Spouse Velarde, vs. Court of Appeals [G.R. No.

108346, July 11, 2001]

FACTS:
David Raymund executed a Deed of Sale with Assumption of Mortgage in favor if
Avelina Velarde for a parcel of land under TCT 142177. The land together with the house
and improvements thereon were mortgaged by David Raymundo to BPI to secure a loan
of 1.8M.  As part of the consideration of the sale, the Avelina Velarde assumes to pay
the mortgage obligations on the property.  The Application for Assumption of Mortgage
with BPI was not approved. This prompted plaintiffs not to make any further payment.
David and George Raymundo, thru counsel, wrote Sps. Velarde informing the latter that
their non-payment to the mortgage bank constitute[d] non-performance of their
obligation
Sps. Velarde, thru counsel, responded, as follows:
“This is to advise you, therefore, that our client is willing to pay the balance in cash not
later than January 21, 1987 provided:
(a) you deliver actual possession of the property to her not later than January 15, 1987
for her immediate occupancy;
(b) you cause the re- lease of title and mortgage from the Bank of P.I. and make the title
available and free from any liens and encumbrances; and
(c) you execute an absolute deed of sale in her favor free from any liens or
encumbrances not later than January”
David and George Raymundo sent Sps. Velarde a notarial notice of
cancellation/rescission of the intended sale of the subject property allegedly due to the
latter’s failure to comply with the terms and conditions of the Deed of Sale with
Assumpt ion of Mortgage and the Undertaking.
Issues:
Whether there was a breach of contract.
Whether the defendant has the right to rescind the contract.
Ruling:
First Issue:
Yes. In a contract of sale, the seller obligates itself to transfer the ownership of and
deliver a determinate things, and the buyer to pay therefor a price certain in money or
its equivalent.
Private respondents had already performed their obligation through the execution of
the Deed of Sale, which effectively transferred ownership of the property to petitioner
through constructive delivery. Prior physical delivery or possession is not legally
required, and the execution of the Deed of Sale is deemed equivalent to delivery.
Petitioners, on the other hand, did not perform their correlative obligation of paying the
contract price in the manner agreed upon. Worse, they wanted private respondents to
perform obligations beyond those stipulated in the contract before fulfilling their own
obligation to pay the full purchase price.
Second Issue:
Yes. Private respondents validly exercised their right to rescind the contract, because of
the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the
contract of sale, a violation that consequently gave rise to private respondent’s right to
rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price
one month after it became due; however, this was not equivalent to actual payment as
would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer
to pay was conditioned on the performance by private respondents of additional
burdens that had not been agreed upon in the original contract. Thus, it cannot be said
that the breach committed by petitioners was merely slight or casual as would preclude
the exercise of the right to rescind.
 DR. DANIEL VAZQUEZ v. AYALA CORPORATION, GR No. 149734, 2004-11-19
Facts:
The rise in value of four lots in one of the country's prime residential
developments, Ayala Alabang Village in Muntinlupa City, over a period of six (6)
years only, represents big money. The huge price difference lies at the heart of
the present... controversy.  Petitioners insist that the lots should be sold to them
at 1984 prices while respondent maintains that the prevailing market price in
1990 should be the selling price.
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter,
Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala
Corporation (hereafter, AYALA) with AYALA buying from the Vazquez spouses, all
of the latter's shares of stock in Conduit Development, Inc
Under the MOA, Ayala was to develop the entire property, less what was defined
as the "Retained Area" consisting of 18,736 square meters. This "Retained Area"
was to be retained by the Vazquez spouses. The area to be developed by Ayala
was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to
the "Retained Area" and Ayala agreed to offer these lots for sale to the Vazquez
spouses at the prevailing price at the time of purchase.
Taking the position that Ayala was obligated to sell the 4 lots adjacent to the
"Retained Area" within 3 years from the date of the MOA, the Vasquez spouses
sent several "reminder" letters of the approaching so-called deadline. However,
no demand after April 23, 1984, was ever... made by the Vasquez spouses for
Ayala to sell the 4 lots.
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be
offered for sale. The four lots were then offered to be sold to the Vasquez
spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses
who wanted to pay at 1984 prices,... thereby leading to the suit below.
In its decision, the court a quo concluded that
Ayala was obligated to develop within 3 years; to say that Ayala was under no
obligation to follow a time frame was to put the Vasquezes at Ayala's... mercy;
Ayala did not develop because of a slump in the real estate market; the MOA was
drafted and prepared by the AYALA who should suffer its ambiguities; the option
to purchase the 4 lots is valid because it was supported by consideration as the
option is incorporated in the
MOA where the parties had prestations to each other
Anent the question of delay, the Court of Appeals ruled that there was no delay as
petitioners never made a demand for Ayala Corporation to sell the subject lots to
them.  According to the appellate court, what petitioners sent were mere
reminder letters the last of which... was dated prior to April 23, 1984 when the
obligation was not yet demandable.
At any rate, the Court of Appeals found that petitioners in fact waived the three
(3)-year period when they sent a letter through their agent, Engr. Eduardo Turla,
stating that they "expect that the... development of Phase I will be completed by
19 February 1990, three years from the settlement of the legal problems with the
previous contractor."
Ayala Corporation offered the subject lots for sale to petitioners at the price of
P6,500.00/square meter, the prevailing market price for the property when the
offer was made on June 18, 1990.[48] Insisting on paying for the lots at the...
prevailing market price in 1984 of P460.00/square meter, petitioners rejected the
offer.  Ayala Corporation reduced the price to P5,000.00/square meter but again,
petitioners rejected the offer and instead made a counter-offer in the amount of
P2,000.00/square... meter.[49] Ayala Corporation rejected petitioners' counter-
offer.
Issues:
We now come to the issue of default or delay in the fulfillment of the obligation.
Ruling:
no such day certain was fixed in the MOA.  Petitioners, therefore, cannot demand
performance after the three (3)... year period fixed by the MOA for the
development of the first phase of the property since this is not the same period
contemplated for the development of the subject lots.
Even assuming that the MOA imposes an obligation on Ayala Corporation to
develop the subject lots within three (3) years from date thereof, Ayala
Corporation could still not be held to have been in delay since no demand was
made by petitioners for the performance of its... obligation.
In other words, the letters were sent before the obligation could become legally...
demandable.  Moreover, the letters were mere reminders and not categorical
demands to perform. More importantly, petitioners waived the three (3)-year
period as evidenced by their agent, Engr. Eduardo Turla's letter to the effect that
petitioners agreed that the three
(3)-year period should be counted from the termination of the case filed by
Lancer.
Manifestly, this letter expresses not only petitioners' acknowledgement that the
delay in the development of Phase I was due to the legal problems with GP
Construction, but also their acquiescence to the completion of the development
of Phase I at the much later date of February
19, 1990.
It cannot, therefore, be said that Ayala Corporation breached petitioners' right of
first refusal and should be compelled by an action for specific performance to sell
the subject lots to petitioners at the prevailing market price in
 LYDIA L. GERALDEZ vs. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION G.R. No.
108253February 23, 1994

FACTS:

 Petitioner Geraldez filed an action for damages by reason of contractual breach against respondent
Kenstar Travel Corp. Petitioner booked the Volare 3 tour with Kenstar. The tour covered a 22-day tour of
Europe for$2,990.00 which she paid the total equivalent amount of P190,000.00 charged by private
respondent for her and her sister, Dolores. At the tour, petitioner claimed that what was alleged in the
brochure was not what they experienced. There was no European tour manager as stated in the
brochure, the hotels where they stayed in which were advertised as first class were not, the UGC leather
factory which was specifically included as a highlight of the tour was not visited and The Filipino tour
guide provided by Kenstar was a first timer thus inexperienced. The Quezon City RTC rendered a
decision ordering respondent Kenstar to pay moral, nominal, and exemplary damages totalling
P1,000,000 and P50,000 attorney’s fees. On appeal, respondent Court of Appeals deleted the award for
moral and exemplary damages and reduced the nominal damages and attorney’s fees to P30,000
andP10,000 respectively.

ISSUES:

(1) Whether or not Kenstar acted in bad faith or with gross negligence in discharging itsobligations in the
contract?(2)Whether or not the Court of Appeals erred in removing the moral and exemplarydamages

HELD:

 (1) Yes, Kenstar acted in bad faith and with gross negligence in discharging its obligation. Kenstar’s
choice of the tour guide is a manifest disregard of its specific assurances to the tour group, and which
deliberate omission is contrary to the rules of good faith and fair play. Providing the Volare 3 group with
an inexperienced first timer as a tour guide, Kenstar manifested indifference to the satisfaction,
convenience and peace of mind to its clients. The election of the tour guide was a deliberate and
conscious choice on the part of Kenstar in order to afford her on-the job-training making th e tour group
her unknowing guinea pigs, furthermore the inability to visit the UGC leather factory is reflective of the
ineptness and neglect of the tour guide. The failure of Kenstar to provide a European Tour Manager
although it specifically advertised and promised to do so is also a contractual breach. Kenstar expressly
stated in its advertisement that a European Tour Manager would be present.

Kenstar’s contention that the European Tour Manager does not refer to a natural person but a juridical
personality does not hold because a corporate entity could not possibly accompany the tour group.
Lastly Kenstar committed grave misrepresentation when it assured in its tour package that the hotels
provided would provide complete amenities and would be conveniently located along the way for the
daily itineraries. Testimonies by petitioner and private respondent show that the hotels were unsanitary
and sometimes did not even provide towels and soap. Further testimonies claim that the hotels were
also located in locations far from the city making it difficult to go to. The fact that Kenstar could only
book them in such hotels because of budget constraints is not the fault of the tour group. Kenstar
should not have promised such accommodations if they couldn’t afford it.

Kenstar should have increased the price to ensure accommodations.(2) Yes, the Court of Appeals erred
in removing the moral and exemplary damages. Moral damages may be awarded in breaches of contract
where the obligor acted fraudulently or in bad faith. Kenstar can be faulted with fraud in the
inducement which is employed by a party in securing the consent of the other. This fraud or dolo which
is present or employed at the time of birth or perfection of the contract may either be dolo causante or
doloincidente. The first, or causal fraud referred to in Article 1338 are those deceptions ormis
representations of a serious character employed by one party and without which the
other party would not have entered into the contract, Dolo incidente, or incidental fraud which isreferre
d to in Article 1344, are those which are not serious in character and without which the other
party would still have entered into the contract. In either case, whether Kenstar has committed dolo
causante or dolo incidente, it is liable for damages both moral and exemplary.
https://www.scribd.com/document/365096709/81-Sarmiento-v-Sps-Cabrido

81.

TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-CABRIDO andMARIA LOURDES

SUN,respondents.G.R. No. 141258 April 9, 2003

 NATURE

Negligence/TortFACTS;

Tomasa Sarmiento’s friend, Dra. Virginia Lao, requested her to find someone to reset a pair of diamond
earrings into two gold rings. Sarmiento sent Tita Payag with the earrings to Dingding’s Jewelry Shop,
owned and managed by spouses Luis and Rose Cabrido, which accepted the job order for P400.
Petitioner provided 12 grams of gold to be used in crafting
the pair of ring settings. After 3 days, Payag delivered to the jewelry shop one of the diamondearrings
which was earlier appraised as worth .33 carat and almost perfect in cut and clarity. Respondent Marilou
Sun went on to dismount the diamond from original settings. Unsuccessful, she asked their goldsmith,
Zenon Santos, to do it. He removed the diamond by twisting the setting with a pair of pliers, breaking
the gem in the process. Petitioner required the respondents to replace the diamond with the same size
and quality. When they refused, the petitioner was forced to buy a replacement in the amount of
P30,000.Rose Cabrido, manager, denied having any transaction with Payag whom she met only after the
latter came to seek compensation for
the broken piece of jewelry. Marilou, on the other hand, admitted knowing Payag to avail theirservices
and recalled that when Santos broke the jewelry, Payag turned to her for reimbursement thinking she
was the owner.Santos also recalled that Payag requested him to dismount what appeared to him as
sapphire andthat the stone accidentally broke. He denied being an employee of the Jewelry shop. The
MTCCof Tagbilaran City rendered a decision in favor of the petitioner.On appeal, Respondents conceded
to the existence of an agreement for crafting a pair of goldrings mounted with diamonds but denied
they had obligation to dismount the diamonds from theoriginal setting. Petitioner claims that
dismounting the diamonds from the original setting
was part of the obligation assumed by respondents under the contract of service. The RTC ruled infavor
of the respondents. CA affirmed the judgment of the RTC.

ISSUES:

 1. Whether or not dismounting of the diamond from its original setting was part of the obligation.

2. Whether or not the Respondents are liable for damages

3. Whether or not the Respondents are liable for moral damages

HELD:

1. YES. The contemporaneous and subsequent acts of the parties reveal the scope of obligation assumed
by the jewelry shop to reset the pair of earrings. Marilou expressed no reservation regarding the
dismounting of the diamonds. She could have instructed Payag to have the diamonds dismounted first,
but instead, she readily accepted the job order and charged P400.After the new settings were
completed, she called petitioner to bring the diamond earrings to be reset. She examined one of them
and went on to dismount the diamond from the original setting. After failing to do the same, she
delegated it to the goldsmith. Having acted the way she did, she cannot deny that the dismounting was
part of the shop’s obligation to reset the pair of earrings.

2. YES. Those who, in the performance of their obligations are guilty of fraud, negligence or delay and
those who in any manner contravene the tenor thereof, are liable for damages. The fault or negligence
of the obligor consists in the ‘omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the persons, of the time and of the place.’ Santos acted
negligently in dismounting the diamond from its original setting. Instead of using a miniature wire, which
is the practice of the trade, he used a pair of pliers. Marilou examined the diamond before dismounting
and found the same to be in order. The subsequent breakage could only have been caused by Santos’
negligence in using the wrong equipment. Res ipsa loquitur. Facts show that Marilou, who has
transacted with Payag on at least10 occasions, and Santos, who has been accepting job referrals through
respondents for 6 mos.now, are employed at the jewelry shop. The jewelry shop failed to perform its
obligation with the ordinary diligence required by the circumstances.

3. YES. Moral damages may be awarded in a breach of contract when there is proof that defendant

acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in want on disregard of
his contractual obligation. Santos was a goldsmith for more than 40 years. He should have known that
using a pair of pliers would have entailed unnecessary risk of breakage. The gross negligence of their
employee makes the respondents liable of moral damages. Petition was granted and CA decision was
reversed. Respondents were ordered to payP30,000 as actual damages and P10,000 as moral damages.
ESTELA L. CRISOSTOMO v. CA, GR No. 138334, 2003-08-25
Facts:
petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and
Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation
in a tour dubbed "Jewels of Europe".
petitioner went to NAIA... to take the flight for the first leg of her journey from Manila to
Hongkong. To petitioner's dismay, she discovered that the flight she was supposed to take
had already departed the... previous day.
Menor prevailed upon petitioner to take another tour - the "British Pageant"... petitioner was
asked anew to pay
Upon petitioner's return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for "Jewels of Europe"
and the amount she owed respondent for the "British Pageant" tour. Despite several
demands, respondent... company refused to reimburse the amount, contending that the
same was non-refundable.
Issues :
Petitioner contends that respondent did not observe the standard of care required of a
common carrier when it informed her wrongly of the flight schedule.
Ruling:
Petitioner's contention has no merit.
respondent I s not an entity engaged in the business of transporting either passengers or
goods and is therefore, neither a private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to another... since its covenant with its
customers is simply to make travel arrangements in their behalf. Respondent's services as
a travel agency include procuring tickets and facilitating travel permits or visas as well as
booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent
company, this does not mean that the latter ipso facto is a common carrier. At most,
respondent acted merely as an agent of the airline, with whom petitioner ultimately
contracted for... her carriage to Europe. Respondent's obligation to petitioner in this regard
was simply to see to it that petitioner was properly booked with the airline for the appointed
date and time. Her transport to the place of destination, meanwhile, pertained directly to
the... airline.
 MAGAT VS. MEDIALDEA
L-37120 April 20, 1983

FACTS:

That sometime in September 1972, the defendant entered into a contract with the U.S. Navy
Exchange, Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided
with the necessary taximeter and a radio transceiver for receiving and sending of messages from mobile
taxicab to fixed base stations within the Naval Base at Subic Bay, Philippines.

ISSUE:

Whether or not there is contravention of the terms.

RULING:

After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the
cause of action adequately satisfied. In a methodical and logical sequence, the complaint recites the
circumstances that led to the perfection of the contract entered into by the parties. It further avers that
while petitioner had fulfilled his part of the bargain, private respondent failed to comply with his
correlative obligation by refusing to open a letter of credit to cover payment of the goods ordered by
him and that consequently, petitioner suffered not only loss of his expected profits, but moral and
exemplary damages as well. From these allegations, the essential elements of a cause of action are
present, to wit: the existence of a legal right to the plaintiff; a correlative duty of the defendant and an
act or omission of the defendant in violation of the plaintiff's right, with consequent injury or damage to
the latter for which he may maintain an action for recovery of damages or other appropriate relief.

Indisputably, the parties, both businessmen, entered into the aforesaid contract with the
evident intention of deriving some profits therefrom. Upon breach of the contract by either of them, the
other would necessarily suffer loss of his expected profits. Since the loss comes into being at the very
moment of breach, such loss is real, "fixed and vested" and, therefore, recoverable under the law.
Article 1170 of the Civil Code provides:
"Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof are liable for damages."

The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or
omission which impairs the strict and faithful fulfillment of the obligation and every kind of defective
performance.

The damages which the obligor is liable for includes not only the value of the loss suffered by
the obligee [daño emergente] but also the profits which the latter failed to obtain [lucro cesante]. If the
obligor acted in good faith, he shall be liable for those damages that are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith, malice or
wanton attitude, he shall be liable for all damages which may be reasonably attributed to the
nonperformance of the obligation
https://www.scribd.com/document/2 51448723/Tanguilig-vs-CA

Tanguilig vs CA

266 SCRA 78

Respondent Vicente Herce Jr. contracted petitioner Jacinto Tanguilig to construct a windmill system for
him with a one year guaranty. Respondent had paid the down payment and an installment payment but,
failed and refused to pay the remaining balance. Respondent alleged that the balance should be offset
by the defects in the windmill system which caused the structure to collapse. Petitioner rejected the
obligation to repair or reconstruct the system as it was delivered in good and working condition and
claimed that its collapse was due to a typhoon which is a fortuitous event which relieved him of any
liability. Petitioner also alleged that the respondent was in default in the payment of the balance and
hence should bear his own loss.

Issues:

1.) Whether or not the petitioner can claim exemption from liability by reason of a fortuitous event.

2.) Whether or not the respondent is in default in the payment of his outstanding balance.

Held:

1.) No. The petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. The evidence did not disclose that there was actually a typhoon on the day the windmill
collapsed. Petitioner merely stated that there was a strong wind. A strong wind in this case cannot be
fortuitous - unforeseeable nor unavoidable. On the contrary, strong wind should be present in places
where windmills are constructed, otherwise the windmills will not turn

.2.) No. In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. When the windmill failed to
function properly. It became incumbent upon petitioner to institute the proper repairs in accordance
with the guaranty stated in the contract. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost.
MARIA ANTONIA SIGUAN v. ROSA LIM, GR No. 134685, 1999-11-19
Facts:
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before
Branch 18 of the RTC of Cebu City to rescind the questioned Deed of Donation and to
declare as null and void the new transfer certificates of title issued for the lots covered by
the... questioned Deed
Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation,
fraudulently transferred all her real property to her children in bad faith and in fraud of
creditors, including... her; that LIM conspired and confederated with her children in
antedating the questioned Deed of Donation, to petitioner's and other creditors' prejudice;
and that LIM, at the time of the fraudulent conveyance, left no sufficient properties to pay
her obligations.
LIM denied any liability to petitioner.  She claimed that her convictions in Criminal Cases
Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to
the Court of Appeals.  As regards the questioned Deed of Donation, she... maintained that it
was not antedated but was made in good faith at a time when she had sufficient property.
n its decision of 31 December 1994,[6] the trial court ordered the rescission of the
questioned deed of donation
On appeal, the Court of Appeals, in a decision[7] promulgated on 20 February 1998,
reversed the decision of the trial court and dismissed petitioner's accion pauliana.  It held
that two of the requisites for filing an accion pauliana were... absent, namely, (1) there must
be a credit existing prior to the celebration of the contract; and (2) there must be a fraud, or
at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and
acknowledged before a notary public, appears on its face to have been executed on 10
August 1989
Issues:
May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her
children be rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia
Siguan?
Ruling:
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August
1990, while the deed of donation was purportedly executed on 10 August 1989.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is
not enough to overcome the presumption as to the truthfulness of the statement of the date
in the questioned deed, which is 10 August 1989.  Petitioner's claim against LIM was...
constituted only in August 1990, or a year after the questioned alienation.  Thus, the first
two requisites for the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of
the contract of donation, still her action for rescission would not fare well because the third
requisite was not met.
For this presumption of fraud to apply, it must be established that the donor did not leave
adequate properties which creditors might have recourse for the collection of their credits
existing before the execution of the donation.
As earlier discussed, petitioner's alleged credit existed only a year after the deed of
donation was executed.  She cannot, therefore, be said to have been prejudiced or
defrauded by such alienation.
Petitioner failed to discharge the burden of proving any of the circumstances enumerated
above or any other circumstance from which fraud can be inferred.  Accordingly, since the
four requirements for the rescission of a gratuitous contract are not present in this case,...
petitioner's action must fail.
Principles:
The action to rescind contracts in fraud of creditors is known as accion pauliana.  For this
action to prosper, the following requisites must be present:  (1) the plaintiff asking for
rescission has a credit prior to the alienation,[12]... although demandable later; (2) the
debtor has made a subsequent contract conveying a patrimonial benefit to a third person;
(3) the creditor has no other legal remedy to satisfy his claim; [13] (4) the act being
impugned is fraudulent;[14] (5) the third person who received the property conveyed, if it is
by onerous title, has been an accomplice in the fraud
The general rule is that rescission requires the existence of creditors at the time of the
alleged fraudulent alienation, and this must be proved as one of the bases of the judicial
pronouncement setting aside the contract.[16] Without any prior existing... debt, there can
neither be injury nor fraud.
The term "subsidiary remedy" has been defined as "the exhaustion of all remedies by the
prejudiced creditor to collect claims due him before rescission is resorted to."[19]
It is, therefore, essential that the party asking for rescission prove that he has exhausted all
other legal means to obtain satisfaction of his claim.[20] Petitioner neither alleged nor
proved that she did so.  On this score, her action for the... rescission of the questioned deed
is not maintainable even if the fraud charged actually did exist."
 National Power Corporation v. Court of Appeals 161 SCRA 334,
G.R. No. L-47379 (May 16, 1998)
Facts:

1. Engineering Construction, Inc. (petitioner, ECI for brevity), being a successful bidder,
executed a contract in Manila with the National Waterworks and Sewerage Authority
(NAWASA), whereby the former undertook:
1. to furnish all tools, labor, equipment and materials, and
2. to construct the proposed 2nd Ipo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features at Norzagaray, Bulacan and to complete
said works within 800 calendar days. (Angat Hydro-electric Project and Dam)
2. The project involves two (2) major phases: (1) tunnel work covering a distance of 7
kilometres and (2) the outworks at both ends of the tunnel.
3. The ECI already had completed the first major phase of the work (Tunnel Excavation
Work), all the equipment no longer needed there were transferred to another site where some
projects were yet to be completed. Some portion of the Bicti site were still under construction
(2nd phase).
4. On November 4, 1967, Typhoon “Welming” hit Central Luzon, passing through
corporations’ Angat Hydro-electric Project and Dam.
5. Due to the heavy downpour, the water in the reservoir of the Angat Dam was rising
perilously at the rate of 60 cm per hour. To prevent an overflow of water from the dam, the
National Power Corporation(NPC) caused the opening of the spillway gates.
6. Extraordinary large volume of water rushed out of the gates, and hit the installations and
construction works of ECI at Ipo site with terrific impact, as a result of which the latter’s
stockpile of materials supplies, camp facilities and permanent structures and accessories
whethe`r washed away, lost or destroyed.

Issue/s:

1. Whether or not the destruction and loss of ECI’s equipment and facilities were due to
force majeure, which will exempt NPC from liability.

Ruling:

1. No, NPC will not be exempted from liability. NPC was undoubtedly negligent because it
opened the spillway gates of the Angat Dam only at the height of typhoon “Welming” when it
knew very well that it was safer to have opened the same gradually and earlier, as it was also
undeniable that NPC know of the coming typhoon at least four days before it actually struck.

The typhoon was an act of God or what we may call force majeure, NPC cannot escape
liability because its negligence was the proximate cause of the loss and damage.

As we h

ave ruled in Juan F. Nakpil & Sons v. Court of Appeals:

“If upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation, which results in loss or damage, the obligor cannot escape
liability.

 The principle embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and human agencies are to be
excluded from creating or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the result of the participation
of man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby HUMANIZED, as it were, and removed from the rules applicable
to the acts of God.
 Philcomsat v. Globe Telecom 429 SCRA 153, G.R. No. 147324
(May 25, 2004)
Philcomsat v. Globe Telecom

429 SCRA 153, G.R. No. 147324 (May 25, 2004)

Facts:

1. Globe Telecom, Inc. (Globe) is engaged in the coordination of the provision of various
communication facilities for the military bases of the United States of America (US) in the Clark
Air Base and Subic Naval Base.
2. Saud communication facilities were installed and configured for the exclusive use of the
US n Defense Communications Agency (USDCA).
3. Globe contracted Philippine Communications Satellite Corporation (Philcomsat) for the
provision of the communication facilities.
4. Philcomsat and Globe entered into an agreement whereby Philcomsat obliged itself to
establish, operate and provide an IBS Standard B earth station (earth station) for the exclusive
use of the USDCA. Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved.
5. Philcomsat installed and established the earth station and the USDCA made use of the
same.
6. Senate passed and adopted its resolution, expressing its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements that was supposed to extend the term of the use by the US of Subic Naval Base,
among others.
7. PH government sent a Note Verbale to the US government through the US Embassy,
notifying it of the Philippine termination of the RP-US Military Base Agreement. The
withdrawal of all US military forces from Subic Naval Base should be completed by December
31. 1992.
8. Globe notified Philcomsat of its intention to discontinue the use of the earth station.
9. Philcomsat demand payment of rentals for the balance of lease term, despite the non-use
of earth station.

Issue/s:

1. Whether the termination of the RP-US Military Base Agreement, the non-ratification of
the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US
military forces and personnel from Cubi Point constitute force majeure which would exempt
Globe from complying with its obligation to pay rentals under its Agreement with Philcomsat.
2. Whether Globe is liable to pay rentals under the Agreement for the month of December
1992.
3. Whether Philcomsat is entitled to attorney’s fees and exemplary damages.

Ruling:

1. Yes. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US
Military Base Agreement when the same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate. Neither did the parties have control over
the subsequent withdrawal of the US military forces and personnel from Cubi Point in
December 1992.

As a consequence of the termination of the RP-US Military Base Agreement the

continued stay of all US Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any position to render service it
was obligated under the Agreement.

Events made impossible the continuation of the Agreement until the end of its five-year
term without fault on the part of either party. Such fortuitous events rendered Globe
exempt from payment of rentals for the remainder of the term of the Agreement.
 Philcomsat would like to charge globe rentals for the balance of the lease term without
being any corresponding telecommunications service subject of the lease. It will be
grossly unfair and iniquitous to hold globe liable for lease charges for a service that was
not and could not have been rendered due to an act of the government which was clearly
beyond globes control.

2. Yes. The US military forces and personnel completely withdrew from Cubi Point only on
December 31, 1992. Thus, until that date, USDCA had control over the earth station and had the
option of using the same. Furthermore, Philcomsat could not have removed or rendered
ineffective said communication facility until after December 31, 1992 because Cubi Point was
accessible only to US naval personnel up to that time.

3. No. The award of attorney’s fees is the exemption rather than the rule. In cases where
both parties have legitimate claims against each other and no party actually prevailed, such as in
the present case where the claims of both parties were sustained in part, an award of attorney’s
fees would not be warranted.

Exemplary damages may be awarded in cases involving contracts, if the erring party
acted in wanton, fraudulent, reckless, oppressive or malevolent manner. It was not
shown that Globe acted wantonly or oppressively in not heeding Philcomsats demands
for payment of rentals. Globe had valid grounds for refusing to comply with its
contractual obligations after 1992.
EASTERN SHIPPING LINES v. CA, GR No. 97412, 1994-07-12
Facts:
two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel 'SS
EASTERN COMET' owned by defendant Eastern Shipping Lines
Upon arrival of the shipment in Manila... it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.
defendant Allied Brokerage Corporation received the shipment from defendant Metro Port
Service, Inc., one drum opened and without seal... defendant Allied Brokerage Corporation
made deliveries of the shipment to the consignee's warehouse. The latter excepted to one
drum which contained spillages, while the rest of the contents was adulterated/fake
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee...
so that it became subrogated to all the rights of action of said consignee against
defendants... judgment is hereby rendered
Ordering defendants to pay plaintiff, jointly and severally
The Court of Appeals thus affirmed in toto the judgment of the court a quo.
Issues:
whether or not a claim for damage sustained on a shipment of goods can be a solidary, or
joint and several, liability of the common carrier, the arrastre operator and the customs
broker... whether the... payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed from is
ren dered
Ruling:
the losses/damages were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage).
it is obvious, therefore, that these... losses/damages occurred before the shipment reached
the consignee while under the successive custodies of defendants. Under Art. 1737 of the
New Civil Code, the common carrier's duty to observe extraordinary diligence in the
vigilance of goods remains in full force and effect... even if the goods are temporarily
unloaded and stored in transit in the warehouse of the carrier at the place of destination,
until the consignee has been advised and has had reasonable opportunity to remove or
dispose of the goods
The petition is, in part, granted.
The instant... petition has been brought solely by Eastern Shipping Lines which, being the
carrier and not having been able to rebut the presumption of fault, is, in any event, to be
held liable in this particular case.
there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants" (the herein petitioner among them). Accordingly, the liability
imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there
are others solidarily liable with it.
With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
When the obligation is breached, and it consists in the payment of a sum of money... the
interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial... or extrajudicial demand
When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court...
at the rate of 6% per annum.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially... but when such
certainty... cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the... computation of legal interest shall, in any case, be on the amount
finally adjudged.
the petition is partly GRANTED.
Ong vs. Court of Appeals, 310 SCRA 1(1999) 

Facts:

Petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K.
Robles and Alejandra Robles, on the other hand, executed an "Agreement of
Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San
Antonio, Quezon. On May 15, 1983, petitioner Ong took possession of the
subject parcels of land together with the piggery, building, ricemill, residential
house and other improvements thereon.

For failure of the vendee to pay the price as agreed upon, a complaint for
rescission of contract and recovery of properties with damages. Later, while
the case was still pending with the trial court, petitioner introduced major
improvements on the subject properties. These prompted the respondent
spouses to ask for a writ of preliminary injunction. The trial court granted the
application and enjoined petitioner from introducing improvements on the
properties except for repairs. Eventually, the trial court ordered the rescission
of the contract.

Issues:

(1) whether the contract entered into by the parties may be validly rescinded
under Article 1191 of the New Civil Code

(2) whether the parties had novated their original contract as to the time and
manner of payment

Held:

Article 1191 of the New Civil Code refers to rescission applicable to reciprocal
obligations. Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other. They are to be
performed simultaneously such that the performance of one is conditioned
upon the simultaneous fulfillment of the other.

A careful reading of the parties' "Agreement of Purchase and Sale" shows that
it is in the nature of a contract to sell, as distinguished from a contract of sale.
In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; while in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full
payment of the purchase price. In a contract to sell, the payment of the
purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force. The non-fulfillment
of the condition of full payment rendered th e contract to sell ineffective and
without force and effect. It must be stressed that the breach contemplated in
Article 1191 of the New Civil Code is the obligor's failure to comply with an
obligation. Failure to pay, in this instance, is not even a breach but merely an
event which prevents the vendor's obligation to convey title from acquiring
binding force. Hence, the agreement of the parties in the case at bench may be
set aside, but not because of a breach on the part of petitioner for failure to
complete payment of the purchase price. Rather, his failure to do so brought
about a situation which prevented the obligation of respondent spouses to
convey title from acquiring an obligatory force.

Novation is never presumed, it must be proven as a fact either by express

stipulation of the parties or by implication derived from an irreconcilable
incompatibility between the old and the new obligation. In order for novation
to take place, the concurrence of the following requisites is indispensable: (1)
there must be a previous valid obligation; (2) there must be an agreement of
the parties concerned to a new contract; (3) there must be the extinguishment
of the old contract; and (4) there must be the validity of the new contract. The
aforesaid requisites are not found in the case at bench. The subsequent acts of
the parties hardly demonstrate their intent to dissolve the old obligation as a
consideration for the emergence of the new one.
Iringan vs CA 366 SCRA 41
(2001)
FACTS
Iringan vs CA 366 SCRA 41
(2001)
FACTS
Iringan vs CA 366 SCRA 41 (2001)
FACTS
1. On March 22, 1985 private respondent Antonio Palao sold to petitioner Alfonso Iringan an
undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located in Poblacion of
Tuguegarao.
2. Parties executed a Deed of Sale on same date with the purchase price of P295K, payable as
follows:
a) P10K upon execution of this instrument, and vendor acknowledges having received the
amount;
b) P140K on or before April 30, 1985;
c) P145K on or before December 31, 1985.
3. When second payment was due, Iringan paid only P40K. On July 18, 1985, Palao sent a
letter to Iringan stating that he would not accept any further payment considering that Iringan
failed to comply with his obligation to pay full amount of second installment.
4. On August 20, 1985, Iringan replied that they were not opposing the revocation of the Deed
of Sale, but asked for the reimbursement of the ff:
a) P50K –cash received;
b) P3,200—geodetic engineer’s fee;
c) P500—attorney’s fee;
d) Interest on P53,700 5. Palao declared he was not amenable to the reimbursements claimed
by Iringan. Iringan then proposed that the P50K which he had paid Palao be reimbursed, or
Palao could sell to Iringin an equivalent portion of the land.
6. Palao replied that Iringan’s standing obligation had reached P61,600 representing payment
of arrears for rentals from October 1985 to March 1989. Spouses Iringan alleged that the
contract of sale was a consummated contract, hence the remedy for Palao was for collection of
the balance of the purchase price and not rescission. In addition they declared that they had
always been ready and willing to comply with their obligations to Palao.
7. RTC ruled in favor of Palao and affirmed the rescission of the contract.
8. Petitioner’s Claim: That no rescission was effected simply by virtue of the letter sent by
respondent stating that he considered the contract of sale rescinded. That a judicial or notarial
act is necessary before one party can unilaterally effect a rescission.
9. Respondent’s Comment: The right to rescind is vested by law on the obligee and since
petitioner did not oppose the intent to rescind the contract, Iringan in effect agreed to it and had
the legal effect of a mutually agreed rescission.
ISSUES
1. WON the contract of sale was validly rescinded;
2. WON the award of moral and exemplary damages is proper.
HELD
1. The contract of sale between the parties as far as the prescriptive period applies, can still be,
validly rescinded. Ratio: Art 1592 requires the rescinding party to serve judicial or notarial notice
of his intent to resolve the contract. A judicial and notarial act is necessary before a valid
rescission can take place, whether or not automatic rescission has been stipulated. The phrase
“even though” emphasizes that when no stipulation is

found on automatic rescission, the judicial or notarial requirement still applies. The right to
resolve reciprocal obligations (Art 1191) is deemed implied in case one of the obligors shall fail
to comply with what is incumbent upon him. But the right must be invoked judicially. Even if the
right to rescind is made available to the injured party, the obligation is not ipso facto erased by
the failure of the other party to comply with what is incumbent upon him. The party entitled to
rescind should apply to the court for a decree of rescission. The operative act is the decree of
the court.
2 .The award of moral and exemplary damages is proper. Ratio: Petitioner claimed he was
ready to pay but never actually paid respondent, even when he knew that the reason for selling
the lot was for Palao to needed to raise money to pay his SSS loan.
1) Iringan knew Palao’s reason for selling the property, and still he did not pay Palao.
2) Petitioner refused to formally execute an instrument showing their mutual agreement to
rescind the contract of sale, even when it was Iringan who breached the terms of their contract,
leaving Palao desperate to find other sources of funds to pay off the loan.
3) Petitioner did not substantiate by clear and convincing proof that he was ready and willing to
pay respondent. It was more of an afterthought to evade the consequence of the breach.
Buce vs. CA
G.R. Nos. 136913
May 12, 2000

Facts:
Anita Buce leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan,
Manila from Tionco Family. The lease contract was for a period of fifteen years to commence on
1 June 1979 and to end on 1 June 1994 "subject to renewal for another ten years, under the
same terms and conditions." Anita Buce constructed a building and paid the required
monthly rental of P200. Jose Tiongco demanded a gradual increase in the rental until it
reached P400 in 1985. For July and August 1991, Anita paid private respondents P1,000
as monthly rental. In December 1991, Tionco’s counsel wrote Anita Buce about the increase in
the rent to P1,576.58 effective January 1992 pursuant to the provisions of the Rent
Control Law. Anita tendered checks for only P400 each to Jose Tiongco but Jose Tiongco
refused to accept the payment. Anita filed a consignation with the Regional Trial Court of
Manila. RTC ruled that the petitioner cannot be ejected from the premises but the increase
of the rent was approved as a form of novation. The Court of Appeals reversed the
decision of RTC and ordered the immediate ejectment from the premises.

Issue:
1. Should the period of lease to renew the contract be given to the lessee or lessor?
2. Whether or not the Fernandez Case is applicable to the case?

Held:
1. As a general rule, it must be for the both parties but in the given case of contract of lease, it is
given to the lessor
2. No, the ruling of Fernandez case is not applicable to the case

Ratio:
1.As a general rule under Article 1196 of the Civil Code, the period of the lease contract is
deemed to have been set for the benefit of both parties. Renewal of the contract may be
had only upon their mutual agreement or at the will of both of them. In the given case,
"this lease shall be for a period of fifteen years effective June 1, 1979, subject to renewal for
another ten (10) years, under the same terms and conditions" does not mean an
automatic extension of the contract. The fact that the lessee was allowed to introduce
improvements on the property is not indicative of the intention of the lessors to
automatically extend the contract. However in the given case, Tionco were not amenable
to a renewal, they cannot be compelled to execute a new contract when the old contract
terminated on 1 June 1994. It is the owner- lessor’s prerogative to terminate the lease at its
expiration. The fulfilment of a contract of lease cannot be made to depend exclusively
upon the free and uncontrolled choice of the lessee and 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 would
be dictated solely by the lessee.

2.The Ferandez Case shall not apply because it was not specifically indicated who may
exercise the option to renew, neither was it stated that the option was given for the benefit of
herein petitioner. In the case of Fernandez, it was for the benefit of the lessee alone.
BALDOMERO INCIONG JR., vs COURT OF APPEALS
G.R. No. 96405, June 26, 1996
FACTS:
On February 3, 1983, petitioner Baldomero Inciong Jr., co-signed a promissory note worth
P50,000 together with Rene Naybe and Gregorio Pantonasas, holding themselves jointly and
severallly liable to creditor, Philippine Bank of Communications (PBC).
The due date expired without the promisors having paid their obligation even after demands
were sent, hence, a complaint for collection of the sum of P50,000 was filed against the
obligors.
The complaint was dismissed for failure of the plaintiff to prosecute the case, but the lower court
reconsidered and the summonses were eventually served. As prayed for by PBCOM, the lower
court dismissed the case against defendant Pantanosas. With co-defendant Naybe in Saudi
Arabia, only the summons to co-maker Inciong was duly served.

ISSUE:
Whether a creditor can file a claim for the entire obligation against a co-maker of a loan?
RULING:
Yes, a creditor can file for the entire obligation against a co-maker. The promissory note
involved in this case expressly states that the three signatories therein are jointly and severally
liable, any one, some or all of them may be proceeded against for the entire obligation. The
choice is left to the solidary creditor to determine against whom he will enforce collection.

Consequently, the dismissal of the case against co-defendant Pantanosas may not be deemed
as having discharged petitioner from liability. As regards co-defendant Naybe, suffice it to say
that the court never acquired jurisdiction over him. Therefore, PBCOM (P) only have recourse against
his co-makers, as provided by law. Inciong signed the promissory note as a solidary co-maker and not as
a guarantor. A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. —Tolentino, Civil Code of the
Philippines, Vol. IV, 1991, p.217.

On the other hand, Article 2047 of the Civil Code states:

By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I
of this Book shall be observed. In such acase the contract is called a suretyship.

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations.
When there are two or more debtors in one and the same obligation, the presumption is that the
obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a
solidary liability only when the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires. —Article 1207 of the New Civil Code.

Tan v CA

G.R. No. 116285; October 19, 2001

Art. 1226 – Obligations with a penal clause

Facts:

·         Petitioner Antonio Tan obtained two loans each in the principal amount of P2 million (P4 million in
total) from respondent CCP.

·         Petitioner defaulted but after a few partial payments, respondent restructured his loans, which he
also failed to pay.

·         Petitioner proposed to respondent CCP a mode of paying the restructured loan.

·         Respondent instead demanded full payment within 10 days from receipt of said letter.

·         Respondent filed a complaint for collection of a sum of money, which obtained a decision in its
favor.

·         On appeal, the petitioner asked for the reduction of the penalties and charges on his loan
obligation, and eliminating the attorney’s fee, which was all denied by the CA.

Issue:

WoN there are contractual and legal bases for the imposition of the penalty, interest on the penalty and
attorney’s fees.

Held:

            Yes, the Supreme Court finds their bases in accordance with the Promissory Note that the
petitioner executed in favor of the respondent, and the Article 1226 of the New Civil Code.

            First, there is an express stipulation in the promissory note permitting the compounding of
interest as provided in the 5th paragraph of the said promissory note: "Any interest which may be due if
not paid shall be added to the total amount when due and shall become part thereof, the whole amount
to bear interest at the maximum rate allowed by law." Thus, any penalty interest not paid, when due,
shall earn the legal interest of 12% per annum.
Second, Art. 1226 provides that in obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-compliance, if there is no stipulation
to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.

In the case at bar, the promissory note and the law both expressly provide for the imposition of interest
and penalties in case of default on the part of the petitioner in the payment of the subject restructured
loan.

            Thus, the Court affirms CA decision with modifications.

Paculdo v Regalado
345 SCRA 134 (2000)
DOCTRINE:
Application of payments, NCC 1252-1254; The right to specify which among his various
obligations to the same creditor is to be satisfied first rests with the debtor. Under the law, if the
debtor did not declare at the time he made the payment which of his debts with the creditor the
payment is to be applied, the law provided the guideline—no payment is to be made to a debt
that is not yet due and the payment has to be applied first to the debt most onerous to the
debtor.
FACTS:
Petitioner Nereo Paculdo (Paculdo) and respondent Bonifacio Regalado (Regalado) entered
into a contract of lease over a parcel of land with a wet market building, located at Fairview
Park, Quezon City. The contract was for twenty five (25) years. For the first five (5) years of the
contract beginning December 27, 1990, Paculdo would pay a monthly rental of P450,000,
payable within the first five (5) days of each month with a 2% penalty for every month of late
payment.
Aside from the above lease, Paculdo leased eleven (11) other properties from Regalado, ten
(10) of which were located within the Fairview compound, while the eleventh was located along
Quirino Highway Quezon City. Paculdo also purchased from respondent eight (8) units of heavy
equipment and vehicles.
On account of Paculdo’s failure to pay the corresponding monthly rentals, Regalado sent two
demand letters to Paculdo demanding payment of the back rentals, and if no payment was
made within fifteen (15) days from the receipt of the letter, it would cause the cancellation of the
lease contract.
Without the knowledge of Paculdo, Regalado mortgaged the land subject of the lease contract,
including the improvements which Paculdo introduced into the land. Subsequent dates
thereafter, Regalado refused to accept Paculdo’s daily rental payments.
Consequently, Paculdo filed an action for injunction and damages seeking to enjoin
respondents from disturbing his possession of the property subject of the lease contract. On the
same day, Regalado also filed a complaint for ejectment against Paculdo.
The lower court rendered a decision in favor of the Regalado, which was affirmed in toto by the
Court of Appeals. Hence, this petition.
ISSUE: Whether or not the Paculdo was truly in arrears in the payment of rentals on the subject
property at the time of the filing of the complaint for ejectment.

RULING: NO, the Paculdo was not in arrears in the payment of rentals on the subject property
at the time of the filing of the complaint for ejectment.
As found by the lower court there was a letter sent by Regalado to Paculdo, which states that
Paculdo’s security deposit for the Quirino lot, be applied as partial payment for his account
under the subject lot as well as to the real estate taxes on the Quirino lot. However later on,
Regalado also informed Paculdo that the payment was to be applied not only to Paculdo’s
accounts under the subject land and the Quirino lot but also to heavy equipment bought by the
latter from Regalado. Paculdo submits that his silence is not consent but is in fact a rejection.
As provided in Article 1252 of the Civil Code, the right to specify which among his various
obligations to the same creditor is to be satisfied first rest with the debtor.
In the case at bar, at the time Paculdo made the payment, he made it clear to Regalado that
they were to be applied to his rental obligations on the Fairview wet market property. However,
Regalado applied a big portion of the amount paid by Paculdo to the satisfaction of an obligation
which was not yet due and demandable- the payment of the eight heavy equipment.
The lease over the Fairview wet market is the most onerous to the petitioner in the case at bar.
Consequently, the petition is granted.

GARCIA vs LLAMAS
417 SCRA 292
Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a
promissory note wherein they bound themselves jointly and severally to pay the loan on or
before 23 January 1997 with a 5% interest per month. The loan has long been overdue and,
despite repeated demands, both have failed and refused to pay it. Hence, a complaint was filed
against both.
Resisting the complaint, Garcia averred that he assumed no liability because he signed merely
as an accommodation party for De Jesus; and that he is relieved from any liability arising from
the note inasmuch as the loan had been paid by De Jesus by means of a check dated 17 April
1997; and that, in any event, the issuance of the check and respondent’s acceptance thereof
novated or superseded the note.
ISSUE: Whether or not petitioner is free from liability on the promissory note as an
accommodation party.
HELD:
No. The note was made p ayable to a specific person rather than to bearer or to order — a
requisite for negotiability under the Negotiable Instruments Law (NIL). Hence, petitioner cannot
avail himself of the NIL’s provisions on the liabilities and defenses of an accommodation party.
Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the
promissory note. Under Article 29 of the NIL, an accommodation party is liable for the
instrument to a holder for value even if, at the time of its taking, the latter knew the former to be
only an accommodation party. The relation between an accommodation party and the party
accommodated is, in effect, one of principal and surety — the accommodation party being the
surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promissor and debtor from the beginning.
LEONIDA C. QUINTO v. PEOPLE, GR No. 126712, 1999-04-14
Facts:
Leonida Quinto y Calayan, herein petitioner, was indicted for the crime of estafa... petitioner
Quinto pleaded not guilty
According to the prosecution, on or about 23 March 1977, Leonida went to see Aurelia
Cariaga (private complainant) at the latter's residence in Makati. Leonida asked Aurelia to
allow her have some pieces of jewelry that she could show to prospective buyers. Aurelia
acceded and... handed over to Leonida one (1) set of marques with briliantitos worth
P17,500.00, one (1) solo ring of 2.30 karats worth P16,000.00 and one (1) rosetas ring
worth P2,500.00. Leonida signed a receipt
When the 5-day period given to her had lapsed, Leonida requested for and was granted
additional time within which to vend the items. Leonida failed to conclude any sale and,
about six (6) months later, Aurelia asked that the pieces of jewelry be returned. She sent to
Leonida a... demand letter which the latter ignored. The inexplicable delay of Leonida in
returning the items spurred the filing of the case for estafa against her.
In its version, the defense sought to prove that Leonida was engaged in the purchase and
sale of jewelry. She was used to buying pieces of jewelry from a certain Mrs. Antonia Ilagan
who later introduced her (Leonida) to Aurelia.
Aurelia and Leonida, started to transact business in pieces of jewelry among which included
a solo ring worth P40,000.00 which was sold to Mrs. Camacho who paid P20,000.00 in
check and the balance of P20,000.00 in installments later paid directly to Aurelia.
The... last transaction Leonida had-with Mrs. Camacho involved a "marques" worth
P16,000.00 and a ring valued at P4,000.00. Mrs. Camacho was not able to pay the due
amount in full and left a balance of P13,000.00. Leonida brought Mrs. Camacho to Aurelia
who agreed to allow Mrs. Camacho... to pay the balance in installments. Leonida was also
able to sell for Aurelia a 2-karat diamond ring worth P17,000.00 to Mrs. Concordia Ramos
who, unfortunately, was unable to pay the whole amount. Leonida brought Mrs. Ramos to
Aurelia and they talked about the terms of payment.
As first payment, Mrs. Ramos gave Leonida a ring valued at P3,000.00. The next payment
made by her was P5,000.00. Leonida herself then paid P2,000.00.
The RTC... found Leonida guilty beyond reasonable doubt of the crime of estafa and
sentenced her to suffer the penalty of imprisonment of seven (7) years and one (1) day of
prision mayor as minimum to nine (9) years of prision... mayor as maximum and to
indemnify private complainant in the amount of P36,000.00.
Leonida interposed an appeal to the Court of Appeals which affirmed, in its 27th September
1996 decision, the RTC's assailed judgment.
Issues:
the agreement between petitioner and private complainant was effectively novated when
the latter consented to receive payment on installments directly from Mrs. Camacho and
Mrs. Ramos.
Ruling:
There are two ways which could indicate, in fine, the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the same.
The first is when novation has been explicitly stated and declared in unequivocal terms.
The... second is when the old and the new obligations are incompatible on every point.
The test of incompatibility is whether or not the two obligations can stand together, each
one having its independent existence. If they cannot, they are incompatible and the latter
obligation... novates the first.
The incompatibility must take place in any of the essential elements of the obligation, such
as its object, cause or principal... conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the original obligation.

The changes alluded to by petitioner consists only in the manner of payment. There was
really no substitution of debtors since private complainant merely acquiesced to the
payment but did not give her consent[13] to enter into a new contract.
There are two forms of novation by substituting the person of the debtor, depending on
whose initiative it comes from, to wit: expromision and delegacion. In the former, the
initiative for the change does not come from the debtor and may even be made without
his... knowledge. Since a third person would substitute for the original debtor and assume
the obligation, his consent and that of the creditor would be required. In the latter, the debtor
offers, and the creditor accepts, a third person who consents to the substitution and
assumes the... obligation, thereby releasing the original debtor from the obligation, here, the
intervention and the consent of all parties thereto would perforce be necessary.[15] In either
of these two modes of substitution, the consent of the creditor, such as can be... seen, is an
indispensable requirement.
Cariaga's acceptance of Ramos and Camacho's payment on installment basis cannot be
construed as a case of either expromision or delegacion sufficient to justify the attendance
of extinctive novation.
Unfortunately for petitioner in the case at bar, the factual findings of both the trial court and
the appellate court prove just the opposite which is that there has never been any animus
novandNi between or among the parties.