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I.

Elements of obligations

REGINO VS. PANGASINAN COLLEGES

GR No. 156109 November 18, 2004

FACTS:

Petitioner Khristine Rea M. Regino was a first year computer science


student at Respondent Pangasinan Colleges of Science and Technology
(PCST). In February 2002, PCST held a fund raising campaign dubbed the
“Rave Party and Dance Revolution,” the proceeds of which were to go to
the construction of the school’s tennis and volleyball courts. Each student
was required to pay for two tickets at the price of P100 each. The project
was allegedly implemented by recompensing students who purchased
tickets with additional points in their test scores; those who refused to pay
were denied the opportunity to take the final examinations. Financially
strapped and prohibited by her religion from attending dance parties and
celebrations, Regino refused to pay for the tickets. On March 14 and
March 15, 2002, the scheduled dates of the final examinations in logic and
statistics, her teachers -- Respondents Rachelle A. Gamurot and Elissa
Baladad -- allegedly disallowed her from taking the tests.

ISSUE:

Whether or not the purchased of the tickets are mandatory and are part of
the contract between school and student.

HELD:

The school-student relationship is also reciprocal. Thus, it has


consequences appurtenant to and inherent in all contracts of such kind -- it
gives rise to bilateral or reciprocal rights and obligations. The school
undertakes to provide students with education sufficient to enable them to
pursue higher education or a profession. On the other hand, the students
agree to abide by the academic requirements of the school and to observe
its rules and regulations.

The terms of the school-student contract are defined at the moment


of its inception -- upon enrolment of the student. Standards of academic
performance and the code of behavior and discipline are usually set forth in
manuals distributed to new students at the start of every school year.
Further, schools inform prospective enrollees the amount of fees and the
terms of payment.

In practice, students are normally required to make a down payment


upon enrollment, with the balance to be paid before every preliminary,

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midterm and final examination. Their failure to pay their financial obligation
is regarded as a valid ground for the school to deny them the opportunity to
take these examinations.

The foregoing practice does not merely ensure compliance with financial
obligations; it also underlines the importance of major examinations.
Failure to take a major examination is usually fatal to the students’
promotion to the next grade or to graduation. Examination results form a
significant basis for their final grades. These tests are usually a primary
and an indispensable requisite to their elevation to the next educational
level and, ultimately, to their completion of a course.

Thus, students expect that upon their payment of tuition fees, satisfaction
of the set academic standards, completion of academic requirements and
observance of school rules and regulations, the school would reward them
by recognizing their “completion” of the course enrolled in.

PCST imposed the assailed revenue-raising measure belatedly, in the


middle of the semester. It exacted the dance party fee as a condition for
the students’ taking the final examinations, and ultimately for its recognition
of their ability to finish a course. The fee, however, was not part of the
school-student contract entered into at the start of the school year. Hence,
it could not be unilaterally imposed to the prejudice of the enrollees.

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MARIANO UN OCAMPO III VS. PEOPLE

G.R Nos. 156547-51

AZCUNA, J.:

FACTS:

The Department of Budget and Management released the amount of Php


100 Million for the support of the local government unit of the province of
Tarlac. However, petitioner Ocampo, governor of Tarlac, loaned out more
than P 56.6 million in which he contracted with Lingkod Tarlac Foundation,
Inc.. Thus, it was the subject of 25 criminal charges against the petitioner.

The Sandiganbayan convicted the petitioner of the crime of


malversation of public funds. However, the petitioner contended that the
loan was private in character since it was a loan contracted with the Taralc
Foundation.

ISSUE:

Whether the amount loaned out was private in nature.

HELD:

Yes, the loan was private in nature because Art. 1953 of the New Civil
Code provides that “a person who receives a loan of money or any other
fungible thing acquires the ownership thereof, and is bound to pay the
creditor an equal amount of the same kind and quality.”

The fact that the petitioner-Governor contracted the loan, the public
fund changed its nature to private character, thus it is not malversation
which is the subject of this case, instead it must be a simple collection of
money suit against the petitioner in case of non payment . Therefore, the
petitioner is acquitted for the crime of malversation.

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COSMO ENTERTAINMENT MANAGEMENT, INC. VS. LA VILLE
COMMERCIAL CORP.

G.R. NO. 152801

CALLEJO, SR., J.:

FACTS:

The respondent, La Ville Commercial Corp. owns a parcel of land, with a


building thereon, as registered in a Transfer Certificate Title registered in
the Registry of deeds of Makati. It entered into a contract of lease with the
petitioner, Cosmo Entertainment Management, Inc. for the rental of the
property for a period of seven years for a fixed monthly rental and a
security deposit equivalent to 3 months’ worth of the rental.

The petitioner, however, suffered business reverses and was constrained


to stop operations and defaulted in its rental payments. The respondent,
thereafter, made a demand for the petitioner to vacate the premises and to
pay the accrued rentals plus interests. In reply to the demand, the petitioner
requested that the interest be waived and it be given time to find a solution
of its financial problems. It also held that the security deposit paid upon the
execution of the contract be applied on the unpaid rentals.

After negotiations between the parties failed, the respondent reiterated its
demand to pay the unpaid rentals and to vacate and surrender the premise.
The petitioner however, refused to comply with the demand and a
complaint for illegal detainer was filed by the respondent.

ISSUE:

Whether or not Cosmo Entertainment Management, Inc. has the right to


sublease the premise.

HELD:

The court rendered judgment ordering Cosmo Entertainment Management,


Inc. to vacate the property in question and to turn the possession as well its
improvements to La Ville Commercial Corp.; to pay the accrued rentals
including the interest and taxes minus the security deposit equivalent to 3
monthly rentals; a reasonable compensation amounting to P159, 000 for
every month of continued and illegal use and occupancy of the property
and the attorney’s fee for the cost of the suit.

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TITAN-IKEDA CONSTRUCTION VS. PRIMETOWN PROPERTY GROUP
INC.

G.R No. 158768

CORONA, J.:

FACTS:

The respondent Primetown Property Corporation entered into contract


weith the petitioner Titan-Ikeda Construction Corporation for the structural
works of a 32-storey prime tower. After the construction of the tower,
respondent again awarded to the petitioner the amount of P
130,000,000.00 for the tower’s architectural design and structure. However,
in 1994, the respondent entered into a contract of sale of the tower in favor
of the petitioner in a manner called full-swapping. Since the respondent had
allegedly constructed almost one third of the project as well as selling some
units to third persons unknown to the petitioner. Integrated Inc. took over
the project, thus the petitioner is demanding for the return of its advanced
payment in the amount of P2, 000,000.00 as well as the keys of the unit.

ISSUE:

Whether the petitioner is entitled to damages

HELD:

No, because in a contract necessarily that there is a meeting of the minds


of the parties in which this will be the binding law upon them. Thus, in a
reciprocal obligation. Both parties are obliged to perform their obligation
simultaneously and in good faith. In this case, petitioner, Titan-Ikeda cannot
recover damages because it was found out there was no solutio indebiti or
mistake in payment in this case since the latter is just entitled to the actual
services it rendered to the respondent and thus it is ordered to return the
condominium units to the respondent.

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ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION vs. COURT
OF APPEALS

G.R. No. 116682

BELLOSILLO, J.:

FACTS:

On 23 September 1986 respondent Contractors Equipment Corporation


(CEC) instituted an action for a sum of money against petitioner Roblett
Industrial Construction Corporation (RICC) before the Regional Trial Court
of Makati alleging that in 1985 it leased to the latter various construction
equipment which it used in its projects. As a result RICC incurred unpaid
accounts amounting to P342,909.38.

On 19 December 1985 RICC through its Assistant Vice President for


Finance Candelario S. Aller Jr. entered into an Agreement with CEC where
it confirmed petitioner's account. As an off-setting arrangement respondent
received from petitioner construction materials worth P115,000.00 thus
reducing petitioner's balance to P227,909.38.

A day before the execution of their Agreement, or on 18 December 1985,


RICC paid CEC P10,000.00 in postdated checks which when deposited
were dishonored. As a consequence the latter debited the amount to
petitioner's account of P227,909.38 thus increasing its balance to
P237,909.38.

On 24 July 1986 Mariano R. Manaligod, Jr., General Manager of CEC, sent


a letter of demand to petitioner through its Vice President for Finance
regarding the latter's overdue account of P237,909.38 and sought
settlement thereof on or before 31 July 1986. In reply, petitioner requested
for thirty (30) days to have enough time to look for funds to substantially
settle its account.

Traversing the allegations of respondent, Candelario S. Aller Jr. declared


that he signed the Agreement with the real intention of having proof of
payment. In fact Baltazar Banlot, Vice President for Finance of petitioner,
claimed that after deliberation and audit it appeared that petitioner overpaid
respondent by P12,000.00 on the basis of the latter's Equipment Daily
Time Reports for 2 May to 14 June 1985 which reflected a total obligation
of only P103,000.00. He claimed however that the Agreement was not
approved by the Board and that he did not authorize Aller Jr. to sign
thereon.

On rebuttal, Manaligod Jr. declared that petitioner had received a


statement of account covering the period from 28 March to 12 July 1985 in
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the amount of P376,350.18 which it never questioned. From this amount
P3,440.80, based on respondent's account with petitioner and P30,000.00,
representing payments made by the latter, were deducted thus leaving a
balance of P342,909.38 as mentioned in the Agreement. On 19 December
1990 the trial court rendered judgment ordering petitioner to pay
respondent

ISSUE:

Whether or not the agreement between the parties is binding upon them

HELD:

Yes. It must be emphasized that the same agreement was used by plaintiff
as the basis for claiming defendant's obligation of P237,909.38 and also
used by defendant as the same basis for its alleged payment in full of its
obligation to plaintiff. But while plaintiff treats the entire agreement as valid,
defendant wants the court to treat that portion which treats of the offsetting
of P115,000.00 as valid, whereas it considers the other terms and
conditions as "onerous, illegal and want of prior consent and Board
approval." This Court cannot agree to defendant's contention. It must be
stressed that defendant's answer was not made under oath, and therefore,
the genuineness and due execution of the agreement which was the basis
for plaintiff's claim is deemed admitted (Section 8, Rule 8, Rules of Court).
Such admission, under the principle of estoppel, is rendered conclusive
upon defendant and cannot be denied or disproved as against plaintiff (Art.
1431, Civil Code). Either the agreement is valid or void. It must be treated
as a whole and not to be divided into parts and consider only those
provisions which favor one party (in this case the defendant). Contracts
must bind both contracting parties, its validity or compliance cannot be left
to the will of one of them (Art. 1308, New Civil Code).

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II. Sources of obligations

FERNANDO LOPEZ, ET AL.,

VS.

PAN AMERICAN WORLD AIRWAYS

G.R. No. L-22415, 30 March 1966

Facts:

Plaintiffs filed a complaint for breach of contract in bad faith against


Pam American World Airways after the airline denied the plaintiffs of their
first class reservations for their trip from Tokyo to San Francisco. Since the
first class was already fully occupied, the airline denied them of their
reservations and placed them in the tourist class instead. Considering their
pressing business concerns and for medical reasons, the Lopez family
acceded but latter on wrote to Pan-Am stating that they are doing so “under
protest.” In their defense, Pan-Am claimed that the entire incident was due
primarily to an “honest error” by its employees.

Issue:

Whether or not Pan American was liable for breach of contract

Held:

Pan American was liable for breach of contract in bad faith. The
airline company admitted that the plaintiffs’ reservations were first
cancelled by mistake but the same was deliberately and intentionally
withHeld. The company may have been promoted by its self-interest in
holding on to the plaintiffs and thus foreclosing the latter’s chance of
availing the first class accommodations of other airlines.

Thus, plaintiffs are entitled to moral damages as they are recoverable “in
breach of contracts where the defendant acted fraudulently or in bad faith.”
Also, plaintiffs are entitled to exemplary or corrective damages as they are
“imposed by way of example or correction for the public good, in breach of
contract where the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.” Moreover, they are entitled to attorney’s
fees which amount is controlled by the written contract for an attorney’s
services unless found by the court to be unconscionable or unreasonable.

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COCA-COLA BOTTLERS PHILIPPINES, INC.

VS.

COURT OF APPEALS

G.R. No. 110295, 18 October 1993

Facts:

A store-operator in a kindergarten school filed suit against Coca-Cola


claiming that she closed shop and lost her livelihood after incurring heavy
losses due to fiber like materials in her stock of Coca-Cola soft drinks. As a
defense, Coca-Cola claimed that her cause of action, if any, is for breach of
contract – and not quasi-delict.

Issue:

Whether or not Coca-Cola was liable for breach of contract and


quasi-delict

Held:

Coca-Cola was liable for breach of contract and quasi-delict. “The


vendor could likewise be liable for quasi-delict under Article 2176 of the
Civil Code, and an action based thereon may be brought by the vendee.
While it may be true that the pre-existing contract between the parties may,
as a general rule, bar the applicability of the law on quasi-delict, the liability
may itself be deemed to arise from quasi-delict,

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VICENTE NAVALES

VS.

EULOGIA RIAS ET. AL.

Facts:

Vicente Navales constructed a house in the land owned by Eulogia


Rias. By virtue of the decision of the justice in the action instituted by Rias
against Navales, the deputy sheriff who carried the judgment into execution
was obliged to destroy the house and remove it from the land, according to
the usual procedure in the action for ejectment. Navales filed a complaint
with the CFI of Cebu claiming for damages against the defendants. The
court rendered judgment declaring that the decision entered by the justice
of peace and the execution of the order by the sheriff were illegal, that the
defendants were thereby liable for damages.

Issue:

Whether or not the defendants were liable for damages

HELD: No. The judgment rendered by the justice of peace for the ejectment
of the house of Navales, not having been appealed from, had become final.
There was no reason why it should not be enforced when it had already
become final and acquired by the nature of res judicata.

When the illegality of the judgment rendered by the justice of peace and the
acts performed by the sheriff in compliance therewith has not been proven,
it is presumed that the official duty has been regularly performed.

No proof has been submitted that a contract had been entered into
between the plaintiff and the defendants or that the latter had committed
illegal acts or omissions or incurred in any kind of fault or negligence, from
any of which an obligation might have arisen on the part of the defendants
to indemnify the plaintiff. For this reason, the claim for indemnity, on
account of acts performed by the sheriff while enforcing a judgment, cannot
under any consideration be sustained.

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VIRGINIA A. PEREZ

vs.

COURT OF APPEALS and BF LIFEMAN INSURANCE CORPORATION,

G.R. No. 112329 January 28, 2000

YNARES-SANTIAGO, J.

Facts:

Primitivo Perez has been insured with the BF Lifeman Insurance


Corporation since 1980 for P20, 000. Sometime in 1987, Rodolfo Lalog, an
agent of BF, convinced him to apply for additional insurance coverage of
P50, 000. Perez accomplished the application form and passed the
required medical exam. He also paid P2, 075 to Lalog for premium. On
Nov. 25, 1987, Perez died, and during this time, his application papers for
the additional insurance coverage were still in the office of BF. Without
knowing that Perez died, BF approved Perez’s application and Issued the
corresponding policy for P50,000. Virginia Perez, his wife, claimed the
benefits of the insurance policy for her deceased husband but she was only
able to obtain P40,000 under the first insurance policy. BF refused to pay
the proceeds amounting to P150,000 under the additional policy coverage
of P50,000 because they maintain that such policy had not been perfected.
On Sept. 21, 1990, BF filed a complaint against Mrs. Perez seeking
rescission and declaration of nullity of the insurance contract in question.
Mrs. Perez file a counterclaim for the collection of P150,000 plus damages.

Issue:

Whether or not there was a consummated contract of insurance


between Primitivo Perez and BF

Held:

No. An essential requisite of a valid contract is consent. Consent


must be manifested by the meeting of the offer and acceptance upon the
thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. When Perez filed the application, it
was subject to the acceptance of BF. The perfection was also further
conditioned upon 1) issuance of the policy; 2) payment of the premium and;
3) the delivery to and acceptance by the applicant in good health.

The delivery and acceptance by the applicant was a suspensive


condition which was not fulfilled inasmuch as the applicant was already
dead at the time the policy was Issued. The non-fulfillment of the condition

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resulted in the non-perfection of the contract. An application for insurance
is merely an offer which requires the overt act of the insurer for it to ripen to
a contract. Delay in acting on the application does not constitute
acceptance even though the insured has forwarded his first premium with
his application. Delay, in this case, does not constitute gross negligence
because the application was granted within the normal processing time.

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LEUNG BEN VS. O’BRIEN

G.R. NO. L-13602, APRIL 6, 1918

38 PHIL. 182

Facts:

On December 12, 1917 an action was instituted in the CFI of Manila


by O’Brien to recover from Leung Ben the sum of P15, 000.00 alleged to
have been lost by the plaintiff to the defendant in a series of gambling,
banking and percentage games conducted during the two or three months
prior to the institution of the suit. In his verified complaint the plaintiff asked
for an attachment, under sections 424 and 412 (1) of the Code of Civil
Procedure against the property of the defendant on the ground that the
latter was about to depart from the Philippine Island with intent to defraud
his creditors. The attachment was issued and acting on the authority
thereof, the sheriff attached the sum of P15, 000.00 which had been
deposited by the defendant with the International Banking Corporation.

The defendant moved to quash the attachment; the court however,


dismissed said motion. On January 8, 1918, petitioner Leung Ben, the
defendant in that action filed his petition for writ of certiorari directed
against O’Brien and the judges of CFI. The prayer is that, the honorable
James A. Ostrand be required to certify the records for review and that the
order of attachment that had been issued should be revoked and
discharged with cost.

Issue:

The issue is whether or not the statutory obligation to restore money


won at gaming is an obligation from “contract, express or implied.”

Held:

The duty of the defendant to refund the money which he won from the
plaintiff at gaming is not an obligation from “contract, express or implied”
rather it is a duty imposed by statute. Upon general principles, recognized
both in civil and common law, money lost at gaming and voluntarily paid by
the loser to the winner cannot, in the absence of statute, be recovered in a
civil action. But Act No. 1757 of the Philippine Commission, which defines
and penalizes several forms of gambling, containing numerous provisions
recognizing the right to recover money lost in gambling or in the playing of
certain games. The obligation of the defendant to restore or refund the
money which he won from the plaintiff at gaming therefore arises ex lege.

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III. Default or mora

JULIO DE LA ROSA

VS.

THE BANK OF THE PHILIPPINE ISLANDS (51 PHIL. 926),

NOV. 28, 1924

PONENTE: ROMUALDEZ, J.

Facts:

On June 11, 1923, a complaint was filed by Julio de la Rosa on the


ground that the defendant bank started a contest of designs and plans for
the construction of a building, and announced that prizes would be
awarded no later than November 30, 1921.The plaintiff, claimed that he
joined the said contest and performed work and incurred expenses for that
purpose. Also, the said bank did not name the contest judges and failed to
ward the prizes in accordance to the contest conditions stipulated. Because
of this, the plaintiff prays that judgment be rendered in his favor for the sum
of Php 30,000 as damages, with interests and costs.

The trial court ruled in favor of de la Rosa, ordering BPI to pay the plaintiff
an indemnity of Php 4,000 and the costs.

Both parties appealed from this judgment, the plaintiff argued that the trial
court erred:

1. In holding that the sum of P4,000 was a just and reasonable indemnity to
the plaintiff.

2. In not ordering the defendant bank to pay the P30,000 prayed for in the
complaint.

The defendant bank, in turn, assigned the following errors as committed by


the trial court:

1. In holding that the date set for the award of prizes is essential in the
contract.

2. In ordering that the sum of P4,000 be paid to the plaintiff.

Issue:

Whether the defendant bank was in default in not awarding the prizes
on November 30, 1921

Held:

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No. The defendant bank cannot be held to have been in default
through the mere lapse of time. For this judicial or extrajudicial demand
was necessary for the performance of the obligation, and it was not alleged
here, nor does it appear that before bringing this action the plaintiff had
ever demanded it from the defendant bank in any manner whatsoever. The
defendant bank, therefore, was not in default.

The plaintiff invoked paragraph 2 of Article 1100 of the Civil Code and
contended that November 30, 1921 was the principal inducement because
of the current cost of concrete buildings at the time was fixed. The fixation
of said price cannot be considered as the controlling factor of setting the
date of the awarding of prizes/contract but just for the uniformity of the
designs to be presented and to secure greater justice in the appreciation of
relative merits of each work submitted.

Since the date was not a controlling motive for the establishment of
the contract, the plaintiff cannot invoke the exception on Article 1100 of the
Civil Code. Thus, a judicial or extrajudicial demand was necessary for the
performance of the obligation, and in this case was not done by de la Rosa.
Since the plaintiff had no cause of action; the judgment was reversed.

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NATIONAL MARKETING CORPORATION VS. FEDERATION OF
UNITED NAMARCO

DISTRIBUTORS, INC.

49 SCRA 238

FACTS:

On November 16, 1959, the NAMARCO and the Federation entered


into a Contract of Sale stipulating among others that Two Hundred
Thousand Pesos be paid as part payment and Federation deposits with the
NAMARCO upon signing of the items and/or merchandise a cash basis
payment upon delivery of the duly indorsed negotiable shipping document
covering the same. To insure payment of the goods by the Federation, the
NAMARCO accepted three domestic letters of credit which is an accepted
draft and duly executed trust receipt approved by the Philippine National
Bank.

Upon arrival of the goods in Manila in January, 1960, the NAMARCO


billed Federation Statement of Account for P277,357.91, covering shipment
of the 2,000 cartons of PK Chewing Gums, 1,000 cartons of Juicy Fruit
Chewing Gums, and 500 cartons of Adams Chicklets; Statement of
Account of P135,891.32, covering shipment of the 168 cartons of Blue
Denims; and Statement of Account of P197,824.12, covering shipment of
the 183 bales of Khaki Twill, or a total of P611,053.35. Subsequently, it was
received by Federation on January 29, 1960. However, on March 2, 1960
Federation filed a complaint against Namarco for undelivered items
contained in the contract of sale. Federation refuses to pay acknowledge
the domestic letters of credit until full delivery is done by NAMARCO.

ISSUE:

Whether or not the Federation be obliged to pay the amount of the


merchandise even if there was still incomplete delivery of items by
NAMARCO

HELD:

Yes. The right of the NAMARCO to the cost of the goods existed upon
delivery of the said goods to the Federation which, under the Contract of
Sale, had to pay for them. Therefore, the claim of the NAMARCO for the
cost of the goods delivered arose out of the failure of the Federation to pay
for the said goods, and not out of the refusal of the NAMARCO to deliver
the other goods to the Federation. Furthermore, Federation’s nonpayment
would result to it being unjustly enriched.

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However, the lower court erred in imposing interest at the legal rate
on the amount due, "from date of delivery of the merchandise", and not
from extra-judicial demand. In the absence of any stipulations on the
matter, the rule is that the obligor is considered in default only from the time
the obligee judicially or extra-judicially demands fulfillment of the obligation
and interest is recoverable only from the time such demand is made. There
being no stipulation as to when the aforesaid payments were to be made,
the Federation is therefore liable to pay interest at the legal rate only from
June 7, 1960, the date when NAMARCO made the extra-judicial demand
upon said party.

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FIRESTONE TIRE

VS. MARIO DELGADO, ET AL

G.R. NO. L-11162, DECEMBER 4, 1958

FACTS:

On September 22, 23, and 25, 1953, the defendants, Mario Delgado
and Leonor Delgado Dee, doing business under the trade name of Caltex
Quick Service Station, in Cebu City, received from the plaintiff Firestone
Tire Rubber, Co., goods and merchandise valued at P6,966.73, payable on
October 31, 1953, subject to the condition that in case of default,
defendants would pay interest of 12 per cent a year from the date of
default, plus 25 per cent of the said amount as attorney's fees and
liquidated damages in case of suit. Demand for payment was duly made by
the plaintiff. and defendants in a letter dated May 21, 1954, proposed to
pay the outstanding balance of P5,865.00 according to the following
schedule:

May-P500.00, June-500.00, July-,500.00, August- 1,500.00, September-


1,600.00 and October-1,265.00. In a letter dated June 12, 1954, plaintiff
accepted the proposal on the condition, however, "that if you fail to comply
with your schedule, we will immediately refer the balance of your account to
our lawyer for collection without further notice." Defendants paid the May
installment of P500.00 on May 16, 1954. On account of the June
installment, they paid P200.00 on June 25, 1954 and P250.00 on July 10,
1954, or a total of P450.00. After said payments, there remained a balance
of P4,915.62, which the defendants had not paid up to the present time. In
view of said failure, plaintiff brought the present action on July 19, 1954 to
collect said unpaid balance.

ISSUE:

May the Plaintiff enforce a judicial action against defendant for failure
to meet the obligation?

HELD:

Yes. This case is a plain case of a debtor failing, without any valid
reason, to pay for goods and merchandise bought and received by him on
the date he promised to pay. He made a proposition to the vendor to pay
the balance of the value of the goods in six monthly installments, and the
vendor, out of consideration, granted the request, but with the condition
that failure to strictly observe the installments payments would result in a
judicial suit without further notice for the recovery of the whole amount.

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After paying less than two monthly installments, and without any
satisfactory explanation, the debtor simply failed and refused to pay the
balance of over P4,000.00 up to the present time. The courts cannot look
with favor upon such delinquency in the performance of a clear obligation,
especially when, as in this case, a debtor presumably a merchant and
trader, received the goods bought and presumably had sold them and
received the price and benefits of the sale.

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ARRIETA VS. NATIONAL RICE AND CORN

CORPORATION

GR L-15645 JANUARY 31, 1964

FACTS:

On May 19, 1952, plaintiff-appellee Mrs. Paz Arrieta participated in a


public bidding called by NARIC for the supply of 20,000 metric tons of
Burmese rice. As her bid of $203, 000 per metric ton was the lowest, she
was awarded the contract for the same. On July 1, 1952, Arrieta and
NARIC entered into Contract of Sale of Rice under the term of which the
former obligated herself to deliver to the latter 20, 000 metric tons of
Burmese rice at $203, 000 per metric ton. In turn, NARIC committed itself
to pay for the imported rice “by means of an irrevocable, confirmed and
assignable letter of credit in US currency in favor of Arrieta and/or supplier
in Burma, immediately.” However, it was only on July 30, 1952 that NARIC
took the first step to open a letter of credit by forwarding to the PNB its
application for Commercial Letter of Credit.

On the same day, Arrieta, thru counsel, advised NARIC of the


extreme necessity for the opening of the letter of credit since she had by
then made a tender to her supplier in Rangoon, Burma equivalent to 5% of
the F.O.B. price of 20, 000 tons at $180.70 and in compliance with the
regulations in Rangoon, this 5% will be confiscated if the required letter of
credit is not received by them before August 4, 1952.

On August 4, PNB informed NARIC that its application for a letter of


credit has been approved by the Board of Directors with the condition that
50% marginal cash deposit be paid and that drafts a5e to be paid upon
presentment. It turned out that NARIC was not in financial position to meet
the condition. As a result of the delay, the allocation of Arrieta’s supplier in
Rangoon was cancelled and the 5% deposit amounting to 524 kyats or
approximately P200, 000 was forfeited.

ISSUE:

Was NARIC liable for damages?

HELD:

Yes. Under Article 1170 of the Civil Code, the ne who assumes a
contractual obligation and fails to perform the same on account of his
inability to meet certain bank which inability he knew and was aware of
when he entered into contract, should be Held liable in damages for breach
of contract.

20
CLAUDINA VDA. DE VILLARUEL, ET AL. VS.

MANILA MOTOR CO., INC.

104 PHIL. 926

FACTS:

On May 31, 1940, the plaintiffs Villaruel and defendant Manila Motor
Co. Inc. entered into a contract whereby the defendant agreed to lease
plaintiffs building premises.On October 31, 1940, the leased premises were
placed in the possession of the defendant until the invasion of 1941.

The Japanese military occupied and used the property leased as part
of their quarters from June, 1942 to March, 1945, in which no payment of
rentals were made. Upon the liberation of the said city, the American forces
occupied the same buildings that were vacated by the Japanese.

When the United States gave up the occupancy of the premises,


defendant decided to exercise their option to renew the contract, in which
they agreed. However, before resuming the collection of rentals, Dr. Alfredo
Villaruel upon advice demanded payment of rentals corresponding to the
time the Japanese military occupied the leased premises, but the
defendant refused to pay. As a result plaintiff gave notice seeking the
rescission of the contract and the payment of rentals from June, 1942 to
March, 1945; this was rejected by the defendant. Despite the fact the
defendant under new branch manager paid to plaintiff the sum of P350 for
the rent, the plaintiff still demanded for rents in arrears and for the
rescission of the contract of lease. The plaintiff commenced an action
before the CFC of Neg. Occidental against Defendant Company. During
the pendency of the case, the leased building was burned down. Because
of the occurrence, plaintiffs demanded reimbursement from the defendants,
but having been refused, they filed a supplemental complaint to include a
3rd cause of action, the recovery of the value of the burned building. The
trial court rendered judgment in favor of the plaintiff. Hence the defendants
appeal.

ISSUE:

Is Manila Motor Co. Inc. liable for the loss of the leased premises?

HELD:

No. Clearly, the lessor's insistence upon collecting the occupation


rentals for 1942-1945 was unwarranted in law. Hence, their refusal to
accept the current rentals without qualification placed them in default (mora
creditoris or accipiendi) with the result that thereafter, they had to bear all

21
supervening risks of accidental injury or destruction of the leased premises.
While not expressly declared by the Code of 1889, this result is clearly
inferable from the nature and effects of mora.

In other words, the only effect of the failure to consign the rentals in court
was that the obligation to pay them subsisted and the lessee remained
liable for the amount of the unpaid contract rent, corresponding to the
period from July to November, 1946; it being undisputed that, from
December 1946 up to March 2, 1948, when the commercial buildings were
burned, the defendants-appellants have paid the contract rentals at the rate
of P350 per month. But the failure to consign did not eradicate the default
(mora) of the lessors nor the risk of loss that lay upon them.

22
IV. Duty to exercise diligence

THE SPOUSES BERNABE AFRICA AND SOLEDAD C. AFRICA, AND


THE HEIRS OF DOMINGA ONG

VS.

CALTEX (PHIL.), INC., MATEO BOQUIREN AND THE COURT OF


APPEALS

G.R. NO. L-12986

Facts:

In March 1948, in Rizal Avenue, Manila, a tank truck was hosing


gasoline into the underground storage of Caltex. Apparently, a fire broke
out from the gasoline station and the fire spread and burned several
houses including the house of Spouses Bernabe and Soledad Africa.
Allegedly, someone (a passerby) threw a cigarette while gasoline was
being transferred which caused the fire. But there was no evidence
presented to prove this theory and no other explanation can be had as to
the real reason for the fire. Apparently also, Caltex and the branch owner
(Mateo Boquiren) failed to install a concrete firewall to contain fire if in case
one happens.

Issue:

Whether or not Caltex and Boquiren are liable to pay for damages

Held:

Yes. This is pursuant to the application on the principle of res ipsa


loquitur (“the transaction speaks for itself”) which states: “where the thing
which caused injury, without fault of the injured person, is under the
exclusive control of the defendant and the injury is such as in the ordinary
course of things does not occur if he having such control use proper care, it
affords reasonable evidence, in the absence of the explanation, that the
injury arose from defendant’s want of care.” The gasoline station, with all its
appliances, equipment and employees, was under the control of Caltex and
Boquiren. A fire occurred therein and spread to and burned the neighboring
houses. The persons who knew or could have known how the fire started
were Boquiren, Caltex and their employees, but they gave no explanation
thereof whatsoever. It is a fair and reasonable inference that the incident
happened because of want of care.

23
Generally, he who charges negligence shall prove it. However, res ipsa
loquitur is the exception because the burden of proof is shifted to the party
charged of negligence as the latter is the one who had exclusive control of
the thing that caused the injury complained of.

24
THE ROMAN CATHOLIC BISHOP OF JARO

VS.

GREGORIO DE LA PEÑA,

G.R. NO. L-6913, NOVEMBER 21, 1913

MORELAND, J.

Facts:

In 1898 Fr. De la Peña assigned as trustee of the sum of P6,641,


collected by him for the charitable purposes he deposited in his personal
account P19,000 in the Hongkong and Shanghai Bank at Iloilo. During the
war of the revolution, Father De la Peña was arrested by the military
authorities as a political prisoner. The arrest of Father De la Peña and the
confiscation of the funds in the bank were the result of the claim of the
military authorities that he was an insurgent and that the funds deposited
had been collected by him is for revolutionary purposes. The money was
taken from the bank by the military authorities by virtue of such order, was
confiscated and turned over to the Government.

Issue:

Whether or not Father De la Peña is liable for the loss of the funds

Held:

No, he is not liable because there is no negligent act on the part of Fr.
De la Peña. It was so happened that during that time the money was taken
from him by the U.S. military forces which is unforeseen event. Although
the Civil Code states that “a person obliged to give something is also bound
to preserve it with the diligence pertaining to a good father of a family”, it
also provides, following the principle of the Roman law that “no one shall be
liable for events which could not be foreseen, or which having been
foreseen were inevitable, with the exception of the cases expressly
mentioned in the law or those in which the obligation so declares.”

25
M.H. RAKES VS. THE ATLANTIC GULF AND PACIFIC COMPANY

7 PHIL. 359

Facts:

M.H. Rakes was a black man working as a laborer for Atlantic Gulf in
the early 1900s. One day, they were working in the company’s yard and
they were transporting heavy rails using two cars (karitons?); each car
carrying the opposite ends of the rails. The cars were pulled by rope from
the front and other workers are pushing the cars from behind. There were
no side guards installed on the sides of the cars but the rails were secured
by ropes. The track where the cars move were also weakened by a
previous typhoon. It was alleged that Atlantic’s foreman was notified of said
damage in the tracks but the same were left unrepaired. While the cars
were being moved and when it reached the depressed portion of the track,
and while Rakes was beside one of the cars, the ropes gave in and the
rails slipped thereby crushing his leg and causing it to be amputated.
Rakes sued Atlantic Gulf and he won; he was awarded 5,000 pesos for
damages ($2,500).

Atlantic assailed the decision of the lower court alleging that they
specifically ordered their workers to be walking only before or after the cars
and not on the side of the cars because the cars have no side guards to
protect them in case the rails would slip. Atlantic also alleged that Rakes
should be suing the foreman as it was him who neglected to have the
tracks repaired; that Rakes himself was negligent for having known of the
depression on the track yet he continued to work.

Issue:

Whether or not Atlantic is civilly liable.

HELD:

Yes. Rakes as per the evidence could not have known of the damage
in the track as it was another employee who swore he notified the foreman
about said damage. Further, his lack of caution in continuing to work is not
of a gross nature as to constitute negligence on his part. On the other hand
though, Rakes contributory negligence can be inferred from the fact that he
was on the side of the cars when in fact there were orders from the
company barring workers from standing near the side of the cars. His
disobedient to this order does not bar his recovery of damages though; the
Supreme Court instead reduced the award of damages from 5,000 pesos
to 2,500 pesos.

26
BARREDO

VS

GARCIA AND ALMARIO

JULY 17, 2011

73 PHIL 607

Facts:

At about 1:30am on May 3, 1936, Fontanilla’s taxi collided with a


“kalesa” thereby killing the 16 year old Faustino Garcia. Faustino’s parents
filed a criminal suit against Fontanilla and reserved their right to file a
separate civil suit. Fontanilla was eventually convicted. After the criminal
suit, Garcia filed a civil suit against Barredo – the owner of the taxi
(employer of Fontanilla). The suit was based on Article 1903 of the civil
code (negligence of employers in the selection of their employees).
Barredo assailed the suit arguing that his liability is only subsidiary and that
the separate civil suit should have been filed against Fontanilla primarily
and not him.

Issue:

Whether or not Barredo is just subsidiarily liable

Held:

No. He is primarily liable under Article 1903 which is a separate civil


action against negligent employers. Garcia is well within his rights in suing
Barredo. He reserved his right to file a separate civil action and this is more
expeditious because by the time of the SC judgment Fontanilla is already
serving his sentence and has no property. It was also proven that Barredo
is negligent in hiring his employees because it was shown that Fontanilla
had had multiple traffic infractions already before he hired him – something
he failed to overcome during hearing. Had Garcia not reserved his right to
file a separate civil action, Barredo would have only been subsidiarily liable.
Further, Barredo is not being sued for damages arising from a criminal act
(his driver’s negligence) but rather for his own negligence in selecting his
employee (Article 1903).

27
JUAN BAHIA

VS

FAUSTA LITONJUA AND MARIANO LEYNES

30 PHIL 624 AUGUST 13, 2011

Facts:

On May 14, 1911, Mariano Leynes rented a car from International


Garage owned and operated by Ramon Ramirez. As per the arrangement,
Ramirez would also provide for the driver and a machinist; Ramirez
provided a car which was actually owned by his mother, Fausta Litonjua.
Leynes was to used the car to transport people from the fiesta for profit.
The car was actually brand new and was only used a few hours. On May
16, 2011, while driven on the road, the said automobile, by reason of a
defect in the steering gear, refused to obey the direction of the driver in
turning a corner in the streets, and, as a consequence, ran across the
street and into the wall of a house against which the daughter of Juan
Bahia was leaning at the time. The front of the machine struck the child in
the center of the body and crushed her to death.

Issue:

Whether or not Leynes is liable in the case at bar

Held:

No. While it may be said that, at the time of the accident, the
chauffeur who was driving the machine was a servant of Leynes, in as
much as the profits derived from the trips of the automobile belonged to
him and the automobile was operated under his direction, nevertheless,
this fact is not conclusive in making him responsible for the negligence of
the chauffeur or for defects in the automobile itself. Article 1903 of the Civil
Code not only establishes liability in cases of negligence, but also provides
when that liability shall cease. It says:

The liability referred to in this article shall cease when the persons
mentioned therein proved that they employed all the diligence of a good
father of a family to avoid the damages.

As to selection, Leynes has clearly shown that he exercised the care and
diligence of a good father of a family. He obtained the machine from a
reputable garage and it was, so far as appeared, in good condition. The
workmen were likewise selected from a standard garage, were duly

28
licensed by the Government in their particular calling, and apparently
thoroughly competent. The car had been used but a few hours when the
accident occurred and it is clear from the evidence that Leynes had no
notice, either actual or constructive, of the defective condition of the
steering gear.

While it does not appear that Leynes formulated rules and regulations for
the guidance of the drivers and gave them proper instructions, designed for
the protection of the public and the passengers, the evidence shows that
the death of the child was not caused by a failure to promulgate rules and
regulations. It was caused by a defect in the car as to which Leynes has
shown himself free from responsibility.

29
V. Obligation of indeterminate thing

YU TEK & CO.

VS.

BASILIO GONZALES

Facts:

A contract was executed between the herein parties, whereby Mr.


Basilio Gonzales acknowledges the receipt of P3,000 from Yu Tek & Co.,
and that in consideration of which he obligates himself to deliver to the
latter 600 piculs of sugar of the first and second grade, according to the
result of polarization, within 3 months. There is a stipulation providing for
rescission with P1,200 penalty in case of failure to deliver. No sugar was
delivered, so plaintiff filed a case praying for the judgment of P3,000 plus
P1,200. P3,000 was awarded, thus, both parties appealed.

Issues:

(1) Whether compliance of the obligation to deliver depends upon the


production in defendant’s plantation

(2) Whether there is a perfected sale

(3) Whether liquidated damages of P1,200 should be awarded to the


plaintiff

Held:

(1) There is not the slightest intimation in the contract that the sugar was to
be raised by the defendant. Parties are presumed to have reduced to
writing all the essential conditions of their contract. While parol evidence is
admissible in a variety of ways to explain the meaning of written contracts,
it cannot serve the purpose of incorporating into the contract additional
contemporaneous conditions which are not mentioned at all in the writing,
unless there has been fraud or mistake. It may be true that defendant
owned a plantation and expected to raise the sugar himself, but he did not
limit his obligation to his own crop of sugar. Our conclusion is that the
condition which the defendant seeks to add to the contract by parol
evidence cannot be considered. The rights of the parties must be
determined by the writing itself.

(2) We conclude that the contract in the case at bar was merely an
executory agreement; a promise of sale and not a sale. At there was no
perfected sale, it is clear that articles 1452, 1096, and 1182 are not
applicable. The defendant having defaulted in his engagement, the plaintiff

30
is entitled to recover the P3,000 which it advanced to the defendant, and
this portion of the judgment appealed from must therefore be affirmed.

(3) The contract plainly states that if the defendant fails to deliver the 600
piculs of sugar within the time agreed on, the contract will be rescinded and
he will be obliged to return the P3,000 and pay the sum of P1,200 by way
of indemnity for loss and damages. There cannot be the slightest doubt
about the meaning of this language or the intention of the parties. There is
no room for either interpretation or construction. Under the provisions of
article 1255 of the Civil Code contracting parties are free to execute the
contracts that they may consider suitable, provided they are not in
contravention of law, morals, or public order. In our opinion there is nothing
in the contract under consideration which is opposed to any of these
principles.

31
32
DOMINGO CARABEO VS. SPS. NORBERTO & SUSAN DINGCO

G.R. No. 190823

CARPIO MORALES, J.:

FACTS:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract


denominated as "Kasunduan sa Bilihan ng Karapatan sa Lupa" with
Spouses Norberto and Susan Dingco (respondents) whereby petitioner
agreed to sell his rights over a 648 square meter parcel of unregistered
land situated in Purok III, Tugatog, Orani, Bataan to respondents for
P38,000.

Respondents tendered their initial payment of P10,000 upon signing of the


contract, the remaining balance to be paid on September 1990.
Respondents were later to claim that when they were about to hand in the
balance of the purchase price, petitioner requested them to keep it first as
he was yet to settle an on-going "squabble" over the land. Sometime in
1994, respondents learned that the alleged problem over the land had been
settled and that petitioner had caused its registration in his name on
December 21, 1993 under Transfer Certificate of Title No. 161806. They
thereupon offered to pay the balance but petitioner declined, drawing them
to file a complaint before the Katarungan Pambarangay. No settlement was
reached, however, hence, respondent filed a complaint for specific
performance before the Regional Trial Court (RTC) of Balanga, Bataan.

The trial court ruled in favor of respondents. CA affirmed RTC. Hence this
petition.

ISSUE:

Whether or not the CA erred in their decision by favoring respondents

HELD:

The Supreme Court denied the petition. The court contends that the
KASUNDUAN which pertinent portion reads “Na ako ay may isang partial
na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may
sukat na 27 x 24 metro kuwadrado, ang nasabing lupa ay may sakop na
dalawang punong santol at isang punong mangga, kaya't ako ay
nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco na
ipagbili sa kanila ang karapatan ng nasabing lupa sa halagang
P38,000.00”, That the kasunduan did not specify the technical boundaries

33
of the property did not render the sale a nullity. The requirement that a sale
must have for its object a determinate thing is satisfied as long as, at the
time the contract is entered into, the object of the sale is capable of being
made determinate without the necessity of a new or further agreement
between the parties. As the above-quoted portion of the kasunduan
shows, there is no doubt that the object of the sale is determinate. In the
present case, respondents are pursuing a property right arising from the
kasunduan, whereas petitioner is invoking nullity of the kasunduan to
protect his proprietary interest. Assuming arguendo, however, that the
kasunduan is deemed void, there is a corollary obligation of petitioner to
return the money paid by respondents, and since the action involves
property rights. The death of a client immediately divests the counsel of
authority. Thus, in filing a Notice of Appeal, petitioner's counsel of record
had no personality to act on behalf of the already deceased client who, it
bears reiteration, had not been substituted as a party after his death.

34
SPS. HENRY AND ELIZABETH CO VS. COURT OF APPEALS

GR No. 112330

GONZAGA-REYES, J.:

FACTS:

Plaintiff entered into a verbal contract with defendant for her purchase of
the latter’s house and lot located at 316 Beata St., New Alabang Village,
Muntinlupa, Metro Manila, for and in consideration of the sum of
$100,000.00. One week thereafter, and shortly before she left for the
United States, plaintiff paid to the defendants the amounts of $1,000.00
and P40,000.00 as earnest money, in order that the same may be reserved
for her purchase, said earnest money to be deducted from the total
purchase price. The purchase price of $100,000.00 is payable in two
payments $40,000.00 on December 4, 1984 and the balance of $60,000.00
on January 5, 1985. On January 25, 1985, although the period of payment
had already expired, plaintiff paid to the defendant Melody Co in the United
States, the sum of $30,000.00, as partial payment of the purchase price.
Defendant’s counsel, Atty. Leopoldo Cotaco, wrote a letter to the plaintiff
dated March 15, 1985, demanding that she pay the balance of $70,000.00
and not receiving any response thereto, said lawyer wrote another letter to
plaintiff dated August 8, 1986, informing her that she has lost her ‘option to
purchase’ the property subject of this case and offered to sell her another
property.

ISSUE:

Whether or not the Court of Appeals erred in ordering the COS to return the
$30,000.00 paid by Custodio pursuant to the “option” granted to her over
the Beata property?

HELD:

The Co’s main argument is that Custodio lost her “option” over the Beata
property and her failure to exercise said option resulted in the forfeiture of
any amounts paid by her pursuant to the August letter. An option is a
contract granting a privilege to buy or sell within an agreed time and at a
determined price. Article 1479 of the Civil Code states that an accepted
unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration
distinct from the price.

35
However, the March 15, 1985 letter sent by the COS through their lawyer to
the Custodio reveals that the parties entered into a perfected contract of
sale and not an option contract.

In the case at bar, the property involved has not been delivered to the
appellee. She has therefore nothing to return to the appellants. The price
received by the appellants has to be returned to the appellee as aptly ruled
by the lower court, for such is a consequence of rescission, which is to
restore the parties in their former situations.

36
37
LL AND COMPANY DEVELOPMENT VS. HUANG CHAO CHUN

G.R. NO. 142378

PANGANIBAN, J.:

FACTS:

The case originated from an unlawful detainer case filed by petitioner


before the trial court alleging that respondents Huang Chao Chun and
Yang Tung Fa violated their amended lease contract over a 1,112 square
meter lot it owns, when they did not pay the monthly rentals thereon in the
total amount of P4,322,900.00. It also alleged that the amended lease
contract already expired on September 16, 1996 but respondents refused
to surrender possession thereof plus the improvements made thereon, and
pay the rental arrearages despite repeated demands. The parties entered
into the amended lease contract sometime in August 1991. The same
amended the lease contract previously entered into by the parties on
August 8, 1991.

Respondent were joined by the Tsai Chun International Resources Inc. in


their answer to the Complaint, wherein they alleged that the actual lessee
is the corporation. Respondents and the corporation denied petitioner’s
allegations.

The MTC dismissed the case. The MTC ruled that the lessees could
extend the contract entered into by the parties unilaterally for another five
years for reasons of justice and equity. It also ruled that the corporation’s
failure to pay the monthly rentals as they fell due was justified by the fact
that petitioner refused to honor the basis of the rental increase as stated in
their Lease Agreement. This was affirmed by the RTC. It also held that the
parties had a reciprocal obligation: unless and until petitioner presented
“the increased realty tax,” private respondents were not under any
obligation to pay the increased monthly rental. The decision was likewise
affirmed by the Court of Appeals.

ISSUE:

Whether or not the court could still extend the term of the lease, after its
expiration

HELD:

In general, the power of the courts to fix a longer term for a lease is
discretionary. Such power is to be exercised only in accordance with the
particular circumstances of a case: a longer term to be granted where
equities demanding extension come into play; to be denied where none

38
appear -- always with due deference to the parties’ freedom to contract.
Thus, courts are not bound to extend the lease. Article 1675 of the Civil
Code excludes cases falling under Article 1673 from those under Article
1687. Article 1673 provides among others, that the lessor may judicially
eject the lessee upon the expiration of “the period agreed upon or that,
which is fixed for the duration of the leases.” Where no period has been
fixed by the parties, the courts, pursuant to Article 1687, have the
potestative authority to set a longer period of lease.

In the case, the Contract of Lease provided for a fixed period of five (5)
years -- “specifically” from September 16, 1991 to September 15, 1996.
Because the lease period was for a determinate time, it ceased, by express
provision of Article 1669 of the Civil Code, “on the day fixed, without need
of a demand.” Here, the five-year period expired on September 15, 1996,
whereas the Complaint for ejectment was filed on October 6, 1996.
Because there was no longer any lease that could be extended, the MeTC,
in effect, made a new contract for the parties, a power it did not have.

Furthermore, the extension of a lease contract must be made before the


term of the agreement expires, not after. Upon the lapse of the stipulated
period, courts cannot belatedly extend or make a new lease for the parties,
even on the basis of equity. Because the Lease Contract ended on
September 15, 1996, without the parties reaching any agreement for
renewal, respondents can be ejected from the premises.

39
VI. Fortuitous events

PRECILLANO NECESITO, ETC.

VS.

NATIVIDAD PARAS, ET AL.

G.R. NO. L-10605, JUNE 30, 1958

Facts: A mother and her son boarded a passenger auto-truck of the


Philippine Rabbit Bus Lines. While entering a wooden bridge, its front
wheels swerved to the right, the driver lost control and the truck fell into a
breast-deep creek. The mother drowned and the son sustained injuries.
These cases involve actions ex contractu against the owners of PRBL filed
by the son and the heirs of the mother. Lower Court dismissed the actions,
holding that the accident was a fortuitous event.

Issues:

Whether or not the carrier is liable for the manufacturing defect of the
steering knuckle, and whether the evidence discloses that in regard thereto
the carrier exercised the diligence required by law.

Held: Yes. While the carrier is not an insurer of the safety of the
passengers, the manufacturer of the defective appliance is considered in
law the agent of the carrier, and the good repute of the manufacturer will
not relieve the carrier from liability. The rationale of the carrier’s liability is
the fact that the passengers has no privity with the manufacturer of the
defective equipment; hence, he has no remedy against him, while the
carrier has. We find that the defect could be detected. The periodical, usual
inspection of the steering knuckle did not measure up to the “utmost
diligence of a very cautious person” as “far as human care and foresight
can provide” and therefore the knuckle’s failure cannot be considered a
fortuitous event that exempts the carrier from responsibility.

40
NATIONAL POWER CORPORATION vs. PHILIPP BROTHERS
OCEANIC, INC.

G.R. No. 126204

SANDOVAL-GUTIERREZ, J.:

FACTS:

On May 14, 1987, the National Power Corporation (NAPOCOR) issued


invitations to bid for the supply and delivery of 120,000 metric tons of
imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca,
Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and
was allowed to participate as one of the bidders. After the public bidding
was conducted, PHIBRO’s bid was accepted. NAPOCOR’s acceptance
was conveyed in a letter dated July 8, 1987, which was received by
PHIBRO on July 15, 1987. On July 10, 1987, PHIBRO sent word to
NAPOCOR that industrial disputes might soon plague Australia, the
shipment’s point of origin, which could seriously hamper PHIBRO’s ability
to supply the needed coal. From July 23 to July 31, 1987, PHIBRO again
apprised NAPOCOR of the situation in Australia, particularly informing the
latter that the ship owners therein are not willing to load cargo unless a
“strike-free” clause is incorporated in the charter party or the contract of
carriage. In order to hasten the transfer of coal, PHIBRO proposed to
NAPOCOR that they equally share the burden of a “strike-free” clause.
NAPOCOR refused.

On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and


workable letter of credit. Instead of delivering the coal on or before the
thirtieth day after receipt of the Letter of Credit, as agreed upon by the
parties in the July contract, PHIBRO effected its first shipment only on
November 17, 1987. Consequently, in October 1987, NAPOCOR once
more advertised for the delivery of coal to its Calaca thermal plant.
PHIBRO participated anew in this subsequent bidding. On November 24,
1987, NAPOCOR disapproved PHIBRO’s application for pre-qualification to
bid for not meeting the minimum requirements. Upon further inquiry,
PHIBRO found that the real reason for the disapproval was its purported
failure to satisfy NAPOCOR’s demand for damages due to the delay in the
delivery of the first coal shipment.

ISSUE:

Whether or not the Court of Appeals gravely and seriously erred in


concluding and so holding that PHIBRO’s delay in the delivery of imported

41
coal was due to NAPOCOR’s alleged delay in opening a letter of credit and
to force majeure, and not to PHIBRO’s own deliberate acts and faults

HELD:

Fortuitous events may be produced by two general causes: (1) by Nature,


such as earthquakes, storms, floods, epidemics, fires, etc., and (2) by the
act of man, such as an armed invasion, attack by bandits, governmental
prohibitions, robbery, etc. The term generally applies, broadly speaking, to
natural accidents. In order that acts of man such as a strike, may
constitute fortuitous event, it is necessary that they have the force of an
imposition which the debtor could not have resisted. Hence, by law and by
stipulation of the parties, the strikes which took place in Australia from the
first week of July to the third week of September, 1987, exempted Phibro
from the effects of delay of the delivery of the shipment of coal.

In addition, PHIBRO and NAPOCOR explicitly agreed in Section XVII of the


“Bidding Terms and Specifications” that “neither seller (PHIBRO) nor buyer
(NAPOCOR) shall be liable for any delay in or failure of the performance of
its obligations, other than the payment of money due, if any such delay or
failure is due to Force Majeure.” Specifically, they defined force majeure as
“any disabling cause beyond the control of and without fault or negligence
of the party, which causes may include but are not restricted to Acts of God
or of the public enemy; acts of the Government in either its sovereign or
contractual capacity; governmental restrictions; strikes, fires, floods, wars,
typhoons, storms, epidemics and quarantine restrictions.”

42
THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. vs.
MGG MARINE SERVICES, INC. and DOROTEO GAERLAN

G.R. No. 135645

KAPUNAN, J.:

FACTS:

On March 1, 1987, San Miguel Corporation insured several beer bottle


cases with petitioner Philippine American General Insurance Company.
The cargo were loaded on board the M/V Peatheray Patrick-G to be
transported from Mandaue City to Bislig, Surigao del Sur. After having been
cleared by the Coast Guard Station in Cebu the previous day, the vessel
left the port of Mandaue City for Bislig, Surigao del Sur on March 2, 1987.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and
subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a
consequence thereof, the cargo belonging to San Miguel Corporation was
lost. Subsequently, San Miguel Corporation claimed the amount of its loss
from petitioner.

The Board of Marine Inquiry conducted its own investigation of the sinking
of the M/V Peatheray Patrick-G to determine whether or not the captain
and crew of the vessel should be held responsible for the incident. On May
11, 1989, the Board rendered its decision exonerating the captain and crew
of the ill-fated vessel for any administrative liability. It found that the cause
of the sinking of the vessel was the existence of strong winds and
enormous waves in Surigao del Sur, a fortuitous event that could not have
been forseen at the time the M/V Peatheray Patrick-G left the port of
Mandaue City. It was further held by the Board that said fortuitous event
was the proximate and only cause of the vessel’s sinking.

ISSUE:

Whether the cargo was lost due to a fortuitous event and whether
respondents exercised due diligence to prevent the loss of the cargo

HELD:

Common carriers, from the nature of their business and for reasons of
public policy, are mandated to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported
by them. Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or negligent
if the goods transported by them are lost, destroyed or if the same
deteriorated.

43
However, this presumption of fault or negligence does not arise in the
cases enumerated under Article 1734 of the Civil Code:

Common carriers are responsible for the loss, destruction, or deterioration


of the goods, unless the same is due to any of the following causes only:(1)
Flood, storm, earthquake, lightning or other natural disaster or calamity;(2)
Act of the public enemy in war, whether international or civil;(3) Act or
omission of the shipper or owner of the goods;(4) The character of the
goods or defects in the packing or in the containers;(5) Order or act of
competent public authority.

The findings of the Board of Marine Inquiry indicate that the attendance of
strong winds and huge waves while the M/V Peatheray Patrick-G was
sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed
fortuitous. Thus, the Caprain could not be expected to have foreseen the
unfavorable weather condition that awaited the vessel in Cortes, Surigao
del Sur. It was the presence of the strong winds and enormous waves
which caused the vessel to list, keel over, and consequently lose the cargo
contained therein. The appellate court likewise found that there was no
negligence on the part of the crew of the M/V Peatheray Patrick-G. Hence,
private respondents cannot be held liable for the said loss.

44
REPUBLIC VS. STEVEDORING CORPORATION

G.R. L-21749

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

FACTS:

A barge being towed by tugboats "Bangus" and "Barbero" all owned by


Luzon Stevedoring Corp. rammed one of the wooden piles of the Nagtahan
Bailey Bridge due to the swollen current of the Pasig after heavy rains days
before. The Republic sued Luzon Stevedoring for actual and consequential
damages. Luzon Stevedoring claimed it had exercised due diligence in the
selection and supervision of its employees; that the damages to the bridge
were caused by force majeure; that plaintiff has no capacity to sue; and
that the Nagtahan bailey bridge is an obstruction to navigation.

ISSUE:

Whether or not the collision of appellant's barge with the supports or piers
of the Nagtahan bridge was in law caused by fortuitous event or force
majeure

HELD:

There is a presumption of negligence on part of the employees of Luzon


Stevedoring, as the Nagtahan Bridge is stationary. For caso fortuito or
force majeure (which in law are identical in so far as they exempt an obligor
from liability) by definition, are extraordinary events not foreseeable or
avoidable, "events that could not be foreseen, or which, though foreseen,
were inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore,
not enough that the event should not have been foreseen or anticipated, as
is commonly believed, but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not impossibility to foresee
the same. Luzon Stevedoring knew the perils posed by the swollen stream
and its swift current, and voluntarily entered into a situation involving
obvious danger; it therefore assured the risk, and cannot shed
responsibility merely because the precautions it adopted turned out to be
insufficient. It is thus liable for damages.

45
JACINTO TANGUILING VS. COURT OF APPEALS AND VICENTE
HERCE JR.

G.R. NO. 117190

BELLOSILLO, J.:

Facts:

Petitioner, Jacinto Tanguilig proposed to Vicente Herce Jr., respondent to


construct a windmill system for him. They have agreed on the construction
of the windmill for a consideration of P60,000,000 with a one year guaranty
from the date of completion. Pursuant to the agreement, respondent paid
an amount of P30, 000,000 as down payment and P15, 000,000 as
installment, leaving a balance of P15, 000,000.

Due to refusal and failure of respondent to pay the balance, petitioner filed
a complaint to collect. The respondent filed answered the petition by
claiming that he has paid the balance San Pedro General Merchandising
Inc. (SPGMI) which constructed the deep well to which the windmill system
is to be connected and since the deep well formed part of the system, the
payment tendered to SPGMI should be credited by the petitioner to his
account. Moreover, assuming that he owed the petitioner an amount of
P15, 000, 000, this should be offset by the defects of the windmill system
which caused the structure to collapse after a strong wind hit their place.

Petitioner denied the inclusion of the construction of a deep well in the


system, claiming that the contract price was solely for the assembly of the
windmill and its installation. He also disowned any obligation attributable to
repair or reconstruct the system, insisting that he delivered such in a good
and working condition to respondent who accepted without protest and
since the collapse was attributable to a typhoon, a force majeure, he should
be relieved from any liability.

Issue:

Whether or not Tanguilig is liable to reconstruct the damage windmill.

Held:

The Supreme Court held that in order for a party to claim exemption from
liability by reason of fortuitous event under Art. 1174 of the Civil Code, four
requisites must concur: (a) the cause of the breach of the obligation must
be independent of the will of the debtor; (b) the event must either be
unforeseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and, (d)

46
the debtor must be free from any participation or aggravation of the injury to
the creditor.

In this case, petitioner failed to show that the collapse was due solely to a
fortuitous event. The evidence does not disclose that there was actually a
typhoon on the day of the windmill collapsed. Thus, petitioner was ordered
to reconstruct subject defective windmill system in accordance to the one
year guaranty.

47
VII. Transmissibility of rights

STA. LUCIA REALTY V. SPS. BUENAVENTURA

G.R. No. 177113 Oct 2, 2009

FACTS:

Respondent-spouses Francisco Segismundo and Emilia Buenaventura,


represented by Ricardo Segismundo, filed before the Housing and Land
Use Regulatory Board (HLRUB) a Complaint against petitioner Sta. Lucia
Realty & Development, Inc. for Specific Performance, Damages and
Attorney’s Fees. Respondents alleged that they bought a lot known as Lot
3, Block 4, Phase II at Greenwood Executive Village, Cainta, Rizal from
Loida Gonzales Alfonso; that the said lot is part of a subdivision project
owned and being developed by petitioner; that in the course of the
construction of their house, respondents discovered that their lot had been
subdivided and occupied by Marilou Panlaque and Ma. Veronica Banez;
and that like respondents, the two occupants were also issued a
construction permit by petitioner. Respondents thus demanded from
petitioner the rightful possession of their lot; but to no avail. In its Answer,
petitioner averred that respondents had no cause of action against it
because it has no transaction record regarding Lot 3, Block 4, Phase II; that
the said lot actually belonged to ACL Development Corporation, its joint-
venture partner; that it was RCD Realty Corporation which caused the
subdivision of the lot and constructed separate residential buildings
thereon; that RCD Realty Corporation’s lot was actually Lot 3, Block 4,
Phase II-A; and that respondents, in bad faith and in a retaliatory manner,
erected their own house on Lot 4 which belonged to a different owner.
Petitioner suggested that to remedy the situation, respondents, RCD Realty
Corporation, and the real owner of Lot 4, should agree to a three-way
exchange of their respective properties as it has been verified that the
areas of their lots are the same.

On September 1, 1997, petitioner filed a third-party complaint against ACL


Development Corporation and RCD Realty Corporation. Petitioner prayed
that in the event that it be adjudged liable for any of the claims of
respondents, ACL Development Corporation and RCD Realty Corporation
should be held jointly and severally liable for said claims or an amount
equivalent thereto. ACL Development Corporation alleged that petitioner
was responsible for the issuance of all construction permits on the
subdivision project; hence, it was the one that caused the confusion among
all parties. On the other hand, RCD Realty Corporation alleged that it was
a builder in good faith. On June 16, 1998, the HLURB’s Arbiter for the
National Capital Region Field Office issued a Decision directing
48
respondent Sta. Lucia Realty and Development Corporation, Inc. to cause
to be vacated complainant’s lot denominated as Lot No. 3, Block No. 4,
Phase II, Greenwood Executive Village, Cainta, Rizal; and In the
alternative, the aforesaid respondent is ordered to reimburse the
complainant the current market value of the subdivision lot which shall in no
case be less than P4,500.00 per square meter, the prevailing price in the
area. On June 24, 1999, the HLURB Board of Commissioners affirmed the
Decision of the HLURB Arbiter with modification that the market value of
the subject lot, stated in paragraph 2 of the dispositive portion, be reduced
from P4,500.00 to P3,200.00 per square meter, plus 12% interest per
annum from the time of the filing of the complaint. On July 18, 2003, the
Office of the President issued a Decision affirming the June 24, 1999
Decision of the HLURB Board of Commissioners. Subsequently, it issued
a Resolution dated November 28, 2003 denying petitioner’s Motion for
Reconsideration. On December 21, 2006, the Court of Appeals affirmed the
Decision of the Office of the President. The appellate court found that it
was petitioner who caused the confusion in the identity of the lots by its
issuance of a construction permit to RCD Realty Corporation; that petitioner
was remiss and negligent in complying with its obligations towards its
buyers, their heirs, assignees, and/or successors-in-interest when it failed
to deliver the property described in respondents’ title. On March 21, 2007,
the Court of Appeals denied petitioner’s Motion for Reconsideration.
Hence, this Petition for Review on Certiorari.

ISSUE:

Whether or not the CA erred in affirming that the petitioner is liable in a


complaint for specific performance.

HELD:

The Supreme Court held that the petition was without merit. Article 1311 of
the New Civil Code states that, “contracts take effect only between the
parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law.” In this case, the rights and obligations
between petitioner and Alfonso are transmissible. There was no mention of
a contractual stipulation or provision of law that makes the rights and
obligations under the original sales contract for Lot 3, Block 4, Phase II
intransmissible. Hence, Alfonso can transfer her ownership over the said
lot to respondents and petitioner is bound to honor its corresponding
obligations to the transferee or new lot owner in its subdivision project.
Having transferred all rights and obligations over Lot 3, Block 4, Phase II to
respondents, Alfonso could no longer be considered as an indispensable

49
party. An indispensable party is one who has such an interest in the
controversy or subject matter that a final adjudication cannot be made in
his absence, without injuring or affecting that interest. Contrary to
petitioner’s claim, Alfonso no longer has an interest on the subject matter or
the present controversy, having already sold her rights and interests on Lot
3, Block 4, Phase II to herein respondents. We agree with the appellate
court’s finding that petitioner was remiss and negligent in the performance
of its obligations towards its buyers, their heirs, assignees, and/or
successors-in-interest; and that it was petitioner’s negligence which caused
the confusion on the identity of the lot, which likewise resulted to the
erroneous construction done by RCD Realty Corporation. Petitioner cannot
pass the blame to RCD Realty Corporation because it is undisputed that it
issued a construction permit for Lot 3, Block 4, Phase II – the property of
respondents.

For its gross negligence which resulted to the erroneous construction


on Lot 3, Block 4, Phase II and caused respondents undue damage and
prejudice, petitioner is rightfully adjudged by the HLURB Arbiter liable for
P100,000.00 moral damages, P50,0000.00 exemplary damages, and
P50,000.00 attorney’s fees. We agree with the ruling of the HLURB Arbiter
that it will be more equitable and practicable to rescind the obligation of
petitioner to deliver possession of Lot 3, Block 4, Phase II to respondents;
and in exchange, pay the value of the lot by way of reimbursement in
accordance with the price modification stated by the HLURB Board of
Commissioners. Moreover, this ruling comes within the purview of
respondents’ final prayer for “other reliefs, just or equitable under the
premises” and they are evidently in accord with such outcome as they did
not appeal the case or insist on claiming back their lot. However, we find
that the applicable interest rate for the amount to be reimbursed to
respondents is 6% per annum, reckoned from the time of the filing of the
complaint, because the case at bar involves a breach of obligation and not
a loan or forbearance of money. Thus the petition for Review on Certiorari
is PARTIALLY GRANTED. The assailed Decision of the Court of Appeals
in CA-G.R. SP No. 81732, affirming the July 18, 2003 Decision of the Office
of the President in O.P. Case No. 20-A-8937, and the Resolution denying
the motion for reconsideration are AFFIRMED with MODIFICATION that
the applicable interest rate for the amount to be reimbursed to respondents
is 6% per annum, computed from the time of the filing of respondents’
complaint, and 12% per annum from the finality of the judgment until the
amount awarded is fully paid.

50
JUAN AZARRAGA vs. JOSE RODRIGUEZ

G.R. No. L-3833

TORRES, J.:

FACTS:

December 31, 1898, the defendant Rodriguez executed in favor of Regino


Ramirez a document whereby he bound himself to pay the latter on the
15th of May, 1899, the a sum of money, which Fray Lesmes Perez owed
the said Ramirez, who, in payment of a debt to the plaintiff. Azarraga,
indorsed assigned to the latter the said document from the defendant,
Rodriguez, for the above-stated sum, for account of his indebtedness.

ISSUE:

Whether or not the transfer of rights was valid.

HELD:

The court held that the assignment or transfer of the credit in question,
made by Ramirez, the creditor is valid, and notwithstanding the fact that the
cause or consideration of the transfer is not stated in the endorsement, it
must be presumed that one exists and that it is a lawful one, unless file
debtor should prove the contrary which he has not done in this case.

51
CO BUN CHUN VS. THE OVERSEAS BANK OF MANILA

G.R. NO. L-27342

AQUINO, J.:

FACTS:

Co Bun Chun placed with the Overseas Bank of Manila a time deposit of
P66,000 for a period of one year with interest at 4 1/2 interest per annum.
Four days later, he assigned to the bank the said time deposit as security
for the six-month overdraft accounts of P75,000 each, or a total of
P300,000. It was a condition of the assignment that the time deposit could
not be withdrawn unless the overdraft line, the interest due thereon and
"the expenses incurred" had been fully paid.

The overdraft accounts, due on July 17 and August 10, 1964, were fully
liquidated only on May 21, 1965. The debtors paid P228,881.37. The bank
had to refer the default to its lawyer who undertook the extrajudicial
collection of the amounts due and who charge 5%, or P11,444.06, as
collection expenses.

ISSUE:

Whether or not Co Bun is bound by the terms included in the assignment.

HELD:

The court held that Co Bun Chun is bound by the terms of the deed
assigning his time deposit to the bank. He was not a mere guarantor of the
overdraft accounts. The assignment specifically bound him to pay the
"expenses incurred" for the extrajudicial collection of the overdraft accounts
of what the bank terms "his companies."

52
PADCOM CONDOMINIUM CORPORATION VS. ORTIGAS CENTER
ASSOCIATION, INC.,

G.R. No. 146807

DAVIDE, JR., C.J.:

FACTS:

Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns


and manages the Padilla Office Condominium Building (PADCOM
Building). The land on which the building stands was originally acquired
from the Ortigas & Company, Limited Partnership (OCLP), by Tierra
Development Corporation (TDC) under a Deed of Sale. Among the terms
and conditions in the deed of sale was the requirement that the transferee
and its successor-in-interest must become members of an association for
realty owners and long-term lessees in the area later known as the Ortigas
Center. Subsequently, the said lot, together with improvements thereon,
was conveyed by TDC in favor of PADCOM in a Deed of Transfer.

In 1982, respondent Ortigas Center Association, Inc. was organized to


advance the interests and promote the general welfare of the real estate
owners and long-term lessees of lots in the Ortigas Center. It sought the
collection of membership dues from PADCOM. The corporate books
showed that PADCOM owed the Association P639, 961.47, representing
membership dues, interests and penalty charges from April 1983 to June
1993. The letters exchanged between the parties through the years
showed repeated demands for payment, requests for extensions of
payment, and even a settlement scheme proposed by PADCOM in
September 1990.

In view of PADCOM's failure and refusal to pay its arrears in monthly dues,
including interests and penalties thereon, the Association filed a complaint
for collection of sum of money before the trial court. The Association
averred that purchasers of lands within the Ortigas Center complex from
OCLP are obligated under their contracts of sale to become members of
the Association. This obligation was allegedly passed on to PADCOM
when it bought the lot from TDC, its predecessor-in-interest.

The trial court dismissed the case. However, the Court of Appeals reversed
the same in favor of the Association.

ISSUE:

Whether or not PADCOM is a member of the Ortigas Center Association,


Inc.

53
HELD:

As a lot owner, PADCOM is a regular member of the Association. No


application for membership is necessary. If at all, acceptance by the Board
of Directors is a ministerial function considering that PADCOM is deemed
to be a regular member upon the acquisition of the lot pursuant to the
automatic membership clause annotated in the Certificate of Title of the
property and the Deed of Transfer. PADCOM’s contention that the
automatic membership clause is a violation of its freedom of association
because it was never forced to join the association is likewise untenable.
Nobody forced it to buy the land when it bought the building with the
annotation of the condition or lien on the Certificate of Title thereof and
accepted the Deed. PADCOM voluntarily agreed to be bound by and
respect the condition, and thus to join the Association.

Having ruled that PADCOM is a member of the Association, it is obligated


to pay its dues incidental thereto as mandated by Article 1159 of the Civil
Code which states that “obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good
faith”.

Assuming in gratis argument that PADCOM is not a member of the


Association, it cannot evade payment without violating the equitable
principles underlying quasi-contracts. Article 2142 of the Civil Code
provides that “certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another”.

54
REPUBLIC OF THE PHILIPPINES vs. EMILIO G. GUANZON

G.R. No. L-22374

FERNANDO, J.:

FACTS:

Emilio Guanzon borrowed money from the Bank of Taiwan during the
Japanese occupation. Security was given in the form of a real mortgage on
two parcels, and a chattel mortgage on the crops growing on said parcels.
When the Philippines was liberated in 1946, the mortgage credit was
acquired by the United States, and later transferred to the Philippines
through Property Act of 1946. The Philippines then filed an action for
foreclosure. The lower court dismissed the action firstly on the ground that
the Philippines is not a party-in-interest, and secondly, on the ground that
the foreign law cited cannot be effective in our country.

ISSUE:

Whether or not the Philippines has legal interest in the mortgage


loan.

DECISION:

The Philippines has legal interest in the mortgage loans, because the
mortgage credit was transferred to our government by the U.S. through the
Philippine Property Act of 1946, a foreign law duly acquiesced in by both
the executive and legislative branches of our government.

55
VIII. Pure and Conditional obligations

DAGUHOY ENTERPRISES, INC. VS. PONCE

G.R. NO. L-6515, OCTOBER 18, 1954

96 PHIL 15

FACTS:

In the year 1950, defendant-appellant Domingo Ponce was


chairman and manager and his son Buhay M. Ponce was secretary-
treasurer of the plaintiff corporation Daguhoy Enterprises, Inc. On June 24,
Rita L. Ponce, wife of Domingo, executed in favor of plaintiff corporation a
deed of mortgage over a parcel of land including the improvements thereon
to secure the payment of a loan of P5, 000 granted to her by said
corporation, payable within six years with interests at 12% annum. On
March 10, 1951, Rita L. Ponce with the consent of her husband Domingo
executed another mortgage deed amending the first one, whereby the loan
was increased from P5,000 to P6,190, the terms and conditions of the
mortgage remaining the same. Rita and Domingo presented the two
mortgage deeds for registration in the office of the register of deeds for
registrations in the office of the register of deeds, but the said register
advised the two to cure the defects and furnish the necessary data.
Instead of complying with the suggestion and requirements, the two
withdrew the two mortgage deeds and then mortgaged the same parcel of
land in favor of the Rehabilitation Finance Corporation (RFC) to secure a
loan.

Potenciano Gapol, the majority stockholder in the corporation, upon


learning that the deeds of mortgage were not registered and that they were
withdrawn from the office of the register of deeds and the land covered by
the two deeds was again mortgaged to RFC, he filed a civil case against
the respondents, not only for the amount of the loan of P6,190 but for other
sums, possibly on the theory that the loan in question was granted by
Domingo and Buhay as officers of the corporation.

To account for the amount of the loan, Domingo and his son filed in
court a check of RFC in the amount of P6,190 and an interesr of P266.10 in
favor of the company. Thereafter, Gapol petitioned the court for permission
to withdraw the amounts as payment of the loan. But because the
defendants opposed said petition, the court denied it. Gapol, agreeing to
the cancellation of the mortgage as soon as the amounts are withdrawn
and deposited with the Bank of America, in the name of the company, filed

56
a second petition for withdrawal. However, the defendants failed to agree,
thus it was again denied.

ISSUE:

Whether or not the sum in the form of an RFC check and some
interest deposited in the civil case may be withdrawn to satisfy the
judgment and to pay the loan of P6,190 and part of the interest due.

HELD:

Although the original loan of P5,000 including the increase of


P1,190 was payable within six years from June 1950 and so did not
become due and payable until 1956, the trial court held that under article
1198 of the Civil Code, the debtor lost the benefit of the period by reason of
her failure to give the security in the form of the two deeds of mortgage and
register them, including defendant’s act in withdrawing said two deeds from
the office of the register of deeds and then mortgaging the same property in
favor of the RFC; and so the obligation became pure and without any
condition and consequently, the loan became due and immediately
demandable. Likewise, even if the defendants had already deposited a
certain amount in favor of the corporation, they are not yet relieved from the
payment of interests from the time of the deposit because the loan is not
yet paid.

57
GEORGE L. PARKS

VS

PROVINCE OF TARLAC

49 PHIL. 142

Facts:

In 1910, Concepcion Cirer and James Hill donated parcels of land to


the municipality of Tarlac on the condition that it be used absolutely and
exclusively for the erection of a central school and public parks, the work to
commence within six months. The president of the municipality of Tarlac
accepted and registered the donation. In 1921, Cirer and Hill sold the same
property to George L. Parks. Later on the, the municipality of Tarlac
transferred their rights in the property to the Province of Tarlac.

Parks filed a complaint seeking the annulment of the donation and


asking that he be declared the absolute owner of the property. Parks allege
that the conditions of the donation were not complied with.

Issue:

(1)Whether or not the donation was coupled with a condition


precedent;

(2) Whether or not the action to revoke has prescribed

Held:

No. The condition to erect a school within six months is not a condition
precedent. The characteristic of a condition precedent is that the
acquisition of the right is not effected while said condition is not complied
with or is not deemed complied with. Meanwhile nothing is acquired and
there is only an expectancy of a right. Consequently, when a condition is
imposed, the compliance of which cannot be effected except when the right
is deemed acquired, such condition cannot be a condition precedent. In the
present case the condition that a public school be erected and a public park
be made of the donated land could not be complied with except after giving
effect to the donation. The action to revoke the donation has prescribed.
The prescriptive periods are: 5 years for the revocation by the subsequent
birth of children, 1 year if by reason of ingratitude. If no special period is
prescribed, 10 years, for an onerous donation following the law of contracts
and general rules on prescriptions. The donation was made in 1910, the
cause of action accrued in 1911, while the action to revoke was filed 1924,
twenty three years later.

58
HERMOSA VS. LONGARA

ESTATE OF FERNANDO HERMOSA, SR.

VS.

EPIFANIO LONGARA

GR L-5267, OCTOBER 27, 1953

Facts:

Epifanio Longara filed a claim against the estate of Fernando


Hermosa, Sr. for money owed to him by the deceased. He alleged that the
advances were made "on condition that their payment should be made by
Fernando Hermosa, Sr. as soon as he receives the funds derived from the
sale of his property in Spain." Upon Hermosa's death, the property was
sold and the money sent to the estate in the Philippines.

Hermosa contended on appeal that the obligation contracted by the


intestate was subject to a condition exclusively dependent upon the will of
the debtor and therefore null and void, in accordance with Article 1115 of
the old Civil Code. The Court of Appeals Held that the condition was not
entirely potestative. It further ruled that the payment of the advances did
not become due until the administrator received the money from the buyer
of the property.

Issue:

Is the condition "as soon as he receives funds from the sale of his
property in Spain" valid?

Held:

Yes. The condition upon which the payment of the debt depended on,
"as soon as he (intestate) receive funds derived from the sale of his
property in Spain," is a condition that does not depend exclusively upon the
will of the debtor, but also upon other circumstances beyond his power or
control.

Upon review by the Court of Appeals, the condition implies that the
intestate had already decided to sell his house, or at least that he had
made his creditors believe that he had done so, and all that is needed to
make his obligation demandable is that the sale be consummated and the
price thereof remitted to the islands.

59
LABAYEN VS TALISAY-SILAY MILLING CO. INC.

G.R. NO. L-29298 (1928)

PONENTE: JUSTICE MALCOM

Facts:

Reynaldo Labayen and Teodoro Labayen are the owners of Dos


Hermanos, a hacienda in Talisay, Negros Occidental. They entered into a
contract with Talisay-Silay Milling Company Incorporated, also called the
Central, for the milling of sugar canes from their hacienda.

Stipulated in the contract is the construction of a railroad with three and a


half meters right of way and maintenance of such railroad by the central.
However, the central was only able to construct a railroad reaching
hacienda Esmeralda No. 2, four kilometers away from hacienda Dos
Hermanos. For a railroad to extend to hacienda Dos Hermanos, the
construction would require a gradual elevation of 4.84% to 7%, would
necessitate 26 curves and would cost Php80,000.00. A civil engineer
testifying in behalf of the defendants allege that to construct such would be
possible but it would be very dangerous.

This led to an action for damages in the amount of Php 28,620.00 by the
petitioners for the alleged breach of contract to grind sugar canes at the
Court of First Instance of Negros Occidental. The court ruled against the
petitioners and on the cross-complaint of the defendants, condemned the
petitioners to pay the sum of Php 12, 114.00.

Issue:

Whether or not the action for damages should prosper.

Held:

No. If the obligor voluntarily prevented the fulfillment of the condition of the
obligation, such condition shall be deemed fulfilled (article 1186 of the New
Civil Code). The path of the railroad has to pass through the haciendas of
Esteban de la Rama. Since he would not grant permission to use his land,
therefore preventing the compliance of the obligation to grind, the action
cannot prosper.

60
ADDISON

VS.

MARCIANA FELIX AND BALBINO TIOCO

38 PHIL 404

AUGUST 1918

Facts:

The defendants-appellees spouses purchased from plaintiff-appellant


four parcels of land to which Felix paid, at the time of the execution of the
deed, the sum of P3,000 on account of the purchase price. She likewise
bound herself to the remainder in installments, the first of P 2,000 on July
15, 1914, the second of P5,000 thirty days after the issuance to her of a
certificate of title under the Land Registration Act, and further, within ten
years from the date of such title, P10 for each cocoanut tree in bearing and
P5 for each such tree not in bearing that might be growing on said parcels
of land on the date of the issuance of title to her, with the condition that the
total price should not exceed P85,000. It was further stipulated that Felix
was to deliver to the Addison 25% of the value of the products that she
might obtain from the four parcels "from the moment she takes possession
of them until the Torrens certificate of title be Issued in her favor," and that
within 1 year from the date of the certificate of title in her favor, Marciana
Felix may rescind the contract of purchase and sale.

In January 1915, Addison , filed suit in the CFI of Manila to compel


Felix to pay the first installment of P2,000, demandable, in accordance with
the terms of the contract of sale. The defendants Felix and her husband
Tioco contended that Addison had absolutely failed to deliver the lands that
were the subject matter of the sale, notwithstanding the demands they
made upon him for this purpose. The evidence adduced shows Addison
was able to designate only two of the four parcels, and more than two-
thirds of these two were found to be in the possession of one Juan
Villafuerte, who claimed to be the owner of the parts he so occupied. The
trial court Held the contract of sale to be rescinded and ordered Addison to
return to Felix the P3,000 paid on account of the price, together with
interest thereon at the rate of 10% per annum.

ISSUE:

Whether or not there is a valid delivery and, therefore, a transfer of


ownership of the thing sold

Held:

61
The Supreme Court affirmed the decision of the lower court, with
modification that the interest thereon will be at the rate of 6% (instead of
10%) per annum from the date of the filing of the complaint until payment.

The thing is considered to be delivered when it is placed "in the


hands and possession of the vendee." It is true that the same article
declares that the execution of a public instrument is equivalent to the
delivery of the thing which is the object of the contract, but, in order that this
symbolic delivery may produce the effect of tradition, it is necessary that
the vendor shall have had such control over the thing sold that, at the
moment of the sale, its material delivery could have been made. Symbolic
delivery through the execution of a public instrument is sufficient when
there is no impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor. But if,
notwithstanding the execution of the instrument, the purchaser cannot have
the enjoyment and material tenancy of the thing and make use of it himself
or through another in his name, because such are opposed by a third
person’s will, then the delivery has not been effected. In the case at bar,
therefore, it is evident, that the mere execution of the instrument was not a
fulfillment of the vendor's obligation to deliver the thing sold, and that from
such non-fulfillment arises the purchaser's right to demand, as she has
demanded, the rescission of the sale and the return of the price.

62
TRILLANA

VS.

QUEZON COLLEGE,

G. R. NO. L-5003, JUNE 27, 1953

Facts:

Damasa Crisostomo subscribed 200 shares of capital stock with a


par value of P100 each through a letter sent to the Board of Trustees of the
Quezon College, enclosed with the letter are a sum of money as her initial
payment and her assurance of full payment after she harm vested fish. On
October 26, 1948, Damasa Crisostomo passed away. As no payment
appears to have been made on the subscription mentioned in the foregoing
letter, the Quezon College, Inc. presented a claim before the CFI of
Bulacan in her testate proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital stock of the Quezon
College, Inc. which was then opposed by the administrator of the estate.

Issue:

Whether or not the condition entered into by both parties are valid.

Held:

No, under Article 1115 of the old Civil Code, it provides as follows
that the fulfillment of the condition should depend upon the exclusive will of
the debtor, the conditional obligation shall be void.

63
REPUBLIC OF THE PHILIPPINES vs. EMILIO G. GUANZON

G.R. No. L-22374

FERNANDO, J.:

FACTS:

Emilio Guanzon borrowed money from the Bank of Taiwan during the
Japanese occupation. Security was given in the form of a real mortgage on
two parcels, and a chattel mortgage on the crops growing on said parcels.
When the Philippines was liberated in 1946, the mortgage credit was
acquired by the United States, and later transferred to the Philippines
through Property Act of 1946. The Philippines then filed an action for
foreclosure. The lower court dismissed the action firstly on the ground that
the Philippines is not a party-in-interest, and secondly, on the ground that
the foreign law cited cannot be effective in our country.

ISSUE:

Whether or not the Philippines has legal interest in the mortgage loan

HELD:

The Philippines has legal interest in the mortgage loans, because the
mortgage credit was transferred to our government by the U.S. through the
Philippine Property Act of 1946, a foreign law duly acquiesced in by both
the executive and legislative branches of our government.

64
JESUS SAN AGUSTIN VS. COURT OF APPEALS

G.R. NO. 121940

QUISUMBING, J.:

FACTS:

GSIS sold to Macaria Vda de Caiquep, a parcel or residential land located


at Pasig City, part of the GISIS Low Cost Housing Project evidenced by a
Deed of Absolute Sale. The Register of Deeds of Rizal issued in the name
of Caiquep, Transfer Certificate of Title. The next day, Caiquep sold the
subject lot to private respondent Maximo Menez. Being suspected as a
subversive, military men ransacked Menez’s’ house in Rizal. He
surrendered to the authorities and was detained for two years. When
released, another order for his arrest was issued so he hid in Mindanao for
another four years. Later on, he discovered that the subject TCT was
missing. He consulted a lawyer but the latter did not act immediately on
the matter. Upon consulting a new counsel, an Affidavit of Loss was filed
with the Register of Deeds and a certified copy of TCT was issued. Private
respondent also declared the property for tax purposes and obtained a
certification thereof from the Assessor’s office. His search for the
registered owner to different parts of the country failed prompting the
former to file a petition for the issuance of owner’s duplicate copy to replace
the lost one. During the hearing, only Menez and counsel were present
because the Register of Deeds and the Provincial Prosecutor were not
notified. The trial court granted his petition after Menez presented his
evidence ex parte. San Agustin claimed this was the first time he became
aware of the case of his aunt Ma. Vda de Caiquep and the present
occupant of the property. He filed a Motion to Reopen Reconstitution
Proceedings but RTC denied said motion. Petitioner moved for motion for
re consideration but was again denied.

ISSUE:

Whether or not petitioner is bound by the contract entered into by his


predecessor-in-interest.

HELD:

The petitioner is bound by contracts entered into by his predecessor’s-in-


interest. In this case, the the GSIS has not filed any action for the
annulment of Deed of Absolute Sale of the lot that the latter sold to

65
Caiquep, nor the forfeiture of the lot in question. In our view, the suit filed
by the rightful party, the GSIS. For now, the said contract of sale is binding
upon heirs of Macaria Vda de Caiquep., including petitioner who alleges to
be one of her heirs, in line with the rule that heirs are bound by contracts
entered into by their predecessors-in-interest.

66
ERNEST BERG VS. MAGDALENA ESTATE, INC.

G.R. NO. L-3784

BAUTISTA ANGELO, J.:

FACTS:

The complaint avers that plaintiff and defendant are co-owners of said
property, the former being the owner of one-third interest and the latter of
the remaining two-thirds. The division is asked because plaintiff and
defendant are unable to agree upon the management of the property and
upon the partition thereof.

Defendant answered setting up a special defense and counterclaim. As a


special defense, defendant claims that on September 22, 1943, it sold to
plaintiff one-third of the property in litigation subject to the express condition
that should either vendor or vendee decide to sell his undivided share, the
party selling would grant to the other party first an irrevocable option to
purchase the same at the seller’s price. It avers that in January 1946,
plaintiff fixed the sum of P200, 000 as the price of said share and offered to
sell it to defendant, which offer was accepted and for the payment of said
price plaintiff gave defendant a period of time which, including the
extensions granted would expire on May 31, 1947. Defendant claims that
in spite of its acceptance of the offer, plaintiff refused to accept the
payment of the price, and for this refusal defendant suffered damages in
the amount of P100, 000. For these reasons, defendant asks for specific
performance.

ISSUE:

Whether or not the obligation is one subject to a term

HELD:

The obligation is rather subject to a condition. Under Article 1125 of the old
Civil Code, obligations with a term, for the fulfillment of which a day certain
has been fixed, shall be demandable only when the day arrives. A day
certain is understood to be that which must necessarily arrive, even though
it is not known when. In order that an obligation may be with a term, it is,
therefore, necessary that it should arrive, sooner or later; otherwise, if its
arrival is uncertain, the obligation is conditional.

67
Viewing in this light the clause on which defendant relies for
the enforcement of its right to buy the property, it would seem that it is not a
term, but a condition. Considering the first alternative, that is, until
defendant shall have obtained a loan from the National City Bank of New
York, it is clear that the granting of such loan is not definite and cannot be
held to come within the terms “day certain.” And if it is considered that the
period given was until such time as defendant could raise money from
other sources, then it is also to be indefinite and contingent, and so it is
also a condition and not a term within the meaning of the law. In any event,
it is apparent that the fulfillment of the condition contained in this second
alternative is made to depend upon defendant’s exclusive will, and viewed
in this light, the plaintiff’s obligation to sell did not arise, for, under article
1115 of the old Civil Code, “when the fulfillment of the condition depends
upon the exclusive will of the debtor the conditional obligation shall be
void.”

68
CENTRAL PHILIPPINE UNIVERSITY VS. COURT OF APPEALS

G.R. NO. 112230

BELLOSILLO, J.:

FACTS:

In 1939, Don Ramon Lopez Sr. executed a deed of donation in favor


of CPU together with the following conditions:

a) The land should be utilized by CPU exclusively for the


establishment & use of medical college;

b) The said college shall not sell transfer or convey to any 3rd party;

c) The said land shall be called “Ramon Lopez Campus” and any
income from that land shall be put in the fund to be known as “Ramon
Lopez Campus Fund”.

However, on May 31, 1989, PR, who are the heirs of Don Ramon
filed an action for annulment of donation, reconveyance & damages against
CPU for not complying with the conditions. The heirs also argued that CPU
had negotiated with the NHA to exchange the donated property with
another land owned by the latter.

Petitioner alleged that the right of private respondents to file the


action had prescribed.

ISSUE:

Whether or not the petitioner failed to comply the resolutely conditions


annotated at the back of petitioner’s certificate of title without a fixed period
when to comply with such conditions?

HELD:

Under Art. 1181, on conditional obligations, the acquisition of rights as well


the extinguishment or loss of those already acquired shall depend upon the
happening of the event which constitutes the condition. Thus, when a
person donates land to another on the condition that the latter would build
upon the land a school is such a resolutory one. The donation had to be
valid before the fulfillment of the condition. If there was no fulfillment with
the condition such as what obtains in the instant case, the donation may be
revoked & all rights which the donee may have acquired shall be deemed
lost & extinguished.

More than a reasonable period of fifty (50) years has already been
allowed petitioner to avail of the opportunity to comply with the condition

69
even if it be burdensome, to make the donation in its favor forever valid.
But, unfortunately, it failed to do so. Hence, there is no more need to fix the
duration of a term of the obligation when such procedure would be a mere
technicality and formality and would serve no purpose than to delay or lead
to an unnecessary and expensive multiplication of suits.

Records are clear and facts are undisputed that since the execution
of the deed of donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as donee. Petitioner has
slept on its obligation for an unreasonable length of time. Hence, it is only
just and equitable now to declare the subject donation already ineffective
and, for all purposes, revoked so that petitioner as donee should now
return the donated property to the heirs of the donor, private respondents
herein, by means of reconveyance.

70
IX. Obligations with a period

FELIX ULLMAN

VS.

VICENTE HERNAEZ

30 PHIL 69

Facts:

Vicente Hernaez contracted a debt in favor of Felix Ullman on April 5,


1900, amounting to 3,525 pesos Mexican currency, to be paid says
Hernaez, “as soon as I receive the portion that as an heir must come to me
from the estate of Juana Espinosa, widow of Hernaez: without prejudice to
paying on it, during the time that may elapse until I get possession of said
property, interest at six per cent a year, but not, however, compound
interest.”

On June 2, 1913, Ullman filed suit against Vicente Hernaez, alleging


therein, that the defendant did on January 5, 1913, cede, alienate, and
convey to Rosendo Hernaez for the sum of twenty-five thousand pesos
Philippine currency, all his rights and rights of action in the property left by
the deceased Juana Espinosa.

This fact was expressly admitted by the defendant in the agreement


of Facts. Moreover, the instrument of indebtedness was inserted in the
complaint and has not been denied under oath in the reply.

Issue:

Can the right of action for nullity of the defendant prosper?

Held:

No. True it is that the defendant lacked three months and fifteen days
when he executed the note for the sum stated, the price of some jewelry he
had bought from the plaintiff; but the attained his majority on July 20 of the
same year 1900, and he did not then nor in the four years following attempt
to enforce the nullity that he now assigns as a ground of error.

Under the Civil Code, the right of action for nullity shall only last four years
when it refers to contracts executed by minors or incompetents, from the
date when they were released from guardianship.

71
SEOANE

VS

FRANCO

GR NO. L-7859, 12 FEBRUARY 1913

MORELAND, J.

Facts:

Plaintiff borrowed money from defendant. To secure the payment of


the loan, a mortgage was executed on the 13th of October 1884. Plaintiff
agreed to pay the sum little by little. Defendant demanded payment of the
loan in 1911 on the 8th of August. At this point, nothing has been paid
either of the principal or of interest. The Court of First Instance decided in
favor of plaintiff and Held that the right of action upon the mortgage debt,
which was the basis of the claim against the plaintiff’s estate, had
prescribed. Defendant appealed.

Issue:

Has the defendant’s cause of action upon the mortgage debt


prescribed?

Held:

Yes. The Court Held that the applicable provision in this case is
Article 1128 of the Civil Code. The nature of the obligation shows that the
duration of the period for the payment thereof was left to the will of the
debtor by stating that the same can pay little by little. In such a case, the
defendant should first petition the court to fix a date on which the
instrument should become due and payable as per Art. 1128. Only after the
fixing of the date can a suit for recovery of the amount can be made. As
such, the instant suit for recover of the money is premature. Though the
defendant can hereafter file a suit for the court to fix a date, the same will
not prosper because his cause of action has already prescribed. Section 28
of the Code of Civil Procedure states that all rights of action which have
already accrued must be vindicated by the commencement of an action to
enforce the same within ten (10) years after the Code comes into effect.

72
PATENTE

VS.

OMEGA

L-4433

Facts:

In Omega's promissory note to Patente, Omega was set to pay his


indebtedness to Patente which amounted to 1,600 pesos “as soon as
possible or as soon as he has the money”. The trial court ruled that the
obligation is pure and unconditional since the fulfillment of the condition
was left solely to the will of the debtor-defendant, and thus, a nullity
pursuant to Art. 1115 of the CC. (Art. 1182 of the New CC). Hence, this
appeal.

Issue:

Whether or not a condition in an obligation which is nullified due to


the fact that its compliance is left to the sole will of the debtor, make the
obligation a pure and unconditional obligation

Held:

No, it does not make it a pure and unconditional obligation. The


scribal intention was to grant the debtor a deadline for the payment, to
make it a pure and unconditional obligation is to impose a completely
different approach than agreed upon. To leave the condition of the payment
at the sole discretion of the creditor is as unfair as to leave it at the sole
discretion of the debtor. A third party must determine the period, taking into
account the circumstances under which the loan was granted. Thus, when
the time for payment of an obligation is left to the sole will of the debtor,
and the condition is annulled, the obligation does not become a pure and
unconditional obligation. The recourse of the creditor is to go to court and
ask for setting a time limit for the payment. Appealed decision is reversed.

73
GAITE

VS.

FONACIER

L-11827

Facts:

Gaite was appointed by Fonacier as attorney-in-fact to contract any


party for the exploration and development of mining claims. Gaite executed
a deed of assignment in favor of a single proprietorship owned by him. For
some reasons, Fonacier revoked the agency, which was acceded to by
Gaite, subject to certain conditions, one of which being the transfer of ores
extracted from the mineral claims for P75,000, of which P10,000 has
already been paid upon signing of the agreement and the balance to be
paid from the first letter of credit for the first local sale of the iron ores. To
secure payment, Fonacier delivered a surety agreement with Larap Mines
and some of its stockholders, and another one with Far Eastern Insurance.
When the second surety agreement expired with no sale being made on
the ores, Gaite demanded the P65,000 balance. Defendants contended
that the payment was subject to the condition that the ores will be sold.

Issues:

Whether the sale is conditional or one with a period

Held:

The shipment or local sale of the iron ore is not a condition precedent
(or suspensive) to the payment of the balance of P65,000.00, but was only
a suspensive period or term. What characterizes a conditional obligation is
the fact that its efficacy or obligatory force (as distinguished from its
demandability) is subordinated to the happening of a future and uncertain
event; so that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed.

A contract of sale is normally commutative and onerous: not only does


each one of the parties assume a correlative obligation (the seller to deliver
and transfer ownership of the thing sold and the buyer to pay the price),but
each party anticipates performance by the other from the very start. While
in a sale the obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes the risk of
receiving nothing for what he gives (as in the case of a sale of hopes or
expectations, emptio spei), it is not in the usual course of business to do
so; hence, the contingent character of the obligation must clearly appear.

74
Nothing is found in the record to evidence that Gaite desired or assumed to
run the risk of losing his right over the ore without getting paid for it, or that
Fonacier understood that Gaite assumed any such risk. This is proved by
the fact that Gaite insisted on a bond a to guarantee payment of the
P65,000.00, an not only upon a bond by Fonacier, the Larap Mines &
Smelting Co., and the company's stockholders, but also on one by a surety
company; and the fact that appellants did put up such bonds indicates that
they admitted the definite existence of their obligation to pay the balance of
P65,000.00.

The appellant have forfeited the right court below that the appellants have
forfeited the right to compel Gaite to wait for the sale of the ore before
receiving payment of the balance of P65,000.00, because of their failure to
renew the bond of the Far Eastern Surety Company or else replace it with
an equivalent guarantee. The expiration of the bonding company's
undertaking on December 8, 1955 substantially reduced the security of the
vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite
considered essential and upon which he had insisted when he executed
the deed of sale of the ore to Fonacier.

75
ERNEST BERG

V.

MAGDALENA ESTATE, INC.

(92 PHIL. 110), OCTOBER 17, 1952

Facts:

Ever since September 22, 1943 plaintiff, Berg and defendants under
Magdalena Estate, Inc. were co-owners of the Property, Crystal Arcade.
One third of it belonged to the plaintiff-petitioner and two thirds, to the
defendant-respondent. These parties executed a deed of sale that should
either of them sell his share, the other party will have an irrevocable option
to purchase it at the seller’s at the seller’s price. The two, eventually had a
disagreement on what really happened with regard to the deal.

On January 1946, the petitioner offered his share for Php 200,000
and was accepted by the defendant, including the stipulation that Berg was
giving the defendant a period of time which, including the extensions
granted, would expire on May 31, 1947.

The defendant claimed that, in spite of the acceptance of the offer,


plaintiff refused to accept the payment of the price and that because of this,
they suffered damages in the amount of Php 100,000 and asked for
specific performance. The plaintiff argued that this transaction, referred to
by the defendant, is not supported by any note or memorandum subscribed
by the parties and that this transaction falls under the statue of frauds and
cannot be the basis of the defendant’s special defense.

In an application to sell or dispose their properties, both parties filed


for separate applications regarding the subject property. In the defendant’s
application, it desired a license in order “to use a portion of the P400,000
requested as a loan from the National City Bank of New York, Manila, or
from any other bank in Manila, together with funds to be collected from old
and new sales of his real estate properties, for the purchase of the one-
third (1/3) of the Crystal Arcade property in the Escolta, Manila, belonging
to Mr. Ernest Berg.

The lower court found that there was no agreement reached between
the parties regarding the purchase and sale of the property in question, it
granted the case in favor of the petitioner.

76
Issue:

Whether or not the term of payment stipulated in the defendant’s


application for license to sell/purchase, “until they have obtained Php
400,000 from the National City Bank of New York, or after it has obtained
funds from other sources”,is in line with the Civil Code

Held:

Yes. The term of payment stipulated in the defendant’s application for


license to sell/purchase, “until they have obtained Php 400,000 from the
National City Bank of New York, or after it has obtained funds from other
sources”,is in line with the Civil Code (Art. 1125).

In considering this article as to which the defendant relies for the


enforcement of its right to buy the property, it would seem that it is not a
term, but a condition. Considering the first alternative, that is, until
defendant shall have obtained a loan from the National City Bank of New
York – it is clear that the granting of such loans is not definite and cannot
be Held to come within the terms “day certain” provided for in the Civil
code, for it may or it may not happen.

The loan did not materialize. And if we consider that the period given
was until such time as defendant could raise money from other sources, we
also find it to be indefinite and contingent and so it is also a condition and
not a term within the meaning of the law.

Both parties did not put the terms in their agreement clearly in writing.
The lower courts’ judgment is affirmed.

77
ABESAMIS

VS.

WOODCRAFT WORKS, INC.

Facts:

This case was a contract in the delivery of logs before the end of July
1951 but not earlier than April of same year as an option depending on
availability of logs and vessels between Woodcraft Works and Abesamis
Shipping. The failure of the appellant to send vessels to Dolores, Samar
was because of the storm that swept away the entire log on May 5, 1951.
Under contract the delivery period of date was accomplished and that have
been agreed to avoid the storm. Woodcraftworks sued Abesamis to bear all
loss as a result of typhoon

Issue:

Whether or not Abesamis is liable to pay of the loss?

Held:

As a consequence of typhoon that struck on May 5 there was yet no


delay on the part of the Abasamis. The obligation between parties is a
reciprocal one, appellant to furnish the vessel and appellee to furnish the
logs. It was also the obligation to benefit both parties. The period that
agreed upon are decided to actually avoid typhoons. The corresponding
loss must be shouldered by the appellee.

78
ALBERTO BARRETTO

VS

SANTA MARINA

26 PHIL. 440

Facts:

Alberto Barretto alleges that he is the owner of the whole hacienda


called Balintagac. He was in possession of the said hacienda quietly,
peacefully, and continuously, as were his predecessors since the year
1884 until May, 1912. Later on, defendant Leonardo F. Barretto alleging
himself to be the owner of a certain part of said hacienda illegally and
unduly usurped a portion of land of the said hacienda. Since that time the
defendant had been receiving two-thirds of the fruits which the usurped
portion annually produced, which amounted to 33 uyones and 145 and 33
per cent cavanes of rice at P8 per upon and P2 a cavan, and whose value
amounts to the sum P554; that the defendant refused to return that portion
of land usurped together with the fruits received, or their value, in spite of
the fact that he has been required to do so in writing by the plaintiff.

Issue:

Held:

As the extinguishment of the right of the creditor and the


termination of the use and possession of the real property depend upon
the entire payment of the debt and its interest, it is proper - the liquidation
of accounts having been made to fix definitely the sums of the amount
which the debtors had paid on account of the capital and interests and
which had been really received by the creditor. The contract of agency can
subsist only so long as the principal has confidence in his agent because
from the moment such confidence disappears and although there be a
fixed period for the exercise of the office of the agent, a principal has a
perfect right to revoke the power that he had conferred upon the agent
owing to the confidence he had in him and which for sound reasons had
ceased to exist.

79
TIGLAO

VS.

MANILA RAILROAD

98 PHIL 181

Facts

The petitioners are 35 retired employees of the defendant company


who sought to recover salary differential due to them under MOA with
defendant. Under the MOA, the employees affected by the standardized
plan will receive standardized salaries provided that any salary differential
from date of exhaustion will be paid when funds for the purpose are
available.

Issue

Whether or not a company may be excused for payment of salary


differential of its retired employees when the agreement is subject to
condition that “salary differentials from date of exhaustion will be paid when
funds for the purpose are available”, if the company is losing its business?

Held

Art. 1180 of the Civil Code states that when the debtor binds himself
to pay when his means permit him to do so, the obligation shall be deemed
to be one with a period, subject to the provisions of Article 1197. The MOA
does not stipulate that salary differential shall be paid only from surplus
profits. And since it is not appearing that defendant was bankrupt – the
obligation to pay said salary diff may be considered as one with term
whose duration has been left to the will of the debtor, so that pursuant to
art. 1197, the duration of the term may be fixed by courts

80
MILLARE

VS.

HERNANDO

(151 SCRA 484)

FELICIANO, J.:

Facts:

A five-year Contract of Lease was executed between Millare as


lessor and the Spouses Co as lessee. They agreed on a monthly rental
rate of P350 of the “People’s Restaurant” until May 31, 1980.

During the last week of May 1980, Millare informed the Co-spouses
that they could continue leasing the property so long as they were
amenable to paying P1,200 a month. The Spouses Co counter-offered with
P700 a month. At this point, Millare allegedly stated that the amount of
monthly rentals could be resolved at a later time since “the matter is simple
among us”, which alleged remark was supposedly taken by the spouses Co
to mean that the Contract of Lease had been renewed, prompting them to
continue occupying the subject premises and to forego their search for a
substitute place to rent. In contrast, the lessor flatly denied ever having
considered, much less offered, a renewal of the Contract of Lease.

On July 22 and 28, 1980, Millare sent demand letters requesting


them to vacate as she had no intention of renewing the Contract of Lease,
which had expired. The spouses Co signified their intention to deposit the
P700 monthly rental in court, in view of Mrs. Millare’s refusal to accept their
counter-offer.

As the parties were filing suits against each other in court, the trial
judge rendered a “Judgment by Default” dated 26 November 1980 ordering
the renewal of the lease contract for a term of 5 years counted from the
expiration date of the original lease contract, and fixing monthly rentals
thereunder at P700.00 a month, payable in arrears.

Issue:

Whether the court may order the renewal of the Contract of Lease for
another five-year term at P700 a month

Held:

No, it cannot order the renewal of the Contract of Lease.

81
The respondent judge cited Articles 1197 and 1670 of the Civil Code
to sustain the “Judgment by Default” by which he ordered the renewal of
the lease for another term of five years and fixed monthly rentals
thereunder at P700.00 a month.

In every case, the courts shall determine such period as, under the
circumstances, may have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.” (Italics
supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the


Contract of Lease did in fact fix an original period of five years, which had
expired. It is also clear from paragraph 13 of the Contract of Lease that the
parties reserved to themselves the faculty of agreeing upon the period of
the renewal contract. The second paragraph of Article 1197 is equally
clearly inapplicable since the duration of the renewal period was not left to
the will of the lessee alone, but rather to the will of both the lessor and the
lessee. Most importantly, Article 1197 applies only where a contract of
lease clearly exists. Here, the contract was not renewed at all, there was in
fact no contract at all the period of which could have been fixed.

The parties do not pretend that the continued occupancy of the


leased premises after 31 May 1980, the date of expiration of the contract,
was with the agreement of the lessor. The implied new lease could not
possibly have a period of five years, but rather would have been a month-
to-month lease since the rentals (under the original contract) were payable
on a monthly basis. At the latest, an implied new lease (had one arisen)
would have expired as of the end of July 1980 in view of the written
demands served by the petitioner upon the private respondents to vacate
the previously leased premises,

It follows that the respondent judge’s decision requiring renewal of


the lease has no basis in law or in fact. Save in the limited and exceptional
situations envisaged in Articles 1197 and 1670 of the Civil Code, which do
not obtain here, courts have no authority to prescribe the terms and
conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L.
Reyes in Republic vs. Philippine Long Distance Telephone, Co.,

“Parties cannot be coerced to enter into a contract where no


agreement is had between them as to the principal terms and conditions of
the contract. Freedom to stipulate such terms and conditions is of the
essence of our contractual system, and by express provision of the statute,
a contract may be annulled if tainted by violence, intimidation or undue
influence (Article 1306, 1336, 1337, Civil Code of the Philippines).

82
MARIANO NEPOMUCENO

VS.

NARCISO

Facts:

On November 14, 1938, appellant Mariano Nepomuceno executed a


mortgage in favor of the appellees on a parcel of land situated in the
municipality of Angeles, Province of Pampanga, two years before the
maturity of said mortgage (On September 30, 1943); the parties executed
a notarial document entitled “Partial Novation of Contract” On July 21,
1944, the mortgagor and his wife Agueda G. de Nepomuceno filed their
complaint in this case against the mortgagees, which complaint, as
amended on September 7, 1944, alleged the execution of the contract of
mortgage and its principal novation Appellants contend that the stipulation
in the contract of September 30, 1943, that “while the war goes on the
mortgagor, his administrators or assigns cannot redeem the property
mortgaged,” is against public policy and therefore null and void.

Issue:

Whether or not it is against public policy and a restraint on the


freedom of commerce to compel a debtor not to release his property from a
lien

Held:

Article 1127 provides: Whenever a term for the performance of an


obligation is fixed, it is presumed to have been established for the benefit of
the creditor and that of the debtor, unless from its tenor or from other
circumstances it should appear that the term was established for the
benefit of one or the other. By mutual agreement of the parties that term
was modified on September 30, 1943, by reducing the interest to 6 per cent
per annum from December 8, 1941, until the end of the war and by
stipulating that the mortgagor shall not pay off the mortgage while the war
went on.

83
ARANETA

VS.

PHIL. SUGAR ESTATE DEVT., INC

20 SCRA 330

Facts

Petitioner and Respondent entered into a contract of purchase and


sale with mortgage whereas the former sold a big tract of land to latter
subject to following conditions:

1) That buyer will build on said land the Sto. Domingo Church
and Convent and;

2) That seller will construct streets surrounding the land which


shall be named “Sto. Domingo Avenue”

Respondent finished the construction of the church will Petitioner was


unable to finish the construction of the streets because a third party,
occupying the middle part thereof, refuse to vacate the same

The respondent filed a complaint seeking petitioner to comply with


the obligation and/or pay damages in case of failure/refusal

Regional Trial Court and Court of Appeals decided in favor of


Respondent and gave the petitioner 2 years to comply with its obligation

Held:

Art. 1197 of the Civil Code provides that if from the nature and the
circumstances it can be inferred that a period was intended, the Court must
decide what period was probably contemplated by parties.

There is no basis to support the conclusion that period should be set


at two years after finality of judgment, considering that the land was
occupied by squatters. Parties must comply with legal processes in evicting
the squatters and the reasonable time would be at the period all the
squatters on affected areas are finally evicted.

84
X. Alternative obligations

ONG GUAN CAN

VS.

THE CENTURY INSURANCE CO.

46 PHIL. 592, DECEMBER 2, 1924

PONENTE: VILLAMOR, J.

Facts:

The plaintiff owned a building that was insured against fire by the
defendant in the sum of Php 30,000, including the merchandise therein
contained in the sum of Php 15,000. Both the house and merchandise
insured were burned in February 28, 1923 while the policies Issued by the
defendant in favor of the plaintiff were still in force.

The CFI of Iloilo granted the case in favor of the plaintiff that The
Century Insurance Co. should pay Ong Guan Can the sum of Php 45,000
as the total value of the insured house and merchandise. The Insurance
Company appealed that the judgment be modified to permit it to rebuild the
house and that they be relieved from the payment of the sum in which the
building was insured.

Issue:

Whether the defendant-appellant can rebuild the house burnt as a


sufficient idemnity to the inured for the actual loss suffered by him.

Held:

Yes. The defendant may build the house as an alternative prestation,


freeing him from the payment of the sum in which the building was insured.
This conclusion is in line with The Civil Code’s Article 1131.

Paying the sum in which the building was insured is one of the 2
prestations provided in one of the clauses stipulating the conditions of the
policies. Based on the same Article of the Civil Code, the complete
performance of one of them is sufficient to extinguish the obligation. While
there are several prestations, only one is due.

85
FELIPE AGONCILLO and MARCELA MARIÑO

vs.

CRISANTO JAVIER

Facts:

Three debtors got a loan from Marino and bound themselves to pay
P2,700.00. The loan was secured by a mortgage of a house and lot. It
was agreed that if upon maturity of the debt, the debtors are insolvent; they
would cede the house and lot to Marino. If the house and lot would not be
sufficient to cover the debt, the balance would be secured by the mortgage
of 4 parcels of land belonging to one of the debtors. The titles were
delivered to Marino. As the debt was not paid, Marino sued the debtors.

ISSUES:

Whether or not the stipulation of the parties is valid

HELD:

The stipulation is valid. It is simply an alternative obligation, which is


expressly allowed by the law. The agreement to convey the house and lot
at the debt in money at its maturity is, however, in our opinion perfectly
valid. It is simply an undertaking that if the debt is not paid in money, it will
be paid in another way. As we read the contract, the agreement is not
open to the objection that the stipulation is apacto comisorio. It is not an
attempt to permit the creditor to declare a forfeiture of the security upon the
failure of the debtor to pay the debt at maturity. It is simply provided that if
the debt is not paid in money it shall be paid in another specific way by the
transfer of the property at a valuation. Of course such an agreement
unrecorded, creates no right in rem, but as between the parties, it is
perfectly valid, and specific performance by its terms may be enforced
unless prevented by the creation of superior rights in favor of third persons.

86
LEGARDA, ET AL.

VS.

MIAILHE

FACTS:

A creditor demanded either Philippine currency or English currency


for a mortgaged contract they agreed in 1943. This choice was made by
the creditor. It happened that during the time of maturity these currencies
were outlawed by the Japanese in 1942.

ISSUE:

Whether or not contract maybe closed

HELD:

No, there are alternatives that can be used to have reasonable


payment. Since Japanese currency are permissible that time. Illegal and
impossible solutions are untenable. The same was agreed that in
accordance with the agreement of payment during the Military Japanese
occupation it is the same as the Philippine currency.

87
MARTINA QUIZANA

vs.

GAUDENCIO REDUGERIO and JOSEFA POSTRADO

Facts:

The defendants –appellants executed a document containing an


acknowledgement of loan from plaintiff-appellee, stated therein
circumstances as follows:

“ Na alang-alang sa aming mahigpit na pangangailangan ay


kaming magasawa ay lumapit kay Ginang Martina Quizana, balo, at
naninirahan sa Hupi, Sta. Cruz, Marinduque, at kami ay umutang sa
kanya ng halagang Limang Daan at Limang Pung Piso (P550.00),
Salaping umiiral dito sa Filipinas na aming tinanggap na husto at
walang kulang sa kanya sa condicion na ang halagang aming inutang
ay ibabalik o babayaran namin sa kanya sa katapusan ng buwan ng
Enero, taong 1949.

Pinagkasunduan din naming magasawa na sakaling hindi kami


makabayad sa taning na panahon ay aming ipifrenda o isasangla sa
kanya ang isa naming palagay na niogan sa lugar nang Cororocho,
barrio ng Balogo, Municipio ng Santa Cruz, Lalawigang Marinduque.

Issue:

Whether or not the second part of the written obligation, in which the
obligors agreed and promised to deliver a mortgage over the parcel of land,
upon their failure to pay the debt on a date specified, is valid

Held:

Yes, it is valid, According to Article 1206 of Obligation and Contract, when


only one prestation has been agreed upon, but the obligor may render
another in substitution, the obligation is called Facultative obligation.

88
ARCO PULP AND PAPER CO., INC AND CANDIDA A. SANTOS

VS.

DAN T. LIM

Facts:

Dan T. Lim works in the business of supplying scrap papers, cartons,


and other raw materials, under the name Quality Paper and Plastic
Products, Enterprises, to factories engaged in the paper mill business.
From February 2007 to March 2007. He delivered scrap papers to Arco
Pulp and Paper Company, Inc. through its Chief Executive Officer and
President, Candida A. Santos.

The parties allegedly agreed that Arco Pulp and Paper would either
pay Dan T. Lim the value of the raw materials or deliver to him their
finished products of equivalent value. Dan T. Lim alleged that when he
delivered the raw materials, Arco Pulp and Paper Issued a postdated check
as partial payment, with the assurance that the check would not bounce.
When the check was deposited, it was dishonored for being drawn against
a closed account.

On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement where Arco Pulp and Paper bound
themselves to deliver their finished products to Megapack Container
Corporation, owned by Eric Sy, for his account. According to the
memorandum, the raw materials would be supplied by Dan T. Lim, through
his company, Quality Paper and Plastic Products. On May 5, 2007, Dan T.
Lim sent a letter to Arco Pulp and Paper demanding payment of the scrap
papers Issued from Feb 2007 to March 2007, but no payment was made.
Lim filed a complaint for collection of sum of money with RTC. Arco Pulp
and Paper filed its answer. The RTC rendered a judgment in favor of Arco
Pulp and Paper and dismissed the complaint,holding that when Arco Pulp
and Paper and Eric Sy entered into the memorandum of agreement,
novation took place, which extinguished Arco Pulp and PaperIs obligation
to Dan T. Lim. Lim appealed with the CA. According to him, novation did
not take place since the memorandum of agreement between Arco Pulp
and Paper and Eric Sy was an exclusive and private agreement between
them. He argued that if his name wasmentioned in the contract, it was only
for supplying the parties their required scrap papers, where his conformity
through a separate contract was indispensable. CA reversed the decision
of the RTC. The appellate court ruled that the Facts and circumstances in
this case clearly showed the existence of an alternative obligation. On one
hand, petitioners argue that the execution of the memorandum of

89
agreement constituted a novation of the srcinal obligation since Eric Sy
became the new debtor of respondent. Respondent, on the other hand,
argues that the Court of Appeals was correct in Held that there was no
proper novation in this case. In their reply, petitioners reiterate that novation
took place since there was nothing in the memorandum of agreement
showing that the obligation was alternative. They also argue that when
respondent allowed them to deliver the finished products to Eric Sy, the
original obligation was novated.

ISSUE:

Whether the obligation between the parties was an alternative


obligation

HELD:

No. The obligation between the parties was an alternative obligation.


In an alternative obligation, there is more than one object, and the
fulfillment of one is sufficient, determined by the choice of the debtor who
generally has the right of election. The right of election is extinguished
when the party who may exercise that option categorically and
unequivocally makes his or her choice known. The choice of the debtor
must also be communicated to the creditor who must receive notice of it
since the object of this notice is to give the creditor opportunity to express
his consent, or to impugn the election made by the debtor, and only after
said notice shall the election take legal effect when consented by the
creditor, or if impugned by the latter, when declared proper by a competent
court. The contract between the parties was for respondent to deliver scrap
papers to petitioner Arco Pulp and Paper. The payment for this delivery
became petitioner Arco Pulp and Paper's obligation. By agreement,
petitioner Arco Pulp and Paper, as the debtor, had the option to either (1)
pay the price or (2) deliver the finished products of equivalent value to
respondent. The appellate court, therefore, correctly identified the
obligation between the parties as an alternative obligation, whereby
petitioner Arco Pulp and Paper, after receiving the raw materials from
respondent, would either pay him the price of the raw materials or, in the
alternative, deliver to him the finished products of equivalent value. When
petitioner Arco Pulp and Paper tendered a check to respondent in partial
payment for the scrap papers, they exercised their option to pay the price.
Respondent's receipt of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Paper's option to pay.
This choice was also shown by the terms of the memorandum of
agreement, which was executed on the same day. The memorandum
declared in clear terms that the delivery of petitioner Arco Pulp and Paper's

90
finished products would be to a third person, thereby extinguishing the
option to deliver the finished products of equivalent value to respondent.

91
FILOMENA SARMIENTO VS. GLICERIO JAVELLANA

G.R. NO. L-18500

AVANCEÑA, J.:

FACTS:

On August 28, 1991, the defendant loaned the plaintiffs the sum of P1,500
with interest at the rate of 25 per cent per annum for the term of one year.
To guarantee this loan, the plaintiffs pledged certain jewelries, which the
contracting parties appraised at P4,000. This loan is evidenced by two
documents.

The plaintiffs allege that at the maturity of this loan, August 31, 1912, the
plaintiff Eusebio M. Villaseñor, being unable to pay the loan, obtained from
the defendant an extension, with the condition that the loan was to
continue, drawing interest at the rate of 25 per cent per annum, so long as
the security given was sufficient to cover the capital and the accrued
interest. In the month of August, 1919, the plaintiff Villaseñor, went to the
house of the defendant and offered to pay the loan and redeem the jewels,
taking with him, for this purpose, the sum of P11,000, but the defendant
then informed them that the time for the redemption had already elapsed.
The plaintiffs renewed their offer to redeem the jewelry by paying the loan,
but met with the same reply.

The defendant alleges, in his defense, that upon the maturity of the loan,
August 31, 1912, he requested the plaintiff, Villaseñor, to secure the
money, pay the loan and redeem the jewels; that one month thereafter, the
plaintiff, Filomena Sarmiento, went to his house and offered to ell him the
jewels pledged for P3,000; Filomena Sarmiento, went back to the house of
the defendant who then paid her the sum of P1,125, which was the balance
remaining of theP3,000 after deducting the plaintiff's loan.

ISSUE:

Whether or not defendant is bound to return the jewels or their value


(P12,000) to plaintiffs, and the plaintiffs have the right to demand the same
upon the payment by them of the sum of P1,5000, plus the interest thereon
at the rate of 25 per cent per annum

HELD:

It appears that the defendant possessed these jewels originally, as a


pledge to secure the payment of a loan stated in writing, the mere

92
testimony of the defendant to the effect that later they were sold to him by
the plaintiff, Sarmiento, against the positive testimony of the latter that she
did not make any such sale, requires a strong corroboration to be
accepted. Defendant has not sufficiently established, by his evidence, the
fact of the purchase of the jewels, but also that there is a circumstance
tending to show the contrary, which is the fact that up to the trial of this
cause the defendant continued in possession of the documents, evidencing
the loan and the pledge. If the defendant really bought these jewels, it
seems natural that Filomena would have demanded the surrender of the
documents evidencing the loan and the pledge, and the defendant would
have returned them to plaintiff.

From the foregoing it follows that, as the jewels in question were in the
possession of the defendant to secure the payment of a loan and the
defendant having subsequently extended the term of the loan indefinitely,
and so long as the value of the jewels pledged was sufficient to secure the
payment of the capital and the accrued interest, the defendant is bound to
return the jewels or their value (P12,000) to plaintiffs, and the plaintiffs have
the right to demand the same upon the payment by them of the sum of
P1,5000, plus the interest thereon at the rate of 25 per cent per annum
from August 28, 1911.

93
FELIX ULLMAN VS. VICENTE HERNAEZ

G.R. NO. L-9816

ARELLANO, C.J.:

FACTS:

This is an APPEAL from a judgment of the Court of First Instance of


Occidental Negros. The complaint has for its object the collection of a debt
contracted by Vicente Hernaez in favor of Felix Ullman on April 5, 1900,
amounting to 3,525 pesos Mexican currency, to be paid, says Hernaez, "as
soon as I receive the portion that as an heir must come to me from the
estate of Juana Espinosa, widow of Hernaez; without prejudice to paying
on it, during the time that may elapse until I get possession of said
property, interests at six per cent year, but not, however, compound
interest. “That the defendant did on January 5, 1913, cede, alienate, and
convey to Rosendo Hernaez for the sum of twenty-five thousand pesos
(P25,000) Philippine currency, all his rights and rights of action in the
property left by the deceased Juana Espinosa. The Court of First Instance
of Occidental Negros decided the case by sentencing the defendant to pay
to the plaintiff P3,525, with interest at 6 per cent a year from April 5, 1913.
But on rehearing requested by the plaintiff the court again rendered
judgment, amending the portion relating to the interest, and sentenced the
defendant to pay interest on the debt on the basis of 6 per cent a year from
April 5, 1900, and the costs.

ISSUE:

When will the period of prescription start?

HELD:

The right of action for nullity shall only last four years. The right of action
was not exercised from April 5, 1905, until June 2, 1913, nor was any move
made during this time. But a right of action that has not yet arisen cannot
prescribe. In time obligations, as that at bar,to pay "as soon as I receive the
portion that as an heir must come to me from the estate of Juana
Espinosa," the right of action only arises when the date fixed has arrived;
the obligationis enforcible only when the day comes. This day arrived on
January 25, 1913, when thedefendant sold to Rosendo Hernaez his right to
inherit from Juana Espinosa and received fromhim P25,000, just as if he
had received same from that estate.

94
ALIPIN VS. COURT OF APPEALS

GR No. 134100

September 29, 2000

FACTS:

Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in


Barito, Mabuco, Hermosa, Bataan. The lease was for a period of five years
ending on September 12, 1990. On June 19, 1987, he subleased the
fishpond, for the remaining period of his lease, to the spouses Placido and
Purita Alipio and the Manuel Spouses. The subleases only satisfied a
portion thereof, leaving an unpaid balance of P50,600.00. Purita Alipio
moved to dismiss the case on the ground that her husband, Placido Alipio,
had passed away on December 1, 1988.

It is ruled in the Regional Trial Court that the surviving spouse should pay.
The trial court denied petitioner's motion on the ground that since petitioner
was herself a party to the sublease contract, she could be independently
impleaded in the suit together with the Manuel spouses and that the death
of her husband merely resulted in his exclusion from the case.

The Court of Appeals ruled otherwise. It is noted that all the defendants,
including the deceased, were signatories to the contract of sub-lease. The
remaining defendants cannot avoid the action by claiming that the death of
one of the parties to the contract has totally extinguished their obligation.

ISSUE:

(1) Whether a creditor can sue the surviving spouse for the collection of a
debt which is owed by the conjugal partnership of gains, or

(2) Whether such claim must be filed in proceedings for the settlement of
the estate of the decedent

HELD:

Surviving spouse is not liable. The conjugal partnership of gains is liable. It


is clear that Climaco had a cause of action against the persons named as
defendants therein. It was, however, a cause of action for the recovery of
damages, that is, a sum of money, and the corresponding action is,
unfortunately, one that does not survive upon the death of the defendant, in
accordance with the provisions of Section 21, Rule 3 of the Rules of Court.

95
As Held in Calma v. Tañedo, after the death of either of the spouses, no
complaint for the collection of indebtedness chargeable against the
conjugal partnership can be brought against the surviving spouse. Instead,
the claim must be made in the proceedings for the liquidation and
settlement of the conjugal property. The reason for this is that upon the
death of one spouse, the powers of administration of the surviving spouse
ceases and is passed to the administrator appointed by the court having
jurisdiction over the settlement of estate proceedings. Indeed, the surviving
spouse is not even a de facto administrator such that conveyances made
by him of any property belonging to the partnership prior to the liquidation
of the mass of conjugal partnership property is void. the inventory of the
Alipios' conjugal property is necessary before any claim chargeable against
it can be paid. Needless to say, such power exclusively pertains to the
court having jurisdiction over the settlement of the decedent's estate and
not to any other court.

(2) The obligation is joint. Indeed, if from the law or the nature or the
wording of the obligation the contrary does not appear, an obligation is
presumed to be only joint, i.e., the debt is divided into as many equal
shares as there are debtors, each debt being considered distinct from one
another. Clearly, the liability of the sublessees is merely joint. Since the
obligation of the Manuel and Alipio spouses is chargeable against their
respective conjugal partnerships, the unpaid balance of P50,600.00 should
be divided into two so that each couple is liable to pay the amount of
P25,300.00.

96
SERVICEWIDE SPECIALISTS, INC. V CA

G.R. No. 110048 | November 19, 1999 | J. Purisima

FACTS:

Leticia Laus purchased on credit a Colt Galant xxx from Fortune Motors
(Phils.) Corporation and executed a promissory note for the amount of
P56,028.00, inclusive of 12% annual interest, payable within a period of 48
months. In case of default in the payment of any installment, the total
principal sum, together with the interest, shall become immediately due and
payable.

As a security for the promissory note, a chattel mortgage was constituted


over the said motor vehicle, with a deed of assignment incorporated therein
such that the credit and mortgage rights were assigned by Fortune Motors
Corp. in favor of Filinvest Credit Corporation with the consent of the
mortgagor-debtor Laus.

Filinvest in turn assigned the credit in favor of Servicewide Specialists, Inc.


and Laus failed to pay the monthly installment for April 1977 and the
succeeding 17 months. Servicewide demanded payment of the entire
outstanding balance with interests but Laus failed to pay despite formal
demands.

As a result of Laus’ failure to settle her obligation, or at least to surrender


possession of the motor vehicle for foreclosure, Servicewide instituted a
complaint for replevin, impleading Hilda Tee and John Dee in whose
custody the vehicle was believed to be at the time of the filing of the suit.
Plaintiff alleged, among others, that it had superior lien over the mortgaged
vehicle. The court approved the replevin bond.

Alberto Villafranca filed a third party claim contending that he is the


absolute owner of the subject motor vehicle after purchasing it from a
certain Remedios Yang free from all lien and emcumbrances; and that on
July 1984, the said automobile was taken from his residence by Deputy
Sheriff Bernardo Bernabe pursuant to the seizure order Issued by the court
a quo.

Upon motion of the plaintiff below, Villafranca was substituted as defendant


and summons was served upon him. Villafranca moved for the dismissal of
the complaint on the ground that there is another action pending between
the same parties before the Makati RTC. The court granted the the motion
but subsequently set aside the order of dismissal. For failure to file his
Answer as required by the court a quo, Villafranca was declared in default
and plaintiff’s evidence was received ex parte.

97
The lower court later on dismissed the complaint for insufficiency of
evidence. Its motion for reconsideration having been denied, petitioner
appealed to CA on the ground that a suit for replevin aimed at the
foreclosure of a chattel is an action quasi in rem, and does not require the
inclusion of the principal obligor in the Complaint.

CA affirmed the RTC decision. It also denied petitioner’s MR, hence, the
present petition for review on certiorari under Rule 45.

ISSUE:

Whether or not a case for replevin may be pursued against the defendant,
Alberto Villafranca, without impleading the absconding debtor-mortgagor

HELD:

No. Rule 60 of the Revised Rules of Court requires that an applicant for
replevin must show that he “is the owner of the property claimed,
particularly describing it, or is entitled to the possession thereof.” Where the
right of the plaintiff to the possession of the specified property is so
conceded or evident, the action need only be maintained against him who
so possesses the property. In rem action est per quam rem nostram quae
ab alio possidetur petimus, et semper adversus eum est qui rem possidet.

However, in case the right of possession on the part of the plaintiff, or his
authority to claim such possession or that of his principal, is put to great
doubt (a contending party may contest the legal bases for plaintiff’s cause
of action or an adverse and independent claim of ownership or right of
possession may be raised by that party), it could become essential to have
other persons involved and impleaded for a complete determination and
resolution of the controversy.

In a suit for replevin, a clear right of possession must be established. The


conditions essential for foreclosure of chattel mortgage would be to show,
firstly, the existence of the chattel mortgage and, secondly, the default of
the mortgagor. Since the mortgagee’s right of possession is conditioned
upon the actual fact of default which itself may be controverted, the
inclusion of other parties, like the debtor or the mortgagor himself, may be
required in order to allow a full and conclusive determination of the case.
Laus, being an indispensable party, should have been impleaded in the
complaint for replevin and damages. An indispensable party is one whose
interest will be affected by the court’s action in the litigation, and without
whom no final determination of the case can be had. Petition DENIED.

98
XI. Joint and solidary obligations

DE LEON V NEPOMUCENO AND DE JESUS

37 PHIL 180

FACTS:

Judgment for costs was rendered in the court of first instance of tarlac un
an election contest proceeding in the following terms: the costs and
expenses of the contest will be paid by the protestee and the intervener
jointly and severally.

Petitioner, the protestee, alleges that the sheriff of the province of tarlac,
with express approval of the respondent judge of the court of first instance
of that province, is proceeding to enforce the above-cited judgment for the
costs and expenses and not merely a joint judgment.

Thus, the petitioner prays that the respondent be restrained from all further
attempts to enforce the judgment for the costs as a joint and several
judgments.

Issue:

won in the event that third persons intervene and take an active part inthe
election contest, the court should tax the costs jointly and severally
againstall the losing parties

Held:

No. Examining the language of the judgment for costs, which is set out in
the foregoing statement of Facts, it is manifest that it is merely a joint
judgment against, and does not permit of construction or interpretation as a
joint and several judgments. Solidary obligations must not be implied lightly
because of provisions of art.1137 and art. 1138 of civil code (now art. 1207
/ 1208).

99
PARROT V. GEMORA

FACTS:

There was a promissory note made by Asuncion Aguilar and Carlos


Gemora (defendant). But before payment of the PROMISSORY NOTE,
Asuncion Aguilar died.

Shortly thereafter, Tomasa Gemora sold and delivered the PROMISSORY


NOTE to lizarraga Germanos who in turn sold and delivered it to Houston
Parrot (petitioner).

The lower court after calculating the interest and allowing for the rate of
exchange between Mexican and Philippine currency, it rendered a
judgment infavor of the plaintiff and against the defendant for the sum of
5845.30 pesos, Philippine currency, with costs.

The court ordered the defendant to pay the full amount.

ISSUE:

WON the defendant is liable for the whole amount just like in solidary
obligation.

HELD:

Yes. The phrase juntos o separadamente, used in his promissory note, is


an express statement, making each of the persons who signed it
individually liable for the payment of the full amount of the obligation
contained therein.

The phrase juntos o separadamente, used in a contract creates the same


obligation as the phrase "mancomun o insolidum". The words
"separadamente" and "insolidum" used in a contract in connection with the
nature of the liability of the parties are sufficient to create an individual
liability.

100
Erezo v. Jepte

Facts:

Defendant-appellant is the registered owner of a six by six truck bearing.


On August, 9, 1949, while the same was being driven by Rodolfo Espino y
Garcia, it collided with a taxicab at the intersection of San Andres and
Dakota Streets, Manila. As the truck went off the street, it hit Ernesto Erezo
and another, and the former suffered injuries, as a result of which he died.

The driver was prosecuted for homicide through reckless negligence. The
accused pleaded guilty and was sentenced to suffer imprisonment and to
pay the heirs of Ernesto Erezo the sum of P3,000. As the amount of the
judgment could not be enforced against him, plaintiff brought this action
against the registered owner of the truck, the defendant-appellant.

The defendant does not deny at the time of the fatal accident the cargo
truck driven by Rodolfo Espino y Garcia was registered in his name. He,
however, claims that the vehicle belonged to the Port Brokerage, of which
he was the broker at the time of the accident. He explained, and his
explanation was corroborated by Policarpio Franco, the manager of the
corporation, that the trucks of the corporation were registered in his name
as a convenient arrangement so as to enable the corporation to pay the
registration fee with his backpay as a pre-war government employee.
Franco, however, admitted that the arrangement was not known to the
Motor Vehicle Office.

The trial court Held that as the defendant-appellant represented himself to


be the owner of the truck and the Motor Vehicle Office, relying on his
representation, registered the vehicles in his name, the Government and all
persons affected by the representation had the right to rely on his
declaration of ownership and registration. It, therefore, Held that the
defendant-appellant is liable because he cannot be permitted to repudiate
his own declaration.

Issue:

Whether or not Jepte should be liable to Erezo for the injuries occasioned
to the latter because of the negligence of the driver even if he was no
longer the owner of the vehicle at the time of the damage (because he had
previously sold it to another)

Held:

YES. The registered owner, the defendant-appellant herein, is primarily


responsible for the damage caused to the vehicle of the plaintiff-appellee,
but he (defendant-appellant) has a right to be indemnified by the real or
101
actual owner of the amount that he may be required to pay as damage for
the injury caused to the plaintiff-appellant

The Revised Motor Vehicle Law provides that no vehicle may be used or
operated upon any public highway unless the same is properly registered.
Not only are vehicles to be registered and that no motor vehicles are to be
used or operated without being properly registered for the current year, but
that dealers in motor vehicles shall furnish the Motor Vehicles Office a
report showing the name and address of each purchaser of motor vehicle
during the previous month and the manufacturer's serial number and motor
number.

Registration is required not to make said registration the operative act by


which ownership in vehicles is transferred, as in land registration cases,
because the administrative proceeding of registration does not bear any
essential relation to the contract of sale between the parties, but to permit
the use and operation of the vehicle upon any public

The main aim of motor vehicle registration is to identify the owner so that if
any accident happens, or that any damage or injury is caused by the
vehicles on the public highways, responsibility therefore can be fixed on a
definite individual, the registered owner.

A registered owner who has already sold or transferred a vehicle has the
recourse to a third-party complaint, in the same action brought against him
to recover for the damage or injury done, against the vendee or transferee
of the vehicle.

102
BRAGANZA v VILLA ABRILLE

FACTS:

Rosario Braganza and her sons loaned from De Villa Abrille P70,000 in
Japanese war notes and in consideration thereof, promised in writing to
pay him P10,00 + 2% per annum in legal currency of the Philippines 2
years after the cessation of the war. Because they have no paid, Abrille
sued them in March 1949. The Manila court of first instance and CA Held
the family solidarily liable to pay according to the contract they signed. The
family petitioned to review the decision of the CA whereby they were
ordered to solidarily pay De Villa Abrille P10,000 + 2% interest, praying for
consideration of the minority of the Braganza sons when they signed the
contract.

ISSUE:

Whether the boys, who were 16 and 18 respectively, are to be bound by


the contract of loan they have signed.

HELD:

The SC found that Rosario will still be liable to pay her share in the contract
because the minority of her sons does not release her from liability. She is
ordered to pay 1/3 of P10,000 + 2% interest.

However with her sons, the SC reversed the decision of the CA which
found them similarly liable due to their failure to disclose their minority. The
SC sustained previous sources in Jurisprudence – “in order to hold the
infant liable, the fraud must be actual and not constructive. It has been Held
that his mere silence when making a contract as to his age does not
constitute a fraud which can be made the basis of an action of deceit.”

The boys, though not bound by the provisions of the contract, are still liable
to pay the actual amount they have profited from the loan. Art. 1340 states
that even if the written contract is unenforceable because of their non-age,
they shall make restitution to the extent that they may have profited by the
money received. In this case, 2/3 of P70,00, which is P46,666.66, which
when converted to Philippine money is equivalent to P1,166.67.

103
WILSON vs. BERKENKOTTER

49 OG 1410

FACTS:

Plaintiff Samuel J. Wilson, defendant B.H. Berkenkotter, and one Paul A.


Gulick jointly and severally signed a promissory note in the amount of P90,
000 in favor of the Chartered Bank of India, Australia and China payable on
demand with interest thereon at the rate of 7 per cent per annum payable
monthly. After the Philippines had been occupied by the Japanese Forces,
the Bank of Taiwan became the liquidator of all enemy banks, among
which was the Chartered Bank of India, Australia and China;

Defendant upon demand by the Taiwan Bank paid the promissory note
referred to above, plus the corresponding interests which amounted in all,
principal and interests to P112, 591.22. After liberation, defendant
demanded payment from his co-debtors of their corresponding shares in
the obligation contracted by them jointly and severally. For reasons of
personal consideration defendant accepted payment from Paul A. Gulick
only in the amount of P18, 902, while plaintiff refused to pay to defendant
the full amount of P37, 530.40 in Philippine currency, and because of the
refusal of defendant to receive from the plaintiff the amount of P625.51
which is the equivalent value as of November, 1944 of the P37, 530.40 in
Japanese military notes, said plaintiff consigned with this court the said
amount of P625.51. After hearing, the trial court rendered judgment in favor
of plaintiff and ordered the defendant to receive from the clerk of court the
P625.51 consigned by plaintiff as the just and full payment of the
indebtedness. From that decision defendant appealed to the SP on
question of law.

ISSUES:

(1) Is the Balantyne schedule of values in determining the amount to


be reimbursed by the plaintiff as a co-solidary debtor of the
defendant applicable?
(2) Is defendant Berkenkotter liable to pay the full amount in
Philippine currency?

HELD:

(1) Yes. The application of the Balantyne schedule this court has
Held that said schedule is applicable to obligations contracted during the
Japanese occupation where said obligations are made payable on demand
or during said Japanese occupation but not after the war or at a specified
104
date or period which may indicate that the parties were speculating on the
continuation or cessation of the war at the time of the payment. If the
obligation on the part of Wilson to pay Berkenkotter the amount paid by the
latter to wipe out their debt to the bank was created during the occupation,
then the Balantyne schedule is applicable; but if said obligation was
created before the war, particularly on the date when plaintiff and
defendant signed the promissory not in favor of the bank, then the
Balantyne schedule may not be applied.

(2) No. According to Article 1145 of the Civil Code (Art. 1217 New
Civil Code), payment by one of the solidary debtors entitles him to claim fro
his debtors only the share pertaining to each with interest on the amount
advanced, and this is what the appellant is doing, only that he wants to
collect the whole amount paid by him for Wilson in genuine Philippine
currency instead of the equivalent thereof under the Balantyne schedule.
When appellant paid the entire loan plus interests in November, 1944, the
whole obligation was extinguished. The solidary co-debtors were no longer
under any obligation to the bank but a new obligation was created in favor
of the appellant and against the appellee. Moreover, on grounds of equity
appellant may not be allowed to collect from the appellee more than the
real value of what he paid for him specially when the difference between
the military notes and the genuine Philippine currency in November, 1944,
was so great.

105
[G.R. NO. 115838. JULY 18, 2002] CONSTANTE AMOR DE CASTRO
AND CORAZON AMOR DE CASTRO,

VS.

COURT OF APPEALS AND FRANCISCO ARTIGO,

FACTS

De castro were co-owners of four (4) lots. In a letter, Artigo was authorized
by appellants to act as real estate broker in the sale of these properties and
five percent (5%) of which will be given to the agent as commission. It was
appellee who first found Times Transit Corporation, who bought 2 lots.
Artigo felt short of his commission. Hence, he sued below to collect the
balance. De castros then moved for the dismissal for failure to implead
other co-owners as indispensable parties. The De Castros claim that Artigo
always knew that the two lots were co-owned with their other siblings and
failure to implead such indispensable parties is fatal to the complaint since
Artigo, as agent of all the four co-owners, would be paid with funds co-
owned by the four co-owners.

Issue:

WON the complaint merits dismissal for failure to implead other co-owners
as indispensable parties

Held:

Devoid of merit. Art. 1915. If two or more persons have appointed an agent
for a common transaction or undertaking, they shall be solidarily liable to
the agent for all the consequences of the agency. The rule in this article
applies even when the appointments were made by the principals in
separate acts, provided that they are for the same transaction.

The solidarity arises from the common interest of the principals, and not
from the act of constituting the agency. By virtue of this solidarity, the agent
can recover from any principal the whole compensation and indemnity
owing to him by the others.

The parties, however, may, by express agreement, negate this solidary


responsibility. The solidarity does not disappear by the mere partition
effected by the principals after the accomplishment of the agency. When
the law expressly provides for solidarity of the obligation, as in the liability
of co-principals in a c1ontract of agency, each obligor may be compelled to
pay the entire obligation.The agent may recover the whole compensation
from any one of the co-principals, as in this case.

106
HEMANA CEREZO VS. DAVID TUAZON
GR NO. 141538
CARPIO, J.:
FACTS:
Country Bus Lines passenger bus collided with a tricycle. Tricycle
driver Tuazon filed a complaint for damages against Mrs. Cerezo, as owner
of the bus line, her husband Attorney Juan Cerezo, and bus driver Danilo
A. Foronda.
After considering Tuazon‘s testimonial and documentary evidence,
the trial court ruled in Tuazon‘s favor. The trial court made no
pronouncement on Foronda‘s liability because there was no service of
summons on him. The trial court did not hold Atty. Cerezo liable as Tuazon
failed to show that Mrs. Cerezo‘s business benefited the family, pursuant to
Article 121(3) of the Family Code. The trial court held Mrs. Cerezo solely
liable for the damages sustained by Tuazon arising from the negligence of
Mrs. Cerezo‘s employee, pursuant to Article 2180 of the Civil Code.

ISSUE:
Whether petitioner is solidarily liable.

HELD:
Contrary to Mrs. Cerezo‘s assertion, Foronda is not an indispensable
party to the case. An indispensable party is one whose interest is affected
by the court‘s action in the litigation, and without whom no final resolution of
the case is possible. However, Mrs. Cerezo‘s liability as an employer in an
action for a quasi-delict is not only solidary, it is also primary and direct.
Foronda is not an indispensable party to the final resolution of Tuazon‘s
action for damages against Mrs. Cerezo. The responsibility of two or more
persons who are liable for a quasi-delict is solidary. Where there is a
solidary obligation on the part of debtors, as in this case, each debtor is
liable for the entire obligation. Hence, each debtor is liable to pay for the
entire obligation in full. There is no merger or renunciation of rights, but
only mutual representation. Where the obligation of the parties is solidary,
either of the parties is indispensable, and the other is not even a necessary
party because complete relief is available from either. Therefore,
jurisdiction over Foronda is not even necessary as Tuazon may collect
damages from Mrs. Cerezo alone.
Moreover, an employer‘s liability based on a quasi-delict is primary and
direct, while the employer‘s liability based on a delict is merely subsidiary.
The words ―primary and direct, as contrasted with ―subsidiary, refer to
107
the remedy provided by law for enforcing the obligation rather than to the
character and limits of the obligation. Although liability under Article 2180
originates from the negligent act of the employee, the aggrieved party may
sue the employer directly. To hold the employer liable in a subsidiary
capacity under a delict, the aggrieved party must initiate a criminal action
where the employee‘s delict and corresponding primary liability are
established. If the present action proceeds from a delict, then the trial
court‘s jurisdiction over Foronda is necessary. However, the present action
is clearly for the quasi-delict of Mrs. Cerezo and not for the delict of
Foronda. Thus, the petition was denied ordering the defendant Hermana
Cerezo to pay the plaintiff.

108
LIGHT RAIL TRANSIT AUTHORITY VS. MARJORIE NAVIDAD
G.R. NO. 145804
VITUG, J.:
FACTS:
On 14 October 1993, in the evening, Nicanor Navidad, then drunk,
entered the EDSA LRT station. While Navidad was standing on the
platform near the LRT tracks, Junelito Escartin, the security guard assigned
to the area approached Navidad. A misunderstanding or an altercation
between the two apparently ensued that led to a fist fight. No evidence,
however, was adduced to indicate how the fight started or who, between
the two, delivered the first blow or how Navidad later fell on the LRT tracks.
At the exact moment that Navidad fell, an LRT train, operated by petitioner
Rodolfo Roman, was coming in. Navidad was struck by the moving train,
and he was killed instantaneously. The widow of Nicanor, along with her
children, filed a complaint for damages against Junelito Escartin, Rodolfo
Roman, the LRTA, the Metro Transit Organization, Inc. (Metro Transit), and
Prudent for the death of her husband. LRTA and Roman filed a
counterclaim against Navidad and a cross-claim against Escartin and
Prudent. Prudent, in its answer, denied liability and averred that it had
exercised due diligence in the selection and supervision of its security
guards.

ISSUE:
Who, if any, is liable for damages in relation to the death of Navidad?

DECISION:
The foundation of LRTA‘s liability is the contract of carriage and its
obligation to indemnify the victim arises from the breach of that contract by
reason of its failure to exercise the high diligence required of the common
carrier. In the discharge of its commitment to ensure the safety of
passengers, a carrier may choose to hire its own employees or avail itself
of the services of an outsider or an independent firm to undertake the task.
In either case, the common carrier is not relieved of its responsibilities
under the contract of carriage.
Regrettably for LRTA, as well as perhaps the surviving spouse and
heirs of the late Nicanor Navidad, this Court is concluded by the factual
finding of the Court of Appeals that―there is nothing to link Prudent to the
death of Navidad, for the reason that the negligence of its employee,
Escartin, has not been duly proven. There being, similarly, no showing that
petitioner Rodolfo Roman himself is guilty of any culpable act or omission,
he must also be absolved from liability.
109
MERCURY DRUG CORPORATION VS. HUANG
G.R. NO. 172122
PUNO, C.J.:

Facts:
Petitioner Mercury Drug is the registered owner of a six-wheeler
1990 Mitsubishi Truck. It has in its employ petitioner Rolando Del Rosario
as driver. Respondent spouses Richard and Carmen Huang are the
parents of respondent Stephen Huang and own the red 1991 Toyota
Corolla. These two vehicles figured in a road accident. At the time of the
accident, petitioner Del Rosario only had a Traffic Violation Receipt. A
driver‘s license had been confiscated because he had been previously
apprehended for reckless driving.
Respondent Stephen Huang sustained massive injuries to his spinal
cord, head, face and lung. He is paralyzed for life from his chest down and
requires continuous medical and rehabilitation treatment. Respondent‘s
fault petitioner Del Rosario for committing gross negligence and reckless
imprudence while driving, and petitioner Mercury Drug for failing to
exercise the diligence of a good father of a family in the selection and
supervision of its driver.

Issue:
Whether or not petitioner Mercury Drug is liable for the negligence of
its employee.

Decision:
The trial court found Mercury Drug and Del Rosario jointly and
severally liable to pay respondents. The Court of Appeals affirmed the said
decision.
Article 2176 and 2180 of the Civil Code provide:
―Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damages done. Such
fault or negligence, if there is no pre-existing contractual relationship
between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.‖
―The obligation imposed by article 2176 is demandable not only for
one‘s own acts or omissions, but also for those of persons for whom one is
responsible.‖

110
The liability of the employer under Article 2180 is direct and
immediate. It is not conditioned on a prior recourse against the negligent
employee, or a prior showing of insolvency of such employee. It is also joint
and solidary with the employee. To be relieved f the liability, petitioner
should show that it exercised the diligence of a good father of a family, both
in the selection of the employee and in the supervision of the performance
of his duties. In this case, the petitioner Mercury Drug does not provide for
back-up driver for long trips. As the time of the accident, Del Rosario has
been driving for more than thirteen hours, without any alternate. Moreover,
Del Rosario took the driving test and psychological exam for the position of
Delivery Man and not as Truck Man. With this, petitioner Mercury Drug is
liable jointly and severally liable to pay the respondents.

111
OUANO ARRASTRE SERVICES, INC VS. HON. PEARY ALEONOR
G.R. NO. 97664
FELICIANO, J.:

Facts:
International Pharmacueticals, Inc. (IPI) sued the Mercantile
Insurance Company and Ouano Arrastre Service, Inc., for replacement of a
certain equipment imported by IPI which were insured by Mercantile but
were lost on arrival, allegedly because of mishandling by Ouano. Ouano’s
answer was filed by the law firm of Ledesma, et al. and signed by Atty.
Manuel Trinidad of the Cebu branch of the law office. However, Atty.
Trinidad later resigned from the law firm and Atty. Fidel Manalo, a partner
from the Makati Office filed a motion to postpone the hearing, stating that
the case had just been endorsed to him by Ouano.
On January 12, 1990, after the trial which Atty. Manalo handled for
Ouano, the trial court held Mercantile and Ouano jointly and severally liable
for the cost of replacement of the damaged equipment plus damages. Only
Mercantile appealed. On June 19, 1990, IPI moved for execution of the
decision against Ouano which the judge granted on June 25, 1990. On
June 26, 1990, Ouano’s counsel Atty. Catipay filed a notice of appeal
claiming that the decsion was “mistakenly sent” by the trial court to the law
firm’s head office in Makati. The trial judge denied Ouano’s motion,
declaring the appeal cannot be given due course for lack of merit. The
Court of Appeals (CA) dismissed Ouano’s appeal. Petitioner complains that
an immediate execution, pending Mercantile’s appeal, would result in
“complexities” if the CA were to absolve Mercantile of its liabilities, that
Ouano would have no recourse against its solidary co-debtor and would in
effect be held the only liable under the trial court’s judgment.

Issue:
Whether or not the defense personal to co-debtor are available to the
other co-debtor.

Held:
Petitioner argues the defenses personal to co-debtor are available to
the other co-debtor because “the rights and liabilities of the parties are so
interwoven and dependent on each other, as to be inseparable. Ouano
claims that the goods did not sustain any damage or loss during the
voyage. Furthermore, Mercantile claims that, in any case, the insurance
contract with IPI has already lapsed, a defense which Ouano, as the
112
arrastre company responsible for the damage, cannot invoke to avoid
liability. Finally, failing to appeal, Ouano, effectively waived any right it
might have had to assert, against the judgment creditor, any defense
pertaining to Mercantile. In other words, Ouano by its own act or inaction, is
no longer in a position to benefit from the provision of Art. 1222.

113
XII. Divisible and indivisible obligation

NAZARENO VS. COURT OF APPEALS

G.R. NO. 131641, FEBRUARY 23, 2000

FACTS:

Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea
died on April 15, 1970, while Maximino, Sr. died on December 18, 1980.
After the death of Maximino, Sr., Romeo filed an intestate case in the Court
of First Instance of Cavite, Branch XV, where the case was docketed as
Sp. Proc. No. NC-28. Upon the reorganization of the courts in 1983, the
case was transferred to the Regional Trial Court of Naic, Cavite. Romeo
was appointed administrator of his father’s estate. In the course of the
intestate proceedings, Romeo discovered that his parents had executed
several deeds of sale conveying a number of real properties in favor of his
sister, Natividad. One of the deeds involved six lots in Quezon City which
were allegedly sold by Maximino, Sr., with the consent of Aurea, to
Natividad on January 29, 1970 for the total amount of P47,800.00.

ISSUE:

Whether or not the Deed of Absolute of Sale can be equated as a divisible


obligation

HELD:

The Supreme court Held that the Deed of Absolute Sale is an indivisible
contract founded on an indivisible obligation. As such, it being indivisible, it
cannot be annulled by only one of them. And since this suit was filed only
by the estate of Maximino A. Nazareno, Sr. without including the estate of
Aurea Poblete, the present suit must fail. The estate of Maximino A.
Nazareno, Sr. cannot cause its annulment while its validity is sustained by
the estate of Aurea Poblete. An obligation is indivisible when it cannot be
validly performed in parts, whatever may be the nature of the thing which is
the object thereof. The indivisibility refers to the prestation and not to the
object. The Deed of Sale of January 29, 1970 supposedly conveyed the six
lots to Natividad. The obligation is clearly indivisible because the
performance of the contract cannot be done in parts, otherwise the value of
what is transferred is diminished. Petitioners are mistaken in basing the
indivisibility of a contract on the number of obligors. In any case, if
petitioners’ only point is that the estate of Maximino, Sr. alone cannot
contest the validity of the Deed of Sale because the estate of Aurea has not
yet been settled, the argument would nonetheless be without merit. The
validity of the contract can be questioned by anyone affected by it. A void

114
contract is inexistent from the beginning. Hence, even if the estate of
Maximino, Sr. alone contests the validity of the sale, the outcome of the suit
will bind the estate of Aurea as if no sale took place at all.

115
ANGEL JOSE WAREHOUSING CO., INC

vs.

CHELDA ENTERPRISES and DAVID SYJUECO

G.R. No. L-25704 April 24, 1968

BENGZON, J.P., J.:

FACTS

Plaintiff corporation filed suit in the Court of First Instance of Manila on May
29, 1964 against the partnership CHelda Enterprises and David Syjueco,
its capitalist partner, for recovery of alleged unpaid loans in the total
amount of P20,880.00, with legal interest from the filing of the complaint,
plus attorney’s fees of P5,000.00. Alleging that postdated checks Issued by
defendants to pay said account were dishonored, that defendants’
industrial partner, Chellaram I. Mohinani, had left the country, and that
defendants have removed or disposed of their property, or are about to do
so, with intent to defraud their creditors, preliminary attachment was also
sought.

Answering, defendants averred that they obtained four loans from plaintiff
in the total amount of P26,500.00, of which P5,620.00 had been paid,
leaving a balance of P20,880.00; that plaintiff charged and deducted from
the loan usurious interests thereon, at rates of 2% and 2.5% per month,
and, consequently, plaintiff has no cause of action against defendants and
should not be permitted to recover under the law. A counterclaim for
P2,000.00 attorney’s fees was interposed.

ISSUE

Whether or not the illegal terms as to payment of interest likewise renders a


nullity the legal terms as to payments of the principal debt

HELD

Article 1420 of the New Civil Code provides in this regard: “In case of a
divisible contract, if the illegal terms can be separated from the legal ones,
the latter may be enforced.”

In simple loan with stipulation of usurious interest, the prestation of the


debtor to pay the principal debt, which is the cause of the contract (Article
1350, Civil Code), is not illegal. The illegality lies only as to the prestation to

116
pay the stipulated interest; hence, being separable, the latter only should
be deemed void, since it is the only one that is illegal.

117
INTESTATE ESTATE OF FRANCISCO UBAT. JOSE L. SORIANO,

vs.

ATANASIA UBAT DE MONTES, ET AL..

PHILIPPINE NATIONAL BANK,

Case No, G.R No L-11633 Jan 31, 1961

Facts:

Eduardo Ubat obtained a loan of 400.00 secured by mortgage land covered


by OCT 561 after paying his 3rd installment payment he died. Francisco his
son inherited the mortgage land and Sept 1946 Francisco Ubat borrowed
money amounting to 400.00 from PNB where is father got a loan, he also
executed a chattel mortgage on the standing crops of his land cover by
OCT no. 3231 Francisco also died in Sept 1954 with an unpaid balance of
82.00. Later his children instituted a summary proceeding of his estate
wherein the PNB also files its claims, but the court dismissed PNB claims in
that summary proceeding.

July 1955 Jose Soriano a creditor of Francisco files an intestate proceeding


with the CFI Davao, wherein 2 parcel of land were covered with OCT No.
561 and OCT No. 3231. PNB again filed 2 cliams First, for the 82.00 unpaid
loan and the Second, was for 310.37 the outstanding loan of late Eduardo
Ubat. Consequently, the court allowed the first claim on the second claim
only 55.23 was allowed. The appellant Soriano construed that the
obligation assumed by deceased Eduardo was divisible because its
payment was stipulated to be in 10 equal yearly installment and when the
4th installment become due and payable, the prescription period of ten
years commenced to run nd only the 10th installment of 59.61 fell due in
Oct 1945 was recoverable when the present claims was filed in Sept 1955.

ISSUE

Whether or not the obligation assumed from Eduardo Ubat was divisible

HELD:

The court orders to pay PNB in the amount of 98.38 with interest at daily
rate of 0.0133 from sept 19, 1955 and for second claim the sum of 191.15
with interest of 8 & per annum from Sept 18, 1955. And that the 100.00
attorney’s pay was reasonable.

The court sustain PNB contention that suspensive effect of the moratorium
law on unpaid account namely, the cliam for the 6th installment which fell

118
within the ten years prescriptive period. On the 4th and tht 5th installment in
the amount of 119.22 are no longer collectible as they prescribed already.

The prescription period start at the time when the action is actually filed not
from the time parties wishes to file an action.

Parties could not have intended a divisible obligation because there was no
fixed date was agreed upon as to the payment of each or every installment.
It was clear in the promissory notes, that the installment were to be settle at
the end of every year from year 1 to year 10. GThe statute of limitation
consequently begin to run as to each and every unpaid installment from the
date that the bank can sue their debt.

In absence of the special provison, the prescription for all inds of action be
counted from the day the action maybe actually brought to the attention of
the court.

119
NATIVIDAD NAZARENO VS. COURT OF APPEALS

G.R. No. 131641

BELLOSILLO, J.:

FACTS:

Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea
died on April 15, 1970, while Maximino, Sr. died on December 18, 1980.
After the death of Maximino, Sr., Romeo filed an intestate case in the Court
of First Instance of Cavite, Branch XV, where the case was docketed as
Sp. Proc. No. NC-28. Upon the reorganization of the courts in 1983, the
case was transferred to the Regional Trial Court of Naic, Cavite. Romeo
was appointed administrator of his father’s estate. In the course of the
intestate proceedings, Romeo discovered that his parents had executed
several deeds of sale conveying a number of real properties in favor of his
sister, Natividad. One of the deeds involved six lots in Quezon City which
were allegedly sold by Maximino, Sr., with the consent of Aurea, to
Natividad on January 29, 1970 for the total amount of P47,800.00.

ISSUE:

Whether or not the Deed of Absolute of Sale can be equated as a divisible


obligation

HELD:

The Supreme court held that the Deed of Absolute Sale is an indivisible
contract founded on an indivisible obligation. As such, it being indivisible, it
can not be annulled by only one of them. And since this suit was filed only
by the estate of Maximino A. Nazareno, Sr. without including the estate of
Aurea Poblete, the present suit must fail. The estate of Maximino A.
Nazareno, Sr. can not cause its annulment while its validity is sustained by
the estate of Aurea Poblete. An obligation is indivisible when it cannot be
validly performed in parts, whatever may be the nature of the thing which is
the object thereof. The indivisibility refers to the prestation and not to the
object. The Deed of Sale of January 29, 1970 supposedly conveyed the six
lots to Natividad. The obligation is clearly indivisible because the
performance of the contract cannot be done in parts, otherwise the value of
what is transferred is diminished. Petitioners are mistaken in basing the
indivisibility of a contract on the number of obligors. In any case, if
petitioners’ only point is that the estate of Maximino, Sr. alone cannot
contest the validity of the Deed of Sale because the estate of Aurea has not
yet been settled, the argument would nonetheless be without merit. The
validity of the contract can be questioned by anyone affected by it. A void

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contract is inexistent from the beginning. Hence, even if the estate of
Maximino, Sr. alone contests the validity of the sale, the outcome of the suit
will bind the estate of Aurea as if no sale took place at all.

121
SPOUSES ALEXANDER AND JULIE LAM vs. KODAK PHILIPPINES,
LTD.

G.R. No. 167615

LEONEN, J.:

FACTS:

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered
into an agreement for the sale of three units of the Kodak Minilab System
22XL in the amount of P1,796,000 per unit.

Kodak Philippines, Ltd. delivered one unit and the Lam Spouses issued
postdated checks amounting to P35,000 each for 12 months as payment
for the first delivered unit.

The Lam Spouses requested that Kodak Philippines, Ltd. not to negotiate
the checks allegedly due to insufficiency of funds. However, checks were
negotiated by Kodak Philippines, Ltd. and were honored by the depository
bank. The 10 other checks were subsequently dishonored after the Lam
Spouses ordered the depository bank to stop payment.

Kodak Philippines Ltd. cancelled the sale and demanded Lam spouses to
return the unit. Lam spouses ignored the demand but also rescinded the
contract on account of Kodak Philippines Ltd’s failure to deliver the two
remaining minilab units.

ISSUE:

Whether or not the contract between the spouses and Kodak Philippines
Inc. pertains to an obligation which is severable, divisible or susceptible of
partial performance.

HELD:

The intention of the parties is for there to be a single transaction covering


all three equipment. Respondent’s obligation was to deliver all products
purchased under a package, and, in turn petitioners obligation was to pay
for the total purchase price, payable in installments.

The intention of the parties to bind themselves to an indivisible obligation


can be further discerned through their direct acts in relation to the package
deal. There was only one agreement covering all three equipment and their
accessories. The Letter of agreement specified only one purpose for the
buyer, which was to obtain these units for three different outlets. If the
intention of the parties were to have a divisible contract, then separate
agreements would have been made for each equipment unit instead of

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covering all three in one package deal. Furthermore, the 19% multiple
order discount as contained in the Letter Agreement was applied to all
three acquired units. The no downpayment term contained in the Letter
Agreement was also applicable to all minilab equipment units. Lastly, the
fourth clause of the Letter Agreement clearly referred to the object of the
contract as Minilab Equipment Package

123
XIII. Payment and performance

VITARICH vs. LOSIN

G.R. No. 181560 November 15, 2010

FACTS:

Respondent Chona Losin was in the fast food and catering services
business named Glamours Chicken House. Since 1993, Vitarich,
particularly its Davao Branch, had been her supplier of poultry meat.

In the months of July to November 1996, Losin’s orders of dressed chicken


and other meat products allegedly amounted to P921,083.10. During this
said period, Losin’s poultry meat needs for her business were serviced by
Rodrigo Directo (Directo) and Allan Rosa (Rosa), both salesmen and
authorized collectors of Vitarich, and Arnold Baybay (Baybay), a supervisor
of said corporation.

On August 24, 1996, Directo’s services were terminated by Vitarich without


Losin’s knowledge. He left without turning over some supporting invoices
covering the orders of Losin. Rosa and Baybay, on the other hand,
resigned on November 30, 1996 and December 30, 1996, respectively.
Just like Directo, they did not also turn over pertinent invoices covering
Losin’s account.

On February 12, 1997, demand letters were sent to Losin covering her
alleged unpaid account amounting to P921,083.10. It appears that Losin
had Issued three (3) checks amounting to P288,463.30 which were
dishonored either for reasons - Drawn Against Insufficient Funds (DAIF) or
Stop Payment.

On March 2, 1998, Vitarich filed a complaint for Sum of Money against


Losin, Directo, Rosa, and Baybay before the RTC.

On August 9, 2001, the RTC rendered its Decision8 in favor of Vitarich,


however the CA rendered the assailed decision in favor of Losin.

ISSUE:

Whether or not there is already payment on the part of Locsin

HELD:

No. As a general rule, one who pleads payment has the burden of proving
it.The burden rests on the debtor to prove payment, rather than on the

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creditor to prove non-payment. The debtor has the burden of showing with
legal certainty that the obligation has been discharged by payment.

True, the law requires in civil cases that the party who alleges a fact has
the burden of proving it. Section 1, Rule 131 of the Rules of Court24
provides that the burden of proof is the duty of a party to prove the truth of
his claim or defense, or any fact in Issue by the amount of evidence
required by law. In this case, however, the burden of proof is on Losin
because she alleges an affirmative defense, namely, payment. Losin failed
to discharge that burden.

After examination of the evidence presented, this Court is of the opinion


that Losin failed to present a single official receipt to prove payment.25 This
is contrary to the well-settled rule that a receipt, which is a written and
signed acknowledgment that money and goods have been delivered, is the
best evidence of the fact of payment although not exclusive.26 All she
presented were copies of the list of checks allegedly Issued to Vitarich
through its agent Directo,27 a Statement of Payments Made to Vitarich,28
and apparently copies of the pertinent history of her checking account with
Rizal Commercial Banking Corporation (RCBC). At best, these may only
serve as documentary records of her business dealings with Vitarich to
keep track of the payments made but these are not enough to prove
payment.

125
PCIB v. COURT OF APPEALS

G.R. NO. 121989 January 31, 2006

FACTS:

PCIB and MBC were joint bidders in a foreclosure sale Held of assorted
mining machinery and equipment previously mortgaged to them by
Philippine Iron Mines. Atlas agreed to purchase some of these properties
and the sale was evidenced by a Deed of Sale with a downpayment of
P12,000,000 and the balance of P18,000,000 payable in 6 monthly
installments. In compliance with the contract, Atlas Issued HongKong and
shanghai Bank check amounting to P12,000,000. Atlas paid to NAMAWU
the amount of P4,298,307.77 in compliance with the writ of garnishment
Issued against Atlas to satisfy the judgment in favor of NAMAWU. Atlas
alleged that there was overpayment, hence the suit against PCIB to obtain
reimbursement. PCIB contended that Atlas still owed P908,398.75 because
NAAWU had been partially paid in the amount of P601,260.00. RTC ruled
against Atlas to pay P908,398.75 to PCIB. CA reversed the decision.

ISSUE:

Whether atlas had complied with its obligation to PCIB

HELD:

While the original amount sought to be garnished was P4,298,307,77, the


partial payment of P601,260 naturally reduced it to P3,697,047.77 Atlas
overpaid NAMAWU, thus the remedy if Atlas would be to proceed against
NAAWU nut not against PCIB in relation to article 1236 of the Civil Code

The petition is partly granted.CA decision is reversed and set aside


and in lieu thereof Atlas is ordered to pay PCIB the sum of P146,058.96,
with the legal interest commencing from the time of first demand on August
22, 1985.

126
JOSE LAGONv. HOOVEN COMALCO INDUSTRIES

G.R. No. 135657 January 17, 2001

FACTS:

Petitioner is the owner of a commercial building while respondent is a


domestic corporation known to be the biggest manufacturer and installer of
aluminum materials in the country. Parties entered into 2 contracts whereby
for a total consideration of P104,870. Hooven agreed to sell and install
various aluminum materials in Lagon’s building. Upon execution of
contracts, Lagon paid Hooven P48,000 in advance. On February 24, 1987,
Hooven commenced an action for sum of money. It was alleged that
materials were delvered and installed but P69,329 remained unpaid even
after the completion of the project and despite repeated demands. RTC
Held partly on the basis of the ocular inspection finding that the total actual
deliveries cost P87,140 deducting therefrom P48,000. CA set aside the
decision and Held in favor of Hooven.

ISSUE:

Whether all the materials specified in the contracts had been delivered and
installed by respondent in petitioner’s commercial building

HELD:

Essentially, respondent has the burden of establishing its affirmative


allegations of complete delivery and installation of the materials and
petitioner’s failure to pay therefor. The evidence on its discharge is grossly
anemic. The CA decision is modified. Lagon is ordered to pay respondent
P6,377.66 representing the value unpaid. On the other hand, respondent is
ordered to pay petitioner P50,000 as moral damages, P30,000 attorney’s
fees and P46,554.50 as actual damages.

127
REPUBLIC vs THI THU THUY T. DE GUZMAN

G.R. No. 175021 June 15, 2011

FACTS:

On December 8, 1995, the PNP Engineering Services (PNPES), released a


Requisition and Issue Voucher for the acquisition of various building
materials amounting to Two Million Two Hundred Eighty-Eight Thousand
Five Hundred Sixty-Two Pesos and Sixty Centavos (P2,288,562.60) for the
construction of a four-storey condominium building with roof deck at Camp
Crame, Quezon City. Respondent averred that on December 11, 1995,
MGM and petitioner, represented by the PNP, through its chief, executed a
Contract of Agreement (the Contract) wherein MGM, for the price of
P2,288,562.60, undertook to procure and deliver to the PNP the
construction materials itemized in the purchase order attached to the
Contract. Respondent claimed that after the PNP Chief approved the
Contract and purchase order,MGM, on March 1, 1996, proceeded with the
delivery of the construction materials, as evidenced by Delivery Receipt
Nos. 151-153,11 Sales Invoice Nos. 038 and 041,12 and the "Report of
Public Property Purchase" Issued by the PNP’s Receiving and Accounting
Officers to their Internal Auditor Chief. Respondent asseverated that
following the PNP’s inspection of the delivered materials on March 4,
1996,14 the PNP Issued two Disbursement Vouchers; one in the amount of
P2,226,147.26 in favor of MGM,15 and the other, 16 in the amount of
P62,415.34, representing the three percent (3%) withholding tax, in favor of
the Bureau of Internal Revenue (BIR).The respondent sent a letter dated
October 20, 199718 to the PNP, demanding the payment of P2,288,562.60
for the construction materials MGM procured for the PNP under their
December 1995 Contract. The PNP, through its Officer-in-Charge,
replied19 to respondent’s counsel, informing her of the payment made to
MGM via Land Bank of the Philippines (LBP).

Respondent denies having ever received the LBP check. On May 5, 1999,
respondent filed a Complaint for Sum of Money against the petitioner. The
petitioner presented Edgardo Cruz and testified that Highland Enterprises
had been an accredited contractor of the PNP since 1975. In 1995, Cruz
claimed that the PNPES was tasked to construct "by administration" a
condominium building. This meant that the PNPES had to do all the work,
from the canvassing of the materials to the construction of the building. The
PNPES allegedly lacked the funds to do this and so asked for Highland
Enterprises’ help. In a meeting with its accredited contractors, the PNPES
asked if the other contractors would agree to the use of their business
128
name 50 for a two percent (2%) commission of the purchase order price to
avoid the impression that Highland Enterprises was monopolizing the
supply of labor and materials to the PNP.51 Cruz alleged that on April 23,
1996, he and the respondent went to the PNP Finance Center to claim the
LBP check due to MGM.

ISSUE:

WON there is already extinguishment of obligation.

HELD:

In general, a payment in order to be effective to discharge an obligation,


must be made to the proper person. Thus, payment must be made to the
obligee himself or to an agent having authority, express or implied, to
receive the particular payment. Payment made to one having apparent
authority to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is made to one
who by law is authorized to act for the creditor, it will work a discharge. The
receipt of money due on a judgment by an officer authorized by law to
accept it will, therefore, satisfy the debt.

The respondent was able to establish that the LBP check was not received
by her or by her authorized personnel. The PNP’s own records show that it
was claimed and signed for by Cruz, who is openly known as being
connected to Highland Enterprises, another contractor. Hence, absent any
showing that the respondent agreed to the payment of the contract price to
another person, or that she authorized Cruz to claim the check on her
behalf, the payment, to be effective must be made to her.

129
LBP vs. ONG

G.R. No. 190755, November 24, 2010

FACTS:

Spouses Johnson and Evangeline Sy secured a loan from Land Bank


Legazpi City in the amount of PhP 16 million. The loan was secured by
three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the
loan agreement, PhP 6 million of the loan would be short-term and would
mature on February 28, 1997, while the balance of PhP 10 million would be
payable in seven (7) years. The Notice of Loan Approval dated February
22, 1996 contained an acceleration clause wherein any default in payment
of amortizations or other charges would accelerate the maturity of the
loan.Subsequently, however, the Spouses Sy found they could no longer
pay their loan. They sold three (3) of their mortgaged parcels of land for
PhP 150,000 to Angelina Gloria Ong, Evangeline’s mother, under a Deed
of Sale with Assumption of Mortgage.

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to


inform it about the sale and assumption of mortgage.3 Atty. Edna Hingco,
the Legazpi City Land Bank Branch Head, told Alfredo and his counsel
Atty. Ireneo de Lumen that there was nothing wrong with the agreement
with the Spouses Sy but provided them with requirements for the
assumption of mortgage. They were also told that Alfredo should pay part
of the principal which was computed at PhP 750,000 and to update due or
accrued interests on the promissory notes so that Atty. Hingco could easily
approve the assumption of mortgage. Two weeks later, Alfredo Issued a
check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt
was Issued for his payment. He also submitted the other documents
required by Land Bank, such as financial statements for 1994 and 1995.
Atty. Hingco then informed Alfredo that the certificate of title of the Spouses
Sy would be transferred in his name but this never materialized. No notice
of transfer was sent to him. On December 12, 1997, Alfredo initiated an
action for recovery of sum of money with damages against Land Bank in
Civil Case No. T-1941, as Alfredo’s payment was not returned by Land
Bank. The RTC Held that that under the principle of equity and justice, the
bank should return the amount Alfredo had paid with interest at 12% per
annum computed from the filing of the complaint. The RTC further Held that
Alfredo was entitled to attorney’s fees and litigation expenses for being
compelled to litigate. The CA affirmed the RTC Decision.

130
Land Bank contends that Art. 1236 of the Civil Code backs their claim that
Alfredo should have sought recourse against the Spouses Sy instead of
Land Bank. Art. 1236 .

ISSUE

Whether or not the Art. 1236 of the Civil Code should apply in the instant
case.

HELD

We agree with Land Bank on this point as to the first part of paragraph 1 of
Art. 1236. Land Bank was not bound to accept Alfredo’s payment, since as
far as the former was concerned, he did not have an interest in the
payment of the loan of the Spouses Sy. However, in the context of the
second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy. Alfredo made a conditional payment so that
the properties subject of the Deed of Sale with Assumption of Mortgage
would be titled in his name. It is clear from the records that Land Bank
required Alfredo to make payment before his assumption of mortgage
would be approved. He was informed that the certificate of title would be
transferred accordingly. He, thus, made payment not as a debtor but as a
prospective mortgagor.

Alfredo, as a third person, did not, therefore, have an interest in the


fulfilment of the obligation of the Spouses Sy, since his interest hinged on
Land Bank’s approval of his application, which was denied. The
circumstances of the instant case show that the second paragraph of Art.
1236 does not apply. As Alfredo made the payment for his own interest and
not on behalf of the Spouses Sy, recourse is not against the latter. And as
Alfredo was not paying for another, he cannot demand from the debtors,
the Spouses Sy, what he has paid.

131
XIV. Payment by cession

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS


and LYDIA CUBA

G.R. No. 118342

LYDIA P. CUBA vs. COURT OF APPEALS, DEVELOPMENT BANK OF


THE PHILIPPINES and AGRIPINA P. CAPERAL

G.R. No. 118367

DAVIDE, JR., J.:

Facts:

These two consolidated cases stemmed from a complaint filed against the
Development Bank of the Philippines and Agripina Caperal filed by Lydia
Cuba on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch
54. The said complaint sought (1) the declaration of nullity of DBP’s
appropriation of CUBA’s rights, title, and interests over a 44-hectares
fishpond located in Bolinao, Pangasinan, for being violative of Article 2088
of the Civil Code; (2) the annulment of the Deed of Conditional Sale
executed in her favor by DBP; (3) the annulment of DBP’s sale of the
subject fishpond to Caperal; (4) the restoration of her rights, title, and
interests over the fishpond; and (5) the recovery of damages, attorney’s
fees, and expenses of litigation.

In its decision of 25 May 1994, the Court of Appeals ruled that that (1) the
deed of assignment was null and void and that defendant Caperal could not
validly acquire the leasehold rights from DBP; (2) contrary to the claim of
DBP, the assignment was not a cession under Article 1255 of the Civil
Code because DBP appeared to be the sole creditor to CUBA — cession
presupposes plurality of debts and creditors; (3) the deeds of assignment
represented the voluntary act of CUBA in assigning her property rights in
payment of her debts, which amounted to a novation of the promissory
notes executed by CUBA in favor of DBP; (4) CUBA was estopped from
questioning the assignment of the leasehold rights, since she agreed to
repurchase the said rights under a deed of conditional sale; and (5)
condition no. 12 of the deed of assignment was an express authority from
CUBA for DBP to sell whatever right she had over the fishpond.

Issue:

Whether or not there is cession.

Held:

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The assignment did not amount to payment by cession under Article
1255 of the Civil Code for the plain and simple reason that there was only
one creditor, the DBP. Article 1255 contemplates the existence of two or
more creditors and involves the assignment of all the debtor’s property.

133
DELTA DEVELOPMENT vs. ENRIQUEZ and LUZON DEVELOPMENT
BANK
G.R. No. 168666

DEL CASTILLO, J.:

FACTS:

On July 3, 1995, De Leon (owner of Delta) and his spouse obtained a P4


million loan from the BANK for the express purpose of developing Delta
Homes I.8 To secure the loan, the spouses De Leon executed in favor of
the BANK a real estate mortgage (REM) on several of their properties,9
including Lot 4. Subsequently, this REM was amended10 by increasing the
amount of the secured loan from P4 million to P8 million. Both the REM
and the amendment were annotated on TCT No. T-637183.11

Sometime in 1997, DELTA executed a Contract to Sell with respondent


Angeles Catherine Enriquez (Enriquez)14 over the house and lot in Lot 4
with the condition that upon full payment of the total consideration the
Owner shall execute a final deed of sale in favor of the Vendee/s.

When DELTA defaulted on its loan obligation, the BANK, instead of


foreclosing the REM, agreed to a dation in payment or a dacion en pago.
Enriquez filed a complaint against DELTA and the BANK before Office of
the HLURB19 alleging that DELTA violated the terms of its License to Sell.
The HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the
purchase price, but ordered DELTA to accept payment of the balance of
P108,013.36 from Enriquez, and (upon such payment) to deliver to
Enriquez the title to the house and lot free from liens and encumbrances.

DELTA appealed the arbiter’s Decision to the HLURB Board of


Commissioners. The Commission ordered [Enriquez] to pay [DELTA] the
amount due from the time she suspended payment up to filing of the
complaint with 12% interest thereon per annum; thereafter the provisions of
the Contract to Sell shall apply until full payment is made.

The OP adopted by reference the findings of fact and conclusions of law of


the HLURB Decisions, which it affirmed in toto. The CA ruled against the
validity of the dacion en pago executed in favor of the BANK on the ground
that DELTA had earlier relinquished its ownership over Lot 4 in favor of
Enriquez via the Contract to Sell.46

ISSUE:
Whether the dacion en pago extinguished the loan obligation, such
that DELTA has no more obligations to the BANK.

134
HELD:

The violation of Section 18 renders the mortgage executed by DELTA void


therefore the 8 million loans are unsecured. Since the Contract to sell did
not transfer ownership of Lot 4 to Enriquez, said ownership remained with
DELTA. DELTA could then validly transfer such ownership (as it did) to
another person (the BANK). However, the transferee BANK is bound by the
Contract to Sell and has to respect Enriquez’s rights thereunder.

BANK is also not entitled to payment of the equivalent value of the lot 4
from DELTA when the this court ruled in favor of ENRIQUEZ over lot 4.
Like in all contracts, the intention of the parties to the dation in payment is
paramount and controlling. The contractual intention determines whether
the property subject of the dation will be considered as the full equivalent of
the debt and will therefore serve as full satisfaction for the debt. "The dation
in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved,
unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished."

135
OPERATORS INC VS. AMERICAN BISCUIT CORPORATION

G.R. No. L-35024

SARMIENTO, J.:

FACTS:

Plaintiff American Biscuit Company, a manufacturer of biscuit, candy


and bubble gum products in financial distress, entered into an agreement
with defendant Operators Inc. where it ceded the entire, total and complete
present operation of its business inconsideration for which Operators Inc.
undertook to answer for existing obligations of the plaintiff to its several
creditors and to compensate plaintiff with a percentage of the gross profits
realized in the course of its operations.

Barely 10 months thereafter, ABC and Operators Inc., entered into


another agreement (Tripartite Agreement) with defendant Associated
Biscuit Operators. Associated agreed to engage in the manufacture and
marketing of the biscuit products of ABC under the terms and conditions of
the Operating Contract of September 26, 1953.

Operators and Associated had both undertaken to pay ABC's


obligation owing to its various creditors. Defendants would sharefifty-fifty in
the monthly installments of the P110,000.00 unpaid balance of the loan
(China Banking Corporation). This arrangement was religiously complied
with by Operators Inc. which paid Pl,500.00 monthly, making a total
payment of more than P100,000.00including interest. Defendant
Associated in turn, failed to make good its commitments to pay its share of
P55,000.00.

American Biscuit filed a complaint against Operators Incorporated


and Associated Biscuit for the cancellation of the Operating Contract and
the Tripartite Agreement, with prayers to put Associated Biscuit under
receivership and for damages. American Biscuit maintained that the
payment of its indebtedness and of its overhead expenses was a joint and
solidary obligation of Operators and Associated Biscuit.

ISSUE:

Whether or not the payment of indebtedness to ABC’s creditors by


Operators and Associated Biscuit was a Solidary Obligation.

DECISION:

The position of Operators that under the Operating Contract and the
Tripartite Agreement it is not answerable for the misfeasance of

136
Associated, is belied by the very provisions of the Tripartite Agreement,
thus:

10. Incorporating Clauses.

Paragraphs 9, 10, 11, the provisions on Board of Arbitrators, 14, 15,


16 and 17 of the contract of September 26, 1953 between the American
Biscuit Co., Inc. and Operators Incorporated are hereby incorporated into
this Contract by way of reference and made an essential part hereof; and
the word "OPERATORS" mentioned in said paragraphs is to be understood
as to include the Associated Biscuit Operators Inc., for purposes of this
Contract; and both the Operators Incorporated and the Associated Biscuit
Operators Inc., in so far as liabilities and obligations therein contained in
said paragraphs shall be made answerable to the American Biscuit Co.,
Inc., jointly and severally.

There is thus no mistaking the fact that Operators and Associated


had assumed, per their agreements, American's liabilities to its creditors in
solidum.

Article 1207 of the new Civil Code states that: "there is a solidary
liability when the obligation expressly so states "What may have led
Operators in denying the solidary character of its obligations was the fact
that it was engaged in the manufacture of candy whereas Associated
Biscuit was supposed to manufacture biscuits, and the fact that the two
operators were required to invest different minimum amounts in the
venture. But these conditions do not alter the solidary nature of their
obligations as expressly provided in Article 1211 of the Civil Code.

137
SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR., vs.

LAND BANK OF THE PHILIPPINES and the REGISTER OF DEEDS FOR


DAVAO CITY

G.R. No. 192602

JARDELEZA, J.:

FACTS:

Sometime in 1996, Paula Agbisit, mother of petitioner May S. Villaluz,


requested the latter to provide her with collateral for a loan. May convinced
her husband, Johnny Villaluz, to allow Agbisit to use their land, located in
Calinan, Davao City, as collateral. 5 On March 25, 1996, the Spouses
Villaluz executed a Special Power of Attorney in favor of Agbisit authorizing
her to, among others, "negotiate for the sale mortgage, or other forms of
disposition a parcel of land" sign in our behalf all documents relating to the
sale, loan or mortgage, or other disposition of the aforementioned property.
The one-page power of attorney neither specified the conditions under
which the special powers may be exercised nor stated the amounts for
which the subject land may be sold or mortgaged.

On June 19, 1996, Agbisit executed her own Special Power of


Attorney, appointing Milflores Cooperative as attorney-in-fact in obtaining a
loan from and executing a real mortgage in favor of Land Bank of the
Philippines. On June 21, 1996, Milflores Cooperative, in a representative
capacity, executed a Real Estate Mortgage in favor of Land Bank in
consideration of the ₱3,000,000 loan to be extended by the latter. On June
24, 1996, Milflores Cooperative also executed a Deed of Assignment of the
Produce/Inventory as additional collateral for the loan. Land Bank partially
released one-third of the total loan amount, or ₱995,500, to Milflores
Cooperative on June 25, 1996. On the same day, Agbisit borrowed the
amount of ₱604,750 from Milflores Cooperative. Land Bank released the
remaining loan amount of ₱2,000,500 to Milflores Cooperative on October
4, 1996.

Unfortunately, Milflorcs Cooperative was unable to pay its obligations


to Land Bank. Thus, Land Bank filed a petition for extra-judicial foreclosure
sale with the Office of the Clerk of Court of Davao City. Sometime in
August, 2003, the Spouses Villaluz learned that an auction sale covering
their land had been set for October 2, 2003. Land Bank won the auction
sale as the sole bidder.
138
ISSUE:

Whether or not the debtor is released from the obligation

HELD:

The Spouses Villaluz claim that the Special Power of Attorney they
issued was mooted by the execution of the Deed of Assignment of the
Produce/Inventory by Milflores Cooperative in favor of Land Bank. Their
theory is that the additional security on the same loan extinguished the
agency because the Deed of Assignment "served as payment of the loan of
the Cooperative."

The assignment was for the express purpose of "securing the


payment of the Line/Loan, interest and charges thereon." Nowhere in the
deed can it be reasonably deduced that the collaterals assigned by
Milflores Cooperative were intended to substitute the payment of sum of
money under the loan. It was an accessory obligation to secure the
principal loan obligation.

The assignment, being intended to be a mere security rather than a


satisfaction of indebtedness, is not an elation in payment under Article
1245 and did not extinguish the loan obligation. "Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved, unless the
parties by agreement-express or implied, or by their silence-consider the
thing as equivalent to the obligation, in which case the obligation is totally
extinguished." As stated in the second condition of the Deed of
Assignment, the "Assignment shall in no way release the ASSIGNOR from
liability to pay the Line/Loan and other obligations, except only up to the
extent of any amount actually collected and paid to ASSIGNEE by virtue of
or under this Assignment." Clearly, the assignment was not intended to
substitute the payment of sums of money. It is the delivery of cash
proceeds, not the execution of the Deed of Assignment that is considered
as payment. Absent any proof of delivery of such proceeds to Land Bank,
the Spouses Villaluz's claim of payment is without basis.

139
Neither could the assignment have constituted payment by cession
under Article 125536 for the plain and simple reason that there was only
one creditor, Land Bank. Article 1255 contemplates the existence of two or
more creditors and involves the assignment of all the debtor's property.

140
THE PHILIPPINE INDUSTRIAL CO. VS. EL HOGAR FILIPINO and
SALVADOR VALLEJO

G.R. No. L-20482

VILLAMOR, J.:

FACTS:

Defendant Salvador Vallejo executed a mortgage in favor of El Hogar


Filipino, upon a certain real estate belonging to him, registered in the
registry of property under the Torrens law. This mortgage contains a
stipulation that the mortgagor cannot create any legal right upon the realty
in favor of a third person, nor make, with regard to said realty, any contract
of lease registerable under the law, or whereby a rental for more than one
month is to be paid in advance, without obtaining the previous consent in
writing of the association El Hogar Filipino. That same mortgage, moreover,
contains a stipulation that in case the debt falls due for non-compliance, on
the part of the debtor, with any of the obligations mentioned in the contract,
the manager of the association El Hogar Filipino is authorized to proceed to
the extrajudicial sale of the mortgaged property at public auction before a
notary, or an auctioneer to be designated by the board of directors of the
association, after publication of notice thereof in a newspaper of general
circulation in this city, once a week for three consecutive weeks; the
manager of the association being likewise authorized to execute, as agent
of the borrower, the corresponding deed of sale in favor of the highest
bidder who may present himself at the auction at the time and in the
manner prescribed in the tenth clause of said contract.

After said mortgage was noted as a lien and encumbrance on the


certificate of title of the property mortgaged, a document was presented to
the register of deeds whereby the debtor made a second mortgage in favor
of the plaintiff corporation, the herein appellee. The register of deeds
refused to register said second mortgage on the ground that it did not
appear therein that the first mortgagee, El Hogar Filipino, never consented
to the registration, in accordance with the prohibiting clause of the
mortgage previously recorded; and an administrative proceeding having
been instituted against the action of the register of deeds, the trial court
ruled that the validity or nullity of the prohibiting clause in question must be
litigated in an ordinary action.

The first mortgage having fallen due, according to the terms thereof,
El Hogar Filipino advertised the sale at public auction of the property
mortgaged and the plaintiff then brought this action, wherein it is prayed
that the prohibiting clause above mentioned be declared void, and a
141
preliminary injunction issued against the defendants, El Hogar Filipino and
Salvador Vallejo their attorneys, agents and representatives and other
persons acting on their behalf, commanding them to abstain from carrying
out the advertised sale of the land in question.

ISSUE:

Whether or not the mortgagor may obtain subsequent loans by


means of subsequent and successive mortgages of his property.

HELD:

In the instant case, said article 107 of the Mortgage Law has no
application because this is a case of a property registered in accordance
with the Torrens system prescribed by Act No. 496, section 124 of which
provides that the system of registration established by the laws in force on
the matter in the Philippine Islands should continue to be applicable to
properties not registered in accordance with this law, with the modifications
established therein. Nor can said article 1880 of the Civil Code, giving
effect to the provisions of the Mortgage Law, be invoked. Therefore, the
provision of article 1255 of the Civil Code remains in force, who gives the
contracting parties absolute liberty to make such stipulations as they may
deem fit, provided they are not contrary to law, morals and public order;
and there being no law whatsoever prohibiting the stipulation that no other
mortgage should be made, and said stipulation not being immoral, nor
contrary to public order, we are of the opinion that such a stipulation is valid
and binding between the parties.

It is evident that the mortgagor may obtain subsequent loans by


means of subsequent and successive mortgages of his property, but when
the debtor voluntarily binds himself not to make any second mortgage
without the consent of the mortgagee, we see no reason whatsoever why
said debtor should not be bound to comply with all the conditions of the
contract. As has been stated, article 107, No. 4, of the Mortgage Law not
being applicable, which expressly permits the registration of a subsequent
mortgages executed upon a real state previously mortgaged under the
Mortgage Law, even if there is a stipulation that no other mortgage should
be made, there exists no law prohibiting such a stipulation and the debtor,
having agreed not to make any second mortgage without the consent of the
creditor, is bound thereby.

142
XV. Tender of Payment and Consignation

SPOUSES TIBAJIA v. COURT OF APPEALS and EDEN TAN

G. R. No. 100290, June 4, 1993

FACTS:

A suit of collection of sum of money was filed by Eden Tan against the
spouses. A writ of attachment was Issued, the Deputy Sheriff filed a return
stating that a deposit made by Tibajia in the amount of P442,750 in another
case, had been garnished by him. RTC ruled in favor of Eden Tan and
ordered the spouses to pay her an amount in excess of P3,000,000. Court
of Appeals modified the decision by reducing the amount for damages.
Tibajia Spouses delivered to Sheriff Bolima the total money judgment of
P398483.70. Tan refused to accept the payment and insisted that the
garnished funds be withdrawn to satisfy the judgment obligation.

ISSUE:

Whether or not payment by means of check is considered payment in legal


tender

HELD:

It applies the statutory provisions which lay down the rule that a check is
not legal tender and that a creditor may validly refuse payment by check,
whether it be a manager’s check, cashier’s or personal check. The decision
of the court of Appeals is affirmed.

143
SOLEDAD SOCO vs. HON. FRANCIS MILITANTE, Incumbent Presiding
Judge of the CFI of Cebu, Branch XII, Cebu City and REGINO
FRANCISCO, JR

FACTS

Soco and Francisco entered into a contract of lease on January 17, 1973,
whereby Soco leased her commercial building and lot situated at Manalili
Street, Cebu City, to Francisco for a monthly rental of P 800.00 for a period
of 10 years renewable for another 10 years at the option of the lessee. It
can readily be discerned from Exhibit “A” (from SOCO) that paragraphs 10
and 11 appear to have been cancelled while in Exhibit “2” (from
FRANCISCO) only paragraph 10 has been cancelled. Claiming that
paragraph 11 of the Contract of Lease was in fact not part of the contract
because it was cancelled, Soco filed Civil Case No. R-16261 in the Court of
First Instance of Cebu seeking the annulment and/or reformation of the
Contract of Lease.

Sometime before the filing of Civil Case R-16261, Francisco noticed that
Soco did not anymore send her collector for the payment of rentals and at
times there were payments made but no receipts were Issued. This
situation prompted Francisco to write Soco the letter dated February 7,
1975 which the latter received. After writing this letter, Francisco sent his
payment for rentals by checks Issued by the Commercial Bank and Trust
Company.

The factual background setting of this case clearly indicates that soon after
Soco learned that Francisco sub-leased a portion of the building to
NACIDA, at a monthly rental of more than P3,000.00 which is definitely
very much higher than what Francisco was paying to Soco under the
Contract of Lease, the latter felt that she was on the losing end of the lease
agreement so she tried to look for ways and means to terminate the
contract.

In view of this alleged non-payment of rental of the leased premises


beginning May, 1977, Soco through her lawyer sent a letter dated
November 23, 1978 to Francisco serving notice to the latter ‘to vacate the
premises leased.’ In answer to this letter, Francisco through his lawyer
informed Soco and her lawyer that all payments of rental due her were in
fact paid by Commercial Bank and Trust Company through the Clerk of
Court of the City Court of Cebu. Despite this explanation, Soco filed this
instant case of Illegal Detainer.

144
MTC and RTC have conflicting findings. The former found that the
consignation was valid. RTC reversed and ordered the eviction of the
Francisco.

ISSUE

Whether or not there was a valid consignation of payment of the rentals.

HELD:

In order that consignation may be effective, the debtor must first comply
with certain requirements prescribed by law. The debtor must show (1) that
there was a debt due; (2) that the consignation of the obligation had been
made because the creditor to whom tender of payment was made refused
to accept it, or because he was absent or incapacitated, or because several
persons claimed to be entitled to receive the amount due (Art. 1176, Civil
Code); (3) that previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art. 1177, Civil
Code); (4) that the amount due was placed at the disposal of the court (Art.
1178, Civil Code); and (5) that after the consignation had been made the
person interested was notified thereof (Art. 1178, Civil Code). Failure in any
of these requirements is enough ground to render a consignation
ineffective.

We hold that the respondent lessee has utterly failed to prove the following
requisites of a valid consignation: First, tender of payment of the monthly
rentals to the lessor. Second, respondent lessee also failed to prove the
first notice to the lessor prior to consignation,

Evidently, from this arrangement, it was the lessee’s duty to send someone
to get the cashier’s check from the bank and logically, the lessee has the
obligation to make and tender the check to the lessor. This the lessee failed
to do, which is fatal to his defense.

Third, respondent lessee likewise failed to prove the second notice, that is
after consignation has been made, to the lessor. And the fourth requisite
that respondent lessee failed to prove is the actual deposit or consignation
of the monthly rentals except the two cashier’s checks referred to in Exhibit
12. As indicated earlier, not a single copy of the official receipts Issued by
the Clerk of Court was presented at the trial of the case to prove the actual
deposit or consignation.

145
We, therefore, find and rule that the lessee has failed to prove tender of
payment except that in Exh. 10; he has failed to prove the first notice to the
lessor prior to consignation except that given in Exh. 10; he has failed to
prove the second notice after consignation except the two made in Exh. 12;
and he has failed to pay the rentals for the months of July and August,
1977 as of the time the complaint was filed for the eviction of the lessee.
We hold that the evidence is clear, competent and convincing showing that
the lessee has violated the terms of the lease contract and he may,
therefore, be judicially ejected.

146
Far East Bank & Trust v. Diaz Realty Inc.

G.R. No. 138588, August 23, 2001

Facts:

Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the
amount of P720,000 at 12% interest p.a. which was increased thereafter.
The said loan was secured with a real estate mortgage over two parcels of
land owned by Diaz Realty, herein respondent. Subsequently, the loan
account was purchased by the petitioner Far East Bank (FEBTC). Two
years after, the respondent through its President inquired about its
obligation and upon learning of the outstanding obligation, it tendered
payment in the form of an Interbank check in the a9mount of P1,450,000 in
order to avoid the further imposition of interests. The payment was with a
notation for the full settlement of the obligation.

The petitioner accepted the check but it alleged in its defense that it was
merely a deposit. When the petitioner refused to release the mortgage, the
respondent filed a suit. The lower court ruled that there was a valid tender
of payment and ordered the petitioner to cancel the mortgage. Upon
appeal, the appellate court affirmed the decision.

Issue:

Whether or not there was a valid tender of payment to extinguish the


obligation of the respondent

HELD:

Yes. Although jurisprudence tells us that a check is not a legal tender and a
creditor may validly refuse it, this dictum does not prevent a creditor from
accepting a check as payment. Herein, the petitioner accepted the check
and the same was cleared.

A tender of payment is the definitive act of of offering the creditor what is


due him or her, together with the demand that he accepts it. More important
is that there must be a concurrence of intent, ability and capability to make
good such offer, and must be absolute and must cover the amount due.
The acts of the respondent manifest its intent, ability and capability. Hence,
there was a valid tender of payment.

147
Meanwhile, the transfer of credit from Pacific Bank to the petitioner did not
involve an effective novation but an assignment of credit. As such, the
petitioner has the right to collect the full value of the credit from the
respondent subject to the conditions of the promissory note previously
executed.

148
HEIRS OF LUIS BACUS ET. AL

VS.

CA AND SPOUSES FAUSTINO AND VICTORIANA DURAY

(GR 127695 DEC. 3, 2001)

FACTS

On 1984 Luis Bacus leased to Faustino Duray a parcel of agricultural land


with total land area of 3,002 of square meters, in Cebu. The lease was for
six years ending in 1990, the contract contained an option to buy clause.
Under the said option, the lessee had the exclusive and irrevocable right to
buy 2,000 square meters 5 years from a year after the effectivity of the
contract, at P200 per square meter. That rate shall be proportionately
adjusted depending on the peso rate against the US dollar, which at the
time of the execution of the contract was 14 pesos.

Close to the expiration of the contract Luis Bacus died on 1989, after Duray
informed the heirs of Bacus that they are willing and ready to purchase the
property under the option to buy clause. The heirs refused to sell, thus
Duray filed a complaint for specific performance against the heirs of Bacus.
He showed that he is ready and able to meet his obligations under the
contract with Bacus.

ISSUE

Whether or not the heirs of Luis Bacus be compelled to sell the portion of
the lot under the option to buy clause

HELD

Yes, Obligations under an option to buy are reciprocal obligations. The


performance of one obligation is conditioned on the simultaneous fulfillment
of the other obligation. In other words, in an option to buy, the payment of
the purchase price by the creditor is contingent upon the execution and
delivery of the deed of sale by the debtor. When the Duray’s exercised their
option to buy the property their obligation was to advise the Bacus’ of their
decision and readiness to pay the price, they were not yet obliged to make
the payment. Only upon the Bacus’ actual execution and delivery of the
deed of sale were they required to pay. The Durays did not incur in delay
when they did not yet deliver the payment nor make a consignation before
the expiration of the contract. In reciprocal obligations, neither party incurs
in delay if the other party does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Only from the moment
one of the parties fulfills his obligation, does delay by the other begin.

149
AMADEO MATUTE

VS.

CHEONG BOO

G.R.NO. L-11109 JANUARY 7, 1918

STREET,J.:

FACTS

On January 14, 1915, a contract was made between Amadeo Matute and
Cheong Boo that the former should deliver and the latter should receive
within the month of February of the same year a quantity of more than 300
and less than 500 piculs of mastic (almaciga) at the price of P8.50/picul.
Matute performed his part and delivered on February 22, 1915 the
almaciga to the defendant but he refused to accept delivery. The plaintiff
thereupon stored the almaciga in a warehouse and he go to the court to file
a case claiming for damages plus interest for not accepting the almaciga
and the expenses of storing the almaciga in a warehouse.

ISSUE

Whether or not should the plaintiff can claimed for the damages?

HELD

Yes, the defendant should comply with their contract and all the expense
which brought by consignation will be given against him and it was stated
on article 1259 “The expense of consignation, when properly made, shall
be charged against the creditor.”

150
XVI. Loss of a thing

REPUBLIC OF THE PHILIPPINES

VS.

JOSE GRIJALDO

G.R. NO. L-20240 DECEMBER 31, 1965

FACTS:

In the year 1943 appellant Jose Grijaldo obtained five loans from the
branch office of the Bank of Taiwan, Ltd. in Bacolod City, in the total sum of
P1,281.97 with interest at the rate of 6% per annum, compounded
quarterly. These loans are evidenced by five promissory notes executed by
the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1,
1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on
August 9, 1943,P300.00; on August 13, 1943, P200.00, all notes without
due dates, but because the loans were due one year after they were
incurred. To secure the payment of the loans the appellant executed a
chattel mortgage on the standing crops on his land, Lot No. 1494 known as
Hacienda Campugas in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the
authority provided for in the Trading with the Enemy Act, as amended, the
assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the
Government of the United States. Pursuant to the Philippine Property Act of
1946 of the United States, these assets, including the loans in question,
were subsequently transferred to the Republic of the Philippines by the
Government of the United States under Transfer Agreement dated July 20,
1954. These assets were among the properties that were placed under the
administration of the Board of Liquidators created under Executive Order
No. 372, dated November 24, 1950, and in accordance with Republic Acts
Nos. 8 and 477 and other pertinent laws.

On September 29, 1954 the appellee, Republic of the Philippines,


represented by the Chairman of the Board of Liquidators, made a written
extrajudicial demand upon the appellant for the payment of the account in
question. The record shows that the appellant had actually received the
written demand for payment, but he failed to pay.

On January 17, 1961 the appellee filed a complaint in the Justice of the
Peace Court of Hinigaran, Negros Occidental, to collect from the appellant
the unpaid account in question. The Justice of the Peace Of Hinigaran,

151
after hearing, dismissed the case on the ground that the action had
prescribed. The appellee appealed to the Court of First Instance of Negros
Occidental and on March 26, 1962 the court a quo rendered a decision
ordering the appellant to pay the appellee the sum of P2,377.23 as of
December 31, 1959, plus interest at the rate of 6% per annum
compounded quarterly from the date of the filing of the complaint until full
payment was made. The appellant was also ordered to pay the sum
equivalent to 10% of the amount due as attorney's fees and costs.

The appellant appealed directly to this Court. During the pendency of this
appeal the appellant Jose Grijaldo died. Upon motion by the Solicitor
General this Court, in a resolution of May 13, 1963, required Manuel
Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are
the legal heirs of Jose Grijaldo to appear and be substituted as appellants
in accordance with Section 17 of Rule 3 of the Rules of Court.

ISSUE:

Whether or not the obligation to pay is extinguished

HELD:

This argument is untenable. The terms of the promissory notes and the
chattel mortgage that the appellant executed in favor of the Bank of
Taiwan, Ltd. do not support the claim of appellant. The obligation of the
appellant under the five promissory notes was not to deliver a determinate
thing namely, the crops to be harvested from his land, or the value of the
crops that would be harvested from his land. Rather, his obligation was to
pay a generic thing — the amount of money representing the total sum of
the five loans, with interest. The transaction between the appellant and the
Bank of Taiwan, Ltd. was a series of five contracts of simple loan of sums
of money. "By a contract of (simple) loan, one of the parties delivers to
another ... money or other consumable thing upon the condition that the
same amount of the same kind and quality shall be paid." (Article 1933,
Civil Code) The obligation of the appellant under the five promissory notes
evidencing the loans in questions is to pay the value thereof; that is, to
deliver a sum of money — a clear case of an obligation to deliver, a generic
thing. Article 1263 of the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of


anything of the same kind does not extinguish the obligation.

The chattel mortgage on the crops growing on appellant's land simply


stood as a security for the fulfillment of appellant's obligation covered by
the five promissory notes, and the loss of the crops did not extinguish his

152
obligation to pay, because the account could still be paid from other
sources aside from the mortgaged crops.

153
LAWYERS COOPERATIVE PUBLISHING COMPANY

v.

PERFECTO A. TABORA

FACTS

Perfecto Tabora bought from the Lawyers Cooperative Publishing


Company a complete set of AmJur, plus a set of AmJur, General Index.

The contract states that Title to and ownership of the books shall remain
with the seller until the purchase price shall have been fully paid. Loss or
damage to the books after delivery to the buyer shall be borne by the
buyer.

Tabora made a partial payment of P300.00, leaving a balance of


P1,382.40. The books were delivered and receipted for by Tabora. On the
same day, a fire broke out, burning down Tabora’s law office and library.
Tabora immediately reported it to LCBC. The company replied and as a
token of goodwill it sent to Tabora free of charge 4 Philippine Reports
volumes.

As Tabora failed to pay the monthly installments agreed upon, LCBC filed
an action to recover of the balance.

ISSUE

Who bears the loss?

HELD

The loss of the object of the contract of sale is borne by the owner or in
case of force majeure the one under obligation to deliver the object is
exempt from liability, however, it is provided that loss or damage after
delivery shall be borne by the buyer.

Force majeure defense fails since the rule only holds true when the
obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event.

The obligation is pecuniary in nature, and the obligor bound himself to


assume the loss after the delivery.

154
LIZARES

VS.

HERNAEZ

40 PHIL 981

FACTS

Camarin was burned and lessee won’t pay. Lizares and Hernaez entered
into a contract, the former became the lessee of the two haciendas.
Petitioner used one of the improvements there which was a roofed Camarin
used in manufacture of sugar. A fire occurred and destroyed the Camarin.
Petitioner demanded from Defendant that he should reconstruct the
Camarin; the defendant refused. Petitioner did not pay the rentals because
of non- construction of the Camarin. Defendant claims Petitioner should be
liable for the fire since he is the lessee when the fire occurred.

ISSUE

Whether or not plaintiff has responsibility to the damages caused by fire

HELD

No. And so is the defendant, since such was due to a force majeure. But
the plaintiff is in default with regard to the non-payment of rentals due to
non-construction of Camarin. Although there is presumption against lessee
when loss in the leased prop occurs, proof is necessary to prove he is not
responsible. Under the New Civil Code, when a thing is lost while in the
possession of the debtor, it is presumed that it loss occurred by his fault
and not by fortuitous even in the absence of the contrary.

155
LABAYEN VS TALISAY-SILAY MILLING CO. INC.

G.R. NO. L-29298 (1928)

PONENTE: JUSTICE MALCOM

Facts:

Reynaldo Labayen and Teodoro Labayen are the owners of Dos


Hermanos, a hacienda in Talisay, Negros Occidental. They entered into a
contract with Talisay-Silay Milling Company Incorporated, also called the
Central, for the milling of sugar canes from their hacienda.

Stipulated in the contract is the construction of a railroad with three and a


half meters right of way and maintenance of such railroad by the central.
However, the central was only able to construct a railroad reaching
hacienda Esmeralda No. 2, four kilometers away from hacienda Dos
Hermanos. For a railroad to extend to hacienda Dos Hermanos, the
construction would require a gradual elevation of 4.84% to 7%, would
necessitate 26 curves and would cost Php80,000.00. A civil engineer
testifying in behalf of the defendants allege that to construct such would be
possible but it would be very dangerous.

This led to an action for damages in the amount of Php 28,620.00 by the
petitioners for the alleged breach of contract to grind sugar canes at the
Court of First Instance of Negros Occidental. The court ruled against the
petitioners and on the cross-complaint of the defendants, condemned the
petitioners to pay the sum of Php 12, 114.00.

Issue

Whether or not the action for damages should prosper

Held:

No. If the obligor voluntarily prevented the fulfillment of the condition of the
obligation, such condition shall be deemed fulfilled (article 1186 of the New
Civil Code). The path of the railroad has to pass through the haciendas of
Esteban de la Rama. Since he would not grant permission to use his land,
therefore preventing the compliance of the obligation to grind, the action
cannot prosper.

156
NATELCO VS. CA

G.R.NO. 107112 FEBRUARY 24, 1994

FACTS:

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company


rendering local as well as long distance service in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is
a private corporation established for the purpose of operating an electric
power service in the same city. On November 1, 1977, the parties entered
into a contract (Exh. "A") for the use by petitioners in the operation of its
telephone service the electric light posts of private respondent in Naga City.
In consideration therefor, petitioners agreed to install, free of charge, ten
(10) telephone connections for the use by private respondent

After the contract had been enforced for over ten (10) years, private
respondent filed on January 2, 1989 with the Regional Trial Court of Naga
City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the
contract with damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of the National
Electrification Administration (NEA) which direct that the reasonable
compensation for the use of the posts is P10.00 per post, per month; that
after eleven (11) years of petitioners' use of the posts, the telephone cables
strung by them thereon have become much heavier with the increase in the
volume of their subscribers, worsened by the fact that their linemen bore
holes through the posts at which points those posts were broken during
typhoons.

Issue:

Whether respondent court erred in making a contract for the parties by


invoking Article 1267 of the New Civil Code

HELD:

Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, 9 the term "service"
should be understood as referring to the "performance" of the obligation. In
the present case, the obligation of private respondent consists in allowing
petitioners to use its posts in Naga City, which is the service contemplated
in said article. Furthermore, a bare reading of this article reveals that it is
not a requirement thereunder that the contract be for future service with
future unusual change. According to Senator Arturo M. Tolentino, 10
Article 1267 states in our law the doctrine of unforseen events. This is said
157
to be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and the
demands of equity and good faith, the disappearance of the basis of a
contract gives rise to a right to relief in favor of the party prejudiced.

158
XVII. Condonation

REYNA V. COMISSION ON AUDIT

FEBRUARY 8, 2011

FACTS

The Land Bank of the Philippines (Land Bank) was engaged in a cattle-
financing program wherein loans were granted to various cooperatives.
Pursuant thereto, Land Bank's Ipil, Zamboanga del Sur Branch (Ipil
Branch) went into a massive information campaign offering the program to
cooperatives.Cooperatives who wish to avail of a loan under the program
must fill up a Credit Facility Proposal (CFP) which will be reviewed by the
Ipil Branch. The Ipil Branch approved the applications of four
cooperatives.One of the conditions stipulated in the CFP is that prior to the
release of the loan, a Memorandum of Agreement (MOA) between the
supplier of the cattle, Remad Livestock Corporation (REMAD), and the
cooperative, shall have been signed. As alleged by petitioners, the terms of
the CFP allowed for pre-payments or advancement of the payments prior to
the delivery of the cattle by the supplier REMAD but such was not
stipulated in the contracts.

Three checks were Issued by the Ipil Branch to REMAD to serve as


advanced payment for the cattle. REMAD, however, failed to supply the
cattle on the dates agreed upon.

In post audit, the Land Bank Auditor disallowed the amount of


P3,115,000.00 under CSB No. 95-005 dated December 27, 1996 and
Notices of Disallowance Nos. 96-014 to 96-019 in view of the non-delivery
of the cattle. Also made as the basis of the disallowance was the fact that
advanced payment was made in violation of bank policies and COA rules
and regulations.

Petitioners were made liable for the amount

ISSUE:

Whether or not the writing off of a loan is considered as condonation

HELD:

This Court rules that writing-off a loan does not equate to a condonation or
release of a debt by the creditor.

As an accounting strategy, the use of write-off is a task that can help a


company maintain a more accurate inventory of the worth of its current
assets. In general banking practice, the write-off method is used when an

159
account is determined to be uncollectible and an uncollectible expense is
recorded in the books of account. If in the future, the debt appears to be
collectible, as when the debtor becomes solvent, then the books will be
adjusted to reflect the amount to be collected as an asset. In turn, income
will be credited by the same amount of increase in the accounts receivable.

Write-off is not one of the legal grounds for extinguishing an obligation


under the Civil Code. It is not a compromise of liability. Neither is it a
condonation, since in condonation gratuity on the part of the obligee and
acceptance by the obligor are required. In making the write-off, only the
creditor takes action by removing the uncollectible account from its books
even without the approval or participation of the debtor.

160
TRANS PACIFIC V CA

G.R.No. 109172 August 19, 1994

FACTS:

Sometime in 1979, petitioner applied for and was granted several financial
accommodations amounting to P1,300,000.00 by respondent Associated
Bank. The loans were evidence and secured by four (4) promissory notes,
a real estate mortgage covering three parcels of land and a chattel
mortgage over petitioner's stock and inventories.

Unable to settle its obligation in full, petitioner requested for, and was
granted by respondent bank, a restructuring of the remaining indebtedness
which then amounted to P1,057,500.00, as all the previous payments made
were applied to penalties and interests.

The mortgaged parcels of land were substituted by another mortgage


covering two other parcels of land and a chattel mortgage on petitioner's
stock inventory. The released parcels of land were then sold and the
proceeds amounting to P1,386,614.20, according to petitioner, were turned
over to the bank and applied to Trans-Pacific's restructured loan.
Subsequently, respondent bank returned the duplicate original copies of
the three promissory notes to Trans-Pacific with the word "PAID" stamped
thereon. Despite the return of the notes, or on December 12, 1985,
Associated Bank demanded from Trans-Pacific payment of the amount of
P492,100.00 representing accrued interest on PN No. TL-9077-82.
According to the bank, the promissory notes were erroneously released.

ISSUE

Whether or not petitioner has indeed paid in full its obligation to respondent
bank.

HELD:

The surrender and return to plaintiffs of the promissory notes evidencing


the consolidated obligation as restructured, produces a legal presumption
that Associated had thereby renounced its actionable claim against
plaintiffs (Art. 1271, NCC). The presumption is fortified by a showing that
said promissory notes all bear the stamp "PAID", and has not been
otherwise overcome. Upon a clear perception that Associated's record
keeping has been less than exemplary . . . , a proffer of bank copies of the
promissory notes without the "PAID" stamps thereon does not impress the
Court as sufficient to overcome presumed remission of the obligation vis-a-

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vis the return of said promissory notes. Indeed, applicable law is supportive
of a finding that in interest bearing obligations-as is the case here, payment
of principal (sic) shall not be deemed to have been made until the interests
have been covered (Art. 1253, NCC). Conversely, competent showing that
the principal has been paid, militates against postured entitlement to unpaid
interests.

162
PAZ ARRIETA

VS

NATIONAL RICE AND CORN CORPORATION

FEBRUARY 29, 2012

Paz Arrieta is a rice dealer/importer. In May 1952, she participated in a


public bidding Held by the National Rice and Corn Corporation (NARIC).
NARIC was looking for someone to supply 20,000 metric tons of Burmese
Rice. Arrieta was the lowest bidder at $203.00 per metric ton hence she
won the bidding. So a contract was made whereby Arrieta is to deliver the
rice supply and NARIC is to pay for the imported rice “by means of an
irrevocable, confirmed and assignable letter of credit in U.S. currency in
favor of the Arrieta and/or supplier in Burma, immediately.” Arrieta then
proceeded to contact her supplier in Burma (Thiri Setkya) and arranged the
sale of the 20k metric ton of Burmese Rice, Arrieta promised Setkya that he
will be paid by NARIC on August 4, 1952. Arrieta also made a 5% deposit
(P200k) as advance payment to Setkya.

Meanwhile, NARIC tried to open a letter of credit ion the amount of


$3,614,000.00 with the Philippine National Bank. PNB agreed to open the
letter of credit but only on the condition that NARIC deposits 50% of the
said amount. NARIC failed to do this and the letter of credit was not opened
when the obligation to pay Setkya became due. Because of this, Arrieta
lost the opportunity to profit from the sale as the agreement was eventually
forfeited. Her 5% depoit was likewise forfeited pursuant to Burma laws.

ISSUE: Whether or not Arrieta is entitled to damages.

HELD: Yes. It is clear upon the records that the sole and principal reason
for the cancellation of the allocation contracted by Arrieta in Rangoon,
Burma, was the failure of the letter of credit to be opened with the
contemplated period. The letter of credit is in US currency. Normally,
parties can stipulate as to which currency shall be used in paying off an
obligation provided that the exchange rate prevailing at the time of
judgment shall prevail over the rate of exchange at the time of the breach.
This rule however is of no application in the case at bar due to the passage
of Republic Act 529 which expressly declares such stipulations as contrary
to public policy, void and of no effect. If there is any agreement to pay an
obligation in a currency other than Philippine legal tender, the same is null
and void as contrary to public policy (Republic Act 529), and the most that
could be demanded is to pay said obligation in Philippine currency “to be
measured in the prevailing rate of exchange at the time the obligation was
incurred.
163
LOPEZ VS, TAMBUNTING

G.R.NO. 9806 JANUARY 19, 1916

FACTS:

These proceedings were brought to recover from the defendant the sum of
P2,000, amount of the fees, which, according to the complaint, are owing
for professional medical services rendered by the plaintiff to a daughter of
the defendant from March 10 to July 15, 1913, which fees the defendant
refused to pay, notwithstanding the demands therefor made upon him by
the plaintiff.

The defendant denied the allegations of the complaint, and furthermore


alleged that the obligation which the plaintiff endeavored to compel him to
fulfill was already extinguished.

ISSUE:

Whether or not implied condonation can be legally presumed in the instant


case

HELD:

It is true that number 8 of section 334 of the Code of Civil Procedure


provides as a legal presumption "that an obligation delivered up to the
debtor has been paid." Article 1188 of the Civil Code also provides that the
voluntary surrender by a creditor to his debtor, of a private instrument
proving a credit, implies the renunciation of the right of action against the
debtor; and article 1189 prescribes that whenever the private instrument
which evidences the debt is in the possession of the debtor, it will be
presumed that the creditor delivered it of his own free will, unless the
contrary is proven.

But the legal presumption established by the foregoing provisions of law


cannot stand if sufficient proof is adduced against it. In the case at bar the
trial court correctly Held that there was sufficient evidence to the contrary,
in view of the preponderance thereof in favor of the plaintiff and of the
circumstances connected with the defendant's possession of said receipt
Exhibit 1. Furthermore, in order that such a presumption may be taken into
account, it is necessary, as stated in the laws cited, that the evidence of the
obligation be delivered up to the debtor and that the delivery of the
instrument proving the credit be made voluntarily by the creditor to the
debtor. In the present case, it cannot be said that these circumstances
concurred, inasmuch as when the plaintiff sent the receipt to the defendant
for the purpose of collecting his fee, it was not his intention that that

164
document should remain in the possession of the defendant if the latter did
not forthwith pay the amount specified therein.

165
XVIII. Confusion or Merger

ESTATE OF MOTA VS. SERRA

G.R.NO. 22825 FEBRUARY 14, 1925

FACTS:

On February 1, 1919, plaintiffs and defendant entered into a contract of


partnership, marked Exhibit A, for the construction and exploitation of a
railroad line from the "San Isidro" and "Palma" centrals to the place known
as "Nandong". The original capital stipulated was P150,000. It was
covenanted that the parties should pay this amount in equal parts and the
plaintiffs were entrusted with the administration of the partnership.

January 29, 1920, the defendant entered into a contract of sale with
Venancio Concepcion, Phil. C. Whitaker, and Eusebio R. de Luzuriaga,
whereby he sold to the latter the estate and central known as "Palma" with
its running business, as well as all the improvements, machineries and
buildings, real and personal properties, rights, choses in action and
interests, including the sugar plantation of the harvest year of 1920 to 1921,
covering all the property of the vendor. Before the delivery to the
purchasers of the hacienda thus sold, Eusebio R. de Luzuriaga renounced
all his rights under the contract of January 29, 1920, in favor of Messrs.
Venancio Concepcion and Phil. C. Whitaker.

Afterwards, on January 8, 1921, Venancio Concepcion and Phil. C.


Whitaker bought from the plaintiffs the one half of the railroad line
pertaining to the latter executing therefor the document Exhibit 5. The price
of this sale was P237,722.15, excluding any amount which the defendant
might be owing to the plaintiffs.

ISSUE:

Whether or not there was confusion of the rights of the creditor and debtor

HELD:

The purchasers, Phil. C. Whitaker and Venancio Concepcion, to secure the


payment of the price, executed a mortgage in favor of the plaintiffs on the
same rights and titles that they had bought and also upon what they had
purchased from Mr. Salvador Serra. In other words, Phil C. Whitaker and
Venancio Concepcion mortgaged unto the plaintiffs what they had bought
from the plaintiffs and also what they had bought from Salvador Serra. If
Messrs. Phil. C. Whitaker and Venancio Concepcion had purchased
something from Mr. Salvador Serra, the herein defendant, regarding the
railroad line, it was undoubtedly the one-half thereof pertaining to Mr.

166
Salvador Serra. This clearly shows that the rights and titles transferred by
the plaintiffs to Phil. C. Whitatker and Venancio Concepcion were only
those they had over the other half of the railroad line. Therefore, as already
stated, since there was no novation of the contract between the plaintiffs
and the defendant, as regards the obligation of the latter to pay the former
one-half of the cost of the construction of the said railroad line, and since
the plaintiffs did not include in the sale, evidenced by Exhibit 5, the credit
that they had against the defendant, the allegation that the obligation of the
defendant became extinguished by the merger of the rights of creditor and
debtor by the purchase of Messrs. Phil. C. Whitaker and Venancio
Concepcion is wholly untenable.

167
168
RODRIGO ENRIQUEZ ET. AL. VS. SOCCORO RAMOS

G.R. NO. 40908

BUTTE, J.:

FACTS:

On November 24, 1958 Enriquez and spouses Dizon sold to Ramos


20 subdivision lots in Quezon City for the sum of P235,056 of which only
P35,056 had been paid. The balance of P200,000 was to be liquidated
within 2 years from the date of the execution of the deed of sale, with
interest at 6% for the 1st year and 12% thereafter until fully paid. To
secure the payment of that balance, Ramos executed in the same
document a deed of mortgage in favor of the vendors on several parcels of
land variously situated in Quezon City, Pampanga and Bulacan. The deed
of mortgage embodies certain stipulations which Ramos invoked. But
according to the appellants the defendant violated the terms of their
agreement in the following respects:

The defendant refuse to pay the sum of P200,000 within the


stipulated period. The mortgage on Bulacan property was never registered
and, the realty tax for 1959 on the lots mortgage were not paid by the
defendant. Ramos admit that she has not paid the realty taxes and has not
registered the mortgage on Bulacan property but argues that it was a minor
ones and still her obligation to pay the sum of P200,000 has not arisen as
no previous notice and demand for payment has been made and according
to her the road is not completed because the appellants have not yet
planted trees nor put up water facilities as required by the ordinance.

The court held that the non-payment of 1959 realty taxes as well as
the non-registration of the mortgaged on Bulacan estate by the defendant
were minor matters. On the issue of the completion of road the appellant
adduced the testimonies of 2 witnesses that the road was completed on
May 9, 1960 in accordance with the ordinances of Quezon City and there is
nothing in Ordinance 2969 which would indicate that a street may be
considered completed with water facilities are built on the subdivision and
these activities are definitely segregable. As to be alleged lack of previous
notice completion and demand for payment, the filling of the case is
sufficient notice to the defendant of the completion of the roads in question

169
and of the appellee’s desire to be paid the purchase price of the questioned
lots.

ISSUE:

Whether or not confusion or merger of rights took place when a


creditor bought the mortgaged land of his debtor, in effect extinguishing the
debt

DECISION:

The trial court held that when the plaintiffs acquired through
Francisco Paulino the equity of Fructuosa Cadiz in the very same lands
conveyed to them as mortgagees, a merger of rights took place which had
the effect of extinguishing the debt of Fructuosa Cadiz in favor of the
plaintiffs, under the provisions of articles 1156 and 1159 of the Civil Code.
If that were not true, the plaintiffs would acquire the legal and equitable title
to lands assessed at P28,150 for the sum of P873.31 paid by them to
Francisco Paulino without giving Fructuosa Cadiz or her estate credit for
anything, leaving the said estate still owing the plaintiffs the P30,000, plus
interest, for which the lands stood security. This extinction of the obligation
and merger of rights by which the plaintiffs became owners of the land,
occurred when they acquired the rights of Francisco Paulino, that is to say,
on February 9, 1931.

The intervenor’s appeal rests essentially upon the proposition that


novation of the contract of mortgage occurred when the plaintiffs agreed
that they should take possession of the land before the maturity of the
mortgage, and credit the products thereof to the payment of the principal
and interest of the debt, thus converting the mortgage to a contract of
antichresis. The evidence fails entirely to establish said alleged agreement.
The defendant administrator, the widower of the deceased Fructuosa
Cadiz, ma es no such claim. The plaintiffs contend that they did not take
possession until after they became owners by virtue of the conveyance
from Francisco Paulino, that is to say, toward the end of the month of
February, 1932, which was after the year for redemption of Francisco
Paulino’s purchase by the judgment debtor had expired.

170
YEK TON LIN V YUSINGCO

G.R.No. 43608 July 20, 1937

FACTS:

Defendant Pelagio Yusingco was the owner of the steamship Yusingco


and, as such, he executed, on November 19, 1927, a power of attorney in
favor of Yu Seguioc to administer, lease, mortgage and sell his properties,
including his vessels or steamship. Yu Seguioc mortgaged to the plaintiff
Yek Tong Lin Fire & Marine Insurance Co., Ltd., with the approval of the
Bureau of Customs, the steamship Yusingco belonging to the defendant.
One year and some months later, the steamship Yusingco needed some
repairs which were made by the Earnshaw Docks & Honolulu Iron Works.
The repairs were made upon the guaranty of the defendant and appellant
Vicente Madrigal at a cost of P8,244.66. When neither A. Yusingco
Hermanos nor Pelagio Yusingco could pay said sum to the Earnshaw
Docks & Honolulu Iron Works, the defendant and appellant Vicente
Madrigal had to make payment thereof with the stipulated interest thereon,
which was at the rate of 9 per cent per annum, on March 9, 1932, because
he was bound thereto by reason of the bond filed by him, the payment then
made by him having amounted to P8,777.60. When said defendant
discovered that he was not to be reimbursed for the repairs made on the
steamship Yusingco, he brought an action against his codefendant Pelagio
Yusingco and A. Yusingco Hermanos to compel them to reimburse, thereby
giving rise to civil case No. 41654 of the Court of First Instance of Manila,
entitled "Vicente Madrigal, plaintiff, vs. Pelagio Yusingco and A. Yusingco
Hermanos, defendants" which resulted in a judgment favorable to him and
adverse to the Yusingcos.

ISSUE:

Whether or not obligations were extinguished by reason of the merger of


the rights of the debt or and creditor?

HELD:

After the steamship Yusingco had been sold by virtue of the judicial writ
Issued in civil case No. 41654 for the execution of the judgment rendered in
favor of Vicente Madrigal, the only right left to the plaintiff was to collect its
mortgage credit from the purchaser thereof at public auction, inasmuch as
the rule is that a mortgage directly and immediately subjects the property
on which it is imposed, whoever its possessor may be, to the fulfillment of
the obligation for the security of which it was created (article 1876, Civil

171
code); but it so happens that it can not take such steps now because it was
the purchaser of the steamship Yusingco at public auction, and it was so
with full knowledge that it had a mortgage credit on said vessel. Obligations
are extinguished by the merger of the rights of the creditor and debtor
(articles 1156 and 1192, Civil Code).

172
TIRSO GARCIA vs. LIM CHU SING

G.R. No. L-39427

VILLA-REAL, J.:

FACTS:

Defendant is the owner of shares of stocks of the Mercantile Bank of


China amounting to P10,000. Later, the defendant borrowed money from
the Bank amounting to P9,605.17 with interest thereon at 6% per annum.
The debt was to be paid in installments as they become due, the entire
amount or the unpaid balance thereof will become due and payable on
demand. The defendant defaulted in the payment of several installments
and plaintiff brought this action to recover the unpaid balance. The
defendant pleaded compensation.

ISSUE:

Whether or not the defendant’s debt can be compensated with the


shares of stock he owns?

HELD:

There can be no compensation because regarding the shares of


stock, there is no relationship of debtor and creditor.

“A stockholder’s indebtedness to a banking corporation cannot be


compensated with the amount of his shares in the same institution, there
being no relation of creditor and debtor with regards to such shares.”

“According to the weight of authority, a share of stock or certificate is


not an indebtedness to the owner nor evidence of indebtedness, and,
therefore, it is not a credit.”

173
XIX. Compensation

UNITED PLANTERS MILLING CO. V. CA

GR No. 126890; April 2, 2009

FACTS:

In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it
had waived its right to collect on an outstanding indebtedness from
petitioner, by virtue of a so-called “friendly foreclosure agreement” that
ultimately was friendly only to petitioner.

Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in


the business of milling sugar. In 1974, as UPSUMCO commenced
operations, it obtained a set of loans from respondent Philippine National
Bank (PNB). The loans were secured over two parcels of land where the
milling plant stood and chattel mortgages over the machineries and
equipment.

On 27 February 1987, through a Deed of Transfer, PNB assigned to the


Government its “rights, titles and interests” over UPSUMCO, among
several other assets.[6] The Deed of Transfer acknowledged that said
assignment was being undertaken “in compliance with Presidential
Proclamation No. 50.” The Government subsequently transferred these
“rights, titles and interests” over UPSUMCO to the respondent Asset and
Privatization Trust (APT).

ISSUE:

Whether or not there was compensation in the present case.

HELD:

The right of PNB to set-off payments from UPSUMCO arose out of


conventional compensation rather than legal compensation, even though
all of the requisites for legal compensation were present as between those
two parties. The determinative factor is the mutual agreement between
PNB and UPSUMCO to set-off payments. Even without an express
agreement stipulating compensation, PNB and UPSUMCO would have
been entitled to set-off of payments, as the legal requisites for
compensation under Article 1279 were present.

As soon as PNB assigned its credit to APT, the mutual creditor-debtor


relation between PNB and UPSUMCO ceased to exist. However, PNB and
UPSUMCO had agreed to a conventional compensation, a relationship
which does not require the presence of all the requisites under Article 1279.

174
And PNB too had assigned all its rights as creditor to APT, including its
rights under conventional compensation. The absence of the mutual
creditor-debtor relation between the new creditor APT and UPSUMCO
cannot negate the conventional compensation. Accordingly, APT, as the
assignee of credit of PNB, had the right to set-off the outstanding
obligations of UPSUMCO on the basis of conventional compensation
before the condonation took effect on 3 September 1987.

175
SPOUSES CHUNG V. ULANDAY CONSTRUCTION

OCTOBER 11, 2010

FACTS:

In February 1985, the petitioners contracted with respondent Ulanday


Construction, Inc. to construct, within a 150-day period,the concrete
structural shell of the formers two-storey residential house in Urdaneta
Village, Makati City at the contract price of P3, 291,142.00.

The contract stipulated among others that the petitioners shall pay a
P987,342.60 downpayment, with the balance to be paid in progress
payments based on actual work completed; (c) the Construction Manager
or Architect shall check the respondent’s request for progress payment and
endorse it to the petitioners for payment within 3 days from receipt, (d) the
petitioners shall pay the respondents within 7 days from receipt of the
Construction Manager’s or Architect’s certificate; (e) the respondent cannot
change or alter the plans, specifications, and works without the petitioners’
prior written approval. Respondent gave 12 progress billings but the
petitioners were only able to pay 7 of them. On their part, the respondent
effected 19 change orders without the consent of the petitioners amounting
to P912, 885.91. Respondents demanded the remaining balance from the
petitioners which the petitioners denied asserting that the respondents
violated the contract.

ISSUE:

Whether or not the petitioners are liable for the remaining balance

HELD:

In contractual relations, the law allows the parties leeway and considers
their agreement as the law between them.Contract stipulations that are not
contrary to law, morals, good customs, public order or public policy shall be
binding and should be complied with in good faith. No party is permitted to
change his mind or disavow and go back upon his own acts, or to proceed
contrary thereto, to the prejudice of the other party. In the present case, we
find that both parties failed to comply strictly with their contractual
stipulations on the progress billings and change orders that caused the
delays in the completion of the project.

176
Under the circumstances, fairness and reason dictate that we simply order
the set-off of the petitioners’ contractual liabilities totaling P575,922.13
against the repair cost for the defective gutter, pegged at P717,524.00,
leaving the amount of P141,601.87 still due from the respondent. Support
in law for this Held for partial legal compensation proceeds from Articles
1278, 1279, 1281, and 1283 of the Civil Code. In short, both parties are
creditors and debtors of each other, although in different amounts that are
already due and demandable.

177
SELWIN LAO V. SPECIAL PLANS, INC.

GR No. 164729; June 29, 2010

FACTS:

Petitioners Selwyn F. Lao and Edgar Manansala (Manansala), together


with Benjamin Jim (Jim), entered into a Contract of Lease with respondent
Special Plans, Inc. (SPI) for the period January 16, 1993 to January 15,
1995 over SPI’s building at No. 354 Quezon Avenue, Quezon City.
Petitioners intended to use the premises for their karaoke and restaurant
business known as “Saporro Restaurant”.

Upon expiration of the lease contract, it was renewed for a period of eight
months at a monthly rate of P23, 000.00. On June 3, 1996, SPI sent a
Demand Letter to the petitioners asking for full payment of rentals in
arrears.Receiving no payment, SPI filed on July 23, 1996 a Complaint for
sum of money with the MeTC of Quezon City, claiming unpaid rentals of
P118, 000.00 covering the period March 16, 1996 to August 16, 1996.

Petitioners answered faulting SPI for making them believe that it owns the
leased property and that SPI did not deliver the leased premises in a
condition fit for petitioners’ intended use. Thus, petitioners claimed that they
were constrained to incur expenses for necessary repairs as well as
expenses for the repair of structural defects, which SPI failed and refused
to reimburse. Petitioners prayed that the complaint be dismissed and
judgment on their counterclaims be rendered ordering SPI to pay them the
sum of P422, 920.40 as actual damages, as well as moral damages,
attorney’s fees and exemplary damages.

ISSUE:

Whether or not the cost of repairs incurred by the petitioners should be


compensated against the unpaid rentals

HELD:

Petitioners failed to properly discharge their burden to show that the debts
are liquidated and demandable. Consequently, legal compensation is
inapplicable.

The petitioners attempted to prove that they spent for the repair of the
roofing, ceiling and flooring, as well as for waterproofing. However, they
failed to appreciate that, as per their lease contract, only structural repairs
are for the account of the lessor, herein respondent SPI. In which case,

178
they overlooked the need to establish that aforesaid repairs are structural in
nature, in the context of their earlier agreement. It would have been an
altogether different matter if the lessor was informed of the said structural
repairs and he implicitly or expressly consented and agreed to take
responsibility for the said expenses. Such want of evidence on this respect
is fatal to this appeal. Consequently, their claim remains unliquidated and,
legal compensation is inapplicable.

179
PNB MANAGEMENT VS. R&R METAL

G.R.No. 132245 January 1, 2002

FACTS

It appears that on November 19, 1993, respondent R&R Metal Casting and
Fabricating, Inc. (R&R) obtained a judgment in its favor against Pantranco
North Express, Inc. (PNEI). PNEI was ordered to pay respondent
P213,050 plus interest as actual damages, P50,000 as exemplary
damages, 25 percent of the total amount payable as attorney’s fees, and
the costs of suit. However, the writ of execution was returned unsatisfied
since the sheriff did not find any property of PNEI recorded at the
Registries of Deeds of the different cities of Metro Manila. Neither did the
sheriff receive a reply to the notice of garnishment he sent to PNB-
Escolta.On March 27, 1995, respondent filed with the trial court a motion
for the issuance of subpoenae duces tecum and ad testificandum requiring
petitioner PNB Management and Development Corp. (PNB MADECOR) to
produce and testify on certain documents pertaining to transactions
between petitioner and PNEI from 1981 to 1995.

ISSUE

Whether or not legal compensation has occurred in the instant case

HELD

Legal compensation could not have occurred because of the absence of


one requisite in this case: that both debts must be due and demandable.

Petitioner’s obligation to PNEI appears to be payable on demand, following


the above observation made by the CA and the assertion made by
petitioner. Petitioner is obligated to pay the amount stated in the
promissory note upon receipt of a notice to pay from PNEI. If petitioner
fails to pay after such notice, the obligation will earn an interest of 18
percent per annum.

Since petitioner’s obligation to PNEI is payable on demand, and there


being no demand made, it follows that the obligation is not yet due.
Therefore, this obligation may not be subject to compensation for lack of a
requisite under the law. Without compensation having taken place,
petitioner remains obligated to PNEI to the extent stated in the promissory
note. This obligation may undoubtedly be garnished in favor of respondent
to satisfy PNEI’s judgment debt.

180
ENGRACIO FRANCIA

VS.

COURT OF APPEALS

G.R.NO. 67649 JUNE 28, 1998

FACTS:

Engracio Francia is the registered owner of a residential lot and a two-story


house situated at Barrio San Isidro, now District of Sta. Clara, Pasay City,
Metro Manila. On October 15, 1977, a 125 square meter portion of
Francia's property was expropriated by the Republic of the Philippines for
the sum of P4,116.00 representing the estimated amount equivalent to the
assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive,
Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his
property was sold at public auction by the City Treasurer of Pasay City
pursuant to Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho
Fernandez was the highest bidder for the property. Francia was not present
during the auction sale since he was in Iligan City at that time helping his
uncle ship bananas. On March 3, 1979, Francia received a notice of
hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate
of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739
(37795) and the issuance in his name of a new certificate of title. On March
20, 1979, Francia filed a complaint to annul the auction sale. He later
amended his complaint on January 24, 1980.

ISSUE:

Whether or not Francia’s tax delinquency of P2,400.00 has been


extinguished by legal compensation

HELD:

There is no legal basis for the contention. By legal compensation,


obligations of persons, who in their own right are reciprocally debtors and
creditors of each other, are extinguished (Art. 1278, Civil Code). The
circumstances of the case do not satisfy the requirements provided by
Article 1279.

We have consistently ruled that there can be no off-setting of taxes against


the claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes him an

181
amount equal to or greater than the tax collected. The collection of a tax
cannot await the results of a lawsuit against the government.

A claim for taxes is not such a debt, demand, contract or judgment as is


allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or
any indebtedness of the state or municipality to one who is liable to the
state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction sued
on. "The general rule based on grounds of public policy is well-settled that
no set-off admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule is based, is
that taxes are not in the nature of contracts between the party and party but
grow out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of individual
taxpayers is not required

182
XX. Novation

MINDANAO SAVINGS AND LOAN ASSOCIATION INC.

VS.

EDWARD WILLKOM

GR NO. 178618; OCTOBER 11, 2010

FACTS:

The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao
Savings and Loan Association, Inc. (DSLAI) banks entered into a merger
with DSLAI as the surviving corporation. The articles of merger were not
registered with the SEC but when DSLAI changed its corporate name to
MSLAI the amendment was approved by the SEC. Meanwhile, the Board of
Directors of FISLAI passed a resolution, assigning its assets in favor of
DSLAI which in turn assumed the former’s liabilities. The business of
MSLAI, however, failed was ordered its closure and placed under
receivership.

Prior to the closure of MSLAI, Uy filed an action for collection of sum of


money against FISLAI. The RTC Issued a summary decision in favor of Uy,
directing defendants therein (which included FISLAI) to pay the former the
sum of P136, 801.70. Thereafter, sheriff Bantuas levied on six (6) parcels
of land owned by FISLAI and Willkom was the highest bidder. New
certificates of title covering the subject properties were issued in favor of
Willkom who sold one of the subject parcels of land to Go.

MSLAI, represented by PDIC, filed a complaint for Annulment of Sheriff’s


Sale, Cancellation of Title and Conveyance of Properties against
respondents. The respondents claimed that MSLAI had no cause of action
against them or the right to recover the subject properties because MSLAI
is a separate and distinct entity from FISLAI as the merger did not take
effect.

ISSUE:

Whether or not there was novation of the obligation by substituting the


person of the debtor

HELD:

It is a rule that novation by substitution of debtor must always be made with


the consent of the creditor. Article 1293 of the Civil Code is explicit, thus:

183
Novation which consists in substituting a new debtor in the place of the
original one may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in Articles 1236 and 1237.

In this case, there was no showing that Uy, the creditor, gave her consent
to the agreement that DSLAI (now MSLAI) would assume the liabilities of
FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI
transferred to DSLAI remained subject to execution to satisfy the judgment
claim of Uy against FISLAI. The subsequent sale of the properties by Uy to
Willkom, and of one of the properties by Willkom to Go, cannot, therefore,
be questioned by MSLAI.

The consent of the creditor to a novation by change of debtor is as


indispensable as the creditor’s consent in conventional subrogation in order
that a novation shall legally take place. Since novation implies a waiver of
the right which the creditor had before the novation, such waiver must be
express.

184
CAROLINA HERNANDEZ-NIEVERA V. WILFREDO HERNANDEZ

GR No. 171165; February 14, 2011

FACTS:

Project Movers Realty & Development Corporation (PMRDC) is a duly


organized domestic corporation engaged in real estate development. It
entered into a Memorandum of Agreement (MOA) whereby it was given the
option to buy pieces of land owned by petitioners Carolina Hernandez-
Nievera, Margarita H. Malvar and Demetrio P. Hernandez, Jr. Demetrio,
under authority of a Special Power of Attorney to Sell or Mortgage, signed
the MOA also in behalf of Carolina and Margarita. In the aggregate, the
realty measured 4,580,451 square meters and was segregated by
agreement into Area I and Area II.

On March 23, 1998, the PMRDC entered with LBP and Demetrio - the latter
purportedly acting under authority of the same special power of attorney as
in the MOA - into a Deed of Assignment and Conveyance (DAC). PMRDC
delivered to petitioners certain checks representing the money, the same
however allegedly bounced. Hence, on January 8, 1999, petitioners
demanded the return of the corresponding TCTs over the land but PMRDC
said that the TCTs could no longer be delivered back to petitioners as the
covered properties had already been conveyed and assigned to the Asset
Pool pursuant to the March 23, 1998 DAC. Petitioner contended that
Demetrio could not have entered into the said agreement as his power of
attorney was limited only to selling or mortgaging the properties and not
conveying the same to the Asset Pool.

ISSUE:

Whether or not the novation of the MOA is valid

HELD:

Thus, it becomes clear that Demetrio's special power of attorney to sell is


sufficient to enable him to make a binding commitment under the DAC in
behalf of Carolina and Margarita. In particular, it does include the authority
to extinguish PMRDC's obligation under the MOA to deliver option money
and agree to a more flexible term by agreeing instead to receive shares of
stock in lieu thereof and in consideration of the assignment and
conveyance of the properties to the Asset Pool. Indeed, the terms of his
special power of attorney allow much leeway to accommodate not only the
terms of the MOA but also those of the subsequent agreement in the DAC

185
which, in this case, necessarily and consequently has resulted in a
novation of PMRDC's integral obligations.

There are two ways which could indicate, in fine, the presence of novation
and thereby produce the effect of extinguishing an obligation by another
which substitutes the same. The first is when novation has been explicitly
stated and declared in unequivocal terms. The second is when the old and
the new obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible,
and the latter obligation novates the first.

186
ST. JAMES COLLEGE V. EQUITABLE PCI BANK

GR No. 179441; August 9, 2010

FACTS:

Petitioners-spouses owned and operated St. James College of Paranaque.


Sometime in 1995, the Philippine Commercial and International Bank
(PCIB), respondent, granted the Torres spouses and/or St. James College
a credit line facility of up to 25,000,000 secured by a real estate mortgage
over a parcel of land in Paranaque. Petitioners had defaulted in the
payment of the loan obtained from the secured credit accommodation, their
total unpaid loan obligation, as of September 2001, stood at 18,300,000.
Respondent proposed a payment scheme to pay annually which the
petitioners agreed upon but failed to comply with. Respondent then
demanded full settlement of the loan. Petitioners contended that the the full
amount is still not due owing to the implied novation of the terms of
payment previously agreed upon. As petitioners assert in this regard that
the acceptance by respondent, particularly of the June 23, 2003 PhP
2,521,609.62 payment, without any objection on the new terms set forth in
their June 23, 2003 complementing covering letter, novated the terms of
payment of the 18,300,000 secured loan.

ISSUE:

Whether or not there was novation of contract

HELD:

As a civil law concept, novation is the extinguishment of an obligation by


the substitution or change of the obligation by a subsequent one which
terminates it, either by changing its objects or principal conditions, or by
substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor. Novation may be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the
creation of a new one that takes the place of the former; it is merely
modificatory when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement. Novation may either be
express, when the new obligation declares in unequivocal terms that the
old obligation is extinguished, or implied, when the new obligation is on
every point incompatible with the old one. The test of incompatibility lies on
whether the two obligations can stand together, each one with its own
independent existence.

187
For novation, as a mode of extinguishing or modifying an obligation, to
apply, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new contract.

3) The old contract must be extinguished.

4) There must be a valid new contract.

188
MARIA TOMIMBANG V. ATTY. JOSE TOMIMBANG

GR No. 165116; August 4, 2009

FACTS:

Petitioner and respondent are siblings. Their parents donated to petitioner


an eight-door apartment located at 149 Santolan Road, Murphy, Quezon
City. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence,
respondent offered to extend a credit line to petitioner on the following
conditions: (1) petitioner shall keep a record of all the advances; (2)
petitioner shall start paying the loan upon the completion of the renovation;
(3) upon completion of the renovation, a loan and mortgage agreement
based on the amount of the advances made shall be executed by petitioner
and respondent; and (4) the loan agreement shall contain comfortable
terms and conditions which petitioner could have obtained from PAG-IBIG.

A conflict between the siblings ensued leading to a new agreement


whereby petitioner was to start making monthly payments on her loan.
Upon respondent's demand, petitioner turned over to respondent all the
records of the cash advances for the renovations. Subsequently, or from
June to October of 1997, petitioner made monthly payments of P18,
700.00, or a total ofP93, 500.00. Petitioner never denied the fact that she
started making such monthly payments. Thereafter, the petitioner can no
longer be found and also stopped making the monthly payments. Thus, a
complaint was filed against the petitioner demanding payment of the loan
plus interest. Petitioner contended that the loan is not yet due and
demandable as the renovation of the apartment is not yet completed.

ISSUE:

Whether or not the loan is already due and demandable

HELD:

The loan is already due and demandable due to the subsequent agreement
entered in to by the parties.

Article 1291 of the Civil Code provides:

Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

189
(3) Subrogating a third person in the rights of the creditor.

The petitioner admitted that she started to comply with the demand of the
respondent to pay on a monthly basis. Her partial performance of her
obligation is unmistakable proof that indeed the original agreement
between her and respondent had been novated by the deletion of the
condition that payments shall be made only after completion of renovations.
Hence, by her very own admission and partial performance of her
obligation, there can be no other conclusion but that under the novated
agreement, petitioner's obligation is already due and demandable.

190
AQUINTEY v. SPOUSES TIBONG

G.R. No. 166704, December 20, 2006

FACTS:

On May 6, 1999, petitioner Aquintey filed before RTC Baguio, a complaint


for sum of money and damages against respondents. Agrifina alleged that
Felicidad secured loans from her on several occasions at monthly interest
rates of 6% to 7%. Despite demands, spouses Tibong failed to pay their
outstanding loans of P773,000,00 exclusive of interests. However, spouses
Tiong alleged that they had executed deeds of assignment in favor of
Agrifina amounting to P546,459 and that their debtors had executed
promissory notes in favor of Agrifina. Spouses insisted that by virtue of
these documents, Agrifina became the new collector of their debts. Agrifina
was able to collect the total amount of P301,000 from Felicdad’s debtors.
She tried to collect the balance of Felicidad and when the latter reneged
on her promise, Agrifina filed a complaint in the office of the barangay for
the collection of P773,000.00. There was no settlement. RTC favored
Agrifina. Court of Appeals affirmed the decision with modification ordering
defendant to pay the balance of total indebtedness in the amount of
P51,341,00 plus 6% per month.

ISSUE:

Whether or not the deeds of assignment in favor of petitioner has the effect
of payment of the original obligation that would partially extinguish the
same

HELD:

Substitution of the person of the debtor May be affected by delegacion.


Meaning, the debtor offers, the creditor accepts a third person who consent
of the substitution and assumes the obligation. It is necessary that the old
debtor be released from the obligation and the third person or new debtor
takes his place in the relation . Without such release, there is no novation.
Court of Appeals correctly found that the respondent’s obligation to pay the
balance of their account with petitioner was extinguished pro tanto by the
deeds of credit. CA decision is affirmed with the modification that the
principal amount of the respondents is P33,841.

191
XXI. ESSENTIAL REQUISITES OF CONTRACTS

ABS-CBN BROADCASTING CORPORATION VS. COURT OF APPEALS

301 SCRA 573

G.R. No. 128690 January 21, 1999

FACTS:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement


whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-
president Charo Santos-Concio, a list of three film packages (36 title) from
which ABS-CBN may exercise its right of first refusal under the afore-said
agreement. ABS-CBN, however through Mrs. Concio, "can tick off only ten
titles" (from the list) "we can purchase" and therefore did not accept said
list. The titles ticked off by Mrs. Concio are not the subject of the case at
bar except the film "Maging Sino Ka Man."

On February 27, 1992, defendant Del Rosario approached ABS-CBN’s Ms.


Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on
television) including the 14 titles subject of the present case, as well as 104
re-runs (previously aired on television) from which ABS-CBN may choose
another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN
airing rights over this package of 52 originals and 52 re-runs for
P60,000,000.00 of which P30,000,000.00 will be in cash and
P30,000,000.00 worth of television spots.

On April 2, 1992, defendant Del Rosario and ABS-CBN’s general manager,


Eugenio Lopez III discussed the package proposal of VIVA. Mr. Lopez
testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was
granted exclusive film rights to fourteen (14) films for a total consideration
of P36 million; that he allegedly put this agreement as to the price and
number of films in a "napkin" and signed it and gave it to Mr. Del Rosario.
On the other hand, Del Rosario denied having made any agreement with
Lopez regarding the 14 Viva films; denied the existence of a napkin in
which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Viva’s film package offer of 104 films
(52 originals and 52 re-runs) for a total price of P60 million.

Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Viva’s offer to sell the 104
films, after the rejection of the same package by ABS-CBN. On the
following day, Del Rosario received a draft contract from Ms. Concio which
contains a counter-proposal of ABS-CBN on the offer made by VIVA

192
including the right of first refusal to 1992 Viva Films. However, the proposal
was rejected by the Board of Directors of VIVA and such was relayed to
Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Viva’s President
Teresita Cruz, in consideration of P60 million, signed a letter of agreement
dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-
produced and/or acquired films including the fourteen films subject of the
present case.

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents Republic
Broadcasting System (now GMA Network Inc.) On 28 May 1992, the RTC
issued a temporary restraining order.

The RTC then rendered decision in favor of RBS and against ABS-CBN.
On appeal, the same decision was affirmed. Hence, this decision.

ISSUE:

Whether or not there exists a perfected contract between ABS-CBN


and VIVA.

HELD:

A contract is a meeting of minds between two persons whereby one


binds himself to give something or render some service to another [Art.
1305, Civil Code.] for a consideration. There is no contract unless the
following requisites concur:

(1) consent of the contracting parties;

(2) object certain which is the subject of the contract; and

(3) cause of the obligation, which is established. [Art. 1318, Civil Code.]

A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of


negotiation and bargaining rending at the moment of agreement of the
parties;

(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the


terms agreed upon in the contract.

193
In the present case, when Mr. Del Rosario of Viva met Mr. Lopez of ABS-
CBN on 2 April 1992 to discuss the package of films, said package of 104
VIVA films was VIVA’s offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in
the form a draft contract proposing exhibition of 53 films for a consideration
of P35 million. This counter-proposal could be nothing less than the
counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA’s
offer, for it was met by a counter-offer which substantially varied the terms
of the offer.

Furthermore, ABS-CBN made no acceptance of VIVA’s offer hence, they


underwent period of bargaining. ABS-CBN then formalized its counter-
proposals or counter-offer in a draft contract. VIVA through its Board of
Directors, rejected such counter-offer. Even if it be conceded arguendo that
Del Rosario had accepted the counter-offer, the acceptance did not bind
VIVA, as there was no proof whatsoever that Del Rosario had the specific
authority to do so.

The instant petition was GRANTED.

194
SILVERIO Q. CORNEJO VS. MANUEL B. CALUPITAN, D.B.
CASTANEDA, AND EUSTACIO BARRERA

G.R. NO. L-2342

MONTEMAYOR, J.:

FACTS:

On January 1945- owner of a parcel of land in the barrio of Mayatobo,


Candelaria, Tayabas, an area of 110.9125 hectares authorized his co-
defendants Castaneda, Eustacio Barrera, real estate broker operating in
manila to sell the said parcel.;January 4, 1945, defendant Calupitan
accepted the offer made by the plaintiff Cornejo, at the price of P650,000 in
Japanese military notes; January 6, 1945, Cornejo delivered only P65,000
to defendant broker Castaneda & Barrera to deliver for Calupitan and the
balance to paid on January 25, 1945. Calupitan wrote out a letter receipt of
acceptance specifying the terms of payment of the balance approving the
stipulated date on or before January 25, 1945. January 22, 1945, After
supposedly failing to deliver the balance of P585,000, Cornejo deposited
the sum with the clerk of court, securing corresponding receipt and filed the
corresponding complain against Calupitan and the two real estate brokers
for specific performance and for payment of damages.

The trial court absolve the defendant-appelle and held that Cornejo
repudiated the original agreement by proposing money be reduced from
P70,000 to P65,000 and the balance adjusted from 19th of January to 25,
1945.

ISSUE:

Whether or not that the condition being offered to the plaintiff by the
appellant is Justifiable in terms of the status of the situation or the en-
viewed coming events of war.

HELD:

Yes, its up to the prospective purchaser to accept or reject it, but he should
return the value of the said amount P65,000 Japanese notes at the time to
the plaintiff. Exhibit B between Cornejo and Calupitan had been abandoned
and rendered void by Cornejo himself, and that as to new proposition made
by Cornejo, there was no meeting of minds of the parties for it was not

195
accepted entirely by Calupitan, consequently the contract of sale of the
land in question was not perfected and so Calupitan may not be compelled
to convey said land to plaintiff-appllant. Calupitan is ordered to return to the
plaintiff the value of the P65,000 Japanese war notes he received, which
value is to be ascertained according to the ballantyne schedule as of
January 6, 1945 in Manila. Said value is hereby fixed at P541.66 with legal
interest from January 6, 1945 until paid.

196
ANDREA DUMASUG VS. FELIX MODELO

G.R. NO. L-10462

TORRES, J.:

FACTS:

On June 17, 1912, counsel for Andrea Dumasug filed a written complaint in
the Court of First Instance of Cebu, in which he alleged that about the
month of November, 1911, defendant persuaded plaintiff to sign a
document by falsely and maliciously making her believe that it contained an
engagement on plaintiff’s part to pay defendant a certain sum of money as
expresses occasioned the latter by reason of a lawsuit in which plaintiff
Dumasug was one of the parties and was protected and aided by
defendant; that this document, plaintiff, who does not know how to write,
signed by affixing her mark thereto, believing in good faith that defendant
had told her the truth and that said document referred to the expenses
incurred by defendant; but that three months after the execution of said
document, defendant took possession of a carabao belonging to plaintiff
and also of two parcels of land, likewise belonging to her, situated in the
barrio of Katang, pueblo of Argao, Cebu, the area and boundaries of which
are specified in the complaint, and notified plaintiff that she had conveyed
to him by absolute sale said parcels of land and the plow carabao; that in
spite of plaintiff’s opposition and protests, defendant took possession of
said property and, up to the date of the complaint, continued to hold
possession thereof and to enjoy the products of the lands and of the labor
of the carabao; and that, by reason of such acts, defendant had caused
loss and damage to plaintiff in the sum of P1,000. Said counsel therefore
prayed the court to render judgment by declaring null and void and of no
value whatever the alleged contract of purchase and sale of the carabao
and the two parcels of land described in the complaint, to order defendant
to restore to plaintiff said work animal and lands, and, besides, to pay her
the sum of P1,000 for the loss and damage caused her, in addition to the
costs of the suit.

ISSUES:

Whether or not the instrument of purchase and sale of two parcels of land
and a plow carabao is null and void?

197
HELD:

Yes, it is null and void. It is, then, perfectly evident that the document
Exhibit 1, by means of which defendant made himself the owner of the
properties in question is not the instrument of debt which Andrea Dumasug
had signed, and if it is the same one its contents were not duly and
faithfully explained to plaintiff in the act of its execution. In either case, the
consent said to have been given by Andrea Dumasug in said document
Exhibit 1 is null and void, as it was given by mistake (arts. 1265 and 1266,
Civil Code). This error invalidates the contract, because it goes to the very
substance of the thing which was the subject matter of said contract, for,
had the maker thereof truly understood the contents of said document, she
would neither have accepted nor authenticated it by her mark.

This case is an example of Mistake of Fact which is Mistake as to the


Nature of the Contract. If the mistake refers to the nature of the contract,
the error or mistake goes to the essence thereof. This may invalidate the
contract. In this case Andrea Dumasug affixed her thumb mark on the
document that presented to her believing that it was a deed of mortgaged
and not a deed of sale therefore her consent vitiated the contract.

198
LIAM LAW VS. OLYMPIC SAWMILL CO. AND ELINO LEE CHI

G.R. NO. L-30771

MELENCIO-HERRERA, J.:

FACTS:

Liam Law loaned P10,000.00 without interest to the Olympic Sawmill


Co. and Elino Lee Chi, as the managing partner. When the loan became
due, the debtors asked for extension and another loan was executed,
extending the payment of the loan and adding P6,000.00 as answer for
attorney’s fees, legal interest and other cost incident thereto.

Law filed a collection case when the defendants were unable to pay
the second time. The CFI of Bulacan decided in favor of the plaintiff. On
appeal, the Court of Appeals endorsed the case to the Supreme Court,
stating that the issue involved was one of law.

ISSUE:

Whether or not the agreement to pay P6,000.00 in addition to the


principal obligation is lawful.

HELD:

Yes. Article 1354 of the Civil Code states that:

Although the cause is not stated in the contract, it is presumed that it


exists and is lawful, unless the debtor proves the contrary.

In relation to the case, the agreement of the parties relative to the


P6,000.00 obligation, without an evidentiary hearing, it has to be concluded
that defendants had not proven that the P6,000.00 obligation was illegal.
Hence, it is presumed that the agreement of the parties relative to the
P6,000.00 exists and is lawful.

199
BENITO DE LOS REYES vs. VERONICA ALOJADO
G.R. No. L-5671
TORRES, J.:

FACTS:
On or about January 22, 1905, Veronica Alojado received, as a loan,
from Benito de los Reyes that the sum P67 .60, for the purpose of paying a
debt she owed to Olimpia Zaballa. It was agreed between Alojado and
Reyes that the debtor should remain as a servant in the house and in the
service of her creditor, without any renumeration whatever, until she should
find someone who would furnish her with the said sum where with to repeat
the loan.
After sometime, the debtor left without paying, so the creditor
instituted this action to compel her to pay, and work as a servant without
pay until the debt could finally be paid. The debtor on the other hand, asked
payment for services already rendered.
ISSUE:
Whether or not the agreement without pay is valid.
DECISION:
The agreement to work without pay is immoral and void since this
would amount to involuntary servitude. The creditor was ordered to pay
wages and to subtract therefrom the amount of the debt.

200
XXII. CONSENT

MONTECILLO VS. REYNES

385 SCRA 244

FACTS:

Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984
a complaint for Declaration of Nullity and Quieting of Title against petitioner
Rico Montecillo. Reynes asserted that she is the owner of a lot situated in
Mabolo, Cebu City. In 1981 Reynes sold 185 square meters of the Mabolo
Lot to the Abucay Spouses who built a residential house on the lot they
bought.

Reynes alleged further that she signed a Deed of Sale of the Mabolo Lot in
favor of Montecillo. Reynes, being illiterate signed by affixing her thumb-
mark on the document. Montecillo promised to pay the agreed P47,000.00
purchase price within one month from the signing of the Deed of Sale. And
that Montecillo failed to pay the purchase price after the lapse of the one-
month period, prompting Reynes to demand from Montecillo the return of
the Deed of Sale. Since Montecillo refused to return the Deed of Sale,
Reynes executed a document unilaterally revoking the sale and gave a
copy of the document to Montecillo.

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring


to the Abucay Spouses the entire Mabolo Lot, at the same time confirming
the previous sale in 1981 of a 185 square meter portion of the lot.

Reynes and the Abucay Spouses alleged that they received information
that the Register of Deeds of Cebu City Issued a Certificate of Title in the
name of Montecillo for the Mabolo Lot. They argued that “for lack for
consideration there (was no meeting of the minds) between Reynes and
Montecillo. Thus, the trial court should declare null and void ab initio
Monticello’s Deed of sale, and order the cancellation of certificates of title
No. 90805 in the name of Montecillo.

In his Answer, Montecillo a bank executive claimed he was a buyer in good


faith and had actually paid the P47,000.00 consideration stated on his
Deed of Sale. Montecillo however admitted he still owned Reynes a
balance of P10,000.00. He also alleged that he paid P50,000.00 for the
release of the chattel mortgage which he argued constituted a lien on the
Mabolo Lot. He further alleged that he paid for the real property tax as well
as the capital gains tax on the sale of the Mabolo Lot.

201
In their reply, Reynes and the Abucay Spouses contended that Montecillo
did not have authority to discharge the chattel mortgage especially after
Reynes revoked Montecillo’s Deed of Sale and gave the mortgagee a copy
of the document of revocation. Reynes and the Abucay Spouses claimed
that Montecillo secured the release of the chattel mortgage through
machination. They further asserted that Montecillo took advantage of the
real property taxes paid by the Abucay Spouses and surreptitiously caused
the transfer of the title to the Mabolo Lot in his name.

During pre-trial Montecillo claimed that the consideration for the sale of the
Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage
Corporation for the mortgage debt of Bienvenido Jayag. Montecillo argued
that the release of the mortgage was necessary since the mortgage
constituted a lien on the Mabolo Lot.

Reynes, however stated that she had nothing to do with Jayag’s mortgage
debt except that the house mortgaged by Jayag stood on a portion of the
Mabolo Lot. Reynes further stated that the payment by Montecillo to
release the mortgage on Jayag’s house is a matter between Montecillo and
Jayag. The mortgage on the house being a chattel mortgage could not be
interpreted in any way as an encumbrance on the Mabolo Lot. Reynes
further claimed that the mortgage debt had long prescribed since the
P47,000.00 mortgage debt was due for payment on January 30,1967.

ISSUE:

Whether or not there was a valid consent in the case at bar to have a valid
contract.

HELD:

One of the three essential requisites of a valid contract is consent of the


parties on the object and cause of the contract. In a contract of sale, the
parties must agree not only on the price, but also on the manner of
payment of the price. An agreement on the price but a disagreement on the
manner of its payment will not result in consent, thus preventing the
existence of a valid contract for a lack of consent. This lack of consent is
separate and distinct for lack of consideration where the contract states
that the price has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47, 000.00 purchase
price within one month after the signing of the Deed of Sale. On the other
hand, Montecillo thought that his agreement with Reynes required him to
pay the P47,000.00-purchase price to Cebu Ice Storage to settle Jayag’s
mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in
favor of Reynes although this amount is not stated in Montecillo’s Deed of
202
Sale. Thus, there was no consent or meeting of the minds, between
Reynes and Montecillo on the manner of payment. This prevented the
existence of a valid contract because of lack of consent.

In summary, Montecillo’s Deed of Sale is null and void ab initio not only for
lack of consideration, but also for lack of consent. The cancellation of TCT
No. 90805 in the name of Montecillo is in order as there was no valid
contract transferring ownership of the Mabolo Lot from Reynes to
Montecillo.

203
JASMIN SOLER VS. COURT OF APPEALS

G.R. No. 123892 May 2, 2001

FACTS:

Petitioner is a professional interior designer. In November 1986, her friend


Rosario Pardo asked her to talk to Nida Lopez, who was manager of the
COMBANK Ermita Branch for they were planning to renovate the branch
offices. Even prior to November 1986, petitioner and Nida Lopez knew
each other because of Rosario Pardo, the latter’s sister. During their
meeting, petitioner was hesitant to accept the job because of her many out
of town commitments, and also considering that Ms. Lopez was asking that
the designs be submitted by December 1986, which was such a short
notice. Ms. Lopez insisted, however, because she really wanted petitioner
to do the design for renovation. Petitioner acceded to the request. Ms.
Lopez assured her that she would be compensated for her services.
Petitioner even told Ms. Lopez that her professional fee was P10,000.00, to
which Ms. Lopez acceded.

During the November 1986 meeting between petitioner and Ms. Lopez,
there were discussions as to what was to be renovated. Ms. Lopez again
assured petitioner that the bank would pay her fees. After a few days,
petitioner requested for the blueprint of the building so that the proper
design, plans and specifications could be given to Ms. Lopez in time for the
board meeting in December 1986. Petitioner then asked her draftsman
Jackie Barcelon to go to the jobsite to make the proper measurements
using the blue print. Petitioner also did her research on the designs and
individual drawings of what the bank wanted. Petitioner hired Engineer
Ortanez to make the electrical layout, architects Frison Cruz and De Mesa
to do the drafting. For the services rendered by these individuals, petitioner
paid their professional fees. Petitioner also contacted the suppliers of the
wallpaper and the sash makers for their quotation. So come December
1986, the lay out and the design were submitted to Ms. Lopez. She even
told petitioner that she liked the designs.

Subsequently, petitioner repeatedly demanded payment for her services


but Ms. Lopez just ignored the demands. In February 1987, by chance
petitioner and Ms. Lopez saw each other in a concert at the Cultural Center
of the Philippines. Petitioner inquired about the payment for her services,
Ms. Lopez curtly replied that she was not entitled to it because her designs
did not conform to the bank’s policy of having a standard design, and that
there was no agreement between her and the bank.

204
Petitioner, through her lawyers, who wrote Ms. Lopez, demanding payment
for her professional fees in the amount of P10,000.00 which Ms. Lopez
ignored. The lawyers wrote Ms. Lopez once again demanding the return of
the blueprint copies petitioner submitted which Ms. Lopez refused to return.
The petitioner then filed at the trial court a complaint against COMBANK
and Ms. Lopez for collection of professional fees and damages.

In its answer, COMBANK stated that there was no contract between


COMBANK and petitioner; that Ms. Lopez merely invited petitioner to
participate in a bid for the renovation of the COMBANK Ermita Branch; that
any proposal was still subject to the approval of the COMBANK’s head
office.

The trial court rendered judgment in favor of plaintiff. On appeal, the Court
of Appeals reversed the decision. Hence, this petition.

ISSUE:

Whether or not the Court of Appeals erred in Held that there was no
contract between petitioner and respondents, in the absence of the element
of consent

HELD:

A contract is a meeting of the minds between two persons whereby one


binds himself to give something or to render some service to bind himself to
give something to render some service to another for consideration. There
is no contract unless the following requisites concur: 1. Consent of the
contracting parties; 2. Object certain which is the subject matter of the
contract; and 3. Cause of the obligation which is established.

In the case at bar, there was a perfected oral contract. When Ms. Lopez
and petitioner met in November 1986, and discussed the details of the
work, the first stage of the contract commenced. When they agreed to the
payment of the P10,000.00 as professional fees of petitioner and that she
should give the designs before the December 1986 board meeting of the
bank, the second stage of the contract proceeded, and when finally
petitioner gave the designs to Ms. Lopez, the contract was consummated.
Petitioner believed that once she submitted the designs she would be paid
her professional fees. Ms. Lopez assured petitioner that she would be paid.

It is familiar doctrine that if a corporation knowingly permits one of its


officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those
acts; and thus, the corporation will, as against anyone who has in good

205
faith dealt with it through such agent, be estopped from denying the agent’s
authority.

Also, petitioner may be paid on the basis of quantum meruit. "It is essential
for the proper operation of the principle that there is an acceptance of the
benefits by one sought to be charged for the services rendered under
circumstances as reasonably to notify him that the lawyer performing the
task was expecting to be paid compensation therefor. The doctrine of
quantum meruit is a device to prevent undue enrichment based on the
equitable postulate that it is unjust for a person to retain benefit without
paying for it."

The designs petitioner submitted to Ms. Lopez were not returned. Ms.
Lopez, an officer of the bank as branch manager used such designs for
presentation to the board of the bank. Thus, the designs were in fact useful
to Ms. Lopez for she did not appear to the board without any designs at the
time of the deadline set by the board.

Decision reversed and set aside. Decision of the trial court affirmed.

206
PALATTAO VS. COURT OF APPEALS

381 SCRA 681 MAY 7, 2002

FACTS:

Petitioner Yolanda Palattao entered into a lease contract whereby she


leased to private respondent a house and a 490-square-meter lot located in
101 Caimito Road, Caloocan City, covered by a Transfer Certificate of Title
and registered in the name of petitioner. The duration of the lease contract
was for three years, commencing from January 1, 1991, to December 31,
1993, renewable at the option of the parties. The agreed monthly rental
was P7,500.00 for the first year; P 8,000.00 for the second year: and
P8,500.l00 for the third year. The contract gave respondent lessee the first
option to purchase the leased property.

During the last year of the contract, the parties began negotiations for the
sale of the leased premises to private respondent. In a letter, petitioner
offered to sell to private respondents 413.28 square meters of the leased
lot at P 7,800.00 per square meter, or for the total amount of
P3,223,548.00. Private respondents replied on April 15, 1993 wherein he
informed petitioner that he “shall definitely exercise his option to buy” the
leased property. Private respondent, however, manifested his desire to buy
the whole 490-square meters inquired from petitioner the reason why only
413.28 square meters of the leased lot were being offered for sale. In a
letter dated November 6, 1993, petitioner made a final offer to sell the lot at
P7,500.00 per square meter with a down payment of 50% upon the signing
of the contract of conditional sale, the balance payable in one year with a
monthly lease/interest payment P 14,000.00 which must be paid on or
before the fifth day every month that the balance is still outstanding. Private
respondents accepted petitioners offer and reiterated his request for
respondent accepted petitioner’s offers and reiterated his request for
clarification as to the size of the lot for sale. Petitioner acknowledged
private respondent’s acceptance of the offer in his letter dated November
10, 1993.

Petitioner gave private respondent on or before November 24, 1993, within


which to pay the 50% downpayment in cash or manager’s check. Petitioner
stressed that failure to pay the downpayment on the stipulated period will
enable petitioner to freely sell her property to others. Petitioner likewise
notified private respondent, that she is no longer renewing the lease
agreement upon its expiration on December 31, 1993.

207
Private respondent did not accept the terms proposed by petitioner.
Neither were there any documents of sale nor payment by private
respondent of the required downpayment. Private respondent wrote a letter
to petitioner on November 29, 1993 manifesting his intention to exercise his
option to renew their lease contract for another three years, starting
January 1, 1994 to December 31, 1996. This was rejected by petitioner,
reiterating that she was no longer renewing the lease. Petitioner demanded
that private respondent vacate the premises, but the latter refused.

Hence, private respondent filed with the Regional Trial Court a case for
specified performance seeking to compel petitioner to sell to him the leased
property. Private respondent further prayed for the issuance of a writ
preliminary injunction to prevent petitioner from filing an ejectment case
upon the expiration of the lease contract on December 31, 1993.

During the proceedings in the specific performance case, the parties


agreed to maintain the status quo. After they failed to reach an amicable
settlement, petitioner filed the instant ejectment case before the
Metropolitan Trial Court. In his answer, private respondent alleged that he
refused to vacate the leased premises because there was a perfected
contract of sale of the leased property between him and petitioner. Private
respondent argued that he did not abandon his option to buy the leased
property and that his proposal to renew the lease was but an alternative
proposal to the sale. He further contended that the filing of the ejectment
case violated their agreement to maintain the status quo.

ISSUE:

Whether or not there was a valid consent in the case at bar

HELD:

There was no valid consent in the case at bar.

Contracts that are consensual in nature, like a contract of sale, are


perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terns of payment, a contract is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly is proposed
in the offer, such acceptance is not sufficient to generate consent because
any modification or variation from the terms of the offer annuals the offer.
208
In the case at bar, while it is true that private respondent informed petitioner
that he is accepting the latter’s offer to sell the leased property, it appears
that they did not reach an agreement as to the extent of the lot subject of
the proposed sale.

Letters reveal that private respondent did not give his consent to buy only
413.28 square meters of the leased lot, as he desired to purchase the
whole 490 square-meter- leased premises which, however, was not what
was exactly proposed in petitioner’s offer. Clearly, therefore, private
respondent’s acceptance of petitioner’s offer was not absolute, and will
consequently not generate consent that would perfect a contract.

209
REYNALDO VILLANUEVA vs. PHILIPPINE NATIONAL BANK

G.R. NO. 154493 December 6, 2006

FACTS:

The Special Assets Management Department (SAMD) of PNB Issued an


advertisement for the sale thru bidding of certain PNB properties including
Lot No. 17, covered by TCT No. T-15042, with an advertised floor price of
P1,409,000.00, and Lot No. 19, covered by TCT No. T-15036, with an
advertised floor price of P2,268,000.00. Bidding was subject to the
following conditions: 1) that cash bids be submitted not later than April 27,
1989; 2) that said bids be accompanied by a 10% deposit in manager’s or
cashier’s check; and 3) that all acceptable bids be subject to approval by
PNB authorities.

In a June 28, 1990 letter to the Manager, Reynaldo Villanueva offered to


purchase Lot Nos. 17 and 19 for P3,677,000.00. He also manifested that
he was depositing P400,000.00 to show his good faith but with the
understanding that said amount may be treated as part of the payment of
the purchase price only when his offer is accepted by PNB. At the bottom
of said letter there appears an unsigned marginal note stating that
P400,000.00 was deposited into Villanueva’s account (Savings Account
No. 43612) with PNB-General Santos Branch.

Guevara, the vice-president informed Villanueva that only Lot No. 19 is


available and that the asking price therefor is P2,883,300.00. PNB also
stated that if quoted price is acceptable to Villanueva, then the latter must
submit a revised offer to purchase. And Sale shall be subject to its Board of
Director’s approval and to other terms and conditions imposed by the Bank
on sale of acquired assets.

Instead of submitting a revised offer, Villanueva merely inserted at the


bottom of Guevara’s letter a July 11, 1990 marginal note, which reads:

C O N F O R M E:

PRICE OF P2,883,300.00 (downpayment of P600,000.00 and the


balance payable in two (2) years at quarterly amortizations.)

Villanueva paid P200,000.00 to PNB which Issued O.R. No. 16997 to


acknowledge receipt of the “partial payment deposit on offer to purchase.”

210
On the dorsal portion of Official Receipt No. 16997, Villanueva signed a
typewritten note, stating:

This is a deposit made to show the sincerity of my purchase offer


with the understanding that it shall be returned without interest if my offer is
not favorably considered or be forfeited if my offer is approved but I
fail/refuse to push through the purchase.

Also, on July 24, 1990, P380,000.00 was debited from Villanueva’s Savings
Account No. 43612 and credited to SAMD.

On October 11, 1990, however, Guevara wrote Villanueva that upon orders
of the PNB Board of Directors to conduct another appraisal and public
bidding of Lot No. 19, SAMD is deferring negotiations with him over said
property and returning his deposit of P580,000.00. Undaunted, Villanueva
attempted to deliver postdated checks covering the balance of the
purchase price but PNB refused the same.

Hence, Villanueva filed with the RTC a Complaint for specific performance
and damages against PNB. The RTC rendered judgment in favor of the
plaintiff and against the defendant directing it to execute a deed of sale in
favor of the plaintiff over Lot 19 comprising after payment of the balance in
cash in the amount of P2,303,300.00 and to pay the plaintiff P1,000,000.00
as moral damages; P500,000.00 as attorney’s fees, plus litigation
expenses and costs of the suit.

PNB appealed to the CA which reversed and set aside the RTC decision.

ISSUE:

Whether or not a perfected contract of sale exists between petitioner and


respondent PNB

HELD:

The Court sustained the CA. The CA Held that the case at bench, consent,
in respect to the price and manner of its payment, is lacking. The record
shows that appellant, thru Guevara’s July 6, 1990 letter, made a qualified
acceptance of appellee’s letter-offer dated June 28, 1990 by imposing an
asking price of P2,883,300.00 in cash for Lot 19. The letter dated July 6,
1990 constituted a counter-offer (Art. 1319, Civil Code), to which appellee
made a new proposal, i.e., to pay the amount of P2,883,300.00 in
staggered amounts, that is, P600,000.00 as downpayment and the balance
within two years in quarterly amortizations.

211
A qualified acceptance, or one that involves a new proposal, constitutes a
counter-offer and a rejection of the original offer (Art. 1319, id.).
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the
offer. Appellee’s new proposal, which constitutes a counter-offer, was not
accepted by appellant, its board having decided to have Lot 19 reappraised
and sold thru public bidding.

212
XXIII. OBJECT OF CONTRACTS (5)

INTERNATIONAL FREEPORT V. DANZAS

G.R. No. 181833, January 26, 2011

FACTS:

Petitioner International Freeport Traders, Inc. (IFTI) ordered a shipment of


Toblerone chocolates and assorted confectioneries from Jacobs Suchard
Tobler Ltd. of Switzerland through its Philippine agent, Colombo Merchants
Phils., Inc., under the delivery term "F.O.B. Ex-Works." To ship the goods,
Jacobs dealt with Danmar Lines of Switzerland which issued to Jacobs
negotiable house bills of lading [1] signed by its agent, respondent Danzas
Intercontinental, Inc.. The bills of lading stated that the terms were "F.O.B."
and "freight payable at destination," with Jacobs as the shipper, China
Banking Corporation as the consignee, and IFTI as the party to be notified
of the shipment. The shipment was to be delivered at the Clark Special
Economic Zone with Manila as the port of discharge. The goods were also
covered by Letters of Credit MK-97/0467 and MK-97/0468 under a "freight
collect" arrangement.

Since Danmar did not have its own vessel, it contracted Orient Overseas
Container Line (OOCL) to ship the goods from Switzerland. OOCL issued a
non-negotiable master bill of lading, stating that the freight was prepaid
with Danmar as the shipper and Danzas as the consignee and party to be
notified. The shipment was to be delivered at Angeles City in Pampanga.
Danmar paid OOCL an arbitrary fee of US$425.00 to process the release
of the goods from the port and ship the same to Clark in Angeles City. The
fee was to cover brokerage, trucking, wharfage, arrastre, and processing
expenses.The goods were loaded on board the OOCL vessel on April 20,
1997 and arrived at the port of Manila on May 14, 1997. Upon learning from
Danmar that the goods had been shipped, Danzas immediately informed
IFTI of its arrival. IFTI prepared the import permit needed for the clearing
and release of the goods from the Bureau of Customs and advised Danzas
on May 20, 1997 to pick up the document. Danzas got the import permit on
May 26, 1997. At the same time, it asked IFTI to surrender the original bills
of lading to secure the release of the goods, and 2) submit a bank
guarantee inasmuch as the shipment was consigned to China Banking
Corporation to assure Danzas that it will be compensated for freight and
other charges. But IFTI did not provide Danzas a bank guarantee, claiming
that letters of credit already covered the shipment. IFTI insisted that
Danzas should already endorse the import permit and bills of lading to

213
OOCL since the latter had been paid an arbitrary fee. But Danzas did not
do this. Because IFTI did not provide Danzas with the original bills of lading
and the bank guarantee, the latter withheld the processing of the release of
the goods. Danzas reiterated to IFTI that it could secure the release of the
goods only if IFTI submitted a bank guarantee. Ultimately, IFTI yielded to
the request and applied for a bank guarantee which was approved on May
23, 1997. It claimed to have advised Danzas on even date of its availability
for pick up but Danzas secured it only on June 6, 1997.

On January 2, 2002, [3] the MeTC rendered a decision in favor of


Danzas and ordered IFTI to pay (1) P181,809.45 plus legal interest to be
computed from March 26, 1998 until fully paid; (2) P25,000.00 as attorney's
fees; and (3) the costs of suit. On appeal, however, the Regional Trial
Court (RTC) [4] of Parañaque City, Branch 274, dismissed the complaint.
Danzas elevated the case to the Court of Appeals (CA) which reversed the
RTC decision. The CA ruled that IFTI's fax letters dated June 10, 1997
showed the parties engaged in negotiation stage. When IFTI heeded
Danzas' request for a bank guarantee, its action brought about a perfected
contract of lease of service. The bank guarantee, procured by IFTI,
contained all the requisites of a perfected contract. The cause of the
contract was the release of the goods from the port and its delivery at
Clark; the consideration was the compensation for the release and delivery
of the goods to IFTI.

ISSUES:

Whether or not a contract of lease of service exists between IFTI and


Danzas; and

Whether or not IFTI is liable to Danzas for the costs of the delay in
the release of the goods from the port

HELD:

The facts show the existence of several contracts: one between IFTI and
Jacobs, another between Jacobs and Danmar, and still another between
Danmar and OOCL. IFTI bought chocolates and confectioneries from
Jacobs; Jacobs got Danmar to deliver the goods to its destination; Danmar
got OOCL to carry the goods for it by ship to Manila. For this purpose,
Danmar paid OOCL an arbitrary fee to process the release of the goods
from the port of Manila and deliver the same to Clark. In all these
transactions, Danzas acted as an agent of Danmar who signed the house
bills of lading in favor of Jacobs. What is clear to the Court is that, by
acceding to all the documentary requirements that Danzas imposed on it,
214
IFTI voluntarily accepted its services. The bank guarantee IFTI gave
Danzas assured the latter that it would eventually be paid all freight and
other charges arising from the release and delivery of the goods to it. Every
contract has the elements of consent of the contracting parties; object
certain which is the subject matter of the contract; and cause of the
obligation which is established. A contract is perfected by mere consent,
which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.

There is no dispute that under arbitrary shipments, imported goods


are allowed to stay, free of charge, in the port for three working days, and
in the storage for five to six calendar days. Beyond this period, storage
fees, electric charges, and the demurrage are due. Since the goods arrived
at the Port of Manila on May 14, 1997, they could remain there until May
20, 1997 free of charge. The fact that IFTI had the import permit ready by
May 20, 1997 was immaterial since it had not yet given the bank guarantee
required of it. The Court is not convinced that IFTI had the bank guarantee
ready as early as May 23, 1997 for, if that were the case, surely it did not
make sense for it not to hand over such document to Danzas when the
latter claimed the import permit on May 26, 1997. Since the delay in the
processing of the release of the goods was due to IFTI's fault, the CA
rightly adjudged it liable for electric charges, demurrage, and storage fees
of P122,191.75 from May 20, 1997 to June 13, 1999. Hence the Court
denied the petition and affirmed the decision dated October 25, 2007 of the
Court of Appeals in CA-G.R. SP 79597

215
MONTECILLO VS. REYNES

385 SCRA 244

FACTS:

Respondents Ignacia Reynes and spouses Abucay filed on June 20, 1984
a complaint for Declaration of Nullity and Quieting of Title against petitioner
Rico Montecillo. Reynes asserted that she is the owner of a lot situated in
Mabolo, Cebu City. In 1981 Reynes sold 185 square meters of the Mabolo
Lot to the Abucay Spouses who built a residential house on the lot they
bought.

Reynes alleged further that she signed a Deed of Sale of the Mabolo Lot in
favor of Montecillo. Reynes, being illiterate signed by affixing her thumb-
mark on the document. Montecillo promised to pay the agreed P47,000.00
purchase price within one month from the signing of the Deed of Sale. And
that Montecillo failed to pay the purchase price after the lapse of the one-
month period, prompting Reynes to demand from Montecillo the return of
the Deed of Sale. Since Montecillo refused to return the Deed of Sale,
Reynes executed a document unilaterally revoking the sale and gave a
copy of the document to Montecillo.

Subsequently, on May 23, 1984 Reynes signed a Deed of Sale transferring


to the Abucay Spouses the entire Mabolo Lot, at the same time confirming
the previous sale in 1981 of a 185 square meter portion of the lot.

Reynes and the Abucay Spouses alleged that they received information
that the Register of Deeds of Cebu City issued a Certificate of Title in the
name of Montecillo for the Mabolo Lot. They argued that “for lack for
consideration there (was no meeting of the minds) between Reynes and
Montecillo. Thus, the trial court should declare null and void ab initio
Monticello’s Deed of sale, and order the cancellation of certificates of title
No. 90805 in the name of Montecillo.

In his Answer, Montecillo a bank executive claimed he was a buyer in good


faith and had actually paid the P47,000.00 consideration stated on his
Deed of Sale. Montecillo however admitted he still owned Reynes a
balance of P10,000.00. He also alleged that he paid P50,000.00 for the
release of the chattel mortgage which he argued constituted a lien on the
Mabolo Lot. He further alleged that he paid for the real property tax as well
as the capital gains tax on the sale of the Mabolo Lot.

216
In their reply, Reynes and the Abucay Spouses contended that Montecillo
did not have authority to discharge the chattel mortgage especially after
Reynes revoked Montecillo’s Deed of Sale and gave the mortgagee a copy
of the document of revocation. Reynes and the Abucay Spouses claimed
that Montecillo secured the release of the chattel mortgage through
machination. They further asserted that Montecillo took advantage of the
real property taxes paid by the Abucay Spouses and surreptitiously caused
the transfer of the title to the Mabolo Lot in his name.

During pre-trial Montecillo claimed that the consideration for the sale of the
Mabolo Lot was the amount he paid to Cebu Iced and Cold Storage
Corporation for the mortgage debt of Bienvenido Jayag. Montecillo argued
that the release of the mortgage was necessary since the mortgage
constituted a lien on the Mabolo Lot.

Reynes, however stated that she had nothing to do with Jayag’s mortgage
debt except that the house mortgaged by Jayag stood on a portion of the
Mabolo Lot. Reynes further stated that the payment by Montecillo to
release the mortgage on Jayag’s house is a matter between Montecillo and
Jayag. The mortgage on the house being a chattel mortgage could not be
interpreted in any way as an encumbrance on the Mabolo Lot. Reynes
further claimed that the mortgage debt had long prescribed since the
P47,000.00 mortgage debt was due for payment on January 30,1967.

ISSUE:

Whether or not there was a valid consent in the case at bar to have a valid
contract.

HELD:

One of the three essential requisites of a valid contract is consent of the


parties on the object and cause of the contract. In a contract of sale, the
parities must agree not only on the price, but also on the manner of
payment of the price. An agreement on the price but a disagreement on the
manner of its payment will not result in consent, thus preventing the
existence of a valid contract for a lack of consent. This lack of consent is
separate and distinct for lack of consideration where the contract states
that the price has been paid when in fact it has never been paid.

Reynes expected Montecillo to pay him directly the P47, 000.00 purchase
price within one month after the signing of the Deed of Sale. On the other
hand, Montecillo thought that his agreement with Reynes required him to
217
pay the P47,000.00-purchase price to Cebu Ice Storage to settle Jayag’s
mortgage debt. Montecillo also acknowledged a balance of P10, 000.00 in
favor of Reynes although this amount is not stated in Montecillo’s Deed of
Sale. Thus, there was no consent or meeting of the minds, between
Reynes and Montecillo on the manner of payment. This prevented the
existence of a valid contract because of lack of consent.

In summary, Montecillo’s Deed of Sale is null and void ab initio not only for
lack of consideration, but also for lack of consent. The cancellation of TCT
No. 90805 in the name of Montecillo is in order as there was no valid
contract transferring ownership of the Mabolo Lot from Reynes to
Montecillo.

218
JASMIN SOLER VS. COURT OF APPEALS

G.R. No. 123892 May 2, 2001

FACTS:

Petitioner is a professional interior designer. In November 1986, her friend


Rosario Pardo asked her to talk to Nida Lopez, who was manager of the
COMBANK Ermita Branch for they were planning to renovate the branch
offices. Even prior to November 1986, petitioner and Nida Lopez knew
each other because of Rosario Pardo, the latter’s sister. During their
meeting, petitioner was hesitant to accept the job because of her many out
of town commitments, and also considering that Ms. Lopez was asking that
the designs be submitted by December 1986, which was such a short
notice. Ms. Lopez insisted, however, because she really wanted petitioner
to do the design for renovation. Petitioner acceded to the request. Ms.
Lopez assured her that she would be compensated for her services.
Petitioner even told Ms. Lopez that her professional fee was P10,000.00, to
which Ms. Lopez acceded.

During the November 1986 meeting between petitioner and Ms. Lopez,
there were discussions as to what was to be renovated. Ms. Lopez again
assured petitioner that the bank would pay her fees. After a few days,
petitioner requested for the blueprint of the building so that the proper
design, plans and specifications could be given to Ms. Lopez in time for the
board meeting in December 1986. Petitioner then asked her draftsman
Jackie Barcelon to go to the jobsite to make the proper measurements
using the blue print. Petitioner also did her research on the designs and
individual drawings of what the bank wanted. Petitioner hired Engineer
Ortanez to make the electrical layout, architects Frison Cruz and De Mesa
to do the drafting. For the services rendered by these individuals, petitioner
paid their professional fees. Petitioner also contacted the suppliers of the
wallpaper and the sash makers for their quotation. So come December
1986, the lay out and the design were submitted to Ms. Lopez. She even
told petitioner that she liked the designs.

Subsequently, petitioner repeatedly demanded payment for her services


but Ms. Lopez just ignored the demands. In February 1987, by chance
petitioner and Ms. Lopez saw each other in a concert at the Cultural Center
of the Philippines. Petitioner inquired about the payment for her services,
Ms. Lopez curtly replied that she was not entitled to it because her designs
did not conform to the bank’s policy of having a standard design, and that
there was no agreement between her and the bank.

219
Petitioner, through her lawyers, who wrote Ms. Lopez, demanding payment
for her professional fees in the amount of P10,000.00 which Ms. Lopez
ignored. The lawyers wrote Ms. Lopez once again demanding the return of
the blueprint copies petitioner submitted which Ms. Lopez refused to return.
The petitioner then filed at the trial court a complaint against COMBANK
and Ms. Lopez for collection of professional fees and damages.

In its answer, COMBANK stated that there was no contract between


COMBANK and petitioner; that Ms. Lopez merely invited petitioner to
participate in a bid for the renovation of the COMBANK Ermita Branch; that
any proposal was still subject to the approval of the COMBANK’s head
office.

The trial court rendered judgment in favor of plaintiff. On appeal, the Court
of Appeals reversed the decision. Hence, this petition.

ISSUE:

Whether or not the Court of Appeals erred in ruling that there was no
contract between petitioner and respondents, in the absence of the element
of consent.

HELD:

A contract is a meeting of the minds between two persons whereby one


binds himself to give something or to render some service to bind himself to
give something to render some service to another for consideration. There
is no contract unless the following requisites concur: 1. Consent of the
contracting parties; 2. Object certain which is the subject matter of the
contract; and 3. Cause of the obligation which is established.

In the case at bar, there was a perfected oral contract. When Ms. Lopez
and petitioner met in November 1986, and discussed the details of the
work, the first stage of the contract commenced. When they agreed to the
payment of the P10,000.00 as professional fees of petitioner and that she
should give the designs before the December 1986 board meeting of the
bank, the second stage of the contract proceeded, and when finally
petitioner gave the designs to Ms. Lopez, the contract was consummated.
Petitioner believed that once she submitted the designs she would be paid
her professional fees. Ms. Lopez assured petitioner that she would be paid.

It is familiar doctrine that if a corporation knowingly permits one of its


officers, or any other agent, to act within the scope of an apparent
authority, it holds him out to the public as possessing the power to do those
acts; and thus, the corporation will, as against anyone who has in good
220
faith dealt with it through such agent, be estopped from denying the agent’s
authority.

Also, petitioner may be paid on the basis of quantum meruit. "It is essential
for the proper operation of the principle that there is an acceptance of the
benefits by one sought to be charged for the services rendered under
circumstances as reasonably to notify him that the lawyer performing the
task was expecting to be paid compensation therefor. The doctrine of
quantum meruit is a device to prevent undue enrichment based on the
equitable postulate that it is unjust for a person to retain benefit without
paying for it."

The designs petitioner submitted to Ms. Lopez were not returned. Ms.
Lopez, an officer of the bank as branch manager used such designs for
presentation to the board of the bank. Thus, the designs were in fact useful
to Ms. Lopez for she did not appear to the board without any designs at the
time of the deadline set by the board.

Decision reversed and set aside. Decision of the trial court affirmed.

221
ABS-CBN BROADCASTING CORPORATION VS. COURT OF APPEALS

301 SCRA 573

G.R. No. 128690 January 21, 1999

FACTS:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement


whereby Viva gave ABS-CBN an exclusive right to exhibit some Viva films.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-
president Charo Santos-Concio, a list of three film packages (36 title) from
which ABS-CBN may exercise its right of first refusal under the afore-said
agreement. ABS-CBN, however through Mrs. Concio, "can tick off only ten
titles" (from the list) "we can purchase" and therefore did not accept said
list. The titles ticked off by Mrs. Concio are not the subject of the case at
bar except the film "Maging Sino Ka Man."

On February 27, 1992, defendant Del Rosario approached ABS-CBN’s Ms.


Concio, with a list consisting of 52 original movie titles (i.e., not yet aired on
television) including the 14 titles subject of the present case, as well as 104
re-runs (previously aired on television) from which ABS-CBN may choose
another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN
airing rights over this package of 52 originals and 52 re-runs for
P60,000,000.00 of which P30,000,000.00 will be in cash and
P30,000,000.00 worth of television spots.

On April 2, 1992, defendant Del Rosario and ABS-CBN’s general manager,


Eugenio Lopez III discussed the package proposal of VIVA. Mr. Lopez
testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was
granted exclusive film rights to fourteen (14) films for a total consideration
of P36 million; that he allegedly put this agreement as to the price and
number of films in a "napkin" and signed it and gave it to Mr. Del Rosario.
On the other hand, Del Rosario denied having made any agreement with
Lopez regarding the 14 Viva films; denied the existence of a napkin in
which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Viva’s film package offer of 104 films
(52 originals and 52 re-runs) for a total price of P60 million.

222
Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Viva’s offer to sell the 104
films, after the rejection of the same package by ABS-CBN. On the
following day, Del Rosario received a draft contract from Ms. Concio which
contains a counter-proposal of ABS-CBN on the offer made by VIVA
including the right of first refusal to 1992 Viva Films. However, the proposal
was rejected by the Board of Directors of VIVA and such was relayed to
Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several
negotiations and meetings defendant Del Rosario and Viva’s President
Teresita Cruz, in consideration of P60 million, signed a letter of agreement
dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-
produced and/or acquired films including the fourteen films subject of the
present case.

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific
performance with a prayer for a writ of preliminary injunction and/or
temporary restraining order against private respondents Republic
Broadcasting System (now GMA Network Inc.) On 28 May 1992, the RTC
issued a temporary restraining order.

The RTC then rendered decision in favor of RBS and against ABS-CBN.
On appeal, the same decision was affirmed. Hence, this decision.

ISSUE:

Whether or not there exists a perfected contract between ABS-CBN and


VIVA.

HELD:

A contract is a meeting of minds between two persons whereby one binds


himself to give something or render some service to another [Art. 1305,
Civil Code.] for a consideration. There is no contract unless the following
requisites concur:

(1) consent of the contracting parties;

(2) object certain which is the subject of the contract; and

(3) cause of the obligation, which is established. [Art. 1318, Civil Code.]

223
A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of


negotiation and bargaining rending at the moment of agreement of the
parties;

(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the


terms agreed upon in the contract.

In the present case, when Mr. Del Rosario of Viva met Mr. Lopez of ABS-
CBN on 2 April 1992 to discuss the package of films, said package of 104
VIVA films was VIVA’s offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in
the form a draft contract proposing exhibition of 53 films for a consideration
of P35 million. This counter-proposal could be nothing less than the
counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA’s
offer, for it was met by a counter-offer which substantially varied the terms
of the offer.

Furthermore, ABS-CBN made no acceptance of VIVA’s offer hence, they


underwent period of bargaining. ABS-CBN then formalized its counter-
proposals or counter-offer in a draft contract. VIVA through its Board of
Directors, rejected such counter-offer. Even if it be conceded arguendo that
Del Rosario had accepted the counter-offer, the acceptance did not bind
VIVA, as there was no proof whatsoever that Del Rosario had the specific
authority to do so.

The instant petition was GRANTED.

224
CARABEO VS DINGCO

G.R. No. 190823, April 04, 2011

FACTS:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract


denominated as "Kasunduan sa Bilihan ng Karapatan sa Lupa" with
Spouses Norberto and Susan Dingco (respondents) whereby petitioner
agreed to sell his rights over a 648 square meter parcel of unregistered
land situated in Purok III, Tugatog, Orani, Bataan to respondents for
P38,000.

Respondents tendered their initial payment of P10,000 upon signing of the


contract, the remaining balance to be paid on September 1990.
Respondents were later to claim that when they were about to hand in the
balance of the purchase price, petitioner requested them to keep it first as
he was yet to settle an on-going "squabble" over the land. Sometime in
1994, respondents learned that the alleged problem over the land had been
settled and that petitioner had caused its registration in his name on
December 21, 1993 under Transfer Certificate of Title No. 161806. They
thereupon offered to pay the balance but petitioner declined, drawing them
to file a complaint before the Katarungan Pambarangay. No settlement was
reached, however, hence, respondent filed a complaint for specific
performance before the Regional Trial Court (RTC) of Balanga, Bataan.

The trial court ruled in favor of respondents. CA affirmed RTC. Hence this
petition.

ISSUE:

Whether or not the CA erred in their decision by favoring respondents

HELD:

The Supreme Court denied the petition. The court contends that the
KASUNDUAN which pertinent portion reads “Na ako ay may isang partial
na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may
sukat na 27 x 24 metro kuwadrado, ang nasabing lupa ay may sakop na
dalawang punong santol at isang punong mangga, kaya't ako ay
nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco na
ipagbili sa kanila ang karapatan ng nasabing lupa sa halagang
P38,000.00”, That the kasunduan did not specify the technical boundaries
of the property did not render the sale a nullity. The requirement that a sale
must have for its object a determinate thing is satisfied as long as, at the

225
time the contract is entered into, the object of the sale is capable of being
made determinate without the necessity of a new or further agreement
between the parties. As the above-quoted portion of the kasunduan
shows, there is no doubt that the object of the sale is determinate. In the
present case, respondents are pursuing a property right arising from the
kasunduan, whereas petitioner is invoking nullity of the kasunduan to
protect his proprietary interest. Assuming arguendo, however, that the
kasunduan is deemed void, there is a corollary obligation of petitioner to
return the money paid by respondents, and since the action involves
property rights. The death of a client immediately divests the counsel of
authority. Thus, in filing a Notice of Appeal, petitioner's counsel of record
had no personality to act on behalf of the already deceased client who, it
bears reiteration, had not been substituted as a party after his death.

226
XXIV.CAUSE OF CONTRACTS (5)

ORDUA VS. FUENTEBELLA et. Al

G.R. No. 176841 : June 29, 2010

FACTS:

This case involves a residential lot with an area of 74 square meters


located at Fairview Subdivision, Baguio City, originally registered in the
name of Armando Gabriel, Sr. under Transfer Certificate of Title (TCT) No.
67181 of the Registry of Deeds of Baguio City.

Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to


petitioner Antonita Ordua, but no formal deed was executed to document
the sale. The contract price was apparently payable in installments as
Antonita remitted from time to time and Gabriel Sr. accepted partial
payments. One of the Orduas would later testify that Gabriel Sr. agreed to
execute a final deed of sale upon full payment of the purchase price.

In 1979, Antonita and her sons, Dennis and Anthony Ordua, were already
occupying the subject lot on the basis of some arrangement undisclosed in
the records and even constructed their house thereon. They also paid real
property taxes for the house and declared it for tax purposes, as evidenced
by Tax Declaration in which they place the assessed value of the structure
at PhP 20,090.

After the death of Gabriel Sr., his son and namesake, respondent Gabriel
Jr., secured TCT No. T-71499 over the subject lot and continued accepting
payments from the petitioners. On December 12, 1996, Gabriel Jr. wrote
Antonita authorizing her to fence off the said lot and to construct a road in
the adjacent lot. On December 13, 1996, Gabriel Jr. acknowledged receipt
of a PhP 40,000 payment from petitioners. Through a letter dated May 1,
1997, Gabriel Jr. acknowledged that petitioner had so far made an
aggregate payment of PhP 65,000, leaving an outstanding balance of PhP
60,000. A receipt Gabriel Jr. Issued dated November 24, 1997 reflected a
PhP 10,000 payment. Despite all those payments made for the subject lot,
Gabriel Jr. would later sell it to Bernard Banta (Bernard) obviously without
the knowledge of petitioners.

On July 3, 2001, petitioners, joined by Teresita, filed a Complaint for


Annulment of Title, Reconveyance with Damages against the respondents
before the RTC.

The RTC ruled for the respondents. The CA dismissed the appeal, hence
this petition.

227
ISSUE:

a. Whether or not the sale of the subject lot by Gabriel Sr. to Antonita is
unenforceable under the Statute of Frauds;

b. Whether or not such sale has adequate consideration;

c. Whether the instant action has already prescribed; and whether or


not respondents are purchasers in good faith.

HELD:

On the first Issue, the court notices that Gabriel Sr., during his lifetime, sold
the subject property to Antonita, the purchase price payable on installment
basis. Gabriel Sr. appeared to have been a recipient of some partial
payments. After his death, his son duly recognized the sale by accepting
payments and issuing what may be considered as receipts therefor. Gabriel
Jr., in a gesture virtually acknowledging the petitioners' dominion of the
property, authorized them to construct a fence around it. And no less than
his wife, Teresita, testified as to the fact of sale and of payments received.
Eduardo's assertion in his Answer that "persons appeared in the property"
only after "he initiated ejectment proceedings" is clearly baseless.

On the second Issue, the trial court's posture, with which the CA effectively
concurred, is patently flawed. For starters, they equated incomplete
payment of the purchase price with inadequacy of price or what passes as
lesion, when both are different civil law concepts with differing legal
consequences, the first being a ground to rescind an otherwise valid and
enforceable contract. Perceived inadequacy of price, on the other hand, is
not a sufficient ground for setting aside a sale freely entered into, save
perhaps when the inadequacy is shocking to the conscience. The Court to
be sure takes stock of the fact that the contracting parties to the 1995 or
1996 sale agreed to a purchase price of PhP 125,000 payable on
installments. But the original lot owner, Gabriel Sr., died before full payment
can be effected. Nevertheless, petitioners continued remitting payments to
Gabriel, Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel,
Jr., as may be noted, parted with the property only for PhP 50,000. On the
other hand, Bernard sold it for PhP 80,000 to Marcos and Benjamin. From
the foregoing price figures, what is abundantly clear is that what Antonita
agreed to pay Gabriel, Sr., albeit in installment, was very much more than
what his son, for the same lot, received from his buyer and the latter's
buyer later. The Court, therefore, cannot see its way clear as to how the
RTC arrived at its simplistic conclusion about the transaction between
Gabriel Sr. and Antonita being without "adequate consideration."
228
On the third Issue, the court finds no quibbling about the fraudulent nature
of the conveyance of the subject lot effected by Gabriel Jr. in favor of
Bernard. It is understandable that after his father's death, Gabriel Jr.
inherited subject lot and for which he was Issued TCT No. T-71499. Since
the Gabriel Sr. - Antonita sales transaction called for payment of the
contract price in installments, it is also understandable why the title to the
property remained with the Gabriels. And after the demise of his father,
Gabriel Jr. received payments from the Orduas and even authorized them
to enclose the subject lot with a fence. In sum, Gabriel Jr. knew fully well
about the sale and is bound by the contract as predecessor-in-interest of
Gabriel Sr. over the property thus sold. The prescriptive period for the
reconveyance of fraudulently registered real property is 10 years, reckoned
from the date of the issuance of the certificate of title, if the plaintiff is not in
possession, but imprescriptible if he is in possession of the property. Thus,
one who is in actual possession of a piece of land claiming to be the owner
thereof may wait until his possession is disturbed or his title is attacked
before taking steps to vindicate his right. As it is, petitioners' action for
reconveyance is imprescriptible.

In view of this case, the court ruled that petitioner Antonita Ordua is
recognized to have the right of ownership over subject lot covered by TCT
No. T-3276 of the Baguio Registry registered in the name of Eduardo J.
Fuentebella and therefore granted the petition and set aside the decision
of the lower court.

229
UY V. COURT OF APPEALS

G.R. No. 120465, September 9, 1999

FACTS:

Being agents and authorized to sell eight (8) parcels of land by the owners
thereof, petitioners William Uy and Rodel Roxas, by virtue of such
authority, offered to sell the lands, to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project. NHA
approved the acquisition of the said parcels of land with an area of 31.8231
hectares at the cost of P23.867 million, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the subject lands.
NHA eventually cancelled the sale over three (3) parcels of land of the
eight parcels of lands because of the report it received from the Land
Geosciences Bureau of the Department of Environment and Natural
Resources that the remaining area is located at an active landslide area
and therefore, not suitable for development into a housing project.

Petitioners then filed a complaint for damages but the trial court
rendered the cancellation of contract to be justified and awarded P1.255
million as damages in favor of petitioners. Upon appeal by petitioners, the
Court of Appeals reversed the decision and entered a new one dismissing
the complaint including the award of damages.

ISSUE:

1.) Whether or not the contention of petitioner is correct.

2.) Whether or not a party’s entry into a contract affects the validity of the
contract.

RULING:

1.) The Petitioners are not correct. They confuse the cancellation of the
contract by the NHA as a rescission of the contract under Article 1191 of
the Civil Code. The right to rescission is predicated on a breach of faith by
the other party that violates the reciprocity between them. The power to
rescind is given to the injured party. In this case, the NHA did not rescind
the contract. Indeed, it did not have the right to do so for the other parties

230
to the contract, the vendors did not commit any breach, much less a
substantial breach, of their obligation. The NHA did not suffer any injury.
The cancellation was not therefore a rescission under Article 1191. Rather,
it was based on the negation of the cause arising from the realization that
the lands, which were the objects of the sale, were not suitable for housing.

2.) The general rule is that a party’s motives for entering into a
contract do not affect the contract. However, when the motive
predetermines the cause, the motive may be regarded as the cause. As
held in Liguez v. CA, It is well to note, however, that Manresa himself, while
maintaining the distinction and upholding the inoperativess of the motives
of the parties to determine the validity of the contract, expressly excepts
from the rule those contracts that are conditioned upon the attainment of
the motives of either party.

231
GENARO CORDIAL, petitioner, vs. DAVID MIRANDA, respondent.

December 14, 2000

FACTS:

David Miranda, a businessman from Angeles City, was engaged in


rattan business. Gener Buelva was the supplier of David but the former met
an accident and died. Genero Cordial and Miranda met through Buelva’s
widow, Cecilla.

They agreed that Cordial will be his supplier of rattan poles. Cordial
shipped rattan poles as to the agreed number of pieces and sizes however
Miranda refused to pay the cost of the rattan poles delivered. Miranda
alleged that there exist no privity of contract between Miranda and Cordial.

Cordial filed a complaint againt Miranda. The RTC rendered its


decision in favor of the petitioner. The CA reversed the decision of the
RTC.

ISSUE:

Whether or not Statute of Frauds applies in this case

HELD:

The CA and respondent Miranda stress the absence of a “written


memorandum of the alleged contract between the parties”. Respondent
implicity agrues that the alleged contract is unenforceable under the Statute
of Frauds however, the statute of frauds applies only to executor and not to
completed, executed, or partially executed contracts. Thus, were one party
has performed one’s obligation, oral evidence will be admitted to prove the
agreement. In the present case, it has already been established that
petitioner had delivered the rattan poles to respondent. The contract was
partially executed, the Statute of Frauds does not apply.

232
Bank of the Philippine Islands vs. Benjamin Pineda

G.R.No. L-62441, December 14, 1987

156 SCRA 404

FACTS:

Through financing of Peoples Bank and Trust Company, now BPI,


three vessels were bought by Southern Industrial Project (SIP) and/or
Bacong Shipping Company. SIP is a corporation whose majority
stockholder belongs to Concon Family. Bacong Shipping Company is a
Panamanian corporation. The said vessels were mortgaged to the bank as
a security of their payment of their bank loans.

Interocean Shipping Corporation, a booking agency, handled the


operation of said vessels. It undertook the freight revenues from their
charter and operation which shall be deposited with Trust Department of
PBTC and disbursements made therefrom shall be covered by vouchers
bearing the approval of SIP.

SIP and PBTC became doubtful of the amount of revenues being


deposited with the bank as diversions of payments were being made.
Gregorio Concon of SIP and/or Bacong and Ramon Azanza of PBTC
organized SA Gacet Inc. to manage and supervise the vessels’ operation
with Ezekiel Toeg as its manager. A management contract was entered
into between SIP and Gacet Inc. placing the supervision and management
of said vessels in the hands of Gacet for a specified period, renewable at
the will of the parties without however terminating the booking agency of
Interocean Shipping Corp. Gacet and Interocean, in accordance with the
management contract, contracted services of Benjamin Pineda doing
business in the name and style Pioneer Iron Works to carry out repairs,
fabrication and installation of necessary parts in said vessels in order to
make them seaworthy and in good working condition.

Unable to pay their mortgage indebtedness to PBTC hich became


past due, SIP and/or Bacong sold said vessels to PBTC by way of dacion
en pago.Pineda filed an action against SIP, Gacet, Interocean and PBTC
for payment and interest of the cost of repairs, fabrication and installation of
necessary parts of the vessels.

ISSUE:

233
Who should be liable for the payment of the cost of repairs
undertaken in the subject vessels?

HELD:

The Deed of Confirmation of Obligation is but a part or corollary to the


Deeds of Sale of the vessels. In fact, specific reference thereto was made
by said Deeds of Sale as to the settlement of obligations, among which are
repairs in question. The stipulation with the Deed of Confirmation leaves
no room for doubt while the bank may indeed pay certain obligations. The
primary purpose of the contracts is the protection of the vessels. Among
them are liens on the same under which the obligation to private
respondent properly belongs.

Private respondent was paid certain sum of money and its balance
through the issuance of three checks by Interocean. Under the
circumstances, private respondent has no basis or necessity at that time to
exercise his right of retention under 1731 of the Civil Code. The checks
were dishonored thus the private respondent could not give validity to
petitioner’s argument that the former has waived or abandoned his liens on
the vessels. To pursue such view would put a premium on an act of
deception which led private respondent to believe that he will be fully paid.
Furthermore, when the checks were dishonored, it was impossible for
private respondent to enforce his liens because the vessels were already in
Japan, outside the territorial jurisdiction of Philippine waters. If there was no
intention on the part of PBTC (BPI) to assume responsibility for these
obligations at the time of the sale of the vessels, there is no sense in
executing said Deed of Confirmation together with the Deeds of Sale and
the stipulations thereunder would be pointless.

The repairs made on the vessels ultimately redounded to the benefit


of the new owner (BPI) for without said repairs, those vessels would not be
seaworthy. Under Article 2124 of the Civil Code, such acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another.The petitioner bank is
answerable to Pineda for the services contracted on the vessels.

234
BIENVENIDO M. CASIÑO, JR. versus THE COURT OF APPEALS and
OCTAGON REALTY DEVELOPMENT CORPORATION

G.R. No. 133803 2005 September 16

FACTS:

In its complaint, respondent alleges that on December 22, 1989, it entered


into a contract with petitioner for the supply and installation by the latter of
narra wood parquet (kiln dried) to the Manila Luxury Condominium Project,
of which respondent is the developer, for a total price of P1,158,487.00;
that the contract stipulated that full delivery by petitioner of labor and
materials was in May 1990; that in accordance with the terms of payment in
the contract, respondent paid to petitioner the amount P463,394.50,
representing 40% of the total contract price; that after delivering only
26,727.02 sq. ft. of wood parquet materials, petitioner incurred in delay in
the delivery of the remainder of 34,245.98 sq. ft.; that petitioner
misrepresented to respondent that he is qualified to do the work contracted
when in truth and in fact he was not and, furthermore, he lacked the
necessary funds to execute the work as he was totally dependent
on the funds advanced to him by respondent; that due to petitioner’s
unlawful and malicious refusal to comply with its obligations, respondent
incurred actual damages in the amount of P912,452.39 representing
estimated loss on the new price, unliquidated damages and cost of
money; that in order to minimize losses, the respondent contracted the
services of Hilvano Quality Parquet and Sanding Services to complete the
petitioner’s unfinished work, respondent thereby agreeing to pay the latter
P1,198,609.30.

ISSUE:

Whether or not the rescission of the contract by the private respondent is


valid

HELD:

Under the contract, petitioner and respondent had respective obligations,


i.e., the former to supply and deliver the contracted volume of narra wood
parquet materials and install the same at respondent’s condominium
project by May, 1990, and the latter, to pay for said materials in accordance
with the terms of payment set out under the parties’ agreement. But while
respondent was able to fulfill that which is incumbent upon it by making a
downpayment representing 40% of the agreed price upon the signing of the
contract and even paid the first billing of petitioner, the latter failed to

235
comply with his contractual commitment. For, after delivering only less than
one-half of the contracted materials, petitioner failed, by the end of the
agreed period, to deliver and install the remainder despite demands for him
to do so. Thus, it is petitioner who breached the contract. The petitioner
therefore, has failed to comply with his prestations under his contract with
respondent, the latter is vested by law with the right to rescind the parties’
agreement, conformably with Article 1191 of the Civil Code.

However, the right to rescind a contract for non-performance of its


stipulations is not absolute. The general rule is that rescission of a contract
will not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very object of
the parties in making the agreement. Contrary to petitioner’s asseveration,
the breach he committed cannot, by any measure, be considered as “slight
or casual”. For petitioner’s failure to make complete delivery and installation
way beyond the time stipulated despite respondent’s demands, is
doubtless a substantial and fundamental breach, more so when viewed in
the light of the large amount of money respondent had to pay another
contractor to complete petitioner’s unfinished work.

Likewise, contrary to petitioner’s claim, it cannot be said that he had


no inkling whatsoever of respondent’s recourse to rescission. Petitioner
cannot feign ignorance of respondent’s intention to rescind, fully aware, as
he was, of his non-compliance with what was incumbent upon him, and not
to mention the several letters respondent sent to him demanding
compliance with his obligation.

236
XXV. REFORMATION (5)

Florencia Huibonhoa vs. Court of Appeals

G.R. No. 95897, December 14, 1999

320 SCRA 625

FACTS:

On June 8, 1983, Florencia Huibonhoa entered into a memorandum


of agreement with the siblings Lim, Gojocco and Chua, stating that she will
lease from them three (3) adjacent commercial lots in Binondo, Manila. A
contract of lease was thereafter executed between the parties, where such
lease over the lots shall last for fifteen (15) years commencing on July 1,
1983 and renewable upon agreement of the parties. Further, it was agreed
in the terms and conditions of the contract, among others that: (1)
Huibonhoa was allowed to construct a four-storey building; (2) that the said
building shall be completed within eight (8) months from the date of the
execution of the contract of lease; (3) that Huibonhoa shall pay to each
lessor the sum of P 300, 000; (4) that Huibonhoa shall pay to each lessor P
15, 000.00 as monthly rentals; (6) that the obligation to start paying the
rental shall commence only upon completion of the building within the
eight-month period.

However, Huibonhoa brought an action for reformation of the


contract alleging that their true intention as to when the monthly rental
would accrue was not expressed due to mistake or accident, averring that
by reason of such, the lease contract failed to provide that should an
unforeseen event dramatically increase the cost of construction, the
monthly rental would be reduced and the term of the lease would be
extended for such duration as may be fair and equitable to both the lessor
and the lessee.

ISSUE:

Whether or not the assassination of former senator Benigno Aquino


was a fortuitous event that can thereby lead the parties to reform the
contract.

HELD:

237
A fortuitous event is that which could not be foreseen, or even if
foreseen, was inevitable. To exempt the obligor from liability for breach of
an obligation due to an “act of God,” the following must concur: first, the
cause of breach must be independent of the will of the obligor. Second, the
event must be unforeseeable or inevitable. Third, the event must be such
as to render it impossible for the debtor to fulfill his obligation in a normal
manner. And fourth, the debtor must be free from any participation in, or
aggravation of, the injury to the creditor. Further, inflation per se, does not
account that a fortuitous event transpired. Inflation is the sharp increase of
money or credit or both without a corresponding increase in business
transaction. There is inflation when there is an increase in the volume of
money and credit relative to available parties to the lease contract.
Ordinary diligence on the part of the parties demanded that they execute a
written agreement if indeed they wanted to enter into a new one because of
the 15-year life span of the lease affecting real property and the fact that
third persons would be affected thereby on account of the express
agreement allowing the lessee to lease the building to third parties.
However, only when an extraordinary inflation supervenes that the law
affords the parties a relief in contractual obligations. Extraordinary inflation
exists when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in
the value of said currency, and such decrease or increase could not have
been reasonably foreseen or was manifestly beyond the contemplation of
the parties at the time of the establishment of the obligation. Further, no
decrease in the peso value of such magnitude having occurred, Huibonhoa
has no valid ground to ask the Court to intervene and modify the lease
agreement to suit her purpose. Huibonhoa failed to prove by evidence, both
documentary and testimonial, that there was an extraordinary inflation from
July 1983 to February 1984. Although she repeatedly alleged that the cost
of constructing the building doubled from P 6M to P 12 M, she failed to
show by how much, for instance, the price index of goods and services had
risen during that intervening period. An extraordinary inflation cannot be
assumed. Hence, for Huibonhoa to claim exemption from liability by reason
of fortuitous event under Article 1174 of the Civil Code, she must prove that
inflation was the sole and proximate cause of the loss or destruction of the
contract or in this case, of the delay in the construction of the building.
Having failed to do so, Huibonhoa’s contention is untenable.

238
PCI VS NG SHUENG NGOR

A.M. NO. P-05-1973. MARCH 18, 2005

FACTS:

Complainant EPCIB is the defendant in Civil Case No. CEB-26983 before


the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng Sheung
Ngor, doing business under the name and style ‘Ken Marketing,’ Ken
Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI
Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or
Reformation of Documents and Contracts.

Respondents Antonio A. Bellones and Generoso B. Regalado are the


sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City.

For garnishing accounts maintained by Equitable PCI Bank, Inc. (EPCIB) at


Citibank, N.A., and Hongkong and Shanghai Bank Corporation (HSBC),
allegedly in violation of Section 9(b) of Rule 39 of the Rules of Court, a
complaint for grave abuse of authority was filed by Atty. Paulino L. Yusi
against Sheriffs Antonio A. Bellones and Generoso B. Regalado. There
was an offer of other real property by petitioner.

ISSUE:

Did respondents violate the Rules of Court?

HELD:

By serving notices of garnishment on Citibank, N.A., HSBC and PNB,


Sheriff Regalado violated EPCIB’s right to choose which property may be
levied upon to be sold at auction for the satisfaction of the judgment debt.
Thus, it is clear that when EPCIB offered its real properties, it exercised its
option because it cannot immediately pay the full amount stated in the writ
of execution and all lawful fees in cash, certified bank check or any other
mode of payment acceptable to the judgment obligee.

In the case at bar, EPCIB cannot immediately pay by way of Manager’s


Check so it exercised its option to choose and offered its real properties.
With the exercise of the option, Sheriff Regalado should have ceased
serving notices of garnishment and discontinued their implementation. This
is not true in the instant case. Sheriff Regalado was adamant in his
posture even if real properties have been offered which were sufficient to
satisfy the judgment debt.

239
G.R.NO. 171545, December 19, 2007

FACTS:

On October 7, 2001, respondents Ngor and Go filed an action for


amendment and/or reformation of documents and contracts against
Equitable and its employees. They claimed that they were induced by the
bank to avail of its peso and dollar credit facilities by offering low interests
so they accepted and signed Equitable’s proposal. They alleged that they
were unaware that the documents contained escalation clauses granting
Equitable authority to increase interest without their consent. These were
rebutted by the bank. RTC ordered the use of the 1996 dollar exchange
rate in computing respondent’s dollar-denominated loans. CA granted the
Bank’s application for injunction but the properties were sold to public
auction.

ISSUE:

Whether or not there was an extraordinary deflation

RULING:

Extraordinary inflation exists when there is an unusual decrease in the


purchasing power of currency and such decrease could not be reasonably
foreseen or was beyond the contemplation of the parties at the time of the
obligation. Deflation is an inverse situation.

Despite the devaluation of the peso, BSP never declared a situation of


extraordinary inflation. Respondents should pay their dollar denominated
loans at the exchange rate fixed by the BSP on the date of maturity.

Decision of lower courts are reversed and set aside.

240
NATELCO V CA

G.R.No. 107112 February 24, 1994

FACTS:

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company


rendering local as well as long distance service in Naga City while private
respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is
a private corporation established for the purpose of operating an electric
power service in the same city. On November 1, 1977, the parties entered
into a contract (Exh. "A") for the use by petitioners in the operation of its
telephone service the electric light posts of private respondent in Naga City.
In consideration therefor, petitioners agreed to install, free of charge, ten
(10) telephone connections for the use by private respondent

After the contract had been enforced for over ten (10) years, private
respondent filed on January 2, 1989 with the Regional Trial Court of Naga
City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the
contract with damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of the National
Electrification Administration (NEA) which direct that the reasonable
compensation for the use of the posts is P10.00 per post, per month; that
after eleven (11) years of petitioners' use of the posts, the telephone cables
strung by them thereon have become much heavier with the increase in the
volume of their subscribers, worsened by the fact that their linemen bore
holes through the posts at which points those posts were broken during
typhoons.

ISUUE:

Whether respondent court erred in making a contract for the parties by


invoking Article 1267 of the New Civil Code.

RULING:

Article 1267 speaks of "service" which has become so difficult. Taking into
consideration the rationale behind this provision, 9 the term "service"
should be understood as referring to the "performance" of the obligation. In
the present case, the obligation of private respondent consists in allowing
petitioners to use its posts in Naga City, which is the service contemplated
in said article. Furthermore, a bare reading of this article reveals that it is
not a requirement thereunder that the contract be for future service with
future unusual change. According to Senator Arturo M. Tolentino, 10
Article 1267 states in our law the doctrine of unforseen events. This is said
241
to be based on the discredited theory of rebus sic stantibus in public
international law; under this theory, the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and the
demands of equity and good faith, the disappearance of the basis of a
contract gives rise to a right to relief in favor of the party prejudiced.

242
PCI VS NG SHUENG NGOR

A.M. No. P-05-1973. March 18, 2005

FACTS:

Complainant EPCIB is the defendant in Civil Case No. CEB-26983


before the Regional Trial Court (RTC), Branch 16, Cebu City, entitled, “Ng
Sheung Ngor, doing business under the name and style ‘Ken Marketing,’
Ken Appliance Division, Inc. and Benjamin Go, Plaintiffs, vs. Equitable PCI
Bank, Aimee Yu and Ben Apas, Defendants” for Annulment and/or
Reformation of Documents and Contracts.

Respondents Antonio A. Bellones and Generoso B. Regalado are the


sheriffs in Branches 9 and 16, respectively, of the RTC of Cebu City.

For garnishing accounts maintained by Equitable PCI Bank, Inc.


(EPCIB) at Citibank, N.A., and Hongkong and Shanghai Bank Corporation
(HSBC), allegedly in violation of Section 9(b) of Rule 39 of the Rules of
Court, a complaint for grave abuse of authority was filed by Atty. Paulino L.
Yusi against Sheriffs Antonio A. Bellones and Generoso B. Regalado.
There was an offer of other real property by petitioner.

ISSUE:

Did respondents violate the Rules of Court?

HELD:

By serving notices of garnishment on Citibank, N.A., HSBC and PNB,


Sheriff Regalado violated EPCIB’s right to choose which property may be
levied upon to be sold at auction for the satisfaction of the judgment debt.
Thus, it is clear that when EPCIB offered its real properties, it exercised its
option because it cannot immediately pay the full amount stated in the writ
of execution and all lawful fees in cash, certified bank check or any other
mode of payment acceptable to the judgment obligee.

In the case at bar, EPCIB cannot immediately pay by way of


Manager’s Check so it exercised its option to choose and offered its real
properties. With the exercise of the option, Sheriff Regalado should have
ceased serving notices of garnishment and discontinued their
implementation. This is not true in the instant case. Sheriff Regalado was
adamant in his posture even if real properties have been offered which
were sufficient to satisfy the judgment debt.

243
XXVI.RESCISSIBLE CONTRACTS (5)

MARTIN V. DBS

G.R. No. 174632 June 16, 2010

FACTS:

Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M. Garcia,


Victoria M. Roldan, and Benjamin T. Martin, Jr., as lessors, entered into a
lease contract with the DBS Bank Philippines, Inc., covering a commercial
warehouse and lots that DBS was to use for office, warehouse, and parking
yard for repossessed vehicles. The lease was for five years, from March 1,
1997 to March 1, 2002, at a monthly rent of P300,000.00 for the first year,
P330,000.00 for the second year, P363,000.00 for the third year,
P399,300.00 for the fourth year, and P439,230.00 for the final year, all net
of withholding taxes. DBS paid a deposit of P1,200,000.00 and advance
rentals of P600,000.00. On May 25 and August 13, 1997 heavy rains
flooded the leased property and submerged into water the DBS offices
there along with its 326 repossessed vehicles. As a result, on February 11,
1998 DBS wrote the Martins demanding that they take appropriate steps to
make the leased premises suitable as a parking yard for its vehicles. DBS
suggested the improvement of the drainage system or the raising of the
property’s ground level. In response, the Martins filled the property’s
grounds with soil and rocks. But DBS lamented that the property remained
unsuitable for its use since the Martins did not level the grounds. Worse,
portions of the perimeter fence collapsed because of the excessive amount
of soil and rock that were haphazardly dumped on it. In June 1998, DBS
vacated the property but continued paying the monthly rents. On
September 11, 1998, however, it made a final demand on the Martins to
restore the leased premises to tenantable condition on or before
September 30, 1998, otherwise, it would rescind the lease contract. On
September 24, 1998 the Martins contracted the services of Altitude
Systems & Technologies Co. for the reconstruction of the perimeter fence
on the property. On October 13, 1998 DBS demanded the rescission of the
lease contract and the return of its deposit. At that point, DBS had already
paid the monthly rents from March 1997 to September 1998. The Martins
refused, however, to comply with DBS’ demand. On July 7, 1999 DBS filed
a complaint against the Martins for rescission of the contract of lease with
damages before the Regional Trial Court of Makati City, Branch 141, in
Civil Case 99-1266. Claiming that the leased premises had become
untenantable, DBS demanded rescission of the lease contract as well as
the return of its deposit of P1,200,000.00.

244
The Makati City RTC rendered a decision, dismissing the complaint against
the Martins. The trial court found that, although the floods submerged DBS’
vehicles, the leased premises remained tenantable and undamaged.
Moreover, the Martins had begun the repairs that DBS requested but were
not given sufficient time to complete the same. It Held that DBS
unjustifiably abandoned the leased premises and breached the lease
contract. Thus, the trial court ordered its deposit of P1,200,000.00
deducted from the unpaid rents due the Martins and ordered DBS to pay
them the remaining P15,198,360.00 in unpaid rents.

On appeal to the Court of Appeals, the court rendered judgment reversing


and setting aside the RTC decision. The CA found that floods rendered the
leased premises untenantable and that the RTC should have ordered the
rescission of the lease contract especially since the contract provided for
such remedy. The CA ordered the Martins to apply the deposit of
P1,200,000.00 to the rents due up to July 7, 1999 when DBS filed the
complaint and exercised its option to rescind the lease. The CA ordered the
Martins to return the remaining balance of the deposit to DBS. With the
denial of their separate motions for reconsideration DBS and the Martins
filed their respective petitions for review before this Court in G.R. 174632
and 174804. The Court eventually consolidated the two cases.

ISSUE:

Whether or not the CA erred in holding that DBS is entitled to the


rescission of the lease contract only from July 7, 1999 when it filed its
action for rescission, entitling the Martins to collect rents until that time.

HELD:

Unless the terms of a contract are against the law, morals, good
customs, and public policy, such contract is law between the parties and its
terms bind them. In Felsan Realty & Development Corporation v.
Commonwealth of Australia,13 the Court regarded as valid and binding a
provision in the lease contract that allowed the lessee to pre-terminate the
same when fire damaged the leased building, rendering it uninhabitable or
unsuitable for living. Here, paragraph VIII14 of the lease contract between
DBS and the Martins permitted rescission by either party should the leased
property become untenantable because of natural causes. Thus In case of
damage to the leased premises or any portion thereof by reason of fault or
negligence attributable to the lessee, its agents, employees, customers, or
guests, the lessee shall be responsible for undertaking such repair or
reconstruction. In case of damage due to fire, earthquake, lightning,
typhoon, flood, or other natural causes, without fault or negligence
attributable to the lessee, its agents, employees, customers or guests, the
245
lessor shall be responsible for undertaking such repair or reconstruction. In
the latter case, if the leased premises become untenantable, either party
may demand for the rescission of this contract and in such case, the
deposit referred to in paragraph III shall be returned to the lessee
immediately. The Martins claim that DBS cannot invoke the above since
they undertook the repair and reconstruction of the leased premises,
incurring P1.6 million in expenses. The Martins point out that the option to
rescind was available only if they failed to do the repair work and
reconstruction.

But, under their agreement, the remedy of rescission would become


unavailable to DBS only if the Martins, as lessors, made the required repair
and reconstruction after the damages by natural cause occurred, which
meant putting the premises after the floods in such condition as would
enable DBS to resume its use of the same for the purposes contemplated
in the agreement, namely, as office, warehouse, and parking space for
DBS’ repossessed vehicles. Here, it is undisputed that the floods of May 25
and August 13, 1997 submerged the DBS offices and its 326 repossessed
vehicles. The floods rendered the place unsuitable for its intended uses.
And, while the Martins did some repairs, they did not restore the place to
meet DBS’ needs. The photographs16 taken of the place show that the
Martins filled the grounds with soil and rocks to raise the elevation but did
not level and compact the same so they could accommodate the
repossessed vehicles. Moreover, the heaviness of the filling materials
caused portions of the perimeter walls to collapse or lean dangerously.17
Indeed, the Office of the City Engineer advised DBS that unless those walls
were immediately demolished or rehabilitated, they would endanger
passersby

Undeniably, the DBS suffered considerable damages when flood


waters deluged its offices and 326 repossessed vehicles. Notably, DBS
vacated the leased premises in June of 1998, without rescinding the lease
agreement, evidently to allow for unhindered repair of the grounds. In fact,
DBS continued to pay the monthly rents until September 1998, showing
how DBS leaned back to enable the Martins to finish the repair and
rehabilitation of the place. 19 The Martins provided basis for rescission by
DBS when they failed to do so.

Hence the Court denied the petition and affirmed with mocifications
the April 26, 2006 decision of the Court of Appeals in CA-G.R. CV 76210 in
that Felicidad T. Martin, Melissa M. Isidro, Grace M. David, Caroline M.
Garcia, Victoria M. Roldan, and Benjamin T. Martin, Jr. are ORDERED to
return the full deposit of P1,200,000.00 to DBS Bank Philippines, Inc.
(formerly known as Bank of Southeast Asia, now merged with and into BPI
246
Family Bank) with interest of 12% per annum to be computed from the
finality of this decision until the amount is fully paid.

247
UY V. COURT OF APPEALS

G.R. No. 120465, September 9, 1999

FACTS:

Being agents and authorized to sell eight (8) parcels of land by the owners
thereof, petitioners William Uy and Rodel Roxas, by virtue of such
authority, offered to sell the lands, to respondent National Housing
Authority (NHA) to be utilized and developed as a housing project. NHA
approved the acquisition of the said parcels of land with an area of 31.8231
hectares at the cost of P23.867 million, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the subject lands.
NHA eventually cancelled the sale over three (3) parcels of land of the
eight parcels of lands because of the report it received from the Land
Geosciences Bureau of the Department of Environment and Natural
Resources that the remaining area is located at an active landslide area
and therefore, not suitable for development into a housing project.

Petitioners then filed a complaint for damages but the trial court rendered
the cancellation of contract to be justified and awarded P1.255 million as
damages in favor of petitioners. Upon appeal by petitioners, the Court of
Appeals reversed the decision and entered a new one dismissing the
complaint including the award of damages.

ISSUE:

1.) Whether or not the contention of petitioner is correct.

2.) Whether or not a party’s entry into a contract affects the validity of the
contract.

HELD:

1.) The Petitioners are not correct. They confuse the cancellation of the
contract by the NHA as a rescission of the contract under Article 1191 of
the Civil Code. The right to rescission is predicated on a breach of faith by
the other party that violates the reciprocity between them. The power to
rescind is given to the injured party. In this case, the NHA did not rescind
the contract. Indeed, it did not have the right to do so for the other parties
to the contract, the vendors did not commit any breach, much less a
substantial breach, of their obligation. The NHA did not suffer any injury.
The cancellation was not therefore a rescission under Article 1191. Rather,
it was based on the negation of the cause arising from the realization that
the lands, which were the objects of the sale, were not suitable for housing.

248
2.) The general rule is that a party’s motives for entering into a contract do
not affect the contract. However, when the motive predetermines the
cause, the motive may be regarded as the cause. As Held in Liguez v. CA,
It is well to note, however, that Manresa himself, while maintaining the
distinction and upholding the inoperativess of the motives of the parties to
determine the validity of the contract, expressly excepts from the rule those
contracts that are conditioned upon the attainment of the motives of either
party.

249
TAYAG VS. COURT OF APPEALS

219 SCRA 481

FACTS:

Petitioners are the heirs of Juan Galicia, Sr. who are seeking to rescind the
deed of conveyance executed by Galicia, Sr. together with Celerina
Labuguin, in favor of Albrigido Leyva, respondent involving the undivided
one-half portion of a piece of land situated at Poblacion, Guimba, Nueva
Ecija. They contend that respondent is in breach of the conditions of the
deed. Contained in the deed were stipulations regarding the payment and
settlement of the purchase price of the land. The respondent however did
not strictly comply this with. Despite the posterior payments however,
petitioners accepted them. Respondent, on the contention that he fulfilled
his obligation to pay filed this case for specific performance by the
petitioners.

The court of origin which tried the suit for specific performance on account
of the herein petitioner’s reluctance to abide by the covenant, ruled in favor
of the vendee while respondent court practically agreed with the trial court
except as to the amount to be paid to petitioners and the refund to private
respondent are concerned.

ISSUE:

Whether or not petitioners’ prayer for the rescission of the deed can
prosper

HELD:

The Supreme Court affirmed the decision of the lower courts.

The suggestion of petitioners that the covenant must be cancelled in the


light of private respondent’s so-called breach seems to overlook petitioners’
demeanor who, instead of immediately filing the case precisely to rescind
the instrument because of non-compliance, allowed private respondent to
effect numerous payments posterior to the grace periods provided in the
contract. This apathy of petitioners, who even permitted private respondent
to take the initiative in filing the suit for specific performance against them,
is akin to waiver of abandonment of the right to rescind.

250
NILO R. JUMALON

vs.

COURT OF APPEALS, HON. RUBEN D. TORRES, HOUSING AND


LAND USE REGULATORY BOARD, and MA. ASUNCION DE LEON,

G.R. No. 127767 January 30, 2002

FACTS:

Complainant De Leon and herein petitioner, Nilo R. Jumalon, executed a


conditional sales agreement whereby the former purchased from the latter
a house and lot. Jumalon executed in favor of De Leon a Deed of Absolute
Sale.

De Leon learned regarding the danger posed by the wires over the
property. Also, De Leon was informed by HLURB Enforcement Center, that
construction of houses and buildings of whatever nature are strictly
prohibited within the right-of –way of the transmission line.

De Leon filed a case for declaration of nullity or annulment of sale of real


property which was subsequently dismissed. De Leon then, filed a
complaint before the HLURB seeking the rescission of the conditional sales
agreement and the Absolute Deed of Sale.

HLURB arbiter rendered judgement in favor of De Leon. The Board of


Commissioners of HLURB affirmed the decision of arbiter. The CA affirmed
the appealed decision.

ISSUE:

Whether the Court of Appeals erred in affirming the decision of Executive


Secretary Ruben D. Torres and the HLURB declaring the rescission of the
contract of sale of a house and lot between the petitioner and private
respondent

HELD:

The SC agree with the Court of Appeals that respondent de Leon was
entitled to annul the sale. There was fraud in the sale of the subject house.
It is not safely habitable. It is built in a subdivision area where there is an
existing 30-meter right of way of the Manila Electric Company (Meralco)
with high-tension wires over the property, posing a danger to life and
property. The construction of houses underneath the high tension wires is
prohibited as hazardous to life and property because the line carries
115,000 volts of electricity, generates tremendous static electricity and
produces electric sparks whenever it rained.

251
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN

vs.

PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,


FERNANDO MAGBANUA and LIZZA TIANGCO

G.R. No. 140479 March 8, 2000

FACTS:

Plaintiffs and plaintiffs-intervenors averred that they are the lessess since
1971 of a two-story residential apartment and owned by spouses Faustino
and Cresencia Tiangco. The lease was nocovered by any contract. The
lesses were renting the premises then for Php 150.00 a month and were
allegedly verbally granted by the lessors the pre-emptive right to purchase
the property if ever they decide to sell the same.

Upon the death of the spouses Tiangco, the management of the property
was adjudicated to their heirs who were represented by Eufrocina deLeon.

The lessees received a letter from de Leon advising them that the heirs of
the late spouses have already sold the property to Resencor.

The lessees filed an action before the RTC praying for the following: a)
rescission of the Deed of Absolute Sale between de Leon and Rocencor, b)
the defendants Rosencor/Rene Joaquin be ordered to reconvey the
property to de Leon, c) de Leon be ordered to reimburse the plaintiffs for
the repair of the property or apply the said amount as part of the purchase
of the property.

The RTC dismissed the complaint while the Ca reversed the decision of the
RTC.

ISSUE:

Whether or not a right of first refusal is indeed covered by the provisions of


the NCC on the Statute of Frauds

HELD:

A right of first refusal is not among those listed as unenforceable under the
statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of
the NCC, presupposes the existence of a perfected, albeit unwritten,
contract of sale. A right of first refusal, such as the one involved in the
instant case, is not by any means a perfected contract of sale of real
property. At best, it is a contractual grant, not of the sale of the real

252
property involved of the right of first refusal over the property sought to be
sold.

It is thus evident that the statute of frauds does not contemplate cases
involving a right of right of first refusal. As such, a right of first refusal need
not be written to be enforceable and may be proven by oral evidence.

253
XXVII. VOIDABLE (5)

MANGAHAS VS. BROBIO

G.R. No. 183852 : October 20, 2010

FACTS:

On January 10, 2002, Pacifico S. Brobio died intestate, leaving three


parcels of land. He was survived by his wife, respondent Eufrocina A.
Brobio, and four legitimate and three illegitimate children; petitioner
Carmela Brobio Mangahas is one of the illegitimate children.

On May 12, 2002, the heirs of the deceased executed a Deed of


Extrajudicial Settlement of Estate of the Late Pacifico Brobio with Waiver.
In the Deed, petitioner and Pacificos other children, in consideration of their
love and affection for respondent and the sum of P150,000.00, waived and
ceded their respective shares over the three parcels of land in favor of
respondent. According to petitioner, respondent promised to give her an
additional amount for her share in her fathers estate. Thus, after the signing
of the Deed, petitioner demanded from respondent the promised additional
amount, but respondent refused to pay, claiming that she had no more
money.

A year later, while processing her tax obligations with the Bureau of Internal
Revenue (BIR), respondent was required to submit an original copy of the
Deed. Left with no more original copy of the Deed, respondent summoned
petitioner to her office on May 31, 2003 and asked her to countersign a
copy of the Deed. Petitioner refused to countersign the document,
demanding that respondent first give her the additional amount that she
promised. Considering the value of the three parcels of land (which she
claimed to be worth P20M), petitioner asked for P1M, but respondent
begged her to lower the amount. Petitioner agreed to lower it to
P600,000.00. Because respondent did not have the money at that time and
petitioner refused to countersign the Deed without any assurance that the
amount would be paid, respondent executed a promissory note. Petitioner
agreed to sign the Deed when respondent signed the promissory note.

When the promissory note fell due, respondent failed and refused to pay
despite demand. Petitioner made several more demands upon respondent
but the latter kept on insisting that she had no money. On January 28,
2004, petitioner filed a Complaint for Specific Performance with
damagesaw against respondent.

The Regional Trial Court (RTC) rendered a decision in favor of petitioner.


The CA reversed the RTC decision and dismissed the complaint.

254
ISSUE:

The Honorable Court of Appeals erred in the appreciation of the Facts of


this case when it found that intimidation attended the execution of the
promissory note subject of this case.

HELD:

The Supreme Court ruled that contracts are voidable where consent
thereto is given through mistake, violence, intimidation, undue influence, or
fraud. In determining whether consent is vitiated by any of these
circumstances, courts are given a wide latitude in weighing the Facts or
circumstances in a given case and in deciding in favor of what they believe
actually occurred, considering the age, physical infirmity, intelligence,
relationship, and conduct of the parties at the time of the execution of the
contract and subsequent thereto, irrespective of whether the contract is in a
public or private writing. It is alleged that mistake, violence, fraud, or
intimidation attended the execution of the promissory note. Still, respondent
insists that she was "forced" into signing the promissory note because
petitioner would not sign the document required by the BIR. The fact that
respondent may have felt compelled, under the circumstances, to execute
the promissory note will not negate the voluntariness of the act. As rightly
observed by the trial court, the execution of the promissory note in the
amount of P600,000.00 was, in fact, the product of a negotiation between
the parties. Respondent herself testified that she bargained with petitioner
to lower the amount. The remedy suggested by the CA is not the proper
one under the circumstances. An action for partition implies that the
property is still owned in common. Considering that the heirs had already
executed a deed of extrajudicial settlement and waived their shares in favor
of respondent, the properties are no longer under a state of co-ownership;
there is nothing more to be partitioned, as ownership had already been
merged in one person.

Wherefore, the decision of the CA is reversed and set aside and the
decision of the RTC is reinstated.

255
WILLIAM ALAIN MIAILHE

vs. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES,

G.R. No. 108991 March 20, 2001

FACTS:

Petitioner, William Alain Miailhe, on his own behalf and on behalf of Victoria
Desbarats-Miailhe, Monique Miailhe-Sichere and Elaine Miailhe-
Lencquesaing filed a Complaint for Annulment of Sale, Reconveyance and
Damages against [Respondent] Republic of the Philippines and defendant
Development Bank of the Philippines.

The petitioner alleged that DBP forged, threatened and intimidated


petitioner to sell the property to DBP for the grossly low price. The RTC and
CA rendered their decision in favor of DBP and that the action is already
prescribed.

ISSUE:

Whether or not extrajudicial demands did not interrupt prescription

HELD:

In the present case, there is as yet no obligation in existence. Respondent


has no obligation to reconvey the subject lots because of the existing
Contract of Sale. Although allegedly voidable, it is binding unless annulled
by a proper action in court.12 Not being a determinate conduct that can be
extrajudically demanded, it cannot be considered as an obligation either.
Since Article 1390 of the Civil Code states that voidable "contracts are
binding, unless they are annulled by a proper action in court," it is clear that
the defendants were not obligated to accede to any extrajudicial demand to
annul the Contract of Sale.

256
FIRST PHILIPPINE HOLDINGS CORPORATION VS. TRANS MIDDLE
EAST EQUITIES INC.

G.R. NO. 179505, 04 DECEMBER 2009

FACTS:

FHPC formerly known as Meralco Securities Corporation incorporated on


30 June 1961 by Filipino Entreprenuers led by Eugenio Lopez Sr. sold its
6,299,179.00 php shares of common stock in Philippine Commercial
International Bank (PCIB), now Equitable PCIB to TMEE. Such shares
according to the FHPC were obtained by the TMEE through fraud, acts
contrary to Law, Morals, Good Customs and Public Policy and such
acquisition is either voidable, void or un forceable. FHPC filed then its
motion for leave to intervene and admit complaint in intervention and was
granted by the court. On the otehr hand, TMEE filed its motion to dismiss
the complaint-in-intervention by the FHPC on the ground that the action of
FHPC has already prescribed under Article 1391 of the Civil Code. Since
the action was filed only on 28 December 1988 and the sale was 24 May
1984 the action was laready 7 months late from the date of prescription.

ISSUE :

Whether or not the sale of property is void and the prescriptive period had
elapsed

HELD:

No, the SC found that the sale is not void for a suit for the annulment of
voidbale contract on account of fraud shall be filed within four years from
the discovery of the same, here, from the time the questioned sale
transaction on May 24, 1984 took place, FHPC didn't deny that it had
actual knowledge of the same. Simply, petitioner was fully aware of the
sale of the PCIB shares to TMEE and espite full knowledge petitioners did
not question the said sale from its inception and sometime thereafter. it
was only four years and seven months had elapsed following the
knowledge or discovery of the alleged fraudulent sale that the petitioner
assailed the same, by then it was too late for the petitioners to beset same
transaction, since the prescriptive period had already come into play.

The SC therefore denied the instant petition and affirmed the resolution of
the SB with cost against the petitioner.

257
SANCHEZ vs. MAPALAD

541 SCRA 397

FACTS:

Respondent Mapalad was the registered owner of four (4) parcels of land
located along Roxas Boulevard, Baclaran, Parañaque

The PCGG Issued writs of sequestration for Mapalad and all its properties.

Josef, Vice president/treasurer and General Manager of Mapalad


discovered that the 4 TCTs were missing, however the four missing tcts
turned out to be in possession of Nordelak Development Corporation.
Nordelak came into possession of the 4 TCTs by deed of sale purportedly
executed by Miguel Magsaysay in his capacity as President and Board
Chairman of Mapalad.

Mapalad filed an action for annulment of deed of sale and reconveyance of


title with damages against Nordelak.

RTC ruled in favour of Nordelak. The Ca reversed the decision of RTC.

ISSUE:

Whether or not there was a valid sale between Mapalad and Nordelak

HELD:

In the present case, consent was purportedly given by Miguel Magsaysay,


the person who signed for and in behalf of Mapalad in the deed of absolute
sale dated November 2, 1989. However, as he categorically stated on the
witness stand during trial, he was no longer connected with Mapalad on the
said date because he already divested all his interests in said corporation
as early as 1982. Even assuming, for the sake of argument, that the
signatures purporting to be his were genuine, it would still be voidable for
lack of authority resulting in his incapacity to give consent for and in behalf
of the corporation.

Lack of consideration makes a contract of sale fictitious. A fictitious sale is


void ab initio.

The alleged deed of absolute sale dated November 2, 1989


notwithstanding, the contract of sale between Mapalad and Nordelak is not
only voidable on account of lack of valid consent on the part of the
purported seller, but also void ab initio for being fictitious on account of lack
of consideration.

258
WHEREFORE, the petition is hereby DENIED and the appealed Court of
Appeals decision AFFIRMED in toto.

259
MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA
and LEOPOLDO BALGUMA, JR.

vs.BRAULIO KATIPUNAN, JR.

G.R. No. 132415 January 30, 2002

FACTS:

Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot
and a five-door apartment constructed thereon located at 385-F Matienza
St., San Miguel, Manila.

Petitioner Miguel Katipunan, entered into a Deed of Absolute Sale4 with


brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-petitioners),
represented by their father Atty. Leopoldo Balguma, Sr., involving the
subject property for a consideration of P187,000.00.

Respondent filed a complaint for annulment of the Deed of Absolute Sale.


He contended that the said contract was obtained through insidious words
and machinations.

The TRC dismissed the complaint. The CA reversed the decision of RTC.

ISSUE:

Whether or not CA erred when it overturned the factual findings of the trial
court which are amply supported by the evidence on record

HELD:

The circumstances surrounding the execution of the contract manifest a


vitiated consent on the part of respondent. Undue influence was exerted
upon him by his brother Miguel and Inocencio Valdez (petitioners) and Atty.
Balguma. It was his brother Miguel who negotiated with Atty. Balguma.
However, they did not explain to him the nature and contents of the
document. Worse, they deprived him of a reasonable freedom of choice. It
bears stressing that he reached only grade three. Thus, it was impossible
for him to understand the contents of the contract written in English and
embellished in legal jargon.

A contract where one of the parties is incapable of giving consent or


where consent is vitiated by mistake, fraud, or intimidation is not void ab
initio but only voidable and is binding upon the parties unless annulled by
proper Court action. Since the Deed of Absolute Sale between respondent
and the Balguma brothers is voidable and hereby annulled, then the

260
restitution of the property and its fruits to respondent is just and proper.
Petitioners should turn over to respondent all the amounts they received
starting January, 1986 up to the time the property shall have been returned
to the latter.

261
XXVIII. UNENFORCEABLE (5)

ROSARIO L. DE BRAGANZA, ET AL.

vs.FERNANDO F. DE VILLA ABRILLE

G.R. No. L-12471 April 13, 1959

FACTS:

Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for
review of the Court of Appeal's decision whereby they were required
solidarily to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 %
interest from October 30, 1944. Because payment had not been made,
Villa Abrille sued them in March 1949.

The RTC and CA rendered its decision in favor of Abrile despite the fact
that Guillermo and Rodolfo are minors.

ISSUE:

Whether or not Guillermo and Rodolfo can be Held liable to pay the loan

HELD:

The SC Held that being minors, Rodolfo and Guillermo could not be legally
bound by their obligation. These minors may not be entirely absolved from
monetary responsibility. In accordance with the provisions of Civil Code,
even if their written contact is unenforceable because of non-age, they shall
make restitution to the extent that they have profited by the money they
received. (Art. 1340) There is testimony that the funds delivered to them by
Villa Abrille were used for their support during the Japanese occupation.
Such being the case, it is but fair to hold that they had profited to the extent
of the value of such money, which value has been authoritatively
established in the so-called Ballantine Schedule: in October 1944, P40.00
Japanese notes were equivalent to P1 of current Philippine money.

262
CABALES, ET. AL vs COURT OF APPEALS

August 31, 2007

FACTS:

Saturnina and her children Bonifacio, Albino, Francisco, Leonara, Alberto


and petitioner Rito inherited a parcel of land. They sold such property to Dr.
Cayetano Corrompido with a right to repurchase within 8 years.

Alberto secured a note from Dr. Corrompido in the amount of Php 300.00.

Alberto died leaving a wife and son, petitioner Nelson.

Within the 8-year redemption period, Bonifacio and Albino tendered their
payment to Dr. Corrompido. But Dr. Corrompido only released the
document of sale with pacto de retro after Saturnina paid the share of her
deceased son, Alberto, plus the note.

Saturnina and her children executed an affidavit to the effect that petitioner
Nelson would only receive the amount of Php 176.34 from respondents-
spouses when he reaches the age if 21 considering that Saturnina paid Dr.
Corrompido Php 966.66 for the obligation of petitioner Nelson’s late father
Alberto.

ISSUE:

Whether or not the sale entered into is valid and binding

HELD:

The legal guardian only has the plenary power of administration of


the minor’s property. It does not include the power to alienation which
needs judicial authority. Thus when Saturnina, as legal guardian of
petitioner Rito, sold the latter’s pro indiviso share in subject land, she did
not have the legal authority to do so. The contarct of sale as to the pro
indiviso share of Petitioner Rito was unenforceable. However when he
acknowledged receipt of the proceeds of the sale on July24, 1986,
petitioner Rito effectively ratified it. This act of ratification rendered the sale
valid and binding as to him.

263
MUNICIPALITY OF HAGONOY, BULACAN ET. AL. V HON. SIMEON P.
DUMDUM, JR. ET. AL

G.R. NO. 168289, 22 MARCH 2010

FACTS:

Private respondent, Emily Rose Go Ko Lim Chao, who is engaged in buy


and sell business of surplus business, equipment machineries, spare parts
and related supplies filed a complaint for collection of sum of money,
including damages against the petitioners, Municipality of Hagonoy,
Bulacan and its ormer chief executive, Mayor Felix V. Ople in his official
and personal capacity. The private respondent claimed that because of
Ople’s earnest representation that funds had already been allowed for the
project, she agreed to deliver from her personal principal business in Cebu
City twenty-one motor vehicles whose valued totaled to 5,820,000.00 php
but the petitioners here instead filed a motion to dismiss on the ground that
the claim on which the action had been brought was unenforceable under
the statute of frauds, pointing out that there was no written contract or
document that would evince the supposed agreement they entered into
with the respondent. The petitioners also filed for Motion to Dissolve and /or
Discharge the Writ of Preliminary Attachment already Issued by the court
invoking immunity of the State from suit, unenforceability of contract, and
failure to substantiate the allegation of fraud. But the trial court denied all
the petitions of the petitioners; hence the petitioners brought this case to
CA believing that the trial court committed grave abuse of discretion upon
issuing two orders .

ISSUES:

(1) Whether or not complaint is unenforceable under the Statutes of


Fraud
(2) Whether or not there is valid reason to deny petitioners’ motion to
dismiss the Writ of Preliminary Attachment

HELD:

The SC Held that Statute of frauds is descriptive of statutes that require


certain classes of contracts to be in writing, and that do not deprive the
parties of the right to contract with respect to the matters therein involved,
but merely regulate the formalities of the contract necessary to render its
enforceability. In other words, the Statute of fraud only lays down the
method by which the enumerated contracts maybe proved. It does not also
declare any contract invalid because they are not reduced into writing

264
inasmuch as, by law, contracts are obligatory in whatever form they may
have been entered into provided that all their essential requisites for validity
are present. Thus the claim of the respondent is well-substantiated.

For the second Issue, the Sc Held that the Writ of Preliminary Attachment
should be dismissed because it writ of attachment in this case would only
prove to be useless and unnecessary under the premises since the
property of the Municipality may not, in the event that respondent’s claim is
validated unless there has been a valid appropriation provided by law.

The petition is hereby granted in part, but affirmed the decision of CA in


CA-G.R. NO. 81888 is affirmed as it was Held by the Regional Trial Court.

265
GENARO CORDIAL, petitioner, vs. DAVID MIRANDA, respondent.

December 14, 2000

FACTS:

David Miranda, a businessman from Angeles City, was engaged in rattan


business. Gener Buelva was the supplier of David but the former met an
accident and died. Genero Cordial and Miranda met through Buelva’s
widow, Cecilla.

They agreed that Cordial will be his supplier of rattan poles. Cordial
shipped rattan poles as to the agreed number of pieces and sizes however
Miranda refused to pay the cost of the rattan poles delivered. Miranda
alleged that there exist no privity of contract between Miranda and Cordial.

Cordial filed a complaint againt Miranda. The RTC rendered its decision in
favor of the petitioner. The CA reversed the decision of the RTC.

ISSUE:

Whether or not Statute of Frauds applies in this case

HELD:

The CA and respondent Miranda stress the absence of a “written


memorandum of the alleged contract between the parties”. Respondent
implicitly argues that the alleged contract is unenforceable under the
Statute of Frauds however, the statute of frauds applies only to executor
and not to completed, executed, or partially executed contracts. Thus, were
one party has performed one’s obligation, oral evidence will be admitted to
prove the agreement. In the present case, it has already been established
that petitioner had delivered the rattan poles to respondent. The contract
was partially executed; the Statute of Frauds does not apply.

266
VILLANUEVA-MIJARES

vs. THE COURT OF APPEALS

G.R. No. 108921 April 12, 2000

FACTS:

During the lifetime, Felipe, owned real property, a parcel of land situated at
Estancia, Kalibo, Capiz. Upong Felipe’s death, ownership of the land was
passed on to his children. Pedro, on of the children, got his share. The
remaining undivided portion of the land was Held in trust by leon. His co-
heirs made several seasonable and lawful demands upon him to subdivide
the partition the property, but no subdivision took place.

After the death of Leon, private respondents discovered that the shares of
four of the heirs of Felipe were purchased by Leon as evidenced by Deed
of Sale.

ISSUE:

Whether or not the appellate court erred in declaring the Deed of Sale
unenforceable against the private respondent from being unauthorized
contract

HELD:

The court has ruled that the nullity of the unenforceable contract is of a
permanent nature and it will exist as long the unenforceable contract is not
duly ratified. The mere lapse of time cannot give efficacy to such a contract.
The defect is such that it cannot be cured except by the subsequent
ratification of the unenforceable contract by the person in whose name the
contract was executed. In the instant case, there is no showing of any
express or implied ratification of the assailed Deed of Sale by the private
respondents Procerfina, Ramon,. Prosperidad, and Rosa. Thus, the said
Deed of Sale must remain unenforceable as to them.

267
XXIX.VOID (5)

LUZON DEVELOPMENT BANK vs. ENRIQUEZ

G.R. No. 168646 January 12, 2011

DELTA DEVELOPMENT vs. ENRIQUEZ and LUZON DEVELOPMENT


BANK

G.R. No. 168666

FACTS:

On July 3, 1995, De Leon (owner of Delta) and his spouse obtained a P4


million loan from the BANK for the express purpose of developing Delta
Homes I.8 To secure the loan, the spouses De Leon executed in favor of
the BANK a real estate mortgage (REM) on several of their properties,9
including Lot 4. Subsequently, this REM was amended10 by increasing the
amount of the secured loan from P4 million to P8 million. Both the REM
and the amendment were annotated on TCT No. T-637183.11

Sometime in 1997, DELTA executed a Contract to Sell with respondent


Angeles Catherine Enriquez (Enriquez)14 over the house and lot in Lot 4
with the condition that upon full payment of the total consideration the
Owner shall execute a final deed of sale in favor of the Vendee/s.

When DELTA defaulted on its loan obligation, the BANK, instead of


foreclosing the REM, agreed to a dation in payment or a dacion en pago.
Enriquez filed a complaint against DELTA and the BANK before Office of
the HLURB19 alleging that DELTA violated the terms of its License to Sell.
The HLURB Arbiter Atty. Raymundo A. Foronda upHeld the validity of the
purchase price, but ordered DELTA to accept payment of the balance of
P108,013.36 from Enriquez, and (upon such payment) to deliver to
Enriquez the title to the house and lot free from liens and encumbrances.

DELTA appealed the arbiter’s Decision to the HLURB Board of


Commissioners. The Commission ordered [Enriquez] to pay [DELTA] the
amount due from the time she suspended payment up to filing of the
complaint with 12% interest thereon per annum; thereafter the provisions of
the Contract to Sell shall apply until full payment is made.

The OP adopted by reference the findings of fact and conclusions of law of


the HLURB Decisions, which it affirmed in toto. The CA ruled against the
validity of the dacion en pago executed in favor of the BANK on the ground
that DELTA had earlier relinquished its ownership over Lot 4 in favor of
Enriquez via the Contract to Sell.46

268
ISSUE:

Whether the dacion en pago extinguished the loan obligation, such that
DELTA has no more obligations to the BANK

HELD:

The violation of Section 18 renders the mortgage executed by DELTA void


therefore the 8 million loans are unsecured. Since the Contract to sell did
not transfer ownership of Lot 4 to Enriquez, said ownership remained with
DELTA. DELTA could then validly transfer such ownership (as it did) to
another person (the BANK). However, the transferee BANK is bound by the
Contract to Sell and has to respect Enriquez’s rights thereunder.

BANK is also not entitled to payment of the equivalent value of the lot 4
from DELTA when the this court ruled in favor of ENRIQUEZ over lot 4.
Like in all contracts, the intention of the parties to the dation in payment is
paramount and controlling. The contractual intention determines whether
the property subject of the dation will be considered as the full equivalent of
the debt and will therefore serve as full satisfaction for the debt. "The dation
in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved,
unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished."

269
DALTON, vs. FGR REALTY AND DEVELOPMENT CORP

G.R. No. 172577 January 19, 2011

FACTS:

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located


at the corner of Rama Avenue which Dalton leased portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and
Development Corporation (FGR). In August 1985, Dayrit and FGR stopped
accepting rental payments because they wanted to terminate the lease
agreements with Dalton and Sasam, et al.

Soledad Dalton built a house which she initially used as a dwelling and
store space. She vacated the premises when her children got married. She
transferred her residence near F. Ramos Public Market, Cebu City.

She constructed the 20 feet by 20 feet floor area house sometime in 1973.
The last monthly rental was P69.00. When defendants refused to accept
rent al and demanded vacation of the premises, she consignated [sic] her
monthly rentals in court.

The RTC dismissed the 11 September 1985 complaint and ordered Dalton
to vacate the property. The RTC Held that:

The requisites of consignation are as follows:

1. The existence of a valid debt.

2. Valid prior tender, unless tender is excuse [sic];

3. Prior notice of consignation (before deposit)

4. Actual consignation (deposit);

5. Subsequent notice of consignation;

Requisite Nos. 3 and 5 are absent or were not complied with. It is very
clear that there were no prior notices of consignation (before deposit) and
subsequent notices of consignation (after deposit) The Court of Appeals
affirmed the RTC’s 26 February 2002 Decision.

ISSUE:

Whether or not the consignation was void

270
HELD:

No. Compliance with the requisites of a valid consignation is mandatory.


Failure to comply strictly with any of the requisites will render the
consignation void. Substantial compliance is not enough. The requisites of
a valid consignation: (1) a debt due; (2) the creditor to whom tender of
payment was made refused without just cause to accept the payment, or
the creditor was absent, unknown or incapacitated, or several persons
claimed the same right to collect, or the title of the obligation was lost; (3)
the person interested in the performance of the obligation was given notice
before consignation was made; (4) the amount was placed at the disposal
of the court; and (5) the person interested in the performance of the
obligation was given notice after the consignation was made.

Substantial compliance is not enough for that would render only a directory
construction to the law. The use of the words "shall" and "must" which are
imperative, operating to impose a duty which may be enforced, positively
indicate that all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly direct what
must be essentially done in order that consignation shall be valid and
effectual.

271
MAGAT VS. COURT OF APPEALS

G.R.No. 124221 August 4, 2000

FACTS:

Private respondent Santiago A. Guerrero (hereinafter referred to as


"Guerrero") was President and Chairman of[4] "Guerrero Transport
Services", a single proprietorship.

Sometime in 1972, Guerrero Transport Services won a bid for the operation
of a fleet of taxicabs within the Subic Naval Base, in Olongapo. As highest
bidder, Guerrero was to "provide radio-controlled taxi service within the U.
S. Naval Base, Subic Bay, utilizing as demand requires... 160 operational
taxis consisting of four wheel, four-door, four passenger, radio controlled,
meter controlled, sedans, not more than one year.

On September 22, 1972, with the advent of martial law, President


Ferdinand E. Marcos Issued Letter of Instruction No. 1. SEIZURE AND
CONTROL OF ALL PRIVATELY OWNED NEWSPAPERS, MAGAZINES,
RADIO AND TELEVISION FACILITIES AND ALL OTHERMEDIA OF
COMMUNICATION.

ISSUE:

Whether the contract between Victorino and Guerrero for the purchase of
radio transceivers was void

HELD:

The contract was not void ab initio. Nowhere in the LOI and Admin Circular
is there an express ban on the importation of transceivers.

The LOI and Administrative Circular did not render "radios and
transceivers" illegal per se. The Administrative Circular merely ordered the
Radio Control Office to suspend the "acceptance and processing .... of
applications... for permits to possess, own, transfer, purchase and sell radio
transmitters and transceivers..."[41] Therefore, possession and importation
of the radio transmitters and transceivers was legal provided one had the
necessary license for it.[42] Transceivers were not prohibited but merely
regulated goods. The LOI and Administrative Circular did not render the
transceivers outside the commerce of man. They were valid objects of the
contract.

272
WILLIAM ONG GENATO vs. BENJAMIN BAYHON

G.R. No. 171035 August 24, 2009

FACTS:

Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained


from the petitioner a loan amounting to PhP 1,000,000.00;3 that to cover
the loan, he executed a Deed of Real Estate Mortgage over the property
covered by Transfer Certificate of Title (TCT) No. 38052; that, however, the
execution of the Deed of Real Estate Mortgage was conditioned upon the
personal assurance of the petitioner that the said instrument is only a
private memorandum of indebtedness and that it would neither be
notarized nor enforced according to its tenor. In his Answer, petitioner
Genato denied the claim of the respondent regarding the death of the
latter’s wife.8 He alleged that on the date that the real estate mortgage was
to be signed, respondent introduced to him a woman as his wife.9 He
alleged that the respondent signed the dacion en pago and that the
execution of the instrument was above-board.

Petitioner further averred that despite demands, respondent refused to


execute the requisite documents to transfer to him the ownership of the lot
subject of the dacion en pago. Petitioner prayed, inter alia, for the court to
order the respondent to execute the final deed of sale and transfer of
possession of the said lot.

ISSUE:

Whether or not the dacion en pago is void

HELD:

Under our law, therefore, the general rule is that a party's contractual rights
and obligations are transmissible to the successors. The rule is a
consequence of the progressive "depersonalization" of patrimonial rights
and duties that, as observed by Victorio Polacco, has characterized the
history of these institutions. From the Roman concept of a relation from
person to person, the obligation has evolved into a relation from patrimony
to patrimony, with the persons occupying only a representative position,
barring those rare cases where the obligation is strictly personal, i.e., is
contracted intuitu personae, in consideration of its performance by a
specific person and by no other. The transition is marked by the
disappearance of the imprisonment for debt.28 (Emphasis supplied)

273
The loan in this case was contracted by respondent. He died while the case
was pending before the Court of Appeals. While he may no longer be
compelled to pay the loan, the debt subsists against his estate. No property
or portion of the inheritance may be transmitted to his heirs unless the debt
has first been satisfied. Notably, throughout the appellate stage of this
case, the estate has been amply represented by the heirs of the deceased,
who are also his co-parties in Civil Case No. Q-90-7012.

The procedure in vindicating monetary claims involving a defendant who


dies before final judgment is governed by Rule 3, Section 20 of the Rules of
Civil Procedure.

274
HERMOSA VS LONGARA

GR No. L-5267, October 27, 1953

FACTS:

This is an appeal by way of certiorari against a decision of the Court of


Appeals, fourth division, approving certain claims presented by Epifanio M.
Longara against the testate estate of Fernando Hermosa, Sr. The claims
are of three kinds, namely, P2,341.41 representing credit advances made
to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco
Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from
1945 to 1947, after the death of the intestate, which occurred in December,
1944. The claimant presented evidence and the Court of Appeals found, in
accordance therewith, that the intestate had asked for the said credit
advances for himself and for the members of his family "on condition that
their payment should be made by Fernando Hermosa, Sr. as soon as he
receive funds derived from the sale of his property in Spain." Claimant had
testified without opposition that the credit advances were to be "payable as
soon as Fernando Hermosa, Sr.'s property in Spain was sold and he
receive money derived from the sale." The Court of Appeals Held that
payment of the advances did not become due until the administratrix
received the sum of P20,000 from the buyer of the property. Upon
authorization of the probate court in October, 1947, and the same was paid
for subsequently. The Claim was filed on October 2, 1948.

ISSUE:

Does said condition a potestative condition and thusly void and


unenforceable?

HELD:

A careful consideration of the condition upon which payment of the sums


advanced was made to depend, "as soon as he (intestate) receive funds
derived from the sale of his property in Spain," discloses the fact that the
condition in question does not depend exclusively upon the will of the
debtor, but also upon other circumstances beyond his power or control.
Cirumstances show that the intestate had already decided to sell his house
lest he meant to fool his creditors. But in addition of the sale to him (the
intestate-vendor), there were still other conditions that had no concur to
effect the sale, mainly that of the presence of a buyer, ready, able and
willing to purchase the property under the conditions demanded by the
intestate. It is evident, therefore, that the condition of the obligation was not

275
a purely protestative one, depending exclusively upon the will of the
intestate, but a mixed one, depending partly upon the will of intestate and
partly upon chance. The Supreme Court upheld the decision of lower
courts.

276
XXX. NATURAL OBLIGATION (5)

MANZANILLA VS. CA

GR No. L-75342 March 15, 1990

FACTS:

Spouses Manzanilla sold on installment an undivided one-half portion of


their residential house and lot. At the time of the sale, the said property was
mortgaged to the Government Service Insurance System (GSIS), which
fact was known to the vendees, spouses Magdaleno and Justina Campo.
The Campo spouses took possession of the premises upon payment of the
first installment. Some payments were made to petitioners while some
were made directly to GSIS. The GSIS filed its application to foreclose the
mortgage on the property for failure of the Manzanilla spouses to pay their
monthly amortizations. The property was sold at public auction where
GSIS was the highest bidder. Two months before the
expiration of the period to redeem, the Manzanilla spouses executed a
Deed of Absolute Sale of the undivided one half portion of their property in
favor of the Campo spouses. Upon the expiration of the period to redeem
without the Manzanilla spouses exercising their right of redemption, title to
the property was consolidated in favor of the GSIS and a new title Issued in
its name. The Manzanilla spouses succeeded in re-acquiring the
property from the GSIS. An Absolute Deed of Sale was executed by GSIS
in favor of the Manzanilla spouses and a new certificate of title was Issued
to them.

The Manzanilla spouses mortgaged the property to the Biñan Rural Bank.
Petitioner Ines Carpio purchased the property from the Manzanilla spouses
and agreed to assume the mortgage in favor of Biñan Rural Bank.

Private respondent Justina Campo registered her adverse claim over the
said portion of land with the Register of Deeds of Quezon City. On the
other hand, petitioner Ines Carpio filed an ejectment case against private
respondent Justina. Private respondent Justina Campo filed a case for
quieting of title against the Manzanilla spouses and Ines Carpio praying for
the issuance to her of a certificate of title over the undivided one-half
portion of the property in question.

ISSUE:

Whether petitioners Manzanillas are under any legal duty to reconvey the
undivided one-half portion of the property to private respondent Justina
Campo.

277
HELD:

In view of the failure of either the Manzanilla spouses or the Campo


spouses to redeem the property from GSIS, title to the property was
consolidated in the name of GSIS. The new title cancelled the old title in
the name of the Manzanilla spouses. GSIS at this point had a clean title
free from any lien in favor of any person including that of the Campo
spouses. Art. 1456. If property is
acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person
from whom the property comes. There was no mistake or fraud on the
part of petitioners when the subject property was re-acquired from the
GSIS. The fact that they previously sold one-half portion thereof has no
more significance in this re-acquisition. Private respondent's right over the
one-half portion was obliterated when absolute ownership and title passed
on to the GSIS after the foreclosure sale. The property as Held by GSIS
had a clean title. The property that was passed on to petitioners retained
that quality of title. As regards the rights of private respondent Ines
Carpio, she is a buyer in good faith and for value. There was no showing
that at the time of the sale to her of the subject property, she knew of any
lien on the property except the mortgage in favor of the Biñan Rural Bank.
No other lien was annotated on the certificate of title. She is also not
required by law to go beyond what appears on the face of the title. When
there is nothing on the certificate of title to indicate any cloud or vice in the
ownership of the property or any encumbrances thereon, the purchaser is
not to explore further than what the Torrens Title upon its face indicates in
quest for any hidden defect or inchoate right thereof.

Thus Quieting of title is dismissed.

278
RURAL BANK OF PARAÑÀQUE VS REMOLADO

GR No. L-62051. March 18, 1985

FACTS:

This case is about the repurchase of mortgage property after the


period of redemption and had expired. Isidra Remolado, 64, a widow, and
resident of Makati, Rizal, owned a lot with an area of 308 square meters,
with a bungalow thereon, which was leased to Beatriz Cabagnot. On April
17, 1971 she mortgaged it again to petitioner. She eventually secured
loans totalling P18,000 (Exh. At D). the loans become overdue. The bank
foreclosed the mortagage on July 21, 1972 and bought the property at the
foreclosure sale for P22,192.70. The one-year period of redemption was to
expire on August 21, 1973.

On August 9, 1973 or 14 days before the expiration of the one-year


redemption period, the bank gave her a statement showing that she should
pay P25,491.96 for the redemption of the property on August 23. No
redemption was made on that date. On September 3, 1973 the bank
consolidated its ownership over the property. Remolado's title was
cancelled. Remolado was offered a period until October 31, 1973 from
which she could repurchase the lot. She only exercised that option on
November 5. Remolado then filed an action for reconveyance which the
lower courts granted her.

ISSUE:

Is Remolado entitled to reconveyance?

HELD:

There was no binding agreement for its repurchase. Even on the


assumption that the bank should be bound by its commitment to allow
repurchase on or before October 31, 1973, still Remolado had no cause of
action because she did not repurchase the property on that date.

Justice is done according to law. As a rule, equity follows the law. There
may be a moral obligation, often regarded as an equitable consideration
(meaning compassion), but if there is no enforceable legal duty, the action
must fail although the disadvantaged party deserves commiseration or
sympathy.

279
In the instant case, the bank acted within its legal rights when it refused to
give Remolado any extension to repurchase after October 31, 1973. It had
given her about two years to liquidate her obligation. She failed to do so.
The decision of the CA affirming the decision of the RTC was reversed.

280
LEUNG BEN VS. O’BRIEN

G.R. NO. L-13602, APRIL 6, 1918

38 PHIL. 182

FACTS:

On December 12, 1917 an action was instituted in the CFI of Manila by


O’Brien to recover from Leung Ben the sum of P15, 000.00 alleged to have
been lost by the plaintiff to the defendant in a series of gambling, banking
and percentage games conducted during the two or three months prior to
the institution of the suit. In his verified complaint the plaintiff asked for an
attachment, under sections 424 and 412 (1) of the Code of Civil Procedure
against the property of the defendant on the ground that the latter was
about to depart from the Philippine Island with intent to defraud his
creditors. The attachment was issued and acting on the authority thereof,
the sheriff attached the sum of P15, 000.00 which had been deposited by
the defendant with the International Banking Corporation.

The defendant moved to quash the attachment; the court however,


dismissed said motion. On January 8, 1918, petitioner Leung Ben, the
defendant in that action filed his petition for writ of certiorari directed
against O’Brien and the judges of CFI. The prayer is that, the honorable
James A. Ostrand be required to certify the records for review and that the
order of attachment that had been issued should be revoked and
discharged with cost.

ISSUE:

The issue is whether or not the statutory obligation to restore money won at
gaming is an obligation from “contract, express or implied.”

HELD:

The duty of the defendant to refund the money which he won from the
plaintiff at gaming is not an obligation from “contract, express or implied”
rather it is a duty imposed by statute. Upon general principles, recognized
both in civil and common law, money lost at gaming and voluntarily paid by
the loser to the winner cannot, in the absence of statute, be recovered in a
civil action. But Act No. 1757 of the Philippine Commission, which defines
and penalizes several forms of gambling, containing numerous provisions
recognizing the right to recover money lost in gambling or in the playing of
certain games. The obligation of the defendant to restore or refund the
money which he won from the plaintiff at gaming therefore arises ex lege.

281
Arturo Pelayo vs. Marcelo Lauron

G.R. No. L-4089, January 12, 1909

12 Phil. 453

FACTS:

On or about October 13, 1906, the plaintiff Arturo Pelayo was called to the
house of the defendants, Marcelo Lauron and Juana Abella situated in San
Nicolas, and that upon arrival he was requested by them to render medical
assistance to their daughter-in-law who was about to give birth to a child.
After consultation with the attending physician, Dr. Escaño, the plaintiff
found it necessary to remove the fetus by means of an operation, in which
service he was occupied until the following morning, and had visited the
patient several times. The equitable value of the services rendered by the
plaintiff was P500.00, which the defendants refused to pay. On November
23, 1906, the plaintiff filed a complaint against the defendants and prayed
that the judgment be rendered in his favor as against the defendants, or
any of them, for the sum of P500 and costs, together with any other relief
that may be deemed proper. In answer, the defendants denied all
allegations and alleged as a special defense, that their daughter-in-law died
as a consequence of the said childbirth, and when she was still alive she
lived with her husband independently and in a separate house and without
any relation whatsoever with them, and on the day she gave birth she was
in the house of the defendants and her stay there was accidental and due
to fortuitous circumstances. Thus, the defendants prayed that they be
absolved from the complaint with costs against the plaintiff.

The plaintiff demurred the answer and that the lower court sustained the
demurrer directing the defendants to amend their answer. In compliance,
the defendants amended their answer denying each and every allegation
contained in the complaint. The lower court rendered judgment in favor of
the defendants absolving them from the complaint.

ISSUE:

The issue is whether or not the parents-in-law are under any obligation to
pay the fees claimed by the plaintiff.

HELD:

The defendants were not, nor are they now, under any obligation by virtue
of any legal provision, to pay the fees claimed, nor in consequence of any

282
contract entered into between them and the plaintiff from which such
obligation might have arisen.

The rendering of medical assistance in case of illness is comprised


among the mutual obligations to which spouses are bound by way of
mutual support. When either of them by reason of illness should be in need
of medical assistance, the other is under the unavoidable obligation to
furnish the necessary services of a physician in order that the health may
be restored; the party bound to furnish such support is therefore, liable for
all the expenses, including the fees of the medical expert for his
professional services. The liability arises from the obligation, which the law
has expressly established, between married couples. It is therefore the
husband of the patient who is bound to pay for the services of the plaintiff.
The fact that it was not the husband who called the plaintiff and requested
the medical assistance for his wife is no bar to his fulfillment of such
obligation, as the defendants, in view of the imminent danger to which the
life of the patient was at that moment exposed, considered that the medical
assistance was urgently needed. Therefore, plaintiff should direct his action
against the husband of the patient, and not against her parents-in-law.

283
SPS. GUANIO v. MAKATI SHANGRI-LA HOTEL

GR No. 190601, February 7 2011

FACTS:

For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and
Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel
Makati.Prior to the event, Makati Shangri-La Hotel & Resort, Inc.
(respondent) scheduled an initial and final food tasting. The parties
eventually agreed on a final price ─ P1,150 per person.On July 27, 2001,
the parties finalized and signed their contract.

Petitioners claim that during the reception, respondent’s representatives,


Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not
show up despite their assurance that they would; their guests complained
of the delay in the service of the dinner; certain items listed in the
published menu were unavailable; the hotel’s waiters were rude and
unapologetic when confronted about the delay; and despite Alvarez’s
promise that there would be no charge for the extension of the reception
beyond 12:00 midnight, they were billed and paid P8,000 per hour for the
three-hour extension of the event up to 4:00 A.M. the next day. They further
claim that they brought wine and liquor in accordance with their open bar
arrangement, but these were not served to the guests who were forced to
pay for their drinks.

Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and


Resort, Inc.and received an apologetic reply from Krister Svensson, the
hotel’s Executive Assistant Manager in charge of Food and Beverage. They
nevertheless filed a complaint for breach of contract and damages before
the RTC of Makati City. Respondents averred that it was the increase in
number of the unexpected guests that led to the shortage claimed by the
petitioners.

The RTC rendered a decision in favor of the plaintiffs and was reversed by
the CA, upon appeal, the latter holding that the proximate cause of
petitioners’ injury was an unexpected increase in their guests.

ISSUE:

Whether or not the CA correctly held that the proximate cause of


petitioners’ injury was an unexpected increase in their guests.

284
HELD:

The Court finds that since petitioners’ complaint arose from a contract, the
doctrine of proximate cause finds no application to it, the latter applicable
only to actions for quasi-delicts, not in actions involving breach of contract.

Breach of contract is defined as the failure without legal reason to comply


with the terms of a contract. It is also defined as the failure, without legal
excuse, to perform any promise which forms the whole or part of the
contract. The appellate court, and even the trial court, observed that
petitioners were remiss in their obligation to inform respondent of the
change in the expected number of guests. The observation is reflected in
the records of the case. Petitioners’ failure to discharge such obligation
thus excused respondent from liability for “any damage or inconvenience”
occasioned thereby.

285
XXXI.ESTOPPEL (5)

METROBANK vs. CABILZO

510 SCRA 259

FACTS:

On 12 November 1994, Cabilzo issued a Metrobank Check No. 985988,


payable to “CASH” and postdated on 24 November 1994 in the amount of
One Thousand Pesos (P1, 000.00). The check was drawn against
Cabilzo’s Account with Metrobank Pasong Tamo Branch under Current
Account No. 618044873-3 and was paid by Cabilzo to a certain Mr.
Marquez, as his sales commission. Subsequently, the check was
presented to Westmont Bank for payment. Westmont Bank, in turn,
indorsed the check to Metrobank for appropriate clearing. After the entries
thereon were examined, including the availability of funds and the
authenticity of the signature of the drawer, Metrobank cleared the check for
encashment in accordance with the Philippine Clearing House Corporation
(PCHC) Rules.

On 16 November 1994, Cabilzo’s representative was at Metrobank Pasong


Tamo Branch to make some transaction when he was asked by bank
personnel if Cabilzo had Issued a check in the amount of P91, 000.00 to
which the former replied in the negative. On the afternoon of the same
date, Cabilzo himself called Metrobank to reiterate that he did not Issue a
check in the amount of P91, 000.00 and requested that the questioned
check be returned to him for verification, to which Metrobank complied.
Upon receipt of the check, Cabilzo discovered that Metrobank Check No.
985988 which he Issued on 12 November 1994 in the amount of P1,
000.00 was altered to P91, 000.00 and the date 24 November 1994 was
changed to 14 November 1994.Hence, Cabilzo demanded that Metrobank
re-credit the amount of P91, 000.00 to his account. Metrobank, however,
refused reasoning that it has to refer the matter first to its Legal Division for
appropriate action. Repeated verbal demands followed but Metrobank still
failed to re-credit the amount of P91, 000.00 to Cabilzo’s account

On 30 June 1995, Cabilzo, thru counsel, finally sent a letter-demand to


Metrobank for the payment of P90, 000.00, after deducting the original
value of the check in the amount of P1, 000.00. Such written demand
notwithstanding, Metrobank still failed or refused to comply with its
obligation. Consequently, Cabilzo instituted a civil action for damages
against Metrobank before the RTC of Manila, Branch 13. In his Complaint
docketed as Civil Case No. 95-75651, Renato D. Cabilzo v. Metropolitan
Bank and Trust Company, Cabilzo prayed that in addition to his claim for

286
reimbursement, actual and moral damages plus costs of the suit be
awarded in his favor.

ISSUE:

Whether equitable estoppel can be appreciated in favor of petitioner

HELD:

The degree of diligence required of a reasonable man in the exercise of his


tasks and the performance of his duties has been faithfully complied with
by Cabilzo. In fact, he was wary enough that he filled with asterisks the
spaces between and after the amounts, not only those stated in words, but
also those in numerical figures, in order to prevent any fraudulent insertion,
but unfortunately, the check was still successfully altered, indorsed by the
collecting bank, and cleared by the drawee bank, and encashed by the
perpetrator of the fraud, to the damage and prejudice of Cabilzo.

Metrobank cannot lightly impute that Cabilzo was negligent and is therefore
prevented from asserting his rights under the doctrine of equitable estoppel
when the Facts on record are bare of evidence to support such conclusion.
The doctrine of equitable estoppel states that when one of the two innocent
persons, each guiltless of any intentional or moral wrong, must suffer a
loss, it must be borne by the one whose erroneous conduct, either by
omission or commission, was the cause of injury. Metrobank’s reliance on
this dictum is misplaced. For one, Metrobank’s representation that it is an
innocent party is flimsy and evidently, misleading. At the same time,
Metrobank cannot asseverate that Cabilzo was negligent and this
negligence was the proximate cause of the loss in the absence of even a
scintilla proof to buttress such claim. Negligence is not presumed but must
be proven by the one who alleges it, which petitioner failed to.

287
HEIRS OF RAGUA vs. COURT OF APPEALS

G.R. Nos. 88521-22

FACTS:

These consolidated cases involve a prime lot consisting of 4,399,322


square meters, known as the Diliman Estate, situated in Quezon City. On
this 439 hectares of prime land now stand the following: the Quezon City
Hall, Philippine Science High School, Quezon Memorial Circle, Visayas
Avenue, Ninoy Aquino Parks and Wildlife, portions of UP Village and East
Triangle, the entire Project 6 and Vasha Village, Veterans Memorial
Hospital and golf course, Department of Agriculture, Department of
Environment and Natural Resources, Sugar Regulatory Administration,
Philippine Tobacco Administration, Land Registration Authority, Philcoa
Building, Bureau of Telecommunications, Agricultural Training Institute
building, Pagasa Village, San Francisco School, Quezon City Hospital,
portions of Project 7, Mindanao Avenue subdivision, part of Bago Bantay
resettlement project, SM City North EDSA, part of Phil-Am Life Homes
compound and four-fifths of North Triangle. This large estate was the
subject of a petition for judicial reconstitution originally filed by Eulalio
Ragua in 1964, which gave rise to protracted legal battles between the
affected parties, lasting more than thirty-five (35) years.

ISSUE:

Whether estoppel by laches exists on the part of petitioner

HELD:

Petitioners filed the petition for reconstitution of OCT 632 nineteen (19)
years after the title was allegedly lost or destroyed. We thus consider
petitioners guilty of laches. Laches is negligence or omission to assert a
right within a reasonable time, warranting the presumption that the party
entitled to assert it either has abandoned or declined to assert it.

288
CUENCO vs. CUENCO

G.R. No. 149844, October 13, 2004

FACTS:

On September 19, 1970, the [respondent] filed the initiatory complaint


herein for specific performance against her uncle [Petitioner] Miguel
Cuenco which averred, inter alia that her father, the late Don Mariano
Jesus Cuenco (who became Senator) and said [petitioner] formed the
‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the
Cuenco and Cuenco Law Offices served as lawyers in two (2) cases
entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and
‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040) involving a
dispute among relatives over ownership of lot 903 of the Banilad Estate
which is near the Cebu Provincial Capitol; that records of said cases
indicate the name of the [petitioner] alone as counsel of record, but in truth
and in fact, the real lawyer behind the success of said cases was the
influential Don Mariano Jesus Cuenco; that after winning said cases, the
awardees of Lot 903 subdivided said lot into three (3) parts as follows:

Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees

Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees

Lot 903-C: 54,000 [square meters]: Solon’s retention

Petitioner later claimed the property after the death of his brother.

ISSUES:

Whether Petitioner is in is estoppel

HELD:

From the time Lot 903-A was subdivided and Mariano’s six children --
including Concepcion -- took possession as owners of their respective
portions, no whimper of protest from petitioner was heard until 1963. By
his acts as well as by his omissions, Miguel led Mariano and the latter’s
heirs, including Concepcion, to believe that Petitioner Cuenco respected
the ownership rights of respondent over Lot 903-A-6. That Mariano acted
and relied on Miguel’s tacit recognition of his ownership thereof is evident
from his will, executed in 1963. Indeed, as early as 1947, long before
Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña
Extension, Kamputhaw, Cebu City, near the Cebu Provincial Capitol -- had
been subdivided and distributed to his six children in his first marriage.

289
Having induced him and his heirs to believe that Lot 903-A-6 had already
been distributed to Concepcion as her own, petitioner is estopped from
asserting the contrary and claiming ownership thereof. The principle of
estoppel in pais applies when -- by one’s acts, representations, admissions,
or silence when there is a need to speak out -- one, intentionally or through
culpable negligence, induces another to believe certain Facts to exist; and
the latter rightfully relies and acts on such belief, so as to be prejudiced if
the former is permitted to deny the existence of those Facts.

290
MANIPOR vs. RICAFORT

407 SCRA 298

FACTS:

Respondent spouses Pablo and Antonia Ricafort instituted an action for


annulment of Transfer of Certificate of Title in the name of spouses Renato
and Teresita Villareal covering a 299 sq.m. lot. The Ricaforts alleged that
they are co-owners of said property together with Abelardo, the father and
predecessor of Renato as evidenced by an agreement whereby Abelardo
recognized their ownership of ½ portion of the lot. Respondents also claim
that, in violation of the agreement, Abelardo obtained during his lifetime
Original Certificate of Title over the lot without their knowledge and
consent. When Abelardo died in 1993, Renato and Teresita transferred the
title over the land in their name and were Issued a TCT.

In the course of the proceedings, parties entered into a compromise


settlement wherein the Villareals admitted the genuineness and due
execution of the agreement between respondents and Abelardo. Hence,
they agreed to physically divide the lot into half. They also agreed to cause
a relocation survey and the expenses will be borne equally by them.

The trial court approved the compromise agreement but not long thereafter,
respondents filed a motion to cite the Villareals in contempt of court for
refusing to comply with the terms of the agreement. Eventually, herein
petitioners who are all siblings of Renato filed a motion for intervention and
substitution of parties alleging that spouses Renato and Teresita have
waived their interest in the disputed lot in their favor. Petitioners availed of
various remedies only to pursue the endeavor for the annulment of the
compromise judgment. Most of them were denied until they resorted to this
review before the Supreme Court.

ISSUE:

Whether or not the petitioners are estopped from seeking the annulment of
the compromise judgment

HELD:

Yes, note that in a Sinumpaang Salaysay, petitioners admitted that they


acquiesced to have the subject lot donated and registered in Renato’s
name. In view of such admission, petitioners are estopped from denying
Renato’s absolute title to the lot. Under the principle of estoppel, an
admission or representation is rendered conclusive upon the person
making it and cannot be denied against the person relying thereon. Verily,
since petitioners admitted that they donated the lot to Renato, they cannot
291
now be allowed to defeat respondent’s claim by conveniently asserting that
they are co-owners of the lot. Otherwise, respondents, who rightfully relied
on the Certificate of Title, would be prejudiced by petitioner’s misleading
conduct.

292
JEFFERSON LIM vs. QUEENSLAND TOKYO COMMODITIES, INC.

January 4, 2002

FACTS:

Sometime in 1992, Benjamin Shia, a market analyst and trader of


Queensland, was introduced to petitioner Jefferson Lim by Marissa Bontia,
one of his employees. Marissa’s father was a former employee of Lim’s
father. Shia suggested that Lim invest in the Foreign Exchange Market,
trading U.S. dollar against the Japanese yen, British pound, Deutsche Mark
and Swiss Franc.Before investing, Lim requested Shia for proof that the
foreign exchange was really lucrative. They conducted mock tradings
without money involved. As the mock trading showed profitability, Lim
decided to invest with a marginal deposit of US$5,000 in manager’s check.
The marginal deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future transactions, and
answered for any trading account against which the deposit was made, for
any loss of whatever nature, and for all obligations, which the investor
would incur with the broker. Petitioner Lim was then allowed to trade with
respondent company which was coursed through Shia by virtue of blank
order forms all signed by Lim. Respondent furnished Lim with the daily
market report and statements of transactions as evidenced by the receiving
forms, some of which were received by Lim.

Meanwhile, on October 22, 1992, respondent learned that it would take


seventeen (17) days to clear the manager’s check given by petitioner. Shia
returned the check to petitioner who informed Shia that petitioner would
rather replace the manager’s check with a traveler’s check. Shia noticed
that the traveler’s check was not indorsed but Lim told Shia that
Queensland could sign the endorsee portion. Because Shia trusted the
latter’s good credit rating, and out of ignorance, he brought the check back
to the office unsigned. Inasmuch as that was a busy Friday, the check was
kept in the drawer of respondent’s consultant. Later, the traveler’s check
was deposited with Citibank.

On October 27, 1992, Citibank informed respondent that the traveler’s


check could not be cleared unless it was duly signed by Lim, the original
purchaser of the traveler’s check. A Miss Arajo, from the accounting staff
of Queensland, returned the check to Lim for his signature, but the latter,
aware of his P44,465 loss, demanded for a liquidation of his account and
said he would get back what was left of his investment.

ISSUE:

293
Whether or not the CA erred in reversing the decision of the RTC which
dismissed the respondent’s complaint

HELD:

The essential elements of estoppel are: (1) conduct of a party amounting to


false representation or concealment of material Facts or at least calculated
to convey the impression that the Facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert;
(2) intent, or at least expectation, that this conduct shall be acted upon by,
or at least influence, the other party; and (3) knowledge, actual or
constructive, of the real Facts. ere, it is uncontested that petitioner had in
fact signed the Customer’s Agreement in the morning of October 22, 1992,
knowing fully well the nature of the contract he was entering into. The
Customer’s Agreement was duly notarized and as a public document it is
evidence of the fact, which gave rise to its execution and of the date of the
latter.

Next, petitioner paid his investment deposit to respondent in the form of a


manager’s check in the amount of US$5,000 as evidenced by PCI Bank
Manager’s Check No. 69007, dated October 22, 1992. All these are indicia
that petitioner treated the Customer’s Agreement as a valid and binding
contract.

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