Case No.

Mendoza vs. Arrieta, 91 SCRA 113

G.R. No. L-32599 June 29, 1979

FACTS:

A three- way vehicular accident occurred involving a car owned

and driven by petitioner Edgardo Mendoza, a private jeep owned and

driven by respondent Rodolfo Salazar, and a gravel and sand truck owned

by respondent Felipino Timbol and driven by Freddie Montoya. As a

consequence of said mishap, two separate Informations for Reckless

Imprudence Causing Damage to Property were filed against Rodolfo

Salazar and Freddie Montoya with the CFI of Bulacan. The Court of First

Instance (CFI) of Bulacan rendered judgment. Truck driver Montoya was found

guilty beyond reasonable doubt of crime of damage to property through reckless

imprudence and was sentenced to pay jeepney driver Salazar a fine for actual

damages and indemnity. Accused Rodolfo Salazar, on the other hand, was

acquitted. Edgardo Mendoza, the owner of the Mercedes Benz owner was not

awarded damages.

After the termination of the criminal cases, petitioner Mendoza

filed a civil case against respondents Salazar and Timbol for the damages

sustained by his car as a result of the collision involving their vehicles. Timbol

filed a motion to dismiss claiming that such action is barred by the prior judgment

in criminal cases. The Court of First Instance judge granted Timbol’s Motion to

Dismiss.
ISSUE:

Whether or not the lower court erred in dismissing petitioner’s

complaint for damages based on quasi-delict against private respondents

Salazar and Timbol.

RULING:

Yes, insofar as Timbol is concerned. The petitioner’s complaint was

not barred by prior judgement. The petitioner's cause of action against Timbol in

the civil case is based on quasi-delict, the negligence and lack of skill of Freddie

Montoya, Timbol's employee, who was then the driver and as a consequence of

the collision, petitioner's car suffered extensive damage. Clearly the two factors of

a cause of action are evident: (1) Petitioner’s primary right being the owner of the

Mercedes Benz, and (2) the defendant's delict or wrongful act or omission which

violated Petitioner's primary right, the negligence or lack of skill of Timbol's

employee, Montoya, in driving the truck, causing the damage.

The contention of Timbol that the petitioner’s complaint was barred by prior

judgement, it is settled that the rule for a prior judgment to constitute a bar to a

subsequent case, the following requisites must concur: (1) it must be a final

judgment; (2) it must have been rendered by a Court having jurisdiction over the

subject matter and over the parties; (3) it must be a judgment on the merits; and

(4) there must be, between the first and second actions, Identity of parties, Identity

of subject matter and Identity of cause of action. The first three requisites of res

judicata are present in the first case but there is no Identity of cause of action
between criminal case and civil case. In the former, the cause of action was the

enforcement of the civil liability arising from criminal negligence under Article 100

of the Revised Penal Code, whereas in the Civil Case it is based on quasi-

delict under Article 2180, in relation to Article 2176 of the Civil Code (Barredo vs.

Garcia).

The petitioner's cause of action being based on quasi-delict, respondent

Judge committed reversible error when he dismissed the civil suit against Timbol

as said case may proceed independently of the criminal proceedings and

regardless of the result of the latter and even without reservation of right to file an

independent civil action.

No, in so far as Salazar is concerned. It should be clarified that inasmuch

as civil liability co-exists with criminal responsibility in negligence cases, the

offended party has the option between an action for enforcement of civil liability

based on culpa criminal under Article 100 of the Revised Penal Code, and an

action for recovery of damages based on culpa aquiliana under Article 2177 of the

Civil Code. The action for enforcement of civil liability based on culpa

criminal under section 1 of Rule 111 of the Rules of Court is deemed

simultaneously instituted with the criminal action, unless expressly waived or

reserved for separate application by the offended party. In this case, petitioner

Mendoza opted to base his cause of action against respondent Salazar on culpa

criminal and not on culpa aquiliana. Therefore, he cannot file another civil action
to Salazar because it is deemed instituted when he filed the criminal case in which

the latter was acquitted.

Case No. 2

Perez vs. Pomar, 2 PHIL 682

GR. No L-1299 November 16, 1903

FACTS:

Vicente Perez filed in the Court of First Instnce of Laguna a complaint

against Ppomar to determine the amount due to him as compensation for

rendering services in the Tabacalera Company.

In the complaint, it was alleged that Pomar rendered the services of Perez

to act as interpreter between Pomar and the military authorities and the former

between the Colonel commanding the Local Garrison and with other officers

residing in the area. To the end that such services be punctually rendered, Pomar

assured Perez that the Tabacalera Company will generously paid the services

rendered to it. These statements are made in the absence of witnesses and that

Perez’s only proof as to the same was Pomar’s word as gentleman.

Pomar filed an answer to the complaint asking for the dismissal of the

complaint with cost. Pomar denied the allegation and stated that it is wholly untrue.

He also stated that Perez acted as interpreter of his own free will, without being

requested to do so by him and without any offer of payment of compensation and

that therefore, no legal relation between the Tabacalera Company, Perez and him

had existed.
ISSUE:

Whether or not there is a contract formed between Perez and Pomar.

RULING:

Yes. Article 1254 of the Civil Code provides that a contract exists the

moment that one or more persons consent to be bound, with respect to another or

others, to deliver some thing or to render some service.

Article 1255 provides that the contracting parties may establish such

covenants, terms and conditions as they deem convenient, provided they are not

contrary to law, morals or public policy. Whether the service was solicited or

offered, the fact remains that Perez rendered to Pomar services as interpreter. As

it does not appear that he did this gratuitously, the duty is imposed upon Pomar

having accepted the benefit of the service, to pay a just compensation therefore,

by virtue of the innominate contract of facio ut des implicitly established.

It must be also considered that there is a tacit and mutual consent as to the

rendition of the service. This gives rise to the obligation upon the person benefited

by the services to make compensation therefore, since the bilateral obligation to

render services as interpreter, on the one hand, and on the other to pay for the

services rendered, is thereby incurred. The Supreme Court of Spain in its decision

contends “that not only is there an express and tacit consent which produces real

contract but there is also a presumptive consent which is the basis of quasi

contracts. Thus, giving rise to the multiple juridical relations which result in

obligations for the delivery of a thing or the rendition of a service.

Case No. 3

Barredo vs. Almario, 73 PHIL 607

G.R. No. L-48006 July 8, 1942

FACTS:

There has been a head-on collision between a taxi of the Malate Taxicab

driven by Pedro Fontanilla and a carretela guided by Pedro Dimapalis in which it

was overturned, and one of its passengers, 16-year-old boy Faustino Garcia,

suffered injuries from which he died two days later. A criminal action was filed

against Fontanilla in the Court of First Instance of Rizal, and he was convicted.

The court in the criminal case granted the petition that the right to bring a separate

civil action be reserved. The Court of Appeals affirmed the sentence of the lower

court in the criminal case. Severino Garcia and Timotea Almario, parents of the

deceased, brought an action in the Court of First Instance of Manila against Fausto

Barredo as the sole proprietor of the Malate Taxicab and employer of Pedro

Fontanilla.

On July 8, 1939, the Court of First Instance of Manila awarded damages in

favor of the plaintiffs. It was appealed and the Court of Appeals affirmed the lower

court’s decision. It is undisputed that Fontanilla 's negligence was the cause of the

mishap, as he was driving on the wrong side of the road, and at high speed. As to

Barredo’s responsibility being the employer, the Court of Appeals said that he

failed to exercise the diligence of a good father for he was careless in employing

Fontanilla because based on the record of the Bureau of Public Works the latter
had been caught several times for violation of the Automobile Law and speeding

violation. Therefore, he must indemnify the respondents under the provisions of

Article 1903 of the Civil Code.

ISSUE:

1. Whether or not the petitioner, Fausto Barredo is liable in the damages for

the death of Faustino Garcia caused by the negligence of Pedro Fontanilla,

his employee.

RULING:

Yes. Articles 1902 and 1903 of the Civil Code expresses that:

“Art. 1902. Any person who by an act or omission causes damage

to another by his fault or negligence shall be liable for the damage so
done.”

“Art. 1903. The obligation imposed by the next preceding article is

enforcible, not only for personal acts and omissions, but also for those of
persons for whom another is responsible xxx

Owners or directors of an establishment or business are equally

liable for any damages caused by their employees while engaged in the
branch of the service in which employed, or on occasion of the
performance of their duties xxx.”

One is not responsible for the acts of others, because one is liable only for

his own faults, this being the doctrine of article 1902; but, by exception, one is liable

for the acts of those persons with whom there is a bond or tie which gives rise to

the responsibility. Is this responsibility direct or subsidiary? In Civil Law particularly,

Article 1903, the responsibility should be understood as direct, according to the

tenor of that articles, for precisely it imposes responsibility "for the acts of those

persons for whom one should be responsible."

A Quasi-Delict or Culpa extra-contractual is a separate and distinct legal

institution, independent from the civil responsibility arising from criminal liability,

and that an employer is, under article 1903 of the Civil Code, primarily and directly

responsible for the negligent acts of his employee.

However, if the employer can show and satisfy the court that in selection

and supervision he has exercised the care and diligence of a good father of a

family, the presumption is overcome and he is relieve from liability but it was not

evident based on the fact that Fontanilla previously had violations yet Fausto still

employed the former.

The primary and direct responsibility of employers and their presumed

negligence are principles calculated to protect society. Workmen and employees

should be carefully chosen and supervised in order to avoid injury to the public. It

is the masters or employers who principally reap the profits resulting from the

services of these servants and employees. It is but right that they should guarantee

the latter's careful conduct for the personnel and patrimonial safety of others.
Case No. 4

ROYAL LINES, INC. vs. CA, 143 SCRA 608

G.R. No. L-27239 August 20, 1986

Facts:

Petitioner and the National Shipyards and Steel Corporation (NASSCO)

entered into a written contract for the conversion of the former's yacht, the M/V

Sea Belle, into a passenger and cargo vessel for the stipulated price of

P121,980.00.1 Additional work was done on the ship, for which NASSCO

demanded the sum of P196,245.37, representing the difference between the

amount already paid by the petitioner and the contract price. 2 Petitioner rejected

the demand, claiming it had not authorized the additional work in writing as

required under Article 1724 of the Civil Code. The trial court sustained NASSCO,

and petitioner appealed. The Court of Appeals, in a 3-2 decision, affirmed the

court a quo, holding that the said article was not applicable in the instant case as

it referred only to structures on land and did not include vessels.

Issue:

Whether or not the Royal Lines INC. is liable to pay the National Shipyards

and Steel Corporation for the additional work

Ruling:

There is no ambiguity in the language of Article 1724. Plainly, it refers to a

structure or any other work to be built on land by agreement between the contractor
and the landowner. It cannot apply to work done upon a vessel which is not erected

on land or owned by a landowner. Hence, the said article is not controlling in this

case. In the case at bar, the original contract of services was in writing. It does not

follow, however, that all supplements of that written contract should also be written.

In stipulating that "any modification, change and/or extra work" shall be "subject of

another contract," the contracting parties did not necessarily or explicitly agree that

the second contract should be in writing. The second contract could be merely

verbal, as in fact it was, and was binding on the parties as long as it represented

a meeting of minds between them. We are satisfied with the finding of the Court of

Appeals that Victorino Estrella and Steve Pierre were sent by petitioner to the

NASSCO shipyard in Mariveles while the M/V Sea Belle was being repaired and

that they represented said petitioner when they requested the extra work that was

subsequently done on the vessel.13 This second contract was not reduced to

writing, but it was nonetheless as binding between the parties as the first written

contract.
Case No. 5

Juntilla vs. Fontanar, 136 SCRA 625

G.R. No. L-45637 May 31, 1985

FACTS:

Juntilla was a passenger of the public utility jeepney bearing plate No. PUJ-

71-7 on the course of the trip from Danao City to Cebu City. The jeepney was

driven by defendant Berfol Camoro. It was registered under the franchise of

defendant Clemente Fontanar but was actually owned by defendant Fernando

Banzon. When the jeepney reached Mandaue City, the right rear tire exploded

causing the vehicle to turn turtle. In the process, Juntilla who was sitting at the front

seat was thrown out of the vehicle. Upon landing on the ground, he momentarily

lost consciousness. When he came to his senses, he found that he had a lacerated

wound on his right palm.

Aside from this, he suffered injuries on his left arm, right thigh and on his

back. Because of his shock and injuries, he went back to Danao City but on the

way, he discovered that his "Omega" wrist watch was lost. Upon his arrival in

Danao City, he immediately entered the Danao City Hospital to attend to his

injuries, and also requested his father-in-law to proceed immediately to the place

of the accident and look for the watch. In spite of the efforts of his father-in-law, the

wrist watch, which he bought for P 852.70 could no longer be found.

ISSUE:

Whether or not the Court of First Instance of Cebu erred when it absolved the

carrier from any liability upon a finding that the tire blow out is a fortuitous event.

RULING:

The Court of First Instance of Cebu erred when it absolved the carrier from

any liability upon a finding that the tire blow out is a fortuitous event for there are

specific acts of negligence on the part of the respondents. The records show that

the passenger jeepney turned turtle and jumped into a ditch immediately after its

right rear tire exploded. The evidence shows that the passenger jeepney was

running at a very fast speed before the accident. We agree with the observation of

the petitioner that a public utility jeep running at a regular and safe speed will not

jump into a ditch when its right rear tire blows up. There is also evidence to show

that the passenger jeepney was overloaded at the time of the accident.

The preponderance of authority is in favor of the doctrine that a passenger

is entitled to recover damages from a carrier for an injury resulting from a defect in

an appliance purchased from a manufacturer, whenever it appears that the defect

would have been discovered by the carrier if it had exercised the degree of care

which under the circumstances was incumbent upon it, with regard to inspection

and application of the necessary tests. For the purposes of this doctrine, the

manufacturer is considered as being in law the agent or servant of the carrier, as

far as regards the work of constructing the appliance. According to this theory, 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 passenger has neither

choice nor control over the carrier in the selection and use of the equipment and

appliances in use by the carrier. Having no privity whatever with the manufacturer

or vendor of the defective equipment, the passenger has no remedy against him,

while the carrier usually has. It is but logical, therefore, that the carrier, while not

an insurer of the safety of his passengers, should nevertheless be held to answer

for the flaws of his equipment if such flaws were at all discoverable.

The source of a common carrier's legal liability is the contract of carriage,

and by entering into the said contract, it binds itself to carry the passengers safely

as far as human care and foresight can provide, using the utmost diligence of a

very cautious person, with a due regard for all the circumstances. The records

show that this obligation was not met by the respondents.

CASE NO. 6
HONORIO LASAM, ET. AL. VS. FRANK SMITH, JR.

45 PHIL 657

FACTS:

Frank Smith, Jr. was the owner of a public garage in the town of San

Fernando, La Union, and engaged in the business of carrying passengers for hire

from one point to another in the Province of La Union and the surrounding

provinces. Defendant undertook to convey the plaintiffs from San Fernando to

Currimao, Ilocos Norte, in a Ford automobile. On leaving San Fernando, the

automobile was operated by a licensed chauffeur, but after having reached the

town of San Juan, the chauffeur allowed his assistant, Bueno to driver the car.

Bueno held no driver’s license, but had some experience in driving. The car

functioned well until after the crossing of the Abra River in Tagudin, when,

according to the testimony of the witnesses for the plaintiffs, defects developed in

the steering gear so as to make accurate steering impossible, and after zigzagging

for a distance of about half kilometer, the car left the road and went down a steep

embankment. The automobile was overturned and the plaintiffs pinned down under

it. Mr. Lasam escaped with a few contusions and a dislocated rib, but his wife,

Joaquina received serious injuries, among which was a compound fracture of one

of the bones in her left wrist. She also suffered nervous breakdown from which she

has not fully recovered at the time of trial. The complaint was filed about a year

and a half after and alleges that the accident was due to defects in the automobile

as well as to the incompetence and negligence of the chauffeur. The trial court

held however, that the cause of action rests on the defendant’s breach of the
contract of carriage and that, consequently, Articles 1101-1107 of the Civil Code,

and not Article 1903, are applicable. The court further found that the breach of

contract was not due to fortuitous events and that, therefore the defendant was

liable in damages.

ISSUE:

Whether or NOT the trial court is correct in its findings that the breach of

contract was not due to a fortuitous event?

RULING:

Yes. It is sufficient to reiterate that the source of the defendant’s legal

liability is the contract of carriage; that by entering into that contract he bound

himself to carry plaintiffs safely and securely to their destination; and that having

failed to do so he is liable in damages unless he shows that the failure to fulfill his

obligation was due to causes mentioned in Article 1105 of the Civil Code, which

reads: “No one shall be liable for events which could not be foreseen or which,

even if foreseen, were inevitable, with the exception of the cases in which the law

expressly provides otherwise and those in which the obligation itself imposes such

liability.” As will be seen, some extraordinary circumstances independent of the will

of the obligor, or his employees, is an essential element of a caso fortuito. In the

present case, this element is lacking. It is not suggested that the accident in

question was due to an act of God or to adverse road conditions which could have

been foreseen. As far as the record shows, the accident was caused either by
defects in the automobile or else through the negligence of its driver. That is not

caso fortuito.

CASE 7

SOUTHEASTERN COLLEGE, INC. VS COURT OF APPEALS

292 SCRA 422

FACTS:

Private respondents are owners of a house at 326 College Road, Pasay

while petitioner owns a four-storey school building along the same College Road.

That on October 11, 1989, a powerful typhoon hit Metro Manila. Buffeted by very

strong winds, the roof of the petitioner’s building was partly ripped off and blown

away, landing on and destroying portions of the roofing of private respondents’

house. When typhoon had passed, an ocular inspection of the destroyed building

was conducted by a team of engineers headed by the city building official. In their

report, they imputed negligence to the petitioner for the structural defect of the

building and improper anchorage of trusses to the roof beams to cause for the roof

be ripped off the building, thereby causing damage to the property of respondent.

Respondents filed an action before the RTC for recovery of damages based on

culpa aquiliana. Petitioner interposed denial of negligence and claimed that the

typhoon as an Act of God is the sole cause of the damage. RTC rules in favor

relying on the testimony of the City Engineer and the report made after ocular

inspection. Petitioners appealed before the CA which affirmed the decision of the

RTC. Hence this present appeal.

ISSUE:

1.) Whether or NOT the damage on the roof of the building of private

respondents resulting from the impact of the falling portions of the school building’s

roof ripped off by the strong winds of typhoon “Saling” was within legal

contemplation due to fortuitous event?

2.) Whether or NOT an ocular inspection is sufficient evidence to prove

negligence?

RULING:

1.) Yes, petitioner should be exonerated from liability arising from the

damage caused by the typhoon. Under Article 1174 of the Civil Code, except in

cases expressly specified by the law, or when it is otherwise declared by

stipulation, or when the nature of the obligation requires the assumption of risk, no

person shall be responsible for those events which could not be foreseen, or which,

if foreseen, were inevitable. In order that a fortuitous event may exempt a person

from liability, it is necessary that he be free from any previous negligence or

misconduct by reason of which the loss may have been occasioned.

An act of God cannot be invoked for the protection of a person who has

been guilty of gross negligence in not trying to forestall its possible adverse

consequences. When a person’s negligence concurs with an act of God in

producing damage or injury to another, such person is not exempt from liability by

showing that the immediate or proximate cause of the damages or injury was a
fortuitous event. When the effect is found to be partly the result of the participation

of a man – whether it be from active intervention, or neglect, or failure to act – the

whole occurrence is hereby humanized, and removed from the rules applicable to

acts of God. In the case at bar, the lower court accorded full credence to the finding

of the investigating team that subject school building’s roofing had “no sufficient

anchorage to hold it in position especially when battered by strong winds.” Based

on such finding, the trial court imputed negligence to petitioner and adjudged it

liable for damages to private respondents.

There is no question that a typhoon or storm is a fortuitous event, a natural

occurrence which may be foreseen but is unavoidable despite any amount of

foresight, diligence or care. In order to be exempt from liability arising from any

adverse consequences engendered thereby, there should have been no human

participation amounting to a negligent act. In other words, the person seeking

exoneration from liability must not be guilty of negligence. Negligence, as

commonly understood, is a conduct which naturally or reasonably creates undue

risk or harm to others. It may be the failure to observe that degree of care,

precaution, and vigilance which the circumstances justify demand, or the omission

to do something which a prudent and reasonable man, guided by considerations

which ordinarily regulate the conduct of human affairs, would do.

2.) It bears emphasizing that a person claiming damages for the negligence of

another has the burden of proving the existence of fault or negligence causative of

his injury or loss. The facts constitutive of negligence must be affirmatively

established by competent evidence, not merely by presumptions and conclusions

without basis in fact. Private respondents failed to adduce adequate and

competent proof of the pecuniary loss they actually incurred. Private respondents,

in establishing the culpability of petitioner, merely relied on the aforementioned

report submitted by a team which made an ocular inspection of petitioner’s school

building after the typhoon. As the term imparts, an ocular inspection is on by means

of actual sight or viewing. What is visual the eye through, is not always reflective

of the real cause behind. In the present case, other than the said ocular inspection,

no investigation was conducted to determine the real cause of the partial unroofing

of petitioner’s school building.

WHEREFORE, the petition is GRANTED and the challenged Decision is

REVERSED. The complaint of private respondents in Civil Case No. 7314 before

the trial court a quo is ordered DISMISSED and the writ of execution issued on

April 1, 1993 in said case is SET ASIDE. Accordingly, private respondents are

ORDERED to return to petitioner any amount or property received by them by

virtue of said writ. Costs against the private respondents.

SO ORDERED.
CASE NO. 8

TOMAS OSMEÑA VS. CENOMA RAMA

14 PHIL 99

FACTS:

On November 15, 1890, defendant Rama executed and delivered to

Victoriano Osmeña a contract which stipulates that Rama received the sum of Php

200.00 from Victoriano which the defendant will pay by delivery of sugar and also

pay an interest at a rate of half a cuartillo per month. Rama promised that she will

sell to Mr. Osmeña all the sugar that she may harvest and pledged as a guarantee,

all his present and future property and even her house in Pagina as a special

security. On October 27, 1891, the defendant executed another contract with

Victoriano Osmeña which states that defendant asked for a loan amounting to

Php70, Php50 was loaned to Don Peñares, which they will pay in sugar. Sometime

after the execution and delivery of the aforementioned contracts, Victoriano died.

In the settlement and division of the property of his estate, the contracts became

the property of one of his heirs, Agustina Rafols. Later Agustina Rafols ceded to

the present plaintiff Tomas Osmeña all of her right and interest in said contracts.

On March 15, 1902, plaintiff presented the contracts to the defendant for

payment and she acknowledged her responsibility upon said contracts by an

endorsement which stipulates: “On this date I hereby promise…that if the house

of strong materials in which I live in Pagina is sold, I will pay my indebtedness to

Don Tomas Osmeña as set forth in this document.” The defendant not having paid
the amount due on said contracts, the plaintiff filed an action before the CFI of

Cebu. The lower court rendered judgment in favor of the plaintiff for the sum of

Php200.00 with interest. From this judgment the Rama appealed by setting up the

defense of prescription.

ISSUE:

Whether or NOT the endorsement made by Rama for payment of said

obligation is valid.

RULING:

No. It was suggested during the discussion of the case in this court that in

the acknowledgment above quoted of the indebtedness made by the defendant,

she imposed the condition that she would pay the obligation if she sold her house.

Article 1182 of the Civil Code provides that: “When the fulfillment of the condition

depends upon the sole will of the debtor, the conditional obligation shall be void. If

it depends upon chance or upon the will of a third person, the obligation shall take

effect in conformity with the provisions of this Code.” If that statement found in her

acknowledgment of the indebtedness should be regarded as a condition, it was a

condition which depended upon her exclusive will, and is therefore, void. The

acknowledgment therefore, was an absolute acknowledgment of the obligation

and was sufficient to prevent the statute of limitation from barring the action upon

the original contract.

CASE NO. 9

HERMOSA VS. LONGARA

93 PHIL 971 / G.R. No. L-5267

FACTS:

Epifanio Longara, petitioner, 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 receive 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 (a condicion potestativa) 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 administratrix received the

money from the buyer of the property.

ISSUE:

Whether or NOT the condition "as soon as he receives funds from the sale

of his property in Spain” is valid?

RULING:

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

that all that we needed to make his obligation (to pay his indebtedness)

demandable is that the sale be consummated and the price thereof remitted to the

islands. It is evident, therefore, that the condition of the obligation was not purely

potestative – i.e., depending exclusively upon the will of the intestate—but a mixed

one, depending partly upon the will of intestate and partly upon chance. The

obligation is clearly governed by the second sentence of Article 1115 of the old

Civil Code (8 Manresa, 126). The condition is, besides, a suspensive condition,

upon the happening of which the obligation to pay is made dependent. And upon

the happening of the condition, the debt became immediately due and

demandable. (Article 1114, old Civil Code; 8 Manresa, 119).

CASE NO. 10

TAYLOR VS. UY TIENG PIAO

43 PHIL 873

FACTS:

On December 12, 1918, the plaintiff contracted his services to Tan Liuan

and Co., as superintendent of an oil factory which the latter contemplated

establishing in this city. The period of the contract extended over two years from

the date mentioned; and the salary was to be at the rate of P600 per month during

the first year and P700 per month during the second, with electric light and water

for domestic consumption, and a residence to live in, or in lieu thereof P60 per

month.

At the time this agreement was made, the machinery for the factory had

not been acquired, though ten expellers had been ordered from the U.S. as

agreed, for any reason the machinery failed to arrive in the city of Manila for the

period of six months from the date given, the contract may be canceled by the

party of the second part. The machinery stated in the contract did not arrive in the

city of Manila within the six months succeeding the making of the contract, and

other equipment necessary for the factory. On June 28, 1919, the defendants

informed the plaintiff that they had decided to rescind the contract effective June

30th. The plaintiff thereupon instituted this action to recover damages in the

amount of P13,000, covering salary and perquisites due and to become due under

the contract.
ISSUE:

Whether or NOT the plaintiff may demand perquisites under the rescinded

contract?

RULING:

Yes, it has been concluded that the Court of First Instance committed no

error in rejecting the plaintiff claim in so far as damages are sought for the period

subsequent to the expiration of the first six months, but in the assessment of

damages due for six months period, the trial judge evidently overlooked the item

of P60 specified in the plaintiff fourth assignment of error, which represent

commutation of house rental for the month of June 1919. This amount the plaintiff

is clearly entitled to recover, in addition to the P300 awarded in the lower court.

The judgment of CFI is modified, the defendant shall pay the plaintiff the

sum of P360 instead of P300 as allowed by the lower court. Doctrine specified: “A

condition at once facultative and resolutory may be valid even though the condition

is made to depend upon the will of the obligor. In the case ate bar, the defendants

were under a positive obligation to cause the machinery to arrive in Manila, they

would of course be liable, in the absence of affirmative proof showing that the non-

arrival of the machinery was due to some cause not having its origin in their own

act or will.”
CASE NO. 11

PLDT Co. vs Jeturian, 97 PHIL 981

FACTS:

In 1923, PLDT adopted a plan for employee’s pension. It is a policy in which

those employees who serve 20 years and reaching 60 years old shall acquire a

retirement benefit because of the services they rendered.

In 1945, the Board of Directors adopted a resolution discontinuing the pension plan

and in the consequence thereof, some retirees did not get the pension because

they did not satisfy the conditions.

The trial court averred that it is a form of constructive fulfillment. PLDT

contended that the employees cannot compel them to continue the program

because right was only based on expectancy.

ISSUE:

Whether or not the pre-war employees are entitled to the pension?

RULING:

Yes. But with the exception of those who died or left before the outbreak of

the war. The pension plan was not a gratuity but an inducement for employees to

continue indefinitely in service. The plan ripened into a binding contract upon its

implied acceptance of the employees. Acceptance is inferred from their entering

the employ of the company and staying after the plan was made known. PLDT

argues that it can only be held liable under the conditions expressly set in the
pension plan. But the court held that the company that violated the contract with

its employees, by discontinuing the plan without their consent, is not in the position

to insist upon the terms of the very contract they have breached.

CASE NO. 12

Jison v. Court of Appeals, 164 SCRA 339

FACTS:

Under a Contract to Sell, respondent Robert O. Phillips & Sons, Inc. sold a

subdivision lot to petitioners, spouses Jison for the agreed price of Php 55,000 with

8% interest per annum, payable on installment basis. Pursuant to the contract, the

spouses paid the 11,000 down payment on October 20, 1961.

On October 27, 1961-May 8, 1965, spouses paid a monthly installment of Php 533.

85.

Due to failure of Petitioners to build a house as provided in the contract, a penalty

of Php 5.00/sqm. was imposed. Monthly amortization increased to Php 707.24.

Spouses failed to pay on Jan. 1, Feb. 1 and Mar, 1 of 1966 although they

subsequently paid the amounts due and was accepted.

From October 1966 – January 1967, petitioners failed to pay their loans. On

January 11, 1967, respondent sent a letter to petitioners that their account was 4

months overdue. Another letter was sent on Feb. 27, 1967 reminding petitioners

of the automatic rescission clause of the contract.

Petitioners eventually paid on March 1, 1967. On Feb 1967 – April 1967,

petitioners failed to pay.

On April 6, 1967, respondent sent a letter to the spouses informing them that the

contract was cancelled.

Petitioners tendered payment for all the installments already due but tender was

refused. The former filed a complaint for specific performance. Trial court

dismissed the case and declared contract cancelled. CA affirmed trial court’s

ruling.

ISSUE:

Whether or not the CA erred in not holding the respondent’s act of forfeiting

all previous payments made by petitioners is contrary to law, highly iniquitous and

unconscionable.

RULING:

In obligations with a penal clause, the judge shall equitably reduce the

penalty when the principal obligation has been partly or irregularly complied with

by the debtor [Art. 1229; Hodges v. Javellana,G.R. No. L-17247, April 28, 1962, 4

SCRA 1228]. In this connection, the Court said:

It follows that, in any case wherein there has been a partial or irregular compliance

with the provisions in a contract for special indemnification in the event of failure

to comply with its terms, courts will rigidly apply the doctrine of strict construction

and against the enforcement in its entirety of the industry.' where it is clear from
the terms of the contract that the amount or character of the indemnity is fixed

without regard to the probable damages which might be anticipated as a result of

a breach of the terms of the contract; or, in other words, where the indemnity

provided for is essentially a mere penalty having for its principal object the

enforcement of compliance with the corporations;(Laureano v. Kilayco, 32 Phil.

194 (1943).

This principle was reiterated in

Makati Development Corp. v. Empire Insurance Co

. [G.R. No. L-21780, June30, 1967, 20 SCRA 557] where the Court affirmed the

judgment of the Court of First Instance reducing the subdivision lot buyer's liability

from the stipulatedP12,000.00 to Plaintiffs after finding that he had partially

performed his obligation to complete at least fifty percent (50%) of his house within

two (2)years from March 31, 1961, fifty percent (50%) of the house having been

completed by the end of April 1961.

CASE NO. 13

Song Fo & Company vs. Hawaiian Philippine Co., 47 Phil 821

Facts:

Plaintiff filed a case for damages against Defendant- Apellant for breach of

contract for failure of the latter to deliver the remaining molasses. Lower court
rendered a decision in its favor ordering Defendant-Apellant to pay to it P70,

369.50, with legal interest and costs.

Defendant argued that it was compelled to cancel and rescind the said

contract because Plaintiff- Appellee had defaulted in the payment for the molasses

delivered to it under the contract between the parties. Plaintiff appealed to the

Supreme Court due to the decision of the lower court.

ISSUE:

Whether or not Defendant-Appellant can rescind the said contract because

Plaintiff-Appellee had defaulted in the payment for the molasses delivered to it

under the contract between the parties?

RULING:

In this case, the general rule is that rescission will not be permitted for a

slight or casual breach of the contract, but only for such breaches as are so

substantial and fundamental as to defeat the object of the parties in making the

agreement. A delay in payment for a small quantity of molasses for some twenty

days is not such a violation of an essential condition of the contract was warrants

rescission for non-performance. Not only, but the Hawaiian-Philippine Co. waived

this condition when it arose by accepting payment of the overdue accounts and

continuing with the contract. Thereafter, Song Fo & Company was not in default in

payment so that the Hawaiian-Philippine co. had in reality no excuse for writing its

letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza

[1922], 43 Phil., 505.)-We rule that the appellant had no legal right to rescind the
contract of sale because of the failure of Song Fo & Company to pay for the

molasses within the time agreed upon by the parties. We sustain the finding of the

trial judge in this respect.

Thus, Defendant- Appellant cannot rescind. Defendant-Appellant is ordered

to pay to Plaintiff-Appellee P 3000, with legal interest from October 2, 1923 until

payment.

CASE NO. 14

VICTORIA’S PLANTERS ASSOCIATION INC., ET AL. VS. VICTORIA’S

MILLING CO., INC.,

G.R. NO. L-6648, JULY 25, 1955

FACTS:

The petitioners Victoria’s Planters Association, Inc. and North Negros Planters

Association, INC and the respondent Victoria’s Milling CO., Inc. entered into a

milling contract whereby they stipulated a 30-year period within which the sugar

cane produced by the petitioner would be milled by the respondent central. The

parties also stipulated that in the event of force majeure, the contract shall be

deemed suspended during this period. The petitioner failed to deliver the sugar

cane during the four years of the Japanese occupation and the two years after

liberation when the mill was being rebuilt or a total of six years.
ISSUE:

Whether or not the petitioners are compelled to deliver sugar cane for six

more years after the expiration of the 30-year period to make up for what they

failed to deliver to the respondent.

RULING:

No. Fortuitous event relieves the obligor from fulfilling the contractual

obligation under Article 1174 of the Civil Code. The stipulation in the contract that

in the event of force majeure, the contract shall be deemed suspended during the

said period does not mean that the happening of any of those events stops the

running of the period agreed upon. It only relieves the parties from the fulfillment

of their respective obligations during that time the petitioner from delivering the

sugar cane and the respondent central from milling. In order that the respondent

central may be entitled to demand from the petitioner the fulfillment of their part in

the contracts, the latter must have been able to perform it but failed or refused to

do so and not when they were prevented by force majeure such as to war. To

require the petitioners to deliver the sugar cane which they failed to deliver during

the six years is to demand from them the fulfillment of an obligation, which was

impossible of performing during the time it became due. Nemo tenetur ed

impossibilia. The respondent central not being entitled to demand from the

petitioners the performance of the latter’s part of the contracts under those

circumstances cannot later on demand its fulfillment. The performance of what the
law has written off cannot be demanded and required. The prayer that the

petitioners be compelled to deliver sugar cannot for six years more to make up for

what they failed to deliver, the fulfillment of which was impossible, of granted,

would in effect be an extension of the terms of the contracts entered into by and

between the parties.

CASE NO. 15

Ponce de Leon v. Syjico

GR No. L-3316

FACTS:

Plaintiff obtained from defendant Syjuco two loans in 1944. One is for

P200,000 obtained on May 5, 1944, and another for P16,000 obtained on July 31,

1944. These two loans appear in two promissory notes signed by the plaintiff which

were couched in practically the same terms and conditions and were secured by

two deeds of mortgage covering the same parcels of land. In said promissory notes

it was expressly agreed upon that plaintiff shall pay the loans “within one year from

May 5, 1948, . . . peso for peso in the coin or currency of the Government of the

Philippines that, at the time of payment above fixed it is the legal tender for public

and private debts, with interests at the rate of 6% per annum, payable in advance

for the first year, and semi-annually in advance during the succeeding years”, and

that, the period above set forth having been established for the mutual benefit of

the debtor and creditor, the former binds himself to pay, and the latter not to

demand the payment of, the loans except within the period above mentioned. And
as corollary to having the above stipulations, it was likewise agreed upon in the

two deeds of mortgage that “if either party should attempt to annul or alter any of

the stipulations of this deed or of the note which it secures, or do anything which

has for its purpose or effect an alteration or annulment of any of said stipulations,

he binds himself to indemnify the other for the losses and damages, which the

parties hereby liquidate and fix the amount of P200,000”.

The facts show that, on November 15, 1944, or thereabouts, contrary to the

stipulation above mentioned, plaintiff offered to pay to the defendant not only the

principal sum due on the two promissory notes but also all the interests which said

principal sum may earn up to the dates of maturity of the two notes, and as the

defendant refused to accept the payment so tendered, plaintiff deposited the

money with the clerk of court and brought this action to compel the defendant to

accept it to relieve himself of further liability.

ISSUE:

Whether or not the consignation made by the plaintiff is valid in the light of

the law and the stipulations agreed upon in the two promissory notes signed by

the plaintiff?

RULING:

Negative. 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 for 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 has 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). In the instant case, while it is admitted a debt existed, that the

consignation was made because of the refusal of the creditor to accept it, and the

filing of the complaint to compel its acceptance on the part of the creditor can be

considered sufficient notice of the consignation to the creditor, nevertheless, it

appears that at least two of the above requirements have not been complied with.

Thus, it appears that plaintiff, before making the consignation with the clerk

of the court, failed to give previous notice thereof to the person interested in the

performance of the obligation. It also appears that the obligation was not yet due

and demandable when the money was consigned, because, as already stated, by

the very express provisions of the document evidencing the same, the obligation

was to be paid within one year after May 5, 1948, and the consignation was made

before this period matured. The failure of these two requirements is enough ground

to render the consignation ineffective. And it cannot be contended that plaintiff is

justified in accelerating the payment of the obligation because he was willing to

pay the interests due up to the date of its maturity, because, under the law, in a

monetary obligation contracted with a period, the presumption is that the same is

deemed constituted in favor of both the creditor and the debtor unless from its
tenor or from other circumstances it appears that the period has been established

for the benefit of either one of them (Art. 1127, Civil Code). Here no such exception

or circumstance exists.

CASE NO. 16

Pacific v CA

FACTS:

An open fire insurance policy, was issued to Paramount Shirt Manufacturing

by Oriental Assurance Corporation to indemnify P61,000.00, caused by fire to the

factory’s stocks, materials and supplies. The insured was a debtor of Pacific

Banking in the amount of (P800,000.00) and the goods described in the policy

were held in trust by the insured for Pacific Banking under trust receipts. The policy

was endorsed to Pacific Banking as mortgagee/ trustor of the properties insured,

with the knowledge and consent of private respondent to the effect that "loss if any

under this policy is payable to the Pacific Banking Corporation". A fire broke out on

the premises destroying the goods contained in the building. The bank sent a letter

of demand to Oriental for indemnity. The company wasn’t ready to give since it

was awaiting the adjuster’s report. The company then made an excuse that the

insured had not filed any claim with it, nor submitted proof of loss which is a clear

violation of Policy Condition No.11, as a result, determination of the liability of

private respondent could not be made. Pacific Banking filed in the trial court an

action for a sum of money for P61,000.00 against Oriental Assurance.

 At the trial, petitioner presented communications of the

insurance adjuster to Asian Surety revealing undeclared co-insurances with the

following: P30,000 with Wellington Insurance; P25,000 with Empire Surety and

P250,000 with Asian Surety undertaken by insured Paramount on the same

property covered by its policy with Oriental whereas the only co-insurances

declared in the subject policy are those of P30,000.00 with Malayan P50,000.00

with South Sea and P25.000.00 with Victory.

The defense of fraud, in the form of non-declaration of co-insurances which was

not pleaded in the answer, was also not pleaded in the Motion to Dismiss.

The trial court denied the respondent’s motion. Oriental filed another motion to

include additional evidence of the co-insurance which could amount to fraud. The

trial court still made Oriental liable for P 61,000. The CA reversed the trial court

decision. Pacific Banking filed a motion for reconsideration of the said decision of

the respondent Court of Appeals, but this was denied for lack of merit.

ISSUES:

1. WON unrevealed co-insurances Violated policy conditions No. 3

2. WON the insured failed to file the required proof of loss prior to court action.

RULING:

1) Yes. Petition dismissed. Policy Condition No. 3 explicitly provides:

The Insured shall give notice to the Company of any insurance already effected,

or which may subsequently be effected, covering any of the property hereby

insured, and unless such notice be given and the particulars of such insurance or

insurances be stated in or endorsed on this Policy by or on behalf of the Company

before the occurrence of any loss or damage, all benefit under this policy shall be

forfeited.

The insured failed to reveal before the loss three other insurances. Had the

insurer known that there were many co-insurances, it could have hesitated or

plainly desisted from entering into such contract. Hence, the insured was guilty of

clear fraud.

Concrete evidence of fraud or false declaration by the insured was furnished

by the petitioner itself when the facts alleged in the policy under clauses "Co-

Insurances Declared" and "Other Insurance Clause" are materially different from

the actual number of co-insurances taken over the subject property.

As the insurance policy against fire expressly required that notice should be

given by the insured of other insurance upon the same property, the total absence

of such notice nullifies the policy.

2) Generally, the cause of action on the policy accrues when the loss

occurs, But when the policy provides that no action shall be brought unless the

claim is first presented extrajudicially in the manner provided in the policy, the

cause of action will accrue from the time the insurer finally rejects the claim for

payment

In the case at bar, policy condition No. 11 specifically provides that the insured

shall on the happening of any loss or damage give notice to the company and shall
within fifteen (15) days after such loss or damage deliver to the private respondent

(a) a claim in writing giving particular account as to the articles or goods destroyed

and the amount of the loss or damage and (b) particulars of all other insurances,

if any.

Twenty-four days after the fire did petitioner merely wrote letters to private

respondent to serve as a notice of loss. It didn’t even furnish other documents.

Instead, petitioner shifted upon private respondent the burden of fishing out the

necessary information to ascertain the particular account of the articles destroyed

by fire as well as the amount of loss. Since the required claim by insured, together

with the preliminary submittal of relevant documents had not been complied with,

it follows that private respondent could not be deemed to have finally rejected

petitioner's claim and therefore there was no cause of action.

CASE NO.17

Song Fo V. Oria

FACTS:

Song Fo & Co., the original plaintiff in this action, sold a launch to Oria, the

defendant, for P16,500, payable in quarterly installments of P1,000, together with

interest at the rate of ten per centum per annum. The launch was delivered to Oria

in Manila, but was shipwrecked and became a total loss while en route to Oria's

place of business in Samar. No part of the purchase price has ever been paid and

this action was instituted for the recovery of the total amount of the purchase price
with interest thereon until paid. The trial court gave judgment in favor of the plaintiff

for P6,000 and interest, that being the amount of the unpaid installments due under

the express terms of the contract at the date of the institution of the action; but

declined to enter judgment for the balance of the indebtedness on the ground that,

under the express terms of the contract, it was not due and payable when the

complaint was filed.

ISSUE:

Whether or not the trial court erred in in their judgment in favor of the plaintiff

for P6,000 and interest?

RULING:

Yes, the security for the payment of the purchase price of the launch itself

having disappeared as a result of an unforeseen event (vis major), and no other

security having been substituted therefor, the plaintiffs were clearly entitled to

recover judgment not only for the installments of the indebtedness due under the

terms of the contract at the time when the instituted their action, but also for all

installments which, but for the loss of the vessel had not matured at that time.
CASE NO. 18

INCHAUSTI VS. YULO

FACTS:

This suit is brought for the recovery of a certain sum of money, the balance

of a current account opened by the firm of Inchausti & Company with Teodor Yulo

and after his death continued by Gregorio Yulo as principal representative of his

children. On Aug.12, 1909, Gregorio Yulo, in representation of his 3 siblings,

executed a notarial instrument, ratifying all the contents of the prior document of

Jan.26, 1908, severally and joint acknowledged their indebtedness for

P253,445.42, 10 % per annum, 5 installments. Plaintiff brought an action againsta

Gregorio for the payment of the said balance due. But on May 12, 1911, 3 siblings

executed another instrument in recognition of the debt, reduced to P225,000,

interest reduced to 6% per annum, installments increased to 8.

ISSUE:

Whether or not the contract in 1911 constitutes a novation of the contract in

1909 with respect to the other debtors who executed the earlier contract?

RULING:

The contract of May 12, 1911 does not constitute a novation of the former

one of Aug.12, 1909, with respect to the other debtors who executed this contract.

First, “in order that an obligation may be extinguished by another which substitutes

it, it is necessary that it should be so expressly declared or that the old and the
new be incompatible in all points(art. 1292). It is always necessary to state that it

is the intentionof the contracting parties to extinguish the former obligation by the

new one.” The obligation to pay a sum of money is not novated in a new instrument

wherein the old is ratified, by changing only the term of payment and adding other

obligations not incompatible with the old one.

The obligation being solidary, the remission of any part of the debt made by

a creditor in favor of one or more of the solidary debtors necessarily benefits the

others, and therefore there can be no doubt that, in accordance with the provision

of Art. 1215, 1222, the defendant has the right to enjoy the benefits of the partial

remission. At present judgment can be rendered only as to P112,500.

CASE NO. 19

THE MANILA RACING CLUB, INC., Plaintiff-Appellant, v. THE MANILA

JOCKEY CLUB, ET AL., Defendants-Appellees.

FACTS:

On September 18, 1936 Rafael J. Campos entered into a contract (Exhibit

C) with the Manila Jockey Club, an unregistered partnership, whereby he

purchased from it the parcel of land described in transfer certificate of title No. 8724

with its improvements, the good-will, and certain personal property. The price

agreed upon in this transaction is P1,200,000, payable as follows: P50,000 upon

the signing of the contract; P50,000 on or before September 28, 1936; P300,000

on or before December 24, 1936; P200,000 on or before March 24, 1937; and
P600,000 on or before September 24, 1937. It was agreed that should the

purchaser fail to pay the amount corresponding to each installment in due time,

the vendor may rescind the contract and keep the amounts paid for itself. One of

the clauses of the deed also states that the purchaser may form a corporation

called the Manila Racing Club, Inc., to whom he may transfer all his rights and

obligations under the contract.

ISSUE:

Whether or not the Manila Jockey Club may recover the forfeited amount of

P100, 000 plus damages?

RULING:

No, this clause regarding the forfeiture of what has been partially paid is

valid. It is in the nature of a penal clause which may be legally established by the

parties (articles 1152 and 1255 of the Civil Code). In its double purpose of insuring

compliance with the contract and of otherwise measuring beforehand the damages

which may result from non-compliance, it is not contrary to law, morals or public

order because it was voluntarily and knowingly agreed upon by the parties.

Viewing concretely the true effects thereof in the present case, the amount forfeited

constitutes only eight per cent of the stipulated price, which is not excessive if

considered as the profit which would have been obtained had the contract been

complied with. There is, moreover, evidence that the defendants, because of this

contract with Campos, had to reject other propositions to buy the same property.

At any rate, the penal clause does away with the duty to prove the existence and
measure of the damages caused by the breach.

CASE NO. 20

CARIDAD ESTATES, INC., v. PABLO SANTERO

FACTS:

On November 28,1934, the Caridad Estates, Inc., through its manager, Hammon

H. Buck, leased to Pablo Santero cadastral lots Nos. 1080 B-1, 1080 B-2 and 1116

in the municipality of Cavite, Cavite, for one year for P2,200. Said lands were used

for fishpond and salt bed purposes. About three months prior to the expiration of

the contract of lease, or on August 24, 1935, the lessor sold the same lots to the

lessee for P30,000, payable as follows: P1,500 on the execution of the agreement;

P4,000 on or before December, 1935; P4,500 on or before March, 1936; and the

remaining balance of P20,000 in ten years, each annual installment to be paid on

or before the month of August of each year beginning 1937. In said contract

(Exhibit A), the parties stipulated that should the vendee fail to make the payments

agreed upon within sixty days of the date they fall due, the total balance shall

become due and payable and recoverable by an action at law, or the vendor may

recover possession of the property and consider any and all sums paid by the

vendee forfeited.

Plaintiff refused to accept payment on the ground that the contract of sale had

been definitely cancelled since September 15, 1936, when the same lands were

conveyed by sale to Triston Sison. On the other hand, it is alleged by plaintiff-

appellee that on August 31, 1936, its general manager by formal communication
(Exhibit B), advised the defendant of the revocation of the contract of sale and

asked the latter to vacate the premises immediately thereafter.

As the defendant-appellant would not surrender possession of the lands in

question, the Caridad Estates, Inc., on October 2, 1936, filed a complaint for illegal

detainer and recovery of rentals against Pablo Santero in the justice of the peace

court of Cavite.

ISSUE:

Whether or not the provisions of the contract of sale (Exhibit A), more

specifically paragraphs 3 and 4 thereof, violate those legal principles which

condemn pacto commissorio?

RULING:

No, taking up the argument that the stipulations outlined in paragraphs 3

and 4 of the contract have resulted in a pactum commissorium we are of the

opinion that the objection is without legal basis. Historically and in point of strict

law, pactum commissorium referred to in Law 41, title 5, and Law 12, title 12 of the

Fifth Partida, and included in articles 1859 and 1884 of the Civil Code,

presupposes the existence of mortgage or pledge or that of antichresis. (Alcantara

v. Alinea Et. Al., 8 Phil., 111.) Upon this account, it becomes hardly conceivable,

although the argument has been employed here rather extravagantly, that the idea

of pactum commissorium should occur in the present contract of sale, considering

that, it is admitted, the person to whom the property is forfeited is the real and

equitable owner of the same because title would not pass until the payment of the
last installment. At most, the provisions in point, as the parties themselves have

indicated in the contract, is a penal clause which carries the express waiver of the

vendee to any and all sums he had paid when the vendor, upon his inability to

comply with his duty, seeks to recover possession of the property, a conclusive

recognition of the right of the vendor to said sums, and avoids unnecessary

litigation designed to enforce fulfillment of the terms and conditions agreed upon.

Said provisions are not unjust or inequitable and does not, as appellant contends,

make the vendor unduly rich at his cost and expense. The charge that the amount

forfeited greatly exceeded that which should be paid had the contract been one of

lease loses its eight when we consider that during the years 1935 and 1936, when

the agreement was in full force and effect, the piece of salt rose high to bring big

profits and returns.

CASE NO. 21

THE BACHRACH MOTOR CO., INC. vs. FAUSTINO ESPIRITU

FACTS:
This is a consolidated case (Cases no. 28497 and 28948) involving two

separate sale transactions. One made in Feb. 18, 1925 (case 28498), when the

defendant earlier bought a truck on installment from the petitioner and said truck

was mortgaged together with the two others (no. 77197 & 92744 in the subsequent

sale transaction dated July 28, 1925. The said two of the other trucks were also

purchased (but already paid previously) from the plaintiff. The defendant failed to

pay the balance. In July 1925, defendant again purchased another truck from
Bachrach. The said truck, together with the 3 other vehicles were mortgaged to the

plaintiff to secure the remaining balance. The defendant failed to pay the balance

for the latest truck obtained.

In both sales it was agreed that 12% interest would be paid upon the unpaid

portion of the price at the execution of the contracts, and in case of non-payment

of the total debt upon its maturity, 25% thereon, as penalty. The defendant at the

same time also signed a promissory note solidarily with his brother Rosario Espiritu

for the several sums secured by the two mortgages.

ISSUE:

Whether or not the 25% penalty upon the debt, in addition to the interest of

12% per annum, would make the contract usurious.

RULING:

Such a contention is not well founded. Article 1152 of the Civil Code permits

the agreement upon a penalty apart from the interest. Should there be such an

agreement, the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil.,

631), does not include the interest, and which may be demanded separately.

According to this, the penalty is not to be added to the interest for the determination

of whether the interest exceeds the rate fixed by the law, since said rate was fixed

only for the interest. But considering that the obligation was partly performed, and

making use of the power given to the court by article 1154 of the Civil Code, this

penalty is reduced to 10 per cent of the unpaid debt.

Case No. 22

E. M. BACHRACH vs. VICENTE GOLINGCO

Facts:

Plaintiff Bachrach sold to defendant Golingco an automobile truck, which

was secured by a promissory note and a chattel mortgage on the truck. The

promissory note provided 25% attorney’s fees. The note matured and the chattel

mortgage was foreclosed. At the foreclosure, Bachrach himself became the

purchaser for the sum of ₱ 539 which was credited to Golingco’s indebtedness.

Bachrach filed a suit for the recovery of a sum of money which is the balance due

as evidence by the promissory note.

ISSUE:

Whether or not the agreement for the 25% attorney’s fee for collection is

valid.

RULING:

Yes. The legality of such stipulation is expressly recognized by the

Negotiable Instruments Law Act of 2031.

Such a stipulation is not void as usurious, even when added to a contract

for the payment of the highest rate of interest permissible. The purpose of such a

stipulation is not to increase in any respect the benefits ultimately to accrue to the

creditor to receive the amount due without the deduction of the expenses caused

by the delinquency of the debtor. No special agreement is made by the parties with
reference to attorney’s fees therefor the courts are authorized to determine the

amount to be paid to an attorney as reasonable compensation for his professional

services, and even where the parties have made a written agreement as to the

fee, the courts have the power to ignore the contract, if the amount fixed is

unconscionable or unreasonable, and to limit the fee to a reasonable amount.

CASE NO. 23

ANTONIA A. CABARROGUIS and MAMERTO CABARROGUIS vs.

TELESFORO B. VICENTE

FACTS:

Plaintiff Antonia A. Cabarroguis, a registered nurse and midwife residing in

Davao City, sustained physical injuries as a result of an accident when the AC

"jeepney" of which she was a passenger hit another vehicle at a street corner in

the said city. The injury caused permanent partial disability to her right forearm.

To avoid court litigation, defendant Telesforo B. Vicente, owner and

operator of the AC "jeepney" involved in the accident, entered on July 13, 1955

into a compromise agreement with the said victim Antonia A. Cabarroguis,

obligating himself to pay to her the sum of P2, 500 "as actual and compensatory,

exemplary and moral damages suffered by the plaintiff.

Defendant has paid a total of P1, 500.00 leaving therefore, an unpaid

balance of P1,000. Stipulated in the agreement that should defendant fail to

complete payment within a period of sixty days, he would pay an "additional

amount of P200.00 as liquidated damages.

As defendant failed and, notwithstanding repeated demands, refused to

comply with his obligation under the agreement after the same had become due

and demandable, plaintiff Antonia A. Cabarroguis, assisted by her husband,

brought suit in the Municipal Court of Davao City. In his defense, defendant alleged

that the injury sustained by plaintiff was not serious or consequential as to entitle

her to the payment of the amount stipulated in the compromise agreement; that

the agreement did not express the true intention of the parties thereto "by reason

of mistake, fraud, inequitable conduct or accident" so that a reformation of the

agreement was in order.

ISSUE: Whether or not the penalty substitutes the indemnity for damages and

interest.

RULING: Appealed decision affirmed.

As a rule, if the obligation consists in a sum of money, the only damage a

creditor may recover, if the debtor incurs in delay, is the payment of the interest

agreed upon, or the legal interest, unless the contrary is stipulated. (Article 2209,

new Civil Code.) However, the creditor may also claim other damages, such as

moral or exemplary damages, in addition to interest (Articles 2196 and 2197, Id.),

the award of which is left to the discretion of the court.

In obligations with a penal clause, as provided in Article 1226 of the new

Civil Code, the penalty shall substitute the indemnity for damages and the payment
of interests. The exceptions to this rule, according to the same article, are: (1) when

the contrary is stipulated; (2) when the debtor refuses to pay the penalty imposed

in the obligation, in which case the creditor is entitled to interest on the amount of

the penalty, in accordance with Article 2209; and (3) when the obligor is guilty of

fraud in the fulfillment of the obligation.

Applying the law, it is evident that no interest can be awarded on the

principal obligation of defendant, the penalty of P200.00 agreed upon having taken

the place of the payment of such interest and the indemnity for damages. No

stipulation to the contrary was made, and while defendant was sued for breach of

the compromise agreement, the breach was not occasioned by fraud.

CASE NO. 24
LEON J. LAMBERT vs. T. J. FOX

FACTS:
John R. Edgar & Co., engaged in the retail book and stationery business

suffered financial trouble. To save the collapse of the said company, creditors

agreed to convert their credit into share of stock equivalent to the amount they lent

to the company. Lambert and Fox became the major stockholders of the company.

After the incorporation of the firm, Lambert and Fox agreed not to sell,

transfer, or otherwise dispose of any part of their present holdings of stock in said

John R. Edgar & Co. Inc., till after one year from the date hereof. Either party

violating this agreement shall pay to the other the sum of one thousand (P1,000)

pesos

After 9 months, Fox believing that John Edgar and Company was already

stable sold his stock in the said corporation to their rival company, Mc Mullough.

The sale was protested by Lambert. After Fox sold his shares, Lambert sued him

with the CFI, however the trial court decided in favor of Fox on the ground that the

company was already stable and that the latter already fulfilled his obligation.

Lambert appealed.

ISSUE:

Whether or not the plaintiff may recover a penalty prescribed on a contract

as punishment for the breach thereof.

RULING:

The court ruled in the affirmative. In this jurisdiction, there is no difference

between a penalty and liquidated damages, so far as legal results are concerned.

Whatever differences exists between them as a matter of language, they are

treated the same legally. In either case the party to whom payment is to be made

is entitled to recover the sum stipulated without the necessity of proving damages.

Indeed, one of the primary purposes in fixing a penalty or in liquidating damages

is to avoid such necessity.

CASE NO. 25

MARINO S. UMALI vs. EFRAIN Y. MICLAT

FACTS:

Umali is the president and manager of Maharlika Pictures wherein Miclat

worked. Umali and Miclat entered into a contract whereby the latter was to prepare

a float, posters and displays and other forms of advertisement for the showing of

the film “Lagrimas”. For the work specified, Umali agreed to pay the sum of P900,

of which appellee was paid P225 in advance and for another work specified, a sum

of P344. The work covered by the contract and job order abovementioned were

completely done and the articles called for delivered to Umali; and that

notwithstanding several demands made upon Umali, he refused to pay without

justification.
 Because of failure of the defendant to pay the amount within the period

stipulated, plaintiff brought this action to recover the amount plus the penalty and

damages. After trial, the lower court rendered judgment ordering the defendant to

pay the amount plus 10 % surcharge for every 30 days of default, and 6% per

annum from the date of the filing of the complaint as damages. Defendant now

claims that the surcharge of 10% for every 30 days of default is unconscionable

because it is tantamount to imposing an interest of 10% a month and, therefore,

should be reduced, and that the award of 6% interest per annum by way of

damages is contrary to law, since according to Art. 1226 of the Civil Code, the

penalty shall be a substitute for damages or interests.

ISSUE: Whether or not there is merit in the contention that the surcharge is

unconscionable.

RULING:

There is merit in the contention. While this surcharge partakes of the nature

of a penal clause which the parties may stipulate under the law, however, one

cannot deny that the same is unreasonable. Making use of the discretion that the

law grants this Court on the matter (Art. 1229, Civil Code), a surcharge of 20% per

annum would be reasonable. On the other hand the contention that the portion of

the decision which orders the payment of 6% interest is contrary to law on the

ground that defendant is already ordered to pay the penalty agreed upon is

untenable. Under Art. 1226 of the new Civil Code, the penalty takes the place of

interest only if there is no stipulation to the contrary, and even then damages may

still be collected if the obligor refuses to pay the penalty. In this case not only is
there an express stipulation to pay damages in addition to the penalty, but

defendant has failed to pay his obligation as well as the penalty. The imposition of

the interest is therefore, justified.

CASE NO. 26

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC. vs.

HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF

HAKIM S. ABDULWAHID

FACTS:

Petitioner failed to comply with his judgment obligation in an amicable

settlement with the respondent. Hence, a writ of execution was issued for the

amount of P63, 140.00 pursuant to which, petitioner’s properties were levied and

was set for an auction sale. Prior to the set date for the auction sale, petitioner

deposited with the Clerk of Court, CFI, in his capacity as Ex-Officio Sheriff, the sum

of P63, 130.00 for payment of the judgment obligation, consisting of P50, 000.00

Cashier’s Check and P13,130.00 in cash.

Private respondent refused to accept the check as well as the cash deposit

and requested the scheduled auction sale. Respondent judge uphold private

respondent’s claim that he has the right to refuse payment by means of a check

and cited Section 63 of the Central Bank Act:

 “Sec 63. Legal Character – Checks representing deposit money do not have

legal tender power and their acceptance in payment of debts, both public and

private, is at the option of the creditor. Provided, however, that a check which has

been cleared and credited to the account of the creditor shall be equivalent to a

delivery to the creditor in cash in an amount equal to the amount credited to his

account.”

And Article 1249 of the New Civil Code which provides for payment of debts

in money shall be made in the currency stipulated or the currency that is legal

tender in the Philippines.

Likewise, respondent judge sustained the contention of the private

respondent that he has a right to refuse payment of the amount of P13, 130 in cash

because the said amount is less than the judgment obligation, which is a partial

payment as provided in Article 1248 of the New Civil Code.

Petitioner filed an ex-parte motion for issuance of certificate of satisfaction

of judgment after his levied properties were all sold during the auction sale.

Petitioner question the order of the judge for denial of the said motion alleging that

said judge capriciously and whimsically abused his discretion on the ground that

there was already a full satisfaction of the judgment before the auction sale was

conducted.
ISSUE:

WON there was a valid refusal to accept the payment of the judgment

obligation made by the petitioner consisting of P50, 000.00 in Cashier’s Check and

P13, 130.00 in cash.

RULING:

No. A cashier’s check of the Equitable Bank Corporation is not an ordinary

check. It is a well-known and accepted practice in the business sector that a

Cashier’s Check is deemed as cash.

Where a check is certified by the bank on which it is drawn, the certification

is equivalent to acceptance. By the certification of drawee bank, the funds

represented by the check are transferred from the credit of the maker to that of the

payee or holder, and for all intents and purposes, the latter becomes the depositor

of the drawee bank. Said certification implies that the check is drawn upon

sufficient funds in the hands of the drawee that they have been set apart for its

satisfaction, that they shall be so applied whenever the check is presented for

payment. The object of certifying a check, as regards to both parties, is to enable

the holder to use it as money. When the holder procures the check to be certified,

the check operates as an assignment of a part of the funds to the creditors.

Certification of a check is an exception to the rule enunciated under Sec 63 of the

CB Act.
 Considering that the whole amount deposited by the petitioner consisting of

Cashier’s Check of P50, 000.00 and P13, 130.00 in cash covers the judgment

obligation of P63,000.00 as mentioned in the writ of execution, then, there is no

valid reason for the private respondent to have refused acceptance of the payment

of the obligation in his favor.

CASE NO. 27

REYNALDO LABAYEN vs. TALISAY-SILAY MILLING CO., INC.

FACTS:

The Labayens were owners of Hacienda Dos Hermanos of Talisay, Negros

Occidental and they contracted theTalisay-Silay Milling Co., Inc .to grind their

sugarcane. What was stipulated in their contract was that, defendant is to construct

a railroad through the hacienda to be able to mill plaintiffs’ sugarcane. There were

hindrances that arose. It was possible but it would be dangerous to life and

property of those living there. And the construction of railroad became impossible

to perform because one of the hacienda owner’s would not grant permission to use

his land for the said purpose. Therefore, the milling company failed to grind the

sugarcane.

ISSUE:

WON Talisay-Silay is liable for breach of contract.

RULING:

No. The defendant is not liable because one of the hacienda owner’s would

not grant him permission to construct a railroad. Such event is a clear case of the
condition of affairs as was contemplated in the contract which results in releasing

the defendant from its obligation.

CASE NO. 28

PEOPLE'S BANK AND TRUST COMPANY vs. SYVEL'S INCORPORATED,

ANTONIO Y. SYYAP and ANGEL Y SYYAP August 11, 1988

FACTS:

Syvel’s Incorporated was granted a commercial line of credit by People’s

Bank & Trust Company in the amount of P900,000.00 on the guaranty of the

merchandise or stocks in goods of the said corporation which were covered by

chattel mortgage duly registered as required by law.

On May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap

executed an undertaking in favor of the plaintiff whereby they both agreed to

guarantee absolutely and unconditionally and without the benefit of excussion the

full and prompt payment of any indebtedness to be incurred on account of the said

credit line.

When the defendant corporation failed to make payment in accordance with

the terms and conditions agreed upon in the Commercial Credit Agreement, the

plaintiff started to foreclose extrajudicially the chattel mortgage. Such foreclosure

didn’t push thru because of an attempt to have the matter settled. However, no

payment was made. Therefore, the plaintiff filed an action for foreclosure in court.
A preliminary writ of attachment was issued based on the allegations that the

defendants are disposing of their properties with intent to defraud their creditors.

The defendants, in their answer to the complaint, set up a compulsory counterclaim

for damages.

During the pendency of the case, Antonio V. Syyap requested the plaintiff

to dismiss the case because he did not want to have the goodwill of Syvel's

Incorporated impaired, and offered to execute a real estate mortgage on his real

property located in Bacoor, Cavite to which the plaintiff consented.

Defendants did not agree with plaintiffs motion to dismiss which included

the dismissal of their counterclaim and filed instead their own motion to dismiss on

the ground that by the execution of said real estate mortgage, the obligation

secured by the chattel mortgage subject of this case was novated, and therefore,

appellee's cause of action thereon was extinguished.

ISSUE:

Whether or not the obligation secured by the Chattel Mortgage sought to be

foreclosed was novated by the subsequent execution between appellee and

appellant Antonio V, Syyap of a real estate mortgage as additional collateral to the

obligation.

RULING:

No. Novation takes place when the object or principal condition of an

obligation is changed or altered. Novation is never presumed; it must be explicitly

stated or there must be manifest incompatibility between the old and the new

obligations in every aspect. The contract on its face does not show the existence

of an explicit novation nor incompatibility on every point between the "old and the

"new" agreements as the second contract evidently indicates that the same was

executed as new additional security to the chattel mortgage previously entered into

by the parties. Moreover, records show that in the real estate mortgage, appellants

agreed that the chattel mortgage "shall remain in full force and shall not be

impaired by this (real estate) mortgage." It is clear, therefore, that a novation was

not intended. The real estate mortgage was evidently taken as additional security

for the performance of the contract.

CASE NO. 29

ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ and GERRY E. CRUZ vs.

COURT OF APPEALS and SPOUSES ELISEO and VIRGINIA MALOLOS

FACTS:

Delfin I. Cruz and Adoracion Cruz were spouses and their children were

Thelma, Nerissa, Arnel and Gerry Cruz. Upon the death of Delfin I. Cruz, his

surviving spouse and children executed on August 22, 1977 a notarized Deed of

Partial Partition by virtue of which each one of them was given a share of several

parcels of registered lands all situated in Taytay, Rizal. The following day, the

same mother and children executed a Memorandum Agreement which states that

the parties are common co-owners pro-diviso in equal shares of the said real

properties.
 Meanwhile, spouses Eliseo and Virginia Malolos filed Civil Case against the

spouses Nerissa Cruz-Tamayo and Nelson Tamayo for a sum of money. The Court

of First Instance of Rizal, Branch XVI (Quezon City) rendered a decision of June

1, 1981 in favor of Eliseo and Virginia condemning the spouses Nerissa and

Nelson Tamayo to pay them. After the finality of that decision, a writ of execution

was issued. Enforcing said writ, the sheriff of the court levied upon the lands in

question.

On June 29, 1983, these properties were sold in an execution sale to the

highest bidders, the spouses Eliseo and Virginia Malolos. A Certificate of Sale was

executed over all the rights, claims, interests, titles, shares, and participations of

defendant spouses Nerissa Tamayo and Nelson Tamayo.

The Malolos couple asked Nerissa Cruz Tamayo to give them the owners

duplicate copy of the seven titles of the lands in question but she refused so the

couple asked the court to compel her to surrender said titles for cancellation.

Nerissa did not comply and so the Malolos couple asked the court to declare said

titles as null and void.

A few months later, the court issued an order directing the surrender of the

owners duplicate copies of titles of the lands in question not for cancellation but for
the annotation of the rights, interest acquired by the Malolos couple over said

lands.

Adoracion, Thelma, Gerry and Arnel Cruz filed a Civil Case for Partition of

Real Estate against spouses Eliseo and Virginia Malolos invoking that the

Memorandum Of Agreement revoked, cancelled or superseded the Deed of Partial

Partition, making the former and spouses Tamayo co-owners of the land in issue.

The Court of Appeals denied the petition.

ISSUES:

1. Whether or not the Deed of Partial Partition was cancelled or novated by

the Memorandum Of Agreement.

2. Whether or not the MOA established, between petitioners and the judgment

debtor, a co-ownership of the lots in question

3. Whether or not the petitioners are barred by estoppel from claiming co-

ownership of the seven parcels of land

4. Whether or not res judicata has set in.

RULING:

1. No Novation or Cancellation. The MOA falls short of producing a novation,

because it does not express a clear intent to dissolve the old obligation as

a consideration for the emergence of the new one. It cannot be construed

as a repudiation of the earlier DPP. Both documents can exist together and

must be so interpreted as to give life to both.

 The basic principle is that when the text of a contract is explicit and leaves

no doubt as to its intention, the court may not read into it any intention that

would contradict its plain import.

2. No Co-ownership in the MOA. The very provisions of the MOA belie the

existence of a co-ownership. First, it retains the partition of the properties,

which petitioners supposedly placed in co-ownership; and, second, it vests

in the registered owner the power to dispose of the land adjudicated to him

or her under the DPP. Registration merely confirms, but does not confer

title.

3. Petitioners are estopped by deed. In their transaction with others,

petitioners have declared that the other lands covered by the same MOA

are absolutely owned, without indicating the existence of a co-ownership

over such properties. Thus, they are estopped from claiming otherwise

because, by their very own acts and representations as evidenced by the

deeds of mortgage and of sale, they have denied such co-ownership.

4. No Res Judicata On Co-ownership. The RTC of Quezon City had no

jurisdiction to decide on the merits of the present case or to entertain

questions regarding the existence of co-ownership over the parcels in

dispute, because the suit pending before it was only for the collection of a

sum of money. Its disquisition on co-ownership was merely for the levy and

the execution of the properties of the Tamayo spouses, in satisfaction of

their judgment debt to the private respondents. More glaring is the lack of

identity between the two actions. The first action before the RTC of Quezon
 City was for the collection of money, while the second before the RTC of

Antipolo, Rizal, was for partition. Therefore, there is no concurrence of the

elements of res judicata in this case.

CASE NO. 30

LEONIDA C. QUINTO vs. PEOPLE OF THE PHILIPPINES

[G.R. No. 126712. April 14, 1999]

FACTS:

March 23,1977, Leonida Quinto received from Aurelia Cariaga one (1) set

of marques with briliantitos worth P17,500.00, one (1) solo ring of 2.30 karats worth

P16,000.00 and one (1) rosetas ring worth P2,500.00 with a total value of

P36,000.00 for the purpose of selling the same on commission basis and with the

express obligation on the part of the accused to turn over the proceeds of sale

thereof, or to return the said jewelries, if not sold, five (5) days after receipt thereof.

When the 5-day period given to her had lapsed, Leonida requested for and

was granted additional time within which to vend the items. Leonida failed to

conclude any sale and, about six (6) months later, Aurelia asked that the pieces of

jewelry be returned. She sent to Leonida a demand letter which the latter ignored

which led the former to file the case of estafa against the latter.

In her defense, Leonida claimed that she was engaged in the purchase and

sale of jewelry. She transacted with a certain Mrs. Camacho and Mrs. Ramos who
paid in installments, with the consent of Aurelia. Leonida therefore claims that the

agreement between her and Aurelia was effectively novated when the latter

consented to receive payment on installments directly from Mrs. Camacho and

Mrs. Ramos.

ISSUE:

Whether or not novation may be applied.

RULING:

Novation is never presumed. It must appear, whether totally or partially, by

express agreement of the parties, or by their acts that are too clear and

unequivocal to be mistaken. The extinguishment of the old obligation by the new

one is a necessary element of novation. Cariaga's acceptance of Ramos and

Camacho's payment on installment basis cannot be construed as a case of either

expromision or delegacion sufficient to justify the attendance of extinctive novation.

Not too uncommon is when a stranger to a contract agrees to assume an

obligation; and while this may have the effect of adding to the number of persons

liable, it does not necessarily imply the extinguishment of the liability of the first

debtor. Neither would the fact alone that the creditor receives guaranty or accepts

payments from a third person who has agreed to assume the obligation, constitute

an extinctive novation absent an agreement that the first debtor shall be released

from responsibility.
CASE NO. 31

YSMAEL v. BARRETTO

G. R. No. L- 28028 November 25, 1927

FACTS:

In this action plaintiff, a domestic corporation, seeks to recover from the

defendants P9,940.95 the alleged value of four cases of merchandise which it

delivered to the steamship Andres, at Manila to be shipped to Surigao, but which

were never delivered to Salomon Sharuff, the consignee, or returned to the

plaintiff.

Bill of lading stipulation: “All claims for shortage or damage must be made

at the time of delivery to consignee or his agent, if the packages or containers show

exterior signs of damage; otherwise to be made in writing to the carrier within

twenty-four hours from the time of delivery. Claims for nondelivery or shipment

must be presented in writing to the carrier within thirty days from the date of

accrual. Suits based upon claims arising from shortage, damage, or nondelivery

of shipment shall be instituted within sixty days from date of accrual of the right of

action. Failure to make claims or to institute judicial proceedings as herein provided

shall constitute a waiver of the claim or right of action.”

The defendants alleged that under provision 12 of the bill of lading, the

carrier shall not be liable for loss or damage from any cause or for any reason to

an amount exceeding three hundred pesos (P300) Philippine currency for any

single package of silk or other valuable cargo. Thus, the defendants alleged that

they are not liable in excess of three hundred pesos (P300) for any package of silk.
 The lower court points out that the conditions (provision) in question "are

not printed on the triplicate copies which were delivered to the plaintiff," and that

by reason thereof they "are not binding upon the plaintiff" and thus rendered

judgment for the plaintiff for the full amount of its claim.

ISSUE:

Whether or not provision 12 in the bill of lading is reasonable.

RULING:

No. A common carrier cannot lawfully stipulate for exemption from liability,

unless such exemption is just and reasonable and the contract is freely and fairly

made.

In the case at bar, the ship in question was a common carrier and, as such,

must have been operated as a public utility. It is a matter of common knowledge

that large quantities of silk are imported in the Philippine Islands, and that after

being imported, they are sold by the merchants in Manila and other large seaports,

and then shipped to different points and places in the Islands. Hence, there is

nothing unusual about the shipment of silk. In truth and in fact, it is a matter of

usual and ordinary business. There was no fraud or concealment in the shipment

in question. Clause 12 above quoted places a limit of P300 "for any single package

of silk." The evidence shows that 164 "cases" were shipped, and that the value of

each case was very near P2,500. In this situation, the limit of defendants' liability

for each case of silk "for loss or damage from any cause or for any reason" would

put it in the power of the defendants to have taken the whole cargo of 164 cases
of silk at a valuation of P300 for each case, or less than one-eight of its actual

value. If that rule of law should be sustained, no silk would ever be shipped from

one island to another in the Philippines. Such a limitation of value is

unconscionable and void as against public policy.

CASE NO. 32

FERRAZZINI v. GSELL

G. R. No. L- 10712 August 10, 1916

FACTS:

Carlos Gsell is engaged in the manufacture of umbrellas, matches and hats.

Anselmo Ferrazzini was employed by Gsell as foreman in the umbrella factory. At

some point, he was discharged by Gsell so he filed this case to recover damages

for an alleged wrongful discharge. Gsell, for his part admitted he discharged

Ferrazzini without written advice of six months in advance, as provided in the

contract and he says the discharge was lawful on account of absence

,unfaithfulness, and disobedience of orders. He also sought a counterclaim for

further alleged breach by Ferrazzini after his discharge (that he cannot enter into

employment of any enterprise in the Philippines, during his employment and within

5 years after termination except when given written permission and if he does, he

will pay Gsell P10,000; Gsell was employed in cement industry).

Trial court favored Ferrazzini and declined to consider the counterclaim, so

Gsell appealed.
ISSUES:

1. Whether or not the discharge was lawful?

2. Whether or not the stipulation preventing Ferrazzini to “enter into the

employment of any enterprise in the Philippine Islands, whatever, save and except

after obtaining special written permission therefor” valid?

RULING:

1. The discharge was lawful:

a. Court looked into whether Gsell had just cause to discharge

Ferrazzini; Gsell has to prove justification for his act because it was in

contravention of the six-month clause in the contract; if it was without just

cause, it was in violation of the contract and Ferrazzini is entitled to recover;

b. Court based the justifications on the testimonies of the parties; For

Ferrazzini‘s absences during working hours for the purpose of drinking. For

his unfaithfulness (Ferrazzini) – he admitted saying to persons at supper in

the mess hall that Gsell measured the cloth for the umbrellas, that it is his

idea that Gsell has no confidence in his employees; but he testified that he

did not remember saying that Specht, the foreman, was not receiving

sufficient salary.

c. All the foregoing shows a conduct on the part of Ferrazzini

inconsistent with the due and faithful performance of his duties as an

employee of Gsell; former is at times a foreman and at times in charge of

important departments of the factory wherein four hundred employees work,

Gsell did only had the right to prohibit the drinking but also his duty for his

own interests and the safety of his other employees;

d. Although, in the record, Gsell terminated Ferrazzini on account of

the conversation at the mess, he, at the time of the discharge, was

authorized to take into consideration the latter‘s whole course of conduct in

determining whether the contract of employment should be terminated.

2. The stipulation is unlawful for being against public policy;

a. Public policy – the principle under which the freedom of contract

or private dealing is restricted by law for the good of the public; intended

that the principle of the law which holds that no subject or citizen can lawfully

do that which has a tendency to be injurious to the public or against the

public good;

b. Case distinguished from Gsell v Koch– there the provisions in the

contract against the engaging in the manufacturing of straw hats (by the

terminated employee, being the same business the employer is in) were

held to be reasonably necessary for the protection of the plaintiff and not

oppressive;

c. Contract in undue or unreasonable restraint of trade –

unenforceable because they are repugnant to the established public policy;

illegal in the sense that the law will not enforce them.
CASE NO. 33

DEL CASTILLO VS. RICHMOND

G. R. NO. L- 21127 FEBRUARY 9, 1924

FACTS:

The case was instituted to declare the contract of services entered into by Alfonso

del Castillo as null and void. Del Castillo alleges that the provisions and conditions

contained in the third paragraph of said contract constitute an illegal and unreasonable

restriction upon his liberty to contract, are contrary to public policy, and are unnecessary in

order to constitute a just and reasonable protection to the defendant; and asked that the

same be declared null and void and of no effect. The said contract constituted an illegal and

unreasonable restriction upon the right of the plaintiff to contract and was contrary to public

policy. It will be noted that the restrictions placed upon the plaintiff are strictly limited (a) to

a limited district or districts, and (b) during the time while the defendant or his heirs may own

or have open a drugstore, or have an interest in any other one within said limited district.

ISSUE:

Whether or not the said restriction is contrary to public policy

HELD:

The restriction is reasonable and not contrary to public policy. The law concerning

contracts which tend to restrain business or trade has gone through a long series of changes

from time to time with the changing conditions of trade and commerce. With trifling

exceptions, said changes have been a continuous development of a general rule. The early

cases show plainly a disposition to avoid and annul all contract which prohibited or restrained

any one from using lawful trade “at any time or at any place," as being against the benefit of
the state. Later, however, the rule became well established that if the restraint was limited to

"a certain time" and within "a certain place", such contracts were valid and not "against the

benefit of the state." Later cases, and we think the rule is now well established, have held that

contract in restraint of trade is valid providing there is a limitation upon either time or place.

A contract, however, which restrains a man entering into a business or trade without either a

limitation as to time or place, will be held in valid. As stated in the case of Ollendorf vs.

Abrahamson, The public welfare of course must always be considered, and if it be not

involved and the restraint upon one party is not greater than protection to the other requires,

contracts like the one we are discussing will be sustained.

The general tendency, we believe, of modern authority, is to make the test whether

the restraint is reasonably necessary for the protection of the contracting parties. If the

contract is reasonably necessary to protect the interest of the parties, it will be upheld.

In that case we held that a contract by which an employee agrees refrain a given

length of time, after the expiration of the term of his employment, from engaging in business,

competitive with that of his employer, is not void as being in restraint of trade if the restraint

imposed is not greater than that which is necessary to afford a reasonable protection.
CASE NO. 34

DAYWALT vs. RECOLETOS

G. R. No. L- 13505 February 4, 1919

FACTS:

In 1902, Teodorica Endencia executed a contract whereby she obligated herself to

convey to Geo W. Daywalt a 452-hectare parcel of land for P 4000. They agreed that a deed

should be executed as soon as Endencia’s title to the land was perfected in the Court of Land

Registration and a Torrens title issued in her name. When the Torrens title was issued,

Endencia found out that the property measured 1248 hectares instead of 452 hectares, as

she initially believed. Because of this, she became reluctant to transfer the whole tract to

Daywalt, claiming that she never intended to sell so large an amount and that she had been

misinformed as to its area. Daywalt filed an action for specific performance. The SC ordered

Endencia to convey the entire tract to Daywalt. Meanwhile, La Corporacion de los Padres

Agustinos Recoletos (Recoletos), was a religious corp., w/c owned an estate immediately

adjacent to the property sold by Endencia to Daywalt. It also happened that Fr. Sanz, the

representative of the Recoletos, exerted some influence and ascendancy over Endencia,

who was a woman of little force and easily subject to the influence of other people. Fr. Sanz

knew of the existence of the contracts with Daywalt and discouraged her from conveying the

entire tract. Daywalt filed an action for damages against the Recoletos on the ground that it

unlawfully induced Endencia to refrain from the performance of her contract for the sale of

the land in question and to withhold delivery of the Torrens title. Daywalt’s claim for damages

against the Recoletos was for the huge sum of P 500000 [in the year 1919], since he claims
that because of the interference of the Recoletos, he failed to consummate a contract with

another person for the sale of the property and its conversion into a sugar mill.

ISSUE:

Whether Recoletos is liable to Daywalt?

RULING:

No, it is not liable. The stranger who interferes in a contract between other parties

cannot become more extensively liable in damages for the non-performance of the contract

than the party in whose behalf he intermediates. Hence, in order to determine the liability of

the Recoletos, there is first a need to consider the liability of Endencia to Daywalt. The

damages claimed by Daywalt from Endencia cannot be recovered from her, first, because

these are special damages w/c were not w/in the contemplation of the parties when the

contract was made, and secondly, these damages are too remote to be the subject of

recovery. Since Endencia is not liable for damages to Daywalt, neither can the Recoletos be

held liable. As already suggested, by advising Endencia not to perform the contract, the

Recoletos could in no event render itself more extensively liable than the principal in the

contract.
CASE NO. 35

SY SUAN and PRICE INCORPORATED vs. PABLO L. REGALA

G.R. No. L-9506 June 30, 1956

FACTS:

On April 11, 1953, defendant Sy Suan, who was at the time president and

general manager of his co-defendant and owner of practically all the capital stock

of said corporation, executed in favor of plaintiff a special power of attorney

authorizing the latter to prosecute the former's applications for import licenses with

the Import Control Office per Exhibit "B." At the time of the execution of the said

power of attorney, defendants had pending in the Import Control Office the

following applications: Application No. 001705 for industrial starch in the sum of

$16,477.34 filed on April 6, 1953 in the name of defendant, Price Incorporated;

Application No. 001797 for industrial starch in the sum of $21,678.48 filed on April

6, 1953 in the name of defendant Price Incorporated; and Application No. 001800

for industrial starch in the sum of $15,778.11 filed on April 6, 1953 in the name of

defendant Price Incorporated (Exh. "A"). Pursuant to said special power of

attorney, plaintiff followed up and prosecuted the above-mentioned applications

with and through the different offices and divisions of the Import Control Office,

conferring with the corresponding Import Control officials. On or about May 19,

1953, the Import Control Office issued the following licenses as a result of the effort

made by the herein plaintiff: License No. 15030 on Application No. 001795;

License No. 15029 of Application No. 001797; and License No. 15028 on

Application No. 001800, the amount of which had been reduced to $11,838.50.
 Shortly before the execution of the special power of attorney above referred

to, plaintiff and defendant Sy Suan agreed verbally that plaintiff's services for

securing the said licenses would be paid or compensated with ten (10%) per cent

of the total value of the amounts approved on the said applications. On May 19,

1953, upon the release of the afore-mentioned licenses, defendants paid the

plaintiff the sum of P3,000.00 on account of the latter's services.

ISSUE:

Whether or not the parole contract of remuneration which petitioners assail

as contravening public policy and interest is valid or null and void ab initio.

RULING:

Upon careful consideration of the contentions of both parties, we find

undeniable that the contract in question sought to be enforced by the respondent

and assailed by the petitioners as null and void for being against public policy is

what is commonly known as 10% contracts which the press decries and the public

condemns as inimical to public interest. We can take judicial notice that this kind

of contract sprouted as a result of the controls imposed by the government on

imports and dollar allocations, despite the enunciated government policy that

applications for imports and foreign exchange should be considered and acted

upon strictly on the basis of merit of each application and without the intervention
of intermediaries, which policy is revealed, by Sections 15 and 18 of Republic Act

650 which read:

SEC. 15. The president may summarily bar firms or individuals from filing

applications for import and/or from doing business in the Philippines for any of the

following acts:

“The payment to any public official, directly or indirectly, of any fee, premium or

compensation other than those allowed by laws or regulations, in connection with

the issuance or granting of quota allocations or licenses.”

SEC. 18. The penalty or fine of not less than two thousand pesos (P2,000)

nor more than twenty thousand pesos (P20,000) or imprisonment of not less than

two years nor more than five years, or both such fine and imprisonment at the

discretion of the Court shall be imposed upon persons who may be found guilty of

the following acts:

“The receiving or accepting by any public official or employee directly or indirectly,

of fees, premiums or compensation of any kind other than those allowed by law or

by the rules and regulations, for the performance of any act or service connected

with the issuance of import license or quota allocation.”

The question whether a contract is against public policy depends upon its

purpose and tendency, and not upon the fact that no harm results from it. In other

words all agreements the purpose of which is to create a situation which tends to

operate to the detriment of the public interest are against public policy and void,

whether in the particular case the purpose of the agreement is or is not effectuated.
For a particular undertaking to be against public policy actual injury need not be

shown; it is enough if the potentialities for harm are present. (12 Am. Jur., pp. 662-

664)

On the other hand, Articles 1306 and 1409 of the new Civil Code provide:

ART. 1306. The contracting parties may establish such stipulations, clauses, terms

and conditions as they may deem convenient provided they are not contrary to

law, morals, good customs, public order, or public policy.

ART. 1409. The following contracts are inexistent and void from the

beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good

customs, public order or public policy.

CASE NO. 36

CUI v. ARELLANO UNIVERSITY, 2 SCRA 205

FACTS:

Plaintiff Emerito Cui took his preparatory course at defendant Arellano

University and subsequently enrolled in its College of Law from first year (SY 1948-

1949) until first semester of his 4th Year. Plaintiff enrolled for the last semester of

his law studies in the defendant university, but failing to pay his tuition fees, he

transferred to Abad Santos University where he was able to graduate. Plaintiff,

during all the time he was studying law in defendant university was awarded

scholarship grants amounting to a total amount of P1, 033.87. To secure

permission to take the bar examinations, he must be able to procure his transcript

of records from defendant Arellano University. Defendant university refused to

issue said transcripts until plaintiff had paid back the P1, 033.87 amount of

scholarship cash. As the plantiff could not take the bar examinations without those

transcripts, plaintiff paid to defendant university the said sum under protest.

Plaintiff seeks to recover this sum from the defendant university in this case.

On August 16, 1949, the Director of Private Schools issued Memorandum

No. 38, s. 1949 addressing all heads of private schools, colleges and

universities. Part of the memorandum states that “the amount in tuition and other

fees corresponding to these scholarships should not be subsequently charged to

the recipient students when they decide to quit school or to transfer to another

institution. Scholarships should not be offered merely to attract and keep students

in a school.”

On December 10, 1951, before defendant university awarded to plaintiff the

scholarship grants as above stated, the latter was made to sign an contract

covenant and agreement stating that he waives his right to transfer to another

school without having refunded to the defendant university the equivalent of his

scholarship cash.

ISSUE:

Whether or not the contract between the plaintiff and the defendant,

whereby the former waived his right to transfer to another school without refunding

to the latter the equivalent of his scholarship cash is valid.

RULING:

No, it is not valid. The stipulation in question, asking previous students to

pay back the scholarship grant if they transfer before graduation is contrary to

public policy. If Arellano University understood clearly the real essence of

scholarships and the motives which prompted the Bureau of Private Schools to

issue Memorandum No. 38, s. 1949, it should not have entered into a contract of

waiver with Cui on September 10, 1951, which is a direct violation of the Bureau’s

Memorandum and an open challenge to the authority of the Director of Private

Schools since the contract was repugnant to sound morality and civic honesty. In

Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 06, 1941, p. 47, the Court

stated that, “ In order to declare a contract void as against public policy, it must be

found that such contract contravenes some established interest of society, or is

inconsistent with sound policy and good morals or tends clearly to undermine the

security of individual rights.” The policy enunciated in Memorandum No. 38, s.

1949 is sound policy. Scholarships are awarded in recognition of merit not to keep

outstanding students in school to bolster its prestige, so as to create a business

scheme designed to increase the business potential of an educational institution.

Hence, it appears that the contract entered into between plaintiff and defendant is

not only inconsistent with sound policy but also good morals. According to

Manresa, good morals is good customs, they are those generally accepted

principles of morality which have received some kind of social and practical

confirmation. The practice of awarding scholarships to attract students and keep

them in school is not good customs nor has it received some kind of social and

practical confirmation.

Therefore, the contract entered into between plaintiff and defendant is

contrary to public policy, sound policy, and good morals, and hence it is deemed

to be null and void. The court sentenced the defendant to pay Cui the sum of

P1,033.87 with interest thereon at the legal rate from Sept.1, 1954, date of the

institution of this case as well as the costs.

CASE NO. 37

FLORENTINO v. ENCARNACION, 79 SCRA 192

FACTS:

On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios

Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino Florentino,

Antonio Florentino, Remedior, Encarnacion and Severina Encamacion, and the

Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and

Angel Encarnacion filed with the Court of First Instance of ilocos Sur an application

for the registration under Act 496 of a parcel of agricultural land located at Barrio

Lubong Dacquel Cabugao Ilocos Sur.

 The application alleged among other things that the applicants are the

common and pro-indiviso owners in fee simple of the said land with the

improvements existing thereon; that to the best of the knowledge and belief; there

is no mortgage, lien or encumbrance of any kind whatsoever affecting said land,

nor any other person having any estate or interest thereon, legal or equitable,

remainder, reservation at in expectancy; that said applicants had acquired the

aforesaid land thru and by inheritance from their predecessors in interest, their

aunt, Doña Encarnacion Florentino, and for which the said land was adjudicated

to them by virtue of the deed of extrajudicial partition dated August 24, 1947; that

applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquire their

respective shares of the land thru purchase from the original heirs, Jesus, Caridad,

Lourdes and Dolores, all surnamed Singson, on one hand and from Asuncion

Florentino on the other.

The Court, after due notice and publication, set the application for hearing.

Only the Director of Lands filed an opposition but was later withdrawn so an order

of general default was issued. Upon application of the applicants, the Clerk of

Court was commissioned and authorized to receive the evidence of the applicants

and ordered to submit the same for the Court’s proper resolution.

The crucial point in controversy in this registration case is centered in the

stipulation marked Exhibit O-1 embodied in the deed of extrajudicial partition

(Exhibit O) dated August 24, 1947 which states that with respect to the land

situated in Barrio Lubong, Dacquel, Cabugao, Ilocos Sur, the fruits thereof shall

serve to defray the religious expenses. In his testimony during the trial, petitioner-
appellant Miguel Florentino asked the court to include the said stipulation (Exhibit

O-1) as an encumbrance on the land sought to be registered, and cause the entry

of the same on the face of the title that will finally be issued. Petitioners-appellees

Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion,

opposing such entry on the title as an encumbrance, filed on October 3, 1966 a

manifestation seeking to withdraw their application on their respective shares of

the land sought to be registered, which was opposed by the petitioners-appellants.

The Court after hearing the motion for withdrawal and the opposition issued

an order and for the purpose of ascertaining and amplifying the issues therein

stated that: the products of the land made subject matter of this land registration

case had been used in answering for the payment of expenses for the religious

functions specified in the Deed of Extrajudicial Partition; that such Deed of

Extrajudicial Partition was not registered in the Office of the Register of Deeds from

time immemorial; that all the applicants knew of this arrangement; and the Deed

of Extrajudicial Partition of August 24,1947 was not signed by Angel Encarnacion

or Salvador Encarnacion, Jr.

The Court of First Instance of Ilocos Sur, after ruling "that the contention of

the proponents of encumbrance is without merit bemuse, taking the self-imposed

arrangement in favor of the Church as a pure and simple donation, the same is

void for the that the donee here has riot accepted the donation (Art. 745, Civil

Code) and for the further that, in the case of Salvador Encarnacion, Jr. and Angel

Encarnacion, they had made no oral or written grant at all (Art. 748) as in fact they

are even opposed to it.” The Court of First Instance held that the religious expenses
are to be made and entered on the undivided shares, interests and participations

of all the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador

Encarnacion, Jr. and Angel Encarnacion.

The petitioners-appellants filed their Reply to the Opposition reiterating their

previous arguments, and also attacking the jurisdiction of the registration court to

pass upon the validity or invalidity of the agreement Exhibit O-1, alleging that such

is litigable only in an ordinary action and not proper in a land registration

proceeding.

The Motion for Reconsideration and of New Trial was denied for lack of

merit, but the court modified in highlighting that the donee Church has not showed

its clear acceptance of the donation, and is the real party of this case, not the

petitioners-appellants.

ISSUE:

1. Whether or not the lower court erred in concluding that the stipulation

embodied in Exhibit O-1 on religious expenses is just an arrangement stipulation,

or grant revocable at the unilateral option of the co-owners.

2.Whether or not the lower court erred in finding and concluding that the

encumbrance or religious expenses embodied in Exhibit O, the extrajudicial

partition between the co-heirs, is binding only on the appoints Miguel Florentino,

Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio

Florentino, Victorino Florentino, Remedios Encarnacion and Severina

Encarnacion.
RULING:

1. The stipulation embodied in Exhibit O-1 on religious expenses is not

revocable at the unilateral option of the co-owners. The stipulation (Exhibit O-1) is

part of an extrajudicial partition duly agreed and signed by the parties, hence the

same must bind the contracting parties thereto and its validity or compliance

cannot be left to the will of one of them.

In Garcia v. Rita Legarda, Inc., the Court ruled that a contract must bind

both parties based on the following principles: (1) that obligation rising from

contracts has the force of law between the contracting parties; and (2) that there

must be mutuality between the parties based on their essential equality, to which

is repugnant to have one party bound by the contract leaving the other free

therefrom.

2. The stipulation in question is not binding only on the petitioners-

appellants Miguel Florentino, Rosario Encarnacion de Florentino Manuel Arce,

Jose Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion

and Severina Encarnacion. It is likewise binding on the petitioners-appellees

Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel Encarnacion.

Under Art 1311 of the New Civil Code, this stipulation takes effect between

the parties, their assign and heirs. The article provides:

“Art. 1311. — Contracts take effect only between the parties, their

assigns and heirs, except in cases where the rights and obligations

arising from the contract are not transmissible by their nature, or by

 stipulation or by provision of law. The heir is not liable beyond the value

of the property he received from the decedent.

If a contract should contain a stipulation in favor of a third person, he

may demand its fulfillment provided he communicated his acceptance

to the obligor before its revocation. A mere incidental benefit or interest

of a person is not sufficient. The contracting parties must have clearly

and deliberately conferred a favor upon a third person.”

The second paragraph of Article 1311 above-quoted states the law on

stipulations pour autrui. The stipulation in this case is a stipulation pour autrui. A

stipulation pour autrui is a stipulation in favor of a third person conferring a clear

and deliberate favor upon him, and which stipulation is merely a part of a contract

entered into by the parties, neither of whom acted as agent of the third person, and

such third person may demand its fulfillment provided that he communicates his

acceptance to the obligor before it is revoked.

To constitute a valid stipulation pour autrui, it must be the purpose and intent

of the stipulating parties to benefit the third and it is not sufficient that the third

person may be incidentally benefited by the stipulation. The fairest test to

determine whether the interest of third person in a contract is a stipulation pour

autrui is to rely upon the intention of the parties as disclosed by their contract.

In the case at bar, it is undisputed that with regard to the parcel of land

inherited by the petitioners-appellants and the petitioners-appellees the stipulation

is intended to benefit the Church since the fruits of the land thereof shall serve to

defray the religious expenses specified in Exhibit O-1. Salvador Encarnacion, Sr.
must bear with Exhibit O-1, being a signatory to the Deed of Extrajudicial Partition

embodying such beneficial stipualtion. Likewise, with regards to Salvador, Jr. and

Angel Encarnacion, they too are bound to the agreement. Being subsequent

purchasers, they are privies or successors in interest; it is axiomatic that contracts

are enforceable against the parties and their privies.

CASE NO. 38

PILAR C. DE LIM vs. SUN LIFE ASSURANCE COMPANY OF CANADA

G.R. No. L-15774 November 29, 1920

FACTS:

Luis Lim y Garcia applied for a policy insurance of his life to the Sun Life

Assurance Company of Canada where his wife was the beneficiary. The first

premium of P433 was paid by Lim, and upon such payment the company issued

a “provisional policy”. Lim died after the issuance of the provisional policy but

before approval of the application by the home office of the insurance company.

The beneficiary-wife brought the action to recover from the Sun Life Assurance
Company of Canada the sum of P5000. According to the “provisional policy”,

assurance may be granted for four months only from the date of the application,

provided that the Company shall confirm the agreement by issuing a policy on said

application. Should the Company not issue the policy, the agreement shall be null

and void ab initio, and the Company shall be held not to have been on the risk at

all, but in such case the amount herein acknowledged shall be returned. The

plaintiff lost in the trial court and appealed to this Court.

ISSUE:

Whether or not the contract of insurance was consummated.

RULING:

No, the contract was not consummated by the parties. A contract of

insurance, like other contracts, must be assented by both parties either in person

or by their agents. So long as an application for insurance has not either accepted

or rejected, it is merely an offer or proposal to make a contract. For it to be binding

from the date of the application, it must leave nothing to be done, nothing to be

completed, nothing to be passed upon, or determined, before it shall take effect.

There can be no contract of insurance unless the minds of the parties have met in

agreement. The transaction did not amount to an agreement for preliminary or

temporary insurance due to the applicant’s death before the approval of the

application by the home office of the insurance company.

 Pertinently, the rule on Joyce on Insurance provides: Where an agreement

is made between the applicant and the agent whether by signing an application

containing such condition, or otherwise, that no liability shall attach until the

principal approves the risk and a receipt is given buy the agent, such acceptance

is merely conditional, and it subordinated to the act of the company in approving

or rejecting; so in life insurance a "binding slip" or "binding receipt" does not insure

of itself.

The clause in the application and the receipt given by the solicitor, which

are to be read together, stipulate expressly that the insurance shall become

effective only when the "application shall be approved and the policy duly signed

by the secretary at the head office of the company and issued". Hence, it

constituted no agreement at all for preliminary or temporary insurance.

CASE NO. 39

LAUDICO v. ARIAS, 43 PHIL 270

FACTS:

On February 5, 1919, the defendant, Vicente Arias, who, with his co-

defendants, owned the building Nos. 205 to 221 on Carriedo Street, on his behalf

and that of his coowners, wrote a letter to the plaintiff, Mamerto Laudico, giving

him an option to lease the building to a third person, and transmitting to him for

that purpose a tentative contract in writing containing the conditions upon which

the proposed lease should be made. Later Mr. Laudico presented his co-plaintiff,

Mr. Fred. M. Harden, as the party desiring to lease the building. After certain
negotiations, the plaintiff Mr. Laudico, finally wrote a letter to defendant Mr. Arias

on March 6, 1919, advising him that all his propositions, were accepted. Such letter

was received by the defendant by special delivery at 2.53 p.m. of that day. On that

same day, at 11.25 in the morning, defendant Mr. Arias had, in turn, written a letter

to the plaintiff Mr. Laudico, withdrawing his offer to lease the building. When

defendant Arias sent his letter withdrawing his offer to lease said bulding to plaintiff

Laudico, the former had not yet received the letter of acceptance, and when it

reached him, he had already sent his letter of withdrawal. Since the defendant

refused to acknowledge and recognize the existence of a perfected contract, The

plaintiff brought an action to court and prays that the defendants be compelled to

execute the contract of lease of the building in question.

ISSUE:

Whether or not the contract of lease between the plaintiff and the defendant

was perfected.

RULING:

No, the contract of lease between the plaintiff and the defendant was not

perfected. Under Article 1262, paragraph 2, of the Civil Code, an acceptance by

letter does not have any effect until it comes to the knowledge of the offerer.

Therefore, before he learns of the acceptance, the latter is not yet bound by it and

can still withdraw the offer. Consequently, when defendant wrote the plaintiff,

withdrawing the offer, he had the right to do so, inasmuch as he had not yet
received notice of the acceptance. And when the notice of the acceptance was

received by the defendant, it no longer had any effect, as the offer was not then in

existence, the same having already been withdrawn. There was no meeting of the

minds, through offer and acceptance, which is the essence of the contract. While

there was an offer, there was no acceptance, and when the latter was made and

could have a binding effect, the offer was then lacking. Though both the offer and

the acceptance existed, they did not meet to give birth to a contract.

In the case at bar, it must be noted that at the time defendant Arias sent his

letter withdrawing his offer to lease said building to plaintiff Laudico, the former had

not yet received the letter of acceptance. According to the above-cted provision

under the Civil Code, it is to be understood that an offeror may still withdraw his

offer or proposal so long as he still has no knowledge of the acceptance by the

offeree. Hence, there was no contract of lease perfected by the parties.

CASE NO. 40

SANCHEZ v. RIGOS, 45 SCRA 368

FACTS:

On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos

executed an instrument entitled "Option to Purchase," whereby Rigos "agreed,

promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of

land situated in the barrios of Abar and Sibot, municipality of San Jose, province

of Nueva Ecija, and more particularly described in Transfer Certificate of Title No.

NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed," if

"Sanchez shall fail to exercise his right to buy the property" within the stipulated

period.

On March 12, 1963, Sanchez deposited the sum of P1,510.00 with the

Court of First Instance of Nueva Ecija and filed an action for specific performance

and damages against Rigos for the latter’s refusal to accept several tenders of

payment that Sanchez made to purchase the subject land. Defendant Rigos

contended that the contract between them was only “a unilateral promise to sell,

and the same being unsupported by any valuable consideration, by force of the

New Civil Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in

his compliant that, by virtue of the option under consideration, "defendant agreed

and committed to sell" and "the plaintiff agreed and committed to buy" the land

described in the option.

ISSUE:

Whether or not there is already a concurrence of offer and acceptance

between the plaintiff and the defendant.

RULING:

The instrument executed in 1961 is not a "contract to buy and sell," but

merely granted plaintiff an "option" to buy, as indicated by its own title "Option to

Purchase." The option did not impose upon plaintiff Sanchez the obligation to

purchase defendant Rigos' property. Rigos "agreed, promised and committed"

herself to sell the land to Sanchez for P1,510.00, but there is nothing in the contract
to indicate that her aforementioned agreement, promise and undertaking is

supported by a consideration "distinct from the price" stipulated for the sale of the

land.

Article 1479 of the Civil Code should be applied in the case at bar because

its second paragraph refers to "sales" in particular, and, more specifically, to "an

accepted unilateral promise to buy or to sell." Since there may be no valid contract

without a cause or consideration, the promisor is not bound by his promise and

may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted

promise partakes, however, of the nature of an offer to sell which, if accepted,

results in a perfected contract of sale. Stated in another way, if the option is without

a consideration, it is a mere offer to sell which is not binding until accepted. If,

however, acceptance is made before a withdrawal, it constitutes a binding contract

of sale.

CASE NO. 41
ROSARIO L. DE BRAGANZA, ET AL. vs.
FERNANDO F. DE VILLA ABRILLE

G.R. No. L-12471 April 13, 1959

FACTS:

On October 30, 1944, Rosario de Braganza wrote a promissory note, signed

by her sons Rodolfo (16 years old) and Guillermo (18 years old) to Fernando de

Villa Abrille that they would pay him P10, 000 “in legal currency of the P.I. two

years after the cessation of the present hostilities or as soon as International

Exchange has been established in the Philippines” plus two percent per annum

interest in consideration of a loan granted by Abrille worth P70,000.

When they failed to pay, Abrille sued them and stated that they have

received p40,000 only, instead of P70,000 as asserted by the plaintiff. However,

the sons contended that they were just minors at the time of the promise’s making.

ISSUE:

1. Whether or not the non-statement of age constitutes fraud on the part of

the minor.

RULING:

1. No. Non-appraisal of their age in the promissory note did not constitute

a fraudulent act of pretending to be of legal age when in fact they were

not. The fraud/misrepresentation must be actual and active. Mere

silence or failure of the minor to disclose his age is not sufficient to be

the basis of an actual deceit. However, since the minors benefited from

the loan, they are liable to return such amount.

CASE NO. 42

MERCEDES MARTINEZ Y FERNANDEZ, ET AL vs.

THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL

G.R. No. L-5496 February 19, 1910

FACTS:

The plaintiff sought for annulment of contract on the ground that her consent

was obtained under duress. Mercedes entered into a Contract of Reparation

whereby she ceded her claim over P45,000 worth of notes and over ½ share to
their Malate property in favor of Aldecoa and Bank for the dismissal and withdrawal

of the latter’s civil and criminal suits against her husband, who fled the country.

In April, 1907, a civil action was filed by the Hongkong and Shanghai

Banking Corporation against Alejandro Macleod, the managing partner of Aldeoca

and Co., his wife Mercedez Martinez and the firm Aldecoa and Viuda e Hijos de

Escaño claiming that P45,000 notes granted in favor of Aldeoca as security for

the latters’d debt had been wrongfully transferred by Alejandro to his wife

Mecredes, giving prejudicet to the Bank for having a creditor’s lien in the nature of

the pledge over certain properties of the debtor.

In May, 1907, a civil action was filed by Aldeoca against Alejandro for

recovery of certain shares of stock worth P161,000 claiming that Alejandro

mismanaged the firm’s affairs during his management.

In July 13, 1907, Alejandro escaped to Macao, there is no extradition

agreement between U.S and Porugese where the latter denied the former’s

request of extradition.

In July 17, 1907, a criminal action was filed by Aldeoca against Alejandro

for falsification of a commercial document with a warrant of arrest.

In August 9, 1907, a complaint was filed by Prosecuting Attorney against

Alejandro for Embezzlement causing an issuance of Warrants of Extradition.

In August 14, 1907, a Contract of Settlement was executed by Mercedes

which was represented by William Macleod, her Attorney-in-fact and entered into

with Aldeoca and Bank. The product of negotiations was commenced by the

former, mediated by Mr. Cohn as requested by both parties, where letter two
insisted upon the conveyance of all the property pf Alejandro and also of one half

share of the Malate property claimed by Mercedes but offered to dismiss the civil

suits and withdrew the criminal charges. The wife, with assistance from family and

counsels, stoutly objected to the conveyance required of her, claiming the property

to be her separate and exclusive property and not liable for the debts of her

husband.

Aldeoca and Co. and the Bank had taken possession of the property of the

plaintiff and her husband. The civil suits were then dismissed and the criminal

charges were withdrawn, and Mr. Macleod return from Macao to Manila.

In December 3, 1907, a suit for annulment of contract was filed by Mercedes

contending that the Contract she executed was signed under duress.

ISSUE:

1. Whether or not the Contract of Settlement is valid

RULING:

1. Yes. The contract is valid.

Requisites of Duress:

Influence must have been exercised over the party that she was

deprived of her free will and choice, and that she must have acted from fear

and not from judgement.

It is clear that the contract was not obtained thru force or intimidation

where she had the aid of her counsel (who were also her in-laws) who
represented her during all the negotiations and where she acted according

to reason when she chose the Win-Win situation of losing her property but

not her husband because in either judicial or extrajudicial way, Aldecoa and

Bank would have acquired the properties in question. Latter two merely

allowed the Sps. to choose the manner by which their action would be

pursued and the Sps. chose the amicable settlement to save the husband

from imprisonment.

There was no time during the course of the negotiations that there

were any direcr personal relations or communications between the parties

– all offers, propositions, or threats, if any, made by Aldeoca and Bank were

made through the personality, mins, and judgement of Mercedes’ own

attorneys or relatives, all of them being persons who had her welfare and

the welfare of her family deeply at heart and who were acting for her and

her husband and not for the former.

Hence, she entered the contract acting accordingly to the dictates of

good business judgement rather that from duress and undue influence that

is, to lose her property and save her husband or to lose her property and

her husband.

Contracts of Reparation are not duress

Mercedes loathed to relinquish certain rights which she claimed to

have in certain property and that she persisted for a considerable time in

her refusal to relinquish such claimed rights and now regrets having

performed at their demand instead of compelling a resort to judicial

 proceedings. Made by free choice, although these may be evidence of

duress or facts from which duress may be inferred, they are nor duress

themselves, otherwise if the contract were null and void, then every contact

of reparation woukd be null and void.

CASE NO. 43

CHARLES F. WOODHOUSE, VS.

FORTUNATO F. HALILI

G.R. NO. L-4811 JULY 31, 1953

FACTS:

On November 29, 1947, plaintiff Woodhouse entered on a written

agreement with the defendant Halili stating among others: (1) that they shall

organize a partnership fo the bottling and distribution of Mision soft drinks, plaintiff

to act as industrial partner or manager, and the defendant as a capitalist, furnishing

the capital necessary therefor; (2) that the defendant was to decide matters of

general policy regarding the business, while the plaintiff was to attend to the
operation and development of the bottling plant; (3) that the plaintiff was to secure

the Mission Soft Drinks franchise for and in behalf of the proposed partnership;

and (4) that the plaintiff was to receive 30 per cent of the net profits of the business.

Prior to entering into this agreement, plaintiff had informed the Mission Dry

Corporation of Los Angeles, California that he had interested a prominent financier

in the business, which was the herein defendant, who was willing to invest half a

million dollars in the bottling and distribution of the said beverages, and requested

in order that he may close the deal with him, that the right to bottle and distribute

be granted to him for a limited time under the condition that it will be finally

transferred to the corporation. Pursuant to this request, plaintiff was given "a thirty-

days’ option on exclusive bottling and distribution rights for the Philippines". The

contracts was finally signed by plaintiff on December 3, 1947.

When the bottling plant was already on operation, plaintiff demanded of

defendant that the partnership papers be executed. Defendant Halili gave excuses

and would not execute said agreement, thus the complaint by the plaintiff.

Issue/s:

1. Whether or not the plaintiff falsely represented that he had an exclusive

franchise to bottle Mission beverages

2. Whether or not false representation, if existed, annuls the agreement to

form partnership
RULING:

1. Yes. The plaintiff made a false representation. It can be seen through his

letters to Mission Dry Corporation asking for the latter to grant hi, temporary

franchise so that he could settle the agreement with the defendant.

According to the trial court, that plaintiff only undertook in the

agreement “to secure the Mission Dry franchise for and in behalf of the

proposed partnership.” The existence of this provision in the final agreement

does no militate against plaintiff having represented that he had the

exclusive franchise. It rather strengthens belief that he did actually make

the representation. The defendant believed, or was made to believe, that

plaintiff was the grantee of an exclusive franchise. Thus it is that it was also

agreed upon that the franchise was to be transferred to the name of the

partnership, and that, upon its dissolution or termination, the same shall be

reassigned to the plaintiff.

2. No. Article 1270 of the Spanish Civil Code Code distinguishes two kinds of

(civil) fraud, the causal fraud, which may be a ground for the annulment of

a contract, and the incidental deceit, which only renders the party who

employs it liable for damages.

The Supreme Court held that in order that fraud may vitiate consent,

it must be the causal (dolo causante), not merely the incidental (dolo

causante), inducement to the making of the contract.

 The record abounds with circumstances indicative that the fact that

the principal consideration, the main cause that induced defendant to enter

into the partnership agreement with plaintiff, was the ability of plaintiff to get

the exclusive franchise to bottle and distribute for the defendant or for the

partnership. The original draft prepared by defendant's counsel was to the

effect that plaintiff obligated himself to secure a franchise for the defendant.

But if plaintiff was guilty of a false representation, this was not the

causal consideration, or the principal inducement, that led plaintiff to enter

into the partnership agreement. On the other hand, this supposed

ownership of an exclusive franchise was actually the consideration or price

plaintiff gave in exchange for the share of 30 percent granted him in the net

profits of the partnership business. Defendant agreed to give plaintiff 30 per

cent share in the net profits because he was transferring his exclusive

franchise to the partnership.

Having arrived at the conclusion that the agreement may not be

declared null and void, may the agreement be carried out or executed? The

Supreme Court found no merit in the claim of plaintiff that the partnership

was already a fait accompli from the time of the operation of the plant, as it

is evident from the very language of the agreement that the parties intended

that the execution of the agreement to form a partnership was to be carried

out at a later date.

The defendant may not be compelled against his will to carry out the

agreement nor execute the partnership papers. Under the Spanish Civil
 Code, the defendant has an obligation to do, not to give. The law recognizes

the individual's freedom or liberty to do an act he has promised to do, or not

to do it, as he pleases.

With the modifications indicated, the judgement appealed was affirmed.

CASE NO. 44
CONCHITA LIGUEZ vs. THE HONORABLE COURT OF APPEALS,
MARIA NGO VDA. DE LOPEZ, ET AL

G.R. No. L-11240 December 18, 1957

Facts:

Conchita Liguez filed a complaint against the widow and heirs of Saldivar

Lopez to recover a parcel of 51.84 hectares of land in Davao. She averred to be

its legal owner, pursuant to a deed of donation executed in her favor by Salvador.

At the time the deed was executed, Conchita was 16. She had also been

living with Salvador’s parents for barely a month

 The deed of donation recites that the donor Salvador, “for and in the

consideration of his love and affection” for Conchita, and also “for the good and

valuable services rendered to [Salvador] by the [Conchita], does by these

presents, voluntarily give, grant and donate…”

The donation was made in view of Salvador’s desire to have sexual

relations with Conchita. Furthermore, Conchita’s parents would not allow her to

live with him unless he first donated the subject land. The donated land originally

belonged to the conjugal partnership of Salvador and his wife Maria Ngo.

Upon these facts, the Court of Appeal held that the deed of donation was

inoperative and null and void (1) because the husband, Lopez, had no right to

donate conjugal property to the plaintiff appellant; and (2) because the donation

was tainted with illegal cause or consideration, of which donor and donee were

participants. The Court of Appeals also rejected Conchita’s claim based on the

rule, “in pare delicto non oritur action,” as embodied in Art. 1306 of the 1889 Civil

Code (as reproduced in Art. 1412 in the new Civil Code).

Conchita’s contentions were based under Art. 1274 of the 1889 Civil Code

that is, “in contracts of pure beneficence the consideration is the liberality of the

donor,” and liberality per se can never be illegal, since it neither against law or

morals or public policy.

Issue/s:

1. Whether or not the conveyance was predicated on illegal causa

 2. Whether or not the in pare delicto rule applies

RULING:

1. Yes. Under the cited Art, 1274, liberality of the donor id deemed causa

only in contracts that are of “pure” beneficence, or contracts designed

solely and exclusively to procure the welfare of the beneficiary, without

any intent of producing any satisfaction for the donor.

In this case, Salvador was not moved exclusively by the desire to

benefit Conchita, but also to secure her cohabiting with him, and so that

he could gratify his sexual impulses. This is clear from Salvador’s

confession to two witnesses that he was in love with her. Lopez would

not have conveyed the property in question had he knows that Conchita

would refuse to cohabit with him. The Cohabitation was an implied

condition to the donation and being unlawful, necessarily tainted the

donation.

Therefore, the donation was but one part of an onerous transaction

with Conchita’s parents that must be views in its totality.

2. No. The Court of Appeals erred in applying the pari delicto rule. The

facts are more suggestive of seduction than of immoral bargaining.

 According to the Supreme Court, it cannot be said that both parties

had equal guilt. Salvador was a man advanced in years and mature

experience, and Conchita was only 16 when the donation was made.

The Court Of Appeals did not find that she was fully aware of the terms

of the bargain entered into by her parents. Her acceptance of the bargain

does not apply knowledge of conditions and terms not set forth therein.

And the witnesses testified that it was Conchita’s parents who insisted

on the donation

The alienation of the conjugal property is void only insofar as it prejudices

Maria Ngo.

CASE NO. 45

MAXIMINO CARANTES (Substituted by Engracia Mabanta Carantes), vs.

COURT OF APPEALS, BILAD CARANTES, LAURO CARANTES, EDUARDO
CARANTES and MICHAEL TUMPAO

G.R. No. L-33360 April 25, 1977

FACTS:

The siblings of Maximino executed a Deed of Assignment in his favour

covering their rights to Lot No. 44 for PI and the acknowledgement that their

father/owner had considered Maximino as the owner of the property.

 In 1993, there is a settlement of the estate of Mateo Crantes where his

Maximino (one of six children) was appointed as judicial administrator. The

partition involved Lot no. 44, which was subdivided into Lots A, B, C, D, and E

where A had previously been expropriated by the government for the construction

of the Loakan airport, while B and C where subsequently sold to the Government

as well by Maximino through a formal Deed of Sale by virtue of an Assignment of

Right to Inheritance where 4 of his siblings assigned their rights to inheritance in

Lot No. 44 to Maximino for a consideration of P1.00 and the declaration that they

acknowledge Mateo’s representation that Maximino is the exclusive, continuous,

peaceful and notorious possession of the property as its rightful and exclusive

owner (“By agreement of all the direct heirs and heirs by representation of the

deceased Mateo Carantes as expressed and conveyed verbally, by him during his

lifetime, rightly and exclusively belong to the particular heir, Maximino Carantes,

now and in the past in the exclusive, continuous, peaceful and notorious

possession of the same for more than ten years.”).

In March 16, 1940, the deed was registered and New T.C.T.’s were issued

for B and E in Maximino’s name.

In September 4, 1958, a suit was filed for decalaration of nullity of Deed of

Assignment and Prtition of lots D and E into 6, by Maximino’s siblings.

The siblings contented that they were made to believe by Maximino that he

deed was only an authorization of the latter to convey portions of Lot No. 44 to the

government in their behalf to minimize expenses and facilitate the transaction. The

trial court decided that the action of the heirs had already prescribed since an
 action on fraud prescribes on four years from discovery of such. The Court of

Appeals reversed and found that a constructive trust was created.

ISSUE/S:

1. Whether or not the constructive trust involves a fiduciary relationship

2. Whether or not the action had already prescribed

RULING:

1. No. The Supreme Court asserted that assuming there was fraud, and in return, a

constructive trust in favor of the other heirs, the said constructive trust does not

involve a promise nor a fiduciary relations.

Hence, the respondent court’s conclusion that the rule on constructive notice

does not apply because there was a fiduciary relationship between the parties

lacks the necessary premise.

2. Yes. The action had already prescribed because there was constructive notice to

the heirs when Maximino registered the deed of assignment with the register of

deeds on March 16, 1940. Such date is the reckoning point of counting prescription

based on fraud.

Regarding the respondent court’s contention that constructive trust is

imprescriptible, the Supreme Court said that it is untenable. It is already settled

that constructive trusts prescribes in 10 years. In this case, the ten year period

started on March 16, 1940. And since the respondents commenced the action only

on September 1958, the same is barred by prescription.

CASE NO. 46

VELEZ vs. RAMAS, 40 PHIL 787

February 16, 1920

FACTS:

Plaintiff, Teodoro Velez and his wife are the owners of a pawnshop and

employed Restituta Quirante. While employed, Restituta abstracted money

belonging to the plaintiff amounting to P2, 303.60, under conditions which

supposedly constituted the offense estafa. When this was discovered by the

plaintiffs they threatened to prosecute her, and in order to prevent this, defendants,

Roberto Quarante (father of Restituta) and Solomon Ramas (husband of

Restituta), executed a contract with the plaintiffs wherein they acknowledged

themselves to be jointly and severally bound for the payment to the plaintiff of P2,

303.60. However, defendants only paid the amount of P300.

Plaintiffs filed a complaint in the Court of First Instance of the Province of

Cebu, to recover the remaining amount of P2, 003.60 from defendants. Ramas

answered the complaint and admitted the facts alleged therein and stated his sole

ground of defense that the contracts was illegal on its face. Defendant further

interposed a counterclaim seeking to recover the P300 that he already paid.

Defendant Quarante did not appear and no defense was made for him.

When the case was submitted for decision the trial court sustained the

defense, absolved both defendants and gave judgment upon the counterclaim in
favor of Ramas against the plaintiffs for the sum of P300, with interest at the legal

rate from the date the answer was filed. From this judgment the plaintiffs appealed.

ISSUE:

1. Whether or not the contract is legal.

2. Whether or not the defendants can recover the P300 that they

already paid.

3. Whether or not the action of the trial court in absolving defendant

Roberto Quarante was correct.

RULING:

1. No. The contract is illegal.

The preliminary recitals clearly disclose that the purpose of the

contracting parties was to prevent a prosecution of the crime; and the

injured parties, on their part, agree to suspend the criminal proceeding in

which they had intended to promote. With regards to defendants, there was

absolutely no other motive for making the contract than to prevent the

prosecution of Restituta; and the only consideration in the legal sense for

their promise to pay was engagement of the plaintiffs whereby they bound

themselves to suspend criminal proceedings. A contract based upon

unlawful consideration or designed to promote an unlawful object has

always been void ab initio by the common law, civil law and moral law.

2. Yes. Defendants can recover the P300 that they already paid.
 It is because defendant Ramas paid P300 upon the contact in

question and it has not been made the subject of any assignment of

error in the court and must be passed without discussion.

3. Yes. The action of the trial court in absolving defendant Roberto Quarante

was correct.

Although he did not appear in court, the other defendant

(Ramas) appeared in court and answered the complaint whose

contentions were favoured by the court. The rule is that where a

complaint states a common cause of action against several

defendants and some appear to defend the case on the merits while

others make default, the defense interposed by those who appear to

litigate the case insures to the benefit of those who fail to appear;

and if the court finds that a good defense has been made, all of the

defendants must be absolved.

CASE NO. 47

MACTAL vs. MELEGRITO, 111 PHIL 363

March 24, 1961

FACTS:

On or about February 5, 1953, Mactal delivered P1, 777.00 to Melegrito, to

be used by him in purchase of palay for Mactal, with 10% commission in his favour

or returned to Mactal within 10 days, should he fail to buy palay. This obligation
was set forth in a receipt signed by Melegrito, who neither bought the palay nor

returned said amount.

Plaintiff accused defendant of estafa. When the case was about to be heard,

Florencio Paraiso, then Chief of Police of Guimba, acting upon defendant’s

request, prevailed upon plaintiff to move for dismissal of the case and be contented

with a promise on the part of defendant to pay not later than January 1954, the

said amount plus the sum of P7.00 but defendant still failed to pay.

Plaintiff filed a complaint in the Court of First Instance in Nueva Ecija to

recover the sum of P1, 777.00 plus P1, 000 as moral damage and P500 as

attorney’s fee. Defendant filed an answer admitting some allegations of the

complaint and denying other allegations thereof. The Court dismiss the case with

cost against the plaintiff upon the ground that the consideration of the promisory

note which the complaint is based was the criminal case for estafa against the

defendant and, hence, illicit, immoral and contrary to public policy as well as void

ab initio.

ISSUE:

1. Whether or not the lower court erred in dismissing the case.

RULING:

1. Yes. The lower court erred in dismissing the case.

The lower court specifically found that defendant had received from

plaintiff the amount of P1,777.00 to be used as a purchase of palay for the

latter, with the obligation to return said amount within 10 days if not spend
 for said purpose. In fact, defendant admitted in the witness stand that he

indebted the plaintiff with the said amount. So when the Chief of Police

succeeded in pursuing plaintiff to withdraw the criminal case for estafa,

defendant was only too willing to sign Exhibit A, in which he promised to

pay in January 1954. The consideration of this promise was, therefore, the

aforesaid pre-existing debt of defendant, and not the dismissal of the estafa

case, which merely furnished the occasion for execution of Exhibit A.

CASE NO. 48
DAUDEN-HERNAEZ vs. DE LOS ANGELES, 27 SCRA 1276
April 30, 1969

FACTS:

Petitioner Marlene Dauden-Hernaez, a motion picture actress, filed a

complaint against respondents, Hollywood Far East Productions, Inc., and its

President and General Manager, Ramon Valenzuela, to recover P14, 700.00

representing the balance allegedly due said petitioner for her services as leading

actress in two motion pictures produced by the company, and to recover damages.

Upon motion of the defendants, respondent court ordered the complaint dismissed

because “the claim of the plaintiff was not evidenced by a written document” and

the complaint was “defective on its face” for violating Article 1356 and 1358 of the

Civil Code.

Plaintiff sought reconsideration of the dismissal and for admission of an

amended complaint, attached in the motion. The court again denied

reconsideration and the leave to amend; whereupon the second motion for

reconsideration was filed. The court also denied it for being pro forma as its

allegations are “more or less, the same as the first motion” and for not being

accompanied by affidavit of merits and further declared its dismissal final and

unappealable.

ISSUES:

1. Whether or not the first order of dismissal is an error.

2. Whether or not the second motion was pro forma.

3. Whether or not the court abuse its discretion in ruling that a contract for

personal services involving more than P500 was either invalid of

unenforceable under the last paragraph of Article 1358 of the Civil Code of

the Philippines.

RULING:

1. Yes. The first order of dismissal is an error.

It is a well-established rule in in our jurisprudence that when a court

sustains a demurer or motion to dismiss it is an error for the court to dismiss

the complaint without giving the party plaintiff the opportunity to amend his

complaint if he so chooses. Insofar as the first order of dismissal did not

provide that the same was without prejudice to amendment of the complaint

or reserve to the plaintiff the right to amend his complaint, said order was

erroneous; and this error was compounded when the motion to accept the
 amended complaint was denied in the subsequent order. Hence, petitioner-

plaintiff was within her rights in filing her so-called motion for

reconsideration, which was actually a first motion for reconsideration

against the refusal to admit the amended complaint.

2. No. The second motion was not pro forma.

The second motion for reconsideration was addressed to the court’s

refusal to allow amendment to the original complaint and this ground was

not invoked in the first motion for reconsideration. It was based on different

ground even if in its first part it set forth in greater detail the argument

against the correctness of the first order to dismiss.

3. Yes. The court abuse its discretion in ruling that a contract for personal

services involving more than P500 was either invalid of unenforceable

under the last paragraph of Article 1358 of the Civil Code of the Philippines.

The three essential requisites of a contract are (a) consent (b) proper

subject matter, and (c) consideration or causa for the obligation assumed.

Once these elements exist the contract is generally valid and obligatory,

regardless of the form, oral or written, in which they are couched.

To these general rule there are also some exceptions:

 a. Contracts for which the law itself requires that they be in some

particular form (writing) in order to make them valid and

enforceable.

b. Contracts that the law requires to be proved by some writing

(memorandum) of its terms as in those covered by Article

1403.

The contract sued upon by the petitioner does not come under either

exception. Yes it is true that the last paragraph of Article 1358 states that

“all other contracts where the amount involved exceeds 500 pesos must

appear in writing, even a private one.” Yet, Article 1358 nowhere provides

that the absence of a written form in this case will make the agreement

invalid. On the contrary, Article 1357 clearly indicates that contracts covered

by Article 1358 are binding and enforceable by action or suit despite the

absence of writing.

Both the court the private respondents were grossly mistaken

because petitioner’s contract for services was not in writing, the same could

not be sued upon, or that her complaint should be dismissed for failure to

state a cause of action because it did not plead any written agreement.

CASE NO. 49
GOVERNMENT OF THE PHILIPPINE ISLANDS vs. DERHAM BROTHERS,
63 PHIL 690
October 09, 1917
FACTS:

In 1910, Derham Brothers, of Manila, entered into negotiation with the

Director of Lands for the purpose of securing from the Government of the

Philippine Islands a lease covering the Luneta Fill. A notice was accordingly

published by the Executive Secretary, setting forth some of the conditions in which

the land would be leased.

On May 17, 1910, Derham Brothers addressed to the Director of Lands a

communication stating the terms under which said firm would take the property.

The latter replied on July 26, 1920 that he will enclose the form of lease provided

that the former shall fulfil the conditions set forth in the said offer of May 17 th.

Derham Brothers took possession of the premises and later executed an

assignment to the International Banking Corporation whereby they transferred to

the latter their right to receive from the Government of the Philippine Islands the

lease to the premises in question. The assignment was accepted by the bank and

approved by the Director of Lands but these contain nothing which has the legal

effect of varying the obligation of the parties as it has existed up to that time, and

it is clear that the bank with respect to obligation accept the lease, is merely in the

same position that Derham Brothers would have been if the assignment has not

been made.

The present action was instituted in behalf of the Government with the

reason of recovering a judgment against the Derham Brothers for the use and
occupation of the premises and to compel the defendant bank to execute the lease

of the premises in question. The Court of First Instant favors the plaintiff. Defendant

appealed.

ISSUE:

1. Whether or not the condition upon which the liability of the lessee for

rent depended had been complied with upon the date mentioned.

RULING:

1. Yes. The condition upon which the liability of the lessee for rent

depended had been complied with upon the date mentioned.

In paragraph 4 of the original offer of the Derham Brothers, it

appears that there are two principal matters are specified (a) that the

streets shall be granted the official line and (b) that the roaway shall be

metalled.

The Government complied with its obligation to metal the

roadway of said streets, and that consequently these streets are in state

of completion and contemplated in the communication of the Director of

Lands on July 26, 1910. No question can be made as to the quality of

the finish on that portion of these streets which has been surfaced with

stone; and the defendants offered no proof that the roadway so finished

was in any respect inadequate for the traffic required of it.

The spirit of specifications as to the streets around this property

is contained in the statement of Derham Brothers that it is absolutely

 necessary to have a direct outlet for their proposed building. They now

have now have the possible outlets and it would not be proper to impose

upon the Government the obligation to open another street leading

firectly from their building to another part of the city for this is not part of

the contract.

Furthermore, it appears from the plans exhibited in this case that

the defendants have outlets through two thoroughfares (Twelfth and

Sixteenth Steets). It is thus manifest that the proposal of the Director of

Lands to supply them with one outlet to a street already constructed or

to be constructed has been more than fulfilling.

CASE NO. 50
ENRIQUEZ vs. WATSON, 22PHIL 623
March 30, 1912

FACTS:

Plaintiffs are the owner of property no.’s 72, 74, and 76 Escolta, City of

Manila. Plaintiffs allege that on June 22, 1906, Rafael, Carmen, Antonio (minor)

and Trinidad Enriquez executed to the defendant a contract of mortgage and lease

upon their participation in that property; that on January 19, 1907 the other plaintiffs
executed the same mortgage and lease in favor of the defendant; that said contract

of lease has been terminated by the payment by the plaintiffs to the defendant the

principal and interest of mortgage.

Plaintiffs also allege that on April 11, 1911, defendant destroy and remove

the principal wall on the building which is necessary to safely maintain the building

against earthquakes and typhoons; and unless restrained, would continue to

destruction and removal; and that defendants has varied the form and substance

of the leased premises. Plaintiffs filed a complaint to the court and prayed that the

defendant be prohibited from continuing the removal and destruction of the wall in

question; that it be ordered to rebuild or replaced the part which it had destroyed;

and that the contract be declared terminated and rescinded.

The Court of First Instance issued a preliminary injunction prohibiting and

restraining the defendant from continuing the removal and destruction of the wall

in question, and requiring it to appear in Court in THE 17 th of that month to show

why such preliminary injunction should not be continued in force during the

pendency of the action. Defendant’s company answered, admitting the allegations

as to ownership, mortgage and lease in paragraph 1, 2, and 3 of the complaint and

denying all other allegations therein.

Defendant set up by way of special defense that the wall in question was

not a principal wall and did not extend to the entire length of the building and that

under Clause M of the contract of lease, defendant has the right to remove that

wall, as this is being required by the business established in the said building. As

a second defense, defendant admits the payment of the mortgage by the plaintiffs
but alleges that the contract of lease is independent of the mortgage contract, and

that in satisfying the mortgage of the defendant, the leasehold was specifically

continued in force by all parties. As a third defense, defendant alleges that under

the provisions of Paragraph M of the contract lease, it has expended the sum over

sixty thousand pesos in improving the leased premises, and that on making such

expenditure it is believed that it would be reimbursed by enjoying the occupancy

and subrenting of the premises.

The trial court, after considering the evidences presented, denies the

rescission and declaration of nullity of the contract of lease demanded by the

plaintiff, declaring such contract of lease to be valid and subsisting and binding

upon the parties. From this judgment, the plaintiffs appealed that the court erred in

its decision.

ISSUES:

1. Whether or not the trial court erred in failing to declare the contract of

lease voidable or rescinded because of the minority of one of the lessor.

2. Whether or not the defendant had no authority under the contract of

lease to remove the wall in question.

RULING:

1. No. The trial court erred in failing to declare the contract of lease

voidable or rescinded because the minor during the execution of

contract of lease was represented by his judicial guardian who not only
 asked the court for and obtained authority to execute his contract of

lease on behalf of his ward, but his act after the execution was approved

by the court. The minor having been represented by his duly appointed

guardian, there can be no question about the validity of the contract of

lease.

2. No. The defendant has authority under the contract of lease to remove

the wall in question because there is nothing in the contract of lease in

the case at bar which even tends to prohibit the lessee from subletting

the whole or any part of the leased premises. The lessee’s right to do

this cannot be question, and his subtenant is not only obligated to carry

out his part of the contract but he is also bound to the lessor for all of the

acts which refer to the use and preservation of the premises, in the

manner agreed upon between the lessor and the lessee. In the contract

of lease in question, the lessor, by Clause M, agree that the lessee may

make such changes as its business requires, provided that neither the

solidity nor the value of the building is prejudiced. This is the specific

right granted to the lessee. The right is part of the lease itself and affects

directly the thing leased.

CASE NO. 51

OLINO VS. MEDINA, 13 PHIL. 379

FACTS:

Tomas Olino filed a complaint with the Court of First Instance of Capiz

against Mariano Medina, for the mortgaged of a parcel of rice land owned by him
and his sister Albina Olino. The condition was stipulated that, after the harvesting

of two crops of palay for 1 year, the possession of the land should be restored to

the plaintiff. After a year, the defendant has unjustly refused to return the said land

to the plantiff and because of unjust refusal of the defendant, it caused the plaintiff

damages of P500.

The defendant denied all allegations. The evidence of both sides was given

at the discretion of the court, and rendered judgment in favor of the defendant. The

plaintiff appealed, that the piece of land was only used to secure his debt of P175,

which is payable for 1 year after harvesting palays twice. The defendant denied

the allegations and testified that he acquired the land, with the knowledge and

consent of the plaintiffs thereof, with absolute purchase for the sum of P175.

Plantiff declares that he had borrowed from Medina the sum of P175 to

redeem his land from Isidora Rendon, who had bought it years previously, and that

he afterwards delivered the land to his creditor as security for his debt. On the

other hand, Medina contends that he had acquired the land in question by absolute

purchase from Isidora Rendon, who had bought it from its original owner, the

plaintiff.

In as much as were in doubt as to which of the two contracts it was by

reason of which Medina furnished the P175 with which Olino redeemed his land

from Isidora Rendon, and Olino in turn consented to the transfer of the land to

Medina, the party who furnished the money, we elect to consider that said contract

was that of loan, because such a contract involves a smaller transmission of rights

and interests, and the debtor does not surrender all rights to his property but simply
confers upon the creditor the right to collect what is owing from the value of the

thing given as security, there existing between the parties a greater reciprocity of

rights and obligations.

ISSUE:

Whether or not the claim of the plaintiff was valid.

RULING:

Yes. The supposition that the contract between the parties was not one of

sale but one of loan, it follows from the facts of record that the sum of P175 was

given by Medina to Olino in the nature of a loan secured by the possession of the

land in question by the creditor, and therefore, the latter is entitled to collect his

credit and at the same time is under the obligation to return the land to its owners

upon receipt of the above-mentioned sum.

CASE NO. 52

AQUINO VS. TANEDO, 31 PHIL. 517

FACTS:

Aquino purchased from Tanedo several parcels of land for the price of

P45,000. By virtue of this contract the plaintiff took possession of the lands

purchased and collected the products. Later the plaintiff and the defendant, by

virtue of another contract, agreed to consider the previous contract as rescinded

and of no value. As a result, the plaintiff returned to the defendant the purchased
lands. The defendant, on his part, instead of returning the price received by him,

subscribed in favor of the plaintiff another document in which he acknowledges

that he owes the plaintiff the sum of P12,000. The defendant only paid the plaintiff

the P2,000 in accordance with the contract. Subsequently, the plaintiff filed case

against the defendant wherein he demanded to the defendant the payment of the

P10,000.

There is no dispute over the fact that the defendant owes the plaintiff the

P10,000 claimed by the latter. The question raised by this appeal is one that relates

to the defendant's counterclaim. The sum demanded in this counterclaim is the

value of the product of the lands, collected by the plaintiff during the time he was

in possession of them until the plaintiff returned the lands to the defendant. The

defendant contents that the plaintiff is obliged, invoking the provision of Article

1385 of Civil Code.

ISSUE:

Whether or not the plaintiff is obliged to return to the defendant the products

of the land which he has collected during his possession.

RULING:

No. The rescission mentioned in the contract is not the rescission referred

to in Article Art. 1385. Although the plaintiff and the defendant employed the word

rescind, it has not, in the contract executed by them, either the scope or the
meaning of the word rescission. Rescission, in the light of these provisions, is a

relief which the law grants, on the premise that the contract is valid, for the

protection of one of the contracting parties and third persons from all injury and

damage that the contract may cause, or to protect some incompatible and

preferential right created by the contract. Article 138) refers to contracts that are

rescissible in accordance with law in the cases expressly fixed thereby, but it does

not refer to contracts that are rescinded by mutual consent and for the mutual

convenience of the contracting parties. The rescission in question was not

originated by any of the causes specified in Articles 1381 and 1382, nor is it any

relief for the purposes sought by these articles. It is simply another contract for the

dissolution of a previous one, and its effects, in relation to the contract so dissolved,

should be determined by the agreement made by the parties, or by the application

of other legal provisions, but not by Article 1385, which is not applicable.

CASE NO. 53

SIKATUNA VS GUEVARRA, 45 PHIL 371

FACTS:

The land in question is owned by the partnership Jacinto, Palma y

Hermanos (Jacinto). Jacinto is the lessor of the land and the defendant Guevarra

is the lessee of a certain portion (100 sqm). The contract of lease has a provision

that within a specified period, Jacinto is given option to purchase the house of

Potenciana Guevarra land constructed on it. In turn, the defendant shall have

the right to acquire the landl eased if Jacinto will not exercise such option upon its
expiration. This contract, however, was never noted on the OCT.The period lapsed

and Jacinto did not exercise his option to acquire the house. The defendant then

opted to acquire the land, however Jacinto objected.

Hence, the defendant filed an action for its acquisition. However, while the

case was pending, Jacinto had sold the land to Sikatuna Corp. Then Sikatuna had

recorded the transfer in the registry, under the provisions of the Act No. 496, as a

result of which a TCT was issued. Subsequently, Sikatuna Corp. notified the

defendants vacate the property and the corresponding rental on failure to pay

rentals. Hence, Guevarra filed a case for the rescission of the contract.The trial

court, ruled in favor of the appellant-defendants Guevarra and Francisco, Hence,

the instant case.

ISSUE:

Whether or not there is a valid transfer of ownership of the land to Sikatuna

Corp.

RULING:

Yes. The Supreme Court ruled that there is a valid transfer of ownership to

Sikatuna Corp. The rescission of the contract granted by the lower court is not

proper. The second paragraph of article 1295 of the Civil Code provides as follows:

“Neither shall rescission take place when the things which are the subject-matter

of the contract are lawfully in the possession of third persons who have not acted
in bad faith.” As the appellant rightfully contends the recission of the sale does not

lie in the case because the property is now the legal possession of a third person

who has not acted in bad faith. There is no doubt but that in this case the plaintiff

corporation has the character of a third person, and it has not been shown that it

had acted in bad faith.

CASE NO 54.

HONRADO VS. MARCAYDA, ET AL. 49 OFF. GAZ. 1492, C.A.

FACTS:

This is an action commenced by plaintiff against the defendants for the

rescission of a contract of sale on the ground that such contract was entered into

in fraud of creditors. The records show that Felipe Lotivio purchased a parcel of

land from Luisa Marcayda for P1,000, although at the time the contract was

executed there was already a judgment in favor of the plaintiff against the latter

with regard to the property and a writ of attachment had already been issued. The
plaintiff contends that the sale is fraudulent in accordance with the rule stated in

Art. 1387 of the Civil Code; the defendant Felipe Lotivio, on the other hand,

contends that he is a purchaser in good faith and for value.

ISSUES:

(1) Whether or not Felipe Lotivio was a purchaser in good faith and for value.

(2) Whether or not the contract of sale executed could be rescinded.

RULING:

Yes. A purchaser in good faith is one who buys property of another without

notice that some other person has a right to, or an interest in, such property and

pays a full and fair price for the same, at the time of such purchase, or before he

has notice of the claim or interest of some other person in the property. Good faith

consists in an honest intention to abstain from taking any unconscientious

advantage of another. Good faith is the opposite of fraud and of bad faith and its

nonexistence must be established by competent proofs. Tested by these doctrines,

the court held and declared that defendant Felipe Lotivio was, under the foregoing

circumstances, a purchaser in good faith and for value.

No, since Felipe Lotivio was a purchaser in good faith and for value, the court also

held that the presumption of fraud as contemplated in Article 1387 of the new Civil

Code can be considered overcome and overthrown . Therefore, the contract of

sale, for the reasons above stated, is not rescissible.

CASE NO. 55

Felipe vs. Heirs of Aldon, 120 SCRA 628

FACTS:

During the marriage of Maximo Aldon and Gemina Almorasa, they bought

several pieces of land. The lands were divided into three lots. Subsequently,

Gemina sold the lots to the spouses Eduardo Felipe and Hermogena Felipe

without the consent of her husband. Maximo died. Afterwhich, his heirs, namely

Gemina and their children Sofia and Salvador filed a complaint against the Felipes

alleging that they are the owners of the lots. The Felipes asserted that they had
acquired the lots from the plaintiffs by purchase and subsequent delivery to them.

The trial court sustained the claim of the defendants. The CA reversed the decision

of the trial court ordering the defendant to surrender the lots in question.

ISSUE:

WON the sale of the lots by Gemina without the consent of the husband is

defective.

RULING:

The sale made by Gemina is certainly a defective contract, that is, a

voidable contract. According to Article 1390 of the NCC, among the voidable

contracts are “Those where one of the parties is incapable of giving consent to the

contract.” In the instant case Gemina had no capacity to give consent to the

contract of sale. The capacity to give consent belonged not even to the husband

alone but to both spouses.

CASE NO. 56

ARMINIO RIVERA, in his capacity as Administrator of the Intestate Estate of

the deceased RAFAEL LITAM vs. LITAM and COMPANY, INC., GREGORIO

DY TAM, WILLIAM TAM, LUIS LITAM, LI HONG HAP and HENRY LITAM

FACTS:

Rafael Litam died intestate in Manila on January 1, 1951 and plaintiff was

appointed administrator of his estate. The wife of Rafael Litam, Marcosa Rivera,
filed a claim against his estate for the sum of P252,658.33 which the Court of First

Instance approved. Believing that the properties of the deceased were in the

possession of Li Tim & Co., Inc., the administrator filed a motion in the probate

court demanding that the President and Manager, Mr Lee Chu, be required to

render an account of the income of the 54/204 shares of the deceased in said

company, but said President and Manager and Gregorio Dy Tam opposed the

motion, claiming that the entire assets or properties of the deceased were

transferred on January 25, 1950 to William Litam, Luis Litam, Henry Litam and Li

Hong Hap, and to show such transfer said defendants furnished photostat copies

of the said shares of stock and the transfer thereof.

Petitioner herein alleges that said transfers are fictitious, unsupported by

any adequate or valuable consideration, and fraudulent, and defendants unlawfully

and fraudulently conspired to bring about the said transfers; said transfers had

been made to enrich themselves to the prejudice of others and were made in fraud

of creditors. Considering that the value of such shares is at least P300,000, and

the probate court, upon motion of administrator, has authorized him to file the suit

against the defendants.

The defendants denied the material allegations of the complaint and alleged

inter alia that the allegations of the complaint are conclusions of law; that the

transfers of the shares of stock to defendants are null and void. The case was set

for hearing on April 2, 1956 but the trial had to be postponed because two cases

involving the same parties, G.R. No. L-7644 and L-7645, were still pending before

the Supreme Court.

 On March 31, 1957 attorney for the plaintiff informed the court that the said

cases had already been decided so he prayed that the case be set for hearing

anew in June 1957; this was done but the case was again postponed to August 5,

1957. Various other postponements took place until September 24, 1957 when the

attorneys for the defendants informed the court that they were withdrawing from

the case but that they had not as yet secured the conformity of their clients to their

withdrawal. Even so, judgement has been rendered stating that;

1) The transfer on June 25, 1950 of the certificates of stock of Rafael Litam

to wit: Nos. V-2, V-3, V-9, V-10, V-11, V-12, V-13, V-14, all of Li Tam & Co., Inc.,

in favor of the respective transferees is hereby declared null and void and of no

legal effect and the estate of Rafael Litam remains the owner or the above

mentioned certificates of stock;

2) Because of the dissolution of Li Tam & Co., Inc. in 1952, the successor

defendant corporation is hereby directed either to cause the issuance in favor of

the estate of Rafael Litam of the equivalent number of its shares of capital stock

or should that be not possible for one reason or another, to pay to said estate,

jointly and severally with the other defendants, the value of said 54/204 shares of

stock which is hereby fixed at P300,000. It is in this light that the appellants bring

said action to court;

3) All the defendants are ordered to pay jointly and severally the herein

plaintiff the sum of P6,000.00 as attorney' fees and expenses of litigation

ISSUE:
 Whether or not the court’s decision in declaring the transfers void, and

assigning the respective liabilities to the defendants must be upheld.

RULING:

Yes. The court below found that the transfer of the shares of stock to

defendants was simulated, fictitious and without consideration; that it was in fraud

of creditors and the conduct of the defendants at the time the transfer of the

properties of the deceased was being made, renders the alleged sale doubtful.

The peculiar circumstances, such as the fact that defendants claimed to be

children of the deceased, and claimed various real properties as belonging to

Rafael Litam when as a matter of fact they were the exclusive paraphernal

properties of his wife — both of which facts were found in the decisions of the

Supreme Court — reveal why the transfer of the shares was disclosed only in the

year 1954, when as a matter of fact the transfers took place purportedly at the

same time on July 25, 1950. Further examination of the certificates of stock shows

that the deceased Rafael Litam's signatures to the indorsement were authentic,

but the dates of indorsement and the names are not; so it is believed, Rafael must

have signed the indorsement not on January 25, 1950 but before, and the shares

actually transferred in the books already after 1952.

The fraudulent character of the transfer of all his shares of stock by Rafael

Litam is clearly inferable from the following circumstances: namely, the transferees

are his own children; no consideration or price was given or received for the

transfer; the shares of stock were the only properties of Rafael Litam; there was

no apparent need for him to dispose of all of them as the corporation was the only
source of business that he had; and he had an outstanding indebtedness of more

than P250,000 with his wife with whom he had no issue.

With regards the claim made by the defendant corporation that its obligation

to transfer the shares of stock to the estate could not be inferred from the Articles

of Incorporation because the two corporations are distinct and separate, and under

the authorities cited by it, even if the new succeeded the old corporation. This claim

would have been correct had not the defendant corporation expressly acquired the

assets and properties of the old Li Tam and Company, Inc., and assumed its

obligations and liabilities in the articles of incorporation. The trial court, therefore,

correctly held defendant corporation liable to the estate for the equivalent number

of shares of stock, otherwise, said corporation would be enriching itself at the

expense of the estate.

In view of the fraud and all the foregoing, the transfer of the shares must be

declared null and void and of no effect (Article 1409, Civil Code), and the

transferees, as well as the corporation which consented to the transfer, must all be

held liable for the return of the properties, that the shares represented, or their

values (Article 1352, Civil Code).

Another objection to the judgment raised by the appellants is that they

should not be required to pay the amount of P300,000 as well as the attorney's

fees. The judgment for P300,000 is an alternative relief afforded the plaintiff in case

the shares of stock can not be recovered. Attorney's fees should be awarded

because the plaintiff has been forced to various litigations in order to enforce the

payment of plaintiffs claim as according Art. 1388, Whoever acquires in bad faith
the things alienated in fraud of creditors, shall indemnify the latter for damages

suffered by them on account of the alienation, whenever, due to any cause, it

should be impossible for him to return them." (Civil Code of the Philippines); and

Art. 1170 that those who in the performance of their obligations are guilty of fraud,

negligence or delay, and those who in any manner contravene the tenor thereof,

are liable for damages. In general, every debtor who fails in the performance of his

obligations is bound to indemnify for the losses and damages caused thereby.
CASE NO. 57
PAUL REISS, ET AL., vs JOSE M. MEMIJE

FACTS:

Reiss entered into a contract with Kabalsa for the repair of a house. Kabalsa

was unable to secure credit for the lumber purchases, hence the repair was

delayed. Reiss then accompanied Kabalsa to the plaintiff’s lumber yard as to

satisfy his own financial responsibility, he being a property owner and a lawyer, for

the purchase of lumber. However, the full price of the lumber remained unpaid and

thus this action was instituted for collection of the unpaid balance. The lower court

ruled in favor of the plaintiffs. Reiss assails such decision claiming inter alia that

his alleged guaranty of payment was unenforceable for not being in writing

ISSUE:

Whether or not the guaranty of payment of the purchase price of the lumber

furnished at Reiss’ request to his contractor, Kabalsa, not being in writing, is

enforceable?

RULING:

Yes. The court held that under Sec 335 of Act 190, a special promise to

answer for the debt of another shall be in writing. The true test as to whether a

promise is within the statute had been said to lie in the answer to the question

whether the promise is an original or a collateral one. If the promise is an original

or independent one, that is, if the promisor becomes thereby primarily liable for the

payment of the debt, the promise is not within the statute. But on the other hand,

if the promise is collateral to the agreement of another and the promisor thereby

becomes merely a surety, the promise must be in writing.

Taking into consideration all the circumstances it is clear that the credit for

the lumber delivered by the plaintiffs to defendant's contractor was extended solely

and exclusively to the defendant under the verbal agreement had with him, and

therefore, that the provisions of the statue did not require that it should be made in

writing. Defendant admitted on the stand that his contractor had no commercial

credit or standing in the community, and it appears that plaintiffs, after

investigation, absolutely refused to extent him any credit whatever upon any

conditions and that the defendant was well aware of that fact. From the testimony

of the contractor himself, it seems clear that when the agreement for the delivery

of lumber was made, the credit was extended not to the contractor but to the

defendant.
CASE NO.58

WESTERN MINDANAO LUMBER CO., INC., vs. NATIVIDAD M. MEDALLE and

ANTONIO MEDALLE

FACTS:

In 1955, Western Mindanao Lumber (Western), a logging company,

obtained a right-of-way over a property owned by Hernandez. Medalle, the new

owner of the property, notified Western that he will close the road running through

his property through which Western's trucks pass in hauling logs. Western's filed

a complaint for injunction praying that a writ of preliminary injunction be issued

restraining Medalle from closing the said road, and after hearing, make the

injunction permanent.

Medalle filed a motion to dismiss the complaint upon the ground that the

claim on which the action or suit is founded is unenforceable under the provisions

of the Statute of Frauds and special law, in that the first page of the said road right-

of-way agreement was not signed by both parties and their instrumental witnesses;

page two thereof is not dated, and the signature of the plaintiffs corporate agent

does not appear; and that said agreement is not acknowledged before a person

authorized to administer oaths. Western opposed the motion, stating that the

agreement between Western and Hernandez is not one of those agreements

specified in the Statute of Frauds. The trial court granted the motion to dismiss.

Hence, Western appealed.

ISSUE:

Whether statute of frauds is applicable to agreements creating a right of

way.

RULING:

No. The Statute of Frauds refers to specific kinds of transactions and

cannot apply to any that is not enumerated

a) An agreement that by its terms is not to be performed within a year from

the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of
another;
c) An agreement made in consideration of marriage, other than a mutual
promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a
price not less than five hundred pesos unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things in
action, or pay at the time some part of the purchase money;
e) An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
f) A representation as to the credit of a third person Obviously, an
agreement creating an easement of right-of-way is not one of those contracts
covered by the statue of frauds since it is not a sale of property or of an interest
therein. The trial court therefore, erred in dismissing the case upon the defendants'
claim that the road fight-of-way agreement in question is unenforceable under the
statute of frauds.

Also, the Statute of Frauds is applicable only to executory contracts, not

to contracts that are totally or partially performed. Here, the verbal agreement with

respect to the right of way had already been totally executed.

CASE NO.59
ROSARIO CARBONNEL, vs. JOSE PONCIO, RAMON INFANTE, and EMMA
INFANTE
FACTS:

Petitioner Carbonell lives in an adjoining lot owned by respondent Poncio.

The latter's lot is mortgaged in favor of Republic Savings Bank for Php 1, 500.00.

Petitioner and another respondent (Infante) offered to buy the land owned by

Poncio. However, Poncio, in his failure to pay the mortgage, agreed for the

petitioner to buy the land including his house for Php 9.50 per square meter on the

condition that from the purchase price would come the money to be paid to the

bank.

Both parties settled the arrears of the mortgage amounting to Php 247. 26.

However, petitioner only had Php 200.00 as per respondent's information that he

only owes the same to the bank. Respondent then withdrew the deficit amount and

was reimbursed by Carbonell the following day.

The parties executed a document stipulating that, Poncio may still occupy

the land sold by him to the petitioner and if after a year, he still can't find a place to

move, that he shall pay rent in favor of the petitioner.

Subsequently, Poncio had told Carbonell that the former can no longer

pursue with the sale for he had given the land to Infante who fenced such property

already.

An adverse claim over the property was prepared by the petitioner's counsel

with the information that the land was not yet registered. Whereby upon such
registration by Infante, the said adverse claim was noted in the Transfer Certificate

of Title.

Petitioner filed a second complaint, alleging that the sale between Poncio

and Infante be declared null and void. Respondent further alleged that petitioner's

claim was unenforceable for lack of written document.

ISSUE:

Whether or not Infante is a buyer in bad faith, and Carbonell has the superior

right over the property in question.

RULING:

Yes. Article 1544, New Civil Code, which is decisive of this case, recites:

If the same thing should have been sold to different vendees, the ownership shall

be transferred to the person who may have first taken possession thereof in good

faith, if it should movable property.

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in

good faith was first in the possession; and, in the absence thereof, to the person

who presents the oldest title, provided there is good faith (emphasis supplied).

When Carbonell bought the lot from Poncio on January 27, 1955, she was

the only buyer thereof and the title of Poncio was still in his name solely

encumbered by bank mortgage duly annotated thereon. Carbonell was not aware
— and she could not have been aware — of any sale of Infante as there was no

such sale to Infante then. Hence, Carbonell's prior purchase of the land was made

in good faith. Her good faith subsisted and continued to exist when she recorded

her adverse claim four (4) days prior to the registration of Infantes's deed ofsale.

Carbonell's good faith did not cease after Poncio told her on January 31, 1955 of

his second sale of the same lot to Infante. Because of that information, Carbonell

wanted an audience with Infante, which desire underscores Carbonell's good faith.

With an aristocratic disdain unworthy of the good breeding of a good Christian and

good neighbor, Infante snubbed Carbonell like a leper and refused to see her. So

Carbonell did the next best thing to protect her right — she registered her adverse

claim on February 8, 1955. Under the circumstances, this recording of her adverse

claim should be deemed to have been done in good faith and should emphasize

Infante's bad faith when she registered her deed of sale four (4) days later on

February 12, 1955.

CASE NO.60

MARIA ENCARNACION CASTILLO, ELISEA GALVAN, and PATROCINIO

GALVAN, vs. JOSEFA GALVAN, EMILIO SAMSON, and NATIVIDAD GALVAN

FACTS:

The complaint, is for the annulment of a document, denominated "Deed of

Absolute Sale", executed on August 3, 1955, by and between Paulino Galvan, the

predecessor-in-interest, and defendants Josefa Galvan and Natividad S. Galvan.

The plaintiffs alleged that Paulino Galvan, during his lifetime, was the registered

owner of an undivided one-half (1/2) interest over two parcels of land, the other

undivided half is owned by his two daughters by a first marriage, herein defendants

Josefa Galvan and Natividad Galvan. On these lots, which are contiguous, is built

the family home. On February 10, 1961, Paulino Galvan died. Plaintiffs found a

deed of sale, signed by the late Paulino Galvan and the plaintiff, Maria Encarnacion

Castillo, whereby they had purportedly sold for P500.00 the one-half undivided

portion of Paulino Galvan over said lots in favor of defendants.

Plaintiffs stated that the undivided half share of Paulino Galvan was worth

around P22, 500.00 so that he could not have sold it for only P500.00. Wherefore,

they prayed that the deed of sale be declared null and void; that the plaintiffs be

declared the owners of four-sixths (4/6) of the undivided haIf share pertaining to

Paulino Galvan; that the defendants be ordered to pay the amount of P1,500.00,

as attorney's fees; and to pay the costs of suit. The defendants claimed that "they

are the absolute and exclusive owners of whole parcels of land described in the

complaint for having acquired the portions belonging to their late father Paulino
Galvan through legal and valid conveyance and this fact is known to the plaintiffs

long before the filing of the complaint."

On August 27, 1966, the defendants filed a motion to dismiss the

complaint upon the ground that the action is barred by the statute of limitations for

the reason that the present action for the annulment of the instrument of sale is

based upon fraud which should be brought within four (4) years from the time of

the discovery of the same in accordance with Article 1391 of the Civil Code; and

fraud, as a ground for annulment, shall be deemed to be discovered from the date

of the registration of the alleged fraudulent documents; and considering that the

deed of sale in question was registered on August 4, 1955, while the action for its

annulment was commenced only on August 1, 1961, or after the lapse of more

than four (4) years from its registration with the Register of Deeds, the action for

annulment had prescribed. Trial court ruled in favor of the Defendants.

ISSUE:

Whether or not the trial court improperly dismissed the complaint on the

ground of prescription

RULING:

Yes. In its order dated September 22, 1966, dismissing the complaint, the

trial court said: "The complaint, among others, prays for the annulment of

document, which is a deed of sale dated August 3, 1955, purporting conveyance

of the two parcels described in the complaint in favor of defendants Josefa Galvan

and Natividad Galvan and Emilio Samson. Said document was registered on
August 4, 1955. It is the contention of the defendants that plaintiffs' action has

prescribed as the same was not presented within four years from the registration

of the document."

The court sustains defendants' contention. The basis of the annulment is

alleged fraud, and the action for the annulment of the document should be brought

within 4 years from the discovery of fraud, and that such discovery of fraud is

deemed to have taken place when the instrument was filed and registered with the

Register of Deeds and new transfer certificate of title is issued in the name of the

vendee for the registration of the deed constitutes constructive notice to the whole

world. The allegations of the complaint show, however, that the plaintiffs' action is

to declare void and inexistent the deed of sale executed by Paulino Galvan and

Encarnacion Castillo on August 3, 1955, in favor of Josefa and Natividad Galvan,

upon the grounds that (a) there is fraud in securing the signatures of the vendors

in said deed of sale; and (b) there was no consideration given at the time of the

transaction. In other words, the plaintiffs are seeking a judicial declaration that the

deed of sale in question is void ab initio, which action is imprescriptible.

CASE NO.61

CONCEPCION FELIX VDA. DE RODRIGUEZ vs.GERONIMO RODRIGUEZ.,

ET AL.

G.R. No. L-23002 July 31, 1967

FACTS:

On June 20, 1929, Concepcion Felix, widow with one child named

Concepcion Calderon, contracted a second marriage with Domingo Rodriguez,

widower with four children by a previous marriage, named Geronimo, Esmeragdo,

Jose and Mauricio. Prior to her marriage to Rodriguez, she was the registered

owner of 2 fishponds located in the barrio of Babañgad, Bulacan with a total area

of 557,711 square meters covered by OCT Nos. 605 and 807.

Under date of January 24, 1934, she appeared to have executed a deed of

sale conveying ownership of the aforesaid properties to her daughter, Concepcion

Calderon, for the sum of P2,500.00, which the latter in turn appeared to have

transferred to her mother and stepfather by means of a document dated January

27, 1934. The titles were issued in the names of the spouses Domingo Rodriguez

and Concepcion Felix.

On March 6, 1953, Domingo Rodriguez died intestate. On March 16, 1953

Concepcion Felix, his children Geronimo, Esmeragdo, and Mauricio and

grandchildren Oscar, Juan and Ana, and children of a son, Jose, who had

predeceased him, entered into an extra-judicial settlement of Domingo's estate,

consisting of one-half of the properties allegedly belonging to the conjugal

partnership. Among the properties listed as conjugal were the two parcels of land

in Bulacan, which, together with another piece of property, were divided among

the heirs.

On March 23, 1953, Concepcion Felix Vda. de Rodriguez was named their

attorney in-fact, authorized to manage their shares in the fishponds. On October

12, 1954, the Rodriguez children executed another document granting unto the

widow lifetime usufruct over one-third of the fishpond which they received as

hereditary share in the estate of Domingo Rodriguez, which grant was accepted

by Concepcion Felix Vda. de Rodriguez. Then, in a contract dated December 15,

1961, the widow appeared to have leased from the Rodriguez children and

grandchildren the fishpond (covered by TCT No. 16660) for a period of 5 years

commencing August 16, 1962, for an annual rental of P7,161.37 . When she failed

to deliver to them the balance of the earnings of the fishponds, in the amount of

P3,000.00, her stepchildren endorsed the matter to their lawyer who, on May 16,

1962, sent a letter of demand to the widow for payment thereof .

. On, May 28, 1962, Concepcion Felix Vda. de Rodriguez filed an action

seeking the annulment of the transfer to the conjugal partnership of the two

fishponds on the ground that the conveyance in issue were obtained through

duress, and were inexistent, being simulated and without consideration.

Defendants not only denied the material allegations of the complaint, but also set

up as affirmative defences, lack of cause of action, prescription, estoppel and

laches.
ISSUE:

Whether or not the conveyances were obtained through duress, and were

inexistent, being simulated and without consideration.

HELD:

The Court held that the evidence is not convincing that the contracts of

transfer from Concepcion Felix to her daughter, and from the latter to her mother

and stepfather were executed through violence or intimidation. The charge is

predicated solely upon the improbable and biased testimony of appellant's

daughter, Concepcion C. Martelino, whom the trial court, refused to believe,

considering that her version of violence and harassment was contradicted by

Bartolome Gualberto who had lived with the Rodriguez spouses from 1917 to

1953, and by the improbability of Rodriguez threatening his stepdaughter in front

of the Notary Public who ratified her signature. What is more decisive is that duress

being merely a vice or defect of consent, an action based upon it must be brought

within four years after it has ceased; and the present action was instituted only in

1962, twenty eight (28) years after the intimidation is claimed to have occurred,

and no less than nine (9) years after the supposed culprit died (1953). On top of it,

appellant entered into a series of subsequent transactions with appellees that

confirmed the contracts that she now tries to set aside. Therefore, this cause of

action is clearly barred.

 The charge of simulation is untenable, for the characteristic of simulation is

the fact that the apparent contract is not really desired or intended to produce legal

effects or in way alter the juridical situation of the parties. The appellant contends

that the sale by her to her daughter, and the subsequent sale by the latter to

appellant and her husband, the late Domingo Rodriguez, were done for the

purpose of converting the property from paraphernal to conjugal, thereby vesting

a half interest in Rodriguez, and evading the prohibition against donations from

one spouse to another during coverture (Civil Code of 1889, Art. 1334). If this is

true, then the appellant and her daughter must have intended the two conveyance

to be real and effective; for appellant could not intend to keep the ownership of the

fishponds and at the same time vest half of them in her husband. The two contracts

of sale then could not have been simulated, but were real and intended to be fully

operative, being the means to achieve the result desired. Since in each

conveyance the buyer became obligated to pay a definite price in money, such

undertaking constituted in themselves actual causa or consideration for the

conveyance of the fishponds. That the prices were not paid (assuming ad

arguendo that Concepcion Martelino's testimony, to this effect is true) does not

make the sales inexistent for want of causa.

Finally, it cannot be denied that plaintiff-appellant had knowledge of the

nullity of the contract for the transfer of her properties in 1934, because she was

even a party thereto. And yet, her present action was filed only on May 28, 1962

and after the breaking up of friendly relations between her and defendants-

appellees. Appellant's inaction to enforce her right, for 28 years, cannot be justified
by the lame excuse that she assumed that the transfer was valid. Knowledge of

the effect of that transaction would have been obtained by the exercise of

diligence. Ignorance which is the effect of inexcusable negligence, it has been said,

is no excuse for laches. Even assuming for the sake of argument that appellant

held her peace, during the lifetime of her husband, out of legitimate fear for her life,

there is no justification for her future to bring the proper action after his death in

1953. Instead, she entered into a series of agreements with herein appellees. In

the circumstances, appellant's cause has become a stale demand and her conduct

placed her in estoppel to question the Validity of the transfer of her properties. The

decision appealed from is affirmed.

CASE NO. 62
BUENAVENTURA ANGELES, ET AL. vs. URSULA TORRES CALASANZ, ET
AL.
G.R. No. L-42283 March 18, 1985
FACTS:

On December 19, 1957, defendants Ursula Torres Calasanz and Tomas

Calasanz and plaintiffs Buenaventura Angeles and Teofila Juani entered into a

contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00

plus 7% interest per annum. The plaintiffs made a downpayment of P392.00 upon

the execution of the contract. They promised to pay the balance in monthly

installments of P 41.20 payable on the 19th day of each month, until fully paid.

They paid the monthly installments until July 1966, when their aggregate payment

already amounted to P4,533.38. On numerous occasions, the defendants

accepted and received delayed installment payments from the plaintiffs.

On December 7, 1966, the defendants wrote the plaintiffs a letter requesting

the remittance of past due accounts. On January 28, 1967, they cancelled the said

contract because the plaintiffs failed to meet subsequent payments. The plaintiffs

filed an action to compel the defendants to execute in their favor the final deed of

sale alleging inter alia that after computing all subsequent payments for the land

in question, they found out that they have already paid the total amount of

P4,533.38 including interests, realty taxes and incidental expenses for the

registration and transfer of the land. The defendants alleged that the complaint

states no cause of action and that the plaintiffs violated paragraph six of the

contract to sell when they failed and refused to pay and/or offer to pay the monthly
installments corresponding to the month of August, 1966 for more than five

months, thereby constraining the defendants to cancel the said contract.

ISSUE:

Whether or not the contract to sell has been automatically and validly

cancelled by the defendants-appellants.

RULING:

No. Article 1191 of the Civil Code is explicit. In reciprocal obligations, either

party has the right to rescind the contract upon failure of the other to perform the

obligation thereunder. Moreover, there is nothing in the law that prohibits the

parties from entering into an agreement that violation of the terms of the contract

would cause its cancellation even without court intervention. Well settled, however,

is the rule that a judicial action for the rescission of a contract is not necessary

where the contract provides that it may be revoked and cancelled for violation of

any of its terms and conditions. If the other party denies that rescission is justified,

it is free to resort to judicial action in its own behalf, and bring the matter to court.

The right to rescind the contract for non-performance of one of its stipulations,

therefore, 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 breach as

would defeat the very object of the parties in making the agreement. The question

of whether a breach of a contract is substantial depends upon the attendant

circumstances. The defendants state that the plaintiffs violated Section two of the

contract to sell because they failed to pay the August installment, despite demand,

for more than four (4) months. To sanction the rescission made by the defendants

will work injustice to the plaintiffs. It would unjustly enrich the defendants. Article

1234 of the Civil Code which provides that “if the obligation has been substantially

performed in good faith, the obligor may recover as though there had been a strict

and complete fulfillment, less damages suffered by the obligee.” Although the

primary object of selling subdivided lots is business, yet, it cannot be denied that

this subdivision is likewise purposely done to afford those landless, low income

group people of realizing their dream of a little parcel of land which they can really

call their own. The defendants cannot rely on paragraph 9 of the contract. The

defendants argue that paragraph nine clearly allows the seller to waive the

observance of paragraph 6 not merely once, but for as many times as he wishes.

The defendants' contention is without merit.

The Court agree with the plaintiffs that when the defendants, instead of

availing. of their alleged right to rescind, have accepted and received delayed

payments of installments, though the plaintiffs have been in arrears beyond the

grace period mentioned in paragraph 6 of the contract, the defendants have

waived and are now estopped from exercising their alleged right of rescission. The

plaintiffs on the other hand are firm in their submission that since they have already

paid the defendants-appellants a total sum of P4,533.38, the defendants must now

be compelled to execute the final deed of sale pursuant to paragraph 12 of the

contract.
 The contract to sell entered into by the parties has some characteristics of

a contract of adhesion. The defendants- drafted and prepared the contract. The

plaintiffs, eager to acquire a lot upon which they could build a home, affixed their

signatures and assented to the terms and conditions of the contract. They had no

opportunity to question nor change any of the terms of the agreement. It was

offered to them on a "take it or leave it" basis. The contract to sell, being a contract

of adhesion, must be construed against the party causing it

The Court agrees with the observation of the plaintiffs to the effect that "the

terms of a contract must be interpreted against the party who drafted the same,

especially where such interpretation will help effect justice to buyers who, after

having invested a big amount of money, are now sought to be deprived of the same

thru the prayed application of a contract clever in its phraseology, condemnable in

its lopsidedness and injurious in its effect which, in essence, and in its entirety is

most unfair to the buyers." Thus, since the principal obligation under the contract

is only P3,920.00 and the plaintiffs have already paid an aggregate amount of

P4,533.38, the courts should only order the payment of the few remaining

installments but not uphold the cancellation of the contract.

CASE NO. 63
BACHELOR EXPRESS, INCORPORATED, and CRESENCIO RIVERA vs.
THE HONORABLE COURT OF APPEALS (Sixth Division), RICARDO BETER,
SERGIA BETER, TEOFILO RAUTRAUT and ZOETERA RAUTRAUT
G.R. No. 85691 July 31, 1990

FACTS:

On August 1, 1980, Bus No. 800 owned by Bachelor Express, Inc. and

driven by Cresencio Rivera was travelling from Davao City to Cagayan de Oro City

passing Butuan City. While at Tabon-Tabon, Butuan City, the bus picked up a

passenger. Fifteen minutes later, a passenger at the rear portion suddenly stabbed

a PC soldier which caused commotion and panic among the passengers. When

the bus stopped, passengers Ornominio Beter and Narcisa Rautraut were found

lying down the road, the former already dead as a result of head injuries and the

latter also suffering from severe injuries which caused her death later. The

passenger assailant alighted from the bus and ran toward the bushes but was

killed by the police.

The heirs of Ornominio Beter and Narcisa Rautraut, private respondents

herein filed a complaint against Bachelor Express, Inc. its alleged owner Samson

Yasay and the driver Rivera. The petitioners denied liability for the death of

Ornominio Beter and Narcisa Rautraut. They alleged that the driver was able to

transport his passengers safely to their respective places of destination except

Ornominio Beter and Narcisa Rautraut who jumped off the bus without the

knowledge and consent, much less, the fault of the driver and conductor and the

defendants in this case; the defendant corporation had exercised due diligence in

the choice of its employees to avoid as much as possible accidents and that the

incident on August 1, 1980 was not a traffic accident or vehicular accident; it was
an incident or event very much beyond the control of the defendants; defendants

were not parties to the incident complained of as it was an act of a third party who

is not in any way connected with the defendants and of which the latter have no

control and supervision

The trial court issued an order dated August 8, 1985 dismissing the

complaint. Upon appeal, the trial court's decision was reversed and set aside

As regards the proximate cause of the death, the petitioners maintain that

it was the act of the passenger who ran amuck and stabbed another passenger of

the bus. They contend that the stabbing incident triggered off the commotion and

panic among the passengers who pushed one another and that out of fear and

moved by that human instinct of self-preservation Beter and Rautraut jumped off

the bus while the bus was still running resulting in their untimely death. Petitioners

argue that they should not be made liable for damages arising from acts of third

persons over whom they have no control or supervision. The petitioners maintain

that the driver of the bus, before, during and after the incident was driving

cautiously giving due regard to traffic rules, laws and regulations. The petitioners

also argue that they are not insurers of their passengers as ruled by the trial court.

ISSUE:

1. Whether or not the petitioners are liable for the deaths of the passengers.

RULING:
 Yes. The liability of the petitioners is anchored on culpa contractual or

breach of contract of carriage. There is no question that Bachelor Express, Inc. is

a common carrier. Hence, from the nature of its business and for reasons of public

policy Bachelor Express, Inc. is bound to carry its passengers safely as far as

human care and foresight can provide using the utmost diligence of very cautious

persons, with a due regard for all the circumstances. Consequently, pursuant to

Article 1756 of the Civil Code, petitioner Bachelor Express, Inc. is presumed to

have acted negligently unless it can prove that it had observed extraordinary

diligence in accordance with Articles 1733 and 1755 of the New Civil Code. In

effect, the petitioner, in order to overcome the presumption of fault or negligence

under the law, states that the vehicular incident resulting in the death of

passengers Beter and Rautraut was caused by force majeure or caso fortuito over

which the common carrier did not have any control.

The running amuck of the passenger was the proximate cause of the

incident as it triggered off a commotion and panic among the passengers such that

the passengers started running to the sole exit shoving each other resulting in the

falling off the bus by passengers Beter and Rautraut causing them fatal injuries.

The sudden act of the passenger who stabbed another passenger in the bus is

within the context of force majeure. However, in order that a common carrier may

be absolved from liability in case of force majeure, it is not enough that the accident

was caused by force majeure. The common carrier must still prove that it was not

negligent in causing the injuries resulting from such accident.

 The bus driver did not immediately stop the bus at the height of the

commotion; the bus was speeding from a full stop; the victims fell from the bus

door when it was opened or gave way while the bus was still running; the conductor

panicked and blew his whistle after people had already fallen off the bus; and the

bus was not properly equipped with doors in accordance with law - it is clear that

the petitioners have failed to overcome the presumption of fault and negligence

found in the law governing common carriers.

The petitioners' argument that the petitioners "are not insurers of their

passengers" deserves no merit in view of the failure of the petitioners to prove that

the deaths of the two passengers were exclusively due to force majeure and not

to the failure of the petitioners to observe extraordinary diligence in transporting

safely the passengers to their destinations as warranted by law.

CASE NO. 64
BACOLOD-MURCIA, MILLING CO., INC. vs.CENTRAL BANK OF THE
PHILIPPINES

G.R. No. L-12610 October 25, 1963

FACTS:

On or about December 17, 1956, plaintiff sold and exported to Olavarria &

Co., Inc. of New York, United States of America 48,192 piculs (equivalent to 3,000

tons) of sugar for the total price of $416,640.00 U.S. currency, and as a

consequence drew against said Olavarria & Co., Inc. two (2) drafts for the total

sum of $336,995.40 U.S. currency, to cover an initial payment of 95% of said

purchase price. The drafts were delivered to the Philippine Bank of Commerce for

collection for the account of BMMC but PBC told BBMC that under Circular 20 Sec

4 of the Central Bank, all exchange proceeds of the drafts must be sold to the

Central Bank authorities. BMMC, doubting the legality of such Exchange control

rule, filed an action for prohibition to stop the Central Bank from enforcing the

exchange control rule alleging that the forced sale of foreign exchange to the

Central Bank is “ultra vires” amounting to confiscation of private property. The

Central Bank countered that Circular No. 20 was a valid exercise of their powers

as it was issued during an exchange crisis.

ISSUE:

Whether the exchange control provision, contained in Section 4 (a) of

Central Bank Circular No. 20, is sufficiently authorized by the provisions of the

Charter.
RULING:

Yes. Against appellant's contention that the rules and regulations which the

Central Bank or the Monetary Board may promulgate are only such as are within

the powers granted by the Charter, and that the latter does not grant the Central

Bank the power to impose the forcible sale of foreign exchange, it is pointed out,

that the test of whether a power has been granted to a body created by law is not

necessarily whether the Charter expressly grants such power, but whether the law

contains sufficient standards on which its exercise may be based.

The forcible sale of foreign exchange to the Central Bank, in relation to the

powers and responsibilities given to it in Secs. 2, 14, 64, 68, 70, 74 and other

sections of R.A. No. 265 can be regarded as falling within the category of "implied

powers", as those necessary for the effective discharge of its responsibilities.

The gist of the argument for exchange control, therefore, is the rule of

necessity, i.e., its establishment would affect the international stability of the peso

and it is necessary to establish it to maintain international reserve, etc..

Under present laws and because of international agreements which the

country has entered into, the Bank may not unilaterally change the present rate of

exchange of P2 to the dollar. The members of the Court agreed that this defense

is valid and bars the present suit.

To comply with its obligations under the agreement, especially as regards

exchange stability, the Bank may not change the par value of the peso in relation
to the dollar without previous consultation or approval by the other signatories to

the agreement. Circular No. 20 must have been communicated to the other

members of the agreement — and it is assumed that no contemplated change

therein had been communicated to the other signatories at the time of the filing of

this case.

The Central Bank, therefore, may not be compelled to ignore Circular No.

20, which was adopted with the advice and acquiescence of the other members of

the International Monetary Fund, and it may not be compelled by mandamus to

prohibit its enforcement.

Furthermore, under Article 49 of Republic Act No. 265, the Central Bank

does not have the power to change the par value of the peso, a change which the

present suit would require. This can be done only by the President upon proposal

of the Monetary Board and with the approval of Congress.

CASE NO. 65

The minors ALBERTO, NENITA, HILLY, CRISTY, and MARIA SALOME, all
surnamed BADILLO, assisted by their guardian MODESTA BADILLO vs.
CLARITA FERRER, GREGORIO SOROMERO and ELEUTERIA RANA

G.R. No. L-51369 July 29, 1987

FACTS:

On February 4, 1966, Macario Badillo died intestate, survived by his widow,

Clarita Ferrer, and five minor children. He left a parcel of registered land of 77

square meters in Lumban, Laguna, with a house erected thereon, valued at

P7,500.00. Hence, each of the five minor plaintiffs had inherited a 1/12 share of

the P7,500.00, or P625.00 each, which is less than the P2,000.00 mentioned in

Article 320 of the Civil Code.

On January 18, 1967, the surviving widow, in her own behalf and as natural

guardian of the minor plaintiffs, executed a Deed of Extrajudicial Partition and Sale

of the property through which the property was sold to defendants-appellants

On November 11, 1968, Modesta Badillo, a sister of Macario Badillo, was

able to obtain guardianship over the persons and properties of the minor plaintiffs,

without personal notice to their mother, who was alleged "could not be located in

spite of the efforts exerted."

On July 23, 1970, their guardian caused the minor plaintiffs to file a

complaint in the case below for the annulment of the sale of their participation in

the property to defendants-appellants and, conceding the validity of the sale of the
widow's participation in the property, they asked that, as co-owners, they be

allowed to exercise the right of legal redemption.

The lower court annulled the sale to defendants-appellants of the minor

plaintiffs' participation in the property, and allowing them to redeem the sold

participation of their mother.

ISSUES:

1. Whether or not the period of thirty (30) days provide for by Article 1623

of the New Civil Code for the plaintiff’s redemption of their share in the property

has already elapsed.

2. Whether or not the sale of the share of the children on the property was

null and void.

3. Whether or not the defendants should re-sell to plaintiffs the remaining

7/12 portion of the property.

HELD:

The Statutory provision involved in the first issue is Article 1623 of the New

Civil Code. The requisite notice in writing provided for by Article 1623 of the New

Civil Code was already received by the minors-plaintiffs thru their then legal

guardian, Clarita Ferrer Badillo, their mother, on the date the deed of extrajudicial

partition and sale was executed on January 18, 1967. And the thirty-day period of

redemption must be reckoned from this date. Stated differently, under Article 320
of the New Civil Code, the right granted to Clarita Ferrer Badillo to administer her

children's property if the same is less than P2,000.00 includes the right to receive

for her minor children such notice in writing. When she received her copy of the

Deed of Extrajudicial Partition and Sale, Clarita Ferrer Badillo in effect received a

notice in writing of the said sale in behalf of her minor children. The Court finds this

argument meritorious.

Articles 320 and 326 of the Civil Code say that the father, or in his absence

the mother, is considered the legal administrator of the property pertaining to his

child under parental authority without need of giving a bond in case the amount of

his child's property does not exceed Two Thousand Pesos. Rule 93, Section 7, of

the Revised Rules of Court goes further by automatically designating the parent

as the legal guardian of the child without need of any judicial appointment in case

the latter's property does not exceed Two Thousand Pesos

The law in prescribing certain contingencies as the starting point from which

the nine-day period should be counted, is to be presumed to exclude all

others. Exclusio unius est exclusio alterius. The starting point is registration or, in

the absence of registration, knowledge of the conveyance by the co-owners. It is

logical to assume that if minority had been contemplated, the law would have so

expressly stated: “legal redemption is in the nature of a mere privilege created by

law partly for reasons of public policy and partly for the benefit and convenience of

the redemptioner, to afford him a way out of what might be a disagreeable or

inconvenient association into which he has been trust.” This is contrary to the

express policy of the law that "No co-owner shall be obliged to remain a party to
the community, but each may, at any time, demand partition of the thing held in

common." (Article 400, Civil Code.) It would be extremely unfair to the purchaser

and injurious to the public welfare to keep in a state of suspense, for possibility as

long as 20 years or more, what his co-owner might do when he becomes of age.

The value of the property of each appellee minor does not exceed Two

Thousand Pesos. The Court of Appeals found that each of them inherited only an

undivided portion worth P625.00. Therefore, after the minors' father died, their

mother, Clarita Ferrer Badillo, automatically became their legal guardian. As such,

she acquired the plenary powers of a judicial guardian except that power to

alienate or encumber her children's property without judicial authorization. When

Clarita Ferrer Badillo signed and received on January 18, 1967, her copy of the

Deed of Extrajudicial Partition and Sale, the document evidencing the transfer of

the property in question to the appellants, she also in effect received the notice in

writing required by Article 1623 in behalf of her children. Thus, the period of

redemption began to toll from the time of that receipt.

On the other hand, the judicial guardian of the appellee minors, Modesta

Badillo, was only appointed as such on November 11, 1968. She thereafter

manifested her desire to redeem the property from the appellants, formalizing such

intention in the complaint that was finally filed for this case on July 23, 1970. Since

the required written notice was served on January 18, 1967 and the offer to redeem

was only made after November 11, 1968, the period for legal redemption had

already expired and the appellants cannot now be ordered to reconvey to the
appellees that portion of the undivided property which originally belonged to Clarita

Ferrer Badillo.

Under the second issue, the appellants contend that the Deed of

Extrajudicial Partition and Sale, in so far as it sold to them the appellee minors'

share of 5/12, is a voidable contract pursuant to Article 1390 of the New Civil Code.

They then quoted verbatim the text of the said article without identifying the

particular portion of that provision which directly supports their contention. The

Court finds this contention untenable.

The Deed of Extrajudicial Partition and Sale is not a voidable or an

annullable contract under Article 1390 of the New Civil Code. Article 1390 renders

a contract voidable if one of the parties is incapable of giving consent to the

contract or if the contracting party's consent is vitiated by mistake, violence,

intimidation, undue influence or fraud. In this case, however, the appellee minors

are not even parties to the contract involved. Their names were merely dragged

into the contract by their mother who claimed a right to represent them, purportedly

in accordance with Article 320 of the New Civil Code. Clearly, Clarita Ferrer Badillo

has no authority or has acted beyond her powers in conveying to the appellants

that 5/12 undivided share of her minor children in the property involved in this

case. The powers given to her by the laws as the natural guardian covers only

matters of administration and cannot include the power of disposition. She should

have first secured the permission of the court before she alienated that portion of

the property in question belonging to her minor children. The appellee minors
never ratified this Deed of Extrajudicial Partition and Sale. In fact, they question its

validity as to them. Hence, the contract remained unenforceable or unauthorized.

No restitution may be ordered from the appellee minors either as to that portion of

the purchase price which pertains to their share in the property or at least as to

that portion which benefited them because the law does not sanction any.

The third issue need not be discussed further because the Court’s

pronouncement on the first issue has rendered it academic. Suffice it to state that

since the 30-day period for redemption had already lapsed, the appellants cannot

be ordered to re-sell to the appellees the remaining 7/12 portion of the property in

question.

In view of the foregoing, the appellants are hereby ordered to restore to the

appellees the full ownership and possession of the latter's 5/12 share in the

undivided property by executing the proper deed of reconveyance. The appellants'

ownership over the remaining 7/12 share in the undivided property is hereby

confirmed.
CASE NO. 66
THE BANK OF THE PHILIPPINE ISLANDS vs.
MAY MCCOY, as executrix of the Estate of H.B. McCoy, ET AL.
G.R. No. L-30111 February 23, 1929

FACTS:

In June 1919, H. B. McCoy, deceased, and the present six appellants, with

three others, were interested in a domestic corporation known as the Cooperative

Coconut Products Co., Inc., and became liable to the Bank of the Philippine Islands

for money advanced by the corporation to said bank. To secure this indebtedness,

said corporation executed two mortgages in favor of the bank.

When the company did not prosper, the present six appellants foreseeing that

the mortgages would soon be foreclosed, addressed to the bank a letter, upon

receipt of a demand from the bank for the payment of the debt. When the

appellants failed to comply with the demand, the bank then sold the property and

by this step, the bank lose P16,000, and for the recovery of this amount the present

action was originally begun.

After the case was about ready for hearing, May McCoy, the executrix entered

into a compromise with the plaintiff and paid the sum of P12,000 in satisfaction of

the debt.
ISSUE: Can McCoy be substituted as plaintiff against her former co-defendants

for the purpose of compelling them to reimburse to her their proportionate shares

in the obligation?

RULING:

Yes. By paying off the claim which was originally the subject of litigation, the

executrix was subrogated to the rights of the original plaintiff, and if the situation

was one involving a joint and several liabilities on the part of all of the original

defendants, the executrix, upon paying of the claim, necessarily acquired the right

to prosecute the action for contribution against her co-defendants. But it is said

that the amendment by which the executrix was permitted to substitute the original

plaintiff had the effect of changing the cause of action entirely, since the original

action was founded upon a debt supposedly owing to the bank from the seven

defendants, whereas after the instant the debt was paid, the only right of action

vested in the executrix was right to obtain contribution. It must be remembered,

however, that if the original action had proceeded, to its end against all the

defendants the court, in giving judgment, would have taken account of the

obligation of each to contribute his proportionate share to the payment of the

judgment, and what has been finally done, as the case shaped itself here, is to

give effect to the same obligation. It was in our opinion a proper case for

substitution of parties resulting from the subrogation of one of the defendants to

the right of action of the plaintiff.

CASE NO. 67
TEODORA MATIAS DE BUENCAMINO, ET AL. vs. MARIA DIZON DE
MATIAS, ET AL.
G.R. No. L-19397 April 30, 1966

FACTS:

The deceased Hilaria Dizon Matias, married to Fulgencio Matias, was the

registered owner of three parcels of farm lands. They had only one son, Luis, who

died in 1948. Luis had with his lawful wife Maria Dizon Matias, several children,

seven of whom are living, namely: Modesta, Segundo, Jacinto, Vicente, Jesus,

Teodora, and Mamerto.

Luis also kept a mistress with whom he had five children. He maintained the

latter family in a house he constructed for them and found it more convenient and

comfortable to spend most of his time with his common-law wife and his illegitimate

children. This peculiar behavior and conduct of Luis, led his parents to fear that

should their properties pass on to him upon their death, Luis might dispose of the

same in favor of his illegitimate children, to the prejudice of his legitimate children.

Thus, the deceased spouses decided to transfer their properties in the name of

one of their legitimate grandchildren to hold the same in trust for the other brothers

and sisters. After a family council in 1939, Teodora was chosen as the transferee.

However, as these oft-repeated three parcels of land were previously

mortgaged to Serafin and Encarnacion Lazatin to secure an obligation of

P4,500.00, the same had first to be cleared. But as neither the deceased spouses

nor Teodora had the available cash with which to settle the amount owing to the
Lazatins, Teodora loaned P5,000.00 to her father-in-law, Felipe Buencamino, Jr.,

provided she secure the same with a mortgage over the properties in question.

Necessary papers were then prepared. An Escritura de Venta con Arrendamiento

was executed by the deceased spouses in favor of Teodora and Roque

Buencamino in 1938. On the same date also, a mortgage in favor of Felipe

Buencamino, Jr., for the sum of P4,500.00 was executed by the new transferees

Teodora and Roque Buencamino.

In the Escritura de Venta, it was stated that the deceased spouses would

remain as lessees of the properties in question. Thus, it was the deceased spouses

who retained possession of the farm lands until 1949 when Fulgencio Matias died.

Thereafter, Maria D. Matias, the widow of Luis, took over the possession and

administration of the farm lands. However, in 1954, Teodora took material

possession of the same from her mother and has, since then, administered them

to the exclusion of her other brothers and sisters.

The trial court rendered a judgment declaring the Escritura de Venta to be an

equitable mortgage in favor of the plaintiffs. However, the Court of Appeals

modified such judgment declaring the three parcels of land originally registered in

the name of Hilaria Dizon Matias, and presently in the name of Teodora and Roque

Buencamino are held by the latter in trust for the benefit of Teodora's legitimate

brothers and sisters.

The petitioners then filed a petition for review on the ground among others,

that the action is already barred by extinctive prescription.

ISSUE:

Whether or not the action is barred by extinctive prescription.

RULING:

No. The action for reconveyance, which was brought 17 years after the

execution of the disputed document, was not barred by prescription. The execution

of the deed and the consequent registration of the properties in the names of

petitioner spouses, created an implied trust in favor of Teodora's legitimate

brothers and sisters. And while implied or constructive trust prescribes in 10 years,

the rule does not apply where a fiduciary relation exists and the trustee recognizes

the trust. Continuous recognition of a resulting trust precludes any defense of

laches in a suit to declare and enforce the trust. As it does not appear when

Teodora repudiated the existence of fiduciary relations between her and brothers

and sisters, the same shall be taken to have been made only upon the filing of her

answer to the complaint. The action brought by the plaintiffs to enforce such trust,

therefore, has not yet prescribed.

CASE NO. 68
RUFINO BUENO, et.al vs. MATEO H. REYES, and JUAN H. REYES
G.R. No. L-22587 April 28, 1969
FACTS:

The lot which is the subject matter of this litigation originally belonged to Jorge

Bueno. When he died, the property descended by intestate succession to his three

children, Brigida, Eugenia and Rufino. Subsequently, Brigida and Eugenia died. In

1936, by agreement among the heirs, Francisco H. Reyes, Eugenia's husband,

was entrusted in filing the answer in the cadastral proceedings and in obtaining the

title thereto for and in behalf of all the heirs of Jorge Bueno. However, Francisco

H. Reyes claimed that the lot belong to himself and to his two brothers, Juan and

Mateo. Subsequently, the lot was adjudicated in favor of the claimants, in whose

names an original certificate of title was issued in 1939.

In 1962, the heirs of Jorge Bueno, who had always been in possession of the

property, discovered the fraud committed by Francisco Reyes. As a consequence,

they brought this action for reconveyance of the lot to them. Defendants, however,

interposed the defense of prescription of action which was reiterated in a motion

to dismiss. The trial court held that action is predicated on the existence of an

implied trust and that such action prescribes in ten years. Consequently, the case

was dismissed.

ISSUE:

Whether or not the action has already prescribed.

RULING:

While there are some decisions which hold that an action upon a trust is

imprescriptible, without distinguishing between express and implied trusts, the

better rule, as laid down by this Court in other decisions, is that prescription does

supervene where the trust is merely an implied one.

Upon the general proposition that an action for reconveyance such as the

present is subject to prescription in ten years, the appellees and the court a quo

are correct. The question here, however, is: from what time should the prescriptive

period be counted, in the light of the allegations in the complaint? It should be

remembered that the constructive trust arose by reason of the "bad faith or

mistake" of the deceased Francisco H. Reyes, compounded by the connivance of

the appellees Juan and Mateo Reyes. Consequently, the cause of action upon

such trust must be deemed to have accrued only upon the discovery of such bad

faith or mistake, or to put it more specific upon the discovery by the appellants that

Francisco H. Reyes, in violation of their agreement with him, had obtained

registration of the disputed property in his own name and in the names of his

brothers. It would not do to say that the cadastral proceeding itself, by virtue of its

nature as a proceeding in rem, was constructive notice to the appellants, for as far

as they were concerned the cadastral answer they had authorized Francisco H.

Reyes to file was not adverse to them; and neither he nor the appellees may invoke

the constructive-notice rule on the basis of their own breach of the authority thus

given. On top of all this, it was the appellants and not the appellees who were in

possession of the property as owners, continuously up to 1962, when for the first
time the latter appeared upon the scene and tried to get such possession, thereby

revealing to them the fact of the mistaken or fraudulent registration.

It would be more in keeping with justice to afford the plaintiffs as well as the

defendants the opportunity to lay their respective claims and defenses before the

Court in a full-blown litigation. Wherefore, the order appealed from is set aside and

the case is remanded for further proceedings.

CASE NO. 69

ISIDORA L. CABALIW and SOLEDAD SADORRA, vs.

SOTERO SADORRA, et.al
G.R. No. L-25650 June 11, 1975

FACTS:

Isidora Cabaliw was the second wife of Benigno Sadorra. They had a daughter

named Soledad Sadorra. During their marriage, the spouses acquired two (2)

parcels of land situated in Nueva Vizcaya. When Benigno abandoned Isidora, the

latter instituted an action for support with the CFI of Manila. Thereafter, judgment

was rendered ordering Benigno to support Isidora. However, Benigno did not

comply and instead sold their property to his son-in-law Sotero. The transaction

was done without Isidora’s consent. Prior to the sale, Sotero already knew that

there was a judgement rendered against his father-in-law but proceeded to buy the

property anyway. When Isadora found out, she instituted an action along with her

daughter to recover the properties.

ISSUE:

Whether or not there is a presumption of fraud.

RULING:

Yes. Article 1297 of the old Civil Code which was the law in force at the time

of the transaction provides that alienations by onerous title are presumed

fraudulent when made by persons against whom some judgment has been

rendered in any instance or some writ of attachment has been issued. Benigno

was ordered by the Court to support Isadora and the former faild to do so. Instead,

he sold his properties to his son-in-law. The presumption of fraud established by

the law in favor of petitioners is bolstered by other indicia of bad faith on the part

of the vendor and vendee. Thus, the vendee is the son-in-law of the vendor. In the

case of Regalado vs. Luchsinger & Co., 5 Phil. 625, the Court held that the close

relationship between the vendor and the vendee is one of the known badges of

fraud. At the time of the conveyance, the vendee, Sotero, was living with his father-

in-law, the vendor, and he knew that there was a judgment directing the latter to

give a monthly support to his wife Isidora and that his father-in-law was avoiding

payment and execution of the judgment. The fact that a vendor transfers all of his

property to a third person when there is a judgment against him is a strong

indication of a scheme to defraud one who may have a valid interest over his

properties. Such conduct of Sotero Sadorra reveals an "utter lack of sincerity and

truthfulness" and belies his pretensions of good faith.

 Further, the presumption of a fraudulent transaction is not overcome by the

mere fact that the deeds of sale in question were in the nature of public

instruments. The facts clearly show that, the sales made by the husband were

merely a scheme to place beyond the reach of the wife the only properties

belonging to the conjugal partnership and deprive her of what rightly belongs to

her and her only daughter Soledad.

CASE NO. 70

CONSTANTINO V. ESPIRITU
39 SCRA 206

FACTS:
A, married to B, executed a fictitious deed of sale of a two-storey house and

four subdivision lots in favor of his mistress, M, who at the time was pregnant, with

the understanding that the latter shall hold the properties in trust for their unborn

illegitimate child. After securing a new transfer certificate of title in her name, M

mortgaged the properties twice to a bank, and subsequently, she tried to sell them.

A then brought an action against her praying for the issuance of a writ of

preliminary injunction restraining her from further alienating or disposing of the

properties to their illegitimate child, X, who by that time was already five years old.

A motion to dismiss was filed on the ground that the illegitimate child, who is the

beneficiary of the alleged trust is not included as a party-plaintiff, and that the action

in question is unenforceable under the Statute of Frauds. Subsequently, A

amended his complaint so as to include X as party-plaintiff. The lower court

however, dismissed the case.

ISSUES:

1. Whether or Not there is a valid cause of action in the instant case.

2. Whether or Not the action is unenforceable under the Statute of Frauds.

RULING:

1. There is a valid cause of action in the instant case. Upon the facts alleged

in the complaint, the contract between appellant and appellee was a

contract pour autrui, although couched in the form of an absolute deed of

sale, and that appellant’s action was in effect, one for specific performance.

That one of the parties to a contract is entitled to bring an action for its

enforcement or to prevent its breach is too clear to need any extensive

discussion. Upon the other hand, that the contract involved contained a

stipulation pour autrui, amplifies this settled rule only in the sense that the

third person for whose benefit the contract was entered into may also

demand its fulfillment provided he had communicated his acceptance

thereof to the obligor before the stipulation in his favor is revoked.

It appearing that the amended complaint submitted by appellant to

the lower court impleaded the beneficiary under the contract as a party co-

plaintiff, it seems clear that the three parties concerned therewith would, as

a result, before the court and the latter’s adjudication would be complete

and binding upon them.

2. On the other hand, the contention that the contract in question is not

enforceable by action by reason of provisions of the Statute of Frauds does

 not appear to be indubitable, it being clear upon the facts alleged in the

amended complaint that the contract between the parties had already been

partially performed by the execution of the deed of sale, the action brought

below being only for the enforcement of another phase thereof, namely, the

execution by appellee of a deed of conveyance in favor of the beneficiary

thereunder.

CASE NO. 71
COQUIA V. FIELDMEN’S INSURANCE, CO.
26 SCRA 178

FACTS:

On December 1, 1961, the Fieldmen’s Insurance Co. issued in favor of the

Manila Yellow Taxicab Co., a common carrier accident insurance policy, covering

the period from December 1, 1961 to December 1, 1962. It was stipulated in said

policy that “the Company will indemnify the Insured in the event of accident against

all sums which the Insured will become legally liable to pay for death or bodily

injury to any fare-paying passenger including the driver, conductor, and/or

inspector who is riding the motor vehicle insured at the time of accident or injury.”

On February 10, 1962, as result of a vehicular accident, Carlito Coquia, driver of

one of the vehicles covered by said policy, was killed. Because of the failure of the

Company and the Insured to agree with respect to the amount to be paid to the

heirs of the driver, the Insured and the parents of Carlito, the Coquias, finally
brought this action against the Company to collect the proceeds of the

aforementioned policy.

ISSUE:

Whether or Not the Coquias have no cause of action because they have no

contractual relation with the Company.

RULING:

“Although in general, only parties to a contract may bring an action based

thereon, this rule is subject to exceptions, one of which is found in the second

paragraph of Article 1311 of the Civil Code of the Pilippines. This is but a

restatement of a well-known principle concerning contracts pour autrui, the

enforcement of which may be demanded by a third party for whose benefit it was

made, although not a party to the contract., before the stipulation in his favor has

been revoked by the contracting parties. Does the policy in question belong to such

class of contracts pour autrui?

“The policy provides, inter alia, that the Company ‘will indemnify any

authorized driver who is driving the motor vehicle.’ Of the Insured and, in the event

of death of said driver, the Company shall, likewise, ‘indemnify his personal

representatives.’

“Thus, the policy, is typical of contracts pour autrui, this character being

made more manifest by the fact that the deceased driver, paid fifty percent of the
premiums, which were deducted from his weekly commissions. Under these

conditions, the Coquias – who, admittedly are the sole heirs of the deceased –

have a direct cause of action against the Company, and, since, they could have

maintained this action by themselves, without the assistance of the Insured, it goes

without saying that they could and did properly join the latter in filling the complaint

hereon.”

CASE NO. 72
COUNTRY BAKERS INSURANCE CORP. V COURT OF APPEALS
G.R. NO. 85161, SEPTEMBER 9, 1991
FACTS:

Lessor Ventanilla and Lessee Sy, entered into a lease agreement over a

theater. The lease was for six years. After more than two years of the operation of

the theaters, Ventanilla made demands for the repossession of the leased

properties in view of Sy’s arrears in monthly rentals and non-payment of

amusement taxes. In pursuance of their latter agreement, Sy’s arrears in rental in

the amount of P125,445 was reduced to P71,028. However, the accrued

amusement tax liability of the three theaters to the City Government had

accumulated to P84,000 despite the fact that Sy had been deducting the amout of

P4,000 from his monthly rental with the obligation to remit the said deductions to

the city government. Hence, letters of demand were sent to Sy demanding

payment of the arrears in rentals and amusement tax delinquency.

 When Sy failed to pay the amounts in full, despite demands, Ventanilla

padlocked the gates of the three theaters under lease and took possession thereof.

Sy filed an action for reformation and injunction. By virtue of the injunction, Sy

regained possession of the theater. The trial court held that Sy is not entitled to

reformation. On the counterclaim, the court found that Ventanilla was deprived of

the enjoyment of the leased premises and suffered damages as a result of the

filing of the case by Sy and his violation of the terms and conditions of the

agreement. It held that Ventanillais entitled to recover the damages in addition to

the arrears in rentals and amusement tax delinquency of Sy and the accrued

interest thereon. It found that as of the end of November 1980, when Ventenilla

regained possession of the three theaters, Sy’s unpaid rentals and amusement tax

liability amounted to P289,534. In addition, it held Sy under obligation to pay

P10,000 every month from February to November 1980 or the total amount of

P100,000 with interest on each amount of P10,000 from the time the same became

due. Thus, P10,000 portion of the monthly lease rental was supposed to come

from the remaining cash deposit of Sybut with the consequent forfeiture of the

remaining cash deposit of P290,000, there was no more cash deposit from which

said amout could be deducted further. It adjudged Sy to pay attorney’s fees

equivalent to 10% of the amounts above-mentioned. Finally, the court held Sy thru

the injunction bond liable to pay P10,000 every month from February to November

1980. The amount represents the supposed increase in rental from P50,000 to

P60,000 in view of the offer of someone to lease the three theaters involved for

P60,000 a month. The Court of Appeals (CA) sustained the trial court.
ISSUE:

Whether or not Sy is entitled to reformation of the lease agreement.

RULING:

The Supreme Court affirmed the CA’s decision and held that inasmuch as

the forfeiture clause provides that the deposit shall be deemed forfeited, without

prejudice to any other obligation still owing by the lessee to the lessor, the penalty

cannot substitute for the P100,000 supposed damage resulting from the issuance

of the injunction against the P29,000 remaining cash deposit. This supposed

damage suffered by OVEC was the alleged P10,000 a month increase in rental

(from P50,000 to P60,000), which OVEC failed to realize for ten months from

February to November 1980 in the total sum of P100,000. This opportunity cost

which was duly proven before the trial court, was correctly made chargeable by

the said court against the injunction bond posted by CISCO. The undertaking

assumed by CISCO under subject injunction refers to “all such damages as such

party may sustain by reason of the injunction if the Court should finally decide that

the plaintiff was not entitled thereto.” The CA correctly sustained the trial court in

holding that the bond shall and may answer only for damages which OVEC may

suffer as a result of the injunction. The arrears in rental, the unremitted amounts

of the amusement tax delinquency, the amout of P100,000 (P10,000 portions of

each monthly rental which were not deducted form plaintiff’s cash deposit on

February 11, 1980) and attorney’s fees which were all charged against Sy were

correct and considered by the CA as damages which OVEC sustained not as a

result of the injunction.

CASE NO. 73

DE GUZMAN V. CA
137 SCRA 730
FACTS:

Respondent Ernesto Cendana was a junk dealer. He buys scrap materials

and brings those that he gathered to Manila for resale using 2 six-wheeler trucks.

On the return trip to Pangasinan, respondent would load his vehicle with cargo

which various merchants wanted delivered, charging fee lower than the

commercial rates. Sometime in November 1970, petitioner Pedro de Guzman

contracted with respondent for the delivery of 750 cartons of Liberty Milk. On

December 1, 1970, respondent loaded the cargo. Only 150 boxes were delivered

to petitioner because the truck carrying the boxes was hijacked along the way.

Petitioner commenced an action claiming the value of the lost merchandise.

Petitioner argues that the respondent, being a common carrier, is bound to

exercise extraordinary diligence, which it failed to do. Private respondent denied

that he was a common carrier, and so he could not be held liable for force majure.
The trial court ruled against the respondent, but such was reversed by the Court

of Appeals.

ISSUES:

1. Whether or not private respondent is a common carrier

2. Whether private respondent is liable for the loss of the goods

RULING:

1. Article 1732 makes no distinction between one whose principal business

activity is the carrying of persons or goods or both, and one who does such

carrying only as an ancillary activity. Article 1732 also carefully avoids making

any distinction between a person or enterprise offering transportation service

on a regular or scheduled basis and one offering such service on an occasional,

episodic or unscheduled basis. Neither does Article 1732 distinguish between

a carrier offering its services to the "general public," i.e., the general community

or population, and one who offers services or solicits business only from a

narrow segment of the general population.

It appears to the Court that private respondent is properly characterized as

a common carrier even though he merely "back-hauled" goods for other

merchants from Manila to Pangasinan, although such backhauling was done

on a periodic or occasional rather than regular or scheduled manner, and even

though private respondent's principal occupation was not the carriage of goods

for others. There is no dispute that private respondent charged his customers
 a fee for hauling their goods; that fee frequently fell below commercial freight

rates is not relevant here. A certificate of public convenience is not a requisite

for the incurring of liability under the Civil Code provisions governing common

carriers.

2. Article 1734 establishes the general rule that common carriers are responsible

for the loss, destruction or deterioration of the goods which they carry, "unless

the same is due to any of the following causes only:

a. Flood, storm, earthquake, lightning, or other natural disaster or

calamity;

b. Act of the public enemy in war, whether international or civil;

c. Act or omission of the shipper or owner of the goods;

d. The character of the goods or defects in the packing or in the containers;

and

e. Order or act of competent public authority."

The hijacking of the carrier's truck - does not fall within any of the five (5)

categories of exempting causes listed in Article 1734. Private respondent as

common carrier is presumed to have been at fault or to have acted negligently.

This presumption, however, may be overthrown by proof of extraordinary diligence

on the part of private respondent. We believe and so hold that the limits of the duty

of extraordinary diligence in the vigilance over the goods carried are reached

where the goods are lost as a result of a robbery which is attended by "grave or

irresistible threat, violence or force." we hold that the occurrence of the loss must

reasonably be regarded as quite beyond the control of the common carrier and
properly regarded as a fortuitous event. It is necessary to recall that even common

carriers are not made absolute insurers against all risks of travel and of transport

of goods, and are not held liable for acts or events which cannot be foreseen or

are inevitable, provided that they shall have complied with the rigorous standard

of extraordinary diligence.

CASE NO. 74
DE LA CERNA VS. DE LA CERNA
GR No. L-28838

FACTS:

During the marital life of the spouses Narciso de la Cerna and Eladia

Bustamante, they acquired a parcel of residential land located at San Roque

Street, City of Davao, with an area of 5,006 square meters, and covered by TCT

No. 2582 issued by the Register of Deeds of Davao. Narciso de la Cerna died on

October 20, 1945, and, on August 26, 1946, his surviving wife and their two

children named Lourdes de la Cerna and Melecio de la Cerna executed a deed of

Extra-Judicial Partition whereby they effect a settlement and adjudication of the

hereditary estate of the said deceased unto themselves by electing to be co-

owners in undivided shares of the parcel of land. It was proportioned that ½ of the

land goes to the wife, Eladia Bustamante, and the remaining ½ goes to the

children, Lourdes de la Cerna and Melencio de la Cerna. The deed of extra-judicial

partition and settlement was registered in the Office of the Register of Deeds of
Davao on September 4, 1946, on the basis of which, new title to the land was

issued in their names under TCT No. 2583. Sometime in 1949, Melencio de la

Cerna ceded his share in the land in favor of his sister Lordes de la Cerna in whose

name title to the same property was duly issued under TCT No. T-1995.

On February 27, 1967, Aquilina de la Cerna and her brother Apolinario de

la Cerna, claiming to be the children of the late Narciso de la Cerna with his alleged

first wife, Eulalia Quesada, instituted the action for partition and re-conveyance

against Lourdes de la Cerna.

ISSUE:

Whether or not the action for partition and re-conveyance has prescribed

RULING:

YES, the action has prescribed. There is no dispute that the extra-judicial

partition of the property of the deceased, Narciso de la Cerna, was executed by

defendant-appellant Lourdes de la Cerna with her mother and her brother on

August 26, 1946 and that the instrument of partition was registered in the Office of

the Register of Deeds of Davao on September 4, 1946. Such registration is

deemed to be a constructive notice that Lourdes de la Cerna had repudiated the

alleged fiduciary or trust relationship between her and plaintiffs vis-à-vis the

property in question and had thereby set up a title thereto adverse to them, as in

fact a new title was issued on the strength of the registration of such extra-judicial

partition. The prescriptibility of an action for re-conveyance based on implied or

constructive trust prescribes in ten years. In addition, the contention of plaintiffs

that fraud was committed by defendant is of no merit, considering that their subject

action for partition and re-conveyance of the property was filed only on February

21, 1961, or about twenty and a half years after such registration and issuance of

a new title in the name of Lourdes de la Cerna, has prescribed already. Inasmuch

as petitioners seek to annul the aforementioned deed of extra-judicial settlement

based on the ground of fraud, the action therefor may be filed within four years

from the discovery of the fraud. Assuming that there was fraud in the transfer of

the properties, the lapse of time since the discovery of the alleged fraud in 1941

has extinguished any right on the part of the petitioners to seek the re-conveyance

of the properties. Wherefore, the appealed judgment is AFFIRMED.

CASE NO. 75
FABIAN VS. FABIAN
GR No. L-20449

FACTS:

On January 1, 1909 Pablo Fabian bought from the Philippine Government

lot 164 of the Friar Estate in Muntinlupa, Rizal, of an area of 1 hectare, 42 ares

and 80 centares, for the sum of P112 payable in installments and was issued sale

certificate 547 by virtue of his purchase. After Pablo Fabian’s death, Silbina Fabian

and Teodora Fabian, daughter and niece of the deceased, respectively, executed

an affidavit through which sale certificate 547 was assigned to them.

On November 14, 1928, the acting Director of Lands, on behalf of the

Philippine Government, sold lot 164 to Silbina Fabian and spouse Feliciano

Landrito, and Teodora Fabian and spouse Francisco del Monte, for the sum of

P120. The vendee spouses forthwith in 1929 took physical possession thereof,

cultivated it, and appropriated the produce therefrom. Since 1929, they have been

paying the real estate taxes by virtue of tax declarations 2418 and 2419 issued to

Teodora Fabian and Silbina Fabian. Later on, the Register of deeds of Rizal issued

TCT 33203 over lot 164 in their names.

On July 18, 1960, plaintiffs, Esperanza Fabian, Benita Fabian, and Damaso

Fabian filed an action for re-conveyance against the defendants, averring that

Silbina and Teodora, through fraud perpetrated in their affidavit a false narration

of facts because Silbina knew that she is not the only daughter and heir of the
deceased Pablo Fabian, and Teodora likewise knew all along that, as a mere niece

of the deceased, she was precluded from inheriting from him in the presence of

his four surviving daughters; that by virtue of this affidavit, the said defendants

succeeded in having sale certificate transferred in their names; and that by virtue

also of these assignment and transfer, the defendants succeeded fraudulently in

having lot 164 registered in their names under TCT 33203. They further allege that

the land has not been transferred to an innocent purchaser for value.

On the other hand, defendants claim that Pablo Fabian was not the owner

of lot 164 at the time of his death on August 2, 1928 because he had not paid in

full the amortizations on the lot; that they are the absolute owners thereof, having

purchased it from the Government for the sum of P120, and from that year having

exercised all the attributes of ownership thereof up to the present; and that the

present action for re-conveyance has already prescribed.

ISSUES:

1. Whether or not Pablo Fabian was the owner of lot 164 at the time of his

death

2. Whether or not laches constitute a bar to an action to enforce a constructive

trust

3. Whether or not the title to the land has vested in the appellees through the

mode of acquisitive prescription

RULING:
1. YES, Pablo Fabian is the owner of lot 164 at the time of his death. Lot 164

was a part of the Friar Lands Estate of Muntinlupa, Rizal, therefore its sale

to Pablo Fabian was governed by Act 1120, otherwise known as the Friar

Lands Act which under Section 15 states that, title to the land sold is

reserved to the Government until the purchaser makes full payment of all

the required installments and the interest. This legal reservation refers to

the bare, naked title. The equitable and beneficial title really went to the

purchaser the moment he paid the first installment and was given a

certificate of sale. For instance, after issuance of the sales certificate and

pending payment in full of the purchase price, the government may not sell

the lot to another. It may not even encumber it. It may not occupy the land

to use or cultivate, neither may it lease it or even participate or share in its

fruits. In other words, the government does not and cannot exercise the

rights and prerogatives of owner. And when said purchaser finally pays the

final installment in the purchase price and is given a deed of conveyance

and a certificate of title, the title at least in equity, retroacts to the time he

first occupied the land, paid the first installment and was issued the

corresponding certificate of sale. In other words, the purchaser is entitled to

all the benefits and advantages which may accrue to the land as well as

suffer the losses that may befall it. That Pablo Fabian had paid five annual

installments to the Government, and in fact been issued sale certificate 547

in his name, are conceded. He was therefore the owner of lot 164 at the

time of his death.

2. YES, laches constitute a bar to an action to enforce a constructive trust.

Article 1456 of the new Civil Code, while not retroactive in character, merely

expresses a rule already recognized by our courts prior to the Code’s

promulgation. Appellants are, however, in error in believing that like express

trust, such constructive trust may not be barred by lapse of time. In

constructive trusts, the rule is that laches constitutes a bar to actions to

enforce the trust, and repudiation is not required, unless there is a

concealment of the facts giving rise to the trust.

3. YES, the title of the land has vested to the appellees through the mode of

acquisitive prescription. It is already settled in this jurisdiction that an action

for re-conveyance of real property based upon a constructive or implied

trust, resulting from fraud, may be barred by the statute of limitations. Upon

the undisputed facts in the case at bar, not only had laches set in when the

appellants instituted their action for re-conveyance in 1960, but as well as

their right to enforce the constructive trust had already prescribed. It

logically follows from the above disquisition that acquisitive prescription has

likewise operated to vest absolute title in the appellees, pursuant to the

provisions of section 41 of Act 190 that ten years actual adverse possession

by any person claiming to be the owner for that time of any land or interest

in land, uninterruptedly continued for ten years by occupancy, decent,

grants or otherwise, in whatever way such occupancy may have

commenced or continued, shall vest in every actual occupant or possessor

of such land a full and complete title. Although paragraph 13 of the

stipulation of facts hereinbefore adverted to does not explicitly employ the

word “adverse” to characterize the possession of the defendants from 1928

up to the filing of the complaint in 1960, the words, “defendants have been

in possession of the lands since 1928 up to the present publicly and

continuously under claim of ownership; they have cultivated it, harvested

and appropriated the fruits for themselves,” clearly delineate, and can have

no other logical meaning than, the adverse character of the possession

exercised by the appellees over the land. Upon the foregoing disquisition, it

was held that not only the action to enforce the constructive trust created in

favor of the appellants has prescribed, but as well that a valid, full and

complete title has vested in the appellees by acquisitive prescription.

CASE NO. 76
FISHER VS. ROBB
GR No. 46274

FACTS:

In September 1936, defendant John C. Robb was sent to Shanghai by the

board of directors of the Philippine Greyhound Club to study the operation of a dog

racing course. During the trip, he met plaintiff A.O. Fisher, who showed interest in

the Philippine Greyhound Club and asked the defendant if he could have a part

therein as stockholder. Defendant answered in the affirmative and plaintiff filled a

subscription blank and through his bank in Shanghai, sent to the Philippine

Greyhound Club in Manila, telegraphic transfer for P3,000 in payment of the first

installment of his subscription. A few months later, defendant sent a radiogram to

inform plaintiff for the payment of the second installment of the subscriptions, with

petitioner sending P2,000 directly to the Philippine Greyhound Club. However,

during the absence of the defendant, those who controlled the Club undertook the

organization of a company called the Philippine Racing Club, which now manages

the race track of the Santa Ana Park. Defendant immediately endeavored to save

the investment of those who had subscribed to the Philippine Greyhound Club by

having the Philippine Racing Club acquire the remaining assets of the Philippine

Greyhound Club. Defendant wrote a letter to plaintiff explaining in detail the critical

condition of the Greyhound Club and outlining his plans to save the properties and

assets of the plaintiff that he felt morally responsible to the stockholders who had

paid their second installment.

 Plaintiff responded in letter requiring defendant to return the entire amount

paid by him to the Philippine Greyhound Club. Upon receipt of the letter, defendant

answered that the corporation is finally flat, so it is out of the question to receive

back any of the investment from that source, and that the only salvage will be the

second payment that plaintiff made, which will personally come from defendant

and Hilscher.

ISSUE:

Whether or not there is sufficient consideration to justify the promise made

by the defendant appellant in his letter

RULING:

NO, there is no sufficient consideration. In the present case, while the

defendant-appellant told the plaintiff that he felt morally responsible for the second

payments which had been made to carry out his plan, and that Mr. Hilscher and

he would do everything possible so that the stockholders who had made second

payments may receive the amount paid by them from their personal funds because

they voluntarily assumed the responsibility to make such payment as soon as they

receive from the Philippine Racing Club certain shares for their services as

promoters of said organization, it does not appear that the plaintiff had consented

to said form of reimbursement of the P2,000 which he had directly paid to the

Philippine Greyhound Club, in satisfaction of the second installment. The first

essential requisite therefor, required by the cited article 1261 of the Civil Code for

the existence of a contract, does not exist.

 The contract sought to be judicially enforced by the plaintiff against the

defendant is onerous in character because it supposes the deprivation of the latter

of an amount of money which impairs his property, which is a burden, and for it to

be legally valid it is necessary that is should have a consideration consisting in the

lending or promise of a thing or service by such party. The defendant is required

to give a thing, namely, the payment of the sum of P2,000, but the plaintiff has not

given or promised anything or service to the former which may compel him to make

such payment. The obligation which the said defendant had contracted with the

plaintiff is, therefore, purely moral and, as such, is not demandable in law but only

in conscience, over which human judges have no jurisdiction.

The promise made by an organizer of a dog racing course to a stockholder

to return to him certain amounts paid by the latter in satisfaction of his subscription

upon the belief of said organizer that he was morally responsible because of the

failure of the enterprise, is not the consideration required by Article 1261 of the

Civil Code as an essential element for the legal existence of an onerous contract

which would bind the promisor to comply with his promise. The judgment is

reversed.
CASE NO. 77
GARCIA VS. LIM CHU SING
GR No. L-39427

FACTS:

On June 20, 1930, defendant Lim Chu Sing executed and delivered to the

Mercantile Bank of China a promissory note for the sum of P19,605.17 with interest

thereon at 6 percent per annum, payable monthly as follows: P1,000 on July 1,

1930; P500 on August 1, 1930, and P500 on the first of every month thereafter

until the amount of the promissory note together with the interest thereon is full

paid. One of the conditions stipulated in said promissory note is that in case of

defendant’s default in the payment of any monthly installments, as they become

due, the entire amount or the unpaid balance thereof together with interest thereon

at 6 percent per annum, shall become due and payable on demand. The defendant

had been making several payments, leaving an unpaid balance of P9,105.17.

However, he defaulted in the payment of several installments by reason of which

the unpaid balance of P9,105.17 on the promissory note had ipso facto become

due and demandable.

According to defendant, the debt which is the subject matter of the

complaint was not really his indebtedness but was of Lim Cuan Sy, who had an

account with the plaintiff bank in the form of trust receipts guaranteed by the

defendant as surety and with chattel mortgage securities. The plaintiff bank,

without the knowledge of the defendant, foreclosed the chattel mortgage and

privately sold the property covered thereby. The defendant is the owner of shares
of stock of the plaintiff Mercantile Bank of China amounting to P10,000. On

December 27, 1932, defendant filed a motion praying for the inclusion of the

principal debtor Lim Cuan Sy as party defendant so that he could avail himself of

the benefit of the exhaustion of property of said Lim Cuan Sy. The motion was

denied in open court by the presiding judge without the defendant having excepted

to such order of denial.

ISSUES:

1. Whether or not the court erred in denying the motion for inclusion of a party

as defendant

2. Whether or not it is proper to compensate the defendant’s indebtedness of

P9,105.17, which is claimed in the complaint, with the sum of P10,000

representing the value of his shares of stock with plaintiff entity, the

Mercantile Bank of China

3. Whether or not the defendant should pay the sum of P910.51 as attorney’s

fees in addition to interest at 6 percent per annum on the amount sought in

the complaint.

RULING:

1. NO, there was no error in denying the motion for inclusion of a party as

defendant. According to the provisions of Section 141 of the Code of Civil

Procedure, rulings of the court upon minor matters, such as adjournments,

postponements of trials, the extension of time for filing pleadings or motions,

and other matters addressed to the discretion of the court in the

 performance of its duty, shall not be subject to exception. But exception may

be taken to any other ruling, order, or judgment of the court made during

the pendency of the action in the CFI. Errors in a judgment or decree will

not be noticed on appeal in the absence of objections and exceptions taken

below and they should be sufficiently specific to direct the attention of the

court to the alleged defects. Inasmuch as an exception is an objection taken

to the decision of the trial court upon a matter of law and is a notice that the

taking it will submit for the consideration of the appellate court the ruling

deemed erroneous, failure to interpose it deprived the appellant of the right

to raise the question whether or not the court a quo committed the alleged

error attributed to its ruling in which had not been excepted to by the said

appellant. The inclusion in, or exclusion from an action of a certain party is

a question of law. The herein defendant, not having excepted to the order

of the CFI of Manila denying his motion for the inclusion of Lim Cuan Sy as

party defendant, is estopped from raising such question upon appeal.

2. NO, compensation of the defendant’s indebtedness with the value of his

shares of stock is not proper. According to the weight of authority, a share

of stick or the certificate thereof is not an indebtedness to the owner nor

evidence of indebtedness and therefore, is not a credit. Stockholders, as

such, are not creditors of the corporation. It is the prevailing doctrine of the

American courts that the capital stock of a corporation is a trust fund to be

used more particularly for the security of the creditors of the corporation,

who presumably deal with it on the credit of its capital stock. Therefore, the
 defendant, not being a creditor of the Mercantile Bank of China, although

the latter is a creditor of the former, there is no sufficient ground to justify a

compensation.

3. NO, the defendant should not be made to pay for them. The pertinent clause

of the promissory note reads as follows: “In case of default of any of the

above installments, the total amount of the balance still unpaid of this note

will become due and payable on demand plus interest thereon at the rate

of 6 percent per annum from date of this note until payment is made. And I

further agree to pay an additional sum equivalent to 10 percent of the said

not to cover cost and attorney’s fees for collection.”

The stipulation relative to the payment of interest at the rate of 6 percent

per annum on the unpaid balance of the promissory no refers to the capital and

the 10 percent stipulated for costs and attorney’s fees cannot be considered as

interest but an indemnity for damages occasioned by the collection of the

indebtedness through judicial process. Therefor the two rates in question cannot

be combined and considered usurious interest. With reference to the costs, the 10

percent stipulated in the promissory note is for costs and attorney’s fees which

may be incurred in the collection of the indebtedness through judicial process.

Therefore, the defendant should not again be made to pay for them.
CASE NO. 78

LETTY HAHN V. COURT OF APPEALS, JOSIE M. SANTOS AND FRANCISCO

SANTOS
G.R. NO. L-55372 MAY 31, 1989

FACTS:

Letty Hahn, the petitioner, sent to Josie M. Santos, private respondent, two

diamond rings with a total value of P47,000.00 in 1966. The rings were entrusted

to the private respondent for sale and the same would be returned upon demand

if unsold. The rings were not sold nor returned to the petitioner.

Petitioner filed a civil and criminal case for estafa. However, in the criminal

case, private respondent was acquitted beyond reasonable doubt. The Regional

Trial Court ruled in favor of the petitioner and ordered for the return of the rings or

pay the petitioner their value, now amounting to P65, 000.00, with legal interest,

moral and exemplary damages, and attorney`s fees.

On appeal, the Court of Appeals modified the penalty imposed by the lower

court believing the appellant had not acted in bad faith or with malice. Thus, the

penalty was mitigated. If the rings cannot be returned, payment of the original

price, P47,000.00, shall be made with legal interest and attorney`s fees.

The petitioner contends that the respondent court erred in the reversal of

judgment. The indemnification she is entitled, according to the petitioner, is actually

P235, 000.00 due to the continued reduction of the purchasing power of the peso.

Furthermore, the removal of the moral and exemplary damages was not justified

because the private respondent had actually acted with malice and in bad faith.

Such allegation was due to the lies of the private respondent with regards to the
latter`s alleged payment to her when there was none and denial of the authenticity

of the receipts she made in connection with the contract. Moreover, when private

respondent offered to return the rings, the petitioner immediately noticed its

obvious difference from those which she had entrusted to the private respondent.

On the other hand, the private respondent avers that it was the petitioner

who was delaying her fulfillment of their agreement. According to her, her efforts

to return the rings as well as the payment by installment of such were rejected.

Also, the demand of the petitioner to increase the indemnity was not proper since

issue of inflation was not even raised.

ISSUES:

1. Whether or not the lower court erred in applying the ``floating rate`` to the

purely peso transaction.

2. Whether or not the petitioner is accountable for the delay of the fulfillment

of contract.

3. Whether or not the respondent court erred in disallowing moral and

exemplary damages on the ground that the private respondent did not act

with malice and in bad faith.

RULING:

1. The lower court erred in applying the ``floating rate`` to the purely peso

transaction.

``Extraordinary inflation or deflation of currency`` is any uncommon

decrease or increase to the purchasing power of currency which the parties

could not have reasonably foreseen and which has been due to war and the

effects thereof or any unusual force majeure or fortuitous event.

There is no legal justification in the application of ``floating rate``

since there has been no ``extraordinary inflation`` of currency.

2. The private respondent is accountable for the delay of the fulfillment of

contract.

It was caused by the private respondent and not the petitioner who

had the right to demand full performance of the former`s obligations. From

the moment demand was made upon the private respondent and she

did not or could not comply, she already incurred delay.

Moreover, the petitioner could validly reject the private respondent`s

offer to pay the rings on installment basis because the petitioner is entitled

to payment in full. With regards to the petitioner`s refusal to accept the

return of the ring, it was justified that ``the debtor of a thing cannot compel

the creditor to receive a different one, although the latter may be of the same

value as, or more valuable than that which is due (Article 1244, New Civil

Code)``.
3. The respondent court in disallowing moral and exemplary damages on the

ground that the private respondent did not act with malice and in bad faith.

It seems that the private respondent lacks of scruples and

conscientiousness when her statements were inconsistent. There is so

much deviousness and complexity in her testimony.

Petition was GRANTED.

CASE NO. 79

H.E. Heacock Company v. Macondray and Company, Inc.

G.R. No. L-16598 October 3, 1921

FACTS:

On or about the 5th day of June 1919, plaintiff was caused to be

delivered of 12 eight-day properly boxed Edmond clocks which was carried

by a steamship of Bolton Castle from the harbor of New York. On the 10 th

of September, 1919, the steamship arrived in the port of Manila. However,

neither the master of the vessel nor the defendant delivered the clocks

despite the demand of the petitioner. The invoice value of the 12 Edmond

clocks in New York was P22.00 whereas in Manila, those cost P420.00 if

those have been delivered.

In response to the demands of the petitioner, the respondent issued

and delivered to the former the bill of lading saying:

1. The value of the goods receipted does not exceed $500 per freight and

ton, or, in proportion of a ton, unless the value be expressly stated

therein.
9. In the event of claims for short delivery of, or damage to, cargo being

made, the carrier shall not be liable for more than the net invoice price

plus freight and insurance less all saved charges saved, and any loss or

damage for which the carrier may be liable shall be adjusted pro rata on

the said basis.

The case containing the clocks measured 3 cubic feet, and the freight

ton value thereof was $1480. No greater value than $500 per freight ton

was declared by the plaintiff on the aforesaid clocks, and no ad valorem

freight was paid thereon.

On or about October 19, 1919, defendant tendered to the plaintiff

P76.36, the proportionate freight ton value of the twelve 8-Edmond clocks,

in payment of plaintiff`s claim, which tender plaintiff rejected.

The RTC ruled in favor of the plaintiff which he became entitled to

P226.02 being the invoice value of the clocks plus the freight and insurance

with legal interest. Both parties then appealed to this court.

Petitioner averred that he is also entitled to the payment of market

value of the clocks amounting to P420.00. He claimed that the two clause

in the bill of lading, limiting the liability of the carrier, are contrary to public

order and, therefore, null and void. On the other hand, the defendant-

appellant insisted that plaintiff is only entitled to the sum of P76.36

according to the first clause of bill of lading and the stipulations in the

contract are valid.

ISSUE:
 Whether or not a common carrier, by stipulations inserted in the bill

of lading, limit its liability for the loss of or damage to the cargo to an agreed

valuation of the latter.

RULING:

There are three kinds of stipulations made in the bill of lading. The

first one exempts the carrier from any and all liability for loss or damage

occasioned by its own negligence. The second provides for an unqualified

limitation of such liability to an agreed valuation. The third and last, limits

the liability of the carrier to an agreed valuation unless the shipper declares

a higher value and pays a higher rate of freight.

Upon perusal of the case, it is clear that it falls within the third

stipulation. A limitation of liability based upon agreement of value to obtain

a lower rate is not conflicting with public policy. It is concluded that the

clauses (1 and 9) of the bill of lading are not contrary to public order. Article

1255 of the Civil Code provides that ``the contracting parties may establish

any agreements, terms and conditions they may deem advisable, provided

they are not contrary to law, morals or public order.

The bill of lading, having conflicting clauses, was resolved by

interpreting in favor of the plaintiff. The clauses of the bill of lading are valid

and binding upon the parties.

Petition was GRANTED.

CASE NO. 80

Lucita Estrella Hernandez v. Court of Appeals and Mario Hernandez

G.R. No. 126010 December 8, 1999

FACTS:

The case at bar is a petition for annulment of marriage.

Lucita Estrella Hernandez, petitioner, is married to Mario Hernandez,

the respondent. During their marriage, they begot three children. Everything

was smooth during the early stage of their married life until the respondent

showed his true color.

The two met in the Philippine Christian University in Dasmariñas,

Cavite where the petitioner was once a professor of the respondent. She

was five years older than him but that did not stop the two to pursue the

desires of their hearts. When the respondent was no longer her student,

they became a couple and eventually got married. The petitioner helped the

respondent`s family with the latter`s education by providing him allowances

and other financial needs.

However, it was during their marriage when the petitioner realized

her husband is psychologically incapacitated to perform his marital

obligations. He engaged in extramarital affairs with different women which

caused him to contract STD and later on infected the petitioner. He also had

an illegitimate child in the course of his infidelity. The petitioner also averred

that he is a responsible father and a husband for not exerting efforts to work
for the family. Instead, he constantly engaged in smoking and drinking

session with his friends. She was also physically abused by the respondent.

Lastly, without a word, he flew to Saudi Arabia and abandoned his family.

His whereabouts had been unknown since then.

Despite the arguments presented by the petitioner to the court, she

was not favored. The lower court contended that the arguments presented

by the petitioner are grounds for legal separation, not annulment of

marriage. Article 55 of the Family Code reads as follows:

1. Repeated physical violence or grossly abusive conduct directed against

the petitioner, a common child or a child of the petitioner.

3.Drug addiction or habitual alcoholism of the respondent.

8. Sexual infidelity or perversion.

10. Abandonment of petitioner by respondent without justifiable cause for

more than one year.

With the dismissal, the petitioner appealed to the Court of Appeals

which affirmed the decision of the lower court. The court was convinced

that there is no proof that the respondent was already psychologically

incapacitated at the time of celebration of marriage.

ISSUE:

Whether or not the marriage of the petitioner and respondent should

be annulled on the ground of private respondent`s psychological

incapacity.

RULING:

No, the marriage cannot be annulled on the ground of private

respondent`s alleged psychological incapacity.

Psychological incapacity refers to no less than a mental incapacity

that causes a party to be incognitive of the basic marital covenants that

concomitantly must be assumed and discharged by the parties to the

marriage which, as so expressed by Article 68 of the Family Code, include

their mutual obligations to live together, observe love, respect and fidelity

and render help and support. It must exist at the time the marriage is

celebrated. It must be to the extent that the person could not have known

the obligations he was assuming, or knowing them, could not have given

valid assumption thereof. It could have been supported by expert testimony

to show that such incapacity existed at the inception of the marriage.

Other forms of psychoses like the state of being of unsound mind or

concealment of drug addiction, habitual alcoholism, lesbianism or

homosexuality only renders the marriage voidable.

Petition was DENIED.

CASE NO. 81

House International Building Tenants Association, Inc. v.Intermediate

Appellate Court

G.R. No. 75287

FACTS:

Petitioner House International Building Tenants Association, Inc. is a

domestic non-stock, non-profit civic corporation comprising of more than

hundred families of long and good standing of the 14-storey House

International Building located at 777 Ongpin St. Binondo, Manila. The land

and improvements made in the establishment were formerly owned by

Atty. Felipe Ang. It was mortgaged by the latter to Government Service

Insurance System (GSIS) and upon failure of redemption was then sold to

Centertown Marketing Corporation by conditional sale. Such transaction

was without the knowledge of the residents therein and clearance from the

Ministry of Human Settlements.

Without power to engage in real estate business, Centertown

organized a sister group under the corporate name Towers Development

Corporation. It acquired the rights and obligations stipulated in the Deed of

Sale appended with the consent and approval of the GSIS.

Petitioner filed a complaint with the RTC against Centertown,

Towers, and GSIS seeking to annul the sale and the assignment by

Centertown to Towers. The petitioner alleged that the contract is null and

void ab initio for being ultra vires since Centertown cannot acquire real
estate property or engage in real estate transactions. Complaint was

dismissed in the lower court as well as in the appellate court.

ISSUES:

1. Whether or not the petitioner has the personality to sue, on its own, as

a corporation representing its members who are tenants of the House

International Building.

2. Whether or not the petitioner has a cause of action against respondent

GSIS, Centertown, and Towers.

RULING:

1. The petitioner has no personality to sue, on its own, as a corporation

representing its members which are tenants of the House International

Building.

Petitioner has not shown any real, actual, material or substantial

interest in the subject matter of the action. It has sued its name but has

not alleged any right belonging to it that was violated. The real party in

interest are the tenants of the House of International Building and not

the petitioner association.

2. Petitioner has no cause of action against respondents GSIS,

Centertown, and Towers.

The contention of the petitioner against the validity of the contract

rooted from its belief that the sale was ultra vires due to the fact that the
 respondent Centertown is not qualified to acquire properties. Ultra vires

contract is merely voidable, thus, cause of action cannot be granted.

CASE NO. 82

JOSE M. JAVIER and ESTRELLA F. JAVIER vs. COURT OF APPEALS and

LEONARDO TIRO
G.R. No. L-48194 March 15, 1990

REGALADO, J.:

FACTS:
Private respondent is a holder of an ordinary timber license covering

2,535 hectares in the town of Medina, Misamis Oriental.

On February 15, 1966 he executed a "Deed of Assignment” in favour

of the petitioners to assign, transfer and convey his shares of stocks in the

TIMBERWEALTH CORPORATION in the total amount of P120, 000.00 in

which P20, 000.00 shall be paid upon signing of the contract and the

balance of P100, 000.00 shall be paid in P10, 000.00 every shipment of

export logs actually produced from the forest concession.

At the time the said deed of assignment was executed, private

respondent had a pending application for an additional forest concession

southwest of and adjoining the area of the concession subject of the deed

of assignment. Hence, on February 28, 1966, private respondent and

petitioners entered into another "Agreement" which stipulates that in the

 event of the approval of the additional concession, the former’s rights shall

be transferred to the latter in consideration for the sum of P30, 000.00.

On November 18, 1966, the private respondent’s forest concession

was renewed up to May 12, 1967, but since the concession consisted of

only 2,535 hectares, he was therein informed that he is given until May 12,

1967 to form an organization such as a cooperative, partnership or

corporation with other adjoining licensees so as to have a total holding area

of 20,000.00

On April 10, 1967, the petitioners, now acting as timber license

holders by virtue of the deed of assignment, entered into a Forest

Consolidation Agreement with other ordinary timber license holders.

On July 16, 1968, for failure of petitioners to pay the balance due

under the two deeds of assignment, private respondent filed an action

against petitioners. The petitioners contend that private respondent failed

his contractual obligations and the conditions for the enforceability of the

obligations did not materialize. Private respondent then replied that the

deed of assignment did not only transfer his shares of stocks but his rights

and interest in the logging concession.

The trial court rendered judgment for the petitioners, however the

Court of Appeals reversed the decision.

ISSUE:
 1. Whether or not the deed of assignment dated February 15, 1966 is null

and void because of the total absence of consideration.

2. Whether or not the agreement of February 28, 1966 is null and void for

non-fulfilment of the conditions stated therein.

RULING:
1. No. As found by the Court of Appeals, the true cause or consideration

of said deed was the transfer of the forest concession of private

respondent to petitioners for P120,000.00. The contemporaneous and

subsequent acts of the petitioners and private respondent revealed that

the cause stated in the questioned deed of assignment is false. It is

settled that the previous and simultaneous and subsequent acts of the

parties are properly cognizable indica of their true intention. The deed of

assignment of February 15, 1966 is a relatively simulated contract which

states a false cause or consideration, or one where the parties conceal

their true agreement. A contract with a false consideration is not null and

void per se. Under Article 1346 of the Civil Code, a relatively simulated

contract, when it does not prejudice a third person and is not intended

for any purpose contrary to law, morals, good customs, public order or

public policy binds the parties to their real agreement.

2. As to the alleged nullity of the agreement dated February 28, 1966, the

Supreme Court agreed with petitioners that they cannot be held liable

thereon. The efficacy of said deed of assignment is subject to the

condition that the application of private respondent for an additional area

for forest concession be approved by the Bureau of Forestry. Since

private respondent did not obtain that approval, said deed produces no

effect. When a contract is subject to a suspensive condition, its birth or

effectivity can take place only if and when the event which constitutes

the condition happens or is fulfilled. If the suspensive condition does not

take place, the parties would stand as if the conditional obligation had

never existed. The said agreement is a bilateral contract which gave rise

to reciprocal obligations, that is, the obligation of private respondent to

transfer his rights in the forest concession over the additional area and,

on the other hand, the obligation of petitioners to pay P30,000.00. The

demandability of the obligation of one party depends upon the fulfillment

of the obligation of the other. In this case, the failure of private

respondent to comply with his obligation negates his right to demand

performance from petitioners. Moreover, under the second paragraph of

Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or

expectancy is deemed subject to the condition that the thing will come

into existence. In this case, since private respondent never acquired any

right over the additional area for failure to secure the approval of the

Bureau of Forestry, the agreement executed therefor, which had for its

object the transfer of said right to petitioners, never became effective or

enforceable.
CASE NO.83

JOVAN LAND vs. COURT OF APPEALS and EUGENIO QUESADA INC.

G.R. No. 125531 February 12, 1997

HERMOSISIMA, JR., J.:

FACTS:

Petitioner Jovan Land, Inc. is a corporation engaged in the real estate

business. Its President and Chairman of the Board of Directors is one Joseph Sy.

Private respondent Eugenio Quesada is the owner of the Q Building located on an

801 sq. m. lot at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz,

Manila

On July 27, 1987 the petitioner sent a written offer to buy the property for

P10.25M. This was not accepted by the respondent. On July 31, 1989, the

petitioner again sent a written offer to buy for the same price but inclusive of

undertaking to pay incidental taxes and fees. A check of P1M was enclosed as

earnest money. This offer was again rejected by the private respondent.
Undaunted, Joseph Sy, on August 10, 1989, sent a third written offer for P12M

with a similar check for P1M for earnest money. Annotated on this third letter-offer

was the phrase “Received Original, 9-4-89” beside which appears the signature of

Conrado Quesada.

On the basis of this annotation which petitioner insists is the proof that there

already exists a valid, perfected agreement to sell the Mayhaligue property,

petitioner filed with the trial court, a complaint for specific performance and

collection of sum of money with damages. The trial court dismissed the complaint

for lack of cause of action, ruled that the business encounters between the parties

had not passed the negotiation stage relating to the intended sale of the property

in question. There is nothing in the record to point that a contract was ever

perfected. Upon appeal of the petitioner to the Court of Appeals, it concluded that

none of the assigned errors by the petitioner justifies a reversal of the ruling of the

trial court.

ISSUE:

Whether or not there was a perfected contract of sale between Jovan

Land and Eugenio Quesada Inc.

RULING:

The Supreme Court upheld the decision of the Court of Appeals and the

trial court. In the case of Ang Yu Asuncion v Court of Appeals, the Supreme Court

held that:
[A] contract (Art. 1157, Civil Code) is a meeting of minds between two persons

whereby one binds himself, with respect to the other, to give something or to render

some service. A contract undergoes various stages that include its negotiation or

preparation, its perfection and, finally, its consummation. Negotiation covers the

period from the time the prospective contracting parties indicate interest in the

contract to the time the contract is concluded. The perfection of the contract takes

place upon the concurrence of the essential elements thereof.

Moreover, it is a fundamental principle that before contract of sale can be

valid, the following elements must be present, viz: (a) consent or meeting of the

minds; (b) determinate subject matter; (3) price certain in money or its equivalent.

Until the contract of sale is perfected, it cannot, as an independent source of

obligation, serve as a binding juridical relation between the parties.

The Court is not impressed with the contention of the petitioner because the

notation merely states as follows: "Received Original, (S) — Conrado Quesada"

and below this signature is "9-4-89". As explained by Conrado Quesada in his

testimony what was received by him was the original of the written offer. The court

cannot believe that this notation would signify the acceptance of the offer. Neither

does it signify, as Sy had testified that the check was duly received on said date.

Sy could have asked Quesada the acceptance in writing separate of the written

offer if indeed there was an agreement as to the price of the proposed sale of the

property in question. Clearly then, a punctilious examination of the receipt reveals

that the same can neither be regarded as a contract of sale nor a promise to sell.

Such an annotation by Conrado Quesada amounts to neither a written nor an

implied acceptance of the offer of Joseph Sy. It is merely a memorandum of the

receipt by the former of the latter's offer. The requisites of a valid contract of sale

are lacking in said receipt and therefore the "sale" is neither valid nor enforceable.

CASE NO. 84

GEORGE A. KAUFFMAN vs. THE PHILIPPINE NATIONAL BANK

G.R. No. 16454 September 29, 1921

STREET, J.:

FACTS:

George A. Kauffman, was the president of Philippine Fiber and Produce

Company. On February 5, 1918 the plaintiff was entitled to a P98,000.00 dividend

from the company’s surplus earnings for the year 1917. On October 9, 1918,

George Wicks, treasurer of the company requested for a telegraphic transfer at the

Philippine National Bank for the sum of $45,000.00 to the account of the plaintiff in

New York City. Accordingly, Wicks drew and delivered a check for the total cost of

the transfer, including exchange and cost of message in the amount of P90,335.50.

The officer of the PNB accepted the same and as evidence of the transaction, a

document was made out and delivered to Wicks, which is referred to by the bank’s

assistant cashier as its official receipt.

On the same day, the PNB dispatched to its New York agency a cablegram

to the following effect:

Pay George A. Kauffman, New York, account Philippine Fiber Produce

Co., $45,000.00

(Sgd) PHILIPPINE NATIONAL BANK, Manila.

 The bank’s representative in New York, upon receiving the telegraphic

message, replied suggesting the advisability of withholding the money from

Kauffman, in view of his reluctance to accept certain bills of the PFPC. The PNB

acquiesced in this and on October 11 advised its New York agency to withhold the

Kaufmann payment. Meanwhile, upon the advice of Wicks, Kauffman presented

himself in PNB New York on October 15 and demanded the money. By this time,

the withholding of payment was received thereby refusing payment to Kauffman.

The petitioner instituted the present action in the Court of First Instance of

the City of Manila to recover said sum, and judgment having been entered

favourably to the plaintiff, thus the defendant appealed.

ISSUE:

Whether or not the plaintiff has a cause of action considering his lack of

privity to the contract between the PNB and George Wicks.

RULING:

Yes, the right of action exists. The defense is mainly, if not exclusively,

based upon the proposition that, inasmuch as the plaintiff Kauffman was not a

party to the contract with the bank for the transmission of this credit, no right of

action can be vested in him for the breach thereof. "In this situation," — we here

quote the words of the appellant's brief, — "if there exists a cause of action against

the defendant, it would not be in favor of the plaintiff who had taken no part at all

in the transaction nor had entered into any contract with the plaintiff, but in favor of
the Philippine Fiber and Produce Company, the party which contracted in its own

name with the defendant."

The only express provision of law that has been cited as bearing directly on

this question is the second paragraph of article 1257 of the Civil Code; and unless

the present action can be maintained under the provision, the plaintiff admittedly

has no case. This provision states an exception to the more general rule expressed

in the first paragraph of the same article to the effect that contracts are productive

of effects only between the parties who execute them.

“Should the contract contain any stipulation in favor of a third person, he may

demand its fulfillment, provided he has given notice of his acceptance to the person

bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.)”

If a third person claims an enforceable interest in the contract, the question

must be settled by determining whether the contracting parties desired to tender

him such an interest. Did they deliberately insert terms in their agreement with the

avowed purpose of conferring a favor upon such third person? In resolving this

question, of course, the ordinary rules of construction and interpretation of writings

must be observed.

The right of the plaintiff to maintain the present action is clear enough; for it

is undeniable that the bank's promise to cause a definite sum of money to be paid

to the plaintiff in New York City is a stipulation in his favor within the meaning of

the paragraph above quoted; and the circumstances under which that promise was

given disclose an evident intention on the part of the contracting parties that the

plaintiff should have the money upon demand in New York City. The recognition
of this unqualified right in the plaintiff to receive the money implies in our opinion

the right in him to maintain an action to recover it; and indeed if the provision in

question were not applicable to the facts now before us, it would be difficult to

conceive of a case arising under it.

It will be noted that under the paragraph cited a third person seeking to

enforce compliance with a stipulation in his favor must signify his acceptance

before it has been revoked. In this case the plaintiff clearly signified his acceptance

to the bank by demanding payment; and although the Philippine National Bank

had already directed its New York agency to withhold payment when this demand

was made, the rights of the plaintiff cannot be considered to as there used, must

be understood to imply revocation by the mutual consent of the contracting parties,

or at least by direction of the party purchasing he exchange.

CASE NO. 85

ROBERTO LABASAN, AVELINO LABASAN, JOSEFINA LABASAN, and

MARCELA COLOMA vs. ADELA LACUESTA, DOMINGA LACUESTA and
NORBERTO LACUESTA
G.R. No. L-25931 October 30, 1978

MUÑOZ PALMA, J.:

FACTS:

Sometime in 1927, spouses Lacuesta were the owners of an unregistered,

irrigated riceland located in Badoc, Ilocos Norte. On April 20, 1927, the spouses

executed a conveyance of the land with the right to repurchase in 10 years.

 On April 23, 1948, spouses Lacuesta filed with the Court of First Instance

in Ilocos Norte a complaint against the spouses Labasan, seeking the

reconveyance of the subject parcel of land. They alleged in the complaint that they,

the Lacuestas, secured a loan of P225.00 from Gelacio Labasan and as a security

for the payment of that loan, they offered their riceland; sometime in 1943, they

tendered payment of the loan but Labasan refused to accept it.

The Labasan replied that the Lacuestas failed to exercise their right to

repurchase within the stipulated period of ten years.

The trial court ruled that the document executed by the Lacuestas was a

pacto de retro sale and that the latter lost their right to redeem the land for not

having taken any step with the agreed period of ten years.

The Court of Appeals reversed the trial court’s ruling and declared the

contract an equitable mortgage and ordered the defendants Labasan to reconvey

the land to the Lacuestas without the latter paying the loan of P225.00 in as much

as the same was deemed paid thru the fruits of the property which the Labasans

have been receiving for the past 32 years.

ISSUE:

Whether or not the executed contract is a pacto de retro sale or an equitable

mortage.

RULING:

The Supreme Court affirmed the decision of the appellate court.

 It is a basic fundamental rule in the interpretation of a contract that if the

terms thereof are clear and leave no doubt upon the intention of the contracting

parties the literal meaning of the stipulation shall control, but when the words

appear to be contrary to the evident intention of the parties, the latter shall prevail

over the former.

Article 1371, New Civil Code: In order to judge the intention of the

contracting parties, their contemporaneous and subsequent acts shall be

principally considered.

The reason behind the execution of the contract was that the Lacuestas

were in "urgent necessity for money" and had to secure a loan of P225.00 from

Gelacio Labasan for which the riceland was given as "security". In Jayme, et al. v.

Salvador, et al., 1930, this Court upheld a judgment of the Court of First Instance

of Iloilo which found the transaction between the parties to be a loan instead of a

sale of real property notwithstanding the terminology used in the document, after

taking into account the surrounding circumstances of the transaction.

The amount of P225.00, even in 1927, was too inadequate for a purchase

price of an irrigated riceland with an alleged "perimeter" of 240 meters and an "area

of 1,269 square meters" yielding annually one "uyon" and five "baares" of palay,

the land being valued at the time for no less than P1,000.00. In fact, Article 1602

paragraph 1 of the New Civil Code expressly provides that in case of doubt a

contract purporting to be a sale with a right to repurchase shall be construed as an

equitable mortgage when the price or consideration of the sale is unusually

inadequate.
 Although symbolically the possession of the property was transferred to

Gelacio Labasan, it was Lacuesta, the supposed vendor, who continued to be in

physical possession of the property, took charge of its cultivation, and all tenancy

matters. The second paragraph of Article 1602 of the New Civil Code provides that

when the vendor remains in possession as lessee or otherwise, the contract shall

be construed as an equitable mortgage.

The supposed vendees a retro, now the herein petitioners, failed to take

any step since 1927 to consolidate their alleged ownership over the land. Under

Article 1509 of the Old or Spanish Civil Code, if the vendor failed to redeem within

the period agreed upon, the vendee's title became irrevocable by the mere

registration of an affidavit of consolidation. Thus, under the old law, a judicial order

was not necessary as is required now under Article 1607 of the New Civil Code.

The failure of Gelacio Labasan or his heirs to carry out that act of consolidation

strongly corroborates the claim of Lacuesta that there was no intent at all on the

part of the parties to transfer ownership of the riceland in question.

Finally, the rule is that in case of any doubt concerning the surrounding

circumstances in the execution of a contract, the least transmission of rights and

interests shall prevail if the contract is gratuitous, and, if onerous the doubt is to be

settled in favor of the greatest reciprocity of interest.

CASE NO. 86

LEGARDA HERMANOS and JOSE LEGARDA vs.

FELIPE SALDAÑA and COURT OF APPEALS (FIFTH DIVISION)

G.R. No. L-26578 January 28, 1974

FACTS:

Saldaña had entered into two written contracts with Legarda, a subdivision

owner, whereby Legarda agreed to sell to him two residential lots (Lots Nos. 7 and

8 of block No. 5N) for 1,500 per lot, payable over a span of 10 years on 120 monthly

installments with 10% interest per annum. Saldaña paid for eight consecutive

years about 95 (of the stipulated 120) monthly installments. He suspended

payments due to the fact that the lots were not actually delivered to him because

they were submerged under water besides Legarda’s failure to make the

necessary improvements on the premises. Nonetheless, he intended to continue

paying the balance due on said lots. The statement of account shows that Saldaña

paid Php1,682.28 of the principal and Php1,889.78 for the interest which was more

than the stipulated purchase price for one lot. It did not distinguish which of the two

said lots was paid. Even if the sum applied to the principal alone were to be

considered, the same was already more than the value of one lot, which

is P1,500.00. The only balance due on both lots was P1,317.72, which was less

than the value of one lot. Legarda insisted on their right of cancellation under the

plainly valid written agreements which constitute the law between the parties. They

rescinded the contract based on the stipulation of the contract that payments made

by respondent shall be considered as rentals and any improvements made shall

be forfeited in favor of the petitioner. The lower court ruled sustaining petitioner’s
cancellation of contract. Respondent appealed and judgment was reversed in favor

of the respondent ordering petitioners to deliver to plaintiff one of the two lots at

the choice of the defendant and execute the deed of conveyance.

ISSUE:

Whether or not the cancellation of the contract to sell was valid.

RULING:

No, even though it was stipulated that failure to complete the payment

would result to the cancellation of the contract, it was still not valid. The record

showed that one of the two lots as chosen by respondent would be considered

fully paid. Accordingly, the conveyance of that one lot to the respondent should be

recognized together with petitioner’s right to retain the interests of P1,889.78 paid

by him for eight years on both lots, besides the cancellation of the contract for one

lot which thus reverts to petitioners. Under Article 1234 of the New Civil Code, “if

the obligation has been substantially performed in good faith, the obligor may

recover as though there had been a strict and complete fulfillment, less damages

suffered by the obligee”. Hence, under the authority of Article 1234 of the New Civil

Code, Saladaña is entitled to one of the two lots of his choice and the interest paid

shall be forfeited in favor of the petitioners.

CASE NO. 87

H. C. LIEBENOW vs. THE PHILIPPINE VEGETABLE OIL COMPANY

G.R. No. L-13463 November 9, 1918

FACTS:

Liebenow filed an action to recover a sum of money from a contract to

which he considers himself entitled by way of a bonus in addition to the salary

earned by him while in the employment of the Philippine Vegetable Oil Company

as superintendent of its factory in the district of Nagtahan, City of Manila. In a

contract written by the president of the company, his services were engaged as

superintendent of the factory at a monthly compensation of P500 and such further

amount in the way of bonus as the board of directors’ discretion. The plaintiff

entered upon the discharge of his duties and continued to render service in this

capacity not only for the period of one year specified in the contract, but for an

additional period of four months. The plaintiff contends that he should receive such

further amount in the way of bonus, over and above salary as his skill and ability

enormously increased the factory’s profit. The plaintiff further contends that the

amount which he received in the form of a monthly check of P750 for six

successive months after the termination of his services, is purely in the light of a

free gift, and it is insisted that this money was not paid to him in satisfaction, in

whole or in part, of the stipulated bonus. The Court of First Instance judgment was

entered against the plaintiff, absolving the defendant from the complaint, and the

plaintiff has appealed.

ISSUE:

Whether or not the stipulation in the contract would entitle the plaintiff for

his claim of bonus.

RULING:

The plaintiff is entitled to bonus as to the discretion of the board of directors.

The plaintiff’s contention that the amount payed to him was in the light of a free gift

and should be in consideration of his efficiency and usefulness in his employment

is untenable. Under Article 1115 of the Civil Code, such promise is not nugatory

and as embodying a condition dependent exclusively upon the will of the obligor.

Nor can it be held invalid under article 1256 of the same Code, which declares that

the validity and performance of a contract cannot be left to the will of one of the

contracting parties. The uncertainty of the amount to be paid by way of bonus is

also no obstacle to the validity of the contract (article 1273, Civil Code); since the

contract itself specifies the manner in which the amount payable is to be

determined, namely, by the exercise of the judgment and discretion of the

employer. In this case, the promise to pay a bonus is absolute and unconditional.

The payment is not conditioned upon satisfactory service, nor upon the duration of

the service, nor upon the profits which may accrue to the employer from the

efficiency of the employee. All these elements might and naturally would operate

upon the minds and discretion of the directors in fixing the amount of the bonus,

but they are wholly unconnected with the legal right of the plaintiff to receive

something as a bonus.
CASE NO. 88

MANOTOK REALTY, INC. vs.

THE HONORABLE COURT OF APPEALS and APOLONIO SIOJO

G.R. No. L-35367 April 9, 1987

FACTS:

Clara Tambunting de Legarda authorized Vicente Legarda as special co-

administrator to sell the Legarda Tambunting Subdivision of Title Nos. 62042,

45149, 29578, 40957, and 59585. Vicente Legarda as co-administrator allegedly

sold an area to Abelardo Lucero where the latter took possession of the same.

Lucero leased the lot to six persons, one of whom is herein private respondent.

Like the other tenants, respondent constructed a house on the lot. The probate

court then issued an order authorizing the Philippine Trust Company as

administrator to sell the subdivision. Lucero went to the Philippine Trust Company

to make further payments, showing it the receipt evidencing the down payment but

the latter refused either to receive payment or to issue a formal contract because

the Legarda-Tambunting Subdivision was involved in litigation. The petitioner was

subsequently awarded the sale of the entire subdivision and subsequently advised

"all squatter-occupants" of the subdivision to surrender the material and actual

possession of the portions occupied by them. The trial court rendered judgment in

favor of the petitioner. On appeal, the Court of Appeals reversed the decision of

the trial court and held that the sale made by Legarda to Lucero was valid.
ISSUE:

Whether or not the contract of sale between Legarda and Lucero was valid.

RULING:

The alleged sale by Legarda to Lucero does not conform to the legal

requirements of contracts of sale. According to Article 1358 of the Civil Code, the

alleged sale shall be embodied in a public instrument, such as contracts which

have for their object of the creation or transmission of real rights over immovable

property and shall be duly registered with the Register of Deeds to make it binding

against third persons. Therefore, it cannot be enforced against third persons such

as petitioner by the private respondent who only derived his right to the property

from Lucero. Lucero not only failed to obtain a deed of sale from Legarda but also

failed to secure any kind of writing evidencing the contract of sale other than the

receipt issued by Legarda.

CASE NO. 89

LIDELIA MAXIMO VS. HONORABLE JUDGE NICOLAS GEROCHI, JR.,

JUDGE OF THE CIRCUIT CRIMINAL COURT, 12TH JUDICIAL DISTRICT,
BACOLOD CITY AND CONCHITA PANGHILASON

G.R. NOS. L-47994-97 SEPTEMBER 24, 1986

FACTS:

This is a petition for certiorari and mandamus filed by petitioner Lidelia

Maximo to compel the public respondent Judge Nicolas Gerochi Jr. to include in
his judgement of acquittal in four criminal cases the civil liability which private

respondent Conchita Panghilason admitted in court.

Four information for estafa were filed against respondent Conchita

Panghilason alleging that:

a) Panghilason willfully issued four (4) checks amounting to P35, 586.00

drawn against the Philippine Commercial and Industrial Bank in favor of

the petitioner.

b) The checks were dishonored for lack of funds or that her account with

said bank had been closed.

c) She refused to make the necessary deposit within three (3) days from

receipt of notice to redeem said checks.

Respondent Judge acquitted Panghilason from all four (4) criminal action.

The lower court did not award civil liability because the liability did not arise from a

criminal act but from a civil contract. Thus, the action for civil liability should have

been filed in a separate civil action.

Petitioner filed a motion for reconsideration to order the accused to pay the

sum of P33, 586.00 plus 12% interest from the filing of the information. The lower

court denied the motion.

ISSUES:

1) Whether or not the court erred in refusing to award civil liability to

Panghilason due to her acquittal

 2) Whether or not action for civil damages should be filed in a separate civil

action

RULING:

1. The lower court is wrong. If an accused is acquitted, it does not

necessarily follow that no civil liability arising from the acts complained

of may be awarded in the same judgement.

2. The court may acquit an accused on reasonable doubt and still order

payment of civil damages already proved in the same case without need

for a separate civil action.

The petition is granted. The order of the lower court denying the motion for

reconsideration is set aside.

CASE NO. 90

PRECILLANO NECESITO, ETC., plaintiff-appellant,

vs.
NATIVIDAD PARAS, ET AL., defendants-appellees.

G.R. No. L-10605 June 30, 1958

x---------------------------------------------------------x

GERMAN NECESITO, ET AL., plaintiffs-appellants,

vs.
NATIVIDAD PARAS, ET AL., defendants-appellees.

G.R. No. L-10606 June 30, 1958

FACTS:

A mother and son boarded a passenger auto-truck of Philippine Rabbit Bus

Lines. While travelling, the truck entered a wooden bridge but the front wheels
swerved to the right, the driver lost control and the truck fell on its right side into a

breast-deep creek. The mother drowned and the son sustained injuries.

Two ex contractu actions were filed by one passenger and the heirs of

another against the owners of the carrier. The lower court dismissed both actions

on the ground that the accident was due to a fortuitous event.

ISSUES:

1. Whether or not the carrier is liable for the manufacturing defect of the

steering knuckle

2. Whether or not the carrier exercised the utmost diligence required by

law

RULING:

1. YES

The carrier is not an insurer of the passenger’s safety, however, the

manufacturer is considered in law as the agent of the carrier as far as

regards the work of constructing the appliance. 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 passenger has neither choice nor

control over the carrier in the selection and use of the equipment and

appliances used by the carrier. Having no privity with the manufacturer

or vendor of the defective equipment, the passenger has no remedy

against him while the carrier has.

 2. NO

The periodical visual inspection of the steering knuckle every thirty

days did not measure up the required legal standard of “utmost diligence

of very cautious persons”- “as far as human care and foresight can

provide.” Thus, the knuckle’s failure cannot be considered a fortuitous

event that exempts the carrier from responsibility.

The decision appealed from is reversed and the defendants-

appellees are sentenced to indemnify the plaintiff-appellants.

CASE NO. 91
ROY PADILLA, FILOMENO GALDONES, ISMAEL GONZALGO and JOSE
FARLEY BEDENIA vs. COURT OF APPEALS
G.R. No. L-39999 May 31, 1984

FACTS:

The lower court found herein petitioners guilty of grave coercion for

unlawfully preventing by means of threat, force and violence Vergara and his family

from closing their market stall, for forcibly opening the door of the stall and

demolishing the stall furnitures therein and carrying away the goods, wares and

merchandise.

The accused and herein petitioners allegedly took advantage of their

positions, Padilla being the incumbent municipal mayor and others being
policemen. Other accused individuals who were no longer parties in this petition

were acquitted for reasonable doubt in their criminal participation.

The Court of Appeals (CA), The CA acquitted the appellants, herein

petitioners for reasonable doubt but ordered payment for actual damages.

Acquittal was based on reasonable doubt whether the crime of coercion was

committed but not on facts that no unlawful act was committed since evidence on

record established that complainants suffered actual damages. The CA ruled that

the accused should have been prosecuted for threats or malicious mischief since

the act was violence against property and not against persons as in the case of

coercion.

ISSUE:

Whether or not the civil liability is extinguished after acquittal from a criminal

charge

RULING:

Section 1 of Rule 111 of the Rules of Court states the fundamental

proposition that when a criminal action is instituted, the civil action for recovery of

criminal liability arising from the offense charged is impliedly instituted with it. There

is no implied institution when the offended party expressly waives the civil action

or reserves his right to institute it separately.

The judgement of acquittal extinguishes the liability of the accused for

damages only when it includes a declaration that the facts from which the civil

might arise did not exist. Thus, the civil liability is not extinguished by acquittal
where the acquittal is based on reasonable doubt since only preponderance

of evidence is required in civil cases.

A separate civil action is not required considering that the facts to be proved

in the civil case have already been established in the criminal proceedings where

the accused was acquitted. To require a separate civil action because the accused

was acquitted would mean needless clogging of court dockets and unnecessary

duplication of litigation with all its attendant loss in time, effort and money in the

part of all concerned.

CASE NO. 92

ESTRELLA PALMARES vs.

COURT OF APPEALS and M.B. LENDING CORPORATION

G.R. No. 126490 March 31, 1998

FACTS:

Private respondent M.B. Lending Corporation extended a loan to the

spouses Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares,

in the amount of P30,000.00 payable on or before May 12, 1990, with compounded

interest at the rate of 6% per annum to be computed every 30 days from the date

thereof. On four occasions after the execution of the promissory note and even

after the loan matured, petitioner and the Azarraga spouses were able to pay a

total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were

made after the last payment on September 26, 1991.

 On the basis of petitioner's solidary liability under the promissory note,

respondent corporation filed a complaint against petitioner Palmares as the lone

party-defendant, to the exclusion of the principal debtors, allegedly by reason of

the insolvency of the latter.

The lower court dismissed the complaint without prejudice to the filing of a

separate action for a sum of money against the spouses Osmeña and Merlyn

Azarraga who are primarily liable on the instrument. Respondent Court of Appeals,

however, reversed the decision of the trial court, and rendered judgment declaring

herein petitioner Palmares liable to pay respondent corporation.

ISSUES:

1) Where a party signs a promissory note as a co-maker and binds herself

to be jointly and severally liable with the principal debtor in case the latter

defaults in the payment of the loan, is such undertaking of the former

deemed to be that of a surety as an insurer of the debt, or of a guarantor

who warrants the solvency of the debtor? Or Whether or not Palmares is

liable

2) Whether or not the penalty charge of 3% per month and attorney's fees

equivalent to 25% of the total amount due are highly inequitable and

unreasonable
RULING:

1) The party is a surety. YES, she is liable.

The Civil Code pertinently provides:

Art. 2047. By guaranty, a person called the guarantor binds himself

to the creditor to fulfill the obligation of the principal debtor in case

the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the

provisions of Section 4, Chapter 3, Title I of this Book shall be

observed. In such case the contract is called a suretyship.

A surety is bound equally and absolutely with the principal, and as

such is deemed an original promisor and debtor from the beginning. This is

because in suretyship there is but one contract, and the surety is bound by

the same agreement which binds the principal. In essence, the contract of

a surety starts with the agreement, which is precisely the situation in this

case before the Court. The petitioner expressly bound herself to be jointly

and severally or solidarily liable with the principal maker of the note. The

terms of the contract are clear, explicit and unequivocal that petitioner's

liability is that of a surety.

2) YES

It must be noted that the principal loan of P30,000.00, the amount of

P16,300.00 had already been paid even before the filing of the present

case. Article 1229 of the Civil Code provides that the court shall equitably

reduce the penalty when the principal obligation has been partly or

irregularly complied with by the debtor. And, even if there has been no

performance, the penalty may also be reduced if it is iniquitous or

leonine.The court decided to eliminate altogether the penalty interest for

being excessive and unwarranted.

Finally, with respect to the award of attorney's fees, this Court has

previously ruled that even with an agreement thereon between the parties,

the court may nevertheless reduce such attorney's fees fixed in the contract

when the amount thereof appears to be unconscionable or

unreasonable. .The grant of attorney's fees equivalent to 25% of the total

amount due is, unreasonable and immoderate, considering the minimal

unpaid amount involved and the extent of the work involved in this simple

action for collection of a sum of money.

CASE NO. 93

PHILIPPINE BANKING CORPORATION v. LUI SHE

G.R. No. L-17587. September 12, 1967
Ponente: J. Castro

FACTS:

Justina Santos executed on a contract of lease in favor of Wong, covering

the portion then already leased to him and another portion fronting Florentino

Torres street. The lease was for 50 years, although the lessee was given the right

to withdraw at any time from the agreement.

On December 21 she executed another contract giving Wong the option to

buy the leased premises for P120,000, payable within ten years at a monthly

installment of P1,000. The option, written in Tagalog, imposed on him the

obligation to pay for the food of the dogs and the salaries of the maids in her

household, the charge not to exceed P1,800 a month. The option was conditioned

on his obtaining Philippine citizenship, a petition for which was then pending in the

Court of First Instance of Rizal.

It appears, however, that this application for naturalization was withdrawn

when it was discovered that he was not a resident of Rizal. On October 28, 1958

she filed a petition to adopt him and his children on the erroneous belief that

adoption would confer on them Philippine citizenship. The error was discovered

and the proceedings were abandoned.

 In two wills executed on August 24 and 29, 1959, she bade her legatees to

respect the contracts she had entered into with Wong, but in a codicil of a later

date (November 4, 1959) she appears to have a change of heart. Claiming that the

various contracts were made by her because of machinations and inducements

practiced by him, she now directed her executor to secure the annulment of the

contracts.

ISSUE:

Whether the contracts involving Wong were valid

RULING:

No, the contracts show nothing that is necessarily illegal, but considered

collectively, they reveal an insidious pattern to subvert by indirection what the

Constitution directly prohibits. To be sure, a lease to an alien for a reasonable

period is valid. So is an option giving an alien the right to buy real property on

condition that he is granted Philippine citizenship.

But if an alien is given not only a lease of, but also an option to buy, a piece

of land, by virtue of which the Filipino owner cannot sell or otherwise dispose of

his property, this to last for 50 years, then it becomes clear that the arrangement

is a virtual transfer of ownership whereby the owner divests himself in stages not

only of the right to enjoy the land but also of the right to dispose of it— rights the

sum total of which make up ownership. If this can be done, then the Constitutional

ban against alien landholding in the Philippines, is indeed in grave peril.

CASE NO. 94
ROBLEZA VS. CA & INTER-ISLAND
G.R. NO. L-80364

FACTS:

Petitioner Julita A. Robleza sold to spouses Elpedio and Marianne Tan 2

parcels of land. They executed a deed of absolute sale in favor of the Tan spouses

over the lots supposedly for Pl0k which was acknowledged to have been allegedly

paid.

Incidentally, the parents of Elpedio Tan and petitioners are close to each

other. It was found that the titles over the 2 lots were given to Elpedio Tan who

was able to have two new titles in his name. Further, Elpedio Tan executed in favor

of respondent corporation a promissory note (PN) in the sum of P228,362.10 and

executed a deed of mortgage over the two lots to secure payment of said PN.

Petitioners, claiming that they did not receive a single centavo from the Tans

and maintaining that the purchase price of Pl0k appearing on the face of the deed

of sale was not the true purchase price, presented two checks issued by Elpedio

Tan which represented the actual stipulated price: the 1 check amounting to P50k

and the other P44k. Both were dishonored. Thereafter, Elpedio Tan assured them

that he would pay the amount of the checks but failed to make good his promise.
 Elpedio Tan admitted that he had transferred the titles to the lots in his name

and that he had mortgaged the lots and turned over his certificates of title to

respondent corporation.

Petitioner found out that the two lots were used as collaterals and that the

certificates of title were in the possession of the private respondent. Apprised of

the true facts on the status of the said two lots and the non-payment of the

purchase price by the Tan spouses, respondent corp. refused to return the

certificates of title but signified their willingness to accept other collaterals provided

a partial payment of P50k would first be made by Elpedio Tan.

For failure of the Tans to pay their outstanding obligation to private

respondent, the mortgage on the two lots was foreclosed and the same were sold

to respondent corp. in a public auction sale. Title was issued in its name.

Petitioners filed an action for the nullification of the aforesaid deed of sale

for want of consideration and for the cancellation of the TCT issued to private

respondent. Petitioners claim that they have always been in possession of the

subject property, that neither the Tan spouses nor private respondent ever took

possession thereof and that respondent corporation acted in bad faith.

ISSUE:

Whether the proper remedy is annulment or rescission of the contract.

(rescission)
RULING:

Where the parties intended to be bound by the contract except that it did

not reflect the actual purchase price of the property, as in the case at bar, there is

only a relative simulation of the contract which remains valid and enforceable, but

the parties shall be bound by their real agreement. The present contract cannot be

declared null and void or inexistent from the beginning since it does not fall under

the category of an absolutely simulated or fictitious contract the basic characteristic

of which is that the apparent contract is not really desired or intended to produce

legal effects or to alter in any way the juridical situation of the parties.

Petitioners categorically admitted that the actual consideration was P50k for

each lot (minus P6k for one lot since petitioners owed Tan’s mother P6k). Since

there was partial payment made on the deed of absolute sale an action for

declaration of nullity will not prosper.

The power to rescind obligations is implied in reciprocal ones, in case one

of the obligors should not comply with what is incumbent upon him. The right to

rescind may be availed of for such breaches as are substantial and fundamental

as to defeat the object of the parties making the contract. Indubitably, under the

factual setting of this case, the remedy of resolution of the deed of sale is available

to petitioners. The complaint was filed on May 16, 1983, less than four years after
the deed of absolute sale was executed on June 24,1979, hence, as an action to

rescind, it was well within the prescriptive period.

CASE NO. 95

ROQUE VS LAPUZ
GR NO. L-32811 MARCH 31, 1980
FACTS:

Sometime in 1964. plaintiff Roque and defendant Lapuz entered into an

agreement of sale covering Lots 1, 2 and 9, Block 1, of said property, payable in

120 equal monthly installments at the rate of P16.00, P15.00 per square meter,

respectively. In accordance with said agreement, defendant paid to plaintiff the

sum of P150.00 as deposit and the further sum of P740.56 to complete the

payment of four monthly installments covering the months of July, August,

September, and October, 1954.

On January 24, 1955, defendant requested plaintiff that he be allowed to abandon

and substitute Lots 1, 2 and 9, the subject with Lots 4 and 12, Block 2 of the

Rockville Subdivision, which are corner lots, to which request plaintiff graciously

acceded. The evidence discloses that defendant proposed to plaintiff modification

of their previous contract to sell because he found it quite difficult to pay the

monthly installments on the three lots, and besides the two lots he had chosen

were better lots, being corner lots. In addition, it was agreed that the purchase

price of these two lots would be at the uniform rate of P17.00 per square meter
payable in 120 equal monthly installments, with interest at 8% annually on the

balance unpaid. Pursuant to this new agreement, defendant occupied and

possessed Lots 4 and 12, and enclosed them, including the portion where his

house now stands, with barbed wires and adobe walls. However, aside from the

deposit of P150.00 and the amount of P740.56, which were paid under their

previous agreement, defendant failed to make any further payment on account of

the agreed monthly installments for the two lots in dispute, under the new contract

to sell. Plaintiff demanded upon defendant not only to pay the stipulated monthly

installments in arrears, but also to make up-to-date his payments, but defendant

refused to comply with plaintiff's demands.

On or about November 3, 1957, plaintiff demanded upon defendant to

vacate the lots in question and to pay the reasonable rentals thereon at the rate of

P60.00 per month from August, 1955. On January 22, 1960, petitioner Felipe C,

Roque filed the complaint against defendant Nicanor Lapuz for rescission and

cancellation of the agreement of sale between them involving the two lots in

question and prayed that judgment be rendered ordering the rescission and

cancellation of the agreement of sale, the defendant to vacate the two parcels of

land and remove his house therefrom and to pay to the plaintiff the reasonable

rental thereof at the rate of P60.00 a month from August 1955 until such time as

he shall have vacated the premises, and to pay the sum of P2,000.00 as attorney's

fees, costs of the suit and award such other relief or remedy as may be deemed

just and equitable in the premises.

 The Court of Appeals rendered its decision that the defendant Nicanor

Lapuz is granted a period of ninety (90) days from entry hereof within which to pay

the balance. Hence, this appeal.

ISSUE:

(1) WoN Lapuz is entitled to the benefits of the third paragraph of Article

1191 New Civil Code, for fixing period.

RULING:

(1) No. Respondent as obligor is not entitled to the benefits of paragraph 3

of Art. 1191, NCC Having been in default and acted in bad faith, he is

not entitled to the new period of 90 days from entry of judgment within

which to pay petitioner the balance of P11,434.44 with interest due on

the purchase price of P12,325.00 for the two lots. To allow and grant

respondent an additional period for him to pay the balance of the

purchase price, which balance is about 92% of the agreed price, would

be tantamount to excusing his bad faith and sanctioning the deliberate

infringement of a contractual obligation that is repugnant and contrary to

the stability, security and obligatory force of contracts. Moreover,

respondent's failure to pay the succeeding 116 monthly installments

after paying only 4 monthly installments is a substantial and material

breach on his part, not merely casual, which takes the case out of the

application of the benefits of pa paragraph 3, Art. 1191, N.C.C.

 Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission

with payment of damages which the trial court and the appellate court,

in the latter's original decision, granted in the form of rental at the rate of

P60.00 per month from August, 1955 until respondent shall have

actually vacated the premises, plus P2,000.00 as attorney's fees. The

Court affirmed the same to be fair and reasonable. The Court also

sustained the right of the petitioner to the possession of the land,

ordering thereby respondent to vacate the same and remove his house

therefrom.

CASE NO. 96

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA

VIRTUDES, ROMEO VASQU
EZ and MAXIMINA CAINAY vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC.

G.R. No. L-42926 September 13, 1985

FACTS:

In the early morning of May 15, 1966, the inter-island vessel MV "Pioneer

Cebu" left the Port of Manila bound for Cebu, it had on board the spouses Alfonso

Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,

among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring"

and struck a reef on the southern part of Malapascua Island, located somewhere

north of the island of Cebu and subsequently sunk. The aforementioned

passengers were unheard from since then.

 When the vessel left Manila, its officers were already aware of the typhoon

Klaring building up somewhere in Mindanao. There being no typhoon signals on

the route from Manila to Cebu, and the vessel having been cleared by the Customs

authorities, the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon.

When it reached Romblon Island, it was decided not to seek shelter thereat,

inasmuch as the weather condition was still good. After passing Romblon and

while near Jintotolo island, the barometer still indicated the existence of good

weather condition continued until the vessel approached Tanguingui island. Upon

passing the latter island, however, the weather suddenly changed and heavy rains

felt Fearing that due to zero visibility, the vessel might hit Chocolate island group,

the captain ordered a reversal of the course so that the vessel could 'weather out'

the typhoon by facing the winds and the waves in the open. Unfortunately, at about

noontime on May 16, 1966, the vessel struck a reef near Malapascua island,

sustained leaks and eventually sunk, bringing with her Captain Floro Yap who was

in command of the vessel.

Due to the loss of their children, petitioners sued for damages before the

Court of First Instance of Manila (Civil Case No. 67139). Respondent defended on

the plea of force majeure, and the extinction of its liability by the actual total loss

of the vessel.

The trial court awarded damages and rendered ordering the defendant to

pay:
(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for

the loss of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for

support, and P10,000.00 for moral damages;

(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for

loss of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral

damages; and

(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by

way of moral damages by reason of the death of Mario Marlon Vasquez.

ISSUE:

Whether or not the sinking of the vessel was caused by force majeure and

that the defendant's liability had been extinguished by the total loss of the vessel.

RULING:

"To constitute a caso fortuito that would exempt a person from

responsibility, it is necessary that (1) the event must be independent of the human

will; (2) the occurrence must render it impossible for the debtor to fulfill the

obligation in a normal manner; and that (3) the obligor must be free of participation

in, or aggravation of, the injury to the creditor." In the language of the law, the event

must have been impossible to foresee, or if it could be foreseen, must have been
impossible to avoid. There must be an entire exclusion of human agency from the

cause of injury or loss.

Under the circumstances, while, indeed, the typhoon was an inevitable

occurrence, yet, having been kept posted on the course of the typhoon by weather

bulletins at intervals of six hours, the captain and crew were well aware of the risk

they were taking as they hopped from island to island from Romblon up to

Tanguingui. They held frequent conferences, and oblivious of the utmost diligence

required of very cautious persons, they decided to take a calculated risk. In so

doing, they failed to observe that extraordinary diligence required of them explicitly

by law for the safety of the passengers transported by them with due regard for an

circumstances and unnecessarily exposed the vessel and passengers to the tragic

mishap. They failed to overcome that presumption of fault or negligence that arises

in cases of death or injuries to passengers.

While the Board of Marine Inquiry, which investigated the disaster,

exonerated the captain from any negligence, it was because it had considered the

question of negligence as "moot and academic," the captain having "lived up to

the true tradition of the profession."

Despite the total loss of the vessel therefore, its insurance answers for the

damages that a shipowner or agent may be held liable for by reason of the death

of its passengers. (Yangco vs. Laserna, 73 Phil. 330 [1941])

CASE NO. 97

SAMUEL J. WILSON VS. B. H. BERKENKOTTER

G.R. NO. L-4476 APRIL 20, 1953

FACTS:

On June 30, 1938, Samuel J. Wilson, plaintiff, B.H. Berkenkotter, defendant,

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.

The three debtors agreed by and among themselves to pay the obligation in equal

proportions, that is, each one would pay their creditor the amount of P30,000 plus

of course, the corresponding interests. 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 B.H. Berkenkotter, 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 with the Chartered Bank of

India, Australia and China. For reasons of personal consideration B.H.

Berkenkotter accepted payment from Paul A. Gulick only in the amount of P18,902.

Plaintiff Samuel J. Wilson refused to pay to B.H. Berkenkotter the full amount of

P37,530.40 in Philippine currency and because of the refusal of B.H. Berkenkotter

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.

ISSUE:

1.) Whether or not the Ballantyne schedule of values in determining the amount

to be reimbursed by the plaintiff-appellee as a co-solidary debtor of the

defendant-appellant applicable to obligations contracted.

2.) Whether or not the defendant is liable to pay the full amount in Philippine

currency.

RULING:

1. Yes. In several cases involving the application of the Ballantyne 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 date or period which may indicate that the parties were

speculating on the continuation or cessation of the war at the time of

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 Ballantyne schedule is applicable; but if said

obligation was created before the war, particularly on the date when plaintiff

and defendant signed the promissory note in favor of the bank, then the

Ballantyne schedule may not be applied.

 2. No. According to article 1145 of the Civil Code, payment by one of the

solidary debtors entitles him to claim from his co-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 Ballantyne schedule. 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.

CASE NO. 98

REBECCA C. YOUNG assisted by her husband ANTONIO GO vs. COURT OF

APPEALS, PH CREDIT CORP., PHIL. HOLDING, INC. FRANCISCO
VILLAROMAN, FONG YOOK LU, ELLEN YEE FONG and THE REGISTER OF
DEEDS OF MANILA

G.R. No. 79518 January 13, 1989

FACTS:

Defendant Philippine Holding, Inc. is the former owner of a piece of land

located at Soler St., Sta. Cruz, Manila, and a two storey building erected thereon,

consisting of six units. The owner secured an order from the City Engineer of

Manila to demolish the building. Antonio Young, then a tenant of said Unit 1352,

filed an action to annul the City Engineer's demolition Order (Civil Case No.
123883) entitled Antonio S. Young vs. Philippine Holding, Inc. before the then

Court of First Instance of Manila, Branch XXX. As an incident in said case, the

parties submitted a Compromise Agreement to the Court on September 24, 1981.

Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young) and

Rebecca Young and all persons claiming rights under them bind themselves to

voluntarily and peacefully vacate the premises which they were occupying as

lessees which are the subject of the condemnation and demolition order and to

surrender possession thereof to the defendant Philippine Holding, Inc. within sixty

(60) days from written notice, subject to the proviso that should defendant decided

to sell the subject property or portion thereof, "plaintiff and Rebecca C. Young have

the right of first refusal thereof."

On September 17, 1981, Philippine Holding, Inc. had previously sold the

above said property described in the compromise agreement by way of dacion in

payment to PH Credit Corporation.

On November 9, 1982, the property was subdivided into two parcels, one

244.09 sq.m. in area covering Units 1350, 1352 and 1354 (TCT No. 152439) and

the other 241.71 sq.m. in area covering Units 1356, 1358 and 1360 (TCT No.

152440) and both titles were placed in the name of PH Credit Corporation.

On December 8, 1982, PH Credit Corporation sold the property covered by

TCT 152439 to the Blessed Land Development Corporation represented by its

President Antonio T. S. Young; and on September 16, 1983, PH Credit Corporation

sold the property covered by TCT 152440 embracing Units 1356, 1358 and 1360

to spouses Fong Yook Lu and Ellen Yee Fong.

 Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the spouses

Chui Wan and Felisa Tan Yu filed in the Regional Trial Court of Manila, Civil Case

No. 84-22676 for the annulment of the sale in favor of herein respondent spouses,

Fong Yook Lu and Ellen Yee Fong and for specific performance and damages

against the PH Credit Corporation and Philippine Holding, Incorporated.

Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that defendant

corporation and Francisco Villaroman, sold the property without affording them (the

plaintiffs-spouses) the right of first refusal to purchase that portion of the property

which they are renting.

Plaintiff Rebecca C. Young, now petitioner, also claimed the right of first

refusal purportedly granted to her under the aforestated proviso of the abovesaid

compromise agreement and prayed that the sale be annulled and that they be

allowed to exercise her right of first refusal to purchase subject property.

ISSUE:

Whether or not petitioner can enforce a compromise agreement to which

she was not a party.

RULING:

The issue has already been squarely settled by this Court in the negative in

J.M. Tuason & Co., Inc. v. Cadampog (7 SCRA 808 [1963])where it was ruled that

appellant is not entitled to enforce a compromise agreement to which he was not

a party and that as to its effect and scope, it has been determined in the sense that

its effectivity if at all, is limited to the parties thereto and those mentioned in the
exhibits (J.M. Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated

later that a compromise agreement cannot bind persons who are not parties

thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).

The claim of Rebecca C. Young was similarly rejected by the trial court on

the following grounds: (1) that she was not a party in the Civil Case No. 123883,

wherein subject compromise agreement was submitted and approved by the trial

court apart from the fact that she did not even affix her signature to the said

compromise agreement; (2) that Rebecca Young had failed to present any

evidence to show that she had demanded from the defendants-owners,

observance of her right of first refusal before the said owners sold units 1356, 1358

and 1360; (3) that even assuming that her supposed right of first refusal is a

stipulation for the benefit of a third person, she did not inform the obligor of her

acceptance as required by the second paragraph of Article 1311 of the Civil Code.

~ THE END ~

Merry Christmas and a Prosperous New Year 1-A!

May this season bring us peace and joy in everything that we do. Let us hope, pray

and work hard. Hope for brighter days to come, pray for wisdom and guidance and work

hard not just for ourselves but for our beloved parents and the whole family.

Wishing you a meaningful celebration!