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Asilo v Bombasi


Private Respondent Visitacions late mother Marciana
Vda. De Coronado (Vda. De Coronado) and the
Municipality of Nagcarlan, Laguna entered into a lease
contract whereby the Municipality allowed the use and
enjoyment of property comprising of a lot and a store in
favor of the respondents mother for twenty years,
extendible for another 20 years. The lease contract
provided that the late Vda. De Coronado could build a
firewall on her rented property which must be at least
as high as the store; and in case of modification of the
public market, she or her heir/s would be given
preferential rights. Visitacion took over the store when
her mother died Visitacion secured the yearly Mayors
A fire razed the public market of Nagcarlan. Upon
Visitacions request for inspection, District Engineer
Gorospe of the then Ministry of Public Works and
Highways, found that the store of Visitacion remained
intact and stood strong. This finding of Engineer
Gorospe was contested by the Municipality of
Nagcarlan. The store of Visitacion continued to operate
after the fire.
The Sangguniang Bayan of Nagcarlan, Laguna issued
Resolution No. 183 authorizing Mayor Comendador to
demolish the store being occupied by Visitacion using
legal means. Mayor Comendador relying on the
strength of Sangguniang Bayan Resolution Nos. 183
and 156 authorized the demolition of the store with
Asilo and Angeles supervising the work.
Visitacion, filed with a case for damages before the
RTC. Spouses Bombasi, thereafter, filed a criminal
complaint21 against Mayor Comendador, Asilo and
Angeles for violation of Sec. 3(e) of Republic Act No.
3019 otherwise known as the "Anti-Graft and Corrupt
Practices Act" before the Office of the Ombudsman.
Sandiganbayan rendered a decision, finding the
accused Demetrio T. Comendador and Paulino S.
Asilo, Jr. guilty beyond reasonable doubt of violation of
Sec. 3(e) of Republic Act. No. 3019.
The counsel for the late Mayor also filed its Motion for
Reconsideration alleging that the death of the late
Mayor had totally extinguished both his criminal and
civil liability. The Sandiganbayan granted the extinction
of the criminal liability is concerned and denied the
extinction of the civil liability holding that the civil action
is an independent civil action. Hence, these Petitions
for Review on Certiorari.

1. WON the accused is guilty of violating RA 3019
2. WON the actual damages prayed for


1. The Supreme Court sustain the Sandiganbayan in
its finding of criminal and civil liabilities against
petitioner Asilo and petitioner Mayor Comendador.
The elements of the offense are as follows: (1) that the
accused are public officers or private persons charged
in conspiracy with them; (2) that said public officers
commit the prohibited acts during the performance of
their official duties or in relation to their public
positions; (3) that they caused undue injury to any
party, whether the Government or a private party; (4)
OR that such injury is caused by giving unwarranted
benefits, advantage or preference to the other party;
and (5) that the public officers have acted with manifest
partiality, evident bad faith or gross inexcusable
Clearly, the demolition of plaintiffs store was carried
out without a court order, and notwithstanding a
restraining order which the plaintiff was able to obtain.
The demolition was done in the exercise of official
duties which apparently was attended by evident bad
faith, manifest partiality or gross inexcusable
negligence as there is nothing in the two (2) resolutions
which gave the herein accused the authority to
demolish plaintiffs store.
The accused public officials were devoid of any power
to demolish the store. A closer look at the contested
resolutions reveals that Mayor Comendador was only
authorized to file an unlawful detainer case in case of
resistance to obey the order or to demolish the building
using legal means. Clearly, the act of demolition
without legal order in this case was not among those
provided by the resolutions, as indeed, it is a legally
impossible provision.
2. The amount of actual damages prayed for is
To seek recovery of actual damages, it is necessary to
prove the actual amount of loss with a reasonable
degree of certainty, premised upon competent proof
and on the best evidence obtainable. n this case, the
Court finds that the only evidence presented to prove
the actual damages incurred was the itemized list of

damaged and lost items prepared by Engineer

Cabrega, an engineer commissioned by the Spouses
Bombasi to estimate the costs.
The amount claimed by the respondent-claimants
witness as to the actual amount of damages "should be
admitted with extreme caution considering that,
because it was a bare assertion, it should be supported
by independent evidence." Whatever claim the
respondent witness would allege must be appreciated
in consideration of his particular self-interest. There
must still be a need for the examination of the
documentary evidence presented by the claimants to
support its claim with regard to the actual amount of
damages. The price quotation made by Engineer
Cabrega presented as an exhibit partakes of the nature
of hearsay evidence considering that the person who
issued them was not presented as a witness.
People of the Philippines v. Anastacio Amistoso y
G.R. No. 201447, January 9, 2013
Accused-appellant Amistoso was charged with the
crime of qualified rape under Article 266-A par. d. The
RTC and CA convicted him of the crime charged.
The victim, AAA, is the second of five children of
Amistoso and BBB. She was exactly 12 years, one
month and eight days old when Amistoso committed
the crime of qualified rape against her. One morning,
Amistoso got mad at AAA because she refused to go
with her father to the forest to get a piece of wood
which Amistoso would use as a handle for his bolo.
Because of this, a quarrel erupted between Amistoso
and BBB. In his fury, Amistoso attempted to hack AAA.
BBB ran away with her other children to her mothers
house in another barangay. AAA, however, stayed
behind because she was afraid that Amistoso would
get even madder at her.
That night, AAA was awakened when Amistoso,
already naked, mounted her. Amistoso reached under
AAAs skirt and removed her panties. AAA shouted,
Pa, ayaw man! (Pa, please dont!), but Amistoso
merely covered AAAs mouth with one hand. Amistoso
then inserted his penis inside AAAs vagina. The pain
AAA felt made her cry. After he had ejaculated,
Amistoso stood up. AAA noticed white substance and
blood coming from her vagina. Amistoso told AAA not
to tell anyone what happened between them,
otherwise, he would kill her. AAA left their house the

next day and went to the house of a certain Julie to

whom AAA narrated what happened to her.
Accused-appellant interpose alibi and denial as his
defense. He avers that it is impossible for him to have
committed the crime as he was away their house for
work and that AAA was only manipulated by BBB to
have false charges against him since he allegedly
caught BBB with another man.
Is the accused-appellant guilty of the crime of qualified
rape against his daughter?
YES, the prosecution established all the elements to
constitute qualified rape. The elements of rape under
Article 266-A, paragraph (1)(a) of the Revised Penal
Code, as amended, are: (1) that the offender had
carnal knowledge of a woman; and (2) that such act
was accomplished through force, threat, or
intimidation. However, when the offender is the victims
father, there need not be actual force, threat, or
intimidation because the moral and physical dominion
of the father is sufficient to cow the victim into
submission to his beastly desires. His moral
ascendancy or influence over the latter substitutes for
violence and intimidation.
To raise the crime of simple rape to qualified rape
under Article 266-B, paragraph (1) of the Revised
Penal Code, as amended, the twin circumstances of
minority of the victim and her relationship to the
offender must concur. In the case at bar, the foregoing
elements of qualified rape under Article 266-A,
paragraph (1)(a), in relation to Article 266-B ,
paragraph (1), of the Revised Penal Code, as
amended, are sufficiently alleged in the Information
against Amistoso, viz: (1) Amistoso succeeded in
having carnal knowledge of AAA against her will and
without her consent; (2) AAA was 12 years old on the
day of the alleged rape; and (3) Amistoso is AAAs
The Court finds that the prosecution was able to
successfully establish all the elements of the crime.
Accused-appellants defense of denial and alibi cannot
prevail over the victims clear, consistent, and credible
account of the events of the incident in a
straightforward and candid manner. As such, accusedappellants guilt of the crime of qualified rape is proven
beyond reasonable doubt

psba vs ca digest
FACTS: Carlitos Bautista was a third year student at
the Philippine School of Business Administration.
Assailants, who were not members of the schools
academic community, while in the premises of PSBA,
stabbed Bautista to death. This incident prompted his
parents to file a suit against PSBA and its corporate
officers for damages due to their alleged negligence,
recklessness and lack of security precautions, means
and methods before, during and after the attack on the

necessary tools and skills to pursue higher education

or a profession. This includes ensuring the safety of
the students while in the school premises. On the other
hand, the student covenants to abide by the school's
academic requirements and observe its rules and
Failing on its contractual and implied duty to ensure the
safety of their student, PSBA is therefore held liable for
his death.
Petition denied.

The defendants filed a motion to dismiss, claiming that

the compliant states no cause of action against them
based on quasi-delicts, as the said rule does not cover
academic institutions. The trial court denied the motion
to dismiss. Their motion for reconsideration was
likewise dismissed, and was affirmed by the appellate
court. Hence, the case was forwarded to the Supreme
ISSUE: Whether or not PSBA is liable for the death of
the student.
RULING: Because the circumstances of the present
case evince a contractual relation between the PSBA
and Carlitos Bautista, the rules on quasi-delict do not
really govern. A perusal of Article 2176 shows that
obligations arising from quasi-delicts or tort, also
known as extra-contractual obligations, arise only
between parties not otherwise bound by contract,
whether express or implied. However, this impression
has not prevented this Court from determining the
existence of a tort even when there obtains a contract.
Article 2180, in conjunction with Article 2176 of the Civil
Code, establishes the rule in in loco parentis. Article
2180 provides that the damage should have been
caused or inflicted by pupils or students of the
educational institution sought to be held liable for the
acts of its pupils or students while in its custody.
However, this material situation does not exist in the
present case for, as earlier indicated, the assailants of
Carlitos were not students of the PSBA, for whose acts
the school could be made liable. But it does not
necessarily follow that PSBA is absolved form liability.
When an academic institution accepts students for
enrollment, there is established a contract between
them, resulting in bilateral obligations which both
parties is bound to comply with. For its part, the school
undertakes to provide the student with an education
that would presumably suffice to equip him with the

amadora vs ca
In April 1972, while the high school students of Colegio
de San Jose-Recoletos were in the school auditorium,
a certain Pablito Daffon fired a gun. The stray bullet hit
Alfredo Amadora. Alfredo died. Daffon was convicted of
reckless imprudence resulting in homicide. The parents
of Alfredo sued the school for damages under Article
2180 of the Civil Code because of the schools
The trial court ruled in favor of Amadora. The trial court
ruled that the principal, the dean of boys, as well as the
teacher-in-charge are all civilly liable. The school
appealed as it averred that when the incident
happened, the school year has already ended.
Amadora argued that even though the semester has
already ended, his son was there in school to complete
a school requirement in his Physics subject. The Court
of Appeals ruled in favor of the school. The CA ruled
that under the last paragraph of Article 2180, only
schools of arts and trades (vocational schools) are
liable not academic schools like Colegio de San JoseRecoletos.

ISSUE: Whether







Recoletos, an academic school, is liable under Article

2180 of the Civil Code for the tortuous act of its

HELD: Yes.






begun or has already ended at the time of the

examination of the provision on the last paragraph of

happening of the incident. As long as it can be shown

Article 2180 which provides:

that the student is in the school premises in pursuance

of a legitimate student objective, in the exercise of a
legitimate student right, and even in the enjoyment of a

Lastly, teachers or heads of establishments of arts and

trades shall be liable for damages caused by their
pupils and students or apprentices so long as they
remain in their custody.

legitimate student right, and even in the enjoyment of a

legitimate student privilege, the responsibility of the
school authorities over the student continues. Indeed,
even if the student should be doing nothing more than
relaxing in the campus in the company of his

The Supreme Court said that it is time to update the

classmates and friends and enjoying the ambience and

interpretation of the above law due to the changing

atmosphere of the school, he is still within the custody

times where there is hardly a distinction between

and subject to the discipline of the school authorities

schools of arts and trade and academic schools. That

under the provisions of Article 2180.

being said, the Supreme Court ruled that ALL schools,

academic or not, may be held liable under the said
provision of Article 2180.
The Supreme Court however clarified that the school,
whether academic or not, should not be held directly
liable. Its liability is only subsidiary.

At any rate, the REMEDY of the teacher, to avoid direct

liability, and for the school, to avoid subsidiary liability,
is to show proof that he, the teacher, exercised the
necessary precautions to prevent the injury complained
of, and the school exercised the diligence of a bonus
pater familias.

For non-academic schools, it would be the principal or

head of school who should be directly liable for the
tortuous act of its students. This is because historically,
in non-academic schools, the head of school exercised
a closer administration over their students than heads
of academic schools. In short, they are more hands on
to their students.

For academic schools, it would be the teacher-incharge who would be directly liable for the tortuous act
of the students and not the dean or the head of school.

The Supreme Court also ruled that such liability does

not cease when the school year ends or when the
semester ends. Liability applies whenever the student
is in the custody of the school authorities as long as he
is under the control and influence of the school and
within its premises, whether the semester has not yet

In this case however, the Physics teacher in charge

was not properly named, and there was no sufficient
evidence presented to make the said teacher-in-charge
liable. Absent the direct liability of the teachers
because of the foregoing reason, the school cannot be
held subsidiarily liable too.

Khe Hong Cheng vs CA 355 SCRA 701 (2001)

Petition for Review on Certiorari under Rule 45, seeking to set aside
the decision of the Court of Appeals dated April 10, 2000 and its
resolution dated July 11, 2000 denying the motion for reconsideration
of the aforesaid decision.
- Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines.- The Philippine Agricultural Trading Corporation
shipped on board the vessel M/VPRINCE ERIC, owned by petitioner
Khe Hong Cheng, 3,400 bags of copra atMasbate, Masbate, for
delivery to Dipolog City, Zamboanga del Norte.
- The said shipment of copra was covered by a marine insurance
policy issued byAmerican Home Insurance Company (respondent
Philam's assured).
- M/V PRINCE ERIC sank somewhere between Negros Island and
NortheasternMindanao, resulting in the total loss of the shipment.
Because of the loss, theinsurer, American Home, paid the amount of
P354,000.00 (the value of the copra)to the consignee.

- Having been subrogated into the rights of the consignee, American

Homeinstituted a civil case to recover the money paid to the
consignee, based on breachof contract of carriage.
- While the case was still pending, or on December 20, 1989,
petitioner Khe HongCheng executed deeds of donations of parcels of
land in favor of his children, hereinco-petitioners Sandra Joy and Ray
- The trial court rendered judgment against petitioner in the civil case
on December29, 1993, four years after the donations were made
and the TCTs were registered inthe donees names ordering him to
pay herein respondents.- After the said decision became final and
executory, a writ of execution wasforthwith. Said writ of execution,
however, was not served. An alias writ of execution was, thereafter,
applied for and granted.- Despite earnest efforts, the sheriff found no
property under the name of ButuanShipping Lines and/or petitioner
Khe Hong Cheng to levy or garnish for thesatisfaction of the trial
court's decision. When the sheriff, accompanied by counselof
respondent Philam, went to Butuan City on January 17, 1997, to
enforce the aliaswrit of execution, they discovered that petitioner Khe
Hong Cheng no longer hadany property and that he had conveyed
the subject properties to his children.
- Respondent Philam filed a complaint for the rescission of the deeds
of donationexecuted by petitioner Khe Hong Cheng in favor of his
children and for thenullification of their titles. Respondent Philam
alleged, that petitioner executed theaforesaid deeds in fraud of his
creditors, including respondent Philam.
Petitioners Claim
Petitioners moved for its dismissal on the ground that theaction had
already prescribed. They posited that the registration of the deeds of
donation on December 27, 1989 constituted constructive notice and
since thecomplaint a quo was filed only on February 25, 1997, or
more than four (4) yearsafter said registration, the action was already
barred by prescription.- The trial court denied the motion to dismiss.
It held that respondent Philam'scomplaint had not yet prescribed.
According to the trial court, the prescriptiveperiod began to run only
from December 29, 1993, the date of the decision of thetrial court in
Civil Case No. 13357
- On appeal by petitioners, the CA affirmed the trial court's decision
in favor of respondent Philam. The CA declared that the action to
rescind the donations hadnot yet prescribed. Citing Articles 1381 and
1383 of the Civil Code, the CA ruledthat the four year period to
institute the action for rescission began to run only in January 1997,
and not when the decision in the civil case became final
andexecutory on December 29, 1993. The CA reckoned the accrual
of respondentPhilam's cause of action on January 1997, the time
when it first learned that the judgment award could not be satisfied
because the judgment creditor, petitionerKhe Hong Cheng, had no
more properties in his name. Prior thereto, respondentPhilam had
not yet exhausted all legal means for the satisfaction of the decision
inits favor, as prescribed under Article 1383 of the Civil Code.Petitioners motion for reconsideration was likewise dismissed in the
appellatecourt's resolution dated July 11, 2000.
1. WON the action to rescind the donations has already prescribed.
2. When did the four (4) year prescriptive period as provided for in
Article 1389 of the Civil Code for respondent Philam to file its action
for rescission of the subjectdeeds of donation commence to run?

1. NO. The action to rescind the donations has already prescribed.
Article 1389 of the Civil Code simply provides that, The action to
claimrescission must be commenced within four years. Since this
provision of law issilent as to when the prescriptive period would
commence, the general rule, i.e,from the moment the cause of action
accrues, therefore, applies.- Art. 1150. The time for prescription for
all kinds of actions, when there is nospecial provision which ordains
otherwise, shall be counted from the day they maybe brought.
2. The Court enunciated the principle that it is the legal possibility of
bringing theaction which determines the starting point for the
computation of the prescriptiveperiod for the action.

- Art. 1383. An action for rescission is subsidiary; it cannot be

instituted except when the party suffering damage has no other legal
means to obtain reparation for the same.
-An action to rescind or an accionpauliana must be of last resort,
availed of onlyafter all other legal remedies have been exhausted
and have been proven futile.
Foran accionpauliana to accrue, the following requisites must
1) That the plaintiff asking for rescission has a credit prior to the
alienation,although demandable later;
2) That the debtor has made a subsequent contractconveying a
patrimonial benefit to a third person;
3) That the creditor has no otherlegal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent;
5) That the thirdperson who received the property conveyed, if by
onerous title, has been anaccomplice in the fraud.
- An accionpaulianathus presupposes the following:
1) A judgment;
2) the issuanceby the trial court of a writ of execution for the
satisfaction of the judgment, and 3)the failure of the sheriff to enforce
and satisfy the judgment of the court. It requires that the creditor has
exhausted the property of the debtor. The date of the decision of the
trial court is immaterial. What is important is that the credit of the
plaintiffantedates that of the fraudulent alienation by the debtor of his
property. After all,the decision of the trial court against the debtor will
retroact to the time when thedebtor became indebted to the creditor.
Petitioners argument that the Civil Code must yield to the
Mortgageand Registration Laws is misplaced, for in no way does this
imply that the specificprovisions of the former may be all together
ignored. To count the four yearprescriptive period to rescind an
allegedly fraudulent contract from the date of registration of the
conveyance with the Register of Deeds, as alleged by thepetitioners,
would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an
action for rescission of an allegedly fraudulent conveyance of
property, i.e., the creditor hasno other legal remedy to satisfy his
claim.- Even if respondent Philam was aware, as of December 27,
1989, that petitionerKhe Hong Cheng had executed the deeds of
donation in favor of his children, thecomplaint against Butuan
Shipping Lines and/or petitioner Khe Hong Cheng was stillpending
before the trial court. Respondent Philam had no inkling, at the time,
thatthe trial court's judgment would be in its favor and further, that
such judgmentwould not be satisfied due to the deeds of donation
executed by petitioner KheHong Cheng during the pendency of the
case. Had respondent Philam filed hiscomplaint on December 27,
1989, such complaint would have been dismissed forbeing
premature. Not only were all other legal remedies for the
enforcement of respondent Philams claims not yet exhausted at the
time the deeds of donationwere executed and registered.
Respondent Philam would also not have been able toprove then that
petitioner Khe Hong Chneg had no more property other than
thosecovered by the subject deeds to satisfy a favorable judgment
by the trial court.It bears stressing that petitioner Khe Hong Cheng
even expressly declared andrepresented that he had reserved to
himself property sufficient to answer for his debts
-Respondent Philam only learned about the unlawful conveyances
made bypetitioner Khe Hong Cheng in January 1997 when its
counsel accompanied thesheriff to Butuan City to attach the
properties of petitioner Khe Hong Cheng. Therethey found that he no
longer had any properties in his name. It was only then
thatrespondent Philam's action for rescission of the deeds of
donation accrued becausethen it could be said that respondent
Philam had exhausted all legal means tosatisfy the trial court's
judgment in its favor. Since respondent Philam filed itscomplaint for
accionpauliana against petitioners on February 25, 1997, barely
amonth from its discovery that petitioner Khe Hong Cheng had no

other property tosatisfy the judgment award against him, its action for
rescission of the subjectdeeds clearly had not yet prescribed.
The petition was DENIED for lack of merit

DECISION OF LOWER COURTS: * trial court: ordered payment of

damages, jointly and severally * CA: affirmed trial court.

Maria Antonia Siguan vs. Rosa Lim, Linde Lim, Ingrid Lim and
Neil Lim318SCRA 725; G.R. No. 134685; November 19, 1999
A criminal case was filed against LIM with RTC-Cebu city for issuing
2 bouncing checks in the amounts of P300,000 and P241,668,
respectively to SiguanMeanwhile, on 2 July 1991, a Deed of
Donation conveying the following parcels of land and purportedly
executed by LIM on 10 August 1989 in favor of her children, Linde,
Ingrid and Neil, was registered with the Office of the Register of
Deeds of Cebu City. New transfer certificates of title were thereafter
issued in the names of the donees. On 23 June 1993, petitioner filed
an accionpauliana against LIM and her children before RTC-Cebu
City to rescind the questioned Deed of Donation and to declare as
null and void the new transfer certificates of title issued for the lots
covered by the questioned Deed.
Petitioners contention: claimed therein that sometime in July 1991,
LIM, through a Deed of Donation, fraudulently transferred all her real
property to her children in bad faith and in fraud of creditors,
including her; that LIM conspired and confederated with her children
in antedating the questioned Deed of Donation, to petitioner's and
other creditors' prejudice; and that LIM, at the time of the fraudulent
conveyance, left no sufficient properties to pay her obligations.
LIMs contention: As regards the questioned Deed of Donation, LIM
maintained that it was not antedated but was made in good faith at a
time when she had sufficient property. Finally, she alleged that the
Deed of Donation was registered onlyon 2 July 1991 because she
was seriously ill
Issue: Whether the Deed of Donation executed by Rosa Lim (LIM) in
favor of her children be rescinded for being in fraud of petitioner
Maria Antonia Siguan?
Even assuming arguendo that petitioner became a creditor of LIM
prior to the celebration of the contract of donation, still her action for
rescission would not fare well because the third requisite was not
met. Under Article 1381 of the Civil Code, contracts entered into in
fraud of creditors may be rescinded only when the creditors cannot in
any manner collect the claims due them. Also, Article 1383 of the
same Code provides that the action for rescission is but a subsidiary
remedy which cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same.
The term "subsidiary remedy" has been defined as "the exhaustion
of all remedies by the prejudiced creditor to collect claims due him
before rescission is resorted to." It is, therefore, "essential that the
party asking for rescission prove that he has exhausted all other
legal means to obtain satisfaction of his claim. Petitioner neither
alleged nor proved that she did so. On this score, her action for the
rescission of the questioned deed is not maintainable even if the
fraud charged actually did exist."
(Credit Transactions)
This is an action against defendants shipping company, arrastre
operator and broker-forwarder for damages sustained by a shipment
while in defendants' custody, filed by the insurer-subrogee who paid
the consignee the value of such losses/damages.
the losses/damages were sustained while in the respective and/or
successive custody and possession of defendants carrier (Eastern),
arrastre operator (Metro Port) and broker (Allied Brokerage).
As a consequence of the losses sustained, plaintiff was compelled to
pay the consignee P19,032.95 under the aforestated marine
insurance policy, so that it became subrogated to all the rights of
action of said consignee against defendants.

(a) whether or not a claim for damage sustained on a shipment of

goods can be a solidary, or joint and several, liability of the common
carrier, the arrastre operator and the customs broker;
YES, it is solidary. Since it is the duty of the ARRASTRE to take
good care of the goods that are in its custody and to deliver them in
good condition to the consignee, such responsibility also devolves
upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good
condition to the consignee.
The common carrier's duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to
or unconditionally placed in the possession of, and received by, the
carrier for transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person entitled to
receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of
Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil.
863). When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of
negligence to hold it liable.
(b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or
from the date the decision appealed from is rendered; and
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.

(c) whether the applicable rate of interest, referred to above, is

twelve percent (12%) or six percent (6%).
SIX PERCENT (6%) on the amount due computed from the decision,
dated 03 February 1988, of the court a quo (Court of Appeals) AND A
TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%),
shall be imposed on such amount upon finality of the Supreme Court
decision until the payment thereof.

promulgation of the BangkoSentral ng Pilipinas Monetary Board

Resolution No. 796 which lowered the legal rate of interest from 12%
to 6%. Specifically, the rules on interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)

RATIO: when the judgment awarding a sum of money becomes final

and executory, the monetary award shall earn interest at 12% per
annum from the date of such finality until its satisfaction, regardless
of whether the case involves a loan or forbearance of money. The
reason is that this interim period is deemed to be by then equivalent
to a forbearance of credit.
NOTES: the Central Bank Circular imposing the 12% interest per
annum applies only to loans or forbearance of money, goods or
credits, as well as to judgments involving such loan or forbearance of
money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a
delay in the performance of obligations in general. Observe, too, that
in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the
complaint is filed until the adjudged amount is fully paid.

a.2. rate of interest shall be that amount stipulated

b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon extrajudicial demand or upon judicial demand whichever is appropriate
and subject to the provisions of Article 1169 of the Civil Code)
b.2. rate of interest shall be 6% per annum

Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum,

demandable from date of judicial or extra-judicial
demand (Art.
1169, Civil Code)
b. If unliquidated, no interest

703 SCRA 439 Civil Law Torts and Damages Actual and
Compensatory Damages Legal Rate of Interest is now 6%
Labor Law Labor Relations Illegal Dismissal Computation of
Monetary Benefits

Except: When later on established with certainty. Interest shall still be

6% per annum demandable from the date of judgment because such
on such date, it is already deemed that the amount of damages is
already ascertained.

Dario Nacar vs Gallery Frames

Dario Nacar filed a labor case against Gallery Frames and its owner
Felipe Bordey, Jr. Nacar alleged that he was dismissed without
cause by Gallery Frames on January 24, 1997. On October 15,
1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal
dismissal hence the Arbiter awarded NacarP158,919.92 in damages
consisting of backwages and separation pay.

3. Compounded Interest

Gallery Frames appealed all the way to the Supreme Court (SC).
The Supreme Court affirmed the decision of the Labor Arbiter and
the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion before the
LA for recomputation as he alleged that his backwages should be
computed from the time of his illegal dismissal (January 24, 1997)
until the finality of the SC decision (May 27, 2002) with interest. The
LA denied the motion as he ruled that the reckoning point of the
computation should only be from the time Nacar was illegally
dismissed (January 24, 1997) until the decision of the LA (October
15, 1998). The LA reasoned that the said date should be the
reckoning point because Nacar did not appeal hence as to him, that
decision became final and executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes to illegal
dismissal cases (referring to cases where the dismissed employee
wins, or loses but wins on appeal). The first part is the ruling that the
employee was illegally dismissed. This is immediately final even if
the employer appeals but will be reversed if employer wins on
appeal. The second part is the ruling on the award of backwages
and/or separation pay. For backwages, it will be computed from the
date of illegal dismissal until the date of the decision of the Labor
Arbiter. But if the employer appeals, then the end date shall be
extended until the day when the appellate courts decision shall
become final. Hence, as a consequence, the liability of the employer,
if he loses on appeal, will increase this is just but a risk that the
employer cannot avoid when it continued to seek recourses against
the Labor Arbiters decision. This is also in accordance with Article
279 of the Labor Code.
Anent the issue of award of interest in the form of actual or
compensatory damages, the Supreme Court ruled that the old case
of Eastern Shipping Lines vs CA is already modified by the

This is applicable to both monetary and non-monetary obligations

6% per annum computed against award of damages (interest)
granted by the court. To be computed from the date when the courts
decision becomes final and executory until the award is fully satisfied
by the losing party.
4. The 6% per annum rate of legal interest shall be applied
Final and executory judgments awarding damages prior to July 1,
2013 shall apply the 12% rate;
Final and executory judgments awarding damages on or after July
1, 2013 shall apply the 12% rate for unpaid obligations until June 30,
2013; unpaid obligations with respect to said judgments on or after
July 1, 2013 shall still incur the 6% rate.
Advocates for Truth in Lending Act Vs BSP
"Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, nonstock corporation organized to engage in pro bono concerns and
activities relating to money lending issues. It was incorporated on
July 9, 2010,and a month later, it filed this petition, joined by its
founder and president, Eduardo B. Olaguer, suing as a taxpayer and
a citizen.
R.A. No. 265, which created the Central Bank on June 15,
1948, empowered the CB-MB toset the maximum interest rates
which banks may charge for all types of loans and other credit
The Usury Law was amended by P.D.1684, giving the CB-MB
authority to prescribe different maximum rates of interest which may
be imposed for a loan or renewal thereof or the forbearance of any
money, goods or credits, provided that the changes are effected
gradually and announced in advance. Section 1-a of Act No. 2655
now reads:
In its Resolution No. 2224 dated December 3, 1982, the CBMB issued CB Circular No. 905, Series of 1982, effective on January

1, 1983. It removed the ceilings on interest rates on loans or

forbearance of any money, goods or credits:
Sec. 1. The rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any money, goods, or
credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or
pursuant to the Usury Law, as amended.
R.A. No. 7653 establishing the BSP replaced the CB:
Sec. 135. Repealing Clause. Except as may be provided for in
Sections 46 and 132 of this Act, Republic Act No. 265, as amended,
the provisions of any other law, special charters, rule or regulation
issued pursuant to said Republic Act No. 265, as amended, or parts
thereof, which may be inconsistent with the provisions of this Act are
hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Note: R.A. 7653 the law that created BSP to replace CB Note:
this law did not retain the same provision as that of Section 109 in
RA 265.

To justify their skipping the hierarchy of courts petitioners

contend the transcendental importance of their Petition:
CB-MB statutory or constitutional authority to prescribe the
maximum rates of interest for all kinds of credit transactions and
forbearance of money, goods or credit beyond the limits prescribed
in the Usury Law;
If so, whether the CB-MB exceeded its authority when it
issued CB Circular No. 905, which removed all interest ceilings and
thus suspended Act No. 2655 as regards usurious interest rates;
Whether under R.A. No. 7653, the new BSP-MB may
continue to enforce CB Circular No. 905.

Petitioners contend that under Section 1-a of Act No. 2655, as

amended by P.D. No. 1684, the CB-MB was authorized only to
prescribe or set the maximum rates of interest for a loan or renewal
thereof or for the forbearance of any money, goods or credits, and to
change such rates whenever warranted by prevailing economic and
social conditions, the changes to be effected gradually and on
scheduled dates; that nothing in P.D. No. 1684 authorized the CBMB to lift or suspend the limits of interest on all credit transactions,
when it issued CB Circular No. 905. They further insist that under
Section 109 of R.A. No. 265, the authority of the CB-MB was clearly
only to fix the banks maximum rates of interest, but always within the
limits prescribed by the Usury Law.

CB Circular No. 905, which was promulgated without the

benefit of any prior public hearing, is void because it violated NCC 5
which provides that "Acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law
itself authorizes their validity."

weeks after the issuance of CB Circular No. 905, the

benchmark 91-day Treasury bills shot up to 40% PA, as a result. The
banks followed suit and re-priced their loans to rates which were
even higher than those of the "Jobo" bills.

CB Circular No. 905 is also unconstitutional in light of the Bill

of Rights, which commands that "no person shall be deprived of life,
liberty or property without due process of law, nor shall any person
be denied the equal protection of the laws."

R.A. No. 7653 did not re-enact a provision similar to Section

109 of RA 265, and therefore, in view of the repealing clause in
Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the
power either to prescribe the maximum rates of interest which banks
may charge for different kinds of loans and credit transactions, or to
suspend Act No. 2655 and continue enforcing CB Circular No. 905.
CB-MB merely suspended the effectivity of the Usury Law when it
issued CB Circular No. 905.
In Medel v. CA, it was said that the circular did not repeal nor amend
the Usury Law but simply suspended its effectivity; that a Circular
cannot repeal a low; that by virtue of CB the Usury Law has been
rendered ineffective; that the Usury has been legally non-existent in
our jurisdiction and interest can now be charged as lender and
borrow may agree upon.
Circular upheld the parties freedom of contract to agree freely on the
rate of interest citing Art. 1306 under which the contracting parties
may establish such stipulations, clauses terms and conditions as
they may deem convenient provided they are not contrary to law,
morals, good customs, public order or public policy.
BSP-MB has authority to enforce CB Circular No. 905.

RA 265 covered only banks while Section 1-a of the Usury Law,
empowers the Monetary Board, BSP for that matter, to prescribe the
maximum rate or rates of interest for all loans or renewals thereof or
the forbearance of any money, good or credits
The Usury Law is broader in scope than RA 265, now RA 7653, the
later merely supplemented the former as it provided regulation for
loans by banks and other financial institutions. RA 7653 was not
unequivocally repealed by RA 765.
CB Circular 905 is essentially based on Section 1-a of the Usury Law
and the Usury Law being broader in scope than the law that created
the Central Bank was not deemed repealed when the law replacing
CB with the BangkoSentral was enacted despite the nonreenactment in the BSP Law of a provision in the CB Law which the
petitioners purports to be the basis of Circular 905. Maguloba?
Hahaha. Basta the present set up is: The power of the BSP
Monetary Board to determine interest rates emanates from the Usury
Law [which was further specified by Circular 905].
Granting that the CB had power to "suspend" the Usury Law, the
new BSP-MB did not retain this power of its predecessor, in view of
Section 135 of R.A. No. 7653, which expressly repealed R.A. No.
265. The petitioners point out that R.A. No. 7653 did not reenact a
provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered
only loans extended by banks, whereas under Section 1-a of the
Usury Law, as amended, the BSP-MB may prescribe the maximum
rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans
of low priority such as consumer loans, as well as such loans made
by pawnshops, finance companies and similar credit institutions. It
even authorizes the BSP-MB to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A.
No. 265, now R.A. No. 7653, merely supplemented it as it concerns
loans by banks and other financial institutions. Had R.A. No. 7653
been intended to repeal Section 1-a of Act No. 2655, it would have
so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not
favored, because laws are presumed to be passed with deliberation
and full knowledge of all laws existing pertaining to the subject.An
implied repeal is predicated upon the condition that a substantial
conflict or repugnancy is found between the new and prior laws.
Thus, in the absence of an express repeal, a subsequent law cannot
be construed as repealing a prior law unless an irreconcilable
inconsistency and repugnancy exists in the terms of the new and old
laws. We find no such conflict between the provisions of Act 2655
and R.A. No. 7653.
#generaliaspecialibus non derogant
The lifting of the ceilings for interest rates does not authorize
stipulations charging excessive, unconscionable, and iniquitous
In Castro v. Tan, the Court held that the imposition of unconscionable
interest is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property repulsive to the
common sense of man.
They are struck down for being contrary to morals, if not against the
law, therefore deemed inexistent and void ab initio. However this
nullity does not affect the lenders right to recover the principal of the
loan nor affect the other terms thereof.
Gaite vs. Fonacier, [G.R. No. L-11827, July 31, 1961]
Facts: Defendant-appellant Fonacier was the owner/holder of 11 iron
lode mineral claims, known as the Dawahan Group, situated in
Camrines Norte.
By Deed of Assignment, Respondent constituted and appointed
plaintiff-appellee Gaite as attorney-in-fact to enter into contract for
the exploration and development of the said mining claims on. On
March 1954, petitioner executed a general assignment conveying the
claims into the Larap Iron Mines, which owned solely and belonging
to him. Thereafter, he underwent development and the exploitation
for the mining claims which he estimates to be approximately 24
metric tons of iron ore.
However, Fonacier decide to revoke the authority given to Gaite,
whereas respondent assented subject to certain conditions.

Consequently a revocation of Power of Attorney and Contract was

executed transferring P20k plus royalties from the mining claims, all
rights and interest on the road and other developments done, as well
as , the right to use of the business name, goodwill, records,
documents related to the mines. Furthermore, included in the
transfer was the rights and interest over the 24K+ tons of iron ore
that had been extracted. Lastly the balance of P65K was to be paid
for covering the first shipment of iron ores.
To secure the payment of P65k, respondent executed a surety bond
with himself as principal, the Larap Mines and Smelting Co. and its
stockholder as sureties. Yet, this was refused by petitioner. Appelle
further required another bond underwritten by a bonding company to
secure the payment of the balance. Hence a second bond was
produced with Far Eastern Surety as an additional surety, provided
the liability of Far Eastern would only prosper when there had been
an actual sale of the iron ores of not less than the agreed amount of
P65k, moreover, its liability was to automatically expire on December
On December 1955, the second bond had expired and no sale
amounting to the stipulation as prior agreed nor had the balance
been paid to petitioner by respondent. Thus such failure, prompted
petitioner to file a complaint in the CFI of Manila for the payment of
the balance and other damages.
The Trial Court ruled in favor of plaintiff ordering defendant to pay the
balance of P65k with interest. Afterwards an appeal was affected by
the respondent where several motions were presented for resolution:
a motion for contempt; two motions to dismiss the appeal for
becoming moot and academic; motion for a new trial, filed by
appellee Gaite. The motion for contempt was held unmeritorious,
while the rest of the motions were held unnecessary to resolve
Issue: Whether or not the Lower Court erred in holding the obligation
of appellant Fonacier to pay appelleGaite the balance of P65k, as
one with a period or term and not one with a suspensive condition;
and that the term expired on December 1955
Held: No error was found, affirming the decision of the lower court.
Gaite acted within his rights in demanding payment and instituting
this action one year from and after the contract was executed, either
because the appellant debtors had impaired the securities originally
given and thereby forfeited any further time within which to pay; or
because the term of payment was originally of no more than one
year, and the balance of P65k, became due and payable thereafter.
The Lower Court was legally correct in holding the shipment or sale
of the iron ore is not a condition or suspensive to the payment of the
balance of P65k, but was only a suspensive period or term. What
characterizes a conditional obligation is the fact that its efficacy or
obligatory force as distinguished from its demandability, is
subordinated to the happening of a future and uncertain event; so
that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.
The sale of the ore to Fonacier was a sale on credit, and not an
aleatory contract where the transferor, Gaite, would assume the risk
of not being paid at all; and that the previous sale or shipment of the
ore was not a suspensive condition for the payment of the balance of
the agreed price, but was intended merely to fix the future date of the
While as to the right of Fonacier to insist that Gaite should wait for
the sale or shipment of the ore before receiving payment; or, in other
words, whether or not they are entitled to take full advantage of the
period granted them for making the payment. The appellant had
indeed have forfeited the right to compel Gaite to wait for the sale of
the ore before receiving payment of the balance of P65,000.00,
because of their failure to renew the bond of the Far Eastern Surety
Company or else replace it with an equivalent guarantee. The
expiration of the bonding company's undertaking on December 8,
1955 substantially reduced the security of the vendor's rights as
creditor for the unpaid P65,000.00, a security that Gaite considered
essential and upon which he had insisted when he executed the
deed of sale of the ore to Fonacier (first bond).

Under paragraphs 2 and 3 of Article 1198 of the Civil Code of the

Philippines: ART. 1198. The debtor shall lose every right to make use
of the period: (2) When he does not furnish to the creditor the
guaranties or securities which he has promised. (3) When by his own
acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory.
Appellants' failure to renew or extend the surety company's bond
upon its expiration plainly impaired the securities given to the creditor
(appellee Gaite), unless immediately renewed or replaced.
Nevertheless, there is no merit in appellants' argument that Gaite's
acceptance of the surety company's bond with full knowledge that on
its face it would automatically expire within one year was a waiver of
its renewal after the expiration date. No such waiver could have been
intended, for Gaite stood to lose and had nothing to gain barely; and
if there was any, it could be rationally explained only if the appellants
had agreed to sell the ore and pay Gaite before the surety
company's bond expired on December 8, 1955. But in the latter case
the defendants-appellants' obligation to pay became absolute after
one year from the transfer of the ore to Fonacier by virtue of the
deed, first bond.
No. 131784 September 16, 1999 FACTS:
On December 1, 1983, Paula Ao Cruz together with the plaintiffs
heirs of Thomas and Paula Cruz entered into a contract of lease with
the defendant, Felix L. Gonzales of a half portion of a land containing
an area of 12 hectares, more or less, and an accretion of 2 hectares,
more or less, situated in Rodriguez Town, Province of Rizal and
covered by Transfer Certificate of Title No. 12111.
As stipulated therein: Paragraph 9 - The LESSORS hereby commit
themselves and shall undertake to obtain a separate and distinct
T.C.T. over the herein leased portion to the LESSEE within a
reasonable period of time which shall not in any case exceed four (4)
years, after which a new Contract shall be executed by the herein
parties which shall be thesame in all respects with this Contract of
Lease/Purchase insofar as the terms and conditions are concerned.
Under the contract, Gonzales paid the rental fees but did not choose
to exercise the option of paying the one million purchase price. A
letter was issued by one of the heirs to rescind the said contract
following breach and ordered Gonzales to vacate the premises within
ten days. Gonzales did no vacate. A few days later Paula Cruz died.
A case was launched in Court by the heirs of Paula Cruz.
ISSUE: How must paragraph nine of the contract be interpreted in
enforcing the contract of lease?
RULING: If a stipulation in a contract admits of several meanings, it
shall be understood as bearing that import most adequate to render
it effectual. An obligation cannot be enforced unless the plaintiff has
fulfilled the condition upon which it is premised. The ninth provision
was intended to ensure that respondents would have a valid title
overthe specific portion they were selling to petitioner. Only after the
title is assured may the obligation to buy the land and to pay the
sums stated in the Contract be enforcedwithin the period stipulated.
Verily, the petitioners obligation to purchase has not yet ripened and
cannot be enforced until and unless respondents can prove their title
to the property subject of the Contract. The ninth clause was the
condition precedent ofthe contract. Respondents cannot rescind the
contract, because they have not caused the transfer of the TCT to
their names, which is a condition precedent to petitioners obligation.
This Court has held that there can be no rescission (or more
properly, resolution) of an obligation as yet non-existent, because the
suspensive condition has not happened.
Coronel v. CAOctober 7, 1996J. Melo
- On Jan. 19, 1985, the Coronels executed a document entitled
Receipt of DownPayment in favor of Ramona Patricia Alcaraz
containing the following conditions appurtenant to the sale of their
house and lot:

1. Ramona will make a down payment of P50,000 upon execution of

the document aforestated.
2. The Coronels will cause the transfer in their names of the title of
their property registered in the name of their deceased father,
Constancio P. Coronel, upon receipt of the P50,000 down payment.
3. Upon the transfer in their names of the subject property, the
Coronels will execute the deed of absolute sale in favor of Ramona
and the latter will pay the former the whole balance of P1,190,000.
- On the same date, Concepcion Alcaraz, mother of Ramona, paid
the down payment of P50,000. On Feb. 6, 1985, the property
originally registered in the name of the Coronels father was
transferred in their names under TCT No. 327043. Subsequently, the
Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Mabanag for P1,580,000 after the latter paid
P300,000. For this reason, the Coronels canceled and rescinded the
contract with Ramona by depositing the down payment paid by
Concepcion in the bank in trust for Ramona Patricia Alcaraz. A few
days later, Concepcion, et al., filed a complaint for specific
performance against the Coronels and caused the annotation of a
notice of lispendens at the back of TCT No. 327403. Mabanag then
caused the annotation of a notice of adverse claim covering the
same property with the Registry of Deeds of Quezon City. The
Coronels executed a Deed of Absolute Sale over the subject
property in favor of Mabanag. A new title on the subject property was
issued in the name of Mabanag under TCT No. 351582.
- The lower court rendered judgment for specific performance
ordering the Coronels to execute in favor of Concepcion, et al., a
deed of absolute sale covering that parcel of land embraced in and
covered by TCT No. 327403 (now TCT No. 331582) of the Registry
of Deeds for Quezon City, together with all theimprovements existing
thereon free from all liens and encumbrances and once
accomplished, to immediately deliver the said document of sale to
Concepcion, et al. Upon receipt thereof, Concepcion, et al., were
ordered to pay the Coronels the whole balance of the purchase price
amounting to P1,190,000 in cash. TCT No. 331582 in the name of
Mabanag was canceled and delivered tobe without force and effect.
Further, the Coronels, Mabanag, and all other persons claiming
under them were ordered to vacate the subject property and deliver
possession thereof to Concepcion, et al. The claim for damages and
attorneys fees filed by Concepcion, et al., as well as the
counterclaims by the Coronels and intervenors were dismissed. On
appeal, the Court fully agreed to the decision of the trial court.
WON petitioners and private respondents entered into a conditional
contract of sale YES

Art. 1181. In conditional obligations, the acquisition of rights, as well

as the extinguishment of loss of those already acquired, shall
depend upon the happening of the event which constitutes the
- Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners names was fulfilled on
Feb. 6, 1985, the respective obligations of the parties under the
contract of sale became mutually demandable, that is, petitioners, as
sellers, were obliged to present the transfer certificate of title already
in their names to private respondent Ramona Alcaraz, the buyer, and
to immediately execute the said deed of absolute sale, while the
buyer on her part, was obliged to forthwith pay the balance of the
purchase price amounting to P1,190,000.
- It is also significant to note that in the first paragraph in page 9 of
their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the
transfer in our names from our deceased father Constancio P.
Coronel, the transfer certificate of title immediately upon receipt of
the downpayment above- stated. The sale was still subject to this
suspensive condition - Petitioners themselves recognized that they
entered into a contract of sale subject to a suspensive condition.
Only, they contend, continuing in the same paragraph, that:...
Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could be
no perfected contract of sale.- not aware that they have set their own
trap for themselves, for Art. 1186 of the Civil Code expressly
provides that:
Art. 1186. The condition shall be deemed fulfilled when the
obligorvoluntarily prevents its fulfillment.
- Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact that
the condition herein referred to was actually and indisputably fulfilled
on Feb. 6, 1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403.
- The inevitable conclusion is that on Jan. 19, 1985, as evidenced by
the document denominated as Receipt of Down Payment, the
parties entered into acontract of sale subject only to the suspensive
condition that the sellers shall effect the issuance of new certificate
title from that of their fathers name to their names and that, on Feb.
6, 1985, this condition was fulfilled.
- We, therefore, hold that in accordance with Art. 1187 which
pertinently provides

- What is clearly established by the plain language of the subject
document is that when the said Receipt of Down Payment was
prepared and signed by the Coronels, the parties had agreed to a
conditional contract of sale, consummation of which is subject only to
the successful transfer of the certificate of title from the name of
petitioners father, Constancio P. Coronel, to their names. The Court
significantly notes that this suspensive condition was, in fact, fulfilled
on February 6, 1985. Thus, on said date, the conditional contract of
sale between petitioners and private respondent Ramona became
obligatory, the only act required for the consummation thereof being
the delivery of the property by means of the execution of the deed of
absolute sale ina public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the Receipt of Down
- Art. 1475, in correlation with Art. 1181, both of the Civil Code,
plainly applies to the case at bench.
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract
and upon the price.From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing
the form of contracts.

Art. 1187. The effects of conditional obligations to give, once the

condition has been fulfilled, shall retroact to the day of the
constitution of the obligation...
In obligations to do or not to do, the courts shall determine, in each
case,the retroactive effect of the condition that has been complied
with.- the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and demandable as
of the time of fulfillment or occurrence of the suspensive condition on
Feb. 6, 1985. As of that point in time, reciprocal obligations of both
seller and buyer arose.
- When the sellers declared in the Receipt of Down Payment that
they received an amount as purchase price for their house and lot
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is that they
sold their property. When the Receipt of Down Paymentis
considered in its entirety, it becomes more manifest that there was a
clear intent on the part of petitioners to transfer title to the buyer, but
since the transfer certificate of title was still in the name of
petitioners father, they could not fully effect such transfer although
the buyer was then willing and able to immediately pay the purchase
- The parties did not merely enter into a contract to sell where the
sellers, after compliance by the buyer with certain terms and

conditions, promised to sell the property to the latter. What may be

perceived form the respective undertakings ofthe parties to the
contract is that petitioners had already agreed to sell the house and
lot they inherited from their father, completely willing to transfer full
ownership of the subject house and lot to the buyer if the documents
were then inorder. It just so happened, however, that the transfer
certificate of title was then still in the name of their father. It was more
expedient to first effect the change in the certificate of title so as to
bear their names.
That is why they undertook to cause the issuance of a new transfer
of the certificate of title in their names upon receipt of the down
payment in the amount of P50,000. As soon as the new certificate of
title is issued in their names, petitioners were committed to
immediately execute the deed of absolute sale. Only then will the
obligation of the buyer to pay the remainder of the purchase price
CIR vs Petron Corporation, G.R. No. 185568, March 21, 2012
Respondent Petron is a corporation engaged in the production of
petroleum products and is aBoard of Investment (BOI) registered
enterprise in accordance with the provisions of the
OmnibusInvestments Code of 1987 (E.O. 226) under Certificate of
Registration Nos. 89-1037 and D95-136. Duringthe period covering
the taxable years 1995 to 1998, Petron had been an assignee of
several Tax CreditCertificates (TCCs) from various BOI-registered
entities for which it utilized in the payment of its excise taxliabilities
for the taxable years 1995 to 1998.
The transfers and assignments of the said TCCs wereapproved by
the Department of Finances One Stop Shop Inter-Agency Tax Credit
and Duty DrawbackCenter (DOF Center) composed of
representatives from the appropriate government agencies.Taking
ground on a BOI letter issued on May 15, 1998 which states that
hydraulic oil, penetratingoil, diesel fuels and industrial gases are
classified as supplies and considered the suppliers thereof
asqualified transferees of tax credit, Petron acknowledged and
accepted the transfers of the TCCs from thevarious BOI-registered
Such acceptance and use of the TCCs as payment of its
excise taxliabilities for the taxable years 1995 to 1998 had been
continuously approved by the DOF as well as theBIRs Collection
Program Division.
On January 30, 2002, Petitioner CIR issued an Assessment against
petitioner for deficiency excisetaxes for the taxable years 1995 to
1998 in the total amount of P 739,003,036.32, inclusive of
surchargesand interests on the ground that the TCCs utilized by
petitioner in the payment of excise taxes have beencancelled by the
DOF for having been fraudulently issued and transferred.
Thus, petitioner, through lettersdated August 31, 1999 and
September 1, 1999, was required by the DOF Center to submit
copies of itssales invoices and delivery receipts showing the
consummation of the sale transaction to certain TCCtransferors.
Instead of submitting the said documents, Petron filed a protest on
February 27, 2002. On March27, 2002, CIR served a Warrant of
Distraint and/or Levy on petitioner to enforce payment of the
taxdeficiencies without first acting on its letter-protest. Construing
the Warrant of Distraint and/or Levy as thefinal adverse decision of
the BIR on its protest of the assessment, Petron filed the petition
before the CTASecond Division on April 2, 2002.
On May 4, 2007, the CTA Second Division promulgated a
Decisionordering Petron to pay the reduced amount of
P600,769,353.95 representing deficiency excise taxes for thetaxable
years 1995 to 1998 and 25% late payment surcharge and 20%
delinquency interest per annum onthe said amount, computed from
June 27, 2002 until the amount is fully paid.
Petron filed a motion forreconsideration but was denied. Aggrieved,
Petron appealed the Decision to the CTA En Banc through a Petition
for Review.

The CTA en banc reversed and set aside the CTA Second Division
and absolvedPetron from any deficiency excise tax liability for
taxable years 1995 to 1998.
The CIR moved for thereconsideration of the CTA En Banc Decision,
but the motion was denied.
Did CTA commit reversible error in holding that Petron is not liable
for its excise tax liabilities from1995 to 1998?
Ruling: No.
Petron is a transferee in good faith and for value of the subject TCCs
since the CIR had noallegation that there was a deviation from the
process for the approval of the TCCs, which Petron used aspayment
to settle its excise tax liabilities for the years 1995 to 1998. The
CIRs claim that Petron haveparticipated in the fraudulent issuance
and transfer of the TCCs is negated by the Joint Stipulation it
enteredinto with Petron in the proceedings before the CTA which
states that Petron did not participate in theprocurement and issuance
of the TCCs, which TCCs were transferred to Petron and later
utilized by Petronin payment of its excise taxes. This stipulation of
fact by the CIR amounts to an admission and, having been made by
the partiesin a stipulation of facts at pretrial, is treated as a judicial
The joint stipulation made by the partiesconsequently obviated the
opportunity of the CIR to present evidence on this matter, as no proof
is requiredfor an admission made by a party in the course of the
proceedings. Thus, the CIR cannot be allowed tochange its stand
and renege on that admission.
Further, the post-audit report on which the CIR based its allegations
does not have the effect of asuspensive condition that would
determine the validity of the TCCs.
As held in Petron v. CIR (G.R. No.180385, 28 July 2010, 626 SCRA
100), which is on all fours with the instant case, TCCs are valid
andeffective from their issuance and are not subject to a post-audit
as a suspensive condition for their validity.
The implication on the instant case of the said earlier ruling is that
Petron has the right to rely on the validityand effectivity of the TCCs
that were assigned to it. The validity of those TCCs should not
depend on theresults of the DOFs post-audit findings. Taxes are the
nations lifeblood through which government agencies continue to
operate and withwhich the State discharges its functions for the
welfare of its constituents. As an exception, however, thisgeneral
rule cannot be applied if it would work injustice against an innocent
party. Petron, in this case, wasnot proven to have had any
participation in or knowledge of the CIRs allegation of the fraudulent
transferand utilization of the subject TCCs. Respondents status as a
transferee in good faith and for value of theseTCCs has been
established and even stipulated upon by petitioner.
Respondent was thereby providedample protection from the adverse
findings subsequently made by the Center. Given the circumstances,
theCIRs invocation of the non-applicability of estoppel in this case is
Central Philippine University vs CA
- in 1939, Don Ramon Lopez, Sr. who was a member of the Board of
Trustees of theCentral Philippine College (now Central Philippine
University) executed a deed of donation in favor of the latter of a
parcel of land with the following annotations:
1.the land described shall be utilized by the CPU exclusively for
theestablishment and use of a medical college with all its buildings
as part of the curriculum
2.the said college shall not sell, transfer or convey to any third party
nor in any way encumber said land
3.the said land shall be called RAMON LOPEZ CAMPUS and the
saidcollege shall be under obligation to erect a cornerstone bearing
that name.Any net income from the land or any of its parks shall be

put in a fund to beknown as the RAMON LOPEZ CAMPUS FUND to

be used for improvements of said campus and erection of a building
thereon- on May 31, 1989, the heirs of Don Ramon Lopez, Sr. filed
an action for annulment of donation, reconveyance and damages
against CPU alleging that:
1.since 1939 up to the time the action was filed the latter had
notcomplied with the conditions of the donation
2.that CPU had in fact negotiated with the National Housing Authority
toexchange the donated property with another land owned by the
latter- CPU, in its answer alleged that:
1.the right of the private respondents to file the action had prescribed
2.that it did not violate any of the conditions in the deed of
donationbecause it never used the donated property for any other
purpose than thatfor which it was intended
3.that it did not sell, transfer, or convey it to any third party- the TC
held that petitioner failed to comply with the conditions of the
donation anddeclared it null and void. It further directed the petitioner
to execute a deed of reconveyance of the property in favor of the
heirs of the donor, namely, privaterespondents herein-- the CA ruled
that the annotations at the back of petitioners certificate of title
wereresolutory conditions breach of which should terminate the
rights of the donee thusmaking the donation revocable. It also found
that while the first conditionmandated petitioner to utilize the donated
property for the establishment of amedical school, the donor did not
fix a period within which the condition must befulfilled, hence, until a
period was fixed for the fulfillment of the condition, petitionercould
not be considered as having failed to comply with its part of the
bargain,thus, it remanded the case to the court of origin for the
determination of the timewithin which the petitioner should comply
with the first condition annotated in thecertificate of title
1.WON the quoted annotations are onerous obligations and
resolutory conditions
2. WON the right of the respondents to initiate an action has already
3. WON the Court may fix a period within which petitioner would
establish a medicalcollege
1. Yes. Don Ramon Lopez, Sr. executed for a valuable consideration
which isconsidered the equivalent of the donation itself. Under Art.
1181 of the Civil Code,on conditional obligations, the acquisition of
rights, as well as the extinguishment orloss of those already
acquired, shall depend upon the happening of the even
whichconstitutes the condition.
2. No. The condition imposed by the donor depended upon the
exclusive will of thedonee as to when this condition shall be fulfilled.
Since the time within which thecondition should be fulfilled depended
upon the exclusive will of the petitioner, ithas been held that its
absolute acceptance and the acknowledgment of itsobligation
provided in the deed of donation were sufficient to prevent the
statute of limitations from barring the action of private respondents
upon the original contractwhich was the deed of donation. In this
case, the starting point from which theobligation to comply must be
counted from the expiration of a reasonable periodand opportunity
for petitioner to fulfill what has been charged upon it by the donor.
3. No. Art. 1197, where the courts may fix the duration for fulfillment,
cannot beapplied in this case. More than a reasonable period of 50
years has already beenallowed petitioner to avail of the opportunity
to comply with the condition even if itbe burdensome, to make the
donation in its favor forever valid, hence, there is nomore need to fix
the duration of a term of the obligation when such procedurewould
be a mere technicality and formality and would serve no purpose
than todelay or lead to an unnecessary and expensive multiplication
of suits.

- pointed out an inconsistency in the majority opinions description of

the donationin question. In one part, it says that the donation in
question is onerous. Yet in thelast paragraph it states that the
donation is basically a gratuitous one.- the discussion on conditional
obligations is unnecessary as there is no conditionalobligation to
speak of in this case. The conditions imposed by the donor
determinesneither the existence nor the extinguishment of the
obligations of the donor and thedonee with respect to the donation.
In fact, the conditions imposed are the veryobligations of the
donation.- the court should fix the duration for the performance of the
conditions/obligationsin the donation. The mere fact that there is no
time fixed as to when the conditionsof the donation are to be fulfilled
does not ipso facto mean that the statute of limitations will not apply
Quijada VS CA
Certiorari of CAs decision
- April 5, 1956-Trinidad Quijada , together with her siblings, donated
a two-hectareland to the Municipality of Talacogon, Agusan del Sur
with the condition that theparcel of land shall be used SOLELY and
EXCLUSIVELY as part of the campus of theproposed provincial high
school of the said municipality.
- Trinidad remained in possession of the land despite the donation.
- July 29, 1962- Trinidad sold one hectare of the said land to
Regalado Mondejar(respondent) without the benefit of a deed of sale
and evidenced only by receipts of payment.- 1980- the heirs of
Trinidad (who at this time was dead already) instituted acomplaint
which was dismissed for failure to prosecute.
- 1987- the proposed provincial high school failed to materialize, the
SangguniangBayan of the municipality enacted a resolution reverting
the two-hectare land donated back to the donors.- In the meantime,
Mondejar sold portions of the land to respondents,
FernandoBautista, Rodolfo Goloran, Efren Guden, and Ernesto
- The heirs of Trinidad filed for this action (quieting of title, recovery
of possessionand ownership of parcels of land with claim for
attorneys fees and damages.)
- According to the heirs, their mother Trinidad never sold, conveyed,
transferred ordisposed of the property in question to any person or
entity much less to Mondejarsave the donation made to the
Municipality of Talacogon.
- Since the land still belonged to the municipality at the time of the
alleged sale toMondejar, the supposed sale is null and void.
- Mondejar claims that one hectare of the land was sold to him on
July 29, 1962, andthe remaining one-hectare on installment basis
until fully paid. As a defense, heclaims that the action is barred by
LACHES or has prescribed.
- TC- Trinidad had no legal right to sell the land to Mondejar since
the ownershipbelongs to the municipality and the deed of sale
executed by Trinidad to Mondejardid not carry with it the conformity
and acquiescence of her children since she wasa widow and 63 yrs
old at that time. So the respondents were asked to vacate theland
and restore the possession to the heirs.- CA- reversed the decision
of the TC; sale to Mondejar was valid as Trinidadretained an
inchoate interest on the lots by virtue of the automatic reversion
clausein the deed of donation.
WON the sale of the land to Mondejar was valid since the ownership
of the said landbelonged to the municipality at the time of the sale by
virtue of the conditionaldeed of donation executed by Trinidad and
her siblings and WON the action isbarred by laches

DAVIDE dissent

The decision of the CA is upheld; sale is valid. No attys fees
awarded; No moraldamages were likewise awarded.

On donation
- When the Municipalitys acceptance of the donation was made
known to thedonor, the Municipality became the new owner of the
donated property
- donationbeing a mode of acquiring and transmitting ownershipnotwithstanding thecondition imposed by the donee.
- The condition was that if the school never materializes or that it is
opened butdiscontinued or closed in the future, the property shall
revert to the donor.
- The donation is perfected once the acceptance by the donee is
made known to thedonor.
- The resolutory condition is the construction of the school. It has
been ruled thatwhen a person donates land to another on the
condition that the latter would buildupon the land a school, the
condition imposed is not a condition precedent or asuspensive
condition but a resolutory one.
- At the time of the sales, Trinidad could not have sold the lots since
the ownershiphad been transferred by virtue of the deed of donation.
So long as the resolutorycondtion subsists and capable of fulfillment,
the donation remains effective and thedonee continues to be the
owner subject only to the rights of the donor or hissuccessors-ininterest under the deed of donation.
- Since no period was imposed by the donor on when the must the
donee mustcomply with the condition, the latter remains the owner
so long as he has tried tocomply with the condition within a
reasonable period. In this case, the Municipalitymanifested in a
resolution that they cannot comply with the condition of building
aschool and the same was made known to the donor. This was when
the ownershipreverted back to Trinidad as provided in the reversion
clause of the deed of donation.
- The donor may have inchoate (meaning: imperfect) interest in the
donatedproperty during the time that ownership of the land has not
reverted to her. Suchinchoate interest may be the subject of
contracts including a contract of sale. Herewhat the donor sold was
the land itself which she no longer owned. It would havebeen
different if what she sold were her interests over the property under
the deedof donation which is subject to the possibility of reversion of
ownership arising fromthe non-fulfillment of the resolutory condition.
On laches
- The petitioners action in NOT YET barred by laches. It cannot be
said that thepetitioners had slept on their rights for along time since
they initiated the action ayear after upon knowledge of the reversion
of the property to the donor.
- Laches presupposes failure or neglect for an unreasonable and
unexplained lengthof time, to do that which, by exercising due
diligence, could have or should havebeen done earlier; it is
negligence or omission to assert a right within a reasonabletime,
thus, giving rise to a presumption that the party entitled to assert it
either hasabandoned or declined to assert it.
- Essential elements:
a. Conduct on the part of the defendant, or of one under whom he
claims, givingrise to the situation complained of;
b. delay in asserting complainants right after he had knowledge of
the defendantsconduct and after he has an opportunity to sue;
c. Lack of knowledge or notice on the part of the defendant that the
complainantwould assert the right on which he bases his suit;
d. injury or prejudice to the defendant in the event relief is accorded
to thecomplaint.- these elements are not present in this case
On saleSale being a consensual contract is perfected by mere consent
which ismanifested the moment there is a meeting of the minds as to
the offer andacceptance thereof on 3 elements: subject matter, price
and terms of payment of the price.
- Ownership by the seller on the thing sold at the time of the
perfection of thecontract of sale is not an element for its perfection.
Perfection per se does nottransfer ownership which occurs upon the
actual or constructive delivery of thething sold.

- The consummation of the perfected contract is another matter. It

occurs upon theactual or constructive delivery of the subject matter
to the buyer when the seller orher successors-in-interest
subsequently acquires ownership thereof.
REGALADOOctober 31, 1990
Petition to review the decision of the Court of Appeals
- Dy entered into a contract of lease with Lim foe a period of 3 years
(1976-1979).After the stipulated term expired, Dy refused to vacate
the premises, hence Limfiled for an ejectment suit against Dy. The
case was terminated by a judiciallyapproved compromise
- The compromise agreement provides that the term of lease shall
be renewedevery three years retroacting from Oct 1979 1982; after
which the rental shall beraised automatically by 20% every three
years for as long as the defendant (DY)needed the premises and
can meet and pay the said increases, the defendant togive notice of
his intent to renew 60 days before the expiration of the term.
- April 17, 1985 petitioner advised that he would no longer renew
the contractOctober 1985. On August 5, 1985, Dy informed the
petitioner in writing of hisintention to renew the contract of lease for
another term. Lim advised that he didnot agree to a renewal.
- January 15, 1986 Lim filed another ejectment suit which was
dismissed on the grounds that
(1) the lease contract has not expired being a continuous one
theperiod whereof depended on upon the lessees need for the
premises and his ability to pay rents and
(2) the compromise agreement constitutes res judicata.
- On appeal, the respondent court affirmed the lower courts
judgment in toto.
1. WON the lease contract only depends on the partys need for the
premises andhis ability to pay the rents
2. WON the compromise agreement constitute res judicata
The lease contract cannot be made to depend solely on the free
anduncontrolled choice of the lessee.
- The stipulation for as long as the defendant needed the premises
and can meetand pay the said increases is purely potestative. The
continuance, effectivity andfulfillment of a contract of lease cannot be
made to depend exclusively upon thefree and uncontrolled choice of
the lessee between continuing payment of therentals or not,
depriving the owner of any say in the matter.
- Where the instrument is susceptible of two interpretations, the one
which willmake it valid and legal should be adopted.
The second action for ejectment does not constitute res judicata.
- For a judgment be a bar to a subsequent case, it must be
(1) a final judgment,
(2)rendered by a court with jurisdiction over the subject matter of the
(3) itmust be judgment on the merits, and
(4) there must be identity between the twocases as to parties,
subject matter and cause of action.- The fourth is lacking in the case
at bar. There is no identity of subject matter andcause of action.

Wherefore, the decision of respondent Court of Appeals is

reversedand set aside. Private respondent is hereby ordered to
immediately vacate andreturn the possession of the leased premises
subject of the present action to thepetitioner and to pay the monthly
rentals due thereon in accordance with thecompromise agreement
until he has actually vacated the same
Appeal from a judgment of CFI of Manila
- Taylor contracted his services to Tan Liuan& Co as superintendent
of an oilfactory which the latter contemplated establishing
- The contract extended over 2 years and the salary was
P600/month during thefirst year and P700/month during the second
with electric, light and water fordomestic consumption or in lieu
thereof, P60/month
- At this time, the machinery for contemplated factory had not been
acquired,though ten expellers had been ordered from the US
- It was understood that should the machinery to be installed fail, for
any reason, toarrive in Manila within the period of 6 months, the
contract may be cancelled by theparty of the second part at its
option, such cancellation not to occur before theexpiration of such 6
- The machinery did not arrive in Manila within the 6 months; the
reason does notappear, but a preponderance of evidence show that
the defendants seeing that oilbusiness no longer promised large
returns, either cancelled the order for machineryfrom choice or were
unable to supply the capital necessary to finance the project.
- Defendants communicated to Taylor that they had decided to
rescind the contract.
- Taylor instituted this action to recover damages in the amount of
P13k, coveringsalary and perks due and to become due
WON in a contract for the prestation of service, it is lawful for the
parties to insert aprovision giving the employer the power to cancel
the contract in contingencywhich may be dominated by himself
One of the consequences of the stipulation was that the employers
were left in aposition where they could dominate the contingency,
and the result was about thesame as if they had been given an
unqualified option to dispense with the servicesof Taylor at the end of
6 months. But this circumstance does not make thestipulation illegal.
- A condition at once facultative and resolutory may be valid even
though thecondition is made to depend upon the will of the obligor.
- If it were apparent, or could be demonstrated that the defendants
were underpositive obligation to cause the machinery to arrive in
Manila, they would of coursebe liable, in the absence of affirmative
proof showing that the non-arrival of themachinery was due to some
cause not having its origin in their own act or will.
- The contract, however, expresses no such positive obligation, and
its existencecannot be implied in the face of the stipulation, defining
the conditions under whichthe defendants can cancel the contract.
- CFI no error in rejecting Taylors claim in so far as damages are
sought for theperiod subsequent to the expiration of 6 months, but in
assessing the damages duefor the six-month period, the trial judge
overlooked the item of P60 (commutation of house rent) This amount
Taylor is entitled to recover in addition to P300 awardedby CFI.


Petition for review of the decision of the then Intermediate Appellate
- Rustan established a pulp and paper mill in Lanao del Norte in
- Lluch, a holder of a forest products license, wrote to Rustan and
offered to supplyraw materials. In response, petitioner Rustan
proposed, among other things, in aletter That the contract to supply
is not exclusive because Rustan shall have theoption to buy from
appropriategovernment authority or license to sell and dispose pulp
- On April 1968, they executed a contract of sale whereby Lluch
agreed to sell, andRustan Pulp and Paper Mill, Inc. to pay the price
of P30.00 per cubic meter of pulpwood raw materials to be delivered
at the buyer's plant.
- In the bilateral undertaking, they stipulated the following:"That
BUYER shall have the option to buy from other SELLERS
thatBUYER shall not buy from any other seller whose pulp woods
being sold shall havebeen established to have emanated from the
SELLER'S lumber and/or firewoodconcession. . . .And that SELLER
has the priority to supply the pulp wood materialsrequirement of the
(Par 7)
That the BUYER shall have the right to stop delivery of the saidraw
materials by the seller covered by this contract when supply of the
same shallbecome sufficient until such time when need for said raw
materials shall havebecome necessary provided, however, that the
SELLER is given sufficient notice."
- During the test run of the pulp mill, the machinery line had major
defects whiledeliveries of the raw materials piled up, which prompted
the Japanese supplier of the machinery to recommend the stoppage
of the deliveries.
- The suppliers were informed to stop deliveries and Rustan sent a
letter (datedSept 1968) to Lluch informing him that the supply of raw
materials to us hasbecome sufficient and we will not be needing
further delivery from you. As per theterms of our contract, please
stop delivery 30 days from today. It was signed byDr. Romeo
Vergara, the resident manager.
- Lluch sought to clarify whether stoppage of delivery or termination
of the contractof sale was intended, but the query was not answered
by petitioners. This allegedambiguity notwithstanding, Lluch and the
other suppliers resumed deliveries afterthe series of talks between
Vergara and Lluch.
- On January 23, 1969, a complaint for contractual breach was filed.
The trial courtdismissed it. On appeal, the IAC modified the judgment
by directing Rustan, Tantoco and Vergara to pay respondents, jointly
and severally, the sum of P30,000.00 as moral damages and
P15,000.00 as attorney's fees
1. WON the contractual provisions mentioned above as regards the
stoppage of delivery when there issufficient supply of raw materials
are valid
2. WON Tantoco and Vergara should be personally liable
1. NO
- The SCs simple understanding of the literal import of par 7 of the
obligation inquestion is that petitioners can stop delivery of pulp
wood from private respondentsif supply at the plant is sufficient as
ascertained by petitioners, subject to redeliverywhen the need arises
as determined likewise by petitioners.

This is a potestativeimposition in the contract which must be

obliterated for being invalid as it is purelydependent upon the will of
one party.
- Though it is a legal truism that a condition which is both potestative
and resolutorymay be valid even though that saving clause is left
entirely to the will of the obligor,the same cannot be said to apply in
the present case.
- Petitioners contend that they are within the right stoppage
guaranteed by par 7. There is no doubt that the contract speaks
loudly about petitioners' prerogative butwhat diminishes the legal
efficacy of such right is the condition attached to it whichis
dependent exclusively on will of the petitioner for which reason,
the SC treatedthe controversial stipulation as inoperative
2. NO.
- The President and Manager of a corporation who entered into and
signed acontract in his official capacity, cannot be made liable
thereunder in his individualcapacity in the absence of stipulation to
that effect due to the personality of thecorporation being separate
and distinct from the persons composing it. Andbecause of this
precept, Vergara's supposed non-participation in the contract of
salealthough he signed the letter dated Sept 30, 1968 is completely
Thetwo exceptions contemplated by Article 1897 of the New Civil
Code where agentsare directly responsible are absent and wanting.
The decision appealed from is MODIFIED in the sense that
onlypetitioner Rustan Pulp and Paper Mills is ordered to pay moral
damages andattorney's fees as awarded by respondent Court.
VITUG November 23, 1995
-Petitioner Virgilio R. Romero, his foreign partners decided to put up
a centralwarehouse in Metro Manila on a land area of approximately
2,000 square meters.
-The project was made known to several freelance real estate
-A day or so after the announcement, Alfonso Flores and his wife
offered a parcel of land measuring 1,952 square meters located in
Barangay San Dionisio, Paraaque,Metro Manila, the lot was in the
name of private respondent Enriqueta Chua vda. DeOngsiong.
-Petitioner visited the property and, except for the presence of
squatters in thearea, he found the place suitable for a central
-Flores spouses called on petitioner with a proposal that should he
advance theamount of P50,000.00 which could be used in taking up
an ejectment case against the squatters, private respondent would
agree to sell the property for only P800.00 per square meter.
-Petitioner expressed his concurrence. On 09 June 1988, a contract
denominated"Deed of Conditional Sale," was executed between
petitioner and privaterespondent.
with the following terms and conditions:
"1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY
Philippine Currency,is to be paid upon signing and execution of this
"2. The balance of the purchase price in the amount of
(P1,511,600.00) ONLY shall be paid 45days after the removal of all
squatters from the above described property."
3. Upon full payment of the overall purchase price as aforesaid,
VENDOR withoutnecessity of demand shall immediately sign,
execute, acknowledged (sic) anddeliver the corresponding deed of

absolute sale in favor of the VENDEE free from allliens and

encumbrances and all Real Estate taxes are all paid and updated.
4.That if after 60 days from the date of the signing of this contract the
VENDORshall not be able to remove the squatters from the property
being purchased, thedownpayment made by the buyer shall be
returned /reimbursed by the VENDOR tothe VENDEE.
5.That in the event that the VENDEE shall not be able to pay the
VENDOR thebalance of the purchase price of (P1,511,600.00) ONLY
after 45 days from written notificationto the VENDEE of the removal
of the squatters from the property being purchased,the (P50,000, 00)
previously paid as downpayment shall beforfeited in favor of the
6.Expenses for the registration such as registration fees,
documentary stamp,transfer fee, assurances and such other fees
and expenses as may be necessary totransfer the title to the name
of the VENDEE shall be for the account of the VENDEEwhile capital
gains tax shall be paid by the VENDOR.
- Alfonso Flores, in behalf of private respondent, forthwith received
andacknowledged a check for P50,000 002 from petitioner.-Private
respondent filed a complaint for ejectment (Civil Case No. 7579)
againstMelchor Musa and 29 other squatter families with the
Metropolitan Trial Court of Paraaque.
-A few months later, or on 21 February 1989, judgment was rendered
ordering thedefendants to vacate the premises. The decision was
handed down beyond the 60-day period (expiring 09 August 1988)
stipulated in the contract. The writ of execution of the judgment was
issued, still later, on 30 March 1989.
-In a letter, dated 07 April 1989, private respondent sought to return
the P50,000.00she received from petitioner since, she said, she
could not "get rid of the squatters"on the lot. Atty. Sergio A. F.
Apostol, counsel for petitioner, in his reply of 17 April1989, refused
the tender and stated:
Our client believes that with the exercise of reasonable diligence
considering thefavorable decision rendered by the Court and the writ
of execution issued pursuant thereto, it is now possible to eject the
squatters from the premises of the subject property, for which
reason, he proposes that he shall take it upon himself to eject the
squatters, provided, that expenses which shall be incurred by reason
thereof shall be chargeable to the purchase price of the land
WON the vendor may demand the rescission of a contract for the
sale of a parcel of land for a cause traceable to his own failure to
have the squatters on the subjectproperty evicted within the
contractually stipulated period
NO. Private respondent's failure "to remove the squatters from the
property" withinthe stipulated period gives petitioner the right to
either refuse to proceed with theagreement or waive that condition in
consonance with Article 1545 of the CivilCode."
This option clearly belongs to petitioner and not to private
-The undertaking required of private respondent does not constitute
a "potestativecondition dependent solely on his will" that might,
otherwise, be void in accordancewith Article 1182 of the Civil
Codebut a "mixed" condition "dependent not on thewill of the vendor
alone but also of third persons like the squatters and
governmentagencies and personnel concerned." Where the socalled "potestative condition" isimposed not on the birth of the
obligation but on its fulfillment, only the condition isavoided, leaving
unaffected the obligation itself.
-In contracts of sale particularly, Article 1545 of the Civil Code,
aforementioned,allows the obligee to choose between proceeding
with the agreement or waivingthe performance of the condition.
Petitioner has waived the performance of thecondition imposed on
private respondent to free the property from squatters.

-Private respondent's action for rescission is not warranted. She is

not the injuredparty. The right of resolution of a party to an obligation
under Article 1191 of theCivil Code is predicated on a breach of faith
by the other party that violates thereciprocity between them. It is
private respondent who has failed in her obligationunder the
contract. Petitioner did not breach the agreement. He has agreed, in
fact, to shoulder the expenses of the execution of the judgment in the
ejectment caseand to make arrangements with the sheriff to effect
such execution.
In his letter of 23 June 1989, counsel for petitioner has tendered
payment and demanded forthwiththe execution of the deed of
absolute sale. Parenthetically, this offer to pay, havingbeen made
prior to the demand for rescission, assuming for the sake of
argumentthat such a demand is proper under Article 159223 of the
Civil Code, would likewisesuffice to defeat private respondent's
prerogative to rescind thereunder.
Fernan March 20,1987
Appeal from the decision of the court of first instance of Rizal, Br. V.
- On May 1, 1961, Boysaw and manager Ketchum signed with
Interphil(represented by Sarreal) a contract to engage Flash Elorde
in a boxing match atRizal Memorial Stadium on Sept 30, 1961 or not
later than 30 days should apostponement be mutually agreed upon.
Boysaw, accdg to contract, should notengage in other bouts prior to
the contest.
- Interphil signed Elorde to a similar agreement.
- Boysaw fought and defeated Louis Avila in Nevada.
- Ketchum assigned to Amado Araneta his managerial rights, who
later transferredthe rights to Alfredo Yulo.
- Sarreal wrote to Games and Amusement Board (GAB) regarding
this switch of managersbec they werent notified.
- GAB called for conferences and decided to schedule the ElordeBoysaw bout onNov 4, 1961. USA National Boxing Assoc approved.
- Sarreal offered to move the fight to Oct 28 for it to be w/in the 30
day allowablepostponement in the contract. Yulo refused. He was
willing to approve the fight onNov 4 provided it will be promoted by a
certain MamertoBesa.
- The fight contemplated in the May 1 contract never materialized.
Boysaw and Yulo sued Interphil, Sarreal and Nieto.
- Boysaw was abroad when he was scheduled to take the witness
stand. Lowercourt reset the trial. Boysaw was still absent on the later
date. Court reset. On thethird instance, a motion for postponement
was denied.
- Boysaw and Yulo moved for a new trial, but it was denied. Hence,
this appeal.
1. WON there was a violation of the May 1 contract and if so, who
was guilty
2. WON there was legal ground for postponement of the fight
3. WON lower court erred in refusing postponement of the trial for
4. WON lower court erred in denying new trial
5. WON lower court erred in awarding appellees damages
1. Boysaw violated the contract when he fought with Avila. Civil Code
provides, thepower to rescind obligations is implied, in reciprocal
ones, (as in this case) in caseone of the obligors should not comply
w/ what is incumbent upon him.Another violation was made in the
transfers of managerial rights. These were infact novations which, to

be valid, must be consented to by Interphil. When acontract is

unlawfully novated, the aggrieved creditor may not deal with
2. The appellees could have opted to rescind or refuse to recognize
the newmanager, but all they wanted was to postpone the fight owing
to an injury Elordesustained. The desire to postpone the fight is
lawful and reasonable. The GAB did not act arbitrarily in acceding to
the request to reset the date of thefight and Yulo himself agreed to
abide by the GAB ruling. The appellees offered to move the fight w/in
the 30 day period for postponementbut this was refused by the
appellants, notwithstanding the fact that by virtue of the appellants
violations, they have forfeited any right to the enforcement of
3. The issue of denial of postponement of trial was raised in another
petition forcertiorari and prohibition. It cant be resurrected in this
4. The court was correct in denying new trial. The alleged newly
discoveredevidence are merely clearances from clerk of court, which
cant alter the result of thetrial.
5. Because the appellants willfully refused to participate in the final
hearing andrefused to present documentary evidence, they
prevented themselves from objectingto or presenting proof contrary
to those adduced by the appellees.
CRUZ April ; 23, 1993
Petition for review of decision of CA
- Spouses Carungay entered into an agreement withDeiparine for the
construction of a 3-storey dormitory. The Carungays agreed to pay
Php970K, and Deiparinebound himself to erect the building in strict
accordance to the plans and specifications. In the General
Conditions and Specifications document, the minimum acceptable
compressive strength of the building was set at 3,000 psi (pounds
per square inch).
However, the Carungays found out that Deiparine was deviating
fromthe plans and specifications, thus impairing the strength and
safety of the building.
The spouses even issued a memorandum complaining that the
construction workswere faulty and done haphazardly mainly due to
lax supervision coupled withinexperienced and unqualified staff. The
memorandum was ignored.
After several conferences, the parties agreed to conduct cylinder
tests to ascertaincompliance with safety standards. Carungay
suggested core testing (a more reliabletest of safety and strength),
and although Deiparine was relunctant at first, he
agreed to it and even promised that should the structure fail the test,
he wouldshoulder the test expenses. The core test was conducted,
and the building wasfound to be structurally defective.
- The spouses then filed in the RTC for rescission of the construction
contract andfor damages. Deiparine alleged that RTC did not have
jurisdiction for constructioncontracts are now cognizable by the
Philippine Construction Development Board.
RTC declared the contract rescinded, Deiparine to have forfeited his
expenses in theconstruction, and ordered Deiparine to reimburse the
spouses for the core testingand restore the premises to their former
condition before the construction began.
CA affirmed RTC.
1. WON RTC had jurisdiction over the case
2. WON rescission is the proper remedy
1. Yes. Firstly, there is no Philippine Construction Development
Board in existence.
There is however, a Philippine Domestic Construction Board
(PDCB), but this body has jurisdiction to settle claims and disputes in
the implementation of PUBLICconstruction contracts (only), and thus

does not have jurisdiction over privateconstruction contracts.

(Deiparines counsel is even held in contempt of court forchanging
the wording of the relevant provision in the law, making it appear that
thePDCB had jurisdiction over the instant case.)


2. Yes.
- The facts show that Deiparine deliberately deviated from the
specifications of the Carungays (changing the minimum strength,
concrete mixture, etc.), possibly toavoid additional expenses so as to
avoid reduction in profits. His breach of duty constituted a substantial
violation of the contract, which is correctible by judicial rescission.
Particularly for reciprocal obligations, Art.1191 CC provides that:
The power torewind obligations is implied in reciprocal ones, in case
one of the obligors shouldnot comply with what is incumbent upon


- The injured party may choose between the fulfillment and the
rescission of theobligation, with the payment of damages in either
case. He may also seekrescission, even after he has chosen
fulfillment, if the latter should becomeimpossible.



The court shall decree the rescission claimed, unless there be just
cause authorizingthe fixing of a period.
- Clearly, the construction contract falls squarely under the coverage
of Art.1191because it imposes upon Deiparine the obligation to build
the structure and uponthe Carungays the obligation to pay for the
project upon its completion.
- Art.1191 is not predicated on economic prejudice to one of the
parties but onbreach of faith by one of them that violates the
reciprocity between them. Theviolation of reciprocity between the
parties, to wit, the breach caused by Deiparine'sfailure to follow the
stipulated plans and specifications, has given the Carungayspouses
the right to rescind or cancel the contract.



Disposition Decision affirmed.

General Description:
This case is about the prescriptive period of an action for rescission of a contract of
sale where the buyer is evicted from the thing sold by a subsequent judicial order in
favor of a third party.







When the late Emilio Dalope died, he left a 589-square meter untitled
lot1 in Sta. Barbara, Pangasinan, to his wife, Felisa Dalope (Felisa) and their nine
children, one of whom was Rosa Dalope-Funcion.2 To enable Rosa and her
husband Antonio Funcion (the Funcions) get a loan from respondent Development
Bank of the Philippines (DBP), Felisa sold the whole lot to the Funcions.
On February 12, 1979, after the Funcions failed to pay their loan, the
DBP foreclosed the mortgage on the lot and consolidated ownership in its name on
June 17, 1981.
Four years later or on September 20, 1983 the DBP conditionally sold
the lot to Sofia Quirong4 for the price of P78,000.00. In their contract of sale, Sofia
Quirong waived any warranty against eviction. The contract provided that the DBP
did not guarantee possession of the property and that it would not be liable for any
lien or encumbrance on the same.
Two months after that sale or on November 28, 1983 Felisa and her
eight children (collectively, the Dalopes)5 filed an action for partition and declaration
of nullity of documents with damages against the DBP and the Funcions.
On December 27, 1984, notwithstanding the suit, the DBP executed a
deed of absolute sale of the subject lot in Sofia Quirongs favor.
On May 11, 1985, Sofia Quirong having since died, her heirs (petitioner
Quirong heirs) filed an answer in intervention in which they asked the RTC to award
the lot to them and, should it instead be given to the Dalopes, to allow the Quirong
heirs to recover the lots value from the DBP. But, because the heirs failed to file a
formal offer of evidence, the trial court did not rule on the merits of their claim to the
lot and, alternatively, to relief from the DBP.7
G. On December 16, 1992 the RTC rendered a decision, declaring
the DBPs sale to Sofia Quirong valid only with respect to the shares of Felisa
and Rosa Funcion in the property. It declared Felisas sale to the Funcions,
the latters mortgage to the DBP, and the latters sale to Sofia Quirong void
insofar as they prejudiced the shares of the eight other children of Emilio and
Felisa who were each entitled to a tenth share in the subject lot.


The DBP received a copy of the decision on January 13, 1993 and,
therefore, it had until January 28, 1993 within which to file a motion for its
reconsideration or a notice of appeal from it. But the DBP failed to appeal
supposedly because of excusable negligence and the withdrawal of its previous
counsel of record.
On June 10, 1998 the Quirong heirs filed the present action10 against
the DBP before the RTC for rescission of the contract of sale between Sofia
Quirong, their predecessor, and the DBP and praying for the reimbursement of the
price of P78,000.00 that she paid the bank plus damages. The heirs alleged that
they were entitled to the rescission of the sale because the decision stripped them
of nearly the whole of the lot that Sofia Quirong, their predecessor, bought from the
DBP. The DBP filed a motion to dismiss the action on ground of prescription and res
judicata but the RTC denied their motion.
On June 14, 2004, after hearing the case, the RTC rendered a
decision,11 rescinding the sale between Sofia Quirong and the DBP and ordering
the latter to return to the Quirong heirs the P78,000.00 Sofia Quirong paid the
On appeal by the DBP, the Court of Appeals (CA) reversed the RTC
decision and dismissed the heirs action on the ground of prescription.
The issues presented in this case are:
1. Whether or not the Quirong heirs action for rescission of respondent DBPs sale
of the subject property to Sofia Quirong was already barred by prescription; and
2. In the negative, whether or not the heirs of Quirong were entitled to the rescission
of the DBPs sale of the subject lot to the late Sofia Quirong as a consequence of
her heirs having been evicted from it.
A. The CA held that the Quirong heirs action for rescission of
the sale between DBP and their predecessor, Sofia Quirong, is barred by
prescription reckoned from the date of finality of the December 16, 1992 RTC
decision in Civil Case D-7159 and applying the prescriptive period of four
years set by Article 1389 of the Civil Code.
The next question that needs to be resolved is the applicable period of
Their complaint asked for the rescission of the contract of sale between
Sofia Quirong, their predecessor, and the DBP and the reimbursement of the price
of P78,000.00 that Sofia Quirong paid the bank plus damages. The prescriptive
period for rescission is four years.
The status of that contract at the time of the filing of the action for
rescission? Apparently, that contract of sale had already been fully performed when
Sofia Quirong paid the full price for the lot and when, in exchange, the DBP
executed the deed of absolute sale in her favor. There was a turnover of control of
the property from DBP to Sofia Quirong since she assumed under their contract,
"the ejectment of squatters and/or occupants" on the lot, at her own expense.19
And that action for rescission, which is based on a subsequent
economic loss suffered by the buyer, was precisely the action that the Quirong heirs
took against the DBP. Consequently, it prescribed as Article 1389 provides in four
years from the time the action accrued. Since it accrued on January 28, 1993 when
the decision became final and executory and ousted the heirs from a substantial
portion of the lot, the latter had only until January 28, 1997 within which to file their
action for rescission. Given that they filed their action on June 10, 1998, they did
so beyond the four-year period.
With the conclusion that the Court has reached respecting the first
issue presented in this case, it would serve no useful purpose for it to further
consider the issue of whether or not the heirs of Quirong would have been entitled
to the rescission of the DBPs sale of the subject lot to Sofia Quirong as a
consequence of her heirs having been evicted from it. As the Court has ruled above,
their action was barred by prescription.
WHEREFORE, the Court DENIES the petition.

Healthcheck Inc. a 1-lcalth Maintenance Organization HMO) entered into a

one-year contract with DLSUMC in which HCI was to provide the employees
of EMI and their dependents as host of medical services and benefits

Only two months into the program, problems began. HCI notified EMI that its
accreditation with DLSUMC was suspended and advised it to avail of the
services of nearby accredited institutions.

Although HCI had yet to settle its accounts with it, DLSUMC resumed
services. Despite this commitment, HCI failed to preserve its credit standing

with DLSUMC prompting the latter to suspend its accreditation for a second
time. A third suspension was still to follow on and remained in force until the
end of the contract period.

Complaints from EMI employees and workers were pouring in that their HMO
cards were not being honored by the DLSUMC and other hospitals and
physicians. EMI formally notified HCI that it was rescinding their April 1998
Agreement on account of HCIs serious and repeated breach of its
undertaking including but not limited to the unjustified non-availability of
services. It demanded a return of premium for the unused period in the cost
of P6 million.
What went in the way of the rescission of the contract, was the failure of EMI
to collect all the HMO cards of the employees and surrender them to HCI as
stipulated in the Agreement. HCI had to tell EMI on that its employees were
still utilizing the cards even beyond the pretermination date set by EMI. It
asked for the surrender of the cards so that it could process the
pretermination of the contract and finalize the reconciliation of accounts.
Without responding to this reminder, EMI sent HCI two letters demanding for
the payment ofP5,884,205 as the 2/3 portion of the premium that remained
unutilized after the Agreement was rescinded in the previous September.
HCI pre-empted EMIs threat of legal action by instituting the present case
before the Regional Trial Court of Pasig. The cause of action it presented was
the unlawful pretermination of the contract and failure of EMI to submit to a
joint reconciliation of accounts and deliver such assets as properly belonged
to HCI.
EMI responded with an answer alleging that HCI reneged on its duty to
provide adequate medical coverage after EMI paid the premium in full. Having
rescinded the contract, it claimed that it was entitled to the unutilized portion
of the premium, and that the accounting required by HCI could not be
undertaken until it submitted the monthly utilization reports mentioned in the
RTC: The court ruled in favor of HCI. It found that EMIs rescission of the
Agreement was not done through court action or by a notarial act and was
based on casual or slight breaches of the contract. Moreover, despite the
announced rescission, the employees of EMI continued to avail of HCIs

CA: Reversed the decision of the RTC and ruled that although Healthcheck
International, (HCI) substantially breached their agreement, it also appears
that Eds Manufacturing, Inc. (EMI) did not validly rescind the contract
between them. Thus, the CA dismissed the complaint filed by HCI, while at
the same time dismissing the counterclaim filed by EMI.

EMI filed a Motion for Partial Reconsideration against said decision. However,
the same was denied in a Resolution dated March 16, 2004.

ISSUE: W/O/N There was a valid rescission of the agreement of the parties
We rule in the negative.
First, Article 1191 of the Civil Code states:
The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage
The general rule is that rescission (more appropriately, resolution ) of a
contract will not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very object of the
parties in making the agreement.
Thus, the rescission referred to in Article 1191, more appropriately referred to as
resolution, is on the breach of faith by one of the parties which is violative of the
reciprocity between them.
In the present case, it is apparent that HCI violated its contract with EMI to provide
medical service to its employees in a substantial way. As aptly found by the CA, the
various reports made by the EMI employees from July to August 1998 are living
testaments to the gross denial of services to them at a time when the delivery was
crucial to their health and lives.
However, although a ground exists to validly rescind the contract between the
parties, it appears that EMI failed to judicially rescind the same. In Iringan v. Court of
Appeals, this Court reiterated the rule that in the absence of a stipulation, a party
cannot unilaterally and extrajudicially rescind a contract. A judicial or notarial act is
necessary before a valid rescission (or resolution) can take place. Thus
Clearly, a judicial or notarial act is necessary before a valid rescission can take
place, whether or not automatic rescission has been stipulated. It is to be noted that
the law uses the phrase "even though" emphasizing that when no stipulation is
found on automatic rescission, the judicial or notarial requirement still applies.
But in our view, even if Article 1191 were applicable, petitioner would still not be
entitled to automatic rescission. In Escueta v. Pando, we ruled that under Article
1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations,
is deemed implied in case one of the obligors shall fail to comply with what is
incumbent upon him. But that right must be invoked judicially. The same article also
provides: "The Court shall decree the resolution demanded, unless there should be
grounds which justify the allowance of a term for the performance of the obligation."
This requirement has been retained in the third paragraph of Article 1191, which
states that "the court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period."
Consequently, even if the right to rescind is made available to the injured party, the
obligation is not ipso facto erased by the failure of the other party to comply with
what is incumbent upon him.
The party entitled to rescind should apply to the court for a decree of rescission. The
right cannot be exercised solely on a partys own judgment that the other committed
a breach of the obligation. The operative act which produces the resolution of the
contract is the decree of the court and not the mere act of the vendor. Since a
judicial or notarial act is required by law for a valid rescission to take place, the letter
written by respondent declaring his intention to rescind did not operate to validly
rescind the contract.

What is more, it is evident that EMI had not rescinded the contract at all. As
observed by the CA, despite EMI s pronouncement, it failed to surrender the HMO
cards of its employees although this was required by the Agreement, and allowed
them to continue using them beyond the date of the rescission. The in-patient and
the out-patient utilization reports submitted by 1 ICI shows entries as late as March
1999, signifying that EMI employees 1 were availing of the services until the
contract period were almost over. The continued use by them of their privileges
under the contract, with the apparent consent of EMI, belies any intention to cancel
or rescind it, even as they felt that they ought to have received more than what they


On November 2, 1960, UP and ALUMCO entered into a logging agreement whereby
the latter was granted exclusive authority to cut, collect and remove timber from the
Land Grant for a period starting from the date of agreement to December 31, 1965,
extendible for a period of 5 years by mutual agreement.
On December 8, 1964, ALUMCO incurred an unpaid account of P219,362.94.
Despite repeated demands, ALUMCO still failed to pay, so UP sent a notice to
rescind the logging agreement. On the other hand, ALUMCO executed an
instrument entitled Acknowledgment of Debt and Proposed Manner of Payments. It
was approved by the president of UP, which stipulated the following:
3. In the event that the payments called for are not sufficient to liquidate the
foregoing indebtedness, the balance outstanding after the said payments have been
applied shall be paid by the debtor in full no later than June 30, 1965.
5. In the event that the debtor fails to comply with any of its promises, the Debtor
agrees without reservation that Creditor shall have the right to consider the Logging
Agreement rescinded, without the necessity of any judicial suitALUMCO
continued its logging operations, but again incurred an unpaid account.
On July 19, 1965, UP informed ALUMCO that it had, as of that date, considered
rescinded and of no further legal effect the logging agreement, and that UP had
already taken steps to have another concessionaire take over the logging operation.
ALUMCO filed a petition to enjoin UP from conducting the bidding. The lower court
ruled in favor of ALUMCO, hence, this appeal.
Can petitioner UP treat its contract with ALUMCO rescinded, and may disregard the
same before any judicial pronouncement to that effect?
Yes. In the first place, UP and ALUMCO had expressly stipulated that upon default
by the debtor, UP has the right and the power to consider the Logging Agreement of
December 2, 1960 as rescinded without the necessity of any judicial suit. As to such
special stipulation and in connection with Article 1191 of the Civil Code, the
Supreme Court, stated in Froilan vs. Pan Oriental Shipping
Co: There is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause cancellation
thereof, even without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract.
135 SCRA 323
On December 19, 1957, defendants-appellants Ursula Torres Calasanz and
plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract
to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7%
interest per annum.
The plaintiffs-appellees made a down payment of P392.00 upon the execution of the
contract. They promised to pay the balance in monthly installments of P41.20 until
fully paid, the installment being due and payable on the 19th day of each month.
The plaintiffs-appellees paid the monthly installments until July 1966, when their
aggregate payment already amounted to P4,533.38.
On December 7, 1966, the defendants-appellants wrote the plantiffs-appellees a
letter requesting the remittance of past due accounts. On January 28, 1967, the
defendants-appellants cancelled the said contract because the plaintiffs failed to
meet subsequent payments. The plaintiffs letter with their plea for reconsideration of
the said cancellation was denied by the defendants.

The plaintiffs-appellees filed a case before the Court of First Instance to compel the
defendant to execute in their favor the final deed of sale alleging inter alia that after
computing all subsequent payments for the land in question, they found out that
they have already paid the total amount including interests, realty taxes and
incidental expenses. The defendants alleged in their answer that the plaintiffs
violated par. 6 of the contract to sell when they failed and refused to pay and/or offer
to pay monthly installments corresponding to the month of August, 1966 for more
than 5 months, thereby constraining the defendants to cancel the said contract.
The Court of First Instance rendered judgment in favor of the plaintiffs, hence this
Has the Contract to Sell been automatically and validly cancelled by the defendantsappellants?
No. While it is true that par.2 of the contract obligated the plaintiffs-appellees to pay
the defendants the sum of P3,920 plus 7% interest per annum, it is likewise true that
under par 12 the seller is obligated to transfer the title to the buyer upon payment of
the said price.
The contract to sell, being a contract of adhesion, must be construed against the
party causing it. The Supreme Court agree with the observation of the plaintiffsappellees to the effect that the terms of a contract must be interpreted against the
party who drafted the same, especially where such interpretation will help effect
justice to buyers who, after having invested a big amount of money, are now sought
to be deprived of the same thru the prayed application of a contract clever in its
phraseology, condemnable in its lopsidedness and injurious in its effect which, in
essence, and its entirety is most unfair to the buyers.
Thus, since the principal obligation under the contract is only P3,920.00 and the
plaintiffs-appellees have already paid an aggregate amount of P4,533.38, the courts
should only order the payment of the few remaining installments but not uphold the
cancellation of the contract. Upon payment of the balance of P671.67 without any
interest thereon, the defendant must immediately execute the final deed of sale in
favor of the plaintiffs and execute the necessary transfer of documents, as provided
in par.12 of the contract.
Velarde vs. Court of Appeals
Facts: David Raymundo (private respondent) is the absolute and registered owner
of a parcel of land, located at 1918 Kamias St., Dasmarias Village Makati, together
with the house and other improvements, which was under lease. It was negotiated
by Davids father with plaintiffs Avelina and Mariano Velarde (petitioners). A Deed of
Sale with Assumption of Mortgage was executed in favor of the plaintiffs. Part of the
consideration of the sale was the vendees assumption to pay the mortgage
obligations of the property sold in the amount of P 1,800,000.00 in favor of the Bank
of the Philippine Islands. And while their application for the assumption of the
mortgage obligations is not yet approved by the mortgagee bank, they have agreed
to pay the mortgage obligations on the property with the bank in the name of Mr.
David Raymundo. It was further stated that in the event Velardes violate any of the
terms and conditions of the said Deed of Real Estate Mortgage, they agree that the
downpayment P800,000.00, plus all the payments made with the BPI on the
mortgage loan, shall be forfeited in Favor of Mr. Raymundo, as and by way of
liquidated damages, w/out necessity of notice or any judicial declaration to that
effect, and Mr. Raymundo shall resume total and complete ownership and
possession of the property, and the same shall be deemed automatically cancelled,
signed by the Velardes.
Pursuant to said agreements, plaintiffs paid BPI the monthly interest loan for three
months but stopped in paying the mortgage when informed that their application for
the assumption of mortgage was not approved. The defendants through a counsel,
wrote plaintiffs informing the latter that their non-payment to the mortgagee bank
constituted non-performance of their obligation and the cancellation and rescission
of the intended sale. And after two days, the plaintiffs responded and advised the
vendor that he is willing to pay provided that Mr. Raymundo: (1) delivers actual
possession of the property to them not later than January 15, 1987 for their
occupancy (2) causes the release of title and mortgage from the BPI and make the
title available and free from any liens and encumbrances (3) executes an absolute
deed of sale in their favor free from any liens and encumbrances not later than Jan.
21, 1987.
The RTC of Makati dismissed the complaint of the petitioners against Mr. Raymundo
for specific performance, nullity of cancellation, writ of possession and damages.
However, their Motion for Reconsideration was granted and the Court instructed
petitioners to pay the balance of P 1.8 million to private respondent who, in turn

were ordered to execute a deed of absolute sale and to surrender possession of the
disputed property to petitioners.
Ponce De Leon vs. Syjuco G.R. L-3316
Upon the appeal of the private respondent to the CA, the court upheld the earlier
decision of the RTC regarding the validity of the rescission made by private

The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000
and on July 31, 1944, another loan of P16,000, payable within one year from May 5,
1948." On November 15, 1944, the plaintiff offered to pay the entire indebtedness
plus all the interest up to the date of maturity. Upon Syjuco's refusal to accept the
tendered payment, the plaintiff deposited the amount with the clerk of the Court of
First Instance of Manila and instituted the present action to compel Syjuco to accept
payment. The records of the case were destroyed during the war, but they were duly
reconstituted after the liberation.

Issue: Whether the rescission of contract made by the private respondent is valid.
Held: There is a breach of contract because the petitioners did not merely stopped
paying the mortgage obligations but they also failed to pay the balance purchase
price. Their conditional offer to Mr. Raymundo cannot take the place of actual
payment as would discharge the obligation of the buyer under contract of sale.
Mr. Raymundos source of right to rescind the contract is Art. 1191 of the Civil Code
predicated on a breach of faith by the other party who violates the reciprocity
between them. Moreover, the new obligations as preconditions to the performance
of the petitioners own obligation were repudiation of an existing obligation, which
was legally due and demandable under the contract of sale.

The trial court sentenced the plaintiff to pay Syjuco the defendant the sum of
P18,000 as principal and the further sum of P5,130 as interest thereon from August
6, 1944, to May 5, 1949, or total sum of P23,130, representing the whole
indebtedness plus all the interest from August 6, 1944, to May 5, 1949, computed
according to the Ballantyne scale of values, with interest thereon at the rate of 6%
per annum from May 6, 1949, until said amount is paid in full, with costs against the
plaintiff. From this judgment Syjuco has appealed, claiming his right to be paid the
sum of P216,000, actual Philippine currency, plus P200,000, as penalty agreed
upon in the contract.

The breach committed by the petitioners was the non-performance of a reciprocal

obligation. The mutual restitution is required to bring back the parties to their original
situation prior to the inception of the contract. The initial payment and the mortgage
payments advanced by petitioners should be returned by private respondents, lest
the latter unjustly enriched at the expense of the other. Rescission creates the
obligation to return the obligation of contract. To rescind, is to declare a contract void
at its inception and to put an end to it as though it never was.

Whether or not the consignation made by the plaintiff valid in the light of the law and
the stipulations agreed upon in the two promissory notes signed by the plaintiff?

The decision of the CA is affirmed with modification that private respondents are
ordered to return to petitioners, the amount they have received in advanced
Maglasang v. Northwestern University
In compliance with the CHEDs requirement before a school could offer maritime
transportation programs, on June 10, 2004, Northwestern University (Northwestern),
respondent, engaged the services of GL enterprises, petitioner, to install a new
Integrated Bridge System or IBS. The parties executed two contracts.
Two months after the execution of the contracts, GL Enterprises started delivering
materials. However, when they were installing the components, Northwestern halted
the operations.
GL enterprises requested for an explanation. Northwestern explained that the
stoppage was because the materials and equipment were substandard. It explained
that the components (1)were old; (2) did not have manual and warranty certificates;
(3) contained indications of being reconditioned machines; (4) did not meet with
CHED and IMO standards.
GL enterprises file a complaint for breach of contract.
The RTC rendered a decision that both parties are at fault. However, the CA, found
that GL enterprises was the only at fault, for delivering defective equipment that
materially and substantially breached the contracts. Applying Article 1191 of the Civil
Code, the CA declared the rescission of the contracts.
Issue: Whether the CA gravely erred in (1) finding substantial breach on the part of
GL enterprises.
Held: The Supreme Court said that, the CA correctly applied Article 1191, which
provides thus:
The power to rescind obligations is implied in reciprocal ones, in case of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the rescission becomes
The court shall decree the rescission, unless there be just cause authorizing the
fixing of a period.
The Supreme Court said that the two contracts require substantial breach. Then, it
went also to cite the definition, in the case of Cannu v. Galang, that substantial
breach are fundamental breaches that defeat the object of the parties entering into
an agreement, since the law is not concerned with trifles.
In the case at hand, it was incumbent upon GL enterprises to supply components
that would create an IBS that would effectively facilitate the learning of the students.
However, it miserably failed it meetings its responsibility. It supplied substandard
equipment when it delivered components (1) were old; (2) did not have manual and
warranty certificates; (3) contained indications of being reconditioned machines; (4)
did not meet with CHED and IMO standards. Also, GL enterprises did not also refute
that it delivered defective equipment.
Evidently, the materials were not likely to pass the CHED and IMO standards.
The Supreme affirmed in toto the decision of the Court of Appeals

The Supreme Court held in the negative. In order that consignation may be
effective, the debtor must first comply with certain requirements prescribed by law.
The debtor must show (1) that there was a debt due; (2) that the consignation of the
obligation had been made because the creditor to whom tender of payment was
made refused to accept it, or because he was absent for incapacitated, or because
several persons claimed to be entitled to receive the amount due (Art. 1176, Civil
Code); (3) that previous notice of the consignation have been given to the person
interested in the performance of the obligation (Art. 1177, Civil Code); (4)that the
amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5)
that after the consignation had been made the person interested was notified
thereof (Art. 1178,Civil Code).
While it is admitted a debt existed, that the consignation was made because of the
refusal of the creditor to accept it, and the filing of the complaint to compel its
acceptance on the part of the creditor can be considered sufficient notice of the
consignation to the creditor, nevertheless, it appears that at least two of the above
requirements have not been complied with. Thus, it appears that plaintiff, before
making the consignation with the clerk of the court, failed to give previous notice
thereof to the person interested in the performance of the obligation. It also appears
that the obligation was not yet due and demandable when the money was
consigned, because, as already stated, by the very express provisions of the
document evidencing the same, the obligation was to be paid within one year after
May 5,1948, and the consignation was made before this period matured. The failure
of these two requirements is enough ground to render the consignation ineffective.
And it cannot be contended that plaintiff is justified in accelerating the payment of
the obligation because he was willing to pay the interests due up to the date of its
maturity, because, under the law, in a monetary obligation contracted with a period,
the presumption is that the same is deemed constituted in favor of both the creditor
and the debtor unless from its tenor or from other circumstances it appears that the
period has been established for the benefit of either one of them
Buce vs. CA/Tiongco
GR 136913
May 12 2000


Constructed a building and monthly rental of P200.
Tiongco demanded increase upto P1000.
Tiongco gave letter to increase to P1500 pursuant to Rent
Control Law.
i. Buce already had checks for P400 in which Tiongco refused to accept.
d) Filed for complaint asking to have P200 rental for period of 15 years plus subject
10 year renewal.
i. Tiongco said their actions are justified due to the Rent Control Law.
ii. Lease contract allowing renewal does not mean automatic renewal, just a
mutual agreement on both parties.
RTC declared lease contract automatically renewed for 10 years:




Stipulations in contract giving right to Buce to contruct buildings and

Filing of Buce one year before the expiration of 15-year term.
Fixed monthly rent to P400, continuous increased caused inevitable novation
of their contract.
CA reversed, ordered Buce to vacate the premises due to contract
expiration and payment of P1000.
Stipulation was unclear as to who can may exercise option to renew.
Without stipulation on option to renew must be upon agreement of parties.
Since Tiongco were not agreeable to an extension, original term of lease
should end. Their refusal to accept checks was justifiable. Because even
when original specified only P200, tender and acceptance of increased rental
novated contract of lease.
Order to vacate premises is beyond bounds of authority because the case
she filed was for specific performance and not unlawful detainer.
Phrase of renewal for another 10 years at option of both parties indicates
intention of parties to renew contract only upon mutal agreement.
Allowing her to put buildings and improvements, Tiongcos acceptance of
increased rental signify renewal of contract.
Subsequent acts do not automatically indicate renewal of contracts
If this lease shall be for a period of 15 years, subject to renewal for 10 years make
stipulation automatic and subsequent to parties? NO.



Was there a period fixed?
Yes. The fixing of a period by the courts under Article 1197 of the Civil Code of the
Philippines is sought to be justified on the basis that petitioner (defendant below)
placed the absence of a period in issue by pleading in its answer that the contract
with respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner
Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to
construct and complete the streets."
If the contract so provided, then there was a period fixed, a "reasonable time;" and
all that the court should have done was to determine if that reasonable time had
already elapsed when suit was filed if it had passed, then the court should declare
that petitioner had breached the contract,
Was it within the powers of the lower court to set the performance of the obligation
in two years time?
NO. Even on the assumption that the court should have found that no reasonable
time or no period at all had been fixed (and the trial court's amended decision
nowhere declared any such fact) still, the complaint not having sought that the Court
should set a period, the court could not proceed to do so unless the complaint
included it as first amended;
Granting, however, that it lay within the Court's power to fix the period of
performance, still the amended decision is defective in that no basis is stated to
support the conclusion that the period should be set at two years after finality of the
judgment. The list paragraph of Article 1197 is clear that the period can not be set


Allowance on improvements and construction are not indicative of extension
of contract.
Thus, period of lease should be set for the benefit of both parties upon mutal
Since private respondents were not amenable to renewal, they cannot be compelled
to execute new. It is their prerogative to terminate lease at its expiration.

The law expressly prescribes that the Court shall determine such period as may
under the circumstances been probably contemplated by the parties.

Issue of possession was not among issued agreed by parties nor raised by

So that, ultimately, the Court can not fix a period merely because in its opinion it is
or should be reasonable, but must set the time that the parties are shown to have
intended. As the record stands, the trial Court appears to have pulled the two-year
period set in its decision out of thin air, since no circumstances are mentioned to
support it. Plainly, this is not warranted by the Civil Code.

CA when overboard in ordering Buce to vacate premises.

20 SCRA 330
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, and
on July 28, 1950, [through Gregorio Araneta, Inc.] sold a portion thereof to
Philippine Sugar Estates Development Co., Ltd.
The parties stipulated, among in the contract of purchase and sale with mortgage,
that the buyer will build on the said parcel land the Sto. Domingo Church and
Convent while the seller for its part will construct streets.
But the seller, Gregorio Araneta, Inc., which began constructing the streets, is
unable to finish the construction of the street in the Northeast side because a certain
third-party, by the name of Manuel Abundo, who has been physically occupying a
middle part thereof, refused to vacate the same; Both buyer and seller know of the
presence of squatters that may hamper the construction of the streets by the seller.
On May 7, 1958, Philippine Sugar Estates
Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and
instance, seeking to compel the latter to comply with their obligation, as stipulated in
the above-mentioned deed of sale, and/or to pay damages in
the event they failed or refused to perform said obligation.
The lower court and the appellate court ruled in favor of Phil. Sugar estates, and
gave defendant Gregorio Araneta, Inc., a period of two (2) years from notice hereof,
within which to comply with its obligation under the contract, Annex "A".
Gregorio Araneta, Inc. resorted to a petition for review by certiorari to this Court.

It must be recalled that Article 1197 of the Civil Code involves a two-step process.
The Court must first determine that "the obligation does not fix a period" (or that the
period is made to depend upon the will of the debtor)," but from the nature and the
circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and
2). This preliminary point settled, the Court must then proceed to the second step,
and decide what period was "probably contemplated by the parties" (Do., par. 3).

Does reasonable time mean that the date of performance would be indefinite?
The Court of Appeals objected to this conclusion that it would render the date of
performance indefinite. Yet, the circumstances admit no other reasonable view; and
this very indefiniteness is what explains why the agreement did not specify any
exact periods or dates of performance.


Facts: Ichausti & Co. can sue against one debtor despite
existence of debtors not sued because the obligation was
acquired solidarily.
> Teodoro Yulo (then widow and children) borrowed money
from Inchausti & Company for the exploitation and cultivation
of their haciendas > Children continued account with
Inchausti (Hijos de T. Yulo) until balance amounted to P200k
> June 26, 1908: Notarial Document all admitting
indebtedness and mortgaging undivided 6/9 of their 38
properties > January 11, 1909: New document for mortgage
credit for the balance > August 12, 1909: Notarial Document
severally and jointly admitting indebtedness and promising to
pay in 5 installments at the rate of P50k every June 30 with
maturity and demandable upon failure to pay > March 27,
1911: Action for Recovery of a sum of money against
Gregorio Yulo (one of the children) > May 12, 1911: Notarial
Document (entered into a new agreement) by Francisco,
Manuel and Carmen Yulo recognizing their debt but alleging

that it has been reduced to P225k > Inchausti plea to recover

P253,445.42 GRANTED
> Inchausti can sue just one obligor even if there are other
obligors > debtors obligated themselves in solidum > when
the obligation is constituted as a conjoint and solidary
obligation each one of the debtors is bound to perform in full
the undertaking which is the subject matter of such obligation
> creditor can bring its action in toto against any one of them
> Different amounts of debt with different debtors > May 12,
1911 where Inchausti & Company stipulated with some of the
solidary debtors (Manuel, Francisco, and Carmen Yulo)
diverse installments and conditions > did not break the
solidarity stipulated in the instrument of August 12, 1909 >
solidarity may exist even though the debtors are not
bound in the same manner and for the same periods and
under the same conditions
Contention of Yulo as Defense: (1222) avail of defenses
available to him even if not personal to him but personal to
co-debtors ~ solidary debtor with co-debtors and hence,
decrease in one, decrease in all > BUT! Solidarity may exist
even if they are bound in different manners
Agreement of reduction was only changed in relation to the
partys share of the debt > that 3 of them are liable only for
225 and not 253 total > Claim of creditor against one who is
not party to reduction is only 3/6 of 28k (28k ~ difference of
price) > liability of 3 is only 1/6 of 225 and difference in price
is paid by other co-debtor not party to reduction > others not
bound to decrease
That the nature of the obligation has changed ~ from 253 to
225 > that there was no novation but 3 were not authorized
to reduce debt for everyone ~ COURT MISAPPLIED 1215 ~
Co-debtors not agents of each other
Facts: Debt of 3 signatories of promissory note can be held
against just one debtor because the debt was acquired jointly
and severally where as co-maker of the debt, one is liable for
the entire debt.
> February 3, 1983: Promissory Note worth P50k by Atty.
Baldomero Inciong, Jr., Rene Naybe and Gregorio
Pantanosas as solidary co-makers for a loan from/for
payment to Philippine Bank of Communications to engage in
logging operation business > note due on May 5, 1983 >
Failure to pay > Demand by Bank by letter for payment >
January 24, 1986: Complaint for Collection of sum of P50k
against 3 by Bank > Dismissal against Pantanosas (prayed
for by Bank), migration to Saudi Arabia of Naybe
> Contention: Fraudulent promissory note since he was
made to believe that the blank promissory note he signed
was only for P5k > not established
> Dismissal of Pantanosas and Naybe not a release of his
obligation > signed as a solidary co-maker and not guarantor
> promissory note expressly states that the 3 are jointly and
severally liable > one debtor can be held liable for the entire
obligation > creditor determines against whom he will enforce
*Solidary or joint and several obligation is one in which
each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation

*Guarantor who binds himself in solidum with the principal

debtor under the provisions of the second paragraph does
not become a solidary co-debtor to all intents and purposes.
There is a difference between a solidary co-debtor and a
fiador in solidum (surety). The latter, outside of the liability he
assumes to pay the debt before the property of the principal
debtor has been exhausted, retains all the other rights,
actions and benefits which pertain to him by reason of the
fiansa; while a solidary co-debtor has no other rights than
those bestowed upon him in Section 4, Chapter 3, Title I,
Book IV of the Civil Code



Facts: Solidary creditor Quiombing can exercise action for

payment against debtor even without the other solidary
creditor because either one can mutually represent the other
to whom the debtor are both liable
> August 30, 1983: Construction and Service Agreement
where Nicencio Tan Quiombing and Dante Biscocho jointly
and severally bound themselves to construct a house of Sps.
Francisco and Manuelita Saligo for P137,940.00, > October
10, 1984: Agreement where sps. acknowledged house
completion and undertook to pay the balance > November
19, 1984: Promissory note by Saligo for P125,363.50 >
October 9, 1986: Action for recovery of amount by Quiombing
due to failure of sps. to pay the balance > Contention of Sps:
that Biscocho was an indispensable party and should have
been included as co-plaintiff > Appeal by Quiombing that as a
solidary creditor he could act by himself alone in the
enforcement of his claim against the private respondents
> SOLIDARITY BETWEEN Quiombing and Biscocho >
authority of each creditor to claim and enforce the rights of
all, with the resulting obligation of paying every one what
belongs to him > no merger, much less a renunciation of
rights, but only mutual representation > Immaterial who sued
the sps. who were liable to either of the 2 creditors > full
satisfaction of a judgment obtained against them by
Quiombing would discharge their obligation to Biscocho, and
vice versa > not necessary for both Quiombing and Biscocho
to file the complaint > either one is indispensable
> Sps. to pay and be concerned only with Quiombing > Art.
1214 that "the debtor may pay any of the solidary creditors;
but if any demand, judicial or extrajudicial, has been made by
any one of them, payment should be made to him" >
Biscocho may later claim his share from Quiombing but that
decision is for him alone to make > as far as the debtors are
concerned, payment of the judgment debt to the complainant
will be considered payment to the other solidary creditor even
if the latter was not a party to the suit
*A joint obligation is one in which each of the debtors is liable
only for a proportionate part of the debt, and each creditor is
entitled only to a proportionate part of the credit. A solidary
obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole
obligation. Hence, in the former, each creditor can recover
only his share of the obligation, and each debtor can be
made to pay only his part; whereas, in the latter, each
creditor may enforce the entire obligation, and each debtor
may be obliged to pay it in full.

*Art. 1212: Each one of the solidary creditors may do

whatever may be useful to the others, but not anything which
may be prejudice to the latter.
*Indispensable parties are those with such an interest in the
controversy that a final decree would necessarily affect their
rights, so that the court cannot proceed without their
presence. Necessary parties are those whose presence is
necessary to adjudicate the whole controversy, but whose
interests are so far separable that a final decree can be
made in their absence without affecting them.


> Sec. 6, Rule 78 of the Revised Rules of Court: Creditor
may (1) file a claim against the Alipios in the proceeding for
the settlement of the estate of petitioner's husband; (2) apply
in court for letters of administration in his capacity as a
principal creditor; (3) the allowance of will, depending on
whether petitioner's husband died intestate or testate.



Facts: Death of a sublessor spouse

> June 19, 1987Contract of Sublease over a Fishpond

among Romeo Jaring and Sps. Placido and Purita Alipio and
Bienvenido and Remedios Manuel ~ bound themselves as
spouses > Over a 5-year-leased fishpond of Jaring > Valid
until September 12, 1990 or the remaining period of his lease
> Rent: P485,600.00 (P300k upon signing PAID; P185,600
P50,600 > Demand but Failure to Pay > October 13, 1989:
Suit by Jaring against Sps. for collection or rescission > RTC
(February 26, 1991) and CA favoured Jaring and ordered
Sps. Manuel and Mrs. Alipio to pay the balance, at the
exclusion of Mr. Alipio who had died

> Contention of Alipio Wife ~ SC UPHELD: Dismissal due to

death of her Husband on December 1, 1988 > that the
obligation is chargeable against the Sps. and not the
individual (NCC 161(1)) > must be held against the conjugal
partnership which is primarily bound for its repayment
through an action for settlement of estate ~ conjugal
partnership was automatically dissolved and debts
chargeable against it are to be paid in the settlement of
estate proceedings > hence, she cannot be sued as an
independent party in an action for collection

> Calma v. Taedo: after the death of either of the spouses,

no complaint for the collection of indebtedness chargeable
against the conjugal partnership can be brought against the
surviving spouse > powers of administration of the surviving
spouse ceases and is passed to the administrator > surviving
spouse is not even a de facto administrator > Sps. are being
impleaded in their capacity as representatives of the conjugal
partnership and not as independent debtors


solidary > RTC ordered payment of the P50,600 balance
without specifying whether it is joint or solidarity (NCC 1207)
> P50,600 divided between spouses ~ P25,300 each couple
> Solidary only if sublessees refuse to vacate the leased
property after the expiration of the lease period and despite
due demands by the lessor ~ not from contract but as

> ONLY APPLIES TO dismissals of collection suits because

of the death of the defendant during the pendency of the
case and the subsequent procedure to be undertaken
> Rule 3, 21 of the 1964 Rules of Court which then provided
that "when the action is for recovery of money, debt or
interest thereon, and the defendant dies before final
judgment in the Court of First Instance, it shall be dismissed
to be prosecuted in the manner especially provided in these

> Rule 3, 20 of the 1997 Rules of Civil Procedure: When the

action is for the recovery of money arising from contract,
express or implied, and the defendant dies before entry of
final judgment in the court in which the action was pending at
the time of such death, it shall not be dismissed but shall
instead be allowed to continue until entry of final judgment. A
favorable judgment obtained by the plaintiff therein shall be
enforced in the manner especially provided in these Rules for
prosecuting claims against the estate of a deceased person.





On March 31, 1959, Makati Development Corporation
sold a lot to Rodolfo P. Andal, in Urdaneta Village, Makati,
Rizal, for P55,615. A so-called "special condition" contained
in the deed of sale provides that the vendee shall construct
and complete at least 50% of its residence on the property
within two (2) years from March 31, 1959 to the satisfaction
of the vendor and, in the event of its failure to do so, the bond

which the vendee has delivered to the vendor in the sum of

P11,123.00 to insure faithful compliance with the above
special condition will be forfeited. Andal gave a surety bond
on April 10, 1959 wherein he, as principal, and the Empire
Insurance Company, as surety, jointly and severally,
undertook to pay the Makati Development Corporation the
sum of P12,000 in case Andal failed to comply with his
obligation under the deed of sale.

obligor's liability is allowed. Thus article 1229 of the Civil

Code states:

Andal sold the lot to Juan Carlos on January 18, 1960. As

neither Andal nor Juan Carlos built a house on the lot within
the stipulated period, the Makati Development Corporation,
on April 3, 1961, after the lapse of the two-year period, sent a
notice of claim to the Empire Insurance Co. advising it of
Andal's failure to comply with his undertaking. Demand for
the payment of P12,000 was refused, whereupon the Makati
Development Corporation filed a complaint in the Court of
First Instance against the Empire Insurance Co. to recover
on the bond in the full amount, plus attorney's fees. In due
time, the Empire Insurance Co. filed its answer with a thirdparty complaint against Andal. It asked that the complaint be
dismissed or, in the event of a judgment in favor of the Makati
Development Corporation, that judgment be rendered
ordering Andal to pay the Empire Insurance Co. whatever
amount it maybe ordered to pay the Makati Development
Corporation, plus interest at 12%, from the date of the filing
of the complaint until said amount was fully reimbursed, and
attorney's fees.

Trial court found that Juan Carlos had finished more

than 50 per cent of his house by April, 1961, or barely a
month after the expiration on March 31, 1961 of the
stipulated period. There was therefore a partial performance
of the obligation within the meaning and intendment of article
1229. The penal clause in this case was inserted not to
indemnify the Makati Development Corporation for any
damage it might suffer as a result of a breach of the contract
but rather to compel performance of the so-called "special
condition" and thus encourage home building among lot
owners in the Urdaneta Village. Considering that a house
had been built shortly after the period stipulated, the
substantial, if tardy, performance of the obligation, having in
view the purpose of the penal clause, fully justified the trial
court in reducing the penalty. Still it is insisted that Carlos'
construction of a house on the lot sold cannot be considered
a partial performance of Andal's obligation because Carlos
bears no contractual relation to the Makati Development
Corporation. Indeed the stipulation in this case to commence
the construction and complete at least 50 per cent of the
vendee's house within two years cannot be construed as
imposing a strictly personal obligation on Andal. To adopt
such a construction would be to limit Andal's right to dispose
of the lot. There is nothing in the deed of sale restricting
Andal's right to sell the lot at least within the two-year period
and we think it plain that a reading of such a limitation on one
of the rights of ownership must rest on more explicit
language in the contract.

In his answer, Andal admitted the execution of the

bond but alleged that the "special condition" in the deed of
sale was contrary to law, morals and public policy. He
averred that, at any rate, Juan Carlos had started
construction of a house on the lot. The lower court rendered
judgment, sentencing the Empire Insurance Co. to pay the
Makati Development Corporation the amount of P1,500, with
interest at the rate of 12% from the time of the filing of the
complaint until the amount was fully paid, and to pay
attorney's fees in the amount of P500, and the proportionate
part of the costs. The court directed that in case the amount
of the judgment was paid by the Empire Insurance Co., Andal
should in turn pay the former the sum of P1,500 with interest
at 12% from the time of the filing of the complaint to the time
of payment and to pay attorney's fees in the sum of P500
and proportionate part of the costs. The Makati Development
Corporation appealed directly to this Court.
The appellant argues that Andal became liable for the
full amount of his bond upon his failure to build a house
within the two-year period which expired on March 31, 1961
and that the trial court was without authority to reduce
Andal's liability on the basis of Carlos' construction of a
house a month after the stipulated period because there was
no privity of contract between Carlos and the Makati
Development Corporation.
Is Andal liable for the full amount of his bond upon his failure
to comply with the special condition stipulated?
No. While it is true that in obligations with a penal
sanction the penalty takes the place of damages and the
payment of interest in case of non-compliance and that the
obligee is entitled to recover upon the breach of the
obligation without the need of proving damages,it is
nonetheless true that in certain instances a mitigation of the

The judge shall equitably reduce the penalty when the

principal obligation has been partly or irregularly complied
with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.


Facts: Default in payment effected penalty interest and its

interest, different and separate from principal interest, as
stipulated in the promissory note.

> Promissory Notes for two Loans granted by CCP to Antonio

Tan worth P2M each > Maturity dates: May 14, 1979 and July
6, 1979 > Defaulted but with partial payments > Restructure
of Loan (August 31, 1979) with promissory note worth
P3,411,421.32 ~ payable in 5 installments, last on December
With interest at the rate of 14% per annum from the date
hereof until paid...In case of non-payment of this note at
maturity/on demand or upon default of payment of any
portion of it when due, I/We jointly and severally agree to pay
additional penalty charges at the rate of 2% per month on the
total amount due until paid, payable and computed monthly.
Default of payment of this note or any portion thereof when
due shall render all other installments and all existing

promissory notes made by us in favor of the CCP

immediately due and demandable > Defaulted in all > Letter
(January 26, 1982) by Tan proposing payment scheme for
restructured loan (20% upon approval and 60% in 36 equal
monthly instalments) > Request (October 20, 1983) by Tan to
postpone loan payments due to business failures > Letter
Demand (May 30, 1984) by CCP for full payment in 10d of
restructured loan, worth P6,088,735.03 > Default > Suit for
Collection (August 29, 1984) by CCP > RTC and CA in favour
of CCP, charging interest, surcharges, attorneys fees and
exemplary damages

the center will be accepting your proposed payment scheme

with the downpayment of P160,000.00 and monthly
remittances of P60,000.00 > NOT SUSPENSIVE
CONDITIONAL OBLIGATION ~ responsibility of Tan to inform
and bring his administrative appeal to COA and OP of his
application for condonation of interest and surcharge

> Contention of Tan > acquired loan only to help Wilson

Lucmen who had suddenly disappeared > RTC: little
evidence to prove it and should filed a third party complaint
instead > Abandoned on CA Appeal but appealed interest,
surcharge and the principal which were added together and
the total sum interest that was imposed and asked reduction
of the penalties and charges on his loan obligation

Facts: Default of lessee warranted the penalty of forfeiture of

the cash deposit in favour of lessor because such stipulation
in agreement is a penal clause that is valid in order to punish
the lessee for non-payment. However, penalty was not
substituted for damage claim by lessor as a result of breach
of contract because it arose not from breach of contract per
se but from damages resulting from non-fulfillment of
principal obligation, ie lost opportunity costs of lessor.

> PENALTY IN Promissory note > imposition of 2 interests >

Monetary Interest on the Principal (14%) v. Penalty Interest
(2%) in case of default > 2% partakes of the nature of a
penalty clause/penalty charge/penalty/compensatory penalty
> NCC2209 permits an agreement upon a penalty apart from
the monetary interest ~ If the parties stipulate this kind of
agreement, the penalty does not include the monetary
interest, and as such the two are different and distinct from
each other and may be demanded separately > Interest on
penalty provided in paragraph 5 of promissory note ~ Any
interest which may be due if not paid shall be added to the
total amount when due and shall become part thereof, the
whole amount to bear interest at the maximum rate allowed
by law ~ unpaid penalty interest shall earn the legal interest
of 12% per annum > FROM WHEN: DEMAND ~ upon the
filing of the complaint in court by CCP on August 29, 1984

> Reduction in penalty for partial payment ~ NCC1229 >

From 2% monthly (for 21y since default) to 12% annually on
total amount due from August 28, 1986 (Last Statement of

> Interest and Surcharge NOT Conditional to Assistance of

CCP in Tans application in COA ~ September 18, 1988
Letter from CCP: With reference to your appeal for
condonation of interest and surcharge, we wish to inform you
that the center will assist you in applying for relief of liability
through the (recommendation of) Commission on Audit and
Office of the President (to House of Rep for approval)...While
your application is being processed and awaiting approval,



> Contract of Lease (June 11, 1977)

> Lessor Oscar Ventanilla Enterprises Corporation to Lessee
Enrique F. Sy over Avenue, Broadway and Capitol Theaters
and its land > from June 13, 1977 to June 12, 1983 ~ 6y > 2y
after ~ arrears in monthly rentals and non-payment of
amusement taxes by Lessee Sy > demands by Lessor OVEC
for repossession > Supplemental Agreement (August 12,
1979) where Lessor OVEC allowed Sy to continue operating
the leased properties subject to conformity with certain
conditions ~ Reduction of Sys arrears in rentals (P125k to
P71k) but Deduction of P4k from monthly rental to pay for
accumulated amusement tax liability > Demands for Payment
by OVEC (January 7, 1980, February 3, 1980) for payment of
arrears and amusement tax delinquency otherwise OVEC
would repossess the premises on February 11, 1980 > Sy
failed > OVEC padlocked and repossessed the properties ~
denied entry to Sys employees > Action for Reformation of
the Lease Agreement by Sy (February 11, 1980) > Sy filed a
P500k bond, supplied by CBISCO, for the suit

> Contentions of Sy > that deposit of P600k was too big; that
OVEC assured him that no forfeiture will happen; that he had
spent P100k for major repairs on the theaters; that he had
paid P48k for electricity which OVEC used thru an illegal
connection > RTC in favour of OVEC ~ valid repossession
pursuant to a valid stipulation plus damages > for Sy to pay
damages worth P10k/m from February to November 1980,
totaling P100k with interest on each amount of P10k from the
time the same became due ~ Opportunity Costs against

> Valid Forfeiture Clause ~ forfeiture

of the remaining deposit still in the possession of the lessor,
without prejudice to any other obligation still owing, in the
event of the termination or cancellation of the agreement by
reason of the lessee's violation of any of the terms and
conditions of the agreement > A PENAL CLAUSE ~ that the
deposit of P600k shall be deemed forfeited, without prejudice
to any other obligation still owing by the lessee to the lessor
> Forfeiture penalty PLUS Damages worth P100k (due to
OPPORTUNITY COSTS in P10k monthly increase in rental
from P50k to P60k because RTG Productions, Inc. offered to
lease the property at P60k which OVEC failed to realize for
10m from February to November 1980, totaling P100k ~
P100k not redeemed due to the issuance of the injunction
against the P290,000.00 remaining cash deposit) ~ cannot
be substituted ~ penalty for punishment of obligor, damages
for loss of obligee

> Penal Clause is an accessory obligation which the parties

attach to a principal obligation for the purpose of insuring the
performance thereof by imposing on the debtor a special
presentation (generally consisting in the payment of a sum of
money) in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled > PURPOSE: To punish the obligor >
generally, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance ~ proof of actual damages suffered by the
creditor is not necessary in order that the penalty may be
demanded > EXCEPTIONS: (1) when there is a stipulation to
the contrary; (2) when the obligor is sued for refusal to pay
the agreed penalty; (3) when the obligor is guilty of fraud >
Obligee can recover not only the penalty but also the
damages resulting from non-fulfillment of the principal



denied > Complaint for specific performance with damages >

Dismissed for failure to prosecute > Refile alleging breach of
contract for deliberate non-fulfillment of their obligations under the
contract to sell > Compromise Agreement (November 29, 1977) ~
Payment of P240k by December 18, 1977 or by January 27, 1978
but worth P250k; Otherwise, Contract shall be deemed rescinded,
right of possession shall be enforced; Lim shall voluntarily
surrender and vacate the same without further notice or demand >
Defaulted > Motion for issuance of a writ of execution (January 28,
1978) > Opposition (March 27, 1978) alleging that she had
complied and demanded that they immediately execute the
necessary documents to transfer the title to the properties

> Compliance by Singh > Failure to pay the full amount by January
27, 1978 was due to fault of appellees > She went to the sala of
Judge Bautista on the appointed day to make payment, as agreed
upon in their compromise agreement but the appellees were not
there to receive it; their counsel informed her that he had no
authority to receive and accept payment but invited her to the
house of the petitioners to effect payment but the petitioners were
not there either until 4PM but never did arrive > She returned the
next day (January 28, 1978 to the office of the Clerk of the to
deposit the balance of the purchase price but cashier was not there
to receive it because it was Saturday > Returned Monday and
deposited the amount of P30k to complete the payment of the
purchase price of P250k

> Non-appealable of Compromise Agreements > the rule is that a

judgment rendered in accordance with a compromise agreement is
not appealable > immediately executory unless a motion is filed to
set aside the compromise agreement on the ground of fraud,
mistake or duress, in which case an appeal may be taken from the
order denying the motion > that an order of execution of judgment
is not appealable > EXCEPTION: if terms does not conform to the
essence or when the terms of the judgment are not clear and there
is room for interpretation and the interpretation given by the trial
court as contained in its order of execution is wrong in the opinion
of the defeated party

> Contract to Sell (February 17, 1971) by PILAR DE GUZMAN,
SINGH over 2 parcels of land > balance of the purchase price
worth P133,640.00 due February 17, 1975 > Request by Singh
(February 15, 1975) for a statement of account of the balance due;
copies of the certificates of title covering the two parcels of land
subject of the sale; and a copy of the power of attorney > Request




> Action for declaratory relief involving the rights of Bearcon

Trading Co., Inc. as lessee of the premises of Juan Fabella > to
make a consignation of the monthly rentals as it was at a loss as
to who is lawfully and rightfully entitled to receive payments of the
monthly rentals > Order (October 5, 1971) by Hon. Delfin B. Flores
granted motion to intervene of Delfin B. Flores as sublessee >
Deposit with the Clerk of Court total of P3,750 by way of rentals,
which deposits are properly covered by official receipts ~ not
required by the Court > Dismissal of Complaint (April 24, 1972) >
Motion to withdraw sums deposited (May 27, 1972) ~ dismissal left
the intervenor without any recourse but to withdraw the amount and
turn over the same to Bearcon in accordance with the
understanding arrived at between the parties > Denied > Certiorari

> Consignation > debtor is entitled as a matter of right to withdraw

the deposit made with the court, before the consignation is
accepted by the creditor or prior to the judicial approval of such
consignation > Art. 1260 that: Before the creditor has accepted the
consignation, or before a judicial declaration that the consignation
has been properly made, the debtor may withdraw the thing or the
sum deposited, allowing the obligation to remain in force

> Right to Withdraw > case was dismissed before the amount
deposited was either accepted by the creditor or a declaration
made by the Court approving such consignation > Dismissal
rendered the consignation ineffectual



> Contract of Conditional Sale of Real Property (February 28,
1977) between Luisa F. McLaughlin and Ramon Flores for P140k
(P26,550.00 upon the execution of the deed and balance of
P113,450.00 to be paid not later than May 31, 1977) > Default of
Ramon > Complaint for Rescission (June 19, 1979) by Luisa >
Compromise Agreement (December 27, 1979) ~ Ramon
acknowledged his indebtedness and agreed he would pay as
follows: a) P50,000.00 upon signing of the agreement; and b) the
balance of P69,059.71 in two equal installments on June 30, 1980
and December 31, 1980 >That failure to comply will entitle Luisa to
the issuance of a writ of execution rescinding the Deed of
Conditional Sale of Real Property, waiving his right to appeal >
Demand (October 15, 1980) of balance due on June 30, 1980 and

December 31, 1980 > Willingness to pay but demand to see

certificate of title and tax payment receipts > Tendered payment but
was refused (November 3, 1980) > Motion for Writ of Execution
(November 7, 1980) ~ that Ramon defaulted > Motion granted
(November 14, 1980) > Motion for reconsideration (November 17,
1980), tendering a Pacific Banking Corporation certified manager's
check covering the entire obligation > Denied (November 21, 1980)
> Issuance of writ of execution (November 25, 1980), rescinding
the deed of conditional sale of real property (November 27, 1980)


compliance with the compromise agreement > Notice of
cancellation on November 7, 1980 ~ cancellation should be only
30d after receipt of notice > Tender of payment on November 17,


OBJECT > no consignation or deposit of the sum due with the
court pursuant to Paez v. Magno ~ that although consignation of
the redemption price is not necessary in order that the vendor may
compel the vendee to allow the repurchase within the time
provided by law or by contract and that a mere tender of payment
is enough, if made on time, as a basis for action against the
vendee to compel him to resell, such tender does not in itself
relieve the vendor from his obligation to pay the price when
redemption is allowed by the court > tender of payment is sufficient
to compel redemption but is not in itself a payment that relieves the
vendor from his liability to pay the redemption price > HENCE,
necessity to pay P76,059.71 (purchase price) and the rentals in
arrears before Flores shall be entitled to a deed of absolute sale in
his favor ~ respondent had preserved his rights as a vendee in the
contract of conditional sale of real property by a timely valid tender
of payment of the balance of his obligation which was not accepted
by Luisa but he remains liable for the payment of his obligation
because of his failure to deposit the amount due with the court

> Art. 1256 that if the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or sum
due, and that consignation alone shall produce the same effect in
the five cases enumerated therein
> Art. 1257 that in order that the consignation of the thing (or sum)
due may release the obligor, it must first be announced to the
persons interested in the fulfillment of the obligation

> Art. 1258 that consignation shall be made by depositing the thing
(or sum) due at the disposal of the judicial authority and that the
interested parties shall also be notified thereof.
> Republic Act No. 6552 (September 14, 1972) > Section 4: In
case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from
the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller
may cancel the contract after thirty days from receipt by the buyer
of the notice of the cancellation or the demand for rescission of the
contract by a notarial act > Section 7: Any stipulation in any
contract hereafter entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and void.



Facts: Lessee Francisco failed to validly consign his rents to the

Clerk of Court for want of notice to lessor who allegedly refused to
accept payment in order to eject lessee.

> Contract of Lease (January 17, 1973) between Soledad Soco

and Regino Francisco, Jr. over formers commercial building and
lot > for 10y with monthly rental of P800, renewable for another 10y
> Payment of Rents by Collector > Sublease of Francisco to
NACIDA at P3k/m > No more collector and receipts for payments >
Letter by Francisco (February 7, 1975) that payment would be
coursed thru Commercial Bank and Trust Company by check (Bank
instructed to pay P840/10th of the month) > From May 1977: Nonpayment of rents > Payments allegedly deposited with Clerk of
Court thru Commercial Bank BUT Soco received none and even
went to the residence/office of Francisco > Notice (November 23,
1978) by Soco to vacate property > Complaint for illegal detainer
(January 8, 1979) allegedly due to failure of payments of the

> ISSUE: Validity of Consignation of Rental Payments >

Contentions of Francisco: that Soco refused to accept the rents in
order to evict Francisco for subleasing the property at a higher
price > Compelled to make all payments due through Commercial
Bank and deposited with Clerk of Court > Contentions of Soco: that
she had received no payment


was a debt due; (2) that the consignation of the obligation had
been made because the creditor to whom tender of payment was
made refused to accept it, or because he was absent or
incapacitated, or because several persons claimed to be entitled to
receive the amount due (Art. 1176, Civil Code); Tender and refusal
of payment (3) that previous notice of the consignation had been
given to the person interested in the performance of the obligation
(Art. 1177, Civil Code) ~ FIRST NOTICE in order to give the
creditor an opportunity to reconsider his unjustified refusal and to
accept payment thereby avoiding consignation and the subsequent
litigation; (4) that the amount due was placed at the disposal of the
court (Art. 1178, Civil Code); and (5) that after the consignation had
been made the person interested was notified thereof (Art. 1178,
Civil Code) ~ SECOND NOTICE to enable the creditor to withdraw
the goods or money deposited ~ unjust to make him suffer the risk
for any deterioration, depreciation or loss of such goods or money
by reason of lack of knowledge of consignation > TRIAL for validity
of consignation > Failure in any makes consignation ineffective >
language of Articles 1256 to 1261 > "shall" and "must" which are
imperative ~ mandatory nature ~ full and strict compliance not just
substantial compliance

> APPLICATION OF CONSIGNATION (in order to release debtor

from responsibility) > (1) When the creditor is absent or unknown,
or does not appear at the place of payment; (2) When he is
incapacitated to receive the payment at the time it is due; (3)
When, without just cause, he refuses to give a receipt; (4) When
two or more persons claim the same right to collect; (5) When the
title of the obligation has been lost

No First and Second Notice and No Proof of Payment

> Alleged Proof of First Notices to Consign: (1) Letter by Atty.

Pampio Abarientos dated June 9, 1977 where you are hereby
requested to please get and claim the rental payment aforestated
from the Office within 3d from receipt hereof otherwise we would be
constrained to make a consignation of the same with the Court in
accordance with law; (2) Letter by Atty. Abarientos dated July 6,
1977 to advise and inform you that my client, Engr. Regino
Francisco, Jr., has consigned to you, through the Clerk of
Court...the total amount of Pl,852.20, as evidenced by cashier's
checks...dated May 11, 1977 and June 15, 1977 respectively and
payable to your order...Please be further notified that all
subsequent monthly rentals will be deposited to the Clerk of Court

>> BUT LETTERS only refer to particular monthly rentals of May,

June, July 1977 > No indication/proof that rentals would then be
deposited with the court and that Soco was notified; (3) Answer of
Francisco in Eviction Suit >> But MERE ALLEGATIONS; (4) Letter
by Atty. Menchavez dated November 28, 1978 that It is not true
that my client has not paid the rentals...has been religiously paying
the rentals in advance... by Commercial Bank and Trust Company
to the Clerk of Court... receipt of payment made by him for the
month of November, 1978 which is dated November 16, 1978 >>
only proves payment of November 1978 and no other

of payment is extrajudicial while consignation is necessarily judicial

> priority of the tender of payment is the attempt to make a private
settlement before proceeding to the solemnities of consignation >
must be made in lawful currency > payment in check by the debtor
may be acceptable as valid, if no prompt objection to said payment
is made

> No Proof of Second Notice > that consignation has been made
and that the checks were in fact deposited > No official receipt
allegedly issued by the Clerk of Court was presented EXCEPT for
July and August 1977 > That these had been paid only on
November 20, 1979 > HENCE, testimony of Soco on October 24,
1979 that Francisco had not paid the monthly rentals for these
months > Francisco had to make a hurried deposit on the following
month to repair his failure

Facts: Debtors Mijares, et al admitted debt to Sotto and expressed

willingness to pay amount by depositing it in court but subject to
the condition that the mortgage they had executed as security be
cancelled. Such condition is valid because the right to consign
belongs to the debtor exclusively who cannot be compelled by the
court to make such deposit against its will.

> Alleged Instruction of Payment by Francisco to Bank > Francisco:

Please immediately notify us everytime you have the check ready
so we may send somebody over to get it BUT CLARIFIED BY
BANK THAT you shall send somebody over to pick up the
cashier's check from us > lessee's duty to send someone to get
the cashier's check from the bank and to make and tender the
check to the lessor > lessees obligation to tender payment and
notify lessor which he failed to do

> Alleged evidence of payment: (1) Debit Memorandum issued by

Comtrust accounting payment for May-August 1977 > deducted
check amounts from account of Francisco > merely internal
banking practices or office procedures > not binding upon a third
person such as the lessor; (2) Certification issued by Comtrust
dated October 29, 1979

>>> Consignation > the act of depositing the thing due with the
court or judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior tender
of payment
>>> Tender of payment > antecedent of consignation, that is, an
act preparatory to the consignation > consignation is principal while
tender of payment from which are derived the immediate
consequences which the debtor desires or seeks to obtain > tender


> Admitted Debt of Mijares, et al to Sotto from contractual

transactions worth P5,106.00 > Debt secured by a mortgage >
Refusal of Sotto to receive amount from Mijares despite latters
willingness to pay > Motion for Deposit (November 13, 1962) by
Mijares to pay P5,105 by depositing amount with the Clerk of Court
> Granted by Court > Mijares, et al filed motion for reconsideration
of the Order because of their failure to allege in their Opposition
that the sum of P5,106.00 was actually secured by a real estate
mortgage and that they would thus premise their willingness to
deposit said amount upon the condition that Sotto will cancel the
mortgage and return the TCT > Court denied (March 20, 1963)

> Right to Consign belongs to the Debtors EXCLUSIVELY > a

deposit is in the nature of consignation, and consignation is a
facultative remedy which debtor may or may not avail himself of > If
debtor refuses to consign, he may not be compelled to do so, and
the creditor must fall back on the proper coercive processes
provided by law to secure or satisfy his credit, as by attachment,
judgment and execution > If made by the debtor, the creditor
merely accepts it, if he wishes; or the court declares that it has
been properly made, in either of which events the obligation is
ordered cancelled > If debtor has right of withdrawal, he surely has
the right to refuse to make the deposit in the first place > Court
committed grave abuse of discretion in ordering deposit without
granting cancellation of mortgage



> Contract of Lease (November 3, 1975) between Meat Packing

Corporation of the Philippines (owned by Government Service
Insurance System) and Philippine Integrated Meat Corporation
where 3 parcels of land of former was leased to latter for 28y with
annual rental rate of P1,375,563.92, totalling P38,515,789.87 >
Automatic Rescission Clauses: (1) default in payment of rentals
equivalent to the cumulative sum total of 3 annual instalments; (2)
Violation of any of the terms and conditions > PCGG sequestered
all the assets, properties and records of PIMECO (March 17, 1986)
> MPCP rescinded the lease agreement with PIMECO (notice
dated November 17, 1986) for alleged non-payment of rentals of
more than P2M for the year 1986 > PCGG acquired lease
agreement > PCGG, after sequestration, tendered to MPCP two
checks in the amounts of P3M and P2M, or a total of P5M
representing partial payment of accrued rentals on the meat
packing plant > MPCP refused to accept on the theory that the
lease-purchase agreement had been rescinded > Sandiganbayan
ordered MPCP to accept the payment and issue the corresponding

> MPCP unjustly refused acceptance of payment > prior tender by

PCGG of the amount of P5M for payment of the rentals in arrears
which MPCP refused to accept the same on the ground merely that
its lease-purchase agreement with PIMECO had been rescinded >
PIMECO paid, and GSIS/MPCP received, several amounts due
under the lease-purchase agreement, such as annual
amortizations or rentals, advances, insurance, and taxes, in total
sum of P15,921,205.83 > acceptance by MPCP and GSIS of such
payments for rentals and amortizations negates any rescission of
the lease-purchase agreement

> Consignation is the act of depositing the thing due with the court
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment, and it generally requires a prior tender
of payment.33 It should be distinguished from tender of payment.
Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor
desires or seeks to obtain. Tender of payment may be extrajudicial,
while consignation is necessarily judicial, and the priority of the first
is the attempt to make a private settlement before proceeding to
the solemnities of consignation.34 Tender and consignation, where
validly made, produces the effect of payment and extinguishes the

Pabugais v. Sahijwani
Contract: Agreement and Undertaking wherein petitioner Teddy
Pabugais agreed to sell to respondent Dave Sahijwani a lot
containing 1239 sq m in consideration of the amount of
15,487,500. Respondent paid petitioner the amount of 600,000 as
option/reservation fee and the balance of 14,887,500 to be paid
within 60 days from the execution of the contract, simultaneous
delivery of the owners duplicate TCT in respondents name, the
Deed of Absolute Sale, the Certificate of Non-Tax Delinquency on
real estate taxes and Clearance on Payment of Association Dues.
Failure on the part of respondent ot pay the balance of the
purchase price entitles
petitioner to forfeit the said
option/reservation fee; while non-delivery by the latter of the
necessary documents obliges him to return to respondent said
option/reservation fee with interest at 18% per annum.

Petitioner failed to deliver the required documents and returned the

subject fee by way of check, which was dishonored. Petitioner then
twice tendered to respondent the amount of 672,900 dated August
3, 1994 but respondents counsel refused to accept it. The second
tender was on August 8, 1994, when he sent the managers check
attached to a letter dated August 5, 1994. On August 11, 1994,
petitioner wrote a letter to respondent saying that he is consigning
the amount tendered with the RTC of Makati, and on August 15,
petitioner filed a complaint for consignation. Respondents counsel
justified such refusal claiming that no check was appended to the
letter dated August 5, 1994. He averred that there was no valid
tender of payment because no check was tendered and the
computation of the amount to be tendered was insufficient because
petitioner promised to pay 3% monthly interest and 25% attorneys
fees in addition to what has been stipulated.

Issue: W/N there was valid tender of payment and consignation.

W/N petitioner has the right to withdraw the amount consigned.

Held: Yes, there was valid tender of payment and consignation. It is

obvious that the reason for respondents non-acceptance of the
tender of payment was the alleged insufficiency thereof and not
because the said check was not tendered to respondent, or
because it was in the form of a managers check. While it is true
that in general, a managers check is not legal tender, the creditor
has the option of refusing or accepting it. Payment in check by the
debtor may be acceptable as valid, if no prompt objection to said
payment is made. Consequently, petitioners tender of payment in
the form of managers check is valid.
Moreover, it appears that only the interest of 18% per annum was
agreed upon by the parties. The managers check in the amount of

672,900 was enough to satisfy the obligation. There being a valid

tender of payment in an amount sufficient to extinguish the
obligation, the consignation is valid.
The amount consigned with the trial court can no longer be
withdrawn by petitioner because respondents prayer in his answer
that the amount consigned be awarded to him is equivalent to an
acceptance of the consignation, which has the effect of
extinguishing petitioners obligation.


Facts: Remedy sought by Tropical Homes, Inc., which is for the

court to modify its contract with Occenas allegedly due to
unanticipated rise in prices that would leave the former at a loss,
cannot be granted for lack of legal basis. Impossibility of
performance which Art. 1267 speaks of is for the release from
obligation by the debtor but not the modification of contract which
has the force of law between the parties.

> Subdivision Contract between landowners Jesus and Efigenia

Occena and developer Tropical Homes, Inc. where latter
guaranteed former 40% share, fixed and sole, of all cash receipts
from the sale of subdivision lots owned by former > Complaint for
Modification of the Terms and Conditions of the Contract by
Tropical (February 25, 1975) > Contentions of Tropical: That
increase in prices of oil and its derivatives and concomitant
worldwide spiralling of prices made the cost of development [rise]
to levels which are unanticipated, unimagined and not within the
remotest contemplation of the parties at the time said agreement
was entered into and to such a degree that the conditions and
factors which formed the original basis of said contract have been
prayed for was modification of the terms and conditions of the
contract by fixing the proper shares that should pertain to the
parties out of the gross proceeds from the sales of subdivided lots
of subjects subdivision > Invoked ART. 1267 ~ When the service
has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released
therefrom, in whole or in part

> General Rule of Art. 1267 ~ impossibility of performance releases

the obligor, or when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the court
should be authorized to release the obligor in whole or in part >
Intention of the parties should govern ~ that service turns out to be

so difficult as have been beyond their contemplation > it would be

doing violence to that intention to hold the obligor still responsible >
that performance will result in situation where other party would be
unustly enriched at the expense of the other > inequitous
distribution of proceeds and exposure of plaintiff to implacable
losses, resulting in an unconscionable, unjust and immoral

> Seeks NOT THE RELEASE from compliance of the obligation as
contemplated by Art. 1267 that gives a positive right in favor of the
obligor to be released from the performance of an obligation in full
or in part when its performance has become so difficult as to be
manifestly beyond the contemplation of the parties > Seeks
modification of the terms and conditions of the Contract by fixing
the proper shares that should pertain to the parties out of the gross
proceed > Art. 1267 does not grant the courts this authority to
remake, modify or revise the contract which has the force of law
between the parties, so as to substitute its own terms for those
covenanted by the parties themselves > no legal basis; no cause of



Facts: Contemplated situation in which CASURECO entered into

an agreement with NATELCO has changed so much that
reformation of contract had been warranted.

> (November 1, 1977) Contract between Naga Telephone Co., Inc.

and Camarines Sur II Electric Cooperative, Inc. where former can
use the electric light posts of the latter for its operation of its
telephone service in Naga City while latter would be given free
installation and use of 10 telephone connections > Period shall be
as long as [NATELCO] has need for the electric light posts of
[CASURECO II], it being understood that this contract shall
terminate when for any reason whatsoever, [CASURECO II] is
forced to stop, abandon its operation as a public service and it
becomes necessary to remove the electric lightpost > Prepared by
Atty. Luciano M. Maggay, member of the Board of Directors of
CASURECO II and legal counsel of NATELCO > January 2, 1989,
10y later, Action for Reformation of the Contract with damages by

> Difficulty Beyond Contemplation > Contemplation of

CASURECOs President in November 1, 1977: that we will allow
NATELCO to utilize the posts of CASURECO II only in the City of
Naga because at that time the capability of NATELCO was very
limited, as a matter of fact we did not expect it to be able to expand
because of the legal squabbles going on in the NATELCO > (1)
Increase in the volume of NATELCOs subscribers in Naga City ~
stringing of more and bigger telephone cable wires by NATELCO to
CASURECOs electric posts without a corresponding increase in
the 10 telephone connections given of charge in the agreement; (2)
use by NATELCO of electric posts outside Naga City although this
was not provided for in the agreement ~ while very few electric
posts were being used by in 1977 and they were all in the City of
Naga, the number of electric posts that NATELCO was using in
1989 had jumped to 1,403,192 of which are outside Naga City; (3)
destruction of some of the poles during typhoons like the strong
typhoon Sisang in 1987 because of the heavy telephone cables
attached; (4) escalation of the costs of electric poles from 1977 to

> HELD: Pay CASURECO for the use of electric posts in Naga City
at the reasonable monthly rental of P10.00 per post; Pay
NATELCO for the telephones in the same City that it was formerly
using free of charge under the terms of the agreement at the same
rate being paid by the general public UNTIL parties can renegotiate another agreement over the same subject-matter > Why
did the Court impose obligations: Public Intereset ~ compromise of
telephone and electrical services ~ risk of interruption

> Art. 1267 > "service" as "performance" of the obligation >

doctrine of unforseen events > rebus sic stantibus where the
parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist the contract also ceases to
exist > practical needs and the demands of equity and good faith,
the disappearance of the basis of a contract gives rise to a right to
relief in favor of the party prejudiced

> Article 1267: When the service has become so difficult as to be

manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part. > Intent:
impossibility of performance releases the obligor ~ manifestly
beyond the contemplation of the parties that it would be doing
violence to that intention to hold their contemplation to hold the
obligor still responsible


Facts: PNCC still obligated to pay rentals for 2y lease with
Raymundos because there were no legal or physical impossibilities
that have prevented them from paying rents. The alleged nonissuance of permit was false because they have actually been
issued one but they merely did not use it. The alleged political
instability of the country was actually foreseen because the events
had happened before the contract was entered into. The alleged
poor financial conditions do not suffice as impossibility and not an
exception for performance.

> Contract of Lease (November 18, 1985) between landowners

Raymuno and lessee PNCC for land crushing pland and field office
> 5y renewable for 5y; monthly rental of P20k, increased yearly by
5% ~ DP of P240k upon execution of contract, balance by annual
rents payable every 12m; Termination clause is by mutual
agreement > Temporary Use Permit for the proposed rock
crushing project (January 7, 1986) from Ministry of Human
Settlements > Letter Request (January 16, 1986) from Landowners
Raymundo for payment of DP ~ that they had already stopped
considering the proposals of other aggregates plants to lease the
property > Reply-Letter from PNCC that under par.1 of the lease
contract, payment of rental would commence on the date of the
issuance of an industrial clearance and not from the date of signing
of the contract ~ NOTICE of intention to terminate the contract, as
it had decided to cancel or discontinue with the rock crushing
project due to financial, as well as technical, difficulties >
Landowners Raymundo refused ~ Insisted the performance of the
obligation and demanded payment for first annual rental > Action
for Specific Performance (May 19, 1986) by Ramundo > RTC Held
(April 12, 1989) for PNCC to pay P492k, covering 2y rental

> Contention of PNCC: (1) that the obligation has not risen
because the issuance of an industrial clearance is a suspensive
condition without which the rights under the contract would not be
acquired ~ Temporary Use Permit not the industrial clearance
referred to in the contract ~ Actual permit requires a clearance first
from the National Production Control Commission while TUP had a
finding that the proposed project does not conform to the Zoning
Ordinance of Rizal ~ HENCE without the industrial clearance the
lease contract could not become effective and PNCC could not be
compelled to perform its obligation under the contract; (2) that it
was was obligated to pay only P20k as rental payments for the
one-month period of lease, counted from January 7, 1986 when the
Industrial Permit was issued up to February 7, 1986 when the
Notice of Termination was served on them

>> obligation "to do" > all kinds of work or service

> Art. 1266 NOT APPLICABLE ~ "The debtor in obligations to do
shall also be released when the prestation becomes legally or
physically impossible without the fault of the obligor" ~ that purpose
of the contract did not materialize due to unforeseen events and
causes beyond its control > BUT (1) 1266 applies only to
obligations "to do," and not to obligations "to give," ie to pay
rentals; (2) ACTUAL REASON for discontinuing project is not legal
or physical impossibilities BUT financial as well as technical
difficulties and abrupt change in political stability after EDSA
(without specifying which circumstances) AND NOT the alleged
insufficiency of the Temporary Use Permit > Mere pecuniary
inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific
performance > Ninoy assassination on August 21, political
upheavals, Marcos declaration of snal election on November 3,
Contract on November 18 ~ PNCC knew about political climate


NOT THE INDUSTRIAL CLEARANCE > (1) Letter (April 24, 1986)
~ We wish to reiterate PNCC Management's previous stand that it
is only obligated to pay your clients the amount of P20k as rental
payments for the one-month period of the lease, counted from 07
January 1986 when the Industrial Permit was issued by the
Ministry of Human Settlements up to 07 February 1986 when the
Notice of Termination was served on your clients ~ "Industrial
Permit" mentioned could only refer to the Temporary Use Permit ~
PNCC could have simply told Raymundi that its obligation to pay
rentals has not yet arisen because the Temporary Use Permit is not
the industrial clearance contemplated by them; (2) Reply-Letter to
January 16, 1986 Letter ~ that the suspensive condition
issuance of industrial clearance has already been fulfilled and
that the lease contract has become operative OTHERWISE PNCC
did not have to solicit the conformity of Raymundo to the
termination of the contract for the simple reason that no juridical
relation was created because of the non- fulfillment of the condition


MATERIALIZE, CONTRACT VALID > not using the leased
premises as a site of a rock crushing > motive or particular purpose
of a party in entering into a contract does not affect the validity nor
existence of the contract EXCEPT when the realization of such
motive or particular purpose has been made a condition upon
which the contract is made to depend > temporary permit was valid
for two years but was automatically revoked because of its non-use
within one year from its issuance > non-use of the permit and the
non-entry into the property subject of the lease contract were both
imputable to PNCC

>> obligation "to give" is a prestation which consists in the delivery

of a movable or an immovable thing in order to create a real right,
or for the use of the recipient, or for its simple possession, or in
order to return it to its owner
>> principle of rebus sic stantibus or doctrine of unforeseen events
> parties stipulate in the light of certain prevailing conditions, and
once these conditions cease to exist, the contract also ceases to
(basis of Article 1267) > BUT parties to the contract must be
presumed to have assumed the risks of unfavorable developments
OTHERWISE it would endanger the security of contractual
relations > APPLIES ONLY TO absolutely exceptional changes of
circumstances that equity demands assistance for the debtor

>> Can 1267 amend contracts according to equity? What justified

> Under what circumstances can you apply 1267? Principle of
Rebus sic stantibus ~
> At what point do you invoke 1267?

*Judgment-Proof Defendants > no resources hence judgment

cannot be literally rendered against them



Facts: Eastern Telecom Philippines, Inc. (ETPI) plans to defer

payment of the 2003 14th, 15th and 16th month bonuses sometime
in April 2004. The company's main ground in postponing the
payment of bonuses is due to allege continuing deterioration of
company's financial position which started in the year 2000.
However, ETPI while postponing payment of bonuses sometime in
April 2004, such payment would also be subject to availability of

The union strongly opposed the deferment in payment of the

bonuses by filing a preventive mediation complaint with the NCMB
on July 3, 2003, the purpose of which complaint is to determine the
date when the bonus should be paid.

In the conference held at the NCMB, ETPI reiterated its stand that
payment of the bonuses would only be made in April 2004 to which
date of payment, the union agreed. Subsequently, the company
made a sudden turnaround in its position by declaring that they will
no longer pay the bonuses until the issue is resolved through
compulsory arbitration.

Thus, on April 26, 2004, the union filed a Notice of Strike on the
ground of unfair labor practice for failure of ETPI to pay the
bonuses in gross violation of the economic provision of the existing

On May 19, 2004, the Secretary of Labor and Employment, finding

that the company is engaged in an industry considered vital to the
economy and any work disruption thereat will adversely affect not
only its operation but also that of the other business relying on its
services, certified the labor dispute for compulsory arbitration.

Acting on the certified labor dispute, a hearing was called on July

16, 2004 wherein the parties have submitted that the issues for
resolution. Thereafter, they were directed to submit their respective
position papers and evidence in support thereof after which
submission, they agreed to have the case considered submitted for

On April 28, 2005, the NLRC issued its Resolution dismissing

ETEU's complaint and held that ETPI could not be forced to pay
the union members the bonuses for the year 2003 and the 14th
month bonus for the year 2004 inasmuch as the payment of these
additional benefits was basically a management prerogative, being
an act of generosity and munificence on the part of the company
and contingent upon the realization of profits.

The CA declared that the Side Agreements of the 1998 and 2001
CBA created a contractual obligation on ETPI to confer the subject
bonuses to its employees without qualification or condition. It also
found that the grant of said bonuses has already ripened into a
company practice and their denial would amount to diminution of
the employees' benefits.

Issue: Whether or not ETPI is liable to pay 14th, 15th and 16th
month bonuses for the year 2003 and 14th month bonus for the
year 2004 to the members of respondent union.

Decision: From a legal point of view, a bonus is a gratuity or act of

liberality of the giver which the recipient cannot demand as a
matter of right. The grant of a bonus is basically a management
prerogative which cannot be forced upon the employer who may
not be obliged to assume the onerous burden of granting bonuses.
However, a bonus becomes a demandable or enforceable
obligation if the additional compensation is granted without any
conditions imposed for its payment. In such case, the bonus is
treated as part of the wage, salary or compensation of the

In this case, there is no dispute that Eastern Telecommunications

Phils., Inc. and Eastern Telecoms Employees Union agreed on the
inclusion of a provision for the grant of 14th, 15th and 16th month
bonuses in the 1998-2001 CBA Side Agreement, as well as in their
2001-2004 CBA Side Agreement, which contained no qualification
for its payment. There were no conditions specified in the CBA Side
Agreements for the grant of the bonus. There was nothing in the
relevant provisions of the CBA which made the grant of the bonus
dependent on the company's financial standing or contingent upon
the realization of profits. There was also no statement that if the
company derives no profits, no bonus will be given to the
employees. In fine, the payment of these bonuses was not related
to the profitability of business operations. Consequently, the giving
of the subject bonuses cannot be peremptorily withdrawn by
Eastern Telecommunications Phils., Inc. without violating Article
100 of the Labor Code, which prohibits the unilateral elimination or
diminution of benefits by the employer. The rule is settled that any
benefit and supplement being enjoyed by the employees cannot be
reduced, diminished, discontinued or eliminated by the employer.

VICTOR YAM & YEK SUN LENT (Philippine Printing Works) v.

Facts: Alleged condonation by MANPHIL President of penalties
and interests on the second loan of PPW is not valid because it
was not written, as required by Art. 1270 in relation to Art. 748.
Notation on the check paid that it was for full payment does not
suffice as writing because it merely express intention to pay and
does not bind creditor while signature for acceptance on voucher of
MANPHIL representative merely acknowledges receipt of payment.
Moreover, alleged condonation by President would still not have
been valid since MANPHIL had already been placed under
receivership then, leaving president without authority to condone.

> Loan Agreement (May 10,1979) between Victor Yam and Yek
Suk Lent (solidary) and MANPHIL Investment Corporation where

latter loaned P500k to former and former secured the loan with a
chattel mortgage on their printing machinery > Second (New) Loan
Agreement worth P300k, evidenced by two promissory notes (July
3, 1981 and September 30, 1981) with same 2% monthly penalty,
10% attorneys fees, annual interest increased to 14% and the
service charge reduced to 1% per annum > PAYMENT OF FIRST
LOAN worth P500k (April 2, 1985) > MANPHIL placed under
receivership (November 4, 1985) by Central Bank (Ricardo Lirio as
receiver and Cristina Destajo as in-house examiner) > Partial
Payment of Second Loan (May 17, 1986) worth P50k > Letter by
PPW (June 18, 1986) proposing to settle their obligation > CounterOffer by MANPHIL (July 2, 1986) that it would reduce the penalty
charges up to P140 provided petitioners can pay their obligation on
or before July 30, 1986 > Meeting between Victor Yam and wife
Elena Yam and Carlos Sobrepeas (MANPHIL President) where
latter agreed to waive the penalties and service charges, provided
they pay the principal and interest, computed as of July 31, 1986 ~
P410,854.47 (Principal and Interest) (Total of Principal, Interest,
Penalties and Service Charges is P727,001.35; Penalties and
Service Charges is P266,146.88) > Payment (July 31, 1986) by
PPW of P410,854.47 thru Pilipinas Bank check with notation "full
payment of IGLF LOAN" > Receipt acknowledged by Destajo >
Demand Letters (September 4, 1986, September 25, 1986) for
payment of balance worth P266,146.88 > Non-response and nonpayment > Suit for the collection of P266,146.88 or foreclosure of
the mortgaged machineries

> Contention of PPW: Condonation of Penalties and Service



1270, par. 2: express condonation must comply with the forms of
donation and Art. 748, par. 3: donation and acceptance of a
movable (including obligations under Art. 417, par. 1), the value of
which exceeds P5,000,00, must be made in writing > Voucher with
notation full payment of IGLF loan is NOT SUFFICIENT ~ merely
states PPWs intention in making the payment but in no way does it
bind MANPHIL > acceptance and signature of the voucher by
Destajo merely acknowledged receipt of the payment ~ she had no
authority to condone any indebtedness (acceptance of notation if in
receipt would have been valid as an admission against interest) >
MANPHIL had been placed under receivership and thus, President
had no authority to condone the debt ~ suspension of the authority
of a corporation and of its directors and officers over its property
and effects, such authority being reposed in the receiver

> What is a nature of a condonation: Donation (an act, not a

contract) ~ a contract in the sense that acceptance by the donee is

> Inofficious donations >

AGUSTIN P. MONTESA, as Judge of the Court of First Instance

Facts: Attorneys fees granted in favour of tenant Ong can be the

subject of legal compensation in terms of Ongs debt to landowner
Gan comprising of unpaid rents because the monetary award is
made in favour of the litigant and not his counsel as misunderstood
by CA. Hence, Ong is the creditor of the debt of Gan. Gan cannot be
made to pay for attorneys fees first before he can collect debt of
Ong because debt of Gan to Ong covering attorneys fees may be
deducted from Ongs debt to Gan covering unpaid rents.

> Ejectment Case (1961) by Landowner Gan Tion against Tenant

Ong Wan Sieng for alleged non-payment of rents (covering August
and September 1961) worth P360 (P180/m) > Contention of Ong
that rent was P160/m and that he had offered to pay but was refused
> CFI Held initially in favour of Gan but reversed upon appeal in
favour of Ong, ordering payment by Gan to Ong of P500 as
attorney's fees > Demand by Gan by way of Notice (October 10,
1963) of payment of rents in arrears worth P4,320 (covering August
1961 to October 1963) > Writ of Execution obtained by Ong of the
judgment for attorney's fees in his favour > Certiorari by Gan in CA
pleading legal compensation ~ that Ong was indebted to him in the
sum of P4,320 for unpaid rents ~ CA held that P500 as attorneys fee
is for the counsel, and not defendants Ong ~ fee could not be the
subject of legal compensation because its real creditor was the
defendant's counsel ~ the parties are not creditors and debtors of
each other in their own right (Art. 1278, Civil Code) and each one of
them is not bound principally and at the same time not a principal
creditor of the other (Art. 1279)


COMPENSATION > award is made in favor of the litigant, not of his
counsel ~ an indemnity for damages recoverable by the litigant >
Hence, litigant, not his counsel, is the judgment creditor and who
may enforce the judgment by execution > Such credit, therefore,
may properly be the subject of legal compensation > Gan cannot be
made to pay for attorneys fees first before he can collect debt of
Ong because debt of Gan to Ong covering attorneys fees may be
deducted from Ongs debt to Gan covering unpaid rents

G. R. No. L-74027 December 7, 1989

under the name and style of "MARK INDUSTRIAL SALES"


Facts: Silahis debt to De Leon arising from sale of various
merchandise cannot be offset by de Leons alleged debt to Silahis
arising from an alleged 20% commission due to Silahis by de Leons
sale to Dole because the latter claim is disputed and hence,

> October, November and December, 1975: Sale and Delivery by

Gregorio de Leon (Mark Industrial Sales) to Silahis Marketing
Corporation of various items of merchandise > Covered by several
invoices worth P22,213.75 payable within 30d from date of the
invoices > Silahis' failure to pay > Complaint for the collection by de

> Contention of Silahis: Legal Compensation by virtue of (1) Silahis

20% commission in de Leons sale of sprockets worth P111k to Dole
Philippines, Incorporated in August 1975, made directly by him
without coursing the same through Silahis ~ unrealized profit of
P22,200 as stated in a debit memo; (2) reimbursement of P6k for a
stainless steel screen which it got from de Leon and which it sold to
its client ~ Dismissed by CA because claim was made only on April
1, 1976 and the return to Silahis by client Borden was made on
December 22, 1975

Facts: Debt of Reyes to Bank arising from the dishounour of a check

deposited in it as monthly pension of dead grandmother was validly
debited by the Bank from his other account with wife as legal
compensation which operates automatically without consent of the
parties as long as the requisites of which has arisen

> Two Joint and/or Savings Accounts in BPI of Edvin F. Reyes with
his wife Sonia S. Reyes (opened September 25, 1985) and with
grandmother Emeteria M. Fernandez (February 11, 1986) >
Emeterias monthly pension or U.S. Treasury Warrants were
deposited in the joint account > Death of Fernandez (December 28,
1989) unknown to Bank and US Treasury Department > Issuance of
monthly pension dated January 1, 1990 > Deposited by Edvin in
account (January 4, 1990) which he cloased on March 8, 1990 ~
transferred all funds to joint account with wife > U.S. Veterans
Administration Office, Manila conditionally cleared the check but was
dishounoured by the US Treasury Department on January 16, 1991
due to the death of Fernandez 3d prior to its issuance > Request for
refund by US Treasury against Bank > Bank (Manager and Assistant
Manager) informed Edvin and he verbally authorized them to debit it
from his other joint account and promised to give written confirmation
or authorization later > Bank debited the amount and presented to
Edvin the refund documents on February 21, 1991 > Edvin
demanded restitution of the amount and sued for damages


>> de Leon and Silahis not a debtor/creditor of each other > Alleged
debit memo where de Leon is alleged to be bound to give Silahis
20% commission for the sale is non-existent > No agreement, verbal
or otherwise, nor was there any contractual obligation between De
Leon and Silahis prohibiting any direct sales to Dole Philippines, Inc.
by de Leon

>> Though debt is admitted, Claim is disputed/non-existent > 20%

commission on the subject sale to Dole Philippines, Inc. is vigorously
> Nothing in the debit memo
obligating de Leon to pay a commission to Silahis for the sale of P
111,000.00 worth of sprockets to Dole

> Legal Compensation operates automatically when all the requisites

in Art. 1279 of the Civil Code are present ~ even without the consent
or knowledge of the creditors and debtors

G.R. No. 116792

March 29, 1996

> Valid verbal authorization by Edvin > Testimony by Manager and

Assistant Manager that Reyes instructed Assistant Manager Mrs.
Bernardo to debit the amount from his joint account with his wife and
then promised to drop by to give us a written confirmation > That
Manager did not authorize the debit but merely followed the
instruction of Reyes > Reyes testimony was uncorroborated and he
is deemed to be uncredible because of past fraudulent acts
(concealed Fernandez death from Bank and US Treasury, received
and deposited mothly pension to an account he later closed, in which
application he declared Fernandez to still be alive)


Bank is debtor of Reyes who is creditor as a depositor of the Bank
while Reyes is debtor of Bank who is creditor because of the
dishonoured pension tha Reyes needed to refund > Debts involved a
sum of money which are due, liquidated and demandable > Mutuality
of parties EVEN without the wife as co-owner of account ~ she never
asserted her right and has never objected to the debit > The rule as
to mutuality is strictly applied at law. But not in equity, where to allow
the same would defeat a clear right or permit irremediable injustice

>> Compensation > when two persons, in their own right, are
creditors and debtors of each othe > 1290: compensation takes
effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not
aware of the compensation > takes place ipso jure > HENCE

operates even against the will of the interested parties and even
without the consent of them > effects arise on the very day on which
all its requisites concur

>> Why legal compensation > COURT could have just stopped with
the authorization of Edvin

Company of Libya (from where the P34,340.38 was deducted) was

intended for deposit in Lapezs account in PNB > Art. 1279 can apply

> RE: DOUBLE CREDIT: PNB and Lapez are debtors and creditors
of each other ~ Lapez creditor as a depositor while PNB creditor due
to double credits erroneously made on Lapezs account

> Prescription of legal compensation > Art. 1145, which fixes the
prescriptive period for actions upon a quasi contract (such as
solution indebiti) at six years
G.R. No. 108052 July 24, 1996

>> Art. 1279: In order that compensation may prosper, it is

(1) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;

Facts: Double credit erroneously made in Lapezs account in PNB

was deducted by PNB from his later 2 remittances. Legal
compensation cannot apply to the first remittance because it was
meant for delivery to Citibank and hence, PNB and Lapez were not
creditors and debtors of each other where PNB is simply a trustee of
Lapez to deliver the amount to creditor Citibank. Second remittance
can be subject to legal compensation because it was to be deposited
to Lapezs account in PNB. Hence, they are debtors and creditors of
each other.

(2) That both debts consists in a sum of money,

or if the things due are consumable, they be of
the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;

> Two remittances by Ramon Lapez, first on November 1980 worth

$5,679.23 and second on January 1981 worth $5,885.38 to his PNB
Account in the Philippines > Lapezs account in PNB was doubly
credited, amounting to the total of P87,380.44 > PNB demanded by
letter (October 23, 1986) the refund of the duplicated credits
erroneously made on Lapezs account, 5y later > Lapez made two
more remittances from NBC of Jeddah to be sent to Citibank and
then from Libya to Lapezs account in PNB > PNB deducted
$2,627.11 and P34,340.38, respectively, from these remittances
without Lapezs knowledge and consent but issued him a receipt
February 18, 1987 > Lapez demanded recovery of the remittances

> BUT Later remittance of $2,627.11 cannot be subject of legal

compensation > PNB and Lapez were not creditors and debtors of
each other > Lapez remitted money thru National Commercial Bank
of Jeddah to Citibank by way of PNB as the local correspondent >
trustee-beneficiary relationship where PNB was trustee of the
obligation to deliver to beneficiary Citibank the amount remitted >
PNB not the debtor but trustee

> BUT Later remittance of P34,340.38 can be subject of legal

compensation > fund transfer from Brega Petroleum Marketing

(5) That over neither of them there by any

retention or controversy, commenced by third
persons and communicated in due time to the

> Principle of solutio indebiti: If something is received when there is

no right to demand it, and it was unduly delivered through (sic)
mistake, the obligation to return it arises. (Article 2154, Civil Code of
the Phil.)

>> Stipulation pour autrui is a stipulation in favor of a third person >

Art. 1453: When the property is conveyed to a person in reliance
upon his declared intention to hold it for, or transfer it to another or
the grantor, there is an implied trust in favor of the person whose
benefit is contemplated

G.R. No. 128448

February 1, 2001



Facts: There can be no compensation between PNB and Mirasols

covering the debt of latter for the loans granted by the former
because PNB is not a debtor to Mirasols who is obliged to give them
profits from sale of sugar because such proceeds go to the national
government by virtue of PD5792. Hence, there was nothing with
which PNB can offset the debt of Mirasols.


168251 July 27, 2011

> Crop Loan Financing Scheme between sugarland owners and
planters Mirasols and financier Philippine National Bank > PNB
financed sugar production for crop years 1973-1974 and 1974-1975
as secured by Credit Agreements, a Chattel Mortgage on Standing
Crops, and a Real Estate Mortgage in its favor ~ Chattel Mortgage
empowered PNB as Mirasols attorney-in-fact to negotiate and to sell
the latters sugar in both domestic and export markets and to apply
the proceeds to the payment of their obligations to it > PD 5792
(November 1974) required PNB to finance Philippine Exchange Co.,
Inc. and latter is to purchase sugar allocated for export where
whatever profit PHILEX might realize from sales of sugar abroad was
to be remitted to a special fund of the national government, after
commissions, overhead expenses and liabilities had been deducted
~ Proceeds of PNB all went to national government leaving nothing
with which to deduct from the Mirasols debt > Demand by Mirasols
of an account of the proceeds of their sugar sales to PNB ~ believed
that there were more than enough to pay their obligations > ignored
until PNB demanded the Mirasols to settle their due and demandable
accounts (P15,964,252.93 for crop years 1973-1974 and 1974-1975)
> Mirasols conveyed to PNB real properties valued at P1,410,466 by
way of dacion en pago (August 4, 1977) and foreclosure of their
mortgaged properties amounting to P3,413,000 > Deficiency still of
P12,551,252.93 > Refusal of PNB to give an account of their alleged
proceeds from export of sugar > Suit for accounting, specific
performance, and damages against PNB (August 9, 1979)

On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente)

obtained a loan of P400,000.00 from petitioner Dr. Jesus M.
Montemayor (Jesus) as evidenced by a promissory note executed by
Vicente. On August 10, 1990,the parties executed a loan contract
wherein it was provided that the loan has a stipulated monthly
interest of 2% and that Vicente had already paid the amount of
P100,000.00 as well as the P8,000.00 representing the interest for
the period July 24 to August 23, 1990.

Subsequently and with Vicentes consent, the interest rate was

increased to3.5% or P10,500.00 a month. From March 24, 1991 to
July 23, 1991, or for a period of four months, Vicente was supposed
to pay P42,000.00 as interest but was able to pay only P24,000.00.
This was the last payment Vicente made. Jesus made several
demands for Vicente to settle his obligation but to no avail. Thus, on
August 17, 1993, Jesus filed before the RTC of Quezon City a
Complaint for Sum of Money against Vicente which was docketed as
CivilCase No. Q-93-17255. On October 19, 1993, Vicente filed his
Answer interposing a counterclaim for attorneys fees of not less than
P500,000.00.Vicente claimed that he handled several cases for
Jesus but he was summarily dismissed from handling them when the
instant complaint for sum of money was filed.

> Contention of Mirasols: Payment of loans by way of legal
compensation using the proceeds of export sales of sugar >
Invalidity of foreclosure and dacion en pago

> NO LEGAL COMPENSATION: (1) Neither of the parties are

mutually creditors and debtors of each other > Under P.D. No. 579,
neither PNB nor PHILEX could retain any difference claimed by the
Mirasols in the price of sugar sold by the two firms ~ HENCE, PNB
no longer a debtor to Mirasols because all its proceeds went to the
Government and not to be returned to Mirasols > there was nothing
with which PNB was supposed to have off-set Mirasols admitted
indebtedness; (2) Claim is unliquidated ~ compensation cannot take
place where one claim is still the subject of litigation, as the same
cannot be deemed liquidated
> If profit cannot be subject of legal compensation, what about the
compensation of the costs of sugar by the non-profit of its sales? ~
Why not include the obligation in the deduction of costs
> Should the whole amount be liquidates first?

>>> Did the chattel mortgage give PNB ownership of the sugar
which it can sell abroad and merely allowed Mirasols to deduct from
it their obligation in relation to the loan? Or was it just an authority to
sell but not to profit where profit still principally owned by Mirasols
but as way of commission, PNB gets share as payment?

Whether compensation can properly be applied despite the absence

of a specific amount in the decision representing respondents
counter claim against the specific amount of award mentioned in the
decision in favor of the petitioner.

Yes. For legal compensation to take place, the requirements set

forth in Articles 1278 and 1279 of the Civil Code, quoted below, must
be present.

ARTICLE 1278. Compensation shall take place when two persons, in

their own right, are creditors and debtors of each other.

ARTICLE 1279. In order that compensation may be proper, it is

(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the

"A debt is liquidated when its existence and amount are determined.
It is not necessary that it be admitted by the debtor. Nor is it
necessary that the credit appear in a final judgment in order that it
can be considered as liquidated; it is enough that its exact amount is
known. And a debt is considered liquidated, not only when it is
expressed already in definitefigures which do not require verification,
but also when the determination of the exact amount depends only
on a simple arithmetical operation x xx.

"When the defendant, who has an unliquidated claim, sets it up by

way of counterclaim, and a judgment is rendered liquidating such
claim, it can be compensated against the plaintiffs claim from the
moment it is liquidated by judgment. We have restated this in Solinap
v. Hon. Del Rosario where we held that compensation takes place
only if both obligations are liquidated.

In the instant case, both obligations are liquidated. Vicente has the
obligation to pay his debt due to Jesus in the amount of P300,000.00
with interest at the rate of 12% per annum counted from the filing of
the instant complaint on August 17, 1993 until fully paid. Jesus, on
the other hand, has the obligation to pay attorneys fees which the
RTC had already determined to be equivalent to whatever amount
recoverable from Vicente. The said attorneys fees were awarded by
the RTC on the counterclaim of Vicente on the basis of "quantum
meruit" for the legal services he previously rendered to Jesus

G.R. No. L-18411

December 17, 1966



Facts: The surety bond issued in favour of Magdalena Estates

where Luzon Surety promised to pay the balance of P5k did not
novate the earlier obligation of the Sps. worth P5k plus interests
because the surety bond did not expressly stipulate the payment of
the entire debt and in fact included only the balance of the principal
(P5k). Hence, the bond was not a new contract but a mere
accessory to the promissory note absent express stipulation and
incompatibility. Magdalena could not have demanded from Surety
the payment of interests because the contract of the bond only
included the payment of the principal.

> Sale of Land of/by Magdalena Estates, Inc. to Sps. Antonio and
Herminia Rodriguez > Unpaid Balance of P5000 > Sps. Rodriguez
issued: (a) Promissory Note by Sps. Rodriguez (January 4, 1957)
where they jointly and severally promise to pay P5k with 9%
interest per annum within 60d from January 7, 1957; (b) Bond with
Luzon Surety Co., Inc. in favour of Magdalena Estates where Luzon

complies with the obligation to pay the amount of P5,000

representing balance of the purchase price of a parcel of land to
Magdalena Estates > Payment by Luzon of P5k to Magdalena
Estates (June 20, 1958) > Demand by Magdalena Estates for
payment of P655.89 as accumulated interests on the principal of P5k
> Refusal by Sps. Rodriguez > Suit for Collection > CFI Held in
favour of Magdalena Estates for Sps. Rodriguez to pay P655.89,
among others

> Contention of Sps. Rodriguez > Bond Payment novated the

Obligation for Promissory Note > that there was no demand made by
Magdalena Estates for the payment of accrued interest in the bond
payment, that it demanded from the Luzon Surety Co., Inc., in the
capacity of the latter as surety, the payment of the obligation, and
that it accepted unqualifiedly the amount of P5,000 as performance
by the obligor and/or obligors of the obligation in its favour > that the
unqualified acceptance of payment without exercising its right to
apply P655.89 to the payment was a waiver/condonation of the
interests due

> Promissory Note was not novated by the Bond Payment > (a)
Bond Payment was only to pay the amount of P5,000.00
representing balance of the purchase price > Magdalena Estates
did not protest nor object when it accepted the payment of P5,000
because it knew that that was the complete amount undertaken by
the surety as appearing in the contract ~ Magdalena cannot thus
protest for non-payment of the interest when it accepted the amount
of P5,000 from the Luzon Surety Co., Inc., nor apply a part of that
amount as payment for the interests > (b) acceptance of the bond
payment without reservation despite the surety bonds failure to
provide that it also guaranteed payment of accruing interest does not
clearly establish intent to novation > mere fact that the creditor
receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement
that the first debtor shall be released from responsibility does not
constitute a novation, and the creditor can still enforce the obligation
against the original debtor > novation by presumption has never
been favoured ~ it needs to be established that the old and new
contracts are incompatible in all points, or that the will to novate
appears by express agreement of the parties or in acts of similar
import; (c) surety bond is not a new and separate contract but an
accessory of the promissory note > obligation to pay a sum of money
is not novated, in a new instrument wherein the old is ratified, by
changing only the terms of payment and adding other obligations not
incompatible with the old one, or wherein the old contract is merely
supplemented by the new one

> Art. 1253 is NOT APPLICABLE because it applies to a person

owing several debts of the same kind of a single creditor and NOT to
a person whose obligation as a mere surety is both contingent and
singular; Article 1253 is merely directory, and not mandatory

G.R. No. 120817

November 4, 1996



Facts: There were no novations by substitution of creditor and

debtor in Reyes respective contract of loan with Eleazar and
contract of sale between AFP-MBAI because the substitutions were
without knowledge and consent of AFP-MBAI as third party and as

> Two obligations of Elsa Reyes (President, Eurotrust Capital

Corporation; credit financing): (1) Sale of Securities to Armed Forces
of the Philippines Mutual Benefit Asso., Inc. worth P120M > Eurotrust
delivered to AFP-MBAI treasury notes amounting to P73 million,
fraudulently borrowed all those treasury notes allegedly for purposes
of verification with the Central Bank and failed to return the said
treasury notes but instead delivered 21 postdated checks in favor of
AFP-MBAI which were dishonored > Debt of P73M worth of treasury
notes > Partial payment worth P30M but balance of P43M; (2) Loan
Agreement with Graciela Eleazar (President, B.E. Ritz Mansion
International Corporation or BERMIC, real estate development)
where Eurotrust loaned BERMIC P216.053,126.80 (Reyes) /
P190,336,388.86 (Eleazar) to finance latters condominium
construction > Funds of the loan were the payment made by AFPMBAI > Agreement between Eurotrust and BERMIC (dated March
19, 1991) that Bermic would directly settle its obligations with the real
owners of the fund-AFP-MBAI and DECS-IMC > Bermic paid AFPMBAI P31,711.11 and a check of P1M > Reyes continued to collect
on the other postdated checks issued by Eleazar thus the latter had
the payment stopped > Checks were dishounoured and Reyes sued
for violation of B.P. 22 and estafa > AFP-MBAI failed to receive
P43M balance of purchased treasury notes and filed complaints for
estafa and a violation of BP 22 against Reyes

> Contentions of Reyes: (1) No novation of Loan Agreement by

Substitution of Creditor; (2) Novation of Sale of Securities by
Substitution of Debtor > Raised 17m after the Decision had become
final and executor

creditor (1293) > Agreement between Eleazar and Reyes and

formers payment to AFP-MBAI only creates a juridical relation of codebtorship or suretyship on the part of Eleazar to the contractual
obligation of Reyes to AFP-MBAI and the latter can still enforce the
obligation against the petitioner

> Indispensable Requisites of Novation: (1) there must be a previous

valid obligation; (2) there must be an agreement of the parties
concerned to a new contract; (3) there must be the extinguishment of
the old contract; (4) there must be the validity of the new contract

> Novatio > to make new > principle novatio non praesumitur
that novation is never presumed > for novation to be a jural reality, its
animus must be ever present, debitum pro debito basically
extinguishing the old obligation for the new one


PRINCIPLE OF NOVATION > Laches > Unjustified delayed by
Reyes to institute actions against the judgment > Judgment of
novation by substitution of creditor (January 23, 1992) became final
and executor on July 9, 1992 after Reyes received the denial of his
motion for reconsideration > made no prompt attempt to question the
said resolutions until after seventeen months (from July 9, 1992 to
February 2, 1994) when she filed the petition for certiorari > bound
by such adverse judgment on account of finality of judgment

>> Laches is the failure or neglect for an unreasonable and

unexplained length of time to do that which by exerting due diligence
could/should have been done earlier > presumption that she
abandoned it or declined to assert it

G.R. No. L-47369 June 30, 1987


> NO NOVATION in both cases > (1) No novation by substitution of

creditor in Loan Agreement > Contract of loan between Reyes and
Eleazar had not been novated when they agreed that Eleazar should
settle BERMICs loan obligations directly with AFP-MBAI and DECSIMC instead of settling it with Reyes by way of substitution of creditor
because AFP-MBAI did not consent to it nor was it a party to the
agreement > novation by substitution of creditor requires an
agreement among the three parties concerned the original
creditor, the debtor and the new creditor > Agreement merely gave
Eleazar an authority to directly settle the obligation of petitioner to
AFP-MBAI and DECS-IMC > Despite payment by Eleazar and
acceptance of AFP-MBAI, novation is never presumed and there
must be an express intention to novate animus novandi (1300,
1301); (2) No novation by substitution of debtor in Contract of Sale >
AFP-MBAI did not agree/give consent to release Reyes from her
obligation to pay under the contract of sale of securities >
Substitution of debtor must always be made with the consent of the

Facts: The Trust Agreement where CCM bound itself directly to PNB
did not novate the obligations of R&B Surety and, moreover, of
R&Bs indemnitors Villanueva and Cochingyan who were still
liable for payment of the bond. There were no express terms of
novation and neither were the two agreements incompatible where
the Trust Agreement merely made CCM directly liable as co-debtor
to PAGRICO and R&M Surety

> Increase of Line Credit (November 1963) granted by the Philippine

National Bank to Pacific Agricultural Suppliers, Inc., from P400k to
P800k > PAGRICO secured it with a Surety Bond worth P400k
where PAGRICO and R & B Surety and Insurance Co., Inc. were

jointly and severally liable to PNB for the principal sum of P400k, the
accrued interests and other costs > Surety Bond was secured by two
Indemnity Agreements, one by Catholic Church Mart and its
president Joseph Cochingyan, Jr. (December 23, 1963); another by
Pacific Copra Export Inc., Jose K. Villanueva and Liu Tua Ben
(December 24, 1963) ~ all persons signed as officers and in their
personal capacities > Indemnitors bound themselves jointly and
severally to pay R & B Surety as annual premium of P5,103.05 >
Failure of PAGRICO > Demand of P400k by PNB from R & B Surety
> Payment by R & B Surety worth P70k > Demand for
reimbursements by R & B Surety against Cochingyan and Villanueva
> Failure of Cochingyan and Villanueva > Trust Agreement
(December 28, 1965) between Jose and Susana Cochingyan, Sr.
(CCM) as trustors, Tomas Besa (PNB) as trustee, and PNB as
beneficiary where the trustor issued bonds worth P400k and P900k
in favour of PNB to secure credits granted to PAGRICO and
PACOCO and to be liable in case of default by PAGRICO and
PACOCO > Suit by R & B Surety against Cochingyan, Villanueva
and Liu Tua Ben (latter dismissed) for collection of P20,412.20
(unpaid premiums), P5,103.05 yearly until payment of Surety Bond
with 12% annual interest, P400k for the total amount of the Surety
Bond with 12% annual interest

> Contention of Villanueva and Cochingyan > (1) that the Principal
Obligation of PAGRICO to the PNB which was secured by the Surety
Bond had already been novated and assumed by CCM by virtue of a
Trust Agreement entered into with the PNB > novation arising from
the change of debtor under the Principal Obligation; (2) that the
Indemnity Agreements do not express the true intent of the parties
thereto in that they had been asked by R & B Surety to execute the
Indemnity Agreement merely in order to make it appear that R & B
Surety had complied with the requirements of the PNB that credit
lines be secured

> No Novation of the Surety Bond by the Trust Agreement > Trustor
CCM only became directly liable to PNB > effect of the Trust
Agreement was that where there had been only two, there would
now be three obligors directly and solidarily bound: PAGRICO, R & B
Surety and the Trustor CCM > PNB never intended to release, and
never did release, R & B Surety > Trust Agreement does not
expressly terminate the obligation of R & B Surety under the Surety
Bond ~ expressly provides for the continuing subsistence of that
obligation ~ that This agreement shall not in any manner release the
R & B and CONSOLACION from their respective liabilities under the
bonds mentioned above > no unequivocal declaration of
extinguishment of a pre-existing obligation and no showing of
complete incompatibility between the old and the new obligation

>> Novation > the extinguishment of an obligation by the substitution

or change of the obligation by a subsequent one which terminates it,
either by changing its object or principal conditions, or by substituting
a new debtor in place of the old one, or by subrogating a third person
to the rights of the creditor > DUAL PURPOSE: obligation is
extinguished and a new one is created in lieu thereof

>> Objective (or real) novation is through a change of the object

(prostration) or principal conditions of an existing obligation > new
obligation must expressly declare that the old obligation is thereby
extinguished, or that the new obligation be on every point
incompatible with the old one ~ novation is never presumed but must
be established either by the discharge of the old debt by the express
terms of the new agreement, or by the acts of the parties whose
intention to dissolve the old obligation as a consideration of the
emergence of the new one must be clearly discernible
>> Subjective (or personal) novation is by change of either the
person of the debtor or of the creditor > juridical relation between the
parties to the original contract is extended to a third person > old
debtor be released from the obligation and the third person or new
debtor take his place in the new relation otherwise the third person
becomes merely a co-debtor or surety or a co-surety
>> Mixed is by both

>> Indemnity Agreements are contracts of indemnification not only

against actual loss but against liability as well > Contract of
indemnity against loss ~ indemnitor will not be liable until the person
to be indemnified makes payment or sustains loss; >> Contract of
indemnity against liability ~ indemnitor's liability arises as soon as
the liability of the person to be indemnified has arisen without regard
to whether or not he has suffered actual loss

G.R. No. 79642

July 5, 1993



Facts: Broadway did not novate its contract lease with Tropical Hut
by its Letter-Agreement wherein it agreed to reduce the rental rates
of Tropical. The latter expressly stipulates that such arrangement is
only temporary without prejudice to the terms of the contract and its
effectivity subject to Broadways discretion.

> Contract of Lease (November 1980) between Broadway Centrum

Condominium Corporation and Tropical Hut Food Market. Inc. over
formers commercial complex > Demand for monthly rental >
Request (February 5, 1982) by Tropical to reduce the rental fees to
P50,000.00 or 2.0% of their monthly sales whichever is higher, up to
the end of the third year of their instalment, due to its low income and
the temporary closure of Doa Juana Rodriguez Avenue >
Provisional and Temporary Agreement (April 20, 1982): reduction of
the monthly rental on the basis of 2% of gross receipts or
P60,000.00 whichever is higher ~ This Provisional arrangement
should not be interpreted as amendment to the lease contract
entered into between us ~ The temporary alteration in rental is
conditioned on your good faith implementation an the suggestions
we conveyed to you > Increase by Broadway of the monthly rental to
P100k (December 15, 1982) effective on July 1983 > Appeal by
Tropical > Denial of Broadway > Complaint for Restraining Order and

Injunction by Tropical: that Broadway cannot unilaterally increase the

rentals and (on appeal) that the Letter-Agreement dated April 20,
1982 had novated the Lease Contract ~ that the rental provided for
in the letter-agreement of 20 April 1982 should subsist while the low
volume of sales of Tropical still continues

> NO NOVATION > Letter-Agreement did not extinguish or alter the

obligations of Tropical and the rights of Broadway under their lease
contract > Express stipulation that Letter-Agreement (1) did not alter
or modify the Contract of Lease; (2) was only provisional, temporary
and conditional (upon good faith implementation by Tropical of the 6
principal suggestions Broadway had conveyed to Tropical
concerning improvement of the operations of Tropical's supermarket
at the Broadway Centrum); (3) negotiated a temporary reduction of
rentals > Lack of stipulation regarding the period of time during which
the reduced rentals would remain in effect only meant that Broadway
retained for itself the discretionary right to return to the original
contractual rates of rental whenever Broadway felt it appropriate to
do so > Tropical's theory that Broadway had agreed in the 20 April
1982 letter-agreement to maintain the reduced rental so long as
Tropical was suffering from a "low volume of sales" appears to us as
an afterthought
> reduction in space and rental fee
> NOT REASONABLE because the law says that when parties
contemplated a period for the obligation but none is stipulated, they
should ask the Court to set one
> Bway should have said that it was a waiver of collection but only
for a time period

> NO PARTIAL NOVATION in reduction of rental space > Tropical

surrendered 15% of its floor space YET Broadway reduced the
rentals by 50% > No substantial relationship existed between the
amount of the reduction of rental and the area of the space returned
by Tropical > Floor space immaterial to rental rates ~ No novation

G.R. No. 147950

December 11, 2003



Facts: CBLIss obligation (promissory notes) to SIHI by way of

reassignment of the formers promissory notes issued to Delta which
Delta reassigned to SIHI was not novated by the restructuring
agreement and compromise agreement between CBLI and Delta
because the first did not expressly novate the notes nor were the two
incompatible and the second did not include SIHI as a party and
excluded the 5 promissory notes due to SIHI.

> Loan Agreement (May 11, June 19, August 22, 1979) by Delta
Motors Corporation from State Investment House, Inc. covering a
credit line worth P25M > Debt of Delta amounted to P24,010,269.32
> Sale (April 1979 to May 1980) of 35 bus units and 2 engines by
Delta to California Bus Lines, Inc. > Purchase price of P2,314,000
was covered by 16 promissory notes dated January 23 and April 25,
1980 (by CBLIs President to Delta), payable in 60 monthly
installments from August 31, 1980, with 14% interest pa >
Promissory notes secured by chattel mortgages over the 35 buses >
CBLI defaulted > Restructuring Agreement (October 7, 1981)
between Delta and CBLI covering the past due instalments and
implementing (a) a new schedule of payments (extending the period
to pay and including a daily remittance instead of the previously
agreed monthly remittance of payments) (b) additional security that
in case of default, it would have the authority to take over the
management and operations of CBLI until CBLI remitted and/or
updated its account > Continuing Deed of Assignment of
Receivables (December 23, 1981) by Delta to SIHI as security for its
loan obligation > Memorandum of Agreement (March 31, 1982)
between Delta and SIHI where loan agreements were restructured
and where Delta would assign to SIHI P8M worth of receivables to
be deducted from Deltas account > Default of CBLI ~ Threat of
Takeover by Delta > Complaint for Injunction (May 3, 1982) by CBLI
against Delta and Application by Delta for an issuance of a writ of
preliminary mandatory injunction to enforce the management
takeover clause and a writ of preliminary attachment over the buses
it sold to CBLI > CFI granted Deltas writ of attachment (December
27, 1982) on account of the fraudulent disposition by CBLI of its
assets > Deed of Sale (September 15, 1983) between Delta and
SIHI where former assigned to the latter 5 of its 16 promissory notes
from CBLI, worth P16,152,819.80 > Demand Letter (December 13,
1983) by SIHI to CBLI for payment directly to it of the 5 promissory
notes > Refusal by CBLI alleging Deltas take over of its
management > Balance of P27,067,162.22 for Deltas loan
obligations were paid by transfer of ownership of Deltas buses which
SIHI accepted and acknowledged as full payment of Deltas
obligation (December 29, 1983) ~ SIHI obtained a writ of replevin for
possession of the buses ~ took possession and sold 17 buses worth
P12,870,526.98, reducing Deltas debt to P20,061,898.97 which the
latter was ordered to pay (December 5, 1984) > Compromise
Agreement (July 24, 1984) between Delta and CBLI where Delta
would extrajudicially foreclose the chattel mortgages over the 35 bus
units sold to CBLI, approved on July 25, 1984 and actually petitioned
for (December 28, 1984) and executed on April 2, 1987 where 14
buses were sold to Delta for P3,920,000 ~ same 14 buses were later
attached for sale by SIHI against CBLI because... > Refusal of CBLI
to pay SIHI the value of the 5 promissory notes ~ that the
compromise agreement was in full settlement of all its
obligations to Delta including its obligations under the promissory
notes > Suit for Collection of the value of the 5 promissory notes
(December 26, 1984) by SIHI against CBLI > Writ for preliminary
attachment granted and attached 32 buses of CBLI and motion for
sale of 16 buses (December 16, 1987) ~ same 14 buses sold to
Delta > Contention of CBLI: that Restructuring Agreement novated
the Promissory Notes whereby at the time Delta assigned the five
promissory notes to SIHI, the notes were already merged in the
restructuring agreement and cannot be enforced against CBLI

> Restructuring Agreement and Compromise Agreement did not

novate and discharge, respectively, Deltas Obligation of Payment of
the Purchase Price of the 35 Bus Units Expressed in the Promissory

and not merely accidental ~ whether the two obligations can stand
together, each one having its independent existence
>> Restructuring Agreement between Delta and CBLI > No
stipulation that the agreement novated the promissory notes > (a) No
unequivocal declaration of extinguishment of the pre-existing
obligation; (b) No incompatibility > In fact, promissory notes
expressly ratifies the obligation ~ Par.8 ~ Except as otherwise
modified in this Agreement, the terms and conditions stipulated in
[the promissory notes] shall continue to govern the relationship
between the parties and that the Chattel Mortgage...shall continue to
secure the obligation until full payment > expressly recognize the
continuing existence and validity of the old one > different schedule
and manner of payment, to restructure the mode of payments by the
buyer so that it could settle its outstanding obligation in spite of its
delinquency in payment, is not tantamount to novation >Agreement
merely provided for a new schedule of payments and additional
security (take-over clause)

> Compromise Agreement did not discharged the 5 promissory notes

> (1) Reassignment came first than the Agreement ~ 5 Promissory
Notes excluded from Agreement where (2) SIHI was not a party and
not bound by the Agreement > HENCE, Deltas action against CBLIs
pursuant to Agreement did not serve to also include SIHI ~ Delta did
not have the authority to collect (needs special power of attorney) >
CBLIs obligations to SIHI embodied in the five promissory notes
became separate and distinct from CBLIs obligations in 11 other
promissory notes that remained with Delta

>> Novation > extinguishment of an obligation by the substitution or

change of the obligation by a subsequent one which terminates the
first, either by changing the object or principal conditions, or by
substituting the person of the debtor, or subrogating a third person in
the rights of the creditor > two functions: one to extinguish an
existing obligation, the other to substitute a new one in its place >
four essential requisites have to be met, namely, (1) a previous valid
obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the birth
of a valid new obligation
>> extinctive > when an old obligation is terminated by the creation
of a new obligation that takes the place of the former > results either
by changing the object or principal conditions (objective or real), or
by substituting the person of the debtor or subrogating a third person
in the rights of the creditor (subjective or personal)
>> modificatory > when the old obligation subsists to the extent it
remains compatible with the amendatory agreement.
>> Novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the parties,
or by their acts that are too clear and unequivocal to be mistaken >
Express Novation > that the contracting parties incontrovertibly
disclose that their object in executing the new contract is to
extinguish the old one ~ when novation has been explicitly stated
and declared in unequivocal terms > Implied Novation > that there is
an incompatibility between the two contracts ~ an irreconcilable
incompatibility between the old and the new obligations ~ when the
old and the new obligations are incompatible on every point, at least
on points essential in nature (object, cause or principal conditions)

>> Obligations to pay a sum of money is not novated by an

instrument that expressly recognizes the old, changes only the terms
of payment, and adds other obligations not incompatible with the old
ones, or where the new contract merely supplements the old one ~
mere extension of payment and the addition of another obligation not
incompatible with the old one is not a novation (Inchausti & Co. v.
Yulo, Tible v. Aquino and Pascual v. Lacsamana)


CORPORATIONG.R. No. 183210 June 8, 2011

Macgraphics owned several billboards across Metro Manila and
other surrounding municipalities, one of which was a 35 x 70 neon
billboard located at the Magallanes Interchange in Makati City. The
Magallanes billboard was leased by Macgraphics to Sime Darby for
a term of four years with a ten-month deposit to be applied to the last
ten months of the lease.

Sime Darby executed a Memorandum of Agreement with Goodyear,

whereby it agreed to sell its tire manufacturing plants and other
assets to the latter including the assignment by Sime Darby of the
receivables in connection with its billboard advertising in Makati City
and Pulilan, Bulacan and its leasehold rights and deposits made to
Macgraphics pursuant to its lease contract over the Magallanes

Sime Darby then notified Macgraphics of the assignment.

Macgraphics informed Goodyear that the monthly rental of the
billboard increased inconsideration of the provisions and technical
aspects of the submitted design. Goodyear, due to budget
constraints, it could not accept the offer .Macgraphics then informed
Sime Darby that it could not give its consent to the assignment of
lease to Goodyear explaining that the transfer would necessitate
drastic changes to the design and the structure of the neon display of
the billboard and would entail manpower and resources that it did not
foresee at the inception of the lease. As such, any advertising
service it intended to get from them would have to wait until after the
expiration or valid pre-termination of the lease then existing with
Sime Darby.60

Due to Macgraphics refusal to honor the Deed of Assignment,

Goodyear demanding partial rescission of the Deed of Assignment
and the refund of the pro-rata value of Sime Darbys leasehold rights
over the billboard. Sime Darby refused to accede to the demand for
partial rescission.

Whether or not Sime Darby should have secured the consent of
Macgraphics to the assignment of the lease before it could be

Whether Macgraphics gave its consent to the assignment of
leasehold rights of Sime Darby is a question of fact. It is not
reviewable. On this score alone, the petition of Sime Darby fails.
Even if the Court should sidestep this otherwise fatal miscue, the
petition of Sime Darby remains bereft of any merit. Article 1649 of the
New Civil Code provides xxx Art. 1649. The lesse ecannot assign the
lease without the consent of the lessor, unless there is a stipulation
to the contrary. (n)

In an assignment of a lease, there is a novation by the substitution of

the person of one of the parties the lessee. The personality of the
lessee, who dissociates from the lease, disappears. Thereafter, a
new juridical relation arises between the two persons who remain
the lessor and the assignee who is converted into the new lessee.
The objective of the law in prohibiting the assignment of the lease
without the lessors consent is to protect the owner or lessor of the
leased property.

A review of the lease contract between Sime Darby and Macgraphics

discloses no stipulation that Sime Darby could assign the lease
without the consent of Macgraphics. xxx The consent of the lessor to
an assignment of lease may indeed be given expressly or impliedly.
It need not be given simultaneously with that of the lessee and of the
assignee. Neither is it required to be in any specific or particular
form. It must, however, be clearly given. In this case, it cannot be
said that Macgraphics gave its implied consent to the assignment of

In sum, it is clear that by its failure to secure the consent of

Macgraphics to the assignment of lease, Sime Darby failed to
perform what was incumbent upon it under the Deed of Assignment.
The rescission of the Deed of Assignment pursuant to Article 1191 of
the New Civil Code is, thus, justified.

G.R. No. 154127

December 8, 2003


Romeo Garcia and Eduarde de Jesus obtained a loan from Dionisio
Llamas and they issued a promissory note whereby they bound
themselves jointly and solidarily. They defaulted in full payment and
thus, Llamas sued for collection. Garcia contended that his obligation
had been novated by substitution of debtor when De Jesus paid the
debt and its interests and by substitution of the promissory note by
the check issued by De Jesus.

There was no novation because there had been no substitution of
debtors when De Jesus alone paid the interests and attempted to
pay the debt with a dishounourable check. De Jesus did not become
the lone debtor because the two had bound themselves jointly and
solidary and thus, only one of the debtors can pay for the entire
obligation. Furthermore, the check did not substitute the promissory
note absent express extinguishment of and incompatibility with the
promissory note. In fact, the check had been issued precisely to
answer for the obligation in the promissory note.

> Loan by Dionisio Llamas to Romeo Garcia and Eduardo de Jesus

(December 23, 1996) for P400k > Garcia and de Jesus issued a
promissory note payable on January 23, 1997, binding themselves
jointly and severally > Failure to Pay > Suit by Llamas for Sum of
Money and Damages > Contention of Garcia: that the issuance of
the check by de Jesus and Llamas acceptance of it novated or
superseded the promissory note > Contention of de Jesus: that he
received only P360k and paid P120k by way of interests where
Llamas allegedly agreed to accept the benefits de Jesus would
receive for his retirement for the satisfaction of the debt > Contention
of Llamas: that no novation -- express or implied -- had taken place
when he accepted the check from De Jesus ~ CA held that the check
was issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by Garcia and De
Jesus where the acceptance of the check did not serve to make De
Jesus the sole debtor because (a) the obligation incurred by him and
Garcia was joint and several; (b) the check -- which had been
intended to extinguish the obligation -- bounced upon its

> No novation by substitution of debtor > alleged substitution of De

Jesus as sole debtor > novation must be clear and express > old one
must be expressly released from the obligation, and the third person
or new debtor must assume the formers place in the relation >
Acceptance of his check did not change the person of the debtor,
because a joint and solidary obligor is required to pay the entirety of
the obligation ~ De Jesus was not a third person to the obligation

> No novation by the replacement of the promissory note by the

check > check could not have extinguished the obligation, because it
bounced upon presentment > the delivery of a check produces the
effect of payment only when it is encashed > (a) parties did not
unequivocally declare that the old obligation had been extinguished
by the issuance and the acceptance of the check, or that the check
would take the place of the note; (b) no incompatibility between the
promissory note and the check ~ can stand together where note
evidences the loan obligation andthe check answers for it

>> Novation > a mode of extinguishing an obligation by changing its

objects or principal obligations, by substituting a new debtor in place

of the old one, or by subrogating a third person to the rights of the

creditor > 1293 ~ Novation which consists in substituting a new
debtor in the place of the original one, may be made even without
the knowledge or against the will of the latter, but not without the
consent of the creditor
>> Two modes of substituting the person of the debtor: (1)
expromision > the initiative for the change does not come from -- and
may even be made without the knowledge of -- the debtor, since it
consists of a third persons assumption of the obligation > requires
the consent of the third person and the creditor; (2) delegacion > the
debtor offers, and the creditor accepts, a third person who consents
to the substitution and assumes the obligation > consent of these
three persons are necessary >> Both modes of substitution by the
debtor require the consent of the creditor since novation implies a
waiver of the right the creditor had before the novation and HENCE
such waiver must be express

>> Extinctive when an old obligation is terminated by the creation of

a new one that takes the place of the former.

intention to extinguish Quintos obligation where the two customers

were merely added as persons liable. Moreover, the obligation of the
two customers arose from a different transaction than that which
Quinto is being held liable.

> Aurelia Cariaga gave Leonida Quinto jewelries worth P36k for the
latter to sell on commission basis and with the express obligation on
the part of Quinto to turn over the proceeds of the sale or to return
the said jewelries if not sold in 5 days (from March 23, 1977) ~
Evidenced by a Receipt > Failure of Quinto to sell and return the
jewelries after 5 days ~ Extension of time ~ Demand for return 6m
later ~ Ignored > Complaint for Estafa against Quinto > Contention of
Quinto: that her obligation to pay for the jewelries was effectively
novated when Cariaga consented to receive payment on installments
directly from Mrs. Camacho and Mrs. Ramos ~ Mrs. Camacho
bought a marques and ring worth P20k where a balance of P13k had
been allowed by Leonida to be paid in instalments WHILE Mrs.
Concordia Ramos purchased a ring worth P17k where latter paid
with P3k worth of ring, P5k cash and Leonida paid P2k

>> Modificatory when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement.
>> Objective or real novation by changing the object or the principal
>> Subjective or personal novation by substituting the person of the
debtor or subrogating a third person to the rights of the creditor

> No Novation by substitution of debtors > (1) changes consists only

in the manner of payment where Cariaga merely acquiesced to the
payment but did not give her consent to enter into a new contract ~
only to prevent the situation where she would end up with nothing
because the customers had no money to immediately pay with and
so she was forced to receive the tender of Camacho > (2) ALSO,
payment was for the purchase, not of the jewelry subject of this case,
but of some other jewelry subject of a previous transaction

>> Two ways which could indicate the presence of novation

>> Express when the new obligation declares in unequivocal terms
that the old obligation is extinguished
>> Implied when the new obligation is incompatible with the old one
on every point > test of incompatibility is whether the two obligations
can stand together, each one with its own independent existence
>> Requisites must concur: 1) There must be a previous valid
obligation. 2) The parties concerned must agree to a new contract. 3)
The old contract must be extinguished. 4) There must be a valid new

> NEITHER expromision or delegacion > strangers to a contract

agrees to assume an obligation have the effect only of adding to the
number of persons liable BUT does not necessarily imply the
extinguishment of the liability of the first debtor > acceptance by the
creditor of payments from a third person does not constitute an
extinctive novation absent an agreement that the first debtor shall be
released from responsibility > there must be a clear intention on the
part of the parties to release the accused from her responsibility

G.R. No. 142838

August 9, 2001


G.R. No. 126712

April 14, 1999


Facts: Acceptance by oblige Cariaga of the payment by customers

Ramos and Camacho did not novate the obligation of obligor Quinto
by substitution of debtors because of the absence of express

Facts: Gatmaitan is not bound under the MOA with Licaros because
the MOA which they intended to be a conventional subrogation of
creditors (Gatmaitan subrogating Licaros for the Banks debt to the
latter) never became effective for lack of the debtors consent.
Hence, MOA is invalid.

> Abelardo Licaros (businessman) ventured into business with

Anglo-Asean Bank and Trust Limited (international private bank

engaged in receiving fund placements by way of deposits from

institutions and individuals investors from different parts of the world
and thereafter investing such deposits in money market placements
and potentially profitable capital ventures in Hongkong, Europe and
the United States for the purpose of maximizing the returns on those
investments) > Failure of the business and indebtedness of Bank to
Licaros worth $150k > Difficulty by Licaros to collect the debt >
Sought counsel of Antonio P. Gatmaitan (reputable banker and
investment manager) who voluntarily assumed the payment of
Anglo-Asean's indebtedness to Licaros subject to certain terms and
conditions of a MEMORANDUM OF AGREEMENT (executed on July
29, 1988) > Conditions: (1) payment by Gatmaitan of $150k in Ph
currency; (2) issuance of a promissory note with security of 70% of
Gatmaitans cash dividends in Prudential Life Plan, Inc.; (3) Transfer
(Sell, assign, transfer and set over) of Licaros right over the debt to
Gatmaitan; (4) Full power and authority to Gatmaitan, for his own
use and benefit but at his own cost and expense, to demand, collect,
receive, compound, compromise and give acquittance for the debt >
Non-response and non-payment of Bank to Gatmaitan > Nonpayment of Gatmaitan of the promissory note > Demand and Suit by
Licaros (August 1, 1996) > Contention of Gatmaitan ~ subrogation as
creditor in MOA/Promissory Note was invalid due to the lack of
consent of Bank > Contention of Licaros ~ no subrogation but only
an assignment of credit where debtors consent is unnecessary and
hence, MOA is valid

> MOA is INVALID ~ it was a Conventional Subrogation which never

became effective > (I) Conventional Subrogation from language of
the MOA: (a) Whereas clause that the parties have come to an
agreement with the express conformity of the third parties concerned
~ Anglo-Asean Bank > If it was intended as an assignment of credit,
there would have been no sense to have stipulated in their
agreement that the same is conditioned on the express conformity
Bank > only accentuates their intention to treat the agreement as
one of conventional subrogation; (b) Signature page where Bank
was listed as a signatory WITH OUR CONFORME > both parties
intended that Bank should signify its agreement and conformity to
the contractual arrangement > (II) Subrogation ineffective: (1) lack of
Banks consent; (2) that no new obligation was created is immaterial
because it is not a requisite for conventional subrogation > BUT if
conventional subrogation had taken place with the consent of AngloAsian Bank to effect a change in the person of its creditor, there is
necessarily created a new obligation whereby Anglo-Asean Bank
must now give payment to its new creditor

>> Assignment of credit > process of transferring the right of the

assignor to the assignee who would then have the right to proceed
against the debtor ~ may be done gratuitously or onerously >
debtors consent is not required ~ BUT notice to him is required
because the assignments takes effect only from the time he has
knowledge > no extinguishment of obligation because it refers to the
same right which passes from one person to another > does not cure
nullity of an obligation > assignment has an effect similar to that of a

>> Subrogation > transfer of all the rights of the creditor to a third
person, who substitutes him in all his rights > extinguishes the

obligation and gives rise to a new one > cures nullity of an old
>> Legal subrogation > takes place without agreement but by
operation of law because of certain acts
>> Conventional subrogation > takes place by agreement of parties
> debtor's consent is necessary > the extinguishment of the old
obligation is not a requisite without which a contract for conventional
subrogation may not be created ~ not determinative of whether or
not a contract of conventional subrogation was constituted

G.R. No. 136729

September 23, 2003




Facts: Guarantor Philguarantee subrogated the rights of creditor

Philtrust by way of legal subrogation when it paid of the loan
obligations of Astro to the latter. The consent of Astro was not
necessary since the subrogation took effect by operation of law, by
the payment of a guarantor. Hence, it can collect the sum from the

> Loan Agreement between Philippine Trust Company and Astro

Electronics Corp. worth P3M, > Secured by three promissory notes
where Peter Roxas signed twice, as President of Astro and in his
personal capacity, and signed as President and surety in a
Continuing Suretyship Agreement in favor of Philtrust > Guaranteed
by Philippine Export and Foreign Loan Guarantee Corporation,
paying 70% of Astros loan subject to the condition that upon
payment by Philguanrantee of said amount, it shall be proportionally
subrogated to the rights of Philtrust against Astro > Default by Astro
> Payment by Philguarantee > Complaint for sumof money by
Philguarantee against Astro and Roxas

> Legal Subrogation by Philguarantee of Philtrusts rights as creditor

against Astro > Legal subrogation as it took place by opration of law
by its payment of the value of 70% of Roxas and Astros loan
obligation > guarantor who pays is subrogated by virtue thereof to all
the rights which the creditor had against the debtor > Roxas
acquiescence/knowledge is not necessary > Philguarantee
subrogated the rights of Philtrust to demand for and collect payment
from both Roxas and Astro > had all the right to proceed against
Astro it is

> Liability of Roxas as Principal Co-Debtor > (1) Two Signatures in

the Promissory Notes > Sign as President and in Personal Capacity
> In personal capacity, he became a co-maker of the note ~ that
persons who write their names on the face of promissory notes are

makers, promising that they will pay to the order of the payee or any
holder according to its tenor > intention to be jointly and severally
liable is manifested by the fact that he affixed his signature on each
of the promissory notes twice which necessarily would imply that he
is undertaking the obligation in two different capacities, official and
personal; > (2) Presence even of the typewritten words personal
capacity indicating with certainty that the typewritten words were
already existing at the time Roxas affixed his signatures thus
demolishing his claim that the typewritten words were just inserted
after he signed the promissory notes; (3) Provision that I/We jointly,
severally and solidarily, promise to pay makes either of the
signatories solidary liable; > (4) Absent satisfactory explanation by
Roxas why he had signed twise in the contract

>> Subrogation is the transfer of all the rights of the creditor to a third
person, who substitutes him in all his rights. It may either be legal or
>> Legal subrogation is that which takes place without agreement
but by operation of law because of certain acts ~ 1302 > guarantor
who pays is subrogated by virtue thereof to all the rights which the
creditor had against the debtor
>> Conventional subrogation is that which takes place by agreement
of the parties