Title I.

OBLIGATIONS 
  

Chapter 1. General Provisions​. 

 
Carpio vs. Doroja (December 5, 1989) 
 
DOCTRINE:   
In order that an employer may be held subsidiarily liable for the employee's civil liability in 
the criminal action, it should be shown: 
(1) That the employer, etc. is engaged in any kind of industry 
(2) That the employee committed the offense in the discharge of his duties 
(3) That he is insolvent 
 
FACTS: 
Accused-respondent  Edwin  Ramirez,  while  driving  a  passenger  Fuso  Jitney  owned  and 
operated  by  Eduardo  Toribio, bumped Dionisio Carpio, a pedestrian crossing the street. As a 
consequence,  Carpio  suffered  from a fractured left clavicle as reflected in the medico-legal 
certificate  and  sustained  injuries.  An  information  for  Reckless  Imprudence  Resulting  to 
Serious  Physical  Injuries was filed against Ramirez. The accused voluntarily pleaded guilty to 
a  lesser  offense  and  was  accordingly  convicted  for  Reckless  Imprudence  Resulting  to  Less 
Serious  Physical  Injuries  under  an  amended  information  punishable  under  Art.  365  of  the 
RPC. 
  
Ramirez  was  sentenced  to  suffer  the  penalty  of  One  (1)  month  and  One  (1)  day  to  Two  (2) 
months  of  Arresto  Mayorin  its  minimum  period.  The  accused  filed  an  application  for 
probation.  Accused's  counsel  moved  that  the  court  summon  the  owner  of  the  vehicle  to 
afford  the  latter  a  day  in  court,  on  the ground that the accused is not only indigent but also 
jobless  and  thus  cannot  answer  any  civil  liability  that  may  be  imposed  upon  him  by  the 
court. The private prosecutor, however, did not move for the appearance of Toribio. 
  
The  appellate  court  modified  the  trial  court's  decision,  granting  the  appellant  moral 
damages  in  the  amount  of  P  5,000.00,  while  affirming  all  other  civil  liabilities.  A  writ  of 
execution  was  duly served upon the accused but was, however, returned unsatisfied due to 
the  insolvency  of  the  accused as shown by the sheriff’s return.The complainant moved for a 
subsidiary  writ  of  execution  against  the  subsidiary  liability  of  the  owner-operator  of  the 
vehicle. This was denied by the trial court on two grounds, namely: 
1.​ ​The decision of the appellate court made no mention of the subsidiary liability of Toribio 
2.​ ​The nature of the accident falls under "culpa-aquiliana" and not “culpa-contractual." 
  
Petitioner  contends  that  the  subsidiary  liability  of  the  owner-operator  may  be  enforced  in 
the  same  proceeding  and  a  separate action is no longer necessary in order to avoid undue 
delay,  notwithstanding  the  fact  that  said  employer  was  not  made  a  party  in  the  criminal 
action. (citing Pajarito v. Seneris) 
  
Respondent argues that the owner-operator cannot be validly held subsidiarily liable since: 
a. The matter of subsidiary liability was not raised on appeal 
 b. Contrary  to  the  case  of  Pajarito  v.  Seneris,  the  injuries  sustained  by  the 
complainant  did  not  arise  from  the  so-called  "culpa-contractual"  but  from 
"culpa-aquiliana" 
c. The  judgments  of  appellate  courts  may  not  be  altered,  modified,  or  changed  by 
the court of origin 
d. Said owner was never made a party to the criminal proceedings. 
 
ISSUE: 
​WON the subsidiary liability of the owner-operator may be enforced in the same criminal 
proceeding against the driver where the award was given.  
 
HELD: 
YES. The law involved in the instant case is Article 103 in relation to Article 100, both of the 
Revised Penal Code, which reads thus: 
  
Art. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the 
next preceding article shall apply to employers, teachers, persons, and corporations 
engaged in any kind of industry for felonies committed by their servants, pupils, workmen, 
apprentices, or employees in the discharge of their duties. 
  
In order that an employer may be held subsidiarily liable for the employee's civil liability in 
the criminal action, it should be shown: 
(1) That the employer, etc. is engaged in any kind of industry 
(2) That the employee committed the offense in the discharge of his duties 
(3) That he is insolvent 
  
The subsidiary liability of the employer, however, arises only after conviction of the 
employee in the criminal action. All these requisites present, the employer becomes ipso 
facto subsidiarily liable upon the employee's conviction and upon proof of the latter's 
insolvency. Needless to say, the case at bar satisfies all these requirements. 
 
Valenzuela vs. CA (February 7, 1996) 
 
DOCTRINE: 
QUASI-DELICT;  LIABILITY  OF  A  PERSON  UNDER  A  RELATIONSHIP OF ​PATRIA POTESTAS. — Pursuant 
to  Article  2180  of  the  Civil  Code  that  acknowledges  responsibility  under  a  relationship  of 
patria  potestas​,  a  person  may  be  held  accountable not only for his own direct culpable act 
or  negligence  but  also  for  those  of  others  ​albeit  predicated  on  his  own  supposed failure to 
exercise  due  care in his supervisory authority and functions. In the case of an employer, that 
vicarious  liability  attaches  only when the tortious conduct of the employee relates to, or is in 
the  course  of,  his  employment.  The  question  to  ask  should  be  whether,  at  the  time  of  the 
damage  or  injury,  the  employee  is  engaged  in  the  affairs  or  concerns  of  the  employer  ​or​, 
independently,  in  that  of  his  own.  While  an  employer  incurs  no liability when an employee's 
conduct,  act  or  omission  is  beyond  the  range  of  employment,  a  minor  deviation  from  the 
assigned task of an employee, however, does not affect the liability of an employer.​|||  
 
FACTS: 

Valenzuela  with  companion  Ramon  was  heading  towards  the  direction  of  Manila.  She 
noticed  something  wrong  with  her  tires.  She  stopped  and  checked the tires. People present 
 told her that her rear right tire was flat. She parked along the sidewalk. She was at the rear of 
the  car  when  she  was  suddenly  bumped  by  Li’s  car.  Li  was  on  his  way  home.  He  was 
travelling  at  55kph,  considering  that  it  was  raining,  visibility  was  affected and the road was 
wet.  He  was  suddenly  blinded  by  a  car  coming  from  the  opposite  direction.  Temporarily 
blinded, he instinctively swerved to the right to avoid collision and bumped Valenzuela’s car.  
  
Police  Investigator  Ramos’  report:  Valenzuela’s  car  was  near  the sidewalk. It was not mostly 
dark. Things can be seen 
  
Rodriguez, witness for Valenzuela’s testimon​y : ​Li’s car was moving fast. Li smelt of liquor. 
  
Lower  court  found  Li  guilty  of  gross negligence and liable for damages under Art. 2176 of the 
Civil  Code.  The  court  also  held  Alexander  Commercial,  Inc.  (Li’s  employer),  jointly  and 
severally  liable  for  damages  pursuant  to  Art.  2180.  Li  and  Alexander  Commercial  filed  an 
Omnibus  Motion for New Trial for Reconsideration tending to show that the point of impact is 
at  the  center  of  the  lane.  The  trial  court denied the motion.  LI filed an appeal with the Court 
of  Appeals.  Court  of  Appeals  found that Valenzuela’s car was parked by the sidewalk, not at 
the  center  of  the  lane.  The  Court  of  Appeals  agreed  that  Li  was  liable  for  the  Valenzuela’s 
injuries.  However,  Court  of  Appeals  absolved  Alexander  Commercial  from  any  liability  and 
reduced the amount of moral damages to P500,000 (from P1,000,000). 
  
Both  parties  filed  two  separate  petitions  before  the  Supreme  Court.  Li’s  issues  are  Issues  1 
and 2 while Valenzuela’s Issues are 3 and 4. The petitions are consolidated. 
 
ISSUE: 
​Is the Court of Appeals’ absolution of Alexander Commercial valid? 
 
HELD: 
No. CA’s absolution is not valid. Court agrees that the relationship of Alexander Commercial 
and Li is not based on ​respondeat superior​, but that of ​pater familias​.  
  
The Court used the ​bonus pater familias​ standard in Art. 2180 of the Civil Code. Alexander 
Commercial is thus jointly and solitarily liable for damages. 
  
Evidence demonstrating that the employer has exercised diligent supervision of its 
employee during the performance of the latter’s assigned tasks would be enough to relieve 
him of the liability imposed by Art. 2180 in relation to Art. 2176 of the Civil Code. (Rigorous 
tests of road worthiness is an example of diligent supervision) 
  
However, Alexander Commercial has not demonstrated that it exercised that care and 
diligence of a good father of the family in entrusting its company car to Li. 
 
CAR OWNER IS JOINTLY AND SEVERALLY LIABLE BASED ON THE PRINCIPLE OF ​"BONUS PATER 
FAMILIAS." ​— In fine, Alexander Commercial, Inc. has not demonstrated, to our satisfaction, 
that it exercised the care and diligence of a good father of the family in entrusting its 
company car to Li. No allegations were made as to whether or not the company took the 
steps necessary to determine or ascertain the driving proficiency and history of Li, to whom 
it gave full and unlimited use of a company car. Not having been able to overcome the 
burden of demonstrating that it should be absolved of liability for entrusting its company 
car to Li, said company, based on the principle of ​bonus pater familias,​ ought to be jointly 
and severally liable with the former for the injuries sustained by Ma. Lourdes Valenzuela 
during the accident.​|||  
  
(Destajo, Lyka) 
1. Astrid A. Van de Brug v. Philippine National Bank, G.R. No. 207004, June 06, 2018; 
  
Petitioner: ​ASTRID A. VAN DE BRUG, MARTIN G. AGUILAR and GLENN G. AGUILAR​|| 
Respondent: ​PHILIPPINE NATIONAL BANK​| 
 
DOCTRINE: 
A person should be protected only when he acts in the legitimate exercise of his right; that 
is, when he acts with prudence and in good faith, but not when he acts with negligence or 
abuse. There is an abuse of right when it is exercised only for the purpose of prejudicing or 
injuring another. The exercise of a right must be in accordance with the purpose for which it 
was established, and must not be excessive or unduly harsh; there must be no intention to 
injure another. In order to be liable for damages under the abuse of rights principle, the 
following requisites must concur: (a) the existence of a legal right or duty; (b) which is 
exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another. 
  
In this case, the Aguilars failed to substantiate the above requisites to justify the award of 
damages in their favor against PNB, who merely exercised its legal right as a creditor 
pursuant to RA 7202. 
 
FACTS: 
Petitioner is one of the children of the late spouses Aguilar. The late spouses Romulus and 
Evelyn Aguilar were borrowing clients of Philippine National Bank Victoria Branch. The late 
spouses Aguilar's sugar crop loans, which were obtained sometime between the late 1970's 
and the early 1980's, were secured by real estate mortgage over four registered parcels of 
land all situated at Escalante, Negros Occidental. However, for failure of the late spouses 
Aguilar to pay their obligations with PNB, the mortgage was foreclosed in 1985 and 
subsequently, ownership of the subject four pieces of property was consolidated under the 
name of PNB. 
  
With the enactment of RA 7202 on February 29, 1992, the late Romulus Aguilar wrote PNB 
asking for a reconsideration of his account based on the Sugar Restitution Law. PNB 
informed his wife, the late Evelyn Aguilar that while the subject loan account was covered by 
the provisions of RA 7202 and have been audited by the Commission on Audit, the latter was 
still required to comply with the following matters: (1) to arrange and implement 
restructuring of accounts within sixty days from receipt of the notice, (2) to signify her 
conformity to the computation of the account, and (3) to submit the ten year crop 
production for the period 1974/1975 to 1984/1985. 
  
The Aguilars claimed that they complied with the stated requirements and that 
subsequently, PNB furnished them with Statements of Account, the earliest of which was the 
COA audited statement as of December 15, 1996 and the latest was as of November 30, 1999, 
which reflected a P2,236,337.91 total amount due. The Aguilars adduced that inasmuch as 
the subject agricultural lots were already conveyed voluntarily by PNB to the Department of 
Agrarian Reform, they were advised by PNB to follow-up the payment for these pieces of 
realty with the Land Bank of the Philippines in order for PNB to apply the proceeds of the sale 
to the account of the late spouses Aguilar. They were likewise assured by PNB that if the 
proceeds from LBP would exceed the obligations of the late spouses Aguilar, the excess 
amount would be returned to them. 
  
Following the November 23, 1999 Memorandum of Valuation, the Aguilars requested PNB to 
commence restructuring of the loan account. Glenn Aguilar also made mention of an 
allegedly similar case, entitled Sps. Fred and Mildred Pfleider vs. PNB, et al., then pending 
before RTC Bacolod City, wherein PNB purportedly entered into a compromise agreement 
with Sps. Pfleider, notwithstanding consolidation of the foreclosed property under the bank's 
name. PNB replied in writing and stated, among other matters, that: "Since PNB has already 
acquired the properties at the foreclosure sale, it can now exercise its rights as owner of 
 these properties, including the right to convey the same to the DAR and to receive the 
proceeds thereof from Land Bank of the Philippines, without any right to the excess 
proceeds, if any, inuring/accruing to your favor” 
  
Hence, this case for implementation of RA 7202. PNB argued that the Aguilars have no cause 
of action because whatever rights they have under RA 7202 were already forfeited when 
they failed to comply with the requirements. PNB further contended that the Aguilars cannot 
invoke the compromise agreement it entered into with Sps. Fred and Mildred Pfleider in Civil 
Case No. 7212 
  
because the Aguilars were not parties to the case. RTC rendered a decision in favor of the 
Aguilars. RTC justified the judgment in favor of the Aguilars in keeping with public policy of 
RA 7202 i.e. to help the sugar producers. CA reversed the RTC Decision CA found that the 
account of the late spouses Aguilar qualified under the law because indisputably, their 
sugar crop loans were obtained within the period covered by the law. However, based on 
PNB's recomputation applying 12% per annum interest, which was audited and certified by 
the Commission on Audit, the Aguilars were not entitled to restitution absent any excess 
payment after recomputation. 
 
ISSUE: 
Whether the CA erred in not including the sums and amounts which accrued to PNB from DAR's payment on
account of the properties of the Aguilars.

RULING:
NO. 
 
Section 4 of RA 7202 provides which accounts of sugar producers are covered, thus: 
  
SEC. 4. Accounts of sugar producers pertaining to Crop Year 1974-1975 up to and 
including Crop Year 1984-1985 which have been fully or partially paid, or may have 
been the subject of restructuring and other similar arrangements with government 
banks shall be covered by the provisions above stated. The benefit of this Act shall 
not be extended to any sugar producer with a pending sequestration or ill-gotten 
wealth case before any administrative or judicial body. Any recovery shall be 
placed in escrow until the case has been finally resolved. 
  
The IRR promulgated by the Bangko Sentral ng Pilipinas provides: 
  
Sec. 4 For sugar producers who obtained loans from the lending banks during the 
period covered, the benefits provided herein shall be extended to those whose 
loans at the time of the effectivity of the Act: a. Are still outstanding; or b. Had been 
partially or fully paid, whether in cash, from proceeds of sale of assigned sugar 
quedans, through dacion en pago, or by way of execution against assets of the 
sugar producer other than the loan collaterals; or c. Had been subjected to 
foreclosure of loan collaterals whether or not the foreclosure is a subject of 
litigation; or d. Had been transferred or assigned to other government-owned and 
-controlled agencies or institutions; or e. Had been the subject of restructuring or 
other similar arrangements, whether with the lending bank or with their assignees 
or transferees. 
  
The issue that needs to be resolved is whether or not the Aguilars were entitled to the 
benefits of RA 7202​. As provided in Section 3 of RA 7202, quoted above, and Section 6 of the 
IRR, quoted below, the Aguilars are entitled to: (1) condonation of interest charged in excess 
of 12% per annum and all penalties and surcharges; (2) recomputation of their sugar crop 
loans, and if there is interest in excess of 12% per annum, interests, penalties and surcharges, 
application of the excess payment as an offset and/or as payment for the late spouses 
Aguilar's outstanding loan obligations; and (3) restructuring or amortization of the 
recomputed loans for a period of 13 years inclusive of a three- year grace period on the 
principal, effective upon the approval of RA 7202. 
  
As defined under Section 2(p) of the IRR, "EXCESS PAYMENT shall mean the overage of the 
excess interest as defined in Section 2(n) and penalties and surcharges as defined in 
Section 2(o) after applying them against the outstanding loan balance appearing in the 
books of the lending banks." Section 2(n) provides: "EXCESS INTEREST shall mean interest 
charged and/or collected by the lending bank over and above the twelve percent (12%) 
interest per annum on the amount of the principal of loan as defined in Section 2(k) as such 
amount is determined from the original promissory note" while Section 2(o) provides: 
"PENALTIES AND SURCHARGES shall mean all penalties and surcharges charged and/or 
collected by the lending bank." 
  
Pursuant to the IRR definition of terms, there appears to be no excess interest with respect to 
the RA 7202 accounts of the late spouses Aguilar because the actual interest payment or 
interest collected amounted to only P12,658.22, as of December 15, 1996, while the 
recomputed interest at 12% per annum totaled P689,944.52. Thus, with the actual interest 
collected not being more than the recomputed interest of the principal of the loans of the 
late spouses Aguilar covered by RA 7202,there could be no excess payment and there would 
be no amount that could be restituted to the Aguilars. This is clear from Section 9 of the IRR 
wherein only sugar producers who have net excess payments after recomputation of their 
loans and application of excess interests, penalties and surcharges against their 
outstanding loan obligations shall be entitled to restitution. 
  
To this Court, this position of the Aguilars (that the total amount which PNB received from 
the LBP based on the Memorandum of Valuation should be deducted from their total 
outstanding loan obligations as of the date of foreclosure of the collaterals) ​cannot be 
justified under RA 7202 and its IRR​. To recall, Section 6 of the IRR, in part, provides that: 
  
where sugar producers have no outstanding loan balance with said financial 
institutions as of the date of effectivity of RA No. 7202 (i.e. sugar producers who 
have fully paid their loans x x x through x x x foreclosure of collateral x x x), said 
producers shall be entitled to the benefits of recomputation in accordance with 
Sections 3 and 4 of RA No. 7202, but the said financial institutions, instead of 
refunding the interest in excess of twelve (12%) per cent per annum, interests, 
penalties and surcharges, apply the excess payment as an offset and/or as 
payment for the producers' outstanding loan obligations. x x x 
  
The sources of obligations under Article 1157 of the Civil Code are: (1) law; (2) contracts; 
(3) quasi-contracts; (4) acts or omissions punished by law; and (5) quasi-delicts. 
Immediately, sources (2), (3) and (4) are inapplicable in this case.​ The Aguilars are not 
privies to the Compromise Agreement between PNB and the spouses Pfleider. Regarding 
law, as PNB's source of obligation, the CA correctly ruled that the Aguilars are not entitled to 
restitution under RA 7202. Thus, RA 7202 cannot be invoked as the statutory basis to compel 
PNB to treat the Aguilars similarly with the spouses Pfleider. 
  
Another issue that needs to be resolved is whether PNB has an obligation to accord the 
Aguilars the same treatment as it accorded the spouses Pfleider regarding the crediting of 
the VOS or CARP proceeds of their respective agricultural lots against their respective sugar 
crop loans covered by RA 7202​. Regarding law, as PNB's source of obligation, the CA 
correctly ruled that the Aguilars are not entitled to restitution under RA 7202. Thus, RA 7202 
cannot be invoked as the statutory basis to compel PNB to treat the Aguilars similarly with 
the spouses Pfleider. 
  
 To make PNB liable under the principle of abuse of rights, the Aguilars have the burden to 
prove the requisites enumerated above. They claim that they are similarly circumstanced 
as the spouses Pfleider and there was no reason for PNB to treat them differently. It was 
incumbent upon the Aguilars, to make PNB liable for damages based on the principle of 
abuse of rights, to prove that PNB acted in bad faith and that its sole intent was to prejudice 
or injure them. The Aguilars, however, failed in this regard. Also, the Court notes from the duly 
notarized Compromise Agreement between the spouses Pfleider and PNB dated December 
30, 1999 that the accounts of the former to the latter were crop loans and, thus, covered by 
RA 7202, unlike the accounts of the Aguilars which included non-RA 7202 accounts, as 
mentioned in the narration of facts. Since the Aguilars were delinquent in their accounts, 
including their non-RA 7202 accounts, and the mortgaged properties of the Aguilars 
similarly secured the non-RA 7202 accounts, PNB had no option but to foreclose the 
mortgage. 
 
2. Reyes v. BANCOM Dev’t. Corp., G.R. No. 190286, Jan. 11, 2018; 
 
Petitioner: ​RAMON E. REYES and CLARA R. PASTOR​||| 
Respondent: Bancom Development Corp 
 
DOCTRINE: 
The  clear  terms  of  agreements  cannot be negated and deemed non-binding simply on the 
basis of a self-serving testimony of one of the guarantors of the loan. 
  
FACTS: 
The  dispute  in  this  case  originated  from  a  Continuing  Guaranty  executed  in  favor  of 
respondent Bancom by Angel E. Reyes, Sr., Florencio 
  
Reyes,  Jr.,  Rosario  R.  Du,  Olivia  Arevalo,  and  the  two  petitioners  herein,  Ramon  E.  Reyes  and 
Clara  R.  Pastor  (the  Reyes  Group),  agreed  to  guarantee  the  full  and  due  payment  of 
obligations  incurred  by  Marbella  under  an  Underwriting  Agreement  with  Bancom.  These 
obligations included certain Promissory Notes issued by Marbella in favor of Bancom. 
  
Marbella  was  unable  to  pay  back  the  notes  at  the  time  of  their  maturity.  After  issuing  four 
sets  of  replacement  Promissory  Notes  and  defaulting  on  the  payment  each  time,  Bancom 
filed  a  Complaint  for  Sum  of  Money  with  a  prayer  for  damages  against  (a)  Marbella  as 
principal  debtor;  and  (b)  the  individuals  comprising  the  Reyes  Group  as  guarantors  of  the 
loan. 
  
Marbella  and  the  Reyes Group argued that they had been forced to execute the documents 
against  their  will  and  that  the  documents  should  be  interpreted  in  relation  to  the  earlier 
Marbella  II  contracts  entered  into  by  Bancom;  that  the Promissory Notes were not meant to 
be  binding,  given  that the funds released to Marbella by Bancom were not loans, but merely 
additional  financing.  Also,  they  pointed  out  that  the  Certificate  of  Registration  issued  to 
Bancom  had  been  revoked  by  the  SEC,  and  that no trustee or receiver had been appointed 
to continue the suit. 
  
The  RTC  held  Marbella  and  the  Reyes  Group  solidarily  liable  to  Bancom.  The  CA denied the 
appeal. The CA denied the Motion for Reconsideration. 
  
ISSUE: 
1.  Whether  or  not  the present suit should be deemed abated by the revocation by the SEC of 
the Certificate of Registration issued to Bancom. -NO 
  
2. Whether or not the petitioners are liable to Bancom. -YES 
  
 RULING: 
The  revocation  of  Bancom's  Certificate  of  Registration  does  not  justify  the  abatement  of 
these proceedings. 
  
Section  12235  of  the  Corporation  Code  provides  that  a  corporation  whose  charter  is 
annulled,  or  whose  corporate  existence  is  otherwise  terminated,  may  continue  as  a  body 
corporate  for  a  limited  period  of  three  years,  but  only  for  certain  specific  purposes 
enumerated  by  law.  These  include  the  prosecution  and  defense  of  suits  by  or  against  the 
corporation, and other objectives relating to the settlement and closure of corporate affairs. 
  
Based  on  the  provision,  a defunct corporation loses the right to sue and be sued in its name 
upon  the  expiration  of  the  three-year  period  provided  by  law.  Jurisprudence,  however,  has 
carved  out  an  exception  to this rule. In several cases, this Court has ruled that an appointed 
receiver,  an  assignee,  or  a  trustee  may institute suits or continue pending actions on behalf 
of the corporation, even after the winding-up period. 
  
A  receiver  or  an  assignee  need  not  even  be  appointed  for  the  purpose  of  bringing  suits  or 
continuing those that are pending. 
  
Since  its  directors are considered trustees by legal implication, the fact that Bancom did not 
convey  its  assets  to  a  receiver  or  assignee  was  of  no  consequence.  It  must  also  be 
emphasized  that  the  dissolution  of  a  creditor-corporation  does  not  extinguish  any  right  or 
remedy in its favor. 
  
Sec.  145.  Amendment  or  repeal.  -  No  right  or  remedy  in  favor of or against any corporation, 
its  stockholders,  members,  directors,  trustees,  or  officers,  nor  any  liability  incurred  by  any 
such  corporation,  stockholders, members, directors, trustees, or officers, shall be removed or 
impaired  either  by  the  subsequent  dissolution  of  said  corporation  or  by  any  subsequent 
amendment or repeal of this Code or of any part thereof. 
  
As guarantors of the loans of Marbella, petitioners are liable to Bancom. 
  
The  obligations  of  Marbella  and  the  Reyes  Group  under  the  Promissory  Notes  and  the 
Continuing  Guaranty,  respectively,  are  plain  and  unqualified.  Under  the  notes,  Marbella 
promised  to  pay  Bancom  the  amounts  stated  on  the  maturity  dates  indicated.  The  Reyes 
Group,  on  the  other  hand,  agreed  to  become  liable  if  any  of  Marbella's  guaranteed 
obligations  were  not  duly  paid  on  the  due  date.  There  is  absolutely  no  support  for  the 
assertion  that  these  agreements  were  not  meant  to  be  binding.  The  clear  terms  of  these 
agreements  cannot  be  negated  and  deemed  non-binding  simply  on  the  basis  of  the 
self-serving testimony of Angel Reyes, one of the guarantors of the loan. 
 
3. Abrogar v. Cosmos Bottling Corp. G.R. 164749, Mar. 15, 2017; 
 
Petitioner: ROMULO ABROGAR and ERLINDA ABROGAR 
Respondent: ​COSMOS BOTTLING COMPANY and INTERGAMES, INC.​|||  
 
DOCTRINE:  
Negligence is the failure to observe for the protection of the interests of another person that 
degree of care, precaution, and vigilance which the circumstances justly demand, whereby 
such other person suffers injury. To prove negligence, the following must be established: 
(1) Damages to the plaintiff. 
(2)  Negligence  by  act  or  omission  of  which  defendant  personally  or  some  person 
for whose acts it must respond, was guilty. 
(3) The connection of cause and effect between the negligence and the damage.  
 
FACTS:  
This  case  involves  a  claim  for  damages arising from the negligence causing the death of 
a  participant  in  an  organized  marathon  bumped  by  a passenger jeepney on the route of 
the race.  
  
To promote the sales of "Pop Cola", defendant Cosmos, jointly with Intergames, organized an 
endurance running contest billed as the "1st Pop Cola Junior Marathon" scheduled to be held 
on  June  15,  1980.  The  organizers  plotted  a  10-kilometer  course starting from the premises of 
the  Interim Batasang Pambansa (IBP for brevity), through public roads and streets, to end at 
the  Quezon  Memorial  Circle.  Plaintiffs'  son  Rommel  applied  with  the  defendants  to  be 
allowed  to  participate in the contest and after complying with defendants' requirements, his 
application was accepted and he was given an official number.  
 
Consequently,  at  the  designated  time  of  the  marathon,  Rommel  joined  the  other 
participants  and  ran  the  course  plotted  by  the  defendants.  As  it  turned  out,  the  plaintiffs' 
further  alleged,  the  defendants  failed  to  provide  adequate  safety  and  precautionary 
measures  and  to  exercise  the  diligence  required of them by the nature of their undertaking, 
in  that  they  failed  to  insulate  and  protect  the  participants  of  the  marathon  from  the 
vehicular  and  other  dangers  along the marathon route. Rommel was bumped by a jeepney 
that  was  then  running  along  the  route  of  the  marathon  on  Don  Mariano  Marcos  Avenue 
(DMMA),  and  in  spite  of  medical  treatment  given  to  him  at  the  Ospital  ng Bagong Lipunan, 
he died later that same day due to severe head injuries.  
 
The  petitioners  sued  the  respondents  in  the  then  Court  of  First  Instance  of  Rizal  (Quezon 
City)  to  recover  various  damages  for  the  untimely  death  of  Rommel  (i.e.,  actual  and 
compensatory  damages,  loss  of  earning  capacity,  moral  damages,  exemplary  damages, 
attorney's fees and expenses of litigation). 
 
Intergames  asserted  that  Rommel's  death  had  been  an accident exclusively caused by the 
negligence  of  the  jeepney  driver;  that  it  was  not  responsible  for  the  accident;  that  as  the 
marathon  organizer,  it  did  not  assume  the  responsibilities  of  an  insurer  of  the  safety  of the 
participants;  that  it  nevertheless  caused  the  participants  to  be  covered  with  accident 
insurance,  but  the  petitioners  refused  to  accept  the proceeds thereof; 11 that there could be 
no  cause  of  action  against  it  because  the  acceptance  and  approval  of  Rommel's 
application  to  join  the  marathon  had  been  conditioned  on  his  waiver  of  all  rights  and 
causes  of  action  arising  from  his  participation  in  the  marathon;  that  it  exercised  due 
diligence  in  the  conduct  of  the race that the circumstances called for and was appropriate, 
it  having  availed  of  all  its  know-how  and  expertise,  including  the  adoption  and 
implementation  of  all  known  and  possible  safety  and  precautionary  measures  in  order  to 
protect  the  participants  from  injuries arising from vehicular and other forms of accidents; 13 
and, accordingly, the complaint should be dismissed. 
  
ISSUE: 
Whether  or  not  appellant  Intergames  were  negligent  in  its  conduct  of  the  1st  Pop  Cola 
Junior Marathon 
 
If so, whether its negligence was the proximate cause of the death of Rommel Abrogar. 
 
 Whether the doctrine of Assumption of Risk applied in the case 
  
RULING:  
Yes. 
 
The  issues  revolve  on  whether  the  organizer  and the sponsor of the marathon were guilty 
of  negligence,  and,  if  so,  was  their  negligence  the  proximate  cause  of  the  death  of  the 
participant;  on  whether  the  negligence  of  the  driver  of  the  passenger  jeepney  was  an 
efficient  intervening  cause;  on  whether  the  doctrine  of  assumption of risk was applicable 
to  the  fatality;  and  on  whether  the  heirs  of  the  fatality  can  recover  damages  for  loss  of 
earning capacity of the latter who, being then a minor, had no gainful employment. 
 
Negligence  is  the  failure  to  observe  for  the  protection  of  the  interests  of  another  person 
that  degree  of  care,  precaution,  and  vigilance  which  the  circumstances  justly  demand, 
whereby  such  other  person  suffers  injury.  Under  Article  1173 of the Civil Code, it consists of 
the  "omission  of  that  diligence  which  is  required  by  the  nature  of  the  obligation  and 
corresponds  with  the  circumstances  of  the  person,  of  the  time  and of the place. The Civil 
Code makes liability for negligence clear under Article 2176, and Article 20. 
 
The  plaintiff  in  an  action  for  negligence  as  a  source  of  obligation  such  as  that 
under  consideration,  in  order  to  establish  his  right  to  a  recovery,  must  establish 
by competent evidence: 
1. Damages to the plaintiff. 
2. Negligence  by  act  or  omission  of  which  defendant  personally 
or some person for whose acts it must respond, was guilty. 
3. The  connection  of  cause  and  effect  between  the  negligence 
and the damage.  
  
In  order  that  a  person  may  be  held  guilty for damage through negligence, it is necessary 
that  there  be  an  act  or  omission  on  the  part  of  the  person  who  is to be charged with the 
liability  and  that  damage  is  produced  by  the  said  act  or  omission.  We  hold  that  the 
negligence  of  Intergames  was  the proximate cause despite the intervening negligence of 
the jeepney driver. 
 
ISSUE ON PROXIMATE CAUSE: 
Proximate cause is "that which, in natural and continuous sequence, unbroken by any 
new cause, produces an event, and without which the event would not have occurred." 
 
To be considered the proximate cause of the injury, the negligence need not be the event 
closest in time to the injury; a cause is still proximate, although farther in time in relation 
to the injury, if the happening of it set other foreseeable events into motion resulting 
ultimately in the damage. 

The  negligence  of  Intergames  was  the  proximate  cause  of  the  death  of  Rommel;  and  that 
the negligence of the jeepney driver was not an efficient intervening cause. 

First  of  all,  Intergames'  negligence  in  not  conducting  the  race  in  a  road  blocked  off  from 
vehicular  traffic,  and  in  not  properly  coordinating  the  volunteer  personnel  manning  the 
marathon  route  effectively  set  the  stage  for  the  injury  complained  of.  The  submission  that 
Intergames  had  previously  conducted  numerous  safe  races  did  not  persuasively 
demonstrate  that  it  had  exercised  due  diligence  because,  as  the  trial  court  pointedly 
observed,  "they  were  only  lucky  that  no  accident  occurred  during  the  previous  marathon 
races but still the danger was there." 
 Secondly,  injury  to  the  participants  arising  from  an  unfortunate  vehicular  accident  on  the 
route  was  an  event  known  to  and  foreseeable  by  Intergames,  which  could  then have been 
avoided  if  only  Intergames  had  acted  with  due  diligence  by  undertaking  the  race  on  a 
blocked-off  road,  and  if  only  Intergames  had  enforced  and  adopted  more  efficient 
supervision of the race through its volunteers. 

And,  thirdly,  the  negligence  of  the  jeepney  driver,  albeit  an  intervening  cause,  was  not 
efficient  enough  to  break  the  chain  of  connection  between  the  negligence  of  Intergames 
and the injurious consequence suffered by Rommel. An ​intervening cause​, to be considered 
efficient,  must  be  ​"one  not  produced  by  a  wrongful  act  or  omission,  but  independent  of  it, 
and  adequate  to  bring  the  injurious  results.  Any  cause  intervening  between  the  first 
wrongful  cause  and  the  final  injury  which  might  reasonably  have  been  foreseen  or 
anticipated  by  the  original  wrongdoer  is  not  such  an  efficient  intervening  cause  as  will 
relieve the original wrong of its character as the proximate cause of the final injury." 

DOCTRINE OF ASSUMPTION OF RISK DID NOT APPLY IN THIS CASE 

With  respect  to  voluntary  participation  in  a  sport,  the  doctrine of assumption of risk applies 

to  any  facet  of  the  activity inherent in it and to any open and obvious condition of the place 
where  it  is carried on. We believe that the waiver included vehicular accidents for the simple 
reason  that  it  was  a  road  race  run  on  public  roads  used  by  vehicles.  Thus,  it  cannot  be 
denied that vehicular accidents are involved. It was not a track race which is held on an oval 
and  insulated  from  vehicular  traffic.  In  a  road  race,  there is always the risk of runners being 
hit by motor vehicles while they train or compete. That risk is inherent in the sport and known 
to runners. It is a risk they assume every time they voluntarily engage in their sport. 

Furthermore,  where  a  person  voluntarily  participates  in  a  lawful  game  or  contest,  he 
assumes  the  ordinary  risks  of  such  game  or  contest  so  as  to  preclude  recovery  from  the 
promoter  or  operator  of  the  game  or  contest  for  injury  or  death  resulting  therefrom. 
Proprietors  of  amusements  or  of  places  where  sports  and  games  are  played  are  not 
insurers of safety of the public nor of their patrons. 

In  this  case,  Rommel  could  not  have  appreciated  the  risk  of  being  fatally  struck  by  any 
moving  vehicle  while  running  the  race.  Instead,  he  had  every  reason  to  believe  that  the 
organizer  had  taken  adequate  measures  to guard all participants against any danger from 
the  fact  that  he  was  participating  in  an  organized  marathon.  Stated  differently,  nobody  in 
his  right  mind, including minors like him, would have joined the marathon if he had known of 
or  appreciated  the  risk  of  harm  or  even  death  from  vehicular  accident  while running in the 
organized  running  event.  Without  question,  a  marathon  route  safe  and  free  from 
foreseeable  risks  was  the  reasonable  expectation  of  every  runner  participating  in  an 
organized running event. 

Neither  was  the  waiver  by  Rommel,  then  a  minor,  an  effective  form  of  express  or  implied 
consent  in the context of the doctrine of assumption of risk. There is ample authority, cited in 
Prosser,to  the  effect  that  a  person  does  not  comprehend  the  risk  involved  in  a  known 
situation  because  of  his  youth,  ​or  lack  of  information  or  experience,  ​and  thus  will  not  be 
taken to consent to assume the risk. 

  
4. Pilipinas Petroleum v. Duque, G.R. 216467, Feb. 15, 2017; 
 
Petitioner: ​PILIPINAS SHELL PETROLEUM CORPORATION 
Respondent: ​CARLOS DUQUE & TERESA DUQUE​|| 
 
DOCTRINE: 
 The civil liability of the corporate officer for the issuance of a bouncing corporate check 
attaches only if he is convicted. Conversely, therefore, it will follow that once acquitted of the 
offense of violating ​BP 22​, a corporate officer is discharged from any civil liability arising 
from the issuance of the worthless check in the name of the corporation he represents. This 
is without regard as to whether his acquittal was based on reasonable doubt or that there 
was a pronouncement by the trial court that the act or omission from which the civil liability 
might arise did not exist. 
 
FACTS: 
The  instant  petition  arose  from  an  Information  for  violation  of  Batas Pambansa Big. 22 (BP 
22) filed with the Metropolitan Trial Court (MeTC) of Makati City against herein respondents. 
  
Pilipinas  Shell  Petroleum  Corporation  (PSPC)  is  a  lessee of a building known as Shell House 
at  156  Valero  Street,  Salcedo  Village,  Makati  City.  On  August  23,  2000,  PSPC  subleased  a 
500-meter  portion  of  the  2nd  Floor  of  the  Shell  Building  to  the  The  Fitness  Center  (TFC). 
Thereafter,  TFC  encountered  problems  in  its  business operations. Thus, with the conformity 
of  PSPC,  TFC  assigned  to  Fitness  Consultants,  Inc,  (FCI)  all  its  rights  and  obligations  under 
the contract of sublease executed by PSPC in its favor. 
  
Respondent  Carlos  Duque  is  the  proprietor,  while  respondent  Teresa  Duque  is  the 
corporate  secretary  of  FCI.  Subsequently,  FCI  failed  to  pay  its  rentals  to  PSPC.  FCI 
subsequently  issued  a  check,  with  respondents  as  signatories,  which  would  supposedly 
cover  FCI's  obligations  to  PSPC.  However,  the  check  was  dishonored,  thus,  leading  to  the 
filing of a criminal complaint against respondents for their alleged violation of BP 22. 
  
The  parties  then  went  to  trial,  which  subsequently  resulted  in  a  verdict  finding  herein 
respondents  guilty  as  charged.  A  Fine  and  civil  indemnity  to  the  private  complainant was 
imposed.  Respondents  appealed  the  MeTC  Decision  with  the  RTC  of  Makati.  On  March  16, 
2011,  the  RTC  of  Makati  City,  Branch  143,  rendered  judgment  acquitting  respondents. 
However the Court maintains the civil liability to be indemnified to the complainant. 
  
Respondents  filed  a  Motion  for  Partial Reconsideration of the RTC Decision contending that 
they  could  not  be  held  civilly  liable  because  their  acquittal  was  due  to  the  failure  of  the 
prosecution  to  establish  the  elements  of  the  offense  charged.  In  addition, they assert that 
they,  being  corporate  officers,  may  not  be  held personally and civilly liable for the debts of 
the  corporation  they  represent,  considering  that  they  had  been  acquitted  of  criminal 
liability. 
  
In  an  Order  dated  September  2,  2011,  the  RTC found merit in respondents' Motion for Partial 
Reconsideration. 
  
On  March  23,  2012,  the  RTC  issued  an  Order  granting  PSPC's  motion  for  reconsideration, 
thus,  reviving  the  RTC  Decision of March 16, 2011. Respondents filed a petition for review with 
the  CA.  The  CA  basically  held  that,  upon  acquittal,  the civil liability of a corporate officer in 
a  BP  22  case  is  extinguished  with the criminal liability, without prejudice to an independent 
civil  action  which  may  be  pursued  against  the  corporation.  Petitioner  filed  a  motion  for 
reconsideration, but the CA denied it in its Resolution dated January 14, 2015. 
 
ISSUE: 
Whether or not the respondents, as corporate officers, may still be held civilly liable despite 
their acquittal from the criminal charge of violation of BP 22. 
 
RULING: 
No. The Court rules in the negative. 
  
 In the case of Gosiaco v. Ching, this Court enunciated the rule that a corporate officer who 
issues  a  bouncing  corporate  check  can  only  be  held  civilly  liable  when  he  is  convicted. 
When  a  corporate  officer  issues a worthless check in the corporate name he may be held 
personally  liable  for  violating  a  penal  statute.  The  statute  imposes  criminal  penalties  on 
anyone  who  with  intent  to defraud another of money or property, draws or issues a check 
on  any  bank  with  knowledge  that  he  has  no  sufficient  funds  in  such  bank  to  meet  the 
check  on  presentment.  Moreover,  the  personal  liability  of  the  corporate  officer  is 
predicated  on  the  principle  that  he  cannot  shield  himself  from  liability  from  his own acts 
on the ground that it was a corporate act and not his personal act. 
  
It  is  clear  that  the  civil  liability  of  the  corporate  officer  for  the  issuance  of  a  bouncing 
corporate  check  attaches  only  if  he  is  convicted.  Conversely,  therefore,  it  will  follow  that 
once  acquitted  of  the  offense  of  violating  BP  22;  a  corporate  officer  is  discharged  from 
any  civil  liability  arising  from  the  issuance  of  the  worthless  check  in  the  name  of  the 
corporation  he represents. This is without regard as to whether his acquittal was based on 
reasonable  doubt  or  that  there  was  a  pronouncement  by  the  trial  court  that  the  act  or 
omission from which the civil liability might arise did not exist. 
  
Moreover,  in  the  present  case,  nothing  in  the  records  at  hand  would  show  that 
respondents  made  themselves  personally  nor  solidarily  liable  for  corporate  obligations 
either  as  accommodation  parties  or  sureties.  On  the  contrary,  there  is  no  dispute  that 
respondents  signed  the  subject  check  in their capacity as corporate officers and that the 
check  was  drawn  in the name of FCI as payment for the obligation of the corporation and 
not  for  the  personal  indebtedness  of  respondents.  Neither  is  there  allegation  nor  proof 
that the veil of corporate fiction is being used by respondents for fraudulent purposes. The 
rule  is  that  juridical  entities  have  personalities  separate  and  distinct  from  its officers and 
the  persons  composing  it.  Generally,  the  stockholders  and  officers  are  not  personally 
liable for the obligations of the corporation except only when the veil of corporate fiction is 
being  used  as  a  cloak  or  cover  for  fraud  or  illegality,  or  to  work  injustice,  which is not the 
case  here.  Hence,  respondents  cannot  be  held  liable  for the value of the checks issued in 
payment for FCI's obligation. 
 
 
 
5. CCBPI v. Menez, G.R. 209906, Nov. 22, 2017; 
 
DOCTRINE: 
Moral damages may be awarded under the enumeration in Art. 2219 which is exclusive and 
Art. 2220 of the Civil Code. Exemplary or corrective damages may be awarded in 
quasi-delicts if the defendant acted with gross negligence pursuant to Art. 2231. There must 
be a basis for the award of attorney’s fees. 
 
 
FACTS:  
 
Ernani Menez was a frequent customer of Rosante Bar and Restaurant. On Mar. 28, 1995, 
Menez went to Rosante and ordered 2 bottles of beer. Thereafter, he ordered pizza and a 
bottle of Sprite. His additional order arrived consisting of one whole pizza and a bottled 
softdrink Sprite. However, he noticed that the taste of the Sprite was of a different substance 
repulsive to the taste. The substance smelled of kerosene. He then felt a burning sensation in 
his throat and stomach and could not control the urge to vomit. He brought the bottle to the 
waitresses and angrily told them that he was served kerosene. He reported the incident and 
went to the Siliman University Medical Center. Later Menez came to know that a 
representative from Rosante came to the hospital and informed the hospital staff that 
Rosante would take care of the hospital and medical bills. The incident was reported to the 
 police and the bottle of Sprite was examined by a chemist who identified the contents as 
pure kerosene. Menez filed a complaint for damages against CCBPI and Rosante. The RTC 
dismissed the complaint for insufficiency of evidence because the chain of custody for the 
Sprite bottle was not established. CA granted the appeal and reversed the decision. 
 
 
ISSUE:  
Whether or not CCBPI is liable for damages. 
 
RULING:  
No, CCBPI is not liable for damages. The cases when moral damages may be awarded are 
specific. Unless the case falls under the enumeration in Art. 2219, which is exclusive, and Art. 
2220 of the Civil Code, moral damages may not be awarded. The only ground that could 
sustain an award of moral damages would be Art. 2219(2) – quasi-delict under Art. 2187 
causing physical injuries. Unfortunately Menez has not presented competent, credible, and 
preponderant evidence to prove that he suffered physical injuries when he allegedly 
ingested kerosene from the Sprite bottle. 
 
As to exemplary or corrective damages, they may be granted in quasi-delicts if the 
defendant acted with gross negligence. Evidently, the CA’s reasoning is not in accord with t 
he gross negligence requirement for an award of exemplary damages in a quasi-delict 
case. Menez has failed to establish that CCBPI acted with gross negligence other than the 
opened Sprite bottle. 
 
Regarding attorney’s fees, the CA did not provide any basis for the award. The award is 
found only in the dispositive portion and there was no explanation provided in the body of 
the decision. 
 
 
 
(Reyes, Juan) 
6. San Francisco Inn v. San Pablo City Water District, G.R. No. 204639, February 15, 2017; 
7. Dy v. People, G.R. 189081, Aug 10, 2016​; 
 
DOCTRINE​:: ​Our law states that every person criminally liable for a felony is also civilly liable. This 
civil liability ​ex delicto​ may be recovered through a civil action which, under our Rules of 
Court, is deemed instituted with the criminal action. While they are actions mandatorily 
fused,​1​ they are, in truth, separate actions whose existences are not dependent on each 
other. 
 
FACTS: 
Petitioner  was  the  former  General  Manager  of  MCCL.  In  the  course  of  her  employment, 
petitioner  assisted  MCCI  and  its  president,  William  Mandy,  in  the  purchase  of  a  property 
owned  by Pantranco. As the transaction involved a large amount of money, Mandy agreed to 
obtain  a  loan  from  the  International China Bank of Commerce (ICBC). Petitioner represented 
that  she  could  facilitate  the  approval  of  the  loan.  The  loan  to  MCCI  was  granted  in  the 
amount  of  P20,000,000.00,  evidenced  by  a  promissory  note.  As  security, MCCI also executed 
a  chattel  mortgage  over  the  warehouses  in  the  Numancia  Property.  Mandy  entrusted 
petitioner with the obligation to manage the payment of the loan. 
 
ICBC  later  foreclosed  the  mortgaged  property  as  MCCI  continued  to  default in its obligation 
to  pay. Mandy claims that it was only at this point in time that he discovered that not a check 
was  paid  by  petitioner  to  ICBC  as  per  Mandy’s  instructions.  Thus,  on  October  7,  2002,  MCCI, 
represented  by  Mandy,  filed  a  Compiamt-Affidavit  for  ​Estafa​10  before  the  Office  of  the  City 
Prosecutor of Manila. 
  
RTC  Manila  acquitted  the  petitioner  finding  that  the  prosecution  failed  to  establish  that  she 
was  under  any  obligation  to  deliver  them  to  ICBC  in  payment  of  MCCFs  loan.  The  trial court 
further  made a finding that Mandy and petitioner entered into a contract of loan. Thus, it held 
that  the  prosecution  failed  to  establish  an  important  element  of  the  crime  of 
estafa—
​ misappropriation  or  conversion.  However,  while  the  RTC  Manila  acquitted  the 
petitioner,  it  ordered  her  to  pay  the  amount  of  the  checks.  Petitioner  filed  an  appeal​15  of the 
civil  aspect  of  the  RTC  Decision  with  the  CA.  In  the  Assailed  Decision,​16  the  CA  found  the 
appeal  without  merit.  It  held  that  the  acquittal of petitioner does not necessarily absolve her 
of civil liability. 
 
ISSUE: 
Whether or not the lower court erred in finding civil liability in a criminal case for ​estafa when 
the  accused  is  acquitted  for failure of the prosecution to prove all the elements of the crime 
charged? 
 
​ RULING: 
Yes. 
 
In ​estafa​, a person parts with his money because of abuse of confidence or deceit. In a 
contract, a person willingly binds himself or herself to give something or to render some 
service.​50​ In ​estafa,​ the accused's failure to account for the property received amounts to 
criminal fraud. In a contract, a party's failure to comply with his obligation is only a 
contractual breach. Thus, any finding that the source of obligation is a contract negates 
estafa.​ The finding, in turn, means that there is no civil liability ​ex delicto.​ Thus, the rulings in 
the foregoing cases are consistent with the concept of fused civil and criminal actions, and 
the different sources of obligations under our laws. 
 
We apply this doctrine to the facts of this case. Petitioner was acquitted by the RTC Manila 
because of the absence of the element of misappropriation or conversion. The RTC Manila, 
as affirmed by the CA, found that Mandy delivered the checks to petitioner pursuant to a 
loan agreement. Clearly, there is no crime of ​estafa.​ There is no proof of the presence of any 
act or omission constituting criminal fraud. Thus, civil liability ​ex delicto​ cannot be awarded 
because there is no act or omission punished by law which can serve as the source of 
obligation. Any civil liability arising from the loan takes the nature of a civil liability ​ex 
contractu.​ It does not pertain to the civil action deemed instituted with the criminal case. 
 
Petiition is granted. Order of CA is reversed. 
 

 
8. Locsin II v. Mekeni, G.R. 192105, Dec. 9, 2013; 
DOCTRINE: 
There is unjust enrichment “when a person unjustly retains a benefit to the loss of another, or 
when a person retains money or property of another against the fundamental principles of 
justice, equity and good conscience.” The principle of unjust enrichment requires two 
conditions: (1) that a person is benefited without a valid basis or justification, and (2) that 
such benefit is derived at the expense of another. 
 
The main objective of the principle against unjust enrichment is to prevent one from 
enriching himself at the expense of another without just cause or consideration. 
 
FACTS: 
In February 2004, respondent Mekeni Food Corporation (Mekeni) – a Philippine company 
engaged in food manufacturing and meat processing – offered petitioner Antonio Locsin II 
 the position of Regional Sales Manager to oversee Mekeni’s National Capital Region 
Supermarket/Food Service and South Luzon operations. In addition to a compensation and 
benefit package, Mekeni offered petitioner a car plan, under which one-half of the cost of the 
vehicle is to be paid by the company and the other half to be deducted from petitioner’s 
salary. 
 
Petitioner began his stint as Mekeni Regional Sales Manager on March 17, 2004. To be able to 
effectively cover his appointed sales territory, Mekeni furnished petitioner with a used Honda 
Civic car valued at P280,000.00, which used to be the service vehicle of petitioner’s 
immediate supervisor. Petitioner paid for his 50% share through salary deductions of 
P5,000.00 each month. 
 
Subsequently, Locsin resigned effective February 25, 2006. By then, a total of P112,500.00 had 
been deducted from his monthly salary and applied as part of the employee’s share in the 
car plan. Mekeni supposedly put in an equivalent amount as its share under the car plan. In 
his resignation letter, the petitioner made an offer to purchase his service vehicle by paying 
the outstanding balance thereon. Mekeni replied that the company car plan benefit applied 
only to employees who have rendered service for five years. Therefore, the balance that he 
should pay is valued at P116,380 if he opts to purchase the same, 

ISSUE: 
Whether or not Locsin has a right to recover his payments to the car plan 
 
RULING: 
Yes. 
 
It ​is unfair to deny petitioner a refund of all his contributions to the car plan. Under Article 22 
of the Civil Code, “[e]very person who through an act of performance by another, or any 
other means, acquires or comes into possession of something at the expense of the latter 
without just or legal ground, shall return the same to him.” Article 2142​27​ of the same Code 
likewise clarifies that there are certain lawful, voluntary and unilateral acts which give rise to 
the juridical relation of quasi-contract, to the end that no one shall be unjustly enriched or 
benefited at the expense of another. In the absence of specific terms and conditions 
governing the car plan arrangement between the petitioner and Mekeni, a quasi-contractual 
relation was created between them. Consequently, Mekeni may not enrich itself by charging 
petitioner for the use of its vehicle which is otherwise absolutely necessary to the full and 
effective promotion of its business. It may not, under the claim that petitioner’s payments 
constitute rents for the use of the company vehicle, refuse to refund what petitioner had paid, 
for the reasons that the car plan did not carry such a condition; the subject vehicle is an old 
car that is substantially, if not fully, depreciated; the car plan arrangement benefited Mekeni 
for the most part; and any personal benefit obtained by petitioner from using the vehicle was 
merely incidental. 
 
 
9. De Llana v. Biong, G.R. 182356, Dec. 4, 2013; 
DOCTRINE: 
In civil cases, a party who alleges a fact has the burden of proving it. He who alleges has the 
burden of proving his allegation by preponderance of evidence or greater weight of credible 
evidence.The reason for this rule is that bare allegations, unsubstantiated by evidence, are 
not equivalent to proof.In short, mere allegations are not evidence. 
 
FACTS:  
Dra  De La Llana was seated at the front passenger seat while she and her brother, Juan De La 
Llana  were  driving  along  North  Ave.  Quezon  City.  They  later  met  an  accident  wherein  the 
traffic  investigation  report  dated  March  30,  2000  identified  the  other  vehicle  to  be  driven by 
 Joel  Primero.  It  stated  that  Joel  was  recklessly  imprudent  in  driving  the  truck.  ​Joel  later 
revealed  that  his  employer  was  respondent  Rebecca  Biong,  doing business under the name 
and style of "Pongkay Trading" and was engaged in a gravel and sand business. 
 
In  the  first  week  of  May 2000, Dra. dela Llana began to feel mild to moderate pain on the left 
side  of  her  neck  and  shoulder. The pain became more intense as days passed by. Her injury 
became  more  severe.  Her  health  deteriorated  to  the  extent  that  she  could  no longer move 
her  left  arm.  It  was  later  suggested  by  several  doctors  that  she  is  required  to  undergo  a 
cervical  spine  surgery  to  release  the  compression  of  her  nerve.  The  operation  released the 
impingement  of  the  nerve,  but  incapacitated  Dra.  dela  Llana  from  the  practice  of  her 
profession  since  June  2000  despite  the  surgery.  Dra.  dela  Llana,  on  October  16,  2000, 
demanded from Rebecca compensation for her injuries, but Rebecca refused to pay. 
 
ISSUE: 
Whether or not Joel’s reckless driving is the proximate cause of Dra. dela Llana’s whiplash 
injury. 
 
RULING: 
No. 
 
Dra.  dela  Llana  failed  to  establish  her  case  by  preponderance  of  evidence.  ​Dra.  dela  Llana 
must  first  establish  by  preponderance  of  evidence  the three elements of quasi-delict before 
we  determine  Rebecca’s  liability  as  Joel’s  employer,  namely, (1) damages to the plaintiff; (2) 
negligence,  by  act  or  omission,  of  the  defendant  or  by  some  person  for  whose  acts  the 
defendant  must  respond,  was  guilty;  and  (3)  the  connection  of  cause  and  effect  between 
such negligence and the damages. 
 
She  should  show  the  chain  of  causation  between  Joel’s  reckless  driving  and  her  whiplash 
injury.  Only  after  she  has  laid  this  foundation  can  the  presumption  -  that  Rebecca  did  not 
exercise  the  diligence  of  a  good  father  of  a  family  in  the  selection  and  supervision  of  Joel - 
arise.Once  negligence, the damages and the proximate causation are established, this Court 
can  then  proceed  with  the  application  and the interpretation of the fifth paragraph of Article 
2180  of  the  Civil  Code.Under  Article  2176  of  the  Civil  Code,  in relation with the fifth paragraph 
of  Article  2180,  "an  action  predicated  on  an  employee’s  act  or  omission  may  be  instituted 
against  the  employerwho  is  held  liable  for  the  negligent  act  or  omission  committed  by  his 
employee."The  rationale  for  these  graduated  levels  of  analyses  is  that  it  is  essentially  the 
wrongful  or  negligent  act  or  omission  itself  which  creates  the  ​vinculum  juris  in 
extra-contractual obligations. 
 
In  the  present  case,  the  burden  of  proving  the  proximate  causation  between  Joel’s 
negligence  and  Dra.  dela  Llana’s whiplash injury rests on Dra. dela Llana. She must establish 
by  preponderance  of  evidence  that  Joel’s  negligence,  in  its  natural  and  continuous 
sequence,  unbroken  by  any  efficient  intervening  cause,  produced  her  whiplash  injury,  and 
without which her whiplash injury would not have occurred. 

10. Makati Stock Exchange v. Campos, G.R. 138814, Apr. 16, 2009; 
 
(Balasolla, Jasmin) 
11. Asuncion v. CA, G.R. 109125, Dec. 2, 1994; 
 
Petitioner: ANG YU ASUNCION, ARTHUR GO AND KEH TIONG 
Respondent: THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION 
 
DOCTRINE: A contract undergoes various stages that include its negotiation or preparation, its 
perfection and, finally, its consummation. 
 
FACTS: 
● A  Second  Amended  Complaint  for  Specific  Performance  was  filed  by  Ang  Yu Asuncion and 
Keh  Tiong,  et  al.,  against  Bobby  Cu  Unjieng,  Rose  Cu  Unjieng  and  Jose  Tan  before  the 
Regional Trial Court, Branch 31, Manila; alleging that-  
○ Plaintiffs  are  tenants  or  lessees  of  residential  and  commercial  spaces  owned  by 
defendants in Ongpin Street, Binondo, Manila 
○ They  have  occupied  said  spaces  since  1935  and  have  been  religiously  paying  the 
rental and complying with all the conditions of the lease contract. 
○ On  several  occasions  before  October  9,  1986,  defendants  informed  plaintiffs  that 
they  are  offering  to  sell  the  premises  and  are  giving  them  priority  to  acquire  the 
same 
○ During  the  negotiations,  Bobby  Cu  Unjieng  offered  a  price  of  P6-million  while 
plaintiffs made a counter offer of P5-million 
○ Plaintiffs  thereafter  asked  the  defendants  to  put  their  offer  in  writing  to  which 
request defendants acceded 
○ In  reply  to  defendant's  letter,  plaintiffs  wrote  them  on  October  24,  1986 asking that 
they specify the terms and conditions of the offer to sell 
○ When  plaintiffs did not receive any reply, they sent another letter dated January 28, 
1987 with the same request 
○ Since  defendants  failed  to  specify  the  terms  and  conditions of the offer to sell and 
because  of  information  received  that  defendants  were  about  to  sell  the  property, 
plaintiffs  were  compelled  to  file  the  complaint  to  compel  defendants  to  sell  the 
property to them. 
● Defendants  filed  their  answer  denying  the  material  allegations  of  the  complaint  and 
interposing a special defense of lack of cause of action. 
● The  trial  court  found  that  defendants'  offer  to  sell  was  never  accepted  by  the  plaintiffs  for 
the  reason  that  the  parties  did  not  agree  upon  the  terms  and  conditions  of  the  proposed 
sale, hence, there was no contract of sale at all.  
○ Nonetheless,  the  lower  court  ruled  that  should  the  defendants  subsequently  offer 
their  property  for  sale  at  a  price  of  P11-million  or  below, plaintiffs will have the right 
of first refusal. 
● In  CA-G.R.  CV  No.  21123,  the  appellate  court  affirmed  with  modification  the  lower  court's 
judgment. 
● The  decision  of  this  Court  was  brought  to  the  Supreme  Court  by  petition  for  review  on 
certiorari which denied the appeal "for insufficiency in form and substances" 
● While  CA-G.R.  CV  No.  21123  was pending consideration by this Court, the Cu Unjieng spouses 
executed  a  Deed  of  Sale  transferring  the  property  in  question  to  Buen  Realty  and 
Development Corporation. 
● Buen  Realty  as  the  new  owner  of  the  subject  property  wrote  a  letter  to  the  lessees 
demanding that the latter vacate the premises. 
● The  lessees  wrote a reply to petitioner stating that petitioner brought the property subject to 
the  notice  of  lis  pendens  regarding  the  previous  civil  case  annotated  on  TCT  No. 
105254/T-881 in the name of the Cu Unjiengs. 
● The  lessees  filed  a  Motion for Execution and the the defendants were ordered to execute the 
necessary  Deed  of  Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh 
Tiong  and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right 
of  first  refusal  and  that  a  new  Transfer  Certificate  of  Title  be  issued  in  favor  of  the  buyer.  A 
Writ of Execution was also issued accordingly. 
● The  appellate  court,  on  appeal  to  it  by  private  respondent,  set  aside  and  declared  without 
force and effect the above questioned order of the court a quo. 
● Petitioners  contend  that  Buen  Realty  can  be  held bound by the writ of execution by virtue of 
the  notice  of  lis  pendens,  carried  over  on  TCT  No.  195816  issued  in the name of Buen Realty, 
 at  the  time  of  the  latter's  purchase  of  the  property  on  15  November  1991  from  the  Cu 
Unjiengs. 
 
ISSUE: 
● WON  Buen  Realty  can  be  held  bound  by  the  writ  of  execution  by  virtue  of  the  notice  of  lis 
pendens,  carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the 
latter's purchase of the property on 15 November 1991 from the Cu Unjiengs. 
 
RULING: NO. 
● Fundamental Precepts Relevant to the Case 
○ An obligation is a juridical necessity to give, to do or not to do. 
○ The  obligation  is  constituted  upon  the  concurrence  of  the  essential  elements 
thereof, viz:  
■ The  vinculum  juris  or  juridical  tie  which  is  the  efficient  cause  established 
by  the  various  sources  of  obligations  (law,  contracts,  quasi-contracts, 
delicts and quasi-delicts);  
■ the  object  which  is  the  prestation  or conduct; required to be observed (to 
give, to do or not to do); and  
■ the  subject-persons  who,  viewed  from  the  demandability  of  the 
obligation, are the active (obligee) and the passive (obligor) subjects. 
○ Among  the  sources  of  an  obligation  is  a  contract  (Art.  1157,  Civil  Code),  which  is  a 
meeting  of  minds  between two persons whereby one binds himself, with respect to 
the other, to give something or to render some service (Art. 1305, Civil Code). 
■ A contract undergoes various stages: 
● Negotiation  covers  the  period  from  the  time  the  prospective 
contracting  parties  indicate  interest  in  the  contract  to  the  time 
the contract is concluded (perfected).  
● The  perfection  of  the contract takes place upon the concurrence 
of the essential elements thereof. 
○   A  contract  which  is  consensual  as  to  perfection  is  so 
established  upon  a  mere  meeting  of  minds,  i.e.,  the 
concurrence of offer and acceptance, on the object and 
on the cause thereof.  
○ A  contract  which  requires,  in  addition  to  the  above,  the 
delivery  of  the  object  of  the  agreement,  as  in  a  pledge 
or  commodatum,  is  commonly  referred  to  as  a  real 
contract.  
○ In  a  solemn  contract,  compliance  with  certain 
formalities  prescribed  by  law,  such  as  in  a  donation  of 
real  property,  is  essential  in  order to make the act valid, 
the  prescribed  form being thereby an essential element 
thereof.  
● The  stage  of  consummation  begins  when  the  parties  perform 
their  respective  undertakings  under  the  contract  culminating  in 
the extinguishment thereof. 
○ Until  the  contract  is  perfected,  it  cannot,  as  an  independent  source  of  obligation, 
serve as a binding juridical relation. 
■ In  sales,  particularly,  to  which  the  topic  for  discussion  about  the  case  at 
bench  belongs,  the  contract  is  perfected  when  a person, called the seller, 
obligates  himself,  for  a  price  certain,  to  deliver  and  to  transfer ownership 
of  a  thing  or  right  to  another,  called  the  buyer,  over  which  the  latter 
agrees. 
■ When  the  sale  is  not  absolute  but  conditional,  such  as  in  a  "Contract  to 
Sell"  where  invariably  the  ownership  of  the  thing  sold  is  retained  until  the 
fulfillment of a positive suspensive condition (normally, the full payment of 
 the purchase price), the breach of the condition will prevent the obligation 
to convey title from acquiring an obligatory force. 
○ An  accepted  unilateral  promise  which  specifies  the  thing  to  be  sold  and the price 
to  be  paid,  when coupled with a valuable consideration distinct and separate from 
the price, is what may properly be termed a perfected contract of option.  
■ This  contract  is  legally  binding,  and  in  sales,  it  conforms  with  the  second 
paragraph of Article 1479 of the Civil Code 
■ Observe,  however,  that  the  option  is  not  the  contract  of  sale  itself.  The 
optionee  has  the  right,  but  not  the  obligation,  to  buy.  Once  the  option  is 
exercised  timely,  i.e.,  the  offer is accepted before a breach of the option, a 
bilateral  promise  to  sell  and  to  buy  ensues  and  both  parties  are  then 
reciprocally bound to comply with their respective undertakings. 
○ In  the  law  on  sales,  the  so-called  "right  of  first  refusal"  is  an  innovative  juridical 
relation.  Needless  to  point  out,  it  cannot  be  deemed  a  perfected  contract  of  sale 
under  Article  1458  of  the Civil Code. Neither can the right of first refusal, understood 
in its normal concept, per se be brought within the purview of an option. 
■ An  option  or  an  offer  would  require,  among  other things, a clear certainty 
on  both  the  object  and  the  cause  or  consideration  of  the  envisioned 
contract.  
■ In  a  right  of  first  refusal,  while  the object might be made determinate, the 
exercise  of  the  right,  however,  would  be  dependent  not  only  on  the 
grantor's  eventual  intention  to  enter  into  a  binding  juridical  relation  with 
another  but  also  on terms, including the price, that obviously are yet to be 
later  firmed  up.  Prior  thereto,  it  can  at  best  be  so  described  as  merely 
belonging  to  a  class  of  preparatory  juridical  relations  governed  not  by 
contracts  but  by,  among  other  laws  of  general  application,  the  pertinent 
scattered provisions of the Civil Code on human conduct. 
● Even  on the premise that such right of first refusal has been decreed under a final judgment, 
like here, its breach cannot justify correspondingly an issuance of a writ of execution under a 
judgment  that  merely  recognizes  its  existence,  nor  would  it  sanction  an  action  for  specific 
performance  without  thereby  negating  the  indispensable  element  of  consensuality  in  the 
perfection  of  contracts.  It  is  not  to  say,  however,  that  the  right  of  first  refusal  would  be 
inconsequential  for  an  unjustified  disregard  thereof,  given,  for  instance,  the  circumstances 
expressed in Article 1912 of the Civil Code, can warrant a recovery for damages. 
● The  final  judgment  in  Civil  Case No. 87-41058 has merely accorded a "right of first refusal" in 
favor  of  petitioners.  The  consequence  of  such  a  declaration  entails  no more than what has 
heretofore been said. 
○   In  fine,  if  petitioners  are  aggrieved  by  the  failure  of  private  respondents  to  honor 
the  right of first refusal, the remedy is not a writ of execution on the judgment, since 
there  is  none  to  execute,  but  an  action  for  damages  in  a  proper  forum  for  the 
purpose. 
 
 
12. Macasaet v. COA, G.R. 83748, May 12, 1989; 
 
Petitioner: FLAVIO K MACASAET & ASSOCIATES, INC., 
Respondent: COMMISSION ON AUDIT and PHILIPPINE TOURISM AUTHORITY 
 
DOCTRINE:  The  terminologies  in  the  contract  being  clear,  leaving  no  doubt  as  to  the  intention  of 
the  contracting  parties,  their  literal  meaning  control  (Article  1370,  Civil  Code).  The  price 
escalation  cost  must  be  deemed  included  in the final actual project cost and petitioner held 
entitled  to  the  payment  of  its  additional  professional  fees.  Obligations  arising  from contract 
have  the  force  of  law  between  the  contracting  parties  and should be complied with in good 
faith (Article 11 59, Civil Code). 
 
FACTS: 
● Respondent  Philippine  Tourism  Authority  (PTA)  entered  into  a  Contract  for  "Project  Design 
and  Management  Services  for  the  development  of  the  proposed  Zamboanga  Golf  and 
Country  Club,  Calarian,  Zamboanga  City"  with  petitioner company, but originally with Flavio 
K Macasaet alone (hereinafter referred to simply as the "Contract"). 
○ ARTICLE IV — PROFESSIONAL FEE 
■ In  consideration  for the professional services to be performed by Designer 
under  Article  I  of  this  Agreement,  the  Authority  shall  pay  seven  percent 
(7%) of the actual construction cost. 
○ ARTICLE V — SCHEDULE OF PAYMENTS 
■ Upon  the  execution  of  the  Agreement  but  not more than fifteen (15) days, 
a  minimum  payment  equivalent  to  10  percent  of  the  professional  fee  as 
provided  in  Art.  IV  computed  upon  a  reasonable  estimated  construction 
cost of the project. 
■ Upon  the  completion  of the schematic design services, but not more than 
15  days  after  the  submission  of  the  schematic  design  to  the  Authority,  a 
sum equivalent to 15% of the professional fee as stated in Art. IV computed 
upon the reasonable estimated construction cost of the project. 
■ Upon  completion  of  the  design  development  services,  but  not  more than 
15  days  after  submission  of  the  design  development  to  the  authority,  a 
sum  equivalent  to  20%  of  the  professional  fee  as  stated  in  Art.  IV, 
computed upon the reasonable estimated construction cost. 
■ Upon  completion  of  the  contract document services but not more than 15 
days  after  submission  of  the  contract  document  to  the  Authority,  a  sum 
equivalent  to  25%  of  the  professional  fee  as  stated  in Art. IV, shall be paid 
computed on the same basis as above. 
■   Upon  completion  of  the  work  and  acceptance  thereof  by  the  Authority, 
the  balance  of  the  professional  fee,  computed  on  the  final actual project 
cost shall be paid.  
● Pursuant  to  the  foregoing  Schedule,  the  PTA  made  periodic  payments  of  the  stipulated 
professional  fees  to  petitioner  and,  upon  completion  of  the  project,  PTA  paid  petitioners 
what it perceived to be the balance of the latter's professional fees. 
● It  turned  out,  however,  that  after  the  project  was  completed,  PTA  paid  Supra  Construction 
Company,  the  main  contractor,  the  additional  sum  of  P3,148,198.26  representing  the 
escalation  cost  of  the  contract  price  due  to  the  increase  in  the  price  of  construction 
materials. 
● Upon  learning  of  the  price  escalation,  petitioner  requested  payment  of  P219,302.47 
additional professional fee representing seven (7%) percent of P3,148,198.26. 
● PTA  denied  payment  on  the  ground  that  "the  subject  price escalation referred to increased 
cost  of  construction  materials  and  did  not entail additional work on the part of petitioner as 
to entitle it to additional compensation under Article VI of the contract. 
● Reconsiderations sought by the petitioner, up to respondent COA, were to no avail. 
○ The  latter  expressed  the  opinion  that  "to  allow  subject  claim  in  the  absence  of  a 
showing  that  extra  or  additional  services  had  been  rendered  by  claimant  would 
certainly result in overpayment to him to the prejudice of the Government" 
 
ISSUE: 
● Whether or not the price escalation should be included in the "final actual project cost." 
 
RULING: YES. 
● The very terminologies used in the Contract call for affirmative relief in petitioner's favor. 
○ Under  Article  IV  of  said  Contract,  petitioner  was  to  be  entitled  to  seven (7%) of the 
"actual  construction  cost."  Under  paragraphs  1,  2,  3,  and  4,  Article  V,  periodic 
payments  were  to  be  based  on  a  "reasonable  estimated  construction  cost." 
 ultimately,  under  paragraph  5,  Article  V,  the  balance of the professional fee was to 
be computed on the basis of "the final actual project cost." 
○ The  use  of  the  terms  "actual  construction  cost",  gradating  into "final actual project 
cost" is not without significance.  
■ The  real  intendment  of  the  parties,  as  shown  by  paragraph 5, Article V, of 
their  Contract  was  to  base  the  ultimate  balance  of  petitioner's 
professional  fees  not  on  "actual  construction  cost"  alone  but  on  the  final 
actual project cost; not on "construction cost" alone but on "project cost."  
■ By  so  providing,  the  Contract  allowed for flexibility based on actuality and 
as  a  matter  of  equity  for  the  contracting  parties.  For  evidently,  the  final 
actual project cost would not necessarily tally with the actual construction 
cost initially computed.  
■ The  "final  actual  project  cost"  covers  the  totality  of  all  costs  as  actually 
and  finally  determined,  and  logically  includes  the  escalation  cost  of  the 
contract price. 
● It  matters  not  that  the  price escalation awarded to the construction company did not entail 
additional  work  for  petitioner.  As  a  matter  of  fact,  neither  did  it for the main contractor. The 
increased cost of materials was not the doing of either contracting party. 
● That  an  escalation  clause  was  not  specifically  provided for in the Contract is of no moment 
either  for  it  may  be  considered  as  already  "built-in"  and  understood  from  the  very  terms 
"actual construction cost," and eventually "final actual project cost." 
● The  terminologies  in  the  contract  being  clear,  leaving  no  doubt  as  to  the  intention  of  the 
contracting  parties,  their  literal  meaning  control  (Article  1370,  Civil  Code).  The  price 
escalation  cost must be deemed included in the final actual project cost and petitioner held 
entitled  to  the  payment  of  its  additional professional fees. Obligations arising from contract 
have  the  force  of  law between the contracting parties and should be complied with in good 
faith (Article 11 59, Civil Code). 
 
13. People’s Car Inc. v. Commando Security Service Agency, G.R. No. L-36840. May 22, 1973; 
 
Plaintiff: PEOPLE'S CAR INC. 
Defendant: . COMMANDO SECURITY SERVICE AGENCY 
 
DOCTRINE: As ordained in Article 1159, Civil Code, "obligations arising from contracts have the force 
of law between the contracting parties and should be complied with in good faith." 
 
FACTS: 
● On  April  5,  1970 at around 1:00 A.M. the defendant's security guard on duty brought out of the 
plaintiff’s  compound  a  car  belonging  to  its  customer  without  any  authority,  consent, 
approval,  knowledge  or  orders  of the plaintiff and/or defendant; he drove said car to places 
unknown. 
● While  so  driving,  he  lost  control  of  the  car,  causing  the  same  to  fall  into  a  ditch  along  J.P. 
Laurel  St.,  Davao  City  by  reason  of  which  the  plaintiff's  complaint  for  qualified  theft against 
said driver, was blottered in the office of the Davao City Police Department. 
● The  car of plaintiff's customer, Joseph Luy, which had been left with plaintiff for servicing and 
maintenance,  "suffered  extensive  damage  in  the  total  amount  of  P7,079."  besides  the  car 
rental  value  "chargeable  to  defendant"  in  the  sum  of  P1,410.00  for  a  car  that plaintiff had to 
rent  and  make  available  to  its  said  customer  to  enable  him  to  pursue  his  business  and 
occupation  for the period of forty-seven (47) days (from April 25 to June 10, 1970) that it took 
plaintiff  to repair the damaged car,7 or total actual damages incurred by plaintiff in the sum 
of P8,489.10. 
● Plaintiff  claimed  that  defendant  was  liable  for the entire amount under paragraph 5 of their 
contract  whereunder  defendant  assumed  "sole  responsibility  for  the  acts  done during their 
watch hours" by its guards. 
 ● Whereas  defendant  contended,  without  questioning  the  amount  of  the  actual  damages 
incurred  by  plaintiff,  that  its  liability  "shall  not  exceed  one  thousand  (P1,000.00)  pesos  per 
guard post" under paragraph 4 of their contract. 
● The trial court, misreading the above-quoted contractual provisions, held that "the liability of 
the  defendant  in  favor of the plaintiff falls under paragraph 4 of the Guard Service Contract" 
and  rendered  judgment  "finding  the  defendant  liable  to  the  plaintiff  in  the  amount  of 
P1,000.00 with costs." 
 
ISSUE: 
● WON  defendant  may  be  held  liable  for  breach  of  its  contract  with  plaintiff  as  a  result  of  a 
wrongful act committed by its security guard. 
 
RULING: YES. 
● Paragraph  4  of  the  contract,  which  limits  defendant's  liability  for  the  amount  of  loss  or 
damage  to  any  property  of  plaintiff  to  "P1,000.00  per  guard  post,"  is  by  its  own  terms 
applicable  only  for  loss  or damage 'through the negligence of its guards ... during the watch 
hours"  provided  that  the  same  is duly reported by plaintiff within 24 hours of the occurrence 
and  the  guard's negligence is verified after proper investigation with the attendance of both 
contracting parties.  
○ Said  paragraph  is  manifestly  inapplicable  to  the  stipulated  facts  of  record,  which 
involve  neither  property  of  plaintiff  that  has  been  lost  or  damaged  at its premises 
nor mere negligence of defendant's security guard on duty. 
○ Defendant  is  therefore  undoubtedly  liable  to  indemnify  plaintiff  for  the  entire 
damages  thus  incurred,  since  under  paragraph  5  of their contract it "assumed the 
responsibility  for  the  proper  performance  by  the  guards  employed  of  their  duties 
and  (contracted  to)  be  solely  responsible  for  the  acts  done  during  their  watch 
hours"  and  "specifically  released  (plaintiff)  from  any  and  all  liabilities ... to the third 
parties  arising  from  the  acts  or  omissions  done  by  the  guards  during  their  tour  of 
duty." 
● Plaintiff  was  in  law  liable  to  its  customer for the damages caused the customer's car, which 
had  been  entrusted  into  its  custody.  Plaintiff  therefore  was  in  law  justified  in  making  good 
such  damages  and  relying  in  turn  on  defendant  to  honor  its  contract  and  indemnify  it  for 
such  undisputed  damages,  which  had  been  caused  directly  by  the  unlawful  and  wrongful 
acts of defendant's security guard in breach of their contract.  
o As  ordained  in  Article  1159,  Civil  Code,  "obligations  arising  from  contracts  have  the 
force  of  law  between  the  contracting  parties  and  should  be  complied  with in good 
faith." 
● Plaintiff  in  law  could  not  tell  its  customer,  as  per  the  trial court's view, that "under the Guard 
Service  Contract  it  was  not  liable  for  the  damage  but  the defendant" — since the customer 
could  not  hold  defendant  to  account  for  the  damages  as he had no privity of contract with 
defendant.  
○ Such  an  approach  of  telling  the  adverse  party  to  go  to  court,  notwithstanding  his 
plainly  valid  claim,  aside  from  its  ethical  deficiency  among  others,  could  hardly 
create  any  goodwill  for  plaintiff's  business,  in  the  same  way  that  defendant's 
baseless  attempt  to  evade  fully  discharging  its  contractual  liability  to  plaintiff 
cannot  be  expected to have brought it more business. Worse, the administration of 
justice  is  prejudiced,  since  the  court  dockets  are  unduly  burdened  with 
unnecessary litigation. 
 
14. Pelayo v. Lauron, 12 Phil. 453 
 
Plaintiff: ARTURO PELAYO 
Defendant: . MARCELO LAURON, ET AL. 
 
DOCTRINE:  According to article 1089 of the Civil Code, obligations are created by law, by contracts, 
by  quasi-contracts,  and  by  illicit  acts  and  omissions  or  by those in which any kind of fault or 
negligence  occurs.  Obligations  arising  from  law  are  not  presumed.  Those  expressly 
determined  in  the  code  or  in  special  laws,  etc.,  are  the  only  demandable  ones.  Obligations 
arising  from  contracts  have legal force between the contracting parties and must be fulfilled 
in  accordance  with  their stipulations. The rendering of medical assistance in case of illness is 
comprised  among  the  mutual  obligations  to which the spouses are bound by way of mutual 
support.  
 
FACTS: 
● Arturo  Pelayo,  a  physician  residing  in  Cebu,  filed  a  complaint  against  Marcelo  Lauron  and 
Juana Abella setting forth that: 
○ On  or  about  the  13th  of  October  of  1906,  at  night,  the  plaintiff  was  called  to  the 
house of the defendants 
○ Upon  arrival  he  was  requested  by  them  to  render  medical  assistance  to  their 
daughter-in-law who was about to give birth to a child 
○ After  consultation  with  the  attending  physician, Dr. Escaño, it was found necessary, 
on  account  of  the  difficult  birth,  to  remove  the  fetus  by  means  of  forceps  which 
operation  was  performed  by  the  plaintiff,  who  also had to remove the afterbirth, in 
which services he was occupied until the following morning 
○ Afterwards, on the same day, he visited the patient several times. 
○ The  just  and  equitable  value  of  the  services  rendered  by  him  was  P500, which the 
defendants refuse to pay without alleging any good reason therefor. 
● In  answer  to  the  complaint  counsel  for  the  defendants  denied  all  of  the  allegation  therein 
contained  and  alleged  as  a  special  defense,  that  their  daughter-in-law  had  died  in 
consequence  of  the  said  childbirth,  and that when she was alive she lived with her husband 
independently  and  in a separate house without any relation whatever with them, and that, if 
on  the  day  when  she  gave  birth  she  was  in  the  house  of  the defendants, her stay their was 
accidental and due to fortuitous circumstances. 
○ Therefore,  he  prayed  that  the  defendants  be  absolved  of  the complaint with costs 
against the plaintiff. 
● Judgment  was entered by the court below, whereby the defendants were absolved from the 
former  complaint,  on  account  of  the  lack of sufficient evidence to establish a right of action 
against the defendants, with costs against the plaintiff 
 
ISSUE: 
● WON the parents-in-law are obliged to pay the fees claimed by the plaintiffs. 
 
RULING: NO. 
● According  to  article  1089  of  the  Civil  Code,  obligations  are  created  by  law,  by contracts, by 
quasi-contracts,  and  by  illicit  acts  and  omissions  or  by  those  in  which  any  kind  of  fault  or 
negligence occurs. 
○ Obligations  arising  from  law  are  not  presumed.  Those  expressly  determined in the 
code  or  in  special  laws,  etc.,  are  the  only  demandable  ones.  Obligations  arising 
from  contracts  have  legal  force  between  the  contracting  parties  and  must  be 
fulfilled in accordance with their stipulations. 
● The  rendering  of  medical  assistance  in  case  of  illness  is  comprised  among  the  mutual 
obligations to which the spouses are bound by way of mutual support. (Arts. 142 and 143.) 
○ When  either  of  them  by  reason  of  illness  should  be  in  need of medical assistance, 
the  other  is  under the unavoidable obligation to furnish the necessary services of a 
physician  in  order  that  health  may  be  restored,  and  he  or  she  may  be  freed  from 
the  sickness  by  which  life  is jeopardized; the party bound to furnish such support is 
therefore  liable  for  all  expenses,  including  the  fees  of  the  medical  expert  for  his 
professional  services.  This  liability  originates  from  the  above-cited  mutual 
obligation which the law has expressly established between the married couple. 
 ● In  the  face  of  the  above  legal  precepts  it  is  unquestionable  that  the  person  bound  to  pay 
the  fees  due  to  the  plaintiff  for  the  professional  services  that  he  rendered  to  the 
daughter-in-law  of  the  defendants  during  her  childbirth,  is  the  husband  of  the patient and 
not her father and mother- in-law, the defendants herein.  
○ The  fact  that  it  was  not  the  husband  who  called  the  plaintiff  and  requested  his 
assistance  for  his  wife  is  no  bar  to  the  fulfillment  of  the  said  obligation,  as  the 
defendants,  in  view  of  the  imminent  danger,  to  which  the  life of the patient was at 
that  moment  exposed,  considered  that  medical  assistance  was  urgently  needed, 
and  the  obligation  of  the  husband  to  furnish  his  wife  in  the indispensable services 
of  a  physician  at  such  critical  moments  is  specially  established  by the law, as has 
been  seen,  and  compliance  therewith  is  unavoidable;  therefore,  the  plaintiff,  who 
believes  that  he  is  entitled  to  recover  his  fees,  must  direct  his  action  against  the 
husband  who  is  under  obligation  to  furnish  medical assistance to his lawful wife in 
such an emergency. 
 
  
  
Chapter 2. Nature and Effect of Obligations​. 
  
15. Orient Freight International v. Keihin-Everett Forwarding G.R. No. 191937, Aug. 9, 2017 
 
Petitioner: ORIENT FREIGHT INTERNATIONAL, INC. 
Respondent : .KEIHIN-EVERETT FORWARDING COMPANY, INC. 
 
DOCTRINE: There are instances when Article 2176 may apply even when there is a pre-existing 
contractual relation. A party may still commit a tort or quasi-delict against another, despite 
the existence of a contract between them. The test (whether a quasi-delict can be deemed 
to underlie the breach of a contract) can be stated thusly: Where, without a pre-existing 
contract between two parties, an act or omission can nonetheless amount to an actionable 
tort by itself, the fact that the parties are contractually bound is no bar to the application of 
quasi-delict provisions to the case.  
 
FACTS: 
● Keihin-Everett entered into a Trucking Service Agreement with Matsushita. 
○ Under  the  Trucking  Service  Agreement,  Keihin-Everett  would  provide  services  for 
Matsushita's  trucking  requirements.  These  services  were  subcontracted  by 
Keihin-Everett  to  Orient  Freight,  through  their  own  Trucking  Service  Agreement 
executed on the same day. 
● When  the  Trucking  Service  Agreement  between  Keihin-Everett  and  Matsushita  expired, 
Keihin-Everett  executed  an  In-House  Brokerage  Service  Agreement  for  Matsushita's 
Philippine Economic Zone Authority export operations. 
○ Keihin-Everett  continued  to  retain  the  services  of  Orient  Freight,  which 
sub-contracted its work to Schmitz Transport and Brokerage Corporation. 
● Matsushita  called  Keihin-Everett's  Sales  Manager,  Salud  Rizada,  about  a column in the April 
19, 2002 issue of the tabloid newspaper Tempo.  
○ This  news  narrated  the  April  17,  2002  interception  by  Caloocan  City  police  of  a 
stolen  truck  filled  with  shipment  of  video  monitors  and  CCTV  systems  owned  by 
Matsushita. 
● When  contacted  by  Keihin-Everett  about  this  news,  Orient  Freight  stated  that  the  tabloid 
report had blown the incident out of proportion.  
 ○ They  claimed  that  the  incident  simply  involved  the  breakdown  and  towing  of  the 
truck,  which  was  driven  by  Ricky  Cudas  (Cudas), with truck helper, Rubelito Aquino 
(Aquino).  
○ The  truck  was  promptly  released  and  did  not  miss  the  closing  time  of  the  vessel 
intended for the shipment. 
● However,  when  the  shipment  arrived  in  Yokohama,  Japan,  it  was  discovered  that  10 pallets 
of the shipment's 218 cartons, worth US$34,226.14, were missing. 
● Keihin-Everett  independently  investigated  the incident. During its investigation, it obtained a 
police report from the Caloocan City Police Station. 
○ The  report  stated  that  Cudas  told  Aquino to report engine trouble to Orient Freight. 
After  Aquino  made  the  phone  call,  he  informed  Orient  Freight  that  the  truck  had 
gone  missing.  When  the  truck  was  intercepted  by  the  police  along  C3  Road  near 
the  corner  of  Dagat-Dagatan  Avenue  in  Caloocan  City,  Cudas  escaped  and 
became the subject of a manhunt 
● When  confronted  with  Keihin-Everett's  findings,  Orient  Freight  wrote  back  to  admit  that  its 
previous report was erroneous and that pilferage was apparently proven. 
● Matsushita terminated its In-House Brokerage Service Agreement with Keihin-Everett.  
○ Matsushita  cited  loss  of  confidence  for  terminating  the  contract,  stating  that 
Keihin-Everett's  way  of  handling  the  April  17,  2002  incident  and its nondisclosure of 
this  incident's  relevant  facts  "amounted to fraud and signified an utter disregard of 
the rule of law." 
● Keihin-Everett,  by  counsel,  sent  a  letter  to  Orient  Freight,  demanding  P2,500,000.00  as 
indemnity for lost income.  
○ It  argued  that  Orient  Freight's  mishandling  of  the  situation  caused the termination 
of Keihin-Everett's contract with Matsushita. 
● When  Orient  Freight  refused  to  pay,  Keihin-Everett  filed  a  complaint  for  damages  with 
Branch 10, Regional Trial Court, Manila. 
● Orient  Freight  claimed,  among  others,  that  its  initial  ruling  of  pilferage  was  in  good faith as 
manifested  by  the  information  from  its  employees  and  the  good  condition  and  the  timely 
shipment of the cargo.  
○ It also alleged that the contractual termination was a prerogative of Matsushita.  
○ Further,  by  its  own  Audited  Financial  Statements  on  file  with  the  Securities  and 
Exchange  Commission,  Keihin-Everett  derived  income  substantially less than what 
it sued for. 
● The Regional Trial Court rendered its Decision in favor of Keihin-Everett.  
○ It  found  that  Orient  Freight  was  "negligent  in  failing  to  investigate  properly  the 
incident  and  make  a  factual  report  to  Keihin[-Everett]  and  Matsushita,"  despite 
having enough time to properly investigate the incident 
○ The  trial  court  also  ruled  that  Orient  Freight's  failure  to  exercise  due  diligence  in 
disclosing  the  true  facts  of  the  incident  to  Keihin-Everett  and  Matsushita  caused 
Keihin-Everett  to  suffer  income  losses  due  to  Matsushita's  cancellation  of  their 
contract. 
● Orient  Freight  appealed  the  Regional  Trial  Court  Decision  to  the  Court  of  Appeals  which 
affirmed the trial court's decision. 
● Orient  Freight  filed this Petition for Review on Certiorari under Rule 45 with this Court, arguing 
that the Court of Appeals incorrectly found it negligent under Article 2176 of the Civil Code. 
 ○ As  there  was  a  subsisting  Trucking Service Agreement between Orient Freight itself 
and  Keihin-Everett,  petitioner  avers  that  there  was  a  pre-existing  contractual 
relation  between  them,  which  would  preclude  the  application  of  the  laws  on 
quasi-delicts. 
○ Applying  the  test  in  ​Far  East  Bank  and  Trust  Company  v.  Court  of  Appeals,​  
petitioner  claims  that  its  failure  to  inform  respondent  Keihin-Everett  about  the 
hijacking  incident  could  not  give  rise  to  a  quasi-delict  since  the  Trucking  Service 
Agreement  between  the  parties  did  not  include this obligation. It argues that there 
being  no  obligation  under  the  Trucking Service Agreement to inform Keihin-Everett 
of  the  hijacking  incident,  its  report to Keihin-Everett was done in good faith and did 
not  constitute  negligence. Its representations regarding the hijacking incident were 
a sound business judgment and not a negligent act. 
 
ISSUE: 
● WON respondent Keihin-Everett can recover indemnity from petitioner under quasi-delict 
despite the existence of the contract between them. 
 
RULING: NO. 
● Negligence may either result in culpa aquiliana or culpa contractual 
○ Culpa aquiliana is the "the wrongful or negligent act or omission which creates a 
vinculum juris and gives rise to an obligation between two persons not formally 
bound by any other obligation,” and is governed by Article 2176 of the Civil Code 
○ Negligence in culpa contractual, on the other hand, is "the fault or negligence 
incident in the performance of an obligation which already-existed, and which 
increases the liability from such already existing obligation."This is governed by 
Articles 1170 to 1174 of the Civil Code. 
● Actions based on contractual negligence and actions based on quasi-delicts differ in terms 
of conditions, defenses, and proof. They generally cannot co-exist. 
○ In Huang v. Phil. Hoteliers, Inc, [T]his Court finds it significant to take note of the 
following differences between quasi-delict (culpa aquilina) and breach of contract 
(culpa contractual).  
■ In quasi-delict, negligence is direct, substantive and independent, while in 
breach of contract, negligence is merely incidental to the performance of 
the contractual obligation 
■ There is a pre-existing contract or obligation, In quasi-delict, the defense 
of "good father of a family" is a complete and proper defense insofar as 
parents, guardians and employers are concerned, while in breach of 
contract, such is not a complete and proper defense in the selection and 
supervision of employees.  
■ In quasi-delict, there is no presumption of negligence and it is incumbent 
upon the injured party to prove the negligence of the defendant, 
otherwise, the former's complaint will be dismissed, while in breach of 
contract, negligence is presumed so long as it can be proved that there 
was breach of the contract and the burden is on the defendant to prove 
that there was no negligence in the carrying out of the terms of the 
contract; the rule of respondeat superior is followed. 
 ● However, there are instances when Article 2176 may apply even when there is a pre-existing 
contractual relation. A party may still commit a tort or quasi-delict against another, despite 
the existence of a contract between them. 
○ The test (whether a quasi-delict can be deemed to underlie the breach of a 
contract) can be stated thusly: Where, without a pre-existing contract between two 
parties, an act or omission can nonetheless amount to an actionable tort by itself, 
the fact that the parties are contractually bound is no bar to the application of 
quasi-delict provisions to the case.  
● Here, private respondents' damage claim is predicated solely on their contractual 
relationship; without such agreement, the act or omission complained of cannot by itself be 
held to stand as a separate cause of action or as an independent actionable tort. Here, 
petitioner denies that it was obliged to disclose the facts regarding the hijacking incident 
since this was not among the provisions of its Trucking Service Agreement with respondent. 
There being no contractual obligation, respondent had no cause of action against 
petitioner. 
● Applying said test, assuming for the sake of argument that petitioner indeed failed to inform 
respondent of the incident where the truck was later found at the Caloocan Police station, 
would an independent action prosper based on such omission? Assuming that there is no 
contractual relation between the parties herein, would petitioner's omission of not informing 
respondent that the truck was impounded gives [sic] rise to a quasi-delict?  
○ Obviously not, because the obligation, if there is any in the contract, that is to 
inform plaintiff of said incident, could have been spelled out in the very contract 
itself duly executed by the parties herein specifically in the Trucking Service 
Agreement. It is a fact that no such obligation or provision existed in the contract. 
Absent said terms and obligations, applying the principles on tort as a cause for 
breaching a contract would therefore miserably fail as the lower Court erroneously 
did in this case. 
● Both the Regional Trial Court and Court of Appeals erred in finding petitioner's negligence of 
its obligation to report to be an action based on a quasi-delict Petitioner's negligence did 
not create the vinculum juris or legal relationship with the respondent, which would have 
otherwise given rise to a quasi-delict.  
○ Petitioner's duty to respondent existed prior to its negligent act. When respondent 
contacted petitioner regarding the news report and asked it to investigate the 
incident, petitioner's obligation was created. Thereafter, petitioner was alleged to 
have performed its obligation negligently, causing damage to respondent.  
○ The doctrine "the act that breaks the contract may also be a tort," on which the 
lower courts relied, is inapplicable here. Petitioner's negligence, arising as it does 
from its performance of its obligation to respondent, is dependent on this 
obligation. 
 
(Lapina, Maybelle) 
16. Marquez v. Elisan, G.R. No. 194642, April 06, 2015; Rivera v. Chua, G.R. 184458, Jan. 14, 2015; 

Petitioner: Nunelon Marquez 

Respondent: Elisan Credit Coroporation 

Doctrine​:  Article  1176  in  relation  to Article 1253.  ​The rule under Article 1253 that payments shall first 
be  applied  to  the  interest  and  not  to  the  principal  shall  govern  if  two  facts  exist:  (1)  the  debt 
produces  interest  (​e.g.​,  the  payment  of  interest  is  expressly  stipulated)  and  (2)  the  principal 
remains  unpaid.  ​The  exception  is  a  situation  covered  under  Article  1176,  ​i.e.​,  when  the  creditor 
waives  payment  of  the  interest  despite  the  presence  of  (1)  and  (2)  above.  In  such  case,  the 
payments  shall  obviously  be  credited  to the principal. ​Only when there is a waiver of interest shall 
Article 1176 become relevant. 

Facts​: 

Marquez  (​petitioner​)  obtained  a  (​first  loan)​   from  Elisan  Credit  Corporation  (​respondent​)  Php 
53,000.00  payable  in  180  days.  The  petitioner  signed  a  promissory  note  which  provided  that  it  is 
payable  in  weekly  installments  and  subject  to  26%  annual  interest.  In  case  of  non-payment,  the 
petitioner  agreed  to  pay  ten  percent  10%  monthly  penalty  and  another  25%  of  such  amount  for 
attorney's fees. The petitioner also executed a chattel mortgage. 

Subsequently,  the  petitioner  obtained  a  ​second  loan  from  the  respondent  for  P55,000.00.  The 
promissory  note  covering  the  second  loan  contained  ​exactly  the  same  terms  and  conditions  as 
the first promissory note. 

When  the  second  loan  matured,  the  petitioner  had  ​only  paid  P29,960.00  leaving  an  unpaid 
balance.  The  petitioner  asked  the  respondent  if  he  could  pay  in  daily  installments  (​daily 
payments​)  until  the  second  loan  is  paid. The respondent granted the petitioner's request. Thus, 21 
months  ​after  the  second  loan's  maturity, the petitioner had already paid an amount greater than 
the principal. 

Despite  the  receipt  of  more than the amount of the principal, the respondent filed a complaint for 

judicial  foreclosure  of  the  chattel  mortgage  because  the  petitioner  allegedly  failed  to  settle  the 
balance of the second loan despite demand. 

The  petitioner  insists  that  his  daily  payments  should  be  deemed  to  have  been  credited  against 
the  principal.  He  cites  Article  1176  of  the  Civil  Code  which  ordains  that  the  receipt of the principal 
by  the  creditor  without  reservation  with  respect  to  the  interest,  shall  give  rise to the presumption 
that the interest has been paid. 

Issue​: Whether the petitioner has fully paid his loan obligation. 

Held​: No. 

Under  Article  1176  the  amount  received  by  the  creditor  is  the  payment  for  the  principal,  but  a 
doubt  arises  on  whether  or  not  the  interest  is  waived  because  the creditor accepts the payment 
for  the  principal  without  reservation  with  respect  to  the interest. Article 1176 resolves this doubt by 
presuming  that  the  creditor  waives  the  payment of interest because he accepts payment for the 
principal without any reservation. 

On  the  other  hand,  the  presumption  under  Article  1253  resolves  doubts  involving  payment  of 
interest-bearing  debts.  It  is  a  given  under  this  Article  that  the  debt  produces  interest.  The  doubt 
pertains  to  the  application  of payment; the uncertainty is on whether the amount received by the 
creditor  is  payment  for  the  principal  or  the interest. Article 1253 resolves this doubt by providing a 
hierarchy:  payments  shall  ​first  be  applied  to  the  interest;  payment  shall  then  be  applied  to  the 
principal ​only after​ the interest has been ​fully-paid.​  

The  fact  that  the  official  receipts  did  not  indicate  whether  the  payments  were  made  for  the 
principal  or  the  interest  does  not  prove  that  the  respondent  waived  the  interest.  Because  the 
petitioner  was  already  in  default  of  the principal when he started making the daily payments, the 
stipulations  providing  for  the  10%  monthly  penalty  and  the  additional  25%  attorney's  fees  on  the 
unpaid  amount  also  became  effective  as  a  result  of  the  petitioner's  failure  to  pay  in  full  upon 
maturity. 

 
17. Tumibay v. Spouses Lopez, G.R. No. 171692, June 3, 2013; 

Petitioner:  ​SPOUSES  DELFIN  O.  TUMIBAY  AND  AURORA  T.  TUMIBAY-DECEASED;  GRACE  JULIE  ANN 
TUMIBAY MANUEL, LEGAL REPRESENTATIVE 

Respondent: ​SPOUSES MELVIN A. LOPEZ AND ROWENA GAY T. VISITACION LOPEZ 

Doctrine:  ​A  buyer  who  covertly  usurps  the  seller's  ownership  of  the  property  prior  to  the  full 
payment  of  the  price  is  in  breach  of  the  contract  and  the  seller  is  entitled  to  rescission because 
the  breach  is  substantial  and  fundamental  as  it  defeats  the  very object of the parties in entering 
into the contract to sell. (In relation to Article 1191) 

Facts​: 

Petitioners  were  the  owners  of  a  parcel  of  land  in  Bukidnon  covered  by  a  TCT  in  the  name  of 
petitioner  Aurora.  Petitioners,  as  principals  and  sellers,  executed  an  SPA  in  favor  of  Reynalda,  as 
agent  to  offer  for  sale  the  subject  land  provided  that  the  purchase  price  thereof  should  be 
approved  by  the  former.  Sometime  in  1994,  petitioners  and  respondent  Rowena  agreed  to  enter 
into  an  oral contract to sell over the subject land for the price of P800,000.00 to be paid in 10 years 
through  monthly  installments.  Respondents  averred  that  petitioners  executed  a  SPA  in  favor  of 
Reynalda  granting  the  latter  the  power  to  offer  for  sale  the  subject  land;  that  sometime  in  1994, 
respondent  Rowena  and  petitioners  agreed  that  the  former  would  buy  the  subject  land  for  the 
price  of  P800,000.00  to  be  paid  on  installment;  that  respondent  Rowena  paid  in  cash  to 
petitioners  the  sum  of  $1,000.00;  that  from  1995  to  1997,  respondent  Rowena  paid  the  monthly 
installments  of  500  dollars  thereon  as  evidenced  by  money  orders;  that,  in  furtherance  of  the 
agreement,  a  deed  of  sale  was  executed  and  the  corresponding  title  was  issued  in  favor  of 
respondent Rowena. 

Petitioners  denied  the  allegation  that  a  contract  to  sell  was  executed  at  all  between  them  and 
Rowena.  They  claimed  that  the  payments  received  from  respondent  Rowena  were  for 
safekeeping  purposes  only  pending  the  final  agreement  as  to  the  purchase  price  of  the  subject 
land. Respondent Rowena insisted that she had fully paid the purchase price. 

Issue​: Whether the conveyance to Rowena was proper. 

Held​: No. 
While  it  was  ruled  by  the  Court  that  a  contract  to  sell  existed  between  the  parties,  the  same  is 
subject  rescission  due  to  the  substantial  breach  in  contract  committed  by  Rowena  ​because,  at 
the  time  the  aforesaid  deed  of  sale  was  executed,  the  full  price  of the subject land was yet to be 
paid.  Prior  to  the  execution  of  the  deed  of  sale,  the  total  amount of monthly installments paid by 
respondent  Rowena  to  petitioners  was  found  by  the  Court  based  on  evidence  to  be  only 
P260,626.50 or 32.58%​ ​of the P800,000.00 purchase price. 

The  evidence  also  indicates  that  the  premature  transfer  of  title  in  the  name  of  respondent 
Rowena  was  done  without  the  knowledge  and  consent  of  petitioners.  This  act  constitutes  a 
substantial  and  fundamental  breach  of  the contract to sell. A buyer who willfully contravenes this 
fundamental  object  or  purpose  of  the  contract,  by  covertly  transferring  the  ownership  of  the 
property  in  his  name  at  a  time  when  the  full  purchase  price  has  yet  to  be  paid,  commits  a 
substantial  and fundamental breach which entitles the seller to rescission of the contract, making 
the contract to sell subject to rescission under Article 1191.  

 
18. Gaisano v. Insurance Company of North America, G.R. No. 147839, June 8, 2006; 

Petitioner: ​GAISANO CAGAYAN, INC. 

Respondent: ​INSURANCE COMPANY OF NORTH AMERICA 

Doctrine:  ​Under  Article  1263  of  the  Civil  Code,  “In  an  obligation  to  deliver  a generic thing, the loss 
or  destruction  of  anything  of  the  same  kind does not extinguish the obligation." If the obligation is 
generic  in  the sense that the object thereof is designated merely by its class or genus without any 
particular  designation  or  physical  segregation  from  all  others  of  the  same  class,  the  loss  or 
destruction  of  anything  of  the  same  kind  even  without  the  debtor's  fault  and  before  he  has 
incurred  in  delay  will  not  have  the  effect  of  extinguishing  the  obligation.  ​This  rule  is based on the 
principle that the genus of a thing can never perish. Genus nunquan perit. 

Facts: 

Intercapitol  Marketing  Corporation  (IMC)  is  the  maker of Wrangler Blue Jeans. Levi Strauss (Phils.) 

Inc.  (LSPI)  is  the  local  distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC 
and  LSPI  separately  obtained  from  respondent  fire  insurance  policies  with  book  debt 
endorsements.  The  insurance  policies  provide  for  coverage  on  "book  debts  in  connection  with 
ready-made  clothing  materials  which  have  been  sold  or  delivered  to  various  customers  and 
dealers  of  the Insured anywhere in the Philippines." The policies defined book debts as the "unpaid 
account  still  appearing  in  the  Book  of  Account  of  the  Insured  45  days  after  the  time  of  the  loss 
covered under this Policy." 

Petitioner  is  a  customer  and  dealer  of  the  products  of  IMC  and  LSPI.  On  February  25,  1991,  the 
Gaisano  Superstore  Complex  in Cagayan de Oro City, owned by petitioner, was consumed by fire. 
Included  in  the  items  lost  or  destroyed  in  the  fire  were  stocks  of  ready-made  clothing  materials 
sold and delivered by IMC and LSPI. 

Respondent  filed  a  complaint  for  damages  against  petitioner.  It  alleges  that  IMC  and  LSPI  filed 
with  respondent  their  claims  under  their  respective  fire  insurance  policies  with  book  debt 
endorsements  and  that  the  respondent  paid  the  claims  of  IMC  and  LSPI  and,  by  virtue  thereof, 
respondent was subrogated to their rights against petitioner. 

Petitioner contends that it could not be held liable because the property covered by the insurance 
policies  were  destroyed  due  to  fortuities  event  or  force  majeure;  that  respondent's  right  of 
subrogation  has  no basis inasmuch as there was no breach of contract committed by it since the 
loss  was  due  to  fire  which  it  could not prevent or foresee; that IMC and LSPI never communicated 
to it that they insured their properties; that it never consented to paying the claim of the insured. 

Issue:  ​Whether  the  fire  is  a  fortuitous  event which effectively extinguished Gaisano’s obligation to 

pay. 

Held​: No. 

Petitioner's  argument  that  it  is  not  liable  because  the fire is a fortuitous event under Article 1174 of 

the  Civil  Code  is  misplaced.  Petitioner  bears  the  loss  under  Article 1504 (1) of the Civil Code. Thus, 
whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. 

It  must  be  stressed  that  the  insurance  is  not  for  loss  of goods by fire but for petitioner's accounts 
with  IMC  and  LSPI  that  remained  unpaid  45  days after the fire. Accordingly, petitioner's obligation 
is  for  the  payment  of  money.  As  correctly  stated  by  the  CA,  where  the  obligation  consists  in  the 
payment  of  money,  the  failure  of  the  debtor  to  make the payment even by reason of a fortuitous 
event  shall  not  relieve  him  of  his  liability.  The  rationale  for  this  is  that  the  rule  that  an  obligor 
should  be  held  exempt  from  liability  when  the  loss  occurs  thru  a  fortuitous  event  only  holds true 
when  the  obligation  consists  in  the  delivery  of  a  determinate  thing  and  there  is  no  stipulation 
holding  him  liable  even  in  case  of  fortuitous  event.  It  does  not  apply  when  the  obligation  is 
pecuniary in nature. 

Under  Article  1263  of  the  Civil  Code,  "In  an  obligation  to  deliver  a  generic  thing,  the  loss  or 
destruction  of  anything  of  the  same  kind  does  not  extinguish  the  obligation."  If  the  obligation  is 
generic  in  the sense that the object thereof is designated merely by its class or genus without any 
particular  designation  or  physical  segregation  from  all  others  of  the  same  class,  the  loss  or 
destruction  of  anything  of  the  same  kind  even  without  the  debtor's  fault  and  before  he  has 
incurred in delay will not have the effect of extinguishing the obligation. 

 
 
19. Phil. Export v. V.P. Eusebio Const., G.R. 140047, Jul. 13, 2004; 

Petitioner: ​PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, 

Respondent:  ​V.P.  EUSEBIO  CONSTRUCTION,  INC.;  3-PLEX  INTERNATIONAL,  INC.;  VICENTE  P. 
EUSEBIO;  SOLEDAD  C.  EUSEBIO;  EDUARDO  E.  SANTOS;  ILUMINADA SANTOS; AND FIRST INTEGRATED 
BONDING AND INSURANCE COMPANY, INC. 

Doctrine: ​Where one of the parties to a contract does not perform in a proper manner the 
prestation which he is bound to perform under the contract, he is not entitled to demand the 
performance of the other party. A party does not incur in delay if the other party fails to perform 
the obligation incumbent upon him. 

Facts: 

On  8  November  1980,  the  State  Organization  of  Buildings  (SOB),  Ministry  of  Housing  and 
Construction,  Baghdad,  Iraq,  awarded  the  construction  of  the  Institute  of  Physical 
Therapy–Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to Ajyal 
Trading  and  Contracting  Company  (hereinafter  Ajyal).  In  1981,  3-Plex  International,  Inc. 
(hereinafter  3-Plex),  a  local  contractor  engaged  in  construction  business,  entered  into  a  joint 
venture  agreement  with  Ajyal.  3-PLEX  then  subsequently  assigned  its  rights  to  VPECI.  The  SOB 
required  the  contractors  to  submit  a  performance  bond  and  advance  payment  bond  and  to 
comply  with  these  requirements,  respondents  3-Plex  and  VPECI  applied  for  the  issuance  of  a 
guarantee  with  petitioner  Philguarantee,  a  government  financial  institution. Upon the application 
of  respondents  3-Plex  and  VPECI,  petitioner  Philguarantee  issued in favor of Al Ahli Bank of Kuwait 
Letter of Guarantee. 

The  SOB  and  the  joint  venture  VPECI  and  Ajyal  executed the service contract  ​for the construction 
of  the  Institute  of  Physical  Therapy  –  Medical Rehabilitation Center, Phase II, in Baghdad, Iraq. The 
construction,  which  was  supposed  to  start  on  June  1981,  commenced  only  on  the  last  week  of 
August  1981.  Because  of  this  delay  and  the  slow  progress  of  the  construction  work  due  to  some 
setbacks  and  difficulties,  the  Project  was  not completed on 15 November 1982 as scheduled. As of 
March  1986,  the  status of the Project was 51% accomplished, meaning the structures were already 
finished. 

On  October  1986,  Al  Ahli  Bank  of  Kuwait  sent a telex call to the petitioner demanding full payment 

of  its  performance  bond  counter-guarantee.  In  April  1987,  the  petitioner  received  another  telex 
message  from  Al  Ahli  Bank  stating  that  it  had  already  paid  to  Rafidain  Bank  the  sum  of 
US$876,564  under  its  letter  of  guarantee,  and  demanding  reimbursement  by  the  petitioner  of 
what it paid to the latter bank plus interest thereon and related expenses. 

On  6  November  1987,  Philguarantee  informed VPECI that it would remit US$876,564 to Al Ahli Bank, 

and  reiterated  the  joint  and  solidary  obligation  of  the respondents to reimburse the petitioner for 
the  advances  made  on  its  counter-guarantee.  The  petitioner  sent  to  the  respondents  separate 
letters  demanding  full  payment  of  the  amount  plus  accruing  interest,  penalty  charges,  and 
attorney's fees. 

Philguarantee  then  filed  a  case  in  the  RTC  of  Makati.  The  RTC  ruled  against  it  and found that the 
joint  venture  contractor  incurred  no  delay  in  the  execution  of  the  Project. Considering the Project 
owner's  violations  of  the  contract  which  rendered  impossible  the  joint  venture  contractor's 
performance  of  its  undertaking,  no valid call on the guarantee could be made. The CA upheld the 
RTC’s decision. Hence the appeal. 

Issue​: Whether respondents must reimburse the petitioner for the payment it made as guarantor. 

Held​: No. 
Default or ​mora​ on the part of the debtor is the delay in the fulfillment of the prestation by reason 
of a cause imputable to the former. It is the non-fulfillment of an obligation with respect to time. 

Article 1169, last paragraph, of the Civil Code, provides: "In reciprocal obligations, neither party 
incurs in delay if the other party does not comply or is not ready to comply in a proper manner 
with what is incumbent upon him." 

As found by both the Court of Appeals and the trial court, the delay or the non-completion of the 
Project was caused by factors not imputable to the respondent contractor. It was rather due 
mainly to the persistent violations by SOB of the terms and conditions of the contract, particularly 
its failure to pay 75% of the accomplished work ​in US Dollars​. Indeed, where one of the parties to a 
contract does not perform in a proper manner the prestation which he is bound to perform under 
the contract, he is not entitled to demand the performance of the other party. A party does not 
incur in delay if the other party fails to perform the obligation incumbent upon him. 

SOB cannot yet demand complete performance from VPECI because it has not yet itself 
performed its obligation in a proper manner, particularly the payment of the 75% of the cost of the 
Project in US Dollars. The VPECI cannot yet be said to have incurred in delay. Even assuming that 
there was delay and that the delay was attributable to VPECI, still the effects of that delay ceased 
upon the renunciation by the creditor, SOB, which could be implied when the latter granted 
several extensions of time to the former. Besides, no demand has yet been made by SOB against 
the respondent contractor. Demand is generally necessary even if a period has been fixed in the 
obligation. And default generally begins from the moment the creditor demands judicially or 
extra-judicially the performance of the obligation. Without such demand, the effects of default will 
not arise. 

 
20. Tanguilig v. CA, G.R. 266 SCRA 78 

Petitioner:  JACINTO  TANGUILIG  doing  business  under  the  name  and  style  J.M.T.  ENGINEERING 
AND GENERAL MERCHANDISING 

Respondent: COURT OF APPEALS and VICENTE HERCE JR. 

Doctrine:  F​or  a  party  to  claim exemption from liability by reason of fortuitous event under Art. 1174 

of  the  Civil  Code  the  event  should  be  the  sole  and  proximate  cause  of  the  loss  or  destruction of 
the  object  of  the  contract.  Four  (4)  requisites  must  concur:  (a)  the  cause  of  the  breach  of  the 
obligation  must  be  independent  of  the  will  of  the  debtor;  (b)  the  event  must  be  either 
unforeseeable  or  unavoidable;  (c)  the  event  must  be  such  as  to  render  it  impossible  for  the 
debtor  to  fulfill  his  obligation  in  a  normal  manner;  and,  (d)  the  debtor  must  be  free  from  any 
participation in or aggravation of the injury to the creditor. 

Facts​: 

Sometime  in  April  1987  petitioner  Tanguilig  proposed to respondent Vicente Herce Jr. to construct 

a  windmill  system  for  him.  After  some  negotiations  they  agreed  on  the  construction  of  the 
windmill  for  a  consideration  of  P60,000.00  with  a  one-year guaranty from the date of completion 
and acceptance by respondent Herce Jr. of the project. 
On  14  March  1988,  due  to  the  refusal  and  failure of respondent to pay the balance, petitioner filed 
a  complaint  to  collect  the  amount.  In  his  ​Answer  before  the  trial  court  respondent  denied  the 
claim.  He  alleged  that  assuming  that  he  owed  petitioner  a  balance  of  P15,000.00,  this  should  be 
offset  by  the  defects  in  the  windmill  system which caused the structure to collapse after a strong 
wind hit their place. 

Petitioner  disowned  any  obligation  to  repair  or  reconstruct  the  system  and  insisted  that  he 
delivered  it in good and working condition to respondent who accepted the same without protest. 
Besides,  its  collapse  was  attributable  to  a  typhoon,  a  force  majeure,​   which  relieved  him  of  any 
liability. 

Issue​: Whether the collapse of the newly installed windmill is a fortuitous event. 

Held​: No. 

In  a  long  line  of  cases ​this Court has consistently held that in order for a party to claim exemption 

from  liability  by  reason  of  fortuitous event under Art. 1174 of the Civil Code the event should be the 
sole and proximate cause of the loss or destruction of the object of the contract. 

Petitioner  failed  to  show  that  the  collapse  of  the  windmill  was  due  solely  to  a  fortuitous  event. 
Interestingly,  the  evidence  does  not  disclose  that  there  was  actually  a  typhoon  on  the  day  the 
windmill  collapsed.  Petitioner  merely  stated  that  there  was  a  "strong  wind."  But  a  strong  wind  in 
this  case  cannot  be  fortuitous  -  unforeseeable  nor  unavoidable.  On  the  contrary,  a  strong  wind 
should be present in places where windmills are constructed, otherwise the windmills will not turn. 

Petitioner's  argument  that  private  respondent  was  already  in  default  in  the  payment  of  his 
outstanding  balance  of  P15,000.00  and hence should bear his own loss, is untenable. 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.  Thus,  respondent  cannot  be  said  to  have  incurred  in  delay; 
instead,  it  is  petitioner  who should bear the expenses for the reconstruction of the windmill. 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. 

21. ​PHILCOMSAT v. Globe Telecom, G.R.147324 , May 25, 2004; 

 
Petitione​r: Philippine Communications Satellite Corporation (Philcomsat) 
Respondent:​ Globe Telecom, Inc. 
 
Doctrine:  
Article 1174, which exempts an obligor from liability on account of fortuitous events or force 
majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, 
but inevitable. 
 
 To  be  exempt  from  non-compliance  with  its  obligation  to  pay  rentals  under  Section  8,  the 
concurrence  of  the  following  elements  must  be  established: (1) the event must be independent 
of  the  human  will;  (2)  the  occurrence  must  render  it  impossible  for  the  debtor  to  fulfill  the 
obligation in a normal manner; and (3) the obligor must be free of participation in, or aggravation 
of, the injury to the creditor. 
 
 
Facts: 
● For  several  years  prior  to  1991,  Globe  Mckay  Cable  and  Radio  Corporation,  now  Globe 
Telecom,  Inc.  (Globe),  had  been  engaged  in  the  coordination  of  the  provision  of  various 
communication  facilities  for  the  military  bases  of  the  United States of America (US) in Clark 
Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales.  
● The  said  communication  facilities  were  installed  and configured for the exclusive use of the 
US  Defense  Communications Agency (USDCA), and for security reasons, were operated only 
by its personnel or those of American companies contracted by it to operate said facilities.  
● The  USDCA  contracted  with  said  American  companies,  and  the  latter,  in  turn,  contracted 
with  Globe  for  the  use  of  the communication facilities. Globe, on the other hand, contracted 
with  local  service  providers  such  as  the  Philippine  Communications  Satellite  Corporation 
(Philcomsat) for the provision of the communication facilities. 
● On  07  May  1991,  Philcomsat  and  Globe  entered  into  an  Agreement  whereby  Philcomsat 
obligated  itself  to  establish,  operate  and  provide  an  IBS  Standard  B  earth  station  (earth 
station) within Cubi Point for the exclusive use of the USDCA. 
● The term of the contract was for 60 months, or five (5) years. 
● In turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. 
● On  16  September  1991,  the Senate passed and adopted Senate Resolution No. 141, 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. (​Under Section 25, Article XVIII of the 1987 
Constitution,  foreign  military  bases,  troops  or  facilities,  which  include  those  located  at  the 
US  Naval  Facility  in  Cubi  Point,  shall  not  be  allowed in the Philippines unless a new treaty is 
duly  concurred  in  by  the  Senate  and  ratified  by  a  majority  of  the votes cast by the people 
in a national referendum when the Congress so requires, and such new treaty is recognized 
as such by the US Government​.) 
● On  31  December  1991,  the  Philippine  Government  sent  a Note Verbale to the US Government 
through  the  US  Embassy,  notifying  it  of  the  Philippines’  termination  of  the  RP-US  Military 
Bases Agreement. 
● In  a  letter  dated  06  August  1992, Globe notified Philcomsat of its intention to discontinue the 
use  of  the  earth  station  effective  08  November  1992  in  view  of  the withdrawal of US military 
personnel  from  Subic  Naval  Base  after  the  termination  of  the  RP-US  Military  Bases 
Agreement. 
● Philcomsat  sent  a  reply  letter  dated 10 August 1992 to Globe, stating that "we expect [Globe] 
to  know  its  commitment  to  pay  the  stipulated  rentals  for  the  remaining  terms  of  the 
Agreement  even  after  [Globe]  shall  have  discontinue[d]  the  use  of  the  earth  station  after 
November 08, 1992 
● After  the  US  military  forces  left  Subic  Naval  Base,  Philcomsat  sent  Globe  a  letter  dated  24 
November  1993  demanding  payment  of  its  outstanding  obligations  under  the  Agreement 
 amounting  to  US$4,910,136.00  plus  interest  and  attorney’s  fees.  However,  Globe  refused  to 
heed Philcomsat’s demand. 
 
Issue/s: 
 
Whether  the  termination  of  the  RP-US Military Bases 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;  
 
Ruling: 
 
Yes.   Philcomsat’s  argument  that Section 8 of the Agreement cannot be given effect because the 
enumeration  of  events  constituting  force  majeure  therein  unduly  expands  the  concept  of  a 
fortuitous event under Article 1174 of the Civil Code and is therefore invalid. 
 
In  support  of  its  position,  Philcomsat  contends  that  under  Article  1174  of  the  Civil  Code,  an  event 
must  be  unforeseen  in  order  to  exempt  a  party  to  a contract from complying with its obligations 
therein.  It  insists  that  since  the  expiration  of  the  RP-US  Military  Bases  Agreement,  the 
non-ratification  of  the  Treaty  of  Friendship,  Cooperation  and  Security  and  the  withdrawal  of  US 
military  forces  and  personnel  from  Cubi  Point  were  not  unforeseeable,  but  were  possibilities 
known  to  it  and  Globe  at  the  time  they  entered  into  the  Agreement,  such  events cannot exempt 
Globe from performing its obligation of paying rentals for the entire five-year term thereof. 
 
However,  Article  1174,  which  exempts  an  obligor  from  liability  on  account  of  fortuitous  events  or 
force  majeure,  refers  not  only  to  events  that  are  unforeseeable,  but  also  to  those  which  are 
foreseeable, but inevitable: 
 
Art.  1174.  Except  in  cases  specified  by  the  law,  or  when  it  is  otherwise  declared  by  stipulation,  or 
when  the  nature  of  the  obligation  requires  the  assumption  of risk, no person shall be responsible 
for those events which, could not be foreseen, or which, though foreseen were inevitable. 
 
A  fortuitous  event  under  Article  1174 may either be an "act of God," or natural occurrences such as 
floods or typhoons,24 or an "act of man," such as riots, strikes or wars. 
 
Philcomsat  and  Globe  agreed  in  Section  8  of  the  Agreement  that  the  following  events  shall  be 
deemed  events  constituting force majeure: 1. Any law, order, regulation, direction or request of the 
Philippine  Government;  2.  Strikes  or  other  labor  difficulties;  3.  Insurrection;  4.  Riots;  5.  National 
emergencies;6.  War;  7.  Acts  of  public  enemies;  8.  Fire,  floods,  typhoons  or  other  catastrophies or 
acts of God; 9. Other circumstances beyond the control of the parties. 
 
Clearly,  the  foregoing  are  either  unforeseeable,  or  foreseeable  but  beyond  the  control  of  the 
parties.  There  is  nothing  in  the  enumeration  that  runs  contrary  to,  or  expands,  the  concept  of  a 
fortuitous event under Article 1174. 
 
 Furthermore,  under  Article  130626  of  the  Civil  Code,  parties  to  a  contract  may  establish  such 
stipulations,  clauses,  terms  and  conditions  as  they  may  deem fit, as long as the same do not run 
counter to the law, morals, good customs, public order or public policy. 
 
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force 
of  law between the contracting parties and should be complied with in good faith.  Courts cannot 
stipulate  for  the  parties  nor  amend  their  agreement  where the same does not contravene law, 
morals,  good  customs, public order or public policy, for to do so would be to alter the real intent 
of  the  parties,  and  would  run  contrary  to  the  function  of  the  courts  to  give  force  and  effect 
thereto. 
 
Not  being  contrary  to  law,  morals,  good  customs,  public  order,  or  public  policy,  Section  8  of  the 
Agreement which Philcomsat and Globe freely agreed upon has the force of law between them. 
 
In  order  that  Globe  may  be exempt from non-compliance with its obligation to pay rentals under 
Section  8,  the  ​concurrence  of the following elements must be established: (1) the event must be 
independent  of  the  human  will;  (2)  the  occurrence  must  render  it  impossible  for  the  debtor  to 
fulfill  the  obligation  in  a  normal  manner;  and  (3)  the  obligor  must  be  free  of  participation  in,  or 
aggravation of, the injury to the creditor. 
 
22. Victorias Planters v. Victorias Milling, G.R. No. L-6648, July 25, 1955; 
 
Petitioner: Victoria Planters Association, Inc. 
Respondent: Victorias Milling Co, Inc.  
 
Doctrine:  Fortuitous  event  relieves  the  obligor  from  fulfilling  a  contractual  obligation,  to  require 
the  obligor  the  fulfillment  of  its obligation during a fortuitous event,  of which was impossible, 
if  granted,  would  in  effect  be  an  extension  of  the  term  of  the  contracts  entered  into  by  and 
between the parties. 
 
Facts: 
● T​hat  petitioners  Victorias  Planters  Association,  Inc.  and  North  Negros  Planters  Association, 
Inc.  are  non-stock  corporations  duly  established  and  existing  under  and  by  virtue  of  the 
laws  of  the  Philippines,  with  main  offices  at  Victorias,  Negros  Occidental,  and  Manapla, 
Negros  Occidental,  respectively,  and  were  organized  by,  and  are  composed  of, sugar cane 
planters  in  the  districts  of  Victorias,  Manapla  and  Cadiz,  respectively,  having  been 
established principally as the representative entities of the numerous sugar cane planters in 
said  districts  whose  sugar  cane  productions  are  milled by the respondent corporation, with 
the main object of safeguarding their interests and of taking up with the latter problems and 
questions  which  from  time  to  time, may come up between the said respondent corporation 
the said sugar cane planters;  
● That  at  various  dates,  from  the  year  1917  to  1934,  the  sugar  cane  planters  pertaining  to  the 
districts  of  Manapla  and  Cadiz,  Negros  Occidental,  executed  identical  milling  contracts, 
setting  forth  the  terms  and  conditions  under  which  the  sugar  central  "North  Negros  Sugar 
Co.  Inc."  would  mill  the  sugar  produced  by  the  sugar  cane  planters  of  the  Manapla  and 
Cadiz district; 
 ● The  North  Negros  Sugar  Co.,  Inc.  had  its  first  molienda  or  milling  during  the  1918-1919  crop 
year,  and  the  Victorias  Milling  Co.,  had  its  first  molienda  or milling during the 1921-1922 crop 
year. 
● That  after  the  liberation,  the  North  Negros  Sugar  Co.,  Inc.  did  not  reconstruct  its  destroyed 
central  at  Manapla,  Negros  Occidental,  and  in  1946,  it  advised  the  North  Negros  Planters 
Association,  Inc.  that  it  had  made  arrangements  with  the  respondent  Victorias  Milling  Co., 
Inc.  for  said  respondent  corporation  to  mill  the  sugar  cane  produced  by  the  planters  of 
Manapla and Cadiz holding milling contracts with it.  
● Thus,  after  the  war, all the sugar cane produced by the planters of petitioner associations, in 
Manapla,  Cadiz,  as  well  as  in  Victorias,  who  held  milling  contracts,  were  milled  in  only  one 
central, that of the respondent corporation at Victorias; 
● Beginning  with  the  year  1948,  and  in  the following years, when the planters-members of the 
North  Negros  Planters  Association,  Inc.  ​considered  that  the  stipulated  30-year  period  of 
their  milling  contracts  executed  in  the  year  1918  had  already  expired  and  terminated  in 
the  crop  year  1947-1948​,  and  the  planters-members  of  the  Victorias  Planters  Association, 
Inc.  likewise  considered  the  stipulated  30-year  period  of  their  milling  contracts,  as  having 
likewise  expired  and terminated in the crop year 1948-1949, under the pertinent provisions of 
the standard milling contract (Annex "A") on the duration thereof. 
● That  notwithstanding  these  repeated  representations  made  by  the  herein  petitioners  with 
the  respondent  corporation  for  the  negotiation  and  execution  of  new  milling  contracts, the 
herein  respondent  has  r​efused  and  still  refuses  to  accede  to  the  same​,  contending  that 
under  the  provisions  of  the  mining  contract  (Annex  "A".)  "It  is  the  view  of  the majority of the 
stockholder-investors,  that  our  contracts  with  the  planters  call  for  30  years  of milling — not 
30  years  in  time"  and  that  "as  there  was no milling during 4 years of the recent war and two 
years  of  reconstruction,  when these six years are added on to the earliest of our contracts in 
Manapla,  the  contracts  by  this view terminate in the autumn of 1952," and the "the contracts 
for  the  Victorias  Planters  would  terminate  in  1957,  and  still  later  for  those  in  the  Cadiz 
districts,"  and  that  "apart  from  the  contractual  agreements,  the  Company  believes  these 
war and reconstruction years accrue to it in equity. 
 
Issue: ​Whether petitioners can be compelled to deliver sugar cane for six more years after the 
expiration of the 30 day period to make up for what they failed to deliver to the respondent. 
 
Ruling: NO.  
 
Fortuitous  event  relieves  the  obligor  from  fulfilling  a  contractual  obligation.  The  fact  that  the 
contracts  make  reference  to  "first  milling"  does  not  make  the  period  of  thirty  years  one  of  thirty 
milling  years.  The  term  "first  milling"  used  in  the  contracts  under  consideration  was  for  the 
purpose of reckoning the thirty-year period stipulated therein.  
 
Even  if  the  thirty-year  period  provided  for  in  the  contracts  be  construed  as  milling  years,  the 
deduction or extension of six years would not be justified. 
 
  At  most  on  the  last  year of the thirty-year period stipulated in the contracts the delivery of sugar 
cane  could  be  extended  up  to  a  time  when  all  the  amount  of  sugar  cane  raised  and  harvested 
should  have  been  delivered  to  the  appellant's  mill  as  agreed  upon.  The  seventh  paragraph  of 
Annex  "C",  not  found in the earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant in 
its  brief, where the parties stipulated that in the event of flood, typhoon, earthquake, or other force 
majeure,  war,  insurrection,  civil  commotion,  organized  strike,  etc.,  the  contract  shall  be  deemed 
suspended  during  said  period,  does  not  mean  that  the  happening  of  any  of  those  events  stops 
the  running  of  the  period  agreed  upon.  It  only  relieves  the  parties  from  the  fulfillment  of  their 
respective  obligations  during  that time — the planters from delivering sugar cane and the central 
from milling it. 
 
  In  order  that  the  central,  the  herein  appellant, may be entitled to demand from the other parties 
the  fulfillment  of  their  part  in the contracts, the latter must have been able to perform it but failed 
or  refused  to  do  so  and  not  when  they  were  prevented  by  force  majeure such as war. To require 
the  planters  to  deliver  the  sugar  cane  which  they  failed  to  deliver  during  the  four  years  of  the 
Japanese  occupation  and  the  two  years  after  liberation  when  the  mill  was  being  rebuilt  is  to 
demand  from  the  obligors  the  fulfillment  of  an  obligation  which  was  impossible  of performance 
at the time it became due. Nemo tenetur ad impossibilia.  
 
The  obligee  not being entitled to demand from the obligors the performance of the latters' part of 
the  contracts  under  those  circumstances  cannot  later  on  demand  its  fulfillment.  The 
performance of what the law has written off cannot be demanded and required.  
 
The  prayer  that  the  plaintiffs  be  compelled  to  deliver  sugar  cane  to  the  appellant  for  six  more 
years  to  make  up  for what they failed to deliver during those trying years​, the fulfillment of which 
was  impossible,  if  granted,  would  in  effect be an extension of the term of the contracts entered 
into by and between the parties. 
 
 
 
23. SBTC v. CA, 249 SCRA 206; 
 
Petitioner​: Security Bank and Trust Company and Rosito Manhit 
Respondent: ​Court of Appeals and Ysmael Ferrer 
 
Doctrine:  
Under  Article  1182  of  the  Civil  Code,  a  conditional  obligation shall be void if its fulfillment depends 
upon  the  sole  will  of  the debtor. In the present case, the mutual agreement, the absence of which 
petitioner  bank  relies  upon  to  support  its  non-liability  for  the  increased  construction  cost,  is  in 
effect  a  condition  dependent  on  petitioner  bank's  sole  will,  since  private  respondent  would 
naturally  and  logically  give consent to such an agreement which would allow him recovery of the 
increased cost. 
 
Facts: 
● Private  respondent  Ysmael  C.  Ferrer  was  contracted  by  petitioners  Security  Bank  and  Trust 
Company (SBTC) and Rosito C. Manhit to construct the building of SBTC in Davao City for the 
price ofP1,760,000.00.  
● Respondent  Ferrer  was  able  to  complete  the  construction  of  the  building  within  the 
contracted  period  but  he  was  compelled  by  a  drastic  increase  in  the  cost  of  construction 
materials to incur expenses of about P300,000.00 on top of the original cost. 
 ●   The  additional  expenses  were  made  known  to  petitioner  SBTC  thru  its  Vice-President  Fely 
Sebastian  and  Supervising  Architect  Rudy  de  la  Rama.  Respondent  Ferrer  made  timely 
demands for payment of the increased cost.  
● Said  demands  were  supported  by  receipts,  invoices,  payrolls and other documents proving 
the additional expenses.  
● In  March  1981,  SBTC  thru  Assistant  Vice-President  Susan  Guanio  and  a  representative  of an 
architectural firm consulted by SBTC, verified Ferrer's claims for additional cost.  
● A recommendation was then made to settle Ferrer's claim but only for P200,000.00. 
●   SBTC,  instead  of  paying  the  recommended  additional  amount,  denied  ever  authorizing 
payment  of any amount beyond the original contract price.SBTC likewise denied any liability 
for the additional cost based on Article IX of the building contract.  
● SBTC  argued  that  under  Article  IX  of  the  building contract, any increase in the price of labor 
and/or  materials  resulting  in  an  increase in construction cost above the stipulated contract 
price  will  not  automatically  make  petitioners  liable  to  pay  for  such  increased  cost,  as  any 
payment  above  the  stipulated  contract  price  has  been  made  subject  to  the condition that 
the "appropriate adjustment" will be made "upon mutual agreement of both parties."  
● It  is  contended  that  since  there  was  no  mutual  agreement between the parties, petitioners' 
obligation to pay amounts above the original contract price never materialized.  
● Ysmael  C.  Ferrer  then  filed  a  complaint  for  breach of contract with damages. The trial court 
ruled for Ferrer. The Court of Appeals affirmed the trial court decision. 
 
Issue/s: ​Whether or not petitioners are liable to pay for the increased construction cost. 
 
Ruling: YES. 
 
It is not denied that private respondent incurred additional expenses in constructing petitioner 
bank's building due to a drastic and unexpected increase in construction cost. 
 
  In  fact,  petitioner  bank  admitted  liability  for  increased  cost when a recommendation was made 
to  settle  the  private  respondent's  claim  for  P200,000.00.  Private  respondent's  claim  for  the 
increased  amount  was  adequately  proven  during  the  trial  by  receipts,  invoices  and  other 
supporting documents. 
 
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends 
upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which 
petitioner bank relies upon to support its non-liability for the increased construction cost, is in 
effect a condition dependent on petitioner bank's sole will, since private respondent would 
naturally and logically give consent to such an agreement which would allow him recovery of the 
increased cost. 
 
Further, it cannot be denied that petitioner bank derived benefits when private respondent 
completed the construction even at an increased cost. 
 
Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual 
construction  cost  would  undoubtedly  constitute  unjust  enrichment  for  the  bank  to  the  prejudice 
of 
private respondent. Such unjust enrichment is not allowed by law. 
 
 
24. Khe Hong Cheng v. CA, 355 SCRA 701, 
 
Petitioner​: KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE 
Respondent: ​COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM 
INSURANCE CO., INC., 
 
Doctrine:  Article  1389 of the Civil Code simply provides that the action to claim rescission must be 
commenced  within  four  years.  When  the  law  is  silent  as  to  when  the  prescriptive  period  shall 
commence, general rule must apply that it will commence when the moment the action accrues. 
 
Facts: 
● Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. 
●   It  appears  that  on  or  about  October  4,  1985, the Philippine Agricultural Trading Corporation 
shipped  on  board  the  vessel  M/V  PRINCE  ERIC,  owned  by  petitioner  Khe  Hong  Cheng,  3,400 
bags of copra at Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte.  
● The  said  shipment  of  copra  was  covered  by  a  marine insurance policy issued by American 
Home Insurance Company (respondent Philam's assured).  
● M/V  PRINCE  ERlC,  however,  sank  somewhere  between  Negros  Island  and  Northeastern 
Mindanao,  resulting  in  the  total  loss  of  the  shipment.  Because  of  the  loss,  the  insurer, 
American Home, paid the amount of P354,000.00 (the value of the copra) to the consignee. 
● Having  been  subrogated  into  the  rights  of  the  consignee,  American  Home  instituted  Civil 
Case  No.  13357  in  the  Regional  Trial  Court  (RTC) of Makati , Branch 147 to recover the money 
paid to the consignee, based on breach of contract of carriage.  
● While  the  case  was  still  pending,  or  on  December  20,  1989,  petitioner  Khe  Hong  Cheng 
executed  deeds  of  donations  of parcels of land in favor of his children, herein co-petitioners 
Sandra Joy and Ray Steven.  
● The  trial  court  rendered  judgment  against  petitioner  in  the  civil case on December 29, 1993, 
four  years  after  the  donations  were  made  and  the  TCTs  were  registered  in  the  donees’ 
names ordering him to pay herein respondents.  
● After  the  said  decision  became  final  and  executory,  a  writ  of  execution  was  forthwith.  Said 
writ  of  execution,  however, was not served. An alias writ of execution was, thereafter, applied 
for and granted.  
● Despite  earnest  efforts,  the  sheriff  found  no  property  under  the  name  of  Butuan  Shipping 
Lines  and/or  petitioner  Khe  Hong  Cheng  to  levy  or  garnish  for  the  satisfaction  of  the  trial 
court's decision.  
● When  the  sheriff,  accompanied  by  counsel  of  respondent  Philam,  went  to  Butuan  City  on 
January  17,  1997,  to  enforce  the  alias  writ  of  execution,  they  discovered  that  petitioner  Khe 
Hong  Cheng  no  longer  had  any  property  and  that  he  had  conveyed  the subject properties 
to his children.  
● Respondent  Philam filed a complaint for the rescission of the deeds of donation executed by 
petitioner  Khe  Hong  Cheng  in  favor  of  his  children  and  for  the  nullification  of  their  titles. 
Respondent  Philam  alleged,  that  petitioner  executed  the  aforesaid  deeds  in  fraud  of  his 
creditors, including respondent Philam.  
 ● The  trial  court  denied  the  motion  to dismiss. It held that respondent Philam's complaint had 
not  yet  prescribed.  According  to  the  trial  court,  the  prescriptive  period  began  to  run  only 
from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357.  
● On  appeal  by  petitioners,  the  CA  affirmed  the  trial  court's  decision  in  favor  of  respondent 
Philam.  
● The  CA  declared  that  the  action  to  rescind  the  donations  had  not  yet  prescribed.  Citing 
Articles  1381  and  1383  of  the  Civil  Code,  the CA ruled that the four year period to institute the 
action  for  rescission began to run only in January 1997, and not when the decision in the civil 
case  became  final  and  executory  on  December  29,  1993.  The  CA  reckoned  the  accrual  of 
respondent  Philam's  cause  of  action  on  January  1997,  the time when it first learned that the 
judgment  award  could  not  be  satisfied  because the judgment creditor, petitioner Khe Hong 
Cheng, had no more properties in his name.   
● Prior  thereto,  respondent  Philam  had  not  yet  exhausted  all  legal  means  for the satisfaction 
of  the  decision  in  its  favor,  as  prescribed  under  Article  1383  of  the  Civil  Code.  Petitioners’ 
motion  for  reconsideration  was  likewise  dismissed  in  the  appellate  court's  resolution dated 
July 11, 2000.  
 
Issue/s: ​ whether or not the action to rescind the donations has already prescribed 
 
Ruling:  No.  As  provided  under  Article  1389  of  the  Civil  Code  simply  provides  that, "The action to 
claim rescission must be commenced within four years." 
Since  this  provision  of  law  is  silent  as  to  when  the  prescriptive  period  would  commence,  the 
general  rule,  i.e.,  from  the  moment  the  cause  of  action  accrues,  therefore,  applies.  Article  1150  of 
the Civil Code is particularly instructive: 
 
Art.  1150.  The  time  for  prescription  for  all  kinds of actions, when there is no special provision which 
ordains otherwise, shall be counted from the day they may be brought. 
 
Indeed,  the  Supreme  Court  enunciated  the  principle  that  it  is  the  legal  possibility  of  bringing the 
action  which  determines  the  starting  point  for  the  computation  of  the  prescriptive period for the 
action.7 Article 1383 of the Civil Code provides as follows: 
 
Art.  1383.  An  action  for  rescission  is  subsidiary;  it  cannot  be  instituted  except  when  the  party 
suffering damage has no other legal means to obtain reparation for the same. 
 
It  is  thus  apparent  that  an  action  to  rescind  or  an accion pauliana must be of last resort, availed 
of  only  after  all  other  legal  remedies  have  been  exhausted  and  have  been  proven  futile.  For  an 
accion pauliana to accrue, the following requisites must concur: 
 
1)  That the plaintiff asking for rescission has a credit prior to, the alienation, although demandable 
later; 
  2)  That  the  debtor  has  made  a  subsequent  contract  conveying  a  patrimonial  benefit  to  a  third 
person; 
  3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by rescission 
of the conveyance to the third person;  
4) That the act being impugned is fraudulent;  
5)  That  the  third  person  who  received  the  property  conveyed,  if  by  onerous  title,  has  been  an 
accomplice in the fraud 
 
According  to  the  trial  court,  the  period  began  from  December  29,  1993  when  the  civil  case  was 
resolved.  Thus,  the  CA  maintained  that  the  four  year  period  began only in January 1997, the time 
when  it  first  learned  that  the  judgment  award  could  not  be  satisfied  because  Khe  Hong  Cheng 
had no more properties in his name.  
 
An  action  for  rescission  must  be  the  last  resort  of  the  creditors and can only be availed after the 
creditor had exhausted all the properties.  
 
The  herein  respondent came to know only in January 1997 about the unlawful conveyances of the 
petitioner  when,  together  with  the  sheriff  and  counsel,  where  to  attach  the  property  of  the 
petitioner and it was then only when they found out it is no longer in the name of the petitioner.  
 
Since  the  respondent  filed  accion  pauliana  in  February  1997,  a  month  after  the  discovery  that 
petitioner  had  no  property  in  his  name  to  satisfy  the  judgment,  action  for  rescission  of  subject 
deeds had not yet prescribed. 
 
25. ​Manila Banking Corp. v . Silverio, G.R. 132887, Aug. 11, 2005; 
 
Petitioner​: THE MANILA BANKING CORPORATION 
Respondent: ​EDMUNDO S. SILVERIO and THE COURT OF APPEALS 
 
Doctrine: 
Facts:  
● Purificacion  Ver  was  the  registered  owner  of  two  parcels  of  land  located  at  La  Huerta, 
Parañaque  City,  covered  by  Transfer  Certificates  of  Title  (TCTs)  No.  31444 (452448) and No. 
45926 (452452) of the Registry of Deeds of Parañaque City. 
● On  16  April  1979,  Purificacion  Ver sold the properties to Ricardo C. Silverio, Sr. (Ricardo, Sr.) for 
₱1,036,475.00.4  The  absolute  deed  of  sale  evidencing  the  transaction  was  not  registered; 
hence, title remained with the seller, Purificacion Ver. 
● On  22  February  1990,  herein  petitioner,  The  Manila  Banking  Corporation  (TMBC),  filed  a 
complaint  with  the  RTC  of  Makati  City  for  the  collection  of a sum of money with application 
for  the  issuance  of  a  writ  of  preliminary  attachment  against  Ricardo,  Sr.  and  the  Delta 
Motors Corporation docketed as Civil Case No. 90-513. 
● On  02  July  1990, by virtue of an Order of Branch 62 of the RTC of Makati City, notice of levy on 
attachment  of  real  property  and  writ  of  attachment  were  inscribed  on  TCTs  No.  31444 
(452448) and No. 45926 (452452). 
● On  29  March  1993,  the  trial  court rendered its Decision in favor of TMBC and against Ricardo, 
Sr.  and  the  Delta  Motors  Corporation.7  The  Decision was brought up to the Court of Appeals 
for review. 
● On  22  July  1993,  herein  private  respondent,  Edmundo  S.  Silverio  (Edmundo),  the  nephew  of 
judgment  debtor  Ricardo,  Sr.,  requested  TMBC  to  have  the  annotations  on  the  subject 
properties cancelled as the properties were no longer owned by Ricardo, Sr. 
● No steps were taken to have the annotations cancelled 
 ● Thus,  on  17  December  1993,  Edmundo  filed  in  the RTC of Makati City a case for "Cancellation 
of  Notice  of  Levy  on  Attachment and Writ of Attachment on Transfer Certificates of Title Nos. 
452448  and  452452  of  the  Office  of  the  Registrar  of  Land  Titles  and  Deeds  of  Parañaque, 
Metro Manila."  
● In  his  petition,  Edmundo  alleged  that  as  early  as  11  September  1989,  the  properties,  subject 
matter  of  the  case,  were  already  sold  to  him  by  Ricardo,  Sr. As such, these properties could 
not  be  levied  upon  on  02  July  1990  to  answer  for  the  debt of Ricardo, Sr. who was no longer 
the owner thereof.  
● In  its  Answer  with  Compulsory  Counterclaim,  TMBC  alleged,  among  other  things,  that  the 
sale  in  favor  of  Edmundo  was  void,  therefore, the properties levied upon were still owned by 
Ricardo, Sr., the debtor in Civil Case No. 90-513. 
● RTC:  On  02  May  1995,  after  trial  on  the  merits,  the  lower  court  rendered  its  Decision 
dismissing  Edmundo’s  petition.  TMBC’s  counterclaim  was  likewise  dismissed  for  lack  of 
sufficient merit.  
● CA:  The  Court  of  Appeals,  upon  reviewing  the  case  at  the  instance  of  Edmundo,  reversed 
and set aside the trial court’s ruling. The dispositive portion of its Decision reads: 
 
Issue/s: ​Whether the contract of sale between Ricardo Silverio and Edmundo Silverio is valid?  
 
Ruling:  ​No.  Basic is the rule that only properties belonging to the debtor can be attached, and an 
attachment  and  sale  of  properties  belonging  to  a  third  party  are  void.  Between  the  disparate 
positions  of  the  trial  court  and  the  Court  of  Appeals,  we  find  those of the trial court to be more in 
accord with the evidence on hand and the laws applicable thereto 
 
An  absolutely  simulated  contract,  under  Article  1346  of  the Civil Code, is void. It takes place when 
the  parties  do  not  intend  to  be  bound  at  all.  The  characteristic  of  simulation  is  the  fact  that  the 
apparent  contract is not really desired or intended to produce legal effects or in any way alter the 
juridical  situation  of  the  parties.  Thus,  where  a  person,  in  order  to  place  his  property  beyond  the 
reach  of  his  creditors,  simulates  a  transfer  of  it  to  another,  he  does  not  really  intend  to  divest 
himself  of  his  title  and  control  of  the  property;  hence,  the deed of transfer is but a sham. Lacking, 
therefore,  in  a  fictitious  and  simulated  contract  is  consent  which  is  essential  to  a  valid  and 
enforceable contract. 
 
1)  There is no proof that the said sale took place prior to the date of the attachment. The notarized 
deed  of  sale,  which  would  have  served  as  the  best  evidence  of  the  transaction,  did  not 
materialize  until  22 July 1993, or three (3) years after TMBC caused the annotation of its lien on the 
titles subject matter of the alleged sale 
2)  Edmundo,  to  say  the  least,  was  very  evasive when questioned regarding details of the alleged 
sale.  The  deed  of  sale  mentioned  Three  Million  One  Hundred  Nine  Thousand  and  Four  Hundred 
Twenty-Five  pesos  (P3,109,425.00)  as  the  contract  price  paid by hand during the execution of the 
contract, yet, when asked on cross-examination, Edmundo could not remember if he paid directly 
to Ricardo, Sr. Worse, he could not remember where Ricardo, Sr. was at the time of the sale 
3)  An  indication  of  simulation  of  contract  is  the  complete  absence  of an attempt in any manner 
on  the  part  of  the  ostensible  buyer  to  assert  rights  of  ownership  over  the  subject  properties.  In 
herein case, Edmundo did not attempt to have the 1989 deed of sale registered until 1993 
 
 Taken  together  with  the  other  circumstances  surrounding  the  sale,  Edmundos  failure  to exercise 
acts  of dominium over the subject properties buttresses TMBCs position that the former did not at 
all  intend  to  be  bound  by  the  contract  of  sale.  Such  failure  is  a  clear  badge  of  simulation  that 
renders the whole transaction void pursuant to Article 1409 of the Civil Code. 
 
Indeed,  considering  that  an  absolutely  simulated  contract is not a recognized mode of acquiring 
ownership,  the  levy  of  the  subject  properties  on  02  July  1990  pursuant  to  a  writ  of  preliminary 
attachment  duly  issued  by  the  RTC  in  favor  of  TMBC  and  against  its  debtor,  Ricardo,  Sr.,  was 
validly  made  as  the  properties  were  invariably  his.  Consequently,  Edmundo,  who  has  no  legal 
interest  in  these  properties,  cannot  cause  the  cancellation  of  the  annotation  of  such  lien  for  the 
reasons stated in his petition. 
 
 
(Villaluz, Tricia) 
26. Siguan v. Lim, 318 SCRA 725 
 
FACTS: 

On  25  and  26  August  1990,  respondent  issued  two  Metrobank  checks  to  petitioner.  However,  the checks were 
dishonored  for  the  reason  account  closed.  After  demands  to  make  good  the  checks  proved  futile, a criminal 
case  for  violation  of  Batas  Pambansa  Blg.  22  was  filed  by  the  petitioner  with  the Regional Trial Court (RTC) of 
Cebu  City. The lower court convicted the respondent. On 31 July 1990 respondent was also charged with estafa 
by a certain Victoria Suarez. Respondent was acquitted but held civilly liable. 

On  2  July  1991,  a  Deed  of  Donation  conveying  the  parcels of land and purportedly executed by respondent on 

10  August  1989  in  favor  of  her  children  was  registered.  On  23  June  1993,  petitioner  filed  an  accion  pauliana 
against  respondent  and  her children to rescind the questioned Deed of Donation. She alleges that respondent 
and her children conspired to fraudulently transfer all her real property to her children in bad faith and in fraud 
of creditors, including her. 

The  trial  court  ordered  the  rescission  of  the  deed  of  donation.  But  upon  appeal,  the CA reversed the decision 
contending  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.  The  CA  argues  the  deed  of  donation 
appears to have been executed in 1989 prior to any credit. 

ISSUES: 

Whether  or  not  the  Deed  of  Donation  executed  by  respondent  Rosa  Lim  in  favor  of  her  children be rescinded 
for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan. 

RULING: 

No.  The  alleged  debt  of  respondent  in  favor  of  petitioner  was  incurred  in  August  1990,  while  the  deed  of 
donation  was  purportedly  executed  on  10  August  1989.  Article 1381 of the Civil Code enumerates the contracts 
which  are  rescissible,  and  among  them  are  those  contracts  undertaken  in  fraud  of  creditors  when  the  latter 
cannot  in  any  other  manner  collect  the  claims  due  them. 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, 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;  (4)  the  act  being  impugned  is  fraudulent;  (5)  the  third  person  who  received the 
property conveyed, if it is by onerous title, has been an accomplice in the fraud. 

The fourth requisite for an accion pauliana to prosper is not present either. 

Article  1387,  first  paragraph,  of  the  Civil  Code  provides:  All  contracts  by  virtue  of  which  the  debtor  alienates 
property  by  gratuitous  title  are  presumed  to  have  been  entered  into  in  fraud  of creditors when the donor did 
not  reserve  sufficient  property  to  pay  all  debts  contracted  before  the  donation.  Likewise,  Article  759  of  the 
same  Code,  second  paragraph,  states  that  the  donation  is always presumed to be in fraud of creditors when 
at the time thereof the donor did not reserve sufficient property to pay his debts prior to the donation. 

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,  petitioners  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. 
Evidence also disclose that respondent still had other properties when the deed of donation was executed. 

 
  
Chapter 3. Different Kinds of Obligations 
  
Section 1. Pure and Conditional Obligations​. 
  
27. Nunez v. Moises-Palma, G.R. No. 244466, Mar. 27,​ ​2019; 
 

VicenticoNuñez  ,  owned  a  429  square  meter  lot  in  Mambusao,  Capiz.  In  May  1992,  Vicentico,  who  was  then 
suffering  from  diabetes,  borrowed  P30,000.00  from  Rosita  Moises  (Rosita)  and  as  security,  executed  a  real 
estate  mortgage  over  his  property.Since  Rosita  had  no  money,  the  funds  came  from  Norma  Moises-Palma 
(Norma),  Rosita's  daughter.  According  to  petitioners,  the  P30,000.00  loan  of  Vicentico  was subsequently paid 
as evidenced by an Affidavit Authorizing Release of Mortgage 

  

Upon  Vicentico's  death  on  September  27,  1994, the subject lot was transmitted to his heirs, namely: petitioners 

Karen  Nuñez  Vito  (Karen),  Warren  Nuñez  (Warren),  Lynette  NuñezMacinda  (Lynette), Alden Nuñez (Alden) and 
Placida  Hisole10  Nuñez (Placida), Vicentico's surviving spouse.Placida died on August 1, 1997 and her share was 
inherited equally by her heirs. 

  

On  June  28,  1995,  Norma  was  able  to  have  all  petitioners,  except  Alden,  sign  a Deed of Adjudication and Sale 
(DAS)  wherein  petitioners  purportedly  sold  to  Norma  their  respective  pro  indiviso  shares  in  the  subject lot for 
P50,000.  After  the  execution  of  the  DAS,  Norma  immediately  took  possession  of  the  subject  lot.Instead  of 
paying  cash,  Norma  executed  a  Promissory  Note  (PN)  on  July  1,  1995  in  favor  of  petitioners  whereby  she 
obligated  herself  to  pay  P50,000.  Shealso  executed  an  Acknowledgment  of  Debt  (AOD)  dated  February  22, 
2007, whereby she admitted that she owed petitioners P50,000.00, representing the purchase price of the DAS. 

  

Despite  non-payment  of  the  purchase  price  and  the  absence  of  Alden's  signature  on  the  DAS,  Norma  was 
able  to  cause  the  registration  of  the  document  with  the  Register  of  Deeds  of  Capiz  and  TCT  T-3546022  was 
issued to her on August 2, 2005 

  

On  July  10,  2006,  Alden  sought  to  annul  the  TCT and have the DAS declared null and void. However, during the 
pendency of the case, Alden and Norma reached a compromise agreement. 

  

On  August  15,  2007,  petitioners  Karen,  Warren  and  Lynette,  represented  by  their  brother  and  attorney-in-fact 
Alden,  filed  against  Norma  a  case  for  Declaration  of  Nullity  of  Deed  of  Adjudication  and  Sale, Cancellation of 
Transfer  Certificate  of  Title  No.  T-35460,  Recovery  of  Ownership  and/or  Possession  of  Lot  No.  2159-A  and 
Damages  before  the  MTC.  MTC  ruled  in  favor  of  siblings  Nunez  saying  that  the  DAS  was  null  and  voidon  the 
ground that the pricehas in fact never been paid by the vendee to the vendor. 

  

Norma appealed the decision with the RTC. RTC ruled in favor of Norma saying that the DAS was valid because 
there  was  constructive  delivery  of  the  lot  in  question  right  after  the  execution  of  the  Deed  of  Adjudication, 
showing transfer of ownership. 

  

Nunez  appealed  the  case  before  the  CA.  CA  affirmed  RTC  decision  but  said  that  it  was  not  a  contract  of 
salebut  in  fact  a  dacionenpago.  Petitioners  then  elevated  the  case  before  the  SC  as  a  question of law under 
rule 45 because the ruling of the RTC and the CA was divergent. 

 
 
28. Federal Express Corp. V. Antonino, G.R. No. 199455; June 27, 2018; 
 
Doctrine: 
Facts: 
Issue/s: 
Ruling: 
 
29. Plazo v. Lipat, G.R. No. 182409, March 20, 2017; 
 
Doctrine: 
Facts: 
Issue/s: 
 Ruling: 
 
30. Province of Camarines Sur v. Bodega Glassware, G.R. No. 194199, Mar. 22, 2017; 
 
Doctrine: 
Facts: 
Issue/s: 
Ruling: 
 
 
(Manibo, Eileen) 
31. Nissan Car v. Lica, G.R. 176968, Jan. 13, 2016​; 
J.  Jardeleza:  ​The  power  to  rescind  is  implied  in  reciprocal  obligations  and  may  be  resorted  to  without prior 
court  approval,  pursuant  to  Art.  1191  of  the  New  Civil  Code,  even  if  a  contract  does  not  contain  a  provision 
expressly authorizing extrajudicial rescission. 

Facts:  LMI  owns  a  property  located  at  2326  Pasong  Tamo  Extension,  Makati  City  with  a  total  area  of 
approximately  2,860  square  meters.  On  June  24,  1994,  it  entered  into  a  contract  with  NCLPI  for  the  latter  to 
lease  the  property  for  a  term  of  ten  (10)  years  (or  from  July  1,  1994  to  June  30,  2004) with a monthly rental of 
P308,000.00  and  an annual escalation rate of ten percent (10%). Sometime in September 1994, NCLPI, with LMI's 
consent, allowed its subsidiary Nissan Smartfix Corporation (NSC) to use the leased premises. 

  Subsequently,  NCLPI  became  delinquent  in  paying  the  monthly  rent,  such  that  its  total  rental 
arrearages  amounted  to  P1,741,520.85.  In  May  1996,  Nissan and Lica verbally agreed to convert the arrearages 
into  a  debt  to  be  covered  by  a  promissory  note  and  twelve  (12)  postdated  checks,  each  amounting  to 
P162,541.95 as monthly payments starting June 1996 until May 1997. 

  While  NCLPI  was  able  to  deliver  the  postdated  checks  per  its  verbal  agreement  with  LMI,  it  failed  to 
sign  the  promissory  note  and  pay  the checks for June to October 1996. Thus, in a letter dated October 16, 1996, 
which  was  sent  on  October  18,  1996  by  registered  mail,  ​LMI  informed  NCLPI  that  it  was  terminating  their 
Contract  of  Lease  due  to  arrears  in  the  payment  of  rentals​.  It  also demanded that NCLPI (1) pay the amount 
of P2,651,570.39 for unpaid rentals and (2) vacate the premises within five (5) days from receipt of the notice. 

  In  the  meantime,  Proton  sent  NCLPI  an  undated  request  to  use  the premises as a temporary display 
center  for  "Audi"  brand  cars  for  a  period  of  ten  (10)  days.  In  the  same  letter,  Proton  undertook  "not  to  disturb 
[NCLPI  and LMI's] lease agreement and ensure that [NCLPI] will not breach the same [by] lending the premises 
. . . without any consideration." NCLPI acceded to this request. 

  On  October  11,  1996, NCLPI entered into a Memorandum of Agreement with Proton whereby the former 

agreed  to  allow  Proton  "to  immediately  commence  renovation  work  even  prior  to  the  execution  of  the 
Contract  of  Sublease  .  .  .  ."  In  a  letter  dated  October  24,  1996,  NCLPI,  through  counsel,  replied  to  LMI's  letter  of 
October  16,  1996,  claiming  that  it  has  no  intention  of  abandoning  the  lease  and  citing  efforts  to  negotiate  a 
possible sublease of the property, thus requesting LMI to defer court action. 

  LMI,  on  November  8,  1996,  entered  into  a  Contract of Lease with Proton over the subject premises. On 

November  12,  1996,  LMI  filed  a  Complaint  for  sum  of  money  with  damages  seeking  to  recover  from  NCLPI the 
amount  of  P2,696,639.97,  equivalent  to the balance of its unpaid rentals, with interest and penalties, as well as 
exemplary  damages,  attorney's  fees,  and  costs  of  litigation.  In  a  letter  of  even  date  addressed  to  LMI,  ​NCLPI 
asserted  that  its failure to pay rent does not automatically result in the termination of the Contract of Lease 
nor  does  it  give  LMI  the  right  to  terminate  the  same​.  NCLPI  also  informed  LMI  that  since  it  was  unlawfully 
ousted  from  the  leased  premises  and  was  not  deriving  any  benefit  therefrom,  it  decided  to  stop payment of 
the  checks  issued  to  pay  the  rent.  In  its  Answer  and  Third-Party  Claim,  NCLPI  alleged  that  LMI  and  Proton 
“schemed” and “colluded” to unlawfully force NCLPI from the premises. 
  ​Issue:  ​Whether  or  not  a  contract  may  be  rescinded  extrajudicially  despite  the  absence  of  a  special 
contractual stipulation therefor? 

 
Held:  YES.  ​It  is  true  that  NCLPI and LMI's Contract of Lease does not contain a provision expressly authorizing 
extrajudicial  rescission.  LMI  can  nevertheless  rescind  the  contract,  without prior court approval, pursuant to 
Art. 1191 of the Civil Code. 
Art.  1191  provides  that  the  power  to  rescind  is  implied  in  reciprocal  obligations,  in  cases  where  one  of  the 
obligors  should  fail  to  comply with what is incumbent upon him. Otherwise stated, an aggrieved party is not 
prevented  from  extrajudicially  rescinding  a  contract  to  protect  its  interests,  even  in  the  absence  of  any 
provision  expressly providing for such right.  The rationale for this rule was explained in the case of ​University 
of the Philippines v. De los Angeles​ wherein this Court held: 
[T]he  law  definitely  does  ​not  require  that  the  contracting  party  who  believes  itself 
injured  must  first  file  suit  and  wait  for  a  judgment  before  taking  extrajudicial  steps  to 
protect  its  interest.  ​Otherwise,  the  party  injured  by  the  other's  breach  will  have  to 
passively  sit  and  watch  its  damages  accumulate  during  the  pendency  of  the  suit 
until  the  final  judgment  of  rescission  is  rendered  ​when  the  law  itself requires that he 
should  exercise  due  diligence  to  minimize  its  own  damages  (Civil  Code,Article 2203). 
(Emphasis and underscoring supplied) 
Whether  a  contract  provides  for  it  or  not,  the  remedy  of  rescission  is  always  available  as  a  remedy 
against  a  defaulting  party. When done without prior judicial ​imprimatur​, however, it may still be subject to 
a possible court review. In ​Golden Valley Exploration, Inc. v. Pinkian Mining Company​, we explained: 
This  notwithstanding,  jurisprudence  still  indicates  that  ​an  extrajudicial  rescission 
based  on grounds not specified in the contract would not preclude a party to treat the 
same  as  rescinded.  The  rescinding  party,  however,  by  such  course  of  action,  subjects 
himself  to  the  risk  of  being  held  liable  for  damages  when  the  extrajudicial rescission is 
questioned  by  the  opposing  party  in court. This was made clear in the case of ​U.P. v. De 
los Angeles,​ wherein the Court held as follows: 
Of  course,  it  must  be  understood  that  ​the  act of a party in treating a 
contract  as  cancelled  or  resolved  on  account  of  infractions  by  the 
other  contracting  party  must  be  made  known  to  the  other  and  is 
always  provisional, being ever subject to scrutiny and review by the 
proper  court.  ​If the other party denies that rescission is justified, it is 
free  to  resort  to  judicial  action  in  its  own  behalf,  and  bring  the 
matter  to  court.  Then,  ​should  the  court,  after  due  hearing,  decide 
that  the  resolution  of  the  contract  was  not  warranted,  the 
responsible  party  will  be  sentenced  to  ​damages​;  in  the  contrary 
case,  the  resolution  will  be  affirmed,  and  the  consequent  indemnity 
awarded to the party prejudiced. 
In  other  words,  the  party  who  deems  the  contract  violated  may 
consider  it  resolved  or  rescinded,  and  act  accordingly,  without 
previous  court  action,  but  it  ​proceeds  at  its  own  risk.​   For  it  is  only 
the  final  judgment  of  the corresponding court that will conclusively 
and  finally  settle whether the action taken was or was not correct in 
law.​ . . . (Emphasis and underscoring in the original) 
The  only  practical  effect  of  a contractual stipulation allowing extrajudicial rescission is "merely to transfer 
to the defaulter the initiative of instituting suit, instead of the rescinder." 
In  fact,  the rule is the same even if the parties' contract ​expressly allows extrajudicial rescission. The other 
party  denying  the  rescission  may still seek judicial intervention to determine whether or not the rescission 
was proper. 
Having  established  that  LMI  ​can  extrajudicially  rescind  its  contract  with  NCLPI  even  absent  an  express 
contractual  stipulation  to  that  effect,  the  question  now  to  be  resolved  is  whether  this  extrajudicial 
rescission was proper under the circumstances. 
 As  earlier  discussed,  NCLPI's  non-payment  of  rentals  and  unauthorized  sublease  of  the  leased  premises 
were  both  clearly  proven  by  the  records.  We  thus  confirm  LMI's  rescission  of  its  contract  with  NCLPI  on 
account of the latter's breach of its obligations. 
 
32. PEZA v. Philhino Sales, G.R. 185765, Sept. 28, 2016​; 
J.  Leonen:  ​Mutual  restitution,​   ​under  Article  1191  is,  however,  no  license  for  the  negation  of  contractually 
stipulated  liquidated  damages.  Article  1191  itself  clearly  states  that  the  options  of  rescission  and  specific 
performance  come  with  "with  the  payment  of  damages  in  either  case."  The  very  same breach or delay in 
performance that triggers rescission is what makes damages due. 
  
Facts:  ​On  October  4, 1997, the Philippine Economic Zone Authority (PEZA) published an invitation to bid in the 
Business  Daily  for  its  acquisition  of  two  (2)  brand  new  fire  truck  units  "with  a  capacity  of  4,000-5,000  liters 
[of]  water  and  500-1,000  liters  [of chemical foam,] with complete accessories." Pilhino secured the contract 
for  the  acquisition  of  the  fire  trucks.  The  contract  price  was  initially  at  P3,000,000.00  per  truck,  but  this was 
reduced  after  negotiation  to  P2,900,000.00  per  truck. The contract awarded to Pilhino stipulated that Pilhino 
was  to  deliver  to  the  PEZA  two  (2) FF3HP brand fire trucks within 45 days of receipt of a purchase order from 
the  PEZA.  A  further  stipulation  stated  that  "in  case  of  failure  to  deliver  the  . . . good on the date specified . . ., 
the  Supplier  agree[s]  to  pay  ​penalty  at  the  rate  of  1/10  of  1%  of  the  total  contract  price  for  each days ​[sic] 
commencing on the first day after the date stipulated above." 
  The  PEZA  furnished  Pilhino  with  a  purchase  order  dated  November  6,  1997.  Pilhino  failed  to  deliver 
the  trucks  as it had committed.  This prompted the PEZA to make formal demands on Pilhino on July 27, 1998 
and  on  February  23,  1999.  As  Pilhino  still  failed  to  comply,  the  PEZA  filed  before  the  Regional  Trial  Court  of 
Pasay  City  a  Complaint  for  rescission  of  contract  and  damages.  In  its  defense,  Pilhino  claimed  that  there 
was  no  starting  date  from  which  its obligation to deliver could be reckoned, considering that the Complaint 
supposedly  failed  to  allege  acceptance  by  Pilhino  of  the  purchase  order.  Pilhino  suggested  that  there was 
not even a meeting of minds between it and the PEZA. 
  The  ​trial  court  ruled  for  PEZA  and ordered Pilhino, among others: a) ​to pay liquidated damages at 
the  rate  of  1/10  of  1%  of  the  total  contract  price  of  P5,800,000.00  for  each  day  of  delay  commencing  from 
June  19,  1998  ​and  b)  the  ​contract be declared rescinded​. On appeal, the CA partly granted Pilhino’s appeal 
by  reducing  the  liquidated  damages  to  P1,400,000.00.  PEZA  now  asks  for  the  reinstatement  of  the  RTC’s 
award asserting that it already suffered damage when Pilhino failed to deliver the trucks on time. 
  
Issue:  ​Whether  or  not  a  stipulation  for  liquidated  damages  or  penalty  in  a  judicially  rescinded  contract be 
given separate life, force and effect, that is, separate and distinct from the rescinded and voided contract? 
  
Held:  YES.  Respondent's  intimation  that  with  the  rescission  of  a  contract necessarily and inexorably follows 
the  obliteration  of  liability  for  what  the  same  contracts  stipulates  as  liquidated  damages  is  entirely 
misplaced. 
  In ​Spouses Velarde: 
  Rescission  creates  the  obligation  to  return  the  object  of  the  contract​.  It  can  be  carried  out  only 
when  the  one  who  demands  rescission  can  return  whatever  he  may  be  obliged  to  restore. ​To rescind is to 
declare  a  contract  void  at  its  inception  and  to  put  an  end  to  it  as  though  it  never  was​.  It  is  not merely to 
terminate  it  and  release  the  parties  from  further  obligations  to  each  other,  but  to  abrogate  it  from  the 
beginning and restore the parties to their relative positions as if no contract has been made. 
  Contrary  to  respondent's  assertion,  ​mutual  restitution under Article 1191 is​, however, ​no license for 
the negation of contractually stipulated liquidated damages​. 
  Article  1191  itself  clearly  states  that  the  options  of  rescission  and  specific  performance  come with 
"with  the  payment  of  damages  in  either case." The very same breach or delay in performance that triggers 
rescission is what makes damages due. 

  When  the  contracting  parties,  by  their  own free acts of will, agreed on what these damages ought to 

be,  they  established  the  law  between  themselves.  Their  contemplation  of  the  consequences  proper  in  the 
event  of  a  breach  has  been  articulated.  When  courts  are,  thereafter,  confronted  with  the  need  to  award 
damages in tandem with rescission, courts must not lose sight of how the parties have explicitly stated, in their 
own  language,  these  consequences.  To  uphold  both  Article  1191  of  the  Civil  Code  and  the  parties'  will, 
contractually stipulated liquidated damages must, as a rule, be maintained. 

  What  respondent  purports  to  be  the  ensuing  nullification  of  liquidated  damages  is  not  a  novel 
question  in  jurisprudence.  This  matter  has  been  settled,  and  respondent's  position  has  been  rebuked.  In 
Laperal:​  
  Article  1191  states  that  "the  injured  party  may  choose  between  fulfillment  and  rescission  of  the 
obligation,  with  the  payment  of  damages  in  either  case." In other words, while petitioners are indeed 
obliged  to  return  the  said  amount  to  respondent  under  Article  1385,  assuming  said  figure  is correct, 
respondent  is  at  the  same  time  liable  to  petitioners  in  the  same  amount  as liquidated damages by 
virtue of the forfeiture/penalty clause as freely stipulated upon by the parties in the Addendum xxx 

  We  see  no  reason  for  departing from this. It is true that Laperal involved extrajudicial rescission, while 

this  case  involves  rescission  through  judicial  action.  The  distinction  between  judicial  and  extrajudicial 
rescission  is  in  how  extrajudicial  rescission  is  possible  only  when  the  contract  has  an  express  stipulation  to 
that  effect.  This  distinction  does  not  diminish  the  rights  of  a  contracting  party  under  Article  1191  of  the  Civil 
Code and is immaterial for purposes of the availability of liquidated damages. 
  To sustain respondent's claim would be to sustain an absurdity and an injustice.​ Respondent's 
position suggests that with rescission must necessarily come the obliteration of the punitive consequence 
which, to begin with, was the product of its own (along with the other contracting party's) volition. Its position 
turns delinquency into a profitable enterprise, enabling contractual breach to itself be the means for evading 
its own fallout. It is a position we cannot tolerate. 

33. Lam v. Kodak Philippines, G.R. No. 167615, January 11, 2016​; 
J.  Leonen:  ​When  rescission  is  sought  under  Article  1191  of  the  Civil  Code,  it  need  not  be  judicially  invoked 
because  the  power  to  resolve is implied in reciprocal obligations. ​Court intervention only becomes necessary 
when  the  party  who  allegedly  failed  to  comply  with  his  or  her  obligation  disputes  the  resolution  of  the 
contract.  Since  both  parties  in  this  case  have  exercised  their  right  to  resolve  under  Article  1191,  there  is  no 
need for a judicial decree before the resolution produces effects. 
  
Facts:  ​On  January  8,  1992,  the  Lam  Spouses  and  Kodak  Philippines,  Ltd.  entered  into  an  agreement  (Letter 
Agreement)  for  the  sale  of  three  (3)  units  of  the  Kodak  Minilab  System  22XL  (Minilab  Equipment)  in  the 
amount of P1,796,000.00 per unit, with the following terms: 
This  confirms  our  verbal  agreement  for  Kodak  Phils.,  Ltd.  to  provide  Colorkwik 
Laboratories,  Inc.  with  three  (3)  units  Kodak  Minilab  System  22XL  .  .  .  for  your  proposed 
outlets  in  Rizal  Avenue  (Manila),  Tagum  (Davao  del  Norte),  and your existing Multicolor 
photo counter in Cotabato City under the following terms and conditions: 
1.  Said  Minilab  Equipment  packages  will  avail  a  total  of  19% multiple order discount 
based  on  prevailing  equipment  price  provided  said  equipment  packages  will  be 
purchased not later than June 30, 1992. 
 2.  19%  Multiple  Order  Discount  shall  be  applied  in  the  form  of  merchandise  and 
delivered in advance immediately after signing of the contract. 
* Also includes start-up packages worth P61,000.00. 
3. NO DOWNPAYMENT. 
4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY 
FIVE  THOUSAND  PESOS  (P35,000.00)  inclusive  of  24%  interest  rate  for  the  first  12 
months;  the  balance  shall  be  re-amortized  for  the  remaining  36  months  and  the 
prevailing interest shall be applied. 
5.  Prevailing  price  of  Kodak  Minilab  System  22XL  as  of  January  8,  1992  is  at  ONE 
MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS. 
6. Price is subject to change without prior notice. 
*Secured with PDCs; 1st monthly amortization due 45 days after installation[.] 
  On  January  15,  1992,  Kodak  Philippines,  Ltd.  delivered  one  (1)  unit  of  the Minilab Equipment in Tagum, 
Davao  Province.  The delivered unit was installed by Noritsu representatives on March 9, 1992. The Lam Spouses 
issued  postdated  checks  amounting  to  P35,000.00  each  for  12  months  as  payment for the first delivered unit, 
with the first check due on March 31, 1992. 
  The  Lam  Spouses  requested  that  Kodak  Philippines,  Ltd.  not  negotiate  the  check  dated  March  31, 
1992  allegedly  due  to  insufficiency  of  funds.  The  same  request  was  made  for  the  check  due  on  April  30, 
1992.  However,  both  checks  were  negotiated  by  Kodak  Philippines,  Ltd.  and  were  honored  by  the 
depository  bank.  The  10  other  checks  were  subsequently  dishonored  after  the  Lam  Spouses  ordered  the 
depository bank to stop payment. 
Kodak  Philippines,  Ltd.  canceled  the  sale  and  demanded  that  the  Lam  Spouses  return  the  unit  it 
delivered  together  with  its  accessories.  The  Lam  Spouses  ignored  the  demand  but  also  rescinded  the 
contract  through  the  letter  dated  November  18,  1992  on  account  of  Kodak  Philippines,  Ltd.'s  failure  to 
deliver the two (2) remaining Minilab Equipment units​. On November 25, 1992, Kodak Philippines, Ltd. filed 
a Complaint for replevin and/or recovery of sum of money. 
 
​Issues: 

  1)  Whether  or  not  the  contract  between  Spouses  Lam  and  Kodak  pertained  to  obligations  that  are 
severable, divisible, and susceptible of partial performance? ​NO. 

  2) What are the effects of rescission of contract? 

Held: 

1)  The  Letter  Agreement  contained an ​indivisible obligation​. the intention of the parties is for there to 

be  a  single  transaction  covering  all  three  (3)  units  of  the  Minilab  Equipment.  Respondent's  obligation  was  to 
deliver  all  products  purchased  under  a  "package,"  and,  in  turn,  petitioners'  obligation  was  to  pay for the total 
purchase price, payable in installments. 

The  intention  of  the  parties  to  bind  themselves  to  an  indivisible  obligation  can  be  further  discerned  through 
their  direct  acts  in  relation  to  the  package  deal.  There  was  only  one agreement covering all three (3) units of 
the  Minilab  Equipment  and  their  accessories.  The  Letter  Agreement  specified  only  one  purpose  for the buyer, 
which  was  to  obtain these units for three different outlets. If the intention of the parties were to have a divisible 
contract,  then  separate  agreements  could  have  been  made  for  each  Minilab  Equipment  unit  instead  of 
covering  all  three  in  one package deal. Furthermore, the 19% multiple order discount as contained in the Letter 
Agreement  was  applied  to  all  three  acquired  units.  The  "no  downpayment"  term  contained  in  the  Letter 
Agreement  was  also  applicable  to  all  the  Minilab  Equipment  units.  Lastly,  the  fourth  clause  of  the  Letter 
Agreement clearly referred to the object of the contract as "Minilab Equipment Package."  

  2)  With  both  parties  opting  for  rescission  of  the  contract  under  Article  1191,  the  Court  of  Appeals 
correctly  ordered  for  restitution.  The  contract  between  the  parties  is  one  of  sale,  where  one  party  obligates 
himself  or  herself  to  transfer  the  ownership  and  deliver  a  determinate  thing,  while  the  other  pays  a  certain 
price  in  money  or  its  equivalent.  A  contract  of  sale  is  perfected  upon  the  meeting  of  minds  as  to  the  object 
and  the  price,  and  the  parties  may  reciprocally demand the performance of their respective obligations from 
that point on. 

The  Court of Appeals correctly noted that respondent had rescinded the parties' Letter Agreement through the 
letter  dated  October  14,  1992.  It  likewise  noted  petitioners'  rescission  through  the  letter  dated  November  18, 
1992. This rescission from both parties is founded on Article 1191 of the New Civil Code: 
  The  power  to  rescind  obligations  is  implied  in reciprocal ones, in case one of the 
obligors should not comply with what is incumbent upon him. 
  The  injured  party  may  choose  between  the  fulfilment  and  the  rescission  of  the 
obligation,  with  the  payment  of  damages  in  either  case.  He  may  also  seek  rescission, 
even after he has chosen fulfilment, if the latter should become impossible. 
The  court  shall  decree  the  rescission  claimed,  unless  there  be  just  cause 
authorizing the fixing of a period. 

  

  Rescission under Article 1191 has the effect of mutual restitution. In ​Velarde v. Court of Appeals​:  
Rescission  abrogates  the  contract  from  its  inception  and  requires  a  mutual 
restitution of benefits received​. 
xxx xxx xxx 
Rescission creates the obligation to return the object of the contract. It can be carried 
out  only  when  the  one  who  demands  rescission  can  return  whatever  he  may  be 
obliged  to  restore.  To  rescind  is  to  declare  a  contract  void at its inception and to put 
an  end  to  it  as  though  it  never  was.  It  is  not  merely  to  terminate  it  and  release  the 
parties  from  further  obligations  to  each  other,  but  to  abrogate  it  from  the  beginning 
and  restore  the  parties  to  their  relative  positions  as  if  no  contract  has  been  made​. 
(Emphasis supplied, citations omitted) 
  

The  Court  of  Appeals  correctly  ruled  that  both  parties  must  be  restored  to  their  original  situation  as  far  as 
practicable,  as  if  the  contract  was  never  entered  into.  Petitioners  must  relinquish  possession  of the delivered 
Minilab  Equipment  unit  and  accessories,  while respondent must return the amount tendered by petitioners as 
partial  payment  for  the  unit  received.  Further,  respondent  cannot  claim that the two (2) monthly installments 
should  be  offset  against  the  amount  awarded  by  the  Court  of  Appeals  to  petitioners  because  the  effect  of 
rescission  under  Article  1191  is  to  bring  the  parties  back  to  their  original  positions  before  the  contract  was 
entered into. Also in ​Velarde​: 
As  discussed  earlier,  the  breach  committed  by  petitioners  was  the nonperformance of 
a  reciprocal  obligation,  not  a  violation  of  the  terms  and  conditions  of  the  mortgage 
contract.  Therefore,  the  automatic  rescission  and  forfeiture  of  payment  clauses 
 stipulated  in  the  contract  does  not  apply.  Instead,  Civil  Code  provisions  shall  govern 
and regulate the resolution of this controversy. 
Considering  that  the  rescission  of the contract is based on Article 1191 of the Civil Code, 
mutual  restitution  is  required to bring back the parties to their original situation prior to 
the inception of the contract.​ (Emphasis supplied) 
  
When  rescission  is  sought  under Article 1191 of the Civil Code, it need not be judicially invoked because the 
power  to  resolve  is  implied  in  reciprocal  obligations.  The  right  to  resolve  allows  an  injured  party  to 
minimize  the  damages  he  or  she  may  suffer  on  account  of  the  other  party's  failure  to  perform  what  is 
incumbent  upon  him  or  her.  When a party fails to comply with his or her obligation, the other party's right 
to  resolve  the  contract  is  triggered.  The  resolution  immediately  produces  legal  effects  if  the 
non-performing  party  does  not question the resolution. Court intervention only becomes necessary when 
the  party  who  allegedly  failed  to  comply  with  his or her obligation disputes the resolution of the contract. 
Since  both  parties  in  this  case have exercised their right to resolve under Article 1191, there is no need for a 
judicial decree before the resolution produces effects. 
 
34. Gotesco Properties v. Spouses Fajardo, G.R. No. 201167, Feb. 27, 2013​; 
J.  Perlas-Bernabe:  ​Rescission  does  not  merely  terminate  the  contract  and  release  the  parties  from  further 
obligations  to  each  other,  but  abrogates  the  contract  from  its  inception  and  restores  the  parties  to  their 
original  positions  as  if  no  contract  has  been made. Consequently, mutual restitution, which entails the return 
of the benefits that each party may have received as a result of the contract, is thus required. 

Facts:  ​On  January  24,  1995,  respondent-spouses  Eugenio  and  Angelina  Fajardo  (Sps.  Fajardo)  entered  into a 
Contract  to  Sell  (contract)  with  petitioner-corporation  Gotesco  Properties,  Inc.  (GPI)  for  the  purchase  of  a 
100-square  meter  lot  identified  as  Lot  No.  13,  Block  No.  6,  Phase  No.  IV  of  Evergreen  Executive  Village,  a 
subdivision project owned and developed by GPI located at Deparo Road, Novaliches, Caloocan City. 

  Under  the  contract,  Sps.  Fajardo  undertook  to  pay  the  purchase price of P126,000.00 within a 10-year 
period, including interest at the rate of nine percent (9%) per annum. GPI, on the other hand, agreed to execute 
a  final  deed  of sale (deed) in favor of Sps. Fajardo upon full payment of the stipulated consideration. However, 
despite  its  full  payment  of  the  purchase  price  on  January  17,  2000  and  subsequent  demands,  GPI  failed  to 
execute  the  deed  and  to  deliver  the  title  and  physical  possession of the subject lot. Thus, on May 3, 2006, Sps. 
Fajardo  filed  before  the  Housing  and  Land  Use  Regulatory  Board-Expanded  National  Capital  Region  Field 
Office  (HLURB-ENCRFO)  a  complaint  for  specific  performance  or  rescission  of contract with damages against 
GPI and the members of its Board of Directors. 

  Sps.  Fajardo  averred  that  GPI  violated  Section  20  of PD 957 due to its failure to construct and provide 

water  facilities,  improvements,  infrastructures  and  other  forms  of  development  including  water  supply  and 
lighting  facilities  for  the  subdivision  project.  They  also  alleged  that  GPI  failed  to  provide  boundary  marks  for 
each  lot  and  that  the  mother  title  including  the  subject  lot  had  no  technical description and was even levied 
upon  by  the  Bangko  Sentral  ng  Pilipinas  (BSP)  without  their  knowledge.  They  thus prayed that GPI be ordered 
to  execute  the  deed,  to  deliver the corresponding certificate of title and the physical possession of the subject 
lot  within  a  reasonable  period,  and  to  develop  Evergreen  Executive  Village;  or  in  the  alternative,  to  cancel 
and/or rescind the contract and refund the total payments made plus legal interest starting January 2000. 

  For  their  part,  GPI  maintained  that  at  the  time  of  the  execution  of  the  contract,  Sps.  Fajardo  were 
actually  aware  that GPI's certificate of title had no technical description inscribed on it. Nonetheless, the title to 
the  subject  lot  was  free  from  any liens or encumbrances. GPI claimed that the failure to deliver the title to Sps. 
Fajardo  was beyond their control because while GPI's petition for inscription of technical description (LRC Case 
No.  4211)  was  favorably  granted  by  the  Regional  Trial  Court  of  Caloocan  City,  Branch 131 (RTC-Caloocan), the 
same  was  reversed  by  the  CA;  this  caused  the delay in the subdivision of the property into individual lots with 
individual  titles.  Given  the  foregoing  incidents, petitioners thus argued that Article 1191 of the Civil Code (Code) 
—  the  provision on which Sps. Fajardo anchor their right of rescission — remained inapplicable since they were 
actually  willing  to  comply  with  their  obligation  but  were  only  prevented  from  doing  so  due  to circumstances 
beyond their control. 

  HLURB-ENCRFO  ruled  in  favor  of  Sps.  Fajardo  holding  that  GPI's  obligation  to  execute  the 
corresponding  deed  and  to  deliver  the  transfer  certificate  of  title  and  possession of the subject lot arose and 
thus  became  due  and  demandable  at  the  time  Sps.  Fajardo  had fully paid the purchase price for the subject 
lot.  Consequently,  ​GPI's  failure  to  meet  the  said  obligation  constituted  a  substantial  breach of the contract 
which  perforce  warranted  its  rescission​.  In  this  regard,  Sps.  Fajardo  were  given  the  option  to  recover  the 
money  they  paid  to  GPI  in  the  amount  of  P168,728.83,  plus  legal  interest  reckoned  from  date  of extra-judicial 
demand in September 2002 until fully paid. 

Issue:  ​Whether  or  not  Sps.  Fajardo  have  no  right  to  rescind  the  contract  considering  that  GPI's  inability  to 
comply  therewith  was  due  to  reasons  beyond  its  control  and  thus,  should  not  be  held  liable  to  refund  the 
payments they had received?  

Held: NO. ​The Supreme Court ruled:  

A. Sps. Fajardo's right to rescind 

It  is  settled  that  in  a  contract  to  sell,  the  seller's  obligation  to  deliver  the  corresponding  certificates  of  title  is 
simultaneous  and  reciprocal  to  the buyer's full payment of the purchase price. In this relation, Section 25 of PD 
957,  which  regulates  the  subject  transaction,  imposes on the subdivision owner or developer the obligation to 
cause the transfer of the corresponding certificate of title to the buyer upon full payment, to wit: 
Sec.  25.  ​Issuance  of  Title.  — ​The owner or developer shall deliver the title of the lot or unit 
to  the  buyer  upon  full  payment  of  the  lot  or  unit​.  No  fee,  except  those  required  for  the 
registration  of  the  deed of sale in the Registry of Deeds, shall be collected for the issuance 
of  such  title.  In  the  event  a  mortgage  over  the  lot  or  unit is outstanding at the time of the 
issuance  of  the  title  to  the  buyer,  the  owner  or  developer  shall  redeem  the  mortgage  or 
the  corresponding  portion  thereof  within  six  months  from  such  issuance in order that the 
title  over  any  fully  paid  lot  or  unit  may  be  secured  and  delivered  to  the  buyer  in 
accordance herewith. (Emphasis supplied.) 

In  the  present  case,  Sps.  Fajardo claim that GPI breached the contract due to its failure to execute the deed of 

sale  and  to  deliver  the  title  and  possession  over  the  subject  lot,  notwithstanding  the  full  payment  of  the 
purchase  price  made by Sps. Fajardo on January 17, 2000 as well as the latter's demand for GPI to comply with 
the  aforementioned obligations per the letter dated September 16, 2002. For its part, petitioners proffer that GPI 
could  not  have committed any breach of contract considering that its purported non-compliance was largely 
impelled  by  circumstances  beyond  its  control  ​i.e.,​   the  legal  proceedings  concerning  the  subdivision  of  the 
property  into  individual  lots.  Hence,  absent  any  substantial  breach,  Sps.  Fajardo  had  no  right  to  rescind  the 
contract. 

The Court does not find merit in GPI’s contention. 

A  perusal  of  the  records  shows  that  GPI  acquired  the  subject  property  on  March  10,  1992  through  a  Deed  of 
Partition  and  Exchange  executed between it and Andres Pacheco (Andres), the former registered owner of the 
property.  GPI  was  issued  TCT  No.  244220  on  March  16,  1992  but  the  same  did  not  bear  any  technical 
description.  However,  no  plausible  explanation  was  advanced  by  the  petitioners  as  to  why  the  petition  for 
inscription  (docketed  as  LRC  Case  No.  4211)  dated  January  6,  2000, was filed only after almost eight (8) years 
from the acquisition of the subject property. 

Neither  did  petitioners  sufficiently  explain  why  GPI  took  no  positive  action  to  cause  the  immediate  filing  of  a 
new  petition  for  inscription  ​within  a  reasonable  time  from  notice  of  the  July  15,  2003  CA  Decision  which 
dismissed  GPI's  earlier  petition  based  on  technical  defects, this notwithstanding Sps. Fajardo's full payment of 
the  purchase  price  and  prior  demand  for  delivery  of  title.  GPI  filed  the  petition  before  the  RTC-Caloocan, 
Branch  122  (docketed  as  LRC  Case  No.  C-5026)  only  on  November  23,  2006,  f​ ollowing  receipt  of  the  letter 
dated  February  10,  2006  and  the  filing  of  the  complaint  on  May  3,  2006,  alternatively  seeking  refund  of 
payments.  While  the  court  a  quo  d
​ ecided  the latter petition for inscription in its favor, there is no showing that 
the  same  had  attained  finality  or  that  the  approved  technical description had in fact been annotated on TCT 
No. 244220, or even that the subdivision plan had already been approved. 

Clearly,  the  long delay in the performance of GPI's obligation from date of demand on September 16, 2002 was 

unreasonable  and  unjustified.  It cannot therefore be denied that GPI substantially breached its contract to sell 
with  Sps.  Fajardo  which  thereby  accords  the  latter  the  right  to  rescind the same pursuant to Article 1191 of the 
Code,​ viz.​: ​TADCSE 
ART.  1191.  The  power  to  rescind  obligations  is  implied in reciprocal ones, in case one of the 
obligors should not comply with what is incumbent upon him. 
The  injured  party  may  choose between the fulfillment and the rescission of the obligation, 
with  the  payment  of  damages  in  either  case.  He  may  also  seek  rescission,  even  after he 
has chosen fulfillment, if the latter should become impossible. 
The  court  shall  decree  the  rescission  claimed,  unless  there  be  just  cause  authorizing  the 
fixing of a period. 
This  is  understood  to  be  without  prejudice  to  the  rights  of  third  persons  who  have 
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. 
  
B. Effects of rescission 
At  this  juncture,  it  is  noteworthy  to  point  out  that  rescission  does  not  merely  terminate  the  contract  and 
release  the  parties  from  further  obligations  to  each  other,  but  abrogates  the  contract  from  its  inception 
and  restores  the  parties to their original positions as if no contract has been made. Consequently, mutual 
restitution,  which  entails  the  return  of  the  benefits  that  each  party  may  have  received  as  a  result  of  the 
contract,  is  thus  required.  To  be  sure,  it  has  been  settled  that  the  effects  of  rescission  as  provided  for  in 
Article 1385 of the Code are equally applicable to cases under Article 1191, to wit: 
xxx xxx xxx 
Mutual restitution is required in cases involving rescission under Article 1191​. 
 
This  means  bringing  the  parties  back  to  their  original  status  prior  to  the  inception  of  the  contract. 
Article 1385 of the Civil Code provides, thus: 
ART.  1385.  ​Rescission  creates  the  obligation  to  return the things which were the object of 
the  contract,  together  with  their  fruits,  and  the  price  with  its  interest;  consequently,  it 
can  be  carried  out  only  when  he  who  demands  rescission  can  return  whatever he may 
be obligated to restore​. 
 Neither shall rescission take place when the things which are the object of the contract are 
legally in the possession of third persons who did not act in bad faith. 
In this case, indemnity for damages may be demanded from the person causing the loss.  

This Court has consistently ruled that this provision applies to rescission under Article 1191: 
[S]ince  Article  1385  of  the  Civil  Code  expressly  and  clearly  states  that 
"rescission  creates  the  obligation  to  return  the  things  which  were the object of 
the  contract,  together  with  their  fruits,  and  the  price with its interest," the Court 
finds  no  justification  to  sustain  petitioners'  position  that  said  Article  1385  does 
not  apply  to  rescission  under  Article  1191.  .  .  .  (Emphasis  supplied;  citations 
omitted.)  

In  this  light,  it  cannot  be  denied  that only GPI benefited from the contract, having received full payment of the 

contract  price  plus  interests  as  early  as  January  17,  2000,  while  Sps.  Fajardo  remained  prejudiced  by  the 
persisting  non-delivery  of  the  subject  lot  despite  full  payment.  As  a  necessary consequence, considering the 
propriety  of  the  rescission  as  earlier  discussed,  Sps.  Fajardo  must  be able to recover the price of the property 
pegged at its prevailing market value consistent with the Court's pronouncement in​ Solid Homes,​ ​viz.:​  
Indeed,  there  would  be  unjust  enrichment  if respondents ​Solid Homes, Inc. & Purita 
Soliven  are  made  to  pay  only  the  purchase  price  plus  interest.  It is definite that the value 
of  the  subject  property  already  escalated  after  almost  two  decades  from  the  time  the 
petitioner  paid  for  it.  ​Equity  and  justice  dictate  that the injured party should be paid the 
market  value  of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would 
enrich  themselves at the expense of herein lot owners when they sell the same lot at the 
present  market  value​.  Surely,  such  a  situation  should  not  be  countenanced  for  to  do  so 
would  be  contrary  to  reason  and  therefore,  unconscionable.  Over  time,  courts  have 
recognized  with  almost  pedantic  adherence  that  what  is  inconvenient  or  contrary  to 
reason is not allowed in law. (Emphasis supplied.) 
  
On this score, it is apt to mention that it is the intent of PD 957 to protect the buyer against unscrupulous 
developers, operators and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, 
equity and justice dictate that the injured party should be afforded full recompense and as such, be allowed 
to recover the prevailing market value of the undelivered lot which had been fully paid for. 
 
35. Garcia v. CA, 633 Phil. 294 (2010)​; 
J.  Carpio:  ​In  contracts  to  sell,  where  ownership  is  retained  by  the  seller  and  is  not  to  pass  until  the  full 
payment,  such  payment,  as  we  said,  is  a  positive  suspensive  condition,  the  failure  of  which  is  not a breach, 
casual  or  serious,  but  simply  an  event  that  prevented  the  obligation  of  the  vendor  to  convey  title  from 
acquiring  binding  force.  To  argue  that  there  was  only  a  casual  breach  is  to  proceed  from  the  assumption 
that  the  contract  is  one  of absolute sale, where non-payment is a resolutory condition, which is not the case. 
The applicable provision of law in instant case is Article 1191 of the New Civil Code. 
 
Facts:  On  May  28,  1993, plaintiffs spouses Faustino and Josefina Garcia and spouses Meliton and Helen Galvez 
(herein  appellees)  and  defendant  Emerlita  dela  Cruz  (herein  appellant)  entered  into  a  Contract  to  Sell 
wherein  the  latter  agreed  to  sell  to  the  former,  for  P3,170,220.00,  five  (5)  parcels  of  land  situated  at  Tanza, 
Cavite  At  the  time  of  the  execution  of  the  said  contract,  three  of  the  subject  lots,  namely,  Lot Nos. 2776, 2767, 
and  2769  were  registered  in  the  name  of  one  Angel  Abelida  from  whom  defendant  Emerlita  dela  Cruz 
allegedly  acquired  said  properties  by  virtue  of  a  Deed  of Absolute Sale dated March 31, 1989. As agreed upon, 
plaintiffs  shall  make  a  down  payment  of  P500,000.00  upon  signing  of  the  contract.  The  balance  of 
P2,670,220.00  shall  be  paid  in  three  installments. On its due date, December 31, 1993, plaintiffs failed to pay the 
last  installment  in  the  amount  of  P1,670,220.00  Pesos.  Sometime  in  July  1995,  plaintiffs  offered  to  pay  the 
unpaid  balance,  which  had  already  been  delayed  by  one  and  [a]  half  year,  which  defendant  refused  to 
accept.  On  September  23,  1995,  defendant  sold  the same parcels of land to intervenor Diogenes G. Bartolome 
for  P7,793,000.00.  In  order  to  compel  defendant  to  accept  plaintiffs'  payment  in  full  satisfaction  of  the 
purchase  price and, thereafter, execute the necessary document of transfer in their favor, plaintiffs filed before 
the  RTC  a  complaint  for  specific  performance.  In  their  complaint,  plaintiffs  alleged  that  they  discovered  the 
infirmity  of  the  Deed  of Absolute Sale covering Lot Nos. 2776, 2767 and 2769, between their former owner Angel 
Abelida  and  defendant,  the  same  being  spurious  because  the  signature  of  Angel  Abelida  and  his  wife  were 
falsified;  that  at  the  time  of  the  execution of the said deed, said spouses were in the United States; that due to 
their  apprehension  regarding  the  authenticity  of  the document, they withheld payment of the last installment 
which  was  supposedly  due  on  December  31,  1993;  that  they  tendered  payment  of  the  unpaid  balance 
sometime  in  July  1995,  after  Angel  Abelida  ratified  the  sale  made  in  favor  [of]  defendant,  but  defendant 
refused  to  accept  their  payment  for  no jusitifiable reason. In her answer, defendant denied the allegation that 
the  Deed  of  Absolute  Sale  was  spurious  and  argued  that  plaintiffs  failed  to  pay  in  full  the  agreed  purchase 
price  on  its  due  date  despite  repeated  demands;  that  ​the  Contract  to  Sell  contains  a proviso that failure of 
plaintiffs  to pay the purchase price in full shall cause the rescission of the contract and forfeiture of one-half 
(1/2%)  percent  of  the  total  amount paid to defendant; that a notarized letter stating the intended rescission of 
the  contract  to  sell  and  forfeiture  of  payments  was  sent  to  plaintiffs  at  their  last  known  address  but  it  was 
returned with a notation "insufficient address." 
 
Issue: ​Whether or not Dela Cruz’ rescission of contract was valid? 
 
Held:  YES.  ​Contracts  are  law  between  the  parties,  and  they  are  bound  by  its  stipulations.  It  is  clear  from  the 
their  intended  agreement  to  be  a  Contract  to  Sell:  Dela  Cruz  retains ownership of the subject lands and does 
not have the obligation to execute a Deed of Absolute Sale until petitioners' payment of the full purchase price. 
Payment  of  the  price  is  a  positive  suspensive  condition,  failure  of  which  is  not  a  breach  but  an  event  that 
prevents  the  obligation  of  the  vendor  to  convey  title  from  becoming  effective.  Strictly  speaking, ​there can be 
no  rescission  or  resolution  of  an  obligation  that  is  still  non-existent  due  to  the  non-happening  of  the 
suspensive  condition​.  Dela  Cruz  is  thus  not  obliged  to  execute  a  Deed  of  Absolute  Sale  in  petitioners'  favor 
because of petitioners' failure to make full payment on the stipulated date. 
We ruled thus in ​Pangilinan v. Court of Appeals​: 
Article  1592  of  the  New  Civil  Code,  requiring  demand  by  suit  or  by  notarial  act  in  case  the  vendor  of 
realty  wants  to  rescind  does  not  apply  to  a  contract  to  sell  but only to contract of sale. In contracts to 
sell,  where  ownership  is  retained  by  the  seller  and  is  not  to  pass  until the full payment, such payment, 
as  we  said,  is  a positive suspensive condition, the failure of which is not a breach, casual or serious, but 
simply  an  event  that  prevented  the  obligation  of  the  vendor  to  convey  title  from  acquiring  binding 
force.  To  argue  that  there  was  only  a  casual  breach  is  to  proceed  from  the  assumption  that  the 
contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. 
The  applicable  provision  of  law  in  instant  case  is  Article  1191  of  the  New  Civil  Code  which  provides  as 
follows: 
Art.  1191.  The  power  to  rescind  obligations is implied in reciprocal ones, in case one of the 
obligors should not comply with what is incumbent upon him. 
The  injured  party  may  choose  between  the  fulfillment  and  the  rescission  of  the 
obligation,  with  the  payment  of  damages  in  either  case.  He  may  also  seek 
rescission,  even  after  he  has  chosen  fulfillment,  if  the  latter  should  become 
impossible. 
The  Court  shall  decree  the rescission claimed, unless there be just cause authorizing the 
fixing of a period. 
This  is  understood  to  be  without  prejudice  to  the  rights  of  third  persons  who  have 
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. 
(1124) 
Pursuant  to  the  above,  the  law  makes  it available to the injured party alternative remedies such as 
the  power  to  rescind  or  enforce  fulfillment  of  the  contract,  with damages in either case if the obligor 
does  not  comply  with  what  is  incumbent  upon  him.  There  is  nothing  in  this  law  which  prohibits  the 
parties  from  entering  into  an  agreement  that  a violation of the terms of the contract would cause its 
cancellation  even  without  court  intervention.  The  rationale  for  the  foregoing  is  that  in  contracts 
providing  for  automatic  revocation,  judicial  intervention  is  necessary not for purposes of obtaining a 
judicial  declaration  rescinding  a  contract  already  deemed  rescinded  by  virtue  of  an  agreement 
providing  for  rescission  even  without  judicial  intervention,  but  in  order  to  determine  whether  or  not 
the  rescission  was  proper.  Where  such  propriety  is  sustained, the decision of the court will be merely 
declaratory  of  the  revocation,  but  it  is  not  in  itself  the  revocatory  act.  Moreover,  the  vendor's right in 
contracts  to  sell  with  reserved title to extrajudicially cancel the sale upon failure of the vendee to pay 
the  stipulated  installments  and  retain  the  sums  and  installments  already  received  has  long  been 
recognized  by  the  well-established  doctrine of 39 years standing. The validity of the stipulation in the 
contract  providing for automatic rescission upon non-payment cannot be doubted. It is in the nature 
of  an  agreement  granting  a  party  the  right  to  rescind  a  contract  unilaterally  in  case  of  breach 
without  need  of  going  to  court.  Thus,  rescission  under  Article  1191  was  inevitable  due  to  petitioners' 
failure to pay the stipulated price within the original period fixed in the agreement. 
Petitioners  justify  the  delay  in  payment  by  stating  that  they  had  notice  that  Dela  Cruz  is not the owner of 
the  subject  land,  and  that  they  took  pains  to  rectify  the  alleged  defect in Dela Cruz's title. Be that as it may, 
Angel  Abelida's  (Abelida)  affidavit  confirming  the  sale  to  Dela  Cruz  only  serves  to  strengthen  Dela  Cruz's 
claim  that  she  is  the  absolute  owner  of  the  subject  lands  at  the  time  the  Contract  to  Sell  between  herself 
and petitioners was executed. ​Dela Cruz did not conceal from petitioners that the title to Lot Nos. 2776, 2767 
and  2769  still  remained  under  Abelida's  name,  and  the  Contract  to  Sell  ​even  provided  that  petitioners 
should shoulder the attendant expenses for the transfer of ownership from Abelida to Dela Cruz. 
The trial court erred in applying R.A. 6552, or the Maceda Law, to the present case. The Maceda Law applies 
to  contracts  of  sale  of  real  estate  on installment payments, including residential condominium apartments 
but  excluding  industrial  lots,  commercial  buildings  and  sales  to  tenants.  The  subject lands, comprising five 
(5)  parcels  and  aggregating  69,028  square  meters,  do  not  comprise  residential  real  estate  within  the 
contemplation  of  the  Maceda  Law.  Moreover,  even  if  we  apply  the  Maceda  Law  to  the  present  case, 
petitioners'  offer  of  payment  to  Dela  Cruz  was  made  a  year  and  a  half  after  the  stipulated  date.  This  is 
beyond  the  sixty-day  grace  period  under  Section  4  of  the  Maceda  Law.  Petitioners  still  cannot  use  the 
second  sentence  of  Section  4  of the Maceda Law against Dela Cruz for Dela Cruz's alleged failure to give an 
effective  notice  of  cancellation  or  demand  for  rescission  because  Dela  Cruz  merely  sent  the  notice  to  the 
address supplied by petitioners in the Contract to Sell. 
It is undeniable that petitioners failed to pay the balance of the purchase price on the stipulated date of the 
Contract to Sell. Thus, Dela Cruz is within her rights to sell the subject lands to Bartolome. Neither Dela Cruz nor 
Bartolome can be said to be in bad faith. 
 
(Ydulzura, Hera) 
36. Gonzales v. Heirs of Thomas, G.R. 131784, Sept. 16, 1999; 
 
Petitioner: ​FELIX L. GONZALES 
Respondents: ​THE HEIRS OF THOMAS AND PAULA CRUZ,​ h
​ erein represented by ELENA C. TALENS 
  
DOCTRINE: 
The Court has held that when the obligation assumed by a party to a contract is expressly 
subjected to a condition, the obligation cannot be enforced against him unless the condition 
is complied with. Furthermore, the obligatory force of a conditional obligation is subordinated 
to the happening of a future and uncertain event, so that if that event does not take place, 
the parties would stand as if the conditional obligation had never existed. 
  
FACTS: 
On December 1, 1983, Paula Cruz entered into a contract of lease/purchase with Gonzales in a 
parcel of land in Rodriguez town, Province of Rizal. Petitioner paid P15,000 annual rental in 
accordance with paragraph 2 of said contract. Paragraph 1 of said contract provided that 
after the period of the contract (one-year lease), the lessee shall purchase the property for 
P1M payable within 2 years with 12% interest. However, Gonzales did not exercise his option to 
purchase the property immediately of the one-year lease on November 20, 1984.; and without 
paying any further rentals. Paragraph 9 also provided that the lessors commit themselves 
and undertake to obtain a separate and distinct TCT over leased portion to the lessee within 
a reasonable period of time which shall not in any case exceed 4 years. 
  
A letter was sent by one of the heirs of Cruz to Gonzales informing him of the lessors’ decision 
to rescind the Contract of Lease/Purchase due to breach committed by Gonzales as well as 
demanded him to vacate the premises. Gonzales refused to vacate and continued 
possession thereof. Heirs of Cruz filed a complaint for recovery of possession of property 
alleging breach of paragraph 9 of the contract. 
  
The trial court dismissed the complaint and ruled that before Gonzales exercises his option to 
purchase the property by paying the 50% plus interest on the P1M purchase price, the Heirs of 
Cruz must first transfer the title to the property in Gonzales’ name pursuant to Paragraph 9 
using Article 1181 as basis. 
  
CA reversed the trial court and ruled that the transfer of title to the property in Gonzales’ 
name cannot be interpreted as a condition precedent to the payment of the agreed 
purchase price because such interpretation not only runs counter to the explicit provisions of 
the contract but also is contrary to the normal course of things anent the sale of real 
properties which dictates that there must first be payment of the agreed purchase price 
before transfer of title to the vendee’s name can be made. 
  
ISSUE: 
1. WON paragraph 9 is a condition precedent before herein petitioner could exercise his 
option to buy the property? YES. 
2. WON herein respondents can rescind or terminate the Contract of Lease after the 
one-year period? NO. 
  
HELD: 
Interpretation of Paragraph 9 
The record shows that at the time the contract was executed, the land in question was still 
registered in the name of Bernardina Calixto and Severo Cruz, respondents’ 
predecessors-in-interest. Extrajudicial proceedings were still ongoing. Hence, when the 
Contract of Lease/Purchase was executed, there was no assurance that the respondents 
were indeed the owners of the specific portion of the lot that petitioner wanted to buy, and if 
so, in what concept and to what extent. Thus, the clear intent of Paragraph 9 was for 
respondents to obtain a separate and distinct TCT in their names. This was necessary to 
enable them to show their ownership of the stipulated portion of the land and their 
concomitant right to dispose of it. 
  
Because the property remained registered in the names of their predecessors-in-interest, 
private respondents could validly sell only their undivided interest in the estate of Severo 
Cruz. In a contract of sale, the title to the property passes to the vendee upon the delivery of 
the thing sold. In this case, the respondent could not deliver ownership or title to a specific 
portion of the yet undivided property. Hence, by said Contract, the respondents as sellers 
were given a maximum of 4 years within which to acquire a separate TCT in their names, 
preparatory to the execution of the deed of sale and the payment of the agreed price in the 
manner described in Paragraph 9. 
   
Paragraph 1 was effectively modified by Paragraph 9. Petitioner can be compelled to perform 
his obligation under Paragraph 1 only after respondents have complied with Paragraph 9. 
  
Hence, Paragraph 9 was intended to ensure that respondents would have a valid title over 
the specific portion they were selling to the petitioner. Petitioner’s obligation to purchase has 
not yet ripened and cannot be enforced until and unless respondents can prove their title to 
the property subject of the contract. 
  
1.  Paragraph 9 was a condition precedent; governed by Article 1181. The Court has 
held that when the obligation assumed by a party to a contract is expressly subjected 
to a condition, the obligation cannot be enforced against him unless the condition is 
complied with. Furthermore, the obligatory force of a conditional obligation is 
subordinated to the happening of a future and uncertain event, so that if that event 
does not take place, the parties would stand as if the conditional obligation had never 
existed. In this case, the obligation of the petitioner to buy the land cannot be enforced 
unless respondents comply with the suspensive condition that they acquire first a 
separate and distinct TCT in their names. The suspensive condition not having been 
fulfilled, then the obligation of the petitioner to purchase the land has not arisen. 
  
2.  Respondents cannot rescind the contract because they have not caused the 
transfer of the TCT to their names, which is a condition precedent to petitioners 
obligation. This Court has held that “there can be no rescission (or more properly, 
resolution) of an obligation as yet non-existent, because the suspensive condition has 
not happened.” 
 
 
37. Universal Food Corporation v. Court of Appeals, G.R. No. L-29155 May 13, 1970; 
 
Petitioner: ​UNIVERSAL FOOD CORPORATION 
Respondents: ​THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO V. 
FRANCISCO 
  
DOCTRINE: 
Rescission of a contract will not be permitted for a slight or casual breach, but only for such 
substantial and fundamental breach as would defeat the very object of the parties in making 
the agreement. 
  
FACTS: 
Magdalo Francisco, Sr. invented the formula for the Mafran sauce, registered his trademark 
as owner and inventor. Thereafter, he secured the financial assistance of Tirso Reyes who, 
after a series of negotiations, formed with others UFC eventually leading to the execution of 
the “Bill of Assignment”. 
  
On February 14, 1961, Magdalo Francisco, Sr. and Victoriano Francisco filed with CFI of Manila 
against Universal Food Corporation (UFC) an action for rescission of a contract entitled “Bill of 
Assignment” (BOA) praying the court to adjudge UFC as without any right to the use of the 
Mafran trademark and formula, among others. 
  
The lower court dismissed private respondent’s complaint. On appeal, CA held that the 
Franciscos are entitled to rescind the Bill of Assignment 
  
ISSUE: 
WON the rescission of the BOA is proper? YES. 
   
HELD: 
Focusing, on the first two paragraphs of Article 1191, the power to rescind obligations is implied 
in reciprocal ones, in case one of the obligors should not comply with what is incumbent 
upon him. The injured party may choose between fulfillment and rescission of the obligation, 
with payment of damages in either case. In this case before us, there is no controversy that 
the provisions of the BOA reciprocal in nature. UFC violated the BOA by terminating the 
services of patentee Magdalo Francisco, Sr., without lawful and justifiable cause. 
  
The general rule is that rescission of a contract will not be permitted for a slight or casual 
breach, but only for such substantial and fundamental breach as would defeat the very 
object of the parties in making the agreement. The question of whether a breach of contract 
is substantial depends upon the attendant circumstances. 
  
The petitioner contends that rescission of the BOA should be denied, because under Article 
1383, rescission is a subsidiary remedy which cannot be instituted except when the party 
suffering damage has no other legal means to obtain reparation for the same. However, in 
this case the dismissal of the patentee Magdalo Francisco, Sr. as the permanent chief of the 
corporation is fundamental and substantial breach of the BOA. He was dismissed without any 
fault or negligence on his part. Thus, apart from the legal principle that the option -- to 
demand performance or ask for rescission of a contract -- belongs to the injured party, the 
fact remains that they (Franciscos) had no alternative but to file the present action for 
rescission and damages. 
  
It is to be emphasized that the patentee Francisco, Sr. would not have agreed to the other 
terms of the BOA were it not for the basic commitment of the petitioner corporation to 
appoint him as its Second Vice President and Chief Chemist on a permanent basis; absolute 
control and supervision over personnel in the manufacture and purchase of the Mafran 
sauce; and only by all these measures could the secrecy of the formula be preserved, and in 
the process afford and secure for himself a lifetime job and steady income. 
  
The salient provisions of the BOA, namely, transfer to the corporation of only the use of the 
formula; the appointment of patentee as Second Vice-President and chief chemist on a 
permanent status; the obligation of patentee to continue research and improve the quality of 
the products of the corporation; the need of absolute control and supervision -- all these 
provisions of the BOA are so interdependent that violation of one would result in virtual 
nullification of the rest. 
  
SEPARATE CONCURRING OPINION OF JUSTICE REYES, J.B.L: 
Distinguished rescission in Article 1381 from Article 1191 
The  rescission  on  account  of  breach  of stipulations (Article 1191) is not predicated on injury to 
economic  interests  of  the  party  plaintiff  but  on  the  breach  of  faith  by  the  defendant,  that 
violates  the  reciprocity  between  the  parties.  It  is  not  a  subsidiary action, and Article 1191 may 
be  scanned  without  disclosing  anywhere  that  the  action  for  rescission  thereunder  is 
subordinated  to  anything other than the culpable breach of his obligations by the defendant. 
On  the  contrary,  in  the  rescission  by  reason  of  ​lesion  or  economic  prejudice,  the  cause  of 
action  is  subordinated  to the existence of that prejudice, because it is the ​raison d’ tre as well 
as  the  measure  of  the  right  to  rescind.  Hence,  where  the  defendant  makes  good  the 
damages  cause,  the  action  cannot  be  maintained  or  continued,  as  expressly  provided  in 
Articles  1383  and  1384  But  the  operation  of  these  two  articles  is  limited  to  the  cases  of 
rescission for ​lesion ​ in Article 1381, and does not apply to cases under Article 1191. 
 
 
38. Song Fo and Co v. Hawaiian-Phil Co., 47 Phil 821; 
 
Plaintiff-appellee: ​SONG FO & COMPANY 
Defendant-appellant: ​HAWAIIAN PHILIPPINE CO. 
  
DOCTRINE: 
The general rule is that rescission will not be permitted for a slight or casual breach of 
contract, but only for such breaches as are so substantial and fundamental as to defeat the 
object of the parties in making the agreement. 
  
FACTS: 
Song Fo & Company (Song Fo) presented a complaint for breach of contract against the 
Hawaiian Philippine Co (HPC) in which judgment was asked for P70,369.50. Said contract was 
for HPC to provide and deliver 300,000 gallons of molasses to Song Fo. In HPC’s defense, they 
alleged that since Song Fo had defaulted in the payment for the molasses delivered to it by 
the HPC under the contract, the HPC was compelled to cancel and rescind the said contract. 
The trial court ordered HPC to pay Song Fo. 
  
HPC appealed alleging that the lower court erred in finding that HPC rescinded without 
sufficient cause the contract for the sale of molasses. 
  
ISSUE: 
WON HPC had the right to rescind said contract of sale? NO. 
  
HELD: 
Some doubt has risen as to when Song Fo was expected to make payments for the molasses 
delivered; exhibits presented speaks of “at the end of each month” or “payment on 
presentation of bills for each deliver”. Resolving such ambiguity as exists and having in mind 
ordinary business practice, a reasonable deduction is that Song Fo was to pay HPC upon 
presentation of accounts at the end of each month. Based on this, Song Fo should have paid 
not later than January 31 of 1932 for the molasses delivered in December 1922 and for which 
accounts were received by it on January 5, 1923. Instead, Song Fo paid on February 20, 1923. 
The rest of the molasses were paid on time or ahead of time. 
  
The terms of payment fixed by the parties are controlling. The time of payment stipulated for 
in the contract should be treated as of the essence of the contract. In this case, there is no 
outstanding fact which would legally sanction the rescission of the contract by the HPC. 
  
The general rule is that rescission will not be permitted for a slight or casual breach of 
contract, but only for such breaches as are so substantial and fundamental as to defeat the 
object of the parties in making the agreement. A delay in payment for a small quantity of 
molasses for some twenty days is not such a violation of an essential condition of the 
contract as warrants rescission for non-performance. Not only this, but HPC waived this 
condition when it arose by accepting payment of the overdue accounts and continuing the 
contract. Thereafter, Song Fo was not in default in payment so that the HPC had in reality no 
excuse for cancelling the contract. HENCE, HPC HAD NO LEGAL RIGHT TO RESCIND. 
 
 
39. Abella v. Francisco, 55 Phil. 447. 
 
Plaintiff-appellant: ​JULIO C. ABELLA 
Defendant-appellee: ​GUILLERMO B. FRANCISCO 
  
DOCTRINE: 
The period is an essential element of the transaction between the parties. 
   
FACTS: 
Francisco purchased from the Government on installments 9 lots in Novaliches, Caloocan, 
Rizal. He was in arrears for some of these installments. On October 1928, he signed a 
document receiving from Abella P500 payment on account of the said 9 lots (at rate of 
P100/hectare) with the balance due on or before December 15, 1928 (extendible 15 days). After 
this document, Abella proposed the sale of these lots at a higher price to Sellner; collected 
P10,000 on December 29, 1928. 
  
Aside from the initial P500, Abella made another payment for a total of P915.31 on November 
13, 1928 upon demand by Francisco. 
  
On December 27, 1928, Francisco wrote to Mabanta authorizing him to sign in behalf of 
Francisco all documents required for the transfer of the lots to Abella. In said letter, Mabanta 
was instructed that in the event that plaintiff failed to pay the remainder of the selling price, 
to inform him that the option would be considered cancelled, and to return the P915.31 
already delivered. 
  
On January 3, 1929, Mabanta notified Abella of said authorization. Although Abella asked for 
few days’ time, Mabanta followed the instructions from Francisco and only gave him until 
January 5; failing to pay on the 5​th​, Mabanta regarded the contract as rescinded and 
returned the amount already delivered, although Abella tried to pay on the 9​th​ (Mabanta 
refused to accept this). 
  
Abella brought this action to compel Francisco to execute the deed of sale, upon receipt of 
the balance of the price, and asks that he be judicially declared the owner of said lots as well 
as have the lots delivered to him. The court absolved Francisco holding that Abella failed to 
pay within the stipulated time; that the contract was an option for the purchase of the lots, 
time was an essential element in it. 
  
ISSUE: 
WON the court erred in absolving Francisco from the complaint? YES. 
  
HELD: 
In holding that the period was an essential element of the transaction between plaintiff and 
defendant, the trial court considered that the contract in question was an option for the 
purchase that the contract in question was an option for the purchase of the lots, and that in 
an agreement of this nature the period is deemed essential. The opinion of the court is 
divided upon the question of whether the agreement was an option or a sale, but even 
supposing it was a sale, the court holds that time was an essential element in the 
transaction. The defendant wanted to sell those lots to the plaintiff in order to pay off certain 
obligation which fell due in the month of December 1928. The time fixed for the payment of 
the price was therefore essential for the defendant, and this view is borne out by this letter to 
his representative Mabanta instructing him to consider the contract rescinded if the price 
was not completed in time. In accordance with Article 1124 of the Civil Code, the defendant is 
entitled to resolve the contract for failure to pay the price within the time specified. HENCE, 
FRANCISCO IS ENTITLED TO RESOLVE THE CONTRACT FOR FAILURE OF ABELLA TO PAY THE PRICE 
WITHIN THE TIME SPECIFIED. 
 
  
  
Section 2. Obligations with a Period​. 
  
40. Clemente v. Republic, G.R. No. 220008, Feb. 20, 2019; 
 
Petitioner: ​SOCORRO T. CLEMENTE, as substituted by SALVADOR T. CLEMENTE 
Respondent: ​REPUBLIC OF THE PHILIPPINES (DPWH, Region IV-A) 
  
DOCTRINE: 
  
FACTS: 
Mayor Clemente and Clemente Siblings were the owners of a parcel of land in which a Deed 
of Donation was executed over one-hectare of their property (subject property) in favor of 
the Republic of the Philippines. The Deed of Donation provided that the subject property is 
“solely for hospital site only and for no other else, where a Government Hospital shall be 
constructed, free from all liens and encumbrances whatsoever”. The Subject Property was 
issued in the name of the Province of Quezon. 

In  accordance  with  the  Deed  of  Donation,  the  construction  of  a  building  for  a  hospital  was 
started  in  the  following  year  but  it  was  never  complete  with  only  its  foundation  remaining. 
Upon  inquiry,  Socorro  and  Clemente  was  informed  that  the  DPWH  no  longer  had a plan and 
budget  to  construct  a  hospital  at  the  site.  Almost  41  years  after  the  execution of the Deed of 
Donation,  Socorro,  as heir and successor-in-interest of Mayor Clemente, filed a Complaint for 
Revocation of Donation, Reconveyance and Recovery of Possession alleging that the Republic 
failed to comply with the condition imposed. 

RTC  dismissed  the  case  on  the  ground  of  prematurity and held that since the parties did not 

fix  the  period  within  which  to  comply  with  the  condition,  but  a  period  was  indeed  intended, 
the  Court  may  fix  the  period  for  the  performance  of  the  donee’s obligation under Article 1197 
of  the  Civil  Code.  Since  Socorro  failed  to  pray  for  the  fixing  of  the  period  RTC  dismissed  the 
case. 

CA  denied  the  appeal  finding  that  while  there  may  be  basis for the recovery of the property, 
Socorro,  as  an  heir  of  a  deceased  co-donor,  cannot  assert  the  concept  of  heirship  to 
participate in the revocation of the property donated by her successor-in-interest. 

ISSUE: 

WON the RTC erred? NO. 

HELD: 

To  determine  whether  the  action  has  prescribed,  the  time  of  non-compliance  must  first  be 
determined.  This  is  because  the  failure  to  comply  with the condition imposed will give rise to 
the  cause  of  action  against  the  obligor-donee,  which  is  also  the  starting  point  of  when  to 
count the prescriptive period. 

The  nature  of  the  donation  made  by  the  Clemente  Siblings  is  a  donation  subject  to  a 
condition -- the condition being the construction of a government hospital and the use of the 
Subject  Property  solely  for  hospital  purposes.  Upon  the  non-fulfillment  of  the  condition,  the 
donation  may  be  revoked  and  all  the  rights  already  acquired  by  the  done  shall  be deemed 
lost  and  extinguished.  This  is  a  resolutory condition because it is demandable at once by the 
done but the non-fulfillment of the condition gives the donor the right to revoke the donation. 

However,  it  is  imperative  to  determine  the  period  within  which  the  done  has  to  comply  with 
the  condition  to  construct  a  government  hospital  and  use  the  site  solely  as  a  hospital  site, 
because  it  is  only  after  such  time  that  it  can  be  determined  with  certainty  that  there  was  a 
failure  to  comply  with  the  condition.  Without  such  determination,  there  is  no  way  to 
determine  whether  the  done  failed  to  comply  with  its  obligation,  and consequently, whether 
 the  prescriptive  period  to  file  an  action  has  started  to  run.  Prescription  cannot  set  in  if  the 
period  to  comply  with  the  obligation  cannot  be  determined  with  certainty.  In  this  case,  the 
Deed of Donation is bereft of any period within which the done should have complied with the 
condition of constructing a government hospital. Thus, the action has not yet prescribed. 

Based  on  the  Deed of Donation, however, it is apparent that a period was indeed intended by 

the  parties.  By  agreeing  to  the  conditions  in  the  Deed  of  Donation,  the  done  agreed,  and  it 
bound  itself  to  construct  a  government  hospital  and  to  use  the  Subject  Property  solely  for 
hospital  purposes.  The  construction  of  said  hospital  could  not  have  been  intended  by  the 
parties  to  be  in  a  state  of  limbo  as  it  can  be  deduced  that  the  parties  intended  that  the 
hospital  should  be  built  within  a  reasonable  period,  although  the  Deed  of  Donation  failed to 
fix a period for such construction. 

While  ideally,  a  period  to  comply  with  the  condition  should  have  been fixed by the Court, we 
find  that  this  will  be  an  exercise  in  futility  because  of  the  fact  that  it  has  been more than 50 
years  since  the  Deed  of  Donation  has  been  executed;  and  thus,  the  reasonable  time 
contemplated  by  the parties within which to comply with the condition has already lapsed. In 
Central  Philippine  University  v.  Court  of Appeals, the court held that “there is no more need to 
fix the duration of a term of the obligation when such procedure would be a mere technicality 
and  formality  and  would  serve  no  purpose  than  to  delay  or  lead  to  an  unnecessary  and 
expensive  multiplication of suits.” Based on the records, the government hospital was already 
built  in  another  barangay.  If  it  becomes  indubitable  that  the  event,  in  this  case  the 
construction  of  the  hospital,  will  not  take  place,  then  the obligation of the donor to honor the 
donation  is  extinguished.  Moreover,  the  donor-obligee  can  seek  rescission  of  the  donation if 
the done-obligor has manifested no intention to comply with the condition of the donation.  
 
 
(Esguerra, Japhet) 
 
OBLIGATION WITH A PERIOD

SOLANTE VS COA, G.R. NO. 207348, AUG 19, 2014

DOCTRINE​:
A plain reading of the Contract of Reclamation reveals that the six (6)-year period provided for project completion, or, with like effect,
termination of the contract was a mere estimate and cannot be considered a period or a "day certain" in the context of the aforequoted
Art. 1193. To be clear, par. 15 of the Contract of Reclamation states: "The project is ​estimated to be completed in six (6) years." As such,
the lapse of six (6) years from the perfection of the contract did not, by itself, make the obligation to finish the reclamation project
demandable, such as to put the obligor in a state of actionable delay for its inability to finish.

FACTS:
April 26, 1989, the City of Mandaue and FF Cruz entered into a Contract of Reclamation in which F.F. Cruz, in consideration of a
defined land sharing formula thus stipulated, agreed to undertake, at its own expense, the reclamation of 180 hectares of foreshore and
submerged lands from the Cabahug Causeway in that city. The timetables:

Par. 2: Work on the reclamation shall commence not later than [July 1989], after this contract shall be ratified by the Sanggunian
Panlungsod

Par 15: The project is estimated to be completed in six (6) years:​ (3 years for the dredge-filling and seawall construction and 3 years for
the infrastructures completion). However, if all the infrastructures within the OWNERS’ share of the project are already completed
within the six (6) year period agreed upon, any extension of time for works to be done within the share of the DEVELOPERS, shall be at
the discretion of the DEVELOPERS.

On a best effort basis, the construction of roadways, drainage system and open spaces in the area designated as share of the City of
Mandaue, shall be completed not later than December 31, 1991.
Subsequently, a MOA was signed by the parties on Oct. 24, 1989, whereby the City of Mandaue allowed F.F. Cruz to put up structures
on a portion of a parcel of land owned by the city for the use of and to house F.F. Cruz personnel assigned at the project site, subject to
terms of MOA. under the MOA:

“The parties have agreed that upon the completion of the Mandaue City Reclamation Project, all improvements introduced by [F.F. Cruz]
to the portion of the parcel of land owned by the [City of Mandaue] as described under paragraph 3 hereof existing upon the completion
of the said Mandaue City Reclamation Project shall ipso facto belong to the [City of Mandaue] in ownership as compensation for the use
of said parcel of land by [F.F. Cruz] without any rental whatsoever.”

Later, the City of Mandaue undertook the Metro Cebu Development Project II (MCDP II), part of which required the widening of the
Plaridel Extension Mandaue Causeway. However, the structures and facilities built by F.F. Cruz stood in the direct path of the road
widening project. Thus, the DPWH and Samuel B. Darza, MCDP II project director, entered into an Agreement to Demolish, Remove
and Reconstruct Improvement dated July 23, 1997 with F.F. Cruz whereby the latter would demolish the improvements outside of the
boundary of the road widening project and, in return, receive the total amount of PhP 1,084,836.42 in compensation.

Petitioner Rances-Solante then issued Disbursement Voucher dated July 24, 1997 for PhP 1,084,836.42 in favor of F.F. Cruz. In the
voucher, Solante certified that the expense covered by it was "necessary, lawful and incurred under my direct supervision."

Darza addressed a letter-complaint to the Office of the Ombudsman, Visayas, inviting attention to several irregularities regarding the
implementation of MCDP II.

The audit team issued Special Audit Office (SAO) Report No. 2000-28, par. 5 of which states:

“F.F. Cruz and Company, Inc. was paid ₱1,084,836.42 for the cost of the property affected by the widening of Plaridel Extension,
Mandaue Causeway. ​However, under Section 5 of its MOA with Mandaue City, the former was no longer the lawful owner of the
properties at the time the payment was made.”

February 15, 2008 Decision, the COA ruled that: the project was not completed in 1995 and even in 1997 when MDCP paid for these
improvements. The fact that the reclamation project had not yet been completed or turned over to the City of Mandaue by F.F. Cruz in
1997 or two years after it should have been completed, does not negate the right over such improvements by the City.

Solante filed a Motion for Reconsideration dated June 28, 2010, but this motion was denied by the COA in 2012.

On February 15, 2013, Solante received a Notice of Finality of Decision (NFD) stating that the COA 2008 and 2012 Decision have
become final and executory.

ISSUE: ​Who between the City of Mandaue and F.F. Cruz owned during the period material the properties that were demolished.

RULING:
FF Cruz. A plain reading of the Contract of Reclamation reveals that the six (6)-year period provided for project completion, or, with like
effect, termination of the contract was a mere estimate and cannot be considered a period or a "day certain" in the context of the
aforequoted Art. 1193. To be clear, par. 15 of the Contract of Reclamation states: "[T]he project is ​estimated to be completed in six (6)
years." As such, the lapse of six (6) years from the perfection of the contract did not, by itself, make the obligation to finish the
reclamation project demandable, such as to put the obligor in a state of actionable delay for its inability to finish.

Thus, F.F. Cruz cannot be deemed to be in delay.

The lapse of six (6) years from the perfection of the subject reclamation contract, without more, could not have automatically vested
Mandaue City, under the MOA, with ownership of the structures.

Moreover, even if we consider the allotted six (6) years within which F.F. Cruz was supposed to complete the reclamation project, the
lapse thereof does not automatically mean that F.F. Cruz was in delay. As may be noted, the City of Mandaue never made a demand for
the fulfillment of its obligation under the Contract of Reclamation. Article 1169 of the Civil Code on the interaction of demand and delay
and the exceptions to the requirement of demand.

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. From the moment one of the parties fulfills his obligation, delay by the other begins.
In this jurisdiction, the following requisites must be present in order that the debtor may be in default: (1) that the obligation be
demandable and already liquidated;(2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or
extrajudicially. (emphasis supplied)

In the instant case, the records are bereft of any document whence to deduce that the City of Mandaue exacted from F.F. Cruz the
fulfillment of its obligation under the reclamation contract. And to be sure, not one of the exceptions to the requisite demand under Art.
1169 is established, let alone asserted.

On the contrary, the then city mayor of Mandaue, no less, absolved F.F. Cruz from incurring under the premises in delay in his affidavit
dated July 9, 2004.

As it were, the Mandaue-F.F.Cruz MOA states that the structures built by F .F. Cruz on the property of the city will belong to the latter
only upon the completion of the project. Clearly, the completion of the project is a suspensive condition that has yet to be fulfilled. Until
the condition arises, ownership of the structures properly pertains to F .F. Cruz. What the MOA does provide is that ownership of the
structures shall vest upon, or ipso facto belong to, the City of Mandaue when the Contract of Reclamation shall have been completed.

CENTRAL PHILIPPINE UNIVERSITY vs CA, G.R. NO. 112127, JULY 17, 1995

DOCTRINE:
More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the
condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is
no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would
serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. In the absence of any just cause for the
court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.

FACTS:
In 1939, the late Don Ramon Lopez, Sr., a member of the Board of Trustees of the Central Philippine College (now Central Philippine
University [CPU]), executed a deed of donation in favor of the latter of a parcel of land, for which TCT was issued in the name of the
donee CPU with the following annotations copied from the deed of donation: 1) shall be utilized by the CPU exclusively for the
establishment and use of a medical college; 2) shall not sell, transfer or convey to any third party nor in any way encumber said land; 3)
said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that
name. Any net income shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of
said campus and erection of a building.

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the
conditions of the donation.

Private respondents also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.

In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the
conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended;
and, that it did not sell, transfer or convey it to any third party.

1991, the trial court held that the petitioner failed to comply with the conditions of the donation and declared it null and void and directed
petitioner to execute a deed of the reconveyance of the property in favor of the private respondents.

Petitioner appealed to the Court of Appeals which ruled that the annotations at the back of petitioner's certificate of title were resolutory
conditions breach of which should terminate the rights of the donee thus making the donation revocable.

The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a
medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the
fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain.

ISSUE: Whether the CA erred in remanding the case to the trial court for the fixing of the period within which petitioner would
establish a medical college.
RULING​:
The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be
quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an
educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions
which are beyond the control of the donee.

Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the
general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period
has arrived.

This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a
reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it
be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix
the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose
than to delay or lead to an unnecessary and expensive multiplication of suits.

Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may
seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just
cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.

GAITE VS FONACIER, G.R. No. L-11827, July 31, 1961

DOCTRINE​:
What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is
subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would
stand as if the conditional obligation had never existed. The parties to the contract Exhibit "A" did not intend any such state of things to
prevail. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the ​exact date at
which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its ​maturity
or ​demandability​ is deferred.

FACTS​:
Defendant-appellant Isabelo Fonacier was the owner and/or holder of 11 iron lode mineral claims, known as the Dawahan Group.

By a "Deed of Assignment" dated September 29, 1952 (Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Gaite as his
true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the
mining claims aforementioned on a royalty basis that might be extracted therefrom.

On March 19, 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims unto
the Larap Iron Mines a single proprietorship owned solely by and belonging to him, on the same royalty basis.

Thereafter Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and
outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time
extracted therefrom what he claimed and estimated to be approximately 24,000 metric tons of iron ore.

Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite
assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was
executed, wherein Gaite transferred to Fonacier all his rights and interests on all the roads, improvements, and facilities in or outside said
claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines.

In the same document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the
former had already extracted from the mineral claims, in consideration of the sum of P75,000, P10,000, of which was paid upon the
signing of the agreement.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to
the promise, Fonacier delivered to Gaite a surety bond. Gaite testified, however, that when this bond was presented to him by Fonacier
together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit
"A" unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance
of their price of the iron ore in the stockpiles in the mining claims.

Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with
the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only
when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that,
furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the
"Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and Fonacier entered into a "Contract of Mining
Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore
the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in
consideration of certain royalties.

Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired
from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds
delivered by Fonacier to Gaite.

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company​, no sale of
the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of
the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount​, on the theory that they had lost right to
make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and
his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila
(Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore.

ISSUE​: Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the
defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired
on December 8, 1955

RULING​: Yes. We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition
precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a
conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the
happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. The parties to the contract Exhibit "A" did not intend any such state of things to prevail.

The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos
(P65,000.00) ​will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the
payment will have to be made sooner or later; what is undetermined is merely the ​exact date at which it will be made. By the very terms
of the contract, therefore, the existence of the obligation to pay is recognized; only its ​maturity​ or ​demandability​ is deferred.

The appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of
P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee.
The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as
creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed
of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the
Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(2) When he does not furnish to the creditor the guaranties or securities which he has promised.

(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor
(appellee Gaite), unless immediately renewed or replaced.
Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was
executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within
which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and
payable thereafter.

GONZALES VS JOSE, GR NO. 43429, OCT 24, 1938

DOCTRINE:
The two promissory notes are governed by article 1128 (now Art. 1197) of the Civil Code because under the terms thereof the plaintiff
intended to grant the defendant a period within which to pay his debts. As the promissory notes do not fix this period, it is for the court to
fix the same.

FACTS​:
This action was instituted by the plaintiff to recover from the defendant the amount of two promissory notes worded as follows:

"I promise to pay Mr. Benito Gonzalez the sum of four hundred three pesos and fifty-five centavos (P403.55) as soon as possible.
Manila, June 22, 1922.” (The balance is 174.65)

"I promise to pay Mr. Benito Gonzales the sum of the three hundred and seventy-three pesos and thirty centavos (P373.30) as soon as
possible. 13th day of September, 1922.”

Defendant appealed from the decision of the CFI of Manila ordering him to pay the plaintiff the sum of P547.95 within thirty days from
the date of notification of said decision, plus the costs.

Defendant interposed the special defenses that the complaint is uncertain inasmuch as it does not specify when the indebtedness was
incurred or when it was demandable, and that, granting that the plaintiff has any cause of action, the same has prescribed in accordance
with law.

Resolving the defense of prescription, the trial court held that the action for recovery of the amount of the two promissory notes has not
been prescribed in accordance with article 1128 (now Art. 1197) of the Civil Code.

ISSUE​:
Whether the two promissory notes are governed by Article 1128 (now Art. 1197);

Whether action for recovery of the amount of the two promissory notes has prescribed

RULING:

1. Yes. We hold that the promissory notes are governed by article 1128 because under the terms thereof the plaintiff intended to grant the
defendant a period within which to pay his debts. As the promissory notes do not fix this period, it is for the court to fix the same.

2. The action to ask the court to fix the period has already been prescribed in accordance with section 43 (1) of the Code of Civil
Procedure. This period of prescription is ten years, which has already elapsed from the execution of the promissory notes until the filing
of the action on June 1, 1934. The action which should be brought in accordance with article 1128 is different from the action for the
recovery of the amount of the notes, although the effects of both are the same, being, like the civil actions, subject to the rules of
prescription.

The action brought by the plaintiff having already been prescribed, the appealed decision should be reversed and the defendant absolved
from the complaint, without special pronouncement as to the costs in both instances.

PHILIPPINES NATIONAL BANK VS LOPEZ VITO, G.R. NO. 28884, SEPT 8, 1928

DOCTRINE:
The effect of the period agreed upon by the parties is to suspend the demandability of the obligation, in accordance with Article 1125
(now Art. 1193) of the Civil Code, which provides that obligations for the performance of which a day certain has been fixed shall be
demandable only when that day arrives. But the defendants' right to avail themselves of the periods was by will of the contracting parties
themselves made subject to the resolutory condition. Said condition has resolutory effects, since its fulfillment resolves the period and
leaves the creditor at liberty to demand the performance of the debtors' obligations and to proceed to the foreclosure of the mortgage. The
non-fulfillment of the conditions of the contract renders the period ineffective, and makes the obligation demandable at the will of the
creditor.

FACTS​:
This action was brought for the recovery of a mortgage credit.

By the terms of the mortgage contract the defendant spouses bound themselves to pay plaintiff P24,000 plus interest thereon at 8 per cent
per annum, in ten annual installments of P3,602.64 each, payable on or before July 18th of each year from the date of said contract.

The defendant spouses failed to pay the sums corresponding to the six yearly installments and interest thereon (from July 1920 to July
1926), and on May 31, 1927 the plaintiff instituted this action demanding of the defendants the payment of the installments due and
unpaid, as well as of those corresponding to the years 1927 and 1928. Defendants answered with general denial and failed to appear in
court.

The trial court rendered judgment ordering the defendants to pay the plaintiff the sum of P13,404.18, with interest at 8 per cent per
annum from July, 1920, compounded semiannually, and the costs.

In due time and form, the plaintiff excepted to that part of the judgment reserving to the Philippine National Bank the proper action on
the last annual installment of P2,844.88 and the interest thereon.

It is contended that the trial court committed an error in holding that the eighth annual installment of P2,844.88 is not yet demandable.

The mortgage contract contains a stipulation that ​neglect, fail, or refuse of mortgagors to comply with all or of the stipulations and
conditions, the mortgage shall have the right to declare such stipulations and conditions violated and to proceed to the foreclosure of the
mortgage.

ISSUE: ​Whether the eighth annual installment of P2,844.88 is not yet demandable

RULING: According to article 1255 (now Art. 1306​) of the Civil Code the contracting parties may establish any agreements, terms and
conditions they deem proper, provided they are not contrary to law, morals, or public order; and the agreement here copied is perfectly
valid, since it is not contrary to law, good morals or public order, the restrictions that the law imposes upon the contracting parties.

It is undeniable that the effect of the period agreed upon by the parties is to suspend the demandability of the obligation, in accordance
with article 1125 (now Art. 1193) of the Civil Code, which provides that obligations for the performance of which a day certain has been
fixed shall be demandable only when that day arrives. But the defendants' right to avail themselves of the periods was by will of the
contracting parties themselves made subject to the resolutory condition.

We are of the opinion that the non-fulfillment of the conditions of the contract renders the period ineffective, and makes the obligation
demandable at the will of the creditor.

It is true that the conditions contained in paragraph 5 of the said mortgage contract are not quite explicit with respect to the maturity of
the installments following that or those due and unpaid. But we take it that when the parties agreed that should the mortgagor fail to
fulfill any of the conditions of the contract, such as the one to pay any of the installments, the mortgagee may declare such stipulations
and conditions violated, and proceed to the foreclosure of the mortgage in accordance with law, the intention of said parties was to
authorize the creditor in such a case to declare all the conditions of the contract violated, that is, ​to declare all the remaining
installments due​. And so it must be, because the creditor is not bound to declare the unpaid installment due, for they became due by the
failure to pay.

Wherefore, the judgment appealed from must be as it is hereby, modified, and it is declared that, as the mortgage installments in question
have matured may collect by the failure of the mortgagor to pay, the mortgagee may collect the whole debt, with interest thereon,
including the P2,844.88 and the interest upon the last annual installment, and to proceed to the foreclosure of the mortgage in accordance
with law, without prejudice to the mortgaged lands, in favor of the North Negros Sugar Co., Inc.
  
  
Section 3. Alternative Obligations​. 
 
(Barrozo, Joanna) 
46. Agoncillo v. Javier, G.R. No. L-12611, Aug. 7, 1918; 
 
Plaintiff-appellees :​ FELIPE AGONCILLO, and his wife, MARCELA MARIÑO 
Defendants-appellants:​ CRISANTO JAVIER, administrator of the estate of the late Anastasio Alano. 
FLORENCIO ALANO and JOSE ALANO,. 
 
Doctrine:  ​The  agreement  to  convey  the  house  and  lot  at  an  appraised  valuation  in  the  event  of 
failure  to  pay  the  debt  in  money at its maturity is perfectly valid. It is simply an undertaking that if 
the  debt  is  not  paid  in  money,  it  will  be  paid  in  another  way.  The  obligations  assumed  by  the 
debtors were alternative, and they had the right to elect which they would perform. 
 
Facts: 
On  February,  1904,  Anastasio  Alano,  Jose  Alano,  and  Florencio  Alano  (defendants)  executed  in 
favor of the plaintiff, Da. Marcela Mariño, a document of the following tenor: 
1. We  will  pay  to  Da.  Marcela  Mariño  within  one  year  from  this  date  together  with  interest 
thereon  at  the  rate of 12% per annum, the sum of P2,730.50, this being the present amount of 
indebtedness incurred in favor of that lady, by our testator, the Rev. Anastasio C. Cruz; 
2. To  secure  the  payment  of  this  debt  we  mortgage  to  the said Da. Marcela Mariño the house 
and lot bequeathed to us by the deceased; 
3. In  case  of  insolvency  on  our  part,  we  cede  by  virtue  of these presents the said house and 
lot  to  Da.  Marcela  Mariño,  transferring  to  her  all  our  rights  to  the  ownership  and 
possession  of  the  lot;  and  if  the  said  property  upon appraisal at the time of the maturity of 
this  obligation  should  not  be  of  sufficient  value  to  cover  the  total  amount  of  this 
indebtedness,  I,  Anastasio  Alano,  also  mortgage  to  the  said  lady  my  four  parcels  of  land 
situated in the barrio of San Isidro, to secure the balance, if any. 
 
In 1912, Anastasio Alano died intestate 
 
On  March  17, 1916, the plaintiffs filed this complaint against Javier, as administrator of the estate of 
Anastasio Alano and against Florencio Alano and Jose Alano personally.  
 
It  is  averred  that  defendants  have  paid  no  part  of  the  indebtedness  therein  acknowledged,  with 
the  exception  of  the  P200  paid  on  account.  It  is  further  averred  that  the  debtors  promised  in 
writing that they would pay the debt but that they had failed to do so.  
 
The  prayer  of  the  complaint  is  that,  unless  defendants  pay the debt for the recovery of which the 
action  was  brought,  they  be  required  to  convey  to  plaintiffs  the  house  and  lot  described  in 
paragraph  two  of  the  said  document;  that  this  property  be  appraised;  and  that  if  its  value  is 
found  to  be  less  than  the  amount  of  the  debt,  with  the  accrued  interest  at  the  stipulated  rate, 
judgment be rendered in favor of the plaintiffs for the balance.  
 
The  defendants answered denying generally the facts alleged in the complaint, and setting up, as 
special  defenses  that  (1)  the  document  upon  which  plaintiff  relies  does  not  constitute  a  valid 
mortgage;  and  (2)  that  as  to  all  of  the  defendants,  the  action  is barred by the general statute of 
limitations. 
 
The  court  rule  in  favor  of  the  plaintiffs,  and from that judgment the defendants have appealed to 
his court.  
 
​Issues:  
(1) Whether  the agreement to convey the house and lot in the event of failure to pay the debt in 
money is valid. 
(2) Whether the obligation has prescribed. 
 
Ruling:  
(1)Yes. 
  
The  principal  undertaking  evidenced  by  the  document  is,  obviously,  the  payment  of  money.  The 
attempt  to  create  a  mortgage  upon  the  house  and  lot  described  in  the  second  clause  of  the 
contract is, of course, invalid, as it is admitted that the so-called mortgage was never recorded.  
 
The  agreement  to  convey  the  house  and  lot  at  an  appraised valuation in the event of failure to 
pay  the  debt  in  money  a  t  its maturity is, however, in our opinion, perfectly valid. It is simply an 
undertaking  that  if  the  debt  is  not  paid  in  money,  it  will  be paid in another way. As we read the 
contract,  the  agreement  is  not  open to the objection that the stipulation is a ​pacto comisorio.​  It is 
not  an  attempt  to  permit  the  creditor  to  declare a forfeiture of the security upon the failure of the 
debtor  to  pay  the  debt  at  maturity.  It  is  simply  provided  that  if  the  debt  is  not  paid  in  money  it 
shall  be  paid  in  another  specific was by the transfer of property at a valuation. Of course, such an 
agreement,  unrecorded,  creates  no  right  in  rem;  but  as  between  the  parties  it  is  perfectly  valid, 
and  specific  performance  of  its  terms  may  be  enforced,  unless  prevented  by  the  creation  of 
superior rights in favor of third persons. 
 
The  contract  now  under  consideration  is  not  susceptible  of  the  interpretation  that  the  title to the 
house  and  lot  in  question  was to be transferred to the creditor ipso facto upon the mere failure of 
the  debtors  to  pay  the  debt  at  its  maturity.  ​The  obligations  assumed  by  the  debtors  were 
alternative,  and  they  had  the  right  to  elect  which  they  would perform (Civil Code, art. 1132). The 
conduct  of  the  parties  (Civil  Code,  art.  1782)  shows  that  it  was  not  their  understanding  that  the 
right  to  discharge  the  obligation  by  the payment of money was lost to the debtors by their failure 
to  pay  the  debt  at  its  maturity.  The  plaintiff  accepted  a  partial  payment from Anastasio Alano in 
1908,  several  years  after  the  debt  matured.  The prayer of the complaint is that the defendants be 
required  to  execute  a  conveyance of the house and lot, after its appraisal, ​"unless the defendants 
pay the plaintiff the debt which is the subject of this action." 
 
(2) Yes. 
 
It  is  quite  clear,  therefore,  that  under  the  terms  of  the  contract,  as  we  read  it,  and  as  the  parties 
themselves  have  interpreted  it,  ​the  liability of the defendants as to the conveyance of the house 
and  lot  is  subsidiary  and  conditional,  being  dependent  upon  their  failure  to  pay  the  debt  in 
money.  It must follow, therefore, that if the action to recover the debt has prescribed, the action 
to  compel a conveyance of the house and lot is likewise barred, as the agreement to make such 
conveyance  was  not  an  independent  principal  undertaking,  but  merely  a  subsidiary 
alternative pact relating to the method by which the debt might be paid. 
 
While  it  appears  that  some  verbal  and  written  demands  for  payment  were  made  upon  these 
defendants,  it  has  been  recently  decided,  upon  mature  consideration,  that  an  extrajudicial 
demand  is  not  sufficient,  under  the  law  as  it  now  stands, to stop the running of the statute. There 
must  be  either  (1)  a  partial  payment,  (2)  a  written  acknowledgment  or  (3)  a  written  promise  to 
pay  the  debt.  It  is  not  contended that there has been any written acknowledgment or promise on 
the  part  of the defendants Jose and Florencio Alano, or either of them — plaintiff relies solely upon 
the payment made in 1908 by Anastasio Alano. 
 
Plaintiff  argues  that  the  undertaking  to  convey  the  house  and  lot  constitutes  an  uindivisible 
obligation,  and  that  even  where  the  promise  is  not  ​in  solidum,  the  concurrence  of  two  or  more 
debtors  in  an  obligation  whose  performance  is  indivisible  creates  such  a  relation  between them 
that  the  interruption  of  prescription  as  to  one  of  necessity  interrupts  it  as  to  all.  The distinction is 
one  which  is  well  established,  although  the  authorities  cited  do  not  fully  support  plaintiffs' 
contentions,  but  in  this  particular  case  the  question  is  academic,  for  the  undertaking  is  in  the 
alternative  to  pay  a  sum  of  money  —  an essentially divisible obligation — or to convey the house. 
As the alternative indivisible obligation is imposed only in the event that the debtors fail to pay the 
money,  it  is  subject  to  a  suspensive  condition,  and  the  prescription  of  the  obligation  whose 
non-performance constitutes the condition effectively prevents the condition from taking place. 
 
47. Arco Pulp v. Lim, G.R. No. 206806, Jun. 25, 2014 
 
Petitioners​: ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS  
Respondent​:  DAN  T.  LIM,  doing  business  under  the  name  and  style  of  QUALITY  PAPERS  &  PLASTIC 
PRODUCTS ENTERPRISES  
 
Doctrine:  ​In  an  alternative  obligation,  there  is  more  than  one  object,  and  the  fulfillment  of  one is 
sufficient,  determined by the choice of the debtor who generally has the right of election. The right 
of  election  is  extinguished  when  the  party  who  may  exercise  that  option  categorically  and 
unequivocally makes his or her choice known. 
 
An  agreement  giving  the  debtor  an  option  to  either  (1)  pay  the  price  or  (2)  deliver  the  finished 
products of equivalent value to the creditor is an alternative obligation. 
 
Facts:  
 
Dan  T.  Lim  works  in  the  business  of  supplying  scrap  papers,  cartons,  and  other  raw  materials, 
under  the  name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper 
mill business.  
 
From  February  2007  to  March  2007,  he  delivered  scrap  papers  worth PhP7,220,968.31 to Arco Pulp 
and Paper Company, Inc. (Arco Pulp and Paper). 
 
The  parties  allegedly  agreed  that  Arco  Pulp  and  Paper  would either pay Dan T. Lim the value of 
the raw materials or deliver to him their finished products of equivalent value.  
 
Dan  T.  Lim  alleged  that  when  he  delivered  the  raw  materials,  Arco  Pulp  and  Paper  issued  a 
post-dated  check  dated  April  18,  2007  in  the  amount  of  PhP1,487,766.68  as  partial  payment,  with 
the  assurance that the check would not bounce. 8pWhen he deposited the check on April 18, 2007, 
it was dishonored for being drawn against a closed account.  
 
On  the  same  day,  Arco  Pulp  and  Paper  and  a  certain  Eric  Sy  executed  a  memorandum  of 
agreement  where  Arco  Pulp  and  Paper  bound  themselves  to  deliver  their  finished  products  to 
Megapack  Container  Corporation,  owned  by  Eric  Sy,  for  his  account.  According  to  the 
memorandum,  the  raw  materials  would  be  supplied  by  Dan  T.  Lim, through his company, Quality 
Paper and Plastic Products  
 
Dan  T.  Lim  sent  a  letter  to  Arco  Pulp  and  Paper  demanding  payment  of  the  amount  of 
PhP7,220,968.31,  but  no  payment  was  made  to  him.  Dan  T.  Lim  filed  a  complaint  for  collection  of 
sum of money with prayer for attachment with the RTC. 
 
The  RTC  rendered  a  judgment  in  favor  of  Arco  Pulp  and  Paper  and  dismissed  the  complaint, 
holding  that  when  Arco  Pulp  and  Paper and Eric Sy entered into the memorandum of agreement, 
novation took place, which extinguished Arco Pulp and Paper's obligation to Dan T. Lim 
 
The  CA  rendered  a  decision  reversing  and  setting  aside  the  judgment.  The  appellate court ruled 
that  the  facts  and  circumstances  in  this  case  clearly  showed  the  existence  of  an  alternative 
obligation.  It  also  ruled  that  Dan  T.  Lim  was  entitled  to  damages  and  attorney's  fees  due  to  the 
bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking.  
 
Issue: ​Whether the obligation between the parties was extinguished by novation. 
 
Ruling: ​No. 
 
The obligation between the parties was an alternative obligation 
 
In  an  alternative  obligation,  there  is  more  than  one  object,  and  the  fulfillment  of one is sufficient, 
determined  by  the  choice  of  the  debtor  who  generally  has  the  right  of  election.  The  right  of 
election  is  extinguished  when  the  party  who  may  exercise  that  option  categorically  and 
unequivocally makes his or her choice known 
 
By  agreement,  petitioner  Arco  Pulp  and  Paper,  as  the  debtor,  had  the  option  to either (1) pay the 
price or (2) deliver the finished products of equivalent value to respondent.  
  
The  appellate  court,  therefore,  correctly  identified  the  obligation  between  the  parties  as  an 
alternative  obligation,  whereby  petitioner  Arco  Pulp  and  Paper,  after  receiving  the  raw  materials 
from  respondent,  would  either  pay  him  the price of the raw materials or, in the alternative, deliver 
to him the finished products of equivalent value. 
 
When  petitioner  Arco  Pulp  and  Paper  tendered  a  check  to  respondent  in  partial  payment for the 
scrap  papers,  they  exercised  their  option  to  pay  the  price. Respondent's receipt of the check and 
his  subsequent  act  of  depositing  it  constituted  his  notice  of  petitioner  Arco  Pulp  and  Paper's 
option to pay. 
 
This  choice was also shown by the terms of the memorandum of agreement, which was executed 
on  the  same  day.  The  memorandum  declared  in  clear  terms  that  the  delivery  of  petitioner  Arco 
Pulp  and  Paper's  finished  products  would be to a third person, thereby extinguishing the option to 
deliver the finished products of equivalent value to respondent. 
 
The memorandum of agreement did not constitute a novation of the original contract 
 
When  petitioner  Arco  Pulp  and  Paper  opted  instead  to  deliver  the  finished  products  to  a  third 
person, it did not novate the original obligation between the parties. 
 
There  is  nothing  in  the  memorandum  of  agreement  that  states  that  with  its  execution,  the 
obligation  of  petitioner  Arco Pulp and Paper to respondent would be extinguished. It also does not 
state  that  Eric  Sy  somehow  substituted  petitioner  Arco  Pulp  and  Paper  as  respondent's  debtor. It 
merely  shows  that  petitioner  Arco  Pulp  and Paper opted to deliver the finished products to a third 
person instead. 
 
Since  there  was  no  novation,  petitioner  Arco  Pulp  and  Paper's  obligation  to  respondent  remains 
valid  and  existing.  Petitioner  Arco  Pulp  and  Paper,  therefore,  must  still  pay  respondent  the  full 
amount of PhP7,220,968.31.  
  
Section 4. Joint and Solidary Obligations​. 
 
48. AFP Retirement and Separation Benefits System v.​ ​Sanvictores, G.R. No. 207586, Aug. 17, 2016; 
 
Petitioner: ​AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM (AFPRSBS) 
Respondent: ​EDUARDO SANVICTORES 
 
Doctrine: ​ A liability is solidary only when: 1] the obligation expressly so states; or 2] the law or 
nature requires solidarity. 
 
Facts: 
● Prime East Properties, Inc. (PEPI) offered to Eduardo Sanvictores (Sanvictores) for sale on 
installment basis a parcel of land. 
● Sanvictores paid the required down payment. 
● Subsequently, ​a Contract to Sell was executed by and between ​PEPI and AFPRSBS, as the 
seller​, and Sanvictores, as the buyer. 
● Sanvictores paid in full the purchase price of the subject property. 
● Despite the full payment, PEPI and AFPRSBS failed to execute the corresponding deed of 
absolute sale on the subject property and deliver the corresponding title thereto. 
● Sanvictores demanded from PEPI the execution of the deed of sale and the delivery of the 
TCT. 
● PEPI claimed that the title of the subject property was still with the Philippine National Bank 
(PNB) and could not be released due to the economic crisis. 
● Sanvictores filed a complaint for rescission of the contract to sell, refund of payment, 
damages, and attorney's fees against PEPI and AFPRSBS before the HLURB.  
 ● The HLURB, Office of the President, and the CA ruled in favor of Sanvictores. Hence, this 
petition for review on certiorari. 
● AFPRSBS argues that it was not the owner/developer of the Village East Executive Homes 
subdivision, but PEPI; that it was not the seller of the subject property, but PEPI; that although 
it appeared in the contract to sell that AFPRSBS was a co-seller of the subject lot, it was not 
signed by any of its authorized representative; that because it was not a party in the said 
contract, it could not be affected, favored or prejudiced thereby. 
 
Issue: ​Whether AFPRSBS can be held solidarily liable with PEPI 
 
Ruling:  
Yes.  In  ​Spouses  Berot  v.  Siapno  ,  the  Court  defined  ​solidary obligation as one in which each 
of  the  debtors  is  liable  for  the  entire  obligation,  and  each  of  the  creditors  is  entitled  to 
demand  the  satisfaction  of  the  whole  obligation  from any or all of the debtors. On the other 
hand,  a  ​joint  obligation  is  one  in  which  each  debtor  is liable only for a proportionate part of 
the  debt,  and  the  creditor  is  entitled  to demand only a proportionate part of the credit from 
each  debtor.  The  well-entrenched  rule  is  that solidary obligations cannot be inferred lightly. 
They  must  be positively and clearly expressed. A liability is solidary "only when the obligation 
expressly so states, when the obligation so requires." 
 
Article  1207  does  not  presume  solidary  liability  unless:  1]  the  obligation  expressly  so 
states; or 2] the law or nature requires solidarity. 
 
Here,  there  is  no  doubt  that  the  nature  of  the  obligation  of  PEPI  and  AFPRSBS  under  the 
subject  contract  to  sell  was  solidary.  In  the  said  contract,  PEPI  and  AFPRSBS  were 
expressly  referred  to  as  the  "SELLER"  while  Sanvictores  was  referred  to  as  the  "BUYER." 
Indeed,  the  contract  to  sell  did  not  state  "SELLERS" but "SELLER." This could only mean that 
PEPI  and AFPRSBS were considered as one seller in the contract. ​As correctly pointed out by 
the  administrative  tribunals  below  and  the  CA,  there  was  no  delineation  as  to  their  rights 
and obligations. 
 
AFPRSBS  repeatedly  argues  that  the  contract  was  not  signed  by  any  of  its  authorized 
representative.  It  was  resolute  in  its  claim  that  Espina  was  not  its  treasurer  or  authorized 
representative.  Conveniently,  however,  it  remained  silent  as  to  Mena.  It  never  denied  that 
Mena  was  its  representative.  AFPRSBS  is  estopped  from  denying  Mena's  authority  to 
represent  it.  It  is  quite  obvious  that  AFPRSBS clothed Mena with apparent authority to act on 
its  behalf  in  the  execution  of  the  contract  to  sell.  There  is  estoppel  when  the  principal  has 
clothed the agent with indicia of authority as to lead a reasonably prudent person to believe 
that the agent actually has such authority.  
 
 
49. BPI v. Fernandez, G.R. 173134, Sept. 2, 2015; 
 
Petitioner: ​BANK OF THE PHILIPPINE ISLANDS 
Respondent: ​TARCILA FERNANDEZ 
 
Doctrine:  ​The  AND/OR  nature  of  the  bank  accounts  indicates active solidarity that entitled any of 
the  account  holders  to  demand  from  BPI  payment  of their proceeds. Since Tarcila made the 
first  demand  upon BPI, payments should have been made to her under Article 1214 of the Civil 
Code. [Discussion related to solidary liability] 
 
Facts: 
Tarcila  together  with  her  husband,  Manuel  and  their  children  Monique  Fernandez  and  Marco 
Fernandez,  opened  the  following  ​AND/OR  deposit  accounts  with  the  petitioner  BPI,  Shaw  Blvd. 
Branch. 
 
The deposits were subject to the following condition, among others: 
3.  Endorsement  and  presentation  of  the  Certificate  of  Deposit  is  necessary  for  the  renewal  or 
termination of the deposit" 
 
Tarcila  went  to  the  BPI  Shaw  Blvd.  Branch  to  preterminate  these  joint  AND/OR  accounts.  She 
brought  with  her  the  certificates  of  time  deposit  and  the  passbook,  and  presented  them  to  the 
bank.  BPI,  however,  refused  the  requested  pre-termination  despite  Tarcila's  presentation  of  the 
covering  certificates.  Instead,  BPI,  through  its  branch  manager,  Mrs.  Capistrano,  insisted  on 
contacting  Manuel,  alleging  in  this  regard  that  this  is  an  integral  part  of  its  standard  operating 
procedure.  
 
Shortly  after  Tarcila  left  the  branch, Manuel arrived and likewise requested the pre-termination of 
the  joint  AND/OR  accounts.  Manuel  claimed  that  he had lost the same certificates of deposit that 
Tarcila  had  earlier  brought  with  her.  BPI,  through  Capistrano,  this  time  acceded  to  the 
pre-termination  requests,  blindly  believed  Manuel's  claim, and requested him to accomplish BPI's 
pro-forma affidavit of loss.  
 
Two  days  after,  Manuel  returned  to  BPI,  Shaw  Blvd.  Branch  to  pre-terminate  the  joint  AND/OR 
accounts.  He  was  accompanied  by  Atty.  Hector  Rodriguez,  the  respondent  Dalmiro  Sian  (Sian), 
and two (2) alleged National Bureau of Investigation (NBI) agents. 
 
In  place  of  the  actual  certificates  of  deposit,  Manuel  submitted  BPI's  pro-forma  affidavit  of  loss 
that  he  previously  accomplished  and  an  Indemnity  Agreement that he and Sian executed on the 
same  day.  The  Indemnity  Agreement  discharged  BPI  from  any  liability  in  connection  with  the 
pre-termination.  Notably,  none  of  the  co-depositors  were  contacted  in  carrying  out  these 
transactions.  
 
On  the  same  day,  the  proceeds  released  to  Manuel  were  funneled  to  Sian's  newly  opened 
account  with  BPI.  Immediately  thereafter,  Capistrano  requested  Sian  to  sign  blank  withdrawal 
slips,  which  Manuel  used  to  withdraw  the  funds  from  Sian's  newly  opened  account.  Sian's 
account, after its use, 
was closed on the same day. 
 
A  few  days  after  these  transactions,  Tarcila  filed  a  petition  for  "Declaration  of  Nullity  of  Marriage, 
etc." against Manuel.  
 
Tarcila  never  received  her  proportionate  share  of  the  pre-terminated  deposits,  prompting her to 
demand  from  BPI  the  amounts due her as a co-depositor in the joint AND/OR accounts. When her 
demands remained unheeded, Tarcila initiated a complaint for damages with the RTC. 
 
In  her  complaint,  Tarcila  alleged  that  BPI's  payments  to  Manuel  of  the  pre  terminated  deposits 
were  invalid  with  respect  to  her  share.  She  argued  that  BPI  was  in  bad  faith  for  allowing  the 
pre-termination  of  the  time  deposits  based  on  Manuel's  affidavit  of  loss  when  the  bank  had 
actual knowledge that the certificates of deposit were in her possession.  
 
In  its  answer,  BPI  alleged  that  the  accounts  contained  conjugal  funds  that  Manuel  exclusively 
funded.  BPI  further  argued  that  Tarcila  could not ask for her share of the pre-terminated deposits 
because  her  share  in  the  conjugal property is considered inchoate until its dissolution.  BPI further 
denied  refusing  Tarcila's  request  for  pre-termination  as  it  processed  her  request  but  she  left the 
branch before BPI could even contact Manuel. 
 
The  RTC  ruled  in  favor  of Tarcila. ​RTC opined that the AND/OR nature of the accounts indicate an 
active  solidarity  that  thus  entitled  any  of  the  account  holders  to  demand from BPI payment of 
their  proceeds.  Since  Tarcila  made  the  first  demand  upon  BPI,  payments  should  have  been 
made to her under Article 1214 of the Civil Code​, which provides: 
"Art.  1214.  The  debtor  may  pay  any  one  of  the  solidary  creditors;  but  if  any  demand, 
judicial  or  extrajudicial,  has  been  made  by  one  of  them,  payment  should  be  made  to 
him." 
 
The CA affirmed the decision. Hence this petition. 
 
Issue: ​Whether the CA and the court a quo erred in applying the provisions of Article 1214 of the 
Civil Code and holding BPI liable. 
 
Ruling: ​No. 
 
BPI breached its obligation under the certificates of deposit. 
The  certificates  of  deposit  contain  provisions  on  the  amount  of  interest,  period  of  maturity,  and 
manner  of  termination.  Specifically,  they  stressed  that  endorsement and presentation of the 
certificate  of  deposit  is  indispensable  to their termination. ​In other words, the accounts may 
only  be  terminated  upon  endorsement  and  presentation  of  the  certificates  of  deposit. 
Without the requisite presentation of the certificates of deposit, BPI may not terminate them. 
 
BPI  thus may only terminate the certificates of deposit after it has ​diligently completed two steps. 
First,  it  must  ensure  the  identity  of  the  account  holder.  ​Second,​   BPI  must  demand  the 
surrender of the certificates of deposit.  
 
This  is  the  essence  of  the  contract  entered  into  by  the  parties  which serves as an accountability 
measure  to  other  co-depositors.  By  requiring  the  presentation  of  the  certificates  prior  to 
termination,  the  other  depositors  may  rely  on  the  fact  that  their  investments  in  the 
interest-yielding  accounts  may  not  be  indiscriminately  withdrawn  by  any  of  their 
co-depositors.  This  protective  mechanism  likewise  benefits  the  bank,  which  shields  it  from 
liability  upon  showing  that  it  released  the  funds  in  good  faith  to  an  account  holder  who 
possesses  the  certificates. Without the presentation of the certificates of deposit, BPI may not 
validly terminate the certificates of deposit. 
 
With  these  considerations  in  mind,  we  find  that  BPI  substantially  breached  its  obligations  to  the 
prejudice  of  Tarcila.  BPI  allowed  the  termination  of  the  accounts  without  demanding  the 
surrender  of  the  certificates  of  deposits,  in  the  ordinary  course  of  business.  Worse,  BPI  even 
had  actual  knowledge  that  the  certificates  of  deposit  were  in  Tarcila's  possession  and yet it 
chose  to  release  the  proceeds  to  Manuel  on  the  basis  of  a falsified affidavit of loss, in gross 
violation of the terms of the deposit agreements. 
 
BPI is guilty of bad faith. 
BPI  did  not  only  fail  to  exercise  that  degree  of  diligence  required  by  the  nature  of  its  business,  it 
also  exercised  its  functions  with  bad  faith  and  manifest  partiality  against  Tarcila.  The  bank 
even recognized an affidavit of loss whose allegations, the bank knew, were false.  
 
BPI could not invoke the Indemnity Agreement. 
BPI  may  not  invoke  the  provisions  of  the  Indemnity  Agreement  on  the  basis  of ​in pari delicto — it 
was  equally  at  fault.  In  the  present  case,  equity  dictates  that  BPI  should  not  be  allowed  to 
claim  from  Sian  on  the  basis  of  the  Indemnity Agreement. The facts unmistakably show that 
both  BPI  and  Sian  participated  in  the  deceptive  scheme  to  allow  Manuel  to  withdraw  the 
funds.  As  succinctly  admitted  by  Capistrano  during  her  testimony:  BPI  knew  very  well  the 
irregularity  in Manuel's transaction for it had actual knowledge that the certificates of deposit 
were  in  Tarcila's  possession.  Because  of  this  knowledge,  it  entertained  the  possibility  of 
reprisal  from  the  co-depositors.  Thus,  it  took  shrewdly calculated steps and required Manuel 
and  Sian  to  execute  an  Indemnity  Agreement,  hoping  that  this  instrument  would  absolve  it 
 from  liability.  BPI  and  Sian are in pari delicto, thus, no affirmative relief should be given to one 
against the other.  
 
50. Berot v. Siapno, G.R. 188944, Jul. 9, 2014; 
 
Petitioners: ​SPOUSES RODOLFO BEROT AND LILIA BEROT 
Respondent: ​FELIPE C. SIAPNO 
 
Doctrine: ​Under Article 1207 of the Civil Code of the Philippines, the general rule is that when there 
is a concurrence of two or more debtors under a single obligation, the obligation is presumed 
to be joint. To consider the obligation as solidary in nature, it must expressly be stated as 
such, or the law or the nature of the obligation itself must require solidarity. 
 
 
Facts: 
Macaria  Berot  (or  "Macaria")  and  spouses  Rodolfo  A.  Berot  (or  "appellant")  and  Lilia  P.  Berot  (or 
"Lilia")  obtained  a  loan  from  Felipe  C.  Siapno  (or  "appellee") in the sum of PhP250,000.00, payable 
within  one  year  together  with  interest  thereon  at  the  rate  of  2%  per  annum  from  that  date  until 
fully paid. 
 
As  security  for  the  loan,  Macaria,  appellant  and  Lilia  (or  "mortgagors",  when  collectively) 
mortgaged  to  appellee  a  portion  of  a  ​parcel  of  land  (contested  property)  in  the  names  of 
Macaria and her husband Pedro Berot (or "Pedro"),​ deceased. Macaria died. 
 
Because  of  the  mortgagors'  default,  appellee  filed  an  action  against  them  for  foreclosure  of 
mortgage and damages in the RTC. 
 
In  answer,  appellant  and  Lilia  (or  "Berot  spouses")  alleged  that  the  contested  property  was  the 
inheritance  of  the  former  from  his  deceased  father,  Pedro;  that  on  said  property  is  their  family 
home;  that  the  mortgage  is  void  as  it  was  constituted  over  the  family home without the consent 
of  their  children,  who  are  the  beneficiaries  thereof;  ​that  their  obligation  is  only  joint​; and that the 
lower  court  has  no  jurisdiction  over  Macaria  for  the  reason  that  no  summons  was  served on her 
as she was already dead. 
 
The  lower  court  rendered  a  decision  allowing  the  foreclosure  of  the  subject  mortgage.  This  was 
affirmed by the CA. Hence this petition. 
 
Issue: ​Whether the nature of the loan obligation contracted by petitioners is joint or solidary. 
 
Ruling: ​Joint. 
Under  Article  1207  of  the  Civil  Code  of  the  Philippines,  ​the  general  rule  is  that  when  there  is  a 
concurrence  of  two  or  more  debtors  under a single obligation, the obligation is presumed to be 
joint.  The  law  further  provides  that  ​to  consider  the  obligation  as  solidary  in  nature,  it  must 
expressly  be  stated  as  such,  or  the  law  or  the  nature  of  the  obligation  itself  must  require 
solidarity. 
 
The  SC  found  no  record  of  the  principal  loan  instrument,  except  an  evidence that the real estate 
mortgage  was  executed  by  Macaria  and  petitioners.  When  petitioner  Rodolfo  Berot  testified  in 
court, he admitted that he and his mother, Macaria, had contracted the loan for their benefit. 
The  testimony  of  petitioner  Rodolfo  only  established  that  there  was  that  existing  loan  to 
respondent,  and  that  the  subject  property  was  mortgaged  as  security  for the said obligation. His 
admission  of  the  existence  of  the  loan  made  him  and  his  late  mother  liable  to  respondent.  ​We 
have  examined  the  contents  of  the  real  estate  mortgage  but  found  no  indication  in  the  plain 
wordings  of  the  instrument  that  the  debtors  —  the  late  Macaria  and  herein  petitioners  —  had 
expressly  intended  to  make  their  obligation  to  respondent  solidary  in  nature.  Absent  from  the 
 mortgage  are  the express and indubitable terms characterizing the obligation as solidary. ​Hence, 
applicable  to this case is the presumption under the law that the nature of the obligation herein 
can  only  be  considered  as joint​. It is incumbent upon the party alleging otherwise to prove with a 
preponderance  of  evidence  that  petitioners'  obligation under the loan contract is indeed solidary 
in character.  
 
During  her  lifetime,  Macaria  was  the  registered  owner  of  the  mortgaged  property,  subject  of  the 
assailed  foreclosure.  Considering  that  she  had  validly  mortgaged  the  property  to  secure  a  loan 
obligation,  and  given  our ruling in this case that the obligation is joint, her intestate estate is liable 
to  a  third  of  the  loan  contracted  during  her  lifetime.  ​Thus  the  foreclosure  of  the  property  may 
proceed, but would be answerable only to the extent of the liability of Macaria to respondent. 
 
(Acampado, Erika) 
 
51. Bognot v. RRi Lending, G.R. No. 180144, Sept. 24, 2014 
 
Petitioner: ​Leonardo Bognot 
Respondent: ​RRI Lending Corporation, represented by its General Manager, Dario J. Bernardez 
 
Doctrine​: A solidary obligation is one in which each of the debtors is liable for the entire 
obligation, and each of the creditors is entitled to demand the satisfaction of the whole 
obligation from any or all of the debtors.​42​ There is solidary liability when the obligation 
expressly so states, when the law so provides, or when the nature of the obligation so 
requires.​ Thus,
​
when the obligor undertakes to be "jointly and severally" liable, the obligation is 
solidary, 
 
The well-entrenched rule is that ​solidary obligation cannot be inferred lightly. It must be 
positively and clearly expressed and cannot be presumed​. 
  
Facts​: Leonardo and his brother, Rolando Bognot applied for and obtained a loan of P500,000 from 
RRI Lending Corporation. Evidence showed that Leonoardo renewed the loan several times on a 
monthly basis. He would pay a renewal fee for each renewal and issued new post-dated checks 
as security and executed and/or renewed the promissory note previously issued. RRI would then 
cancel and return the post-dated checks issued prior to their renewal. Leonardo applied for 
another loan renewal. He again executed as principal and signed the Promissory Note his 
co-maker was again Rolando. As security for the loan, the petitioner also issued BPI Check. The 
loan was again renewed on a monthly basis until June 30, 1997 as shown by Official Receipt and 
Disclosure Statement signed by Bernardez. Leonardo purportedly paid the renewal fees and 
issued a post-dated check dated June 30, 1997. As had been done in the past, RRI Lending 
superimposed the date “June 30, 1997” on the upper right portion of the promissory Note to 
make it appear that it would mature on that date. Several days before the loan’s maturity, 
Rolando’s wife, Julieta Bognot went to RRI Lending’s office and applied for another renewal of 
the loan. She issued a Promissory Note and and International Bank Exchange dated July 30, 1997 
for the renewal fee.RRI Lending filed a complaint for sum of money against the Bognot siblings 
as the loan renewable on June 30, 1997 remained unpaid. Despite repeated demands, the 
Bognot siblings failed to pay their joint and solidary obligation RTC and CA: Ruled in favor of RRI 
and considered the wordings of the promissory note and found that the loan they contracted 
was joint and solidary.  
 
"FOR VALUE RECEIVED, I/WE, jointly and severally, promise to pay to READY RESOURCES INVESTORS RRI 
LENDING CORPO. or Order, its office at Paranaque, M.M. the principal sum of Five Hundred 
Thousand PESOS (​₱​500,000.00), PhilippineCurrency, with interest thereon at the rate of Five 
percent (5%) per month/annum, payable in One Installment (01) equal 
daily/weekly/semi-monthly/monthly of PESOS Five Hundred Thousand Pesos (​₱​500,000.00), first 
installment to become due on June 30, 1997. xxx" (Emphasis Ours). 
  
Issue​: Whether Leonardo Bognot is solidarily liable with Rolando Bognot 
 
Held​: ​NO​. ​JOINT OBLIGATION. 
 
A  solidary  obligation  is  one  in  which  each  of  the  debtors  is  liable  for  the  entire  obligation,  and  each  of  the 
creditors  is  entitled  to demand the satisfaction of the whole obligation from any or all of the debtors.​42 There is 
solidary  liability  when  the  obligation  expressly  so  states,  when  the  law  so  provides,  or  when  the nature of the 
obligation  so  requires.​43  Thus,  when  the  obligor  undertakes  to  be  "jointly and severally" liable, the obligation is 
solidary, 
 
Although  the  phrase  "jointly  and  severally"  in  the  promissory  note  clearly  and  unmistakably  provided  for  the 
solidary  liability  of  the  parties,  we  note  and  stress  that  the  promissory  note  is  merely  a  photocopy  of  the 
original, which was never produced. 
Under  the  best  evidence  rule,  when  the  subject  of  inquiry  is  the  contents  of  a  document,  no  evidence  is 
admissible  other  than  the  original  document  itself  except  in  the  instances  mentioned in Section 3, Rule 130 of 
the Revised Rules of Court. 
 

The  records  show  that  the  respondent  had  the custody of the original promissory note dated April 1, 1997, with 

a  superimposed  rubber  stamp mark "June 30, 1997", and that it had been given every opportunity to present it. 
The  respondent  even  admitted  during  pre-trial  that it could not present the original promissory note because 
it  is  in  the custody of its cashier who is stranded in Bicol.​46 Since the respondent never produced the original of 
the  promissory  note,  much  less  offered  to  produce  it,  the  photocopy  of  the  promissory  note  cannot  be 
admitted  as  evidence.  Other  than  the  promissory  note  in  question,  the  respondent  has  not  presented  any 
other  evidence  to support a finding of solidary liability. As we earlier noted, both lower courts completely relied 
on the note when they found the Bognot siblings solidarily liable. 
 
The  well-entrenched  rule  is  that  solidary  obligation  cannot be inferred lightly. It must be positively and clearly 
expressed and cannot be presumed. 
 

In view of the inadmissibility of the promissory note, and in the absence of evidence showing that the 
petitioner had bound himself solidarily with Rolando for the payment of the loan, we cannot but conclude that 
the obligation to pay is only joint 
  
  
Section 5. Divisible and Indivisible Obligations​. 
  
52. Lam v. Kodak Phils., G.R. No. 167615, January 11, 2016; 
 
Petitioners​: SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the Name and Style "COLORKWIK 
LABORATORIES" AND "COLORKWIK PHOTO SUPPLY",  
 
Respondents​: ​KODAK PHILIPPINES, LTD.,  
 
Doctrine​: Even though the object or service may be physically divisible, an obligation is indivisible if so 
provided by law or intended by the parties 
 
Facts​: the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement (Letter Agreement) for the sale 
of three (3) units of the Kodak Minilab System 22XL (Minilab Equipment). , Kodak Philippines, Ltd. delivered one 
(1) unit of the Minilab Equipment.  
 
“This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik Laboratories, Inc. with ​three (3) 
units Kodak Minilab System 22XL . . .​ for your proposed outlets in Rizal Avenue (Manila), Tagum (Davao del 
Norte), and your existing Multicolor photo counter in Cotabato City under the following terms and conditions: 

1.  ​Said  Minilab  Equipment  packages  will  avail  a  total  of  19%  multiple  order  discount  ​based  on 
prevailing  equipment price provided said equipment packages will be purchased not later than June 
30, 1992. 
 2.  19%  Multiple  Order  Discount  shall  be  applied  in  the form of merchandise and delivered in advance 
immediately after signing of the contract. 

3. NO DOWNPAYMENT. 

4.  Minilab  Equipment  Package  shall  be  payable  in  48  monthly  installments at THIRTY FIVE THOUSAND 
PESOS  (P35,000.00)  inclusive  of  24%  interest  rate  for  the  first  12  months;  the  balance  shall  be 
re-amortized for the remaining 36 months and the prevailing interest shall be applied. 

5.  Prevailing  price  of  Kodak  Minilab  System  22XL  as  of  January  8,  1992  is  at  ONE  MILLION  SEVEN 
HUNDRED NINETY SIX THOUSAND PESOS. 

 
The Lam Spouses issued post dated checks for the first delivered unit and requested that Kodak Philippines 
not negotiate the checks. However, the checks were negotiated by Kodak Philippines. The other checks were 
subsequently dishonored after the Lam Spouses ordered the depository bank to stop payment.  
 
Kodak Philippines cancelled the sale and demanded that the Lam Spouses return the unit it delivered together 
with the accessories. The Lam Spouses ignored the demand but also rescinded the contract through letter for 
failure of Kodak to deliver the 2 remaining Minilap Equipment units. Koda filed a complaint for replevin and/or 
recovery of sum of money. 
 
RTC and CA: The Court of Appeals ruled that the Letter Agreement executed by the parties showed that their 
obligations were susceptible of partial performance. Under Article 1225 of the New Civil Code, their obligations 
are divisible: 

In  determining  the  divisibility  of  an  obligation,  the  following  factors  may  be  considered,  to  wit:  (1)  the  will  or 
intention  of  the  parties,  which  may  be  expressed  or  presumed;  (2)  the  objective  or  purpose  of the stipulated 
prestation; (3) the nature of the thing; and (4) provisions of law affecting the prestation. 

Applying  the  foregoing  factors  to  this  case,  ​We  found  that  the  intention  of  the  parties  is  to  be  bound 
separately  for  each  Minilab  Equipment  to  be  delivered  as  shown  by the separate purchase price for each of 
the  item,  by the acceptance of Sps. Lam of separate deliveries for the first Minilab Equipment and for those of 
the  remaining  two  and  the  separate  payment  arrangements  for  each  of the equipment.​  Under this premise, 
Sps. Lam shall be liable for the entire amount of the purchase price of the Minilab 

Equipment  delivered considering that Kodak had already completely fulfilled its obligation to deliver the same. 
. . . 

Third, it is also evident that the ​contract is one that is severable in character as demonstrated by the 
separate purchase price for each of the minilab equipment. "​ If the part to be performed by one party consists 
in several distinct and separate items and the price is apportioned to each of them, the contract will generally 
be held to be severable. In such case, each distinct stipulation relating to a separate subject matter will be 
treated as a separate contract." ​Considering this, Kodak's breach of its obligation to deliver the other two (2) 
equipment cannot bar its recovery for the full payment of the equipment already delivered. As far as Kodak is 
concerned, it had already fully complied with its separable obligation to deliver the first unit of Minilab 
Equipment 
 
Issue​: Whether the pertained obligations are severable and divisible 
 
Held: NO.​ The Letter Agreement contained an ​INDIVISIBLE​ obligation. Based on the foregoing, the intention of 
the parties is for there to be a single transaction covering all three (3) units of the Minilab Equipment. 
Respondent’s obligation was to deliver all products purchased under a "package," and, in turn, petitioners’ 
obligation was to pay for the total purchase price, payable in installments. 

The  intention  of  the  parties  to  bind  themselves  to  an  indivisible  obligation  can  be  further  discerned  through 
their  direct  acts  in  relation  to  the  package  deal.  There  was  only  one agreement covering all three (3) units of 
the  Minilab  Equipment  and  their  accessories.  The  Letter  Agreement  specified  only  one  purpose  for the buyer, 
which  was  to  obtain these units for three different outlets. If the intention of the parties were to have a divisible 
contract,  then  separate  agreements  could  have  been  made  for  each  Minilab  Equipment  unit  instead  of 
covering  all  three  in  one package deal. Furthermore, the 19% multiple order discount as contained in the Letter 
Agreement  was  applied  to  all  three  acquired  units.​99  The  "no  downpayment"  term  contained  in  the  Letter 
Agreement  was  also  applicable  to  all  the  Minilab  Equipment  units.  Lastly,  the  fourth  clause  of  the  Letter 
Agreement clearly referred to the object of the contract as "Minilab Equipment Package." 

In  ruling  that  the  contract  between  the  parties  intended  to  cover  divisible  obligations,  the  Court  of  Appeals 
highlighted:  (a)  the  separate  purchase  price  of  each  item;  (b)  petitioners’  acceptance of separate deliveries 
of  the  units;  and  (c)  the  separate  payment  arrangements  for  each  unit.​100  However,  through  the  specified 
terms  and  conditions,  the  tenor  of  the  Letter  Agreement  indicated  an  intention  for  a  single  transaction.  This 
intent  must  prevail  even  though  the  articles  involved  are  physically  separable  and  capable of being paid for 
and delivered individually, consistent with the New Civil Code: 

Article  1225.  For  the  purposes  of  the  preceding  articles,  obligations to give definite things and those which are 
not susceptible of partial performance shall be deemed to be indivisible. 

 
53. Nazareno v. Court of Appeals, 397 Phil. 707 (2000). 
 

Petitioners​: NATIVIDAD P. NAZARENO, MAXIMINO P. NAZARENO, JR., 

Respondents​:  COURT  OF  APPEALS,  ESTATE  OF  MAXIMINO  A.  NAZARENO,  SR.,  ROMEO  P.  NAZARENO  and  ELIZA 
NAZARENO​. 

Doctrine​: The indivisibility refers to the prestation and not to the object thereof 

Facts​:  Maximino  Nazareno  St  and  Aurea  Poblete  had  five  children,  namely,  Natividad,  Romeo,  Jose,  Pacifico, 
and  Maximino,  Jr.  Natividad  and  Maximino,  Jr.  are the petitioners in this case, while the estate of Maximino, Sr., 
Romeo, and his wife Eliza Nazareno are the respondents. 

During their marriage, Maximino Nazareno, Sr. and Aurea Poblete acquired properties in Quezon City and in the 
Province of Cavite. It is the ownership of some of these properties that is in question in this case. 

In  the  course  of  the  intestate  proceedings,  Romeo discovered that his parents had executed several deeds of 

sale  conveying  a  number of real properties in favor of his sister, Natividad. One of the deeds involved six lots in 
Quezon City which were allegedly sold by Maximino, Sr., with the consent of Aurea, to Natividad 

On  Behalf  of  the  estate  of  Maximino  Sr,  the  present  case  for  annulment  of  sale  with  damages  against 
Natividad  and  Maximino  Jr  was  filed by Romeo. Romeo presented evidence to show that Maximino and Aurea 
Nazareno  never  intended  to  sell  the  six  lots  to  Natividad  and  that  Natividad  was  only  to  hold  the  said  lots  in 
trust  for  her  siblings.  He  presented  the  Deed  of  Partition  and  Distribution  dated  June  28,  1962  executed  by 
Maximino  Sr.  and  Aurea  and  duly  signed  by  all  of  their  children,  except  Jose,  who  was  then  abroad  and was 
represented by their mother, Aurea. 

Issue:​ Whether the Deed of Absolute Sale executed by the deceased spouses is an indivisible contract 

Held:  YES.  The  Deed  of  Absolute  Sale  is  an  indivisible  contract  founded  on  an  indivisible obligation. As such, it 
being  indivisible,  it  can  not  be  annulled  by  only  one  of them. And since this suit was filed only by the estate of 
Maximino A. Nazareno, Sr. without including the estate of Aurea Poblete, the present suit must fail. The estate of 
Maximino  A.  Nazareno,  Sr.  can  not  cause  its  annulment  while  its  validity  is  sustained  by  the  estate  of  Aurea 
Poblete.An obligation is indivisible when it cannot be validly performed in parts, whatever may be the nature of 
the  thing  which  is  the  object  thereof.  The  indivisibility  refers  to  the  prestation  and  not  to  the  object thereof.In 
the  present  case,  the  Deed  of  Sale  supposedly  conveyed  the  six  lots  to  Natividad.  The  obligation  is  clearly 
indivisible  because  the  performance  of  the  contract  cannot  be  done  in  parts,  otherwise  the  value  of  what  is 
transferred  is  diminished.  Petitioners  are  therefore  mistaken  in  basing  the  indivisibility  of  a  contract  on  the 
number of obligors. 
 
Section 6. Obligations with a Penal Clause​. 
  
54. Lou v. BPI, G.R. 225562, Mar. 8, 2017; 
 
Petitioners: ​WILLIAM C. LOUH, JR. and IRENE L. LOUH 
Respondent​: BANK OF THE PHILIPPINE ISLANDS 
 
Doctrine​:  Since  the  stipulation  on  the  interest  rate  is  void,  it  is  as  if  there  was  no  express  contract  thereon. 
Hence, courts may reduce the interest rate as reason and equity demand. 
The same is true with respect to the penalty charge 
 
Facts​:  Bank  of  the  Philippine  Islands  (BPI),  issued  a  credit  card  in  William's  name,  with Irene as the extension 
card  holder.  Pursuant  to  the  terms  and  conditions  of  the  cards'  issuance,  ​3.5%  finance  charge  and  6%  late 
payment charge shall be imposed monthly upon unpaid credit availments. Spouses Luoh were remiss in their 
obligations  and  their  account  was  unsettled  prompting  BPI  to  send  written  demand letters. Despite repeated 
verbal and written demands, the Spouses Louh failed to pay BPI. 
 
RTC  and  CA:  Spouses  Louh  were  properly  declared  in  default  for  their  failure  to  file  an  answer.  However,  the 
3.5%  finance  and  6%  late  payment  monthly  charges  were  iniquitous  and  unconscionable  and  both  charges 
were  reduced  to  1%  monthly. The award of attorney's fees of 25% was found the same to be within the terms of 
the parties agreement 
 
Issue​: Whether the CA erred in sustaining BPI’s complaint 
 
Held​:  NO.  The  Court affirms the herein assailed decision and resolution, but modifies the principal amount and 
attorney's  fees  awarded  by  the  RTC  and  the  CA.  Be  that  as  it  may,  the  Court  finds  excessive  the  principal 
amount  and  attorneys  fees  awarded  by  the  RTC  and  CA.  A  modification  of  the  reckoning date relative to the 
computation  of  the  charges  is  in  order  too. Since the stipulation on the interest rate is void, it is as if there was 
no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand. 
The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the Civil Code states: 
 
Art.  1229.  The  judge  shall  equitably  reduce  the  penalty  when  the  principal  obligation  has  been  partly  or 
irregularly  complied  with  by  the  debtor.  Even  if  there  has  been  no  performance,  the  penalty  may  also  be 
reduced by the courts if it is iniquitous or unconscionable. x x  
 
In  the  SOAdated  October  14,  2009,  the  principal  amount  indicated  was  ​₱​l13,756.83.  In  accordance  with 
Macalinao,  t​ he  finance  and  late  payment  charges  to  be  imposed  on  the  principal  amount  of  ​₱​l13,756.83  are 
reduced  to  12%  each  ​per  annum,  r​ eckoned  from  October  14,  2009,  the  date  when  the  Spouses  Louh  became 
initially remiss in the payment of their obligation to BPI, until full payment. 
Anent  BPI's  litigation  expenses,  the  Court  retains  the  RTC  and  CA'  s disquisition awarding ​₱​5,064.00 as filing or 
docket fees, and costs of suit. 
However,  the  Court  reduces  the  attorney's  fees  to five percent (5%) of the total amount due from the Spouses 
Louh pursuant to ​MCMP a ​ nd Article 2227 of the New Civil Code. 
 
 
55. Joven v. China Banking Corporation, G.R. No. 215954, Aug. 1, 2016; 
 
Petitioners​: SPOUSES JOVEN SY and CORAZON QUE SY 
 
Respondent​: CHINA BANKING CORPORATION 
 
Doctrine​: Although the courts may not at liberty ignore the freedom of the parties to agree on such terms and 
conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, 
a stipulated penalty, nevertheless, may be equitably reduced if it's iniquitous or unconscionable. 
 
Facts​: Three promissory notes (​PN​)4​​ were executed by petitioners in favor of China Bank. . The first amounted 
to ​₱​8,800,000.00, designated as PN No. 5070016047; the second covering ​₱​5,200,000.00, designated as PN No. 
5070016030; and the third involving ​₱​5,900,000.00, designated as PN No. 5070014942. Under PN Nos. 5070016047 
and 5070016030, petitioners promised to pay China Bank the due amounts within a period of 351 days on or 
before June 14, 2002 with interest payable in advance for 15 days from June 28, 2001 to July 13, 2001 at 16% ​per 
annum,​ with the succeeding interest payable starting July 13, 2001 and every month thereafter until fully paid 
at the prevailing rate as determined on the date of interest payment. In PN No. 5070014942, petitioners 
promised to pay the principal amount at the rate of PlOO, 000.00 monthly for a period of 59 months with 
interest payable monthly at prevailing rates, initially at 23.5%. Part of the terms of the PNs was an agreement 
for petitioners to pay jointly and severally penalty charges equivalent to 1/10 of 1 % per day of the total amount 
due should they default, payable and due from the date of default until fully paid. Petitioners also agreed to 
pay 10% of the total amount due as attorney's fees. The said PNs were also secured by a real estate mortgage​5 
over petitioners' property covered by TCT No. N-155159. Petitioners, however, failed to comply with their 
obligation 
 
China Bank then filed its complaint for sum of money before the RTC. , the RTC ruled in favor of China Bank, 
recognizing the latter's right to the deficiency balance. It, however, held as unconscionable the penalty 
charges stipulated in the PNs amounting to 1/10 of 1 % per day or 3% per month, compounded. Anchoring on its 
authority under Art. 1229​8​ of the Civil Code, the R TC reduced the penalty charges to only 1 % on the principal 
loan for every month of default. It also sustained the payment of attorney's fees but modified the amount for 
being unreasonable to only Pl00,000.00 instead of the 10% of the total amount due 
 
Issue:​ Whether the computations in determining the amount of petitioners’ deficiency balance was correct 
 
Held: NO​. on the penalty charges, it is clear that the computation should be at the rate of 1 % per month as 
held by the RTC instead of 1/10 of 1 % per day or 3% per month compounded as agreed upon by the parties. 
The RTC explicitly declared such agreed rate as unconscionable. It wrote: 
Now  with  respect to the penalty charges stipulated in the Promissory Notes. The Promissory Notes executed by 
the  parties  uniformly  provided  for  the  payment  of  an  amount  equivalent  to  1/10  of  1%  per  day  compounded 
monthly  of  the  amount  due  or  the  payment  of  3%  penalty  compounded  monthly.  This  surcharge  or  penalty 
partakes  of  the  nature  of  liquidated  damages  under  Article  2227  of  the  Civil  Code  of  the  Philippines,  and  is 
separate and distinct from interest payment. 
Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume 
greater liability on the part of the obligor in case of breach of an obligation. The obligor would then be bound 
to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure 
of damages caused by the breach. Although the courts may not at liberty ignore the freedom of the parties to 
agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, 
public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced if it's iniquitous or 
unconscionable. 
 
(Lim, Mikko) 
56. Rivera v. Chua, G.R. No. 184458, Jan. 14, 2015; 
57. Pryce Corp. v. PAGCOR, G.R. 157480, May 6, 2005; 
58. Ruiz v. Court of Appeals, G. R. No 146942, Apr. 22, 2003 
 
59. Robes v. CFI and Millan, G.R. No. L-41093, Oct. 30, 1978; 
   60. Cabarroguis v. Vicente, G.R. No. L-14304, Mar. 23, 1960 
  
Chapter 4. Extinguishment of Obligations 
  
  
Section 1. Payment or Performance​. 
 
(Santotome, Janna)  
 
61. PNB v. Chan, G.R. No. 206037, Mar. 13, 2017; 
 
Doctrine: 
Consignation is the act of depositing the thing due with the court or judicial authorities whenever 
the  
creditor cannot accept or refuses to accept payment. It generally requires a prior tender of 
payment. 
 
Facts: 
 
Respondent Lilibeth Chan owns a commercial building in Paco Manila. She leased it to the 
petitioner PNB for 5 years (December 15, 1999 -December 15, 2004) for 76,160/month. When the 
lease expired, PNB continued to occupy the property on a month-to-month basis with a monthly 
rental of ₱116,788.  
 
On January 22, 2002, respondent obtained a 1.5M loan from PNB which was secured by a real 
estate mortgage constituted over the leased property. The amount of the loan increased to 7.5M. 
On August 2005, respondent filed a Complaint for Unlawful Detainer before the MeTC for unpaid 
rentals. PNB answered that it applied the rental proceeds from October 2004 to January 15, 2005 
as payment for respondent's outstanding loan which became due and demandable in October 
2004. PNB explained that it received a demand letter from a certain Chua claiming that he is the 
new owner and that the rentals shall be paid directly to him.  
 
The RTC affirmed MeTC and further ruled that the respondent is entitled to legal interest of 6% per 
annum and attorney’s fees for having been compelled to litigate to protect her interest. CA 
affirmed.  
 
  
Issue:  
WON PNB properly consigned the disputed rental payments with the Office of the Clerk of Court of 
the MeTC of Manila. 
 
Held: 
YES.  
 
Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender of 
payment a) when the creditor is absent or unknown or does not appear at the place of payment; 
b) when he is incapacitated to receive the payment at the time it is due; c) when, without just 
cause, he refuses to give a receipt; d) when two or more persons claim the same right to collect; 
and e) when the title of the obligation has been lost. 
 
For consignation to be valid, the debtor must comply with the following requirements under the 
law: 1) there was a debt due; 2) valid prior tender of payment, unless the consignation was made 
because of some legal cause provided in Article 1256; 3) previous notice of the consignation has 
been given to the persons interested in the performance of the obligation; 4) the amount or thing 
due was placed at the disposal of the court; and,5) after the consignation had been made, the 
persons interested were notified thereof: 
 
Failure in any of the requirements is enough ground to render a consignation ineffective.Note that 
PNB's deposit of the subject monthly rentals in a non-drawing savings account is not the 
consignation contemplated by law, precisely because it does not place the same at the disposal 
of the court.51 Consignation is necessarily judicial; it is not allowed in venues other than the 
courts.52 Consequently, PNB's obligation to pay rent for the period of January 16, 2005 up to 
March 23, 2006 remained subsisting, as the deposit of the rentals cannot be considered to have 
the effect of payment. 
 
 
62. Evangelista v. Screenex, G.R. 211564, Nov. 20, 2017; 
 
Doctrine: 
While it is true that the delivery of a check produces the effect of payment only when it is cashed, 
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the 
creditor's unreasonable delay in presentment. 
 
Facts: 
Evangelista obtained a loan from Screenex which issued 2 checks (1M and 500,000). These checks 
were held in safekeeping by Philip Gotuaco, Sr., father-in​-law of respondent Alexander Yu, until the 
former's death on 19 November 2004. On August 2005, petitioner was charged with violation of BP 
22 before MeTC. MeTC acquitted the petitioner for lacking the third requisite of BP22. Petitioner 
appealed before the RTC and CA which affirmed the ruling of MeTC.  
“As to the defense of prescription, the same cannot be successfully invoked in this 
appeal. The 10-year prescriptive period of the action under Art. 1144 of the New Civil 
Code is computed from the time the right of action accrues. The terms and 
conditions of the loan obligation have not been shown, as only the checks evidence 
the same. It has not been shown when the loan obligation was to mature such that 
there is no basis to show or from which to infer, when the cause of action 
(non-payment of the loan) which would give the obligee the right to seek redress 
for the non-payment of the obligation, accrued. In other words, the reckoning point 
of prescription has not been established. “ 
 
Issue: 
whether the CA committed a reversible error in holding that petitioner is still liable for the total 
amount of P1.5 million indicated in the two checks. 
 
Held:  
YES 
The mere possession of a document evidencing an obligation by the person in whose favor it was 
executed, merely raises a presumption of nonpayment which may be overcome by proof of 
payment, or by satisfactory explanation of the fact that the instrument is found in the hands of 
the original creditor not inconsistent with the fact of payment. 
 
If the check is undated, however, as in the present petition, the cause of action is reckoned from 
the date of the issuance of the check. Given the foregoing, the cause of action on the checks has 
become stale, hence, time-barred. No written extrajudicial or judicial demand was shown to have 
been made within 10 years which could have tolled the period. Prescription has indeed set in. 
 
While it is true that the delivery of a check produces the effect of payment only when it is cashed, 
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the 
creditor's unreasonable delay in presentment. The acceptance of a check implies an undertaking 
of due diligence in presenting it for payment, and if he from whom it is received sustains loss by 
want of such diligence, it will be held to operate as actual payment of the debt or obligation for 
which it was given. It has, likewise, been held that if no presentment is made at all, the drawer 
cannot be held liable irrespective of loss or injury unless presentment is otherwise excused. 
 
Similarly in this case, we find that the delivery of the checks, despite the subsequent failure to 
encash them within a period of 10 years or more, had the effect of payment. Petitioner is 
considered discharged from his obligation to pay and can no longer be pronounced civilly liable 
for the amounts indicated thereon. 
 
 
63. Tan v. China Banking Corp., G.R. No. 200299, Aug. 17, 2016; 
 
Doctrine: 
The right to make application of payment is a right of the debtor which is merely directory in 
nature and must be promptly exercised, lest, such right passes to the creditor. 
 
Facts: 
Petitioner corporation obtained several loans from the respondent Bank. As a security for the said 
obligations,poetitoner executed Real Estate Mortgages (REM) over 11 parcels of land. 
Subsequently, petitioner defaulted the payment of its amortization prompting China Bank to 
cause the extra-judicial foreclosure of the REM constituted on the securities after the latter failed 
to heed to its demand to settle the entire obligation. The mortgaged properties were sold at a 
public auction wherein China emerged as the highest bidder.  
 
THere was remaining balance but the petitioner failed to pay the same even after demand. 
Petitioner claimed that they believed that the collaterals were enough for the payment of the 
loan. RTC ruled in favor of the respondent and ordered the petitioner to pay the deficiency 
balance. CA affirmed.  
 
Issue: 
WON the obligation was extinguished upon foreclosure and sale of the collateral in a contract of 
loan. 
 
Held​: 
NO. Nowhere in the law and jurisprudence provide that the sale of the collaterals constituted as 
security of the obligation results in the extinguishment of the obligation.  
 
Further, obligations are extinguished, among others, by payment or performance. Under Article 
1232 of the Civil Code, payment means not only the delivery of money but also the performance, 
in any other manner, of an obligation. Article 1233 of the Civil Code states that a debt shall not be 
understood to have been paid unless the thing or service in which the obligation consists has 
been completely delivered or rendered, as the case may be. In contracts of loan, the debtor is 
expected to deliver the sum of money due the creditor. These provisions must be read in relation 
with the other rules on payment under the Civil Code. 
 
64. NAPOCOR v. Ibrahim, G.R. 175863, Feb. 18. 2015; 
 
Doctrine: 
Payment made in good faith to any person in possession of the credit shall release the debtor  
 
Facts: 
On November 23, 1994, respondent Ibrahim instituted an action against (NAPOCOR) for recovery 
of possession of land and damages before RTC of Lanao DelSur. In their complaint, Ibrahim and 
his co-heirs claimed that they were owners of several parcels of the subject lands. Sometime in 
1978, NAPOCOR took possession of the sub-terrain area of their lands and constructed there 
underground tunnels without the knowledge of the respondents and any expropriation 
proceedings. The respondents filed complaint for the payment of just compensation for 
expropriation and indemnity. 
 
Issue: 
WON the payment of the fees validly extinguished the obligation to pay the petitioners.  
 
Held: 
YES.  
Payment made in good faith to any person in possession of the credit shall release the debtor. 
Article 1242 of the Civil Code is an exception to the rule that a valid payment of an obligation can 
only be made to the person to whom such obligation is rightfully owed. It contemplates a 
situation where a debtor pays a "possessor of credit" i.e., someone who is not the real creditor but 
appears, under the circumstances, to be the real creditor. In such scenario, the law considers the 
payment to the "possessor of credit" as valid even as against the real creditor taking into account 
the good faith of the debtor. 
 
In the present case, petitioner’s payment to Mangondato of the fees and indemnity due for the 
subject land as a consequence of the execution of the case could still validly extinguish its 
obligation to pay for the same even as against the Ibrahims and Maruhoms. 
 
 
65. Marquez v. Elisan, G.R. 194642, Apr. 6, 2015; 
 
Doctrine: 
If the debt produces interests, payment of the principal shall not be deemed to have been made 
until the interests have been made until the interests have been covered. 
 
Facts: 
Petitioner Marquez obtained a loan from respondent for 53,000 payable in 180 days subject to 
annual interest. To further secure the payment of the loan, a chattel was executed over a motor 
vehicle which provides that that the motor vehicle shall stand as a security for the first loan and 
"all other obligations... of every kind already incurred or which may hereafter be incurred.” Both 
parties acknowledged the payment of the loan. 
 
Subsequently, a second loan was entered into by the petitioner having the same condition as the 
first loan. When the second loan matured, there still remained an unpaid balance so the 
petitioner asked the respondent if he could pay in daily installments until the second loan is paid. 
The respondent granted. Petitioner already paid the total amount which is greater than the 
amount of the principal.  
 
Despite payment, respondent filed a complaint for foreclosure on the ground that the petitioner 
failed to pay the second loan upon demand.  
 
MTC ruled in favor of the petitioner and held that the second loan was extinguished already. 
When an obligee accepts the performance or payment of an obligation, knowing its 
incompleteness or irregularity and without expressing any protest or objection, the obligation is 
deemed fully complied with. RTC and CA affirmed such ruling.  
 
Issue:  
1. WON the creditor waived the payment of the interest. 
2. Did the respondent act lawfully when it credited the daily payments against the interest 
instead of the principal? 
 
Held: 
1. NO. 
The fact that the official receipts did not indicate whether the payments were made for the 
principal or the interest does not prove that the creditor waived the interest. There is no 
presumption of waiver of interest without any evidence showing that the creditor accepted the 
daily instruments as payments for the principal.  
 
2. YES. The daily payments made by the debtor are applied to the interest. Notwithstanding the 
fact it was not indicated in the receipts whether the payments were applied to the principal or the 
interest, such failure should not be taken against the creditor. Under Article 1253 of the Civil Code, 
if the debt produces interests, payment of the principal shall not be deemed to have been made 
until the interests have been made until the interests have been covered. Thus, the creditor in this 
case has a right to credit the payments to the interest first.  
 
  
 
(Celis, Chezka) 
66. Netlink v. Delmo, G.R. 160827, Jun. 18, 2014; 
 

Doctrine:  ​In  the  absence  of  a  written  agreement  between  the  employer  and  the  employee  that  sales 
commissions  shall  be  paid  in  a  foreign  currency,  the  latter  has  the  right  to  be paid in such foreign currency 
once  the  same  has  become  an  established  practice  of  the  former.  The  rate  of  exchange  at  the  time  of 
payment, not the rate of exchange at the time of the sales, controls. 

FACTS: 

Netlink hired Delmo as account manager tasked to canvass and source clients and convince them to 
purchase  the  products  and  services  of  Netlink.  ​Delmo  worked  in  the  field  most  of  the  time.  He  and  his  fellow 
account  managers  were  not required to accomplish time cards to record their personal presence in the office 
of  Netlink.  ​He  was  able  to  generate  sales  worth  ​P​35,000,000.00,  more  or  less,  from  which  he  earned 
commissions  amounting  to ​P​993,558.89 and US$7,588.30. He then requested payment of his commissions, but 
Netlink  refused  and  only  gave  him  partial  cash  advances  chargeable  to  his  commissions.  Later  on,  Netlink 
began  to  nitpick  and  fault  find,  like  stressing  his  supposed  absences  and  tardiness.  In  order  to  force  him  to 
resign,  Netlink  issued  several  memoranda  detailing  his  supposed  infractions  of  the  company’s  attendance 
policy. Despite the memoranda, Delmo continued to generate huge sales for Netlink. 

On  November  28,  1996,  Delmo  was  shocked  when  he  was  refused  entry  into  the  company premises 
by  the  security  guard  pursuant  to  a  memorandum  to  that  effect. His personal belongings were still inside the 
company  premises  and  he  sought  their  return  to  him.  This  incident  prompted  Delmo  to  file  a  complaint  for 
illegal dismissal. 

In  its  answer  to  Delmo’s  complaint,  Netlink  countered that there were guidelines regarding company 

working  time  and  its  utilization  and  how the employees’ time would be recorded. Allegedly, all personnel were 
required  to  use  the  bundy  clock  to  punch in and out in the morning, and in and out in the afternoon. Excepted 
from  the  rules  were  the  company  officers,  and  the  authorized  personnel  in  the  field  project  assignments. 
Netlink  claimed  that  it  would  be  losing  on  the  business  transactions closed by Delmo due to the high costs of 
equipment,  and in fact his biggest client had not yet paid. Netlink pointed out that Delmo had become very lax 
in  his obligations, with the other account managers eventually having outperformed him. Netlink asserted that 
warning,  reprimand,  and  suspension  memoranda  were  given  to  employees who violated company rules and 
regulations, but such actions were considered as a necessary management tool to instill discipline. 

LA​:  Delmo  was  illegally  and  unjustly  dismissed.  Respondents  were  ordered  to  reinstate  complainant  to  his 
former  position  without  loss  of  seniority  rights  with  full  backwages  and  other  benefits.  The  reinstatement 
aspect  is  immediately  executory  even  pending  appeal.  In  case  reinstatement  is  no  longer  feasible, 
complainant shall be paid separation pay of one-month pay for every year of service. 

NLRC​:  Modified  the decision of the LA by setting aside the backwages and reinstatement decreed by the Labor 

Arbiter due to the existence of valid and just causes for the termination of Delmo’s employment. 

CA​:  Upholds  NLRC’s  ruling  with  modifications  with  the  awarding  of  commission  and  13​th  month  pay  to  the 
respondent.  Whole  commission  was  not  awarded  since  commission  is  made  to  depend  on  the  future  and 
uncertain  event.  As  regard  to  13​th  month  pay,  petitioner  was  not  made  to  pay  because  employment  was 
terminated based on valid and just cause although he was not given due process. 

ISSUES: 

WON the payment of the commissions should be in US dollars. 

RULING: 

YES.  As  a general rule, all obligations shall be paid in Philippine currency. However, the contracting parties may 

stipulate  that  foreign  currencies  may  be  used  for settling obligations. This is pursuant to Republic Act No. 8183 
which provides as follows: 

“Section  1.  All  monetary  obligations  shall  be  settled  in  the 
Philippine  currency  which  is  legal  tender  in  the  Philippines. 
However,  the  parties  may  agree  that  the  obligation  or 
transaction  shall  be  settled  in  any  other  currency  at  the  time  of 
payment.” 

There  was  no  written  contract  between  Netlink  and  Delmo  stipulating  that  the  latter’s  commissions 
would  be  paid  in  US  dollars.  The  absence of the contractual stipulation notwithstanding, Netlink was still liable 
to  pay  Delmo  in  US  dollars  because  the  practice  of  paying  its  sales  agents  in  US  dollars  for  their  US 
dollar-denominated  sales  had  become  a  company  policy.  This  was impliedly admitted by Netlink when it did 
not  refute  the  allegation  that  the  commissions  earned  by  Delmo  and  its  other sales agents had been paid in 
US  dollars.  Instead  of  denying  the  allegation, Netlink only sought a declaration that the US dollar commissions 
be  paid  using  the  exchange  rate  at  the  time  of  sale.  The  principle  of  non-diminution  of  benefits,  which  has 
been  incorporated  in  Article  100  ​of  the  Labor  Code,  forbade  Netlink  from  unilaterally  reducing,  diminishing, 
discontinuing  or  eliminating  the  practice.  Verily,  the  phrase  "supplements,  or  other  employee  benefits"  in 
Article 100 is construed to mean the compensation and privileges received by an employee aside from regular 
salaries or wages. 

With  the  payment  of  US dollar commissions having ripened into a company practice, there is no way that 

the  commissions  due  to  Delmo  were  to  be  paid  in  US  dollars  or  their  equivalent  in  Philippine  currency 
determined  at  the  time  of  the  sales.  To  rule  otherwise  would  be  to  cause  an  unjust  diminution  of  the 
commissions due and owing to Delmo. 

 
67. Del Carmen v. Sabordo, G.R. 181723, Aug. 11, 2014 
 

DOCTRINE:  ​For  a  consignation  or  deposit  with  the  court of an amount due on a judgment to be considered as 

payment, there must be prior tender to the judgment creditor who refuses to accept it. || 

FACTS:  Spouses  obtained  a  loan  from  the  DBP four parcels of land were mortgaged as security. They failed to 

pay  their  loan  forcing  DBP  to  foreclose  the  mortgage.  DBP  later  allowed  the  Suico  spouses  Flores  spouses  to 
repurchase  the  subject  lots  by  way  of  a  conditional  sale.  The  Suico  and  Flores  spouses  were  able  to pay the 
down  payment  and  the  first  monthly  amortization,  but  no  monthly  installments  were  made  thereafter. 
Threatened  with the cancellation of the conditional sale, the Suico and Flores spouses sold their rights over the 
said  properties  to  Spouses  Sabordo  subject  to  the  condition  that  the  latter  shall  pay  the  balance  of  the sale 
price.  Subsequently,  respondents  were  able  to  repurchase  the  foreclosed  properties  of  the  Suico  and  Flores 
spouses. 

Respondents  filed  with  the  Court  for  declaratory  relief  with  damages  and  prayer  for  a  writ  of  preliminary 
injunction  raising the issue of whether or not the Suico spouses have the right to recover from respondents the 
lots.  While  the  action  is  pending,  Spouses  Sabordo  obtained  a  loan  from  Republic  Planters  Bank  (RPB) 
mortgaging  the  said  lots  as  security  for  the  subject  loan.  The  Court  ruled  in  favor  of  the  Suico  spouses 
directing  that  the  Suico  have  until  August  31,  1987  within  which  to  redeem  or  buy  back  from  respondents the 
lots. Also, Suico have to pay the respondents the sum of ₱127,500.00. Suico alleging that they cannot determine 
as  to  whom  such  payment  shall  be  made,  petitioner  and  her  co-heirs  filed  a  Complaint  with  the  RTC  of San 
Carlos City, Negros Occidental. Suico consigned the ₱127,500.00 to the said court. 
ISSUE:​ WON there was a valid consignation. 

HELD:  No,  because  there  was  no  valid  prior  tender of payment. Consignation is the act of depositing the thing 

due  with  the  court  or  judicial  authorities  whenever  the  creditor  cannot  accept  or refuses to accept payment, 
and  it  ​generally  requires  a  prior  tender  of  payment.  It  should  be  distinguished  from  tender  of  payment 
which  is  the  manifestation  by  the  debtor  to  the  creditor of his desire to comply with his obligation, with the 
offer  of  immediate  performance​.  Tender  of  payment  may  be  extrajudicial,  while  consignation  is  necessarily 
judicial,  and  the  priority  of  the  first  is  the  attempt  to  make  a  private  settlement  before  proceeding  to  the 
solemnities of consignation. 

Petitioner  and  her  co-heirs,  upon  making  the deposit with the RTC, did not ask the trial court that respondents 

be  notified  to  receive  the  amount  that  they  have  deposited.  In  fact, there was no tender of payment. Instead, 
what  petitioner  and  her  co-heirs  prayed  for  is  that  respondents  and  RPB  be  directed  to  interplead  with  one 
another  to  determine  their  alleged respective rights over the consigned amount; that respondents be likewise 
directed  to  substitute  the  subject  lots  with  other  real  properties  as  collateral  for  their  loan  with  RPB  and  that 
RPB be also directed to accept the substitute real properties as collateral for the said loan. 

For  a  consignation  or  deposit  with  the  court  of  an  amount  due  on  a  judgment to be considered as payment, 
there  must  be  prior  tender  to  the judgment creditor who refuses to accept it. It is settled that compliance with 
the  requisites  of  a  valid  consignation  is  mandatory​.  Failure  to  comply  strictly  with  any  of  the  requisites  will 
render the consignation void. One of these requisites is a ​valid prior tender of payment​. 

68. Intl. Hotel Corp. V. Joaquin, G.R. 158361, Apr. 1, 2013; 

 
DOCTRINE: ​Article 1234. If the obligation has been substantially performed in good faith, the obligor may 
recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. 

Article  1235.  When  the  obligee  accepts  the  performance,  knowing  its  incompleteness  or  irregularity,  and 
without expressing any protest or objection, the obligation is deemed fully complied with. 

FACTS:  On  1  February  1069,  Francisco  B.  Joaquin,  Jr.  submitted  a  proposal  to  the  Board  of  Directors  of  the 
International  Hotel  Corporation  (IHC)  for  him  to  render  technical  assistance  in  securing a foreign loan for the 
construction  of  a  hotel,  to  be  guaranteed  by  the  Development  Bank  of  the  Philippines  (DBP).  The  proposal 
encompassed  nine  phases wherein the IHC Board of Directors approved phases 1-6. DPB approved the foreign 
loan guaranty on 24 October 1968 which is subject to several conditions. 

On  11  July,  1969,  respondent  Joaquin  wrote to IHC to request payment of his fees in the amount of P500,000 for 

the  services  he  provided  and  would  be  providing  for  IHC  in  relation  to  the  hotel project that were outside the 
scope  of  the  technical  proposal.  On  the  same  day,  the  stockholder  of  IHC  granted  his  request  granting  his 
payment, as well as Suarez’, for their services in implementing the proposal. 

While  negotiations  were  on  going  with  Barnes  International,  Joaquin  met  with  another  financier,  Weston. 
Barnes  failed  to  deliver  the  needed  loan,  and  IHC  informed DBP that it would submit to Weston. However, as a 
result,  DBP  cancelled  its  previous  guaranty.  Since  Joaquin  failed  to  secure  the  loan,  IHC  cancelled  the  17,000 
shares of stock that were previously issued to Joaquin as payment for his services. 

Joaquin  commenced  an  action  for  specific  performance,  annulment,  damages,  and  injunction  by  a 
complaint  in  the  RTC.  He  alleged  that the cancellation of shares was illegal, and it deprived him to participate 
in  meetings  and  elections  held by IHC. The IHC filed an answer claiming that the shares issued to Joaquin and 
Suarez  as  compensation  for  “past  and  future”  services  had  been  issued  in  violation  of  Sec.  16  of  the 
Corporation  Code,  and  that  the  party  did  not  provide  a  financier  acceptable  by  DBP  and  they  had  received 
P96,350 as payment for their services. 
RTC  held  IHC  liable  pursuant  to  par.  2  of  Art.  1284  of  the  Civil  Code.  The  Court  of  Appeals  concurred  with  the 
RTC  holding  IHC  liable  under  Art.  1186  of  the  Civil  Code,  holding  that  Joaquin  had  substantially performed his 
obligations  in  the  context  of  Art.  1235  of  the  Civil  Code  and  is  entitled  to  be  paid  for  his  services.  CA  then 
ordered IHC to pay Joaquin a total of P700,000 and Suarez P200,000. 

ISSUE:  WON  the  compensation  awarded  by  the CA was correct despite the non-fulfillment of the obligation of 

Joaquin and Suarez 

HELD:  The  Sc  held  that  Art.  1186  and  Art.  1234  of  the  Civil  Code  cannot be the source of IHC’s obligation to pay 
respondents.  IHC’s  argument  is  meritorious  since  it  cannot  be  held  liable  because  it  was  Joaquin  who 
recommended  Barnes,  and  IHC  negotiation  with  Barnes  had  not  been  intentional  or  willfully  intended  to 
prevent  Joaquin  from  his  obligations.  The  Court  held  that  Art.  1186  of  the  Civil  Code  pertains  to  “the 
constructive  fulfillment  which  calls  for  2  requisites  namely,  (1)  intent  of  the  obligator  to  prevent  fulfillment  of 
condition,  and  (2)  actual  prevention  of  the  fulfillment.”  Moreover,  the  Court  stated  that  Art.  1234  of  the  Civil 
Code  applies  only  when  “an  obligor  admits breaching the contract after honestly and faithfully performing all 
the material elements.” 

However,  IHC  is  still  liable  to  pay  under  the  rule  on  constructive  fulfillment  of  a  mixed  conditional  obligation. 
The  termination  of the contract was subject to a condition, the happening of a future and uncertain event. The 
extinguishment  of  loss  of  rights  already  acquired  shall  depend  upon  the  happening  of  the  event  that 
constitutes  the  condition. The existing rule in a mixed conditional obligation is that when the condition was not 
fulfilled,  but  the  obligor  did  all  in  his  power  to  comply  with  the  obligation,  the  condition  should  be  deemed 
satisfied.  IHC  agrees  that  Joaquin’s  obligation  was  subject  to  the  suspensive  condition  of  successfully 
securing a foreign loan guaranteed by DBP, and since the respondents were able to secure an agreement with 
Weston  and  subsequently  tried  to  reverse  the  cancellation of the guaranty by DBP, Suarez then constructively 
fulfilled their obligation. Pertaining to the fees, the court held that quantum meruit should apply in the absence 
of an express agreement on the fees. 

69. Bonrostro v. Luna, G.R. 172346, Jul. 24, 2013; 

 
DOCTRINE:​ in a contract to sell, payment of the price is a positive suspensive condition. Failure of which is not 
a breach of contract warranting rescission under Article 1191 of the Civil Code, but rather just an event that 
prevents the supposed seller from being bound to convey title to the supposed buyer. 
 
FACTS:​ Constancia Luna, as buyer, entered into a contract to sell with Bliss Development Corporation 
involving a house located in Quezon City. A year after, Luna sold it to Lourdes Bonrostro under the ff. terms: 
The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the following manner: 
(a) P200,000.00 upon signing x x x [the] Contract To Sell, 
(b) P300,000.00 payable on or before April 30, 1993, 
(c) P330,000.00 payable on or before July 31, 1993, 
(d) P417,000.00 payable to the New Capitol Estate, for 15 years at [P6,867.12] a month, x x x [I]n the event the 
VENDEE fails to pay the second installment on time, [t]he VENDEE will pay starting May 1, 1993 a 2% interest on 
the P300,000.00 monthly. Likewise, in the event the VENDEE fails to pay the amount of P630,000.00 on the 
stipulated time, this CONTRACT TO SELL shall likewise be deemed cancelled and rescinded and x x x 5% of the 
total contract price [of] P1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid monthly 
amortization shall likewise be deducted from the initial down payment in favor of the VENDOR.  
 
After execution of the contract, Bonrostro took possession of the property. However, except for P200,000.00 
downpayment, she failed to pay subsequent amortization. Luna then filed before the RTC a Complaint for 
Rescission of Contract and Damages. This is a petition for review on certiorari assailing the decision of CA 
affirming with modification the decision of RTC in favor herein respondents. 
 
ISSUE: ​ Whether or not delay in the payment of installment is a substantial breach of obligation as to warrant 
its rescission. 
 
RULING: ​ No, in a contract to sell, payment of the price is a positive suspensive condition. Failure of which is not 
a breach of contract warranting rescission under Article 1191 of the Civil Code, but rather just an event that 
prevents the supposed seller from being bound to convey title to the supposed buyer. The contract to sell 
entered by the parties refers to real property on installment basis, in which Art. 1191 cannot apply since they are 
governed by the Maceda Law.  
 
However, there being no breach, Bonrostro is still not excused from being made liable for interest on the 
installments due from the date of default until fully paid. Tender of payment, a manifestation by the debtor of 
a desire to comply with or pay an obligation, asserted by Bonrostro for the accrual of interest to be suspended 
is not a valid defense because for a tender of payment to take effect it must be accompanied by the means 
of payment and debtor must take immediate step to make a consignation, the deposit of the proper amount 
with a judicial authority, then interest is suspended from the time of such tender. 
  
70. Cacayorin v. Armed Forces and Police Mutual Benefit Association, G.R. No. 171298, Apr. 15, 
2013; 

DOCTRINE: ​Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that 
consignation shall be made by depositing the thing or things due at the disposal of ​judicial ​authority. The said 
provision clearly precludes consignation in venues other than the courts.  

FACTS:​ Oscar Cacayorin filed an application with AFPMBAI to purchase a property which the latter owned 
through a loan facility. Oscar and his wife, Thelma, and the Rural Bank of San Teodoro executed a Loan and 
Mortgage Agreement with the former as borrowers and the Rural Bank as lender, under the auspices of 
PAG-IBIG. On the basis of the Rural Bank's letter of guaranty, AFPMBAI executed in petitioners' favor a Deed of 
Absolute Sale, and a new title was issued in their name. Then, the PAG-IBIG loan facility did not push through 
and the Rural Bank closed. Meanwhile, AFPMBAI somehow was able to take possession of petitioners' loan 
documents and the TCT, while petitioners were unable to pay the loan for the property.  

AFPMBAI made written demands for petitioners to pay the loan for the property. Then, petitioners filed with the 
RTC a complaint for consignation of loan payment, recovery of title and cancellation of mortgage annotation 
against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. AFPMBAI filed a motion to dismiss 
claiming that petitioners' Complaint falls within the jurisdiction of the Housing and Land Use Regulatory Board 
(HLURB), as it was filed by petitioners in their capacity as buyers of a subdivision lot and it prays for specific 
performance of contractual and legal obligations decreed under Presidential Decree No. 957(PD 957). It added 
that since no prior valid tender of payment was made by petitioners, the consignation case was fatally 
defective and susceptible to dismissal. 

ISSUE: ​Whether or not the case falls within the exclusive jurisdiction of the HLURB.  

RULING: ​No. The complaint makes out a case of consignation.​ ​Unlike tender of payment which is extrajudicial, 
consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB. Under Article 1256 
of the Civil Code, the debtor shall be released from responsibility by the consignation of the thing or sum due, 
without need of prior tender of payment, when the creditor is absent or unknown, or when he is incapacitated 
to receive the payment at the time it is due, or when two or more persons claim the same right to collect, or 
when the title to the obligation has been lost. The said provision clearly precludes consignation in venues 
other than the courts. 
 
(Lim, Viv) 
71. Tan Shuy v. Maulawin, G.R. 190375, Feb. 8, 2012; 
Petitioner: ​Tan Shuy 
Respondent:​ Spouses Guillermo Maulawin and Paring Carino-Maulawin 
  
Doctrine:​ Article 1245 of the Civil Code provides a special mode of payment called dation in payment (​dacion 
en pago​). There is dation in payment when property is alienated to the creditor in satisfaction of a debt in 
money. Here, the debtor delivers and transmits to the creditor the former’s ownership over a thing as an 
accepted equivalent of the payment or performance of an outstanding debt.  
 
Facts:​ Petitioner Tan Shuy is engaged in the business of buying copra and corn in Quezon Province. According 
to Vicente Tan, son of petitioner, they would prepare and issue a ​pesada​ in their favor whenever they would 
buy copra or corn from crop sellers. A ​pesada​ is a document, which contains the details of the transaction as 
well as the annotation “pd” on the total amount of the purchase price when the crop delivered had already 
been paid for by the petitioner. On the other hand, respondent Guillermo Maulawin is a farmer-businessman 
engaged in the buying and selling of copra and corn.  
 
Tan Shuy extended a loan to Guillermo (P420,000) and in consideration thereof, Guillermo obligated himself to 
pay the loan and to sell ​lucas​ or copra to the petitioner. Petitioner then alleged that despite repeated 
demands, Guillermo remitted a total of P28,000 only, thus an outstanding balance of P391,500. Convinced that 
Guillermo no longer had the intention to pay the loan, petitioner brought the controversy to the ​Lupon 
Tagapamayapa​. When no settlement was reached, the petitioner filed a Complaint before the RTC. 
 
Respondent Guillermo, on the contrary, countered that he had already paid the subject loan in full. According 
to him, he continuously delivered and sold copra to petitioner from April 1998-1999. Respondent said he had 
an oral agreement with petitioner that the net proceeds thereof shall be applied as installment payments for 
the loan. He alleged that his deliveries amounted to P420,537.68 worth of copra. Guillermo pointed out that 
although the ​pesadas​ did not contain the notation “pd,” which meant that actual payment of the net 
proceeds from copra deliveries was not given to him, but was instead applied as loan payment.  
 
- RTC​: It ruled that the net proceeds from Guillermo’s copra deliveries - represented in the ​pesadas,​  
which did not bear the notation “pd” - should be applied as installment payments for the loan. 
However, the court did not credit the net proceeds from 12 ​pesadas​, as they were deliveries for corn 
and not copra. Hence, the total amount of P41,585.25, which corresponded to the net proceeds from 
corn deliveries, should be deducted from the amount of P420,537.68 claimed by Guillermo to be the 
total value of his copra deliveries. Accordingly, the court found that respondent had not made a full 
payment for the loan, as the total creditable copra deliveries merely amounted to P378,952.43 
(balance of P41,047.57). 
 
- CA​: It affirmed the finding of the trial court. 
 
Issue:​ Whether or not the delivery of copra amounted to installment payments for the loan obtained by 
respondents from the petitioner. ​[Yes ] 
 
Held:​ Pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or performance. 
There is payment when there is delivery of money or performance of an obligation. Article 1245 of the Civil 
Code provides a special mode of payment called dation in payment (​dacion en pago)​ . There is dation in 
payment when property is alienated to the creditor in satisfaction of a debt in money. Here, the debtor delivers 
and transmits to the creditor the former’s ownership over a thing as an accepted equivalent of the payment 
or performance of an outstanding debt. In such cases, Article 1245 also provides that the law on sales shall 
apply, since the undertaking really partakes - in one sense- of the nature of sale; that is, the creditor is really 
buying the thing or property of the debtor, the payment of which is to be charged against the debtor’s 
obligation. Moreover, dation in payment extinguishes the obligation to the extent of the value of the thing 
delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement - 
express or implied, or by their silence - consider the thing as equivalent to the obligation, which case the 
obligation is totally extinguished.  
 
In the present case, respondent explained that for the ​pesadas​ from April 1998-1999 he only gets the 
payments for trucking while the total amount which represent the total purchase price for the copras that he 
delivered the plaintiff were all given to Elena Tan Shuy, daughter of petitioner / cashier, as installments for the 
loan he owed to petitioner. Such claim of the respondent was further bolstered by the testimony of Apolinario 
Carino which affirmed that he also sold copras to the petitioner Tan Shuy. He also added that he incurred 
indebtedness to the petitioner and whenever he delivered copras the amount of the copras sold were applied 
as payment to his loan.  
 
The Court however cannot subscribe to the averments of the respondent that he has fully paid the amount of 
his loan to the petitioner from the proceeds of the copras he delivered to the petitioner as shown in the 
pesadas​. Respondent claimed that based on the said ​pesadas​ he has paid the total amount of P420,537.68 to 
the petitioner. However, the Court keenly noted that some of the ​pesadas​ offered in evidence by the 
defendant were not for copras that he delivered to the petitioner but for corn. Equity dictates that the total 
amount of P41,585.25 which corresponds to the payment for corn delivered by the respondent shall be 
deducted from the P420,537.68. From the foregoing, the actual amount of payment made by the respondent 
from the proceeds of copras he delivered to the petitioner is P378,952.43, the respondent is still indebted to the 
plaintiff in the amount of P41,047.3. 
 
The subsequent arrangement between Tan Shuy and Guillermo can thus be considered as one in the nature 
of dation en payment. There was partial payment every time Guillermo delivered copra to petitioner, chose 
not to collect the net proceeds of his copra deliveries, and instead applied the collectible as installment 
payments for his loan from Tan Shuy.  
  
 
72. Towne & City Devt. v. CA and Voluntad, Jul. 14, 2004; 
Petitioner:​ Towne & City Development Corporation 
Respondent:​ Court of Appeals and Guillermo R. Voluntad (substituted by Tomas Voluntad and Flordeliza 
Esteban Vda. De Voluntad) 
 
Doctrine:​ Under Article 1249 of the Civil Code, payment of debts in money has to be made in legal tender and 
the delivery of mercantile documents, including checks, “shall produce the effect of payment only when they 
have been cashed, or when through the fault of the creditor they have been impaired.” 
 
Facts:​ Respondent Guillermo Voluntad and petitioner Towne & City Development Corporation were both 
engaged in the construction business. Guillermo and petitioner entered into a contract for (a) construction of 
several housing units belonging to or reserved for different individuals; (b) repair of several existing housing 
units belonging to different individuals; and (c) repair of facilities all located at the Virginia Valley Subdivision, 
owned and developed by the petitioner. The total contract cost amounted to P1,041.359.00. 
 
The parties agreed that Guillermo should be paid in full by petitioner the agreed contract cost upon 
completion of the project. Pending completion of the project, Guillermo was allowed by petitioner to occupy, 
free of charge, one of its houses at the Virginia Valley Subdivision. After completing the construction and 
repair works subject of the contract, Guillermo demanded payment for his services.  
 
Petitioner failed to satisfy Guillermo’s claim in full hence, the latter filed a ​Complaint​ for collection against 
petitioner before the RTC of Manila. Guillerma alleged that the petitioner paid him only the amount of 
69,400.00, leaving a balance of P971,959.00.  
 
In its ​Answer with Counterclaims,​ petitioner averred that it had already paid Guillermo the amount of 
P1,022,793.46 for his services and that there was even an overpayment of P58,189.46. Petitioner further claimed 
that Guillermo is liable for unpaid rentals amounting to P66,000.00 for his occupancy of one of the houses in 
Virginia Valley Subdivision. 
 
While the case was pending before the trial court, Guillermo passed away. Respondents Tomas Voluntad and 
Flordeliza Vda. de Voluntad served as substitutes in place of the deceased Guillermo. 
 
RTC:​ It ordered the petitioner to pay the respondent the total amount of P715,228.50 representing petitioner’s 
unpaid balance owing in favor of defendant, with 3% interest from the time of filing of the complaint until the 
full amount is satisfied. It also ordered the respondent to vacate the house occupied by him belonging to the 
petitioner. 
CA:​ It affirmed the judgment of the lower court. 
 
Issue:​ Whether or not the vouchers issued by petitioner are considered proof of payment. ​[No] 
 
Held:​ Petitioner submits that the “Court ​a quo​ committed reversible errors of law and/or acted with grave 
abuse of discretion” in not considering as proofs of payment the vouchers and other documentary exhibits, 
and in ignoring the ruling in the ​Philippine National Bank vs. Court of Appeals,​ although it was cited in the 
assailed decisions.  
 
The ruling in ​PNB vs. Court of Appeals​ is that while a receipt of payment is the best evidence of the fact of 
payment, it is, however, not conclusive but merely presumptive; neither is its exclusive evidence as the fact of 
payment may be established also by parole evidence. Contrary to the petitioner's stance, the appellate court 
did not disregard but instead took into account the ruling in the cited case. THis may easily be confirmed by 
reviewing the factual predicates on which the ruling was handed down.  
 
*PNB vs. CA case​ In the cited case, private respondent Flores purchased from petitioner PNB and its Manila 
Pavillion Unit, two manager’s checks (P500,000.00 each), paying a total of P1,000,040.00, the extra P40 
representing service charge. PNB issued a receipt for the amount. The next day, Flores presented the check at 
PNB Baguio Hyatt Casino unit, but PNB initially refused to encash the check. Eventually it agreed to encash one 
of the checks. However, it deferred payment of the other check until Flores agreed that it be broken down to 
five checks of P100,000.00 each. PNB then refused to encash one of the five checks until after it shall have been 
cleared by its Manila Pavilion Hotel unit. The PNB Malate Branch, to which Flores made representations upon 
his return to Manila, refused to encash the last check. Hence, Flores filed a case for collection plus damages. 
PNB, on the other hand, admitted that it issued a receipt for P1,000,040.00 but at the same time countered that 
said receipt is not the best evidence to prove how much Flores actually paid for the purchase of its manager’s 
checks. The Court, in this case, held that although a receipt is not conclusive evidence, an exhaustive review of 
thh records fails to disclose any other evidence sufficient and strong enough to overturn the acknowledgment 
embodied in the petitioner's receipt. Having failed to aduce rebuttal evidence, petitioner is bound by the 
contents of the receipt it issued to Flores. The subject receipt remains to be the primary or best evidence or 
“that which affords the greatest certainty of the fact in question.” 
 
In the case at bar, the petitioner has relied on vouchers to prove its defense of payment. However, as correctly 
pointed out by the trial court which the appellate court upheld, vouchers are not receipts. A voucher is not 
necessarily evidence of payment. It is merely a way or method of recording or keeping track of payments 
made. It is a procedure adopted by companies for the orderly and proper accounting of funds disbursed. 
Unless it is supported by an actual payment like the issuance of a check which is subsequently encashed or 
negotiated, or an actual payment of cash duly receipted for as is customary among businessmen, a voucher 
remains a piece of paper having no evidentiary weight. 
 
A receipt iis a written and signed acknowledgement that money has been or goods have been delivered, 
while a voucher is a documentary record of a business transaction.  
 
The references to alleged check payments in the vouchers presented by the petitioner do not vest them with 
the character of receipts. Under Article 1249 of the Civil Code, payment of debts in money has to be made in 
legal tender and the delivery of mercantile documents, including checks, “shall produce the effect of payment 
only when they have been cashed, or when through the fault of the creditor they have been impaired.” It is 
therefore clear that there are two exceptions to the rule that payment by check does not extinguish the 
obligation. Neither exception is present in this case. Concerning the first, petitioner failed to produce the 
originals of the check after their supposed encashment and even the bank statements although the 
supposed payments by check were effected only about 5 years before the filing of the collection suit. Anent 
the second exception, the doctrine is that it does not apply to instruments executed by the debtor himself and 
delivered to the creditor. Indubitably, that is not the situation in this case.  
 
73. Lo v. KJS Eco-Formwork, Oct. 8, 2003; 
Petitioner:​ Sonny Lo 
Respondent:​ KJS ECO-FORMWORK System Phil., Inc. 
 
Doctrine:​ It may well be that the assignment of credit, which is in the nature of a sale of personal property, 
produced the effects of a dation in payment which may extinguish the obligation. However, as in any other 
contract of sale, the vendor or assignor is bound by certain warranties; the existence and legality of the credit 
at the time of the sale (Article 1628 of the Civil Code).  
 
Facts:​ Respondent KJS ECO-FORMWORK is a corporation engaged in the sale of steel scaffoldings, while 
petitioner Lo, doing business under the name and style San’s Enterprises, is a building contractor.  
 
Petitioner ordered scaffolding equipment from the respondent worth P540,425.80. He paid a downpayment in 
the amount of P150,000.00. The balance was made payable in 10 monthly installments. Respondent delivered 
the scaffoldings to the petitioner. Petitioner was able to pay the first two monthly installments. HIs business, 
however, encountered financial difficulties and he was unable to settle his obligation to respondent despite 
oral and written demands made against him.  
 
Petitioner and respondent then executed a Deed of Assignment, whereby petitioner assigned to respondent 
his receivables in the amount of P335,462.14 from Jomero Realty Corporation. However, when the respondent 
tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of 
Assignment because it claimed that petitioner was also indebted to it. Thus,, respondent sent a letter to 
petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had 
been extinguished when they excited the Deed of Assignment.  
 
Consequently, the respondent filed an action for recovery of a sum of money against the petitioner before the 
RTC of Makati. 
 
RTC:​ It dismissed the complaint on the ground that the assignment of credit extinguished the obligation.  
 
CA:​ It reversed the appealed decision and ordered petitioner Sonny Lo to pay respondent KJS-FORMWORK 
P335,462.14 with legal interest of 6% per annum from the filing of the Complaint until fully paid. The appellate 
court held that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent.  
 
Issue:​ Whether or not the Deed of Assignment extinguished the obligation of the petitioner to the respondent. 
[No] 
 
Held:​ An assignment of credit is an agreement by virtue of which the owner of a credit (assignor), by a legal 
cause, such as sale, ​dacion en pago​, exchange or donation, and without the consent of the debtor, transfers 
his credit and accessory rights to another (assignee), who acquires the power to enforce it to the same extent 
as the assignor could enforce it against the debtor.  
 
In ​dacion en pago​, as a special mode of payment, the debtor offers another thing to the creditor who accepts 
it as equivalent to payment of an outstanding debt. In order that there be a valid ​dation​ in payment, the 
following are the requisites: (1) there must be the performance of the prestation in lieu of payment (​animo 
solvendi)​ which may consist in the delivery of a corporeal thing or a real right or a credit against the third 
person; (2) there must be some difference between the prestation due and that which is given in substitution 
(​aliud pro alio)​ ; (3) there must be an agreement between the creditor and debtor that the obligation is 
immediately extinguished by reason of the performance of a prestation different from that due.  
 
Hence it may well be that the assignment of credit, which is the nature of a sale of personal property, 
produced the effects of a dation in payment which may extinguish the obligation. However, as in any other 
contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of 
Article 1628 of the Civil Code: 
The vendor in good faith shall be responsible for the existence and legality of the credit at the time 
of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless 
it has been so expressly stipulated or unless the insolvency was prior to the sale and of common 
knowledge. 
 
From the above provisions, petitioner, as vendor or assignor, is bound to warrant the existence and legality of 
the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to 
petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to 
petitioner has been extinguished by compensation. In other words, the respondent alleged the non-existence 
of the credit and asserted its claim to petitioner’s warranty under the assignment. Therefore, it behooved the 
petitioner to make good its warranty and paid the obligation.  
 
Furthermore, the Court found that petitioner breached his obligation under the Deed of Assignment. By 
warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof 
in case the same is later found to be inexistence. He should be held liable to pay to respondent the amount of 
his indebtedness.  
 
 
74. Filinvest v. Phil. Acetylene, 111 SCRA 421; 
Petitioner:​ Filinvest Credit Corporation 
Respondent:​ Philippine Acetylene, Co., Inc. 
 
Doctrine:​ What actually takes place in ​dacion en pago​ is an objective novation of the obligation where the 
thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the 
sale, while the debt is considered as the purchase price. In any case, common consent is an essential 
prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.  
 
Facts:​ Defendant-appellant Philippine Acetylene purchased from one Alexander Lim, as evidenced by a Deed 
of Sale, a Chevrolet (1969 model) motor vehicle for P55,247.80 with a down payment of P20,000.00 and the 
balance of P35,247.80 payable, under the terms and conditions of the promissory note, at a monthly 
installment of P1,036.70 for 34 months, due and payable on the first day of each month with 12% interest per 
annum on each unpaid installment, and attorney’s fees in the amount equivalent to 25% of the total of the 
outstanding unpaid amount. 
 
As security for the payment of said promissory note, the appellant executed a chattel mortgage over the 
same motor vehicle in favor of said Alexander Lim. Alexander Lim subsequently assigned to the Filinvest 
Finance Corporation all of his rights, title and interests in the promissory note and chattel mortgage by virtue 
of a Deed of Assignment.  
 
AS a consequence of its merger with the Credit and Development Corporation, Filinvest Corporation assigned 
to the new corporation (herein plaintiff-appellee Filinvest Credit Corporation) all its rights, title, and interests 
on the aforesaid promissory note and chattel mortgage. In effect, the payment of the unpaid balance owed 
by the defendant-appellant to Alexander Lim was financed by plaintiff-appellee such that Lim became fully 
paid.  
 
Appellant failed to comply with the terms and conditions sent forth in the promissory note and chattel 
mortgage since it had defaulted in the payment of 9 successive installments. Appellee then sent a demand 
letter whereby its counsel demanded the appellant to remit the aforesaid amount in full, in addition to the 
stipulated interest and charges or return the mortgaged property to its client at its office in Malate, Manila 
within 5 days from date of said letter. Replying thereto, appellant, thru its assistant general-manager, advised 
appellee of its decision to return the mortgaged property, which return shall be in full satisfaction of its 
indebtedness pursuant to Article 1484 of the New Civil Code. Accordingly, the mortgaged property was 
returned to the appellee together with the document “Voluntary Surrender with Special Power of Attorney” 
executed by the appellant and confirmed to by the appellee’s vice president.  
 
The following month, appellee wrote a letter to appellant informing the latter that appellee cannot sell the 
motor vehicle as there were unpaid taxes on the said vehicle in the sum of P70,122.00. Appellee requested the 
appellant to update its account by paying the installments in arrears and accruing interest in the amount of 
P4,232.21. 
 
While admitting the material allegations of the appellee’s complaint, appellant avers that appellee has no 
cause of action against it since its obligation towards the appellee was extinguished when in compliance with 
the appellee's demand letter, it returned the mortgaged property to the appellee, and that assuming 
arguendo that the return of the property did not extinguish its obligation, it was nonetheless justified in 
refusing payment since the appellee is not entitled to recover the same due to the breach of warranty 
committed by the original vendor-assignor Alexander Lim. 
 
CFI:​ It directed the defendant to pay the plaintiff the sum of P22,227.81 (outstanding unpaid obligation under 
the assigned credit) with 12% interest from the date of the filing of the complaint until the same is fully paid. It 
also directed the plaintiff to deliver to, and the defendant to accept, the motor vehicle, subject of the chattel 
mortgage in the condition it was at the time of delivery by defendant to plaintiff.  
 
Issue: ​Whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary 
surrender by the appellant totally extinguished and/or cancelled its obligation to the appellee. ​[No] 
 
Held:​ Appellant’s contention is devoid of persuasive force. The mere return of the mortgaged motor vehicle by 
the mortgagor (herein appellant) to the mortgagee (appellee) does not constitute dation in payment or 
dacion en pago.​ ​Dacion en pago,​ according to Manresa, the transmission of the ownership of a thing by the 
debtor to the creditor as an accepted equivalent of the performance of an obligation. In ​dacion en pago,​ as a 
special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent to 
payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sales, that is, 
the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the 
debtor’s debt. As such, the essential elements of a contract of sale (consent, object certain, and cause or 
consideration) must be present. In its modern concept, what actually takes place in ​dacion en pago​ is an 
objective novation of the obligation where the thing offered as an accepted equivalent of the performance of 
an obligation is considered as the object of the sale, while the debt is considered as the purchase price. In any 
case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally 
extinguishing the debt or obligation.  
 
In the present case, the evidence on the records fails to show that the mortgagee (appellee) consented, or at 
least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be 
construed as actual payment, more specifically dation in payment. The fact that the mortgaged motor 
vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated 
by ​dacion en pago​, was transferred from appellant to appellee. In the absence of clear consent of appellee to 
the proffered special mode of payment, there can be no transfer of ownership of the mortgaged motor 
vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took 
place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the 
loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the 
hands of the appellant. 
 
Moreover, the examination of the language used in the “Voluntary Surrender with Special Power of Attorney to 
Sell” executed by the appellant reveals that the possession of the mortgaged motor vehicle was voluntarily 
surrendered by the appellant to the appellee who retains ownership thereof, and to apply the proceeds of the 
sale to the mortgage indebtedness. The difference, in any, between the selling price and the mortgage 
obligation shall be paid by the appellant. Considering the above mentioned conditions, the appellee, in 
essence, was constituted as a mere agent to sell the motor vehicle which was delivered to the appellee, not as 
its property. For if it were, he would have full power of disposition of the property, not only to sell it as is the 
limited authority given by him in the special power of attorney. Had appellee intended to completely release 
appellant of its mortgage obligation, there would be no necessity of executing the document captioned 
“Voluntary Surrender with Special Power of Attorney to Sell.” Nowhere in the said document can the Supreme 
Court find that the mere surrender of the mortgaged motor vehicle to the appellee extinguished the 
appellant’s obligation for the unpaid price. 
 
Appellant also argued that by accepting the delivery of the mortgaged motor vehicle, appellee is estopped 
from demanding payment of the unpaid obligation. The Court disagrees. Estoppel would not lie since appellee 
never accepted the mortgaged motor vehicle in full satisfaction of the mortgaged debt. Under the law, the 
delivery of possession of the mortgaged property to the mortgagee (herein appellee) can only operate to 
extinguish appellant’s liability if the appellee had actually caused the foreclosure sale of the mortgaged 
property when it recovered possession thereof. As held by his Court, if the vendor desisted, on his own 
initiative, from consummating the auction sale, such desistance was a timely disavowal of the remedy of 
foreclosure, and the vendor can still sue for specific performance. This is exactly what happened in the instant 
case. 
 
 
75. Villarta v. Cuyno, G.R. No. L-20682, May 19, 1966; 
Petitioner:​ Gregorio Villarta, Glicerio Villlarta and Marina Villarta 
Respondent:​ Fausta Cutamora Vda. De Cuyno, Basildes, Paz, Maxima, Enriquieta, Ireno and Catalino, all 
surnamed Cuyno, Paterno Javellana and Teodoro Cutamore 
 
Facts:​ Plaintiff Gregorio is the father of his co-plaintiffs Glicerio and Marina Vilarta. THe disputed land 
belonged originally to Isidro Cuyno, who, prior to May 1924, had assigned a small portion thereof, with an area 
of approx. 0.3100 hectares, to one Clemente OLaybar, who, on said date, declared it, for real estate tax 
purposes, in his name. The remaining portion of said land, with an area of 14.8400 hectares, more or less, was 
declared in 1925 in the same name. Isidoro Cuyno died sometime before 1936.  
 
For failure of his heirs to pay the real estate taxes due, said portion, of about 14.8400 hectares, was forfeited to 
the Government in 1936. To avoid its eventual sale at public auction, Marciano Cuyno, one of the children of 
Isidoro Cuyno, asked plaintiff Gregorio Villarta, whose wife (Guardicisima Cuyno) is a granddaughter of said 
deceased, to pay the amount of said taxes. Accordingly, Gregorio Villarta paid the municipal treasurer of Ubay 
several sums of money aggregating P114.62, representing the overdue real estate tax on said portion of 
14.8400 hectares. In June 1946, Gregorio Villarta caused this portion of 14.8400 hectares to be declared in his 
name. Meanwhile, or in April 1945, he had purchased from Clemente Olaybar the aforementioned small 
portion, of about 0.3100 hectares, which the latter had acquired from Isidoro Cuyno before May 1924.  
 
On March 1961, Gregorio Villarta commenced the present action alleging the defendants herein had, in July 
1935, forcibly deprived them of the possession of the land in question and, as a consequence, of the owner’s 
share in the products thereof. The evidence for the plaintiffs tend to establish that, despite the aforementioned 
payments to the municipal treasurer of Ubay, Gregorio Villarta had been unable to take possession of said 
land, except a small part thereof, because the other parts of the land, constituting the bulk thereof, had been 
allegedly sold conditionally by Isidoro Cuyno to several parties, from whom Gregorio Villarta claims to have 
redeemed said parts in three separate transactions.  
 
Issue: ​Whether or not ​[No] 
 
Held:​ At the outset, it should be noted that plaintiff’s action is based primarily upon the payment made by 
Gregorio Villarta to the municipal treasurer of Ubay of the overdue real estate tax on the portion of the land in 
question, of about 14.8400 hectares, which had been forfeited to the Government for delinquency in payment 
of said tax. Plaintiff’s content that Gregorio Villarta had thereby acquired the rights of the deceased Isidiro 
Cuyno in and to said property. However, the delinquent taxpayer was the estate of Isidiro Cuyno, not Gregorio 
Villarta, so that payment by the latter merely subrogated him into the rights of the Government as creditor for 
said delinquent taxes (Article 1236 of the Civil Code).  
 
The Municipal treasurer of Ubay did not, by accepting said payment by Gregorio Villarta, sell the 
aforementioned property to him. Indeed, said officer did not execute any deed of conveyance in favor of 
Gregorio Villarta. The receipts given to the latter by said officer were issues, not in his (Gregorio Villarta’s) 
name, but in that of Isidiro Cuyno. The fact that Gregorio Villarta accepted said receipts, issued in the name of 
Isidiro Cuyno, indicates that the former, also, understood that he was not thereby purchasing the property, but 
had made the payment for the account or benefit of Isidiro Cuyno. In fact, the letter of the municipal treasurer 
of Ubay to Gregorio Villarta refers to said payments of Gregorio Villarta as part of the process of “repurchase” 
by his ​“in behalf of the declared owner, Mr Isidoro Cuyno.”​ Thus, Gregorio Villarta thereby became a trustee for 
the benefit of Isidiro Cuyno, or his heirs.  
 
Plaintiffs likewise invoke title to part of the land in question in consequence of a conveyance allegedly made to 
Gregorio Villarta by Clemente Olaybar, who, plaintiffs allege, acquired it from Benito Cuyno, who, in turn, 
derived his title from Isidiro Cyno, by virtue of a deed of sale. The property described in the deed is located, 
however, in ​Cabadiangan​, whereas the landin question is in Tipolo. Hence, the lower court was justified in 
concluding that the subject matter in the said deed is different from that of the present case.  
 
Again, plaintiffs invoke title by acquisitive prescription. This pretense is, however, untenable: (1) because they 
admit that, in 1936 Gregorio Villarta was unable ​unable to take possession​ of most of the land in question, for 
the same was then being held by those who allegedly purchased conditionally portion thereof from Isidiro 
Cuyno; (2) because the purchase allegedly made by Gregorio Villarta from Mr. & Mrs/ Embradura, and Juan 
Gaviola and Toribia Cyno, took place only in 1942, and plaintiff’s possession from this year was interrupted 
constructively upon the filing of Civil Case No. 292 in 1948, or before the expiration of 10 years; (3) because, 
since the aforementioned delinquent taxes had been paid by Gregorio Villarta “in behalf of Isidiro Cuyno,” the 
possession acquired by the former, and his subsequent transactions with the Embraduras and the Gaviolas, 
must be deemed effected by Gregorio Villarta ​in trust and for the benefit of Isidiro Cuyno,​ until the contrary is 
clearly proven; and (4) that the first such evidence that can be invoked by Gregorio Villarta is, at best, the Tax 
Declaration made in June 1946 in his name, and his possession since then was, as above indicated, 
interrupted, in contemplation of law, in 1948, and actually, according to plaintiff’s complaint, in 1953, or before 
the expiration of 10 years since 1946.  
 
(Dela Cruz, Pam) 
76. Magdalena Estates v. Rodriguez, G.R. No. L-18411, Dec. 17, 1966; 
Doctrine: 

Obligation to any sum of money is not novated in a new instrument wherein the old is ratified by 
changing the terms of payments and adding other obligations not incompatible with the old one. 

Facts:  

Antonio & Herminia bought a 2,191 SQM lot in Quezon City from Magdalena State. In view of the 
unpaid balance of 5,000 on account of purchase price, they executed a promissory note for 5,000 
which promised to pay without any demand and with interest of 9 % that payment be made within 
60 days from Jan 1957. 

On the same day, Antonio & Herminia executed also a bond on favor of Magdalena State which 
embodied bonding company Luzon Surety Company to pay the 5,000 balance to Magdalena, but the 
bonding company be notified in writing within 10 days from the moment there was default otherwise 
the undertaking become null and void. 

June 1957 the obligation becomes due and demandable the surety company paid Madalena State 
the 5,000, shortly thereafter, Magdalena demanded payment of 6.55.89 for accumulated interest on 
principal which was refused, therefore sued respondent with MTC to enforced collection, the MTC 
rules in favor of the Magdalena. MTC ordered Rodriguez and Luzon Surety to pay jointly but not 
 content went to CFI and the CFI rules that it waived or condoned the interest due based on Art 1235 
and Art 1253. 

Issue: 

Whether Magdalena State was entitled to penalty after the bonding company paid the entire 
amount timely. 

Held: 

It affirmed the CA ruling that, when there is no agreement that the first debtor shall have been 
released from responsibilities does not constitute Novation and the creditor can still enforce the 
obligation against the original debtor.2. The surety company is not a new and separate contract but 
an accessory of the promissory note. 

  

Obligation to any sum of money is not novated in a new instrument wherein the old is ratified by 
changing the terms of payments and adding other obligations not incompatible with the old one. 

In Novation, presumption is never favored to be sustained, it needs to be established that the old and 
the new contracts are incompatible in all points or that the will to novate appears by express 
agreement of the parties. 

 
77. Arzaga v. Rumbaoa, 91 Phil. 499, Jun. 26, 1952; 
Doctrine:   
Although the payment was not made or offered to defendants, it was actually made to them 
through the medium of the court, because after the deposit plaintiff expressly petitioned the court 
that the defendants "be notified, to receive and to tender of payment." The deposit by itself alone 
may not have been sufficient, but with the express terms of the petition, there was a full and 
complete offer of payment made directly to defendants-appellants. The petition made the 
amount previously deposited available for payment and should be considered as actual 
payment. 
 
 
Facts:  

Mariano executed a Will instituting his wife, Catalina, as the sole and universal heir of all his 
properties. The spouses being childless, they had agreed that their properties, after both of them 
shall have died should revert to their respective sides of the family, i.e., Mariano's properties would go 
to his "Locsin relatives" (i.e., brothers and sisters or nephews and nieces), and those of Catalina to her 
"Jaucian relatives." Mariano, before he died, relied on Catalina to carry out the terms of their 
compact, hence, 9 years after his death, Catalina began transferring, by sale, donation or 
assignment, Mariano's as well as her own, properties to their respective nephews and nieces. Four 
years before her death, Catalina had made a Will affirming and ratifying the transfers she had made 
during her lifetime in favor of her husband's, and her own, relatives. Six years after Catalina's demise, 
some of her Jaucian nephews and nieces (private respondents) who had already received their 
legacies and hereditary shares from her estate, filed action to recover the properties which she had 
conveyed to the Locsins during her lifetime, alleging that the conveyances were inofficious, without 
consideration, and intended solely to circumvent the laws on succession. 

ISSUE: 
Are the conveyances made during the decedent’s lifetime valid? 

HELD: 

YES. The rights to a person's succession are transmitted from the moment of his death, and do not 
vest in his heirs until such time. In this case, property which Catalina had transferred or conveyed to 
other persons during her lifetime no longer formed part of her estate at the time of her death to 
which her heirs may lay claim. Had she died intestate, only the property that remained in her estate 
at the time of her death devolved to her legal heirs. Even if those transfers were, one and all, treated 
as donations, the right arising under certain circumstances to impugn and compel the reduction or 
revocation of a decedent's gifts inter vivos does not inure to the respondents since neither they nor 
the donees are compulsory heirs. Thus, there is no basis for assuming an intention on the part of 
Catalina, in transferring the properties she had received from her late husband to his nephews and 
nieces, an intent to circumvent the law in violation of the private respondents' rights to her 
succession. Said respondents are not her compulsory heirs, and it is not pretended that she had any 
such. Hence, there were no legitimes that could conceivably be impaired by any transfer of her 
property during her lifetime. All that the respondents had was an expectancy that in no wise 
restricted her freedom to dispose of even her entire estate. Therefore, the conveyances made by 
Catalina during her lifetime are valid. 

 
78. Philippine National Bank v. Relativo, G.R. No. L-5298, Oct. 29, 1952; 
 
Doctrine: 
Owner or developer of a subdivision lot or condominium unit may mortgage the same despite a 
contract to sell. 

Facts:   

Some time in July 1994, respondent Dee Dee bought from respondent Prime East Properties Inc.5 
(PEPI) on an installment basis a residential lot located in Binangonan, Rizal, with an area of 204 
square meters and covered by TCT No. 619608. Subsequently, PEPI assigned its rights over a 
213,093–sq m property on August 1996 to respondent Armed Forces of the Philippines–Retirement 
and Separation Benefits System, Inc. (AFP–RSBS), which included the property purchased by Dee. 

Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine 
National Bank, secured by a mortgage over several properties, including Dee’s property. The 
mortgage was cleared by the Housing and Land Use Regulatory Board (HLURB) on September 18, 
1996. 

After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI and 
AFP–RSBS on July 1998 in Dee’s favor. Consequently, Dee sought from the petitioner the delivery of the 
owner’s duplicate title over the property, to no avail. Thus, she filed with the HLURB a complaint for 
specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI and AFP–RSBS, 
among others. 

ISSUE: 

Whether or not PNB, as mortgagee, was bound by the contract to sell previously executed over the 
subdivision lot mortgaged. 

HELD: 
 YES. In this case, there are two phases involved in the transactions between respondents PEPI and 
Dee – the first phase is the contract to sell, which eventually became the second phase, the absolute 
sale, after Dee’s full payment of the purchase price. In a contract of sale, the parties’ obligations are 
plain and simple. The law obliges the vendor to transfer the ownership of and to deliver the thing that 
is the object of sale. On the other hand, the principal obligation of a vendee is to pay the full purchase 
price at the agreed time. Based on the final contract of sale between them, the obligation of PEPI, as 
owners and vendors of Lot 12, Block 21–A, Village East Executive Homes, is to transfer the ownership of 
and to deliver Lot 12, Block 21–A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase 
price of the property 

IIt must be stressed that the mortgage contract between PEPI and the petitioner is merely an 
accessory contract to the principal three–year loan takeout from the petitioner by PEPI for its 
expansion project. It need not be belabored that “a mortgage is an accessory undertaking to secure 
the fulfillment of a principal obligation,” and it does not affect the ownership of the property as it is 
nothing more than a lien thereon serving as security for a debt. 

Owner or developer of subdivision lot or condominium unit may mortgage the same despite contract 
to sell 

  

Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between 
respondents PEPI and Dee was still the Contract to Sell, as Dee was yet to fully pay the purchase price 
of the property. On this point, PEPI was acting fully well within its right when it mortgaged the property 
to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full 
payment of the purchase price. In other words, at the time of the mortgage, PEPI was still the owner of 
the property. 

Thus, in China Banking Corporation v. Spouses Lozada, the Court affirmed the right of the 
owner/developer to mortgage the property subject of development, to wit: “P.D. No. 957 cannot totally 
prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the 
title thereto still resides in the owner or developer awaiting the full payment of the purchase price by 
the installment buyer.” Moreover, the mortgage bore the clearance of the HLURB, in compliance with 
Section 18 of P.D. No. 957, which provides that “no mortgage on any unit or lot shall be made by the 
owner or developer without prior written approval of the HLURB. Bank-mortgagee bound by the 
contract to sell over the property mortgage. Nevertheless, despite the apparent validity of the 
mortgage between the petitioner and PEPI, the former is still bound to respect the transactions 
between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by 
PEPI were also the subject of existing contracts to sell with other buyers. While it may be that the 
petitioner is protected by Act No. 3135, as amended, it cannot claim any superior right as against the 
installment buyers. This is because the contract between the respondents is protected by P.D. No. 
957, a social justice measure enacted primarily to protect innocent lot buyers. Thus, in Luzon 
Development Bank v. Enriquez, the Court reiterated the rule that a bank dealing with a property that is 
already subject to a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the 
contract to sell. The transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s 
rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and 
protected by PD 957. More so in this case where the contract to sell has already ripened into a 
contract of absolute sale. 

 
 
79. Keeler Electric v. Rodriguez, G.R. No. L-19001, Nov. 11, 1922; 
Doctrine:  
Rights of the parties arises from the moment the contract has been executed. 
 Facts: 

Private respondents Simundac and Olivan and petitioner Opulencia entered into a Contract to Sell a 
parcel of land in Sta. Rosa, Laguna (Lot No. 2125). P300,000.00 had already been received by 
petitioner as down payment. The parties have knowledge that the property subject of the contract to 
sell is subject of the probate proceedings of the testate estate of Demetrio Carpena, deceased father 
of the petitioner; in fact, it was stated in the Contract to Sell that “the Seller (petitioner herein) suffers 
difficulties in her living and has forced to offer the sale of the property, "which property was only one 
among the other properties given to her by her late father," to anyone who can wait for complete 
clearance of the court on the Last Will Testament of her father. However, despite demands, the 
petitioner failed to comply with her obligations under the contract; hence, the private respondents 
filed an action for Specific Performance with damages. 

Petitioner’s defenses, among others, were that, at the time the contract was executed, the parties 
were aware of the pendency of the probate proceeding and that the contract to sell was not 
approved by the probate court. Hence, realizing the nullity of the contract the petitioner had offered 
to return the down payment received from private respondents, but the latter refused to accept it. 
And that petitioner had chosen to rescind the contract. She based her defense on Sec. 7, Rule 89 of 
the ROC contending that "where the estate of the deceased person is already the subject of a testate 
or intestate proceeding, the administrator cannot enter into any transaction involving it without prior 
approval of the Probate Court." 

The trial court granted the Petitioner’s demurrer to evidence, which decision was reversed by the CA 
declaring that the Contract to Sell is valid, subject to the outcome of the testate proceedings on 
Demetrio Carpena's estate. 

ISSUE: 

Whether a contract to sell a real property involved in restate proceedings, made by an heir, valid and 
binding without the approval of the probate court? 

HELD: 

YES, the Contract to Sell was entered into by the petitioner in her capacity as an heiress, not as an 
executrix/administratrix of the estate, hence, such sale is valid. 

As correctly ruled by the Court of Appeals, Section 7 of Rule 89 of the Rules of Court is not applicable, 
because petitioner entered into the Contract to Sell in her capacity as an heiress, not as an executrix 
or administratrix of the estate. In the contract, she represented herself as the "lawful owner" and seller 
of the subject parcel of land. She also explained the reason for the sale to be "difficulties in her living" 
conditions and consequent "need of cash." These representations clearly evince that she was not 
acting on behalf of the estate under probate when she entered into the Contract to Sell. 

Hereditary rights are vested in the heir/heirs from the moment of the decedent's death (Art. 777). 
Petitioner, therefore, became the owner of her hereditary share the moment her father died. Thus, the 
lack of judicial approval does not invalidate the Contract to Sell, because the petitioner has the 
substantive right to sell the whole or a part of her share in the estate of her late father. 

 
  
Section 2. Loss of the Thing Due​. 
  
80. Iloilo Jar Corp. V. Conglasco, G.R. 219509, Jan. 18, 2017; 
Doctrine: 
 Economic crisis which may have caused the petitioner’s financial problems is not an absolute 
exceptional change of circumstances that equity demands assistance for the debtor. 

Facts:  

Petitioner Iloilo Jar Corporation as lessor, and respondent Comglasco as lessee, entered into a lease 
contract over a portion of a warehouse building, for a period of three (3) years or until August 15, 
2003. 

On December 1, 2001, Comglasco requested for the pre-termination of the lease effective on the 
same date. Iloilo Jar, however, rejected the request on the ground that the pre-termination of the 
lease contract was not stipulated therein. Despite the denial of the request for pre-termination, 
Comglasco still removed all its stock, merchandise and equipment from the leased premises on 
January 15, 2002. From the time of the withdrawal of the equipment, and notwithstanding several 
demand letters, Comglasco no longer paid all rentals accruing from the said date. On September 14, 
2003, Iloilo Jar sent a final demand letter to Comglasco, but it was again ignored. Consequently, Iloilo 
Jar filed a civil action for breach of contract and damages before the RTC on October 10, 2003. 

On June 28, 2004, Comglasco filed its Answer and raised an affirmative defense, arguing that by 
virtue of Article 1267 of the Civil Code (Article 1267), it was released from its obligation from the lease 
contract. It explained that the consideration thereof had become so difficult due to the global and 
regional economic crisis that had plagued the economy. Likewise, Comglasco admitted that it had 
removed its stocks and merchandise but it did not refuse to pay the rentals because the lease 
contract was already deemed terminated. Further, it averred that though it received the demand 
letters, it did not amount to a refusal to pay the rent because the lease contract had been 
pre-terminated in the first place. 

Iloilo Jar insisted that Comglasco cannot rely on Article 1267 because it does not apply to lease 
contracts, which involves an obligation to give, and not an obligation to do. 

Issue: 

Whether or not Article 1267 of the Civil Code is applicable to obligation to give therefor making 
Comglasco’s claim that it was released from the lease agreement because the lease contact was 
terminated due to economic circumstances is proper under the said article. 

Held: 

Comglasco’s position fails to impress because Article 1267 applies only to obligations to do and not 
to obligations to give. Thus, in Philippine National Construction Corporation v. Court of Appeals, the 
Court expounded: 

  

Petitioners cannot, however, successfully take refuge in the said article, since it is applicable only to 
obligations “to do,” and not to obligations “to give.” An obligation “to do” includes all kinds of work or 
service; while an obligation “to give” is a prestation which consists in the delivery of a movable or an 
immovable thing in order to create a real right, or for the use of the recipient, or for its simple 
possession, or in order to return it to its owner. 

The obligation to pay rentals or deliver the thing in a contract of lease falls within the prestation “to 
give”;   
 The principle of rebus sic stantibus neither fits in with the facts of the case. Under this theory, the 
parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist, 
the contract also ceases to exist. 

This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute 
application of the principle of rebus sic stantibus, which would endanger the security of contractual 
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable 
developments. It is therefore only in absolutely exceptional changes of circumstances that equity 
demands assistance for the debtor. 

Considering that Comglasco’ s obligation of paying rent is not an obligation to do, it could not 
rightfully invoke Article 1267 of the Civil Code. Even so, its position is still without merit as financial 
struggles due to an economic crisis is not enough reason for the courts to grant reprieve from 
contractual obligations. 

In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center Corporation, the Court ruled 
that the economic crisis which may have caused the petitioner’s financial problems is not an 
absolute exceptional change of circumstances that equity demands assistance for the debtor. It is 
noteworthy that Comglasco was also the petitioner in the above mentioned case, where it also 
involved Article 1267 to pre-terminate the lease contract. 

Thus, the RTC was correct in ordering Comglasco to pay the unpaid rentals because the affirmative 
defense raised by it was insufficient to free it from its obligations under the lease contract. In addition, 
Iloilo Jar is entitled to attorney’s fees because it incurred expenses to protect its interest. The trial 
court, however, erred in awarding exemplary damages and litigation expenses. 

(Cordova, Vlaz) 
81. Tagaytay​ ​Realty v. Gacutan, G.R. 160033, Jul. 1, 2015; 
 
Doctrine: ​Mere inconvenience unexpected impediments or increased expenses does not excuse 
a debtor from the fulfillment of his/her obligation 
 
Facts:  
 
Issue: 
 
Held: 
 
82. Comglasco v. Santos Car Check, G.R. 202989, Mar. 25, 2015; 
 
Doctrine: 
 
Facts:  
 
Issue: 
 
Held: 
 
83. Naga Telephone v. CA, 230 SCRA 531 
 
Doctrine: ​Doctrine of Unforeseen Events, the parties to the contract must be presumed to have 
assumed the risks of unfavorable developments. It is therefore only in absolutely exceptional 
changes of circumstances that equity demands assistance for the debtor 
 
Facts: ​This is a petition for review on certiorari by petitioner Naga Telephone Co., Inc. (NATELCO) 
from the application by the Court of Appeals of Article 1267 of the Civil Code in favor of 
respondent 
Camarines Sur II Electronic Cooperative, Inc. (CASURECO II). 
The parties entered into a contract for the use by NATELCO in the operation of its telephone 
service 
the electric light posts of CASURECO II in Naga City. In consideration therefor, petitioners agreed to 
install, free of charge, 10 telephone connections for the use by respondent in the agreed places. 
The 
contract also provided that the term or period of this contract shall be as long as the party of the 
first 
part has need for the electric light posts of the party of the second part, it being understood that 
this 
contract shall terminate when for any reason whatever, the party of the second part is forced to 
stop or 
abandon its operation as a public service and it becomes necessary to remove the electric 
lightpost. 
After 10 years, CASURECO II file a complaint against NATELCO for reformation of the contract with 
damages, on the ground, among others, that it is too one-sided in favor of petitioners. 
The trial court found that while the contract appeared to be fair to both parties when it was 
entered into by them during the first year of respondent’s operation, it had become 
disadvantageous and unfair to respondent because of subsequent events and conditions, 
particularly the increase in the volume of the subscribers of petitioners for more than 10 years 
without the corresponding increase in the number of telephone connections to respondent free of 
charge. The trial court concluded that while in an action for reformation of contract, it cannot 
make another contract for the parties, it can, however, for reasons of justice and equity, order that 
the contract be reformed to abolish the inequities therein. Thus, said court ruled that the contract 
should be reformed by ordering petitioners to pay respondent compensation for the use of their 
posts inside and outside Naga City, while respondent should also be ordered to pay the monthly 
bills for the use of the telephones also in Naga City. Upon appeal, the CA affirmed the trial court’s 
decision but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is 
applicable and (2) that the contract was subject to a potestative condition which rendered 
said condition void. 
 
NATELCO asserts that Art. 1267 of the Civil Code is not applicable because the contract does not 
involve the rendition of service or a personal prestation and it is not for future service with future 
unusual change. 
 
Issue: ​ Is Art. 1267 of the Civil Code applicable in the instant case? 
 
Held: ​Yes. The rationale behind Art. 1267 of the Civil Code is that the intention of the parties should 
govern and if it appears that the service turns out to be so difficult as to have been beyond 
their contemplation, it would be doing violence to that intention to hold the obligor still 
responsible. Article 1267 speaks of "service" which has become so difficult. Taking into 
consideration the rationale behind this provision, the term "service" should be understood as 
referring to the "performance" of the obligation. In the present case, the obligation of private 
respondent consists in allowing petitioners to use its posts in Naga City, which is the service 
contemplated in said article. Furthermore, a bare reading of this article reveals that it is not a 
requirement thereunder that the contract be for future service with future unusual change. 
According to Senator Arturo M. Tolentino, 10 Article 1267 states in our law the doctrine of 
unforeseen events. This is said to be based on the discredited theory of rebus sic stantibus in 
public international law; under this theory, the parties stipulate in the light of certain 
prevailing conditions, and once these conditions cease to exist the contract also ceases to 
exist.  
 
Considering practical needs and the demands of equity and good faith, the disappearance 
of the basis of a contract gives rise to a right to relief in favor of the party prejudiced. The 
allegations in private respondent's complaint and the evidence it has presented sufficiently 
made out a cause of action under Article 1267. Hence, the parties are released from their 
 correlative obligations under the contract. However, our disposition of the present 
controversy does not end here. We have to take into account the possible consequences of 
merely releasing the parties therefrom: petitioners will remove the telephone wires/cables in 
the posts of private respondent, resulting in disruption of their essential service to the public; 
while private respondent, in consonance with the contract will return all the telephone units 
to petitioners, causing prejudice to its business. We shall not allow such eventuality. Rather, 
we require, as ordered by the trial court: 1) petitioners to pay private respondent for the use of 
its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur 
and in other places where petitioners use private respondent's posts, the sum of ten (P10.00) 
pesos per post, per month, beginning January, 1989; and 2) private respondent to pay 
petitioner the monthly dues of all its telephones at the same rate being paid by the public 
beginning January, 1989.  
  
  
Section 3. Condonation or remission of the Debt​. 
  
84. H. Villarica Pawnshop vs. Social Security​ ​Commission G.R. No. 228087, January 24, 2018; 
 
Doctrine: ​Cour Condonation statutes being an act of liberality on the part of the state are strictly 
construed against the applicants unless the laws themselves clearly state a contrary rule of 
interpretation.   
 
Facts: ​This is a Petition for review on Certiorari under Rule 45 of the Rules of Court filed by H. 
Villarica Pawnshop, Inc., HL Villarica Pawnshop, Inc., HRV Villarica Pawnshop, Inc. and Villarica 
Pawnshop, Inc., (petitioners) seeking to reverse and set aside the Decision of Social Security’s 
Commission (SSC) denying petitioners’ claim for refund.  
 
H. Villarica Pawnshop, Inc. paid their delinquent contributions and accrued penalties with 
different branches of the SSS. Congress thereafter, enacted R.A. No. 9903, otherwise known 
as the Social Security Condonation Law of 2009, which took effect on February 1, 2010. It 
offered delinquent employers the opportunity to settle, without penalty, their 
accountabilities or overdue contributions within six (6) months from the date of its 
effectivity.  
 
Villarica Pawnshop seeks reimbursement from different SSS branches invoking the said law. 
Villarica claimed that the benefits of the condonation program extend to all employees who 
have settled their arrears or unpaid contributions even prior to the effectivity of the law. SSC 
denied the reimbursement claims and stated that there was no provision in the said law 
allowing reimbursement before its effectivity 
 
Issue: ​Are petitioners entitled to a refund of their paid obligations and penalties under the SSS 
condonation law? 
 
Held: ​No, Villarica is not entitled to condonation since there was no provision in the said law 
allowing condonation before the law’s effectivity. Condonation or remission of debt is an act 
of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the 
enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of 
the same to which the remission refers. It is essentially gratuitous for no equivalent is 
received for the benefit given. Here, the State stands to lose its resources in the form of 
receivables whenever it condones the collection of its receivables or unpaid penalties. Since 
a loss of funds ultimately results in the Government being deprived of its means to pursue its 
objectives, all monetary claims based on condonation should be construed strictly against 
the applicants. A plain reading of Section 4 of R.A. No. 9903 providing for the effectivity of 
condonation, shows that it does not give employers who have already settled their 
delinquent contributions as well as their corresponding penalties the right to a refund of the 
penalties paid. What was waived here was the amount of accrued penalties that have not 
been paid prior to the law's effectivity it does not include those that have already been 
settled. Hence, Villarica’s obligations are not condoned. 
  
85. G.R. No. 228087, January 24, 2018; 
 
 
 
(Nunez, Jenjelyn) 
86. Trans. Pacific v. CA, 235 SCRA 494; 
87. Francia v. CA, 162 SCRA 753 
  
  
Section 4. Confusion or Merger of Rights​. 
  
88. Yek Ton Lin v. Yusingco, 46 Phil. 473 
  
Section 5. Compensation​. 
  
89. FUCC v. Bayanihan, G.R. 164985, Jan. 15, 2014 
  
  
Section 6. Novation​. 
 
  
90. Franco v. Gonzales, G.R. 59709, Jun. 27, 2012; 
 
(Tumbali, Fatima) 
91. ​ARCO PULP AND PAPER CO. v. DAN LIM  
  
Doctrine:  
Novation  is  a  mode  of  extinguishing  an  obligation  by  changing  its  objects  or  principal  obligations,  by 
substituting  a  new  debtor  in  place  of  the  old  one,  or  by  subrogating  a  third  person  to  the  rights  of  the 
creditor.  Novation  requires  that  it  be  clear  and  unequivocal,  it  is  never  presumed. It is deeply rooted in the 
Roman  Law  jurisprudence,  the  principle  —  ​novatio  non  praesumitur — that novation is never presumed. At 
bottom,  for  novation  to  be  a  jural  reality,  its  animus  must  be  ever  present, ​debitum pro debito — basically 
extinguishing the old obligation for the new one 
  
  
Facts: 
Respondent  works  in  the  business  of  supplying  scrap  papers,  cartons,  and  other  raw  materials,  under  the 
name  Quality  Paper  and  Plastic  Products  Enterprises,  to  factories  engaged  in  the  paper  mill  business.  He 
delivers  to  petitioner  scrap  papers  and  purportedly  agreed  that  petitioner  would  either  pay  the  value  of  the 
raw  materials  or  deliver  to  Lim  their  finished  products  of equivalent value. Lim alleged that when he delivered 
the  materials,  Arco  issued a postdated check representing the partial payment for the deliveries, however, the 
check  was  dishonored  upon  presentment.  Arco  and  a certain Eric Sy executed a MOA where Arco bound itself 
to  deliver  their  finished  products  to  Megapack  Corporation  (owned by Sy), and that Lim would supply the raw 
materials.  
  
On  May  5,  2007,  Lim  sent  a  letter  to  Arco  demanding  payment,  but  the  demand  was  unheeded.  Lim  filed  a 
complaint  for  collection  for sum of money with the RTC. The trial court ruled in favor of Arco, holding that when 
Lim  entered  into  the  MOA  with  Arco  and  Sy,  novation  took  place,  hence,  Arco’s  obligation  to  Lim  was 
extinguished,  and  that  Sy became the new debtor of Lim. In his appeal, Lim argued that there was no novation 
since  the  MOA  was  an  exclusive  and  private  agreement,  and  that  his  conformity  with  the  MOA  through  a 
separate  contract  was  required.  The  CA reversed the RTC’s judgment, ruling that the facts and circumstances 
of the case clearly showed the existence of an alternative obligation, but no novation. 
  
Issue: 
W/N the MOA constituted a novation. 
  
RULING: 
No novation. The obligation between the parties was an alternative obligation. 
In  an  alternative  obligation,  there  is  more  than  one  object,  and  the  fulfillment  of  one is sufficient, determined 
by  the choice of the debtor who generally has the right of election. According to the factual findings of the trial 
court  and  the  appellate  court,  the  original  contract  between  the  parties  was  for  respondent  to  deliver  scrap 
papers  to  petitioner  Arco  Pulp  and  Paper.  When  Arco  tendered  a  check  to  respondent  in  partial payment for 
the  scrap  papers,  they  exercised  their  option  to  pay  the  price.  Lim’s  receipt  of  the  check  and  his subsequent 
act of depositing it constituted his notice of Arco’s option to pay. 
  
The  MOA  did  not  constitute  a  novation.  When  Arco  opted  instead  to  deliver  the  finished  products  to  a  third 
person,  it  did  not  novate  the  original  obligation  between  the  parties.  Novation  extinguishes  an  obligation 
between  two  parties  when  there  is  a  substitution  of  objects  or  debtors  or  when  there  is  subrogation  of  the 
creditor.  It  occurs  only  when  the  ​new  contract  declares  so "in unequivocal terms​" ​or that "the ​old and the new 
obligations  be  on  every  point  incompatible  with  each  other."  The  test  of  incompatibility  is  whether  the  two 
obligations can stand together, each one with its own independent existence.  
Novation  may  be  modificatory  or  extinctive.  It  is  merely  modificatory  when  the  old  obligation  subsists  to  the 
extent  that  it  remains  compatible  with  the  amendatory  agreement.  It  is  extinctive  when  an  old  obligation  is 
terminated  by  the  creation  of  a  new  one that takes the place of the former. It may either result to a change in 
the  object or principal conditions, or a substitution of the person of the debtor or by subrogating a third person 
in the rights of the creditor.  
  
For  an extinctive 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.  There  is  nothing  in  the  memorandum  of  agreement  that  states 
that  with  its  execution,  the  obligation  of  Arco  to  Lim  would  be  extinguished.  It  also  does  not  state  that Eric Sy 
somehow  substituted  Arco  as  Lim’s  new  debtor.  It  merely  shows  that  petitioner Arco Pulp and Paper opted to 
deliver the finished products to a third person instead. 
  
Furthermore,  the  consent  of the creditor must be secured for the novation to be valid. If the MOA was intended 
to  novate  the  original  agreement  between  the parties, Lim must have first agreed to the substitution of Eric Sy 
as  his  new  debtor.  The  MOA  must  also  state  in  clear  and  unequivocal  terms  that  it  has  replaced the original 
obligation  of  petitioner  Arco  Pulp  and  Paper  to  respondent.  Neither  of  these  circumstances  is  present  in  this 
case. 
 
92. ​BOGNOT V. RRI LENDING CORPORATION 
  
Doctrine:  
There  are  two  forms  of  novation  by  substituting  the  person  of  the  debtor,  depending  on  whose initiative it 
comes  from:  ​expromision  ​and  ​delegacion.  ​In  both  cases,  to  give  novation  legal  effect,  the  creditor  should 
consent  to  the  substitution  of  a  new  debtor.  Mere  acquiescence  to  the  renewal  of  the  loan,  when  there  is 
clearly no agreement to release the petitioner from his responsibility, does not constitute novation. 
  
Facts: 
In  September  1996,  petitioner  and  his  brother,  Rolando,  (Bognot  siblings)  applied  and  obtained  a  loan  of 
P500,000  from  respondent,  payable  on  Nov.  30,  1996  evidenced  by  a  promissory  note  and  secured  by  a 
postdated  check.  The  loan  was  renewed  multiple  times by petitioner, and in March 1997, petitioner applied for 
another  loan  renewal.  He  again  executed  a  promissory  note  payable  on  April  1,  1997  and  made  Rolando  a 
co-maker.  As  security  for the loan, petitioner issued a postdated BPI Check with the same date. On May 5,1997, 
the  loan  was  again  renewed,  this  time  changing  the  maturity  date  to  June  30,  1997,  and  this  date  was 
superimposed by respondent on the upper right portion of the promissory note to make it appear that it would 
mature on said date.  
  
Days  before  the  maturity  of  the  loan,  Rolando’s  wife,  Julieta,  applied  for  a  renewal  of  the  loan.  She  issued  in 
favor  of  the  respondent  a  new  promissory  note  and  an  International  Bank  Exchange  check  to  pay  for  the 
renewal  fee.  On  the  excuse  that  she  needs  to  bring  home  the  loan  documents  for  the  Bognot  siblings' 
signatures  and  replacement,  Juliet  asked  the  respondent's  clerk  to  release  to  her  the  promissory  note,  the 
disclosure  statement,  and  the  check  dated  July  30,  1997.  However,  despite  repeated  demands,  these  were 
never  returned,  and  the  loan  also  was  not  paid.  Respondent  filed  with  the  RTC  a  collection for sum of money 
against  the  siblings.  Petitioner  argued  that  the  complaint  states  no  cause  of  action  because  the  claim  had 
been  paid,  waived,  abandoned,  or  otherwise  extinguished.  He  claimed  that  based  on  the  legal  presumption 
provided  by  Article  1271  of  the  Civil Code, his obligation had been discharged by virtue of his possession of the 
post-dated  check (stamped "CANCELLED") that evidenced his indebtedness. He argued that it was Mrs. Bognot 
who  subsequently  assumed  the  obligation  by  renewing  the  loan,  paying  the  fees  and charges, and issuing a 
check.  Thus,  there  is  an  entirely  new  obligation  whose  payment  is  her  sole  responsibility. He also argued that 
the  superimposition  of  the  date  “June  30,  1997”  without  his  consent  constitutes  as  material  alteration  on  the 
part of respondent and is sufficient to extinguish his liability. 
  
The  RTC  ruled  in  the  respondent's  favor  and  ordered  the  Bognot  siblings  to  pay  the  amount  of  the  loan, plus 
interest  and  penalty  charges.  It  considered  the  wordings  of  the promissory note and found that the loan they 
contracted  was  joint  and  solidary,  noting  that  petitioner  signed  the  promissory  note  as  a  principal,  and  not 
merely as a guarantor, while Rolando was the co-maker. The CA affirmed the RTC’s ruling. 
  
Issue/s: 
1. Whether the material alteration relieved petitioner from his liability; and 
2. Whether the parties’ obligation was extinguished by: i) payment; and ii) novation by substitution of debtors.  
  
RULING: 
1.  ​NO.  ​Although  respondent  did  not  dispute  the  fact  of  alteration,  the  contention  that  it  was  done  without 
petitioner’s  consent  was  denied.  When  respondent  admitted  that  its  practice was to make a superimposition 
through  a  rubber  stamp,  the  old  promissory  note  which  has  been  renewed  to  make  it  appear  that  there is a 
new  loan  obligation,  was  not  rebutted  by  petitioner.  For  the  Court,  the  non-rebuttal  is  tantamount  to  an 
admission to respondent’s allegation. 
  
2. ​NO.  
Payment 
Jurisprudence  tells  us  that  one  who  pleads  payment  has  the  burden  of  proving  it.  The  burden  rests  on  the 
defendant  to  prove  payment,  rather  than  on  the  plaintiff  to  prove  non-payment.  Petitioner  failed  to 
satisfactorily  prove  that  he  had  in  fact  encashed  his  check  and  applied  the  proceeds  to  the  payment of the 
loan.  He  merely  relied  on  the  respondent's  cancellation  and  return  to  him  of the check dated April 1, 1997. The 
evidence  shows  that  this  check  was  issued  to  secure  the  indebtedness. The acts imputed on the respondent, 
standing  alone,  do  not  constitute  sufficient  evidence  of  payment.  Art.  1249  of  the Civil Code provides that the 
delivery  of  promissory  notes  payable  to  order,  or  bills  of  exchange,  or  other  mercantile  documents  ​shall 
produce  the  effect  of  payment  only  when  they  have  been  encashed​,  or  through  the fault of the creditor they 
have  been  impaired.  Although  Article  1271  of the Civil Code provides for a legal presumption of ​renunciation of 
action  (in  cases  where  a  private  document  evidencing a credit was voluntarily returned by the creditor to the 
debtor),  this  presumption  is  merely  prima  facie  and  is  not conclusive. Art. 1271 merely raises a presumption of 
renunciation  of  the  credit,  not  an  evidence  of  payment.  Hence,  petitioner’s  reliance  on  the  return  of  the 
promissory note was misplaced. 
  
NOVATION 
To  give  novation  legal  effect,  ​the  original  debtor  must  be expressly released from the obligation, and the new 
debtor  must  assume  the  original  debtor's  place  in  the  contractual  relationship.  Depending  on  who  took  the 
initiative,  novation  by  substitution  of  debtor  has  two  forms  —  ​substitution  by expromision and ​substitution by 
delegacion​.  In  ​expromision,​   the  initiative  for  the  change  did  not  come from the original debtor and may even 
be  made  without  his  consent.  Since  a  third  person  would  substitute the old debtor, both his consent and that 
of  the  creditor  are  required.  In  ​delegacion​,  the  debtor  offers,  the  creditor  accepts,  and  a  third  person  also 
consents  to  the  substitution  and  assumes  the  obligation.  In  both  cases,  the  original debtor must be released 
from  the  obligation;  otherwise,  there can be no valid novation. Furthermore, novation by substitution of debtor 
must always be made with the consent of the creditor. 
  
Petitioner  claimed  that  when  Juliet  renewed  the  loan,  paid  the  corresponding  renewal  fees,  and  executed  a 
new  promissory  note,  a  novation  took  place  and  that  Juliet  already  assumed  the  debt.  However,  this 
contention  is  untenable.  Juliet  merely  attempted  to  renew  the  original  loan  by  executing  a  new  promissory 
note  and  check.  And  since  the loan was not renewed for another month, the original due date of June 30, 1997 
continued  to  stand.  More  importantly,  respondent  never  agreed  to  release  the  petitioner  from  his  obligation. 
The  fact  that  the  clerk  allowed  Juliet  to  bring  home  the  documents  and  the  promissory  note  does  not  ipso 
facto  result  to  novation.  In  order  for  novation  to  be  given  effect,  it  must  be  ​clearly  and  unequivocally shown, 
and  cannot  be  presumed.  ​In  the  absence  of  showing  that  Mrs.  Bognot  and  the  respondent  had  agreed  to 
release  the  petitioner,  the  respondent  can  still  enforce  the  payment  of  the  obligation  against  the  original 
debtor.  Mere  acquiescence  to  the  renewal  of  the  loan,  when  there  is  clearly  no  agreement  to  release  the 
petitioner from his responsibility, does not constitute novation. 
 
93. ​THE WELLEX GROUP, INC v. U-LAND AIRLINES, CO., LTD 
  
Doctrine: 
Novation  by  presumption  has  never  been  favored.  To  be  sustained,  it need be established that the old and 
new  contracts  are incompatible in all points, or that the will to novate appears by express agreement of the 
parties or in acts of similar import. 
  
Facts: 
Wellex  is  a  corporation  established  under  Philippine  laws  and  maintains  airline  operations  in  the  country.  It 
owns  shares  of  stock  in  several  corporations  including  Air  Philippines  International  Corporation  (APIC), 
Philippine  Estates  Corporation  (PEC),  and  Express  Savings  Bank  (ESB).  U-Land  is a corporation duly organized 
and existing under the laws of Taiwan and registered to do business in the Philippines.  
·  On  May  16, 1998, both parties entered into a First Memorandum of Agreement (FMOA) to expand 
their respective airline operations.  
o  Among  the  terms  and  conditions  stipulated  in  the  FMOA,  it  stated  that  within  40  days 
from  its execution date, Wellex and U-Land would execute a share purchase agreement 
covering U-Land's acquisition of the shares of stock of both APIC and PEC shares.  
o  Both  parties  agreed  that  the  purchase  price  of  these  shares  would  be  paid  upon  the 
execution  of  the  share  purchase  agreement  and  Wellex's  delivery  of  the  stock 
certificates covering the shares of stock.  
o  The  transfer  of  APIC  shares  and  PEC  shares  to  U-Land  was  conditioned  on  the  full 
remittance  of  the  final  purchase  price  as  reflected  in  the  share  purchase  agreement. 
Wellex  and  U-Land  also  agreed  to  enter  into  a  joint  development  agreement  by 
covering  real  estate  developments,  simultaneous  with  the  execution  of  the  share 
purchase agreement.  
o  ​Finally,  Wellex  and  U-Land  agreed  that  if  they  were  unable  to  agree  on  the  term  of  the 
share  purchase  agreement  and  the  joint  development  agreement  within  40  day  from 
signing, then the FMOA would cease to be effective​.  
o  In  case  no  agreements  were  executed,  the  parties  would  be  released  from  their 
respective  undertakings,  except  that  Wellex  would  be  required  to  refund  within  3  days 
the US$3 million given as initial funding by U-Land for the development projects.  
  
The  40-day  period lapsed on June 25, 1998. Wellex and U-Land were not able to enter into any share purchase 
agreement  although  drafts  were  exchanged  between  the  two.  Despite  the  absence  of  a  share  purchase 
agreement,  U-Land  remitted  to  Wellex  a  total  of  US$7,499,945.00.  In  a  letter,  U-Land,  through  counsel, 
demanded  the  return  of  the  remittance.  According  to  U-land,  Wellex  unjustifiably  refused  to  enter  into  the 
Share Purchase Agreement. As far as U-Land was concerned, the FMOA was no longer in effect.  
  
U-Land filed a Complaint praying for rescission of the FMOA and damages against Wellex and for the issuance 
of  a  Writ  of  Preliminary  Attachment.  Petitioner  Wellex  argued  that  respondent  U-Land  was  actually  bound  to 
pay  US$17.5  million  for  all  of  APIC  shares  and  PEC  shares  under  the  FMOA  and  the  US$3  million  to  pursue the 
development  projects  under  the  joint  development  agreement.  Wellex  asserts  that  the  full  remittance  of  the 
two  amounts  constitutes  a  suspensive  condition  for  the  execution  of  the  share purchase agreement and the 
delivery  of  the  certificates  of  the  shares  of  stock.  Because  the  suspensive  condition  has  not  yet  happened, 
Wellex’s  obligation  remains  to  be  non-existent,  hence,  the remedy of rescission cannot prosper. Also included 
in  its  Appellant's  Brief,  Wellex  mentioned  that  there  was  an  "implied  partial  objective  or  real  novation"  of  the 
FMOA.  
  
Issue/s: 
W/N an implied novation took place in the case at bar. 
  
RULING: 
NO.  ​The  FMOA  was  an  agreement  to  enter  into  a share purchase agreement. The share purchase agreement 
should  have  been  executed  by  the  parties  within  40  days  from  the  date  of  the  signing  of  the  FMOA.  The 
subsequent acts of the parties after the 40-day period were, therefore, independent of the FMOA. 
  
Novation  extinguishes  an  obligation  between  two  parties  when  there  is  a substitution of objects or debtors or 
when  there  is  subrogation  of  the  creditor.  It  occurs  only  when  the  new  contract  declares  so  "in  unequivocal 
terms"  or  that  "the old and the new obligations be on every point incompatible with each other." Novation may 
also  be  express  or  implied.  It  is  express  when  the  new  obligation  declares  in  unequivocal  terms  that  the  old 
obligation  is  extinguished.  It  is  implied  when  the  new  obligation  is  incompatible  with  the  old  one  on  every 
point.  The  test  of  incompatibility  is  whether  the  two  obligations  can  stand  together,  each  one  with  its  own 
independent existence. 
  
There  was  no  express  novation.  After  the  40-day  period,  the parties did not enter into any subsequent written 
agreement  that  was  couched  in  unequivocal  terms.  ​Both  parties  admitted  that their counsels participated in 
the  crafting  and  execution  of  the  First  Memorandum  of  Agreement  as  well  as  in  the  efforts  to  enter  into  the 
share  purchase  agreement.  Any  subsequent  agreement  would  be  expected  to  be  clearly  agreed  upon  with 
their counsels' assistance and in writing, as well.  
  
There  was  no  implied  novation  as  well.  [N]o  specific  form  is  required  for  an  implied  novation,  and  all  that  is 
prescribed  by  law  would  be  an  incompatibility  between  the  two  contracts.  While  there  is  really  no  hard  and 
fast  rule  to  determine  what  might  constitute  to  be  a  sufficient  change  that  can  bring  about  novation,  the 
touchstone  for  contrariety,  however,  would  be  an  irreconcilable  incompatibility  between  the  old and the new 
obligations.  There  was  no  incompatibility  between  the  original  terms  of  the  FMOA and the remittances made 
by  respondent  U-Land  for  the  shares  of  stock.  These  remittances  were  actually made with the view that both 
parties would subsequently enter into a share purchase agreement. 
  
There  being  no  novation  of  the  FMOA,  U-Land  is  entitled  to  the  return  of  the  amount  it  remitted  to  Wellex. 
Wellex  is  likewise  entitled  to  the  return  of  the  certificates  of  shares  of  stock  and  titles  of  land  it  delivered  to 
respondent U-Land.  
 
94. ​UNITED PULP AND PAPER CO., INC (UPPC) v. ACROPOLIS CENTRAL GUARANTY CORPORATION  
  
Doctrine:  
In order for novation to extinguish its obligation, the surety (Acropolis) must be able to show that there is an 
incompatibility  between  the  compromise  agreement  and  the  terms  of  the  counter-bond,  as  required  by 
Art.  1292  of  the  Civil  Code,  which  states: “In order that an obligation may be extinguished by another which 
substitute  the  same,  it is imperative that it be so declared in unequivocal terms, or that the old and the new 
obligations be on every point incompatible with each other.”   
  
Facts: 
UPPC  filed  a  civil  case  for  collection  of  the  amount  of  P42,844,353.14  against Unibox Packaging Corp (Unibox) 
and  Vicente  Ortega before RTC Makati. In addition, UPPC also filed for a Writ of Preliminary Attachment against 
the  properties  of  Unibox  and  Ortega  for  the  reason  that  the  latter  were  on  the  verge  of  insolvency  and  were 
transferring  assets  in  fraud  of  creditors.  The  RTC  subsequently  issued  the  writ  and  by  virtue  of which, several 
properties  and  assets  of  Unibox  and  Ortega  were  attached.  On  October  10,  2002,  Unibox  and  Ortega  filed  a 
motion  praying  that  they  be  allowed  to  file  a  counter-bond  for  the  release  of  the  preliminary  attachment  of 
said  properties.  The  RTC  granted  the  motion  and  Acropolis  (formerly  known  as  Philippine  Pryce  Assurance 
Corp)  issued  the  counter-bond  in  favor  of  Unibox  and  Ortega.  UPPC  filed  its  Manifestation  and  Motion  to 
Discharge  the  Counter-bond  and  for  the  reinstatement  of  the  attachment  on  the  ground  that  Acropolis was 
among  those  insurance  companies  whose  licenses  were  set  to  be cancelled due to their failure to put up the 
required  minimum  capitalization.  However,  the  RTC  denied  UPPC’s  motion  and  asked  the  sheriff  to cause the 
lifting of the attachment to the properties. 
  
On  September  2003,  Unibox,  Ortega,  and  UPPC  executed  a  compromise  agreement  wherein  Unibox  and 
Ortega acknowledged their obligation in the amount of P35,089,544, inclusive of the principal and interest, and 
bound  themselves  to  pay  in  accordance  to  a  schedule  of  payments.  The  RTC  approved  the  compromise 
agreement.  However,  due  to  the  failure  to  pay  the  amounts  due  despite  demand  by  UPPC,  the  latter  filed  a 
Motion  for  Execution  to  satisfy  the  remaining unpaid balance. The RTC granted the motion and issued the writ 
of  execution.  When  the  sheriff  was  about  to  execute  the writ, it was discovered that Unibox already ceased its 
operations  and  all  of  its  assets  were  already  foreclosed  by  all  its  creditors. The banks which issued notices of 
garnishment  also  indicated  that  Unibox  and  Ortega  no  longer  had  funds  available.  Failure  to  satisfy  the 
balance,  the  RTC granted UPPC’s Motion to Order Surety to Pay Amount of Counter-bond directed to Acropolis. 
This  required  Acropolis  to  pay  the  unpaid  balance  of  the  judgment  with  interest  of  12%  per  annum  from 
default.  Acropolis  filed  a  Motion for Reconsideration saying that its obligation has already been discharged by 
virtue of the compromise agreement executed. It contends that because it was not a party to the compromise 
agreement, it cannot be bound by the judgment issued based on the said agreement.  
  
Issue: 
W/N  the  compromise  agreement  was  tantamount  to  a  novation  which  had  the  effect  of  releasing  Acropolis 
from its obligation under the counter-attachment bond. 
  
RULING: 
No.  ​The  terms  of  the  Bond  for  Dissolution  of  Attachment  issued  by  Unibox  and  Acropolis  leave  no  room  for 
ambiguity  as  it  states,  to  wit:  “in  consideration  of  the dissolution of said attachment, [Unibox as Principal, and 
Philippine  Pryce  as  surety]  hereby  jointly  and  severally  bind  ourselves  in  the  sum  of  P42,844,353.14  Philippine 
Currency,  in favor of the plaintiff to secure the payment of ​any judgment that the plaintiff may recover against 
the defendants in this action.” 
  
Acropolis  voluntarily  bound  itself  with  Unibox  to  be  solidarily  liable to to answer for ANY judgment which UPPC 
may  recover  from  Unibox.  Its  counter-bond  was  issued  in  consideration  of  the  dissolution  of  the  writ  of 
attachment,  and  to  ensure  recovery  by  UPPC.  It would be the height of injustice to allow Acropolis to evade its 
obligation  to  UPPC,  especially  after  the  latter  already  secured  a  favorable  judgment.  In  the  case  of  ​Luzon 
Steele  Corpo.  V.  Sia,  t​ he  counterbond  merely  stands  in  the  place  of  the attached property. Hence, there is no 
reason  why  the  judgment  should  not  be  made  effective  against  the  counterbond  r​egardless  of  the  manner 
how  the  judgment  was  obtained.  As declared by us in ​Mercado v. Macapayag​, the liability of the sureties was 
fixed  and  conditioned  on  the  finality  of  the  judgment  rendered regardless of whether the decision was based 
on  the  consent  of  the  parties  or  on the merits. ​A judgment entered on a stipulation is nonetheless a judgment 
of the court because consented to by the parties. 
  
In order for novation to extinguish its obligation, Acropolis must be able to show that there is an incompatibility 
between  the  compromise  agreement  and  the  terms  of  the  counter-bond,  as  required  by  Article  1292  of  the 
Civil  Code.  Nothing  in  the  compromise  agreement  indicates,  or  even  hints  at,  releasing  Acropolis  from  its 
obligation  to  pay  UPPC  after  the  latter  has  obtained  a favorable judgment. Clearly, there is no incompatibility 
between the compromise agreement and the counter-bond. Neither can novation be presumed in this case. 
 
95. ​LEONIDA QUINTO v. PEOPLE 
Doctrine: 
There’s  no  specific  form  required  for  an  implied  novation,  and  all  that  is  prescribed  by  law  would  be  an 
incompatibility  between  the  two  contracts.  The test of incompatibility is whether or not the two obligations 
can  stand  together,  each one having its independent existence. 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. 
  
Facts: 
Petitioner  asked  a  certain  Aurelia  Cariaga  to  allow  her  to have some pieces of jewelry so that she could show 
the  same  to  prospective  buyers.  However,  after  the  period  given to her, petitioner failed to conclude any sale. 
Aurelia  asked  for  the  return  of the jewelries, but the demands were left unheeded by petitioner. This prompted 
Aurelia  to  file  for  estafa  against  petitioner.  Petitioner  denied the allegations, claiming that she was able to sell 
some  of  the  pieces  of  jewelry.  She  claimed  that  she  was  able  to  sell one solo ring and one marques to a Mrs. 
Camacho  who  paid the down payment to petitioner in the form of a check, and that the balance shall be paid 
in  installments  to  Aurelia.  She  also  claimed  that  she  sold  a  2-karat  diamond  ring  to  Mrs.  Concordia  Ramos, 
and  that  when  Mrs.  Ramos failed to pay the balance, it was petitioner who satisfied Mrs. Ramos’ debt. Through 
these  claims,  petitioner  argued  that  the  initial  agreement  between  her  and  Aurelia  was  effectively  novated 
when the latter consented to receive payment on installments directly from Mrs. Camacho and Mrs. Ramos. 
  
Issue/s: 
W/N novation took place in the case at bar. 
  
RULING: 
NO.  ​Novation  is  never presumed, and the animus novandi, whether totally or partially, must appear by express 
agreement  of  the  parties,  or  by  their  acts  that  are  too  clear  and  unequivocal  to  be  mistaken.  The 
extinguishment  of  the  old  obligation  by  the  new  one  is  a  necessary  element  of  novation  which  may  be 
effected  either  expressly  or  impliedly.  The  term "expressly" means that the contracting parties incontrovertibly 
disclose  that  their  object  in  executing  the  new  contract  is  to  extinguish  the  old  one.  Upon  the  other hand, no 
specific form is required for an implied novation, 
and all that is prescribed by law would be an incompatibility between the two contracts. 
  
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 to enter into a new contract. Not too uncommon is when a stranger to a 
contract  agrees  to  assume  an  obligation;  and  while  this  may  have  the  effect  of  adding  to  the  number  of 
persons  liable,  it  does  not  necessarily  imply the extinguishment of the liability of the first debtor. Neither would 
the fact alone that the creditor receives guaranty or accepts payments from a third person who has agreed to 
assume  the  obligation,  constitute  an  extinctive  novation  absent  an  agreement  that  the  first  debtor  shall  be 
released from responsibility. 
 
  
Title II. CONTRACTS 
  

Chapter 1. General Provisions​. 

  
(Mendoza, Carl) 
96. Asian Terminal, Inc. vs. Padoson Stainless Steel Corporation, G.R. No. 211876; June 25, 2018; 
Plaintiff-appellees :​ ASIAN TERMINALS, INC.
Defendants-appellants:​ PADOSON STAINLESS STEEL CORPORATION

Doctrine: ​The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it,
and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge
thereof. Indeed, “where there is no privy of contract, there is likewise no obligation or liability to speak about.

Facts:
Respondent Padoson Stainless Steel Corporation (Padoson) hired Asian Terminals, Inc. (ATI) to provide arrastre,
wharfage, and storage services at the South Harbor. On October 5 and 30, 2001, ATI rendered storage services in
relation to a shipment, consisting of steel coils imported, in favor of Padoson as consignee. They shipments were
stored in ATI’s warehouse up until 2006. Meanwhile, the shipments became the subject of a Hold-Order issued by
the Bureau of Customs due to Padoson’s unpaid tax liability. ATI made several demands for storage fees against
Padoson, which, however, went unheeded. Thus, ATI filed an action against Padoson for a sum of money. RTC
 dismissed ATI’s action, relying on the case of SBMA vs Rodriguez, holding that it should be the BOC who should
be liable for the service fees as it has acquired constructive possession over the subject materials.

​Issue:
1. Whether or not the BOC is liable for the payment of ATI’s service fees and not Padoson.

Ruling:
(1)NO.

The fact that the BOC has constructive possession over the subject materials does not release Padoson from its
obligation to pay the storage fees due to ATI. Although it was subject to an Hold-Order, the fact remains that it was
Padoson, and not the BOC, that entered into a contract of service with ATI and consequently was the one who
benefited therefrom.

The basic principle of relativity of contracts is that contracts can only bind the parties who entered into it,
and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof. Indeed, “where there is no privy of contract, there is likewise no obligation or liability
to speak about. Guided by this doctrine, Padoson cannot shift the burden of paying the storage fees to BOC
because the latter has never been a privy to the contract of service between Padoson and ATI. To rule otherwise
would create an absurd situation wherein a party may free itself from liability arising from a contract of service, by
merely invoking that the BOC has constructive possession of its shipment by the issuance of a Hold-Order.
 
97. Stronghold Insurance v. Stroem, G.R. 204869, Jan. 21, 2015; 
98. Mamaril v. Boy Scouts, G.R. 179382, Jan. 14, 2013; 
99. Acol v. PCIBank, Jul. 25, 2006; 
100. Tanay Recreation Center v. Fausto, G.R. 140182, Apr. 12, 2005; 
 
(Santos, Neener) 
101. Riviera Filipina, Inc. v. Court of Appeals, G.R. No. 117355, Apr. 5, 2002; 
 
102. Gilchrist v. Cuddy, 29 Phil. 542 
  
  
Chapter 2. Essential Requisites of Contracts​. 
  
103. Northern Mindanao Industrial Port and Services​ ​Corporation v. Iligan Cement, G.R. No. 215387, 
Apr. 23, 2018; 
104. Diampoc v. Buenaventura, G.R. No. 200383; Mar. 19, 2018; 
105. Ong v. BPI Family Savings Bank, G.R. No. 208638, January 24, 2018; 
 
(Asares, Francis) 
106. G Holdings, Inc. v. Cagayan Electric, G.R. No. 226213; September 27, 2017; 

Doctrine:

Only the voidable and unenforceable contracts are defective contracts and are the only ones susceptible of
ratification unlike the rescissible ones which suffer from no defect and the void or inexistent contracts which do not exist and
are absolute nullity.

Facts:

Cagayan Electric Power and Light Company, Inc. (CEPALCO), which operates a light and power distribution system in
Cagayan de Oro City, supplied power to the ferro-alloy smelting plant of Ferrochrome Philippines, Inc. (FPI) at the
PHIVIDEC Industrial Estate in Tagoloan, Misamis Oriental. Thereafter, FPI defaulted in the payment of the electric bills. For
failure to pay FPI's outstanding bills, CEPALCO disconnected the electric power supply to FPI and sent a statement of
account with P30,147,835.65 unpaid bills plus 2% monthly surcharge, CEPALCO filed a collection suit against FPI before
the Regional Trial Court of Pasig City (RTC-Pasig).

RTC-Pasig rendered a Decision in favor of CEPALCO, however, FPI appealed the Decision of the RTC-Pasig to the CA and
in the meantime CEPALCO moved for execution pending appeal, which was granted by RTC-Pasig. Sheriff Renato B. Baron
(Baron) of RTC-Pasig then issued notices of levy upon personal and real properties and notices of sale on execution of
personal and real properties. Thereafter, the CA issued an initial TRO and in its Resolution and then a writ of preliminary
injunction in its Resolution, enjoining the implementation of the Order granting execution pending appeal.
Later, G. Holdings, Inc. (GHI) filed a case against Sheriff Baron, CEPALCO and FPI for Nullification of Sheriff's Levy on
Execution and Auction Sale, Recovery of Possession of Properties and Damages before the RTC-CDO. GHI claimed that
the levied ferro-alloy smelting facility, properties and equipment are owned by it as evidenced by a Deed of Assignment
executed by FPI in consideration of P50,366,926.71. CEPALCO then filed its answer and contended that the Deed of
Assignment was null and void for being absolutely simulated and, as a ​dacion en pago,​ it did not bear the conformity of the
creditor. Thereafter, RTC-CDO rendered a decision in favor of CEPALCO against GHI which was affirmed by the CA.

Issue:

W/N the Deed of Assignment is valid.

Held:

NO. The Supreme Court ruled that Under Article 1345 of the Civil Code, simulation of a contract may be absolute,
when the parties do not intend to be bound at all, or relative, when the parties conceal their true agreement. The former is
known as ​contracto simulado while the latter is known as ​contracto disimulado.​ An absolutely simulated or fictitious contract
is void while a relatively simulated contract when it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement. The lack of
intention on the part of FPI to divest its ownership and control of "all of its properties, equipment and facilities, located in
Phividec Industrial Estate, Tagoloan, Misamis Oriental" in spite of the wordings in the Deed of Assignment that FPI
"assigned, transferred, ceded and conveyed them x x x absolutely in favor of GHI" is evident from the letter which reveals
the true intention of FPI and GHI. Thus, in executing the Deed of Assignment, FPI's intention was not to transfer absolutely
the assigned assets to GHI in payment of FPI's obligations to GHI amounting to P50,366,926.71. Hence, the Deed of
Assignment is inexistent for being absolutely simulated or fictitious.

 
107. Almeda v. Heirs of Almeda, G.R. No. 194189; Sept. 14, 2017; 
 
108. Encarnacion Construction v. Phoenix Ready Mix Concrete, G.R. No. 225402, Sept. 4, 2017; 
109. Tankeh v. Development Bank of the Philippines, G.R. No. 171428, November 11, 2013; 
110. Malbarosa v. CA, G.R. 125761, Apr. 30, 2003; 
 
(Shannin Mae)  
111. Gochan v. Heirs of Baba, G.R. 138945, Aug. 19, 2003; 
 
Petitioner:  Felix  Gochan  and  Sons  Realty  Corporation  and  St.  Lucia  Realty  and  Development 
Corporation  
 
Respondent: Heirs of Raymundo Baba, represented by Attorney-in-fact Virginia Sumalinog   
 
Doctrine:   
Article  1318  of  the  Civil  Code  provides  for  the  requisites  of  a contract. The absence of any of such 
essential  requisites  renders  the  contract  inexistent  and  an  action  or  defense  to  declare  said 
contract void ab initio does not prescribe, pursuant to Article 1410 of the same Code.  
 
Facts: 
The  lot  in  dispute  is  part  of  the  conjugal  property  of  spouses  Raymundo  Baba  and  Dorotea  Inot 
and  was  originally  titled  in  the  name  of  Inot.  After  Raymundo’s  demise  in  1947,  an  extrajudicial 
settlement  of  his  estate,  including  the  lot,  was  executed.  With  this,  one-half  undivided  portion  of 
the  lot  was  adjudicated  in  favor  of  Dorotea,  and  the  other  half  divided  between  his  two  (2) 
children, Victoriano and Gregorio.  
 
Dorotea,  Victoriano  and  Gregorio,  sold  the  lot  to  petitioner  Felix  Gochan  and  Sons  Realty 
Corporation.  Consequently,  title was issued in favor of Gochan Realty. Sometime in 1995, the latter 
entered  into  a  joint  venture  agreement  with  Sta.  Lucia  Realty  and  Development  Corporation  Inc. 
for the development of the lot into a subdivision.  
  
Meanwhile,  respondents  Baba,  filed  a  complaint  for  quieting  of  title  and  reconveyance  with 
damages  against  petitioners.  They  allege  that  they  are  among the seven (7) children of Dorotea 
Inot  and  Reymundo  Baba;  that  petitioners  connived  with  Dorotea,  Inot,  Victoriano  and  Gregorio 
Baba  in executing the extrajudicial settlement and deed of sale which fraudulently deprived them 
of  their  hereditary  share;  and  that  said  transactions  are  void,  because  they  never  consented  to 
the  said  sale  and  extrajudicial  settlement,  which  came  to  their  knowledge  barely  a  year  prior  to 
the filing of the complaint.  
 
Their  action  seeks  to  declare  the said deeds as inexistent for lack of consent, which is an element 
for the existence of a contract.  
 
Issue:  
Whether  or  not  there  exists  a  cause  of  action  to  declare  the  inexistence  of  the  contract  of  sale 
with  respect  to  the  shares  of  respondents  in  a  lot,  on  the  ground  of  absence  of  any  of  the 
essential requisites of a valid contract  
 
 
 
Held:  
No.  Under  Art.  1318  of  the  Civil  Code, there is no contract unless the following requisites concur: (1) 
consent  of  the  contracting  parties;  (2)  object  certain  which  is the subject matter of the contract; 
(3)  cause  of  the  obligation.  With  this,  the absence of any of these essential requisites renders the 
contract  inexistent  and  an  action  or  defense  to  declare  the  said  contract  void  ab  initio  and  the 
action does not prescribe, pursuant to Art. 1410 of the Civil Code.  
 
In  the  case  at  bar,  it  involved  a  fraudulent  sale  and  extrajudicial  settlement  of  a  lot  executed 
without  the  knowledge  and  consent  of  some  of  the  co-owners.  It  was  held  that  the  sale  of  the 
realty  is  void  in so far as it prejudiced the shares of the said co-owners and that the issuance of a 
certificate  of  title  over  the  whole property in favor of the vendee does not divest the co-owners of 
the  shares  that  rightfully  belonged  to  them.  ​The  nullity  of  the  said  sale  proceeds  from  the 
absence of legal capacity and consent to dispose the property.  
 
Likewise,  in  the  cases  decided  by  the  Court,  it  ruled  that  conveyances  by  virtue  of  a  forged 
signature  or  a  fictitious  deed  of  sale  are  void  ab  initio.  The  absence  of the essential requisites of 
consent  and  cause  or  consideration  in  these  cases  rendered  the  contract  inexistent  and  the 
action to declare their nullity is imprescriptible.  
 
Petition is therefore denied.  
 
112. Montecillo v. Reynes, G.R. 138018, Jul. 26, 2002; 
   
Petitioner: Rido Montecillo 
 
Respondent: Ignacia Reynes and Spouses Redemptor and Elisa Abucay  
 
Doctrine:  
The  manner  of  payment  of  the  purchase price is an essential element before a valid and binding 
contract  can  exist.  Although  the  Civil  Code  does  not  expressly state that the minds of the parties 
must  also  meet  on  the  terms  or  manner  of  payment  of  the  price,  the same is needed, otherwise 
there is no sale.  
 
Facts:  
Respondents  Ignacia  Reynes  and  Spouses Abucay filed a complaint for Declaration of Nullity and 
Quieting  of  Title  against  petitioner  Rido  Montecillo.  Reynes  signed  a  Deed  of  Sale  in  favor  of 
Montecillo  in  consideration  for  P47,000  purchase  price,  payable  within  one  (1)  month  from  the 
signing of the Deed of Sale.  
 
In  such  case,  Reynes  further  alleged  that  Montecillo  failed  to  pay  the  purchase  price  after  the 
lapse  of  the  one-month  period,  prompting  Reynes  to  demand  from  Montecillo  the  return  of  the 
Deed  of  Sale.  Since  Montecillo  refused  to  return  the  Deed  of  Sale,  Reynes  executed  a  document, 
unilaterally revoking the sale and gave a copy of the document to Montecillo.  
 
Subsequently,  Reynes signed a Deed of Sale transferring to the Abucay spouses the entire Mabolo 
Lot,  at  the  same  time  confirming  the  previous  sale  of  a  185-square  meter  portion  of the lot. With 
this,  respondents,  receiving  information  that  the  Register  of  Deeds  of  Cebu  issued  a  CTC  in  the 
name  of  Montecillo  for  the  Mabolo  Lot,  argued  that  “for  lack  of  consideration,  there  was  no 
meeting  of the minds” between Reynes and Montecillo. Thus, the RTC should declare null and void 
ab initio Montecillo’s Deed of Sale, and order the cancellation of CTC in the name of Montecillo.  
 
Issue:  
Whether  or  not  the  failure  of  Montecillo  to  pay  the  P47,000.00  as  consideration  for  the  lot, 
prevented the existence of the contract  
 
Held:  
Yes.  the  SC  holds  that  the  failure  of  Montecillo  to  pay  the  purchase  price  of  the  lot  ceases  the 
contract to exist.  
 
Montecillo’s  arguments  are  untenable.  It  is  clear  from the Deed of Absolute Sale that such sale of 
land  is  supported  by  a  valuable  consideration.  In  addition,  based  on  the  evidence  presented  by 
both  Reynes  and  Montecillo,  the  RTC  found  that  Montecillo  never  paid  to  Reynes,  and  Reynes 
never  received  from  Montecillo  the  P47,000.00  purchase  price.  There  was  indisputably  a  total 
absence of consideration contrary to what is stated in the Montecillos Deed of Sale.  
 
This  is  not merely a case of failure to pay the purchase price, as Montecillo claims, which can only 
amount  to  a  breach  of  obligation  with  rescission  as  the  proper  remedy.  ​What  we have here is a 
purported  contract  that  lacks  a  cause  - one of the three essential requisites of a valid contract 
under  Article  1318  of  the  Civil  Code.  Failure  to  pay  the  consideration  is  different  from  lack  of 
consideration.  The  former  results  in  a  right  to  demand  the  fulfillment  or  cancellation  of  the 
obligation  under  an  existing  valid  contract,  while  the  latter  prevents  the  existence  of  a  valid 
contract.  
 
Where  the  deed  of  sale  states that the purchase price has been paid but in fact has never been 
paid, the deed of sale is null and void ab initio for lack of consideration. A contract of sale is void 
and  produces  no  effect whatsoever where the price, which appears thereon as paid, has in fact 
never  been  paid  by  the  purchaser  to  the  vendor.  Such  sale  is  non-existent  or  cannot  be 
considered consummated.  
 
The  manner  of  payment  of  the  purchase  price  is  an  essential  element  before  a  valid  and 
binding  contract  can  exist.  Although  the  Civil  Code  does  not  expressly  state  that the minds of 
the  parties  must  also  meet  on  the  terms  or  manner  of  payment  of  the  price,  the  same  is 
needed, otherwise there is no sale.  
 
One  of  the  three  essential  requisites  of  a  valid  contract  is  consent  of  the  parties  on  the  object 
and cause of the contract. In a contract of sale, the parties must agree not only on the price, but 
also  on  the  manner  of  payment  of  the price. An agreement on the price but a disagreement on 
the  manner  of  its  payment  will  NOT  RESULT  in consent, thus preventing the existence of a valid 
contract  for  lack  of  consent.  This  lack  of  consent  is  separate  and  distinct  from  lack  of 
consideration  where  the  contract  states  that  the  price  has  been  paid when in fact it has never 
never been paid.  
  
Reynes  expected  Montecillo  to  pay  him  directly  the  P47,000.00  purchase  price  within  one month 
after  signing  the  Deed  of  Sale.  On  the  other  hand,  Montecillo  thought  that  his  agreement  with 
Reynes  required  him  to  pay  the  P47,000.00  purchase  price  to  Cebu  Ice  Storage  to  settle  Jayags 
mortgage  debt.  Montecillo  also  acknowledged  a  balance  of  P10,000  in  favor  of  Reynes  although 
this  amount  is  not  stated in the Montecillos Deed of Sale. ​Thus, there was no consent, or meeting 
of  minds,  between  Reynes  and  Montecillo  on  the  manner  of  payment.  This  prevented  the 
existence of a valid contract because of lack of consent.  
 
In  summary,  Montecillos  Deed  of  Sale  is  null  and  void  ab  initio  not  only  for  the  lack  of 
consideration,  but also for lack of consent. The cancellation of the TCT in the name of Montecillo is 
in  order,  as  there  was  no  valid  contract  transferring  ownership  of  the  Mabolo  Lot from Reynes to 
Montecillo.  
 
Petition is denied.  
 
113. Heirs of Romana Ingjug-Tiro v. Casals, G.R. No. 134718, Aug. 20, 2001, 363 SCRA 435; 
 
Petitioner:  Heirs of Romana Ingjug-Tiro; Bedesa, Pedro, Rita all surnamed Tiro, and Barbara Tiro 
(deceased)  represented  by  Norma  Saramosing,  Heirs  of  Francisco  Injug;  and  Heirs  of 
Injug-Fuentes  
 
Respondent:  Spouses  Leon  V.  Casals  and Lilia C. Casals, Spouses Carlos L. Climaco and Lydia R. 
Climaco  
 
Doctrine:  ​Aequetas  nunguam  contravenit  legis.  T
​ he  positive  mandate  of  Article  1410  of  the  New 
Civil  Code,  conferring  imprescriptibility  to  actions  for  declaration  of  the  inexistence  of  a 
contract  should  preempt  and  prevail  over  all  abstract  arguments  based  only  on  equity. 
Certainly,  laches  cannot  be  set  up  to resist the enforcement of an imprescriptible legal right, 
and petitioners can validly vindicate their inheritance despite the lapse of time.  
 
Facts:  
During  the  Second  World  War, Mamerto Injug died leaving behind the subject parcel of land in his 
name  as  owner  in  fee  simple.  Upon  his  death,  the  title  of  such  land  devolved  upon  his  five  (5) 
children.  More  than  two  decades  later,  the  heirs  of  Injug  sold  the  disputed  land  to  respondents. 
The  vendors  allegedly  represented  to  the  vendees  that  the  property  was  inherited by them from 
the  late  Mamerto  Injug,  and  that  they  were  his  only  surviving  heirs.  The  sale was evidenced by a 
Deed of Sale of Unregistered Land and an Extrajudicial Settlement and Confirmation of Sale, which 
was executed by the vendors in favor of the vendees.  
 
However,  petitioners  (heirs  of  Romana  Injug),  challenged  respondent’s ownership of the property 
by  filing  a  ​complaint  for  partition,  recovery  of ownership and possession, declaration of nullity 
of  the said Deed of Sale against respondents. ​The petitioners alleged that they only discovered in 
1990  that  the  property  had  already  been  sold  and  titled  to  respondents,  and  that  respondents 
refused,  despite  repeated  demands,  to  deliver  and  return  to  them  their  shares  in  the  property. 
Petitioners  also  prayed  that  the  Deed  of  Sale  of  Unregistered  Land,  as  well  as  the  Extrajudicial 
Settlement and Confirmation Sale be nullified to the extent of petitioner’s shares in the property.  
 
The  RTC  dismissed  the  complaint.  The CA affirmed the Decision of the RTC. Petitioners now seek a 
review of the CA’s Decision.  
 
Issue:   
Whether  petitioner’s  right  to  institute  a  complaint  for  partition  and  reconveyance  is  effectively 
barred by prescription and laches  
 
 Held:  
The  SC  grants  the  petition.  It  should  be  noted  that  the  RTC  dismissed  the  complaint  based  on 
prescription  and  laches  alone  without  taking  into  consideration  the  other  issue  raised  by  the 
petitioners concerning the validity of the contract and bearing on the matter of prescription.  
 
Article  1458  of  the  New  Civil  Code  provides: “By the contract of sale one of the contracting parties 
obligates  himself  of  ​transfer  the  ownership  of  and  to  deliver  ​a  determinate  thing, and the other 
to pay therefore a price certain in money or its equivalent.”  
 
Consequently, respondents could ​not have acquired ownership over the land to the extent of the 
shares  of  petitioners.  ​The  issuance  of  a  certificate  of title in their favor could not vest upon them 
ownership  of  the  entire  property;  neither  could  it  validate  the  purchase  thereof  which  is null and 
void.  
 
In  actions  for  reconveyance  of  the  property  predicated  on  the  fact  that  the  conveyance 
complained  of  was  null  and  void  ab  initio,  a  claim  of  prescription  of  action  would be unavailing. 
The  action  or  defense  for  the  declaration  of  the  inexistence  of  a  contract  does  not  prescribe. 
Neither  could  laches  be  invoked  in  the  case  at  bar.  Laches  i​ s  a  doctrine in equity and our courts 
are  basically  courts  of  law  and  not  courts  of  equity.  Equity,  which  has  been  aptly  described  as 
“justice  outside  legality,”  should  be  applied  only  in  the  absence  of,  and  never  against,  statutory 
law.  ​Aequetas  nunguam  contravenit  legis.  T ​ he  positive  mandate  of  Article  1410  of  the  New  Civil 
Code,  conferring  imprescriptibility  to  actions  for  declaration  of  the  inexistence  of  a  contract 
should  preempt  and  prevail  over  all  abstract  arguments  based  only  on  equity.  Certainly,  laches 
cannot  be  set  up  to  resist  the  enforcement  of  an  imprescriptible  legal  right,  and  petitioners  can 
validly vindicate their inheritance despite the lapse of time.  
 
Petition is granted.  
 
 
 
114. Delos Reyes v. CA, 372 Phil. 522 (1999); 
 
Petitioner: Claudio Delos Reyes and Lydia Delos Reyes 
Respondent: The Hon. Court of Appeals and Daluyong Gabriel, substituted by his heirs  
 
Doctrine: 
The legal capacity of the parties is an essential element for the existence of the contract, because 
it  is  an  indispensable  condition  for  the  existence  of  consent.  There  is  no  effective  consent  in law 
without  the  capacity  to  give  such  consent.  In  other  words,  legal  consent  presupposes  capacity. 
Thus,  there  is  said  to  be  no  consent,  and  consequently,  no  contract  when  the  agreement  is 
entered  into  by  one  in  behalf of another who has never given him therefor unless he has by law a 
right to represent the latter. 
 
Facts:  
Private  respondent  Daluyong  Gabriel  (deceased)  was  the  registered  owner  of  a  parcel  of  land 
situated  in  Barrio  Magugpo,  Tagum,  Davao  Del  Norte,  having  acquired  the  same  by  hereditary 
succession  sometime  in  1974  as  one  of  the  children  and  heirs  of  the  late  Maximo  Gabriel. 
Daluyong’s  sister,  Maria  Rita  Gabriel  de  Rey acted as administratrix of the said parcel of land and 
took charge of collecting the rentals for those portions which have been leased to certain tenants.  
 
Sometime  in  1985,  Daluyong  Gabriel  sent  his  son  Renato  Gabriel  to  Tagum  reportedly  with 
instructions,  to  take  over  from  Maria  Rita  G.  de  Rey  as  administrator  of  the  said  parcel  of  land. 
Upon  agreement  of  the  parties,  the  1985  Contract  of  Lease  covering  the  portion  of  the  said land 
was  novated  and  replaced  by  a  Contract  of Lease. Such contract was executed between Renato 
as Lessor and Lydia de los Reyes as lessee. The term of the lease was six (6) years.  
  
Sometime  in  November  1987,  during  the  effectivity  of  the  lease  contract,  ​Lydia  de  los  Reyes 
verbally  agreed  to  buy  the  250  square  meters (including the 176 square meters leased by her), 
and  thereafter  an  additional  fifty  (50)  square  meters  or  a  total  of  three  hundred (300) square 
meters  of  Daluyong  Gabriel’s  registered property at three hundred pesos (P300.00) per square 
meter,  or  for  a  total  amount  of  P90,000.00.  ​Receipt  of  the  payment  of  the  purchase  price  was 
made  in  several  installments  by Lydia and was acknowledged by Renato as evidenced by official 
receipts issued and signed by him.  
 
Acting  on  the  information  given  by  his  daughter  Maria  Luisa  Gabriel  Estaban  upon  the  latter’s 
return  from  a  trip  to  Tagum  that  ​spouses  de  los  Reyes were constructing a two-storey building 
on  a  portion  of  his  land,  Daluyong  Gabriel,  through  his  lawyer,  sent  a  letter  to  spouses  de  los 
Reyes,  demanding  that  they  cease  and  desist  from  continuing  with  their  construction  and  to 
immediately  vacate  the  premises,  asserting  that  the  construction  was  unauthorized and that 
their occupancy of the subject portion was not covered by any lease agreement.  
 
As  a  result  of  the  said  incident,  Daluyong  Gabriel  commenced  an  action  against  spouses de los 
Reyes  for  the  ​recovery  of  the  subject  portion  of  the  land  before  the  RTC  of  Tagum,  Davao  Del 
Norte.  In  his  complaint,  Daluyong  maintained  that  his  son  Renato  was  never  given  the 
authority  to  lease  nor  to  sell  any  portion  of  his  land  as  his  instruction  to  him  was  to  merely 
collect the rental fees.  
 
The  RTC  rendered  a  Decision  in  favor  of  spouses  de  los  Reyes.  On appeal by the Gabriels, the CA 
reversed and set aside the Decision of the RTC. Hence, this petition.  
 
Issue:  ​Whether  or  not  the  verbal  agreement  which  petitioners  entered  into  with  private 
respondent Renato Gabriel in 1987 involving the sale of the three hundred (300) square meter 
portion  of  land  registered  in  the  name  of  Renato’s  late  father  Daluyong  Gabirle  is  valid  and 
enforceable contract of sale of real property  
 
Held:  
No.  ​The  SC  agrees  with  the  conclusion of the CA that Renato Gabriel was neither the owner of the 
subject  property  nor  a  duly  designated  agent  of  the  registered  owner  (Daluyong  Gabriel) 
authorized  to  sell  subject  property  in  his  behalf,  and  there  was  also  no  sufficient  evidence 
adduced  to  show  that  Daluyong  Gabriel  subsequently  ratified  Renato’s  act.  In  this  connection,  it 
must  be  pointed  out  that  ​pursuant  to  Article  1874  of  the  Civil  Code,  when  the  sale  of  a piece of 
land  or  any  interest  therein  is  through  an  agent,  the  authority  of  the  latter  shall  be  in  writing; 
otherwise,  the  sale  shall  be  void.  In  other  words,  for  want  of  capacity  (to  give  consent)  on the 
part  of  Renato  Gabriel,  the  oral  contract  of  sale  lacks  one  of  the  essential  requisites  for  its 
validity prescribed under Article 1318, and is therefore null and void ab initio.  
 
By  law,  a  contract  of  sale  is  perfected  at  the moment there is a meeting of minds upon the thing 
which  is  the  object  of  the  contract  and  upon  the  price.  It  is  a  consensual  contract  which  is 
perfected  by  mere  consent.  ​Once  perfected,  the  contract is ​generally binding in whatever form 
(written  or  oral)  it may have been entered into provided the three (3) essential requisites for its 
validity  prescribed  under  Article  1318  are  present.  Foremost  of  these  requisites  is  the  consent 
and  the  capacity  to give consent of the parties to the contract. The legal capacity of the parties 
is  an  essential  element  for  the  existence  of  the  contract,  because  it  is  an  indispensable 
condition  for  the  existence  of consent. There is no effective consent in law without the capacity 
to  give  such  consent. In other words, legal consent presupposes capacity. Thus, there is said to 
be  no  consent,  and  consequently,  no  contract  when  the  agreement  is  entered  into  by  one  in 
behalf  of  another  who  has  never  given  him  therefor  unless  he  has  by  law  a  right  to  represent 
the  latter.  It  has  also  been  held  that  if  the  vendor is not the owner of the property at the time of 
the  sale,  the  sale  is  null  and  void, because a person can sell only what he owns or is authorized 
 to  sell.  One  exception  is  when  a  contract  entered  into  in  behalf  of  another  who  has  not 
authorized it, becomes valid and binding against him and he is estopped to question is legality.  
 
Petitioner’s  contention  that  although  at  the  time  of  the  alleged  sale,  Renato  Gabriel  was  not  yet 
the  owner  of  the  subject  portion  of  the  land,  after  the  death  of  Daluyong  Gabriel,  he  (Renato) 
became  the  owner  and  acquired  title  thereto  by way of hereditary succession which title passed 
by  operation  of  law  to  petitioners  pursuant  to  Article  1434  of  the  Civil  Code  is ​not tenable. ​This is 
because,  Daluyon  donated  the  ​entire  lot  to  his  daughter,  Maria  Rita  and  the  property  is  now 
covered  under  her  name.  This  means  that  when  Daluyong  died,  he was no longer the owner of 
the  subject  property.  Accordingly,  Renato never acquired ownership or title over any portion of 
said property as one of the heirs of Daluyong.  
 
However,  CA  failed  to  consider  the  undisputed  fact  pointed  out  by  the  RTC  that  ​petitioners  had 
already  performed  their  obligation  under  subject  oral  contract  of  sale  (completing  their 
payment  of  P90.000.00  representing  the  purchase  price  of  the  300-square  meter  portion  of 
land).  According  to  jurisprudence,  if  a  void  contract  has  been  performed,  the  restoration  of 
what  has  been  given  is  in  order.  The  relationship  between  parties  in  any  contract  even  if 
subsequently  voided  must  always  be  characterized  and  punctuated  in  good  faith  and  fair 
dealing. Hence, for the sake of justice and equity, and in consonance with the salutary principle 
of  non-enrichment  at another’s expense, private respondent Renato Gabriel should be ordered 
to  refund  to  petitioners  the  amount  of P90.000.00 which they have paid to and receipt of which 
was duly acknowledge by him.  
 
Decision of the CA is affirmed.  
 
 
115. Lacsamana v. CA, 351 Phil. 526 (1998); 
 
Petitioner:  Nestor  Lacsamana,  *El  Dorado  Plantation,  Inc.,  LBJ  Development  Corporation  and  Conrad  C. 
Leviste  
Respondent: CA, Ester Gaitos Robles, Leon Gaitos Robles and Dulce Clara Robles  
 
Doctrine: ​ An action for reconveyance based on a void contract is imprescriptible.  
 
Facts:   
On  April  of  1965,  Amparo  sold  her  one-half  (½)  undivided  share  to  El  Dorado  Corporation  (El  Dorado).  A  TCT 
was  issued  in  the  names  of  El  Dorado  and  Leon  Robles  as  co-owners.  In September of 1969, Leon Robles died 
and  was  survived  by  his  wife  Ester  and  two  (2)  children  as  his  sole  heirs.  However, in a Deed of Absolute Sale 
dated  July  of  1971,  Leon  Robles purportedly with the marital consent of his wife, sold his one-half (½) undivided 
share  to  one  Lacasamana.  Nine  (9)  years  later,  the  Deed  of  Absolute  Sale  was  registered  in  the  Register  of 
Deeds  of  Lipa  City  by  one  Gonzales.  Consequently,  the  TCT  in  the  names  of  El  Dorado  and  Leon  Robles  was 
cancelled, and a new TCT was issued in the names of El Dorado and Lacsamana.  
 
Lacsaman  purportedly  sold  his  one-half  (½)  share  to  LBJ  Development  Corporation  represented  by  its 
President, Leviste. A certain Lumanglas registered the deed of sale in the RD, resulting to the the cancellation of 
the  TCT  of  El  Dorado  and Lacsaman, and the issuance of a new TCT in the names of El Dorado and LBJ. In 1982, 
LBJ  became  the  owner  of  the  entire  lot  when  El  Doraodo  sold  to  it  its  one-half  share  for  consideration. 
Consequently, the latest TCT was cancelled and new TCTs were issued in the name of LBJ.  
 
This  prompted  the  surviving  heirs  of  Leon  Robles  to  file  a  complaint  before  the  RTC  of  Lipa  City  against 
Lacasaman,  El  Dorado,  LBJ  and  Leviste  for  the  recovery  of  one-half  undivided  share  of Leon in the subject lot, 
and  the cancellation of the TCTs in the name of LBJ. The complaint alleged that the signature of Leon Robles in 
the  Deed  of  Absolute  Sale  in  favor  of  Lacsamana  was  forged,  as  Leon  was  already  dead  at  the  time  of  the 
alleged sale.  
 
The  RTC  rendered  judgment  in  favor  of  plaintiffs,  holding  that  defendant  LBJ  is  not  a purchaser in good faith. 
The  RTC  then  ordered  the  cancellation  of  all  present  titles  covering  the subject lot, and to reinstate the TCT in 
the names of Leon Robles and El Dorado Plantation, Inc.  
 
The CA affirmed the findings and conclusions of the RTC.  
 
Issue: ​Whether or not the action instituted by private respondents is barred by reason of laches  
 
Held:  ​The  petition  is  denied.  The  questioned  decision  of  respondent CA affirming the Decision of RTC LIpa City 
is affirmed.  
 
The  SC  affirms  the  Decision  of  the  CA.  On  the  issue  of  prescription,  the  SC agrees that the present action has 
not  yet  prescribed  because  the  right  to  file  an  action  for  reconveyance  on  the  ground  that  the  certificate  of 
title  was  obtained  by  means  of  a  fictitious  deed  of  sale  is  virtually  an  action  for  the  declaration  of  its  nullity, 
which  action  does not prescribe. Hence, the fact that the alleged sale took place in 1971 and the action to have 
it  declared  void  or  inexistent  was filed in 1983 is of no moment. To reiterate, an action for reconveyance based 
on a void contract is imprescriptible.  
 
Neither  can  the  defense  of  laches  be  sustained.  The  SC  cannot  see  how  private  respondents  may  be 
considered  guilty  of  laches.  It  should  be  noted  that  private  respondents,  upon  learning  that  the  relevant 
portion  of  Lot  No.  13535  was  no  longer registered in the name of Leon, immediately caused an investigation to 
be made for the purpose of finding out the author and the circumstances behind the execution of the fictitious 
1971  Deed  of  Absolute  Sale.  Thus,  in  less  than  two  months  after  it  was  discovered  by  the  NBI  that Lacsamana 
was  in  fact  a  fictitious/non-existent  person,  private  respondents  through  their  attorney-in-fact  instituted  in 
1983,  the  present  action,  barely  three  years  and  nine  months  after  the  fraudulent  registration  on  January  22, 
1980.  Thus,  it  is  said,  that  the  concept  of  laches  is not considered with the lapse of time, but only with effect of 
unreasonable lapse.  
 
(Bobadilla, Isabella) 
116. Laudico v. Arias, 43 Phil. 270 
  
  
Chapter 3. Form of Contracts​. 
117. Gallardo v. IAC, G.R. L-67742, Oct. 29, 1987; 
118. Dauden-Hernaez v. Delos​ ​Angeles, G.R. L-27010, Apr. 30, 1969 
 
  
Chapter 4. Reformation of Instruments. 
  
119. Makati Tuscany Condominium v. Multi-Realty Development​ ​Corporation, G.R. No. 185530, April 
18, 2018; 
120. Naga Telephone v. CA, G.R. No. 107112 Feb. 24, 1994 
  
Chapter 5. Interpretation of Contracts​. 
  
(NEXT PERSON) 
121. Reyes v. BANCOM Dev’t. Corp., G.R. No. 190286, Jan. 11, 2018; 
122. WERR Corp. V. Highlands Prime, G.R. 187543, Feb. 8, 2017; 
123. Stronghold v. Stroem, G.R. No. 204869, Jan. 21, 2015. 
  
  
Chapter 6. Rescissible Contracts​. 
  
124. Republic v. David, G.R. No. 155634, Aug. 16, 2004; 
125. Equatorial Realty​ ​v. Mayfair Theatre, G.R. No. 106063, Nov. 21, 1996; 
 
(NEXT PERSON) 
126. Bocaling v. Bonnevie, G.R. No. 86150, Mar. 2, 1992; 
 127. Air France v. CA, G.R. No. L-57339, Dec. 29, 1983 
  
  
Chapter 7. Voidable Contracts​. 
  
128. Joseph Harry Walter Poole-Blunden v. Union Bank of the Philippines,​ ​G.R. No. 205838; Nov. 29, 
2017; 
129. Binua v. Ong, G.R. 207176, June 18, 2014; 
130. Ramos v. Obispo, G.R. No. 193804, Feb. 27, 2013; 
 
(NEXT PERSON) 
131. Colonel v. Constantino, G.R. 121069, Feb. 7, 2003; 
132. Serra v. CA, G.R. No. 103338, Jan. 4, 1994 
  
  
Chapter 8. Unenforceable Contracts​. 
  
133​.​ San Miguel Properties v. BF Homes, G.R. 169343, Aug. 5, 2015; 
134. Swedish Match v. Court of Appeals, 483 Phil. 735 (2004); 
 
 
135. Averia v. Averia, G.R. NO. 141877, Aug. 13, 2004. 
  
  
Chapter 9. Void or Inexistent Contracts​. 
  
136. Fornilda v. RTC, G.R. No. 72306, Oct. 6, 1988; 
137. Tongoy v. CA,​ ​G.R. No. L-45645, June 28, 1983; 
138. Philippine Banking Corp. V. Lui She, G.R. No. L-17587 September 12, 1967; 
139. Rodriguez v. Rodriguez, G.R. No. L-23002, July 31, 1967; 
140. Angeles v. Court of Appeals, G.R. No. L-11024. January 31, 1958; 
141. Liguez v. Court of Appeals, G.R. No. L-11240, Dec. 18, 1957; 
  
  

Title III. NATURAL OBLIGATIONS 

  
142. DBP v. Adil, 161 SCRA 307; 
143. Villaroel v. Estrada, G.R. No. L-47262, 19 December 1940 
  
Title IV. ESTOPPEL 
  
144. Roblett v. CA, 266 SCRA 71; Bucton v. Gabar, 55 SCRA 499; 
145. Tijam v. Sibonghanoy, 23 SCRA 29