OBLICON SUPER DIGEST
Obligations with a period are those whose consequences are
Feb. 2, 2017
C2021
Lirag Textile Mills, Inc. v. CA
G.R. No. L-30736
April 14, 1975
Group 1 - Cruz
RELEVANT PORTION: A “period” has been defined “as a space of time which
has an influence on obligation as a result of a juridical act, and either suspends their
demandableness or produces their extinguishment.” Obligations with a period are
those whose consequences are subjected in one way or another to the expiration of
said period or term. Article 1193 of the Civil Code provides, among others, that
“obligations with a resolutory period take effect at once, but terminate upon arrival
of the day certain. A day certain is understood to be that which must necessarily
come, although it may not be known when.”
1. TOPIC UNDER WHICH IT IS ASSIGNED:
Obligations with a Period – Definition
2. RATIO:
1. There is an indefinite period of time for employment.
a. This was agreed upon by and between the employer and the
employee, subject only to the resolutory period agreed upon which
may end the indeterminate period of employment, namely
voluntary resignation on the part of the employee or termination of
employment at the option of the employer but for a “valid cause or
causes.”
b. The measure of an employer’s liability provided for in RA 1052, as
amended by RA. 1787, is solely intended for contracts of
employment without a stipulated period. It cannot possibly apply
as a limitation to an employer’s liability in cases where the
employer commits a breach of contract by violating an indefinite
period of employment.
c. The “indefinite period” of employment is bound to terminate on a
future “day certain” such as the employee’s resignation or
employer’s termination of employment upon a valid cause or
causes, like death of the employee or termination of employer’s
corporate existence, although it may not be known when
2. Definition of a period
a. A “period” has been defined “as a space of time which has an
influence on obligation as a result of a juridical act, and either
suspends their demandableness or produces their extinguishment.
b.
subjected in one way or another to the expiration of said period or
term.
i. Article 1193 of the Civil Code provides, among others,
that “obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain. A day
certain is understood to be that which must necessarily
come, although it may not be known when.”
3. The employer violated the contract of employment with the employee
when the former terminated his services without a valid cause.
a. The act was attended with bad faith and deceit because the
employer made false allegations of a supposed valid cause
knowing them to be false, thus making itself liable for payment of
actual, moral, and exemplary damages, plus attorney ’s fees.
b. The employer cannot with impunity be allowed the absolute and
unilateral power to terminate without valid cause a contract of
employment with a definite period it voluntarily entered into
merely on the basis of its whim or caprice and under the false
pretense of financial distress
3. PERTINENT ISSUE:
W/N Lirag Textile Mills is liable for damages for terminating Alcantara – YES,
his contract had an indefinite period
4. MATERIAL FACTS:
 Cristan Alcantara was employed by Lirag Textile Mills.
o He previously worked in a temporary capacity with Lirag Textile
Mills.
o He was then promoted to Administrative Office, a permanent
position.
o His tenure of employment was “for an indefinite period, unless
sooner terminated by reason of voluntary resignation or by virtue
of a valid cause or causes.”
 Lirag Textile Mills wrote Alcantara advising him that because the company
“has suffered some serious reverses, both in terms of pecuniary loss and in
market opportunities”, the company was terminating his services and
effecting his separation from the corporation.
o However, when the financial statements of the company were
examined, they continued to earn net profits, and in fact, their size
of business increased.
o Certain executive officers, including Basilio Lirag, President of
Lirag Textile Mills, enjoyed salary increases.
PETITION DENIED.
 SOLANTE v COA
GR No. 207348 | August 19, 2014
Group 2
TOPIC:
Definition of Obligations with a Period
WHAT IT'S SAYING ABOUT THE TOPIC:
A plain reading of the Contract of Reclamation reveals that the six (6)-year period
provided for the Project completion, or, with like effect, termination of the contract,
was a mere estimate and cannot be considered a period or a "day certain" in the
context of Article 1193.
Paragraph 15 of the Contract of Reclamation states: "The project is estimated to be
completed in six (6) years."
As such, the lapse of six (6) years from the perfectionist of the contract did not, by
itself, make the obligation to finish the reclamation project demandable, such as to
put the debtor in a state of actionable delay for its inability to finish. Thus, F.F. Cruz
cannot be deemed to be in delay.
WHY THE COURT SAID WHAT IT SAID:
Court wanted to determine who between the City of Mandaue and F.F. Cruz owned
during the period material the properties that were demolished
HOW THE ISSUE AROSE:
1. In 1989, the City of Mandaue and F.F. Cruz entered into a Contract of
Reclamation where it would undertake reclamation of 180 hectares of
foreshore and submerged lands from Cabahug Causeway
1. Pertinent provision of the Contract states: "15.
CONTRACT DURATION. The project is estimated to
be completed in six (6) years: (3 years for the dredge-
filling and seawall construction and 3 years for the
infrastructures completion). However, if all the
infrastructures within the OWNERS’ share of the project
are already completed within the six (6) year period
agreed upon, any extension of time for works to bedone
within the share of the DEVELOPERS, shall be at the
discretion of the DEVELOPERS, as a growing city,
changes in requirements of the lot buyers are inevitable."
2. They subsequently executed as Memorandum of Agreement (MOA) in
relation to the project where City of Mandaue allowed F.F. Cruz to put up
structures on a portion of the land owned by the city to be used by F.F. Cruz
Personnel assigned to the project site
1. Pertinent provision of the MOA states: "5) That the [City
of Mandaue] and [F.F. Cruz] have agreed that upon the
completion of the Mandaue City Reclamation Project,
all improvements introduced by [F.F. Cruz] to the
portion of the parcel of land owned by the [City of
Mandaue]as described under paragraph 3 hereof existing
upon the completion of the said Mandaue City
Reclamation Project shall ipso facto belong to the [City
of Mandaue] in ownership as compensation for the use
of said parcel of land by [F.F. Cruz] without any rental
whatsoever.
3. Later, the City of Mandaue undertook the Metro Cebu Development Project
II (MCDP II) which required the widening of the Plaridel Extension
Mandaue Causeway but structures and facilities built by F.F. Cruz stood in
the direct path of the widening project
4. DPWH and MCDP II Project Director entered into an agreement for F.F.
Cruz for the latter to demolish the improvements outside the boundary of
road widening project in exchange for compensation
5. F.F. Cruz was paid, but according to Sec 5, of the MOA they were no
longer the owners
6. A letter-complaint was addressed to the Office of the Ombudsman for
irregularities in MCDP II so the the Special Audit Office (SAO) disallowed
the compensation payment
7. COA is alleging that the Contract of Reclamation establishes an obligation
on the part of F.F. Cruz to finish the project within the allotted period of 6
years from execution in 1989. From this premise, COA concludes that after
6 years, F.F. Cruz is automatically in delay , the contract is considered
completed, and the ownership of the structires transferred to City of
Mandaue
Araneta v. Phil Sugar
G.R. No. L-22558
May 31, 1967
Group 3 (4) (Oliquino)
Petitioner: Gregorio Araneta, Inc.
Respondent: The Philippine Sugar Estates Development Co., Ltd.
Ponente: Reyes, J.B.L., J.
 I. TOPIC ASSIGNED
When courts may fix a period
II. PROVISION
Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of
the debtor.
In every case, the courts shall determine such period as may under the circumstances
have been probably contemplated by the parties. Once fixed by the courts, the period
cannot be changed by them. (1128a)
III. DOCTRINE
The Court cannot fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended
IV. RATIO
1. Paragraph 7 of the agreement states
"7. Under the Deed of Sale with Mortgage of July 28, 1950, herein
defendant has a reasonable time within which to comply with its
obligations to construct and complete the streets on the NE, NW and SW
sides of the lot in question; that under the circumstances, said reasonable
time has not elapsed;
2. The lower courts committed error when they thought the issue was whether
or not the parties agreed that the petitioner should have reasonable time to
perform its part of the bargain. The issue should be whether the court should
fix the time of performance.
a. If the contract so provided, then there was a period fixed, a
"reasonable time"; and all that the court should have done was to
determine if that reasonable time had already elapsed when the suit
was filed.
b. If it had passed, then the court should declare that petitioner had
breached the contract, as averred in the complaint, and fix the
resulting damages.
c. If the reasonable time had not yet elapsed, the court was bound to
dismiss the action for being premature.
d. But in no case can it be logically held that under the plea above
quoted, the intervention of the court to fix the period for
performance was warranted, for Article 1197 applies only on the
absence of any period fixed by the parties.
3. Assuming that the courts found no reasonable time or period in the
agreement, it can’t set a period or term because the original decision is clear
that the complaint proceeded on the theory that the period for performance
had already elapsed, that the contract had been breached and defendant was
already answerable in damages.
4. Assuming the court can set a period, there was no basis for the 2-year
period.
5. Article 1197 provides a two-step process
a. Court must determine that “the obligation does not fix a period” (or
that the period does not depend on the will of the debtor) but from
the nature and the circumstances it can be inferred that a period
was intended (Art. 1197, pars 1 and 2)
b. Court must decide what period was “probably contemplated by the
parties”
6. Ultimately, the Court cannot fix a period merely because in its opinion it is
or should be reasonable, but must set the time that the parties are shown to
have intended
7. Parties know that the land was occupied by squatters (Digester’s note: Use
“illegal settlers: if you want to be politically correct) and it would take quite
a long time to evict them through legal processes
8. In fact, the eviction of the third party is already languishing in court
9. The conclusion is thus forced that the parties must have intended to defer
the performance of the obligations under the contract until the squatters
were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.
V. ISSUE
W/N the the court was right in determining the specific time in which Petitioner is to
finish the project. NO
VI. FACTS
1. J.M. Tuason & Co, through Gregorio Araneta Inc.(Petitioner) sold a portion
of land (43,034.4 sq.m.) to The Philippine Sugar Estates Development Co.,
Ltd. (Respondent) for P430,514.00.
 2. The parties stipulated, among others, in the contract of purchase and sale
with mortgage, that the buyer will—
"Build on the said parcel of land the Sto. Domingo Church and Convent"
while the seller for its part will—
"Construct streets on the NE and NW and SW sides of the land herein sold
so that the latter will be a block surrounded by streets on all four sides; and
the street on the NE side shall be named 'Sto. Domingo Avenue';"
3. Respondent finished the construction of the Sto. Domingo Church and
Convent, however, Gregorio Araneta, Inc. failed to finish the construction
of the street in the NE side (Sto. Domingo Avenue) because a third-party
refused to vacate
4. Respondent filed a complaint before the CFI against J. M. Tuason & Co.,
Inc. and Gregorio Araneta, Inc. seeking to compel the latter to comply with
their obligation, as stipulated in the above-mentioned deed of sale, and/or to
pay damages in the event they failed or refused to perform said obligation
5. CFI rendered a decision giving Gregorio Araneta, Inc. 2 years from notice
thereof to comply with the obligations in the contract
6. Gregorio Araneta, Inc. appealed to the CA saying that the 2-year
compliance had no basis which, however, the CA affirmed
7. Petitioner went to the SC
VII. RULING
In view of the foregoing, the decision appealed from is reversed, and the time for the
performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at
the date that all the squatters on affected areas are finally evicted therefrom.
Macasaet v Macasaet
G.R. No. 154391-92
September 30, 2004
Sadicon, Grp 5
Summary: Petitioner Ismael Macasaet is the son of Respondents Vicente and Rosario
Macasaet. Parents allowed Ismael to use the former’s land for the latter’s residence
and construction business out of parental love. However, such love ceased and
conflict arose prompting the parents to demand that Ismael leave and vacate the
premises by filing an unlawful detainer suit. SC said that Ismael had the right to
occupy the lots because his parents allowed him to but there was no fixed period. In
the absence of a stipulation of a duration, 1197 allows the court to fix a period. 1197
however does not apply because it cannot be inferred that the parties intended a
period. It was solely based on the resolutory condition of the existence of familial.
Having been based on parental love, the agreement would end upon the dissipation
of the affection.
Sir Casis Format
5. TOPIC UNDER WHICH IT IS ASSIGNED:
NCC provision 1197 – Art. 1197. If the obligation DOES NOT fix a period, but
from its nature and the circumstances it can be inferred that a period was
intended, the courts MAY fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once fixed
by the courts, the period cannot be changed by them. (1128a)
6. POSITION IN THE OUTLINE:
I. Obligations with a Period
B. When courts may fix a period
1. Law: Art. 1197
7. RELEVANT RATIO:
 Right to use the lots terminated – Ismael and wife Teresita had a right to occupy
the lots. The issue is the duration of possession. In the absence of a stipulation,
Article 1197 of the Civil Code allows the courts to fix the duration or period.
o However, 1197 APPLIES TO A SITUATION IN WHICH THE
PARTIES INTENDED A PERIOD. Such qualification cannot be inferred
from the facts of the case.
o No period was intended by the parties. Their mere failure to fix a period
does not necessarily justify or authorize the courts to do so.
o Based on respondents’ reasons for gratuitously allowing petitioners to use
the lots, it can be safely concluded that the agreement subsisted as long as
the parents and the children mutually benefited from the arrangement.
Effectively, there is a resolutory condition in such an agreement. Thus,
when a change in the condition existing between the parties occurs -- like a
change of ownership, necessity, death of either party or unresolved conflict
or animosity -- the agreement may be deemed terminated. Having been
based on parental love, the agreement would end upon the dissipation
 of the affection.
8. PERTINENT ISSUE:
W/N IN THE ABSENCE OF A PERIOD FOR THE POSSESSION OF
THE LAND, THE COURTS MAY FIX A PERIOD FOR THE PARTIES.
NO. The parties did not intend to have a fixed period.
9. MATERIAL FACTS:
 Petitioners Ismael and Teresita Macasaet and Respondents Vicente and Rosario
Macasaet are first-degree relatives. Ismael is the son of respondents, and Teresita
is his wife.
 Respondent-Parents statements:
o By way of a verbal lease agreement, Ismael and Teresita occupied these lots
in March 1992 and used them as their residence and the situs of their
construction business;
o And that despite repeated demands, petitioners failed to pay the agreed rental
of P500 per week.
 Petitioner-son statements:
o Denial of the existence of any verbal lease agreement. They claimed that
respondents had invited them to construct their residence and business on the
subject lots in order that they could all live near one other, employ Marivic
(the sister of Ismael), and help in resolving the problems of the family.
o They added that it was the policy of respondents to allot the land they owned
as an advance grant of inheritance in favor of their children. Thus, they
contended that the lot had been allotted to Ismael as advance inheritance. On
the other hand, the other lot was allegedly given to petitioners as payment for
construction materials used in the renovation of respondents house.
4. MTCC, RTC, CA uniformly ruled in favor of respondents. That their
ownership over such lots is undisputed. Son’s possession over such lots was
lawful when Respondent’s tolerated it but it became unlawful upon receipt
by petitioner-son of the demand to vacate it.
LL and Co. v. Huang Chao
G.R. No. 142378 | March 7, 2002 | Panganiban, J.
LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL
CORPORATION, petitioner vs. HUANG CHAO CHUN AND YANG TUNG
FA, respondents
Group 6- De Guzman
TOPIC: III. Obligations with a Period
C. Beneficiary of Period (Art. 1196)
SUMMARY:
Petitioner alleged that respondents violated their Amended Contract of Lease, for
failing to pay the monthly rentals and refusing to surrender possession of the lot upon
contract’s expiry on Sept. 1996. Respondent denied petitioner‘s allegations. MeTC
dismissed the case, ruling that the lessees could extend the contract unilaterally for
another 5 years for reasons of justice and equity. It also ruled that the respondent‘s
failure to pay the monthly rentals was justified, which was affirmed by RTC and CA.
Upon review, the Court ruled that MeTC had no power to extend the lease period in
the present case. In a contract wherein a period is designated, the period of the lease
must be deemed to have been set and agreed upon for the benefit of both
parties, absent language showing that the term was deliberately set for the benefit of
the lessee or lessor alone. A very specific language is necessary to show an intent to
grant a unilateral faculty to extend or renew a contract of lease to the lessee or lessor
alone. Lastly, its renewal may be authorized only upon their mutual agreement or at
their joint will.
RELEVANT PROVISION/TERMS:
Art. 1196. Whenever in an obligation a period is designated, it is presumed to
have been established for the benefits of both the creditor and the debtor, unless
from the tenor of the same or other circumstances it should appear that the period has
been established in favor of one of the other. (1127)
ISSUE/S WITH RATIO:
1. W/N the court could still extend the term of the lease, after its expiration? NO.
(MAIN ISSUE)
The Court is convinced with petitioner’s contention that because the Amended
Contract of Lease had already expired, the MeTC had no power to extend the
lease period.
The power of the courts to fix a longer term for a lease is discretionary, wherein a
longer term may be granted where equities demand such extension; denied where
none appear- but always with due deference to parties‘ freedom to contract. Hence,
courts are not bound to extend the lease.
Article 1673 provides, among others, that the lessor may judicially eject the lessee
upon the expiration of the period agreed upon or that which is fixed for the duration
of the leases.
 The contract provided for a fixed period of 5 years - from Sept. 16,
1991 to Sept. 15, 1996. Because the lease period was for a determinate
time, it ceased, by express provision of Article 1669 of the Civil Code,
on the day fixed, without need of a demand.
Since the contract expired on Sept. 1996 and the complaint for ejectment was filed
on Oct. 1996, there was no longer any lease that could be extended by MeTC. What
the MeTC did, in effect, is made a new contract for the parties, a power it did not
have.
 Bacolod-Murcia Milling v. Banco Nacional Filipino: “It is not the province
of the court to make a new contract for the parties; its duty is confined to
the interpretation of the one which they have made for themselves, without
regard to its wisdom or folly, as the court cannot supply material
stipulations or read into contract words which it does not contain.”
 Also, extension of a lease contract must be made by the Court before the
term of the agreement expires, not after. This means upon the lapse of the
stipulated period, courts cannot belatedly extend or make a new lease for the
parties, even on the basis of equity.
MeTC’s ruling that the contract’s “option to renew” should be construed in favor of
the lessee is based from Koh v. Ongsiaco and Cruz v. Alberto.
 Both were expressly reversed in Fernandez v. CA, from which we quote: “It
is also important to bear in mind that in a reciprocal contract like a
lease, the period of the lease must be deemed to have been agreed upon
for the benefit of both parties, absent language showing that the term
was deliberately set for the benefit of the lessee or lessor alone. We are
not aware of any presumption in law that the term of a lease is designed for
the benefit of the lessee alone. Koh and Cruz in effect rested upon such a
presumption. x x x In an age like that we live in, very specific language is
necessary to show an intent to grant a unilateral faculty to extend or
renew a contract of lease to the lessee alone, or to the lessor alone for
that matter. We hold that the above-quoted rulings in Koh v.
Ongsiaco and Cruz v. Alberto should be and are overruled.
Thus, pursuant to Fernandez ruling and Article 1196 of the Civil Code, the
period of the lease contract is deemed to have been set for the benefit of both
parties and its renewal may be authorized only upon their mutual agreement or
at their joint will.
 Its continuance, effectivity or fulfillment cannot be made to depend
exclusively upon the free and uncontrolled choice of just one party. Absent
any contrary stipulation, the period of lease is deemed to be for the benefit
of both parties.
OTHER COMMENTS: In the instant case, there was nothing in the contract that
showed that they intended an automatic renewal or extension of the term of the
contract. First, petitioner demonstrated its disinterest in renewing the contract in its
letter demanding that respondents vacate the premises for failure to pay rentals since
1993. Second, the disagreement of over the increased rental rate and respondents
failure to pay it precluded the possibility of a mutual renewal. Third, the fact that the
lessor allowed the lessee to introduce improvements was indicative, not of the
former’s intention to extend the contract automatically, but merely of its obedience
to its express terms allowing the improvements.
As to the contention that it is not fair to eject respondents from the premises after
only five years, considering the value of the improvements they introduced (P24M
building), suffice it to say that they did so with the knowledge of the risk -- the
contract had plainly provided for a five-year lease period.
2. W/N refusal of the lessor to accept or collect rentals a valid reason for non-
payment of rentals? NO.) (W/N non-payment of rentals is a ground to eject? YES.)
Sec. 7 (b) of the Rental Reform Act of 2002 provides that if the creditor refuses to
accept payments without just cause, the lessee may deposit the amount in court,
or with the city or municipal treasurer, or in a bank in the name of and with
notice to the lessor, within one month after the lessor’s refusal. The law also states
that failure to deposit said rentals for three (3) months shall constitute a ground
for ejectment.
 Respondents should have deposited in a bank or with judicial authorities the
rent based on the previous rate. In the instant case, respondents failed to pay
the rent from October 1993 to March 1998 or for 4 years and 3 months.
 Art.1658, NCC provides only two instances in which the lessee may
suspend payment of rent: (1) If the lessor fails to make the necessary repairs
or (2) fails to maintain the lessee in peaceful and adequate enjoyment of the
property leased. None of these is present in the case at bar.
3. W/N the court could allow the introduction of issues other than the elements of a
case for ejectment?
Petitioner argues that Tsai Chun International Resources, Inc., should not have been
allowed by MeTC to intervene in the case. In view of the Court’s ruling, it finds no
need to rule on this issue.
MATERIAL FACTS:
Petitioner, in an unlawful detainer case filed before the Quezon City MeTC on
October 9, 1996, alleged that respondents Huang Chao Chun and Yang Tung Fa
violated their amended lease contract, when they did not pay the monthly rentals
thereon in the total amount of P4,322,900.00.
 It also alleged that the amended lease contract already expired on September
16, 1996 but respondents refused to surrender possession thereof plus the
improvements made thereon, and pay the rental arrearages despite repeated
demands.
The amended contract contains the following provisions:
2. The monthly rental shall be the same at P100.00 per square meters and/or
P111,200.00 per month, Philippine Currency. All other terms and conditions
are the same for strict compliance thereof.
The terms and conditions referred to in paragraph 2 above are the following:
2. The term of this lease is FIVE (5) YEARS from the effectivity of said
lease, and with the option to renew, specifically shall commence from
 September 15, 1991 and shall expire on September 16, 1996, and maybe
adjusted depending upon the ejectment of tenants.
3. The LESSEES shall have the option to reconstruct and/or renovate the
improvement found thereon at the expense of the LESSEES, and whatever
improvement introduced therein by the LESSEES in the premises the
ownership of it shall become the property of the LESSOR without extra
compensation of the same.
xxx
5. The monthly rental is subject to increase, said increase shall be based upon
the imposition of Real Estate Tax for every two (2) years upon presentation of
the increased real estate tax to the Lessees, but said increase shall not be less
than 25% percent.
xxxxxxxxx
9. Violation by the Lessees of any of the terms and condition of said contract
is equivalent to forfeitures of deposit in favor of the Lessor, furthermore the
Lessees agreed to vacate the leased premises for any violation of the terms
and condition of said contract, without going to court.
Respondents denied petitioners allegations, claiming that: (1) The amended lease
contract did not reflect the true intention of the parties because it did not contemplate
an obsolete building that can no longer be renovated, such that petitioner did not
become the owner of the new P24M two-storey building they erected when their
contract expired; (2) their failure to pay the monthly rentals on the property was due
to petitioners fault when it attempted to increase the amount of rent; and (3) they are
entitled to a renewal of their contract in view of the provision therein providing for
automatic renewal, and also in view of the P24M worth of improvements they
introduced on the leased premises.
MeTC: Dismissed the case, ruling that the contract entered into by the parties may be
extended by the lessees for reasons of justice and equity, citing the case of Koh v.
Ongsiaco and Cruz v. Alberto.
RTC: Affirmed MeTC Decision, saying that the Contract of Lease could be extended
unilaterally by the lessees for another five years or until September 16, 2001, on the
basis of justice and equity.
 Being a reciprocal obligation, unless and until petitioner presented the
increased realty tax, respondents were not under any obligation to pay the
increased monthly rental.
CA: Affirmed in toto RTCs dismissal of case and extension of the lease period for
another five years.
HELD:
Petition is GRANTED and the assailed Decision SET ASIDE. Respondents are
ORDERED TO VACATE the subject premises and to restore peaceful possession
thereof to petitioner. They are also DIRECTED TO PAY the accrued rentals (based
on the stipulated rent) from October 1993 until such time that they vacate the subject
property, with interest thereon at the legal rate.
ARCO PULP & PAPER CO., INC. vs. LIM
G.R. No. 206806 | June 25, 2014 | Leonen, J.
Maog | Group 6
PETITIONER: Arco Pulp and Paper Co., Inc. and Candida A. Santos
RESPONDENTS: Dan. T. Lim, doing business under the name and style of Quality
Papers & Plastic Products Enterprises
TOPIC
DEFINITION
Alternative Obligations (Article 1199)
Art. 1199. A person alternatively bound by different prestations shall completely
perform one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking. (1131)
RIGHT TO CHOOSE
When choice effective; Necessity of obligee consent (Article 1201)
Art. 1201. The choice shall produce no effect except from the time it has been
communicated. (1133)
TOPIC IN DISCUSSION
Alternative obligations
> In an alternative obligation, there is more than one object, and the fulfillment of
one is sufficient, determined by the choice of the debtor who generally has the right
of election.” The right of election is extinguished when the party who may exercise
that option categorically and unequivocally makes his or her choice known…
> The appellate court, therefore, correctly identified the obligation between the
parties as an alternative obligation, whereby petitioner Arco Pulp and Paper, after
receiving the raw materials from respondent, would either pay him the price of
the raw materials or, in the alternative, deliver to him the finished products of
equivalent value.
When choice effective; Necessity of obligee consent
> The choice of the debtor must also be communicated to the creditor who must
receive notice of it since:
The object of this notice is to give the creditor . . . opportunity to express his
consent, or to impugn the election made by the debtor, and only after said notice
shall the election take legal effect when consented by the creditor, or if impugned
by the latter, when declared proper by a competent court
RATIO
Petition is DENIED.
The obligation between the parties was an alternative obligation (Relevant to
topic!!)
 In an alternative obligation, there is more than one object, and the fulfillment of
one is sufficient, determined by the choice of the debtor who generally has the
right of election.
 Right of election distinguished when party who may exercise that option
categorically and unequivocally makes his/her choice known. Choice of debtor
must also be communicated to creditor who must receive notice of it
o Object of notice is to give creditor opportunity to express consent or
impugn election
o After consent: election takes legal effect; after impugned: court
 Original contract: Respondent delivers scrap papers worth ~P7M to petitioner.
o Payment for delivery became petitioner’s obligation
o Petitioner had option to either (1) pay price or (2) deliver finished
products of equivalent value
 Thus, appellate court correctly identified the obligation between the parties as an
alternative one.
o APP either pays the price in raw materials or, in the alternative, delivers
the finished products of equivalent value
 APP’s tendering a check to respondent in partial payment means that they
exercised their option to pay the price. Respondent’s receipt of the check and
subsequent act of depositing it constituted his notice of petitioner’s option to pay.
o Choice also shown in terms of MOA; showed in clear terms that the
delivery of APP’s finished products would be to a third person, thereby
extinguishing the option to deliver the finished products the equivalent
value to a respondent.
The memorandum of agreement did not constitute a novation of the original
contract (Just in case :D)
 Rules of novation outlined in Civil Code (Arts 1291-1293)
 Novation extinguishes an obligation when there is a substitution of objects or
debtors or when there is subrogation of the creditor. Occurs only when new
contract declares so “in unequivocal terms” or that “the old and the new
obligations be on every point incompatible with each other.
 Novation extensively discussed in Garcia v. Llamas: “Novation is a mode of
extinguishing an obligation by changing tis objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third
person to the rights of the creditor”
o It has two modes of substituting the person of the debtor; both require
consent of creditor
o Novation requisites: (1) Previous valid obligation, (2) Parties concerned
must agree to a new contract, (3) Old contract must be extinguished, (4)
New valid contract
o Can be express or implied
 Novation requires that it be clear and unequivocal; never presumed.
o Nothing in the MOA that states that with its execution, the obligation of
petitioner APP to respondent would be extinguished.
 No statement that Sy substituted APP as respondent’s debtor
 Consent of creditor must be secured for novation to be valid
o Respondent was not privy to MOA; conformity to contract need not be
secured
 Act of payment to respondent conflicts with alleged intent to pass on their
obligation to Eric Sy. Also, Respondent sent his letter to petitioner APP, not Sy.
Petitioners are liable for damages
 Under Article 2220 of the Civil Code, moral damages may be awarded in case of
breach of contract where the breach is due to fraud or bad faith.
o Must be proven
o Respondent suffered a loss of around P7M, which has remained unpaid
since 2007; an injury caused by APP’s failure to pay its obligations.
o When obligation became due and demandable, APP issued an unfunded
check and entered into a contract with a third person in an effort to
evade its liability.
 Exemplary damages, attorney’s fees, and cost of suit may also be recovered.
 Petitioner Candida A. Santos is solidarily liable with petitioner corporation
ISSUES
1) Whether the obligation between the parties was extinguished by
novation (a.k.a. W/N there was a reciprocal obligation): NO, it was a
reciprocal obligation + no novation in the first place.
2) Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper
Co., Inc.: YES
3) Whether moral damages, exemplary damages, and attorney’s fees can be
awarded: YES
MATERIAL FACTS
 Dan T. Lim works in the business of supplying scrap papers, cartons, and other
raw materials under the name Quality Paper and Plastic Products, Enterprises, to
factories engaged in the paper mill business.
 From February to March (2007), he delivered scrap papers worth P7,220,968.31
to Arco Pulp and Paper Company, Inc. through its Chief Executive Officer and
President, Candida A. Santos
 Agreement: Arco Pulp and Paper (APP) would EITHER pay Dan T. Lim
the value of the raw materials OR deliver to him their finished products of
equivalent value.
 Lim alleged that when he delivered the raw materials, APP issued a post-dated
check dated April 18, 2007 in the amount of P1,487,766.68 as partial payment,
assuring the check would not bounce. However, upon depositing, it was
dishonored for being drawn against a closed account.
 On that same day, APP and a certain Eric Sy executed a memorandum of
agreement: APP bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his account. The MOA
stated that the raw materials would be supplied by Lim through his company.
 May 5, 2007: Lim sent a letter to APP demanding payment (P7,220,968.31), but
no payment was made.
 May 28, 2007: Lim filed a complaint for collection of sum of money with prayer
for attachment with the RTC in Valenzuela.
 RTC: rendered judgment in favor of APP; said that novation took place when
APP and Sy entered into the MOA. This extinguished APP’s obligation to Lim.
 Appeal: Novation did not take place; MOA between APP & Sy was an exclusive
and private agreement. His name was mentioned in the contract, but only for
supplying them with scrap papers; his conformity through a separate contract
was indispensable.
 CA: Reversed and set aside RTC’s decision. Ruled that facts showed an
alternative obligation, so he was entitled to damages; APP exhibited bad faith in
not honoring its undertaking.
 Petitioners @ SC: Execution of MOA = novation of original obligation since Sy
became new debtor of respondent. Further said that there was no legal basis to
hold Santos personally liable for the transaction that petitioner corporation
entered into with respondent. CA erred in awarding damages to respondent who
did not show proof that he was entitled to damages. In reply, they said that
nothing in the MOA showing that the obligation was alternative.
 Respondents @ SC: CA was correct in ruling that there was no proper novation.
Correct in awarding payment of damages. Correct in holding petitioners
solidarily liable; “Candida A. Santos was the ‘prime mover for such outstanding
corporate liability’”.