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Abduhalim, A.
Alba, M.
Avila, R.
Baiddin, S.
Balan, A.
Cabading, A.
Dalis, S.
Daud, A.
Decin, R.
Delotina, R.
Hassan, A.
Hassan, T
Joe, H.
Kulani, M.
Latip, J.
Lim, J.
Mangubat, J.
Mijal, A.
Saphie, S.
Yap, C.
Yu, E.

No Assigned Article
10.02 Abella v. Francisco

GR 32336, 12/20/30

FACTS: Francisco had obligations due on December 1928. To generate funds he sold lots 937 to 945 of Tala
Estate to Abella. On Oct. 31 Francisco and Abella signed the following document: Received payment of
P500 from Julio Abella as payment on account for the said lots; due on or before Dec. 15, 1928, extendible
15days thereafter. Total debt was around P21,600. As of Nov. 1928 Abella had paid P915.34. Francisco
executed a power of attorney in favor of Mabanta because he was in Cebu on December 27; Franciscos
instructions to Mabanta were to inform Abella that the option would be considered cancelled if he failed to
make full payment and to return to himwhat he has paid thus far; if Abella were to pay the full amount
Mabanta was instructed to sign all the documents required by the Bureau of Lands for the transfer of
ownership of the said lots. Mabanta informed Abella of these instructions; Abella asked for an extension of
the period of payment to which Mabanta agreed, giving him until Jan. 5 1929. Abella did not offer payment
until Jan. 9; Mabanta refused to accept Abellas payment and returned to the latter by check the sum of
P915.34 which he paid previously. Abella brought an action to compel the execution of the sale in his favor,
which was denied by the court; hence this appeal
ISSUE: Whether time is an essential element of this contract for which the failure to pay on time justifies its
rescission
RULING: Yes, time was an essential element in this contract. Lower court held that since this contract was
an option to sell, the period was an essential consideration; this courts opinion is divided as to whether this
contract is an option or a sale, but itagrees that time is essential. It should be noted that Francisco had
obligations due on December 1928 for which he expected to use the payment on the said lots

13.04 GSIS v. CA
Article 1200-1500

Davide, January 29, 1993

Article 1201
14.07 Ong v. Century
FACTS: The plaintiff owned a building that was insured against fire by the defendant in the sum of Php
30,000, including the merchandise therein contained in the sum of Php 15,000. Both the house and
merchandise insured were burned in February 28, 1923 while the policies issued by the defendant in favor of
the plaintiff were still in force.
The CFI of Iloilo granted the case in favor of the plaintiff that The Century Insurance Co. should pay Ong
Guan Can the sum of Php 45,000 as the total value of the insured house and merchandise.
The appellant contends that under clause 14 of the conditions of the policies,it may rebuild the house burnt,
and although the house may be smaller, yet it would be sufficient indemnity to the insured for the actual loss
suffered by him.
The clause cites by the appellant is as follows:
The Company may at its option reinstate or replace the property damaged or destroyed, or any part
thereof, instead of paying the amount of the loss of damages, or may join with any other Company or
insurers in so doing, but the Company shall not be bound to reinstate exactly or completely, but only
as circumstances permit and in reasonable sufficient manner, and in no case shall the Company be
bound to expend more in reinstatement that it would have cost to reinstate such property as it was at
the time of the occurrence of such loss or damage, nor more than the sum insured by the Company
thereon.
ISSUE: Is it necessary that the obligor must give consent before the choice shall be binding upon the
creditor.
RULING: It must be noted that in alternative obligations, the debtor, the insurance company in this case,
must notify the creditor of his election, stating which of the two prestations he is disposed to fulfill, in
accordance with article 1133 of the Civil Code. The object of this notice is to give the creditor, that is, the
plaintiff in the instant case, opportunity to express his consent, or to impugn the election made by the debtor,
and only after said notice shall the election take legal effect when consented by the creditor, or if impugned
by the latter, when declared proper by a competent court.
Article 1207
3.0

Alipio v. CA

September 29, 2000

FACTS: Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa,
Bataan, for a period of five years ending on September 12, 1990. On June 19, 1987, he subleased the
fishpond, for the remaining period of his lease, to the spouses Placido and Purita Alipio and the spouses
Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00, payable in two
installments of P300,000.00 and P185,600.00, with the second installment falling due on June 30, 1989.
Each of the four sublessees signed the contract.
The first installment was duly paid, but of the second installment, the sublessees only satisfied a portion
thereof, leaving an unpaid balance of P50,600.00. Despite due demand, the sublessees failed to comply with
their obligation, so that, on October 13, 1989, private respondent sued the Alipio and Manuel spouses for the
collection of the said amount before the Regional Trial Court. In the alternative, he prayed for the rescission
of the sublease contract should the defendants fail to pay the balance.
Petitioner Purita Alipio moved to dismiss the case because her husband had passed away. And that
any action for recovery of money, debt or interest thereon, shall be dismissed when the defendant dies before

final judgment. The trial court denied petitioner's motion and held that the obligation is solidary. On appeal,
the Court of Appeals affirmed the decision.
ISSUE: Whether a creditor can sue the surviving spouse for the collection of a debt which is owed by the
conjugal partnership of gains.
RULING: The Court held that the respondent cannot sue the surviving spouse of a decedent in an ordinary
proceeding for the collection of a sum of money chargeable against the conjugal partnership. Because when
the husband died, their conjugal partnership was automatically dissolved and debts chargeable against it is to
be paid in the settlement of estate proceedings.
Moreover, respondent does not cite any provision of law which provides that when there are two or more
lessees, or in this case, sublessees, the latter's obligation to pay the rent is solidary. Thus, the liability of the
sublessees is merely joint. Since the obligation of the Manuel and Alipio spouses is chargeable against their
respective conjugal partnerships, the unpaid balance of P50,600.00 should be divided into two so that each
couple is liable to pay the amount of P25,300.00. Hence, the petition is granted.
17.04 Imperial Insurance v. David
17.05 Inciong v. CA
1.08

Lafarge Cement Phil. v. Continental

133 SCRA 317, Nov. 21, 1984


June 26, 1996
November 23, 2004

Facts: On August 1998, parties executed an LOI whereby Lafarge Cement, Inc. (Lafarge) agreed to
purchase the cement business of the respondent Continental Cement Corporation (CCC). The parties
allegedly agreed to retain from the purchase price a portion of the contract price in the amount of
P117,020,846.84. This amount was to be deposited in an interest-bearing account in the First National City
Bank of New York (CitiBank) for payment to APT, the petitioner in GR No. 119712. Lafarge allegedly
refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision in GR No.
119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to
APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several
other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a
Complaint with Application for Preliminary Attachment against petitioners. Lafarge moved to dismiss the
Complaint on the ground that it violated the prohibition on forum-shopping.
Issue: Whether or not defendants in a civil case implead in their counterclaims persons who were not parties
to the original complaint?
Ruling: Yes
Joint & Solidary character of their counterclaim against CCC, Lim & Mariano.
The ambiguity in petitioners counterclaims notwithstanding, respondents liability, if proven, is solidary.
This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are
generally considered joint, except when otherwise expressly stated or when the law or the nature of the
obligation requires solidarity. However, obligations arising from tort are, by their nature, always solidary.

6.09

Ronquillo v. CA

GR L-55138

FACTS: Petitioner Ernesto V. Ronquillo was one of four defendants for the collection of the sum of
P117,498.98 plus attorney's fees and costs. The other defendants were Offshore Catertrade, Inc., Johnny Tan
and Pilar Tan. On Dec. 13, 1979, the lower court rendered its decision based on the compromise agreement,
which stipulates, among others, that the Plaintiff agrees to reduce its total claim of P117,498.98 to only
P110,000.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to
initially pay out of the total indebtedness of P110,000.00, they agreed to pay half on or before Dec. 24, 1979,
and the remaining balance within the period of six months from Jan. 1980 or before June 30, 1980. Upon the

defendant's default, herein plaintiff filed a motion for execution. Ronquillo and another defendant Pilar Tan
offered to pay their shares of the amount due. But on Jan. 22, 1980, plaintiff Antonio So moved for the
reconsideration or modification of the aforesaid Order of execution and prayed instead for the execution of
the decision in its entirety against all defendants, jointly and severally. Petitioner opposed the said motion
arguing that under the decision of the lower court being executed which has already become final, the
liability of the four defendants was not expressly declared to be solidary, consequently each defendant is
obliged to pay only his own 1/4 of the amount demandable.
ISSUE: Whether or not the liability of the defendants is merely joint, several, or solidary
RULING: Solidary. In this regard, Article 1207 of the NCC provides "the concurrence of two or more
debtors in one and the same obligation does not imply that each one of the former has a right to demand, or
that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary
liability only when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity. Clearly then, by the express term of the compromise agreement, the defendants obligated
themselves to pay their obligation "individually and jointly."
Article 1214
1.11

Quiombing v. CA

August 30, 1990

Facts: Spouses Saligo (D) contracted Quiombing (P) and his co-creditor Bischoco to construct a house for
them. The Construction and Service Agreement between the parties stated that the creditors Quiombing (P)
and Bischoco "jointly and severally" bound themselves to construct a house for the debtors. Upon
completion, Quiombing (P) was paid partially, but was unable to collect the balance after repeated demands.
Quiombing (P) alone filed for recovery of the balance plus charges and interests.
Issue: May one of the two solidary creditors sue by himself alone for the recovery of amounts due to both of
them without joining the other creditor as a co-plaintiff?
Ruling: Yes. The question of who should sue the private respondents was a personal issue between creditors
Quiombing and Biscocho. It did not matter who as between them filed the complaint because the private
respondents were liable to either of the two as a solidary creditor for the full amount of the debt. Full
satisfaction of a judgment obtained against them by Quiombing would discharge their obligation to
Biscocho, and vice versa; hence, it was not necessary for both creditors Quiombing and Biscocho to file the
complaint. Inclusion of Biscocho as a co-plaintiff when Quiombing was competent to sue by himself alone,
would be a useless formality.
Article 1216
19.05 Jaucian v. Querol

October 5, 1918

Facts: In 1908, Dayandnante and Rogero executed a private writing, in which they acknowledged
themselves indebted to Jaucian, which says: We jointly and severally acknowledge our indebtedness in the
sum of P13,332.33 (a balance made October 23, 1908) bearing interest at the rate of 10 % per annum to
Roman Jaucian, of age, a resident of the municipality of Ligao, Province of Albay, Philipppine Islands and
married to Pilar Tell. Rogero signed this document in the capacity of surety for Dandayante.
In 1909, Rogero brought an action in the CFI of Albay against Jaucian, asking that the document in question
be cancelled as to her upon the ground that her signature was obtained by means of fraud. In Jaucians anse
to the complaint, he asked judgment against the plaintiff for the amount due upon the obligation, which
appears to have matured at that time. The decision rendered was limited to the issues concerning the validity
of the document. The CFI ruled in favour of the plaintiff, thus, this appeal to the SC. While the case was
pending, Rogero died and the administrator of her estate, Querol, was substituted.

Issue: W/N Jaucian can validly claim the amount due upon the obligation from Rogero
Ruling: Yes. The SC rendered its decision reversing the judgment of the trial court and holding that the
disputed claim was valid. Rogero was liable absolutely and unconditionally for the full amount of the
obligation without any right to demand the exhaustion of the property of the principal debtor previous to its
payment. Her position so far as the creditor was concerned was exactly the same as if she had been the
principal debtor, in accordance with Art. 1216 of The Civil Code of the Philippines.
3.14

Ynchausti v. Yulo

March 25, 1914

FACTS: This suit is brought for the recovery of a certain sum of money, the balance of a current account
opened by the firm of Inchausti & Company with Teodor Yulo and after his death continued by Gregorio
Yulo as principal representative of his children. On Aug.12, 1909, Gregorio Yulo, in representation of his 3
siblings, executed a notarial instrument, ratifying all the contents of the prior document of Jan.26, 1908,
severally and joint acknowledged their indebtedness for P253,445.42, 10 % per annum, 5 installments.
Plaintiff brought an action againsta Gregorio for the payment of the said balance due. But on May 12, 1911,
3 siblings executed another instrument in recognition of the debt, reduced to P225,000, interest reduced to
6% per annum, installments increased to 8.
ISSUE: Whether the contract of May 12, 1911 constitutes a novation of the former one of August 12, 1909.
RULING: The contract of May 12, 1911 does not constitute a novation of the former one of Aug.12, 1909,
with respect to the other debtors who executed this contract. First, in order that an obligation may be
extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the
old and the new be incompatible in all points (art. 1292). It is always necessary to state that it is the intention
of the contracting parties to extinguish the former obligation by the new one. The obligation to pay a sum
of money is not novated in a new instrument wherein the old is ratified, by changing only the term of
payment
and
adding
other
obligations
not
incompatible
with
the
old
one.
The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or
more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in
accordance with the provision of Art. 1215, 1222, the defendant has the right to enjoy the benefits of the
partial remission. At present judgment can be rendered only as to P112,500.

Article 1226
21.02 Country Bankers Insurance v. CA

September 9, 1991

FACTS: Oscar Ventanilla Enterprises Corporation (OVEC), as lessor, and the petitioner Enrique F. Sy, as
lessee, entered into a 6 years lease agreement over the Avenue, Broadway and Capitol theaters. After more
than two years of operation, the lessor OVEC made demands for the repossession of the said leased
properties in view of the Sy's arrears in monthly rentals and non-payment of amusement taxes. Sy, filed the
present action for reformation of the lease agreement, damages and injunction and by virtue of a restraining
order followed by an order directing the issuance of a writ of preliminary injunction issued in said case, Sy
regained possession and operation of the Avenue, Broadway and Capital theaters. The trial court arrived at
the conclusions that Sy is not entitled to the reformation of the lease agreement; that the repossession of the
leased premises by OVEC after the cancellation and termination of the lease was in accordance with the
stipulation of the parties in the said agreement and the law applicable thereto and that the consequent
forfeiture of Sy's cash deposit in favor of OVEC was clearly agreed upon by them in the lease agreement.
The trial court further concluded that Sy was not entitled to the writ of preliminary injunction issued in his
favor after the commencement of the action and that the injunction bond filed by Sy (supplied by CBISCO)
is liable for whatever damages OVEC may have suffered by reason of the injunction. From this decision of
the trial court, Sy and CBISCO (petitioner herein) appealed the decision in toto while OVEC appealed

insofar as the decision failed to hold the injunction bond liable for damages awarded by the trial court. The
respondent Court of Appeals held that the cancellation or termination of the agreement prior to its expiration
period is justified as it was brought about by Sy's own default in his compliance with the terms of the
agreement and not "motivated by fraud or greed." It also affirmed the award to OVEC of the amount of
P100,000.00 chargeable against the injunction bond posted by CBISCO which was soundly and amply
justified by the trial court.
ISSUE: Whether the Court of Appeals erred in holding CBISCOs bond liable
RULING: No. A provision which calls for the 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 is a penal clause that may be validly entered into. A 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. As a general rule, in obligations
with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in
case of non-compliance. In such case, proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded. However, there are exceptions to the rule that the penalty shall
substitute the indemnity for damages and the payment of interests in case of non-compliance with the
principal obligation. They are first, when there is a stipulation to the contrary; second, when the obligor is
sued for refusal to pay the agreed penalty; and third, when the obligor is guilty of fraud. It is evident that in
all said cases, the purpose of the penalty is to punish the obligor. Therefore, the obligee can recover from the
obligor not only the penalty but also the damages resulting from the non-fulfillment or defective
performance of the principal obligation. This opportunity cost which was duly proven before the trial court,
was correctly made chargeable by the said court against the injunction bond posted by CBISCO.
2.06

Lambert v. Fox

26 Phil 588

FACTS: This is an action brought to recover a penalty prescribed on a contract as punishment for the breach
thereof.

Early in 1911: John R. Edgar & Co., engaged in the retail book and stationery business was taken
over by its creditors including Lambert and Fox

Lambert and Fox became the 2 largest stockholders in the new corporation called John R. Edgar &
Co., Incorporated

Lambert and Fox entered into an agreement wherein they mutually and reciprocally agree not to sell,
transfer, or otherwise dispose of an part of the stock until after 1 year from the agreement date unless
consented in writing
o
violation: P1,000 pesos as liquidated damages

October 19, 1911: Fox sold his stock E. C. McCullough & Co. of Manila, a strong
competitor
o
sale was made by the defendant against the protest
o
Foz offered to sell his shares of stock to the Lambert for the same sum that McCullough was
paying them less P1,000, the penalty specified in the contract

Trial Court: dismissed the case in favor of the defendant upon the ground that the purpose for
which the contract was made and had been fulfilled and the defendant accordingly discharged of his
obligation thereunder.

In the case at bar the parties expressly stipulated that the contract should last one year. No
reason is shown for saying that it shall last only nine months. Whatever the object was in specifying the
year, it was their agreement that the contract should last a year and it was their judgment and conviction
that their purposes would not be subversed in any less time.

The appellee urges that the plaintiff cannot recover for the reason that he did not prove
damages
ISSUE: Whether plaintiff cannot recover for the reason that he did not prove damages

RULING: In this jurisdiction penalties provided in contracts of this character are enforced. It is the rule that
parties who are competent to contract may make such agreements within the limitations of the law and
public policy as they desire, and that the courts will enforce them according to their terms. The only case
recognized by the Civil Code in which the court is authorized to intervene for the purpose of reducing a
penalty stipulated in the contract is when the principal obligation has been partly or irregularly fulfilled and
the court can see that the person demanding the penalty has received the benefit of such or irregular
performance. In such case the court is authorized to reduce the penalty to the extent of the benefits received
by the party enforcing the penalty.
There is no difference between a penalty and liquidated damages, so far as legal results are concerned.
Whatever differences exists between them as a matter of language, they are treated the same legally. In
either case the party to whom payment is to be made is entitled to recover the sum stipulated without
the necessity of proving damages. Indeed one of the primary purposes in fixing a penalty or in
liquidating damages, is to avoid such necessity.

3.08

Ligutan v. CA

GR 138677

FACTS: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on May 11, 1981 a loan in the
amount of P120, 000.00 from respondent Security Bank and Trust Company. Petitioners executed a
promissory note binding themselves, jointly and severally, to pay the sum borrowed with an interest of
15.189% per annum upon maturity and to pay a penalty of 5% every month on the outstanding principal and
interest in case of default. In addition, petitioners agreed to pay 10% of the total amount due by way of
attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were instituted to enforce
payment. The obligation matured on September 8, 1981; the bank, however, granted an extension but only
until December 29, 1981.
When petitioners defaulted on their obligation, the bank filed on November 3, 1982 with the RTC of
Makati, Branch 143 a complaint for recovery of the due amount.
On September 5, 1988, the trial court ruled in favor of the bank. It ordered the petitioners to pay,
jointly and severally, the sum of P114, 416.00 with interest thereon at the rate of 15.189% per annum, 2%
service charge and 5% per month penalty charge, commencing on May 20, 1982 until fully paid.
The Court of Appeals affirmed it but deleted the 2% service charge pursuant to Central Bank
Circular No. 783. Not fully satisfied with the decision, both parties moved for reconsideration. Petitioners
prayed for the reduction of the 5% penalty for being unconscionable. The bank, on the other hand, asked that
the payment of interest and penalty be commenced not from the date of filing of complaint but from the time
of default as so stipulated in the contract of the parties.
The petitioner, before this Court, contended, among others that the 15.189% interest and the penalty
of 3% per month or 36% per annum imposed by private respondent bank on petitioners loan obligation are
still manifestly exorbitant, iniquitous and unconscionable. Respondent bank, which did not take an appeal,
would, however, have it that the penalty sought to be deleted by petitioners was even insufficient to fully
cover and compensate for the cost of money brought about by the radical devaluation and decrease in the
purchasing power of the peso.
ISSUE: Whether or not the penalty is reasonable and not iniquitous.
RULING: NO, the penalty is not unreasonable. The Court held that the question of whether a penalty is
reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such
factors as, but not necessarily confide to, the type, extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship
of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the
court. In Rizal Commercial Banking Corp. v. Court of Appeals, for example, the Court has tempered the
penalty charges after taking into account the debtors pitiful situation and its offer to settle the entire
obligation with the creditor bank. The stipulated penalty might likewise be reduced when a partial or
irregular payment is made by the payment. The stipulated penalty might even be deleted such as when there
has been substantial performance in good faith by the obligor, when the penalty clause itself suffers from

fatal infirmity, and when exceptional circumstances so exist as to warrant it. In the case at bar, given the
circumstances, not to mention the repeated acts of breach by petitioners of their contractual obligation, this
Court sees no cogent ground to ruling of the appellate court.
16.10 Tan v. CA

October 19, 2001

FACTS: On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the
principal amount of Two Million Pesos (P2,000,000.00), or in the total principal amount of Four Million
Pesos (P4,000,000.00) from respondent Cultural Center of the Philippines (CCP, for brevity) evidenced by
two (2) promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively. Petitioner
defaulted but after a few partial payments he had the loans restructured by respondent CCP, and petitioner
accordingly executed a promissory note (Exhibit A) on August 31, 1979 in the amount of Three Million Four
Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32)
payable in five (5) installments.Petitioner Tan failed to pay any installment on the said restructured loan of
Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32), the last installment falling due on December 31, 1980. In a letter dated January 26, 1982,
petitioner requested and proposed to respondent CCP a mode of paying the restructured loan, i.e., (a) twenty
percent (20%) of the principal amount of the loan upon the respondent giving its conformity to his proposal;
and (b) the balance on the principal obligation payable in thirty-six (36) equal monthly installments until
fully paid. On October 20, 1983, petitioner again sent a letter to respondent CCP requesting for a
moratorium on his loan obligation until the following year allegedly due to a substantial deduction in the
volume of his business and on account of the peso devaluation. No favorable response was made to said
letters. Instead, respondent CCP, through counsel, wrote a letter dated May 30, 1984 to the petitioner
demanding full payment, within ten (10) days from receipt of said letter, of the petitioners restructured loan
which as of April 30, 1984 amounted to Six Million Eighty-Eight Thousand Seven Hundred Thirty-Five
Pesos and Three Centavos (P6,088,735.03). On August 29, 1984, respondent CCP filed in the RTC of
Manila a complaint for collection of a sum of money, docketed as Civil Case No. 84-26363, against the
petitioner after the latter failed to settle his said restructured loan obligation. The petitioner interposed the
defense that he merely accommodated a friend, Wilson Lucmen, who allegedly asked for his help to obtain a
loan from respondent CCP. Petitioner claimed that he has not been able to locate Wilson Lucmen. While the
case was pending in the trial court, the petitioner filed a Manifestation wherein he proposed to settle his
indebtedness to respondent CCP by proposing to make a down payment of One Hundred Forty Thousand
Pesos (P140,000.00) and to issue twelve (12) checks every beginning of the year to cover installment
payments for one year, and every year thereafter until the balance is fully paid. However, respondent CCP
did not agree to the petitioners proposals and so the trial of the case ensued.
ISSUE: Whether the creditor CCP can demand the fulfillment of the obligation and demandinf the
satisfaction of penalty?
RULING: No, In affirming the decision of the trial court imposing surcharges and interest, the appellate
court held that. The SC are unable to accept appellants (petitioners) claim for modification on the basis of
alleged partial or irregular performance, there being none. Appellants offer or tender of payment cannot be
deemed as a partial or irregular performance of the contract, not a single centavo appears to have been paid
by the defendant.

Article 1229
6.07

Makati Devt. Corp. v. Empire Insurance Co.

June 30, 1967

FACTS: Makati Development sold Rodolfo P. Andal a lot, the condition is (a) the Vendee/s shall commence
the construction and complete at least 50% of its residence on the property within two years from March

1959 to the satisfaction of the Vendor. Failure to do so, the bond which the Vendee has delivered to the
Vendor in the sum of P11,123.00 and evidenced by a cash bond receipt dated April 1959 will be forfeited in
favor of the Vendor by the mere fact of failure of the vendee to comply with this condition. Clearly, Andal
gave a Surety Bond, he as principal, and the Empire Insurance Co., as surety, jointly and severally,
undertook to pay Makati Devt. Corp. the sum of P12,000 in case Andal failed to comply with his obligation
under the deed of sale. Unfortunately, Andal did not build his house, instead he sold the lot to Juan Carlos.
Makati Devt. sent a notice of claim to the Empire Insurance Co advising it of Andal's failure to comply with
his undertaking. Then demanded the payment of 12,000, but was refused. So Makati filed a complaint
against Empire, however, Empire filed answer with a third-party complaint against Andal, compelling Andal
to pay Empire whatever amount it may be ordered to pay the Makati Devt. plust interest from the date of the
filing of the complaint until said amount was fully reimbursed, and attorney's fees. Nonetheless, Andal
admitted the execution of the bond and alleged that the "special condition" in the deed of sale was contrary
to law, morals and public policy. On appeal, court reduced Andal's liability because there was only really a
little delay, but Makati 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 1961.
ISSUE: Whether or not court erred in mitigating the obligor's liability considering obligor failed to commit
obligation within the stipulated time.
RULING: Court affirmed the decision of the CA, the mitigating of obligor's liability is allowed, citing
Article 1229 of the NCC which states "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.

Article 1234
3.04

De Guzman v. CA

July 23, 1985

Facts: The petitioners, as seller, and the private respondent, as buyer, executed a Contract to Sell covering
two (2) parcels of land owned by the petitioners located at Pasay City. It was stipulated therein that the
private respondent should pay the balance of the purchase price of P133,640.00 on or before February 17,
1975. Two days before the said date, or on February 15, 1975, the private respondent asked the petitioners to
furnish her with 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 executed by Rolando Gestuvo in
favor of Pilar de Guzman. But, the petitioners denied the request. As a result, the private respondent filed a
complaint for specific performance with damages against the petitioners before the Court of First Instance of
Rizal. In her complaint, the private respondent charged that the petitioners, by refusing to furnish her with
copies of the documents requested, deliberately intended not to comply with their obligations under the
contract to sell, as a result of which the said petitioners committed a breach of contract, and had also acted
unfairly and in manifest bad faith for which they should be held liable for damages. Answering the
complaint, the petitioners claimed that the complaint failed to state a cause of action; that the balance due
was already pre-determined in the contract; that the petitioners have no obligation to furnish the private
respondent with copies of the documents requested; and that the private respondent's failure to pay the
balance of the purchase price on the date specified had caused the contract to expire and become ineffective
without necessity of notice or of any judicial declaration to that effect.
On November 29, 1977, the trial court rendered a decision approving the compromise agreement submitted
by the parties wherein they agreed that, among others, not later than December 18, 1977, plaintiff will pay
defendants the total amount of two hundred forty thousand (p240,000.00) pesos, and in case of failure to do
so, she shall have only until January 27, 1978 within which to pay the total amount of two hundred fifty

thousand (p250,000.00) pesos, which shall be treated as complete and final payment of the consideration in
the contract to sell.
On January 28, 1978, the petitioners filed a motion for the issuance of a writ of execution, claiming that the
private respondent had failed to abide by the terms of the compromise agreement and pay the amount
specified in their compromise agreement within the period stipulated. The private respondent opposed the
motion, saying that she had complied with the terms and conditions of the compromise agreement and asked
the court to direct the petitioners to comply with the court's decision and execute the necessary documents to
effect the transfer of ownership of the two parcels of land in question to her.
Acting upon the motions, the respondent judge issued an order on March 27, 1978, denying the petitioners'
motion for execution, and instead, directed the petitioners to immediately execute the necessary documents,
transferring to private respondent the title to the properties. He also ordered the Clerk of Court to release to
the petitioners the amount of P250,000.00, which had been deposited by the private respondent, upon proper
receipt therefor.
Issue: Whether the respondent substantially complied with the terms and conditions of the compromise
agreement in good faith.
Ruling: We agree with the findings of the trial court that the private respondent had substantially complied
with the terms and conditions of the compromise agreement. Her failure to deliver to the petitioners the full
amount on January 27, 1978 was not her fault. The blame lies with the petitioners. The record shows that the
private respondent went to the sala of Judge Bautista on the appointed day to make payment, as agreed upon
in their compromise agreement. But, the petitioners were not there to receive it. Only the petitioners' counsel
appeared later, but, he informed the private respondent that he had no authority to receive and accept
payment. Instead, he invited the private respondent and her companions to the house of the petitioners to
effect payment. But, the petitioners were not there either. They were informed that the petitioner Pilar de
Guzman would arrive late in the afternoon, possibly at around 4:00 o'clock. The private respondent was
assured, however, that she would be informed as soon as the petitioners arrived. The private respondent, in
her eagerness to settle her obligation, consented and waited for the call which did not come and unwittingly
let the period lapse. The next day, January 28, 1978, the private respondent went to the office of the Clerk of
the Court of First Instance of Rizal, Pasay City Branch, to deposit the balance of the purchase price. But, it
being a Saturday, the cashier was not there to receive it. So, on the next working day, Monday, January 30,
1978, the private respondent deposited the amount of P30,000.00 with the cashier of the Office of the Clerk
of the Court of First Instance of Rizal, Pasay City Branch, to complete the payment of the purchase price of
P250,000.00. Since the deposit of the balance of the purchase price was made in good faith and that the
failure of the private respondent to deposit the purchase price on the date specified was due to the petitioners
who also make no claim that they had sustained damages because of the two days delay, there was
substantial compliance with the terms and conditions of the compromise agreement.

Article 1236
4.09

RFC v. CA

May 14, 1954

FACTS: Quintana Cano and Jesus Anduiza executed a promissory note wherein they solidarily promised to
pay Rehabilitation Finance Corporation (RFC), in lieu of a mortgage, the amount of Php.13,800.00 with
interest. The promissory note contained that the amount shall be paid "on or before Oct.31,1955." The
payments are to be made in 10 years "equal annual installments. Cano and Anduiza failed to pay the yearly
amortizations that fell due on 1942 and 1943. Estelito Madrid, who temporarily lived in the house of
Anduiza, learned of this and offered to pay the indebtedness of Anduiza. The full amount plus interest was
paid yet RFC refused to cancel the mortgage alleging that the loan had not become due and demandable as
the same was payable in ten years at Php.1,874.98 annually. RFC further assailed that the obligation was not
fully due and demandable at the time of the payments.
ISSUE: May the makers/debtors in a promissory note settle their debt before the date stipulated?

RULING: Where the makers of the promissory note promised to pay the obligation evidenced by "on or
before," although the full amount of the said obligation was not demandable prior to the date stipulated, in
view of the provision of the promissory note relative to the payment in 10 annual installments, the makers or
debtors were entitled to make a complete settlement of the obligation at any time before the said date. RFC,
as creditor, has no other right than to exact payment from the debtors.

Article 1245
8.04

Filinvest Credit Corp. v. Philippine Acetylene Co. Inc.

January 30, 1982

FACTS: Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle described as Chevorlet
1969 model for P55K to be paid in instalments. As security for the payment of said promissory note, the
appellant executed a chattel mortgage over the same motor vehicle in favor of said Alexander Lim. Then,
Lim assigned to the Filinvest all his rights, title, and interests in the promissory note and chattel mortgage by
virtue of a Deed of Assignment. Phil Acetylene defaulted in the payment of nine successive installments.
Filinvest sent a demand letter. Replying thereto, Phil Acetylene wrote back of its desire to return the
mortgaged property, which return shall be in full satisfaction of its indebtedness. So the vehicle was returned
to the Filinvest together with the document Voluntary Surrender with Special Power of Attorney To Sell.
Filinvest failed to sell the motor vehicle as there were unpaid taxes on the said vehicle. Filinvest requested
the appellant to update its account by paying the installments in arrears and accruing interest. Filinvest
offered to deliver back the motor vehicle to the appellant but the latter refused to accept it, so appellee
instituted an action for collection of a sum of money with damages. Phil Acetylenes defense: The delivery
of the motor vehicle to Filinvest extinguished its money obligation as it amounted to a dation in payment.
Assuming arguendo that the return did not extinguish, it was justified in refusing payment since the appellee
is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor
Alexander Lim.
ISSUE: WON there was dation in payment that extinguished Phil Acetylenes obligation? NO.
HELD: The mere return of the mortgaged motor vehicle by the mortgagor does not constitute dation in
payment in the absence, express or implied of the true intention of the parties. Dacion en pago is the
transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of obligation. In dacion, the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present.The evidence on the record fails to show
that the Filinvest consented, or at least intended, that the mere delivery to, and acceptance by him, of the
mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en
pago. In the absence of clear consent of appellee to the proferred special mode of payment, there can be no
transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of
possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee,
merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to
third persons, or its being rendered valueless if left in the hands of the appellant.

Article 1249
20.04 Kalalo v. Luz

July 31, 1970

FACTS: Octavio Kalalo is a licensed civil engineer of O.A. Kalalo and Associates. Alfredo Luz is a
licensed architect of A.J. Luz and Associates. Engineer Kalalo and architect Luz entered into an agreement
stipulating that the engineer was to render engineering design services to the architect for fees. The services
included design computation and sketches, contract drawing and technical specifications of all the
engineering phases of the project designed by O.A. Kalalo and Associates, bill of quantities and cost
estimates, and consultation and advice during construction relative to work.
The fees agreed upon was 20% of the architects fees.
The agreement was subsequently supplemented by a clarification letter-proposal that the schedule of
engineering fees stipulated in the contract DOES NOT cover the ff: foundation soil exploration and
industrial plants [which are projects principally engineered by the Kalalo and Associates].and the Kalalo
and Associates reserves the right to increase fees on projects, which cost less then P100,000.
Engr. Kalalo rendered engineering services to Architect Luz in 10 projects in Legazpi City, Iloilo City, Cebu,
Makati, Manila, Bataan and Laguna.
Engr Kalalo sent a statement of account showing the total engineering fee for services rendered amounted to
P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00,
thus leaving a balance due in the amount of P59,565.00.
Architect sent another computation of fees due to the engineer showing a balance of P10,861.08, instead of
the amount claimed by the engineer. The Architect sent a check for his payment but the engineer refused to
accept as full payment.
Engr. Kalalo filed a complaint against Architect Luz for collection and for damages. One of the projects he
constructed was the International Rice Research Institute (IRRI) Project in which the IRRI paid Architect
Luz in US dollars [in the amount of $140,000. He claimed that 20% of the amount is $28,000. In addition to
that, the total fees for other projects paid in pesos was P100,204.46 (excluding interest) less the paid balance
of P69,323.21. Thus, the unpaid balance is $28,000 and P30,881.25.
Architect Luz answered that there was no provision in their contract that payment should be in dollars.
The trial court, upon agreement of the parties, authorized the case to be heard before a Commissioner. The
Commissioner rendered a report which states that the amount due to the engineer was $28,000.00 (U.S.) as
his fee in the International Research Institute Project which was twenty percent (20%) of the $140,000.00
that was paid to the architect.
The trial courts Decision regarding the basis of conversion: $28,000.00 be converted into the Philippine
currency on the basis of the current rate of exchange at the time of the payment of this judgment, as certified
to by the Central Bank of the Philippines.
ISSUE: W/N the payment of the amount due to Engr. Kalalo in dollars was legally permissible, and if not, at
what rate of exchange it should be paid in pesos.
RULING: The SC took note of the DATE WHEN THE OBLIGATION TO PAY BECAME DUE, it was
August 25, 1961. On this date, there were 2 rates of exchange: 1. Preferred rate of P2:$1, and 2. Free market
rate.
Appellee, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received
his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was
enacted on June 16, 1950: If the obligation was incurred prior to the enactment of the Act and require
payment in a particular kind of coin or currency other than the Philippine currency the same shall be
discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was
incurred.

In the case, the obligation of the architect to pay the engineer the 20% of $140,000.00, or the sum of
$28,000.00, accrued on August 25, 1961, or after the enactment of Republic Act 529. Republic Act 529 does
not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act.
The logical Conclusion of the SC is that the rate of exchange should be that prevailing at the time of
payment.
Decision: It is Our considered view, therefore, that appellant should pay the appellee the equivalent in
pesos of the $28,000.00 at the free market rate of exchange at the time of payment. And so the trial court
did not err when it held that herein appellant should pay appellee $28,000.00 "to be converted into the
Philippine currency on the basis of the current rate of exchange at the time of payment of this judgment,
as certified to by the Central Bank of the Philippines, ...."
17.08 Papa v. Valencia

Kapunan, 1998

14.11 St. Paul Fire Marine Insurance Co. v. Macondray & Co. Inc.

March 25, 1976

FACTS: Winthrop Products, Inc. of New York shipped aboard the SS TaiPing, 218 cartons and drums of
drugs and medicine which were consigned to Winthrop Stearns, Inc. Manila Philippines. Barber Steamship
Lines, Inc. issued a Bill of Lading in the name of Winthrop Products, Inc. as shipper, with arrival notice in
Manila to consignee Winthrop Stearns, Inc. Manila. The shipment was insured by the shipper against loos
and/or damage with St. Paul Fire and Marine Insurance Company. SS Tai Ping arrived at the Port of Manila
and discharged the shipment into the custody of Manila Port Service. The shipment was discharged complete
and in good order with the exception of 1 drum and several cartons which were in bad order condition. The
consignee filed a claim in the amount of P1,109.47 representing the C.I.F value of the damaged drum and
cartons of medicine with the carrier and Manila Port Service. Both the carrier and Manila Port Service
refused to pay such claim. The consignee then filed its claim with the insurer. On the basis of such claim, the
insurance company paid to the consignee the insured value of the lost and damaged goods, including other
expenses in connection therewith in the total amount of $1,134.46. As subrogee of the rights of the shipper
and/or consignee, the insurer instituted with the CFI an action against the defendants for the recovery of the
amount of $1,134.46.
Plaintiff also contend that it should recover the amount of $1,134.46, or its equivalent in pesos at the rate of
P3.90, instead of P2.00, for every US$1.00, filed a motion for reconsideration, but this was denied by the
lower court on May 5, 1965. Hence, the present appeal.
ISSUE: Whether the insurer who has paid the claim in dollars to the consignee should be reimbursed in its
peso equivalent on the date of discharge of the cargo or on the date of the decision.
RULING: Equally untenable is the contention of the plaintiff-appellant that because of extraordinary
inflation, it should be reimbursed for its dollar payments at the rate of exchange on the date of the
judgment and not on the date of the loss or damage. The obligation of the carrier to pay for the damage
commenced on the date it failed to deliver the shipment in good condition to the consignee.
The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of the consignee is
$226.37 (for the pilferage) and $324.33 (short landed) or P456.14 and P653.53, respectively, in Philippine
Currency. The peso equivalent was based by the consignee on the exchange rate of P2.015 to $1.00 which
was the rate existing at that time. We find, therefore, that the trial court committed no error in adopting the
aforesaid rate of exchange.
Article 1252
16.07 Paculdo v. Regalado

Pardo, 2000

Article 1254
2.04

DBP v. CA

January 5, 1998

FACTS:

Lydia P. Cuba is a grantee of a Fishpond Lease Agreement from the Government


Cuba obtained loans from DBP stated under promissory notes dated September 6, 1974; August 11, 1975; and
April 4, 1977 executing 2 Deeds of Assignment of her Leasehold Rights as security
Upon failure to pay, without foreclosure proceedings it was appropriated and DBP executed in turn a Deed of
Conditional Sale of the Leasehold Rights in her favor
Her offer to repurchase was accepted and a new Fishpond Lease Agreement was issued by the Ministry of
Agriculture and Food in her favor alone excluding her husband
Failing to pay her amortizations, she entered into a temporary agreement with DBP
Soon, she was sent a Notice of Rescission and DBP took possession of the Leasehold Rights of the fishpond
After the public bidding, DBP executed a Deed of Conditional Sale in favor of defendant Agripina Caperal
Cuba filed against DBP since no foreclosure proceedings was done thus, contrary to Article 2088 of the Civil
Code
RTC: resolved the issue in favor of CUBA by declaring that DBPs taking possession and ownership of the
property without foreclosure was plainly violative of Article 2088; it being a pactum commissorium
return leasehold rights to Cuba
entitling P1,067,500 actual damages, P100,000 moral and P50,000 exemplary damages and P100,000
attorneys fees
CA: declared as valid the following: (1) the act of DBP in appropriating Cubas leasehold rights and interest
under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP;
(3) the deed of conditional sale between CUBA and DBP; and (4) the deed of conditional sale between DBP
and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights
executed by Caperal in favor of DBP.
ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to
pay CUBA the following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and
P50,000 as attorneys fees.

CUBA contends that the Court of Appeals erred in holding that the deed of assignment effected a novation of the
promissory notes
RULING: The court finds no merit in DBPs contention that the assignment novated the promissory notes in that the
obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the
rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment
merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the
latter. There is no novation where the obligation to pay a sum of money remained, and the assignment merely served
as security for the loans covered by the promissory notes.
Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and
simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more
creditors and involves the assignment of all the debtors property.
Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which reads: Dation in
payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law
on sales. It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a
satisfaction of indebtedness.
CA was REVERSED, except as to the award of P50,000 as moral damages, which was sustained.
Decision of the RTC was MODIFIED setting aside the finding that condition no. 12 of the deed of assignment
constituted pactum commissorium and the award of actual damages; and by reducing the amounts of moral damages
from P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorneys fees, from P100,000
to P20,000.
DBP was ordered to render an accounting of the income derived from the operation of the fishpond in question.

The case was REMANDED to the trial court for the reception of the income statement of DBP, as well as the
statement of the account of Lydia P. Cuba, and for the determination of each partys financial obligation to one
another.

3.09

Reparations Commission v. Universal Deep Sea Fishing Corp. June 27, 1978

FACTS: The Reparations Commission awarded six (6) trawl boats to the Universal Deep-Sea Fishing
Corporation which were delivered two at a time, each delivery being covered by a Contract of Conditional
Purchase and Sale providing for identical schedules of payments the installment representing 10% of the
total cost was to be paid in ten (10) equal installments, which, in the schedule were numbered as 1, 2,
3, etc., the first of which was due one year after the first installment.
When the Reparations Commission sued Universal and its surety to recover various amounts of money due
under the contracts, they claimed that the amounts were not yet due and demandable. Universal alleged that
there was an obscurity in the terms of the contracts in question which was caused by the plaintiff as to the
amounts and due dates of the first installments which should have been first fixed before the creditor could
demand its payment from the debtor, specifically referring to the schedule of payments which allegedly
indicated two (2) due dates for the payment of the first installment.
ISSUE: Whether the down payment made by Universal should be applied to the guaranteed portion of the
debt.
RULING: The surety company claims that the trial court erred in not applying the amount of P10,000.00,
paid as down payment by UNIVERSAL to Reparations Commission, to guaranteed indebtedness. According
to surety company, under Article 1254 of Civil Code, where there is no imputation of payment made by
either debtor or creditor, the debt which is the most onerous to the debtor shall be deemed to have been
satisfied, so that the amount of P10,000.00 paid by UNIVERSAL as down payment on the purchase of the,
M/S UNIFISH 1 and M/S UNIFISH 2 should be applied to the guaranteed portion of the debt, this releasing
part of the liability hence the obligation of 'The surety company shall be only P43,643.00, instead of
P53,643.00.
The rules contained in Articles 1252 to 1254 of Civil Code apply to a person owing several debts of same
kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is
both contingent and singular, 14 which in this case is the full and faithful compliance with the terms of the
contract of conditional purchase and sale of reparations goods, The obligation included the payment, not
only of the first installment in the amount of P53,643.00, but also of the ten (10) equal yearly installments of
P56,597.20 per annum. The amount of P10,000.00 was, indeed, deducted from amount of P53,643.00, but
then first of ten (10) equal yearly installments had also accrued, hence, no error was committed in holding
surety company to full extent of its undertaking.

Article 1256
8.06

Mc Laughlin v. CA

October 10, 1986

FACTS: Petitioner Luisa McLaughlin (seller) and private respondent Ramon Flores (buyer) entered into a
contract of conditional sale of real property. The total purchase price is P140,000. P26,550 should be paid
upon execution of the deed and the balance not later than May 31, 1977 with an interest of 1% per month
until fully paid. Flores failed to pay and hence petitioner filed a complaint for the rescission of the deed of
conditional sale. Eventually, the parties entered into a compromise agreement, which was accepted by the
court. The parties agreed that Flores shall pay P50,000 upon signing of the agreement and the balance in 2
equal installments payable on June 30, 1980 and December31, 1980. Flores also agreed to pay P1,000
monthly rental until the obligation is fully paid for the use of the subject matter of the deed of conditional

sale. The yalso agreed that in the event Flores fails to comply with his obligations, the petitioner will be
entitled to the issuance of a writ of execution rescinding the deed of conditional sale and all the payments
made will be forfeited in favor of the plaintiff. On October 15, 1980, petitioner demanded payment of the
balance on or before October31 included the installment. On October 30, Flores sent a letter signifying his
willingness and intention to pay the full balance. On November 7, petitioner filed a motion for writ of
execution alleging that Flores failed to pay the installment due on June 1980 and also failed to pay the
monthly rentals from that date. She prayed that the deed of conditional sale be rescinded with forfeiture of
all payments and payment of the monthly rentals and eviction of Flores. The trial court granted the motion.
On November 17, Flores filed a motion for reconsideration tendering at the same time a certified managers
check payable to petitioner and covering the entire obligation including the December 1980installment. The
trial court denied the motion. On appeal, the CA ruled in favor of Flores holding that the delay in payment
was not a violation of an essential condition which would warrant a rescission since On November 17 or just
17 days from the October 31deadline set by petitioner, Flores tendered the certified managers check and
that it was inequitable for Flores to forfeit all the payments made (P101,550).
ISSUE: WON it is inequitable to cancel the contract and to have the amount paid by Flores be forfeited to
petitioner particularly after Flores had tendered the certified managers check in full payment of the
obligation.
HELD: YES! There is already substantial compliance by Flores with the compromise agreement. More
importantly, the Maceda law recognizes the vendors right to cancel the contract to sell upon the breach and
nonpayment of the stipulated installments but requires a grace period after at least 2 years of regular
installment payments. But in cases where less than 2 years of installments were paid, the seller shall give the
buyer a grace period of not less than 60 days from the date the installment became due. The tender made by
Flores of a certified bank managers check was a valid tender of payment. It covered the full amount of the
obligation. However, although he had made a valid tender of payment which preserved his rights as a
vendee, he did not follow it with consignation or deposit of the sum due with the court. Hence he remains
liable for the payment of his obligation because of his failure to deposit the amount due with the court.
8.07

Meat Packing Corp of the Phil. v. Sandiganbayan

June 22, 2001

FACTS: Petitioner Meat Packing Corporation of the Philippines (hereinafter, MPCP), is a corporation
wholly owned by the Government Service Insurance System (GSIS). It is the owner of three (3) parcels of
land situated in Barrio Ugong, Pasig City. as well as the meat processing and packing plant. MPCP and
Philippine Integrated Meat Corporation (PIMECO) entered into an Agreement: MPCP leased to PIMECO,
under a lease-purchase arrangement. The Agreements rescission clause: If the lessee-vendee (PIMECO)
should fail or default in the payment of rentals equivalent to the cumulative sum total of 3 annual
installments, the Agreement shall be deemed automatically cancelled and forfeited without need of judicial
intervention. MPCP and PIMECO entered into a Supplementary and Loan Agreement. PCGG sequestered
all the assets, properties, and records of PIMECO, including the meat packing plant and the lease-purchase
agreement. MPCP wrote a letter to PIMECO, giving notice of the rescission of the lease-purchase agreement
for non-payment of rentals of 2M. GSIS asked the PCGG to exclude the meat packing plant from the
sequestered assets of PIMECO because it is owned by MPCP. However, PCGG denied the request. PCGG
ordered the transfer of the plant to GSIS, under the condition that the PCGG management team might
continue its operations to complete outstanding orders. Sandiganbayan found that PCGG committed grave
abuse of authority, power and discretion in unilaterally terminating the lease-purchase agreement of
PIMECO and MPCP, and in turning over its management, control, and operation to the latter. PCGG
tendered to MPCP amounting to P5,000,000, representing partial payment of accrued rentals on the meat
packing plant, which MPCP refused to accept on the theory that the lease-purchase agreement has been
rescinded. Sandiganbayan approved the consignation by PCGG of the amount of P5,000,000 after the MPCP
refused the tender of payment of the same. While the unpaid rentals have reached P7,530,036.21, PCGGs
tender of payment and consignation of the amount of P5,000,000 averted the accumulation of the unpaid
rentals to 3 annual installments.
ISSUE: WON the lease-purchase agreement has been rescinded ?

HELD: No! 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. Tender is the antecedent of consignation. 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. Tender and consignation, where validly made,
produces the effect of payment and extinguishes the obligation. 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. There was prior tender by PCGG of the amount of P5,000,000 for
payment of the rentals in arrears. MPCPs refusal to accept the same, on the ground merely that its
leasepurchase agreement with PIMECO had been rescinded, was unjustified. with the Sandiganbayans
approval of the consignation and directive for MPCP to accept the tendered payment, the lease-purchase
agreement could not be said to have been rescinded.
16.06 Pabugais v. Sahijwani
21.07 Ponce De Leon v. Syjuco

February 23,
October 31, 1951

FACTS: 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. 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.
ISSUE: 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?
RULING: 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; (3) that previous notice of the consignation have
been given to the person interested in the performance of the obligation; (4) that the amount due was placed
at the disposal of the court; and (5) that after the consignation had been made the person interested was
notified thereof .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.

13.10 Soco v. Militante

June 28, 1983

FACTS: Soco and Francisco Militante entered into a contract of lease whereby Soco leased her commercial
building and lot for a monthly rental of P800.00. After Soco learned that Francisco sub-leased a portion of
the building to NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much higher
than what Francisco was paying to Soco, the latter felt that she was on the losing end of the lease agreement
so she tried to look for ways and means to terminate the contract. Francisco noticed that Soco did not
anymore send her collector for the payment of rentals and at times there were payments made but no receipts
were issued. This situation prompted Francisco to write Soco a letter which the latter received. After writing
this letter, Francisco sent his payment for rentals by checks issued by the Commercial Bank and Trust
Company. In view of this alleged non-payment of rental of the leased premises, Soco through her lawyer
sent a letter to Francisco serving notice to the latter to vacate the premises leased. In answer to this letter,
Francisco through his lawyer informed Soco and her lawyer that all payments of rental due her were in fact
paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu.
Despite this explanation, Soco filed this instant case of Illegal Detainer. MTC and RTC have conflicting
findings. The former found that the consignation was valid. RTC reversed and ordered the eviction of the
Francisco.
ISSUE: WON there was a valid consignation of payment of the rentals.
RULING: 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 or incapacitated, or because several persons claimed to be
entitled to receive the amount due; (3) that previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) that the amount due was placed at the disposal of the
court; and (5) that after the consignation had been made the person interested was notified thereof. Failure in
any of these requirements is enough ground to render a consignation ineffective. We hold that the respondent
lessee has utterly failed to prove the following requisites of a valid consignation: First, tender of payment of
the monthly rentals to the lessor. Second, respondent lessee also failed to prove the first notice to the lessor
prior to consignation, evidently, from this arrangement, it was the lessees duty to send someone to get the
cashiers check from the bank and logically, the lessee has the obligation to make and tender the check to the
lessor. Third, respondent lessee likewise failed to prove the second notice, which is after consignation, has
been made to the lessor and the fourth requisite that respondent lessee failed to prove is the actual deposit or
consignation of the monthly rentals.

14.10 Sotto v. Mijares

May 8, 1969

FACTS: This is an appeal taken by herein defendants from that portion of the order of the Court of First
Instance which requires them to deposit with the Clerk of Court the amount of P5,106.00 within ten (10)
days from receipt of said order.
Defendants signified their willingness to deposit the requested amount provided that the complaint be
dismissed and that they be absolved of all other liabilities, expenses and costs.
The lower court issued an order that the said defendants are hereby ordered to deposit said amount to the
Clerk of Court pending the final termination of this case.
But the plaintiff filed a motion for partial judgment on the pleadings with respect to the amount of
P5,106.00, modifying their previous request for judicial deposit, which had already been granted. On the
other hand, defendants moved to reconsider the order explaining that through oversight they failed to allege
in their "Opposition" that the sum of P5,106.00 was actually secured by a real estate mortgage. They would
thus premise their willingness to deposit said amount upon a condition.

The lower court resolved both motions, in effect denying them and reiterating its previous order, the
defendants are hereby ordered to deposit with the Clerk of Court the amount of P5,106.00 within ten (10)
days from receipt of this order subject to further disposition thereof in accordance with the decision to be
rendered after trial.
ISSUE: Whether or not to deposit at all the amount of an admitted indebtedness, or to do so under certain
conditions, is a right which belongs to the debtor exclusively.
RULING: From the viewpoint of the debtor a deposit such as the one involved here is in the nature of
consignation, and consignation is a facultative remedy which he may or may not avail himself of. 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. Indeed, the law says 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."
18.09 Tengco v. CA

October 19, 1989

Article 1260
18.11 TLG International Continental Enterprising Inc. v. Flores

October 31, 1972

Article 1267
13.07 Occena v. CA

October 29, 1976

FACTS: Tropical Homes Inc. who agreed to develop a subdivision on the land owned by Jesus and Efigenia
Occena wherein the former would be paid only 40% of the sale of the subdivision lots, filed a complaint for
modification of the terms and conditions of its subdivision contract with petitioners on the Basis of Art 1267
of the Civil Code. They are asking for modification of the terms and conditions of the subdivision contract
due to increase in costs.
ISSUE: WON the subdivision contract may be modified or revised
RULING: The Civil Code authorizes the release of an obligor when the service has become so difficult as
to be manifestly beyond the contemplation of the parties but does not authorize the Courts to modify or
revise the subdivision contract between the parties or to fix a different sharing ratio from that contractually
stipulated with the force of law. Tropical Homes complaint for modification of the contract has no basis in
law and must be dismissed.

Article 1266
21.06 PNCC v. CA

May 5, 1997

FACTS: On 7 January 1986, petitioner obtained from the MHS a Temporary Use Permit for the proposed
rock crushing project, valid for 2 years unless sooner revoked by MHS. - On 16 January 1986, private
respondents wrote petitioner requesting payment of the first annual rental in the amount of P240,000 which
was due and payable upon the execution of the contract. They also assured the latter that they had already
stopped considering the proposals of other aggregates plants to lease the property because of the existing
contract with petitioner. - Petitioner argued that under paragraph 1 of the lease contract, payment of rental
would commence on the date of the issuance of an industrial clearance by the MHS, and not from the date of
signing of the contract. It then expressed its 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." - Private
respondents refused to accede to petitioner's request for the pretermination of the lease contract. They
insisted on the performance of petitioner's obligation and reiterated their demand for the payment of the first
annual rental.
ISSUE: Whether Article 1266 apply to this case
RULING: NO. The fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be compiled with in good
faith, recognizes exceptions. One exception is laid down in Article 1266 of the Civil Code, which reads: 'The
debtor in obligations to do shall also be released when the prestation becomes legally or physically
impossible without the fault of the obligor. However, petitioner cannot successfully take refuge in the said
article, since it is applicable only to obligations "to do," and not to obligations "to give". The obligation to
pay rentals or deliver the thing in a contract of lease falls within the prestation "to give"; hence, it is not
covered within the scope of Article 1266.
Article 1270
3.13

Yam v. CA

February 11, 1999

Article 1278
18.04 International Corporate Bank Inc. v. IAC
1988

GR L-69560, June 30,

FACTS: In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the
Investment and Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount
of P50,000,000.00. To secure this loan, private respondent mortgaged her real properties in Quiapo, Manila
and in San Rafael, Bulacan, which she claimed have a total market value of P110,000,000.00. Of this loan,
only the amount of P20,000,000.00 was approved for release. The same amount was applied to pay her other
obligations to petitioner, bank charges and fees. Thus, private respondent's claim that she did not receive
anything from the approved loan. On September 11, 1980, private respondent made a money market
placement with ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a period of 32 days
or until October 13, 1980, its maturity date. Meanwhile, private respondent allegedly failed to pay her
mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the money market
placement on maturity but applied the amount instead to the deficiency in the proceeds of the auction sale of
the mortgaged properties. With Atrium being the only bidder, said properties were sold in its favor for only
P20,000,000.00. Petitioner claims that after deducting this amount, private respondent is still indebted in the
amount of P6.81 million. On November 17, 1982, private respondent filed a complaint with the trial court
against petitioner for annulment of the sheriff's sale of the mortgaged properties, for the release to her of the
balance of her loan from petitioner in the amount of P30,000,000,00, and for recovery of P1,062,063.83
representing the proceeds of her money market investment and for damages. She alleges in her complaint,
which was subsequently amended, that the mortgage is not yet due and demandable and accordingly the
foreclosure was illegal; that per her loan agreement with petitioner she is entitled to the release to her of the
balance of the loan in the amount of P30,000,000.00; that petitioner refused to pay her the proceeds of her
money market placement notwithstanding the fact that it has long become due and payable; and that she
suffered damages as a consequence of petitioner's illegal acts. Inits answer, petitioner denies private
respondent's allegations and asserts among others, that it has the right to apply or set off private respondent's
money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of
P5,763,741.23, representing the balance of its deficiency claim after deducting the proceeds of the money
market placement, and for damages. The trial court subsequently dismissed private respondent's cause of
action concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left the other causes of
action
to
be
resolved
after
trial.
On
December
15,1983, private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.8
3, representing the proceeds of the money market placement, at the time when she had already given her
direct testimony on the merits of the case and was being cross-examined by counsel.On February 13, 1984,

respondent judge issued an order granting the motion. Petitioner filed a motion for reconsideration to the
aforesaid order, asserting among other things that said motion is not verified, and therefore a mere scrap
of paper. On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition with
preliminary injunction with the Court of Appeals. In a decision rendered on October 31,1984, the Court
of Appeals dismissed said petition.
ISSUE: Whether or not there can be legal compensation in the case at bar.
RULING: The argument is without merit. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. "When all the requisites mentioned in Art. 1279 of the Civil
Code are present, compensation takes effect by operation of law, even without the consent or knowledge of
the debtors." Article 1279 of the Civil Code requires among others, that in order that legal compensation
shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not
proper where the
claim
of the
person asserting
the set-off against the
other
is not
clear
nor liquidated;compensation cannot extend to unliquidated, disputed claim arising from breach of contract.
There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83
representing the proceeds of her money market investment. This is admitted. But whether private respondent
is indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the
foreclosure
of
the
mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance
prevents
legal compensation from taking place.

10.08 Mirasol v. CA

February 1, 2001

FACTS: Under a crop loan financing scheme for crop years 1973-1974 and 1974-1975, the Mirasols signed
a Chattel Mortgage which empowered PNB to sell their sugar and to apply the proceeds as payment of their
obligations to PNB. Thereafter, petitioners continued to avail of other loans from and make unfunded
withdrawals from their accounts with PNB. PNB foreclosed their mortgaged properties for their failure to
pay. Petitioners claim that the foreclosure is invalid since their debt has been fully paid by virtue of legal
compensation, that is, it should be offset by the amount PNB owes them from the sale of sugar. PNB
contends that under PD 579 issued by Marcos in 1974, all earnings from the export sales of sugar pertained
to the National Government and were subject to the Presidents disposition for public purposes. The Court
ruled that legal compensation cannot take place since the requisites for which have not been met; the
foreclosure is valid.
ISSUE: Whether the foreclosure is valid
RULING: No, the CA did not err in upholding the validity of the foreclosure on petitioners property. Setoff or compensation cannot take place because:(1) neither of the parties are mutually creditors and debtors of
each other. (see Art 1279[1]) Under PD579, which provides that the balance of the proceeds of sugar
trading operations shall be set aside by the Philippine Exchange Company as profits which shall be paid to a
special fund.., neither PNB nor PHILEX could retain any difference claimed by the Mirasols in the price of
sugar sold. there was nothing with which PNB was supposed to have off-set the Mirasols indebtedness. (2)
Compensation cannot take place where one claim, as in the instant case, is still the subject of litigation as the
same cannot be deemed liquidated. DOCTRINE: [Requisites of Legal Compensation] Art. 1278.
Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

Article 1279
11.04 Gantion v. CA

May 21, 1969

20.08 PNB v. CA

July 24, 1996

FACTS: A check with serial number 7-3666-223-3, dated August 7, 1981 in the amount of P97,650 was
issued by the Ministry of Education and Culture (now Department of Education, Culture and Sports
[DECS]) payable to F. Abante Marketing. This check was drawn against Philippine National Bank.
On August 11, 1981, F. Abante Marketing, a client-depositor of Capitol City Development Bank (Capitol),
deposited the questioned check in its savings account with Capitol. In turn, Capitol deposited the same in its
account with the Philippine Bank of Communications (PBCOM) which, in turn, sent the check to PNB for
clearing. PNB cleared the check as good and then PBCOM credited Capitols account for the amount stated
in the check.
However, on October 19, 1981, PNB returned the check to PBCOM and debited PBCOMs account for the
amount covered by the check, the reason being that there was a material alteration of the check
number. PBCOM, as collecting agent of Capitol, then proceeded to debit the Capitols account for the same
amount, and subsequently, sent the check back to PNB. However, PNB returned the check to PBCOM.
Capitol could not, in turn, debit F. Abante Marketings account since it had already withdrawn the amount of
the check as of October 15, 1981. Capitol sought clarification from PBCOM and demanded the re-crediting
of the amount. PBCOM followed suit by requesting an explanation and re-crediting from PNB.
Since the demands of Capitol were not heeded, it filed a civil suit with the Regional Trial Court of Manila
against PBCOM which, in turn, filed a third-party complaint against PNB for reimbursement/indemnity with
respect to the claims of Capitol. PNB, on its part, filed a fourth-party complaint against F. Abante Marketing.
RTC Decision: PBCOM is ordered to reimburse Capitol the check amount plus interest. PNB is ordered to
reimburse PBCOM for the amount the latter pays to Capitol. F. Abante Marketing is ordered to reimburse
PNB for the amount the latter pays to PBCOM. On attorneys fees, Philippine Bank of Communications is
ordered to pay Capitol City Development Bank attorneys fees of P 10,000.00; but PBCOM is entitled to
reimbursement/indemnity from PNB; and PNB to be, in turn, reimbursed or indemnified by F. Abante
Marketing for the same amount;
CA Decision: [RTC decision was modified] PBCOM is exempted from liability to Capitol for attorneys fees
and ordering PNB to honor the check for P97,650.00, with interest as declared by the trial court, and pay
Capitol attorneys fees of P10,000.00.
ISSUE: Whether or not an alteration in the serial number of a check constitutes a material alteration under
the Negotiable Instruments Law? Can a serial number alteration change the relationship between the parties
involved PNB, PBCOM, Capitol and F. Abante Marketing?
RULING: The SC ruled that there was no material alteration since an alteration is said to be material if it
alters the effect or negotiability of the instrument.
A material alteration is one which changes the items which are required to be stated under Section 1 of the
Negotiable Instrument Law:
Section 1. - Form of negotiable instruments. An instrument to be negotiable must conform to the following
requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.
The case at the bench is unique in the sense that what was altered is the serial number of the check in
question, an item which is not an essential requisite for negotiability under Section 1 of the Negotiable

Instruments Law. Such alteration did not change the relations between the parties. The name of the drawer
and the drawee were not altered. The intended payee was the same. The sum of money due to the payee
remained the same.
The SC affirmed the CA decision but deleted the award of Attorneys fees since it was stated only in the
dispositive portion of the decision and no factual, legal and equitable reason for the award was stated in the
text of the court decision.
11.11 Silahis Mktg. v. IAC

GR L-74027, 12/7/89

Article 1290
13.02 BPI v. Reyes

March 29, 1996

FACTS: Edvin F. Reyes opened Savings Account at petitioner Bank of the Philippine Islands. It is a joint
AND/OR account with his wife, Sonia S. Reyes. He also held a joint AND/OR Savings Account with his
grandmother, Emeteria Reyes, at the same BPI branch. He regularly deposited in this account the U.S.
Treasury Warrants payable to the order of Emeteria M. Fernandez as her monthly pension. Emeteria died
without the knowledge of the U.S. Treasury Department. She was still sent U.S. Treasury Warrant. Two
months after Reyes closed the Savings Account with his grandmother and transferred its funds amounting to
P13,112.91 to the joint account with his wife. A U.S. Treasury Warrant No. 21667302 was dishonored as it
was discovered that Fernandez died three (3) days prior to its issuance. The U.S. Department of Treasury
requested petitioner bank for a refund. For the first time petitioner bank came to know of the death of
Fernandez. Reyes verbally authorized them to debit from his other joint account the amount stated in the
dishonored U.S. Treasury Warrant. BPI then debited the amount. However, Reyes with his lawyer Humphrey
Tumaneng visited the petitioner bank and the refund documents were shown to them. He claimed that
because of the debit, he failed to withdraw his money when he needed them. Petitioners contested the
complaint and counter-claimed for moral and exemplary damages.
ISSUE: WON CA gravely erred in not holding that petitioner bank has legal right to apply deposit of
respondent Reyes to his outstanding obligation to petitioner bank brought about by the return of the U.S.
treasury warrant he earlier deposited under the principle of legal compensation
RULING: More importantly, the respondent court erred when it failed to rule that legal compensation is
proper. Compensation shall take place when two persons, in their own right, are creditors and debtors of
each other. The elements of legal compensation are all present in the case at bar. The obligors bound
principally are at the same time creditors of each other. Petitioner bank stands as a debtor of the private
respondent, a depositor. At the same time, said bank is the creditor of the private respondent with respect to
the dishonored U.S. Treasury Warrant which the latter illegally transferred to his joint account. The debts
involved consist of a sum of money. They are due, liquidated, and demandable. They are not claimed by a
third person.
Article 1291
2.02

Ajax Marketing & Development Corp v. CA

GR 118585, 1995

FACTS: Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez and Antonio
Tan, obtained a loan in the amount of P250,000.00 from the Metropolitan Bank and Trust Company, and to
secure payment of the same, spouses Marcial See and Lilian Tan constituted a real estate mortgage in favor
of said bank over their property in Paco, Manila, covered by TCT No. 105233 of the Registry of Deeds of
Manila. The mortgage was annotated at the back of the title.
Subsequently, after the partnership had changed its name to Ajax Marketing Company albeit without
changing its composition, it obtained a loan in the sum of P150,000.00 from Metropolitan Bank and Trust

Company. Again to secure the loan, spouses Marcial See and Lilian Tan executed in favor of said bank a
second real estate mortgage over the same property. As in the first instance, the mortgage was duly
annotated at the back of TCT No. 105233.
On February 19, 1979, the partnership (Ajax Marketing Company) was converted into a corporation
denominated as Ajax Marketing and Development Corporation, with the original partners (Angelita
Rodriguez and Antonio Tan) as incorporators and three (3) additional incorporators, namely, Elisa Tan, the
wife of Antonio Tan, and Jose San Diego and Tessie San Diego. Ajax Marketing and Development
Corporation obtained from Metropolitan Bank and Trust Company a loan of P600,000.00, the payment of
which was secured by another real estate mortgage executed by spouses Marcial See and Lilian Tan in favor
of said bank over the same realty property. Again, the third real estate mortgage was annotated at the back of
TCT No. 105233.
In December 1980, the three (3) loans with an aggregate amount of P1,000,000.00 were re-structured and
consolidated into one (1) loan and Ajax Marketing and Development Corporation, represented by Antonio
Tan as Board Chairman/President and in his personal capacity as solidary co-obligor, and Elisa Tan as VicePresident/Treasurer and in her personal capacity as solidary co-obligor, executed a Promissory Note (PN)
No. BDS-3605.
In its March 30, 1994 decision, CA affirmed the trial court's judgment upholding the validity of the extrajudicial foreclosure of the real estate property of petitioners spouses Marcial See and Lilian Tan by
private respondent Metropolitan Bank and Trust Company (Metrobank). Petitioners' motion for
reconsideration was denied; hence, this petition for review on certiorari
ISSUES: 1. Whether the consolidation of the three (3) loans granted separately to three entities into a single
loan of P1.0 Million was a mere restructuring and did not effect a novation of the loan as to extinguish the
accessory mortgage contracts.
RULING: The attendant facts herein do not make a case of novation. There is nothing in the records to
show the unequivocal intent of the parties to novate the three loan agreements through the execution.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of
the creditor. Novation, unlike other modes of extinction of obligations, is a juridical act with a dual function,
namely, it extinguishes an obligation and creates a new one in lieu of the old. It can be objective, subjective,
or mixed. Objective novation occurs when there is a change of the object or principal conditions of an
existing obligation while subjective novation occurs when there is a change of either the person of the
debtor, or of the creditor in an existing obligation. When the change of the object or principal conditions of
an obligation occurs at the same time with the change of either in the person of the debtor or creditor a
mixed novation occurs.
The well settled rule is that novation is never presumed. Novation will not be allowed unless it is
clearly shown by express agreement, or by acts of equal import. Thus, to effect an objective novation it
is imperative that the new obligation expressly declare that the old obligation is thereby extinguished,
or that the new obligation be on every point incompatible with the new one. In the same vein, to effect
a subjective novation by a change in the person of the debtor it is necessary that the old debtor be
released expressly from the obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who has assumed the debtor's
obligation becomes merely a co-debtor or surety.
The provisions of the promissory note yield no indication of the extinguishment of, or an incompatibility
with, the three loan agreements secured by the real estate mortgages over TCT No. 105233. It merely
restructured and renewed the three previous loans to expediently make the loans current. There was no
change in the object of the prior obligations. The consolidation of the three loans, contrary to petitioners'
contention, did not release the mortgaged real estate property from any liability because the mortgage
annotations at the back of TCT No. 105233, in fact, all remained uncancelled, thus indicating the continuing
subsistence of the real estate mortgages.
According to the court there was no change, or substitution in the persons of either the creditor (Metrobank)
or more specifically the debtors (petitioners) upon the consolidation of the loans in PN No. BDS 3605. The

bare fact of petitioners' conversion from a partnership to a corporation, without sufficient evidence, either
testimonial or documentary, that they were expressly released from their obligations, did not make petitioner
AJAX, with its new corporate personality, a third person or new debtor within the context of a subjective
novation. Petitioner AJAX only became a co-debtor or surety. Without express release of the debtor from the
obligation, any third party who may thereafter assume the obligation shall be considered merely as co-debtor
or surety. Novation arising from a purported change in the person of the debtor must be clear and express
because, to repeat, it is never presumed. Clearly then neither objective nor subjective novation occurred
here.
13.01 Boysaw v. Interphil Promotions

148 SCRA 635, March 20, 1987

FACTS: Solomon Boysaw, signed with Interphil Promotions, Inc. a contract to engage Gabriel "Flash"
Elorde in a boxing contest for the junior lightweight championship of the world. Thereafter, Interphil signed
Gabriel "Flash" Elorde to a similar agreement that is, to engage Boysaw in a title fight. The managerial
rights over Boysaw was assigned and eventually reassigned to Alfredo Yulo, Jr. without the consent of
Interphil in violation of their contract. When informed of the change, Interphil referred the matter to the
Games and Amusement Board culminating to a decision by the board to approve a new date for the match.
Yulo protested agaist the new date even when another proposed date was within the 30-day allowable
postponements. Boysaw and Yulo filed for breach of contract when the fight contemplated in the original
boxing contract did not materialize.
ISSUE: WON there was a violation of the fight contract
RULING: Yes. The assignment and transfer, first to J. Amado Araneta, and subsequently, to Yulo, Jr., of the
managerial rights over Boysaw without the knowledge or consent of Interphil is a violation of the contract.
The assignments were in fact novations of the original contract which, to be valid, should have been
consented to by Interphil.
14.02 Broadway Centrum Condominium v. Tropical Hut Food Mktg. July 5, 1993
FACTS: Petitioner and respondent Tropical executed a contract of lease. Subsequently, Tropical insistently
requested petitioner to lower the rental cost provided for in the contract as it comprised more than half of the
sales Tropical was making. Tropical also reasoned that their low sales were caused by the temporary closure
of the street where the store was facing. Broadway then, in a letter-agreement, granted Tropicals requests by
lowering the rental costs accordingly among other things, on certain terms and conditions, and stating that
this agreement shall not be an amendment of the original lease contract. When the street abovementioned
was reopened, Broadway informed Tropical that it will gradually return the rental costs to the prices
stipulated in the lease contract. Tropical resisted, still contending that their sales have not improved, and that
they will not pay the original costs and still insists to be given lower costs until sales have picked up.
Broadway informed that they will nonetheless impose the original costs, and it will no longer be negotiable.
Tropical filed suit against petitioner, contending that the subsequent letter-agreement novated the lease
contract. The lower court decided in favor of Tropical, the appellate court affirmed the decision, hence this
petition for review on certiorari.
ISSUE: Whether or not the letter-agreement novated the contract of lease.
HELD: It is entirely clear to the court that the letter-agreement did not extinguish or alter the obligations of
respondent Tropical and the rights of petitioner Broadway under their lease contract. In the first place, the
letter-agreement by its own terms, a " provisional and temporary agreement to a reduction of [Tropical's]
monthly rental ." The letter-agreement, as noted earlier, also contained the following sentence: This
provisional agreement should not be interpreted as amendment to the contract entered into by us. In the
second place, the formal notarized Lease Contract made it clear that a temporary and provisional
concessional reduction of rentals which Broadway might grant to Tropical was not to be construed as
alteration or waiver of any; of the terms of the Lease Contract itself. In the third place, the course of

negotiations between Broadway and Tropical before the execution of their letter-agreement quite clearly
indicated that what they were negotiating was a temporary and provisional reduction of rentals. In the fourth
place, the course of discussions between Broadway and Tropical, as disclosed in their correspondence, after
execution of the letter-agreement, shows that the reduction of rentals agreed upon in the letter-agreement
was not to persist, for the rest of the life of the Contract of Lease. That correspondence is bereft of any, sign
of mutual agreement or recognition that the reduced rentals had so permanently replaced the contract
stipulations on rentals as to have become immune to change save by common consent of Tropical and
Broadway. The decision of the lower court and CA are reversed and set aside, this petition is given due
course, the original complaint of Tropical is dismissed.

16.02 California Bus Line v. State Investment

December 11, 2003

20.0

June 30, 1987

Conchingyan v. RB Surety Insurance

FACTS: Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an increase in its line
of credit from P400,000.00 to P800,000.00 (the Principal Obligation), with the Philippine National Bank
(PNB). To secure PNB's approval, PAGRICO had to give a good and sufficient bond in the amount of
P400,000.00, representing the increment in its line of credit, to secure its faithful compliance with the terms
and conditions under which its line of credit was increased.
In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765, issued by the R & B
Surety and Insurance Co., Inc. in the specified amount in favor of the PNB.
Under the terms of the Surety Bond, PAGRICO and R & B Surety bound themselves jointly and severally to
comply with the "terms and conditions of the advance line [of credit] established by the [PNB].PNB had
the right under the Surety Bond to proceed directly against R & B Surety "without the necessity of first
exhausting the assets" of the principal obligor, PAGRICO. The Surety Bond also provided that R & B
Surety's liability was not to be limited to the principal sum of P400,000.00, but would also include "accrued
interest" on the said amount "plus all expenses, charges or other legal costs incident to collection of the
obligation [of R & B Surety]" under the Surety Bond.
In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity agreements were
entered into with R & B Surety:
(a) one agreement dated 23 December 1963 was executed by the Catholic Church Mart (CCM) and
by Joseph Cochingyan, Jr, the latter signed not only as President of CCM but also in his personal and
individual capacity; and
(b) another agreement dated 24 December 1963 was executed by PAGRICO, Pacific Copra Export
Inc. (PACOCO), Jose K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager of PAGRICO
and in his personal and individual capacity; Mr. Liu signed both as President of PACOCO and in his
individual and personal capacity.
Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B Surety
to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set forth
in said SURETY BOND for a period beginning ... until the same is CANCELLED and/or DISCHARGED."
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment
from R & B Surety of the sum of P400,000 which was the full amount of the Principal Obligation. R & B
Surety made a series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by
detailed vouchers and receipts.
R & B Surety in turn sent formal demand letters to Joseph Cochingyan, Jr. and Jose K. Villanueva for
reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under

the Surety Bond. Failure to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr.,
Jose K. Villanueva and Liu Tua Ben in the Court of First Instance of Manila
Petitioner Joseph Cochingyan, Jr. answered that the Indemnity Agreement he executed in favor of R & B
Surety did not express the true intent of the parties thereto in that he had been asked by R & B Surety to
execute the Indemnity Agreement merely in order to make it appear that R & B Surety had complied with
the requirements of the PNB that credit lines be secured, and with the regulations of the Insurance
Commission concerning bonding companies; and that R & B Surety had assured him that the execution of
the agreement was a mere formality and that he was to be considered a stranger to the transaction between
the PNB and R & B Surety.
Petitioner Jose K. Villanueva answered that: he had executed the Indemnity Agreement in favor of R & B
Surety only "for accommodation purposes" and that it did not express their true intention; that the Principal
Obligation of PAGRICO to the PNB secured by the Surety Bond had already been assumed by CCM by
virtue of a Trust Agreement entered into with the PNB, where CCM represented by Joseph Cochingyan, Jr.
undertook to pay the Principal Obligation of PAGRICO to the PNB; that his obligation under the Indemnity
Agreement was thereby extinguished by novation arising from the change of debtor under the Principal
Obligation; and that the filing of the complaint was premature, considering that R & B Surety filed the case
against him as indemnitor although the PNB had not yet proceeded against R & B Surety to enforce the
latter's liability under the Surety Bond.
Cochingyan and Villanueva did not present any evidence at all to support their defenses. The trial court was
therefore constrained to decide the case on the basis alone of the terms of the Trust Agreement and other
documents submitted in evidence.
CFI decision: ordering Joseph Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and severally, unto the
plaintiff the sum of 400,000, representing the total amount of their liability on Surety Bond No. 4765, and
interest at the rate of 6% per annum.
ISSUES: whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety
to the PNB under the Surety Bond which, in turn, extinguished the obligations of the petitioners under the
Indemnity Agreements;
RULING: The SC did not sustain petitioners' claim that the Surety Bond and their respective obligations
under the Indemnity Agreements were extinguished by novation brought about by the subsequent execution
of the Trust Agreement.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.
Novation through a change of the object or principal conditions of an existing obligation is referred to as
objective (or real) novation. Novation by the change of either the person of the debtor or of the creditor is
described as subjective (or personal) novation. Novation may also be both objective and subjective (mixed)
at the same time. In both objective and subjective novation, a dual purpose is achieved-an obligation is
extinguished and a new one is created in lieu thereof.
If objective novation is to take place, it is imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on every point incompatible with the old
one. Novation is never presumed: it must be established either by the discharge of the old debt by the
express terms of the new agreement, or by the acts of the parties whose intention to dissolve the old
obligation as a consideration of the emergence of the new one must be clearly discernible.
If subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical
relation between the parties to the original contract is extended to a third person. It is essential that the old
debtor be released from the obligation, and the third person or new debtor take his place in the new relation.

If the old debtor is not released, no novation occurs and the third person who has assumed the obligation of
the debtor becomes merely a co-debtor or surety or a co-surety.
Applying the above principles to the instant case, it is at once evident that the Trust Agreement does not
expressly terminate the obligation of R & B Surety under the Surety Bond. On the contrary, the Trust
Agreement expressly provides for the continuing subsistence of that obligation by stipulating that "[the Trust
Agreement] shall not in any manner release" R & B Surety from its obligation under the Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the
new obligation (and nothing else) would sustain a finding of novation by implication. But there is no
inconsistency.
What the trust agreement did was, at most, merely to bring in another person or persons-the Trustor[s]-to
assume the same obligation that R & B Surety was bound to perform under the Surety Bond. It is not
unusual in business for a stranger to a contract to assume obligations thereunder; a contract of suretyship or
guarantee is the classical example. The precise legal effect is the increase of the number of persons liable to
the obligee, and not the extinguishment of the liability of the first debtor.
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already previously
bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also
became directly liable to the PNB. So far as the PNB was concerned, the effect of the Trust Agreement was
that where there had been only two, there would now be three obligors directly and solidarily bound in favor
of the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against any of the three,
in any order or sequence. Clearly, PNB never intended to release, and never did release, R & B Surety. Thus,
R & B Surety, which was not a party to the Trust Agreement, could not have intended to release any of its
own indemnitors simply because one of those indemnitors, the Trustor under the Trust Agreement, became
also directly liable to the PNB.
4.04

Dino v. Hon. Valencia and Ong

GR L-43886, July 19

5.05

Dormitorio v. Fernandez

August 21, 1976

FACTS: Defendant Municipality of Victorias, is the owner of several parcels of lands in Victorias, Negros
Occidental, which are consolidated and subdivided into small lots for sale to the inhabitants thereof; the lots
were sold by the Municipality. On December 7, 1948, the plaintiff Serafin Lazalita, bought from the
Municipality of Victorias, Lot No. 1, Block 16 of the consolidated-subdivision plan.
In 1958, upon full payment by plaintiff Lazalita of the purchase price of the land, a deed of definite sale was
executed in his favor by the then Municipal Mayor Montinola of Victorias, Negros Occidental, and
thereafter a Certificate of Title was issued him. From February 7, 1948, until about eight continuous years
thereafter, plaintiff had been in possession of the said land, which have long been fruit bearing, and built a
house of strong materials, valued at P5,000.00;
In 1955, however, the other co-defendants herein spouses Agustin Dormitorio and Leoncia D.
Dormitorio, purchased also, from the defendant Municipality of Victorias, the same lot known as Lot 2,
Block 16, of the same consolidation-subdivision plan PCs-118. Immediately thereafter, the Dormitorios,
obtained a transfer Certificate of Title known as T-18189 for their property, from the Office of the Register
of Deeds, Bacolod, Negros Occidental. However, the spouses Dormitorio, have not taken actual possession
of the land, up to the present.
On December 12, 1958, the spouses Dormitorio, brought a suit against the plaintiff Lazalita, for Ejectment
and the conflict between them was made known to the office of the Municipal Mayor and the Council of

Victorias, who tried to settle the matter between the parties Dormitorio and Lazalita. Later, a private Land
Surveyor, was hired by the Municipality of Victorias, and it was found out, according to said Surveyor, Mr.
Ceballos, that the Lot sold by the Municipality of Victorias, to the plaintiff, was converted into the new
Municipal. Road known as "Jover Street" and that the lot presently occupied by him, is supposed to be the
lot No. 2, bought by the spouses Dormitorio from the Municipality of Victorias; and so, availing of the said
discovery, the Court of First Instance of Negros Occidental, Branch V, Presided over by Hon. Jose F.
Fernandez, rendered judgment in that case No. 5111, in favor of Dormitorio, ordering the plaintiff herein
Lazalita, to vacate the land and to pay a monthly rental of P20.00, to said Dormitorio, besides his Attorney's
fees.
Lazalita, having failed to appeal from said judgment of this Honorable Court, brought this present action,
against the Municipality of Victorias, and joined the Dormitorios, as formal parties, because of the value of
his permanent improvements and building introduced or constructed on Lot No. 2, Block 16, ascertained to
be that, very lot purchased by Dormitorio from the defendant Municipality of Victorias, which building and
improvements, have far exceed then, the original purchase price of the land.The present fair market value of
residential lots in the Poblacion of Victorias, ranges between P15.00 to P25.00 per square meter and the lots
in controversy, are saleable at present, at P20.00 per square meter.
ISSUE: Whether or not respondent Judge acted with grave abuse of discretion for issuing the challenge
order regarding the case.
RULING: No, respondent Judge Fernandez have no abuse of discretion for that matter when he set aside the
writ of execution is thus clearly apparent. He had no choice on the matter. That was made even more evident
in the answer to the petition filed by respondents. It must have been the realization by petitioners that
certiorari certainly did not lie that led to their not only failing to make an attempt at a refutation of what was
asserted in the answer but also failing to appear at the hearing when this case was set for oral argument. As
noted at the outset, this petition must be dismissed. There is no merit likewise to the point raised by
petitioners that they were not informed by respondent Judge of the petition by private respondent to set aside
the writ of execution. The order granting such petition was the subject of a motion for reconsideration.

7.04

Espina v. CA and Rene G. Diaz

GR 116805

FACTS: Rene Diaz originally occupied the subject condo unit in 1987 as a lessee. While he was its lessee,
petitioner agreed to sell the unit to him by installments. The agreement to sell was provisional as the
consideration was payable in installments. Petitioner terminated the provisional deed of sale by a notarial
notice of cancellation; Diaz remained the lessee but he failed to pay the rentals due. Diaz subsequently made
payment of P100k applicable either to the back rentals or for the purchase of the unit. Nevertheless,
petitioner gave Diaz a notice to vacate the premises and to pay his back rentals. Diaz failed to do both and so
petitioner filed an action for unlawful detainer against him. Diaz alleged that the provisional deed of sale
executed by them novated the original existing contract of lease and thus, petitioner has no cause of action
for ejectment against him.
ISSUE: Whether the provisional deed of sale executed by both of the parties novated the original existing
contract of lease
RULING: No. Novation must be clearly proved; its existence is not presumed. It only takes place if the
parties expressly so provide, otherwise, the original contract remain in force. Where there is no clear
agreement to create a new contract in place of the existing one, novation cannot be presumed to take place,
unless the terms of the new contract are fully incompatible with the former agreement on every point. In the
case at bar, after the initial down payment , respondents checks in payment of 6 installments all bounced
and were dishonored. This led to petitioners termination of the provisional deed of sale. Petitioners
subsequent acceptance of payment did not withdraw the cancellation of the provisional sale. Unless the

application of payment is expressly indicated, the payment shall be applied to the most onerous obligation of
the debtor, in this case, the unpaid rentals. Since the payment did not fully settle the unpaid rentals, the cause
of action for ejectment survives.
10.04 Fua v. Yap
FACTS: By virtue of a judgment for P1,538.04 which Fua obtained against Yap, a writ of execution issued
in pursuance of which a parcel of land belonging to Yap was levied upon and its sale at public auction duly
advertised. The sale was, however, suspended as a result of an agreement between the parties, by the terms
of which the obligation under the judgment was reduced to P1,200 payable in four installments, and to
secure the payment of this amount, the land levied upon with its improvement was mortgaged to appellee
with the condition that in the event of appellants' default in the payment of any installment, they would pay
10 per cent of any unpaid balance as attorney's fees as well as the difference between the full judgment
credit and the reduced amount thus agreed. Appellants failed to comply with the terms of the settlement,
whereupon, appellee sought the execution of the judgment, and by virtue of an alias writ of execution, the
land was sold at public auction to appellee and a final deed was executed in his favor. Appellants refused,
however, to vacate the land and to recognize appellee's title thereto; hence, the latter instituted the present
action for recovery.
ISSUE:
RULING: We concur in the theory that appellants liability under the judgment in civil case No. 42125 had
been extinguished by the settlement evidenced by the mortgage executed by them in favor of the appellee on
December 16, 1933. Although said mortgage did not expressly cancel the old obligation, this was impliedly
novated by reason of incompatibly resulting from the fact that, whereas the judgment was for P1,538.04
payable at one time, did not provide for attorney's fees, and was not secured, the new obligation is or P1,200
payable in installments, stipulated for attorneys fees and is secured by a mortgage.

12.03 Garcia v. Llamas


12.04 Garcia, Jr. v. CA

December 8, 2003
GR 80201

20.03 Kabankalan Sugar Co. v. Pacheco


FACTS: There were 2 contracts executed both by Kabankalan Sugar Co. and by Josefa Pacheco.
Kabankalan Sugar Co. is a domestic milling corporation. Josefa Pacheco is the owner of the Hilabagan
estate that produces sugar canes.
The first contract was executed on November 1, 1920 by Kabankalan Sugar Co. through its Manager
Guillermo Lizaraga, and by Pacheco, granting the sugar company the right of way in and through the
Hilabagan estate for a railway for a period of 20 years from November 1, 1920 and binding Pacheco for the
same period to deliver all sugar canes produced in the Hilabagan estate to the Kabankalans sugar mill
(known as Bearin).
On the year 1922, Pacheco proposed Kabankalan to assume her obligations with the Ledesmas Hermanos
Company and PNB. Hence, a second contract was executed.
The second contract was executed on September 29, 1922 by Kabankalan Sugar Co. through its Manager
Benito Belzunce and by Pacheco. It was said that same conditions shall be stipulated in the contract.
However, this time, there are differences of the stipulations of the 2 contracts to wit:
1. The term of the contract of November 1, 1920, is 20 years, while that of the contract entered into on
September 29, 1922, is 7 crops.
2. Under the first contract, Kabankalan Sugar Co. binds itself to pay Pacheco an annual rental of 7
centavos a square meter of the land subject to the easement, with 4 meters in width, while in the
second contract no stipulation is made as to the payment of rent for said right of way.

3. Under the first contract, it is within Pacheco's discretion to mill or not to mill all or any part of the
sugar cane produced on the Hilabagan estate, in the Bearin, while under the second, she binds
herself to mill in said Bearin all the sugar cane produced on her aforesaid estate for 7 consecutive
harvests.
4. According to the contract of November 1, 1920, Pacheco is not bound to grant Kabankalan any right
of way for telephone lines, poles, tubes, water pipes, aqueduct and other conduits for conducting
water to the mill, with ground for the cisterns and for the railway, while in the contract of September
29, 1922, this obligation is imposed upon her: in the second contract the plaintiff granted the
defendant a loan of P17,247.30 secured by a mortgage, while Pacheco was not granted such a loan in
the first contract.
ISSUE: Whether the contract of September 29, 1922, has extinguished the contract of November 1, 1920,
by novation [that is, whether principal conditions of the November 1, 1920 contract have been altered in a
way and to an extent that the 2 contracts are incompatible].
RULING: In the contract of November 1, 1920, the duration of the right of way which Pacheco bound
herself to impose upon her estate in favor of Kabankalan was 20 years, while in the contract of September
29, 1922, that period was reduced to seven crops which is equivalent to seven years. There can be no doubt
that these two contracts, in so far as the duration of the right of way is concerned, are incompatible with each
other, for the second contract reduces the period agreed upon in the first contract, and so both contracts
cannot subsist at the same time. The term stipulated in the second contract cannot be added to that of the
first, because, the period would then be twenty-seven instead of twenty years, which is greater than the
period specified in the first contract. The duration of the right of way is one of the principal conditions of the
first as well as of the second contract, and inasmuch as said principal condition has been modified, the
contract has been novated, in accordance with the provision in Article 1203-1204 of the Civil Code.
The SC held that when an easement of right way is one of the principal conditions of a contract, and
the duration of said easement is specified, the reduction of said period in a subsequent contract,
wherein the same obligation is one of the principal conditions, constitutes a novation and to that
extent extinguishes the former contractual obligation.
SC affirmed the decision of CFI Negros Occidental: declaring that the contract executed on September 29,
1911, novated the contract of November 1, 1920, both executed by the Kabankalan Sugar Co., Inc., and Da.
Josefa Pacheco.

5.07

Magdalena Estates Inc. v. Rodriguez

December 17, 1966

FACTS: Spouses Antonio A. Rodriguez and Herminia C. Rodriguez, jointly and severally promise to pay
the Magdalena Estates, Inc. the sum of five thousand pesos (P5,000.00), with interest at the rate of Nine Per
Cent 9% per annum, within sixty (60) days from January 7, 1957. The sum of P5,000.00 represents the
balance of the purchase price of the parcel of land known as Lot 7-K-2-G, Psd. 26193, containing an area of
2,191 square meters, Quezon City.
On that same day, Rodriguez and the Luzon Surety Co., Inc. executed a bond in favor of Magdalena Estates
to secure the fulfillment of the obligation to pay the Php 5,000 balance. On June 20, 1958, when the
obligation of Rodriguez became due and demandable, Luzon Surety paid the sum of Php 5,000 to
Magdalena Estates. Subsequently, Magdalena Estates demanded from Rodriguez the payment for the
accrued interests in the sum of Php 655.89. The latter refused to pay. Consequently, plaintiff Magdalena
Estates instituted a suit against Rodriguez for the collection thereof. MTC Manila rendered a decision
ordering Rodriguez to pay the said interests. Defendant appealed in the CFI.
Rodriguez contended on appeal that the pleadings do not show that Magdalena Estates made a demand of
the said accrued interests. And that because of the failure of plaintiff to apply a portion of the Php 5,000 paid
by the surety for the payment of the accrued interest of Php 655.89, despite its presumed knowledge of the

said right to apply, the appellee is deemed to have waived or condoned the interests due (Art. 1235 and 1253
CC). Furthermore, that the promissory note executed was novated when Magdalena Estates unqualifiedly
accepted the surety bond.
ISSUE: Whether or not the promissory note was novated when Magdalena Estates unqualifiedly accepted
the surety bond from a third person who has agreed to assume the obligation
RULING: Novation by presumption has never been favored. To be sustained, it needs to be established that
the old and the new contracts are incompatible in all points, or that the will to novate appears by express
agreement of the parties. An 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 the payment and adding other obligations not incompatible
with the old one or wherein the old contract is merely supplemented by the new one. The mere fact that the
creditor received 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 is released from the responsibility, does not
constitute a novation, and the creditor can still enforce the obligation against the original debtor. The
judgment appealed was AFFIRMED.
9.08

Mercantile Insurance Co. Inc. v. CA and Reparations Commission, GR 85647, 4/22/91

10.07 Millar v. CA

April 30, 1971

FACTS: : By virtue of a judgment for P1,538.04 which Fua obtained against Yap, a writ of execution was
issued in pursuance of which a parcel of land belonging to Yap was levied upon and its sale at public auction
duly advertised. The sale was, however, suspended as a result of an agreement between the parties, by the
terms of which the obligation under the judgment was reduced to P1,200 payable in four installments, and to
secure the payment of this amount, the land levied upon with its improvement was mortgaged to appellee
with the condition that in the event of appellants' default in the payment of any installment, they would pay
10 per cent of any unpaid balance as attorney's fees as well as the difference between the full judgment
credit and the reduced amount thus agreed. Appellants failed to comply with the terms of the settlement,
whereupon, appellee sought the execution of the judgment, and by virtue of an alias writ of execution, the
land was sold at public auction to appellee and a final deed was executed in his favor. Appellants refused,
however, to vacate the land and to recognize appellee's title thereto; hence, the latter instituted the present
action for recovery.
ISSUE:
RULING: No substantial incompatibility between the mortgage obligation and the judgment liability of the
respondent sufficient to justify a conclusion of implied novation. The stipulation for the payment of the
obligation under the terms of the deed of chattel mortgage serves only to provide an express and specific
method for its extinguishment payment in two equal installments. The chattel mortgage simply gave the
respondent a method and more time to enable him to fully satisfy the judgment indebtedness. The chattel
mortgage agreement in no manner introduced any substantial modification or alteration of the judgment.
Instead of extinguishing the obligation of the respondent arising from the judgment, the deed of chattel
mortgage expressly ratified and confirmed the existence of the same, amplifying only the mode and period
for compliance by the respondent. The defense of implied novation requires clear and convincing proof of
complete incompatibility between the two obligations. The law requires no specific form for an effective
novation by implication. The test is whether the two obligations can stand together. If they cannot,
incompatibility arises, and the second obligation novates the first. If they can stand together, no
incompatibility results and novation does not take place.

1.10

Quinto v. People

April 14, 1999

FACTS: Petitioner Leonida Quinto was indicted for the crime of estafa. The prosecution alleged that
petitioner Quinto received in trust from one Aurelia Cariaga pieces of jewelry amounting to Php 36,000. It
was alleged that on or about March 23,1977, Quinto went to Cariaga's residence in Makati to ask the latter to
allow her to have some pieces of jewelry to show to her prospective buyers. It was agreed by the parties, as
evidenced by the receipt signed by Quinto that she has to sell the jewelries on commission basis, to turn over
the proceeds of the sale, and to return the jewelries in the event that they were not sold after 5 days from
receipt thereof. The 5-day period has lapsed and Quinto was not able to conclude a sale. She asked for some
extension which was in turn granted by Cariaga, but still she was not able to conclude any sale, until such
time
that
Cariaga demanded for the return of the said jewelries through a demand letter but which was ignored by
Quinto,
prompting
the
former
to
file
a
case
of
estafa
against
the
latter.
The defense sought to prove that Quinto had long been engaged in the purchase and sale of jewelries. That
she was used to buying pieces of jewelry from a certain Mrs. Ilagan who later introduced her to Cariaga.
That sometime in 1975, Quinto had already started to transact business with Cariaga by selling some pieces
of jewelry to a certain Mrs. Camacho and Mrs. Ramos, who sometime later were incurring defaults on their
payments
and
then
decided
to
pay
their
indebtedness
directly
to
Cariaga.
The RTC found Quinto beyond reasonable doubt of the crime of estafa which decision was also affirmed by
the Court of Appeals. Hence, this instant petition to review on certiorari with the SC,
petitioner alleging that the agreement between her and complainant was effectively novated when the latter
consented to receive payments on installments from Mrs. Camacho and Mrs. Ramos.
ISSUE: Whether or not the agreement between petitioner and complainant was effectively novated when
complainant consented to receive payment on installments by Mrs. Camacho and Mrs. Ramos?
RULING: There are 2 ways which could indicate, in fine, the presence of novation which would result in
the extinguishment of the obligation, to wit: (1) when novation has been explicitly stated and declared in
unequivocal terms; (2) when the old and the new obligations are incompatible on every point that they
cannot co-exist or stand together. Changes that breed incompatibility must be essential in nature and not
merely accidental. Furthermore, the incompatibility must take place in any of the essential elements of the
obligation, such as its object, cause or principal conditions thereof, otherwise, the change would only be
modificatory
in
nature
and
insufficient
to
extinguish
the
obligation.
The changes alluded to by petitioner consists only in the manner of payment. There was really no
substitution of debtors since private complainant merely acquiesced to the payment but did not give her
consent to enter into a new contract. The acceptance by complainant of the partial payment from Camacho
does not evince the intention of the complainant to have their agreement novated.

3.11

Reyes v. Secretary of Justice

9.10

Sandico v. PIQUIMG

1996

FACTS: The appellate court's judgment obliges the respondent to do two things: (1) to recognize the
easement, and (2) to pay the petitioners the sums of P5,000 actual and P500 exemplary damages and P500
attorney's fees, or a total of P6,000. The full satisfaction of the said judgment requires specific performance
and payment of a sum of money by the respondent. The parties entered into an agreement reducing the
payment to P4000, and was subsequently paid by respondent. Was there a novation?
ISSUE: Whether the reduction of amount of money is a valid novation
RULING: Reduction of the amount of money to be paid does not amount to novation. The payment by the
respondent of the lesser amount of P4,000, accepted by the petitioners without any protest or objection and

acknowledged by them as "in full satisfaction of the money judgment", completely extinguished the
judgment debt and released the respondent from his pecuniary liability.
In the case at hand, we fail to see what new or modified obligation arose out of the payment by the
respondent of the reduced amount of P4,000 and substitute the monetary liability for P6,000 of the said
respondent under the appellate court's judgment. Additionally, to sustain novation necessitates that the same
be so declared in unequivocal terms clearly and unmistakably shown by the express agreement of the
parties or by acts of equivalent import or that there is complete and substantial incompatibility between
the two obligations. 5

Article 1301
3.06

Licarios v. Gatmaita

August 9, 2001

Article 1302
7.0

ASTRO Electronics Corp. v. Phil. Export & Foreign Loan Guarantee Corp., 9/23/03

FACTS: Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P 3M
with interest and secured by 3 promissory notes, 2 of which were dated Dec. 14, 1981 and signed by the
petitioner Peter Roxas in his personal capacity and as President of Astro Electronics Corp. Roxas also
signed a Continuing Suretyship Agreement in favor of Philtrust Bank in his capacity as President of Astro
and as a Surety.
Philguarantee, with Astro's consent, guaranteed in favor of Philtrust, the payment of 70% of Astro's loan on
the condition that upon payment by the former, it shall be proportionally subrogated to the rights of Philtrust
against Astro. Astro failed to pay the loans despite repeated demands. Philguarantee paid 70% of Astro's
loan. Consequently, Philguarantee instituted a collection suit against Astro and Roxas.
Roxas interposed a defense that he signed those promissory notes in blank and that the phrases "in his
personal capacity" and "in his official capacity" were fraudulently inserted. However, the trial court
rendered a decision ordering Astro and Roxas to pay Philguarantee jointly and severally the sum of Php
3,621,187.52 representing the total obligation. Roxas appealed but the CA affirmed the RTC decision.
Hence, this petition to review on certiorari.
ISSUES: (1) Whether Roxas should be jointly and severally liable with Astro in the sum awarded by the
RTC? (2) Whether Philguarantee is subrogated to the rights of Philtrust when the former paid 70% of Astro's
loan in compliance with its contract of Guarantee in favor of Philtrust
RULING: (1) Under the Negotiable Instruments Law, persons who write their names on the face of a
promissory note are makers, promising that they will pay to the order of the payee or any holder according
to its tenor. Thus, even without the phrase "in his personal capacity", Roxas will still be primarily liable as a
joint and several debtor under the notes considering that his intention to be liable as such 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 2 different capacities, official and personal. Furthermore, Roxas is a
businessman, thus he is presumed to know his acts and that he is expected to take care of his own affairs.
(2) SC held that Philguarantee has all the rights to proceed against petitioner. It is subrogated to the rights of
Philtrust to demand for and collect payment from both Roxas and Astro since it already paid 70% of the
latter's loan. Roxas acquiescence is not necessary for subrogation to take place because the instant case is
one of legal subrogation that occurs by operation of law and without the need of the debtor's knowledge.

The CAs decision was affirmed in toto.

Article 1305
4.06 Limketkai Sons Milling v. CA
14.06 Ong Ylu v. CA
2.10 Ramon Magsaysay Award Foundation v. CA

GR 118509

6.10

September 26, 1924

Rosenstock v. Burke

Facts: Defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in Australia
in 1920. He wanted to sell the yacht and after several months plaintiff H. W. Elser, at the beginning of the
year 1922, began negotiations with the defendant for the purchase of it. The plan of the plaintiff was to
organize a yacht club and sell it afterwards the yacht for P120,000, of which P20,000 was to be retained by
him as commission and the remaining P100,000 to be paid to the defendant. To be able to sell the yacht, he
wanted to make a voyage on board the yacht withbusiness men so that he could make a sale to them. But the
yacht needed some repairs which in turn, plaintiff paid for because defendant had no budget for that. It has
been stipulated that the plaintiff was not to pay anything for the use of the yacht. Because of the said repairs,
plaintiff loaned money from the Asia Banking Corporation. Since it amounted to its maximum amount
already, the bank could no longer give loans to plaintiff. Defendant now gave plaintiff the option of sale to
plaintiff amounting to P80,000; P5,000 each month during the first six months and P10,000 thereafter until
full payment of the price. Plaintiff in turn agreed by letter. Defendant demanded the plaintiff for
performance after he accepted the offer of plaintiff for the purchase of the yacht. However, plaintiff now
brings action to recover the sum of money he used for repairs of the yacht.
Issue: Whether or not there was a valid contract of sale which is binding against plaintiff as used in the
letter of offer which was accepted by the defendant.
Held: The Supreme Court held that it was not a valid contract of sale. The words used by plaintiff could not
be interpreted as a definite offer to purchase the yacht, but simply a position to deliberate whether or not he
would purchase the yacht. It was but a mere invitation to a proposal being made to him, which might be
accepted by him or not. He used such words as, I am in position and am willing to entertain the purchase of
the yacht. not I want to buy the yacht. Furthermore, the plaintiff wanted to organize a yacht club and the
only thing he wanted from defendant was he sells it so that he could profit from it if he re-sells it. The
letter of the plaintiff not containing a definite offer but a mere invitation to an offer being made to him.
Plaintiff is bound to pay the amount of the repairs of the yacht in exchange for the use thereof.
1.14

Velasco v. CA

Panganiban 37083

Article 1306
6.0
1.05

Arroyo v. Berwin
CUI v. Arellano University

March 3, 1917
May 30, 1961

8.05

Filipinas Compania de Seguros v. Mandanas

June 20, 1966

FACTS: Special civil action for a declaratory relief Thirty-nine (39) non-life insurance companies instituted
it, in the Court of First Instance of Manila, to secure a declaration of legality of Article 22 of the Constitution
of the Philippine Rating Bureau, of which they are members, inasmuch as respondent Insurance
Commissioner assails its validity upon the ground that it constitutes an illegal or undue restraint of trade.

Subsequently to the filing of the petition, twenty (20) other non-life insurance companies, likewise,
members of said Bureau, were allowed to intervene in support of the petition. After appropriate proceedings,
said court rendered judgment declaring that the aforementioned Article 22 is neither contrary to law nor
against public policy, and that, accordingly, petitioners herein, as well as the intervenors and other members
of the aforementioned Bureau, may lawfully observe and enforce said Article, and are bound to comply with
the provisions thereof, without special pronouncement as to costs. Hence this appeal by respondent
Insurance Commissioner, who insists that the Article in question constitutes an illegal or undue restraint of
trade and, hence, null and void. Respondent wrote a letter expressing doubts of the validity of article 22 and
requested for repealed. Respondent further contended that being an illegal agreement or combination in
restraint of trade, said Article should not be given force and effect; that failure to comply with this
requirement would compel respondent to suspend the license issued to the Bureau; and that the latter should
circularize all of its members on this matter and advise them that "violation of this requirement by any
member of the Bureau" would also compel respondent "to suspend the certificate of authority of the
company concerned to do business in the Philippines".
ISSUE: WON article 22 contrary to law, morals, good custom, public order, or public policy?
HELD: No! Justice Brandeis find nothing unlawful, or immoral, or unreasonable, or contrary to public
policy either in the objectives thus sought to be attained by the Bureau, or in the means availed of to achieve
said objectives, or in the consequences of the accomplishment thereof. The purpose of said Article 22 is not
to eliminate competition, but to promote ethical practices among non-life insurance companies, although,
incidentally it may discourage, and hence, eliminate unfair competition, through underrating, which in itself
is eventually injurious to the public. That it complied with the requirements.
10.05 Gabriel v. Monte de Piedad

April 14, 1941

FACTS: Chattel mortgage executed by Leoncio in favor of Monte de Piedad was valid for not being
contrary to public policy, the law and morals, absent proof. Chattel Mortgage (December 13, 1932) where
Leoncio Gabriel, appraiser of jewels in the pawnshop of Monte de Piedad, promised to pay P14,679,07 (the
value of the deficiencies due to erroneous appraisal of the pawned jewels), payable by P300/month. Alleged
failure to pay, termination of Leoncio allegedly without cause and notice, suit by Monte de Piedad against
Leoncio for payment of the debt where the mortgage was insufficient. Contention of Leoncio: (1) the chattel
mortgage was void because (a) it is contrary to law, morals and public policy; (b) he was made to sign it
against his will and through misrepresentation where E. Marco (Director-General) signed in behalf of
Montede Piedad without the latters authority, (c) the subject matter and considerations of the mortgage do
not exist, and (d) the payments already made allegedly for the mortgage were in fact his salaries.
ISSUE: Whether the subject in this case is valid for not being contrary to public policy, law and morals
RULING: A pre-existing admitted liability is a good consideration for a promise. EXCEPTIONS: if the
inadequacy of the consideration is so gross as to amount to fraud, oppression or undue influence, or when
statutes require the consideration to be adequate. A contract which is neither prohibited by law nor
condemned by judicial decision, nor contrary to public morals, contravenes no public policy. It is violative
of public policy if the contract has for its consideration a tendency to injure the public, or if it is against the
public good, or if it contravenes some established interests of society, or is inconsistent with sound policy
and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability
or of private property. Consideration, right, interest, benefit, or advantage conferred upon the promisor, to
which he is otherwise not lawfully entitled, or any detriment, prejudice, loss, or disadvantage suffered or
undertaken by the promise other than to such as he is at the time of consent bound to suffer.

16.08 Pakistan International Airlines Corp. v. OPLE


7.09

RP v. PLDT

September 28, 1990

FACTS:
ISSUE:
RULING:
10.11 Saura v. Sandico

Contracts

Article 1307
21.0

Corpus v. CA

Article 1308
9.05 Florentino v. Encarnacion Sr.
19.06 Philippine Banking Corporation v. Lui She

September 2002
September 12, 1967

Article 1310
3.01

Almeda v. CA

April 17, 1996

Article 1311
12.02
16.01
20.01
20.02

Bonifacio v. Mora
Cadwaller Co. v. Smith Bell and Co.
Constantino v. Espiritu
Coquia v. Fieldmens Insurance Co. Inc.

February 9, 1907
May 31, 1971
November 29, 1968

5.04

DKC Holdings Corp. v. CA

April 5, 2000

FACTS: The subject of the controversy is a 14,021 square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolomes
deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of
Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and, as
such, was seen by the latter as a potential warehouse site.
March 16, 1988. DKC entered a contract of lease with option to buy with Encarnacion Bartolome
(Victors deceased mom). DKC was given the option to lease or lease with purchase the subject land, which
option must be exercised within a period of two years counted from the signing of the Contract. In turn,
DKC undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the twoyear period, DKC shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to
exercise its option. The contract also provided that in case DKC chose to lease the property, it may take
actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable for
another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for
the next six years, in case of renewal.
DKC regularly paid Encarnacion until her death in January 1990. DKC then directed its payment to
the son of Enacarnacion who is the sole heir but Victor (Encarnacions son) refused the payment. January 10,
1990. Victor executed an affidavit of Self Adjudication all over her deceased moms properties, including the
subject lot.
ISSUE: Whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion
Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after
her demise.

RULING: No. Article 1311 of the Civil Code and jurisprudence, Victor is bound by the subject Contract of
Lease with Option to buy executed by his predecessor-in-interest. It is futile for Victor to insist that he is not
a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir
of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against her is also valid and binding as against him. The
general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest
except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law.
18.03 Integrated Packaging Corp. v. CA, Fil Anchor Paper Co. Inc. June 8, 2000
FACTS: May 5, 1978: Integrated Packaging Corp agreed to deliver to Fil-anchor paper co., inc. 3,450 reams
of printing paper. Materials were to be paid within 30-90 days. June 7, 1978: Integrated entered into a
contract with Philippine Appliance Corporation (Philacor) to print three volumes of "Philacor Cultural
Books". July 30, 1979: only 1,097 out of the 3,450 had been delivered so it wrote to Fil-anchor that delay
will prejudice them. July 23, 1981: Fil-anchor delivered amounting to P766,101.70 of printing paper.
August 27, 1981: Integrated paid P97,200.00 which was applied to its back accounts covered by delivery
invoices dated September 29-30, 1980 and October 1-2, 1980. Integrated entered into an additional printing
contract with Philacor but it failed to comply so Philacor demanded compensation for the delay and damage
it suffered on account of Integrated's failure. Fil-anchor filed a collection suit of P766,101.70 against
Integrated representing unpaid purchase price of printing paper bought on credit. By way of
counterclaim, Fil-anchor alleged the delivery was short of 2,875 reams so it suffered actual damages and
failed to realize expected profits and that complaint was prematurely filed. RTC: Integrated ordered to pay
Fil-anchor P27,222.60 as compensatory and actual damages after deducting P763,101.70 for the value of
materials received, P100K as moral damages, P30K for attorney's fees and cost of suit. However,
the counterclaim is also meritorious - Integrated could have sold books to Philacor and realized profit of
P790,324.30 for which the award of moral damages was justified. CA: reversed and set aside the judgment
of the trial court ordered to pay Fil-anchor P763,101.70 for unpaid printing paper and deleted the award of
P790,324.30 as compensatory damages as well as the award of moral damages and attorney's fees, for lack
of factual and legal basis
ISSUE: W/N Integrated should be awarded compensatory and moral damages?
RULING: YES, CA affirmed. Suspension of its deliveries to Integrated whenever the latter failed to pay on
time, as in this case, is legally justified under the second paragraph of Article 1583 of the Civil Code hence
the Fil-anchor did not violate the order agreement. Fil-anchor is not a party to the agreement between
Philacor neither is it a contract pour autrui so no direct bearing. Indemnification for damages comprehends
not only the loss suffered, that is to say actual damages (damnum emergens), but also profits which the
obligee failed to obtain, referred to as compensatory damages (lucrum cessans). However, to justify a grant
of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty, premised
upon competent proof and on the best evidence obtainable by the injured party, the actual amount of loss.
trial court in arriving at the amount are mere estimates or self-serving claim of unrealized profit prepared by
Integrated. deletion of the award of moral damages is proper, since private respondent could not be held
liable for breach of contract. Moral damages may be awarded when in a breach of contract the defendant
acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligation. Finally, since the award of moral damages is eliminated, so must the award for
attorney's fees be also deleted.

21.04 Kaufman v. PNB


12.09 Singson Encarnacion v. Baldomar
12.10 Singsong v. Isabela Sawmill

77 Phil 470
February 28, 1979

13.09 So Ping Bun v. CA, Tek Hua Enterprises Corp and Manuel C. Tiong, GR 120554
Article 1314
2.03

Daywalt v. La Corp De Los Padres Agustinos Recoleto

6975

Article 1318
1.0
1.02
19.04
6.08

Abalos v. Macatangay
ABS CBN v. CA
Jardine Davies Inc. v. CA
Malbarosa v. CA

GR 155043, 2004
GR 128690, 1999
June 19, 2000
April 30, 2003

Article 1320
2.0

Adelfa Properties Inc. v. CA

January 25, 1995

Article 1324
8.02

Babao v. Florencio Perez

FACTS: Santiago Babao married the niece of Celestina Perez. 1924, Santi and Celestina allegedly had a
verbal agreement where Santi was bound to improve the land of Celestina by leveling, clearing, planting
fruits and other crops; that he will act as the administrator of the land; that all expenses for labor and
materials will be at his cost, in consideration of which Celestina in turn bound herself to convey to Santi or
his wife of the land,, with all the improvements after the death of Celestina. But, shortly before
Celestinas death, she sold the land to another part. Thus, Santi filed this complaint alleging the sale of the
land as fraudulent and fictitious and prays to recover the land or the expenses he incurred in improving the
land.
ISSUE: whether or not the verbal agreement falls within the Stature of Frauds
HELD: Contracts which by their terms are not to be performed within one year, may be taken out of the
statute through performance by one party thereto. All that is required in such case is complete performance
within the year by one party, however many tears may have to elapse before the agreement is performed by
the other party. But nothing less than full performance by one party will suffice, and it has been held that, if
anything remains to be done after the expiration of the year besides the mere payment of money, the statute
will apply. It is not therefore correct to state that Santiago Babao has fully complied with his part within the
year from the alleged contract in question.
Having reached the conclusion that all the parol evidence of appellee was submitted in violation of the
Statute of Frauds, or of the rule which prohibits testimony against deceased persons, we find unnecessary to
discuss the other issues raised in appellants' brief.
The case is dismissed, with costs against appellee.
9.09

Sanchez v. Rigos

June 14, 1972

Article 1327
14.0

Braganza v. Villa Abrille

May 14, 1954

Article 1330
6.03

Dumasug v. Modelo

March 16, 1916

15.03
21.03
14.09
19.09

Hemedes v. CA
Katipunan v. Katipunan
Songco v. Sellner
Trinidad v. IAC

October 8, 1999
December 4, 1917
December 3, 1991

Article 1331
6.02

ASIAIN v. Jalandoni

October 23, 1923

18.10 Theis v. CA

February 12, 1997

FACTS: Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of
land (parcel nos.1, 2 and 3). All three parcels of land are situated in Tagaytay City. Adjacent to parcel no.3 is
a vacant lot denominated as parcel no. 4. In 1985, Private respondent constructed a two-srorey house on
parcel
no.
3
and
the
two
other
lots
remained
idle.
In a survey conducted in 1985, parcel no. 3 was erroneously indicated to be covered by the TCT of parcel
no. 1, while the parcel no. 1 and parcel no. 2 were mistakenly surveyed to be located on parcel no. 4 instead.
Unaware of the mistake private respondent sold said parcel no. 4 to petitioners.
In 1990, petitioners discovered that parcel no. 4 was owned by another person. They also discovered that the
lots actually sold to them were parcel nos. 2 and 3. To remedy the mistake, private respondent offered parcel
nos. 1 and 2 as these two were precisely the two vacant lots which private respondent owned and intended to
sell. Petitioners rejected the good faith offer. Private respondent made another offer, this time the return of
an amount double the price paid by petitioners. Petitioners still refused. Private respondent was then
compelled to file an action for annulment of deed of sale and reconveyance of the properties subject thereof
in the RTC which ruled on their favor and on appeal, the CA affirmed the same.
ISSUE: WON

petitioners

should

be

allowed

to

take

parcel

no.

3.

RULING: Petition
dismissed.
CA
decision
affirmed.
The SC held that private respondent obviously committed an honest mistake in selling parcel no. 4. The
good faith of the private respondent is evident in the fact that when the mistake was discovered, it
immediately offered two other vacant lots to the petitioners or to reimburse them with twice the amount
paid. That petitioners refused either option left the private respondent with no other choice but to file an
action for the annulment of the deed of sale on the ground of mistake.
To allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment. Considering that
petitioners intended at the outset to purchase a vacant lot, their refusal to accept the offer of the private
respondent to give them two (2) other vacant lots in exchange, as well as their insistence on parcel no. 3,
which is a house and lot, is manifestly unreasonable.

Article 1337
14.04 Heirs of William Sevilla v. Sevilla

April 30, 2003

Article 1338
12.05
16.05
7.10
19.10

Geraldez v. CA and Kenstar Travel Corp


Hill v. Veloso
Rural Bank of Sta. Maria Pangasinan v. CA
Tuason v. Marquez

February 23, 1994


July 24, 1915
GR 110672
November 3, 1923

Article 1340
8.02

Azarraga v. Gay

December 29, 1928

Article 1344
3.12

Woodhouse v. Halili

Labrador 19571

Article 1345
12.0

Blanco v. Quasha

November 17, 1999

Article 1347
12. 01 Blas v. Santos
16.11 Tanedo v. CA

March 29, 1961


January 22, 1996

Article 1350
9.04 Fisher v. Robb
3.07 Liguez v. CA
17.07 Palomar v. CFI, Phil.

November 2, 1939
December 18, 1957
Refining. 29881, 8/31/88

Article 1352
4.05 Liquez v. CA
Article 1358
15.05 Hernaez v. De Los Angeles

April 30, 1969

Article 1359
7.01
11.01
5.03
11.05

Atilano v. Atilano
Bentir & Pormida v. Leanda & Leyte Gulf Traders Inc.
Dizon v. Gaborro
Garcia v. Bisaya

10.10 Sarming v. Cresencio Dy

May 21, 1969


GR 128191
2002
Reyes, 1955
GR 133643

FACTS: Petitioners are the succesors-in-interest of original defendant Silveria Flores, while respondents
Cresencio Dy and Ludivina Dy-Chan are the succesors-in-interest of the original plaintiff Alejandra Delfino,
the buyer of one of the lots subject of this case. They were joined in this petition by the successors-ininterest of Isabel, Juan, Hilario, Ruperto, Tomasa, and Luisa and Trinidad themselves, all surnamed Flores,
who were also the original plaintiffs in the lower court. They are the descendants of Venancio and Jose, the
brothers of the original defendant Silveria Flores. A controversy arose regarding the sale of Lot 4163 which
was half-owned by the original defendant, Silveria Flores, although it was solely registered under her name.
The other half was originally owned by Silverias brother, Jose. On January 1956, the heirs of Jose entered
into a contract with plaintiff Alejandra Delfino, for the sale of their one-half share of Lot 4163 after offering
the same to their co-owner, Silveria, who declined for lack of money. Silveria did not object to the sale of
said portion to Alejandra. Atty. Deogracias Pinili, Alejandras lawyer then prepared the document of sale. In
the preparation of the document however, OCT no. 4918-A, covering Lot 5734, and not the correct title
covering Lot 4163 was the one delivered to Pinili. Unaware of the mistake committed, Alejandra
immediately took possession of Lot 4163 and introduced improvements on the said lot. Two years later,
when Alejandra Delfino purchased the adjoinin portion of the lot she had been occupying, she discovered
that what was designated in the deed, Lot 5734, was the wrong lot. Thus, Alejandra and the vendors filed for
the reformation of the Deed of Sale.
ISSUE: Whether or not reformation is proper in this case.

RULING: Yes. Reformation is that remedy in equity by means of which a written instrument is made or
construed so as to express or inform to the real intention of the parties. An action for reformation of
instrument under this provision of law may prosper only upon the concurrence of the following requisites:
(1) there must have been a meeting of the minds of the parties to the contract; (2) the instrument does not
express the true intention of the parties; and (3) the failure of the instrument to express the true intention of
the parties is due to mistake, fraud, inequitable conduct or accident. All of these requesites are present in this
case. There was a meeting of the minds between the parties to the contract but the deed did not express the
true intention ot the parties due to the designation of the lot subject of the deed. There is no dispute as to the
intention of the parties to sell the land to Alejandra Delfino but there was a mistake as to the designation of
the lot intended to be sold as stated in the Settlement of Estate and Sale.

Article 1365
16.0

Bustamante v. Rosel

November 29, 1999

Article 1370
13.0 Borromeo v. CA
20.05 Kasilag v. Rodriguez

September 28, 1972


December 7, 1939

Article 1381
11.10 Siguan v. Lim

November 19, 1999

Article 1383
1.06

Khe Hong Cheng v. CA

March 28, 2001

Article 1385
2.05 De Erquiaga v. CA
17.06 Palay Inc. v. Clave

September 27, 1989


GR 56076

Article 1390
15.08 PNB v. Philippine Vegetable Oil
20.11 Uy Soo Lim v. Tan Unchuan

January 14, 1927


September 7, 1918

Article 1391
17. 01 Carantes v. CA

April 25, 1977

Article 1397
17.03 House International Building Tenants Association v. IAC

GR 75287, June 30, 1987

Article 1403
6.01
17.02
14.03
16.03
4.08

Asia Production Co. Inc. v. Pano


Carbonnel v. Poncio
Gutierrez Hermanos v. Orense
Hernandez v. CA and substituted heirs of Rev. Fr. Lucio Garcia,
Mactan Cebu Intl Airport Authority v. CA

GR L-51058, 1992
May 12, 1958
December 4, 1914
GR 41132, April 27, 1998
GR 121506

9.07 Mercado v. Espiritu


15.10 Swedish Match v. CA
15.11 Syquia v. CA and Edward Litton

December 1, 1917
October 20, 2004
GR 55998

Article 1409
15.01 Buenaventura v. CA
4.11 Rodriguez v. Rodriguez
15.09 Suntay v. CA

November 20, 2003


July 31, 1967
December 19, 1995

Article 1411
11.06 Modina v. CA
2.11 Rellosa v. Gaw Cheen Hum
19.11 Ubarra v. Mapalad

April 30, 2003


September 29, 1953
March 22, 1993

Article 1416
10.03 Frenzel v. Catito

July 11, 2003

Article 1424
2.13

Villarroel v. Estrada

December 19, 1940

Article 1431
7.06 Manila Lodge No. 761 Benevolent Protective Order of the Elks v. CA, September 30
10.06 Miguel v. Catalino
November 29, 1968
Article 1443
15.02 Bueno v. Reyes
8.11 Salao v. Salao

April 29, 1968


March 16, 2003

Article 1447
8.03 Fabian v. Fabian
16.09 Tamayo v. Callejo

January 29, 1968


July 28, 1972