No.

1 (second case)
GR No. 131784 SEPTEMBER 16, 1999

Petitioner: Gonzales
Respondents: Heirs of Thomas and Paula Cruz
Topic: Suspensive condition

FACTS: "On December 1, 1983, Paula Año Cruz together with the plaintiffs heirs of Thomas and Paula Cruz, namely
Ricardo A. Cruz, Carmelita M. Cruz, Salome A. Cruz, Irenea C. Victoria, Leticia C. Salvador and Elena C. Talens,
entered into a Contract of Lease/Purchase with the defendant, Felix L. Gonzales, the sole proprietor and manager of
Felgon Farms, of a half-portion of a parcel of land containing an area of 12 hectares, more or less, and an accretion of
2 hectares, more or less, situated in Rodriguez Town, Province of Rizal' and covered by Transfer Certificate of Title
No. 12111 (Exhibit A, p. 157, Records). The contract of Lease/Purchase contains the following provisions:

1. The terms of this Contract is for a period of one year upon the signing thereof. After the period of this
Contract, the LESSEE shall purchase the property on the agreeable price of One Million Pesos
(P1,000,000.00) payable within Two (2) Years period with an interest of 12% per annum subject to the
devalued amount of the Philippine Peso, according to the following schedule of payment: Upon the execution
of the Deed of Sale 50% - and thereafter 25% every six (6) months thereafter, payable within the first ten (10)
days of the beginning of each period of six (6) months
2. The LESSEE shall pay by way of annual rental an amount equivalent to Two Thousand Five Hundred
(P2,500.00) Pesos per hectare, upon the signing of this contract on Dec. 1, 1983.

9. The LESSORS hereby commit themselves and shall undertake to obtain a separate and distinct T.C.T.
over the herein leased portion to the LESSEE within a reasonable period of time which shall not in any case
exceed four (4) years, after which a new Contract shall be executed by the herein parties which shall be the
same in all respects with this Contract of Lease/Purchase insofar as the terms and conditions are concerned.

"The defendant Gonzales paid the P2,500.00 per hectare or P15,000.00 annual rental on the half-portion of the
property covered by Transfer Certificate of Title No. 12111 in accordance with the second provision of the Contract of
Lease/Purchase (p. 12, TSN, September 14, 1989) and thereafter took possession of the property, installing thereon
the defendant Jesus Sambrano as his caretaker (pp. 16-17, 27, TSN, December 12, 1989). The defendant Gonzales
did not, however, exercise his option to purchase the property immediately after the expiration of the one-year lease
on November 30, 1984 (pp. 19-20, TSN, September 14, 1989). He remained in possession of the property without
paying the purchase price provided for in the Contract of Lease/Purchase (Ibid.) and without paying any further rentals
thereon (p. 36, TSN, November 7, 1989).

"A letter was sent by one of the plaintiffs-heirs Ricardo Cruz to the defendant Gonzales informing him of the lessors'
decision to rescind the Contract of Lease/Purchase due to a breach thereof committed by the defendant (Exhibit C; p.
162, Records). The letter also served as a demand on the defendant to vacate the premises within 10 days from
receipt of said letter (Ibid.).

"The defendant Gonzales refused to vacate the property and continued possession thereof (p. 2, Record). The matter
was therefore brought before the barangay captain of San Isidro, but owing to the defendant's refusal to appear before
the barangay, a certification allowing the case to be brought to Court was issued on March 18, 1987 (Exhibit E; p. 165,
Records).

"The lessor, Paula Año Cruz died the following day, March 19, 1987 (p. 9, TSN, September 14, 1989).

"A final demand letter to vacate the premises was sent by the remaining lessors who are also the heirs of the
deceased lessor Paula Año Cruz, through their counsel on August 24, 1987 which the defendant Gonzales received
but did not heed (Exhibits D and D-1; pp. 163-164, Records).

"The property subject of the Contract of Lease/Purchase is currently the subject of an Extra-Judicial Partition (Exhibits
G and G-1; pp. 168-169, Records). Title to the property remains in the name of the plaintiffs' predecessors-in-interest,
Bernardina Calixto and Severo Cruz (Exhibit B; p. 160, Records).

"Alleging breach of the provisions of the Contract of Lease/Purchase, the plaintiffs filed a complaint for recovery of
possession of the property - subject of the contract with damages, both moral and compensatory and attorney's fees
and litigation expenses (p. 3, Records).

"Alleging breach of paragraph nine of the Contract of Lease/Purchase, and payment of only P50,000.00 of the
P500,000.00 agreed down payment on the purchase price of P1,000,000.00, the defendant Gonzales filed his answer
on November 23, 1987 praying for a dismissal of the complaint filed against him and an award of moral, exemplary
and actual damages, as well as litigation expenses (pp. 19-22, Records).

"The defendant Sambrano was, upon motion, declared in default for failure to file an answer despite valid service of
summons (p. 30, Records).

"The parties limited the issues to be resolved to:

(1) Whether or not paragraph 9 of the contract is a condition precedent before the defendant is to pay the down
payment;
(2) Whether or not plaintiffs can rescind the Contract of Lease/Purchase; and
(3) Whether or not plaintiffs can terminate the Contract of Lease. (p. 4, Decision; p. 262, Records)

CA REVERSED TRIAL COURT DECISION.

1. Transfer of title to the property cannot be interpreted as a condition precedent to the payment of the
agreed purchase price because such interpretation IS COUNTER-EXPLICIT and CONTRARY TO
NORMAL COURTS OF SALE OF REAL PROPERTIES.
2. Normal course: There must first be payment of the agreed purchase price before transfer of title to the
vendee’s name can be made.

3. Reason for this four (4) year period is [that] title to the property still remains in the name of the original
owners, the predecessors-in-interest of the herein appellants and [transferring] the title to their names
and eventually to the lessee-purchaser, appellee herein, would take quite some time.

4. GONZALES wanted to have the title to the property transferred in his name first before he exercises
his option to purchase allegedly in accordance with the ninth provision of the contract.  But the ninth
provision does not give him this right: 

                                              i.     4-year period asked for by the appellants within which to have title to the property
transferred in the appellee’s name will only start to run when the appellee exercises his option to purchase. 

5. Since the appellee never exercised his option to purchase, then appellee is not entitled to have the
title to the property transferred in his name.

ISSUES:

1. WON CA has gravely erred and committed grave abuse of discretion in the interpretation of [the] law between
the parties.
 2. WON CA committed serious mistakes in the finding of facts which resulted [in] departing from the usual
course of judicial proceedings.

For these issues to be resolved, petitioner asks this Court to answer the following questions:

a. Is there a conflict between the statement in paragraph 1 of the Lease/Purchase Contract and that [in]
paragraph No. 9 thereof?
b. Is paragraph 9 of the Lease/Purchase Contract a condition precedent before petitioner could exercise his
option to buy the property?

c. Can plaintiff rescind or terminate the Contract of Lease after the one-year period?”

HELD:

PETITION GRANTED; appealed decision is REVERSED and SET ASIDE.  The Decision of the trial court

is REINSTATED, but the award of moral damages and attorney’s fees is DELETED for lack of basis.  No costs.

1. WON CA has gravely erred and committed grave abuse of discretion in the interpretation of [the] law between
the parties. –YES.
a. CA relied on a literal interpretation to the effect that the TCT should be obtained in the name
of the petitioner-vendee. 

                                              i.     It reasoned that the title could be transferred to the name of the buyer only after the
completion of the purchase.  Thus, petitioner should first purchase the property before respondents could be obliged
to transfer the TCT to his name.

b. WE DISAGREE. PAR 9 does not say that the TCT should be obtained in the name of the
lessee. 

                                              i.     In fact, PAR 9 requires respondents to obtain a “TCT over the herein leased portion
to the LESSEE,” thereby showing that the crucial phrase “to the LESSEE” adverts to “the leased portion” and not to
the name which should appear in the new TCT.
                                             ii.     If GONZALES should purchase the property first before the title can be transferred to
his name, why should there be a waiting period of four years before the parties can execute the new contract
evidencing the sale?  Why should the petitioner still be required to pay rentals after it purchases and pays for the
property? 

c. PAR 9 can only mean that the respondents should first obtain a TCT in their names, after
which petitioner is given time to purchase and pay for the property.
d. RECORDS SHOW THAT the land in question respondents’ predecessors-in-interest. 

                                              i.     No showing whether respondents were the only heirs.

                                             ii.     They admit that extrajudicial proceedings were still ongoing. 
                                           iii.     Hence, when the Contract of Lease/Purchase was executed, there was no assurance
that the respondents were indeed the owners of the specific portion of the lot that petitioner wanted to buy, and if so,
in what concept and to what extent.
                                           iv.     Thus, the clear intent of the ninth paragraph was for respondents to obtain a separate
and distinct TCT in their names. 
1.    This was necessary to enable them to show their ownership of the
stipulated portion of the land and their concomitant right to dispose of it. 
2.   Absent any title in their names, they could not have sold the disputed
parcel of land.

d. Because the property remained registered in the names of their predecessors-in-interest,

private respondents could validly sell only their undivided interest in the estate of predecessor, the
extent of which was however not shown in the records. 
 e. There being no partition of the estate thus far, there was no guarantee as to how much and
which portion would be adjudicated to respondents.
f. They could not deliver ownership or title to a specific portion of the yet undivided property. 

g. Parties under PAR 9 wanted the specific portion of the land to be segregated, identified and
specifically titled. 

                                              i.     Hence, by the said Contract, the respondents as sellers were given a maximum of
four years within which to acquire a separate TCT in their names, preparatory to the execution of the deed of sale and
the payment of the agreed price in the manner described in PAR 9.

1.   P50,000 advance given by GONZALES is proof of helping them expedite the transfer of the TCT to their names. 

2.   Ineluctably, intention of the parties was to have the title transferred first to respondents’ names as a condition for
the completion of the purchase.

2. WON CA committed serious mistakes in the finding of facts which resulted [in] departing from the usual
course of judicial proceedings.
a. PAR 9 required respondents to obtain a separate and distinct TCT in their names and not in
the name of petitioner

                                              i.     Logically follows that it was condition precedent to the latter’s obligation to purchase

and pay for the land. 
                                             ii.     CONDITION: every future and uncertain event upon which an obligation or provision
is made to depend. .

b. Ninth Clause Was a Condition Precedent

If a stipulation in a contract admits of several meanings, it shall be understood as bearing that import most adequate
to render it effectual. An obligation cannot be enforced unless the plaintiff has fulfilled the condition upon which it is
premised. The ninth provision was intended to ensure that respondents would have a valid title over the specific
portion they were selling to petitioner. Only after the title is assured may the obligation to buy the land and to pay the
sums stated in the Contract be enforced within the period stipulated. Verily, the petitioner‘s obligation to purchase has
not yet ripened and cannot be enforced until and unless respondents can prove their title to the property subject of the
Contract. The ninth clause was the condition precedent of the contract.

The Court has held that "[w]hen the obligation assumed by a party to a contract is expressly subjected to a condition,
the obligation cannot be enforced against him unless the condition is complied with."[16] Furthermore, "[t]he obligatory
force of a conditional obligation is subordinated to the happening of a future and uncertain event, so that if that event
does not take place, the parties would stand as if the conditional obligation had never existed."[17]

In this case, the obligation of the petitioner to buy the land cannot be enforced unless respondents comply with the
suspensive condition that they acquire first a separate and distinct TCT in their names. The suspensive condition not
having been fulfilled, then the obligation of the petitioner to purchase the land has not arisen.

c.Can plaintiff rescind or terminate the Contract of Lease after the one-year period?” –NO. BECAUSE THEY HAVE
NOT CAUSED TRANSFER OF TCT TO THEIR NAMES.

a. There can be no rescission (or more properly, resolution) of an obligation as yet non-existent,
because the suspensive condition has not happened.
No. 15 (second case)

GR NO. L-96643 APRIL 23, 1993

Petitioners: ERNESTO DEIPARINE, JR.

Respondents: CA, CESARIO CARUNGAY AND ENGR. NICANOR TRINIDAD

Ponente: CRUZ

Topic: KINDS OF CONTRACTS; RESCISSIBLE CONTRACTS; VOIDABLE CONTRACTS

DOCTRINE: Under the law on contracts, there are what are called "rescissible contracts" which are enumerated in
Article 1381. There is also a right of rescission under the law on obligations as granted in Article 1191.

FACTS:

• The spouses Cesario and Teresita Carungay entered into an agreement with Ernesto Deiparine for the
construction of a three-story dormitory in Cebu City.

• The Carungays agreed to pay P970,000.00, inclusive of contractor's fee, and Deiparine bound himself to erect
the building "in strict accordance to (sic) plans and specifications."

• Nicanor Trinidad, Jr., a civil engineer, was designated as the representative of the Carungay spouses, with
powers of inspection and coordination with the contractor.

• Deiparine started the construction and later on, Trinidad sent him a document entitled General Conditions and
Specifications which states that 3,000 psi (pounds per square inch) as the minimum acceptable compressive strength
of the building.

• Trinidad reported to Cesario Carungay that Deiparine had been deviating from the plans and specifications,
thus impairing the strength and safety of the building.

• Carungay ordered Deiparine to first secure approval from him before pouring cement. It was not heeded.

• Carungay sent Deiparine another memorandum complaining that the "construction works are faulty and done
haphazardly. It was also ignored.

• The parties agreed to conduct cylinder tests to ascertain if the structure thus far built complied with safety
standards. The core test was made and On the basis of 3,000 psi, all the samples failed. This meant that the building
was structurally defective.

• The spouses Carungay filed complaint with the Regional Trial Court of Cebu for the rescission of the
construction contract and for damages.

• TC rendered judgment: declaring the construction agreement rescinded

• CA Affirmed

• He filed a petition contending that the application by the lower court of Article 1191 of the Civil Code in
rescinding the construction agreement is wrong and that the applicable rules are Articles 1385.

ISSUE:

(1) WON the contention of DEIPARINE that Art. 1385 should be applied is correct? – NOt, Art. 1191 should apply.

HELD/RATIO:

• NO. SC affirmed the decision of the CA. The rescissions is through breach and not the enumerated cases of
rescisable contracts.
• Deiparine seems to be confused over the right of rescission, which is used in two different contexts in the Civil
Code.

Under the law on contracts, there are what are called "rescissible contracts" which are enumerated in Article 1381
thus:

(1) Those which are entered into by guardians whenever the wards who they represent suffer lesion by more than
one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number:

(3) Those undertaken in fraud of creditors when the later cannot in any other manner collect the claims due them:

(4) Those which refer to things under litigation if they have been entered into by the defendants without the knowledge
and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

• Article 1385, upon which Deiparine relies, deals with the rescission of the contracts enumerated above, which
do not include the construction agreement in question.

• There is also a right of rescission under the law on obligations as granted in Article 1191, providing as follows:

"Art. 1191. 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 injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.

• This was the provision the trial court and the respondent court correctly applied because it relates to contracts
involving reciprocal obligations like the subject construction contract. The construction contract fails squarely under
the coverage of Article 1191 because it imposes upon Deiparine the obligation to build the structure and upon the
Carungays the obligation to pay for the project upon its completion.

• Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the, parties but on breach
of faith by one of them that violates the reciprocity between them. The violation of reciprocity between Deiparine and
the Carungay spouses, to wit, the breach caused by Deiparine's failure to follow the stipulated plans and
specifications, has given the Carungay spouses the right to rescind or cancel the contract.

Case # 5
G.R. No. 87047 October 31, 1990
FRANCISCO LAO LIM, petitioner, vs. COURT OF APPEALS and BENITO VILLAVICENCIO DY,
respondents.

FACTS:
 BENITO VILLAVICENCIO DY (BENITO) entered into a contract of lease with petitioner for a
period of three (3) years (1976 to 1979).
 After the stipulated term expired, BENITO refused to vacate the premises, hence, FRANCICO LAO
LIM (FRANCISCO) filed an ejectment suit against the former in the City Court of Manila (Civil Case
No. 051063-CV). The case was terminated by a judicially approved compromise agreement of the
parties providing in part:
 3. That the term of the lease shall be renewed every three years retroacting from October 1979 to
October 1982; after which the abovenamed rental shall be raised automatically by 20% every three
years for as long as defendant needed the premises and can meet and pay the said increases, the
defendant to give notice of his intent to renew sixty (60) days before the expiration of the term;

 By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to
1985.
 (April 1985) FRANCISCO advised BENITO that he would no longer renew the contract upon its
expiration in October, 1985 but (August 1985) BENITO informed the former in writing of his intention
to renew the contract of lease for another term (commencing November, 1985 to October, 1988). This
was rejected by FRANCISCO.
 Because of BENITO's refusal to vacate the premises, FRANCISCO filed another ejectment suit with
the Metropolitan Trial Court of Manila. Said court dismissed the complaint on the grounds that:
(1) the lease contract has not expired, being a continuous one the period whereof depended upon the
lessee's need for the premises and his ability to pay the rents; and
(2) the compromise agreement entered into in the aforesaid Civil Case No. 051063-CV constitutes res
judicata to the case before it.
 FRANCISCO appealed to the RTC of Manila. RTC affirmed the decision of the lower court.
 Respondent Court of Appeals also affirmed the decision of the RTC and held that:
(1) the stipulation in the compromise agreement which, in its formulation, allows the lessee
(BENITO) to stay on the premises as long as he needs it and can pay rents is valid, being a
resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil Code; and
(2) that a compromise has the effect of res judicata.
 Petitioner's motion for reconsideration was likewise denied by respondent Court of Appeals.

ISSUE:
WON the stipulation in the compromise agreement, which allows the lessee to stay on the premises as long
as he needs it and can pay rents is valid?

RULING:
NO. The interpretation made by respondent court cannot be upheld.

The stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is
a purely potestative condition (see Art. 1182 NCC) because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee. It is likewise a suspensive condition because the
renewal of the lease, which gives rise to a new lease, depends upon said condition. A renewal constitutes a
new contract of lease although with the same terms and conditions as those in the expired lease. Said
condition is not resolutory in nature because it is not a condition that terminates the lease contract.
The invalidity of such condition has been resolved in Encarnacion vs. Baldomar, et al. where we ruled
that:

that the contract of lease authorized LESSEES to

In an action for ejectment, the defense interposed by the lessees
continue occupying the premises as long as they paid the rents is untenable, because it would leave
to the lessees the sole power to determine whether the lease should continue or not. If this defense were to
be allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never
be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart
his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This is
prohibited by the aforesaid article of the Civil Code.

The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the
rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in
such a contract of lease and no equality exists between the lessor and the lessee since the life of the
contract is dictated solely by the lessee.
Paragraph 3 of the compromise agreement, read and interpreted in its entirety, which gives the private
respondent sixty (60) days before the expiration of the term the right to give notice of his intent to
renew, is subject to the first portion of said paragraph that "the term of the lease shall be renewed every three
(3) years," thereby requiring the mutual agreement of the parties. The use of the word "renew" and
the designation of the period of three (3) years clearly confirm that the contract of lease is limited to a
specific period and that it is not a continuing lease. The stipulation provides for a renewal of the lease every three
(3) years; there could not be a renewal if said lease did not expire, otherwise there is nothing to renew.

The contract of lease should be and is hereby construed as providing for a definite period of three (3)
years and that the automatic increase of the rentals by twenty percent (20%) will take effect only if
the parties decide to renew the lease. A contrary interpretation will result in a situation where the
continuation and effectivity of the contract will depend only upon the will of the lessee, in violation of
Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. The compromise agreement should
be understood as bearing that import which is most adequate to render it effectual. Where the instrument is susceptible of two
interpretations, one which will make it invalid and illegal and another which will make it valid and legal, the latter interpretation
should be adopted.

Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending to
create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an additional
term should not be held to create a right to repeated grants in perpetuity, unless by plain and
unambiguous terms the parties have expressed such intention. A lease will not be construed to create a
right to perpetual renewals unless the language employed indicates clearly and unambiguously that it
was the intention and purpose of the parties to do so. A portion in a lease giving the lessee and his assignee the
right to perpetual renewals is not favored by the courts, and a lease will be construed as not making such a provision unless it does
so clearly.

As we have further emphasized:

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. But that presumption cannot reasonably be indulged in casually in an era of rapid economic change,
marked by, among other things, volatile costs of living and fluctuations in the value of the domestic currency. The longer the
period the more clearly unreasonable such a presumption would be. 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.

In addition, even assuming that the clause "for as long as the defendant needed the premises and can meet
and pay, said increases" gives private respondent an option to renew the lease, the same will be construed
as providing for but one renewal or extension and, therefore, was satisfied when the lease was renewed
in 1982 for another three (3) years. A general covenant to renew is satisfied by one renewal and will
not be construed to confer the right to more than one renewal unless provision is clearly and expressly
made for further renewals. Leases which may have been intended to be renewable in perpetuity will
nevertheless be construed as importing but one renewal if there is any uncertainty in that regard.

The case of Buccat vs. Dispo et al., relied upon by respondent court, to support its holding that respondent lessee can legally stay
on the premises for as long as he needs it and can pay the rents, is not in point. In said case, the lease contract provides for an
indefinite period since it merely stipulates "(t)hat the lease contract shall remain in full force and effect as long as the land will
serve the purpose for which it is intended as a school site of the National Business Institute, but the rentals now stipulated shall be
subject to review every after ten (10) years by mutual agreement of the parties." This is in clear contrast to the case at bar wherein,
to repeat, the lease is fixed at a period of three (3) years although subject to renewal upon agreement of
the parties, and the clause "for as long as defendant needs the premises and can meet and pay the
rents" is not an independent stipulation but is controlled by said fixed term and the option for
renewal upon agreement of both parties.
On the second issue, we agree with petitioner that respondent court erred in holding that the action for ejectment is barred by res
judicata. While it is true that a compromise agreement has the effect of res judicata this doctrine does not apply in the present
case. It is elementary that for a judgment to be a bar to a subsequent case, (1) it must be a final judgment, (2) the court which
rendered it had jurisdiction over the subject matter and the parties, (3) it must be a judgment on the merits, and (4) there must be
identity between the two cases as to parties, subject matter and cause of action.

In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no identity of subject matter and
cause of action. The subject matter in the first ejectment case is the original lease contract while the subject matter in the case at
bar is the lease created under the terms provided in the subsequent compromise agreement. The lease executed in 1978 is one
thing; the lease constituted in 1982 by the compromise agreement is another.

There is also no identity, in the causes of action. The test generally applied to determine the identity of causes of action is to
consider the identity of facts essential to their maintenance, or whether the same evidence would sustain both causes of action. In
the case at bar, the delict or the wrong in the first case is different from that in the second, and the evidence that will support and
establish the cause of action in the former will not suffice to support and establish that in the latter.

In the first ejectment case, the cause of action was private respondent's refusal to comply with the lease contract which expired on
December 31, 1978. In the present case, the cause of action is a similar refusal but with respect to the lease which expired in
October, 1985 under the compromise agreement. While the compromise agreement may be res judicata as far as the cause of
action and issues in the first ejectment case is concerned, any cause of action that arises from the application or violation of the
compromise agreement cannot be said to have been settled in said first case. The compromise agreement was meant to settle, as it
did only settle, the first case. It did not, as it could not, cover any cause of action that might arise thereafter, like the present case
which was founded on the expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact that the
compromise agreement was judicially approved does not foreclose any cause of action arising from a violation of the terms
thereof.

WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private
respondent is hereby ordered to immediately vacate and return the possession of the leased premises subject
of the present action to petitioner and to pay the monthly rentals due thereon in accordance with the
compromise agreement until he shall have actually vacated the same. This judgment is immediately
executory. SO ORDERED.

Case # 7

7.G.R. No. 4437           September 9, 1909

TOMAS OSMEÑA, plaintiff-appellee,
vs.
CENONA RAMA, defendant-appellant.

Filemon Sotto for appellant.

J. H. Junquera for appellee.

JOHNSON, J.:

It appears from the record that upon the 15th day of November, 1890, the defendant herein
executed and delivered to Victoriano Osmeña the following contract:

EXHIBIT A.

P200.00.

CEBU, November 15, 1890.               

I, Doña Cenona Rama, a resident of this city, and of legal age, have received from Don
Victoriano Osmeña the sum of two hundred pesos in cash which I will pay in sugar in the
month of January or February of the coming year, at the price ruling on the day of delivering
the sugar into his warehouse, and I will pay him interest at the rate of half a cuartillo per
month on each peso, beginning on this date until the day of the settlement; and if I can not
pay in full, a balance shall be struck, showing the amount outstanding at the end of each
June, including interest, and such as may be outstanding against me shall be considered as
capital which I will always pay in sugar, together with the interest mentioned above. I further
promise that I will sell to the said Señor Osmeña all the sugar that I may harvest, and as a
guarantee, pledge as security all of my present and future property, and as special security
the house with tile roof and ground floor of stone in which I live in Pagina; in proof whereof,
I sign this document, and he shall be entitled to make claim against me at the expiration of
the term stated in this document.

(Signed) CENON RAMA.

Witnesses:

FAUSTO PEÑALOSA.
FRANCISCO MEDALLE.

On the 27th day of October, 1891, the defendant executed and delivered to the said
Victoriano Osmeña the following contract:

EXHIBIT B.

CEBU, October 27, 1891.               

On this date I have asked for further loan and have received from Don Victoriano Osmeña
the sum of seventy pesos in cash, fifty pesos of which I have loaned to Don Evaristo Peñares,
which we will pay in sugar in the month of January of the coming year according to the
former conditions.

(Signed) CENONA RAMA.

From Don P50

Evaristo
Peñares

Doña Cenona 20
Rama

P70
Received — Evaristo Peñares.

Some time after the execution and delivery of the above contracts, the said Victoriano
Osmeña died. In the settlement and division of the property of his estate the above contracts
became the property of one of his estate the above contracts became the property of one of
his heirs, Agustina Rafols. Later, the date does not appear, the said Agustina Rafols ceded to
the present plaintiff all of her right and interest in said contracts.

On the 15th day of March, 1902 the plaintiff presented the contracts to the defendant for
payment and she acknowledged her responsibility upon said contracts by an indorsement
upon them in the following language:

EXHIBIT C.

CEBU, March 15, 1902.               

On this date I hereby promise, in the presence of two witness, 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.

(Signed) CENONA RAMA.             

The defendant not having paid the amount due on said contracts; the plaintiff, upon the 26th
day of June, 1906, commenced the present action in the Court of First Instance of the
Province of Cebu. The complaint filed in said cause alleged the execution and delivery of the
above contracts, the demand for payment, and the failure to pay on the part of the defendant,
and the prayer for a judgment for the amount due on the said contracts. The defendant
answered by filing a general denial and setting up the special defense of prescription.

The case was finally brought on to trial in the Court of First Instance, and the only witness
produced during the trial was the plaintiff himself. The defendant did not offer any proof
whatever in the lower court.

After hearing the evidence adduced during the trial, the lower court rendered a judgment in
favor of the plaintiff and against the defendant for the sum of P200 with interest at the rate of
18 3/4 per cent per annum, from the 15th day of November, 1890, and for the sum of P20
with interest at the rate of 18 3/4 per cent per annum, from the 27th day of October, 1891,
until the said sums were paid. From this judgment the defendant appealed.

The lower court found that P50 of the P70 mentioned in Exhibit B had been borrowed by the
defendant, but by one Evaristo Peñares; therefore the defendant had no responsibility for the
payment of the said P50.

The only questions raised by the appellant were questions of fact. The appellant alleges that
the proof adduced during the trial of the cause was not sufficient to support the findings of
the lower court. 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. 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. (Art. 1115, Civil
Code.) 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.

We are satisfied, from all of the evidence adduced during the trial, that the judgment of the
lower court should be affirmed. So ordered.

Case # 10
Smith, Bell & Co.,Ltd. VS. Vicente Sotelo Matti G.R. No. L-16570 March 9, 1922

Topic: Conditional Obligations

Facts of the Case:

 August 1918 – Sotelo entered into contract with Smith Bell to purchase:
(1)2 steel tanks for P21,000 each to be shipped from New York to Manila within 3-4 months,
(2)2 expellers for P25,000 each shipped from San Francisco on September 1918 or ASAP
(3)2 electric motors for P2000 each- approximate delivery within 90 days- not guaranteed

 Date of Arrival:
(1) Steel Tanks – April 27, 1919
(2) Expellers – October 26, 1918
(3) Motors – February 27, 1919

 When Smith Bell notified Sotelo, the latter refused to receive and pay, to which Smith Bell brought suit with
the following allegations (4 separate causes of action):
(1) Immediate notification of arrival of goods
(2) Immediately asked for intstructions of delivery
(3) Matti refused to receive and pay
(4) Expellers and motors were in good condition

 Answer from Sotelo and intervenor Manila Oil Refining and By-Products Co.,Inc., denied the allegations
with special defense that Sotelo had made the contracts as Manager.
Notification of arrival of tanks was only made in May 1919, motors and expellers were incomplete.
As counter-claim, Intervenor Co. suffered damages P116,783.91 for tanks and P21,250 for
for expellers and motors supposedly used for manufacturing coconut oil.

 Lower Court Decision

(1) Defendants absolved from paying motors and tanks
(2) Receive and pay the expellers for P50,000 on July 26, 1919
BOTH PARTIES APPEALED

Issue:
Whether or not Smith &Bill Co. has fulfilled, in due time, its obligation to bring the goods in question to Manila.

Ruling:
Periods fixed for delivery must be taken into consideration
 (1)2 steel tanks - within 3-4 months – promise or indication carries absolutely no obligation – factors such as
Government Regulations, railroad embargoes etc. – order is accepted on basis of shipment at Mill’s Convenience,
time of shipment merely an indication.

(2)2 expellers - September 1918 or ASAP – more particularly described

(3)2 electric motors - approximate delivery within 90 days- not guaranteed – sale subject to obtaining Priority
Certificate, subject to Govt requirements, subject to confirmation of manufacturers

FINAL CLAUSE: Sellers not responsible for delays caused by “Force Majeure”

 Stipulations cannot be said to contain definite date for delivery

 Contracts were executed at the time of world war (there are existing rigid restrictions) which is known to both
parties
 In the light of civil law, obligations must be regarded as conditional. Obligations for the performance of
which a day certain has been fixed shall be demandable only when the day arrves. A day certain is understood
to be one which must necessarily arrive, even though date is unknown.
 Delivery was subject to a condition which fulfillment depended not only on the efforts of the plaintiff, but also
that of third persons.
 In cases like this, which are not expressly provided for, but impliedly covered, by the civil code, the obligor
will deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power,
even if the condition has not been fulfilled in reality. Obligee having done all that was in his power, was
entitled to enforce performance of the obligation.
Decisions referred by Manresa rendered by Supreme Cout of Spain
 First Doctrine Applied: when the fulfillment of the conditions does not depend on the will of the obligor, but
on that of a third person who can in no way be compelled to carry, and it is found by the lower court that the
obligor has done all in his power to comply with the obligation, the judgment of the said court, ordering the
other party to comply with his part of the contract,is not contrary to the law of contracts, provided no law or
precedent have been violated.
 Second Doctrine: when the fulfillment of the conditions does not depend on the will of the obligor, but on that
of a third person who can in no way be compelled to carry it out, the obligor’s part of the contract is complied
withalf Belisario (another case)

P.S. Pls basaha ang full text sa bottom part kay naay other cases nga giapil nga wala ko kasabot, and wala pud ko kita
sa ruling sa SC. 

Case # 11
Roman Catholic Archbishop vs. CA/RIETA
        
G.R. No. 77425 June 19, 1991

FACTS:

1. RIETA FILED NULLIFICATION OF DEED OF DONATION, RECISSION OF CONTRACT AND

RECONVEYANCE OF REAL PROPERTY WITH DAMAGES against Ignao and ROMAN CATHOLIC BISHOP OF
IMUS, CAVITE/MANILA.

1. Executed deed of donation covering a parcel of land

i.     CONDITION: Donee shall not dispose or sell the property within a period of one hundred
(100) years from the execution of the deed of donation, otherwise would render ipso facto null and
void; deed and property would revert back to donors.

2. Bishop of Imus executed a deed of absolute sale to Ignao for P114,000

2. IGNAO: MOTION TO DISMISS
1. No legal capacity to sue
 2. No cause of action
3. Prescribed (added by Roman Catholic Bishop of Imus)
4. Not a real party in interest (Bishop of Manila)
Was ruled that the complaint for cause of action has already prescribed.

3. APPEALED TO CA:
1. WON the action for rescission of contracts (deed of donation and deed of sale) has prescribed
2. WON the dismissal of the action for rescission of contracts (deed of donation and deed of sale) on
the ground of prescription carries with it the dismissal of the main action for reconveyance.

CA held that action not prescribed.

ISSUE:
Has the cause of action already prescribed? NO.
ARTICLE 764: "(t)his action shall prescribe after 4 years from the non-compliance with the condition, may be
transmitted to the heirs of the donor, and may be exercised against the donee's heirs.

Is there a cause of action? UNJUSTIFIED CAUSE OF ACTION

HELD:
Judgment SET ASIDE and another judgment DISMISSED.
1.      DEED HAS AUTOMATIC REVERSION EXPRESSED, JUDICIAL DECLARATION NOT
NECESSARY HENCE.
a.    Judicial action for 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.
b.   Judicial action is proper only when there is absence of a special provision granting the power of
cancellation.

2.  UNDUE RESTRICTION ON RIGHTS OF OWNERSHIP, CONTRARY TO PUBLIC POLICY.

a.    DONATION: effective transfer of title over the property from the donor to the donee. Once a donation
is accepted, the donee becomes the absolute owner of the property donated. Although the donor may
impose certain conditions in the deed of donation, the same must not be contrary to law, morals, good
customs, public order and public policy.
b.   Condition imposed must not be perpetual or for an unreasonable period of time.

Case # 20
G.R. 155173 November 23, 2004
LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON
CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP
ROSEBERG, petitioners, vs. CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and
ANTHONY A. MARIANO, respondents.

May defendants in civil cases implead in their counterclaims persons who were not parties to the original
complaints? This is the main question to be answered in this controversy.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the May 22,
20022 and the September 3, 2002 Orders3 of the Regional Trial Court (RTC) of Quezon City (Branch 80) in
Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads:
"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss claims is
granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano captioned as their
counterclaims are dismissed."4
The second challenged Order denied petitioners' Motion for Reconsideration.

The Facts
In a Letter of Intent (LOI), Petitioner Lafarge Cement Philippines, Inc. (Lafarge), on behalf of its affiliates
and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC), agreed to
purchase the cement business of Respondent Continental Cement Corporation (CCC).
Both parties entered into a Sale and Purchase Agreement (SPA). Due to a pending case of CCC with the
Supreme Court (GR No. 119712, Asset Privatization Trust (APT) v. Court of Appeals and Continental
Cement Corporation) and in anticipation of the liability that the High Tribunal might adjudge against CCC,
the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the
contract price in the amount of P117,020,846.84 (the equivalent of US$2,799,140) to be deposited in an
interest-bearing account for payment to APT (petitioner in GR No. 119712).
However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent
finality of the Decision in GR No. 119712 in favor of APT and the repeated instructions of Respondent
CCC.
CCC filed before the RTC of Quezon City a "Complaint with Application for Preliminary Attachment"
against petitioners (Civil Case No. Q-00-41103) praying, among others, that petitioners be directed to pay
the "APT Retained Amount" referred to in Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping
alleging that Respondent CCC had made the same claim involving the same parties filed earlier before the
International Chamber of Commerce. The trial court denied the Motion to Dismiss and thus, petitioners
elevated the matter before the Court of Appeals in CA-GR SP No. 68688.
In the meantime, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial
court in Civil Case No. Q-00-41103.
They denied the allegations in the Complaint and alleged that CCC, through Lim and Mariano, had filed the
"baseless" Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. They
prayed, by way of compulsory counterclaims against Respondent CCC, its majority stockholder and
president Gregory T. Lim, and its corporate secretary Anthony A. Mariano, for the sums of (a) P2,700,000
each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as moral
damages, and (d) P5,000,000 each as attorney's fees plus costs of suit. Relying on this Court's
pronouncement in Sapugay v. CA, that both Lim and Mariano be held "jointly and solidarily" liable with
Respondent CCC.
On behalf of Lim and Mariano, CCC moved to dismiss petitioners' compulsory counterclaims on grounds
that essentially constituted the very issues for resolution in the instant Petition.
The RTC dismissed petitioners' counterclaims on the ground that:
a) the counterclaims against Respondents Lim and Mariano were not compulsory;
b) the ruling in Sapugay was not applicable; and
c) petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of causes of
action.
Acting on the Motion for Reconsideration filed by petitioners, the trial court amended its previous order in
its pronouncement that petitioner’s counterclaim had been pleaded against Lim and Mariano only but
nevertheless dismissed the counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it
included CCC.
Hence this Petition.

Issues
In their Memorandum, petitioners raise the following issues for our consideration:
"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to
move to dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf.
 "[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against Respondents
Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and (iii)
petitioners violated the rule on joinder of causes of action."
For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court's Ruling

The Petition is meritorious.

First Issue:
Counterclaims and Joinder of Causes of Action.
Petitioners' Counterclaims Compulsory
Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which a defending party may
have against an opposing party." They are generally allowed in order to avoid a multiplicity of suits and to facilitate the
disposition of the whole controversy in a single action, such that the defendant's demand may be adjudged by a
counterclaim rather than by an independent suit. The only limitations to this principle are:
(1) that the court should have jurisdiction over the subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over third parties whose presence is essential for its adjudication.

A counterclaim may either be permissive or compulsory.

Permissive counterclaim
- does not arise out of or is not necessarily connected with the subject matter of the opposing party's claim
- is essentially an independent claim that may be filed separately in another case.
Compulsory Counterclaim
- its object "arises out of or is necessarily connected with the transaction or occurrence constituting the subject
matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom
the court cannot acquire jurisdiction."
Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they would be
barred forever. NAMARCO v. Federation of United Namarco Distributors laid down the following criteria to determine
whether a counterclaim is compulsory or permissive:
1) Are issues of fact and law raised by the claim and by the counterclaim largely the same?
2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory counterclaim rule?
3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim?
4) Is there any logical relation between the claim and the counterclaim?

A positive answer to all four questions would indicate that the counterclaim is compulsory.
Adopted in Quintanilla v. CA and reiterated in Alday v. FGU Insurance Corporation, the "compelling test of compulsoriness"
characterizes a counterclaim as compulsory if there should exist a "logical relationship" between the main claim and the
counterclaim. There exists such a relationship
(a) when conducting separate trials of the respective claims of the parties would entail substantial duplication of time and
effort by the parties and the court;
(b) when the multiple claims involve the same factual and legal issues; or
(c) when the claims are offshoots of the same basic controversy between the parties.

We shall now examine the nature of petitioners' counterclaims against respondents with the use of the foregoing parameters.
Petitioners base their counterclaim on the following allegations:
"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith decisions for, and causing
plaintiff to file this baseless suit and to procure an unwarranted writ of attachment, notwithstanding their knowledge that
plaintiff has no right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated by his
personal interests as one of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal
loyalty to Gregory T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause.
"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint tortfeasors in the commission of
the acts complained of in this answer and in the compulsory counterclaims pleaded below . As such they should be held
 jointly and solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's
decision in Sapugay v. Mobil.
xxx    xxx    xxx
"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless case has compelled the defendants to
engage the services of counsel for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no case less than
P5 million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held jointly and
solidarily liable.
"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the reputations of the defendants and they
should be held jointly and solidarily liable to them for moral damages of P100 million each.
"In order to serve as an example for the public good and to deter similar baseless, bad faith litigation , the plaintiff, Gregory T.
Lim and Anthony A. Mariano should be held jointly and solidarily liable to the defendants for exemplary damages of P100
million each."
The above allegations show that petitioners' counterclaims for damages were the result of respondents' (Lim and Mariano)
act of filing the Complaint and securing the Writ of Attachment in bad faith. Tiu Po v. Bautista involved the issue of whether
the counterclaim that sought moral, actual and exemplary damages and attorney's fees against respondents on account of their
"malicious and unfounded" complaint was compulsory. In that case, we held as follows:
"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory counterclaim. They are damages
claimed to have been suffered by petitioners as a consequence of the action filed against them. They have to be pleaded
in the same action; otherwise, petitioners would be precluded by the judgment from invoking the same in an
independent action. The pronouncement in Papa vs. Banaag (17 SCRA 1081) (1966) is in point:
"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in consequence of the debtor's action, are
also compulsory counterclaim barred by the dismissal of the debtor's action. They cannot be claimed in a subsequent action
by the creditor against the debtor."
"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an independent action, it is the same
evidence that sustains petitioners' counterclaim that will refute private respondent's own claim for damages. This is an
additional factor that characterizes petitioners' counterclaim as compulsory."
Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of petitioners' counterclaims is
contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a substantial duplication of the
time and effort of the court and the parties.
Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it would be barred forever. If it
is filed concurrently with the main action but in a different proceeding, it would be abated on the ground of litis pendentia; if
filed subsequently, it would meet the same fate on the ground of res judicata.

Sapugay v. Court of Appeals Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil Philippines filed before the trial
court of Pasig an action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the supposed
failure of the couple to keep their end of their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that
after incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that
it had refused. It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the Dealership Agreement, which
respondent continued to withhold from them. Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas,
had intended all along to award the dealership to Island Air Product Corporation.
In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo P. Cardenas -- as
defendants. They prayed that judgment be rendered, holding both jointly and severally liable for pre-operation expenses, rental,
storage, guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to respond to their Answer
to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on
Defendant's Counterclaim."
Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action, might nevertheless
be impleaded in the counterclaim. We disposed of this issue as follows:
"A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing
party. However, the general rule that a defendant cannot by a counterclaim bring into the action any claim against
persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that 'when the presence of
parties other than those to the original action is required for the granting of complete relief in the determination of a
counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be
obtained.' The inclusion, therefore, of Cardenas in petitioners' counterclaim is sanctioned by the rules."
The prerogative of bringing in new parties to the action at any stage before judgment is intended to accord complete relief
to all of them in a single action and to avert a duplicity and even a multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a counterclaim, except
when no complete relief can be had. They add that "[i]n the present case, Messrs. Lim and Mariano are not necessary for
petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a
corporation with a separate [legal personality] has the juridical capacity to indemnify petitioners even without Messrs. Lim and
Mariano."
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case
-- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such
that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad
faith on the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil of
corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally
liable for his or her actions.
In Tramat Mercantile v. Court of Appeals, the Court held that generally, it should only be the corporation that could properly
be held liable. However, circumstances may warrant the inclusion of the personal liability of a corporate director, trustee,
or officer, if the said individual is found guilty of bad faith or gross negligence in directing corporate affairs.
Remo Jr. v. IAC has stressed that while a corporation is an entity separate and distinct from its stockholders, the corporate
fiction may be disregarded if "used to defeat public convenience, justify a wrong, protect fraud, or defend crime." In these
instances, "the law will regard the corporation as an association of persons, or in case of two corporations, will merge
them into one."
Thus, there is no debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect
made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties in interest to the
counterclaim.
Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because their assailed acts] are within
the powers granted to them by the proper board resolutions; therefore, it is not a personal decision but rather that of the
corporation as represented by its board of directors." The foregoing assertion, however, is a matter of defense that should be
threshed out during the trial; whether or not "fraud" is extant under the circumstances is an issue that must be established by
convincing evidence.
Suability and liability are two distinct matters. While the Court does rule that the counterclaims against Respondent CCC's
president and manager may be properly filed, the determination of whether both can in fact be held jointly and severally liable
with respondent corporation is entirely another issue that should be ruled upon by the trial court.
However, while a compulsory counterclaim may implead persons not parties to the original complaint, the general rule -- a
defendant in a compulsory counterclaim need not file any responsive pleading, as it is deemed to have adopted the allegations in
the complaint as its answer -- does not apply. The filing of a responsive pleading is deemed a voluntary submission to the
jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to
have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous
consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and judgment
rendered against it without its knowledge, much less participation in the proceedings, in blatant disregard of rudimentary due
process requirements.
The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules of Court, to "order
[such impleaded parties] to be brought in as defendants, if jurisdiction over them can be obtained," by directing that
summons be served on them. In this manner, they can be properly appraised of and answer the charges against them.
Only upon service of summons can the trial court obtain jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any responsive pleading to the
counterclaim leveled against him. Nevertheless, the Court gave due consideration to certain factual circumstances, particularly the
trial court's treatment of the Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming
acquiescence thereto, as evidenced by his failure to make any objection despite his active participation in the proceedings. It was
held thus:
"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the ground of lack of
jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even for the first time on appeal, this does not
obtain in the instant case. Although it was only Mobil which filed an opposition to the motion to declare in default, the fact that
the trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's complaint should be considered as
the answer to petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the trial court treated the
opposition as having been filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the
allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny the motion to
declare Mobil and Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as
he testified and was present during trial, not to speak of the fact that as manager of Mobil he would necessarily be interested in
the case and could readily have access to the records and the pleadings filed therein.
"By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is deemed to have
recognized the jurisdiction of the trial court over his person and submitted thereto. He may not now be heard to repudiate or
question that jurisdiction."
 Such factual circumstances are unavailing in the instant case. The records do not show that Respondents Lim and Mariano are
either aware of the counterclaims filed against them, or that they have actively participated in the proceedings involving them.
Further, in dismissing the counterclaims against the individual respondents, the court a quo -- unlike in Sapugay -- cannot be
said to have treated Respondent CCC's Motion to Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable
Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of action. It argues that while the
original Complaint was a suit for specific performance based on a contract, the counterclaim for damages was based on the
tortuous acts of respondents. In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil
Procedure, which we quote:
"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the alternative or otherwise, as many causes of
action as he may have against an opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x"
Section 6. Permissive joinder of parties. – All persons in whom or against whom any right to relief in respect to or arising out of
the same transaction or series of transactions is alleged to exist whether jointly, severally, or in the alternative, may, except as
otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or
fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may
be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in
which he may have no interest."
The foregoing procedural rules are founded on practicality and convenience. They are meant to discourage duplicity and
multiplicity of suits. This objective is negated by insisting -- as the court a quo has done -- that the compulsory counterclaim for
damages be dismissed, only to have it possibly re-filed in a separate proceeding. More important, as we have stated earlier,
Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be joined
therein. Section 7 of Rule 3 provides:
"Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination can be had of an action
shall be joined either as plaintiffs or defendants."
Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary nature of
the liability alleged therein.

Second Issue:
CCC's Personality to Move to Dismiss the Compulsory Counterclaims
Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint and
solidary," petitioners prayed:
"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
"1. Dismissing the complaint in its entirety;
"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant
actual damages in the sum of at least P2,700,000.00;
"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the
defendants LPI, LCLC, COC and Roseberg:
"a. Exemplary damages of P100 million each;
"b. Moral damages of P100 million each; and
"c. Attorney's fees and costs of suit of at least P5 million each.
Other reliefs just and equitable are likewise prayed for."

Obligations may be classified as either joint or solidary.

"Joint" or "jointly" or "conjoint" means mancum or mancomunada or pro rata obligation;
"Solidary obligations" may be used interchangeably with "joint and several" or "several."
Thus, petitioners' usage of the term "joint and solidary" is confusing and ambiguous. The ambiguity in
petitioners' counterclaims notwithstanding, respondents' liability, if proven, is solidary. This characterization
finds basis in Article 1207 of the Civil Code, which provides that obligations are generally considered joint,
except when otherwise expressly stated or when the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary. We have assiduously maintained
this legal principle as early as 1912 in Worcester v. Ocampo,30 in which we held:
"x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the
present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only
individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x
"It may be stated as a general rule that joint tort feasors are all the persons who command, instigate,
promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent
and in the same manner as if they had performed the wrongful act themselves. x x x
"Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may
sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all
together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who
participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his
participation in the tort was insignificant as compared to that of the others. x x x
"Joint tort feasors are not liable pro rata. The damages cannot be apportioned among them, except among
themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part.
They are jointly and severally liable for the whole amount. x x x
"A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim
which might exist against the others. There can be but satisfaction. The release of one of the joint tort
feasors by agreement generally operates to discharge all. x x x
"Of course the court during trial may find that some of the alleged tort feasors are liable and that others are
not liable. The courts may release some for lack of evidence while condemning others of the alleged tort
feasors. And this is true even though they are charged jointly and severally."
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or
"joint and several" obligation, the relationship between the active and the passive subjects is so close
that each of them must comply with or demand the fulfillment of the whole obligation. The fact that the
liability sought against the CCC is for specific performance and tort, while that sought against the
individual respondents is based solely on tort does not negate the solidary nature of their liability for
tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:
"Solidarity may exist although the creditors and the debtors may not be bound in the same manner
and by the same periods and conditions."
The solidary character of respondents' alleged liability is precisely why credence cannot be given to
petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the
counterclaims on grounds that pertain solely to its individual co-debtors. In cases filed by the creditor, a
solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances personal
to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides:
"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from
the nature of the obligation and of those which are personal to him, or pertain to his own share. With
respect to those which personally belong to the others, he may avail himself thereof only as regards that
part of the debt for which the latter are responsible." (Emphasis supplied).
The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on
grounds that pertain only to its individual co-debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on
behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be
dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that
if the issues raised in the compulsory counterclaim are so intertwined with the allegations in the
complaint, such issues are deemed automatically joined. Counterclaims that are only for damages and
attorney's fees and that arise from the filing of the complaint shall be considered as special defenses and
need not be answered.
CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed
While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to
individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason
that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and
distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus,
unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by
Respondent CCC has no force and effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano are
compulsory.
2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even
if both were not parties in the original Complaint.
3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion
to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed to
have been filed on behalf of the said co-defendants.
4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain jurisdiction
over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is
hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with
Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and
Anthony A. Mariano. No costs. SO ORDERED.

Case # 22

22.[G.R. No. 93010. August 30, 1990.]

NICENCIO TAN QUIOMBING, Petitioner, v. COURT OF APPEALS, and Sps.

FRANCISCO and MANUELITA A. SALIGO, Respondents.

M.B. Tomacruz Law Office for Petitioner.

Jose J. Francisco for Private Respondents.

DECISION

CRUZ, J.:
May one of the two solidary creditors sue by himself alone for the recovery of amounts due
to both of them without joining the other creditor as a co-plaintiff? In such a case, is the
defendant entitled to the dismissal of the complaint on the ground of non-joinder of the
second creditor as an indispensable party? More to the point, is the second solidary creditor
an indispensable party?

These questions were raised in the case at bar, with both the trial and respondent courts
ruling in favor of the defendants. The petitioner is now before us, claiming that the said
courts committed reversible error and misread the applicable laws in dismissing his
complaint.

This case stemmed from a "Construction and Service Agreement" 1 concluded on August 30,
1983, whereby Nicencio Tan Quiombing and Dante Biscocho, as the First Party, jointly and
severally bound themselves to construct a house for private respondents Francisco and
Manuelita Saligo, as the Second Party, for the contract price of P137,940.00, which the latter
agreed to pay.

On October 10, 1984, Quiombing and Manuelita Saligo entered into a second written
agreement 2 under which the latter acknowledged the completion of the house and undertook
to pay the balance of the contract price in the manner prescribed in the said second
agreement.

On November 19, 1984, Manuelita Saligo signed a promissory note for P125,363.50
representing the amount still due from her and her husband, payable on or before December
31, 1984, to Nicencio Tan Quiombing. 3

On October 9, 1986, Quiombing filed a complaint for recovery of the said amount, plus
charges and interests, which the private respondents had acknowledged and promised to pay
— but had not, despite repeated demands — as the balance of the contract price for the
construction of their house. 4

Instead of filing an answer, the defendants moved to dismiss the complaint on February 4,
1987, contending that Biscocho was an indispensable party and therefore should have been
included as a co-plaintiff. The motion was initially denied but was subsequently reconsidered
and granted by the trial court. The complaint was dismissed, but without prejudice to the
filing of an amended complaint to include the other solidary creditor as a co-plaintiff. 5

Rather than file the amended complaint, Quiombing chose to appeal the order of dismissal to
the respondent court, where he argued that as a solidary creditor he could act by himself
alone in the enforcement of his claim against the private respondents. Moreover, the amounts
due were payable only to him under the second agreement, where Biscocho was not
mentioned at all.cralawnad
The respondent court sustained the trial court and held that it was not correct at that point to
assume that Quiombing and Biscocho were solidary obligees only. It noted that as they had
also assumed the reciprocal obligation of constructing the house, they should also be
considered obligors of the private respondents under the contract. If, as was possible, the
answer should allege a breach of the agreement, "the trial court cannot decide the dispute
without the involvement of Biscocho whose rights will necessarily be affected since he is a
part of the First Party."cralaw virtua1aw library

Refuting the petitioner’s second contention, the respondent court declared that the "second
agreement referred to the Construction and Service Agreement as its basis and specifically
stated that it (was) merely a `part of the original agreement.’" 6

The concept of the solidary obligation requires a brief restatement.

Distinguishing it from the joint obligation, Tolentino makes the following observations in his
distinguished work on the Civil Code:chanrob1es virtual 1aw library

A joint obligation is one in which each of the debtors is liable only for a proportionate part of
the debt, and each creditor is entitled only to a proportionate part of the credit. A solidary
obligation is one in which each debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. Hence, in the former, each creditor can recover only
his share of the obligation, and each debtor can be made to pay only his part; whereas, in the
latter, each creditor may enforce the entire obligation, and each debtor may be obliged to pay
it in full. 7

The same work describes the concept of active solidarity thus:chanrob1es virtual 1aw library

The essence of active solidarity consists in the authority of each creditor to claim and enforce
the rights of all, with the resulting obligation of paying every one what belongs to him; there
is no merger, much less a renunciation of rights, but only mutual representation. 8

It would follow from these observations that the question of who should sue the private
respondents was a personal issue between Quiombing and Biscocho in which the spouses
Saligo had no right to interfere. It did not matter who as between them filed the complaint
because the private respondents were liable to either of the two as a solidary creditor for the
full amount of the debt. Full satisfaction of a judgment obtained against them by Quiombing
would discharge their obligation to Biscocho, and vice versa; hence, it was not necessary for
both Quiombing and Biscocho to file the complaint. Inclusion of Biscocho as a co-plaintiff,
when Quiombing was competent to sue by himself alone, would be a useless
formality.chanrobles.com:cralaw:red

Article 1212 of the Civil Code provides:chanrob1es virtual 1aw library

Each one of the solidary creditors may do whatever may be useful to the others, but not
anything which may be prejudice to the latter.

Suing for the recovery of the contract price is certainly a useful act that Quiombing could do
by himself alone.

Parenthetically, it must be observed that the complaint having been filed by the petitioner,
whatever amount is awarded against the debtor must be paid exclusively to him, pursuant to
Article 1214. This provision states that "the debtor may pay any of the solidary creditors; but
if any demand, judicial or extrajudicial, has been made by any one of them, payment should
be made to him."

If Quiombing eventually collects the amount due from the solidary debtors, Biscocho may
later claim his share thereof, but that decision is for him alone to make. It will affect only the
petitioner as the other solidary creditor and not the private respondents, who have absolutely
nothing to do with this matter. As far as they are concerned, payment of the judgment debt to
the complainant will be considered payment to the other solidary creditor even if the latter
was not a party to the suit.

Regarding the possibility that the private respondents might plead breach of contract in their
answer, we agree with the petitioner that it is premature to consider this conjecture — for
such it is — at this stage. The possibility may seem remote, indeed, since they have actually
acknowledged the completion of the house in the second agreement, where they also agreed
to pay the balance of the contract price. At any rate, the allegation, if made and proved, could
still be enforceable against the petitioner alone as one of the solidary debtors, subject to his
right of recourse against Biscocho.

The respondent court was correct in ruling that the second agreement, which was concluded
alone by the petitioner with the private respondents, was based on the original Construction
and Service Agreement. So too in fact was the promissory note later signed by Manuelita
Saligo since it was for the amount owing on the construction cost. However, this matter is
not really that important now in view of our conclusion that the complaint could have been
filed alone by the petitioner.

The rest of the pieces should easily fall into place.

Section 7, Rule 3 of the Rules of Court mandates the inclusion of indispensable parties as
follows:chanrob1es virtual 1aw library

Sec. 7. Compulsory joinder of indispensable parties. — Parties in interest without whom no

final determination can be had of an action shall be joined either as plaintiffs or defendants.

Indispensable parties are those with such an interest in the controversy that a final decree
would necessarily affect their rights, so that the court cannot proceed without their presence.
Necessary parties are those whose presence is necessary to adjudicate the whole controversy,
but whose interests are so far separable that a final decree can be made in their absence
without affecting them. 9 (Necessary parties are now called proper parties under the 1964
amendments of the Rules of Court.) 10

According to Justice Jose Y. Feria, "where the obligation of the parties is solidary, either one
of the parties is indispensable, and the other is not even necessary (now proper) because
complete relief may be obtained from either." 11

We hold that, although he signed the original Construction and Service Agreement, Biscocho
need not be included as a co-plaintiff in the complaint filed by the petitioner against the
private respondents. Quiombing as solidary creditor can by himself alone enforce payment of
the construction costs by the private respondents and as a solidary debtor may by himself
alone be held liable for any possible breach of contract that may be proved by the private
respondents. In either case, the participation of Biscocho is not at all necessary, much less
indispensable.

WHEREFORE, the petition is GRANTED. The decision of the respondent court dated
March 27, 1990, is SET ASIDE, and the Regional Trial Court of Antipolo, Rizal, is directed
to REINSTATE Civil Case No. 913-A. Costs against the private respondents.

SO ORDERED.

Case # 26

Country Bankers Insurance v. CA

G.R. No. 85161, 9 September 1991

FACTS:

Sy (petitioner) leased theaters owned by Oscar Ventanilla Enterprises Corporation (OVEC) (respondent). Despite numerous
demands and a supplemental agreement, Petitioner failed to pay the monthly rentals and amusement taxes as stipulated in
their contract. Respondent thereafter repossessed said properties in accordance with their written agreement. Sy filed to
enjoin said action of OVEC.

ISSUE:

WON the repossession is valid.

RULING:

Yes. The repossession is valid as the same constitutes a penal clause.

Article 1226 of the Civil Code provides that as a general rule, in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of non-compliance.
There is no merit in petitioners’ argument that the forfeiture clause stipulated in the lease agreement would unjustly enrich
the respondent at the expense of petitioners is contrary to law, morals, good customs, public order or public policy. A
provision which calls for the forfeiture of the remaining deposit still in the possession of the lessor, without prejudice to any
other obligation still owing, in the event of the termination or cancellation of the agreement by reason of the lessee’s
violation of any of the terms and conditions of the agreement is a penal clause that may be validly entered into. The petition
is denied.