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Fua vs. Yap (novation) 74 Phil. 287 Facts: By virtue of a judgment for P1,538.

04 which Fua obtained against Yap, a writ of execution was issued in pursuance of which a parcel of land belonging to Yap was levied upon and its sale at public auction duly advertised. The sale was, however, suspended as a result of an agreement between the parties, by the terms of which the obligation under the judgment was reduced to P1,200 payable in four installments, and to secure the payment of this amount, the land levied upon with its improvement was mortgaged to appellee with the condition that in the event of appellants' default in the payment of any installment, they would pay 10 per cent of any unpaid balance as attorney's fees as well as the difference between the full judgment credit and the reduced amount thus agreed. Appellants failed to comply with the terms of the settlement, whereupon, appellee sought the execution of the judgment, and by virtue of an alias writ of execution, the land was sold at public auction to appellee and a final deed was executed in his favor. Appellants refused, however, to vacate the land and to recognize appellee's title thereto; hence, the latter instituted the present action for recovery. Held: We concur in the theory that appellants liability under the judgment in civil case No. 42125 had been extinguished by the settlement evidenced by the mortgage executed by them in favor of the appellee on December 16, 1933. 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.

Held: Reduction of the amount of money to be paid does not amount to novation. The payment by the respondent of the lesser amount of P4,000, accepted by the petitioners without any protest or objection and acknowledged by them as "in full satisfaction of the money judgment", completely extinguished the judgment debt and released the respondent from his pecuniary liability. In the case at hand, we fail to see what new or modified obligation arose out of the payment by the respondent of the reduced amount of P4,000 and substitute the monetary liability for P6,000 of the said respondent under the appellate court's judgment. 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. 5 NPC vs. Dayrit (novation) 125 scra 849 Facts: Daniel Roxas sued NPC to compel the NPC to restore the contract of Roxas for security services which the former had terminated. However, they reached a compromise agreement, and the court approved it. One of the stipulations of the agreement was that 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. Parties entered into another contract for security services but NPC refused to implement the new contract for which Daniel filed a Motion for Execution. The NPC assails the Order on the ground that it directs execution of a contract which had been novated by that of the new contracts. Upon the other hand, Roxas claims that said contract was executed precisely to implement the compromise agreement for which reason there was no novation. Held: 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. NPC vs. JUDGE DAYRIT G.R. Nos. L-62845-46 November 25, 1983 This is a petition to set aside the Order of the respondent judge. In a Civil Case DANIEL E. ROXAS, doing business under the name and style of United Veterans Security Agency and Foreign Boats Watchmen, sued NPC and two of its officers in Iligan City, 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 on October 14, 1981, and they asked the Court to approve it. On, May 14, 1982, NPC executed another contract for security services with Josette L. Roxas whose relationship to Daniel is not shown. NPC refused to implement the new contract for which reason Daniel filed a Motion for Execution. Acting on the Motion, the respondent judge issued writ of execution. 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. ISSUE: WON there was novation. HELD: The petition is denied for lack of merit with costs against the petitioner. We sustain the private respondent. 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. 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.

Millar vs. CA (novation) 38 Scra 642 Facts: Millar obtained a favorable condemning Antonio P. Gabriel 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. The lower court issued the writ of execution on the basis of which the sheriff 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 judgment 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. Resolution of the controversy posed by the petition at bar hinges entirely on a determination of whether or not the subsequent agreement of the parties as embodied in the deed of chattel mortgage impliedly novated the judgment obligation. Held: 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 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. Sandico vs. Piguing (novation) 42 scra 322 Facts: The appellate court's judgment obliges the respondent to do two things: (1) to recognize the easement, and (2) to pay the petitioners the sums of P5,000 actual and P500 exemplary damages and P500 attorney's fees, or a total of P6,000. The full satisfaction of the said judgment requires specific performance and payment of a sum of money by the respondent. The parties entered into an agreement reducing the payment to P4000, and was subsequently paid by respondent. Was there a novation?

Integrated Construction Services, Inc., et al. vs. Relova December 29, 1986 FACTS: Petitioners sued the respondent MWSS formerly NAWASA, breach of contract. Meanwhile, the parties submitted the case to arbitration. The Arbitration Board, released the decision-award which 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 project - or a net award of P13,188,950.20 with interest. Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of an early payment of the award. Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-agreement, and extended the period to pay the judgment less the discounts. MWSS, however, paid only on December 22, 1972, the amount stated in the decision but less the reductions provided for in the letter-agreement. Three years thereafter, after the last balance of the trust fund had been released and used to satisfy creditors' claims, the petitioners filed a motion for execution against MWSS for the balance due under the decisionaward. Respondent MWSS opposed execution setting forth the defenses of payment and estoppels. ISSUE: Whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to state that petitioners never acknowledged full payment. HELD: No. 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. We agree with the petitioners. 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 (Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and conditional nature of the said agreement (making the novation conditional) is expressly acknowledged and stipulated in the 14th whereas clause of MWSS' Resolution No. 13272, (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; (Emphasis supplied) 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 on October 2, 1972, 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. " (p. 426, Rollo) 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. (p. 125, Rollo) 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. WHEREFORE, We hereby set aside the assailed orders, and issue the writ of mandamus directing the present Regional Trial Judge of the Branch that handled this case originally to grant the writ of execution for the balance due under the award.

GEORGE W. BATCHELDER vs. THE CENTRAL BANK OF THE PHILIPPINES G.R. No. L-25071 March 29, 1972Facts: Monetary Board Resolution No. 857 requires Filipino and American resident contractorsfor constructions in U.S. military bases in the Philippines to surrender to the Central Bank theirdollar earnings under their respective contracts but were entitled to utilize 90% of theirsurrendered dollars for importation at the preferred rate of commodities for use within oroutside said U.S. military bases. Resolution 695 moreover, denies their right to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange the sold or surrendered earningsto Central Bank for the purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as dollar-to-dollar transactions ornot.George Batchelder, an American Citizen permanently residing in the Philippines who I sengaged in the Construction Business, surrendered to the Central Bank his dollar earnings amounting to U.S. $199,966.00. He compels Central Bank of the Philippines to resell to him$170,210.60 at the preferred rate of exchange of two Philippine pesos for one American dollar, more specifically P2.00375 which was denied by the court. He then contended that said decision failed to consider that if there was no contract obligating the bank to resell to him at the preferred rate, the judgment of the lower court can and should nevertheless be sustained on the basis of there being such an obligation arising from law. Issue: Whether or not Central Bank has the obligation arising from law to resell theUS$154,094.56 to Batchelder at the preferred rate Held: Central Bank was intended to attain basic objectives in the field of currency and finance. It shall be the responsibility of the Central Bank of the Philippines to administer the monetary and banking system of the Republic. It shall be the duty of the Central Bank to use the powers granted to it under this Act to achieve the following objectives: (a) to maintain monetary stability in the Philippines; (b) to preserve the international value of the peso and the convertibility of the peso into other freely convertible currencies; and (c) to promote a rising level of production, employment and real income in the Philippines."It is, of course, true that obligations arise from 1) law; 2) contracts; 3) quasi-contracts;4) acts or omissions punished by law and 5) quasi-delicts. One of the sources an obligation then is a law. A legal norm could so require that a particular party be chargeable with a prestation or undertaking to give or to deliver or to do or to render some service. It is an indispensable requisite though that such a provision, thus in fact exists. There must be a showing to that effect. As early as 1909 in Pelayo v. Lauron, Court through Justice Torres, categorically declared: "Obligation arising from law are not presumed." For in the language of Justice Street in LeungBen v. O'Brien, a 1918 decision, such an obligation is "a creation of the positive law. "They are ordinarily traceable to code or statute. It is true though, as noted in the motion for reconsideration following People v. Que Po Lay, that a Central Bank circular may have the force and effect of law, especially when issued in pursuance of its quasi-legislative power. That of itself, however, is no justification to conclude that it has thereby assumed an obligation. REPUBLIC VS. PLDT [26 SCRA 320; G.R. No. L-18841; 27 Jan 1969] Facts: The plaintiff Republic of the Philippines is a political entity exercising government powers through one of its branches, the Bureau of Telecommunication. Herein defendant, PLDT is a public service corporation holding a franchise to install operates and maintains a telephone system. After its creation, the BOT set up its own government telephone system by utilizing its own appropriations and other equipment and by renting trunk lines of the PLDT to enable the govt offices to call privately. BOT entered into an agreement with the RCA communications for joint overseas telephone service whereby BOT would convey overseas calls received by RCA to local residents. PLDT complained to the BOT that it was a violation of the condition of their agreement since the BOT had used trunk lines only for the use of government offices but even to serve private persons or the general public in competition with the business of PLDT. Subsequently, the plaintiff commenced suit against PLDT asking the court judgment be rendered ordering the PLDT to execute a contract with the plaintiff, through the BOT for the use of the facilities of PLDT's telephone system throughout the country under such conditions as the court may consider reasonable. The CFI rendered judgment stating that it could not compel PLDT to enter into such agreement. Hence this petition.

Issue: Whether or Not PLDT may be compelled to enter into such agreement. Held: Yes, the state, may, in the interest of national welfare transfer utilities to public ownership upon payment of just compensation, there is no reason why the state ma not require a public utility to render services in the general interest provided just compensation is paid. We agree with the court below that parties can not be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation, or undue influence (Articles 1306, 1336, 1337, Civil Code of the Philippines). But the court a quo has apparently overlooked that while the Republic may not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnection of the government telephone system and that of the PLDT, as the needs of the government service may require, subject to the payment of just compensation to be determined by the court. Nominally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession of, the expropriated property; but no cogent reason appears why the said power may not be availed of to impose only a burden upon the owner of condemned property, without loss of title and possession. It is unquestionable that real property may, through expropriation, be subjected to an easement of right of way. The use of the PLDT's lines and services to allow inter-service connection between both telephone systems is not much different. In either case private property is subjected to a burden for public use and benefit. If, under section 6, Article XIII, of the Constitution, the State may, in the interest of national welfare, transfer utilities to public ownership upon payment of just compensation, there is no reason why the State may not require a public utility to render services in the general interest, provided just compensation is paid therefor. Ultimately, the beneficiary of the interconnecting service would be the users of both telephone systems, so that the condemnation would be for public use. Daisy B. Tiu vs. Platinum Plans, Inc. G.R. No. 163512 February 28, 2007 Daisy was the Division Marketing Manager of Platinum Plans from 1987-89. In January 1993, she was re-hired as Senior Assistant VP and Territorial Operations Head in charge of its Hongkong and Asean Operations. The contract was for five years and it contained a NON-INVOLVEMENT PROVISION which reads: 8. NON INVOLVEMENT PROVISION The employee undertakes that during his/her engagement with Employer and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be involved with any corporation, association, entity whether directly or indirectly, engaged in the same business or belonging to the same pre-need industry as the Employer. Any breach of the foregoing provision shall render the Employee liable to the Employer in the amount of One Hundred Thousand Pesos for and as liquidated damages. Prior to the expiration of her 1993 contract (5 years), Daisy stopped reporting for work and thereafter became the VP for Sales of Professional Pension Plans, a rival company of Platinum. Platinum filed a case for damages against Daisy. RTC ruled in favor of Platinum and the ruling was affirmed by the CA. The main issue is the validity of the non-involvement provision. Daisy argued that it is offensive to public policy since the restraint imposed is much greater that what is necessary to afford Platinum a fair and reasonable protection. She adds that Platinum did not invest in her training because at the time she was hired, she already had knowledge and expertise in the pre-need industry. SC ruled that a non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place. Since Tiu was Senior VP and Territorial Operations Head of Asean Operations, she had been privy to confidential and highly sensitive marketing strategies of Platinum and to allow Tiu to engage in rival business soon after she leaves would make Platinums trade secrets vulnerable. Article 1306 provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. Article 1159 on the other hand provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy. The non-involvement clause which Daisy Tiu freely agreed upon has

the force of law between them and thus, should be complied with in good faith. CUI vs. ARELLANO UNIVERSITY G.R. No. L-15127 May 30, 1961 FACTS: Plaintiff enrolled in the College of Law of the defendant from the school year 1948-1949. He finished his law studies in the defendant university up to and including the first semester of the fourth year. During all the time he was studying law in defendant university, he was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in the college of law or the fourth year, is in total of P1,033.87. However, before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the following contract covenant and agreement which provides that in consideration of the scholarship granted to him by the University, he waives his right to transfer to another school without having refunded to the University (defendant) the equivalent of his scholarship cash. For the last semester of his law studies, plaintiff enrolled in the college of law of the Abad Santos University and graduated therefrom. After graduating in law he applied to take the bar examination. Plaintiff then petitioned the defendant university to issue to him the needed transcripts. However, the defendant refused until after he had paid back the P1,033 87 which defendant refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant in this case. ISSUE: Whether the said provision of the contract is valid. HELD: No. The stipulation in question is contrary to public policy and, hence, null and void. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. ISSUE: Whether the provision of the contract between plaintiff and defendant, whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarship in cash, is valid or not. HELD: Memorandum No. 38 issued by the Director of Private Schools provides that When students are given full or partial scholarship, it is understood that such scholarship are merited and earned. The amount in tuition and other fees corresponding to These scholarship should not be subsequently charged to recipient students when they decide to quit school or to transfer to another institution. Scholarship should not be offered merely to attract and keep students in a school. Memorandum No. 38 merely incorporates a sound principle of public policy. The defendant uses the scholarship as a business scheme designed to increase the business potential of an education institution. Thus conceived it is not only inconsistent with sound policy but also good morals. The practice of awarding scholarship to attract students and keep them in school is not Good custom nor has it received some kind of social and practical confirmation except in some private institution as in Arellano University. Wherefore, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and dismissing the defendants counterclaim. It is so ordered. Saura vs. Sindico (contracts; contrary to public policy)

107 Phil. 336 Facts: Saura and Sindico were contesting for nomination as the official candidate of the Nacionalista. On August 23, 1957, the parties entered into a written agreement bearing the same date, containing among other matters stated therein, a pledge that Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall either run as a rebel or independent candidate after losing in said convention. Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico filed her certificate of candidacy for election. Saura commenced this suit for the recovery of damages. RTC dismissed the complaint on the basis that the agreement sued upon is null and void, in that (1) the subject matter of the contract, being a public office, is not within the commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchise and therefore against public policy Held: Contract or agreement is a nullity. Among those that may not be the subject matter (object) of contracts are certain rights of individuals, which the law and public policy have deemed wise to exclude from the commerce of man. Among them are the political rights conferred upon citizens, including, but not limited to, once's right to vote, the right to present one's candidacy to the people and to be voted to public office, provided, however, that all the qualifications prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed with impunity, for they are conferred not for individual or private benefit or advantage but for the public good and interest. LEAL VS. IAC November 5, 1987 FACTS: -Reversal of IAC in its Resolution dated Sept. 27, 1983 of the earlier decision dated June 28, 1978 penned by Justice Paras of the Court of Appeals, in the same case, affirming the trial courts dismissal of theprivate respondents complaint. March 21, 1941: Vicente Santiago and Cirilio Leal entered into a contract which was called the Compraventa where V. Santiago sold to the latter three parcels of land.Cited in the contract was: En caso deventa, no podran vender a otrosdichos treslotes de terrenosino al aqui rendedor Vicente Santiago, o los herederos o sucesoresde estepor el niismo precio de P5,600 siempre y cuando estos ultimos pueden hacerla compra.1960-1965: Parts of the properties were mortgaged or leased to the co-petitionersor to third party1966-1957: V. Santiago offered re-purchase of the properties but the petitionerrefused the offerAugust 2, 1967: V. Santiago instituted complaint for specific performance. The trialcourt (Court of First Instance in Q.C.) rendered its decision dismissing the case forit was thought to be a premature case or that there was no sale at all. Therespondent was not contented at all that he filed another complaint in the Court of Appeals June 28, 1978: Justice Paras of the Court of Appeals affirmed the trial courtsdismissal of respondents complaint. Included in the decision was the order for thecancellation of the annotations at the back of the Transfer Certificates of Titleissued which prohibits the petitioner to sell the land to the third party.Respondentsfiled a motion for reconsideration and an opposition to thepetitioners(Leal) motion to amend but the incidents were not resolved since theCourt of Appeals was abolished and was replaced by the IAC.Sept. 27, 1983: The June 28, 1978 decision of the CA was reversed. The petitionerswere to accept P5,600 for re-purchase of Land and they should pay rental of P3,087.50 as rental from 1967-1968 and the same amount every year after. The Transfer Certificate of Title No. 42535 was ordered to be in the names of V.Santiago & Luis Santiago and to issue another TCT to S. Santiago. ISSUE/S: Whether or not it is quoted in the Compraventa that the private respondent hasthe right of re-purchase.Whether the annotations of the prohibition to sell at the back of the TCTs should becancelled.HELD: The Resolution dated Sept. 27, 1983 was SET ASIDE and the Decision promulgatedon June 28, 1978 is Reinstated. The annotations of the prohibition to sell at the backof TCT Nos. 138837-138842 were cancelled cost against respondent.For the following reasons:-In IACs resolution : repurchase was given birth by the phrase siempre y cuandoultimos pueden hacer la compra (when the buyer has money to buy). Under Article1508 (2 nd Paragraph) there is agreement as to the time, although it is indefinite, therefore the right should be exercised within ten years, because the law does not favor suspended ownership.-The right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence. Under Article 1606 of the Civil Code of the

Philippines the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of contract.-Prohibition to sell the lots to persons other than the vendor (back of TCT) will be cancelled or deleted since the prohibition to alienate should not exceed 20 years otherwise there would be subversion of public policy.-Civil Code of the Phil. Art. 1306 includes that contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Public order signifies the public weal public policy. Essentially, therefore, public order and public policy mean one and the same thing. One such condition which is contrary to public policy is the present prohibition to self to third parties(or perpetual restriction to the right of ownership specifically the owners right to freely dispose of his properties. ANICETO G. SALUDO, JR., vs SECURITY BANK CORPORATION, G.R. No. 184041 : October 13, 2010 FACTS: On May 30, 1996, Booklight was extended an omnibus line credit facility by SBS in the amount of 10,000,000.00. Said loan was covered by a Credit Agreement and Continuing Suretyship with the herein petitioner as surety, both documents dated August 1, 1996 to secure full payment and performance of the obligations arising from the credit accommodation. Booklight drew several availments of the approved credit facility from 1996 to 1997 and faithfully complied with the terms of the loan. On October 30, 1997, SBC approved the renewal of the credit facility of Book light in the amount of 10,000,000.00 under the prevailing security lending rate. From August 3-14, 1998 Book light executed 9 promissory notes in favor of SBC in the aggregate amount of 9,652,725.00. As of May 15, 2000 the obligation of Book light stood at 10,487,875.41, inclusive of interest past due and penalty. On June 16, 2000, SBC filed against Book light and herein petitioner an action for collection of sum of money with the RTC. On March 7, 2005 Book light was declared in default. ISSUE: WON petitioner should be held soldarily liable for the second credit facility extended to Booklight. RULING: Yes. There is no doubt that Booklight was extended two credit facilities, each with one-year term, by SBC. Booklight availed of these two credit lines. While Booklight was able to comply with its obligation under the first credit line, it defaulted in the payment of the loan obligation amounting to 9,652,725.00under the second credit line. The first credit line was covered by a Continuing Suretyship with petitioner acting as the surety. It is concluded that the liability of the petitioner did not expire upon the termination of the first credit facility.It cannot be gainsaid that the second credit facility was renewed for another one-year term by SBC. This very renewal is explicitly covered by the guaranteed obligation of the Continuing Surety. It is the first credit facility that expired and not the Credit Agreement. There was a second loan pursuant to the same credit agreement. The terms and conditions under the Credit Agreement continue to apply and the Continuing Suretyship continues to guarantee the Credit Agreement. REAL MORTGAGE Velasco vs CA (1980) Facts: November 10, 1965, Alta Farms secured from the GSIS a Three Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00) loan and an additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to finance a piggery project. Alta Farms defaulted in the payment because of this that Alta Farms executed a Deed of Sale With Assumption of Mortgage with Asian Engineering Corporation on July 10, 1969 but without the previous consent or approval of the GSIS and in direct violation of the provisions of the mortgage contracts. Even without the approval of the Deed of Sale With Assumption of Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation, with the intention of converting the piggery farm into a subdivision. After developing the area, on December 4, 1969, Laigo entered into a contract with Amable Lumanlan, one of the petitioners, to construct for the home buyers, 20 houses on the subdivision. Petitioner Lumanlan allegedly constructed 20 houses for the home buyers and for which he claims a balance of P309,187.76 from the home buyers and Laigo. Out of his claim, petitioner Lumanlan admits that Mrs. Rhody Laigo paid him in several checks

totalling P124,855.00 but which checks were all dishonoured. On December 29, 1969, Laigo entered into a contract with petitioner Pepito Velasco to construct houses for the home buyers who agreed with Velasco on the prices and the down payment. Petitioner Velasco constructed houses for various home buyers, who individually agreed with Velasco, as to the prices and the down payment to be paid by the individual home buyers. When neither Laigo nor the individual home buyers paid for the home constructed, Velasco wrote the GSIS to intercede for the unpaid accounts of the home buyers. Issue: W/N GSIS is liable to the petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses now owned by the GSIS? Ruling: Yes. GSIS should pay the petitioners. GSIS assumed ownership of the houses built by petitioners and was benefited by the same. Art. 2127, the mortgage extends to the natural accessions, to the improvements, growing fruits, rents. Upon the foregoing factual premises, the legal issue that arises is whether or not GSIS is liable to the petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses now owned by the GSIS and for the construction of which no payment has been made on the balance due petitioners. Our considered view is and We so hold that even in equity alone, GSIS should pay the petitioners. After all, it admits it has not collected from the ones who appear to be the buyers thereof, albeit it must be collecting the installments on the lots. All it has to do then is to pass on to them what it has to pay petitioners. In law, GSIS is, under the peculiar circumstances of this case, the owner of said houses. Pursuant to Article 1729 of the Civil Code: Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials: 1) Payments made by the owner to the contractor before they are due; 2) Renunciation by the contractor of any amount due him from the owner. This article is subject to the provisions of special laws. (1597a) Laigo admittedly has not paid petitioners. The "bouncing" checks issued by it in their favor is mentioned by GSIS itself in its statement of the facts. We hold that upon this premise it is a fair construction of the Deed of Quitclaim aforementioned, that GSIS can be held liable to petitioners, without prejudice to its securing corresponding indemnity from Laigo. It is obvious from the terms of said deed that GSIS contemplated the possibility of its being liable for Laigo's account, otherwise, there was no need for the reservation. This is one such liability. In this connection while, indeed, Article 1729 refers to the laborers and materialmen themselves, under the peculiar circumstances of this case, it is but fair and just that petitioners be deemed as suing for the reimbursement of what they have already paid the laborers and materialmen, as otherwise they (petitioners) would be unduly prejudiced while either Laigo, GSIS or the occupants of the houses would enrich themselves at their expense. It is a bad law that would allow such a result. At this juncture, We need to add only that Article 1311 of the Civil Code which GSIS invokes is not applicable where the situation contemplated in Article 1729 obtains. The intention of the latter provision is to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other. As a matter of fact, insofar as the laborers are concerned, by a special law, Act No. 3959, they are given added protection by requiring contractors to file bonds guaranteeing payment to them. And under Article 2242 of the Civil Code, paragraphs (3) and (4), claims of laborers and materialmen, respectively, enjoy preference among the creditors of the owner in regard to specific immovable property. As regards Article 525 of the Civil Code also invoked by GSIS, suffice it to say that this provision refers particularly to instances where the bad faith or the good faith of the builder is the decisive factor in determining liability. In the case at bar, there is no necessity to pass on the question of whether petitioners acted in good faith or bad faith, for the simple reason that under the Deed of Quitclaim, GSIS freely accepted the benefits of what they have accomplished.

GSIS contends that Laigo should have been joined as defendant in this case. While petitioners could have done so, they were not under such obligation mandatorily. Under the circumstances of this case, Laigo is only a necessary party, not an indispensable one. And to allay GSIS, its right to secure reimbursement from Laigo is hereby reserved. Coming now to the amount for which GSIS is liable, We reiterate that, to be sure, there is evidence in the record, uncontradicted at that, regarding the lower value of money at the time the demand upon GSIS was made compared to that when petitioners furnished the labor and materials in question. We are not, however, inclined to go along with the trial court that the amount demanded should be multiplied four times. We believe that it being a matter of judicial notice that the prices of labor and material have substantially risen since 1970, it would be fair enough to make respondent liable for interest on the amount of the demand, which is supported by evidence and not effectively disputed by GSIS in its answer, at the rate of 12% per annum from the time petitioners filed their complaint below on April 14,1975. Key Words: Contracts; Stipulation pour autrui Kauffman vs. PNB 42 Phil 182 September 29, 1921 Facts: George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. He was based in New York City and as the president of the said company, he was entitled to receive a dividend; as per instruction, Wicks who worked as the treasurer of the company, went to the exchange department of PNB and requested a telegraphic transfer of the money to Kauffman. The PNB agreed with additional charges for the transaction. The treasurer issued a check to PNB and it was accepted. The PNBs representative in New York sent a message suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the company. PNB acquiesced in this and dispatched to its NY agency a message to withhold the Kauffman payment as suggested. Meanwhile, Wicks then informed Kauffman that his dividends had been wired to his credit in the NY agency of PNB. So Kauffman went to PNB office in NYC and demanded the money, however, he was refused payment. So he filed this complaint. Issue: Whether or not Kauffman has a right of action against PNB? Held: Yes. It is a stipulation pour autrui. Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in NYC is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in NYC. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although PNB had already directed its NY agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these

transaction are matters of purchase and sale create no trust relationship." Kauffman vs. PNB (contracts; stipulation pour autrui) Facts: Kauffman, based in NYC, was the president of a Philippine Company; he was entitled to receive a dividend so the treasurer of the company went to the exchange department of PNB and requested to that a telegraphic transfer of the money Kauffman wassupposed to receive from the company. The PNB agreed with additional charges for the transaction. The treasurer issued a check toPNB and it was accepted. The PNBs representative in New York sent a message suggesting the advisability of withholding thismoney from Kauffman, in view of his reluctance to accept certain bills of the company. PNB acquiesced in this and dispatched to itsNY agency a message to withhold the Kauffman payment as suggested. Meanwhile, Wicks then he informed Kauffman that his dividends had been wired to his credit in the NY agency of PNB. So Kauffman went to PNB office in NYC and demanded the money, however, he was refused payment. So he filed this complaint. Issue: Does Kauffman have a right of action against PNB? Held: Yes; it is a stipulation pour autrui. Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in NYC is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in NYC. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although PNB had already directed its NY agency to withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange. Note: Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by CA of NYC on March 1, 1921, it was held that, by selling acable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said, "Cabletransfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the pointon which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will makepayment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trustrelationship. "Bonifacio vs. Mora (contracts; stipulation pour autrui) Facts: Mora mortgaged his car to H.S Reyes with a condition that Mora would insure the car with H.S. Reyes Inc. as the beneficiary.State Bonding & Company insured the car and a motor car insurance policy was issued to Mora. Right after, the car met an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Mora, without the consent and knowledge of H.S. Reyes Inc., authorized Bonifacio Brothers Inc. to fix the car. For the cost of laborand materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company after claiminga franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to theorder of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc filed a complaint against Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73 Held: The appellants seek to recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned

in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person. Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person. Consequently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same. The question of whether a third person has an enforcible interest in a contract, must be settled by determining whether the contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule that the fairest test to determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In the instant case the insurance contract does not contain any wordsor clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in question. Theparties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the otherhand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between the insured and third person." In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellants' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros.Inc. Corpus vs. CA (innominate contracts) Facts: David accepted the case of Corpus though there was no express agreement regarding attorneys fees. Corpus was administratively charged. He employed the services of David. David won the administrative case For Copuz. Corpus gave a check to David, but was returned by David with the intention of getting paid after the case is ruled with finality by the SC and Corpus gets his back salaries and wages. (Your appreciation of the efforts I have invested in your case is enough compensation therefor, however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check) David continued to fight for Corpus case and got a favorable judgment. Corpus refused to pay David contending that since David refused the first check given by him, he gave his services gratuitously. Held: While there was no express agreement between petitioner Corpus and respondent David as regards attorney's fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney's fees. Payment of attorney's fees to respondent David may be justified by virtue of the innominate contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich himself at the expense of another." Innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by thestipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus: Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefore because 'it is a well-known principle of law, that no one should be permitted to enrich himself to the damage of another. Florentino vs. Encarnacion (contracts; stipulation pour autrui)

Held: The stipulation embodied on religious expenses is not revocable at the unilateral option of the co-owners and neither is it binding to both parties The stipulation in part of an extrajudicial partition duly agreed and signed by the parties, hence the sanie must bind the contracting parties thereto and its validity or compliance cannot be left to the will of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect between the parties, their assign and heirs. The article provides: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain a stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. In the case at bar, the determining point is whether the co-owners intended to benefit the Church when in their extrajudicial partition of several parcels of land inherited by them from Doa Encarnacion Florendo they agreed that with respect to the land, the fruits thereof shall serve to defray the religious expenses. The evidence on record shows that the true intent of the parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid land were used thenceforth to defray the expenses of the Church in the preparation and celebration of the Holy Week. We find that the trial court erred in holding that the stipulation, arrangement or grant is revocable at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself before its acceptance by the party favored, the law does not provide when the third person must make his acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked. Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the will of Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before the filing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation. The acceptance does not have to be in any particular form, even when the stipulation is for the third person an act of liberality or generosity on the part of the promisor or promise. It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the making of demand, is unnecessary. A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules governing donation of real property. The beneficiary of a trust may demand performance of the obligation without having formally accepted the benefit of the this in a public document, upon mere acquiescence in the formation of the trust and acceptance under the second paragraph of Art. 1257 of the Civil Code. Daywalt vs. La Corporation de los Padres Agustinos Recoletos (Art 1314) Facts: Teodorica Endencia obligated herself to sell a parcel of land to the plaintiff. It was agreed that the final deed of sale will be executed when the land was registered in Endencias name. Subsequently, the Torrens Title for the land was issued in her favor but in the course of the proceedings for registration it was found that the land involved in the sale contained a greater area than what Endencia originally thought and she became reluctant to consummate the sale of the land to the plaintiff. This reluctance was due to the advice of the defendant which exercised a great moral influence over her. However, in advising Endencia that she was not bound by her contract with the plaintiff, the defendant was not actuated with improper motives but did so in good faith believing that, under the circumstances, Endencia was not really bound by her contract with the plaintiff. In view of Endencias refusal to make the conveyance, the plaintiff instituted a complaint for specific performance against her and, upon appeal, the Supreme Court held that she was bound by the contract and she was ordered to make the conveyance of the land in question to the plaintiff. The plaintiff then instituted an action

against the defendant to recover the following damages: (a) The amount of Pesos 24,000.00 for the use and occupation of the land in question by reason of the pasturing of cattle therein during the period that the land was not conveyed by Endencia to the plaintiff; (b) The amount of Pesos 500,000.00 for plaintiffs failure to sell the land in question to a sugar growing and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land and the Torrens Title. The lower court held that the defendant was liable to the plaintiff for the use and occupation of the land in question and condemned the defendant to pay the plaintiff Pesos 2,497.00 as damages. The Supreme Court affirmed this adjudication of the lower court. With respect to the claim of Pesos 500,000.00 damages, the Supreme Court. Held: The most that can be said with reference to the conduct of Teodorica Endencia is that she refused to carry out a contract for the sale of certain land and resisted to the last an action for specific performance in court. The result was that the plaintiff was prevented during a period of several years from exerting that control over the property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. The extent of the liability for the breach of a contract must be determined in the light of the situation in existence at the time the contract is made; and the damages ordinarily recoverable in all events limited to such as might be reasonably foreseen in the light of the facts then known to the contracting parties. Where the purchaser desires to protect himself, in the contingency of the failure of the vendor promptly to give possession, from the possibility of incurring other damages than such as are incident to the normal value of the use and occupation, he should cause to be inserted in the contract a clause providing for stipulated amount to be paid upon failure of the vendor to give possession; and no case has been called to our attention where, in the absence of such a stipulation, damages have been held to be recoverable by the purchase in excess of the normal value of use and occupation. The damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense, necessary damage; and (2) special damages. Ordinary damages is found in all breaches of contract where there are no special circumstances to distinguish the case especially from other contracts. The consideration paid for an unperformed promise is an instance of this sort of damage. In all such cases the damages recoverable are such as naturally and generally would result from such a breach, according to the usual course of things. In cases involving only ordinary damage, it is conclusively presumed from the immediateness and inevitableness of the damage, and the recovery of such damage follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a matter of law to be within the contemplation of the parties. Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is only found in cases where some external condition, apart from the actual terms of the contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promissor, without actual notice of the external condition, could not reasonably be expected to foresee. Plaintiffs right chiefly as against Teodorica Endencia; and what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of action in the complaint could not be recovered from her, first, because the damages in question are special damages which were not within contemplation of the parties when the contract was made, and secondly, because said damages are too remote to be subject of recovery. This conclusion is also necessarily fatal to the right of the plaintiff to recover such damages from the defendant corporation for, as already suggested, by advising Teodorica Endencia not to perform the contract, said corporation could in no event render itself more extensively liable than the principal in the contract. Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against the appellant. G.R. No. 105395 December 10, 1993 BANK OF AMERICA, NT & SA, vs. COURT OF APPEALS, INTERRESIN INDUSTRIAL CORPORATION, FRANCISCOTRAJANO, JOHN DOE AND JANE DOE FACTS : Bank of America received an Irrevocable Letter of Credit issued bu Bank of Ayudhya for the Account of General Chemicals Ltd., Inc. for the sale of plastic ropes and agricultural files with Bank of America as advising bank and Inter-Resin Industrial Corp. as beneficiary. Upon receipt of the letter advice with letter of credit by Inter- Resin told Bank of America to confirm said letter of credit, but the bank did not confirm such. Bank of America explained that there was no need for confirmation. Inter-Resin made a partial availment of the Letter of Credit after presentment of the required documents to Bank of America. After confirmation of all the documents BA issued a check infavor of IR. BA advice Bank of Ayudhya of IRs availment

under the letter of credit and askedfor the corresponding reimbursement. IR presented documents for the second availment under the same LC but BA stopped the processing of such after they received a telex from Bank of Ayudhya delaring that the LCfraudulent. BA sued IR for the recovery of the first LC payment. ISSUE : Whether or not Bank of America may recover what it has paid under the letter of credit to Inter-Resin?HELD : In fine, we hold that First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted merely as a notifying bank and did not assume the responsibility of a confirming bank ; and Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin'spartial availment as beneficiary of the letter of credit which has been disowned by the alleged issuer bank. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the latter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. There would at least be three (3) parties: (a) the Buyer, who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipts of the documents of title; (b)the bank issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft and proper document of titles and to surrender the documents to the buyer upon reimbursement; and, (c) the seller, who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment. The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the services of an advising (notifying) bank may be utilized to convey to the seller the existence of the credit; or, of a confirming bank which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying bank, which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, to have the draft discounted. It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming, bank, and this much is clearly evident, among other things,by the provisions of the letter of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya(issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft. As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. The bare statement of the bank employees, aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of advise, nor can it justify the conclusion that the bank must now assume total liability on the letter of credit. Indeed, Inter-Resin itself cannot claim to have been all that free from fault. As the seller, the issuance of the letter of credit should have obviously been a great concern to it. It would have, in fact, been strange if it did not, prior to the letter of credit, enter into a contract, or negotiated at the every least, with General Chemicals. In theordinary course of business, the perfection of contract precedes the issuance of a letter of credit. Gilchrist vs. Cuddy 29 Phil. 542 FACTS: Cuddy was the owner of the film Zigomar

April 24: He rented it to C. S. Gilchrist for a week for P125 A few days to the date of delivery, Cuddy sent the money back to Gilchrist Cuddy rented the film to Espejo and his partner Zaldarriaga P350 for the week knowing that it was rented to someone else and that Cuddy accepted it because he was paying about three times as much as he had contracted with Gilchrist but they didn't know the identity of the other party Gilchrist filed for injunction against these parties Trial Court and CA: granted - there is a contract between Gilchrist and Cuddy ISSUE: W/N Espejo and his partner Zaldarriaga should be liable for damages though they do not know the identity of Gilchrist HELD: YES. judgment is affirmed That Cuddy was liable in an action for damages for the breach of that contract, there can be no doubt. the mere right to compete could not justify the appellants in intentionally inducing Cuddy to take away the appellee's contractual rights Everyone has a right to enjoy the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss come as a result of competition, or the exercise of like rights by others, it is damnum absque injuria(loss without injury), unless some superior right by contract or otherwise is interfered with Cuddy contract on the part of the appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this desire; but this fact does not relieve them of the legal liability for interfering with that contract and causing its breach. liability of the appellants arises from unlawful acts and not from contractual obligations, as they were under no such obligations to induce Cuddy to violate his contract with Gilchrist So that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that code provides that a person who, by act or omission, causes damages to another when there is fault or negligence, shall be obliged to repair the damage do done There is nothing in this article which requires as a condition precedent to the liability of a tort-feasor that he must know the identity of a person to whom he causes damages An injunction is a "special remedy" which was there issued by the authority and under the seal of a court of equity, and limited, as in order cases where equitable relief is sought, to cases where there is no "plain, adequate, and complete remedy at law," which "will not be granted while the rights between the parties are undetermined, except in extraordinary cases where material and irreparable injury will be done," which cannot be compensated in damages, and where there will be no adequate remedy, and which will not, as a rule, be granted, to take property out of the possession of one party and put it into that of another whose title has not been established by law irreparable injury not meant such injury as is beyond the possibility of repair, or beyond possible compensation in damages, nor necessarily great injury or great damage, but that species of injury, whether great or small, that ought not to be submitted to on the one hand or inflicted on the other; and, because it is so large on the one hand, or so small on the other, is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law Gilchrist was facing the immediate prospect of diminished profits by reason of the fact that the appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as his feature film It is quite apparent that to estimate with any decree of accuracy the damages which Gilchrist would likely suffer from such an event would be quite difficult if not impossible So far as the preliminary injunction issued against the appellants is concerned, which prohibited them from exhibiting the Zigomar during the week which Gilchrist desired to exhibit it, we are of the opinion that the

circumstances justified the issuance of that injunction in the discretion of the court the remedy by injunction cannot be used to restrain a legitimate competition, though such competition would involve the violation of a contract Separate Opinion: MORELAND, J., concurring: The court seems to be of the opinion that the action is one for a permanent injunction; whereas, under my view of the case, it is one for specific performance. The very nature of the case demonstrates that a permanent injunction is out of the question. The only thing that plaintiff desired was to be permitted to use the film for the week beginning the 26th of May. With the termination of that week his rights expired. After that time Cuddy was perfectly free to turn the film over to the defendants Espejo and Zaldarriaga for exhibition at any time. No damages are claimed by reason of the issuance of the mandatory injunction under which the film was delivered to plaintiff and used by him during the week beginning the 26th of May. Case: Estate of Hemady v. Luzon Surety Co. Inc. Facts: Luzon Surety filed a contingent claim against the estate based on 20 different counter bonds each subscribed by a distinct principal and the deceased Hemady as surety in all of them, inconsideration of the Luzon Surety having guaranteed the various principals in favour of the different creditors. Ruling: While in our successional system the responsibility of the heirs for the debts of their decedent cannot exceed the value of the inheritance they receive from him, the principle remains intact that these heirs succeed not only to the rights of the deceased but also to his obligations. The contracts therefore give rise to contingent claims provable against his estate. So Ping Bun v. CA Facts: In 1963, Tek Hua Trading Co. entered into lease agreements with lessor Dee C. Chuan and Sons, Inc. involving four (4) premises in Binondo, which the former used to store textiles. The agreements were for one (1) year, with provisions for month-to-month rental should the lessee continue to occupy the properties after the term. In 1976, Tek Hua Trading Co. was dissolved, and the former members formed Tek Hua Enterprises Corp., herein respondent. So Pek Giok, managing partner of the defunct company, died in 1986. Petitioner So Ping Bun, his grandson, occupied the warehouse for his own textile business, Trendsetter Marketing. On March 1, 1991, private respondent Tiong sent a letter to petitioner, demanding that the latter vacate the premises. Petitioner refused, and on March 4, 1992, he requested formal contracts of lease with DCCSI. The contracts were executed. Private respondents moved for the nullification of the contract and claimed damages. The petition was granted by the trial court, and eventually by the Court of Appeals. Issue: (1) Whether So Ping Bun is guilty of tortuous interference of contract (2) Whether private respondents are entitled to attorneys fees Held: (1) Damage is the loss, hurt, or harm which results from injury, and damages are the recompense or compensation awarded for the damage suffered. One becomes liable in an action for damages for a nontrespassory invasion of another's interest in the private use and enjoyment of asset if (a) the other has property rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is substantial, (c) the defendant's conduct is a legal cause of the invasion, and (d) the invasion is either intentional and unreasonable or unintentional and actionable under general negligence rules. The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of contract; and (3) interference of the third person is without legal justification or excuse. Petitioner's Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in the instant case. Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exists where the actor's motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer's interest outweigh that of the party whose rights are invaded, and that

an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover justification for protecting one's financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. Where there was no malice in the interference of a contract, and the impulse behind one's conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him. Petitioner argues that damage is an essential element of tort interference, and since the trial court and the appellate court ruled that private respondents were not entitled to actual, moral or exemplary damages, it follows that he ought to be absolved of any liability, including attorney's fees. While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at the expense of others, however, we find that the conduct herein complained of did not transcend the limits forbidding an obligatory award for damages in the absence of any malice. The business desire is there to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones. The respondent appellate court correctly confirmed the permanent injunction and nullification of the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages. The injunction saved the respondents from further damage or injury caused by petitioner's interference. (2) Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is allowed under the circumstances provided for in Article 2208 of the Civil Code. One such occasion is when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. But we have consistently held that the award of considerable damages should have clear factual and legal bases. In connection with attorney's fees, the award should be commensurate to the benefits that would have been derived from a favorable judgment. Settled is the rule that fairness of the award of damages by the trial court calls for appellate review such that the award if far too excessive can be reduced. This ruling applies with equal force on the award of attorney's fees. In a long line of cases we said, "It is not sound policy to place in penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing party and his counsel to swell the fees to undue proportions." Considering that the respondent corporation's lease contract, at the time when the cause of action accrued, ran only on a month-tomonth basis whence before it was on a yearly basis, we find even the reduced amount of attorney's fees ordered by the Court of Appeals still exorbitant in the light of prevailing jurisprudence. Consequently, the amount of two hundred thousand (P200,000.00) awarded by respondent appellate court should be reduced to one hundred thousand (P100,000.00) pesos as the reasonable award or attorney's fees in favor of private respondent corporation.