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OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.

REGADO

1. SAGRADA OPEN DE PREDICADORES DEL SANTISIMO  Victims of negligence/their heirs have hoice between an action to
ROSARIO DE FILIPINAS VS NATIONAL COCONUUT enforce civil liability arising from culpa criminal (Art 100 RPC) or
CORPORATION action for quasi-delict Art 2176
 Occupant’s obligation to pay rentals must arise from contracts,  Criminal case against employee driver was prematurely terminated
quasi-contracts, etc. (sources of obligation) due to his death
 If occupant took possession of property without any 6. CAMINOS JR V. PEOPLE
express/implied agreement between hem that rentals must be pad
for use and occupation of property none may be recovered by pre-  Reckless Imprudence: voluntary but without malice, doing/failing to
war owner do an act from which material damage results by reason of
inexcusable lack of precaution on the part of person performing or
2. PEOPLE’S CAR INC. V. CAMMANDO SECURITY ACT failing to perform such act
 Actual damages which was paid by plaintiff to its customer, security  Requisites of reckless imprudence (1) Offender failed to do an act
company is liable to full amount through the negligence of its guard (2) Act voluntary (3) W/o malice (4) Material damage results (5)
during watch hours Inexcusable lack of precaution
 Par 4 limiting liability for damages is by its own terms is applicable  Test : Reasonable foreseeability that harm might result if
only through the negligence of its guards during watch hours commensurate care is not exercised
3. FGU INSURANCE CORP VS. GP SARMIENTO TRUCKING CORP 7. CANGCO V. MANILA RAIL ROAD CO
 In culpa-contractual, mere proof of existence of contract and failure CONTRACTUAL EXTRA-CONTRACTUAL
of its compliance justify prima facie a corresponding right of relief
Liability of masters: based on ere Necessary : some fault attributable to
 Effect of every infraction is to create new duty that is to recompense
presumption of master’s negligence : defendant personally & that last
to one who has been injured by failure of another to observe
requirement utmost diligence paragraph of Art 1903 merely
contractual obligation
establishes a rebuttable presumption
4. LRT VS. NATIVIDAD
Vinculum exists independently of Wrongful or negligence act/omission
 Law requires common carriers to carry passengers safely using breach of voluntary duty when itself which creates vinculum juris
utmost diligence of a very cautious person with due regard for all entering contractual relation
circumstances
Proof of contract and its non- Limit : Moral culpability can be
 In case of death, injury, carrier is presumed to have been at fault,
performance is sufficient to prima directly imputed to persons to be
presumption juris tatum that employer failed to exercise diligence of
facie warrant recovery charged
a good father of a family in the selection and supervision of its
employees 8. CABUGAO V. PEOPLE
 Liability for tory may arise under a contract where tort is that which  Inexcusable lack of precaution : conscious indifference to the
breaches the contract consequences of conduct
 GR: liability of common carrier and contractor : SOLIDARY  Death of an accused pending appeal extinguishes criminal and civil
5. L.G FOODS CORP V. PAGAPONG liability
 Civil liability survives notwithstanding death of accused if same may
 Act or omission causing damage to another may give rise to 2
separate liabilities on part of the offender a) Civil liability ex delicto also be predicated on a source of obligation other than delict
b) independent civil liabilities 9. CEREZO V. TUAZON
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 Action based on quasi-delict may proceed independently from  Consent & release forms: Blanket release in favor of hospitals from
criminal action any and all claims which includes claims due to bad faith and gross
 Employer’s liability in an action for quasi-delict not solidary but also negligence would be contrary to public policy and thus void
primary and direct 13.PROFESSIONAL SERVICE INC V. AGANA
 Employer’s liability if based on delict is merely subsidiary : to hold
employer liable delict, offended party must initiate criminal action  An initial act of negligence ripened into a deliberate wrongful act of
deceiving patient : did not inform
10.MINDANAO TERMINAL AND BROKERAGE SERVICES INC VS  Res Ipsa Loquitur requisites (1) Injury (2) Thing which caused injury
PHOENIX ASSURANCE COMPANY/MCGEE under control and management of defendant (3)Occurrence ordinary
 Art 1173 CC: If law/contract does not state degree of diligence course of things would not have happened if those who had
which is to be observed in the performance of obligation, that which control/management used proper care (4) Absence of explanation by
is expected of a good father of a family/ordinary diligence shall be defendant
required 14. CANTRE V GO
11. RAMOS VS CA (INTUBATION)  Intent is immaterial in negligence cases because where negligence
 Res ipsa loquitur is not available in malpractice suit f only showing exists and is proven, it automatically gives injured party a right of
is that the desired result of an operation or treatment was not reparation for damages
accomplished 15. PHIL HAWK CORP V. LEE
 Res ipsa loquitur : “Transaction speaks for itself” : fact of an
occurrence of an injury taken with surrounding circumstances may  Foreseeability
permit an inference or raise presumption of negligence make out a  Test of negligence: ordinary reasonable man
plaintiff prima facie case 16. CERENO V. CA
 Proximate cause: in natural and continuous sequence unbroken by  Medical malpractice : patient must prove that health care provider
any efficient intervening cause produces injury without which result failed to do something which reasonably prudent health care
would have not have occurred provider would do/something a reasonably prudent would not have
 For purposes of allocating responsibility in medical negligence done
cases, employer-employee relationship in effect exists between  Best way to prove medical malpractice :opinion of an expert witness
hospitals and their attending and visiting physicians : same neighborhood and same general line of practice
 Art 2180: Person accountable not only for his own acts but also for
those of others based on former’s responsibility 17. NAGUID V. NICDAO
 Captain of the Ship doctrine: Head of Surgical team  Person acquitted of criminal charge not necessarily civilly free
12. NOGALES VS. CAPITOL MEDICAL CENTER because quantum of proof in criminal prosecution is less as
compared to that required for civil liability
 Doctrine of apparent authority requisites (1) Hospital/Agent acted in  To be completely free, persons acquittal must be based on fact of
manner that would lead a reasonable perso to conclude that reasonable doubt, accused may still be civilly liable since this does
individual who was alleged to be negligence was its employee/agent not mean that he didn’t commit act complained of
(2) Act of agent creates appearance of authority + hospital had
knowledge of and acquiesced them (3)Plaintiff acted in reliance 18. LI V. SOLIMAN
upon conduct of hospital and its agent  Informed Consent –physician has the duty to disclose what a
 Doctrine of apparent authority is a specie of doctrine of estoppel reasonably prudent physician in the medical community in exercise
of reasonable care would disclose to his patient as a course of
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

treatment so that patient exercising ordinary care for his own welfare 5. BPI V. CA
& faced with choice of undergoing proposed treatment/alternative  Requisite of legal compensation (1) Each debtor is bound principally
treatment/none at all. (2) Both debts consis in sum of money/same kind & quality (3) Two
 4 essential elements : (1) Duty to disclose material risk (2) Failed to debts due (4) Liquidated and demandable (5) Iver neither rof them,
disclose/inadequately disclosed (3) Direct & Proximate cause/result : there be any retention/controversy commenced by 3P and
failure to disclose (4) Injury by proposed treatment communicated in due time to debtor
CHAPTER 2 6. RAQUEL SANTOS V CA
1. AGCAOILI V. GSIS  Mora Solvendi/Debtor’s Fault : Requisites (1) Obligation is
demandale (2) Debtor delays performance (3) Creditor demand
 There being a perfected contract of sale, it was the duty of GSIS as
Jud/extrajud
the seller to deliver thing sold in a condition suitable for its
 Debt is liquidated when the amount is known/determinable
enjoyment by the buyer
 In reciprocal obligations, neither party incurs in delay if the other 7. CORTES V. CA
does not comply/not ready to comply in a proper manner with what  Mutual delay of parties cancels out effects of default such that it is as
is incumbent upon him if no one is guilty of delay
2. SSS VS MOONWALK 8.PHIL. EXPORT V. EUSEBIO CONSTRUCTION
 Requisites in order that the debtor may be in default (1) Obligation is  Guarany: person called guarantor binds himself t creditor to fulfill
demandable and already liquidated (2( Debtor delays performance obligation of principal debtor in case LATTER SHOULD FAIL TO
(3) Creditor requires performance: Judicially or extra-judicially DO SO
 Penal clause is an accessory undertaking to assume liability in case  Delay/Non-completion: Caused by the factors imputable to
of breach respondent contractor
 Principal obligation may exist without an accessory obligation but an
9. NPC V. CA
accessory obligation cannot exists without principal obligation
 NPC cannot escape liability from negligence: proximate cause : even
3. BRICKTOWN DEV’T CORP V. AMOR TIERRA DEV CORP
though typhoon was an act of God
 Grace period is a right, not an obligation of debtor and when  Principle embodied in Act of God doctrine strictly requires act must
unconditionally conferred the grace period is effective without be occasioned exclusively by violence of nature and human agencies
further need to demand either calling for payment of obligation or are to be excluded from entering into cause of mischief
honoring his right
10. JIMENEZ V. CITY OF MANILA
4. LORENZO SHIPPING V. BJ MARTHEL
 Art 2189: Governs liability due to defective streets, public buildins
 In determining whether time is of essence n a contract, ultimate and other public works
criterion is the actual or apparent intention of parties & before time  For liability under Art 2189 CC to attach, control, supervision by
may be regarded by court there must be sufficient manifestation province city municipality is enough
either in contract itself/surrounding circumstances  Duty of Manila to exercise reasonable care to keep market safe for
 When time of delivery is not fixed, time is not of essence of a people frequenting place
contract  Ordinary precautions could have been done during good weather to
 Even where time is of essence, breach of contract in that respect by minimize damage
one of the parties may be waived by another parties subsequently
11.NAKPIL & SONS V. CA
treating the contract still in force
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 To exempt obligor from act of God requisites [IF-UI!] (1) Cause of fraudulent (5) Third person who received property conveyed it by
breach : independent of will of debtor (2)Event either unforeseeable onerous title : Accomplice in fraud
or unavoidable (3)Such as to render impossible for debtor to fulfill 17. LIAM-LAW V. OLYMPIC SAWMILL CO
his obligation in a normal manner (4) Debtor: free from
participation/Aggravation  Usury law now legally non-existent under CB Circular No.905
12. SOUTHERN COLLEGE INC V. CA
 Person claiming damages from negligence of another has burden of CHAVES V. GONZALES
proving existence offault/negligence causative of injury or loss :  There was a perfected contract of cleaning and servicing of type writer.
CLEAR AND CONVINCING EVIDENCE
 Having obtained both building permit and cert of occupancy: Very  They intended that defendant was to finish it at some future time
least prima facie evidence of regular and proper construction of although such time was not specified;
building  Time for compliance has evidently expired and there being a breach of
 Annual maintenance inspection and repair : prima facie evidence of contract , it was academic for plaintiff to first petition for court to fix a
diligence period of performance
13.MINDEX RESOURCES DEVELOPMENT V. MORILLO  Defendant cannot invoke Art 1197 of CC1 for he has virtually admitted
 Act of God cannot be invoked to protect a person who has failed to non-performance by returning typewriter that he was obliged to repair in
take steps to forestall possible adverse consequences of loss a non-working condition with essential parts missing.
 When effect is found to be partly result of person’s participation,
whether active intervention/neglect to act: whole occurrence is
ENCARNACION V. BALDOMAR
humanized and removed from the rules applicable to acts of God
 Defense set up by Lefrado would leave to the sole and exclusive will of
14. ACE-ARGO DEVELOPMENT CORP V. CA
one of the contracting parties (defendants) the validity and fulfillment of
 Period during which work is suspended due to force majeure does contract of lease within the meaning of Art 1256
not justify an extension of term of contract nor was petitioner
justified in refusing to resume work  Since the continuance and fulfillment of contract would depend solely
and exclusively upon their free and uncontrolled choce between
15. PHILIPPINE COMMUNICATIONS SATELLITE CORP V. GLOBE continuing paying the rentals or not, completely depriving the owner of
TELECOM all say in the matter.
 Art 1174 exempts an obligor from liability only of events that are  So long as defendants elected to continue the leas by continuing
unforeseeable but also that are foreseeable but inevitable payment, owner would never be able to discontinue it.
 Philcomsat and globe have no control over non-renewal of RP US
Agreement  This course is prohibited by the aforesaid Article of the Civil Code.
16.SINGUAN V. LIM
 Action to rescind contracts in fraud of creditors : Accion pauliana ELEIZEGUI V. THE MANILA LAWN TENNIS CLUB
(1)Plaintiff asking rescission has credit PRIOR to alienation
although demandable later (2) Debtor made subsequent contract
conveying patrimonial benefit of 3rd person (3) Creditor has no other
legal remedy to satisfy his claim (4) Act being impugned is
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 In view of the clauses however, it cannot be said that there is no  If this can be done, then the Constitutional ban against alien landholding
stipulation with respect to the duration of the lease, or that in the Philippines, as announced in Krivenko v. Register of Deeds,22 is
notwithstanding Art 1581 in connection with Art 1569 can be applied. indeed in grave peril.
 If this were so, it would be necessary to hold that the lessor spoke in LIM V. PEOPLE
vain.  It is clear that the agreement exhibit A that the proceeds of sale of
 . It is evident that the lessors did not intend to reserve to themselves the tobacco should be turned over as soon as the same was sold or that the
right to rescind that which they expressly conferred upon the lessee by obligation was immediately demandable as soon as the tobacco was
establishing it exclusively in favor of the latter. disposed of.
 If the lease could last during such time as the lessee might see fit,  Hence Art 1197 of NCC which provides that the courts may fix the
because it has been so stipulated by the lessor, it would last, (1) as long duration of obligaton if it does not fix a period does not apply.
as the will of the lessee that is, all his life; (2) during all the time that he
GREGORIO ARANETA INC V. PHIL SUGAR ESTATES
may have succession, inasmuch as he who contracts does so for himself
DEVELOPMENT CO LTD
and his heirs. (Art. 1257 of the Civil Code.)
 The lease in question does not ,fall within any of the cases in which the
rights and obligations arising from a contract cannot be transmitted to  Article 1197 of the Civil Code involves a two-step process. The Court
heirs, either by its nature, by agreement, or by provision of law. must first determine that "the obligation does not fix a period" (or that the
period is made to depend upon the will of the debtor)," but from the
 The only action which can be maintained under the terms of the contract
nature and the circumstances it can be inferred that a period was
is that by which it is sought to obtain from the judge the determination of
intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the
this period, and not the unlawful detainer action which has been brought-
Court must then proceed to the second step, and decide what period was
- an action which presupposes the expiration of the term and makes it the
"probably contemplated by the parties"
duty of the judge to simply decree an eviction
 So that, ultimately, the Court cannot fix a period merely because in its
PHILIPPINE BANKING CORP V. LUI SHE opinion it is or should be reasonable, but must set the time that the parties
 consent of Justina Santos was given freely and voluntarily. are shown to have intended
 This is not to say, however, that the contracts are valid. MILLARE V. HERNANDO
 To be sure, a lease to an alien for a reasonable period is valid. So is an  The second paragraph of Article 1197 is equally clearly inapplicable
option giving an alien the right to buy real property on condition that he since the duration of the renewal period was not left to the will of the
is granted Philippine citizenship. lessee alone, but rather to the will of both the lessor and the lessee.
 But if an alien is given not only a lease of, but also an option to buy, a  Most importantly, Article 1197 applies only where a contract of lease
piece of land, by virtue of which the Filipino owner cannot sell or clearly exists. Here, the contract was not renewed at all, there was in fact
otherwise dispose of his property,21 this to last for 50 years, then it no contract at all the period of which could have been fixed.
becomes clear that the arrangement is a virtual transfer of ownership
 As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine
whereby the owner divests himself in stages not only of the right to enjoy
Long Distance Telephone,Co.,[[18
the land ( jus possidendi, jus utendi, jus fruendi and jus abutendi) but also
of the right to dispose of it ( jus disponendi) — rights the sum total of  [P]arties cannot be coerced to enter into a contract where no agreement
which make up ownership. is had between them as to the principal terms and conditions of the
contract. Freedom to stipulate such terms and conditions is of the
essence of our contractual system, and by express provision of the
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

statute, a contract may be annulled if tainted by violence, intimidation  The notice or demand to vacate is not necessary when the unlawful
or undue influence detainer is based on expiration of the contract of leaseas what obtains
 That volition cannot be supplied by a judge and a judge who pretends to here.
do so, acts tyrannically, arbitrarily and in excess of his jurisdiction.  However, even though a monthly rent is paid, and no period for the
lease has been set, the courts may fix a longer term for the lease after
the lessee has occupied the premises for over a year.
CHUA V. CA
 Thus, the provision contemplates two (2) situations. One, where the
 lease contract between the parties has already expired. period for the lease has not been fixed but the rent agreed upon is
 The potestative authority of the courts to fix a longer term for a lease monthly, in which event the period is understood to be from month to
under Art. 1687 of the Civil Code applies only to cases where there is month. In other words, the law itself fixes the period. Two, where no
no period fixed by the parties. period for the lease has been set, a monthly rent is paid and the lessee
has occupied the premises for over a year authorizing the courts to fix a
 To the contrary, in this case, the contract of lease provided for a fixed
longer period of lease. In this second situation, both circumstances
period of five (5) years from January 1, 1985 to December 31, 1989.
mentioned in the first situation also exist and coupled with another
 It is not the province of the court to alter a contract by construction or to circumstance, i.e., the lessee has occupied the premises for over a
make a new contract for the parties; its duty is confined to the year.The second situation is understood thus: where no period for the
interpretation of the one which they have made for themselves, without lease has been set and and a monthly rent is paid the law itself fixes the
regard to its wisdom or folly, as the court cannot supply material period as monthly; yet, the circumstance that the lessee has occupied the
stipulations or read into contract words which it does not contain. premises for over a year warrants the fixing of a longer period by the
 Indeed, Art. 1675 of the Civil Code excludes cases falling under Art. courts.
1673 (which provides among others, that the lessor may judicially eject
the lessee when the period agreed upon or that which is fixed has
PAY V. VDA. DE PALANCA
expired) from the cases wherein, pursuant to Art. 1687, courts may fix a
longer period of lease.  Undeniable : more than 15 years after execution of promissory note---
 The fact that petitioners allegedly made repairs on the premises in when this petition was filed
question is not a reason for them to retain the possession of the  Art 1179 of CC: “Every obligation whose performance does not depend
premises. upon future or uncertain event or upon a past event unknown to parties is
 There is no provision of law which grants the lessee a right of retention demandable at once.
over the leased premises on that ground.  Obligation being due and demandable it would appear that filling of suit
after 15 years was much too late. --- Prescriptive period : 10 years.
LO CHUA V. CA GONZALES V. HEIRS OF THOMAS AND PAULA CRUZ
 It is settled that if the rent is paid monthly, the lease is on a month-to-  Hence when the contract of lease/purchase was executed, there was no
month basis and may be terminated at the end of each month. assurance that the respondents were indeed the owners of the lot, in what
concept and to what extent.
 Article 1687 of the Civil Code provides that if the period for the lease
has not been fixed, it is understood to be from year to year, if the rent  Clear intent of the 9th par. Was for respondents to obtain separate and
agreed upon is annual; from month to month if it is monthly. distinct TCT in their names.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 In a contract of sale title to property passes to vendee upon delivery of ROMERO V. CA


thing sold. In this case, the respondent could not deliver ownership or  Condition : compliance of party : undertake fulfillment of which
title to a specific of a portion of the yet undivided property. demandability of reciprocal resentation of another party
 they have not caused he transfer of TCT to their names, which is a  In the case – vendee: payment & vendor : fulfillment of certain express
condition precedent to the petitioner’s obligation warranties (timely eviction of squatters on the property
 Sale: perfected when a person obligates himself, for a price certain to
SMITH BELL & CO V. SOTELO MATTI deliver and to transfer ownership of specified thing/right to another over
 At time of execution, parties were not unmindful of the contingency of which latter agrees.
US govt not allowing the export of goods nor of the fact hat the other  In any case: private respondent’s action for rescission is not warranted.
foreseen circumstances therein stated might prevent it. She is not the injured arty. He right of resolution of party to an obligation
 Considering these contracts in light of civil law, we cannot but conclude under Art 1191 is predicated on breach of faith by party that violates
that the term which parties attempted to fix is so uncertain that one reciprocity.
cannot just tell whether as a matter of fat, those goods could be brought  Petitioners have opted to proceed with the sale, neither may petitioner
to MNL or not. demand its reimbursement from private respondent nor may private
 Obligee having done all that was in his power, was entitled to enforce respondent subject it to forfeiture.
performance of obligation DUCUSIN V. CA
 It is sufficiently proved in the records that plaintiff has made all the Affirms
efforts it could possible be expected to make under the circumstances to  Lease contract expressly stipulates that lessor may terminate the lease
bring the goods in question to manila as soon as possible. when his children shall need the same, such condition is valid as
 When time of delivery: not fixed = reasonable time: determined by happening of such dodition depends not on the lessor but on a third party
circumstances RUSTAN PULP & PAPER MILLS INC V. IAC
SECURITY BANK AND TRUST COMPANY V. CA  There is a cogent basis for private respondent’s apprehension on illusory
 Art 22 of CC: No man ought to be made rich out of another’s injury resumption of deliveries inasmuch as the prerogative suggests a
condition solely dependent upon will of petitioners
 Private respondent informed petitioner of drastic increase in construction
 Petitioners can stop delivery of pulp wood from private respondents if
 Art 1182 of CC: conditional obligation shall be void if its fulfillment
the supply at plant is sufficient as ascertained by petitioners subject there-
depends upon the sole will of the debtor, In present case, mutual
delivery when need arises as determined by the petitioners
agreement, the absence of which petitioner bank relies upon to support
non-liability for increased construction cos is in effet a condition  A purely potestative imposition of this character must be obliterated from
depending on bank’s sole will the face of contract without affecting the rest of the stipulations
considering that the condition relates to the fulfillment of an already
 Petitioner bank derived benefits when private resp completed building.
existing obligation and not its inception.
 To allow petitioner ban to acquire building at price far below its actual
LIM V DEVELOPMENT BANK OF THE PHILIPPINES
construction cost would undoubtedly constitute unjust enrichment for
bank to the prejudice of the private respondent. Obligation was not extinguished or discharged
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 Art 1186 of CC: Condition shall be deemed fulfilled when the obligor breach as would defeat the very object of the parties in making
voluntarily prevents its fulfillment does not apply in this case. assignment.
 3 requisites : Constructive fulfillment of suspensive condtion  One of the considerations for transfer of use was the undertaking made
1. Condition is suspensive by petitioner corporation to employ respondent patentee on a permanent
status, its monthly salary and the right of succession of his heir as priority
2. Obligor actually prevents fulfillment of condition in case of his death/disability.
3.He acts voluntarily
 Since restructuring agreement was cancelled, it could not have novated or MAGDALENA ESTATE V. LOUIS MYRICK
extinguished petitioner’s loan obligation.
 Under article 1124 of the Civil Code, however, he may choose
 And in absence of perfected restructuring agreement, there was no between demanding the full- fillment of the contract or its resolution.
impediment for DBP to exercise its right to foreclose mortgage properties These remedies are alternative and not cumulative, and the petitioner
Penalties and interest rates should be expressly stipulated in writing in this case, having elected to cancel the contract, cannot avail
himself of the other remedy of exacting performance: which can be
 The act of respondent bank in unilaterally changing stipulated interest approximated only by ordering, as we do now, the return of the
rate is violative of principle of mutuality of contracts under 1308 of CC things which were the object of the contract, with their fruits and of
and contravenes Art 1956 of CC. the price, with its interest (article 1295, Civil Code), computed from
UNIVERSAL FOOD CORP V. CA the date of the institution of the action.
 Art 1191 provides:
The power to rescind obligations is implied in reciprocal ones, in case one of UP V. DE LOS ANGELES
the obligors should not comply with what s incumbent upon him.
The injured party may choose between fulfillment and the rescission of the  In the first place, UP and ALUMCO had expressly stipulated in the
obligation with the payment of damages in either case. He may also seek "Acknowledgment of Debt and Proposed Manner of Payments" that,
rescission even after he has chosen fulfillment if latter should become upon default by the debtor ALUMCO, the creditor (UP) has "the right
impossible. and the power to consider, the Logging Agreement dated 2 December
The court shall decree the rescission claimed unless there be just cause 1960 as rescinded without the necessity of any judicial suit."
authorizing the fixing of period
 there is nothing in the law that prohibits the parties from entering into
This should be understood without prejudice to the rights of third persons agreement that violation of the terms of the contract would cause
who have acquired the thing in accordance with Art 1385 and 1388 of cancellation thereof, even without court intervention.
Mortgage law
 It is not always necessary for the injured party to resort to court for
rescission of the contract.
 Bills of Assignment : reciprocal in nature.  Act of party in treating a contract as cancelled or resolved on account of
 The petitioner corporation violated Bill of assignments by terminating infractions by the other contracting party must be made known to the
services of respondent patentee without lawful and justifiable cause. other and is always provisional, being ever subject to scrutiny and review
by the proper court.
 The general rule is that rescission of contract will not be permitted for
slight or casual breach but only for such substantial and fundamental  If the other party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 Then, should the court, after due hearing, decide that the resolution of the  The general rule is that rescission of a contract will not be permitted for a
contract was not warranted, the responsible party will be sentenced to slight or casual breach, but only for such substantial and fundamental
damages; in the contrary case, the resolution will be affirmed, and the breach as would defeat the very object of the parties in making the
consequent indemnity awarded to the party prejudiced. agreement.
 In other words, the party who deems the contract violated may consider it  In this case the breach of the contract adverted to by the defendants-
resolved or rescinded, and act accordingly, without previous court action, appellants is so slight and casual when we consider that apart from the
but it proceeds at its own risk. initial downpayment of P392.00 the plaintiffs-appellees had already paid
 For it is only the final judgment of the corresponding court that will the monthly installments for a period of almost nine (9) years
conclusively and finally settle whether the action taken was or was not BOYSAW V. INTERPHIL PROMOTIONS INC
correct in law.  Those who in the performance of their obligations are guilty of fraud,
 But the law definitely does not require that the contracting party who negligence or delay, and those who in any manner contravene the terms
believes itself injured must first file suit and wait for a judgment before thereof, are liable for damages. [Art. 1170, Civil Code].Also: The power
taking extrajudicial steps to protect its interest. to rescind obligations is implied, in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him. [Part 1,
 Otherwise, the party injured by the other's breach will have to passively
Art. 1191, Civil Code].
sit and watch its damages accumulate during the pendency of the suit
until the final judgment of rescission is rendered when the law itself  Novation which consists in substituting a new debtor in the place of the
requires that he should exercise due diligence to minimize its own original one, may be made even without the knowledge or against the
damages will of the latter, but not without the consent of the creditor. [Art. 1293,
ZULUETA V. MARIANO Civil Code,

 True, the contract between the parties provided for extrajudicial  Under the law when a contract is unlawfully novated by an applicable
rescission. This has legal effect, however, where the other party does not and unilateral substitution of the obligor by another, the aggrieved
oppose it. Where it is objected to, a judicial determination of the issue is creditor is not bound to deal with the substitute.
still necessary.  The refusal of appellants to accept a postponement without any other
 A stipulation entitling one party to take possession of the land and reason but the implementation of the terms of the original boxing
building if the other party violates the contract does not ex proprio vigore contract entirely overlooks the fact that by virtue of the violations they
confer upon the former the right to take possession thereof if objected to have committed of the terms thereof, they have forfeited any right to its
without judicial intervention and' determination. enforcement.
 On the validity of the fight postponement, the violations of the terms of
the original contract by appellants vested the appellees with the right to
ANGELES V. CALASANZ rescind and repudiate such contract altogether.
 Article 1191 is explicit. In reciprocal obligations, either party the right to
rescind the contract upon the failure of the other to perform the
obligation assumed thereunder. Moreover, there is nothing in the law that PILIPINAS BANK V. IAC
prohibits the parties from entering into an agreement that violation of the  A contractual provision allowing "automatic rescission" (without prior
terms of the contract would cause its cancellation even without court need of judicial rescission, resolution or cancellation) is VALID, the
intervention. remedy of one who feels aggrieved being to go to Court for the
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

cancellation of the rescission itself, in case the rescission is found they have been entered into by the
unjustified under the circumstances. defendant without the knowledge and
 In the instant case there is a clear WAIVER of the stipulated right of approval of the litigants or of
"automatic rescission," as evidenced by the many extensions granted competent judicial authority;
private respondents by the petitioner. 5. All other contracts specially
 In all these extensions, the petitioner never called attention to the proviso declared by law to be subject to
rescission.
on "automatic rescission."

ONG V. CA Contract to Sell Contract of Sale

Art 1380 Art 1191 ownership is, by agreement, reserved the title to the property passes to the
in the vendor and is not to pass to the vendee upon the delivery of the thing
 remedy granted by law to the  Refers to rescission applicable to vendee until full payment of the sold
contracting parties and even to reciprocal obligations. purchase price
third persons, to secure the Reciprocal obligations are those
reparation of damages caused to which arise from the same cause, payment of the purchase price is a ownership is transferred to the buyer
them by a contract, even if this and in which each party is a positive suspensive condition right upon its execution
should be valid, by restoration of debtor and a creditor of the In order for novation to take place, the concurrence of the following
things to their condition at the other, such that the obligation of requisites :
moment prior to the celebration one is dependent upon the (1) there must be a previous valid obligation;
of the contract. obligation of the other.
(2) there must be an agreement of the parties concerned to a new contract;
 It implies a contract, which even  They are to be performed
if initially valid, produces a simultaneously such that the (3) there must be the extinguishment of the old contract; and
lesion or a pecuniary damage to performance of one is (4) there must be the validity of the new contract.[
someone. conditioned upon the  petitioner is a builder in bad faith. He introduced the improvements on
simultaneous fulfillment of the the premises knowing fully well that he has not paid the consideration of
other the contract in full and over the vigorous objections of respondent
rescission under Article 1383 is a Resolution is a principal action spouses.
subsidiary action limited to cases of which is based on breach of a party
rescission for lesion under Article
1381 of the New Civil Code FIL-ESTATE GOLF AND DEVELOPMNET INC V. VERTEX SALES
AND TRADIG INC
1. Entered into by guardians
 This was a substantial breach of their contract that entitles Vertex the
2. Those agreed upon in right to rescind the sale under Article 1191 of the Civil Code.
representation of absentees
 Vertex already enjoyed the rights a shareholder can exercise but the
3. Undertaken in fraud of creditors enjoyment of these rights cannot suffice where the law, by its express
when the latter cannot in any manner terms, requires a specific form to transfer ownership.
collect the claims due them
4. Refer to things under litigation if
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

GOTESCO PROPERTIES INC V. FAJARDO


 Sps. Fajardo’s right to rescind SANDOVAL V. PMMA
 In a contract to sell, the seller's obligation to deliver the corresponding  THE FACTUAL CIRCUMSTANCES HOWEVER RENDERED
certificates of title is simultaneous and reciprocal to the buyer's full MUTUAL RESTITUTION IMPOSSIBLE.
payment of the purchase price  Both RTC and CA found that petitioner delivered life boats to Rosario.
 Clearly, the long delay in the performance of GPI's obligation from date Petitioners never authorized him to receive life boats
of demand on September 16, 2002 was unreasonable and unjustified.  Hence as the delivery to Rosario was invalid, it was as if respondent ever
 It cannot therefore be denied that GPI substantially breached its contract received the life boats. As it never reeived the object of contract, it
to sell with Sps. Fajardo which thereby accords the latter the right to cannot return the object (wiity besh)
rescind the same pursuant to Article 1191 of the Code  Unfortunately, the same thing cannot be said of the petitioners. They
 Rescission does not merely terminate the contract and release the parties admit that they received a total amount of P1,516,680, for this reason
from further obligations to each other, but abrogates the contract from its they should return the same
inception and restores the parties to their original positions as if no
contract has been made.
EDS MANUFACTURING V. HEALTHCHECK
REYES V. ROSSI
 The General rule is that rescission (resolution) of contract will not be
 A prejudicial question generally comes into play in a situation where a permitted for a slight casual breach but only for such substantial and
civil action and a criminal action are both pending, and there exists in the fundamental violations as would defeat the very object of parties in
former an issue that must first be determined before the latter may making the agreement
proceed, because howsoever the issue raised in the civil action is
resolved would be determinative juris et de jure of the guilt or innocence  Rescission referred in Art 1191 more appropriately referred to as
of the accused in the criminal case. resolution is on the breach of faith by one of parties which is violative of
the reciprocity between them
 Article 1191 of the Civil Code recognizes an implied or tacit resolutory
condition in reciprocal obligations. The condition is imposed by law, and  In the present case, it is apparent that HCI violated its contract with EMI
applies even if there is no corresponding agreement thereon between the to provide medical services to its employees in a substantial way.
parties.  However although a ground exists to validly rescind the contract between
 The explanation for this is that in reciprocal obligations a party incurs in the parties, it appears that EMI failed to judicially rescind the same
delay once the other party has performed his part of the contract; hence,  In absence of stipulation, a party cannot unilaterally and extrajudicially
the party who has performed or is ready and willing to perform may rescind a contract. A judicial or notarial act is necessary before a valid
rescind the obligation if the other does not perform, or is not ready and rescission can take place.
willing to perform.
 Even if Art 1191 were applicable, the petitioner would still not be
 However, until the contract is rescinded, the juridical tie and the entitled to automatic rescission The right to resolve reciprocal obligations
concomitant obligations subsist. is deemed implied in case one of the obligor shall fail to comply with
 Considering that the contracts are deemed to be valid until rescinded, the what is incumbent upon him. But that right must be invoked judicially.
consideration and obligatory effect thereof are also deemed to have been  EMI has not rescinded contract at all. Despite of EM’s announcement it
validly made, thus demandable. Consequently, there was no failure of failed to surrender HMO cards of its employees although it was reqired
consideration at the time when the subject checks were dishonored.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

by the agreemet and allowed them to continue using them beyond date of in the vendor and is not to pass to the vendee upon the delivery of the thing
rescission. vendee until full payment of the sold
 Continued use by them of their privileges under contract with apparent purchase price
consent of EMI belies any intention to cancel or rescind it. payment of the purchase price is a ownership is transferred to the buyer
PLANTERS DEVELOPMENT BANK V. LOPEZ positive suspensive condition, failure right upon its execution
of which is not breach, casual or non-payment of price is a negative
 Planters Bank is estopped from opposing spouses Lopez deviation from serious but a situation that prevents
construction project ; resolutory condition
obligation of vendor to convey title
 Inaction or silence may under some circumstances amount to a from acquiring an obligatory force.
misrepresentation, so as to raise equitable estoppel,  Breach contemplated in 1191 is the obligor’s failure to comply with an
 Principle of equitable estoppel prevents Planters Bank from raising the obligation already extant and not a failure of a condition to render
spouses Lopez’s violation of loan agreement. binding that obligation.
 Planters Bank only committed slight/casual breach of contract.  Failure to pay is not even breach but an event that prevents vendor’s
obligation to convey title from acquiring binding force.
 Breach is not sufficiently fundamental to defeat object of parties in
entering into loan agreement. BARREDO V. LEANO
 Released P3,500,000 out of P4,200,000 loan.(16.66% of actual loan)  Leano spouses merely bound themselves to assume which they actually
(85% building was completed) did, the obligations of Barredo spouses with SSS and Apex.
RELIANCE V IAC  Nowhere in the agreement was it stipulated that the sale was conditioned
upon their full payment of loans with SSS and Apex.
 Paez failed to make even a single delivery of manganese ores to stockpile
yard. There’s no mining operation at all  To include full payment of obligations with SSS and Apex as a condition
would be unnecessarily stretch and put a new meaning to the provisions
 In reciprocal obligations, power to rescind or resolve is given to the
of the agreement
injured party.
 BUT EVEN IF WE CONSIDER PAYMENT OF MORTGAGE
 Rescission of contract requires the parties to restore to each other what
AMORTIZATION TO SSS AND APEX AS A CONDITION ON
they have received by reason of contracts. Rescission has the effect of
WHICH THE SALE IS BASED, RESCISSION WOULD NOT BE
abrogating contracts in all parts.
AVAILABLE
 If Barredo spouses were really protective of their reputation, and credit
RIVERA V. DEL ROSARIO standing, they should have sought the consent or at least notified SSS and
ART 1383 ART 1191 Apex of the assumption by the Leano spouses of their indebtedness.
Subsidary action limited to cases of Resolution : principal action that is
lesion under Art 1381 based on breach of a party VILLANUEVA V. ESTATE OF GERARDO GONZAGA
 Kasunduan reveals that it is in the nature of contract to sell as  In a contract to sell, title remains with the vendor and does not pass on
distinguished from contract of sale vendee until the purchase price is paid in full.
Contract to Sell Contract of Sale  Payment of purchase price is a positive suspense condition. Failure to
ownership is, by agreement, reserved the title to the property passes to the pay price agreed upon is not mere breach, casual or serious but a
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

situation that prevents obligation of vendor to convey title from acquiring  In the case at bench, petitioner’s obligation to pay arose as soon was deed
obligatory force. of sale was registered and a clean title was issued. However, petitioner
 This is entirely different from contract of sale, where non-payment of justifies non-payment on breach of several stipulations of contract
price is a negative resolutory condition  In this context, respondents should not be allowed to rescind contract
 MOA : is a conditional contract to sell. Ownership over lots shall not where they themselves did not perform their essential obligation
pass to petitioners until full payment of purchase price. Petitioners thereunder. Respondents : in bad faith
obligation to pay, in turn is conditioned upon the elease of lots from IRIGAN V. COURT OF APPEALS
mortgage with PNB to be secured by respondents.  Art 1592: In the sale of immovable property, even though it may have
 Although there was no express provision regarding reserved ownership been stipulated that upon failure to pay the price at the time agreed upon
until full payment of purchase price,the intent of the parties in this regard the rescission of contract shall of right take place, the vendee may pay
is evident in the provision that that deed of absolute sale shall be even after the expiration of period, as long as no demand for rescission of
executed only when lots have been released from mortgage and balance contract has been made upon him either judicially or by notarial act.
paid by petitioners . After the demand, the court may no grant him new term,
 Since ownership has not been transferred, no further legal action need  Art 1592 requires the rescinding party to serve judicial or notarial act of
have been taken by respondents except an action to recover possession in his intent to resolve the contract
case petitioners refuse to voluntarily surrender lots. .  Clearly a judicial and notarial act is necessary before a valid rescission
CO V. CA can take place, whether or not automatic rescission has been stipulated.
Art 1191:  In our view, even if Art 1191 were applicable petitioner would still not
(1) Power to rescind obligations is implied in reciprocal ones in case one of be entitled to automatic rescission.
the obligors should not comply with what is incumbent upon him  Right to resolve reciprocal obligations is deemed implied in case one of
(2) The injured party may choose between fulfillmen and rescission of the obligors fail to comply with what is incumbent upon him; but right
obligation, with payment of damages in either case. He may also seek must be invoked judicially.
rescission even after he has chosen fulfillment if latter should be impossible SURIA V. IAC
(3) The court shall decree the rescission claimed, unless there be just cause  Art 1191 on reciprocal obligations is not applicable under the facts of this
authorizing the fixing of a period case.
(4) This is understood to be without prejudice to the rights of third person  Art 1383 provides : “Action for rescission is subsidiary; it cannot be
who have acquired the thing in accordance with Art 1385 and 1388 and instituted except when party suffering damage has no other legal means
Mortgage law to obtain reparation of the same.
 Certainly, non-payment of purchase price constitutes a very good reason (J.B.L REYES OPINION IN UNIVERSAL FOOD CORP)
to rescind a sale for it violates the very essence of contract of sale
The rescission on account of breach of stipulation is not predicated on
 Non-payment of purchase price is a resolutory condition for which the injury to economic interest of party plaintiff but on the breach of faith by
remedy of either rescission or specific performance under Art 1191 the defendant that violates the reciprocity between the parties.
 By law, vendee is bound to accept delivery and to pay price of thing sold It is not in subsidiary action, and under Art 1191 may be scanned without
at time and place stipulated in the contract . disclosing anywhere that action for rescission thereunder is subordinated
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

on anything other than the culpable breach of his obligation by the P300 at time when what remained unsettled under the agreement was
defendant. only P400.
This rescission is principal action retaliatory in character; it being  Private respondents neither complained of delay in these payments or
unjust that the party be held bound to fulfill his promises when the other rejected the application to their account. They were undoubtedly
violates his. benefited by application because it either satisfied their account or
On the contrary, recession by reason of lesion or economic prejudice, the correspondingly reduced it.
cause of action is subordinated to the existence of prejudice because its CENTRAL BANK OF THE PHILIPPINES VS CA
raison d’etre as well as the measure of right to rescind
 Mere fact of insolvency of debtor is never an excuse for the
Hence when defendant makes good the damages caused, the action nonfulfillment of an obligation but instead it is taken as a breach of
cannot be maintained or continued as expressly provided in Art 1383and contract by him.
1384. (Limited to those enumerated in Art 1381)
 Alleged discovery of Island Savings Bank of overvaluation of loan
 By a contract of sale: vendor obliges himself to transfer ownership of and collateral cannot exempt it from complying with its reciprocal obligation
to deliver a determinate thing to buyer who in turn, is obliged to pay a to furnish entire loan It is their oblation to investigate the existence and
price certain in money or its equivalent. valuation of properties being offered as loan security.
 The breach of obligation is not with respect to contract of sale but in the  Since Island Savings Bank was in default in fulfilling its reciprocal
obligation created by mortgage contract. obligation under their loan agreement, under Art 1191, Tolentino may
 Remedy of rescission is not a principal action retaliatory in character but choose between specific performace or rescission with damages in either
becomes a subsidiary one, which by law is available only I absence of case.
any other legal remedy.  But since Island Savings Bank is now prohibited from doing business, we
 Foreclosure here is not only a remedy accorded by law but is a specific cannot grant specific performance. Rescission is the only alternative
provision found in the contract of parties. remedy left.
 (Remedy of sale with mortagage) : Foreclosure and not Art 1191  Art 1192 provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be
JACINTO V. KAPARAZ equitably tempered by the courts.
 Private respondents unqualifiedly bound themselves to execute the final  Liability of Island Savings Bank for damages in not furnishing entire
deed of sale “as soon as the settlement or patition of estate of deceased loan is offset by the liability of Tolentino for damages in form of
Narcisa R. Kaparaz shall have been consummated and effected but not penalties and subcharges for not paying overdue debt.
latter than March 31,1967 and only upon full payment of unpaid portion
of purchase price. YAO v. MATELA
 Private respondents did not reserve unto themselves the ownership of  Considering all the discrepancies, conclusiveness of said documents fall
property until full payment of unpaid balance of P1,000. when arrayed against the pieces of evidence produced by spouses Yao.
 There is no stipulation giving the private respondents the right to  However, we find that spouses Yao likewise failed to comply with their
unilaterally rescind the contract the moment when vendee fails to pay undertakings
within a fixed period.  They refused to pay balance agreed upon despite demands, justifying
 Even if we apply Art 1191, our decision would still be for the petitioners. such by reason of the abandonment and defects of project
It is not denied that petitioners made 2 payments in the sums of P200 and  Evidently both parties in this case breached their respective obligations.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 The law does not relieve party from effects of unwise, foolish, or  However, directly liability of insurer under indemniy contract against
disastrous contracts entered into with full awareness of what he was liability does not mean that insurer can be held solidarily liable with
doing and entered into and carried out in good faith. insured and/or third parties found at fault
 Art 1192: In case both parties have committed a breach of obligation, the  Subrogation is a normal incident of insurance contracts
liability of first infractor shall be equitably tempered by the courts. If it  Art 1217 :
cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished and each shall bear his own damages. Payment made by one of the solidary debtors extinguishes obligation. If 2 or
more solidary debtors offer to pay, the creditor may choose which to accept
 Losses incurred by parties will come, as far as Matela is concerned in
form of alleged unpaid balance For the latter, the losses that they will He who made payment may claim from his co-debtors only the share which
bear is the cost of repairing the defects of project. We considered the corresponds to each, with the interest of payment made. If payment is made
amount of P4,699,610.93 which Matela has received as sufficient before the debt is due, no interest for intervening period may be demanded
payment for his services and materials used in the project RIZAL COMMERCIAL BANKING CORP V. CA
RONQUILLO V. CA  ART 1207 : Where an obligation expressly states a solidary liability, the
 Clearly, by express term of compromise agreement and the decision concurrence of two or more creditors or two or more debtors in one and
based upon it, the defendants obliged themselves their obligation the same obligation implies that each one of the former has a right o
individually and jointly. demand and that each one of the latter is bound to render the entire
compliance with the prestation
 Term individually = “collectively” “separately” “distinctively” or
“severally” ; undoubtedly it creates a several obligation  Art 1216: The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously
 A several obligation is one by which one individual binds himself to
perform the whole obligation  There exist a Comprehensive Surety Agreement between RCBC and
respondent Ching ---liability binds Ching as he is bou by the said
MALAYAN INSURANCE CO INC V. CA contract
 SEC injuctive order can not effect a suspension of payment of respondent
 Sio Choy liable as owner of ill fated jeep pursuant to Art 2184 Surety’s due and demandable obligation, it being clear therefrom that the
 2184: owner solidarily liable with driver if the former could have used rehabilitation receivers were limited to “taking custody and control over
due diligence to prevent misfortune all existing assets and property of PBM
 San Leon Rice Mill is liable for being the employer of the driver under QUIOMBING V. CA
2180 Art 1212: Each one of the solidary creditors may do whatever may be useful
 2180: employers shall be liable for damages caused by employees and to the others but not anything which may be prejudicial to the latter
household helpers acting within their assigned task Art 1214: Debtor may pay any of the solidary creditors; but if any demand,
 Sio Choy and San Leon Rice Mill are the principal tortfeasors who are judicial or extrajudicial what has been made by any one of them, payment
primarily liable to respondent Vallejos should be made to him
 While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the Tolentino:::
insurer.
Joint Obligation Solidary Obligation
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

Each debtor is liable only for the Each debtor is liable for the entire  “in his personal capacity” (x) affect liability, with or without it, he is
proportionate part of debt and each obligation and each creditor is primarily liable as a co-maker
creditor is entitled only for a entitled to demand the whole  Change of name (x) New Corp : It is the same corp with a different
proportionate part of credit obligation name, no change in its property, rights and liability
Creditor can recover only his share of Each creditor can enforce the entire
INCIONG JR. V. CA
obligation obligation and each debtor is obliged
to pay in full  It should be noted however that petitioner signed the promissory note as
a solidary co-maker and not as a guarantor
Active Solidarity
 A solidary or joint and several obligation is one which each debtor is
 Question of who should sue was a personal issue between Quiombing
liable for the entire obligation and each creditor is entitled to demand the
and Biscocho in which the spouses Saligo has no right to interfere
whole obligation
 It was not necessary for both Quiombing and Biscocho to file complaint,
 Art 2047: by guaranty, a person called as guarantor binds himself to the
it will be a useless formality
creditor to fulfill the obligations of the principal debtor in case the latter
 Art 1212: Each one of the solidary creditors may do whatever may be should fail to do so .
useful to the others but not anything which may be prejudicial to the
 If a person binds himself solidarily, with the principal debtor, the
latter
provision of Sec 4, Chapt 3, Title I of this book shall be observed
 Art 1214: Debtor may pay any of the solidary creditors; but if any
Guarantor Solidary Debtor
demand, judicial or extrajudicial what has been made by any one of
them, payment should be made to him Binds himself I solidum with the Two or more debtors in one and the
principal debtor under the provisions same obligation, the presumption is
 If Quiombing eventually collects the amount due from solidary debtors, of 2nd par does not become solidary that the obligation is join so that each
Biscocho may later claim his share thereof, that decision is for him alone co-debtor to all intents and purposes of the debtors is liable only for a
to make proportionate part of debt. There is
REPUBLIC PLANTERS BANK V. CA solidary liability only when
Negotiable instruments law : persons who write their names on the face of a obligation expressly so states when
promissory note are makers and are liable as such. By signing the notes, law so provides or when nature of
maker promises to pay to order of the payee or any holder obligation so requires
Change in name (x) change in liability Outside liability, he assumes to pay No other rights than that bestowed
the debt before the property of upon him by Sec 4, Chapt 3 Title I,
“I”,”We” Either of Us” promise to pay = solidarily liable principal debtor has been exhausted Book IV of CC
 Negotiable instruments law : persons who write their names on the face retains all the other rights, actions
of a promissory note are makers and are liable as such. By signing the and benefits which pertain to him
notes, maker promises to pay to order of the payee or any holder  Promissory note involved expressly states that three signatories are
 Fermin: one of the makers jointly and severally liable, any one, some or all of the may be proceeded
against the entire obligations
 “I promise to pay” = Joint & Severally :: Solidarily liable
TIU V CA
 In this case, solidary liability is even made clear by the words “Joint and
several describing unconditional promise to pay”
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 George Tiu never signed the receipts nor received any money from  It necessarily follows that a joint creditor cannot act in representation of
appellant Go while Joaquin Tiue signed and received he money for and the others.
in behalf of Rosalina  Neither can a joint debtor be compelled to answer for the liability of the
 There is solidary obligation only when obligation expressly so states or others. The pertinent rules are provided in Articles 1207 and 1208 of the
when law or nature of obligation requires solidarity(Art 1207) Civil Code.
 No truth in the allegation that George and Joaquin Tiu admitted that they REPUBLIC GLASS CORP V. QUA
are jointly and solidarily liable for said amount  Payment of the entire obligation by one or some of the solidary debtors
 Only Rosalina Tiu received monies results in a corresponding obligation of the other debtors to reimburse the
 (Un Fak Leang v Nigurra) admission of two debtors in their brief that paying debtor.
their liability in the contract is a solidary one does not convert the joint  Contrary to RGC and Gervels claim, payment of any amount will not
character of their obligation as appearing in the contract, for what automatically result in reimbursement. If a solidary debtor pays the
determines the nature of obligation is the tenor of the contract itself, not obligation in part, he can recover reimbursement from the co-debtors
the admission of parties. only in so far as his payment exceeded his share in the obligation a
solidary debtor pays an amount equal to his proportionate share in the
obligation, then he in effect pays only what is due from him
CEMBRANO V. CITY OF BUTUAN
 If the debtor pays less than his share in the obligation, he cannot
HELD: NO demand reimbursement because his payment is less than his actual
 Payment made by debtor to person of the creditor or to one authorized by debt.
the law to receive it extinguishes the obligation  No novation of the Agreements. The parties did not constitute a new
 When payment is made to wrong party, obligation is not obligation to substitute the Agreements.
extinguished as to the creditor who is without fault or negligence  There was also no showing of complete incompatibility in the manner of
even if debtor acted in utmost good faith and by mistake as to the payment of the parties obligations. Contrary to the Court of Appeals
person of the creditor or through error induced by fraud of a third ruling, the mode or manner of payment by the parties did not change
person from one for the entire obligation to one merely of proportionate share.
 In general—payment in order to be effective to discharge an obligation  The creditors, namely Metrobank and PDCP, merely proceeded against
must be made to proper person RGC and Gervel for their proportionate shares only
 Proper person = obligee / its authorized agent  This preference is within the creditors discretion which did not
 When there is a concurrence of several creditors or of several debtors or necessarily affect the nature of the obligations as well as the terms and
of several creditors and debtors in one and the same obligation, it is conditions of the Agreements.
presumed that the obligation is joint and not solidary.  A creditor may choose to proceed only against some and not all of the
 The most fundamental effect of joint divisible obligations is that solidary debtors. The creditor may also choose to collect part of the debt
each creditor can demand only for the payment of his proportionate from some of the solidary debtors, and the remaining debt from the other
share of the credit, while each debtor can be held liable only for the solidary debtors.
payment of his proportionate share of the debt. ONGKEKO V. BPI EXPRESS CARD CORPORATION
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 Petitioner's liability shall be extinguished only when the obligations are  Absence of Solidary Liability: There is a solidary liability only when
fully paid and satisfied. the obligation expressly so states, or when the law or the nature of
 terms and conditions of his undertaking are unambiguous and well the obligation requires solidarity. The Insurance Code is quite clear
defined; there is no room for any interpretationonly application. Given as to the purpose and role of a resident agent. Such agent, as a
that Lodovica reneged on her obligations covered by the credit card representative of the foreign insurance company, is tasked only to
account, petitioner is, therefore, liable. receive legal processes on behalf of its principal and not to answer
personally for any insurance claims.
PH CREDIT CROP V CA
 Not Real Party - In – Interest: Lastly, being a mere agent and
representative, petitioner is also not the real party - in - interest in
Solidary Joint this case.
each of the debtors is liable for the each debtors is liable only for a
entire obligation, and each of the proportionate part of the debt, and HERNANDEZ V. DOLOR
creditors is entitled to demand the the creditor is entitled to demand
satisfaction of the whole obligation only a proportionate part of the credit  Hernandez spouses are solidarily liable.
from any or all of the debtors. from each debtor.  Article 2180… employers shall be liable for the damages caused by
solidary obligations cannot be inferred lightly. They must be positively and their employees and household helpers acting within the scope of
clearly expressed their assigned tasks, even thought eh former are not engaged in any
business or activity
A liability is solidary only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires  Article 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
 We should stress that respondents obligation is based on the judgment done. Such fault or negligence, if there is no pre-existing contractual
rendered by the trial court. relation between the parties, is called a quasi-delict and is governed
 Where there is a conflict between the dispositive part and the opinion of by the provisions of this Chapter
the court contained in the text or body of the decision, the former must  While the above provisions do not expressly provide for the solidary
prevail over the latter on the theory that the dispositive portion is the liability, they should be read in consonance with Article 2180 – one
final order, while the opinion is merely a statement ordering nothing. can be liable for the acts or omission of another whom he is
 Hence the execution must conform with that which is ordained or responsible for, meaning that an employer is accountable for the
decreed in the dispositive portion of the decision. actions of his employees. Article 2194 categorically states that
responsibility of two or more persons who are liable for quasi-delict
 The final judgment, which superseded the action brought for the
is solidary.
enforcement of said contract, declared the obligation to be merely joint,
and the same cannot be executed otherwise.  SC held that there exists an employer-employee relationship because
by agreeing to the Hernandez, there would be a villation of the
 It would be the height of inequity if we allow judgment obligors to Public Service Law and we are going to place the riding public at the
shoulder entire monetary judgments when their legal liabilities are mercy of reckless and irresponsible drivers because most drivers are
limited only to their proportionate shares in the entire obligation.
in no position to pay for damages when accidents occur.
SMITH BELL & CO V CA STRONGHOLD INSURANCE COMPANY INC V. REPUBLIC ASAHI-
GLASS CORP
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 As a general rule, the death of either the creditor or the debtor does not  The participating bank’s obligation under the letter of credit are solidary
extinguish the obligation. with respondent Maynilad in that it is a primary, direct, definite and an
 Obligations are transmissible to the heirs, except when the transmission absolute undertaking to pay and is not conditioned on the prior
is prevented by the law, the stipulations of the parties, or the nature of the exhaustion of the debtors assets.
obligation.  These are the same characteristics of a surety or solidary obligor. And
 Only obligations that are personal or are identified with the persons being solidary, the claims against them can be pursued separately from
themselves are extinguished by death. and independently of the rehabilitation case.

 Hence, his death did not result in the extinguishment of those obligations Irrevocable Letter of Credit Guarnatee
or liabilities, which merely passed on to his estate. Undertakes a primary obligation. Guarantors obligation is
merely collateral and arises
 Death is not a defense that he or his estate can set up to wipe out the Engagement by bank or other persons made at
the request of a customer that issuer shall only upon default of person
obligations under the performance bond. Consequently, Stronghold as
honor drafts or other demands of payment primarily liable
surety cannot use his death to escape its monetary obligation under its
performance bond. upon compliance with conditions specified in
credit
TIU HIONG GUAN V. METROPOLITAN BANK TRUST COMPANY
Insures seller payment of a definite amount used to essentially insure a
 Petitioners should be held liable for their unpaid obligation of
upon the presentation of documents buyer or seller from loss or
 liability of a surety is determined strictly on the basis of the terms and damage due to
conditions set out in the surety agreement." nonperformance by the
 Solidary liability is one of its primary characteristics... creditor may... other party in a contract.
proceed against any one of the solidary debtors or some or all of them Commitment by issuer that the party in whose sum is only paid if the
simultaneously."[8] Thus, respondent may proceed against Sunta alone or favor it is issued and who can collect upon it opposing party does not
some or all of petitioners herein. will have his credit against the applicant of fulfill the stipulated
 Suretyship arises upon the solidary binding of a person deemed the letter, duly paid the amount specified in the obligations under the
surety with the principal debtor, for the purpose of fulfilling an letter contract. This can be used
obligation... merely an accessory x x x to a principal obligation... Absolute undertakings to pay the money to essentially insure a buyer
advanced or the amount for which credit is or seller from loss or
 surety becomes liable to the debt and duty of the principal obligor even damage due to
without possessing a direct or personal... interest in the obligations given on the faith of instrument
nonperformance by the
constituted by the latter other party in a contract.
MWSS V. DAWAY Primary Obligation Accessory Obligation
 The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not  What distinguishes letters of credit from other accessory contracts is the
apply to the the standby letter of credit issued by the bank as the former engagement of issuing bank to pay the seller once the draft or other
prohibition is on the enforcement of claims against guarantors or sureties required shipping documents are presented to it
of the debtors whose obligations are not solidary with the debtor.
 Banks obligation are solidary with the respondent Maynilad in that it’s
 Sec 6 (b) of Rule 4 of Interim Rules does not enjoin the enforcement of primary, direct, definite and an absolute undertaking to pay and is not
all claims against guarantors and sureties but only those claims against conditioned on the prior exhaustion of debtor’s assets.
guarantors and sureties who are NOT solidarily liable with the debtor
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 These are the same characteristics of a surety or solidary obligor  The explicit with recourse stipulation against Great Asian effectively
 Being solidary, the claims against them can be pursued separately from enlarges, by agreement of the parties, the liability of Great Asian beyond
and independently of rehabilitation case that of a mere endorser of a negotiable instrument.

 Being a solidary obligation, letter of credit is exclude from the  The exercise by Bancasia of its option to sue for breach of contract under
jurisdiction of the rehabilitation court and therefore in enjoining the Civil Code will not leave Great Asian holding an empty bag. Great
petitioner from proceeding against Standby Letters of Credit to which it Asian, after paying Bancasia, is subrogated back as creditor of the
had clear right under the law and the terms of the said Standby Letter of receivables. Great Asian can then proceed against the... drawers who
Credit. issued the checks.

GREAT ASIAN SALES CENTER CORP V. CA  Tan Chong Lin, the President of Great Asian, is being sued in his
personal capacity based on the Surety Agreements he signed wherein he
 There is no iota of doubt whatsoever about the purpose of the two board solidarily held himself liable with Great Asian for the payment of its
resolutions, and about the authority of Arsenio to act and sign for Great debts to Bancasia. The Surety Agreements contain the following...
Asian. The second board resolution even gave Arsenio... full authority to common condition:
agree with Bancasia on the terms and conditions of the discounting line.
PNB v. Independent Planters Association Inc
 Significantly, the two board resolutions specifically refer to Bancasia as
the financing institution from whom Great Asian will secure the loan  It is now settled that the quoted Article 1216 grants the creditor the
accommodation or discounting line. substantive right to seek satisfaction of his credit from one, some or all of
his solidary debtors, as he deems fit or convenient for the protection of
 Armed with the two board resolutions, Arsenio signed the Deeds of his interests;
Assignment selling, and endorsing, the fifteen checks of Great Asian to
Bancasia.  and if, after instituting a collection suit based on contract against some or
all of them and, during its pendency, one of the defendants dies, the court
 On the face of the Deeds of Assignment, the contracting parties are retains jurisdiction to continue the proceedings and decide the case in
indisputably Great Asian and Bancasia as the names of... these entities respect of the surviving defendants.
are expressly mentioned therein as the assignor and assignee,
respectively.  It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter.
 Great Asian claims that Arsenio signed the Deeds of Assignment in his
personal capacity because Arsenio signed above his printed name, below  Section 6, Rule 86 of the Revised Rules of Court cannot be made to
which was the word "Assignor", thereby... making Arsenio the assignor. prevail over Article 1216 of the New Civil Code, the former being
merely procedural, while the latter, substantive.
 The assignor is undoubtedly Great Asian, represented by its Treasurer,
Arsenio.
UNIVERSAL MOTORS CORP V. CA
 Arsenio did exactly what the board of directors of Great Asian directed
and authorized him to do  It is erroneous to rule that the decision of the trial court could be reversed
as to the appealing private respondent and continue in force against the
 Arsenio signed the Deeds of Assignment as agent and authorized
other PRs.
signatory of Great Asian under an authority expressly granted by its
board of directors.  The latter could not remain bound after the former had been released;
although the other PRs had not joined in the appeal, the decision
rendered by the CA inured to their benefit.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 When the obligation of the other solidary debtors is so dependent on that  Hence, it was a continuing surety only in regard to loans obtained on or
of their co-solidary debtor, the release of the one who appealed, provided before the aforementioned expiry date and not exceeding the total of P8
it be not on grounds personal to such appealing private respondent, million.
operates as well as to the others who did not appeal. It is for this reason,
 It is a common banking practice to require the JSS ("joint and solidary
that a decision or judgment in favor of the PR who appealed can be
signature") of a major stockholder or corporate officer, as an additional
invoked as res judicata by the other PRs.
security for loans granted to corporations.
 There was no reason or logic, however, for the bank or Sta. Ines to
SECURITY BANK AND TRUST COMPANY INC V. CUENCA assume that he would still agree to act as surety in the 1989 Loan
 petitioner bank cannot hold herein respondent liable for loans obtained in Agreement, because at that time, he was no longer an officer or a
excess of the amount or beyond the period stipulated in the original stockholder of the debtor-corporation.
agreement, absent any clear stipulation showing that the latter waived his  Verily, he was not in a position then to ensure the payment of the
right to be notified thereof, or to give consent thereto. obligation. Neither did he have any reason to bind himself further to a
 An obligation may be extinguished by novation, pursuant to Article 1292 bigger and more onerous obligation.
of the Civil Code, Novation of a contract is never presumed. Indeed, the
following requisites must be established:
DIFFERENT KINDS OF OBLIGATIONS: OBLIGATIONS WITH A
(1) there is a previous valid obligation; PENAL CLAUSE
(2) the parties concerned agree to a new contract;
(3) the old contract is extinguished; and BACHRACH V. ESPIRITU
(4) there is a valid new contract.16  No, Article 1152 of the civil code permits the agreement upon a penalty
 We reject these contentions. Clearly, the requisites of novation are apart from the interest.
present in this case.  Penalty is not to be added to interest for the determination of whether
 The 1989 Loan Agreement extinguished the obligation obtained under interest exceeds the rate fixed by law, since said rate was fixed only for
the 1980 credit accomodation. interest.
 This is evident from its explicit provision to "liquidate" the principal and
the interest of the earlier indebtedness, as the following shows:"1.02. ROBES-FRANCISCO v. REALTY DEVELOPMENT CORPORATION V.
Purpose. The First Loan shall be applied to liquidate the principal portion CFI
of the Borrower’s present total outstanding Indebtedness to the Lender
(the "Indebtedness") while the Second Loan shall be applied to  From this alone, the 4% provision does not come to be penal in character,
liquidatethe past due interest and penalty portion of the Indebtedness. hence, Robes Corporation’s contention that the penalty shall substitute
the indemnity for damages and the payment of interest in case of non-
 Since the 1989 Loan Agreement had extinguished the original credit compliance does not hold water.
accommodation, the Indemnity Agreement
 Unfortunately, Millan failed to show the actual damages she suffered as a
 To repeat, in the present case, the Indemnity Agreement was subject to result of the nonperformance. Nonetheless, the facts show that the right
the two limitations of the credit accommodation: (1) that the obligation of the vendee was violated and this entitles her at the very least to
should not exceed P8 million, and (2) that the accommodation should nominal damages
expire not later than November 30, 1981.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

COUNTRY BANKERS INSURANCE CORP V. CA  The RTC’s award of attorney’s fees in the sum of P50,000.00 is,
Facts: however, proper.

 General rule : In obligations with a penal clause, the penalty shall


substitutute the indemnity for damages and the payment of interest in LO VS CA
case of non-compliance  Generally, courts are not at liberty to ignore the freedom of the parties to
 In such case, proof of actual damages suffered by the creditor is not agree on such terms and conditions as they see fit as long as they are not
necessary in order that the penalty may be demanded (Article 1228, New contrary to law, morals, good customs, public order or public policy.
Civil Code).  This power of the courts is explicitly sanctioned by Article 1229 of the
 However, there are exceptions to the rule that the penalty shall substitute Civil Code which provides:
the indemnity for damages and the payment of interests in case of non- Article 1229. The judge shall equitably reduce the penalty when the principal
compliance with the principal obligation. obligation has been partly or irregularly complied with by the debtor. Even if
 They are first, when there is a stipulation to the contrary; second, when there has been no performance, the penalty may also be reduced by the courts
the obligor is sued for refusal to pay the agreed penalty; and third, when if it is iniquitous or... unconscionable.
the obligor is guilty of fraud (Article 1226, par. 1, New Civil Code). It is  question of whether a penalty is reasonable or iniquitous is addressed to
evident that in all said cases, the purpose of the penalty is to punish the the sound discretion of the court and depends on several factors,
obligor. including, but not limited to, the following: the type, extent and purpose
 It held that the cancellation or termination of the agreement prior to its of the penalty, the nature of the obligation, the mode of... breach and its
expiration period is justified as it was brought about by Sy's own default consequences, the supervening realities, the standing and relationship of
in his compliance with the terms of the agreement and not motivated by the parties
fraud or greed. GSIS V CA
 GSIS claims that the amendment of the real estate mortgage did not
HEIRS OF MANUEL UY EK LIONG V. CASTILLO Based on the finding that the GSIS had the legal right to impose an
FACTS: interest 9% per annum, compounded monthly, on the loans of the
Medinas and an interest of 9%/12% per annum on all due and unpaid
 The Kasunduan contained a penal clause which provides that a party who amortizations or installments,
violates any of its provisions shall be liable to pay the aggrieved party a
penalty fixed at P50K, together with the attorney’s fees and litigation  there is no question that the Medinas failed to... settle their accounts with
expenses incurred by the latter should judicial resolution of the matter the GSIS which as computed by the latter reached an outstanding balance
becomes necessary. of P630,130.55 as of April 12, 1975 and that the GSIS had a perfect right
to foreclose the mortgage.
 The obligor would then be bound to pay the stipulated indemnity without
the necessity of proof of the existence and the measure of damages JISON V. CA
caused by the breach.  While the resolution of the contract and the forfeiture of the amounts
 The penalty clause generally substitutes the indemnity for damages and already paid are valid and binding upon petitioners, the Court is
the payment of interests in case of non¬compliance. The rule is settled convinced that the forfeiture of the amount of P47,312.64, although it
that a penal clause is not limited to actual and compensatory damages. includes the accumulated fines for petitioners' failure to construct... a
house as required by the contract, is clearly iniquitous considering that
the contract price is only P55,000.00.
OBLIGATIONS AND CONTRACTS CASE DOCTRINES: MIDTERMS REVIEWER—A.REGADO

 The forfeiture of fifty percent (50%) of the amount already paid,


orP23,656.32, appears to be a fair settlement.
 Further, in obligation with a penal clause, the judge shall equitably
reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor