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I Natural Obligations


Appellants Mother obtained a loan from the appellee on May of 1912 in the
amount of P1, 000 payable after 7 years. Upon her death, Appellant- defendant
executed a document wherein he recognized the obligation of his mother in
August 9, 1930 to which the plaintiffs base their action. Plaintiff now claims the
defence of prescription
The defendant being the only heir of the
original debtor with the right to succeed in her inheritance, that debt lawfully
contracted by his mother, although it lost its efficacy by prescription, is
nevertheless now a moral obligation as far as he is concerned, a moral obligation
which is a sufficient
consideration to create and make effective and demandable the obligation which
he had voluntarily contracted on August 9, 1930.

ANSAY vs. NDC G.R. No. 13667

Plaintiffs prayed that the court order their employers to give them a 20%
Christmas bonus all the while recognizing that it is not legally bound to do so
An element of natural obligation before it can be cognizable by the court is
voluntary fulfillment by the obligor. Certainly retention can be ordered but only
after there has been voluntary performance. But here there has been no
voluntary performance. In fact, the court cannot order the performance.

Development Bank of the Philippines vs. Confessor G.R. No. L-48889 May 11,
Respondents executed a promissory note in 1940 in payment of their loan. As
the obligation remained unpaid in 10 years Respondent once again issued a
secondary promissory note expressly acknowledging the said loan and promising
to pay the same before 1961
There is no doubt that prescription has set in as to the first promissory note of
February 10, 1940. However, when respondent Confesor executed the second
promissory note on April 11, 1961 whereby he promised to pay the amount
covered by the previous promissory note on or before June 15, 1961, and upon

failure to do so, agreed to the foreclosure of the mortgage, said respondent

thereby effectively and expressly renounced and waived his right to the
prescription of the action covering the first promissory note.
A new express promise to pay a debt barred will take the case from the operation
of the statute of limitations as this proceeds upon the ground that as a statutory
limitation merely bars the remedy and does not discharge the debt , there is
something more than a mere moral obligation to support a promise, to wit a
pre-existing debt which is a sufficient consideration for the new the new promise;
upon this sufficient consideration constitutes, in fact, a new cause of action.

II. Quasi-Contracts

Cruz vs. Tuazon & Co. G.R. No. L-23749 April 29, 1977
Plaintiff seeks to reimburse himself of the permanent improvement on a
50 hectare land that it has made upon request of the Deudor family, which land
is now owned by the defendant. Defendant claims that it is not a privy to the
contract thus the action should not be directed to him but to the Duedor instead.
Plaintiff however contends that it is benefitting from the improvement it has
made and thus is unjustly enriching himself and thus based his action on QuasiContract
A presumed quasi-contract cannot emerge as against one party when the
subject matter thereof is already covered by an existing contract with another
party. Predicated on the principle that no one should be allowed to unjustly
enrich himself at the expense of another, Article 2124 creates the legal fiction of
a quasi-contract precisely because of the absence of any actual agreement
between the parties concerned.
The act is voluntary because the actor in quasi-contracts is not bound by any
pre-existing obligation to act. It is unilateral, because it arises from the sole will
of the actor who is not previously bound by any reciprocal or bilateral
Hermanos vs. Orense
Defendant was the owner of a property which was sold and conveyed by
his nephew to plaintiff company without his knowledge and consent. After
ratifying the sale, he however refuses to convey the land
The sale of the said property made by Duran to Gutierrez Hermanos was
indeed null and void in the beginning, but afterwards became perfectly valid and
cured of the defect of nullity it bore at its execution by the confirmation solemnly

made by the said owner upon his stating under oath to the judge that he himself
consented to his nephew Jose Duran's making the said sale.
Adille vs. C.A.
The plaintiffs mother sold a piece of land on a pacto de retro sale. After
her death defendant redeemed the land and executed an affidavit representing
himself to be the sole heir. Plaintiffs heirs of the deceased mother filed the
present case for partition claiming that defendant acted only as an implied
trustee, thus they too shall receive a part of the land claimed. Defendant claims
that in claiming the land he acted as an inofficious manager under negotorium
In order to constitute Negotorium Gestio the act must be for the benefit of
others. He cannot be said to have assumed the management of the property
abandoned by the others
Andres vs. Mantrust
Due to the delay of the receipt of payment private respondent bank
mistakenly order a secondary payment of the amount of P10,000 which the
petitioner refuses to return the amount claiming that the petitioners client is still
indebted to him thus he is not unjustly enriched
Private respondent has a right to be reimbursed the amount mistakenly
credited to Petitioner. The requisites of Mistake of payment are (1) that he who
paid was not under obligation to do so; and, (2) that payment was made by
reason of an essential mistake of fact. The private respondent is not privy
between Petitioners client and the petitioner as it is merely a bank which was
ordered to reimburse money. Even if the transaction was attendant with
negligence a common law rule that the negligence must be borne by its actor
cannot be applied when there is an express law covering the transaction.
Puyat & Sons vs. Manila G.R. No. L-17447 April 30, 1963
Petitioner seeks to reimburse himself the tax erroneously payed as it later found
out that it was exempt from the payment of retail taxes
Petitioner categorically stated that the payment was not voluntarily made,
but on the erroneous belief, that they were due. Under this circumstance, the
amount paid, even without protest is recoverable. "If the payer was in doubt
whether the debt was due, he may recover if he proves that it was not due" (Art.
2156, NCC). Petitioner had duly proved that taxes were not lawfully due. There is,

therefore, no doubt that the provisions of solutio indebtiti, the new Civil Code,
apply to the admitted facts of the case.
III. Quasi- Delict

Saludaga vs. FEU G.R. No 179337 April 30, 2008

Petitioner filed a complaint against the respondent on grounds that they
breached their obligation to provide students with a safe and secure environment
and an atmosphere conducive to learning due to an accidental shooting which
resulted in injuries to the petitioner.
Institutions of learning must also meet the implicit or "built-in" obligation
of providing their students with an atmosphere that promotes or assists in
attaining its primary undertaking of imparting knowledge. Necessarily, the school
must ensure that adequate steps are taken to maintain peace and order within
the campus premises and to prevent the breakdown thereof
When petitioner was shot inside the campus by no less the security guard
who was hired to maintain peace and secure the premises, there is a prima facie
showing that respondents failed to comply with its obligation to provide a safe
and secure environment to its students. Having failed to exercise due diligence in
selecting their security guards, they failed to prove that they ensured that the
guards assigned in the campus met the requirements stipulated in the Security
Service Agreement they are liable to petitioner. Their defense of Fortuitous event
cannot be appreciated absent any proof that they are not negligent.
Furthermore, when the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act - the
whole occurrence is humanized and removed from the rules applicable to acts of
Orden vs. NACOCO No. L-3756, June 30, 195
Plaintiffs land was acquired by the Japanese and subsequently acquired
by respondent through a concession granted by the U.S. The land was acquired
by the latter through the Trading with the enemy act. Plaintiff brought this action
in order to recover rentals from the time defendant occupied the said land.
Plaintiffs claim for rentals before it reclaimed the land may not be
predicated on any negligence or offense of the defendant-appellant, or any
contract, express or implied. Defendant is neither negligent nor privy to any
contract between petitioner. Neither is it a successor in interest, having derived
its title from law nor is it a trustee of the plaintiff, as it is a trustee of the

Peoples car vs. Commando Security G.R. No. L-12191


October 14,

Plaintiff was a clerk of the Manila Railroad company. One day when plaintiff
was alighting from the train as it was slowing down one or both of his feet came
in contact with a sack of watermelons with the result that his feet slipped from
under him and he fell violently on the platform. His body at once rolled from the
platform and was drawn under the moving car, where his right arm was badly
crushed and lacerated. It occurred during night time as the station was dimly
lighted. Defendant claimed that it was the customary season for harvesting
these melons and a large lot had been brought to the station for the shipment to
the market. He filed the present action claiming that it was negligent for
defendant to place the watermelons as it posed a menace to passengers
alighting from the train.
A master who exercises all possible care in the selection of his servant,
taking into consideration the qualifications they should possess for the discharge
of the duties which it is his purpose to confide to them, and directs them with
equal diligence, thereby performs his duty to third persons to whom he is bound
by no contractual ties, and he incurs no liability whatever if, by reason of the
negligence of his servants, even within the scope of their employment, such third
person suffer damage. This rule however only holds in liability in quasi-delict, the
legal liability of the defendant is the contract of carriage.
The liability of masters and employers for the negligent acts or omissions
of their servants or agents, when such acts or omissions cause damages which
amount to the breach of a contact, is not based upon a mere presumption of the
master's negligence in their selection or control, and proof of exercise of the
utmost diligence and care in this regard does not relieve the master of his
liability for the breach of his contract.
Gutierrez vs. Gutierrez G.R. No. 34840 September 23, 1931
A passenger truck and an automobile of private ownership collided while
attempting to pass each other. At the time of the collision, the father was not in
the car, but the mother, together will several other members of the Gutierrez
family, seven in all, were accommodated therein. A passenger in the autobus, by
the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila.
Plaintiff sues both the car driver and the owner of the truck
The head of a house, the owner of an automobile, who maintains it for the
general use of his family is liable for its negligent operation by one of his
children, whom he designates or permits to run it, where the car is occupied and
being used at the time of the injury for the pleasure of other members of the
owner's family than the child driving it.

The liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely, that of contract
IV. Obligations conditional/With a Term
HSBC vs. Broqueza
Petitioner-Defendant were employees of HSBC and were entitled to a
retirement plant provided by the latter. Both defendants obtained loans, one for
a car loand and the other for emergency, where were paid by automatic salary
deduction. A labor dispute arose and as a result thereof they were both
dismissed and could not pay the monthly amortization for the loan. Plaintiffs filed
a case for recovery of the sum of money
As may be gleaned from the promissory note of the loan issued, the
obligation does not contain any period for payment, thus it is demandable at
once. The payroll deduction is merely a convenient mode of payment and not the
sole source of payment for the loans. HSBC never agreed that the loans will be
paid only through salary deductions. Neither did HSBC agree that if defendants
ceases to be an employee of HSBC, her obligation to pay the loans will be
suspended. HSBC can immediately demand payment of the loans at anytime
because the obligation to pay has no period. Thus upon demand of HSBC after
the dismissal of the defendants, the whole obligation became due
Pay vs. Vda De Palanca G.R. No. L-29900 June 28, 1974
Petitioner is a creditor of the defendants father. The claim of the petitioner
is based on a promissory note dated 15 years ago, whereby the deceased
promised to pay either upon receipt by him of his share from a certain estate or
upon demand.
The obligation being due and demandable, it would appear that the filing
of the suit after fifteen years was much too late. For again, according to the Civil
Code, the prescriptive period for a written contract is that of ten years.
Smith vs. Matti No. 16570, March 09, 1922
Plaintiff corporation and the defendant, entered into contracts whereby
the former obligated itself to sell, and the latter to purchase from it, two steel
tanks, the same to be shipped from New York and delivered at Manila "within
three or four months;" subject to contingencies, two expellers, which were to be
shipped from San Francisco in the month of September, 1918, or as soon as
possible; and two electric motors, as to the delivery of which stipulation was
made, couched in these words: "Approximate delivery within ninety days. This
is not guaranteed." Defendant refused to receive the said goods on grounds that
the delivery took too long.

At the time of the execution of the contracts, the parties were not
unmindful of the contingency of the United States Government not allowing the
export of the goods, nor of the fact that the other foreseen circumstances therein
stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude
that the term which the parties attempted to fix is so uncertain that one cannot
tell just whether, as a matter of fact, those articles could be brought to Manila or
not. If that is the case, as we think it is, the obligations must be regarded as
conditional. As it was dependent not only upon the effort of the herein plaintiff,
but upon the will of third persons who could in no way be compelled to fulfill the
condition. In cases like this, which are not expressly provided for, but impliedly
covered, by the Civil Code, the obligor will be deemed to have sufficiently
performed his part of the obligation, if he has done all that was in his power,
even if the condition has not been fulfilled in reality.
Chavez vs. Gonzales No. 27454, April 30, 1970
Plaintiff contracted the service of defendant for cleaning and servicing of
his typewriter. After demands by the plaintiff, defendant asked further for the
sum of P6 for further repairs. But after nearly two months the plaintiff,
exasperated asked for the return of the typewriter which was given back to the
plaintiff in shambles with parts missing. The defendant returned the sum of P6
and the missing parts and the plaintiff contracted the service of a third person to
fix his typewriter. He then filed a complaint for a recovery of sum of money
It is clear that the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but returned it "in
shambles". The defendant should thus be liable for the cost of executing his
obligation in the proper manner. The cost of the execution of the obligation in
this case should be the cost of the labor or service expended in the repair of the
Encarnacion vs. Baldomar G.R. No. L-264 October 4, 1946
After the war, plaintiff asked the defendants to vacate the leased lot as
they entended to use the same due to the destruction of their office building.
The defendats refused and upon filling of a case for ejection they contend that
the contract which they had celebrated with plaintiff since the beginning
authorized them to continue occupying the house indefinitely and while they
should faithfully fulfill their obligations as respects the payment of the rentals
the defense thus set up by defendant Lefrado Fernando would leave to the
sole and exclusive will of one of the contracting parties (defendants in this case)
the validity and fulfillment of the contract of lease, within the meaning of article

1256 of the Civil Code, since the continuance and fulfillment of the contract
would then depend solely and exclusively upon their free and uncontrolled choice
between continuing paying the rentals or not, completely depriving the owner of
all say in the matter. If this defense were to be allowed, so long as defendants
elected to continue the lease by continuing the payment of the rentals, the
owner would never be able to discontinue it; conversely, although the owner
should desire the lease to continue, the lessees could effectively thwart his
purpose if they should prefer to terminate the contract by the simple expedient
of stopping payment of the rentals. This, of course, is prohibited by the aforesaid
article of the Civil Code.

Elezegui vs. Manila Lawn Tennis Club G.R. No. 967

May 19, 1903

Plaintiff and defendant entered into a contract of lease which is terminable
upon one month notice of the lessee and where it was stipulated that it may be
leased for all the time the members may desire to use it and as long as they
shall see fit, even if the estate is sold.
The judgement of the lower court ruling in favour of the plaintiff
presupposes that there is a legal term which may only be applied by the court in
absence of a stipulation of the parties with regards to a period. It cannot be said
that there is no stipulation with respect to the duration of the lease. It cannot,
however, be said to last perpetually. If an usufruct may last for a lifetime how
then may a lease last perpetually. By its very nature a lease is for a determinate
period. The only action which can be maintained under the terms of the contract
is that by which it is sought to obtain from the judge the determination of this
period which must be determined from the circumstances present
PBC vs. Lui She G.R. No. L-17587, September 12, 1967
A will was executed wherein a lease for a period of 99 years was created
between the deceased and respondent with an option to buy for a period of 50
years, conditioned upon his acquisition of a Filipino Citizenship. Petitioner assails
the validity of the clause which allows the lessee to withdraw at any time as it is
violative of the principle that contracts must bind both party
Such a stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the will of the party to
whom is conceded the privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of the option is as much in
the fulfillment of the contract as any other act which may have been the subject
of agreement. Indeed, the cancellation of a contract in accordance with
conditions agreed upon beforehand is fulfillment
Lim vs. People

Petitioner proposed to sell the tobacco of complainant wherein she was to
be entitled to the overprice thereof, to which she agreed. A promissory note was
executed to that effect, which however bounced. Bounce. Bounce. Petitioner
claimed that it was erroneous for the lower court to find that the promissory note
was immediately demandable
The proceeds of the sale of the tobacco should be turned over to the
complainant as soon as the same was sold, or, that the obligation was
immediately demandable as soon as the tobacco was disposed of. Hence, Article
1197 of the New Civil Code, which provides that the courts may fix the duration
of the obligation if it does not fix a period, does not apply.
Araneta vs. Phil Sugar Estate
Petitioner sold a tract of land to respondent with stipulation that
respondent shall build the Sto. Domingo Church and that the Petitioner will
construct roads to surround the building. Petitioner was unable to comply with
his obligation as there was a third-party occupying a part thereof and who
refuses to vacate. Plaintiff moved to reconsider the decision which gave a period
of two years to comply with the obligation as he claimed that the pleadings did
not authorize the fixing of the period
The only thing the pleadings of the plaintiff provided was that it gave the
defendant a reasonable period to comply with his obligation. If the contract so
provided, then there was a period fixed, a "reasonable time;" and all that the
court should have done was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court should declare that
petitioner had breached the contract, as averred in the complaint, and fix the
resulting damages. On the other hand, if the reasonable time had not yet
elapsed, the court perforce was bound to dismiss the action for being premature.
But in no case can it be logically held that under the plea above quoted, the
intervention of the court to fix the period for performance was warranted, for
Article 1197 is precisely predicated on the absence of any period fixed by the
Fixing a date involves a two-step process. The Court must first determine
that "the obligation does not fix a period" but from the nature and the
circumstances it can be inferred that a period was intended" The second step, is
that the court must decide what period was "probably contemplated by the
parties" So that, ultimately, the Court fix a period merely because in its opinion
it is or should be reasonable, but must set the time that the parties are shown to
have intended. As the record stands, the trial Court appears to have pulled the
two-year period set in its decision out of thin air, since no circumstances are
mentioned to support it. Plainly, this is not warranted by the Civil Code. The time
set by the court was until the squatters has been evicted

Millare vs. Hernando G.R. No. L-55480 June 30, 1987

The parties entered into a contract of loan, which was to be renegotiated
every 5 years. Upon the arrival of the period Defendant refused to comply with
the increased rentals thus he ordered the former to vacate
The Contract of Lease can only mean that the lessor and lessee may
agree to renew the contract upon their reaching agreement on the terms and
conditions to be embodied in such renewal contract. Failure to reach agreement
on the terms and conditions of the renewal contract will of course prevent the
contract from being renewed at all. In the instant case, the lessor and the lessee
conspicuously failed to reach agreement both on the amount of the rental to be
payable during the renewal term, and on the term of the renewed contract. While
an implied lease may exist between the parties which may be from a month to
month basis, it cannot however last for 5 years as the lower court would order.
IV. Obligations with Multiple Parties

Calang and Philtranco vs. People, G.R. No. 190696 August 3,2010
Due to a motor vehicle accident, the petitioner was charged with Reckless
imprudence resulting in homicide and serious physical injuries and ordered the
petitioner to pay indemnity jointly and severally with respondent for failing to
prove that it had exercised the diligence of a good father of the family to prevent
the accident. Respondent moved to reconsider as it claims it was never a party
to the criminal complaint filed
We emphasize that Calang was charged criminally before the RTC.
Undisputedly, Philtranco was not a direct party in this case. Since the cause of
action against Calang was based on delict, both the RTC and the CA erred in
holding Philtranco jointly and severally liable with Calang, based on quasi-delict.
Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an
employer for quasi-delicts that an employee has committed. Such provision of
law does not apply to civil liability arising from delict. If at all, Philtrancos liability
may only be subsidiary. The provisions of the Revised Penal Code on subsidiary
liability Articles 102 and 103 are deemed written into the judgments in cases
to which they are applicable. Thus, in the dispositive portion of its decision, the
trial court need not expressly pronounce the subsidiary liability of the employer.
Nonetheless, before the employers subsidiary liability is enforced, adequate
evidence must exist establishing that (1) they are indeed the employers of the
convicted employees; (2) they are engaged in some kind of industry; (3) the
crime was committed by the employees in the discharge of their duties; and (4)
the execution against the latter has not been satisfied due to insolvency. The

determination of these conditions may be done in the same criminal action in

which the employees liability, criminal and civil, has been pronounced, in a
hearing set for that precise purpose, with due notice to the employer, as part of
the proceedings for the execution of the judgment.

Ronquillo vs. CA, 132 SCRA 274, G.R. No. L-55138 September 28, 1984
Petitioner along with three other defendants in the lower court, issued a
check in payment of foodstuff which was dishonoured by the drawee bank.
Judgement was entered based on compromise wherein they were held liable
individually and jointly. Upon their failure to pay, the defendants offered to pay
their pro rata share which was refused by the plaintiff, demanding the full
Clearly then, by the express term of the compromise agreement and the
decision based upon it, the defendants obligated themselves to pay their
obligation "individually and jointly".The term "individually" has the same
meaning as "collectively", "separately", "distinctively", respectively or
"severally". An agreement to be "individually liable" undoubtedly creates a
several obligation, and a "several obligation is one by which one individual binds
himself to perform the whole obligation.
Malayan Insurance Co., Inc. vs. Court of Appeals, 165 SCRA 536 , G.R.
No. L-36413 September 26, 1988 VERY IMPORTANT CASE
A jeepney driven by respondent SAN LEON figured in an accident with
respondent PATRANCO during the effectivity of an insurance contract.
Respondent Vallejo, a passenger of the jeepney sustained injuries and filed a
complaint against petitioner, the owner of the jeep, and PATRANCO for a sum of
money. The owner of the jeep also filed a cross-claim against petitioner for his
insurance claim. Petitioner filed a third-party claim against SAN LEON for
liabilities arising out of its employer-employee relationship. Judgement was
thereby rendered wherein it was held that SAN LEON, the owner of the jeep and
petitioner was jointly and severally liable. Upon appeal, the judgement was
modified holding that SAN LEON has no obligation to reimburse petitioner as it
was not privy to the contract of insurance
It is only respondents Sio Choy the owner of the jeep and San Leon Rice
Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos. Respondents Sio Choy
and San Leon Rice Mill, Inc. are the principal tortfeasors who are primarily liable
to respondent Vallejos. The law states that the responsibility of two or more
persons who are liable for a quasi-delict is solidarily.

While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held solidarily
liable with the insured and/or the other parties found at fault. The liability of the
insurer is based on contract; that of the insured is based on tort. To hold
otherwise would result in a violation of the principles underlying solidary
obligation and insurance contracts. In solidary obligation, the creditor may
enforce the entire obligation against one of the solidary debtors. The
qualification made in the decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is
made solidary, is an evident breach of the concept of a solidary obligation.
Petitioner, upon paying respondent Vallejos the amount of riot exceeding
P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy;
as such, it is subrogated to whatever rights the latter has against respondent San
Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a solidary debtor who
has paid the entire obligation the right to be reimbursed by his co-debtors for the
share which corresponds to each.Petitioner, upon payment to respondent Vallejos
and thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to
reimbursement from respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice
Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount
of P29,103.00. Vallejos may enforce the entire obligation on only one of said
solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire
obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to
pay P20,000.00 of said entire obligation, petitioner would be entitled, as
subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by
the latter in the amount of P14,551.50 (which is 1/2 of P29,103.00)
Philippine National Bank vs. Independent Planters Association, Inc., 122
SCRA 113 , No. L-28046, May 16, 1983
During a collection case, one of the solidary debtors died and the lower
court dismissed the complaints contending that the complaint should be
prosecuted in the testate or intestate proceedings of the deceased.
It is now settled that the quoted Article 1216 grants the creditor the
substantive right to seek satisfaction of his credit from one, some or all of his
solidary debtors, as he deems fit or convenient for the protection of his interests;
and if, after instituting a collection suit based on contract against some or all of
them and, during its pendency, one of the defendants dies, the court retains
jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants. A cursory perusal of Section 6, Rule 86 of the Revised
Rules of Court reveals that nothing therein prevents a creditor from proceeding
against the surviving solidary debtors. A contrary ruling would in effect repeal
Art. 1216

V. Penal Clause
Bachrach Motor Co. vs. Espiritu, 52 Phil. 346 , No. 28497, No. 28498,
November 06, 1928
The defendant contends that the 25 per cent penalty upon the debt, in
addition to the interest of 12 per cent per annum, makes the contract usurious.
Article 1152 of the Civil Code permits the agreement upon a penalty apart
from the interest. Should there be such an agreemnet, the penalty, as was held
in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the interest,
and which may be demamded separetely. According to this, the penalty is not to
be added to the interest for the determination of whether the interest exceeds
the rate fixed by the law, since said rate was fixed only for the interest. But
considering that the obligation was partly performed, and making use of the
power given to the court by article 1154 of the Civil Code, this penalty is reduced
to 10 per cent of the unpaid debt.
Robes-Francisco v. CFI, 86 SCRA 59, G.R. No. 72182 November 25, 1986
The adjudgment of damages appears to be quite excessive in the
premises. The grant of P50,000.00 as actual damages is made to rest on nothing
more substantial than the sworn declarations of the private respondents.
Furthermore, while no proof of pecuniary loss is necessary in order that
moral damages may be awarded, the amount of indemnity being left to the
discretion of the Court (Art. 2216), it is, nevertheless, essential that the claimant
satisfactorily prove the existence of the factual basis of the damages (Art. 2217)
and its causal relation to defendant's acts. This is so because moral damages
though incapable of pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer (Algara vs. Sandejas, 27 Phil. 284). The trial
court and the Court of Appeals both seem to be of the opinion that the mere fact
that respondents were sued without any legal foundation entitled them to an
award of moral damages, hence they made no definite finding as to what the
supposed moral damages suffered consist of. Such a conclusion would make of
moral damages a penalty, which they are not, rather than a compensation for
actual injury suffered, which they are intended to be. Moral damages, in other
words, are not corrective or exemplary damages.
Nor was there error in the appealed decision in denying moral damages,
not only on account of the plaintiff's failure to take the witness stand and testify
to her social humiliation, wounded feelings, anxiety, etc., as the decision holds,
but primarily because a breach of contract like that of defendant, not being
malicious or fraudulent, does not warrant the award of moral damages under
Article 2220 of the Civil Code.

Neither may private respondent recover exemplary damages since he is not

entitled to moral or compensatory damages, and again because the petitioner is
not shown to have acted in a wanton, fraudulent, reckless or oppressive manner.
Upon the same consideration, and absent any proof that petitioner refused in
gross and evident bad faith to satisfy the private respondent's claim. no counsel
fees should be awarded.
Pamintuan v. CA, 94 SCRA 556, G.R. No. 113605 November 27, 1998
Three functions of PENAL clause:
1) to encourage performance
2) represents damages in the future for nonfulfillment
3) punishment
ALSO PENAL clause may be ignored if there is fraud in the nonfulfillment of the
obligation COZ ACCORDING TO THE concurring opinion of sumone future fraud
cannot be waived RIGHT?

VI. Fortuitous Event

Sicam vs. CA G.R. No. 159617

August 8, 2007

Respondent pawned her jewellery with petitioner corporation, which was
later on robbed by two armed men. She filed for indemnification of damages
representing the value of her jewelries to which petitioner interposed Caso
fortuito as a defense
A robbery per se is not a fortuitous event as it does not foreclose the
possibility of negligence. It is incumbent upon the party interposing such defense
that he did was not negligent. In this case petitioner failed to prove that he
employed the services of a security guard knowing at the time of 1987 robbery
was already rampant.
The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he is placed
and the importance of the act which he is to perform
Meralco v. Ramoy, G.R. No. 158911 March 4, 2008

Prior to the occurrence of this case, an ejectment case was filed by NPC
against respondent wherein he was ordered to vacate his lot as it was interfering
with his right of way. Thus petitioner upon the order of Meralco and upon doing a
joint survey cut off the electricity of the said lots including respondent.
Respondent filed for damages claiming that he was outside the boundaries

As a public utility, MERALCO has the obligation to discharge its functions
with utmost care and diligence. In culpa contractual the mere proof of the
existence of the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force of
contracts, will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor
thereof. The remedy serves to preserve the interests of the promissee that may
include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the
contract been performed, or his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by being put in as good a
position as he would have been in had the contract not been made; or his
"restitution interest," which is his interest in having restored to him any benefit
that he has conferred on the other party which may only be avoided by proof of
his exercise of his due diligence.
It was not enough for MERALCO to merely rely on the Decision of the MTC
without ascertaining whether it had become final and executory. Verily, only upon
finality of said Decision can it be said with conclusiveness that respondents have
no right or proper interest over the subject property, thus, are not entitled to the
services of MERALCO.

Solar Harvest, Inc. v. Davao Corrugated Carton Corp., G.R. No. 176868
July 26, 2010
Petitioner entered into an agreement with the respondent for the
production of corrugated carbon boxes, specifically designed for petitioner.
Petitioner deposited his partial payment. After having been paid, petitioner
claimed that despite his follow-ups he did not receive the boxes thus he wrote
a letter for reimbursement of his amount. Respondent claimed that the boxes
were already finished and that it was petitioner who was supposed pick up the
boxes in their warehouse.

In reciprocal obligations, as in a contract of sale, the general rule is that
the fulfillment of the parties respective obligations should be simultaneous.
Hence, no demand is generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter automatically incurs

in delay. But when different dates for performance of the obligations are fixed,
the default for each obligation must be determined by the rules given in the first
paragraph of the present article,19 that is, the other party would incur in delay
only from the moment the other party demands fulfillment of the formers
obligation. Thus, even in reciprocal obligations, if the period for the fulfillment of
the obligation is fixed, demand upon the obligee is still necessary before the
obligor can be considered in default and before a cause of action for rescission
will accrue.
Evident from the records and even from the allegations in the complaint
was the lack of demand by petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint only alleged that petitioner
made a "follow-up" upon respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation. Petitioners witness also testified
that they made a follow-up of the boxes, but not a demand. Note is taken of the
fact that, with respect to their claim for reimbursement, the Complaint alleged
and the witness testified that a demand letter was sent to respondent. Without a
previous demand for the fulfillment of the obligation, petitioner would not have a
cause of action for rescission against respondent as the latter would not yet be
considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the
present case, petitioners claim for reimbursement would still fail, as the
circumstances would show that respondent was not guilty of breach of contract.
Mindanao Terminal v. Phoenix Assurance, G.R. No. 162467 May 8, 2009
Del Monte contracted the services of petitioner, a stevedoring company, to
load and stow a shipment of cartons of bananas and pineapples owned by Del
Monte Produce (different from Del Monte) which was insured. Upon arrival at the
port of Korea it was found that the Cargo was in bad condition. Respondent
insurer filed this claim for reimbursement
It is the Courts consistent ruling that the act that breaks the contract may be
also a tort. In fine, a liability for tort may arise even under a contract, where tort
is that which breaches the contract. In the present case, Phoenix and McGee are
not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal
handled the cargoes belonging to Del Monte Produce. Despite the absence of
contractual relationship between Del Monte Produce and Mindanao Terminal, the
allegation of negligence on the part of the defendant should be sufficient to
establish a cause of action arising from quasi-delict.
In the absence of any higher degree of diligence stipulated, it is clear that
Mindanao Terminal had duly exercised the required degree of diligence in loading
and stowing the cargoes, which is the ordinary diligence of a good father of a
family. The loss was shown to be due to the storm and improper storage wherein
it was shown that there were no spaces between the cargoes.
Agcaoili vs .GSIS, 165 SCRA 1, G.R. No. L-30056 August 30, 1988

Petitioner applied for a purchase of a house and lot which was approved by
respondent. The approval was subject to the condition to occupy the house
which he found to be completely uninhabitable. The ceiling, stairs, double
walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage,
were inexistent. Petitioner refused to make any further payment until GSIS
completed the house.
Under the circumstances there can hardly be any doubt that the house
contemplated was one that could be occupied for purposes of residence in
reasonable comfort and convenience. There would be no sense to require the
awardee to immediately occupy and live in a shell of a house. By any objective
interpretation of its terms, the contract can only be understood as imposing on
the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in
return for his undertaking to pay the stipulated price. Since GSIS did not fulfill
that obligation, and was not willing to put the house in habitable state, it cannot
invoke Agcaoili's suspension of payment of amortizations as cause to cancel the
contract between them. It is axiomatic that "(i)n reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him."
In this case, the Court can not require specific performance of the contract in
question according to its literal terms, as this would result in inequity. The
prevailing rule is that in decreeing specific performance equity requires not only
that the contract be just and equitable in its provisions, but that the
consequences of specific performance likewise be equitable and just. The
general rule is that this equitable relief will not be granted if, under the
circumstances of the case, the result of the specific enforcement of the contract
would be harsh, inequitable, oppressive, or result in an unconscionable
advantage to the plaintiff.
The completion of the unfinished house so that it may be put into
habitable condition, as one form of relief to the plaintiff Agcaoili, no longer
appears to be a feasible option in view of the not inconsiderable time that has
already elapsed. That would require an adjustment of the price of the subject of
the sale to conform to present prices of construction materials and labor. It is
more in keeping with the realities of the situation, and with equitable norms, to
simply require payment for the land on which the house stands, and for the
house itself, in its unfinished state, as of the time of the contract.
Arrieta vs. Naric G.R. No. L-15645

January 31, 1964

Petitioner won the bidding of respondent corporation regarding the sale of
Burmese rice. The latter obligated itself to pay the former thru a letter of credit
in US currency. Respondent applied a letter of credit through the PNB with a
transmittal letter wherein it stated that it did not have enough funds. In the
meantime, petitioner has already made the a tender to her supplied. PNB
acceded to the request of NARIC but demanded a marginal cash deposit which
the latter still could not provide. Petitioner filed this suit for unrealized income

The sole and principal reason for the cancellation of the allocation
contracted by the appellee herein in Rangoon, Burma, was the failure of the
letter of credit to be opened with the contemplated period. It is further clear that
what singularly delayed the opening of the stipulated letter of credit and which,
in turn, caused the cancellation of the allocation in Burma, was the inability of
the appellant corporation to meet the condition importation by the Bank for
granting the same.
The liability of the appellant, however, stems not alone from this failure or
inability to satisfy the requirements of the bank. Its culpability arises from its
willful and deliberate assumption of contractual obligations even as it was well
aware of its financial incapacity to undertake the prestation.
Having announced the bid, it must be deemed to have impliedly assured
suppliers of its capacity and facility to finance the importation within the required
period, especially since it had imposed the supplier the 90-day period within
which the shipment of the rice must be brought into the Philippines. Having
entered in the contract, it should have taken steps immediately to arrange for
the letter of credit for the large amount involved and inquired into the possibility
of its issuance. Article 11 of the Civil Code which provides:

Those who in the performance of their obligation are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable in
Under this provision, not only debtors guilty of fraud, negligence or default
in the performance of obligations a decreed liable; in general, every debtor who
fails in performance of his obligations is bound to indemnify for the losses and
damages caused thereby.
The phrase "any manner contravene the tenor" of the obligation includes any
illicit act which impairs the strict and faithful fulfillment of the obligation or every
kind or defective performance.
Telefast vs. Castro G.R. No. 73867 February 29, 1988
The wife and mother of respondent passed away, on the same day one of
the daughters sent a telegram to his father informing him of his death. The
telegram was not, however, sent. Thus it was only the daughter who was present
during her interment. She thus filed a suit for damages
Art. 1170 of the Civil Code provides that "those who in the performance of
their obligations are guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages." Art. 2176 also
provides that "whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done."

In the case at bar, petitioner and private respondent Sofia C. Crouch entered into
a contract whereby, for a fee, petitioner undertook to send said private
respondent's message overseas by telegram. This, petitioner did not do, despite
performance by said private respondent of her obligation by paying the required
charges. Petitioner was therefore guilty of contravening its obligation to said
private respondent and is thus liable for damages.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral
damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. Though incapable of pecuniary computation, moral damages may
be recovered if they are the proximate results of the defendant's wrongful act or
NPC vs. CA G.R. Nos. 103442-45 May 21, 1993
Plaintiffs sought to recover actual damages for a flood caused by the
negligent release of defendant of a water dam through the spillways of Angat
Dam. That even with knowledge of the impending typhoon petitioner failed to
exercise due diligence and as a consequence thereof the town was inundated
causing member of the household, their furniture and animals to drown.
Petitioner as a defense contends that it gave written notice and that their loss
was due to fortuitous event
defendants-appellees maintained a reservoir water elevation even beyond
its maximum and safe level, thereby giving no sufficient allowance for the
reservoir to contain the rain water that will inevitably be brought by the coming
From the mass of evidence extant in the record, We are convinced, and so hold
that the flash flood on October 27, 1978, was caused not by rain waters (sic), but
by stored waters (sic) suddenly and simultaneously released from the Angat Dam
by defendants-appellees,
Said notice is ineffectual, insufficient and inadequate for purposes of the
opening of the spillway gates at midnight of October 26, 1978 and on October
27, 1978. It did not prepare or warn the persons so served, for the volume of
water to be released, which turned out to be of such magnitude, that residents
near or along the Angat River, even those one (1) kilometer away, should have
been advised to evacuate. Said notice, addressed "TO ALL CONCERN (sic)," was
delivered to a policeman (Civil Case No. SM-950, pp. 10-12 and Exhibit "2-A") for
the municipality of Norzagaray. Said notice was not thus addressed and delivered
to the proper and responsible officials who could have disseminated the warning
to the residents directly affected.
Thus it has been held that when the negligence of a person concurs with an act
of God in producing a loss, such person is not exempt from liability by showing
that the immediate cause of the damage was the act of God. To be exempt from
liability for loss because of an act of God, he must be free from any previous

negligence or misconduct by which that loss or damage may have been

Jimenez vs. City of Manila G.R. No. 71049 May 29, 1987
Petitioner went to Sta. Ana market which was ankle deep in flood at the
time. Thereupon, he was struck by a nail in an uncovered opening, which he
could not see due to the dirty rain water and caused a one and a half-inch
penetration. He turned ill and was sent to the hospital where he stayed sick for
20 days due to high fever. He was confined to crutches for 15 days and even had
to hire a third person to operate his school bus. Thus, he filed this suit against
Respondent City and Asiatic Integrated Corporation for the injuries petitioner
Article 2189 of the Civil Code of the Philippines which provides that:
Provinces, cities and municipalities shall be liable for damages for the death of,
or injuries suffered by any person by reason of defective conditions of roads,
streets, bridges, public buildings and other public works under their control or
constitutes a particular prescription making "provinces, cities and
municipalities ... liable for damages for the death of, or injury suffered by any
person by reason" specifically "of the defective condition of roads, streets,
bridges, public buildings, and other public works under their control or
the Supreme Court clarified further that under Article 2189 of the Civil Code, it is
not necessary for the liability therein established to attach, that the defective
public works belong to the province, city or municipality from which responsibility
is exacted. What said article requires is that the province, city or municipality has
either "control or supervision" over the public building in question.
A customer in a store has the right to assume that the owner will comply with his
duty to keep the premises safe for customers. If he ventures to the store on the
basis of such assumption and is injured because the owner did not comply with
his duty, no negligence can be imputed to the customer.
Petitioner had the right to assume that there were no openings in the middle of
the passageways and if any, that they were adequately covered. Had the
opening been covered, petitioner could not have fallen into it.
Nakpil & Sons vs. C.A. G.R. No. L-47851 April 15, 1988
The Philippine Bar Associations contracted the services of petitioner for
the creation of specifications, plans and designs of their new building which in
turn contracted United Construction for the erection of the building. HEHE. The
building was completed but two years after a strong earthquake hit and it
sustained major damages unlike its surrounding buildings. Thus, PBA filed a

The court holding that Petitioner as the architect was liable stated One
who negligently creates a dangerous condition cannot escape hability for the
natural and probable consequences thereof, although the act of a third person,
or an act of God for which he is not responsible, intervenes to precipitate the
VI. Remedies
Unlad vs. Dragon G.R. No. 149338 July 25, 2008
Plaintiffs-Respondent and petitioner entered into a Memorandum of
Agreement wherein respondent shall allow petitioner to invest 4.8M in their rural
bank and pay up immediately the amount of 1.2M. Respondents filed for
rescission for the return of control of the rural bank. They claim that the action
for rescission has already prescribed because it is not the general rule on
prescription which should apply but instead Art. 1389 on the chapter on
This is an erroneous proposition. Article 1389 specifically refers to
rescissible contracts as, clearly, this provision is under the chapter entitled
"Rescissible Contracts." It applies to rescissible contracts, as enumerated and
defined in Articles 1380 and 1381. We must stress however, that the "rescission"
in Article 1381 is not akin to the term "rescission" in Article 1191 and Article
1592. In Articles 1191 and 1592, the rescission is a principal action which seeks
the resolution or cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as enumerated in said
Article 1144 specifically provides that the 10-year period is counted from
"the time the right of action accrues." The right of action accrues from the
moment the breach of right or duty occurs.
Mutual restitution is required in cases involving rescission under Article 1191.
This means bringing the parties back to their original status prior to the inception
of the contract. Art. 1385 applies to this kind of rescission thus, Rescission has
the effect of "unmaking a contract, or its undoing from the beginning, and not
merely its termination." Hence, rescission creates the obligation to return the
object of the contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore. To rescind is to
declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning and restore the
parties to their relative positions as if no contract has been made.

Universal Food Corporation vs. C.A. G.R. No. L-29155 May 13, 1970

Plaintiff filed against respondent an action for rescission on their Bill of

assignment to which he was bound to render services as a permanent chief
chemist for the making of ketchup dun dun dun and to pay the salaries thereof
while plaintiff was to place the use of his ketchup formula to petitioner. Petitioner
contends that the right to specific performance is not conjunctive with the right
to rescind thus it was error for the court to award both rescission and the award
for his salary thereof
One of the considerations for the transfer of the use thereof was the
undertaking on the part of the petitioner corporation to employ the respondent
patentee as the Second Vice-President and Chief Chemist on a permanent status,
at a monthly salary of P300, unless "death or other disabilities supervened.
Under these circumstances, the petitioner corporation could not escape liability
to pay the private respondent patentee his agreed monthly salary, as long as the
use, as well as the right to use, the formula for Mafran sauce remained with the
Magdalena vs. Myrick G.R. No. L-47774 March 14, 1941
Petitioner sold to respondent a piece of land for a sum of money to which
respondent issued a promissory note. Due to the inability of the respondent to
pay the sum of instalment, the petitioner notified him that they are cancelling
the contract. Defendant filed an action for the return of his money already paid
to which Petitioner avered that the contract was still in effect thus, respondent
should be made to pay the unpaid balance. Petitioner states that the cancelation
was just a mere notification and that cancellation to produce any effect must be
agreed upon by both parties.
The contract of sale, contract SJ-639, contains no provision authorizing the
vendor, in the event of failure of the vendee to continue in the payment of the
stipulated monthly installments, to retain the amounts paid to him on account of
the purchase price. The claim, therefore, of the petitioner that it has the right to
forfeit said sums in its favor is untenable. Under article 1124 of the Civil Code,
however, he may choose between demanding the fulfillment of the contract or
its resolution. These remedies are alternative and not cumulative, and the
petitioner in this case, having to cancel the contract, cannot avail himself of the
other remedy of exacting performance. As a consequence of the resolution, the
parties should be restored, as far as practicable, to their original situation which
can be approximated only by ordering, as we do now, the return of the things
which were the object of the contract, with their fruits and of the price, with its
interest, computed from the date of the institution of the action.
U.P. vs. De Los Angeles G.R. No. L-28602 September 29, 1970
Petitioner and ALUMCO entered into an a logging agreement, the
respondent failed to pay the amoun stated and upon request by the UP for

rescission, it executed an acknowledgment of its debt which stated therein that

the contract may be rescinded without the necessity of judicial suit. UP informed
the respondent of its decision to rescind the contract upon its failure to further
pay its obligation. Respondent cited jurisprudence that a rescission may only be
decreed by the Court
the party who deems the contract violated may consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at
its own risk. For it is only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest.
In every case where the extrajudicial resolution is contested only the final
award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain contestable and
subject to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general rule
requiring judicial action but, as already observed, in case of abuse or error by the
rescinder the other party is not barred from questioning in court such abuse or
error, the practical effect of the stipulation being merely to transfer to the
defaulter the initiative of instituting suit, instead of the rescinder.
Zulueta vs. Mariano G.R. No. L-29360 January 30, 1982
Petitioner sold to respondent a house and lot wherein it was stipulated
that upon his failure to fulfil the conditions tated in their contract, the amounts
so paid shall be forfeited and considered as payment of rentals. Thus the
petitioner, upon failure of respondent to pay the amount filed an action for
ejectment treating his occupancy thereof as one in the character of a lessee.
Respondent moved to dismiss claiming that the action is one for rescission which
is not within the jurisdiction of the MTC.
In his Complaint, petitioner had alleged violation by respondent of the
stipulations of their agreement to sell and thus unilaterally considered the
contract rescinded. Respondent Avellana denied any breach on his part and
argued that the principal issue was one of interpretation and/or rescission of the
contract as well as of set-off. Under those circumstances, proof of violation is a
condition precedent to resolution or rescission. It is only when the violation has
been established that the contract can be declared resolved or rescinded. Upon
such rescission, in turn, hinges a pronouncement that possession of the realty
has become unlawful. Thus, the basic issue is not possession but one of

rescission or annulment of a contract. which is beyond the jurisdiction of the

Municipal Court to hear and determine.
True, the contract between the parties provided for extrajudicial rescission.
This has legal effect, however, where the other party does not oppose it. Where
it is objected to, a judicial determination of the issue is still necessary.
Palay vs. Clave G.R. No. L-56076 September 21, 1983
Petitioner executed a contract to sell in favour of private respondent
wherein it was stipulated that the contract shall be automatically extra judicially
rescinded upon default in payment of any instalment upon the lapse of 90 days
of the grace period of one month, without need of notice and with full forfeiture.
Well settled is the rule, as held in previous jurisprudence, that judicial
action for the rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of any of its terms
and conditions. However, even in the cited cases, there was at least a written
notice sent to the defaulter informing him of the rescission.
The act of a party in treating a contract as cancelled should be made
known to the other. The contention that private respondent had waived his right
to be notified under paragraph 6 of the contract is neither meritorious because it
was a contract of adhesion, a standard form of petitioner corporation, and
private respondent had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where liberty of
choice has been fully accorded. Moreover, it is a matter of public policy to
protect buyers of real estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments.
Furthermore, It would be most inequitable if petitioners were to be allowed
to retain private respondent's payments and at the same time appropriate the
proceeds of the second sale to another.
Angeles vs. Calasanz G.R. No. L-42283 March 18, 1985
Apellants entered into a contract to sell in favour of the Apellee. Apellants
accepted and received on numerous occasions delayed instalment payments
from the plaintiffs. Defendants demanded the remittance of the past due
accounts and upon failure thereof demanded cancellation of the contract.
The breach of the contract adverted to by the defendants-appellants is so
slight and casual when we consider that apart from the initial downpayment of
P392.00 the plaintiffs-appellees had already paid the monthly installments for a
period of almost nine (9) years. In other words, in only a short time, the entire
obligation would have been paid. Furthermore, although the principal obligation
was only P 3,920.00 excluding the 7 percent interests, the plaintiffs- appellees

had already paid an aggregate amount of P 4,533.38. To sanction the rescission

made by the defendants-appellants will work injustice to the plaintiffs- appellees.
It would unjustly enrich the defendants-appellants.
when the defendants-appellants, instead of availing of their alleged right
to rescind, have accepted and received delayed payments of installments,
though the plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants have
waived and are now estopped from exercising their alleged right of rescission.
Boysaw vs. Interphil G.R. No. L-22590 March 20, 1987
Petitioner engaged Gabriel Elorde in a boxing contest. Respondent wrote
to the Games and Amusements Boards claiming that it was not notified of the
change in management of petitioner and thus requested a postponement which
was granted. Petitioners refused to accept the change of date even if it was
within the allowable postponement period of 30 days provided by the contract.
While the bout was eventually staged, it was not within the period provided for in
the original contract. Plaintiff thus sued for damages
It is the appellees who had the right to rescind from the beginning since
the change in the management was in fact a novation of debtor made without
the consent of the creditor. Furthermore, it was stated therein that Boysaw
fought a boxing match which was prohibited from the contract. From the
evidence, it is clear that the appellees, instead of availing themselves of the
options given to them by law of rescission or refusal to recognize the substitute
obligor Yulo, really wanted to postpone the fight date owing to an injury that
Elorde sustained in a recent bout. That the appellees had the justification to
renegotiate the original contract, particularly the fight date is undeniable from
the facts aforestated. Under the circumstances, the appellees' desire to postpone
the fight date could neither be unlawful nor unreasonable.The refusal of the
plaintiffs to accept a postponement without any other reason but the
implementation of the terms of the original boxing contract entirely overlooks
the fact that by virtue of the violations they have committed of the terms
thereof, they have forfeited any right to its enforcement. Furthermore, the
Pilipinas Bank vs. IAC G.R. No. L-67881 June 30, 1987
Petitioner sold to Private respondents a piece of land covered by a
contract to sell wherein the contract was to be rescinded automatically upon
failure to pay three monthly instalments. The respondents were in arrears for 19
months to which petitioners simply sent a demand letter. Upon the arrear of 20
months petitioner stated that it shall be constrained to avail of the automatic
rescission clause. Respondent payed after the demand, but after some time
failed again to pay its arrears. After almost three years, petitioner wrote to the
respondent reminding him of his liability. And after two years thereafter, it wrote
a letter to respondent informing them that the contract has been rescinded.

While it is true that a contractual provision allowing "automatic rescission"
(without prior need of judicial rescission, resolution or cancellation) is VALID, the
remedy of one who feels aggrieved being to go to Court for the cancellation of
the rescission itself, in case the rescission is found unjustified under the
circumstances, still in the instant case there is a clear WAIVER of the stipulated
right of "automatic rescission," as evidenced by the many extensions granted
private respondents by the petitioner. In all these extensions, the petitioner
never called attention to the proviso on "automatic rescission."
Central Bank vs. C.A. G.R. No. L-45710 October 3, 1985
Private respondent entered into a loan agreement for the amount of
P80,000 which he secured with a mortgage which was found to be.. However,
only P17,000 was released by the petitioner to which private respondent issued a
promissory note on the amount payable in 3 years and thereafter the petitioner
could not anymore fulfil his obligation because it was deemed as insolvent by the
Monetary Bank. Thus, private respondent sued for specific performance
the mere pecuniary inability to fulfill an engagement does not discharge
the obligation of the contract, nor does it constitute any defense to a decree of
specific performance and, the mere fact of insolvency of a debtor is never an
excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach
of the contract by him Since Island Savings Bank was in default in fulfilling its
reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case. But since Island Savings Bank is now
prohibited from doing further business by Monetary Board Resolution No. 967,
WE cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is
only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in
default only insofar as such amount is concerned, as there is no doubt that the
bank failed to give the P63,000.00. As far as the partial release of P17,000.00,
which Sulpicio M. Tolentino accepted and executed a promissory note to cover it,
the bank was deemed to have complied with its reciprocal obligation to furnish a
P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's
reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to
pay the overdue amortizations under the promissory note made him a party in
default, hence not entitled to rescission. If there is a right to rescind the
promissory note, it shall belong to the aggrieved party, that is, Island Savings
Bank. If Tolentino had not signed a promissory note setting the date for payment
of P17,000.00 within 3 years, he would be entitled to ask for rescission of the
entire loan because he cannot possibly be in default as there was no date for him
to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective
reciprocal obligations, that is, Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they

are both liable for damages. Article 1192 of the Civil Code provides that in case
both parties have committed a breach of their reciprocal obligations, the liability
of the first infractor shall be equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not furnishing the entire loan is
offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue P17,000.00 debt

VII. Payment and Consignation

Landbank vs. Alfredo Ong G.R. No. 190755, November 24, 2010
Sps. Sy secured a loan from petitioner, a short term and a long term loan
amounting to 16 Million secured by 3 residential lots, 5 cargo trucks and a
warehouse. Finding that they could no longer settle their obligation, they sold the
3 residential lots with an assumption of mortgage to their faither, herein
respondent. Respondent was then informed that he should pay the amount of
P750,000 in order to easily approve the mortgage. However, the assumption of
mortgage was never approved due to the findings of an investigation that it had
a subsisting real estate mortgage. Nevertheless, the Petitioners foreclosed on the
land. As respondents payment of P750,000 was not returned he filed this herein
action for the recovery of the sum of P750,000. Landbank claims that it is not
liable to pay the sum of P750,000 but instead the Spouses Sy should be the one
who should pay respondent and claims that novation has taken place
Alfredo was not making payment to fulfill the obligation of the Spouses Sy.
Alfredo made a conditional payment so that the properties subject of the Deed of
Sale with Assumption of Mortgage would be titled in his name. It is clear from the
records that Land Bank required Alfredo to make payment before his assumption
of mortgage would be approved. He was informed that the certificate of title
would be transferred accordingly. He, thus, made payment not as a debtor but as
a prospective mortgagor.
Alfredo, as a third person, did not, therefore, have an interest in the
fulfillment of the obligation of the Spouses Sy, since his interest hinged on Land
Banks approval of his application, which was denied. The circumstances of the
instant case show that the second paragraph of Art. 1236 does not apply. As
Alfredo made the payment for his own interest and not on behalf of the Spouses
Sy, recourse is not against the latter. And as Alfredo was not paying for another,
he cannot demand from the debtors, the Spouses Sy, what he has paid.
Novation, in its broad concept, may either be extinctive or modificatory. It
is extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory when the
old obligation subsists to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the object or
principal conditions (objective or real), or by substituting the person of the

debtor or subrogating a third person in the rights of the creditor (subjective or

personal). Under this mode, novation would have dual functions one to
extinguish an existing obligation, the other to substitute a new one in its place
requiring a conflux of four essential requisites: (1) a previous valid obligation; (2)
an agreement of all parties concerned to a new contract; (3) the extinguishment
of the old obligation; and (4) the birth of a valid new obligation. x x x *****
In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in unequivocal terms,
or that the old and the new obligations be on every point incompatible with each
other. The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence
We do not agree, then, with the CA in holding that there was a novation in
the contract between the parties. Not all the elements of novation were present.
Novation must be expressly consented to. Moreover, the conflicting intention and
acts of the parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal intent by the
parties to novate the old agreement.(Landbank was made to pay back the
P750,000 as it had already foreclosed the lands)
J.M. Tuason vs. Javier No. L-28569. February 27, 1970.
Plaintiff-Apellant executed a contract to sell with the defendant a piece of
land with an automatic rescission clause. After religiously paying for the past 8
years the defendant failed to pay thus plaintiff filed this action.
According to Art. 1234 of said Code:If the obligation has been
substantially performed in good faith, the obligor may recover as though there
had been a strict and complete fulfillment, less damages suffered by the
obligee. Respondent is granted a grace period of 60 days to complete payment
Hermosa vs. Saldana G.R. No. L-26578 January 28, 1974
Plaintiff-private respondent entered into a written contract with the
defendant-petitioner whereby the latter agreed to sell to him two lots payable in
10 years. Plaintiff paid religiously for 8 years, but upon default thereof the
petitioner cancelled the contract.
Applying fairness and justice, the Court awarded the title to one of the
lots, since even prior to the default the payment received by petitioner already
exceeded the payment of one of the lots and should thus be considered fully
paid. Thus, the cancellation of one of the lot was awarded to petitioner together
with the right to retain the interest on both lots.
Azcona vs. Jamandre G.R. No. L-30597 June 30, 1987

Petitioner leased an 80 hectare land to respondent where the agreed

rental was fixed at P7,200. Upon entry of the respondent of the piece of land, he
paid the amount of P7,000 which was covered by a receipt. A year after, the
petitioner notified the respondent of its decision to cancel the agreement
claiming that there was default in the amount of P200, which respondent argues
that the receipt represented an express reduction of the stipulated rental in
consideration of his allowing the use of 16 hectares of the leased area by the
petitioner as grazing land for his cattle.
The signing of the receipt by the petitioner and its acceptance by the
respondent manifested their agreement on the reduction, which modified the
lease contract as to the agreed consideration while leaving the other stipulations
intact. It seems to us that this meaning was adequately conveyed in the
acknowledgment made by the petitioner that this was "payment for the rental
corresponding to crop year 1961-62" and "corresponds to the rentals due on or
before January 30, 1961, as per contract." On the other hand, if this was not the
intention, the petitioner does not explain why he did not specify in the receipt
that there was still a balance of P200.00 and, to be complete, the date when it
was to be paid by the respondent. Under Art. 1235. When the obligee accepts
the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
Aranas vs. Tutaan G.R. No. L-52807. February 29, 1984
If UTEX nevertheless chose to pay the wrong parties, notwithstanding its
full knowledge and understanding of the final judgment, that it was liable to pay
all dividends after the trial courts judgment in 1971 to petitioners as the lawfully
declared owners of the questioned shares of stock (but which could not be
enforced against it pending the outcome of the appeal filed by the co-defendants
Castaeda and Manuel in the Court of Appeals), it only had itself to blame
Kalalo vs. Luz G.R. No. L-27782 July 31, 1970
Apellant engaged the services of apellee as an engineer. After rendering
such services, appellant sent a check to the appelle, which he refused to accept
as full payment because he had a different resume of fees. He claimed that the
services provided were not in accordance with the contract and the fees he was
demanding was not justified

Ponce vs. C.A. G.R. No. L-49494 May 31, 1979

Petitioner received from the private respondents a promissory note in
Philippine currency the consideration of which was payable in USD. Upon default

thereof, the court ordered the payment of the amount due and upon appeal the
respondents contend that the contract is void because it contained payment of
US Dollars prohibited by law.
It is to be noted that while an agreement to pay in dollars is declared as
null and void and of no effect, what the law specifically prohibits is payment in
currency other than legal tender. It does not defeat a creditor's claim for
payment. It may likewise be pointed out that the Promissory Note contains no
provision "giving the obligee the right to require payment in a particular kind of
currency other than Philippine currency, " which is what is specifically prohibited
by RA No. 529.
What is prohibited by RA No. 529 is the payment of an obligation in
dollars, meaning that a creditor cannot oblige the debtor to pay him in dollars,
even if the loan were given in said currency. In such a case, the indemnity to be
allowed should be expressed in Philippine currency on the basis of the current
rate of exchange at the time of payment
New Pacific Timber vs. Seneris G.R. No. L-41764 December 19, 1980
A collection for a sum of money was filed wherein a compromise judgment
was entered. Petitioner failed to comply with his obligation thus an auction sale
was scheduled. Private respondent tendered a check and check totalling P63,000
which was refused by the sheriff. The auction sale proceeded and the lot was
sold for P50,000 only. The petitioner thus questioned the action of the sheriff
W.O.N. the tender of check was valid
YES, It is a well-known and accepted practice in the business sector that a
Cashier's Check is deemed as cash. Moreover, since the said check had been
certified by the drawee bank, by the certification, the funds represented by the
check are transferred from the credit of the maker to that of the payee or holder,
and for all intents and purposes, the latter becomes the depositor of the drawee
bank, with rights and duties of one in such situation. Where a check is certified
by the bank on which it is drawn, the certification is equivalent to
acceptance. Said certification "implies that the check is drawn upon sufficient
funds in the hands of the drawee, that they have been set apart for its
satisfaction, and that they shall be so applied whenever the check is presented
for payment. It is an understanding that the check is good then, and shall
continue good, and this agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of the depositor, or any
other obligation it can assume. The object of certifying a check, as regards both
parties, is to enable the holder to use it as money." When the holder procures
the check to be certified, "the check operates as an assignment of a part of the
funds to the creditors." Hence, the exception to the rule enunciated under
Section 63 of the Central Bank Act to the effect "that a check which has been

cleared and credited to the account of the creditor shall be equivalent to a

delivery to the creditor in cash in an amount equal to the amount credited to his
account" shall apply in this case.
Roman Catholic vs. IAC G.R. No. 72110. November 16, 1990
Petitioner failed to pay his balance on a contract of sale. A grace period
was provided to petitioner and on the last day he tendered a check for the whole
amount which was refused.
W.O.N. there is a valid tender of payment
NO, a certified personal check which is not legal tender nor the currency
stipulated, and therefore, can not constitute valid tender of payment. Since a
negotiable instrument is only a substitute for money and not money, the delivery
of such an instrument does not, by itself, operate as payment. the subsequent
consignation did not operate to discharge the former from its obligation to the
Tibajia vs. C.A. G.R. No. 100290 June 4, 1993
Pursuant to a monetary judgment, the petitioner delivered to the sheriff a
cashiers check for payment thereof which the private respondents refused to
accept. The latter instead insisted that the garnished amount represented by the
check be withdrawn.
W.O.N. there is valid payment
NO, a check is not legal tender and that a creditor may validly refuse
payment by check, whether it be a manager's, cashier's or personal check.
Velasco vs. Manila Electric Co. G.R. No. L-18390 December 20, 1971
Appellant Velasco urges that the damages awarded him are inadequate
considering the present high cost of living
W.O.N. the value of the currecy should be considered in adjusting damages
NO, It can be seen from the employment of the words "extraordinary
inflation or deflation of the currency stipulated" that the legal rule envisages
contractual obligations where a specific currency is selected by the parties as the

medium of payment; hence it is inapplicable to obligations arising from tort and

not from contract, as in the case at bar, besides there being no showing that the
factual assumption of the article has come into existence.
Commissioner of Public Highway vs. Burgos G.R. No. L-36706 March 31, 1980
The determination of this issue lies in whether extraordinary inflation
should be taken into account in Just Compensation
Under art. 1250, it is clear that the foregoing provision applies only to
cases where a contract or agreement is involved. It does not apply where the
obligation to pay arises from law, independent of contract. The taking of private
property by the Government in the exercise of its power of eminent domain does
not give rise to a contractual obligation. In the absence of any agreement to the
contrary, even assuming that there has been an extraordinary inflation within the
meaning of Article 1250 of the New Civil Code,the value of the peso at the time
of the establishment of the obligation, which in the instant case is when the
property was taken possession of by the Government, must be considered for the
purpose of determining just compensation.
Filipino Pipe vs. NAWASA G.R. No. L-43446 May 3, 1988
Having failed to comply with its obligation to pay, petitioner filed a
collection suit against respondent, wherein judgment was rendered against the
respondent and he again failed to pay. Petitioner filed another complaint seeking
an adjustment of the unpaid balance in accordance with the value of the peso in
the aforesaid decision.
W.O.N. adjustment due to extraordinary rise of inflation is in order
NO, Extraordinary inflation exists "when there is a decrease or increase in
the purchasing power of the Philippine currency which is unusual or beyond the
common fluctuation in the value said currency, and such decrease or increase
could not have reasonably foreseen or was manifestly beyond contemplation the
the parties at the time of the establishment of the obligation. While appellant's
voluminous records and statistics proved that there has been a decline in the
purchasing power of the Philippine peso, this downward fall of the currency
cannot be considered "extraordinary." It is simply a universal trend that has not
spared our country. Furthermore, it is merely a worldwide occurrence, but hardly
proof that it is extraordinary
Del Rosario vs. Shell G.R. No. L-28776 August 19, 1988

Petitioner and Respondent were Lessor-Lessee. Under the lease agreement

it was provided that the adjustment of the Philippine peso pursuant to a
devaluation or a depreciation shall adjust the rentals paid accordingly. Pursuiant
to an E.O. petitioner demanded an increase in payment of rent.
W.O.N. the demand to pay increased rental is valid
YES, while there has been no official devaluation as the term is technically
understood, the fact is that there has been a diminution or lessening in the
purchasing power of the peso, thus, there has been a "depreciation" (opposite of
"appreciation"). Moreover, when laymen unskilled in the semantics of economics
use the terms "devaluation" or "depreciation" they certainly mean them in their
ordinary signification decrease in value. Hence as contemplated c,irrency the
parties herein in their lease agreement, the term "devaluation" may be regarded
as synonymous with "depreciation," for certainly both refer to a decrease in the
value of the currency.

Filinvest vs. Acetylene G.R. No. L-50449 January 30, 1982
Respondent purchased from petitioner a Camaro, as security a chattel
mortgage was executed therein. Respondent failed to pay 9 of his instalment,
which was demanded by the petitioner. Petitioner sent a letter to the effect that
he will return the mortgage property pursuant to Art. 1484 and in full satisfaction
thereof together with a Voluntary Surrender with SPA to Sell
W.O.N. there is dacion en pago
NO, The mere return of the mortgaged motor vehicle by the mortgagor,
the herein appellant, to the mortgagee, the herein appellee, does not constitute
dation in payment or dacion en pago in the absence, express or implied of the
true intention of the parties. Dacion en pago, according to Manresa, is the
transmission of the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. The undertaking really
partakes in one sense of the nature of sale, that is, the creditor is really buying
the thing or property of the debtor, payment for which is to be charged against
the debtor's debt. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of
the performance of an obligation is considered as the object of the contract of

sale, while the debt is considered as the purchase price. In any case, common
consent is an essential prerequisite, be it sale or innovation to have the effect of
totally extinguishing the debt or obligation.
Citizens Surety and Insurance vs. CA G.R. No. L-48958 June 28, 1988
Petitioner issued two surety bonds for his principal. The principal in turn
executed a deed of assignment of his stock of lumber in favor of his creditor. The
principal failed to fulfil his obligation and petitioner was compelled to pay and
the principal failed to reimburse petitioner thus a claim for a sum of money was
W.O.N. there is novation by the execution of a deed of assignment
NO, when the deed of assignment was executed, the obligation of the
assignor to refund the assignee had not yet arisen. In other words, there was no
obligation yet on the part of the petitioner, Citizens' Surety and Insurance
Company, to pay Singer Sewing Machine Co. There was nothing to be
extinguished on that date, hence, there could not have been a dation in
Soco vs. Militante G.R. No. L-58961 June 28, 1983
Respondent entered into a contract of lease with petitioner over a
commercial building and lot. After some time the collector of petitioner stopped
collecting the rent, allegedly due to the fact that respondent was sub-leasing the
premises to another at a higher price, therefore, respondent sent his payment of
rentals by check to petitioner. The petitioner ordered the respondent to vacate
and the payment of rentals was thus consigned to the court. The lower court
declared the consignation valid on grounds of substantial compliance
W.O.N. there is valid consignation
NO, There should be notice to the creditor prior and after consignation as
required by the Civil Code. The reason for this is obvious, namely, to enable the
creditor to withdraw the goods or money deposited. Indeed, it would be unjust to
make him suffer the risk for any deterioration, depreciation or loss of such goods
or the essential requisites of a valid consignation must be complied with fully and
strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That
these Articles must be accorded a mandatory construction is clearly evident and
plain from the very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein provided. Substantial
compliance is not enough for that would render only a directory construction to
the by reason of lack of knowledge of the consignation."

Immaculata vs. Navarro

Petitioner obtained a free patent which it sold to respondent. He sold the
land and offered to redeem such but the tender was not accepted. The
respondent contends that tender alone is not sufficient
W.O.N. consignation is necessary
NO, The right to redeem is a RIGHT, not an obligation, therefore, there is
no consignation required to preserve the right to redeem

VIII. Loss

People vs Franklin G.R. No. L-21507 June 7, 1971

Appellant is the surety of the accused who, under provisional liberty, was
able to secure a Philippine passport and depart from the Country. They contend
that the obligation becoming impossible, he should be released therefrom
a person binds himself as surety for the accused, he takes charge of, and
absolutely becomes responsible for the latter's custody, and under such
circumstances it is incumbent upon him, or rather, it is his inevitable obligation
not merely a right, to keep the accused at all times under his surveillance,
inasmuch as the authority emanating from his character as surety is no more nor
less than the Government's authority to hold the said accused under preventive
Laguna vs. Manabat G.R. No. L-23546 August 29, 1974
Respondents assignor Binan transport leased their certificate of public
convenience to petitioner for a period of 5 years. Some time thereafter the
assignor became insolvent and the lessee reduced the amount of rentals paid. A
complaint was filed and petitioner prayed for the suspension of the lease until
the operating expenses were back to normal on grounds of fluctuation of the
market and a reduction of rentals
Where a person by his contract charges himself with an obligation possible to be
performed, he must perform it, unless the performance is rendered impossible by
the act of God, by the law, or by the other party, it being the rule that in case the
party desires to be excused from the performance in the event of contingencies

arising, it is his duty to provide therefor in his contract. Hence, performance is

not excused by subsequent inability to perform, by unforeseen difficulties, by
unusual or unexpected expenses,

Occena vs. Jabson No. L-443349, October 29, 1976

Private respondent filed for the modification of the terms and contracts of
its subdivision contracts on account of alleged increase in prices of oil and
concomitant spiralling of prices as it would result in an unjust enrichment on the
part of the petitioner citing article 1267
The cited article does not grant the courts this authority to remake, modify
or revise the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the parties themselves.
Respondent's complaint for modification of contract manifestly has no basis in
law and therefore states no cause of action. Under the particular allegations of
respondent's complaint and the circumstances therein averred, the courts cannot
even in equity grant the relief sought.
IX. Compensation

BPI vs. C.A. G.R. No. 136202 January 25, 2007

A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a collecting
bank to debit a client's account for the value of a dishonored check that has
previously been credited has fairly been established by jurisprudence. To begin
with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current
deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be
that of creditor and debtor. Thus, legal compensation under Article 1278 of the
Civil Code may take place "when all the requisites mentioned in Article 1279 are
Gan Tion vs. C.A. G.R. No. L-22490 May 21, 1969
The case is founded on a dispute over the difference over rentals. Private
respondent lessee won the dispute and was awarded attorneys fees. Petitioner
appealed and pleaded legal compensation as to the amount of unpaid rentals,
which the CA refused to award contending that the amount was a trust fund to
be awarded to defendants counsel

For an attorney's fee's the award is made in favor of the litigant, not of his
counsel, and is justified by way of indemnity for damages recoverable by the
former in the cases enumerated in Article 2208 of the Civil Code. It is the litigant,
not his counsel, who is the judgment creditor and who may enforce the judgment
by execution. Such credit, therefore, may properly be the subject of legal
PNB vs. Acero G.R. No. L-69255 February 27, 1987
Isabella Corporation had a deposit with petitioner bank which had two
controverting claims. Respondent Acero claim is founded upon a notice of
garnishment served with petitioner while the latters claim is based upon an
alleged credit agreement between him and Isabella Corporation
Petitioner failed to adduce proof that it is a creditor of Isabella. Even if it
be assumed that such an assignment had indeed been made, and PNB had been
really authorized to apply the P2M deposit to the satisfaction of ISABELA's
indebtedness to it, nevertheless, since the record reveals that the application
was attempted to be made by PNB only on a prior date that essayed application
was ineffectual and futile because at that time, the deposit was already
in custodia legis, notice of garnishment thereof having been served on PNB
Francia vs. IAC G.R. No. L-67649 June 28, 1988
Petitioner was delinquent in his payment of real estate taxes. He contends
that legal compensation should take effect as the government owes him money
from an expropriation of his property
By legal compensation, obligations of persons, who in their own right are
reciprocally debtors and creditors of each other, are extinguished We have
consistently ruled that there can be no off-setting of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to
pay a tax on the ground that the government owes him an amount equal to or
greater than the tax being collected. The collection of a tax cannot await the
results of a lawsuit against the government.
"The general rule based on grounds of public policy is well-settled that no
set-off admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule is based, is that
taxes are not in the nature of contracts between the party and party but grow
out of duty to, and are the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers is not
required. ..."
Republic vs. De los Angeles G.R. No. L-26112 April 27, 1973


Solinap vs. Del Rosario G.R. No. L-50638 July 25, 1983
Respondent as heirs of the deceased and Petitioner entered into a contract
of lease wherein the rentals were to be applied to their indebtedness. In order to
reduce the interest payable on the estate respondents paid the rentals due to
the PNB and sought reimbursement from petitioner. Before the issue was
resolved, the petitioner filed a separate action against respondent in their
personal capacity for collection of their loan in which the respondents sought
counterclaim for the rentals payable to the estate.
Petitioner's claim against the respondent Luteros is still pending
determination by the court. The counterclaim interposed by them, if ultimately
found to be meritorious, can defeat petitioner's demand. Upon this premise, his
claim in that case cannot be categorized as liquidated credit which may properly
be set-off against his obligation. Compensation cannot take place where one's
claim against the other is still the subject of court litigation. It is a requirement,
for compensation to take place, that the amount involved be certain and
Sycip vs. C.A. G.R. No. L-38711, January 31, 1985
A certain Lapuz was to sold the shares of stocks of another for which he
was to get a commission. Accused appellant was entrusted the sale by Lapuz to
which he issued a check which was dishonoured. Lapuz filed for a case of estafa
Compensation cannot take place in this case since Lapuz is only an agent.
Compensation takes place only when two persons in their own right are creditors
and debtors of each other, and that each one of the obligors is bound principally
and is at the same time a principal creditor of the other.
Cia Maritima vs. IAC G.R. No. L-51438 April 9, 1985
For compensation to take place, one of the elements necessary is that the
debts be liquidated. The amount expended for repairs and improvements had yet
to be determined by the Trial Court. Rentals for the use of the vessel by PANORIENTAL were neither due and demandable at the time of dispossession but
only after this Court had issued its Resolution
International Corporate Bank vs. IAC G.R. No. L-69560 June 30, 1988

Respondents secured a loan from petitioner, which was secured by a
mortgaged. Upon failure to pay it was sold at a public auction which is now being
questioned vigorously be respondent along with a claim for money representing
her money market investment. Petitioner filed a petition for certiorari questioning
the order of the judge which allowed on motion the release of the amount
representing the money market which it applied to respondents loan on the basis
of compensation
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.
Mindanao Portland vs. CA No. L-62169, February 28, 1983
Appellant filed a motion to direct payment of attorneys fees instead of to
his client. Petitioner opposed conteding that it also has been awarded attorneys
fees in a different case against appellants client
petitioner Mindanao Portland Cement Corporation (appellant) and
respondent Pacweld Steel Corporation (appellee), were creditors and debtors of
each other, their debts to each other consisting in final and executory judgments
of the Court of First Instance in two (2) separate cases, ordering the payment to
each other of the sum of P10,000.00 by way of attorney's fees. The two (2)
obligations, therefore, respectively offset each other, compensation having taken
effect by operation of law and extinguished both debts to the concurrent amount
X. Novation

Japan Airlines vs. Simangan G.R. No. 170141

April 22, 2008

Respondent booked a light to the US with petitioner. Petitioners employee
bumped off respondent contending that he was only using his flight as a pretext
to stay in Japan. He was made to wait and upon finding out that his travel
information was in order, he was refunded his ticket and was offered to be
rebooked the next day. That act as petitioner claims amounted to a novation,
therefore no breach of contract of carriage may be found
Considering that respondent was forced to get out of the plane and left
behind against his will, he could not have freely consented to be rebooked the
next day. In short, he did not agree to the alleged novation. Since novation

implies a waiver of the right the creditor had before the novation, such waiver
must be express.
Salazar vs. JY Brothers G.R. No. 171998

October 20, 2010

In payment of its obligation petitioner indorsed a check a Prudential Bank
account which, upon dishonor it replaced with a cross Solid Bank check.
Novation is done by the substitution or change of the obligation by a
subsequent one which extinguishes the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor.
The obligation to pay a sum of money is not novated by an instrument
that expressly recognizes the old, changes only the terms of payment, adds
other obligations not incompatible with the old ones or the new contract merely
supplements the old one. The change in the mode of paying the obligation was
not a change in any of the objects or principal condition of the contract for
novation to take place.
Metropolitan Bank and Trust vs. Rural Bank of Gerona G.R. No. 159097
July 5, 2010
Central Bank and respondent entered into an agreement wherein
Metrobank would be the depository and the former would receive the advance
released by the former as proceeds of the loan. Upon failure of the agreement,
Central bank debited Metrobank who in turn debited respondent although it was
insufficient. Thus a claim was filed.
Art. 1302. It is presumed that there is legal subrogation (2) When a third
person, not interested in the obligation, pays with the express or tacit approval of
the debtor; Metrobank was a third party to respondent and central banks
agreement and the facts show that respondent agreed to Metrobanks payment
to the Centralbank. As the entity against which the collection was enforced,
Metrobank was subrogated to the rights of Central Bank and has a cause of
action to recover from RBG the amounts it paid to the Central Bank.(What would
happen if Respondent did not approve? Solutio Indebitii)
Fua vs. Yap G.R. No. L-48797

July 30, 1943

Appelle obtained a favourable judgment and by virtue of a writ of
execution a land was to be sold at a public auction, which however, did not
materialize due to a subsequent agreement between them reducing the amount
with mortgage security. However, a few months after the sheriff sold the land to
the appelle

Appellants liability under the judgment in civil case had been extinguished
by the settlement evidenced by the mortgage executed by them in favor of the
appellee. Although said mortgage did not expressly cancel the old obligation, this
was impliedly novated by reason of incompatibly resulting from the fact that,
whereas the judgment was for P1,538.04 payable at one time, did not provide for
attorney's fees, and was not secured, the new obligation is or P1,200 payable in
installments, stipulated for attorney's fees, and is secured by a mortgage.
Millar vs. CA G.R. No. L-29981 April 30, 1971
Petitioner obtained a favourable judgment against private respondent.
Pursuant to a writ of execution respondents jeepney was seized, and the latter
pleaded the release of the jeep with an agreement that it will be secured by a
mortgage therein. They executed a chattel mortgage with a stipulation for
payment in two instalments. Upon failure thereof, the petitioner obtained a writ
of execution and respondent claims that the subsequent agreement novated the
The mere reduction of the amount due in no sense constitutes a sufficient
indictum of incompatibility especially since such reduction was due to a partial
payment. There is 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 unmistakable terms of the deed of chattel mortgage reveal that the
parties constituted the chattel mortgage purposely to secure the satisfaction of
the then existing liability of the respondent arising from the judgment against
him in civil case 27116. As a security for the payment of the judgment obligation,
the chattel mortgage agreement effectuated no substantial alteration in the
liability of the respondent.
Sandico vs. Piguing G.R. No. L-26115 November 29, 1971
Petitioners obtained a favourable judgment and moved for the issuance of
a writ of execution. Petitioner agreed to reduce the amount which respondent
failed in full

Fundamental it is that novation effects a substitution or modification of an

obligation by another or an extinguishment of one obligation in the creation of
another. 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.
NPC vs. Dayrit G.R. Nos. L-62845-46 November 25, 1983
Respondent sought to compel petitioner to restore their service contract,
to which he was terminated. A compromise agreement was entered between
them and approved by the court to which respondent sought to enforce.
Petitioner in the meantime executed another contract of service with another
which expressly recognized the compromise agreement of the respondent
In the case at bar there is nothing in the subsequent agreement which
supports the petitioner's contention. There is neither explicit novation nor
incompatibility on every point between the "old" and the "new" agreements.
Integrated Construction vs. Relova G.R. No. L-41117 December 29, 1986
Petitioner and private respondent entered into an agreement which
however amounted to a breach of contract. An arbitration agreement was made
but the parties made a subsequent agreement. Upon failure to comply, petitioner
filed for a motion for execution on the previous judgment, which respondent
judge however, refused to issue on grounds of novation due to the subsequent
The tenor of the subsequent letter-agreement in a sense novates the
judgment award there being a shortening of the period within which to pay the
suspensive and conditional nature of the said agreement (making the novation
conditional) is expressly acknowledged and stipulated in the MWSS' Resolution
MWSS' failure to pay within the stipulated period removed the very cause and
reason for the agreement, rendering some ineffective. Petitioners, therefore,
were remitted to their original rights under the judgment award.
Cochingyan vs. R&B Surety G.R. No. L-47369 June 30, 1987


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 codebtor or surety or a co-surety.
Where, as in this case, the parties to the new obligation expressly
recognize the continuing existence and validity of the old one, where, in other
words, the parties expressly negated the lapsing of the old obligation, there can
be no novation.
Balila vs. IAC
The fact therefore remains that the amount decreed by the trial court in its
judgment by compromise was novated and amended by the subsequent mutual
agreements and actions of petitioners and private respondents.

Peoples bank vs. Syvel G.R. No. L-29280 August 11, 1988

There is nothing in the Real Estate Mortgage which supports appellants
'submission. The contract on its face does not show the existence of an explicit
novation nor incompatibility on every point between the "old and the "new"
agreements as the second contract evidently indicates that the same was
executed as new additional security to the chattel mortgage previously entered
into by the parties.