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Fernandez vs. Court of Appeals GR No. L-80231.

October 18, 1988 case digest

Concept: 1370
The controversy here revolves around the appropriate reading of a clause in a lease contract that was
executed about fifteen years ago.
July 31, 1973. Miguel Tajangco (respondent and lessor) and Celso Fernandez (petitioner and lessee)
entered into a ten-year Contract of Lease over a piece of land situated along Kahilum Street, Pandacan,
Manila, where Fernandez would put up the then proposed New Zamora Market. The parties agreed that
the lease, which was scheduled to end on 1 July 1983, would be "renewable for another ten (10) years at
the option of both parties under such terms, conditions and rental reasonable at that time" and that, upon
expiration of the lease, whatever improvements were then existing thereon should automatically belong to
Miguel without having to pay Fernandez.
Before the term ended, asshole Miguel said to Fernandez that he is no longer willing to renew the
contract. Fernandez being a hardass, replied that he wants to renew the contract so he could recover the
expenses he had made. Miguel not giving in, replied through his lawyer, advised that Miguel could not
accept Fernandez's unilateral action to renew the lease because, under the contract, any renewal or
extension thereof was possible only "at the option of both parties.
June 12, 1983. Fernandez filed an action against Miguel. He said that he was entitled to renew the lease
contract, under paragraph 3 Section 2 thereof, for another ten (10) years, which paragraph in the contract
should be construed in a liberal manner and with justice. In his prayer, he sought to compel Miguel to
renew the lease agreement for another term, or asked the court to consider the original contract as
renewed for another ten (10) years or to fix another period for the renewal contract.
Miguel the asshole replied that judicial interpretation is not needed, the contract is so simple worded that
even Homer Simpson can understand it.
The trial court held its decision in favor of Fernandez. Miguel, being an asshole and wont accept defeat,
appealed with the CA. The CA reversed the decision of the trial court. BOOM! HEIRARCHY YOW!
Issue: W/ON the condition of the contract is clear or not.
Held: Shit is clear. The CA said that the contract language as comprising, not technical terms or terms of
legal art, but rather just plain and ordinary words. SC affirmed the decision of the CA

Bachrach Garage and Taxicab Co. (Inc.) vs. Vicente Golingco Facts Bachrach filed a case for a
recovery of a sum of money. Cause of action: (1) the Plaintiff claims the amount of P7,583.93
with interests thereon from December 14th (the year not being mentioned therein), till the date it
is fully paid in addition to the 25 per cent of the total amount; (2) he claims the amount of
P1,059.17 with interests thereon until fully paid plus the 25 per cent of the total amount; (3) the
amount of P1,534.75 with legal interests thereon. The lower court rendered judgment sentencing
the Defendant, (1) to pay the amount of P7,583.93 with 10% interest thereon from January 19,
1917, plus 12.5% on the said amount; (2) to pay P1,059.17 with the same interest from the said
date plus 12.5% on the same amount; (3) to pay P154.75 with legal interest from January 19,
1917. From this judgment, the Defendant appealed. The defendant contends that the trial judge
committed 3 errors. Issue: Whether or not the court erred in its decision Held: No, however, there
are modifications: It should be (1st) to pay P6,828.33 with 10 % interest per annum; P755.70
with 6% interest per annum from filing of complaint; (2nd), to pay P1,000 with 10 % interest per
annum; and to pay P59.17 with 6 % interest per annum from filing of complaint. Ratio: I.
Application of Payment 1st Error according to the Defendant: The lower court erred in not
imputing the amount of P7,000 to that of P8,750, as partial payment of the price of a truck, M.
White, of 45 horse-power, the object of the promissory note Ex. A. EXHIBIT A (Defendant
wrote to plaintiff) Promissory note dated August 23, 1915. In Manila1916 I jointly and
severally promise to pay to E. Bachrach or to his order the sum of P8,750 with the corresponding
interests from this date at the rate of 10 per cent per annum, the right to protest and notice being
hereby completely and expressly waived... (NOTE: it does not state that it pertains to the truck
M. White of 45 horse power) EXHIBIT 1 (Defendant wrote to plaintiff) Date: February 16,
1916. DEAR SIRS: Enclosed is the amount of P7,000 in your favor, on the account of the
price of a truck M. White of 45 horsepower... EXHIBIT C (Plaintiff answered the Defendant)
Date: February 23. 1916. DEAR SIR AND FRIEND: we received the sum of P7,000 in check
which we apply to the payment on account of the purchase price of the White truck, of 45 horsepower, the price of which is P9,000... The absence of an answer from you to our telegram of last
Saturday makes us believe of your conformity to the same... Court said: The question raised
here is whether or not the P7,000 in Exhibit 1 is payment of the promissory note in Exhibit A
P8,750. In Exhibit 1, the defendant made the payment of P7,000, dated February 16, 1916,
before the said note became due. It should be presumed that it is not a payment for this note
which the Defendant on that date was neither obliged nor able to pay. (This is an obligation with
a period. He must pay on the due date.) According to Article 1172 of the Civil Code, a person
owing several debts of the same kind in favor of a single creditor may declare at the time of
making a payment to which of them it is to be applied If, in making use of this right, the
Defendant applied the payment of P7,000 to another debt, he cannot now claim that it is
understood to be applied to his note for P8,750, Exhibit A. II. Interest Rates used 2nd Error
according to the defendant: The court erred in sentencing the Defendant to pay to (1) (a) the
8%, (b) the 10%, and (c) the 12.5% of the P7,583.93 - amount claimed in the 1st cause of action;
(2) (a) the 8%, (b) the 10%, and (c) the 12.5% of P1,059.17 amount in 2nd cause of action. (1)
Amount due is P8750 with interest of P138.05. There was a partial payment of P1921.67 on Nov.
2, 1915. So the court made P8750 P1921.67 + the whole P138.05. The lower court has
adjudicated to the Plaintiff interest on accrued interests till November 2, 1915. This is an error.
Article 1109 of the Civil Code only permits accrued interests to earn legal interest from the time
they have been judicially claimed. In this case the lower court awarded to the Plaintiff these
interests over the accrued interests, without an agreement to that effect and before they had been

judicially claimed It also appears that the lower court sentenced the Defendant to pay an interest
of 10 % on the accrued interests from the time the complaint was presented until it should have
been fully paid. This is also an error. Section 5 of the above-cited Act No. 2655 only permits an
interest of 6 % on accrued interests from the time they are judicially claimed. (2) In the 2nd
cause of action, the P1,059.17 - P1,000 is the original debt and P59.17 are the interests accruing
thereon till the date of the filing of the complaint. The lower court ordered to pay 10% interest
this entire amount from January 19, 1917, until it should have been fully paid. Again, it is error
for the lower court to order to pay 10 % interest on P59.17 the accumulated interests on the
capital. It should be 6 %only. The Defendant contends that this 25% on the capital and accrued
interests which was reduced to 12.5% by the lower court is illegal, contrary to Act No. 2655 and
exceeds the interest allowed by this Act. We are of the opinion that the rate specified in this Act
is not applicable to the instant case. The interest is a form of indemnification for damages. It may
consist in the loss of the very thing itself or in the deprivation of the enjoyment which should
have been obtained through its use. The stipulation for payment of certain fees such as attorneys
fees in case of noncompliance is not deemed to be an interest. It shall be considered as indirect or
simulated interest, according to the spirit of the law, and should therefore be subject to the
computation. In the case at bar, in our opinion, the amount which the Plaintiff was justly obliged
to pay for his attorneys fees, and should not be considered as interest in the computation of the
latter. Therefore, the lower court is correct in its order. III. Third Error The lower court erred:
(a) in sentencing the Defendant; and (b) in not sentencing the Plaintiff to pay to the Defendant
the sum of P678.50 the difference between the amounts paid by the latter and the amount
claimed by the former, excluding interests and costs. The first part of this error is decided in the
manner indicated herein before. With regard to the second part, we have examined the evidence
and fail to find any ground sustaining the contention of the Appellant.


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The appellee,
National Bank,
was the owne o!
two pa"els o!
lan# in Ne$os

O""i#ental% On
&a"h ', (')* the
Bank e+e"te# a
"onta"t to sell
the sai#
popeties to
Jose Pon"e #e
Leon !o the total
pi"e o! P-*,)..

% S/se0entl1,
Pon"e #e Leon
o/taine# a loan !
o2 Santia$o
S13"o, 4n" in the
a2ont o! P-..,...
in Japanese
&ilita1 Notes,
pa1a/le within one

5(6 1ea !o2

&a1 7, ('89% 4t
was also
poi#e# that
the Pon"e #e Leon
"ol# not pa1, an#
S13"o "ol# not
#e2an#, the
pa12ent o! sai#

note e+"ept within

the a!
peio#% To
se"e the
pa12ent o! sai#
o/li$ation, Pon"e
#e Leon
2ot$a$e# the

pa"els o! lan#
whi"h he a$ee#
to p"hase !
o2 the Bank%
Usin$ the loan,
Pon"e #e Leon
was a/le to pa1 the
Bank an# a #ee#
o! a/solte

salewas e+e"te#
in his na2e%
Pon"e #e Leon !
the o/taine#
an a##itional
loan !o2
S13"o% On
o""asions in

O"to/e, ('88,
Pon"e #e Leon
ten#ee# to
S13"o the
a2ont o! P78,99. in Japanese
2ilita1 notes in !
ll pa12ent o! his
in#e/te#ness whi"h

was e!se# /1
S13"o whi"h
Pon"e #e Leon
#eposite# with the
Clek o! Cot
o! the CF4% ;e
then <le# a
petition with the
CF4 !o the

e"onstittion o!
tans!e o! the
"eti<"ates o! the
lot in the na2e o!
the Bank whi"h
was $ante# /1
the "ot%
S13"o <le# a
se"on# a2en#e#

answe to Pon"e
#e Leon=s
"o2plaint "lai2in$
that Pon"e #e
Leon, /1
the titles in the
na2e o! the Bank, /
1 "asin$ the

>e$iste o!
Dee#s to hae the
sai# titles tans!
ee# in his
na2e, an# /1
2ot$a$in$ the
sai# popeties
to the Bank as a

$aant1 !o
his oe#a!t
a""ont, ha#
iolate# the
"on#itions o! the
2o$a$e whi"h
Pon"e #e Leon has
e+e"te# in its !
ao #in$

the Japanese
S13"o pa1e#
that the 2ot$a$e
e+e"te# /1 Pon"e
#e Leon in !
ao o! the
Bank /e #e"lae#
nll an# oi#

% On Jne -8,
('8', the lowe
en#ee# a
a/solin$ S13"o
!o2 Pon"e #e
Leon=s "o2plaint
an# "on#e2nin$

Pon"e #e Leon to
pa1 S13"o the
total a2ont o!
P-),(). with
inteest at the
le$al ate !o2
&a1 *, ('8', ntil !
pai# 4SSUE : 4s

the "onsi$nation
2a#e /1 the plainti?
ali# in the li$ht
o! the law an# the
a$ee# pon in
the two

notes si$ne# /1 the

>UL4N : No%
4n o#e that
2a1 /e e?e"tie,
the #e/to 2st
<st "o2pl1 with

pes"i/e# /1
law% The #e/to
2st show 5(6 that
thee was a #e/t
#e 5-6 that the
"onsi$nation o! the
o/li$ation ha# /een
2a#e /a"ase the

"e#ito to
who2 ten#e o!
pa12ent was 2a#e
e!se# to a""ept
it, o /e"ase he
was a/sent !o
o /e"ase

pesons "lai2e#
to /e entitle# to
e"eie the
a2ont #e
5At% ((*6
5)6 that
peios noti"e
o! the "onsi$nation
hae /een $ien

to the peson
inteeste# in the
pe!o2an"e o!
the o/li$ation
5At% ((6
586 that the
a2ont #e was
pla"e# at the
#isposal o! the

"ot 5At
((96 an# 576
that a!te the
ha# /een 2a#e the
inteeste# was
noti<e# theeo!
5At% ((96%

4n the instant "ase,

while it is a#2itte#
a #e/t e+iste#, that
the "onsi$nation
was 2a#e /e"ase
o! the e!sal o!
the "e#ito to
a""ept it, an# the
<lin$ o! the

"o2plaint to "o2pel
its a""eptan"e on
the pat o! the
"e#ito "an /e
s"ient noti"e o!
the "onsi$nation to
the "e#ito,
neetheless, it

appeas that at
least two o! the
hae not /een
"o2plie# with%
Ths, it appeas
that plainti?, /e!
oe 2akin$ the

"onsi$nation with
the "lek o! the
"ot,!aile# to
$ie peios
noti"e theeo! to
the peson
inteeste# in the
pe!o2an"e o!
the o/li$ation% 4t

also appeas that

the o/li$ation was
not 1et #e an#
#e2an#a/le when
the 2one1 was
/e"ase, as
alea#1 state#, /1
the e1

poisions o!
the #o"2ent
ei#en"in$ the
sa2e, the o/li$ation
was to /e pai#
within one 1ea
a!te &a1 7, ('89,
an# the

"onsi$nation was
2a#e /e!oe this
peio# 2ate#
% The !aile o!
these two
e0ie2ents is
eno$h $on#
to en#e the
"onsi$nation ine?

e"tie% An# it
"annot /e
"onten#e# that
plainti? is
3sti<e# in
a""eleatin$ the
pa12ent o! the
o/li$ation /e"ase
he was willin$ to

pa1 the inteests

#e p to the #ate
o! its 2atit1,
/e"ase, n#e
the law, in
"onta"te# with a
peio#, the

pes2ption is
that the sa2e is
"onstitte# in !
ao o! /oth the
"e#ito an# the
#e/to nless !
o2 its teno
o !o2 othe

"i"2stan"es it
appeas that the
peio# has /een
esta/lishe# !o
the /ene<t o!
eithe one o!
the2 5At% ((6% ;ee no
s"h e+"eption

o "i"2stan"e
e+ists%4t 2a1 /e
a$e# that the
"e#ito has
nothin$ to lose /t
ee1thin$ to
$ain /1 the
a""eleation o!
pa12ent o! the

o/li$ation /e"ase
the #e/to has o?
ee# to pa1 all
the inteests p
to the #ate it
wol# /e"o2e
#e, /t this
a$2ent loses !
o"e i! we

"onsi#e that the

pa12ent o!
inteests is not
the onl1 eason
wh1 a "e#ito
"annot /e !o"e#
to a""ept pa12ent
"onta1 to the

Thee ae
othe easons
wh1 this "annot /e
#one% One o!
the2 is that the
"e#ito 2a1
want to keep his
2one1 ineste#
sa!el1 instea# o!

hain$ it in his
han#s% Anothe
eason is that the
"e#ito /1
<+in$ a peio#
pote"ts hi2sel!
a$ainst s##en
#e"line in the

powe o! the
loane# spe"iall1 at
a ti2e when thee
ae 2an1 !
a"tos that
inen"e the
"tation o! the

An# all aaila/le

athoities onthe
2atte ae
a$ee# that,
nless the
"onsents, the
#e/to has no

i$ht to
the ti2e o! pa12ent
een i! the
in"l#e# an o?
e to pa1
pin"ipal an#

inteest in !ll