1
ACE-AGRO DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS and COSMOS BOTTLING
CORPORATION, respondents.
FACTS:
1… The private respondent here Cosmos Bottling
Corporation is engaged in the manufacture of soft drinks. While
Petitioner Ace-Agro Development Corporation had been
cleaning soft drink bottles and repairing wooden shells for
Cosmos, rendering its services within the company premises in
San Fernando, Pampanga. They entered into service
contracts which they renewed every year.
2. On January 18, 1990, they signed a contract covering
the period January 1, 1990 to December 31, 1990.
Private respondent had earlier contracted the services of Aren
Enterprises in view of the fact that petitioner could handle only
from 2,000 to 2,500 cases a day and could not cope with
private respondent’s daily production of 8,000 cases. Unlike
petitioner, Aren Enterprises rendered service outside private
respondent’s plant.
3. On April 25, 1990, fire broke out in private
respondent's plant, destroying the area where petitioner did its
work. As a result, petitioner's work was stopped.
4. Then the petitioner asked private respondent to allow
it to resume its service, but petitioner was advised that on
account of the fire, private respondent was terminating their
contract.
5. On July 17, 1990, petitioner sent another letter to
private respondent, reiterating its request to allow it to resume
its service and in response, private respondent advised
petitioner on August 28, 1990 to resume their work but it has to
be done outside the company premises. However the petitioner
refused the offer, claiming that it incur additional costs for
transportation.
6. In subsequent meetings with the private respondent,
petitioner asked for an extension of the term of the contract in
view of the suspension of work. But still it was refused by the
respondent
7. On November 7, 1990, private respondent granted the
request of the respondent and advised petitioner that they
could then resume its work inside the plant in accordance with
its original contract. However this time the petitioner rejected it,
citing the fact that there was a pending labor case.
Now the petitioner complained here that the termination of its
service contract was illegal and arbitrary and that, as a result, it
stood to lose profits and to be held liable to its employees for
backwages, damages and/or separation pay. The
Private respondent appealed to the Court of Appeals, which
reversed the trial court's decision and dismissed petitioner's
complaint. The appellate court found that it was petitioner
which had refused to resume work, after failing to secure an
extension of its contract.
ISSUE: Whether or not the termination of contract on account
of a force majeure is valid?
RULING:
1… The Court said that No, because there was no cause
for terminating the contract but at most a "temporary
suspension of work." The court thus rejects private
respondent's claim that, as a result of the fire, the obligation of
contract must be deemed to have been extinguished.
2. Under Article 1231 of the New Civil Code states that
Obligation are extinguished
1. By payment or performance;
2. By the loss of the thing due;
3. By condonation or remission of the debt;
4. By the confusion or merger of the rights of creditor
and debtor;
5. By compensation
6. By novation
Other causes of extinguishment of obligation, such as
annulment. Rescission, fulfilment of a resolutory condition,
and prescription, are governed elsewhere in this code.
3. In the case at bar the agreement between the
petitioner and the respondent is with a resolutory period,
beginning from January 1, 1990 and ending on December 31,
1990.
4. When the fire broke out on April 25, 1990, there
resulted a suspension of the petitioner's work as per
agreement. But this suspension of work due to force majeure
did not merit an automatic extension of the period of the
agreement between them.
5. According to Tolentino, the stipulation that in the
event of a fortuitous event or 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 the contract has been agreed upon to run.
6. However it only relieves the parties from the fulfilment
of their respective obligations during that time.
If during six of the thirty years fixed as the duration of a
contract, one of the parties is prevented by force majeure to
perform his obligation during those years, he cannot after the
expiration of the thirty-year period, be compelled to perform his
obligation for six more years to make up for what he failed to
perform during the said six years, because it would in effect be
an extension of the term of the contract. The contract is
stipulated to run for thirty years, and the period expires on the
thirtieth year; the period of six years during which performance
by one of the parties is prevented by force majeure cannot be
deducted from the period stipulated.
7… Here, the private respondent withdrew its unilateral
termination of its agreement with petitioner in its letter dated
November 7, 1990 by allowing them to resume their work. But
the petitioner's refusal to resume work was, in effect, a
unilateral termination of the parties' agreement and thus an act
that was without basis.
8… Now, when the petitioner asked for an extension of
the period of the contract beyond December 31, 1990 it was, in
effect, asking for a new contract which needed the consent of
the private respondent.
9. In this case the petitioner might be forgiven for its first
refusal (pertaining to defendant-appellant's August 28, 1990
letter), but the second refusal must be construed as a breach
of contract by petitioner.
 2

DOMINION INSURANCE CORPORATION, petitioner,
defendant vs. COURT OF APPEALS, RODOLFO S.
GUEVARRA, and FERNANDO AUSTRIA, respondents.
plaintiff
FACTS:
1… Private respondent here Rodolfo Guevarra
instituted Civil Case for sum of money against petitioner
Dominion Insurance Corporation. He sought to recover
the sum of P156,473.90 which he claimed to have
advanced in his capacity as manager of petitioner to
satisfy certain claims filed by petitioner’s clients.
2. The petitioner denied any liability to respondent.
8. Now, the amount of the revolving fund/collection
that was in the possession of respondent would be
deducted from the amount of 116,276.95
9. The outstanding balance and the
production/remittance for the period corresponding to the
claims was P3,604.84. Deducting this from P116,276.95,
we get P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.
10. Therefore, petitioner is ordered to pay
respondent the amount of P112, 672.11 only
representing the total amount advanced in the payment
of the claims of petitioner’s clients.

3. On May 22, 1992 the case was called for pre-

trial conference. But only respondent and counsel were
present. Then the Court ordered defendant in default.

4. On November 18, 1992, the trial court rendered

judgment and order petitioner to pay respondent the sum
of P156,473.90 representing the total amount advanced
by plaintiff in the payment of the claims of defendant’s
clients.

ISSUE: Whether or not respondent is entitled to

reimbursement of amounts he paid out of his personal
money in settling the claims of several insured to the
petitioner?

RULING:

1… The Supreme Court said Yes.

2. In this case the law on agency prohibits

respondent from obtaining reimbursement because he
contravened and deviated the instructions of the
principal or the petitioner, therefore the expenses that
respondent incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner Dominion.

3. However his right to recover may still be justified

under the general law on obligations and contracts.

4. That under Article 1236, second paragraph of

the Civil Code, provides: “Whoever pays for another may
demand from the debtor what he has paid, except that if
he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has
been beneficial to the debtor.”

5. In the case at bar when the risk insured against

occurred, petitioner’s liability as insurer arose. This
obligation was extinguished when respondent paid the
claims and obtained Release of Claim Loss and
Subrogation Receipts from the insured who were paid.

6. Thus, to the extent that the obligation of the

petitioner has been extinguished, respondent Guevarra
may demand for reimbursement from his principal. Now,
to rule otherwise would result in unjust enrichment of
petitioner.

7. Here the Release of Claim Loss and

Subrogation Receipts has the total amount of
P116,276.95.

PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO
D. GALANO, Court of First Instance of Manila, Branch
XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of
First Instance, Manila, and AMELIA TAN, respondents.
Facts:
1… The private respondent Amelia Tan under the
name and style of Able Printing Press commenced or
filed a complaint for damages against petitioner
Philippine Airlines and the ruling in her favour.
2. Upon appeal, the Court of Appeals upheld the
decision of the trial court’s decision with only minor
modifications as to the damages to be awarded to
Amelia Tan.
3. Then the corresponding writ of execution was
duly referred to Deputy Sheriff Emilio Z. Reyes for
enforcement with checks in the name of Sheriff Reyes.
4. Four months later, Amelia Tan moved for the
issuance of an alias writ of execution stating that the
judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained
unsatisfied.
5. However, the petitioner answered that it has
already satisfied its obligation, as evidenced by check
vouchers signed and received by Sheriff Reyes. The
Court has summoned the sheriff to explain the delay but
apparently he absconded or disappeared.
Issues: Whether or not such payments extinguish the
judgment debt?
Held:
1. The Supreme Court said No.
2. Under Article 1249 of the Civil Code provides
that The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender
in the Philippines.
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they
have been impaired.
In the meantime, the action derived from the original
obligation shall be held in abeyance.
3. Now in the absence of an agreement, either
express or implied, payment means the discharge of a
debt or obligation in money and unless the parties so
agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of
payment of his debt.
4. Consequently, unless authorized to do so by law
or by consent of the obligee a public officer has no
3
authority to accept anything other than money in
payment of an obligation under a judgment being
executed.
5. Strictly speaking, the acceptance by the sheriff
of the petitioner's checks, in the case at bar, does not,
per se, operate as a discharge of the judgment debt.
6. Since a negotiable instrument is only a
substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary check, is
not legal tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be
refused receipt by the creditor. Mere delivery of checks
does not discharge the obligation under a judgment. The
obligation is not extinguished and remains suspended
until the payment by commercial document is actually
realized.
Under Article 1249 of the Civil Code provides that, the
payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender
in the Philippines.
Issue:
1. Whether or not the payment made to the absconding
sheriff by check in his name operate to satisfy the
judgment debt
2. Whether or not the judgment debtor shall bear the
loss for the amount encashed by the absconding sheriff
3. Whether or not execution is the same as satisfaction
of judgment
Held:
1. No. In general, a payment, in order to be effective to
discharge an obligation, must be made to the proper
person. Article 1240 of the Civil Code provides:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
(Emphasis supplied)
Under ordinary circumstances, payment by the judgment
debtor to the sheriff should be valid payment to
extinguish the judgment debt. There are circumstances,
however, which compel a different conclusion such as
when the payment made by the petitioner to the
absconding sheriff was not in cash or legal tender but in
checks.
 4

JOSE BARITUA and EDGAR BITANCOR, petitioners, 1) by payment or performance; 2) by the loss of the thing
vs. due; 3) by condonation or remission of the debt; 4) by
HONORABLE COURT OF APPEALS, NICOLAS the confusion or merger of the rights of creditor and debtor;
NACARIO and VICTORIA RONDA NACARIO, 5) by compensation; 6) by novation.”
respondents.
3. In the case at bar the petitioners had already
FACTS: paid their obligation to the victim’s wife arising from the
accident that occurred on November 7, 1979.

1… On November 7, 1979, the tricycle driven
Bienvenido Nacario along the national highway at
Camarines Sur met an accident with a bus driven by
petitioner Edgar Bitancor and owned and operated by
petitioner Jose Baritua.
2. Bienvenido and his passenger died due to the
accident and the tricycle was damaged.
3. On March 27, 1980, extra-judicial settlement
were negotiated by the petitioners and the bus insurer
with Bienvenido Nacario’s widow, Alicia Nacario where she
received P18,500.
4. Under Article 1240 the states that “Payment
shall be made to the person in whose favour the
obligation has been constituted, or his successor in
interest, or any person authorized to receive it.”
5. And as stated in Article 887 of the Civil Code,
Alicia and her son with the deceased are certainly the
successors in interest referred to in Article 1240.
6. Therefore, the obligation of petitioners had
already been extinguished by the time they paid their
obligation to Alicia, the victim’s wife and after
extrajudicial settlement had been agreed.

4. After the settlement, Alicia executed on March

27, 1980 a “Release of Claim in favour of petitioners and
the bus insurer, releasing and forever discharging them
from all actions, claims, and demands arising from the
accident.

5. About one year and ten months from the date of

accident, Bienvenido’s parent, the herein private
respondents filed a complaint for damages against
petitioners.

6. Private respondents alleged that during the vigil

for their deceased son, petitioners through their
representatives promised them that as extra- judicial
settlement, they shall be indemnified for the death of
their son, for funeral expenses incurred and for the
damage to the tricycle which they only loaned to the
victim.

7. Petitioners, however, break on their promise and

instead negotiated and settled their obligations with the
long estranged wife of private respondents’ late son.

ISSUE: Whether or not petitioners are still liable to pay

the damages to private respondents despite the
agreement of extrajudicial settlement between
petitioners and the victim’s wife.

RULING:

1… The Supreme Court said No, petitioners are no

longer liable to private respondents.

2. Under Article 1231 of the Civil Code provides

that “Obligations are extinguished:
 5

FRANCISCO CULABA and DEMETRIA CULABA, doing RULING:

business under the name and style "Culaba Store",
petitioners, 1… The Supreme Court said No.
vs.
COURT OF APPEALS and SAN MIGUEL 2. Payment is a mode of extinguishing an
CORPORATION, respondents.
obligation.20

3. Under Article 1240 of the Civil Code provides

FACTS:
1… The petitioner Francisco and Demetria Culaba
were the owners and proprietors of the Culaba Store and
were engaged in the sale and distribution of San Miguel
Corporation’s beer products.
2. The private respondent sold beer products on
credit to petitioners in the amount of P28,650.00.
Thereafter, the Culaba spouses made a partial payment
of P3,740.00, leaving an unpaid balance of P24,910.00.
3. As they failed to pay despite repeated demands,
private respondent filed an action for collection of a sum
of money against the petitioners.
4. The defendant-spouses denied any liability,
claiming that they had already paid the respondent in full
on four separate occasions. To substantiate this claim,
the defendants presented four (4) Temporary Charge
Sales. (TCS) Liquidation Receipts, as follows:
that payment shall be made to the person in whose favor
the obligation has been constituted, or his successor-in-
interest, or any person authorized to receive it. 21
4. In this case, the payments were purportedly
made to a "supervisor" of the private respondent, who
was clad in a San Maguil uniform and drove a San
Maguil van.
5. He appeared to be authorized to accept
payments as he showed a list of customers’
accountabilities and even issued SMC liquidation
receipts which looked genuine.
6. Unfortunately for petitioner Francisco Culaba, he
did not ascertain the identity and authority of the said
supervisor, nor did he ask to be shown any identification
to prove that the latter was, indeed, an SMC supervisor.
7. The petitioners relied solely on the man’s
representation that he was collecting payments for
private respondent.

April 19, 1983 Receipt No. 27331 for P8,0005 8. Thus, the payments the petitioners claimed they
made were not the payments that discharged their
April 22, 1983 Receipt No. 27318 for P9,0006 obligation to the private respondent.

April 27, 1983 Receipt No. 27339 for P4,5007

April 30, 1983 Receipt No. 27346 for P3,4108

5. Defendant Francisco Culaba testified that he

made the foregoing payments to an SMC supervisor
who came in a respondent van. He was then showed a
list of customers’ accountabilities which included his
account. The defendant, in good faith, then paid to the
said supervisor, and he was, in turn, issued genuine
respondent liquidation receipts.

6. For its part, SMC submitted a publisher’s

affidavit9 to prove that the entire booklet of TCSL
Receipts bearing Nos. 27301-27350 were reported lost
by it, and that it caused the publication of the notice of
loss in the July 9, 1983 issue of the Daily Express, as
follows:

NOTICE OF LOSS

OUR CUSTOMERS ARE HEREBY INFORMED

THAT TEMPORARY CHARGE SALES
LIQUIDATION RECEIPTS WITH SERIAL NOS.
27301-27350 HAVE BEEN LOST.

ANY TRANSACTION, THEREFORE, ENTERED

INTO WITH THE USE OF THE ABOVE
RECEIPTS WILL NOT BE HONORED.

ISSUE: Whether or not the payment of the petitioners’

obligation was properly made thus extinguishing the
same.

REPUBLIC OF THE PHILIPPINES, represented by the
Chief of the Philippine National Police, Petitioner,
vs.
THI THU THUY T. DE GUZMAN, Respondent.
FACTS:
1… Respondent is the proprietress of Montaguz
General Merchandise (MGM), a contractor accredited by
the PNP for the supply of office and construction
materials and equipment, and for the delivery of various
services.
On December 8, 1995, the PNP Engineering Services,
released a Requisition and Issue Voucher for the
acquisition of various building materials amounting to
(P2,288,562.60) for the construction of a four-storey
condominium building at Camp Crame, Quezon City.
2. On December 11, 1995, MGM and petitioner,
represented by the PNP, executed a Contract of
Agreement wherein MGM, for the price of
P2,288,562.60, undertook to procure and deliver to the
PNP the construction materials.
3. On March 1, 1996, MGM proceeded with the
delivery of the construction materials.
Respondent asseverated that following the PNP’s
inspection of the delivered materials on March 4, 1996,14
the PNP issued two Disbursement Vouchers; one in the
amount of P2,226,147.26 in favor of MGM,15 and the
other, 16 in the amount of P62,415.34, representing the
three percent (3%) withholding tax, in favor of the
Bureau of Internal Revenue (BIR).17
4. On November 5, 1997, the respondent, sent a
letter dated October 20, 1997 to the PNP, demanding
the payment of P2,288,562.60 for the construction
materials.
5. On May 5, 1999, respondent filed a Complaint
for Sum of Money against the petitioner, before the RTC,
of Quezon City.
6. The petitioner filed a Motion to Dismiss, on the
ground that the claim or demand set forth in
respondent’s complaint had already been paid or
extinguished, as evidenced by LBP Check No.
0000530631 dated April 18, 1996, issued by the PNP to
MGM, and Receipt No. 001, which the respondent
correspondingly issued to the PNP.
7. Respondent averred that it was one Edgardo
Cruz who signed and receive for the check due to MGM,
under the Contract of December 1995. He was
connected with Highland Enterprises, a fellow PNP-
accredited contractor. However, the respondent denied
having authorized Cruz or Highland Enterprises to
receive or claim any of the checks due to MGM or
Montaguz Builders.
When asked why she had not filed a case against Cruz
or Herminio Reyes, the owner of Highland Enterprises,
considering the admitted fact that Cruz claimed the
check due to her, respondent declared that there was no
reason for her to confront them as it was the PNP’s fault
that the check was released to the wrong person. Thus,
it was the PNP’s problem to find out where the money
6
had gone, while her course of action was to go after the
PNP, as the party involved in the Contract.44
ISSUE: Whether or not the respondent was paid under
the December 1995 Contract of Agreement.
RULING:
1… The Supreme Court said No.
2. In this case the petitioner’s obligation consists of
payment of a sum of money. In order for petitioner’s
payment to be effective in extinguishing its obligation, it
must be made to the proper person.
3. Under Article 1240 of the Civil Code states that
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
3. In Cembrano v. City of Butuan, this Court
explained on how payment will effectively extinguish an
obligation, accordingly payment made by the debtor to
the person of the creditor or to one authorized by him or
by the law to receive it extinguishes the obligation. When
payment is made to the wrong party, however, the
obligation is not extinguished as to the creditor who is
without fault or negligence even if the debtor acted in
utmost good faith and by mistake as to the person of the
creditor or through error induced by fraud of a third
person.
4. In general, a payment in order to be effective to
discharge an obligation, must be made to the proper
person. Thus, payment must be made to the obligee
himself or to an agent having authority, express or
implied, to receive the particular payment.
Payment made to one having apparent authority
to receive the money will, as a rule, be treated
as though actual authority had been given for its
receipt. Likewise, if payment is made to one who
by law is authorized to act for the creditor, it will
work a discharge. The receipt of money due on
a judgment by an officer authorized by law to
accept it will, therefore, satisfy the debt.
5. In the case at bar the respondent was able to
establish that the LBP check was not received by her or
by her authorized personnel. The PNP’s own records
show that it was claimed and signed for by Cruz, who is
openly known as being connected to Highland
Enterprises, another contractor.
6. Hence, absent any showing that the respondent
agreed to the payment of the contract price to another
person, or that she authorized Cruz to claim the check
on her behalf, the payment, to be effective must be
made to her.

G.R. No. 126486 February 9, 1998
BARONS MARKETING CORP., petitioner,
vs.
COURT OF APPEALS and PHELPS DODGE PHILS.,
INC. respondents.
FACTS:
1… The private respondent here (Phelps Dodge,
Philippines, Inc.) appointed petitioner (Barons Marketing,
Corporation) as one of its dealers of electrical wires and
cables.
2… During the period covering December 1986 to
August 17, 1987, petitioner purchased, on credit, from
private respondent various electrical wires and cables in
the total amount of P4,102,438.30.
3. On September 7, 1987, petitioner paid
respondent the amount of P300,000.00 out of its total
purchases thereby leaving an unpaid account on the
aforesaid deliveries of P3,802,478.20.
4. The petitioner here wrote respondent requesting
the latter if it could pay its outstanding account in
monthly instalments of P500, 000.00 plus 1% interest
per month commencing on October 15, 1987 until full
payment. Plaintiff, however, rejected the offer and
accordingly reiterated its demand for the full payment of
defendant's account.
5. On 29 October 1987, private respondent filed a
complaint against petitioner for the recovery of the
outstanding balance including interest.
ISSUE: Whether or not private respondent's right to
reject petitioner's offer to pay in instalments is valid?
RULING:
1… The Supreme Court said Yes
2. Petitioner does not deny private respondent's
rights to institute an action for collection and to claim full
payment. Likewise, private respondent's right to reject
petitioner's offer to pay in instalments and this right is
guaranteed by Article 1248 of the Civil Code which
states that “Unless there is an express stipulation to that
effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists.
Neither may the debtor be required to make partial
payments.
However, when the debt is in part liquidated and
in part unliquidated, the creditor may demand
and the debtor may effect the payment of the
former without waiting for the liquidation of the
latter.”
3. Now under this provision, the prestation, like the
object of the obligation, must be performed in one act,
not in parts.
4. Here Tolentino concedes that the right has its
limitations. It provides that in Partial Prestations. —
Since the creditor cannot be compelled to accept partial
performance, unless otherwise stipulated, the creditor
7
who refuses to accept partial prestations does not incur
in delay or mora accipiendi, except when there is abuse
of right or if good faith requires acceptance. 6
5. In the case at bar, petitioner has failed to prove
bad faith on the part of private respondent. Petitioner's
allegation that private respondent was motivated by a
desire to terminate its agency relationship with petitioner
so that private respondent itself may deal directly with
Meralco is simply not supported by the evidence and is
merely speculative.
6. Moreover, the Court said that private respondent
was driven by very legitimate reasons for rejecting
petitioner's offer and instituting the action for collection
before the trial court.
7. As pointed out by private respondent, the
corporation had its own "cash position to protect in order
for it to pay its own obligations." For if private respondent
were to be required to accept petitioner's offer, then
there would be no reason for the latter to reject similar
offers from its other debtors. Clearly, this would be
unfavourable to the interests of any enterprise,
especially a profit-oriented one like private respondent.
8. In this case it was only a mere exercise of rights,
not an abuse thereof and was acted in a manner not
contrary to morals, good customs or public policy as to
violate the provisions of Article 21 of the Civil Code.
Test of Abuse of Right. — Modern jurisprudence does
not permit acts which, although not unlawful, are anti-
social. There is undoubtedly an abuse of right when it is
exercised for the only purpose of prejudicing or injuring
another. When the objective of the actor is illegitimate,
the illicit act cannot be concealed under the guise of
exercising a right. The principle does not permit acts
which, without utility or legitimate purpose cause
damage to another, because they violate the concept of
social solidarity which considers law as rational and just.
Hence, every abnormal exercise of a right, contrary to its
socio-economic purpose, is an abuse that will give rise to
liability. The exercise of a right must be in accordance
with the purpose for which it was established, and must
not be excessive or unduly harsh; there must be no
intention to injure another. Ultimately, however, and in
practice, courts, in the sound exercise of their discretion,
will have to determine all the facts and circumstances
when the exercise of a right is unjust, or when there has
been an abuse of right. 11
The question, therefore, is whether private respondent
intended to prejudice or injure petitioner when it rejected
petitioner's offer and filed the action for collection.
We hold in the negative. It is an elementary rule in this
jurisdiction that good faith is presumed and that the
burden of proving bad faith rests upon the party alleging
the same. 12 In the case at bar, petitioner has failed to
prove bad faith on the part of private respondent.
Petitioner's allegation that private respondent was
motivated by a desire to terminate its agency
relationship with petitioner so that private respondent
itself may deal directly with Meralco is simply not
supported by the evidence. At most, such supposition is
merely speculative.
 8

Moreover, we find that private respondent was driven by

very legitimate reasons for rejecting petitioner's offer and
instituting the action for collection before the trial court.
As pointed out by private respondent, the corporation
had its own "cash position to protect in order for it to pay
its own obligations." This is not such "a lame and poor
rationalization" as petitioner purports it to be. For if
private respondent were to be required to accept
petitioner's offer, there would be no reason for the latter
to reject similar offers from its other debtors. Clearly, this
would be inimical to the interests of any enterprise,
especially a profit-oriented one like private respondent. It
is plain to see that what we have here is a mere exercise
of rights, not an abuse thereof Under these
circumstances, we do not deem private respondent to
have acted in a manner contrary to morals, good
customs or public policy as to violate the provisions of
Article 21 of the Civil Code.

Consequently, petitioner's prayer for moral and

exemplary damages must thus be rejected. Petitioner's
claim for moral damages is anchored on Article 2219
(10) of the Civil Code which states: