OBLIGATIONS

24.

Romeo C. Garcia  vs. Dionisio V. Llamas, G.R. No. 154127. December

8, 2003

Facts: A complaint for sum of money was filed by respondent Dionisio

Llamas against Petitioner Romeo Garcia and Eduardo de Jesus alleging
that the two borrowed Php 400, 000 from him. They bound themselves
jointly and severally to pay the loan on or before January 23, 1997 with a
15% interest per month. The loan remained unpaid despite repeated
demands by respondent.

Petitioner resisted the complaint alleging that he signed the promissory

note merely as an accommodation party for de Jesus and the latter
had already paid the loan by means of a check and that the issuance
of the check and acceptance thereof novated or superseded the note.

The trial court rendered a judgment on the pleadings in favor of the

respondent and directed petitioner to pay jointly and severally respondent
the amounts of Php 400, 000 representing the principal amount plus
interest at 15% per month from January 23, 1997 until the same shall have
been fully paid, less the amount of Php 120,000 representing interests
already paid.

The Court of Appeals ruled that no novation, express or implied, had taken
place when respondent accepted the check from de Jesus. According to
the CA, the check was issued precisely to pay for the loan that was
covered by the promissory note jointly and severally undertaken by
petitioner and de Jesus. Respondent’s acceptance of the check did not
serve to make de Jesus the sole debtor because first, the obligation
incurred by him and petitioner was joint and several; and second, the check
which had been intended to extinguish the obligation bounced upon its
presentment.

Issues: (1) Whether or not there was novation of the obligation

(2) Whether or not the defense that petitioner was only an accommodation
party had any basis.
Held: For novation to take place, the following requisites must concur: (1)
There must be a previous valid obligation; (2) the parties concerned must
agree to a new contract; (3) the old contract must be extinguished; and (4)
there must be a valid new contract.

The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check or that the
check would take the place of the note.

(2) By its terms, the note was made payable to a specific person rather
than bearer to or order—a requisite for negotiability. Hence, petitioner
cannot avail himself of the NIL’s provisions on the liabilities and defenses of
an accommodation party. Besides, a non-negotiable note is merely a
simple contract in writing and evidence of such intangible rights as may
have been created by the assent of the parties. The promissory note is thus
covered by the general provisions of the Civil Code, not by the NIL.

Even granting that the NIL was applicable, still petitioner would be liable for
the note. 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. It is a
settled rule that a surety is bound equally and absolutely with the principal
and is deemed an original promissory debtor from the beginning. The
liability is immediate and direct.
25.
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 novandi between or among the parties.
CONTRACTS
1. Dizon vs. Gaborro, 83 SCRA 688-691 – ARTICLE 1359
Facts:
Petitioner, Jose P. Dizon, was the owner of the three parcels of land,
situated in Mabalacat, Pampanga. He constituted a first mortgage to DBP
to secure a loan of P38,000.00 and a second mortgage to PNB amounting
P93,831.91.

Petitioner defaulted in the payment of his debt, therefore, the Development

Bank of the Philippines foreclosed the mortgage extrajudicially. Gaborro
became interested in the lands of Dizon. But since the property was
already foreclosed by the DPB. They then entered into a contract captioned
as “Deed of sale with assumption of mortgage” and the second contract
executed the same day, is called “Option to Purchase Real Estate” After
the execution of said contracts, Alfredo G. Gaborro took possession of the
three parcels of land.

After the execution of the contract and its conditions to him, Gaborro made
several payments to the DBP and PNB. He improved, cultivated the kinds
raised sugarcane and other crops produce.

Jose P. Dizon through his lawyer, wrote a letter to Gaborro informing him
that he is formally offering reimburse Gaborro of what he paid to the banks.
Gaborro did not agreed to the demands of the petitioner, hence, Jose P.
Dizon instituted a complaint in the Court of First Instance of Pampanga,
alleging that the documents Deed of Sale With Assumption of Mortgage
and the Option to Purchase Real Estate did not express the true intention
and agreement between the parties. Petitioner, contended that the two
deeds constitute in fact a single transaction that their real agreement was
not an absolute sale of the land but merely an equitable mortgage or
conveyance by way of security for the reimbursement or refund by Dizon to
Gaborro of any and all sums which the latter may have paid on account of
the mortgage debts in favor of the DBP and the PNB.

Issue:
Whether or not the contract showed the true agreement  between the
parties.
Held:
No. The court held that the true agreement between the plaintiff and
defendant is that the defendant would assume and pay the indebtedness of
the plaintiff to DBP and PNB, and in consideration therefore, the defendant
was given the possession and enjoyment of the properties in question until
the plaintiff shall have reimbursed to defendant fully the amount of
P131,831.91 plus 8% interest per annum from October 6, 1959 until full
payment, said right to be exercised within one year from the date the
judgment becomes final, if he fails to do so within the said period, then he
is deemed to have lost his right over the lands forever.

2. Pakistan International Airlines Corporation vs. Hon. Blas F. Ople

G.R. No. 61594, September 28, 1990
190 SCRA 90
Petition for certiorari to review the order of the Minister of Labor.

FACTS:
On 2 December 1978, petitioner Pakistan International Airlines Corporation
(PIA), a foreign corporation licensed to do business in the Philippines,
executed in Manila two (2) separate contracts of employment, one with
private respondent Ethelynne B. Farrales and the other with private
respondent Ma. M.C. Mamasig. The contracts became effective on 9
January 1979 and provided for the duration of employment and penalty,
termination and the applicable law which is of Pakistan’s. They were
trained in Pakistan and worked as flight attendants with base station in
Manila and flying assignments to different parts of the Middle East and
Europe.

A year and four (4) months prior to the expiration of the contracts of
employment, they received separate letters informing them that their
services would be terminated.
Private respondents Farrales and Mamasig jointly instituted a complaint for
illegal dismissal and non-payment of company benefits and bonuses,
against PIA with the then Ministry of Labor and Employment. Several
attempts at conciliation were not fruitful.

ISSUES:
1. Whether or not the Regional Director, MOLE, had jurisdiction over the
subject matter of the complaint initiated by private respondents for
illegal dismissal, jurisdiction over the same being lodged in the
Arbitration Branch of the National Labor Relations Commission
(“NLRC”).
2. Whether or not the order of the Regional Director had been issued in
violation of petitioner’s right to procedural due process.
3. Whether or not the employment contract is the governing law
between the parties and not the provisions of the Labor Code.
4. ADR ISSUE: WON the provision in the contract that the venue for
settlement of any dispute arising out of or in connection with the
agreement is to be resolved only in courts of Karachi Pakistan is
valid.
RULING:
1. At the time the complaint was initiated in September 1980 and at the
time the Orders assailed were rendered on January 1981 (by Regional
Director Francisco L. Estrella) and August 1982 (by Deputy Minister
Vicente Leogardo, Jr.), the Regional Director had jurisdiction over
termination cases. Art. 278 of the Labor Code, as it then existed, forbade
the termination of the services of employees with at least one (1) year of
service without prior clearance from the Department of Labor and
Employment.
2. No. Petitioner was given an opportunity to submit its position paper and
evidence they had.

3. The principle of party autonomy in contracts is not an absolute principle.

The rule in Article 1306 of the Civil Code is that the contracting parties may
establish such stipulations as they may deem convenient, “provided they
are not contrary to law, morals, good customs, public order or public
policy.” Thus, counter-balancing the principle of autonomy of contracting
parties is the equally general rule that provisions of applicable law,
especially provisions relating to matters affected with public policy, are
deemed written into the contract. The law relating to labor and employment
are impressed with public interest. Paragraph 5 of that employment
contract was inconsistent with Articles 280 and 281 of the Labor Code and
thus, cannot be given effect.

4. These circumstances – the employer-employee relationship between the

parties; the contract being not only executed in the Philippines, but also
performed here, at least partially; private respondents are Philippine
citizens and petitioner, although a foreign corporation, is licensed to do
business and actually doing business and hence resident in the Philippines;
lastly, private respondents were based in the Philippines in between their
assigned flights to the Middle East and Europe – show that the Philippine
courts and administrative agencies  are the proper fora for the resolution of
contractual disputes between the parties. The employment agreement
cannot be given effect so as to bar Philippine agencies and courts vested
with jurisdiction by Philippine law. Moreover, PIA failed to plead and proved
the contents of Pakistan law on the matter, it is therefore presumed that the
applicable provisions of the law of Pakistan are the same as the applicable
provisions of Philippine law. Hence, the provision in the contract that the
venue for settlement of any dispute arising out of or in connection with the
agreement is to be resolved only in courts of Karachi Pakistan is not valid.

3.NATALIA P. BUSTAMANTE v. SPS. RODITO F. ROSEL AND NORMA

A. ROSEL, GR No. 126800, 1999-11-29
Facts:
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan
agreement with petitioner Natalia Bustamante and her late husband Ismael
C. Bustamante
When the loan was about to mature on March 1, 1989, respondents
proposed to buy at the pre-set price of P200,000.00, the seventy (70)
square meters parcel of land covered by TCT No. 80667, given as
collateral to guarantee payment of the loan.
Petitioner, however, refused to sell... and requested for extension of time to
pay the loan and offered to sell to respondents another residential lot
located at Road 20, Project 8, Quezon City, with the principal loan plus
interest to be used as down payment.
Hence, on March 1, 1989, petitioner tendered payment of the loan to
respondents which the latter refused to accept, insisting on petitioner's
signing a prepared deed of absolute sale of the collateral.
On February 28, 1990, respondents filed with the Regional Trial Court,
Quezon City, Branch 84, a complaint for specific performance with
consignation against petitioner and her spouse.
Nevertheless, on March 4, 1990, respondents sent a demand letter asking
petitioner to sell the collateral pursuant to the option to buy embodied in the
loan agreement.
Issues:
The questions presented are whether petitioner failed to pay the loan at its
maturity date and whether the stipulation in the loan contract was valid and
enforceable.
Ruling:
The loan was due for payment on March 1, 1989. On said date, petitioner
tendered payment to settle the loan which respondents refused to accept,
insisting that petitioner sell to them the collateral of the loan.
When respondents refused to accept payment, petitioner consigned the
amount with the trial court.
The sale of the collateral is an obligation with a suspensive condition.
It is dependent upon the happening of an event, without which the
obligation... to sell does not arise.
A scrutiny of the stipulation of the parties reveals a subtle intention of the
creditor to acquire the property given as security for the loan.
This is embraced in the concept of pactum commissorium, which is
proscribed by law.
A significant task in contract interpretation is the ascertainment of the
intention of the parties and looking into the words used by the parties to
project that intention. In this case, the intent to appropriate the property
given as collateral in favor of the creditor appears... to be evident, for the
debtor is obliged to dispose of the collateral at the pre-agreed consideration
amounting to practically the same amount as the loan. In effect, the creditor
acquires the collateral in the event of non- payment of the loan. This is
within the concept of... pactum commissorium. Such stipulation is void.

4.JOSE V. LAGON v. CA, GR NO. 119107, 2005-03-18

Facts:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai
Tonina Sepi, through an intestate court,[1] two parcels of land located at
Tacurong, Sultan Kudarat. A... ough an intestate court,[1] two parcels of
land located at Tacurong, Sultan Kudarat. A few months after the sale,
private respondent Menandro Lapuz... filed a complaint for torts and
damages against petitioner before the Regional Trial Court (RTC) of Sultan
Kudarat.
plaintiff, claimed that he entered into a contract of lease with the late Bai
Tonina Sepi Mengelen Guiabar over three parcels of land (the "property")
in Sultan Kudarat, Maguindanao beginning 1964.
One of the provisions agreed upon... was for private respondent to put up
commercial buildings which would, in turn, be leased to new tenants. The
rentals to be paid by those tenants would answer for the rent private
respondent was obligated to pay Bai Tonina Sepi for the lease of the land.
In 1974, the lease... contract ended but since the construction of the
commercial buildings had yet to be completed, the lease contract was
allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to
the court-appointed administrator of her estate. But when the administrator
advised him to stop collecting rentals from the tenants of the buildings he
constructed, he discovered that petitioner,... representing himself as the
new owner of the property, had been collecting rentals from the tenants. 
He thus filed a complaint against the latter, accusing petitioner of inducing
the heirs of Bai Tonina Sepi to sell the property to him, thereby violating his
leasehold... rights over it.
Issues:
whether the purchase by petitioner of the subject property, during the
supposed existence of private respondent's lease contract with the late Bai
Tonina Sepi, constituted tortuous interference for which petitioner should
be held liable for damages.
Ruling:
As regards the first element, the existence of a valid contract must be duly
established. To prove this, private respondent presented in court a
notarized copy of the purported lease renewal.[10] While the contract
appeared as duly notarized, the... notarization thereof, however, only
proved its due execution and delivery but not the veracity of its contents.
Nonetheless, after undergoing the rigid scrutiny of petitioner's counsel and
after the trial court declared it to be valid and subsisting, the notarized copy
of the... lease contract presented in court appeared to be incontestable
proof that private respondent and the late Bai Tonina Sepi actually renewed
their lease contract. Settled is the rule that until overcome by clear, strong
and convincing evidence, a notarized document continues to be... prima
facie evidence of the facts that gave rise to its execution and delivery.[11]
The second element, on the other hand, requires that there be knowledge
on the part of the interferer that the contract exists. Knowledge of the
subsistence of the contract is an essential element to state a cause of
action for tortuous interference.[12] A... defendant in such a case cannot be
made liable for interfering with a contract he is unaware of.[13] While it is
not necessary to prove actual knowledge, he must nonetheless be aware of
the facts which, if followed by a reasonable inquiry, will lead to a...
complete disclosure of the contractual relations and rights of the parties in
the contract.[14]

Sanchez v Rigos

GR No. L-25494, 14 June 1972

Concepcion, C.J.:
FACTS:

            On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos

executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos
"agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a
parcel of land within two (2) years from said date with the understanding that said
option shall be deemed "terminated and elapsed," if "Sanchez shall fail to
exercise his right to buy the property" within the stipulated period. Inasmuch as
several tenders of payment of the sum of Pl,510.00, made by Sanchez within
said period, were rejected by Mrs. Rigos, on March 12, 1963, the former
deposited said amount with the CFI of Nueva Ecija and commenced against the
latter the present action, for specific performance and damages. The defendant
alleged as a special defense, that the contract between the parties "is a unilateral
promise to sell, and the same being unsupported by any valuable consideration,
by force of the New Civil Code, is null and void". The lower court rendered
judgment ordering Mrs. Rigos to accept the sum judicially consigned by him and
to execute, in his favor, the requisite deed of conveyance. Hence, this appeal by
Mrs. Rigos.

ISSUE:

            Whether or not Rigos is bound by Sanchez’ acceptance even though the

option is not supported by a separate consideration.

HELD:

            Yes. The court ruled that the option did not impose upon plaintiff the
obligation to purchase defendant's property. The instrument executed is not a
"contract to buy and sell." It merely granted plaintiff an "option" to buy. 

Article 1479 must be read in relation to Article 1354. Article 1354 applies to
contracts in general, whereas the second paragraph of Article 1479 refers to
"sales" in particular, and, more specifically, to "an accepted unilateral promise to
buy or to sell." In other words, Article 1479 is controlling in the case at bar.

Since there may be no valid contract without a cause or consideration, the

promisor is not bound by his promise and may, accordingly, withdraw it. Pending
notice of its withdrawal, his accepted promise partakes, however, of the nature of
an offer to sell which, if accepted, results in a perfected contract of sale. Pending
notice of its withdrawal, his accepted promise partakes, however, of the nature of
an offer to sell which, if accepted, results in a perfected contract of sale.