OBLIGATIONS AND CONTRACTS

SAN MIGUEL CORPORATION vs. TROY FRANCIS L. MONASTERIO

G.R. No. 151037. June 23, 2005
Facts: SMC entered into an Exclusive Warehouse Agreement with SMB
Warehousing Services, represented by its manager, Troy Francis L. Monasterio.
SMB undertook to provide land, physical structures, equipment and personnel
for storage, warehousing and related services such as, but not limited to,
segregation of empty bottles, stock handling, and receiving SMC products for its
route operations. From September 1993 to September 1997 and May 1995 to
November 1997, aside from rendering service as warehouseman, Monasterio was
given the additional task of cashiering in SMCs Sorsogon and Camarines Norte
sales offices for which he was promised a separate fee. But it was only on
December 1, 1997, that petitioner SMC started paying respondent P11,400 per
month for his cashiering services. Monasterio demanded P82,959.32 for
warehousing fees, P11,400 for cashiering fees for the month of September, 1998,
as well as exemplary damages, and attorneys fees in the amount of P500,000
and P300,000, respectively. SMC filed a Motion to Dismiss on the ground of
improper venue The RTC denied the motion.
Issue: Did the RTC of Naga City err in denying the motion to dismiss filed by
SMC alleging improper venue?
Held: Exclusive venue stipulation embodied in a contract restricts or confines
parties thereto when the suit relates to breach of the said contract. But where the
exclusivity clause does not make it necessarily all encompassing, such that even
those not related to the enforcement of the contract should be subject to the
exclusive venue, the stipulation designating exclusive venues should be strictly
confined to the specific undertaking or agreement. Otherwise, the basic principles
of freedom to contract might work to the great disadvantage of a weak partysuitor who ought to be allowed free access to courts of justice.
GF EQUITY, INC. vs. ARTURO VALENZONA
G.R. No. 156841. June 30, 2005
Facts: GF Equity hired Valenzona as Head Coach of the Alaska basketball team in
the Philippine Basketball Association under a Contract of Employment where GF
Equity would pay Valenzona the sum of P35,000.00 monthly. While the
employment period agreed upon was for two years commencing, the last sentence
of paragraph 3 of the contract carried the following condition: 3. x x x If at any
time during the contract, the COACH, in the sole opinion of the CORPORATION,
fails to exhibit sufficient skill or competitive ability to coach the team, the
CORPORATION may terminate this contract. The caveat notwithstanding,
Valenzona still acceded to the terms of the contract. Thereafter, Valenzona was
terminated as coach of the Alaska team. Valenzona demanded from GF Equity
payment of compensation arising from the arbitrary and unilateral termination of
his employment. GF Equity, however, refused the claim. Valenzona thus filed
before the RTC Manila a complaint against GF Equity for breach of contract with
damages. The trial court, upholding the validity of the assailed provision of the
contract, dismissed the complaint.

Issue: Whether the questioned last sentence of paragraph 3 is violative of the

principle of mutuality of contracts.
Held: Mutuality is one of the characteristics of a contract, its validity or
performance or compliance of which cannot be left to the will of only one of the
parties. The ultimate purpose of the mutuality principle is thus to nullify a
contract containing a condition which makes its fulfillment or pre-termination
dependent exclusively upon the uncontrolled will of one of the contracting
parties. In the case at bar, the contract incorporates in paragraph 3 the right of
GF Equity to pre-terminate the contract. The assailed condition clearly
transgresses the principle of mutuality of contracts. GF Equity was given an
unbridled prerogative to pre-terminate the contract irrespective of the
soundness, fairness or reasonableness, or even lack of basis of its opinion. The
assailed stipulation being violative of the mutuality principle underlying Article
1308 of the Civil Code, it is null and void.
NORKIS FREE & INDEPENDENT WORKERS UNION vs. NORKIS TRADING
COMPANY, INC.
G.R. No. 157098 June 30, 2005
Facts: On January 27, 1998, a Memorandum of Agreement was forged between
the parties wherein petitioner shall grant a salary increase to all regular and
permanent employees Ten pesos per day increase effective August 1, 1997; Ten
pesos per day increase effective August 1, 1998. On March 10, 1998, the RTWPB
of Region VII issued Wage Order ROVII-06 which established the minimum
wage of P165.00, by mandating a wage increase of five (P5.00) pesos per day
beginning April 1, 1998, thereby raising the daily minimum wage to P160.00 and
another increase of five (P5.00) pesos per day beginning October 1, 1998, thereby
raising the daily minimum wage to P165.00 per day. In accordance with the Wage
Order and Section 2, Article XII of the CBA, petitioner demanded an across-theboard increase. Respondent, however, refused to implement the Wage Order,
insisting that since it has been paying its workers the new minimum wage of
P165.00 even before the issuance of the Wage Order, it cannot be made to comply
with said Wage Order.
Issue: Whether respondent violated the CBA in its refusal to grant its employees
an across-the-board increase as a result of the passage of Wage Order No. ROVII06.
Held: The employees are not entitled to the claimed salary increase, simply
because they are not within the coverage of the Wage Order, as they were already
receiving salaries greater than the minimum wage fixed by the Order.
Concededly, there is an increase necessarily resulting from raising the minimum
wage level, but not across-the-board. Indeed, a double burden cannot be
imposed upon an employer except by clear provision of law. It would be unjust,
therefore, to interpret Wage Order No. ROVII-06 to mean that respondent
should grant an across-the-board increase. Such interpretation of the Order is
not sustained by its text.
CONCEPCION R. AINZA, substituted by her legal heirs, DR. NATIVIDAD A.
TULIAO, CORAZON A. JALECO and LILIA A. OLAYON vs. SPOUSES ANTONIO
PADUA and EUGENIA PADUA

G.R. No. 165420. June 30, 2005

Facts: Spouses Eugenia and Antonio Padua owned a 216.40 sq. m. lot with an
unfinished residential house Thereafter, Concepcion Ainza bought one-half of an
undivided portion of the property from her daughter, Eugenia and the latters
husband, Antonio, for P100,000.00. No Deed of Absolute Sale was executed to
evidence the transaction, but cash payment was received by the respondents, and
ownership was transferred to Concepcion through physical delivery to Natividad
Tuliao. However, respondents caused the subdivision of the property into three
portions and registered it in their names in violation of the restrictions annotated
at the back of the title. Antonio claimed that his wife, Eugenia, admitted that
Concepcion offered to buy 1/3 of the property who gave her small amounts over
several years which totaled P100,000.00 by 1987 and for which she signed a
receipt.
Issue: Whether there was a valid contract of sale between Eugenia and
Concepcion.
Held: There was a perfected contract of sale between Eugenia and Concepcion.
The records show that Eugenia offered to sell a portion of the property to
Concepcion, who accepted the offer and agreed to pay P100,000.00 as
consideration. The contract of sale was consummated when both parties fully
complied with their respective obligations. Eugenia delivered the property to
Concepcion, who in turn, paid Eugenia the price of P100,000.00, as evidenced by
the receipt. The verbal contract of sale between Eugenia and Concepcion did not
violate the provisions of the Statute of Frauds. When a verbal contract has been
completed, executed or partially consummated, as in this case, its enforceability
will not be barred by the Statute of Frauds, which applies only to an executory
agreement. However, the sale of the conjugal property by Eugenia without the
consent of her husband is voidable. It is undisputed that the subject property was
conjugal and sold by Eugenia in April 1987 or prior to the effectivity of the Family
Code on August 3, 1988. Thus, the contract of sale between Eugenia and
Concepcion being an oral contract, the action to annul the same must be
commenced within six years from the time the right of action accrued. It is
binding unless annulled. Antonio failed to exercise his right to ask for the
annulment within the prescribed period, hence, he is now barred from
questioning the validity of the sale between his wife and Concepcion.
OLIVERIO LAPERAL& FILIPINAS GOLF & COUNTRY CLUB INC. vs. SOLID
HOMES, INC.
G.R. No. 130913. June 21, 2005
Facts: Filipinas Golf Sales and Development Corporation, predecessor-in-interest
of Filipinas Golf and Country Club, Inc., represented by its then President,
Oliverio Laperal, entered into a Development and Management Agreement with
respondent Solid Homes, Inc., a registered subdivision developer, involving
several parcels of land owned by Laperal and FGSDC. Under the terms and
conditions of the aforementioned Agreement and the Supplement, respondent
undertook to convert at its own expense the land subject of the agreement into a
first-class residential subdivision, in consideration of which respondent will get
45% of the lot titles of the saleable area in the entire project. The aforementioned
Agreement was cancelled by the parties, and, in lieu thereof, two contracts
identically denominated Revised Development and Management Agreement were

entered into by respondent with the two successors-in-interest of FGSDC. Unlike

the original agreement, both Revised Agreements omitted the obligation of
petitioners Laperal and FGCCI to make available to respondent Solid Homes, Inc.
the owners duplicate copies of the titles covering the subject parcels of land. It
appears, however, that even as the Revised Agreements already provided for the
non-surrender of the owners duplicate copies of the titles, respondent persisted
in its request for the delivery thereof .Then, petitioners served on respondent
notices of rescission of the Revised Agreements with a demand to vacate the
subject properties and yield possession thereof to them.
Issue: Whether the termination of the Revised Agreement and Addendum,
because of the contractual breach committed by respondent solid homes, carried
with it the effect provided under Article 1385 of the New Civil Code.
Held: Mutual restitution is required in cases involving rescission under Article
1191. Since Article 1385 of the Civil Code expressly and clearly states that
rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest, the Court finds
no justification to sustain petitioners position that said Article 1385 does not
apply to rescission under Article 1191.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. Applying the clear language of the
law and the consistent jurisprudence on the matter, therefore, the Court rules
that rescission under Article 1191 in the present case, carries with it the
corresponding obligation of restitution.
MONDRAGON LEISURE AND RESORTS CORPORATION vs. COURT OF
APPEALS, ASIAN BANK CORPORATION, FAR EAST BANK AND TRUST
COMPANY, and UNITED COCONUT PLANTERS BANK
G.R. No. 154188 June 15, 2005
Facts: Mondragon International Philippines, Inc., Mondragon Securities
Corporation and herein petitioner entered into a lease agreement with the Clark
Development Corporation for the development of what is now known as the
Mimosa Leisure Estate.To help finance the project, petitioner, entered into an
Omnibus Loan and Security Agreement with respondent banks for a syndicated
term loan in the aggregate principal amount of US$20M. Under the agreement,
the proceeds of the loan were to be released through advances evidenced by
promissory notes to be executed by petitioner in favor of each lender-bank, and
to be paid within a six-year period from the date of initial advance inclusive of a
one year and two quarters grace period. Petitioner, which had regularly paid the
monthly interests due on the promissory notes until October 1998, thereafter
failed to make payments. Consequently, written notices of default, acceleration of
payment and demand letters were sent by the lenders to the petitioner. Then,
respondents filed a complaint for the foreclosure of leasehold rights against
petitioner. Petitioner moved for the dismissal of the complaint but was denied.
Issue: Whether or not respondents have a cause of action against the petitioner?
Held: Under the foregoing provisions of the Agreement, petitioner may be validly
declared in default for failure to pay the interest. As a consequence of default, the

unpaid amount shall earn default interest, and the respondent-banks have four
alternative remedies without prejudice to the application of the provisions on
collaterals and any other steps or action which may be adopted by the majority
lender. The four remedies are alternative, with the right of choice given to the
lenders, in this case the respondents. Under Article 1201 of the Civil Code, the
choice shall produce no effect except from the time it has been communicated. In
the present case, we find that written notices were sent to the petitioner by the
respondents. The notices clearly indicate respondents choice of remedy: to
accelerate all payments payable under the loan agreement It should be noted that
the agreement also provides that the choice of remedy is without prejudice to the
action on the collaterals. Thus, respondents could properly file an action for
foreclosure of the leasehold rights to obtain payment for the amount demanded.
SPS. FELIPE AND LETICIA CANNU vs. SPS. GIL AND FERNANDINA GALANG
AND NATIONAL HOME MORTGAGE FINANCE CORPORATION,
G.R. No. 139523. May 26, 2005
Facts: Gil and Fernandina Galang obtained a loan from Fortune Savings & Loan
Association for P173, 800.00 to purchase a house and lot located at Pulang Lupa,
Las Pias, To secure payment, a real estate mortgage was constituted on the said
house and lot in favor of Fortune Savings & Loan Association. In early 1990,
NHMFC purchased the mortgage loan of respondents-spouses from Fortune
Savings & Loan Association for P173, 800.00. Petitioner Leticia Cannu agreed to
buy the property for P120, 000.00 and to assume the balance of the mortgage
obligations with the NHMFC and with CERF Realty. Of the P120, 000. 00,
several payments were made leaving a balance of P45, 000.00. A Deed of Sale
with Assumption of Mortgage Obligation was made and entered into by and
between spouses Fernandina and Gil Galang and spouses Leticia and Felipe
Cannu over the house and lot. Petitioners immediately took possession and
occupied the house and lot. Despite requests from Adelina R. Timbang and
Fernandina Galang to pay the balance of P45,000.00 or in the alternative to
vacate the property in question, petitioners refused to do so. Issues: 1) Whether
or not the breach of the obligation is substantial.
2) Whether or not there was substantial compliance with the obligation to pay the
monthly amortization with NHMFC.
3) Whether or not respondents-spouses Galang demanded from petitioners a
strict and/or faithful compliance of the Deed of Sale with Assumption of
Mortgage. 4. Whether or not the action for rescission is subsidiary.
Held: 1) Rescission may be had only for such breaches that are substantial and
fundamental as to defeat the object of the parties in making the agreement. The
question of whether a breach of contract is substantial depends upon the
attending circumstances and not merely on the percentage of the amount not
paid. In the case at bar, we find petitioners failure to pay the remaining balance
of P45,000.00 to be substantial. Taken together with the fact that the last
payment made was on 28 November 1991, eighteen months before the
respondent Fernandina Galang paid the outstanding balance of the mortgage
loan with NHMFC, the intention of petitioners to renege on their obligation is
utterly clear.

2) The petitioners were not religious in paying the amortization with the
NHMFC. As admitted by them, in the span of three years from 1990 to 1993, their
payments covered only thirty months. This, indeed, constitutes another breach or
violation of the Deed of Sale with Assumption of Mortgage. On top of this, there
was no formal assumption of the mortgage obligation with NHMFC because of
the lack of approval by the NHMFC on account of petitioners non-submission of
requirements in order to be considered as assignees/successors-in-interest over
the property covered by the mortgage obligation.
3) There is sufficient evidence showing that demands were made from petitioners
to comply with their obligation. Adelina R. Timbang, attorney-in-fact of
respondents-spouses, per instruction of respondent Fernandina Galang, made
constant follow-ups after the last payment made on 28 November 1991, but
petitioners did not pay. Sometime in March 1993, due to the fact that full
payment has not been paid and that the monthly amortizations with the NHMFC
have not been fully updated, she made her intentions clear with petitioner Leticia
Cannu that she will rescind or annul the Deed of Sale with Assumption of
Mortgage. 4. The subsidiary character of the action for rescission applies to
contracts enumerated in Articles 1381 of the Civil Code. The contract involved in
the case before us is not one of those mentioned therein. The provision that
applies in the case at bar is Article 1191.As a consequence of the rescission or,
more accurately, resolution of the Deed of Sale with Assumption of Mortgage, it is
the duty of the court to require the parties to surrender whatever they may have
received from the other. The parties should be restored to their original situation.
ROMAGO ELECTRIC CO., INC. vs. HONORABLE COURT OF APPEALS,
SOLEDAD C. CAC, JOEPHIL BIEN, RENATO CUNANAN and DELFIN
INCIONG
G.R. No. 130721. May 26, 2005
Facts: The National Power Corporation entered into an agreement with
ROMAGO ELECTRIC CO., INC. for the erection and installation of NPCs 69 KV
3-Phase Transmission Lines for P2,657,856.40. Subsequently, ROMAGO
subcontracted the project to BICC Construction, an unregistered loose
partnership composed of Soledad Cac, Delfin Inciong, Joephil Bien and Renato
Cunanan, for P1,614,387.99. When the project was completed, there was an
outstanding balance due to BICC Construction from ROMAGO, part of which was
the formers share in the CPA amounting to 70% of the NPC-ROMAGO contract
or P175,545.05. Mrs. Soledad Cac, wrote NPC to hold its payment to ROMAGO of
the aforementioned CPA amounting to P250,778.65. Payment was nonetheless
released to ROMAGO by virtue of a sworn affidavit executed that there does not
exist any lien or encumbrances against the said NPC-ROMAGO contract. It
appears that Mariano Cac, authorized representative and husband of Soledad
Cac, was paid the amount of P38,712.70 in full payment of accounts including
retention of various works at NPC-Isabela under defendants Cash Disbursement
Voucher No. 23162 dated 03 October 1983.When BICCs demands for payment
were ignored by ROMAGO, the partners, thru Mrs. Soledad Cac as lone plaintiff,
filed a complaint for collection of sum of money with damages.
Issues: 1) Whether or not the private respondents are entitled to the CPA
accorded to the petitioner by NPC.
2) Whether or not the particulars of petitioners cash disbursement voucher no.

23162 signed by private respondents authorized representative / agent

acknowledging receipt of said amount did not extinguish, relieve, release any and
all claims including contract price adjustment which private respondents may
have against petitioner on the subcontract.
Held: 1. Contrary to the petitioners asseverations that the CPA was not intended
to be made applicable to the Romago-BICC subcontract, it must be remembered
that the petitioner and the private respondents expressly agreed what documents
were going to be incorporated in the principal subcontract. We agree with the
appellate court that the qualifying phrase obligations and responsibilities
contained in the Romago-BICC subcontract was applicable only to the NPCRomago contract. What is more, the CPA is not found in the NPC-Romago
contract, but in the NPC's Plans and Specifications which was expressly
included as part of the Contract Documents.
2. Said pleading expressly states that the CPA is not included in the
computation. This is precisely because the petitioner believes that the private
respondents are not entitled to the CPA, hence, there is no basis for including
it. Said CPA not being part of the subcontract price of P1,614,387.99, the release
mentioned in the cash voucher cannot, therefore, be construed as a release of the
CPA.
FELIPE O. MAGBANUA, CARLOS DE LA CRUZ, REMY ARNAIZ, BILLY
ARNAIZ, ROLLY ARNAIZ, DOMINGO SALARDA, JULIO CAHILIG and
NICANOR LABUEN, vs. RIZALINO UY
G.R. No. 161003. May 6, 2005
Facts: As a final consequence of the final and executory decision of the Supreme
Court which affirmed with modification the decision of the NLRC, hearings were
conducted to determine the amount of wage differentials due the eight
petitioners. The petitioners filed a Motion for Issuance of Writ of Execution.
Rizalino Uy filed a Manifestation requesting that the cases be terminated and
closed, stating that the judgment award as computed had been complied with to
the satisfaction of petitioners. Said Manifestation was also signed by the eight
petitioners. Together with the manifestation is a Joint Affidavit dated May 5,
1997 of petitioners, attesting to the receipt of payment from respondent and
waiving all other benefits due them in connection with their complaint. On
October 20, 1997, six of the eight petitioners filed a Manifestation requesting that
the cases be considered closed and terminated as they are already satisfied of
what they have received from respondent. Together with said Manifestation is a
Joint Affidavit in the local dialect, of the six petitioners attesting that they have
no more collectible amount from respondent and if there is any, they are
abandoning and waiving the same.
Issues: 1. Whether or not the final and executory judgment of the Supreme Court
could be subject to compromise settlement;
2. Whether or not the petitioners affidavit waiving their awards in the labor case
executed without the assistance of their counsel and labor arbiter is valid.
Held: 1. There is no justification to disallow a compromise agreement, solely
because it was entered into after final judgment. The validity of the agreement is
determined by compliance with the requisites and principles of contracts, not by

when it was entered into. Petitioners voluntarily entered into the compromise
agreement. Circumstances also reveal that respondent has already complied with
its obligation pursuant to the compromise agreement. Having already benefited
from the agreement, estoppel bars petitioners from challenging it.
2. The presence or the absence of counsel when a waiver is executed does not
determine its validity. There is no law requiring the presence of a counsel to
validate a waiver. The test is whether it was executed voluntarily, freely and
intelligently; and whether the consideration for it was credible and reasonable.
Where there is clear proof that a waiver was wangled from an unsuspecting or a
gullible person, the law must step in to annul such transaction. In the present
case, petitioners failed to present any evidence to show that their consent had
been vitiated.
SPOUSES DANILO and CRISTINA DECENA, vs. SPOUSES PEDRO and
VALERIA PIQUERO
G.R. No. 155736. March 31, 2005
Facts: Spouses Danilo and Cristina Decena were the owners of a house and lot in
Paraaque City. The petitioners and the respondents, the Spouses Pedro and
Valeria Piquero, executed a Memorandum of Agreement in which the former sold
the property to the latter for P940,250.00 payable in six (6) installments via
postdated checks. The vendees forthwith took possession of the property. It
appears in the MOA that the petitioners obliged themselves to transfer the
property to the respondents upon the execution of the MOA with the condition
that if two of the postdated checks would be dishonored by the drawee bank, the
latter would be obliged to reconvey the property to the petitioners. On May 17,
1999, the petitioners, then residents of Malolos, Bulacan, filed a Complaint
against the respondents with the RTC Malolos, Bulacan, for the annulment of the
sale/MOA, recovery of possession and damages. The petitioners alleged therein
that, they did not transfer the property to and in the names of the respondents as
vendees because the first two checks drawn and issued by them in payment for
the purchase price of the property were dishonored by the drawee bank, and were
not replaced with cash despite demands therefor.
Issue: Whether or not venue was properly laid by the petitioners in the RTC of
Malolos, Bulacan.
Held: After due consideration of the foregoing, we find and so rule that Section
5(c), Rule 2 of the Rules of Court does not apply. This is so because the
petitioners, as plaintiffs in the court a quo, had only one cause of action against
the respondents, namely, the breach of the MOA upon the latters refusal to pay
the first two installments in payment of the property as agreed upon, and turn
over to the petitioners the possession of the real property, as well as the house
constructed thereon occupied by the respondents. The claim for damages for
reasonable compensation for the respondents use and occupation of the
property, in the interim, as well as moral and exemplary damages suffered by the
petitioners on account of the aforestated breach of contract of the respondents
are merely incidental to the main cause of action, and are not independent or
separate causes of action. The action of the petitioners for the rescission of the
MOA on account of the respondents breach thereof and the latters failure to
return the premises subject of the complaint to the petitioners, and the

respondents eviction therefrom is a real action. As such, the action should have
been filed in the proper court where the property is located, namely, in
Paraaque City, conformably with Section 1, Rule 4 of the Rules of Court. Since
the petitioners, who were residents of Malolos, Bulacan, filed their complaint in
the said RTC, venue was improperly laid; hence, the trial court acted conformably
with Section 1(c), Rule 16 of the Rules of Court when it ordered the dismissal of
the complaint.
LIABILITY FOR PRICE ESCALATION FOR LABOR AND MATERIAL COST
H.L. CARLOS CONSTRUCTION, INC. VS. MARINA PROPERTIES
CORPORATION, ET AL.
G.R No. 147614, January 29, 2004
Facts: Marina Properties Corporation entered into a contract with H.L. Carlos
Construction, Inc. to construct a condominium complex for a total consideration
of P35.58 million within a period of 365 days from receipt of notice to proceed.
The original completion date of the project was May 16, 1989, but it was extended
to October 31, 1989 with a grace period until November 30, 1989. On December
15, 1989, HLC instituted a case for sum of money, among others, for costs of labor
escalation, change orders and material price escalation. The Construction
Contract contains the provision that no cost escalation shall be allowed except on
the labor component of the work. HLC argues that it is entitled to price escalation
for both labor and material because MPC was delayed for paying its obligations.
MPC, on the other hand, avers that HLC was delayed in finishing its project;
hence, it is not entitled to price increases.
Issue: Whether or not MPC is liable for price escalation.
Held: MPC is liable for price escalation, but only for the labor component. The
Construction Contract contains the provision that no cost escalation shall be
allowed except on the labor component of the work. Since the contract allows
escalation only of the labor component, the implication is that material cost
escalations are barred. There appears to be no provision, either in the original or
in the amended contract that would justify billing of increased cost of material.
HLC attempts to pass off material cost escalation as a form of damages suffered
by it as a natural consequence of the delay in the payment of billings. However,
the contentious billing itself contains no claim for material cost escalation.