by petitioner to the PNB, as stipulated in the lease contract. Before the motion could be resolved, petitioner Solinap a separate action against the spouses Lutero for collection of P71,000.00 they borrowed from the petitioner. The spouses answered and pleaded a counterclaim against petitioner for P125,000.00 representing unpaid rentals on Hacienda Tambal and that petitioners purchased one-half of Hacienda Tambal. The respondent judge issued an order granting the spouses motion for reimbursement from petitioner of the sum of P25,000.00, plus interest.

Petitioner filed a petition for certiorari before this Court, assailing the above order, which the Court Dismissed. Respondent Luteros then filed a Motion for Execution of the payment for reimbursement. Thereafter the Petitioner Solinap filed with the respondent court a motion raising that the amount payable to Luteros should be compensated against the latter's indebtedness to Solinap amounting to P7 1,000.00. This motion was denied by respondent judge on the ground that "the claim of Loreto Solinap against spouses was yet to be liquidated and determined, such that the requirement in Article 1279 of the New Civil Code that both debts are liquidated for compensation to take place has not been established by the oppositor Loreto Solinap. Petitioner filed a motion for reconsideration of this order, but the same was denied. Hence, this petition. ISSUE: WON the obligation of petitioner to private respondents may be compensated or set-off against the amount sought to be recovered in an action for a sum of money filed by the former against the latter RULING: The petition is devoid of merit. Petitioner: Judge erred in not declaring the mutual obligations of the parties extinguished to the extent of their respective amounts. He relies on Article 1278 of the Civil Code to the effect that compensation shall take place when two persons, in their own right, are creditors and debtors of each other. Supreme Court: The argument fails to consider Article 1279 of the Civil Code which provides that compensation can take place only if both obligations are liquidated. In the case at bar, the petitioner's claim against the respondent Luteros in Civil Case No. 12379 is still pending determination by the court. While it is not for the Court to pass upon the merits of the plaintiffs' cause of action in that case, it appears that the claim asserted therein is disputed by the Luteros on both factual and legal grounds. More, the counterclaim interposed by them, if ultimately found to be meritorious, can defeat petitioner's demand. Upon this premise, his claim in that case cannot be categorized as liquidated credit which may properly be set-off against his obligation. As this Court ruled in Mialhe vs. Halili, Compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to take place, that the amount involved be certain and liquidated."
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WHEREFORE, the petition is dismissed, with costs against petitioner. Abad Concurring: Petition is frivolous, and petitioner should be assessed treble costs. _____________________________________________________ FRANCISCO SYCIP, JR., v. COURT OF APPEALS Nature: Estafa Case Ponente: Relova, J. Date: January 31, 1985 DOCTRINE: Compensation takes place only when two persons in their own right are creditors and debtors of each other, and that each one of the obligors is bound principally and is at the same time a principal creditor of the other. FACTS: Jose Lapuz received from Albert Smith in Manila 2000 shares of stock from Republic Flour Mills in the name of Dwight Dill who had left for Honolulu, with the understanding that Lapuz was supposed to sell the shares of stock, the value out of which he would get a commission. Lapuz made it clear that he did not own the shares. He was approached by defendant Sycip who assured him he could sell it for a good price. Thereafter, Jose K. Lapuz received a letter from the Sycip, informing him that "1,758 shares has been sold for a net amount of P29,000.00," but that the transaction could not be concluded until they received the Power of Attorney duly executed by Dwight Dill, appointing a person to endorse the certificate of stock and a resolution from Biochemical Research Laboratory authorizing transfer of certificate. Lapuz signed his conformity to such document. Power of attorney only authorized sale of 1758 shares. Jose K. Lapuz managed to sell 758 shares, the sum of which was remitted to Albert Smith. The accused-appellant sold and paid for the other 500 shares of stock, for the payment of which Jose K. Lapuz issued in his favor a receipt, dated June 9, 1961 The draft for P8,000.00, "the full value of the 500 shares' mentioned in the letter of the accused-appellant was dishonored by the bank, for lack of funds. Jose K. Lapuz then "discovered from the bookkeeper that he got the money and he pocketed it already, so he started hunting for Mr. Sycip. When he found the accused-appellant, the latter gave him a check in the amount of P5,000.00, issued by his daughter on July 12, 1961. This also was dishonored by the bank for lack of sufficient funds to cover it. When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa case (in the) fiscals office ... against him' unless he raise [the] balance left eight thousand" the accused-appellant answered him by sending a wire,

"P5,000 remitted ask boy check Equitable. But "the check was never made good," so Jose K. Lapuz testified. He had to pay Albert Smith the value of the 500 shares of stock." The Trial Court convicted Sycip of Estafa which the Court of Appeals Affirmed. ISSUE: (1) WON legal compensation can take place RULING: Petitioner contends that respondent Court of Appeals erred in not applying the provisions on compensation or setting-off debts under Articles 1278 and 1279 of the New Civil Code, despite evidence showing that Jose K. Lapuz still owed him an amount of more than P5,000.00 and in not dismissing the appeal considering that the latter is not legally the aggrieved party. This contention is untenable. Compensation cannot take place in this case since the evidence shows that Jose K. Lapuz is only an agent of Albert Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in their own right are creditors and debtors of each other, and that each one of the obligors is bound principally and is at the same time a principal creditor of the other. Moreover, as correctly pointed out by the trial court, Lapuz did not consent to the off-setting of his obligation with petitioner's obligation to pay for the 500 shares. (2) WON the Court of Appeals denied him due process when they refused his prayer that the appealed case be heard. RULING: It is discretionary on its part whether or not to set a case for oral argument. If it desires to hear the parties on the issues involved, motu propio or upon petition of the parties, it may require contending parties to be heard on oral arguments. Stated differently, if the Court of Appeals chooses not to hear the case, the Justices composing the division may just deliberate on the case, evaluate the recorded evidence on hand and then decide it. Accusedappellant need not be present in the court during its deliberation or even during the hearing of the appeal before the appellate court; it will not be heard in the manner or type of hearing contemplated by the rules for inferior or trial courts. ________________________________________________

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CIA MARITIMA V. COURT OF APPEALS Nature: Complaint to recover attorneys fees Ponente: Mendoza, J. Date: November 16, 1999 DOCTRINE: Generally, the amount of attorney's fees due is that stipulated in the retainer agreement which is conclusive as to the amount of the lawyer's compensation. In the absence thereof, the amount of attorney's fees is fixed on the basis of quantum meruit, i.e., the reasonable worth of his services. In determining the amount of attorney's fees, the following factors are considered: (1) the time spent and extent of services rendered; (2) the novelty and difficulty of the questions involved; (3) the importance of the subject matter; (4) the skill demanded; (5) the probability of losing other employment as a result of the acceptance of the proffered case; (6) the amount involved in the controversy and the benefits resulting to the client; (7) the certainty of compensation; (8) the character of employment; and (9) the professional standing of the lawyer. FACTS: Maritime Company of the Philippines was sued by Genstar Container Corporation before the Regional Trial Court, Branch 31, Manila. On November 29, 1985, it was ordered to pay Genstar Container Corporation, judgment debt and attorneys fees. As a result, properties of petitioners Compania Maritima, Inc., El Varadero de Manila, and Mindanao Terminal and Brokerage Services at Sangley Point, Cavite, were levied upon in execution. Petitioners Compania Maritima, Inc., El Varadero de Manila, and Mindanao Terminal and Brokerage Services engaged the services of private respondent, Atty. Exequiel S. Consulta for (3) cases. The cases were eventually resolved in this wise: (1) in Civil Case No. 8530134, the trial court dismissed the third-party claim and motion for the issuance of a writ of preliminary injunction filed by Atty. Consulta; (2) after Atty. Consulta filed the complaint with the Tanodbayan in TBP Case No. 8603662, petitioners transferred the handling of the case to another lawyer; and (3) Civil Case No. 86-37196 was eventually dismissed on motion of both parties, but only after the trial court's denial of the motion to dismiss filed by Genstar Container Corporation was upheld on appeal by both the Court of Appeals and the Supreme Court. For the three cases Atty. Consulta billed them amounts which petitioners did not fully pay. Because of the failure of corporate petitioners to pay the balance of his attorney's fees, Atty. Consulta brought suit against petitioners in the Regional Trial Court, Branch 94, Quezon City. The Trial Court and Court of Appeals

ruled in his favor, granting him an award of (1) 2.5 M (2) 20 k (3) 20 K for the three cases. Petitioners appealed. ISSUE: WON the amount of attorney's fees awarded to the private respondent by the court a quo and affirmed by the Honorable Court is reasonable. RULING: The issue in this case concerns attorney's fees in the ordinary concept. Generally, the amount of attorney's fees due is that stipulated in the retainer agreement which is conclusive as to the amount of the lawyer's compensation. In the absence thereof, the amount of attorney's fees is fixed on the basis of quantum meruit, i.e., the reasonable worth of his services. In determining the amount of attorney's fees, the following factors are considered: (1) the time spent and extent of services rendered; (2) the novelty and difficulty of the questions involved; (3) the importance of the subject matter; (4) the skill demanded; (5) the probability of losing other employment as a result of the acceptance of the proffered case; (6) the amount involved in the controversy and the benefits resulting to the client; (7) the certainty of compensation; (8) the character of employment; and (9) the professional standing of the lawyer. Both the Court of Appeals and the trial court approved attorney's fees in the total amounts of P50,000.00 and P30,000.00 for the services of Atty. Consulta in Civil Case No. 85-30134 and TBP Case No. 86-03662, respectively. Based on the above criteria, we think said amounts are reasonable, , although the third-party claim and motion for the issuance of a writ of preliminary injunction filed by Atty. Consulta in Civil Case No. 8530134 was dismissed by the trial court, while TBP Case No. 86-03662 was given by petitioners to another lawyer after Atty. Consulta had filed the complaint. On the other hand, although the order of the trial court in Civil Case No. 86-37196 granting the motion to dismiss filed by both parties did not state the grounds therefor, it is reasonable to infer that petitioners agreed thereto in consideration of some advantage. Hence, the rulings of the Court of Appeals and the trial court that, because of the complexity of the issues involved and the work done by counsel, the amount of P2,550,000.00 was reasonable for Atty. Consulta's services. In addition, the value of the properties involved was considerable. As already stated, to satisfy the judgment in favor of Genstar Container Corporation in Civil Case No. 85-30134, properties of petitioners worth P51,000,000.00 were sold at public auction. Only P1,235,000.00 was realized from the sale and petitioners were in danger of losing their properties. As the appellate court pointed out, Atty. Consulta rendered professional services not only in the trial court but in the Court of Appeals and in this Court. There is no
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question that through his efforts, properties owned by petitioners were saved from execution. In the present case, the Court of Appeals affirmed the factual conclusions of the trial court that: (1) the issues in Civil Case No. 86-03662, including the appeals taken therefrom to the Court of Appeals and the Supreme Court, were quite complex; (2) the pleadings filed by Atty. Consulta were wellresearched; and (3) as a result of Atty. Consulta's efforts, the adv erse parties were induced to agree to the dismissal of the case. Note: Other Issues about Piercing Corporate Fiction. _____________________________________________________ MINDANAO PORTLAND CEMENT v. COURT OF APPEALS Nature: Complaint to annul sale Ponente: Teehankee, J. Date: February 28, 1983 DOCTRINE: Trial Court should not defeat the compensation or set-off of the two (2) obligations of the corporations to each other which had already extinguished both debts by operation of law, by virtue of two separate cases filed in the same court. FACTS: On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation (Pacweld for short) as the latter's attorney, filed a 'motion to direct payment of attorney's fee to counsel'addressed to Mindanao Portland Cement Corporation (MPCC for short), (himself ), invoking in his motion the fact that in the decision of the court of Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of P10,000.00 as attorney's fees On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor, that said amount is set-off by a like sum of P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way of attorney's fees which MPCC recovered from the same CFI in an another case. On June 26, 1978 the court issued the order appealed from and despite MPCCs motion for reconsideration of said order, citing the law applicable and Supreme Court decisions denied the same in its order of August 28, 1978 also subject matter of this appeal. RULING: It is clear from the record that both corporations, petitioner Mindanao Portland Cement Corporation (appellant) and respondent Pacweld Steel

Corporation (appellee), were creditors and debtors of each other, their debts to each other consisting in final and executory judgments of the Court of First Instance in two (2) separate cases, ordering the payment to each other of the sum of P10,000.00 by way of attorney's fees. The two (2) obligations, therefore, respectively offset each other, compensation having taken effect by operation of law and extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said Code for automatic compensation "even though the creditors and debtors are not aware of the compensation" were duly present.** Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's motion for amendment of the judgment of September 14, 1976 against Mindanao Portland Cement Corporation so as to make the award therein of P10,000.00 as attorney's fees payable directly to himself as counsel of Pacweld Steel Corporation instead of payable directly to said corporation as provided in the judgment, which had become final and executory long before the issuance of said "amendatory" order was a void alteration of judgment. It was a substantial change or amendment beyond the trial court's jurisdiction and authority and it could not defeat the compensation or set-off of the two (2) obligations of the corporations to each other which had already extinguished both debts by operation of law. ________________________________________________ THE INTERNATIONAL CORPORATE BANK INC. v. THE IMMEDIATE APPELLATE COURT Nature: Complaint for recovery of money market placements Ponente: Paras, J. ; Date: June 30, 1988 DOCTRINE: 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 arising from breach of contract. FACTS: Private respondent secured from petitioner's predecessors-in-interest, the then Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan, private respondent mortgaged her real properties in Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was approved for release. The same amount was applied to pay her other obligations to petitioner, bank charges and fees. Thus, private respondent's claim that she did not receive anything from the approved loan.
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Private respondent then made a money market placement with Atrium. But she allegedly failed to pay her mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the money market placement on maturity but applied the amount instead to the deficiency in the proceeds of the auction sale of the mortgaged properties. With Atrium as the only bidder, the properties were sold for 20,000,000. Petitioner ICB now claims that private respondent still owed them 6.81 M. Private respondent filed a complaint with the trial court against petitioner for annulment of the sheriff's sale of the mortgaged properties, for the release to her of the balance of her loan from petitioner in the amount of P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her money market investment and for damages. Petitioner denies private respondent's allegations and asserts among others, that it has the right to apply or set off private respondent's money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of P5,763,741.23, representing the balance of its deficiency claim after deducting the proceeds of the money market placement, and for damages. During trial, private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.83, representing the proceeds of the money market placement. petitioner filed an opposition thereto, claiming that the proceeds of the money market investment had already been applied to partly satisfy its deficiency claim. Trial Court ruled in favor of private respondent ISSUE: WON there can be legal compensation in the case at bar, involving money market interests and a mortgage loan deficiency. RULING: Petitioner: After foreclosing the mortgage, there is still due from private respondent as deficiency the amount of P6.81 million against which it has the right to apply or set off private respondent's money market claim of P1,062,063.83. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil Code). "When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without the consent or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires among others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and demandable." 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 arising from breach of contract. There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83 representing the proceeds of her money market investment. This is admitted. But whether private respondent is indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance prevents legal compensation from taking place. 6. Novation

Article 1291. Obligations may be modified by: (1) Changing their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating a third person in the rights of the creditor. (1203) Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204) Article 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 the rights mentioned in articles 1236 and 1237. (1205a) Article 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the original debtor. (n) Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor, shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of public knowledge, or known to the debtor, when the delegated his debt. (1206a) Article 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they may benefit third persons who did not give their consent. (1207) Article 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation should be extinguished in any event. (n) Article 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the debtor or when ratification validates acts which are voidable. (1208a) Article 1299. If the original obligation was subject to a suspensive or resolutory condition, the new obligation shall be under the same condition, unless it is otherwise stipulated. (n)
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Article 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect. (1209a) Article 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person. (n) Article 1302. It is presumed that there is legal subrogation: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (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 latter's share. (1210a) Article 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto appertaining, either against the debtor or against third person, be they guarantors or possessors of mortgages, subject to stipulation in a conventional subrogation. (1212a) Article 1304. A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit. (1213) Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the share in the obligation corresponding to them. (1143) Kinds of novation a. As to its nature i. Subjective or personal ii. Objective or real b. As to its form i. Express ii. Implied SALAZAR V. J.Y BROTHERS MARKETING GROUP Nature: Action to declare that a novation existed and thus petitioner is not liable as indorser to the respondent. Ponente: PERALTA, J. Date:OCTOBER 20, 2010 DOCTRINE: For extinctive novation to existsthe following requisites must be fulfilled: (1) a previous valid obligation, (2) an agreement of all parties

concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. FACTS:Respondent is a corporation engaged in the business of selling sugar, rice and other commodities. The petitioner, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, petitioner accompanied the two to the respondent. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to closed account. Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid Bank Check again issued by Nena Jaucian Timario in the amount of P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of estafa. The petitioner was acquitted but was ordered to pay the respondent the sum of P214,000. Petitioner appealed and was allowed to present evidence regarding the civil aspect of the case. RTC dismissed the civil aspect of the criminal case as against the petitioner on the ground that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was also subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such check was only for deposit in payees account, a condition that rendered such check non-negotiable, the substitution of a nonnegotiable Solid Bank check for a negotiable Prudential Bank check was an essential change which had the effect of discharging from the obligation whoever may be the endorser of the negotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligation arising from the technical act of indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such substitution was to extinguish the obligation arising from the issuance of the Prudential Bank check. CA reversed the RTC stating that the petitioner was considered an indorser of the checks paid to respondent and considered her as an accommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that such holder at the time of the taking of the instrument knew her only to be an accommodation party. ISSUE: W/N the issuance of a crossed check after the first negotiable check produced the effect of novation and thus making the petitioner incur no civil liability.
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HELD: No, there was no novation intended by the parties in this case and thus there is no novation and the petitioner is still liable as an indorser of the check.Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor. Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superceded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation would also extinguish the first. An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.) In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank check, did not result to novation as there was no express agreement to establish that petitioner was already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300 bags of rice. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the replaced Prudential Bank check. Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since the two checks Prudential and Solid Bank checks were precisely for the purpose of paying the amount of P214,000.00, i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to pay the amount of P214,000.00. It would appear that respondent

accepted the Solid Bank check to give petitioner the chance to pay her obligation. The argument of the petitioner that the acceptance of the Solid Bank check, a non-negotiable check being a crossed check, which replaced the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since there was an essential change in the circumstance of each check, was shot down by the court. Taking judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that it could only be deposited and could not be converted into cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named therein.The change in the mode of paying the obligation was not a change in any of the objects or principal condition of the contract for novation to take place. METROPOLITAN BANK V. RURAL BANK OF GERONA INC. Nature: Appeal on certiorari questioning the CA re: the need to include Central Bank as a necessary party. Ponente: BRION, J. Date: July 5, 2010 DOCTRINE: When a third person not interested in the obligation, pays with the express or tacit approval of the debtor there is a presumed legal subrogation and when such occurs the party who is subrogated is no longer required as a necessary party. FACTS: Rural Bank of Gerona, Inc. (RBG), and the Central Bank of the Philippines (Central Bank) entered into an agreement providing that RBG shall facilitate the loan applications of farmers-borrowers under the Central Bank-International Bank for Reconstruction and Developments (IBRDs) 4th Rural Credit Project. The agreement required RBG to open a separate bank account where the IBRD loan proceeds shall be deposited. The RBG accordingly opened a special savings account with Metrobanks Tarlac Branch. As the depository bank of RBG, Metrobank was designated to receive the credit advice released by the Central Bank representing the proceeds of the IBRD loan of the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBGs special savings account for the latters release to the farmers-borrowers. Three loans applications were granted and accordingly a deposit was made in Metrobanks demand deposit account. One for P178,653 in favor of Dominador de Jesus, another for Basilio Panopio in the amount of P189,052.00, and finally Ponciano Lagmans loan application for
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P220,000.00. RBG withdrew all the deposits except for Lagmans loan from which it only withdrew 75,375. A month later Central Bank issued debit advices, reversing all the approved IBRD loans. The Central Bank implemented the reversal by debiting from Metrobanks demand deposit account the amount corresponding to all three IBRD loans. Upon receipt of the debit advices, Metrobank, in turn, debited the following amounts from RBGs special savings account: P189,052.00, P115,000.00, and P8,000.41. Metrobank, however, claimed that these amounts were insufficient to cover all the credit advices that were reversed by the Central Bank. It demanded payment from RBG which could make partial payments. As of October 17, 1979, Metrobank claimed that RBG had an outstanding balance of P334,220.00. To collect this amount, it filed a complaint for collection of sum of money against RBG before the RTC. RTC ruled for the petitioner stating that legal subrogation occurred. On appeal, the CA noted that this was not a case of legal subrogation under Article 1302 of the Civil Code. Nevertheless, the CA recognized that Metrobank had a right to be reimbursed of the amount it had paid and failed to recover, as it suffered loss in an agreement that involved only the Central Bank and the RBG. It clarified, however, that a determination still had to be made on who should reimburse Metrobank. Noting that no evidence exists why the Central Bank reversed the credit advices it had previously confirmed, the CA declared that the Central Bank should be impleaded as a necessary party so it could shed light on the IBRD loan reversals. Thus, the CA set aside the RTC decision, and remanded the case to the trial court for further proceedings after the Central Bank is impleaded as a necessary party. After the CA denied its motion for reconsideration, Metrobank filed the present petition for review on certiorari. ISSUE: W/N there was a legal subrogation and W/N Central Bank is a necessary party HELD: Yes, there was legal subrogation and because of such Central Bank is no longer a necessary party. The Terms and Conditions of the IBRD 4th Rural Credit Project executed by the Central Bank and the RBG shows that the farmers-borrowers to whom credits have been extended, are primarily liable for the payment of the borrowed amounts. The loans were extended through the RBG which also took care of the collection and of the remittance of the collection to the Central Bank. RBG, however, was not a mere conduit and collector. While the farmersborrowers were the principal debtors, RBG assumed liability under the

Project Terms and Conditions by solidarily binding itself with the principal debtors to fulfill the obligation. If RBG delays in remitting the amounts due, the Central Bank imposed a 14% per annum penalty rate on RBG until the amount is actually remitted. The Central Bank was further authorized to deduct the amount due from RBGs demand deposit reserve should the latter become delinquent in payment. Based on these arrangements, the Central Banks immediate rec ourse, therefore should have been against the farmers-borrowers and the RBG; thus, it erred when it deducted the amounts covered by the debit advices from Metrobanks demand deposit account . Under the Project Terms and Conditions, Metrobank had no responsibility over the proceeds of the IBRD loans other than serving as a conduit for their transfer from the Central Bank to the RBG once credit advice has been issued. Thus, the agreement governed only the parties involved the Central Bank and the RBG. Metrobank was simply an outsider to the agreement. Article 1302 of the Civil Code which provides It is presumed that there is legal subrogation: (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; Metrobank as a third party to the Central Bank-RBG agreement, had no interest except as a conduit, and was not legally answerable for the IBRD loans. Despite this, it was Metrobanks demand deposit account, instead of RBGs, which the Central Bank proceeded against, on the assumption perhaps that this was the most convenient means of recovering the cancelled loans. That Metrobanks payment was involuntarily made does not change the reality that it was Metrobank which effectively answered for RBGs obligations. Was there express or tacit approval by RBG of the payment enforced against Metrobank? After Metrobank received the Central Banks debit advices in November 1978, it (Metrobank) accordingly debited the amounts it could from RBGs special savings account without any objection from RBG. RBGs President and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August 14, 1979, with proposals regarding possible means of settling the amounts debited by Central Bank from Metrobanks demand deposi t account. These instances are all indicative of RBGs approval of Metrobanks payment of the IBRD loans. That RBGs tacit approval came after payment
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had been made does not completely negate the legal subrogation that had taken place. Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons. As the entity against which the collection was enforced, Metrobank was subrogated to the rights of Central Bank and has a cause of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest. Impleading the Central Bank as a party is completely unnecessary. CA erroneously believed that the Central Banks presence is necessary in order x x x to shed light on the matter of reversals made by it concerning the loan applications of the end users and to have a complete determination or settlement of the claim. In so far as Metrobank is concerned, how ever, the Central Banks presence and the reasons for its reversals of the IBRD loans are immaterial after subrogation has taken place; Metrobanks interest is simply to collect the amounts it paid the Central Bank. Whatever cause of action RBG may have against the Central Bank for the unexplained reversals and any undue deductions is for RBG to ventilate as a third-party claim; if it has not done so at this point, then the matter should be dealt with in a separate case that should not in any way further delay the disposition of the present case that had been pending before the courts since 1980. FUA LU V. YAP Nature: Ponente: N/A Date: July 30, 1943 DOCTRINE: Even if a subsequent obligation does not expressly can cancel the old obligation, if it is incompatible with the former, there is an implied novation by reason of incompatibility. FACTS: Plaintiff obtained a judgment against defendant and was ordered to pay P1,538.04 with legal interest. A parcel of land was levied upon by the sheriff. However, it was agreed that the defendants would execute a mortgage in favor of the plaintiffs and that the obligation would be reduced to P1,200 payable in four installments of P300. It was also agree that that in case the defendants defaulted in the payment of any of the installments, they would pay ten per cent of the unpaid balance as attorney's fees plus the costs of the action to be brought by the petitioner by reason of such default, and the further amount of P338, representing the discount conceded to the defendants.

As a result of the agreement thus reached by the parties, the sale of the land advertised by the provincial sheriff did not take place. However, pursuant to an alias writ of execution issued by the Court of First instance of manila the provincial sheriff, without publishing a new notice, sold said land at a public auction to the plaintiff for P1,923.32. The provincial sheriff executed a final deed in favor of the plaintiff. On August 29, 1939, the plaintiff instituted the present action in the Court of First Instance of Sorsogon against the appellants in view of their refusal to recognize plaintiffs title and to vacate the land. The defendants relied on the legal defenses that their obligation under the judgment in civil case No. 42125 was novated by the mortgage executed by them in favor of the plaintiff and that the sheriffs sale was void for lack of necessary publication. These contentions were overruled by the lower court which rendered judgment declaring the plaintiff to be the owner of the land and ordering the appellants to deliver the same to him, without special pronouncement as to costs. The defendants seek the reversal of this judgment. ISSUE: W/N there was a novation entered into by the parties to make the purchase of the land by the plaintiff invalid. HELD: Yes, there is a novation and thus the liability under the prior obligation has been extinguished. The judgment in the civil case had been extinguished by the settlement evidenced by the mortgage executed. Although said mortgage did not expressly cancel the old obligation, this was impliedly novated by reason of incompatibly resulting from the fact that, whereas the judgment was for P1,538.04 payable at one time, did not provide for attorney's fees, and was not secured, the new obligation is or P1,200 payable in installments, stipulated for attorney's fees, and is secured by a mortgage. The plaintiff, however, argues that the later agreement merely extended the time of payment and did not take away his concurrent right to have the judgment executed. This could not have been the purpose for executive the mortgage, because it was therein recited that the defendants promised to pay P1,200 to the plaintiffs as a settlement of the judgment in the civil case No. 42125 . Moreover, the sheriff's sale in favor of the plaintiff is void because no notice thereof was published other than that which appeared in the Mamera Press regarding the sale to be held on the prior auction sale. 1

Morran, J dissents: The majority sustained appellants' theory upon two grounds: (1) that their liability under the judgment has been extinguished by the agreement and that accordingly there was legally no judgment to execute; and (2) that the auction sale was void not only because the judgment sought to be executed has
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MILLAR V. CA Nature: Certiorari seeking to reverse the CAs decision if recognizing a novation. Ponente: CASTRO, J. Date: April 30, 1971 been extinguished but also because there was no publication thereof as required by law. The first ground is contrary to a doctrine laid down by this Court in a previous case. In Zapanta vs. De Rotaeche, plaintiff obtained judgment against defendant for a sum of money. Thereafter, the parties entered into an agreement by virtue of which the obligation under the judgment was to be paid in installments and that, upon default of defendant to comply with the terms of one agreement, plaintiff shall be at liberty to enter suit against him. Defendant defaulted and plaintiff sued out a writ of execution to recover the balance due upon the judgment credit and by virtue thereof defendant's property was levied upon and sold at public auction. Here, as in the Zapanta case, there was an agreement providing for the manner of payment of the obligation under the judgment. In both cases plaintiff has by express stipulation, the option to enter an independent suit against defendant should the latter fail to comply with the terms of the settlement. If, in the Zapante case plaintiff alternative right to execute the judgment has been upheld. I perceive no cogent reason why plaintiff in the instant case would be denied a like option to merely execute the judgment and be compelled, instead, to enter an independent suit on the terms of the settlement The spirit of the new Rules which frowns upon multiplicity of suits lends additional argument against the majority view. The majority maintains that here there is an implied novation by "reason of incompatibility resulting from the fact that, whereas the judgment was for P1,538.04 payable at one time, did not provide for attorney's fees, and was not secured, the new obligation is for P1,200 payable in installments, stipulates for attorney's fees, and is secured by a mortgage." With respect to the amount, it should be noted that, "while the obligation under the judgment was reduced to P1,200, there was, however, a stipulation to the effect that the discount would be recoverable in the event of appellants' default to comply with the terms of the agreement. And as to attorney's fees and the security by way of mortgage, the stipulation therefor contained in the agreement is of no moment, for it is merely incidental to, and anticipatory of, a suit which appellee may choose to take against appellants. Far, therefore, from extinguishing the obligation under the judgment, the agreement ratifies it and provides merely a new method and more time for the judgment debtor to satisfy it. If the judgment debtor fail to comply with the terms of the agreement, the judgment creditor shall be deemed remitted to his original rights under the judgment which he may choose to execute or enter, instead, a separate suit on the terms of the settlement.

DOCTRINE: The defense of implied novation requires clear and convincing proof of complete incompatibility between the two obligations. The law requires no specific form for an effective novation by implication. The test is whether the two obligations can stand together. If they cannot, incompatibility arises, and the second obligation novates the first. If they can stand together, no incompatibility results and novation does not take place. FACTS: Petitioner obtained a favorable judgment from the Court of First Instance of Manila, ordering respondent to pay him the sum of P1,746.98 with interest at 12% per annum from the date of the filing of the complaint, the sum of P400 as attorney's fees, and the costs of suit. From the said judgment, the respondent appealed to the Court of Appeals which, however, dismissed the appeal. Subsequently, after remand by the Court of Appeals of the case, the petitioner moved ex parte in the court of origin for the issuance of the corresponding writ of execution to enforce the judgment. Acting upon the motion, the lower court issued the writ of execution applied for, on the basis of which the sheriff of Manila seized the respondent's Willy's Ford jeep . The respondent, however, pleaded with the petitioner to release the jeep under an arrangement whereby the respondent, to secure the payment of the judgement debt, agreed to mortgage the vehicle in favor of the petitioner. The petitioner agreed to the arrangement; thus, the parties, executed a chattel mortgage on the jeep, stipulating, that This mortgage is given as security for the payment to the said EUSEBIO S. MILLAR, mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of the Court of First Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in the amount of ONE THOUSAND SEVEN HUNDRED (P1,700.00) PESOS, Philippine currency, which MORTGAGOR agrees to pay as follows: March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS; April 30, 1957 EIGHT HUNDRED FIFTY (P850.00) PESOS. Upon failure of the respondent to pay the first installment due on March 31, 1957, the petitioner obtained an alias writ of execution. This writ which the sheriff served on the respondent only on May 30, 1957 after the lapse of the entire period stipulated in the chattel mortgage for the respondent to comply with his obligation was returned unsatisfied. So on July 17, 1957 and on various dates thereafter, the lower court, at the instance of the petitioner, issued several alias writs, which writs the sheriff also returned unsatisfied. On September 20, 1961, the petitioner obtained a fifth alias writ of execution. Pursuant to this last writ, the sheriff levied on certain personal properties belonging to the respondent, and then scheduled them for execution sale.
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However, the respondent filed an urgent motion for the suspension of the execution sale on the ground of payment of the judgment obligation. The lower court, ordered the suspension of the execution sole to afford the respondent the opportunity to prove his allegation of payment of the judgment debt. After hearing, the lower court, issued an order reiterating the P1,700 debt and costs of execution. The lower court ruled that no novation had taken place, and that the parties had executed the chattel mortgage only "to secure or get better security for the judgment. The respondent duly appealed the aforesaid order to the Court of Appeals, which set aside the order of holding that the subsequent agreement of the parties impliedly novated the judgment obligation in civil case 27116. ISSUE: W/N there was novation when the respondent pleaded to release the jeep from execution and a new means of payment was agreed upon. HELD: No, the CA erred in its appreciation the circumstances. The appellate court stated that the following circumstances sufficiently demonstrate the incompatibility between the judgment debt and the obligation embodied in the deed of chattel mortgage, warranting a conclusion of implied novation: 1. Whereas the judgment orders the respondent to pay the petitioner the sum of P1,746.98 with interest at 12% per annum from the filing of the complaint, plus the amount of P400 and the costs of suit, the deed of chattel mortgage limits the principal obligation of the respondent to P1,700; 2. Whereas the judgment mentions no specific mode of payment of the amount due to the petitioner, the deed of chattel mortgage stipulates payment of the sum of P1,700 in two equal installments; 3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage obligates the respondent to pay liquidated damages in the amount of P300 in case of default on his part; and

the petitioner that the reduced indebtedness was the result of the partial payments made by the respondent before the execution of the chattel mortgage agreement and (b) the latter's admissions bearing thereon. At best, the deed of chattel mortgage simply specified exactly how much the respondent still owed the petitioner by virtue of the judgment in civil case 27116. The parties apparently in their desire to avoid any future confusion as to the amounts already paid and as to the sum still due, decoded to state with specificity in the deed of chattel mortgage only the balance of the judgment debt properly collectible from the respondent. All told, therefore, the first circumstance fails to satisfy the test of substantial and complete incompatibility between the judgment debt and the pecuniary liability of the respondent under the chattel mortgage agreement. With regards to the 3rd circumstance the SC stated that the discrepancy between the amount of P400 and tile sum of P300 fixed as attorney's fees in the judgment and the deed of chattel mortgage, respectively, is explained by the petitioner, thus: the partial payments made by the respondent before the execution of the chattel mortgage agreement were applied in satisfaction of part of the judgment debt and of part of the attorney's fee fixed in the judgment, thereby reducing both amounts. Lastly with regards to the 2nd and 4th the courts stated that there was no substantial incompatibility between the mortgage obligation and the judgment liability of the respondent sufficient to justify a conclusion of implied novation. The stipulation for the payment of the obligation under the terms of the deed of chattel mortgage serves only to provide an express and specific method for its extinguishment payment in two equal installments. The chattel mortgage simply gave the respondent a method and more time to enable him to fully satisfy the judgment indebtedness. The chattel mortgage agreement in no manner introduced any substantial modification or alteration of the judgment. Instead of extinguishing the obligation of the respondent arising from the judgment, the deed of chattel mortgage expressly ratified and confirmed the existence of the same, amplifying only the mode and period for compliance by the respondent. The Court of Appeals also considered the terms of the deed of chattel mortgage incompatible with the judgment because the chattel mortgage secured the obligation under the deed, whereas the obligation under the judgment was unsecured. The petitioner argues that the deed of chattel agreement clearly shows that the parties agreed upon the chattel mortgage solely to secure, not the payment of the reduced amount as fixed in the
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4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be foreclosed extrajudicially in case of default, secured the obligation. The SC shot it down stating with regards to 1. tha t in the case at bar, the mere reduction of the amount due in no sense constitutes a sufficient indictum of incompatibility, especially in the light of (a) the explanation by

aforesaid deed, but the payment of the judgment obligation and other incidental expenses in civil case 27116. The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the chattel mortgage purposely to secure the satisfaction of the then existing liability of the respondent arising from the judgment against him in civil case 27116. As a security for the payment of the judgment obligation, the chattel mortgage agreement effectuated no substantial alteration in the liability of the respondent. 2 SANDICO V. PIGUING Nature: Certiorari seeking to set aside the order of the respondent judge setting the aside the writ of executions. Ponente: CASTRO, J. Date: November 29, 1971 DOCTRINE: For novation to exist there must be a substitution or modification of an obligation by another or an extinguishment of one obligation in the creation of another. FACTS: Petitioners (the spouses Carlos Sandico and Enrica Timbol, and Teopisto P. Timbol, administrator of the estate of the late Sixta Paras) obtained a judgment in their favor against Desiderio Paras (hereinafter referred to as the respondent) in an action for easement and damages in the CFI of Pampanga. On appeal, the Court of Appeals affirmed and modified the judgment, condemning the respondent to recognize the easement which is held binding as to him; sentencing him to pay plaintiffs the sums of P5,000.00 actual, and P500.00 exemplary damages, and P500.00 attorney's fees; plus costs in both instances.

Petitioners then moved for the issuance of a writ of execution to enforce the appellate court's judgment which had acquired finality. Acting upon the motion, the court a quo issued a writ of execution. Meanwhile the petitioners and the respondent reached a settlement, finally agreeing to the reduction of the money judgment from P6,000 to P4,000. Thus, the respondent, paid the petitioners the sum of P3,000 and P1,000 in two separate payments as evidenced by a receipt issued by the petitioners' counsel. P1,000.00, RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND PESOS (P1,000.00), Philippine Currency, in full satisfaction of the money judgment rendered against him in Civil Case No. 1554 of the Court of First Instance of Pampanga, it being understood that the portion of the final judgment rendered in the said case ordering him to reconstruct the irrigation canal in question shall be complied with by him immediately. Subsequently, the petitioners sent the respondent a letter demanding compliance by the latter with the portion of the judgment in civil case 1554 relative to the reconstruction and reopening of the irrigation canal. Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal, the petitioners, filed with the respondent judge, a motion to declare the said private respondent in contempt of court. Opposing the motion, the respondent alleged recognition by him of the existence of the easement and compliance with the appellate court's judgment, stating that he had dug a canal in its former place, measuring about one and-a-half feet deep, for the petitioners' use. The respondent judge issued an order denying the petitioners' motion to declare the respondents in contempt of court, ruling that it appears from the dispositive part of the decision that the defendant was only ordered to recognize the easement which is held binding as to him and to pay the plaintiffs the sums P5,000.00 of actual, and P500.00 exemplary damages. Apparently, it is clear from the dispositive part of the decision that there is nothing to show that the defendant was ordered to reconstruct the canal. The petitioners moved for issuance of an alias writ of execution to enforce the judgement of the Court of Appeals. This motion the respondent judge granted. Tespondent moved to set aside the said alias writ, alleging full satisfaction of the judgment per agreement of the parties when the petitioner received the sum of P4, as evidenced by the receipt. The respondent judge then issued an order directing the provincial sheriff to suspend the execution of the alias writ until further orders. The respondent judge issued an order calling, and directing the quashal of the alias writ of execution. The respondent judge stated in her order that the agreement of the
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BARREDO, J concurs stating that it was unmistakably the intent of the parties that the said mortgage be merely a "security for the payment to the said Eusebio Millar, mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of the Court of First Instance of Manila against Antonio P. Gabriel, mortgagor," to be paid in the amount and manner therein stated. If this can in any sense in which the parties must be held to have newly bound themselves. In other words, by their explicit covenant, the parties contemplated the chattel mortgage to be a security for the payment of the judgment and not the payment itself thereof. Such being the case, and it appearing that respondent Gabriel has not paid the judgment remains unimpaired in its full existence and vigor, and the resort to the execution thereof thru the ordinary procedure of a writ of execution by the petitioner is an election to which every mortgage creditor is entitled when he decides to abandon his security.

parties "novated" the money judgment provided for in the decision of the Court of Appeals, ruling that the said decision. ISSUES: (1) W/N the respondent judge correctly constructed the judgment of the Court of Appeals as not requiring the respondent to reconstruct and reopen the irrigation canal (2) W/N the payment of the P4,000 novated the obligation of the respondent HELD: (1) Yes, although the dispositive portion of the appellate court's judgment omitted any directive to the respondent to reconstruct and reopen the irrigation canal, the Court of Appeals' order requiring recognition of the easement on the part of the said respondent suffices to make him aware of his obligation under the judgment. The reconstruction and reopening of the irrigation canal may be done by same other person designated by the court, at the cost of the respondent. In fact, the respondent in his attempt to rebuild the irrigation canal, contracted the services of one Gerardo Salenga. Accordingly, in conformity with the appellate court's judgment as further mutually interpreted by the parties themselves, the court a quo, because of the failure and refusal of the respondent to restore the irrigation canal to its former condition and to reopen it, should have appointed some other person to do the reconstruction, charging the expenses therefor to the said respondent. Consequently, the respondent judge, when she granted the motion of the respondent to set aside the alias writ of execution and issued the order recalling and quashing the said alias writ, acted correctly. Courts have jurisdiction to entertain motions to quash previously issued writs of execution because courts have the inherent power, for the advancement of justice, to correct the errors of their ministerial officers and to control their own processes. (2) No, there is no new or modified obligation that arose out of the payment by the respondent of the reduced amount of P4,000 and substitute the monetary liability for P6,000. Additionally, to sustain novation necessitates that the same be so declared in unequivocal terms clearly and unmistakably shown by the express agreement of the parties or by acts of equivalent import or that there is complete and substantial incompatibility between the two obligations. Novation results in two stipulations one to extinguish an existing obligation, the other to substitute a new one in its place. Fundamental it is that novation effects a substitution or modification of an obligation by another or an extinguishment of one obligation in the creation of another.

The receipt neither expressly nor impliedly declares that the reduction of the money judgment was conditioned on the respondent's reconstruction and reopening of the irrigation canal. The receipt merely embodies the recognition by the respondent of his obligation to reconstruct the irrigation canal. And the receipt simply requires the respondent to comply with such obligation "immediately." The obligation of the respondent remains as a portion of the Court of Appeals' judgment. In fact, the petitioners themselves, in their letter dated November 5, 1964, sent to the respondent, demanding that the latter reconstruct the irrigation canal immediately, referred to the same not as a condition but as "the portion of the judgment" in civil case 1594. NATIONAL POWER CORPORATION V DAYRIT Nature: Petition to set aside the Order, of the respondent judge on the allegation that the questioned Order was issued with grave abuse of discretion. Ponente: ABAD SANTOS, J. Date: November 25, 1983 DOCTRINE: Novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. FACTS: DANIEL E. ROXAS, doing business under the name and style of United Veterans Security Agency and Foreign Boats Watchmen, sued the NATIONAL POWER CORPORATION (NPC) and two of its officers in Iligan City. The purpose of the suit was to compel the NPC to restore the contract of Roxas for security services which the former had terminated. After several incidents, the litigants entered into a Compromise Agreement asked the Court to approve it. Accordingly, a decision was rendered allowing the parties to enter into a compromise agreement instead of going through trial. The agreement stated that: 1. The defendant National Power Corporation shall pay to plaintiff the sum of P7,277.45, representing the amount due to plaintiff for the services of one of plaintiff's supervisors; 2. The defendant shall pay plaintiff the value of the line materials which were stolen but recovered, by plaintiff's agency which value is to be determined after a joint inventory by the representatives of both parties; 3. The parties shall continue with the contract of security services under the same terms and conditions as the previous contract effective upon the signing thereof;
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4. The parties waive all their respective claims and counterclaims in favor of each other; 5. The parties agree to faithfully comply with the foregoing agreement.

DOCTRINE: When a novation is subject to a suspensive condition, failure to comply with the said condition reverts the parties to their original rights. FACTS: Petitioners sued the respondent Metropolitan Waterworks and Sewerage System (MWSS), formerly the National Waterworks and Sewerage Authority (NAWASA), in the Court of First Instance of Manila for breach of contract. Meanwhile, the parties submitted the case to arbitration. The Arbitration Board, after extensive hearings, rendered its decision-award Respondent Judge confirmed the Award and the same has long since become final and executory. The decision-award ordered MWSS to pay petitioners P15,518,383.61-less P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint venture in connection with the projector a net award of P13,188,950.20 with interest thereon from the filing of the complaint until fully paid. Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of an early payment of the award. Thus, on September 21, 1972, MWSS adopted Board Resolution No. 132-72, embodying the terms and conditions of their agreement. MWSS sent a letter-agreement to petitioners, quoting Board Resolution No. 13272, granting MWSS some discounts from the amount payable under the decision award (consisting of certain reductions in interests, in the net principal award and in the trust fund), provided that MWSS would pay the judgment, less the said discounts, within fifteen days therefrom. Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-agreement, and extended the period to pay the judgment less the discounts aforesaid to October 31, 1972. MWSS, however, paid only on December 22, 1972, the amount stated in the decision but less the reductions provided for in the October 2, 1972 letter-agreement. Three years thereafter, or on June, 1975, after the last balance of the trust fund had been released and used to satisfy creditors' claims, the petitioners filed a motion for execution in said civil case against MWSS for the balance due under the decision-award. Respondent MWSS opposed execution setting forth the defenses of payment and estoppel. Respondent judge denied the motion for execution on the ground that the parties had novated the award by their subsequent letter-agreement. Petitioners moved for reconsideration but respondent judge denied the same. Hence, this Petition for Mandamus, alleging that respondent judge unlawfully refused to comply with his mandatory duty-to order the execution of the unsatisfied portion of the final and executory award.
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The judgment was not implemented. Later on, the NPC executed another contract for security services with Josette L. Roxas whose relationship to Daniel is not shown. At any rate Daniel has owned the contract. The NPC refused to implement the new contract for which reason Daniel filed a Motion for Execution . Acting on the motion the Court, considering that the decision was based on a Compromise Agreement entered into by and between the parties which decidedly, become final and executory, is inclined to grant said action. The NPC assails the Order on the ground that it directs execution of a contract which had been novated. Upon the other hand, Roxas claims that said contract was executed precisely to implement the compromise agreement for which reason there was no novation. ISSUES: W/N the subsequent contract of NPC with Josette L. Roxas constituted a novation. HELD: No, there is no novation in this case. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. Thus the Civil Code provides: Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. In the case at bar there is nothing in the May 14, 1982, agreement which supports the petitioner's contention. There is neither explicit novation nor incompatibility on every point between the "old" and the "new" agreements. INTEGRATED CONSTRUCTION V. RELOVA Nature: Mandamus to compel the respondent judge to grant the writ of execution. Ponente: PARAS, J. Date: December 29, 1986

ISSUES: W/N the subsequent contract of NPC with Josette L. Roxas constituted a novation. HELD: No, while the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a shortening of the period within which to pay is expressly acknowledged. 14th whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo) which states: WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of said conferences were accepted by the Joint Venture provided that the remaining net amount payable to the Joint Venture will be paid by the MWSS within fifteen (15) days after the official release of this resolution and a written CONFORME to be signed by the Joint Venture MWSS' failure to pay within the stipulated period removed the very cause and reason for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to their original rights under the judgment award. The placing of MWSS under the control and management of the Secretary of National Defense thru Letter of Instruction No. 2, dated September 22, 1972 was not an unforeseen supervening factor because when MWSS forwarded the letter-agreement to the petitioners, the MWSS was already aware of LOI No. 2. MWSS' contention that the stipulated period was intended to pressure MWSS officials to process the voucher is untenable. As aforestated, it is apparent from the terms of the agreement that the 15-day period was intended to be a suspensive condition. MWSS, admittedly, was aware of this, as shown by the internal memorandum of a responsible MWSS official, stating that necessary steps should be taken to effect payment within 15 days, for otherwise, MWSS would forego the advantages of the discount. " As to whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to state that petitioners never acknowledged full payment; on the contrary, petitioners refused MWSS' request for a conforme or quitclaim. Accordingly, the award is still subject to execution by mere motion, which may be availed of as a matter of right any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of the Rules of Court.

COCHINGYAN, JR. and JOSE K. VILLANUEVA, v. R & B SURETY AND INSURANCE COMPANY, INC. Nature: Appeal to the SC Ponente: FELICIANO, J. Date: June 30, 1987 DOCTRINE: If objective novation is to take place, 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. Novation is never presumed: it must be established either by the discharge of the 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 discernible. FACTS: Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an increase in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the Philippine National Bank (PNB). To secure PNB's approval, PAGRICO had to give a good and sufficient bond in the amount of P400,000.00, representing the increment in its line of credit, to secure its faithful compliance with the terms and conditions under which its line of credit was increased. In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765, issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R & B Surety bound themselves jointly and severally to comply with the "terms and conditions of the advance line [of credit] established by the [PNB]." PNB had the right under the Surety Bond to proceed directly against R & B Surety "without the necessity of first exhausting the assets" of the principal obligor, PAGRICO. The Surety Bond also provided that R & B Surety's liability was not to be limited to the principal sum of P400,000.00, but would also include "accrued interest" on the said amount "plus all expenses, charges or other legal costs incident to collection of the obligation [of R & B Surety]" under the Surety Bond. In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity agreements were entered into with R & B Surety: (a) one agreement was executed by the Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, the latter signed not only as President of CCM but also in his personal and individual capacity; and (b) another agreement was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager of PAGRICO and in his personal and individual capacity; Mr. Liu signed both as President of PACOCO and in his individual and 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
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"for the faithful compliance of the terms and conditions set forth in said SURETY BOND for a period beginning ... until the same is CANCELLED and/or DISCHARGED." When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety made a series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and receipts. R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben. Petitioner Joseph Cochingyan, Jr. maintained that the Indemnity Agreement he executed in favor of R & B Surety: (i) did not express the true intent of the parties thereto in that he had been asked by R & B Surety to execute the Indemnity Agreement merely in order to make it appear that R & B Surety had complied with the requirements of the PNB that credit lines be secured; (ii) was executed so that R & B Surety could show that it was complying with the regulations of the Insurance Commission concerning bonding companies; (iii) that R & B Surety had assured him that the execution of the agreement was a mere formality and that he was to be considered a stranger to the transaction between the PNB and R & B Surety; and (iv) that R & B Surety was estopped from enforcing the Indemnity Agreement as against him. Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity Agreement in favor of R & B Surety only "for accommodation purposes" and that it did not express their true intention; (ii) that the Principal Obligation of PAGRICO to the PNB secured by the Surety Bond had already been assumed by CCM by virtue of a Trust Agreement entered into with the PNB, where CCM represented by Joseph Cochingyan, Jr. undertook to pay the Principal Obligation of PAGRICO to the PNB; (iii) that his obligation under the Indemnity Agreement was thereby extinguished by novation arising from the change of debtor under the Principal Obligation; and (iv) that the filing of the complaint was premature, considering that R & B Surety filed the case against him as indemnitor although the PNB had not yet proceeded against R & B Surety to enforce the latter's liability under the Surety Bond. Petitioner Cochingyan, however, did not present any evidence at all to support his asserted defenses. Petitioner Villanueva did not submit any evidence either on his "accommodation" defense. The trial court was

therefore constrained to decide the case on the basis alone of the terms of the Trust Agreement and other documents submitted in evidence. Judgment was rendered ordering the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of 400,000,00, representing the total amount of their liability on Surety Bond No. 4765, and interest at the rate of 6% per annum on the premium amounts. judgment was rendered: (a) ordering the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of 400,000,00, representing the total amount of their liability on Surety Bond No. 4765, and interest at the rate of 6% per annum on the premium amounts. (b) ordering said defendants to pay, jointly and severally, unto the plaintiff the sum of P20,412.00 as the unpaid premiums for Surety Bond No. 4765, with legal interest thereon from the filing of plaintiff's complaint on August 1, 1968 until fully paid, and the further sum of P4,000.00 as and for attorney's fees and expenses of litigation which this Court deems just and equitable. Not satisfied with the decision of the trial court, the petitioners took this appeal to the Court of Appeals which, as already noted, certified the case to us as one raising only questions of law. ISSUES: W/N 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 obligations of the petitioners under the Indemnity Agreements HELD: No, the Surety Bond and their respective obligations under the Indemnity Agreements were not extinguished by novation brought about by the subsequent execution of the Trust Agreement. Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. 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 both objective and subjective (mixed) at the same time. In both objective and subjective novation, a dual purpose is achieved-an obligation is extinguished and a new one is created in lieu thereof.

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If objective novation is to take place, 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. Novation is never presumed: it must be established either by the discharge of the 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 discernible. Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical relation between the parties to the original contract is extended to a third person. It is essential that the old debtor be released from the obligation, and the third person or new debtor take his place in the new relation. If the old debtor is not released, no novation occurs and the third person who has assumed the obligation of the debtor becomes merely a co-debtor or surety or a co-surety. Applying the above principles to the instant case, it is at once evident that 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 its obligation under the Surety Bond. Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the new obligation (and nothing else) would sustain a finding of novation by implication. 9 But where, as in this case, the parties to the new obligation expressly recognize the continuing existence and validity of the old one, where, in other words, the parties expressly negated the lapsing of the old obligation, there can be no novation. The issue of implied novation is not reached at all. What the trust agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to assume the same obligation that R & B Surety was bound to perform under the Surety Bond. It is not unusual in business for a stranger to a contract to assume obligations thereunder; a contract of suretyship or guarantee is the classical example. The precise legal effect is the increase of the number of persons liable to the obligee, and not the extinguishment of the liability of the first debtor. Thus, in Magdalena Estates vs. Rodriguez, it was held that:

[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute a novation, and the creditor can still enforce the obligation against the original debtor. In the present case it was noted that the Trustor under the Trust Agreement, the CCM, was already previously bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also became directly liable to the PNB. So far as the PNB was concerned, the effect of the Trust Agreement was that where there had been only two, there would now be three obligors directly and solidarily bound in favor of the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against any of the three, in any order or sequence. Clearly, PNB never intended to release, and never did release, R & B Surety. Thus, R & B Surety, which was not a party to the Trust Agreement, could not have intended to release any of its own indemnitors simply because one of those indemnitors, the Trustor under the Trust Agreement, became also directly liable to the PNB. 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. SPOUSES BALILA v. IAC Nature: Petition for review of certiorari Ponente: PARAS, J. Date: October 29, 1987 DOCTRINE: The decisions of lower courts may be novated, if such is the intention of the parties FACTS: There was an amicable settlement between petitioners and private respondents as defendants and plaintiffs in a Civil Case, which was approved by the trial court and made as the basis of its Decision ordering the parties to comply strictly with the terms and conditions embodied in said amicable settlement. The salient points therein show that defendants admitted "having sold under a pacto de retro sale the parcels of land described in the complaint in the amount of P84,000.00" and that they "hereby promise to pay the said amount within the period of four (4) months but not later than May 15,1981." On December 30, 1981 or more than seven months after the last day for making payments, defendants redeemed from plaintiff Guadalupe (one of the
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private respondents herein) Lot No. 52 with an area of 294 sq.m. covered by TCT 101352 which was one of the three parcels of land described in the complaint by paying the amount of P20,000.00. On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation of title over the remaining two (2) parcels of land namely Lot 965 and Lot 16 alleging that the court's decision dated December 11, 1980 remained unenforced for no payment of the total obligation due from defendants. Defendants opposed said motion alleging that they had made partial payments of their obligation through plaintiff's attorney in fact and son, Waldo del Castillo, as well as to the Sheriff. On April 26, 1983, the lower court issued the questioned order affirming consolidation. On June 8, 1983, while the Order of the lower court had not yet been enforced, defendants paid plaintiff Guadalupe Vda. del Castillo by tendering the amount of P28,800.00 to her son Waldo del Castillo (one of the private respondents herein) thus leaving an unpaid balance of P35,200.00. A Certification dated June 8, 1983, (Annex D, Rollo, page 31) and signed by Waldo shows that defendants were given a period of 45 days from date or up to July 23, 1983 within which to pay the balance. Said Certification supported defendants' motion for reconsideration and supplemental motion for reconsideration of the Order reconsolidation of title, which motions were both denied by the lower court, prompting defendants to file a petition for certiorari, prohibition and mandamus with pre injunction petition with the Intermediate Appellate Court to seeking to annul and set aside the assailed Order dated April 26, 1983 and the Order denying their motion for reconsideration. After due consideration of the records of the case, the appellate tribunal sustained the lower court, hence the present petition for certiorari. ISSUES: W/N the judgment by compromise was novated by the subsequent act of the parties. HELD: Yes, it was novated and amended by the subsequent mutual agreements and actions of petitioners and private respondents. The root of all the issues raised before Us is that judgment by compromise rendered by the lower court based on the terms of the amicable settlement of the contending parties. Such agreement not being contrary to law, good morals or public policy was approved by the lower court and therefore binds the parties who are enjoined to comply therewith.

However, the records show that petitioners made partial payments to private respondent Waldo del Castillo after May 15, 1981 or the last day for making payments, redeeming Lot No. 52 as earlier stated. (Annex "A," Petition). There is no question that petitioners tendered several payments to Waldo del Castillo even after redeeming lot No. 52. A total of these payments reveals that petitioners share. fulIy paid the amount stated in the judgment by com promise. The only issue is whether Waldo del Castillo was a person duly authorized by his mother Guadalupe Vda. de del Castillo, as her attorney-infact to represent her in transactions involving the properties in question. We believe that he was so authorized in the same way that the appellate court took cognizance of such fact as embodied in its assailed decision. It may be mentioned that on May 25,1981, Guadalupe Vda. de Del Castillo, represented by her attorney in fact Waldo Castillo, filed a complaint for consolidation of ownership against the same petitioners herein before the Court of First Instance of Pangasinan, docketed as Civil Case No. U-3650, the allegations of which are Identical to the complaint filed in Civil Case No. U3501 of the same court. This case U-3650 was, however, dismissed in an Order dated May 27, 1983, in view of the order of consolidation issued in Civil Case No. U-350 1. The fact therefore remains that the amount of P84,000.00 payable on or before May 15, 1981 decreed by the trial court in its judgment by compromise was novated and amended by the subsequent mutual agreements and actions of petitioners and private respondents. Petitioners paid the aforestated amount on an insatalment basis and they were given by private respondents no less than eight extensions of time pay their obligation. These transactions took place during the pendency of the motion for reconsideration of the Order of the trial court dated April 26, 1983 in Civil Case No. U-3501, during the pendency of the petition for certiorari in AC-G.R. SP-01307 before the Intermediate Appellate Court and after the filing of the petition before us. This answers the claim of the respondents on the failure of the petitioners to present evidences or proofs of payment in the lower court and the appellate court. As early as Molina vs. De la Riva the principle has been laid down that, when, after judgment has become final, facts and circumstances transpire which render its execution impossible or unjust, the interested party may ask the court to modify or alter the judgment to harmonize the same with justice and the facts.
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For this reason in Amor vs. Judge Jose, it was ruled that: The Court cannot refuse to issue a writ of execution upon a final and executory judgment, or quash it, or order its stay, for, as a general rule, parties will not be allowed, after final judgment, to object to the execution by raising new issues of fact or of law, except when there had been a change in the situation of the parties which makes such execution in- equitable; or when it appears that the controversy has never been submitted to the judgment of the court, or when it appears that the writ of execution has been improvidently issued, or that it is defective in substance, or issued against the wrong party or that judgment debt has been paid or otherwise satisfied or when the writ has been issued without authority. What was done by respondent Judge in setting aside the writ of execution in Civil Case No. 5111 finds support in the applicable authorities. There is this relevant excerpt in Barretto v. Lopez this Court speaking through the then Chief Justice Paras: "Allegating that the respondent judge of the municipal court had acted in excess of her jurisdiction and with grave abuse of discretion in issuing the writ of execution of December 15, 1947, the petitioner has filed the present petition for certiorari and prohibition for the purpose of having said writ of execution annulled. Said petition is meritorious. The agreement filed by the parties in the ejectment case created as between them new rights and obligations which naturally superseded the judgment of the municipal court." In Santos v. Acuna, it was contended that a lower court decision was novated by the subsequent agreement of the parties. Implicit in this Court's ruling is that such a plea would merit approval if indeed that was what the parties intended. BALILA v. IAC Nature: Petition for certiorari to review the decision of the IAC regarding the consolidation of ownership over parcels of land in the name of private respondents Ponente: Paras, J. Date: October 29, 1987 DOCTRINE: Subsequent mutual agreements and actions of the plaintiffs and the defendants will result in the novation of and amended to the order of the court in its judgment of compromise. FACTS: Relevant Provision of Law: No provision of law cited

Petitioners sold parcels of land to respondents under a pacto de retro sale. Petitioners failed to repurchase within the agreed period. A civil case was filed by respondents against petitioners. However, an amicable settlement was reached between the parties and was approved by the trial court and was made as the basis of the courts decision. In the amicable settlement, the period of payment was extended to May 15, 1981. Unfortunately, petitioners failed to pay within the extended period. It was only on December 30, 1981, that petitioners offered to redeem the property. On August 4, 1982, respondents filed a case for the consolidation of ownership over the parcels of land. The court ordered the consolidation, which was eventually appealed to the IAC. The IAC affirmed the trial court. Petitioners then elevated the case to the SC. While the case was pending before the IAC and the SC, however, petitioners made partial payments to respondent Vda. de Del Castillos son and attorney in fact, Waldo del Castillo, which the latter received and accepted. Petitioners contend that these partial payments were subsequent mutual agreements of the parties which novated the agreement in the amicable settlement from which the trial courts decision was based, so that the period of payment was further extended beyond the period in the trial court decision. ISSUE: WON subsequent mutual agreements between the parties novated the prior agreement which was made the basis of the trial court decision, so that the period of payment was further extended. RULING: YES. The payment period in the trial courts judgment by compromise was novated and amended by the subsequent mutual agreements and actions of the parties. The fact therefore remains that the amount of P84,000.00 payable on or before May 15, 1981 decreed by the trial court in its judgment by compromise was novated and amended by the subsequent mutual agreements and actions of petitioners and private respondents. De Los Santos v Rodriguez: When, after judgment has become final, facts and circumstances transpire which render its execution impossible or unjust, the interested party may ask the court to modify or alter the judgment to harmonize the same with justice and the facts. Dormitorio v Fernandez:
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The agreement filed by the parties in the ejectment case created as between them new rights and obligations which naturally superseded the judgment of the municipal court. In Santos v. Acuna, it was contended that a lower court decision was novated by the subsequent agreement of the parties. Implicit in this Court's ruling is that such a plea would merit approval if indeed that was what the parties intended. PEOPLES BANK v. SYVELS Nature: Appeal from the decision of the CFI; originally, action for foreclosure of chattel mortgage Ponente: Paras, J. Date: August 11, 1968 DOCTRINE: It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. FACTS: Relevant Provisions of Law: No provision of law cited The plaintiff-appellee bank granted the defendant-appellant corporation a credit commercial line, secured by a chattel mortgage on the corporations stocks of goods, personal properties and other materials. The appellant drew advances on the credit line. However, the appellant failed to make payments in accordance with the terms and conditions agreed upon in the credit line. The appellee started to foreclose extrajudicially the chattel mortgage, and a case was eventually filed in court. The appellant proposed to have the case settled amicably and requested to dismiss the case to avoid the impairment of the corporations goodwill. Appellant offered to execute a real estate mortgage on real property, and this was executed in favor of appellee. In the contract of real estate mortgage, it was stipulated that the chattel mortgage shall remain in full force and shall not be impaired by the real estate mortgage. A motion to dismiss was prepared by the appellee, following the agreement to dismiss the case, but appellant did not want to agree with such dismissal since it would mean that the counterclaim of appellant against the appellee would also be dismissed. Trial proceeded. The trial court ruled in favor of appellee, and ordered the payment of the debt by the appellant to the appellee. If appellant failed to pay, then the chattel mortgaged would be foreclosed. ISSUE:

WON there was a novation of the contract so that the chattel mortgage has been replaced by the real estate mortgage RULING: NO. The real estate mortgage is merely a new additional security to the chattel mortgage previously entered into by the parties. Novation takes place when the object or principal condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect. In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants submission. The contract on its face does not show the existence of an explicit novation nor incompatibility on every point between the old and the new agreements as the second contract evidently indicates that the same was executed as new additional security to the chattel mortgage previously entered into by the parties. Moreover, records show that in the real estate mortgage, appellants agreed that the chattel mortgage shall remain in full force and shall not be impaired by this (real estate) mortgage. It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as additional security for the performance of the contract. RODRIGUEZ v. REYES Nature: Original action in the Supreme Court. Certiorari with preliminary injunction. Sale of properties at public auction, where properties mortgaged. Ponente: Reyes, J.B.L., J. Date: January 30, 1971 DOCTRINE: The mere fact that the purchaser of an immovable has notice that the required realty is encumbered with a mortgage does not render him liable for the payment of the debt guaranteed by the mortgage, in the absence of stipulation or condition that he is to assume payment of the mortgage debt. Here, the purchaser does not obligate himself to replace the debtor in the principal obligation, and he could not do so in law without the creditors consent, as explicitly provided in Art. 1293 FACTS: Relevant Provisions of Law: Article 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
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the new debtor gives him the rights mentioned in articles 1236 and 1237. (1205a) Petitioners filed a complaint against respondent, their brother, for the partition of properties held in common. During the pre-trial conference, the co-owners (siblings) agreed to have the property in litigation sold at public auction to the highest bidder. At that time, the property was mortgaged to the DBP. An auction sale was held, where respondent Dualan was the highest bidder. When the petitioners moved for the approval of the sale, respondents (brother and highest bidder) commented that court should order that the property sold is free from all liens and encumbrances, including the mortgage to DBP. Petitioners contend that the doctrine of caveat emptor should apply, so that since the highest bidder bought the property at his own peril, with knowledge of the encumbrance, he should assume payment of the indebtedness secured thereby. ISSUE: WON, by virtue of the auction sale, the highest bidder assumed the mortgage indebtedness, so that there is a novation substituting the highest bidder in place of the original debtor. RULING: NO. A buyer cannot be obligate himself to replace the debtor in the principal obligation without the creditors consent.

We find the stand of petitioners-appellants to be unmeritorious and untenable. The maxim caveat emptor applies only to execution sales, and this was not one such. The mere fact that the purchaser of an immovable has notice that the required realty is encumbered with a mortgage does not render him liable for the payment of the debt guaranteed by the mortgage, in the absence of stipulation or condition that he is to assume payment of the mortgage debt. By buying the property with notice that it was mortgaged, respondent Dualan only undertook either to pay or else allow the lands being sold if the mortgage creditor could not or did no obtain payment from the principal debtor when the debt matured. Nothing else. Certainly the buyer did not obligate himself to replace the debtor in the principal obligation, and he could not do so in law without the creditors consent, under Art. 1293. The obligation to discharge the mortgage indebtedness, therefore, remained on the shoulders of the original debtors and their heirs, petitioners herein, since the record is devoid of any evidence of contrary intent.
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