Gonzales v. Heirs, G.R. No.

131784 September 16, 1999

Facts:

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

Issue:

Whether or not paragraph 9 of the contract is a condition precedent before the defendant
is to pay the down payment

Ruling:

Paragraph 9 of the contract clearly indicates that the lessors-plaintiffs shall obtain a
Transfer Certificate of Title in the name of the lessee within 4 years before a new contract is to
be entered into under the same terms and conditions as the original Contract of Lease/Purchase.
Thus, before a deed of Sale can be entered into between the plaintiffs and the defendant, the
plaintiffs have to obtain the Transfer Certificate of Title in favor of the defendant. Article 1181
of the New Civil Code states that: "In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition." 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 (Wise & Co. vs. Kelly, 37 Phil. 695; PNB vs. Philippine Trust Co.,
68. Phil. 48).

The failure of the plaintiffs to secure the Transfer Certificate of Title, as provided for in
the contract, does not entitle them to rescind the contract[.] Article 1191 of the New Civil Code
states that: "The power to rescind obligations is implied in reciprocal ones, in case one of the
obligers should not comply with what is incumbent upon him. The injured party may choose
between the fulfillment of the obligation, with the payment of damages in either case. He may
seek rescission, even after he has chosen fulfillment, if the latter should become impossible. . . ."
The power to rescind is given to the injured party. Where the plaintiff is the party who did not
perform, he is not entitled to insist upon the performance of the contract by the defendant or
recover damages by reason of his own breach (Mateos vs. Lopez, 6 Phil. 206; Borque vs. Yu
Chipco, 14 Phil. 95).

1
 Trillana V. Quezon Colleges, GR No. L-5003, June 27, 1953

Facts:

On June 1, 1948, Damasa Crisostomo applied for 200 shares of stock worth PhP100.00
each at Quezon Colleges, Inc. Within her letter of application, she stipulated, “You will find
(Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial
payment and the balance payable in accordance with law and the rules and regulations of the
Quezon College.” Damasa died on October 26, 1948. Since no payment was rendered on the
subscription made in the foregoing letter, Quezon College presented a claim of PhP20,000.00 on
her intestate proceedings.

Issue:

Is the condition laid down by Damasa Crisostomo valid?

Ruling:

There is nothing in the record to show that the Quezon College, Inc. accepted the term of
payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to
her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at
variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there
was absolute necessity on the part of the College to express its agreement to Damasa's offer in
order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to
immediately obligate Quezon College, Inc. under Damasa's promise to pay the price of the
subscription after she had caused fish to be caught. Thus, it cannot be said that the letter ripened
into a contract. Indeed, the need for express acceptance on the part of the Quezon College, Inc.
becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of
the subscription after she has harvested fish, a condition obviously dependent upon her sole will
and, therefore, facultative in nature, rendering the obligation void. Under the Civil Code it is
provided that if the fulfillment of the condition should depend upon the exclusive will of the
debtor, the conditional obligation shall be void.

2
 Virginia A. Perez v. Court of Appeals and BF Lifeman Insurance Corporation, G.R. No.
112329, January 28, 2000

Facts:
Primitivo Perez has been insured with the BF Lifeman Insurance Corporation since 1980
for P20,000. Sometime in 1987, Rodolfo Lalog, an agent of BF, convinced him to apply for
additional insurance coverage of P50, 000. Perez accomplished the application form and passed
the required medical exam. He also paid P2,075 to Lalog for premium. On Nov. 25, 1987, perez
died while riding a banca which capsized during a storm. During this time his application papers
for the additional insurance coverage was still in the office of BF. Without knowing that Perez
died, BF approved Perez’s application and issued the corresponding policy for P50,000. Virginia
Perez, his wife, claimed the benefits of the insurance policy for her deceased husband but she
was only able to obtain P40,000 under the first insurance policy. BF refused to pay the proceeds
amounting to P150,000 under the additional policy coverage of P50,000 because they maintain
that such policy had not been perfected. On Sept. 21, 1990, BF filed a complaint against Mrs.
Perez seeking recission and declaration of nullity of the insurance contract in question. Mrs.
Perez file a counterclaim for the collection of P150,000 plus damages.

Issue:
Whether or not there was a consummated contract of insurance between Perez and BF.

Held:
No. An essential requisite of a valid contract is consent. Consent must be manifested by
the meeting of the offer and acceptance upon the thing and the cause which are to constitute the
contract.The offer must be certain and the acceptance absolute. When Perez filed the
application, it was subject to the acceptance of BF. The perfection was also further conditioned
upon 1) issuance of the policy; 2) payment of the premium and; 3) the delivery to and acceptance
by the applicant in good health.The delivery and acceptance by the applicant were a suspensive
condition which was not fulfilled inasmuch as the applicant was already dead at the time the
policy was issued. The non-fulfillment of the condition resulted in the non-perfection of the
contract. An application for insurance is merely an offer which requires the overt act of the
insurer for it to ripen to a contract. Delay in the processing on the application does not constitute
acceptance even though the insured has forwarded his first premium with his application. Delay,
in this case, does not constitute gross negligence because the application was granted within the
normal processing time.

3
COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO in his
official capacity as Revenue District Officer of Revenue District No. 049
(Makati), Petitioners,
vs. PRIMETOWN PROPERTY GROUP, INC., Respondent
GR no. 162155, August 28, 2007 Corona, J

Topics : Obligation with term/period ( Article 13 of the civil code )

Facts:

On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group,
Inc., applied for the refund or credit of income tax respondent paid in 1997. According to Yap,
because respondent suffered losses, it was not liable for income taxes. Nevertheless, respondent
paid its quarterly corporate income tax and remitted creditable withholding tax from real estate
sales to the BIR in the total amount of P26,318,398.32. Therefore, respondent was entitled to tax
refund or tax credit.

On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional
documents to support its claim. Respondent complied but its claim was not acted upon. Thus, on
April 14, 2000, it filed a petition for review in the Court of Tax Appeals (CTA). On December
15, 2000, the CTA dismissed the petition as it was filed beyond the two-year prescriptive period
for filing a judicial claim for tax refund or tax credit. Respondents now assail that decision for
dismissal of the CTA.

Issue:

What is the expiration period for the filing of the action?

Ruling:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter — the computation of legal
periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a
leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the number of days is
irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section
31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs
the computation of legal periods. Lex posteriori derogat priori.

Following this formula, respondent’s petition (filed on April 14, 2000) was filed on the last day
of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was
filed within the reglementary period.

4
 Victorias Planters Association, Inc. v. Victorias Milling Co., Inc.

G.R. No. L6648, 25 July 1955

J. Padilla

Facts:

Petitioners Victoria Planters Association, Inc. and North Negros Planters Association, Inc. , as
well as respondent Victorias Milling Co., entered into a milling contract in which they agreed
that in the event of force majeure, the contract would be deemed suspended during this period.

During World War II, which lasted four years, and the postwar era, which lasted two years, the
petitioners were unable to grow sugarcane, and the sugar factory was destroyed. Given the
milling contract's 30-year term, the petitioner argued that it is deemed terminated.

The respondent said that the contract refers to a "30-year milling period," not a "30-year time
period," and that petitioners were expected to deliver the sugar cane that they did not deliver
during the 6-year period.

Issue:

Should the petitioners be compelled to deliver sugar cane to the appellant for six years to
make up for what they failed to deliver during fortuitous event?

Ruling:

No, the petitioners cannot be compelled to deliver sugar cane to the appellant for six
years to make up for what they failed to deliver during fortuitous event.

Fortuitious event relieves the obligor from fulfilling a contractual obligation.

In the instant case, 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. Hence, the petitioners cannot be compelled to deliver sugar cane to the
appellant for six years to make up for what they failed to deliver during fortuitous event.

Baluyut v. Poblete,
G.R. NO. 144435, February 6, 2007
Austria-Martinez, J.
FACTS:

5
On July 20, 1981, herein petitioner, Guillermina Baluyut, loaned from the spouses Eulogio and
Salud Poblete the sum of ₱850,000.00. As evidence of her indebtedness, Baluyut signed, on even
date, a promissory note for the amount borrowed. Under the promissory note, the loan shall
mature in one month. To secure the payment of her obligation, she conveyed to the Poblete
spouses, by way of a real estate mortgage contract, a house and lot she owns. Upon maturity of
the loan, Baluyut failed to pay her indebtedness. The Poblete spouses subsequently decided to
extrajudicially foreclose the real estate mortgage. Baluyut failed to redeem the subject property
within the period required by law prompting Eulogio Poblete to execute an Affidavit of
Consolidation of Title. Subsequently, TCT No. 43445 was issued in the name of Eulogio and the
heirs of Salud, who in the meantime, died.

However, Baluyut remained in possession of the subject property and refused to vacate the same.
Hence, Eulogio and the heirs of Salud filed a Petition for the issuance of a writ of possession
with the RTC of Pasig. Subsequently, the trial court issued an order granting the writ of
possession. However, before Eulogio and the heirs of Salud could take possession of the
property, Baluyut filed an action for annulment of mortgage, extrajudicial foreclosure and sale
of the subject property, as well as cancellation of the title issued in the name of Eulogio and the
heirs of Salud, plus damages. In the meantime, Eulogio died and was substituted by his heirs.

ISSUE:

Whether or not prior demand to pay is necessary for a loan to mature when there is conflict
between the date of maturity of the loan as stated in the Deed of Real Estate Mortgage and the
Promissory Note on the one hand and the real date of its maturity on the other.

RULING:

Even if petitioner had properly raised the issue regarding the real date of maturity of the loan, it
is a long-held cardinal rule that when the terms of an agreement are reduced to writing, it is
deemed to contain all the terms agreed upon and no evidence of such terms can be admitted
other than the contents of the agreement itself. In the present case, the promissory note and the
real estate mortgage are the law between petitioner and private respondents. It is not disputed
that under the Promissory Note dated July 20, 1981, the loan shall mature in one month from
date of the said Promissory Note.

MALAYAN REALTY, INC. v. UY HAN YONG

467 SCRA 411, (2006)

The power of the courts to establish a grace period is potestative or discretionary, depending on
the particular circumstances of the case.

6
Facts:

Malayan Realty Inc., entered into a verbal lease contract with Uy Han Yong over an apartment
unit located in Manila. After several years, Malayan sent Uy a written notice informing him that
the lease contract would no longer be renewed or extended. Despite Uy‘s receipt of the notice, he
refused to vacate the property, prompting Malayan to file before the Metropolitan Trial Court
(MeTC) of Manila a complaint for ejectment.

MeTC held that Uy could not be ejected on the grounds of termination of the contract. The
MeTC dismissed Malayan‘s complaint. Malayan appealed to the Regional Trial Court (RTC)
which set aside the judgement of the MeTC. On the basis of Article 1687 of the New Civil Code,
the RTC extended the lease contract for a period of five years.

Malayan asserts that an extension of the period of a lease may be sought by the tenant before,
and not after the termination of the lease; and that Uy had sufficient time to request for
extension, given that the notice of termination of the lease was served upon him more than 30
days before its effectivity, but that Uy did not so request even after the complaint was filed in
court. Malayan thus maintains that no “equitable reason” justifies Uy‘s continued possession of
the property for more than four years from the time the complaint for ejectment was filed.

The Court of Appeals (CA) modified the RTC decision by shortening the extension of the lease
contract to one year from the finality of the decision.

Issue:

Whether or not CA erred in granting a one year extension of the lease reckoned from the finality
of the decision.

Ruling:

Under Article 1687 of the New Civil Code if the period of a lease contract has not been specified
by the parties, it is understood to be from month to month, if the rent agreed upon is monthly.
The lease contract thus expires at the end of each month, unless prior thereto, the extension of
said term has been sought by appropriate action and judgment is eventually rendered therein
granting the relief.

In the case at bar, the lease period was not agreed upon by the parties. Rental was paid monthly,
and Uy Han Yong has been occupying the premises since 1958. As earlier stated, a written notice
was served upon respondent on January 17, 2001 terminating the lease effective August 31,

7
2001. As Uy han Yong was notified of the expiration of the lease, effectively his right to stay in
the premises had come to an end on August 31, 2001. 24

The 2nd paragraph of Article 1687 provides, however, that in the event that the lessee has
occupied the leased premises for over a year, the courts may fix a longer term for the lease.

The power of the courts to establish a grace period is potestative or discretionary, depending on
the particular circumstances of the case. Thus, a longer term may be granted where equities come
into play, and may be denied where none appears, always with due deference to the parties‘
freedom to contract.

In the present case, Uy has remained in possession of the property from the time the complaint
for ejectment was filed on September 18, 2001 up to the present time. Effectively, Uy‘s lease has
been extended for more than five years, which time is, under the circumstances, deemed
sufficient as an extension and for him to find another place to stay.

BRENT SCHOOL, INC., and REV. GABRIEL DIMACHE, petitioners vs. RONALDO
ZAMORA, the Presidential Assistant for Legal Affairs, Office of the President, and
DOROTEO R. ALEGRE, respondents. G.R. No. L-48494 February 5, 1990

NARVASA, J.:

FACTS:

Private respondent Doroteo R. Alegre was engaged as athletic director by petitioner Brent
School, Inc. at a yearly compensation of P20,000.00. The contract fixed a specific term for its
existence, five (5) years, i.e., from July 18, 1971, the date of execution of the agreement, to July
17, 1976. Subsequent subsidiary agreements dated March 15, 1973, August 28, 1973, and
September 14, 1974 reiterated the same terms and conditions, including the expiry date, as those
contained in the original contract of July 18, 1971.

On April 20,1976, Alegre was given a copy of the report filed by Brent School with the
Department of Labor advising of the termination of his services effective on July 16, 1976. The
stated ground for the termination was "completion of contract, expiration of the definite period of
employment." Although protesting the announced termination stating that his services were
necessary and desirable in the usual business of his employer, and his employment lasted for 5
years - therefore he had acquired the status of regular employee - Alegre accepted the amount of
P3,177.71, and signed a receipt therefor containing the phrase, "in full payment of services for
the period May 16, to July 17, 1976 as full payment of contract."

The Regional Director considered Brent School's report as an application for clearance to
terminate employment (not a report of termination), and accepting the recommendation of the
Labor Conciliator, refused to give such clearance and instead required the reinstatement of

8
Alegre, as a "permanent employee," to his former position without loss of seniority rights and
with full back wages.

ISSUE:

Whether or not the provisions of the Labor Code, as amended, have anathematized "fixed period
employment" or employment for a term.

RULING:

Respondent Alegre's contract of employment with Brent School having lawfully terminated with
and by reason of the expiration of the agreed term of period thereof, he is declared not entitled to
reinstatement.

The employment contract between Brent School and Alegre was executed on July 18, 1971, at a
time when the Labor Code of the Philippines (P.D. 442) had not yet been promulgated. At that
time, the validity of term employment was impliedly recognized by the Termination Pay Law,
R.A. 1052, as amended by R.A. 1787. Prior, thereto, it was the Code of Commerce (Article 302)
which governed employment without a fixed period, and also implicitly acknowledged the
propriety of employment with a fixed period. The Civil Code of the Philippines, which was
approved on June 18, 1949 and became effective on August 30,1950, itself deals with obligations
with a period. No prohibition against term-or fixed-period employment is contained in any of its
articles or is otherwise deducible therefrom.

It is plain then that when the employment contract was signed between Brent School and Alegre,
it was perfectly legitimate for them to include in it a stipulation fixing the duration thereof
Stipulations for a term were explicitly recognized as valid by this Court.

The status of legitimacy continued to be enjoyed by fixed-period employment contracts under

the Labor Code (PD 442), which went into effect on November 1, 1974. The Code contained
explicit references to fixed period employment, or employment with a fixed or definite period.
Nevertheless, obscuration of the principle of licitness of term employment began to take place at
about this time.

Article 320 originally stated that the "termination of employment of probationary employees and
those employed WITH A FIXED PERIOD shall be subject to such regulations as the Secretary
of Labor may prescribe." Article 321 prescribed the just causes for which an employer could
terminate "an employment without a definite period." And Article 319 undertook to define
"employment without a fixed period" in the following manner: …where the employee has been
engaged to perform activities which are usually necessary or desirable in the usual business or
trade of the employer, except where the employment has been fixed for a specific project or
undertaking the completion or termination of which has been determined at the time of the
engagement of the employee or where the work or service to be performed is seasonal in nature
and the employment is for the duration of the season.

Subsequently, the foregoing articles regarding employment with "a definite period" and "regular"
employment were amended by Presidential Decree No. 850, effective December 16, 1975.

9
Article 320, dealing with "Probationary and fixed period employment," was altered by
eliminating the reference to persons "employed with a fixed period," and was renumbered
(becoming Article 271).

As it is evident that Article 280 of the Labor Code, under a narrow and literal interpretation, not
only fails to exhaust the gamut of employment contracts to which the lack of a fixed period
would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right
of an employee to freely stipulate with his employer the duration of his engagement, it logically
follows that such a literal interpretation should be eschewed or avoided. The law must be given a
reasonable interpretation, to preclude absurdity in its application. Outlawing the whole concept
of term employment and subverting to boot the principle of freedom of contract to remedy the
evil of employer's using it as a means to prevent their employees from obtaining security of
tenure is like cutting off the nose to spite the face or, more relevantly, curing a headache by
lopping off the head.

Such interpretation puts the seal on Bibiso upon the effect of the expiry of an agreed period of
employment as still a good rule—a rule reaffirmed in the recent case of Escudero vs. Office of
the President (G.R. No. 57822, April 26, 1989) where, in the fairly analogous case of a teacher
being served by her school a notice of termination following the expiration of the last of three
successive fixed-term employment contracts, the Court held:

Reyes (the teacher's) argument is not persuasive. It loses sight of the fact that her employment
was probationary, contractual in nature, and one with a definitive period. At the expiration of the
period stipulated in the contract, her appointment was deemed terminated and the letter
informing her of the non-renewal of her contract is not a condition sine qua non before Reyes
may be deemed to have ceased in the employ of petitioner UST. The notice is a mere reminder
that Reyes' contract of employment was due to expire and that the contract would no longer be
renewed. It is not a letter of termination.

Paraphrasing Escudero, respondent Alegre's employment was terminated upon the expiration of
his last contract with Brent School on July 16, 1976 without the necessity of any notice. The
advance written advice given the Department of Labor with copy to said petitioner was a mere
reminder of the impending expiration of his contract, not a letter of termination, nor an
application for clearance to terminate which needed the approval of the Department of Labor to
make the termination of his services effective. In any case, such clearance should properly have
been given, not denied.

WHEREFORE, the public respondent's Decision complained of is REVERSED and SET

ASIDE. Respondent Alegre's contract of employment with Brent School having lawfully
terminated with and by reason of the expiration of the agreed term of period thereof, he is
declared not entitled to reinstatement and the other relief awarded and confirmed on appeal in the
proceedings below. No pronouncement as to costs.

SO ORDERED.

De La Salle Araneta University vs. Juanito Bernardo

G .R. No. 190809, 13 February 2017

10
Facts:
Since 1977, Bernardo was teaching in DLS-AU whose contract was renewed at the start
of every semester and summer. In 2003, DLS-AU informed Bernardo through a telephone call
that he could not teach at the school anymore as the school was implementing the retirement age
limit for its faculty member. As he was already 75 years old, Bernardo has no choice but to
retire.

In a letter from the DLS-AU, Bernardo was informed that he was not entitled to any kind
of separation pay of benefits including retirement pay as mandated by the Collective Bargaining
Agreement that only full-time permanent faculty of DLS-AU are entitled. Juanito Bernardo then
filed a complaint against De La Salle Araneta University (DLS-AU) for the payment of
retirement benefits.

Issue:
Can Bernardo claim retirement benefits?

Rulings:
Yes, Bernardo can claim retirement benefits.

Republic Act 7641 or the Retirement pay law provides that employees who are not
entitled to retirement benefits under collective bargaining are entitled to the minimum retirement
benefits.

In the case, while the contract of Bernardo with DLS-AU is for a fixed term only, the
contract is a valid, legal, and binding employment contract. His employment for a fixed period
are immaterial since RA 7641 covers all types of employees.

Therefore, Bernardo can claim retirement benefits.

11
 Quizana v. Redugerio,
G.R. No. L-6220, May 7, 1954
Labrador, J.

FACTS:

The action is based on an actionable document attached to the complaint, signed by the
defendants appellants on October 4, 1948, stating that the defendants-appellants received
P550.00 from Quizana as a loan that they agreed to pay by the end of January 1949. In the
document, it is stated that the defendants-appellants will mortgage their coconut farm to
Quizana in case of nonpayment.

The defendants-appellants admit the execution of the document, but claim, as special defense,
that since the 31st of January, 1949, they offered to pledge the land specified in the agreement
and transfer possession thereof to the plaintiff-appellee, but that the latter refused said offer.

ISSUE:

What is the nature and effect of the actionable document mentioned

above?

RULING:

In our opinion it is not true that defendants-appellants had not offered to execute the deed of
mortgage.

The other reasons adduced by the plaintiff-appellee for claiming that the agreement was not
binding upon him also deserves scant consideration. The acceptance by him of the written
obligation without objection and protest, and the fact that he kept it and based his action thereon,
are concrete and positive proof that he agreed and contested to all its terms, including the
paragraph on the constitution of the mortgage.

The second part of the obligation in question is what is known in law as a facultative obligation,
defined in article 1206 of Civil Code of the Philippines. This is a new provision and is not found
in the old Spanish Civil Code, which was the one in force at the time of the execution of the
agreement.

There is nothing in the agreement which would argue against its enforcement. it is not contrary
to law or public morals or public policy, and notwithstanding the absence of any legal provision
at the time it was entered into government it, as the parties had freely and voluntarily entered
into it, there is no ground or reason why it should not be given effect. It is a new right which
should be declared effective at once, in consonance with the provisions of article 2253 of the
Civil Code of the Philippines.

12
 Hermosa v. Longara,
G.R. No. L-5267, October 27, 1953
Labrador, J.

FACTS:

Epifanio M. Longara presents claims of three kinds against the testate estate of Fernando
Hermosa, Sr., namely, P2,341.41 representing credit advances made to the intestate from 1932
to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson,
Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in
December, 1944. The claimant presented evidence and the Court of Appeals found, in
accordance therewith, that the intestate had asked for the said credit advances for himself and
for the members of his family "on condition that their payment should be made by Fernando
Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain."
Claimant had testified without opposition that the credit advances were to be "payable as soon
as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from the
sale." The Court of Appeals held that payment of the advances did not become due until the
administratrix received the sum of P20,000 from the buyer of the property. Upon authorization
of the probate court in October, 1947, and the same was paid for subsequently.

ISSUE:

Is the said condition a potestative condition that is void?

RULING:

The will to sell on the part of the intestate was, present in fact, or presumed legally to exist,
although the price and other conditions thereof were still within his discretion and final approval.
But in addition of the sale to him (the intestate-vendor), there were still other conditions that had
no concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to
purchase the property under the conditions demanded by the intestate. Without such a buyer the
sale could not be carried out or the proceeds thereof sent to the islands. It is evident, therefore
sent to the islands.

Therefore, the condition of the obligation was not a purely protestative one, depending
exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of
intestate and partly upon chance, i.e., the presence of a buyer of the property for the price and
under the conditions desired by the intestate. The obligation is clearly governed by the second
sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition is, besides, a
suspensive condition, upon the happening of which the obligation to pay is made dependent.
And upon the happening of the condition, the debt became immediately due and demandable.

Hongkong and Shanghai Banking Corp. v. Broqueza,

13
 G.R. No. 178610, November 17, 2010

Carpio, J

Topics : Characteristics of pure obligations

Facts :

Petitioners Gerong and Editha Broqueza are employees of Hongkong and Shanghai
Banking Corporation (HSBC). They are also members of respondent Hongkong Shanghai
Banking Corporation, Ltd. Staff Retirement Plan (HSBCL-SRP) retirement plan established by
HSBC through its Board of Trustees for the benefit of the employees.
On October 1, 1990, petitioner Broqueza obtained a car loan in the amount of Php175,000.00.
On December 12, 1991, she again applied and was granted an appliance loan in the amount of
Php24,000.00. On the other hand, petitioner Gerong applied and was granted an emergency loan
in the amount of Php35,780.00 on June 2, 1993. These loans are paid through automatic salary
deduction.
In 1993 labor dispute arose between HSBC and its employees. Majority of HSBC's employees
were terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The employees
then filed an illegal dismissal case before the National Labor Relations Commission (NLRC)
against HSBC.
Because of their dismissal, petitioners were not able to pay the monthly amortizations of their
respective loans. Thus, respondent HSBCL-SRP considered the accounts of petitioners
delinquent. Demands to pay the respective obligations were made upon petitioners, but they
failed to pay

Issue :

Whether the HSBCL-SRP has the right to demand immediate payment

Ruling:

Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is demandable at once.
The findings of the MeTC and the RTC that there is no date of payment indicated in the
Promissory Notes. The RTC is correct in ruling that since the Promissory Notes do not contain a
period, HSBCL-SRP has the right to demand immediate payment. Article 1179 of the Civil Code
applies. The spouses Broqueza's obligation to pay HSBCL-SRP is a pure obligation. The fact
that HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza's salary is
of no moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a
demand to enforce a pure obligation.

Ong Guan v. Century Insurance Co.

14
 G.R. No. L-22738, 2 December 1924

Facts:

A building of the plaintiff was insured against fire by the defendant in the sum of
P30,000, as well as the goods and merchandise therein contained in the sum of P15,000. The
house and merchandise insured were burnt early in the morning of February 28, 1923, while the
policies issued by the defendant in favor of the plaintiff were in force.

The appellant contends that under clause 14 of the conditions of the policies, it may
rebuild the house burnt, and although the house may be smaller, yet it would be sufficient
indemnity to the insured for the actual loss suffered by him.

Issue:

Whether or not Century Insurance Co. may either pay the insured value of house, or
rebuild it

Held:

No, Century Insurance Co. may neither pay the insured value of house, nor rebuild it.

It must be noted that in alternative obligations, the debtor, the insurance company in this
case, must notify the creditor of his election, stating which of the two prestations he is disposed
to fulfill, in accordance with article 1133 of the Civil Code. The object of this notice is to give
the creditor, that is, the plaintiff in the instant case, opportunity to express his consent, or to
impugn the election made by the debtor, and only after said notice shall the election take legal
effect when consented by the creditor, or if impugned by the latter, when declared proper by a
competent court.

In the instance case, the record shows that the appellant company did not give a formal
notice of its election to rebuild, and while the witnesses, Cedrun and Cacho, speak of the
proposed reconstruction of the house destroyed, yet the plaintiff did not give his assent to the
proposition, for the reason that the new house would be smaller and of materials of lower kind
than those employed in the construction of the house destroyed. Upon this point the trial judge
very aptly says in his decision: "It would be an imposition unequitable, as well as unjust, to
compel the plaintiff to accept the rebuilding of a smaller house than the one burnt, with a lower
kind of materials than those of said house, without offering him an additional indemnity for the
difference in size between the two house, which circumstances were taken into account when the
insurance applied for by the plaintiff was accepted by the defendant." And we may add: Without
tendering either the insured value of the merchandise contained in the house destroyed, which
amounts to the sum of P15,000.

15
 PH CREDIT CORPORATION, petititoner vs. COURT OF APPEALS and CARLOS M.
FERRALES, respondents. G.R. No. 109648, November 22, 2001.
J. Panganiban
Facts:
PH Credit Corp.filed acse against herein private respondent, Carlos M. Ferrales and his
co-debtors Pacific Lloyd Corp., Thomas Van Sebille, and Federico Lim. The defendants failed to
file their answer within the reglementary period despite being served service of summons, thus
they were declared in default. A Decision was rendered on January 31, 1984 and thereafter a
Writ of Execution was issued by the Deputy Sheriff by which the real and personal properties of
Ferrales were levied and sold at a public auction. A writ of Possession was filed by Ferrales and
the said writ was granted on October 12, 1990. This is the subject of the petition in this case,
petitioner arguing that the obligation is solidary as stated in a “written contract of suretyship” as
stated in the body of the Decision dated January 31, 1984, and as such execution of sale was
legal.
Issue:
Is there a legal basis for selling Farrales’ properties to satisfy the whole obligation?
Ruling:
There is none, because their obligation is joint and not solidary.
In the dispositive portion of the decision of the trial court, it is not stated that the debtors
are of solidary obligation. SC ruled that the basis of the execution is the Decision dated January
31, 1984 and not the “written contract of suretyship” as the petitioner contends. It is then
established that the obligations of Ferrales and his co-debtors are joint in nature. Consequently,
the petitioner’s argument that there is a legal basis for the sale of property Ferrales. One of the
effects of joint obligation: each debtor is only liable for a proportionate part of the entire debt.
Further it is stated in the Rules of Court that:
When there is more property of the judgment obligor than is sufficient to satisfy the
judgment and lawful fees, he (sheriff) must sell only so much of the personal or real property as
is sufficient to satisfy the judgment and lawful fees." Hence, it is not rightful to sell the property
of the private respondent which is far greater than that of his indebtedness.
Furthermore, it is only after the sale of his properties at a public auction that Ferrales
knew that he is being solidary liable for their obligation, thus the filing of Omnibus Motion.

16
 Berot v. Siapno
G.R. No. 188944, 9 July 2014

Facts:
On May 23, 2002, Macaria Berot and spouses Rodolfo A. Berot and Lilia P. Berot
obtained a loan from Felipe C. Siapno in the sum of 250,000, 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 mortgaged to appellee a portion, consisting of 147 square
meters, of that parcel of land with an area of 718 square meters. On June 23, 2003, Macaria died.
Because of the mortgagors’ default, appellee filed an action against them for foreclosure of
mortgage and damages. The action was anchored on the averment that the mortgagors failed and
refused to pay the sum of 250,000.00 plus the stipulated interest of 2% per month despite lapse
of one year from May 23, 2002.

The spouses Berot 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.

Issue:
Whether or not the obligation is joint

Held:
Yes, the obligation is 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:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the
prestations. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.

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. In PH
Credit Corporation v. Court of Appeals, we held that:

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. On the other hand, a joint obligation is one in
which each debtors 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 law so provides or when the nature of the obligation so
requires."

17
 In the instant case, the trial court expressly ruled that the nature of petitioners’ obligation
to respondent was solidary. It scrutinized the real estate mortgage and arrived at the conclusion
that petitioners had bound themselves to secure their loan obligation by way of a real-estate
mortgage in the event that they failed to settle it. But such pronouncement was not expressly
stated in its 30 June 2006 Decision.

The Court has scoured the records of the case, but found no record of the principal loan
instrument, except 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.
Respondent was not able to prove by a preponderance of evidence that petitioners' obligation to
him was 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.

REPUBLIC GLASS CORPORATION and GERVEL, INC., petitioners, vs. LAWRENCE

C. QUA, respondent, G.R. No. 144413, 30 July 2004.

18
 J. Carpio
Facts:
Republic Glass Corporation, Gervel, Inc, and Qua are all stockholders of Ladtek Inc.
Ladtek Inc., together with the respondent and petitioners obtained loans from Metrobank and
PDCP. Among themselves, respondent and petitioners executed Agreement for Contribution and
Indemnity and Pledge of Shares of Stocks in case of default of payment of loans. Such
Agreement provides reimbursement of the proportionate share of any sum that any of them might
pay to the creditors, whether the payment is made in whole or partially.
Ladtek defaulted on its obligations. Consequently, Metrobank filed a collection case. RGC and
Gervel paid Metrobank, so the latter issued a quitclaim in favor of the former. Such payment left
Ladtek and Qua as defendants of the said collection case. Petitioners, through its counsel,
demanded reimbursement from the respondent. Because of Qua’s failure to reimburse the
petitioners, they foreclosed all the pledge shares of Qua in a public auction.
Qua filed a complaint for injunction and damages and TRO. The first ruling of RTC
favors Qua, but then it was reversed in favor of the petitioners herein. Qua appealed to CA which
ruled in his favor, ordering RGC and Gervel to return Qua’s share of stocks which they
foreclosed.

Issue:
Is the obligation of RGC, Gervel, Ladtek, and Qua a solidary obligation?
Did RGC and Gervel validly foreclose the pledge of Qua’s GMC shares of stock which
secured his obligation to give?
Ruling:
Yes, RGC, Gervel, Ladtek, and Qua has solidary obligation upon Metrobank and
PDCP.
Article 1207 of the Civil Code states that a solidary liability arises only when the
obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
In this case, petitioners and respondent executed among themselves Agreement for
Contribution and Indemnity and Pledge of Shares of Stocks by which everyone is bind to pay a
proportionate share of any sum that any of them might pay to creditors, in case of a default of
payment of their loans to Metrobank and PDCP. As such, their obligation expressly so states that
their obligation is solidary.
No, the RGC and Gervel’s foreclosure of Qua’s GMC stocks share is invalid.
The Supreme Court denied the petition of RGC and Gervel to demand reimbursement
from Qua because it was found that they only paid Metrobank PHP 7Million, which is less than
their combined shares in the obligation, and PDCP PHP 1,730, 543.55, which corresponds only

19
to their proportionate share in the obligation. In solidary obligations such as this entered by the
respondent and petitioners, although it was stipulated in their Agreement that the payment of the
entire obligation is not an essential condition for reimbursement, it is NECESSARY that
petitioners prove that they made payments that exceed their proportionate share of the obligation
in order to demand reimbursement from Qua.
Therefore, the foreclosure of Qua’s GMC stock shares is invalid.

*Remember: a solidary debtor pays the obligation in part, he can recover reimbursement from
the co-debtors only in so far as his payment exceeded his share in the obligation. This is
precisely because if a solidary debtor pays an amount equal to his proportionate share in the
obligation, then he in effects pays only what is due from him. If the debtor pays less than his
share in the obligation, he cannot demand reimbursement because his payment is less than his
actual debt.

Metro Manila Transit v. CA,

G.R. No. 104408, June, 21 1993
Regalado, J.

FACTS:

At about six o'clock in the morning of August 28, 1979, plaintiff-appellant Nenita Custodio
boarded as a paying passenger a public utility jeepney with plate No. D7 305 PUJ Pilipinas 1979,
then driven by defendant Agudo Calebag and owned by his co-defendant Victorino Lamayo,
bound for her work at Dynetics Incorporated located in Bicutan, Taguig, Metro Manila, where
she then worked as a machine operator earning P16.25 a day. While the passenger jeepney was
travelling at (a) fast clip along DBP Avenue, Bicutan, Taguig, Metro Manila another fast-moving
vehicle, a Metro Manila Transit Corp. (MMTC, for short) bus bearing plate no. 3Z 307 PUB
(Philippines) "79 driven by defendant Godofredo C. Leonardo was negotiating Honeydew Road,
Bicutan, Taguig, Metro Manila bound for its terminal at Bicutan. As both vehicles approached
the intersection of DBP Avenue and Honeydew Road they failed to slow down and slacken their
speed; neither did they blow their horns to warn approaching vehicles. As a consequence, a
collision between them occurred, the passenger jeepney ramming the left side portion of the
MMTC bus. The collision impact caused plaintiff-appellant Nenita Custodio to hit the front
windshield of the passenger jeepney and she was thrown out therefrom, falling onto the
pavement unconscious with serious physical injuries. She was brought to the Medical City
Hospital where she regained consciousness only after one week. Thereat, she was confined for
twenty-four days, and as a consequence, she was unable to work for three and a half months.

ISSUE:

What is the liability of MMTC as employer of one the erring drivers?

RULING:

20
As early as the case of Gutierrez vs. Gutierrez, and thereafter, we have consistently held that
where the injury is due to the concurrent negligence of the drivers of the colliding vehicles, the
drivers and owners of the said vehicles shall be primarily, directly and solidarily liable for
damages and it is immaterial that one action is based on quasi-delict and the other on culpa
contractual, as the solidarily of the obligation is justified by the very nature thereof.

Due diligence in the supervision of employees, on the other hand, includes the formulation of
suitable rules and regulations for the guidance of employees and the issuance of proper
instructions intended for the protection of the public and persons with whom the employer has
relations through his or its employees and the imposition of necessary disciplinary measures
upon employees in case of breach or as may be warranted to ensure the performance of acts
indispensable to the business of and beneficial to their employer.

INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP.

(INIMACO), v. NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division)
Cebu City, and ENRIQUE SULIT, ET. AL.
G.R. No. 101723
May 11, 2000

Topic: Solidary vs Joint Obligations

FACTS:

In September 1984, private respondent Enrique Sulit, et al. filed a complaint with the
Department of Labor and Employment, Regional Arbitration Branch No. VII in Cebu City
against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin,
Lo Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO), for
payment of separation pay and unpaid wages.

The Labor Arbiter ruled in favor of private respondents and ordered for the payment of awards
and damages. No appeal was filed during the reglementary period hence the order was made
final and executory.

On September 3, 1987, petitioner INAMCO filed a "Motion to Quash Alias Writ of Execution
and Set Aside Decision," 3 alleging among others that the alias writ of execution altered and
changed the tenor of the decision by changing the liability of therein respondents from joint to
solidary, by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial
Management Development Corporation and Filipinas Carbon and Mining Corporation, Et. Al."
However, in an order dated September 14, 1987, the Labor Arbiter denied the motion.

21
NLRC dismissed the appeal and INAMCO filed for a “Motion to Compel Sheriff To Accept
Payment Of P23,198.05 Representing One Sixth Pro Rata Share of Respondent INIMACO As
Full and Final Satisfaction of Judgment As to Said Respondent." Again, the petition was denied.
The Labor Arbiter ruled that the payment should be treated only as partial payment of liability.
Petitioner appealed yet again but to no avail. Hence, the petition.

ISSUE:

Whether or not INAMCO can be held solidarily liable

RULING:

No. The Court found that petitioner INIMACO’s liability is not solidary but merely joint and that
the respondent NLRC acted with grave abuse of discretion in upholding the Labor Arbiter’s
Alias Writ of Execution and subsequent Orders to the effect that petitioner’s liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. In a joint
obligation each obligor answers only for a part of the whole liability and to each obligee
belongs only a part of the correlative rights.

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary
liability only when the obligation expressly so states, when the law so provides or when the
nature of the obligation so requires.

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. Moreover, it
is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment
that the defendants are liable to pay jointly and severally a certain sum of money, none of them
may be compelled to satisfy in full said judgment.

Hence, the petition was granted, as it is hereby, considered joint and petitioner’s payment which
has been accepted considered as full satisfaction of its liability.

ESTANISLAO & AFRICA SINAMBAN v CHINA BANKING CORPORATION

G.R. No. 193890
March 11, 2015

TOPIC: Solidary Obligations

22
FACTS:

On February 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses Manalastas)
executed a Real Estate Mortgage (REM) in favor of respondent China Banking Corporation
(Chinabank) over two real estate properties to secure a loan intended as working capital for their
rice milling business.

During the next few years, Spouses Manalastas executed several promissory notes (PNs) in favor
of Chinabank. In two of the PNs, petitioners Estanislao and Africa Sinamban (spouses
Sinamban) signed as co-makers. Spouses Estanislao subsequently failed to pay the
obligation and after the mortgage was foreclosed, There still remained a 1.7M obligation which
prompted Chinabank to file a Complaint for sum of money against the spouses Manalastas and
the spouses Sinamban before the RTC.

The complaint alleged that they reneged on their loan obligations under the PNs which the
spouses Manalastas executed in favor of Chinabank on different dates. They averred that they do
not recall having executed two PN's and had no participation in the execution of one of the PN.
They however admitted that they signed some PN forms as co-makers upon the request of the
spouses Manalastas who are their relatives; although they insisted that they derived no money or
other benefits from the loans. They denied knowing about the mortgage security provided by the
spouses Manalastas, or that the latter defaulted on their loans. They also refused to acknowledge
the loan deficiency of P1,758,427.87 on the PNs, insisting that the mortgage collateral was worth
more than P10,000,000.00, enough to answer for all the loans, interests and penalties. They also
claimed that they were not notified of the auction sale, and denied that they knew about the
Certificate of Sale and the Statement of Account and insisted thatChinabank manipulated the
foreclosure sale to exclude them therefrom. By way of counterclaim, the Spouses Sinamban
prayed for damages andattorney's fees of 25%, plus litigation expenses and costs of suit.

The RTC ruled in favor of China Bank. On Motion for Reconsideration, the RTC ruled in favor
of the Sps. Sinamban stating that since it was not signed by the Sps Sinamban it would not be
equitable that the said defendants be made solidarily liable for the payment of the said note as
co-makers of their co-defendants and relieved them of liability. The CA ruled the same. Hence,
the petition.

ISSUE:

Whether or not Spouses Sinamban can be held solidarily liable for the deficiency amount

RULING:

23
Yes. The SC modified the CA’s ruling to wit:
1. A co-maker of a PN who binds himself with the maker "jointly and severally" renders
himself directly and primarily liable with the maker on the debt, without reference to his
solvency.
2. Pursuant to Article 1216 of the Civil Code, as well as Paragraph 5 of the PNs, Chinabank
opted to proceed against the co-debtors simultaneously, as implied in its May 18, 1998
statement of account when it applied the entire amount of its auction bid to the aggregate
amount of the loan obligations.

Article 1216 of the Civil Code provides that "[t]he creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully
collected." Article 1252 of the Civil Code does not apply, as urged by the petitioners,
because in the said article the situation contemplated is that of a debtor with several debts
due, whereas the reverse is true, with each solidary debt imputable to several debtors.

3. By deducting the auction proceeds from the aggregate amount of the three loans
due, Chinabank in effect opted to apply the entire proceeds of the auction
simultaneously to all the three loans. This implies that each PN will assume a pro rata
portion of the resulting deficiency on the total indebtedness as bears upon each PN’s
outstanding balance. Contrary to the spouses Sinamban’s insistence, none of the three
PNs is more onerous than the others to justify applying the proceeds according to Article
1254 of the Civil Code, in relation to Articles 1252 and 1253. Since each loan,
represented by each PN, was obtained under a single credit line extended by Chinabank
for the working capital requirements of the spouses Manalastas’ rice milling business,
which credit line was secured also by a single REM over their properties, then each PN is
simultaneously covered by the same mortgage security, the foreclosure of which will also
benefit them proportionately. No PN enjoys any priority or preference in payment over
the others, with the only difference being that the spouses Sinamban are solidarily liable
for the deficiency on two of them.

OLONGAPO CITY v. SUBIC WATER AND SEWERAGE CO., INC

G.R. No. 171626, August 06, 2014

Topic: Solidary Obligations

Facts

24
In 1990, petitioner filed a complaint for sum of money and damages against OCWD. Among
others, petitioner alleged that OCWD failed to pay its electricity bills to petitioner and remit its
payment under the contract to pay.

In 1996, Subic Water took over OCWD’s water operations in Olongapo City.

To finally settle their money claims against each other, petitioner and OCWD entered into a
compromise agreement. The compromise agreement also contained a provision regarding the
parties’ request that Subic Water, Philippines, which took over the operations of the defendant
Olongapo City Water District be made the co-maker for OCWD’s obligations.

In 2003, the petitioner filed a notice of appearance with urgent motion/manifestation and prayed
again for the issuance of a writ of execution against Subic Water. The trial court granted the
motion for execution and directed its issuance against OCWD and/or Subic Water. On appeal,
the CA reversed the RTC’s decision.

Issue:

Whether or not Subic Water may be held solidarily liable for OCWD’s obligations.

Ruling:

No. The Supreme Court held that solidary liability must be expressly stated. In the present case,
the joint and several liability of Subic Water and OCWD was nowhere clear in the agreement.
The agreement simply and plainly stated that petitioner and OCWD were only requesting Subic
Water to be a co-maker, in view of its assumption of OCWD’s water operations. No evidence
was presented to show that such request was ever approved by Subic Water’s board of directors.

Further, OCWD is just a ten percent (10%) shareholder of Subic Water. As a mere shareholder,
OCWD’s juridical personality cannot be equated nor confused with that of Subic Water. It is
basic in corporation law that a corporation is a juridical entity vested with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it.

Under this corporate reality, Subic Water cannot be held liable for OCWD’s corporate
obligations in the same manner that OCWD cannot be held liable for the obligations incurred by
Subic Water as a separate entity. The corporate veil should not and cannot be pierced unless it is
clearly established that the separate and distinct personality of the corporation was used to justify
a wrong, protect fraud, or perpetrate a deception.

25
 ANTONIO TAN vs. COURT OF APPEALS and the CULTURAL CENTER OF THE
PHILIPPINES
G.R. No. 116285, October 19, 2001

Topic: Obligations with a Penal Clause (Interest)

Facts:

Petitioner Antonio Tan obtained two loans each in the total of PHP 4 million from respondent
CCP. However, petitioner defaulted in his payments but after a few partial payments, respondent
restructured his loans, which he also failed to pay.

Petitioner then proposed to respondent CCP a mode of paying the restructured loan. Respondent
did not heed his requests and instead demanded full payment within 10 days from receipt of said
letter.

Later, respondent filed a complaint for collection of a sum of money with the RTC, which
obtained a decision in its favor. On appeal, the petitioner asked for the reduction of the penalties
and charges on his loan obligation, and eliminating the attorney’s fee, which was all denied by
the CA.

Issue:

Whether or not the petitioner is entitled to the reduction of penalties and charges on his loan
obligation.

Ruling:

No. The Supreme Court found no merit in the petitioner’s contention. Article 1226 of the New
Civil Code provides that:

In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code.

26
First, there is an express stipulation in the promissory note permitting the compounding of
interest as provided in the 5th paragraph of the said promissory note. Thus, any penalty interest
not paid, when due, shall earn the legal interest of 12% per annum.

Second, Art. 1226 provides that in obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of non-compliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.

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

Berg v. Magdalena Estates, 92 P 110

FACTS:
In 1943 plaintiff Berg and defendants under Magdalena Estate, Inc. were co-owners of
the Property, Crystal Arcade. One third of it belonged to the Berg and two thirds, to Magdalena
Estate. These parties executed a deed of sale that should either of them sell his share, the other
party will have an irrevocable option to purchase it at the seller’s price. The two eventually had a
disagreement on what really happened with regard to the deal. In 1946, Berg offered his share for
Php 200,000 and was accepted by Magdalena Estate, including the stipulation that Berg was
giving the defendant a period of time which, including the extensions granted, would expire in
1947. Magdalena Estate, Inc. claimed that, in spite of the acceptance of the offer, Berg refused to

27
accept the payment of the price and that because of this, they suffered damages in the amount of
Php100,000.00 and asked for specific performance. Berg argued that this transaction, referred to
by Magdalena Estate, Inc. is not supported by any note or memorandum subscribed by the
parties and that this transaction falls under the statute of frauds and cannot be the basis of the
defendant’s special defense. In an application to sell or dispose of their properties, both parties
filed for separate applications regarding the subject property. In the defendant’s application, it
desired a license in order “to use a portion of the P400,000 requested as a loan from the National
City Bank of New York, Manila, or from any other bank in Manila, together with funds to be
collected from old and new sales of his real estate properties, for the purchase of the one-third
(1/3) of the Crystal Arcade property in the Escolta, Manila, belonging to Mr. Ernest Berg. The
lower court found that there was no agreement reached between the parties regarding the
purchase and sale of the property in question, it granted the case in favor of the petitioner.

ISSUE:
Whether the term of payment stipulated in the defendant’s application for license to
sell/purchase, “until they have obtained Php 400,000 from the National City Bank of New York,
or after it has obtained funds from other sources” is in line with the Civil Code

RULING:
Yes. The term of payment stipulated in the defendant’s application for license to
sell/purchase, “until they have obtained Php 400,000 from the National City Bank of New
York, or after it has obtained funds from other sources”,is in line with the Civil Code (Art.
1125).
A day certain is understood to be that which must necessarily arrive, even though it is unknown
when. In order that an obligation may be with a term, it is, therefore, necessary that it should
arrive, sooner or later; otherwise, if its arrival is uncertain, the obligation is conditional. To
constitute a term, the period must end on a day certain. In considering this article as to which the
defendant relies for the enforcement of its right to buy the property, it would seem that it is not a
term, but a condition. Considering the first alternative, that is, until defendant shall have obtained
a loan from the National City Bank of New York – it is clear that the granting of such loans is
not definite and cannot be held to come within the terms “day certain” provided for in the Civil
code, for it may or it may not happen. The loan did not materialize. And if we consider that the
period given was until such time as the defendant could raise money from other sources, we also
find it to be indefinite and contingent and so it is also a condition and not a term within the
meaning of the law. Both parties did not put the terms in their agreement clearly in writing. The
lower courts’ judgment is affirmed.

Nacar v. Gallery Frames, 13 August 2013

FACTS:

28
 Dario Nacar filed for constructive dismissal against Gallery Frames before the NLRC.
Labor Arbiter rendered a decision in Nacar’s favour and he was awarded backwages and
separation pay in lieu of reinstatement, total amount of which is P158,919.92. Despite appeals by
respondent all the way to the Supreme Court, Gallery Frames lost and a writ of execution was
issued by the arbiter, and this time the amount is P471,320.31 Respondents filed a Motion to
Quash Writ of Execution, arguing, among other things, that since the Labor Arbiter awarded
separation pay of P62,986.56 and limited backwages of P95,933.36, no more recomputation is
required to be made of the said awards. They claimed that after the decision becomes final and
executory, the same cannot be altered or amended anymore. The amount was recomputed to
P147,560.19. A writ of execution was issued, until Nacar received this amount. Nacar then filed
a Manifestation and Motion praying for recomputation of the monetary award to include the
appropriate interests.

ISSUES:
Whether or not the legal rate of interest applied in this case is 12%

RULING:
In the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the
rate allowed in judgments shall no longer be twelve percent (12%) per annum but will now be
six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not retroactively. Consequently, the twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new
rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. When
the judgment of the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.

29
 Loadmasters Customs Services, Inc. v. Glodel Brokerage Corporation and R & B
Insurance Corporation
G.R. No. 179446, January 10, 2011
MENDOZA, J.

Facts:
Columbia Wire and Cable Corporation (Columbia) insured a cargo of copper cathodes through
R&B Insurance Corporation (R&B). Columbia also engaged the services of Glodel Brokerage
Corporation (Glodel) for the transport of the cargo to Columbia facilities. Glodel then engaged
the services of Loadmasters Customs Services (Loadmasters) for the delivery of said cargo to
Columbia. Out of 12 trucks, owned by Loadmasters, used to deliver the cargo of Columbia, only
11 made it to their respective destinations. /span>Columbia claimed the amount of loss from
R&B, which sued both Glodel and Loadmasters. The RTC ruled in favor of R&B, but did not
hold Loadmasters liable. Both R&B and Glodelappealed the judgement. The Court of Appeals
modified the decision of the RTC and ruled that Loadmasters, being the agent of Glodel, is liable
to Glodel for all the damages it might be required to pay.

Issue:
Whether or not Loadmasters is an agent of Glodel, and whether or not it may be held liable under
the transaction between Glodel and Columbia.

Ruling:
Petition is partly meritorious.

Civil Law: Glodel and Loadmasters are both common carriers, as they hold out their carriage
services to the public. As such, under the Civil Code, they are mandated to show extraordinary
diligence in the conduct of transport. In the case at bar, both Glodel and Loadmasters were
negligent as the cargo failed to reach its destination. Loadmasters failed to ensure that its
employees would not tamper with the cargo. Glodel failed to ensure that Loadmasters is
sufficiently capable of completing the delivery. Glodel and Loadmasters are therefore joint
tortfeasors and are solidarily liable to R&B Insurance.

Loadmasters cannot be considered an agent of Glodel. Loadmasters in no way represented itself

as such, and in the transfer of cargo, did not represent itself as doing such in behalf of Glodel. In
fact, Loadmasters is not privy to the agreement between Glodel and Columbia. It cannot be
considered an agent of Glodel, and cannot be held liable to Glodel.

30
 Tomimbang v. Tomimbang,

G.R. No. 165116 August 2009

DEL CASTILLO, J.

FACTS:

The petitioner and respondent are siblings. Their parents gave the petitioner an eight-door
apartment at 149 Santolan Road, Murphy, Quezon City. Petitioner was unable to obtain a loan
from the PAG-IBIG Fund, so respondent offered to extend a credit line to petitioner on the
following terms: (1) petitioner shall keep a record of all advances; (2) petitioner shall begin
paying the loan upon completion of the renovation; (3) upon completion of the renovation, a loan
and mortgage agreement based on the amount of the advances made shall be executed by
petitioner and respondent; and (4) the loan agreement shall shall contain comfortable terms and
conditions which petitioner could have obtained from PAG-IBIG.

A squabble between the siblings ensued, resulting in a new agreement under which the
petitioner was to begin making monthly payments on her loan. Respondent demanded that
petitioner turn over all records pertaining to the cash advances for the renovations. Petitioner
then made monthly payments of P18, 700.00, for a total of P93, 500.00, from June to October of
1997. Petitioner never denied that she began making such monthly payments. Following that, the
petitioner was unable to be located and stopped making monthly payments. As a result, the
petitioner was served with a complaint demanding repayment of the loan plus interest. The
petitioner contended that the loan is not yet due and demandable because the apartment's
renovation is not yet complete.

ISSUE:

Is the petitioner's obligation is due and demandable?

RULING:

Yes. The petitioners' contention that the loan is not yet due and demandable because of
the suspensive condition – the completion of the renovation of the apartment units - has not yet
been fulfilled is unmeritorious.

Petitioner stated in her Answer with Counterclaim that she agreed and complied with
respondent's demand for her to begin paying her loan, since she believed this was in accordance
with her commitment to pay whenever she was able. Her partial performance of her obligation is
unmistakable proof that indeed the original agreement between her and respondent had been

31
novated by the deletion of the condition that payments shall be made only after completion of
renovations. Hence, by her very own admission and partial performance of her obligation, there
can be no other conclusion but that under the novated agreement, petitioner's obligation is
already due and demandable.

Article 1291 of the Civil Code provides, thus: Obligations may be modified by: (1) Changing
their object or principal conditions; (2) Substituting the person of the debtor; (3) Subrogating
a third person in the rights of the creditor.

With the foregoing finding that petitioner's obligation is due and demandable, there is no
longer any need to discuss whether petitioner's disappearance from the family compound
prevented the fulfillment of the original condition, necessitating application of Article 1186 of
the Civil Code, or whether the obligation is one with a condition or a period.

J Plus Asia Development Corp. v. Utility Assurance Corp.

G.R. No. 199650, 26 June 2013

J. Villarama, Jr.

Facts:

32
Martin Mabunay with petitioner J Plus Corporation entered into a construction agreement to
build a 72-room condominium/hotel. Respondent Utility Assurance Corporation acted as a surety
by providing a Performance Bond equivalent to 20% down payment.

On the other hand, following inspection, only 31.39% of the project was completed; as a result,
Chairman Lee of J Plus Corporation terminated the contract and filed for arbitration with
damages. Mabunay, on the other hand, claimed that the delay was caused by the retrofitting and
other works ordered by Mr. Lee.

Later, respondent and Mabunay were found jointly and severally guilty by the Construction
Industry Arbitrary Commission. The CA reversed the judgement, ruling that Mabunay had not
experienced any delay, pointing out that the obligation to perform or finish the project was not
yet demandable when the petitioner canceled the contract because the agreed completion date
was still more than one month away. Because the parties foresaw a delay in the completion of the
entire project, the CA ruled that the contractor's inability to catch up with the schedule of work
activities did not constitute a delay entitling the contractor to damages.

Issues:

Is the stipulation allowing the confiscation of contractor’s performance bond partakes of the
nature of a penalty clause?

Ruling:

Yes, the stipulation allowing the confiscation of contractor’s performance bond partakes of the
nature of a penalty clause.

A penalty clause, expressly recognized by law, is an accessory undertaking to assume greater

liability on the part of the obligor in case of breach of an obligation. It functions to strengthen the
coercive force of obligation and to provide, in effect, for what could be the liquidated damages
resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity
without the necessity of proof on the existence and on the measure of damages caused by the
breach. It is well-settled that so long as such stipulation does not contravene law, morals, or
public order, it is strictly binding upon the obligor.

In this case, the plain and unambiguous terms of the Construction Agreement authorize petitioner
to confiscate the Performance Bond to answer for all kinds of damages it may suffer as a result
of the contractor’s failure to complete the building. Having elected to terminate the contract and
expel the contractor from the project site under Article 13 of the said Agreement, petitioner is
clearly entitled to the proceeds of the bond as indemnification for damages it sustained due to the
breach committed by Mabunay. Such stipulation allowing the confiscation of the contractor’s
performance bond partakes of the nature of a penalty clause.

Thus, the stipulation allowing the confiscation of contractor’s performance bond partakes of the
nature of a penalty clause

33
 RGM INDUSTRIES, INC., vs. UNITED PACIFIC CAPITAL CORPORATION,
REYES, J.

Facts:
The respondent is a domestic corporation engaged in the business of lending and financing. On
March 3, 1997, it granted a thirty million peso short-term credit facility in favor of the petitioner.
The loan amount was sourced from individual funders on the basis of a direct-match... facility for
which a series of promissory notes were issued by the petitioner for the payment of the loan.
The petitioner failed to satisfy the said promissory notes as they fell due and the loan had to be
assumed in full by the respondent which thereby stepped into the shoes of the individual funders.
t a consolidated promissory note in the principal amount of P27,852,075.98 for a term of
fourteen (14) days and maturing on April 28, 1998. The stipulated interest on the consolidated
promissory note... was 32% per annum. In case of default, a penalty charge was imposed in an
amount equivalent to 8% per month of the outstanding amount due and unpaid computed from
the date of default.
The petitioner failed to satisfy the consolidated promissory note, the principal balance of which
as of April 28, 1998 was P27,668,167.87.
The respondent thus sent demand letters to the petitioner but the latter failed to pay and instead
asked for restructuring of the loan. The respondent declined the request and on October 5, 1999,
filed the herein complaint for collection of sum of money against the... petitioner.
The petitioner did not dispute the loan it owes but claimed that the agreed interest rate was fixed
at 15.5% per annum and not the varying interest rates imposed by the respondent which reached
as high as 40% per annum. The petitioner asserted that the respondent unilaterally... imposed the
increased interest rates in violation of the principle of mutuality of contracts.
On appeal, the CA affirmed the RTC's judgment but modified the interest rates and penalty
charges imposed.
Issues:
Its motion for reconsideration[7] of the foregoing issuance having been denied,[8] the petitioner
interposed the present petition arguing that the modified interest rates and penalty charges
decreed by the CA are still exorbitant and... that the CA failed to appreciate the partial payments
already made when it upheld the amount of P27,668,167.87 as petitioner's outstanding balance.
Ruling:
he petition is partially impressed with merit.
We affirm the interest rate decreed by the CA. Stipulated interest rates are illegal if they are
unconscionable and courts are allowed to temper interest rates when necessary. In exercising this
vested power to determine what is iniquitous and unconscionable, the Court must... consider the
circumstances of each case. What may be iniquitous and unconscionable in one case, may be just
in another.[10]

34
WHEREFORE, in consideration of the foregoing, the Petition is hereby PARTLY GRANTED.
The Decision dated July 23, 2010 of the Court of Appeals in CA-G.R. CV No. 87727 is
AFFIRMED with the MODIFICATIO... the Petition is hereby PARTLY GRANTED. The
Decision dated July 23, 2010 of the Court of Appeals in CA-G.R. CV No. 87727 is AFFIRMED
with the MODIFICATIONS that: (1) the penalty charge is reduced to
1% per month or 12% per annum; and (2) the attorney's fees is reduced to 1% of the total unpaid
obligation.

RISMA CONSTRUCTION & DEVELOPMENT CORPORATION v. ARTHUR F.

MENCHAVEZ
G.R. No. 160545, 09 March 2010

FACTS:
On December 8, 1993, Pantaleon, the President and Chairman of the Board of PRISMA,
secured a P1M loan from the respondent, with a monthly interest obligation of P40,000.00
payable over a period of six months, or a total liability of P1,240,000.00. Pantaleon issued a
promissory to guarantee repayment of the loan. As officially authorized by the PRISMA
Board of Directors, Pantaleon executed the promissory note in his own capacity. The
petitioners were given six months to repay the amount in full.

Respondent discovered that as of January 4, 1997, the petitioners still owed a sum of
P1,364,151.00, to which respondent imposed a 4% monthly interest. Respondent filed a case
for money to enforce the outstanding balance plus 4% monthly interest on August 28, 1997.
The petitioners acknowledged the P1,240,000.00 loan in their answer, but they refuted the
agreement to pay 4% interest per month, claiming that the rate was not specified in the
promissory note. In addition, Pantaleon refuted claims that he assumed personal liability for
the debt and made promises that it would be repaid within six months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a loan
that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-
month period. RTC ordered the petitioners to jointly and severally pay the respondent the
amount of P3,526,117.00 plus 4% per month interest from February 11, 1999, until fully
paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly
interest. CA favored respondent but noted that the interest of 4% per month, or 48% per
annum, was unreasonable and should be reduced to 12% per annum. MR denied hence this
petition.

ISSUE:

35
 Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of
interest apply to the 6-month payment period only or until full payment of the loan?

RULING:
Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12% per
annum shall apply. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing.

Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

The facts show that the parties agreed to the payment of a specific sum of money of
P40,000.00 per month for six months, not to a 4% rate of interest payable within a 6-month
period. No issue on the excessiveness of the stipulated amount of P40,000.00 per month was
ever put in issue by the petitioners; they only assailed the application of a 4% interest rate,
since it was not agreed upon

SPOUSES FLORENTINO T. MALLARI and AUREA V. MALLARI, vs. PRUDENTIAL

BANK (now BANK OF THE PHILIPPINE ISLANDS)
G.R. No. 197861, June 5, 2013
PERALTA, J.:

FACTS:

▪ In 1984, petitioner Florentino T. Mallari (Florentino) obtained from respondent

Prudential Banka loan in the amount of P300,000.00 as evidenced by Promissory Note
the loan was subject to an interest rate of 21% per annum (p.a.), attorney's fees equivalent
to 15% and, in case of default, a penalty and collection charges of 12% p.a. of the total
amount due.

▪ Petitioner executed a Deed of Assignment wherein he authorized the respondent bank to

pay his loan with his time deposit with the latter in the amount ofP300,000.00.

▪ Petitioners obtain again from respondent bank another loan of P1.7 million. They
stipulated that the loan will bear 23% interest per annum, attorney's fees equivalent to
15% per annum and penalty and collection charges of 12% p.a. Petitioners executed a
Deed of Real Estate Mortgage in favor of respondent bank covering petitioners' property
for the said loan.

36
 ▪ Petitioners failed to settle their loan obligations with respondent bank, thus, the latter sent
a demand letter to the former for them to pay their obligations.

▪ Respondent bank filed with the RTC a petition for the extrajudicial foreclosure of
petitioners' mortgaged property for the satisfaction of the latter's obligation
ofP1,700,000.00 secured by such mortgage.

▪ Petitioners filed a complaint for annulment of mortgage, deeds, injunction, preliminary

injunction, temporary restraining order and damages claiming, among others, that: (1)
The P300,000.00 loan obligation should have been considered paid, because the time
deposit with the same amount already been assigned to respondent bank; (2) respondent
bank still added theP300,000.00 loan to the P1.7 million loan obligation for purposes of
applying the proceeds of the auction sale; and (3) they realized that there were onerous
terms and conditions imposed by respondent bank when it tried to unilaterally increase
the charges and interest over and above those stipulated.

▪ Respondent bank filed its Answer with counterclaim arguing that: (1) the interest rates
were clearly provided in the promissory notes, which were used in computing for interest
charges; (2) petitioners' time deposit was made to apply for the payment of interest of
their P300,000.00 loan; and (3) the statement of account provided for a computation of
interest and penalty charges since the proceeds of petitioners' time deposit was applied to
the payment of interest and penalty charges for the preceding period. Respondent bank
also claimed that petitioners were fully apprised of the bank's terms and conditions.

ISSUE:

▪ Whether or not the 23% p.a. interest rate and the 12% p.a. penalty charge on petitioners’
loan to which they agreed upon is excessive or unconscionable.

RULING:

▪ No, the parties are free to enter into agreements and stipulate as to the terms and
conditions of their contract, but such freedom is not absolute.

▪ As Article 1306 of the Civil Code provides, "The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy."

37
 ▪ Hence, if the stipulations in the contract are valid, the parties thereto are bound to comply
with them, since such contract is the law between the parties.

▪ In this case, petitioners and respondent bank agreed upon on a 23% p.a. interest rate on
the P1.7 million loan. However, petitioners now contend that the interest rate of 23% p.a.
imposed by respondent bank is excessive or unconscionable. We said that we need not
unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, unconscionable and exorbitant, hence, the
stipulation was void for being contrary to morals. We do not consider the interest rate of
23% p.a. agreed upon by petitioners and respondent bank to be unconscionable.

▪ Jurisprudence establish that the 24% p.a. stipulated interest rate was not considered
unconscionable, thus, the 23% p.a. interest rate imposed on petitioners' loan in this case
can by no means be considered excessive or unconscionable.
▪ We also do not find the stipulated 12% p.a. penalty charge excessive or unconscionable.
The 1% surcharge on the principal loan for every month of default is valid. It is an
accessory undertaking to assume greater liability on the part of an obligor in case of
breach of an obligation Here, petitioners defaulted in the payment of their loan obligation
with respondent bank and their contract provided for the payment of 12% p.a. penalty
charge, and since there was no showing that petitioners' failure to perform their
obligation was due to force majeure or to respondent bank's acts, petitioners cannot now
back out on their obligation to pay the penalty charge.

▪ A contract is the law between the parties and they are bound by the stipulations therein.

Ignacio v. Ragasa,
G.R. 227896, January 29, 2020
Peralta, C.J.

FACTS:

Petitioners engaged, on an exclusive basis, the services of the respondents, who are both licensed
real estate brokers, to look for and negotiate with a person or entity for a joint venture project
involving petitioners’ undeveloped and the developed subdivision sites. The contract was
embodied in the Authority to Look and Negotiate for a Joint Venture Partner, wherein the
petitioners will pay the respondents a commission equivalent to 5% of the price of the properties.

38
Respondents met with Mr. Porfirio Yusingbo, Jr., the General Manager of Woodridge Properties,
Inc., and they presented to him the different subdivisions and project sites available for
investment. Woodridge sent respondents a formal proposal for a joint venture agreement with
the petitioners covering the Teresa Park. The petitioners met with the representatives of
Woodridge to discuss the prices of the properties, and Woodridge likewise intimated that it
would develop both the Krause Park and the Teresa Park. After the meeting, however,
petitioners stopped communicating with the respondents. Several attempts were made by the
respondents to contact the petitioners to follow-up on the proposal of Woodridge, but to no
avail.

Sometime thereafter, respondents learned that the petitioners continued to negotiate with
Woodridge, and this led to the execution of two joint venture agreements between the petitioners
and Woodridge, covering the Krause Park. Respondents demanded payment of their commission
from the petitioners. Petitioners contended that they were not agreeable with the respondents’
proposal to sell the lots below the prevailing market value with no escalation clause, and that the
sale of the Krause Park and the Teresa Park was made through the joint efforts of their
consultants.

ISSUE:

Whether or not the petitioners have an obligation to pay brokers’ fees to the

respondent. RULING:

In Medrano v. Court of Appeals, the Court held that “when there is a close, proximate, and
causal connection between the broker’s efforts and the principal’s sale of his property – or joint
venture agreement, in this case, the broker is entitled to a commission.”

The proximity in time between the meetings held by the respondents and Woodridge and the
subsequent execution of the joint venture agreements leads to a logical conclusion that it was the
respondents who brokered it. Likewise, it is inconsequential that the authority of the respondents
as brokers had already expired when the joint venture agreements over the subject properties
were executed. The negotiation for these transactions began during the effectivity of the
authority of the respondents, and these were carried out through their efforts. Thus, the
respondents are entitled to a commission.

Security Bank v. Sps. Roadrigo

G.R. No. 192934, 27 June 2018
J. Jardeleza

Facts:
In 1996, Security Bank granted the spouses Mercado a revolving P 1,000,000.00-line
credit, following the bank's terms and conditions and the stipulations on interest stated within. To
secure the credit line, the petitioners mortgaged five properties in Batangas in favor of Security

39
Bank; said properties include one property in Lipa City, one in San Jose, and three in Batangas
City, all within the province of Batangas.
Upon a subsequent default in payment, the respondent moves to foreclose the said
properties, with notices of said foreclosure published in newspapers of general circulation once a
week for three weeks. The respondent bank also published an erratum of the technical
descriptions of the properties involved but only did so once. Upon the bidding for the foreclosure
sale in October 1999, Security Bank was awarded the properties as winning bidders.
In September 2000, the spouse Mercado offered to redeem the foreclosed properties for
P10,000,000.00, which the respondent refused with a counter-offer of P15,000,000.00. A month
later, spouses Mercado filed for the annulment of the sale, alongside a temporary restraining
order, with the RTC of Batangas City.
In contrast, Security Bank filed for an ex-parte petition to issue a writ of possession over
the parcels of land. After that, the two cases were consolidated before Branch 84 of the RTC. In
February 2007, the RTC declared in its decision that the foreclosure sales be void, as well as the
provision for interest rates in the credit line agreement for "potestative or solely based on the will
of Security Bank," and the sum of P8,000,000.00 to be the true and correct obligation of the
spouses, Mercado, to Security Bank.
Upon reconsideration, the RTC amended its decision to exclude the parcel of land in Lipa
City from the decision as it was outside its jurisdiction and modified the obligation of petitioners
to P7,500,000.00 with interest until fully paid. On appeal, the Court of Appeals affirmed the
RTC decision with modification, ordering the spouse Mercado to pay P7,516,880.00 with
interest until fully paid to Security Bank.

Issues:
1. Whether or not the foreclosure sales in Batangas City and San Jose, Batangas, valid?
2. Whether or not the provision on interest rates in the credit line agreement violative of
the principle of mutuality of contracts?

Ruling:
1. No, the foreclosure sales of the properties in Batangas City and San Jose, Batangas,
are void of non-compliance with the publication requirement of the notice of sale.
Act No. 3135 provides for the statutory requirements for a valid extrajudicial
foreclosure sale, from which Security Bank deviated, constituting a jurisdictional
defect and rendering the contract voidable.

The publication of a single erratum in the technical description of the properties

did not cure the defect, as initially pointed out by the RTC, saying that the "act of
making only one corrective publication in the publication requirement, instead of
three (3) corrections is a fatal omission committed by the mortgagee bank."

40
 2. Yes, the interest provisions in the revolving credit line agreement and its addendum
violate the principle of mutuality of contracts. The authority to change the interest
rate was given to Security Bank alone as the lender, without the need for the written
permission of the spouses Mercado.

Also, the interest rate to be imposed is determined solely by Security Bank for
lack of a stated, valid reference rate. This petition was denied, but modifications
were made with regard to the decision of the Court of Appeals. The petitioners were
ordered to pay Security Bank Corporation the sum of P8,317,756,71, representing
the amount of deficiency, including interest and penalty. The principle of mutuality
of contracts was applied to the matter at hand, as found in Article 1308 of the New
Civil Code, which states that contracts must bind both contracting parties. Its validity
or compliance cannot be left to the will of one of them.

The binding effect of any agreement between parties to a contract is premised on

two settled principles: (1) that any obligation arising from the contract has the force
of law between the parties; and (2) that there must be mutuality between the parties
based on their essential equality. As such, any contract which appears to be heavily
weighted in favor of one of the parties to lead to an excessive result is void.

Likewise, any stipulation regarding the validity or compliance of the contract that
is potestative or is left solely to the will of one of the parties is invalid. This holds not
only to the contract's original terms but also to its modifications. Consequently, any
change in a contract must be made with the consent of the contracting parties and
must be mutually agreed upon. Otherwise, it has no binding effect.

Secretary of the Department of Public Works and Highways v.

Tecson, G.R. No. 179334, April 21, 2015
Peralta, J.
FACTS:

In 1940, the Department of Public Works and Highways took respondents-movants' subject
property without the benefit of expropriation proceedings for the construction of the MacArthur
Highway. In a letter dated December 15, 1994, respondents-movants demanded the payment of
the fair market value of the subject parcel of land. Celestino R. Contreras, then District Engineer
of the First Bulacan Engineering District of the DPWH, offered to pay for the subject land at the
rate of P0.70 per square meter, per Resolution of the Provincial Appraisal Committee of
Bulacan. Unsatisfied with the offer, respondents-movants demanded the return of their property,

41
or the payment of compensation at the current fair market value. Hence, the complaint for
recovery of possession with damages filed by respondents-movants. Respondents-movants were
able to obtain favorable decisions in the Regional Trial Court and the Court of Appeals, with the
subject property valued at ₱1,500.00 per square meter, with interest at 6% per annum.

ISSUE:

Whether or not there should be penalty against the DPWH.

RULING:

Citing the views of Justices Presbitero J. Velasco, Jr. and Marvic Mario Victor F. Leonen in their
Dissenting and Concurring Opinion and Separate Opinion, respectively, respondents-movants
insist that gross injustice will result if the amount that will be awarded today will be based
simply on the value of the property at the time of the actual taking. Hence, as proposed by
Justice Leonen, they suggest that a happy middle ground be achieved by meeting the need for
doctrinal precision and the thirst for substantial justice.

We hold that putting to rest the issue on the validity of the exercise of eminent domain is neither
tantamount to condoning the acts of the DPWH in disregarding the property rights of
respondents movants nor giving premium to the government's failure to institute an expropriation
proceeding. This Court had steadfastly adhered to the doctrine that its first and fundamental duty
is the application of the law according to its express terms, interpretation being called for only
when such literal application is impossible. To entertain other formula for computing just
compensation, contrary to those established by law and jurisprudence, would open varying
interpretation of economic policies - a matter which this Court has no competence to take
cognizance of.

NAZARENO v. COURT OF APPEALS

G.R. No. 138842, 18 October 2000

Mendoza

FACTS:
During their marriage, Maximino Nazarano, Sr. and Aurea Poblete acquired properties in
Quezon City. After their death, Romeo, one of their children, filed an intestate case in the

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 Court of First Instance of Cavite. He was thereafter appointed as the administrator. In the
course of the intestate proceedings, Romeo discovered that his parents executed several
deeds of sale in January 1970 conveying a number of real properties to his sister, Natividad.
One of the properties involved six lots in Quezon City. By virtue of the said deed, transfer
certificates of title were issued to Natividad. Among the lots covered was Lot 3-B which was
occupied by Romeo and his wife, and by his brother, Maximino, Jr.

Unknown to Romeo, Natividad sold Lot 3-B to Maximino, Jr. When he found out of the
sale, Romeo and his wife locked Maximino, Jr. of of the house. As such, Maximino, Jr. filed
an action for recovery of possession and damages. The trial court ruled in favor of
Maximino, Jr. which the Court of Appeals affirmed. On Jun 1988, Romeo in turn filed for
the annulment of sale against Natividad and Maximino, Jr on the ground of lack of
consideration. Natividad and Maximino, Jr. then filed a third-party complaint seeking the
annulment of the transfer to Romeo and cancellation of his title.

During the trial, Romeo presented evidence to show that Maximino and Aurea never
intended to sell the six lots to Natividad and Natividad was only to hold the said lots in trust
for her siblings. He presented a Deed of Partition and Distribution dated June 1962. Further,
Romeo testified that the deeds were created for consideration, but they never really paid any
amount for the supposed sale in order to avoid payment of inheritance taxes. On the other
hand, Natividad and Maximino, Jr. claimed that she bought the properties because she was
the one financially able to do so.

The trial court declared thereafter the nullity of the January 1970 Deed of Sale and ordered
that the remaining properties were held in trust by Natividad in favor of his brother, Jose. On
appeal, the Court of Appeals modified the decision in the sense that the titles of Lot 3 and
Lot 3-B were canceled and restored to the estate of Maximino, Sr.

ISSUE:
Whether or not the Deed of Sale is valid, thus transferring ownership to Natividad.

RULING:
The Supreme Court ruled in the negative. The Court held that the sale was simulated since
there was lack of consideration. The ownership therefore never transferred to Natividad.
Nevertheless, the Court ruled that the intention of Maximino, Sr. and Aurea to transfer the
subject properties to Natividad was present in order to escape payment of inheritance taxes.

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 If at all, there was an implied trust constituted under Art. 1449 of the Civil Code which
states that there is implied trust

when a donation is made to a person, but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part
thereof.

Furthermore, Art. 1061 provides that every compulsory heirs who succeeds with other
compulsory heirs must bring into the mass of the estate any property or right which may
have received from the decedent, during the lifetime of the latter, by way or donation or
gratuituous title, for the determination of the legitime of each hair.

Sps. Lam v. Kodak, Phil. G.R. No. 167615, January 11, 2016
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 in Tagum,
Davao Province. The Lam Spouses issued postdated checks amounting to P35,000.00 each for 12
months as payment for the first delivered unit. 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

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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.
ISSUE
Whether the contract between petitioners and respondent pertained to obligations that are
severable, divisible, and susceptible of partial performance.
RULING
The Letter Agreement contained an indivisible obligation. Both parties rely on the Letter
Agreement as basis of their respective obligations. Written by respondent's Jeffrey T. Go and
Antonio V. Mines and addressed to petitioner Alexander Lam, the Letter Agreement
contemplated a "package deal" involving three (3) units of the Kodak Minilab System 22XL. The
intention of the parties is for there to be a single transaction covering all three (3) units of the
MinilabEquipment. 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."

EPARWA VS. LICEO DE CAGAYAN UNIVERSITY

G.R. NO. 150402 November 28, 2006.
J. CARPIO
Facts:

Eparwa and Liceo de Cagayan University [LDCU], through their representatives, entered into a
Contract for Security Services. Thereafter, 11 security guards whom Eparwa assigned to LDCU
from filed a complaint before the NLRC. The complaint was filed against both Eparwa and
LDCU for underpayment of salary, legal holiday pay, 13th month pay, rest day, service incentive
leave, night shift differential, overtime pay, and payment for attorney’s fees. To protect its
interest LDCU made a cross-claim and prayed that Eparwa should reimburse LDCU for any

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payment to the security guards. The LA found that claim of the Security guards meritorious and
order the same to be paid by Eparwa and LDCU. LDCU

Issue:

Whether or not LDCU alone ultimately liable to the security guards for the wage differentials
and premium for holiday and rest day pay.

Held:

No. Adopting the ruling in Eagle Security Agency vs. NLRC which has the same facts in this
case, the SC ruled- this joint and several liability of the contractor and the principal is mandated
by the Labor Code to assure compliance of the provisions therein including the statutory
minimum wage [Article 99, Labor Code]. The contractor is made liable by virtue of his status
as direct employer. The principal, on the other hand, is made the indirect employer of th
contractor’s employees for purposes of paying the employees their wages should the contractor
be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of
the workers’ performance of any work, task, job or project, thus giving the workers ample
protection as mandated by the 1987 Constitution [See Article II Sec. 18 and Article XIII Sec.
3]. xxxx However, in the instant case, the contract for security services had already expired
without being amended consonant with the Wage Orders. It is also apparent from a reading of a
record that EAGLE does not now demand from PTSI any adjustment in the contract price and
its main concern is freeing itself from liability. Given these peculiar circumstances, if PTSI
pays the security guards, it cannot claim reimbursement from EAGLE. But in case it is EAGLE
that pays them, the latter can claim reimbursement from PTSI in lieu of an adjustment,
considering that the contract, [sic] had expired and had not been renewed. For the security
guards, the actual source of the payment of their wage differentials and premium for holiday
and rest day work does not matter as long as they are paid. This is the import of Eparwa and
LDCU’s solidary liability.Creditors, such as the security guards, may collect from anyone of the
solidary debtors. Solidary liability does not mean that, as between themselves, two solidary
debtors are liable for only half of the payment. LDCU’s ultimate liability comes into play
because of the expiration of the Contract for Security Services. There is no privity of contract
between the security guards and LDCU, but LDCU’s liability to the security guards remains
because of Articles 106, 107 and 109 of the Labor Code. Eparwa is already precluded from
asking LDCU for an adjustment

CARLOS DIMAYUGA, vs. PHILIPPINE COMMERCIAL & INDUSTRIAL BANK and

COURT OF APPEALS
G.R. No. L-42542 August 5, 1991
FACTS:
On February 6, 1962, petitioner borrowed from the plaintiff-respondent, the sum of ten thousand
(P10,000.00) pesos as evidenced by a promissory note executed and signed by Pedro Tanjuatco
and Carlos Dimayuga. The indebtedness was to be paid on May 7, 1962 with interest at the rate
of ten percent (10%) per annum in case of non-payment at maturity as evidenced by and in
accordance with the terms and conditions of the promissory note executed jointly and severally

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by defendants. In the aforementioned promissory note, Carlos Dimayuga bound himself to pay
jointly and severally with Pedro Tanjuatco interest at the rate of 10% per annum on the said
amount of P10,000.00 until fully paid. Moreover, both undertook to "jointly and severally
authorize the respondent Philippine Commercial and Industrial Bank, at its option to apply to the
payment of this note any and all funds, securities or other real or personal property of value
which hands (sic) on deposit or otherwise belonging to anyone or all of us. Upon the default of
the promissors to pay, a complaint was filed on July 11, 1969 by the PCIB for some of money.
Defendant Carlos Dimayuga, however, had remitted to the plaintiff -respondent the amount
totalling P4,000.00 by way of partial payments made from August 1, 1969 to May 7, 1970 as
evidenced by corresponding receipts thereto. These payments were nevertheless applied to past
interests, charges and partly on the principal. On May 28, 1974, the trial court rendered a
decision holding defendants jointly and severally liable to pay the plaintiff the sum of P9,139.60
with interest at 10% per annum until fully paid plus P913.96 as attorneys' fees. On July 11, 1974,
petitioner filed a motion alleging that since Pedro Tanjuatco died on December 23, 1973, the
money claim of the respondents should be dismissed and prosecuted against the estate of the late
Pedro Tanjuatco. On June 22, 1974, the trial court denied the motion for lack of merit.
Not satisfied, the petitioner appealed to the respondent court. The Court of Appeals dismissed the
appeal. Hence, this petition.
ISSUE:
Whether the position of the petitioner that Pedro Tanjuatco having died on December 23, 1973,
the money claim of PCIB should be dismissed and prosecuted against the estate of the late
Tanjuatco.
RULING:
From the evidence presented, there can be no dispute that Carlos Dimayuga bound himself
jointly and severally with Pedro C. Tanjuatco, now deceased, to pay the obligation with PCIB in
the amount of P10,000.00 plus 10% interest per annum. In addition, as above stated, in case of
non-payment, they undertook among others to jointly and severally authorize respondent bank, at
its option to apply to the payment of this note, any and all funds, securities, real or personal
properties, etc. belonging to anyone or all of them. Otherwise stated, the promissory note in
question provides in unmistakable language that the obligation of petitioner Dimayuga is joint
and several with Pedro C. Tanjuatco. It is well settled under the law and jurisprudence that when
the obligation is solidary, the creditor may bring his action in toto against the debtors obligated
in solidum. As expressly allowed by Article 1216 of the Civil Code, the creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously. "Hence, there is
nothing improper in the creditor's filing of an action against the surviving solidary debtors alone,
instead of instituting a proceeding for the settlement of the estate of the deceased debtor wherein
his claim could be filed."

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