CIVIL LAW REVIEW 2 as if a motion to dismiss had been filed.

This was
granted by the trial court.
CASE DIGEST
PRELIM
Issue: Whether or Not the action was barred by
2 nd
Semester SY 2013-2014 prescription?

Ruling: Pet.is without merit, claim is imprescriptible.

Respondents anchored their action for reconveyance
PRESCRIPTION in the trial court on the nullity of the Deed of Sale
between petitioner Aznar and the supposed owners of
1. AZNAR BROTHERS VS. HEIRS OF ANICETO the property. Respondents impugned the validity of
AUGUSTO the document because the sellers were not the true
owners of the land.
Facts: The subject matter of this controversy is Lot
No. 4397 owned by Aniceto Augusto who was married Respondents sought the declaration of nullity
to Petrona Calipan. When Aniceto died on December (inexistence) of the Deed of Sale because of the
3, 1934, he left behind five children: Geronimo, absence of their consent as the true and lawful
Zacarias, Teoderica, Arsenia and Irenea. Apparently, owners of the land. They argued that the sale to
the property remained undivided as evidenced by petitioner Aznar was void since the purported
Tax Declaration No. 026794 issued to Petrona "owners" who signed the Deed of Sale as vendors
Calipan in 1945. were not even heirs of Aniceto Augusto and Petrona
Calipan. They pointed out that the 1945 Tax
Tax Declaration No. 02679 in the name of Calipan Declaration in the name of Petrona Calipan indicated
was cancelled pursuant to an "Extrajudicial that the property was undivided as of the time
Partition"5 executed before Notary Public Vicente Aniceto Augusto died in 1932.
Fanilag. In lieu thereof, tax declaration certificates
covering Lot No. 4397 were issued to the following: The "owners" who sold the land to petitioner Aznar
Filomeno Augusto, Ciriaco Icoy, Felipe Aying, Realty could not have been the true owners of the
Zacarias Augusto, Abdon Augusto, Teoderica land since there was no showing how they acquired
Augusto, Pedro Tampus and Anacleto Augusto. These the land in the first place. Thus, the trial court
persons sold the property to petitioner Aznar should not have dismissed the complaint without
Brothers Realty Company (Aznar Realty) through a looking into the validity of the sale of land to
Deed of Sale of Unregistered Land. petitioner Aznar Realty.

Respondent Heirs filed Civil Case No. 2666-L against
petitioner Aznar Realty, and Carlos and Filomeno
Augusto in the RTC of Lapu-Lapu City, Branch 27, for
(1) recovery of Lot No. 4397; (2) the declaration of
the Deed of Sale dated February 13, 1962 as null and
void; (3) the recognition of the Heirs; (4) the
cancellation of the TCT issued to petitioner Aznar
Realty and (5) the issuance of a restraining order
and/or writ of preliminary injunction.
Aznar Realty filed an answer interposing the defense
of lack of cause of action and prescription. It asked
for a preliminary hearing on the affirmative defenses
In actions for reconveyance of property predicated
on the fact that the conveyance complained of was
null and void ab initio, a claim of prescription of
action would be unavailing. The action or defense for
the declaration of the inexistence of a contract does
not prescribe. Neither could laches be invoked in the
case at bar. Laches is a doctrine in equity and our
courts are basically courts of law and not courts of
equity. Equity, which has been aptly described as
"justice outside legality," should be applied only in
the absence of, and never against, statutory law.
Aequetas nunguam contravenit legis.
The positive mandate of Art. 1410 of the New Civil
Code conferring imprescriptibility to actions for
declaration of the inexistence of a contract should
pre-empt and prevail over all abstract arguments
based only on equity. Respondents were evicted from
their land in November 1991 and they filed their
complaint with the trial court on July 28, 1992. Only
eight months had passed from the time they were
ejected to the time they asserted their rights over
their property. They certainly could not be deemed
to have slept on their rights.
Thus, the Court of Appeals did not err in setting
aside the decision of the trial court and ordering
that the case be remanded for trial.
2. CAPITLE VS VDA DE GABAN
Facts: Julians brother Zacarias died in 1984. He was
survived by the other petitioners herein, Aurora P.
vda. de Correjado, Lilia Capitle, Artemio Correjado,
Cecilia Correjado, Rogelia Correjado
Sofronio Correjado, Vicente Correjado and Gloria
vda. de Beduna.
On November 26, 1986, petitioners
complaint[1] for partition of the
damages before the Regional Trial Court (RTC) of La
Carlota City against respondents,
Fabian contracted two marriages, the first with
Brigida Salenda who was the mother of Julian, and
the subsequent one with Maria Catahay (Maria) who
was the mother of Zacarias, Manuel and Francisco;
that the property remained undivided even after the
death of Julian in 1950, his
respondents having arrogated unto themselves the
use and enjoyment of the property, to the exclusion
of petitioners; and that respondents refused to
deliver petitioners share in the property despite
demands therefor and for partition.
To the Complaint respondents countered in their
Answer[2] that in the proceedings in the intestate
estate of their great grandfather Santos Correjado,
petitioners were not adjudicated any share in the
property, for Maria, the mother
respective fathers Francisco and Zacarias, was just a
mistress of Fabian, hence, Francisco and Zacarias (as
well as Manuel) were illegitimate who were not
entitled to inherit under the old Civil
RTC dismissed the complaint upon the grounds of
prescription and laches.
Issue: W/N the action has already prescribed
Ruling: ART. 1134. Ownership and other real rights
over immovable property are acquired by ordinary
prescription through possession of ten years.
Art. 1137, New Civil Code
ART. 1137. Ownership and other real rights over
immovables also prescribe through uninterrupted
adverse possession thereof for thirty years, without
need of title or of good faith.
(Rogelia), Assuming arguendo that petitioners respective
fathers Francisco and Zacarias were legitimate and,
therefore, were co-owners of the property: From the
moment co-owner Julian occupied in 1919 and
filed a claimed to be the absolute and exclusive owner of
property and the property and denied his brothers any share
therein up to the time of his death in 1950, the
alleging that question involved is no longer one of partition but of
ownership in which case imprescriptibility of the
action for partition can no longer be invoked. The
adverse possession by Julian and his successors-in-
interest- herein respondents as exclusive owner of
the property having entailed a period of about 67
children-herein years at the time of the filing of the case at bar in
1986, ownership by prescription had vested in them.
As for estoppel by laches which is a creation of
equity,[13] since laches cannot interfere with the
running of the period of prescription, absent any
conduct of the parties operating as estoppel,[14] in
light of the prescription of petitioners action,
discussion thereof is dispensed with. Suffice it to
state that while laches may not be strictly applied
between near relatives, under the facts and
of petitioners circumstances of the case, especially the
uncontroverted claim of respondents that their promised to do so but failed to deliver the title to
father Julian, and the documented claim of them.
respondent Julieta, had paid realty taxes on the
property as exclusive owner, as well as the admission On December 4, 1986, after Albertas heirs left for
of petitioner Rogelia that, as quoted above, she and the States, Arnold used the OCT he borrowed from
her co-petitioners never benefited or were the deceased vendee Alberta Morales, subdivided the
deprived of any benefits from the property since entire lot no. 265 into three sublots, and registered
1919 up to the time of the filing of the case in 1986 them all under his name, viz: lot no. 265-A (with TCT
before the RTC or for a period of 67 years, despite No. 16895), lot no. 265-B (with TCT No. 16896) and
demands therefor, even an extremely liberal lot no. 265-C (with TCT No. 16897). He then paid the
application of laches would bar the filing of the case. real estate taxes on the property.

After the death of Arnold, the three (3) nieces-heirs

of Alberta Morales learned about the second sale of
3. OCCEA VS. ESPONILLA
their lot to the Occea spouses when they were
notified by caretaker Abas that they were being
Facts: After the death of the Tordesillas spouses, the
ejected from the land. The heirs filed a case7 for
lot was inherited by their children Harod and Angela,
annulment of sale and cancellation of titles, with
and grandchildren Arnold and Lilia. In 1951, the
damages, against the second vendees Occea
heirs executed a Deed of Pacto de Retro Sale1 in
spouses. In their complaint, they alleged that the
favor of Alberta Morales covering the southwestern
Occeas purchased the land in bad faith as they were
portion of the lot
aware that the lots sold to them had already been
in 1954, Arnold and Lilia executed a Deed of Definite sold to Alberta Morales in 1954. They averred that
Sale of Shares, Rights, Interests and Participations2 before the sale, when Tomas Occea conducted an
over the same 748 sq. m. lot in favor of Alberta ocular inspection of the lots, Morito Abas, the
Morales. caretaker appointed by Alberta Morales to oversee
her property, warned them not to push through with
Alberta possessed the lot as owner, constructed a
the sale as the land was no longer owned by vendor
house on it and appointed a caretaker to oversee her
Arnold as the latter had previously sold the lot to
property. Thereafter, in July 1956, vendor Arnold de
Alberta Morales who had a house constructed
la Flor borrowed the OCT from Alberta covering the
thereon.
lot. He executed an Affidavit3 acknowledging receipt
of the OCT in trust and undertook to return said title
For their part, the Occea spouses claimed that the
free from changes, modifications or cancellations.
OCT in the name of the original owners of the lots,
Arnold and Angela, nephew and daughter respectively
the Tordesillas spouses, was cancelled after it was
of the Tordesillas spouses, without the knowledge of
subdivided between Angela and Arnold in 1969; that
Alberta, executed a Deed of Extrajudicial
new TCTs had been issued in the latters names; that
Settlement4 declaring the two of them as the only
they were unaware that the subject lots were already
co-owners of the undivided 1,198 sq. m. lot no. 265,
previously sold to Morales as they denied that Tomas
without acknowledging their previous sale of 748 sq.
had a talk with caretaker Abas on the matter; that as
m. thereof to Alberta.
of December 4, 1987, the TCTs covering the lots
were in the name of Arnold and his wife, without any
In 1985, vendee Alberta Morales died. Her nieces-
adverse claim annotated thereon; that vendor Arnold
heirs, Lydia, Elsa and Dafrosa, succeeded in the
represented to them that the occupants they saw on
ownership of the lot. Months later, as the heirs were
the land were squatters and that he merely tolerated
about to leave for the United States, they asked
their presence; that they did not personally
Arnold to deliver to them the title to the land so
investigate the alleged squatters on the land and
they can register it in their name. Arnold repeatedly
merely relied on the representation of vendor Arnold;
that sometime in 1966-1967, Arnold and his co-heir
Angela caused the survey of the original lot and
subdivided it into 3 lots, without opposition from
Morales or her heirs. Thus, three (3) TCTs were
issued in 1969 to Arnold and Angela and, two of the
lots were then sold to the Occea spouses, again
without objection from Alberta Morales.
The Occea spouses alleged that they were buyers in
good faith as the titles to the subject lots were free
from liens or encumbrances when they purchased
them. They claimed that in 1989, Arnold offered to
sell the subject lots to them. On August 13, 1990,
after they verified with the Antique Registry of
Deeds that Arnolds TCTs were clean and
unencumbered, Arnold signed the instrument of sale
over the subject lots in favor of the Occeas for
P100,000.00 and new titles were issued in their
names.
The Occeas likewise set up the defenses of laches
and prescription. They argue that Alberta and
plaintiffs-heirs were barred from prosecuting their
action as they failed to assert their right for forty
(40) years.
Issue: Whether Or Not The Period Of More Than
Forty (40) Years Without Positive Action Taken By
Respondents, As Well As By Alberta Morales, To
Protect Their Interest Can Be Considered Laches And
Thus Their Present Action Has Prescribed
Ruling: the action to annul title filed by respondents-
heirs is not barred by laches and prescription.
Firstly, laches is a creation of equity and its
application is controlled by equitable considerations.
Laches cannot be used to defeat justice or perpetuate
fraud and injustice. Neither should its application be
used to prevent the rightful owners of a property
from recovering what has been fraudulently
registered in the name of another.17 Secondly,
prescription does not apply when the person seeking
annulment of title or reconveyance is in possession
of the lot because the action partakes of a suit to
quiet title which is imprescriptible.18 In this case,
Morales had actual possession of the land when she
had a house built thereon and had appointed a
caretaker to oversee her property. Her undisturbed
possession of the land for a period of fifty (50) long
years gave her and her heirs a continuing right to
seek the aid of a court of equity to determine the
nature of the claim of ownership of petitioner-
spouses.
In the case at bar, Morales caretaker became aware
of the second sale to petitioner-spouses only in 1991
when he received from the latter a notice to vacate
the land. Respondents-heirs did not sleep on their
rights for in 1994, they filed their action to annul
petitioners title over the land. It likewise bears to
stress that when vendor Arnold reacquired title to
the subject property by means of fraud and
concealment after he has sold it to Alberta Morales, a
constructive trust was created in favor of Morales
and her heirs. As the defrauded parties who were in
actual possession of the property, an action of the
respondents-heirs to enforce the trust and recover
the property cannot prescribe. They may vindicate
their right over the property regardless of the lapse
of time.21 Hence, the rule that registration of the
property has the effect of constructive notice to the
whole world cannot be availed of by petitioners and
the defense of prescription cannot be successfully
raised against respondents.
4. SALUDARES VS. CA
Facts: Pomposa died on May 1, 1923, leaving herein
petitioners, Enrica, Petra, Restituto, Amado, Delfina,
Beata, Vicenta and Isabel, all surnamed Dator, as her
compulsory heirs
Heirs and their father Juan executed a deed of extra-
judicial partition of the share of Pomposa in the
Tanza estate. The settlement conferred the eastern
half of the Tanza estate to Juan and the western half
to the Heirs.
Juan was in possession of the entire Tanza estate.
After the partition, the Heirs took possession of their
share and had the same tenanted by a certain Miguel
Dahilig, husband of Petra, one of the Heirs, who in
turn managed the land in behalf of the other siblings.
Juan, the father, remained in possession of his half
of the land until his death on April 6, 1940.
On December 13, 1976, Isabel Dator applied for a
free patent over the entire Tanza estate, including
Lot 5793, in behalf of the Heirs. On May 26, 1977,
after all the requirements were complied with, the
Register of Deeds of Quezon awarded Free Patent No.
4A-2-8976 and issued Original Certificate of Title
(OCT) No. 0-23617 in the names of the Heirs.
Sometime in 1988, the Heirs were informed by their
tenant that private respondents cut
coconut trees located within the subject lot. Thus,
the Heirs sent a letter,3 dated July 26, 1988, to
private respondents demanding an explanation for
their intrusion into their property and unauthorized
felling of trees.
On August 25, 1988, private respondents retaliated
by filing an action for reconveyance
petitioners, docketed as civil case no. 88-121, in the
Regional Trial Court of Lucena City.
respondents alleged in their complaint that: (a) they
were the owners in fee simple and possessors of Lot
No. 5793; (b) they bought the land
successors-in-interest of Petra Dator, one of the
heirs; (c) they were in possession of the subject land
from 1966 to the present and (d) petitioner Isabel
Dator obtained free patent OCT P-23617 over Lot
5793 in favor of the Heirs by means of fraud and
misrepresentation. Thus, private respondents prayed
for the cancellation of OCT P-23617 and the issuance
of a new title in their names.
In their answer, the Heirs denied having sold any
portion of the Tanza estate to anyone. They alleged
that: (a) they and their predecessors-in-interest had
been and were still in actual, continuous, adverse
and public possession of the subject land in the
concept of an owner since time immemorial and (b)
title to Lot 5793 was issued in their favor after
faithful compliance with all the requirements
necessary for the issuance of a free patent.
After trial, the lower court rendered a decision
dismissing the action primarily on the ground of
prescription of action.
Issue: W/N CA erred when it did not consider that
the complaint filed by the private respondents for
reconveyance and cancellation of title before the
trial court eleven (11) years after a torrens title over
the property was issued in the name of the
petitioners (had) prescribed.
Ruling: There is but one instance when prescription
cannot be invoked in an action for reconveyance,
that is, when the plaintiff is in possession of the land
to be reconveyed.9
some 50
In a series of cases, this Court permitted the filing of
an action for reconveyance despite the lapse of ten
years and declared that said action, when based on
fraud, is imprescriptible as long as the land has not
passed to an innocent purchaser for value. But in all
those cases including Vital vs. Anore11 on which the
appellate court based its assailed decision, the
against common factual backdrop was that the registered
owners were never in possession of the disputed
Private property. Instead, it was the persons with the better
right or the legal owners of the land who had always
been in possession of the same. Thus, the Court
from the allowed the action for reconveyance to prosper in
those cases despite the lapse of more than ten years
from the issuance of title to the land. The exception
was based on the theory that registration
proceedings could not be used as a shield for fraud or
for enriching a person at the expense of another.12
In the case at bar, however, it is the rule rather than
the exception which should apply.
The trial court declared the Heirs as having been in
actual, open and continuous possession of the
disputed lot. On the other hand, the appellate court
ruled that it was private respondents.
Private respondents presented documents
purportedly showing a series of transactions which
led to the alleged transfer of ownership of Lot 5793
from the Heirs to them. Other than the presentation
of these documents, however, private respondents
failed to prove that they were in actual, open and
continuous possession of Lot 5793.
On the other hand, Isabel Dator, who testified for the
Heirs, vehemently denied having signed
Kasulatan Ng Pagbibilihang Lampasan and pointed
out the absence of the signatures of her other
siblings Vicenta, Barcelisa and Adoracion.
The Heirs likewise presented proof of payment of
realty taxes from 1956 to 1974 in the names of their
deceased parents, and from 1975 to 1988 in their
names.
More importantly, the Heirs convincingly established
their open and continuous occupation of the entire
Tanza estate, including Lot 5793, through their
tenant Miguel Dahilig.
Saludares identified each and every landmark and
boundary of the subject lot. He also enumerated all
the trees planted on the subject lot and, when asked
about the fruits of the land, he told the court that he
shared the harvest with the surviving Heirs.
In stark contrast, private respondents witness, farm
worker Perpetuo Daya could not identify
boundaries of the disputed property, its adjoining
owners or recall the dates he worked and tilled the
subject lot.
Furthermore, we note private respondent
Dators declaration that he was the cadastral
claimant of and free patent applicant for Lot 5794
which was adjacent to Lot 5793. This being the case,
we find private respondents inaction difficult to
understand, considering that they were among those
who received notices of petitioners free patent
application dated January 2, 1979 from the Bureau
of Lands.14
If private respondents indeed owned Lot 5793, they
should have filed an application for free patent for it
just as they did for Lot 5794, or at least opposed the
Heirs application for free patent over Lot 5793, to
protect their interests. As a matter of fact, they were
aware that the Heirs tenant, Marcelo Saludares,
repeatedly harvested the fruits of Lot 5793.
But even assuming that private respondents indeed
the validly acquired Lot 5793 in 1966 as they claimed,
they nevertheless slept on their right to secure title
thereto. Their unexplained inaction for more than 11
years rendered their demand for reconveyance stale.
Vigilantibus sed non dormientibus jura subverniunt.
The law aids the vigilant, not those who sleep on
their rights. This legal precept finds perfect
application in the case at bar.
Accordingly, we find that the Court of Appeals
committed reversible error in disregarding the ten-
year prescriptive period for the reconveyance of
registered real property and in giving due course to
said action despite the lapse of more than 11 years
from the issuance of title thereto, which was clearly
barred by prescription.
WHEREFORE, the petition is hereby granted. The
decision of the Court of Appeals, dated July 31,
1996, is REVERSED and SET ASIDE and the decision
of the Regional Trial Court, dated August 27, 1992,
is REINSTATED.
the
5. OO VS. LIM
Facts: Lim filed in the RTC in Cebu City a petition
Jose
for the reconstitution of the owners duplicate copy
of OCT No. RO-9969-(O-20449), alleging that said
OCT had been lost during World War II by his mother,
Luisa, that Lot No. 943 of the Balamban Cadastre in
Cebu City covered by said OCT had been sold in 1937
to Luisa by Spouses Diego Oo and Estefania Apas
(Spouses Oo), the lots registered owners; and that
although the deed evidencing the sale had been lost
without being registered, Antonio Oo (Antonio), the
only legitimate heir of Spouses Oo, had executed on
April 23, 1961 in favor of Luisa a notarized
document denominated as confirmation of sale,5
which was duly filed in the Provincial Assessors
Office of Cebu.
Zosimo Oo and petitioner Teofisto Oo (Oos)
opposed Lims petition, contending that they had the
certificate of title in their possession as the
successors-in-interest of Spouses Oo.
 Luisa had acquired the property in 1937, she had
On account of the Oos opposition, and upon order taken over its possession in the concept of an owner,
of the RTC, Lim converted the petition for and had performed her obligation by paying real
reconstitution into a complaint for quieting of title,6 property taxes on the property, as evidenced by tax
averring additionally that he and his predecessor-in- declarations issued in her name;20 and that in view
interest had been in actual possession of the of the delivery of the property, coupled with Luisas
property since 1937, cultivating and developing it, actual occupation of it, all that remained to be done
enjoying its fruits, and paying the taxes was the issuance of a new transfer certificate of title
corresponding to it. He prayed, inter alia, that the in her name.
Oos be ordered to surrender the reconstituted
owners duplicate copy of OCT No. RO-9969-(O-
20449), and that said OCT be cancelled and a new 6. MARIANO VS.PETRON CORPORATION
certificate of title be issued in the name of Luisa in
lieu of said OCT. Facts: Pacita V. Aure, Nicomedes Aure Bundac, and
Zeny Abundo (Aure Group), owners of a 2,064 square
In their answer,7 the Oos claimed that their meter parcel of land in Tagaytay City4 (Property),
predecessors-in-interest, Spouses Oo, never sold Lot leased the Property to ESSO Standard Eastern, Inc.,
No. 943 to Luisa; and that the confirmation of sale (ESSO Eastern), a foreign corporation doing business
purportedly executed by Antonio was fabricated, his in the country through its subsidiary ESSO Standard
signature thereon not being authentic. Philippines, Inc. (ESSO Philippines). The lease period
is 90 years5 and the rent is payable monthly for the
Issue: Whether or not the ownership over first 10 years, and annually for the remaining
registered land could be lost by prescription, laches, period.6 The lease contract (Contract) contained an
or adverse possession. assignment veto clause barring the parties from
assigning the lease without prior consent of the
Ruling: Prescription was not relevant other.7 Excluded from the prohibition were certain
corporations to whom ESSO Eastern may unilaterally
The petitioners assert that the lot, being titled in the assign its leasehold right.
name of their predecessors-in-interest, could not be
acquired by prescription or adverse possession. On 23 December 1977, ESSO Eastern sold ESSO
Philippines to the Philippine National Oil
The assertion is unwarranted. Corporation (PNOC).9 Apparently, the Aure Group
was not informed of the sale. ESSO Philippines,
Prescription, in general, is a mode of acquiring or whose corporate name was successively changed to
losing ownership and other real rights through the Petrophil Corporation then to Petron Corporation
lapse of time in the manner and under the (Petron), took possession of the Property.
conditions laid down by law.19 However, prescription
was not relevant to the determination of the dispute On 18 November 1993, petitioner Romeo D. Mariano
herein, considering that Lim did not base his right of (petitioner) bought the Property from the Aure Group
ownership on an adverse possession over a certain and obtained title to the Property issued in his name
period. He insisted herein, instead, that title to the bearing an annotation of ESSO Easterns lease.10
land had been voluntarily transferred by the
registered owners themselves to Luisa, his On 17 December 1998, petitioner sent to Petron a
predecessor-in-interest. notice to vacate the Property. Petitioner informed
Petron that Presidential Decree No. 471 (PD 471),11
Lim showed that his mother had derived a just title dated 24 May 1974, reduced the Contracts duration
to the property by virtue of sale; that from the time from 90 to 25 years, ending on 13 November 1993.12
Despite receiving the notice to vacate on 21 Facts: In a judgment rendered in Cadastral Case,
December 1998, Petron remained on the Property. Regional Trial Court (RTC), adjudicated in favor of
Spouses Antonio L. Caballero several parcels of land,
On 18 March 1999, petitioner sued Petron in the one of which was the subject of this controversy.
Regional Trial Court of Tagaytay City, Branch 18, On May 25, 1987, the same court, ordered the
(trial court) to rescind the Contract and recover National Land Titles and Deeds Registration
possession of the Property. Aside from invoking PD Administration to issue the decree of registration
471, petitioner alternatively theorized that the and the corresponding titles of the lots in favor of
Contract was terminated on 23 December 1977 when the Caballeros.4
ESSO Eastern sold ESSO Philippines to PNOC, thus On June 11, 1990, respondents sold to petitioner,
assigning to PNOC its lease on the Property, without Carmen del Prado, the said lot.
seeking the Aure Groups prior consent. Original Certificate of Title (OCT) covering the lot
was issued only on November 15, 1990, and entered
In its Answer, Petron countered that the Contract in the "Registration Book" of the City of Cebu on
was not breached because PNOC merely acquired December 19, 1990.5
ESSO Easterns shares in ESSO Philippines, a Within 1 year from date of entry of decree of
separate corporate entity. Alternatively, Petron registration, (On March 20, 1991), petitioner filed in
argued that petitioners suit, filed on 18 March 1999, the same cadastral proceedings a "Petition for
was barred by prescription under Article 1389 and Registration of Document Under Presidential Decree
Article 1146(1) of the Civil Code as petitioner should (P.D.) 1529"7 in order that a certificate of title be
have sought rescission within four years from PNOCs issued in her name.
purchase of ESSO Philippines on 23 December Respondents opposed, on the main ground that the
197713 or before 23 December 1981. claimed area was substantially excessive than that
originally agreed upon. They moved for the outright
Issue: W/N the action is barred by Prescription dismissal of the petition on grounds of prescription
and lack of jurisdiction.
Ruling: Petitioners Suit Barred by Prescription RTC found in favor of petitioner
CA reverse RTC, because the latter has no
Petitioners waiver of Petrons contractual breach jurisdiction. Petition for registration of document
was compounded by his long inaction to seek judicial is not a remedy under PD 1529. One year period has
redress. Petitioner filed his complaint nearly 22 lapsed.
years after PNOC acquired the leasehold rights to the
Property and almost six years after petitioner bought ISSUE: WON prescription has set in.
the Property from the Aure Group. The more than
two decades lapse puts this case well within the HELD: Yes. For filing wrong remedy, the 1 year
territory of the 10 year prescriptive bar to suits period had expired.
based upon a written contract under Article 1144 (1) Petitioners recourse, by filing the petition for
of the Civil Code. registration in the same cadastral case, was
improper. It is a fundamental principle in land
registration that a certificate of title serves as
evidence of an indefeasible and incontrovertible title
to the property in favor of the person whose name
appears therein. Such indefeasibility commences
after one year from the date of entry of the decree of
7. CARMEN DEL PRADO, vs. SPOUSES ANTONIO L. registration. Inasmuch as the petition for
CABALLERO and LEONARDA CABALLERO, registration of document did not interrupt the
running of the period to file the appropriate petition
for review and considering that the prescribed one- The prescriptive period for the reconveyance of
year period had long since expired, the decree of fraudulently registered real property is 10 years,
registration, as well as the certificate of title issued reckoned from the date of the issuance of the
in favor of respondents, had become certificate of title, if the plaintiff is not in
incontrovertible. possession, but imprescriptible if he is in possession
of the property.[38] Thus, one who is in actual
8. ANTHONY ORDUNA ET. AL., VS EDUARDO possession of a piece of land claiming to be the
FUENTEBELLA ET AL., owner thereof may wait until his possession is
disturbed or his title is attacked before taking steps
FACTS: During the lifetime of Gabriel Sr., he sold by to vindicate his right.[39] As it is, petitioners action
installment a parcel of land to Orduna. The sale was for reconveyance is imprescriptible.
not reduced in writing.
After his fathers death, Gabriel Jr. inherited subject (Note: As to enforceability of sale not reduced in
lot and for which he was issued TCT. Since the writing, the statute of frauds (1403) will not apply
Gabriel Sr. Orduna sales transaction called for because the contract has been partially executed.)
payment of the contract price in installments,
Gabriel Jr. received payments from the Orduas and 9. HEIRS OF JUANITA PADILLA VS DOMINADOR
even authorized them to enclose the subject lot with MAGDUA
a fence.
Gabriel Jr. sold the land to respondents, whom Facts: Juanita Padilla (Juanita), the mother of
subsequently registered the land in their favor. petitioners, owned a piece of land located in San
Petitioners filed an annulment of title, which the Roque, Tanauan, Leyte. After Juanitas death
respondent assailed. on 1989, petitioners, as legal heirs of Juanita,
The RTC and CA found the purchaser-respondents sought to have the land partitioned. Petitioners sent
thesis on prescription correct stating in this regard word to their eldest brother Ricardo Bahia (Ricardo)
that Respondents TCT was issued on May 16, 2000 regarding their plans for the partition of the land. In
while petitioners filed their complaint for annulment a letter dated 5 June 1998 written by Ricardo
only on July 3, 2001. To the courts below, the one- addressed to them, petitioners were surprised to find
year prescriptive period to assail the issuance of a out that Ricardo had declared the land for himself,
certificate of title had already elapsed. prejudicing their rights as co-heirs. It was then
discovered that Juanita had allegedly executed a
ISSUE: WON the action to annul title has prescribed. notarized Affidavit of Transfer of Real
[4]
Property (Affidavit) in favor of Ricardo on 4 June
HELD: NO. Having possession of the subject lot, 1966 making him the sole owner of the land. The
petitioners right to the reconveyance thereof, and records do not show that the land was registered
the annulment of the covering title, has not under the Torrens system.
prescribed or is not time-barred. This is so for an
action for annulment of title or reconveyance based On 26 October 2001, petitioners filed an
on fraud is imprescriptible where the suitor is in action with the RTC for recovery of ownership,
possession of the property subject of the acts, [36] the possession, partition and damages. Petitioners
action partaking as it does of a suit for quieting of sought to declare void the sale of the land by
[37]
title which is imprescriptible. Such is the case in Ricardos daughters, Josephine Bahia and Virginia
this instance. Petitioners have possession of subject Bahia-Abas, to respondent Dominador Magdua
lots as owners having purchased the same from (Dominador). The sale was made during the lifetime
Gabriel, Sr. subject only to the full payment of the of Ricardo.
agreed price.
The RTC dismissed the case on the ground of
prescription; that the case was filed only in 2001 or
more than 30 years since the Affidavit was executed
in 1966. The RTC explained that while the right of
an heir to his inheritance is imprescriptible, yet
when one of the co-heirs appropriates the property
as his own to the exclusion of all other heirs, then
prescription can set in.
ISSUE: WON the action for partition has prescribed.
HELD: NO. Reckoning date should start from 1998,
when Ricardo repudiated co-ownership against co-
heirs in accordance with Art. 494 of the Civil Code.
Ricardo and petitioners are co-heirs or co-owners of
the land. Co-heirs or co-owners cannot acquire by
acquisitive prescription the share of the other co-
heirs or co-owners absent a clear repudiation of the
co-ownership
Since possession of co-owners is like that of a
trustee, in order that a co-owners possession may be
deemed adverse to the cestui que trust or other co-
owners, the following requisites must concur: (1) that
he has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust or
other co-owners, (2) that such positive acts of
repudiation have been made known
the cestui que trust or other co-owners, and
that the evidence thereon must be clear
convincing
In the present case, the prescriptive period began to
run only from 1998, the date petitioners received
notice of Ricardos repudiation of their claims to the
land. Since petitioners filed an action for recovery
of ownership and possession, partition and damages
with the RTC on 26 October 2001, only a mere three
years had lapsed. This three-year period falls short
of the 10-year or 30-year acquisitive prescription
period required by law in order to be entitled to
claim legal ownership over the land.
Dominador cannot invoke acquisitive prescription.
OBLIGATIONS CASES
1. RCPI vs CA and Loreto Dionela
FACTS: The basis of the complaint against the
defendant corporation is a telegram sent through its
Manila Office to the offended party, Loreto Dionela,
reading as follows:
SA IYO WALANG PAKINABANG DUMATING KA DIYAN-
WALA-KANG PADALA DITO KAHIT BULBUL MO
Plaintiff-respondent alleges that the defamatory
(libelous) words on the telegram sent to him not only
wounded his feelings but also caused him undue
embarrassment and affected adversely his business
as well because other people have come to know of
said defamatory words.
Defendant corporation as a defense, alleges that the
additional words in Tagalog was a private joke
between the sending and receiving operators and
that they were not addressed to or intended for
plaintiff
ISSUE: WON the employer is directly and primarily
liable to the civil liability arising from the criminal
act of its employee.
HELD: Yes.
The action for damages was filed in the lower court
to directly against respondent corporation not as an
(3) employer subsidiarily liable under the provisions of
and Article 1161 of the New Civil Code in relation to Art.
103 of the Revised Penal Code. The cause of action
of the private respondent is based on Arts. 19 and 20
of the New Civil Code (supra). As well as on
respondent's breach of contract thru the negligence
1
of its own employees.
Petitioner is a domestic corporation engaged in the
business of receiving and transmitting messages.
Everytime a person transmits a message through the
facilities of the petitioner, a contract is entered into.
There is no question that in the case at bar, libelous
Thus, matters were included in the message transmitted,
without the consent or knowledge of the sender.
There is a clear case of breach of contract by the
petitioner in adding extraneous and libelous matters
in the message sent to the private respondent. As a
corporation, the petitioner can act only through its
employees. Hence the acts of its employees in
receiving and transmitting messages are the acts of
the petitioner.
Since negligence may be hard to substantiate in This fraud or dolo which is present or employed at
some cases, we may apply the doctrine of RES IPSA the time of birth or perfection of the contract may
LOQUITUR (the thing speaks for itself), by either be dolo causante or dolo incidente
considering the presence of facts or circumstances
surrounding the injury. Dolo Causante or Causal Fraud
Referred to in Art 1338, are those deceptions or
misrepresentations of a serious character employed
2. GERALDEZ VS CA and Kenstar Travel and Tours by one party and without which the other party
would not have entered into the contract. Dolo
Facts: Petitioner opt a 22-day Europe tour travel causante determines or is the essential cause of the
package offered by Respondent Corporation. The tour consent. Effect: nullity of the contract and the
did not end up as expected by herein petitioner, it indemnification of damages
did not as represented in the brochure: no European
tour manager, hotels were not 1st class and the Dolo Incidente or Incidental Fraud
Filipino tour guide who is supposed to accompany Referred to in Art. 1344, are those which are not
them is a 1st timer. Petitioner then filed a breach of serious in character and without which the other
contract against Respondent Corporation for party still would have entered into the contract.
committing acts of representations constituting Dolo incidente refers only to some particular or
fraud in contracting the obligation. accident of the obligation. Effect: obliges person
employing it to pay damages
RTC rendered judgment ordering Respondent
Corporation to pay petitioner 500,000 as moral In either case, whether Kenstar has committed dolo
damages, 200,000 as nominal damages, 300,000 as causante or dolo incidente, it is indubitably liable for
exemplary damages and 50,000 as litigation and damages both moral and exemplary. Nominal
attorneys fees (all in pesos). damages deleted.

On appeal, award for moral and exemplary damages

were deleted and a reduction of nominal damages to 3. SPS. CULABA VS CA and San Mig Corp.
40,000 pesos, this on account that the Respondent
has substantially complied with the prestation and FACTS: The spouses engaged in the sale and
no malice or bad faith is imputable as a distribution of San Miguel Corporations (SMC) beer
consequence . products. SMC sold beer products on credit to the
Culaba spouses. Thereafter, the Culaba spouses made
Issue: Whether or not private respondent acted in a partial payment, leaving an unpaid balance. As
bad faith or with gross negligence in discharging its they failed to pay despite repeated demands, SMC
obligation under contract. filed an action for collection of a sum of money
against them .
Held: Yes.On the foregoing considerations, The defendant-spouses denied any liability, claiming
respondent court erred in deleting the award for that they had already paid the plaintiff in full on four
moral and exemplary damages which may be awarded separate occasions. To substantiate this claim, the
in breaches of contract where fraud is evident. defendants presented four (4) Temporary Charge
Private respondent faulted with fraud in the Sales (TCS) Liquidation Receipts.
inducement, According to the trial court, it was unusual that
which is employed by a party to a contract in defendant Francisco Culaba forgot the name of the
securing the consent of the other. collector to whom he made the payments and that he
did not require the said collector to print his name
on the receipts.
According to the petitioners, receiving receipts from
the private respondents agents instead of its
salesmen was a usual occurrence, as they had been
operating the store since 1979.
ISSUE: WoN petitioner is liable to pay again.
HELD: Yes, payment must be made to true creditor
not on impostor; they were negligent.
Payment is a mode of extinguishing an
obligation.Article 1240 of the Civil Code provides
that payment shall be made to the person in whose
favor the obligation has been constituted, or his
successor-in-interest, or any person authorized to
receive it. In this case, the payments were
purportedly made to a supervisor of the private
respondent, who was clad in an SMC uniform and
drove an SMC van. He appeared to be authorized to
accept payments as he showed a list of customers
accountabilities and even issued SMC liquidation
receipts which looked genuine. Unfortunately for
petitioner Francisco Culaba, he did not ascertain the
identity and authority of the said supervisor, nor did
he ask to be shown any identification to prove that
the latter was, indeed, an SMC supervisor. The
petitioners relied solely on the mans representation
that he was collecting payments for SMC. Thus, the
payments the petitioners claimed they made were
not the payments that discharged their obligation to
the private respondent.
Negligence is the omission to do something which a
reasonable man, guided by those considerations
which ordinarily regulate the conduct of human
affairs, would do, or the doing of something, which a
]
prudent and reasonable man would not do. In the
case at bar, the most prudent thing the petitioners
should have done was to ascertain the identity and
authority of the person who collected their
payments. Failing this, the petitioners cannot claim
that they acted in good faith when they made such
payments. Their claim therefor is negated by their
negligence, and they are bound by its consequences.
Being negligent in this regard, the petitioners cannot
seek relief on the basis of a supposed agency.
4. SANTOS VENTURA HOCORMA FOUNDATION, INC.
VS ERNESTO SANTOS & RIVERLAND, INC.
G.R. No. 1530004
November 5, 2004
FACTS: Subject of the present petition for review on
certiorari is the Decision, dated January 30, 2002, as
well as the April 12, 2002, Resolution of the Court of
Appeals, The appellate court reversed the Decision,
dated October 4, 1996, of the Regional Trial Court of
Makati City, and likewise denied petitioner's Motion
for Reconsideration. On October 26, 1990, the
parties executed a Compromise Agreement which
amicably ended all their pending litigations. The
pertinent portions of the Agreement, include the
following: (1) Defendant Foundation shall pay
Plaintiff Santos P14.5 Million on (a) P1.5 Million
immediately upon the execution of this agreement
and (b) The balance of P13 Million shall be paid,
whether in one lump sum or in installments, at the
discretion of the Foundation, within a period of not
more than two years from the execution of this
agreement; (2) Immediately upon the execution of
this agreement (and [the] receipt of the P1.5 Million),
plaintiff Santos shall cause the dismissal with
prejudice of Civil Cases; (3) Failure of compliance of
any of the foregoing terms and conditions by either
or both parties to this agreement shall ipso facto and
ipso jure automatically entitle the aggrieved party to
a writ of execution for the enforcement of this
agreement.
In compliance with the Compromise Agreement,
respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of the
notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5
million to respondent Santos, leaving a balance of
P13 million.
On October 28, 1992, respondent Santos sent
another letter to petitioner inquiring when it would
pay the balance of P13 million. There was no
response from petitioner. Consequently, respondent
Santos applied with the Regional Trial Court of
Makati City, for the issuance of a writ of execution of
its compromise judgment dated September 30, 1991.
The RTC granted the writ.
Petitioner, however, filed numerous motions to block
the enforcement of the said writ. The challenge of
the execution of the aforesaid compromise judgment
even reached the Supreme Court. All these efforts,
however, were futile.
On November 22, 1994, petitioner's real properties
located in Mabalacat, Pampanga were auctioned. In
the said auction, Riverland, Inc. was the highest
bidder for P12 million and it was issued a Certificate
of Sale covering the real properties subject of the
auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real
properties of petitioner in Bacolod City. Again,
Riverland, Inc. was the highest bidder.
Certificates of Sale issued for both
provided for the right of redemption within one year
from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a
Complaint for Declaratory Relief and
alleging that there was delay on the
petitioner in paying the balance of P13 million.
Issues: a)W/N the CA committed reversible error
when it awarded legal interest in favor of the
respondents notwithstanding the fact that neither in
the compromise agreement nor in the compromise of
judgment by the judge provides for payment of
interest to the respondent?
b)W/N the CA erred in awarding legal interest to the
respondents although the obligation of the petitioner
to the respondent is to pay a sum of money that had
been converted into an obligation to pay in kind?
c)W/N respondents are barred from
payment of interest by reason of the waiver provision
in the compromise agreement, which became the law
among the parties.
Held:On October 4, 1996, the trial court rendered a
Decision dismissing the respondents' complaint and
ordering them to pay attorney's fees and exemplary
damages to petitioner. Respondents then appealed to
the Court of Appeals.
The only issue to be resolved is whether the
respondents are entitled to legal interest.
The appellate court reversed the ruling of the trial
court: WHEREFORE, finding merit in the appeal, the
appealed Decision is hereby REVERSED and
judgment is hereby rendered ordering appellee SVHFI
to pay appellants Santos and Riverland, Inc.: (1) legal
interest on the principal amount of P13 million at
the rate of 12% per annum from the date of demand
on October 28, 1992 up to the date of actual
payment of the whole obligation; and (2) P20,000 as
attorney's fees and costs of suit. SO ORDERED.
Delay
Delay as used in this article is synonymous to default
or mora which means delay in the fulfillment of
The obligations. It is the non-fulfillment of the obligation
properties with respect to time. In the case at bar, the
obligation was already due and demandable after the
lapse of the two-year period from the execution of
the contract. The two-year period ended on October
Damages 26, 1992. When the respondents gave a demand
part of letter on October 28, 1992, to the petitioner, the
obligation was already due and demandable.
Furthermore, the obligation is liquidated because the
debtor knows precisely how much he is to pay and
when he is to pay it.
The petition lacks merit
In the case at bar, the Compromise Agreement was
entered into by the parties on October 26, 1990. It
was judicially approved on September 30, 1991.
Applying existing jurisprudence, the compromise
agreement as a consensual contract became binding
between the parties upon its execution and not upon
its court approval. From the time a compromise is
demanding validly entered into, it becomes the source of the
rights and obligations of the parties thereto. The
purpose of the compromise is precisely to replace
and terminate controverted claims.
As to the remaining P13 million, the terms and
conditions of the compromise agreement are clear
and unambiguous. It provides that the balance of P13
Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation,
within a period of not more than two (2) years from
the execution of this agreement.
 2176 of the Civil Code; or (b) where the injured party
WHEREFORE, the petition is DENIED for lack of is granted a right to file an action independent and
merit. The Decision dated January 30, 2002 of the distinct from the criminal proceedings. While the
Court of Appeals and its April 12, 2002 Resolution in cause of action ex quasi delicto had already
CA-G.R. CV No. 55122 are AFFIRMED. Costs against prescribed, petitioners can still pursue the remaining
petitioner. SO ORDERED avenue opened for them by their reservation, i.e., the
surviving cause of action ex delicto. This is so
5. Santos vs. Pizarro; 465 SCRA 232 because the prescription of the action ex quasi
delicto does not operate as a bar to an action to
FACTS: In April 1994, Viron Transit driver Sibayan enforce the civil liability arising from crime
was charged with reckless imprudence resulting to especially as the latter action had been expressly
multiple homicide and multiple physical injuries for reserved. We held that the dismissal of the action
which Sibayan was eventually convicted in December based on culpa aquiliana is not a bar to the
1998. As there was a reservation to file a separate enforcement of the subsidiary liability of the
civil action, no pronouncement of civil liability was employer. Once there is a conviction for a felony,
made by the MCTC. In October 2000 Santos filed a final in character, the employer becomes subsidiarily
complaint for damages against Sibayan and Rondaris, liable if the commission of the crime was in
the president and chairman of VironTransit. Viron discharge of the duties of the employees. This is so
Transit moved for the dismissal of the complaint because Article 103 of the RPC operates the
citing, among others, prescription alleging that controlling force to obviate the possibility of the
actions based on quasi delict prescribe in 4 years aggrieved party being deprived of indemnity even
from the accrual of the cause of action. after the rendition of a final judgment convicting the
employee.
HELD: Petitioners expressly made a reservation of
their right to file a separate civil action as a result of 6. L AND L FOOTWEAR; 468 SCRA 393
the crime committed by Sibayan. On account of this
reservation the MCTC did not make any FACTS: "PCI Leasing and L & L Lawrence entered into
pronouncement as to the latters civil liability. several LOAN contracts embodied in several
Although there were allegations of negligence on the Memoranda of Agreement and Disclosure Statements
part of Sibayan and Viron Transit, such does not from 1994 up to 1997 involving various shoe making
necessarily mean that petitioners were pursuing a equipment. x x x.
cause of action based on quasi delict, considering
that at the time of the filing of the complaint, the "As a condition for the loan extended by PCI Leasing
cause of action ex quasi delicto had already to L & L, the latter was also made to enter into
prescribed. Besides, in cases of negligence, the several LEASE CONTRACTS embodied in numerous
offended party has the choice between an action to Lease Schedules whereby the imported shoe making
enforce liability arising from crime under the equipment would be considered as the leased
Revised Penal Code and an action for quasi delict property. Pursuant to the agreement between the
under the Civil Code. An act or omission causing parties, L & L gave PCI Leasing a THIRTY (30%)
damage to another may give rise to 2 separate civil PERCENT GUARANTY DEPOSIT for ALL the leased
liabilities on the part of the offender, i.e. (1) civil contracts between them in the total sum of
liability ex delicto, under Article 100 of the RPC; and US$359,525.90. Furthermore, PCI Leasing received
(2)independent civil liabilities (a) not arising from an from L & L a total of US$1,164,380.42 as rental
act or omission complained of as a felony, e.g., culpa payments under the numerous Lease Schedules.
contractual or obligations arising from law under "Sae Chae Lee, the former President of L & L, was
Article 31 of the Civil Code, intentional torts under made to sign a x x x Continuing Guaranty of Lease
Articles 32 and 34, and culpa aquiliana under Article Obligations dated 16 May 1994 securing the payment
of the obligation of L & L under [a] Lease Agreement
dated 13 May 1994.
"L & L, by reason of the economic crisis that hit the
country coupled with the cancellation of
contracts with its buyers abroad and its labor
problems, failed to meet its obligations on time. For
this reason, L & L tried its best to negotiate with the
PCI Leasing for a possible amicable settlement
between the parties.
"In the course of the negotiation between the
parties, PCI Leasing sent to L & L a letter dated 05
May 1998, stating that: Demand is hereby made on
you to pay in full the outstanding balance in the
amount of $826,003.27 plus penalty charges
amounting to $6,329.05 on or before May 12, 1998
or to surrender to us the various equipments.
PCI Leasing filed a complaint for recovery of sum of
money and/or personal property with prayer for the
issuance of a writ of replevin against L & L Lawrence
Footwear, Inc., Sae Chae Lee and a certain John Doe
with the Regional Trial Court of Quezon City.
The RTC rendered a decision against the petitioner.
CA affirmed the trial court decision.
ISSUE:Whether a corporation can be held
ESTOPPEL by reason of the representation of its
officer
HELD: No Estoppel
Petitioners emphasize that the account officer of PCI
Leasing testified that respondent had admittedly
deducted the proceeds of the sale of the leased
properties from the outstanding obligations. They
argue that, by its admission, respondent recognized
that the properties were in fact owned by L & L
Lawrence Corporation. In turn, this fact allegedly
proves that the Contract between the parties was
one of loan, not of lease.
This argument is patently without merit. No such
inference can be made from the statements of the
witness. On the contrary, her testimony reinforced
the fact that the true intent of the parties was to
enter into a contract known as a financial leasing
agreement.
In such an agreement, "a finance company purchases
the on behalf of or at the instance of the lessee the
equipment which the latter is interested to buy but
has insufficient funds for the purpose. The finance
company therefore leases the equipment to the
lessee in consideration of the periodic payment by
the lessee of a fixed amount of rental." Recognized
by this Court as being fairly common transactions in
the commercial world, agreements such as these
have been accepted as genuine and legitimate. In
Cebu Contractors Consortium v. CA, the Court
elucidated on the nature of a financial leasing
agreement as follows:
"A financing lease may be seen to be a contract sui
generis, possessing some but not necessarily all the
elements of an ordinary or civil law lease. Thus, legal
title to the equipment leased is lodged in the
financial lessor. The financial lessee is entitled to the
possession and use of the leased equipment. At the
same time, the financial lessee is obligated to make
periodic payments denominated as lease rentals,
which enable the financial lessor to recover the
purchase price of the equipment which had been paid
to the supplier thereof."
in
7. LALICON VS. NHA; JULY 31, 2011
FACTS: On November 25, 1980 the National Housing
Authority (NHA) executed a Deed of Sale with
Mortgage over a Quezon City lot in favor of the
spouses Isidro and Flaviana Alfaro. It was provided in
the deed of sale that the Alfaros could sell the land
within five years from the date of its release from
mortgage without NHAs prior written consent. Nine
years later the Alfaros sold the land to their son,
Victor Alfaro, who had a common-law wife, Cecilia,
who had the means, had a house built on the
property and paid for the amortizations. On March
21, 1991, the NHA released the mortgage. After four
and a half years since the mortgaged was released
Victor registered the sale of land in his favor,
resulting in the cancellation of his parents title. On
December 14, 1995
Victor mortgaged the land to Marcela Lao Chua, Rosa
Sy, Amparo Ong, and Ida See. Afterward, on
February14, 1997 Victor sold the property to Chua,
one of the mortgagees, resulting in the cancellation
of his TCT140646 and the issuance of TCT N-172342
in Chuas name.
Moreover, a year later the NHA instituted a case
before the Quezon City Regional Trial Court (RTC) for
the annulment of the NHAs 1980 sale of the land to
their son Victor and the subsequent sale of Victor to
Chua was a violation of NHA rules and regulations.
The RTC ruled that although the Alfaros clearly
violated the five-year prohibition, the NHA could no
longer rescind its sale to them since its right to do
so had already prescribed, applying Article 1389 of
the New Civil Code. While the CA declared TCT
277321 in the name of the Alfaros and all subsequent
titles and deeds of sale null and void.
ISSUES:* Whether or not the CA erred in holding that
the Alfaros violated their contract with the NHA;
*Whether or not the NHAs right to rescind has
prescribed; and
*Whether or not the subsequent buyers of the land
acted in good faith and their rights, therefore,
cannot be affected by the rescission.
HELD: The CA correctly ruled that such violation
comes under Article 1191 where the applicable
prescriptive period is that provided in Article 1144
which is 10 years from the time the right of action
accrues. It is clearly said that the Alfaros violated
the five-year restriction, thus entitling the NHA to
rescind the contract. The NHAs right of action
accrued on February 18, 1992 when it learned of the
Alfaros forbidden sale of the property to Victor.
Since the NHA filed its action for annulment of sale
on April 10, 1998, it did so well within the 10-year
prescriptive period. The Court also agrees with the
CA that the Lalicons and Chua were not buyers in
good faith. As regards Chua, she and a few others
with her took the property by way of mortgage from
Victor in 1995, well within the prohibited period.
Since mutual restitution is required in cases
involving rescission under Article 1191, the NHA
must return the full amount of the amortizations it
received for the property, plus the value of the
improvements introduced on the same, with 6%
interest per annum from the time of the finality of
this judgment. Hence, the Court affirms the Decision
of the Court of Appeals.
8. GMC VS. SPS. RAMOS; JULY 20, 2011
FACTS: General Milling Corporation (GMC) entered
into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the
contract, GMC was to supply broiler chickens for the
spouses to raise on their land. To guarantee full
compliance, the Growers Contract was accompanied
by a Deed of Real Estate Mortgage over a piece of real
property upon which their conjugal home was built.
The spouses further agreed to put up a surety bond
at the rate of PhP 20,000 per 1,000 chicks delivered
by GMC. The Deed of Real Estate Mortgage extended
to Spouses Ramos a maximum credit line of PhP
215,000 payable within an indefinite period with an
interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their
account with GMC. They alleged that they suffered
business losses because of the negligence of GMC and
its violation of the Growers Contract.
On March 31, 1997, the counsel for GMC notified
Spouses Ramos that GMC would institute foreclosure
proceedings on their mortgaged property.
On May 7, 1997, GMC filed a Petition for
Extrajudicial Foreclosure of Mortgage. On June 10,
1997, the property subject of the foreclosure was
subsequently sold by public auction to GMC after the
required posting and publication.
Spouses Ramos filed a Complaint for Annulment
and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that
the extrajudicial foreclosure sale on June 10, 1997
was null and void, since there was no compliance
with the requirements of posting and publication of
notices under Act No. 3135, as amended. Librado
Ramos alleged that, when the property was to serve the interests of a justice or to avoid
foreclosed, GMC did not notify him at all of the dispensing piecemeal justice;
foreclosure.
(d) Matters not specifically assigned as errors on
In its Answer, GMC argued that it repeatedly appeal but raised in the trial court and are matters of
reminded Spouses Ramos of their liabilities under record having some bearing on the issue submitted
the Growers Contract. It argued that it was which the parties failed to raise or which the lower
compelled to foreclose the mortgage because of court ignored;
Spouses Ramos' failure to pay their obligation. GMC
insisted that it had observed all the requirements of (e) Matters not assigned as errors on appeal but
posting and publication of notices under Act No. closely related to an error assigned;
3135.
(f) Matters not assigned as errors on appeal but upon
RTC rendered a decision in favor of the Spouses which the determination of a question properly
Ramos. The CA sustained the RTC decision. assigned, is dependent.

ISSUES: A. WHETHER [THE CA] MAY CONSIDER Paragraph (c) above applies to the instant case, for
ISSUES NOT ALLEGED AND DISCUSSED IN THE there would be a just and complete resolution of the
LOWER COURT AND LIKEWISE NOT RAISED BY THE appeal if there is a ruling on whether the Spouses
PARTIES ON APPEAL, THEREFORE HAD DECIDED Ramos were actually in default of their obligation to
THE CASE NOT IN ACCORD WITH LAW AND GMC.
APPLICABLE DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT Was there sufficient demand?
PETITIONER GMC MADE NO DEMAND TO Wedisagree.
RESPONDENT SPOUSES FOR THE FULL PAYMENT There are three requisites necessary for a finding of
OF THEIR OBLIGATION CONSIDERING THAT THE default. First, the obligation is demandable and
LETTER DATED MARCH 31, 1997 OF PETITIONER liquidated; second, the debtor delays performance;
GMC TO RESPONDENT SPOUSES IS TANTAMOUNT and third, the creditor judicially or extrajudicially
TO A FINAL DEMAND TO PAY, THEREFORE IT requires the debtor's performance.
DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS. According to the CA, GMC did not make a demand on
Spouses Ramos but merely requested them to go to
HELD: In Diamonon v. Department of Labor and GMC's office to discuss the settlement of their
Employment, [20] We explained that an appellate account. In spite of the lack of demand made on the
court has a broad discretionary power in waiving the spouses, however, GMC proceeded with the
lack of assignment of errors in the following foreclosure proceedings. Neither was there any
instances: provision in the Deed of Real Estate Mortgage
(a) Grounds not assigned as errors but affecting the allowing GMC to extrajudicially foreclose the
jurisdiction of the court over the subject matter; mortgage without need of demand.

(b) Matters not assigned as errors on appeal but are Indeed, Article 1169 of the Civil Code on delay
evidently plain or clerical errors within requires the following:
contemplation of law; Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or
(c) Matters not assigned as errors on appeal but extrajudicially demands from them the fulfilment of
consideration of which is necessary in arriving at a their obligation.
just decision and complete resolution of the case or
However, the demand by the creditor shall not be FACTS: FR Cement Corporation issued several
necessary in order that delay may exist: withdrawal authorities for the account of cement
dealers and traders, Fil-Cement and Tiger bilt. Each
(1) When the obligation or the law expressly so withdrawal authority contained provision that it is
declares; x x x valid for six months from its date of issuance, unless
revoked by FRCC Marketing Department .Filcement
As the contract in the instant case carries no such and Tigerbilt sold their withdrawal authorities to Co.
provision on demand not being necessary for delay to On February Co then sold these withdrawal
exist, We agree with the appellate court that GMC authorities to Lim. Using the withdrawal authorities
should have first made a demand on the spouses Lim withdrew cement bags from FRCC on a staggered
before proceeding to foreclose the real estate basis. Sometime in April 1999, FRCC did not allow
mortgage. Lim to withdraw the remaining bags covered by the
withdrawal authorities. Lim clarified the matter with
Development Bank of the Philippines v. Licuanan Co and administrative manager of Fil-Cement, who
finds application to the instant case: explained that the plant implemented a price
The issue of whether demand was made before the increase and would only release the goods once Lim
foreclosure was effected is essential. If demand was pays the price difference or agrees to receive lesser
made and duly received by the respondents and the quantity of cement. Lim filed case of Estafa through
latter still did not pay, then they were already in Misappropriation or Conversion against Co. The
default and foreclosure was proper. However, if Regional Trial Court acquitted Co. After the trial on
demand was not made, then the loans had not yet the civil aspect of the criminal case the court also
become due and demandable. This meant that found Co not civilly liable. Lim sought a
respondents had not defaulted in their payments and reconsideration which the regional trial Court
the foreclosure by petitioner was premature. denied. On March 14, 2005 Lim filed her notice of
Foreclosure is valid only when the debtor is in appeal on the civil aspect of the criminal case. On
default in the payment of his obligation. April 19, 2005 Lim filed a complaint for specific
performance and damages before the RTC.

ISSUE: Whether or not there is no forum shopping

9. LILY LIM VS. KOU CO PING; AUGUST 23, 2012
Principle: A single act or omission that cause damage
to an offended party may gave rise to two separate
civil liabilities on the part of the offender (1)civil
liability ex delicto, that is, civil liability arising from
the criminal offense under Article 100 of the Revised
Penal Code and (2) independent civil liability, that is
civil liability that may be pursued independently of
the criminal proceedings. The independent civil
liability may be based on an obligation not arising
from the act or omission complained of as felony. It
may also be based on an act or omission that may
constitute felony but, nevertheless, treated
independently from the criminal action by specific
provision of the Article 33 of the Civil Code.
for a private complainant to pursue a civil complaint
for specific performance and damages while
appealing the judgment on the civil aspect of a
criminal case for estafa?
HELD: A single act or omission that cause damage to
an offended party may gave rise to two separate civil
liabilities on the part of the offender (1)civil liability
ex delicto, that is, civil liability arising from the
criminal offense under Article 100 of the Revised
Penal Code and (2) independent civil liability, that is
civil liability that may be pursued independently of
the criminal proceedings. The independent civil
liability may be based on an obligation not arising
from the act or omission complained of as felony. It
may also be based on an act or omission that may
constitute felony but, nevertheless, treated
independently from the criminal action by specific
provision of the Article 33 of the Civil Code. Because
of the distinct and independent nature of the two
kinds of civil liabilities, jurisprudence holds that the
offended party may pursue two types of
liabilities simultaneously or cumulatively, without
offending the rules on forum shopping,
pendentia or res judicata. The criminal cases of
estafa are based on culpa criminal while the civil
action for collection is anchored on
contractual. The first action is clearly a civil action
ex delicto, it having been instituted together with
criminal action. On the other hand, the second
action, judging by the allegations contained in the
complaint, is a civil action arising from contractual
obligation and fortuitous conduct. The Civil Case
involves only the obligation arising from contract
and from tort, whereas the appeal in the estafa case
involves only the civil obligations of Co arising from
the offense charged.
16. AGUILAR VS. CITY TRUST FINANCE CORP.
Facts: Sometime in May 1992, Josephine Aguilar
(Josephine) canvassed, via telephone, prices of cars
from different car dealers listed in the yellow pages
of the Philippine Long Distance Telephone directory.
On May 23, 1992, World Cars, Inc. (World Cars)
sent its representative Joselito Perez (Perez) and
Vangie Tayag (Vangie) to the Aguilar residence in New
Manila, Quezon City bringing with them calling
cards, brochures and price list for different car
models, among other things. The two representatives
discussed with Josephine the advantages
disadvantages of the different models, their prices
and terms of payment.
Josephine having decided to purchase a white
1992 Nissan California at the agreed price
P370,000.00, payable in 90 days, Perez and Vangie
repaired to the Aguilar residence on May 30, 1992,
bringing with them a white 1992 Nissan California
and the documents bearing on the sale.
As(the Aguilars) were being made to sign by
the two representatives a promissory note, chattel
mortgage, disclosures and other documents the dates
of which were left blank and which showed that they
would still be obliged to pay on installment in 12
months for the car even if checks in full payment
civil thereof in 90 days were to be issued, the two replied
that it was only for formality, for in case the checks
litis were not cleared, the documents would take effect,
otherwise they would be cancelled.
culpa The Aguilars did sign the promissory note
binding them to be jointly and severally liable to
World Cars.
By Josephines claim, at the time she and her
husband signed the promissory note, its date, May
30, 1992, and the due date of the monthly
amortization which was agreed to be every 3rd day of
each month starting July 1992 were not reflected
therein.
The Aguilars did execute too a chattel
mortgage in favor of World Cars which embodied a
deed of assignment in favor of Citytrust Finance
Corporation (Citytrust). the date May 30, 1992
appearing in the chattel mortgage cum deed of
assignment was not yet filled up at the time she and
her husband signed it.
After the Aguilars signing of the documents,
Perez asked Josephine to make the check payments
payable to him, prompting her to call up Perezs
boss, a certain Lily Paloma, to inquire whether Perez
could collect payment to which Lily replied in the
affirmative, the latter advising her to just secure a
receipt.
and
Josephine thus issued four Far East Bank and
Trust Company (FEBTC) checks. Three checks were
made payable to Perez. The other one was made
payable to World Cars represented payment of the
of premium on the car insurance.
In mid-June of 1992, Perez and Vangie went back to
the Aguilar residence requesting that the two checks
issued to Perez be cancelled and that two be issued
in replacement thereof, to be made payable to Sunny
Motors, which appears to be a sales outlet of World
Cars, for processing fee of the documents, and the
other to be again made payable to Perez. Josephine
obliged and accordingly issued the said checks.
No official receipt for the checks having been
issued to Josephine, she warned Perez that if she did
not get any by the end of July 1992, she would
request for stop payment of the last check she issued
in his name.
The clearing of one of the checks having been
stopped on Josephines advice, Perez repaired to the
Aguilar residence, asking the reason therefor. On
being informed by Josephine of the reason, Perez
explained that receipts were in Bulacan where the
main office of World Cars is, and he had no time to
go there owing to its distance. Perez then advised
Josephine that if she did not issue another check to
replace the check that was stopped the 12-month
installment term of payment under the documents
she and her husband signed would take effect.
Not wanting to be bound by the 12-month
installment term, Josephine issued the check
payable to Perez who issued her Sunny Motor Sales
Provisional Receipt
In September 1992, Josephine received a
letter dated August 20, 1992 from Ana Marie Caber
(Ana Marie), Account Specialist of Citytrust, advising
her that as of August 20, 1992, her overdue account
with it in connection with the purchase of the car
had amounted to P1,045.39 inclusive of past due
charges.
Josephine at once informed Ana Marie that
she had fully paid the car to which Ana Marie replied
that maybe not all of the papers have been
processed yet, hence, she advised Josephine not to
worry about it.
In December 1992, Josephine received another
letter dated December 9, 1992 from Citytrust
advising her that her account had been, as of
December 9, 1992, overdue inclusive of unpaid
installments plus accumulated penalty charges; and
that if she failed to arrange for another payment
scheme, her account would be referred to its legal
counsel for collection.
Josephine again called Ana Marie inquiring
what was going on and the latter replied that no
payment for the car had been received. Josephine
also called up World Cars and spoke to its Vice-
President, a certain Domondon, who informed her
that based on company records, the last payment
had not been received.
The spouses Aguilar thus filed a complaint for
annulment of chattel mortgage plus damages
against Citytrust and World Cars before the Regional
Trial Court (RTC) of Quezon City.
In its Answer, Citytrust disclaimed knowledge
of the alleged prior arrangement and the alleged
subsequent payments made by the Aguilars to World
Cars. And it claimed that it accepted the
endorsement and assignment of the promissory note
and chattel mortgage in good faith, relying on the
terms and conditions thereof; and that assuming
that the Aguilars claim were true, World Cars
appeared to have violated the terms and conditions
of the Receivables Financing Agreement (RFA) it
executed with it
In its Answer with Counterclaim, World Cars
claimed that, among other things, it received only
the check in the amount of P148,000.00 (Check No.
112703 payable to Perez) as downpayment for the
car; and that the Aguilars defaulted in the payment
of their monthly amortizations to Citytrust, and it
should not be held accountable for the personal and
unilateral obligations of the Aguilars to Citytrust.
RTC found Perez to be an agent of World Cars, hence,
an extension of its personality as far as the sale of
the car to the Aguilars was concerned.
The trial court further found that Perez was
authorized to receive payment for the car, hence, all
payments made to him for the purchase of the car
were payments made to his principal, World Cars;
and that the Aguilars had no intention to be bound
by the promissory note which they signed in favor of
World Cars or its assignee nor by the terms of the
Chattel Mortgage, the conforme in the undated mortgage and other accessory documents they
Letter (Notice of Assignment) of World Cars and the executed which were to take effect only in the event
Disclosure Statement of Loan/Credit Transaction the checks would be dishonored were deemed
having been predicated on the validity of the nullified, all the checks having been cleared.
promissory note.
Since the condition for the instruments to
Moreover, the trial court held that the fact that on become effective was fulfilled, the obligation on the
May 30, 1992, the same date of the promissory note, part of the Aguilars to be bound thereby did not arise
Josephine issued three checks to fully cover the and World Cars did not thus acquire rights
purchase price of the car (the fourth represented thereunder following Art. 1181 of the Civil Code
payment of insurance premium), the last of which which provides:
was still to mature on July 30, 1992, proves that the
Aguilars signed the promissory note without ARTICLE 1181. In conditional
intending to be bound by its terms. obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired,
In fine, the trial court held that the Aguilars had shall depend upon the happening of the event which
paid World Cars the full purchase price of the car, constitutes the condition. (Emphasis supplied)
and Citytrust as the assignee of World Cars had no
right to collect from them the amount stated in the As no right against the Aguilars was acquired
Chattel Mortgage cum Deed of Assignment which is by World Cars under the promissory note and chattel
simulated and, therefore, void, following Art. 1346 of mortgage, it had nothing to assign to Citytrust.
the Civil Code. Consequently, Citytrust cannot enforce the
instruments against the Aguilars, for an assignee
On appeal, the appellate court modified that of the cannot acquire greater rights than those pertaining
trial court.Hence, the present separate petitions of to the assignor.
the Aguilars and World Cars.
At all events, the Aguilars having fully paid
Held: Clearly, Perez was the agent of World Cars and the car before they became aware of the assignment
was duly authorized to accept payment for the car. of the instruments to Citytrust when they received
Josephines testimony that before issuing the checks notice thereof by Citytrust, they were released of
in the name of Perez, she verified from his their obligation thereunder. The Civil Code so
supervisor and the latter confirmed Perez authority provides:
to receive payment remains unrefuted by World Cars.
In fact, World Cars admitted in its Answer with ARTICLE 1626. The debtor who, before having
Counterclaim that [w]hat was actually paid [by the knowledge of the assignment, pays his creditor, shall
Aguilars] and received by [it] was [Josephines] check be released from the obligation.
in the amount of P148,000.00 as downpayment for
the said car. Parenthetically, as earlier stated, when While Citytrust cannot enforce the
Josephine spoke to World Cars Vice President instruments against the Aguilars, since under the
Domondon, the latter informed her that the last RFA, World Cars, its successors, and assigns,
payment had not been received. This information of guaranteed that it has full right and legal authority
Domondon does not jibe with the claim of World Cars to make the assignment or discounting; that the
that it received only Josephines first check in the installment papers so discounted by virtue of this
amount of P148,000.00 as downpayment. agreement, are subsisting, valid, enforceable and in
all respects what they purport to be; that the papers
Since the Aguilars payment to Perez is deemed contain the entire agreement between the customers
payment to World Cars, the promissory note, chattel and [World Cars]; x x x that it has absolute and good
title to such contracts and the personalties covered
thereby and the right to sell and transfer the same in
favor of Citytrust.
17. FLORENTINO VS. SUPERVALUE
FACTS:Petitioner is doing business under
business name Empanada Royale, a sole
proprietorship engaged in the retail of empanada
with outlets in different malls and business
establishments within Metro Manila.
Respondent, on the other hand, is a domestic
corporation engaged in the business of leasing stalls
and commercial store spaces located inside SM Malls
found all throughout the country.
On 8 March 1999, petitioner and respondent
executed three Contracts of Lease containing similar
terms and conditions over the cart-type stalls at SM
North Edsa and SMSouthmall and a store space at SM
Megamall. The term of each contract is for a period
of four months and may be renewed upon agreement
of the parties.
Upon the expiration of the original Contracts
of Lease, the parties agreed to renew the same by
extending their terms until 31 March 2000.
Before the expiration of said Contracts of
Lease, or on 4 February 2000, petitioner received
two letters from the respondent, both dated 14
January 2000, transmitted through facsimile
transmissions.
In the first letter, petitioner was charged with
violating Section 8 of the Contracts of Lease
Respondent also charged petitioner with selling a
new variety of empanada called mini-embutido and
of increasing the price of her merchandise without
the prior approval of the respondent.
Respondent observed that petitioner was frequently
closing earlier than the usual mall hours, either
because of non-delivery or delay in the delivery of
stocks to her outlets, again in violation of the terms
of the contract. A stern warning was thus given to
petitioner to refrain from committing
infractions in the future in order to avoid the
termination of the lease contract.
Respondent informed the petitioner that it
will no longer renew the Contracts of Lease for the
three outlets, upon their expiration
Petitioner explained that the mini-embutido
is not a new variety of empanada but had similar
fillings, taste and ingredients as those of pork
empanada; only, its size was reduced in order to
the make it more affordable to the buyers.
Such explanation notwithstanding, respondent
still refused to renew its Contracts of Lease with the
petitioner. To the contrary, respondent took
possession of the store space in SM Megamall and
confiscated the equipment and personal belongings
of the petitioner found therein after the expiration of
the lease contract.
An action for Specific Performance, Sum of Money
and Damages was filed by the petitioner against the
respondent before the RTC of Makati.
In her Complaint petitioner alleged that the
respondent made verbal representations that the
Contracts of Lease will be renewed from time to time
and, through the said representations, the petitioner
was induced to introduce improvements upon the
store space at SM Megamall in the sum of
P200,000.00, only to find out a year later that the
respondent will no longer renew her lease contracts
for all three outlets.
Petitioner alleged that the respondent,
without justifiable cause and without previous
demand, refused to return the security deposits.
Petitioner claimed that the respondent seized her
equipment and personal belongings found inside the
store space in SM Megamall after the lease contract
for the said outlet expired and despite repeated
written demands from the petitioner, respondent
continuously refused to return the seized items.
The RTC rendered a Judgment in favor of the
petitioner and found that the physical takeover by
the respondent of the leased premises and the
seizure of petitioners equipment and personal
belongings without prior notice were illegal.
Aggrieved, the respondent appealed the
similar adverse RTC Judgment to the Court of Appeals.
The Court of Appeals modified the RTC Judgment
and found that the respondent was justified in
forfeiting the security deposits and was not liable to
reimburse the petitioner for the value of the performance and has a double function: (1) to
improvements introduced in the leased premises. provide for liquidated damages, and (2) to strengthen
Hence, this instant Petition for Review on the coercive force of the obligation by the threat of
Certiorari filed by the petitioner assailing the Court greater responsibility in the event of breach. The
of Appeals Decision. obligor would then be bound to pay the stipulated
indemnity without the necessity of proof of the
ISSUES: existence and the measure of damages caused by the
I. Whether or not the respondent is liable to breach. Article 1226 of the Civil Code states:
return the security deposits to the petitions. Art. 1226. In obligations with a penal clause, the
penalty shall substitute the indemnity for damages
II. Whether or not the respondent is liable to and the payment of interests in case of
reimburse the petitioner for the sum of the noncompliance, if there is no stipulation to the
improvements she introduced in the leased premises. contrary. Nevertheless, damages shall be paid if the
Held: obligor refuses to pay the penalty or is guilty of fraud
I. The appellate court, in finding that the in the fulfillment of the obligation.
respondent is authorized to forfeit the security
deposits, relied on the provisions of Sections 5 and The penalty may be enforced only when it is
18 of the Contract of Lease, to wit: demandable in accordance with the provisions of this
Section 5. DEPOSIT. The LESSEE shall make a Code.
cash deposit in the sum of SIXTY THOUSAND PESOS As a general rule, courts are not at liberty to
(P60,000.00) equivalent to three (3) months rent as ignore the freedoms of the parties to agree on such
security for the full and faithful performance to each terms and conditions as they see fit as long as they
and every term, provision, covenant and condition of are not contrary to law, morals, good customs, public
this lease and not as a pre-payment of rent. order or public policy. Nevertheless, courts may
Section 18. TERMINATION. Any breach, equitably reduce a stipulated penalty in the
non-performance or non-observance of the terms and contracts in two instances: (1) if the principal
conditions herein provided shall constitute default obligation has been partly or irregularly complied
which shall be sufficient ground to terminate this with; and (2) even if there has been no compliance if
lease, its extension or renewal. and LESSOR shall the penalty is iniquitous or unconscionable in
forfeit in its favor the deposit tendered without accordance with Article 1229 of the Civil Code which
prejudice to any such other appropriate action as clearly provides:
may be legally authorized. Art. 1229. The judge shall equitably reduce the
Since it was already established by the trial penalty when the principal obligation has been partly
court that the petitioner was guilty of committing or irregularly complied with by the debtor. Even if
several breaches of contract, the Court of Appeals there has been no performance, the penalty may also
decreed that she cannot therefore rightfully demand be reduced by the courts if it is iniquitous or
the return of the security deposits for the same are unconscionable.
deemed forfeited by reason of evident contractual In ascertaining whether the penalty is
violations. unconscionable or not, this court set out the
It is undisputed that the above-quoted following standard in Ligutan v. Court of Appeals, to
provision found in all Contracts of Lease is in the wit:
nature of a penal clause to ensure petitioners The question of whether a penalty is reasonable or
faithful compliance with the terms and conditions of iniquitous can be partly subjective and partly
the said contracts. objective. Its resolution would depend on such
A penal clause is an accessory undertaking to factor as, but not necessarily confined to, the type,
assume greater liability in case of breach. It is extent and purpose of the penalty, the nature of the
attached to an obligation in order to insure obligation, the mode of breach and its consequences,
the supervening realities, the standing and
relationship of the parties, and the like, the
application of which, by and large, is addressed to
the sound discretion of the court. xxx.
In the instant case, the forfeiture of the entire
amount of the security deposits was excessive and
unconscionable considering that the gravity of the
breaches committed by the petitioner is not of such
degree that the respondent was unduly prejudiced
thereby. It is but equitable therefore to reduce the
penalty of the petitioner to 50% of the total amount
of security deposits.
The forfeiture of the entire sum of P192,000.00 is
clearly a usurious and iniquitous penalty for the
transgressions committed by the petitioner. The
respondent is therefore under the obligation to
return the 50% of P192,000.00 to the petitioner.
II. As to the liability of the respondent to
reimburse the petitioner for one-half of the expenses
incurred for the improvements on the leased store
space at SMMegamall.
The provisions in the Contract of Lease
mandates that before the petitioner can introduce
any improvement on the leased premises, she should
first obtain respondents consent. In the case at
bar, it was not shown that petitioner previously
secured the consent of the respondent before she
made the improvements on the leased space in SM
Megamall. It was not even alleged by the petitioner
that she obtained such consent or she at least
attempted to secure the same. On the other hand,
the petitioner asserted that respondent allegedly
misrepresented to her that it would renew the terms
of the contracts from time to time after their
expirations, and that the petitioner was so induced
thereby that she expended the sum of P200,000.00
for the improvement of the store space leased.
Moreover, it is consonant with human
experience that lessees, before occupying the leased
premises, especially store spaces located inside malls
and big commercial establishments, would renovate
the place and introduce improvements thereon
according to the needs and nature of their business
and in harmony with their trademark designs as part
of their marketing ploy to attract customers.
Certainly, no inducement or misrepresentation from
the lessor is necessary for this purpose, for it is not
only a matter of necessity that a lessee should re-
design its place of business but a business strategy
as well.
In ruling that the respondent is liable to
reimburse petitioner one half of the amount of
improvements made on the leased store space should
it choose to appropriate the same, the RTC relied on
the provision of Article 1678 of the Civil Code.
While it is true that under the above-quoted
provision of the Civil Code, the lessor is under the
obligation to pay the lessee one-half of the value of
the improvements made should the lessor choose to
appropriate the improvements, Article 1678 however
should be read together with Article 448 and Article
546 of the same statute.
Thus, to be entitled to reimbursement for
improvements introduced on the property, the
petitioner must be considered a builder in good faith.
Further, Articles 448 and 546 of the Civil Code,
which allow full reimbursement of useful
improvements and retention of the premises until
reimbursement is made, apply only to a possessor in
good faith, i.e.,one who builds on land with the belief
that he is the owner thereof. A builder in good faith
is one who is unaware of any flaw in his title to the
land at the time he builds on it. In this case, the
petitioner cannot claim that she was not aware of
any flaw in her title or was under the belief that she
is the owner of the subject premises for it is a settled
fact that she is merely a lessee thereof.
Since petitioners interest in the store space is
merely that of the lessee under the lease contract,
she cannot therefore be considered a builder in good
faith. Consequently, respondent may appropriate the
improvements introduced on the leased premises
without any obligation to reimburse the petitioner
for the sum expended.
18. Gonzales vs. Lim
19. JEANETTE D. MOLINO VS. SECURITY DINER
INTL. CORP.
FACTS: The Security Diners International
Corporation (SDIC) operates a credit card system
under the name of Diners Club through which it
extends credit accommodation to its cardholders for
the purchase of goods and payment of services from
its member establishments to be reimbursed later on upgraded to Diamond (Edition) petitioner consented
by the cardholder upon proper billing. There are or agreed to act as surety for Danilo.
two types of credit cards issued: one, the Regular The trial court went on further to state that
(Local) Card which entitles the cardholder to petitioner was not liable for any amount, not even for
purchase goods and pay services from member P10,000.00 which is the maximum credit limit for
establishments in an amount not exceeding Regular Diners Club Cards, since at the time of the
P10,000.00; and two, the Diamond (Edition) Card upgrading Danilo had no outstanding credit card
which entitles the cardholder to purchase goods and debts.[6]
pay services from member establishments in The Court of Appeals found contrary to the lower
unlimited amounts. One of the requirements for the court, and declared that the Surety Undertaking
issuance of either of these cards is that an applicant signed by petitioner when Danilo Alto first applied
should have a surety. for a Regular Diners Club Card clearly applied to the
On July 24, 1987, Danilo A. Alto applied for a unpaid purchases of Danilo Alto under the Diamond
Regular (Local) Card with SDIC. He got as his surety card.
his own sister-in-law Jeanette Molino Alto. Petitioners motion for reconsideration of the above
On the basis of the completed and signed Application decision was denied Hence, the petition.
Form and Surety Undertaking, the SDIC issued to
Danilo Diners Card The latter used this card and ISSUES: 1. Whether petitioner is liable as surety
initially paid his obligations to SDIC. On February 8, under the Diamond card revolves around the effect of
1988, Danilo wrote SDIC a letter requesting it to the upgrading by Danilo Alto of his card.
upgrade his Regular (Local) Diners Club Card to a
Diamond (Edition) one. As a requirement of SDIC, 2. Was the upgrading a novation of the original
Danilo secured from Jeanette her approval. The agreement governing the use of Danilo Altos first
latter obliged and so on March 2, 1988, she signed a credit card, as to extinguish that obligation and the
Note which states: Surety Undertaking which was simply accessory to
This certifies that I, Jeanette D. Molino, approve of it?
the request of Danilo and Gloria Alto with Card No.
3651-203216-0006 and 3651-203412-5007 to HELD: Petitioner posits that she did not expressly
upgrade their card from regular to diamond edition. give her consent to be bound as surety under the
Danilos request was granted and he was issued a upgraded card. She points out that the note she
Diamond (Edition) Diners Club Card. He used this signed, registering her approval of the request of
card and made purchases from member Danilo Alto to upgrade his card, renders the Surety
establishments. On October 1, 1988 Danilo had Undertaking she signed under the terms of the
incurred credit charged plus appropriate interest and previous card without probative value, immaterial
service charges in the aggregate amount of and irrelevant as it covers only the liability of the
P166,408.31. He defaulted in the payment of this surety in the use of the regular credit card by the
obligation. principal debtor She argues further that because the
SDIC demanded of Danilo and Jeanette to pay said principal debtor, Danilo Alto, was not held liable,
obligation but they did not pay. So, SDIC filed an having been dropped as a defendant, she could not be
action to collect said indebtedness against Danilo said to have incurred liability as surety.
and Jeanette. The petition is devoid of merit.
The trial court rendered a decision dismissing the Novation, as a mode of extinguishing obligations,
complaint for failure of respondent to prove its case may be done in two ways: by explicit declaration, or
by a preponderance of the evidence. It found that by material incompatibility (implied novation). As
while petitioner clearly bound herself as surety under we stated in Fortune Motors vs. Court of Appeals,
the terms of Danilo Altos Regular Diners Club Card, supra:
there was no evidence that after the card had been
xxx The test of incompatibility is whether the two are clear and leave no doubt upon the intention of
obligations can stand together, each one having its the contracting parties, the literal meaning of its
independent existence. If they cannot, they are stipulations shall control.
incompatible and the latter obligation novates the As a last-ditch measure, petitioner asseverates that,
first. Novation must be established either by the being merely a surety, a pronouncement should first
express terms of the new agreement or by the acts of be made declaring the principal debtor liable before
the parties clearly demonstrating the intent to she herself can be proceeded against. The argument,
dissolve the old obligation as a consideration for the which is hinged upon the dropping of Danilo as
emergence of the new one. The will to novate, defendant in the complaint, is bereft of merit.
whether totally or partially, must appear by express The Surety Undertaking expressly provides that
agreement of the parties, or by their acts which are petitioners liability is solidary. A surety is
too clear or unequivocal to be mistaken. considered in law as being the same party as the
There is no doubt that the upgrading was a novation debtor in relation to whatever is adjudged touching
of the original agreement covering the first credit the obligation of the latter, and their liabilities are
card issued to Danilo Alto, basically since it was interwoven as to be inseparable. Although the
committed with the intent of cancelling and contract of a surety is in essence secondary only to a
replacing the said card. However, the novation did valid principal obligation, his liability to the creditor
not serve to release petitioner from her surety is direct, primary and absolute; he becomes liable for
obligations because in the Surety Undertaking she the debt and duty of another although he possesses
expressly waived discharge in case of change or no direct or personal interest over the obligations
novation in the agreement governing the use of the nor does he receive any benefit therefrom. There
first credit card. being no question that Danilo Alto incurred debts of
The nature and extent of petitioners obligations are P166,408.31 in credit card advances, an obligation
set out in clear and unmistakable terms in the shared solidarily by petitioner, respondent was
Surety Undertaking. Thus: certainly within its rights to proceed singly against
1. She bound herself jointly and severally with petitioner, as surety and solidary debtor, without
Danilo Alto to pay SDIC all obligations and charges in prejudice to any action it may later file against
the use of the Diners Club Card, including fees, Danilo Alto, until the obligation is fully satisfied.
interest, attorneys fees, and costs; This is so provided under Article 1216 of the Civil
2. She declared that any change or novation in the Code:
Agreement or any extension of time granted by The creditor may proceed against any one of the
SECURITY DINERS to pay such obligation, charges, solidary debtors or some or all of them
and fees, shall not release (her) from this Surety simultaneously. The demand made against one of
Undertaking; them shall not be an obstacle to those which may be
3. (S)aid undertaking is a continuous one and shall subsequently directed against the others, so long as
subsist and bind (her) until all such obligations, the debt has not been fully collected.
charges and fees have been fully paid and satisfied; Petitioner is a graduate of business administration,
and and possesses considerable work experience in
4. The indication of a credit limit to the cardholder several banks. She knew the full import and
shall not relieve (her) of liability for charges and all consequence of the Surety Undertaking that she
other amounts voluntarily incurred by the executed. She had the option to withdraw her
cardholder in excess of said credit limit. suretyship when Danilo upgraded his card to one
We cannot give any additional meaning to the plain that permitted unlimited purchases, but instead she
language of the subject undertaking. The extent of a approved the upgrading. While we commiserate in
suretys liability is determined by the language of the the financial predicament she now faces, it is also
suretyship contract or bond itself. Article 1370 of evident that the liability she incurred is only the
the Civil Code provides: If the terms of a contract legitimate consequence of an undertaking that she
freely and intelligently obliged to. Prospective
sureties to credit card applicants would be well- In defense, defendant Pacific claims that its failure
advised to study carefully the terms of the to finish the contracted work was due to inclement
agreements prepared by the credit card companies weather and the fact that several items of finished
before giving their consent, and pay heed to work and change order which plaintiff refused to
stipulations that could lead to onerous effects, like accept and pay for caused the disruption of work.
in the present case where the credit applied for was Since the contractual relation between plaintiff and
limitless. At the same time, it bears articulating that defendant Pacific created a reciprocal obligation, the
although courts in appropriate cases may equitably failure of the plaintiff to pay its progressing bills
reduce the award for penalty as provided under such estops it from demanding fulfillment of what is
suretyship agreements if the same is iniquitous or incumbent upon defendant Pacific. The acquiescence
unconscionable, we are unable to give relief to by plaintiff in granting three extensions to defendant
petitioner by way of reducing the amount of the Pacific is likewise a waiver of the formers right to
principal liability as surety under the circumstances claim any damages for the delay. Further, the
of this case. unilateral and voluntary action of plaintiff in
preventing defendant Pacific from completing the
20. FILINVEST LAND VS. CA work has relieved the latter from the obligation of
completing the same.

FACTS: Filinvest Land, Inc. (FILINVEST, for On the other hand, Philamgen contends that the
brevity), a corporation engaged in the development various amendments made on the principal contract
and sale of residential subdivisions, awarded to and the deviations in the implementation thereof
defendant Pacific Equipment Corporation which were resorted to by plaintiff and co-defendant
(PACIFIC, for brevity) the development of its Pacific without its (defendant Philamgens) written
residential subdivisions consisting of two (2) parcels consent thereto, have automatically released the
of land located at Payatas, Quezon City, the terms latter from any or all liability within the purview and
and conditions of which are contained in an contemplation of the coverage of the surety bonds it
Agreement. To guarantee its faithful compliance has issued. Upon agreement of the parties to appoint
and pursuant to the agreement, defendant Pacific a commissioner to assist the court in resolving the
posted two (2) Surety Bonds in favor of plaintiff issues confronting the parties, an order was issued
which were issued by defendant Philippine American naming Architect Antonio Dimalanta as Court
General Insurance (PHILAMGEN, for brevity). Commissioner to conduct an ocular inspection and
to determine the amount of work accomplished by
Notwithstanding three extensions granted by the defendant Pacific and the amount of work done
plaintiff to defendant Pacific, the latter failed to by plaintiff to complete the project.
finish the contracted works. On 16 October 1979,
plaintiff wrote defendant Pacific advising the latter According to the Commissioner, no better basis in
of its intention to takeover the project and to hold the work done or undone could be made other than
said defendant liable for all damages which it had the contract billings and payments made by both
incurred and will incur to finish the project. parties as there was no proper procedure followed in
terminating the contract, lack of inventory of work
On 26 October 1979, plaintiff submitted its claim accomplished, absence of appropriate record of work
against defendant Philamgen under its performance progress (logbook) and inadequate documentation
and guarantee bond but Philamgen refused to and system of construction management.
acknowledge its liability for the simple reason that
its principal, defendant Pacific, refused to Based on the billings of defendant Pacific and the
acknowledge liability therefore. Hence, this action. payments made by plaintiff, the work accomplished
by the former amounted to P11,788,282.40 with the
exception of the last billing (which was not acted
upon or processed by plaintiff) in the amount of
P844,396.42. The total amount of work left to be
accomplished by plaintiff was based on the original
contract amount less value of work accomplished by
defendant Pacific in the amount of P681,717.58
(12,470,000-11,788,282.42).
As regards the alleged repairs made by plaintiff on
the construction deficiencies, the Court
Commissioner found no sufficient basis to justify the
same. On the other hand, he found the additional
work done by defendant Pacific in the amount of
P477,000.00 to be in order.
On the basis of the commissioners report, the trial
court dismissed Filinvests complaint It held:
The unpaid balance due defendant therefore is
P1,939,191.67. To this amount should be added
additional work performed by defendant at plaintiffs
instance in the sum ofP475,000.00. And from this
total of P2,414,191.67 should be deducted the sum
of P532,324.01 which is the cost to repair the
deficiency or defect in the work done by defendant.
The commissioner arrived at the figure of
P532,324.01 by getting the average between
plaintiffs claim of P758,080.37 and defendants
allegation of P306,567.67. The amount due to
defendant per the commissioners report is therefore
P1,881,867.66.
Although the said amount of P1,881,867.66 would be
owing to defendant Pacific, the fact remains that
said defendant was in delay since April 25, 1979.
The third extension agreement of September 15,
1979 is very clear in this regard. The pertinent
paragraphs read:
a) You will complete all the unfinished works not
later than Oct. 15, 1979. It is agreed and understood
that this date shall DEFINITELY be the LAST and
FINAL extension & there will be no further extension
for any cause whatsoever.
b) We are willing to waive all penalties for delay
which have accrued since April 25, 1979 provided
that you are able to finish all the items of the
contracted works as per revised CPM; otherwise you
shall continue to be liable to pay the penalty up to
the time that all the contracted works shall have
been actually finished, in addition to other damages
which we may suffer by reason of the delays
incurred.
Defendant Pacific therefore became liable for delay
when it did not finish the project on the date agreed
on October 15, 1979. The court however, finds the
claim of P3,990,000.00 in the form of penalty by
reason of delay (P15,000.00/day from April 25, 1979
to Jan. 15, 1980) to be excessive. A forfeiture of the
amount due defendant from plaintiff appears to be a
reasonable penalty for the delay in finishing the
project considering the amount of work already
performed and the fact that plaintiff consented to
three prior extensions.
The Court of Appeals, finding no reversible error in
the appealed decision, affirmed the same.
Hence, the instant petition.
ISSUE:Whether or not the liquidated damages agreed
upon by the parties should be reduced considering
that: (a) time is of the essence of the contract; (b) the
liquidated damages was fixed by the parties to serve
not only as penalty in case Pecorp fails to fulfill its
obligation on time, but also as indemnity for actual
and anticipated damages which Filinvest may suffer
by reason of such failure; and (c) the total liquidated
damages sought is only 32% of the total contract
price, and the same was freely and voluntarily agreed
upon by the parties.
HELD: Filinvest argues that the penalty in its
entirety should be respected as it was a product of
mutual agreement and it represents only 32% of the
P12,470,000.00 contract price, thus, not shocking
and unconscionable under the circumstances.
Moreover, the penalty was fixed to provide for actual
or anticipated liquidated damages and not simply to
ensure compliance with the terms of the contract;
hence, courts should be slow in exercising the
authority conferred by Art. 1229 of the Civil Code.

We are not swayed.
There is no question that the penalty of P15,000.00
per day of delay was mutually agreed upon by the
parties and that the same is sanctioned by law. A already performed and the fact that [Filinvest]
penal clause is an accessory undertaking to assume
greater liability in case of breach. It is attached to an
obligation in order to insure performance and has a
double function: (1) to provide for liquidated
damages, and (2) to strengthen the coercive force of
the obligation by the threat of greater responsibility
in the event of breach. Article 1226 of the Civil
Code states:
Art. 1226. In obligations with a penal clause, the
penalty shall substitute the indemnity for damages
and the payment of interests in case of
noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of this
Code.
As a general rule, courts are not at liberty to ignore
the freedom of the parties to agree on such terms
and conditions as they see fit as long as they are not
contrary to law, morals, good customs, public order
or public policy. Nevertheless, courts may equitably
reduce a stipulated penalty in the contract in two
instances: (1) if the principal obligation has been
partly or irregularly complied; and (2) even if there
has been no compliance if the penalty is iniquitous
or unconscionable in accordance with Article 1229 of
the Civil Code which provides:
Art. 1229. The judge shall equitably reduce the
penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also
be reduced by the courts if it is iniquitous or
unconscionable.
In herein case, the trial court ruled that the penalty
charge for delay pegged at P15,000.00 per day of
delay in the aggregate amount of P3,990,000.00 --
was excessive and accordingly reduced it to
P1,881,867.66 considering the amount of work
consented to three (3) prior extensions. The Court
of Appeals affirmed the ruling but added as well that
the penalty was unconscionable as the construction
was already not far from completion.
This Court finds no fault in the cost estimates of the
court-appointed commissioner as to the cost to
repair deficiency or defect in the works which was
based on the average between plaintiffs claim of
P758,080.37 and defendants P306,567.67
considering the following factors: that plaintiff did
not follow the standard practice of joint survey upon
take over to establish work already accomplished,
balance of work per contract still to be done, and
estimate and inventory of repair (Exhibit H). As
for the cost to finish the remaining works, plaintiffs
estimates were brushed aside by the commissioner
on the reasoned observation that plaintiffs cost
estimate for work (to be) done by the plaintiff to
complete the project is based on a contract awarded
to another contractor (JPT), the nature and
magnitude of which appears to be inconsistent with
the basic contract between defendant PECORP and
plaintiff FILINVEST.
We are hamstrung to reverse the Court of Appeals as
it is rudimentary that the application of Article 1229
is essentially addressed to the sound discretion of
the court. As it is settled that the project was
already 94.53% complete and that Filinvest did agree
to extend the period for completion of the project,
which extensions Filinvest included in computing
the amount of the penalty, the reduction thereof is
clearly warranted.
Filinvest, however, hammers on the case of Laureano
v. Kilayco, decided in 1915, which cautions courts to
distinguish between two kinds of penalty clauses in
order to better apply their authority in reducing the
amount recoverable. We held therein that:
. . . [I]n any case wherein there has been a partial or
irregular compliance with the provisions in
contract for special indemnification in the event of
failure to comply with its terms, courts will rigidly
apply the doctrine of strict construction against the
enforcement in its entirety of the indemnification,
where it is clear from the terms of the contract that
the amount or character of the indemnity is fixed
without regard to the probable damages which might
be anticipated as a result of a breach of the terms of
the contract; or, in other words, where the indemnity
provided for is essentially a mere penalty having for
its principal object the enforcement of compliance
with the contract. But the courts will be slow in
exercising the jurisdiction conferred upon them in
article 1154 so as to modify the terms of an agreed
upon indemnification where it appears that in fixing
such indemnification the parties had in mind a fair
and reasonable compensation for actual damages
anticipated as a result of a breach of the contract, or,
in other words, where the principal purpose of the
indemnification agreed upon appears to have been to
provide for the payment of actual anticipated and
liquidated damages rather than the penalization of a
breach of the contract. (Emphases supplied)
Filinvest contends that the subject penalty clause
falls under the second type, i.e., the principal
purpose for its inclusion was to provide for payment
of actual anticipated and liquidated damages rather
than the penalization of a breach of the contract.
Thus, Filinvest argues that had Pecorp completed the
project on time, it (Filinvest) could have sold the lots
sooner and earned its projected income that would
have been used for its other projects.
Unfortunately for Filinvest, the above-quoted
doctrine is inapplicable to herein case. The Supreme
Court in Laureano instructed that a distinction
between a penalty clause imposed essentially as
penalty in case of breach and a penalty clause
imposed as indemnity for damages should be made in
cases where there has been neither partial nor
irregular compliance with the terms of the contract.
In cases where there has been partial or irregular
compliance, as in this case, there will be no
substantial difference between a penalty and
liquidated damages insofar as legal results are
a concerned. The distinction is thus more apparent
than real especially in the light of certain provisions
of the Civil Code of the Philippines which provides
in Articles 2226 and Article 2227 thereof:
Art. 2226. Liquidated damages are those agreed
upon by the parties to a contract to be paid in case
of breach thereof.
Art. 2227. Liquidated damages, whether intended
as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
Thus, we lamented in one case that (t)here is
no justification for the Civil Code to make an
apparent distinction between a penalty and
liquidated damages because the settled rule is that
there is no difference between penalty and liquidated
damages insofar as legal results are concerned and
that either may be recovered without the necessity
of proving actual damages and both may be reduced
when proper.
Finally, Filinvest advances the argument that
while it may be true that courts may mitigate the
amount of liquidated damages agreed upon by the
parties on the basis of the extent of the work done,
this contemplates a situation where the full amount
of damages is payable in case of total breach of
contract. In the instant case, as the penalty clause
was agreed upon to answer for delay in the
completion of the project considering that time is of
the essence, the parties thus clearly contemplated
the payment of accumulated liquidated damages
despite, and precisely because of, partial
performance. In effect, it is Filinvests position that
the first part of Article 1229 on partial performance
should not apply precisely because, in all likelihood,
the penalty clause would kick in in situations where
Pecorp had already begun work but could not finish
it on time, thus, it is being penalized for delay in its
completion.
The above argument, albeit sound, is
insufficient to reverse the ruling of the Court of
Appeals. It must be remembered that the Court of
Appeals not only held that the penalty should be
reduced because there was partial compliance but
categorically stated as well that the penalty was
unconscionable. Otherwise stated, the Court of
Appeals affirmed the reduction of the penalty not
simply because there was partial compliance per se
on the part of Pecorp with what was incumbent upon
it but, more fundamentally, because it deemed the
penalty unconscionable in the light of Pecorps
94.53% completion rate.
In Ligutan v. Court of Appeals, we pointed out that
the question of whether a penalty is reasonable or
iniquitous can be partly subjective
objective as its resolution would depend on such
factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the
obligation, the mode of breach and its consequences,
the supervening realities, the standing
relationship of the parties, and the
application of which, by and large, is addressed to
the sound discretion of the court.
In herein case, there has been substantial
compliance in good faith on the part of Pecorp which
renders unconscionable the application of the full
force of the penalty especially if we consider that in
1979 the amount of P15,000.00 as penalty for delay
per day was quite steep indeed. Nothing in the
records suggests that Pecorps delay
performance of 5.47% of the contract was due to it
having acted negligently or in bad faith. Finally, we
factor in the fact that Filinvest is not free of blame
either as it likewise failed to do that which was
incumbent upon it, i.e., it failed to pay Pecorp for
work actually performed by the latter in the total
amount of P1,881,867.66. Thus,
considered, we find no reversible error in the Court
of Appeals exercise of discretion in the instant case.
21. SWAGMAN VS. CA [GR NO. 161135, APRIL 8,
2005]
FACTS: Sometime in 1996 and 1997, Swagman
through Atty. Infante and Hegerty, its president and
vice-president, respectively, obtained from Christian
loans evidenced by three promissory notes dated 7
August 1996, 14 March 1997, and 14 July 1997.
Each of thepromissory notes is in the amount of
US$50,000 payable after three years from its date
with an interest of 15% per annum payable every
three months. In a letter dated 16 December 1998,
Christian informed the petitioner corporation that
he was terminating the loansand demanded from the
latter payment of said loans.
On 2 February 1999, Christian filed with the RTC a
complaint for a sum of money and damages against
the petitioner corporation, Hegerty, and Atty.
Infante.
and partly
The petitioner corporation, together with its
president and vice-president, filed an Answer raising
as defenses lack of cause of action. According to
them, Christian had no cause of action because the
and three promissory notes were not yet due and
like, the demandable.
The trial court ruled that under Section 5 of Rule 10
of the 1997 Rules of Civil Procedure, a complaint
which states no cause of action may be cured by
evidence presented without objection. Thus, even if
the plaintiff had no cause of action at the time he
filed the instant complaint, as defendants obligation
are not yet due and demandable then, he may
nevertheless recover on the first twopromissory
in the notes in view of the introduction of evidence
showing that the obligations covered by the two
promissory notes are now due and demandable. When
the instant case was filed on February 2, 1999, none
of the promissory notes was due and demandable,
but , the first and the second promissory notes have
already matured during the course of the proceeding.
all things Hence, payment is already due.
This finding was affirmed in toto by the CA.
ISSUE: Whether or not a complaint that lacks a cause
of action at the time it was filed be cured by the
accrual of a cause of action during the pendency of
the case.
HELD: No. Cause of action, as defined in Section 2,
Rule 2 of the 1997 Rules of Civil Procedure, is the
act or omission by which a party violates the right of
another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means
and under whatever law it arises or is created;
2. An obligation on the part of the named defendant
to respect or not to violate such right; and
3. Act or omission on the part of such defendant in
violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the
plaintiff for which the latter may maintain an action
for recovery of damages or other appropriate relief.
It is, thus, only upon the occurrence of the last
element that a cause of action arises, giving the
plaintiff the right to maintain an action in court for
recovery of damages or other appropriate relief.
Such interpretation by the trial court and CA of
Section 5, Rule 10 of the 1997 Rules of Civil
Procedure is erroneous. The curing effect under
Section 5 is applicable only if a cause of action in
fact exists at the time the complaint is filed, but the
complaint is defective for failure to allege the
essential facts. Amendments of pleadings are allowed
under Rule 10 of the 1997 Rules of Civil Procedure in
order that the actual merits of a case may be
determined in the most expeditious and inexpensive
manner without regard to technicalities and that all
other matters included in the case may be
determined in a single proceeding, thereby avoiding
multiplicity of suits.
22. CAROLYN M. GARCIA VS. RICA MARIE S. THIO,
GR NO. 154878, 16 MARCH 2007
FACTS: Respondent Thio received from
petitioner Garcia two crossed checks which amount
to US$100,000 and US$500,000, respectively,
payable to the order of Marilou Santiago. According
to petitioner, respondent failed to pay the principal
amounts of the loans when they fell due and so she
filed a complaint for sum of money and damages with
the RTC. Respondent denied that she contracted the
two loans and countered that it was Marilou Satiago
to whom petitioner lent the money. She claimed she
was merely asked y petitioner to give the checks to
Santiago. She issued the checks for P76,000 and
P20,000 not as payment of interest but to
accommodate petitioners request that respondent
use her own checks instead of Santiagos.
RTC ruled in favor of petitioner. CA reversed
RTC and ruled that there was no contract of loan
between the parties.
ISSUE: (1) Whether or not there was a contract of
loan between petitioner and respondent.
(2) Who borrowed money from petitioner, the
respondent or Marilou Santiago?
HELD:
(1) The Court held in the affirmative. A loan is
a real contract, not consensual, and as such I
perfected only upon the delivery of the object of the
contract. Upon delivery of the contract of loan (in
this case the money received by the debtor when the
checks were encashed) the debtor acquires ownership
of such money or loan proceeds and is bound to pay
the creditor an equal amount. It is undisputed that
the checks were delivered to respondent.
(2) However, the checks were crossed and
payable not to the order of the respondent but to the
order of a certain Marilou Santiago. Delivery is the
act by which the res or substance is thereof placed
within the actual or constructive possession or
control of another. Although respondent did not
physically receive the proceeds of the checks, these
instruments were placed in her control and
possession under an arrangement whereby she
actually re-lent the amount to Santiago.
Petition granted; judgment and resolution reversed
and set aside.
23. FAR EAST BANK & TRUST V. DIAZ REALTY INC.,
G.R. NO. 138588, AUGUST 23, 2001
FACTS: 1. Diaz and Co. obtained a loan from Pacific
Banking Corp. in 1974 in the amount of P720,000 at
12% interest p.a. which was increased thereafter.
The said loan was secured with a real estate
mortgage over two parcels of land owned by Diaz
Realty, herein respondent. Subsequently, the loan
account was purchased by the petitioner Far East
Bank (FEBTC). Two years after, the respondent
through its President inquired about its obligation
and upon learning of the outstanding obligation, it
tendered payment in the form of an Interbank check
in the amount of P1,450,000 in order to avoid the
further imposition of interests. The payment was
with a notation for the full settlement of the
obligation.
2. The petitioner accepted the check but it alleged in
its defense that it was merely a deposit. When the
petitioner refused to release the mortgage, the
respondent filed a suit. The lower court ruled that
there was a valid tender of payment and ordered the
petitioner to cancel the mortgage. Upon appeal, the
appellate court affirmed the decision.
ISSUE: Whether or not there was a valid tender of
payment to extinguish the obligation
respondent
RULING: Yes. Although jurisprudence tells us that a
check is not a legal tender and a creditor may validly
refuse it, this dictum does not prevent a creditor
from accepting a check as payment. Herein, the
petitioner accepted the check and the same was
cleared.
A tender of payment is the definitive act of of
offering the creditor what is due him or her, together
with the demand that he accepts it. More important
is that there must be a concurrence of intent, ability
and capability to make good such offer, and must be
absolute and must cover the amount due. The acts of
the respondent manifest its intent, ability and
capability. Hence, there was a valid tender of
payment.
Meanwhile, the transfer of credit from Pacific Bank
to the petitioner did not involve an
novation but an assignment of credit. As such, the
petitioner has the right to collect the full value of
the credit from the respondent subject to the
conditions of the promissory note
executed.
24. LICAROS v GATMAITAN
FACTS: Abelardo Licaros invested his money
worth$150,000 with Anglo-Asean Bank, a money
market placement by way of deposit, based in the
Republic of Venatu. Unexpectedly, he had a hard time
getting back his investments as well as the interest
earned. He then sought the counsel of Antonio
Gatmaitan, a reputable banker and investor. They
entered into an agreement,where a non-negotiable
promissory note was to be executed in favor of
Licaros worth $150,000, and that Gatmaitan would
take over the value of the investment made by
Licaros with the Anglo-Asean Bank at the former's
expense. When Gatmaitan contacted the foreign
bank, it said they will look into it, but it didn't
prosper. Because of the inability to collect,Gatmaitan
of the did not bother to pay Licaros the value of the
promissory note. Licaros, however, believing that he
had a right to collect from Gatmaitan regardless of
the outcome, demanded payment, but was ignore.
Licaros filed a complaint against Gatmaitan for the
collection of the note. The trial court ruled in favor
of Licaros, but CA reversed.
ISSUE:Whether the memorandum of agreement
between petitioner and respondent is one of
assignment of credit or one of conventional
subrogation
RULING: It is a conventional subrogation. An
assignment of credit has been defined as the process
of transferring the right of the assignor to the
assignee who would then have a right to proceed
against the debtor. Consent of the debtor is not
required is not necessary to product its legal effects,
since notice of the assignment would be enough. On
the other hand, subrogation of credit has been
effective defined as the transfer of all the rights of the
creditor to a third person, who substitutes him in all
his rights. It requires that all the related parties
thereto, the original creditor, the new creditor and
previously the debtor, enter into a new agreement, requiring the
consent of the debtor of such transfer of rights. In
the case at hand, it was clearly stipulated by the
parties in the memorandum of agreement that the
express conformity of the third party (debtor) is P35M. Mortgage was used as security for a loan
needed. The memorandum contains a space for the amounting to P20M.
signature of the Anglo-ASEAN Bank written therein On Aug. 12, 1992 onwards, Regalado refused to
"with our conforme". Without such signature, there accept Paculdos daily rental payments.
was no transfer of rights. The usage of the word Ultimately, on Aug. 20, 1992, Paculdo filed an action
"Assignment" was used as a general term, since for injunction & damages to enjoin Regalado from
Gatmaitan was not a lawyer, and therefore was not disturbing his possession of property under the
well-versed with the language of the law. contract. Regalado on the other hand, filed a
complaint for ejectment against Paculdo. Later on
withdrawn and then re-filed w/claim of
P3,924,000.00.
25. NEREO J. PACULDO, PETITIONER, VS. MTC: Ordered Paculdo to vacate the premises & pay
BONIFACIO C. REGALADO, RESPONDENT [2000] P527,119.27 of unpaid monthly rentals as of June
30, 1992 w/2% interest + P450k/month w/2%
FACTS: On Dec. 27, 1990: Contract of Lease between interest from July 1992 onwards until place has been
Paculdo (lessee) & Regalado (lessor) over a parcel of vacated & turned over to Regalado + P5M for attys
land w/a wet market bldg located along Don Mariano fees + costs.
Marcos Ave., Fairview Park, QC. Contract was for 5 Feb. 19, 1994: Regalado w/50 armed security guards
yrs from this date w/monthly rental of P450k forcibly entered the property & took possession of
payable w/in first 5 days of each month at Regalados the wet market.
office + 2% penalty for every month of late payment. RTC affirmed MTC decision. Issued a writ of
Paculdo leased 11 other properties from Regalado, 10 execution thus Paculdo vacated the property
of w/c were located in Fairview while the 11th was voluntarily & there was complete turn over by July
located along Quirino Highway, QC. Paculdo also 12, 1994.
purchased 8 units of heavy equipment & vehicles Paculdo appealed to the CA claiming that:
from Regalado amounting to P1,020,000.00. He paid P11,478,121.85 as security deposit & rentals
Then, on July 15, 1991, Regalado informed Paculdo on the wet market building.
that his payment was to be applied to the following: Portions of the amount paid was applied by Regalado
monthly rentals for the wet market, Quirino lot, and w/o his consent, to his other obligations. Vouchers
the heavy equipment purchased. This letter had no & receipts indicated that the payments were made
conformity portion. Paculdo did not act on the letter. for rentals, proof of Paculdos declaration as to w/c
On Nov. 19, 1991, Regalado proposed that Paculdos obligation the payment must be applied.
security deposit for the Quirino lot be applied as CA: Dismissed the petition for lack of merit. Paculdo
partial payment for his account under the subject lot impliedly consented to Regalados application of
as well as to the real estate taxes on the Quirino lot. payment to his other obligations.
Paculdo did not object and he signed the conformity
portion. ISSUE: WON Paculdo was truly in arrears in the
Regalado claims that Paculdo failed to pay P361, payment of rentals on the subject property at the
895.55 in rental for the month of May, 1992 and time of the filing of the complaint for ejectment.
monthly rental of P450k for the months of June & NO.
July, 1992. Thus he sent 2 demand letters (both in
July, 1992) asking for payment and later on asked
Paculdo to vacate the property. RATIO: 1. Based on MTC & RTC findings,
Regalado mortgaged the land under the contract to Paculdo paid a total of P10,949,447.18 to Regalado
Monte de Piedad Savings Bank. It included the as of July 2, 1992. And if this will be applied solely
improvements introduced by Paculdo amounting to to the rentals on the Fairview wet market, there
would even be an excess payment of P1,049,447.18. FACTS: Guillermo Uy assigned to respondent his
(see p.139 for computation) receivables due from Pantranco North Express Inc.
2. Paculdo goes back to the July 15, 1991 letter. (PNEI). Respondent filed a collection suit with an
He emphasized that applying the payment to the application for issuance of preliminary attachment
purchased equipment was crucial because it was against PNEI which was granted by the RTC. The
equivalent to 2 mos rental & was the basis for the sheriff issued a notice of garnishment addressed to
ejectment case. He further claims that his PNB and PNB MADECOR. The RTC rendered
silence/lack of protest did not mean consent; rather, judgment against PNEI with writ of execution
it was a rejection. causing the sheriff to garnish the amount therein
3. CC Art. 1252 & 1254: Debtor has the rt to from the credits and collectibles of PNEI from
specify w/c among his various obligations to the petitioner and levy upon the assets of petitioner
same creditor is to be satisfied at the time of making should its personal assets be insufficient to cover its
the payment. If the debtor did not exercise this rt, debt with PNEI. Petitioner claimed that as debtor, it
law provides that no payment is to be made to a debt is likewise a creditor for PNEI considering unpaid
that is not yet due (CC Art. 1252) and payment has rentals of PNEI for its parcel of land and by operation
to be applied first to the debt most onerous to the of law on compensation, it is actually the PNEI that
debtor (CC Art. 1254). still has outstanding obligations to it.
a. Paculdo made it clear that payments were to
be applied to his rental obligations on the wet market ISSUE: Whether or not there was legal compensation
property. between the petitioner and PNEI as a defense of the
b. Regalado claims that Paculdo assented to the former.
application as inferred from his silence.
c. A big chunk of the amount paid went into the RULING: NO. There could not be any compensation
satisfaction of an obligation w/c was not yet due & between PNEIs receivables from PNB MADECOR and
demandable (payment of heavy equipment). the latters obligation to the former because PNB
Application was contrary to law. MADECORs supposed debt to PNEI is the subject of
d. Paculdos silence was not tantamount to attachment proceedings initiated by a third party,
consent. Consent must be clear & definite. There was herein respondent Gerardo Uy. This is a controversy
no meeting of the minds. Though there was an offer that would prevent legal compensation from taking
by Regalado, there was no acceptance by Paculdo. place, per the requirements set forth in Article 1279
Even if Paculdo did not exercise his rt to choose the of the Civil Code. Moreover, it was not clear
obligation to be satisfied first & such rt was whether, at the time compensation was supposed to
transferred to Regalado, latters choice is still subject have taken place, the rentals being claimed by
to formers consent. petitioner were indeed still unpaid. Petitioner did
e. Lease over the Fairview property is the most not present evidence in this regard, apart from a
onerous among all the obligations of petitioner to statement of account.
respondent. Its a going-concern (?) and investments
on the improvements were made amounting to 27. AZOLLA FARMS VS CA G.R.NO. 138085
P35M. Paculdo was bound to lose more if lease would NOVEMBER 11, 2004
be rescinded than if the contract of sale of heavy
equipment would not proceed. FACTS: The trial court rendered its decision
annulling the promissory notes and real estate
Holding: Petition granted. CA decision reversed & set mortgage, and awarding damages to petitioners. The
aside. dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered:
26. PNB MADECOR VS. UY (363 SCRA 128)
(a) the promissory notes and real estate mortgage evidenced by the promissory notes and real estate
executed by plaintiff Yuseco novated, if not mortgage - how can it be possibly claimed by
unenforceable; plaintiffs that these notes and mortgage were
(b) any subsequent foreclosure or sale of the real novated when no previous notes or mortgage or
estate property, without any binding effect; loan agreement had been executed? What
As alleged by petitioners, the testimony of transpired was an application for loan was filed by
respondents witness, Jesus Venturina, established plaintiffs with Credit Manila in an amount greater
the novation of the promissory notes and the real than the P2 million eventually granted. This loan
estate mortgage, and the illegality of the foreclosure application was endorsed to defendant Savings
of petitioner Yusecos property. The trial court Bank of Manila, processed by the latter and
agreed with petitioners, ruling that there was a eventually approved by it in the amount of P2
novation of the promissory notes and real estate million.
mortgage. It cannot be said that the loan application of
plaintiffs or their initial representations with Credit
ISSUE: W/N there was no novation, hence, the Manilas Michael de Guzman was already in itself a
promissory notes and the real estate mortgage are binding original contract that was later novated by
valid and binding. defendant. Plaintiff Yuseco being himself a banker,
cannot pretend to have been unaware of banking
RULING: YES, no novation took place. procedures that normally recognize a loan
Novation is the extinguishment of an obligation by application as just that, a mere application. Only
the substitution or change of the obligation by a upon the banks approval of the loan application in
subsequent one which extinguishes or modifies the the amount and under such terms it deems viable
first, either by changing the object or principal and acceptable, that a binding and effective loan
conditions, or, by substituting another in place of the agreement comes into existence. Without any such
debtor, or by subrogating a third person in the rights first or original loan agreement as approved in the
of the creditor. In order for novation to take place, amount and under specified terms by the bank, there
the concurrence of the following requisites is can be nothing whatsoever that can be subsequently
indispensable: novated.
1. there must be a previous valid obligation,
2. there must be an agreement of the parties 28. HEIRS OF LUIS BACUS VS COURT OF APPEALS,
concerned to a new contract, SPOUSES FAUSTINO DURAY AND VICTORIANA
3. there must be the extinguishment of the old DURAY
contract, and G.R. NO. 127695 03DECEMBER2001
4. there must be the validity of the new contract.
All these requisites are patently lacking in this case.
In the first place, there is no new obligation that FACTS OF THE CASE: On 1984 Luis Bacus leased to
supposedly novated the promissory notes or the real Faustino Duray a parcel of agricultural land with
estate mortgage, or a pre-existing obligation that was total land area of 3,002 of square meters, in Cebu.
novated by the promissory notes and the real estate The lease was for six years ending in 1990, the
mortgage. In fact, there is only one agreement contract contained an option to buy clause. Under
between the parties in this case, i.e., petitioners the said option, the lessee had the exclusive and
P2,000,000.00 loan with respondent, as evidenced by irrevocable right to buy 2,000 square meters 5 years
the 3 promissory notes dated September 13 and 27, from a year after the effectivity of the contract, at
1982, and January 4, 1983, and the real estate P200 per square meter. That rate shall be
mortgage. As the Court of Appeals held: proportionately adjusted depending on the peso rate
There was only one single loan agreement in the against the US dollar, which at the time of the
amount of P2 million between the parties as execution of the contract was 14 pesos.
Close to the expiration of the contract Luis Bacus 29. THE MANILA BANKING CORPORATION vs.
died on 1989, after Duray informed the heirs of UNIVERSITY OF BAGUIO,INC. and GROUP
Bacus that they are willing and ready to purchase the DEVELOPERS, INC.
property under the option to buy clause. The heirs G.R. No. 159189 ; February 21, 2007
refused to sell, thus Duray filed a complaint for
specific performance against the heirs of Bacus. He
showed that he is ready and able to meet his FACTS:On November 26, 1981, the herein petitioner
obligations under the contract with Bacus. The RTC granted a 14 million credit line to the herein
ruled in favor of the Durays and the CA later affirmed respondents for the construction of additional
the decision. buildings and purchase of new equipment. On behalf
of the university, then Vice-Chairman Fernando C.
ISSUE: Can the heirs of Luis Bacus be compelled to Bautista, Jr. signed PN Nos. 10660, 10672, 10687,
sell the portion of the lot under the option to buy and 10708 and executed a continuing surety
clause? agreement. However, Bautista, Jr. diverted the net
proceeds of the loan. He endorsed and delivered the
HELD: - Yes, Obligations under an option to buy are four checks representing the net proceeds to
reciprocal obligations. The performance of one respondent Group Developers, Inc. The loan was not
obligation is conditioned on the simultaneous paid. On February 12, 1990, the bank filed a
fulfillment of the other obligation. In other words, in complaint for a sum of money with application for
an option to buy, the payment of the purchase price preliminary attachment against the university,
by the creditor is contingent upon the execution and Bautista, Jr. and his wife Milagros, before the RTC of
delivery of the deed of sale by the debtor. Makati City. Five years later, on March 31, 1995, the
- When the Durays exercised their option to buy the bank amended the complaint and impleaded GDI as
property their obligation was to advise the Bacus of additional defendant. Consequently, even if the loan
their decision and readiness to pay the price, they was overdue, the bank did not demand payment until
were not yet obliged to make the payment. Only February 8, 1989. By way of cross-claim, the
upon the Bacus actual execution and delivery of the university prayed that GDI be ordered to pay the
deed of sale were they required to pay. university the amount it would have to pay the bank.
- The Durays did not incur in delay when they did On December 14, 1995, the bank and GDI executed a
not yet deliver the payment nor make a consignation deed of dacion en pago. On March 19, 1998, the
before the expiration of the contract. In reciprocal university moved to dismiss the amended complaint.
obligations, neither party incurs in delay if the other On October 14, 1999 the university moved to set the
party does not comply or is not ready to comply in a case for pre-trial on December 2,1999. On August 3,
proper manner with what is incumbent upon him. 2000, the trial court resolved GDIs motion to
Only from the moment one of the parties fulfils his resolve the motion to dismiss and defer pre-trial. On
obligation, does delay by the other begin. August 29, 2001, the university filed a manifestation
Obligations and Contracts Terms: with motion for reconsideration of the August 17,
Reciprocal Obligations- Those which arise from the 1999 Order denying the universitys motion to
same cause, and in which each party is a debtor and dismiss the amended complaint.
a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other. ISSUE: Whether or not the trial court erred in
They are to be performed simultaneously such that dismissing the amended complaint, without trial,
the performance of one is conditioned upon the upon motion of respondent university.
simultaneous fulfilment of the other.
\
RULING: In this case, the universitys March 19,
1998 motion to dismiss the amended complaint was
improper under Rule 16 because it was filed after
respondent university filed its responsive pleading,
its Answer. Also the motions merit could not be
determined based solely on the allegations of the
initiatory pleading, the amended complaint, since
the motion was based on the deed of dacion en pago,
which was not even alleged in the complaint. And
since the deed of dacion en pago had been expunged
from the record, the trial court erred in its finding of
payment and lack of cause of action base on the
deed.
In the case at bar, there had been no presentation of
evidence yet and petitioner had not rested its case.
Therefore the August 17, 1999 Order properly denied
the motion to dismiss for being improper under
either Rule 16 or 33. The trial court had also made a
premature statement in its Omnibus Order dated
April 21, 1997 that the dacion en pago settled the
loan and the case, even as it also stated that
respondent university was used as a dummy of
GDI. If indeed there was fraud, considering the
uncollateralized loan, its diversion, non-payment,
absence of demand although overdue, and the dacion
en pago where title of the property accepted as
payment cannot be transferred, the fraud should be
uncovered to determine who are liable to pay the
loan. Thus, this petition was granted and set aside
the trial courts April 11, 2002 and June 27, 2003
Orders.
The trial court is ordered to proceed with the pre-
trial and hear this case with dispatch.
30. UNION REFINERY VS. TOLENTINO SR.
Doctrine: The basic civil law principle of relativity of
contracts[9] demands that contracts only bind the
parties (their heirs and assigns) who entered into it.
It cannot favor or prejudice third persons. Thus, the
appellate court was correct in holding that the MOA
between petitioner and respondent Roland binds only
them, and that any obligation arising therefrom may
only be invoked against each or both of them.
FACTS: Respondent Rolands UCPB Check No.
184124 bounced for insufficiency of funds.
Petitioner filed a complaint for violation of Batas
Pambansa Blg. 22 or the Bouncing Checks Law, but
respondent Roland was acquitted.
Respondent Rolands unpaid debt allegedly ballooned
to P2,555,362.34, hence, petitioner terminated the
dealership contract on August 24, 1987. When its
formal demand for payment was unheeded, petitioner
instituted an action for collection of sum of money
with preliminary attachment against respondent
Roland. His parents, respondents Reynaldo C.
Tolentino, Sr. and Lucia B. Tolentino, and siblings,
respondents Reynaldo, Jr. and Rex, were impleaded
as co-defendants. The respondents-spouses Reynaldo,
Sr. and Lucia were impleaded in the suit allegedly
because they were the ones who actually secured the
dealership contract with petitioner. Respondents
Reynaldo, Jr. and Rex were sued for the chattel
mortgage of their vehicles executed as security for
their brothers obligation with petitioner.
Petitioner, however, contends that the appellate
court erred in holding that respondent Roland only
owes it P1,541,211.51 and not P2,183,895.43 as
claimed.
ISSUE: W/N the amount of P412,683.39, of which
only P364,464.39 was credited by the Court of
Appeals in favor of respondent Roland, does not
represent payment duly made by respondent
Roland.
RULING: YES
The Court rejects the claim of respondent Roland
that he made several payments but were unrecorded
by the petitioner. This claim runs against the grain
of the rule that the one who pleads payment has the
burden of proving it. In the world of business, it is
unnatural to make payments and allow them to be
unrecorded. To be sure, even where the plaintiff
alleges nonpayment, the general rule is that the
burden rests on the defendant to prove payment,
rather than on the plaintiff to prove nonpayment.