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II. Sources of Obligations

E. Quasi-Delicts


Fausto Barredo, petitioner, vs. Severino Garcia and Timotea Almario, respondents

Ponente: Bocobo, J.

Legal Doctrine: Plaintiffs are free to choose on which of It is undisputed that Fontanilla's negligence was the
the two remedies to recover damages they will take. cause of the mishap, as he was driving on the wrong side
of the road, and at high speed.

As to Barredo's responsibility, the Court of Appeals found:

Facts: “In fact it is shown he was careless in employing
Fontanilla who had been caught several times for
At about half past one in the morning of May 3, 1936, on violation of the Automobile Law and speeding (Exhibit A) -
the road between Malabon and Navotas, Province of violation which appeared in the records of the Bureau of
Rizal, there was a head-on collision between a taxi of Public Works available to be public and to himself.
the Malate Taxicab driven by Pedro Fontanilla and a Therefore, he must indemnify plaintiffs under the
carretela guided by Pedro Dimapalis. provisions of article 1903 of the Civil Code.”

The carretela was overturned, and one of its Main theory of Barredo is that his liability is governed by
passengers, 16-year-old boy Faustino Garcia, the Revised Penal Code; hence, his liability is only
suffered injuries from which he died two days later. subsidiary, and as there has been no civil action against
Pedro Fontanilla, the person criminally liable, Barredo
A criminal action was filed against Fontanilla in the Court
cannot be held responsible in the case.
of First Instance of Rizal, and he was convicted.
Respondents assert that the Court of Appeals holds that
The court in the criminal case granted the petition that the
the Barredo is being sued for his failure to exercise all the
right to bring a separate civil action be reserved.
diligence of a good father of a family in the selection and
The Court of Appeals affirmed the sentence of the lower supervision of Pedro Fontanilla to prevent damages
court in the criminal case. suffered by the respondents.

Severino Garcia and Timotea Almario, parents of the

deceased on March 7, 1939, brought an action in the
Issue: Whether the Garcia and Almario may bring a
Court of First Instance of Manila against Fausto Barredo
separate civil action against Fausto Barredo, thus making
as the sole proprietor of the Malate Taxicab and employer
him primarily and directly, responsible under article 1903
of Pedro Fontanilla.
of the Civil Code as an employer of Pedro Fontanilla.
On July 8, 1939, the Court of First Instance of Manila
awarded damages in favor of the plaintiffs for P2,000 plus
legal interest from the date of the complaint. Held/Ratio:

This decision was modified by the Court of Appeals by Yes. The same negligent act causing damages may
reducing the damages to P1,000 with legal interest from produce civil liability arising from a crime under
the time the action was instituted. article 100 of the Revised Penal Code, or create an
action for cuasi-delito or culpa extra-contractual
under articles 1902-1910 of the Civil Code.

Some of the differences between crimes under the Penal and application in actual life. Death or injury to persons
Code and the culpa aquiliana or cuasi-delito under the
Civil Code are:
and damage to property through any degree of
negligence — even the slightest — would have to be
indemnified only through the principle of civil liability
1. That crimes affect the public interest, while arising from a crime.
cuasi-delitos are only of private concern.
To find the accused guilty in a criminal case, proof of guilt
2. That, the Penal Code punishes or corrects the beyond reasonable doubt is required, while in a civil case,
criminal act, while the Civil Code, by means of preponderance of evidence is sufficient to make the
indemnification, merely repairs the damage. defendant pay in damages. There are numerous cases of
3. That delicts are not as broad as quasi-delicts, criminal negligence which can not be shown beyond
because the former are punished only if there is reasonable doubt, but can be proved by a preponderance
a penal law clearly covering them, while the of evidence. In such cases, the defendant can and should
latter, cuasi-delitos, include all acts in which "any be made responsible in a civil action under articles 1902
kind of fault or negligence intervenes." However, to 1910 of the Civil Code. Otherwise, there would be
it should be noted that not all violations of the many instances of unvindicated civil wrongs. Ubi jus ibi
penal law produce civil responsibility, such as remedium.
begging in contravention of ordinances, violation To hold that there is only one way to make defendant's
of the game laws, infraction of the rules of traffic liability effective, and that is, to sue the driver and exhaust
when nobody is hurt. his (the latter's) property first, would be tantamount to
An employer is, under article 1903 of the Civil Code, compelling the plaintiff to follow a devious and
primarily and directly responsible for the negligent acts of cumbersome method of obtaining relief. True, there is
his employee. such a remedy under our laws, but there is also a more
expeditious way, which is based on the primary and direct
In the present case, the taxi driver was found guilty of responsibility of the defendant under article 1903 of the
criminal negligence, so that if he had even sued for his Civil Code. It is a matter of common knowledge that
civil responsibility arising from the crime, he would have professional drivers of taxis and similar public
been held primarily liable for civil damages, and Barredo conveyance usually do not have sufficient means with
would have been held subsidiarily liable for the same. But which to pay damages. Why, then, should the plaintiff be
the plaintiffs are directly suing Barredo, on his primary required in all cases to go through this roundabout,
responsibility because of his own presumed negligence unnecessary, and probably useless procedure? In
— which he did not overcome — under article 1903. construing the laws, courts have endeavored to shorten
Thus, there were two liabilities of Barredo: and facilitate the pathways of right and justice.
Because of the broad sweep of the provisions of both the
x first, the subsidiary one because of the civil
Penal Code and the Civil Code on this subject, which has
liability of the taxi driver arising from the latter's
given rise to the overlapping or concurrence of spheres
criminal negligence; and,
already discussed, and for lack of understanding of the
x second, Barredo's primary liability as an character and efficacy of the action for culpa aquiliana,
employer under article 1903. there has grown up a common practice to seek damages
only by virtue of the civil responsibility arising from a
The plaintiffs were free to choose which course to take,
crime, forgetting that there is another remedy, which is by
and they preferred the second remedy. In so doing, they
invoking articles 1902-1910 of the Civil Code. Although
were acting within their rights. It might be observed in
this habitual method is allowed by our laws, it has
passing, that the plaintiff choose the more expeditious
nevertheless rendered practically useless and nugatory
and effective method of relief, because Fontanilla was
the more expeditious and effective remedy based on
either in prison, or had just been released, and besides,
culpa aquiliana or culpa extra-contractual. In the present
he was probably without property which might be seized
case, we are asked to help perpetuate this usual course.
in enforcing any judgment against him for damages.
But we believe it is high time we pointed out to the harm
The Revised Penal Code in article 365 punishes not only done by such practice and to restore the principle of
reckless but also simple negligence. If the Court were to responsibility for fault or negligence under articles 1902 et
hold that articles 1902 to 1910 of the Civil Code refer only seq. of the Civil Code to its full rigor. It is high time we
to fault or negligence not punished by law, according to caused the stream of quasi-delict or culpa aquiliana to
the literal import of article 1093 of the Civil Code, the legal flow on its own natural channel, so that its waters may no
institution of culpa aquiliana would have very little scope longer be diverted into that of a crime under the Penal

Code. This will, it is believed, make for the better issues, limitations and results of a criminal prosecution,
safeguarding of private rights because it re-establishes an
ancient and additional remedy, and for the further reason
and entirely directed by the party wronged or his counsel,
is more likely to secure adequate and efficacious redress.
that an independent civil action, not depending on the

Cy Arnesto


Edgardo E. Mendoza, petitioner, vs. Hon. Abundio Z. Arrieta, Presiding Judge of Branch VIII, CFI Manila, Felino Timbol and
Rodolfo Salazar, respondents

Ponente: Melencio-Herrera, J.

Legal Doctrines: Two separate Criminal actions were filed against Rodolfo
Salazar and Freddie Montoya. Criminal case against
1. Actions based on quasi-delict may proceed Montoya was for causing damage to the jeep owned by
independently of the criminal proceedings. Salazar in the amount of P1, 604. Criminal case against
2. No reservation of civil action in a criminal case is Salazar was for causing damage to the Mercedes Benz of
required. (according to Justice Barredo) an Mendoza.
independent civil action is substantive in
character and is not within the power of the Note: Mendoza was not a party in the case against
Supreme Court to supersede. Rule 111 of ROC Montoya
is a procedural law which cannot amend a
substantive law, such as CC Art. 32, 33, 34 do In the joint trial Mendoza testified that the jeep overtook
not provide for the reservation of a separate civil the truck, swerved to the left going towards the poblacion
action. of Marilao, and hit his car. And that before the impact,
3. The same negligent act may produce either a Salazar had jumped from the jeep and that he was not
civil liability arising from a crime under the Penal aware that Salazar’s jeep was bumped from behind by
Code, or a separate responsibility for fault or the truck.
negligence under the Civil Code.
Montoya adopted the version of Mendoza.

Salazar tried to show that, after overtaking the truck, he

Facts: flashed a signal indicating his intention to turn left towards
the poblacion but was stopped at the intersection by a
A three way vehicular accident occurred along policeman who was directing traffic, that while he was at a
McArthur Highway, Marilao, Bulacan on October 22, 1969 stop position, his jeep was bumped by the truck causing
around 4:00pm. him to be thrown out of the jeep of, which then swerved to
the left and hit Mendoza’s car.
Collision involved a Mercedes Benz, a private jeep, and
a gravel and sand Truck. Trial Court rendered judgment which absolved jeep-
owner-driver Salazar of any liability, civil and criminal in
x Benz owned and driven by Mendoza (petitioner) view that the collision between the jeep and the car was
the result of the jeep being bumped by the truck.
x Jeep owned by driven Salazar
Trial Court did not award damages to Mendoza as he was
x Truck owned by Timbol, driven by Montoya not a complainant against the truck-driver but only against
jeep-driver Mendoza.

After termination of the criminal cases, Mendoza filed Civil MORE importantly, in criminal cases, the cause of action
Case against Salazar and Timbol (Owner of the truck). was the enforcement of civil liability arising from criminal
negligence under Art 100 RPC, whereas the civil case
filed was based on quasi-delict under CC 2180.

Issue: WON the civil case against Timbol and Salazar is Mendoza’s cause of action being based on quasi-delict
barred by the judgment in the criminal action. may proceed independently of the criminal proceedings
and regardless of the result of the criminal case.

Two factors consisting the cause of action in quasi-delict:

1. Plaintiff’s primary right (Mendoza is the owner of
As for Timbol (truck owner), the civil case against him is the Mercedes Benz)
not barred by the fact that Mendoza failed to reserve, in 2. Defendant’s delict or wrongful act or omission
the criminal action, his right to file an independent civil which violated the plaintiff’s primary right (the
action based on quasi-delict. negligence or lack of skill either by Salazar or
For a prior judgment to constitute a bar to a subsequent
case (Res Judicata): Article 2176 and 2177 of the CC create a civil liability
distinct and different from the civil actions arising from the
1. It must be a final judgment
offense of negligence under the revised penal code.
2. It must have been rendered by a Court having
According to Justice Barredo an independent civil action
jurisdiction over the subject matter and over the
is substantive in character and is not within the power of
the Supreme Court to supersede, thus no reservation in a
3. It must be a judgment on the merits
criminal case is required. Rule 111 of ROC is a
4. There must be, between the first and second
procedural law which cannot amend a substantive
actions, identity of parties, identity of subject
law, such as CC Art. 32, 33, 34 do not provide for the
matter and identity of cause of actions
reservation of a separate civil action.
In the instant case, the first three requisites are present,
As for Salazar, Crystal clear that the trial Court’s
however there is no identity in the cause of action
pronouncement that under the facts of the case, he
between the criminal case and the civil case.
cannot be held liable for the damages Mendoza’s car
In the criminal case the truck-driver Montoya was not sustained. “in other words, the fact from which the civil
prosecuted for damage for Mendoza’s car but for damage liability might arise did not exist.
to the jeep, neither was Timbol a party in the said case.
Cy Arnesto


Philippine School of Business Administration, Juan D. Lim, Benjamin P. Paulino, Antonio M. Magtalas, Col. Pedro Sacro, and
Lt. M. Soriano, petitioners, vs. Court of Appeals, Hon. Regina Ordonez-Benitez, in her capacity as Presiding Judge of Branch
47, Regional Trial Court, Manila, Segunda R. Bautista, and Arsenia D. Bautista, respondents

Ponente: Padilla, J.

Legal Doctrine: Torts arise between parties without Facts:

contractual relationship, but should the act which
breaches a contract be done in bad faith and be violative Aug. 30, 1985 – Carlitos Bautista was stabbed and died
of Art. 21, then there is cause to view the act as while on the 2nd floor premises of PSBA; his assailants
constituting a quasi-delict. were elements from outside the school.

His parents filed suit for damages against PSBA and its Institutions of learning must meet the implicit or “built-in”
corporate officers and sought to adjudge them liable for
Carlitos’ death due to their alleged negligence,
obligation of providing their students with an atmosphere
that promotes or assists in attaining its primary
recklessness and lack of safety precautions, means and undertaking of imparting knowledge.
methods before, during and after the attack on the victim.
The school must ensure that adequate steps are taken to
Petitioners filed a motion to dismiss, which was denied by maintain peace and order within the campus premises
the RTC and affirmed by the CA. and to prevent the breakdown thereof.

Rules on quasi-delict do not really govern since there is a

contractual relation between Carlitos and PSBA.
Issue: Is PSBA liable for damages for the death of
Carlitos? But should the act which breaches a contract be done in
bad faith and be violative of Art. 21, then there is cause to
view the act as constituting a quasi-delict.

Held: To be determined by the RTC (case remanded). o Art. 21 CC: Any person who willfully causes loss
or injury to another in a manner that is contrary
to morals, good customs or public policy shall
compensate the latter for the damage.
A contractual relation is a condition sine qua non to the
CA correctly denied the motion to dismiss; however, the
school’s liability. The negligence of the school cannot
SC does not agree with the premises of the CA’s ruling.
exist independently of the contract, unless the negligence
CA: liability based on quasi-delicts; teachers and head of occurs under the circumstances set out in Art. 21.
schools are liable unless they relieve themselves of such
SC remanded the case to RTC to determine W/N the
liability by proving that they observed all diligence to
contract between PSBA and Carlitos had been breached
prevent damage
through PSBA’s negligence in providing security
Art. 2180 provides that the damage should have been measures.
caused or inflicted by pupils or students of the educational
PSBA may still avoid liability by proving that the breach of
institution sought to be held liable for the acts of its pupils
contract was not due to its negligence.
or students while in its custody; in this case, Art. 2180
does not apply since the killers were outsiders. Negligence: “the omission of that degree of diligence
which is required by the nature of the obligation and
When an academic institution accepts students for
corresponding to the circumstances of persons, time and
enrolment, there is established a contract between them,
resulting in bilateral obligations which both parties are
bound to comply with.
Anisah Azis


Jose S. Amadora, et al, petitioners, vs. Honorable Court of Appeals, Colegio de San Jose-Recoletos, Victor Lluch, Sergio P.
Damaso, Jr., Celestino Dicon, Aniano Abellana, Pablito Daffon, thru his parents and natural guardians, Mr. and Mrs. Nicanor
Gumban, and Rolando Valencia, thru his guardian, Atty. Francisco Alonso, respondents

Ponente: Cruz, J.

Legal Doctrine: Art 2180 applies to all schools, academic not have been killed if it had not been returned by
or non-academic. In academic schools, the teacher-in- Damaso.
charge is liable for a student's misconduct. In non-
academic schools, the head is liable. Custody is not CFI: The defendants were made liable to the plaintiffs.
coterminous with semester. As long as the student is
under the control and influence of school and within its CA: Reversed CFI’s decision on the ground that it is not a
premises in pursuance of a legitimate right, obligation or school of arts and trades but an academic institution not
privilege, he is considered under school custody. within the purview of the provision. Also, the students
were not in the custody of the school at the time the
incident as the semester had ended.


April 13, 1972 – Alfredo Amadora went to the San Jose- Issue: W/N the school is liable for the death of Amadora.
Recoletos and while in the auditorium, was shot to death
by his classmate, Pablito Daffon.

The parents alleged that Alfredo went to school to finish Held: No, it is not.
his physics experiment; thus, he was under the custody of
the school. However, the respondents claimed that
Alfredo had gone to school to submit his physics report Ratio:
and that he was no longer under their custody as the
semester had already ended. The student is in the custody of the school authorities as
long as he is under the control and influence of the school
Daffon was convicted of homicide through reckless and within its premises, whether the semester has not yet
imprudence. The victim’s parents also filed a civil action begun or has already ended. As long as the student is in
for damages under Art. 2180 of the Civil Code against the the school premises in pursuance of a legitimate student
school, its rector, the high school principal, the dean of objective, in the exercise of a legitimate student right, and
boys and the physics teacher. even in the enjoyment of a legitimate student privilege,
the responsibility of the school authority over the student
o Art. 2180: teachers or heads of establishments
of arts and trades shall be liable for damages
caused by their pupils and students or Teachers in general shall be liable for the acts of their
apprentices so long as they remain in their students except where the school is technical in nature, in
custody. which case it is the head thereof that shall be liable.
The school claims that it was not a school of arts and The teacher-in-charge must answer for his students’ torts
trades but an academic institution not within the purview when committed within the premises of the school at any
of the article, and that it had exercised the necessary time when its authority could be validly exercised, unless
diligence in preventing the injury. it can be shown that necessary precautions were
undertaken to prevent the injury.
April 7, 1972 – Damaso, dean of the boys, confiscated
from Jose Gumban an unlicensed pistol but later returned In the instant case, it has not been established that the
it to him without making a report to the principal or taking physics teacher supposedly in-charge of Daffon was
further action. Petitioners contend that the confiscated negligent in enforcing the school rules and regulations in
pistol was used to shoot Alfredo and that their son would maintaining that discipline. Moreover, it has not been

shown that the gun earlier confiscated by the dean of

boys is the same gun used to kill Amadora, so the dean of
Anisah Azis
boys cannot also be held liable. Consequently, neither the
school nor its teachers and officials can be held liable for
damages incurred by him.


II. Breach of Obligation

A. Concept


Song Fo & Company, plaintiff-appellee, vs. Hawaiian Philippine Co., defendant-appellant

Ponente: Malcolm, J.

Legal Doctrine: Rescission will be permitted for a 2.) Had the Hawaiian-Philippine Co. the right to rescind
substantial breach of the contract and, at the case at bar, the contract of sale made with Song Fo & Company?
the court ruled that Hawaiian-Philippine Co. did not have
the right to rescind the contract of sale, since failure of
Song Fo & Co. to pay for the molasses did not violate an
essential condition of the contract. Held/Ratio:

1.) The defendant agreed to sell to the plaintiff 300, 000

gallons of molasses. The Hawaiian-Philippine Co. also
Facts: believed it possible to accommodate Song Fo & Company
by supplying the latter company with an extra 100,000
Song Fo & Company, plaintiff, presented before the CFI gallons. But the language used with reference to the
of Iloilo a complaint with two causes of action for breach additional 100,000 gallons was not a definite promise. Still
of contract against the Hawaiian-Philippine Co., less did it constitute an obligation.
defendant, in which judgment was asked for P70,369.50,
with legal interest, and costs.

Hawaiian-Philippine Co. set up the special defense that 2.) The defendant had no right to rescind the contract of
since the Song Fo & Co. had defaulted in the payment for sale made with the plaintiff.
the molasses delivered to it by the defendant under the
contract between the parties, the latter was compelled to In Exhibit F, the Court finds that the defendant had an
cancel and rescind the said contract. understanding with the plaintiff that the latter, Song Fo &
Co. would pay the former at the end of each month for
The judgment of the trial court condemned the defendant molasses delivered. In Exhibit G, the Court likewise finds
to pay to the plaintiff a total of P35,317.93. Hence, this that Song Fo & Co understood the things in Exhibit F and
appeal. accepted all the arrangements therein presented.

Song Fo & Company should have paid for the molasses

delivered in December, 1922, and for which accounts
Issues: were received by it on January 5, 1923, not later than
January 31 of that year. Instead, payment was not made
1.) Did the defendant agree to sell to the plaintiff 400,000 until February 20, 1923. All the rest of the molasses was
gallons of molasses or 300,000 gallons of molasses? paid for either on time or ahead of time. It is on the basis

of this that the defendant gave notice of the termination of accepting payment of the overdue accounts and
the contract and rescission of the same. continuing with the contract. ͺ
The general rule is that rescission will not be permitted Dispositive: We rule that the appellant had no legal right
for a slight or casual breach of the contract, but only to rescind the contract of sale because of the failure of
for such breaches that are substantial and fundamental Song Fo & Company to pay for the molasses within the
as to defeat the object of the parties in making the time agreed upon by the parties.
agreement. A delay in payment for a small quantity of
molasses for some twenty days is not such a violation of
an essential condition of the contract. The Hawaiian-
Philippine Co. also waived this condition when it arose by Lala Badi



Ponente: Panganiban, J.

Legal Doctrine: Rescission will be permitted for a Avelina then executed an Undertaking in favor of David
substantial breach of the contract and, in this case, Raymundo stipulating that:
rescission pursuant to Art 1191 was justified because the
breach committed by the petitioners was not so much x She paid David the sum of Php800,000.00 and
their nonpayment of the mortgage obligations but their assumed the mortgage obligations with BPI as
nonperformance of their reciprocal obligation to pay the per the Deed of Sale with Assumption of
purchase price under the contract of sale. Mortgage
x While her application for the assumption of the
mortgage obligations is pending with the bank,
she would pay the mortgage obligation in the
Facts: name of David until such time when her
application is approved
David Raymundo [herein private respondent] is the x In the event she violated the terms, the
absolute and registered owner of a parcel of land, downpayment of Php 800,000.00 plus all
together with the house and other improvements thereon. payments made on the mortgage loan shall be
Defendant George Raymundo [herein private respondent] forfeited in favor of David.
is David’s father who negotiated with plaintiffs Avelina and
Mariano Velarde [herein petitioners] for the sale of said After the execution of the sale, the Velardes paid the
property, which was, however, under lease. David mortgage obligation with the bank for three months until
Raymundo, as vendor, executed a Deed of Sale with the plaintiffs were advised that the Application for
Assumption of Mortgage in favor of Avelina Velarde, as Assumption of Mortgage with BPI was not approved. This
vendee, with the following terms and conditions: prompted the plaintiffs not to make any further payment.
Defendants, thru counsel, wrote to the plaintiffs informing
x That David sells the land and house with the latter that their non-payment to the mortgage bank
improvements to the Velardes in consideration of
constitute[d] non-performance of their obligation.
x That the parcel of land was mortgaged by David Plaintiffs responded saying that they are willing to pay the
to BPI to secure the payment of a loan of balance in cash not later than January 21, 1987 granted
some conditions. Defendants, on the other hand, sent
x That the Velardes hereby assume to pay the
mortgage obligations of P1, 800,000.00 in favor plaintiffs a notarial notice of cancellation/rescission of the
of BPI. intended sale of the subject property allegedly due to the
latter’s failure to comply with the terms and conditions of

the Deed of Sale with Assumption of Mortgage and the discharge the obligation of a buyer under a contract of
Undertaking. The Velardes filed a Complaint against the sale. Moreover, in a contract of sale, private respondents ͻ
defendants for specific performance, nullity of had already performed their obligation through the
cancellation, writ of possession and damages. execution of the Deed of Sale, which effectively
transferred ownership of the property to petitioner through
constructive delivery. Petitioners, on the other hand, did
Issues: not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they
1. Whether or not the non-payment of the mortgage wanted private respondents to perform obligations
obligation of the Velardes resulted in a breach of beyond those stipulated in the contract before fulfilling
contract? their own obligation to pay the full purchase price.

2. Whether or not the rescission of the contract by the 2. Petitioners also contend that the rescission of the
Raymundos was justified? contract was not justified since they signified their
willingness to pay the entire obligation. But the breach
committed by petitioners was not that they didn’t pay their
mortgage obligations. Rather, it was their
Held/Ratio: nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. The power to
1. Yes, the non-payment of the mortgage obligation of the rescind the contract is based on Art. 1191 of the CC
Velardes resulted in a breach of contract. which provides that “The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
Petitioners contend that their nonpayment of private
should not comply with what is incumbent upon him the
respondents’ mortgage obligation did not constitute a
injured party may choose between fulfillment and the
breach of contract, considering that their request to
rescission of the obligation...” The Velardes violated the
assume the obligation had been disapproved by the
very essence of reciprocity in the contract of sale, a
mortgage bank. Accordingly, payment of the monthly
violation that consequently gave rise to private
amortizations ceased to be their obligation but they are
respondents’ right to rescind the same.
still mandated to pay the purchase price balance of P1.8
million to private respondents in case the request to
assume the mortgage would be disapproved. As admitted
by both parties, their agreement provided this mandate. Dispositive:
Thus when petitioners received notice of the bank’s
disapproval of their application to assume respondents’ The assailed CA Decision is hereby AFFIRMED with the
mortgage, they should have paid the balance of the P1.8 MODIFICATION that private respondents are ordered to
million loan. Instead of doing so, petitioners sent a letter return to petitioners the amount of P874, 150, which the
to private respondents offering to make such payment latter paid as a consequence of the rescinded contract.
only upon the fulfillment of certain conditions not originally
agreed upon in the contract of sale. Such conditional offer
to pay cannot take the place of actual payment as would Lala Badi

II. Breach of Obligation

B. Modes of Breach (Fraud)



Charles F. Woodhouse, plaintiff-appellant, vs. Fortunato F. Halili, defendant-appellant

Ponente: Labrador, J.

Legal Doctrine: In order for fraud to vitiate consent it When bottling plant was already in operation, plaintiff
should be the causal not just the incidental inducement of demanded that the partnership papers be executed.
the making of the contract. Nothing definite was coming. Defendant refused to give
allowance to Woodhouse. A settlement was first
attempted & since none could be arrived at, the present
action was instituted.
Defendant counter-argued that there was FALSE
Pertinent provisions of written agreement entered into by REPRESENTATION on the part of the plaintiff in claiming
the parties state that they shall organize a partnership for that he was the owner or was about to be the owner of
the bottling & distribution of Mission softdrinks where: an exclusive bottling franchise when in fact he was not.
The franchise was given to the defendant himself during
x Woodhouse(plaintiff) shall:
their transaction with Mission Dry Corp in the US. Thus
the plaintiff failed in carrying out his undertakings by
1. be the industrial manager
failing to contribute the franchise into the partnership.
2. be in charge of operations &
development of bottling plant
3. secure the franchise
4. receive 30 % of the net profits Issue/s:

x Halili (defendant) shall: 1. WON defendant had falsely represented that he

held an exclusive franchise to bottle Mission
1. provide the capital
2. decide on matters of general policies 2. WON such false representation/fraud annuls the
regarding the business
agreement to form a partnership.
Prior to formal agreement, plaintiff requested Missions
3. WON agreement be carried out or executed.
Dry Corporation (L.A.), in order that he may close the deal
with defendant, that the right to bottle and distribute be
granted him (plaintiff) for a limited time under the
condition that it will finally be transferred to the Held/Ratio:
corporation. Pursuant for this request, plaintiff was given
"a thirty-days" option on exclusive bottling and distribution 1. YES. There was representation on the part of the
rights for the Philippines. plaintiff i.e., that he was the holder of the exclusive
Dec 3, 1947: contract signed.
It was improbable ad incredible for Woodhouse to
Dec 10, 1947: franchise agreement was entered into the have disclosed that (1) he had the OPTION to the
Mission Dry Corp. and Halili and/or Woodhouse, it exclusive franchise for 30 days and (2) that the said
granted HALILI (defendant) the exclusive right, license option has already EXPIRED at the time of the
and authority to produce, bottle, distribute and sell signing the formal agreement. Either could have had
Mission Beverages in the Phils. his bargaining power and authority destroyed an
probably lost the deal itself.

Moreover in par. 3 of the contract: But the alleged possession of the rights to the franchise

xxx and the manager is ready and willing to

induced the defendant to give 30% of the net profit to ͳͳ
plaintiff when plaintiff has minimal knowledge pertaining
allow the capitalists (defendant) to use the to bottling (thus incidental fraud).
exclusive contract xxx

and par 11 of the agreement

3. NO. The defendant may not be compelled against his
in the event of the dissolution or termination of will to carry out the agreement nor execute the
the partnership the franchise from Mission Dry partnership papers. Under the Spanish Civil Code,
Corp shall be reassigned to the manager. the defendant has an obligation to do, not to give.
The law recognizes the individual's freedom or liberty
Thus the defendant was led to believe that the to do an act he has promised to do, or not to do it, as
plaintiff had the franchise. he pleases. It falls within what Spanish
commentators call a very personal act (acto
personalismo), of which courts may not compel
2. NO. It does not amount to fraud that will vitiate the compliance, as it is considered an act of violence to
contract. So contract is not null and void. do so.

Fraud can be either of the ff:

a. Causal fraud (dolo causante): resulting to the Note: Damages = plaintiff's share of 15 per cent of the net
annulment of the contract. profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.
b. Incidental fraud (dolo incidente): renders the
party who employs fraud liable for damages

In order for fraud to vitiate consent it should be the causal Joie Bajo
not just the incidental inducement of the making of the

In this case Woodhouse was guilty of a false

representation but this was not the causal consideration
or the principal inducement that led Halili to enter into the
partnership agreement.

Geraldez vs. Court of Appeals

Lydia L. Geraldez, petitioner, vs. Hon. Court of Appeals and Kenstar Travel Corporation, respondents

Ponente: Regalado, J.

Legal Doctrine: Dolo causante are deceptions or Facts:

misrepresentations without which a party would not have
entered into the contract, while dolo incidente is of minor Petitioner, with her sister, availed of a 22-day tour of
character, without which a party will still enter the Europe for US$2,990 (equivalent to Php190,000 during
1989) offered by private respondent.
Out of four, she chose the tour package denominated as
Volare 3 with the following features, above all:

x European Tour Manager knowledgeable and contract without which the other party/parties would
experienced in European destinations not have entered into the contract. The fraud was ͳʹ
(accompanied by a Filipino Tour Escort) employed in order to secure the consent of the
defrauded party, thus existing before and during
x First-class hotel accommodations creation of the contract. The fraud itself is the
essential source of the consent. Its effects are nullity
x Trip to the UGC Leather Factory as one of the of the contract and indemnification of damages.
main highlights of the tour.
On the other hand, dolo incidente or incidental fraud
However, no European Tour Manager appeared in the (in NCC Arts. 1170 and 1344) is of minor character,
entirety of the tour but in its stead is a first-timer without which the other party will still enter the
Filipino lady tour guide- first time as in first time in contract. The fraud refers only to some particular or
performing the duties and responsibilities of a tour guide accident of the obligation. Since the fraud did not vitiate
in Europe, thus lacking in experience and expertise in consent of the party while entering in the contract, said
said trade. They were booked and lodged to two-, three- contract is valid. The party who committed dolo
, or four-star hotels far off the way of the tour itinerary incidente is liable for damages as well.
and with substandard (with respect to first-class hotels
in Manila and in Europe) amenities. Some even lack Private respondent committed fraud in the inducement
towels and soaps. Also, the trip to the UGC Leather (or dolo causante), with promising the attendance of a
Factory was a flop which cannot be considered a tour at European tour manager that would take care of her and
all. They arrived too late when the place was already her sister during the entirety of the tour. The other
closed and the tourists could no longer avail of the breaches of contract committed by private respondent,
discounted merchandise as promised by private whether considered as dolo causante or dolo
respondent. These happenings, especially the UGC incidente, likewise will bring about to said respondent the
Leather Factory fiasco brought respondent anxiety and obligation to pay moral and exemplary damages.

Issue: WON private respondent is guilty of causal fraud

(dolo causante) or incidental fraud (dolo incidente). Aboy Bayalan

Held: Yes. CA decision SET ASIDE. Moral and

exemplary damages and attorney’s fees awarded to
petitioner. Nominal damages deleted.

Under dolo causante or causal fraud (in NCC Art. 1338)
are deceptions or misrepresentations of a party to a

B. Modes of Breach (Negligence)


Ponente: Malcolm, J.

Facts: Ratio:

A passenger truck (bus) and a private automobile Liability of father

collided. Narciso Gutierrez, a passenger of the bus, seeks
to recover damages in the amount of P10, 000, for Article 1903 of the Civil Code: the father alone and not
physical injuries suffered as a result of an automobile the minor or the mother, would be liable for the damages
accident caused by the minor

Truck: driven by the chauffeur Abelardo Velasco, and US jurisprudence shows that “the head of a house, the
was owned by Saturnino Cortez. owner of an automobile, who maintains it for the general
use of his family is liable for its negligent operation by
Private automobile: one of his children.”

x operated by Bonifacio Gutierrez, a lad 18 years The running of the machine by a child to carry other
of age, and was owned by Bonifacio's father members of the family is within the scope of the owner's
and mother, Mr. and Mrs. Manuel Gutierrez business, so that he is liable for the negligence of the
child because of the relationship of master and servant.
x The father was not in the car at the time of the
accident, but the mother as well as other
members of the family where accomodated
therein. Liability of the truck owner and driver

The liability of the truck owner and the driver is based

from contract.
Issue: Who is liable for the injuries suffered by Narciso

Mary Beley

Held: Manuel Gutiererez (father of the kid who drove the

car), and Abelardo Velasco (driver of the bus), and
Saturnino Cortez (owner of the bus) are JOINTLY and


Antonio Vasquez, petitioner, vs. Francisco de Borja, respondent

Francisco de Borja, petitioner, vs. Antonio Vasquez, respondent

Ponente: Ozaeta, J.

Facts: The trial court found Vasquez guilty of negligence in the

performance of the contract and held him personally liable
The action was commenced by de Borja against Vasquez on that account. Likewise, CA ruled that he was not only
and Fernando Busuego to recover from them jointly and negligent but should also responsible for paying the
severally the total of PhP 4702.70 upon three alleged amount of the demand under Arts. 1102, 1103 and 1902
causes: of the Civil Code.

First, Vasquez and defendants jointly and severally

obligated themselves to sell to the plaintiff 4,000 cavans
of palay, which they will deliver. Vasquez and Busuego, Issues:
after receiving 8,400 pesos from de Borja, only delivered
5,224 pesos worth of cavans of palay. They refused to 1. Whether the plaintiff entered into the contract
deliver the remaining cavans amounting to 3,175.20 with the defendant Antonio Vasquez in his
pesos. personal capacity or as manager of the
Natividad-Vasquez Sabani Development Co.,
Second, de Borja suffered damages as a result of the Inc.
refusal to deliver
2. Whether the trial court and/or the Court of
Third, on account of the agreement mentioned, de Borja Appeals erred in its rulings.
delivered 4000 empty sacks but only 2,490 were returned
to the plaintiff. 1,510 sacks were refused to deliver. There 3. Whether Vasquez could claim damages against
are also damages for the non-delivery of the empty sacks. Borja.

Vasquez denies that he entered into the contract

mentioned in his own and personal capacity. He said that
the agreement for the purchase of the cavans of palay Held/ Ratio:
and the payment of the price of 8,400 were made by de
1. Vasquez entered the contract in his capacity as
Borja not with him but with Natividad- Vasquez Sabani
acting president and manager of NVSDCI.
Development Co. Inc. (NVSDCI), a corporation organized
and existing under the laws of the Philippines. Vasquez The action being on a contact, with the NCSDCM
was the acting manager when the transaction took place. being the party liable on the contract, the complaint
On account of the filing of this action against him, he filed should have been dismissed.
a counterclaim of 1,000 pesos for damages.
A corporation is an artificial being invested by law
Vasquez was ordered by the trial court to pay de Borja with its own personality, which is distinct and
the sum of P3,175.20 plus P377.50. The said court separate from its stockholders or the people who run
absolved Busuego, the corporations’ treasurer, from its affairs. Even if the agents are the one acting for
paying the said sums. Said amount was reduced by the the corporation, it does not make the agent
Court of Appeals. The case was then remanded to the personally liable for entering a contract in behalf of
court of origin for further proceedings upon Vasquez’s the corporation. The corporation’s personality, a legal
motion for reconsideration. Vasquez filed a petition for fiction, may only be disregarded if the agent used the
certiorari for the review and reverse of the CA judgement. corporation to hide an unlawful or fraudulent purpose.
De Borja also filed a cross-petition for certiorari to
maintain the original CA judgement. There is no legal basis upon which to hold Vasquez
liable on the contract either principally or subsidiarily.
There are no allegations that Vasquez personally

benefited through the contract that he entered for the

corporation. It was also not contended that he
3. No. As the acting president and manager of the
entered into the contract for the corporation in bad
faith and with intent to defraud the plaintiff. corporation, he has a moral duty towards the part
with whom he contracted in said capacaity to see to it
that the corporation he represents fulfilled the
contract by delivering the palay it had sold. Since he
2. Both the trial court and CA erred in their ruling that was not able to fulfill that moral duty, he has no
Vasquez is guilty of negligence and must be legitimate cause for his claim of damages.
personally liable. Since it was the corporation’s
contract, the corporation is the one liable and not the
agent even if the non-fulfilment of the contract is due
to negligence or fault or any other cause. Dissenting Opinion (Paras, J.):

Vasquez could be principally liable under article 1902 Vasquez should be made liable to de Borja. As acting
of the Civil Code if independent of the contract, he president and manager of NCSDCM, Vasquez has full
caused damage to the plaintiff by his fault or knowledge of the insolvent status of his company but still
negligence. The basis of such separate liability agreed to sell to de Borja 4000 cavans of palay. The
should be on culpa aquiliana and not based on the failure and refusal to deliver the undelivered cavans
contract. But since there was no such cause of action resulted from his negligence.
in this complaint, the trial court has no jurisdiction
over that issue.

Richard Beltran


Manuel De Guia, plaintiff, v. Manila Electric Railroad & Light Company, defendant

Ponente: Street, J.

Summary: post. The post was shattered and the De Guia was
thrown against the door with some violence, receiving
The plaintiff got injured after he boarded a car (which I bruises and possibly certain internal injuries.
think in this case refers to one of the old trains) which got
derailed and hit a post. Because the motorman who was The company of the car alleged that the derailment was
driving the car was held to be negligent, it was also held due to the presence of a stone in the juncture of the
that the company was also liable for damages. The switch which had accidentally been lodged there. Thus in
relationship between the parties was contractual in nature this view, the derailment would have been due to casus
and thus the company was bound to deliver the plaintiff fortuitous and not chargeable to the negligence of the
safely and securely with reference to the degree of care motorman.
which, under the circumstances, is required by law and
custom applicable to the case.

Issue: WON the motorman and the company were liable

for damages to the injured plaintiff

De Guia boarded the car (of a train) and he remained at

the back platform holding the right-hand door. The wheels Held: Yes. The motorman had been negligent and it
of the rear car, after coming out of a switch, got derailed results that the company is liable for damage resulting to
and it ran for a short distance until it struck a concrete the plaintiff as a consequence of that negligence.

Ratio: to convey him for hire. The contractual nature of the

As regards the motorman’s negligence: The inference

relation between the parties meant that the duty of the ͳ͸
carrier was to convey and deliver the plaintiff safely and
that there had been negligence in the operation of the car securely with reference to the degree of care which under
could be gleaned from the distance which the car was the circumstances, was required by law and custom
allowed to run with the front wheels of the rear truck applicable to the case. Upon failure to comply with that
derailed. An experienced and attentive motorman should obligation, the company incurred liability. The liability
have discovered that something was wrong and would already incurred, the company could not avail itself of the
have stopped before he had driven the car over the entire defense that it had exercised due care in selecting and
distance from the point the wheels left the track to the instructing the motorman because such defense could
place where the post was struck. only be availed in the absence of a contractual relation, or
in other words to quasi-delicts.
As regard the company’s liability: Because the motorman
was negligent, it also results that the company was liable
for the damage to the plaintiff as a consequence of that
negligence. The plaintiff had boarded the car as a Welga Carrasco
passenger bound for Manila and the company undertook


Tomasa Sarmiento, petitioner, vs. Sps. Luis & Rose Sun-Cabrido and Maria Lourdes Sun, respondents

Ponente: Corona, J.

Legal Doctrine: Dismounting a diamond from its original Respondent Cabrido denied having entered into any
setting is part of the verbal contract of service to reset the transaction with Payag. It was possible that Payag availed
diamonds from a pair of earrings to two gold rings. of their services as she could not have known every
customer who came to their shop.

Respondent Sun admitted knowing Payag. Payag went

Facts: inside the shop to see Santos and when Santos broke the
gem, Payag demanded 15,000 from him. Santos had no
Petitioner Sarmiento states that Dra. Lao requested her to money so she demanded from Sun.
have a pair of diamond earrings reset into two gold rings.
Petitioner sent Payag with the pair of earrings to Santos recalled that Payag requested him to dismount a
Dingding’s jewelry shop, owned by the respondent sapphire. The gem accidentally broke. Santos denied
spouses, which accepted the job for 400 pesos. being an employee of Dingding’s Jewelry.

Payag delivered to the jewelry shop one of the diamond Petitioner filed a complaint for damages.
earrings. Respondent Sun attempted to dismount the
diamond from its setting. Unsuccessful, she asked their Realizing the futility of their position, private respondents
goldsmith Santos to do it. Santos removed the diamond conceded, on appeal, the existence of an agreement with
by twisting the setting with pliers, breaking the gem in the the petitioner. However, they denied assuming any
process. obligation to dismount the diamonds from their original
Petitioner required respondents to replace the diamond
with the same size and quality. When they refused,
petitioner was forced to buy replacement for 30,000
pesos. Issue/Held: Is the dismounting of the diamond from its
original setting part of the obligation assumed by the
private respondents under the contract of service

(resetting diamonds from a pair of earrings to two rings)? Those who, in the performance of their obligations, are
Yes. guilty of negligence are liable for damages. In the case at ͳ͹
bar, Santos acted negligently in dismounting the diamond.
The practice of the trade is to use a miniature wire saw in
dismounting gems from their settings. Santos employed a
Ratio: pair of pliers. Marilou examined the diamond and found it
in order. Its subsequent breakage could only have been
Sun expressed no reservation when Payag asked her to
caused by negligence.
dismount the diamonds. Sun should have instructed
Payag to have the diamonds dismounted first if Sun Private respondents seek to avoid liability by blaming
actually intended to spare the jewelry shop of the task but Santos who claimed to be an independent worker. They
she did not. also claim that Sun simply happened to drop by the shop.
Facts show that Santos had been working for the shop as
Petitioner was charged 400 pesos for the job order which
goldsmith for 6 months. Payag stated that she had
was accepted. A perfected contract to reset the diamonds
transacted with Dingding’s Jewelry Shop on at least 10
arose between the petitioner, through Payag, and the
occassions, always with Sun.
jewelry shop, through Sun.
Respondents are obliged to pay actual damages in favor
Sun’s actions were revealing as regards the scope of
of petitioner amounting to 30,000 pesos, and moral
obligation assumed by the jewelry shop. After the new
damages because of the negligence of their employee,
settings were completed, she called the petitioner to bring
the diamond earrings to be reset. After examining one of
the earrings, she went on to dismount the diamond. Sun
cannot now deny the shop’s obligation.
Faye Celso


Estela L. Crisostomo, petitioner, vs. The Court of Appeals and Caravan Travel and Tours International, Inc., respondents

Ponente: Ynares-Santiago, J.

Legal Doctrine: Since the contract is not a contract of 15, 1991 without checking her travel documents. She
carriage but an ordinary one for services, the standard of learned that the flight she was supposed to take had
care required of the respondent company is that of a good already departed, the schedule being June 14, 1991.
father of a family under Art. 1173 of the Civil Code. Thus, Crisostomo complained to Menor.

Crisostomo instead agreed to take another tour, the

“British Pageant”. Crisostomo was asked to pay P 20,
Facts: 881.00. Crisostomo gave P 7, 980 as partial payment and
commenced the trip in July 1991. Upon her return, she
Petitioner Estela L. Crisosotomo contracted the services demanded from the respondent the reimbursement of P
of respondent Caravan Travel and Tours International, 61, 421.70 representing the difference between the sum
Inc. to arrange and facilitate her booking, ticketing and she paid for “Jewels of Europe” and the amount she owed
accommodation in a tour dubbed “Jewels of Europe.” respondent for the “British Pageant” tour. Respondent
Crisostomo’s niece, Meriam Menor, who is also the company refused to reimburse the said amount.
respondent company’s ticketing manager went to
Crisostomo on a Wednesday (June 12, 1991) to deliver TRIAL COURT: the respondent company was negligent in
the latter’s travel documents and plane tickets and erroneously advising Crisostomo of her departure date
informed her to go the airport on a Saturday, two hours through its employee Menor. However, Crisostomo also
before the flight. Crisostomo went to the airport on June had contributory negligence because she should have

verified the exact date and time of departure by looking at not a contract of carriage but an ordinary one for services,
her ticket and not simply relying on Menor’s statement. the standard of care required of the respondent company ͳͺ
Thus, 10% is deducted from the amount being claimed. is that of a good father of a family under Art. 1173 of the
The Court of Appeals likewise found both parties to be at CC, and not the utmost care and extra-ordinary diligence
fault but held that petitioner Crisostomo is more negligent which is higher in degree than the ordinary diligence
than the respondent company because as a lawyer and required of the passenger.
as a well-travelled person, she should have known better
than to simply rely on Menor’s statement. Thus, she is not The test to determine whether negligence attended the
entitled to any form of damages, she forfeits her right to performance of an obligation is: did the defendant in
the “Jewels of Europe” tour and must therefore pay doing the alleged negligent act use that reasonable care
respondent the balance of the price for the “British and caution which an ordinarily prudent person would
Pageant” tour. have used in the same situation? If not, then he is guilty
of negligence. In the case at bar, the evidence shows that
Petitioner now seeks to reverse CA decision on the the respondent company exercised due diligence in
ground that the respondent company did not observe the performing its obligations under the contract and followed
standard of care required of a common carrier when it procedure in rendering service. The plane ticket issued to
informed her wrongly of the flight schedule. She could not the petitioner clearly reflected the departure date and time
be deemed more negligent than the respondent company and the travel documents were delivered to the petitioner
since the latter is required by law to exercise two days before the trip for her to prepare. Respondent
extraordinary diligence in the fulfilment of its obligation. If also properly booked the petitioner for the tour, prepared
ever she was negligent, it was merely contributory and all the necessary documents and arranged hotel
not the proximate cause. accommodation. The respondent performed its prestation
under the contract. After the delivery of the travel papers,
it became incumbent upon Crisostomo to take ordinary
care of her concerns including knowledge of details
Issues/Held: regarding the trip. Thus, respondent company performed
its duty diligently and did not commit any contractual
1. Is Crisostomo correct in her assumption that the
respondent company Caravan Travel and Tours
International is a common carrier? NO There is no fixed standard of diligence applicable to each
and every contractual obligation and each case must be
2. Did the respondent company Caravan Travel
determined upon its particular facts. The degree of
and Tours International, Inc. observe the
diligence required depends on the circumstances of the
standard of care in its service of arranging and
specific obligation and whether one has been negligent is
facilitating petitioner’s booking, ticketing and
a question of fact that is to be determined after taking into
accommodation? YES
account the particulars of each case.

A common carrier is defined under Art. 1732 of CC as
CA decision is affirmed. Petitioner Crisostomo is ordered
persons, corporations, firms or associations engaged in
to pay the respondent the balance of the price of the
the business of carrying or transporting passengers or
British Pageant Package with interest.
goods or both, by land, water or air, for compensation,
offering their services to the public. The respondent
company is not engaged in transporting passengers or
goods. Its covenant with its customers is simply to make Arianne Cerezo
travel arrangements on their behalf. Since the contract is

B. Modes of Breach (Delay: Mora Solvendi)


Cetus Development, Inc., petitioner, v. Court of Appeals and Ederlina Navalta, respondents

Ponente: Medialdea, J.

Facts: Ratio:

Respondents Navalta et al were lessees of the premises In order to file an ejectment suit, there must be 1. A failure
originally owned bySusana Realty. They would pay on a to pay or to comply with the conditions agreed upon and
month-to-month basis to a collector who would come 2. Demand both to pay or comply and vacate.
every month to collect the rent.
However, there is no failure to pay on the part of the
The premises were later sold to Cetus Development and respondents for the 3 months because, as a general rule,
the respondents continued paying their monthly rentals to default in the fulfillment of an obligation exists only when
a collector sent by the petitioner. the creditor demands payment at the time of maturity or at
any time thereafter. 1 (from Art 1169) The petitioner has
For a period of three months (July, Aug, Sept), however, failed to prove that their agreement with respondents falls
no collector came and thus the respondents could not under the exceptions where demand is required: a.) when
pay. law declares as such, b.) when it can be inferred from the
essence of the contract, c.) when demand would be
On October, the petitioner sent a letter to the respondents useless.
demanding that they vacate the premises and pay the
back rentals for the 3 months. Respondents then paid the Demand can also come in any form, provided it can be
back rentals as well as subsequent monthly rentals which proved by the creditor. But the petitioner in this case has
were all accepted by petitioner but without prejudice to failed to prove that demand was made, more so since no
the filing of an ejectment suit. collector was sent during the 3 months. It could not
therefore be said that the respondents were in delay of
Petitioner filed for respondents’ ejectment but payment rentals. Moreover, when petitioner actually made
respondents counter that their non-paymet was due to the demand (in the form of the letter), respondents lost no
petitioner’s failure to send a collector. time in making payment, which the petitioner accepted.

Therefore, petitioner can not ask for respondents’

ejectment because there is no right on his part to rescind
Issue: WON there is a cause for ejectment due to
the contract of lease.
respondents’ supposed failure to pay during the 3

Mickey Chatto

Held: There is no cause for ejectment because there is

no failure to pay on the part of the respondents. CA is !
affirmed in denying ejectment suit. )4'*'%(#,$'70#$8


Santos Ventura Hocorma Foundation, Inc., petitioner, vs. Ernesto V. Santos and Riverland, Inc., respondents
Ponente: Quisumbing, J.

Legal Doctrine: When the one fails to pay its due Issue: WoN Santos and Riverland are entitled to legal
obligation after the demand was made, it incurred delay. interest.

Facts: Held: They are entitled to legal interest.

SVHF and Ernesto Santos entered into a Compromise

Agreement on Oct. 26, 1990:
a. SVHF will pay P14.5M to Santos and the latter
will drop the civil cases against the former and Relevant Law:
lift the various notices of lis pendens on the real
properties of SVHF. P14.5M breakdown: Art. 1169 of the NCC: Those obliged to deliver or to do
a. P1.5M immediately upon the execution of something incur in delay from the time the obligee
the agreement judicially or extrajudicially demands from them the
b. P13.5M in one lump or installments (at the fulfillment of their obligation.
discretion of SVHF) not later than 2 years
Art. 1170 of the NCC
from the execution of the agreement. If
SVHF does not pay the whole or has a
balance, the payment shall be in the form of
real properties mentioned. The compromise agreement as a consensual contract
became binding between the parties upon its execution
SVHF paid P1.5M, Santos dropped the civil cases. SVHF and not upon its court approval.
sold two properties previously subject of lis pendens but
did not pay Santos despite the latter’s letter of demand. The two-year period must be counted from October 26,
1990, the date of execution of the compromise
Sept. 30, 1991: Agreement was approved by the court. agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991. Delay
Oct. 28, 1992: Santos sent a letter again to SVHF but to
was incurred when the petitioner failed to pay its due
no avail.
obligation after the demand was made.
Santos filed (RTC) a writ of execution of the agreement
Delay as used in the case is synonymous to default or
dated Sept. 30, 1991. Granted.
mora which means delay in the fulfillment of obligations. It
March 19, 1993: The sheriff levied the properties is the non-fulfillment of the obligation with respect to time.

Auctions were made on Nov. 22, 1994 (Mabalacat Requisites:

property sold for P12M) and Feb. 8, 1995 (Bacold City
1. That the obligation be demandable and already
property sold). Riverland, Inc. was the highest bidder in
both auctions.
-The obligation was already due and
Santos and Riverland filed a Complaint for Declaratory
demandable when Santos gave a letter to SVHF
Relief and Damages and prays to recover LEGAL
on October 28, 1992. Furthermore, the obligation
INTEREST on the obligations, among others, since the
is liquidated because the debtor knows precisely
P13M obligation became due on Oct. 26, 1992 but SVHF
how much he is to pay and when he is to pay it.
paid only the P12M++ on Nov. 22, 1994.
2. That the debtor delays performance

-SVHF was able to fully settle its outstanding The goal of compensation requires that the complainant
balance only on February 8, 1995. be compensated for the loss of use of those funds. This ʹͳ
compensation is in the form of interest.
3. That the creditor requires the performance
judicially or extra-judicially. In the absence of agreement (such as in this case), the
legal rate of interest shall prevail.
-The demand letter sent to the petitioner on
October 28, 1992, was in accordance with an The legal interest for loan as forbearance of money is
extra-judicial demand contemplated by law. 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the
When the debtor knows the amount and period when he provisions of Article 1169 of the Civil Code.
is to pay, interest as damages is generally allowed as a
matter of right.

Santos has been deprived of funds to which he is entitled Jiselle Compuesto

by virtue of their compromise agreement.


Dr. Daniel Vazquez and Ma. Luiza M. Vazquez, petitioners, vs. Ayala Corporation, respondent

Ponente: Tinga, J.

Legal Doctrine: There is no delay or default when no Company as at closing or any liability of any nature;
demand is made or when the obligation is not Company not engaged in any or a party in or threatened
demandable with any legal action before any court; no default or
breach exists in the part of the company.

After execution of MOA, Ayala received letter from Del

Facts: Rosario (Lancer Builder Corp.) claiming that he was
claiming the money as subcontractor of GP Construction.
Vasquez spouses entered into MOA with Ayala because Lancer sued GP, Conduit, and Ayala
Ayala will buy from the Vasquez spouses (shares of stock
in the Company, Conduit, which has a main asset of 49.9
hectares in Ayala Alabang, which was being developed
by Conduit) Issues:

MOA: Ayala develops entire property (called remaining 1. W/N Vasquez spouses breached their warranties
area) except for retained area which was to be retained under the MOA when they failed to disclose
by Vasquez spouses; Ayala develops remaining area into Lancer claim
first class subdivision within 3 years; Ayala agrees to give
Vasquez spouses a first option to purchase four 2. W/N there was delay or default
developed lots next to the retained area at prevailing
market price; the representations and warranties of the 3. Whether there’s an option contract or right of first
Vasquez spouses are true at the time of the Closing; refusal
Company shall have no obligation to any party except
billings payable to GP Construction & Dev’t Corp; the
Company has no liabilities of any nature; Vasquez 1. Petitioners did not violate the foregoing
spouses do not know of any basis for assertion against warranties

2. There was no default or delay when the obligation was not yet demandable.
3. There is a mere right of first refusal The Supreme Court says: In order that there ʹʹ
may be default the obligation must be
demandable and liquidated, and the debtor
delays in performance, and the creditor requires
Ratio: performance judicially or extrajudicially. Under
Art. 1193 of Civil Code, obligations with a fixed
1. Exchanges of communication show that
day of fulfillment shall be demandable upon that
Vasquez spouses substantially apprised Ayala of
day. But the MOA did not specify such day.
Lancer claim and reminded Ayala of such.
Petitioners can’t demand performance after 3
Petitioners gave this information to Ayala
year period fixed by MOA since this is not the
because latter intimated a desire to break
same period contemplated in the land
contract of Conduit with GP. Ayala’s letter shows
development. The petitioners should have asked
that they had knowledge of Lancer claim before
the court to fix a period in order for it to be
its acquisition of Conduit. Ayala came to know of
demandable and so that their claim will not be
such before Closing of MOA and MOA states
considered premature.
phrases “except as disclosed to Ayala on or
before the Closing”. Hence, petitioners’ warranty
3. It is only a right of first refusal and not an option
that Conduit is not engaged, a party to, or
contract because the price is not specified. The
threatened with legal action is qualified by
phrase “at prevailing market price” connotes no
Ayala’s actual knowledge of Lancer claim before
definite period wherein Ayala is bound to reserve
the Closing.
subject lots to exercise privilege to purchase.

2. The Court of Appeals ruled that there was no

delay as petitioners never made a demand for
Ayala Corporation to sell the subject lots to Gia Comsti
them. According to the appellate court, what
petitioners sent were mere reminder letters the
last of which was dated prior to April 23, 1984


Julio Abella, plaintiff and appellant, vs. Guillermo Francisco, defendant and appellee

Ponente: Avanceña, C.J.

Legal Doctrine: Time is of the essence. (“In an due on or before 15 December 1928, extendible 15 days
agreement of this nature [option for purchase of lots] the thereafter.
period is deemed essential.”)
Abella proposed the sale of the land to George Sellner
from which he received P10,000 on 29 December 1928.
But before he made the sale to Sellner, Abella made his
Facts: second payment of P415.31 on 13 November 1928 upon
Francisco’s demand.
Guillermo FRANCISCO bought, on installment, lots 937 to
945 of the Tala Estates in Rizal from the Government for On 27 December, Francisco authorized (power of
which he was in arrears. On 31 October 1928, he attorney) Roman MABANTA to sign in his behalf the
received P500 as payment for said lots from Julio necessary documents for the transfer of the lots to Abella.
ABELLA. The total area of the lots was about 221 At the same time, Mabanta was instructed to inform
hectares and sold at a rate of P100/ha. The balance was Abella that should he fail to pay the remainder of the
selling price, the option of purchase would be considered

cancelled and the P915.31 already delivered will be Held/Ratio:

The SC, in affirming the CFI’s decision, held that since
Mabanta gave Abella up to 5 January 1929 to pay the the contract was an option for the purchase of the lots,
remaining balance which Abella was unable to comply time was deemed an essential element in the transaction.
with. On 9 January, he tried to pay the balance but Furthermore, since Francisco had certain obligations to
Mabanta refused to accept the payment, informed him pay by December 1928, time was essential for him as
that the contract was already rescinded, and returned the evinced by his instruction to Mabanta to consider the
P915.31. Thus this action to compel Francisco to execute contract rescinded if Abella failed to pay in time. In
the deed of sale of the lots. accordance with CC1124, Francisco was entitled to
resolve the contract for failure to pay the price within the
time specified.

Issue: Whether or not Abella’s failure to pay the

remaining balance within the deadline given merited the
rescission of the contract. (YES) Crystal Dunuan

B. Modes of Breach (Delay: Mora Accipiendi)


Claudina Vda. de Villaruel, et al., plaintiffs, vs. Manila Motor Co., Inc. and Arturo Colmenares, defendants

Ponente: Reyes, J. B. L., J.

Facts: Held: They cannot demand rentals

Manila Motors and Villaruel entered into a contract

whereby the former agreed to convey by lease to the
latter some premises. The term of lease is 5 years. The Ratio:
premises were invaded by the Japanese and then the
American occupied the same building. The occupants Art. 1554 of CC of Spain states the duties of a lessor.
paid the same rate as the Manila Motors after which they
a. deliver to the lessee the subject matter
have vacated the premises. Manila Motors renewed the
contract for an additional 5 yrs. Villaruel, as per his b. make thereon, during the lease, all repairs
lawyer’s advise, demanded for rental from Manila Motors necessary and maintain serviceable condition
for the period when the Japanese and the Americans
occupied the premises. The premises were set on fire, the c. maintain lessee in peaceful enjoyment of lease.
reason unknown.
1560, lessor shall not be liable for any act of mere
disturbance of 3 person but lessee would have direct
action against trespassers. No lessee would agree to pay
Issue: Whether or not Villaruel has power to demand rent for premises he could not enjoy.
rentals and recover the same due to default.

Raf Galon


Emilia Tengco, petitioner, vs. Court of Appeals and Benjamin Cifra, Jr., respondents
Ponente: Padilla, J.

Legal Doctrine: Tender of payment must be made to the (5) WON private respondent failed to establish a cause of
proper person or consigned in court. action against the petitioner.

Facts: Held:

In 1942, Tengco entered into a verbal lease agreement (1) No, the lessor was not guilty of mora accipiendi.
with Lutgarda Cifra over the premises in question. The (2) Yes, he is considered the owner of the premises.
rentals were collected from her residence by Cifra’s (3) No, petitioner’s version of facts is inconsistent.
collector, a sister of private respondent herein, who went (4) No, lessor is entitled to eject her.
to her house to collect payment from time to time, with no (5) No, respondent has a cause of action against
fixed frequency. However sometime in 1974, the lessor’s the petitioner.
collector stopped going to her residence to collect the
rentals. Since no demand for payment was made upon
her, the petitioner decided to keep the money until the
collector demands for it. Then sometime in May 1976, she Ratio:
received a letter from another sister of the private
(1) The refusal to accept the proferred rentals is not
respondent, Aurora C. Recto, that Recto is the owner of
without justification. The ownership of the property had
the property and that it is being offered for sale. Then in
been transferred to Benjamin and the person to whom
August 1977, she received another letter this time from
payment was offered had no authority to accept payment.
the private respondent, Benjamin Cifra, demanding the
Petitioner should have tendered payment of the rentals to
surrender of the possession of the premises in question,
Benjamin and if that was not possible, she should have
also claiming to be the owner of the property. Upon
consigned such rentals in court.
receiving the letter, Tengco went to the collector to whom
she had been paying her rentals to pay but this was (2) The question of who is the owner of the leased
refused without justification. premises is one fact which is within the cognizance of the
trial court whose findings thereon will not be disturbed on
The MTC of Navotas, CFI of Rizal and Court of Appeals
appeal unless there is a showing that the trial court
decided in favor of Benjamin Cifra. The motion for
overlooked, misunderstood, or misapplied some fact or
reconsideration was also denied by the CA. Hence, the
circumstance of weight and substance that would have
present recourse.
affected the result of the case. Besides, the petitioner’s
contention that the Benjamin is not the owner of the
leased premises is inconsistent with her claim that she
Issues: had tendered payment of the rentals to Benjamin.

(1)Main- WON the lessor was guilty of mora accipiendi. (3) The petitioner’s contention that the provisions of
Section 1, Commonwealth Act No. 53, should be applied
(2) WON Benjamin Cifra is the owner of the said in this case in determining the credibility of witnesses is
premises. untenable. This can only be invoked when there is a
dispute between the owner of the land and the lessee or
(3) WON petitioners version of facts is more credible than tenant on share tenancy as to the terms of an unwritten
private respondent’s. contract or where the contract is written in a language not
known to the lessee or tenant. In this case, there is no
(4) WON laches had deprived the lessor of the right to dispute to the terms of the contact.
eject her; and

(4) The lessor has the privilege to waive his right to bring (5) The nonpayment of rentals entitles the private
an action against his tenant and give the latter credit for respondent to eject her from the premises. ʹͷ
the payment of the rents and allow him to continue
indefinitely in the possession of the premises. During
such period, the tenant would not be in illegal possession
of the premises and the landlord cannot maintain an Al Hajim
action until after he has taken steps to convert the legal
possession into illegal possession.

B. Modes of Breach (Delay: Compensatio Morae)


Central Bank of the Philippines and Acting Director Antonio T. Castro, Jr. of the Department of Commercial and Savings
Bank, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs. The Honorable Court of Appeals and
Sulpicio M. Tolentino, respondents

Ponente: Makasiar, C.J.

Tolentino and Island Savings bank entered into a contract Jan 1969 Tolentino filed for injunction, damages
involving a loan by the former, who mortgaged his land. and specific performance (release of
The bank was unable to furnish the entire loan, Tolentino the 63,000 balance) of the Bank, or for
was unable to pay the principal and interests of the initial the same to rescind the real estate
amount given; their actions offset the damages one could mortgage
claim from the other. Since there was no obligation for
Tolentino to pay the entire 80,000, the Bank could only CFI: dismissed petition for specific performance ordered
enforce the debt on the property corresponding to his Tolentino to pay for 17 debt, allowed foreclosure
17,000 debt.
CA: affirmed dismissal, Bank cannot collect 17k debt nor
foreclose the mortgage


Apr 1965 Island Savings Bank approved the loan Issue/s:

of Sulpicio Tolentino for 80,000, with
the latter’s 100-ha property as security. 1. What is the bank liable for?
The amount plus interest was to be 2. What is Tolentino liable for?
paid within 3 years. Only 17,000 of the 3. Could the mortgage be foreclosed?
entire amount was released, for which
Tolentino signed a promissory note.
Held/ Ratio:
Aug 1965 The Bank was prohibited from engaging
in new transactions 1. The Bank is in default for its inability to fulfill its
obligation under the loan agreement, for which
Jun 1968 It was prohibited from doing any further
specific performance or rescission with damages
business due to its insolvency.
would be required. The initial prohibition against
Aug 1968 The Bank filed for foreclosure of new transactions was not a bar to its release of
Tolentino’s property due to his non- the balance of the loan, however, as the Bank
payment. has also been prohibited against all transactions,
only rescission is available. But since Sulpicio is

reciprocally in default for his non-payment of the 3. Yes, but not entirely. The property could only be
partial loan released, for which he signed a held liable for the amount of debt incurred by ʹ͸
promissory note and therefore created an Tolentino. The mortgage is only enforceable in
obligation separate from the initial loan, the Bank proportion to the Bank’s compliance with its
is liable for nothing. obligation. As the 17,000 debt corresponds to
only 21.25% of the total loan, 21.25% of the 100-
2. Tolentino is liable for the amount released to ha property could be foreclosed.
him, plus the interests corresponding to such
debt. Had he not signed a promissory note for
the 17,000 released, rescission plus damages
could have been available to him, since his Jill Hernandez
obligation to pay would not have begun since the
Bank had not complied with its obligation to
furnish the entire amount.

B. Modes of Breach (Contravention of the Tenor)


Telefast Communications/Philippine Wireless, Inc., petitioner, vs. Ignacio Castro, Sr., Sofia C. Crouch, Ignacio Castro Jr.,
Aurora Castro, Salvador Castro, Mario Castro, Conrado Castro, Esmeralda C. Floro, Agerico Castro, Rolando Castro, Virgilio
Castro and Gloria Castro, and Honorable Intermediate Appellate Court, respondents

Ponente: Padilla, J.

Summary: Contravention of tenor of the agreement Telefast appeals to SC that they should not be held liable
existed. Telefast is liable as they had no evidence of any for moral damages.
efforts made to overcome “technical and atmospheric
factors beyond their control” in order to send the
Issue: Does lack of fraud, malice or recklessness exempt
Telefast from moral damages?


Consolacion Bravo- Castro died. Sofia Crouch (daughter Ratio:

of Consolacion), telegrammed Ignacio, (Consoloacion’s
husband) in the U.S. of the news via Telefast. No it does not. Civil Code 1170 states that “those who in
the performance of their obligations are guilty of fraud,
Ignacio and all of Consolacion’s other children did not go negligence, or delay and those who in any manner
to the funeral. Upon Sofia’s return in the US, she found contravene the tenor, thereof are liable for damages”.
out that the family never received the telegram.
There was a contract: Sofia pays fee and Telefast sends
Ignatio’s family sues. CFI makes telefast liable. (See telegram. Sofia performed her obligation to pay, Telefast
Chart Below) didn’t. Telefast contravened the obligation. They must
pay through money as A. 2217 states that “ Though
IAC affirms decision but has modification on liabilities incapable of pecuniary computation, moral damages may
(See Chart). be recovered if they are the proximate results of the
defendants wrongful act or omission. “

Sofia: P31.92 and
No more 16k Sofia: 16K
Moral Damages Sofia: 20K All are 10K 10K/ respondent

Husband &other kids:

Exemplary Damages Attorney’s Fee: 5K No more Attorney’s Fee: 5K
1K/ plaintiff 1K/plaintiff 1K/ plaintiff
Costs of suits

Margie Lim


Paz P. Arrieta and Vitaliado Arrieta, plaintiffs-appellees, vs. National Rice and Corn Corporation, defendant-appellant, Manila
Underwriters Insurance Co., Inc., defendant-appellee

Ponente: Regala, J.

Facts: to 5% of the F.O.B. price of 20,000 tons at $180.70 and in

compliance with the regulation in Rangoon; this 5% will
On May 19, 1952 plaintiff-appellee Paz P. Atrieta won the be confiscated if the required letter of credit is not
public bidding called by the National Rice and Corn received by them before August 4, 1952”
administration (NARIC) for the supply of P20,000 metric
tons of Burmese Rice as her bid of $203 per metric ton PNB informed the appellant corporation of the extreme
was the lowest. necessity for the immediate opening of the letter of credit
for $3,614,000 in favor of Thiri Setkya has been approved
The defendant corporation committed itself to pay for the with the condition that 50% marginal cash deposit be paid
imported rice “by means of an irrevocable, confirmed and and that drafts are to be paid upon presentment. PNB will
assignable letter of credit in US currency in favor of the hold NARIC’s application in abeyance pending
plaintiff-appellee and/or supplier in Burma, immediately.” compliance with the requirement

It was only on July 30, 1952, or a full month after from the However, NARIC was not in a financial position to meet
execution of the contract, that the defendant NARIC took the condition. NARIC bluntly confessed to the appellee
the first step to open a letter of credit by forwarding to the this dilemma through a letter.
Philippine National Bank (PNB) its Application for
Commercial Letter of Credit with a transmittal letter which The credit instrument applied for was opened only of
read: “In view of the fact that we do not have sufficient September 8, 1952 “in favor of Thiri Setkya, Rangoon,
deposit with your institution with to cover the amount Burma, and/or assignee for $3,614,000” (which is more
required to be deposited as a condition for the opening of than two months from the execution of the contract)
letters of credit, we will appreciate it if this application
could be considered a special case” As a result of the delay, the allocation of appellee’s
supplier in Rangoon was cancelled and the 5% deposit,
On the same day, Paz P. Arieta advised the appellant amounting to 524,000 Kyats or approximately P200,000
corporation of the extreme necessity for the immediate was forfeited
opening of the letter of credit since she had by then made
a tender to her supplier in Rangoon, Burma, “equivalent The appellee endeavored, but failed, to restore the
cancelled Burmese rice allocation. When the futility of

reinstating the same became apparent, Paz offered to Held:

substitute Thailand rice instead to the defendant NARIC.
1. YES
This offer of substitution, however, was rejected by
appellant in a resolution. 2. NO

On the foregoing, the appellee sent a letter to the 2. NO

appellant, demanding compensation for the damages
caused her in the sum of $286,000 US currency,
representing unrealized profit. The demand having been
rejected, she instituted this case now on appeal, alleging
that NARIC’s failure to open immediately the letter of 1. It is clear upon the records that the sole and
credit in dispute amounted to a breach of the contract of principal reason for the cancellation of the
July 1, 1952. allocation contracted by the appellee herein in
Rangoon, Burma, was the failure of the letter of
Appellant corporation disclaims responsibility for the delay
credit to be opened with the contemplated
and insists that the fault lies with the appellee.
NARIC contends that the disputed negotiable instrument
This failure, must, therefore, be the immediate
was not promptly secured because the Paz failed to
cause of for the consequent damage which
seasonable furnish data necessary and required for
opening the same, namely: (1) the amount of the letter of
credit, (2) the person, company or corporation in whose Appellant’s defense has no merit.
favor it is to be opened, and (3) the place and bank where
it may be negotiated First, the appellant’s defense reaches into an
area of the proceedings which the court is not at
NARIC also argues that the subsequent offer of appellant liberty to encroach. Appellant’s defense refers to
Paz to substitute Thailand rice for the originally contracted a question of fact, for the court is denied to
Burmese rice amounted to a waiver of whatever rights disturb questions of fact, consonant to the time-
she might have derived from the alleged breach of honored tradition to hold that trial judges are
contract. better situated to make conclusions on questions
of fact.
Appellant NARIC also filed a counter-claim asserting that
it has suffered, likewise by way of unrealized profit, Second, It is clear that what singularly delayed
damages in the sum of $406,000 from the failure of the the opening of the stipulated letter of credit and
projected contract to materialize. which, in turn, caused the cancellation of the
allocation in Burma, was the inability of appellant
NARIC to meet the condition imposed by PNB
Issues: for granting the same. NARIC’s defense does
not hold for even if appellant Paz furnished the
1. WON appellant’s failure to open immediately the necessary data for opening the letter of credit,
letter of credit in dispute amounted to a breach NARIC would still not be in the position to meet
of the contract of July 1, 1952 the condition of PNB.

2. WON the subsequent offer of appellant Paz to The liability of NARIC arises from its willful and
substitute Thailand rice for the originally deliberate assumption of contractual obligations
contracted Burmese rice amounted to a waiver even as it was well aware of its financial
of whatever rights she might have derived from incapacity to undertake the prestation.
the alleged breach of contract
Despite awareness that it was financially
3. WON appellant’s counter-claim is valid incompetent to open a letter of credit
immediately, appellant agreed in its contract with
Paz to pay immediately “by means of an
irrevocable, confirmed and assignable letter of

Article 1170 of the Civil Code: “Those who in the converted into the Philippine peso at the rat of
performance of their obligations are guilty of exchange prevailing at the time of the obligation. ʹͻ
fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are
liable in damages.”
2. Waivers are not presumed, but must be clearly
Under this provision, not only debtors are guilty and convincingly shown, either by express
of fraud, negligence or default in the stipulation or acts admitting no other reasonable
performance of obligations are decreed liable; in explanation (Ramirez v. CA).
general, every debtor who fails in the
performance of his obligations I bound to In the case at bar, no such intent has been
indemnify for the losses and damages caused established.

The phrase “in any manner contravene the

3. NARIC’s unrealized profit was realizable by it
tenor” of the obligation includes any illicit act
despite a number of expenses which the
which impairs the strict and fulfillment of the
appellee, under contract, did not have to incur.
obligation, or every kind of defective
Thus, banking and unloading charges were to be
performance. NARIC executed such a defective
shouldered by NARIC. Such charges, if
performance by agreeing to sign its contract with
shouldered by NARIC, would still leave NARIC
Paz despite its awareness that it was financially
with profit over P400, 000.
incompetent to open a letter of credit.

The decision appealed from is affirmed, with the

minor sole modification that the award should be Pao Lorica


Victorino Magat, petitioner, vs. Hon. Leo D. Medialdea and Santiago Guerrero, respondents

Ponente: Escolin, J.

Legal Doctrine: Contravention of the tenor would result Aligada secured a firm offer in writing from Magat, and
in liability for damages not only for losses suffered but Magat received notice that Guerrero accepted his offer to
also for expected profits which were not obtained. sell the items as well as the terms and conditions of the
offer. With the belief that Guerrero would fulfill his part of
the contract, Magat took steps to advise the Japanese
entity they had contacted to manufacture the items that
Facts: the contract had been perfected. However, given that it
was normal business practice in case of foreign
Guerrero had entered into a contract with the US Navy
importation that the buyer open a letter of credit in favor of
Exchange, Subic Bay, for the operation of a fleet of
foreign supplier first before the delivery of the goods,
taxicabs, with each taxicab to be provided with a
Magat waited for the opening of such; however, it appears
taximeter and radio transceiver for purposes of
that Guerrero instructed his banker not to do so.
communicating from the taxi to fixed base stations within
Thereafter, Magat found out that Guerrero had been
the Naval Base. To meet the contract’s requirements,
operating his taxicabs without the required equipment,
Isidro Aligada, Guerrero’s agent, approached Magat in
and that Guerrero had been impliedly blaming Magat for
behalf of Guerrero with a proposal to import said
the delay of the installation of the transceivers, thus
taximeters and transceiver from Japan thru Magat or thru
damaging Magat’s business reputation with the Naval
Magat’s business associates.

As such, Magat filed a complaint against Guerrero, stating Both parties entered into the contract with the intent to
the abovementioned events and the damages he will profit from it. Upon breach by any of them, the other ͵Ͳ
suffer because of Guerrero’s failure to fulfill his would necessarily suffer loss of expected profits. The loss
contractual obligations. However, the Judge Medialdea arises at the very moment of breach; given that, such loss
dismissed the complaint for lack of cause of action, is real, fixed, and vested; thus, it is recoverable under the
upholding Guerrero’s contentions that Magat had not yet law.
suffered anything; he was merely anticipating his loss or
damage w/c might result from the alleged failure to Art. 1170 of the CC is then cited, with reference to the
comply with the contract’s terms. phrase “in any manner contravene the tenor.” The Court
said that the obligation includes any illicit act or omission
that impairs the fulfillment of the obligation and every kind
of defective performance. It also held that the obligor may
Issue: W/N Magat’s complaint states a specific cause of be held liable not only for the loss suffered by the 30blige
action. [daño emergente] but the profits which the 30blige failed
to obtain [lucro cesante] as well. Had the obligor acted in
good faith, he would be liable for damages which are the
natural and probable consequences of the breach; if in
Held: The essential elements of a cause of action are
bad faith, then he would be liable for all damages w/c may
be reasonably attributed to the breach. The same is true
with the moral and exemplary damages w/c Magat seeks
to claim from Guerrero. Therefore, because the complaint
Ratio: is sufficient, the case was remanded to the court of origin
for further proceedings.
The Court held that the test of legal sufficiency of the
cause of action was adequately satisfeied. The complaint
recited the circumstances which led to the contract’s
perfection, the fulfillment of Magat of his part of the Loraine Mendoza
bargain, and Guerrero’s failure to comply with his
obligations by refusing to open a letter of credit to cover
the payment of the goods ordered by him.

III. Remedies of Creditor in Case of Breach

A. Action for Performance (Substituted Performance)


Ponente: Reyes, JBL, J.

Legal Doctrine: A person shall be liable for the cost of defendant the money to buy the spare parts, the
executing the obligation he failed to do. defendant was still unable to fix the typewriter.
Exasperated with the delay, the plaintiff took back the
typewriter from the defendant. Defendant returned the
typewriter in shambles (not fixed and essential parts were
Facts : missing). The plaintiff then had his typewriter fixed by a
3 party costing Php 89.85. He then files to claim from
Plaintiff contracted the defendant to fix his typewriter.
the defendant 90 for actual and compensatory damages,
Despite several demands of the plaintiff after giving the

100 for temperate damages and 500 for moral damages Ratio:
and 500 for attorney’s fees.
Although the contract of cleaning and servicing the
While the defendant claims that he is not liable for typewriter between the parties did not specify the time,
anything since the contract between him and the the defendant in returning the typewriter without having it
petitioner did not have a period hence he insists that that fixed, returning it with essential parts missing and without
the plaintiff should first fix the period before he can be demanding for more time to finish the job amounts that
held liable under Art. 1197 for breach of contract. the contract was perfected and that none performance of
his obligation is an outright breach of contract. Filing to fix
CFI awarded 31.10(total value of missing parts) and cost the period of the contract before he can be held liable
of suit, hence this direct appeal by the petitioner under Art 1197 would be just academic for the period
unsatisfied with the claims awarded to him. would just be mere formality. Defendant would be held
liable under Art 1167 for the cost of fixing the typewriter
by a 3 party (58.75) and cost of the missing parts and
failure to return it in the same condition it was received
Issues/ Held: Will the defendant be held liable for the
under Art 1170 (31.10).
execution of the obligation he failed to do? YES
However moral, temperate damages were not alleged in
the complaint hence no factws can be found to base the
award the claim.

Mary Mendoza


Jacinto Tanguilig, under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. Court
of Appeals and Vicente Herce, Jr., respondents

Ponente: Bellosillo, J.

Facts: Respondent Herce claimed that since the deep well

formed part of the system, the P15, 000 he paid to San
On April 1987, petitioner Jacinto M. Tanguilig doing Pedro General Merchandising Inc. (SPGMI) should be
business under the name and style J.M.T. Engineering credited to his account by petitioner and assuming that
and General Merchandising proposed to respondent respondents owed petitioner a balance of P15, 000.00,
Vicente Herce Jr. to construct a windmill system for him. this should be offset by the defects in the windmill system
After some negotiations they agreed on the construction which caused the structure to collapse after a strong wind
of the windmill for a consideration of P60, 000.00 with a hit their place.
one-year guaranty from the date of completion and
acceptance by respondent Herce Jr. of the project. Petitioner stated in his counterclaim that the construction
Pursuant to the agreement respondent paid petitioner a of a deep well was not included in the agreement to build
down payment of P30, 000.00 and an installment the windmill system. The contract price of P60, 000.00
payment of P15, 000.00, leaving a balance of P15, was solely for the windmill assembly and its installation,
000.00 exclusive of other incidental materials needed for the
project. He also disowned any obligation to repair or
On March 14, 1988, due to the refusal and failure of reconstruct the system and insisted that he delivered it in
respondent to pay the balance, petitioner filed a complaint good and working condition to respondent who accepted
to collect the amount. the same without protest. He claims that the collapse was

attributable to a typhoon, a force majeure, which relieved parties shall be accorded primordial consideration and, in
him of any liability. case of doubt, their contemporaneous & subsequent acts ͵ʹ
shall be principally considered.
RTC ruled in favor of plaintiff-petitioner: It ruled that the
construction of the deep well was not part of the windmill If indeed the deep well were part of the windmill project,
project & that there is no clear and convincing proof that the contract for its installation would have been strictly a
the windmill system fell down due to the defect of the matter between petitioner and SPGMI with the former
construction. assuming the obligation to pay the price. But it was
respondent who paid for it. Moreover, if the price of
CA reversed the decision of the RTC. It ruled that the P60,000.00 included the deep well, the obligation of
construction of the deep well was included in the respondent was to pay the entire amount to petitioner
agreement of the parties because the term "deep well" without prejudice to any action that Guillermo Pili or
was mentioned in both proposals. It also rejected SPGMI may take, if any, against the latter.
petitioner's claim of force majeure and ordered the latter
to reconstruct the windmill in accordance with the Also, Guillermo Pili’s claim (witness from SPGMI) that
stipulated one-year guaranty. The Motion for Herce Jr. wrote him a letter asking him to build a deep
Reconsideration was also denied, hence the present well pump as part of the price/contract Herce had with
petition. Tanguilig is unsubstantiated.

Issue(s): (2) Yes. He can not claim exemption by reason of force

majeure. In order for a party to claim exemption from
(1) Whether the installation of a deep well was included in liability by reason of fortuitous event under Art. 1174 of
the agreement to construct the windmill system the Civil Code the event should be the sole and proximate
cause of the loss or destruction of the object of the
(2) Whether petitioner is under obligation to reconstruct contract. Four requisites must concur: (a) the cause of the
the windmill after it collapsed and to bear the costs. breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforeseeable or
(3) Whether private respondent is already in default in the
unavoidable; (c) the event must be such as to render it
payment of his outstanding balance.
impossible for the debtor to fulfill his obligation in a normal
manner; and, (d) the debtor must be free from any
participation in or aggravation of the injury to the creditor.
Dispositive: (Nakpil v CA)

Judgment modified. Herce is directed to pay balance of In this case, the petitioner failed to show that the collapse
P15, 000 with interest. Tanguilig ordered to reconstruct of the windmill was due solely to a fortuitous event. A
subject defective windmill system, in accordance with the strong wind in this case cannot be fortuitous —
one-year guaranty, within 3 months from the finality of unforeseeable nor unavoidable. On the contrary, a strong
decision. wind should be present in places where windmills are
constructed, otherwise the windmills will not turn.

Regarding the cost of the reconstruction, Art. 1167, of the

Held/ Ratio: Civil Code states that “ if a person obliged to do
something fails to do it, the same shall be executed at his
(1) No. Nowhere in either of the two proposals is the cost.” Thus, when the windmill failed to function properly it
installation of a deep well mentioned, even remotely. The became incumbent upon the petitioner to institute the
words "deep well" preceded by the prepositions "for" and proper repairs in accordance with the guaranty stated in
"suitable for" were meant only to convey the idea that the the contract.
proposed windmill would be appropriate for a deep well
pump with a diameter of 2 to 3 inches.

Where the terms of the instruments are clear and leave (3)No. Art. 1169 of the Civil Code provides that “In
no doubt as to their meaning, they should not be reciprocal obligations, neither party incurs in delay if the
disturbed. In interpreting contracts, the intention of the other does not comply or is not ready to comply in a

proper manner with what is incumbent upon him.” In the repair the system, the respondent Herce cannot be said
present case, it became incumbent upon the petitioner to have incurred delay. ͵͵
Tanguilig to institute proper repairs in accordance with the
guaranty, when the windmill failed to function properly.
Since Tanguilig has not complied with his obligation to
Andrei Milaor

IV. Subsidiary Remedies of Creditor

B. Accion Pauliana



Ponente: Kapunan, J.

Legal Doctrine: An accion pauliana accrues only when to Butuan City on January 17, 1997, to enforce the writ of
the creditor discovers that he has no other legal remedy execution, they discovered that Khe Hong no longer had
for the satisfaction of his claim against the debtor other any property and that he had conveyed the subject
than an accion pauliana (read with Art 1150 CC) properties to his children.

Facts: On February 25, 1997, Philam filed a complaint with

Makati RTC for the rescission of the deeds of donation
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner executed by petitioner Khe Hong Cheng in favor of his
of Butuan Shipping Lines. On October 4, 1985, the children. Petitioners subsequently filed their answer to the
Philippine Agricultural Trading Corporation shipped on complaint and moved for its dismissal on the ground that
board the vessel M/V Prince Eric 3,400 bags of copra at the action has already prescribed. Trial court denied the
Masbate, Masbate, for delivery to Dipolog City, motion to dismiss holding that complaint had not yet
Zamboanga del Norte. The shipment was covered by a prescribed and prescriptive period began to run only from
marine insurance policy issued by American Home Dec 29, 1993, the date of the decision of the trial court.
Insurance Company (respondent Philam’s assured). M/V CA affirmed the TC’s decision but stated that the four
Prince Eric sank somewhere between Negros Island and year period to institute the action for rescission began to
Northeast Mindanao, resulting in the total loss of the run only in January 1997, the time when it first learned
shipment. The insurer, American Home, paid the amount that the judgment award could not be satisfied because
of P345, 000.00 to the consignee. the judgment creditor had no more properties.

American Home filed a civil case in Makati RTC to

recover the money paid to the consignee, based on
breach of contract of carriage. While the case was Issue: When did the four year prescriptive period as
pending, Khe Hong Cheng executed deeds of donations provided for in Article 1389 of the Civil Code for
of parcels of land in favor of his children Sandra Joy and respondent Philam to file its action for rescission of the
Ray Steven on December 20, 1989. The trial court then subject deeds of donation commence to run?
rendered judgment against Khe Hong on December 29,
1993, four years after the donations were made.

Despite earnest efforts, the sheriff found no property Held: It commenced on January 1997. The petition is
under the name of Butuan Shipping Lines or Khe Hong without merit.
Cheng to levy for the satisfaction of the court’s decision.
When the sheriff, accompanied by Philam’s counsel, went

Ratio: 3) that the creditor has no other legal remedy to

Article 1389 of CC simply provides that “The action to

satisfy his claim, but would benefit by rescission ͵Ͷ
of the conveyance to the third person;
claim rescission must be commenced within four years.”
This provision is silent as to when the prescriptive period 4) that the act being impugned is fraudulent;
would commence, the general rule, i.e., from the moment
the cause of action accrues, therefore applies. Article 5) that the third person who received the
1150 of the CC is instructive: property conveyed, if onerous title, has been an
accomplice in the fraud.
Article 1150. The time for prescription for all
kinds of actions, when there is no special An accion pauliana presupposes the following: 1) A
provision which ordains otherwise, shall be judgment; 2) the issuance by the trial court of a writ of
counted the day they may be brought. execution for the satisfaction of the judgment; and 3) the
failure of the sheriff to enforce and satisfy the judgment of
This court enunciated the principle that it is the legal the court. It requires that the creditor has exhausted the
possibility of bringing the action which determines the property of the debtor. Respondent Philam only learned
starting point for the computation of the prescriptive about the unlawful conveyances made by the petitioner
period for the action. Article 1383 provides: Khe Hong Cheng in January 1997. It was only then that
the respondent Philam’s action for rescission of the deeds
Article 1383. An action for rescission is of donation accrued because then it could be said that
subsidiary; it cannot be instituted except when respondent Philam had exhausted all legal means to
the party suffering damage has no other satisfy the trial court’s judgment in its favor.
legal means to obtain reparation for the same.

It is apparent that an action to rescind or an accion

pauliana must be of last resort, availed of only after all the Arman Mislang
other legal remedies have been exhausted and have
been proven futile. The requisites of accion pauliana are
as follows:

1) that the plaintiff asking for rescission has a

credit prior to the alienation, although
demandable later;

2) that the debtor has made a subsequent

contract conveying a patrimonial benefit to a
third person;



Ponente: Davide, Jr., C.J.

Facts: violation of BP 22 was filed by petitioner against LIM. The

lower court convicted LIM as charged.
On 25 and 26 August 1990, Respondent LIM issued two
Metrobank checks that were dishonored for the reason of It also appears that LIM was previously convicted of
a closed account. Demands to make good the checks estafa by the RTC of Quezon City. On appeal, however,
proved futile and as a consequence, a criminal case for the Supreme Court acquitted LIM but held her civilly

Meanwhile, on 2 July 1991, a Deed of Donation following requisites must be present: (1) the plaintiff
conveying 4 parcels of land situated at Cebu City and asking for rescission has a credit prior to the alienation, ͵ͷ
purportedly executed by LIM on 10 August 1989 in favor although demandable later; (2) the debtor has made a
of her children, Linde, Ingrid and Neil, was registered with subsequent contract conveying a patrimonial benefit to a
the Office of the Register of Deeds of Cebu City. New third person; (3) the creditor has no other legal remedy to
transfer certificates of title were thereafter issued in the satisfy his claim; (4) the act being impugned is fraudulent;
names of the donees. (5) the third person who received the property conveyed,
if it is by onerous title, has been an accomplice in the
On 23 June 1993, petitioner filed an accion pauliana fraud.
against LIM and her to rescind the questioned Deed of
Donation and to declare as null and void the new transfer In the instant case, the alleged debt of LIM in favor of
certificates of title issued for the lots covered by the petitioner was incurred in August 1990, while the deed of
questioned Deed. Petitioner claimed that LIM, through a donation (a public document)was purportedly executed on
Deed of Donation, fraudulently transferred all her real 10 August 1989.
property to her children in bad faith and in fraud of
creditors, including her; that LIM conspired and SEC. 23. Rule 132 of the Rules of Court. Public
confederated with her children in antedating the documents as evidence. – Documents consisting of
questioned Deed of Donation, to petitioner’s and other entries in public records made in the performance of a
creditors’ prejudice; and that LIM, at the time of the duty by a public officer are prima facie evidence of the
fraudulent conveyance, left no sufficient properties to pay facts therein stated. All other public documents are
her obligations. evidence, even against a third person, of the fact which
gave rise to their execution and of the date of the latter.
On the other hand, LIM denied any liability to petitioner.
She claimed that her previous conviction was erroneous. The fact that the questioned Deed was registered only on
As to the questioned Deed of Donation, she maintained 2 July 1991 is not enough to overcome the presumption
that it was not antedated but was made in good faith at a as to the truthfulness of the statement of the date in the
time when she had sufficient property and that it was questioned deed, which is 10 August 1989. Petitioner’s
registered only on 2 July 1991 because she was seriously claim against LIM was constituted only in August 1990, or
ill. a year after the questioned alienation. Thus, the first two
requisites for the rescission of contracts are absent.
Although the trial court ordered the rescission of the
questioned deed of donation, the Court of Appeals, Under Article 1381 of the Civil Code, contracts entered
reversed its decision and dismissed petitioner’s accion into in fraud of creditors may be rescinded only when the
pauliana. It held that two of the requisites for filing an creditors cannot in any manner collect the claims due
accion pauliana were absent, namely, (1) there must be a them. It is, therefore, essential that the party asking for
credit existing prior to the celebration of the contract; and rescission prove that he has exhausted all other legal
(2) there must be a fraud, or at least the intent to commit means to obtain satisfaction of his claim. Petitioner
fraud, to the prejudice of the creditor seeking the neither alleged nor proved that she did so. On this score,
rescission. her action for the rescission of the questioned deed is not
maintainable even if the fraud charged actually did exist.”

The fourth requisite for an accion pauliana to prosper is

Issue: W/N the questioned Deed of Donation was made
not present either.
in fraud of petitioner and, therefore, rescissible.
Article 1387, first paragraph, of the Civil Code provides:
“All contracts by virtue of which the debtor alienates
Held/Ratio: property by gratuitous title are presumed to have been
entered into in fraud of creditors when the donor did not
Article 1381 of the Civil Code enumerates the contracts reserve sufficient property to pay all debts contracted
which are rescissible, and among them are “those before the donation. Likewise, Article 759 of the same
contracts undertaken in fraud of creditors when the latter Code, second paragraph, states that the donation is
cannot in any other manner collect the claims due them.” always presumed to be in fraud of creditors when at the
time thereof the donor did not reserve sufficient property
The action to rescind contracts in fraud of creditors is to pay his debts prior to the donation.
known as accion pauliana. For this action to prosper, the

For this presumption of fraud to apply, it must be therefore, sufficiently established that the properties left
established that the donor did not leave adequate behind by LIM were not sufficient to cover her debts ͵͸
properties, which creditors might have recourse for the existing before the donation was made. Hence, the
collection of their credits existing before the execution of presumption of fraud will not come into play.
the donation.
Accordingly, since the four requirements for the rescission
Petitioner’s alleged credit existed only a year after the of a gratuitous contract are not present in this case,
deed of donation was executed. She cannot, therefore, petitioner’s action must fail.
be said to have been prejudiced or defrauded by such
alienation. When the deed of donation was executed,
LIM still had properties in Cebu and Leyte. It was not,
Sophia Mo

V. Extinguishment of Liability in Case of Breach Due to Fortuitous Event


Juan Nakpil & Sons, and Juan F. Nakpil, petitioners, vs. Court of Appeals, United Construction Company, Inc., Juan J.
Carlos, and the Philippine Bar Association, respondents

United Construction Co., Inc., petitioner, vs. Court of Appeals, et al., respondents

Philippine Bar Association, et al., petitioners, vs. Court of Appeals, et al., respondents

Ponente: Paras, J.

Legal Doctrine: One who negligently creates a contractors to follow plans and specifications, and
dangerous condition cannot escape liability for the natural violations by the defendants of the terms of the contract.
and probable consequences thereof, although the act of a Defendants in turn filed a third-party complaint against the
third person, or an act of God for which he is not architects who prepared the plans and specifications
responsible, intervenes to precipitate the loss (Tucker vs. alleging in essence that the collapse of the building was
Milan). due to the defects in the plans and specifications. The
parties agreed to refer the technical issues involved in the
case to a Commissioner while the non-technical issues
were tried by the court.

The plaintiff, Philippine Bar Association (PBA), contracted

the defendant, United Construction Co., Inc. (UCCI), for Issue: W/N an act of God (earthquake) exempts from
the construction of an office building in Intramuros. The liability parties who are otherwise liable because of their
plans and specifications for the building were prepared by negligence
third-party defendants Juan F. Nakpil & Sons (Nakpils).
On August 2, 1968, an unusually strong earthquake hit
Manila and the building in question sustained major
damage. The front columns of the building buckled, Held/Ratio:
causing the building to tilt forward dangerously.
Art. 1723, CC provides that the engineer or architect who
The plaintiff commenced an action for the recovery of drew up the plans and specifications for a building is
damages arising from the partial collapse of the building liable for damages if within 15 years from the completion
against UCCI and its President and General Manager of the structure the same should collapse by reason of a
Juan J. Carlos as defendants alleging that the collapse defect in those plans and specifications, or due to the
was caused by defects in the construction, failure of the defects in the ground. On the other hand, the general

rule is that no person shall be responsible for events by the violence of nature and all human agencies are to
which could not be foreseen or which though foreseen, be excluded from creating or entering into the cause of ͵͹
were inevitable (Art. 1174, CC). the mischief. When the effect is found to be in part the
result of the participation of man, whether from active
An “act of God” has been defined as an accident, due intervention or neglect or failure to act, the whole
directly and exclusively to natural causes without human occurrence is humanized and removed from the rules
intervention, which by no amount of foresight, pains or applicable to the acts of God. When the negligence of a
care, reasonably to have been expected, could have been person concurs with an act of God in producing a loss,
prevented. To exempt the obligor from liability under Art. such person is NOT exempt from liability by showing that
1174, CC for a breach of an obligation due to an act of the immediate cause of the damage was the act of God.
God, the following must concur:
The negligence of the defendant and the third-party
1. The cause of the breach of the obligations must defendants was established beyond dispute. The UCCI
be independent of the will of the debtor was found to have made substantial deviations from the
plans and specifications, failed to observe the requisite
2. The event must be either unforeseeable or workmanship in the construction as well as to exercise
unavoidable the requisite degree of supervision. The Nakpils, on the
other hand, were found to have inadequacies or defects
3. The event must be such as to render it
in the plans and specifications prepared by them. For
impossible for the debtor to fulfill his obligation in
these reasons, the defendant and third-party defendants
a normal manner
CANNOT claim exemption from liability in case of breach
4. The debtor must be free from any participation due to an act of God or fortuitous event.
in, or aggravation of, the injury to the creditor

The principle embodied in the act of God doctrine strictly

Eden Mopia
requires that the act must be one occasioned exclusively


Republic of the Philippines, plaintiff-appellee, vs. Luzon Stevedoring Corporation, defendant-appellant

Ponente: Reyes, J.B.L., J.

Facts: of its employees; that the damages to the bridge were

caused by force majeure; that the Nagtahan bailey bridge
A barge owned by the Luzon Stevedoring Corporation is an obstruction to navigation; and that the plaintiff has
was being towed down the Pasig river by tugboats no personality to sue. The trial court did not find merit on
“Bangus” and “Barbero” also owned by the same the defenses and awarded the damages in favor of the
corporation. Unfortunately, the barge rammed against one republic. Aggrieved, the defendant holding on to the last
of the wooden piles of the Nagtahan bailey bridge, strand of hope appealed the case to the Supreme Court.
smashing the posta and causing the bridge to list. The The defendant desperately insisted that: (1) the ramming
river , at that time, was swollen and the current was swift of the Nagtahan bridge was caused by force majeure; (2)
on account of the heavy downpour on Manila and the that the bridge was an obstruction to navigation; and (3)
surrounding provinces. that the damage was caused by improper placement of
The Republic of the Philippines sued the corporation for
actual and consequential damages caused by its
employees. The Luzon Stevedoring disclaimed liability by
postulating the following grounds as a defense: that it had Issue: The core issue that is germane to the resolution of
exercised due diligence in the selection and supervision the case is whether the collision of appellant’s barge was

in contemplation of law caused by fortuitous event or must be one impossible to foresee or avoid. The
force majeure. defendant corporation knowing and appreciating the perils ͵ͺ
posed by the swollen stream and its swift current,
voluntary entered into a situation involving obvious
danger. It therefore assured the risk and cannot shed
Held: The defenses were not impressed with merit. The responsibility merely because the precaution it adopted
award of damages in favor of the republic was sustained. turned out to be insufficient.

The defendant aught to argue that the bridge and the

dolphins are improperly located but, even if true, this
circumstances would only emphasize the need of even
Caso Fortuito or Force Majeure by definition are higher degree of care.
extraordinary events not foreseeable or avoidable. It is
therefore not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it Mark Oyales


Pedro Dioquino, petitioner, vs. Federico Laureano, Aida de Laureano, Juanito Laureano, respondents

Ponente: Fernando, J.

Legal Doctrine: Mere difficulty to foresee an event is not Issues/Held:

equivalent to “impossibility” of foreseeing the same.
[1] Whether the defendant Federico is liable and should
pay damages, since the damage resulted from a
fortuitous event anyway. NO.
[2] Whether the plaintiff Pedro should pay damages for
Federico borrowed the car of Pedro. But then a boy threw the unwarranted inclusion of the defendant’s wife and
a stone while playing pranks with his friends, breaking the father in the suit. NO.
car’s windshield. Pedro did not press charges against the
boy and his parents, and an amicable settlement between
Pedro and Federico was even tried. But since Federico
refused to pay for the repairs, Pedro filed suit against Ratio:
Federico for damages (and also against Federico’s wife
and father). The lower court ruled against Federico, but [1] Federico should not be made responsible for the
absolved his wife and father. All three appeal to the SC. damages of the broken windshield. What had happened
was clearly unforeseen and unavoidable, a fortuitous
Art. 1174 (CC) – “Except in cases expressly specified by event exempting the obligor from liability because of
the law, or when it is otherwise declared by stipulation, or some extraordinary circumstance independent of the
when the nature of the obligation requires the assumption obligor’s will (caso fortuito or force majeure).
of risk, no person shall be responsible for those events
which could not be, foreseen, or which, though foreseen Note, however, that mere difficulty to foresee an event is
were inevitable.” NOT “impossibility” to foresee the same. So where one
voluntarily entered into a situation involving some obvious
danger whose effects are “difficult” to foresee, one cannot
shed liability (Republic v. Luzon Stevedoring). But in the
instant case, since Federico could absolutely not have
foreseen/avoided such stone-throwing, there is caso

fortuito, and he is not bound to assume a risk of this

nature. The lower court erred in finding Federico liable
Disposition: Lower court decision reversed (insofar as it
and in making him pay P30,000.00 in damages.
ordered Federico to pay P30, 000.00 as damages plus
costs), but affirmed (insofar as the other two defendants
are absolved). No moral damages should be awarded.
[2] Plaintiff (a lawyer) ought to have exercised greater
care in selecting the parties whom to file suit against. But
he is not to be penalized further by his mistaken view of
including the wife and father. (It cannot be said that he JC Punongbayan
merely wanted to inflict needless vexation on the two.)


Guillermo Austria, petitioner, vs. The Court of Appeals (Second Division), Pacifico Abad and Maria G. Abad, respondents

Ponente: Reyes, J.B.L., J.

Legal Doctrine: Fortuitous events exempt a debtor from Court of Appeals: Reversed the trial court judgment and
responsibility, provided that he did not act with fault or relieved the Abad spouses from liability. Held that the fact
negligence. of the robbery was duly established and that the Abad
spouses were not responsible for the loss of the pendant
because of the fortuitous event.

Facts: Austria elevated the matter to the SC claiming that the CA

erred in finding the fact of robbery although nobody was
On January 1961, Guillerma Austria consigned one found guilty. She contends that for robbery to fall under
pendant with diamonds (valued at Php 4,500.00) to Maria fortuitous events, there must be a final judgment
G. Abad to be sold on commission basis or to be returned convicting persons responsible for it.
on demand

On February 1961, Abad claimed to have been robbed by

two men while she was walking on her way home. The Issues:
robbers snatched her purse which contained jewelry and
cash, among them was the consigned pendant with 1. Whether or not it is necessary that there be a
diamonds. Abad filed a criminal case in the CFI of Rizal prior conviction for robbery before the loss of an
against certain persons but nobody was found guilty of article shall exempt the consignee from liability in
the alleged crime. a contract of agency (consignment of goods for
When Austria demanded the return of the pendant, Abad
failed to return it or pay its value. Hence, Austria filed an 2. Whether or not Abad is guilty of negligence
action against Abad and her husband for the recovery of
the pendant or its value and damages.

Trial Court: Held that the Abad spouses failed to prove Held/Ratio:
the fact of robbery and that Maria Abad was guilty of
negligence when she went home alone knowing that it 1. NO, prior conviction for robbery is not necessary
was dark and she was carrying cash and other valuables for it to be considered a fortuitous event. Art.
with her. The trial court ordered the Abad spouses to pay 1174 CC states that no person shall be
Austria the sum of Php 4,500.00, with legal interest responsible for those events which could not be
thereon, plus Php 450.00 for attorney’s fees. foreseen, or though foreseen, were inevitable.
The provision stresses the events, not the

agents or factors responsible for them. To their obligations can be held liable for damages.
constitute a fortuitous event based on Art. 1174 Although there has been an increase in the ͶͲ
of the CC, it is not a requirement that the criminality in the streets of Manila over the years,
persons responsible for the occurrence be in 1961, when the robbery took place, the
punished. Instead, mere preponderance of conditions were different. During that time,
evidence that the unforeseeable event took crimes were not very rampant. Therefore, it can
place without the debtor’s fault is sufficient to be be said that Abad was not negligent in walking
exempt from responsibility. home alone late at night.

2. NO, Abad did not manifest negligence in her

actions. Art. 1170 CC states that those guilty of
fraud, negligence, or delay in the performance of Raffi Reyes


National Power Corporation, petitioner, vs. Hon. Court of Appeals and Engineering Construction, Inc., respondents

Engineering Construction, Inc., petitioner, vs. Court of Appeals and National Power Corporation, respondents

Ponente: Gutierrez, J.

Legal Doctrine: There is negligence on the part of NPC accessories either washed away, lost or destroyed in the
because they knew that a storm was coming and thus IPO site
should have prepared. When an act of God concurs with
the negligence of man, he is not exempt from liability The lower court found NPC negligent and awarded actual
arising from it. and compensatory damages to ECI

CA affirmed lower court's decision except for the award

for consequential damages of P332,000. This was
Facts: awarded by lower court for the damage for the rental of a
crane to replace the one that was damaged beyond repair
Engineering Construction Inc (ECI) won the bidding and and for the 1month bonus of ECI would have had if not for
executed a contract with NAWASA wherein they would the damage it received. CA argued that he computation of
furnish all tools, equipments, labor and materials and to damages must not include the new crane they bought but
construct the 2nd lpo-Bicti Tunnel, Intake and Outlet only the rentals of a crane which only amounts to P19,200
Structures, and Appurtenant Structures, and Appurtenant and the repair of the old crane which P77,000. In regards
Features, at Norzagaray, Bulacan to be completed in 800 to the bonus damage, it must not be awarded since the
calendar days. incident occurred after 1,170 days, thus no bonus could
have been possibly received by ECI even if their materials
The first phase of excavating the tunnel was completed were not damaged.
and all unneeded materials from the Bicti site was
transferred to the Ipo Site. NPC now files an appeal to SC o reverse the decision
because the damages was a result of force majeure. On
However, Typhoon Welming came and due to the the other hand, ECI files an appeals and assails the
alarming rising level of the Angat Dam, the defendant reduction of the consequential damages.
NPC opened the spillage gates which caused terrific
impact and damages to ECI's stockpile of materials and
supplies, camp facilities and permanent structures and
Issue: WON NPC was liable for the damages on ECI?

Held: Yes, they are liable When the negligence of a person concurs with an act of
God in producing a loss. Such person is not exempt from Ͷͳ
liability by showing that the immediate cause of the
damage was the act of God.
Thus, in the case at hand, there being negligence on the
The fact that they knew that the storm Welming was part of the NPC, they are not exempt from liability from
coming 4 days prior to its arrival, they should have the damage caused by the opening of the flood gates due
prepared for it and started to gradually release the water to the typhoon.
from the Angat Dam. Though the typhoon was an act of
God or a fortuitous event (force majeure), the proximate The finding of the CA which is based on facts is generally
cause for the loss or damage still falls on NPC. held final and conclusive. CA was correct in reducing the
consequential damages.

In relation of Heading in syllabus: Effect of Concurrent

Fault Andrew Santiago


Alberta Yobido and Cresencio Yobido, petitioners, vs. Court of Appeals, Leny Tumboy, Ardee Tumboy, and Jasmin Tumboy,

Ponente: Romero, J.

Legal Doctrine: A common carrier may not be absolved The defendants, on the other hand, tried to establish that
from liability in case of force majeure or fortuitous event the accident was due to a fortuitous event. They
alone. The common carrier must still prove that it was not contended that the tire was new and that driver applicants
negligent in causing the death or injury resulting from an in Yobido Liner underwent actual driving tests before
accident. getting hired.

The lower court rendered a decision holding that the

accident was due to a fortuitous event. The CA reversed
Facts: the ruling and held the defendants liable.

The left front tire of a Yobido Liner bus that the Tumboy
family was riding exploded, resulting to the death of Tito
Tumboy (the father) and physical injuries to other Issue: WON the explosion of the newly installed tire is a
passengers. fortuitous event that exempts Yobido from liability for the
death of Tumboy.
A complaint for breach of contract of carriage was filed by
Leny Tumboy and her children against Alberta Yobido,
owner of the bus, and Cresencio Yobido, its driver. They
asserted that the driver failed to exercise the diligence Held/Ratio:
required of the carrier in transporting passengers safely to
their place of destination. Leny Tumboy contended that NO. Defendants should be held liable. Art. 1756 of the
the road was not cemented and was wet due to rain. The Civil Code provides:
bus was running fast and she cautioned the driver to slow
Art. 1756. In case of death of or injuries to passengers,
down but he merely stared at her.
common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they

observed extraordinary diligence as prescribed in Articles The explosion of the new tire may not be considered a
1733 and 1755. fortuitous event. There are human factors in the situation, Ͷʹ
such as manufacturing defects or improper mounting on
When a passenger is injured or dies while travelling, the the vehicle. It is settled that defects in automobile or
law presumes that the common carrier is negligent. This through the negligence of its driver is not a caso fortuito
presumption can be overcome by evidence that the that would exempt the carrier from liability for damages.
carrier had observed extraordinary diligence or that the
death or injury of the passenger was due to a fortuitous Moreover, a common carrier may not be absolved from
event. liability in case of force majeure or fortuitous event alone.
The common carrier must still prove that it was not
A fortuitous event has the following characteristics: (a) the negligent in causing the death or injury resulting from an
cause of the unforeseen and unexpected occurrence, or accident.
the failure of the debtor to comply with his obligations,
must be independent of human will; (b) it must be Finally, defendants failed to rebut the presumption of
impossible to foresee the event which constitutes the negligence of the carrier in law. They failed to rebut
caso fortuito, or if it can be foreseen, it must be Leny’s testimony that the bus was running fast and she
impossible to avoid; (c) the occurrence must be such as cautioned the driver to slow down. This must be resolved
to render it impossible for the debtor to fulfill his in favor of liability in view of the presumption of
obligation in a normal manner; and (d) the obligor must negligence of the carrier.
be free from any participation in the aggravation of
the injury resulting to the creditor.

Elaine Tiu


Bacolod-Murcia Milling Co., Inc., petitioner, vs. Hon. Court of Appeals and Alonso Gatuslao, respondents

Bacolod-Murcia Milling Co., Inc., petitioner, vs. Hon. Court of Appeals, Alonso Gatuslao, Agro-Industrial Development of
Silay-Saravia (AIDSISA) and Bacolod-Murcia Agricultural Cooperative Marketing Association (BM-ACMA), respondents

Ponente: Paras, J.

Legal Doctrine: When an obligor is exempted from Since the crop year 1920-1921 to the crop year 1967-
liability due to fortuitous event or force majeure, the 1968, the canes of planters adhered to the mill of BMMC
following elements must concur: (a) the cause of the were transported from the plantation to the mill by means
breach of the obligation must be independent of the will of of cane cars and through the railway system operated by
the debtor; (b) the event must either be unforeseeable or BMMC. This railway system traversed the land of the
unavoidable; (c) the event must be such as to render it adherent planters, corresponding to the rights of way on
impossible for the debtor to fulfill his obligation in a normal their lands granted by the planters to BMMC for the
manner; and (d) the debtor must be free from any duration of the milling contracts.
participation in, or aggravation of the injury to the creditor.
1964-1965- Another planter, Hacienda Helvetia, had a
contract with BMMC which expired at the end of the 1964-
1965 crop year, the corresponding right of way of the
Facts: Hacienda Helvetia grated to the Central also expired. The
portion of the railway that traversed Hacienda Helvetia is
Bacolod-Murcia Milling Co., Inc (BMMC) is in the critical in the transportation of the sugar canes from the
business of milling sugar canes. It entered into various other plantations to the milling station.
milling contracts with planters, one being Alfonso
Gatuslao, the private respondent.

1965- BMMC filed a complaint for legal easement against Held/Ratio:

the owners of Hacienda Helvetia. The outcome of the
1. NO. The termination of BMMC’s right of way
case was not favorable to BMMC.
over Hacienda Helvetia was not a fortuitous
1967-1968- Writ of preliminary injunction was issued event.
which allowed BMMC to use the railroad tracks passing
through Hacienda Helvetia during the 1967-1968 milling Art 1174 of the Civil Code- Except in cases
season only, for the same purpose for which they have expressly specified by the law, or when it is
been previously used. otherwise declared by stipulation, or when the
nature of the obligation requires the assumption
1968-1969- BMMC was unable to use its railroad facilities of risk, no person shall be responsible for those
due to closure of portion of railway. events which, could not be foreseen, or which,
though foreseen, were inevitable.
1968 (Civil Case No. 8719)- Alfonso Gatuslao filed a case
against BMMC for breach of contract, praying among When an obligor is exempted from liability due to
others, for: fortuitous event or force majeure, the following
elements must concur: (a) the cause of the
Issuance of preliminary mandatory injunction ordering breach of the obligation must be independent of
defendant to immediately send transportation facilities the will of the debtor; (b) the event must either
and haul the already cut sugarcane to the mill site; be unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the
Judgment be rendered declaring the rescission of the debtor to fulfill his obligation in a normal manner;
milling contract executed in 1957 for seventeen (17) years and (d) the debtor must be free from any
up to crop year 1973-1974, invoking as ground the participation in, or aggravation of the injury to the
alleged failure and/or inability of defendant to comply with creditor.
its specific obligation of providing the necessary
transportation facilities. The terms of the milling contracts were clear
and undoubtedly there was no reason for BMMC
1968 (Civil Case No. 8715)- BMMC filed case against to expect otherwise. BMMC could have
Alfonso Gatuslao seeking (1) specific performance under anticipated and should have provided for the
the milling contract and praying for the (2) issuance of writ eventuality before committing itself.
of preliminary mandatory injunction to stop the alleged
violation of the contract by Gatuslao in confederation, Despite BMMC’s awareness of risk of closure of
collaboration and connivance with BM-ACMA, AIDSISA, a portion of its railway, it took the calculated risk
and for the (3) recovery of actual, moral and exemplary that all landowners would renew its contracts.
damages. For exemption to operate, there must be an
entire exclusion of human agency from the
1968-1969- BMMC hired trucks to haul the canes. cause of the injury or loss.

Present case is the consolidation of two (2) separate civil The closure of the railway lines was not an act of
cases (Civil Case No. 8719 and 8745). God, nor does it constitute force majeure. It was
due to termination of contractual relationships,
for which petitioner is charged with knowledge.

1. WON the termination of BMMC’s right of way

2. YES. Alfonso Gatuslao has the right to ask for
over Hacienda Helvetia caused by the expiration
the rescission of the contract.
of its milling contracts is a fortuitous event of
force majeure which will exempt BMMC from The contract in question involves reciprocal
fulfillment of its contractual obligations. obligations; as such party is a debtor and
creditor of the other, such that the obligation of
2. WON private Respondent Alfonso Gatuslao has
one is dependent upon the obligation of the
the right to rescind the milling contract.
other. They are to be performed simultaneously
so that the performance of one is conditioned
upon the simultaneous fulfillment of the other.

The power to rescind obligations if implied in

reciprocal obligations in case one of the obligors
Karen Torres
should not comply with what is incumbent upon
him. It is well established that the party who
deems the contract violated may consider it
revoked or rescinded, even without prior court

BMMC was not able to provide adequate and

efficient transportation facilities of the canes of
Gatuslao and other planters milling with BMMC.
BMMC is guilty of breach of contract. The injured
party, Gatuslao, may choose between the
fulfillment and rescission of the obligation.


Philippine Communications Satellite Corporation, petitioner, vs. Globe Telecom, Inc., respondent

Ponente: Tinga, J.

Legal Doctrine: force majeure refers not only to events On September 16, 1991, Senate passes Senate
that are unforeseeable, but also to those which are Resolution No. 141, expressing its decision not to concur
forseeable, but inevitable in the ratification of the treaty of friendship, cooperation
and security that was supposed to extend the term of the
use by US of the naval base, among others.

Facts: On August 6, 1992, Globe notified Philcomsat of its

intention to discontinue to use of the earth station
Prior to 1991, Globe Telecom, Inc. (Globe) had been effective November 8, 1992 in view of the withdrawal of
engaged in the coordination of the provision of various US military personnel from Subic Naval Base
communication facilities for the military bases of US in
Clark Air Base, Angeles, Pampanga and Subic Naval Globe invoked as basis Section 8 of the Agreement which
Bases in Cubi Point, Zambales provides:

On May 7, 1991, Philcomsat and Globe entered into an “Neither party shall be held liable or deemed to be in
agreement default for any failure to perform its obligation under this
Agreement if such failure results directly or indirectly from
Philcomsat obligated itself to establish, operate and force majeure or fortuitous event. x x x force majeure
provide an IBS standard B earth station within Cubi point shall mean circumstances beyond the control of the party
for exclusive use of USDCA. Globe promised to pay involved including, but not limited to, any law, order,
rentals. The term was for 60 months or 5 years regulation, direction or request of the Government of the
Philippines, x x x “
At the time of execution, both parties knew that the MBA
between RP and US, which was the basis of occupancy After the US military forces left Subic Naval Base,
of Clark Air Base and Subic Naval Base, was to expire in Philcomsat sent Globe demanding payment of its
1991. outstanding obligations under the Agreement amounting
to US$4,910,136.00 plus interest and attorney’s fees.
Philcomsat installed and established the earth station and
However, Globe refused to heed Philcomsat’s demand.
USDCA made use of the same

extending the life thereof belonged to the

Issue: WON the non-ratification of the treaty constitutes

Senate. Ͷͷ
force majeure (2) the occurrence must render it impossible for
the debtor to fulfill the obligation in a normal

Held: Yes, it is force majeure Since the US military forces and personnel left or
withdrew from Cubi Point in the year end
December 1992, there was no longer any
necessity for the plaintiff to continue maintaining
the IBS facility
Art. 1174. Except in cases specified by the law, or when it
It is unjust to require Globe to continue paying
is otherwise declared by stipulation, or when the nature of
rentals even though Philcomsat cannot be
the obligation requires the assumption of risk, no person
compelled to perform its corresponding
shall be responsible for those events which, could not be
obligation under the Agreement.
foreseen, or which, though foreseen were inevitable.
(3) the obligor must be free of participation in, or
Philcomsat argues that non-ratification of the treaty
aggravation of, the injury to the creditor.
cannot constitute force majeure because the happening
thereof was foreseeable. However, court held that force Acts, direction or request of the Government of
majeure refers not only to events that are unforeseeable, the Philippines and the complete withdrawal of
but also to those which are foreseeable, but inevitable. all the military forces and personnel are acts and
circumstances beyond the control of the
(1) the event must be independent of the human
Art. 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
Philcomsat and Globe had no control over the deem convenient, provided they are not contrary to law,
non-renewal of the term of the RP-US Military morals, good customs, public order, or public policy.
Bases Agreement when the same expired in
Not being contrary to law, morals, etc. the agreement of
1991, because the prerogative to ratify the treaty
Globe and Philcomsat has the force of law between them

Camille Umali

VI. Usurious Transactions


Eastern Shipping Lines, Inc., petitioner, vs. Hon. Court of Appeals and Mercantile Insurance Company, Inc., respondents

Ponente: Vitug, J.

Facts: by defendant Eastern Shipping Lines, Inc. The shipment

was insured under plaintiffs Marine Insurance
December 4, 1981 - two Fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel owned December 12, 1981 – shipment arrived in Manila and was
then discharged unto the custody of defendant Metro Port

Service, Inc. The latter excepted to one drum, said to be regardless of whether there are others solidarily
in bad order, which damage was unknown to plaintiff liable with it. Ͷ͸
2. The legal interest to be paid is computed
January 7, 1982 - defendant Allied Brokerage Corporation from the decision, dated February 3, 1988, of the
received the shipment from defendant Metro Port Service, court a quo
Inc., one drum opened and without seal 3. The legal interest to be paid is SIX
PERCENT (6%) on the amount due computed
January 8 and 14, 1982 - defendant Allied Brokerage from the decision of the court a quo. A TWELVE
Corporation made deliveries of the shipment to the PERCENT (12%) interest, in lieu of SIX
consignee's warehouse. The latter excepted to one drum PERCENT (6%), shall be imposed on such
which contained spillages, while the rest of the contents amount upon finality of this decision until the
was adulterated/fake payment thereof.

Plaintiff contended that due to the losses/damage

sustained by said drum, the consignee suffered losses
totaling P19, 032.95, due to the fault and negligence of Ratio:
1. The common carrier's duty to observe the
As a consequence of the losses sustained, plaintiff was requisite diligence in the shipment of goods lasts
compelled to pay the consignee P19, 032.95 under the from the time the articles are surrendered to or
aforestated marine insurance policy, so that it became unconditionally placed in the possession of, and
subrogated to all the rights of action of said consignee received by, the carrier for transportation until
against defendants delivered to, or until the lapse of a reasonable
time for their acceptance by, the person entitled
The lower Court held that the shipment sustained to receive them
losses/damages under the custody of the defendants and
ordered them to pay the plaintiff, jointly and severally with When the goods shipped either are lost or arrive
the present legal interest of 12% per annum from October in damaged condition, a presumption arises
1, 1982, the date of filing of the complaints, until fully paid against the carrier of its failure to observe that
diligence, and there need not be an express
The defendants appealed regarding the decision of the finding of negligence to hold it liable
lower Court
Since it is the duty of the ARRASTRE to take
good care of the goods that are in its custody
and to deliver them in good condition to the
consignee, such responsibility also devolves
1. W/N a claim for damage sustained on a upon the CARRIER. Both the ARRASTRE and
shipment of goods can be a solidary, or joint and the CARRIER are therefore charged with the
several, liability of the common carrier, the obligation to deliver the goods in good condition
arrastre operator and the customs broker to the consignee
2. Whether the payment of legal interest on an
The instant petition has been brought solely by
award for loss or damage is to be computed
Eastern Shipping Lines, which, being the carrier
from the time the complaint is filed or from the
and not having been able to rebut the
date the decision appealed from is rendered
presumption of fault, is, in any event, to be held
3. Whether the applicable rate of interest, referred
liable in this particular case. A factual finding of
to above, is twelve percent (12%) or six percent
both the court a quo and the appellate court, we
take note, is that "there is sufficient evidence
that the shipment sustained damage while in the
successive possession of appellants" (the herein
Held: petitioner among them)

1. The liability imposed on Eastern Shipping Lines,

Inc., the sole petitioner in this case, is inevitable

2. Certain jurisprudence dictates as to when the discretion of the court 24 at the

legal interest would be computed and what rate of 6% per annum. 25 No Ͷ͹
interest would be used. As such, the Court laid interest, however, shall be
out the following guidelines: adjudged on unliquidated claims or
a. When an obligation, regardless of its damages except when or until the
source, i.e., law, contracts, quasi-contracts, demand can be established with
delicts or quasi-delicts 18 is breached, the reasonable certainty. 26
contravenor can be held liable for damages. Accordingly, where the demand is
19 The provisions under Title XVIII on established with reasonable
"Damages" of the Civil Code govern in certainty, the interest shall begin to
determining the measure of recoverable run from the time the claim is made
damages. 20 judicially or extrajudicially (Art.
1169, Civil Code) but when such
b. With regard particularly to an award of certainty cannot be so reasonably
interest in the concept of actual and established at the time the demand
compensatory damages, the rate of interest, is made, the interest shall begin to
as well as the accrual thereof, is imposed, run only from the date the
as follows: judgment of the court is made (at
x When the obligation is breached, which time the quantification of
and it consists in the payment of a damages may be deemed to have
sum of money, i.e., a loan or been reasonably ascertained). The
forbearance of money, the interest actual base for the computation of
due should be that which may have legal interest shall, in any case, be
been stipulated in writing. 21 on the amount finally adjudged.
Furthermore, the interest due shall
itself earn legal interest from the x When the judgment of the court
time it is judicially demanded. 22 In awarding a sum of money
the absence of stipulation, the rate becomes final and executory, the
of interest shall be 12% per annum rate of legal interest, whether the
to be computed from default, i.e., case falls under paragraph 1 or
from judicial or extrajudicial paragraph 2, above, shall be 12%
demand under and subject to the per annum from such finality until
provisions of Article 1169 23 of the its satisfaction, this interim period
Civil Code. being deemed to be by then an
equivalent to a forbearance of
x When an obligation, not credit.
constituting a loan or forbearance
of money, is breached, an interest
on the amount of damages
awarded may be imposed at the ADAPT 2009


Crismina Garments, Inc., petitioner, vs. Court of Appeals and Norma Siapno, respondents

Ponente: Panganiban J.

Facts: Crismina Garments, Inc. contracted the services of

Norma Siapno for sewing 20, 762 pieces of assorted girls’
denims. The petitioner was obliged to pay the respondent

for her services in the total amount of P76, 410. The thereafter, the interest shall be 12% per annum from the
respondent fulfilled her part of the obligation and time the judgment becomes final and executor until it is Ͷͺ
delivered the materials to petitioner who acknowledged fully satisfied.
the same in good order condition.

At first, respondent was informed that the sewing of some

of the pants was defective, though she was later told that Ratio:
the goods were already good. The petitioner, however,
failed to pay the respondent for her services. Likewise, The present case is an action for the enforcement of an
the vice-president/comptroller of Crismina Garments obligation for payment of money arising from contract for
wrote a letter to the respondent asserting that 6,164 of the a piece of work, thus the interest rate should be 6% per
pants which she delivered were defective, thus owing the annum pursuant to Article 2209 of the Civil Code, which
company the value of the damaged pairs of denim pants states that:
amounting to P49, 925.51.
‘If the obligation consists in the payment of
Hence, Siapno filed her complaint against Crismina money and the debtor incurs in delay, the indemnity for
Garments with the trial court for the collection of the damages, there being no stipulation to the contrary,
principal amount of P76, 410. Judgment was rendered in shall be the payment of the interest agreed upon, and in
favor of Siapno, ordering Crismina Garments, Inc. to pay the absence of stipulation, the legal interest, which is
the total sum with interest thereon at 12% per annum. 6% per annum.’

The Court of Appeals affirmed the trial court’s ruling, Private respondent’s contention that since the money
hence this petition for review. sought to be recovered by her is in the form of
forbearance, Central Bank Circular No. 416 should be
applied. The said circular provides that the prescribed
rate of interest for the loan or forbearance of any money,
Issue: WON it is proper to impose interest at the rate of goods or credits and the rate allowed in judgments, in the
12% per annum for an obligation that does not involve a absence of express contract as to such rate of interest,
loan or forbearance of money in the absence of shall be 12% per annum. Cases beyond the scope of the
stipulation of the parties said circular shall be governed by Article 2209 of the Civil

Since the amount due in this case did not arise from loan
Held: No, it is not proper to impose an interest at the rate or forbearance of money (see definition of forbearance in
of 12% per annum. The decision of the CA was modified, the previous page), the legal interest of 6% per annum
reducing the rate to 6% per annum. However, if the should be applied.
adjudged principal and the interest remain unpaid

 :,*;'0*0#<'3 %# )4' <,#)'=) ,6 >(2*5 ?0-3 *'6'*( ), )4'
<,#)*0<)201 ,;1%&0)%,# ,6 )4' 1'#$'* ,* <*'$%),* ), *'6*0%#3


Keng Hua Paper Products Co., Inc., petitioner, vs. Court of Appeals, RTC of Manila, Sea-land Service, Inc., respondents

Ponente: Panganiban, J.

Legal Doctrine: A bill of lading delivered and accepted the consignee, with full knowledge of its contents, gives
constitutes the contract of carriage even though not rise tao the presumption that the same was a perfected
signed. Acceptance of a bill of lading by the shipper and and binding contract.

Facts: x That it notified Sea-land about the wrong

Sea-land Service, Inc., a shipping company, shipped a

shipment through a letter. Ͷͻ
container containing unsorted waste paper from Hong
Kong to the Philippines. Said shipment was for Keng Hua
Paper Products Co., Inc. (Keng Hua). After said shipment Issues:
was discharged at Manila, notices of arrival were
transmitted to Keng Hua but the latter failed to discharge 1. Whether the petitioner is bound by the bill of
the shipment from the container during the grace period. lading
The shipment remained in the container for a total of 481 2. Whether the award of the sum of 67,340.00 to
days and the grace period already elapsed. Letters Sea-land is proper
demanding payment were sent by Sea-land Service, Inc. 3. Whether Keng Hua is correct in not accepting
to Keng Hua but the latter refused to settle its obligation. the overshipment
Numerous demands were made after but payment was 4. Whether the award of legal interest was proper
still not made. As such, Sea-land commenced a civil
action for collection and damages.
Held/ Ratio:
Keng Hua argues the following:
1. Yes. In this case, the bill of lading was held as a
x That from the 50 tons of waste paper that it
valid and perfected contract between the
purchased from the shipper in Hong Kong, there
shipper, the consignee and the carrier.
is only a remaining balance of 10 metric tons, as
Prolonged failure of petitioner to receive and
stated under the letter of credit. However, Sea-
discharge the cargo from the private
land is asking Keng Hua to accept 20 metric
respondent’s vessel constitute a violation of the
terms of the bill of lading.
x That if they will accept the shipment, they would
be violating Central Bank rules and regulations
and custom and tariff laws.
x That since they didn’t hire Sea-land to carry the 
merchandise, the latter has no cause of action D%11,610$%#&('*@'(),62#<)%,#(.!8E0(0*'<'%A)6,*)4'&,,$(
against them. The cause of action should be (4%AA'$F0#$98E0(0<,#)*0<);5-4%<4)4*''A0*)%'(3#07'153
against the shipper (Ho Kee) and not on them. )4' (4%AA'*3 )4' <0**%'* 0#$ )4' <,#(%&#'' 2#$'*)0G' (A'<%6%<

Petitioner Court
Although petitioner admits “physical acceptance” of the A bill of lading delivered and accepted constitutes the
bill of lading, it contends that it should not be bound by contract of carriage even though not signed. Acceptance
such because it never gave its consent thereto. of a bill of lading by the shipper and the consignee, with
full knowledge of its contents, gives rise to the
presumption that the same was a perfected and binding

Keng-Hua did not immediately object to any terms of the

bill of lading. It only made its objections six months after
it received the bill of lading. Petitioner’s inaction for such
a long period conveys the clear inference that it
accepted the terms and condition of the bill of lading.
It declined the acceptance of shipment as stated in the The significance of the notice is that it highlight’s
“Notice of Refused or On Hand Freight”, which that copy petitioner’s prolonged failure to object to the bill of
was sent to Ho Kee. Said decline was acknowledged by lading.
Sea-land. This action belies the finding that it accepted
the terms and conditions of the bill of lading.
It sent a letter to Sea-land stressing that its acceptance Said letter spoke only of Keng Hua’s inability to pick up
of the bill of lading would be tantamount to smuggling the cargo due to the shipper’s failure to comply with the
and could lay them vulnerable to legal sanctions for terms and conditions of the letter of credit. The letter
violation of customs, tariff and Central Bank law. This merely proved petitioner’s refusal to pick-up the cargo,
also action belies the finding that it accepted the terms not its rejection of the bill of lading.
and conditions of the bill of lading.

Petitioner can’t accept the obligation because receipt of Non-demonstration as to how it is legally impossible to
the shipment would cause it to violate customs, tariff and
central bank laws
accept the delivery cannot defeat the petitioner’s
contractual obligation and liability under the bill of lading.

2. Yes. The amount of demurrage charges in the shipper and the petitioner does not negate the
said sum is a factual conclusion of the Court. petitioner’s obligation to Sea-Land, which arises
Said demurrage resulted from the prolonged from the contract of transportation.
non-claim of the cargo.
4. No. The case involves an obligation not arising
3. No. The contract of carriage is different from the from a loan or forbearance of money. Thus, the
contract of carriage. The issue of overshipment legal interest rate is six percent. The rate of
must be dealt with the shipper and not with the twelve percent per annum shall be charged from
carrier. The discrepancy with what was delivered the time the judgment becomes final and
with what was only agreed with between the executory.


Security Bank and Trust vs. RTC of Makati

Ponente: Hermosisima, Jr., J.

Summary: The private respondent had executed three to the Usury Law, ordered Eusebio to pay his remaining
promissory notes in favour of the petitioner bank, all of debt under an interest rate of only 12% per annum.
which had an interest rate of 23% per annum. When he
failed to pay all three, the petitioner bank filed a collection
case and won. However, the lower court ordered the
private respondent to pay with the interest rate of a Issue: WON the 23% interest rate per annum agree
reduced 12% per annum. The Supreme Court held that upon by petitioner and private respondent is allowable
Central Bank Circular 905 allowed contracting parties to and not against the Usury Law
stipulate freely regarding any subsequent loan adjustment
in the interest rate that shall accrue to a loan. Only in the
absence of a stipulation could the court stipulate the 12% Held: Yes.
rate of interest.

PD 1684 empowered the Central Bank’s Monetary Board
Private respondent Eusebio executed three promissory to prescribe maximum rates of interest for loans and
notes in favor of Security and Trust Bank Co. as follows: certain forbearances. Pursuant to this, CB Circular no.
905 took effect in December 22, 1982 (before the
x April 27, 1983 --- 100 000 in 6 monthly
promissory notes were executed), and it provided that the
installments with interest rate of 23% per annum
rate of interest that may be charged or collected by any
x July 28, 1983 --- 100 000 in 6 monthly
person, whether natural or juridical, shall not be subject to
installments with interest rate of 23% per annum
any ceiling prescribed under or pursuant to the Usury
x August 31, 1983 --- 65 000 in 6 monthly Law.
installments with interest rate of 23% per annum
Furthermore, the 12% rate of interest shall be applied by
Upon his failure to pay, the bank filed a collection case the court only in the absence of stipulation.
against him and won. But the dispositive portion, pursuant

Lastly, Article 1306 of the New Civil Code also provides convenient, provided they are not contrary to law, morals,
that contracting parties may establish stipulations, good customs, public order, or public policy. ͷͳ
clauses, terms and conditions as they may deem


Spouses Ponciano Almeda and Eufemia P. Almeda, petitioner, vs. The Court of Appeals and Philippine National Bank,

Ponente: Kapunan, J.

Legal Doctrine: A bank cannot unilaterally raise the Prior to the scheduled date, however, petitioners tendered
interest rate on a loan, based on the escalation clause of to respondent bank the amount of P40,142,518.00,
a contract signed by the said bank and the debtor, when it consisting of the principal (P18,000,000.00) and accrued
is contrary to the stipulations made in the same contract interest calculated at the originally stipulated rate of 21%.
and to the principle of mutuality of contracts. The PNB refused to accept the payment.

In a Civil Case, the court issued an order granting the writ

of preliminary injunction enjoining the foreclosure sale of
P.D. 385: Requiring Government Financial Institutions to Marvin Plaza. For the court’s refusal to lift the writ of
Foreclose Mandatorily All Loans with Arrearages, preliminary injunction, respondent PNB filed a petition for
Including Interest and Charges Amounting to At Least Certiorari, Prohibition, and Mandamus with respondent
Twenty Percent of the Total Outstanding Obligation CA. CA granted the petition of respondent PNB.

Facts: Issues/Held:

In 1981, PNB granted to petitioners spouses Almeda 1. Was respondent bank authorized to raise its
several credit accommodations payable in 6 years with an interest rates from 21% to as high as 68% under
interest rate of 21% per annum. To secure the loan, the the credit agreement? NO
spouses Almeda executed a Real Estate Mortgage 2. Is respondent bank granted the authority to
Contract covering a parcel of land and the Marvin Plaza foreclose Marvin Plaza under the mandatory
building thereon. foreclosure provisions of P.D. 385? NO

In 1984, PNB raised the interest rate to 28%. The interest

rate reached a high of 68% in 1986. Before the loan was
to mature, the spouses filed a petition seeking clarification Ratio:
as to whether or not the PNB could unilaterally raise
interest rates on the loan, pursuant to the credit The binding effect of any agreement between parties to a
agreement's escalation clause. contract is premised on two settled principles: 1) that any
obligation arising from contract has the force of law
The lower court issued a writ of preliminary injunction between the parties; and 2) that there must be mutuality
enjoining the PNB from enforcing an interest rate above between the parties based on their essential equality.
the 21% stipulated in the credit agreement. By this time
the spouses were already in default of their loan Respondent bank unilaterally altered the terms of its
obligations. So PNB countered by ordering the contract with petitioners by increasing the interest rates
extrajudicial foreclosure of petitioner's mortgaged without the prior assent of the latter. In fact, the manner of
properties and scheduled an auction sale. agreement is itself explicitly stipulated by the Civil Code
when it provides, in Article 1956 that “No interest shall be
due unless it has been expressly stipulated in writing.”

What has been “stipulated in writing” in the credit after settlement of the question involving the interest rate
agreement signed by the parties is that petitioners were to on the loan. ͷʹ
pay 21% interest, subject to a possible escalation or de-
escalation, when 1) the circumstances warrant such Furthermore, petitioners made a valid consignation of
escalation or de-escalation; 2) within the limits allowed by what they, in good faith and in compliance with the letter
law; and 3) upon agreement. of the Credit Agreement, believed to be the real amount
of their remaining obligations. PNB could not claim that
The interest rates imposed by respondent PNB violated there was no attempt on the part of the spouses to settle
the principle of mutuality of contracts and the requirement their obligations.
that the increase be “within the limits allowed by law.”

Because of the dispute regarding the interest rate

increases, the exact amount of petitioner’s obligations
could not be determined. Thus, the foreclosure provisions
of P.D. 385 could be validly invoked by respondent only


First Metro Investment Corporation, petitioner, vs. Este del Sol Mountain Reserve, Inc., Valentin S. Daez, Jr., Manuel Q.
Salientes, Ma. Rocio A. de Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr., and Felipe B. Sese,

Ponente: De Leon, Jr., J.

Legal Doctrine: Contracts and stipulations, under any until full payment plus liquidated damages plus attorney’s
cloak or device whatever intended to circumvent the laws fees equivalent to 25% of the sum sought to be recovered
against usury shall be void. The borrower may recover in which cannot be less than P20,000 if the services of the
accordance with the laws in usury.” In usurious loans, the lawyer were hired. As security for payment, Este del Sol
entire obligation does not become void because of an executed several documents including a Real Estate
agreement for usurious interest. The unpaid principal Mortgage over two parcels of land and individual
remains valid and only the stipulation as to the usurious Continuing Suretyship agreements by the co-
interest is void. respondents.

It was also provided in the Loan Agreement that there

shall be an Underwriting Agreement between the two
Facts: parties wherein FMIC shall underwrite on a best efforts
basis the public offering of 120,000 common shares of
Este del Sol entered a Loan Agreement with First Metro Este del Sol’s capital stock for a one time underwriting fee
Investment Corporation wherein the latter granted them a of P200,000. Este del Sol shall also pay FMIC an annual
loan of P7,385,500 to finance the construction and supervision fee (for supervising public offering of the
development of the Este del Sol Mountain Reserve, a shares) P200,000 per annum for a period of 4
sports/resort complex project at Montalban Rizal. Under consecutive years. In the Underwriting Agreement, a
the terms, the loan was to be released on a staggered Consultancy Agreement was also executed wherein Este
basis, the interest on the loan was pegged at 16% per del Sol engaged the services of FMIC as consultant to
annum based on the diminishing balance, and that the general consultancy services and the consultancy fee for
loan as payable in 36 equal and consecutive monthly a period of 4 years was P1,330,000. When FMIC billed
amortizations to commence at the beginning of the 13 Este del Sol (for the amounts mentioned in this bullet), the
month from the date of first release. In case of default, the said amounts were deemed paid from the deductions
amount due was subject to 20% one-time penalty on the made from the first release of the loan.
amount due and such amount shall bear an interest at the
highest rate permitted by law from the date of the default

Failing to meet the schedule of repayment, Este del Sol it is intended that additional compensation for
incurred a total obligation of P12, 679, 630. 98. Petitioner the loan be disguised by an ostensibly unrelated ͷ͵
FMIC caused the extrajudicial foreclosure of the real contract providing for payment by the borrower
estate mortgage. At the public auction, FMIC was the for the lender’s services which are of little value
highest bidder. As a result, a balance was still left. Failing or which are not in fact to be rendered in such
to secure the said amounts from the individual case. Article 1957 provides that: “Contracts and
respondents who were Sureties, FMIC instituted an stipulations, under any cloak or device whatever
instant collection suit against respondents to collect the intended to circumvent the laws against usury
alleged deficiency plus interest at 21% per annum and shall be void. The borrower may recover in
25% thereof as attorney’s fees and costs. accordance with the laws in usury.” In usurious
loans, the entire obligation does not become
DEFENSE OF RESPONDENTS: The Underwriting and void because of an agreement for usurious
Consultancy Agreements executed simultaneously with interest. The unpaid principal remains valid and
and as integral parts of the Loan Agreement and which only the stipulation as to the usurious interest is
provide for the payment of Underwriting, Consultancy and void. Thus, the nullity of the stipulation does not
Supervision fees were in reality subterfuges resorted to affect the lender’s right to receive back the
by FMIC and imposed upon Este del Sol to camouflage principal amount and the debtor may recover the
the usurious interest charged by FMIC amount paid as interest under the usurious
agreement since the payment is deemed to have
been made under restraint.
Issue/Held: Some facts showing that the Underwriting and
Consultancy Agreements were just cloaks:
1. Should the Central Bank Circular No. 905 which
removed the ceiling on interest rates for secured a. The three agreements had the same
and unsecured loans be applied retroactively? date and were to mature and remain
NO effective for the same period of time.
2. Were the Underwriting and Consultancy b. The Underwriting Agreement was a
Agreements mere subterfuges to camouflage the condition for the Loan
usurious interest charged by the petitioner? YES c. FMIC failed to comply with the
3. Should the attorney’s fees be reduced? YES obligation set in the Underwriting
Agreement and Consultancy

1. It is an elementary rule of contracts that the laws

3. A reduction of the attorney’s fees to 10% is
in force at the time the contract was made and
appropriate and reasonable. The stipulated
entered into govern it. The said circular took
attorney’s fees stipulated in the agreement which
effect on January 1, 1983 while the contract was
is 25% of the total amount is exorbitant and
executed on January 31, 1978. Also, Central
unconscionable. Attorney’s fees provided in the
Bank Circular No. 905 did no repeal nor in any
penal clauses are in the nature of liquidated
way amend the Usury Law but simply
damages. If the same is iniquitous or
suspended the latter’s effectivity. A Central Bank
unconscionable, the courts are empowered to
circular cannot repeal a law.
reduce the amount of the attorney’s fees.

2. The Underwriting and Consultancy Agreements

which were executed and delivered
contemporaneously with the Loan Agreement
were essential conditions for the grant of the
loan. An apparently lawful loan is usurious when


I. Pure and Conditional Obligations

B. Conditional Obligations


Fernando A. Gaite, plaintiff and appellee, vs. Isabelo Fonacier, et al., defendants-appellants

Ponente: Reyes, J.B.L., J.

Facts: No sale of iron ore was made even until the Far Eastern
bond had already expired. Fonacier and his sureties failed
Fonacier, owner of 11 iron lode mineral claims, appointed to pay when Gaite made demand.
Gaite as his attorney-in-fact and authorized him to enter
into a contract with any person for the exploration and Fonacier asserts that 1. The obligation was based upon a
development of his mining claims on a royalty basis of suspensive condition, in that it was subject to either the
Php 0.5 per ton of ore that might be extracted. first shipment of iron ore or the first sale. However, no
sale had yet been made hence the condition was not yet
Gaite conveyed the development and exploration of the fulfilled. 2. Only 7,573 of the 24,000 tons of iron ore had
mining claims to Larap Iron Mills, a single proprietorship been delivered by Gaite.
which he owns. Gaite then went on the business of the
development and exploration of the mining claims.

Fonacier revoked the authority granted to Gaite to exploit Issues:

the mining claims, and Gaite agreed. They executed a
“Revocation of Power of Attorney and Contract” which 1. W/N the obligation to pay the Php 65,000 rested
contained the ff. terms: upon a suspensive condition or a period.
2. W/N Gaite made complete delivery of the
Gaite transferring to Fonacier Larap Iron Mills (all his promised 24,000 iron ores.
rights and interests on all roads, improvements and
facilities in or outside the mines, the right to use the
business name of “Larap Iron Mines”, its goodwill, and all
pertinent documents re the mines) in exchange for Php Held:
20,000 + 10% interest of royalties Fonacier would receive
1. It was a period, not a suspensive condition.
from the mining claims.
Fonacier ordered to pay the Php 65,000
Gaite transferring to Fonacier the 24,000 tons of iron ore 2. Gaite made complete delivery of the 24,000
he had already extracted in exchange for Php 75,000, of tons.
which Php10,000 is to be paid upon signing and
Php65,000 which “will be” paid from the first shipment of
iron ores and from the amount to be derived from its sale. Ratio:
Fonacier executing a surety (bond) with himself as 1. A conditional obligation’s efficacy or
principal with his company, et al, as sureties.. obligatory force is subject to the happening
of a future and uncertain event; if the event
A second bond was made with Far Eastern Surety and
does not take place, it would be as if the
Insurance Co., which stated that Far Eastern’s liability
obligation had never existed. That the contract
would not attach unless sales of iron ore amounting to at
was subject to a period is proven by:
least Php65,000 were made and that it would expire on
a. The words “will be paid” indicates that
Dec. 8, 1955.
there is no uncertainty that payment will
be made, the obligation is recognized
by the parties. It is only the exact date

of payment, or the demandability, that existing with only its demandability

is unknown. deferred. ͷͷ
b. There is nothing in the contract which e. The court held that Fonacier had
indicated that Gaite was willing to risk forfeited the right to make use of the
losing his iron ore without getting paid period due to his failure to renew the
for it, as proven by his insistence on the Far Eastern bond or to make an
sureties. The fact that bonds were equivalent guarantee. The obligation is
made indicates that the parties therefore already demandable.
recognized the existence of the
obligation. 2. Neither of the parties were smart enough to
c. To subject the payment to the sale of actually weigh or measure the pile of iron ore
the iron ores would be tantamount to sitting in the mines. They merely looked at the
leaving the payment at the discretion of junk and thought “hey, I think this is 7,000 tons”,
the debtor, and Fonacier would simply hence the inconsistencies in weights presented
be able to avoid his obligation to the Court. So the Court brought in an amicus
indefinitely. curiae who measured the pile and discovered
d. The “greater reciprocity of interests” is that it was actually 21,000 tons of iron ore, which
achieved by holding the obligation as is pretty darn close to Gaite’s estimate of
“24,000 tons, more or less”. Yay!


Felix I. Gonzales, petitioner, vs. Heirs of Thomas and Paula Cruz, herein represented by Elena C. Talens, respondents

Ponente: Panganiban, J.

Legal Doctrine: If some stipulation therein should admit payment; 25% every 6 months
of several meanings, it shall be understood as bearing thereafter, payable within the
that import most adequate to render it effectual. first 10 days of beginning of each
2. Lessee shall pay by way of annual
rental Php2,500 per hectare upon
Facts: signing
3. Lessors hereby commit themselves and
December 1, 1983: Paula Cruz (together with heirs)
shall undertake to obtain a separate
entered into a Contract of Lease/Purchase with Felix
distinct TCT over the leased portion to
Gonzales (sole proprietor of Felgon Farms) of a half-
lessee within reasonable period of time
portion of a “parcel of land containing an area of 12
which shall not in any case exceed 4
hectares, more or less, and an accretion of 2 hectares,
years, after which a new contract shall
more or less, situated in Rodriguez Town, Province of
be executed by the parties which shall
be the same in all respects with this
The contract has the following provisions: Contract of Lease/Purchase insofar as
terms and conditions are concerned.
1. Contract is for a period of one year
upon signing. After the period, the Gonzales paid the rent but after the expiration of the one
lessee shall purchase the property on year lease, he did not exercise his option to purchase the
the agreeable price (Php1M) payable property and stopped paying rent but remained in
within 2 years with 12% interest possession of the property.
(upon execution of deed of sale: 50%

A letter was sent to him informing him of the rescission of Held/Ratio:

contract due to his breach and ordered him to vacate the
1. NO. The first paragraph was effectively modified
premises but Gonzales refused.
by the ninth. Gonzales can only be compelled to
Paragraph1 says that the Gonzales will lease the property perform his obligation under paragraph1 only
for one year and after which he shall purchase it while after the heirs have complied with the ninth
Paragraph9 requires the heirs to obtain a separate and paragraph. Unless, heirs do so, the first
distinct TCT over the property. The heirs say that after paragraph is not enforceable against Gonzales.
lapse of one year, rescission of contract can be effected The ninth paragraph was intended to ensure that
while Gonzales says that the separate and distinct TCT in heirs would have a valid title over the specific
their names must first be obtained as it is a condition portion they were selling to Gonzales. Gonzales’
precedent to purchase or transfer of property. obligation to purchase has not yet ripened and
can’t be enforced until and unless the heirs can
prove their title to the property subject of the
2. YES. It is a condition precedent because it was
1. Is there a conflict between the statement in
required Gonzales’ obligation to purchase the
paragraph 1 of the Lease/Purchase Contract and
land is a conditional one dependent upon the
that in paragraph 9 thereof?
happening of paragraph 9. The suspensive
2. Is paragraph 9 of the Lease/Purchase Contract a
condition is the obtaining of the heirs of a
condition precedent before petitioner could
separate TCT.
exercise his option to buy the property?
3. NO. The heirs cannot rescing as they have not
3. Can respondents rescind or terminate the
complied with paragraph 9, which is a condition
Contract of Lease after the one year period?
precedent to Gonzales’ obligation. Thus there
can be no rescission of an obligation that is still
non-existent because the suspensive condition
has not yet happened.

B. Conditional Obligations (Suspensive)


Romulo Coronel, et al., petitioners, vs. Court Of Appeals, Concepcion Alcaraz and Ramona Patricia Alcaraz, respondents

Ponente: Melo, J.

Legal Doctrine: In a conditional contract of sale, the sale Upon transfer in their names of said property, they shall
becomes absolute upon the fulfillment of the suspensive execute the deed of absolute sale in favor of Ramona,
condition. who shall then pay the balance of 1.9 million pesos.
Ramona’s mother, Concepcion paid the downpayment on
Ramona’s behalf.

Facts: February 6, 1985, the property registered to the late

Coronel patriarch was transferred to the petittioners.
On January 19, 1985, the Coronels (petitioners) executed
a “Receipt of Downpayment” in favor of Ramona Alcaraz February 18, 1985, the Coronels sold the property to
as purchase price of their inherited house and lot in Catalina Mabanag for 1.58 million pesos.
Quezon City. In said document, the Coronels bind
themselves to transfer the title under their deceased They canceled the contract with Ramona and deposited
father’s name to theirs upon receipt of said downpayment. her downpayment in the bank in trust in her name.

February 22, 1985, Concepcion filed a complaint for CC 1458 defined a contract of sale as [a contract
specific performance and had the notice of lis pendens wherein] one of the contracting parties obligates himself ͷ͹
annotated at the back of the TCT. to transfer the ownership of and to deliver a determinate
thing, and the other (party) to pay therefor a price certain
April 2, 1985, Mabanag caused the annotation of a notice in money or its equivalent. It has 3 elements: consent of
of adverse claim on the same property with the registry of the parties to transfer ownership in exchange for price, a
Deeds. determinate thing, and the price certain. Sale is perfected
by mere consent. In a contract to sell, on the other hand,
April 25, 1985, the Coronels executed a Deed of Absolute the prospective seller has yet to consent to transfer
Sale in favor of Mabanag and a new title was issued in ownership of the thing (thus, he still retains ownership)
her name on June 5. until the fulfillment of a suspensive condition, i.e. full
payment of the purchase price.
The RTC of Quezon City ordered the execution of specific
performance in favor of Alcaraz. A motion for In the case at hand and as stated in the “receipt of
reconsideration filed by the Coronels was dismissed by downpayment” the Coronels received P50,000 as
the same court. The CA later affirmed the RTC decision. purchase price of the house and lot without any
reservation of title until full payment of the entire
The respondents claim that the contract was a perfected
P1,240,000 purchase price, which can be understood that
contract of sale which they seek to be enforced while the
they had in fact already sold their property. However, they
petitioners content that it was a mere executory contract
could not fully effect the transfer of ownership since the
to sell subject to certain suspensive conditions.
transfer certificate of title was still in the name of their
deceased father even though Concepcion was willing and
able to pay the full purchase price. [suspensive condition:]
Issue(s): It was then up to the Coronels to cause to have a new title
in their names. Upon obtaining the new title, they shall
1. Whether or not the “Receipt of Downpayment” execute a deed of absolute sale in favor of Ramona and
was a contract of sale. Concepcion shall, in turn, pay the entire balance of the
2. [What was the suspensive condition in the purchase price. This suspensive condition was fulfilled on
contract?] February 6 when the title named after the Coronel
children. Therefore, it became obligatory for the Coronels
to deliver the property through the execution of the deed
of absolute sale in favor of the private respondents who
Held/Ratio: were also obliged to pay the rest of the purchase price.

Yes, the contract was a contract of sale (conditional).

Other issues:

Petitioners SC
That on January 19, 1985, they were not yet absolute The children are compulsory heirs who are called to
owners of the inherited property (since title was still in the succession by operation of law. Any rights or obligations
name of their father) and as such were not allowed to sell it. pertaining to the property became binding and enforceable
upon the children at the point their father drew his last
breath. Moreover, they are estopped from raising their
supposed lack of capacity having represented themselves as
the true owners of the property at the time of the sale.

That Ramona’s absence (she went to the US) rendered There was no evidence to support these allegations besides,
impossible the consummation of the sale and so they were there was not express stipulation authorizing them to
unilaterally rescinding the contract. extrajudicially rescind the contract of sale. Again, they are
estopped from raising the issue since they never questioned
the authority of Concepcion to represent her daughter,

Whether or not Catalina Mabanag was a buyer in good faith NO, she was not a buyer in good faith. She had already
thereby giving rise to a case of double sale. known of the adverse claim (annotated on 22 February) on ͷͺ
the property but still proceeded to register the deed of
absolute sale on April 25.

B. Conditional Obligations (Resolutory)


George L. Parks, plaintiff and appellant, vs. Province of Tarlac, Municipality of Tarlac, Concepcion Cirer and James Hill, her
husband, defendants and appellees

Ponente: Avanceña, C.J.

Legal Doctrine: In a condition precedent, the acquisition Held/Ratio:

of the right is not effected while the condition is not
complied with or is not deemed complied with. NO, having been donated to and accepted by the
Municipality of Tarlac, Cirer and Hill were no longer
owners of the land and could not have sold it to Parks.

Facts: Parks contends that the condition was not complied with
and therefore the donation never became effective is
On October 18, 1910, Concepcion Cirer and James Hill unavailing. In a condition precedent, the acquisition of the
donated a parcel of land to the Municipality of Tarlac right is not effected while the condition is not complied
under the condition that on said land, there shall be with or is not deemed complied with. Meaning, Tarlac
erected an elementary school and a park. The work on must have first complied with the condition before
these projects shall commence within six months from the acquiring ownership. On the other hand, when a condition
ratification of both partied to the donation. The donation is imposed, compliance cannot take place unless the right
was registered in the name of the Municipality of Tarlac. is deemed acquired- such condition cannot be a condition
precedent. The compliance with this type of condition
However, on January 15, 1921, Cirer and Hill sold this would be fulfilled once the right over the land has already
same parcel of land to plaintiff, George L. Parks. been acquired. Tarlac could not begin work on said land if
the donation had not really been effected because it
On August 24, 1923, the Municipality of Tarlac transferred
would have been an invasion of another’s title since it
the parcel to the Province of Tarlac which was registered
would have still been the property of the donors.
and the corresponding certificate title issued.
Even though noncompliance of the condition of the
Parks now prays that he be declared the absolute owner
donation is sufficient ground for revocation, the period for
of the land claiming that the conditions of the donation
bringing an action for the revocation of the donation had
were not complied with.
already prescribed (Sec. 43, Code of Civ. Proc.: 10 years
The lower court dismissed his complaint. prescriptive period). The action for revocation of donation
arose on 19 April 1911 six months after the ratification of
the instrument of donation on 18 October 1910. This
action was filed on 5 July 1924, more than 10 years after
Issue: Whether or not Parks has a right of action. the cause accrued.

SC affirmed the lower court’s dismissal of the complaint.



Central Philippine University, plaintiffs-appellees, vs. Court of Appeals and Remedio Franco et al., defendants-respondents

Ponente: Bellosillo, J.

Legal Doctrine: Breach of resolutory conditions CPU now alleges that CA erred in holding that 1) the
terminates the rights of the done, rendering the donation quoted annotations in the certificate of title of petitioner
revocable. are onerous obligations and resolutory conditions of the
donation which must be fulfilled non-compliance of which
would render the donation revocable; 2) the issue of
prescription does not deserve disquisition; 3) in
Facts: remanding the case to the trial court for the fixing of the
period within which petitioner would establish a medical
In 1939, Don Ramon Lopez, Sr., a member of the board
of trustees of the Central Philippine University executed a
deed of donation of a parcel of land in favour of Central
Philippine University under the following conditions: 1)
The land shall be utilized by the CPU exclusively for the Issue: Whether or not the said donation can be revoked
establishment and use of a medical college with all its by reason of non-compliance with the conditions.
buildings; 2) The college shall not sell, transfer or convey
to any third party nor in any way encumber said land; 3)
The land shall be called "RAMON LOPEZ CAMPUS", and
the said college shall be under obligation to erect a Held: Yes, it can be revoked.
cornerstone bearing that name. Any net income from the
land or any of its parks shall be put in a fund to be known
as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building
thereon. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no
On 1989, the heirs of Lopez filed an action for annulment
alternative but to conclude that his donation was onerous,
of said donation, alleging that CPU did not comply with
one executed for a valuable consideration which is
the conditions set in the donation. They also brought up
considered the equivalent of the donation itself, as when
that CPU negotiated with NHA to exchange the property
a donation imposes a burden equivalent to the value of
with another parcel of land. In its answer, CPU alleged
the donation.
that the right to file said action has prescribed; that they
did not violate the conditions; and that they did not sell to Under Art. 1181 of the Civil Code, on conditional
any 3 party. obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall
On 1991, Trial Court ruled that CPU failed to comply with
depend upon the happening of the event which
the conditions of the donation and declared it null and
constitutes the condition. Thus, when a person donates
void, further directing them to execute a deed of
land to another on the condition that the latter would build
reconveyance of the property.
upon the land a school, the condition imposed was not a
Petitioner appealed to the CA which on 1993 ruled that condition precedent or a suspensive condition but a
the annotations at the back of petitioner's certificate of resolutory one. It is not correct to say that the
title were resolutory conditions breach of which should schoolhouse had to be constructed before the donation
terminate the rights of the donee thus making the became effective, that is, before the donee could become
donation revocable. CA also found that there was no fixed the owner of the land, otherwise, it would be invading the
period with which to fulfill the condition, therefore, CPU property rights of the donor. The donation had to be valid
cannot be considered as having failed to comply with the before the fulfillment of the condition. If there was no
conditions. fulfillment or compliance with the condition, such as what

obtains in the instant case, the donation may now be which determines the starting point for the computation of
revoked and all rights which the donee may have the period. In this case, the starting point begins with the ͸Ͳ
acquired under it shall be deemed lost and extinguished. expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the
The claim of petitioner that prescription bars the instant donor.
action of private respondents is unavailing. The building
of a medical school upon the land depended upon the The general rule of having the courts fix the duration (Art
exclusive will of the donee as to when this condition shall 1197 CC) cannot apply in this case because of other
be fulfilled. When petitioner accepted the donation, it factors. There is no more need to fix the duration since
bound itself to comply with the condition thereof. Since CPU has already been given more than 50 years to
the time within which the condition should be fulfilled comply with the said condition. Additionally, 1197CC
depended upon the exclusive will of the petitioner, it has provides that when one of the obligors cannot comply with
been held that its absolute acceptance and the what is incumbent upon him, the obligee may seek
acknowledgment of its obligation provided in the deed of rescission and the court shall decree the same unless
donation were sufficient to prevent the statute of there is just cause authorizing the fixing of a period. In the
limitations from barring the action of private respondents absence of any just cause for the court to determine the
upon the original contract which was the deed of period of the compliance, there is no more obstacle for
donation. the court to decree the rescission claimed.

Moreover, the time from which the cause of action Finally, since the questioned deed of donation herein is
accrued for the revocation of the donation and recovery of basically a gratuitous one, doubts referring to incidental
the property donated cannot be specifically determined in circumstances of a gratuitous contract should be resolved
the case. A cause of action arises when that which should in favor of the least transmission of rights and interests.
have been done is not done, or that which should not Petitioner has slept on its obligation for an unreasonable
have been done is done. In cases where there is no length of time. Hence, it is only just and equitable now to
special provision for such computation, recourse must be declare the subject donation already ineffective and, for
had to the rule that the period must be counted from the all purposes, revoked so that petitioner as donee should
day on which the corresponding action could have been now return the donated property to the heirs of the donor,
instituted. It is the legal possibility of bringing the action private respondents herein, by means of reconveyance.


Alfonso Quijada, et al., plaintiffs-appellees, vs. Court of Appeals and Regalado Mondejar, et al., defendants-respondents

Ponente: Martinez, J.

Legal Doctrine: A perfected contract of sale cannot be remained in possession of the land and on 1962, sold 1
challenged on the ground of non-ownership on the part of hectare of it to Regalado Mondejar. She then sold the
the seller at the time of its perfection. other hectare to Mondejar without a deed of sale. In 1987,
the school failed to materialize and the Sangguniang
Bayan of the municipality of Talacogon enacted a
resolution reverting the 2 hectares of land donated back
Facts: to the donors. In 1988, plaintiffs filed this action against
defendant claiming that their mother never sold the land
Trinidad Quijada, mother of plaintiffs, was the heir of
to Mondejar. The court ruled in favour of the plaintiffs
Pedro Corvera, from which she inherited a 2-hectare
because 'Trinidad Quijada had no legal title or right to sell
parcel of land. On 1956, Trinidad and her siblings
the land to defendant Mondejar in 1962, 1966, 1967 and
executed a conditional deed of donation in favor of the
1968, the same not being hers to dispose of because
municipality of Talacogon, the condition being that the
ownership belongs to the Municipality of Talacogon' and,
land will be used solely as part of the proposed provincial
secondly, that the deed of sale executed by Trinidad
high school in said municipality. Trinidad, however

Quijada in favor of Mondejar did not carry with it the under the deed of donation. Since no period was
conformity and acquiescence of her children, more so that imposed by the donor on when the donee must comply ͸ͳ
she was already 63 years old at the time, and a widow. with the condition, the latter remains the owner so long as
he has tried to comply with the condition within a
On appeal, the Court of Appeals reversed and set aside reasonable period. Such period, however, became
the judgment a quo ruling that the sale made by Trinidad irrelevant herein when the Municipality manifested
Quijada to Mondejar was valid as the former retained an through a resolution that it cannot comply with the
inchoate interest on the lots by virtue of the automatic condition of building a school and the same was made
reversion clause in the deed of donation. Thereafter, known to the donor. Only when the non-fulfillment of the
petitioners filed a motion for reconsideration. When the resolutory condition was brought to the donor's
CA denied their motion, petitioners instituted a petition for knowledge did ownership of the donated property revert
review to this Court arguing principally that the sale of the to the donor as provided in the automatic reversion clause
subject property made by Trinidad Quijada to respondent of the deed of donation.
Mondejar is void, considering that at that time, ownership
was already transferred to the Municipality of Talacogon. As to laches, petitioners' action is not yet barred. Laches
On the contrary, private respondents contend that the presupposes failure or neglect for an unreasonable and
sale was valid, that they are buyers in good faith, and that unexplained length of time, to do that which, by exercising
petitioners' case is barred by laches. due diligence, could or should have been done earlier.

(and just when you thought they were winning) However,

sale, being a consensual contract, is perfected by mere
Issue: Whether or not the sale of the land was valid. consent, which is manifested the moment there is a
meeting of the minds as to the offer and acceptance
thereof on three (3) elements: subject matter, price and
terms of payment of the price. Ownership by the seller on
Held: The Sale was VALID.
the thing sold at the time of the perfection of the contract
of sale is not an element for its perfection. What the law
requires is that the seller has the right to transfer
Ratio: ownership at the time the thing sold is delivered.
Perfection per se does not transfer ownership which
When the Municipality's acceptance of the donation was occurs upon the actual or constructive delivery of the
made known to the donor, the former became the new thing sold. A perfected contract of sale cannot be
owner of the donated property, notwithstanding the challenged on the ground of non-ownership on the part of
condition imposed by the donee. The donation is the seller at the time of its perfection; hence, the sale is
perfected once the acceptance by the donee is made still valid.
known to the donor. Accordingly, ownership is
immediately transferred to the latter and that ownership The consummation, of the contract occurs upon the
will only revert to the donor if the resolutory condition is constructive or actual delivery of the subject matter to the
not fulfilled. buyer when the seller or her successors-in-interest
subsequently acquires ownership thereof. Such
In this case, the condition is not a condition precedent or circumstance happened in this case when petitioners --
a suspensive condition but a resolutory one. Thus, at the who are Trinidad Quijada's heirs and successors-in-
time of the sales made in 1962 towards 1968, the interest -- became the owners of the subject property
Trinidad could not have sold the lots since she had earlier upon the reversion of the ownership of the land to them.
transferred ownership thereof by virtue of the deed of Consequently, ownership is transferred to respondent
donation. So long as the resolutory condition subsists Mondejar and those who claim their right from him.
and is capable of fulfillment, the donation remains Article 1434 of the New Civil Code supports the ruling that
effective and the donee continues to be the owner subject the seller's "title passes by operation of law to the buyer."
only to the rights of the donor or his successors-in-interest

B. Conditional Obligations (Potestative)

Francisco Lao Lim, petitioner, vs.Court of Appeals and Benito Villavicencio Dy, respondents

Ponente: Regalado, J.

Legal Doctrine: A condition that solely depends upon the (3) WON the compromise agreement constituted res
will of one part is void. judicata.

(4) WON the refusal of the lessee to vacate the premises

is justified.

Lim is the lessor. Dy is the lessee. They entered into a

contract of lease for a period of three (3) years. It expired Held:
in 1979. However, Dy refused to vacate the said
premises. Lim instituted an ejectment suit. However this (1) No, it is one with a period.
was terminated due to a judicially approved compromise
agreement. The compromise agreement contained a (2) Yes, it is valid. It is susceptible of two interpretations
provision that it shall be “renewed every three years and the court will adopt the interpretation that would make
retroacting from October 1978 to 1982” and that there is it valid.
an automatic 20% increase in rental payments. There is
(3) No, the compromise agreement did not amount to res
also a clause that says that “as long as the defendant
needed the premises and can meet and pay the said
increases, the defendant to give notice of his intent to (4) No, it is not justified.
renew sixty (60) days before the expiration of the term.

This compromise agreement led to the extension of the

original lease term by 6 years or two renewals. However Ratio:
on April 17, 1985, Lim advised Dy that he would no longer
renew the contract effective October, 1985. In response (1) The condition is not resolutory contrary to what CA
to this, on August 5, 1985, Dy informed Lim in writing of said. It is a potestative condition since it leaves the
his intention to renew the contract for another term. Lim effectivity and enjoyment of leasehold rights to the sole
did not agree to this. Then for the second time, Lim and exclusive will of the lessee. It should not be
instituted an ejectment suit due to Dy’s refusal to vacate overlooked that it is not resolutory due to the fact that it is
the said premises. not a condition that terminates the lease contract. The
lease is for a definite period which is three years, then it
The RTC dismissed this complaint and held that (1) it automatically terminates. At the same time it is a
depended on the lessee’s need and ability to pay and that suspensive condition. The renewal of the lease which
(2) the compromise agreement constituted res judicata. gives rise to a new lease depends upon the said
The CA affirmed the RTC and added that the compromise condition. As was held in Encarnacion v. Baldomar, this is
agreement is valid since it based on a resolutory not mutual in nature and there is no equality. The
condition. interpretation of the CA is wrong; the phrase “renewaed
every three years” should be interpreted to require mutual
agreement. It is not a continuing lease. There would be
no renewal if said lease did not expire, otherwise there
was nothing to renew.
(1) WON it was a continuing lease.

(2) WON the compromise agreement is valid or not.

(2) The court does not favor the covenant for continuous
renewals tending to create a perpetuity unless clearly and

unambiguously the intention and purpose of the parties. subject matter and cause of action. The subject matter in
The cases of Koh v. Ongsiaco and Cruz v. Alberto are the first ejectment case is the original lease contract while ͸͵
therefore overruled by this court. This is due to the era of the subject matter in the case at bar is the lease created
rapid economic change. The very specific language is under the terms provided in the subsequent compromise
necessary to show intent to grant a unilateral faculty to agreement. There is also no identity of causes of action.
extend or renew a contract of lease to the lessee or lessor The test generally applied to determine the identity of
alone. Also, the provision “for as long as the defendant causes of action is to consider the identity of facts
needed the premises and can meet and pay said essential to their maintenance, or whether the same
increases” was already satisfied in 1982 for another three evidence would sustain both causes of action. In the case
(3) years. A general covenant to renew is satisfied by one at bar, the delict or wrong in the first case is different from
renewal and will not be a construed to confer the right to that in the second, and the evidence that will support and
more than one renewal unless the provision is clearly and establish the cause of action in the former wll not suffice
expressly made for further renewals. The case of Buccat to support and establish the latter. While the compromise
v. Dispo, et al is not in point since the lease for that case agreement may be res judicata as far as the cause of
is for an indefinite period. In this case, there is a period. action and issues in the first ejectment case is concerned,
any cause of action that arises from the application or
violation of the compromise agreement cannot be said to
have been settled in the first case. The fact that the
(3) It is true that a compromise agreement has the effect compromise agreement has been judicially approved
of res judicata. However, it does not apply to the present does not foreclose any cause of action arising from a
case. It is elementary that for a judgment to be a bar to a violation of the terms.
subsequent case, (1) it must be a final judgment, (2) the
court which rendered it had jurisdiction over the subject
matter and the parties, (3) it must be a judgment on the
merits and (4) there must be identity between the two (4) In view of the fact that it is in violation of Article 1308
cases as to the parties, subject matter and cause of of the CC, the court orders the lessee to vacate the said
action. In the case at bar, the fourth requisite is lacking. premises.
Although there is identity of parties, there is no identity of

B. Conditional Obligations (Casual)


Naga Telephone Co., Inc., (NATELCO) and Luciano Maggay, petitioners, vs. Court of Appeals, Camarines Sur II Electric
Cooperative Inc. (CASURECO II), respondents

Ponente: Nocon, J.

Legal Doctrine: A casual condition, that which depend The term or period of this contract shall be as
on chance, hazard, or the will of third parties, does not long as the party of the first part (NATELCO) has
render a contract or an obligation void. need for the electric light posts of the party of the
second part (CASURECO) it being understood
that this contract shall terminate when for any
reason whatsoever, the party of the second part
Facts: is forced to stop, abandon its operation as a
public service and it becomes necessary to
1977 NATELCO and CASURECO entered into a contract.
remove the electric light posts
CASURECO would allow NATELCO’s use of its electric
posts within Naga City. NATELCO would install 10 1977 – 1989 Increased number of NATELCO’s
telephone connections for CASURECO’s use for free. consumers within and beyond Naga City translated to
Relevant provision of the contract:

heavier load of cables carried by CASURECO’s electric Issues/ Held/ Ratio:

light posts.
1. Did CASURECO state a sufficient cause of
02 Jan 1989 CASURECO: filed for reformation of their action? Yes, for reformation of contract.
contract with damages, citing the contract as being one- 2. Was the contract fair? Yes, at the time of its
sided in favor of NATELCO. They sought reformation, execution.
compensation for the use of their electric posts, and 3. When does period for prescription start in
sought damages due to the poor service of NATELCO. reformation of contracts? According to Art. 1144,
10 years from the time the right of action
NATELCO: action for reformation should be dismissed accrues, which may not be the date of the
since it was not sufficiently stated, it was barred by execution of the contract.
prescription and estoppel. 4. Has CASURECO acquired a right to an action
for reformation of contract? No. Despite the fact
Trial court: granted reformation of contract according to that the contract has become highly unfavorable,
Art. 1267. NATELCO ordered to pay CASURECO for use an action for reformation of contract was
of electric posts. CASURECO ordered to pay for contemplated for cases of mistake, accident or
telephone services received from NATELCO. fraud. Neither of the three were proven nor
CA: affirmed TC ruling, but based on different grounds. It
5. What causes of action may CASURECO avail
applied 1267 to release CASURECO from its obligation to
of? 1. Release from obligation according to Art.
avoid further unjust enrichment. In affirming the ruling,
1267, since CASURECO was required to
they were not making a new contract for the parties but
perform an obligation beyond the contemplation
instead avoiding inconvenience to the public since both
of the parties at the time the contract was
parties provide service. Any subsequent agreement by
entered into, particularly since it believed, as
them shall supersede the ruling. Declared the underlined
NATELCO expressed, that the latter did not see
provisions as purely potestative, meaning the agreement
expansion in the future due to internal problems.
is entirely dependent on the will of NATELCO.
6. Was the cited provision a potestative condition?
No. Only the underlined provision was a
potestaive condition, while the italicized, was a
casual condition. As it is therefore a mixed
condition, it does not invalidate the condition.


Luz Hermosa & Fernando Hermosa Jr., petitioners, vs. Epifanio Longara, respondent

Ponente: Labrador, J.

Facts: The credit advances were to be “payable as soon as

Fernando Hermosa Sr.’s property in Spain was sold and
1932-1944 – 3 claims were presented by Epifanio he received money derived from the sale.
Longara against the intestate estate of credit advances
amounting to Php2, 341.41 to the intestate.

1945-1947- Php12, 924.12 made to Hermosa Sr.’s son; CA’s Ruling: The payment of the advances didn’t
Php3, 772 made to his grandson. These advances were become due until the administratrix received the money
made after the death of the intestate. (P20,000.00) from the buyer of the property.

The credit advances were asked by the intestate for Nov 1947- the property was sold
himself and for the members of his family.
Oct 1948- the claim was filed

It is contended on this appeal that the obligation to sell on the part of the intestate was in fact present,
contracted by the intestate was subject to a condition although the price and other conditions were still within ͸ͷ
exclusively dependent upon the will of the debtor or (a his discretion and final approval. In addition to this
condition potestativa) and therefore null & void. acceptability of the price and other conditions of the sale
to him, there were still other conditions that had to concur
to effect the sale i.e. presence of a buyer, ready, willing
and able to purchase the property under the conditions
Issue: Whether or not the obligation contracted by demanded by the intestate.
Hermosa Sr was subject to condition potestativa.
It is evident therefore that the condition of the obligation
was not a purely potestative, but a mixed condition,
depending partly upon the will of the intestate and partly
upon chance.
No. The Condition upon without the payment of the sums
Moreover, the condition partakes the nature of a
advanced was made to depend “ as soon as he (the
suspensive condition, upon the happening of which the
intestate) receive funds derived from the sale of his
obligation to pay is made dependent; and upon the
property in Spain discloses the fact that the condition in
happening of the condition the debt became immediately
question does not depend exclusively upon the will of the
due and demandable.
debtor but also upon other circumstances beyond his
control. In the case at bar, the obligation to pay became due and
demandable only when the house was sold and the
From the language of the condition, it implies that the
proceeds received in the islands. Therefore, the action to
intestate had already decided to sell the property; the will
recover has not yet prescribed.


M.D. Taylor, plaintiff-appellant, vs. Uy Tieng Piao and Tan Liuan, doing business under the firm name and style of Tan Liuan
& Co., defendants

Ponente: Street, J.

Facts: The machinery did not arrive in Manila within the 6

months; the reason does not appear, but a
Taylor contracted his services to Tan Liuan & Co as preponderance of evidence show that the defendants
superintendent of an oil factory which the latter seeing that oil business no longer promised large returns,
contemplated establishing. The contract extended over 2 either cancelled the order for machinery from choice or
years and the salary was P600/month during the first year were unable to supply the capital necessary to finance the
and P700/month during the second with electric, light and project.
water for domestic consumption or in lieu thereof,
P60/month. At this time, the machinery for contemplated Defendants communicated to Taylor that they had
factory had not been acquired, though ten expellers had decided to rescind the contract.
been ordered from the US.
Taylor instituted this action to recover damages in the
It was understood that should the machinery to be amount of P13k, covering salary and perks due and to
installed fail, for any reason, to arrive in Manila within the become due
period of 6 months, the contract may be cancelled by the
party of the second part at its option, such cancellation
not to occur before the expiration of such 6 months.
Issue: WON in a contract for the prestation of service, it
is lawful for the parties to insert a provision giving the

employer the power to cancel the contract in contingency If it were apparent, or could be demonstrated that the
which may be dominated by himself. defendants were under positive obligation to cause the ͸͸
machinery to arrive in Manila, they would of course be
liable, in the absence of affirmative proof showing that the
non-arrival of the machinery was due to some cause not
Held/Ratio: having its origin in their own act or will.

YES. One of the consequences of the stipulation was The contract, however, expresses no such positive
that the employers were left in a position where they obligation, and its existence cannot be implied in the face
could dominate the contingency, and the result was about of the stipulation, defining the conditions under which the
the same as if they had been given an unqualified option defendants can cancel the contract.
to dispense with the services of Taylor at the end of 6
months. But this circumstance does not make the CFI no error in rejecting Taylor’s claim in so far as
stipulation illegal. damages are sought for the period subsequent to the
expiration of 6 months, but in assessing the damages due
A condition at once facultative and resolutory may be for the six-month period, the trial judge overlooked the
valid even though the condition is made to depend upon item of P60 (commutation of house rent) This amount
the will of the obligor. Taylor is entitled to recover in addition to P300 awarded
by CFI.


Smith, Bell & Co., Ltd., plaintiff-appellant, vs. Vicente Sotelo Matti, defendant-appellant

Ponente: Romualdez, J.

Facts: plaintiff's allegations and averred that Sotelo made the

contracts in question as manager of the intervenor,
Aug 1918, plaintiff corporation and defendant, Mr. Sotelo Manila Oil Refining and By-Products Co., Inc., and that it
entered into contracts whereby Smith, Bell & Co. was only in 19 May 1919 that plaintiff notified intervenor
obligated itself to sell, and Sotelo to purchase the that said tanks arrived, the motors and expellers having
following: arrived incomplete and long after the date stipulated.
Also, as consequence of the delay in the delivery of
x 2 steel tanks for Php. 21,000, to be shipped from goods, the intervenor suffered damages.
New York and delivered at Manila within 4
months The lower court absolved the defendants insofar as the
x 2 expellers at Php. 25,000 each, to be shipped tanks and electric motors were concerned, but ordered
from San Francisco in the month of September, them to receive the expellers and pay the plaintiffs Php.
1918 or asap; and 50,000, the price of said goods.
x 2 electric motors Php. 2,000 each. Stipulaiton as
to delivery is as follows--”Approximate delivery Both parties appealed.
within 90 days. This is not guaranteed”.

The tanks arrived at Manila on 27 Apr 1919, the expellers

on 26 Oct 1918, and the motors on 27 Feb 1919. The Issue: WON the plaintiff has fulfilled its obligation in due
corporation notified Sotelo of the arrival of these goods time
but Sotelo refused to receive them and to pay the prices

Plaintiff corporation brought suit. Sotelo and intervenor,

Manila Oil Refining and By-Products Co., Inc., denied

Held/Ratio: conditional. The delivery was subject to a condition the

Yes. To solve the issue, the period fixed for the delivery
fulfillment of which depended not only upon the effort of ͸͹
the plaintiff but also upon the will of third persons who
needs to be determined. could ion no way be compelled to fulfill the condition. In
such case, the obligor will be deemed to have sufficiently
In all the 3 contracts, there is a final clause which states performed his part of the obligation if he has done all that
that sellers are not responsible for delays caused by was in his power, even if the condition has not been
Force Majeure entirely beyond the control of the sellers or fulfilled in reality. Having done all that was in his power,
their representatives. There were also stipulations which he is entitled to enforce performance of obligation.
suggest that there was no definite date for the delivery of
the goods: re tanks--”within 3 or 4 months,” but subject to Plaintiff did all in its power to have the machinery arrive at
contingencies; re expellers--”within the month of Manila asap, and immediately upon its arrival, it notified
September 1918 or as soon as possible; and re motors-- the purchaser and offered to deliver it to him. Therefore,
”approximate delivery within 90 days. This is not the said machinery was brought to Manila by the plaintiff
guaranteed”. It should also be noted that the contracts within a reasonable time.
were executed at the time of the world war when there
existed rigid restrictions on the export from the US of
articles such as the machineries in question.
The term the parties attempted to fix is so uncertain that
one cannot tell whether the articles could be brought to Sotelo sentenced to accept and receive from the plaintiff
Manila. Hence, the obligation must be regarded as the tanks, the expellers, and the motors in question, and
to pay the sum of Php. 96,000.


G. BORROMEO, respondents

Ponente: Melo, J.

Facts: is sufficient, and will have the prerogative to

have deliveries continue when raw materials
Petitioner had established a pulp and paper mill, and become necessary, provided that the seller is
respondent Lluch, a holder of a forest products license, given sufficient notice.
sent a letter to negotiate with petitioner wherein in
essence, the latter would supply raw materials to the On Sept. 30, 1968, Vergara [Manager of Rustan] sent a
former. Such negotiations concluded in a contract of sale, letter to Lluch informing him that their supply had become
subject to the ff. Stipulations: sufficient and that they will not be needing further
delivery. Lluch sought to clarify the contents of said letter,
x That Rustan has the option to buy from other inquiring as to whether the said requested stoppage was
sllers wo are equally qualified and holders of temporary or permanent, an inquiry which remained
appropriate licenses unanswered by Rustan. Thus, Lluch resumed deliveries,
x That Rustan will not buy from sellers whose which continued to be accepted by Rustan until
goods emanated from Lluch’s concession December 23, 1968. The petitioners also continued to
x That Lluch has priority in supplying materials to accept deliveries of supplies from other sellers.
x That Rustan has the right to stop delivery of raw Because of those events, however, Lluch filed a
materials when it has determined that its supply complaint for contractual breach against Rustan, which

was dismissed. On appeal, however, they have raised the accomodation’ are almost unbelievable; aside
issues to the SC, hence, this case. from being contrary to normal business practices ͸ͺ
[no company is that accomodating], why would
any business continue to accept raw materials
which they do not need and which would result
Issues: in losses just to be accomodating?

1. W/N the contractual stipulations [the Stipulation Therefore, because of the purely potestative
as to Rustan’s right to stop delivery of raw imposition, the stipulation must be taken out
materials] are valid. without affecting the rest of the stipulations
2. W/N the Tantoco [President of the Company] ocnisdering that the condition relates to the
and Vergara [Manager] should be held liable for fulfillment of an already existing obligation and
damages. not to its inception. Of course, it is true that a
condition which is both potestative and
resolutory may be valid; however, that applies
Held/Ratio: only at the birth, not the fulfillment, of an existing
1. Lluch is correctly apprehensive as to the
conditions for delivery, considering that the 2. With regard to the claim of damages and
stipulated prerogative suggests a condition attorney’s fees against Tantoco and Vergara, the
solely dependent upon the will of Rustan. Rustan Court said that the Petitioner and Manager of a
can stop delivery of raw materials from Lluch if corporation who entered into and signed a
the supply at the plant is sufficent, a fact which contract in his official capacity cannot be made
only petitioners can ascertain. The resumption of libale under his individual capacity in the
delivery is dependent as well on the will of absence of stipulations to that effect, because
Rustan, given that it will happen only if according the personality of the corporation is separate and
to the petitioners, supply is once more distinct from that of theirs.

Furthermore, given that the company still

continued to accept supplies from Lluch and
other sellers, it is doubtful that Rustan truly had
sufficient supplies. Rustan’s contentions that
such actions were just an ‘act of generous


Virgilio R. Romero, petitioner, vs. Hon. Court of Appeals and Enriqueta Chua Vda. de Ongsiong, respondents

Ponente: Vitug, J.

Legal Doctrine: Mixed condition refers to condition that Rescission of a contract is available to the injured party
depends partly on the will of the debtor, partly upon the and not to the person that caused the failure of the
will of the third person and or upon chance. (In the condition.
syllabus, the case was used to illustrate mixed condition
but I think the following doctrines are also worth noting.)

From the moment the contract is perfected the parties will Facts:
be obliged to fulfill everything they have stipulated in their
contract including all its natural consequences. Virgilio Romero (petitioner), together with his foreign
partners decided to put up a warehouse measuring a land

area of 2000 sq. m. Alfonso Flores, his wife Enriqueta June 23, 1989: Petitioner said that the respondent can’t
Vda. de Ongsiong (private respondent) accompanied by a rescind the contract of sale for the contract was perfected ͸ͻ
broker offer to sell their land to the petitioner. The when they agreed upon to sell their land for the said
petitioner surveyed the land, except for the fact that there amount and it has already been partially executed when
are informal settlers he finds it suitable as a warehouse. the respondent accepted the partial payment. The option
Flores then called the petitioner and said that he will sell to rescind the contract was with the petitioner (upon the
his property at the rate of Php800 per square meter but failure to eject the squatters in 60days), despite that
asks for an advance payment of Php50, 000 for the option the petitioner chose to continue with the contract of
ejection of the informal settlers. sale. Upon the petitioners refusal the respondent filed
rescission of the contract of conditional sale.
June 9, 1988: Petitioner accepted the offer of the
respondent; the parties proceeded to execute the contract June 27, 1989: RTC-respondent that she has no right to
conditional sale on. The contract stipulated the following: rescind the contract of “conditional sale”

Respondent would sell the land (1,952 sq. m.) to the June 26, 1990: CA – reversed RTC’s decision, said that
petitioner for the price of 1,561,600.00. the failure of ejection of the squatters resulted in the
failure of the contracts’ object hence the petitioner filed for
50,000 shall be paid upon the execution of the contract this certiorari
and that the remaining balance shall be paid within 45
days after the removal of all squatters in the property.

Upon the full payment the vendor without the necessity of Issues/ Held:
demand from the vendee shall immediately sign, execute
and deliver the absolute sale in favor of the vendee. 1. Can the vendor rescind the contract of sale
when the cause of failure to satisfy the condition
If after 60 days (Aug. 9, 1988) from the date of signing the (ejection of squatters w/in 60days) was due to
contract the vendor failed to remove the squatters, the her fault? NO!
downpayment of 50,000 shall be returned by the vendor 2. Is the condition of ejecting the squatters a
to the vendee. potestative condition? NO! rather it is a
Mixed condition (the syllabus used the case to
The respondent accepted the downpayment. illustrate a mixed condition)

March 30, 1989: (past the 60 day prd) respondent filed

the case of ejection of the squatters and MTC granted the
order of the squatters’ ejection. Ratio:

Apr. 7, 1989: respondent wanted to return the 50,000 1. Under Art 1475 the parties had already perfected
downpayment for she “could not” get rid of the squatters. the contract of sale, the moment respondent
Petitioner refused to accept the reimbursement of 50,000 agreed to obligate himself to deliver and transfer
and further added to take upon himself to enforce the ownership to the petitioner upon their agreed
MTC order of ejection provided that the expenses that will price. The perfection of the contract gave rise to
be incurred shall be chargeable to the balance. the obligation for the parties to fulfill. The
condition of the squatters’ ejection was not
Apr. 21, 1989: MTC granted the request of 45days grace imposed on the birth of the obligation rather only
period of Presidential Comm. for the Urban Poor to on its fulfillment, hence would not affect the
relocate squatters. obligation itself. It served only as an operative
act to determine the period of compliance of the
June 8, 1989: Petitioner reminded the respondent of the petitioner’s obligation to pay. In concurrence with
expiration of the 45 days grace period and their Art 1545, the remedy to rescind the contract is
willingness to underwrite the expenses of ejection of the granted to the respondent (option to reimburse
squatters. 50,000 if the respondent failed to evict the
squatters in 60 days) and not the petitioner.
June 19, 1989: Respondent claims that the contract of
conditional sale was rendered null and void for the failure
2. The condition(evicting squatters) was not
to evict the squatters within the 60day prd and said they
solely dependent on the will of the
wanted to retain the property.

respondent (potestative condition- which can respondent, the squatters and the
render the contract void Art 1182), rather the government qualifying it as a mixed ͹Ͳ
condition is subject partly to the will of the condition.

B. Conditional Obligations (Impossible)



Ponente: Regalado, J.

Legal Doctrine: A condition is considered impossible CA- reversed the TC’s decision, holding that the action
when it unreasonably and unduly restrict the right of the has not yet prescribed and then remanded the case to the
donee to dispose one’s property, which is an innate right lower court for further proceedings. As a consequence,
of the ownership-the right conveyed by the donor to the petitioners filed this certiorari.

Donation that expressly provided its provision of

automatic revocation would be governed by the rules on Issues/ Held:
contract and general prescription instead of rules
governing effects & limitations on donation. 1. Does the private respondent need to file a
judicial declaration of rescinding the contract of
donation? It is not needed.
2. Did the action for rescission of the contract have
Facts: already prescribed? No
3. Is the prohibition to dispose the land for a period
In 1930, spouses Eusebio Castro and Martina Rieta of 100 years an impossible condition? Yes
donated a parcel of land to the RCA of Manila. The deed
of donation stipulated that the donee cannot sell or
dispose the land for a period of 100 years, or else it would
render the donation ipso facto null and void and the Ratio:
donation shall revert to the estate of the donor.
1. The donation contains an explicit provision of
Apr. 26, 1962- Roman Catholic Bishop of Imus, automatic revocation of donation upon meeting
administrating the donated estate of RCA of Manila, the resolutory condition (disposing the land
executed a deed of sale of the said land to Florencio and before the expiration of 100yr prohibition prd)
Soledad Ignao. hence the donation would be rendered revoke by
the virtue of the agreement without the need for
Nov. 29, 1984- the private respondents filed complaint, judicial intervention.
nullification of the donation and reconveyance of the title
of the said land from Ignao’s citing that the sale was 2. When a deed of donation expressly provides for
made within the prohibited period (100 yrs) stipulated in its automatic revocation and reconveyance of
the contract of donation. property donated it be governed by the rules on
contract and general rules on prescription which
Separately, Ignao and RCA(petitioner) filed the dismissal is 10 years for a written contract and not Art.
of the complaint, the trial court dismissed the complaint 764, CC. Clearly, the action has not prescribed
for the action has already prescribed. yet.

the owner to dispose his land. The restriction

period on the disposal of land for 100 years is ͹ͳ
3. (The court held that the case be dismissed, clearly a denial of an integral right of the owner
although not by ground of prescription rather on hence it should be considered as an impossible
the grounds that the respondent has no cause of condition. As stated in Art. 727, CC an
action.) The respondent cause for action is impossible condition is considered not imposed;
based on the resolutory condition (no disposal of consequently the respondent would have no
property within 100 years) but this condition is an cause for action.
unreasonable restriction on the essential right of

B. Conditional Obligations (Effect of Fulfillment of the Condition by the Obligor)


Jose V. Herrera, petitioner, vs. L.P. Leviste & Co., Inc., Jose T. Marcelo, Government Service In-Insurance System,
Provincial Sheriff of Rizal, Register of Deeds of Rizal and the Hon. Court of Appeals, respondents

Ponente: Melencio-Herrera, J.

Legal Doctrine: Petitioner’s loss arose from his failure to Herrera took possession of the Buendia property,
fully comply with his obligations under the Contract of received rentals of P21, 000.00 monthly, and collected
Sale. approximately P800,000.00 from December, 1971, up to
March, 1975. However, he remitted a total of only P300,
000.00 to the GSIS.

Facts: April 15, 1973 – Petitioner Herrera requested GSIS for

restructuring of mortgage obligation. GSIS replied that as
June 10, 1969 - Leviste had obtained a loan from the a matter of policy, it could not act on his request unless
GSIS. As security therefore, Leviste mortgaged 2 lots, he first performed the substitution of his property, updated
one located at Parañaque, and the other located at the account, and paid 20% to GSIS. There was NO
Buendia. requirement by GSIS for the execution of a final deed of
sale by Leviste in favor of petitioner.
November 3, 1971- Leviste sold to Petitioner, Jose V.
Herrera, the Buendia Property for the amount of June 2, 1974 – GSIS sent notice to Leviste because it
P3,750,000.00. The conditions were that petitioner would: intended to foreclose the mortgaged properties by reason
(1) pay Leviste P11,895,688.50; (2) assume Leviste's of default of payment of amortizations.
indebtedness of P1854,311.50 to the GSIS; and (3)
substitute the Paranaque property with his own within a February 15, 1975 - the foreclosed properties were sold
period of six (6) months. at public auction and a Certificate of Sale in favor of the
GSIS, as the highest bidder, was issued.
Leviste undertook that it would arrange for the conformity
of the GSIS to Herrera's assumption of its mortgage March 3, 1975- Leviste assigned its right to redeem both
obligation. Further stipulated in the Contract to Sell was foreclosed properties to respondent Jose Marcelo, Jr.
that "failure to comply with any of the conditions Later, Marcelo redeemed the properties from the GSIS by
contained therein, particularly the payment of the paying it the sum of P3, 232, 766.94 for which he was
scheduled amortizations on the dates herein specified issued a certificate of redemption. The Paranaque
shall render this contract automatically cancelled and any property was turned over by Marcelo to Leviste upon
and all payments made shall be forfeited in favor of the payment by the latter of approximately P250, 000.00 as
vendor and deemed as rental and/or liquidated disclosed at the hearing. Leviste needed the Parañque
damages." Property as it had sold the same and suit had been filed
against it for its recovery.

May 6, 1975 - Herrera wrote the GSIS informing the latter Moreover, as stated by the Court of Appeals, "nowhere in
of his right to redeem the foreclosed properties and the letter (of the GSIS) was mentioned that a final deed of ͹ʹ
asking that he be allowed to do so in installments. sale must first be executed and presented before the
However, the GSIS had not favorably acted thereon. assumption may be considered. For if it was really the
intention of GSIS, the requirement of Deed of Sale should
have been stated in its letter."

Issue: Whether Leviste’s assignment of right of

redemption to Marcelo would result in the unjust
enrichment of the former (as not only will Herrera forfeit TEEHANKEE, Dissenting:
the Buendia property, but also the sums of money he
already paid to Leviste and GSIS). Leviste patently had no justification to refuse to execute
the final deed of sale to Herrera, after receiving full
payment of the stipulated amount, and thereby prevent
fulfillment of the remaining condition for Herrera's
Held/Ratio: assumption of its mortgage obligation with GSIS, which it
had expressly undertaken to secure from GSIS. There
No. The GSIS has not benefited in any way at the was constructive fulfillment on Herrera's part of his
expense of petitioner. What it received, by way of obligations under the Contract and under Article 1186 of
redemption from respondent Marcelo, was the mortgage the Civil Code, "The condition shall be deemed fulfilled
loan it had extended plus interest and sundry charges. when the obligor voluntarily prevents its fulfillment."

Neither has Marcelo benefited at the expense of While it is true that under paragraph No. 11 of the
petitioner. He had paid to GSIS the amount Contract to Sell, failure to comply with any of the
P3,232,766.94, which is not far below the sum of P conditions therein enumerated would render the contract
3,750,000.00, which was the consideration petitioner automatically cancelled and all the sums paid by
would have paid to Leviste had his contract been petitioner forfeited, Herrera was prevented from fulfilling
consummated. the condition of assuming the GSIS mortgage because of
Leviste's own non-compliance with its obligation of
Leviste had neither profited at the expense of petitioner,
securing the consent of GSIS thereto. The contract
For Losing his Buendia Property, all he had received was
expressly obligated Leviste to work out with the GSIS
P 1,854,311.50 from GSIS less amounts he had paid,
Herrera's assumption of the mortgage. But obviously
plus P 1,895,688.00 paid to him by Herrera, the total of
because of selfish and self-serving motives and designs,
which is substantially a reasonable value of the Buendia
as borne out by the events, Leviste made no effort to
assist and arrange for Herrera's assumption of its
It is quite true that petitioner had lost the P 1,895,688.00 mortgage obligation. In spite of the fact that Herrera had
he had paid to Leviste, plus P 300,000.00 he had paid to already paid Leviste the full amount of P1, 895, 688.50,
GSIS, less the rentals he had received when in Leviste refused to execute the final deed of sale in favor
possession of the Buendia Property. of Herrera as required by GSIS.

That loss is attributable to his fault in: The substitution of Leviste's Paranaque property with
Herrera's own property as additional security for Leviste's
(a) Not having been able to submit collateral to indebtedness, as well as the assumption of Leviste's
GSIS in substitution of the Paranaque Property; mortgage obligation and restructuring of the loan, could
not be worked out and agreed upon by Herrera with
(b) Not paying off the mortgage debt when GSIS GSIS, which refused to deal with him without such final
decided to foreclose; and deed of sale from Leviste. But Leviste refused to execute
such final deed of sale notwithstanding that he had been
(c) Not making an earnest effort to redeem the paid by Herrera the full amount of P1,895,688.50 due to
property as a possible redemptioner. him and what was left was Leviste's outstanding
mortgage indebtedness to GSIS. The GSIS also refused
It cannot be validly said that petitioner had fully complied (abetted by Leviste's absolute non-cooperation, contrary
with all the conditions of his contract with Leviste. For one to his contractual obligation) to have Herrera assume the
thing, he was not able to substitute the Parañaque mortgage obligation. Instead, GSIS without notice to
Property with another collateral for the GSIS loan. Herrera foreclose the mortgage and completely shut off

Herrera-even from his right of redemption as Leviste's insist on rescission of the contract because of Herrera's
vendee. failure which Leviste itself had brought about. Leviste's ͹͵
non-compliance with its own undertaking which prevented
Leviste's unjustifiable act virtually prevented Herrera from Herrera from assuming the GSIS mortgage bars it from
complying with his obligation to assume the GSIS invoking the rescission clause.
mortgage and Leviste cannot now in equity and justice

C. Reciprocal Obligations


Song Fo, petitioner, vs. Hawaiian Philippine Co., respondent

Ponente: Malcolm, J.

Legal Doctrine: The general rule is that rescission will fundamental as to defeat the object of the parties in
not be permitted for a slight or casual breach of contract, making the agreement.
but only for such breaches as are so substantial and

Facts: Dispositive:

Song Fo & Company presented before the CFI of Iloilo a Judgment appealed from modified. Plaintiff entitled to
complaint with two causes of action for breach of contract recover damages from defendant for breach of contract.
against the Hawaiian-Philippine Co. where the judgment
asked for P70, 369.50, with legal interest, and costs.

The defendant,Hawaiian-Philippine Co, set up the Held/Ratio:

defense that since the Song Fo & Co. had defaulted in the
payment for the molasses delivered to it by the defendant 1. It can be inferred from the evidence the
under the contract between the parties, the latter was defendant agreed to sell to the plaintiff 300, 000
compelled to cancel and rescind the said contract. The gallons of molasses. The Hawaiian-Philippine
trial court condemned the defendant to pay P 35, 317.93. Co. also believed it possible to accommodate
Song Fo & Company by supplying the latter
Hence, this appeal from the judgment of the trial court. company with an extra 100,000 gallons. But the
language used with reference to the additional
100,000 gallons (in Exhibits F & G) was not a
definite promise. However, Exhibit A is a letter
Issues: which expressly mentions an understanding
between the parties of a contract for 300,000
1. Did the defendant agree to sell to the plaintiff gallons of molasses.
400,000 gallons of molasses or 300,000 gallons
of molasses?
2. [main issue] Had the Hawaiian-Philippine Co. the
right to rescind the contract of sale made with 2. NO. The defendant had no right to rescind the
Song Fo & Company? contract of sale made with the plaintiff.

In Exhibit F, the Court finds that the defendant

had an understanding with the plaintiff that the
latter, Song Fo & Co. would pay the former at
the end of each month for molasses delivered. In
Exhibit G, the Court likewise finds that Song Fo

& Co understood the things in Exhibit F and The general rule is that rescission will not be
accepted all the arrangements therein permitted for a slight or casual breach of the ͹Ͷ
presented. contract, but only for such breaches that are
substantial and fundamental as to defeat the
Song Fo & Company should have paid for the object of the parties in making the agreement. A
molasses delivered in December, 1922, and for delay in payment for a small quantity of
which accounts were received by it on January molasses for some twenty days is not such a
5, 1923, not later than January 31 of that year. violation of an essential condition of the contract.
Instead, payment was not made until February The Hawaiian-Philippine Co. also waived this
20, 1923. It can be deduced from the records of condition when it arose by accepting payment of
the trial that payment was not made for one the overdue accounts and continuing with the
month (Dec 1922) and that all the rest of the contract.
molasses were paid either on time of ahead of
time. It is on the basis of this that the defendant Also, the Hawaiian Philippine Co. has waived
gave notice of the termination of the contract and this condition when it arose by accepting the
rescission of the same. payment of the overdue accounts and continuing
with the contract.


SARREAL, SR., and MANUEL NIETO, JR., defendants-appellees

Ponente: Fernan, J.

Legal Doctrine: Reciprocal obligations are those which September 1, 1961 – Araneta assigned managerial rights
arise from the same cause, and in which each party is a to Alfredo Yulo Jr.
debtor and a creditor of the other, such that the obligation
of one is dependent upon the obligation of the other. Septmeber 5, 1961 – Sarreal wrote to the Games and
Amusement Board (GAB) expressing concern over switch
of managers

Facts: The GAB scheduled the Elorde-Boysaw match on

November 4, 1961. The USA National Boxing Association
May 1, 1961 - Solomon Boysaw and his then manager, approved it. Yulo, however, refused to accept the date
Willie Ketchum, signed with Interphil Promotions Inc. change, maintaining his refusal even after Sarreal offered
represented by Lope Sarreal Sr., a contract to engage to advance the fight on October 28, 1961, which falls
Gabriel “Flash” Elorde in a boxing contest for the junior within the 30-day period allowable in the original contract.
lightweight championship of the world. It was stipulated in
the contract that the fight would be on September 30, The Elorde-Boysaw fight contemplated in the May 1, 1961
1961 or not later than 30 days thereafter should a contract never materialized. Boysaw and Yulo sued
postponement be agreed on and that Boysaw would not Interphil, Sarreal and Manuel Nieto for damages allegedly
engage in any fights without the written consent of occasioned by Interphil and aided and abetted by Nieto,
Interphil. then GAB Chairman, to honor their commitments under
said contract.
June 19, 1961 – Boysaw fought and defeated Louis Avila
in Las Vegas, Nevada. The case dragged into 1963 because Boysaw left the
country without informing the court or his counsel. After
June 2, 1961, Ketchum assigned managerial rights over several rescheduling, Boysaw still failed to appear and
Boysaw to J. Amado Araneta. therefore, the court deemed the plaintiff’s case submitted

after declining to submit documentary evidence when obligation of one is dependent upon the other. They are to
they had no other witnesses left. The court rendered be performed simultaneously, so that the performance of ͹ͷ
judgment ordering Boysaw and Yulo to jointly and one is conditioned upon the simultaneous fulfillment of the
severally pay Nieto P25,000 and Interphil and Sarreal other. Also, the power to rescind is given to the injured
P250,000 among others. party. “Where the plaintiff is the party who did not perform
the undertaking which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon the
performance of the contract by the defendant, or recover
Issue: Whether or not there was a violation of the fight damages by reason of his own breach.”
contract of May 1, 1961; and if there was, who was guilty
of such violation. (There are other issues. Just refer to the Another violation of the contract was the assignment and
original case.) transfer of managerial rights over Boysaw without the
knowledge or consent of Interphil. The assignments were
in fact novations of the original contract which, to be valid,
should have been consented to by Interphil. Under the
Held: Yes, the contract was violated by Boysaw and Yulo.
law, when a contract is unlawfully novated by an
Decision of the CFI affirmed except the award of moral
applicable and unilateral substitution of the obligor by
another, the aggrieved creditor is not bound to deal with
the substitute.

Ratio: The consent of the creditor to the change of

debtors, whether in expromision or delegacion is
The evidence established that the contract of May 1, 1961 an indispensable requirement Substitution of
was violated by Boysaw himself, when, without the one debtor for another may delay or prevent the
consent of Interphil, he fought Louis Avila in Las Vegas, fulfillment of the obligation by reason of the
which Yulo admitted during trial. While the contract inability or insolvency of the new debtor, hence,
imposed no penalty for such violation, this does not grant the creditor should agree to accept the
any of the parties the unbridled liberty to breach it with substitution in order that it may be binding on
impunity. Our law on contracts recognizes the principle him.
that actionable injury inheres in every contractual breach.

There is no doubt that the contract in question gave rise

to reciprocal obligations. Reciprocal obligations are those
which arise from the same cause, and in which each part
is a debtor and a creditor of the other, such that the


University of the Philippines, petitioner, vs. Walfrido de los Angeles, in his capacity as Judge of the CFI in Quezon City, et al.,

Ponente: REYES, J.B.L., J.

Facts: timber from the Land Grant, in consideration of payment

to UP of royalties, forest fees.
The petition alleged that on or about 2 November 1960,
UP and ALUMCO entered into a logging agreement under ALUMCO, as of 8 December 1964, had incurred an
which the latter was granted exclusive authority, for a unpaid account of P219,362.94, which, despite repeated
period starting from the date of the agreement to 31 demands, it had failed to pay; that after it had received
December 1965, extendible for a further period of five (5) notice that UP would rescind or terminate the logging
years by mutual agreement, to cut, collect and remove agreement, ALUMCO executed an instrument, entitled

"Acknowledgment of Debt and Proposed Manner of Respondent claims that UP's unilateral rescission of the
Payments," dated 9 December 1964, which was logging contract, without a court order, was invalid and ͹͸
approved by the president of UP, and which stipulated the that only after a final court decree declaring the contract
following: rescinded for violation of its terms that U.P. could
disregard ALUMCO's rights under the contract and treat
In the event that the payments called for in Nos. 1 and 2 the agreement as breached and of no force or effect.
of this paragraph are not sufficient to liquidate the
foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said
payments have been applied shall be paid by the Issue: W/N petitioner U.P. can treat its contract with
DEBTOR in full no later than June 30, 1965; ALUMCO rescinded, and may disregard the same before
any judicial pronouncement to that effect.
In the event that the DEBTOR fails to comply with any of
its promises or undertakings in this document, the
DEBTOR agrees without reservation that the CREDITOR
shall have the right and the power to consider the Logging Held/Ratio:
Agreement dated December 2, 1960 as rescinded without
Yes. UP and ALUMCO had expressly stipulated in the
the necessity of any judicial suit, and the CREDITOR
"Acknowledgment of Debt and Proposed Manner of
shall be entitled as a matter of right to Fifty Thousand
Payments" that, upon default by the debtor ALUMCO, the
Pesos (P50, 000.00) by way of and for liquidated
creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
ALUMCO continued its logging operations, but again without the necessity of any judicial suit." As to such
incurred an unpaid account, for the period from 9 special stipulation, and in connection with Article 1191 of
December 1964 to 15 July 1965, in the amount of P61, the Civil Code, there is nothing in the law that prohibits
133.74, in addition to the indebtedness that it had the parties from entering into agreement that violation of
previously acknowledged. the terms of the contract would cause cancellation
thereof, even without court intervention. In other words, it
On 19 July 1965, petitioner UP informed respondent is not always necessary for the injured party to resort to
ALUMCO that it had, as of that date, considered the court for rescission of the contract.
agreement as rescinded and of no further legal effect. UP
filed a complaint against ALUMCO for the collection or Of course, it must be understood that the act of party in
payment of debts and a prayed for a restraining order treating a contract as cancelled or resolved on account of
against ALUMCO from continuing its logging operations in infractions by the other contracting party must be made
the Land Grant. known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the
UP now conducted a bidding to have another other party denies that rescission is justified, it is free to
concessionaire take over the logging operation, and the resort to judicial action in its own behalf, and bring the
concession was awarded to Sta. Clara Lumber Company, matter to court. Then, should the court, after due hearing,
Inc.; the logging contract was signed on 16 February decide that the resolution of the contract was not
1966. warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be
ALUMCO filed a petition to enjoin petitioner University affirmed, and the consequent indemnity awarded to the
from conducting the bidding and, on 25 February 1966, party prejudiced.
was awarded by respondent judge. UP received the order
after it had concluded its contract with Sta. Clara Lumber In other words, the party who deems the contract violated
Company, Inc., and said company had started logging may consider it resolved or rescinded, and act
operations. A second order declared petitioner UP in accordingly, without previous court action, but it proceeds
contempt of court and directed Sta. Clara Lumber at its own risk. For it is only the final judgment of the
Company, Inc., to refrain from exercising logging rights or corresponding court that will conclusively and finally settle
conducting logging operations in the concession. UP whether the action taken was or was not correct in law.
moved for reconsideration of the aforesaid order, but the But the law definitely does not require that the contracting
motion was denied. party who believes itself injured must first file suit and wait
for a judgment before taking extrajudicial steps to protect
its interest. Otherwise, the party injured by the other's

breach will have to passively sit and watch its damages requires that he should exercise due diligence to minimize
accumulate during the pendency of the suit until the final its own damages (Civil Code, Article 2203). ͹͹
judgment of rescission is rendered when the law itself


Gloria M. De Erquiaga, administratrix of the estate of the late Santiago De Erquiaga & Hon. Feliciano S. Gonzales,
petitioners, vs. Hon. Court of Appeals, Africa Valdez vda. De Reynoso, Joses V. Reynoso, Jr., Ernesto, Sylvia Reynoso,
Lourdes Reynoso, Cecile Reynoso, Edna Reynoso, Erlinda Reynoso & Emily Reynoso, respondents

Ponente: Grino-Aquino, J.

Legal Doctrine: In rescission, there should be 2. Reynoso has not rendered a full accounting of
simultaneous mutual restitution of the principal object (not the fruits he has received from Hacienda San
fruits) of the contract and of the consideration paid. Jose
3. Erquiaga has not returned the sum of P410, 000
with legal interest paid by Reynoso


Erquiaga was the owner of 100% or 3, 100 paid-up Issue: W/N Erquiaga should pay Reynoso P410, 000
shares of stock of the Erquiaga Development Corporation plus legal interest without waiting for Reynoso’s
(EDC) which owns the Hacienda San Jose, the accounting of the fruits
corporation’s only asset. He entered into an agreement
to sell all of his shares to Reynoso for P900, 000 payable
in installments on definite dates fixed in the contract. By
December 17, 1968, Reynoso was able to pay the total Held/Ratio:
sum of P410, 000 to Erquiaga who then transferred all his
shares in EDC to Reynoso as well as possession of the Erquiaga should pay Reynoso the principal amount BUT
hacienda. However, Reynoso failed to pay the balance the payment of legal interest should await Reynoso’s
which, by that time, included brokers’ commission and accounting of the fruits received by him from the
interest for late payments so Erquiaga formally informed hacienda. Art. 1385, CC provides that “Rescission
Reynoso that he was rescinding the sale. Erquiaga filed creates the obligation to return the things which were the
a complaint for rescission with preliminary injunction object of the contract, together with their fruits, and the
against Reynosoo, the CFI of Sorsogon which resulted price with its interest.” The hacienda and 1, 500 shares of
into a series of CFI and CA decisions. When the case stock have already been returned to Erquiaga. Therefore,
finally reached the Supreme Court, only the following he should return the P410, 000 upon Reynoso’s
have been done by the parties in compliance with the final conveyance of the remaining 1, 600 shares. There
judgment in the main case filed with the CFI: should be simultaneous mutual restitution of the principal
object of the contract to sell (1, 300 shares) and of the
1. The Hacienda San Jose was returned to consideration paid (P410, 000). This restitution should
Erquiaga not await the mutual restitution of the fruits, namely: the
2. Reynoso has returned to Erquiaga only the legal interest earned by Reynoso’s P410, 000 while in the
pledged 1, 500 shares of stock of EDC, instead possession of Erquiaga and the fruits of the hacienda
of 3, 100 shares as ordered which Reynoso received from the time it was delivered to
him. It is inequitable and oppressive to require Erquiaga
What the parties have not done yet (in connection with to pay the legal interest earned by Reynoso’s P410, 000
the topic) are: since 1968 or for the past 20 years (amounting to over
P400, 000 by this time) without first requiring Reynoso to
1. Reynoso has not returned the remaining 1, 600 account for the fruits of Erquiaga’s hacienda.
shares of stock to Erquiaga


Buenaventura Angeles, et al., petitioners, vs. Ursula Calasanz, et al., respondents

Ponente: Gutierrez Jr., J.

Legal Doctrine: Where one party chooses to accept

delayed payments although such are in violation of the
contract, they are estopped from exercising their right of Held: NO. Lower court decision affirmed with
rescission. modification.

Facts: Ratio:

In 1957 Calasanz and Angeles entered into a contract to Rescission of a contract will not be permitted for a slight
sell a piece of land on instalment for P3, 920 plus 7% or casual breach, as in this case (the plaintiffs had
annual interest. Angeles paid the monthly instalments already paid the aggregate amount of P4, 533.38). To
until July 1966, where the aggregate payment already sanction the rescission made by Calasanz, et al. would
reached P4, 533.38. On numerous occasions, Calasanz unjustly enrich them (Calasanz, et al.).
accepted and received delayed instalment payments from
Angeles. On December 1966, Calasanz wrote Angeles Also, in reciprocal obligations, either party has the right to
requesting the remittance of past due accounts. On rescind the contract upon failure of the other to perform
January 1967, Calasanz cancelled the contract because his/her obligation assumed thereunder. When Calasanz,
Angles failed to meet subsequent payments. Angeles’s instead of availing their alleged right to rescind, accepted
letter for reconsideration was denied by Calasanz. and received delayed payments of instalments, they are
now estopped from exercising their right of rescission.
Angeles et al. filed a civil case to compel Calasanz, et al.
to execute in their favor the final deed of sale, alleging Finally, since the contract to sell is a contract of
that after computations, all subsequent payments for the adhesion*, it must be construed against the party causing
land have already been paid totally, including interest, it.
realty taxes, etc. Defendants Calasanz et al. allege that
Thus, the cancellation will not be upheld. Nevertheless,
plaintiffs violated the contract when they failed to pay the
Angeles is ordered to pay the balance without interest.
monthly instalments on time.

The lower court ruled in favor of Angeles, et al.

*contract of adhesion: a contract that heavily restricts
one party while leaving the other free; implies inequality in
Issue: Whether the contract had been validly rescinded bargaining power
by Calasanz.


Jaime G. Ong, petitioner, vs. The Honorable Court of Appeals, Spouses Miguel K. Robles and Alejandro M. Robles,

Ponente: Ynares-Santiago, J.

Facts: worth Php 51,411 to pay off their obligation to the bank.
Ong voluntarily gave the spouses authority to operate the
May 10, 1983 – petitioner Jaime Ong and respondent rice mill while he continued to be in possession of the two
spouses Miguel K. Robles and Alejandra Robles parcels of land.
executed an “Agreement of Purchase and Sale”
respecting two parcels of land in Barrio Puri, San Antonio, August 2, 1985 – spouses Robles sent a demand letter
Quezon. The terms and conditions of the contract include asking for the return of the properties.
the following conditions:
September 2, 1985 – spouses Robles filed with the RTC
a. That the agreed purchase price of Php of Lucena a complaint for rescission of contract and
2,000,000 shall be paid in this manner: recovery of properties with damages
1. Initial payment of Php 600,000 as verbally
agreed upon shall be broken down as Trial court rendered a decision ordering Ong to deliver the
follows two parcels of land, pay Php 100,000 as exemplary
2. Php 103, 499.91 shall be paid by the buyer damages, and litigation expenses. On the other hand,
to the seller through check spouses Robles were ordered to return to Ong the sum of
3. Php 496,500.09 shall be paid directly by Php 497,179.51.
Ong to the Bank of Philippine Islands to
answer for the loan of the spouses Robles Ong appealed to the Court of Appeals but it affirmed the
b. The balance of Php 1,400,000 shall be paid by decision of the Regional Trial Court but deleted the award
Ong to the spouses Robles in four equal for exemplary damages. Aside from this, the Court of
quarterly instalments of Php 350,000 until the Appeals stated that the failure of Ong to completely pay
whole amount is fully paid, after which spouses the purchase price is a substantial breach of his obligation
Robles promise to sell to Ong the two parcels of which entitles the spouses to rescind their contract under
agricultural land including the rice mill and the Article 1191 of the New Civil Code.

May 15, 1983 – Ong took possession of the parcels of

land together with the piggery, building, ricemill,
residential house, and other improvements 1. Whether the contract entered into by the parties
may be validly rescinded under Article 1191 of
Ong paid spouses Robles the sum of Php 103, 499.91 by
the New Civil Code
depositing it with the United Coconut Planters Bank.
2. Whether the parties had novated their original
Subsequent deposits of sums of money were also made
contract as to the time and manner of payment
by Ong with the Bank of the Philippine Islands in
accordance with the stipulations of their contract.

For Ong’s remaining balance of Php 1,400,000, he issued Held/Ratio:

four post-dated Metro Bank checks payable to the Robles’
in the amount of Php 350,000 each. However, the checks 1. No, Article 1191 is not applicable. Article 1191 of
were dishonoured due to insufficient funds. Ong promised the New Civil Code refers to rescission
to replace the checks but he failed to do so. applicable to reciprocal obligations. In the
stipulations stated in the agreement between
Out of the Php 496,500 loan of spouses Robles with the Ong and the spouses Robles, their contract is in
BPI, Ong managed to pay no more than Php 393,679.60. the nature of a contract to sell as distinguished
When the bank threatened to foreclose the mortgage, the from a contract of sale. In a contract to sell,
spouses had to sell three transformers of the rice mill

ownership is by agreement reserved in the

vendor and is not passed to the vendee until full
2. No, novation is never presumed for it must be
payment of the purchase price. The payment of
the purchase price is a positive suspensive proven as a fact either by express stipulation of
condition, the failure of which is not a breach, but the parties or by implication derived from an
a situation that prevents the obligation of the irreconcilable incompatibility between the old
vendor to convey title from acquiring an and the new obligation. For novation to take
obligatory force. place, there must be a concurrence of the
following: (1) a previous valid obligation; (2) an
In the case at bar, the spouses Robles have not agreement of the parties concerned to a new
yet sold the land to Ong. Through the contract, contract; (3) there must be an extinguishment of
they promised to sell the land to Ong once he the old contract; and (4) there must be the
has completed the payment. The failure on the validity of the new contract. In present case, the
part of Ong to pay the purchase price is not a aforementioned requisites are not present. Aside
breach as contemplated in Article 1191 but it from this, the parties never intended to novate
simply prevented the obligation to convey the their previous agreement. The spouses Robles
title. Consequently, Ong’s failure rendered the had to sell the transformers simply because the
contract to sell ineffective and without force and bank threatened to foreclose the mortgage.


Visayan Sawmill Co., Inc., and Ang Tay, petitioners, vs. The Hon. Court of Appeals and RJH Trading, represented by Ramon
J. Hibionada, proprietor, respondents

Ponente: Davide, J.

Legal Doctrine: An automatic rescission shall take place 12, 1983. Two days later, they were informed by the bank
when there is a failure to deliver on the part of one of the of the said credit which was opened.
contracting parties.
On July 19, plaintiff demanded the contract be complied
with or else he would file a case against them. Defendant
was unwilling to do so and thus a case was filed.
Defendant’s counterclaim states that they were justified to
Plaintiff and defendants enter a contract of sale involving cancel the contract because plaintiff failed to comply with
scrap iron in the stockyard of defendant. The condition is the essential pre-conditions of the contract which is
that plaintiff would open a credit of P250, 000 in favor of opening of an irrevocable and unconditional letter of credit
defendant corporation. not later than 15 May 1983

Plaintiff then started to dig on the defendant’s premises RTC ruled in favor of plaintiff and awarded damages on
by May 17, 1983. However, on May 30, they were the basis that the breach was only a slight one and thus
ordered to desist from digging because of a case filed by could not lead to automatic rescission. Moreover, they
defendants. On the other hand, defendants allege that the argued that:
order of desistance was actually a cancellation of the
contract for the petitioner to comply with the conditions Delivery has already been made. The delivery was
which had been sent on a telegram on May 23, 1983 completed by the defendant’s allowing plaintiff to dig in
the premises.
On May 24, petitioner informed defendant through a
telegram that the letter of credit has been opened on May It is indeed correct that a breach of contract automatically
rescinds the contract by a mere notice to the buyer if he

committed the breach. However, it does not apply in this sale. However, in this case, there was no contract of sale
case because as was stated, the delivery has already because it is under a positive suspensive condition ͺͳ
been made. Thus, it is left to the courts to decide the wherein the sale would only be perfect upon the
rescission of the contract. compliance with said condition. Thus, there was no
breach because there was no contract to begin with.
CA affirmed the decision. Defendants appealed to SC.
In this case, the condition was not complied with. First,
the stipulations inn the opening of the credit was not
complied with which are:
Issue: WON defendants were justified in the cancellation
of the contract with the plaintiff 1. Opened by a third party-Visayan Saw Mill was
the one who opened it.
2. Bank agreed upon- not the bank agreed upon
3. Irrevocable and unconditional- it was set to
Held: Yes, the cancellation was justified

It cannot be argued that the delivery implies that the court

Ratio: should decide the rescission because this only applied to
existing obligations. However, as stated earlier, there is
The error that was committed by RTC and defendant not an obligation to start with. Thus because the delivery
court is that they viewed the case as one of a contract of has not been made, the defendant’s were justified in
rescinding the contract by a mere notice to the plaintiff.


Ernesto Deiparine, Jr., petitioner, vs. The Hon. Court of Appeals, Cesario Carungay and Engr. Nicanor Trinidad, respondents

Ponente: Cruz, J.

Legal Doctrine: Art. 1191 is not predicated on economic In the course of the construction, Trinidad reported to
prejudice to one of the parties but on breach of faith by Carungay that Deiparine had been deviating from the
one of them that violates the reciprocity between them. plans and specifications, thus impairing the strength and
(Art. 1191 is applicable to reciprocal obligations.) safety of the building. After several conferences, the
parties agreed to conduct cylinder tests to ascertain of the
structure thus far built complied with safety standards.
Carungay suggested core testing. Deiparine was first
Facts: reluctant but agreed eventually. He even offered to pay
for the tests if results would show total failure.
Spouses Cesario and Teresita Carungay entered into an
agreement with Ernesto Deiparine, Jr. for the construction After the tests, results showed that the building was
of a 3-storey dormitory in Cebu City. Deiparine bound structurally defective. In view of this finding, Carungay
himself to erect the building “in strict accordance to plans filed with the RTC of Cebu for the rescission of the
and specifications” in exchange of P970,000.00. Nicanor construction contract and for damages. After trial, the
Trinidad, a civil engineer, acted as representative of the court declared the construction agreement rescinded
Carungay spouses with powers of inspection and under Art. 1191 of the Civil Code. CA affirmed the RTC’s
coordination with the contractor. decision. Art. 1191 provides:

Trinidad sent Deiparine a document entitled General Art. 1191. The power to rescind obligations is
Conditions and Specifications which prescribed 3,000 psi implied in reciprocal ones, in case one of the
(pounds per square inch) as the minimum acceptable obligors should not comply with what is
compressive strength of the building. incumbent upon him.

The injured party may choose between the Held/Ratio:

fulfillment and the rescission of the obligation,
1. YES. The adjudicatory powers of the Philippine
with the payment of damages in either case. He
may also seek rescission, even after he has Domestic Construction Board are meant to apply
chosen fulfillment, if the latter should become only to public construction contracts. Its power
impossible. over private construction contracts is limited to
formulation and recommendation of rules and
The court shall decree the rescission claimed, procedures for the adjudication and settlement of
unless there be just cause authorizing the fixing disputes involving such private contracts. The
of a period. counsel of the petitioner, by purposely
misquoting PD 1746 (Creating the Construction
This is understood to be without prejudice to the Industry Authority of the Philippines), has
rights of third persons who have acquired the committed contempt of this Court and thus must
thing, in accordance with Articles 1385 and 1388 be disciplined.
and the Mortgage Law.
2. The document entitled General Conditions and
Deiparine contends that the Philippine Construction Specifications was delivered to DEiparine after
Development Board (that is, the Philippine Domestic he commenced the construction of the building.
Construction Board) has exclusive jurisdiction to hear and According to Eduardo Logarta, the petitioner’s
try disputes arising from domestic constructions. He also own project engineer, Deiparine instructed him
contends that contract between him and Carungay did not and some of his workers to ignore the specific
specify any compressive strength for the structure nor orders or instructions, mostly involving safety
does it require that the same be subjected to any kind of measures, of the Carungay and Trinidad.
stress test. He further contends that the applicable Deiparine obviously wanted to avoid additional
provisions in the case are Arts. 1385 and 1725 which expenses which would reduce his profit. It is
provide: clear that Deiparne did not deal with the
Carungays in good faith. His breach of his duty
Art. 1385. Rescission creates the obligation to
constituted a substantial violation of the contract
return the things which were the object of the
correctible by judicial rescission.
contract, together with their fruits, and the price
with its interest; consequently, it can be carried Art. 1385, upon which Deiparine relies, is not
out only when he who demands rescission can applicable to the construction agreement in
return whatever he may be obliged to restore. question. Art. 1385 covers rescissible contracts
under Art. 1381, which are:
Neither shall rescission take place when the
things which are the object of the contract are (1) Those which are entered into by
legally in the possession of third persons who guardians whenever the wards whom
did not act in bad faith. they represent suffer lesion by more
than one-fourth of the value of the
In this case, indemnity for damages may be
things which are the object thereof;
demanded from the person causing the loss.
(2) Those agreed upon in
Art. 1725. The owner may withdraw at will from
representation of absentees, if the latter
the construction of the work, although it may
suffer the lesion stated in the preceding
have been commenced, indemnifying the
contractor for all the latter's expenses, work, and
the usefulness which the owner may obtain (3) Those undertaken in fraud of
therefrom, and damages. creditors when the latter cannot in any
other manner collect the claims due
(4) Those which refer to things under
1. WON RTC has jurisdiction over the case litigation if they have been entered into
2. WON there is a ground for the rescission of the by the defendant without the knowledge
contract between the parties

and approval of the litigants or of to pay for the project upon its completion. Art.
competent judicial authority; 1385 is predicated on economic prejudice to one ͺ͵
of the parties and not on breach of faith by one
(5) All other contracts specially of them that violates the reciprocity between
declared by law to be subject to them. Art. 1725 is also not applicable, for this
rescission. contemplates a voluntary withdrawal by the
owner without fault on the part of the contractor,
Art. 1191 is applicable to reciprocal obligations who is therefore entitled to indemnity, and even
like the subject construction contract. It imposes damages, for the work he has already
upon Deiparine the obligation to build the commenced.
structure and upon the Carungays the obligation


Alfonso L. Iringan, petitioner, vs. Hon. Court of Appeals and Antonio Palao, represented by his Attorney-in-Fact, Felisa P.
delos Santos, respondents

Ponente: Quisumbing, J.

Legal Doctrine: A judicial or notarial act is necessary asked for reimbursement for payments paid, geodetic
before a valid rescission can take place, whether or not engineer’s fee, attorney’s fee and interest- to which Palao
automatic rescission has been stipulated. The party was not amenable.
entitled to rescind should apply to the court for a decree
of rescission (action for Judicial Confirmation of February 21, 1989- Palao proposed reimbursement of
Rescission is acceptable). The right cannot be exercised Php50, 000 or sale of an equivalent portion of the land.
solely on a party’s own judgment that the other committed Palao replied with demand for outstanding obligation
a breach of obligation. relating to rentals in arrears. Parties failed to arrive at an

July 1, 1991- Palao filed Complaint for Judicial

Facts: Confirmation of Rescission of Contract and Damages
against Iringan.
March 22, 1985- Private respondent Antonio Palao sold to
petitioner Alfonso Iringan, an undivided potion of land.
The parties executed a Deed of Sale on the same date
with ourchase price of Php295, 000, payable as follows: Issues:

a. Php10,000- upon execution of Deed of Sale-; 1. WON the contract of sale was validly rescinded;
b. Php140,000- on or before April 30, 1985; and
c. Php145,000- on or before December 31, 1985. 2. WON the award of moral and exemplary
damages is proper.
Iringan was able to pay Php10, 000 upon execution of the
instrument, but only Php40, 000 with respect to the
installment due on or before April 30, 1985. Palao sent a
letter to Iringan stating that he considered the contract Held/Ratio:
rescinded and that he would not accept any further
1. YES. The contract of sale was validly rescinded.
payment considering that Iringan failed to comply with his
obligation. Article 1592 of the Civil Code is the applicable
August 10, 1985- Iringan replied through counsel that he
did not oppose the revocation of the Deed of Sale but

“Art. 1592. In the sale of immovable When private respondent filed for Judicial
property, even though it may have been Confirmation of Rescission and Damages, he ͺͶ
stipulated that upon failure to pay the complied with the requirement of the law for
price at the time agreed upon the judicial decree of rescission. The complaint
rescission of the contract shall of right categorically stated that the purpose was (1) to
take place, the vendee may pay, even compel appellants to formalize in a public
after the expiration of the period, as document their mutual agreement of revocation
long as no demand for rescission of the and rescission, and/or (2) to have a judicial
contract has been made upon him confirmation of the said revocation/rescission
either judicially or by a notarial act. under terms and conditions fair, proper, and just
After the demand, the court may not for both parties.
grant him a new term. (1504a)”
Under the applicable Article 1141, which
Article 1592 requires the rescinding party to provides that the action upon a written contract
serve judicial or notarial notice of his intent to be brought within ten (10) years from the right
resolve the contract, whether or not automatic of action accrues, the suit being brought within
rescission has been stipulated. It is to be be six (6) years from default thereof, the contract of
noted that the law uses the phrase “even sale can still be validly rescinded.
though” emphasizing that when no stipulation is
found on automatic rescission, the judicial or
notarial requirement still applies.
2. YES. The awards for moral and exemplary
Even if Article 1191 were applied, petitioner damages is proper. Petitioner knew
would still be entitled to rescission. In Escueta respondent’s reason for selling his property.
vs. Pando, the Court held that, under the Article Petitioner adamantly refused to formally execute
1124 (now Article 1191), the right to resolve an instrument showing their mutual agreement to
reciprocal obligations is deemed implied in rescind the contract of sale, notwithstanding that
case one of the obligors shall fail to comply with it was petitioner who breached the obligation.
what is incumbent upon him, but the right must Petitioner did not substantiate, by clear and
be invoked judicially. The same article also convincing proof, his allegation that he was
provides that: “The Court shall decree the ready and willing to pay respondent.
resolution demanded, unless there should be
grounds which justify the allowance of a term for
the performance of the obligation.”


Fidela Del Castillo Vda de Mistica, petitioner, vs. Spouses Bernardino Naguiat and Maria Paulina Gerona-Naguiat,

Ponente: Panganiban, J.

Legal Doctrine: Under A.1191, the right to rescind an Facts:

obligation is predicated on the violation of the reciprocity
between the parties, brought about by a breach of faith by Eulalio Mistica is the owner of a parcel of land located in
one of them. Rescission is allowed only where the breach Malhacan, Meycauayan, Bulacan. In 1970, he leased a
is substantial and fundamental in the fulfillment of portion of the said land to Bernardino Naguiat,
obligation. respondent. In 1979, he entered into a contract to sell
200 square meters of the lot with the respondent for P20,

Terms: interest of 12% will be imposed in case of their failure to

a. Downpayment of P2,000
pay. ͺͷ
b. Remaining P18,000 will be payable in 10 years TC: Dismissed. Contract is not rescinded.
c. In case of failure to pay the balance as
stipulated, a yearly interest of 12% will be CA: Disallowed rescission. Conclusion of 10-year period
imposed. was not a resolutory term.

Respondent paid the downpayment and another partial

payment of P1,000 in 1980. However, he failed to make
any payments thereafter. Mistica died in 1986. His wife Issue: WON the contract can be rescinded.
filed a complaint for rescission alleging that the failure and
refusal to pay constitutes a violation of the contract which
entitles her to rescind. Held: No. (see doctrine)
Respondents contend that the contract cannot be
rescinded on the ground that it is stipulated that a yearly


Petitioner Court
She is entitled to rescind Transaction was clearly a contract of sale. A deed of sale is considered absolute
because the respondents when:
committed a substantial
breach when they did not No stipulation in the deed that title of property sold is reserved to seller until full
pay the balance. payment

No stipulation giving vendor the right to unilaterally resolve the contract when
buyer fails to pay within fixed period

Remedy is either performance or rescission.

In this case, contract cannot be rescinded because breach is not substantial and
fundamental to the fulfillment of the obligation.

There is also no demand from the petitioners.

Minor issues
Proviso on the payment of Code prohibits purely potestative, suspensive, conditional obligations that depend
interest did not extend the on the whims of debtor.
period to pay. If it does,
then the obligation will be The transaction is not potestative because:
purely potestative and
void under A.1182 Nowhere in the deed that the purchase price is dependent upon whether
respondents want to pay it or not

The fact that they already paid partial payments shows their intention to be bound
by the Kasulatan.

Other issues:
Issuance of certificate of title in favor of respondents does not determine whether petitioner is entitled to

Registration is not a mode of acquiring ownership over immovable properties because it does not create or
vest title but merely confirms one already created or vested.

II. Obligations with a Period

E. Benefit of Period

Jose Ponce de Leon, plaintiff-appellant, vs. Santiago Syjuco, Inc., defendant-appellant, Philippine National Bank, defendant-

Ponente: Bautista Angelo, J.

Legal Doctrine: in a monetary obligation contracted with Manila and also filed a complaint consigning the amount
a period, the presumption is that the same is deemed to Syjuco.
constituted in favor of both the creditor and the debtor
unless from its tenor or from other circumstances it On May 15, 1946, Ponce de Leon, taking advantage of
appears that the period has been established for the the destruction of records of the Registry of Deeds of
benefit of either one of them. Negros Occidental, filed for the reconstitution of transfer
of the titles of the two parcels of land to PNB. His petition
was granted.

Facts: Ponce de Leon also executed a mortgage of the two

parcels to secure the payment of any amount he may
PNB, the owner of two parcels of land in Murcia Cadastre, obtain from PNB. PNB was not aware of the other
Negros Occidental, sold said lands to Jose Ponce de mortgage, which the former executed in favor of Syjuco
Leon on March 9, 1936. during the Japanese occupation, since no encumbrance
appears annotated, but it was noted thereon that they
In 1944, Ponce de Leon then obtained two loans from would be subject to whatever claim may be filed by virtue
Santiago Syjuco, Inc.: one amounting to P200, 000, and of documents or instruments previously registered.
another P16,000. Both were in Japanese Military Notes,
payable within 1 year from May 5, 1948. In both
promissory notes, it was provided that Ponce de Leon
could not pay and Syjuco could not demand the payment Issue:
of the note except within the said period.
1. Is the consignation made by Ponce de Leon
To secure payment for the obligation, Ponce de Leon valid, given the law and the stipulations agreed
mortgaged, in favor of Syjuco, the parcels of land he upon in the two promissory notes signed by him?
purchased from PNB. (TOPICAL ISSUE)
2. Should the payments of said promissory notes
Ponce de Leon then paid PNB the balance of the be reduced to their just proportions using as a
purchase price in Japanese Military Notes. The Bank then 5
pattern the Ballantyne schedule ?
executed a deed of absolute sale in favor of Ponce de 3. Should the defense of moratorium by Ponce de
Leon. Leon against the counterclaim of Syjuco be
disregarded, given that it was not raised by
In October 1944, Ponce de Leon wanted to pay Syjuco Ponce de Leon in his pleadings?
since he was being hunted by the Japanese and was

afraid of getting caught, but the latter refused to accept H
 <,#(%&#. $'1%@'* I(,7')4%#&E ), 0 A'*(,#J( <2(),$53 )5A%<0115
the payments. %#,*$'*6,*%)),;'(,1$
Since Syjuco refused to accept the payments, Ponce de <,#)*0<)'$ $2*%#& )4' L0A0#'(' ,<<2A0)%,# -4'*' (0%$
Leon deposited the payment of the Clerk of the CFI of ,;1%&0)%,#(3 0*' 70$' A050;1' ,# $'70#$ ,* $2*%#& (0%$
L0A0#'(' ,<<2A0)%,#3 ;2) #,) 06)'* )4' -0* ,* 0) 0 (A'<%6%'$
$0)' ,* A'*%,$ -4%<4 705 %#$%<0)' )40) )4' A0*)%'( -'*'

4. Who has the priority between the two mortgage made, are not contrary to law, moral or public
claims on the same set of properties? order. Moreover, they are clear and conclusive ͺ͹
because the plaintiff agreed not only to pay the
obligation within one year from May 5, 1948, but
also to pay peso for peso in the coin or currency
Held/Ratio: of the Government that at the time of payment it
is the legal tender for public and private debts.
1. No, the consignation is not valid, therefore
Ponce de Leon is not relieved of his obligation.
The promissory notes expressly stated that
Ponce de Leon shall pay the loans “within one 3. No, the defense must not be disregarded
year from May 5, 1948 ” because Syjuco did not contest this allegation in
the pleadings filed in the lower court. EO No. 32
The requirements of consignation are as follows: suspended payment of all obligations contracted
(1) that there was a debt due; (2) that the before March 10, 1945. RA 342 also modified
consignation of the obligation had been made the moratorium orders by limiting the ban on
because the creditor to whom tender of payment obligations contracted before the outbreak of the
was made refused to accept it, or because he war to creditors who have filed claims for
was absent for incapacitated, or because several reparations with the Philippine War Damage
persons claimed to be entitled to receive the Commission. This left open the obligations
amount due; (3) that previous notice of the contracted during the Japanese occupation. The
consignation have been given to the person obligation in this case was contracted during the
interested in the performance of the obligation; Japanese occupation, and therefore covered by
(4) that the amount due was placed at the the moratorium orders.
disposal of the court; and (5) that after the
consignation had been made the person
interested was notified thereof.
The mortgage claim of the defendant Syjuco is
In this case, at least 2 of the requirements have entitled to priority over that of the Philippine
not been complied with: (1) that Ponce de Leon, National Bank since it was executed before the
before making the consignation with the clerk of mortgage in favor of PNB. Moreover, PNB must
the court, failed to give previous notice to the have known the encumbrances that exist on the
person interested in the performance of the titles since there was a warning appearing on the
obligation; and (2) that the obligation was not yet titles, and it was its duty to find out the risks
due and demandable when the money was included in the titles.
consigned, because the obligation was to be
paid within one year after May 5, 1948, and the
consignation was made before this period
matured. Therefore, the consignation is Paras’ dissent:
The mortgagor has the right to pay the
Under the law, in a monetary obligation indebtedness at any time within three years
contracted with a period, the presumption is that provided that, as in this case, he pays the
the same is deemed constituted in favor of both interest for the whole term of the mortgage.
the creditor and the debtor unless from its tenor
or from other circumstances it appears that the The borrower had to obtain a loan during
period has been established for the benefit of wartime, when living conditions were abnormal
either one of them (Art. 1127, Civil Code). and oppressive, everything was uncertain, and
everybody was fighting for his survival, our
conscience and common sense demand that his
acts be judged by compatible standards.
2. No. The terms that Ponce de Leon and Syjuco
agreed upon, which includes the term within At any rate, the contract of loan herein involved
which payment of the obligation should be paid is clearly not dependent upon any uncertain
and on the currency in which payment should be event. The loan was granted on a definite date
and has to be paid on a definite date. Both dates

are certain. The payment of the loan has to be To compel the debtor after the moratorium shall
effected regardless of the result of the war. have been removed to pay in the present ͺͺ
currency the principal of the loan made in
Japanese war notes which at the time of the loan
had very little value or purchasing power, and
Padilla’s dissent: the stipulated interests up to the date of payment
thereof, is so shocking to the conscience of a
The creditor should not be allowed to exact and
fair-minded person that it will constitute a blot on
impose unfair terms and conditions, such as that
the administration of justice in this Republic.
of barring the debtor from paying the principal of
the loan before the time agreed upon. By the The consignation made by the debtor should
payment of the principal of the loan together with have been upheld, or if the provisions as to
the stipulated interests accrued and to accrue up consignation were not adhered to or complied
to the time agreed upon for the payment of the with, then the creditor should be entitled at most
principal, the purpose or aim of the loan is to the sum awarded by the trial court.
attained — all to the advantage and benefit of
the creditor.


Anita C. Buce, petitioner, vs. The Hon. Court of Appeals, Sps. Bernardo C. Tiongco and Araceli Tiongco, Sps. Dionisio
Tiongco and Lucila Tiongco, and Jose M. Tiongco, respondents

Ponente: Davide, Jr., J.

Legal Doctrine: “[I]n a reciprocal contract like a lease, for 6 months. Private respondents refused to accept
the period must be deemed to have been agreed upon for these payments.
the benefit of both parties, absent language showing that
the term was deliberately set for the benefit of the lessee The RTC declared that the lease contract automatically
or lessor alone.” Renewal of the contract can only be renewed for 10 years as evidenced by the stipulations in
made upon their mutual agreement or at the will of both of the contract permitting the construction of buildings and
them. improvements and the filing of the complaint of Buce
almost 1 year before the expiration of the contract.
However, the CA reversed the RTC’s decision and
ordered Buce to vacate the premises since the contract
Facts: had already expired without being renewed.

Anita Buce leased a parcel of land along Quirino Avenue,

Pandacan, Manila. The lease contract was for 15 years
(June 1, 1979 – June 1, 1994), “subject to renewal for Issue: W/N the parties intended an automatic renewal of
another ten (10) years, under the same terms and the lease contract when they agreed that the lease shall
conditions. Buce then constructed a building (Anita’s be for a period of fifteen years “subject to renewal for
Grocery and Store) and paid a monthly rental fee of P200. another ten (10) years.
The respondents, the Tiongcos, later demanded an
increase in the rental, reaching P400 in 1985.

Buce paid P1,000 as monthly rental for July and August Held/Ratio:
1991. Pursuant to the Rent Control Law, private
respondents informed Buce of the increase in rent to There is nothing in the contract nor in the private
P1,576.58, effective January 1992. Buce only paid P400 respondents’ acts that show that they intended an
automatic renewal or extension of the contract. The

stipulation that the lessee may construct buildings on the parties, absent language showing that the term was
property does not indicate the intention of the lessors to deliberately set for the benefit of the lessee or lessor ͺͻ
automatically extend the contract. It is only natural that alone.” There is no presumption that term was
improvements would be introduced to the property deliberately set for the benefit of the lessee alone. Since
considering the 15-year duration of the contract. in this case, there was no specification on who may
exercise the option to renew, pursuant to Article 1196 of
The filing of the complaint a year before the expiration of the Civil Code, the period of the lease contract is deemed
the contract nor private respondents’ acceptance of the to have been set for the benefit of both parties. Renewal
increased rentals do not have any bearing on the of the contract can only be made upon their mutual
intention of the parties regarding renewal. The filing of the agreement or at the will of both of them. Since the private
complaint was due to the private respondents’ refusal to respondents did not want a renewal of the lease contract,
accept the payment of monthly rental. they cannot be compelled to execute a new contract
when the old contract expired. It is the lessor’s
“[I]n a reciprocal contract like a lease, the period must be prerogative to terminate the lease at its expiration.
deemed to have been agreed upon for the benefit of both

F. When Court May Fix Period


Gregorio Araneta, Inc., petitioner, vs. The Philippine Sugar Estates Development Co., Ltd., respondent

Ponente: Reyes, J.B.L., J.

Facts: the court will first need to fix the period before the
complaint can prosper.
J.M. Tuason & Co., Inc. owned Sta. Mesa Heights
Subdivision in Quezon City. The company, through The CFI then rendered a decision, giving the plaintiff 2
Gregorio Araneta, Inc., sold a portion of the land to the years to comply with its obligation, which the CA affirmed.
Philippine Sugar Estates Development Co., Ltd.

In the contract of purchase and sale with mortgage, it was

stipulated that Philippine Sugar will “Build on the said Issue: Is the court warranted to fix the period for J.M.
parcel land the Sto. Domingo Church and Convent” while Tuason/Araneta’s obligation?
Araneta will “Construct streets on the NE and NW and
SW sides of the land herein sold so that the latter will be a
block surrounded by streets on all four sides; and the
street on the NE side shall be named ‘Sto. Domingo
Avenue;’ (we live here haha!) No. The fixing of the period by the court under Article
1197 is only warranted when there is an absence of any
Philippine Sugar was able to finish the construction of the
period fixed by the parties. In this case, however, there
church and convent, but Araneta was unable to finish the
was a period: “reasonable time within which to comply
construction of the street in the Northeast side because
with its obligation to construct and complete the streets."
Manuel Abundo, who was occupying a part of it, refused
Even if there was no period stipulated, a fixing of a period
to vacate it.
is still not warranted since it was not what the complaint
Philippine Sugar then filed a complaint against J.M. sought (the complaint wanted specific performance, not
Tuason & Co., Inc. in order to compel the latter to comply the fixing of a period for performance; the complaint
with their obligation. The latter answered that the action assumed that the period had already elapsed). Moreover,
was premature since the obligation to construct the there is no basis to support the conclusion that period be
streets was without a definite period, which means that set at 2 years.

Article 1197 of the Civil Code involves a two-step Dispositive:

process: (1) determine that "the obligation does not fix a
The time for the performance of the obligations of
period" (or that the period is made to depend upon the will
of the debtor)," but from the nature and the circumstances petitioner Gregorio Araneta, Inc. is hereby fixed at the
it can be inferred that a period was intended"; and (2) date that all the squatters on affected areas are finally
decide what period was "probably contemplated by the evicted therefrom.

The parties were fully aware that the land in question was
occupied by squatters. Therefore, they would have
realized that the duration of the performance of the
obligation would not be under their control nor could it be
determined in advance. The parties must have intended
to defer the performance of the obligations under the
contract until the squatters were duly evicted. This is a
reasonable explanation for why the agreement did not
specify any exact periods or dates of performance.

IV. Joint and Solidary Obligations


Inchausti & Co., plaintiff, vs. Fernando Gerardo Yulo, defendant-appellee

Ponente: Arellano, J.

Legal Doctrine: When the obligation is a solidary one, the creditor may bring his action in toto against any of the debtors
obligated in solidum.

The remission of any part of the debt, made by the creditor in favor of one or more of his solidary debtors, inures to the
benefit of the rest of the debtors, and these latter may utilize in their favor the defense of remission.

Facts: The creditor firm tried to obtain security for the payment
of the disbursement of money it had been making in
Teodoro Yulo. A property owner in Iloilo, had been favor of the Yulos.
borrowing money from the firm of Inchausti & Co. under
specific conditions. On June 26, 1908, gregorio, in behalf of the siblings,
executed a notarial document whereby all (except
He died intestate. Later his wife also died. Yulo Siblings Teodoro the incompetent, and minors Concepcion and
are Pedro, Francisco, Teodoro (mentally incompetent), Jose) submitted their indebtedness to Inchausti and Co.
Manuel, Gregorio, Mariano, Carmen, Concepcion I the sum of P203,221.27 with interest of 10% per
(minor), and Jose (minor). annnum, ,ortgaging sixt-ninth of their undivided 38 rural
properties, urban properties, lorchas and family credits.
The properties left by the couple were held by their
children in common, under the name of Hijos de T. Yulo January 11, 1909, balance amounted to P271, 863.12,
continuing their current account with Inchausti & Co. to which Hijos de T. Yulo conformed with.
until their balance amounted to two hundred thousand
pesos. July 17, 1909 Inchausti Co. reduced the balance to
P253, 445.42. Hijos de T. Yulo conformed with such.

August 12, 1909 Gregorio Yulo, Manuel, Pedro, 1. Yes. According to the Civil Code “when an
Francisco, Carmen, and Concepcion ratified the obligation is constituted as a conjoint and ͻͳ
documents of June 26, 1908, severally and jointly solidary obligations each one of the debtors is
acknowledged and admitted their indebtedness to bound to perform in full the undertaking which
inchausti Co. for the amount of P253, 445.42. terms: 5 is the subject matter of such obligations”,
installments; interest 10% per annum; beginning June therefore, the debtors having obligated
30, 1910 ; payment every 30 of June til June 30, 1914. themselves in solidum, the creditor can bring
its action in toto against anyone of them.
The default in payment of any of the installment will
result in the maturity of all the installments

It was stipulated in the notarial document that the 2. No. Even if the creditor has agreed with some
siblings contracted in solidum, and that Mariano Yulo of the solidary debtors on a different
wil confirm and ratify the instrument in all parts, installments and conditions, as in the case of
otherwise it will not be binding to Inchausti and Co. who Francisco, Manuel, and Carmen through the
can make use of their right to demand and obtain the instrument of May 12, 1911, it does not lead to
immediate payment of their credit. the conclusion that the solidarity stipulated in
the instrument of Auhust 12, 1909, is broken.
Mariano neither ratified nor confirmed the instrument. The Civil Code provides “Solidarity may exist
even though the debtors are not bound in the
March 27, 1911 Inchausti & Co. filed an action against same manner and for the same periods and
Gregorio Yulo for the payment of the balance due of under the same conditions.”
P253, 445.42.

May 12 1911 Francisco, Manuel, and Carmen,

executed another notarial document in favor of 3. No. the contract of May 12, 1911 does not
Inchausti & Co. in recognition of the debt and obligation constitute novation of the former August 12,
of payment in the terms: debt reduced to P225, 000; 1909, with respect to defendant Gregorio Yulo.
interest reduced to 6% per annnum; installment
increased to eight; beginning June 30, 1911; payment Under the Civil Code “In order that an
every 30th June til June 30, 1919. obligation may be extinguished by another
which substitutes it, it is necessary that it
should be so expressly declared or that the old
and the new be incompatible in all points.”
There exist no incompatibility with the old and
1. WON plaintiff can sue Gregorio Yulo alone, the new obligation as the new contract
there being other obligors stipulated that the suit against Gregorio Yulo
must continue and the three who executed the
2. If yes to the 1st, WON the plaintiff lost such
new document would cooperate in order for
right by the fact of its having agreed with the
the action to prosper. Further, an obligation to
terms of May 12, 1911 notarial document of
pay a sum of money is not novated in a new
Francisco, Manuel and Carmen
instrument wherein the old is ratified by
3. WON the contract of May 12, 1911 constitutes changing only the term of payment and adding
novation of the Aug. 12, 1909 document other obligations not incompatible with the old
4. Whether the instrument of May 12, 1911 has
any effect in the action brought against
Gregorio Yulo
4. The effects are:

The defendant has a right to enjoy the benefits

Ratio: of partial remission of the debt granted by the
creditor to the defendant’s co-solidary debtors

Under the Civil Code (Art. 1143). The amount with regard to the share of the debt for which
stated in the contract of August 12, the latter may be liable.” ͻʹ
1909,cannot be recovered but only that stated
in the contract of May 12, 1911, which Not all of the P225, 000 can be demanded of
amounts to P225,000. him, for that part of Francisco, Manuel and
Carmen are not yet due. (refer to the
Further, under Art. 1148 of the Civil Code, “the difference of 1 payment due of the two
solidary debtor may utilize against the claims contracts)
of the creditor all the defenses arising from the
nature of the obligation and those which are Thus, Gregorio Yulo shall pay the amount of
personal to him. Those personally pertaining P112, 500 the three-sixths part which feel due
to the others may be employed by him only on the first contract, with interest stipulated in
the May 12, 1911 contract.


Ponente: Panganiban, J.

Legal Doctrine: Obligations arising from tort are, by

their nature, always solidary.
Continental filed before the QC RTC a “Complaint with
Application for Preliminary Attachment”, praying that
Facts: Lafarge be directed to pay the “APT Retained Amount”
referred to in Clause 2 (c) of the SPA.
Aug. 11, 1988 – Lafarge and Continental executed a
Letter of Intent, whereby Lafarge agreed to purchase the Lafarge filed their Counterclaim, alleging that Continental,
cement business of Continental. through Lim (majority stockholder and president) and
Mariano (corporate secretary), had filed the baseless
Oct. 21, 1988 – Both parties entered into a Sale and Complaint and procured the Writ of Attachment in bad
Purchase Agreement (SPA). faith. Also, it is prayed that both Lim and Mariano be held
“jointly and solidarily” liable with Continental.
At the time of the foregoing transactions, Lafarge was well
aware that Continental had a case pending with the SC, RTC dismissed Lafarge’s counterclaim insofar as it
entitled Asset Privatization Trust (APT) v. CA and impleaded Lim and Mariano, even if it included
Continental Cement Corp. Continental.

In anticipation of the liability that the SC might adjudge

against Continental, the parties, under clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a Issue: W/N Lafarge can implead in their counterclaims
portion of the contract price in the amount of persons who were not parties to the original complaints.

Lafarge allegedly refused to apply the sum to the

payment to APT, despite the subsequent finality of the Held: YES.
decision in favor of APT and the repeated instructions of

Ratio: CC Art. 1207: Obligations are generally considered joint,

Lafarge’s counterclaims for damages were the result of

except when otherwise expressly stated or when the law ͻ͵
or the nature of the obligation requires solidarity.
respondent’s (Lim and Mariano) act of filing the Complaint
and securing the Writ of Attachment in bad faith. Obligations arising from tort are, by their nature, always
The ruling in Sapugay v. CA is applicable to the case at
bar: The inclusion of a corporate officer or stockholder is Worcester v. Ocampo: "Joint tort feasors are jointly and
not premised on the assumption that the plaintiff severally liable for the tort which they commit. The
corporation does not have the financial ability to answer persons injured may sue all of them or any number less
for damages, such that it has to share its liability with than all. Each is liable for the whole damages caused by
individual defendants. Rather, such inclusion is based on all, and all together are jointly liable for the whole
the allegations of fraud and bad faith on the part of the damage.”
corporate officer or stockholder. These allegations may
warrant the piercing of the veil of corporate fiction, so that The fact that the liability sought against the Continental is
the said individual may not seek refuge therein, but may for specific performance and tort, while that sought
be held individually and personally liable for his or her against the individual respondents is based solely on tort
actions. does not negate the solidary nature of their liability for
tortuous acts alleged in the counterclaims.
Lafarge’s usage of the term "joint and solidary" is
confusing and ambiguous. Notwithstanding this CC Art. 1211: "Solidarity may exist although the creditors
ambiguity, respondents' liability, if proven, is solidary. and the debtors may not be bound in the same manner
and by the same periods and conditions.


ROMAN JAUCIAN, plaintiff and appellant, vs. FRANCISCO QUEROL, administrator of the intestate estate of the
deceased Hermenegilda Rogero, defendant and appellee

Ponente: J. Street

Legal Doctrine: Where a guarantor or surety is jointly and severally bound with the principal debtor, the obligation of the
guarantor or surety, equally with that of the principal debtor, is absolute and not contingent within the meaning of section
746 of the Code of Civil Procedure. Where two persons are bound in solidum for the same debt and one of them dies,
the whole indebtedness can be proved against the estate of the latter; and if the claim is not presented to the committee
appointed to allow claims against the estate within the time contemplated in section 689 of the Code of Civil Procedure
the same will be barred as against such estate, under the provisions of section 695 of the same Code.

Facts: Nov 1909- Rogero brought an action in the CFI of Albay

against Jaucian, asking that the document in question be
Oct 1908- Lino Dayandante and Hermenegilda Rogero cancelled as to her upon the ground that her signature was
executed a private writing in which they acknowledge obtained by means of fraud.
themselves to be indebted to Jaucian in the sum of P 13,
332.33. Rogero signed this document in the capacity of Jaucian responded, by way of cross-complaint, asking for
surety for Dayandante; but as clearly appears from the judgment against Rogero for the amount due upon the
instrument itself both debtors bound themselves jointly and obligation, which appears to have matured at that time. But
severally to the creditor or, and there is nothing in the CFI decided in favor of Rogero hence Jaucian appealed in
terms of the obligation itself to show that the relation the Supreme Court.
between the two debtors was that of principal and surety.

While the case was pending in the Supreme Court, Rogero or any balance that may be due to him." The court further
died and the administrator of her estate was substituted as added that there must be a legal action taken against Lino ͻͶ
the party plaintiff and appellee. Francisco Querol was Dayandante to determine whether or not he is insolvent
named administrator; and a committee was appointed to and that a simple affidavit saying that he has no property
pass upon claims against the estate of Rogero. This except P100 worth of property, which he has ceded to
committee made its report on claims against Rogero estate Roman Jaucian, is not sufficient.
on September 3, 1912.
And so, following this suggestion by the court, Jaucian
Nov 25, 1913 - the Supreme Court reversed the judgment brought a legal action against Dayandante and recovered
of the trial court and held that the disputed claim was valid. a judgment against him for the full amount of the obligation
evidenced by the document of October 24, 1908.
March 24, 1914- Jaucian entered an appearance in the Execution was issued upon this judgment, but was
estate proceedings, and filed with the court a petition for returned by the sheriff wholly unsatisfied, no property of
the execution of the document of October, 1908, by the the judgment debtor having been found.
deceased; since there is a failure on the part her co-obligor
Dayandante, to pay any part of the debt, except the P100 Then On October 28, 1914, counsel for Jaucian filed
received from him in March, 1914. Dayandante was another petition in the estate proceedings of Rogero, in
completely insolvent. which they averred, upon the grounds last stated, that
Dayandante was insolvent, and renewed the prayer of the
Upon these facts, Jaucian asked the court for an order original petition. It was contended that the court, by, its
directing Querol, as administrator of Rogero estate, to pay order of April 13, 1914, had "admitted the claim."
him the principal sum of P13, 332.33 plus its interest. But
Querol opposed the granting of the petition upon grounds The petition was again opposed by the administrator of the
that the claim had never been presented to the committee estate upon the grounds that the claim was not admitted by
for allowance; that 18 mths (Sept 1912-Mar 1914) had the order of April 13, 1914; that the said claim was a mere
passed since the filing of the report of the committee, and contingent claim against the property of Rogero; that the
that the court was therefore without jurisdiction to entertain claim was not reduced to judgment during the lifetime of
the demand of the claimant. Rogero; that it was not presented to the commissioners;
that this credit is outlawed or prescribed; and that this court
has no jurisdiction to consider this claim.

On April 13, 1914, CFI (Hon. Moir) ruled that:

“ This claim is a contingent claim, because, according to

the decision of the Supreme Court, Hermenegilda Rogero
was a surety of Lino Dayandante. The object of presenting Issues:
the claim to the commissioners is simply to allow them to
pass on the claim and to give the administrator an 1. WON the order of April 13, 1914 is final and
opportunity to defend the estate against the claim. This hence appealable
having been given by the administrator defending the suit
in the Supreme Court he cannot now come into court 2. WON Rogero’s liability was that of principal,
and hide behind a technicality and say that the claim had though she was only a surety for Dayandante
not been presented to the commissioners and that, the
commissioners having long since made report, the claim
cannot be referred to the commissioners and therefore the Held/Ratio:
claim of Roman Jaucian is barred.”
1. No, it was not final and therefore it was not appealable.
"Hermenegilda Rogero having been simply surety for Lino
Dayandante, the administrator has a right to require that In effect, it held that whatever rights Jaucian might have
Roman Jaucian produce a judgment for his claim against against the estate of Rogero were subject to the
Lino Dayandante, in order that the said administrator may performance of a condition precedent, namely, that he
be subrogated to the rights of Jaucian against Dayandante. should first exhaust this remedy against Dayandante... The
When this action shall have been taken against Lino pivotal fact upon which the order was based was the failure
Dayandante and an execution returned 'no effects,' then of appellant to show that he had exhausted his remedy
the claim of Jaucian against the estate will be ordered paid against Dayandante, and this failure the court regarded as

a complete bar to the granting of the petition at that time.

The order of April 13, 1914, required no action by the
The foregoing articles of the Civil Code make it clear that
administrator at that time, was not final, and therefore was
not appealable. We therefore conclude that no rights were Hermenegilda Rogero was liable absolutely and
conferred by the said order of April 13, 1914, and that it did unconditionally for the full amount of the obligation without
not preclude the administrator from making opposition to any right to demand the exhaustion of the property of the
the petition of the appellant when it was renewed. principal debtor previous to its payment. Her position so far
as the creditor was concerned was exactly the same as if
she had been the principal debtor.

2. Yes, Rogero’s liability is that of a principal even though -The absolute character of the claim and the duty of the
she was only a surety for Dayadante committee to have allowed it in full as such against the
estate of Hermenegilda Rogero had it been opportunely
But Hon. Jenkins was correct in rejecting the claim of presented and found to be a valid claim is further
Jaucian, since it was absolute claim and not contingent. established by section 698 of the Code of Civil Procedure,
which provides:
-Bearing in mind that the deceased Hermenegilda Rogero,
though surety for Lino Dayandante, was nevertheless "When two or more persons are indebted on a joint
bound jointly and severally with him in the obligation, the contract, or upon a judgment founded on a joint contract,
following provisions of law are here pertinent. and either of them dies, his estate shall be liable therefor,
and it shall be allowed by the committee as if the contract
had been with him alone or the judgment against him
alone. But the estate shall have the right to recover
Article 1822 of the Civil Code provides:
contribution from the other joint debtor."
"By security a person binds himself to pay or perform for a
- In the official Spanish translation of the Code of Civil
third person in case the latter should fail to do so.
Procedure, the sense of the English word "joint," as used
"If the surety binds himself jointly with the principal debtor, in two places in the section above quoted, is rendered by
the provisions of section fourth, chapter third, title first, of the Spanish word "mancomunadamente." This is incorrect.
this book shall be observed." The sense of the word "joint," as here used, would be more
properly translated in Spanish by the word "solidaria,"
though even this word does not express the meaning of
the English with entire fidelity.
Article 1144 of the same code provides:
- The section quoted, it should be explained, was originally
"A creditor may sue any of the joint and several (solidarios) taken by the author, or compiler, of our Code of Civil
debtors or all of them simultaneously. The claims instituted Procedure from the statutes of the State of Vermont; and
against one shall not be an obstacle for those that may be the word "joint" is, therefore, here used in the sense which
later presented against the others, as long as it does not attaches to it in the common law where there is no
appear that the debt has been collected in full." conception of obligation corresponding to the divisible joint
obligation contemplated in article 1138 of the Civil Code. It
is just to say, the obligation is apportionable among the
debtors; and in case of the simple joint contract neither
Article 1830 of the same code provides: debtor can be required to satisfy more than his aliquot part.

"The surety can not be compelled to pay a creditor until - To avoid the inconvenience of this procedural
application has been previously made of all the property of requirement and to permit the creditor in a joint contract to
the debtor." do what the creditor in a solidary obligation can do under
article 1144 of the Civil Code, it is not unusual for the
parties to a common law contract to stipulate that the
debtors shall be "jointly and severally" liable. The force of
Article 1831 provides:
this expression is to enable the creditor to sue any one of
"This application can not take place " (1) * * * (2) If he has the debtors or all together at pleasure.
jointly bound himself with the debtor * * *."

- From what has been said it is clear that Hermenegilda Dispositive: For the reasons stated, the decision of the
Rogero, and her estate after her death, was liable trial court denying appellant's petition and his motion for a ͻ͸
absolutely for the whole obligation, under section 698 of new trial was correct and must be affirmed.
the Code of Civil Procedure; and if the claim had been duly
presented to the committee for allowance it should have
been allowed, just as if the contract had been with her
alone. MALCOLM and FISHER, JJ., concurring:

- It is thus apparent that by the express and With respect to the contention that the bar established by
incontrovertible provisions both of the Civil Code and the section 695 is limited to claims "proper to be allowed by
Code of Civil Procedure, this claim was an absolute claim. the committee" our reply is that contingent claims fall within
Applying section 695 of the Code of, Civil Procedure, this this, definition equally with absolute claims. It is true that as
court has frequently decided that such claims are barred if long as they are contingent the committee is not required
not presented to the committee in time; and we are of the to pass upon them finally, but merely to report them so that
opinion that, for this reason, the claim was properly the court may make provision for their payment by
rejected by Judge Jenkins. directing the retention of assets. But if they become
absolute after they have been so presented, unless
- There is no force, in our judgment, in the contention that admitted by the administrator or executor, they are to be
the pendency of the suit instituted by the deceased for the proved before the committee, just as are other claims. We
cancellation of the document in which the obligation in are of the opinion that the expression "proper to be allowed
question was recorded was a bar to the presentation of the by the Committee," as limiting the word "claims" in section
claim against the estate. The fact that the lower court had 695 is not intended to distinguish absolute claims from
declared the-document void was not conclusive, as its contingent claims, but to distinguish those which may in no
judgment was not final, and even assuming that if the claim event be passed upon by the committee, because
had been presented to the committee for allowance, it excluded by section 703, from those over which it has
would have been rejected and that the decision of the jurisdiction. We are of the opinion, therefore, that
committee would have been sustained by the Court of First contingent claims not presented to the committee on
Instance, the rights of the creditor could have been claims within the time named for that purpose are barred.
protected by an appeal from that decision.

- The only concrete illustration of a contingent claim given

in section 746 is the case where a person is liable as Judgment affirmed.
surety for the deceased, that is, where the principal debtor
is dead. This is a very different situation from that
presented in the concrete case now before us, where the
surety is the person who is dead.

- It is enough to say that where, as in the case now before

us, liability extends unconditionally to the entire amount
stated in the obligation, or, in other words, where the
debtor is liable in solidum and without postponement of
execution, the liability is not contingent but absolute.


INC., respondents.

Ponente: REYES, A., J.

Legal Doctrine: A guaranty is a contract whereby a person, called the guarantor, binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter fail to do so. In solidary obligation, any one or some or all of the
solidary debtors simultaneously, may be made to pay the debt so long as it has not been fully collected. A solidary
guaranty is a suretyship which means that the guarantors are liable to the creditor solidarily with the principal debtor.

Facts: Realty Investments commenced the present action in the

Court of First Instance of Manila for the recovery of the
June 17, 1948 – Dominguez signed a contract with Realty said balance from either Delfin Dominguez or the RFC.
Investments, Inc. to purchase a registered lot (Riverside
Subdivision). He made a downpayment of 39.98 and Trial Court allowed recovery from Dominguez, but
promising to pay the balance in 119 monthly installments. absolved the RFC from the complaint.

After 3 months, RFC agreed to loan him 10,000 on the But on appeal, the Court of Appeals reversed that verdict,
security of a mortgage upon the house and lot. declared the judgment against Dominguez void for having
been rendered after his exclusion from the case, and
September 17, 1948 – RFC requested that the necessary sentenced the RFC to pay plaintiff the amount claimed
documents for the transfer of title of the vendee be together with interests and costs.
executed so that it can be registered together with the
mortgage, this with the assurance that as soon as title to
the lot had been issued in the name of Dominguez and
the mortgage in favor of RFC registered as first lien on Issue: W/N RFC is liable for the balance of the purchase
the lot and building thereon, the RFC would ay Realty price of the lot?
Investments “the balance of the purchase price of the lot
in the amount of P3, 086.98.”

Complying and relying on the assurance made by RFC, Held/Ratio: Yes, it is liable.
Realty investment deeded over the lot to Dominguez “free
While the amount sought to be recovered by plaintiff was
of all liens and encumbrances” and thereafter the
originally owing from Dominguez, being the balance of the
mortgage deed was recorded in the Registry of Deeds in
purchase price of the lot he had agreed to buy, the
obligation of paying it to plaintiff has already been
Once the mortgage was recorded RFC released to assumed by the RFC with no other condition than that title
Dominguez P6, 500 but the remainder of the loan was to the lot be first conveyed to Dominguez and RFC's
never released because Dominguez defaulted in the mortgage lien thereon registered, and that condition has
payment of the amortization due and as a consequence already been fulfilled.
RFC foreclosed the mortgage. RFC bought the
Dominguez and RFC kept the Realty Investment ignorant
mortgaged property in the foreclosure sale and obtained
on the terms and conditions of their agreement
title thereto upon failure of the mortgagor to exercise his
concerning the loan of 10,000 and the manner that sum
right of redemption.
was to be released
RFC refused to pay Realty Investments the balance of the
Realty Investment was induced to part with his title to a
purchase price of the lot.
piece of realty property upon the assurance of RFC that it
would itself pay the balance of the purchase price due

from the Dominguez after its mortgage lien thereon had Dominguez and the registration thereon of the mortgage
been registered. in favour of RFC. This condition was already fulfilled ͻͺ
hence RFC’s obligation to pay the remaining balance
If RFC was not to make any further release of funds on became due and demandable.
the loan, or if such release was to subject to future
developments, it was the duty of RFC to answer the letter
dated September 20, and to inform Realty Investment of
the terms and conditions of the loan. The officers of RFC Dispositive: The decision appealed from is affirmed, with
failed to do this and cannot be upheld by the courts of costs against the RFC.

It was the RFC that induced Realty Investment to issue

title to the lot free from all encumbrances to Dominguez
on its guaranty.

Dominguez’s original obligation to pay realty was affirmed

by RFC upon the conveyance of the title of the lot to

Quiombing v. CA

Nicencio Tan Quiombing, petitioner, vs. CA & Sps Francisco & Manuelita Saligo, respondents

Ponente: Cruz, J.

Legal Doctrine:

The distinction between joint and solidary obligations from Tolentino:

x JOINT OBLIGATION: each party can be held liable or entitled (as the case may be) to a PROPORTIONATE
part of the debt or credit. EACH can pay or recover only HIS SHARE of the obligation.
x SOLIDARY OBLIGATION: each party is liable for or can demand THE ENTIRE obligation. Debtor can be
obliged to pay the ENTIRE obligation. Creditor has the right to enforce the entire oblig .

The essence of ACTIVE SOLIDARITY consists in the authority of each creditor to claim & enforce the rights of all, the
resulting obligation of paying everyone what belongs to him. There is no merger much less renunciation of rights, but

Facts: due from her & her husband payable to Quiombing on

or before Dec. 31, 1984.
Through a “Construction and Service Agreement
(CSA)” , Nicencio Tan Quiombing and Dante Biscocho Almost two years later, on Oct 29, 1986 filed a
as the First Party, jointly & severally bound themselves complaint for the recovery of the amount—plus
to construct a house for Francisco & Manuelita Saligo surcharge and interests—as the balance of the
for Php 137, 947.00 on August 30, 1983. contracted price of the construction of the house.

On October 10, 1984 Quiombing & Manuelita (the wife)

entered into a 2 written agreement [1] acknowledging
the completion of the house and [2] paying the balance Pertinent arguments:
amounting to Php 125, 363.50.
x Private respondents argued that the complaint
Then on November 19, 1984, Manuelita executed a cannot prosper since Biscocho (Quiombing’s co-
promissory note representing the Php 125, 363.50 still creditor) is an indispensable party.

Issue: Thus as far as the Saligo’s were concerned, payment to

Quiombing will be considered payment to the other
WON one of the 2 solidary creditors can sue by even if Biscocho was not made a party to the suit.
himself alone for the recovery of the amounts due
to both of them w/o joining the other as co-plaintiff? Art. 1212. Each one of the solidary creditors
(That is, is the 2 solidary creditor an indispensable may do whatever may be useful to the others,
party?) but not anything which may be prejudicial to
the latter. (1141a)

Art. 1214. The debtor may pay any one of the

Held/Ratio: solidary creditors; but if any demand, judicial
or extrajudicial, has been made by one of
YES, he can. It did not matter who between Quiombing them, payment should be made to him.
and Biscocho filed the complaint because the private (1142a)
respondents were liable to either of the 2 as a solidary
creditor for the full amount of the debt.

In explaining the distinction between joint and solidary NOTES on corollary issue/s:
obligs, the SC relied on Tolentino:
x The Saligos cannot plead for breach of contract
x JOINT OBLIGATION: each party can be held liable since they acknowledged the completion of the
or entitled (as the case may be) to a house & agreed to pay the balance of the contract
PROPORTIONATE part of the debt or credit. price as per the 2nd agreement.
EACH can pay or recover only HIS SHARE of the x The participation of Biscocho is not indispensable
obligation. much less necessary.
x SOLIDARY OBLIGATION: each party is liable for INDISPENSABLE parties are with such interest in the
or can demand THE ENTIRE obligation. Debtor controversy that a final decree will necessarily affect
can be obliged to pay the ENTIRE oblig. Creditor their rights, so the court cannot proceed without their
has the right to enforce the entire oblig. presence.

The essence of ACTIVE SOLIDARITY consists in the

authority of each creditor to claim & enforce the rights NECESSARY parties are those whose presence is
of all, the resulting obligation of paying everyone what necessary to adjudicate the whole controversy but
belongs to him. There is no merger much less whose interest are separable that a final decree can be
renunciation of rights, but only MUTUAL made in their presence without affecting them.


Baldomero Inciong, Jr., petitioner, vs. Court of Appeals and Philippine Bank of Communications, respondents ͳͲͲ
Ponente: Romero, J.

Legal Doctrine: A solidary or joint & several obligation is one in which each debtor is liable for the entire obligation, &
each creditor is entitled to demand the whole obligation.

CC 2080: The guarantors, even though they be solidary, are released from their obligation whenever by some act of the
creditor, they cannot be subrogated to the rights, mortgages, & preferences of the latter.

Facts: & fairness of the transaction, since the figure "50,000"

appears directly below the signature of Inciong in the
Inciong, Naybe, & Pantanosas signed a promissory note promissory note. The lower court added that it was "rather
of P50, 000, holding themselves jointly & severally liable odd" for petitioner to have indicated in a copy & not in the
to respondent PBC, Cagayan de Oro City branch. original, his supposed obligation in the amount of P5,000
Promissors did not pay on due date. only, considering that Inciong had a Bachelor of Laws
degree & is a labor consultant.
PBC twice sent Inciong telegrams demanding payment, &
sent a final letter of demand to Naybe. Obligors did not
respond to demands.
PBC filed a complaint for collection of the sum of
P50,000. Complaint dismissed for failure of PBC to Is Inciong liable to pay the entire amount of the obligation
prosecute the case. Lower court reconsidered the as a solidary co-debtor? YES
dismissal & required the sheriff to serve the summonses.
Lower court dismissed the case against Pantanosas. Only
the summons addressed to Inciong was served as Naybe Ratio:
had gone to Saudi Arabia.
There is no merit in Inciong's assertion that since the
According to Inciong: promissory note is not a public deed with the formalities
prescribed by law but a mere commercial paper, parol
He was approached by Campos, who told him evidence may overcome it.
(1) that he was a partner of Pio Tio, the branch
manager of PBC, in a logs operation business The parol evidence rule states: When the terms of an
(2) that Naybe would contribute a chainsaw to agreement have been reduced to writing, it is considered
the venture (3) that, although Naybe had no as containing all the terms agreed upon & there can be,
money, Pio Tio had assured Naybe of the between the parties & their successors in interest, no
approval of a loan he would make with PBC (4) evidence of such terms other than the contents of the
that Inciong should act as a “co-maker” in the written agreement.
said loan.
The rule does not specify that the agreement be a public
5 copies of a blank promissory note were document. What is required is that the agreement be in
brought to him by Campos. He affixed his writing.
signature thereto but in one copy, he indicated
that he bound himself only for P5, 000. Thus, it By alleging fraud, petitioner was in the right direction
was by trickery, fraud & misrepresentation that towards proving that he & his co-makers agreed to a loan
he was made liable for the amount of P50, 000. of P5, 000 only. However, fraud must be established by
clear & convincing evidence, mere preponderance is not
The lower court decided that Inciong’s testimony on his adequate. Petitioner's allegation was evidenced only by
limited liability cannot prevail over the presumed regularity his own testimony.

Inciong argues that the dismissal of the complaint against Because the promissory note expressly states that the
Naybe (the principal debtor) & against Pantanosas (co- signatories are jointly & severally liable, any one of them ͳͲͳ
maker), should release him of obligation, based on CC may be proceeded against for the entire obligation. The
2080. However, Inciong signed the promissory note as a choice is left to the creditor to determine against whom he
solidary co-maker & not as a guarantor. A solidary or joint will enforce collection. Consequently, the dismissal of the
& several obligation is one in which each debtor is liable case against Judge Pontanosas may not be deemed as
for the entire obligation, & each creditor is entitled to having discharged petitioner from liability as well.
demand the whole obligation.


Purita Alipio, petitioner v. Court of Appeals and Romeo Jaring, represented by attorney-in fact Ramon Jaring,

Ponente: Mendoza, J.

Facts: Held: The claim must be filed in the proceeding for

settlement of estate. Petition to dismiss the case granted.
Respondent Jaring was the lessee of a 14.5 ha. fishpond
in Bataan. His lease was for 5 years ending on 12
September, 1990. On June 1987, he subleased the pond
to spouses Alipio and spouses Manuel for the remaining Ratio:
period for Php 485,600, payable in 2 instalments. All four
spouses signed the contract. The husband died 10 months prior to the time when the
suit for recovery was filed. Therefore, this case falls
The second instalment of Php 185,600 was due on 30 outside the ambit of the Rules of Court provision stating
June 1989. However, the spouses only made partial that if died during the pendency of the case, the suit
payment of Php 50,600. They filed to comply despite continues.
Jaring’s demand. Jaring then sued (October 1989) for the
collection of the rent or, as an alternative, for the When the spouses Alipio entered into the contract, the
rescission of the sublease. debt was incurred by the conjugal partnership of gains
and not by themselves separately. When the husband
Purita Alipio moved to dismiss since her husband died on dies, the conjugal partnership was automatically dissolved
December 1, 1988. She grounded her motion on the 1964 and the debts charged to it could only be paid during the
Rules of Court provision stating that in an action for the proceedings for the settlement of the estate. The proper
recovery of a debt, if the defendant dies before final remedy is to claim from the conjugal property and not
judgment the case must be dismissed in order to be from the surviving spouse, who no longer becomes the
prosecuted in the manner provided. However, this administrator of the property. Since the CPG is now
provision was later amended to read that the case is not dissolved, the proper avenue is to claim during the
to be dismissed but instead allowed to continue until final settlement of the estate, where an inventory of property is
judgment. necessary before claims against it can be made.

The case of Climaco and Imperial does not apply here

because here is a different set of facts. In Climaco,
Issues: W/N creditor can sue surviving spouse for the petitioner was awarded damages for malicious
collection of a debt incurred by the conjugal partnership of prosecution. Therefore, the claim was not shouldered by
gains or whether such claim must be filed in the the conjugal partnership and thus survives after the death
proceedings for the settlement of estate. of one spouse. The case of Imperial likewise does not
apply here because the spouses in that case were jointly
and severally liable and therefore could be independently

Obligations are presumed joint. They are solidarily only showing of this. Neither was there any showing that the
when it is expressly stipulated or when the law or nature nature of the obligation in this case required a solidary ͳͲʹ
of the obligation so requires. An obligation would be liability. Therefore, since the obligation is joint, it is
solidarily liable by law if, after being in default, the demandable from the conjugal partnership and not to
petitioners would refuse to leave. However, there was no each party of the contract.

VI. Obligations with a Penal Clause


Makati Development Corporation, plaintiff-appellant, vs. Empire Insurance Co., defendant-appellee, and Rodolfo P.
Andal, third-party defendant-appellee

Ponente: Castro, J.

Legal Doctrine: Where there has been partial or irregular compliance with the provisions in a contract for special
indemnification in the event of failure to comply with its terms, courts will rigidly apply the doctrine of strict construction
against the enforcement in its entirety of the indemnification, where it is clear from the contract that the amount or
character of the indemnity is fixed without regard to the probable damages which might be anticipated as a result of a
breach of the terms of the contract, or, in other words, where the indemnity provided for is essentially a mere penalty
having for its object the enforcement of compliance with the contract.

Facts: EIC refused: MDC filed a complaint against EIC to

recover the bond plus attorney’s fees
March 31, 1959: MDC sold to Andal a lot (1,589 m2) in the
Urdaneta Village, Makati, Rizal for P 55, 615. EIC filed its answer with a third-party complaint againt
Andal. It asked that MDC complaint be dismissed or if it
The deed of sale contains a ‘special condition’: "[T]he the judgement will be favourable to MDC, that Andal will
VENDEE/S shall commence the construction and be ordered to pay EIC whatever amount it may be
complete at least 50% of his/her/their/its residence on the ordered to pay to MDC + 12% interest + attorney’s fees
property within two (2) years from March 31, 1959 to the
satisfaction of the VENDOR and, in the event of Andal: The special condition is contrary to law, morals,
his/her/their/its failure to do so, the bond which the and public policy. Nonetheless, Carlos had started the
VENDEE/S has delivered to the VENDOR in the sum of construction of a house and lot.
P11,123.00 and evidenced by a cash bond receipt dated
April 10, 1959 will be forfeited in favor of the VENDOR by CFI: EIC should pay P1,500 to MDC + interest +
the mere fact of failure of the VENDEE/S to comply with attorney’s fees. In case the EIC pays such, Andal is
this special condition." ordered to pay EIC the same amount.

April 10, 1959: Andal (principal) and EIC (surety) gave a MDS appealed directly to the SC.
surety bond, jointly and severally. They will pay P12, 000
to MDC in case Andal failed to comply with his obligation.

Andal did not build house. Instead, he sold the lot to Juan Issue/ Held:
Carlos on Jan. 18, 1960.
Is the decision of CFI reducing Andal’s liability correct?
April 3, 1961 (three after the lapse of the 2-year period): Yes.
MDC sent a notice to EIC demanding for P12,000.

Ratio: The judge shall equitably reduce the penalty when the

CFI: The entire area was already fenced with a stone wall
principal obligation has been partly or irregularly complied ͳͲ͵
with by the debtor. Even if there has been no
and building materials were also stocked. It is a clear performance, the penalty may also be reduced by the
indicia of the owner’s desire to construct the house courts if it is iniquitous or unconscionable.
though with a little delay.
The building of a house shortly after the period stipulated
The penal clause in this case was not for indemnification justifies reducing the penalty. There was a partial
to MDF for any damage it might suffer for non-compliance performance of the obligation.
of the obligation, but rather to compel the performance of
the special condition. Though Carlos bears no contractual relation to MDC, the
contract must not impose strict personal obligation to
Article 1229 of the Civil Code states: Andal. He has the right to sell the lot, one of the rights of


Antonio Tan, petitioner, vs. Court of Appeals and the Cultural Center of the Philippines, respondents

Ponente: De Leon, Jr., J.

Legal Doctrine: In obligations with penal clause, the penalty shall substitute indemnity for damages any payment of
interests in case of non compliance, if there is no stipulation to contrary.

Facts : CCP filed in RTC Manila for complaint of collection of sum

of money after Tan failed to pay restructured loan. Tan
May 14 and July 6, 1978: Antonio Tan obtained 2 loans interposed that he merely accommodated friend Lucmen
each in principal amounts of 2M (or 4M in total) from CCP who asked for help in obtaining loan from CCP and now
evidenced by 2 promissory notes with maturity dates on he is unable to locate Lucmen.
May 14 and July 6, 1979.
RTC and CA ruled in favor of CCP. RTC charged interest,
Tan defaulted but after a few partial payments he had surcharges, attorney’s fees, exemplary damages,
loans restructured by CCP and he accordingly executed a penalties and charges on his loan obligation. CA deleted
promissory note on Aug 31, 1979 in amount of P3, 411, award for exemplary damages and reduced attorney’s
421.32 payable in 5 installments. fees.

Tan failed to pay any installment (last installment falling Tan doesn’t question his liability for his restructured loan
due on Dec 31, 1980.) and wrote a letter (Jan 26, 1982) under promissory note.
requesting and proposing to CCP a restructured loan 20%
of principal to be paid and the balance to be paid in 36
equal monthly installments. Oct 20, 1983 Tan wrote
another letter requesting moratorium on his loan due to Issue: Whether there are contractual and legal bases for
dedeuction of the volume of his business and peso the imposition of the penalty, interest on the penalty, and
devaluation. No favorable responses were made to the attorney’s fees.

CCP wrote a letter (May 30 1984) demanding full

payment within 10 days of receipt of letter for P6, 088, Held: Yes there are contractual or legal bases.

Ratio: equitable considerations and on fact that case lasted for

- Tan says that CA erred in not totally eliminating the

25 yrs through no fault of defendant while in this case ͳͲͶ
equity can’t be considered inasmuch as there is a
award of attorney’s fees and in not reducing the penalties contractual stipulation in the promissory note whereby
considering he has allegedly made partial payments on Tan expressly agreed to compounding of interest in case
the loan. And if the penalty is to be awarded, Tan wants of failure on his part to pay loan at maturity. Inasmuch as
non-imposition of interest on surcharges inasmuch as the stipulation on compounding of interest has the force of
compounding of interest on surcharges is not provided in law between parties and does not appear to be
the promissory note. He also says that there is no basis inequitable or unjust, said stipulation should be respected.
for charging of interest on surcharges. But Art.1226 of
New Civil Code applies. In the case at bar, the promissory - Art1229 of New civil Code says “the judge shall
note expressly provides for the imposition of both interest equitably reduce the penalty when principal pbligation has
and penalties in case of default on Tan’s part. This can be been partly or irregularly complied with. Even if there has
seen in the stipulation “In case of non-payment of this been no performance, penalty may be reduced by courts
note I agree to pay additional penalty charges per if it is iniquitous or unconscionable.” Considerinf Tan’s
month until paid” several partial payments and the fact that he is liable
under the note for 2% penalty charge per month on total
- Tan says there is no legal basis for imposition of interest amount due, compounded monthly, for 21 yrs since his
on penalty charge because law only allows imposition of default in 1980, we find it fair and equitable to reduce the
interest on monetary interest but not the charging of penalty charge to a straight 12% starting August 28, 1986
interest on penalty. But the court says that penalty (date of last Statement of Accounts). The court also took
clauses can be in form of penalty or compensatory into consideration Tan’s offers to enter into compromise
interest. The compounding of penalty or compensatory and the way he showed his good faith despite difficulty in
interest is sanctioned in Art1959 of New Civil Code. complying with his loan obligation due to financial
Therefore any penalty interest not paid when due shall problems.
earn the legal interest of 12% per annum in the absence
of express stipulation.Art2212 of New Civil Code provides - Tan says that his obligation to pay interest and
“interest due shall earn legal interest from time it is surcharge should be suspended because the obligation
judicially demanded, although obligation may be silent became conditional based on Tan’s request for
upon this point.” condonation of interest and surcharge would be
recommended by Commission on audit and Office of
- Tan seeks elimination of compounded interest imposed Pres. To House of Representatives as required under
on total amount based allegedly on case of Napocor vs PD1445. But the court says that the running of interest
Nat’l Merchandising Corp, wherein we ruled that and surcharge wasn’t suspended because the letter
imposition of interest on damages from filing complaint is doesn’t contain any categorical agreement on the part of
unjust where litigation was prolonged for 25 yrs through CCP that the payment of interest and surcharge is
no fault of defendant. This is not applicable inasmuch as deemed suspended while appeal for condonation was
the ruling on issue of interest in that case was based on being processed.



Ponente: Medialdea, J.

Legal Doctrine: A penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled.

Facts: P10,000.00 every month from February to November,

1980 or the total amount of P100,000.00 with interest on
OVEC (lessor) and Enrique Sy (lessee) entered into a each (the original rental fee was P50,000 which was
lease agreement for three properties- Avenue, Broadway increased to P60,000 in view of the offer of RTG
and Capitol Theatres- all located in Cabanatuan City, Productions, Inc. to lease the three theaters for P60,000 a
including accessories needed for film showing. month.

The lease was to last from June 13 1977 to June 12, Attorney's fees equivalent to 10% of the amounts above-
1983 or a period of 6 years. However, after two (2) years, mentioned.
OVEC demanded the repossession of said properties in
view of Sy’s arrears in monthly rentals as well as non- The CA found that the termination of the agreement prior
payment of amusement taxes. was justified by Sy's default in his compliance with the
terms of the agreement and not "motivated by fraud or
On August 8, 1979, the two parties had a conference in greed." It also affirmed the award to OVEC of the amount
which Sy was allowed to continue his lease with certain of P100, 000.00 chargeable against the injunction bond
conditions as imposed in a supplemental agreement posted by CBISCO which was soundly and amply justified
made on August 13. The new agreement reduced the by the trial court.
arrears in rental from P125, 455.76 to P71, 028.91.
However, the accumulated amusement tax amounted to
P84, 000 which he Sy was also unable to pay.
OVEC sent letters of demand dated January 7, 1980 and
February 3, 1980 to Sy for the arrears in rental and the Whether or not OVEC was unjustly enriched or benefited
amusement tax due. It also warned that pursuance to the at the expense of Sy.
agreements made in 1977 and 1979, the company would
take possession of the theaters on February 11, 1980.

Sy failed to pay his debts so OVEC made do its warning Held/Ratio:

by posting men around the premises of the theaters and
NO. “A provision which calls for the forfeiture of the
padlocking the gates. Thereafter, Sy filed the present
remaining deposit still in the possession of the lessor,
action for reformation of the lease agreement, damages
without prejudice to any other obligation still owing, in the
and injunction late on the same day. And by virtue of a
event of the termination or cancellation of the agreement
restraining order dated February 12, 1980 followed by an
by reason of the lessee's violation of any of the terms and
order directing the issuance of a writ of preliminary
conditions of the agreement is a penal clause that may be
injunction issued in said case, Sy regained possession
validly entered into.”
and operation of the Avenue, Broadway and Capital
theaters. “A penal clause is an accessory obligation which the
parties attach to a principal obligation for the purpose of
The trial court found that OVEC was deprived of the
insuring the performance thereof by imposing on the
possession and enjoyment of the leased premises and
debtor a special presentation (generally consisting in the
also suffered damages as a result of the filing of the case
payment of a sum of money) in case the obligation is not
by Sy and his violation of the terms and conditions of the
fulfilled or is irregularly or inadequately fulfilled...
lease agreement. Hence, it held that OVEC is entitled to
However, there are exceptions to the rule (a) when there
recover the following damages in addition to the arrears in
is a stipulation to the contrary; (b) when the obligor is
rentals and amusement tax delinquency of Sy and the
sued for refusal to pay the agreed penalty; and (c) when
accrued interest:
the obligor is guilty of fraud.
As of the end of November, 1980, when OVEC finally
Sy was unable to pay his rent and the amusement tax
regained the possession of the three (3) theaters under
and as a result, the agreement was cancelled and the
lease, unpaid rentals and amusement tax liability
remaining deposit of P300, 000 was forfeited.Aside from
amounting to P289, 534.78.
the forfeited deposit (the penalty), OVEC is also entitled
to the P100,000 opportunity cost representing the

P10,000 increase in rental fees during the ten months of CBISCO.

injunction period against the injunction bond posted by ͳͲ͸


II. Payment or Performance

B. Requisites


Octavio KALALO, plaintiff-appellee, v.s Alfredo LUZ, defendant-appellant

Ponente: Zaldivar, J.

Legal Doctrine: RA 529 provides that if the obligation was incurred prior to its enactment (June 16, 1950) and the
required payment is in a currency other than the Philippine currency the payment shall be discharged in Philippine
currency measured at the prevailing rate of exchange at the time the obligation was incurred. On the other hand, for
obligations incurred after RA 529 the rate of exchange should be that prevailing at the time of payment.

Facts: June 14, 1962 Luz sent Kalalo a check for said amount,
which Kalalo refused to accept.
On November 17, 1959 Kalalo (civil engineer from OA
Kalalo and Assoc.) entered into an agreement with Luz On August 10, 1962, Kalalo filed a complaint against Luz
(architect from AJ Luz and Assoc) whereby the former seeking:
was to render engineering design services to the latter for
fees, as stipulated in the agreement. The projects entered x for services rendered: $28,000 (U.S.) and P100,
into by both parties included: (a)Fil-American Life 204.46, excluding interests minus (paid) P69,
Insurance Building at Legaspi City; (b)Fil-American Life 323.21 thus leaving unpaid the $28,000.00 and
Insurance Building at Iloilo City; (c)General Milling the balance of P30,881.25
Corporation Flour Mill at Opon, Cebu; (d)Menzi Building
at Ayala Blvd., Makati, Rizal; (e)International Rice x P17, 000.00 as consequential and moral
Research Institute, Research Center, Los Baños, Laguna; damages
(f)Aurelia's Building at Mabina, Ermita, Manila; (g)Far
East Bank's Office at Fil-American Life Insurance Building x P55, 000.00 as moral damages, attorney's fees
at Isaac Peral, Ernita, Manila; (h)Arthur Young's and expenses of litigation
residence at Forbes Park, Makati, Rizal; (i) L & S Building
x P25, 000.00 as actual damages, and also for
at Dewey Blvd., Manila; and (j)Stanvac Refinery Service
attorney's fees and expenses of litigation.
Building at Limay, Bataan.
Luz on the other hand claimed that the amount actually
On December 11, 1961, Kalalo sent to Luz itemized
due to Kalalo was only P80, 336.29, of which P69, 475.21
statement according to which the total service fee asked
had already been paid, thus leaving a balance of only
owed amounted to P116, 565.00. Minus the previous
P10, 861.08. Luz denied liability for any damage claimed
payments made in the amount of P57, 000.00, thus
by Kalalo to have suffered. Moreover, he alleged that
leaving a balance due in the amount of P59, 565.00. On
Kalalo was in estoppel because of certain acts,
the other hand, on May 18, 1962 Luz sent Kalalo a
representations, admissions and/or silence, which led Luz
resume of fees due which according to him, amounted to
to believe certain facts to exist and to act upon said facts,
P10, 861.08 instead of the amount claimed by Kalalo. On
that Kalalo's claim regarding the Menzi project was
premature because Luz had not yet been paid for said

project, and that Kalalo's services were not complete or Ratio: Republic Act 529 which provides that “if the
were performed in violation of the agreement and/or obligation was incurred prior to its enactment (June 16, ͳͲ͹
otherwise unsatisfactory. Luz also set up a counterclaim 1950) and the required payment is in a particular kind of
for actual and moral damages for such amount as the coin or currency other than the Philippine currency the
court may deem fair to assess, and for attorney's fees of payment shall be discharged in Philippine currency
P10, 000.00. measured at the prevailing rate of exchange at the time
the obligation was incurred.” The amount of $28,000.00,
The case was heard by a Commissioner which rendered accrued after the enactment of RA 529. Therefore this
the following judgment: provision of RA No. 529 cannot be applied neither does it
provide for the rate of exchange for the payment of
x that the amount due to Kalalo was $28,000.00 obligation incurred after the enactment of said Act.
as his fee in the International Research Institute Therefore, the rate of exchange should be that prevailing
(IRRI) Project or 20% of the $140,000.00 paid to at the time of payment. Luz should pay the Kalalo the
Luz, plus equivalent in pesos of the $28,000.00 at the free market
rate of exchange at the time of payment. Moreover, it was
x P51,539.91 for the other projects, minus
not shown in the record that the parties had fixed or
P69,475.46 which was already paid by Luz. agreed upon a peso equivalent during the different times
when partial payments were made.
Luz was ordered to pay the sum of P51,539.91 and
$28,000.00, the latter to be converted into the Philippine
(On August 25, 1962, the official rate at the time Luz
currency on the basis of the current rate of exchange at
received his architrecture’s fee from the IRRI project and
the time of the payment of the judgment, as certified to by
his corresponding obligation to Kalalo was P2.00 to $1.00
the Central Bank of the Philippines.
and the free market rate. The trial court assumed that Luz
had converted said amount at the free market rate
(There were 5 issues/erors raised by the appellant of
because “it is hard to believe that a person possessing
which only the pertinent one will be discussed.)
dollars would exchange his dollars at the preferred rate of
P2 to $1 when he is not obliged to do so, rather than at
the free market rate which is much higher. A person is
Issue: What exchange rate should be applied when presumed to take ordinary care of his concerns, and that
converting the balance of $28,000.00? the ordinary course of business has been followed.”)

Held: The rate of exchange should be that prevailing at

the time of payment


St. Paul Fire and Marine Insurance, plaintiffs-appellees, vs. Macondray & Co., Inc., Barber Steamship Lines, Inc.,
Wilhelm Wilhelmsen, Manila Port Service and/or Manila Railroad Company, defendants-respondents

Ponente: Antonio, J.

Legal Doctrine: Liability is limited to stipulations in the contract

Facts: On June 29, 1960, Winthrop Products, Inc., by Wilhelm Wilhelmsen 218 cartons and drums of drugs
shipped aboard the SS "Tai Ping", owned and operated and medicine. On August 7, 1960, the SS "Tai Ping"

arrived at the Port of Manila and discharged the shipment the shipment, but their offer was declined by the
into the custody of Manila Port Service, the arrastre consignee and/or the plaintiff. ͳͲͺ
contractor for the Port of Manila.
After trial, the lower court ruled against the defendants
Everything was discharged in order save for a drum and a (Macondray, Barber and Wilhelm to pay 300 jointly and
few cartons which were in bad condition. Because of severally and Manila Railroad and Manila Port to pay
these defects, Winthrop-Stearns Inc., the consignee, filed 809.67 jointly and severally). Plaintiff was not satisfied
a claim for the CIF (cost insurance and freight yata) value and filed a motion for reconsideration but was denied,
of the damaged goods. St. Paul Fire & Marine insurance hence this appeal.
Co. (Exhibit "N"), and the insurance company, on the
basis of such claim, paid to the consignee the insured
value of the lost and damaged goods, including other
expenses in connection therewith, in the total amount of Issue: Whether or not, in case of loss or damage, the
$1,134.46. liability of the carrier to the consignee is limited to the
C.I.F. value of the goods which were lost or damaged,
On August 5, 1961, as subrogee of the rights of the and
shipper and/or consignee, the insurer, St. Paul Fire &
Marine Insurance Co., instituted with the Court of First
Instance of Manila the present action against the
Held: The liability is limited as stipulated in the contract
defendants for the recovery of said amount of $1,134.46,
plus costs.

On August 23, 1961, the Manila Port Service and Manila Ratio: The stipulation in the bill of lading limiting the
Railroad Company resisted the action, contending, that common carrier's liability to the value of the goods
the whole cargo was delivered to the consignee in the appearing in the bill, unless the shipper or owner declares
same condition in which it was received from the carrying a greater value, is valid and binding. This limitation of the
vessel; that their rights, duties and obligations as arrastre carrier's liability is sanctioned by the freedom of the
contractor at the Port of Manila are governed by and contracting parties to establish such stipulations, clauses,
subject to the terms, conditions and limitations contained terms, or conditions as they may deem convenient,
in the Management Contract between the Bureau of provided they are not contrary to law, morals, good
Customs and Manila Port Service, and their liability is customs and public policy. In the case at bar, the liabilities
limited to the invoice value of the goods, but in no case of the defendants- appellees with respect to the lost or
more than P500.00 per package, pursuant to paragraph damaged shipments are expressly limited to the C.I.F.
15 of the said Management Contract; and that they are value of the goods as per contract of sea carriage
not the agents of the carrying vessel in the receipt and embodied in the bill of lading.
delivery of cargoes in the Port of Manila.
It is not pretended that those conditions are unreasonable
On September 7, 1961, Macondray & Co., Inc., Barber or were not freely and fairly agreed upon. The shipper
Steamship Lines, Inc. and Wilhelm Wilhelmsen also and consignee are, therefore, bound by such stipulations
contested the claim alleging, that the carrier's liability for since it is expressly stated in the bill of lading that in
the shipment ceased upon discharge thereof from the "accepting this Bill of Lading, the shipper, owner and
ship's tackle; that they and their co-defendant Manila Port consignee of the goods, and the holder of the Bill of
Service are not the agents of the vessel; that the said 218 Lading agree to be bound by all its stipulations,
packages were discharged from the vessel SS "Tai Ping" exceptions and conditions, whether written, stamped or
into the custody of defendant Manila Port Service as printed, as fully as if they were all signed by such shipper,
operator of the arrastre service for the Port of Manila; that owner, consignee or holder. It is obviously for this reason
if any damage was sustained by the shipment while it was that the consignee filed its claim against the defendants-
under the control of the vessel, such damage was caused appellees on the basis of the C.I.F. value of the lost or
by insufficiency of packing, force majeure and/or perils of damaged goods in the aggregate amount of P1, 109.67
the sea; and that they, in good faith and for the purpose
only of avoiding litigation without admitting liability to the The plaintiff-appellant, as insurer, after paying the claim of
consignee, offered to settle the latter's claim in full by the insured for damages under the insurance, is
paying the C.I.F. value of 27 lbs. caramel 4.13 kilos subrogated merely to the rights of the assured. As
methyl salicylate and 12 pieces pharmaceutical vials of subrogee, it can recover only the amount that is
recoverable by the latter. Since the right of the assured, in

case of loss or damage to the goods, is limited or the insurer as subrogee necessarily is subject to like
restricted by the provisions in the bill of lading, a suit by limitations and restrictions. ͳͲͻ


MYRON C. PAPA, plaintiffs-appellees, vs. A. U. VALENCIA, et al., defendants- respondents

Ponente: Kapunan, J.

Legal Doctrine: payment by way of check or other negotiable instrument is conditioned on its being cashed, except
when through the fault of the creditor, the instrument is impaired.

Facts: Papa, as administrator of Butte’s estate, filed a third party

complaint against the Reyes spouses, who allegedly
Sometime in June 1982, A.U. Valencia and Co., Inc. and acquired the property through a public auction by paying
Felix Peñarroyo, filed a complaint for specific only 14,000 pesos. Petitioner prayed that judgment be
performance against Myron C. Papa, in his capacity as rendered cancelling the tax sale to respondent Reyes
administrator of the Testate Estate of one Angela M. spouses; restoring the subject property to him upon
Butte. payment by him to said respondent Reyes spouses of
the amount of P14,000.00, plus legal interest; and,
The complaint alleged that on 15 June 1973, petitioner ordering respondents Valencia and Peñarroyo to pay
Myron C. Papa, acting as attorney-in-fact of Angela M. him at least P55,000.00 plus everything they might have
Butte, sold to respondent Peñarroyo a parcel of land and to pay the Reyes spouses in recovering the property.
that prior to alleged sale, the land had been mortgaged to
Associated Banking Corporation; and that after the sale
the bank refused to release it unless and until all the
mortgaged properties of the late Angela M. Butte were Issue: Whether or not the sale of the land was
also redeemed. consummated.

The complaint further alleged that it was only upon the

release of the title to the property, sometime in April 1977,
that respondents Valencia and Peñarroyo discovered Held/Ratio: The Sale was consummated. Valencia and
that the mortgage rights of the bank had been assigned Peñarroyo had given petitioner Papa the amounts
to one Tomas L. Parpana (now deceased), as special of 5,000.00 in cash and 40,000.00 in check in payment of
administrator of the Estate of Ramon Papa, Jr., on 12 the lot. Petitioner himself admits having received said
April 1977; that since then, herein petitioner had been amounts, and having issued receipts therefor.
collecting monthly rentals in the amount of P800.00 from
the tenants of the property, knowing that said property Petitioner’s assertion that he never encashed the
had already been sold to private respondents on 15 June aforesaid check is not subtantiated and is at odds with his
1973; that despite repeated demands from said statement in his answer that “he can no longer recall the
respondents, petitioner refused and failed to deliver the transaction which is supposed to have happened 10
title to the property. years ago.” After more than 10 years from the payment in
part by cash and in part by check, the presumption is that
In his answer, Papa admitted the mortgage but contended the check had been encashed. As already stated, he
that the complaint did not have a cause of action; that the even waived the presentation of oral evidence.
case was a claim against the estate of Butte; and that he
cannot be held responsible as he only acted as Granting that petitioner had never encashed the check,
administrator. his failure to do so for more than ten 10 years

undoubtedly resulted in the impairment of the check or injury unless presentment is otherwise excused. This
through his unreasonable and unexplained delay. is in harmony with Article 1249 of the Civil Code under ͳͳͲ
which payment by way of check or other negotiable
While it is true that the delivery of a check produces the instrument is conditioned on its being cashed, except
effect of payment only when it is cashed, pursuant to Art. when through the fault of the creditor, the instrument is
1249 of the Civil Code, the rule is otherwise if the debtor impaired.
is prejudiced by the creditor’s unreasonable delay in
presentment. The acceptance of a check implies an Considering that respondents Valencia and Peñarroyo
undertaking of due diligence in presenting it for payment, had fulfilled their part of the contract of sale by delivering
and if he from whom it is received sustains loss by want the payment of the purchase price, said respondents,
of such diligence, it will be held to operate as actual therefore, had the right to compel petitioner to deliver to
payment of the debt or obligation for which it was given. them the title and the peaceful possession and enjoyment
It has, likewise, been held that if no presentment is made of the lot.
at all, the drawer cannot be held liable irrespective of loss


Philippine Airlines, Inc., petitioner, vs. Honorable Court of Appeals, Honorable Judge Ricardo D. Galano, CFI of Manila,
Branch XIII, Jaime K. Del Rosario, Deputy Sheriff, CFI, Manila and Amelia Tan, respondents

Ponente: Gutierrez, Jr., J.

Facts: Reyes, as evidenced by cash vouchers properly signed

and receipted by Reyes. CA then ordered the executing
On November 8, 1967, Amelia Tan under the name and sheriff to appear with his return and explain the reason for
style of Able Printing Press commenced a complaint for failure to surrender the amounts paid to him by PAL.
damages before the CFI of Manila. Judge Morfe rendered However, he absconded or disappeared.
judgment on June 29, 1972, in favor of private respondent
Tan ordering PAL to pay Php 75,000 as actual damages
with legal interest thereon, Php 18,200 for the unrealized
profit of 10% included in the contract price of Php 200,000 Issue: Can an alias writ of execution be issued without
plus legal interest thereon, and Php 5,000 as attorney’s prior return of the original writ by the implementing
fee. CA modified the judgment to Php 25,000 as damages officer?
and Php 5,000 as attorney’s fee. This judgment became
final and executory.

The case was remanded to the trial court for execution Held: In this case, yes.
and on September 2, 1977, respondent Tan filed a motion
praying for the issuance of a writ of execution of the
judgment rendered. On October 11, 1977, the trial court Ratio: A judgment cannot be rendered nugatory by the
issued its order of execution with the corresponding writ in unreasonable application of a strict rule of procedure.
favor of the respondent. The writ was duly referred to Vested rights were never intended to rest on the
Deputy Sheriff Emilio Z. Reyes of Branch 13 of the CFI of requirement of a return, the office of which is merely to
Manila for enforcement. inform the court and the parties, of any and all actions
taken under the writ of execution. Where such information
Four months later, Tan moved for the issuance of an alias
can be established in some other manner, the absence of
writ of execution stating that the judgment rendered by
an executing officer’s return will not preclude a judgment
the lower court and affirmed with modifications by the CA
from being treated as discharged or being executed
remained unsatisfied. Petitioner filed an opposition stating
through an alias writ of execution as the case may be.
that it has already fully paid its obligation to plaintiff
More so, as in the case at bar, where the return cannot be
through the deputy sheriff of the respondent court, Emilio

expected to be forthcoming, to require the same would be Having failed to employ proper safeguards to protect
to compel the enforcement of rights under a judgment to itself, the judgment debtor whose act made possible the ͳͳͳ
rest on an impossibility, thereby allowing the total loss had but itself to blame.
avoidance of judgment debts. So long as a judgment is
not satisfied, a plaintiff is entitled to other writs of Blondeau, et al v Nano, et al – “As between two innocent
execution. persons, one of whom must suffer the consequences of a
breach of trust, the one who made it possible by his act of
In general, a payment, in order to be effective to confidence must bear the loss”
discharge an obligation, must be made to the proper
person. Article 1240 of the CC provides: “Payment shall If a sheriff directs a judgment debtor to issue the checks
be made to the person in whose favor the obligation has in the sheriff’s name, claiming he must get his
been constituted, or his successor in interest, or any commission or fees, the debtor must report the sheriff
person authorized to receive it.” immediately to the lower court or Supreme Court. This is
an ingenuous practice by sheriffs in order to earn interest
The theory is where payment is made to a person at the expense of the litigants.
authorized and recognized by the creditor; the payment to
such person so authorized is deemed payment to the
creditor. Under ordinary circumstances, payment by the
judgment debtor in the case at bar, to the sheriff should Narvassa, J., dissenting: The payment to the Sheriff is
be valid payment to extinguish the judgment debt. There valid. This is in accordance with common practice and
are circumstances in this case, however, which compel a has long been accepted.
different conclusion. The payment was made in checks
and not in cash or legal tender and not payable to Amelia
Tan or Able Printing Press but to absconding sheriff. Feliciano, J., dissenting: PAL was not negligent. The
Sheriff could also abscond if payment was in cash. The
Article 1249 provides that payment in other mercantile
Sheriff do not accept checks in the name of judgment
documents shall produce effect of payment only when
they have been cashed, or when through the fault of the
creditor they have been impaired. Payment in checks is
precisely intended to avoid the possibility of the money
going to the wrong party. PAL should have done so Padilla, J., Dissenting: The encashment of the checks in
properly. As a protective measure, therefore, the courts the name of the sheriff has the effect of valid payment of
encourage the practice of payments in check provided the judgment on execution.
adequate controls are instituted to prevent wrongful
payment and illegal withdrawal or disbursement of funds.

C. Application of Payments


Reparations Commission, plaintiff-appellants, vs. Universal Deep-Sea Fishing Corporation and Manila Surety and
Fidelity Co., Inc., defendant-appellants

Manila Surety & Fidelity Co., Inc., third-party plaintiff-appellee, vs. Pablo S. Sarmiento, third-party defendant-appellant

Ponente: Concepcion Jr., J.

Legal Doctrine: CC 1252-1254 applies to a payment made by a debtor, who has various debts of the same kind to the
same creditor, where such payment is not sufficient to cover the entire debt.

The Reparations Commission (Commission) awarded installment represented 10% of the aggregate cost per
Universal Deep-Sea Fishing Corporation (Universal) six delivery; the balance, including interest, was to be paid
trawl boats. The contracts between them provided, in 10 annual installments due a year from the date of
among others, the payment schedules. The 1 the 1st installment.

Total Cost/ Amount of 1st Amount of #1 of 10

Trawl Boats Date of Contract Installment/ Date Due Installments/ Date Due
M/S Unifish 1 P 536, 428. 44 P 53,642.84 P 55,597.20
M/S Unifish 2 12 February 1960 08 May 1961 08 May 1962
M/S Unifish 3 P 687, 777. 76 P 68,777.77 P 72,565.68
M/S Unifish 4 25 November 1959 July 1961 July 1962
M/S Unifish 5 P 545, 000. 00 P 54,500.00 P 57,501.57
M/S Unifish 6 12 February 1960 17 October 1961 17 October 1962

Performance bonds were executed by Universal as 10 August 1962 Commission filed action to recover
principal, and Manila Surety & Fidelity Co., Inc. the various amounts due. Universal and Manila
(Manila Surety) for the payment of the 1st installment Surety claim they are not yet due and demandable.
for the first, second and third deliveries, as well as for Manila Surety filed a counter-claim against Universal
the faithful compliance of the obligations in the for reimbursement of any money to be paid or already
contract. A corresponding indemnity agreement was paid to the Commission, and against Pablo
executed in favor of Manila Surety for any damage, Sarmiento, the acting general manager of Universal.
loss, charges, etc. it incurs as a consequence of
having become a surety upon the performance bond.

CFI: Amounts stated plus interests to be paid:

Obligee Obligor 1st delivery 2nd delivery 3rd delivery

1 Commission Universal P 100,242.04^ P 141,343.45 P 54,500.00
2 Commission Universal Manila Surety P 53,643.00 P 68,777.77 P 54,508.00
3 Commission Universal Pablo Sarmiento P 53,643.00 P 68,777.77
4 Manila Surety Universal P 54, 508^
^I think typo. Few pesos too expensive than amount stated in case or my computation -

Issues/ Held/ Ratio:

1. Are payments already due and demandable 2. Did the trial court err in not awarding P
at the time of the complaint? Yes. The 7,251.42 to Manila Surety. It did. The
contracts were very clear (those in bold in amount serves as the payment of premiums
the first table are those payable at the time on the bonds to the surety company which
of complaint). The amounts to be paid and Universal undertook as part of the indemnity
when they were due clearly show that the 1 agreement. Such premium is the
installments were different from the first consideration for furnishing the bonds and
payment of the 10 annual payments the obligation to pay subsists for as long as
corresponding to the balance of the the liability of the surety exists.
purchase price.

does not release Manila Surety of its

3. Is CC 1254 applicable? No. The rules

obligation, which includes the payment of all ͳͳ͵
the amounts which have become due.
contained in CC 1252-1254 apply to a
person owing several debts of the same kind
to a single creditor. They cannot be made
applicable to a person whose obligation as a 4. Should Pablo Sarmiento be held liable? Yes.
mere surety is both contingent and singular, He executed the indemnity agreements in
which in this case is the full and faithful both his individual capacity and his capacity
compliance with the terms of the contract. as acting general manager of Universal, as
The P10,000 down payment of Universal shown by the indemnity agreements he twice

premiums and documentary stamps on the performance

Dispositive: CFI decision affirmed with modification that
Universal is to pay Manila Surety P7, 251.42 for the


NEREO J. PACULDO, petitioner, vs. BONIFACIO C. REGALADO, respondent.

Ponente: Pardo, J.

Legal Doctrine: If the debtor did not declare at the time he made the payment to which of his debts with the creditor the
payment is to be applied, the payment has to be applied first to the debt most onerous to the debtor and no payment is to
be made to a debt that is not yet due.

Short Version of Facts: Fairview properties). CA dismissed the case stating that
Paculdo consented implicitly.
Noreo Paculdo entered a contract of lease on a wet
market building with Bonifacio Regalado. This contract
was one of many other lease contracts on properties in
Fairview between Paculdo and Regalado.. On a certain Detailed Version of Facts (Because we never know
date, Regalado claimed that Paculdo had failed to pay for what Sir will ask)
his June and July wet market payment and part of his
May rental. After making two demand letters, Regalado Dec 27, 1990 - Paculdo and enter into a contract of lease
mortgaged the market building inclusive of the 35 million over a wet market building in Fairview Park. Contract
worth of improvements made by Paculdo. Regalado then details were as follows: (1) Contract of lease was for 25
after refused to accept the payments of Paculdo. years, from January 1, 1991 until December 31, 2015, (2)
First 5 years, pay a monthly rental of P450, 000.00, (3)
Trial in the MTC and the RTC were conducted resulting to Payable within the first 5 days of each. Aside from wet
Paculdo being ordered to vacate the market building. market lease, Paculdo also leased 11 other properties
Upon appeal at the CA, Paculdo claims that he had paid from Regalado. Paculdo also bought 8 heavy equipment
for the rentals of January –July but that Regalado decided and vehicles.
that the payments were to be used for payments with his
other obligations (contracts with Regalado on the other July 6&17, 1992 - Due to non-payment of P361, 895.55
on May 1992, and nonpayment of full monthly rental of

June and July 1992, Regalado sent a demand letter the creditor a receipt in which an application of the
demanding payment of the back rentals, and if no payment is made, the former cannot complain of the ͳͳͶ
payment was made within 15 days from receipt of the same, unless there is a cause for invalidating the
lette, it would cause the cancellation of the lease contract.”
Paculdo clearly told Regalado that payment was to be for
Aug 3, 1992 - Regalado mortgaged wet market building the wet market property. This was the property that had
including 35 million wrth of improvements which Regalado due dates and this was the property that. Payment to the
made. heavy duty equipment and the other properties were
payment to which were not yet due. Paculdo was
Aug 20, 1992 - Paculdo filed an action for injunction and prioritizing which contract to pay first. The lease over the
damages seeking to enjoin Regalado from disturbing his wet market property was the most onerous among all the
possession of the property subject of the lease contract at obligations of petitioner to respondent. It was a going-
the RTC. Meanwhile Regalado filed a complaint for concern where Paculdo had invested P35, 000, 000.00, in
ejectment with the MTC. the form of improvements, on the property. Paculdo
would stand to lose more if the lease would be rescinded,
Jan 31, 1994 - MTC: in favor of Regalado. Orders than if the contract of sale of heavy equipment would not
Paculdo to vacate the leased premises and pay the back proceed.
rental fees with interest. This is eventually affirmed by the

Feb 19, 1994 - Regalado with the support of 50 armed Does not replying to the proposed application of
security guards forcibly entered the property and took payments by Regaldo mean that Paculdo agreed? No.
possession of the wet market building.
Regalado claims that by not objecting in the July 15 letter
July 21, 1994 - Paculdo files a petition for review with the indicated that Paculdo agreed with the application of
CA. He alleges that he paid the amount of payments indicated. Paculdo claims silence does not
P11,478,121.85 for security deposit and rentals on the mean acceptance; it means rejection. The contents of the
wet market building, but respondent, without his consent, letter are as follows.
applied portions of the payment to his other obligations.
The vouchers and receipts indicated that the payments July 15 Letter- Regaldo informed Paculdo that the
made were for rentals. Thus, at the time of payment payment were to be applied to another lot, the market
petitioner had declared as to which obligation the building and 2 heavy equiptment. There was no
payment must be applied. conformity clause in the letter. There was no signature of

Nov 19 Letter - Regalado proposed that the security

Issue/ Held: Was Paculdo in arrears in payment of wet deposit in another lot be applied as partial payment on
market building lease? No! Paculdo’s wet market rental. Paculdo signed the letter
indicating he had to objections.

There was no clear assent by Paculdo to the change in
Who has right to specify which payment should be the manner of application of payment. Paculdo’s silence
prioritized? Paculdo the Debtor. as regards the application of payment by Regalado
cannot mean that he consented. There was no meeting
The right to specify which obligation to pay first is given to
of the minds. Though an offer may be made, the
the debtor. According to Article 1252, “He who has
acceptance of such offer must be unconditional and
various debts of the same kind in favor of one and the
unbounded in order that concurrence can give rise to a
same creditor, may declare at the time of making the
perfected contract.
payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to
debts which are not yet due. If the debtor accepts from

What if Paculdo never indicated which obligation he’d 1252, if the debtor did not declare at the time he made the
prioritize first? Can Regalado assign the application of payment to which of his debts with the creditor the ͳͳͷ
payments? payment is to be applied, no payment is to be made to a
debt that is not yet due and the payment has to be
Yes Regalado may. BUT this is subject to the condition applied first to the debt most onerous to the debtor.
that Paculdo must give his consent. Also as discussed in

F. Tender of Payment and Consignation


APPEALS, THE HON. JUDGE PEDRO JL. BAUTISTA, Presiding Judge of the Court of First Instance of Rizal, Branch
III, Pasay City, and LEONIDA P. SINGH, respondents

Ponente: Concepcion, Jr., J.

Legal Doctrine: When through no fault of the debtor, payment is not made when due, she will be deemed to have
substantially complied still with the obligation.

Facts: execution, contending that Singh had failed to fulfill her

duty as stipulated in the Compromise Agreement. This
The petitioners and private respondent had entered into a was of course opposed by Singh, who contends that she
Contract to Sell re: 2 parcels of land at Pasay City. They had substantially complied with her obligations, hence,
stipulated that Singh would pay the balance of the this case.
purchase price (P133,640) on or before Feb. 15, 1975.
Two days before the due date, Singh asked to have (1)
statement of accounts of the balance due; (2) copies of
the Certificates of Title for the subject lands; and (3) the Issue: W/N Singh should be held liable for her failure to
power of attorney executed by R. Gestuvo in favor of De pay the balance by Jan. 27 as accdg. to the terms of the
Guzman. Petitioners refused, and so Singh filed a Compromise Agreement.
complaint for specific performance against them.

They were able to resolve the issue by means of a

Compromise Agreement, however, wherein they agreed Held/Ratio: The issue is a question of fact, and in this
that Singh would pay them (P240,000 if able to pay on or case, the Court decided in favor of Singh. This is because
before Dec. 18, 1977 or P250,000 if past Dec. 18 but until it was established that it was not Singh’s fault that she
Jan. 27, 1978), upon which they would execute the was unable to pay on time. The records showed that
necessary documents transferring the land titles to Singh. Singh did exert efforts to pay when it became due. It was
It was also stipulated in the Agreement that payment of established that on Jan. 27, the appointed day for
the previously mentioned amounts would take place in the payment, she went to Judge Bautista’s sala as agreed
courtroom of the CFI of Rizal in Pasay City before the upon in their Compromise Agreement. However, the
Hon. Judge Pedro JL. Bautista, at 10:00 am on January petitioners were not there to receive it. Only their counsel
27, 1978 unless payment had already been made, in appeared later, and he then informed her that he had no
which case, petitioners would present the receipt of authority to receive and accept payment. Instead, he
payment. directed her to petitioners’ house to pay there, but they
were not there either, although Singh and the counsel
Singh failed to pay by Jan. 27, however; thus, on Jan. 28, were informed that they would arrive late in the afternoon,
petitioners filed a motion for the issuance of a writ of maybe at around 4, and that Singh would be informed

when they arrived. She waited for the call, but none The Court held that the deposit of the balance had been
came, and thus, she unwittingly let the period lapse. The made in good faith, and Singh’s failure to deposit it on the ͳͳ͸
following day, Jan. 28, was a Saturday, so she was not date specified was due to the petitioners. Notably, the
able to deposit the balance of the purchase price with the petitioners also do not contend that they suffered
Clerk of Court even if she went to the CFI of Rizal. It was damages because of the delay of 2 days. Thus, the Court
only on Monday, Jan. 30, that she was able to deposit the held that there was still substantial compliance with the
amount of P30, 000 with the Court. stipulations in the Compromise Agreement.



HON. DELFIN B. FLORES, Presiding Judge, Court of First Instance of Rizal, Branch XI, respondent

Ponente: Antonio, J.

Legal Doctrine: The amount deposited as a consignation may be withdrawn if the creditor has not accepted the
consignation yet or if the court has not yet judicially recognized that a valid consignation has been made.

Facts: Intervention” for they opted to have an ejectment case

against Bearcon instead. The respondent judge
Precedent this case is the civil case between Bearcon dismissed the case. Then petitioner filed a motion to
Trading Co., Inc. vs. Juan Fabella, regarding the rights withdraw the 3,750 they deposited however the
of Bearcon as a lessee of Febella’s properties. During respondent judge denied the petition hence this
the pendency of this case TLG (petitioner) filed “Motion certiorari.
to Intervene” and “Complaint in Intervention” to protect
its rights as a sub-lessee of Bearcon and to make a
consignation of the monthly rentals.
Issue/Held: Can the respondent judge authorize the
The respondent judge then granted the cases filed by withdrawal of the deposit Php 3,750 considering that
the petitioner. As a consequence, petitioner deposited according to respondent, the Court "has not ordered the
with the Clerk of Court the ff: intervenor to make any deposit in connection" with the
case? YES
x October 27, 1971—P900.00

x November 29, 1971—P600.00

Ratio: Although the court did not explicitly order the
x January 19, 1972—P750.00 intervenor to make the deposit, the act was done as a
consequence of the court’s admission of complaint in
x March 8, 1972 1,500.00 or a total of P3, intervention. Also the case was dismissed before the
750.00, which deposits are properly covered amount deposited was either accepted by the creditor
by official receipts. or a declaration made by the Court approving such
consignation; thus it made the consignation ineffectual.
With Art 1260 it clearly authorizes the debtor’s
withdrawal of the sum deposited.
On October 20, 1971, Febella filed an action to dismiss
the “Motion to Intervene” and “Complaint in


Ponente: Feria, J.

Legal Doctrine: Timely tender of payment, if refused to be accepted by the creditor won’t release the debtor of his
obligations unless he makes a valid consignation.

Facts: Issues/Held:

Feb. 28, 1977, petitioner Luisa F. McLaughlin and private 1. Can the petitioner rescind the contract
respondent Ramon Flores entered into a contract of considering the respondent had substantially
conditional sale of real property. The purchase price is complied (101,550 out of 148,126.97) with the
140,000.00 and is payable as follows: a) P26,550.00 contract? NO
upon the execution of the deed; b) the balance of
P113,450.00 to be paid not later than May 31, 1977. The 2. Is the respondent still liable for the payment of
parties also agreed that the balance shall bear interest at his obligation (rentals in arrears of P 1,
the rate of 1% per month to commence from December 1, 000.00/mo from Jan. 1, 1981 until full payment
1976, until the full purchase price was paid. thereof) because of his failure to deposit the
amount due with the court (consignation) even if
Jun. 19, 1979, petitioner filed for the rescission of the he made a timely valid tender of payment?
deed of conditional sale due to the failure of private
respondent to pay the balance due on May 31, 1977.

Dec. 27, 1979, the parties had a Compromise Agreement Ratio:

stipulating the indebtedness of respondent amounts to
119, 050.71 and are payable as follows: a) P50,000.00 1. It would be inequitable for the petitioner to
upon signing of the agreement b) the balance of rescind the contract. As a general rule rescission
P69,059.71 in two equal installments on Jun. 30, 1980 will not be permitted for a slight or casual breach
and Dec. 31, 1980 c)"escalation cost" of P25,000.00 d) P of the contract, but only for such breaches as are
l,000.00) pesos monthly rental beginning December 5, substantial and fundamental as to defeat the
1979 until the obligation is duly paid, for the use of the object of the parties in making the agreement. In
property subject matter of the deed of conditional sale. the case, respondent having already paid Php
Failure to comply with the obligations would entitle 101,550 out of his obligation amounting to
McLaughlin to rescind the contract and all payments 148,126.97 thus he has substantially complied
made by Flores would be forfeited as liquidated damages with the contract. As regards with the term of
in favor of McLaughlin. paying the balance of 69,059.71 not later than
Oct. 30, the petitioner has the right to rescind the
Oct. 15, 1980, petitioner wrote to private respondent contract only after 30 days upon the receipt of
demanding that the latter pay the balance of respondent of the said cancellation notice (Nov
P69,059.71on or before October 31, 1980. It included the 7). The respondent made a tender of payment
installment due on Jun. and Dec. on Nov 17 (just 10 days from the receipt of
notice) hence he preserved his right as a buyer.
Nov. 7, 1980, petitioner filed rescission of the contract
and a Motion for Writ of Execution since respondent failed
to pay the installment due on June 1980 and that since
June 1980 he had failed to pay the monthly rental of P 2. In the case at bar, although respondent had
l,000.00. Trial court granted the motion for writ of preserved his rights as a buyer by a timely valid
execution. tender of payment (presenting the manager’s
check on Nov 17) of the balance of his obligation

which was not accepted by petitioner, he responsibility. Since respondent did not deposit
remains liable for the payment of his obligation said amount with the court, his obligation was ͳͳͺ
because of his failure to deposit the amount due not paid and he is liable in addition for the
with the court. Consignation must be made in payment of the monthly rental of P1, 000.00 from
order for him to be released from the Jan. 1, 1981 until said obligation is duly paid.



Facts: commencing on January 1, 1981 at the annual rate of P3,

346, 269.70
Petitioner Meat Packing Corporation of the Philippines
(MPCP) is a wholly owned corporation by the GSIS. It March 17, 1986 - the PCGG sequestered all the assets,
owns 3 parcels of land situated in Barrio Ugong, Pasig properties and records of PIMECO. The sequestration
City as well as the meat processing and packing plant included the meat packing plant and the lease-purchase
thereon. agreement.

November 3, 1975 - MPCP and the Philippine Integrated November 1986 - MPCP gave a written notice to PIMECO
Meat Corporation (PIMECO) entered into a lease of its rescission of the lease-purchase agreement on the
purchase agreement wherein MPCP would lease out its ground of non-payment of rentals of more than P2M for
property and plant to PIMECO an annual rate of P 1, 375, the year 1986. GSIS asked the PCGG to exclude the
563.92 payable over a period of 28 years or for a total meat packing plant since MPCP is owned by them and
consideration of P 38, 515, 789.87. that the lease-purchase agreement had already been
rescinded. Which the PCGG granted.
The agreement also provided for a rescission clause
which stated: July 1987 - PCGG instituted with the Sandiganbayan a
complaint for reconveyance, reversion, accounting and
5. “If for any reason whatsoever the LESSEE- damages against Peter Sabido. Complaint alleged that
VENDEE should fail or default in the Peter Sabido obtained under favored and very liberal
payment to the cumulative sum of 3 annual terms, large loans from the GSIS in favor of PIMECO and
installments, this Agreement shall be deemed that PIMECO was granted the monopoly to supply meat
automatically cancelled and forfeited without in the Greater Manila Area. Sabido averred that the
need of judicial intervention LESSOR- contracts were executed by his father and were done in
VENDOR shall have the complete and absolute good faith. Sabido filed an Urgent Manifestation and
power to transfer, convey, lease in the same Motion arguing that the transfer of management, control
manner as if this lease-purchase agreement was and possession of PIMECO be declared null and void for
never entered into.” having been done without the approval of the
Sandiganbayan which he argues is needed since
16. “Violation of any of the terms and PIMECO was a sequestered asset.
conditions shall be sufficient ground for the
LESSOR-VENDOR to rescind this Agreement Furthermore, the Sandiganbayan received a letter from
without need of judicial intervention by giving the the PIMECO Labor Union asking that the status quo be
LESSEE-VENDEE 180 days written notice ” maintained and that they continue their work and have
security of tenure.
November 3, 1975 - MPCP and PIMECO entered into a
Supplementary and Loan Agreement wherein the total The Sandiganbayan declared that the PCGG committed
contract price of the lease-purchase agreement was grave abuse of discretion in unilaterally terminating the
increased to P93, 695, 552.59 payable over 28 years lease-purchase agreement of PIMECO with MPCP finding

that the transfer will result in the dissipation of assets that The Sandiganbayan also dismissed the case of PIMECO
will cause irreparable injury to Sabido’s rights and interest for declaratory relief for being moot and academic ͳͳͻ
s in the company in the event that the Sandiganbayan because the P5M consignation of PCGG averted the
shall ultimately rule that the same was not ill-gotten. accumulation of the unpaid rentals to 3 yearly
November 1989 - the Sandiganbayan issued a
Resolution declaring that the PCGG gravely abused its
discretion when it turned over the meat packing complex
to the GSIS/MPCP and that the turnover was null and Issues:
void ab initio.
1. Was the consignation made by PCGG in the
August 1990 - PIMECO filed a petition for declaratory amount of P5M valid?
relief and other similar remedies against the GSIS and
MPCP with the Sandiganbayan. PIMECO alleged that 2. PCGG in estoppel because it admitted that the
from 1981-1985 it had been regularly paying its dues all lease-purchase agreement had been rescinded?
the way up to the moment of its sequestration.
Furthermore, it alleged that was only after PCGG took
over that its payments became erratic thus presenting the Dispositive: Petition DISMISSED for lack of merit.
danger that PIMECO would be declared in default. It also
prayed that it be absolved from its obligations under
paragraph 5 of the lease purchase agreement. In the
meantime, PCGG tendered payment to MPCP in the Held/Ratio:
amount of P5M as partial payment of its accrued rentals.
MPCP however, refused to accept the payment. Consignation VALID. Sandiganbayan approved the P5M
consignation of the PCGG as payment for back rentals.
MPCP averred that:
Tender of Payment distinguished from Consignation
x Sandiganbayan had no jurisdiction over MPCP
since it was not a party in the civil case against Consignation is the act of depositing the thing due with
Peter Sabido. the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it
x The lease-purchase agreement with PIMECO generally requires a prior tender of payment.
had been rescinded as early as November 1986
While, tender of Payment is the antecedent of
x PIMECO was in arrears in the payment of consignation (an act preparatory to consignation). It may
rentals amounting to P12, 378, 171.06 wich is be extrajudicial while consignation is necessarily judicial,
more than the equivalent of 3 cumulative rentals. and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of
The Sandiganbayan declared that the tender of payment consignation. Furthermore, tender and consignation
and consignation of the P5M of PCGG had been validly where validly made, produces the effect of payment and
made and ordered MPCP to accept. extinguishes the obligation.

MPCP filed a motion for reconsideration but the Art. 1256 of the CC provides that “If the creditor to whom
Sandigabayan denied such and stated that when the tender of payment has been made refuses without just
PCGG sequestered the assets and records of PIMECO, it cause to accept it, the debtor shall be released from
assumed the duty to preserve and conserve those assets responsibility by the consignation of the thing or sum
and that duty did not disappear when the writ was due.”
deemed ipso facto lifted. On the contrary, it continued
until the sequestered assetswere returned to PIMECO Consignation alone shall produce the same effect in the
and the PCGG made the timely tender of payment and following cases:
consignation which the Resolution sought to be
considered sustained. To rule otherwise would be unfair 1. When the creditor is absent or unknown, or does
and unjust to PIMECO considering that during the time not appear at the place of payment
the PCGG had possession and control of the sequestered
2. When he is incapacitated to receive the payment
at the time it is due

3. When without just cause he refuses to accept it PCGG NOT ESTOPPED.

4. When two or more persons claim the right to MPCP avers that PCGG estopped from taking a contrary
collect position since it made a resolution to turn over the
properties to the GSIS does not hold
5. When the title of the obligation has been lost
However, the turn over was dependent on certain
In the case at bar, the refusal of MPCP to accept the conditions and one such condition was approval by the
tender of payment in the amount of P5M by PCGG on the Sandiganbayan which the Sandiganbayan never gave
ground that the agreement with PIMECO had been and even declared the turn-over null and void.
rescinded was unjustified.
The Sandiganbayan’s jurisdiction valid and did not
The Sandiganbayan found that PIMECO paid several exercise grave abuse of discretion
amortizations and dues in the total of P15, 921, 205.83
which negates any rescission of the agreement. Grave abuse implies a capricious and whimsical exercise
of judgment or when the power is exercised in an arbitrary
Further more under the terms of the lease-purchase and despotic manner. Which the Sandiganbayan did not
agreement, it must be shown that a cumulative sum of 3 show.
yearly payments had not been made to warrant rescission
but even assuming that the arrears were P12M as MPCP MPCP actively participated in the discussion of the merits
alleged them to be the tender and consignation of the of the civil case against Sabido even going to the extent
P5M would bring the amount down to less than the of seeking affirmative relief.
needed amount to total 3 years of non payment.
Jurisdiction is acquired by his voluntary appearance in
court and his submission to its authority or by service of
summons and active participation is tantamount to an
invocation of the court’s jurisdiction and willingness to
abide by the resolution of the case.


TEDDY G. PABUGAIS, petitioner, vs. DAVE P. SAHIJWANI, respondent

Ponente: Ynares-Santiago, J.

Overview: Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it generally requires a prior tender of payment.” Its requisites are 1)
there is a debt due; 2) consignation was made because creditor refused/ was absent/ incapacitated/ there are many
claimants to payment/ entitlement to obligation was lost; 3) previous notice of consignation was made to person
interested in performance of obligation; 4) amount placed @ court’s disposal; 5) creditor duly notified of consignation.

Facts: 500.00 to be paid within 60 days from the execution of the

contract, simultaneous with delivery of the owner’s
On December 3, 1993, Petitioner Pabugais agreed to sell duplicate Transfer Certificate of Title in respondent’s
a 1239 sq. mtr. lot (located in North Forbes Park, Makati) name the Deed of Absolute Sale; the Certificate of Non-
to respondent Sahijwani for the amount of P15, 487, Tax Delinquency on real estate taxes and Clearance on
500.00. Payment of Association Dues.

Respondent paid petitioner the amount of P600, 000.00

as option/reservation fee and the balance of P14, 887,

The parties further agreed (in section 5 of their Issues:

agreement) that failure on the part of respondent to pay
1. Was there a valid consignation?
the balance of the purchase price entitles petitioner to
forfeit the P600, 000.00 option/reservation fee; while non-
delivery by the latter of the necessary documents obliges 2. Can petitioner withdraw the amount consigned
him to return to respondent the said option/reservation fee as a matter of right?
with interest at 18% per annum

Petitioner failed to perform his obligation. He returned

payment via check by Far East Bank and Trust Co. but
check was dishonored. He claimed to have tendered 1. There was a valid consignation
payment twice, on August 3 and 8, 1994 the amount of
Php 672,900 to include the interest stipulated in the 2. There being a valid consignation, petitioner
contract but said counsel refused to accept the same cannot withdraw the amount consigned

He informed respondent’s counsel of the consignation

(through a letter) on August 11 and filed for consignation
on August 15. Ratio:

Respondent admitted that his office received petitioner’s 1. Consignation is the act of depositing the thing
letter dated August 5, 1994, but claimed that no check due with the court or judicial authorities
was appended thereto. He averred that there was no valid whenever the creditor cannot accept or refuses
tender of payment because no check was tendered and to accept payment and it generally requires a
the computation of the amount to be tendered was prior tender of payment.
insufficient, because petitioner verbally promised to pay
3% monthly interest and 25% attorney’s fees as penalty Requisites of valid Consignation:
for default, in addition to the interest of 18% per annum
on the P600, 000.00 option/reservation fee a. there was a debt due

November 29, 1996 - the trial court rendered a decision b. the consignation of the obligation had
declaring the consignation invalid for failure to prove that been made because the creditor to
petitioner tendered payment to respondent and that the whom tender of payment was made
latter refused to receive the same. refused to accept it, or because he was
absent or incapacitated, or because
Petitioner appealed to the Court of Appeals, but while several persons claimed to be entitled
case was pending, his counsel Atty. Wilhelmina Joven to receive the amount due or because
died and was replaced by Atty. Salvador De Guzman. the title to the obligation has been lost
Petitioner executed Deed of Assignment on 21 Dec 2001
in favor of De Guzman to apportion part of the consigned c. previous notice of the consignation had
money as payment for atty.’s fees. 7 Jan 2002, he asked been given to the person interested in
for ex parte motion to withdraw consigned money for the performance of the obligation
which De Guzman intervened praying the release of said
d. the amount due was placed at the
amount asserting his right to a part of said money
disposal of the court
CA denied petition to withdraw and TC decision affirmed
e. after the consignation had been made
Upon motion for reconsideration, the Court of Appeals the person interested was notified
declared the consignation as valid in an Amended thereof
Decision dated January 16, 2003. It held that the validity
The reason for respondent’s non-acceptance of
of the consignation had the effect of extinguishing
the tender of payment was the alleged
petitioner’s obligation to return the option/reservation fee
insufficiency thereof – and not because the said
to respondent. Hence, petitioner can no longer withdraw
check was not tendered to respondent, or
the same and extinguished obligation of petitioner to
because it was in the form of manager’s check.
Sahijwani. Hence this action, claiming that at time of
While it is true that in general, a manager’s
withdrawal, no decision yet was made by CA.
check is not legal tender, the creditor has the

option of refusing or accepting it. Payment in amount consigned be awarded to him is

check by the debtor may be acceptable as valid, equivalent to an acceptance of the consignation, ͳʹʹ
if no prompt objection to said payment is made. which has the effect of extinguishing petitioner’s
Consequently, petitioner’s tender of payment in obligation.
the form of manager’s check is valid.
Moreover, petitioner failed to manifest his
About the sufficiency of the amount tendered, intention to comply with the “Agreement And
only the interest of 18% per annum on the P600, Undertaking” by delivering the necessary
000.00 option/reservation fee stated in the documents and the lot subject of the sale to
default clause of the “Agreement and respondent in exchange for the amount
Undertaking” was agreed upon by the parties. deposited. Petitioner’s reliance on Art 1260 CC
is untenable since respondent prayed for the
Therefore, the manager’s check in the amount of awarding of said amount to them and this is as
P672,900.00 (representing the P600,000.00 good as acceptance.
option/reservation fee plus 18% interest per
annum computed from December 3, 1993 to Another thing was the manifestation of petitioner
August 3, 1994) which was tendered but refused of no longer being interested in pushing through
by respondent, and thereafter consigned with the with the contract. Withdrawal may very well be
court, was enough to satisfy the obligation and an act of unjust enrichment by petitioner to the
thus, there being a valid tender of payment in an prejudice of respondent.
amount sufficient to extinguish the obligation, the
consignation is valid. Counsel for petitioner also violated Art 1490 of
CC and Canon 10 of CPR for showing interest in
The amount consigned with the trial court can no the subject of the litigation he is handling.
longer be withdrawn by petitioner because Granting his prayer is sanctioning a void
respondent’s prayer in his answer that the contract.

III. Loss or Impossibility


JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners, vs. HON. RAMON V. JABSON, Presiding Judge of the
Court of First Instance of Rizal, Branch XXVI, COURT OF APPEALS and TROPICAL HOMES, INC., respondents

Ponente: Teehankee, J.

Legal Doctrine: When the service has become so difficult as to be manifestly beyond the contemplation of the parties,
the obligor may also be released therefrom, in whole or in part.

Facts: In the contract, respondent guaranteed that petitioner’s

share would be 40% of all cash receipts from the sale of
February 25, 1975 – Tropical Homes Inc. filed a complaint the subdivision lots. Respondent prayed that the Court
for modification of the terms and conditions of its render judgment modifying the terms and conditions of
subdivision contract with petitioners (landowners of a the contract fixing proper shares that should pertain to
55,330 square meter parcel of land in Davao City), basing each party.
the same on increase of oil prices and its derivatives and
that without modification, contract will result to defendants Petitioners moved to dismiss the complaint principally for
(herein petitioners) being unjustly enriched at the expense the lack of cause of action, and upon denial, elevated the
of the plaintiff (herein defendant). matter on certiorari to respondent Court of Appeals. CA

dismissed the petition on the ground that Article 1267 of Held: No, it is not.
the CC provides that: “When the service has become so ͳʹ͵
difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in
whole or in part.” Ratio: Article 1267 of the CC provides for a remedy in
cases wherein the contract turns out to be hard and
Petitioners contend that worldwide increase in prices improvident, unprofitable or impracticable, ill-advised or
does not constitute a sufficient cause of action to modify even foolish, or less profitable or unexpectedly
the subdivision contract. burdensome. However, this cannot be applied to the case
at hand because respondent’s complaint seeks not
release from the contract but the modification of it by
fixing the proper shares that should pertain to each party.
Issue: Whether or not Article 1267 is applicable in the Respondent’s complaint for modification of the contract
case at bar. has no basis in law and therefore states no cause of


Naga Telephone Co., Inc. (NATELCO) and Luciano M. Maggay, petitioners, vs. The Court of Appeals and Camarines
Sur II Electric Cooperative, Inc. (CASURECO II), respondents

Ponente: Nocon, J.

Facts: (a) That the term or period of this contract

shall be as long as the party of the first part
Petitioner Naga Telephone Co., Inc. (NATELCO) is a has need for the electric light posts of the
telephone company rendering local as well as long party of the second part it being understood
distance telephone service in Naga City while private that this contract shall terminate when for
respondent Camarines Sur II Electric Cooperative, Inc. any reason whatsoever, the party of the
(CASURECO II) is a private corporation established for second part is forced to stop, abandoned its
the purpose of operating an electric power service in the operation as a public service and it becomes
same city. necessary to remove the electric lightpost;

On November 1, 1977, the parties entered into a contract After the contract had been enforced for over ten (10)
for the use by petitioners in the operation of its telephone years, private respondent filed on January 2, 1989
service the electric light posts of private respondent in against petitioners for reformation of the contract with
Naga City. In consideration therefor, petitioners agreed to damages.
install, free of charge, ten (10) telephone connections for
the use by private respondent. Said contract also

Cause of Private Respondent/ Plaintiff Petitioner/ Defendant Trial Court

Too one side in favor of
It should be dismissed because: The contract should be
petitioners. (1) it does not sufficiently state a reformed:
Not in conformity with the cause of action for reformation of NATELCO to pay
guidelines of Nat’l Electrification contract; CASURECO’s electric poles in
Administration which direct that (2) it is barred by prescription, the Naga City and in the towns of
the reasonable compensation for same having been filed more than Milaor, Canaman, Magarao
the use of the posts is P10.00 ten (10) years after the execution of and Pili, Camarines Sur and in
per post, per month the contract; other places where defendant
After eleven (11) years of (3) it is barred by estoppel. since NATELCO uses plaintiff's
petitioners' use of the posts, the private respondent seeks to electric poles, the sum of TEN
telephone cables have become enforce the contract in the same (P10.00) PESOS per plaintiff's
much heavier with the increase action. pole, per month beginning
in the volume of their January, 1989
subscribers; that a post now CASURECO to pay NATELCO
costs as much as P2,630.00. the monthly dues of all its
2nd Starting with the year 1981, Private respondent had asked for telephones including those
petitioners have used 319 posts telephone lines in areas outside installed at the residence of its
in the towns outside Naga City, Naga City for which its posts were officers.
without any contract with it; that used by them; and that if
at the rate of P10.00 per post, petitioners had refused to comply
petitioners should pay private with private respondent's demands
respondent for the use thereof for payment for the use of the posts
the total amount of P267,960.00 outside Naga City, it was probably
from 1981 up to the filing of its because what is due to them from
complaint. private respondent is more than its
claim against them.
3rd The poor servicing by petitioners Their telephone service had been Claim not sufficiently proved.
of the ten (10) telephone units categorized by the National
had caused it great Telecommunication Corporation
inconvenience and damages to (NTC) as "very high" and of
the tune of not less than "superior quality."

Disagreeing with the judgment of the trial court, Held/Ratio:

petitioners appealed to the CA which in turn
reaffirmed the decision of the trial court, but based on 1. Article 1267: When the service has become
different grounds: (1) that Article 1267 of the New so difficult as to be manifestly beyond the
Civil Code is applicable and (2) that the contract was contemplation of the parties, the obligor may
subject to a potestative condition which rendered said also be released therefrom, in whole or in
condition void. part.

Issues: The general rule is that impossibility of

performance releases the obligor. However,
1. W/N by Art. 1267 is applicable. it is submitted that when the service has
become so difficult as to be manifestly
2. W/N the prescription of the action for beyond the contemplation of the parties, the
reformation of the contract in this case court should be authorized to release the
commenced from the time it became obligor in whole or in part. The intention of
disadvantageous to private respondent the parties should govern and if it appears
that the service turns out to be so difficult as
3. W/N the contract was subject to a to have been beyond their contemplation, it
potestative condition in favor of petitioners. would be doing violence to that intention to
hold their contemplation, it would be doing

violence to that intention to hold the obligor contract must be brought within ten (10)
still responsible. years from the time the right of action ͳʹͷ
accrues, which is not necessarily the date of
That the aforesaid contract has become execution of the contract. Private
inequitous or unfavorable or respondent's right of action arose "sometime
disadvantageous to the plaintiff with the during the latter part of 1982 or in 1983 when
expansion of the business of appellant and according to private respondent asked its
the increase in the volume of its subscribers private counsel to study said contract as it
in Naga City and environs through the years, already appeared disadvantageous to them.
necessitating the stringing of more and Thus it will be considered to have arisen only
bigger telephone cable wires by appellant to in 1982 or 1983, and from this time to
plaintiff's electric posts without a January 2, 1989 when the complaint in this
corresponding increase in the ten (10) case was filed, ten (10) years had not yet
telephone connections given by appellant to elapsed.
plaintiff free of charge in the agreement as
consideration for its use of the latter's electric
posts in Naga City.
3. The provision in said agreement that states
In short, the continued enforcement of said
contract has manifestly gone far beyond the (a) That the term or period of this contract
contemplation of plaintiff, so much so that it shall be as long as the party of the first part
should now be released therefrom under Art. has need for the electric light posts of the
1267 of the New Civil Code to avoid party of the second part it being understood
appellant's unjust enrichment at its that this contract shall terminate when for
(plaintiff's) expense. As stated by Tolentino any reason whatsoever, the party of the
in his commentaries on the Civil Code citing second part is forced to stop, abandoned its
foreign civilist Ruggiero, "equity demands a operation as a public service and it becomes
certain economic equilibrium between the necessary to remove the electric light post is
prestation and the counter-prestation, and invalid for being purely potestative on the
does not permit the unlimited part of appellant as it leaves the continued
impoverishment of one party for the benefit effectivity of the aforesaid agreement to the
of the other by the excessive rigidity of the latter's sole and exclusive will as long as
principle of the obligatory force of contracts. plaintiff is in operation.

There is no mutuality and equality between

them under the afore-quoted provision
2. In reformation of contracts, what is reformed thereof since the life and continuity of said
is not the contract itself, but the instrument agreement is made to depend as long as
embodying the contract. It follows that appellant needs plaintiff's electric posts. And
whether the contract is disadvantageous or this is precisely why, since 1977 when said
not is irrelevant to reformation and therefore, agreement was executed and up to 1989
cannot be an element in the determination of when this case was finally filed by plaintiff, it
the period for prescription of the action to could do nothing to be released from or
reform. terminate said agreement notwithstanding
that its continued effectivity has become very
Article 1144 of the New Civil Code provides, disadvantageous and inequitous to it.
inter alia, that an action upon a written


Philippine National Construction Corporation, petitioner, vs. Court of Appeals, Ma. Teresa S. Raymundo-Abarra, Jose S.
Raymundo, Antonio S. Raymundo, Rene S. Raymundo, and Amador S. Raymundo, respondents

Ponente: Davide, Jr., J.

Legal Doctrine: The exception to the principle of the obligatory force of contracts laid down in Art. 1266, CC is applicable
only to obligations “to do,” and not obligations “to give.”

Facts: Issues:

Nov. 18, 1985—Petitioner and private respondents 1. W/N the issuance of an industrial clearance is a
executed a lease contract for a 30, 000 square meter suspensive condition
parcel of land which stipulated that the period of lease will
commence on the date of issuance of the industrial 2. W/N petitioner should be released from the
clearance by the Ministry of Human Settlements obligatory force of the contract of lease because
(Ministry), among others (see pp. 185-186 for other the purpose of the contract did not materialize
contract details). due to unforeseen events and causes beyond its
control (EDSA Revolution)
Jan. 7, 1986—Petitioner obtained from the Ministry a
Temporary Use Permit (TUP) for a proposed rock 3. W/N the award of damages is excessive,
crushing project which was to be valid for 2 years unless considering that it did not benefit from the
sooner revoked by the Ministry. property

Jan. 16, 1986—Private respondents wrote petitioner 4. W/N petitioner’s right to be heard was denied
requesting payment of the first annual rental due and
payable upon the execution of the contract (P240,
000.00). They also assured the latter that they had
already stopped considering the proposals of other
aggregates plants to lease the property because of the 1. Petitioner is now ESTOPPED from claiming that
existing contract with petitioner. In its reply, however, the TUP was not the industrial clearance
petitioner argued that the payment of rental would contemplated in the contract by virtue of its letter
commence on the date of the issuance of an industrial dated April 24, 1986 (see italics of last
clearance by the Ministry, and not from the date of signing paragraph in p. 189). From this letter it can be
of the contract. It then expressed its intention to gleaned that petitioner has considered the permit
terminate the contract, as it had decided to discontinue as industrial clearance; otherwise, petitioner
with the project “due to financial, as well as technical, could have simply told private respondents that
difficulties.” its obligation to pay rentals had not yet arisen.
From its earlier letter (see p. 190), it can also be
deduced that the suspensive condition—
issuance of industrial clearance—has already
been fulfilled and that the lease contract has
become operative. Moreover, the reason of
petitioner in discontinuing with its project and in
consequently cancelling the lease contract was
not the alleged insufficiency of the TUP.


Petitioner Supreme Court

They should be released from the obligatory force of the Petitioner CANNOT be released from the obligatory
contract of lease because the purpose of the contract force of the contract of lease. The exception to the
did not materialize due to unforeseen events and causes principle of the obligatory force of contracts laid down in
beyond its control, i.e. due to the abrupt change in Art. 1266, CC is applicable only to obligations “to do,”
political climate after the EDSA Revolution. and not obligations “to give.” An obligation “to do”
includes all kinds of work or service; while an obligation
“to give” is a prestation which consists in the delivery of
a movable or an immovable thing in order to create a
real right, or for the use of the recipient, or for its simple
possession, or in order to return it to its owner. The
obligation to pay rentals or deliver the thing in a contract
of lease falls within the prestation “to give.” At any rate,
the unforeseen event and causes mentioned by
petitioner are not the legal or physical impossibilities
contemplated in the said article.
The abrupt change in the political climate of the country The principle of rebus sic stantibus (at this point of
after the EDSA Revolution and its poor financial affairs; in these circumstances) neither fits in with the
condition “rendered the performance of the lease facts of the case. Art. 1267, CC is not an absolute
contract impractical and inimical to the corporate application of the principle as this would only endanger
survival of the petitioner.” the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks
of unfavorable developments and it is only in absolutely
exceptional changes of circumstances that equity
demands assistance for the debtor (see the quoted
Memorandum for the Private Respondents on p. 193 for
Petitioner should be released from the binding effect of No. Mere pecuniary inability to fulfill an engagement
the contract of lease because of its alleged poor does not discharge a contractual obligation, nor does it
financial condition. constitute a defense to an action for specific
performance (Central Bank vs. CA).
The non-materialization of petitioner’s particular purpose No. The cause of essential purpose in a contract of
in entering into the contract of lease invalidates the lease is the use or enjoyment of a thing. As a general
contract. principle, the motive or particular purpose of a party in
entering into a contract does not affect the validity nor
existence of the contract.

3. P492, 000.00 is NOT excessive. The temporary

permit was valid for 2 years but was
automatically revoked because of its non-use 4. Petitioner was not deprived of due process. The
within one year from its issuance. The non-use essence of due process is simply an opportunity
of the permit and the non-entry into the property to be heard. To be heard does not only mean
subject of the lease contract were both oral arguments in court; one may be heard also
imputable to petitioner and cannot be taken through pleadings. Where opportunity to be
advantage of in order to evade or lessen heard, either through oral arguments or
petitioner’s monetary obligation. The pecuniary pleadings is accorded, there is no denial of
losses suffered by private respondents are procedural due process.
beyond dispute because of their inability to use
the leased premises.

V. Compensation


Gan Tion, petitioner, vs. CA, Judge Agustin Montesa as Judge of CFI-Manila, Ong Wan Sieng, and the Sheriff of Manila,

Ponente: Makalintal, J.

Legal Doctrine: Attorney’s fees belong to the litigant and not his/her counsel, and may be the subject of legal

(If the person who won the case [and has a right to attorney’s fees from the loser] is indebted to the loser, the loser can
recover the debt from the attorney’s fees he owes, and may not be required to pay the attorney’s fees anymore.)

Facts: owes him, because it’s a “trust fund for the benefit of the
lawyer,” which the client must turn over to his counsel.
O.W.S. was a tenant in the premises owned by G.T. In
1961, G.T. filed an ejectment case against the former for
non-payment of rents for 2 months (sum of P360). O.W.S.
denied the allegation, saying the agreed payment was Issue: Whether the award for attorney’s fees may be
merely a total of P320 or P160 a month, and that he the subject of legal compensation.
offered to pay this but was refused by G.T. The
landlord/defendant won in the municipal court of Manila,
but on appeal lost in the CFI. The municipal court ruling
Held: YES. CA judgment reversed. Writ of execution
was reversed (with finality), and landlord was ordered to
issued by CFI-Manila is set aside.
pay the tenant-defendant P500 as attorney’s fees.

Later landlord served notice on tenant that he was

increasing the rent, and was demanding at the same time Ratio: The award for attorney’s fees is made in favor of
the rents in arrears at the old rate (P4, 320). Meanwhile the litigant, not of his counsel. It is the litigant, not the
tenant obtained a writ of execution of the CFI judgment counsel, who is the judgment creditor and who may
for attorney’s fees. Landlord went on certiorari to the CA, enforce the judgment by execution. Such credit may
pleading legal compensation since tenant was indebted to therefore properly be the subject of legal compensation. It
him of the unpaid rents (the P4, 320). CA ruled for the would be unjust to compel petitioner to pay his debt of
tenant, saying that although tenant is indebted, the P500 when admittedly his creditor is indebted to him for
payment cannot be taken from the P500 the landlord more than P4, 000.


Silahis Marketing Corporation, petitioner, vs. Intermediate Appellate Court and Gregorio De Leon, doing business under
the name and style of “MARK INDUSTRIAL SALES”, respondents

Ponente: Fernan, C.J.

Legal Doctrine: In order that compensation be proper, it must be clear and liquidated.

Facts: case do not contain anything that would manifest that De

Leon obligated himself to set-off or compensate Silahis’
In 1975, Gregorio De Leon (of Mark Industrial Sales) sold outstanding accounts with the alleged unrealized
and delivered various items of merchandise to Silahis commission from the assailed sale of sprockets in the
Marketing Corporation. It was covered by several amount of Php 111, 000 made to Dole Philippines, Inc.
invoices with the total amount of Php 22, 213.75 payable
within thirty days from the date of the invoices. Article 1279 CC provides that compensation
takes place when two persons, in their own right,
Upon maturity and after repeated demands, Silahis failed are creditors and debtors to each other. The
to pay for the items. Because of this, De Leon filed a requisites in order that compensation may be
complaint for the collection of the said accounts including proper are the following: (1) that each one of the
an interest amounting to Php 661.03 and attorney’s fees obligors be bound principally, and that he be at
of Php 5, 000 in the CFI of Manila. the same time a principal creditor of the other;
(2) that both debts consist in a sum of money, or
Silahis admitted the allegations of De Leon but presented if the things due are consumable, they be of the
these affirmative defenses: (1) debit memo for Php 22, same kind, and also of the same quality if the
200 as unrealized profit for a supposed commission that latter has been stated; (3) that the two debts be
Silahis should have received from De Leon for the sale of due; (4) that they be liquated and demandable;
sprockets in the amount of Php 111, 000 made directly to and (5) that over neither of them there be any
Dole Philippines, Inc.; and (2) Silahis’ claim that it is retention or controversy, commenced by third
entitled to return the stainless steel screen (worth Php persons and communicated in due time to the
6,000) brought from De Leon which was found defective debtor.
by their client Borden International and to have the
corresponding amount cancelled from its account with De In order for legal compensation to take place, Article 1279
Leon. requires that “the two debts be due” and “they be
liquidated and demandable.” Hence, compensation is not
proper where the claim of the person asserting the set-off
against the other is not clear nor liquidated; compensation
Issue: Whether or not De Leon is liable to Silahis
cannot extend to unliquidated, disputed claim existing
Marketing Corporation for the commission or margin for
from breach of contract. The Supreme Court held that
the direct sale which De Leon concluded and
there is no evidence on record from that there was an
consummated with Dole Philippines, Inc.
agreement between De Leon and Silahis prohibiting De
Leon from selling directly to Dole Philippines. The debit
memo cannot be considered binding between the parties
Held/Ratio: No, De Leon is not liable to Silahis because it was not signed by De Leon and it did not
Corporation. The debit memo and the other records in this mention any communicated in due time to the debtor.


Bank of the Philippines Island and Grace Romero, petitioners, vs. Court of Appeals and Edvin F. Reyes, respondents

Ponente: Puno, J.

Legal Doctrine: The rule as to mutuality is strictly applied at law. But not in equity, where to allow the same would defeat
a clear right or permit irremediable injustice (in relation to Art 1279 no. 1).

Facts: 2. Yes, it should have been awarded

Edwin Reyes opened an joint and/or savings account with

his wife (Account 1) in BPI Cubao. He also opened
another joint and/or savings account with his grandmother Ratio:
Emeteria Fernandez (Account 2) and in this account he
deposits the monthly pension that Fernandez receives 1. The prepondenrance of evidence and
from the US Treasury of Warrants. testimonies of Bernardo and Romero about the
conversation they had with Reyes, proved that
Fernandez died on December 28, 1989, without the Reyes indeed gave a verbal authorizations.
knowledge f the US Treasury Department. Thus a check Moreover, Reyes has lost his credibility after all
amounting to P10, 556 was still sent to her for her the things that had happened which are 1.)
monthly pension. concealing the death of Fernandez, 2.) receiving
the check depit knowing that Fernandez is no
Reyes got the check and deposited it to Account 2. The longer entitled to it 3.) pre-empting refund by
US Veteran’s Adminstration cleared the check and it was transferring the funds from Account 2 to Account
sent to the US Treasury of Warrants (USTW) for further 1.

On March 8, 1990, Reyes closed Account 2 and

transferred all its funds to Account 1. 2. Compensation shall take place when two
persons, in their own right, are creditors and
On January 1991, USTW dishonored the check because debtors of each other. Article 1279 states that in
Fernandez died 3 days prior to it issuance and is order that compensation may be proper, it is
requesting a refund from BPI. BPI informed Reyes about necessary:
it and he gave his verbal authorization to debit from his
account the required amount. (1) That each one of the obligors be
bound principally, and that he be at the
Afterwards, Reyes, with his lawyer, went to BPI to same time a principal creditor of the
demand for restitution stating that because of the debited other;
amount, he was not able to withdraw the money that he
needed at that time. (2) That both debts consist in a sum of
money, or if the things due are
Thus he filed a suit for damages. BPI presented a consumable, they be of the same kind,
counterclaim stating that Reyes gave them his verbal and also of the same quality if the latter
authorization to debit from his account. has been stated;

RTC dismissed the case for lack of action. CA reversed (3) That the two debts be due;
the decision ang granted Reyes legal compensation
(4) That they be liquidated and

Issues: (5) That over neither of them there be

any retention or controversy,
1. WON there was verbal authorization on the part commenced by third persons and
of Reyes for BPI to debit from his account. communicated in due time to the
2. WON CA erred in not ruling that legal
compensation is proper for Reyes In this case, all this requisites are present. BPI is
a debtor of Reyes, a depositor. BPI also a
creditor of Reyes because of the dishonored
USTW warrant check which was illegally
transferred to Reyes’s account. The debts are in
1. Yes, preponderance of evidebnce shows this sum money, are due, liquidated and
plus Reyes was not a credible witness demandable. Moreover, the presence of private
respondent's wife does not negate the element

of mutuality of parties (requisite no.1 in Art at law. But not in equity, where to allow the same
1279). She never asserted her right to the would defeat a clear right or permit irremediable ͳ͵ͳ
debited USTW and she is not a party to the injustice.
case. The rule as to mutuality is strictly applied


Philippine National Bank, petitioner, vs. The Court of Appeals and Ramon Lapez, doing business under the name and
style Sapphire Shipping, respondents

Ponente: Panganiban, J.

Legal Doctrine: In order that compensation may be proper, it is necessary that each one of the obligors be
boundprincipally, and that he be at the same time a principal creditor of the other.

Facts: Issue: WON PNB was legally justified in making

compensation or set-off against the two remittances
There were 2 instances in the past when Sapphire coursed through it in favor of Sapphire Shipping to
Shipping’s account was doubly credited with the recover the double credits it erroneously made, based on
equivalents of $5, 679.23 and $5, 885.38 which amounted the principle of solutio indebiti
to an aggregate amount of P87, 380.44. PNB made a
demand upon plaintiff for refund of the doubled credits.

PNB intercepted the amounts of $2,627.11 and P34, Held/Ratio:

340.38 from remittances of the plaintiff’s principals
abroad. The first remittance was made by the National NO. Assailed decision is affirmed in toto.
Commercial Bank (NCB) of Jeddah for the benefit of
Sapphire Shipping, to be credited to his account at Art. 1279 of the Civil Code provides:
Citibank, Greenhills branch. The second was from Libya
Art. 1279. In order that compensation may be proper, it is
and was intended to be deposited at Sapphire Shipping’s
account with PNB. PNB intercepted the said remittances
as payment for the amounts doubly credited to Sapphire 1. That each one of the obligors be bound
Shipping’s account. principally, and that he be at the same time a
principal creditor of the other;
The deduction of P34, 340.58 was made with the
knowledge and consent of Sapphire Shipping. A receipt 2. That both debts consist in a sum of money, or if
was issued in favor of private respondent. Sapphire the things due are consumable, they be of the
Shipping made a written demand upon the defendant for same kind, and also of the same quality if the
remittance of the equivalent of $2, 627.11. latter has been stated;
PNB argued that it made a compensation or set-off 3. That the two debts be due;
against the remittances coursed through it to recover on
the double credits it erroneously made, based on the 4. That they be liquidated and demandable;
principle of solutio indebiti. The trial court and the CA
ruled that it had no justification in making such 5. That over neither of them there be any retention
compensation. or controversy, commenced by third persons and
communicated in due time to the debtor.

With respect to the amount of $2,627.11, requisites PNB’s actuation in intercepting the amount of $2,627.11
numbers 2 to 5 are present. However, the parties are not supposed to be remitted to another bank is not only ͳ͵ʹ
both principally bound with respect to the said amount; improper; it will also erode the trust and confidence of the
neither are they at the same time principal creditor of the international banking community in the banking system of
other. They are debtor and creditor only with respect to the country.
the double payments, but are trustee-beneficiary as to the
fund transfer of $2,627.11. PNB is the local As regards the intercepted amount of P34, 340.58, all
correspondent of NCB of Jeddah. It is in effect acting as requirements of Art. 1279 are present, thus, the said
an agent of NCB. All that PNB could do under the amount may properly be the subject of compensation or
remittance arrangement is to transmit the telegraphic set-off.
money transfer to the Citibank so that the amount can be
promptly credited to the account of Sapphire Shipping
with the said bank.

Only Sapphire Shipping is principally bound as a debtor of

PNB to the extent of the double credits. On the other
hand, the PNB was an implied trustee, who was obliged
to deliver to Citibank for the benefit of Sapphire Shipping
the sum of $2.627.11.


Spouses Alejandro Mirasol and Lilia Mirasol, petitioner, vs. Court of Appeals, Philippine National Bank and Philippine
Exchange Co., Inc., respondents

Ponente: Quisumbing, J.

Legal Doctrine: For legal compensation to take place, parties should be mutually creditors and debtors of each other and
the claim should already be liquidate d and no longer a subject of litigation.


Mirasols were sugarland owner and planters.

x 1973-1974: 70,501.08 piculs of sugar | 25,662.36 for export

x 1974-1975: 65,100 piculs of sugar | 23,696.40 for export

PNB financed the Mirasol’s sugar production venture under a crop loan financing scheme:

x Credit Agreement

x Chattel Mortgage – sell the sugar in both domestic and export market and get proceeds

x Real Estate Mortgage

President Marcos issued PD No. 579 which authorized PHILEX to purchase sugar allocated for export and PNB to finance
such purchases and whatever profit PHILEX might realize will be remitted to the government.

PNB then asked petitioners to pay their due and demandable accounts. Mirasols conveyed real properties by way of dacion
en pago (P1, 410,466) leaving an unpaid overdrawn account of P1, 513, 347.78 which petitioners failed to pay despite ͳ͵͵
demands. After auction sale, petitioners still owe PNB P12, 551, 252.93

Petitioners: sale of export sugar, if properly liquidated, could offset their outstanding obligations

PNB: all earnings from the export sales of sugar were remitted to the government

Issue: (Topical) WON the foreclosure and dacion en pago were valid

Held: Both were valid


Petitioners Court
Loans had been fully paid by virtue of legal They admitted that they were indebted to PNB.
compensation For legal compensation to take place, the requirements
Foreclosure was invalid and has no effect since in A.1278 and A.1279 must be present.
mortgages were fully discharged. Neither parties are mutually creditors and debtors of
each other. There was nothing with which PNB was
supposed to have set-off Mirasol’s admitted
indebtedness because by virtue of PD 579, any profits
realized will be remitted to the government
Compensation cannot take place where one’s claim is
still the subject of litigation – not yet liquidated
They agreed to dacion en pago by virtue of martial law No evidence to support claim
Arrest, Search and Seizure Order (ASSO

VIII. Novation

C. Requisites


Magdalena Estates, Inc., plaintiff-appelle, vs. Antonio A. Rodriguez and Herminia C. Rodriguez, defendants-appellants

Ponente: Regala, J.

Legal Doctrine: Novation by presumption has never Antonio and Herminia Rodriguex bought from Magdalena
been favored. For novation to be credited, the parties Estates a parcel of land in Quezon City. For the balance
must expressly provide for it, it does not accrue when the of PHP 5,000.00, Rodriguez executed a promissory note
new contract merely supplements the old one. indicating that they would pay the balance with an interest
rate of 9% per annum, within 60 days from the execution
of said promissory note (January 4, 1957).

Facts: On the same date that appellants executed the

promissory note, they and Luzon Surety Co. Inc executed

a bond in favor of appellee for the price of PHP 5,000.00 Held/Ratio:

representing the unpaid balance of Rodriguez.
NO. The appellee did not demand from Luzon Surety the
On June 20, 1958, Luzon Surety paid the balance to interest due appellants for in the capacity of the latter as
Magdalena Estates. Subsequently, Magdalena Estates surety the payment of the PHP 5,000 obligation was the
demanded from the appellants the payment of PHP only thing expected from them (bond contract). The
655.89 for the accumulated interest on the principal PHP acceptance of Magdalena Estates of the PHP 5,000 does
5,000.00. Upon refusal of appellants to do so, Magdalena not constitute a waiver or condonation of the interests due
Estates started a suit in the Municipal Court of Manila them. The promissory note that Rodriguez executed
where the judgment rendered was in favor of appellee. clearly stated that they would pay the outstanding balance
apart from the interest.
Rodriguez appealed in CFI Manila but to no avail,
wherefore, this present action was ensued. The rule is settled that novation by presumption has never
been favored. To be sustained, it needs to be established
that the old and new contracts are incompatible in all
points, or that the will to novate appears by express
Issue: W/N the execution of the bond by Rodriguez and agreement of the parties or in acts of similar import.
Luzon Surety constitute novation and therefore
extinguished the obligation of appellant to pay the interest An obligation to pay a sum of money is not novated, in a
to appellee. new instrument wherein the old is ratified, by changing
only the terms of payment and adding other obligations
not incompatible with the old one, or wherein the old
contract is merely supplemented by the new one. Thus,
Rodriguez is still obligated to pay the interests to
Magdalena Estates.


Joseph Cochingyan Jr. and Jose K. Villanueva, petitioners, vs. R & B Surety and Insurance Company Inc., respondent

Ponente: Feliciano, J.

Legal Doctrine: Novation is never presumed. It is R & B Surety entered into two identical Indemnity
imperative that the new obligation expressly declare that Agreements in consideration of its issuance of the surety
the old obligation is thereby extinguished, or that the new bond. One was executed by the Catholic Church Mart
obligation be on every point incompatible with the old one. (CCM) and by petitioner Cochingyan Jr. not only in his
capacity as president of CCM, but also in his personal
capacity. The other agreement was executed by
PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K.
Facts: Villanueva and Lu Tua Ben. Villanueva signed both as
president of PACOCO and in his personal capacity.
Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for
Under both indemnity agreements, the indemnitors bound
and was granted an increase in its line of credit from
themselves jointly and severally to R & B Surety to pay an
P400, 000 to P800, 000 with the Philippine National Bank
annual premium of P5, 103. 05 and for the compliance of
(PNB). To secure the latter’s approval, PAGRICO had to
the terms and agreements set forth in the said surety
give a good and sufficient bond of P400, 000 (principal
obligation) to secure its faithful compliance. PAGRICO
submitted an R & B Surety Bond in the specified amount When PAGRICO failed to fulfill its principal obligation to
in favor of PNB. PNB, a Trust Agreement was executed between 1) Jose
and Susana Cochingyan Sr., doing business and style of
the CCM represented by Cochingyan Jr. as Trustors, 2)

Tomas Besa, a PNB official, as Trustee, and 3) the PNB to the principal obligation in addition to PAGRICO and R
as Beneficiary. Under the Trust Agreement, the Trustor & B Surety ͳ͵ͷ
undertook to assume the obligation due in order to
forestall impending suits by PNB against R & B Surety.
However, R & B Surety made a series of payments
amounting to P70, 000 when PNB demanded payment Ratio:
from it the sum of P400, 000 (principal obligation).
The Trust Agreement does not expressly terminate the
Hence, R & B Surety sent formal demand letters to obligation of R & B Surety under the Surety Bond. On the
petitioners for reimbursement. When petitioners failed to contrary, the Trust Agreement expressly provides for the
heed its demands, R & B Surety brought suit against continuing subsistence of that obligation by stipulating
them. that ‘the Trust Agreement shall not in any manner release
R & B Surety from the obligation under the Surety Bond.

Petitioner cannot anchor their defense on implied

Issue: WON the Trust Agreement had extinguished, by novation. Novation is never presumed. It is imperative
novation, the obligation of R & B Surety to the PNB under that the new obligation expressly declare that the old
the Surety Bond which, in turn, extinguished the obligation is thereby extinguished, or that the new
obligation of the petitioners under the Indemnity obligation be on every point incompatible with the old one.
The Trustor (CCM) in the Trust Agreement was already
previously bound to R & B Surety under the Indemnity
Agreement. Under the Trust Agreement, CCM became
Held: The Surety Bond was not novated by the Trust directly liable to PNB. In effect, there are now three
Agreement. Both agreements can co-exist. The Trust obligors directly and solidarily bound to PNB: PAGRICO,
Agreement merely furnished to PNB another party obligor R & B Surety and the Trustor.


Broadway Centrum Corporation, petitioner, vs. Tropical Hut Food Market, Inc. and The Honorable Court of Appeals,

Ponente: Feliciano, J.

Legal Doctrine: Novation is never presumed, is not Period would be from February 1, 1981 to February 1,
avoided by merely referring to partial novation. The will to 1991.
novate, whether totally or partially, must appear by
express agreement of the parties, by their acts which are The contact covered a 3,042.19 square meter portion of
too clear and unequivocal to be mistaken. the Broadway Centrum Commercial Complex.

On 5 February 1982, Tropical wrote to Broadway stating

that Tropical's rental payments to Broadway were
Facts: equivalent to 7.31% of Tropical's actual sales of P17,
246,103.00 in 1981, while "[Tropical's] gross profit, rate
Broadway and Tropical executed an 28 November 1980 a [was] only 10%."
contract of lease of 10 years to which, Tropical agreed to
pay Broadway a rental fee of P120,000 per month during The "low sales volume" that the Tropical Supermarket in
the first three years; P140,000 per month on the the Broadway Centrum was experiencing, apparently was
succeeding three years; and P165,000 per month on the a result of the temporary closure of Doña Juana
last four years. Rodriguez Avenue.

Tropical proposed “to reduce the present monthly rental Novation through a change of the object or principal
to P50, 000.00 or 2.0% of their monthly sales whichever conditions of an existing obligation is referred to as ͳ͵͸
is higher, up to the end of the third year after which it shall objective (or real) novation.
again be subject to renegotiations”
Novation by the change of either the person of the debtor
Broadway made a counter-proposal consisting of or of the creditor is described as subjective (or personal)
conditional reduction of the stipulated rental by P20, novation.
000.00 for a limited period of four (4) months
Novation may also be objective and subjective (mixed) at
Broadway's President, Mrs. Cita Fernandez Orosa, was the same time.
aware that the temporary closure of the Doña Juana
Rodriguez Avenue had affected the business of all the Novation is never presumed; it must be established either
Broadway's tenants, including Tropical. She, therefore, by the discharge of use old debt by the express terms of
agreed on 20 April 1982 to a "provisional and temporary the new agreement, or by the acts of the parties whose
agreement." intention to dissolve the old obligation as a consideration
of the emergence of the new one must be clearly
The letter of Mrs. Orosa states the following: manifested.

“our provisional and temporary agreement to a reduction In the case at bar (1), the letter-agreement of 20 April
of your monthly rental on the basis of 2% of gross 1982 was, by its own terms, a " provisional and temporary
receipts or P60,000.00 whichever is higher.” agreement to a reduction of [Tropical's] monthly rental —
." The letter-agreement, as noted earlier, also contained
“This Provisional arrangement should not be interpreted the following sentence:
as amendment to the lease contract entered into between
us.” This provisional agreement should not be
interpreted as amendment to the contract entered into by
Tropical further agreed to return 466.56 square meters to us.
Broadway in order for the temporary agreement to
commence. There is nothing in the text of the 20 April 1982 letter-
agreement to suggest that the reduced concessional
The road expansion project at the Doña Juana Rodriguez rental rates could not be terminated Broadway without the
Avenue was completed, thus, Broadway is now seeking consent of Tropical.
payment based on the original contract, which Tropical
argues to be novated by the April 20, 1982 agreement. (2) the formal notarized Lease Contract of 28 November
1980 made it clear that a temporary and provisional
concessional reduction of rentals which Broadway might
grant to Tropical was not to be construed as alteration or
Issue: Whether or not the latter-agreement dated 20 April waiver of any; of the terms of the Lease Contract itself.
1982 had novated the Contract of Lease of 28 November Lease Contract provided:
COVENANTS — The failure of the LESSOR to insist
upon strict performance of any of the terms,
Held: No. The letter-agreement of 20 April 1992 did not
conditions and stipulation hereof shall not be deemed a
extinguish or alter the obligations of respondent Tropical
relinquishment or waiver of any right or remedy that
and the rights of petitioner Broadway under their lease
said LESSOR may have, nor shall it be construed as a
contract dated 28 November 1980.
waiver of any subsequent breach of, or default in the
terms, conditions and covenants hereof, which terms,
conditions and covenants shall continue under this
Ratio: Contract and shall be deemed to have been made unless
express in writing and signed by the LESSOR.
Novation is the extinguishment of an obligation by the
substitution of that obligation with a subsequent one. (3) the course of negotiations between Broadway and
Tropical before the execution of their letter-agreement of
20 April 1982, quite clearly indicated that what they were

negotiating was a temporary and provisional reduction of 1. P80,000.00 per month from 1 January 1983
rentals. up to 30 June 1983; ͳ͵͹
2. P100,000.00 per, month from 1 July 1983
(4) the course of discussions between Broadway and up to 31 January 1984;
Tropical, as disclosed in their correspondence, after 3. P140,000.00 per month from 1 February
execution of the 20 April 1982 letter-agreement, shows 1984 to 1 February 1987; and
that the reduction of rentals agreed upon in the letter- 4. P160,000.00 per month from 1 February
agreement was not to persist, for the rest of the life of the 1987 to 31 January 1991.
ten (10)-year Contract of Lease.
The penalty of 2% per month on unpaid rentals specified
in Section 5 of the 28 November 1980 Contract of Lease
is, in the exercise of the Court's discretion, hereby
Dispositive: equitably REDUCED to ten percent (10%) per annum
computed from accrual of such rentals as above specified
WHEREFORE, for all the foregoing, the Petition for
until fully paid. In addition, private respondent Tropical
Review on Certiorari is hereby GIVEN DUE COURSE,
shall pay to petitioner Broadway attorney's fees in the
and the Comment filed by private respondent Tropical is
amount of ten percent (10%) (and not twenty percent
hereby TREATED as its ANSWER and the Decision
[20%] as specified in Section 33 of the Contract of lease)
dated 30 January 1987 of the Court, of Appeals and the
of the total amount due and payable to petitioner
Decision dated 14 March 1985 of the trial court are
Broadway under this Decision. Costs against private
hereby REVERSED and SET ASIDE. A new judgment is
hereby entered dismissing the complaint filed by private
respondent Tropical, and requiring private respondent
Tropical to pay to petitioner Broadway the following rental


California Bus Lines, Inc., petitioner, vs. State Investment House, Inc., respondent

Ponente: Quisumbing, J.

Legal Doctrine: An obligation is not novated by an Oct. 7, 1981 – When California defaulted on all payments
instrument that expressly recognizes the old, changes due, it entered into a restructuring agreement with Delta
only the terms of payment, and adds other obligations not to cover its obligations under the promissory notes. The
incompatible with the old ones, or where the new contract restructuring agreement provided for a new schedule of
merely supplements the old one. payments of California’s past due installments, extending
the period to pay, and stipulating daily remittance instead
of the previously agreed monthly remittance of payments.

Facts: Dec. 23, 1981 – Delta executed a Continuing Deed of

Assignment of Receivables in favor of SIHI as security for
1979 – Delta applied for financial assistance from the payment of its obligations to SIHI per the credit
respondent SIHI, a domestic corporation engaged in the agreements.
business of quasi-banking.
May 3, 1982 – California filed a complaint for injunction,
April 1979 to May 1980 – California executed 16 docketed as Civil Case No. 0023-P, to pre-empt Delta’s
promissory notes to Delta to secure the payment of the 35 management takeover per restructuring agreement. Delta
buses that California purchased. filed its amended answer with applications for the
issuance of a writ of preliminary mandatory injunction to
enforce the management takeover clause and a writ of

preliminary attachment over the buses it sold to payment, and adds other obligations not incompatible
California. The trial court granted Delta’s prayer. with the old ones, or where the new contract merely ͳ͵ͺ
supplements the old one.
Sept. 15, 1983 – Delta executed a Deed of Sale assigning
to SIHI 5 of the 16 promissory notes from California. Inchausti & Co. v. Yulo: an obligation to pay a sum of
money is not novated in a new instrument wherein the old
Dec. 13, 1983 – SIHI sent a demand letter to California is ratified, by changing only the term of payment and
requiring the latter to remit the payments due on the 5 adding other obligations not incompatible with the old
promissory notes directly to it. California replied informing one.
SIHI of Civil Case No. 0023-P and of the fact that Delta
had taken over its management and operations. The restructuring agreement between Delta and
California executed on October 7, 1981, shows that the
July 24, 1984 – Delta and California entered into a parties did not expressly stipulate that the restructuring
compromise agreement in Civil Case No. 0023-P. agreement novated the promissory notes.
Following this, California vehemently refused to pay SIHI
the value of the 5 promissory notes, contending that the The restructuring agreement, instead of containing
compromise agreement was in full settlement of all its provisions “absolutely incompatible” with the obligations
obligations to Delta including its obligations under the of the judgment, expressly ratifies such obligations and
promissory notes. contains provisions for satisfying them. There was no
change in the object of the prior obligations. The
RTC discharged California from liability on the 5 restructuring agreement merely provided for a new
promissory notes. It held that the restructuring agreement schedule of payments and additional. Where the parties
dated October 7, 1981, between Delta and California to the new obligation expressly recognize the continuing
novated the 5 promissory notes; hence, at the time Delta existence and validity of the old one, there can be no
assigned the 5 promissory notes to SIHI, the notes were novation.
already merged in the restructuring agreement and
cannot be enforced against California. The restructuring agreement can stand together with the
promissory notes.
CA reversed RTC’s decision and held California liable for
the 5 notes. As regards the compromise agreement, having previously
assigned the 5 promissory notes to SIHI, Delta had no
more right to compromise the same.

Issue: W/N the restructuring agreement between SIHI’s demand letter dated December 13, 1983, requiring
California and Delta novated the 5 promissory notes Delta California to remit the payments directly to SIHI effectively
assigned to SIHI. revoked Delta’s limited right to collect in behalf of SIHI.

As a result of the assignment, Delta relinquished all its

rights to the subject promissory notes in favor of SIHI.
Held: NO. This had the effect of separating the 5 promissory notes
from the 16 promissory notes subject of Civil Case No.
The compromise agreement covered the rights and
The obligation is not novated by an instrument that obligations only of Delta and California and only with
expressly recognizes the old, changes only the terms of respect to the 11 other promissory notes that remained
with Delta.

G. Subjective Novation


Romeo C. Garcia, petitioner, vs. Dionisio V. Llamas, respondent

Ponente: Panganiban, J.

Legal Doctrine: Novation cannot be presumed. It must having agreed to accept the benefits he (de Jesus) would
be clearly shown either by the express assent of the receive for his retirement, but respondent nonetheless
parties or by the complete incompatibility between the old filed the instant case while his retirement was being
and the new agreements. processed;

Respondent filed a Manifestation/Motion to submit the

case for judgment on the pleadings, and asserted that
Facts: petitioner’s and de Jesus’ solidary liability under the
promissory note cannot be any clearer, and that the
23 December 1996 - [Petitioner] Romeo Garcia and check issued by de Jesus did not discharge the loan
Eduardo de Jesus borrowed P400, 000.00 from since the check bounced. The loan remained unpaid.
[respondent] Dionisio Llamas. On the same day, [they]
executed a promissory note wherein they bound RTC ruled against petitioner and De Jesus, and ordered
themselves jointly and severally to pay the loan on or them to pay, jointly and severally, the respondent the
before 23 January 1997 with a 5% interest per month; following sums, P400,000.00 plus interests less the
that the loan has long been overdue and, despite amount of P120,000.00 representing interests already
repeated demands, petitioner and de Jesus have failed paid by de Jesus; plus attorney’s fees plus appearance
and refused to pay it; and that, by reason of the fee for each day of court appearance, and cost of this
unjustified refusal, respondent was compelled to engage suit.
the services of counsel to whom he agreed to pay 25% of
the sum to be recovered from the petitioner and de Jesus, CA AFFIRMED, subject to the modification that the award
plus P2,000.00 for every appearance in court. for attorney’s fees and cost of suit is DELETED. The
portion of the judgment that pertains to Eduardo de Jesus
Defense of the petitioner Garcia- Petitioner seeks to is SET ASIDE and VACATED. Accordingly, the case
extricate himself from his obligation as joint and solidary against Eduardo de Jesus is REMANDED to RTC to
debtor by insisting that novation took place, either through receive ex parte respondent’s evidence against Eduardo
the substitution of De Jesus as sole debtor or the de Jesus.
replacement of the promissory note by the check.
Alternatively, petitioner argues that the original obligation
was extinguished when de Jesus, who was his co-obligor,
“paid” the loan with the check; and that, in any event, the Issues: Whether there was novation of the obligation and
issuance of the check and respondent’s acceptance therefore extricated the petitioner from liability.
thereof novated or superseded the note.

Defense of de Jesus- He asserted in his Answer with

Counterclaim that out of the supposed P400,000.00 loan, Held: There was no novation.
he received only P360,000.00, the P40,000.00 having
been advance interest thereon for two months, that is, for
January and February 1997; that he paid to respondent’s Ratio:
daughter, one Nits Llamas-Quijencio, the sum of
P120,000.00 representing the peso equivalent of his Novation is a mode of extinguishing an obligation by
accumulated leave credits plus the advance interest, and changing its objects or principal obligations, by
the interest for the months of March and April 1997; that substituting a new debtor in place of the old one, or by
he had difficulty in paying the loan and had asked subrogating a third person to the rights of the creditor.
respondent for an extension of time; that respondent Article 1293 of the Civil Code defines novation as follows:
acted in bad faith in instituting the case, respondent

“Art. 1293. Novation which consists in Neither could the payment of interests change the terms
substituting a new debtor in the place of the and conditions of the obligation. Such payment was ͳͶͲ
original one, may be made even without the already provided for in the promissory note and, like the
knowledge or against the will of the latter, but not check, was totally in accord with the terms thereof.
without the consent of the creditor. Payment by
the new debtor gives him rights mentioned in Moreover, it must be noted that for novation to be valid
articles 1236 and 1237.” and legal, the law requires that the creditor expressly
consent to the substitution of a new debtor. Since
Novation may be express or implied. It is express when novation implies a waiver of the right the creditor had
the new obligation declares in unequivocal terms that the before the novation, such waiver must be express. It
old obligation is extinguished. It is implied when the new cannot be supposed, without clear proof, that the present
obligation is incompatible with the old one on every point. respondent has done away with his right to exact
The test of incompatibility is whether the two obligations fulfillment from either of the solidary debtors. More
can stand together, each one with its own independent important, De Jesus was not a third person to the
existence. obligation. From the beginning, he was a joint and
solidary obligor of the P400, 000 loan; thus, he can be
In the case at bar, the parties did not unequivocally released from it only upon its extinguishment.
declare that the old obligation had been extinguished by Respondent’s acceptance of his check did not change the
the issuance and the acceptance of the check, or that the person of the debtor, because a joint and solidary obligor
check would take the place of the note. There is no is required to pay the entirety of the obligation.
incompatibility between the promissory note and the
check. As the CA correctly observed, the check had been It must be noted that in a solidary obligation, the creditor
issued precisely to answer for the obligation. On the one is entitled to demand the satisfaction of the whole
hand, the note evidences the loan obligation; and on the obligation from any or all of the debtors. It is up to the
other, the check answers for it. Verily, the two can stand former to determine against whom to enforce collection.
together. Having made himself jointly and severally liable with De
Jesus, petitioner is therefore liable for the entire
The petitioner has not shown that he was expressly obligation.
released from the obligation, that a third person was
substituted in his place, or that the joint and solidary
obligation was cancelled and substituted by the solitary
undertaking of De Jesus. Dispositive: WHEREFORE, this Petition is hereby
DENIED and the assailed Decision AFFIRMED.


Leonida C. Quinto, petitioner, vs. People of the Philippines, respondent

Ponente: Vitug, J.

Legal Doctrine: It is a very common thing in business Facts:

affairs for a stranger to a contract to assume its
obligations but it does not necessarily imply the March 23, 1997 – Petitioner Quinto went to see Aurelia
extinguishment of the liability of the first debtor. The mere Cariaga (private complainant) at the latter's residence in
fact that the creditor receives guaranty or accepts Makati. Quinto asked Cariaga to allow her have some
payments from a third person who has agreed to assume pieces of jewelry that she could show to prospective
the obligation, when there is no agreement that the first buyers. Cariaga agreed and handed over to Quinto one
debtor shall be released from responsibility, does not (1) set of marques with briliantitos worth P17,500.00, one
constitute a novation, and the creditor can still enforce the (1) solo ring of 2.30 karats worth P16,000.00 and one (1)
obligation against the original debtor. rosetas ring worth P2,500.00. Leonida signed a receipt.

The receipt stated that Quinto received the jewelries Ratio:

worth P 36,000 for the purpose of selling the same on
Novation, in its broad concept, may either be extinctive or
commission basis and with the express obligation on the
part of the petitioner to turn over the proceeds of sale modificatory. An extinctive novation results either by
thereof, or to return the said jewelries, if not sold, five (5) changing the object or principal conditions (objective or
days after receipt thereof. real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor
But when the 5-day period given to her had lapsed, (subjective or personal).
Quinto requested for and was granted additional time
within which to vend the items. Leonida failed to conclude There are two ways which could indicate the presence of
any sale and, about six (6) months later, Cariaga asked extinctive novation. The first is when novation has been
that the pieces of jewelry be returned. She sent to Quinto explicitly stated and declared in unequivocal terms. The
a demand letter which the latter ignored. The inexplicable second is when the old and the new obligations are
delay of Leonida in returning the items spurred the filing incompatible on every point. The test of incompatibility is
of the case for estafa against her. whether or not the two obligations can stand together,
each one having its independent existence. If they
Quinto, in her defense, said that, sometime in 1975, she cannot, they are incompatible and the latter obligation
and Cariaga started to transact business in pieces of novates the first. Corollarily, changes that breed
jewelry among which included a solo ring which was sold incompatibility must be essential in nature and not merely
to Mrs. Camacho who paid initially in check and later accidental. The incompatibility must take place in any of
directly paid the balance to Aurelia in installments. The the essential elements of the obligation, such as its
last transaction Quinto had with Mrs. Camacho involved a object, cause or principal conditions thereof; otherwise,
"marques" worth P16, 000.00 and a ring valued at P4, the change would be merely modificatory in nature and
000.00. Mrs. Camacho was not able to pay the due insufficient to extinguish the original obligation.
amount in full. Quinto brought Mrs. Camacho to Cariaga
who agreed to allow Mrs. Camacho to pay the balance in In the case at bar, the changes alluded to by petitioner
installments. Quinto was also able to sell for Cariaga a 2- consists only in the manner of payment. There was really
karat diamond ring worth P17, 000.00 to Mrs. Concordia no substitution of debtors since private complainant
Ramos who was also unable to pay the whole amount. merely acquiesced to the payment but did not give her
Quinto brought Mrs. Ramos to Cariaga and they talked consent to enter into a new contract.
about the terms of payment. (In short, Quinto’s defense is
that their agreement was novated when Cariaga agreed The SC cited the decision of the Appellate Court in this
to be paid directly by the buyers and on installment basis. case saying: It is remembered that one of the buyers,
She added that her liability is merely civil in nature.) Concordia Ramos, was not presented to testify on the
alleged aforesaid manner of payment. The acceptance by
RTC found Quinto guilty beyond reasonable doubt of the complainant of partial payment tendered by the buyer,
crime of estafa and sentenced her to suffer the penalty of Leonor Camacho, does not evince the intention of the
imprisonment and to indemnify private complainant in the complainant to have their agreement novated. It was
amount of P36, 000.00. CA affirmed. Hence, this petition simply necessitated by the fact that, at that time,
for review on certiorari. Camacho had substantial accounts payable to
complainant, and because of the fact that appellant made
herself scarce to complainant. Thus, to obviate the
situation where complainant would end up with nothing,
Issue: Whether or not the agreement between petitioner she was forced to receive the tender of Camacho.
Quinto and private complainant Cariaga was effectively
novated when the latter consented to receive payment on There are two forms of novation by substituting the
installments directly from Mrs. Camacho and Mrs. person of the debtor, depending on whose initiative it
Ramos? comes from, to wit: expromision and delegacion. In both
cases, a third person would substitute for the original
debtor and assume the obligation, thereby releasing the
original debtor from the obligation; thus in both cases, the
Held: NO, it did not. consent of the new debtor and the consent of the creditor
are necessary.

It is thus easy to see why Cariaga's acceptance of Ramos responsibility, does not constitute a novation, and the
and Camacho's payment on installment basis cannot be creditor can still enforce the obligation against the original ͳͶʹ
construed as a case of either expromision or delegacion debtor.
sufficient to justify the attendance of extinctive novation. It
is a very common thing for a stranger to a contract to
assume its obligations; and while this may have the effect
of adding to the number of persons liable, it does not Dispositive: WHEREFORE, the assailed decision of the
necessarily imply the extinguishment of the liability of the Court of Appeals is AFFIRMED except that the
first debtor. The mere fact that the creditor receives imprisonment term is MODIFIED by now sentencing
guaranty or accepts payments from a third person who petitioner to an indeterminate penalty. The civil liability of
has agreed to assume the obligation, when there is no appellant for P36, 000.00 in favor of private complainant
agreement that the first debtor shall be released from is maintained.


Abelardo Licaros, petitioner, vs. Antonio Gatmaitan, respondent

Ponente: Gonzaga-Reyes, J.

Legal Doctrine/s: Abelardo Licaros, a Filipino businessman, decided to

make a fund placement with said bank sometime in the
In conventional subrogation, agreement among the 3 1980’s. But this overseas fund investment did not turn out
parties is necessary: original creditor, debtor and the new as expected. He encountered difficulties in retrieving not
creditor; in the assignment of credit consent of the debtor only his interests/profits but his very investments as well.
is not required.
He asked for help from Antonio P. Gatmaitan, a reputable
While it is true that conventional subrogation has the banker and investment manager who had been offering
effect of extinguishing the old obligation and giving rise to consultancy services to local and international
a new one, the extinguishment of the old obligation is the corporations.
effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract Gatmaitan voluntarily offered to assume the payment of
for conventional subrogation may not be created. As Anglo-Asean’s indebtedness to Licaros subject to certain
such, the extinguishment of the original obligation is not terms and conditions. They executed a notarized
determinative of whether or not a contract of conventional MEMORANDUM OF AGREEMENT on July 29,’88 to
subrogation was constituted. formalize the agreement:

Pertinent clause:

Facts: xxx

The Anglo-Asean Bank and Trust Limited (Anglo-Asean) WHEREAS, the parties herein have come to an
is a private bank registered & recognized in the Republic agreement on the nature, form and extent of
of Vanuatu but not in the Philippines. Its business is in their mutual prestations which they now record
receiving fund placements through deposits from herein with the express conformity of the third
institutions & individual investors from different parts of parties concerned xxx
the world and then investing the deposits in money
market placements and potentially profitable capital In line with the MoA, Gatmaitan executed a NON-
ventures in Hongkong, Europe & the United States for the NEGOTIABLE PROMISSORY NOTE WITH
purpose of maximizing the returns on those investments. ASSIGNMENT OF CASH DIVIDENDS stating that he will
pay Licaros the equivalent of his (Licaros’) investment
amounting to $ 150, 000. (P3, 150, 000) (note: Php

21=$1) without interest as material consideration for the 2. WON respondent became liable to petitioner
full settlement of his money claims from ANGLO-ASEAN under the promissory note. ͳͶ͵
BANK. As a security for the payment of this promissory
note, he assigned 70% of all cash dividends from his (note: the efficacy of the promissory note is dependent on
shares of stock in the Prudential Life Realty, Inc. and the Memorandum of Agreement since the note is only an
Prudential Life Plan, Inc. annex to the said memorandum)

Gatmaitan presented the MoA to Anglo-Asean. The bank

said that they would ‘look into it’ but nothing has been
heard from the bank since. Because of Gatmaitan’s Held/Ratio:
inability to collect, he did not bother anymore to make
1. The MoA was in the nature of a conventional
good his promise to pay Licaros the amount stated in his
promissory note.
It was clear in the stipulation in the contract that
Licaros felt that he had a right to collect on the basis of
the 2 parties involved intended the MoA to be a
the promissory note regardless of the outcome of
conventional subrogation since they sought to
Gatmaitan's recovery efforts. rd
get the consent of the 3 parties involved as
Thus, in July 1996, Licaros, thru counsel, addressed explicitly stated in one of the whereas clauses of
successive demand letters to Gatmaitan, demanding the MoA:
payment of the latter’s obligations under the promissory
note. Gatmaitan, however, did not accede to these
demands. WHEREAS, the parties herein have
come to an agreement on the nature,
Licaros then filed a complaint to the RTC. RTC ruled in
form and extent of their mutual
favor of Licaros.
prestations which they now record
CA reversed RTC decision. herein with the express conformity of
the third parties concerned xxx

Contrary to Licaros’ assertion, the Court believes

Issue/s: that this preambulatory clause should be taken
with the contract as whole. Thus stating the
1. Whether the Memorandum of Agreement intention of the party, requiring the consent of
between petitioner and respondent is one of Anglo-Asean, the contract was therefore with the
assignment of credit or one of conventional nature of a conventional subrogation.

Assignment of credit Subrogation

definition the process of transferring the right of the the transfer of all the rights of the creditor to a
assignor to the assignee who would then third person, who substitutes him in all his rights.
have the right to proceed against the debtor. It may either be legal or conventional.
The assignment may be done gratuitously or Legal subrogation takes place without agreement
onerously, in which case, the assignment but by operation of law because of certain acts.
has an effect similar to that of a sale. Conventional subrogation takes place by
agreement of parties.

Difference as consent of the debtor is not required. agreement among the 3 parties is necessary:
to requisite original creditor, debtor and the new creditor
Differences as refers to the same right which passes from extinguishes the obligation and gives rise to a new
to effects one person to another. obligation
the nullity of an obligation is not remedied by The nullity of an old obligation may be cured by
the assignment of the creditor’s right to subrogation, such that a new obligation will be
another perfectly valid

Licaros asserts that obligation between Licaros original obligation is not determinative of whether
and Anglo-Asean was not extinguished in the or not a contract of conventional subrogation
MoA. What was entered into was therefore not a was constituted.
conventional subrogation.

While it is true that conventional subrogation has

the effect of extinguishing the old obligation and 2. NO. Gatmaitan cannot be held liable since the
giving rise to a new one, the extinguishment of MoA was not perfected owing to the lack of
the old obligation is the effect of the consent from Anglo-Asean required in a
establishment of a contract for conventional conventional subrogation.
subrogation. It is not a requisite without which a
contract for conventional subrogation may not be
created. As such, the extinguishment of the
Dispositive: petition DENIED, CA affirmed


Astro Electronics Corp. and Peter Roxas, petitioners, vs. Philippine Export and Foreign Loan Guarantee Corporation,

Ponente: Austria-Martinez, J.

Legal Doctrine: The consent of a debtor is not needed Roxas denies liability on the promissory notes, alleging
under a legal subrogation (in NCC Art. 1302). that the phrases “in his personal capacity” and “in his
official capacity” were fraudulently inserted without his

Facts: RTC and CA held for respondent herein. Astro and Roxas
jointly and severally liable.
Petitioner Astro Electronics Corp. (Astro) was granted
loans by Philippine Trust Company (Philtrust) amounting
to Php. 3 million, with interest.
Issue: WON Roxas should be jointly and severally liable
The loan was secured by 3 promissory notes for: Php. with Astro to Philguarantee.
600, 000, Php. 400, 000, and Php. 2 million.

Astro President Peter Roxas signed twice, as president

and in his personal capacity, on the notes. He also signed Held: Yes. CA decision affirmed in toto.
as Astro President and as a surety in a Continuing Surety
Agreement in favor of Philtrust Bank.

Philguarantee guaranteed Philtrust the payment of 70% of Ratio:

Astro’s loans, subject to the condition that it shall be (Topical) Roxas’ consent was not needed for the
subrogated to the rights of Philtrust against Astro. subrogation to take place because it falls under legal
subrogation as provided by NCC Art. 1302, par. 3:
Astro failed to pay its obligations despite demands, thus
Philguarantee filed a complaint for sum of money against Art. 1032. xxx
Astro and Roxas.
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of

the obligation pays, without prejudice to the which should have been the opposite if we are to follow
effects of confusion as to the latter’s share. his allegation. ͳͶͷ
(Philguarantee is an interested party (benefited by the Further, persons who write their names on the face of a
extinguishment of obligation) because it is Philtrust’s promissory note are makers of such note and promising
guarantor, hence par.3 applies.) that they will pay the payee or the note holder according
to its tenor, as provided by the Negotiable Instrument Law
Philguarantee, being Philtrust’s (original creditor) (Act No. 2031), Secs. 184 and 60.
guarantor, is subrogated to all the rights of Philtrust
against Astro and Roxas upon its (Philguarantee’s) The promissory notes Roxas signed provide that: “xxx
payment of the latter’s (Astro’s and Roxas’) loan I/We jointly, severally and solidarily, promise to pay to
obligations by virtue of NCC Art. 2067. xxx.” An instrument like that (starting with “I”, “We” or
“Either of us” promise to pay) makes the two or more
Roxas’ signing of the promissory notes twice is evident persons who signed in such note solidarily liable.
that he is undertaking the obligation in said notes in two
different capacities, namely official and personal.

His allegation that the phrases “in his personal capacity”

and “in his official capacity” were inserted without his
knowledge was unsubstantiated. His signature covered
portions of the typewritten words “personal capacity”



C. Characteristics


Government Service Insurance System (GSIS), petitioner v. CA, and spouses Raul and Esperanza Leuterio, respondents

Ponente: Panganiban, J.

Facts: Deed of Conditional Sale covering houses and lots

therein. It is noted that marginal notation "subject to
Petitioner GSIS conducted a lottery draw for the allocation adjustment pending approval of the Board of Trustees.”
of lots and housing units in Project 8-C of GSIS Village.
Private respondent Esperanza Leuterio won and was The trial court found that the appended words were
issued a Certificate of Acknowledgment to purchase the inserted into the document WITHOUT THE
subject house and in 1965, the parties entered into a KNOWLEDGE OR CONSENT of the Leuterio spouses.
Deed of Conditional Sale evidencing the conveyance of
the subject property and all improvements thereon to the Subsequently, a three-man Ad Hoc committee found that
Leuterio spouses for the purchase price of P19, 740.00, the final cost of the Village justified a higher price range
payable over a fifteen-year period, in 180 equal monthly for the houses and lots in the project.
installments of P168.53 each. Three years elapsed before
the Deed was notarized, and a copy of the same was After years of diligently paying the monthly amortizations
given to the private respondents. and real estate taxes on the subject property, the private
respondents spouses informed petitioner that the
After the land development and housing construction of payments for the property had been completed, and
Project 8-C were completed in 1966, petitioner's Board of hence, the execution of an absolute deed of sale in their
Trustees increased the purchase price indicated in the

favor was in order. Petitioner GSIS failed to execute the Ratio:

The trial court DID NOT grossly erred when it found that
RTC & CA – in favor of the Leuterio spouses the purchase price agreed upon by the parties was P19,
740.00 and this agreement was not made subject to any
posterior event or condition.

Issue: Whether or not the spouses Leuterio agreed to the The purchase price mutually agreed upon by the parties
notation "subject to adjustment pending approval of the was P19, 740.00. The spouses Leuterio did not give their
Board of Trustees" appearing on the margin of the parties' consent for petitioner to make a unilateral upward
Conditional Deed of Sale.’ adjustment of this purchase price depending on the final
cost of construction of the subject house and lot.

Article 1473 of the Civil Code provides that "the fixing of

Held: No. The Leuterio spouses cannot be made to pay the price can never be left to the discretion of one of the
for the increased value of the property involved. Petition contracting parties. . . ."
for review on certiorari is DISMISSED.
If petitioner failed to factor this increase in the cost of the
construction in the purchase price of the subject house
and lot, it has nobody to blame but itself and it alone
should suffer the loss.


Manila Railroad Co., plaintiff-appellant, vs. Compania Transatlantica, defendant-appellee, and Atlantic, Gulf, and Pacific
Company, defendant-appellant

Ponente: Street, J.

Facts: Atlantic to be brought as a co-defendant and insisted that

liabilities should be charged upon Atlantic since it was the
Manila Railroad Company (Manila Railroad) purchased one who discharged the boilers.
certain locomotive boilers in Europe and contracted with
Compania Transatlantica (Compania) to transport the The said mishap was undoubtedly due to the negligence
same to Manila by its steamship Alicante of Leyden, the foreman in charge and was working under
Atlantic. The first fall of the boiler was due to the improper
Since the equipment of the steamship Alicante is adjustment of sling, which Leyden just neglected despite
insufficient to discharge the boilers, Compania contracted his attention being called. The second fall was due to the
with Atlantic, Gulf, and Pacific Company (Atlantic). Such weakening of the bolt, which was caused by the first fall.
endeavour was known to Manila Railroad. Atlantic agreed A person of sufficient skill to be trusted with the operation
to discharge the said locomotive boilers from Alicante. of the said machine should have known that the crane
had possibly been weakened after the first accident.
In the effort of Atlantic to discharge the locomotive boilers
from Alicante, the apparatus used broke which caused The Court of First Instance absolved Compania of the
the boiler to fall. The crane was then repaired and then damages. Damages were charged to Atlantic. Manila
the boiler was discharged but it was found out that it was Railroad appealed for the said absolution. Also, Atlantc
badly damaged. The boiler had to be reshipped again appealed for the judgement of court against it.
England for rebuilding, then will be returned again to
Manila. The entire repairing cost Manila Railroad
22,343.29. To recover these damages, Manila Railroad
filed an action against Compania. The latter caused

Issues/ Held: offered by Atlantic, as tackled in the letter, was

1. Is Compania liable to Manila Railroad for

rejected by Compania for being too onerous. ͳͶ͹
The stipulations in the letters directed to third
delivering the boiler in a damaged condition? parties can’t be applied to Compania but could
Yes just be used to interpret the reservations that
2. Is Atlantic liable to Compania for the amount the Atlantic intends to make. Based on the letters
latter may be required to pay to Manila Railroad made to third parties, the company recognizes
for the damage done? Yes its duty to exercise due supervisory care; and
3. Is Atlantic directly liable to Manila Railroad? No. the exemption from liability had reference only to
disasters and other unforeseen occurrences.

It is rudimentary principle that the contractor is
1. The obligation to transport the boiler involvers responsible for the work executed by persons
the duty to convey and deliver it in a proper whom he employs in its performance, as stated
condition. The contract to convey also involves in Civil Code article 1596. Also, liability arising
the duty to convey and deliver safely and from negligence is demandable in the fulfilment
securely with reference to the degree of care of all kinds of obligations as stated in article
that is required by law and custom. Since the 1103. Contracts that exempts people from
boiler has been destroyed as it was being liability for negligence are not favoured by law
discharged from the ship, Compania is liable and are prohibited as against public policy. Thus,
under articles 1103 and 1104 of the civil code for assuming that it was really stated in the contract
the consequences of the omission of the care that Atlantic shall not be liable for the
necessary to the proper performance of its consequences of its negligence, the contract
obligation. It cannot escape its liability just would be invalid as against law and public policy.
because it was Atlantic which discharged the
boilers. Atlantic was no more than a servant or The claim of Atlantic that its liability should be
employee of Compania. absolved under the last paragraph of article
1903 of the Civil Code is also untenable. Even if
Compania is also liable under article 1101 of civil Atlantic used proper care in the selection of
code which states that a party is bound to the full Leyden, article 1903 can’t be applied since the
performance of his contractual engagements. If negligence arose in the course of the
he falls short of complete performance by reason performance of a contractual obligation. 1903
of his own negligence or that of any person to applies only for cases where the negligence
whom he may commit the work, he is liable for arises in the absence of an agreement or in
the damages resulting therefrom. quasi-contracts.

2. Atlantic’s defense was that it entered an 3. Had Atlantic and Compania had not entered into
agreement wherein “it would use all due care in a contract, Manila Railroad could have claimed
getting the boilers out, but no responsibility was damages directly from Atlantic. This is because
assumed for damage done either to ship or of the principle that a person taking care of the
cargo”. This was denied by Compania’s agent property of another into his possession and
saying that such terms were not announced control has an obligation to use due care with
while the arrangements were pending. respect thereto. However, given the fact that
there is a contract between Atlantic and
Atlantic tried to use as evidence letters showing
Compania, Atlantic can’t be made liable directly
that they are not accustomed to assume the risk
to Manila railroad because two liabilities cannot
incident to services it performs and that they
coexist. Atlanctic’s contract to Manila Railroad is
required the parties to whom they render the
just an implied one and an implied contract
services to carry the risk or insure against it. One
never arises where an express contract has
of the letters in fact was addressed to Compania
been made.
in a previous engagement. However, services

Johnson and Malcolm, dissenting: damage which may occur from any cause”. Compania

Atlantic can’t be made to pay damages to Manila Railroad

had the option to not enter a contract having that ͳͶͺ
stipulation but it still chose to do so. As such, it should be
and it is just Compania who should bear it. A contract was bound by such stipulation in the said contract. Men
entered between Atlantic and Compania, which stipulates entering into contracts are bound by the stipulations that
that Atlantic “shall not assume any responsibility for any they freely entered into.


DKC Holdings Corporation, petitioner, vs. Court of Appeals, Victor U. Bartolome and Register of Deeds for Metro Manila,
District III, respondents

Ponente: Ynares-Santiago, J.

Legal Doctrine: In the case at bar, there is neither Petitioner regularly paid the monthly P3,000.00 provided
contractual stipulation nor legal provision making the for by the Contract to Encarnacion until her death in
rights and obligations under the contract intransmissible. January 1990. Thereafter, petitioner coursed its payment
More importantly, the nature of the rights and obligations to private respondent Victor Bartolome, being the sole
therein are, by their nature, transmissible. heir of Encarnacion. Victor, however, refused to accept
these payments. Petitioner served upon Victor, via
registered mail, notice that it was exercising its option to
lease the property, tendering the amount of P15,000.00
Facts: as rent for the month of March. Again, Victor refused to
accept the tendered rental fee and to surrender
Background: The subject of the controversy is a 14,021
possession of the property to petitioner.
square meter parcel of land located in Malinta,
Valenzuela, Metro Manila which was originally owned by Petitioner thus opened Savings Account No. 1-04-02558-
private respondent Victor U. Bartolome’s deceased I-1 with the China Banking Corporation, Cubao Branch, in
mother, Encarnacion Bartolome. This lot was in front of the name of Victor Bartolome and deposited therein the
one of the textile plants of petitioner and, as such, was P15, 000.00 rental fee for March as well as P6,000.00
seen by the latter as a potential warehouse site. reservation fees for the months of February and March.

The Contract: Petitioner entered into a Contract of Lease

with Option to Buy with Encarnacion Bartolome, whereby
petitioner was given the option to lease or lease with Issues:
purchase the subject land, which option must be
exercised within a period of 2 years counted from the 1. WON Contract of Lease with Option to Buy
signing of the Contract. In turn, petitioner undertook to entered into by the late Encarnacion Bartolome
pay P3,000.00 a month as consideration for the with petitioner was terminated upon her death or
reservation of its option. Within the two-year period, whether it binds her sole heir, Victor, even after
petitioner shall serve formal written notice upon the lessor her demise.
Encarnacion Bartolome of its desire to exercise its option. 2. WON petitioner had complied with its obligations
The contract also provided that in case petitioner chose to under the contract and with the requisites to
lease the property, it may take actual possession of the exercise its option
premises. In such an event, the lease shall be for a period
of 6 years, renewable for another 6 years, and the
monthly rental fee shall be P15,000.00 for the first six
years and P18,000.00 for the next six years, in case of Held/Ratio:
1. No. The general rule under Art. 1131 of the Civil
Code is that heirs are bound by contracts

entered into by their predecessors-in-interest 2. Yes. The payment by petitioner of the

except when the rights and obligations arising reservation fees during the two-year period ͳͶͻ
therefrom are not transmissible by (1) their within which it had the option to lease or
nature, (2) stipulation or (3) provision of law. In purchase the property is not disputed. Petitioner
the case at bar, there is neither contractual also paid the P15,000.00 monthly rental fee on
stipulation nor legal provision making the rights the subject property by depositing the same in a
and obligations under the contract China Bank Savings Account in the name of
intransmissible. More importantly, the nature of Victor as the sole heir of Encarnacion
the rights and obligations therein are, by their Bartolome, for the months of March to July 30,
nature, transmissible. The subject matter of the 1990, or a total of five (5) months, despite the
contract is likewise a lease, which is a property refusal of Victor to turn over the subject property.
right. The death of a party does not excuse
nonperformance of a contract which involves a Also, petitioner complied with its duty to inform
property right, and the rights and obligations the other party of its intention to exercise its
thereunder pass to the personal representatives option to lease through its letter dated Match 12,
of the deceased. Similarly, nonperformance is 1990, well within the two-year period for it to
not excused by the death of the party when the exercise its option. Considering that at that time
other party has a property interest in the subject Encarnacion Bartolome had already passed
matter of the contract. away, it was legitimate for petitioner to have
addressed its letter to her heir.

D. Parties


Leoncio Gabriel, petitioner, vs. MONTE DE PIEDAD Y CAJA DE AHARROS and The Court Of Appeals, respondents

Ponente: Laurel, J.

Legal Doctrine: The freedom of contract is both a Monte de Piedad instituted a civil case in the CFI of
constitutional and statutory right and to uphold this right, Manila to recover the said sum less what had already
courts should move with all the necessary caution and been paid P3,333.25 = P11, 345.75 and in case of
prudence in holding contracts void default, to effectuate the chattel mortgage.

Ladaga denied the specifications therein as well as the

genuiness of the execution of the alleged chattel
mortgage attached. By way of special defense, he
alleged (1) that the chattel mortgage was a part of a
Facts: scheme on the part of the management of the Monte de
Piedad to cover up supposed losses incurred in its
Ladaga was employed as appraiser of jewels in the
pawnshop department; (2) that a criminal action had been
pawnshop of the Monte de Piedad from 1913 up to May,
instituted at the instance of the plaintiff against him
wherein said chattel mortgage was presented by the
On December 13, 1932, he executed a chattel mortgage prosecution with regard his supposed responsibility as
to pay for deficiencies which resulted from his erroneous expert appraiser of jewels of the plaintiff entity but he was
appraisal of the jewels pawned to the shop in the sum of acquitted; and (3) that said acquittal constituted a bar to
P14, 679.07, plus 6% interest from said date. Accordingly, the civil case.
Ladaga is supposed to pay P300 a month until the whole
amount plus interest is fully paid.

By way of cross-complaint, the Ladaga alleged (1) that courts should move with all the necessary caution and
the chattel mortgage was entered into by E. Marco for prudence in holding contracts void.” The court cannot ͳͷͲ
and in behalf of the Monte de Piedad without being duly judge too recklessly in holding a contract void against
authorized to do so by the latter; (2) that the defendant public policy for such term is “vague and uncertain in
was induced, through false representation, to sign said meaning, floating and changeable in connotation. In
chattel mortgage against his will; (3) that the chattel general, a contract which is neither prohibited by law nor
mortgage was based upon all non-existing subject matter condemned by judicial decision, nor contrary to public
and non-existing consideration; and (4) that the chattel morals, contravenes no public policy.” The contract as to
mortgage was null and void ab initio for being contrary to the consideration or thing to be done, neither contravenes
law, morals and public policy the policy of the law nor the established interests of
By way of counterclaim, the Ladaga alleged (1) that the
payments made amounting to P3,333.25 were made
through deceit and without his consent because P300
was deducted from his monthly salary; (2) that he was 2. NO. “A consideration, in the legal sense of the word, is
paid P356.25 a month and that he was separated some right, interest, benefit, or advantage conferred upon
arbitrarily on May 1933 and was not paid on said month the promisor, to which he is otherwise not lawfully
as well as in June 1933, in accordance with law; and (3) entitled, or any detriment, prejudice, loss, or disadvantage
that he is claiming P15,000 in damages. suffered or undertaken by the promisee other than to
such as he is at the time of consent bound to suffer.” It
was recognized that the chattel mortgage was executed
voluntarily by the Ladaga to guarantee the deficiencies
Issues: resulting from his erroneous appraisals of the jewels. “A
preexisting admitted liability is a good consideration for a
1. Whether or not the provisions of the chattel promise. The fact that the bargain is a hard one will not
mortgage contract is void for being contrary to deprived it of validity. The exception to this rule in modern
law, morals and public policy. legislation is where the inadequacy is so gross as to
2. Whether or not the chattel mortgage is void amount to fraud, oppression or undue influence, or when
because it lacks consideration. statutes require the consideration to be adequate.” The
instant case falls within the exception.

Other issues: there is substantial compliance with the
1. NO. “A contract is to be judged by its character, and
requirements of the Chattel Mortgage Law; E. Marco was
courts will look to the substances and not to the mere
confirmed with the authority to enter into the contract;
form of the transaction. The freedom of contract is both a
Ladaga’s acquittal in the criminal case is different from
constitutional and statutory right and to uphold this right,
the case at bar (no identity of subject matter).


Pakistan International Airlines Corporation (PIA), petitioner, vs. Hon. Blas F. Ople, in his capacity as Minister of Labor
(MOLE), et. al, respondents

Ponente: Feliciano, J.

Legal Doctrine: Although CC 1306 provides that morals, good customs, public order or public policy,” the
contracting parties may establish stipulations as they may principle of party autonomy is not an absolute principle.
deem convenient “provided they are not contrary to law, Parties may not contract away provisions of law

especially those unconditional provisions dealing with or, in the alternative, (1) the payment of salaries for the
matters heavily impressed with public interest remainder of the fixed three-year period of their ͳͷͳ
employment contracts;(2) the payment to Mamasig of an
amount equivalent to the value of a round trip ticket
Manila-USA Manila;(3) and payment of a bonus to each
Facts: equivalent to their one-month salary.

On 2 December 1978, Pakistan International Airlines Moreover, the Order stated that private respondents had
Corporation, a foreign corporation licensed to do business attained the status of regular employees after they had
in the Philippines, executed in Manila two separate rendered more than a year of continued service; that the
contracts of employment, hiring Ethelynne B. Farrales stipulation limiting the period of the employment contract
and Ma. M.C. Mamasig. Pertinent portions of the to 3 years was null and void as violative of the provisions
contracts include: of the Labor Code; and that the dismissal, having been
carried out without the requisite clearance from the
5. Duration of employment and penalty for a
MOLE, was illegal and entitled private respondents to
period of 3 years, but can be extended by the
reinstatement with full backwages.
mutual consent of the parties;
On appeal, the Deputy Minister adopted the save for the
6. Termination PIA reserves the right to
portion giving PIA the option, in lieu of reinstatement, to
terminate the agreement at any time by giving
pay each of the private respondents their salaries
the employee notice in writing in advance
corresponding to the unexpired portion of their
one month before the intended termination or in
employment contracts.
lieu thereof, by paying the employee wages
equivalent to one month's salary; PIA now alleges that the MOLE decisions were rendered
without jurisdiction and in violation of petitioner’s rights
10. Applicable law: This agreement shall be
under the employment contracts with private respondents.
construed and governed under and by the laws
of Pakistan, and only the Courts of Karachi,
Pakistan shall have the jurisdiction to consider
any matter arising out of or under this Issues:
1. Whether or not MOLE had no jurisdiction
Farrales and Marnasig, after training in Pakistan, began over the subject matter.
work as flight attendants for PIA with base station in 2. Whether or not PIA were deprived of due
Manila and flying assignments to different parts of the process.
Middle East and Europe. 3. MAIN: Whether or not the relationships
between PIA and private respondents were
However, on 2 August 1980, around 1 year and 4 months governed by the contract or by the
before the expiration of their contracts, they were advised provisions of the Labor Code. (principle of
that their services were terminated effective on 1 party autonomy)
September 1980.

On 9 September 1980, They jointly instituted with the

MOLE a complaint for illegal dismissal and non-payment Held/Ratio:
of company benefits and bonuses. Both parties were
required to submit their position papers in which the PIA 1. YES. PIA claims that jurisdiction is lodged in the
justified their actions by claiming that private respondents NLRC. However, under during the years of 1980 and
were habitual absentees and that they had the habit of 1982 when the complaints were initiated, Art. 278 of the
“bringing in from abroad sizeable quantities of ‘personal (Old) Labor Code forbade the termination of the services
effects’” (pasalubong?) and that customs officials had of employees within at least 1 year of service without prior
warned PIA to advise them to discontinue the practice. clearance from the Department of Labor and
PIA further claimed that the termination was pursuant to Employment. According to Rule XIV, Book No. 5 of the
the provisions of the employment contract. Rules and Regulations Implementing the Labor Code, in
case of a termination without the necessary clearance,
MOLE Regional Director Francisco L. Estrella ordered the the Regional Director was authorized to order the
reinstatement of private respondents with full backwages reinstatement of the employee concerned and the

payment of backwages; therefore, the Regional Director employment are not necessarily unlawful however,
must have been given jurisdiction over such termination “where from the circumstances it is apparent that periods ͳͷʹ
cases. The same is affirmed by Policy Instruction No. 14 have been imposed to preclude acquisition of tenurial
issued by the Secretary of Labor, dated 23 April 1976, security by the employee, they should be struck down or
was similarly very explicit about the jurisdiction of the disregarded as contrary to public policy, morals, etc It
Regional Director over termination of employment cases should have no application to instances where a fixed
as well as in PD 850. period of employment was agreed upon knowingly and
voluntarily by the parties, without any force, duress or
improper pressure being brought to bear upon the
employee and absent any other circumstances vitiating
2. NO. PIA was ordered to submit a position paper and his consent, or where it satisfactorily appears that the
evidence. Only the position paper was provided and it employer and employee dealt with each other on more or
was assumed that it had no evidence to sustain its less equal terms with no moral dominance whatever
assertions. Even if no formal or oral hearing was being exercised by the former over the latter.”
conducted, PIA had ample time to explain its side and
they were even able to make an appeal. Moreover, the Read together with paragraph 6, the 3-year period
Labor Code at that time provided that a "dismissal without granted by paragraph 5 was rendered ineffective since
prior clearance shall be conclusively presumed to be PIA had the option to terminate the contract at its own
termination of employment without a cause", and the prerogative for any cause rendering the private
Regional Director was required in such case to" order the respondents employees at the pleasure of PIA. The SC
immediate reinstatement of the employee and the considered both paragraphs as preventing respondents
payment of his wages from the time of the shutdown or any security of tenure from accruing and thus escaping
dismiss until . . . reinstatement." Arts. 280 and 281 of the Labor Code.

PIA cannot also invoke paragraph 10 where it specifies

that the law of Pakistan as the applicable law and lays the
3. NO. PIA contends that a contract freely entered should venue for settlement of dispute. The employer-employee
be respect since the contract is the law between the relationship, being of public interest, the applicable law
parties. However, the principle of party autonomy is not must be Philippine laws and regulations which cannot be
an absolute principle. CC 1306 provides that contracting rendered illusory by the parties agreeing upon some other
parties may establish stipulations as they may deem law to govern their relationship. In addition, “the contract
convenient “provided they are not contrary to law, morals, was not only executed in the Philippines, it was also
good customs, public order or public policy.” Parties may performed here, at least partially; private respondents are
not contract away provisions of law especially those Philippine citizens while petitioner, although a foreign
unconditional provisions dealing with matters heavily corporation, is licensed to do business and hence
impressed with public interest. “Parties are not at liberty resident in the Philippines; lastly, private respondents
to insulate themselves and their relationships from the were based in the Philippines in between their assigned
impact of labor laws and regulations by simply contracting flights to the Middle East and Europe. All the above
with each other.” contacts point to the Philippine courts and administrative
agencies as a proper forum for the resolution of
Paragraph 5 of the employment contract stipulating the
contractual disputes between the parties. Under these
duration of employment was inconsistent with Arts 280
circumstances, paragraph 10 of the employment
and 281 of the Labor Code as regards security of tenure
agreement cannot be given effect so as to oust Philippine
wherein the employer shall not terminate the services of
agencies and courts of the jurisdiction vested upon them
an employee except for a just cause or when authorized
by Philippine law. Finally, and in any event, the petitioner
and that an employee who is unjustly dismissed from
PIA did not undertake to plead and prove the contents of
work shall be entitled to reinstatement without loss of
Pakistan law on the matter; it must therefore be presumed
seniority rights and to his backwages computed from the
that the applicable provisions of the law of Pakistan are
time his compensation was withheld from him up to the
the same as the applicable provisions of Philippine law.”
time his reinstatement. In addition Art. 281 recognizes
that “any employee who has rendered at least one year of
service, whether such service is continuous or broken,
shall be considered as regular employee with respect to Dispositive: Petition dismissed. Reinstatement with
the activity in which he is employed and his employment backwages of three years. Should their reinstatement to
shall continue while such actually exists.” Fixed terms of their former or other substantially equivalent positions not

be feasible in view of the length of time which has gone private respondents amounting to one 1 month's salary
by since their services were unlawfully terminated, for every year of service rendered by them, including the ͳͷ͵
petitioner should be required to pay separation pay to three 3 years service putatively rendered.


Emeterio Cui, complainant, vs. Arellano University, respondent

Ponente: Concepcion, J.

Facts: the principle of merit in the award of these

Cui took up his undergrad and law studies (until 1st
semester of 4 year) at Arellano. His uncle, Capistrano, 2. When students are given full or partial
the dean of Arellano law and its legal counsel transferred scholarships, it is understood that such
and accepted the Deanship at Abad Santos University. scholarships are merited and earned. The
Cui failed to pay his tuition fee during his last semester of amount in tuition and other fees corresponding
his first year and subsequently enrolled in Abad Santos to these scholarships should not be
and finished his law studies there. subsequently charged to the recipient students
when they decide to quit school or to transfer to
After graduating from Abad Santos University, Cui applied another institution. Scholarships should not be
to take the Bar exams. He needed to get his transcript offered merely to attract and keep students in a
from Arellano but Arellano refused until Cui has paid back school.
the cost of the scholarship grant given to him during his
stay in Arellano. 3. Several complaints have actually been
received from students who have enjoyed
Before Arellano awarded to Cui the scholarship grants as scholarships, full or partial, to the effect that they
above stated, he was made to sign the following contract could not transfer to other schools since their
covenant and agreement: credentials would not be released unless they
would pay the fees corresponding to the period
"In consideration of the scholarship granted to of the scholarships. Where the Bureau believes
me by the University, I hereby waive my right to that the right of the student to transfer is being
transfer to another school without having denied on this ground, it reserves the right to
refunded to the University (defendant) the authorize such transfer.
equivalent of my scholarship cash.
The lower court decided the case in favor of Arellano,
On August 16, 1949, the Director of Private Schools upon the ground that the memorandum of the Director of
issued Memorandum No. 38, series of 1949, on the Private Schools is not a law; that the provisions thereof
subject of "Scholarship," addressed to "All heads of are advisory, not mandatory in nature; and that, although
private schools, colleges and universities," reading: the contractual provision "may be unethical, yet it was
more unethical for plaintiff to quit studying with the
1. School catalogs and prospectuses submitted
defendant without good reasons and simply because he
to this, Bureau show that some schools offer full
wanted to follow the example of his uncle." Moreover,
or partial scholarships to deserving students —
defendant maintains in its brief that the aforementioned
for excellence in scholarship or for leadership in
memorandum of the Director of Private Schools is null
extra-curricular activities. Such inducements to
and void because said officer had no authority to issue it,
poor but gifted students should be encouraged.
and because it had been neither approved by the
But to stipulate the condition that such
corresponding department head nor published in the
scholarships are good only if the students
official gazette.
concerned continue in the same school nullifies

In Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec.

Issue: Whether the above quoted provision of the

6, 1941, p. 67 we read: 'In order to declare a contract void ͳͷͶ
as against public policy, a court must find that the contract
contract between plaintiff and the defendant, whereby the as to consideration or the thing to be done, contravenes
former waived his right to transfer to another school some established interest of society, or is inconsistent
without refunding to the latter the equivalent of his with sound policy and good morals or tends clearly to
scholarships in cash, is valid or not. undermine the security of individual rights. The policy
enunciated in Memorandum No. 38, s. 1949 is sound
policy. Scholarship are awarded in recognition of merit not
to keep outstanding students in school to bolster its
prestige. In the understanding of that university
The provision is void as it is contrary to public policy. scholarships award is a business scheme designed to
increase the business potential of an education institution.
We do not deem it necessary or advisable to consider the Thus conceived it is not only inconsistent with sound
question whether plaintiff had sufficient reasons or not to policy but also good morals. But what is morals? Manresa
transfer from defendant University to the Abad Santos has this definition. It is good customs; those generally
University. The nature of the issue before us, and its far accepted principles of morality which have received some
reaching effects, transcend personal equations and kind of social and practical confirmation. The practice of
demand a determination of the case from a high awarding scholarships to attract students and keep them
impersonal plane. Neither do we deem it essential to pass in school is not good customs nor has it received some
upon the validity of said Memorandum No. 38, for, kind of social and practical confirmation except in some
regardless of the same, we are of the opinion that the private institutions as in Arellano University. The
stipulation in question is contrary to public policy and, University of the Philippines which implements Section 5
hence, null and void. The aforesaid memorandum merely of Article XIV of the Constitution with reference to the
incorporates a sound principle of public policy. giving of free scholarships to gifted children, does not
require scholars to reimburse the corresponding value of
If Arellano University understood clearly the real essence the scholarships if they transfer to other schools. So also
of scholarships and the motives which prompted this with the leading colleges and universities of the United
office to issue Memorandum No. 38, s. 1949, it should States after which our educational practices or policies
have not entered into a contract of waiver with Cui on are patterned. In these institutions scholarships are
September 10, 1951, which is a direct violation of our granted not to attract and to keep brilliant students in
Memorandum and an open challenge to the authority of school for their propaganda mine but to reward merit or
the Director of Private Schools because the contract was help gifted students in whom society has an established
repugnant to sound morality and civic honesty. interest or a first lien.


Ignacio Arroyo, complainant, vs. Alfred Berwin, respondents

Ponente: Carson, J.

Facts: Arroyo. Said cause was decided by the said justice of the
peace against the accused, and the latter appealed to the
Berwin is a procurador judicial in the law office of the Court of First Instance of Iloilo.
Attorney John Bordman, and is duly authorized by the
court to practice in justice of the peaces courts of the On August 14, 1914, which was the day set for the
Province of Iloilo. As procurador judicial, represented hearing of the appeal of the said cause against Marcela
Marcela Juanesa in the justice of the peace court of Iloilo Juaneza for theft, the Berwin requested Arroyo to agree
in proceeding for theft prosecuted by the plaintiff Ignacio to dismiss the said criminal proceeding, and, on August

14, 1914, stipulated with the plaintiff in the presence of Issue:

Roque Samson, among other things, that his client
Whether or not the agreement between the parties was
Marcela Juaneza would recognize the plaintiff's
ownership in the land situated on Calle San Juan, Iloilo, valid
where his said client ordered the cane cut, which land and
which cut cane are referred to in the cause for theft
above-mentioned; and the defendant furthermore agreed
that the plaintiff should obtain a Torrens title to the said
land during the next term of the court for the trial of The agreement is void as it is contrary to public policy.
cadastral cases, and that the defendant's client, Marcela
Juaneza, would not oppose the application for registration The trial judge dismissed this complaint on the ground of
to be filed by the said applicant; provided that the plaintiff the illegality of the consideration of the alleged contract.
would ask the prosecuting attorney to dismiss the said An agreement by the owner of stolen goods to stifle the
proceedings filed against Marcela Juaneza and Alejandro prosecution of the person charged with the theft, for a
Castro for the crime of theft. pecuniary or other valuable consideration, is manifestly
contrary to public policy and the due administration of
Arroyo on his part complied with the agreement, and justice. In the interest of the public it is of the utmost
requested the prosecuting attorney to dismiss the case. In importance that criminals should be prosecuted, and that
exchange, Berwin does not wish to comply with the all criminal proceedings should be instituted and
above-mentioned agreement. Arroyo delivered to Berwin maintained in the form and manner prescribed by law;
the signature of the said Marcela Juaneza a written and to permit an offender to escape the penalties
agreement stating that the defendant's said client prescribed by law by the purchase of immunity from
recognized the plaintiff's ownership in the described land private individuals would result in a manifest perversion of
and that she would not oppose the plaintiff's application justice.
for registration. Up to the present time, the defendant has
not returned to the plaintiff the said written agreement, Article 1255 of the Civil Code provides that:
notwithstanding the plaintiff's many demands.
The contracting parties may make the
Therefore, the Arroyo prays the court to render judgment agreement and establish the clauses and
ordering the defendant to comply with the agreement by conditions which they may dream advisable,
causing the latter's said client Marcela Juaneza to sign provided they are not in contravention of law,
the document in which she recognizes the plaintiff's morals, or public order.
ownership of the land on which she ordered the cane cut
and states that she will not oppose the plaintiff's
application for the registration of the said land, and,
further, by awarding to the plaintiff the costs of the Article 1275 provides that:
present suit, as well as any other relief that justice and
equity require. Contracts without consideration or with an illicit
one have no effect whatsoever. A consideration
is illicit when it is contrary to law and good


Filipinas Compania de Segurus, et al., petitioner, vs. Hon. Francisco Y. Mandanas, in his capacity as Insurance
Commissioner, respondents, and Agiricultural Fire Insurance and Surety Co., Inc., et al., intervenors-appellees

Ponente: Concepcion, C. J.

Facts: Ratio:

Accordingly on March 11, 1960, the Insurance The test as to whether a given agreement constitute an
Commissioner wrote to the Philippine Rating Bureau unlawful machination or a combination in restraint of trade
expressing his doubt of the validity of Article 22 of the is whether, under the particular circumstances of the case
Constitution of Philippine Rating Bureau and requesting and the nature of the particular contract involved in it, the
that said provision be repealed. Article 22 reads: “In contract is, or is not, unreasonable. Restrictions upon
respect to the classes of insurance in the Objects of the trade may be upheld when not contrary to the public
Bureau and for Philippine business only, the members of welfare and not greater than is necessary to afford a fair
this Bureau agree not to represent nor to effect and reasonable protection to the party in whose favor it is
reinsurance with, nor to accept reinsurance from, any imposed. The question to be determined is whether the
Company, Body, or Underwriter licensed to do business restraint imposed I such a merely regulates and perhaps
in the Philippines not a Member in good standing of this thereby promotes competition, or whether it is such as
Bureau.” The Bureau replied that it is now under may suppress or even destroy competition. Applying this
consideration. The insurance commissioner then advised test to the case at bar, there is nothing unlawful, immoral,
the respondent that if it would not be repealed, he would unreasonable or contrary to the public policy either in the
be compelled to suspend the license of the Bureau since objectives sought to be attained by the Bureau in
the provision is illegal as a combination in restraint of adopting Art 22 of its constitution or in the means availed
trade. 39 nonlife insurance companies instituted a case in of to achieve said objectives, or in the consequences of
CFI Manila to secure a declaration of legality of Art 22 of the accomplishment thereof. Said Art 22’s purpose is not
the Constitution of the Philippine Rating Bureau, of which to eliminate competition but to promote ethical principles
they are members, since respondent Insurance among non-life insurance companies, although
Commissioner assails its validity upon the ground that it incidentally, it may discharge, and hence, eliminate unfair
constitutes an illegal or undue restraint of trade. competition, through underrating, which, in itself, is
Subsequently, 20 other nonlife insurance companies were eventually injurious to the public. The limitation upon
allowed to intervene. CFI Manila declared that it is legal. reinsurance contained in Art 22 does not affect the public
Hence this appeal by the Insurance Commissioner. at all, for whether there is reinsurance or not, the liability
of the insurer in favor of the insured is the same, What is
more, whatever the Bureau may do in the matter of rate-
fixing is not decisive insofar as the public is concerned,
Issue: WON the said provision is in restraint of trade and for no insurance company in the Philippines may charge a
therefore illegal. rate of premium that has not been approved by the
Insurance Commissioner. The said Art 22 does not
constitute an illegal or undue restraint of trade.
Held: No, it is not illegal.


Natalia P. Bustamante, petitioner, vs. Sps. Rodito F. Rosel and Norma A. Rosel, respondents
Ponente: Pardo, J.

Legal Doctrine: Stipulation in contract which require Issues/ Held/ Ratio:

automatic appropriation by the creditor of property
mortgaged in case of failure to pay is within the concept 1. W/N Bustamantes failed to pay the loan at
of pactum commissorium and is prohibited by law. its maturity date. They did not. They tried to
pay on the date it was due but payment was
refused. They thereafter consigned the
amount with the court. The obligation to sell
Facts: the lot was with the suspensive condition of
the Bustamantes failure to pay. Since they
x 08 March 1987 Norma Rosel and Natalia and did not, the right to purchase was not
Ismael Bustamante entered into a loan acquired by the Rosels.
x Rosel: creditor; Bustamante: debtor
x P100, 000 loan with 70 sq. m. property +
apartment as collateral (part of 423 sq. m. 2. W/N stipulation #3 was valid and
property of the Bustamantes situated along enforceable. It is not. Although contracts
Congressional Avenue) have the force of law between parties, there
x Loan payable in 2 years from 01 March 87 at are exceptions. It comes within the scope of
18% interest per annum pactum commissorium which is prohibited
x If loan not paid, Rosel has option to purchase by CC 2088. The following are the elements
the collateral for P200, 000 inclusive of borrowed of pactum commissorium: 1) there should
amount plus interest be a property mortgaged by way of security
x 01 March 1989 Spouses Rosel proposed to buy for the payment of a principal obligation, 2)
the collateral. Bustamantes tried to pay the there should be a stipulation of automatic
Rosels but the latter refused to accept payment appropriation by the creditor of the thing
and executing an absolute deed of sale. mortgaged in case of non-payment of the
x 28 Feb 1990 Bustamantes filed with QC RTC for principal obligation within the stipulated
specific performance with consignation against period.
the Rosels
x 04 March 1990 Rosels sent a demand for the
sale of collateral Relevant provisions:
x 10 August 1990 Bustamante consigned P153,
000 which represented loan plus interest CC 2088 The creditor cannot appropriate the things given
x Rosels consigned P47, 500 with trial court away by way of pledge or mortgage, or dispose of them.
x RTC: Bustamantes to pay loan plus interest until Any stipulation to the contrary is null and void.
10 Aug 1990 when they consigned the payment
x CA: reversed RTC; Bustamantes to execute the CC 1306 The contracting parties may establish such
deed of sale and to accept the P47, 500 stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.

E. Classification



Jose P. Dizon, petitioner, ͒vs.͒Alfredo G. Gaborro (Substituted by Pacita de Guzman Gaborro as Judicial Administratrix of
the Estate of Alfredo G. Gaborro) and the Development Bank of the Philippines, respondents

Ponente: Guerrero, J.

Facts: On July 5, 1961, Dizon wrote to Gaborro offering to

reimburse the latter of what he paid to the banks but
Dizon was the owner of the three parcels of land in without, however, tendering any cash, and demanded an
Pampanga. He had a first mortgage lien in favor DBP in accounting of the property's income. However, Gaborro
order to secure a loan in the sum of P38,000.00. He had refused, prompting Dizon to file a complaint. Dizon claims
a second mortgage lien in favor of PNB to cure his that two deeds he executed with Gaborro actually consist
indebtedness to said bank in the amount of P93,831.91. not of an absolute sale, but an equitable mortgage or
Having defaulted in the payment of his debt, DBP conveyance by way of security for the reimbursement or
foreclosed the mortgage and bought the land afterwards. refund by Dizon to Gaborro. (Aka that Gaborro assumes
Dizon's debts in return for enjoyment of the Dizon's land,
A few months after Gaborro met Dizon. Gaborro became until Dizon can reimburse Gaborro for the amounts paid
interested in the lands of Dizon. Dizon originally intended to DBP and PNB.) Dizon asks that Gaborro be ordered to
to lease to Gaborro the property which had been lying idle accept Dizon’s offer to reimburse him of what he paid to
for some time. But as the mortgage was already the banks; to surrender the possession of the lands to
foreclosed by the DPB the bank in fact purchased the plaintiff; to make an accounting of all the fruits, produce,
lands at the foreclosure sale a few months prior, they harvest and other income which he had received from the
abandoned the projected lease. three parcels of land; and to pay Dizon for the loss of two
barns and for damages.
Gaborro and Dizon entered into a contract of “Deed of
Sale with Assumption of Mortgage”. The contract stated DBP reply: Denied the complaint:
that Gaborro would buy Dizon's 3 parcels of land for
P131,831.91 and would assume the entire mortgage Dizon was no longer the owner of the land in question
indebtedness with both DBP and PNB. The contract was because the DBP acquired them at the extrajudicial
in the nature of an absolute sale. foreclosure sale

A second contract was executed the same day called Only right which plaintiff possessed was a mere right to
“Option to Purchase Real Estate”. The contract stated redeem the lands.
that Dizon had the right to repurchase the 3 parcels of
land from Jan. 1965 to Dec. 31, 1970, for the amount of Gaborro’s reply: Denied the complaint:
P131.831.91 plus 8% interest. In the event that Dizon
finds a purchaser on or before the fifth year from the date The "Deed of Sale with Assumption of Mortgage" (1
of execution of the contract, Gaborro shall be refunded Contract) expresses the true agreement of the parties
the aggregate amount which was paid to DBP and PNB "fully, truthfully and religiously"
plus 8% interest.
The “Option to Purchase Real Estate" (2nd Contract) does
Take note that the P131,831.91 paid by Gaborro went to not express the true intention of the parties because it
the aggregate debts of the petitioner with DBP and PNB. was made only to protect the reputation of the plaintiff
After the execution of said contracts, Alfredo G. Gaborro among his townmates, and even in the supposition that
took possession of the three parcels of land in question. said option is valid, the action is premature.

The following day, Gaborro wrote to DBP stating that he’d

pay for the indebtedness through 10 equal annual
amortizations as he needed to cultivate the land first. DBP Issue: What was the nature of the contract entered? Was
agreed. it an absolute sale of the three parcels of land to
Gaborro? OR Was it that Gaborro would assume Dizon's

debts in return for enjoyment of the Dizon's land, until What right was conveyed on Gaborro? Sale or rights to
Dizon can reimburse Gaborro for the amounts paid to redemption? ͳͷͻ
DBP and PNB.
In this case, the only rights Dizon could have conveyed to
Gaborro were the right to redemption and the possession,
use, and enjoyment of the land during the redemption
Held: Gaborro assumes Dizon's debts in return for period. Therefore, the instrument that the two executed
enjoyment of the Dizon's land, until Dizon can reimburse cannot be considered a real and unconditional sale
Gaborro for the amounts paid to DBP and PNB. because Dizon had lost his full right to dispose of the
lands by the time the instrument was executed.

Based on the purpose of the parties (the payment of the

Ratio: bank obligations, the productivity of the lands for
Gaborro's benefit, and assurance for Dizon that the land
On DBP’s claim that they owned the property as they
would return to him), their agreement is therefore one of
bought it in the foreclosure sale
those “innominate” contracts under Art. 1307, CC, where
According to Act 3135, properties extrajudicially both parties agree to give and to do certain rights and
foreclosed shall be available for redemption by any obligations with respect to the lands and mortgage debts.
person having a lien on the property within one year from
The reformation of an instrument when the true intention
the date of sale. According to Rule 39, of ROC, The
of the parties is not expressed in the instrument is allowed
judgment debtor remains in possession of the property
when there is a mutual mistake of the parties (Art. 1359,
during the period of redemption, and may transfer his
CC). In this case, it was a mistake for the parties to
right of redemption to anyone. The purchaser is entitled to
execute a deed of sale with option to repurchase.
a deed of conveyance only after the redemption period
when no redemption has been made.

H. With Respect to Third Persons


Pastor Constantino, plaintiff-appellant, vs. Herminia Espiritu, defendant-appellee

Ponente: Dizon, J.

Legal Doctrine: In contract with stipulations pour atrui, that she was to hold the properties in trust for Pastor Jr,
the one to be benefited by the contract is entitled to ask who was already conceived at that time, though yet to be
for its fulfillment, provided that he communicates his born. He alleges, however, that Espiritu mortgaged the
acceptance to the obligor before the stipulation in his properties with the Republic Savings Bank of Manila to
favor is revoked. secure payment for 2 loans (a P3,000 and P2,000 loan)
and that she offered them for sale afterwards. Thus, in the
complaint, he asks that she be enjoined from alienating
the properties, and prays for a judgment ordering her to
Facts: execute a deed of absolute sale of the properties in favor
of Pastor Jr.
According to the appellant (Pastor Constantino), he had
conveyed to Espiritu by way of a fictitious deed of sale a Espiritu, of course, moved to dismiss the complaint,
2-storey house and 4 subdivision lots, the titles of which alleging 2 grounds: (1) that because Pastor Jr., the
were in the name of appellant (married to Honorata beneficiary of the alleged trust, was not a party-plaintiff,
Geukeko). He contends that their understanding was that then appellant had no cause of action; and (2) appellant’s
the conveyance was for the benefit of Pastor Constantino, action was barred by the Statute of Frauds. On the other
Jr., the illegitimate son of the appellant with Espiritu, and

hand, appellant contends that the Statute of Frauds does properties be held in trust for their child. The SC said that
not apply to cestui que trusts, which he says is the trust it was a question of fact which was for the trial court to ͳ͸Ͳ
between Espiritu and Pastor Jr. However, the trial court adjudicate. The Court did say, however, that Espiritu’s
dismissed the complaint, which prompted the appellant to contention that the Statute of Frauds barred the
file an amended complaint, wherein he mainly (1) appellant’s action is not quite accurate. The Statute of
included Pastor Jr. as the co-plaintiff and (2) prayed that Frauds does not apply to contracts which have already
he be appointed as his guardian ad litem. been partially performed. In this case, one phase (the
conveyance of the properties to Espiritu) had already
been completed; what was left to be done was the next
phase (the conveyance by Espiritu to Pastor Jr. of the
Issue: W/N the appellant is entitled to bring this action to properties).
enforce the contract (in particular, to compel Espiritu to
convey the properties to Pastor Jr.) For the above reasons, the case was remanded to the
lower court for the appropriate proceedings.

Concurring Opinion:
The Court found that given the facts, it appears that the
contract between the appellant and Espiritu is not a deed Barredo: The position of Espiritu is that there is a written
of sale, but rather, a contract pour atrui; thus, the action contract (the contract conveying the properties to her) and
that the appellant has brought to the court is actually an a verbal condition separate and distinct from the contract
action for specific performance. As one of the parties to (that the properties are for the benefit of their unborn
the contract, the appellant is definitely entitled to bring an child), and her contention is that because the separate
action for its enforcement or to prevent the breach of the agreement was not in writing, then it is unenforceable
contract. In addition, as there is a stipulation pour atrui in because of the Statute of Frauds. Justice Barredo finds
the contract concerning Pastor Jr., he may also ask for its this position untenable, however. He holds that the
enforcement of the contract given that the rule is that the obligation to convey the properties to Pastor Jr. was part
third person for whose benefit the contract was executed of a single agreement, the initial stage of which was the
may also demand its fulfillment, provided, that he conveyance of the properties to her. The situation
communicates his acceptance to the obligor before the contemplated is that found in Art. 1453 of the Civil Code,
stipulation in his favor is revoked. It is only correct that which is an implied trust.
Pastor Jr. be impleaded in the amended complaint.

The Court declined, however, to render judgment on

whether or not the contract appellant and Espiritu entered
into was actually subject to the agreement that the


Integrated Packaging Corp., petitioner, vs. Court of Appeals and Fil-Anchor Paper Co., Inc. respondents

Ponente: Quisumbing, J.

Legal Doctrine: Contracts can only bind parties who Facts:

entered into it and cannot favor or prejudiced third person,
even if he is aware of such contract and has acted with May 5, 1978-Integrated Packaging Corp.(petitioner)
the knowledge thereof. entered into an order agreement with Fil-Anchor Paper
Co.(respondent) where respondent was obliged to deliver
3,450 reams of paper worth Php1,040,060.00 under the
following schedule:

May and June 1978 450 reams (P290.00/ream) Issues/ Held:

August and September
January 1979
700 reams (P290/ream)
575 reams (P307.20/ream) 1. WON the respondent violated the order
March 575 reams (P307.20/ream) (delivery of paper) agreement? NO
July 575 reams (P307.20/ream) 2. WON respondent is liable for petitioner’s
October 575 reams (P307.20/ream) breach of contract with Philacor? NO

which the petitioner should pay within a min. of 30 days to

max of 90 days from delivery. Ratio:

Jun. 7, 1978- Philacor contracted petitioner to print 1. Petitioners failed to pay for the printing paper
300,000 books for them covered by the delivery invoices on time.
Consequently, private respondent has the right1
Jul. 30, 1979- respondent has only delivered 1,097 out of to cease making further delivery, hence the
3450 reams of paper hence the petitioner made a private respondent did not violate the order
demand to deliver the remaining materials agreement. respondent.
Jun –Jul 1980 –respondent delivered reams of paper
amounting to 766,101.70 but petitioner was in default and
was able to pay 97,200 which covered for the previous 2. Respondent being not a party to the said
accounts dated Sept and Oct 1980. agreements cannot be held liable under the
contracts entered into by petitioner with Philacor.
Aug. 14, 1981- respondent filed a collection suit It is also NOT a contract pour autrui (defn. -
(766,101.70) against petitioner gives the third-party beneficiary a cause of
action against the promisor for specific
Apr. 12, 1983 & May 13, 1983 -petitioner entered into
performance). Principle of relativity of contracts
additional printing contract with Philacor but they failed to
which provides that contracts can only bind the
deliver its good on time. In Feb. 15, 1984 Philacor then
parties who entered into it, and it cannot favor or
filed for damages against petitioner for the delay in
prejudice a third person, even if he is aware of
delivering the books.
such contract and has acted with knowledge
As supplement counterclaims filed by the petitioner, they thereof hence contracts could not affect third
demand damages for the delay of paper delivery which persons.
they claim that caused their delay in delivering books for
Philacor hence they ask for additional compensatory
damages 790,324.30(for unrealized profit)


Geo W. Daywalt, plaintiff-appellant, vs. La Corporacion De Los Padres Agustinos Recoletos, et al., defendants-appellees

Ponente: Street, J.

Legal Doctrine: Although a stranger to a contract may be Facts:

held liable if he induces another to violate his contract, the
stranger can’t be held more liable than the party on Teodorica Edencia contracted to convey the TCT of the
whose behalf he intermeddles. tract of land (452 hectars) to Geo Daywalt for Php 4,000.
The contract was not yet executed since the government
has not issued it yet. Subsequently, the parties entered
into another agreement replacing the first. The new

contract stipulated that Teodorica will deliver TCT to HK Ratio:

and Shanghai Bank and Daywalt will pay the Php3,100
1. Although, Art 1314 states “Any third person who
balance. When the TCT was issued in 1909 Teodorica
delivered the TCT to Father Sanz (a member of induces another to violate his contract shall be
Corporacion de PP Agustinos Recoletos) for safe liable for damages to the other contracting party”
keeping. The TCT reflected that it was actually 1,248 respondent’s advice/influence of not conveying
hectares and not just 452ha as initially estimated. This the TCT to Daywalt despite a final order would
made Teodorica reluctant in continuing the contract. It led would render him liable he cannot be more liable
to litigations which ultimately favored Daywalt and THAN the party in whose behalf he
ordered Teodorica to execute the TCT in favor of him (in intermeddles.
1914). Despite Father Sanz’s awareness of all the
developments and the contract of sale to Daywalt, he Daywalt instituted an action for specific
influenced Teodorica not to give the TCT to Daywalt. performance against Teodorica, but he did
From 1909-1914 he also made an arrangement with not seek for special damages. The extent of
Teodorica to rent the land(that Daywalt has bought) for liability for the breach of contract must be
pasturing large herd of cattle owned by the respondent determined in the light of the situation at the time
congregation. it was made. The different types of damages that
may be recovered are ordinary (necessary
damage-in this case the use of land) and special
damages (can recover more than the actual
Issues/Held: damage- in this case Php500,000 for the
unrealized profit for the probable selling of the
1. Can a stranger to the contract for the sale of tract of land to Wakefield to be used as sugar
land can be held liable for damages beyond the plantation). In the case, there was no express
value(Php 500,000) for the illegal use and stipulation for recovering special damages and
occupation of the said land?NO the claim for special damages was too
2. Can the petitioner claim damages with a sum of speculative and remote hence it was not
Php 24,000 for the illegal use of land? NO awarded.

2. The respondent should be held liable only for the

amount of Php 2,497 based on the previous rate
of instead of the proposed over priced rate of
petitioner which is 24,000.


So Ping Bun, petitioner, vs. Court of Appeals, Tek Hua Enterprising Corp. and Manuel C. Tiong, respondents

Ponente: Quisumbing, J.

Legal Doctrine: There is tort interference when during contracts in its favor, and as a result petitioner deprived
the existence of a valid contract, a third person, to whom respondent corporation of the latter’s property right.
the existence of such contract is known, interferes without Clearly, as correctly viewed by the appellate court, these
legal justification or excuse. The elements of tort elements are present in the instant case.
interference are: (1) existence of a valid contract; (2)
knowledge on the part of the third person of the existence
of contract; and (3) interference of the third person is
without legal justification or excuse. Petitioner’s
Trendsetter Marketing asked DCCSI to execute lease

Facts: Held/Ratio:

In 1963, Tek Hua Trading Co, through its managing 1. YES. There is tort interference when during the
partner, So Pek Giok, entered into lease agreements with existence of a valid contract, a third person, to
lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of whom the existence of such contract is known,
four (4) lease contracts were premises located at Nos. interferes without legal justification or excuse.
930, 930-Int., 924-B and 924-C, Soler Street, Binondo,
Manila which Tek Hua used as storage space for its A duty which the law of torts is concerned with is
textiles. The contracts each had a one-year term. They respect for the property of others, and a cause of
provided that should the lessee continue to occupy the action ex delicto may be predicated upon an
premises after the term, the lease shall be on a month-to- unlawful interference by one person of the
month basis. enjoyment by the other of his private property.

When the contracts expired, the parties did not renew the This may pertain to a situation where a third
contracts, but Tek Hua continued to occupy the premises. person induces a party to renege on or violate
his undertaking under a contract.
In 1976, Tek Hua Trading Co. was dissolved. Later, the
original members of Tek Hua Trading Co. including In the case at bar, petitioner’s Trendsetter
Manuel C. Tiong, formed Tek Hua Enterprising Corp., Marketing asked DCCSI to execute lease
herein respondent corporation. contracts in its favor, and as a result petitioner
deprived respondent corporation of the latter’s
When So Pek Giok, managing partner of Tek Hua property right. Clearly, and as correctly viewed
Trading, died in 1986, So Pek Giok’s grandson, petitioner by the appellate court, the three elements of tort
So Ping Bun, occupied the warehouse for his own textile interference, (1) existence of a valid contract; (2)
business, Trendsetter Marketing knowledge on the part of the third person of the
existence of contract; and (3) interference of the
On March 1, 1991, private respondent Tiong, president of third person is without legal justification or
Tek Hua Enterprising Corp sent a letter to petitioner So excuse, are present in the instant case.
Ping Bun asking him to vacate the premises as they had
need of it because he went back into textile business. As early as Gilchrist vs. Cuddy, the court held
Petitioner So Ping Bun, however, refused to vacate but that where there was no malice in the
instead requested formal contracts of lease with DCCSI in interference of a contract, and the impulse
favor Trendsetter Marketing. So Ping Bun claimed that behind one’s conduct lies in a proper business
after the death of his grandfather, So Pek Giok, he had interest rather than in wrongful motives, a party
been occupying the premises for his textile business and cannot be a malicious interferer.
religiously paid rent. DCCSI acceded to petitioner's
request. In the instant case, though petitioner took
interest in the property of respondent corporation
Instead, on March 4, 1992, petitioner requested formal and benefited from it, nothing on record imputes
contracts of lease with DCCSI in favor of Trendsetter deliberate wrongful motives or malice on him.
Marketing. The lease contracts in favor of Trendsetter
were executed. Private respondents filed a petition for Section 1314 of the Civil Code categorically
injunction, pressing for the nullification of the lease provides that, “Any third person who induces
contracts between DCCSI and petitioner and damages. another to violate his contract shall be liable for
damages to the other contracting party.”
Trial Court ruled in favor of respondents. Court of
Appeals affirmed. Lack of malice, however, precludes damages.
But it does not relieve petitioner of the legal
liability for entering into contracts and causing
breach of existing ones. The respondent
Issues: appellate court correctly confirmed the
permanent injunction and nullification of the
1. WON So Ping Bun is guilty of tortuous lease contracts between DCCSI and Trendsetter
interference of contract Marketing, without awarding damages.
2. WON So Ping Bun should be liable for attorney’s

2. YES. When the defendant’s act or omission has the reduced amount of attorney’s fees ordered
compelled the plaintiff to litigate with third by the Court of Appeals is still exorbitant in the ͳ͸Ͷ
persons or to incur expenses to protect his light of prevailing jurisprudence. Consequently,
interest, the recovery of attorney’s fees is the amount of two hundred thousand (P200,
allowed. 000.00) awarded by respondent appellate court
should be reduced to one hundred thousand
Art. 2208 of the Civil Code states that: (P100, 000.00) pesos as the reasonable award
for attorney’s fees in favor of private respondent
In the absence of stipulation, attorney's fees and corporation.
expenses of litigation, other than judicial costs,
cannot be recovered, except:

(2) When the defendant's act or Dispositive: Petition DENIED. The assailed Decision and
omission has compelled the plaintiff to Resolution of the Court of Appeals are hereby
litigate with third persons or to incur AFFIRMED, with MODIFICATION that the award of
expenses to protect his interest. attorney’s fees is reduced from two hundred thousand
(P200, 000.00) to one hundred thousand (P100,000.00)
The court has consistently held that the award of pesos.
considerable damages should have clear factual
and legal bases.

Considering that the respondent corporation’s

lease contract, at the time when the cause of
action accrued, ran only on a month-to-month
basis whence before it was on a yearly basis,


A. Consent (Offer and Acceptance)


CW Rosenstock, as administrator of the estate of HW Elser, petitioner, vs. Edwin Burke, respondent

Ponente: Avancena , J.

Legal Doctrine: The question of whether or not an Facts:

expression is a definite offer to purchase or merely an
invitation to a proposition being made to him is one of Edwin Burke owned a motor yacht known as the
intention of the person using said expression, which is to Bronzewing which he acquired from Australia (1920) in
be determined by the circumstances surrounding the order to sell here. But since there were no offers and that
case. The expression “I am in a position to entertain the the yacht was mainly for recreation purposes, it was
purchase of the vessel upon the following terms ” does moored for several months.
not mean a definite offer to purchase but merely the idea
that a proposition be made to him which he would accept HW Elser came (1922) and negotiated with Burke on the
or reject according to the result of his deliberation. purchase of the yacht, which was at this time mortgaged
to Asia Banking Corporation (ABC). The mortgage of the
yacht was done sometime in 1921 by Burke to secure
payment of a debt of P100K, due and unpaid, in favor of
Mr. Avery, the manager of ABC.

Elser, the plaintiff, negotiated for the purchase of the focuses on the recovery of the money used to repair the
yacht. Elser’s plan was to create a yacht club and sell it yacht in the amount of P6, 139.28 that is asked by Elser. ͳ͸ͷ
afterwards for P120,000. P20,00 to be retained by Elser
and P100,000 to be paid to Burke. The trial court ruled in favor of Elser and asked Burke to
pay for P6, 139.28 with legal interest of 6 percent per
On February 12, 1922. Defendant wrote a letter to plaintiff annum as well as the Cooper Company the sume of
as follows: P1,730.84 with legal interest of 6 per cent.

For the purpose expressed by you of organizing a yacht The plaintiff is then asked to comply with the conditions
club, I take pleasure in confirming my verbal offer to you stated in the letter. Hence this appeal coming from the
of the motor yacht Bronzewing, at a price of one hundred plaintiff.
and twenty thousand pesos (P120,000). This offer is open
for thirty days from date.

In order to make such sale, Elser told Burke to make a Issues:

voyage on board the yacht to the south, with prominent
business men for the purpose, undoubtedly, of making an 1. Whether the contract is valid and binding against
advantageous sale. But as the yacht needed some the plaintiff (Whether the language in the April
repairs to make it seaworthy for this voyage, and as, on 03, 1922 letter constitute as a valid/definite offer
the other hand, the defendant said that he had no funds by Elser in buying the yacht; and having been
to make said repairs, the plaintiff paid almost all their accepted and consented by Burke and Mr.
amount (and yet, there was a stipulation that Elser was Avery,)
not to pay anything for the use of the yacht). 2. WON plaintiff is required to pay for the repairs of
the yacht
The costs of the repair was as follows:

P 6,972.21 repairs paid by Elser

P1,730.84 due to Cooper Company
which is still unpaid 1. NO. The court looked at the intent of the plaintiff
in using the language. Instead of using clear and
P832.93 due to Elser still unpaid. simple words such as I offer to purchase, I want
to purchase, or I am in the position to purchase
Once the yacht was repaired, Elser immediately made his he used the word entertain which implies that he
pleasure voyage south. Elser never accepted the offer of is in a position to deliberate whether or not he
Burke for the purchase of the yacht contained in the letter would purchase such yacht. The word "entertain"
of option of February 12, 1922. He believed, though, that applied to an act does not mean the resolution to
it would be convenient that the engine be replaced (P20K) perform said act, but simply a position to
to have his desired result – selling the yacht. Elser never deliberate for deciding to perform or not to
accepted the offer for the purchase rather requested that perform said act. Taking into account only the
the engine should replaced thus asking for a loan of P20, literal and technical meaning of the word
000. "entertain," it seems to us clear that the letter of
the plaintiff cannot be interpreted as a definite
But Mr. Avery, to whom the yacht was mortgaged to, did offer to purchase the yacht, but simply a position
want to give a cent of loan to Elser and so the latter to deliberate whether or not he would purchase
discussed to Burke that Burke talk to Mr. Avery regarding the yacht. It is a mere invitation that is
the matter, also stating that he was not disposed to discretionary upon him.
purchase the vessel for more than P70K.

After a talk with the bank manager Mr. Avery, they agreed
that the yacht was to be sold to Elser for the amount of 2. YES. The fact that the defendant was to ask for
P80, 000. nothing in exchange for the travel thus making
the repair the only exchange that is expected.
Elser agreed but stated in the letter that he is in a position
to entertain the purchase of the said yacht. The case Elser was the one who directly and personally
ordered these repairs. It was agreed between

Elser and Burke that the former was not to pay amount of any, such as the wireless telegraph
anything for the use of the yacht and yet he did that was installed in the yacht, and yet he claims ͳ͸͸
and ordered the same. It seems strange that the as a part thereof the salaries of the officers and
defendant should accept liability for the amount the crew which do not represent any
of these repairs, leaving their extent entirely to improvement on the vessel.
the discretion of the plaintiff. And this discretion,
according to the contention of the plaintiff,
includes even that of determining what repairs
must be paid by the defendant, as evidenced by Dispositive: Judgment REVERSED. The petitioner is not
the fact that the plaintiff has not claimed the obliged to buy the yacht but is ordered to pay for the
repairs done.


Salvador P. Malbarosa, petitioner, vs. Hon. Court of Appeals and S.E.A. Development Corp. respondents

Ponente: Callejo, Sr., J.

Facts: March 16, 1990—Da Costa met with petitioner and

handed him the original copy of the March 14 Letter-offer.
Philtectic Corporation and Commonwealth Insurance Co., Petitioner was dismayed when he read what he was
Inc. were two companies wholly-owned and controlled by about to get. Petitioner refused to sign the letter-offer and
SEA Development Corporation. Petitioner Malbarosa was said that he would review it. Despite the lapse of more
the president and general manager of Philtectic. than two weeks, respondent had not received the original
Respondent assigned to petitioner a 1982 Mitsubishi letter with petitioner’s signature. Respondent decided to
Gallant Super Saloon and membership in the withdraw its offer.
Architectural Center.
April 3, 1996—the Board of Directors authorized
Sometime in January 1990, petitioner expressed his Philtectic/Senen to demand from the petitioner for the
desire to leave the company and requested that his 1989 return of the car and to take action against petitioner
incentive compensation be paid to him. He formally sent a including court action.
letter to Senen Valero, Vice-Chairman of respondent
company and reiterated his request for incentive April 4, 1990—Philtectic wrote the petitioner withdrawing
compensation for 1989. the March 14, 1990 Letter-offer and demanding petitioner
return the car and his membership certificate.
Louis Da Costa, president of the company, met with
petitioner to discuss the amount of the compensation. Da April 7, 1990—petitioner wrote Philtectic informing them
Costa ventured that petitioner would be entitled to an that he can’t comply with the demand as he already
amount of around P395,000. accepted the March 14 offer when he affixed on March
28, 1990 his signature on the original.
March 14, 1990—respondent through Valero signed a
letter-offer addressed to petitioner stating that his May 8, 1990—TC issued writ of replevin.
resignation had been accepted and that he was entitled to
a compensation of P251,057.67 and that the amount be May 11—sheriff served the writ and took possession of
satisfied as consisting of: the car valued at P220,000 and the car
the membership in the Architectural center valued at
around P60,000. Respondent required that if the May 15—petitioner recovered possession of car upon
petitioner agreed to the offer, he should affix his signature filing a counter-bond.
at the bottom of the page.

 N'A1'@%#Ͳ 0# 0<)%,# ), *'<,@'* A,(('((%,# ,6 )0#&%;1'

July 28, 1992—trial court rendered decision stating that adduced no proof that the respondent had granted him a
there existed no perfected contract between petitioner period within which to accept the offer. Under Article 1318 ͳ͸͹
and respondent for failure of the respondent to effectively of the CC, the essential requisites of a contract are: 1)
notify the respondent of his acceptance. Petitioner was consent of contracting parties; 2) Object certain which is
ordered to deliver car or pay its value. the subject matter of the contract; and 3) Cause of the
obligation which is established.
Court of Appeals affirmed the decision of the TC with
modification by allowing the payment of the rental of the Under Article 1319 of the NCC, the consent by a party is
car at the rate of P1000.00 per day. manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
constitute the contract. To produce a contract, there must
be acceptance of the offer which may be express or
Issues: implied but must not qualify the terms of the offer. The
acceptance of an offer must be made known to the
1. Whether or not a contract exists between parties
offeror. Unless the offeror knows of the acceptance, there
by virtue of petitioner’s acceptance of the Letter-
is no meeting of minds of the parties. The contract is
perfected only from the time an acceptance of an offer is
2. Whether or not there was an effective withdrawal
made known to the offeror. Also, an acceptance which is
by respondent of said letter-order.
not made in the manner prescribed by the offeror is not
effective but constitutes a counter-offer which the offeror
may accept or reject.
Held: There is no contract between the parties.
Withdrawal of respondent is valid. Petition is dismissed In the present case, petitioner failed to transmit the copy
and CA decision affirmed. of the conformity to the letter-offer to the respondent. And
respondent had already withdrawn its offer. Indubitably,
there was no contract perfected by the parties. It must
also be underscored that there was no time frame fixed
by respondent for petitioner to accept or reject its offer.
When the offeror had not fixed a period for offeror to
Ratio: accept the offer, and the offer is made to a person
present, the acceptance must be made immediately. The
As concluded by the CA, there had been no acceptance respondent had the option to withdraw or revoke the offer.
by the petitioner of its March 14, 1990. The petitioner


Jardine Davies Inc., petitioner, vs. Court of Appeals and Far East Mills Supply Corporation, respondents

Pure Foods Corporation, petitioner, vs. Court of Appeals and Far East Mills Supply Corporation, respondents

Ponente: Bellosillo, J.

Legal Doctrine: Contracts are perfected by mere Facts:

consent, upon the acceptance by the offeree of the offer
made by the offeror. On 1992 at the height of the power crisis in the country,
petitioner PURE FOODS CORPORATION, in order to
remedy and curtail further losses due to the series of
power failures, decided to install two (2) 1500 KW
generators in its food processing plant in San Roque,
Marikina City.

On November 1992 a bidding for the supply and On December 22, 1992, PUREFOODS unilaterally
installation of the generators was held. canceled the award as "significant factors were ͳ͸ͺ
uncovered and brought to their attention which dictate the
On December 12, 1992 a letter addressed to FEMSCO cancellation and warrant a total review and re-bid of the
President Alfonso Po, PUREFOODS confirmed the award project." FEMSCO protested the cancellation of the award
of the contract to FEMSCO subject to the following basic and sought a meeting with PUREFOODS.
terms and conditions:
On March 26, 1993, before the matter could be resolved,
1. Lump sum contract of P6, 137, 293.00 for the PUREFOODS awarded the project and entered into a
supply of local and imported materials and labor, contract with JARDINE NELL (Jardine Davies, Inc.),
payable by progress billing twice a month, with which was not one of the bidders.
10% retention to be released 30 days after
acceptance of the completed project and upon FEMSCO thus wrote PUREFOODS to honor its contract
posting of ‘Guarantee Bond’ (valid for 1 year with them, and to JARDINE to cease and desist from
from completion and acceptance of project) in an delivering and installing the 2 generators at
amount equivalent to 20% of the ‘contract price’ PUREFOODS. Its demand letters unheeded, FEMSCO
(includes future increase/s in costs of materials sued PUREFOODS for reneging on its contract, and
and labor). JARDINE for its unwarranted interference and

2. The projects shall be undertaken pursuant to

the attached specifications. Any item required to Issues:
complete the project including those not in the
list of items shall be deemed included and 1. W/N there existed a perfected contract between
covered, and shall be performed. PUREFOODS and FEMSCO
2. W/N there is any showing that JARDINE induced
3. All materials shall be brand new. or connived with PUREFOODS to violate the
latter's contract with FEMSCO.
4. The project shall commence immediately and
must be completed within 20 working days after
the delivery of Generator Set to Marikina Plant,
penalty equivalent to 1/10 of 1% of the purchase Held/Ratio:
price for every day of delay.
1. There can be no contract unless the following
5. The Contractor shall put up Performance requisites concur: (a) consent of the contracting
Bond equivalent to 30% of the contract price, parties; (b) object certain which is the subject
and shall procure All Risk Insurance equivalent matter of the contract; and, (c) cause of the
to the contract price upon commencement of the obligation which is established. A contract binds
project. The All Risk Insurance Policy shall be both contracting parties and has the force of law
endorsed in favor of and shall be delivered to between them.
Pure Foods Corporation.
Contracts are perfected by mere consent, upon
6. 1 year warranty against defective material the acceptance by the offeree of the offer made
and/or workmanship. by the offeror. From that moment, the parties are
bound not only to the fulfillment of what has
Immediately, FEMSCO submitted the required been expressly stipulated but also to all the
performance bond in the amount of P1,841,187.90 and consequences which, according to their nature,
contractor's all-risk insurance policy in the amount of may be in keeping with good faith, usage and
P6,137,293.00 which PUREFOODS acknowledged. law.
FEMSCO also made arrangements with its principal and
started the project by purchasing the necessary materials. Petitioner PUREFOODS started the process of
PUREFOODS on the other hand returned FEMSCO's entering into the contract by conducting a
Bidder's Bond in the amount of P1,000,000.00, as bidding. The bid proposals or quotations
requested. submitted by the prospective suppliers including
respondent FEMSCO, are the offers. And, the

reply of petitioner PUREFOODS, the acceptance thought that by the expedient means of merely
or rejection of the respective offers. The letter writing a letter would automatically cancel or ͳ͸ͻ
sent by petitioner on December 12, 1998 nullify the existing contract entered into by both
constituted acceptance of respondent's offer as parties after a process of bidding. This is a
contemplated by law. The tenor of the letter, flagrant violation of the express provisions of the
which confirms that PUREFOODS has awarded law and is contrary to fair and just dealings to
to FEMSCO the project, could not be more which every man is due.
categorical. The enumerated "basic terms and
conditions" were mere prescriptions on how the In the instant case, respondent FEMSCO has
obligation was to be performed and sufficiently shown that its reputation was
implemented. They were far from being tarnished after it immediately ordered equipment
conditions imposed on the perfection of the from its suppliers on account of the urgency of
contract. the project, only to be canceled later.
Respondent deserves moral and exemplary
Accordingly, for all intents and purposes, the damages of P1, 000, 000.00, and P100, 000.00,
contract at that point has been perfected, and respectively.
respondent FEMSCO's conforme would only be
a mere surplusage. Hence, by the unilateral
cancellation of the contract, petitioner
PUREFOODS has acted with bad faith and this 2. While it may seem that petitioners PUREFOODS
was further aggravated by the subsequent inking and JARDINE connived to deceive respondent
of a contract between defendant Purefoods and FEMSCO, there are no specific evidence on
Jardine Davies. It is very evident that Purefoods record to support such perception.


Nicolas Sanchez, plaintiff-appellee, vs. Severina Rigos, defendant-appellant

Ponente: Concepcion, C.J.

Legal Doctrine: If the option is given without a stipulated that the option shall be deemed terminated if
consideration, it is a mere offer of a contract of sale which Sanchez fails to exercise his right to buy the property
is not binding until accepted. If, however, acceptance is within 2 years. Within the same period, Sanchez
made before a withdrawal, it constitutes a binding attempted to make several tenders of payment of P1, 510
contract of sale even though the option was not supported to no avail because Rigos rejected the same. Because of
by sufficient consideration. this, the former deposited said amount with the CFI of
Nueva Ecija and commenced an action for specific
performance and damages against the latter. The CFI
rendered judgment for Sanchez.

On April 3, 1961, plaintiff Nicolas Sanchez and defendant

Severina Rigos executed an instrument entitled “Option to Issue: W/N the offer can still be withdrawn after Sanchez
Purchase” where the latter “agreed, promised and notified Rigos of his acceptance of the option within the
committed to sell” to the former a parcel of land situated period agreed upon
in San Jose, Nueva Ecija for P1, 510. It was further


Defendant-Appellant Supreme Court

Yes. The contract between the parties is a unilateral No. The option did not impose upon Sanchez the
promise to sell. Art. 1479(2), CC provides that an obligation to purchase her property. The instrument is
accepted unilateral promise to buy or to sell a not a contract to buy and sell; it is a mere option as
determinate thing for a price certain is binding upon the evinced by the title of the document itself.
promissor if the promise is supported by a consideration
distinct from the price. Since the option was not Moreover, Art. 1324, CC provides the general rule
supported by any valuable consideration as required by regarding offer and acceptance that, when the offerrer
law, the contract is null and void. gives to the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance except
when the option is founded upon consideration. In other
words, if the option is given without a consideration, it is
a mere offer of a contract of sale which is not binding
until accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale even
though the option was not supported by a sufficient
consideration. The concurrence of both acts—the offer
and the acceptance—generates a contract if there was
none existing before.

Antonio, J., concurring: While the law permits the would remove the stability and security of business
offeror to withdraw the offer at any time before transactions. Since Sanchez had offered P1, 510 before
acceptance even before the period has expired, the any withdrawal from the contract has been made by
offeror cannot exercise this right in an arbitrary or Rigos, a bilateral reciprocal contract to sell and to buy
capricious manner for the reason that a contrary view was generated.


Adelfa Properties, Inc., petitioner, versus, Court of Appeals, Rosario Jimenez-Castenda and Salud Jimenez, respondents

Ponente: Regalado, J.

Facts: Thereafter, herein petitioner expressed interest in buying

the western portion of the property from private
Herein private respondents and their brothers, Jose and respondents, under the following terms and conditions:
Dominador Jimenez, were the registerd co-owners of a
parcel of land consisting of 17,710 square meters situated 1. The selling price of said 8,655 square meters
in Barrio Culasi, Las Pinas. of the subject property is P2,856,150.00.

On July 28, 1988, Jose and Dominador Jimenez sold their 2. The sum of P50,000 w/c we received from
share consisting of ! of said parcel of land, specifically Adelfa Properties, Inc. as an option money shall
the eastern portion thereof, petitioner pursuant to a be credited as partial payment upon the
“Kasulatan sa Bilihan ng Lupa”. Subsequently, a consummation of the sale and the balance in the
“Confirmatory Extrajudicial Partition Agreement” was sum of P2,806,150.00 to be paid on or before
executed by the Jimenezes, wherein the eastern portion November 30, 1989;
of the subject lot was adjudicated to Jose and Dominador
Jimenez, while the western portion was allocated to 3. In case of default on the part of petitioner to
herein private respondents. pay said balance in accordance with paragraph
2 hereof, this option shall be cancelled and 50%
of the option money to be forfeited in our favor

and we will refund the remaining 50% of said Issues:

option money upon the sale of said property to a
1. Whether or not the “Exclusive Option to
third party.
Purchase” executed between petitioner and
4. All expenses including the corresponding private respondents is an option contract
capital gains tax, cost of documentary stamps 2. Whether or not the suspension of payment of the
are for the account of the vendors, and purchase price by said petitioner was justified.
expenses for the registration of the deed of sale
in the Registry of Deeds are for the account of
Adelfa properties, Inc.
Considering, however, that the owner’s copy of the
certificate of the title issued to respondent Salud Jimenez 1. The controverted document was a perfected
had been lost, a petition for the re-issuance of a new contract to sell. Although the CA is correct in so
owner’s copy of said certificate of title was issued but it far as it awarded the correct relief, it was
remained in the possession of Atty. Bernardo until he incorrect in categorizing the instrument as
turned it over to petitioner Adelfa Properties, Inc. “strictly an option contract. It should be noted
that in contract interpretation the ascertainment
Before petitioner could make payment, it received of the intention of the contracting parties shall be
summons involving a complaint filed by the nieces and a controlling guide. The import of the text and
nephews of respondents (annulment of the deed of sale) the subsequent acts of the parties indubitably
against the latter. As a consequence, petitioner withhold project that the intention of the parties was to
payment of payment until the case was settled. enter a contract to sell. Hene, the fact that the
document under discussion is entitled “Exclusive
On December 14, 1989, private respondents, through Option to Purchase” is not controlling where the
counsel, cancelled the transaction. Atty. Bernard offered text shows it is a contract to sell. An option is a
to pay two times provided that certain deductions are continuing offer or contract by which the owner
made of which respondents vehemently rejected. stipulates with another that the latter shall have
the right to buy the property at a fixed price at a
On Feb 23, 1990 the complaint filed by respondents’ certain time, or under, or in compliance with,
nieces and nephews was dismissed. certain terms and conditions, or which gives to
the owner of the property the right to sell or
On Feb 28, 1990, private respondents executed a Deed demand a sale. It also sometimes called an
of Conditional Sale in favor of Emylene Chua. “unaccepted offer. An option is not itself a
purchase, but merely secures the privilege to
Petitioner declared its intention to pay the purchase price
buy. It is not a sale of property but a sale of the
since the civil case was now dismissed. This was ignored
right to purchase. On the other hand, a contract,
by private respondents and instead returned the sum of