COMPENSATION

EQUATORIAL REALTY DEVELOPMENT, INC. V. MAYFAIR THEATER,

INC.
G.R. No. 136221 May 12, 2000

FACTS:

Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land,

together with two two-storey buildings constructed thereon. On June 1, 1967,
Carmelo entered into a lease with Mayfair Theater, Inc. (Mayfair) for a period
of 20 years. The lease covered a portion of the second floor and mezzanine.
Two (2) years later, Mayfair entered into a second lease with Carmelo for the
lease of another property, a part of the second floor and two spaces on the
ground floor. The lease was also for a period of twenty (20) years. Both
leases contained a provision granting Mayfair a right of first refusal to
purchase the said properties. However, on July 30, 1978, within the 20-year-
lease term, Carmelo sold the subject properties to Equatorial Realty
Development, Inc. (Equatorial) for the sum of P11.3M without their first being
offered to Mayfair.
As a result, Mayfair filed a complaint for specific performance and
damages. After trial, the court ruled in favor of Equatorial. On appeal, the
Court of Appeals (CA) reversed and set aside the judgment of the lower
court. On November 21, 1996, the Supreme Court denied Equatorial’s
petition for review and declared the contract between Carmelo and
Equatorial rescinded. The decision became final and executory and Mayfair
filed a motion for its execution, which the court granted on April 25, 1997.
However, Carmelo could no longer be located thus Mayfair deposited with
the court its payment to Carmelo. The lower court issued a deed of
reconveyance in favor of Carmelo and issued new certificates in the name
of Mayfair.
On September 18, 1997, Equatorial filed an action for the collection of
sum of money against Mayfair claiming payment of rentals or reasonable
compensation for the defendant’s use of the premises after its lease
contracts had expired. The lower court debunked the claim of the petitioner
for unpaid rentals, holding that the rescission of the Deed of Absolute Sale
in the mother case did not confer on Equatorial any vested or residual
proprietary rights, even in expectancy.
ISSUE:

Whether or not Equatorial may collect rentals or reasonable

compensation for Mayfair’s use of subject premises after its lease contracts
had expired.

RULING:

Equitorial may not collect rentals or reasonable compensation for

Mayfair’s use of the subject premises after its lease contracts had expired.
Rent is a civil fruit that belongs to the owner of the property producing it by
right of accession. Consequently and ordinarily, the rentals that fell due from
the time of the perfection of the sale to petitioner until its rescission by final
judgment should belong to the owner of the property during that period.

Petitioner never took actual control and possession of the property

sold, in view of the respondent’s timely objection to the sale and continued
actual possession of the property. The objection took the form of a court
action impugning the sale that was rescinded by a judgment rendered by the
Court in the mother case. It has been held that the execution of a contract
of sale as a form of constructive delivery is a legal fiction. It holds true only
when there is no impediment that may prevent the passing of the property
from the hands of the vendor into those of the vendee. When there is such
impediment, fiction yields to reality; the delivery has not been effected.
Hence, respondent’s opposition to the transfer of property by way of sale to
Equatorial was a legally sufficient impediment that effectively prevented the
passing of the property into the latter’s hands.
Article 1386 of the Civil Code provides rescission, which creates the
obligation to return the things, which were the object of the contract, together
with their fruits, and the price with its interest, but also the rentals paid, if any,
had to be returned by the buyer.
 ANUNCIACION VDA. DE OUANO V. REPUBLIC OF THE PHILIPPINES
G.R. NO. 168770, 9 FEBRUARY 2011

FACTS:
In 1949, the National Airport Corporation (NAC), MCIAA’s
predecessor agency pursued a program to expand the Lahug Airport in
Cebu City. As an assurance from the government, there is a promise of
reconveyance or repurchase of said property so long as Lahug ceases its
operation or transfer its operation to Mactan – Cebu Airport. Some owners
refused to sell, and that the Civil Aeronautics Administration filed a
complaint for the expropriation of said properties for the expansion of the
Lahug Airport. The trial court then declared said properties to be used upon
the expansion of said projects and order for just compensation to the land
owners, at the same time directed the latter to transfer certificate or
ownership or title in the name of the plaintiff. At the end of 1991, Lahug
Airport completely ceased its operation while the Mactan-Cebu airport
opened to accommodate incoming and outgoing commercial flights. This
then prompted the land owners to demand for the reconveynace of said
properties being expropriated by the trial court under the power of eminent
domain. Hence these two consolidated cases arise.
In G.R. No. 168812 MCIAA is hereby ordered by court to
reconvey said properties to the land owners plus attorney’s fee and cost of
suit, while in G.R. No. 168770, the RTC ruled in favor of the petitioners
Oaunos and against the MCIAA for the reconveynace of their properties but
was appealed by the latter and the earlier decision was reversed, the case
went up to the CA but the CA affirmed the reversed decision of the RTC.

ISSUE:
Whether or not the testimonials of the petitioners proving the
promises, assurances and representations by the airport officials and
lawyers are inadmissible under the Statue of Frauds.

HELD:
The SC ruled that since the respondent didn’t object during trial
to the admissibility of petitioner’s testimonial evidenc under the Statute of
Frauds, it means then that they have waived their objection and are now
barred from raising the same. In any event, the Statute of Frauds is not
applicable herein. Consequently, petitioners’ pieces of evidence are
admissible and should be duly given weight and credence, since the
records tend to support that the MCIAA did not as the Ouanos and Inocians
posit, object the introduction of parole evidence to prove its commitment to
allow the fromer landowners to repurchase their properties upon the
occurrence of certain events.

SHOEMAKER vs. LA TONDENA

68 Phil 24

FACTS:

Defendant company, La tondena, Inc. entered into a written contract of

lease of services with plaintiff Harry Ives Shoemaker for a period of 5 years,
with a compensation consisting of 8% of the net earnings of defendant. That
during each year that the contract was in force, plaintiff would receive
monthly during the period of the contract of the sum of Php 1,500.00 or Php
18,000.00 per annum as minimum compensation if 8% of the net earnings
of the aforementioned alleged business would not reach the amount.
The defendant company alleged that there were changes in the
contract in which both the parties agreed upon.
Plaintiff filed a complaint against defendant company. The defendant
interposed a demurrer based on the ground that the facts therein alleged do
not constitute a cause of action, since it is not averred that the alleged mutual
agreement modifying the contract of lease of services, has been put in
writing, whereas it states that its terms and conditions may only be modified
upon the written consent of both parties.

ISSUE:

Whether or not the ocurt a quo ered in sustaining the demurrer

interposed by the defendant company to the second amended complaint
filed by plaintiff, on the ground that the facts alleged therein do not constitute
a couse of action.

RULING:
 When in an oral contract which by its terms, is not to be performed
within 1 year from the execution thereof, one of the contracting parties has
complied within the year with the obligations imposed on him said contract,
the other party cannot avoid the fulfillment of what is incumbent on him under
the same contract by invoking the statute of frauds because the latter aims
to prevent and not to protect fraud.

PNB MADECOR vs. GERARDO C. UY

G.R. No. 129598
AUGUST 15, 2001

FACTS:

Guillermo Uy assigned to respondent Gerardo Uy his receivables due

from Pantranco North Express Inc. (PNEI). The deed of assignment
included sales invoices containing stipulations regarding payment of
interest and attorney’s fees. On January 23, 1995, Gerardo Uy filed with
the RTC a collection suit against PNEI. He alleged that PNEI was guilty of
fraud in contracting the obligation sued upon, hence his prayer for a writ of
preliminary attachment. The sheriff issued a notice of garnishment
addressed to the Philippine National Bank (PNB) and PNB MADECOR
attaching the “goods, effects, credits, monies and all other personal
properties” of PNEI in the possession of the bank. PNB MADECOR
however claimed that the receivables of Guillermo Uy have been applied to
PNEI’s unpaid rentals to the bank thru compensation, thus private
respondent is no longer entitled to such. Respondent pointed out that the
demand letter sent by PNEI to petitioner was made before petitioner’s
obligation to PNEI became due. This being so, respondent argues that
there can be no compensation since there was as yet no compensable
debt in 1984 when PNEI demanded payment from petitioner.

ISSUE:
Whether or not PNB MADECOR is correct in its contention that
compensation is applicable to its receivables from and its payables to
PNEI.
RULING:

Petitioner’s obligation to PNEI appears to be payable on demand.

However, the Court found that the letter sent by PNEI to PNB MADECOR
was not one demanding payment, but one that merely informed petitioner
of the conveyance of a certain portion of its obligation to PNEI. Since
petitioner’s obligation to PNEI is payable on demand, and there being no
demand made, it follows that the obligation is not yet due. Therefore, this
obligation may not be subject to compensation for lack of a requisite under
the law. Without compensation having taken place, petitioner remains
obligated to PNEI to the extent stated in the promissory note. This
obligation may undoubtedly be garnished in favor of respondent to satisfy
PNEI’s judgment debt.

As regards respondent’s averment that there was as yet no

compensable debt when PNEI sent petitioner a demand letter on
September 1984, since PNEI was not yet indebted to petitioner at that time,
the law does not require that the parties’ obligations be incurred at the
same time. What the law requires only is that the obligations be due and
demandable at the same time.
 Santos Ventura Hocorma Foundation Inc. vs. Ernesto Santos and
Riverland Inc.
G.R. No. 153004, November 5, 2004
441 SCRA 472

FACTS:

Ernesto Santos and Santos Ventura Hocorma Foundation Inc.

(SVHFI) were plaintiff and defendant, respectively, in several civil cases in
different courts in the Philippines. The parties, however, executed a
compromise agreement on October 16, 1990 which amicably ended all
their pending litigations. The compromise agreement was judicially
approved on September 30, 1991.

ISSUE:

Whether the respondents are entitled to legal interest.

HELD:

A compromise is a contract whereby the parties, by making

reciprocal concessions, avoid litigation or put an end to one already
commenced. It is an agreement between two or more persons, who, for
preventing or putting an end to a lawsuit adjust their difficulties by mutual
consent in the manner which they agree on, and which every one of them
prefers in the hope of gaining, balanced by the danger of losing.

The general rule is that a compromise has upon the parties the
effect and authority of res judicata, with respect to the matter definitely
stated therein, or which by implication from its terms should be deemed to
have been included therein. This holds true even if the agreement has not
been judicially approved.
 The two-year period must be counted from October 26, 1990, the
date of execution of the compromise agreement, and not on September 30,
1991 when respondent wrote a demand letter to petitioner on October 28,
1992, the obligation was already due and demandable. When the
petitioner failed to pay its due obligation after the demand was made, it
incurred delay. Article 1169 of the Civil Code provides: Those obliged to
deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.

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.
Furthermore, the obligation is liquidated because the debtor knows
precisely how much he is to pay and when he is to pay it. Petitioner
delayed in the performance as he fully settled his outstanding balance on
February 8, 1995 which was more than two years after the extrajudicial
demand. The demand letter sent to petitioner was in accordance with an
extrajudicial demand contemplated by law.The petitioner is liable for
damages for the delay in the performance of its obligation as provided for in
Article 1170. When the debtor knows the amount and period when he is to
pay, interest as damages is generally allowed as a matter of right. The
complaining party has been deprived of funds to which he is entitled by
virtue of their compromise agreement. The goal of compensation requires
that the complainant be compensated for the loss of use of the funds.

This compensation is in the form of interest. In the absence of the

agreement, the legal rate of interest shall prevail. The legal interest for
loan as forebearance of money is 12% per annum to be computed from the
default, from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.